M/s R.B. Knit Export, Ludhiana V. ACIT, Ludhiana

ITA 137/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6666 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 17-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASHWANI KUMAR SH ADITYA KUMAR
• Keywords: Rejection of books of accounts; Capital asset; Depreciation; Additional depreciation; Earning of tax free income; Permanent establishment; Reasonable cause; Onus to prove
• Section: 133A; 14A; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI. SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NOS. 265 TO 267/CHD/2017 ASSESSMENT YEARS: 2010-11 TO 2012-13 THE ACIT VS. R.B. KNIT EXPORT CIRCLE-7 415, INDUSTRIAL AREA A LUDHIANA LUDHIANA PAN NO. AABFR4116K ITA NOS. 136 TO 138/CHD/2017 ASSESSMENT YEARS: 2010-11 TO 2012-13 R.B. KNIT EXPORT VS. THE ACIT 415, INDUSTRIAL AREA A CIRCLE-7 LUDHIANA LUDHIANA (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. ASHWANI KUMAR SH. ADITYA KUMAR DEPARTMENT BY : SH. RAVI SARANGAL SMT. C. CHANDRAKANTA DATE OF HEARING : 23/08/2017 DATE OF PRONOUNCEMENT : 03/11/2017 ORDER PER.DR. B.R.R. KUMAR, A.M: ALL THE ABOVE APPEALS FILED BY THE REVENUE AND THE ASSESSEE AGAINST THE COMMON ORDER DATED 23/11/2016 PASSED BY THE LD. CIT(A)-3, LUDHIANA. 2. REVENUE HAS RAISED FOLLOWING GROUNDS IN ITA NO. 265/CHD/017 FOR THE AY 2010-11 I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) WAS JUSTIFIED IN HOLDING THE DISALLOWANCE OF FABRIC ATION CHARGES MADE BY THE ASSESSING OFFICER AS NOT PROPER AND RESTRICTING THE SAME TO RS 15,00,000/- AGAINST THE 2 DISALLOWANCE MADE OF RS. 1.97,32,232/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT D ISCHARGE ITS ONUS BEFORE THE ASSESSING OFFICER BY JUSTIFYING THE GENUINENESS THESE EXPENSES AND ESTABLISHING THE IDE NTITY OF THE PERSONS TO WHOM THE EXPENSES CLAIMED TO HAVE BEEN PAID IN CASH. II. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) WAS JUSTIFIED IN TREATING THE SUBSIDY RECEIVED UNDE R TUFFS TO BE TAKEN AS PART OF ASSET FOR CALCULATION OF ADD ITIONAL DEPRECIATION. 3. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITA NO. 136/CHD/2017 FOR THE AY 2010-11: I. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX A CT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS SHE WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD A DISAL LOWANCE OF RS. 15,00,000/- OUT OF FABRICATION CHARGES MADE BY THE LD. ASSESSING OFFIC ER AT RS. 1,97,32,232/-. II. THAT SHE WAS FURTHER NOT JUSTIFIED TO ARBITRARI LY UPHOLD ACTION OF THE LD. ASSESSING OFFICER IN DISALLOWING CLAIM OF ADDITIONAL DEPRECIA TION AMOUNTING TO RS. 5,58,504/-. 4. REVENUE HAS RAISED FOLLOWING GROUNDS IN ITA NO. 266/CHD/2017 FOR THE AY 2011-12: I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS JU STIFIED IN HOLDING THE DISALLOWANCE OF FABRICATION CHARGES MADE BY THE ASS ESSING OFFICER AS NOT PROPER AND RESTRICTING THE SAME TO RS. 25,00,000/- AGAINST THE DISALLOWANCE MADE OF RS. 5,43,52,493/- WITHOUT APPR ECIATING THE FACT THAT THE ASSESSEE COULD NOT DISCHARGE ITS ONUS BEFORE TH E ASSESSING OFFICER BY JUSTIFYING THE GENUINENESS THESE EXPENSES AND ESTAB LISHING THE IDENTITY OF THE PERSONS TO WHOM THE EXPENSES CLAIMED TO HAVE BE EN PAID IN CASH. II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS JU STIFIED IN DELETING THE ADDITION OF RS. 32.53,156/- (WHICH IS INCLUDED IN THE ADDITION OF RS. 5,43,52,493/-) BY ACCEPTING THE ASS ESSEE'S PLEA THAT PROPRIETOR OF M/S. M.S. EMBROIDERY WORKS WAS PRODUC ED IN A.Y. 2012-13 WITHOUT APPRECIATING THE FACT THAT ADDITION WAS RELATING TO A .Y. 201 1-12 AS THE EXPENDITURE HAS BEEN CLAIMED IN THE A.Y. 2011- 12 AND THE ASSESSEE OUGHT TO JUSTIFY THE CLAIM IN T HE PROCEEDINGS FOR A.Y. 2011-12 ONLY. III) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW,THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFI CER OF RS. 17,67,180/- ON ACCOUNT: OF COMMISSION PAID FOR BRAN D RATE DBK BY IGNORING THE OBSERVATION OF THE ASSESSING OFFICER M ADE IN THE ASSESSMENT ORDER THAT NO DOCUMENTARY EVIDENCE OF RE NDERING SERVICE HAS BEEN FURNISHED. 5. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITA NO. 137/CHD/2017 FOR THE AY 2011-12. I. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX A CT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, LUDHIANA IS AGAINST LAW AND FACTS ON 3 THE FILE IN AS MUCH AS SHE WAS NOT JUSTIFIED TO ARB ITRARILY UPHOLD A DISALLOWANCE OF RS. 25,00,000/- OUT OF FABRICATION CHARGES MADE BY THE LD. ASSESSING OFFICER AT RS. 5,42,52,493/-. II. THAT SHE WAS FURTHER NOT JUSTIFIED TO ARBITRARI LY UPHOLD ACTION OF THE LD. ASSESSING OFFICER IN DISALLOWING A SUM OF RS. 72,52 ,666/- OUT OF COMMISSION TO FOREIGN AGENTS. III. THAT SHE WAS GRAVELY ERRED IN UPHOLDING DISALL OWANCE OF RS. 4,28,175/- IN ADDITION TO RS. 3,25,854/- ALREADY DISALLOWED BY TH E APPELLANT OUT OF TELEPHONE EXPENSES, CAR EXPENSES AND CAR DEPRECIATION. 6. REVENUE HAS RAISED FOLLOWING GROUNDS IN ITA NO. 267/CHD/017 FOR THE AY 2012-13: I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) WAS JUSTIFIED IN HOLDING THE DISALLOWANCE OF FABRICATION CHARGES MADE BY THE ASSESSING OFFICER AS NOT PROPER AND RESTRICTING THE SAME TO RS. 15.00.000/- AGAINST THE DISALLOWANCE MADE OF RS. 3, 67,14.833/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COU LD NOT DISCHARGE ITS ONUS BEFORE THE ASSESSING OFFICER BY JUSTIFYING THE GENUINENESS THESE EXPENSES AND ESTABLISHING THE IDE NTITY OF THE PERSONS TO WHOM THE EXPENSES CLAIMED TO HAVE BEEN P AID IN CASH. II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) WAS JUSTIFIED (I) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.28.14,749/- MADE UNDER SECTION 14A OF THE INCOME -TAX ACT, 1961READ WITH RULE 8D OF THE INCOME FAX RULES. 1962 BY NOT APPRECIATING THE CIRCULAR NO. 5 OF 2014 AND (II) IN HOLDING THAT PROVISIONS OF SECTION 14A READ WITH RULE 81) ARE NO T ATTRACTED IN ASSESSEE'S CASE. 7. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITA NO. 138/CHD/2017 FOR THE AY 2012-13: 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX ACT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS SHE WAS NOT JUSTIFIED TO ARB ITRARILY UPHOLD A DISALLOWANCE OF RS. 15,00,000/- OUT OF FABRICATION CHARGES MADE BY THE LD. ASSESSING OFFICER AT RS. 3,67,14,833/-. 2. THAT SHE WAS FURTHER NOT JUSTIFIED TO ARBITRARILY U PHOLDING DISALLOWANCE OF RS. 7,21,104/- OUT OF TELEPHONE EXPENSES, CAR EXPEN SES AND CAR DEPRECIATION ON ACCOUNT OF ESTIMATED PERSONAL USE THEREOF. A- IN NUTSHELL, THE GROUNDS OF DISALLOWANCE ON ACCOUNT OF FA BRICATION CHARGES IS COMMON IN ALL THE APPEALS OF THE REVENUE AS WELL AS THE ASSESSEES PERTAINING TO AY'S 2010-11, 2011-12 & 2012-13. B- AY 2010-11 REVENUE APPEAL- 1. SUBSIDY UNDER TUFF C- AY 2011-12 REVENUE APPEAL 1. M/S. M.S. EMBROIDARY WORKS CHARGE S. 2. COMMISSION PAID TO BRAND RATE DBK D- AY 2011-12 ASSESSEE APPEAL- 1. COMMISSION PAID TO FOREIGN A GENTS. 2. DISALLOWANCE ON TELEPHONE EXPENSES. 4 E- AY 2012-13 REVENUE APPEAL- 1. DISALLOWANCE U/S 14A F- AY 2012-13 ASSESSEE APPEAL- 1. DISALLOWANCE ON TELEPHO NE EXPENSES. THE ISSUE OF FABRICATION CHARGES IS COMMONLY DEALT FOR ALL THE THREE YEARS. THE ORDER OF AY 2010-11 IS TAKEN AS THE LEAD ORDER IN ALL THE CASES INCORPORATING THE FINDINGS OF THE SURVEY CONDUCTED SUBSEQUENTLY. THE ISSUE O F DISALLOWANCE OF TELEPHONE AND CAR EXPENSES ARE DEALT COMMONLY FOR THE A Y 2011-12 AND 2012- 13. 8. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 2,28,04,828/-. THE AS SESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT, SALE OF HOSIE RY AND ALSO EARNING FABRICATION COMMISSION. 9. DURING THE ASSESSMENT PROCEEDINGS ENQUIRIES WERE CONDUCTED REGARDING THE PAYMENTS OF FABRICATION CHARGES ON WHICH NO TD S WAS DEDUCTED. THIS PERTAINS TO 2440 PARTIES TO WHOM PAYMENTS HAVE BEEN MADE BELOW RS. 50,000/-. BASED ON THE REPORT OF THE INSPECTOR ABOUT NON TRAC EABILITY OF SUCH ADDRESSES GIVEN BY THE ASSESSEE, THE ASSESSING OFFICER HAS AS KED THE ASSESSEE TO PRODUCE 89 PERSONS FOR VERIFICATION. 10. DURING THE PROCEEDINGS THE ASSESSEE PRODUCED 39 JOB WORKERS BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS HELD T HAT THE ASSESSEE HAS PRODUCED 39 PERSONS ONLY OUT OF THE 2440 PERSONS WHO HAVE RE CEIVED PAYMENTS ON ACCOUNT OF FABRICATION CHARGES. CONSEQUENTLY THE AS SESSING OFFICER HAS DISALLOWED 50% OF SUCH EXPENSES OUT OF THE FABRICA TION CHARGES WHEREIN AMOUNTS HAVE BEEN PAID IN CASH AND ARE BELOW RS. 50 ,000/-. 11. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) WHO HAS UPHELD AN AMOUNT OF RS. 15,00,000/- OUT OF THE DISA LLOWANCE OF RS. 1,97,32,232/- MADE BY THE ASSESSING OFFICER. 12. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A) THE REVENUE FILED APPEAL BEFORE US AGAINST THE DELETION OF RS. 1,82,32,232/- WHEREAS THE ASSESSEE FILED CROSS APPEAL AGAINST UPHOLDING OF DISALLOWANCE OF R S. 15,00,000/- . 13. BEFORE US, THE LD. DR STRONGLY RELIED ON THE AS SESSMENT ORDER AND VEHEMENTLY ARGUED ON THE POINTS ELABORATED IN THE A SSESSMENT ORDER. 5 14. THE ARGUMENTS OF THE LD. SR. DR ARE SUMMARIZED BELOW: 14.1 THAT THE ASSESSEE HAS PAID TOTAL AMOUNT OF RS. 3,94,64,463/- ON WHICH TDS WAS NOT DEDUCTED. THE ADDRESSES PERTAINING TO 89 PA RTIES WERE FOUND TO BE NON EXISTING AS PER THE REPORT OF THE INSPECTOR THE ASS ESSEE COULD NOT EVEN PRODUCE A MEAGER SAMPLE OF 5% OF THE WORK FORCE. NONE OF TH E 39 PARTIES WHICH THE ASSESSEE COULD PRODUCE ON THREE DIFFERENT DAYS PERT AINS TO THE 89 ADDRESSES GIVEN BY THE ASSESSEE. THUS THE ASSESSEE COULD NOT PRODUCE THE 89 PARTIES WHO COULD NOT BE TRACED OWING TO THE NON EXISTING ADDRE SSES. SINCE THE ASSESSEE COULD NOT DISCHARGE THE PRIMARY ONUS OF PRODUCING T HE PARTIES AND ALSO THE REVENUE HAS THROUGH THEIR ENQUIRIES PROVED THAT THE PARTIES WERE NOT EXISTING THE DISALLOWANCE HAS BEEN RIGHTLY MADE BY THE ASSES SING OFFICER. 14.2 THE LD. DR HAS ALSO POINTED OUT THAT THERE WAS ALSO SLIGHT FALL IN THE GP AND THE FABRICATION CHARGES HAVE ALSO BEEN INCREASED FR OM 31% TO 35% OF THE TURNOVER WHICH GOES TO PROVE THAT THE FABRICATION C HARGES HAVE BEEN INFLATED. THE LD. DR FURTHER ARGUED THAT THE DISALLOWANCE OF 50% OF THE FABRICATION CHARGES WAS ALSO MADE IN THE AY 2009-10 BUT THIS YE AR THIS DISALLOWANCE IS AFTER A THOROUGH ENQUIRY AND ALSO ON ACCOUNT OF NON- PRO DUCTION OF PARTIES FOR VERIFICATION BEFORE THE AO. TO SUM UP THE LD. DR HA S SUCCINCTLY QUOTED FROM THE ASSESSMENT ORDER THE FOLLOWING POINTS IN SUPPORT OF VALIDITY OF THE ADDITION MADE BY THE ASSESSING OFFICER AND ARGUED THAT THE ADDITI ON NEEDS TO BE CONFIRMED. EXCERPTS FROM THE ASSESSMENT ORDER: I) PAYMENT OF RS. 3,94,64,463/- HAS BEEN MADE. II) THE PAYMENTS ARE BELOW RS. 50,000/-. III) ALL THE PAYMENTS ARE BY WAY OF CASH. IV) ONLY VOUCHERS HAVE BEEN PREPARED BY THE ASSESSE E WHICH CAN BE DONE AT ANY POINT OF TIME. IT DOES NOT PROVE ITS GENUINENESS. V) NO TDS HAS BEEN MADE. VI) THE ASSESSEE WAS ASKED TO PROVIDE NAME AND ADDR ESS OF SUCH PERSONS. VII) THE ADDRESSES PROVIDED WERE FOUND TO BE NON-E XISTENT I.E. FAKE. VIII) INSPECTOR WAS DEPUTED TO VERIFY THE EXISTENCE OF JOB WORKER AT THE GIVEN ADDRESS AND VERIFY THE GENUINENESS OF FABRICATION CHARGES PAID. IX) IT WAS REPORTED BY THE INSPECTOR THAT THE ADDRE SS PROVIDED ARE FAKE OR NO SUCH PERSON EVER STAYED OR WORKED AT THE ADDRESS IN CASE THE AD DRESS WAS IDENTIFIABLE. X) ASSESSEE WAS PROVIDED OPPORTUNITY TO PRODUCED TH E JOB WORKERS FROM 16.01.2013 TO 18.02.2013 I.E. FOR PERIOD OF MORE THAN ONE MONTH B UT ONLY 39 PERSONS OUT OF THE LIST OF 2440 PERSONS'WERE PRODUCED. THE NAME AND ADDRESS OF PERS ONS PRODUCED DID NOT TALLY WITH THE 6 NAME AND ADDRESS MENTIONED IN THE LIST PROVIDED. HE NCE EVEN THE PERSONS PRODUCED CANNOT BE TREATED AS GENUINE. XI) THE ASSESSEE HAS NOT ABLE TO PRODUCE ALL THE PE RSONS TO WHOM FABRICATION CHARGES WERE PAID BY WAY OF CASH INSPITE OF SUFFICIENT OPPORTUNI TY PROVIDED. XII) THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY CONFIRMATION FROM THE JOB WORKER. XIII) ONUS TO PROVE IS ON THE ASSESSEE WHICH IT HAS FAILED TO DISCHARGE BECAUSE NEITHER THE CONFIRMATIONS WERE FILED NOR THE JOB WORKER COULD B E PRODUCED INSPITE OF SUFFICIENT OPPORTUNITY PROVIDED. XIV) THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY T O INCOME TAX PROCEEDING SO EVEN IF THE ADDITION IS DELETED IN EARLIER YEAR OR NO SUCH ADDI TION IS MADE IN EARLIER YEAR DOES NOT MEAN THAT NO ADDITION CAN BE MADE IN THIS YEAR. 15. THE LD. DR SHRI RAVI SARANGAL AND LD. SR. DR SM T. C. CHANDRAKANTA HAVE ARGUED THAT THE ASSESSING OFFICER HAS DULY CONSIDER ED 50% OF THE EXPENSES PAID AND DISALLOWED ONLY 50% OF THE FABRICATION CHARGES THAT HAVE BEEN PAID BY THE WAY OF CASH ON WHICH NO TDS HAS BEEN MADE AND BELOW 50,000/- ARE ONLY DISALLOWED. IT WAS ARGUED THAT SINCE ASSESSEE WAS A LLOWED A FAIR AMOUNT UNDER FABRICATION CHARGES AND ALSO KEEPING IN VIEW THE FA LL IN GP THE DISALLOWANCE MADE BY THE ASSESSING OFFICER NEEDS TO BE CONFIRMED . 15.1 THE LD. DRS FURTHER ARGUED THAT A SURVEY HAS BEEN CONDUCTED AND THE VARIOUS DOCUMENTS AND MATERIAL COLLECTED DURING THE SURVEY WOULD PROVE THAT THE FABRICATION EXPENSES HAVE BEEN INFLATED AND NON -GENUINE. THE DETAILS OF THE ARGUMENTS ARE AS UNDER WHICH WERE ALSO FURNISHE D BEFORE THE LD. CIT(A): (3) IN ADDITION, CONSEQUENT UPON A SURVEY U/S 133A CONDUCTED AT THE PREMISES OF THE APPELLANT ON 6-7.01.2014 (AY-2015-16) THE LD AS SESSING OFFICER HAS ALSO SOUGHT TO MAKE ADDITIONAL SUBMISSIONS ON THE BASIS OF ALLE GED INFIRMITIES OBSERVED THEREIN AS FOLLOWS WHICH HAVE BEEN REPORTED TO YOUR HONOUR VIDE LETTER NO. ACIT/CIT- VI/LDH/13-14/12 DATED 04.04.2014:- I) PAYMENT OF NEARLY 50% OF FABRICATION CHARGES HAS BEEN MADE IN CASH, WHICH IS BELOW RS. 50,000/- II) NO TDS HAS BEEN DEDUCTED III) THE ADDRESSES PROVIDED WERE FOUND TO BE NON-EXISTEN T I.E. FAKE OR INCOMPLETE. IV) INSPECTOR WAS DEPUTED TO VERIFY THE EXISTENCE O F JOB WORKER IN A. Y 2009-10 AND A.Y. 2010-11 AT THE GIVEN ADDRESS AND VERIFY TH E GENUINENESS OF FABRICATION CHARGES PAID. V) IT WAS REPORTED BY THE INSPECTOR IN BOTH THE YEA RS THAT THE ADDRESS PROVIDED ARE FAKE AND NO SUCH PERSON EVER STAYED OR WORKED AT THE ADDRESS IN CASE THE ADDRESS WAS IDENTIFIABLE. VI) ASSESSEE WAS PROVIDED OPPORTUNITY TO PRODUCE TH E JOB WORKERS, IN BOTH THE YEARS. THE ASSESSEE COULD PRODUCE ONLY 83 PERSO N IN A. Y. 2011-12 AND 39 PERSONS IN A.Y. 2010-11. THE NAME AND ADDRESS OF PE RSONS PRODUCED DID NOT TALLY WITH THE NAME AND ADDRESS MENTIONED IN THE LIST PRO VIDED. HENCE EVEN THE PERSONS PRODUCED CANNOT BE TREATED AS GENUINE. 7 VII) THE ASSESSEE HAS NOT ABLE TO PRODUCE ALL THE P ERSONS TO WHOM FABRICATION CHARGES WERE PAID BY WAY OF CASH INSPITE OF SUFFICI ENT OPPORTUNITY PROVIDED IN BOTH THE ASSTT. YEARS. VIII) THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY CONFIRMATION FROM THE JOB WORKER. IX) ONUS TO PROVE IS ON THE ASSESSEE WHICH HE HAS F AILED TO DISCHARGE BECAUSE NEITHER THE CONFIRMATIONS WERE FILED NOR TH E JOB WORKER COULD BE PRODUCED IN-SPITE OF SUFFICIENT OPPORTUNITY PROVIDE D. X) THE ASSESSEE IS EMPLOYING NEARLY 3000 WORKERS. SUCH LARGE NUMBERS OF WORKERS CANNOT BE HANDLED WITHOUT LABOUR CONTRACTOR . THE ASSESSEE HAS ITS OWN EMPLOYEES AS WELL AS LABOUR CONTRACTORS. IT APPEARS THAT WORK IS DONE BY THEM BUT THE CASH EXPENSE ARE SHOWN JUST TO REDUCE THE P ROFIT. IT IS APPARENT THAT THE WORK IS DONE BY THEM AT THE FACTORY BY ITS OWN EMPL OYEES AS WELL AS LABOUR CONTRACTORS. XI) EVERY YEAR LIST OF AROUND 3000 WORKERS IS PREPARED WITHOUT ANY COMPLETE ADDRESS. THIS HAS BEEN FOUND TO BE MODUS OPERANDI O F THE ASSESSEE. PERHAPS THE ASSESSEE FEELS THAT IT IS NOT POSSIBLE FOR THE DEPA RTMENT TO MAKE SUCH LARGE NUMBER OF ENQUIRIES. XII) VOUCHERS OF CASH PAYMENTS ARE PREPARED JUST TO INFLATE THE EXPENSES AS IS EVIDENT FROM THE BLANK SIGNED VOUCHERS IMPOUNDED DU RING THE SURVEY ACTIONS. XIII) THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDING ESPECIALLY SO IN THE PRESENT CASE AS CONSEQUENT TO SURVEY ACTION NEW EVIDENCE HAVE COME TO LIGHT WHICH HAVE BEEN DISCUSSED IN DET AILS BEFORE AND AGAIN HIGHLIGHTED BELOW: BLANK SIGNED BILLS AND BILL BOOKS FOUND IN THE PREM ISES OF THE FIRM FABRICATION BILLS OF TWO YEARS DURING THE COURSE OF SURVEY TWO YEARS I.E 2012-13 A ND 13-14 RELATED FABRICATION BILLS WHERE FOUND WHICH WERE ALL WRITTEN IN SAME HA NDWRITING FALSE ADDRESSES OF THE WORKERS STATEMENT RECORDED DURING ASSESSMENT PROCEEDINGS FO R A. Y. 2011-12 & 2010-11. THE SAME ABOVE MENTIONED FACTS HAVE ALSO COME TO NO TICE WHILE PERUSING THE STATEMENTS OF WORKERS RECORDED DURING THE ASSESSMEN T PROCEEDINGS FOR A. Y. 2011- 12. COPIES OF SOME OF SUCH STATEMENTS ARE ENCLOSED FOR READY REFERENCE. I. ADDRESSES ARE NOT VERIFIABLE AS PER INSPECTOR'S REP ORT. II. FURTHER DURING STATEMENT ADDRESS DO NOT MATCH THE A DDRESS GIVEN EARLIER. III. FURTHER OUT OF ABOUT 3154 ONLY 83 JOB WORKERS PRODU CED. EVEN LAST YEAR 39 JOB WORKERS PRODUCED OUT OF 2440. XIV) FURTHER IT NEEDS TO BE STRESSED THAT THE FACTS GATHERED DURING THE SURVEY WERE NOT AVAILABLE BEFORE THE TRIBUNAL. ORDER OF THE IT AT MAY NOT BE ACCEPTABLE TO THE DEPARTMENT. MOREOVER, THE TRIBUNAL HAS GIVEN A FINDING THAT THE ORDER OF THE CIT(A) DELETING THE ENTIRE ADDITION IS NOT CORRECT. THE HON'BLE TRIBUNAL DID NOT HAVE SUFFICIENT EVIDENCE BEFORE IT WHILE DECIDING T HE APPEAL BUT NOW THE DEPARTMENT HAS SUFFICIENT EVIDENCE TO PROVE THAT TH E EXPENSES ARE NOT GENUINE. 15.2 THUS QUOTING THE FINDINGS OF THE SURVEY CONDUC TED SUBSEQUENTLY THE LD. SR. DR AND THE LD. DR ARGUED THAT SINCE EVEN THE FINDIN GS OF THE SURVEY REVEALED 8 INFLATION OF PAYMENTS ON ACCOUNT OF FABRICATION CHA RGES THE DISALLOWANCE MADE ON ACCOUNT OF FABRICATION CHARGES NEEDS TO BE CONFIRMED. 16. BEFORE US THE LD. AR ARGUED THAT THE ASSESSEE H AS EMPLOYED NEARLY 3000 WORKERS WHICH CONSISTS OF HIS OWN EMPLOYEES AND LAB OUR CONTRACTORS. THE LD. AR MAINLY RELIED ON THE ARGUMENTS TAKEN BEFORE THE LD. CIT(A). THE EXCERPTS OF THE ARGUMENTS ARE AS UNDER: (1) BEFORE PROCEEDING TO DISCUSS THE GROUND OF APPE AL AND BUILD UP A CASE TO NEGATE THE ACTION OF THE LD ASSESSING OFFICER, IT W OULD BE TOPICAL TO GET AN INSIGHT INTO THE APPELLANT FIRM'S BUSINESS, ITS PRODUCTION PROCESS AND OTHER PERTINENT FACTS WHICH WHEN CONSIDERED IN TOTALITY WOULD HIGHLIGHT C ERTAIN DIFFICULTIES FACED IN ITS OPERATIONS AND THE CONSEQUENT PERCEIVED SHORTCOMING S IN ITS RECORD KEEPING (ACCOUNTS/DOCUMENTARY EVIDENCE). THE SAID EXERCISE WOULD ONLY LEAD TO THE CONCLUSION THAT THE LD ASSESSING OFFICER'S LINE OF THINKING AND CONSEQUENT RESULT IS UNREASONABLE AND UNJUSTIFIED AND THAT THE METHOD OF ACCOUNTING, RECORD KEEPING FOLLOWED BY THE APPELLANT FIRM DOES NOT WARRANT ANY ADVERSE ACTION/NEGATIVE OPINION. (2) THE APPELLANT FIRM IS A MANUFACTURER OF HOSIERY KNI TWEAR AND MAINLY EXPORTS COTTON KNITWEAR, AS PER THE BUYER'S SPECIFI CATIONS AND INSTRUCTIONS WITHOUT ANY BRAND NAME OF THE FIRM BEING USED, TO EUROPEAN COUNTRIES WHICH ACTIVITY FORMS MORE THAN 90% OF ITS TOTAL TURNOVER. THE APPE LLANT FIRM IS ALSO ENGAGED IN FABRICATION FOR OTHER EXPORT HOUSES. MANUFACTURE OF HOSIERY GOODS IS A MULTI STAGE PROCESS WHEREIN THE RAW-MATERIAL I.E. YARN PASSES T HROUGH VARIOUS PROCESSES VIZ. DYEING, KNITTING, PANELS, WASHING, PRESSING, CUTTIN G, TAILORING, LINKING, CHECKING, MENDING, SCOURING & MILLING BEFORE THE FINISHED ITE MS IS PRODUCED EACH OF WHICH REQUIRES A SET OF SKILLED/SEMI-SKILLED/UNSKILLED WO RKERS HAVING SPECIFIC CAPABILITIES HONED OVER CONSTANT PRACTICE AND EXPERIENCE GAINED OVER A PERIOD OF TIME. (3) IT SHOULD BE NOTED THAT THE ENTIRE OPERATIONS OF TH E UNIT ESSENTIALLY INVOLVE A SERIES OF PROCESSES INTEGRATED AND DOVETAILING IN TO EACH OTHER WHEREBY THE END-PRODUCT OF ONE PROCESS SERVES AS THE INPUT FOR THE SUBSEQUENT PROCESS. THE MANNER IN WHICH THE VARIOUS PROCESSES INVOLVED IN T HE MANUFACTURE OF A GARMENT SUCH AS KNITTING, CUTTING, TAILORING, LINKING, HAND PRESS ETC AND THE OPERATIONS OF THE UNIT ARE ORGANIZED ARE DISCUSSED BELOW:- > ALL THE WORKERS IN A PARTICULAR SECTION WORK UNDER A SUPERVISOR/MASTER WHO ALLOCATES JOBS TO BE DONE BY A PARTICULAR WORKER ON A GIVEN DAY. THE SAME IS RECORDED BY THE SUPERVISOR IN A DIARY/ REGISTER MAI NTAINED BY HIM AND SOMETIMES, BUT NOT ALWAYS, ALSO BY THE WORKER TO RECONCILE THE MATERIAL RECEIVED FOR WORK AND RETURNED BACK AFTER DOING THE NECESSARY JOB. GIVEN THE LITERACY AND AWARENESS LEVELS OF THE WORKERS THEY MAINTAIN RECORDS, IF AT ALL, ONLY IN A HAPHAZARD MANNER AND THE PRIMARY, IF NOT SOLE RECORD, IS THE ONE MAI NTAINED BY THE SUPERVISOR/MASTER. > AFTER COMPLETION OF THE REQUISITE JOB BY THE RESPEC TIVE WORKER, THE MATERIAL IS RETURNED FOR THE NEXT PROCESS WHICH FACT IS AGAI N DULY RECORDED BY THE SUPERVISOR IN THE PRODUCTION REGISTER AS WELL AS THE DIARY/REG ISTER IN WHICH ISSUE OF MATERIAL WAS RECORDED. > ON THE BASIS OF THE PRODUCTION DETAILS OF EACH WO RKER, A CALCULATION OF THE AMOUNT DUE TO HIM IS RECORDED ON THE PRODUCTION REG ISTER ITSELF TAKING IN CONSIDERATION THE NATURE OF JOB/WORK DONE AND THE C ORRESPONDING RATE. IT WOULD BE NOTED THAT KEEPING IN VIEW THE STRINGENT LABOUR LAWS, SUCH MIGRANT LABOUR IS 9 GENERALLY EMPLOYED ON PIECE RATE BASIS WHEREIN THE QUANTUM OF REMUNERATION DEPENDS UPON THE NATURE AND QUANTUM OF WORK DONE/CO MPLETED. > ON OR AROUND THE 20 TH OF EVERY MONTH, ADVANCE IS GIVEN TO WORKERS ON THE BASIS OF AN ESTIMATE OF THEIR WORK DONE WHICH FACT IS REC ORDED AS AN ADVANCE BY THE ACCOUNTS DEPARTMENT ON PAYMENT BASIS AND ALSO IN TH E PRODUCTION REGISTER. ALTHOUGH A GENERAL OCCURRENCE, THE FACT OF ADVANCE IS NOT A NECESSITY AND MAY NOT ARISE IN SPECIFIC SITUATIONS. > AT THE END OF EACH MONTH A BILL OF EACH OF THE WO RKERS/FABRICATORS IS PREPARED/TAKEN WHICH IS TALLIED WITH THE PRODUCTION REGISTER AND IS DULY RECORDED IN THE ACCOUNTS. THE PAYMENT FOR THE SAME IS MADE A FTER REDUCING THE ADVANCE, IF ANY, ALREADY PAID. (4) COMPLETE DETAILS OF FABRICATION CHARGES, IRRESP ECTIVE OF WHETHER TAX HAD BEEN DEDUCTED THEREON OR NOT, AND THE AMOUNT INVOLV ED WERE DULY FILED BEFORE THE LD ASSESSING OFFICER .THE SAID DETAIL GIVES COM PLETE DETAILS OF FABRICATION CHARGES INCLUDING THE NAME, ADDRESS AND THE AMOUNT PAID TO INDIVIDUAL WORKERS. AS SUCH ON THE BASIS OF SUCH PRELIMINARY DOCUMENTAT ION ITSELF, THE EXPENDITURE UNDER THE SAID HEAD GETS DULY DOCUMENTED AND PROVED . (5) THE LABOUR ENGAGED IN THIS INDUSTRY MOSTLY COMP RISES OF MIGRANTS WHO COME FROM DIFFERENT PARTS OF THE COUNTRY TEMPORARIL Y, STAY AND WORK FOR A FEW MONTHS AND RETURN BACK TO THEIR NATIVE PLACES AND H AVE NO PERMANENT LOCAL ADDRESS WHERE THEY CAN BE PHYSICALLY FOUND. SUCH MI GRANT LABOUR MOTIVATED AND LURED AS IT IS BY THE POSSIBILITY OF SHORT TERM FIN ANCIAL GAIN HAS THE LEAST LOYALTY TOWARDS A PARTICULAR UNIT AND KEEPS MOVING FROM ONE UNIT TO ANOTHER UNIT VERY FREQUENTLY AT THE FIRST AVAILABLE OPPORTUNITY WHICH IS ALSO A GENERALLY ACCEPTED AND INEVITABLE PRACTICE IN THE HOSIERY INDUSTRY. MO ST OF THE LABOUR COMES TO THE APPELLANT FIRM THROUGH REFERENCE OF PAST/PRESENT WO RKERS/FABRICATORS WORKING WITH IT. THE WORKERS, TO WHOM FABRICATION CHARGES HAVE B EEN PAID, ARE MIGRANT LABOURERS, COME FROM DIFFERENT STATES AND LEAD A NO MADIC EXISTENCE BY SHIFTING FROM FACTORY TO FACTORY BASED ON THE POSSIBILITY OF SHORT TERM FINANCIAL GA IN. IN THESE CIRCUMSTANCES THE POSSIBILITY OF THE SAME LAB OURER WORKING WITH THE SAME FIRM FOR SEVERAL YEARS IN SUCCESSION IS REMOTE AND THE SAME SET OF WORKERS, INVARIABLY DOES NOT GET REPEATED IN SUBSEQUENT YEAR S. IT ALSO NEEDS TO BE EMPHASIZED HERE THAT THESE MIGRANT LABOURERS DO NOT HAVE ANY SEMBLANCE OF A PERMANENT RESIDENCE IN LUDHIANA AND ONCE THEY LEAVE IT IS PRACTICALLY IMPOSSIBLE TO LOCATE AND FIND THEM. THESE WORKERS DO NOT FUNCT ION IN AN ORGANIZED MANNER BUT KEEP MIGRATING FROM PLACE TO PLACE IN SEARCH OF WORK AND AS SUCH ONCE THEY LEAVE THE POSSIBILITY OF FINDING THEM IS REMOTE. (6) IT SHOULD ALSO BE NOTED HERE THAT FABRICATION C HARGES ARE HISTORICALLY AND EVEN PRACTICALLY A NORMAL, NECESSARY, INTEGRAL AND INALI ENABLE PART OF THE APPELLANT FIRM'S BUSINESS AND INVOLVE PAYMENTS TO LABOUR FOR WORK CARRIED OUT AT VARIOUS STAGES OF THE PRODUCTION PROCESS FOR CONVERSION OF RAW - MATERIAL INTO FINISHED PRODUCTS I.E. HOSIERY GOODS. A REVIEW OF THE PAST R ECORDS AND INCOME TAX PROCEEDINGS WOULD NOT ONLY BEAR OUT BUT ALSO CONFIR M THIS FACT. MOREOVER THE ASSESSMENTS FOR THE PRECEDING YEARS HAVE ALSO BEEN COMPLETED UNDER SCRUTINY AND AFTER DUE CONSIDERATION INVARIABLY, NO ADVERSE INFERENCE HAS BEEN DRAWN IN RESPECT OF FABRICATION CHARGES EXCEPT FOR ASSESSMEN T YEAR 2009-10. EVEN IN THAT YEAR AN ADDITION ON ACCOUNT OF ALLEGEDLY UNVERIFIAB LE FABRICATION CHARGES WAS MADE ON THE BASIS THAT NEITHER THE PARTIES TO WHOM FABRICATION CHARGES WERE PAID, WERE PRODUCED AND NOR WERE THEY TRACEABLE AT ADDRESSES GIVEN IN THE DETAILS, WHICH WAS SUBSEQUENTLY DELETED BY THE THEN LD COMMISSIONER OF INCOME TAX (APPEALS). SUBSEQUENTLY, THE ADDITION ON THAT A CCOUNT WAS LIMITED BY THE HON'BLE INCOME TAX APPELLATE TRIBUNAL TO ONLY RS. 1 5 LACS. 17. THE LD. AR REINFORCED THAT THE APPELLANT FIRM M AINTAINS REGULAR AND COMPLETE BOOKS OF ACCOUNTS WHICH ARE DULY SUPPORTED BY VOUCHERS AND BILLS 10 AND THE ENTIRE SYSTEM FUNCTIONS IN AN ENVIRONMENT S UBJECTED TO A RIGOROUS SYSTEM OF CHECKS, BALANCES AND AUDIT. 18. THE LD. AR ARGUED THAT OWING TO THE PECULIAR NATURE OF THE APPELLANT FIRMS' BUSINESS NO ADVERSE INFERENCE NEEDS TO BE DR AWN FROM THE FACT THAT EITHER THE ADDRESSES OF THE WORKERS ARE NON-EXISTENT OR TH AT THEY WERE NOT FOUND AT THE GIVEN ADDRESS OR THAT MANY WORKERS HAD THE SAME ADD RESSES SINCE AS ALREADY SUBMITTED ABOVE ALMOST ALL OF THESE WORKERS ARE MIG RATORY IN NATURE AND HAVE NO FIXED PLACE OF STAY IN LUDHIANA. THEY GENERALLY MOVE AROUND IN GROUPS AND FIND A TEMPORARY SEASONAL / PLACE TO STAY KEEPING I N VIEW AVAILABILITY, SUITABILITY AND OTHER ECONOMIC CONSIDERATIONS. EVEN IF, THE SAM E SET OF WORKERS RETURN OVER SUCCESSIVE YEARS, THEY IN ALL LIKELIHOOD FIND A NEW PLACE FOR LODGING AND AS SUCH WOULD NOT BE AVAILABLE AT THE ADDRESS ORIGINALLY FU RNISHED. IN THE LIGHT OF THESE FACTS, PAYMENTS ARE ALSO INVARIABLY MADE TO THEM IN CASH, BEING OF SMALL AMOUNTS, AND THE QUESTION OF ANY DEDUCTION OF TAX A T SOURCE DOES NOT ARISE SINCE THE AMOUNT PAID DOES NOT EXCEED THE EXEMPTION LIMIT BELOW WHICH NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE. 19. TO THE ARGUMENTS OF THE LD. DR THAT F ROM THE DETAILS OF FABRICATION CHARGES FURNISHED BY THE ASSESSEE FIRM DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, IT APPEARS THAT NO TDS HAS BEEN DEDUCT ED ON THE PAYMENT OF FABRICATION CHARGES TO THE TUNE OF RS. 3,94,64,463/ -PAID TO VARIOUS PARTIES TO WHOM SUCH PAYMENTS WERE MADE LESS THAN RS. 50000/-. A). OUT OF THE ABOVE PAYMENTS SOME OF THE PAYMENTS WERE ALSO MADE IN CASH. B). INITIALLY 89 PERSONS AS PER THE LIST GIVEN IN T HE NOTICE WERE TO BE PRODUCED FOR VERIFICATION OF HAVING MADE SUCH PAYMENTS TO TH OSE PARTIES DURING THE PERIOD FROM 16.01.013 TO 18.01.2013. C). THE TIME FOR PRODUCTION OF THESE PARTIES WAS EX TENDED AS REQUESTED WAS EXTENDED TO 18.02.2013. INSPECTOR WAS APPOINTED TO MAKE ENQUIRIES IN RESPECT OF THE PARTIES TO WHOM THE PAYMENTS WERE MADE WHO R EPORTED THAT NONE OF THE PARTIES WERE AVAILABLE AT THE ADDRESSES PROVIDED BY THE ASSESSEE FIRM. 20. THE LD. AR ARGUES IN REPLY THAT MANUFACTURE OF KNITWEARS AND WOOLLEN GARMENTS IS ENTIRELY SEASONAL IN NATURE WITH THE SE ASON LASTING FROM APRIL TO DECEMBER DURING WHICH PERIOD ORDERS ARE BOOKED, AND THE REQUISITE PRODUCTION 11 RELATED ACTIVITIES TAKE PLACE AND DURING WHICH THE WORKERS ARE ALMOST ALWAYS PRESENT AT THE FACTORY PREMISES. THE END OF THE SEA SON IS FOLLOWED BY AN EXTREMELY SLACK/LULL IN ACTIVITY DURING WHICH (FROM JANUARY TO MARCH) WHERE APART FROM RECURRING MAINTENANCE AND OTHER MINIMAL ACTIVI TIES ONLY PREPARATORY ACTIVITIES FOR THE NEXT SEASON ARE UNDERTAKEN WITH HARDLY ANY PRODUCTION RELATED ACTIVITIES BEING UNDERTAKEN AND AS A RESULT VERY FE W WORKERS CAN BE FOUND AT THE FACTORY PREMISES. THE WORKER ALSO BEING ESSENTIALLY MIGRANT LABOURER UTILIZE THE OPPORTUNITY TO VISIT THEIR NATIVE PLACE AND SPEND T IME WITH THEIR FAMILIES. 20.1 IN THIS SCENARIO, THE APPELLANT FIRM WAS ASKED TO PRODUCE 89 PERSONS LISTED IN THE NOTICE ISSUED BY THE LD ASSESSING OFFICER. A T THE RELEVANT TIME, NO MANUFACTURING ACTIVITY WAS BEING CARRIED OUT AND HA RDLY ANY WORKER WAS PRESENT/AVAILABLE AS PER THE LIST OF PERSONS PROVID ED BY THE LD ASSESSING OFFICER WHO WERE TO BE PRODUCED. IN SPITE OF ALL THIS, THE APPELLANT FIRM AFTER SOME EFFORT WAS ABLE TO PRODUCE 39 PERSONS FROM THE SAID LIST D ESPITE THE FACT THAT MAJORITY OF THE MANUFACTURING ACTIVITY STOOD CLOSED DOWN DUR ING THE MONTHS OF JANUARY AND FEBRUARY. ALL THE PERSONS WHO WERE PRODUCED BEF ORE THE LD ASSESSING OFFICER HAVE STATED AND CONFIRMED THAT THEY - > ARE DOING WORK WHERE THEY ARE GETTING COMPARATIVELY BETTER EARNINGS; > KEEP ON CHANGING THE WORK PLACE AND HAVE NO PERMANE NT WORK PLACE > DO NOT HAVE ANY PERMANENT ADDRESS AS THEY ARE HERE TO EARN THEIR BREAD AND BUTTER AND GO BACK IN THE SLACK/LEAN PERIOD TO THEIR NATIVE PLACES. > WORKED WITH THE APPELLANT FIRM ON JOB WORK BASIS AN D THEY WERE PAID THROUGH THEIR RESPECTIVE SUPERVISORS. > THE ADDRESS GIVEN IN THE BILL MIGHT HAVE BEEN WRITT EN BY THE SUPERVISORS OF THEIR OWN AND AS THEY ARE NOT EDUCATED AND ARE CONC ERNED ONLY WITH THEIR JOB CHARGES. 20.2 THE SAME LOGIC ALSO APPLIES WITH RESPECT TO TH E ALLEGED ADVERSE REPORT OF THE INCOME TAX INSPECTOR WITH RESPECT TO WHICH IT I S RESPECTFULLY SUBMITTED THAT KEEPING IN VIEW THE FACT THAT JANUARY - FEBRUARY IS A SLACK - PERIOD WHEREIN MOST OF THE WORKERS RETURN BACK TO THEIR NATIVE PLACES, IT IS PRACTICALLY IMPOSSIBLE TO TRACE THE WORKERS PHYSICALLY AT THE GIVEN ADDRESSES . 20.3 IT SHOULD ALSO BE EMPHASIZED THAT PAYMENTS MAD E TO WORKERS AS ARE ALSO DULY AND PROPERLY VOUCHED. COMPLETE VOUCHERS RELATI NG TO THE WORK DONE AND 12 PAYMENTS MADE WITH RESPECT TO THE WORKERS MENTIONED IN THE NOTICE ISSUED BY THE LD ASSESSING OFFICER WERE DULY FILED BEFORE HIM . INABILITY TO PRODUCE THE REMAINING WORKERS IN SUCH A SHORT PERIOD AND IN SUC H A SCENARIO IS OWING TO A REASONABLE CAUSE BORDERING ON IMPOSSIBILITY OF PERF ORMANCE IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S BUSINESS. IT SHOUL D BE APPRECIATED THAT IT IS REALLY IMPRACTICAL AND IMPOSSIBLE TO KEEP A DAY-TO- DAY TRACK OF ALL SUCH PEOPLE/LABOURERS SINCE BEING ESSENTIALLY MIGRANT LA BOUR EMPLOYED FOR CARRYING OUT THE PRODUCTION OF GARMENTS AFTER END OF SEASON THEY START RETURNING TO THEIR NATIVE PLACE AS NEITHER THEY ARE LIVING WITH THEIR FAMILIES NOR DO THEY HAVE ANY PERMANENT RESIDENCE IN THE AREA. 21. THE LD. DR HAS TAKEN ON ARGUMENT THAT THE FALL IN THE GP TO 27.53% FROM 29.11% IS ALSO GIVES AN INDISPUTABLE PROOF THAT THE EXPENSES ARE BEEN INFLATED TO THE CURTAIL THE PROFITS FOR WHICH THE LD. AR REPLIE D THAT THE GROSS PROFIT RATE, WHICH IS DEFINED TO AS THE RATIO OF GROSS PROFIT TO SALES TURNOVER, IS A COMBINED RESULT OF THE FUNCTION OF TWO DIFFERENT VARIABLES VIZ. GROSS PROFIT AND SALES. GROSS PROFIT IN TURN IS DERIVED BY REDUCING COST OF GOODS SOLD FROM THE SALES PROCEEDS. AS SUCH THE MOVEMENT IN TWO VARIABLES VIZ. COST OF GOODS SO LD AND SELLING PRICE HAS TO BE ANALYZED AND CONSIDERED IN TANDEM, GLOBALLY AND BY ADOPTING A HOLISTIC APPROACH WITH A MACRO-VIEW TO BE ABLE TO DETERMINE THE REASONS FOR ANY UPWARD/DOWNWARD MOVEMENT IN GROSS PROFIT RATIO AND ANY VARIABLE CANNOT BE CONSIDERED IN ISOLATION. 21.1 THE LD. AR FURTHER ARGUED THAT WITH PARTICULAR REFERENCE TO THE APPELLANT FIRM'S CASE IT IS SUBMITTED THAT THE FALL IN GROSS PROFIT RATE WAS CONSEQUENT UPON NORMAL BUSINESS FLUCTUATIONS/EXIGENCIES AND THE SP ECIFIC REASONS ARISING THEREFORE CAN BE SUMMED UP AS FOLLOWS ALTHOUGH CERT AIN OTHER ACCENTUATING FACTORS:- > THE RATIO OF EXPORT INCENTIVES TO TURNOVER HAS COME DOWN FROM 9.39% TO 8.61% I.E. A FALL OF 0.78%. > INCREASE OF SALE ON ACCOUNT OF YARN, CHEMICALS ETC. WHICH WAS JUST * 1.78 LACS IN THE LAST YEAR I.E. IN FINANCIAL YEAR 2 008-09 TO ' 41.61 LACS DURING THE YEAR UNDER APPEAL. TRADING OF YARN AND CHEMICAL S, WHICH ALTHOUGH PURCHASED FOR OWN CONSUMPTION, BUT COULD NOT BE SO USED AND SOLD, AS IT IS, AT A REDUCED/NEGLIGIBLE PROFIT MARGIN. 13 > IF THE SALE COMPONENT OF THESE TRADING ITEMS IS RED UCED, THE G. P. WILL COME TO 28.0% AS AGAINST 27.53%. > INCREASE IN THE PROPORTION OF EXPENDITURE ON WAGES IN THE APPELLANT'S FIRM'S LINE OF TRADE WHICH IS SEASONAL, THERE IS A SHORTAGE OF LABOUR PARTICULARLY FOR SKILLED WORKERS RESULTING I N FIXED PAYMENTS EVEN THOUGH THE SALES MAY BE LESS. EVEN OTHERWISE GENERA L INCREASE IN THE WAGES CANNOT BE AVOIDED PARTICULARLY WHERE THERE IS AN ACUTE SHORTAGE OF LABOUR. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT FIRM COULD NOT ACHIEVE THE SALES LEVEL WHICH HAS BEEN ACHIEVED DURING THE LAST YEAR RESULTING IN PROPORTIONATE EXPENDITURE ON WAGES BEI NG HIGHER BY MORE THAN 1.2% AS COMPARED TO THE PREVIOUS YEAR'S. 22. REGARDING THE OBSERVATIONS OF THE LD. DR ON THE FINDINGS OF THE SURVEY UNDER SECTION 133A CONDUCTED ON 06/01/2014 SUCH AS PRESENCE OF BLANK SIGNED BILLS AND BILL BOOKS FOUND IN THE PREMISES OF THE F IRM AND SIMILARITY OF THE HANDWRITING ON THE BILLS PROVING THAT THE BILLS WER E BOGUS THE LD. AR REPLIES AS UNDER: (A) WITH REGARD TO THE ISSUE AS TO WHY THE SIGNED B ILLS OF SOME OF THE PARTIES/JOB WORKERS WERE FOUND FROM THE BUSINESS PR EMISES OF THE APPELLANT FIRM AND NO AMOUNT BEING MENTIONED THEREO N, ATTENTION IS INVITED TO THE SYSTEM OF RECORDING OF PRODUCTION AN D PAYMENTS DISCUSSED EARLIER. IN THIS CONNECTION, IT IS ALSO SUBMITTED, EVEN AT THE COST OF REPETITION, THAT THE APPELLANT FIRM IS ENGAGED IN T HE MANUFACTURING OF GARMENTS WHICH BUSINESS IS SEASONAL IN NATURE WITH THE PEAK MONTHS BEING APRIL TO NOVEMBER/DECEMBER. THE WORKERS WHOSE BILLS WERE FOUND HAVE ALREADY LEFT THE WORK AS THE SEASON HAS COME TO AN END. THEY HAVE BEEN PAID AS PER THE WORK DONE BY THEM RECORDED IN THE P RODUCTION REGISTER WHICH STANDS DULY RECORDED IN THE BOOKS OF ACCOUNTS , NECESSARY EVIDENCE DULY FILED BEFORE THE LD ASSESSING OFFICER AND AGAI N BEING ENCLOSED HEREWITH (ANNEXURE -3) WITH RESPECT TO THE DETAILS OF WORK GIVEN TO THEM BY THE SUPERVISOR AND RECORDED BY HIM IN THE PRODUC TION REGISTER AS PER THE SYSTEM OF RECORDING OF WORK DONE BY THE WORKERS AS MENTIONED SUPRA IN RESPECT OF EACH AND EVERY BILL FOUND AND IMPOUND ED. (B) IN THIS CONNECTION, REFERENCE MAY AGAIN ALSO BE MAD E TO THE SYSTEM OF RECORDING PRODUCTION/PAYMENTS ETC. AS ALREADY DI SCUSSED ABOVE 14 WHEREIN IT WAS STATED THAT BILLS ARE GENERALLY PREP ARED MONTHLY AND THAT THE LABOURERS WORKERS BEING ILLITERATE DO NOT MAINT AIN ANY RECORDS THEMSELVES BUT INVARIABLY DEPEND UPON THEIR MASTER/ SUPERVISOR FOR MAINTAINING OR PREPARING THE NECESSARY RECORDS. AS SUCH THE BILL BOOKS/VOUCHERS ARE HANDED OVER TO THE CONCERNED MAS TER/SUPERVISOR WHO MAINTAINS IT ON BEHALF OF THE WORKERS AND PREPA RES THE BILLS PERIODICALLY, GENERALLY AT MONTH END. THIS FACT WAS ALSO CONFIRMED BY SH VINAY ADYA, PARTNER OF THE APPELLANT FIRM IN HIS ST ATEMENT RECORDED IN THE COURSE OF SURVEY U/S 133A OF THE ACT. THE WORKERS B EING ILLITERATE GENERALLY ONLY MAINTAIN A MENTAL RECORD OF THE WORK DONE FOR WHICH THE NECESSARY DOCUMENTARY EVIDENCE IS GENERALLY KEPT BY AN EMPLOY EE, GENERALLY THE CONCERNED SUPERVISOR/MASTER. IN THIS SITUATION AND THE FACT OF COMPLETE TRUST AND FAITH BETWEEN THE WORKERS AND THIS SUPERV ISOR, BLANK BILL BOOK, SOMETIMES EVEN SIGNED, WERE LEFT IN THE CUSTODY OF THE SUPERVISOR. SUCH A SITUATION, WHEN VIEWED IN THE CONTEXT OF THE MANNER IN WHICH THE UNIT OF THE FIRM OPERATES AND THE ENTIRE MANUFACTURING PROC ESSES CONSISTING OF AS IT IS OF A SERIES OF PROCESS INTERWINED INTO EACH O THER WOULD EMINENTLY JUSTIFY THE PREVAILING SITUATION. FURTHER UPON THE COMPLETI ON OF THE SEASON THE WORKERS INVARIABLY LEAVE BLANK BILL BOOKS WITH THE APPELLANT FIRM TO BE USED IN CASE HE COMES BACK TO WORK SUBSEQUENTLY. IT IS W ORTH MENTIONED HERE THAT ONLY SINGLE-SINGLE SIGNED BILL WAS FOUND DURIN G THE COURSE OF SURVEY THAT TOO WAS TO BE SUED BY THE APPELLANT FOR RAISING THE IR PENDING BILL FOR THE IMMEDIATE PAST MONTH SINCE THE PAYMENT TO THOSE PAR TIES WERE ALREADY MADE AND ACCOUNTED FOR IN THE BOOKS BECAUSE OF THE FACT THAT THEIR WORK WAS NO MORE REQUIRED AND THEY HAD LEFT FOR THEIR HO ME TOWN DUE TO SEASON WAS AT FAG END. (C) FURTHER WITH REGARD TO THE PERSONAL PRESENCE OF TH E WORKERS, IT IS SUBMITTED THAT AS ALREADY STATED ABOVE, DUE TO LEAN SEASON THEY HAD NO WORK AND AFTER SETTLING THEIR ACCOUNTS HAVE ALREADY LEFT FOR THEIR NATIVE PLACES TO BE BACK AT THE BEGINNING OF THE FRESH SEA SON. THE APPELLANT FIRM DURING THE COURSE OF THE SURVEY OPERATION HAD DULY EXPRESSED ITS WILLINGNESS TO PRODUCE THEM PERSONALLY AS SOON AS THEY RETURN B ACK TO WORK. IT MAY BE SUBMITTED THAT MANY OF THE WORKERS ARE BACK TO WORK IN OUR PREMISES AND CAN BE PRODUCED WHEN DESIRED. 15 (D) WITH RESPECT TO WORKERS TO WHOM PAYMENTS WERE MADE AS PER ANNEXURE A-8 TO A- 10 FOUND AND IMPOUNDED FROM THE BUSINESS PREMISES OF THE APPELLANT FIRM DURING THE COURSE OF SURVEY U/S 133A, IT IS SUBMITTED THAT THE SYSTEM OF RECORDING OF THE WORK DONE AND PAYMEN TS MADE TO THESE WORKERS IS THE SAME AS THAT MENTIONED HEREINBEFORE IN THESE WRITTEN SUBMISSIONS. ALL THE PARTIES/WORKERS TO WHOM SUCH P AYMENTS WERE MADE ARE THE WORKERS OF THE APPELLANT FIRM AND WERE GETT ING THEIR PAYMENTS THROUGH THESE VOUCHERS. NECESSARY EVIDENCE IN RESPE CT OF SOME OF THE WORKERS WHO HAD DONE WORK WITH THE APPELLANT'S FIRM DURING THE RESPECTIVE PERIOD WAS DULY FILED DURING THE SURVEY PROCEEDINGS AND IS AGAIN BEING ENCLOSED HEREWITH (ANNEXURE - 4). DURING THE COURSE OF SURVEY, THE LD ASSESSING OFFICER HAD ALSO DRAWN A LIST OF WORKERS WHO WERE GOING OUT OF THE BUSINESS PREMISES DURING LUNCH HOURS /ON DUTY. A LIST OF SUCH WORKERS WHOSE NAMES ARE IN THE LIST DRAWN ON THE DATE OF SU RVEY AND ALSO IN THE LIST OF PARTIES/WORKERS TO WHOM PAYMENTS WERE MADE AS PE R ANNEXURE A-8 TO A-10 WAS DULY DRAWN AND FILED BEFORE THE LD ASSESSI NG OFFICER AND IS AGAIN BEING ENCLOSED HEREWITH (ANNEXURE - 5) WHICH CLEARL Y SHOWS THAT THE WORKERS TO WHOM THE PAYMENTS AS ANNEXURE A-8 TO A-1 0 WERE MADE ARE VERY MUCH THE WORKERS OF THE FIRM. (E) REGARDING THE ISSUE OF DIFFERENCE OF CLOSING BA LANCE OF STOCK AS ON THE DATE SURVEY WITH OUTSIDE PARTIES FOR JOB WORK, IT I S SUBMITTED THAT THE DETAILS OF 1637 KGS OF MATERIAL MOSTLY YARN LYING WITH DIFF ERENT PARTIES, AS PROVIDED BY THE ACCOUNTS DEPARTMENT IS IN RESPECT OF MATERIA L, GIVEN TO DIFFERENT PARTIES DURING THE PERIOD ENDING ON THE DATE OF SUR VEY, FOR KNITTING THEREOF. MOST OF THE MATERIAL IS BEING GIVEN TO JOB WORKERS FROM THE PREMISES SITUATED AT 342, INDUSTRIAL AREA-A, AS THE RAW MATE RIAL IS STORED THERE ONLY. AFTER KNITTING THE SAME IS RECEIVED BACK ALONG WITH THEIR BILL FOR CHARGES. BUT THE QUANTITY OF 647 PES AS PER DETAILS NOTED DU RING THE COURSE OF SURVEY FROM THE OUTWARD REGISTER IS THE SEMI FINISHED PIEC ES SENT OUT FOR EMBROIDERY. THE SAME ARE IN NORMAL COURSE RECEIVED BACK FROM THE CONCERNED PERSONS AFTER 10-12 DAYS WITH THEIR BILL FOR CHARGES. AS VERY SMALL QUANTITY OF PIECES IS BEING GIVEN FOR THIS JOB WORK AND NO SUCH RECORD IS BEING MAINTAINED IN RESPECT OF THE SAME IN ACCOUNTS OTHERWISE ALSO NO AMOUNT IS INVOLVED EXCEPT THEIR JOB CHARGES/BILLS, WHICH ARE DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. SOME OF THE BILLS WHICH WERE PAID 16 BY THE APPELLANT FIRM TO THESE PARTIES AGAINST THEI R SIMILAR WORK DONE DURING THE PERIOD ENDING ON THE DATE OF SURVEY WERE DULY FILED BEFORE THE LD ASSESSING OFFICER. THE SAID AVERMENTS FULLY EXPL AIN THE ALLEGED DIFFERENCE POINTED OUT IN RESPECT OF MATERIAL REMAI NING WITH THE JOB WORKERS AS ON THE DATE OF SURVEY. THIS QUERY HAS NO T MUCH RELEVANCE IN THE YEAR UNDER APPEAL AND REPLIED BECAUSE IT WAS ALSO A QUERY DURING THE COURSE OF SURVEY. THEREFORE IT HAS RELEVANCE FOR A/ Y 2014-15. 22.1 TO SUM UP, THE POINTS MADE BY THE ASSESSING OF FICER WHILE DISALLOWING THE FABRICATION CHARGES AND THE EXPLANATION OF THE ASSE SSEE IS AS UNDER: SL. NO. ARGUMENTS OF THE AO / DR ARGUMENTS OF THE ASSESSEE COMMENTS 1 PAYMENT OF RS. 3,94,64,463/- HAS BEEN MADE. FACTUAL STATEMENT AS PER RECORDS 2 THE PAYMENTS ARE BELOW RS. 50,000/-. FACTUAL STATEMENT AS PER RECORDS 3 ALL THE PAYMENTS ARE BY WAY OF CASH. MATTER OF FACT AS PER RECORDS. NO INFIRMITY OR BAR ON CASH PAYMENT FOR FABRICATION CHARGES. 4 ONLY VOUCHERS HAVE BEEN PREPARED BY THE ASSESSEE WHICH CAN BE DONE AT ANY POINT OF TIME. IT DOES NOT PROVE ITS GENUINENESS. DETAILED EXPLANATION BY THE ASSESSEE HOW THE VOUCHERS ARE PREPARED AND PAYMENTS HAVE BEEN DONE HAS BEEN EXPLAINED PREPARATION OF VOUCHERS FOR PAYMENTS IS A PRACTICE FOR ACCOUNTING. AVAILABILITY OF VOUCHER CANNOT BE TREATED AS BOGUS PAYMENTS. 5 NO TDS HAS BEEN MADE MATTER OF FACT AS PER THE STATUTE. CANNOT BE A REASON FOR DISALLOWANCE. 6 THE ASSESSEE WAS ASKED TO PROVIDE NAME AND ADDRESS OF SUCH PERSONS. DULY PROVIDED THE REASONS FOR NON AVAILABILITY OF THE PARTIES WAS DULY EXAMINED BY THE CIT(A). MIGRATION OF THE WORKERS DURING THE LEAN PERIOD IS A NORMAL PHENOMENA 7 INSPECTOR WAS DEPUTED TO VERIFY THE EXISTENCE OF JOB WORKER AT THE GIVEN ADDRESS AND VERIFY THE GENUINENESS OF FABRICATION CHARGES PAID. THE ASSESSEE HAS PRODUCED 39 PARTIES FOR EXAMINATION BEFORE THE ASSESSING OFFICER REPORT OF THE INSPECTOR READS AS UNDER: SIR, AS PER YOUR KIND DIRECTIONS I VISITED THE FOLLOWING LOCALITIES / AREAS TO ENQUIRE ABOUT THE PERSONS MENTIONED IN THE LIST PROVIDED TO ME, TODAY I.E., 02/01/2013..(REPORT DT. 03/01/2013) AND IN TOTAL THE INSPECTOR IS PURPORTED TO HAVE ENQUIRED ABOUT 87 PARTIES IN A SINGLE DAY. 8 PARTIES NOT PRODUCED AVAILABLE PARTIES PRODUCED, OLD PARTIES NOT AVAILABLE. OWING TO THE ROTATION OF LABOUR THE SAME PERSONS WERE NOT AVAILABLE FOR EXAMINATION AFTER A LAPSE OF CONSIDERABLE TIME. 17 9 IT HAS BEEN ALREADY EXAMINED BY THE LD. CIT(A) WHY THE OLD WORKERS COULD NOT BE PRODUCED. IT WAS ALSO DIFFICULT TO PRODUCE ALL 2400 PERSONS IN THE LEAN PERIOD WHERE THE FACTORY WORK IS AT THE LOWEST LEVEL. 10 PAYMENTS ARE BY VOUCHERS ONLY IT IS A NORMAL METHOD OF MAKING PAYMENTS THE VOUCHERS WOULD SERVE AS EVIDENCES FOR RECEIPT OF THE PAYMENT. 11 CONFIRMATIONS WERE NOT FILED PREVIOUS WORKERS LEAVE DURING POST DECEMBER PRODUCTION. THESE TWO ARE INTERLINKED SINCE THE WORKERS WERE ON MOVE AND ON ROTATION THEY WERE NOT PRODUCED SO AS THE CONFIRMATION. 12 RES-JUDICATA IS NOT APPLICABLE AND SURVEY FINDINGS CAN BE A TOOL TO FIND OUT THE TRUTH. EVERY YEAR IS AN INDEPENDENT YEAR. SO AS THE ADDITION DURING THE YEAR IS ALSO VIEWED ON A STANDALONE BASIS NOT ON THE BASIS OF EARLIER ADDITIONS THE FACTS CAN BE VIEWED TAKING INTO CONSIDERATION THE TOTALITY OF THE FACTS AND CIRCUMSTANCES 22.2 THE CHART SHOWING THE TOTAL FABRICATION CHARGE S PAID MONTH- WISE BY THE APPELLANT FIRM WHICH WILL CLEARLY SHOW THAT FABRICA TION CHARGES PAID IN THE MONTHS OF DECEMBER TO APRIL ARE VERY LESS AS COMPAR ED TO THE FABRICATION CHARGES PAID DURING THE OTHER SEVEN MONTHS INDICATI NG MIGRATION-OUT OF THE LABOUR DURING THE LEAN PERIOD. MONTH FABRICATION CHARGES APRIL 1336579.00 MAY 9522666.00 JUNE 10417892.00 JULY 14029184.80 AUG 10362750.00 SEPT 7705758.20 OCT 10504263.60 NOV 5102779.60 DEC 3703451.20 JAN 2580497.00 FEB 1651130.00 MARCH 3040127.00 TOTAL 79957079 23. ON EXAMINATION OF THESE FACTS AND GOING THROUGH THE MATERIAL PLACED BEFORE US THE DECISION OF THE LD. CIT(A) IS REVISIT ED. THE CIT(A) HELD AS UNDER: 3.7 I AM INCLINED TO AGREE WITH THE CONTENTION OF A PPELLANT. APPARENTLY, THIS IS THE CASE WHEREIN THE AO HAS NOT APPRECIATED SOME BA SIC FACTS OF THE CASE. APPARENTLY, THE APPELLANT IS ENGAGED IN THE BUSINES S OF MANUFACTURING AND EXPORT/SALE OF HOSIERY. DURING ASSESSMENT PROCEEDIN GS, THE AO NOTED THAT THE APPELLANT HAD INCURRED SOME ABNORMAL EXPENSES ON FA BRICATION I.E EMBROIDERY WORK, TAILORING, IRONING, TURPAI ETC. THE AO FURTHER NOT ED THAT IN THE ASSESSMENT PROCEEDINGS OF A.Y. 2009-10, IT WAS FOUND THAT THE APPEALLENT HAS BEEN INCURRING A LARGE AMOUNT OF EXPENDITURE UNDER THE HEAD FABRIC ATION CHARGES. THE APPELLANT HAD MADE PAYMENTS IN CASH TO A LARGE NUMB ER OF WORKERS RANGING FROM 2500 TO 3500 IN WHICH ALMOST 50% OF THE PAYMEN TS WERE IN CASH WITHOUT DEDUCTING TDS AND THE BALANCE 50% WERE BY CHEQUE BY DEDUCTING TDS. THE AO 18 AFTER ANALYSIS OF CERTAIN FACTORS PERTAINING TO APP ELLANT'S BUSINESS, CAME TO CONCLUSION THAT IN NORMAL BUSINESS PRACTICE, IN THI S NATURE OF WORK, IT SHOULD HAVE SO MANY LABOUR BUT IN THAT CASE, AS IT WOULD BE DIF FICULT TO HANDLE SO MANY LABOURORS, SO IDEALLY PAYMENT SHOULD HAVE BEEN MADE TO THE CONTRACTOR SO THAT ISSUES PERTAINING TO LABOUR COULD BE SOLVED AT ONE POINT ONLY. IN THAT CASE, PAYMENT WOULD EXCEED RS. 50,000/- AND THUS WOULD CO ME WITHIN THE AMBIT OF PROVISIONS OF TDS BUT THE APPELLANT HAD BEEN MAINTA INING PRACTICE OF ENGAGING WORKERS INDEPENDENTLY RANGING FROM 2500 TO 3500 DIR ECTLY. THE AO MADE DISALLOWANCE OF RS. 1,97,32,232/- ON ACCOUNT OF FAB RICATION ACCOUNT, AS THE AO FOUND IT UNVERIFIABLE. MAINLY, THE AO PLEA FOR THIS DISALLOWANCE IS UNVERIFIABLE NATURE OF PAYMENTS TO THE LABOURES. THE PAYMENTS WH ICH WERE MADE IN CASH HAVE BEEN DISALLOWED 50% BY THE AO, ON THE PLEA TH AT THE APPELLANT COULD NOT PRODUCE THE PERSONS FOR VERIFICATION. 3.8 THE APPELLANT DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, WAS ASKED TO FILE THE COMPLETE DETAILS OF PAYMENTS MADE BY THE A PPELLANT TO THE LABOURES. THE APPELLANT HAS STATED THAT COMPLETE LIST OF 3000 PER SONS ALONG WITH THE ADDRESSES OF PARTIES WERE FILED WITH THE ASSESSING OFFICER AN D THIS INFORMATION WAS FILED ON THE BASIS OF WHATEVER INFORMATION THE APPELLANT HAD , ABOUT SUCH PARTIES. THE APPELLANT FURTHER CONTENDED THAT THE SUPPLIERS OF T HESE GOODS HAVE NO PERMANENT PLACES FOR CARRYING ON THE BUSINESS. IN V IEW OF THE CIRCUMSTANCES AND THE REGULAR PRACTICE AS DESCRIBED BY THE APPELLANT, THE APPELLANT COULD NOT PRODUCE OR LEAD ANY EVIDENCE AS PER THE ASSESSING O FFICER OTHER THAN 39 PARTIES AND THE ASSESSING OFFICER WITHOUT CONSIDERING THE H UGE TURNOVER OF THE APPELLANT AND WITHOUT CONSIDERING THE MODALITIES AS TO HOW IN ABSENCE OF THESE PAYMENTS, THE APPELLANT WOULD HAVE CARRIED ON WITH THE FABRIC ATION WORK HAVING TURNOVER OF RS. 2279.1 LACS WHEREIN THE FABRICATION CHARGES ARE TO THE TUNE OF RS. 799.57 LACS THAT WORKS OUT TO AROUND 35.08% OF TURNOVER OUT OF THIS THE TOTAL PAYMENT OF RS.799.57 LACS THE CASH PAYMENTS/NON TDS WORKS OUT TO RS. 394.64 LACS. THE TDS COMPONENT OF FABRICATION CHARGES ARE RS. 404 . 93 LACS , OUT OF WHICH THE DISALLOWANCE CARRIED OUT BY THE IS AO RS. 197.32 LA CS. THIS ADDITION IS FOR THE REASON THAT THE APPELLANT COULD PRODUCE EXCEPT ONLY 29 PERSONS DURING THE COURSE OF HEARING BEFORE THE ASSESSING OFFICER. THE APPELLANT HAD DEBITED AN AMOUNT IN THE MANUFACTURING AND TRADING A/C OF RS. 3,94,64,463/- OWING TO FABRICATION CHARGES OUT OF WHICH A SUM OF RS.1,97,3 2,232/- HAS BEEN DISALLOWED ON THE FOLLOWING BASIS: PARTICULARS AMOUNT(RS.) FABRICATION CHARGES PAID IN CASH BELOW RS.50,000/- TO EACH OF ABOUT 3000 WORKERS AND ON WHICH NO TDS HAS TO BE DEDUCTED 1,97,32,232/- 3.9 THE ASSESSEE HAS DEBITED FABRICATION CHARGES T O ITS P & L ACCOUNT TO THE EXTENT OF RS. 3,94,64,463/-. OUT OF THE SAID FABRIC ATION CHARGES, THE PAYMENTS WHICH HAVE BEEN MADE IN CASH AND ARE BELOW RS. 50,0 00/- TO ONE PERSON ARE TO THE EXTENT OF RS. 1,97,32,232/-. AS DISCUSSED ABOVE , SUCH EXPENSES ARE DISALLOWED. DISALLOWANCE ON THIS ACCOUNT COMES TO RS. 1,97,32,2 32/-. 3.10 I HAVE CAREFULLY CONSIDERED THE BASIS OF ADDIT ION MADE BY AO AND DETAILED ARGUMENTS OF ASSESSING OFFICER. THE REMAND REPORT SENT BY THE AO AND SUBSEQUENT REPORTS OF AO HAVE ALSO BEEN CONSIDERED. THE IMPORTANT PART OF THE BASIS OF AO'S VIEW IS THE REPORT OF ITI, MAKING ENQ UIRIES OF VARACITY OF FABRICATION CHARGES CLAIMED BY APPELLANT. I HAVE GONE THROUGH I N DETAIL, THE REPORT OF ITI AND THE DETAILED SUBMISSION FILED BY THE APPELLANT ON T HIS ISSUE. I AM INCLINED TO PARTLY AGREE WITH THE CONTENTION OF APPELLANT. THE MAIN CO MPONENT OF AO'S SATISFACTION W.R.T. ADDITION IS APPARENTLY, THE ITI'S REPORT AND SURVEY CARRIED OUT IN THE PREMISES OF APPELLANT ON 06&07.01.2014. ALTHOUGH IN LATER YE AR, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAS RELIED UPON THE MATERIAL IMPOUNDED DURING THE COURSE OF SURVEY PROCEEDINGS. I HAVE CAREFULLY PERUSED ALL THE RELEVANT FACTS AND REPORTS OF AO, IT IS SEEN THAT THE AO IN HIS RE MAND REPORT DATED 20.10.2014 HAS GIVEN DETAILED SUBMISSION. 19 3.11 THE APPELLANT HAS ALSO CONTESTED THAT THE ASS ESSING OFFICER OBSERVED THAT THE APPELLANT HAD PRODUCED ONLY 39 PERSONS OUT OF L IST OF 2440 LABOURES, FILED BY THE APPELLANT AND ON THE REPEATED REQUEST THE APPEL LANT FAILED TO PRODUCE REMAINING PERSONS. IN THIS REGARD, I HAVE CAREFULLY GONE THROUGH THE CONTENTION OF BOTH SIDES. HERE, IT IS ALSO BE PROPER TO KEEP THE BASIC FACTS RELATED TO APPELLANTS WORKING PROFILE. THE APPELLANT IS A MANUFACTURER OF HOSIERY KNITWEAR AND MAINLY EXPORTS COTTON KNITWEAR AND THIS ACTIVITY FORMS MOR E THAN 90% OF ITS TOTAL TURNOVER. THE APPELLANT IS ALSO ENGAGED IN FABRICATION FOR OT HER EXPORT HOUSES. MANUFACTURE OF HOSIERY GOODS IS A MULTI STAGE PROCESS WHEREIN T HE RAW-MATERIAL I.E. _ YARN PASSES THROUGH VARIOUS PROCESSES VIZ. DYEING, KNITTING, PA NELS, WASHING, PRESSING, CUTTING, TAILORING, LINKING, CHECKING, MENDING, SCOURING & M ILLING BEFORE THE FINISHED ITEMS IS PRODUCED EACH OF WHICH REQUIRES A SET OF SKILLED /SEMI-SKILLED/ UNSKILLED WORKERS HAVING SPECIFIC CAPABILITIES HONED OVER CONSTANT PR ACTICE AND EXPERIENCE GAINED OVER A PERIOD OF TIME. ACCORDINGLY, IN VIEW OF THE ABOVE FACTS, IT IS ALSO APPARENT THAT WITHOUT HAVING SO MUCH FABRICATION WO RK, THE APPELLANT CANNOT WORK SMOOTHLY. AS STATED ABOVE, THE PROCESSES IS LE NGTHY AND INVOLVES SO MANY PROCESSES ALL TOGETHER. THEREFORE, APPARENTLY THE A CTION OF AO IN HOLDING 50% ALL CASH PAID FABRICATION CHARGES RS. 1,97,32,232/- NON VERIFIABLE, IS NOT JUSTIFIABLE. THE CAUSE OF THIS HUGE ADDITION IS THAT, THE APPELLANT FAILED TO PRODUCE THE PERSONS AS REQUIRED BY THE AO. WITH THE RESULT, THE AO TREATED WHOLE OF THE PAYMENTS MADE IN CASH AS NON GENUINE. IN MY CONSIDERED VIEW, THIS ACTION OF AO, IS NOT PROPER, AS WITHOUT CONSIDERING THE MAGNITUDE OF THE APPELLANT' S MANUFACUTURING ACTIVITIES AND PAST HISTORY, WHOLE OF THE PAYMENT CAN NOT BE D ISALLOWED. THE AO HAS DISALLOWED 50% OF CASH PAYMENT OF FABRICATION WHICH IS NOT JUSTIFIABLE. 3.12 I HAVE ALSO CONSIDERED ALL OTHER RELEVANT FA CTORS PERTAINING TO THE APPELLANT. IT IS ALSO TO BE APPRECIATED THAT FABRIC ATION CHARGES ARE ESSENTIAL PART OF MANUFACTURING ACTIVITIES OF APPELLANT. THIS FACT ALSO IS TO BE KEPT IN MIND THAT PAYMENTS MADE BELOW THE PRESCRIBED LIMIT IN CASH WI THOUT TDS WOULD BE TO THE INDIVIDUAL WHO DON'T HAVE FIXED OR PERMANENT EXISTE NCE OR FIXED ADDRESS. SUCH LABOUR FROM SEASON TO SEASON MOVES FROM ONE FACTORY TO OTHER AND OTHER CITIES ACCORDING TO AVAILABILITY OF WORK CONDITIONS. THE A PPELLANT HAS FILED DETAILED RELEVANT DATA AND RECORDS PERTAINING TO ALL THE PER SONS. THE PERUSAL OF THE DATA SHOWS THAT THE APPELLANT HAS METICULOUSLY MAINTAINE D THE RELEVANT DATA IN RESPECT OF EACH SUCH PERSON ALONG WITH THE SUPPORTI NG DOCUMENTS WHICH SHOWS THE DETAILS OF WORK DONE BY EACH OF THE WORKER AGAI NST WHICH THE PAYMENT HAS BEEN MADE AND MODE OF PAYMENT. THERE IS NO INSTANCE , WHEREIN THE AO, HAS POINTED OUT DISCREPANCY IN RECORDS KEPT OF THE APPE LLANT WHICH IT HAS BEEN KEEPING REGULARLY IN THE SAME MANNER AS IN PAST YEA R THE APPELLANT HAVE MAINTAINED ITS RECORD WHICH HAVE NEVER BEEN SUBJECT ED TO CHANGE EXCEPT IN ASSESSMENT YEAR 2009-10. IT IS SEEN THAT DATA AS DI LIGENTLY MAINTAINED BY THE APPELLANT ON EXAMINATION ENABLES ANYONE TO WORK OUT THE DETAIL OF WORK DONE BY THE EACH LABOUR AND THE BASIS OF PAYMENT OUT BY THE APPELLANT ACCORDINGLY. ANOTHER IMPORTANT FACT BROUGHT OUT BY THE ASSESSING OFFICER IS LOWERED GROSS PROFIT GROWTH REFLECTED BY THE APPELL ANT DURING THE YEAR. IN THIS CONNECTION THE APPELLANT HAS VEHEMENTLY ARGUED, THA T THE APPELLANT'S FINANCIAL RESULTS SHOWS THAT THOUGH THIS YEAR THE FABRICATION CHARGES ARE BIT HIGHER THAN THE EARLIER YEARS HOWEVER THE GROWTH IN FABRICATION CHA RGES IS NOT ABNORMAL COMPARING TO THE RESULTS OF THE APPELLANT WHEN COMP ARED WITH ITS TURNOVER IN LAST FIVE YEARS. IT IS SO SEEN THAT IN A.Y. 2008-09 THE % OF FABRICATION IN COMPARISON OF TURNOVER WAS 37.48%. THEREFORE, APPARENTLY THE RESU LTS OF APPELLANT HAVE BEEN CONSISTING. THE HISTORY OF THE TURNOVER G.P. FABRIC ATION CHARGES OF THE APPELLANT CAN BE TABULATED AS UNDER: 3.13 IT IS SEEN THAT THE AO HAS BASED ITS OPINION F ROM THE ITI REPORT AND ON THE BASIS ON DOCUMENTS FOUND AT THE TIME OF SURVEY HAS DRAWN ADVERSE INFERENCE. IN MY CONSIDERED VIEW, THERE ARE SEVERAL IMPORTANT FAC TORS WHICH ARE VERY RELEVANT IN THE CASE OF APPELLANT AND THE ASSESSING OFFICER HAS SKIPPED TO CONSIDER THESE ASPECTS. 3.14 THE APPELLANT HAS VEHEMENTLY ARGUED THAT THE L ABOUR PERTAINING TO FABRICATION IS A SEASON BASED LABOUR, WHICH KEEPS O N MOVING FROM ONE FACTORY TO OTHER THE FACTORY AND ONE CITY TO ANOTHER CITY, ACC ORDING TO THE DEMAND. 20 IMPORTANT FACTOR IS THAT IN THE CASE OF APPELLANT, THERE IS NO PAST HISTORY WHICH IS ADVERSE TO THE APPELLANT EXCEPT IN ASSESSMENT YEAR 2009-10. ULTIMATELY, IT IS SEEN THAT IN ASSESSMENT YEAR 2009-10 TOO THE JURISDICTIO NAL ITAT HAS GIVEN SUBSTANTIAL RELIEF AFTER GIVING CONSIDERATION TO ALL THE RELEVA NT FACTS OF THE APPELLANT. IN VIEW OF THE OVERALL FACTS OF THE CASE IN MY CONSIDERED O PINION ALSO IT IS SEEN THAT THIS YEAR TOO, THE ASSESSING OFFICER HAS MADE HUGE ADDIT ION IN FABRICATION CHARGES ON THE BASIS OF THE INSPECTORS REPORT AND THE DOCUMENT S FILED AT THE TIME OF SURVEY SUBSEQUENT YEARS AND HAS DISALLOWED THE ENTIRE HUND RED PERCENT FABRICATION CHARGES PAID IN CASH OR WHERE THERE IS NO TDS ELEME NT. 3.15 HOWEVER, CONSIDERING THE QUANTUM AND MAGNITUD E OF APPELLANT'S TURNOVER AND MANUFACTURING ACTIVITY IT IS NOT UNDER STANDABLE AS TO HOW THE APPELLANT WOULD GOT IT CARRIED OUT THIS QUANTUM OF WORK WITHOUT PAYING HUGE FABRICATION CHARGES. IN MY CONSIDERED OPINION, THE AO HAS NOT AT ALL CONSIDERED THESE FACTS WHILE MAKING DISALLOWANCE OF ENTIRE CAS H PAID FABRICATION CHARGES. EVEN THE ASSESSING OFFICER HAS NOT CONSIDERED 46 PE RSONS PRODUCED BY THE APPELLANT ALONG WITH THERE RELEVANT DETAILS. ALTHOU GH, THE ADDRESS MAY BE DIFFERENT HOWEVER THE PERSONS WERE PRODUCED AND THE RE PARTICULARS WERE VERIFIABLE FROM RECORDS MAINTAINED BY THE APPELLANT . THE IMPORTANT FACT IS THAT THE AO HAS NOWHERE DENIED THIS FACT IN ITS ASSESSMENT O RDER. THE AO HAS RAISED SUSPICION AT THE FAG END OF THE ASSESSMENT YEAR BAS ED ON THE REPORT OF ITI AND FACTS GATHERED AT THE TIME OF SURVEY. IT IS IMPORTA NT FACT THAT THE AO HAS RAISED SUSPICION ON THE FABRICATION PAYMENTS MADE IN CASH BUT HAS FAILED TO RECOGNIZE THAT SUCH HUGE EXPENDITURE WOULD BE REQUIED TO ACHI EVE SUCH BIG TURNOVER. OVERALL THE REASONABLENESS OF THE EXPENDITURE RELAT ED TO FABRICATION CHARGES ALONG WITH THE TURNOVER OF THE APPELLANT AND OTHER RELATED FACTORS. SUCH KIND OF EXPENDITURE HAS TO BE REVIEWED AND APPRECIATED IN T HE BACKGROUND OF FINANCIAL RESULT OF THE APPELLANT. ACCORDINGLY, THE DISALLOWA NCE ON ACCOUNT OF 50% OF FABRICATION CHARGES OF CASH PAID APPLICATION CHARGE S WHEREIN NO TDS INVOLVED CANNOT BE TERMED AS JUSTIFIED AT ALL. 3.16 ANOTHER FACTOR WHICH IS VERY IMPORTANT IN THE CASE OF THE APPELLANT THAT IN THE CASE OF APPELLANT'S OWN CASE IN AY 2009-10, THE HONBLE ITAT HAS GIVEN SUBSTANTIAL RELIEF IN THE CASE OF APPELLANT AFTER C ONSIDERING ALL THE FACTS IN DETAIL. WHICH IS REPRODUCED AS UNDER:- 6. BEFORE US, THE LD. D.R. FOR THE REVENUE CARRIED US THROUGH VARIOUS PARAS OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSING OFFICER HA S CLEARLY FOUND SO MANY DEFECTS STILL THE LD. CIT(A) HAS ALLOWED RELIEF BY MERELY RELYING ON THE PROFITABILITY AND FABRICATION CHARGES RATIO. 7. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). HE ALSO SUBMITTED THAT IN THIS CASE THE ASS ESSEE HAS FILED RETURN OF INCOME DECLARING INCOME OF RS. 2,80,94,049/- ON TOTAL EXPORTS APPROX IMATELY 32.5 CRORES WITHOUT CLAIMING ANY DEDUCTION UNDER ANY PROVISIONS OF LAW. THIS ITSELF SHOW THAT THE ASSESSEE HAD NO INTENTION TO HIDE ANY PROFIT FROM THE DEPARTMENT. 8. WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY AND WE ARE SATISFIED WITH THE REASONING GIVEN BY THE LD. CIT(A) FOR ALLOWING RELI EF. NO DOUBT GROSS PROFIT RATE DURING THE YEAR WAS 29.19 FROM 27.29% IN EARLIER YEAR AND SIMI LARLY FABRICATION CHARGES HAVE ALSO GONE DOWN F ROM APPROXIMATELY 35% IN THE EARLIER YEAR TO 31.33%. HOWEVER, AT THE SAME TIME ALL THE DEFECTS POINTED OUT BY THE ASSESSING OFFICER HA VE NOT BEEN CLARIFIED BY THE ASSESSEE BEFORE THE LD. CIT(A). IT HAS ALSO TO BE APPRECIATE D THAT IT IS VERY DIFFICULT THAT THE MIGRANTS WHO COME TEMPORARILY FROM VARIOUS PARTS OF THE COUN TRY. BUT AS WE HAVE OBSERVED EARLIER ALL THE DEFECTS HAVE NOT BEEN FULLY EXPLAINED BY THE AS SESSEE, THEREFORE TO AVOID ANY LEAKAGE OF REVENUE AND OVER BOOKING OF FABRICATION CHARGES WE ARE OF THE OPINION THAT IF AN ADDITION OF RS. 15 LAKHS IS MADE THAT WOULD MEET TH E ENDS OF JUSTICE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AS SESSING OFFICER TO MAKE AN ADDITION OF RS. 15 LAKHS ON ACCOUNT OF FABRICATION CHARGES. 9. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED. 3.17 ACCORDINGLY, IN VIEW OF DETAILED FACTS AS DIS CUSSED ABOVE AND AFTER GOING THROUGH THE SUBMISSION OF APPELLANT AND CONTENTION OF AO, REMAND REPORT AND SUBSEQUENT REPORT OF ASSESSING OFFICER AND THE REBU TTAL FILED BY THE APPELLANT, I AM INCLINED TO AGREE WITH THE CONTENTION OF APPELLA NT. IN MY VIEW, THE ASSESSING 21 OFFICER HAS FAILED TO APPLY THE LOGIC BEHIND THE RE JECTION OF AN ENTIRE DISALLOWANCE OF 50% CASH PAID FABRICATION CHARGES WHEREAS IT HAS NOT GIVEN ANY LOGIC AS TO HOW THE APPELLANT TO CARRY OUT HIS REGULAR WORK WIT HOUT GETTING THE APPLICATION THEN TO MEET OUT SUCH HUGE TURNOVER DEMAND. THE ASS ESSING OFFICER HAS ALSO NOT APPLIED ANY LOGIC BEFORE REJECTING ENTIRE CASH PAID FABRICATION CHARGE THAT TOO WITHOUT BRINGING ANY OTHER DETAILED DEFECTS IN THE BOOKS OF ACCOUNTS OF THE APPELLANT AND REJECTING IT IN A PROPER MANNER. IN M Y CONSIDERED VIEW THE ASSESSING OFFICER BEFORE REJECTION OF THE ENTIRE CA SH PAID FABRICATION CHARGES SHOULD HAVE ALSO GIVEN THE MODALITIES AND LOGIC OF MEETING OUT THE HUGE REQUIREMENT OF THE FABRICATION CHARGES AS CLAIMED T HROUGHOUT IN IN THE PAST YEARS BY THE APPELLANT COMPANY TO MEET OUT THE HUGE TURNO VER. THE ASSESSING OFFICER HAS NOT EVEN CARED TO REJECT THE BOOKS OF ACCOUNTS UNDER SECTION 145(3) OF THE ACT BEFORE APPLYING HIS LOGIC OF MAKING SUCH HUGE A DDITION. THE FACT THAT OF ACCOUNTS OF THE APPELLANT HAS BEEN AUDITED BY THE C HARTERED ACCOUNTANT AND THE ASSESSING OFFICER HAS NOT POINTED OUT ANY MAJOR DEFECTS AND REJECTED THE BOOKS OF ACCOUNTS IN ORDER TO ARRIVE THE TRUE AFFAI RS OF THE APPELLANT. APPARENTLY, IT IS OBSERVED THAT THE ASSESSING OFFICER HAS COMPLETE LY IGNORED THE HISTORY OF THE APPELLANT IN PRECEDING YEARS AND SUBSEQUENT YEARS. THE NET PROFIT SHOWN BY THE APPELLANT SHOWS THAT THE NET PROFIT RATE REFLECTED BY THE APPELLANT ALL THESE YEARS IS RANGING BETWEEN AT ALMOST CONSISTING FIGURES. AS SESSING OFFICER HAS CONCLUDED ON THE BASIS OF A LENGTHY AND DETAILED ANALYSIS THA T THE APPELLANT HAS INFLATED EXPENSES BY WAY OF BOGUS FABRICATION CHARGES. IT IS SEEN THAT THE IMPORTANT FACT FABRICATION CHARGES BEING AN INTEGRAL PART OF THE APPELLANT'S BUSINESS HAS NOT BEEN DISPUTED IN ANY MANNER BY THE ASSESSING OFFICE R THROUGHOUT THE ASSESSMENT PROCEEDINGS. IT IS OBSERVED THAT ALTHOUGH, THERE MI GHT BE CERTAIN SHORTCOMINGS IN THE RECORD KEEPING, WHICH HAVE ALREADY BEEN EXPLAIN ED AND JUSTIFIED WITH REFERENCE TO THE PECULIAR NATURE OF THE APPELLANT F IRM'S BUSINESS, THE FACT REMAINS THAT THE APPELLANT HAS ALSO DISCLOSED CONSISTENT RE SULTS OVER A PERIOD OF TIME AND ITS OPERATIONS HAVE SHOWN TREMENDOUS GROWTH FOR THE LAST SEVERAL YEAR. NO EVIDENCE OF THE RELEVANT ASSESSMENT YEAR WAS FOUND DURING THE SURVEY, WHICH, WOULD WARRANT REACHING A CONCLUSION THAT THE FABRIC ATION EXPENSES WERE BOGUS. 3.18 SIMILARLY, CONSIDERING THE ISSUE PERTAINING T O THE DOCUMENTS FOUND AT THE TIME OF SURVEY IS ALSO IMPORTANT. IT IS SEEN THAT I N THE SURVEY NO DOCUMENTS DIRECTLY RELATED TO THE ASSESSMENT YEAR IN CONCERN HAVE BEEN FOUND BY THE DEPARTMENT. THE DEPARTMENT HAS RELIED UPON SOME OF THE SIGNED B LANK BILLS OF THE SUM OF THE PARTIES FOUND THAT THE PREMISES IN WHICH SOME AMOUN TS WERE MENTIONED. THE APPELLANT HAS ARGUED THAT THE APPELLANT IS ENGAGED IN THE MANUFACTURING OF GARMENTS WHICH BUSINESS IS SEASONAL IN NATURE WITH THE PEAK MONTHS BEING APRIL TO NOVEMBER/ DECEMBER. THE WORKERS WHOSE BILLS WERE FO UND HAVE ALREADY LEFT THE WORK AS THE SEASON HAS COME TO AN END. THEY HAVE BE EN PAID AS PER THE WORK DONE BY THEM RECORDED IN THE PRODUCTION REGISTER WH ICH STANDS DULY RECORDED IN THE BOOKS OF ACCOUNTS. THE APPELLANT ALSO STATED TH AT BILLS ARE GENERALLY PREPARED MONTHLY AND THAT THE LABOURERS/WORKERS BEING ILLITE RATE DO NOT MAINTAIN ANY RECORDS THEMSELVES BUT INVARIABLY DEPEND UPON THEIR MASTER/SUPERVISOR FOR MAINTAINING OR PREPARING THE NECESSARY RECORDS. AS SUCH THE BILL BOOKS/VOUCHERS ARE HANDED OVER TO THE CONCERNED MASTER/SUPERVISOR WHO MAINTAINS IT ON BEHALF OF THE WORKERS AND PREPARES THE BILLS PERIODICALLY, GENERALLY AT MONTH END. SUCH A SITUATION, WHEN VIEWED IN THE CONTEXT OF THE MANNER IN WHICH THE UNIT OF THE FIRM OPERATES AND THE ENTIRE MANUFACTURING PROCESSES CON SISTING OF AS IT IS OF A SERIES OF PROCESS INTEGRATED INTO EACH OTHER WOULD EMINENTLY JUSTIFY THE PREVAILING SITUATION. 3.19 FURTHER WITH REGARD TO THE PERSONAL PRESENCE O F THE WORKERS, THE APPELLANT SUBMITTED THAT, DUE TO LEAN SEASON THEY HAD NO WORK AND AFTER SETTLING THEIR ACCOUNTS HAVE ALREADY LEFT FOR THEIR NATIVE PLACES TO BE BACK AT THE BEGINNING OF THE FRESH SEASON. 3.20 GOING BY ALL THE FACTS IN DETAIL IN MY CONSIDE RED VIEW THE ANALYSIS OF ASSESSING OFFICER WHEREIN THE ASSESSING OFFICER HAS CONCLUDED ON THE BASIS OF FILLING THE EDITED ANALYSIS THAT THE APPELLANT HAD INFLATED EXPENSES BY WAY OF BOGUS FABRICATION CHARGES IS BASED ON PRESUMPTIONS AND AS SUMPTIONS WITHOUT ANY SOLID BASE. IT IS SEEN THAT THE FABRICATION CHARGES BEING PAID BY THE APPELLANT AMOUNT CONSISTENTLY SINCE PAST SO MANY YEARS IS BEING AN I NTEGRAL PART OF THE APPELLANT'S 22 BUSINESS AND INTERESTINGLY THE SAME HAS NOT BEEN DI SPUTED IN ANY MANNER BY THE ASSESSING OFFICER. 3.21 WHILE THERE MIGHT BE CERTAIN SHORTCOMINGS IN T HE RECORD KEEPING, THE FACT REMAINS THAT THE APPELLANT HAS ALSO DISCLOSED CONSI STENT RESULTS OVER A PERIOD OF TIME AND ITS OPERATIONS HAVE CONSISTENT SINCE LAST SO MANY YEARS. THEREFORE, IN TOTALITY GOING THROUGH THE FACTS OF THE CASE AND TH E PAST AND RECENT HISTORY OF THE CASE IN MY CONSIDERED VIEW THE ADDITION DOUBT BY TH E ASSESSING OFFICER CONSIDERING HUNDRED PERCENT OF CASH PAID FABRICATIO N CHARGE IS NOT JUSTIFIED 3.25 ACCORDINGLY, IN VIEW OF THE ABOVE DETAILED DI SCUSSIONS AND THE ARGUMENTS OF THE APPELLANT AND THE DETAILED RATIONALE OF THE ASSESSING OFFICER BEHIND THIS ADDITION, THE REMAND REPORT FILED BY THE ASSESSING OFFICER DURING THE COURSE OF APPELLATE PROCEEDINGS, IN MY CONSIDERED VIEW THE AD DITION ON ACCOUNT OF DISALLOWANCE OF FABRICATION CHARGES OF RS. 1,97,32, 232/- OUT OF THE FABRICATION CHARGES IS NOT JUSTIFIED. THEREFORE, THE ADDITION O N ACCOUNT OF FABRICATION CHARGES NEEDS TO BE RECONSIDERED. THEREFORE, AFTER CONSIDER ING ALL THE FACTS OF THE CASE AND THE DECISIONS RELIED UPON BY THE APPELLANT IN M Y CONSIDERED VIEW THE ADDITION OF RS. 15,00,000/-WOULD BE ENOUGH TO TAKE CARE OF THE DEFICIENCIES WORKED OUT BY THE ASSESSING OFFICER. ON THIS ACCOUNT, IN MY VIEW THE ASSESSING OFFICER SHOULD HAVE REJECTED THE BOOKS OF ACCOUNTS STATING THE DEFECTS IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. THEREFORE, SUBJ ECT TO THE ADDITION OF RS. 15,00,000/-, THE DISALLOWANCE ON ACCOUNT OF FABRICA TION CHARGES TO THE EXTENT OF RS. 1,97,32,232/-.' IS ORDERED TO BE DELETED. ACCOR DINGLY, THIS GROUND OF APPEAL STANDS PARTLY ALLOWED. 24. ON PERUSAL OF THE ORDER OF THE CIT(A) WE FOUND THAT THE ORDER HAS DEALT IN DETAIL ABOUT THE REASONS FOR NON PRODUCTION OF PAR TIES BEFORE THE ASSESSING OFFICER OWING TO MIGRATION BY TAKING INTO THE WAGES PAID AT DIFFERENT MONTHS. THE LD. CIT(A) ALSO DEALT IN DETAIL ABOUT THE VOUCH ERS TAKING INTO CONSIDERATION THE SURVEY FINDINGS WHEREIN EVEN THE SURVEY FINDING S DID NOT LEAD TO ANY COGENT EVIDENCE FOR INFLATION OF FABRICATION CHARGES. SIMI LARLY THE REASONS WERE FALL IN GP HAVE BEEN EXAMINED AND FOUND THAT THE FALL IN GP PE RCENTAGE RANGED FROM 25.56 TO 26.07 WHICH IS IN THE AVERAGE RANGE OF FLU CTUATION OVER THE PERIOD OF SEVEN YEARS PERIOD. THE GP RATE WITH THE ADDITION O F THE FABRICATION CHARGES DISALLOWED SHOOTS TO 38.3%, 41.75%, 43.35% WHICH IS ALSO VERY HIGH GP EVEN ON ESTIMATE BASIS KEEPING IN VIEW THE INDUSTRY AVERAGE S. 25. THE TOTAL FABRICATION CHARGES PAID ON A TURNOVE R OF 2279 LACS FOR WHICH FABRICATION CHARGES ARE TO THE TUNE OF 799.57 LACS OUT OF WHICH THE TDS WAS NOT DEDUCTED ON RS. 394.65 LACS. OUT OF THIS 394.65 LAC S THE ASSESSING OFFICER DISALLOWED RS. 197.32 LACS WHICH IS 50% OF THE FABR ICATION CHARGES PAID. BASED ON THE ABOVE DISCUSSIONS THE REASONS FOR SUCH DISAL LOWANCE ARE FOUND TO BE NOT JUSTIFIED. THE LD. CIT(A) CONSIDERED THE DISALLOWAN CE OF RS. 15 LACS TO TAKE CARE OF THE DEFICIENCIES WORKED OUT AFTER TAKING INTO CO NSIDERATION THE ENTIRE FACTS AND CIRCUMSTANCES. HENCE, WE DECLINE TO INTERFERE I N THE ORDER OF THE LD. CIT(A) AND THE GROUNDS OF THE REVENUE AND CROSS APPEAL OF THE ASSESSEE ARE 23 DISMISSED. SIMILARLY THE RATIONALE OF THE LD. CIT(A ) IS ALSO ACCEPTED FOR THE AY 2011-12. 26. GROUND NO. 2 FOR THE AY 2010-11 OF THE REVENUE IN ITA NO. 265/CHD/2017 RELATES TO CALCULATION OF ADDITIONAL DEPRECIATION O N THE SUBSIDY RECEIVED UNDER TUFFS SCHEME. 27. THE ASSESSING OFFICER HAS DISALLOWED THE DEPREC IATION HOLDING THAT THE DEPRECIATION CLAIMED WAS NOT IN ACCORDANCE WITH THE SECTION 32(1)(IIA). THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS REDUCE D THE AMOUNT OF OLD MACHINERY PURCHASED WHILE CALCULATING ADDITIONAL DE PRECIATION. HOWEVER, THE AMOUNT OF CAPITAL SUBSIDY UNDER TUFS HAS NOT BEEN R EDUCED FROM THE ADDITION TO MACHINERY WHILE CALCULATING THE ADDITIONAL DEPRE CIATION ALTHOUGH IT HAS BEEN REDUCED FROM THE COST OF ADDITION TO MACHINERY WHIL E CLAIMING DEPRECIATION. DEPRECIATION OR ADDITIONAL DEPRECIATION IS ALLOWABL E TO THE ASSESSEE ON ACTUAL COST TO IT. AS PER PROVISIONS OF SECTION 43(1) OF T HE I.T. ACT IF THE COST OF THE ASSET HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY PERSON O R AUTHORITY IT HAS TO BE REDUCED FROM THE COST OF THE ASSET TO ARRIVE AT THE ACTUAL COST. THE ASSESSEE HAS NOT DONE SO. HENCE BY NOT REDUCING THE AMOUNT OF SU BSIDY RECEIVED UNDER TUFS THE ASSESSEE HAS CLAIMED EXCESS ADDITIONAL DEPRECIA TION WHICH IS NOT ALLOWABLE TO IT. 28. BEFORE US, THE LD. DR RELIED ON THE ASSESSMENT ORDER WHILE THE LD. AR RELIED ON THE ORDER OF THE LD. CIT(A). 29. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE P ARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. 30. A CAREFUL PERUSAL OF SCHEME IN QUESTION SHOWED THAT IT WAS INTENDED TO ACCELERATE INDUSTRIAL DEVELOPMENT OF THE STATE AND THE INCENTIVE WAS GIVEN FOR SETTING UP OF INDUSTRIES IN THE STATE AND FOR THE P URPOSE OF DETERMINING THE AMOUNT OF SUBSIDY TO BE GIVEN, COST OF ELIGIBLE INV ESTMENT WAS TAKEN AS THE BASIS, THOUGH IT WAS NOT SPECIFICALLY INTENDED TO S UBSIDISE THE COST OF THE CAPITAL. UNDER THE CIRCUMSTANCES, THE INCENTIVE IN THE FORM OF SUBSIDY COULD NOT BE CONSIDERED AS A PAYMENT DIRECTLY OR INDIRECTLY TO M EET ANY PORTION OF THE ACTUAL COST AND, THUS, IT FELL OUTSIDE THE KEN OF THE EXPL ANATION 10 TO SECTION 43(1). THEREFORE, FOR THE PURPOSE OF COMPUTING DEPRECIATIO N ALLOWABLE TO THE ASSESSEE, THE SUBSIDY AMOUNT COULD NOT BE REDUCED FROM THE CO ST OF THE CAPITAL ASSET. SASISRI EXTRACTIONS LTD. V. ASSTT CIT, CIRCLE 2(1), GUNTUR [(2010) 122 ITD 428(VISAKHAPATNAM)] 24 31. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SHYAM LAL BANSAL IN IT A NO. 472 OF 2010 WHEREIN IT WAS HELD THAT INTEREST SUBSIDY RECEIVED UNDER TUFFS SCHEME IS CAPITAL IN NATURE. HONBLE APEX COURT IN THE CASE OF M/S. PONNI SUGARS AND CHEMICALS LTD. 306 ITR 392 HELD THAT PURPOSE OF INCENTIVE DECIDES ITS NATU RE AND IN THE PRESENT CASE THIS INCENTIVE IS GIVEN TO ACCELERATE INDUSTRIAL DEVELOP MENT AND FOR SETTING UP OF INDUSTRIES. HENCE, THE ASSESSEE IS ELIGIBLE FOR ADD ITIONAL DEPRECIATION ON THE SUBSIDY RECEIVED WHICH IS TREATED AS A CAPITAL RECE IPT. THE ORDER OF THE LD. CIT(A) IS HEREBY UPHELD. 32. IN THE RESULT, THIS GROUND OF APPEAL OF THE REV ENUE IS DISMISSED. 33. THE GROUND NO. 2 FOR THE AY 2011-12 IN ITA NO. 266/CHD/2017 OF THE REVENUE RELATES TO DELETION OF THE DISALLOWANCE OF RS. 32,5 3,156/- PAID TO M/S M.S. EMBROIDERY WORKS. THIS MATTER HAS BEEN DEALT I N THE AY 2012-13. THIS AMOUNT WAS DISALLOWED ON THE BASIS OF THE REPORT OF THE NO TICE SERVER, ACCORDING TO WHICH NO ONE WAS AVAILABLE ON THE ADDRESS GIVEN BY THE ASSESSEE. THE ASSESSEE HAS PRODUCED THE PROPRIETOR OF M.S. EMBROIDERY WORK S BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDING FOR THE AY 2012-13. AND IT WAS ALSO PROVED THAT HE HAS BEEN WORKING WITH THE ASSESSEE S INCE LONG. TAX WAS DULY DEDUCTED WHILE MAKING THE PAYMENTS TO HIM BY DULY F OLLOWING THE PROVISIONS OF TDS IS ONLY COROLLARY BUT CAN BE TAKEN TO PROVE GEN UINENESS OF THE TRANSACTION . THUS THE FACTUM OF RENDERING OF THE SERVICES HAS BE EN PROVED. THIS ISSUE IS INCLUSIVE OF THE DISALLOWANCES MADE OF RS. 5,18,52, 493/-. HENCE, NO SEPARATE ADDITION IS REQUIRED IN THIS CASE. 34. THE GROUNDS OF THE REVENUE IS DISMISSED. 35. GROUND NO. 3 FOR THE AY 2011-12 IN ITA NO. 266/CHD/2017 OF THE REVEN UE RELATES TO DELETION OF DISALLOWANCE OF RS. 17,67,18 0/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF COMMISSION PAID FOR BRAND RAT E DBK. 36. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS PAID RS. 17,67,180/- AS COMMISSION FOR BRAND RATE DBK TO ONE SHRI. SAMEER B HANOT AND REGULAR TRADERS TO ONE SHRI. GAURAV. THE ASSESSING OFFICER HAS DISA LLOWED THESE AMOUNTS PAID AS COMMISSION ON THE GROUNDS THAT THERE WAS NO LEGAL A GREEMENT BETWEEN THE PARTIES AND THE COMMISSION WAS PAID @40%. THE DISAL LOWANCE WAS MADE FURTHER ON THE GROUNDS THAT THERE WAS NO DOCUMENTARY EVIDEN CE OF RENDERING THE SERVICES AND THE ASSESSEE BEING THE ONLY PARTY FOR WHICH THE ABOVE TWO AGENTS HAVE DONE THEIR WORK. 25 37. THE LD. DR ARGUED THAT THE GENUINENESS OF THE P AYMENT IS EVEN MORE DOUBTFUL AS THE TWO INDIVIDUALS INCOME IS NOT TAXA BLE AND SHOWING LOSSES IN BUSINESS. THE LD. DR HAS ALSO RELIED ON THE POINTS MADE BY THE ASSESSING OFFICER WHILE MAKING DISALLOWANCE VIZ. HIGH PERCENTAGE OF C OMMISSION AND THE ABSENCE OF WRITTEN AGREEMENT. 38. LD. AR ARGUED THAT THEY HAVE ENGAGED THE COMMIS SION AGENTS FOR BETTERMENT OF THE BUSINESS AND FOR AVOIDING DELAYS TO GET MONEY WHICH WAS LAWFULLY DUE TO THEM AT AN EARLY DATE IN ORDER TO U TILIZE THE SAME IN ITS BUSINESS. WE HAVE GONE THROUGH THE FACT ON RECORD AND PERUSED THE MATERIAL AVAILABLE BEFORE US. THE PERSONS WERE PRODUCED BEFORE THE ASS ESSING OFFICER AND WHEREIN THEY HAVE CLEARLY ACCEPTED AND IN DETAIL EXPLAIN TH E NATURE OF THE WORK CARRIED OUT BY THEM FOR THE ASSESSEE. THE FILING OF LOSS RE TURNS BY THESE INDIVIDUALS CANNOT BE ATTRIBUTED TO THE ASSESSEE SO AS TO DISALLOW THE COMMISSION PAID. WHAT IS TO BE SEEN IS WHETHER THE SERVICES HAVE BEEN RENDERED OR NOT. AND IN THIS CASE THE FACT OF SERVICES BEING RENDERED HAS BEEN PROVED EVE N BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER COULD NOT BRING A NY MATERIAL ON RECORD TO PROVE THAT SERVICES WERE INDEED NOT RENDERED HENCE, NO DISALLOWANCE IS CALLED FOR. WE DECLINE TO INTERFERE IN THE ORDER OF THE LD . CIT(A) IN DELETING THE DISALLOWANCE. 39. THE GROUND NO. 2 FOR THE AY 2011-12 IN ITA NO. 137/CHD/2017 OF THE ASSESSEE RELATES TO DISALLOWANCE OF RS. 72,52,666/- OUT OF COMMISSION TO FOREIGN AGENTS. 40. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF RS. 72,52,666/- UNDER SECTION 40A(IA) OF THE ACT AS TDS HAS NOT DEDUCTED FROM THE PAYMENT OF THE COMMISSION PAID TO FOREIGN AGENTS. THE DISALLOWANCE WAS CONFIRMED BY THE LD. CIT(A)ON THE GROUNDS THAT THE ASSESSEE HAS FAILED TO PROVE ANY NEXUS BETWEEN THE PAYMENTS MADE TO THE FOREIGN AGENTS AND THE SERVICES RENDERED BY THEM TO THE ASSESSEE COMPANY. IT WAS HELD BY THE LD. CIT(A) THAT THE ASSESSEE HAS FA ILED TO FILE ANY DETAILS OF SERVICES PROVIDED BY THESE AGENTS. 41. DURING THE HEARING THE LD. AR ARGUED THAT THE S ALE COMMISSION WAS PAID BY THE ASSESSEE COMPANY TO NON-RESIDENT AGENTS FOR THE SERVICES RENDERED BY THEM FROM OUTSIDE INDIA IN PROCURING EXPORT ORDERS TO THE ASSESSEE COMPANY. THESE NON-RESIDENT AGENTS HAVE NO BUSINESS CONNECTI ON IN INDIA NOR THEY HAVE ANY PERMANENT ESTABLISHMENT IN INDIA AND THEREFORE THE PROVISIONS OF SECTION 26 195 HAVE NO APPLICATION FOR THE COMMISSION PAYMENTS . THE LD. AR RELIED ON THE JUDGMENT OF THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS. FLUID THERM TECHNOLOGY PVT. LTD. (2015) 57 TAXMAN 87. 42. THE LD. DR RELIED ON THE ASSESSMENT ORDER AND O N THE ORDER OF THE LD. CIT(A). 43. WE HAVE PERUSED THE DETAILS BEFORE US AND IT IS OBSERVED THAT THE FACTUM OF RENDERING OF THE SERVICE HAS NOT BEEN SUBMITTED FULLY BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES AND NEITHER THE ASSESSING OFF ICER NOR THE LD. CIT(A) HAD THE OPPORTUNITY TO EXAMINE THE ISSUE OF NEED OF INVOKIN G THE PROVISIONS OF TDS ON THE COMMISSION PAYMENTS. HENCE THE MATTER IS BEING REST ORED TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE IN DETAIL REGARDING TH E ALLOWABILITY OF THE COMMISSION PER SE AND ALSO LIABILITY OF THE ASSESSE E TO DEDUCT TAX ON THE COMMISSION PAYMENTS MADE TO NON-RESIDENT AGENTS. FO LLOWING THE ABOVE DISCUSSION THIS GROUND IS ALLOWED FOR STATISTICAL P URPOSES. 44. GROUND NO. 3 FOR THE AY 2011-12 IN ITA NO. 137/CHD/2017 AND GROUND N O. 2 FOR THE AY 2012-13 IN ITA NO. 138/CHD/2017 OF THE ASSES SEE RELATES TO DISALLOWANCE OF 4,28,175/- AND OF RS. 7,21,104/- RE SPECTIVELY OUT OF TELEPHONE EXPENSES, CAR EXPENSES AND CAR DEPRECIATION. 45. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS OBSERVED THAT THE EXPENSES OF CAR, TELEPHONE AND CONVEYANCE ARE OF MIXED IN NATURE AND DISALLOWED 1/5 TH OF THESE EXPENSES AMOUNTING TO RS. 7,54,029/-. IT IS OBSERVED THAT THE ASSESSEE HAS ALREADY DISALLOWED RS. 3,25,8 54/- BY THEMSELVES. THE LD. CIT(A) HAS CONFIRMED THE ADDITION ON THE GROUNDS TH AT THE ASSESSEE HAS NOT MAINTAINED LOG BOOK AND CALL DETAILS AND PERSONAL U SAGE OF THESE ITEMS CANNOT BE RULED OUT. 46. BEFORE US THE ASSESSEE ARGUED THAT NO FURTHER D ISALLOWANCE IS CALLED AS ASSESSEE HAS ALREADY DISALLOWED RS. 3,25,854/- SUO MOTO. ALL THE VEHICLES AND TELEPHONES ARE MOSTLY USED FOR BUSINESS PURPOSE ONL Y AND NO FURTHER DISALLOWANCE IS WARRANTED. SINCE THE USE OF THE VEH ICLES AND TELEPHONES FOR PERSONAL AND NON BUSINESS PURPOSE CANNOT BE RULED O UT AND IN THE ABSENCE OF THE DATA CONTRARY THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER AND AS 27 UPHELD BY THE LD. CIT(A) IS HEREBY CONFIRMED FOR TH E AY 2011-12 AND SIMILARLY FOR AY 2012-13. THIS GROUND OF THE ASSESSEE IS DISMIS SED. 47. THE GROUND NO. 2 FOR THE AY 2012-13 IN ITA NO. 267/CHD/2017 OF THE REVENUE IS AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WA S JUSTIFIED (I) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFI CER OF RS.28,14,749/- MADE UNDER SECTION 14A OF THE INCOME -TAX ACT, 1961READ WITH RULE 8D OF THE INCOME FAX RULES. 1962 BY NOT APPRECIATING THE CIRCULAR NO. 5 OF 2014 AND (II) IN HOLDING THAT PROVISIONS OF SECTION 14A READ WITH RULE 81) ARE NO T ATTRACTED IN ASSESSEE'S CASE. 48. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEA R THE ASSESSEE MADE INVESTMENTS OF RS. 5,40,00,000/- AND HAS SHOWN INTE REST EXPENDITURE OF RS. 1,10,02,497/-. THE ASSESSING OFFICER HAS DISALLOWED RS. 28,14,749/- UNDER SECTION 14A BY RESORTING TO THE PROVISIONS OF RULE 8D. 49. THE LD. CIT(A) HAS DELETED THE DISALLOWANCE MAD E UNDER SECTION 14A ON THE GROUNDS THAT THE ASSESSEE DID NOT EARN ANY EXEM PT INCOME DURING THE YEAR UNDER THE APPEAL. 50. WE HAVE GONE THROUGH THE FACTS OF THE CASE. THE ASSESSEE HAS NOT EARNED ANY INCOME WHICH HAS BEEN EXEMPT. THE HONBL E PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. LAKHANI MARKETING 111 DTR 149. HELD THAT, FROM THE READING OF SECTION 14A OF THE ACT, IT IS CLEAR THAT BEFORE MAKING ANY DISALLOWANCE THE FOLLOWING CONDITION ARE TO EXIST:- A) THAT THERE MUST BE INCOME TAXABLE UNDER THE ACT, AN D B) THAT THIS INCOME MUST NOT FORM PART OF THE TOTAL IN COME UNDER THE ACT, AND C) THAT THERE MUST BE AN EXPENDITURE INCURRED BY THE A SSESSEE, AND D) THAT THE EXPENDITURE MUST HAVE A RELATION TO THE IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THEREF ORE , UNLESS AND UNTIL, THERE IS RECEIPT OF EXEMPTED INCOME FOR THE CONCERN ED ASSESSMENT YEARS (DIVIDEND FROM SHARES), S. 14A OF THE ACT CANNOT BE INVOKED. 51. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF HERO CYCLES 323 ITR 518 (P&H) AND WINSOME TEXTILE 319 ITR 204 (P&H). HENCE KEEPIN G IN VIEW THE FACT THAT THE EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE AND B ASED ON THE JUDGMENTS QUOTED ABOVE WE HEREBY DELETE THE DISALLOWANCE MADE ON ACCOUNT OF SECTION 28 14A AS NO EXEMPT INCOME IS EARNED BY THE ASSESSEE D URING THE RELEVANT ASSESSMENT YEAR. 52. THIS GROUND OF THE REVENUE IS DISMISSED 53. IN THE RESULT APPEALS OF THE ASSESSEE ARE PARTL Y ALLOWED AND OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/11/2017 SD/- SD/- (SANJAY GARG) (DR. B.R.R. KUM AR) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 03/11/2017 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR