Addl. CIT, Range-19, V. Stainlyindia, 53, SSI Co-op Indl Estate,

ITA 1592/DEL/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1250 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-10-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 05-05-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L M
• Assessee Lawyers: AMOL SINHA SHRI ASHOK JAIN
• Keywords: Business expenditure; Additional evidence; Assessment record; TDS; Set aside
• Section: 133(6); 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO. 1592/DEL/2006 ASSESSMENT YEAR : 2002-03 ADDL. COMMISSIONER OF INCOME- TAX, RANGE-19, N EW DELHI. VS. M/S STAINLAY INDIA, 73, SSI CO-OP INDL. ESTATE, GT KARNAL ROAD, DELHI. PAN: AAIFS2155C ITA NO.1412/DEL/06 ASSESSMENT YEAR : 2002-03 M/S STAINLAY INDIA, 73, SSI CO-OP INDL. ESTATE, GT KARNAL ROAD, DELHI. PAN: AAIFS2155C ADDL. COMMISSIONER OF INCOME-TAX, RANGE-19, N EW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMOL SINHA, ADVOCATE/SHRI ASHOK JAIN, CA REVENUE BY : SHRI L.M. PANDEY, CIT, DR O R D E R PER I.P. BANSAL, JUDICIAL MEMBER: THESE ARE CROSS APPEALS. THEY ARE DIRECTED AGAINS T THE ORDER OF THE CIT (A) DATED 20 TH JANUARY, 2006 FOR ASSESSMENT YEAR 2002-03. GROUND S OF APPEAL IN BOTH THE APPEALS ARE AS UNDER:- ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 2 ASSESSEES APPEAL 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFI ED IN RESTRICTING THE GENERATION OF SCRAP TO 30% AS AGAIN ST CLAIM OF 40% BY THE APPELLANT AND TREATING BALANCE 10% SCRAP GENERATION AS UNACCOUNTED SALE OUTSIDE THE BOOKS OF ACCOUNT OF THE APPELLANT AND CONFIRMING THE ADDITION OF ENT IRE SALE PROCEEDS AS CONCEALED INCOME OF THE APPELLANT, WHIC H IS BASED ON SURMISES AND CONJECTURE AND CONTRARY TO FA CTS AND PROVISIONS OF LAW AND THE ADDITION SO MADE NEEDS TO BE DELETED. 2. WITHOUT PREJUDICE TO GROUND NO.1, THAT THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIF IED IN CONFIRMING THE ACTION OF LD. A.O. IN MAKING ADDITIO N OF ENTIRE CONCEALED SALES AMOUNT OUTSIDE BOOKS OF ACCOUNTS ES TIMATED BY HIM ON ACCOUNT OF EXCESS SCRAP GENERATION, WITHO UT GIVING ALLOWANCE TO ANY EXPENSES OR CONSIDERING GROSS PROF IT RATE DECLARED BY THE APPELLANT AND ACCEPTED BY HIM, WHIC H IS BASED ON SURMISES AND CONJECTURE, CONTRARY TO FACTS AND PROVISIONS OF LAW, HENCE THE ADDITION OF ENTIRE AMO UNT OF SALE BE RESTRICTED TO GROSS PROFIT ON SAME. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFI ED IN CONFIRMING ADDITION OF RS.13,15,362/- I.E., 15% OUT OF TOTAL POLISHING EXPENSES CLAIMED BY THE APPELLANT WHICH I S BASED ON SURMISES AND CONJECTURE AND CONTRARY TO FACTS AN D PROVISIONS OF LAW AND THE ADDITION SO MADE NEEDS TO BE DELETED. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFI ED IN CONFIRMING DISALLOWANCE OF MEMBERSHIP FEES OF RS.25 ,000/- AND FURTHER DENYING CLAIM OF APPELLANT U/SEC 80G OF THE INCOME TAX ACT, 1961 ON THE SAID PAYMENT MADE TO EL IGIBLE SCHOOL, WHICH IS BASED ON SURMISES AND CONJECTURES AND CONTRARY TO FACTS AND PROVISIONS OF LAW AND THE DIS ALLOWANCE SO MADE NEEDS TO BE DELETED. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT JUSTIFI ED IN CONFIRMING DISALLOWANCE OF VEHICLE AND TELEPHONE EX PENSES TO THE EXTENT OF 10% OF SAID EXPENSES CLAIMED BY THE A PPELLANT EXCEPT ON TELEPHONE EXPENSES INCURRED ON INTERNATIO NAL CALLS, WHICH IS BASED ON SURMISES AND CONJECTURE AND CONTR ARY TO FACTS AND PROVISIONS OF LAW AND THE DISALLOWANCE SO MADE ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 3 NEEDS TO BE DELETED. 6. THAT, THE APPELLANT CRAVES RIGHT TO ADD, AMEND AND/OR DELETE ANY OR ALL OF THE GROUNDS OF APPEAL EITHER B EFORE OR AT THE TIME OF HEARING. REVENUES APPEAL (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDI TION OF RS.73,87,045/- OUT OF ADDITION OF RS.87,69,077/- M ADE ON ACCOUNT OF POLISHING EXPENSES WITHOUT APPRECIATING THAT FACT THAT THE NOTICES U/S 133(6) ISSUED BY THE A.O. TO S EVERAL PARTIES FOR MAKING NECESSARY VERIFICATION REGARDING GENUINENESS OF SUCH CLAIM REMAINED UNCOMPLIED WITH AND THE ASSESSEE ALSO FAILED TO DISCHARGE THE ONUS OF PROVI NG THE EXPENDITURE AS GENUINE (GROUND NO.O1 OF CIT (A) ORD ER). (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDI TION OF RS.17,67,048/- ON A/C OF PACKING EXPENSES IGNORING THE FACT THAT THE IDENTITY OF THE PARTIES AND GENUINENESS OF THE TRANSACTION REMAINED UNESTABLISHED AND UNVERIFIED ( GROUND NO.2 OF CIT (A) ORDER). (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN RESTRICTING THE G ENERATION OF SCRAP AT 30% AS AGAINST 25% TAKEN BY THE A.O. AND T HEREBY IGNORING THE FACT THAT OTHER MANUFACTURERS & EXPORT ERS OF STEEL UTENSILS WERE SHOWING THE SCRAP GENERATION TO THE T UNE OF 25% WHICH IS SUPPORTED BY THE NEW IMPORT-EXPORT POLICY (GROUND NO.3 OF CIT (A) ORDER) (V) THE APPELLANT CRAVES LEAVE FOR PERMISSION FOR ADDITION/ALTERNATION TO THE GROUND OF APPEAL DURING THE COURSE OF HEARING. 2. THE ASSESSEE HAS SUBMITTED BEFORE THE TRIBUNAL A N APPLICATION DATED 24 TH AUGUST, 2009 UNDER RULE 29 OF INCOME-TAX APPELLATE TRIBUNAL RULES, 1963 CONTENDING THEREIN THAT CERTAIN DOCUMENTS ARE TO BE PLACED ON RECORD WHICH WERE EARLIER NOT FURNISHED TO THE AUTHORITIES BELOW AS M ENTIONED IN THE APPLICATION AND, THUS, IT WAS CONTENDED THAT THOSE DOCUMENTS SHOULD BE ADMITTED AS ADDITIONAL EVIDENCE. ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 4 3. FIRST, REFERENCE HAS BEEN MADE IN THAT APPLICATI ON THAT A PAPER BOOK VIDE LETTER DATED 15 TH OCTOBER, 2000 HAS BEEN SUBMITTED BEFORE THE TRIBUN AL WHICH CONTAINS ASSESSMENT RECORD IN THE CASE OF THE ASSES SEE FOR SUBSEQUENT ASSESSMENT YEARS I.E., FOR ASSESSMENT YEARS 2003-04 ONWARDS. IT IS CONTENDED THAT THE SAID PAPER BOOK CONTAINS THE DETAILS WHICH ARE GERMANE FOR DETERMINING THE ISSUES UNDER CONTROVERSY FOR THE ASSESSMENT YEA R UNDER CONSIDERATION. IT IS MENTIONED THAT SINCE THESE DOCUMENTS WERE NOT EXIST ING WHEN ASSESSMENT ORDER TOOK PLACE AND THE ORDER OF THE CIT (A) TOOK PLACE, THEREFORE, THESE DOCUMENTS SHOULD BE ADMITTED. 4. IT IS FURTHER MENTIONED THAT THE DOCUMENTS MARKE D AS ANNEXURE-A RELATES TO PHOTOGRAPHS SHOWING HOW THE MANUFACTURING PROCES S TAKES PLACE IN THE CASE OF THE ASSESSEE AND THESE DOCUMENTS ARE NECESSARY I N ORDER TO DEPICT THE PROCESS THAT HAS BEEN DESCRIBED BY THE LD. CIT (A) AT PAGE 3 OF HIS ORDER. 5. FURTHER REFERENCE IS MADE TO ANNEXURE-B WHICH IS A CHART SHOWING THE GOVERNMENT PRESCRIBED NORMS OF SCRAP/WASTE MATERIAL FOR AN EXPORT PRODUCT UNDER THE EXPORT-ORIENTED UNIT. IT WAS SUBMITTED THAT THE SAID DOCUMENTS FIND MENTION AT PARA 7.5 OF THE ORDER OF THE CIT (A) AND , HOWEVER, SINCE THE ENTIRE DOCUMENTS NEED TO BE LOOKED AT, THEREFORE, THE FULL COPY OF ANNEXURE-B IS BEING PRODUCED AND IT IS HELPFUL IN DETERMINING THE ISSUE REGARDING THE GENERATION OF SCRAP IN THE CASE OF THE ASSESSEE. 6. FURTHER REFERENCE IS MADE TO ANNEXURE-C WHICH IS A LETTER DATED 16 TH JANUARY, 2007 WHICH WAS ADDRESSED TO CIT (A) WHEREI N THE ASSESSEE HAD EXPLAINED AND ANNEXED THE CERTIFICATE ISSUED BY DEL HI STAINLESS STEEL TRADE FEDERATION DATED 7 TH DECEMBER, 2006. IT WAS SUBMITTED THAT THE REASON FOR FURNISHING THE SAID ANNEXURE IS THAT WHILE PASSING THE ORDER, THE CIT (A) HAS RELIED ON A CERTIFICATE ISSUED BY THE SAID FOUNDATI ON WITHOUT MAKING AVAILABLE THE COPY OF THE SAID CERTIFICATE TO THE ASSESSEE OR HIS AUTHORIZED REPRESENTATIVE. ANNEXURE C PERTAINS TO ASSESSMENT YEAR 2003-04 IN RESPECT OF WHICH YEAR THE ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 5 ASSESSEE HAD SUBMITTED THE CERTIFICATE DATED 7 TH DECEMBER, 2006 ISSUED BY DELHI STAINLESS STEEL TRADE FEDERATION. IT WAS SUBMITTED THAT THIS IS ALSO A NECESSARY EVIDENCE TO BE PLACED ON RECORD WHICH WILL BE HELPF UL IN DETERMINING THE ISSUE ARISING IN THE PRESENT APPEALS. 7. FURTHER REFERENCE IS MADE TO ANNEXURE-D WHICH IS THE COPY OF SALES-TAX ASSESSMENT ORDER PASSED IN THE CASE OF THE ASSESSEE . IT WAS SUBMITTED THAT THE SAID DOCUMENT IS NOT FRESH EVIDENCE AND WAS ALSO PR ODUCED BEFORE THE CIT (A) AND WHICH COULD NOT BE FILED WITH EARLIER PAPER BOO K, THEREFORE, THE SAME IS NOW BEING PRODUCED. 8. FURTHER REFERENCE IS MADE TO ANNEXURE-E WHICH IS A DOCUMENT SHOWING THAT THE ASSESSEE HAD DONATED A SUM OF RS.25,000/- TO ADARSH SHIKSHA SANSTHAN AND A COPY OF ORDER PASSED BY DIT (EXEMPTI ON), NEW DELHI IN FAVOUR OF ADARSH SHIKSHA SANSTHAN. IT WAS SUBMITTED THAT THE SE DOCUMENTS ARE ALSO NOT FRESH EVIDENCE AS THEY WERE FILED BEFORE THE CIT ( A) AND AS THEY WERE NOT FILED WITH EARLIER PAPER BOOK, THE SAME ARE BEING SUBMITT ED NOW. ALL THESE DOCUMENTS WERE PLEADED TO BE ADMITTED BY LD. AR. 9. DR OPPOSED TO THE ADMISSION THEREOF. HE SPECIFI CALLY ASSAILED THE ATTEMPT OF THE ASSESSEE TO FILE THE CERTIFICATE GIVEN BY DE LHI STAINLESS STEEL TRADE FEDERATION DATED 7 TH DECEMBER, 2006 WHICH IS MARKED AS ANNEXURE-C I T WAS CONTENDED THAT THE ASSESSEE HAS NOT MENTIONED THAT WHAT WAS THE REASON FOR NON-PRODUCTION OF THIS CERTIFICATE EITHER BEFORE TH E ASSESSING OFFICER OR BEFORE THE CIT (A). IT WAS SUBMITTED THAT DELHI STAINLESS STE EL TRADE FEDERATION WAS EXISTING MUCH PRIOR TO THE DATE OF ASSESSMENT ORDER . THEREFORE, THERE IS NO REASON FOR THE ASSESSEE TO NOW PRODUCE THE SAID CER TIFICATE TO SUPPORT HIS CASE. THUS, IT WAS SUBMITTED THAT THE EVIDENCES SOUGHT TO BE PRODUCED BY THE ASSESSEE SHOULD NOT BE ADMITTED AS NO CAUSE HAS BEE N SHOWN AS TO WHY THE ASSESSEE WAS PREVENTED FROM PRODUCING THESE DOCUMEN TS BEFORE THE ASSESSING OFFICER OR CIT (A). ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 6 10. HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. SO AS IT RELATES TO ANNEXURE A I.E., THE PHOTOGRAPH SHOWING THE MANUFACTURING P ROCESS, IT STARTS FROM S.S. FLAT WHICH IS CONVERTED TO S.S. COIL AND THEN S.S. PATTI AFTER HOT ROLLING AND COLD ROLLING AND, THEREAFTER, THE SAME IS CUT AND PRESSED, IT IS TRIMMED AND THEN BLACK UTENSILS ARE PRODUCED AND, THEREAFTER, FINISHED UTENSILS ARE PRODUCED AFTER POLISHING. THIS IS A SIMPLE PROCESS SHOWN BY THE ASSESSEE OF THE MA NUFACTURING ACTIVITY TAKEN BY IT . THEREFORE, IT CAN NEITHER BE SAID TO BE A NEW EVIDENCE. IT IS ONLY SUPPORTING THE ARGUMENTS OF THE ASSESSEE TO SHOW THAT HOW THE MANUFACTURING PROCESS TAKES PLACE IN THE CASE OF THE ASSESSEE. THE PROCE SS OTHERWISE ALSO CAN BE EXPLAINED. 11 NOW, COMING TO ANNEXURE-B, ANNEXURE-B IS APP ENDIX 41. THE REFERENCE OF APPENDIX-41 IS NOT ONLY FOUND IN THE A SSESSMENT ORDER, BUT IT IS ALSO FOUND IN THE ORDER OF THE CIT (A). HOWEVER, THE AS SESSING OFFICER WHILE REFERRING TO APPENDIX 41 WHICH IS NORMS OF SCRAP/WASTE MATERI AL FOR AN EXPORT PRODUCT UNDER EXPORT-ORIENTED UNITS AND UNITS IN EXPORT PRO CESSING ZONES. UNDER THE ITEM NO.1 OF THE SAID APPENDIX, IT IS DESCRIBED AS UNDER:- 1. STAINLESS STEEL UTENSILS STAINLESS STEEL SHEETS AND CIRCLES 25% 12 WHILE MAKING ADDITION ON ACCOUNT OF EXCESS SCRAP SHOWN BY THE ASSESSEE, THE ASSESSING OFFICER HAS RELIED ON THE A BOVE ENTRY TO HOLD THAT SCRAP, IF ANY, COULD BE ALLOWED ONLY TO THE EXTENT OF 25%. THE ASSESSEE HAS SUBMITTED FULL COPY OF APPENDIX-41 TO RELY ON THE FOLLOWING E NTRY FROM THE SAID VERY ANNEXURE WHERE ITEM 76 DESCRIBED THE GENERATION OF SCRAP AS UNDER:- 76. STAINLESS STEEL UTENSILS STAINLESS STEEL COIL 39.00% 13 THEREFORE, IT CANNOT BE SAID THAT IT IS A FRESH EVIDENCE. THE ASSESSEE HAS ONLY SUPPORTED ITS CONTENTION THAT GENERATION OF SC RAP COULD NOT BE LIMITED EITHER ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 7 TO 25% OR 30% AND IT IS SEEN FROM THE NORMS AS PRES CRIBED IN APPENDIX-41 THAT IT COULD BE UPTO THE EXTENT OF 39%. 14 NOW, COMING TO ANNEXURE-C, WHICH IS A CERTIFIC ATE DATED 7 TH DECEMBER, 2006 PLACED BEFORE THE CIT (A) IN THE APPELLATE PRO CEEDINGS RELATING TO ASSESSMENT YEAR 2003-04, THE CONTENTS OF THE SAID C ERTIFICATES ARE AS UNDER:- DATED 7.12.2006 TO WHOMSOEVER IT MAY CONCERN WE HEREBY CERTIFY THAT THE SCRAP GENERATION RATE FO R MANUFACTURING STAINLESS STEEL UTENSILS FROM OUT OF INDIGENOUS RAW MATERIAL AS PER INDUSTRY STANDARDS IN WAZIRPUR INDUSTRIAL AREA, DEL HI DURING THE FINANCIAL YEAR 2001-02 ONWARDS IS AS FOLLOWS:- S.NO. CATEGORY OF WORK SCRAP GENERATION IN % AGE. 1. S.S. FLAT TO S.S. UTENSILS 45 TO 47% 2. S.S. PATTI TO S.S. UTENSILS 40 TO 43% 3. S.S. COIL TO S.S. UTENSILS 34 TO 36% THE SCRAP GENERATION NORMS STATED ABOVE IS IN LINE WITH THAT FIXED BY THE CENTRAL EXCISE DEPARTMENT AFTER PHYSICAL VER IFICATION OF THE MANUFACTURING PROCESS OF THE EXPORTERS IN WAZIRPUR INDUSTRIAL AREA. FOR DELHI STAINLESS STEEL TRADE FEDERATION. 15 THE ABOVE MENTIONED CERTIFICATE WAS ANNEXED TO THE FOLLOWING LETTER IN RESPECT OF ASSESSMENT YEAR 2003-04:- 16.1.2007 TO THE COMMISSIONER OF INCOME TAX APPEALS-XXVII, NEW DELHI. ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 8 SUB : PROCEEDINGS IN THE APPEAL MATTER OF M/S STAIN LAY INDIA, APPEAL NO. FOR THE ASSESSMENT YEAR 2003-04. RESPECTED SIR, WE BEG TO SUBMIT THAT IN THE CAPTIONED MATTER LISTE D FOR HEARING TODAY, THE HN. CIT (A)-XXII IN HIS ORDER DATED 20.0 1.2006 HAD ADJUDICATED UPON THE MATTER OF REASONABLE SCRAP GEN ERATION RATE @ 30% BASING HIS ESTIMATE ON THE CERTIFICATE ISSUED B Y DELHI STAINLESS STEEL TRADE FEDERATION DATED 16.03.2002. HOWEVER, THE COPY OF SAID CERTIFICATE WAS NOT MADE AVAILABLE TO US. HENC E, YOU ARE REQUESTED TO PROVIDE US A COPY OF THE SAID CERTIFI CATE FROM THE FILE OF ASSESSMENT YEAR 2002-03. FURTHER, A COPY OF CERTIFICATE ISSUED BY DELHI STAI NLESS STEEL TRADE FEDERATION DATED 07.12.2006 IS ENCLOSED FOR YOUR RE CORD AND READY REFERENCE. IN VIEW OF THE FOREGOING YOUR HONOUR IS REQUESTED T O KINDLY DO THE NEEDFUL AND OBLIGE. FOR DASS GUPTA & ASSOCIATES CHARTERED ACCOUNTANTS NAVEEN GUPTA PARTNER 16. LD. CIT (DR) HAS STRONGLY OPPOSED ADMISSION OF SUCH CERTIFICATE. WE ARE OF THE VIEW THAT CIT (DR) CANNOT OPPOSE ADMISSION O F SUCH CERTIFICATE AS WHAT ASSESSEE IS STATING BEFORE THE CIT (A) THAT HIS VI EW TAKEN IN ASSESSMENT YEAR 2002-03 WHERE HE HAS ACCEPTED THE CASE OF ASSESSEE OF GENERATION OF SCRAP TO THE TUNE OF 30% WAS ON THE CERTIFICATE DATED 16 TH MARCH, 2002 ISSUED BY DELHI STAINLESS STEEL TRADE FEDERATION WHICH WAS NEVER CO NFRONTED TO THE ASSESSEE. AS AGAINST THAT THE ASSESSEE HAS SUBMITTED ANOTHER CERTIFICATE ISSUED BY THE SAME FEDERATION ON 17 TH DECEMBER, 2006 ACCORDING TO WHICH GENERATION OF SC RAP COULD VARY BETWEEN CERTAIN PERCENTAGE. THEREFORE, WE SEE NO REASON WHY THE ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 9 SAID CERTIFICATE SHOULD NOT BE ADMITTED AS AN ADDIT IONAL EVIDENCE AS THE ACTION OF THE CIT (A) FOR THE IMPUGNED YEAR WAS ON THE BASIS OF A CERTIFICATE WHICH WAS NEVER CONFRONTED TO THE ASSESSEE. THEREFORE, WE AD MIT THE SAME. 17. NOW, COMING TO ANNEXURE-D, WHICH IS SALE-TAX ASSESSMENT ORDER THIS ALSO CANNOT BE CONSIDERED TO BE A FRESH EVIDENCE AS THIS IS AN EVIDENCE FILED BY THE ASSESSEE IN SUPPORT OF HIS CONTENTION THAT THE GENERATION OF SCRAP SHOWN BY THE ASSESSEE HAVE BEEN ACCEPTED BY THE SALES-TAX A UTHORITIES. FURTHER, THESE ASSESSMENT ORDERS ARE NOT EVEN FRESH EVIDENCE AS TH EY WERE STATED TO BE PRODUCED BEFORE THE CIT (A) AND THIS FACT HAS NOT BEEN CONTROVERTED BY LD. DR BY BRINGING SOME MATERIAL TO SHOW THAT SUCH CONTENT ION OF THE ASSESSEE IS NOT IN ACCORDANCE WITH THE FACTS. 18. NOW, COMING TO ANNEXURE-E, THESE CERTIFICATE S RELATES TO CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80-G. THESE CERTIFICATE S WERE PRODUCED BEFORE THE CIT (A), THEREFORE, THESE ARE NOT FRESH EVIDENCES. 19. IN VIEW OF THE ABOVE, WE ALLOW THE APPLICATION FILED BY THE ASSESSEE FOR ADMISSION OF THE DOCUMENTS WHICH ARE STATED TO BE F RESH EVIDENCE IRRESPECTIVE OF THE FACT THAT WHETHER OR NOT THEY ARE FRESH EVIDENC E AS PER DISCUSSION MADE IN THE ABOVE PART OF THIS ORDER. 20. NOW, WE PROCEED TO DECIDE THE APPEALS ON MERITS . GROUND NO.1 AND 2 OF THE ASSESSEE AND GROUND NO.3 OF THE DEPARTMENT RAIS E COMMON ISSUE WHICH IS REGARDING ADDITION MADE ON ACCOUNT OF EXCESS GENERA TION OF SCRAP. THE ASSESSING OFFICER HAS DEALT WITH THIS ISSUE AS PER PARA 3 OF HIS ORDER. IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HA D SHOWN THE GENERATION OF SCRAP IN THE MANUFACTURING PROCESS WHICH WAS SHOWN @ 40% FOR THE YEAR UNDER CONSIDERATION. WHILE COMPARING THE SAME WITH THE I MMEDIATE PRECEDING YEAR IT WAS FOUND THAT THE SAME WAS TO THE TUNE OF 41.42%. THE ASSESSEE WAS REQUIRED TO JUSTIFY ITS CLAIM. VIDE LETTER DATED 15 TH MARCH, 2005 IT WAS SUBMITTED THAT WHEN THE UTENSILS ARE PREPARED FROM PATTI AFTER CUTTING CIRCLES THEREFROM, .THE PATTI USED IN RECTANGULAR SHAPE AND EDGES ARE NOT PARALLEL, WH EN A CIRCLE IS TAKEN FROM IT, ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 10 THE SCRAP COMES TO 20 TO 40% AND, THEN, WHILE PRES SING THE CIRCLES INTO PRESS MACHINE ALSO SOMETIMES THE CIRCLES ARE BROKEN AND T HAT RESULTS INTO SCRAP. AFTER THE PREPARATION OF EDGES, WASTAGE REMAINS 2 TO 5 % AND SIMILARLY, WASTAGE IS 1% AT THE TIME OF POLISHING. IT WAS SUBMITTED THAT GE NERATION OF SCRAP DEPEND UPON THE QUALITY OF THE FLAT AND PATTI USED AND IT ALSO DEPENDS ON QUANTITY AND SIZE MANUFACTURED. IT WAS SUBMITTED THAT THE ASSESSEE M AINTAINS QUALITY TO MEET THE REQUIREMENTS OF FOREIGN BUYERS. IT WAS SUBMITTED T HAT CENTRAL EXCISE DEPARTMENT HAS GIVEN AN INPUT/OUTPUT RATIO BY WHICH IT HAS BEE N MENTIONED THAT IF UTENSILS ARE PREPARED FROM S.S. PATTA THE OUTPUT IS 2 AGAINST I NPUT OF 1.65 AND IF IT IS WORKED OUT, THEN, THE GENERATION OF SCRAP CLAIMED BY THE A SSESSEE IS QUITE REASONABLE. A COPY OF LETTER FROM EXCISE DEPARTMENT WAS ALSO FI LED. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT SUCH SUBMISSION OF THE ASSES SEE. ACCORDING TO THE ASSESSING OFFICER, SUCH RATE OF GENERATION OF SCRAP WAS TOO HIGH. IN COMPARISON TO THE OTHER STAINLESS STEEL PRODUCERS OF WAZIRPUR INDUSTRIAL AREA, WHO ARE ALSO MANUFACTURING UTENSILS FOR THE PURPOSE OF EXPORT. IT IS MENTIONED BY THE ASSESSING OFFICER THAT IN MOST OF EXPORTERS CASES THE SCRAP GENERATION IS TO THE TUNE OF ABOVE 25% WHICH IS ALSO SUPPORTED BY NEW IM PORT-EXPORT POLICY AND HANDBOOK OF PROCEDURE 1999-2000 ANNOUNCED BY THE GO VERNMENT OF INDIA. IT IS MENTIONED THAT THERE ARE SO MANY CASES OF STEEL EXP ORTERS IN THE RANGE AND IN ONE OF THE CASES, THE CIT (A) VIDE HIS ORDER DATED 11 TH DECEMBER, 2002 HAS CONSIDERED THE ISSUE AND ALLOWED THE GENERATION OF SCRAP @ 25%. THE EXPLANATION OF THE ASSESSEE FOR GENERATION OF SCRAP IS SELF-SERVING AND IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. THEREFORE, THE ASSESSING OFFICER OBSERVED THAT IT IS APPARENT THAT THE ASSESSEE WAS SELLING FINISHED GOODS OUTSIDE HIS BOOKS OF ACCOUNT AND SHOWING THE SAME IN THE FO RM OF EXCESS SCRAP GENERATION. IT WAS AN ATTEMPT MADE BY THE ASSESSEE TO CONCEAL THE SALE OF FINISHED UTENSILS IN THE OPEN MARKET TO THE EXTENT OF 15%. THE ASSESSING OFFICER WORKED OUT 134288.625 KGS. OF FINISHED GOODS OUT OF EXCESS GENERATION OF SCRAP AND THE SAME WAS CONSIDE RED TO BE CONCEALED SALE OF THE ASSESSEE. FROM THE VALUATION OF CLOSING STO CK OF FINISHED GOODS, IT WAS OBSERVED THAT UTENSILS WERE VALUED @ 80 PER KG. TH E GP RATE SHOWN BY THE ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 11 ASSESSEE WAS 14.48% AND BY ADDING THE SAID GP RATE, SALE PRICE OF UTENSILS WILL COME TO RS.91.58 PER KGS, AND, THUS, HE WORKED OUT THE CONCEALED SALE OF THE ASSESSEE AT A SUM OF RS.1,22,98,689/- AND THE SAME WAS ADDED TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF SCRAP SALE OUTSIDE THE B OOKS OF ACCOUNT. 21. LD. CIT (A) HAS DISCUSSED THIS ISSUE IN PARA 7 TO 7.5 (PAGES 12 TO 16 OF THE IMPUGNED ORDER). THE SUBMISSION OF THE ASSESSEE BE FORE THE CIT (A) WAS THAT THE ASSESSING OFFICER WHILE HOLDING THAT THE GENERA TION OF SCRAP IN THE CASE OF THE ASSESSEE WAS EXCESSIVE AS COMPARED TO OTHER STAINLE SS STEEL PRODUCERS IN WAZIRPUR AREA IS NOT SUPPORTED BY ANY FACT AS LD. A SSESSING OFFICER DID NOT CITE OR GIVE ANY NAME OF THE CASE TO COMPARE THE CASE OF ASSESSEE WITH THAT CASE. 22. IT WAS SUBMITTED THAT MOST OF THE EXPORTERS WHO HAVE SHOWN SCRAP GENERATION OF 25% HAD MANUFACTURED THEIR UTENSILS F ROM THE RAW MATERIAL IN THE FORM OF S.S. FLATS AND S.S. PATTA. IT WAS SUBMITTE D THAT SO AS IT RELATES TO RELIANCE OF THE ASSESSING OFFICER ON THE NEW IMPORT -EXPORT POLICY AND THE HANDBOOK OF PROCEDURES, NO BOOK WAS PROVIDED TO THE ASSESSEE AND IT WAS NOT BROUGHT TO THE NOTICE OF THE ASSESSEE TO CONTROVERT THE SAME. SO AS IT RELATES TO THE OBSERVATIONS OF ASSESSING OFFICER REGARDING ORD ER OF THE CIT (A) IN ONE CASE WHERE GENERATION OF SCRAP WAS HELD TO BE PROPER AT 25%, IT WAS SUBMITTED THAT NO COPY OF SUCH ORDER WAS EVER PROVIDED TO THE ASSESSE E. IT WAS SUBMITTED THAT NON-CONFRONTING THE ASSESSEE WITH THE EVIDENCE WHIC H WAS RELIED UPON BY THE ASSESSING OFFICER TO HOLD THAT GENERATION OF SCRAP WAS JUSTIFIED ONLY TO THE EXTENT OF 25%, IS AGAINST THE PRINCIPLES OF NATURAL JUSTIC E AND FOR CONTENDING THAT SUCH EVIDENCE COULD NOT BE USED AGAINST THE ASSESSEE UNL ESS THE SAME WAS CONFRONTED, RELIANCE WAS PLACED ON THE FOLLOWING DE CISIONS:- I) SURAJ MAL MOHTA VS. A.V. VISHWANATH SASTRI AND O THERS, 26 ITR 113, II) DHAKESHWARI COTTON MILLS VS. CIT, 26 ITR 775 (S C), III) KISHAN CHAND CHELLA RAM VS. CIT, 125 ITR 713 ( SC), IV) S.C. CHIRANJI LAL STEEL ROLLING MILLS VS. CIT ( PUNJAB) 84 ITR 222 ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 12 23. APART FROM THAT, IT WAS SUBMITTED THAT ASSESSEE S GENERATION OF SCRAP WAS SUPPORTED BY THE FOLLOWING EVIDENCES WHICH SUPPORT S THE CASE OF THE ASSESSEE THAT GENERATION OF SCRAP SHOWN BY THE ASSESSEE WAS ACTUALLY GENERATION OF SCRAP:- A) BOOKS OF ACCOUNT MAINTAINED IN REGULAR COURSE DU LY AUDITED U/S 44AB NOT FOUND DEFECTIVE BY A.O. B) DAY TO DAY RECORD OF STOCK TALLY IN QUANTITY OF : C) RAW MATERIAL PURCHASED QUANTITY WISE I.E., S.S. FLATS AND S.S. PATTA. D) PRODUCTION REGISTER ON DAY TO DAY BASIS CONSISTI NG OF MATERIALS ISSUED, GOODS PRODUCED IN UTENSILS TO FINISHED GOOD S AND SCRAP OR BURNING LOSS RESULTS AT EACH STAGE. E) DAY TO DAY MAINTENANCE OF RECORD IN QUANTITY AND VALUE FOR SALE CONSIDERATION OF EXPORTS OF GOODS AND SALE OF SCRAP . F) QUANTITATIVE ANNUAL TALLY OF OPENING BALANCE, PU RCHASES USED FOR MANUFACTURING AS RAW MATERIAL, FINISHED GOODS P RODUCED, SCRAP GENERATED, BURNING LOSS, CLOSING STOCK OF RAW MATERIAL. G) EVERY MOVEMENT OF MATERIAL DULY SUPPORTED BY CHA LLAN OR NOTED IN STOCK. H) NOTIFICATION FROM THE OFFICE OF SUPERINTENDENT O F CENTRAL EXCISE, GOVERNMENT OF INDIA, DETERMINING THE MINIMUM SCRAP LEVEL FOR DUTY DRAWBACK REFUND UNDER IMPORT EXPORT POLICY IN THE CASE OF THE APPELLANT. 24. IT WAS FURTHER SUBMITTED THAT ADDITION, IF ANY, TO BE MADE FOR DISALLOWANCE OF CLAIM OF EXCESS SCRAP SHOULD BE REDUCED TO THE E XTENT OF SALE OF SCRAP SHOWN BY THE ASSESSEE TO THE EXTENT OF SALE OF SCRAP SHOW N BY THE ASSESSEE TO THE EXTENT OF 4129868. IT WAS SUBMITTED THAT NONE OF T HE TRANSACTIONS OF PURCHASE/SALE OF ANY OTHER EXPENDITURE OR RECEIPT H AVE BEEN FOUND BY THE ASSESSING OFFICER TO BE MADE OUTSIDE THE BOOKS OF A CCOUNT AND WHICH IS NOT RECORDED IN THE REGULAR COURSE. THE SALES MADE BY THE ASSESSEE ARE SUPPORTED ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 13 BY THE ORDER UNDER SALES-TAX ACT GIVEN BY INDEPENDE NT SALES-TAX ASSESSING OFFICER. IT WAS SUBMITTED THAT ASSESSING OFFICER H AS NOT POINTED OUT ANY DEFECT IN THE AUDITED BOOKS OF ACCOUNT, THEREFORE, NO TRADING ADDITION COULD BE MADE WHEN THE GP RATE WAS ACCEPTED AND, THUS, THE ACTION OF ASSESSING OFFICER IS SELF- CONTRADICTORY. APART FROM DISCUSSING THE SUBMISSIO N OF THE ASSESSEE IN PARA 7.3, THE CIT (A) HAS ALSO FOUND THAT THE CASE RELIED UPO N BY THE ASSESSING OFFICER OF CIT (A) WHEREIN 25% SCRAP GENERATION WAS HELD PROPE R, WAS ALSO EXAMINED AND THE OBSERVATIONS OF CIT (A) IN THAT ORDER HAS BEEN REPRODUCED IN PARA 7.4 OF THE IMPUGNED ORDER WHICH IS REPRODUCED BELOW:- THE EXPORT-IMPORT POLICY DOCUMENT OF THE GOVERNMEN T OF INDIA CAN STILL FORM A GOOD BASIS FOR FORMING THE ESTIMATE. IT PRESCRIBES THE FOLLOWING PERCENTAGE OF SHORTAGE:- 1. STAINLESS STEEL UTENSILS MANUFACTURED FROM STAI NLESS STEEL SHEETS AND CIRCLES 25% 2. STAINLESS STEEL UTENSILS MANUFACTURED FROM STAI NLESS STEEL COIL 39% 3. STAINLESS STEEL CUTLERY MANUFACTURED FROM STAIN LESS STEEL SHEETS. 35% A LIST OF 30 ARTICLES HAS BEEN GIVEN UNDER ITEM NUM BER 2 ABOVE. THERE IS NO PROOF THAT THE APPELLANT AS MANUFACTURE D THESE ITEMS FROM STAINLESS STEEL COILS. IT HAS BEEN EMPHASIZED BEFORE ME BY THE APPELLANT THAT THE APPELLANT HAS MADE EXTENSIVE USE OF INDIGENOUS STEEL SHEETS, THEREFORE, THE PERCENTAGE OF 39% IS NOT TO BE CONSIDERED FOR ESTIMATE PURPOSES. FURTHER, AS I TEM WISE RECORD HAS NOT BEEN KEPT, THE RATIO OF CUTLERY TO UTENSILS CANNOT BE FOUND OUT. THEREFORE, IN MY OPINION, AN AVERAGE SHORTAGE PERCENTAGE OF 25% WOULD BE A FAIR ESTIMATE IN THE PRESENT CASE. 25. IN THIS MANNER, THE LD. CIT (A) HAS DISTINGUISH ED THE FACTS OF THE CASE RELIED UPON BY THE ASSESSING OFFICER AS COMPARED WI TH THE FACTS IN THE CASE OF THE ASSESSEE. LD. CIT (A) HAS FOUND FROM THE AUDIT REPORT THAT THE ASSESSEE IS MANUFACTURING UTENSILS FROM S.S. PATTI AND FLATS WH EREAS IN THE CASE RELIED UPON BY THE ASSESSING OFFICER THE UTENSILS WERE NOT FOUN D TO BE MANUFACTURED BY EXTENSIVE USE OF INDIGENOUS STEEL SHEETS AND ITEMWI SE RECORD WAS NOT KEPT FROM ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 14 WHICH THE RATIO OF CUTLERY TO UTENSILS COULD BE FOU ND OUT. THE CIT (A) HAS OBSERVED THAT IN THE PRESENT CASE NO ADVERSE INFERE NCE AS BEEN DRAWN EITHER BY THE AUDITORS OR BY THE ASSESSING OFFICER TOWARDS NO N-MAINTENANCE OF PRODUCTION RECORDS, ITEMWISE PRODUCTION OF FINISHED GOODS BY C ONVERSION OF FLATS TO PATTA, PATTA TO CIRCLES AND CIRCLES TO BLACK UTENSILS AND BLACK UTENSILS TO FINISHED GOODS. THEREFORE, THE CIT (A) HAS OBSERVED THAT THE ORDER OF THE CIT (A) REFERRED TO BY THE ASSESSING OFFICER COULD NOT BE APPLIED TO THE C ASE OF THE ASSESSEE. 26. FURTHER, THE CIT (A) HAS EXAMINED THE APPENDIX- 41 OF THE NEW IMPORT- EXPORT POLICY AND HANDBOOK OF PROCEDURE, 1997-2000 ANNOUNCED BY THE GOVERNMENT OF INDIA AND THE NOTIFICATION ISSUED BY SUPERINTENDENT OF CENTRAL EXCISE, GOVERNMENT OF INDIA AND ALSO GONE THROUGH T HE CERTIFICATE ISSUED BY DELHI STAINLESS STEEL TRADE FEDERATION CERTIFICATED DATED 16 TH MARCH, 2002 WHEREIN IT HAS BEEN STATED THAT AVERAGE PERCENTAGE OF SCRAP GENERATION COMES TO ABOUT 30 TO 31% DEPENDING UPON THE QUALITY OF RA W MATERIAL USED AND THE SCRAP AND THE SHAPE AND TYPE OF UTENSILS MANUFACTUR ED. THE CIT (A) HAS OBSERVED THAT IT IS TRUE THAT APPENDIX-41 OF THE HA ND BOOK OF PROCEDURES, 1997- 2000 ANNOUNCED BY GOVERNMENT OF INDIA INDICATES THE SCRAP GENERATION BY 25% WHEN THE STEEL UTENSILS ARE MANUFACTURED FROM STAIN LESS STEEL SHEETS AND CIRCLES, BUT THE SAID PERCENTAGE CANNOT BE APPLIED IN THE CA SE OF ASSESSEE BECAUSE THE STEEL UTENSILS IN THE PRESENT CASE HAVE BEEN MANUFA CTURED FROM FLAT/PATTA WHERE THE GENERATION OF SCRAP IS MORE. THE CIT (A) FURTH ER OBSERVED THAT THOUGH THE ASSESSING OFFICER HAS MENTIONED REGARDING THE CASES OF EXPORTERS OF WAZIRPUR INDUSTRIAL AREA, BUT HE HAS NOT QUOTED A SINGLE INS TANCE AND, THUS, CONSIDERING THE CERTIFICATE ISSUED BY STAINLESS STEEL TRADE FED ERATION FROM WAZIRPUR INDUSTRIAL AREA, LD. CIT (A) HAS ALLOWED THE GENERA TION OF SCRAP TO THE EXTENT OF 30% AND HE DIRECTED THE ASSESSING OFFICER TO GIVE THE PROPER RELIEF TO THE ASSESSEE BY TAKING THE SALE PRICE AT RS.91.58 PER K G., AND THE GROUNDS OF APPEAL WAS PARTLY ALLOWED BY THE CIT (A). THE ASSESSEE IN ITS APPEAL IS AGGRIEVED BY THE SUSTAINED PART OF THE ADDITION AND REVENUE IN I TS APPEAL IS AGGRIEVED BY THE DELETED PORTION OF ADDITION. ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 15 27. IT WAS SUBMITTED BY LD. AR THAT THE ASSESSING O FFICER HAS ERRED IN APPLYING 25% RATE OF GENERATION OF SCRAP. IT WAS C ONTENDED THAT WHILE DOING SO, THE LD. ASSESSING OFFICER HAS RELIED UPON APPENDIX- 41. THE RELIANCE PLACED BY ASSESSING OFFICER ON APPENDIX-41 IS WRONG AS THE IT EM AGAINST WHICH THE NORMS OF 25% GENERATION OF SCRAP IS DESCRIBED IS AN ITEM RELATING TO STAINLESS STEEL UTENSILS MADE FROM STAINLESS STEEL SHEETS AND CIRCL ES. IT WAS CONTENDED THAT AS AGAINST THAT AS MENTIONED IN ITEM NO.76 IF THE STAI NLESS STEEL UTENSILS ARE MADE OUT OF STAINLESS STEEL COIL, THEN, THE PERCENTAGE O F WASTAGE ATTRIBUTABLE TO GENERATION OF SCRAP WILL BE 39%. IT WAS SUBMITTED THAT TO SUPPORT SUCH CONTENTION THE FULL COPY OF APPENDIX-41 HAS BEEN PLACED AT PAG ES 5 TO 9 OF THE PAPER BOOK TO WHICH THE REFERENCE CAN BE MADE. IT WAS SUBMITT ED THAT ENTIRE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ALONG WITH DETAI LS OF STOCKS AND SALES AND PURCHASE WERE SUBMITTED TO THE ASSESSING OFFICER. THE ACCOUNT BOOKS OF THE ASSESSEE ARE AUDITED. NO DEFECT WHATSOEVER HAS BEE N POINTED OUT BY THE ASSESSING OFFICER EITHER IN SALE OR PURCHASES OR IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT. UNLESS ANY SUCH DEFECT IS FOUND, ADDIT ION CANNOT BE MADE SIMPLY ON THE BASIS OF PRESUMPTIONS THAT THE PERCENTAGE OF WA STAGE IN ASSESSEES CASE WAS EXCESS. IT WAS SUBMITTED THAT THE DECISION OF CIT (A) RELIED UPON BY THE ASSESSING OFFICER HAS BEEN PROPERLY DISTINGUISHED B Y THE CIT (A) IN THE IMPUGNED ORDER AND IT WAS FOUND THAT IN THAT CASE T HE STAINLESS STEEL UTENSILS WERE MANUFACTURED FROM STAINLESS STEEL SHEETS AND C IRCLES. THUS, IT WAS PLEADED THAT THE DECISION OF CIT (A) RELIED UPON BY THE ASS ESSING OFFICER WAS DISTINGUISHABLE ON FACTS. 28. SO FAR AS IT RELATES TO CERTIFICATE ISSUED BY D ELHI STAINLESS STEEL TRADE FEDERATION DATED 16 TH MARCH, 2002, IT WAS SUBMITTED THAT THE SAID CERTIF ICATE WAS NEVER CONFRONTED TO THE ASSESSEE AND AS AGAINST THA T THE ASSESSEE IS SUBMITTING THE CERTIFICATE ISSUED BY THE SAME FEDERATION WHICH IS PLACED AT PAGE 11 OF THE PAPER BOOK AND WHICH WAS SUBMITTED BEFORE THE CIT ( A) IN THE APPELLATE PROCEEDINGS FOR ASSESSMENT YEAR 2003-04 WHICH IS SO UGHT TO BE ADMITTED AS ADDITIONAL EVIDENCE. THUS, IT WAS SUBMITTED THAT I F THE STAINLESS STEEL UTENSILS ARE ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 16 PREPARED FROM STAINLESS STEEL PATTI AND COIL, ETC., THE PERCENTAGE OF SCRAP GENERATION COULD BE VARIED BETWEEN 34% TO 43%. IT WAS CONTENDED THAT THOUGH THE LD. CIT (A) HAS DISTINGUISHED THE CASE DECIDED BY HIS PREDECESSOR, BUT HE HAS NOT GIVEN ANY REASON FOR REDUCING THE DISALLOWA NCE ONLY TO THE EXTENT GENERATION OF SCRAP OF 30%. IT WAS SUBMITTED THAT ACCORDING TO APPENDIX-41, THE GENERATION OF SCRAP WAS PERMISSIBLE UPTO 39% AND NO REASON WHATSOEVER HAS BEEN STATED BY THE CIT (A) FOR NOT ACCEPTING THE NO RMS PROVIDED IN APPENDIX-41 DESPITE THE FINDING GIVEN BY HIM THAT THE STAINLESS STEEL UTENSILS WERE PRODUCED BY THE ASSESSEE NOT FROM STAINLESS STEEL SHEETS AND CIRCLES FOR WHICH THE PRESCRIBED NORMS WERE ONLY OF GENERATION OF SCRAP T O THE EXTENT OF 25%. IT WAS SUBMITTED THAT LD. CIT (A) HAS ALSO ACCEPTED THAT T HE ASSESSEE HAS BEEN MAINTAINING PROPER RECORDS WITH RESPECT TO ITS MANU FACTURING ACTIVITIES AND NO DEFECT WHATSOEVER HAS BEEN POINTED OUT BY THE ASSES SING OFFICER TO SHOW THAT THERE WAS ANY DISCREPANCY IN THOSE RECORDS. THUS, IT WAS PLEADED THAT SO AS IT RELATES TO ADDITION SUSTAINED BY THE CIT (A) ON ACC OUNT OF EXCESS GENERATION OF SCRAP AND RESULTANT SALES MADE OUTSIDE THE BOOKS OF ACCOUNT SHOULD BE DELETED. IT WAS PLEADED THAT IN THE ABSENCE OF ANY EVIDENCE EXISTING ON RECORD TO PROVE THAT ANY OUTSIDE SALE WAS MADE BY THE ASSESSEE, SUC H ADDITION WILL BE BASED ONLY ON THE BASIS OF PRESUMPTION AND SURMISES. 29. SO AS IT RELATES TO DEPARTMENTAL APPEAL IN WHIC H THE DELETION OF ADDITION TO THE EXTENT OF GENERATION OF SCRAP FROM 25% TO 30% H AS BEEN AGITATED, IT WAS SUBMITTED BY LD. AR THAT THIS GROUND OF THE DEPARTM ENT DESERVES TO BE DISMISSED FOR THE SIMPLE REASON THAT THE BASIS ADOP TED BY THE ASSESSING OFFICER FOR MAKING THE ADDITIONS WERE NOT CORRECT AS THE DE CISION RELIED UPON BY HIM OF THE CIT (A) WAS DISTINGUISHABLE ON FACTS. SIMILARL Y, RELIANCE OF ASSESSING OFFICER ON APPENDIX-41 HAS ALSO BEEN WRONGLY PLACED AS THE STAINLESS STEEL UTENSILS WERE NEVER PRODUCED BY THE ASSESSEE FROM STAINLESS STEEL SHEETS AND CIRCLES FOR WHICH 25% NORM WAS APPLICABLE. THUS, IT WAS PLEADE D THAT DEPARTMENTAL GROUND ON THIS ACCOUNT DESERVES TO BE DISMISSED AND THE GR OUND TAKEN BY THE ASSESSEE SHOULD BE ACCEPTED. ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 17 30. ON THE OTHER HAND, RELYING ON THE ORDER OF THE ASSESSING OFFICER IT WAS PLEADED BY LD. DR THAT THE GENERATION OF SCRAP COUL D BE ONLY TO THE EXTENT OF 25% AND CIT (A) HAS NO BASIS TO CONSIDER THAT GENER ATION OF SCRAP COULD BE TO THE EXTENT OF 30%. IT WAS SUBMITTED THAT THE CIT ( A) WITHOUT RELYING ON ANY EVIDENCE HAD REDUCED THE ADDITION MADE BY THE ASSES SING OFFICER. THEREFORE, THE ORDER OF THE CIT (A) ON THIS GROUND SHOULD BE R EVERSED AND ADDITION MADE BY THE ASSESSING OFFICER SHOULD BE UPHELD. IT WAS PLE ADED THAT IN ANY CASE NO FURTHER RELIEF SHOULD BE GIVEN TO THE ASSESSEE AS L D. CIT (A) AFTER CONSIDERING THE FACTS HAS HELD THAT GENERATION OF SCRAP TO THE EXTE NT OF 30% IS REASONABLE. HE SUBMITTED THAT THIS ARGUMENT OF THE REVENUE SHOULD BE RECORDED WITHOUT PREJUDICE TO ITS RIGHT TO CONTEND THAT ADDITION TO THIS EXTEN T WAS WRONGLY DELETED BY THE CIT (A). 31. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE ASSESSING OFFICER CONSIDERED THE GENERATION OF SCRAP WITH A VIEW POINT OF ENTRY IN APPENDIX 41 (I TEM NO.1) WHICH STATES THE GENERATION OF SCRAP WHEN THE STAINLESS STEEL UTENSI LS ARE MANUFACTURED FROM STAINLESS STEEL SHEETS AND CIRCLES. HE ALSO RELIED UPON ONE ORDER OF THE CIT (A) IN WHICH SUCH GENERATION OF SCRAP @ 25% WAS FOUND TO B E IN ORDER. AGAINST THESE FINDINGS OF THE ASSESSING OFFICER, THE LD. CIT (A) HAS GIVEN THE CATEGORICAL FINDINGS THAT THE STAINLESS STEEL UTENSILS ARE MAN UFACTURED BY THE ASSESSEE FROM FLAT/PATTI WHERE GENERATION OF SCRAP IS MORE. THES E FINDINGS OF THE CIT (A) ARE RECORDED IN PARA 7.5 OF THE IMPUGNED ORDER. LD. CIT (A) REFERRED IN PARA 7.4 THAT THE DECISION OF CIT (A) [PREDECESSOR OF CIT (A)] AL SO WAS IN RESPECT OF A CASE WHERE STAINLESS STEEL UTENSILS MANUFACTURE BY THE A SSESSEE FROM COILS IN WHICH THE RATE OF GENERATION OF SCRAP WAS LOW. THEREFORE , THE CIT (A) HAS OBSERVED THAT THE SAID CASE WAS NOT APPLICABLE. LD. CIT (A) HAS ALSO OBSERVED THAT EVEN THOUGH THE ASSESSING OFFICER HAS MENTIONED THAT IN MOST OF THE EXPORTERS CASES IN WAZIRPUR INDUSTRIAL AREA, THE SCRAP PERCENTAGE H AS BEEN SHOWN AT 25%, BUT NO SINGLE INSTANCE AS BEEN QUOTED OR SUBSTANTIATED BY THE ASSESSING OFFICER IN ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 18 HIS FINDINGS RECORDED IN THE ASSESSMENT ORDER. HOW EVER, THE CIT (A) RELYING ON THE CERTIFICATE OF STAINLESS STEEL TRADE FEDERATION OF WAZIRPUR INDUSTRIAL AREA, HAS APPLIED THE RATE OF 30% BY GIVING THE PART RELI EF TO THE ASSESSEE. HERE, IT WILL ALSO BE IMPORTANT TO NOTE THAT THE APPENDIX-1, THE RELIANCE OF WHICH HAS BEEN PLACED BY THE ASSESSING OFFICER IN ITEM NO.1 ITSELF , STATE IN ITEM NO.76 THAT IF STAINLESS STEEL UTENSILS ARE MADE FROM STAINLESS ST EEL COIL, THE GENERATION OF SCRAP WILL BE AROUND 39%. A FULL COPY OF APPENDIX- 41 HAS BEEN PLACED ON RECORD BY THE LD. AR OF THE ASSESSEE. APPENDIX-41 IS NORMS OF SCRAP/WASTE MATERIAL FOR AN EXPORT PROJECT UNDER EXPORT-ORIENTE D UNITS AND UNITS IN EXPORT PROCESSING ZONES. THEREFORE, THE AUTHENTICITY OF THE SAID APPENDIX CANNOT BE DENIED. IT DESCRIBES PERCENTAGE OF SCRAP /WASTE MATERIAL FOR MANUFACTURE OF VARIOUS ITEMS WHICH ARE INTENDED TO BE EXPORTED. THE CERTIFICATE WHICH WAS RELIED UPON BY THE CIT (A), ACCORDING TO THE ASSESSEE WAS NOT CONFRONTED. AS AGAINST THAT A CERTIFICATE DATED 7 TH DECEMBER, 2006 IN RESPECT OF ANOTHER YEAR WAS SUBMITTED BY THE ASSESSEE BEFORE T HE CIT (A) WHICH IS ALSO GIVEN BY THE SAME AUTHORITY I.E., DELHI STAINLESS S TEEL TRADE FEDERATION, WAZIRPUR INDUSTRIAL AREA, IN WHICH THE PERCENTAGE O F SCRAP BY FINANCIAL YEAR 2001-02 HAS BEEN DESCRIBED AT DIFFERENT RATES. THE COPY OF THE CERTIFICATE IS REPRODUCED IN PARA 14 OF THIS ORDER AND WHERE THE P ERCENTAGE OF WASTAGE IF THE UTENSILS ARE PRODUCED FROM S.S. PATTI, FLAT, COIL, VARIES BETWEEN 34 TO 37%. THE CERTIFICATE ISSUED BY DELHI STAINLESS STEEL TRADE F EDERATION MAY NOT BE CONSIDERED RELIABLE EVIDENCE WHEN COMPARED WITH THE APPENDIX-41 WHICH PRESCRIBE THE NORMS OF SCRAP IN RESPECT OF VARIOUS ITEMS. IF THE GENERATION OF SCRAP IS VIEWED FROM THE ANGLE OF APPENDIX-41, WHIC H IS AN EVIDENCE RELIED UPON BY THE ASSESSING OFFICER TO HOLD THAT GENERATION OF SCRAP WAS 25%, IT COULD BE SEEN THAT IF THE STAINLESS STEEL UTENSILS ARE MANUF ACTURED FROM STAINLESS STEEL COIL, THEN GENERATION OF SCRAP WILL BE 39%. THE RELIANCE BY ASSESSING OFFICER ON ITEM NO.1 HAS ALREADY BEEN HELD BY THE LD. CIT (A) TO BE INCORRECT AS THE SAME DESCRIBED THE NORMS OF MANUFACTURING OF STAINLESS S TEEL UTENSILS FROM STAINLESS STEEL SHEETS AND CIRCLES WHICH IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IT HAS ALSO BEEN POINTED OUT THAT IT HAS BEE N HELD BY THE CIT (A) THAT NO ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 19 COMPARABLE CASE HAS BEEN BROUGHT BY THE ASSESSING O FFICER ON RECORD TO SHOW THAT IN ANY OF THE COMPARABLE CASE, THE WASTAGE /S CRAP WAS TO THE EXTENT OF 25% AND THE SINGLE CASE WHICH WAS QUOTED BY THE ASSESS ING OFFICER WAS DISTINGUISHED BY THE CIT (A). THEREFORE, IN VIEW O F OUR FINDING THAT IN THE ASSESSEES CASE THE STAINLESS STEEL UTENSILS PRODUC ED FROM SHEETS AND CIRCLES, ITEM NO.1 IN APPENDIX-41 SHALL HAVE NO APPLICATION AND AS AGAINST THAT ITEM NO.76 WILL BE APPLICABLE WHERE WASTAGE/SCRAP NORMS ARE PRESCRIBED IN RESPECT OF STAINLESS STEEL UTENSILS MANUFACTURED FROM STAINLES S STEEL COIL. IN THE CASE OF THE ASSESSEE SCRAP IS GENERATED @ 40% AS AGAINST SCRAP GENERATED IN IMMEDIATE PRECEDING YEAR @ 41.42%. AS NO INSTANCE OF SALE OR PURCHASE, ETC. OUT OF BOOKS HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER , LD. CIT (A) WAS WRONG IN SUSTAINING THE PART ADDITION BY APPLYING THE RATE O F GENERATION OF SCRAP @ 30% FOR WHICH THERE WAS NO AUTHENTIC EVIDENCE ON RECORD. A S THERE IS NO DEFECT WHATSOEVER FOUND IN THE SALE AND PURCHASE OF UTENSI LS AND RATE OF GENERATION OF SCRAP IS COMPARABLE WITH THE IMMEDIATE PRECEDING YE AR AND THE GENERATION OF SCRAP IS IN THE NEAR VICINITY OF NORMS PRESCRIBED I N APPENDIX-41, WE FIND NO MERIT IN THE SUSTENANCE OF PART ADDITION WHICH IS DELETED . 32. KEEPING IN VIEW THE ABOVE DISCUSSION, WE ARE OF THE OPINION THAT NO ADDITION COULD HAVE BEEN MADE IN RESPECT OF GENERAT ION OF EXCESS SCRAP. THEREFORE, GROUND RAISED BY THE REVENUE IS DISMISSE D AND GROUND RAISED BY THE ASSESSEE IS ALLOWED. 33. GROUND NO.3 OF ASSESSEES APPEAL AND GROUND NO. 1 OF DEPARTMENTAL APPEAL RAISE COMMON ISSUE I.E., DISALLOWANCE MADE O N ACCOUNT OF POLISHING EXPENSES. THIS ISSUE HAS BEEN DISCUSSED BY THE ASS ESSING OFFICER IN PARA 5. IT WAS NOTED THAT POLISHING EXPENSES WERE CLAIMED TO T HE EXTENT OF RS.87,69,077/- AND THE PARTYWISE DETAILS WAS AS UNDER:- S.NO. NAME OF THE PARTY AMOUNT (RS.) REMARKS 1. HAIDER POLISHER 659,207 2. SUDHIR POLISHWALA 687,242 ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 20 3. JAVED POLISHER 756,710 4. AHMED BRIGHT POLISHER 769,646 5. SARIF POLISHER 667,446 6. BHARDWAJ STEEL POLISH WORK 13,55,579 7. HUSSAIN POLISHER 590,462 8. RAJA RAM POLISHING WORK 602,875 9. AMIN POLISHER 10,63,221 10. SANJAY POLISHER 719,974 11. BRIGHT POLISHER 820,566 12. NANAK STEEL JOB WORK 66,670 CONFIRMATION RECEIVED. TOTAL 87,69,077 34. TO VERIFY THE GENUINENESS OF THESE EXPENSES, TH E ASSESSING OFFICER ISSUED NOTICES U/S 133(6) TO 8 PARTIES AND INSPECTO R WAS ALSO ASKED TO CONDUCT INQUIRY IN FOUR CASES. OUT OF TOTAL 12 CASES THE R EPLY/CONFIRMATION WAS RECEIVED IN ONLY ONE CASE AND BALANCE NOTICES WERE RECEIVED BAC K WITH VARIOUS REMARKS SUCH AS NO SUCH PERSON/FIRM AT THIS ADDRESS; NO SUCH NUMBER IN THIS COLONY, NO SUCH BLOCK IN THIS COLONY AND INCOMPLETE ADDRESS , ETC. THE INSPECTOR ALSO REPORTED THE SIMILAR THING IN THE FOUR CASES WHICH INCLUDED THE REMARK THAT PREMISES WAS LOCKED FOR THE LAST 10 YEARS AND THE A SSESSEE DOES NOT EXIST AT THE GIVEN ADDRESS. IN THIS VIEW OF THE SITUATION, THE ASSESSING OFFICER VIDE LETTER DATED 17 TH FEBRUARY, 2005 ASKED THE ASSESSEE TO EXPLAIN AS TH E NOTICES WERE RECEIVED BACK AND THE RESULT OF INQUIRY MADE BY THE INSPECTOR WAS ALSO INTIMATED TO THE ASSESSEE. THOSE PARTIES WERE REQUIRED TO BE PRODUCED ALONG WITH THEIR BOOKS OF ACCOUNT FOR THE RELEVANT ASSESSMENT YEAR A ND THE ASSESSEE WAS ALSO REQUIRED TO GIVE THEIR INCOME-TAX PARTICULARS, ETC. VIDE LETTER DATED 23 RD MARCH, 2005 IT WAS REPLIED THAT THE ASSESSEE AFTER MAKING EFFORTS HAS LOCATED ALL THE POLISHERS. IT WAS SUBMITTED THAT THOSE PARTIES HAD CHANGED THEIR ADDRESSES DUE TO GOVERNMENT RESTRICTIONS BECAUSE OF THEIR UNAUTH ORIZED USE OF PREMISES. IT WAS SUBMITTED THAT RESIDENTIAL ADDRESS OF THOSE PAR TIES ARE LOCATED. THE ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 21 ASSESSEE HAS DEDUCTED TDS @ 2% ON THE PAYMENTS MADE TO THEM ON ACCOUNT OF POLISHING AND THE TAX HAS ALSO BEEN DEPOSITED IN TIME. THE POLISHWALAS WERE ILLITERATE PERSONS, THEREFORE, THEY DID NOT FILE TH E RETURNS. THEIR RETURNS FOR ASSESSMENT YEAR 2003-04 NOW HAVE BEEN FILED AND COP IES OF THESE RETURNS ARE FILED. COPIES OF TDS CHALLANS, ETC. WERE ALSO FILE D. CONSIDERING ALL THESE EVIDENCES, LD. ASSESSING OFFICER HAS OBSERVED THAT THE REPLY GIVEN BY THE ASSESSEE IS NOT FOUND SATISFACTORY. ACCORDING TO T HE ASSESSING OFFICER, IT WAS NECESSARY TO PROVE THAT SERVICES WERE ACTUALLY REND ERED BY THE PERSONS TO WHOM THE PAYMENTS HAVE BEEN MADE BY THE ASSESSEE AND ASS ESSEE HAS REMAINED UNABLE TO PROVE THEIR IDENTITY AND ALSO THE GENUINE NESS OF THE TRANSACTIONS. SO FAR AS IT RELATES TO CONTENTION OF THE ASSESSEE THA T TDS WAS DEPOSITED LD. ASSESSING OFFICER OBSERVED THAT ASSESSEE DID NOT PR OVE THAT THESE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS. THE ASS ESSING OFFICER FURTHER OBSERVED THAT THE RETURNS OF THOSE PARTIES ARE FILE D BY THE ASSESSEE ONLY ON 24 TH MARCH, 2005. THE ASSESSEE WAS REQUIRED TO PRODUCE THESE PEOPLE FOR VERIFICATION WHEN THEY WERE NOT PRODUCED. SIMPLY F ILING THE RETURN OF INCOME DOES NOT PROVE THE IDENTITY OF THESE PERSONS BECAUSE RET URNS OF THESE PARTIES WERE FILED ONLY ON THE LAST DATE OF HEARING I.E., 24 TH MARCH, 2005. IT IS IN THIS MANNER THE ASSESSING OFFICER MADE THE DISALLOWANCE OF POLI SH EXPENSES IN ITS ENTIRETY AS A SUM OF RS.87,02,407/-. THE ADDITION WAS CHALLENG ED BEFORE THE CIT (A) AND THIS ISSUE HAS BEEN DISCUSSED BY THE CIT (A) IN THE IMPUGNED ORDER IN PARA 5 TO 5.10. BEFORE THE CIT (A) IT WAS SUBMITTED THAT THE ASSESSEE IS MAINTAINING A COMPLETE RECORD CONSISTING OF PRODUCTION/STOCK REGI STER WHICH CONTAINS THE FOLLOWING QUANTITY DETAILS AND INFORMATION: (A) PURCHASE OF RAW MATERIAL (B) RAW MATERIAL ISSUED FROM STORES FOR MANUFACTURI NG (C) QUANTITY OF BLACK UTENSILS MANUFACTURED (D) QUANTITY OF SCRAP GENERATED ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 22 (E) BLACK UTENSILS ISSUED TO CONTRACTOR FOR POLISHI NG QUANTITY WISE AND DATE WISE WITH DISPATCH CHALLAN PLACED AT PAGE 164-486 O F PAPER BOOK C VOLUME I. (F) POLISHED UTENSILS RECEIVED FROM CONTRACTOR GIVI NG COMPLETE DETAIL OF QUANTITY POLISHED AND HIS LABOUR CHARGES. (G) TDS @ 2.1% IS DEDUCTED FROM EACH PAYMNT TO CONT RACTOR WHICH IS DEPOSITED IN TIME AND ANNUAL RETURN FOR TDS IS FILE D IN WHICH COMPLETE PARTICULARS OF CONTRACTORS AND PAYMENTS MADE TO THE M ALONG WITH TDS AMOUNTS ARE AVAILABLE, COPIES OF WHICH ARE GIVEN IN PAPER BOOK AT PAGE NO.591-618 OF PAPER BOOK C VOLUME III & IV. 35. IT WAS SUBMITTED THAT THE STOCK RECORD CLEARLY INDICATES THE COMPLETE DETAILS OF QUANTITY ISSUED AS BLACK UTENSIL AND POL ISHED UTENSILS RECEIVED BACK AFTER POLISHING. THE NAMES AND ADDRESS OF THE CONT RACTORS ARE MENTIONED IN THE CHALLANS ISSUED AT THE TIME OF ISSUING THE BLACK UT ENSILS FOR POLISHING. THE BILLS TOWARDS POLISHING CHARGES RAISED BY EACH CONTRACTOR ARE RECEIVED AGAINST WHICH THE PAYMENT ARE MADE BY ACCOUNT PAYEE CHEQUES ISSUE D IN FAVOUR OF THE CONTRACTORS WHICH HAS BEEN CERTIFIED BY BANKS. IT WAS FURTHER SUBMITTED THAT THE EXPENSES ARE DULY SUPPORTED BY THE CHALLAN PREPARED FOR GOODS SENT TO CONTRACTORS WHICH ALSO CONTAIN THE NAMES AND ADDRES SES OF THE CONTRACTORS ALONG WITH QUANTITIES SENT. BILLS ARE RECEIVED FROM CONT RACTORS FOR THEIR CHARGES TOWARDS POLISHING WHICH CONTAINS THE NAMES AND ADDRESS OF T HE CONTRACTORS ALONG WITH QUANTITY OF GOODS POLISHED. THE PROOF OF PAYMENT M ADE TOWARDS POLISHING CHARGES TROUGH ACCOUNT PAYEE CHEQUE ISSUED IN FAVOU R OF CONTRACTORS WHICH ARE VERIFIABLE FROM THE CERTIFICATE ISSUED BY THE PARTN ERS OF THE ASSESSEE. THE POLISHER HAVE FILED THEIR INCOME TAX RETURNS AND THEIR PERMA NENT ACCOUNT NUMBERS ARE SUBMITTED. IT WAS SUBMITTED THAT AS AGAINST ALL TH ESE EVIDENCES NO MATERIAL WHATSOEVER HAS BEEN BROUGHT ON RECORD BY THE ASSESS ING OFFICER TO SHOW THE FOLLOWING:- (A) THAT THE BLACK UTENSILS ARE NOT PRODUCED. ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 23 (B) THAT THE POLISHING PROCESS WAS NOT REQUIRED ON THE BLACK UTENSILS BEFORE EXPORTING. (C) THAT THE BLACK UTENSILS WERE NOT SENT TO CONTRA CTORS FOR POLISHING OR (D) THAT THE POLISHING WAS NOT DONE (E) THAT THE APPELLANT EXPORTED UNPOLISHED UTENSILS . (F) THAT THE APPELLANT HAS HIS OWN INSIDE ARRANGEME NT FOR POLISHING. (G) THAT THE POLISHED UTENSILS RECEIVED BACK SUPPOR TED THROUGH CHALLANS AND DULY ENTERED IN DAY-TO-DAY STOCK REGISTER ARE F ALSE OR NOT RECEIVED BACK. (H) THAT THE PAYMENTS FOR POLISHING CHARGES EITHER NOT MADE OR NOT MADE THROUGH PROPER BANKING CHANNELS. (I) THAT THE TDS REQUIRED NOT DEDUCTED OR DEPOSITED OR NOT PROPERLY REFLECTED IN TDS RETURN FILED BY THE APPELLANT FIRM . (J) THAT THE IDENTITY OF CONTRACTORS I.E., NAMES AN D ADDRESSES OF CONTRACTORS WERE NOT DISCLOSED AND GENUINE. (K) THAT THE ACCOUNTS ARE NOT AUDITED U/S 44AB OR T HERE IS ANY ADVERSE COMMENT IN THE AUDIT REPORT. (L) THE APPELLANT HAS ANY OTHER ARRANGEMENT OF POLI SHING OR HAS CLAIMED ANY OTHER EXPENSES ON THIS ACCOUNT. (M) THAT APPELLANT HAS NOT EXPORTED POLISHED AND FI NISHED UTENSILS. (N) THE APPELLANT HAS CLAIMED ANY EXPENDITURE ON AC COUNT OF CONSUMABLE STORE REQUIRED TO DO POLISHING OF BLACK UTENSILS. 36. IN THE ALTERNATIVE IT WAS SUBMITTED THAT THE AS SESSING OFFICER WAS WRONG IN MAKING DISALLOWANCE OF EXPENSES IN THEIR ENTIRETY A ND TO SUPPORT SUCH CONTENTION IT WAS SUBMITTED THAT DURING THE YEAR UNDER CONSIDE RATION EXPENSES ON THIS ACCOUNT ARE INCURRED ONLY TO THE EXTENT @ 8.90% OF THE TOTAL VALUE OF EXPORT IN COMPARISON TO 9.64% IN THE IMMEDIATE PRECEDING YEAR . 37. LD. CIT (A) AFTER CONSIDERING ALL THESE SUBMISS IONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE COULD NOT SUPPORT THE EX PENSES INCURRED BY IT AS THE ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 24 PARTIES TO WHOM THE NOTICES WERE SENT HAD NEVER RES PONDED TO THOSE NOTICES. THE REPORT OF INSPECTOR ALSO REVEALED THAT THE CONT RACTORS AT THE GIVEN ADDRESS WERE NOT EXISTING AND THE PREMISES WERE LOCKED FOR THE LAST 10 YEARS. CONSIDERING ALL THESE SUBMISSIONS AND FACTS, LD. CI T (A) OBSERVED THAT ENTIRE CLAIM OF THE ASSESSEE COULD NOT BE DISALLOWED AS AS SESSEE THOUGH COULD NOT SUPPORT THE EXPENSES, BUT HAS INCURRED THE EXPENDIT URE AS THE POLISHING JOB WAS A PART AND PARCEL OF THE MANUFACTURING OPERATION OF STEEL UTENSILS UNDERTAKEN BY THE ASSESSEE. LD. CIT (A) OBSERVED THAT ENTIRE CLA IM OF THE ASSESSEE COULD NOT BE BRUSHED ASIDE OR DISBELIEVED. THEREFORE, THE CI T (A) OBSERVED THAT TO MEET THE END OF JUSTICE THE DISALLOWANCE IS RESTRICTED T O 15% OF THE CLAIM OF EXPENSES WHICH WAS CALCULATED AT RS.13,15,362/- AND RELIEF O F RS.73,87,045/- WAS GIVEN TO THE ASSESSEE. THE DEPARTMENT IS AGGRIEVED ON THE D ELETED PORTION OF THE ADDITION AND ASSESSEE IS AGGRIEVED BY THE SUSTAINED PORTION OF THE ADDITION. 38. LD. AR PLEADED THAT THE PRODUCTION RECORD MAINT AINED BY THE ASSESSEE IS DULY SUPPORTED THE EXPENSES INCURRED BY IT. THE EX PENSES WERE PAID THROUGH ACCOUNT PAYEE CHEQUES ON WHICH TDS WAS DULY DEDUCTE D. THE CONTRACTORS HAD ALSO FILED THEIR RETURNS OF INCOME. THE POLISHING JOB WAS INTEGRAL PART OF THE MANUFACTURING PROCESS, THE EXISTENCE OF WHICH WAS N OT EVEN DENIED BY THE CIT (A). THUS, IT WAS PLEADED THAT KEEPING IN VIEW THE ENTIRETY OF THE SUBMISSIONS MADE BEFORE ASSESSING OFFICER AND CIT (A), THE DISA LLOWANCE SUSTAINED BY CIT (A) WAS WRONG AND, THEREFORE, THE SUSTAINED ADDITIO N SHOULD BE DELETED. 39. ON THE OTHER HAND, LD. DR PLEADED THAT THE ASSE SSEE COULD NOT SUPPORT ANY OF THE EXPENDITURE INCURRED ON ACCOUNT OF POLIS HING. IT WAS SUBMITTED THAT THE ASSESSING OFFICER MADE INQUIRES BY SENDING LETTERS U/S 133 (6) AND ALSO BY DEPUTING THE INSPECTOR. THE ASSESSEE COULD NOT SUP PORT ANY OF THE EXPENDITURE AND, THEREFORE, THE ADDITION WAS RIGHTLY MADE BY TH E ASSESSING OFFICER. IT WAS SUBMITTED THAT THE CIT (A) HAS ALLOWED THE RELIEF T O THE ASSESSEE ON THE BASIS OF PRESUMPTIONS AND, THEREFORE, THE DELETION MADE BY T HE CIT (A) SHOULD BE SET ASIDE AND ADDITION MADE BY THE ASSESSING OFFICER SH OULD UPHELD. ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 25 40. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. POLISHING EXPENSES HAVE BEEN CLAIMED BY THE ASSESSEE TO THE EXTENT OF RS.87,69,077/- WHICH ARE CLAIMED TO BE PAID TO 12 PARTIES AS DETAILED IN PARA 33 OF THIS ORDER. THE LETTERS ADDRESSED BY THE ASSESSING OFFICER TO THOSE PARTIES WERE RECEIVED BA CK AND SIMILAR WAS THE FATE OF INSPECTORS REPORT. HOWEVER, AS NOTED IN PARA 34 O F THIS ORDER THAT VIDE LETTER DATED 23 RD MARCH, 2005 IT WAS SUBMITTED BY THE ASSESSEE THAT AFTER MAKING EFFORTS, THE ASSESSEE HAS LOCATED ALL THE POLISHERS . IT WAS ALSO SUBMITTED THAT THOSE PARTIES HAD CHANGED THEIR ADDRESS DUE TO GOVE RNMENT RESTRICTIONS BECAUSE OF THEIR UNAUTHORIZED USE OF PREMISES. IT WAS ALSO SUBMITTED THAT TDS WAS DEDUCTED @ 21% AND IT WAS ALSO DEPOSITED IN TIME. THEREFORE, IT IS UNDISPUTED THAT FROM ALL THESE PARTIES, TDS WAS DEDUCTED AT SO URCE BY THE ASSESSEE AND TAX WAS ALSO DEPOSITED IN TIME. IT HAS BEEN STATED IN THE LETTER FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT AFTER HARD EFFORT S THE ASSESSEE HAS BEEN ABLE TO LOCATE ALL THE POLISHERS AND IT IS ALSO STATED THAT AS THE POLISHWALLAS WAS ILLITERATE PERSONS, THEY DID NOT FILE THE RETURNS. NOW, ALL OF THEM HAVE FILED THE RETURNS FOR ASSESSMENT YEAR 2003-04 AND COPIES OF THOSE RETURNS WERE ALSO FURNISHED ALONG WITH PHOTO COPIES OF TDS FOR ASSESSMENT YEAR 2002-0 3. IN THIS MANNER, THE SUBMISSIONS WAS MADE BY THE ASSESSEE BEFORE THE ASS ESSING OFFICER HIMSELF THAT ALL THE POLISHWALLAS WERE LOCATED AND THEIR RE TURNS FOR SUBSEQUENT ASSESSMENT YEAR WERE FILED. THE ASSESSING OFFICER HAS REJECTED SUCH REPLY OF THE ASSESSEE ONLY ON THE GROUND BEING UNSATISFACTOR Y. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE COULD NOT PROVE THA T THE SERVICES WERE ACTUALLY RENDERED. IT IS NOT STATED BY THE ASSESSING OFFICE R THAT HOW THE IDENTITY OF THESE PERSONS WAS UNPROVED PARTICULARLY WHEN IT WAS STATE D BEFORE HIM THAT THEIR RETURNS FOR ASSESSMENT YEAR 2003-04 HAVE BEEN FILE D BEFORE THE DEPARTMENT. THIS FACT IS ALSO NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT ASSESSEE HAS FILED COPIES OF RETURNS OF INCOME OF T HESE PERSONS FOR ASSESSMENT YEAR 2003-04 WHICH ARE STATED TO BE FILED ON 24 TH OCTOBER, 2005 ITSELF. THUS, THE ADDRESS OF THESE PERSONS WERE AVAILABLE TO ASSESSIN G OFFICER AND ASSESSEE ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 26 COULD NOT BE FAULTED FOR NON-PRODUCTION OF THESE PE RSONS. WE HAVE ALSO NOTED FROM ORDER OF THE CIT (A) THAT IT HAS BEEN THE SUBM ISSION OF THE ASSESSEE THAT IN EARLIER YEARS SIMILAR EXPENSES WERE CLAIMED @ 9.64% I.E., FOR ASSESSMENT YEAR 2001-02 AND IN THE YEAR UNDER CONSIDERATION SUCH EX PENDITURE ARE ONLY @ 8.90% THAT THERE IS SOME DECEASE IN SUCH EXPENDITURE. TH US, THE EXPENDITURE ARE ALSO COMPARABLE FOR THE YEAR UNDER CONSIDERATION. THE C IT (A) HAS UPHELD THE ABOVE ADDITION FOR THE REASON THAT MANY PARTIES WERE NOT AVAILABLE AT THE DECLARED ADDRESS. THEREFORE, WORKERS WERE NOT TRACEABLE. H OWEVER, ACCEPTING THE FACT THAT THIS TYPE OF EXPENDITURE WAS A NECESSARY EXPEN DITURE WHICH HAS TO BE INCURRED FOR THE PURPOSE OF BUSINESS, THE CIT (A) H AS SUSTAINED THE ADDITION TO THE EXTENT OF RS.13,15,362/-. IN OUR OPINION, SUCH SUSTENANCE OF PART ADDITION IS NOT JUSTIFIED ON THE FACTS OF THE RECORD. IT HAS A LREADY BEEN MENTIONED THAT ALL THE NEW ADDRESSES WERE SUBMITTED TO THE ASSESSING OFFIC ER IN THE FORM OF RETURN OF INCOME FILED FOR ASSESSMENT YEAR 2003-04. UNLESS A FINDING IS GIVEN THAT THOSE PERSONS WERE NOT STILL AVAILABLE ON THE ADDRESS GIV EN IN THE RETURN OF INCOME FOR ASSESSMENT YEAR 2003-04, IT CANNOT BE SAID THAT PAR TIES WERE UNIDENTIFIABLE OR NO WORK WAS DONE BY THEM. THEREFORE, WE DO NOT FIN D ANY SUBSTANCE IN SUSTENANCE OF PART ADDITION. IN THIS VIEW OF THE S ITUATION, AFTER HEARING BOTH THE PARTIES, WE DELETE THE DISALLOWANCE SUSTAINED BY TH E CIT (A). THEREFORE, GROUND NO.1 OF THE REVENUE IS DISMISSED AND GROUND NO.3 OF THE ASSESSEE IS ALLOWED. 41. APROPOS GROUND NO.2 OF DEPARTMENTAL APPEAL, THE ASSESSING OFFICER NOTICED THAT PACKING EXPENSES IN RESPECT OF THREE F OLLOWING PARTIES WERE CLAIMED BY THE ASSESSEE :- 1. GIRIRAJ PLASTICS PAYMENT OF RS.596,661 2. JSM PACK RS.757,072 3. KAPSON PACKING INDUSTRIES. RS.413,315 TOTAL RS.17,67,048/- 42. TO VERIFY THE GENUINENESS OF THESE EXPENSES, TH E ASSESSING OFFICER ISSUED NOTICES U/S 133(6) OF THE ACT. THOSE NOTICE S WERE RECEIVED BACK WITH THE ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 27 REMARKS NO SUCH FIRM AND INCOMPLETE ADDRESS. T HE ASSESSEE WAS REQUIRED TO EXPLAIN AND THE ASSESSEE WAS ALSO ASKED TO PRODUCE THE PARTIES ALONG WITH THEIR BOOKS OF ACCOUNT AND THEIR INCOME-TAX PARTICULARS S UCH AS PAN, PROOF OF FILING THE RETURN OF INCOME, ETC. TO GIVE THE DETAILS OF MODE OF PAYMENTS TO THOSE PARTIES, SUCH AS ACCOUNT PAYEE CHEQUES, BEARER CHEQUES, CASH OR DRAFT, ETC., AND TO PROVE THAT THESE PARTIES HAVE ACTUALLY RENDERED THE IR SERVICES FOR WHICH THE EXPENSES ARE CLAIMED. IN RESPONSE THE ASSESSEE FIL ED SALES-TAX PAPERS IN THE CASE OF GIRIRAJ PLASTICS. IN THE CASE OF JSM PACK, THE ASSESSEE PRODUCED ONE SHRI MANMOHAN KAPUR ON 18 TH MARCH, 2005 WHO SAID HE SUPPLIED THE MATERIAL TO THE ASSESSEE, BUT NO BILL/VOUCHER OF THE EXPENDITUR E AND PURCHASE AND SALE AND NO BOOKS OF ACCOUNT WERE PRODUCED. IN THE CASE OF KAPSON PACKING INDUSTRIES THE ASSESSEE FILED A COPY OF ACCOUNT UNDER THE SIGN ATURE OF ONE MR. SINGH WITHOUT ANY PAN. CONSIDERING ALL THESE EVIDENCES T HE ASSESSING OFFICER OBSERVED THAT THE EXPLANATION OF THE ASSESSEE IS NO T FOUND SATISFACTORY BECAUSE IDENTITY AND GENUINENESS OF THESE TRANSACTIONS HAVE NOT BEEN PROVED. IN THE CASE OF GIRIRAJ PLASTICS THE ASSESSEE GAVE ONLY AN EIGHT DIGIT TELEPHONE NUMBER AND ONE MOBILE NUMBER OF THE PARTIES, BUT THOSE NUM BERS WERE NOT EXISTING AS THE MESSAGE COMES ON PHONE WHEN THE NUMBERS WERE DI ALED. THE LD. AR OF THE ASSESSEE MR. GOYAL ALSO DIALED THOSE NUMBERS AND HE AGREED THAT THERE WAS NO RESPONSE. THE ASSESSEE DID NOT PROVIDE NEW ADDRESS OF THE PARTY. THE INSPECTOR WAS ALSO SENT AND AS PER HIS REPORT THE P ARTY DOES NOT EXIST AT THE NEW ADDRESS. IN THE CASE OF JSM PACK THE ASSESSEE PROD UCED ONE MR. KAPOOR WITHOUT ANY EVIDENCE. IN CASE OF KAPSON PACKING IN DUSTRIES, ONLY CONFIRMATION WAS FILED WITHOUT PAN AND NO PARTICULARS WAS FILED , SO THAT GENUINENESS OF THE TRANSACTION COULD BE VERIFIED. IT IS IN THIS MANNE R THE ASSESSING OFFICER HAS ADDED THE SAID AMOUNT OF RS.17,67,848/- TO THE INCO ME OF THE ASSESSEE. THE LD. CIT (A) HAS DISCUSSED THIS ISSUE AT PAGES 8-12 OF T HE IMPUGNED ORDER. BEFORE CIT (A) IT WAS SUBMITTED THAT FULL PAYMENT OF PACKI NG MATERIAL PROCURED FROM VARIOUS SUPPLIERS INTER ALIA CONTAINING THE FOLLOWI NG INFORMATION/PARTICULARS WAS SUBMITTED:- ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 28 (A) NAME & ADDRESS OF SUPPLIER (B) NATURE OF GOODS PURCHASED (C) INVOICE NO. (D) DATE OF INVOICE (E) INVOICE AMOUNT (F) AMOUNT PAID (G) MODE OF PAYMENT (H) THE NATURE OF PACKING MATERIAL PURCHASED, ITS Q UANTITY AND VALUE (I) PURCHASES ARE ON REGULAR BASIS AS STAND VERIFIE D FROM THEIR COPY OF ACCOUNT. (J) THEY ARE REGULAR SUPPLIERS AS PURCHASES HAVE BE EN MADE IN PRECEDING AND SUCCEEDING YEARS BOTH. 43. IT WAS SUBMITTED THAT THE DETAILS WILL SHOW THA T THERE IS A COMPLETE RECORD OF ALL PACKING MATERIAL PURCHASED AND ALL THE PURCH ASES MADE ARE GENUINE BUSINESS EXPENDITURE DULY SUPPORTED BY INVOICES AND ALL THESE PAYMENTS ARE MADE THROUGH ACCOUNT PAYEE CHEQUES. THE COPY OF OF FICIAL CERTIFICATES SHOWING ALL THE PAYMENTS MADE TO THEM THROUGH CHEQUES WERE ALSO SUBMITTED. IT WAS SUBMITTED THAT OUT OF THREE SUPPLIERS TWO SUPPLIERS APPEARED AND ONE COULD NOT APPEAR, BUT THE SAID PARTY IS REGULARLY ASSESSED TO INCOME-TAX. IT WAS SUBMITTED THAT TWO TYPES OF PACKING MATERIAL WAS PURCHASED; O NE IS POLYTHENE BAGS AND THE OTHER IS CORRUGATED BAGS. BOTH THESE PACKING MATERI AL ARE ESSENTIAL PART OF PACKING PARTICULARLY WHEN THE GOODS ARE EXPORTED OU T OF INDIA. THE CIT (A) AFTER CONSIDERING THESE SUBMISSIONS HAS OBSERVED THAT THE IDENTITY OF THE SUPPLIES STANDS ESTABLISHED IN TERMS OF BANK ACCOUNT OF THE SUPPLIERS SINCE THE PAYMENTS ARE MADE TO THEM BY PAYEES ACCOUNT CHEQUES. THE CH EQUES HAVE GONE TO THEIR BANK ACCOUNT. THE IDENTITY OF SUPPLIER IS EXPOSED TO THEIR BANKERS AND THE PERSONS WHO INTRODUCED THEIR ACCOUNTS. THEREFORE, T HE CIT (A) OBSERVED THAT PURCHASE CANNOT BE HELD TO BE BOGUS SIMPLY ON THE G ROUND THAT THEY DID NOT APPEAR BEFORE THE ASSESSING OFFICER. SO AS IT RELA TES TO GENUINENESS OF THE TRANSACTION, THE LD. CIT (A) OBSERVED THAT THE ASSE SSING OFFICER WAS WRONG IN ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 29 BRUSHING ASIDE ALL THE FACTS AVAILABLE ON RECORD AS THE UTENSIL COULD NOT BE EXPORTED WITHOUT PACKING. ALL THESE PARTIES HAD SU PPLIED THE PACKING MATERIAL TO THE ASSESSEE IN THE EARLIER YEARS ALSO AND THEY WER E PAID BY CHEQUES IN THE NORMAL COURSE OF BUSINESS. CIT (A) OBSERVED THAT S ALES-TAX PAPERS WERE ALSO FILED IN THE CASE OF M/S GIRIRAJ PLASTICS .ON BEHA LF OF M/S JSM PACK THE PERSON APPEARED AND CONFIRMED THE SUPPLY OF MATERIAL TO TH E ASSESSEE. CONFIRMATION WAS FILED IN RESPECT OF M/S KAPSON PACKING INDUSTRI ES. THE ASSESSING OFFICER WAS WRONG IN CONSIDERING THE EVIDENCE AS INSUFFICIE NT. THUS, THE CIT (A) HAS COME TO THE CONCLUSION THAT DISALLOWANCE WAS NOT RI GHTLY MADE BY THE ASSESSING OFFICER AND DISALLOWANCE HAS BEEN DELETED BY THE CI T (A). 44. IT WAS SUBMITTED BY LD. DR THAT THE ASSESSEE CO ULD NOT SUPPORT EITHER THE IDENTITY OF THE PARTIES TO WHOM THE PAYMENTS HAVE B EEN MADE OR THE GENUINENESS OF THE TRANSACTIONS. RELYING ON THE AS SESSMENT ORDER, IT WAS PLEADED BY LD. DR THAT DISALLOWANCE WAS RIGHTLY MAD E BY THE ASSESSING OFFICER AND CIT (A) HAS WRONGLY DELETED THE SAME. 45. ON THE OTHER HAND, RELYING ON THE ORDER OF THE CIT (A), IT WAS SUBMITTED BY LD. AR THAT THE ASSESSEE HAD MADE THE PAYMENTS TO THEM BY PAYEES ACCOUNT CHEQUES AND PACKING MATERIAL WAS PURCHASED IN THE N ORMAL COURSE OF BUSINESS AND IT WAS THE MAIN REQUIREMENT OF BUSINESS. WITHO UT PACKING MATERIAL THE GOODS COULD NOT BE EXPORTED. THE NECESSARY PARTICU LARS WERE SUBMITTED IN RESPECT OF EACH OF THE PARTIES AND AFTER PROPER APP RECIATION OF THE EVIDENCE AND FACTS, THE CIT (A) HAS RIGHTLY DELETED THE ADDITION . THUS, IT WAS PLEADED THAT THE ORDER OF THE CIT (A) ON THIS ISSUE SHOULD BE UPHELD . 46. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE NOTICES ISSUED BY THE ASSESSING OFFICER TO THREE PARTIES LISTED IN PARA 41 OF THIS ORDER CAME BACK W ITH THE REMARKS NO SUCH FIRM AND INCOMPLETE ADDRESS. THE ASSESSEE WAS REQUIRED TO JUSTIFY THE CLAIM OF THE EXPENDITURE WHICH ARE IN THE NATURE OF PACKING EXPE NDITURE. IN THE CASE OF M/S ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 30 GIRIRAJ PLASTICS, THE ASSESSEE FILED SALES-TAX RETU RNS. IN THE CASE OF M/S JSM PACK THE ASSESSEE PRODUCED SHRI MANMOHAN KAPUR ON 1 8 TH MARCH, 2005 WHO ADMITTED TO HAVE SUPPLIED MATERIAL TO THE ASSESSEE AND IN THE CASE OF KAPSONS PACKING INDUSTRIES A CONFIRMATION IN THE SHAPE OF C OPY OF ACCOUNT WAS FILED. ACCORDING TO THE ASSESSING OFFICER, IN THE CASE OF M/S JSM PACK .THOUGH THE PERSON WAS PRODUCED, BUT NO BILL/VOUCHER FOR EXPEND ITURE AND PURCHASE AND REGULAR BOOKS OF ACCOUNT OF SUPPLIER WAS PRODUCED. IN THE CASE OF KAPSONS PACKING INDUSTRIES, PAN WAS NOT GIVEN. IN RESPECT OF DISALLOWANCE IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE CIT (A) THAT P ACKING WAS A FOREMOST REQUIREMENT OF THE ASSESSEES BUSINESS AS UTENSILS COULD NOT BE EXPORTED WITHOUT PACKING. DETAILED INFORMATION WAS SUBMITTED TO ASS ESSING OFFICER WHICH WAS IN THE FORM OF NAME AND ADDRESS OF THE SUPPLIER, NATUR E OF GOODS PURCHASED, INVOICE NUMBER, DATE OF INVOICE, INVOICE AMOUNT, AM OUNT PAID, MODE OF PAYMENT, NATURE OF PACKING MATERIAL PURCHASED, ITS QUANTITY AND VALUE. IT WAS SUBMITTED THAT PURCHASES WERE ON REGULAR BASIS WHICH CAN BE V ERIFIED FROM THE ACCOUNTS. THE PERSONS FROM WHOM THESE PURCHASES HAVE BEEN MAD E ARE REGULAR SUPPLIERS WHO HAD MADE THE SUPPLIES IN THE PRECEDING AND SUCC EEDING YEARS. IT WAS SUBMITTED THAT THERE WAS A COMPLETE RECORD OF PACKI NG MATERIALS PURCHASED AND ALL PURCHASES MADE ARE GENUINE BUSINESS EXPENDITURE DULY SUPPORTED BY INVOICES AND ALL THE PAYMENTS ARE THROUGH PAYEES AC COUNT CHEQUES. IT WAS SUBMITTED THAT COPY OF BANKERS CERTIFICATE SHOWING ALL PAYMENTS MADE WERE ALSO SUBMITTED WHICH WAS PLACED AT PAGES 146 TO 148 IN T HE PAPER BOOK SUBMITTED BEFORE THE CIT (A). IT WAS SUBMITTED THAT OUT OF T HREE SUPPLIERS TWO SUPPLIERS APPEARED AND ONE COULD NOT APPEAR BUT THE SAID SUPP LIER WAS REGULARLY ASSESSED TO INCOME-TAX UNDER PAN AECPG 3345N. IT WAS SUBMIT TED THAT ALL THESE THREE SUPPLIERS HAD GIVEN THEIR COPIES OF LEDGER ACCOUNTS DULY CERTIFIED IN WHICH DETAILS OF EACH SUPPLY OF MATERIAL AND PAYMENT RECEIVED WER E GIVEN. IT WAS SUBMITTED THAT PACKING MATERIAL WAS OF TWO TYPES; ONE WAS POL YTHENE BAGS AND THE OTHER WAS CORRUGATED BOXES AND BOTH OF THESE PACKING MATE RIALS ARE IMPORTANT AND ESSENTIAL PART OF PACKING PARTICULARLY IN CASE OF E XPORT. IT WAS SUBMITTED THAT DISALLOWANCE WAS UPHELD BY THE ASSESSING OFFICER ON THE WRONG FOOTING. IT WAS ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 31 SUBMITTED THAT AS THE PAYMENT MADE THROUGH PAYEES A CCOUNT CHEQUES, THE IDENTITY OF THESE PARTIES COULD NOT BE DISPUTED. O N THESE SUBMISSIONS, LD. CIT (A) HAS GIVEN A CATEGORICAL FINDING THAT ALL THESE THREE PARTIES WERE REGULAR SUPPLIER OF PACKING MATERIAL TO THE ASSESSEE IN THE IMMEDIATE PRECEDING YEAR AND WERE PAID BY CHEQUES IN NORMAL COURSE OF THE BUSINE SS. ACCEPTING THAT SALES-TAX PAPERS WERE FILED IN THE CASE OF GIRIRAJ PLASTICS A ND PERSONS APPEARED ON BEHALF OF THE JSM PACKS AND CONFIRMATION WAS FILED IN RESP ECT OF KAPSON PACKING INDUSTRIES IT IS OBSERVE BY THE CIT (A) THAT THESE ARE SUFFICIENT TO ESTABLISH THAT THE ASSESSEE HAD INCURRED THESE EXPENDITURE AND THE ASSESSING OFFICER WAS WRONG IN CONSIDERING THE EVIDENCE PRODUCED AS INSUF FICIENT. IT IS OBSERVED BY THE CIT (A) THAT IDENTITY COULD BE VERIFIED WITH REFERE NCE TO THE BANKERS WHERE THE PAYMENTS GIVEN BY THE ASSESSEE WERE CREDITED ON BIL L TO BILL BASIS WHICH WERE NOT EVEN AD HOC. THUS, THE CIT (A) HAS DELETED THE ADD ITION. THE EXISTENCE OF THE EVIDENCE PLACED ON RECORD BY THE ASSESSEE AND AS ST ATED IN THE ORDER OF LD. CIT (A) IS NOT DISPUTED BY THE REVENUE. IF IT IS SO, P ACKING MATERIAL BEING AN ESSENTIAL ITEM OF EXPENDITURE FOR THE ASSESSEE AND THE PARTIE S BEING PAID THE AMOUNT BY PAYEES ACCOUNT CHEQUES AND ALSO CONFIRMED THE AMOUN T HAVING RECEIVED BY THEM, IT CANNOT BE SAID THAT THE DISALLOWANCE DELET ED BY THE CIT (A) WAS UNJUSTIFIED. NO MATERIAL WHATSOEVER HAS BEEN BROUG HT ON RECORD BY THE ASSESSING OFFICER TO SUGGEST THAT ANY OF THE EXPEND ITURE CLAIMED BY THE ASSESSEE WERE BOGUS. IN THIS VIEW OF THE SITUATION , WE FIND NO INFIRMITY IN THE DISALLOWANCE BEING DELETED BY THE CIT (A). WE DECL INE TO INTERFERE AND THIS GROUND OF THE REVENUE IS DISMISSED. 47. GROUND NO.5 OF THE ASSESSEES APPEAL IS REGARDI NG DISALLOWANCE OF CLAIM U/S 80-G AMOUNTING TO RS.25,000/.- THE ASSESSING O FFICER HAS DISCUSSED THIS ISSUE IN PARA 2. THE ASSESSING OFFICER OBSERVED TH AT THE ASSESSEE HAD CLAIMED EXPENSES OF RS.48,151/- ON ACCOUNT OF SUBSCRIPTION AND MEMBERSHIP FEE. VIDE REPLY DATED 2 ND MARCH, 2005 IT WAS SUBMITTED THAT THE PAYMENT WAS MADE TO SOME EDUCATIONAL SOCIETY. AS THE ASSESSEE DID NOT FILE PROOF OF SUCH PAYMENT, THE ASSESSING OFFICER DISALLOWED THE SAME. LD. CIT (A) HAS DISCUSSED THIS ISSUE IN PARA 10 TO 10.4 BEFORE THE LD. CIT (A) IT WAS S UBMITTED THAT THE SAID AMOUNT ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 32 OF RS.25,000/- WAS PAID TO SCHOOL NAMELY ADARSH SHI KSHA SANSTHAN, ASHOK VIHAR IN THE VICINITY OF THE BUSINESS PREMISES OF T HE ASSESSEE AND SUCH AMOUNT WAS GIVEN TO MAKE AVAILABLE SCHOOLING FACILITIES TO KITH AND KIN OF EMPLOYEES WORKING WITH THE ASSESSEE AND, AS SUCH, THIS CLAIM WAS MADE AND IN THE ALTERNATIVE IT WAS SUBMITTED THAT DEDUCTION U/S 80- G SHOULD BE GRANTED. LD. CIT (A) HAS REJECTED SUCH CLAIM OF THE ASSESSEE ON THE GROUND THAT NO EVIDENCE WHATSOEVER WAS PRODUCED BY THE ASSESSEE TO SHOW THA T THE SAID PAYMENT WAS MADE FOR THE PURPOSE OF GETTING ADMISSION OF KITHS AND KIN OF EMPLOYEES AS NO LIST OF EMPLOYEES WAS FURNISHED FOR THE PURPOSE. LD . CIT (A) ALSO REJECTED THE CLAIM OF THE ASSESSEE WITH REGARD TO 80-G ON THE GR OUND THAT THE SAME WAS A FRESH EVIDENCE AND NO APPLICATION HAS BEEN MADE UND ER RULE 46A TO ADMIT THE SAME. THE EVIDENCE TO SHOW THAT THE AMOUNT OF RS.2 5,000/- PAID TO AN INSTITUTION WHICH IS REGISTERED U/S 80-G. HAS BEEN FILED AS ANN EXURE E. THIS EVIDENCE WAS ALSO FILED BEFORE THE CIT (A) WHO REJECTED THE SAME ON THE GROUND OF BEING ADDITIONAL EVIDENCE. 48. IN THIS VIEW OF THE SITUATION, AFTER HEARING BO TH THE PARTIES, AS WE HAVE ADMITTED THE ADDITIONAL EVIDENCE, WE RESTORE THIS I SSUE TO THE FILE OF ASSESSING OFFICER TO VERIFY THE CORRECTNESS OF THE CERTIFICAT E AND, THEREAFTER, GRANT THE PROPER RELIEF TO THE ASSESSEE U/S 80-G. WE DIRECT ACCORDI NGLY. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 49. GROUND NO.5 WAS NOT PRESSED BY THE LD. AR AND T HE SAME IS DISMISSED BEING NOT PRESSED. 50. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMI SSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AFORE SAID. . THE ORDER PRONOUNCED IN THE OPEN COURT ON 27.11.20 09. [P.K. BANSAL] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 27.11.2009. ITA NO.1592/DEL/2006 ITA NO.1412/DEL/2006 33 DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES