The J C I T (Asstt) Sr-8, Ahmedabad V. M/S Gopala Plyplast Ltd, Ahmedabad

ITA 1945/AHD/2000

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9146 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-08-2009
• Assessment Year: 1996-1997
• Appeal Filed On: 11-09-2000
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C PANDIT
• Keywords: Capital asset; Search and seizure; Document seized; Commercial expediency; Documents seized; Revenue expenditure; Capital expenditure
• Section: 37(1); 143(1); 143(2); 191; 192; 148; 37; 56; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: AHMEDABAD BEN CHES C BENCH: AHMEDABAD (BEFORE S/SHRI H. L. KARWA, JM AND A N PAHUJA, AM) ITA NO. 1945/AHD/2000 A Y: 1996-97 THE JCIT SPECIAL RANGE-8, 2 ND FLOOR, NATURE VIEW BUILDING, NEAR H. K. HOUSE, ASHRAM ROAD, AHMEDABAD VS M/S. GOPALA POLYPLAST LTD., OLWAY HOUSE, GURUKUL ROAD, MEMNAGAR, AHMEDABAD PAN:31-093-CY-0446]-- APPELLANT RESPONDENT ITA NO.2773/AHD/2000 AY: 1997-98 M/S. GOPALA POLYPLAST LTD., OLWAY HOUSE, GURUKUL ROAD, MEMNAGAR, AHMEDABAD VS THE JCIT SPECIAL RANGE -8, 2 ND FLOOR, NATURE VIEW BUILDING, NEAR H. K. HOUSE, ASHRAM ROAD, AHMEDABAD APPELLANT RESPONDENT ITA NO.174/AHD/2001 AY: 1997-98 THE ADDL. CIT SPECIAL RANGE-8, 2 ND FLOOR, NATURE VIEW BUILDING, NEAR H. K. HOUSE, ASHRAM ROAD, AHMEDABAD VS M/S. GOPALA POLYPLAST LTD., OLWAY HOUSE, GURUKUL ROAD, MEMNAGAR, AHMEDABAD APPELLANT RESPONDENT DEPARTMENT BY SHRI M. C. PANDIT, DR ASSESSEE BY SHRI ASEEM THAKKAR, AR ORDER A N PAHUJA: THESE THREE APPEALS-ONE BY THE REVENUE FOR ASSESSMENT YEAR 1996-97 IN ITA NO. 1945/AHD/2000 AN D THE OTHER TWO CROSS APPEALS BY THE ASSESSEE AND THE REVENUE FOR THE AS SESSMENT YEAR 1997-98 DIRECTED AGAINST TWO SEPARATE ORDERS DATED 26-6-200 0 AND 11-10-2000 OF THE LEARNED CIT(A)-XII, AHMEDABAD AND THE LEARNED CIT(A )- VII, AHMEDABAD RESPECTIVELY, RAISE THE FOLLOWING GROUNDS: ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 2 ITA NO. 1945/AHD/2000[REVENUE ] 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE FOLLOWING ADDITION: I) ON ACCOUNT OF EXPENDITURE IN REVENUE, CAPITAL IN THE BOOKS- RS.28,17,448/- II) ON ACCOUNT OF EXCESS RAW MATERIAL CONSUMPTION- RS.1,65,560/- III) ON ACCOUNT OF STITCHING AND PRINTING CHARGES- RS.7,19,480/- IV) ON ACCOUNT OF INTEREST PAID TO GRACEFUL PROPERT Y- RS.2,94,000/- V) ON ACCOUNT OF WASTAGE SALES OUTSIDE BOOKS- RS.11 ,90,528/- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 3. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE SET- ASIDE AND THAT OF THE ORDER OF THE ASSESSING OFFICE R BE RESTORED TO THE ABOVE EXTENT. ITA NO.2773/AHD/2000[ASSESSEE] 1) THE LEARNED COMM. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY A. O. OF RS.11, 39,500/- BEING UPFRONT FEES PAID TO I. D. B. I. TREATING THE SAME AS CAPITAL EXPENSES RELATING TO THE PROJECT EXPENSES. 2) THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR MODIFY ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING OF APPEAL. ITA NO.174/AHD/2001[REVENUE] 1.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE FOLLOWING: (1) OUT OF EXP. IN REVENUE NATURE, CAPITALIZED IN B OOKS- RS. 64,52,129/- (2) ON ACCOUNT OF EXCESS RAW MATERIAL CONSUMPTION- RS.2,68,672/- (3) ON ACCOUNT OF INTEREST PAID TO GRACEFUL PROPERT IES LTD.-. RS.1,47,500/- ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 3 (4) ON ACCOUNT OF WASTAGE SALES OUTSIDE BOOKS OF ACCOUNTS- RS.19,71,968/- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 3. IT IS THEREFORE PRAYED THAT THE ORDER OF THE L D. CIT(A) BE SET- ASIDE AND THAT OF THE AO BE RESTORED TO THE ABOVE EXTENT. 2. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL OF THE ASSESSEE AND GROUND NO.1(I) IN AY 1996-97 & GROUND NO.1 IN THE AY 1997- 98 IN THE TWO APPEALS OF THE REVENUE, FACTS, IN BRIEF, AS PER RELEVANT ORDERS AR E THAT RETURNS DECLARING INCOME OF RS.8,39,535/- FILED ON 30-11-1996 FOR THE AY 19 96-97 AND INCOME OF RS.22,34,869/- FILED ON 30-11-1997 FOR AY 1997-98 BY THE ASSESSEE, ENGAGED IN MANUFACTURE OF POLYTHENE BAGS AND LABELS, AFTER BEI NG PROCESSED U/S 143(1) OF THE INCOME-TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WERE SELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT. IN THIS CASE, A SEARCH U/S 132 OF THE ACT WAS CONDUCTED ON 4-1-1994 IN THE OFF ICE AND FACTORY PREMISES OF THE ASSESSEE, WHEN A NUMBER OF DOCUMENTS WERE SEIZE D. ON THE BASIS OF SEIZED DOCUMENTS AND STATEMENTS RECORDED OF THE CONCERNED PERSONS, IT WAS FOUND THAT THE ASSESSEE WAS REFLECTING EXCESS CONSUMPTION OF R AW MATERIAL IN THEIR BOOKS OF ACCOUNTS. INTER ALIA, THE ASSESSING OFFICER[AO IN S HORT] NOTICED THAT THOUGH THE ASSESSEE CAPITALIZED EXPENDITURE OF RS.28,17,448/- IN THE AY 1996-97 AND RS.75,91,629/- IN AY 1997-98 IN THEIR BOOKS OF ACCO UNT, THE SAME WAS CLAIMED AS REVENUE EXPENDITURE IN THE COMPUTATION OF INCO ME. THE DETAILS OF THE EXPENDITURE REFLECTED IN PARA 4 AND 5 OF THE RESPE CTIVE ASSESSMENT ORDERS REVEAL THAT EXPENDITURE WAS INCURRED TOWARDS SALARY & WAGE S, LABOUR CHARGES, REPAIRS,LEGAL AND PROFESSIONAL CHARGES ETC. BESIDES INTEREST PAID TO THE BANK AND UPFRONT FEES PAID TO IDBI. TO A QUERY BY THE AO, T HE ASSESSEE SUBMITTED THAT THE EXPENDITURE SATISFIES THE BASIC INGREDIENTS OF SECT ION 37(1) OF THE ACT AND THE ACCOUNTING TREATMENT IN THE BOOKS OF ACCOUNT WAS NO T DETERMINATIVE FOR ALLOWANCE OF SUCH EXPENDITURE. RELYING UPON A NUMBE R OF DECISIONS IN THE CASE OF INDIA CEMENTS LTD. VS. CIT, 60 ITR 62(SC), KEDAR NATH JUTE MANUFACTURING CO. ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 4 LTD. VS CIT 82 ITR 363(SC), GUJARAT MINERAL DEVELOP MENT CORPORATION 132 ITR 377 AND NAGARI MILLS CO. LTD. VS CIT 131 ITR 257 (G UJ.) AND CIT VS INDIA DISCOUNT CO. LTD. 75 ITR 191 (SC), THE ASSESSEE PLE ADED THAT THE EXPENDITURE WAS REVENUE IN NATURE. TO A FURTHER QUERY BY THE AO , THE ASSESSEE EXPLAINED THAT EXPENDITURE ON INTEREST HAVING BEEN INCURRED F OR THE PURPOSE OF BUSINESS WAS ALLOWABLE U/S 36(1)(III) OF THE ACT. ALL THAT I S REQUIRED IS THAT THE ASSESSEES BORROWED CAPITAL MUST BE USED FOR THE PURPOSE OF BU SINESS OF THE ASSESSEE CARRIED ON IN THE YEAR UNDER CONSIDERATION. THOUGH THE AUDITORS MENTIONED IN THEIR REPLY DATED 19.2.1998 THAT PRE-OPERATIVE EXPE NSES INCLUDING ALL DIRECT EXPENSES AND INTEREST ON LOANS BORROWED FOR FIXED ASSETS TILL THE ASSETS ARE PUT TO USE, HAD BEEN CAPITALIZED IN ACCORDANCE WITH COM MERCIAL ACCOUNTING PRINCIPLES AND THE GUIDELEINES OF THE ICAI , THE AS SESSEE CONTENDED IN HIS REPLY THAT EXPENDITURE INCURRED FOR EXPANSION OF THEIR B USINESS FOR THE NEW PROJECT, WAS REVENUE IN NATURE. HOWEVER, THE AO WAS OF THE O PINION THAT THE LOAN HAVING BEEN UTILIZED FOR ACQUIRING CAPITAL ASSETS, INTERES T PAID ON SUCH LOAN IS EXPENDITURE OF CAPITAL NATURE. ACCORDINGLY, THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF THE INTEREST AS ALSO EXPENDITURE ON PU RCHASE OF STAMPS, REGISTRATION FEE, CERTIFIED COPY, ADVOCATES FEE FOR DRAFTING TH E DEED AND LEGAL CHARGES. THE AO ALSO REJECTED THE CONTENTIONS OF THE ASSESSEE I N RESPECT OF CLAIM FOR THE EXPENDITURE INCURRED ON CONVEYANCE, LEGAL & PROFESS IONAL FEES PAID TO VARIOUS CONSULTANTS FOR STAFF RECRUITMENT AND IMPROVING MAN POWER, TRAVELLING EXPENSES INCURRED IN CONNECTION WITH OPENING NEW OFFICE, SAL ARY, RENT AND OTHER EXPENSES INCURRED BY THE ASSESSEE FOR PAYMENT TO SHRI K.K. S HAH FOR CIVIL CONSTRUCTION WORK AND FOR THE PURPOSE OF RESIDENTIAL ACCOMMODAT ION AT SANTEZ AS ALSO FOR INSTALLATION OF PLANT & MACHINERY AT THE SITE. WHI LE RELYING UPON THE DECISION OF THE LEARNED CIT(A) IN THE CASE OF CORE HEALTH CARE LTD. FOR AY 1992-93 AND 1993-94 AND DISTINGUISHING THE AFORESAID DECISIONS IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD.(SUPRA),GUJARAT MINERAL DEVELOPMENT CORPORATION(SUPRA), NAGARI MILLS CO. LTD.(SUPRA) AN D INDIA DISCOUNT CO. LTD. (SUPRA), THE AO CONCLUDED THAT THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT WAS ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 5 IN ACCORDANCE WITH CONSISTENTLY FOLLOWED PRACTICE B Y THE ASSESSEE FOR ACCOUNTING AND WAS, THUS, NOT ERRONEOUS. THE ASSESSEE HIMSELF HAVING TREATED THE EXPENDITURE FOR ENDURING BENEFIT, DEDUCTION FOR THE AFORESAID EXPENDITURE FOR THE TWO ASSESSMENT YEARS CANNOT BE ALLOWED, THE AO CONC LUDED. 3. ON APPEAL, LEARNED CIT(A) ALLOWED THE CLAIM FOR THE AY 1996-97 CONCLUDING AS UNDER: (I) THE DECISION OF THE AO REGARDING THE ENTRIES MA DE BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AS SACROSANCT IS NOT CORREC T IN LAW ;WHETHER AN ITEM OF EXPENDITURE IS ALLOWABLE AS DEDUCTION IN THE COMPUTATION OF INCOME, WILL HAVE TO BE DECIDED IN ACCORDANCE WI TH LAW WITH REGARD TO ITS ADMISSIBILITY OR OTHERWISE. (II) THE QUESTION OF DEDUCTION OF THE AMOUNT CLAIME D BY THE ASSESSEE IN THE RETURN HAS TO BE ADJUDICATED IN ACCORDANCE W ITH THE PROVISIONS OF LAW AND NOT ON THE VIEW WHICH THE ASS ESSEE OR THE AO MIGHT TAKE. THE IMPUGNED EXPENDITURE INCURRED IN CO NNECTION WITH NEW PROJECT WAS FOR THE PURPOSE OF SAME BUSINESS AN D NOT A NEW BUSINESS AND THUS, ENTIRE EXPENDITURE WAS REVENUE I N NATURE. (III) INTEREST EXPENDITURE BEING INCIDENTAL TO THE BUSINESS WAS ALLOWABLE U/S 36(1)(III) OF THE ACT, LOAN TAKEN FROM IDBI HAV ING BEEN UTILIZED FOR NEW PLANT & MACHINERY . (IV) THE OTHER EXPENSES ON PURCHASE OF STAMP, REGIS TRATION, LEGAL AND PROFESSIONAL FEE ETC. WERE REVENUE IN NATURE. 4. SIMILARLY FOR AY 1997-98 THE LEARNED CIT(A), FOL LOWING HIS OWN ORDER FOR THE AY 1996-97 TREATED THE EXPENDITURE ON INTEREST , STAMP CHARGES, DOCUMENT CHARGES AND PROFESSIONAL CHARGES AS REVENUE IN NATU RE WHILE EXPENDITURE OF RS.11,39,500/- ON ACCOUNT OF UPFRONT FEE PAID TO ID BI WAS HELD TO BE CAPITAL IN NATURE. ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 6 5. THE ASSESSEE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LEARNED CIT(A) FOR THE AY 1997-98 IN RESPECT OF T HEIR CLAIM FOR DEDUCTION OF UPFRONT FEES WHILE THE REVENUE IS IN APPEAL IN THES E TWO ASSESSMENT YEARS IN RESPECT OF EXPENDITURE ALLOWED AS REVENUE. THE LEA RNED AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT( A) IN RESPECT OF THE EXPENDITURE ON INTEREST AND OTHER EXPENSES WHILE RE LYING UPON THE DECISIONS IN THE CASE OF M. RAMASAMY ASARI VS CIT,96 ITR 546, C IT VS KERALA STATE DRUG AND PHARMACEUTICALS LTD., 192 ITR 1 (KER) , INDO A RAB GRANITE VS. CIT,105 ITD 336 (HYD), CIT V. BERGER PAINTS (INDIA) LTD. (NO. 2) [2002], 254 ITR 503 (CAL), CIT VS. SRI MEENAKSHI MILLS LTD.,290 ITR 107(MAD) A ND DCIT VS. COREHEALTHCARE LTD. 308 ITR 263 (GUJ) APART FROM TH E DECISION IN THE CASE OF CORE HEALTH CARE PVT. LTD. 298 ITR 194 (SC). ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE FINDINGS OF THE AO. AS REGARDS UPFRON T FEES, THE LEARNED DR SUPPORTED THE FINDINGS OF THE LEARNED CIT(A) WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE RELIED UPON THE AFORESAID DECISIONS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON BY THE LEARN ED AR ON BEHALF OF THE ASSESSEE. AS REGARDS CLAIM FOR DEDUCTION OF INTERES T ON BORROWED CAPITAL, THE ISSUE IS NOW SETTLED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF DCIT V. CORE HEALTH CARE LTD.. [2008] 298 ITR 194 (SC) AND DCIT VS. GUJRAT ALKALIES AND CHEMICALS LTD.,299 ITR 85(SC). HONBLE SUPREME COURT IN THE AFORESAID CASE OF CORE HEALTH CARE LTD. (SUPRA), H ELD THAT : IN THE CASE OF CHALLAPALLI SUGARS LTD. [1975] 98 ITR 167 THIS COURT OBSERVED THAT INTEREST PAID ON THE BORROWING UTILISED TO BRING IN TO EXISTENCE A FIXED ASSET WHICH HAS NOT GONE INTO PRODUCTION, GOES TO ADD TO THE CO ST OF INSTALLATION OF THAT ASSET. IT WAS FURTHER OBSERVED THAT IF THE SAID BORROWING WAS NOT 'FOR THE PURPOSE OF BUSINESS' INASMUCH AS NO BUSINESS HAD COME INTO EXI STENCE, IT MUST FOLLOW THAT IT WAS MADE FOR THE PURPOSE OF ACQUIRING AN ASSET WHIC H COULD BE PUT TO USE FOR DOING BUSINESS, AND HENCE INTEREST PAID ON SUCH BOR ROWING WOULD GO TO ADD TO THE COST OF THE ASSETS SO ACQUIRED. ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 7 IN OUR VIEW THE ABOVE OBSERVATIONS HAVE TO BE CONFI NED TO THE FACTS IN THE CASE OF CHALLAPALLI SUGARS LTD. [1975] 98 ITR 167 (SC). IT WAS A CASE WHERE THE COMPANY HAD NOT YET STARTED PRODUCTION WHEN IT BORR OWED THE AMOUNT IN QUESTION. THE MORE APPROPRIATE DECISION APPLICABLE TO THE PRESENT CASE WOULD BE THE JUDGMENT. OF THIS COURT IN THE CASE OF INDIA CE MENTS LTD. V. CIT [1966] 60 ITR 52 IN WHICH IT HAS BEEN OBSERVED THAT, FOR CONSIDERIN G WHETHER PAYMENT OF INTEREST ON BORROWING IS REVENUE EXPENDITURE OR NOT , THE PURPOSE FOR WHICH THE BORROWING IS MADE IS IRRELEVANT. IN OUR VIEW, SECTI ON 36(1)(III) OF THE 1961 ACT HAS TO BE READ ON ITS OWN TERMS. IT IS A CODE BY ITSELF . SECTION 36(1)(III) IS ATTRACTED WHEN THE ASSESSEE BORROWS THE CAPITAL FOR THE PURPO SE OF HIS BUSINESS. IT DOES NOT MATTER WHETHER THE CAPITAL IS BORROWED IN ORDER TO ACQUIRE A REVENUE ASSET OR A CAPITAL ASSET, BECAUSE ALL THAT THE SECT ION REQUIRES IS THAT THE ASSESSEE MUST BORROW THE CAPITAL FOR THE PURPOSE OF HIS BUSINESS. THIS DICHOTOMY BETWEEN THE BORROWING OF A LOAN AND ACTUA L APPLICATION THEREOF IN THE PURCHASE OF A CAPITAL ASSET, SEEMS TO PROCEE D ON THE BASIS THAT A MERE TRANSACTION OF BORROWING DOES NOT, BY ITSELF B RING ANY NEW ASSET OF ENDURING NATURE INTO EXISTENCE, AND THAT IT IS THE TRANSACTION OF INVESTMENT OF THE BORROWED CAPITAL IN THE PURCHASE OF A NEW AS SET WHICH BRINGS THAT ASSET INTO EXISTENCE. THE TRANSACTION OF BORROWING IS NOT THE SAME AS THE TRANSACTION OF INVESTMENT. IF THIS DICHOTOMY IS KEP T IN MIND IT BECOMES CLEAR THAT THE TRANSACTION OF BORROWING ATTRACTS TH E PROVISIONS OF SECTION 36(1)(III). THUS, THE DECISION OF THE BOMBAY HIGH COURT IN CAL ICO DYEING AND PRINTING WORKS [1958] 34 ITR 265 AND THE JUDGMENT OF THE SUPREME COURT IN INDIA CEMENTS LTD. [1966] 60 ITR 52 HAVE BEEN GIVEN WITH REFERENCE TO THE BORROWINGS MADE FOR THE PURPOSES OF A RUNNING BUSIN ESS, WHILE THE DECISION OF THE SUPREME COURT IN CHALLAPALLI SUGARS LTD. [1975] 98 ITR 167 WAS GIVEN WITH REFERENCE TO THE BORROWINGS WHICH COULD NOT BE TREA TED AS MADE FOR THE PURPOSES OF BUSINESS AS NO BUSINESS HAD COMMENCED IN THAT CA SE. THEREFORE, THERE IS NO INCONSISTENCY BETWEEN THE ABOVE DECISIONS. CONCLUSIONS FOR THE ABOVE REASONS, WE HOLD THAT THE ASSESSING O FFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF RS. 1,56,76,000 IN RESPECT O F BORROWINGS UTILISED FOR PURCHASE OF MACHINES. ACCORDINGLY, THE ABOVE QUESTI ON IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 6.1. THE AFORESAID DECISION HAS SUBSEQUENTLY BEEN FOLLOW ED IN JCIT VS. UNITED PHOSPHOROUS LTD.,299 ITR 9(SC),ACIT VS. ARVIND POLY COT LTD.,299 ITR 12(SC) AND CIT VS. ISHWAR BHUVAN HOTELS LTD.,215CTR 14(SC) . IN THE LIGHT OF THESE DECISIONS OF THE APEX COURT, WE ARE NOT INCLINED T O INTERFERE WITH THE FINDINGS OF THE LD. CIT(A),ALLOWING THE CLAIM FOR DEDUCTION OF INTEREST ON BORROWED CAPITAL. ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 8 7. AS REGARDS DEDUCTION OF UPFRONT FEES PAID T O THE IDBI IN THE AY 1997-98, THE LD. CIT(A) CONCLUDED THAT THAT THE NATURE OF EX PENDITURE SUGGESTS THAT IT IS CAPITAL IN NATURE, BEING RELATED TO PROJECT EXPANSI ON. WE ARE OF THE OPINION THAT SEC. 2(28A) OF THE ACT DEFINING 'INTEREST' INCLUDES ANY SERVICE FEE OR OTHER CHARGE IN RESPECT OF THE MONEYS BORROWED OR DEBT INCURRED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED. THEREFORE, IN THE LIGHT OF OUR AFORESAID FINDINGS WHILE ALLOWING CLAIM FOR DEDUCTION OF INTE REST, UPFRONT FESS PAID TO IDBI FOR TAKING LOANS, BEING INTEREST, IS APPARENTLY ADMISS IBLE AS DEDUCTION. EVEN OTHERWISE, HONBLE APEX COURT IN ADDL. CIT V. AKKAM AMBA TEXTILES LTD. [1997] 227 ITR 464 AFFIRMED THE DECISION OF HONBLE ANDHRA PRADESH HI GH COURT IN ADDL. CIT V. AKKAMBA TEXTILES LTD. [1979] 117 ITR 294 , HOLDING THAT THE GUARANTEE COMMISSION PAID BY THE ASSESSEE TO THE BA NKER AND THE INSURANCE COMPANY FOR ENSURING DEFERRED PAYMENT OF THE PURCHA SE CONSIDERATION OF MACHINERY WAS AN ADMISSIBLE DEDUCTION UNDER SECTION 37 OF THE INCOME-TAX ACT, 1961. IN CIT V. SIVAKAMI MILLS LTD. [1997] 227 ITR 465 , HONBLE APEX COURT WHILE UPHOLDING THE DECISION OF HONBLE MADRAS HIGH COURT IN SIVAKAMI MILLS LTD. V. CIT [1979] 120 ITR 211 , HELD THAT THE GUARANTEE COMMISSION PAID TO THE BA NK WAS A REVENUE EXPENDITURE. SIMILAR VIEW WAS TAKEN B Y THE HONBLE JURISDICTIONAL HIGH COURT IN VIKRAM MILLS LTD. V. CIT [2000] 242 ITR 290 AND IN MIHIR TEXTILE LTD. V. CIT [2001] 252 ITR 686 (GUJ), HOLDING THAT THE BANK GUARANTEE COMMISSION WAS A REVENUE EXPENDITURE AND HENCE ALLO WABLE AS DEDUCTION IN COMPUTING THE INCOME. IN ANOTHER DECISION IN THE CA SE OF SRI MEENAKSHI MILLS LTD.(SUPRA), HONBLE MADRAS HIGH COURT WERE ALSO OF THE SAME VIEW. 7.1 IN VIEW OF THE FOREGOING AND IN THE LIGHT OF PROVISIONS OF SEC. 2(28A) OF THE ACT, WE ARE OF THE OPINION THAT THE LD. CIT(A) WA S NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE HAVE NO HES ITATION IN VACATING THE FINDINGS OF THE LOWER AUTHORITIES AND CONSEQUENTLY ALLOW GROUND NO.1 IN THE APPEAL OF THE ASSESSEE. ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 9 8. REGARDING REMAINING EXPENSES CLAIMED AS REVEN UE BY THE ASSESSEE, THE AO DISALLOWED THE CLAIM ON THE GROUND THAT THESE E XPENSES RELATED TO SETTING UP OF A NEW PROJECT AT SANTEJ AND THE ASSESSEE ITSELF CAPITALIZED THE EXPENDITURE IN THE BOOKS OF ACCOUNTS. AS FAR AS ENTRIES IN THEIR B OOKS OF ACCOUNT ARE CONCERNED, IT IS WELL SETTLED THAT THEY DO NOT CLINCH THE ISSU E EITHER WAY, AND ARE NOT DETERMINATIVE OF THE ALLOWABILITY OR OTHERWISE OF T HE EXPENDITURE. THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. V. CIT [1971] 82 ITR 363 AND IN THE CASE OF CIT V. INDIAN DISCOUNTS CO. LTD . [1970] 75 ITR 191 (SC) ARE CLEAR ON THE ISSUE. THE ACCOUNTING ENTRIE S IN THE BOOKS OF ACCOUNTS ARE OCCASIONED BY A DIVERSE SET OF CONSIDE RATIONS AND ISSUES SUCH AS COMPLIANCE WITH STATUTORY LAWS AND MANDATORY ACCOUN TING STANDARDS/PRINCIPLES AND OF COURSE MANAGEMENT DECISIONS AS TO THE TREATM ENT OF A PARTICULAR ITEM WHICH CAN BE GUIDED BY CONSIDERATIONS OF REPORTED P ROFITABILITY EARNING PER SHARE, IMPACT ON SHARE PRICES ETC.. THE SUPREME COURT IN T HE CASE OF KEDARNATH JUTE MANUFACTURING CO. LTD. VS. CIT ((1971) 82 ITR 363) (SC) ALSO AFFIRMED THE ABOVE VIEW BY OBSERVING THAT WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR D EDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON TH E VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE EXISTENCE OR A BSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER . 8.1 SUBSEQUENTLY THE HONBLE APEX COURT RE-AFFIRM ED THE SAID VIEW IN SUTLEJ COTTON MILLS. LTD. VS. CIT,116 ITR1(SC) BUT IT IS NOW WELL SETTLED THAT THE WAY IN WHICH EN TRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT OR SUFFERED ANY LOSS. THE ASS ESSEE MAY, BY MAKING ENTRIES WHICH ARE NOT IN CONFORMITY WITH THE PROPER ACCOUNT ANCY PRINCIPLES, CONCEAL PROFIT OR SHOW LOSS AND THE ENTRIES MADE BY HIM CANNOT, TH EREFORE, BE REGARDED AS CONCLUSIVE ONE WAY OR THE OTHER. WHAT IS NECESSARY TO BE CONSIDERED IS THE TRUE NATURE OF THE TRANSACTION AND WHETHER IN FACT IT HA S RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 10 8.2. LIKEWISE, IN THE CASE OF TUTICORIN ALKALI C HEMICALS AND FERTILIZERS LTD VS. CIT,227 ITR 172(SC),HONBLE SUPREME COURT HELD THAT IT IS TRUE THAT THIS COURT HAS VERY OFTEN REFERRED TO ACCOUNTING PRACTICE FOR ASCERTAINMENT OF PROFIT MADE BY A COMPANY OR VALUE OF THE ASSETS OF A COMPANY. BUT WHEN THE QUESTION IS WHETHER A RECEIPT OF MONEY IS TAXABLE OR NOT OR WHETHER CERTAIN DEDUCTIONS FROM THAT RECEIPT ARE PERMISSIBL E IN LAW OR NOT, THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRINCIPLES OF LA W AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE. ACCOUNTING PRACTICE CANNOT OV ERRIDE SECTION 56 OR ANY OTHER PROVISION OF THE ACT AS WAS POINTED OUT BY LO RD RUSSELL IN THE CASE OF B. S. C. FOOTWEAR LTD. [1970] 77 ITR 857, 860 (CA), THE I NCOME TAX LAW DOES NOT MARCH STEP BY STEP IN THE FOOTPRINTS OF THE ACCOUNT ANCY PROFESSION. 8.3 IN THE LIGHT OF AFORESAID DECISIONS, WE HAV E NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A) THAT THE QUESTION OF DED UCTION OF THE AMOUNT CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME IS REQUIRED TO BE ADJUDICATED IN ACCORDANCE WITH PROVISIONS OF LAW AND NOT THE VIEW, WHICH THE ASSESSEE OR THE AO MAY ADOPT. 8.4 REGARDING THE FINDINGS OF THE AO THAT EXPEND ITURE ON SALARY, RENT, LEGAL AND PROFESSIONAL CHARGES, REPAIRS ETC. BEING RELATED T O SETTING UP OF A NEW PROJECT WERE CAPITAL IN NATURE, THE LD. CIT(A) CONCLUDED TH AT THE EXPENDITURE ON ACCOUNT OF LEGAL AND PROFESSIONAL FEES, TRAVELLING, SALARY AND RENT ETC. BEING INCURRED IN RELATION TO EXPANSION OF THE EXISTING AND SAME BUSI NESS, NONE OF THESE COULD BE TREATED AS CAPITAL IN NATURE. THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTROVERTING THESE FINDINGS OF THE LD. CIT(A). EVE N OTHER WISE THERE IS NO SUCH FINDING BY THE AO THAT NEW UNIT BEING SET UP BY THE ASSESSEE WAS AN ALTOGETHER SEPARATE AND DISTINCT BUSINESS NOR THE LD. DR REFER RED US TO ANY SUCH MATERIAL. IN KARAMCHAND PREMCHAND PVT. LTD. V. CIT [1982] 137 ITR 209 (GUJ), WHILE CONSIDERING THE QUESTION WHETHER IT WAS CAPITAL OR REVENUE EXPENDITURE, HONBLE JURISDICTIONAL HIGH COURT HELD THAT WHEN THE OBJECT FOR WHICH THE ASSESSEE HAD INCURRED THE EXPENSES IS TO INCREASE ITS OWN INCOME BY EXPANDING THE EXISTING BUSINESS OR STARTING A NEW BUSINESS FOR THE MANAGED COMPANY, THEN IN DOING SO THE ASSESSEE DOES NOT ACQUIRE ANY CAPITAL ASSET NOR HAD ANY BENEFIT OF AN ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 11 ENDURING NATURE ACCRUED TO IT. REFERENCE WAS MADE T HEREIN TO TATA SONS LTD. V. CIT [1950] 18 ITR 460 (BOM), WHEREIN IT WAS OBSERVED THAT WHILE DECIDING THE QUESTION WHETHER A PARTICULAR AMOUNT CLAIMED BY THE ASSESSEE COMPANY AS A DEDUCTION IS AN EXPENDITURE LAID OUT OR EXPENDED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS, ONE HAS NOT TO TAKE AN ABS TRACT OR ACADEMIC VIEW OF WHAT IS PROPER EXPENDITURE LAID OUT OR EXPENDED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF ONE'S BUSINESS BUT ONE HAS GOT TO TAKE I NTO CONSIDERATION QUESTIONS OF COMMERCIAL EXPEDIENCY AND THE PRINCIPLE OF ORDINARY COMMERCIAL TRADING AND THE MAIN CONSIDERATION THAT HAS GOT TO WEIGH WITH THE C OURT IS WHETHER THE EXPENDITURE WAS A PART OF THE PROCESS OF PROFIT-MAK ING AND FURTHER THAT IF THE EXPENDITURE HELPS OR ASSISTS THE ASSESSEE IN MAKING OR INCREASING THE PROFITS, THEN UNDOUBTEDLY THAT EXPENDITURE WOULD BE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. AS OBSERVED BY THE HONBLE SUPREME COURT IN THE DECISION IN EMPIRE JUTE CO. LTD. V. CIT [1980] 124 ITR 1 (SC), THAT THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAI NING AN ADVANTAGE OF ENDURING BENEFIT, MAY, NONE THE LESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT EVERY ADVANTAGE O F ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIP LES LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANT AGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FI ELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST .IN TH EIR SUBSEQUENT DECISION, HONBLE SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT (1989) 177 ITR 377 ITSELF OBSERVED THAT THE IDEA OF 'ONCE FOR ALL' PAYMENT AND 'ENDURING B ENEFIT' ARE NOT TO BE TREATED AS SOMETHING AKIN TO STATUTORY CONDITIONS ; NOR ARE THE NOTIONS OF 'CAPITAL' OR 'REVENUE' A JUDICIAL FETISH. WHAT IS CAPITAL EXPEND ITURE AND WHAT IS REVENUE ARE NOT ETERNAL VERITIES BUT MUST NEED BE FLEXIBLE SO A S TO RESPOND TO THE CHANGING ECONOMIC REALITIES OF BUSINESS. THE EXPRESSION 'ASS ET OR ADVANTAGE OF AN ENDURING NATURE' WAS EVOLVED TO EMPHASISE THE ELEME NT OF A SUFFICIENT DEGREE OF DURABILITY APPROPRIATE TO THE CONTEXT. ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 12 8.5 IN THE LIGHT OF AFORESAID JUDICIAL PRONOUNCEM ENTS, ESPECIALLY WHEN THERE IS NOTHING TO SUGGEST THAT THE EXPENDITURE INCURRED B Y THE ASSESSEE WAS TOWARDS AN ALTOGETHER SEPARATE AND DISTINCT BUSINESS NOR TH E REVENUE PLACED BEFORE US ANY MATERIAL CONTRARY TO THE FINDINGS OF THE LD. CI T(A) SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A). CONSEQUENTLY, GROUND NO.1 IN APPEAL OF THE ASSESSEE IS ALLOWED WHILE GROUND NO.1(I) IN AY 1996-97 & GROUND NO.1 IN THE AY 1997-98 IN THE APPEALS OF THE REVENUE ARE DISMISSED. 9. ADVERTING NOW TO GROUND NO.1(II) IN AY 1996-97 & GROUND NO.2 IN THE AY 1997-98 IN THE TWO APPEALS OF THE REVENUE, RELATING TO EXCESS CONSUMPTION OF RAW MATERIAL, FACTS, IN BRIEF, ARE THAT ON THE BASI S OF SEIZED DOCUMENTS AND STATEMENTS RECORDED DURING THE COURSE OF SEARCH IN THE PREMISES OF THE ASSESSEE ON 4-1-1994, THE AO ISSUED A SHOW CAUSE NOTICE TO T HE ASSESSEE, SEEKING DISALLOWANCE OF EXPENSES INCURRED ON EXCESS CONSUMP TION OF RAW MATERIAL IN ITS BOOKS OF ACCOUNT. THE AO NOTICED THAT SINCE THE SAL ES OF THE ASSESSEE WERE IN NUMBER OF BAGS/SACKS AND NOT IN KGS, THE EXCESS PRO DUCTION WAS SIMPLY ADJUSTED BY INFLATING THE WEIGHT PER BAGS. ACCORDING TO THE AO, THIS FACT WAS ADMITTED BY SHRI MANISH SOMANI, CONVERSANT WITH THE BUSINESS OF THE ASSESSEE AND DAY TO DAY PRODUCTION OF FINISHED GOODS. MOREOVER, DURING THE COURSE OF SURVEY U/S 133(A) OF THE ACT CONDUCTED IN THE PREMISES OF THE ASSESSEE ON 14-3-1997, IT WAS FOUND THAT THE WEIGHT PER BAG WAS BEING INFLAT ED IN ORDER TO DEBIT EXCESS CONSUMPTION OF RAW MATERIAL IN THE BOOKS OF ACCOUNT , WHICH IN TURN WAS SOLD OUTSIDE THE BOOKS. IN REPLY TO A SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE CONSUMPTION OF RAW MATERIAL HAS BEEN SATISFACTO RILY EXPLAINED AND THE STATEMENT OF SHRI MANISH SOMANI WAS NOT RELEVANT FO R THE YEAR UNDER CONSIDERATION. WHILE ENCLOSING A STATEMENT OF WORK ING OF CONSUMPTION OF RAW MATERIAL IN THE YEAR UNDER CONSIDERATION, THE ASSES SEE SUBMITTED THAT CONSUMPTION AS DECLARED IN THE BOOKS OF ACCOUNT TA LLIES WITH THE STATEMENT, MORE OR LESS. AS REGARDS DIFFERENCE OF 25289 KGS., IT WAS EXPLAINED THAT THIS WAS ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 13 ON ACCOUNT OF PACKING MATERIAL. LOOKING TO THE OVER ALL CONSUMPTION OF 2982259 KGS, THE ASSESSEE PLEADED THAT THE DIFFERENCE WAS N OMINAL I.E. 0.84% VIS-A-VIS 0.96% IN THE PRECEDING YEAR. HOWEVER, THE AO REJECTED THESE CONTENTIONS OF THE ASSESSEE AND AFTER CONSIDERING THE DETAILS OF WORKI NG OF CONSUMPTION OF RAW MATERIAL AND PRODUCTION AS ALSO WASTAGE IN THESE T WO ASSESSMENT YEARS CONCLUDED THAT DIFFERENCE BETWEEN RAW MATERIAL CONS UMED, RELATABLE TO PRODUCTION OF BAGS AND THE WEIGHT OF BAGS PRODUCED , WORKED OUT TO 8489 KGS. IN THE AY 1996-97 AND 6784 KGS IN AY 1997-98. SINCE TH E ASSESSEE CLAIMED THAT NO PACKING EXPENSES HAD BEEN CLAIMED IN THE PROFIT & LOSS ACCOUNT, THE AO INFERRED THAT IT WAS POSSIBLE THAT THE ASSESSEE WA S USING RAW MATERIAL FOR PACKING PURPOSES AND THEREFORE, HALF OF THE AFORESA ID DIFFERENCE IN WEIGHT REPRESENTED EXCESS CONSUMPTION OF RAW MATERIAL, RES ULTING IN ADDITION OF RS.1,65,556/- AND RS.2,68,672 [@ RS.39.62 PER KG. ] IN THESE TWO ASSESSMENT YEARS. 10. ON APPEAL, THE ASSESSEE CONTENDED THAT THE AO D ID NOT BRING ANY MATERIAL ON RECORD IN SUPPORT OF THE ADDITIONS MADE. THE ASS ESSEE SUBMITTED COMPLETE QUANTITATIVE DETAILS OF RAW MATERIAL PURCHASED, FAB RIC MANUFACTURED, AND BAGS STITCHED. IT WAS ARGUED THAT IN THE AY 1994-95, A SIMILAR ADDITION HAD BEEN DELETED BY THE LEARNED CIT(A) WHEN RATIO OF PACKING MATERIAL TO TOTAL RAW MATERIAL WAS 0.96% AS AGAINST ONLY 0.28% IN THE AY 1996-97 . IN THE LIGHT OF THESE SUBMISSIONS, THE LEARNED CIT(A) CONCLUDED IN HIS OR DER FOR THE AY 1996-97 AS UNDER: 27. I HAVE CAREFULLY GONE THROUGH THIS GROUND OF A PPEAL. IT NEEDS TO BE HIGHLIGHTED THAT THE IMPUGNED ADDITION IS BAS ED ON A PRESUMPTION THAT ASSESSEE WAS SHOWING EXCESS CONSUM PTION AND WASTAGE IN ITS BOOKS OF ACCOUNTS. THE ADDITION IS A LSO BASED ON THE STATEMENT OF ONE SHRI MANISH SOMANI WHO ADMITTED TH AT EXCESS CONSUMPTION WAS BEING DEBITED TO THE BOOKS OF ACCOU NTS ON A REGULAR BASIS. IT NEEDS TO BE EMPHASIZED THAT THIS PRESUMPTION IS NOT BACKED BY ANY SEIZED DOCUMENTS IN CONSEQUENCE O F SEARCH ON WHICH THE ADDITION IS WORKED OUT. IT ALSO NEEDS TO BE TAKEN ON RECORD THAT THE STATEMENT OF SHRI MANISH SOMANI HAS NOT RESULTED INTO ANY DISCLOSURE RELEVANT TO THIS YEAR ON WHICH THIS ADDITION COULD ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 14 BE BASED OR ON WHICH BASIS IT COULD BE WORKED OUT. AS POINTED OUT ABOVE, SEARCH AND SEIZURE OPERATION IN THIS CASE TO OK PLACE ON 4.1.1994 AND STATEMENT OF SHRI SOMANI WAS NOT AT AL L RELEVANT FOR A. Y. 1996-97. IN A WAY, ANY RELIANCE ON THE STATEMENT OF SHRI SOMANI COULD NOT BE PLACED SINCE IT WAS NOT RELEVANT FOR T HE PRESENT YEAR. 28. IT IS A MATTER OF RECORD THAT ALLEGED EXCESS CONSUMPTION OF 4245 KGS IS SIMPLY BASED ON ASSUMPTI ON, CONJECTURE AND SURMISES. THERE IS NO RATIONAL CALCU LATION GIVEN FOR WORKING OUT THIS EXCESS CONSUMPTION. THERE IS NO MA TERIAL ON RECORD IN SUPPORT OF THIS ADDITION. IN NUTSHELL, TH IS IS ONLY AN ESTIMATED ADDITION WHICH IS NOT BASED ON PROPER FAC TS. DURING THE COURSE OF ASSTT. PROCEEDINGS, RELEVANT QUANTITY DET AILS WERE AVAILABLE. QUANTITY RECORDS IN RESPECT OF FABRIC MA NUFACTURED AS WELL AS BAGS STITCHED WERE ALSO AVAILABLE. THE EXER CISE WAS CARRIED OUT ON THE BASIS OF WORK ORDERS AND ON THE BASIS OF TOTAL MANUFACTURING WORK DONE AND THE CONSUMPTION REQUIRE MENTS OF RAW MATERIAL WERE ALSO WORKED OUT. BUT WITHOUT ANY EVID ENCE, THE ASSESSING OFFICER REACHED THE CONCLUSION THAT 4245 KGS OF RAW MATERIAL WAS THE EXCESS CONSUMPTION. THE FACT WAS D ULY ADMITTED THAT RAW MATERIAL WAS USED FOR PACKING PURPOSES TOO . THE FACT, HOWEVER, REMAINS THAT THE WORKING IS NOT SUBJECT TO ANY VERIFICATION AND JUST BASED ON PERSONAL OPINION OF THE ASSESSING OFFICER. NEEDLESS TO MENTION THAT SUCH LIKE ESTIMATION WHICH IS NOT BACKED UP BY EVIDENCE CANNOT BE SUSTAINED. 29. IN A. Y. 1994-95, SIMILAR ADDITION WAS MADE WHI CH HAS BEEN SINCE ADJUDICATED BY ME IN THE APPELLATE ORDER AS R EFERRED ABOVE. IN A. Y. 1994-95 DETAILED WORKING WITH BASIS WAS GIVEN . THE MATTER WAS ACCORDINGLY ADJUDICATED ON MERITS OF THAT PARTI CULAR YEAR. BUT IN THAT YEAR THE RATIO OF PACKING MATERIAL TO THE TOTA L RAW MATERIAL USED WAS ON 0.96% AS AGAINST WHICH IT IS ONLY 0.28% DURI NG THE YEAR UNDER APPEAL. COMPARATIVELY IN VIEW OF THESE FIGURE S, NO ADDITION SHOULD HAVE BEEN MADE. THE IMPUGNED ADDITION THEREF ORE, GETS DELETED FOR THE REASON THAT IT IS NOT BASED ON ANY MATERIAL OR EVIDENCE. IT IS ALSO DELETED FOR THE SIMPLE REASON THAT IN EARLIER YEAR TOO THE USE OF RAW MATERIAL AS PACKING MATERIAL WAS ACCEPTED WHICH WAS FAR MORE HIGHER THAN THIS YEAR. THE ADDITION MA DE, THEREFORE, STANDS DELETED. 11. IN THE LIGHT OF AFORESAID VIEW TAKEN IN THE AY 1996-97, THE LD. CIT(A) DELETED THE ADDITION IN AY 1997-98. ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 15 12. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LEARNED CIT(A). AT THE OUTSET, BOTH THE PARTIES AGR EED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 31-8-2007 OF THE ITAT IN ITA NO.39/AHD/2000, 901/AHD/1999, 312/AHD//2000 AND 1041/AHD/2001 FOR THE AYS 1994-95,1993-94, 1994-95 AND 1998-99 RESPECTIVELY. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND O GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. WE FIND THA T A SIMILAR ADDITION WAS DELETED BY THE TRIBUNAL VIDE THEIR AFORESAID ORDER DATED 31 -8-2007 FOR THE AY 1993- 94,1994-95 & 1998-99 IN FOLLOWING TERMS: 11. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE FAIRLY FEEL THAT IN ALL THESE THREE APPEALS FILED BY THE R EVENUE, THE FACTS AND CIRCUMSTANCES ARE EXACTLY IDENTICAL TO THE EXTE NT THE ADDITION ON ACCOUNT OF EXCESS CONSUMPTION OF RAW MATERIAL DE LETED BY THE LD. CIT(A) IN THE ASSESSMENT YEAR 1993-94 IN ITA NO.901/AHD/1999. WE, THEREFORE, CONFIRM THE ORDERS OF THE LD. CIT(A) IN ALL THESE APPEALS. WE ACCORDINGLY DISMISS THE APPEALS OF THE REVENUE ON THIS COMMON ISSUE. 14. IN THE LIGHT OF THE VIEW TAKEN BY ITAT IN THEI R AFORESAID DECISION, ESPECIALLY WHEN THERE IS NO APPARENT BASIS FOR THE AFORESAID ADDITION IN THE YEAR UNDER CONSIDERATION, AS POINTED OUT BY THE LD. CIT( A) WHILE CONSUMPTION OF PACKING MATERIAL VIS--VIS RAW MATERIAL HAS COME DO WN TO 0.28% IN THE YEAR UNDER CONSIDERATION AND THE LD. DR DID NOT REFER US TO ANY MATERIAL CONTRARY TO THE FINDINGS OF THE LD. CIT(A), WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LEARNED CIT(A). THEREFORE, GROUND NO.1(II) IN AY 19 96-97 & GROUND NO.2 IN THE AY 1997-98 IN THE APPEALS OF THE REVENUE ARE DISMISSED . 15. GROUND NO. 1(III) IN THE APPEAL OF THE REVENUE FOR THE AY 1996-97 RELATES TO DISALLOWANCE OF RS. 7,19,480/- ON ACCOUNT OF STI TCHING AND PRINTING CHARGES. THE AO NOTICED THAT THE ASSESSEE CLAIMED STITCHING CHARGES IN THE NAME OF THE FOLLOWING PERSONS: ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 16 DHAYAL ENTERPRISES RS. 3,99,500/- SATYAM TAILORS RS. 3,19,980/- RS. 7,19,480/- TO A QUERY BY THE AO, IN THE LIGHT OF REPLY TO QUES TION NO.41 OF THE STATEMENT DATED 4.1.1994 OF SHRI MANISH SOMANI DURING THE S EARCH THAT THE SAID EXPENDITURE WAS BOGUS, THE ASSESSEE DID NOT FURNISH ANY EVIDENCE IN SUPPORT OF THE EXPENDITURE. THE AO OBSERVED THAT IN THE PRECED ING ASSESSMENT YEAR INSPECTOR WAS DEPUTED TO CONDUCT A DETAILED INQUIRY IN RESPECT OF THE AFORESAID TWO PERSONS. THEY WERE NOT FOUND AT THE ADDRESS GIV EN BY THE ASSESSEE WHILE GUJARAT ELECTRICITY BOARD CONFIRMED THAT NO CONNECT ION WAS GIVEN IN THE NAME OF THE AFORESAID TWO PERSONS. ACCORDINGLY, THE AO DISA LLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF AFORESAID EXPENDITURE. 16. ON APPEAL, THE ASSESSEE CONTENDED THAT THE AO D ID NOT RECORD ANY STATEMENT NOR THERE ANY EVIDENCE WAS BROUGHT ON REC ORD SUGGESTING THAT CASH WAS RECEIVED BACK FROM THE AFORESAID TWO PERSONS AF TER PAYMENT TO THEM. SINCE THE STATEMENT OF SHRI MANISH SOMANI DID NOT RELATE TO THE YEAR UNDER CONSIDERATION, THE SAID STATEMENT COULD NOT FORM TH E BASIS FOR THE ADDITION. EVEN IN THE AY 1994-95, WHEREIN DETAILED INQUIRY WAS CON DUCTED BY THE AO, THE ASSESSEE FURNISHED COMPLETE NAME AND ADDRESS OF THE TWO PARTIES, THEIR BANK ACCOUNT AND INCOME TAX DETAILS WHILE THE AFORESAID TWO PARTIES WERE RESIDING IN RENTED PREMISES AND THE ELECTRIC CONNECTION WAS IN THE NAME OF THEIR LANDLORD, THE LEARNED CIT(A) DELETED THE ADDITION . IN THE L IGHT OF THESE SUBMISSIONS, THE LEARNED CIT(A) CONCLUDED AS UNDER: 32. I HAVE CAREFULLY CONSIDERED THE RIVAL VERSION S ON THE ISSUE INVOLVED. THE VERY BASIS FOR MAKING IMPUGNED ADDITION AGAIN IS THE STATEMENT OF SHRI MANISH SOMANI WHICH WAS SU BSEQUENTLY RETRACTED AND ON THE BASIS OF WHICH NO DISCLOSURE W AS MADE. MANISH SOMANI HAD ADMITTED THAT DIFFERENT CONCERNS WERE RUN BY THEIR OWN EMPLOYEES AND PAYMENTS MADE TO THESE CONC ERNS WERE RECEIVED BACK IN CASH. NOW, THIS WAS THE BEGINNING POINT ONLY FOR THIS ADDITION. THE MOST IMPORTANT FACT WHICH NEEDS TO BE HIGHLIGHTED IS THAT THIS STATEMENT OF SHRI MANISH SOMANI DOES N OT PERTAIN TO THE ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 17 ASSESSMENT YEAR UNDER APPEAL. ANY RELIANCE ON THIS STATEMENT BY ITSELF WILL NOT RESULT INTO ANY ADDITION. THE ASSES SING OFFICER HAS GOT NOT POWER TO STRETCH THE STATEMENT TO ALL THE SUBSE QUENT YEARS FOR THE PURPOSE OF DRAWING AN ADVERSE INFERENCE. IT IS ALSO SIGNIFICANT TO HIGHLIGHT THAT NO DOCUMENTS OR EVIDENCE WAS FOUND D URING THE COURSE OF SEARCH WHICH COULD SUPPORT THE PRESENT AD DITION IN THIS YEAR. NO EVIDENCE OR DOCUMENT WAS ALSO FOUND IN SUP PORT OF THIS ALLEGATION/ADMISSION. IT IS RELEVANT TO POINT OUT A GAIN THAT EVEN THIS STATEMENT WAS SUBSEQUENTLY RETRACTED AND NO DISCLOS URE WAS MADE ON THIS ACCOUNT. IN THIS WAY, THE STATEMENT OF SHRI SOMANI COULD NOT BY ITSELF BE USED AGAINST THE ASSESSEE IN ABSENCE O F ANY OTHER CORROBORATIVE EVIDENCE. SECONDLY, THE ASSESSING OFF ICER WAS INFLUENCED BY THE FACT ALSO THAT THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE IN SUPPORT OF THE IMPUGNED EXPENDITURE. IN THIS REGARD THE ASSESSING OFFICER MADE A REFERENCE TO ASSESSMENT YE AR 1995-96 IN WHICH CERTAIN ENQUIRIES WERE GOT CONDUCTED. DURING THE COURSE OF THESE ENQUIRIES, THE PARTIES CONCERNED TO WHOM THE PAYMENTS WERE MADE COULD NOT BE LOCATED AND IT WAS ALSO FOUND THA T THERE WAS NO POWER CONNECTION IN THE NAMES OF THESE TWO PARTIES. ASSESSEES VERSION AGAINST THIS ISSUE IS THAT BOTH THE PARTIES WERE OPERATING FROM RENTAL PREMISES AND THE ELECTRIC CONNECTION WA S IN THE NAME OF LANDLORD. CONFIRMATIONS FROM THE LANDLORD WERE DULY PRODUCED WHEREIN IT WAS CLEARLY STATED THAT POWER CONNECTION WITH GEB WAS IN THE NAMES OF THE LANDLORD. IT WAS FURTHER CONFIR MED BY THE LANDLORD THAT BOTH THE REFERRED PARTIES WERE VERY M UCH IN OPERATION AND IT WAS ONLY DURING THE PAST COUPLE OF MONTHS TH AT THEY HAVE CLOSED DOWN THE BUSINESS. IN THIS WAY, THE EXISTENC E OF BOTH THE PARTIES HAS CLEARLY ESTABLISHED. THIS FACT HAS NOT BEEN APPRECIATED BY THE ASSESSING OFFICER AND HE HAS USED THE ENQUIR IES PARTIALLY. HE HAS MADE USE OF THE FACT THAT PARTIES COULD NOT BE LOCATED BUT HE HAS NOT REFERRED TO THE ENQUIRIES MADE FROM THE LANDLORDS AND THEIR CONFIRMATIONS WHICH WERE THERE DURING THE COU RSE OF ASSESSMENT FOR A. Y. 1995-96 AND 1996-97. WHEN THE PARTIES CONCERNED HAVE CLOSED DOWN THEIR BUSINESS AND THEY ARE NOT AVAILABLE ON THE KNOWN ADDRESS, ONLY ALTERNATE EVID ENCE WHICH CAN BE PRODUCED IS IN THE FORM OF SECONDARY EVIDENCE OF THE LANDLORD. THIS SECONDARY EVIDENCE WAS DULY AVAILABLE WHICH WA S REQUIRED TO BE ACCEPTED SINCE THERE WAS NOTHING CONTRARY TO THA T AVAILABLE. IT IS NOT THE CASE, PROVED BY THE REVENUE THAT EXCESS PAY MENTS MADE HAVE BEEN RECEIVED BY THE ASSESSEE BACK IN CASH. IN NUTSHELL, THERE IS NO CONCLUSIVE EVIDENCE TO DECIDE THE ISSUE AGAINST THE ASSESSEE. THE ADDITION GETS DELETED FOR THE REASON THAT STATEMENT OF SHRI SOMANI WAS NOT APPLICABLE TO THIS YEAR SINC E THERE WAS NO EVIDENCE TO THAT AN EFFECT AND SECONDLY THERE WAS N O ADVERSE EVIDENCE AVAILABLE AGAINST THE ASSESSEE WITH REGARD TO THE ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 18 PAYMENT AS MADE TO TWO PARTIES AS REFERRED ABOVE. K EEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES AS ABOVE, T HE ADDITION MADE STANDS DELETED. THIS FINDING IS ALSO IN CONFORMITY WITH MY FINDING FOR A. Y. 1994-95 IN THE CASE OF THE ASSESSEE WHEREIN T HIS ISSUE HAS BEEN DISCUSSED IN LARGER DETAILS. FOR DELETING THIS ADDITION, RELIANCE IS ALSO PLACED ON MY EARLIER FINDINGS AS GIVEN IN A . Y. 1994-95 IN THE CASE OF THE ASSESSEE. 17. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LEARNED CIT(A). AT THE OUTSET, BOTH THE PARTIES AGR EED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 31-8-2007 OF THE ITAT IN ITA NO.39/AHD/2000, 901/AHD/1999, 312/AHD//2000 AND 1041/AHD/2001 FOR THE AYS 1994-95, 1993- 94, 1994-95 AND 1998-99 RESPECTIVELY 18. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE AO MADE THE ADDITION IN THE YEAR U NDER CONSIDERATION MERELY ON THE BASIS OF STATEMENT OF SHRI MANISH SOMANI RELEVA NT FOR THE AY 1994-95. IN THAT YEAR, THE ITAT VIDE THEIR AFORESAID ORDER DATED 31. 8.2007 HELD AS UNDER: 30. THE NEXT ISSUE IN THIS APPEAL OF THE REVENUE IS REGARDING DELETION OF ADDITION FOR RS.17,89,911/- F OR ALLEGED EXCESS CUTTING , STITCHING AND PRINTING CHARGES. 31. THIS ISSUE IS INTERDEPENDENT AND INTERCONNECTE D WITH THE ADDITION MADE IN THE ASSESSMENT YEAR 1993-94 AM OUNTING TO RS.33,38,680/- ON ACCOUNT OF TRANSACTIONS WITH THE SISTER CONCERNS ON THE BASIS OF STATEMENT OF SHRI MANISH SOMANI REC ORDED UNDER SECTION 132(4) AND BY SECTION 40A(2) (B) OF THE ACT . THE VERY BASIS OF THIS ADDITION IS ON THE STATEMENT OF SHRI MANISH SOMANI WHO HAS STATED THAT EVERY YEAR THEY ARE DEBITING THE AMOUNT OF RS.10 LAKHS IN THE BOOKS OF THE ASSESSEE AND WHICH SUBSEQUENTLY RECEIVED BACK FROM THE SISTER CONCERNS OF THE ASSESSEE, NAME LY KABRA AND IBM. IT SEEMS THAT THE ASSESSING OFFICER WHILE MAKI NG THE ADDITION ON ACCOUNT OF CUTTING, STITCHING AND PRINTING AMOUN TING TO RS. 17,89,911/- IS INFLUENCED BY THE SUBSTANTIAL INCREA SE IN LABOUR EXPENSES AMOUNTING TO RS.34,04,443/- WITHOUT IGNORI NG THE FACT THAT THE ASSESSEE HAS UNDERTAKEN THE JOB WORK WITH THESE TWO SISTER CONCERNS. DURING THE ASSESSMENT YEAR, THE ASSESSEE GOT 8 LAKHS BAGS STITCHED. IN THE ASSESSMENT YEAR 1994-95 I.E. RELEVANT TO THE ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 19 ASSESSMENT YEAR, THE REQUIRED ORDER WAS TO THE EXTE NT OF RS.1,20,00,355/- BAGS HAD BEEN CUT, STITCHED AND PR INTED BY OUTSIDE AGENCIES. THIS FACT HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER WHILE MAKING THE ADDITION. EVEN,T HESE TWO SISTER CONCERNS ARE INCOME TAX ASSESSEES AND THEY ARE FILI NG THE RETURNS OF INCOME AND ALSO PAYMENTS ARE SUPPORTED BY BANK S TATEMENT. THE ASSESSING OFFICER WAS ALSO PROVIDED THE COMPLET E ADDRESS OF THE PERSON CONCERNED. EVEN THE FACTS ON RECORD DO N OT SUPPORT THE ACTION OF THE ASSESSING OFFICER AS ESTIMATING OF CU TTING, STITCHING AND PRINTINGS OF BAGS CHARGES IS BASED ON INCOMPLET E FACTS. AS THE ASSESSING OFFICER HIMSELF HAS ALLOWED DOUBLE EXPEND ITURE ON THIS ACCOUNT IN THE IMMEDIATELY PRECEDING YEAR I.E. 1993 -94 ON A LESSER QUANTITY OF BAGS STITCHED AND CUT. IN VIEW OF THESE FACTS, WE FAIRLY FEEL THAT THE ADDITION HAS NOT BEEN SUPPORTED BY AN Y EVIDENCE AND THERE IS NO DOCUMENTARY EVIDENCE AVAILABLE WHICH SU PPORTS THAT THE ASSESSEE HAD NOT PAID THESE EXPENSES. THE ONLY ADVE RSE INFERENCE DRAWN IS ON THE STRENGTH OF RETRACTED STATEMENT OF SHRI MANISH SOMANI. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, W E FEEL THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION. ACCORD INGLY, WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. 19. IN THE LIGHT OF THE VIEW TAKEN BY THE ITAT IN T HEIR AFORESAID DECISION, WHEREIN A SIMILAR ADDITION HAS BEEN DELETED WHILE T HE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL CONTRARY TO THE FINDINGS OF THE LD. CIT(A), WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LEARN ED CIT(A). THEREFORE, GROUND NO.1(III) IN THE APPEAL OF THE REVENUE FOR THE AY 1996-97 IS DISMISSED. 20. GROUND NO. GROUND NO.1(IV) IN AY 1996-97 & GROU ND NO.3 IN THE AY 1997- 98 IN THE APPEALS OF THE REVENUE RELATE TO DISALLOW ANCE OF INTEREST PAID TO M/S GRACEFUL PROPERTY FOR AN AMOUNT OF RS.2,94,000/- AN D RS. 1,47,500/- RESPECTIVELY. THE AO NOTICED THAT THE ASSESSEE HAD TAKEN LOAN FRO M GRACEFUL PROPERTIES LTD. AND PAID INTEREST OF RS. 2,94,000/- IN AY 1996-97 AND RS.1,47,450/- IN AY 1997- 98. SINCE THE LOAN TAKEN IN THE PRECEDING ASSESSMEN T YEAR 1994-95 WAS NOT ACCEPTED AS GENUINE, THE AO DISALLOWED THE CLAIM FO R DEDUCTION OF INTEREST IN THESE TWO ASSESSMENT YEARS. ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 20 21. ON APPEAL, THE ASSESSEE CONTENDED THAT THEY HAD TAKEN LOAN OF RS.17 LACS IN AY 1994-95 AND THE AO ACCEPTED THE LOAN AS GENUINE. SUBSEQUENTLY, EVEN WHEN RE-ASSESSMENT PROCEEDINGS WERE INITIATED, AFTER A DETAILED INVESTIGATION, THE PROCEEDINGS U/S 148 OF THE ACT W ERE DROPPED. SINCE LOAN HAD BEEN CONSIDERED AS GENUINE, THERE WAS NO QUESTION D ISALLOWANCE OF ANY INTEREST PAID TO THE SAID PARTY, THE ASSESSEE PLEADED. IN TH E LIGHT OF THESE SUBMISSIONS THE LEARNED CIT(A) DELETED THE ADDITION, HOLDING TH E AO HIMSELF HAVING ACCEPTED THE LOAN OF RS.17 LACS FROM M/S GRACEFUL PROPERTIES LTD. AS GENUINE AND SUBSEQUENTLY DROPPED THE PROCEEDINGS U/S 148 OF THE ACT, THERE REMAIN NO BASIS FOR SUCH ADDITION. 22. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LEARNED CIT(A). WE HAVE HEARD BOTH THE PARTIES. SIN CE THE LEARNED DR DID NOT PLACE BEFORE US ANY MATERIAL CONTROVERTING THE AFOR ESAID FINDINGS OF FACTS RECORDEDBY THE LEARNED CIT(A), WE HAVE NO HESITATI ON IN UPHOLDING HIS FINDINGS . THEREFORE, GROUND NO.1(IV) IN AY 1996-97 & GROUND N O.3 IN THE AY 1997-98 IN THE APPEALS OF THE REVENUE ARE DISMISSED. 23. GROUND NO. 1(V) IN THE APPEAL OF THE REVENUE FO R AY 1996-97 AND GROUND NO.4 IN THE APPEAL OF THE REVENUE FOR AY 1997-98 RE LATE TO SALE OF WASTAGE OUTSIDE THE BOOKS TO THE EXTENT OF RS. 11,90,528/ - IN AY 1996-97 AND RS. 19,71,968/- IN AY 1997-98. ON THE BASIS OF STATEMEN T OF SHRI MANISH SOMANI RECORDED DURING THE COURSE OF SEARCH ON 4-1-1994 TH AT THE ASSESSEE USED TO SELL WASTAGE OF ITS PRODUCT IN THE OPEN MARKET @RS.4 PER KG. OVER AND ABOVE THE INVOICE RATE AND THIS AMOUNT WAS NOT SHOWN IN THE B OOKS WHILE CERTAIN NOTINGS WERE FOUND IN THE PERSONAL DAIRY OF SHRI MANISH SOM ANI SEIZED DURING THE PERIOD AS DISCUSSED IN THE ASSESSMENT ORDER FOR AY 1994-95 AND ON THE BASIS OF HIS OWN FINDINGS FOR AY 1994-95, THE AO SHOW-CAUSED THE ASSESSEE AS TO WHY ADDITION BE NOT MADE @RS.4 PER KG. ON THE WASTAGE OF 2,97,632 KGS IN THE YEAR UNDER CONSIDERATION I.E AY1996-97. IN RESPONSE, THE ASSESSEE SUBMITTED THAT WHATEVER WASTAGE WAS SOLD, HAD BEEN RECORDED IN THE BOOKS AND NO ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 21 UNACCOUNTED AMOUNT HAS BEEN RECEIVED ON SALE OF SUC H WASTAGE. HOWEVER, THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT THE AVERAGE SALE RATE OF WASTAGE IN AY 1996-97 BEING RS.5.74 PER KG AND RS. 5.40 PER KG. FOR AY 1997-98 AND SINCE THE ASSESSEE DID NOT SHOW ANY INC REASE IN THE SELLING PRICE OF THE WASTAGE, THE PRICE OF WASTAGE MUST HAVE BEEN SU PPRESSED IN THE YEARS UNDER CONSIDERATION. ACCORDINGLY, THE AO ADDED AN A MOUNT OF RS.11,90,528/- @ RS.4 PER KG. ON WASTAGE FOR 2,97,632 KGS IN AY 199 6-97 AND RS.19,71,968 FOR 4,92,892 KGS IN THE AY 1997-98. 24. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDIT ION IN THE AY 1996- 97,HOLDING AS UNDER: 40. AFTER GOING THROUGH THIS GROUND OF APPEAL AND RIVAL SUBMISSIONS, IT IS HELD THAT THE ADDITION IN THIS R EGARD HAS BEEN WRONGLY MADE. COMPLETE RELIANCE FOR MAKING THE ADDI TION IS BEING PLACED ON THE STATEMENT OF SHRI MANISH SOMANI WHICH WAS SUBSEQUENTLY RETRACTED. NO DOUBT, THE ORIGINAL STAT EMENT WAS THERE, ADMITTING THE RECEIPT OF CASH ON SALE OF WASTAGE. B UT THIS STATEMENT WAS SUBSEQUENTLY RETRACTED. LEGALLY SPEAKING, THE S TATEMENT RECORDED EARLIER CAN AT THE BEST BE THE STARTING PO INT BUT IT CANNOT BE THE CONCLUDING POINT OF THE ISSUE INVOLVED. IT I S A MATTER OF RECORD THAT NO DOCUMENTARY EVIDENCE WAS FOUND DURING THE C OURSE OF SEARCH TO SUPPORT THE CASH RECEIPT OF WASTAGE SALES . NO DISCLOSURE WAS MADE BY THE ASSESSEE IN THIS REGARD DURING THE COURSE OF SEARCH. EVEN NO DOCUMENTARY EVIDENCE IS THERE SUBSE QUENTLY TO SUPPORT THE ALLEGATION. THE MOST IMPORTANT FACT WHI CH HAS TO BE APPRECIATED IS THAT THE STATEMENT OF SHRI MANISH SO MANI DOES NOT RELATE TO THE YEAR UNDER APPEAL. THE ASSESSING OFFI CER HAS NO POWER TO STRETCH A STATEMENT TO SUBSEQUENT YEARS TO WHICH IT ACTUALLY DOES NOT RELATE. THIS BECOMES OF MORE UNRE LIABLE WHEN THE STATEMENT IS NOT RELEVANT FOR THE YEAR UNDER APPEAL . SIMILARLY, THE ALLEGED JOTTINGS ALSO WERE NOT RELEVANT FOR THIS YE AR. THE ASSESSING OFFICER HAS NOT BEEN ABLE TO BRING ANY MATERIAL ON RECORD WHICH MAY SUGGEST A SALE OF WASTAGE IN CASH AND WHICH IS NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNTS. THE ASSESSEE HAD GIV EN COMPLETE DETAILS LIKE NAMES, ADDRESSES, AMOUNTS, QUANTITY OF WASTAGE ETC. AND NOTHING WAS FOUND WRONG WITH THE DETAILS AS GIV EN. IT IS, THEREFORE, RIGHT TO CONCLUDE THAT THE ASSESSING OFF ICER WAS UNABLE TO POINT OUT ANY MATERIAL DEFECT WHICH MAY SUGGEST THAT SOME SALES WERE BEING MADE OUTSIDE BOOKS OF ACCOUNTS. IN THIS VIEW OF THE MATTER, THE ADDITION MADE STANDS DELETED SINCE THE SAME HAS BEEN ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 22 MADE ON THE BASIS OF AN ASSUMPTION WHICH IS UNFOUND ED. EVEN IN A. Y. 1994-95, A SIMILAR ADDITION WAS DELETED BY ME VIDE ORDER DATED 1.11.1999. FOR THE SAME REASONING AND LOGIC A S IN A. Y. 1994-95 AND THE FACTS AS ABOVE, THE PRESENT ADDITIO N ALSO STANDS DELETED. 25. IN THE LIGHT OF AFORESAID VIEW TAKEN IN T HE AY 1996-97, THE LD. CIT(A) DELETED THE ADDITION IN AY 1997-98. 26. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LEARNED CIT(A). AT THE OUTSET, BOTH THE PARTIES AGR EED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 31-8-2007 OF THE ITAT IN ITA NO.39/AHD/2000, 901/AHD/1999, 312/AHD//2000 AND 1041/AHD/2001 FOR THE AYS 1994-95,1993-94, 1994-95 AND 1998-99 RESPECTIVELY. 27. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT A SIMILAR ISSUE HAS BEEN DECIDED BY TH E ITAT IN THEIR AFORESAID ORDER DATED 31.8.2007, WHEREIN IT WAS HELD AS UNDER: 27. THE NEXT ISSUE IS WITH REGARD TO THE DELETION OF THE ADDITION FOR ALLEGED RECEIPT OF CASH ON SALE OF WAS TE AMOUNTING TO RS.7,62,296/-. 28. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS IS SUE AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CAS E. THE FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE HAS CL AIMED WASTE AT 13.78% DURING THE RELEVANT ASSESSMENT YEAR WHEREAS THE NORMAL WASTE IN THE ASSESSEES FACTORY IS 12% WHICH HAD AL READY BEEN RECORDED IN THE BOOKS OF ACCOUNT. THIS ADDITION IS MADE WHOLLY ON THE BASIS OF THE STATEMENT OF SHRI MANISH SOMANI TH AT THEY ARE RECEIVING CASH AT THE RATE OF RS.3 TO RS.4/- PER BA G ON WASTE. SHRI MANISH SOMANI IN HIS STATEMENT 5RECORDED DURING THE COURSE OF SEARCH STAT ED THAT AROUND RS.12,000/- TO RS. 13,00 0/- PER MONTHLY IS BEING SOLD AND IN THIS RESPECT, THE CASH RECEIPT AMOUNTS WERE TO RS. 4 LAKHS PER YEAR. IN VIEW OF THIS FACT, THE ASS ESSING OFFICER ESTIMATED THE WASTE SALE AT RS.7,62,296/- AND MADE THE ADDITION TO THE RETURNED INCOME OF THE ASSESSEE. THE LD. CIT(A) DELETED THE ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 23 ADDITION AS THE SAME IS ON THE BASIS OF GUESS WORK AND WITHOUT ANY EVIDENCE. AGGRIEVED, THE REVENUE HAS COME IN APPEAL BEFORE US. 29. AFTER GOING THROUGH THE CASE RECORD, IT IS NOT ICED FROM THE ORDERS OF THE LOWER AUTHORITIES THAT THE ASSESS EE IS SELLING WASTE AT THE RATE OF RS.6 TO RS.8/- PER KG. AND THE ASSES SEE HAS PRODUCED THE XEROX COPIES OF INVOICES REGARDING THE SALE OF WASTE MATERIAL TO VARIOUS PARTIES AND THE SAME HAS BEEN RECORDED IN T HE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSEE CONTENDED THA T THERE IS NO SALE OF WASTE AS ADDED BY THE ASSESSING OFFICER. FR OM THE ORDERS OF THE LOWER AUTHORITIES, IT IS INFERRED THAT THE A DDITION IS BASED SOLELY ON THE STATEMENT OF SHRI MANISH SOMANI WHO H AS JUST MADE THE STATEMENT ON THE BASIS OF GUESS WORK. EVEN SHRI MANISH SOMANI HAS RETRACTED FROM THE STATEMENT BUT ASSESSI NG OFFICER HAS ATTEMPTED TO MAKE THE ASSESSMENT ON THAT SOLE BASIS . FROM THE ASSESSMENT ORDER, IT IS NOT CLEAR AS TO HOW HE HAS REACHED AT A CONCLUSION THAT THE ASSESSEE IS RECEIVING THE CASH ON ACCOUNT OF SALE OF WASTE OVER AND ABOVE RECORDED ENT5RIES. THE RE IS NO EVIDENCE OR DOCUMENT WHICH CO-RELATE TO THE STATEME NT OF SHRI MANISH SOMANI THAT THEY ARE SELLING THE WASTE, OVER AND ABOVE WHAT HAS BEEN RECORDED IN THE BOOKS OF ACCOUNT. IT IS ALSO FACT THAT, IF AT ALL ANY, ADDITION IS TO BE MADE ON THE BASIS OF ALLEGED SALES TO HAVE BEEN RECEIVED ON ACCOUNT OF SALE OF WASTE AS M ENTIONED IN THE DAIRY, BUT NO GENERAL ADDITION IN RESPECT OF EN TIRE WASTE SALE COULD BE MADE. THE ASSESSING OFFICER HAD NOT WORKED OUT ANY WASTE SALE ON THE BASIS OF THE DAIRY SEIZED OVER AN D ABOVE WHAT HAS BEEN RECORDED IN THE BOOKS OF ACCOUNT. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE FAIRLY FEEL THAT THE LD. CIT( A) HAS RIGHTLY DELETED THE ADDITION AND ACCORDINGLY, WE CONFIRM TH E SAME. 28. IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DEC ISION, ESPECIALLY WHEN THE ADDITION MADE IN THE YEARS UNDER CONSIDERATION IS ABSOLUTELY WITHOUT ANY BASIS WHILE NO MATERIAL HAS BEEN PLACED BEFORE US BY THE REVENUE FOR TAKING A DIFFERENT VIEW IN THE MATTER, WE HAVE NO HESITATION IN UPHOLD ING THE FINDINGS OF THE LEARNED CIT(A). THEREFORE, GROUND NO.1(V) IN AY 1996-97 AND GROUND NO.4 IN AY 1997-98 ARE DISMISSED. 29. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERM S OF RESIDUARY GROUND NO.2 IN THE APPEAL OF THE ASSESSEE FOR THE AY 1997-98 WH ILE GROUND NOS. 2 & 3 IN THE APPEAL OF THE REVENUE FOR THE AY 1996-97 & SIMILAR GROUNDS IN AY 1997- ITA NOS. 1945 AND 2773/AHD/2000 & ITA NO.174/AHD/2001 M/S. GOPALA POLYPLAST LTD. 24 98,BEING GENERAL IN NATURE, DO NOT REQUIRE ANY SEPA RATE ADJUDICATION, ACCORDINGLY, ALL THESE GROUNDS ARE DISMISSED. 30. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D WHILE BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4TH SEPTE MBER,2009 SD/- S D/- (H. L. KARWA) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 4TH SEPTEMBER,2009 LAKSHMIKANT/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE 2. THE JCIT. SPECIAL RANGE-8,2 ND FLOOR, NATURE VIEW BUILDING,NEAR H. K. HOUSE, ASHRAM ROAD, AHMEDABAD 3. CIT(A)-VII & XII,AHMEDABAD 4. THE CIT CONCERNED 5. THE D.R. ITAT, AHMEDABAD, 6. GUARD FILE BY ORDER DR / AR, ITAT, AHMEDABAD