ACIT, Faridabad V. M/s. Ram Gopal & Sons, Faridabad

ITA 1445/DEL/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61714 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 04-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 13-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: RAJNEESH BEHARI MATHUR
• Section: 5(2); 194C; 131

Judgement Text

ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 A.YRS. : 2005-06 & 200 6-07 AND 2007-08 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE I, BLOCK I-B, CGO COMPLEX, NH-4, FARIDABAD VS. M/S RAM GOPAL & SONS, 1/503, BARADARI BUILDING, GOPI COLONY, FARIDABAD (PAN/GIR NO. : AADFR 8455 R) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. RAJNEESH BEHARI MATHUR, CA DEPARTMENT BY : DR. B.R.R. KUMAR, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THESE THREE APPEALS FILED BY THE REVENUE ARE DIREC TED AGAINST THE RESPECTIVE ORDERS OF THE LD. COMMISSIONER OF INC OME TAX (APPEALS) PERTAINING TO ASSESSMENT YEARS 2005-06, 2006-07 & 20 07-08 RESPECTIVELY. SINCE THE APPEALS WERE HEARD TOGETHE R AND SOME OF THE ISSUES ARE COMMON, HENCE, THESE ARE BEING CONSOLIDATE D AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 2 2. THE GROUNDS RAISED IN ITA NO. 20/DEL/2009 (A.Y. 2005-06) READ AS UNDER:- I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 13,04,528/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LABOUR CHARGES SIMPLY RELYING ON THE DECISION IN ASSESSEE'S OWN CASE IN THE ASSTT. Y EAR 2001-02, WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION OF RS. 13,04,524/- BY SIMPLY RELYING ON TH E DECISION IN ASSESSEE'S OWN CASE IN THE ASSTT. YEAR 2001-02 IN CONTRAVENTION OF THE HONBLE SUPREME COURT'S DECISION IN THE CASE OF C.K. GANGADHARAN & ANOTHERS VS. CIT (2008) 218 CTR SC. WHEREIN IT IS H ELD THAT 'MERELY BECAUSE THE REVENUE HAS NOT PREFERRED APPEAL IN SOME CASES, IT DOES NOT OPERATE AS A BAR FOR THE REVENUE TO PREFER AN APPEAL IN ANOTHER CASE ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 3 WHERE THERE IS JUST CAUSE FOR DOING SO OR IT IS IN THE PUBLIC INTEREST TO DO SO. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION OF RS. 20,97,572/- MADE ON ACCOUNT OF SHORTAGE IN PRODUCTION EVEN WHEN THE ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY THE SHORTAGE IN FURNISHED PRODUCT. IV. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION OF RS. 8,59,481/- MADE ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) OF THE INCOME TAX ACT, 19 61 IGNORING THE LEGAL POSITION THAT THE TAX WAS REQUIR ED TO BE DEDUCTED ON THE PAYMENT OF RS. 8,59,481/- U/S 194C AND THE ASSESSEE'S NON DEDUCTION OF TAX ON THE BASIS OF FORM NO. 15-I WAS AGAINST THE PROVISIONS OF LAW. V. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN RESTRICT ING THE DISALLOWANCE IN RESPECT OF VEHICLE EXPENSES TO 1/ ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 4 10TH OF TOTAL EXPENSES INSTEAD OF 1/5TH DISALLOWED BY THE ASSESSING OFFICER, THUS GIVING RELIEF OF RS. 37 ,426/ - IGNORING THE FACT THAT THE ASSESSEE COULD NOT ESTAB LISH THAT THE VEHICLE EXPENSES WERE EXCLUSIVELY INCURRED FOR BUSINESS PURPOSES ONLY. VI. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN RESTRICT ING THE DISALLOWANCE IN RESPECT OF TELEPHONE EXPENSES T O 1/ 10TH INSTEAD OF 1/3RD DISALLOWED BY THE ASSESSIN G OFFICER, THUS GIVING RELIEF OF RS. 32,138/- IGNORIN G THE FACT THAT THE ASSESSEE COULD HOT ESTABLISH THAT THE TELEPHONE EXPENSES WERE EXCLUSIVELY INCURRED FOR BUSINESS PURPOSES ONLY. VII. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 4,00,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF HOUSE HOLD EXPENSES WITHOUT BRINGING ANY MATERIAL ON RECORD IN SUPPORT OF HIS FINDINGS. ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 5 VIII THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 3. THE GROUNDS RAISED IN ITA NO. 1445/DEL/2009 (A.Y . 2006-07) READ AS UNDER:- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETI NG THE ADDITION OF ` 6,72,648/- MADE BY THE AO ON ACCOUNT LABOUR CHARGES DISREGARDING THE FACT THAT THE ASSES SEE HAD FAILED TO DISCHARGE ITS ONUS OF PROVING ITS EXPENSES ON LABOUR CHARGES AND ALSO CLAIMED HIGHER LABOUR CHARGES AS COMPARED TO OTHER HENNA MANUFACTURES AND EXPORTERS OF FARIDABAD AND HAD INFLATED THE LABOUR CHARGES TO REDUCE ITS TAXABLE INCOME. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION OF ` 4,25,602/- MADE BY THE AO ON ACCOUNT OF EXCESS SHORTAGE IN PRODUCTION DISREGARDING THE FACT THAT THE ASSESSEE HAD FAILED TO PRODUCE ANY COGENT ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 6 MATERIAL OR DOCUMENTARY EVIDENCE TO JUSTIFY ITS CLAM O F EXCESS SHORTAGE IN PRODUCTION. (III) THAT THE APPELLANT CRAVES FOR THE PERMISSION T O ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 4. THE GROUNDS RAISED IN ITA NO. 1680/DEL/2010 (A.Y. 2007-08) READ AS UNDER:- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETIN G THE ADDITION OF ` 47,91,977/- MADE BY THE AO ON ACCOUNT OF PAYMENTS OF COMMISSION MADE TO AGENTS VIZ. OF TURKEY AT ` 35,34,232/- AND OF MAURITIUS AT ` 12,57,747/- DISREGARDING THE FACT THAT THE ASSESSEE HAD CONTRAVENTED THE PROVISIONS OF SECTION 195 READ WITH SECTION 40(A) OF THE INCOME TAX ACT, 1961. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETI NG THE ADDITION OF ` 4,84,197/- MADE BY THE AO ON ACCOUNT OF EXCESS SHORTAGE CLAIMED EVEN THOUGH THE ASSESSEE ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 7 HAD NOT FURNISHED ANY AUTHENTIC DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM. (III) THAT THE APPELLANT CRAVES FOR THE PERMISSION T O ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 5. ONE COMMON ISSUE RAISED IN ASSESSMENT YEARS 2005 -06 AND 2006-07 PERTAINS TO ADDITION MADE BY THE AO ON ACCOU NT OF LABOUR CHARGES. SINCE THE FACTS ARE COMMON, WE DEAL WITH THE CASE BY TAKING THE FIGURES FROM ASSESSMENT YEAR 2005-06. 6. VIDE PARA 1, THE A.O. STARTED TO INVESTIGATE THE CLAIM OF LABOUR CHARGES WHICH WERE DEBITED AT RS. RS. 3,71,208/-. H E FOUND THAT OUT OF 15 LABOURERS, 10 WERE NOT AVAILABLE AT THE ADDRESSE S GIVEN BY THE APPELLANT FIRM AND ONLY TWO WERE CONFIRMED HAVING WO RKED FOR IT AND THUS THE ENTIRE AMOUNT OF LABOUR CHARGES OF RS. 2,71 ,613/- DID NOT APPEAR GENUINE TO THE A.O. THE A.O. THUS CONTENDED THAT THE ASSESSEE FIRM HAD INFLATED THE LABOUR CHARGES TO REDUCE THE P ROFITS AND COMPARED THEM TO THOSE CLAIMED IN THE OTHER TWO CASE S OF M/S KURIAMAL & SONS, FARIDABAD (1.13%) AND ISHAR DAS AMI R CHAND, FARIDABAD (1.52%) WITH THE TOTAL LABOUR CHARGES TO T HE TURNOVER. FINALLY, HE TOOK THE PERCENTAGE OF LABOUR CHARGES EQ UIVALENT TO THE ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 8 PERCENTAGE OF THE LABOUR CHARGES INCURRED BY M/S IS HAR DAS AMIR CHAND BY TAKING A VERY LENIENT VIEW'. THUS HE CAL CULATED THE DISALLOWANCE OUT OF LABOUR CHARGES AT RS. 13,04,528 /- IN WHICH PACKING LABOUR CHARGES WERE ALSO DEBITED AT RS. 27,69,108/- . THE AO. ALSO CONTENDED THAT THE APPELLANT HAD PURPOSEFULLY TRIED TO HIDE THE INFORMATION OF PACKING LABOUR CHARGES BY CLUBBING T HE LABOUR CHARGES UNDER 'PURCHASES'. ANOTHER ARGUMENT FOR THIS DISALLO WANCE WAS THAT THE PERSONS TO WHOM THE LABOUR CHARGES HAD BEEN PAI D WERE NOT IDENTIFIABLE AND HENCE LABOUR CHARGES PAID WERE NOT VERIFIABLE. THE DISALLOWANCE AT RS. 13,04,528/- WORKED OUT AT 1.52% OF THE TURNOVER. 6.1 AO IN CONCLUSION MADE THE FOLLOWING OBSERVATIONS FOR THE PROPOSITION THAT THE EXISTENCE OF THE LABOURERS HA S NOT BEEN PROVED:- I) OUT OF THE 53 LABOURERS ONLY 6 WERE FOUND AVAI LABLE ON THE ADDRESSES GIVEN BY THE ASSESSEE. THE ASSESSEE MAY CL AIM THAT HE WAS NOT REQUIRED TO KEEP A TRACK OF THE LAB OURERS / VERIFY THEIR ADDRESSES HOWEVER, THE NON-AVAILABILIT Y OR APPROXIMATELY 90% OF THE LABOURERS AT THE ADDRESSES GIVEN BY THE ASSESSEE RAISES SERIOUS DOUBTS ABOUT THE GENUINENESS OF THE PAYMENTS WHICH HAVE ALL BEEN MADE IN CASH. ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 9 (II) NOT ONLY THAT THE ENTIRE AMOUNT OF ` 27,69,108/ - HAS BEEN PAID IN CASH THE SAME HAS ALWAYS BEEN SHOWN TO HAVE BEEN PAID UNDER ` 20,000/- TO ESCAPE FROM THE PROVISIONS OF SECTION 40A(3). III) AS STATED EARLIER, ALTHOUGH, TDS HAS BEEN MADE ON SOME OF THE PAYMENTS, YET, THE FORM NO. 16A CARRY DEFECTS IN THE FORM OF NON MENTIONING OF PAN OF THE DEDUCTEE AND SIMILARLY, THERE IS NO PROOF OF LABOURS HAVING RECEI VED A COPY OF THE SAME. IV) OUT OF THOSE PERSONS TO WHOM SUMMONS U/S. 131 CO ULD BE SERVED, 2 APPEAR IN THIS OFFICE AND HAVE STATED ON OATH THAT THEY HAVE NEVER WORKED FOR THE ASSESSEE NOR HAVE EV ER RECEIVED ANY PAYMENTS FROM HIM. V) THE ASSESSEE HAS REFUSED TO MAKE ANY ATTEMPT TO PR ODUCE ANY OF THE LABOURERS, BARRING 1. VI) IT IS FURTHER SEEN THAT THE TOTAL LABOUR CHARG ES BY THE ASSESSEE HAVE BEEN CLAIMED AT RS.31 ,40,316/- WHICH FORMS - PERCENTAGE OF THE TOTAL TURNOVER OF THE ASSESSEE. THE SAME IS VERY HIGH AS COMPARED TO THE PERCENTAGE OF T HE EXPENSES SHOWN UNDER THE SAID HEAD BY OTHER ASSESSE ES IN ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 10 THE SAME LINE OF BUSINESS. A MENTION IN THIS REGARD MAY BE MADE OR THE FOLLOWING TWO LEADING MANUFACTURERS OF MEHANDI IN FARIDABAD WHO HAVE CLAIMED LABOUR CHARGES F OR THE A.Y.2005-06 AS INDICATED AGAINST THEIR NAMES:- I) M/S KURIYA MAL & SONS, FARIDABAD PERCENTAGE OF TOTAL LABOUR CHARGES TO TURNOVER - 1.1 3% II) M/S ISHAR DASS AMIRCHAND, FARIDABAD PERCENTAGE OF TOTAL LABOUR CHARGES TO TURNOVER - 1.5 2% 7. BEFORE THE CIT(A) ASSESSEE INTER-ALIA SUBMITTED AS UNDER:- COMING TO THE ISSUE OF NON VERIFICATION OF THE PERS ONS IN WHOSE NAMES THE LABOUR CHARGES HAVE BEEN PAID IT IS THE CONTENTION OF THE ASSESSEE THAT THE LABOUR NEEDED F OR PACKING IS HIRED ON TEMPORARY BASIS ON A PIECE RATE SYSTEM WHEREIN EACH WORKER GETS MONEY ON THE BASIS OF THE NUMBER OF POUCHES PACKED. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE POUCHES OF RED AND BLACK HENNA WERE NOT EXPORTED. IT IS ALSO NOT THE CASE OF THE DEPART MENT THAT THE WAGES WERE NOT PAID FOR THE PACKING OF THE POUC HES. THUS IT LEADS TO A LOGICAL CONCLUSION THAT SINCE TH E POUCHES ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 11 WERE PACKED SOME WAGES WOULD HAVE TO BE PAID FOR TH E SAME. THE PERSONS WHO ENGAGE IN THE PACKING PROCESS ARE NOT SKILLED LABOUR BUT ARE PIECE RATE WORKERS AND A RE PAID IN CASH AS THEY ARE NOT HAVING BANK ACCOUNTS OF THEIR OWN. THUS THE NECESSITY TO MAINTAIN DETAILED RECORDS FOR TEMPORARY WORKERS WHO FINISH THE WORK ASSIGNED TO TH EM IN A SHORT PERIOD OF TIME AND WHO ARE PAID IN CASH IS N OT THERE AS THE SAME IS NOT REQUIRED FOR THE BUSINESS OF THE ASSESSEE. THUS THE ASSESSEE RECORDS THE ADDRESSES INFORMED BY THE PERSONS WHEN THEY COME TO WORK FOR THE ASSESSEE AND THE ASSESSEE HAS NO WAY OF VERIFYING THE CORRECTNESS OR OTHER WISE OF SUCH ADDRESSES. FURTHER THE ASSESSEE CAN IN NO WAY BE HELD RESPONSIBLE FOR THE CHANGES IN ADDRESS OF T HE PART TIME LABOUR WHO WORKED FOR IT TWO YEARS AGO AS THE ASSESSEE CAN IN NO WAY BIND SUCH LABOUR TO THE ADDR ESSES FURNISHED BY THEM. THUS WHAT BECOMES IMPORTANT IS TO ASCERTAIN WHETHER THE LABOUR WHO WAS PAID PIECE RAT E CHARGES EXISTED AT THE TIME WHEN THE PAYMENTS WERE MA DE. THIS IS PROVED BY THE PRODUCTION DONE BY THE LABOUR . FURTHER SINCE THE LABOUR WAS PAID ON A PIECE RATE BA SIS IT ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 12 TOTALLY CORRESPONDS TO THE POUCHES PRODUCED AND SOL D BY THE ASSESSEE. THUS IF THE PRODUCTION AND THE SALES OF THE HENNA POUCHES ARE ACCEPTED THE PIECE RATE OF THE LA BOUR IS ACCEPTED THERE IS NO JUSTIFICATION OF NOT ACCEPTING THE AMOUNT PAID FOR PIECE RATE PACKING LABOUR. THE ASSES SING OFFICER HAS NOT BROUGHT ON RECORD ANYTHING TO PROVE THAT THE WAGES PAID WERE NOT INCURRED IN THE YEAR WHEN THEY WERE ACTUALLY PAID. HE HAS TRIED TO IDENTIFY THE SAID WO RKERS TWO YEARS AFTER THE ACTUAL LABOUR CHARGES WERE INCURRED . THIS IS HIGHLY ARBITRARY STAND TAKEN BY THE ASSESSING OFFIC ER AND DESERVES TO BE DELETED. 7.1 UPON ASSESSEES APPEAL LD. CIT(A) GAVE FINDING THAT ASSESSEE HAS SUFFICIENTLY EXPLAINED ITS CASE, DURING THE COU RSE OF ASSESSMENT PROCEEDINGS AND HAS GIVEN ENOUGH DETAILS AND EXPLAN ATIONS TO THE AO. THE ASSESSEE HAS ALSO GIVEN COMPARATIVE FIGURE OF L ABOUR CHARGES CLAIMED IN EARLIER YEARS. LD. CIT(A) FOUND THAT AO HAS ADOPTED FLIMSY AND FRIVOLOUS GROUND ON WHICH HE HAS MADE THE DISALL OWANCE OUT OF LABOUR CHARGES. LD. CIT(A) FURTHER OBSERVED THAT AO HAS NOT GONE INTO THE PRAGMATIC AND PRACTICAL PHENOMENON IN SUCH LINE OF BUSINESS AND HAS RESTRICTED THE EXPENDITURE OUT OF LABOUR CHARGE S ON AN ARBITRARY, MINDLESS AND SELF-WILLED BASIS. LD. CIT(A) FURTHER FOUND THAT AO HAS ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 13 NOT BROUGHT ANY THING AFRESH OR ANY MATERIAL ON REC ORD WHICH CAN GO AGAINST THE ESTABLISHED HISTORY OF THE ASSESSEE FIR M. LD. CIT(A) FURTHER FOUND THAT AO DID NOT PROVIDE ANY OPPORTUNITY TO TH E ASSESSEE FOR THE APPLICATION OF PERCENTAGE RATIO OF THE LABOUR CHARG ES TO TURNOVER, NEITHER DID HE CONFRONT WITH IT THE DOCUMENTS OF THE COMPARABLE CASES RELIED UPON BY HIM. LD. CIT(A) FURTHER OBS ERVED THAT ON THE ISSUE OF LABOUR CHARGES IN ASSESSEES OWN CASE I N A.Y. 2001-02, THE JURISDICTIONAL TRIBUNAL VIDE ITS ORDER DATED 8.12.2 006 IN ITA NO. 3936/D/2004 HAD CLINCHED THE ISSUE AFTER GOING INTO THE HISTORY OF THE CASE REGARDING SALES, PACKING CHARGES AND LABOU R CHARGES, DELETING THE DISALLOWANCE WORKED OUT OF PACKING CHARGES AND LABOUR CHARGES IN THAT ASSESSMENT YEAR 2001-02. LD. CIT(A) FURTHER O BSERVED THAT AO HAS NOT BROUGHT ANY THING ADVERSE OR FRESH FACTS AG AINST THE ASSESSEE FIRM AS POINTED OUT ABOVE AND HENCE THE FACTS AND C IRCUMSTANCES BEING THE SAME OR IDENTICAL AS IN ASSESSMENT YEAR 2 001-02, IN THIS YEAR IN QUESTION ALSO, NO INTERFERENCE AS SUCH IS BEING CALLED FOR IN THE CLAIM OF EXPENSES BY THE ASSESSEE FIRM OUT OF LABOUR AND P ACKING CHARGES, WHEN SIMILAR ENQUIRIES WERE CONDUCTED BY THE AO IN THE ASSESSMENT YEAR 2001-02 ON SIMILAR LINES. HENCE, CIT DIRECTED FOR DELETION OF DISALLOWANCE. ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 14 8. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. WE FIND THAT L D. CIT(A) HAS GIVEN A FINDING IN THIS REGARD THAT AO HAS NOT GO NE INTO THE PRAGMATIC AND PRACTICAL PHENOMENON IN SUCH LINE OF B USINESS. LD. CIT(A) FURTHER GIVEN A FINDING THAT THERE WERE COMP ARABLE RESULTS IN EXPENSES OF LABOUR CHARGES IN EARLIER YEARS. WE FIN D THAT THE ASSESSEES CLAIM IS COGENT ONE THAT PERSONS ENGAGED IN THE PACKING ARE NOT SKILLED LABOURERS AND ARE PAID CASH AS THEY ARE NOT HAVING ANY BANK ACCOUNT OF THEIR OWN. THUS, THERE IS NO NE CESSITY TO MAINTAIN DETAILED RECORDS OF TEMPORARY WORKERS, WHO FINISHED THE WORK ASSIGNED TO THEM IN A SHORT SPAN OF TIME. IT WAS THE ASS ESSEES CASE THAT ASSESSEE HAS PAID PIECE RATE CHARGES. IN THESE CIR CUMSTANCES, THE QUANTUM OF EXPENDITURE CAN BE COMPARED TO PRODUCTION DONE BY THE LABOUR. IT WAS FURTHER SUBMITTED THAT SINCE THE LA BOUR WAS PAID ON A PIECE RATE BASIS IT TOTALLY CORRESPONDS TO THE POUC HES PRODUCED AND SOLD BY THE ASSESSEE. WE FURTHER FIND THAT THIS TR IBUNAL IN ASSESSEES OWN CASE VIDE ITS ORDER DATED 8.12.2006 IN ITA NO . 3936/D/2004 HAS HELD AS UNDER:- WE FIND THAT THE ASSESSEE EXPLAINED THAT THE LABOU RERS WERE CASUAL AND PAYMENTS WERE MADE IN CASH TO THEM A S THEY WERE PETTY WORKERS. THE ASSESSEE ALSO SUBMITTE D THAT ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 15 SINCE THEY WERE CASUAL WORKERS AFTER A LAPSE OF 3 YEARS THEIR WHEREABOUTS WERE NOT KNOWN TO THE ASSESSEE. HOWEVER, THE EXPLANATION OF THE ASSESSEE DID NOT FI ND FAVOUR WITH THE LOWER AUTHORITIES. WE FIND THAT TH E COUNSEL FOR THE ASSESSEE HAS FILED A CHART OF PERCENTAGE OF LABOUR CHARGES AND PACKING CHARGE TO THE TOTAL TURNOVER OF THE ASSESSEE. THIS SHOWS THAT THE PERCENTAGE OF LABOUR CHARGES AND PACKING CHARGES TO THE TURNOVER COMPARES FAVORAB LY WITH THE PERCENTAGES OF EXPENSES CLAIMED IN THE EAR LIER AND SUBSEQUENT YEARS. IT IS ALSO A FACT THAT THE AO HAS MADE ADHOC DISALLOWANCE OF 50% OF PACKING CHARGES AND LA BOUR CHARGES CLAIMED BY THE ASSESSEE WITHOUT POINTING OU T THE SPECIFIC EXPENDITURE UNDER THOSE HEADS WHICH WERE NOT VERIFIABLE AS THE ADDRESS OF THE CASUAL LABOURERS WERE NOT AVAILABLE. IT HAS NOT BEEN FOUND THAT LABOUR CHARGE S CLAIMED WERE EXCESSIVE BY CITING ANY COMPARABLE CASES . IN VIEW OF THE ABOVE WE ARE OF THE CONSIDERED VIEW THA T THE DISALLOWANCE MADE BY THE AO CANNOT BE SUSTAINED IN LAW AND REQUIRES TO BE DELETED. HENCE WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE AO TO ALLOW DE DUCTION OF PACKING CHARGES AND LABOUR CHARGES OF RS. 378096/- AND ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 16 RS. 154840/- RESPECTIVELY CLAIMED BY THE ASSESSEE. THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 8.1 WE FIND THAT THE FACTS IN THE PRESENT CASE ARE ANALOGICAL WITH THE FACTS OF THE DECISION OF TRIBUNAL IN ASSESSEES OW N CASE AS AFORESAID. IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND P RECEDENTS RELIED UPON, WE AFFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 8.2 IN THE RESULT, ON THIS ISSUE, THE REVENUES AP PEAL STANDS DISMISSED. 9. ONE COMMON ISSUE RAISED IN ASSESSMENT YEARS 200 5-06, 2006-07 & 2007-08 PERTAINS TO DELETION OF ADDITION MADE ON ACCOUNT OF SHORTAGE IN PRODUCTION. SINCE THE FACTS IN BO TH THESE YEARS ARE IDENTICAL, WE ARE ADJUDICATING THIS ISSUE BY REFE RRING TO FIGURES FROM ASSESSMENT YEAR 2005-06. 10. IN THIS CASE THE A.O. IN PARA 2 OF HIS ORDER WE NT ON ENQUIRING INTO THE SHORTAGE SHOWN BY THE ASSESSEE DURING THE YEAR AT 7.19% COMPARED TO 5.65% DECLARED LAST YEAR, WHILE ADMITTIN G THAT THE G.P. THIS YEAR WAS 50.07% AS AGAINST THE 44.16% OF THE L AST YEAR. THEREFORE, HE WENT ON TO INVESTIGATE THE DETAILS OF PRODUCTION AND FOUND THAT OUT OF TOTAL PRODUCTION, 89% WAS THAT O F THE RED HENNA AND 11% WAS OF THE BLACK HENNA. THE DETAILS OF THE EXPO RT CONTRIBUTED TO ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 17 88.61% OF THE TOTAL TURNOVER, BUT THE ASSESSEE DID NOT FILE THE DETAILS/ADDRESSES OF THE EXPORTERS AS DESIRED BY TH E AO AND THEREFORE, ACCORDING TO HIM, THE TRADING RESULTS WERE NOT VER IFIABLE. THERE WAS NO STOCK REGISTER MAINTAINED AND HENCE THERE WAS NO SCOPE OF VERIFICATION OF TRADING RESULTS. THEREFORE, HE PROC EEDED TO RESTRICT THE SHORTAGE WITHIN THE RANGE OF 3.25% - 4%. THE ASSESS EE EXPLAINED THE MATTER THROUGH ITS LETTER DATED 17.12.2007, BUT THE AO. WAS NOT CONVINCED WITH THE ASSESSEE'S REPLY. HE HAS COMPARED THE CASE OF THE APPELLANT TO THAT OF M/S ISHAR DAS AMIR CHAND, FARIDAB AD AND APPLIED ITS RESULTS TO IT BY HOLDING THAT THE APPELLANT HAD SHOWN THE EXCESS SHORTAGE AND MORE THAN 3.7%. THEREFORE TO THAT EXTE NT, THE BOOKS OF ACCOUNT WERE REJECTED BY THE AO AS PER PROVISIONS O F SECTION 145(3) OF THE INCOME TAX ACT, 1961, SINCE THE AO WAS NOT SATI SFIED ABOUT THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS FOR THE REASONS AS MENTIONED IN PARA 2.1 OF HIS ORDER. THEREFORE, IN PA RA 2.4 , HE HAS RESTRICTED THE CLAIM OF SHORTAGE AT 3.7% AND WORKED THE DISALLOWANCE AT RS. 20,97,572/- AND ADDED IT BACK TO THE TOTAL I NCOME OF THE ASSESSEE. 11. UPON ASSESSEES APPEAL LD. CIT(A) FOUND THAT AO HAS PROCEEDED PURELY ON IMAGINATION AND ASSUMPTIONS WITHOUT BRINGIN G ANY DOCUMENTARY MATERIAL ON RECORD TO REJECT THE TRADING VERSION SHOWN BY ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 18 THE ASSESSEE FIRM. LD. CIT(A) GIVEN A FINDING T HAT ASSESSEE FIRM IS MAINTAINING THE COMPLETE DETAILS / PARTICULARS OF OPE NING STOCK, PURCHASES, CONSUMPTION, PRODUCTION AND SALES WHICH W ERE VERIFIED BY THE AO AND ACCEPTED WITHOUT POINTING OUT ANY DEFIC IENCY OR DEFECT IN THEM. LD. CIT(A) FURTHER OBSERVED THAT THE COMPLE TENESS AND CORRECTNESS OF THE BOOKS OF ACCOUNTS MAINTAINED BY T HE ASSESSEE FIRM WERE IN NO WAY IN DISPUTE AS IS CLEAR FROM THE ASSES SMENT ORDER. HENCE, THE PROVISIONS OF SECTION 145(3) OF THE IT A CT HAVE BEEN INCORRECTLY RESORTED TO BY THE AO. LD. CIT(A) FURT HER NOTED THAT THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT THE AO WAS NOT AT ALL JUSTIFIED TO PART REJECT THE BOOKS OF ACCOUNT IN MAKING AN ISO LATED ADDITION ONLY OUT OF SHORTAGE, INSTEAD OF MAKING A FULL REJECTION OF THE ACCOUNTING VERSION AND THEN DETERMINING THE PROFITS, IF ANY, AR RIVED AT. LD. CIT(A) FURTHER FOUND THAT THE CLAIM OF THE ASSESSEE IS IN LINE WITH ITS PAST HISTORY. LD. CIT(A) FURTHER NOTED THAT AO HAS RES TRICTED THE SHORTAGE BY COMPARING WITH THE CASE OF M/S ISHAR DAS AMIR CHAND, FARIDABAD. LD. CIT(A) FOUND THAT THE SAME WAS NOT VERY RELIABL E AS ITS METHOD OF ACCOUNTING OF TRADING RESULTS ARE QUITE DIFFERENT FROM THE CASE RELIED UPON. LD. CIT(A) FURTHER NOTED THAT THIS TRIBUNAL IN ITS ORDER DATED 5.9.2002 IN ITA NO. 1044/DEL/98 IN ASSESSEES OWN C ASE FOR THE ASSESSMENT YEAR 1995-96 HAS CONFIRMED THE ACTION OF THE LD. CIT(A) IN ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 19 DELETING THE ADDITION EFFECTED BY THE AO ON ACCOUNT OF WASTAGE IN HENNA ACCOUNT. LD. CIT(A) OBSERVED THAT IN THIS YEAR ALSO AO HAS ATTEMPTED TO MAKE THE ADDITION OUT OF SHORTAGE DECLAR ED, BUT WITHOUT ANY COGENT MATERIAL OR DOCUMENTARY EVIDENCE. THEREF ORE, THE ADDITION ON ALLEGED EXCESS SHORTAGE WAS HELD BY THE LD. CIT (A) TO BE UNWARRANTED AND MERITLESS. 12. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPE AL BEFORE US. 13. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT LD. CIT(A) HAS GIVEN A FINDING IN THIS CASE THAT ASSESSEE IS MAINTA INING THE COMPLETE DETAILS / PARTICULARS OF OPENING STOCK, PURCHASES, CONSUMPTION, PRODUCTION AND SALES WHICH WERE VERIFIED BY THE AO AND ACCEPTED WITHOUT POINTING OUT ANY DEFICIENCY OR DEFECT IN TH EM. MOREOVER, WE AGREE WITH THE LD. CIT(A)S VIEW THAT IN THESE CIRC UMSTANCES PROVISION OF SECTION 145(3) OF THE IT ACT HAVE BEEN INCORRECT LY RESORTED TO BY THE AO. FURTHERMORE, AO HAS PARTLY REJECTED THE BOOKS O F ACCOUNT, WHICH IS NOT TENABLE. FURTHERMORE, WE FIND THAT THIS TR IBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 5.9.2002 IN ITA NO. 1044 /DEL/98 FOR THE ASSESSMENT YEAR 1995-96 HAS DELETED THE ADDITION MAD E ON SIMILAR FACTS. HENCE, IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 20 PRECEDENTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. 14. ANOTHER ISSUE RAISED IN THE ASSESSMENT YEAR 200 5-06 PERTAINS TO ADDITION ON ACCOUNT OF DISALLOWANCE U/S. 40(A)(IA). 15. THE AO MADE THIS DISALLOWANCE AS NO TDS WAS MADE A S PER PROVISIONS OF SECTION 194C FROM THE PAYMENTS WHICH WE RE IN EXCESS OF ` 50,000/- IN RESPECT OF THE FOLLOWING THREE TRANSP ORTERS:- I) SH. BABUL LAL S/O TIKAMJI - ` 6,27,858/- II) SH. NARPAT RAJ S/O SH. BHAGAR LAL - ` 98,25 6/- III) SH. RAM LAL S/O SH. TEEKAM RAM - ` 1,33,367/- ` 8,59,481/- THE AO EXAMINED FROM NO. 15 I OF THESE TRANSPORTERS A ND CONCLUDED THAT TAX WAS REQUIRED TO BE DEDUCTED ON T HE SAID PAYMENTS OF ` 8,59,481/- U/S. 194C, WHICH THE ASSESSEE HAD FAILED TO DO. HENCE, HE MADE THE ABOVE DISALLOWANCE. 16. BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HAS MADE PAYMENTS TO THE THREE TRANSPORTERS MENTIONED IN THE ASSESSMENT ORDER FOR EACH ORDER OF TRANSPORT EXECUT ED BY THEM. THE ASSESSEE HAS NO CONTRACT FOR TRANSPORT WITH ANY TRA NSPORTER. THUS ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 21 EACH GR NOTE BECOMES A SEPARATE CONTRACT AND SINCE THE VALUE OF SUCH CONTRACT DOES NOT EXCEED ` 20,000/- THE ASSESS EE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMEN TS. IT WAS FURTHER SUBMITTED THAT THIS IS ALSO BORNE OUT BY THE BOARD CIRCULAR NO. 715 DATED 8.8.1995 WHEREIN THE FOLLOWING WAS STATED QUESTION 9 : IN THE CASE OF PAYMENTS TO TRANSPORTER S, CAN EACH GR BE SAID TO BE SEPARATE CONTRACT, EVEN THOUG H PAYMENTS FOR SEVERAL GRS ARE MADE UNDER ONE BILL? ANSWER:- NORMALLY, EACH GR CAN BE SAID TO BE A SEPA RATE CONTRACT, IF THE GOODS ARE TRANSPORTED AT ONE TIME. BUT IF THE GOODS ARE TRANSPORTED CONTINUOUSLY IN PURSUANCE OF A CONTRACT FOR A SPECIFIC PERIOD OR QUANTITY, EACH GR WILL NOT BE A SEPARATE CONTRACT AND ALL GRS RELATING TO THAT PERIOD OR QUANTITY WILL BE AGGREGATED FOR THE PURPOSE OF THE TDS. IT IS NOT THE CASE OF THE AO THAT EACH GR IS ABOVE ` 20,000/- AND THUS THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE. THIS IS A LEGAL GROUND WHICH CAN TAKEN UP AT ANY POINT IN TIM E IN THE APPELLATE PROCEEDINGS. IT WAS FURTHER SUBMITTED THAT THE AO HAS NOT BROUGH T ON RECORD ANY DOCUMENT TO SHOW THAT THE ASSESSEE HAD CONTRACT WITH ANY ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 22 TRANSPORTER AND THUS JUST BECAUSE THE PAYMENTS EXCE EDED ` 50,000/- THERE WAS NO IMPLICIT REASON TO HOLD THAT THE PAYMEN TS WERE MADE IN PURSUANCE TO A CONTRACT. 17. CONSIDERING THE ABOVE, LD. CIT(A) HELD THAT TH E CLAIM OF THE ASSESSEE WAS JUSTIFIED AND CORRECT IN LIGHT OF THE AFORESAID BOARD CIRCULAR NO. 715 DATED 8.8.1995. HENCE, HE HELD TH AT THE DISALLOWANCE MADE BY THE AO IS PREMATURE AND WITHOUT ANY SOLID FIN DING OR EVIDENCE. HENCE, THE DISALLOWANCE OF ` 8,59,481/ - STANDS DELETED. 18. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 19. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. WE FIND CON SIDERABLE COGENCY IN THE SUBMISSIONS OF THE ASSESSEE. FURTHERMORE, THE BOARD CIRCULAR NO. 715 AS AFORESAID COMES TO THE RESCUE OF THE ASS ESSEE. UNDER THE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE LD. CIT(A) AND ACCORDINGLY WE UPHOLD THE SAME. 20. ANOTHER ISSUE RAISED IN ASSESSMENT YEAR 2007-08 PERTAINS TO DISALLOWANCE OF COMMISSION PAID TO FOREIGN AGENTS. 21. IN THIS CASE THE AO IN PARA 2 OF HER ORDER EXAMI NED THE ASSESSEES P&L ACCOUNT IN WHICH WAS SHOWN THE COMMISSI ON AT ` 51,32,427/- PAID / PAYABLE TO THE RESIDENT AND NON- RESIDENT AGENTS OUT ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 23 OF WHICH THE COMMISSION TO THE NON-RESIDENT AGENTS W AS SHOWN PAID TO TWO AGENTS I.E. ONE, OMER ERHAN OF TRUKEY AT ` 35,3 4,232/- AND THE OTHER TO ISHAM ROOK INTERNATIONAL LTEE OF MAURITIUS AT ` 12,57,747/-. AS ACCORDING TO THE AO, SHE MADE THE ENQUIRIES ON THE LINES MENTIONED IN THE IMPUGNED ORDER AND FOUND THAT THE ASSESSEE HAD E XPLAINED THE TDS IN RESPECT OF THE LOCAL AGENTS BUT NO EXPLANATIO N WAS GIVEN REGARDING THE FOREIGN AGENTS, IN VIEW OF THE PROVIS IONS OF SECTION 195 OF THE INCOME TAX ACT, 1961. AFTER EXAMINING THE DOCU MENTS SUBMITTED BY THE ASSESSEE IN RESPECT OF THE BANKS FOR PAYMENT S OF COMMISSION, AS PER HER DETAILED DISCUSSION IN RESPECT OF THE TR UKEY AND MAURITIUS AGENTS AND THE FACTS THAT NO APPLICATION WAS FILE D U/S. 195(3) IN VIEW OF THE NATURE OF AGREEMENTS WITH THESE AGENTS, THE AO HELD THAT THE ASSESSEE HAD CONTRAVENED THE PROVISIONS OF SECTION 195 READ WITH SECTION 40(A) OF THE INCOME TAX ACT, 1961. THEREFO RE, SHE DISALLOWED THE TWO COMMISSION AMOUNTS OF ` 35,34,232/- AND ` 12, 57,747/- U/S. 40(A). 22. UPON ASSESSEES APPEAL LD. CIT(A) OBSERVED THAT HE HAS GONE THROUGH THE DOCUMENTS PERTAINING TO TWO PARTIES IN Q UESTION WITH RESPECT TO THEIR BANK ADVICES OF THE ICICI BANK, N EW DELHI FOR REMITTANCE OF COMMISSION PAYMENT ALONGWITH DOCUMENTARY EVIDENCE OF COMMISSION AND RECEIPTS AND AGREEMENTS WITH THE A GENTS OCAK, ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 24 TURKEY AND ISHAM ROOK, MAURITIUS. LD. CIT(A) OBS ERVED THAT HE HAS GONE INTO THE PAST HISTORY OF THE CASE WHERE SUCH E XPENSES HAVE BEEN FULLY ACCEPTED BY THE DEPARTMENT, AS IN THIS CASE SINCE THE ASSESSEE IS AN EXPORTER OF BLACK AND RED HEENA, COMMISSION IS PAID AT THE CONTRACTED RATE TO THE OVERSEAS AGENTS APPOINTED BY THE ASSESSEE WHO PROCURE ORDERS AND ENSURE THE REALIZATION OF THE P AYMENTS AND SUCH COMMISSION EXPENSE IS INCURRED IN THE NORMAL COURSE O F BUSINESS. THE MAJORITY OF THE ASSESSEE BUSINESS IS DONE THROUGH COMMISSION AGENTS AS THE PARTNERS OF THE ASSESSEE FIRM DO NOT TRAVEL ABROAD MUCH AND FIND THE BUSINESS TRANSACTED THROUGH THE AGENTS TO BE A PROFITABLE MODE OF CONDUCTING BUSINESS. LD. CIT(A) FURTHE R OBSERVED THAT HE HAS EXAMINED THE PAYMENTS OF COMMISSION VIS-A-VIS THE T URNOVER OF THE ASSESSEE FROM A.Y. 2000-01 TO A.Y. 2006-07 ALONG WITH PAYMENTS MADE TO AGENTS. HE FURTHER FOUND THAT SUCH EXPENS ES HAVE BEEN ALLOWED IN THE PAST YEARS IN THE SCRUTINY ASSESSME NT U/S. 143(3). HE FURTHER OBSERVED THAT AO HAS NOT BROUGHT ANYTHING O N RECORD WHICH MAY ENABLE HIM TO DOUBT THE COMMISSION AGREEMENTS AND PAYMENTS AS SUCH, SO THAT THE DEPARTURE FROM THE ACCEPTED HI STORY ON THE ISSUE IS NOT SUSTAINABLE. LD. CIT(A) FURTHER FOUND THAT AO HAS ALLOWED THAT COMMISSION WHICH WAS PAID TO THE LOCAL AGENTS, EVEN THOUGH THEY WERE DOING FOREIGN BUSINESS OR TRANSACTIONS ABROAD. THEREFORE, LD. ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 25 CIT(A) HELD THAT THERE IS NO LOGIC IN DISALLOWING SUCH COMMISSION PAID TO THE FOREIGN AGENTS ON SIMILAR DEALING WHICH THE A SSESSEES BUSINESS WHICH IS LARGELY BASED ON EXPORT DEALS AND ON ACCOU NT OF WHICH THE ASSESSEE HAS SHOWN A MUCH IMPROVED TURNOVER THIS YEA R COMPARED THE LAST YEARS. THEREFORE, LD. CIT(A) HELD THAT BOTH T HE ADDITIONS OF ` 35,34,232/- AND ` 12,57,747/- BEING ERRONEOUS ON LA W AND FACTS, STAND DELETED. 23. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 24. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. WE FIND THAT THE COMMISSION IN THIS CASE HAS BEEN PAID TO NON-RESIDENT AGENTS FOR THE BUSINESS PROCURED IN FOREIGN COUNTRY. UNDER SUCH CIRCUM STANCES, BOARD CIRCULAR NO. 786 DATED 7.2.2000 BECOMES RELEVANT. IN THE CIRCULAR IT HAS BEEN MENTIONED THAT THE DEDUCTION OF TAX AT S OURCE UNDER SECTION 195 WOULD ARISE IF THE PAYMENT OF COMMISSION TO THE N ON-RESIDENT AGENT IS CHARGEABLE TO TAX IN INDIA. IN THIS REGA RD, ATTENTION TO CBDT CIRCULAR NO. 23 DATED 23 RD JULY, 1969 IS DRAWN, WHERE THE TAXABILITY OF FOREIGN AGENTS OF INDIAN EXPORTS WAS CONSIDERED AL ONGWITH CERTAIN OTHER SPECIFIC SITUATIONS. IT HAD BEEN CLARIFIED THEN THAT WHERE THE NON-RESIDENT AGENTS OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA. FURTHER, SINCE THE PAYMEN T IS USUALLY REMITTED ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 26 DIRECTLY ABROAD IT CANNOT BE HELD TO HAVE BEEN R ECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA. THE RELEVANT SECTIO NS, NAMELY, SECTION 5(2) AND SECTION 9 OF THE INCOME TAX ACT, 1961, NOT HAVING UNDERGONE ANY CHANGE IN THIS REGARD, THE CLARIFICATION IN CI RCULAR NO. 23 STILL PREVAILS. NO TAX IS THEREFORE DEDUCTIBLE UNDER S ECTION 195 AND CONSEQUENTLY, THE EXPENDITURE ON EXPORT COMMISSION A ND OTHER RELATED CHARGES PAYABLE TO A NON-RESIDENT FOR SERVICES REND ERED OUTSIDE INDIA BECOMES ALLOWABLE EXPENDITURE. 25. CONSIDERING THE PRESENT CASE ON THE TOUCHSTONE OF THE ABOVE SAID CIRCULAR, WE FIND THAT ASSESSEE HAS MADE THE PAYMENT OF COMMISSION TO NON-RESIDENT AGENTS FOR BUSINESS PROCURED ABROAD . THUS, THE NON- RESIDENT AGENTS OPERATED OUTSIDE THE COUNTRY, NO PART OF THEIR INCOME ARISES IN INDIA. FURTHER, SINCE THE PAYMEN T WAS REMITTED DIRECTLY ABROAD IT CANNOT BE HELD TO HAVE BEEN R ECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA. FURTHER, LD. CIT(A) HAS GIVEN A FINDING THAT IN EARLIER YEARS SUCH EXPENDITURE HAVE BEEN A LLOWED IN THE SCRUTINY ASSESSMENT U/S. 143(3). UNDER THE CIRCU MSTANCES, IN THE BACKGROUND OF THE AFORESAID DISCUSSION, WE DO NOT F IND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, WE UPHOL D THE SAME. 26. ANOTHER ISSUE RAISED IN ASSESSMENT YEAR 2005-0 6 PERTAINS TO DISALLOWANCE IN RESPECT VEHICLE EXPENSES AND TELEPH ONE EXPENSES. ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 27 27. THE AO IN HIS ORDER HAS MADE THE ADDITION OUT OF VEHICLE EXPENSES AND TELEPHONE EXPENSES TO THE EXTENT OF 1 /5 TH AND 1/3 RD OUT OF THE TOTAL EXPENDITURE DEBITED UNDER EACH HEAD RE SPECTIVELY FOR THE PERSONAL USE OF THOSE ASSETS. AS FAR AS THE AD DITION IN THE VEHICLE EXPENSES IS CONCERNED, THE AO HAS MENTIONED THAT THE ASSESSEE HAS FIRST SURRENDERED ONE FIFTH OF THESE EXPENSES BUT T HE SAID DISALLOWANCE SURRENDERED WAS SUBSEQUENTLY WITHDRAWN, AND IT RATH ER HAD REQUESTED FOR 1/10 TH DISALLOWANCE OUT OF THESE EXPENSES. THE AO TREATED IT AS DEVIATION FROM THE EARLIER STAND OF THE ASSESSEE AND CONCLUDED THAT THE ONUS WAS ON THE ASSESSEE TO PROVE / JUSTIFY AND EST ABLISH THE SAME. THEREFORE, THE AO FURTHER CONCLUDED THAT THE ASSESS EE HAD NEITHER PRODUCED A LOG BOOK AND THEREFORE THE CORRECTNESS O F THE CLAIM OF THE DEDUCTIONS COULD NOT BE ESTABLISHED. ASSESSEE FURT HER RELIED UPON THE A.Y. 2001-02 WHEREIN TRIBUNAL HAD DISALLOWED 1/10 TH OF THE TOTAL, BUT AO DID NOT ACCEPT THIS PLEA AND MADE A DISALLOWANCE 1/5 TH OF AFORESAID EXPENSES. 28. UPON ASSESSEES APPEAL LD. CIT(A) OBSERVED THA T AO HAS NOT FOUND ANY DEFECT IN THE VOUCHERS AND MADE THE DISAL LOWANCE ON ARBITRARY BASIS. ASSESSEE HAS EARLIER OFFERED 1/5 TH DISALLOWANCE. WHEN HE CAME TO KNOW OF THE CONFIRMED DISALLOWANCE UPTO 1/10 TH BY THE TRIBUNAL FOR THE YEAR 2001-02, HE REVISED HIS CLAIM OF EXPENSES FOR ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 28 DISALLOWANCE OUT OF THEM ACCORDINGLY. LD. CIT(A) FURTHER OBSERVED THAT AO HAS NOT RESPECTED THE JURISDICTIONAL TRIBUN ALS ORDER IN THAT CONTEXT. HE FURTHER FOUND THAT OTHER ARGUMENT THAT LOG BOOK WAS NOT MAINTAINED IS ALSO AN IMPRACTICAL CONSIDERATION. A CCORDINGLY, LD. CIT(A) HELD THAT DISALLOWANCE SHOULD BE RESTRICTED 1/10 TH OUT OF EXPENDITURE. 29. SIMILARLY, THE AO HAS DISALLOWED 1/3 RD OF THE TELEPHONE EXPENSES. THE ASSESSEE HAS PLEADED BEFORE THE LD. CIT(A) THAT THE ABOVE IS EXCESSIVE. THE TRIBUNAL IN ASSESSEES OWN CASE F OR A.Y. 2001-02 AND THE LD. CIT(A) IN HIS ORDER FOR A.Y. 2004-05 HAS RE STRICTED THE DISALLOWANCE TO 1/10 TH OF THE EXPENDITURE. SINCE THE FACTS AND CIRCUMSTANCES ARE ALSO IDENTICAL AS IN EARLIER YEARS , THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 1/10 TH OF THE EXPENDITURE. 30. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 31. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT 1/10 TH DISALLOWANCE AGAINST THE IMPUGNED EXPENSES IS REASONABLE AND HAS BEEN ALSO SO HELD BY THE TRIBUNAL IN ASSESSEES OWN CASE IN EA RLIER YEAR ASSESSMENT YEAR 2001-02. UNDER THE CIRCUMSTANCES, WE UPHOLD TH E ORDER OF THE LD. CIT(A) ON THIS ISSUE. ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 29 32. ANOTHER ISSUE RAISED IN ASSESSMENT YEAR 2005-06 PERTAINS TO DELETION OF ADDITION OF ` 4 LACS MADE BY THE AO ON A CCOUNT OF HOUSEHOLD EXPENSES. 33. ON THIS ISSUE THE AO IN HIS ASSESSMENT ORDER HA S WORKED OUT THE ADDITION OF ` 4 LACS IN THE HANDS OF THREE PARTNERS SHRI OM PRAKASH GUPTA, SH. RAM GOPAL AND SH. VED PRAKASH GUPTA AND SHRI SATISH KUMAR GUPTA BY COMPARING THE CONSUMPTION OF ELECTRICA L EXPENSES WITH THE HOUSEHOLD EXPENSES SHOWN AND EDUCATIONAL E XPENSES INCURRED. THE AO ESTIMATED THE HOUSEHOLD EXPENSES O F THE ABOVE PARTNERS AT ` 3,99,300/-; ` 3,02,450/- AND ` 1,98,3 80/- AND THUS WORKED OUT THE SUPPRESSION AT ` 2,70,000/-, ` 85,000/- AND ` 45,000/- RESPECTIVELY AND ADDED THEM TO THE TOTAL INCOME OF T HE ASSESSEE FIRM. 34. UPON ASSESSEES APPEAL LD. CIT(A) OBSERVED THAT AO WAS WELL WITHIN THE POWERS TO ENQUIRE ABOUT THE HOUSEHOLD EX PENSES OF THE PARTNERS, YET THE AO HAS NOT BEEN ABLE TO ESTABLISH WHETHER THE ESTIMATED ADDITIONS WERE TO BE EFFECTED IN THE HAND S OF THE ASSESSEE FIRM OUT OF THE FUNDS OF THE FIRM OR THROUGH THEIR PE RSONAL SOURCES. FURTHER, LD. CIT(A) OBSERVED THAT AS PER THE PROVISI ONS OF SECTION 69C, THE ONUS WAS ON THE AO WHETHER THE EXPENDITURE ATTR IBUTED TO PARTNERS WAS ACTUALLY SPENT FOR THEIR HOUSEHOLD PUR POSES WHICH HE CLAIMS TO HAVE ESTABLISHED BUT HE HAS NOT ESTABLISHE D BY ANY DOCUMENTARY EVIDENCES THAT MUCH EXPENDITURE INCURRED AS SUCH. THUS, LD. CIT(A) CONCLUDED THAT ADDITION MADE ON ACC OUNT OF HOUSEHOLD ITA NOS. 20 & 1445/DEL/2009 AND 1680/DEL/2010 30 EXPENDITURE ALSO REMAINS WITHOUT ANY BASIS OR MATERI AL. THEREFORE, HE HELD THAT THE ADDITION OF ` 4 LACS ON ACCOUNT OF HOUSEHOLD EXPENSES IS DELETED. 35. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 36. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. WE FIND T HAT THE ADDITION IN THIS CASE HAS BEEN MADE BY THE AO, IN A PURELY ARBI TRARY MANNER AND WITHOUT ANY BASIS AND DOCUMENTARY EVIDENCE. UNDER THE CIRCUMSTANCES, WE FIND THAT THE LD. CIT(A) HAS TAKEN A CORRECT VIEW AND DELETED THE DISALLOWANCE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 37. IN THE RESULT, ALL THE THREE APPEALS FILED BY T HE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/6/2012. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [I. [I.[I. [I.C. SUDHIR C. SUDHIR C. SUDHIR C. SUDHIR] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 08/6/2012 SRB SRB SRB SRBHATNAGAR HATNAGAR HATNAGAR HATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES