The ACIT, Circle-1, Surat V. M/s. HIMSON TEXTILE ENGINEERING IND.PVT.LTD., Surat

ITA 2028/AHD/2008

• Counselvise Citation: 202820514 RSA 2008
• Duration Of Justice: 3 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 09-04-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 29-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Depreciation; Diversion of income; Earning of tax free income; Fair market value; Bad and doubtful debts; Onus to prove
• Section: 143(3); 234B; 14A; 133(6); 37; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD AT D BENCH BEFORE: SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI T. R. MEENA, ACCOUNTANT MEMBER SL. NO. ITA NO. A.Y. APPELLANT VS RESPONDENT 1. 2028/AHD/2008 2004- 05 THE ASSTT. C.I.T., CIRCLE- 1, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS. M/S HIMSON TEXTILE ENGINEERING IND. PVT. LTD., ASHWANI KUMAR ROAD, SURAT 2. 2217/AHD/2008 2005- 06 M/S HIMSON TEXTILE ENGINEERING IND. PVT. LTD., ASHWANI KUMAR ROAD, SURAT VS. JOINT COMMISSIONER OF INCOME TAX, RANGE- 1, SURAT 3. 2708/AHD/2008 2005- 06 THE DY. CIT CIRCLE-1, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS. M/S HIMSON TEXTILE ENGG. IND. PVT. LTD., HIRALAL COLONY, A.K. ROAD, SURAT 4. 1178/AHD/2009 2006- 07 HIMSON TEXTILES ENG. IND. PVT. LTD. PAN. AAACH5825K VS. ADDL. CIT RANGE-1, SURAT 5. 1595/AHD/2009 2006- 07 THE DY. CIT CIRCLE-1, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS. M/S HIMSON TEXTILE ENGINEERING IND. PVT. LTD., ASHWANI KUMAR ROAD, SURAT ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 2 6. 714/AHD/2010 2007- 08 HIMSON TEXTILES ENG. IND. PVT. LTD. PAN. AAACH5825K VS. ADDL. CIT, RANGE-1, SURAT 7. 1193/AHD/2010 2007- 08 THE DY. CIT CIRCLE-1, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS. M/S HIMSON TEXTILE ENGG. IND. PVT. LTD., HIRALAL COLONY, A.K. ROAD, SURAT 8. 2178/AHD/2010 2008- 09 HIMSON TEXTILES ENG. IND. PVT. LTD. PAN. AAACH5825K VS. DCIT, CIRCLE- 1, SURAT 9. 2569/AHD/2010 2008- 09 THE DY. CIT CIRCLE-1, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS. M/S HIMSON TEXTILE ENGG. IND. PVT. LTD., HIRALAL COLONY, A.K. ROAD, SURAT SL.NO. ASSESSEE BY REVENUE BY 1 TO 9 SHREE R.N. VEPARI, A.R. SHREE D.P. GUPTA WITH B.L. YADAV, DRS DATE OF HEARING : 09.04.2012 DATE OF PRONOUNCEMENT : 23.05.2012 / ORDER PER BENCH : THESE NINE APPEALS OF THE DIFFERENT I.T.A. NUMBERS , AS MENTIONED ABOVE, ARISE FROM THE DIFFERENT ORDERS OF LD . COMMISSIONER OF INCOME-TAX (APPEALS), VALSAD AS PER DETAILS BELOW:- ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 3 ITA NO. CIT(A) ORDER DATED A.Y. 2028/AHD/2008 27.03.2008 2004-05 2217/AHD/2008 23.05.2008 2005-06 2708/AHD/2008 23.05.2008 2005-06 1178/AHD/2009 13.03.2009 2006-07 1595/AHD/2009 13.03.2009 2006-07 714/AHD/2010 11.02.2010 2007-08 1193/AHD/2010 11.02.2010 2007-08 2178/AHD/2010 21.06.2010 2008-09 2569/AHD/2010 21.06.2010 2008-09 2. THIS COMMON ORDER IS PASSED IN ALL THE APPEALS A S ALL THE YEARS HAVE SIMILAR GROUNDS OF APPEAL AND SIMILAR AR GUMENTS. 3. I.T.A. NO.2028 OF 2008 EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: ( ASSESSMENT YEAR 2004-05) (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON A CCOUNT OF DISALLOWANCE OF DEPRECIATION IN RESPECT OF SUBSIDY A MOUNT RECEIVED TOWARDS PLANT AND MACHINERIES-RS.4,18,520/- (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON A CCOUNT OF ESTIMATION OF GROSS PROFIT RS.2,80,93,222/-. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON A CCOUNT OF ADJUSTMENT U/S 145A OF THE ACT RS.3,24,70,328/-. (IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON A CCOUNT OF DISALLOWANCE OF CUSTOMER LOSS RS.2,12,37,000/-. 4. I.T.A. NO.2217 OF 2008 EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: ( ASSESSMENT YEAR 2005-06) ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 4 (I) DISALLOWANCE OF DEPRECIATION RS.323892/-. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISS IONER OF INCOME TAX (AS) ERRED IN RESTRICTING DEPRECIATION B Y RS.323892/- BECAUSE OF CHANGE IN OPENING WDV. (II) LATE PAYMENT OF PF AND ESI RS.29378/-. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. COMMISSIONE R OF INCOME TAX (AS) ERRED IN CONFIRMING DISALLOWANCE TOWARDS PF AND ESI PAYMENT RS.29378/-. (III) ADDITION U/S 40(A) RS.3622957/. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INCO ME TAX (AS) ERRED IN CONFIRMING DISALLOWANCE TOWARDS LATE PAYMEN T OF TDS RS.3622957/-. (IV) PRIOR PERIOD EXPENSES RS.327254/-. ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INC OME TAX (AS) ERRED IN CONFIRMING DISALLOWANCE TOWARDS PRIOR PERIO D ITEM OF EXPENDITURE TO THE TUNE OF RS.327254/-. (V) DISALLOWANCE U/S 14A RS.288400/-. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INC OME TAX (AS) ERRED IN CONFIRMING DISALLOWANCE TOWARDS 10% OF ADM INISTRATIVE AND MANAGERIAL EXPENSES FOR PROCURING EXEMPT INCOME. (VI) CHARGING OF INTEREST U/S 234B AND U/S 234D. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. COMMI SSIONER OF INCOME TAX (AS) ERRED IN CONFIRMING ACTION OF THE A .O. FOR CHARGING INTEREST U/S 234B AND U/S 234D IN RESPECT OF ADDITIONS CONFIRMED AT THE APPELLANT STAGE. 5. I.T.A. NO.2708 OF 2008 EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: ( ASSESSMENT YEAR 2005-06) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-1, SURAT HAS ERRED IN DELETING G. P. ADDITION OF RS.1,84,86,860/-. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-1, SURAT HAS ERRED IN DELETING AD DITION OF RS.29,29,657/- MADE ON ACCOUNT OF CUSTOMER CLAIM LOS S. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A)-1, SURAT HAS ERRED IN DELETING AD DITION OF RS.16,89,000/- TOWARDS DISALLOWANCE OF 50% OF ERECTI ON EXPENSES OF RS.33.78 LACS. 6. I.T.A. NO.1178 OF 2009 ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 5 EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: ( ASSESSMENT YEAR 2005-06) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. FOR DISALLOWANCE OF DEPRECIATION OF RS.174166/- WITH REG ARD TO SUBSIDY RECEIVED IN EARLIER YEARS. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. FOR PARTLY DISALLOWANCE OF RS.129439/- IN RESPECT OF ESI/PF PAY MENT WHICH WAS PAID WITHIN THE GRACE PERIOD OR WITHIN THE DUE DAT E OF FILING RETURN OF INCOME. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O. FOR ESTIMATION OF EXPENSES OF RS.251600/- INCURRED FOR EARNING EXE MPT INCOME AND HENCE THEREFORE, ERRED IN DISALLOWING THE SAME U/S 1 4A OF THE I.T. ACT. (IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE A.O . FOR NOT ALLOWING TECHNICAL KNOW HOW FEES OF RS.1336817/- WH ICH WAS ALLOWED IN A PHASED MANNER FROM A.Y.2003-04 ONWARDS . 7. I.T.A. NO.1595 OF 2009 EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: ( ASSESSMENT YEAR 2006-07) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-1, SURAT HAS ERRED IN DELETING G. P. ADDITION OF RS.4,85,68,724/-. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A)-1, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.6,17,466/- MADE ON ACCOUNT OF CUSTOMER CLAIM LOSS . 8. I.T.A. NO.714 OF 2010 EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: ( ASSESSMENT YEAR 2007-08) (I) ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A), SURAT HAS ERRED IN CONFIRMING TH E ACTION OF THE A.O. BY REDUCING SUBSIDY OF RS.150878/- FOR THE PUR POSE OF ALLOWANCE OF DEPRECIATION. ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 6 (II) ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A), SURAT HAS ERRED IN CONFIRMING TH E ACTION OF THE A.O. FOR ADJUSTMENT U/S 145-A PARTLY TO THE TUNE OF RS. 12986/-. (III) ON THE FACTS AND ON THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A), SURAT HAS ERRED IN CONFIRMING TH E ACTION OF THE A.O. FOR DISALLOWANCE OF P.F./E.S.I. OF RS.263917/- WHEN SUCH AMOUNT IS PAID BEFORE THE DUE DATE OF FILLING RETURN. (IV) ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A), SURAT HAS ERRED IN CONFIRMING TH E ACTION OF THE A.O. FOR DISALLOWANCE U/S 14A TO THE EXTENT OF RS.5 10795/- AND AS ALSO ERRED IN COMMITTING CALCULATION MISTAKE. (V) ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A), SURAT HAS ERRED IN NOT DIRECTING A.O. TO CARRY FORWARD OF LONG TERM LOSS OF RS.1728953/- INCURRED D URING THE CURRENT YEAR WHEN SUCH DETAILS WERE PRODUCED BEFORE CIT(A). (VI) ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A), SURAT HAS ERRED IN NOT DIRECTING FOR ALLOWING THE TECHNICAL KNOW HOW FEES OF RS.13,36,817/- WHEN SUCH AMOUNT WAS ALLOWABLE AS PER HONBLE ITAT DECISION IN A.Y.2003- 04. 9. I.T.A. NO.1193 OF 2010 EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: ( ASSESSMENT YEAR 2007-08) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), SURAT HAS ERRED IN DELETING G.P . ADDITION MADE BY A.O. OF RS.2,47,68,810/-. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), SURAT HAS ERRED IN DELETING THE ADDITION MADE BY A.O. ON ACCOUNT OF ADJUSTMENT U/S 145A OF THE I.T. AC T OF RS.1,62,51,036/- RESTRICTED TO RS.12,986/-. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A)-1, SURAT HAS ERRED IN DELETING A DDITION MADE BY A.O. ON ACCOUNT OF CESSATION OF LIABILITY OF RS.3 7,25,695/-. 10. I.T.A. NO.2178 OF 2010 EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: ( ASSESSMENT YEAR 2008-09) (I) ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASES, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF R S.44788/- TOWARDS LATE PAYMENT OF PF/ESI IN RESPECT OF EMPLOYEE S CONTRIBUTION. ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 7 (II) ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASES, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.239380/- U/S 14A WHEN SUCH PROVISIONS ARE NOT APPLICABLE AND WITHOUT PREJUDICE TO ABOVE HAS ALSO ERRED IN CALCULATING THE CORRECT FIGURE OF DISALLOWANCE U/S 14A. (III) ON THE BASIS OF FACTS AND CIRCUMSTANCES OF TH E CASES, THE LD. CIT(A) HAS ERRED IN NOT ALLOWING CARRY FORWARD O F LONG TERM LOSS. (IV) ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASES, THE LD. CIT(A) HAS ERRED IN NOT DIRECTING THE A.O. TO REDU CE RS.1336817/- TOWARDS TECHNICAL KNOW-HOW AS PER DECISI ON OF HONBLE ITAT. 11. I.T.A. NO.2569 OF 2010 EFFECTIVE GROUND OF APPEAL IS AS UNDER: (AS SESSMENT YEAR 2008-09) (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS.1 ,16,38,333/- MADE ON ACCOUNT OF ADJUSTMENT U/S 145A OF THE ACT. 12. THE COMMON GROUND OF APPEAL AGAINST SUBSIDY REC EIVED IS RAISED BY THE BOTH SIDES. THE LD. DR SUBMITTED THA T THE ISSUE HAS BEEN CONFIRMED IN FAVOUR OF THE REVENUE WITH THE DECI SION OF ITAT IN ASSESSEES OWN CASE FOR A.Y. 2003-04. THE LD. C OUNSEL FOR THE ASSESSEE HAS FAIRLY CONCEDED THE ISSUE IN FAVOUR OF THE REVENUE. ACCORDINGLY, THIS GROUND OF APPEAL IS DECIDED IN FAV OUR OF REVENUE AND DISMISSED AGAINST THE ASSESSEE IN ALL THE YEARS. 13. THE SECOND GROUND OF A.Y. 2004-05, FIRST GROUND OF A.Y. 2005-06, A.Y. 2006-07 AND A.Y. 2007-08 OF THE REVENU E IS AGAINST DELETION OF G.P. ADDITION. 14. ONE GENERAL GROUND OF REVENUE APPEAL IS AGAIN ST DELETING OF G.P. ADDITION OF RS.4,18,520/- IN A.Y. 2004-05, ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 8 RS.1,84,86,860/- IN A.Y. 2005-064,85,68,724/- IN A. Y. 2006-07 AND RS.2,47,68,810/- IN A.Y. 2007-08 BY THE CIT(A). 14.1 THE A.O. HAD DISCUSSED HIS DETAILED FINDINGS O N PAGE 4 TO 13 IN ORDER OF A.Y. 2004-05 AND FOUND THAT NO COMPLE TE DETAILS OF OPENING STOCK AND CLOSING STOCK WAS GIVEN, NO DAY-TO- DAY QUANTITY WISE DETAIL OF RAW MATERIAL WAS MAINTAINED BY THE AS SESSEE, DIVERSION OF INCOME TO THE LOSS MAKING SISTER CONCE RN, NOTICE U/S 133(6) WAS ISSUED BUT IN SIX CASES NOTICES WERE RETU RNED BACK AND THESE PARTIES WERE NOT PRODUCED BEFORE HIM FOR VERIFI CATION AND NO CONFIRMATION WAS FILED BY THE ASSESSEE, AND DIFFEREN CES IN BALANCE WERE FOUND BY HIM. HE ALSO RELIED ON BRITISH PAINT INDIA LTD (SC), SAMIR DIAMONDS EXPORT LTD. 71 ITD 75, AWADHESH PRATAP SINGH, ABDUL RAHMAN & BROTHERS 210 ITR 406, HARISHANKAR GOP AL HARI 1997 ITR 716, BHARAT MILK PRODUCT 128 ITR 682(HC), S .N. NWAMASIVAYAM CHETIAR 38 ITR 579 AND K.Y. PILLAH & S ONS 63 ITR 411 (SC). THE A.O. REJECTED THE BOOKS OF ACCOUNTS U/ S 145(3) OF THE I.T. ACT AND ESTIMATED G.P. RATE @ 15.71% WHICH WAS A VERAGE OF G.P. RATE OF PREVIOUS YEAR AND NEXT YEAR AS AGAINST G.P. 14.43% DECLARED BY THE ASSESSEE IN A.Y. 2004-05. THE DIFFE RENCE OF RS.2,80,93,222/- WAS ADDED IN A.Y. 2004-05. 14.2 THE SIMILAR ADDITIONS WERE MADE AT RS.1,84,86,8 60/- IN A.Y. 2005-06. THE A.O. HAS GIVEN DETAILED FINDING O N PAGE 4 TO 13 ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 9 IN HIS ASSESSMENT ORDER AND ESTIMATED G.P. @ 14.14% W HICH WAS AVERAGE OF G.P. @ 15.71% ADOPTED BY THE A.O. IN A.Y. 2004-05 AND G.P. @ 12.58% DISCLOSED BY ASSESSEE IN A.Y. 2003-04 . 14.3 IN A.Y. 2006-07 G.P. ADDITION OF RS.4,85,68,7 24/- WAS MADE BY THE A.O. BY APPLYING THE RATE OF 14.14% WHICH IS AVERAGE OF THE G.P. @ 15.71% ADOPTED BY THE A.O. IN A.Y. 200 5-06 AND A.Y. 2004-05 AND THE ASSESSEES DECLARED G.P. @ 12.58% I N A.Y. 2003- 04. 14.4 IN A.Y. 2007-08 THIS ADDITION WAS AT RS.224768 810/- MADE BY THE A.O. BY APPLYING 14.14% ON THE BASIS OF G.P. ASSESSED IN A.Y. 2005-06 AND 2006-07. 15. THE CIT(A) HAS DISCUSSED THIS ISSUE FROM PAGE NO.3 TO 14 OF A.Y. 2004-05 AND DECIDED AS UNDER:- 4.6.1 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE A.O. THE A.O. HAS R EJECTED THE BOOKS OF ACCOUNTS SAYING THAT CLOSING STOCK DETAILS AR E NOT VERIFIABLE. THE WORK IN PROGRESS DETAILS AND FINISHED STOCK DETAI LS IN CLOSING STOCK ARE NOT VERIFIABLE AND AS PER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BRITISH PAINTS (SUPRA), THE CORRE CT PROFIT SHOULD BE DISCLOSED IN THE ACCOUNTING METHOD ADOPTED BY THE ASSESSEE SO THAT SUCH VERIFICATION SHOULD BE POSSIBLE. THE A.O. HAS ALSO STATED THAT IF IT IS NOT SO THEN THE BOOKS OF ACCOUNTS CAN BE RE JECTED IN VIEW OF THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF AVDHESH PRATAPSINGH ABDUL RAHMAN & BROTHERS (SUPRA) AND IN THE CASE OF HARI SHANKAR GOPAL HARI (SUPRA) WHEREIN THE HONBLE HIGH COURT STATED THAT THE ABSENCE OF STOCK REGISTER AND CASH MEMO IN A GIVEN SITUATION MAY NOT PER SE LEAD TO ANY INFERENCE TH AT THE ACCOUNTS ARE FALSE OR INCOMPLETE. HOWEVER, WHERE THE ABSENCE OF STOCK REGISTER, CASH MEMOS ETC. IS COUPLED WITH OTHER FACTORS SUCH AS THAT THE VOUCHERS IN SUPPORT OF THE EXPENSES AND PURCHASES ARE NOT FORTHCOMING AND THE PROFITS ARE LOW IT MAY GIVE R ISE TO AN ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 10 INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS AND SAME CANNOT BE RELIED UPON TO ASSESS THE INCOME OF THE ASSESSEE. IN THE PRESENT CASE THE G.P. RATE OF THE ASSESSEE IS 14.43% WHICH I S MORE THAN THE LAST YEARS G.P. RATE OF 12.58%. HENCE, THE PROFITS IN THE CURRENT YEAR ARE NOT LOWER THAN THE PROFITS OF LAST YEAR. THE A.O. HAS BROUGHT NOTHING ON RECORD TO SHOW THAT THE VOUCHERS IN SUPPORT OF EXPENSES AND PURCHASES WERE NOT FILED. IN THE PRESEN T CASE NO DETAILS HAS BEEN GIVEN BY THE AO AS TO WHICH OF THE EX PENSES AND WHICH OF THE PURCHASES WERE UNVOUCHED. IN FACT THE A O HAS ISSUED NOTICES TO 17 PURCHASE PARTIES AS IS CLEAR FROM PAGE 1 2 OF THE ASSESSMENT ORDER AND NONE OF THESE NOTICES RETURNED BA CK. THIS SHOWS THAT ALL THESE NOTICES HAVE BEEN SERVED. IF THE R EPLY IS NOT RECEIVED THEN THE AO SHOULD ENFORCE HIS NOTICE BY LE VYING APPROPRIATE PENALTIES ON THESE PARTIES. IN ANY CAS E, THE MOMENT THE NOTICE IS SERVED ON THE PURCHASE PARTIES AND PAYM ENT IS MADE BY CHEQUE, AS PER SETTLED POSITION OF LAW THE ASSESSE E HAS DISCHARGED ITS ONUS AND IT IS THE AO WHO HAS TO PROVE THAT THE PURCHASE WAS BOGUS OR INFLATED. NO SUCH MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO AND THIS GROUND DOES NOT REMAIN. 4.6.2 WITH RESPECT TO THE DIFFERENCE IN BALANCE OF THE PARTIES THE APPELLANT CLEARLY STATED VIDE LETTER DATED 12.2.07, COPY OF WHICH WAS GIVEN TO THE AO FOR GIVING HIS REMAND RE PORT THAT THE DIFFERENCE IN BALANCE OF THE PARTIES WERE RECONCILE D ON PAGE 12 OF THIS LETTER. THE APPELLANT STATED THAT WITH RESPECT TO H IMSON KNITTING THE DIFFERENCE OF RS.1,74,303/- WAS RECONCILED TOWARDS SALES. WITH RESPECT TO UNITED TEXTURISER THE DIFFERENCE OF RS.10 LAC S WAS ALSO RECONCILED. THE PARTY HAD TAKEN DISCOUNT IN THE NEXT YEAR AND THE ACCOUNT WAS CLOSED IN THE NEXT YEAR. WITH RESPECT TO PRAG BOSIMI THE AMOUNT WAS TOWARDS SALE. IT WAS SHOWN RECEIVABLE AND NOT WRITTEN OFF AS BAD DEBT. IT APPEARED THAT THE PARTY HAD RETURNED BACK AS LIABILITY. ON THE CONTRARY DEDUCTION WILL BE AVAILABLE IN SUCH A CASE. THE AO HAS MADE NO COMMENTS ON THIS IN HIS REMAND REPORT DATED 14.3.08. THE REMAND REPORT OF THE AO IN RESPECT OF GP ADDITION IS ON PAGE 4, 5 AND 6 OF THIS LETTER BUT NO COMMENT HAS BEEN MADE ON THIS ISSUE. THIS MEANS THAT THE RECONC ILIATION HAS BEEN MADE ON THIS ISSUE. THIS MEANS THAT THE RECONC ILIATION HAS BEEN ACCEPTED. IN VIEW OF THE ABOVE IT IS CLEAR THA T THE ISSUE OF DIFFERENCE OF THE BALANCE OF PARTIES HAVE BEEN RECON CILED. THE NOTICES U/S 133(6) TO THE PURCHASE PARTIES AND EXPENSE PARTIES WERE SERVED AND THE AO HAS NOT BROUGHT ON RECORD ANY MAT ERIAL TO SHOW THAT THESE PARTIES WERE EITHER BOGUS OR THE EXPENSES, P URCHASES WERE INFLATED. 4.6.3 THE ISSUE OF PAYMENT TO SPECIFIED PERSONS COV ERED BY SECTION 40A(2)(B) ALSO DOES NOT SURVIVE AS THE AO HAS NOT ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 11 BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE PAYME NT WAS EXCESSIVE AS STATED ABOVE. FURTHER THE NON-MAINTENAN CE OF QUANTITATIVE RECORD BY ITSELF WOULD NOT BE ENOUGH FOR REJECTING THE BOOKS OF ACCOUNTS BECAUSE THE GP RATE OF CURRENT YEAR AT 14.43% IS HIGHER THAN THE GP RATE OF LAST YEAR OF 12.58%. THE ASSESSMENT FOR A.Y. 2003-04 WAS MADE U/S 143(3) BY THE AO VIDE HIS ORDER DATED 24.03.06 IN WHICH THE GP RATE OF 12.58% WAS ACCEPTED AND NO GP ADDITION WAS MADE. HENCE THERE IS NO REASON FOR MAK ING THIS ADDITION. THIS GROUND OF APPEAL IS ALLOWED AND THE GP ADDITION IS DELETED. 15.1 MORE OR LESS, SIMILAR FINDINGS WERE GIVEN IN A.Y. 2005-06, 2006-07 AND 2007-08 AND ADDITIONS WERE DELETED BY TH E CIT(A). 16. THE LD. DR BEFORE US ARGUED FOR A.Y.2004-05 THA T THE ASSESSEE COMPANY HAD DISCLOSED GP @ 14.43% AS AGAIN ST GP @ 12.5% IN IMMEDIATE PRECEDING YEAR BY APPLYING THE AVE RAGE GP RATE @ 15.71% WHICH IS AVERAGE OF PREVIOUS TO PREVIOUS YEAR AND NEXT YEAR. THE ASSESSEE HAD NOT FILED COMPLETE DETAILS OF OPENING STOCK AND CLOSING STOCK AND HAD NOT MAINTAINED DAY-TO-DAY QUANTITY DETAIL OF RAW MATERIAL. THE MAJOR PAYMENT TO THE SISTER COMP ANIES WHO HAVE INCURRED LOSSES. THE NOTICE U/S 133(6) WERE I SSUED IN NUMBER OF CASES AND IN SOME OF THE CASES REPLY WERE NOT REC EIVED FROM THEM AND ALSO THERE WAS A DIFFERENCE IN ACCOUNTS. HE RELIED UPON THE ORDER OF THE A.O. AND REQUESTED TO CONFIRM THE ADD ITION. 17. ON THE OTHER SIDE THE LD. A.R. FOR THE ASSESSEE HAS RELIED UPON ORDER OF THE CIT(A) AND CLAIMED THAT ALL CLARIF ICATIONS WERE GIVEN TO THE AO AT THE TIME OF ASSESSMENT ORDER AND AT TH E TIME OF APPEAL PROCEEDING BEFORE THE CIT(A). HE ALSO SUBMI TTED COPY OF THE ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 12 REPLY FILED BEFORE THE AO AND CIT (A) BEFORE US IN TH E FORM OF PAPER BOOK AND SUBMITTED WRITTEN REPLY THAT GROSS PROFIT RATE FOR A.Y. 2003-04 SHOULD HAVE BEEN TAKEN FOR A.Y. 2004-05 FOR WORKING OUT AVERAGE RATE AS THAT WAS 12.58% AND ACCEPTED IN THAT YEA R. EVEN THE GROSS PROFIT RATE OF A.Y. 2005-06 IS ALSO INCORRE CTLY MENTIONED AT 15.96%. IT IS 12.79%, THEREFORE, THERE WAS NO SCOPE FOR ADDITION. APART FROM THE FACT THAT THE REJECTION OF BOOKS RESU LT WAS NOT JUSTIFIED. IN A.Y. 2005-06 THERE WAS A SLIGHT DECL INE IN G.P. ON THAT BASIS THE AO HAS REJECTED THE BOOKS ACCOUNT. IN A.Y. 2 006-07 THE GROSS PROFIT RATE WAS FALLEN BY 3.73% COMPARED TO IMM EDIATE PRECEDING YEAR. THE STOCK DETAIL WAS GIVEN BUT QUA NTITY WISE DETAIL OF 30,000/- ITEMS WAS NOT POSSIBLE. THE DIFFERENCES IN ACCOUNT WERE RECONCILED BEFORE CIT(A). THERE IS NO BASIS OF DIS ALLOWANCES U/S 40A(2)(B). THE TURN OVER HAS FALLEN DUE TO LACK OF D EMAND CONSEQUENT TO TEXTILE CRISES BUT OVERHEAD EXPENSES COU LD NOT BE BROUGHT DOWN. IN A.Y. 2007-08 THE GP RATE WAS HIGHE R THAN GP SHOWN IMMEDIATE PRECEDING YEAR WHICH HAS BEEN ACCEPTE D BY THE CIT(A). THERE IS NO ADDITION ON ACCOUNT OF G.P. IN A.Y. 2008-09 EVEN G.P. CAME DOWN TO 5.25%. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND I T IS FOUND THAT THE CIT(A) HAS CONSIDERED ALL THE ISSUES IN HIS ORDER IN VARIOUS APPEAL ORDER BY GIVING DETAIL REASONING. HE HAS CON SIDERED THE CASE ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 13 LAW REFERRED BY THE AO I.E BRITISH INK (SC) (SUPRA), AWADHESH PRATAP ABDUL RAHMAN (ALLAHABAD HIGH COURT (SUPRA), HARISHA NKAR GOPAL HARI(SUPRA). IN A.Y. 2004-05 G.P. WAS BETTER THAN I MMEDIATE PRECEDING YEAR. NO SPECIFIC EXPENSES AND PURCHASES WERE FOUND UN- VOUCHED. THE NOTICE U/S 133(6) WAS SERVED ON ALL TH E PARTIES. IT PROVES THAT THE EXISTENCE OF THE PARTY AND PAYMENTS WE RE MADE THROUGH CHEQUES TO THESE PARTIES. THE ONUS HAS BEEN SH IFTED ON REVENUE AND NO MATERIAL HAD BEEN BROUGHT ON RECORD BY THE A.O. TO SUBSTANTIATE THE ADDITION. THE RECONCILIATION OF DIFF ERENCES HAVE BEEN FILED BY THE ASSESSEE BEFORE THE CIT(A) AND MATT ER WAS REMANDED TO THE A.O. BUT NO COMMENT WAS MADE BY THE A .O. IN HIS REMAND REPORT. NO SPECIFIC PAYMENTS TO THE SISTER CO NCERNED WERE EXCESSIVE AS CLAIMED BY THE A.O. NON-MAINTENANCE O F THE QUANTITATIVE RECORD WAS NOT ENOUGH FOR REJECTION OF BO OKS OF ACCOUNT WHEN G.P. WAS HIGHER THAN IMMEDIATE PRECEDING YEAR. THUS, THE ORDER OF THE CIT(A) IS CONFIRMED AND REVENUE APPEAL IS DISMISSED FOR A.Y. 2004-05. 18.1 THE CIT(A) ALSO DELETED THE ADDITION IN A.Y. 20 05-06 AND IN A.Y. 2006-07 ON SIMILAR FINDINGS BUT G.P. RATE I N THESE YEARS WERE LESS MARGINALLY BY 1.64% , 3.73% RESPECTIVELY COMPARED TO IMMEDIATE PRECEDING YEARS WHICH HAVE BEEN EXPLAINE D BEFORE THE A.O. BY THE ASSESSEE WITH SPECIFIC REASONS. THEREF ORE, THE ORDERS OF ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 14 THE CIT(A) ARE CONFIRMED ON THE BASIS OF FINDING GI VEN IN PARA 18 OF THIS ORDER. THE REVENUE APPEALS ARE DISMISSED ACCOR DINGLY. 19. THE THIRD GROUND IN A.Y. 2004-05 AND SECOND GRO UND IN A.Y. 2007-08 AND FIRST GROUND IN A.Y. 2008-09 IS AG AINST ADJUSTMENT ON ACCOUNT OF MODVET CREDIT U/S 145A OF THE I.T. ACT . THE A.O. HIMSELF ADMITTED IN REMAND REPORT THE DIFFERENCE IN A DDITION TO INCLUSIVE OF EXCISE DUTY IN A.Y. 2004-05 AT RS.970/- AND RS.12,986/- IN A.Y. 2007-08 WHICH HAVE BEEN CONFIRMED BY THE CIT (A) BUT THERE IS NO DIFFERENCE IN OTHER YEARS. THE ASSESSEE HAD FOLLOWED THE METHOD OF INCLUSIVE OF TAX IN VALUATION OF CLOSING STO CK. FURTHER ADDITION ON ACCOUNT OF ELEMENTS OF TAX DUTY, CESS OR F EES PAID IN THE SALES, PURCHASE AND INVENTORY IS NOT JUSTIFIED. TH US, ORDER OF THE CIT(A) IS CONFIRMED AND REVENUE APPEAL IS DISMISSED FOR ALL THE YEARS. 20. A COMMON GROUND OF APPEAL OF REVENUE IN A.Y. 2004-0 5, 2005-06 AND IN A.Y. 2006-07 IS AGAINST DISALLOWANCE OF CUSTOMER LOSS. 20.1 THE ASSESSEE CLAIMED CUSTOMER LOSSES AT RS.212 .37 LAKHS IN A.Y. 2004-05, RS.131.82 LAKHS IN A.Y. 2005-06 AN D RS.120.98 LAKHS IN A.Y. 2006-07. IN A.Y. 2004-05 LOSS WAS BI FURCATED IN TWO HEADS, FIRSTLY RS.86.92 LAKHS RELATED TO LOCAL PARTY A ND RS.125.45 LAKHS RELATED TO FOREIGN PARTY. THE EXPORT SALE WAS M ADE THROUGH ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 15 SISTER CONCERN NAMELY HIMSON OVERSEAS PVT. LTD. TH E MACHINERY IN FIRST CASE WAS SOLD IN SEPTEMBER, 2003 AND CLAIMED LO SS IN NOVEMBER, 2004. IN THE CASE OF WIZTEC INDIA LTD., T HE MACHINERY WAS SOLD IN 1998-99 BUT BUSINESS LOSS WAS CLAIMED IN THE YEAR UNDER CONSIDERATION. IN SECOND TRANSACTION WAS RELATED TO SISTER CONCERN WHO HAD EXPORTED THE GOODS TO EGYPT. 20.2 IN A.Y. 2005-06 AND IN A.Y. 2006-07 THE ASSESS EE WAS GIVEN REASONABLE OPPORTUNITY TO JUSTIFY THE CUSTOME R LOSS AND FILE THE CONFIRMATION BUT IN CASE OF ELEVEN PARTIES FOR W HICH THE ASSESSEE HAD CLAIMED CUSTOMER LOSS OF RS.29,29,657/ - IN A.Y. 2005- 06 AND RS6,17,466/- NO CONFIRMATION HAD BEEN FILED B Y THE ASSESSEE BEFORE THE A.O. THEREFORE, HE MADE ADDITION OF RS. 29,29,657/- OUT OF TOTAL BUSINESS LOSS OF RS.131.82 LAKHS AND RS. 6, 17,466/- OUT OF 120.98 LAKHS CLAIMED BY THE ASSESSEE. 21. THE CIT (A) FROM PAGE NO.21 TO 29 OF APPEAL OR DER FOR A.Y. 2004-05 HAD GIVEN DETAILED REASONING AND ALLOWE D THE EXPENSES. THE FINDING OF THE CIT(A) IN A.Y. 2004-0 5 IS AS UNDER:- 7.4.5 I AGREE WITH THE APPELLANT THAT IN RESPECT TO FIRST SIX PARTIES THE CONDITIONS OF SECTION 36(1)(VI I) R.W.S. SECTION 36(2)(I) HAVE BEEN FULFILLED AND HENCE THE CLAIM OF BAD DEBT OF RS.2,03,17,000/- IS ALLOWED 7.4.5 WITH RESPECT TO THE THREE PARTIES IN RESPECT OF WHOM THE ASSESSEE HAS CLAIMED CUSTOMER CLA IM LOSS OF RS.9,20,000/-, IT IS SEEN THAT THE ASSESSEE HAS SAID THAT THESE PARTIES HAD LODGED CLAIM FOR THE LOSS THEY HAD INCURR ED IN RESPECT OF THE MATERIAL SUPPLIED BY THE ASSESSEE. CONSEQUENT TO T HIS CLAIM THE ASSESSEE HAD TO MAKE PAYMENT TO THESE PARTIES AS STATED IN THE ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 16 ABOVE TABLE. THE ASSESSEE HAS STATED THAT IN RESPECT OF SIN FAB SALES THE SALE WAS MADE IN THE EARLIER YEAR ON 1.6. 03. THE MACHINE WAS VALUED AT RS.15 LACS. THE ASSESSEE CLAIMED RS. 1,65,000/- AS LOSS WHICH WAS DUE TO THE PROBLEM ON PRIMARY HEATER. THE ASSESSEE MADE THE PAYMENT BY CHEQUE ON 11.3.04 AND SINCE THE AM OUNT WAS SETTLED THIS YEAR, THIS LOSS IS ALLOWABLE U/S 37 IN TH E CURRENT YEAR. IN RESPECT OF YASHASVI YARNS LTD. THE ASSESSEE HAS STATE D THAT A MACHINE WORTH RS.20,64,000/- WAS SOLD TO THIS PARTY O N 11.7.03 BUT DUE TO DEFECTIVE YARN PRODUCED THIS PARTY CLAIMED LA LO SS OF RS.1,80,000/- WHICH THE ASSESSEE HAD TO PAY BY CHEQU E DATED 19.3.04. HENCE, THIS LOSS IS ALSO ALLOWABLE U/S 37 BEING BUSINESS LOSS. WITH RESPECT TO SIDDHI VINAYAK FILAMENTS THE AS SESSEE HAS STATED THAT A MACHINE WORTH RS.82,00,000/- WAS SOLD O N 11.12.03 AND 27.2.04 TO THIS PARTY DUE TO THE PRODUCTION LOSS. THIS PARTY CLAIMED A LOSS OF RS.5,75,000/- WHICH WAS PAID BY C HEQUE DATED 25.8.04. THE ASSESSEE HAS STATED THAT ALL THE THREE PAYMENTS WERE MADE IN THE COURSE OF BUSINESS FOR KEEPING THE BUSIN ESS RELATIONS. THE AMOUNTS WERE SETTLED AND THE PAYMENTS WERE MADE A S STATED ABOVE. IN THE REMAND REPORT THE A.O. HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SAY THAT THESE CLAIMS WERE BOGUS. IT IS CLEAR FROM THE DETAILS SUBMITTED THAT THE ASSESSEE HAD GIVEN NAME S ADDRESS, AND PAN OF ALL THESE PARTIES. IT HAD FILED INSPECTION REPORTS. THE ASSESSEE HAS ALSO FILED COPIES OF CORRESPONDENCE SH OWING THE PROBLEM AND DISPUTE. THE ASSESSEE HAD DISCHARGED IT S ONUS. THE A.O. INSTEAD OF MAKING ENQUIRY AND BRINGING ANY MAT ERIAL ON RECORD HAS MADE A GENERAL STATEMENT THAT THE ASSESSEE HAS NOT IDENTIFIED THE PARTY, THE ASSESSEE HAS NOT PROVED THE GENUINENESS O F TRANSACTION AND ASSESSEE HAS NOT ESTABLISHED THAT THIS PAYMENT WAS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS BY GIVING THE NAME AND ADDRESS OF PARTY AND PAN AS WELL AS SAL E BILL, PROOF OF PAYMENT. THE ASSESSEE HAS DISCHARGED ITS ONUS OF ES TABLISHING THE IDENTITY OF PARTY AS WELL AS GENUINENESS OF TRANSACTIO N. THE PAYMENTS HAVE BEEN MADE IN VIEW OF THE CLAIMS MADE B Y THESE PARTIES AND HENCE THIS IS A BUSINESS LOSS ALLOWABLE U/S 37. THE A.O. HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT THE PAYM ENT WAS BOGUS OR THAT THERE WAS NO LOSS AT ALL. HENCE THE CL AIM OF THIS LOSS OF RS.9,20,000/- IS ALLOWED U/S 37. IN VIEW OF THE ABOVE THIS GROUND OF APPEAL IS ALLOWED. 22. FOR A.Y. 2005-06 AND 2006-07 THE CIT(A) HAD OBS ERVED THAT THE ASSESSEE HAD FILED COPIES OF LEDGER ACCOUNT OF THESE PARTIES WERE RELATED TO SALE AND OFFERED FOR INCOME IN THE P ROFIT AND LOSS ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 17 ACCOUNT OF THE EARLIER YEAR AND IN SOME CASES IN CU RRENT YEAR. THE ASSESSEE HAD WRITTEN OFF THESE AMOUNTS FROM THE BALANC E-SHEET AND REQUIRED CONDITIONS OF THE BAD DEBTS HAD FULFILLED. THUS HE ALLOWED THE APPEAL IN FAVOUR OF ASSESSEE. 23. THE LD. D.R. CONTENDED THAT SOME OF THE TRANSACT IONS WERE MADE IN JANUARY OR MARCH, 2004 AND ONE SALE T RANSACTION OF RS.1,25,45,000/- WAS MADE TO SISTER CONCERN NAMELY HI MSON OVERSEAS PVT. LTD. WHO HAD EXPORTED THE GOODS TO EGYPT. THIS BAD DEBT WAS PERTAINED TO M/S HIMSONS OVERSEAS PVT. LTD. NO T THE ASSESSEE. IT IS ALSO VEHEMENTLY ARGUED THAT THE RECO VERY ON BEHALF OF HIMSONS OVERSEAS PVT. LTD. WAS MADE BY THE BANK OF BARODA AND STATE BANK OF INDIA AND CLAIMED THAT THE SISTER CONCERN HAD ALSO CLAIMED THE BAD DEBTS IN ITS BOOKS OF ACCOUNT OF THE SAME AMOUNT. THUS, HE REQUESTED TO CONFIRM THE ADDITION MADE BY TH E A.O. UNDER THIS HEAD. 24. THE LD. A.R. CONTENDED THAT THE ASSESSEE IS MANUF ACTURER OF VARIOUS TYPES OF TEXTILE MACHINES SOLD THROUGHOUT THE COUNTRY. TURNOVER EARLIER WAS RS.250 CRORES. WITH COMPETITION IT HAS GRADUALLY DWINDLED. ASSESSEE IS REQUIRED TO NOT ON LY SUPPLY BUT ERECT THE MACHINERY. THESE ARE COMPLEX AND MOSTLY CUS TOMIZED MACHINES. BAD DEBTS TAKE PLACE PARTLY BECAUSE BUYER S FINANCIAL CONDITION IS BAD BUT MAINLY BECAUSE THERE ARE COMPLAIN TS ABOUT ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 18 SOME MACHINES AND THEIR FUNCTIONING AND CONSEQUENTLY AMOUNT IS NOT PAID ON RECEIPT OF COMPLAINTS THE ASSESSEE DOES SEN D TECHNICIANS ON SITE AND SOMETIMES CUSTOMER GETS SATISF IED AND SOMETIMES HE DOES NOT GET SATISFIED. HE ALSO RELIED ON TRF LTD. (323) ITR 397 ON ATTEMPT MADE TO RECOVERY AND ALL DEBI TS INDISPUTABLY RELATED TO SALE MADE. 25. WE HAVE PERUSED THE ASSESSMENT ORDER, CIT(A) OR DER, SUBMISSION OF THE ASSESSEE, PAPER BOOK AND HEARD ARG UMENT OF BOTH SIDES. THE ASSESSEE HAS SHOWN THIS SALE TRANSACTION IN INCOME IN EARLIER YEAR OR IN CURRENT YEAR AS PER SECTION 36(2 ) OF THE I.T. ACT. THE A.O. HAS NOT DOUBTED THE CLAIM OF THE ASSESSEE A ND HAD NOT STATED THAT THESE CLAIMS ARE BOGUS. THE CLAIM HAS BE EN WRITTEN OFF IN THE BOOKS OF ACCOUNT. LAW AFTER 1 ST APRIL, 1989, THE ASSESSEE HAS TO ESTABLISH THAT DEBT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT NOT NECESSARY TO ESTABLISH THAT IN FACT HAD BECOME IRRECOVER ABLE U/S 36(1)(VII) OF I.T.A ACT. THEREFORE, CUSTOMER LOSS IN ALL THREE YEARS ARE ALLOWED SUBJECT TO VERIFY FROM THE ASSESSMENT RECO RD OF M/S HIMSON OVERSEAS PVT. LTD. THAT NO DEDUCTION OF SAME AMOUNT HAS BEEN ALLOWED BY ITS A.O. IN THE RESULT, APPEAL O N THIS GROUND IS PARTLY ALLOWED. 26. GROUND NO.3 OF A.Y. 2005-06 OF REVENUE IS AGAI NST DISALLOWANCES OF 50% OF ERECTION EXPENSES AT RS.16, 89,000/-. THE ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 19 FACT IS THAT THE ASSESSEE HAS CLAIMED ERECTION EXPENS ES OF RS.33.78 LAKHS. THE EXPENSES HAVE GONE UP WHEREAS TURNOVER H AS GONE DOWN. THIS WORK WAS COMPLETED BY THE SISTER CONCERN M/S HIMSON TECHNO SERVICE PVT. LTD. WHICH WERE NOT GIVEN ON MAR KET RATES. THUS HE DISALLOWED 50% I.E. RS.16.89 LAKHS OUT OF T OTAL EXPENSES. 27. THE CIT(A) HAD DELETED THIS ADDITION BY OBSERVI NG AS UNDER:- 10.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE A.O. AS STATED ABOV E, THE HONBLE ITAT IN THE AFOREMENTIONED CASE HAS CLEARLY STATED T HAT FOR MAKING DISALLOWANCE U/S 40 A(2)(B), THE A.O. HAS TO BRING MA TERIAL ON RECORD TO SHOW THAT THE EXPENDITURE WAS EXCESSIVE IN COMPARISON WITH THE FAIR MARKET VALUE. ACCORDING TO THE APPELLAN T NONE OF THE ABOVE CONDITIONS MENTIONED BY THE ITAT IN CASE OF BI NIT CORPORATION [124 TTJ 571] HAVE BEEN SATISFIED IN THE PRESENT CASE . ACCORDING TO THE APPELLANT THE A.O. HAS BROUGHT NOTHING ON RECORD T O SHOW THAT THE EXPENDITURE WAS EXCESSIVE. IN VIEW OF THIS REASO N, THE DISALLOWANCE MADE BY THE A.O. CANNOT BE SUSTAINED BEI NG ADHOC AND WITHOUT ANY BASIS AND HENCE THE DISALLOWANCE IS DELETE D AND THIS GROUND OF APPEAL IS ALLOWED. 28. WE HAVE PERUSED THE ASSESSMENT ORDER, ORDER OF THE CIT(A) AND HEARD BOTH SIDES. THE A.O. HAD NOT BROUG HT ON RECORD ANY MATERIAL FOR EXCESSIVE PAYMENT U/S 40A(2)(B) OF THE ACT MADE TO M/S HIMSON TECHNO SERVICES PVT. LTD. THE A.O. HAD DISALLOWED LUMP-SUM EXPENSES ON ESTIMATE BASIS. THESE PAYMENTS W ERE FOR ERECTION AND TECHNICAL WORK. THE COMPARABLE RATES WERE NOT AVAILABLE BEING AN ENGINEERING WORK. THUS, THE ADDI TION DELETED BY THE CIT(A) IS CONFIRMED AND THE REVENUE APPEAL IS DIS MISSED. 29. THE GROUND NO.3 OF THE REVENUE IN A.Y. 2007-08 IS AGAINST DELETION OF ADDITION ON ACCOUNT OF CESSATION OF LIABILITY OF RS.37,25,695/-. THE A.O. OBSERVED THAT THE ASSESSEE HAD SHOWN ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 20 CREDITOR OF RS.37,25,695/- MORE THAN THREE YEARS. AS PER HIS FINDING THE ASSESSEE HAD NOT ABLE TO ESTABLISH THE REASONS THAT STILL THESE CREDITORS ARE PAYABLE. HE MADE ADDITION OF RS.37,2 5,695/- U/S 41(1) OF THE I.T. ACT. 30. THE LD CIT(A) HAS DELETED THE ADDITION BY OBSERV ING AS UNDER:- I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELL ANT AND OBSERVATION OF THE A.O. ADMITTEDLY ALL THESE CR EDITORS ARE OLD CREDITORS AND HENCE IF THE CREDITORS ARE BOGUS THEY CAN ONLY BE ADDED IN THE YEAR IN WHICH THEY AROSE. THE APPELLANT HAS FILED CONFIRMATION OF ITS SISTER CONCERN WHICH TOTAL UP TO RS .36,03,042/- OUT OF RS.37,25,695/-. HENCE THESE ARE PROVED AS SU BSISTING LIABILITY. FURTHER THE ADDITION CANNOT BE MADE U/S 41 (1) BECAUSE THE APPELLANT HAS BEEN SHOWING THESE LIABILITIES IN THE BA LANCE SHEET. THEY HAVE NOT BEEN WRITTEN OFF AND HENCE IN VIEW OF T HE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF AMBICA MILL S LTD. [54 ITR 167] THE ADDITION CANNOT BE MADE U/S 41(1). IN THIS C ASE THE HIGH COURT STATED THAT NO ADDITION CAN BE MADE IF UNCLAIMED L IABILITY WAS SHOWN AS SUBSISTING DEBT IN THE ANNUAL BALANCE SHEET. IN VIEW OF THE ABOVE IT IS CLEAR THAT THE ADDITION MADE BY THE A.O. CANNOT BE SUSTAINED AND THE SAME IS DELETED. THE GROUND OF APPE AL IS ALLOWED. 31. WE HAVE PERUSED THE ASSESSMENT ORDER, ORDER OF THE CIT(A) AND HEARD THE ARGUMENT OF BOTH SIDES. THE A. O. HAS NOT BROUGHT ON RECORD ANY EVIDENCE THAT THE LIABILITY HAD BEEN OBTAINED BY THE ASSESSEE BY WAY OF REMISSION OR CESSATION. T HE BURDEN OF PROOF LIES ON THE REVENUE. THE APPELLANT HAD FILED CONFIRMATION OF ITS SISTER CONCERN WHICH TOTAL UP TO RS.36,03,042/- OUT OF RS.37,25,695/-. THE ASSESSEE HAS BEEN SHOWING THES E LIABILITIES IN BALANCE SHEET AND SAME HAS NOT BEEN WRITTEN OFF. THU S, DELETION MADE BY THE LD. CIT(A) IS CONFIRMED AND REVENUES A PPEAL IS DISMISSED. NOW, WE ARE CONSIDERING THE GROUNDS OF APPEAL RAISE D BY THE ASSESSEE ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 21 32. THE GROUNDS RAISED IN ALL THE ASSESSMENT YEARS ON ACCOUNT OF SUBSIDY RECEIVED IN EARLIER YEAR HAVE BE EN DEALT IN PARAGRAPH NO.12 & 13 AND DECIDED AGAINST THE ASSESSE E. 33. GROUND NO.2 IS AGAINST DISALLOWANCES TOWARDS PF AND PSI PAYMENT OF RS.29,378/- IN A.Y. 2005-06 AND RS.1,29 ,439/-, IN A.Y. 2006-07. GROUND NO.3 AND GROUND NO.1 ARE ALSO ON SI MILAR DISALLOWANCES IN A.Y. 2007-08 FOR RS.2,63,917/- AND IN A.Y. 2008-09 FOR RS.44,788/- RESPECTIVELY. THE A.O. HAD NOT ACCE PTED THE WITHDRAWAL OF DISALLOWANCES MADE BY THE ASSESSEE IN R ETURN OF INCOME ON THE BASIS OF DECISION IN THE CASE OF MADR AS REDIATOR AND PROCESSING LTD. 59 ITD 15 MADRAS ITAT ON GRACE PERIO D BUT THE A.O. RELIED UPON OTHER DECISIONS IN WHICH GRACE PERIOD WAS NOT ALLOWED FOR THESE PAYMENTS. THUS, PAYMENT NOT MADE WITHIN 15 DAYS FROM THE END OF THE MONTH WAS DISALLOWED BY THE A.O. THE LD . CIT(A) CONFIRMED THE ADDITION ON SAME ARGUMENT WHICH WERE PU T BY THE A.O. IN ASSESSMENT ORDER. 34. THE LD. AR CONTENDED THAT THESE PAYMENTS WERE M ADE BEFORE DUE DATE OF RETURN. HE ALSO RELIED UPON IN C ASE OF 319 ITR 306 ALOM EXTRUSIONS LTD. (SC) AND 35 DTR 68 (DELHI) . 35. WE HAVE PERUSED THE FACTS OF THE PAYMENTS OF ES I AND PF AND CONSIDERED THE ORDERS OF THE A.O. AND CIT(A) AN D GONE THROUGH THE SUBMISSION OF THE ASSESSEE. THE A.O. IS DIRECTED T O VERIFY THE PAYMENTS MADE BY THE ASSESSEE ON OR BEFORE DUE DATE O F RETURN FILED. THE SAME MAY BE ALLOWED AFTER VERIFICATION. THUS, THESE GROUNDS OF APPEAL OF ALL THE YEARS ARE SET ASIDE. 36. THE NEXT GROUND NO.3 IN A.Y. 2005-06 IS AGAINS T DISALLOWANCE TOWARDS THE LATE PAYMENT OF TDS U/S 40(A) (IA) OF THE I.T. ACT AT RS.36,22,957/-. THE A.O. FOUND THAT THE A SSESSEE HAD ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 22 MADE PAYMENT OF TDS LATE, THEREFORE, HE DISALLOWED RS.1,29,51,109/-. 37. THE CIT(A) PARTLY ALLOWED THE APPEAL ON THIS GRO UND BY OBSERVING AS UNDER:- 7.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND OBSERVATION OF THE A.O. SINCE THE PAYM ENT OF RS.93,28,152/- HAS BEEN MADE AND TDS DEDUCTED IN MAR CH, 2005, THEREFORE, THE AMENDMENT MADE BY THE FINANCE ACT, 200 8 AS MENTIONED ABOVE CLEARLY APPLIES. THE AO HIMSELF HAS STATED THE FACT OF DEDUCTION IN TDS IN MARCH, 2005 IN THE TABLE PREP ARED BY HIM IN THE ASSESSMENT ORDER. THEREFORE, THE PAYMENT OF RS.9 3,28,152/- IS CLEARLY ALLOWABLE IN THE CURRENT YEAR. THE BALANCE PAYMENT OUT OF DISALLOWANCE OF RS.1,29,51,109/- IS HIT BY THE PROVIS ION OF SECTION 40(A)(IA) AS THE TDS HAS BEEN PAID LATE AND NOT WITHIN THE FINANCIAL YEAR. AS REGARDS THE ALLOWABILITY OF THE SAME IN THE NEXT A.Y. WILL BE EXAMINED BY THE A.O. IN THE NEXT YEAR AND NO DIRECTION CAN BE GIVEN IN THE CURRENT YEAR AS THIS ISSUE DOES NOT ARISE FRO M THE ASSESSMENT ORDER UNDER APPEAL. HENCE, THE DISALLOWANCE OF RS.1 ,29,51,109/- IS REDUCED TO RS.36,22,957/- AFTER DELETING THE SUM OF RS .93,28,152/-. HENCE, THE ASSESSEE GETS A RELIEF OF RS.93,28,152/-. THIS GROUND OF APPEAL IS THEREFORE, PARTLY ALLOWED. 38. WE HAVE PERUSED THE ASSESSMENT ORDER AND ORDER OF THE CIT(A) AND FACT OF THE CASE. IT APPEARS THAT THE ASSE SSEE HAD PAID TDS LATE, NOT WITHIN THE FINANCIAL YEAR, IT MEANS PAY MENT IN NEXT YEAR. THE ACT HAS BEEN AMENDED W.E.F. 01.04.2010 AN D A PROVISO HAS BEEN INSERTED IN SECTION 40(A)(IA) OF THE ACT WHIC H IS REPRODUCED AS UNDER:- [PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPE CIFIED IN SUB-SECTION (1) OF SECTION 139, SUCH SUM SHALL BE AL LOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID.] ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 23 THUS, THE A.O. IS DIRECTED TO VERIFY THE PAYMENTS AND ALLOW THE TDS PAYMENT AS PER ABOVE DIRECTION. THIS GROUND OF APPE AL IS SET ASIDE. 39. GROUND NO.4 IN A.Y. 2005-06 IS AGAINST PRIOR PE RIOD EXPENSES OF RS.3,27,254/-. THE ISSUE HAS NOT BEEN PRESSED BY THE A.R., THUS, APPEAL ON THIS GROUND IS DISMISSED. 40. GROUND NO.5 IN A.Y. 2005-06, GROUND N0.3 IN A. Y. 2006- 07, GROUND N0.4 IN A.Y. 2007-08 AND GROUND NO.2 IN A.Y. 2008-09 ARE AGAINST DISALLOWANCES OF EXPENSES U/S 14A OF THE I.T. ACT. THE A.O. OBSERVED IN ASSESSMENT ORDERS THAT THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.6,41,000/- AND TAX FREE BOND INCOME OF RS.22,43,000/-IN A.Y. 2005-06, DIVIDEND OF RS.1,80, 788/- AND TAX FREE BOND INCOME OF RS.1,74,090/- IN A.Y. 2006-07, DIVIDEND OF RS.2,63,320/- IN A.Y. 2007-08 AND DIVIDEND OF RS.3, 34,710/- AND TAX FREE BOND INCOME OF RS.8,07,950/- IN A.Y.2008-09 . THE A.O. DISALLOWED 10% EXPENSES OUT OF ADMINISTRATIVE MANAGER IAL EXPENSES AT RS.1,44,200/- IN A.Y. 2005-06 AND RS.2, 51,600/- IN A.Y. 2006-07, BUT IN A.Y. 2007-08 AND IN A.Y. 2008 -09 HE DISALLOWED RS.5,10,795/- AND RS.2,39,380/- RESPECTI VELY U/S 14A OF THE I.T. ACT BY APPLYING THE RULE 8D. THE CIT(A) H AD FOUND 10% EXPENSES IN A.Y. 2005-06 AND IN A.Y. 2006-07 REASON ABLE AND CONFIRMED THE ADDITION. IN A.Y. 2007-08 AND IN A.Y. 2008-09 HE ALSO CONFIRMED ADDITION MADE UNDER RULE 8D. 41. THE LD. AR BEFORE US ARGUED THAT PROVISION U/S 1 4A IS NOT APPLICABLE IN HIS CASE AND THE CIT(A) WAS NOT JUSTI FIED IN CONFIRMING THE ADDITION. THE LD. DR ARGUED THAT DISALLOWANCE U/S 14A RIGHTLY CONFIRMED BY THE CIT(A) AND REQUESTED THAT THE CIT (A) ORDER MAY BE CONFIRMED. 42. WE HAVE PERUSED THE ASSESSMENT ORDER, ORDER OF THE CIT(A) AND HEARD THE ARGUMENT OF BOTH SIDES. THE A.O . HAD ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 24 DISALLOWED REASONABLE EXPENDITURE U/S 14A OF THE I.T . ACT. THEREFORE, WE DO NOT INTERVENE IN THE FINDINGS OF THE A.O. FOR ALL THE YEARS. THUS, THESE GROUNDS OF APPEALS ARE DISMISSE D IN ALL THE YEAR. 43. GROUND NO.4 IN A.Y. 2006-07 AND IN A.Y. 2008-0 9 AND GROUND NO.6 IN A.Y. 2007-08 ARE AGAINST NOT DIRECTIN G THE A.O. TO REDUCE THE TECHNICAL KNOW HOW EXPENSES AS PER THE DIR ECTION OF THE HONBLE ITAT IN A.Y. 2003-04. THE A.O. HAD NOT GIV EN ANY FINDING IN ALL THE ASSESSMENT YEARS ON THIS ISSUE EVEN THEN I T WAS CLAIMED BEFORE THE A.O. DURING THE COURSE OF ASSESSMENT PROC EEDING. THE CIT(A) OBSERVED THAT THIS ISSUE HAS NOT BEEN EMANATI NG FROM THE ORDERS UNDER APPEAL, SO, THE ASSESSEE SHOULD APPLY T O THE A.O. U/S 154 OF THE I.T. ACT AND ALSO APPEAL EFFECT ORDER OF ITAT FOR A.Y. 2003-04 AND DISMISS THE APPEAL FOR ALL THE YEARS. 44. BEFORE US THE LD. AR FOR THE ASSESSEE DREW OUR ATTENTION TO THE ORDER OF THE ITAT FOR A.Y. 2003-04 ON THIS ISSU E AND CLAIMED THAT 1/6 DEDUCTION HAD BEEN ALLOWED BY THE HONBLE IT AT EVERY YEAR ON ACCOUNT OF EXPENSES OF TECHNICAL KNOW-HOW. THE LD. DR FAIRLY CONCEDED THIS ISSUE IN FAVOUR OF ASSESSEE. THUS, TH E A.O. IS DIRECTED TO ALLOW 1/6 EXPENSES ON ACCOUNT OF TECHNICAL KNOW-HO W AS PER ORDER OF THE ITAT IN A.Y. 2003-04. THUS, THIS GROU ND OF APPEAL IS ALLOWED. 45. GROUND NO.6 IN A.Y. 2005-06 IS AGAINST CHARGING OF INTEREST U/S 234B AND U/S 234D OF THE I.T. ACT WHICH I S CONSEQUENTIAL TO THE ABOVE FINDINGS. THE AO IS DIRE CTED TO CALCULATE INTEREST AS PER LAW. 46. GROUND NO.5 IN A.Y. 2007-08 IS AGAINST NOT ALLO WING CARRY FORWARDED OF LONG TERM LOSS OF RS.17,28,953/- WHICH HAS NOT BEEN PRESSED BY THE AR. THUS, THIS GROUND OF APPEAL IS D ISMISSED. ITA NOS.2028,2217 & 2708 OF 2008, 1178 & 1595 OF 20 09 AND 714, 1193, 2178 & 2569 OF 2010 25 47. IN THE RESULT, THE APPEALS ARE PARTLY ALLOWED, AS DISCUSSED ABOVE. 23/ 0 5 /2012 THIS ORDER PRONOUNCED IN OPEN COURT ON 23 /05/ 2012 . SD/- SD/- (G.C. GUPTA) (T.R. MEENA) (VICE PRESIDENT) (ACCOUNTANT MEMBER) TRUE COPY N.K. CHAUDHARY, SR. P.S. - /05/2012 N.K. CHAUDHARY ! '# ! '# ! '# ! '# $' ! $' ! $' ! $' ! / COPY OF ORDER FORWARDED TO:- 1. #% &' / APPELLANT 2. (&' / RESPONDENT 3. )! * + / CONCERNED CIT 4. * + - #% / CIT (A) 5. ',- % ! ) , * #%% )* , / DR, ITAT, AHMEDABAD 6. ./ 0 / GUARD FILE. BY ORDER/ , 2# / #3% * * #%% )* , STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE YES 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 4) DATE OF CORRECTION 5) DATE OF FURTHER CORRECTION 6) DATE OF INITIAL SIGN BY MEMBERS 7) ORDER UPLOADED ON 23.5.12 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 23.5.12