M/s Deco Plywood Industries, Yamunanagar V. JCIT, Yamunanagar

ITA 1013/CHANDI/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5029 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 19-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Unexplained investment; Capital asset; Depreciation; Reasonable cause; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.1013/CHD/2014 (ASSESSMENT YEAR : 2010-11) M/S DECO PLYWOOD INDUSTRIES, VS. THE J.C.I.T., VILLAGE NAHARPUR, YAMUNA NAGAR RANGE, YAMUNA NAGAR. YAMUNA NAGAR. PAN: AADFD8888Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 20.04.2017 DATE OF PRONOUNCEMENT : 13.07.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER OF CIT(APPEALS), PANCHKULA DATED 2.9.2014 RELATING TO ASSESSMENT YEAR 2010-11. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE MANUFACTURING OF PLYWOOD, BOARD AND TIMBER PRODUCTS. FOR THE IMPUGNED YEAR, ASSESSMENT U/S 143 (3) WAS FRAMED AFTER MAKING DISALLOWANCE OF RS.9,00,000 /- BY TREATING EXTENSION FEE DEBITED TO THE PROFIT AND LO SS ACCOUNT AS CAPITAL EXPENDITURE AND MAKING ADDITION OF RS.45,27,827/-ON ACCOUNT OF ESTIMATION OF GROSS PRO FIT AFTER REJECTING BOOKS OF ACCOUNTS. APPEAL FILED BEFORE TH E LD.CIT(A) AGAINST THE SAID ORDER WAS PARTLY ALLOWED REDUCING THE ADDITION MADE AFTER REJECTING THE BOOKS OF ACCO UNTS TO 2 RS.26,76,022/-.AGGRIEVED BY THE SAME ,THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 3. GROUND NO.1 RAISED BY THE ASSESSEE READS AS UNDER: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (.APPEALS) HAS ERRED IN LAW AND FACTS IN UPHOLDING THE ADDITION OF RS. 9,00,000/- TREATING EXTENSION FEE TO BE IN THE NATURE OF CAPITAL EXPENDITURE AS AGAINST REVENUE EXPENDITURE AS CLAIMED DISREGARDING THE EXPLANATIONS RENDERED WHICH IS ILLEGAL. ARBITRARY AND UNJUSTIFIED. 4. IN THE ABOVE GROUND, THE ASSESSEE HAS CHALLENGE D THE TREATMENT OF EXTENSION FEES PAID TO THE FOREST DEPARTMENT, HARYANA AS CAPITAL IN NATURE, AS AGAINS T REVENUE TREATED BY THE ASSESSEE. 5. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF R S.9 LACS AS EXTENSION FEES PAID TO ITS PROFIT AND LOSS ACCOU NT. THIS SUM WAS PAID TO THE CHIEF CONSERVATOR OF FORESTS, PANCHKULA FOR GRANT OF LICENSE FOR INSTALLING THE ' PRESS'. THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY THIS AMOUNT OF RS.9 LACS SHOULD-NOT BE CAPITALIZED TO THE COST THE 'PRE SS' INSTALLED BY THE ASSESSEE DURING THE YEAR, IN RESPO NSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE FILED REPLY. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE ASSESSIN G OFFICER HELD THAT THE EXTENSION FEE PAYABLE TO CHIEF CONSER VATOR OF FORESTS WAS AN EXPENDITURE FOR THE ACQUISITION OF T HE RIGHT TO MANUFACTURE AND THUS A CAPITAL EXPENDITURE. MOR EOVER, 3 THE AO HELD THAT THE MACHINERY COULD NOT BE INSTALL ED AND OPERATED IN THE ABSENCE OF THE LICENSE FROM THE GOV ERNMENT AND THUS SUCH EXPENSE NEEDED TO BE CAPITALIZED TO T HE COST OF THE MACHINERY. THE ASSESSING OFFICER THEREFORE DISALLOWED RS.9 LACS DEBITED AS EXTENSION FEES IN T HE PROFIT & LOSS ACCOUNT AND AFTER ALLOWING DEPRECIATION @ 15 %, ADDED THE BALANCE OF RS.7,65,000/- TO THE INCOME. 6. DURING APPELLATE PROCEEDINGS, THE ASSESSEE REITERATED THE CONTENTIONS MADE BEFORE THE ASSESSIN G OFFICER STATING THAT THE SAID AMOUNT HAD BEEN PAID TO THE C HIEF CONSERVATOR OF FORESTS, PANCHKULA FOR RUNNING OF PR ESS AND THE PAYMENT WAS IN THE NATURE OF AN EXTENSION FEE T O FACILITATE THE ASSESSEE TO EXPLOIT ITS PLANT AND MA CHINERY FOR ITS BUSINESS. THE ASSESSEE CONTENDED THAT THE SAID EXPENDITURE HAD NOT RESULTED IN THE PURCHASE OF ANY CAPITAL ASSET, NOR ANY RIGHT OF A PERMANENT CHARACTER HAD E MERGED. THE ASSESSEE STATED THAT THE SAID EXPENDITURE HAD D IRECT NEXUS WITH THE CARRYING OF BUSINESS AND WAS, THEREF ORE, REVENUE IN NATURE. THE LD.CIT(APPEALS) AFTER GIVIN G CAREFUL CONSIDERATION TO THE SUBMISSIONS MADE BY THE ASSESS EE AS WELL AS THE FINDINGS OF THE ASSESSING OFFICER REJEC TED THE CONTENTIONS OF THE ASSESSEE BY HOLDING AS UNDER: 4.8 IN BACKDROP OF ABOVE DISCUSSED JUDICIAL PRONOUN CEMENTS, IT IS NOTED THAT IN THE INSTANT CASE, THE EXTENSION FEES WAS PAID TO INITIATE A PROFIT MAKING VENTURE BY INSTALLING A NEW PLANT AND MACHINERY. THE PAYMENT WAS MADE LUMP SUM ONCE BEFORE THE INSTALLATION OF THE MACHINERY. SO, THE EXPENDITURE WAS INCURRED FOR THE RIGHT TO INITIATE MANUFACTURING, IN THE ABSENCE OF WHICH THE PROFIT 4 GENERATION BY THE APPELLANT WOULD HAVE NOT STARTED. THE EXPENDITURE WHICH WAS LINKED TO THE INSTALLATION OF MACHINERY IS ATTRIBUTABLE TO THE COST OF THE MACHIN ERY FOR INITIATION OF PROFIT GENERATION. THEREFORE, FOLLOWING T HE PRINCIPLES LAID BY HON'BLE APEX COURT. I AM OF THE VIEW THAT THE EXTENSION FEES OF RS.9 LACS PAID TO THE FO REST DEPARTMENT TO OBTAINED LICENSE FOR INSTALLATION OF MACHINERY IS A CAPITAL EXPENDITURE, THEREFORE, I AM IN AGREEMENT WITH THE AO'S FINDING THAT SUCH EXPENDITUR E IS CAPITAL IN NATURE. THE AO HAS RIGHTLY DISALLOWED THE EXPENDITURE BY TREATING IT AS CAPITAL EXPENDITURE A ND GRANTING THE APPLICABLE DEPRECIATION RATE. THIS GROU ND OF APPEAL IS DISMISSED. 7. BEFORE US, THE LD. COUNSEL FOR ASSESSEE REITERA TED THE CONTENTIONS MADE BEFORE THE LOWER AUTHORITIES S TATING THAT THE SAID EXPENDITURE WAS REVENUE IN NATURE SIN CE IT HAD NOT RESULTED IN PURCHASE OF ANY ASSET, NOR ANY RIGHT OF A PERMANENT CHARACTER HAD EMERGED. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT NO ADVANTAGE OF ENDURING NA TURE HAD BEEN ACQUIRED, NOR ANY CAPITAL ASSET CREATED BY VIRTUE OF THE SAID EXPENDITURE. THE LD. COUNSEL FOR ASSES SEE FURTHER STATED THAT THE EXPENDITURE WAS AN INTEGRAL PART OF THE PROFIT MAKING PROCESS OF THE ASSESSEE AND HAD B EEN INCURRED IN CONNECTION AND IN RELATION TO THE CARR YING ON OF THE BUSINESS OF THE ASSESSEE. THE LD. COUNSEL FOR ASSESSEE RELIED UPON VARIOUS DECISIONS OF THE HON'BLE SUPREM E COURT AND HON'BLE CALCUTTA HIGH COURT WHICH WERE CITED EV EN BEFORE THE LD.CIT(APPEALS) AND REPRODUCED AT PARA 4 .1 OF THE ORDER AS UNDER: I) CIT VS. NEW INDIA SUGAR MILLS LTD. 206 ITR 21 2 (CAL), II) GOTAN LIME SYNDICATE VS. CIT 59 ITR 718 (SC), III) M.A. JABBAR VS. CIT 68 ITR 493 (SC), 5 IV) BIKANER GYPSUMS LTD. VS. CIT 187 1TR 39 (SC). 8. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LD.CIT(APPEALS) AND STATED THAT THE EX TENSION FEE HAD BEEN PAID FOR INSTALLING A NEW PLANT AND MA CHINERY AND WAS INCURRED FOR THE RIGHT TO INITIATE MANUFACT URING. THEREFORE, THE SAID EXPENDITURE HAD BEEN RIGHTLY HE LD TO BE CAPITAL IN NATURE. 9. HAVING HEARD THE CONTENTIONS OF BOTH THE PARTIE S AND HAVING GONE THROUGH THE ORDER OF THE LD.CIT(APP EALS), WE FIND NO INFIRMITY IN THE SAME. ADMITTEDLY THE IM PUGNED LICENSE FEE WAS PAID FOR GRANTING LICENSE FOR INSTA LLING PRESS MACHINE. WE FIND THAT ALL ALONG IT HAS BEEN THE C ONTENTION OF THE LD. COUNSEL FOR ASSESSEE THAT THE SAID SUM W AS PAID TO THE CHIEF CONSERVATOR OF FORESTS FOR GRANT OF LI CENCE FOR INSTALLING THE PRESS/RUNNING OF PRESS, THE ASSESS EE BEING IN THE BUSINESS OF MANUFACTURING OF PLY BOARDS AND OTHER TIMBER PRODUCTS. THE ASSESSING OFFICER, WE FIND, HA S AT PARA 2.3 OF HIS ORDER DESCRIBED THE NATURE OF THE LICEN CE FEE PAID TO THE CHIEF CONSERVATOR OF FORESTS BY STATING THAT THE SAME WAS PAID IN LIEU OF LICENSE ISSUED TO UNITS PERMITT ING THEM TO INSTALL MACHINERY. THE ASSESSING OFFICER HAS STA TED THAT SUCH LICENSES WERE ISSUED IN VIEW OF VARIOUS ORDERS PASSED BY THE HON'BLE SUPREME COURT HOLDING THAT NO STATE OF UNION TERRITORIES WOULD PERMIT ANY UNLICENSED SAW MILLS, VENEER AND PLYWOOD INDUSTRY TO OPERATE WITHOUT PRI OR PERMISSION OF THE CENTRAL EMPOWERED COMMITTEE, IN PURSUANCE OF WHICH ALL STATES HAD PRESCRIBED RULES FOR 6 OBTAINING SUCH PERMISSION AND AS PER THE PRESCRIBED RULES, A FEE WAS REQUIRED TO BE PAID TO THE CHIEF CONSERVA TOR OF FORESTS FOR ISSUING A LICENCE FOR PERMITTING THE I NSTALLATION OF MACHINERY. ALL THESE FACTS HAVE ALSO NOT BEEN CONTROVERTED BY THE LD. COUNSEL FOR ASSESSEE. THE LD.CIT(APPEALS) HAS GIVEN A CATEGORICAL FINDING THA T THE SAID EXTENSION FEE WAS PAID LUMP SUM ONCE BEFORE INSTALL ATION OF THE MACHINE. THIS FINDING HAS ALSO NOT BEEN CONTRO VERTED BY THE LD. COUNSEL FOR ASSESSEE. IN VIEW OF THE SA ME, WE HAVE NO HESITATION IN HOLDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS LINKED TO THE INSTALLATION OF M ACHINERY AS HELD BY THE LD.CIT(APPEALS) AND IS ATTRIBUTABLE TO THE COST OF MACHINERY AND IS THUS CAPITAL EXPENDITURE. THE LD.CIT(APPEALS), WE FIND HAS FURTHER DISTINGUISHED ALL THE CASE LAWS RELIED UPON BY THE ASSESSEE IN SUPPORT OF ITS CONTENTION. IN VIEW OF THE SAME, WE HOLD THAT THE EXPENDITURE INCURRED OF RS.9 LACS ON ACCOUNT OF EXT ENSION FEE PAID TO THE FOREST DEPARTMENT, HARYANA IS CAPIT AL IN NATURE. GROUND OF APPEAL NO.1 RAISED BY THE ASSESS EE IS, THEREFORE, DISMISSED. 10. GROUND NOS.2 AND 3 RAISED BY THE ASSESSEE ARE INTERCONNECTED AND RELATED TO REJECTION OF BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145(3) OF THE INCOME TAX ACT, 1 961 (IN SHORT THE ACT) AND ADDITION MADE THEREAFTER AMOU NTING TO RS.26,76,022/-. THE SAME ARE, THEREFORE, BEING TAKE N UP TOGETHER FOR ADJUDICATION. 7 11. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND VARIOUS DISCREPANCIES IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, BEING DIFFERENCE IN THE STOCK SUBMITTED TO THE BANK AND THAT SHOWN AS PER BOOKS O F ACCOUNT, NON-MAINTENANCE OF PRIMARY RECORDS FOR PAY MENT OF SALARY, NON-PRODUCTION OF BILLS OR VOUCHERS FOR PURCHASE OF FIREWOOD AND CERTAIN VOUCHERS RELATING TO CARRIA GE INWARD ACCOUNT. THE ASSESSING OFFICER, THEREFORE, HELD TH AT THE BOOKS OF ACCOUNT OF THE ASSESSEE DID NOT REFLECT TH E TRUE AFFAIRS OF THE BUSINESS CARRIED OUT DURING THE YEAR AND, THEREFORE, HE REJECTED THE SAME U/S 145(3) OF THE A CT. THEREAFTER THE INCOME WAS ASSESSED ON ESTIMATE BASI S BY APPLYING THE AVERAGE OF THE GROSS PROFIT RATIO RETU RNED BY THE ASSESSEE IN THE LAST THREE YEARS. THE GP WAS TH US COMPUTED AT RS.2,30,96,684/- AS AGAINST RS.1,85,68, 857/- SHOWN BY THE ASSESSEE AND THE DIFFERENCE OF RS.45,2 7,827/- WAS ADDED TO THE INCOME OF THE ASSESSEE. 12. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.CIT(APPEALS), WHO UPHELD THE REJECTION OF BOOKS OF ACCOUNT BUT HELD THAT THE ESTIMATION OF ADDITIONAL TAXABLE INCOME WAS TO BE CONSIDERED ON THE BASIS OF THE DISCREPANCIES NOTED IN THE STOCK STATEMENTS SUBMITT ED TO THE BANK AND BY ESTIMATION OF PROFIT FOR OTHER DISCREPANCIES. THE LD.CIT(APPEALS), THEREFORE, COM PUTED THE ADDITION TO BE MADE AT RS.26,76,022/- BY MAKING ADDITION OF RS.17,97,772/- ON ACCOUNT OF EXCESS STO CK 8 REFLECTED IN THE STOCK STATEMENT FILED TO THE BANK TREATING THE SAME AS UNACCOUNTED INVESTMENT IN STOCK, RS.7,78,250/- BEING THE GROSS PROFIT @ 17.06% APPLI ED ON THE STOCK REFLECTED SHORT IN THE STATEMENT GIVEN TO THE BANK AMOUNTING TO RS.45,61,7843/- TREATING THE SAME AS UNDISCLOSED SALES AND THE PROFIT COMPUTED THEREON A S UNACCOUNTED PROFIT GENERATED ON ACCOUNT OF THE SAME AND FURTHER RS.1 LAC ON ACCOUNT OF OTHER DEFECTS NOTED BY THE ASSESSING OFFICER. THUS, THE LD.CIT(APPEALS) REDUC ED THE ADDITION MADE BY THE ASSESSING OFFICER BY RS.18,51, 805/-. 13. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME U P IN APPEAL BEFORE US CHALLENGING BOTH REJECTION OF B OOKS OF ACCOUNT AND ESTIMATION OF ADDITIONAL TAXABLE INCOME THEREAFTER. DURING THE COURSE OF ARGUMENTS BEFORE US, THE LD. COUNSEL FOR ASSESSEE RAISED CONTENTIONS RELATIN G TO BOTH THE ISSUES AND WE SHALL BE DEALING WITH THEM INDIVI DUALLY. 14. VIS--VIS THE REJECTION OF BOOKS OF ACCOUNT, T HE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT THE BOOKS HAD BEEN REJECTED PRIMARILY FOR THE FOLLOWING REASONS: A) DISCREPANCY IN THE STOCK SHOWN AS PER STATEMENT SUBMITTED TO THE BANK AND THAT REFLECTED IN THE BOO KS OF ACCOUNT. B) NON-MAINTENANCE OF PRIMARY RECORD FOR PAYMENT OF SALARY. C) NON PRODUCTION OF BILLS OR VOUCHERS FOR PURCHASE OF FIREWOOD. 9 D) NON-PRODUCTION OF VOUCHERS RELATING TO CERTAIN ENTRIES REFLECTED IN CARRIAGE INWARD ACCOUNT. 15. THE LD. COUNSEL FOR ASSESSEE THEREAFTER SUBMIT TED THAT IT HAD BEEN CLEARLY DEMONSTRATED TO THE LOWER AUTHORITIES THAT NO SUCH DEFECTS ACTUALLY EXISTED. ON THE DEFECT PERTAINING TO DISCREPANCY IN THE STOCK STATE MENT SUBMITTED TO THE BANK AND THAT REFLECTED IN THE BOO KS, THE LD. COUNSEL FOR ASSESSEE STATED THAT OBSERVATIONS O F THE ASSESSING OFFICER IN THIS REGARD WAS THAT THE STOCK OF ITEMS I.E. CORE VENEER, FINISHED GOODS, PHENOL AND CONSUM ABLES WERE FOUND SHORT IN THE STATEMENT SUBMITTED TO THE BANK, WHILE THE STOCK OF FACE VENEER, TIMBER LOGS, FORMAL DEHYDE AND PET COCK WAS RECORDED MORE IN THE STATEMENT GIV EN TO THE BANK AS COMPARED TO THE BOOKS OF ACCOUNT. THE LD. COUNSEL FOR ASSESSEE SUBMITTED THAT THE EXCESS STOC K SUBMITTED TO THE BANK AMOUNTED TO RS.17,,97,772/-, WHILE THE SHORTAGE IN STOCK SUBMITTED TO THE BANK AMOUNTE D TO RS.45,61,843/-. THE LD. COUNSEL FOR ASSESSEE SUBMI TTED THAT IT IS EVIDENT FROM THE ABOVE THAT IN ANY CASE THE ASSESSEE HAD REFLECTED EXCESS STOCK IN ITS BOOKS AS COMPARED TO THAT SHOWN TO THE BANK AND THEREFORE NO ADVERSE INFERENCE COULD BE DRAWN. THE LD. COUNSEL FOR ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE HAD HYPOTHECATED ITS STOCK WITH THE BANK AND NOT PLEDGE D THE SAME. THE LD. COUNSEL FOR ASSESSEE STATED THAT SIN CE HYPOTHECATED STOCKS COULD BE USED BY THE ASSESSEE, THE FIGURES OF HYPOTHECATED STOCK WERE GIVEN TO THE BAN K ON 10 ESTIMATE BASIS ONLY AND THEY GENERALLY VARIED FROM THE ACTUAL FIGURE REFLECTED IN THE BOOKS. THE LD. COUN SEL FOR ASSESSEE FURTHER SUBMITTED THAT THE STOCK REFLECTED IN THE BOOKS WAS AS PER THE EXCISE RECORDS WHICH WERE DULY AUDITED BY THE OFFICE OF THE COMMISSIONER OF CENTRA L EXCISE & CUSTOMS. THE LD. COUNSEL FOR ASSESSEE DREW OUR ATTENTION TO THE AUDIT REPORT PLACED AT PAPER BOOK PAGE NOS.79 TO 83. THE LD. COUNSEL FOR ASSESSEE SUBMITT ED THAT ITS TURNOVER WAS DULY REFLECTED IN THE SALES-TAX RE TURN FILED AND NO DISCREPANCY IN THE SAME HAD BEEN FOUND BY TH E SAID DEPARTMENT. THE LD. COUNSEL FOR ASSESSEE DREW OUR ATTENTION TO THE COPY OF SALES-TAX ASSESSMENT ORDER FOR THE IMPUGNED YEAR, PLACED IN THE PAPER BOOK. THE LD. C OUNSEL FOR ASSESSEE ALSO SUBMITTED THAT ALL PURCHASES WERE DULY ACCOUNTED FOR AND SUPPORTED BY RELEVANT BILLS AND V OUCHERS AND NO DISCREPANCY HAD BEEN FOUND BY THE ASSESSING OFFICER IN THE SAME. THE LD. COUNSEL FOR ASSESSEE, THEREFO RE, SUBMITTED THAT THERE WAS NO REASON FOR THE ASSESSIN G OFFICER TO RELY MERELY ON THE STOCK STATEMENT SUBMI TTED TO THE BANK AND ARRIVE AT A CONCLUSION THAT THE STOCK REFLECTED IN THE BOOKS WERE INCORRECT. THE LD. COUNSEL FOR A SSESSEE FURTHER STATED THAT THE ASSESSING OFFICER HAD OBSER VED IN THE ORDER THAT THE BANK HAD FURNISHED AN INSPECTION REPORT- CUM-STOCK VERIFICATION REPORT WHERE THE BANK OFFICI AL HAS CERTIFIED THAT THEY HAD VISITED THE UNIT AND FOUND THE STOCK TO BE IN ORDER. THE LD. COUNSEL FOR ASSESSEE SUBMI TTED THAT THIS REPORT HAD NOT BEEN CONFRONTED TO THE ASSESSEE AND IT IS NOT CLEAR AS TO WHEN THE INSPECTION WAS UNDERTAK EN BY 11 THE BANK OFFICIAL. THE LD. COUNSEL FOR ASSESSEE SU BMITTED THAT EVEN AS PER THE SAID CERTIFICATION LAST INSPEC TION TOOK PLACED ON 1.2.2010 WHEN THE STOCK STATEMENT FOR 31.12.2009 WAS VERIFIED AND, THEREFORE, NO RELIANCE COULD BE PLACED ON THIS INSPECTION REPORT FOR DETERMINING TH E STOCK AS AT THE END OF THE YEAR. THE LD. COUNSEL FOR ASS ESSEE STATED THAT THIS FACT HAD BEEN VERIFIED BY THE BANK ERS AND DREW OUR ATTENTION TO THE CERTIFICATE OF THE BANKER S IN THIS REGARD, PLACED AT PAPER BOOK PAGE NO.162. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, STATED THAT CLEARLY THERE WAS NO DISCREPANCY AT ALL IN THE STOCKS REFLECTED IN THE B OOKS OF ACCOUNT. 