ACIT, Patiala V. M/s Patiala Distillers Manufacturers Ltd., Patiala

ITA 1009/CHANDI/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8385 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-09-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 13-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S KEMWAL
• Assessee Lawyers: ASHOK MALIK
• Keywords: Reopening of assessment
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH (B) BEFORE SHRI N.BARATHVAJA SANKAR,VICE PRESIDENT AND MS.SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1009/CHD/2010 ASSESSMENT YEAR .: 2006-07 A.C.I.T.,CIRCLE, V M/S M/S PATIALA DIS TILLERS & PATIALA. MANUFACTURER S LTD., PATIALA. PAN :AAACP-8584H & C.O. NO.39/CHD/2010 IN ITA 1009/CHD/2010 M/S M/S PATIALA DISTILLERS & V A.C.I.T., CIRCLE, MANUFACTURERS LTD., PATIALA PATIALA. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI S.S.KEMWAL ASSESSEE BY: SHRI ASHOK MALIK ORDER PER N.BARATHVAJA SANKAR,VP THIS IS AN APPEAL FILED BY THE REVENUE IN THE CASE OF THE PATIALA DISTILLERS & MANUFACTURERS LTD., PATIALA FO R THE ASSESSMENT YEAR 2006-07 AGAINST THE APPELLATE ORDER DATED 20.05.2010 OF CIT(APPEALS) PATIALA. THE ASSESSEE I S ALSO ON CROSS OBJECTION OBJECTING THE UPHOLDING OF RE-OPENI NG OF THE ASSESSMENT U/S 147 OF THE INCOME TAX ACT, 1961 SUST AINING AN ADDITION OF RS.1,00,000/- MADE BY THE ASSESSING OFF ICER ON ESTIMATE BASIS. 2 2. LET US FIRST TAKE UP THE CROSS OBJECTION FILED B Y THE ASSESSEE. AT THE TIME OF HEARING, LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT PRESSIN G THE GROUND RELATING TO RE-OPENING OF ASSESSMENT U/S 147 AND HE HAS ALSO MADE AN ENDORSEMENT ON THE FACE OF THE SAI D GROUND OF CROSS OBJECTION TO THIS EFFECT. THE LEARNED DEPA RTMENTAL REPRESENTATIVE ALSO HAS NO SERIOUS OBJECTION FOR TH E ASSESSEE'S NOT PRESSING THIS GROUND. IN THIS VIEW O F THE MATTER, THE GROUND RELATING TO RE-OPENING OF ASSESSMENT RAI SED BY THE ASSESSEE IN ITS CROSS OBJECTION IS DISMISSED AS NOT PRESSED FOR. IN RESPECT OF THE OTHER GROUND RELATING TO SU STAINING OF ADDITION OF RS.1,00,000/-, THIS WILL BE DEALT WITH WHILE DEALING THE APPEAL OF THE REVENUE. 3. NOW, LET US TURN TO THE REVENUES APPEAL. THE R EVENUE HAS BROUGHT BEFORE US FOR ADJUDICATION THREE ISSUES . THE FIRST ISSUE IS, WHETHER THE CIT(APPEALS) ERRED IN DELETIN G WELL REASONED ADDITION OF RS.4,00,000/- OUT OF THE TOTAL OF RS.5,00,000/- MADE BY THE ASSESSING OFFICER AFTER R EJECTING THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. RELEVANT GROUND OF APPEAL OF THE REVENUE READS AS UNDER : IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(APPEALS) HAS ERRED IN DELETING THE WELL REASONE D TRADING ADDITION OF RS.4,00,000/- OUT OF THE TOTAL OF RS.5,00,000/- MADE BY THE A.O. AFTER REJECTING THE BOOKS OF ACCOUNT U/S 145(3) IN VIEW OF THE DISCREPANCIES NOTED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO EXPLAIN THE DETAILS/RECORDS BEING MAINTAINED BY IT AND HAVING FAILED TO DO SO, UNDER THE PROVISIONS OF SEC 114 OF 3 THE INDIAN EVIDENCE ACT, THE A.O. WAS JUSTIFIED IN TAKING AN ADVERSE VIEW. 4. THE BRIEF FACTS OF THIS ISSUE ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS O BSERVED THAT ASSESSEE HAS SHOWN BETTER GROSS PROFIT AND NET PROFIT RESULTS AS COMPARED TO PREVIOUS YEAR BUT HE HAS POI NTED OUT CERTAIN DISCREPANCIES WHICH ARE AS FOLLOWS : I. ASSESSEE WAS NOT ABLE TO STATE THE TRANSACTION OF VARIOUS CHEMICALS REQUIRED FOR MANUFACTURING OF LIQUOR AT DIFFERENT STAGES. II) THE ASSESSEE WAS NOT ABLE TO FURNISH THE DETAIL S OF POWER AND FUEL CONSUMED ON DAY TO DAY BASIS. III) THERE IS A VARIATION IN THE YIELD PERCENTAGE W ITH REGARD TO MOLASSES PURCHASED FROM THE GOVERNMENT ACCOUNT AND OF THE ASSESSEE ACCOUNT. IV) THE ASSESSEE WAS NOT ABLE TO EXPLAIN THE BASIS FOR VALUING THE CLOSING STOCK OF MOLASSES AS IN CASE OF SPIRIT IN TANKS THESE ARE TAKEN ON THE BASIS OF DIP MEASUREMENT AND THE SAME IS CERTIFIED BY THE STATE EXCISE AUTHORITIES AND THERE NO CONTROL OF THE STATE EXCISE DEPARTMENT ON THE METHOD OF MEASUREMENT OF MOLASSES. V) ASSESSEE WAS NOT ABLE TO EXPLAIN WHY LOSS DURING BOTTLING PROCESS VARIES FROM 0.87% TO 1.3% ON DAY TO DAY BASIS. VI) HOW THE ASSESSEE HAS GENERATED THE BROKEN BOTTLE SOLD BILL NO.247 TO 250 PERTAINING TO M/S RADICO KHAITAN LTD. 5. THUS, ACCORDING TO THE ASSESSING OFFICER, THE BO OK RESULT OF THE ASSESSEE WAS NOT ACCEPTABLE AND THE PROVISIO NS OF SECTION 145(3) WERE SQUARELY APPLICABLE. THUS, HE MADE A LUMPSUM TRADING ADDITION OF RS.5,00,000/- TO THE TO TAL INCOME OF THE ASSESSEE COMPANY. AGGRIEVED BY THIS ORDER O F THE ASSESSING OFFICER, THE ASSESSEE BROUGHT THE MATTER IN APPEAL 4 BEFORE THE FIRST APPELLATE AUTHORITY. BEFORE THE C IT(APPEALS), THE ASSESSEE'S COUNSEL SUBMITTED AS UNDER : 3.4 REGARDING THE ALLEGED DEFECTS, IT IS ARGUED TH AT IT IS WRONG TO SAY THAT THE RECORD OF CHEMICAL CONSUME D IS NOT MAINTAINED BECAUSE THE SAME IS BEING MAINTAINED YEAR AFTER YEAR WHICH INDICATES HOW MUCH CHEMICAL H AS BEEN USED IN ONE PROCESS OF PRODUCTION WHICH IS NOT FEASIBLE TO PIN POINT IN WHICH PROCESS, HOW MUCH CHEMICAL HAS BEEN CONSUMED. SIMILARLY, THE A.O. HA S WRONGLY STATED THAT RECORD OF FUEL ON DAY TO DAY HA S NOT BEEN GIVEN BECAUSE COMPLETE RECORD IS MAINTAINED. IT WAS ALSO POINTED OUT THAT THE VARIATION OF THE YIEL D PERCENTAGE FROM THE MOLASSES ALWAYS VARIES FROM THE GOVERNMENT ACCOUNT AND FROM THE DEPARTMENT ACCOUNT. THIS POINT WAS ALSO CONSIDERED BY THE LEARNED CIT(APPEALS) WHILE DECIDING THE APPEAL OF THE ASSES SEE IN THE ASSESSMENT YEAR 2005-06 AND ADDITIONS MADE O N THAT ACCOUNT WERE DELETED AND ORDER OF THE CIT(APPEALS) WAS ALSO UPHELD BY THE LEARNED ITAT REGARDING CLOSING STOCK OF MOLASSES VIS--VIS SPIRI T, THE SAME METHOD IS ADOPTED IN BOTH THE CASES YEAR BY YE AR THAT IS THE DIP MEASUREMENT METHOD. THE A.O. HAS WRONGLY STATED THE FACTS. IN RESPECT OF VARIATION DURING THE BOTTLING PROCESS AS ALREADY EXPLAINED THAT THE COMPLETE PRODUCTION PROCESS OF THE ASSESSEE IS UNDE R THE EXCISE CONTROL AND IF THE LOSS IS MORE THAN THE ACCEPTED NORMS THE EXCISE AUTHORITY OBJECTED TO THE SAME AND ADDITIONAL EXCISE DUTIES IS IMPOSED ON THE ASSESSEE. IN THE PROCESS MANUFACTURING LOSS ALWAYS VARIES BUT IF IT IS WITHIN THE LIMIT OF PRESCRIBED UNDER THE EXCISE ACT THE SAME IS ACCEPTED AS CORRECT. THE LEARNED COUNSEL HAS FURTHER EXPLAINED THAT WHILE FI LING THE REPRODUCT IN BOTTLING CERTAIN BOTTLES ARE BROKE N WHICH ASSESSEE KEEPS ASIDE AND AS AND WHEN GOOD PRICE IS RECEIVED THE SAME ARE SOLD. THE SAME METHO D HAS BEEN ADOPTED BY THE ASSESSEE IN HIS BADDI UNIT 5 WHERE BROKEN GLASS BOTTLES WERE SOLD PERTAINING TO M/S RADICO KHAITAN LIMITED. 3.5 IT WAS FURTHER STATED THAT ASSESSEE HAS BEEN MAINTAINING ITS RECORD YEAR TO YEAR ON THE SAME PAT TERN AND SAME WAS ALSO ACCEPTED BY THE DEPARTMENT EITHER AT THE ASSESSMENT PROCEEDING OR AT THE APPELLANT PROCEEDINGS. SO, THERE IS NO JUSTIFICATION WHATSOE VER IN MAKING ADHOC DISALLOWANCE WHILE REJECTING THE BO OKS OF ACCOUNT OF THE ASSESSEE. IT WAS FURTHER ARGUED BY THE COUNSEL OF THE APPELLANT THAT ALL THE DOCUMENT RELATED TO BADDI UNITS WERE EXAMINED AND VERIFIED B Y THE A.O. AND NO DEFECTS WERE POINTED OUT BY HIM. I T WAS FURTHER CONTENDED THAT NO ADHOC ADDITIONS CAN B E MADE IN THE INCOME OF THE ASSESSEE AS PER THE DECIS ION OF DELHI HIGH COURT GIVEN IN THE CASE OF NESTLE IND IA PRIVATE LIMITED 296 ITR 682. SO, IT WAS REQUESTED THAT ALL THE ABOVE STATED ADDITIONS MADE ON CONJECTURES AND SURMISES ARE REQUIRED TO BE DELETED. 6. THE CIT(APPEALS), AFTER CONSIDERING THE SUBMISSI ONS IN THE LIGHT OF THE FACTS OF THE CASE, WAS OF THE VIEW THAT THE ADDITION OF RS.5,00,000/- COULD NOT BE SUSTAINED AS SUCH. HOWEVER, HE SUSTAINED THE ADDITION TO THE EXTENT OF RS.1,00,000/- TO COVER UP SOME LEAKAGE AND ALSO INA DMISSIBLES TO MEET THE ENDS OF JUSTICE. 7. STILL AGGRIEVED BY THIS ORDER OF THE CIT(APPEALS ), THE REVENUE IS ON SECOND APPEAL BEFORE US WITH THIS ISS UE. 8. AT THE TIME OF HEARING, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE CONTENTIONS OF THE ASS ESSING OFFICER AS HIS SUBMISSIONS. PER CONTRA, THE LEARNE D COUNSEL FOR THE ASSESSEE REITERATED THE VERY SAME SUBMISSIONS M ADE BEFORE THE CIT(APPEALS) AS HIS SUBMISSIONS. WE HAVE HEARD THE 6 RIVAL SUBMISSIONS AND CONSIDERED THE FACTS AND MATE RIALS ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT TH E ACCOUNT BOOKS OF THE ASSESSEE WERE BEING ACCEPTED YEAR AFTE R YEAR AND ARE SUBJECT TO CONTROL BY THE EXCISE DEPARTMENT. T HE LEARNED COUNSEL FOR THE ASSESSEE IS ABLE TO MEET WITH VARIO US SHORTCOMINGS POINTED OUT BY THE ASSESSING OFFICER ( AS NARRATED IN THE SUBMISSIONS BEFORE THE CIT(APPEALS) ). THE F ACT OF BETTER GROSS PROFIT AND NET PROFIT HAD ALSO NOT BEEN DENIE D BY THE ASSESSING OFFICER. ALSO THERE IS NO DISPUTE ABOUT T HE FACT THAT THE ADDITION MADE IN THE TRADING ACCOUNT IN THE EAR LIER ASSESSMENT YEAR WAS DELETED BY THE CIT(APPEALS) AN D THE ORDER OF THE CIT(APPEALS) WAS UPHELD BY THE ITAT. IT IS PERTINENT TO NOTE THAT THE METHOD OF ACCOUNTING FOL LOWED BY THE ASSESSEE IS SAME AND IS BEING ACCEPTED FROM YEAR TO YEAR. IN SUCH CIRCUMSTANCES, IT WOULD BE DIFFICULT TO HOLD T HAT THE BOOKS OF ACCOUNT OF THE ASSESSEE COULD NOT BE RELIED UPON . THOUGH THE CIT(APPEALS) WAS ALSO OF THE SAME VIEW, HE HAD SUSTAINED THE ADDITION OF RS.1,00,000/- TO COVER UP SOME LEAK AGE AND ALSO INADMISSIBLES. WE DO NOT FIND ANY INFIRMITY I N HIS ORDER IN SUSTAINING RS.1,00,000/- AND AS SUCH, WE WOULD LIKE TO UPHOLD THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE AND DIS MISS THIS GROUND OF APPEAL OF THE REVENUE AS WELL AS THE ASSE SSEE'S CROSS OBJECTION. 9. NOW, LET US TURN TO THE NEXT ISSUE WHICH IS, WHE THER THE CIT(APPEALS) HAS ERRED IN DELETING ADDITION OF RS.2 ,51,917/- MADE ON ACCOUNT OF EXCESS INTEREST PAID TO PERSO NS SPECIFIED 7 U/S 40A(2)(B) @ 12%. THE RELEVANT GROUND READS AS UNDER : IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.2,51,917/- MADE ON ACCOUNT OF EXCESS INTEREST PA ID TO PERSONS SPECIFIED U/S 40A(2)(B) @ 12% IGNORING T HE FACT THAT THE ASSESSEE COMPANY HAD PAID INTEREST TO BANK ON CC LIMIT @ 11 TO 11.6% ONLY AND, THEREFORE, THE RATIO OF THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF M/S UPPER INDIA PUBLIC HOUSE VS CIT REPORTED AT 117 ITR 569 (S.C) APPLIES. 10. THE BRIEF FACTS, AS CULLED OUT FROM THE ASSESSM ENT ORDER ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF INTEREST P AID TO BANK AND INTEREST PAID TO PERSONS REFERRED TO IN SECTION 40A(2)(B). IN COMPLIANCE THERETO, ASSESSEE FILED INDIVIDUAL LIST OF PERSONS AND HAD WORKED OUT THE DIFFERENCE OF INTEREST PAID TO SUCH PERSONS VIZ-A-VIZ INTEREST PAID TO BANKS ON SIMILAR AMOUNT ADVANCED TO THE PARTIES. THE INTEREST PAID TO BANK ON CREDIT LIMIT RANGED FROM 11 TO 11.60%, WHEREAS INTEREST PA ID TO SUCH PERSONS REFERRED TO IN SECTION 40A(2)(B) WAS AT 12% . THE DETAILS OF EXCESS INTEREST PAID IS AS UNDER : S.NO. NAME OF THE PERSON S/SHRI.MS. INTEREST PAID TO PERSON REFERRED TO IN SEC.40A(2)(B) INTEREST PAID TO BANK ON SIMILAR AMOUNT EXCESS INTEREST PAID 1 SUDARSHAN KUMAR MODI 626268/- 594750/- 31518/- 2 SANJEEV KUMAR MODI 375356/- 356487/- 18869/- 3 TARUN KUMAR MODI 839602/- 797800/- 41802/- 4 RANI MODI 484898/- 460510/- 24388/- 5 RITU MODI 198275/- 188281/- 9994/- 6 SHIVANI MODI 210013/- 199421/- 10592/- 7 JHUMKA MORE 308703/- 293164/- 15539/- 8 HARMUKH RAI MODI 95781/- 92588/- 3193/- 9 KUMARI ASHNA MODI 176654/- 167733/- 8921/- 10 MASTER VARUNAV MODI 206772/- 196330/- 10442/- 11 MASTER AAYUSH KUMAR MODI 178391/- 169382/- 9009/- 12 BABY DIYA MODI 88061/- 83614/- 4447/- 13 BABY ANISHA MORE 106653/- 101267/- 5386/- 14 MASTER SAHIL MORE 49415/- 46564/- 2851/- 8 15 SUDARSHAN KUMAR MODI & SONS (HUF) 269655/- 256060/- 13595/- 16 M/S REAL BEVERAGES PVT.LTD. 672201/- 636475/- 35726/- 17 M/S SABACCHUS DISTILLERY PVT.LTD. 111953/- 106307/- 5645/- TOTAL 251917/- 11. THE ASSESSEE HAS STATED THAT IT HAS PAID INTERE ST ON UNSECURED LOANS RAISED FROM PARTIES REFERRED U/S 40 A(2)(B) OF THE ACT, IBID, AT 12% FOR THE PERIOD UNDER CONSIDER ATION AND THE INTEREST HAS BEEN PAID AS PER THE PREVALENT MARKET RATES. IT WAS FURTHER STATED THAT THESE LOANS HAD BEEN RAISED WIT HOUT PROVIDING ANY SECURITIES TO THESE PARTIES AND MOST OF THEM WERE OLD PARTIES FROM WHOM, LOANS HAD BEEN RAISED IN EAR LIER YEARS AND CONTINUING WITH THE COMPANY. THE ASSESSING OFF ICER, HOWEVER DID NOT ACCEPT THE REPLY OF THE ASSESSEE. H E WAS OF THE OPINION THAT ANY EXPENDITURE/PAYMENT IS EXCESSI VE OR UNREASONABLE, HAVING REGARD TO THE FAIR MARKET VALU E OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSE E, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS DEDUCTION. ACCORDING TO HIM, THE ASSESSEE WAS REQUIRED TO REVIEW THE RAT E OF INTEREST PAYABLE TO THE PERSONS COVERED U/S 40A(2)(B) OF THE ACT AS PER PREVALENT MARKET RATE. IN VIEW OF THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF M/S UPPER INDIA PUBLI C HOUSE V CIT, 117 ITR 569 (S.C) AND THE FACTS OF THE CASE, EXCESSIVE/UNREASONABLE INTEREST OF RS.2,51,917/- TO THE PERSONS MENTIONED IN SECTION 40A(2)(B) WAS DISALLOW ED BY THE ASSESSING OFFICER. 9 12. AGGRIEVED BY THIS ORDER OF THE ASSESSING OFFICE R, THE ASSESSEE MOVED THE MATTER IN APPEAL BEFORE THE FIRS T APPELLATE AUTHORITY. BEFORE THE CIT(APPEALS), LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD PAID A LOW ER INTEREST TO ITS RELATIVES AS WELL AS TO THE BANK WHICH WAS P AID IN THE ASSESSMENT YEAR 2005-06 AND THE SIMILAR ADDITIONS W HICH WERE SAME IN THAT YEAR, WERE DELETED BY THE CIT(APPEALS) AND THAT THE ORDER OF THE CIT(APPEALS) WAS ALSO UPHELD BY TH E ITAT. HE ALSO SUBMITTED THAT THE RATE OF INTEREST PAID CANNO T OTHERWISE BE SAID TO BE HIGHER IN THE FACE OF THE FACT THAT O N SECURED LOANS, THE INTEREST WAS PAID FROM 11 TO 11.60% WHER EAS THE INTEREST TO RELATIVES WAS PAID AT 12% AND THE LOANS FROM RELATIVES BEING UNSECURED, RATE OF 12% WOULD NOT BE SAID TO BE HIGHER. 13. THE LEARNED CIT(APPEALS), AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE'S COUNSEL IN THE F ACTS AND CIRCUMSTANCES OF THE CASE FOLLOWING THE EARLIER ORD ER OF HIS PREDECESSOR AND THAT OF THE ITAT, FACTS AND CIRCUMS TANCES BEING THE SAME, DELETED THE ADDITION MADE BY THE AS SESSING OFFICER OF A SUM OF RS.2,51,917/-. 14. NOW THE REVENUE IS AGGRIEVED AND IS ON SECOND A PPEAL BEFORE US WITH THIS ISSUE. AT THE TIME OF HEARING, LEARNED DEPARTMENTAL REPRESENTATIVE REITERATED THE CONTENTI ONS OF THE ASSESSMENT ORDER AS HIS SUBMISSIONS. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE CIT(APPEALS) (EXTRACTED ELSEWHERE O F THIS ORDER) AS HIS SUBMISSIONS BEFORE US ALSO. 10 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THE FACTS AND MATERIALS ON RECORD. WE FIND THAT SIMILA R ISSUE CAME UP BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEAR 2005 -06 IN THE CASE OF THE SAME ASSESSEE, WHEREIN THE TRIBUNAL HAS HELD AS UNDER BY ITS ORDER DATED 25.05.2009 IN ITA NO. 492/CHANDI/2008; 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. SECTION 40A(2)(B) AUTHORIZES AN ASSESSI NG OFFICER TO DISALLOW ANY EXPENDITURE WHICH, IN HIS OPINION IS IN EXCESS OF THE MARKET RATE OF SERVICES WHERE SUCH PAYMENTS HAVE BEEN MADE TO INTERESTED PERSONS SPECIFIED IN THE SAID SECTION. A PERUSAL O F THE PROVISION CLEARLY POINTS OUT THAT THE ONUS IN THIS REGARD IS ON THE ASSESSING OFFICER TO ESTABLISH THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS IN EXCESS O F THE MARKET RATE OF THE SERVICES ENGAGED. IN THIS C ASE, THE ASSESSING OFFICER NOTES THAT THE INTEREST PAID BY THE ASSESSEE TO THE BANK RANGES FROM 12% TO 14% WHEREAS THE INTEREST PAID TO THE PERSONS SPECIFIED U/S 40A(2)(B) RANGES FROM 11.6% TO 11.85%. IN OUR VIEW, THE REASONS FOR THE HIGHER INTEREST PAID TO THE PE RSONS HAS BEEN SATISFACTORILY EXPLAINED BY THE ASSESSEE. THE REASONS ADVANCED ARE REASONABLE AND WELL ACCEPTED. WE, THEREFORE, FIND NO JUSTIFICATION FOR THE ASSESS ING OFFICER TO INVOKE SECTION 40A(2)(B) OF THE ACT. MOREOVER, AS CONTENDED BY THE RESPONDENT, IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR OF 2004-05, INTEREST PAID TO SUCH PERSONS AT 14% HAS BEEN UPHEL D AND AGAINST SUCH A PLEA, THERE IS NO NEGATION FROM THE SIDE OF THE REVENUE. FOR THIS REASON ALSO, WE FIND NO JUSTIFICATION FOR THE ASSESSING OFFICER TO CONSIDER INTEREST PAYMENT RANGING FROM 12% TO 14% AS DISALLOWABLE U/S 40A(2)(B) OF THE ACT. FOR THE ABO VE REASONS, WE HEREBY AFFIRM THE CONCLUSION DRAWN BY T HE CIT(APPEALS) TO DELETE THE ADDITION. 11 THE FACTS AND CIRCUMSTANCES BEING THE SAME, FOLLOWI NG THE EARLIER ORDER OF THIS BENCH, WE ARE DISMISSING THIS GROUND OF APPEAL OF THE REVENUE. 16. NOW, LET US TURN TO THE LAST ISSUE WHICH RELATE S TO, WHETHER THE CIT(APPEALS) HAS ERRED IN DELETING ADDI TION OF RS.3,50,000/- MADE ON ACCOUNT OF DISALLOWANCE OF CE RTAIN EXPENSES LIKE VEHICLE, TRAVELING, PRINTING & STATIO NERY, TELEPHONE ETC. THE RELEVANT GROUND READS AS UNDER: IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.3,50,000/- MADE ON ACCOUNT OF DISALLOWANCE OF CERTAIN EXPENSES LIKE VEHICLE, TRAVELING, PRINTING & STATIONERY, TELEPHONE ETC., WITHOUT APPRECIATING TH E FACT THAT PERSONAL ELEMENT OF USER BY THE DIRECTORS/EXECUTIVES COULD NOT BE RULED OUT. 17. THE BRIEF FACTS PERTAINING TO THIS ISSUE, AS AP PEARING IN THE ASSESSMENT ORDER ARE AS UNDER : PERUSAL OF PROFIT & LOSS ACCOUNT REVEALS THAT THE A SSESSEE HAS CLAIMED THE FOLLOWING MAJOR EXPENSES: (I) TRAVELING EXPENSES RS.6,53,678/- (II) POSTAGE & TELEPHONE EXPENSES RS.7 ,97,098/- (III) PRINTING & STATIONERY RS.3,04,200/- (IV) VEHICLE EXPENSES RS.13,05,930/- ON GOING THROUGH THE DETAILS FILED BY THE ASSESSEE, IT FOUND THAT TRAVELING EXPENSES DEBITED TO PROFIT & L OSS ACCOUNT ARE ON THE BASIS OF DETAILS SUBMITTED BY TH E RECIPIENT EMPLOYEE AND IS PAID THROUGH SELF MADE VOUCHERS. THE DETAILS SO FURNISHED DOES NOT SPECIFY THE PURPOSE OF JOURNEY INCLUDING LOCAL JOURNEY AND HENC E IT HAS NOT BEEN SUBSTANTIATED THAT PAYMENTS WERE MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. MOREOVER, THE DETAILS SUBMITTED BY THE EMPLOYEES DO NOT 12 HAVE SUPPORTING INDEPENDENT EVIDENCE. FURTHER, THE EXPENSES CLAIMED UNDER THE HEAD TELEPHONE EXPENSES ALSO INCLUDE MOBILE EXPENSES IN WHICH PERSONAL ELEM ENT OF USE BY DIRECTORS/EXECUTIVES OF THE COMPANY CANNO T BE RULED OUT. AS REGARDS VEHICLE EXPENSES, AS PER DET AILS FURNISHED BY THE ASSESSEE, IT INCLUDES THE AMOUNTS OF SERVICE CHARGES OF CARS, PETROL & DIESEL FOR CARS A ND GENERATOR, REPAIR & MAINTENANCE, TAXI CHARGES, TRUC K EXPENSES AND REIMBURSEMENT OF FUEL TO ITS EMPLOYEES ETC. IT IS FOUND THAT MOST OF PAYMENTS ARE MADE IN CASH THROUGH SELF MADE VOUCHERS WHICH ARE NOT SUBJECT TO VERIFICATION. MOREOVER, NO LOG BOOKS HAVE BEEN MAINTAINED BY THE ASSESSEE IN RESPECT OF CARS/OTHER VEHICLES, IN ABSENCE OF WHICH IT IS NOT POSSIBLE AS TO WHETHER THEY WERE WHOLLY AND EXCLUSIVELY USED FOR T HE PURPOSE OF BUSINESS. THEREFORE, THIS CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED AS SUCH. AS REGARDS, PRINTING AND STATIONERY IT IS FOUND THAT THESE EXPE NSES HAVE BEEN CLAIMED ON PURCHASE BASIS. NO CLOSING STO CK HAS BEEN SHOWN AT THE END OF THE YEAR AND HENCE, IT IS NOT IN CONSONANCE WITH THE MERCANTILE SYSTEM OF. A FTER DISCUSSION AND CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DURING THE COURSE OF HEARING, A LUMPSUM ADDITION OF RS.3,50,000/- IS MADE TO THE TOTAL INCO ME OF THE ASSESSEE ON ACCOUNT OF ABOVE DISCUSSED DISCREPANCIES WHICH IS AT VERY REASONABLE RATE. 18. AGGRIEVED BY THIS ORDER OF THE ASSESSING OFFICE R, THE ASSESSEE MOVED THE MATTER IN APPEAL BEFORE THE CIT( APPEALS). BEFORE CIT(APPEALS), IT WAS CONTENDED BY THE LEARNE D COUNSEL THAT THE ASSESSEE WAS COVERED BY FBT (FRINGE BENEFI T TAX) AND 20% DISALLOWANCE OF THE TRAVELING AND TELEPHONE EXP ENSES, VEHICLE EXPENSES HAD ALREADY BEEN MADE AND ANY FURT HER DISALLOWANCE MADE OUT OF THESE EXPENSES WOULD TANTA MOUNT TO DOUBLE TAXATION AND THIS IS NOT PERMITTED IN LAW. I T WAS ALSO POINTED OUT THAT THE ASSESSING OFFICER HAD NOT POIN TED OUT ANY 13 SINGLE INCIDENCE OF EXPENSE WHICH IS NOT RELATED TO THE BUSINESS OF THE ASSESSEE OR WHICH IS NOT SUPPORTED. NO ADHOC DISALLOWANCE ON ACTUALLY INCURRED EXPENDITURE COULD BE MADE; CONTENDED THE COUNSEL. THE COUNSEL ALSO CONTENDED THAT NO DISALLOWANCE OUT OF TELEPHONE OR VEHICLE EXPENSES C OULD BE MADE FOR THE PERSONAL USAGE IN CASE OF THE COMPANY AS DECIDED BY THE GUJRAT HIGH COURT IN THE CASE OF SAY AJI IRON & ENGINEERING COMPANY V CIT, 253 ITR 749 AND DINESH M ILLS MILITED V CIT, 254 ITR 673. 19. THE LEARNED FIRST APPELLATE AUTHORITY, AFTER CO NSIDERING THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSE SSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE WAS OF THE VIEW THAT IT IS AN ADMITTED FACT AS PER RECORDS THAT THE ASSESSEE H AD FURNISHED ITS RETURN UNDER FBT FOR THE YEAR UNDER C ONSIDERATION, WHERE THE FBT TAX HAD BEEN PAID AT 20% OF VEHICLE, TELEPHONE AND TRAVELING EXPENSES. ACCORDING TO HIM, ANY FURT HER DISALLOWANCE WOULD TANTAMOUNT TO DOUBLE TAXATION AN D IN CASE OF PRINTING & STATIONERY, THE SAME METHOD IS ADOPTE D BY THE ASSESSEE YEAR TO YEAR AND THERE HAD NOT BEEN ANY DI VERSION IN THIS YEAR ALSO. SO, HE DELETED THE ADHOC DISALLOWA NCE OF RS.3,50,000/-. NOW THE REVENUE IS AGGRIEVED AND IS ON SECOND APPEAL BEFORE US WITH THIS ISSUE. 20. AT THE TIME OF HEARING, LEARNED DR REITERATED T HE CONTENTIONS OF THE ASSESSING OFFICER ( EXTRACTED EL SEWHERE OF THE ORDER) AS HIS SUBMISSIONS. PER CONTRA, THE LEA RNED COUNSEL FOR THE ASSESSEE ALSO MADE THE VERY SAME SUBMISSION S AS MADE BEFORE THE CIT(APPEALS). 14 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDE RED THE FACTS AND MATERIALS ON RECORD. SINCE THE ASSESSEE IS COVERED BY THE FBT AND HAD ALREADY PAID THE FBT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(APPEALS) AND AS S UCH, WE UPHOLD THE SAME FOR THE REASONS RECORDED BY HIM. T HUS, THIS ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. 22. IN THE RESULT, THE REVENUES APPEAL AND THE CRO SS OBJECTION OF THE ASSESSEE, ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.11.2010. SD/- SD/- (SUSHMA CHOWLA) (N.BARATHVAJA SANKAR) JUDICIAL MEMBER VICE PRESIDENT DATED : 30 TH NOV.,2010. POONAM COPY TO : THE APPELLANT/THE RESPONDENT/THE CIT (A)/ THE CIT/THE DR.