DCIT, Varanasi V. M/s A.K. Construction Co., Varanasi

ITA 149/ALLD/2012

• Counselvise Citation: 14920714 RSA 2012
• Duration Of Justice: 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 07-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP CHAUHAN
• Assessee Lawyers: ARVIND SHUKLA; O P SHUKLA
• Keywords: Business expenditure; Corroborative evidences; Commercial expediency; Capital expenditure
• Section: 37(1); 145; 37; 56; 28; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH, ALLAHABAD BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO.149/A/2012 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME TAX, VS. M/S. A.K. CONST RUCTION COMPANY, CIRCLE-3, VARANASI. VILLAGE BHADIWAN, POST AMBA, VARANASI. (PAN : AAIFA 2911 J). APPELLANT BY : SHRI SANDEEP CHAUHAN, CIT D.R. RESPONDENTS BY : SHRI ARVIND SHUKLA & SHRI O.P. SHUKLA, ADVOCATES ITA NO.140/A/2012 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME TAX, VS. M/S. CHANDRAWAT I CONSTRUCTION, CIRCLE-3, VARANASI. SA 3/184-D-4, DAULATPUR, KAMLA NAGAR, VARANASI. (PAN : AADFC 7306 G). (APPELLANT) (RESPONDENTS) APPELLANT BY : SHRI Y.P. SRIVASTAVA, SR. D.R. RESPONDENTS BY : SHRI ARVIND SHUKLA & SHRI O.P. SHUKLA, ADVOCATES DATE OF HEARING : 08.11.2012 DATE OF PRONOUNCEMENT : 13.12.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: ITA NOS.149 & 140/A/2012 AYS. 2009-10 2 THESE ARE TWO APPEALS FILED BY THE REVENUE AGAINST TWO DIFFERENT ORDERS, BOTH DATED 12.03.2012, PASSED BY THE LD. CIT(A), VA RANASI FOR THE ASSESSMENT YEAR 2009-10. 2. SINCE THESE APPEALS FILED BY THE REVENUE ARE BAS ED ON IDENTICAL SET OF FACTS, THEREFORE, FOR THE SAKE OF CONVENIENCE, THESE TWO A PPEALS ARE DECIDED TOGETHER. ITA NO.149/A/2012 A.Y. 2009-10 3. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, LD. CIT(A) IS JUSTIFIED IN ACCEPTING THE BOOK RESULTS OF THE ASSE SSEE AND INVOKING THE PROVISIONS OF SECTION 145(3) IGNORING THE FACT THE ASSESSEE DID NOT PRODUCE ANY BILLS AND VOUCHERS AS MENTIONED IN ASSESSMENT O RDER/ORDER SHEET AND NOTED BY THE AUTHORISED REPRESENTATIVE OF THE ASSES SEE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE LD. CIT( A) IS JUSTIFIED IN DELETING THE ADDITION OF RS.54,77,084/ - BEING PART DISALLOWANCE OF EXPENSES OF MATERIAL CONSUMED, LABOUR CHARGES AN D POWER AND FUEL ETC. IGNORING THE FACT THAT NO VOUCHERS OF THESE EXPENSE S WERE PRODUCED BEFORE THE A.O. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS.6,28,883/- BEING PART DISALLOWANCE OF VARIOUS EXPENSES OF PROFIT AND LOSS ACCOUNT IGNO RING THE FACT ADMITTEDLY NO BILLS/VOUCHERS OF THESE EXPENSES WERE PRODUCED B EFORE THE A.O. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS.19,35,849/ - BEING ADDITION OF ITA NOS.149 & 140/A/2012 AYS. 2009-10 3 INTEREST INCOME OF FDR NOT SHOWN BY THE ASSESSEE DU RING THE YEAR UNDER CONSIDERATION AND OR IN ANY OTHER YEAR. 5. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE LD. CIT(A) IS JUSTIFIED IN ACCEPTING THE VERSION OF THE ASSESSEE AND ALLOWING APPEAL OF THE ASSESSEE WITHOUT MAKING ANY DISCUSSION IN APPEL LATE ORDER CALLED FROM THE A.O. 6. WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE C ASE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITIONS AND ALLOWING AS SESSEES APPEAL IGNORING THE PROVISIONS OF SECTION 250(6) OF THE I.T. ACT. 7. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CA SE LD. CIT(A) IS JUSTIFIED IN ALLOWING APPEAL OF THE ASSESSEE AND IG NORING THE REMAND REPORT OF THE A.O. WITHOUT ANY DISCUSSION OVER THE SAME. 7. IN THE FACTS AND CIRCUMSTANCES OF THE CASE ORDER PASSED BY LD. CIT(A) IS ON PERVERSE FACTS SO THE ORDER OF LD. CIT (A) MAY KINDLY BE REVERSED AND ORDER OF THE A.O. MAY KINDLY BE CONFIR MED. 8. CRAVES FOR LEAVE TO RAISE ANY GROUNDS OF APPEAL THAT MAY BE TAKEN AT THE TIME OF HEARING. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FIRM IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACT AND DERIVES INCOME FROM CIVIL CONSTRUCTION. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE C ONTRACT RECEIPTS AND HIRE CHARGES RECEIPTS WERE RS.30,19,85,637/- AGAINST WHI CH THE ASSESSEE HAS SHOWN VARIOUS EXPENSES IN TRADING ACCOUNT. THE EXPENSES CLAIMED BY THE ASSESSEE WERE NOT FOUND VERIFIABLE AS THE ASSESSEE DID NOT MAINTA IN PROPER BILLS/VOUCHERS. THE ITA NOS.149 & 140/A/2012 AYS. 2009-10 4 ASSESSEE PRODUCED THE BOOKS OF ACCOUNT I.E. CASH BO OK, LEDGER ACCOUNT, JOURNAL, BANK BOOK. NO REGISTER IN RESPECT OF LABOUR PAYMEN T, NO BILLS/VOUCHER IN SUPPORT OF ANY EXPENSES CLAIMED & DEBITED IN THE BOOKS OF A CCOUNT BY THE ASSESSEE WERE PRODUCED. A COMPARATIVE TRADING CHART SHOWN BY THE ASSESSEE AS NOTED BY THE A.O. IN HIS ORDER IS AS UNDER :- (PARAGRAPH NO.6, PAGE N O.3) S.NO. A.Y. TURNOVER GROSS PROFIT % OF G.P. 1. 2007-08 144694835 13926331 9.62 2. 2008-09 135419130 13428283 9.91 3. 2009-10 301985637 32633448 10.61 5. THE A.O. WAS OF THE VIEW THAT THE BOOK RESULT WE RE NOT VERIFIABLE, THEREFORE, THE PROVISIONS OF SECTION 145(3) IS APPLICABLE. TH E A.O. ACCORDINGLY REJECTED THE BOOKS OF ACCOUNT INVOKING SECTION 145(3) OF THE ACT . 6. THE A.O. DISALLOWED OUT OF VARIOUS TRADING EXPEN SES AND MADE ADDITION OF RS.54,77,084/-. THE A.O. HAS ALSO MADE ADDITION OF RS.6,28,883/- DISALLOWING OUT OF VARIOUS EXPENSES DEBITED TO PROFIT & LOSS ACCOUN T. THE DETAILS OF EXPENSES NOTED FROM THE ORDER OF CIT(A) AT PAGE NOS.3 & 4 AR E AS UNDER :- S.NO. PARTICULARS AMOUNT CLAIMED RATE OF DISALLOWANCE AMOUNT DISALLOWED 1. INTEREST FROM BANK WITH PNB AS PER AIR 750242/- 1935849/- ITA NOS.149 & 140/A/2012 AYS. 2009-10 5 INFORMATION 2. MATERIAL CONSUMED 155244128/- 2% 1633003/- 3. LABOUR CHARGES 81650150/- 2% 1633003/- 4. POWER & FUEL 17674338/- 2% 353486/- 5. REPAIR & MAINTENANCE 9246259/- 2.5% 231156/- 6. WATER EXP. 1545570/- 10% 154557/- TOTAL 5477084/- 7. CONVEYANCE EXPS 521986/- 10% 52199/- 8. MEDICAL EXPS 445740/- 20% 89148/- 9. MESS EXPS 1339570/- 10% 133957/- 10. MISC. EXPS 128597/- 10% 12860/- 11. SITE OFFICE EXPS 2123475/- 5% 106174/- 12. STAFF & LABOUR WELFARE EXPS 289288/- 10% 28893/- 13. TRAVELING EPS 145440/- 10% 14544/- 14. VEHICLE RUNNING & MAINT. 1911081/- 10% 191108/- 7. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTI CED THAT THE ASSESSEE DID NOT SHOW ANY INTEREST OF INCOME WHEREAS THERE IS AI R INFORMATION ABOUT THE INTEREST PAYMENT AND TDS. THE A.O. MADE ADDITION O F RS.19,35,849/- AS UNDER :- (PARAGRAPH NO.5, PAGE NO.2) 5. I HAVE VERIFIED THE TRADING AND PROFIT & LOSS A CCOUNT FOR F.Y. 2007- 08 AND IT IS SEEN THAT NO INTEREST AMOUNT HAVE BEEN SHOWN TO HAVE RECEIVED AND NO AMOUNT OF INTEREST DECLARED BY THE ASSESSEE AS INCOME OF THE ASSESSMENT YEAR 2008-09. INTEREST RECEIVED AS SHOWN IN AIR INFORMATION WHICH IS GIVEN ABOVE IS ON THE BASIS OF 26AS. THE BANK AUTHORITY POSTED INTEREST AND TDS AMOUNT IN F.Y. 20 08-09 AS PER 26AS, AND IN F.Y. 2007-08, NO INTEREST AMOUNT FOUND DECLA RED BY THE ASSESSEE. THE SUBMISSION OF THE ASSESSEE THAT AMOUNT OF RS.9, 18,623/- IS TO BE TAKEN AS TAXABLE INTEREST FOR THE ASSESSMENT YEAR 2009-10 IS NOT ACCEPTABLE FOR WANT OF RECONCILIATION OF INTEREST AMOUNT AND TDS A MOUNT. IN F.Y.2007- 08 THE ASSESSEE HAS NOT SHOWN INTEREST AMOUNT RECEI VED AS MAY BE SEEN FROM AUDIT REPORT OF A.Y. 2007-08. SO THE CONTENTI ON OF THE ASSESSEE THAT BALANCE AMOUNT IS OF EARLIER YEAR IS NOT ACCEPTABLE . FIGURE OF INTEREST ITA NOS.149 & 140/A/2012 AYS. 2009-10 6 AMOUNT IN AIR REPORTED AT RS.28,54,472/- AND IN VIE W OF ACTS DISCUSSED, THE SAME, IS TAKEN AS INTEREST INCOME OF THE YEAR. AS THE ASSESSEE HAS SHOWN ONLY RS.9,18,623/- FROM TWO BANKS I.E. PNB PN NDEYPUR AND SBI MIRZAPUR AS INTEREST, THE BALANCE AMOUNT OF RS.19,3 5,849/- (28,54,472 9,18,623) TREATED UNEXPLAINED AND UNDISCLOSED INTER EST INCOME AND ADDED IN THE INCOME OF THE ASSESSEE 8. THE ASSESSEE CHALLENGED THE ORDER OF A.O. BEFORE THE CIT(A). THE CIT(A) AFTER CONSIDERING THE REMAND REPOT OF THE A.O. AND ASSESSEES SUBMISSION OBSERVED THAT IT WAS THE A.O.S OPEN CONTENTION TO REJECT TH E BOOKS OF ACCOUNT AND TO INVOKE THE PROVISIONS OF SECTION 145(3) OF THE ACT MERELY ON THE GROUND OF CERTAIN PETTY DEFICIENCIES IN THE ACCOUNTS. THE CIT(A) AFTER EXA MINING SECTION 145(3) HELD THAT THE ACTION OF THE A.O. FOR INVOCATION OF PROVISIONS OF SECTION 145(3) OF THE ACT IS NOT LAWFUL. THEREFORE, THE SAME IS NO SUSTAINABLE. THE CIT(A) HELD ACCORDINGLY. 