16. ON THE ISSUE OF NON-MAINTENANCE OF PRIMARY RECORDS FOR PAYMENT OF SALARY, THE LD. COUNSEL FOR ASSESSEE SUBMITTED THAT THE SAME IS FACTUALLY INCORRECT AND THIS WAS POINTED OUT BOTH TO THE ASSESSING OFFICER AND LD.CIT(APPEALS) BY PRODUCING THE EXTRACT OF WAGES R EGISTER FOR THE MONTHS OF APRIL, 2009 OCTOBER, 2009 AND MAR CH, 2010. FURTHER THE LD. COUNSEL FOR ASSESSEE STATED THAT THE CHALLANS IN RESPECT OF EPF DEPOSITED IN THE BANK WE RE ALSO FILED. THE LD. COUNSEL FOR ASSESSEE DREW OUR ATTEN TION TO THE ABOVE DOCUMENTS PLACED IN THE PAPER BOOK PAGE N OS.21 TO 59. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, SU BMITTED THAT THE CONTENTION THAT THE PRIMARY RECORDS RELATI NG TO SALARY WERE NOT MAINTAINED WAS CONTRARY TO THE FACT S OF THE CASE. 12 17. ON THE ISSUE OF VOUCHERS OR BILLS RELATING TO PURCHASE OF FIREWOOD FOR THE MONTH OF APRIL, MAY AN D JUNE NOT PRODUCED BY THE ASSESSEE, THE LD. COUNSEL FOR A SSESSEE SUBMITTED THAT IT WAS POINTED OUT THAT THIS WAS FA CTUALLY INCORRECT SINCE ALL PAYMENT VOUCHERS DULY SIGNED BY THE RECIPIENTS OF CASH WERE MAINTAINED AND PRODUCED BEF ORE THE LOWER AUTHORITIES. THE LD. COUNSEL FOR ASSESSEE DR EW OUR ATTENTION TO THE COPY OF THE SAME PLACED AT PAPER B OOK PAGE NOS.93 TO 136. THE LD. COUNSEL FOR ASSESSEE FURTHE R STATED THAT IT WAS EXPLAINED TO THE LOWER AUTHORITIES THAT THE FIREWOOD WAS PURCHASED FROM PETTY FARMERS FROM UNORGANIZED SECTOR WHO DID NOT MAINTAIN ANY BILL BO OKS AND PAYMENT WAS MADE TO THEM IN CASH ON THE BASIS OF WEIGHMENT DONE. THE LD. COUNSEL FOR ASSESSEE SUBMI TTED THAT, ON THE OTHER HAND, FIREWOOD PURCHASED FROM TI MBER MERCHANTS WAS ON THE BASIS OF BILLS. THE LD. COUN SEL FOR ASSESSEE FURTHER SUBMITTED THAT IT WAS ALSO EXPLAIN ED TO THE LOWER AUTHORITIES THAT SINCE THE ASSESSEE HAD BEEN CONTINUOUSLY MANUFACTURING THROUGHOUT THE YEAR IT W AS NOT POSSIBLE TO DO SO WITHOUT FIREWOOD AND, THEREFORE, ALSO THERE WAS NO MERIT IN THE OBSERVATION THAT NO FIREWOOD HA D BEEN PURCHASED FOR THREE MONTHS. 18. AS TO THE LAST DISCREPANCY, THE LD. COUNSEL FO R ASSESSEE POINTED OUT THAT THE SAME PERTAINED TO THE VOUCHERS OF HARYANA, HOSHIARPUR TRANSPORT COMPANY F OR 12.6.2007 NOT BEING PRODUCED AND THE VOUCHERS/BILLS FOR TWO TRANSPORTERS NAMELY M/S SANTOSH TRANSPORT COMPA NY. 13 GANDHI DHAM AND M/S DELHI BOMBAY ROADWAYS, AHMEDABA D SHOWING PAYMENT OF RS.36,850/- AND RS.37,850/- MADE RESPECTIVELY TO THESE PARTIES IN CASH IN ONE DAY, W HILE THE BOOKS REFLECTED THE PAYMENT ON TWO SEPARATE DATES. THE LD. COUNSEL FOR ASSESSEE SUBMITTED THAT AS REGARDS NON- PRODUCTION OF VOUCHERS OF HARYANA, HOSHIARPUR TRANS PORT COMPANY, IT WAS EXPLAINED DURING THE ASSESSMENT PROCEEDINGS THAT VOUCHERS COULD NOT BE PRODUCED SIN CE THE SAME WERE IN THE CUSTODY OF THE ACCOUNTANT WHO WAS NOT ATTENDING THE AFFAIRS OF THE FIRM. AS FAR THE RECO RDING OF CASH PAYMENT TO TWO TRANSPORTERS ON THE SAME DAY BU T RECORDING THE SAME IN THE BOOKS OF ACCOUNT ON TWO D IFFERENT DATES, THE LD. COUNSEL FOR ASSESSEE STATED THAT IT WAS EXPLAINED THAT WHENEVER THE GOODS WERE TRANSPORTED FROM THE POINT OF ORIGIN, THE SUPPLIER WOULD PAY ADVANCE TO THE DRIVER WHICH WAS ADJUSTED AGAINST THE COST OF THE M ATERIAL AND WHEN THE MATERIAL REACHED IN THE PREMISES OF TH E ASSESSEE, THE BALANCE AMOUNT WAS PAID TO THE DRIVER . THE ASSESSEE SUBMITTED THAT IT IS NOT THAT A HIGHER PAY MENT WAS SHOWN TO THESE TWO TRANSPORTERS AND, THEREFORE, THE RE WAS ACTUAL NO DEFECT VIS--VIS THE PAYMENT TO THESE TO TRANSPORTERS IN THE BOOKS OF THE ASSESSEE. THE LD.C OUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE BILLS OF THESE TRANSPORTERS PLACED AT PAPER BOOK PAGE NO.152&154 I N THIS REGARD. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, SU BMITTED THAT ALL ALLEGED DEFECTS WERE CLARIFIED TO THE LOWE R AUTHORITIES AND THERE WAS, THEREFORE, NO REASON TO REJECT THE BOOKS U/S 145(3) OF THE ACT. 14 19. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LD.CIT(APPEALS) AND STATED THAT IT WAS RIGHTLY HELD BY THE LD.CIT(APPEALS) THAT THE FACTS OF DISCR EPANCY IN THE STOCK STATEMENT SUBMITTED TO THE BANK AND THOSE RECORDED IN THE BOOKS OF ACCOUNT, HAD NOT BEEN EXPL AINED BY THE ASSESSEE DESPITE THE FACT THAT THE ITEM-WISE DI SCREPANCY WAS POINTED OUT BY THE ASSESSING OFFICER. THE LD. DR FURTHER SUBMITTED THAT IT WAS A FACT THAT PRIMARY R ECORDS OF PAYMENT OF SALARY WERE NOT PRODUCED BEFORE THE ASSE SSING OFFICER, NOR SUFFICIENT REASON GIVEN FOR NOT PRODUC ING THEM. AS FAR NON-PRODUCTION OF VOUCHERS OF FIREWOOD WHERE PAYMENTS WERE MADE IN CASH, NO REASONABLE CAUSE WAS GIVEN BY THE ASSESSEE FOR THE SAME. THE LD. DR FUR THER STATED THAT NO PROPER EXPLANATION HAD BEEN PROVIDED REGARDING DISCREPANCY NOTED IN THE PAYMENT MADE TO TWO TRANSPORTERS AND, THEREFORE, THE LD.CIT(APPEALS) WA S JUSTIFIED IN REJECTING BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. 20. HAVING HEARD THE CONTENTIONS OF BOTH THE PARTI ES, WE FIND MERIT IN THE CONTENTIONS OF THE LD. COUNSEL FOR ASSESSEE. AS POINTED OUT TO US ABOVE, THE LD. COUN SEL FOR ASSESSEE HAD EXPLAINED EACH AND EVERY DISCREPANCY P OINTED OUT BY THE ASSESSING OFFICER VIS--VIS THE DIFFEREN CE IN THE STOCK SUBMITTED TO THE BANK AND THAT RECORDED IN TH E BOOKS OF ACCOUNT. THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE THAT THE STOCKS REFLECTED IN THE BOOKS WERE BASED O N THE STOCKS AS PER EXCISE RECORD MAINTAINED, WHICH WERE DULY AUDITED BY THE EXCISE DEPARTMENT AND THAT ALL SALES AND 15 PURCHASES WERE DULY VOUCHED AND SUPPORTED BY BILLS AND EVEN ASSESSED BY THE SALES TAX DEPARTMENT, HAVE NOT BEEN CONTROVERTED BY THE REVENUE. WE FIND THAT THE LD.CIT(APPEALS) HAS RELIED UPON SOLELY ON THE STOCK STATEMENT SUBMITTED TO THE BANK FOR POINTING OUT DISCREPANCY, IGNORING THE FACT AS POINTED OUT ABOVE BY THE ASSESSEE THAT THE STOCKS REFLECTED IN THE BOOKS WER E AS THAT REFLECTED IN THE EXCISE RECORDS WHICH WERE DULY AUD ITED BY THE EXCISE DEPARTMENT AND SALES AND PURCHASES WERE ALSO VERIFIED BY THE SALES TAX DEPARTMENT. FURTHER THE CONTENTION OF THE REVENUE THAT THE BANK HAD FURNISH ED INSPECTION REPORT-CUM-STOCK VERIFICATION REPORT CER TIFYING THAT THEY HAD VISITED THE UNIT AND VERIFIED THE STO CK, ALSO MERITS NO CONSIDERATION SINCE AS POINTED OUT BY THE LD. COUNSEL FOR ASSESSEE, THE SAID REPORT WAS NOT CONFR ONTED TO THE ASSESSEE. THE LD. DR, WE FIND, HAS NOT CONTRO VERTED THIS FACT POINTED OUT BY THE ASSESSEE AND HAS NOT DEMONSTRATED AS TO WHEN THE SAID REPORT WAS CONFRON TED TO THE ASSESSEE. FURTHER WE FIND THAT THE ASSESSEE HA S DEMONSTRATED BY WAY OF A CERTIFICATE FILED FROM THE BANK THAT THE LAST INSPECTION FOR THE YEAR WAS UNDERTAKE N ON 1.2.2010 FOR VERIFYING THE STOCK STATEMENT ON 31.12 .2009 WHICH AGAIN HAS NOT BEEN CONTROVERTED BY THE LD. DR . NO COGNIZANCE THEREFORE CAN BE TAKEN OF THIS REPORT FO R THE PURPOSE OF DETERMINING THE STOCK AS AT THE END OF T HE YEAR. . THERE IS THEREFORE MERIT IN THE CONTENTION OF THE L D. COUNSEL FOR ASSESSEE THAT HAVING FURNISHED A SATISFACTORY EXPLANATION, THERE WAS NO REASON TO MAKE ANY ADDITI ON BY 16 RELYING ON THE STOCK STATEMENT SUBMITTED TO THE BAN K AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS PUNJAB RICE & GENERAL MILLS (2004) 137 TA XMAN 314 (P&H). 21. IN VIEW OF THE ABOVE, WE HOLD THAT THE ASSESSE E HAD FULLY DEMONSTRATED THAT THE STOCKS REFLECTED IN ITS BOOKS OF ACCOUNT WERE CORRECT AND THERE WAS NO DISC REPANCY AS SUCH IN THE SAME. 22. AS FAR THE NON-MAINTENANCE OF WAGES REGISTER, THE ASSESSEE HAVING PRODUCED THE SAME PERTAINING TO THE MONTHS OF APRIL, 2009, OCTOBER, 2009 AND MARCH, 201 0 AND ALSO THE CHALLANS IN RESPECT OF EPF DEPOSITS, WE HO LD THAT IT CANNOT BE SAID THAT THE ASSESSEE WAS NOT MAINTAININ G PRIMARY RECORDS OF WAGES REGISTER. EVEN THE VOUCHE RS FOR FIREWOOD WERE DULY PRODUCED BEFORE THE LOWER AUTHOR ITIES AND WERE EXPLAINED TO THEM AS TO WHY NO BILLS PERTA INING TO THE SAME WERE PRESENT SINCE AS EXPLAINED BY THE ASS ESSEE, FIREWOOD WAS PURCHASED FROM PETTY FARMERS FROM THE UNORGANIZED SECTOR WHO DID NOT RAISE OR MAINTAIN AN Y BILL BOOKS. FURTHER EVEN THE DISCREPANCY VIS--VIS PAYM ENT ON ACCOUNT OF TRANSPORTATION REFLECTED ON TWO DIFFEREN T DATES IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS AGAINST THE SAME BEING REFLECTED ON ONE DATE IN THE BILLS OF THE TRA NSPORTERS WAS DULY EXPLAINED AS BEING ON ACCOUNT OF CASH BEIN G PAID ON DIFFERENT DATES TO THE TRANSPORTERS, ONE BY THE SUPPLIER OF GOODS WHICH WAS ADJUSTED AGAINST THE COST OF MAT ERIAL AND BALANCE BEING PAID BY THE ASSESSEE ON RECEIPT O F 17 SUPPLY. THE LD. DR, WE FIND, HAS NOT POINTED OUT A NY ANOMALY IN THIS EXPLANATION AND THE FACT REMAINS TH AT VIS-- VIS QUANTUM OF EXPENSES DEBITED ON ACCOUNT OF TRANSPORTATION UNDERTAKEN BY SAID TWO PARTIES, THER E IS NO DISPUTE. THEREFORE, IN VIEW OF THE ABOVE, IT CANNO T BE SAID THAT THERE WAS ANY MATERIAL DISCREPANCY IN THE BOOK S OF ACCOUNT OF THE ASSESSEE BY VIRTUE OF WHICH THE TRUE PROFITS OF THE ASSESSEE COULD NOT BE DETERMINED SO AS TO WA RRANT THE REJECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE ACT. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT(A PPEALS) REJECTING THE BOOKS OF THE ASSESSEE. THE ADDITION MADE AS A CONSEQUENCE OF REJECTION OF THE BOOKS OF ACCOUNT IS ALSO DELETED. THE GROUND OF APPEAL NOS.2 AND 3 RAISED B Y THE ASSESSEE, THEREFORE, STANDS ALLOWED. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH JULY, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH