Sh. Subhash Chander Aggarwal, Jalandhar V. The Deputy Commissioner of Income tax, Jalandhar

ITA 120/ASR/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0801 (ITAT-AMRITSAR)
• Duration Of Justice: 4 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-05-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S KANWAL
• Assessee Lawyers: J S BHASIN
• Keywords: Principle of natural justice; Proportionate interest; Revised return
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.120(ASR)/2012 ASSESSMENT YEAR:2008-09 PAN;AAKPA7004L SH. SUBHASH CHANDER AGGARWAL, VS. DY. COMMR. OF INC OME TAX, PROP. M/S. PRABH DAYAL OM PARKASH RANGE-III, BAZAR NAUHRIAN, JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. J.S. BHASIN, ADVOCATE RESPONDENT BY: SH. S.S. KANWAL, DR DATE OF HEARING: 02/05/2016 DATE OF PRONOUNCEMENT: 04/05/2016 ORDER PER A.D. JAIN, JM: THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2008-09, AGAINST THE ORDER, DATED 29.02.2012, PASSED BY THE LD. CIT(A), JALANDHAR. THE ASSESSEE HAS RAISED THE FOLLOWING G ROUNDS OF APPEAL: 1. THAT THE ORDER OF THE LD. CIT(A) IS CONTRARY TO LAW AND FACTS OF THE APPELLANTS CASE SO FAR IT RELATES TO APPELLANT S SPECIFIC DENIAL THAT STATUTORY NOTICE U/S 143(2) WAS NOT SE RVED ON THE APPELLANT. 2. THAT THE LD. CIT(A) ERRED IN REJECTING THE CONTE NTION OF THE APPELLANT THAT THE ORDER IS VIOLATION OF CBDT INSTR UCTIONS GOVERNING SELECTION AND ASSESSMENT OF CASES. 3. THAT THE LD. CIT(A) ERRED IN REJECTING THE CONTE NTION OF THE APPELLANT THAT THE MANNER IN WHICH VARIOUS ADDITIONS/DISALLOWANCES HAVE BEEN MADE BY THE AO IS AGAINST THE PRINCIPALS OF NATURAL JUSTICE AND FAIR PLAY. ITA NO.120(ASR)/2012 A.Y. 2008-09 2 4. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE GP. ADDITION OF RS.20,81,520/- AS MADE BY A.O. IN THE TRADING A/C O F THE PUMPS. 4.1. THAT EVEN OTHERWISE, WHEN NO OTHER DISCREPANCY BUT FOR UNDER VALUATION OF CLOSING STOCK OF PUMPS WAS ALLEG ED BY A.O., NO ADDITIONS BEYOND SUCH UNDER VALUATION OF C LOSING STOCK WAS WARRANTED. THE IMPUGNED G.P. ADDITION OF RS.20,81,520/- IS THEREFORE WHOLLY ILLEGAL. 4.2 THAT VARIOUS JUDICIAL AUTHORITIES RELIED UPON B Y LD. CIT(A) TO REJECT THE ASSESSEES CONTENTION AND UPHOLD THE IMP UGNED G.P. ADDITIONS, WITHOUT CONFRONTING TO ASSESSEE IN CONTRARY TO BASIC POSTULATE OF NATURAL JUSTICE AND HENCE NOT SU STAINABLE. 5. CIT(A) ERRED IN CONFIRMING ADDITION OF RS.85,500 OUT OF RS.2,28,000/- FROM INTEREST MADE BY THE AO. 6. CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS.50 ,000/- OUT OF RS.2,50,000/- MADE BY A.O. FROM EXPENSES UNDER THE HEAD STAFF WELFARE, TRAVELING EXPENSES AND OFFICE/SHOP EXPS. 2. THIS APPEAL WAS DISMISSED EX-PARTE, WHICH ORDER WAS RECALLED VIDE ORDER DATED 11.03.2016, PASSED IN MA NO.118(ASR)/20 16. THIS IS HOW THIS APPEAL IS AGAIN BEFORE US FOR ADJUDICATION. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED AT THE BAR THAT GROUND NOS. 1 & 2 ARE NOT PRESSED. REJECTED AS NOT PRESSED. 4. GROUND NO. 3 IS GENERAL. 5. APROPOS GROUND NO.4, THE FACTS ARE THAT THE TRA DING ACCOUNT IN RESPECT OF SALE OF PUMPS BY THE ASSESSEE REVEALED A LOSS OF RS. 13,27,780/- ON SALES OF RS.51,45,028/- DURING THE R ELEVANT PREVIOUS YEAR. THE ASSESSEE HAD DECLARED GP RATE OF 10.20% O N TRADING OF PUMPS IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEA R 2006-07 ON SALES OF RS. 30.55 LACS, AND OF 9.02% ON SALES OF RS. 25.28 LACS IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08. IN RE SPONSE TO THE AOS QUERY ASKING FOR A JUSTIFICATION OF THE LOSS SUFFER ED THIS YEAR, THE ASSESSEE ITA NO.120(ASR)/2012 A.Y. 2008-09 3 STATED THAT IT HAD STARTED TRADING IN PUMPS IN MAY 2002. IT WAS SUBMITTED THAT THE ASSESSEE HAD PURCHASED PUMPS IN THE ACCOUNTING YEARS 2002-03 AND 2003-04 BUT IT WAS NOT POSSIBLE T O MAKE THE SALES SINCE THE QUALITY OF THE PUMPS WAS VERY POOR. IT WA S SUBMITTED THAT THE PURCHASES HAD STOPPED AFTER 2003-04 AND THAT THESE PUMPS HAD TO BE SOLD BY LOWERING THE SALE PRICE DUE TO POOR AND DEF ECTIVE PUMPS. THE ASSESSEE STATED THAT HE HAD MAINTAINED COMPLETE STO CK REGISTER OF PUMPS AND THAT ALL THE PURCHASES AND SALES WERE FULLY VOU CHED. THE AO EXAMINED THE BOOKS OF ACCOUNT AND THE BILLS IN RES PECT OF THE VALUATION OF THE OPENING AND CLOSING STOCK, AS WELL AS THE PU RCHASE AND SALE BILLS, AND CONFRONTED CERTAIN DISCREPANCIES IN THE DETAILS AND EXPLANATIONS PROVIDED BY THE ASSESSEES AR TO THE ASSESSEE VIDE ORDER SHEET NOTING DATED 13/12/2010. THE AO POINTED OUT THAT THE STOCK REGISTER SEEMED TO BE FRESHLY PREPARED AND THAT COMPLETE BILLS OF SALE S AND PURCHASES HAD NOT BEEN PRODUCED. ONE OF THE DISCREPANCIES NOTED B Y THE AO WAS THAT THE RATE AT WHICH CERTAIN ITEMS HAD BEEN VALUED IN THE CLOSING STOCK WAS LOWER THAN THE RATE AT WHICH THE SAME ITEMS HAD BEE N VALUED IN THE OPENING STOCK. THE AO NOTED THAT THE ASSESSEE'S REP RESENTATIVES HAD BEEN ASKED TO EXPLAIN THE REASON FOR THE DIFFERENCE IN THE VALUES OF THE SAME ITEM IN THE CLOSING STOCK AND OPENING STOCK, B UT THE SAME COULD NOT BE EXPLAINED BY HIM. HE ALSO NOTED THAT NO SUPP ORTING BILLS IN RESPECT OF THE VALUATION OF OPENING STOCK WERE PROD UCED. HE NOTED THAT AS PER AUDIT REPORT AND AS PER THE SUBMISSIONS OF T HE ASSESSEE, THE ITA NO.120(ASR)/2012 A.Y. 2008-09 4 OPENING STOCK AND CLOSING STOCK HAD BEEN VALUED AT COST. THE AO ASKED FOR THE SUBMISSION OF THE COPIES OF THE PURCHASE AN D SALE BILLS IN RESPECT OF PUMPS FOR VERIFICATION. THE AO WAS OF THE VIEW T HAT SINCE BOTH OPENING AND CLOSING STOCKS WERE TO BE VALUED AT COST, THERE SHOULD BE NO REASON FOR THE DIFFERENCE IN THE RATES OF THE SAME ITEMS I N THE OPENING AND CLOSING STOCK, SINCE THE GOODS HAD BEEN CLAIMED TO HAVE BEEN PURCHASED IN AN EARLIER YEAR. THE AO WAS OF THE VIEW THAT THI S HAD BEEN DONE INTENTIONALLY TO UNDERVALUE THE CLOSING STOCK AND T O REDUCE THE GROSS PROFIT. HE ASKED THE ASSESSEE TO JUSTIFY THE SAME, BUT NO EXPLANATION WAS FURNISHED ON 14/12/2010. ON 14/12/2010, THE AO NOTE D THAT THE SUPPORTING BILLS IN RESPECT OF THE VALUATION OF THE OPENING STOCK HAD NOT BEEN PRODUCED, AND THAT THE EXPLANATION FOR THE DIF FERENCE IN THE VALUES BETWEEN THE OPENING AND CLOSING STOCK HAD NOT BEEN FURNISHED. THE AO ALSO NOTICED FROM SOME OF THE PURCHASE AND SALE BIL LS OF THE RELEVANT PREVIOUS YEAR THAT THE SALE PRICE OF MANY ITEMS WAS MORE THAN THE PURCHASE PRICE. IN RESPONSE TO THE OBSERVATIONS OF THE AO, THE ASSESSEES AR REPLIED THAT THE HIGHER RATE OF VALUATION OF STO CK AS ON 31/03/2007 WAS TAKEN EITHER DUE TO CLERICAL ERROR OR FOLLOWING SOME OTHER METHOD OF VALUATION. IT WAS SUBMITTED THAT THE STOCK LYING IN CLOSING STOCK AS ON 31/03/2008 WAS THE SAME WHOSE PURCHASE BILLS HAD BE EN PRODUCED AND VALUATION OF CLOSING STOCK AS ON 31/03/2008 WAS CLA IMED TO BE CORRECT. IT WAS SUBMITTED THAT MERELY BECAUSE A HIGHER RATE HAD BEEN TAKEN AS ON 31/03/2007 DID NOT IMPLY THAT THE SAME RATE SHOULD BE TAKEN AS ON ITA NO.120(ASR)/2012 A.Y. 2008-09 5 31/03/2008. IT WAS CONTENDED THAT THE CLOSING STOCK WAS NOT UNDERVALUED. IT WAS CONTENDED THAT THOUGH THERE MIG HT HAVE BEEN PROFIT ON SOME OF THE SALES, THE MAJORITY OF THE SALES WER E AT A LOSS. IT WAS ALSO CONTENDED THAT WHEN COMPLETE STOCK REGISTER HAD BEE N MAINTAINED AND ALL THE PURCHASE AND SALE BILLS HAD BEEN PRODUCED W ITH THE DETAILS OF OPENING AND CLOSING STOCK ALSO, NO ADVERSE INFERENC E SHOULD BE DRAWN. THE AO WAS NOT SATISFIED WITH THE EXPLANATION. THE AO HELD THAT OVERVALUATION OF THE OPENING STOCK OR UNDERVALUATIO N OF THE CLOSING STOCK HAD THE SAME EFFECT, I.E., TO REDUCE THE GROSS PROF IT. THE AO WAS OF THE VIEW THAT SHOWING LOWER VALUE OF THE SAME ITEM IN T HE CLOSING STOCK AS COMPARED TO THE OPENING STOCK IMPLIED THAT THE CLOS ING STOCK HAD BEEN UNDERVALUED TO REDUCE THE GROSS PROFIT AND THE TAXA BLE INCOME. THE AO HELD THAT AS PER THE BASIC TENETS OF THE ACCOUNTING STANDARDS, THE SAME METHOD HAD TO BE FOLLOWED FOR VALUATION OF OPENING AND CLOSING STOCK, AND THAT THE ASSESSEE COULD NOT CHANGE THE METHOD O F VALUATION AT HIS OWN SWEET WILL. THE AO HELD THAT THOUGH SEVERAL ITE MS WERE FOUND TO HAVE BEEN SOLD AT A PROFIT, THE ASSESSEE HAD NOT BR OUGHT ON RECORD INSTANCES OF LOSS ON SALE OF OTHER ITEMS AND THAT, THEREFORE, THE ASSESSEE HAD NOT JUSTIFIED THE LOSS ON THE SALES DURING THE RELEVANT PREVIOUS YEAR. THE AO ALSO HELD THAT NOTHING HAD BEEN BROUGHT ON R ECORD BY THE ASSESSEE TO SHOW THAT THERE WAS A DIFFERENCE IN THE SALE RATES OF THE ITEMS SOLD IN THE PRECEDING YEAR AS COMPARED TO THE YEAR UNDER CONSIDERATION. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD NOT BE EN ABLE TO JUSTIFY AS ITA NO.120(ASR)/2012 A.Y. 2008-09 6 TO HOW THE SALE OF THE ITEMS RESULTING IN GP RATE O F 10.2% AND 9.02% IN THE PRECEDING ASSESSMENT YEARS SHOULD RESULT IN A L OSS DURING THE YEAR UNDER CONSIDERATION. THE LOSS RETURNED BY THE ASSES SEE WAS HELD TO BE DUE TO UNDERVALUATION OF THE CLOSING STOCK. THE AO, THEREFORE, REJECTED THE ACCOUNTS OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 145(3) OF THE ACT AND APPLIED A GP RATE OF 9%. THE AO CONSEQUENTL Y DETERMINED THE GP AT RS.4,63,052/- AND DISALLOWED THE LOSS CLAIMED BY THE ASSESSEE ON THE TRADING OF THIS ITEM. THIS RESULTED IN THE IMP UGNED ADDITION OF RS. 17,90,832/-. 6. THE LD. CIT(A) REJECTED THE GROUND RAISED BY THE ASSESSEE AGAINST THE AFORESAID ACTION OF THE A.O. THE LD. CIT(A) OB SERVED AS FOLLOWS: 4.4. I HAVE CONSIDERED THE RIVAL SUBMISSIONS CAR EFULLY. THE MATTER LEADING TO THE DISPUTE IS QUITE CLEAR, I.E. THAT THE ASSESSEE HAD VALUED CERTAIN ITEMS IN ITS CLOSING STOCK AT VA LUES LOWER THAN THE VALUE OF THOSE ITEMS IN THE OPENING STOCK, AND THE VALUE TAKEN IN THE OPENING STOCK COULD NOT BE EXPLAINED OR JUST IFIED BY THE ASSESSEE. AS PER THE ASSESSEE, THE CLOSING STOCK HA D BEEN VALUED AT COST, THOUGH IT IS ADMITTED THAT THE OPENING STOCK HAD BEEN VALUED AT HIGHER RATES THAN THE COST. THE AO HAS NOT SERIO USLY DISPUTED THE ASSESSEES CONTENTION THAT THE CLOSING STOCK WA S VALUED AT COST, THOUGH SHE DOES NOT APPEAR TO BE ENTIRELY CONVINCED BY THIS CLAIM. HOWEVER, SHE WAS OF THE VIEW THAT THE CHANGE IN THE METHOD OF VALUATION OF STOCK HAS RESULTED IN THE PROFIT BEING SHOWN AT A MUCH LOWER FIGURE THAN THE GENERAL PROFIT OBTAINED FROM THE SALE OF PUMPS BY THE ASSESSEE, AND THAT THIS WAS NOT ACCEPT ABLE. 4.5. THE AO SEEMS TO HAVE A REASONABLE GROUND FOR NOT ACCEPTING THE APPELLANT'S SUBMISSIONS ON THIS ISSUE . THOUGH THE GOODS IN THE CLOSING STOCK ARE STATED TO HAVE BEEN PURCHASED IN THE FINANCIAL YEARS 2002 - 03 AND 2003 - 04, IT IS NOT KNOWN AS TO WHY THE ASSESSEE CHOSE TO VALUE THE CLOSING STOCK AS ON 31/3/2007 AT RATES HIGHER THAN THE COST OF PURCHASE OR THE MARKE T PRICE, WHICHEVER WAS LOWER. IT WOULD APPEAR THAT THE BASIS OF VALUING THE OPENING AND CLOSING STOCK WAS ALMOST THE SAME IN TH E FINANCIAL ITA NO.120(ASR)/2012 A.Y. 2008-09 7 YEARS 2005 - 06 AND 2006 - 07, SINCE THE GP RATE IN BOTH THESE YEARS WAS REASONABLE AT AROUND 9% TO 10%. IF THE IS SUE WAS ONLY OF THE VALUATION OF STOCK AS ON 31/03/2007, AND NOT OF THE STOCK AS ON 31/03/2006, THE GP RATE FOR THE FINANCIAL YEAR 2 006-07 SHOULD HAVE BEEN SIGNIFICANTLY HIGHER THAN THAT FOR THE FI NANCIAL YEAR 2005 - 06, SINCE THE COST OF THE GOODS IS CLAIMED TO BE LOWER THAN THE VALUE AT WHICH THE STOCK HAS BEEN TAKEN AS ON 31/03 /2007. HOWEVER, THIS IS NOT SO: INDICATING THAT THE ASSESS EE HAS BEEN CONSISTENTLY FOLLOWING A DIFFERENT METHOD OF ACCOUN TING OF THE STOCK OF PUMPS THAN THE ACCEPTED METHOD OF COST OR MARKET PRICE, WHICHEVER IS LOWER. IT ALSO FOLLOWS, AS A COROLLARY , THAT THE SALE PRICE IN THE FINANCIAL YEARS 2005 - 06 AND 2000-07 WASJHI GHER THAN EVEN THE INFLATED VALUE OF THE GOODS CLAIMED, SINCE PROF IT WAS BEING RETURNED ON THE SALES AT THE GROSS LEVEL. 4.6 THE ACCEPTED METHOD OF VALUATION OF STOCK IS CO ST PRICE, WHICH IS FOR THE REASON THAT IT CANCELS OUT THE COS T OF PURCHASE IN THE TRADING ACCOUNT OF THE UNSOLD GOODS, AND LEAVES BEHIND ONLY THE PROFIT OR THE LOSS FROM THE GOODS SOLD. ONE CAN NOT MAKE PROFIT WITH ONESELF, WHICH WOULD BE THE CASE IF THE CLOSIN G STOCK WERE VALUED AT A PRICE HIGHER THAN THE COST PRICE, AS HA S BEEN OBSERVED BY THE HONBLE SUPREME COURT IN THE CASE OF SANJEEV WOOLLEN MILLS VS CIT 279 ITR 434 (SC). THE ACCEPTED AND CUSTOMARY EXCEPTION TO THIS RULE IS WHEN THE MARKET PRICE OF THE PRODUCT F ALLS BELOW THE COST PRICE, IN WHICH CASE THE ASSESSEE IS ALLOWED T O VALUE THE STOCK AT MARKET PRICE. IN THE CASE OF SANJEEV WOOLLEN MIL LS VS CIT (SUPRA), THE HONBLE SUPREME COURT HAVE ALSO HELD T HAT THE ASSESSEE SHOULD FOLLOW A CONSISTENT METHOD OF ACCOU NTING, OTHERWISE THE PROVISIONS OF SECTION 145 OF THE ACT MAY BE ATTRACTED. THE OBSERVATIONS OF THE HONBLE SUPREME COURT IN TH