9. THE CIT(A) DELETED THE ADDITION OF RS.54,77,084/ - AS UNDER :- (PARAGRAPH NO. 9, PAGE NOS.19 &20) 9. NEXT ISSUE RELATES DISALLOWANCES OF VARIOUS HEA D OF EXPENSES CLAIMED IN THE TRADING A/C OF RS.54,77,084/- UNDER THE FOLLOWING HEADS :- SR. NO. PARTICULARS AMOUNT CLAIMED RATE OF DISALLOWANCE 1 MATERIAL CONSUMED 155244128/- 2% 2 LABOUR CHARGES 81650150/- 2% 3 POWER & FUELS 17674338/- 2% 4 REPAIR & MAINT. 9246259/- 2.5% 5 WATER EXPS 1545570/- 10% ITA NOS.149 & 140/A/2012 AYS. 2009-10 7 I HAVE GONE THROUGH THE FACTS OF THE CASE, SUBMISSI ONS OF THE ASSESSEE AND REASON GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, REMAND REPORT U/S 250(4) AND SUBMISSION OF T HE APPELLANT PUT BEFORE US ON REMAND REPORT FOR INVOKING ADDITION/DI SALLOWANCES. I CONSIDERED SUBMISSION OF THE REMAND REPORT AND APPE LLANTS AND I OBSERVED THAT THE ASSESSING OFFICER HAS MENTIONED I N HIS ORDER THAT THE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNT, CASH BOOK, LEDGER, JOURNAL AND BANK BOOK ALSO BUT NOT PRODUCED BILLS AND VOUCHERS. IN MY OPINION WITHOUT ANY SPECIFIC POINT WHICH HAS GATHERED BY TH E ASSESSING OFFICER DURING THE COURSE OF INVESTIGATION OF THE CASE, NO DISALLOWANCE CAN BE MADE MERELY ON MAKING VAGUE OBSERVATION THAT EXPENS ES WERE NOT VERIFIABLE. IT IS NOTICED THAT THE ASSESSING OFFI CER HAS MADE VAGUE DISALLOWANCES @ 2% FOR MATERIAL CONSUMED, LABOURS, POWER AND FUELS, 2.5% FOR REPAIR & MAINTENANCE AND 10% OF WATER EXPE NSES. THE ASSESSING OFFICER HAS NOT POINTED OUT THE SPECIFIC TERMS WHICH WERE INADMISSIBLE IN NATURE. THIS WORKING OF THE ASSESS ING OFFICER ONLY SHOWS THAT THE DISALLOWANCES HAVE BEEN MADE CAPRICIOUSLY WITHOUT PROPERLY MEASURING ACTUAL EXTENT OF UNVERIFIABILITY THE CAS E CLEARLY GETS HIT BY THE DECISION IN THE CASE OF M/S CHANDRA CONFECTIONARY P . LTD. REPORTED IN 2003(2) MTC 1022, WHEREIN IT HAS BEEN HELD BY THE H ONBLE ITAT BENCH, LUCKNOW THAT SUCH AD-HOC DISALLOWANCES, WITHOUT ASS IGNING ANY REASONS AND WITHOUT POINTING OUT ANY DEFECT, ARE UNJUSTIFIA BLE. IN VIEW OF ABOVE FACTUAL POSITION, THE DISALLOWANCES MENTIONED IN AB OVE ARE HEREBY DELETED. 10. THE CIT(A) HAS ALSO DELETED THE ADDITION OF RS. 54,77,084/- AS UNDER :- (PARAGRAPH NO.10, PAGE NOS.20 & 21) 10. AS REGARD, LAST ISSUE IS RELATING TO DISALLOWA NCES OF VARIOUS HEAD OF EXPENSES CLAIMED IN THE PROFIT & LOSS A/C OF RS.54, 77,084/- UNDER THE FOLLOWING HEADS :- SR. NO . PARTICULARS AMOUNT CLAIMED RATE OF DISALLOWA NCE AMOUNT DISALLOWED 1. CONVEYANCE EXPS 521986/- 10% 52199/- 2. MEDICAL EXPS 445740/- 20% 89148/- 3. MESS EXPS 1339570/- 10% 133957/- 4. MISC. EXPS 128597/- 10% 12860/- 5. SITE OFFICE EXPS 2123475/- 5% 106174/- ITA NOS.149 & 140/A/2012 AYS. 2009-10 8 6. STAFF & LABOUR WELFARE EXPS 289288/- 10% 28893/- 7. TRAVELING EXPS 145440 10% 14544/- 8. VEHICLE RUNNING & MAINT. 1911081/- 10% 191108/- TOTAL 628883/- I HAVE GONE THROUGH THE FACTS OF THE CASE, SUBMISSI ONS OF THE ASSESSEE AND REASON GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, REMAND REPORT U/S 250(4) AND SUBMISSION OF T HE APPELLANT PUT BEFORE US ON REMAND REPORT FOR INVOKING ADDITION/DI SALLOWANCES. I CONSIDERED SUBMISSION OF THE REMAND REPORT AND APPE LLANTS AND I OBSERVED THAT THE ASSESSING OFFICER HAS MENTIONED I N HIS ORDER THAT THE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNT, CASH BOOK, LEDGER, JOURNAL AND BANK BOOK ALSO BUT NOT PRODUCED BILLS AND VOUCHERS. IN MY OPINION WITHOUT ANY SPECIFIC POINT WHICH HAS GATHERED BY TH E ASSESSING OFFICER DURING THE COURSE OF INVESTIGATION OF THE CASE, NO DISALLOWANCE CAN BE MADE MERELY ON MAKING VAGUE OBSERVATION THAT EXPENS ES WERE NOT VERIFIABLE. IT IS NOTICED THAT THE ASSESSING OFFI CER HAS MADE VAGUE DISALLOWANCES ON CONVEYANCE EXPENSES, MEDICAL EXPEN SES, MESS EXPENSES, MISC. EXPENSES, SITE OFFICE EXPENSES, STAFF WELFARE , TRAVELING AND VEHICLE RUNNING AND MAINTENANCE EXPENSES. THE ASSESSING OF FICER HAS NOT POINTED OUT THE SPECIFIC TERMS WHICH WERE INADMISSI BLE IN NATURE. THIS WORKING OF THE ASSESSING OFFICER ONLY SHOWS THAT TH E DISALLOWANCES HAVE BEEN MADE CAPRICIOUSLY WITHOUT PROPERLY MEASURING A CTUAL EXTENT OF UNVERIFIABILITY. THE CASE CLEARLY GETS HIT BY THE DECISION IN THE CASE OF M/S CHANDRA CONFECTIONARY P. LTD. REPORTED IN 2003(2) M TC 1022, WHEREIN IT HAS BEEN HELD BY THE HONBLE ITAT BENCH, LUCKNOW TH AT SUCH AD-HOC DISALLOWANCES, WITHOUT ASSIGNING ANY REASONS AND WI THOUT POINTING OUT ANY DEFECT, ARE UNJUSTIFIABLE. IN VIEW OF ABOVE FA CTUAL POSITION, THE DISALLOWANCES MENTIONED IN ABOVE ARE HEREBY DELETED . 11. THE CIT(A) HAS ALSO DELETED THE ADDITION OF RS. 19,35,849/- AS UNDER :- (PARAGRAPH NO.7, PAGE NOS.16 & 17) 7. FIRST ISSUE IS RELATING TO THE ADDITION OF RS.1 9,35,849/- ON THE ACCOUNT OF INTEREST RECEIVED FROM BANK WITH PUNJAB NATION BANK AS PER AIR INFORMATION. IT IS SEEN THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT HAS SUBMITTED THE DETAILS ALONG WITH TDS ITA NOS.149 & 140/A/2012 AYS. 2009-10 9 CERTIFICATE AND CERTIFICATE RECEIVED FROM PUNJAB NA TIONAL BANK, PANDEYPUR REFERENCE TO JOINT COMMISSIONER OF INCOME TAX, VARANASI INTEREST ON FDR FOR THE F.Y. 2008-09 HAS CREDITED R S.7,50,242/- AND TDS THEREON RS.77,275/-. A COPY OF WHICH IS ENCLOSED B Y APPELLANT VIDE PAPER BOOK PAGE NO.24 TO 28. ON THE OTHER HAND THE APPEL LANT HAS SUBMITTED THE DETAILS OF INTEREST AND TDS THEREON AN AMOUNT OF RS .3,13,391/- VIDE PAPER BOOK PAGE NO. 21 AND 32 TO 34. THIS FACT HAS ALREA DY BROUGHT ON RECORD BEFORE THE ASSESSING OFFICER. AGAIN THE APPELLANT HAS SUBMITTED ANNUAL TAX STATEMENT U/S 203AA IN FORM 26AS FOR A.Y. 2008- 09 AND COPY OF THE ACCOUNT OF INTEREST SHOWN DURING THE FINANCIAL YEAR IN THE BOOKS AMOUNT OF RS.23,74,091/-. LOOKING TO THE RECORD OF THE ASSES SEE VIDE PAPER BOOK PAGE NO.267. I FIND THAT THESE AMOUNT HAS ALREADY TAKEN IN THE COMPUTATION OF INCOME ALONG WITH TDS AND ALSO THE A PPELLANT HAS SUBMITTED THE RECONCILIATION CHART OF RECEIPTS FOR THE A.Y. 2008-09 VIDE PAPER BOOK PAGE NO. 39A WHICH SHOW THAT THE ASSESSE E HAS DISCLOSED TOTAL GROSS RECEIPT OF RS.13,54,19,130/- INCLUDING THE BA NK INTEREST WITH TDS RS.23,74,091/- AND BANK INTEREST WITHOUT TDS RS.40, 861/- BUT IN THE 26AS PERTAINING TO A.Y. 2008-09 IT IS OBSERVED THAT BANK HAS NOT FILED ANY DETAILS IN THE TDS RETURN AND NO INTEREST AND TDS A MOUNT OF BANK RECEIVED BY ASSESSEE HAS BEEN REFLECTED IN ANNUAL T AX STATEMENT U/S 203AA FILED BY THE BANK. IT MEANS THE BANK HAS NOT FILED ITS ANNUAL TAX STATEMENT. I CAREFULLY CONSIDERED THE SUBMISSION O F THE APPELLANT THAT THESE AMOUNTS OF INTEREST AND TDS HAS WRONGLY SUBMI TTED BY THE BANK ITS ANNUAL TAX RETURN FOR A.Y. 2009-10. I HAVE GONE THROUGH THE REMAND REPORT OF THE ASSES SING OFFICER AS WELL AS APPELLANT SUBMISSION AND FIND FORCE IN THE APPELLANT SUBMISSION THAT THE ASSESSING OFFICER IN HIS REMAND REPORT VID E PARA NO.1.B TO 1.D STATED THAT THE ASSESSEE FAILED TO EXPLAIN THAT HO W HAS INTEREST RECEIVED OF RS.19,35,849/- HAS BEEN REFLECTED IN THE INCOME OF THE ASSESSEE AND FAILED TO RECONCILE THE SAME. THE ASSESSEE IN HIS SUBMISSION HAS ALREADY BROUGHT ON RECORD VIDE REPLY DATED 12.12.2011 AS PE R PAPER BOOK PAGE NO. 7 TO 9 AND SUBMITTED A FRESH CERTIFICATE REFERE NCE MADE TO JOINT CIT CIRCLE-3, VARANASI WHICH IS PLACED IN PAGE NO.24, B UT THE ASSESSING OFFICER IGNORED THE FACTS OF THE CASE IN HIS ASSESS MENT ORDER AS WELL AS IN REMAND REPORT. IN VIEW OF ABOVE FACTUAL POSITION THE ADDITION ON S AID ACCOUNT IS HEREBY DELETED. ITA NOS.149 & 140/A/2012 AYS. 2009-10 10 12. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES AND RECORDS PERUSED. THE ISSUES TO BE EXAMINED IN THESE CASES ARE WHETHE R UNDER THE FACTS AND CIRCUMSTANCES OF THE CASES THE A.O. IS CORRECT IN R EJECTING BOOKS OF ACCOUNT INVOKING SECTION 145(3) OF THE ACT AND WHETHER ON M ERIT EXPENSES HAVE BEEN RIGHTLY DISALLOWED BY THE A.O. TO EXAMINE THE ISSU E, WE WOULD LIKE TO REFER RELEVANT PROVISIONS OF SECTION 145 OF THE ACT WHICH READS AS UNDER:- 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURC ES' SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED I N ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGU LARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUN TING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGUL ARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSM ENT IN THE MANNER PROVIDED IN SECTION 144.] 13. IT IS TO NOTE THAT UNDER SECTION 145(1), THE IN COME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR I NCOME FROM OTHER SOURCES HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUN TING REGULARLY EMPLOYED BY THE ASSESSEE, UNLESS IN THE OPINION OF THE INCOME-T AX OFFICER, THE INCOME, PROFITS AND GAINS CANNOT PROPERLY BE DEDUCED THEREFROM OR T HE INCOME-TAX OFFICER IS NOT ITA NOS.149 & 140/A/2012 AYS. 2009-10 11 SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. UNDER THE SUB-SECTION (3) OF SECTION 145 IN ANY CAS E WHERE THE ACCOUNTS ARE CORRECT AND COMPLETE TO THE SATISFACTION OF THE INCOME-TAX OFFICER BUT THE METHOD EMPLOYED IS SUCH THAT, IN THE OPINION OF THE INCOME -TAX OFFICER, THE INCOME CANNOT PROPERLY BE DEDUCED THEREFROM, THEN THE COMPUTATION HAS TO BE MADE UPON SUCH BASIS AND IN SUCH MANNER AS THE INCOME-TAX OFFICER MAY DETERMINE. HOWEVER, IF THE INCOME-TAX OFFICER IS NOT SATISFIED ABOUT THE C ORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE NO METHOD OF ACCO UNTING HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE, THE INCOME-TAX OFFICER MA Y MAKE THE ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144. SECTION 145 IS MAND ATORY AND THE REVENUE IS BOUND BY THE ASSESSEE'S CHOICE OF A METHOD REGULARL Y EMPLOYED UNLESS BY THAT METHOD THE TRUE INCOME, PROFITS AND GAINS CANNOT BE ARRIVED AT. IN OTHER WORDS, SECTION 145 ENACTS THAT FOR THE PURPOSE OF SECTION 28 (PROFITS AND GAINS OF BUSINESS, PROFESSION OR VOCATION) AND SECTION 56 (INCOME FROM OTHER SOURCES), INCOME, PROFIT AND GAINS MUST BE COMPUTED IN ACCORDANCE WITH THE M ETHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THEREFORE, IF T HE ASSESSEE REGULARLY EMPLOYS A PARTICULAR METHOD OF ACCOUNTING AND IF NO DEFECTS A RE FOUND IN THE METHOD OR MAINTENANCE OF ACCOUNTS, THE TAXING AUTHORITY IS BO UND TO COMPUTE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION OR VOCATION IN ACCO RDANCE WITH THE METHOD EMPLOYED BY THE ASSESSEE. THEREFORE, IN CASE WHERE THE INCOME-TAX OFFICER OR THE TAXING AUTHORITY FINDS THAT IN MAINTAINING ACCOUNTS , THE ASSESSEE HAS REGULARLY ITA NOS.149 & 140/A/2012 AYS. 2009-10 12 EMPLOYED A PARTICULAR METHOD AND DOES NOT MAKE ANY INVESTIGATION TO FIND OR DOES NOT FIND ANY DEFECT IN THE ACCOUNTS AND ACCEPT THE ACCOUNTS AS THEY ARE, HE IS BOUND TO COMPUTE THE INCOME IN ACCORDANCE WITH THE ACCOUN TS MAINTAINED BY THE ASSESSEE. THEREFORE, WHEN THE ASSESSEE REPRESENTS TO THE TAXI NG AUTHORITY THAT ITS ACCOUNTS ARE MAINTAINED BY A METHOD OF ACCOUNTING REGULARLY EMPL OYED, HE EXPECTS THE INCOME- TAX OFFICER TO ACT UPON SUCH METHOD AND COMPUTE THE INCOME ACCORDINGLY. 14. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. GOTANLIME KHANIJ UDYOG, 256 ITR 243 (RAJ) HELD THAT PROVISIONS DO NO T ENVISAGE THAT BY RESORTING TO BEST JUDGMENT ASSESSMENT, THE ASSESSING AUTHORITY M UST REACH A DIFFERENT FIGURE OF INCOME AND PROFIT THAN WHAT HAS BEEN DISCLOSED BY T HE ASSESSEE. 15. THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SMT. POONAM RANI, 326 ITR 223 (DELHI) IS APPLICABLE TO T HE FACTS OF THE CASE UNDER CONSIDERATION. THE FACTS OF THAT CASE WERE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING COPPER WIRES. FOR THE RE LEVANT ASSESSMENT YEAR, SHE FILED A RETURN DECLARING GROSS PROFIT AT THE RATE O F 1.4 PER CENT AGAINST GROSS PROFIT RATE OF 5.91 PER CENT FOR THE PRECEDING YEAR. ON B EING ASKED, THE ASSESSEE ATTRIBUTED THE FALL IN GROSS PROFIT RATE TO THE INC REASE IN THE PURCHASE PRICE. THE ASSESSING OFFICER REJECTED THE EXPLANATION GIVEN BY THE ASSESSEE ON THE GROUND THAT NO SUPPORTING EVIDENCE WAS PRODUCED TO SHOW INCREAS E IN THE PURCHASE PRICE AND ITA NOS.149 & 140/A/2012 AYS. 2009-10 13 DECREASE IN SALES. HE ALSO NOTICED THAT THE WEIGHT OF FINISHED PRODUCTS DECLARED BY THE ASSESSEE WAS MORE THAN THE WEIGHT OF RAW MATERI ALS. WHEN ASKED TO EXPLAIN, THE ASSESSEE SUBMITTED THAT AFTER DRAWING WIRE, THE PROCESS WENT ON TO PUT THE WIRE FOR ENAMELLING, AS A RESULT OF WHICH THE WEIGHT OF THE WIRE INCREASED BY 2-3 PER CENT. THE ASSESSING OFFICER FELT THAT IN THE ABSENC E OF ADEQUATE SUPPORTING EVIDENCE, THE EXPLANATION GIVEN BY THE ASSESSEE COU LD NOT BE ACCEPTED. HE, THEREFORE, REJECTED THE ACCOUNT BOOKS OF THE ASSESS EE UNDER SECTION 145(3) AND ESTIMATED INCOME BY APPLYING THE GROSS PROFIT RATE OF THE PRECEDING ASSESSMENT YEAR. ON APPEAL, THE COMMISSIONER (APPEALS) NOTED THAT THE ASSESSEE HAD FURNISHED COMPLETE DETAILS, INCLUDING COMPARATIVE D ETAILS IN RESPECT OF PURCHASE OF RAW MATERIALS AND MANUFACTURE OF COPPER WIRES AS WE LL AS IN RESPECT OF SALE DURING THE YEAR IN QUESTION AS COMPARED TO THE EARLIER YEA RS. HE ALSO TOOK NOTE OF THE FACT THAT THE ASSESSEE WAS DULY REGISTERED UNDER THE CEN TRAL EXCISE ACT AND WAS MAINTAINING PROPER QUANTITATIVE DETAILS IN THE PRES CRIBED MANNER AND, THEREFORE, HELD THAT THE ASSESSEE HAD ADOPTED CONSISTENT AND R EGULAR METHOD OF ACCOUNTING AND VALUATION OF THE STOCK DURING THE YEAR IN QUESTION AS WAS DONE BY HER IN THE PRECEDING YEARS. HE, ACCORDINGLY, HELD THAT THE AS SESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT AND IN APPLYING T HE ENHANCED GROSS PROFIT RATIO. THE TRIBUNAL DISMISSED THE REVENUES APPEAL, HOLDIN G THAT SINCE NO DEFECTS IN THE ACCOUNT BOOKS WERE POINTED OUT, THE ACCOUNTS COULD NOT HAVE BEEN REJECTED AND NO ITA NOS.149 & 140/A/2012 AYS. 2009-10 14 ADDITION COULD HAVE BEEN MADE MERELY ON ACCOUNT OF LOWER PROFIT DECLARED BY THE ASSESSEE. ON THE REVENUES APPEAL, THE HIGH COURT HELD AS UNDER :- (PAGE 225) SECTION 145(3) PROVIDES FOR ASSESSMENT IN THE MANNER PRESCRIBED IN SECTION 144 WHERE THE ASSESSING OFFIC ER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUN TS OF THE ASSESSEE OR WHERE EITHER THE METHOD OF ACCOUNTING PROVIDED I N SUB-SECTION (1) OR THE ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-S ECTION (2) HAS BEEN REGULARLY FOLLOWED BY THE ASSESSEE. IT WAS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAD NOT FOLLOWED EITHER CASH OR M ERCANTILE SYSTEM OF ACCOUNTING. IT WAS ALSO NOT THE CASE OF THE REVENUE THAT THE CENTRAL GOVERNMENT HAD NOTIFIED ANY PARTICULAR ACCOUNTING S TANDARD TO BE FOLLOWED BY TOUR OPERATORS. HENCE, THE SECOND PART OF SUB-SECTION (3) OF SECTION 145 WOULD NOT APPLY TO THE INSTANT CASE. [PARA 5] ..THE ASSESSING OFFICER HAD NOT POINTED OUT ANY PARTICULAR DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAIN ED BY THE ASSESSEE. DURING THE COURSE OF HEARING BEFORE THE C OMMISSIONER (APPEALS), IT WAS POINTED OUT BY THE ASSESSEE THAT HER ACCOUNT BOOKS WERE DULY AUDITED UNDER SECTION 44AB OF THE CENTRAL EXCISE ACT AND THE QUANTITATIVE DETAILS AS REQUIRED BY .. (PAGE 227 ..) CLAUSE 28(B) OF FORM NO. 3CD REGAR DING RAW MATERIAL AND FINISHED PRODUCTS (I.E., OPENING STOCK OF RAW MATERIAL, RAW MATERIAL ISSUED TO PRODUCTION DEPARTMENT, RAW M ATERIAL CONSUMED AND CLOSING STOCK OF RAW MATERIAL, OPENING STOCK OF FINISHED GOODS, FINISHED GOODS PRODUCED DURING THE YEAR, FIN ISHED GOODS SOLD AND CLOSING STOCK OF FINISHED GOODS) WERE PREPARED AND AUDITED BY CERTIFIED ACCOUNTANT AND WERE ENCLOSED WITH FORM NO . 3CD WHICH HAD BEEN PLACED ON RECORD, BUT THE ASSESSING OFFICE R HAD IGNORED THE FACTUAL FIGURES, BOTH IN QUALITATIVE AND QUANTITATI VE TERMS, ENCLOSED WITH THE RETURN AND FILED DURING THE COURSE OF ASSE SSMENT PROCEEDINGS. IT WAS FOR THAT REASON THAT THE COMMISSIONER (APPEA LS) WAS SATISFIED THAT THE ASSESSEE HAD FURNISHED COMPLETE DETAILS, I NCLUDING QUANTITATIVE DETAILS IN RESPECT OF PURCHASE OF RAW MATERIAL, MANUFACTURE OF COPPER WIRE AND SALE OF THE FINISHED PRODUCTS. IN THOSE CIRCUMSTANCES, THE ACCOUNTS MAINTAINED BY THE ASSES SEE COULD NOT HAVE BEEN SAID TO BE INCOMPLETE OR INACCURATE. IN F ACT, THE ASSESSING OFFICER HAD NO MATERIAL BEFORE HIM TO TREAT THE ACC OUNTS OF THE ASSESSEE AS DEFECTIVE OR INCOMPLETE. [PARA 6] ITA NOS.149 & 140/A/2012 AYS. 2009-10 15 AS REGARDS THE MARGINAL INCREASE IN THE WEIGHT OF T HE FINISHED PRODUCT, THE EXPLANATION GIVEN BY THE ASSESSEE HAD BEEN ACCEPTED NOT ONLY BY THE COMMISSIONER (APPEALS) BUT ALSO BY THE TRIBUNAL. THE ASSESSING OFFICER HAD NO MATERIAL BEFORE HIM ON THE BASIS OF WHICH IT COULD BE SAID THAT THE WEIGHT OF THE WIRE DID NOT I NCREASE EVEN MARGINALLY DURING THE PROCESS OF ENAMELLING. THEREF ORE, HE HAD NO JUSTIFICATION, IN LAW, IN REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE IN THAT REGARD. THE FALL IN GROSS PROFIT RATIO, IN THE ABSENCE OF ANY COGENT REASONS COULD NOT, BY ITSELF, HAVE BEEN A GR OUND TO HOLD THAT PROPER INCOME OF THE ASSESSEE COULD NOT BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY HER AND, CONSEQUENTLY, COULD NOT HAVE BEEN A GROUND TO REJECT THE ACCOUNTS BY INVOKING SECTION 145(3). [PA RA 8] THE FALL IN THE GROSS PROFIT RATIO COULD BE FOR VAR IOUS REASONS SUCH AS INCREASE IN THE COST OF RAW MATERIAL, DECREASE IN T HE MARKET PRICE OF FINISHED PRODUCT, INCREASE IN THE COST OF PROCESSIN G BY THE ASSESSEE, ETC. THERE WAS NO FINDING THAT THE ACTUAL COST OF T HE RAW MATERIAL PURCHASED BY THE ASSESSEE WAS LESS THAN WHAT WAS DE CLARED IN THE ACCOUNT BOOKS. THERE WAS NO FINDING THAT THE ACTUAL COST OF PROCESSING CARRIED OUT BY THE ASSESSEE WAS LESS THAN WHAT HAD BEEN DECLARED IN HER ACCOUNT BOOKS. NO PARTICULAR EXPENDITURE SHOWN IN THE ACCOUNT BOOKS HAD BEEN DISALLOWED BY THE ASSESSING OFFICER. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE ACTUAL QU ANTITY OF FINISHED PRODUCTS PRODUCED BY THE ASSESSEE WAS MORE THAN WHA T WAS SHOWN IN THE ACCOUNT BOOKS. THERE WAS NO FINDING THAT THE . (PAGE 228 ) ASSESSEE HAD MADE ANY SUCH SALE OF TH E FINISHED PRODUCTS WHICH WAS NOT REFLECTED IN THE ACCOUNT BOO KS. THERE WAS NO FINDING BY THE ASSESSING OFFICER THAT THE FINISHED PRODUCTS WERE SOLD BY THE ASSESSEE AT A PRICE HIGHER THAN WHAT WAS DEC LARED IN THE ACCOUNT BOOKS. IN THOSE CIRCUMSTANCES, THE COMMISSI ONER (APPEALS) AND THE TRIBUNAL WERE JUSTIFIED IN HOLDING THAT THE ASSESSING OFFICER COULD NOT HAVE INCREASED THE GROSS PROFIT RATIO MER ELY BECAUSE IT WAS LOW AS COMPARED TO THE GROSS PROFIT RATIO OF THE PR ECEDING YEAR. [PARA 9] THE REVENUE CONTENDED THAT THE ASSESSEE WAS NOT MAI NTAINING THE DAILY STOCK REGISTER. HOWEVER, NO SUCH FINDING WAS FOUND IN THE ASSESSMENT ORDER. ON THE OTHER HAND, THE ASSESSEE H AD SUBMITTED BEFORE THE COMMISSIONER (APPEALS) THAT FORM NO. 3CD CONTAINING ALL THE QUANTITATIVE DETAILS IN RESPECT OF RAW MATERIAL S AS WELL AS THE ITA NOS.149 & 140/A/2012 AYS. 2009-10 16 FINISHED GOODS AND DULY AUDITED BY THE CERTIFIED AC COUNTANT HAD BEEN PLACED ON RECORD, BUT THE ASSESSING OFFICER IGNORED THOSE ACTUAL FIGURES ENCLOSED WITH THE RETURN. IN ANY CASE, THER E IS NO STATUTORY PROVISION UNDER THE INCOME-TAX REGIME REQUIRING THE ASSESSEE TO MAINTAIN THE DAILY STOCK REGISTER. HENCE, EVEN IF N O SUCH REGISTER WAS BEING MAINTAINED BY THE ASSESSEE, THAT, BY ITSELF, WOULD NOT LEAD TO THE INFERENCE THAT IT WAS NOT POSSIBLE TO DEDUCE THE TR UE INCOME OF THE ASSESSEE FROM THE ACCOUNTS MAINTAINED BY HER, NOR T HE ACCOUNTS COULD BE SAID TO BE DEFECTIVE OR INCOMPLETE FOR THAT REAS ON ALONE. IF THE STOCK REGISTER IS NOT MAINTAINED BY THE ASSESSEE, THAT MA Y PUT THE ASSESSING OFFICER ON GUARD AGAINST THE FALSITY OF THE RETURN MADE BY THE ASSESSEE AND PERSUADE HIM TO CAREFULLY SCRUTINIZE THE ACCOUN T BOOKS OF THE ASSESSEE, BUT THE ABSENCE OF ONE REGISTER ALONE DOE S NOT AMOUNT TO SUCH A MATERIAL LEADING TO THE CONCLUSION THAT THE ACCOUNT BOOKS WERE INCOMPLETE OR INACCURATE. SIMILARLY, IF THE RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE IN A PARTICULAR PERIOD IS LOWER AS COMPARED TO THE GROSS PROFIT DECLARED BY HIM IN THE PRECEDING YEAR, THAT MAY ALERT THE ASSESSING OFFICER AND SERVE AS A WARNING TO HIM TO LOOK INTO THE ACCOUNTS MORE CAREFULLY AND TO LOOK FOR SOME MATERI AL WHICH COULD LEAD TO THE CONCLUSION THAT THE ACCOUNTS MAINTAINED BY THE ASSESSEE WERE NOT CORRECT, BUT A LOW RATE OF GROSS PROFIT, I N THE ABSENCE OF ANY MATERIAL POINTING TOWARDS FALSEHOOD OF THE ACCOUNT BOOKS, CANNOT, BY ITSELF, BE A GROUND TO REJECT THE ACCOUNT BOOKS UND ER SECTION 145(3). [PARA 10] 16. IN THE LIGHT OF ABOVE DISCUSSIONS, IF WE CONSID ER THE FACTS OF THE CASE UNDER CONSIDERATION, WE FIND THAT THE A.O. HAS FAILED TO POINT OUT ANY SPECIFIC DEFECT IN MAINTENANCE OF BOOKS OF ACCOUNT BASED ON WHICH SECT ION 145(3) CAN BE INVOKED. THE A.O. HIMSELF ACCEPTED THIS FACT AND INSTEAD OF REJECTING THE BOOKS OF ACCOUNT AND MAKING ESTIMATION OF INCOME UNDER SECTION 144 O F THE ACT, THE A.O. HE ACCEPTED THE BOOKS OF ACCOUNT AND ONLY DISALLOWANCE S WERE MADE OUT OF VARIOUS EXPENSES. THE CIT (A) AFTER GONE THROUGH THE FACTS OF THE CASE, SUBMISSIONS OF THE