ACIT, Varanasi V. M/s Carpet Place Dyeing Division, Bhadohi

ITA 188/ALLD/2011

• Counselvise Citation: 18820714 RSA 2011
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 02-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP CHAUHAN
• Assessee Lawyers: A K THUKRAL
• Keywords: Business expenditure; Search and seizure; Commercial expediency; Capital expenditure
• Section: 153A; 37(1); 145; 37; 132

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 NOS.187, 188 & 189/A/2011 ASSESSMENT YEARS: 2006-07, 2007-08 & 2009-10 RESPEC TIVELY ASSTT. COMMISSIONER OF INCOME TAX, VS. M/S CARPET P ALACE DYEING DIVISION, CENTRAL CIRCLE, VARANASI. RAJPURA, BHADOHI. (PAN : AADFC 5433 G). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANDEEP CHAUHAN, CIT D.R. RESPONDENTS BY : SHRI BHUPENDRA SHAH & SHRI A.K. THUKRAL, C.A. DATE OF HEARING : 06.11.2012 DATE OF PRONOUNCEMENT : 10.12.2012 ORDER PER A.L. GEHLOT, ACCOUNTANT MEMBER: THESE ARE APPEALS FILED BY THE REVENUE AGAINST THRE E SEPARATE ORDERS, ALL DATED 22.06.2011, PASSED BY THE LD. CIT(A), VARANAS I FOR THE ASSESSMENT YEARS 2006-07, 2007-08 AND 2009-10 RESPECTIVELY. 2. GROUNDS OF APPEALS RAISED IN ALL THESE THREE APP EALS ARE BASED ON IDENTICAL SET OF FACTS. TO KNOW THE EXACT GROUNDS OF APPEAL, WE REPRODUCE GROUNDS OF APPEAL RAISED IN ITA NO.187/A/2011 FOR A.Y. 2006-07 AS UND ER :- ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 2 1. THE LD. CIT(A) WAS NOT JUSTIFIED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.11,23,867/- MADE ON ACCOUNT OF D ISALLOWANCE OF EXPENSES UNDER THE HEAD, SALARY TO STAFF, SALARY TO PRODUCTION STAFF, MISC. PRODUCTION EXPENSES AND FUEL & HUSK CHARGES, WITHOUT APPRECIATING THE FACT THAT THE A.O. HAS REJECTED TH E ASSESSEES BOOKS OF ACCOUNT U/S 145(3) OF THE ACT, IN ABSENCE OF THESE EXPENSES NOT BEING SUPPORTED BY PROPER BILLS AND VOUCHERS. 2. THE LD. CIT(A) WAS NOT JUSTIFIED IN LAW AND ON F ACTS IN DELETING THE ADDITION OF RS.11,23,867/- WITHOUT APPRECIATING THE FACT THAT THE BOOKS OF ACCOUNT WERE NOT FOUND DURING THE COURSE O F SEARCH WHICH ESTABLISHES THAT THE ASSESSEE DID NOT MAINTAIN BOOK S OF ACCOUNT IN REGULAR COURSE OF ITS BUSINESS. 3. THE LD. CIT(A) WAS NOT JUSTIFIED IN LAW AND ON FACT IN DELETING THE ADDITION OF RS.11,23,867/-, WITHOUT APPRECIATING TH E FACT THAT IN ABSENCE OF BILLS & VOUCHERS IN RESPECT OF EXPENSES, THE A.O. WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT U/S 145 (3) OF THE ACT. 4. THE LD. CIT(A) WAS NOT JUSTIFIED IN LAW AND ON F ACT IN DELETING THE ADDITION OF RS.11,23,867/-, WITHOUT APPRECIATIN G THE FACT THAT IN ABSENCE OF PROPER BILLS/VOUCHERS IN RESPECT OF EXPE NSES AND HAVING REJECTED BOOKS OF ACCOUNT, THE A.O. WAS JUSTIFIED I N ESTIMATING THE EXPENSES. 5. THE CIT(A) HAD NO JUSTIFICATION FOR SUBSTITUTING HIS OWN ESTIMATION IN PLACE OF A.O.S ESTIMATION. 6. THAT THE ORDER OF THE LD. CIT(A) DESERVES TO BE VACATED AND THE ASSESSMENT ORDER PASSED BY THE A.O. BE RESTORED. 7. THAT THE APPELLANT CRAVES LEAVE TO AMEND ANY ONE OR MORE OF THE GROUNDS OF THE APPEAL AS STATED ABOVE AS AND WH EN NEED FOR DOING SO MAY ARISE. 3. THE BRIEF FACTS OF THE CASE ARE THAT SEARCH AND SEIZURE OPERATION UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAF TER) WAS CARRIED OUT ON 11.02.2009. THE ASSESSEE FILED RETURN OF INCOME IN RESPONSE TO NOTICE UNDER ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 3 SECTION 153A OF THE ACT DECLARING TOTAL INCOME OF R S.7,88,495/-. THE ASSESSEE IS ENGAGED IN THE JOB WORK OF DYEING OF CARPET WOOLEN YARN. THE A.O. ON PERUSAL OF FINANCIAL STATEMENTS, AUDIT REPORT, BOOKS OF ACCOUN T AND OTHER DOCUMENTS NOTICED THAT MAJOR EXPENSES WERE NOT SUPPORTED BY PROPER BI LLS AND VOUCHERS. THE A.O. NOTICED THAT REGULAR BOOKS OF ACCOUNT ERE NOT FOUND DURING THE COURSE OF SEARCH, THOUGH BOOKS OF ACCOUNTS WERE PRODUCED AT THE TIME OF ASSESSMENT. THE A.O. FOUND THAT BOOKS OF ACCOUNT WERE NOT SUPPORTED BY B ASIC DOCUMENTS. THE A.O. ASKED THE ASSESSEE WHY BOOKS OF ACCOUNT SHOULD NOT BE REJECTED BY INVOKING SECTION 145(3) OF THE ACT. SINCE THE ASSESSEE DID NOT APPEAR, THEREFORE, THE A.O. CAME TO THE CONCLUSION THAT EXPENSES CLAIMED BY THE ASSESSEE ARE NOT VERIFIABLE. THE A.O. ON THE BASIS OF OTHER COMPARABLE CASES DIS ALLOWED 20% OUT OF VARIOUS EXPENSES. ACCORDINGLY, THE A.O. MADE ADDITION OF R S.11,71,114/- AS UNDER :- (PAGE NO.3) HEAD EXPENSES CLAIMED % OF DISALLOWANCE DISALLOWED AMOUNT SALARY TO OFFICE STAFF 198000 20% 39600 SALARY TO PRODUCTION STAFF 577200 20% 115440 MISC. PRODUCTION EXPS. 944943 20% 188989 FUEL & HUSK 4135423 20% 827085 TOTAL 1171114 4. THE DETAILS OF EXPENDITURE DISALLOWED FOR A.Y. 2 007-08 ARE AS UNDER :- (PAGE NO.3) ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 4 HEAD EXPENSES CLAIMED % OF DISALLOWANCE DISALLOWED AMOUNT SALARY TO OFFICE STAFF 238500 20% 47700 SALARY TO PRODUCTION STAFF 577200 20% 115440 MISC. PRODUCTION EXPS. 1176005 20% 235201 FUEL & HUSK 9863055 20% 1972611 TOTAL 2370952 5. THE DETAILS OF EXPENDITURE DISALLOWED FOR THE A. Y. 2009-10 ARE AS UNDER :- (PAGE NO.3) HEAD EXPENSES CLAIMED % OF DISALLOWANCE DISALLOWED AMOUNT SALARY TO OFFICE STAFF 256050 20% 51210 MISC. PRODUCTION EXPS. 1859384 20% 371877 FUEL & HUSK 4829400 20% 965880 TOTAL 1388967 6. THE CIT(A) RESTRICTED THE ADDITION TO THE EXTENT OF RS.47,247/- IN A.Y. 2006- 07, RS.58,800/- IN A.Y. 2007-08 AND RS.92,969/- IN A.Y. 2009-10. THE CIT(A) ALLOWED RELIEF OF BALANCE AMOUNT. THE CIT(A) NOTED THAT THE A.O. HAS NOT POINTED OUT ANY SPECIFIC ITEM OF EXPENDITURE BEING FALSE OR UNVERIFIABLE. THE A.O. MADE DISALLOWANCE OF EXPENSES ON AD-HOC BASIS. IT WAS A LSO NOTED BY THE CIT(A) THAT MANUFACTURING RECORD PRODUCED BEFORE HIM WHICH REVE ALS THAT EXPENSES UNDER THE HEAD FUEL AND HUSK ARE VERIFIABLE FROM DHARAM KANTA RECEIPTS. SALARY IS FULLY VERIFIABLE. HOWEVER, MISCELLANEOUS PRODUCTION EXPE NSES WERE NOT FULLY VERIFIABLE ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 5 AS THE RECEIPTS OF PAYMENTS WERE NOT AUTHENTICATED PROPERLY IN SOME CASES. THE DISALLOWANCE OF 20% MADE BY THE A.O. WAS ON HIGHER SIDE. 7. THE FINDING OF CIT(A) FOR A.Y. 2006-07 READS AS UNDER (PAGE NO.9) HOWEVER THE MANUFACTURING RECORD PRODUCED DURING A PPELLATE PROCEEDINGS REVEALS THAT THE EXPENSES UNDER THE HEA D FUEL & HUSK ARE VERIFIABLE FROM THE DHARAM KATA RECEIPT AND THE SALARY TO REGULAR STAFF IS FULLY VERIFIABLE. UNDER HEAD MISCELLANEOUS PRODUCTION EXPENSES WHICH RELATE PAYMENTS TO LABOURERS ARE NOT FULLY VERIFIABLE AS THE RECEIPT OF PAYMENT IS NOT AUTHENTICATED PROP ERLY AS IN SOME CASES THERE ARE SCRATCHES IN PLACE OF SIGNATURES AN D IN SOME PLACES THE LABOURERS ARE NOT IDENTIFIABLE BY PROPER ADDRES SES AND THEREFORE IN MY OPINION THE EXPENSES UNDER THE HEAD MISC. PRO DUCTION EXPENSES ARE NOT FULLY ACCEPTABLE. HOWEVER, THE DISALLOWANC E @ 20% IS SOMEWHAT EXCESSIVE. THEREFORE, TO MEET THE END OF JUSTICE I RESTRICT THE DISALLOWANCES TO 5% OF THE EXPENSES IN PLACE OF 20% ADOPTED BY THE A.O. IN VIEW OF ABOVE FACTUAL POSITION, THE DISALLOWANCE MENTIONED IS SUSTAINED TO RS.47,247/- UNDER THE HEADS OF MISC. P RODUCTION EXPENSES. IN THIS WAY, THE ASSESSEE GETS RELIEF OF RS.11,23,867/- (RS.11,71,114.00 RS.47,247.00). 8. THE FINDING OF CIT(A) FOR A.Y. 2007-08 READS AS UNDER :- (PAGE NO.8) HOWEVER THE MANUFACTURING RECORD PRODUCED DURING A PPELLATE PROCEEDINGS REVEALS THAT THE EXPENSES UNDER THE HEA D FUEL & HUSK ARE VERIFIABLE FROM THE DHARAM KATA RECEIPT AND THE SALARY TO REGULAR STAFF IS FULLY VERIFIABLE. UNDER HEAD MISCELLANEOUS PRODUCTION EXPENSES WHICH RELATE PAYMENTS TO LABOURERS ARE NOT FULLY VERIFIABLE AS THE RECEIPT OF PAYMENT IS NOT AUTHENTICATED PROP ERLY AS IN SOME CASES THERE ARE SCRATCHES IN PLACE OF SIGNATURES AN D IN SOME PLACES THE LABOURERS ARE NOT IDENTIFIABLE BY PROPER ADDRES SES AND THEREFORE IN MY OPINION THE EXPENSES UNDER THE HEAD MISC. PRO DUCTION EXPENSES ARE NOT FULLY ACCEPTABLE. HOWEVER, THE DISALLOWANC E @ 20% IS ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 6 SOMEWHAT EXCESSIVE. THEREFORE, TO MEET THE END OF JUSTICE I RESTRICT THE DISALLOWANCES TO 5% OF THE EXPENSES IN PLACE OF 20% ADOPTED BY THE A.O. IN VIEW OF ABOVE FACTUAL POSITION, THE DISALLOWANCE MENTIONED IS SUSTAINED TO RS.58,800/- UNDER THE HEADS OF MISC. P RODUCTION EXPENSES. IN THIS WAY, THE ASSESSEE GETS RELIEF OF RS.23,.12,152/- (RS.23,70,952.00 RS.58,800.00) 9. THE FINDING OF CIT(A) FOR A.Y. 2009-10 READS AS UNDER :- (PAGE NOS. 7 & 8) HOWEVER THE MANUFACTURING RECORD PRODUCED DURING A PPELLATE PROCEEDINGS REVEALS THAT THE EXPENSES UNDER THE HEA D FUEL & HUSK ARE VERIFIABLE FROM THE DHARAM KATA RECEIPT AND THE SALARY TO REGULAR STAFF IS FULLY VERIFIABLE. UNDER HEAD MISCELLANEOUS PRODUCTION EXPENSES WHICH RELATE PAYMENTS TO LABOURERS ARE NOT FULLY VERIFIABLE AS THE RECEIPT OF PAYMENT IS NOT AUTHENTICATED PROP ERLY AS IN SOME CASES THERE ARE SCRATCHES IN PLACE OF SIGNATURES AN D IN SOME PLACES THE LABOURERS ARE NOT IDENTIFIABLE BY PROPER ADDRES SES AND THEREFORE IN MY OPINION THE EXPENSES UNDER THE HEAD MISC. PRO DUCTION EXPENSES ARE NOT FULLY ACCEPTABLE. HOWEVER, THE DISALLOWANC E @ 20% IS SOMEWHAT EXCESSIVE. THEREFORE, TO MEET THE END OF JUSTICE I RESTRICT THE DISALLOWANCES TO 5% OF THE EXPENSES IN PLACE OF 20% ADOPTED BY THE A.O. IN VIEW OF ABOVE FACTUAL POSITION, THE DISALLOWANCE MENTIONED IS SUSTAINED TO RS.92,969/- UNDER THE HEADS OF MISC. P RODUCTION EXPENSES. IN THIS WAY, THE ASSESSEE GETS RELIEF OF RS.12,95,998/- (RS.13,88,967.00 RS.92,969.00) 10. WE HAVE HEARD THE LD. REPRESENTATIVES OF PARTIE S AND RECORDS PERUSED. THE EFFECTIVE GROUNDS RAISED BY THE REVENUE IN ITS APPE ALS ARE IN RESPECT OF DELETION OF ADDITIONS OF RS.11,23,867/- IN A.Y. 2006-07, RS.23, 12,152/- IN A.Y. 2007-08 & RS.12,95,998/-IN A.Y. 2009-10. OTHER GROUNDS OF AP PEALS ARE GENERAL IN NATURE OR GROUNDS OF APPEALS IN SUPPORT OF MAIN GROUNDS OF AP PEALS. IN GROUND NO.3 THE ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 7 REVENUE OBJECTED THAT THE CIT(A) HAS WRONGLY GIVEN HIS FINDING THAT THE A.O. HAS INVOKED SECTION 145(3) OF THE ACT WITHOUT POINTING OUT ANY SPECIFIC DETAILS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THE C IT(A) FURTHER HELD THAT THERE IS NO CASE TO REJECT THE BOOKS OF ACCOUNT IF THE INCOM E IS NOT TO BE ESTIMATED BUT CERTAIN UNVERIFIABLE EXPENSES ARE TO BE DISALLOWED. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) BECAUSE FINALLY ACTION OF THE A .O. WAS DISALLOWANCE OF EXPENSES AND NOT A CASE OF ESTIMATION OF PROFIT, TH EREFORE BOOKS OF ACCOUNT WERE ACCEPTED AND ADDITIONS WERE MADE BY DISALLOWANCE OF EXPENSES. IN PRINCIPLE, THE ORDER OF CIT(A) IS IN ACCORDANCE WITH FINDING OF A. O. ONLY. INTERFERENCE MADE BY THE CIT(A) IS IN RESPECT OF ONLY ESTIMATION OF AMOU NT OF DISALLOWANCES. WE, THEREFORE, DO NOT FIND ANY SUBSTANCE IN THESE GROUN DS OF APPEALS OF REVENUE. THUS, THE GROUNDS RAISED BY THE REVENUE FOR ALL THE THREE ASSESSMENT YEARS ARE REJECTED. 11. ONE OF THE REASONS GIVEN BY THE A.O. WAS THAT B OOKS OF ACCOUNT WERE NOT FOUND AT THE TIME OF SEARCH. BUT THE A.O. FAILED T O POINT OUT THAT HOW REVENUE HAS ADVERSELY EFFECTED BY THAT FACT PARTICULARLY WHEN N O INCRIMINATING MATERIAL OR DOCUMENTS WERE FOUND AT THE TIME OF SEARCH. SUBSEQ UENT TO SEARCH, IF BOOKS OF ACCOUNT ARE PREPARED ON THE BASIS OF ACCEPTED ACCOU NTING PRINCIPLES, ON THE BASIS OF MATERIAL AND ON THE BASIS OF DOCUMENTS AND NO DEFEC TS ARE FOUND, SUCH BOOKS OF ACCOUNT IS ACCEPTABLE. THEREFORE, WE DO NOT FIND S UBSTANCE IN A.OS ORDER IN THIS REGARD. ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 8 12. AS REGARDS PRODUCING BOOKS OF ACCOUNT AND OTHER MATERIAL BEFORE THE A.O., THE A.O. HIMSELF REPRODUCED THE ORDER SHEET ENTRY D ATED 10.12.2012 IN HIS ORDER AT PAGE NO.2 WHICH READS AS UNDER :- 10/12/2010 SHRI THUKRAL APPEARED AND FILLED HIS RE PLY WHICH IS KEPT ON RECORD. BOOKS OF ACCOUNTS WERE PRODUCED. HE WAS ASKED TO PRODUCE BILLS AND VOUCHERS FOR THE EXPENSES CLAIMED IN THE TRADING AND P&L ACCOUNT, PARTICULARLY, MANUFACTURING AND TRADING EXPENSES. THE AR FAILED TO PRODUCE THE SAME. IT WOULD BE PERTINENT TO MENTION THAT THIS HEAD INCLUDES FOLLOWING CHARGES: (I) WAGES (II) MISC. PRODUCTION EXPENSES (III) FUEL AND HUSK HOWEVER, THE CASH MEMOS/BILLS FOR DYES AND CHEMICAL S, DIESEL & PETROL EXPENSES WERE PRODUCED AND VERIFIED . OTHER EXPENSES OF P&L ACCOUNT WERE ALSO TEST CHECKE D. IN VIEW OF THIS THE AR IS ASKED TO SHOW CAUSE WHY T HE BOOKS MAY NOT BE REJECTED IN VIEW OF SEC. 145(3) AN D PROFIT MAY BE ESTIMATED. DATE OF COMPLIANCE IS 14/12/20. 13. ON PERUSAL OF ABOVE ENTRY OF ASSESSMENT PROCEED ING OF THE A.O. WE NOTICED THAT BOOKS OF ACCOUNT WERE PRODUCED BEFORE THE A.O. THE A.O. WANT TO ESTIMATE PROFIT AFTER REJECTING BOOKS OF ACCOUNT BUT ULTIMAT ELY AND FINALLY HE DISALLOWED 20% EXPENSES. THEREFORE, FINDING OF A.O. THAT BOOKS OF ACCOUNT NOT PRODUCED IS AN INCORRECT FINDING. ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 9 14. NOW WE ARE COMING TO MAIN EFFECTIVE GROUND WHIC H IS IN RESPECT OF 20% DISALLOWANCES OF EXPENDITURES OUT OF VARIOUS EXPEND ITURES CLAIMED BY THE ASSESSEE. BUSINESS EXPENDITURES INCURRED FOR THE PURPOSE OF B USINESS ARE ALLOWABLE UNDER SECTION 37 OF THE ACT. THE SAID SECTION 37 READS A S UNDER:- GENERAL 37. (1) ANY EXPENDITURE1 (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 [***] AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE15 OR PERSONAL EXPENSES OF THE A SSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY15 FOR THE PURPOS ES OF THE BUSINESS15 OR PROFESSION SHALL BE ALLOWED IN COMPUT ING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION. [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) 17[* * *] (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.] 15. TO APPRECIATE THE SCHEME OF THE ACT IN RESP ECT OF ALLOWABILITY OF EXPENDITURES WE WOULD LIKE TO REFER TO CERTAIN JUDG MENTS WHEREIN CERTAIN PRINCIPLES HAVE BEEN DECIDED IN THIS REGARD. THESE JUDGMENTS A RE AS UNDER :- 15.1 CIT VS. TRANSPORT CORPORATION OF INDIA LIMITED , 256 ITR 701 (AP) -- ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 10 (PAGE 705, 706 AND 707 ) 37. GENERAL.--(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIO NS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSO NAL EXPENSES 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 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. NA VSARI COTTON AND SILK MILLS LTD. [1982] 135 ITR 546 (GUJ) AND CHENAB FOREST CO. V. CIT [1974] 96 ITR 568 (J&K),THE FOLLOWING CONDITION S SHOULD BE SATISFIED; (I)THE EXPENDITURE IN QUESTION SHOULD NO T 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 'EXPENDITURE' 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 ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 11 CIT V. NAINITAL BANK LTD. [1966] 62 ITR 638 HELD TH AT 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. 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 10 2 (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. ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 12 16. NEWTONE STUDIOS LTD. VS. COMMISSIONER OF INCO ME-TAX [1955] 28 ITR 378 (MAD). THE FACTS OF THE CASE ARE THAT THE ASSESSEE 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 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 SCALE OF SALARIES WAS 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 PAYMEN T OF THAT AMOUNT OF RS. 59,100 WAS NEVER IN DISPUTE. THE ASSESSEE CLAIMED THAT PA YMENT AS A DEDUCTION UNDER SECTION 10(2)(XV) OF THE 1922 ACT. THE I.T.O. LIMI TED THE ADMISSIBLE DEDUCTION TO AN AMOUNT NOT EXCEEDING TWICE THE AMOUNT ALLOWED IN EACH OF THE PRECEDING YEARS AND DISALLOWED THE BALANCE. THE DISALLOWANCE WAS U PHELD BY THE AAC AS WELL AS THE TRIBUNAL. THE MADRAS HIGH COURT WHILE DECIDING THE MATTER 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE DISA LLOWANCE OF A SUM OF RS.23,100/- OUT OF THE EXPENSES INCURRED BY THE ASSESSEE FOR PA YMENT OF REMUNERATION TO THE MANAGING DIRECTOR AND THE OTHER TECHNICIAN DIRECTOR S IS PERMISSIBLE UNDER THE PROVISIONS OF SECTION 10(2)(XV) OF THE INCOME-TAX A CT. THE COURT REFERRED CERTAIN EARLIER JUDGMENTS WHICH ARE AS UNDER :- ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 13 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. (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 LAID 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 ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 14 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. 17. THE COURT HELD AS UNDER :- 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 (SUPRA), 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. ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 15 18. IN THE LIGHT OF ABOVE DISCUSSIONS AND IN THE PREMISE OF THE ABOVE NOTICED WELL ESTABLISHED PRINCIPLES, LET US PROCEED TO EXAM INE THE FACTS OF THE CASE UNDER CONSIDERATION. WHETHER THESE NECESSARY CONDITIONS EXISTED 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 20% EXPENDITURES WHICH HAVE BEEN RESTRICTED BY THE CIT( A) TO THE EXTENT OF 5% OF WHICH CALCULATIONS COMES RS.47,247/-, RS.58,800/- & RS.92,969/- FOR ASSESSMENT YEARS 2006-07, 2007-08 & 2009-10. THE A.O. MADE 20% ADHOC DISALLOWANCE WITHOUT ANY BASIS WHEREAS THE ASSESSEE HAS FULLY DI SCHARGED THE BURDEN THAT EXPENDITURES WERE INCURRED FOR THE PURPOSE OF BUSIN ESS. THE HONBLE MADRAS HIGH COURT IN THE CASE OF NEWTONE STUDIOS LTD. V. COMMIS SIONER OF INCOME-TAX [1955] 28 ITR 378 (MAD) HELD THAT UNDER OUR TAXING SYSTEM, IT IS FOR THE ASSESSEE TO CONDUCT HIS BUSINESS, AND IN HIS WISDOM OR OTHERWIS E TO INCUR BUSINESS EXPENDITURES. THE INCOME-TAX ACT DOES NOT CLOTH TH E TAXING AUTHORITY WITH ANY POWER OR JURISDICTION TO DETERMINE THE REASONABLENE SS OF THE AMOUNT SO FIXED AND PAID BY THE ASSESSEE. THE ONLY TEST FOR THE DEDUCT IBILITY OF SUCH REMUNERATION IS WHETHER THE EXPENDITURE HAS BEEN INCURRED SOLELY AN D EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. IF THE REALITY OF THE PAYMENT IS CHALLENGED OR IS IN DISPUTE DIFFERENT CONSIDERATIONS ARISE: SO ALSO IN CASES WHERE THE TA X AUTHORITIES ARE ABLE TO POINT OUT TO SOME CONSIDERATION OTHER THAN THE PURPOSE OF THE BUSINESS AS ACCOUNTING FOR ANY PORTION OF THE PAYMENT MADE. IN SUCH CASES, OF COU RSE, SUCH PORTION OF THE AMOUNT ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 16 CLAIMED, WHICH IS EITHER NOT HELD TO HAVE BEEN PAID OR IS HELD TO HAVE BEEN PAID FOR REASONS OTHER THAN BUSINESS EXPEDIENCY, COULD AND S HOULD BE DISALLOWED; BUT THE REASON FOR THE DISALLOWANCE IS BECAUSE EITHER THE P ORTION DISALLOWED IS NOT PAID, OR BECAUSE THE EXPENDITURE IS NOT SOLELY AND EXCLUSIVE LY FOR THE BUSINESS, AND NOT ON THE GROUND THAT IN THE OPINION OF THE INCOME-TAX OF FICER OR OTHER TAXING AUTHORITY THE REMUNERATION IS UNREASONABLY HIGH. IN THE CA SE UNDER CONSIDERATION, THE ASSESSEE HAS ESTABLISHED BY FILING EVIDENCES THAT E XPENDITURES WERE INCURRED FOR THE PURPOSE OF BUSINESS. THE CIT (A) HAS GIVEN HIS FIN DING AFTER EXAMINING EACH HEAD OF EXPENDITURES CLAIMED BY THE ASSESSEE. THE ASSES SEE IN SUPPORT OF JUSTIFICATION OF EXPENDITURES FURNISHED COMPARABLE CASE WHICH HAVE B EEN EXAMINED BY THE CIT(A) BEFORE REACHING TO HIS CONCLUSIONS. THE CIT(A) FOU ND THAT THE ASSESSEE HAS CLAIMED COMPARATIVELY LESSER EXPENDITURE IN COMPARI SON TO OTHER COMPARABLE CASE. THE CIT(A) HAS ALSO FOUND THAT THE A.O. HIMSELF HAS ACCEPTED HIGHER CLAIM OF EXPENDITURES IN COMPARISON TO CLAIM OF ASSESSEE IN COMPARABLE CASE WHILE MAKING ASSESSMENT UNDER SECTION 153A/143(3) OF THE ACT. T HE RELEVANT ABSTRACT OF ORDER OF CIT(A) IS REPRODUCED BELOW:- (PAGE NOS.5 & 6) THERE IS AN EMBARRASSING SITUATION WHEN THE LEARNE D ASSESSING OFFICER HAS MENTIONED IN PARA NO.4.5 OF A SSESSMENT ORDER THAT THE BASIS OF 20% DISALLOWANCE OF EXPENSES IS O THER COMPARABLE CASES OF THE SAME TRADE IN THE SAME LOCALITY WHEREA S HE HAS NOT CITED A SINGLE COMPARABLE CASE FOR HIS INFERENCE. ON THE O THER HAND, HE HAS ACCEPTED THE HIGHER PERCENTAGE RATE OF EXPENSES WIT H REFERENCE GROSS RECEIPT IN CASE OF M/S CHAMPA DYEING (P) LTD. IN TH EIR ASSESSMENTS U/S 153A/143(3). A COPY OF THE SAID ASSESSMENT ORD ER IS ENCLOSED (PAGE 17 & 18 OF PAPER BOOK). THE COMPARATIVE FIGU RE OF RATE OF ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 17 EXPENSES AS PER THE ASSESSMENT ORDER OF THE ASSESSE E AND M/S CHAMPA DYEING PVT. LTD IS AS FOLLOWS :- A.Y. CARPET PALACE DYEING DIVISION (ASSESSEE) CHAMP A DYEING (P) LTD GROSS RECEIPT MANUFACTURING EXPENSES IN % SHOWN MANUFACTURING EXPENSES IN % ALLOWED BY A.O. GROSS RECEIPT MANUFACT URING EXPENSES IN % SHOWN MANUFACTU RING EXPENSES IN % ALLOWED BY A.O. 2006-07 188,93,663 76.61% 70.62% 339,64,828 84.98% 84.64% FROM THE ABOVE, IT IS CLEAR THAT THE DYEING EXPENSE S @ 84.64% HAVE BEEN ALLOWED IN THE ABOVE COMPARABLE CASE. ON THE CONTRARY, EXPENSES @ 76.61 CLAIMED BY THE ASSESSEE WHICH IS L OWER BY 8.03% IN COMPARISON TO THE ABOVE CASE HAS NOT BEEN ACCEPTED. THUS, THE DISALLOWANCES OF EXPENSES IN ASSESSEES CASE ARE DE VOID OF LOGIC. MOREOVER, THE LEARNED ASSESSING OFFICER HAS NOT CIT ED ANY COMPARABLE CASE ON THE BASIS OF WHICH HE INFERRED THAT THE ASS ESSEES EXPENSES WERE EXCESSIVE. AS SUCH, DISALLOWANCES DESERVE DEL ETION ON THIS GROUND ONLY. HOWEVER, THE ARBITRARINESS OF THE DIS ALLOWANCE IS ALSO ESTABLISHED AS IT HAS BEEN MADE ON WRONG FINDING AN D WITHOUT POINTING OUT A SINGLE ITEM OF EXPENDITURE BEING FAL SE OR UNVERIFIABLE. 19. SO FAR OBJECTION OF THE A.O. THAT EXPENDITU RES WERE NOT VERIFIABLE, THE CIT(A) HAS GIVEN HIS FINDING AFTER EXAMINING THE RE CORDS THAT SOME EXPENDITURES WERE FULLY VERIFIABLE. HOWEVER, TO COVER UP MINOR LAPSES AND NON-VERIFIABILITY OF CERTAIN EXPENDITURES, THE CIT(A) RESTRICTED THE DIS ALLOWANCE TO THE EXTENT OF 5% WHICH IS MOST REASONABLE AND FAIR ESTIMATION. THE REVENUE HAS FAILED TO POINT OUT ANY MATERIAL AGAINST THE FINDING OF CIT(A) OR OTHER MATERIAL AND EVIDENCES BASED ON WHICH A DIFFERENT ESTIMATION OF DISALLOWANCE OF EXPENDITURE CAN BE MADE AT THIS STAGE. ITA NOS.187, 188, 189/A/2011 AYS. 2006-07, 2007-08 & 2009-10 18 20. IN THE LIGHT OF ABOVE DISCUSSION AND IN THE LIG HT OF THE FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). THE ORDERS O F CIT(A) ARE CONFIRMED ON THE ISSUE. 21. IN THE RESULT, ALL THE THREE APPEALS FILED BY T HE REVENUE 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