IS REGARD ARE AS UNDER: - THE ASSESSEE MAY EMPLOY WHICHEVER BASIS OF VALUATI ON OF STOCK IN HAND, BUT IT MUST ADHERE TO THAT CONSISTEN TLY YEAR AFTER YEAR. CASUAL DEPARTURE OF VALUATION OF TRADIN G STOCK IN HAND AT COST OR MARKET VALUE IS NOT PERMISSIBLE. TH E METHOD ADOPTED OF MAINTAINING THE ACCOUNTS SHOULD BE DEFIN ITE METHOD OF VALUATION WHICH IS CARRIED BY THE ASSESSE E FROM YEAR TO YEAR. TO ATTRACT THE PROVISION OF SECTION 1 45 OF THE ACT THE CONSISTENT METHOD OF MAINTAINING ACCOUNT BOOKS IS A FIRST CONDITION THEREAFTER THE ASSESSING OFFICER SH OULD BE OF THE VIEW THAT THE ACCOUNTS ARE CORRECT AND COMPLETE BUT THE METHOD EMPLOYED IS SUCH THAT IN THE OPINION OF THE ASSESSING OFFICER THE INCOME CANNOT PROPERLY BE DED UCED THEREFROM. THE CHOICE OF METHOD OF ACCOUNTING REGUL ARLY EMPLOYED BY THE ASSESSEE LIES WITH THE ASSESSEE BUT THE ITA NO.120(ASR)/2012 A.Y. 2008-09 8 ASSESSEE WOULD BE REQUIRED TO SHOW THAT HE HAS FOLL OWED THE CHOSEN METHOD REGULARLY..... 4.7 IN THE PRESENT CASE THE POSITION AS IT APPEARS IS T HAT THE ASSESSEE HAS FOLLOWED A WRONG METHOD OF ACCOUNTING OF THE OPENING STOCK, WHILE IT HAS CLAIMED TO HAVE VALUED THE CLOS ING STOCK AT COST. PRESUMING THAT THE GOODS FOUND BOTH IN THE OPENING STOCK AND IN THE CLOSING STOCK WERE THAT PURCHASED IN THE FINANC IAL YEARS 2002 - 03 AND 2003 - 04, AS IS CLAIMED BY THE APPELLANT, T HE MOOT QUESTION IS WHETHER THE PROFIT OF THE ASSESSEE CAN BE DETERMINED CORRECTLY DUE TO SUCH A SIGNIFICANT CHANGE IN THE M ETHOD OF VALUATION OF STOCK. A MISTAKE SHOULD NOT BE ALLOWED TO BE PERPETUATED, BUT A RELEVANT ISSUE IS WHETHER THE AS SESSEE SHOULD BE ALLOWED THE BENEFIT OF CHOOSING THE METHOD OF VA LUATION OF STOCK AS PER ITS OWN LIKING AND TO CHANGE IT SUITS HIM TO DO SO. IN THE CASE OF SANJEEV WOOLLEN MILKF VS CIT (SUPRA), THE H ONBLE SUPREME COURT HAVE FROWNED UPON THIS PRACTICE. IN THE CASE OF CIT VS IMPROVEMENT TRUST, [2010] 2 DTLONLINE 329 (P&H), IT APPEAL NO. 703 OF 2008 DATED 22.12.2008, THE HONBLE JURISDICT IONAL HIGH COURT HAVE HELD THAT THE AO WAS NOT JUSTIFIED IN RE JECTING THE REVISED RETURN OF INCOME IN WHICH THE ASSESSEE HAD VALUED ITS CLOSING STOCK AT COST PRICE AS AGAINST MARKET PRICE SHOWN BY THE ASSESSEE IN THE ORIGINAL RETURN OF INCOME. THE HON BLE HIGH COURT NOTED THAT THE ASSESSEE HAD BEEN VALUING ITS STOCK CONSISTENTLY AT COST, AND THAT THE CLOSING STOCK WAS SOUGHT TO BE V ALUED AT COST ON WHICH BASIS THE OPENING STOCK HAD BEEN VALUED, SO T HAT THE CORRECT PROFITS COULD BE ARRIVED AT. THUS, A CONSISTENT MET HOD OF VALUATION OF STOCK IS ALSO NECESSARY TO DETERMINE THE CORRECT PROFITS OF THE BUSINESS. IN CASE A REGULAR AND CONSISTENT METHOD O F VALUATION OF STOCK IS NOT BEING FOLLOWED, THE AO WOULD BE ENTITL ED TO INVOKE THE PROVISIONS OF SECTION 145(3) OF THE ACT AND TO DETE RMINE THE INCOME ACCORDINGLY. 4.8. IN VIEW OF THE FACT SITUATION THAT THE ASSESSEE WAS NOT FOLLOWING A CONSISTENT METHOD OF ACCOUNTING AND THA T AT LEAST THE METHOD OF VALUATION OF ITS OPENING STOCK WAS INCONS ISTENT WITH THE ACCEPTED METHOD OF VALUATION OF STOCK AND DID NOT H AVE ANY BASIS ALTOGETHER, I AM OF THE VIEW THAT THE PROVISIONS OF SECTION 145 (3) OF THE ACT ARE ATTRACTED IN THE PRESENT CASE AND THAT, THEREFORE, THE AO WAS JUSTIFIED IN REJECTING THE BOOK RESULTS AND IN ESTIMATING THE INCOME OF THE BUSINESS OF DALE OF PUMPS AT THE GP RATE OF 9%. THE DECISION IN THE CASE OF DCIT V UPPER RAJASTHAN SALE S & SENDEES P LTD, (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE IN THE CITED DECISION THERE WAS A FINDING T HAT THE ASSESSEE HAD BEEN FOLLOWING A CONSISTENT METHOD OF VALUING I T IS STOCK, YEAR AFTER YEAR, WHICH IS NOT SO IN THE PRESENT CASE. ITA NO.120(ASR)/2012 A.Y. 2008-09 9 4.9 ONE MAY LOOK AT THIS ISSUE FROM ANOTHER ANGLE. IF THE BASIS OF VALUATION OF CLOSING STOCK IS CHANGED, COU RTS HAVE HELD THAT THE BASIS OF THE VALUATION OF OPENING STOCK SH OULD ALSO BE AMENDED TO BE CONSISTENT WITH THE BASIS OF VALUATIO N OF THE CLOSING STOCK SO AS TO DETERMINE THE CORRECT INCOME. REFERE NCE MAY BE MADE IN THIS REGARD TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS MAHALAXMI GLASS WORKS ( P.) LTD., 318 ITR 116 (BOM.), IN WHICH THE HONBLE HIGH COURT HAV E HELD AS MUCH, FOLLOWING THE DECISION OF THE HONBLE DELHI H IGH COURT IN THE CASE OF CIT V. MAHAVIR ALLUMINIUM LTD. [2008] 297 I TR 77 (DELHI) ON THIS ISSUE. THE HONBLE DELHI HIGH COURT, IN THE CITED JUDGMENT, HAVE RELIED UPON THE FOLLOWING OBSERVATIONS IN THE JUDGMENT OF THE HONBLE PRIVY COUNCIL IN THE CASE OF CIT V. AHMEDAB AD NEW COTTON MILLS CO. LTD. REPORTED IN AIR 1930 PC 56 : 'IF THE METHOD OF ALTERING BOTH VALUATION IS NOT AD OPTED IT IS PERFECTLY PLAIN THAT THE PROFIT WHICH IS BROUGHT FORWARD IS N OT THE REAL ONE. IT MAY BE MORE OR IT MAY BE LESS, BUT IT HAS NO RELATI ON TO THE TRUE PROFIT IF THE STOCK IS VALUED ON ONE BASIS WHEN IT GOES OU T WITHOUT CONSIDERING THE VALUE OF THE STOCK WHEN IT COMES IN . WHEN, THEREFORE, THERE IS UNDERVALUATION AT ONE END, THE EFFECT IS T O CAUSE BOTH A SMALLER DEBIT IN RESPECT OF THE STOCK INTRODUCED IN TO THE NEXT ACCOUNT AND A LARGER SUM FOR PROFITS REALISED BY THE SALE, CHANGE IN MARKET VALUE BEING IMMEDIATELY REFLECTED IN THE PRICE OBTA INED FOR THE GOODS THAT ARE SOLD ; IN THESE CIRCUMSTANCES TO CONTEND T HAT THERE SHOULD BE UNDERVALUATION AT ONE END AND NOT AT THE OTHER I S TO RAISE AN ARGUMENT WHICH THEIR LORDSHIPS CANNOT ACCEPT.' 4.10 THUS, IF THE OPENING STOCK IS ALSO VALUED AT COST, IT WILL RESULT IN PROFIT AT OR ABOUT THE GP RATE ESTIMATED BY THE AO. SO WILL BE THE SITUATION WHEN THE CLOSING THE VALUE OF THE CLOSING STOCK IS VALUED FROM THE SAME BASIS THE RATE AT WHICH THE OPENING S TOCK HAS BEEN VALUED. 4.11 THE ALTERNATIVE CONTENTION OF THE APPELLANT IS THAT THE AO WAS NOT JUSTIFIED IN NOT ALLOWING THE BENEFIT OF CA RRY OF STOCK BY MAKING AN ADDITION TO THE VALUE OF THE CLOSING STOC K. THE APPELLANTS CONTENTION DOES APPEAR TO CARRY WEIGHT . HOWEVER, ACCEPTING THIS CONTENTION MAY LEAD TO ANOTHER ANOMA LY, INASMUCH IF THE APPELLANT'S CLOSING STOCK WILL BE VALUED AT A PRICE HIGHER THAN THE COST PRICE, WHICH WILL BE AGAINST THE ACCEPTED PRINCIPLES OF ACCOUNTING AND AGAINST THE JUDGMENT OF THE HONBLE SUPREME ITA NO.120(ASR)/2012 A.Y. 2008-09 10 COURT IN THE CASE OF SANJEEV WOOLLEN MILLS VS. CIT (SUPRA). HENCE, THIS CONTENTION OF THE APPELLANT IS REJECTED. GROUN D NUMBER 3 OF APPEAL IS REJECTED. 7. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE LD. CIT(A) ERRED IN CONFIRMING THE GP. ADDITION OF RS.20,81,520/- AS MADE BY A.O. IN THE TRADING A/C OF THE PUMPS. HE FURTHER STATED THAT EVEN OTHERWISE, WHEN NO OTHER DISCREPANCY BUT FOR UNDER VALUATION OF CLOSING STOCK OF PUMPS WAS ALLEGED BY A.O., NO ADDITION BEY OND SUCH UNDER VALUATION OF CLOSING STOCK WAS WARRANTED; AND THAT THE IMPUGNED G.P. ADDITION OF RS.20,81,520/- IS THEREFORE WHOLLY ILL EGAL. IT WAS FURTHER STATED THAT VARIOUS JUDICIAL AUTHORITIES RELIED UPO N BY LD. CIT(A) TO REJECT THE ASSESSEES CONTENTION AND UPHOLD THE IMPUGNED G .P. ADDITIONS, WITHOUT CONFRONTING TO ASSESSEE WAS CONTRARY TO BAS IC POSTULATES OF NATURAL JUSTICE AND HENCE NOT SUSTAINABLE. 8. THE LD. DR, ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. 9. HAVING HEARD THE RIVAL CONTENTIONS IN THE LIGHT OF THE MATERIAL PLACED ON RECORD, WE FIND MERIT IN THE ASSESSEES C ONTENTION THAT WHEN THE AO HAD NOT FOUND AY DISCREPANCY OTHER THAN THAT CONCERNING UNDER VALUATION OF CLOSING STOCK OF PUMPS, NO ADDITION B EYOND SUCH UNDER VALUATION OF CLOSING STOCK WAS CALLED FOR. THIS MAT TER WAS RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A) BY STATING AS FOLLOW S: THE AO DOES NOT SEEM TO BE FAIRLY POISED WHILE MAK ING A GP ADDITION, INASMUCH AS, IT IS STRONGLY FELT THAT NON MAKING A SPECIFIC ADDITION ON STOCK DIFFERENCE, WAS SIMPLY INTENDED T O DEPRIVE THE ITA NO.120(ASR)/2012 A.Y. 2008-09 11 ASSESSEE FROM MAKING A POSSIBLE CLAIM OF ITS CORRES PONDING BENEFIT IN NEXT YEAR, INASMUCH AS, THE NEXT YEAR TOO HAD B EEN TAKEN UNDER SCRUTINY AND ASSESSED BY MAKING AN IDENTICAL ADDITI ON, COURTING THE SAME VERY CONTROVERSY OF STOCK VALUATION BY THE SAM E VERY AO. 10. HOWEVER, THIS CONTENTION OF THE ASSESSEE DID NO T FIND FAVOUR WITH THE LD. CIT(A). WE ARE IN AGREEMENT WITH THE STAND TAKEN BY THE ASSESSEE. THE A.O., IN THE ASSESSMENT ORDER, AT PAGES 3-4 THE REOF, HAS REPRODUCED THE ORDER SHEET NOTING DATED 13.12.2010. AT PAGE 4 OF THE ASSESSMENT ORDER, IT FINDS SPECIFIC MENTION THAT THE AO HAD AS KED THE ASSESSEE TO EXPLAIN THE REASON FOR THE DIFFERENCE IN THE RATES APPLIED FOR VALUATION OF CLOSING STOCK VIS-A-VIS VALUATION OF OPENING STOCK. HOWEVER, DESPITE THE FACT THAT THIS WAS THE ONLY DISCREPANCY FOUND, THE AO MADE THE GP ADDITION IN QUESTION, AMOUNTING TO RS.20,81,520/-. THIS, IN OUR CONSIDERED OPINION, CANNOT BE COUNTENANCE. IN THE ABSENCE OF ANY OTHER DISCREPANCY BUT FOR THE DIFFERENCE IN THE RATES APP LIED FOR VALUATION OF CLOSING STOCK VIS--VIS VALUATION OF THE OPENING ST OCK, NO ADDITION BEYOND THE UNDER VALUATION OF CLOSING STOCK WAS CALLED FOR . 11. AS SUCH, THIS ISSUE IS REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR DECISION AFRESH, IN VIEW OF OUR ABOVE OBSERVATI ONS, ON AFFORDING DUE AND ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE . THE ASSESSEE, NO DOUBT, SHALL COOPERATE IN THE FRESH PROCEEDINGS BEF ORE THE A.O. 12. SO FAR AS REGARDS GROUND NO.5, THE FACTS ARE TH AT THE AO NOTICED THAT THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE OF RS. 8,21,951/- ON UNSECURED LOANS OF RS. 1,24,19,102/-. HE ALSO FOUND THAT THE ASSESSEE ITA NO.120(ASR)/2012 A.Y. 2008-09 12 HAD GIVEN ADVANCES OF RS.21,91,941/- ON WHICH NO IN TEREST HAD BEEN CHARGED. ON EXAMINING THE DETAILS OF THE ADVANCES G IVEN, THE AO NOTICED THAT THESE INCLUDED AN ADVANCE OF RS. 17 LACS TO SH . GURMIT SINGH AND ANOTHER ADVANCE OF RS. 2 LACS TO SHRI MOHINDER SING H. THE AO ASKED THE ASSESSEE TO EXPLAIN WHY NO INTEREST WAS CHARGED ON THESE ADVANCES AS THEY WERE FOR NON- BUSINESS PURPOSES. THE ASSESSEE STATED THAT ALL THE ADVANCES GIVEN BY IT WERE TRADE ADVANCES EXCEPT RS. 19 LACS WHICH WAS FOR PURCHASE OF LAND. THE ASSESSEE SUBMITTED THE CO PIES OF ACCOUNTS OF THESE TWO PERSONS FOR THE CURRENT YEAR AND THE SUBS EQUENT YEAR AND INFORMED THAT BOTH WERE INCOME TAX ASSESSEES. FROM THE REPLY OF THE ASSESSEE, THE AO CAME TO THE CONCLUSION THAT THE AD VANCES OF RS. 19 LACS WAS NOT FOR THE PURPOSE OF BUSINESS AND WERE OF PER SONAL NATURE, GIVEN BY THE ASSESSEE FOR PURCHASE OF PROPERTY. HE CAME T O THE CONCLUSION THAT INTEREST-BEARING FUNDS HAD BEEN DIVERTED FOR PERSON AL PURPOSES OF THE PROPRIETOR ON WHICH PROPORTIONATE INTEREST HAD TO B E CHARGED. THE AO HELD THAT THE DECISION OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD., 286 ITR 1 (P & H) WA S APPLICABLE IN THE FACTS OF THIS CASE. REFERRING TO SEVERAL JUDGMENTS, THE AO HELD THAT WHERE THE AMOUNTS BORROWED BY THE ASSESSEE WERE NOT USED FOR THE PURPOSES OF BUSINESS BUT WERE USED FOR NON-BUSINESS PURPOSES, T HE INTEREST PAID ON THE PORTION OF THE BORROWED FUNDS USED FOR NON-BUSI NESS PURPOSES WAS NOT DEDUCTIBLE. HENCE, THE AO DISALLOWED INTEREST AMOUNTING TO RUPEES TO 2,80,000/- ON THE ADVANCE OF RS. 19 LACS AT THE RATE OF 12% P.A.. ITA NO.120(ASR)/2012 A.Y. 2008-09 13 13. THE LD. CIT(A), IN THE IMPUGNED ORDER HAS OBSER VED AS FOLLOWS: 6.8 AS REGARDS THE APPELLANTS CONTENTION THAT SUFFICI ENT INTEREST FREE FUNDS WERE AVAILABLE WITH HIM, THOUGH IT DOES APPEAR THAT THE ASSESSEE HAD SUFFICIENT CAPITAL AND ALSO INTEREST-F REE LOANS, THEFACT REMAINS THAT THE AMOUNT WAS NOT DEBITED FROM THE CA PITAL ACCOUNT OF THE APPELLANT. IT IS ALSO NOT SHOWN THAT THE INTERE ST-FREE LOAN TAKEN DURING THE YEAR WAS ADVANCED DIRECTLY TO THE TWO PE RSONS TO WHOM RS.15 LAKHS WAS GIVEN DURING THE RELEVANT PREVIOUS YEAR. THE FUNDS OF THE ASSESSEE ARE MIXED AND THE TEST OF COMMERCIA L EXPEDIENCY HAS TO BE FOLLOWED TO DETERMINE WHETHER ANY DISALLO WANCE OF INTEREST WAS REQUIRED TO BE MADE, AS HELD BY THE HO NBLE JURISDICTIONAL HIGH COURT IN THEIR DECISION IN THE CASE OF CIT VS MARUDHAR CHEMICALS & PHARMACEUTICALS (P) LTD. 319 I TR 75 (P&H). SINCE THE ADVANCES OF RS.19 LACS HAVE BEEN HELD NOT TO BE FOR THE PURPOSE OF THE ASSESSEES BUSINESS, AND THE ASSESSE E HAD INCURRED INTEREST EXPENDITURE ON THE LOANS TAKEN BY HIM, THE DISALLOWANCE IS DIRECTED TO BE LIMITED TO THE PERIOD CORRESPONDING TO THE ADVANCE GIVEN, WHICH WORKS OUT TO RS.85,500/- AS PER THE WO RKING GIVEN BY THE APPELLANT. THE BALANCE DISALLOWANCE OUT OF INTE REST IS DIRECTED TO BE DELETED. GROUND NUMBER 5 OF APPEAL IS PARTLY ALL OWED. 14. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF HERO CYCLES (P) LTD. VS. CIT, 128 DTR 1 (SC), WHEREIN, THE HON BLE SUPREME COURT HELD THAT WHERE THE ASSESSEE COMPANY HAD A CREDIT BALANCE/RESERVE/SURPLUS OF ALMOST RS. 15 CRORES AN D IT HAD ADVANCED RS. 34 LAKHS TO ITS DIRECTORS, THE ASSESSEE COULD, IN ANY CASE, UTILIZE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIRECTORS AND THAT THEREFORE, NO PART OF THE INTEREST PAID BY THE ASSESSEE ON THE BORROWINGS COULD BE DISALLOWED. 15. ON THE OTHER HAND, THE LD. DR HAS AGAIN PLACED RELIANCE ON THE ORDER UNDER APPEAL. ITA NO.120(ASR)/2012 A.Y. 2008-09 14 16. THE LD. CIT(A) IN PARA 6.8 OF HIS ORDER ADMITS THAT THE ASSESSEE HAD SUFFICIENT CAPITAL AND ALSO INTEREST FREE LOANS. IN HERO CYCLES (P) LTD. (SUPRA), TOO, THE POSITION WAS SIMILAR (PARA 6 OF T HE JUDGMENT). MOREOVER, THE CONCERN OF THE ASSESSEE WAS A PROPRIETORSHIP CO NCERN AND SO, THE ASSESSEE COULD HAVE PAID THE AMOUNT DIRECTLY. THERE FORE, IN ACCORDANCE WITH HERO CYCLES (P) LTD. (SUPRA), GROUND NO. 5 I S ACCEPTED AND THE DISALLOWANCE IS DELETED. 17. COMING TO GROUND NO.6, THE FACTS ARE THAT DURI NG THE COURSE OF EXAMINATION OF BOOKS OF ACCOUNT OF THE ASSESSEE, TH E AO FOUND THAT CERTAIN EXPENSES DEBITED TO THE PROFIT AND LOSS ACC OUNT WERE INCURRED MOSTLY IN CASH AND WERE SUPPORTED ONLY BY SELF MADE CASH VOUCHERS, WHICH WERE NOT ENTIRELY VERIFIABLE. THE AO NOTED TH E OBSERVATION IN THE ORDER SHEET NOTING DATED 13/12/2010 IN RESPECT OF T HE EXPENSES UNDER THE HEADS STAFF WELFARE, TRAVELLING EXPENSES, AND O FFICE/SHOP EXPENSES, TOTALLING RS. 12,37,886/-. IN RESPONSE TO THIS OBSE RVATION, THE ASSESSEE SUBMITTED THAT THE VOUCHERS HAD BEEN SIGNED BY THE RECIPIENTS AND THE DETAILS LIKE THE PURPOSE, DESTINATION, ET CETERA HA D BEEN GIVEN ON THE VOUCHERS. IT WAS ALSO CONTENDED THAT THE EXPENSES W ERE REASONABLE AND COMPARABLE WITH THOSE OF LAST YEAR AND SHOULD BE AL LOWED. THE AO WAS, HOWEVER, NOT SATISFIED WITH THE EXPLANATION. HE NOT ED THAT ON THE COPIES OF THE VOUCHERS PLACED ON RECORD BY THE ASSESSEE, T HERE WERE NO DETAILS OF PURPOSE, DESTINATION, ETC. HE ALSO NOTED THAT THESE VOUCHERS WERE NOT SUPPORTED BY ANY BILLS, CASH MEMOS, ETC., AND WERE, THEREFORE, NOT ITA NO.120(ASR)/2012 A.Y. 2008-09 15 VERIFIABLE. A NUMBER OF VOUCHERS HAD NOT EVEN BEEN SIGNED BY THE RECIPIENTS. THE AO ALSO NOTED THAT DISALLOWANCE OUT OF THESE EXPENSES HAD BEEN MADE IN THE EARLIER YEARS ALSO IN THE CASE OF THE' ASSESSEE. CONSIDERING ALL THE FACTORS, THE AO DISALLOWED RS. 2.50 LACS, WHICH WAS APPROXIMATELY L/5 TH OF THE TOTAL EXPENSES CLAIMED. 18. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO R S.50,000/-, BY OBSERVING AS FOLLOWS: 8.6 IT IS SEEN THAT THE APPELLANT HAS SUBMITTED A C OMPARATIVE CHART OF THE SALES FOR THE ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2008 - 09 IN THE PAPER BOOK. THE SALES IN THE ASSES SMENT YEAR 2008 - 09 HAVE REDUCED BY APPROXIMATELY 10% AS COMPARED TO THE SALES OF THE PRECEDING ASSESSMENT YEAR. HOWEVER, THE EXPE NDITURE ON STAFF WELFARE HAS INCREASED FROM RS. 6.44 LACS TO RS. 7.5 7 LACS. THE EXPENDITURE ON TRAVELLING IS ALMOST THE SAME AT RS. 4.12 LAKHS AS COMPARED TO RS. 4.15 LACS IN THE PRECEDING YEAR. TH E EXPENDITURE ON OFFICE EXPENSES HAS REDUCED SLIGHTLY WHEREAS THE EX PENDITURE ON CAR HAS INCREASED TO RS. 4.94 LAKHS AS COMPARED TO RS. 3.78 LACS. THE INCREASE IN SOME OF THE EXPENSES IS NOT VERY LARGE AS COMPARED TO THE PRECEDING YEAR SO AS TO WARRANT DISALLOWANCE OF ALMOST ONE FIFTH OF THE EXPENSES CLAIMED UNDER THESE HEADS, ESPECIAL LY WHEN VERY FEW VOUCHERS HAD BEEN PLACED ON RECORD TO SHOW IRRE GULARITIES JN THE PAYMENTS BEING MADE. NONETHELESS, THE EVIDENCE ON R ECORD SHOWS THAT THE PARTICULARS OF ALL THE EXPENSES INCURRED W ERE NOT AVAILABLE AND THAT SOME OF THE VOUCHERS WERE NOT SIGNED. THUS , THE EXPENSES OF THE APPELLANT UNDER THESE HEADS ARE NOT PROPERLY VOUCHED. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE, I AM OF THE VIEW THAT THE DISALLOWANCE OF RS. 50.000/ - OUT OF THESE EXPENSES WILL MEET THE ENDS OF JUSTICE. IT IS HELD ACCORDINGLY. ASSESSEE GETS RELIEF OF RS. 2 LACS. GROUND NUMBER 7 OF APPEAL IS PARTLY ALLOWED. 19. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS REMAINED UNABLE TO SHOW AS TO HOW THE AFORESAID OBSERVATIONS OF THE L D. CIT(A) ARE WRONG. ITA NO.120(ASR)/2012 A.Y. 2008-09 16 THEREFORE, IN THE ABSENCE OF PARTICULARS OF ALL THE EXPENSES, AND WHEN SOME OF THE VOUCHERS WERE UNSIGNED, THE LD. CIT(A) IS FOUND TO BE JUSTIFIED IN RESTRICTING THE DISALLOWANCE FROM RS.2 .50 LAKHS TO RS.50,000/-, THEREBY GIVING RELIEF OF RS. 2 LAKHS TO THE ASSESSEE. ACCORDINGLY, GROUND NO. 6 IS REJECTED. 20. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 04/05/ 2016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 04/05/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:SH. SUBHASH CHANDER AGGARWAL, JALANDHA R. 2. THE DCIT, R-III, JALANDHAR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR. ITA NO.120(ASR)/2012 A.Y. 2008-09 17 7. THE FACTS RELATING TO GROUND NO. 6 OF APPEAL, AS PER THE ORDER UNDER APPEAL, ARE THAT THE ASSESSEE HAD CLAIMED HIR E CHARGES OF RS. 1.20 LACS AS DEDUCTION, WHEREAS NO SUCH EXPENSE WAS CLAIMED AS DEDUCTION IN THE PRECEDING YEAR. WHEN ASKED TO JUST IFY THE CLAIM, THE ASSESSEE SUBMITTED THAT THESE CHARGES WERE PAID FOR HIRING OF CAR FROM PRABHU DAYAL OM PARKASH, MANIMAZRA, WHOSE PROP RIETOR WAS MISS ANITA AGARWAL. IT WAS SUBMITTED THAT THE CAR W AS USED FOR THE PURPOSE OF THE ASSESSEE'S BUSINESS IN THE CURRENT Y EAR. THE AO FOUND THAT MS ANITA AGARWAL WAS A PERSON COVERED UN DER SECTION 40A(2)(B). THE AO ALSO FOUND THAT THE SAID HIRE CHA RGES HAD BEEN PAID BY WAY OF ONLY A TRANSFER ENTRY AND ASKED THE ASSESSEE TO JUSTIFY THE PAYMENT IN VIEW THESE FACTS. THE ASSESS EE STATED THAT THE CAR HAD BEEN PURCHASED IN MARCH, 2007. IT WAS FURTH ER SUBMITTED THAT THE CAR WAS PUT TO USE FOR THE BUSINESS OF THE ASSESSEE'S CONCERN FROM APRIL 2007 ONWARDS SINCE HE HAD TO TRA VEL EXTENSIVELY THROUGHOUT PUNJAB, HARYANA, CHANDIGARH, DELHI ET CE TERA AND THE CONCERN HAD NO OTHER THE CAR. THE ASSESSEE ALSO PRO DUCED SOME OF THE CASH MEMOS OF DIESEL FILLED IN THIS CAR AND ENT ERED IN THE BOOKS OF THE ASSESSEE'S CONCERN. THE AO WAS NOT SATISFIED WITH THE EXPLANATION. SHE NOTED THAT NO DOCUMENTARY EVIDENCE OF THE USAGE OF THE CAR FOR THE PURPOSE OF THE ASSESSEE'S BUSINE SS HAD BEEN SUBMITTED. SHE NOTICED THAT THE BOOKS OF THE ASSESS EE SHOWED A NUMBER OF OTHER CARS, INCLUDING LANCER. THE AO WAS ALSO OF THE VIEW THAT THE CONTENTION THAT DIESEL FILLED IN THIS CAR HAD BEEN ENTERED IN THE BOOKS OF THE ASSESSEE WENT AGAINST THE CLAIM OF HIRE CHARGES ON THE GROUND THAT IF DIESEL WAS BEING FILLED IN THE C AR FOR BUSINESS PURPOSES OF THE ASSESSEE AND WAS BEING CLAIMED AS E XPENDITURE, THERE WAS NO JUSTIFICATION FOR PAYING HIRE CHARGES SEPARATELY. THE AO HELD THAT THE HIRE CHARGES OF RS. 1.20 LACS HAD BEE N CLAIMED IN ORDER TO REDUCE THE TAXABLE INCOME AND WERE WITHOUT ANY BASIS. SHE DISALLOWED THE CLAIM. 8.6 IT IS SEEN THAT THE APPELLANT HAS SUBMITTED A C OMPARATIVE CHART OF THE SALES FOR THE ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2008 - 09 IN THE PAPER BOOK. THE SALES IN THE ASSESSMENT YEAR 2008 - 09 HAVE REDUCED BY APPROXIMATELY 10% AS COMPARED TO THE SALES OF THE P RECEDING ASSESSMENT YEAR. HOWEVER, THE EXPENDITURE ON STAFF WELFARE HAS INCREASED FROM RS. 6.44 LACS TO RS. 7.57 LACS. THE EXPENDITURE ON TRAV ELLING IS ALMOST THE SAME AT RS. 4.12 LAKHS AS COMPARED TO RS. 4.15 LACS IN THE PRECEDING YEAR. THE EXPENDITURE ON OFFICE EXPENSES HAS REDUCE D SLIGHTLY WHEREAS THE EXPENDITURE ON CAR HAS INCREASED TO RS. 4.94 LAKHS AS COMPARED TO RS. 3.78 LACS. THE INCREASE IN SOME OF THE EXPENSES IS NOT VERY LARGE AS COMPARED TO THE PRECEDING YEAR SO AS TO WARRANT DIS ALLOWANCE OF ALMOST ONE FIFTH OF THE EXPENSES CLAIMED UNDER THESE HEADS , ESPECIALLY WHEN VERY FEW VOUCHERS HAD BEEN PLACED ON RECORD TO SHOW IRRE GULARITIESJN THE ITA NO.120(ASR)/2012 A.Y. 2008-09 18 PAYMENTS BEING MADE. NONETHELESS, THE EVIDENCE ON R ECORD SHOWS THAT THE PARTICULARS OF ALL THE EXPENSES INCURRED WERE NOT A VAILABLE AND THAT SOME OF THE VOUCHERS WERE NOT SIGNED. THUS, THE EXPENSES OF THE APPELLANT UNDER THESE HEADS ARE NOT PROPERLY VOUCHED. CONSIDERING T HE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE VIEW THA T THE DISALLOWANCE OF RS. 50.000/- OU T OF THESE EXPENSES WILL MEET THE ENDS OF JUSTICE. IT IS HELD ACCORDINGLY. ASSESSEE GETS RELIEF OF RS. 2 LACS. GR OUND NUMBER 7 OF APPEAL IS PARTLY ALLOWED. PAGE 9 PARA 4