ASSESSEE, REASONS GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, REMAND ITA NOS.149 & 140/A/2012 AYS. 2009-10 17 REPORT UNDER SECTION 250(4) AND SUBMISSIONS OF THE ASSESSEE FOUND THAT THE ASSESSING OFFICER HAS MENTIONED IN HIS ORDER THAT T HE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNT, CASH BOOK, LEDGER, JOURNAL AND BANK BOO K ALSO BUT NOT PRODUCED BILLS AND VOUCHERS. THE CIT (A) HELD THAT WITHOUT POINTI NG OUT ANY SPECIFIC DEFECTS IN MAINTENANCE OF BOOKS OF ACCOUNT WHICH HAVE BEEN GAT HERED BY THE ASSESSING OFFICER DURING THE COURSE OF INVESTIGATION OF THE C ASE, SECTION 145(3) CANNOT BE INVOKED. NO DISALLOWANCE CAN BE MADE MERELY ON MAK ING VAGUE OBSERVATION THAT EXPENSES WERE NOT VERIFIABLE. THE CIT(A) FOLLOWED AN ORDER OF I.T.A.T., LUCKNOW BENCH IN THE CASE OF M/S CHANDRA CONFECTION ARY PVT. LTD. REPORTED IN 2003 (2) MTC 1022, WHEREIN IT HAS BEEN HELD BY THE I.T.A.T. BENCH, LUCKNOW THAT SUCH AD-HOC DISALLOWANCES, WITHOUT ASSIGNING ANY RE ASONS AND WITHOUT POINTING OUT ANY DEFECT IN BOOKS OF ACCOUNT, ARE UNJUSTIFIABLE. FROM ABOVE DISCUSSIONS, WE FIND THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, SECTION 145(3) IS NOT APPLICABLE. THE A.O. HAS WRONGLY INVOKED SECTION 1 45(3) OF THE ACT 17. AS REGARDS SECOND ASPECT OF THE MATTER THAT IS MERIT OF THE CASE, WE FIND THAT THE A.O. HAS MADE AD-HOC DISALLOWANCE OUT OF VARIOU S EXPENSES. WEATHER UNDER THE FACTS AND CIRCUMSTANCES, THE ACTION OF THE A.O. IS JUSTIFIED IN DISALLOWANCE OF VARIOUS EXPENSES. BUSINESS EXPENDITURES INCURRED F OR THE PURPOSE OF BUSINESS ARE ALLOWABLE UNDER SECTION 37 OF THE ACT. THE SAID SEC TION 37 READS AS UNDER:- GENERAL. ITA NOS.149 & 140/A/2012 AYS. 2009-10 18 37. (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF T HE NATURE DESCRIBED IN SECTIONS 30 TO 36 [***] AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION'. [EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PUR POSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFES SION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE.] (2) [* * *] (2B) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTION (1), NO ALLOWANCE SHALL BE MADE IN RESPECT OF EXPENDITURE INCURRED BY AN ASSESSEE ON ADVERTISEMENT IN ANY SOUVENIR, BROCHURE, TRACT, PAM PHLET OR THE LIKE PUBLISHED BY A POLITICAL PARTY.] 18. TO APPRECIATE THE SCHEME OF THE ACT IN RESP ECT OF ALLOWABLY OF EXPENDITURES, WE WOULD LIKE TO REFER CERTAIN JUDGMENTS WHEREIN CE RTAIN PRINCIPLES HAVE BEEN DECIDED IN THIS REGARD. THESE JUDGMENTS ARE AS UND ER: CIT VS. TRANSPORT CORPORATION OF INDIA LIMITED, 256 ITR 701 (AP) -- (PAGE 705, 706 AND 707 )'37. GENERAL.--(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EX PENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALL OWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND G AINS OF BUSINESS OR PROFESSION'. EXPLANATION.--FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PUR POSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE ITA NOS.149 & 140/A/2012 AYS. 2009-10 19 BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFES SION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE.' IN ORDER TO CLAIM DEDUCTION OF EXPENDITURE UNDER SE CTION 37(1) OF THE ACT, AT THE RELEVANT POINT OF TIME AND IN THE LIGHT OF THE JUDGMENTS IN INDIAN MOLASSES CO. P. LTD. V. CIT [1959] 37 ITR 66 (SC); CIT V. INDIAN MOLASSES CO. (P) LTD. [1970] 78 ITR 474 (SC); SASSOON J. DAVID AND CO. P. LTD. V. CIT [1979] 118 ITR 261 (SC); MADHAV PRASAD JATIA V. CIT [1979] 118 ITR 200 (SC); CIT V. BALLARPUR INDUSTRIES LTD. [1976] 119 ITR 817 (BOM); CIT V. NAVSARI COTTON AND SILK MILLS LTD. [1982] 135 ITR 546 (GUJ) AND CHENAB FOREST CO. V. CIT [1974] 96 ITR 568 (J&K),THE FOLLOWING CONDITIONS SHOULD BE SATISFIED I)THE EXPENDITURE IN QUESTION SHOULD NOT BE OF THE NATURE DESCRIBED UNDER THE SPECIFIC PROVISIONS OF SECTIONS 30 TO 36 AND 80VV (SECTION 80VV WAS OMITTED WITH EFFECT FROM APRIL 1, 1986);(II)THE EXPENDITURE SHOULD NOT BE OF THE NATURE OF CAPITAL EXPENDITURE ;(III)IT SHOULD NOT BE A PERSONAL EXPENDITURE; AND (IV)THE E XPENDITURE SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION.IT IS THUS C LEAR THAT CONDITIONS AT (I), (II) AND (III) ABOVE ARE NEGATIVE CONDITION S WHEREAS THE CONDITION AT (IV) ABOVE IS A POSITIVE CONDITION. IF THE EXPENDITURE SATISFIES THE NEGATIVE CONDITIONS, IT HAS TO SATISF Y THE POSITIVE CONDITION IN ORDER TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 37(1) OF THE ACT. THUS, SECTION 37(1) ALLOWS DEDUCTION OF ANY 'EXPEND ITURE' SUBJECT TO CONDITIONS NOTICED ABOVE. IN INDIAN MOLASSES CO.'S CASE [1959] 37 ITR 66 , THE SUPREME COURT POINTED OUT THAT THE WORD 'EXPE NDITURE' IS EQUAL TO 'EXPENSE' AND 'EXPENSE' IS MONEY LAID OUT BY CALCULATION AND INTENTION. BUT THE IDEA OF 'SPENDING' IN THE SE NSE OF 'PAYING OUT OR AWAY' MONEY IS THE PRIMARY MEANING AND IT IS WIT H THIS MEANING THAT ONE IS CONCERNED. 'EXPENDITURE' IS THUS WHAT I S 'PAID OUT OR AWAY' AND IS SOMETHING WHICH IS GONE IRRETRIEVABLY. THE APEX COURT IN CIT V. NAINITAL BANK LTD. [1966] 62 ITR 638 HELD THAT IN ITS NORMAL MEANING, THE EXPRESSION 'EXPENDITURE' DENOTES 'SPEN DING' OR 'PAYING OUT OR AWAY', I.E., SOMETHING THAT GOES OUT OF THE COFFERS OF THE ASSESSEE. A MERE LIABILITY TO SATISFY AN OBLIGATION BY AN ASSESSEE IS UNDOUBTEDLY NOT 'EXPENDITURE'; IT IS ONLY WHEN HE S ATISFIES THE OBLIGATION BY DELIVERY OF CASH OR PROPERTY OR BY TH E SETTLEMENT OF ACCOUNTS, THAT THERE IS EXPENDITURE. THE BURDEN OF PROVING THAT A PARTICULAR EXPENDITURE HAS BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS SO THAT THE ASSESSEE MAY BE ENTITLED TO CLAIM DEDUCTIO N IS ON THE ASSESSEE. ITA NOS.149 & 140/A/2012 AYS. 2009-10 20 THIS POSITION IS WELL SETTLED BY THE JUDGMENTS OF T HE APEX COURT IN CIT V. CALCUTTA AGENCY LTD. [1951] 19 ITR 191 AND CIT V. IMPERIAL CHEMICAL INDUSTRIES (INDIA) (P.) LTD. [1969] 74 ITR 17 . THE MERE OBJECT OF INCURRING EXPENDITURE IS NOT DECISIVE WHE THER IT IS OF A CAPITAL NATURE OR REVENUE NATURE. THEREFORE, THE ON US IS ON THE ASSESSEE TO PROVE, INTER ALIA, THAT THE ITEM OF EXP ENDITURE IN QUESTION FOR ADMISSIBILITY TO DEDUCTION IS NOT IN THE NATURE OF CAPITAL EXPENDITURE. FURTHER, MERE PAYMENT BY ITSELF WOULD NOT ENTITLE THE ASSESSEE TO DEDUCTION OF THE SAID EXPENDITURE UNLES S THE SAME WAS PROVED TO BE PAID FOR COMMERCIAL CONSIDERATIONS. TH E ONUS OF PROOF IS ALWAYS UPON THE ASSESSEE. IT CANNOT BE SAID THAT EV EN IF THE TAXPAYER DOES NOT PRODUCE ANY EVIDENCE IN SUPPORT OF THE CLA IM FOR DEDUCTION, THE ASSESSING OFFICER HIMSELF INDEPENDENTLY IS TO C OLLECT EVIDENCE AND DECIDE THAT THE DEDUCTION CLAIMED IS BASELESS HAVIN G REGARD TO THE LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE, AS THE T RIBUNAL SEEMS TO THINK IN THE PRESENT CASE. IT IS FOR THE TAXPAYER T O ESTABLISH BY EVIDENCE THAT A PARTICULAR ALLOWANCE IS JUSTIFIED. BUT, AS H ELD BY THE SUPREME COURT IN CIT V. C. PARAKH AND CO. (INDIA) LTD. [195 6] 29 ITR 661 WHETHER AN ASSESSEE IS ENTITLED TO A PARTICULAR DED UCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO, AN D NOT ON THE VIEW WHICH HE MIGHT TAKE OF HIS RIGHTS. AT THE SAME TIME , THE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT THERE ARE FACTS IN EXIST ENCE WHICH ENTITLE IT TO A DEDUCTION AND IT IS FOR THE ASSESSEE TO ADDUCE NE CESSARY EVIDENCE IN THIS REGARD. THEREFORE, IF THE ASSESSEE FAILS TO PL ACE SUFFICIENT MATERIAL, HE IS NOT ENTITLED TO CLAIM THIS ALLOWANCE UNDER SE CTION 37(1) OF THE ACT. IN CIT V. CHANDRAVILAS HOTEL [1987] 164 ITR 102 (GUJ), IT IS HELD THAT IF THE EXPENDITURE IS DOUBTED BY THE ASSESSING AUTHORITY, IT IS THE DUTY OF THE ASSESSEE TO PROVE BY LEADING EVIDENCE T HAT THE EXPENDITURE WAS IN FACT, INCURRED. 19. NEWTONE STUDIOS LTD. VS. COMMISSIONER OF INCO ME-TAX [1955] 28 ITR 378 (MAD.). THE FACTS OF THE CASE ARE THAT THE ASSESSE E WAS A PRIVATE LIMITED COMPANY OWNING A STUDIO AND ENGAGED IN THE PRODUCTION OF MO TION PICTURES. THERE WERE SIX SHAREHOLDERS. THE MANAGING DIRECTOR AND THE THREE TECHNICIANS WERE REMUNERATED BY PAYMENTS OF WHAT WERE CALLED HONORARIA, WHICH RE ALLY MEANT SALARIES AND ALSO ITA NOS.149 & 140/A/2012 AYS. 2009-10 21 BY PAYMENTS OF COMMISSION ON A FIXED PERCENTAGE BAS IS. IN ADDITION, EACH OF THEM GOT A CAR ALLOWANCE, AND WHEN THE PROFITS JUSTIFIED IT PAYMENT OF A MONTH'S SALARY AS BONUS. IN 1944 AND 1945 WHAT WAS PAID AS HONORARIA, THAT WAS, SALARY, TO THOSE FOUR AMOUNTED TO RS. 18,000 A YEAR. THEIR SCALES OF SALA RIES WERE REVISED FOR 1946 BY A RESOLUTION PASSED BY THE SHAREHOLDERS ON 30-03-1946 , AND THE TOTAL CAME TO RS. 59,100 FOR 1946. THE GENUINENESS OF THE PAYMENT OF THAT AMOUNT OF RS.59,100 WAS NEVER IN DISPUTE. THE ASSESSEE CLAIMED THAT PAYMEN T AS A DEDUCTION UNDER SECTION 10(2)(XV) OF THE 1922 ACT. THE ITO LIMITED THE ADM ISSIBLE DEDUCTION TO AN AMOUNT NOT EXCEEDING TWICE THE AMOUNT ALLOWED IN EACH OF T HE PRECEDING YEARS AND DISALLOWED THE BALANCE. THE DISALLOWANCE WAS UPHEL D BY THE AAC AS WELL AS THE TRIBUNAL. THE HONBLE MADRAS HIGH COURT WHILE DECI DING THE MATTER OBSERVED WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE DISALLOWANCE OF A SUM OF RS.23,100/- OUT OF THE EXPENSES INCURRED BY THE ASSESSEE FOR PAYMENT OF REMUNERATION TO THE MANAGING DIRECTOR AND THE OTHER TECHNICIAN DIRECTORS IS PERMISSIBLE UNDER THE PROVISIONS OF SECTION 10(2)(X V) OF THE INCOME-TAX ACT. THE COURT REFERRED CERTAIN EARLIER JUDGMENTS WHICH ARE AS UNDER:- IN EASTERN INVESTMENTS LTD. V. COMMISSIONER OF INC OME-TAX, WEST BENGAL [1951] 20 ITR 1 , THE SUPREME COURT REFERRED TO SECTION 12(2) OF THE ACT, WHICH PROVIDES FOR THE DEDUCTION OF AN EXPENDITURE INCURRED 'SOLELY FOR THE PURPOSE OF MAKING OR EARNI NG SUCH INCOME, PROFITS OR GAINS' AND SUMMARISED THE PRINCIPLES TO BE KEPT IN VIEW : (1)THOUGH THE QUESTION MUST BE DECIDED ON THE FACTS OF EACH CASE, THE FINAL CONCLUSION IS ONE OF LAW. ITA NOS.149 & 140/A/2012 AYS. 2009-10 22 (2)IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITUR E WAS A PROFITABLE ONE OR THAT IN FACT ANY PROFIT WAS EARNED. (3)IT IS ENOUGH TO SHOW THAT THE MONEY WAS EXPENDED 'NOT OF NECESSITY AND WITH A VIEW TO DIRECT AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY AND ON THE GROUND OF COMMERCIAL EXPEDIE NCY, AND IN ORDER INDIRECTLY TO FACILITATE THE CARRYING ON OF THE BUS INESS.' (4)BEYOND THAT, NO HARD AND FAST RULE CAN BE LAID D OWN TO EXPLAIN WHAT IS MEANT BY THE WORD 'SOLELY.' IN RAYALOO IYER AND SONS V. COMMISSIONER OF INCOME- TAX, MADRAS [1954] 26 ITR 265 , A BENCH OF THIS COURT HELD THAT THE PRINCIPLES LA ID DOWN BY THE SUPREME COURT WITH REFERENCE TO SECTION 12(2) OF THE ACT SHOULD ALSO BE APPLIED IN DECIDING UNDER SECTION 10 (2)(XV) WHETHER THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND THE COURT POINT ED OUT THAT THE TEST PRESCRIBED BY SECTION 10(2)(XV) OF THE ACT INCLUDED THAT OF COMMERCIAL EXPEDIENCY. AT PAGE 292 THE LEARNED JUDGES POINTED OUT: 'IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY TO D ETERMINE WHETHER THE EXPENDITURE IS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS, THE REASONABLENESS OF THE EXPENDITURE SHOULD BE CONSIDERED FROM THE POINT OF VIEW OF THE BUSINESSMA N AND NOT FROM THE POINT OF VIEW OF OUTSIDERS INCLUDING THE INCOME-TAX OFFICER.' IT WAS THE SAME PRINCIPLE TO WHICH LORD WRIGHT REFE RRED IN CRADDOCK V. ZEVO FINANCE COMPANY LTD. [1946] 27 TC 267 AT 29 0: 'THE TRANSACTION HERE BEING A PERFECTLY STRAIGHTFOR WARD AND HONEST BARGAIN BETWEEN THE TWO COMPANIES, IT SEEMS TO ME T HAT, IF THE PRESENT CLAIM WERE UPHELD, IT WOULD AMOUNT TO A PRECEDENT E NABLING THE REVENUE TO REVISE EVERY SUCH BARGAIN AND TO DEFEAT WHAT THE PARTIES HAD AGREED ON. THE REVENUE IN A CASE UNDER SCHEDULE D HAS NO POWER TO EXAMINE WHAT THEY THINK WAS REASONABLE OR TO SAY WHAT EXPENDITURE WAS NECESSARY. 20. THE COURT HELD AS UNDER:- ITA NOS.149 & 140/A/2012 AYS. 2009-10 23 UNDER OUR TAXING SYSTEM, IT IS FOR THE ASSESSEE TO CONDUCT HIS BUSINESS, AND IN HIS WISDOM OR OTHERWISE TO FIX THE REMUNERATION TO HIS STAFF. THE INCOME-TAX ACT DOES NOT CLOTHE THE T AXING AUTHORITY WITH ANY POWER OR JURISDICTION TO DETERMINE THE REASONAB LENESS OF THE AMOUNT SO FIXED AND PAID BY THE ASSESSEE. THE ONLY TEST FOR THE DEDUCTIBILITY OF SUCH REMUNERATION IS WHETHER THE E XPENDITURE HAS BEEN INCURRED SOLELY AND EXCLUSIVELY FOR THE PURPOS E OF THE BUSINESS. IF THE REALITY OF THE PAYMENT IS CHALLENGED OR IS IN D ISPUTE DIFFERENT CONSIDERATIONS ARISE : SO ALSO IN CASES WHERE THE T AX AUTHORITIES ARE ABLE TO POINT TO SOME CONSIDERATION OTHER THAN THE PURPOSE OF THE BUSINESS AS ACCOUNTING FOR ANY PORTION OF THE PAYME NT MADE. IN SUCH CASES, OF COURSE, SUCH PORTION OF THE AMOUNT CLAIME D, WHICH IS EITHER NOT HELD TO HAVE BEEN PAID OR IS HELD TO HAVE BEEN PAID FOR REASONS OTHER THAN BUSINESS EXPEDIENCY, COULD AND SHOULD BE DISALLOWED ; BUT THE REASON FOR THE DISALLOWANCE IS BECAUSE EITHER T HE PORTION DISALLOWED IS NOT PAID, OR BECAUSE THE EXPENDITURE IS NOT SOLELY AND EXCLUSIVELY FOR THE BUSINESS, AND NOT ON THE GROUND THAT IN THE OPINION OF THE INCOME-TAX OFFICER OR OTHER TAXING AUTHORITY THE REMUNERATION IS 'UNREASONABLY' HIGHEITHER BECAUSE THE EMPLOYEE DOES NOT, IN THE AUTHORITY'S OPINION, DESERVE SO MUCH, OR BECAUSE TH E ASSESSEE COULD HAVE SECURED OTHER EMPLOYEES ON MORE FAVOURABLE TER MS. THE ASSESSEE CERTAINLY SATISFIED THE THIRD OF THE T ESTS POSTULATED BY THEIR LORDSHIPS IN THE EASTERN INVESTMENT'S CASE (S UPRA), THAT THE MONEY WAS EXPENDED 'NOT OF NECESSITY AND WITH A VIE W TO DIRECT AND IMMEDIATE BENEFIT TO THE TRADE BUT VOLUNTARILY AND ON THE GROUND OF COMMERCIAL EXPEDIENCY, AND IN ORDER TO FACILITATE T HE CARRYING ON OF THE BUSINESS.' EVEN NECESSITY FOR THE EXPENDITURE D OES NOT ENTER THIS TEST. THE QUESTION REFERRED TO US IS ANSWERED IN THE NEGA TIVE AND IN FAVOUR OF THE ASSESSEE 21. CIT VS. GOTANLIME KHANIJ UDYOG, 256 ITR 243 (RA J), WHEREIN THE COURT HELD THAT PROVISIONS DO NOT ENVISAGE THAT BY RESORT ING TO BEST JUDGMENT ASSESSMENT, THE ASSESSING AUTHORITY MUST REACH A DIFFERENT FIGU RE OF INCOME AND PROFIT THAN WHAT HAS BEEN DISCLOSED BY THE ASSESSEE. BEST JUDGMENT I S ALSO TO BE BASED ON THE ITA NOS.149 & 140/A/2012 AYS. 2009-10 24 MATERIAL AVAILABLE ON RECORD. THEREFORE, NOTWITHST ANDING THE REJECTION OF THE BOOKS OF ACCOUNT, THE MATERIAL DISCLOSED BY THE ASSESSEE ALONG WITH OTHER MATERIAL THAT MAY BE COLLECTED BY THE INCOME-TAX OFFICER FORMS TH E BASIS OF COMPUTATION OF INCOME. ON THAT BASIS WHAT CONCLUSIONS ARE TO BE R EACHED IS INDEPENDENT OF THE RESULTS SHOWN IN THE BOOKS OF ACCOUNT, IF ANY MAINT AINED BY THE ASSESSEE. SECTION 145 ONLY PROVIDES THE BASIS ON WHICH COMPUTATION OF INCOME IS TO BE MADE FOR THE PURPOSE OF DETERMINING THE AMOUNT OF TAX PAYABLE BY AN ASSESSEE. THE PROVISION BY ITSELF DOES NOT DEAL WITH ADDITION OR DELETION I N THE INCOME. THEREFORE, MERELY BECAUSE THERE IS SOME MINOR DEFICIENCY IN THE BOOKS OF ACCOUNT OR MERELY BECAUSE OF REJECTION OF THE BOOKS OF ACCOUNT IT DOES NOT ME AN THAT IT MUST LEAD NECESSARILY TO ADDITIONS IN THE RETURNED INCOME OF THE ASSESSEE . IN THE LIGHT OF THESE FACTS AND CIRCUMSTANCES WE DID NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). THE ORDER OF THE CIT(A) IS CONFIRMED ON THE ISSUE. 22. THE HONBLE MADRAS HIGH COURT IN THE CASE OF NE WTONE STUDIOS LTD. VS. COMMISSIONER OF INCOME-TAX [1955] 28 ITR 378 (MAD.) HELD THAT UNDER OUR TAXING SYSTEM, IT IS FOR THE ASSESSEE TO CONDUCT HIS BUSIN ESS, AND IN HIS WISDOM OR OTHERWISE TO INCUR BUSINESS EXPENDITURES. THE INCO ME-TAX ACT DOES NOT CLOTHE THE TAXING AUTHORITY WITH ANY POWER OR JURISDICTION TO DETERMINE THE REASONABLENESS OF THE AMOUNT SO FIXED AND PAID BY THE ASSESSEE. THE ONLY TEST FOR THE DEDUCTIBILITY OF SUCH REMUNERATION IS WHETHER THE EXPENDITURE HAS BE EN INCURRED SOLELY AND ITA NOS.149 & 140/A/2012 AYS. 2009-10 25 EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. IF THE REALITY OF THE PAYMENT IS CHALLENGED OR IS IN DISPUTE DIFFERENT CONSIDERATION S ARISE: SO ALSO IN CASES WHERE THE TAX AUTHORITIES ARE ABLE TO POINT TO SOME CONSIDERA TION OTHER THAN THE PURPOSE OF THE BUSINESS AS ACCOUNTING FOR ANY PORTION OF THE PAYME NT MADE. IN SUCH CASES, OF COURSE, SUCH PORTION OF THE AMOUNT CLAIMED, WHICH I S EITHER NOT HELD TO HAVE BEEN PAID OR IS HELD TO HAVE BEEN PAID FOR REASONS OTHER THAN BUSINESS EXPEDIENCY, COULD AND SHOULD BE DISALLOWED ; BUT THE REASON FOR THE D ISALLOWANCE IS BECAUSE EITHER THE PORTION DISALLOWED IS NOT PAID, OR BECAUSE THE EXPE NDITURE IS NOT SOLELY AND EXCLUSIVELY FOR THE BUSINESS, AND NOT ON THE GROUND THAT IN THE OPINION OF THE INCOME-TAX OFFICER OR OTHER TAXING AUTHORITY THE RE MUNERATION IS UNREASONABLY HIGH. IN THE CASE UNDER CONSIDERATION, THE ASSESSE E HAS ESTABLISHED BY FILING EVIDENCES THAT EXPENDITURES WERE INCURRED FOR THE P URPOSE OF BUSINESS. 23. IN THE LIGHT OF ABOVE DISCUSSIONS AND IN THE PR EMISE OF THE ABOVE NOTICED WELL ESTABLISHED PRINCIPLES, LET US PROCEED TO EXAM INE THE FACTS OF THE CASE UNDER CONSIDERATION, WHETHER THE NECESSARY CONDITIONS EXI STED TO CLAIM THIS ALLOWANCE UNDER SECTION 37(1) OF THE ACT AND WHETHER THE ASSE SSEE DISCHARGED THE BURDEN CAST ON IT. THE ADMITTED FACTS OF THE CASE ARE THAT THE A.O. DISALLOWED VARIOUS EXPENDITURES ON PRESUMPTION BASIS WITHOUT POINTING OUT BASIS OF DISALLOWANCES. WHEREAS, THE ASSESSEE HAS FULLY DISCHARGED THE BURD EN THAT EXPENDITURES WERE INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS FURNISHED ALL RELEVANT ITA NOS.149 & 140/A/2012 AYS. 2009-10 26 DETAILS AND EXPLANATION INCLUDING BOOKS OF ACCOUNTS , CASH BOOK, LEDGER, JOURNAL AND BANK BOOK ETC. THE CIT(A) HELD THAT THE ASSESSING O FFICER HAS MADE VAGUE DISALLOWANCES @ 2% FOR MATERIAL CONSUMED, LABORS, P OWER AND FUELS, 2.5% FOR REPAIR & MAINTENANCE AND 10% FOR WATER EXPENSES, ST AFF WELFARE, TRAVELING AND VEHICLE RUNNING AND MAINTENANCE EXPENSES. THE ASSE SSING OFFICER HAS NOT POINTED OUT THE SPECIFIC TERMS WHICH WERE INADMISSIBLE IN N ATURE. THIS WORKING OF THE ASSESSING OFFICER ONLY SHOWS THAT THE DISALLOWANCES HAVE BEEN MADE CAPRICIOUSLY WITHOUT PROPERLY MEASURING ACTUAL EXTENT OF NON-VER IFIABILITY. THE CASE CLEARLY GETS HIT BY THE DECISION IN THE CASE OF M/S. CHANDR A CONFECTIONARY PVT. LTD. REPORTED IN 2003 (2) MTC 1022, WHEREIN IT HAS BEEN HELD BY THE I.T.A.T., LUCKNOW BENCH THAT SUCH AD-HOC DISALLOWANCES, WITHO UT ASSIGNING ANY REASONS AND WITHOUT POINTING OUT ANY DEFECT, ARE UNJUSTIFIA BLE. IN VIEW OF ABOVE FACTUAL POSITION, THE DISALLOWANCES MENTIONED IN ABOVE HAVE BEEN DELETED BY THE CIT(A). THE CIT(A) BEFORE COMING TO THE CONCLUSIONS HAS GON E THROUGH THE FACTS OF THE CASE, SUBMISSIONS OF THE ASSESSEE AND REASONS GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, REMAND REPORT UNDER SECTION 250(4 ) AND SUBMISSIONS OF THE ASSESSEE PUT BEFORE HIM. THE ASSESSING OFFICER HAS NOT POINTED OUT THE SPECIFIC TERMS WHICH WERE INADMISSIBLE IN NATURE. THIS WORK ING OF THE ASSESSING OFFICER ONLY SHOWS THAT THE DISALLOWANCES HAVE BEEN MADE CA PRICIOUSLY WITHOUT PROPERLY MEASURING ACTUAL EXTENT OF NON-VERIFIABILITY. THE R EVENUE HAS FAILED TO POINT OUT ITA NOS.149 & 140/A/2012 AYS. 2009-10 27 ANY CONTRARY MATERIAL TO THE FINDING OF THE CIT(A). IN THE LIGHT OF THE FACTS OF THE CASE, WE CONFIRM THE ORDER OF THE CIT(A) ON THIS IS SUE. 24. AS REGARDS DELETION OF ADDITION OF RS.19,35,849 /- BY THE CIT(A), WE NOTICE THAT THE A.O. HAS MADE ADDITION SIMPLY ON THE BASIS OF AIR INFORMATION ON THE BASIS OF FORM NO.26AS IN WHICH THE ASSESSEE HAS SAT ISFACTORILY EXPLAINED THE DETAILS OF INTEREST AND TDS. AS PER THE ASSESSEE, THE CIT( A) NOTED THAT THE AMOUNTS OF INTEREST AND TDS HAVE WRONGLY SUBMITTED BY THE BANK IN IS ANNUAL TAX RETURN FOR THE YEAR 2009-10. AGAINST THE EXPLANATION OF THE A SSESSEE, THE CIT(A) CALLED FOR THE REMAND REPORT. IN THE REMAND REPORT THE A.O. H AS FAILED TO SUBSTANTIATE HOW THE ADDITION OF RS.19,35,849/- IS TO BE MADE FOR TH E YEAR UNDER CONSIDERATION. FOR THE PURPOSE OF READY REFERENCE THE NECESSARY EXPLAN ATIONS SUBMITTED BY THE ASSESSEE AND CONSIDERED BY THE CIT(A) IS REPRODUCED FROM PARAGRAPH NO.7, PAGE NOS.16 & 17 :- 7. FIRST ISSUE IS RELATING TO THE ADDITION OF RS.1 9,35,849/- ON THE ACCOUNT OF INTEREST RECEIVED FROM BANK WITH PUNJAB NATION BANK AS PER AIR INFORMATION. IT IS SEEN THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT HAS SUBMITTED THE DETAILS ALONG WITH TDS CERTIFICATE AND CERTIFICATE RECEIVED FROM PUNJAB NA TIONAL BANK, PANDEYPUR REFERENCE TO JOINT COMMISSIONER OF INCOME TAX, VARANASI INTEREST ON FDR FOR THE F.Y. 2008-09 HAS CREDITED R S.7,50,242/- AND TDS THEREON RS.77,275/-. A COPY OF WHICH IS ENCLOSED B Y APPELLANT VIDE PAPER BOOK PAGE NO.24 TO 28. ON THE OTHER HAND THE APPEL LANT HAS SUBMITTED THE DETAILS OF INTEREST AND TDS THEREON AN AMOUNT OF RS .3,13,391/- VIDE PAPER BOOK PAGE NO. 21 AND 32 TO 34. THIS FACT HAS ALREA DY BROUGHT ON RECORD BEFORE THE ASSESSING OFFICER. AGAIN THE APPELLANT HAS SUBMITTED ANNUAL TAX STATEMENT U/S 203AA IN FORM 26AS FOR A.Y. 2008- 09 AND COPY OF THE ITA NOS.149 & 140/A/2012 AYS. 2009-10 28 ACCOUNT OF INTEREST SHOWN DURING THE FINANCIAL YEAR IN THE BOOKS AMOUNT OF RS.23,74,091/-. LOOKING TO THE RECORD OF THE ASSES SEE VIDE PAPER BOOK PAGE NO.267. I FIND THAT THESE AMOUNT HAS ALREADY TAKEN IN THE COMPUTATION OF INCOME ALONG WITH TDS AND ALSO THE A PPELLANT HAS SUBMITTED THE RECONCILIATION CHART OF RECEIPTS FOR THE A.Y. 2008-09 VIDE PAPER BOOK PAGE NO. 39A WHICH SHOW THAT THE ASSESSE E HAS DISCLOSED TOTAL GROSS RECEIPT OF RS.13,54,19,130/- INCLUDING THE BA NK INTEREST WITH TDS RS.23,74,091/- AND BANK INTEREST WITHOUT TDS RS.40, 861/- BUT IN THE 26AS PERTAINING TO A.Y. 2008-09 IT IS OBSERVED THAT BANK HAS NOT FILED ANY DETAILS IN THE TDS RETURN AND NO INTEREST AND TDS A MOUNT OF BANK RECEIVED BY ASSESSEE HAS BEEN REFLECTED IN ANNUAL T AX STATEMENT U/S 203AA FILED BY THE BANK. IT MEANS THE BANK HAS NOT FILED ITS ANNUAL TAX STATEMENT. I CAREFULLY CONSIDERED THE SUBMISSION O F THE APPELLANT THAT THESE AMOUNTS OF INTEREST AND TDS HAS WRONGLY SUBMI TTED BY THE BANK ITS ANNUAL TAX RETURN FOR A.Y. 2009-10. I HAVE GONE THROUGH THE REMAND REPORT OF THE ASSES SING OFFICER AS WELL AS APPELLANT SUBMISSION AND FIND FORCE IN THE APPELLANT SUBMISSION THAT THE ASSESSING OFFICER IN HIS REMAND REPORT VID E PARA NO.1.B TO 1.D STATED THAT THE ASSESSEE FAILED TO EXPLAIN THAT HO W HAS INTEREST RECEIVED OF RS.19,35,849/- HAS BEEN REFLECTED IN THE INCOME OF THE ASSESSEE AND FAILED TO RECONCILE THE SAME. THE ASSESSEE IN HIS SUBMISSION HAS ALREADY BROUGHT ON RECORD VIDE REPLY DATED 12.12.2011 AS PE R PAPER BOOK PAGE NO. 7 TO 9 AND SUBMITTED A FRESH CERTIFICATE REFERE NCE MADE TO JOINT CIT CIRCLE-3, VARANASI WHICH IS PLACED IN PAGE NO.24, B UT THE ASSESSING OFFICER IGNORED THE FACTS OF THE CASE IN HIS ASSESS MENT ORDER AS WELL AS IN REMAND REPORT. IN VIEW OF ABOVE FACTUAL POSITION THE ADDITION ON S AID ACCOUNT IS HEREBY DELETED. 25. IN THE LIGHT OF THE ABOVE DISCUSSION AND REPLY OF THE ASSESSEE, WE ARE OF THE VIEW THAT MERELY ON THE BASIS OF WRONG SUBMISSION O F ANNUAL RETURN BY BANK OR WRONG INFORMATION IN FORM NO.26AS, ADDITION IS NOT WARRANTED AUTOMATICALLY. THE ISSUE IS REQUIRED TO BE EXAMINED IN THE LIGHT OF BO OKS OF ACCOUNT OF THE ASSESSEE. THE CORRECT FACTS WERE ALREADY BROUGHT ON RECORD BE FORE THE ASSESSING OFFICER. ITA NOS.149 & 140/A/2012 AYS. 2009-10 29 THE CIT(A) FOUND THAT THE AMOUNT HAS ALREADY BEEN T AKEN IN THE COMPUTATION OF INCOME ALONG WITH TDS AND ALSO THE APPELLANT HAS SU BMITTED THE RECONCILIATION CHART OF RECEIPTS FOR THE A.Y. 2008-09 VIDE PAPER B OOK PAGE NO.39A FILED BEFORE CIT(A) WHICH SHOWS THAT THE ASSESSEE HAS DISCLOSED TOTAL GROSS RECEIPT OF RS.13,54,19,130/- INCLUDING THE BANK INTEREST WITH TDS RS.23,74,091/- AND BANK INTEREST WITHOUT TDS RS.40,861/- BUT IN THE 26AS PE RTAINING TO A.Y. 2008-09. IT WAS OBSERVED BY THE CIT(A) THAT THE BANK HAS NOT FI LED ANY DETAILS IN THE TDS RETURN AND NO INTEREST AND TDS AMOUNT OF BANK RECEI VED BY ASSESSEE HAS BEEN REFLECTED IN ANNUAL TAX STATEMENT UNDER SECTION 203 AA FILED BY THE BANK. IT MEANS THE BANK HAS NOT FILED ITS ANNUAL TAX STATEME NT. THE ASSESSEE HAS FURNISHED THE EXPLANATION WHICH HAS BEEN FOUND SATISFACTORY B Y THE CIT(A). THE REVENUE HAS FAILED TO POINT OUT ANY CONTRARY MATERIAL TO TH E FINDING OF THE CIT(A). IN THE LIGHT OF THE FACTS, ORDER OF THE CIT(A) IS CONFIRME D ON THE ISSUE. 26. AS REGARDS GROUND NO.6, IGNORING THE PROVISIONS OF SECTION 250(6) OF THE ACT, WE FIND THAT THE ORDER OF CIT(A) IS IN ACCORDANCE W ITH SECTION 250(6) OF THE ACT. THE CIT(A) HAS MADE OUT THE POINTS RAISED BY THE A. O. AND THE SAME HAS BEEN CONSIDERED IN THE LIGHT OF ASSESSEES SUBMISSION AN D DECIDED THE ISSUE POINT-WISE. ORDER OF CIT(A) IS IN ACCORDANCE WITH SECTION 250(6 ). THEREFORE, WE DO NOT FIND ANY SUBSTANCE IN THIS GROUND OF APPEAL OF THE ASSES SEE. THEREFORE, THE SAME IS DISMISSED. ITA NOS.149 & 140/A/2012 AYS. 2009-10 30 27. GROUND NOS.5, 7 & 8 ARE GENERAL IN NATURE. 28. IN THE RESULT, ITA NO.149/A/2012 IN THE CASE OF M/S. A.K. CONSTRUCTION COMPANY FILED BY REVENUE IS DISMISSED. ITA NO.140/A/2012 A.Y. 2009-10 29. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER :- 1. THAT THE ORDER OF LEARNED CIT(A) IS ERRONEOUS I N LAW AND ON FACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) IS NOT JUSTIFIED IN ACCEPTING THE BOOK RESULTS OF THE ASSE SSEE AND REVOKING THE PROVISION OF SECTION 145(3) IGNORING THE FACT THAT ASSESSEE DID NOT PRODUCE ANY BILLS AND VOUCHERS OF PAYMENT OF PURCHASES, POW ER AND FUEL AND LABOUR CHARGES ETC. AND DELETING THE ADDITION OF RS .21,05,142/- BEING DISALLOWANCE OF VARIOUS EXPENSES MADE BY A.O. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS. 4,80,304/- BEING DISALLOWANCE OF VARIOUS EXPENSES ON ACCOUNT OF NOT PRODUCING BILLS AND VOUCHERS BY THE A.O. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF SUP PRESSION OF CONTRACT RECEIPT OF RS.53,019/- OF EECD PWD CHANDAULI AND SU PPRESSION OF INTEREST ON FDR OF RS.11,981/- IGNORING THE FACTS M ENTIONED IN ASSESSMENT ORDER. 5. WHETHER ON THE FACT AND CIRCUMSTANCES OF THE CAS E LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION AND ALLOWING THE APPEAL OF THE ASSESSEE WITHOUT MAKING ANY DISCUSSION ON REMAND REPORT SUBM ITTED BY THE A.O. AND BRUSHING ASIDE THE REMAND REPORT. ITA NOS.149 & 140/A/2012 AYS. 2009-10 31 6. CRAVES FOR LEAVE TO RAISE ANY GROUNDS OF APPEAL THAT MAY BE TAKEN AT THE TIME OF HEARING. 30. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE FIRM IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACT AND DERIVES INCOME FROM CIVIL CONSTRUCTION. THE A.O. ON THE BASIS OF AIR INFORMATION NOTICED ABOUT THE CONT RACT RECEIPTS, INTEREST RECEIPTS AND TDS. THE A.O. ASKED THE ASSESSEE TO RECONCILE THE FIGURES AS PER AIR INFORMATION AND AS PER BOOKS OF ACCOUNT. AFTER CON SIDERING THE ASSESSEES SUBMISSION, THE A.O. MADE ADDITION OF RS.53,019/- B EING THE DIFFERENCE OF TURNOVER AS PER AIR INFORMATION AND AS PER BOOKS OF ACCOUNT OF THE ASSESSEE. THE A.O. HAS ALSO NOTED A COMPARATIVE POSITION OF G.P. WHICH IS REPRODUCED FROM PAGE NO.5 OF THE A.O.S ORDER AS UNDER :- (PARAGRAPH NO.5) A.Y. TURNOVER GROSS PROFIT G.P. RATE 2007-08 35548265 3487616 9.81% 2008-09 41566724 4262191 10.25% 2009-10 100898025 10594292 10.50% 31. THE A.O. NOTICED THAT THE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNTS SUCH AS CASH BOOK, LEDGER ACCOUNT, JOURNAL, BANK BOOK. THE ASSESSEE DID NOT PRODUCE VOUCHER REGISTER IN RESPECT OF LABOUR ETC. THE A.O . INVOKED SECTION 145(3) OF THE ACT. AFTER INVOKING SECTION 145(3), THE A.O. MADE ADDITION OF RS.21,05,142/- OUT OF VARIOUS TRADING EXPENSES OF RS.4,80,304/- OUT OF VARIOUS EXPENSES. ITA NOS.149 & 140/A/2012 AYS. 2009-10 32 32. THE DETAILS OF DISALLOWANCES OF EXPENSES OF RS. 21,05,142/- NOTED FROM PARAGRAPH NO.11 OF CIT(A)S ORDER ARE AS UNDER :- ( PARAGRAPH NO.11, PAGE NO.21) SR. NO. PARTICULARS AMOUNT CLAIMED RATE OF DISALLOWANCE AMOUNT DISALLOWED 1. COST OF MATERIAL 48425890/- 2% 968518/- 2. COST OF LABOUR 32360350/- 2% 647207/- 3. POWER & FUELS 7142780/- 5% 357139/- 4. TRANSPIRATION CHARGES 1372780/- 10% 132278/- TOTAL 21,05,142/- 33. THE DETAILS OF DISALLOWANCE OF EXPENSES OF RS.4 ,80,301/- NOTED FROM PARAGRAPH NO.12 OF ORDER CIT(A) ARE AS UNDER :- SR. NO. PARTICULARS AMOUNT CLAIMED RATE OF DISALLOWANCE AMOUNT DISALLOWED 1. GENERAL EXP. 1637728/- 10% 163777/- 2. TRAVELING & CONV. 719708/- 10% 71971/- 3. SITE EXP. 1327131/- 10% 132713/- 4. STAFF WELFARE 85726/- 10000/- 5. REPAIR & MAINT. 1018425/- 10% 101842/- TOTAL 4,80,301/- 34. THE CIT(A) HAS DELETED BOTH THE ADDITIONS AFTER CONSIDERING THE A.O.S REMAND REPORT AND ASSESSEES SUBMISSION FOLLOWING T HE DECISION OF I.T.A.T. IN THE CASE OF CHANDRA CONFECTIONARY PVT. LTD., 2003 (2) M TC 1022 I.T.A.T. LUCKNOW BENCH. ITA NOS.149 & 140/A/2012 AYS. 2009-10 33 35. WE FIND THAT THE FACTS OF THE CASE UNDER CONSID ERATION ARE IDENTICAL TO THE FACTS OF THE CASE IN M/S. A.K. CONSTRUCTION COMPANY , ITA NO.149/A/2012, WHEREIN AFTER DETAILED DISCUSSIONS MADE IN THIS ORD ER VIDE PARAGRAPH NOS.12 TO 26 CONFIRMED THE ORDER OF THE CIT(A). FOLLOWING THE S AID DISCUSSIONS, THE ORDER OF THE CIT(A) IS CONFIRMED IN THIS CASE ALSO I.E. ITA NO.1 40/A/2012. 36. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, ALLAHABAD BENCH, ALLAHABAD 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, ALLAHABAD TRUE COPY