M/s Treadstone International, Kanpur V. Dy. Commissioner of Income Tax-V, Kanpur

ITA 21/LKW/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2020 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Reasonable cause; Bad and doubtful debts; Condonation of delay
• Section: 40A(3); 142(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.663/LKW/2013 ASSESSMENT YEAR 2008-09 M/S TREADSTONE INTERNATIONAL, 39, FACTORY AREA, FAZALGANJ, KANPUR-208012 PAN AAACM 9812 F VS ASSTT. COMMISSIONER OF INCOME TAX-5, KANPUR ITA NO.21/LKW/2014 ASSESSMENT YEAR 2008-09 DY. COMMISSIONER OF INCOME TAX - 5 , KANPUR VS M/S TREADSTONE INTERNATIONAL, 39, FACTORY AREA, FAZALGANJ, KANPUR-208012 PAN AAACM 9812 F (RESPONDENT) (APPELLANT) SHRI AMIT NIGAM, DR APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY 03 /0 9 /2015 DATE OF HEARING 30 / 10 /2015 DATE OF PRONOUNCEMENT O R D E R PER SUNIL KUMAR YADAV, JM. THESE CROSS APPEALS ARE PREFERRED BY THE REVENUE AS WELL AS ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) PERTAINING TO T HE AY. 2008-09. 2. DURING THE COURSE OF HEARING, IT HAS BEEN NOTICE D THAT THE ASSESSEES APPEAL IS FILED LATE BY 115 DAYS FOR WHICH APPLICATION FOR CONDONATION OF DELAY IS MOVED EXPLAINING THE DELAY IN FILING OF THE APPEAL. HAVIN G PERUSED THE SAID APPLICATION, 2 WE FIND THAT THERE IS A REASONABLE CAUSE FOR THE DE LAY IN FILING OF THE APPEAL, WE THEREFORE, CONDONE THE DELAY AND ADMIT THE APPEAL O F THE ASSESSEE FOR HEARING. 3. SINCE THE APPEALS OF THE ASSESSEE AS WELL AS REV ENUE WERE HEARD TOGETHER AND THE SAME ARE BEING DISPOSED OF THROUGH THIS CON SOLIDATED ORDER. ACCORDINGLY, THESE APPEALS ARE BEING DISPOSED OF ONE AFTER THE O THER. ITA NO.663/LKW/2013 4. THIS APPEAL IS PREFERRED BY THE REVENUE ASSAILIN G THE ORDER OF THE CIT(A) INTERALIA ON THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND IN FA CTS WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE BROUGHT ON RECORD OF THE CASE AS WELL AS FACTS GIVEN BY THE SPECIAL AUDITOR IN HI S REPORT. 2. THAT THE LD. CIT(A) HAS ERRED IN !AW AND IN FAC TS IN DELETING THE ADDITION OF RS.58,343/- WITHOUT APPRECIATING THE FA CTS THAT THE ADDITION WAS MADE ON ACCOUNT OF EXPENDITURE SHOWN A GAINST THE NAME OF AMAN & AYAN HIDE COMPANY AS ASSESSEE FAILED TO PRODUCE ANY BILL FOR SUCH PURCHASE. 3. THAT THE ID. CIT(A) HAS ERRED IN LAW AND IN FAC TS IN TAKING A CONTRADICTORY POSITION ON SIMILAR FACTS WHILE DELET ING ADDITION OF RS. 58,343/- IN PARA 6.3 OF HIS ORDER AND UPHOLDING THE ADDITION OF RS. 30,099/- IN PARA 9,3 OF HIS ORDER. 4. THAT THE LD. CIT(A) HAS ERRED IN LAW AND IN FAC TS IN READING THE EXCEPTION MADE BY RULE-8 DD(J) TOO BROADLY TO COVER ANY PAYMENT MADE ON A SUNDAY FAILING TO APPRECIATE THE SAID RUL E PROVIDES EXCEPTION ONLY WHERE PAYMENT WAS 'REQUIRED TO BE MA DE ON A HOLIDAY THE ONUS FOR PROVING WHICH REQUIREMENT LAY ON THE A SSESSEE AND WAS NOT DISCHARGED. 5. THAT THE LD. CIT(A) HAS ERRED IN LAW A.ID FACTS IN FAILING TO APPRECIATE THAT CASN PAYMENTS MADE TO SHAH TRADERS COULD NOT B E SUBSTANTIATED BY THE ASSESSEE IN REMAND PROCEEDINGS DIRECTED BY T HE CIT(A) HIMSELF AND THIS BEING THE CASE THE ENTIRE PAYMENTS TO SHAH TRADERS WERE REQUIRED TO BE DISALLOWED AND NO PART OF SUCH PAYME NT COULD BE BROUGHT WITHIN RULE 6DD(J) MERELY BECAUSE ASSESSEE STATED THAT PAYMENTS WERE MADE ON BANK HOLIDAYS. 6. THAT THE LD. C1T(A) HAS ERRED IN LAW AND IN FACT S IN DELETING ADDITION OF RS. 49,09,357/- MADE ON ACCOUNT OF SALES AT OTHE R THAN MARKET RATES TO SISTER CONCERNS WITHOUT APPRECIATING THAT THE AO HAD ADOPTED THE MOST REASONABLE METHOD TO WORKOUT THE FIGURE OF SUCH SALES. 3 7. THAT THE LD. CIT(A) HAS ERRED IN LAW ARID IN FAC TS IN DELETING THE ADDITION OF RS, 49,09,357/- WITHOUT APPRECIATING TH E FACT THAT THE ADDITION WAS MADE ON ACCOUNT OF DISALLOWANCE OF SAL ES TO RELATED PARTY BELOW MARKET RATES ON THE BASIS OF THE REPORT OF THE SPECIAL AUDITORS. 8. THE ORDER OF THE CIT(A) IS ERRONEOUS AS REASONI NG ADOPTED BY HIM FOR DELETING THE ADDITION OF RS. 49,09,357/- RELIES EXC ESSIVELY ON EXPLANATIONS MADE UP AFTER ASSESSMENT AND WHICH EXP LANATIONS WERE NOT OFFERED BEFORE AO. 9. THAT THE LD. CIT(A) HAS ERRED IN LAW AND IN FAC TS IN FAILING TO APPRECIATE THAT THE AO HAS MADE AN ADDITION OF RS. 40,78,740/- BY WORKING OUT INFLATION OF EXPENSES ON ACCOUNT OF CHE MICAL CONSUMPTION IN A MOST REASONABLE AND FAIR MANNER ALLOWING ADDIT IONAL EXPENSES ON ACCOUNT OF NATURE OF BUSINESS AND THIS BEING THE CA SE THIS ADDITION DID NOT CALL FOR ANY INTERFERENCE. 10. THAT THE ORDER OF THE ID. CIT (A) IS ERRONEOUS AS WHILE CONSIDERING ADDITION OF RS. 40,78,740/- HE HAS FAILED TO APPREC IATE THE TECHNICAL OPINION OBTAINED BY THE AO AND HAS CHOSEN TO HIGHLI GHT VALUE OF CHEMICALS PER HIDE IGNORING THAT EXCESS CONSUMPTION HAS BEEN WORKED OUT BY THE AO ON THE BASIS OF PERCENTAGE OF CONSUMPTION OF CHEMICALS TO HIDES. 11. THE ORDER OF THE CIT(A), KANPUR BEING ERRONEOU S, UNJUST AND BAD IN LAW BE VACATED AND THE ORDER OF THE AO BE RESTORED . 12. THAT THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF APPEAL OR TAKE ADDITIONAL GROUND DURING THE PENDENC Y OF THIS APPEAL. 5. APROPOS GROUNDS NO. 2 AND 3, IT IS NOTICED THAT THE AO HAS MADE AN ADDITION OF RS.58,343/- IN RESPECT OF PURCHASE FROM AMAN & ARYAN HIDE COMPANY AND RS.30,099/- FROM IRFAN HYDERABAD, BEING AMOUNT DEBITED TO PURCHASE ACCOUNT. THE ADDITION OF RS.58,343/- WAS DELETED BY THE CIT(A) WHEREAS THE ADDITION OF RS.30,099/- WAS CONFIRMED BY THE CIT(A) AND THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(A). IN THIS REGARD, IT WAS CON TENDED BY THE LD. DR THAT THE CIT(A) HAS TAKEN A CONTRARY STAND, THEREFORE, THE O RDER OF CIT(A) DELETING THE ADDITION OF RS.58,343/- DESERVES TO BE SET ASIDE. T HE ADDITION CONFIRMED BY THE CIT(A) OF RS.30,099/- WAS CHALLENGED BY THE ASSESSE E IN ITS APPEAL THEREFORE, THE ISSUE WOULD BE DISCUSSED WHILE DEALING WITH THE APP EAL OF THE ASSESSEE. WE, 4 THEREFORE, CONFINE OURSELVES WITH RESPECT TO THE AD DITION OF RS.58,343/- IN THE NAME OF AMAN & ARYAN HIDE COMPANY AND IN THIS REGAR D WE FIND THAT THE SPECIAL AUDITORS HAVE POINTED OUT THAT THE OPENING DEBIT BA LANCE OF RS.58,343/- IN THE NAME OF AMAN & AYAN HIDE COMPANY WAS TRANSFERRED TO PURCHASE (RAW HIDE) ACCOUNT WITHOUT PRODUCING ANY BILLS OF PURCHASES. D URING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER ASKED THE ASSESSE E TO PRODUCE SUCH BILLS BUT THE ASSESSEE COULD NOT PRODUCE THE SAME AND FOR WANT OF CORROBORATING EVIDENCE, THE AO DISALLOWED THE EXPENDITURE OF RS.58,343/-, AGAIN ST WHICH AN APPEAL WAS FILED BEFORE THE CIT(A) WITH THE SUBMISSION THAT THE ASSE SSEE HAS VOLUNTARILY SHOWED A DEBIT BALANCE OF RS.58,343/-, WHICH WERE CARRIED FO RWARD FROM EARLIER YEARS AND IS NOT RECOVERABLE. THE AMOUNT BEING BAD DEBTS WAS REQ UIRED TO BE WRITTEN OFF BUT INADVERTENTLY, THE DEALING CLERK DEBITED THE AMOUNT TO HIDE ACCOUNT TO CLEAR THE DEBIT BALANCE INSTEAD OF WRITTEN OFF AS BAD DEBTS. IT WAS ALSO CONTENDED BY THE CIT(A) THAT THIS POSITION WAS EXPLAINED TO ASSESSIN G OFFICER BUT DID NOT APPRECIATE THE SAME. THE CIT(A) REEXAMINED THE CLAIM OF THE AS SESSEE AND HAVING VERIFIED THE FACT THAT THE EXCESS PAYMENT OF RS.58,343/- COU LD NOT BE RECOVERED FOR EARLIER YEARS OR IN THE YEAR UNDER CONSIDERATION, THEREFORE , THE SAME WOULD BE TERMED AS TRADING LOSS. THE MISTAKE WAS MADE BY THE CLERK BY DEBITING THE SAME TO HIDE PURCHASE ACCOUNT INSTEAD OF TRADING LOSS. THE CIT(A ) REEXAMINED THE CLAIM OF THE ASSESSEE AND HAVING FOUND THE TRUTH THEREIN. THE CI T(A) ACCEPTED THE CLAIM AND DELETED THE ADDITION. 6. NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND HAS PLACED RELIANCE UPON THE ORDER OF THE CIT(A). THE LD. DR DID NOT PO INT OUT ANY FACTUAL MISTAKE IN THE FINDING OF THE ORDER OF THE CIT(A). WE FIND THA T THE CIT(A) HAS RIGHTLY ADJUDICATED THE ISSUE AS THE CASE OF TRADING OR BUS INESS LOSS. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND WE CONFIRM THE ORDER OF CIT(A) ON THIS ISSUE. 7. SO FAR AS THE GROUNDS NO. 4 AND 5 ARE CONCERNED, IT RELATE TO THE RELIEF GIVEN BY THE CIT(A) WHILE DEALING THE ISSUE OF PAYMENT TO SHAH TRADERS. IN THIS REGARD, 5 WE FIND THAT THE ASSESSING OFFICER HAS MADE AN ADDI TION OF RS.36,92,935/- ON ACCOUNT OF CASH PURCHASE OF RAW HIDE BY APPLYING TH E PROVISION OF SECTION 40A(3) OF THE ACT. HAVING NOTED THE OBJECTION RAISED BY TH E SPECIAL AUDITOR WITH REGARD TO CASH PAYMENT TO CERTAIN SUPPLIERS OF RAW HIDE ON TH E GROUND THAT IN THEIR OPINION EACH CASH PAYMENTS ARE NOT COVERED UNDER RULE 6DD R .W.S. 40A(3) OF THE ACT. 8. DURING THE COURSE OF ASSESSMENT PROCEEDING, IN R ESPONSE TO THE QUERY RAISED BY THE AO, COMPLETE POSTAL ADDRESS, PURCHASE BILLS AND RESPECTIVE PURCHASE ACCOUNT WAS FURNISHED BY THE ASSESSEE. THE ASSESSEE HAS ALSO FILED THE BILLS FROM THE SUPPLIERS, SHAH TRADERS AND UNIQUE TRADERS. FRO M THE BILLS, THE ASSESSING OFFICER HAS NOTED THAT THE PARTIES ARE NOT PRODUCER S OF THE HIDE BUT ARE COMMISSION AGENT AND SINCE THE PAYMENTS WERE MADE I N CASH, HE MADE THE DISALLOWANCE HAVING INVOKED THE PROVISION OF SECTIO N 40A(3) OF THE ACT. THE DETAILS OF PURCHASE MADE IN CASH ARE AS UNDER:- SR. NO. NAME OF PARTY AMT OF CASH PURCHASES 1. IBBANT TRADING CO. 100000 2. SHAH TRADERS 3435285 3. UNIQUE TRADERS 157650 TOTAL 3692935 9. AGAINST THE AFORESAID ADDITION, THE ASSESSEE FIL ED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT THE SPECIAL AUDITOR HAD MENTIONED IN HIS REPORT THAT THAT THE ASSESSEE HAS MADE PURCHASES, OUT OF W HICH, PURCHASES TO THE TUNE OF RS.97,02,424.94 WERE HIT BY SECTION 40A(3) OF THE A CT. ASSESSEE FURNISHED THE EXPLANATION BEFORE THE AO. THE AO HAS ACCEPTED ALL PURCHASES EXCEPT FOR THE THREE REFERRED TO ABOVE. THE COPIES OF THE ACCOUNTS OF PARTIES WERE FILED BEFORE THE CIT(A) WITH THE SUBMISSION THAT MOST OF THE PUR CHASES WERE MADE ON SUNDAY AND DUE TO THE BANK CLOSING DAY THE PAYMENTS WERE M ADE IN CASH. THE DETAILED WRITTEN SUBMISSION WAS ALSO FILED BEFORE THE CIT(A) . 10. THE CIT(A) HAS EXAMINED THE DETAILED SUBMISSION S AND HAS DELETED THE ADDITION WITH RESPECT TO PAYMENT OF RS.1.00 LAKH MA DE TO IBBAN TRADING CO. THE 6 CIT(A) HAS HELD THAT SINCE THIS PAYMENTS WERE MADE TO IBBAN TRADING CO. ON SUNDAY BEING A BANK HOLIDAY, IT WOULD NOT BE COVERE D BY THE PROVISION OF SECTION 40A(3) OF THE ACT AS A SAME IS EXCLUDED AS PER RULE 6DD(J). WITH REGARD TO PAYMENT OF RS.1,57,650/- MADE TO UNIQUE TRADER, NO EVIDENCE WAS BROUGHT FORWARD BEFORE THE CIT(A) AND IN THE ABSENCE OF THE SAME THE ADDITION OF RS.1,57,650/- WAS CONFIRMED BY THE CIT(A). SO FAR A S THE TRANSACTION OF SHAH TRADERS ARE CONCERNED, THE AO HAS ADDED A SUM OF RS .34,35,285/- BEING CASH PAYMENT OF PURCHASE OF RAW HIDE. IN THIS REGARD, TH E CIT(A) HAS NOTED THAT THE PAYMENT OF RS.12,25,130/- WERE MADE ON DIFFERENT DA TES ON SUNDAY AND BEING A BANK HOLIDAY A PROVISION OF SECTION 40A(3) CANNOT B E INVOKED AS A SAME STAND EXCLUDED AS PER RULE 6DD(J) OF THE INCOME TAX RULES . WITH RESPECT TO REMAINING PAYMENT OF RS.22,10,155/-, THE CIT(A) WAS OF THE VI EW THAT SINCE PAYMENTS WERE NOT MADE TO THE PRODUCERS OF ANIMAL HUSBANDRY LIVES TOCK HIDES AND SKINS, THE PROVISION OF SAVING CLAUSE (E) OF RULES 6DD CANNOT BE INVOKED AND ACCORDINGLY HE CONFIRMED THE ADDITION OF RS.22,10,155/-. AGAINST T HE DELETION OF ADDITION ON THIS ISSUE REVENUE IS IN APPEAL AND WITH RESPECT TO ADDI TION CONFIRMED BY THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. THEREFORE, THE ENTIRE ISSUE IS TO BE ADJUDICATED AFRESH. 11. WE HAVE CAREFULLY EXAMINED THE ORDERS OF LOWER AUTHORITIES, IN THE LIGHT OF RIVAL SUBMISSIONS AND WE FIND THAT THE ASSESSEE HAS CONTENDED BEFORE THE CIT(A) THAT THE PAYMENTS WERE MADE TO ONE ABDUL KARIM THRO UGH WHOM THE RAW HIDES WERE PURCHASED FROM THE PRODUCER. SHRI ABDUL KARIM WAS THE COMMISSION AGENT AND HE COLLECTED THE PAYMENTS FROM THE ASSESSEE AND THEREAFTER HE DISBURSED THE SAME TO THE PRODUCERS AFTER RETAINING HIS COMMISSIO N. THE STATEMENT OF ABDUL KARIM WAS ALSO RECORDED AND THE REMAND REPORT WAS A LSO SOUGHT, BUT IN THE REMAND REPORT, WHICH HAS BEEN REPRODUCED BY THE CIT (A) IN HIS ORDER, THE AO HAS NOT DISPUTED THE STATEMENT OF THE ABDUL KARIM. HE S IMPLY SAID THAT THE ASSESSEE HAS SOUGHT ADJOURNMENT AND HAS NOT FURNISHED THE DE TAILS. ON PERUSAL OF REMAND REPORT, WE ARE UNABLE TO UNDERSTAND AS TO WHAT DETA ILS WERE REQUIRED TO BE 7 FURNISHED BEFORE THE AO. THE ASSESSING OFFICER WAS ASKED TO EXAMINE THE VERACITY OF THE STATEMENT OF ABDUL KARIM PROPRIETOR OF SHAH TRADERS, WHO WORKED AS A COMMISSION AGENT IN SALE TRANSACTION OF RAW HIDES. WHEN THE ASSESSEE HAS PURCHASED THE RAW HIDES FROM THE PRODUCER, SOME AGE NT IS REQUIRED TO ORGANIZE THE DEALS, AS THE ASSESSEE DO NOT KNOW DIRECTLY THE PRODUCER AND NONE OF THE PARTIES CAN TRUST EACH OTHER WITHOUT ANY AGENT. SIN CE SHAH TRADER HAS WORKED AS AN AGENT IN THIS PURCHASE OF RAW HIDES, IT CANNOT B E SAID THAT THE PURCHASES WERE NOT AFFECTED FROM THE PRODUCER OF THE RAW HIDES. WE HAVE ALSO CAREFULLY EXAMINED THE PROVISION OF RULE 6DD(E) OF THE RULES IN WHICH THE PAYMENTS FOR PURCHASE OF PRODUCES OF ANIMAL HUSBANDRY ( INCLUDING LIVESTOCK, HIDES AND SKINS) OR DOING OR POULTRY FORMING ARE EXCLUDED FROM THE CLUTCHES OF P AYMENT IN CASH EXCEEDING THE SPECIFIED LIMIT. THEREFORE, WE ARE OF THE VIEW THAT SINCE THE PAYMENTS WERE MADE FOR PURCHASE OF RAW HIDES TO THE PRODUCER THROUGH T HE COMMISSION AGENT PROVISION OF RULE 40A(3) CANNOT BE INVOKED AS ITS FALLS WITHI N THE EXEMPTION CLAUSE OF RULES 6DD(E) OF THE RULE. 12. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION IN THE ADDITION OF RS. 22,10,155/- MADE ON ACCOUNT OF PURCHASES IN CASH BY INVOKING IN PROVISION OF RULE 40A(3) OF THE ACT SO FAR AS THE ADDITION DELETED BY THE CIT(A ) ARE CONCERNED, WE FIND THAT THE CIT(A) HAS MENTIONED IN HIS ORDER THAT THE PAYM ENTS WERE MADE IN CASH ON SUNDAY THEREFORE, THE SAME STANDS EXCLUDED AS PER R ULE 6DD(J) OF THE RULE. WE THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE CI T(A) DELETING THE ADDITION OF RS.RS.1,57,650/-. ACCORDINGLY, THIS ISSUE IS DISPOS ED OF. 13. APROPOS GROUNDS NO. 6,7, AND 8, IT IS NOTICED T HAT THE AO HAS TAKEN A COGNIZANCE OF THE SPECIAL AUDITOR REPORT AND NOTED THAT THE ASSESSEE SOLD CHROME DRESSED BUFF LEATHER TO TREADESTONE LTD. AND V.T. DRESSED LEATHER TO OTHER CONCERN. ON VERIFICATION IT WAS FOUND THAT SIMILAR LEATHER WAS SOLD BY THE ASSESSEE TO OTHER OUTSIDER CONCERN. ON FURTHER VERIFICATION, IT WAS FOUND THAT THE RATES OF SALES NEAREST TO SALE TREADSTONE LTD. ARE THAT OF K UNDAN LEATHER PVT. LTD. @ RS.1200.60 AND TO POPULAR TRADING CORPORATION. THE ASSESSING OFFICER FURTHER 8 OBSERVED THAT IT WOULD BE IN FITNESS OF THINGS, TO TAKE THE AVERAGE SALE RATE OF THESE TWO PARTIES, WHICH ARE NEAREST TO TREADSTONE LTD. AND TREAT THIS AVERAGE RATE AS THE ONE AT WHICH THE ASSESSEE SHOULD HAVE SOLD C HROME LEATHER TO ITS ASSOCIATE CONCERN TREADSTONE LTD. (SHOE DIVISION). THE AVERAG E WORKS OUT TO RS.129.58. THE DIFFERENCE BETWEEN THE ACTUAL SALE RATE TO TREADSTO NE LTD. AND THIS AVERAGE COMES TO RS.176.78. SINCE THE ASSESSEE HAS SOLD 27,771 HI DES TO TREADSTONE LTD. THE TOTAL DIFFERENCE @ RS.176.78 WORKS OUT TO RS.49,09, 357/-. THE AO ACCORDINGLY MADE THE ADDITION OF THE DIFFERENCE. 14. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) AND FILED THE WRITTEN SUBMISSION, WHICH WAS REPRODUCED BY THE CIT(A) IN H IS ORDER. THROUGH THIS WRITTEN SUBMISSION, THE ASSESSEE HAS TRIED TO EXPLAIN AS TO HOW THE SALES WERE EFFECTED TO SISTER CONCERN AND OUTSIDERS AND FOR THE SAKE OF RE FERENCE WE EXTRACT THE SAME AS UNDER:- THE FINISHED PRODUCTS SOLD BY THE COMPANY CONSIST OF VT LEATHER AND CHROME LEATHER. THE VT LEATHER IS SOLD ON KG BASIS, WHEREAS THE CHROME LEATHER IS SOLD ON DCM2 BASIS I.E. AREA BASIS. THE INVOICES SHOWING THE SALE OF THESE PRODUCTS ARE PREPARED ACCORDINGLY AND THE RATES ARE ALSO CHARGED ON A SIMILAR BASIS. HOWEVER, THE SPECIAL AU DITOR, ON HIS OWN HAS CONVERTED THE ENTIRE SALES DATA ON HIDE BASIS AND A RRIVED AT THE CONCLUSIONS. THE CORRECT APPROACH OF THE SPECIAL AU DITOR WOULD HAVE BEEN TO COMPARE THE RATES CHARGED FOR THE IDENTICAL PRODUCTS AND ARRIVE AT HIS CONCLUSIONS. THE COMPILATION DONE BY THE SPE CIAL AUDITOR HAS RESULTED IN ERRONEOUS CONCLUSIONS. THE SPECIAL AUDITOR HAS WORKED OUT THAT THE COMPANY HAS SOLD 27771 HIDES (4307481DCM2) TO TREADSTONE LTD., A SISTER CO NCERN AT AN AVERAGE RATE OF 952.80 PER HIDE. THE ASSESSING OFFICER BASE D ON THIS INFORMATION, COMPARED THE AVERAGE RATES CHARGED TO TREADSTONE LT D. WITH THE AVERAGE RATES CHARGED TO TWO FIRMS I.E. KUNDAN LEAT HER PVT. LTD. AND POPULAR TRADING CORPORATION. WE HAVE WORKED OUT THE ACTUAL SALES MADE TO THE TWO FIRMS AND THE RATES CHARGED TO THEM IN EACH INVOICE. A COPY OF TH E SAME IS ENCLOSED FOR YOUR PERUSAL. ON ITS PERUSAL, IT WOULD BE SEEN THAT THE RATES CHARGED TO THE TWO FIRMS ARE AS UNDER. KUNDAN TRADING CORPORATION QTY. SOLD DCM2 335436 AT AN AVERAGE RATE OF RS.7.35 DCM2. 9 POPULAR TRADING CORPORATION QTY SOLD DCM2 17720 AT AN AVERAGE RATE OF RS.6.15 DCM2. AS AGAINST THE ABOVE, THE COMPANY HAS SOLD 1ST QUAL ITY OF CHROME LEATHER TO TREADSTONE LTD. AT AN AVERAGE RATE OF RS .7.30 PER DCM2. THE QUANTITY SOLD IS 2977919 DCM2. THE RATES CHARGED FO R IDENTICAL PRODUCTS COMPARE FAVOURABLY WITH THE RATE CHARGED TO THE TWO FIRMS. IN THIS CONNECTION, THE FOLLOWING POINTS ALSO NEED TO BE NOTED: (A) THE ASSOCIATED FIRMS ARE TAX PAYING COMPANIE S PAYING IDENTICAL RATES OF TAXES. HENCE, THE TAX SAVING AS A GROUP CA NNOT BE ACHIEVED BY CHARGING DIFFERENTIAL RATES. (B) THE QUANTITY SOLD TO THE ASSOCIATED FIRMS IS SEVERAL TIMES HIGHER, AS COMPARED TO THE SALES MADE TO THE OUTSIDE PARTIE S AND IS NOT COMPARABLE. (C) THE HIDE IS A NATURAL PRODUCT DERIVED OUT O F THE SLAUGHTERED OR DEAD ANIMALS. THE ANIMALS, BEING LIVING BEINGS, ARE OF DIFFERENT SIZES AND SHAPES AND ARE NOT IDENTICAL SUFFER FROM VARIOUS SICKNESSES, INJURIES, INFIRMITIES ETC. HENCE, THE L EATHER DERIVED OUT OF THE ANIMALS IS OF VARYING QUALITIES, DESCRIBED A S 1 ST QUALITY AND IIND QUALITY ETC. THE OUTSIDE PARTIES BUY ONLY 1 ST QUALITY MATERIAL, WHERE AS THE ASSOCIATED FIRMS ARE GIVEN ALL THE AVA ILABLE QUALITIES. 15. THE CIT(A) REEXAMINED THE SCHEME OF THE ASSESSE E IN THE LIGHT OF THE DETAILED EXPLANATION AND WAS OF THE VIEW WHATEVER L ITTLE DIFFERENCE IN PRICES ARE THERE IT HAS TO BE SEEN IN THE LIGHT OF QUANTUM OF SALE. THE SALE TO M/S POPULAR WAS OF VERY SMALL QUANTITY AND THAT TOO SINGLE QUAL ITY, WHEREAS THE SALE TO TREADSTONE IS OF MUCH BIGGER QUANTITY AND ALSO OF V ARYING QUALITIES. THEREFORE ONE CANNOT COMPARE TO AVERAGE RATE OF SALE MADE TO TREA DSTONE WITH THAT OF M/S POPULAR WHERE ONLY ONE QUALITY IN SMALL LOT WAS SOL D. THE ISSUE IN DETAIL WAS DISCOVERED BY THE CIT(A) IN HIS ORDER AND FOR THE S AKE OF REFERENCE WE EXTRACT THE SAME AS UNDER:- I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE HAS FILED BEFORE ME A COMPLETE COMPILATION OF THE S ALE OF CHROME LEATHER AS SOLD TO TSL AND AS SOLD TO OTHER PARTIES. THE CONFU SION IN THE MIND OF THE A.O. HAS OCCURRED SINCE HE HAS COMPARED THE AVERAGE SALE RATE IN TERMS OF NUMBER OF HIDES AND NOT IN TERMS OF AREA AND QUALIT Y OF EACH HIDE. AS IS VERY WELL KNOWN IN THIS TRADE, THE TANNED LEATHER IS NOT SOLD IN TERMS OF HIDES BUT IN TERMS OF ACTUAL AREA (IN DM2). EACH HIDE HAS WID ELY DIFFERENT AREA AND 10 THUS ONE HIDE CANNOT BE OF THE SAME VALUE AS ANOTHE R HIDE. THE CORRECT APPROACH SHOULD HAVE BEEN TO COMPARE THE AVERAGE RA TE PER DM2. FURTHER, EACH PROCESSED HIDE IS OF DIFFERENT GRADE AND THUS OF DIFFERENT VALUE. NOW COMING TO THE SPECIFICS, THE ENTIRE SALE MADE TO M/ S KUNDAN IS THAT OF DRESSED COW HIDE AND THE THE AVERAGE RATE OF SALE P ER DM2 COMES TO RS. 7,35. WHILE EXAMINING THE BILLS DRAWN ON M/S TREADS TONE, I FIND THAT SALE OF DRESSED COW HIDES HAS BEEN MADE AT AVERAGE RATE WHI CH ARE COMPARABLE TO THE AVERAGE RATE OF SALE TO KUNDAN AND IN SOME CASE S EVEN HIGHER (I.E1 RS. 8.50 PER DM2. 8.30 PER DM2. 8.10 DM2 AND 8.00 DM2). THE A.O. HAS COMPARED THE AVERAGE RATE OF HIDES AS AGAINST THE A REA OF THE HIDES AND HE HAS ALSO NOT MADE ANY DISTINCTION BETWEEN COW HIDES , BUFF HIDES, FINING ETC; THUS, HIS ANALYSIS OF FACT IN THIS REGARD IS ERRONE OUS. AS REGARDS, SALE TO M/S POPULAR, I FIND THAT THE SALE MADE IS THAT OF DRESS ED BUFF HIDE WHICH TOO, IN A VERY SMALL QUANTITY AND VALUE I.E. ONLY RS. 1.06 LA CS. THE RATE OF SALE OF DRESSED BUFF HIDE TO M/S POPULAR IS RS. 6.45 PER DM 2, WHEREAS IN THE CASE OF TREADSTONE, THE SALE OF DRESSED BUFF HIDE HAS BEEN MADE AT VARYING RATES FROM RS. 7.15 TO RS. 4.4 PER DM2. IT WAS EXPLAINED THAT THE SALE TO M/S POPULAR WAS OF A VERY SMALL QUANTITY AND THAT TOO O F A SINGLE QUALITY, WHEREAS SALE TO TREADSTONE IS-OF MUCH BIGGER QUANTITY AND A LSO OF VARYING QUALITIES, WHICH IS EVIDENT FROM THE BILLS DRAWN. IT WAS EXPLA INED THAT THERE WAS A LOT OF VARIATION IN THE QUALITY OF LEATHER SOLD AND THUS T HE RATES WOULD VARY GREATLY BETWEEN THE QUALITIES. THEREFORE, ONE CANNOT COMPAR E THE AVERAGE RATE OF SALE MADE TO TREADSTONE WITH THAT OF M/S POPULAR, W HERE ONLY ONE QUALITY IN SMALL LOT WAS SOLD. IN VIEW OF THE AFORESAID EXPLAN ATION, I AM OF THE CONSIDERED VIEW THAT THE COMPARISON DRAWN BY THE AO WAS ERRONEOUS SINCE:- I) HE HAS COMPARED THE RATES OF NUMBER OF HIDES SOLD A S AGAINST THE RATES PER DM2 OF THE HIDES SOLD II) HE HAS NOT CONSIDERED THE DIFFERENCE IN QUANTITY AN D QUALITY SOLD. 12.2.1 ACCORDINGLY, IT CANNOT BE SAID THAT GOODS HA VE BEEN SOLD AT LESSER PRICE TO TREADSTONE LTD. IN THIS VIEW OF THE MATTER , THE ADDITION OF RS.49,09,357/- MADE BY THE AO STANDS DELETED. 16. AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL. LD. DR HAS PLACED RELIANCE UPON THE ORDER OF THE AO AND NO DEFECT IN THE ORDER OF THE CIT(A) HAS BEEN POINTED OUT. WHEREAS LD. COUNSEL FO R THE ASSESSEE BESIDES PLACING RELIANCE ON THE ORDER OF THE CIT(A) HAS CON TENDED THAT RATE OF HIDES DEPENDS UPON ITS QUALITY AND SIZES AND THE SIZES AR E TO BE MEASURED AS PER DIAMETER. SINCE THE HIDES ARE NOT MANUFACTURED AND ARE OBTAINED FROM THE ANIMALS, ALL HIDES CANNOT BE OF SAME QUALITY, THERE FORE, THERE IS BOUND TO BE A DIFFERENCE IN EACH HIDE. THUS ITS RATE CANNOT BE TH E SAME. THE HIDES ARE 11 CATEGORIZED IN DIFFERENT CATEGORIES AND EACH OF THE CATEGORIES DEPENDING UPON THE QUALITY OF HIDE. 17. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWE R AUTHORITIES IN THE LIGHT OF RIVAL SUBMISSION, WE FIND THAT THE AO MADE AN ADDIT ION HAVING RELIED UPON THE OBSERVATION OF THE SPECIAL AUDITOR IN ITS REPORT EV EN WITHOUT REALIZING THAT HIDES ARE NOT MANUFACTURED. THEREFORE, IT IS OF DIFFERENT QUA LITIES AND THE RATES OF THE HIDES DEPENDS UPON THE QUALITIES. IT IS ALSO FACT THAT TH E HIDES ARE MEASURED PER DIAMETER AND DIFFERENT SIZES OF HIDES ARE OF DIFFER ENT RATES, THEREFORE, THE RATES OF PARTICULAR HIDES CANNOT BE COMPARED WITH OTHER HIDE . WE HAVE CAREFULLY EXAMINED THE ORDER OF THE CIT(A) AND WE FIND THAT THE CIT(A) HAS PROPERLY APPRECIATED THE FACTS OF THE CASE AND ADJUDICATED THE ISSUE IN RIGH T PERSPECTIVE. SINCE NO SPECIFIC INFIRMITY HAS BEEN POINTED OUT BY THE LD. DR WE CON FIRM THE ORDER OF THE CIT(A). 18. APROPOS GROUNDS NO. 9 AND 10, WE FIND THAT THE AO HAS MADE AN ADDITION OF RS.40,78,740/- ON ACCOUNT OF EXCESS CONSUMPTION OF CHEMICAL BY MAKING FOLLOWING OBSERVATION:- IN THIS POINT THE SPECIAL AUDITORS HAVE PROVIDED T HE PERCENTAGE RATIO OF CONSUMPTION OF CONSUMABLE STORES TO RAW MATERIAL CONSUMED FOR THE PREVIOUS YEAR AND FOR THE PRECEDING YEAR AT 87. 08% AND 108.20% RESPECTIVELY. THE ASSESSES WAS A/SO REQUIRED TO GIV E ITS OWN CALCULATIONS IN THIS RESPECT. ACCORDING TO THE ASSE SSEE THESE RATIOS ARE 93.56% FOR THIS YEAR .AND 105.82% FOR THE PRECEDING YEAR. THE MAIN CAUSE OF DIFFERENCE BETWEEN THE RATIO'S WORKED OUT BY THE SPECIAL AUDITORS AND THE ASSESSEE IS THE DIFFERENCE IN THE FIGURES OF OPENING WORK IN PROCESS WHICH ACCORDING TO THE SPECIAL AUDI TORS IS RS.1,22,83,585/-AND AS PER THE ASSESSEE IS RS.2,54, 80,210/-. IT WAS EXPLAINED THAT CERTAIN CHEMICAL TREATMENT REMAIN ST IL! TO BE DONE ON THE LEATHER TAKEN OUT OF DRUMS WHILE THE SPECIAL AU DITORS HAS TREATED THE LEATHER OUT OF DRUMS AS FINALLY FINISHED STOCK. THE SPECIAL AUDITORS WERE CONSULTED IN THIS RESPECT AND THEY ALSO AGREED THAT SOME CHEMICAL TREATMENT STILL REMAINS TO BE DONE EVEN WH EN THE LEATHER IS. TAKEN OUT OF DRUMS BUT, AS COMPLETE DETAILS WERE NO T PROVIDED BY THE ASSESSEE DURING THE SPECIAL AUDIT, THEY HAVE EXCLUD ED THE SAME, ALTHOUGH, THEY ALSO HAVE MENTIONED THE SAME HAS 'FI NISHING LEATHER' AND NOT 'FINISHED LEATHER. IN VIEW OF THIS SITUATIO N THE WORKING OF RATIO 12 DONE BY THE ASSESSEE APPEARS TO BE MORE REALISTIC A ND THE SAME IS ADOPTED FOR CALCULATION. THE SPECIAL AUDITORS HAVE TAKEN THE INDUSTRY NORMS OF THE ABOVE RATIO AT 50% TO 60%. THIRD PATIY INQUIRIES WERE MADE FROM THE CENTRAL LEATHER RESEARCH INSTITUTE, JAJMAU, KANPUR/ VIDE TH EIR LETTER DATED 20.6.2011 THEY HAVE GIVEN THIS RATIO AT 60% TO 70% FOR NORMAL LEATHER AND HAVE ALSO ADDED THAT, THICKNESS, SOURCE, HEALTH OF THE ANIMAL AND TYPE OF LEATHER TO BE PRODUCED PLAY A MAJOR ROLE IN THE CHEMICAL COST VARIATION MEANING THEREBY THAT, THERE IS AN ELEMENT OF VARIATION POSSIBLE. THE ASSESSEE WAS A/SO REQUIRED TO GIVE IT S EXPLANATION REGARDING THE HIGHER CHEMICAL CONSUMPTION. VIDE ITS REPLY FILED ON 27.06.2011, THE ASSESSEE HAS ALSO NARRATED THE SAME FACTORS. LOOKING INTO THE FACT THAT, THE MAJOR PRODUCT OF TH E ASSESSEE IS' SADDLERY AND HARNESS LEATHER, WHICH IS THICKER AND THUS REQUIRES MORE CHEMICAL INPUT FOR TANNING AND FINISHING, IT IS CON SIDERED PROPER TO GIVE ANOTHER 10% VARIATION OVER AND ABOVE THE 70%, AS IN FORMED BY THE CLRL, TO THE ASSESSEE AND THE DIFFERENCE @ 13.56% ( 93.56-80) WILL BE TREATED AS THE CHEMICAL EXPENSES INFLATED BY THE AS SESSEE WITH THE INTENTION OF REDUCING THE PROFIT. TOTAL CONSUMPTION OF CHEMICALS DURING THE YEAR HAS BEEN SHOWN AT RS.3,00,79,207/-. 13.56% OF WHICH WORKS OUT TO RS.40,78,740/- AND THIS AMOUNT WILL BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 19. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT THE AO HAS BLINDLY RELIED UPON THE REPORT OF SPECIAL AUDITOR AND HAS HELD THAT THE CHEMICAL CONSUMED BY THE ASSESSEE IN TANNING OF LEATHER IS EXCESSIVE. IT WAS FURTHER CONTENDED THAT THE SPECIA L AUDITOR IS NOT AN EXPERT OF LEATHER TECHNOLOGY. IT WAS EXPLAINED THAT THE COMPA NY HAS PURCHASED THE CHEMICALS FROM REPUTED MANUFACTURES, SUPPLIERS ETC. THE RATES OF CHEMICALS ARE VERY COMPETITIVE AND PAYMENTS WERE MADE THROUGH ACC OUNT PAYEE CHEQUE. THE TRANSACTION VERIFIED BY THE ASSESSING OFFICER AND H E WAS CONVINCED WITH IT AS NO IRREGULARITY HAS BEEN POINTED OUT. HE SIMPLY MADE D ISALLOWANCE ON THE BASIS OF REPORT OF THE SPECIAL AUDITOR, WHO HAVE TAKEN A IND USTRY NORMS OF 50 TO 60%. THE ASSESSMENT ORDER DOES NOT STATE AS TO HOW THE AUDIT ORS HAVE ARRIVED AT THE FIGURE OF 50 TO 60% BEING THE INDUSTRY NORMS. THE BASIS OF ARRIVING AT THIS PERCENTAGE HAS NEITHER BEEN DISCUSSED WITH THE ASSESSEE NOR AN Y PAPERS ESTABLISHING THE 13 AUTHENTICITY OF THIS INFORMATION HAS BEEN SHOWN TO THE ASSESSEE. IN THE ABSENCE OF ANY DOCUMENTARY SUPPORT, THE PERCENTAGE PROJECTED B Y THE AUDITOR CANNOT BE ACCEPTED. IT WAS FURTHER CONTENDED THAT THE CENTRAL LEATHER RESEARCH INSTITUTE, JAJMAU, KANPUR VIDE HIS LETTER DATED 21.06.2011 HAS GIVEN A RATIO OF 60% TO 70% FOR NORMAL LEATHER AND HAVE ALSO ADDED THAT, THICKN ESS, SOURCE, HEALTH OF THE ANIMAL AND TYPE OF LEATHER TO BE PRODUCED WOULD PLA Y A MAJOR ROLE IN THE CHEMICAL COST VARIATION. THE LETTER RECEIVED FROM CLRI HAS N OT BEEN SHOWN TO THE ASSESSEE. THE ASSESSING OFFICER HAS NOT TAKEN A COGNIZANCE OF THEIR REMARKS THICKNESS, SOURCE, HEALTH OF THE ANIMAL AND TYPE OF THE LEATHE R TO BE PRODUCED PLAYS A MAJOR ROLE IN THE CHEMICAL COST VARIATION. IT WAS FURTHER CONTENDED THAT THE ASSESSING OFFICER HIMSELF HAS OBSERVED THAT PERCENTAGE OF CHE MICALS CONSUMED DURING THE YEAR HAVE COME DOWN TO 87.08% DURING THE PREVIOUS Y EAR, THEREFORE, THE CONSUMPTION OF CHEMICALS IN THE EARLIER YEAR, WHICH WAS HIGHER THAN THE YEAR UNDER ASSESSMENT, HAS ALREADY BEEN ACCEPTED BY THE DEPARTMENT. THE CIT(A) REEXAMINED THE CLAIM OF THE ASSESSEE, IN THE LIGHT OF REPLIES AND VARIOUS EVIDENCE AND THE CIT(A) WAS OF THE VIEW THAT THE INSTITUTE H AS CATEGORICALLY STATED THAT THE CONSUMPTION OF CHEMICAL IN RESPECT OF SAMPLES GIVEN VARY FROM RS.30/- TO 50/- PER KG. OF THE RAW HIDES WHEREAS CONSUMPTION OF CHEMICA LS PER SQUARE FT. OF FINISHED LEATHER WOULD VARY TO RS.35/- TO RS.60/-. THE CIT(A ) ACCORDINGLY RESTORE THE MATTER TO THE AO WITH A DIRECTION TO DETERMINE THE AVERAGE COST OF CONSUMPTION OF CHEMICALS/ PER SQ. FT/KG OF FINISHED LEATHER/RAW HI DE AND IF SUCH CHEMICAL CONSUMPTION IS WITHIN THE OUTER NORMS AS GIVEN BY T HE INSTITUTE, NO ADDITION WOULD BE REQUIRED TO BE MADE ON ACCOUNT FOR CONSUMPTION O F CHEMICALS. THE RELEVANT OBSERVATION OF CIT(A) IS EXTRACTED HEREUNDER FOR TH E SAKE OF REFERENCE:- I HAVE PERUSED THE DETAILS. THE A.O. H,AD DIRECTLY ENQUIRED FROM CENTRAL LEATHER RESEARCH INSTITUTE, KANPUR. THE CLRI HAS RE PLIED TO THE QUERIES OF THE A.O. THROUGH THEIR LETTERS DATED 20.06.2011, 15.07. 2011 AND 14.10.2011. THESE LETTER ARE REPRODUCED AS UNDER: TO 14 MR, RAKESH TRIPATHI, DY. COMMISSIONER OF INCOME TAX, CIRCLE-5, 15/295-A, CIVIL LINES.KANPUR. DEAR SHRI TRIPATHI, WITH REFERENCE TO YOUR LETTER DT 14.06,11, PLEASE F IND INFORMATION DESIRED BY YOU AS FOLLOWS 1. THICKNESS RANGE: RAW HIDE: 1.5MM TO 4.0MM. FINISHED LEATHER: 0.9MM-TO 5.0MM. 2. THICKNESS RANGE OF FINISHED RIDING BOOT UPPER LEATHER: 1.8 MM TO 2.2MM. 3. THICKNESS RANGE OF FINISHED SHOE UPPER LEATHER (DAILY WEAR)1.1MM TO 2.0MM. 4. COST OF FINISHED LEATHER: RS. 9537- AND RS. 10, 900/- PER HIDE OF FINISHED LEATHER ARE POSSIBLE ONLY IN CASE THE LOWE R PRICE IS FOR PROCESSED CHEAPER VARIETY OF DOMESTIC HIDE AND THE HIGHER PRI CE IS FOR IMPORTED GOOD QUALITY COW HIDE PROCESSED FOR HEAVY LEATHER (THICK NESS 3.5MM TO 4.5MM) WITH THE INTENTION TO MAKE BEST QUALITY LEATHER AND ULTIMATELY SENT ABROAD EITHER STRAIGHTWAY OR AFTER MAKING PRODUCTS. 5 VARIATION RANGE IN % OF VALUE OF CHEMICALS: CHEAPEST: CHEMICALS TO RAW HIDE: 60% CHEMICALS TO FINISHED LEATHER: 33% COSTLIEST: CHEMICALS TO RAW HIDE: 70% CHEMICALS TO FINISHED LEATHER: 30% PLEASE NOTE THAT FINISHED LEATHER HAS A WIDE RANGE OF VARIATION IN TERMS OF PROPERTIES LIKE THICKNESS, AREA ETC. DEPENDING ON I TS USE, CUSTOMERS DEMAND AND AVAILABILITY OF RAW MATERIALS WHICH ALSO HAS WI DE VARIATION ACCORDING TO ITS SOURCE AND HEALTH OF THE ANIMAL. THE COST ALSO VARIES SIGNIFICANTLY MAINLY DUE TO QUALITY OF RAW HIDE AND CHEMICALS TO BE USED FOR THE TYPE OF LEATHER TO BE PRODUCED ESPECIALLY THICKNESS VARIATION HAS A MAJOR ROLE FOR CHEMICAL COST VARIATION FROM ONE LEATHER TO ANOTHER - IF THI CKNESS IS LESS, WEIGHT OF HIDE IS LESS WHICH CONSUMES LESS CHEMICALS AS WET-C HEMICALS ARE CONSUMED ON 1HE BASIS OF WEIGHT. HOWEVER, THE ABOVE FIGURES ARE GIVEN ON AVERAGE AND ON PRESENT MARKET COST WHICH MAY NOT GUARANTEE ANY UNCOMMON OR RARE VARIETY OF LEATHER. 15 LAST, BUT NOT THE LEAST, PLEASE FEEL FREE TO CONTAC T US FOR ANY FURTHER ASSISTANCE ON PUBLIC INTEREST. FOR PERSONAL MEETING AS DESIRED IN YOUR ABOVE REFERRED LETTER, YOU ARE INVITED TO VISIT OUR OFFIC E OR ALTERNATIVELY, ONE OF OUR COLLEAGUES CAN VISIT YOURS. THE MEETING MAY BE FIXE D WITH MUTUAL DISCUSSION OVER PHONE AT DR. A. GARG -9935356901 P.K. BHATTACH ARYYA -9839757321 \ IT MAY PLEASE BE NOTED THAT THE ABOVE OPINION IS TE CHNICAL AND NOT INTENDED FOR ANY ADVERTISEMENT/ PUBLICITY/LEGAL PURPOSE. THE INSTITUTE SHALL BE INDEMNIFIED AGAINST ANY DISPUTE ARISING OUT OF ISSU E OF THIS LETTER. WITH KIND REGARDS, SD. P.K. BHATTACHARYYA SCIENTIST TO, THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-5,15/295-A, CIVIL LINES, KANPUR SUB: MANUFACTURING OF FINISHED LEATHER FROM RAW HID ES-PROVIDING INFORMATION OF WEIGHT WISE RATIOS OF CONSUMPTION OF CONSUMABLE STO RES OF RAW HIDE- REQUEST REGARDING. SIR, WITH REFERENCE TO YOUR LETTER NO. NILDT. 11.07.11 REGARDING THE SUBJECT CITED ABOVE, PLEASE NOTE OUR COMMENTS AS FOLLOWS. 1. DUE TO SEVERAL REASONS, COST OF CHEMICALS A ND RAW HIDE/FINISHED LEATHER RATIOS VARY FROM CASE TO CASE . 2. CONSUMPTION OF CHEMICALS DEPENDS ON WEIGHT OF RAW MATERIAL UPTO THE STAGE OF CRUST (UNFINISHED LEATHER) 3. QUANTITY OF FINISHING CHEMICALS DEPENDS ON SURFA CE AREA AND NOT WEIGHT. 4. THERE IS A WIDE RANGE OF CHEMICALS WHICH CA N BE USED IN PROCESSING OF VARIOUS TYPES OF LEATHER. 5. SELECTION OF CHEMICALS DEPENDS ON THE PROP ERTY REQUIREMENT OF THE FINAL LEATHER. 6. EVEN FOR SIMILAR LEATHER USE OF SOME VARI ETY OF CHEMICALS MAY DIFFER ACCORDING TO CHOICE AND REQUIREMENT OF BUYER. 16 7. IN TANNING, BCS (BASIC CHROMIUM SULPHATE) IS GENERALLY USED UPTO 8% OF PELT WEIGHT. BUT THERE ARE VARIETY OF LEATHER WHICH DO NOT REQUIRE BCS AT ALL AND ALTERNATIVELY VEGETABLE TANN ING MATERIALS ARE USED. WHEREAS THERE ARE VARIETY OF LEATHER WHERE BO TH BCS AND VEGETABLE TANNING MATERIALS ARE USED IN COMBINATION . APART FROM THAT THERE ARE OTHER SUBSTITUTE OF TANNING AGENTS A VAILABLE AND THERE ARE VARIETY OF LEATHER WHERE NEITHER CHROME NOR VEG ETABLE TANNING MATERIALS ARE USED. 8. REQUIREMENT OF DYE (COLOURING MATERIAL) DEPENDS ON THE DEPTH OF SHADE, SIMILARLY, FATLIQUOR REQUIREMENT DEPENDS ON SOFTNESS AND STRETCHIBILITY/FLEXIBILITY OF THE FINAL LEATHER AND ALSO TRUE FAT CONTENT OF THE FATLIQUORS USED. UNDER THE ABOVE CIRCUMSTANCES, IT MAY NOT BE APPROP RIATE TO COMMENT ON THE REQUIREMENT OF CHEMICALS ON THE BASI S OF WEIGHT/AREA OF RAW MATERIAL. HOWEVER, IT MAY BE POSSIBLE FOR US TO ASCERTAIN REQUIREMENT OF SOME DEFINED/DECLARED CHEMICALS USED IN THE FINA L LEATHER IF THE PARTICULAR LEATHER SAMPLE IS SUBMITTED. SD. SCIENTIST IN-CHARGE DATED: 14.10.2011 SUB: LEATHER INDUSTRIES IN KANPUR AND UNNAO- FU RNISHING OF SPECIALIZED INFORMATION-'REQUEST REGARDING. SIR, WITH REFERENCE TO YOUR LETTER NO. NIL DT. I 5.09.11 REGARDING CONSUMPTION OF CHEMICALS IN THE GIVEN SAMPLES (MARKED 'S-L' TO 'S-5) OF LEATHER, PLEASE REFER TO OUR EARLIER LETTER DT. 15.07.11 WHEREIN IT WAS STATED THAT 'IT MAY BE POSSIBLE FOR US TO ASCERTAIN REQUIREMENT OF DEFI NED/DECLARED, CHEMICALS USED IN THE FINAL LEATHER IF PARTICULAR LEATHER SAM PLE IS SUBMITTER WHICH MEANS VERIFICATION OF CHEMICAL REQUIREMENT AND COST CAN BE ESTIMATED ONLY IF LIST OF USED CHEMICALS, UT.AGE PERCENTAGE-A ND THEIR RATES IS PROVIDED FOR A PARTICULAR SAMPLE.- HOWEVER, ON EXAMINATION OF THE ABOVE REFERRED SAMPL ES, AN AVERAGE RANGE OF COST MAY BE ESTIMATED AS FOLLOWS PROVIDED CHEMICALS ARE EFFICIENTLY UTILIZED. 17 1. CONSUMPTION OF CHEMICALS PER KG WEIGHT OF RAW HIDE COULD BE RS. 30,00 TO RS. 50.00. 2. CONSUMPTION OF CHEMICALS PER SQ. FF OF FIN ISHED LEATHER COULD BE RS. 35.00 TO RS. 60.00 IT IS IMPORTANT TO MENTION THAT ABOVE FIGURES ARE O NLY ASSUMPTIONS AND BASED ON INFORMATION COLLECTED FROM INDUSTRY SO URCES OUR INSTITUTE DOES NOT HAVE ANY COMMERCIAL ACTIVITY AND THEREFORE COST ESTIMATES ARE NOT PRACTICED. INDUSTRY AND GOVT, DEPARTMENTS SUCH AS CUSTOMS SEND SAMPLES FOR TECHNICAL OPINION AND PAY @ RS. 5515.00 PER SAMPLE IN THE FORM OF DEMAND DRAFT TOWARDS OUR FEES. IT IS THEREFORE REQUESTED TO TAKE NECESSARY ACTION TO ENCLOSE A REQUIRED BANK DRAFT TOWARDS OUR FEES FOR PROVIDING TECHNICAL OPINION AS YOU MAY REQUIRE IN FUTURE. YOU MAY ASK THE PARTY TO DEPOSIT DRAFT AS CUSTOMS DO FOR THE SAMPLES DRAWN BY THEM. LAST BUT NOT THE LEAST, MAY I APOLOGISE FOR THE DEL AY IN RESPONDING BECAUSE I RECEIVED YOUR LETTER ONLY AFTER RETURNING BACK FROM MY OFFICIAL DEPUTATION TO HYDERABAD. I AM REALLY SORRY FOR THE INCONVENIENCE. IF MAY PLEASE BE NOTED THAT THE ABOVE OPINION IS TE CHNICAL AND NOT INTENDED FOR ANY ADVERTISEMENT/ PUBLICITY/LEGAL PUR POSE. THE INSTITUTE SHALL BE INDEMNIFIED AGAINST ANY DISPUTE ARISING OUT OF ISSUE OF THIS LETTER. SD. SCIENTIST FN-CHARGE 13,2.1 THE INSTITUTE HAS CATEGORICALLY STATED THAT THE CONSUMPTION OF CHEMICAL IN RESPECT OF GIVEN SAMPLES WOULD VARY FRO M RS. 30/- TO RS. 50/- PER KG. OF THE RAW HIDE WHEREAS CONSUMPTION OF CHEM ICALS PER SQUARE FT. OF FINISHED LEATHER WOULD VARY TO RS. 35/- TO RS. 6 0/-. IN VIEW OF THIS LETTER OF THE CLR1, I DIRECT THE A.O. TO DETERMINE THE AVE RAGE COST OF CONSUMPTION OF CHEMICALS/SQ. FT/KG OF FINISHED LEAT HER/RAW HIDE AND IF SUCH CHEMICAL CONSUMPTION IS WITHIN THE OUTER NORMS AS GIVEN BY THE INSTITUTE, NO ADDITION WOULD REQUIRED TO BE MADE ON ACCOUNT TO CONSUMPTION OF CHEMICALS. 18 20. AGGRIEVED REVENUE HAS PREFERRED AN APPEAL BUT T HE LEARNED DR COULD NOT POINT OUT ANY SPECIFIC DEFECT IN THE ORDER OF THE C IT(A). HE SIMPLY PLACED RELIANCE UPON THE ORDER OF THE AO WHEREAS LD. COUNSEL FOR TH E ASSESSEE HAS CONTENDED THAT CIT(A) HAS SIMPLY RESTORE THE MATTER TO THE AO TO DETERMINE THE AVERAGE COST CONSUMPTION OF CHEMICALS AS PER THE GUIDELINES ISSU ED BY CLRI THEREFORE, THE REVENUE SHOULD NOT HAVE ANY OBJECTION IN DETERMINAT ION OF COST OF CONSUMPTION OF CHEMICALS. 21. HAVING CAREFULLY EXAMINED THE ORDER OF THE CIT( A), IN THE LIGHT OF THE RIVAL SUBMISSION, WE FIND THAT WHILE ADJUDICATING THE ISS UE, THE CIT(A) TOOK THE COGNIZANCE OF THE REPORT AND RESTORE THE MATTER TO THE AO TO DETERMINE THE AVERAGE COST OF CONSUMPTION OF CHEMICALS AS PER NOR MS LAID DOWN BY THE INSTITUTE. UNDISPUTEDLY, THE SPECIAL AUDITOR IS NOT A TECHNICA L EXPERT, THEREFORE, HIS OBSERVATION CANNOT BE MADE TO BE THE SOLE BASIS FOR MAKING ADDITION. THE ASSESSING OFFICER SHOULD HAVE RELIED UPON THE REPOR T OF THE CLRI INSTEAD OF FOLLOWING THE REPORT OF THE AUDITOR. WE ACCORDINGLY FIND OURSELVES IN AGREEMENT WITH THE FINDING OF CIT(A) IN THIS REGARD. WE, THER EFORE, CONFIRM HIS ORDER. ITA NO. 21/LKW/2014 22. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINS T THE ORDER OF THE CIT(A) INTERALIA ON THE FOLLOWING GROUNDS:- 01. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE VALIDITY OF THE ASSESSMENT FRAMED UNDER SECTION 143 (3) OF THE ACT, WITHOUT TAKING INTO CONSIDERATION THAT NO VALID NOT ICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED. 02. BECAUSE THE C1T(A) HAS FAILED TO APPRECIAT E THAT THE JURISDICTION OF THE ASSESSEE WAS WITH ACIT-5, KANPUR, WHEREAS TH E ASSESSMENT HAS BEEN FRAMED BY THE DCIT-5, KANPUR AN D THERE BEING NO ORDER UNDER SECTION 127 OF THE ACT, TRANSF ERRING THE FILE FROM ACIT-5 TO DCIT-5, THE ASSESSMENT FRAMED IS WIT HOUT JURISDICTION, BAD IN LAW AND BE QUASHED. 03. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF RS.25,000/- MADE BY THE ASSESSING O FFICER BY 19 APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, WHICH ADDITION IS CONTRARY TO FACTS, BAD IN LAW AND BE DE LETED. 04. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF RS. 1,41,753/- INCURRED ON FREIGHT AND CARTAGE (INWARD) EXPENSES WITHOUT APPRECIATING THE FACTS AN D CIRCUMSTANCES OF THE CASE. 05. BECAUSE THE CJT(A) HAS ERRED ON FACTS AND I N LAW IN UPHOLDING THE DISALLOWANCE OF RS.30,099/- IN THE NAME OF IRFAN HY DERABAD, BEING AMOUNT DEBITED TO PURCHASE ACCOUNT WITHOUT AP PRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE, WHICH AMOU NT BEING RELATABLE TO BUSINESS AND BEING WRITTEN OFF, THE SA ME IS ALLOWABLE AND BE DELETED. 06. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ADDITION OF RS. 1,57,650/- MADE TO UNIQUE TRADERS, UPHOLDING THE SAME TO BE IN VIOLATION OF THE PROVISIONS OF SECTIO N 40A(3) OF THE ACT. 07. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND I N LAW IN UPHOLDING THE ADDITION OF RS.22,10,155/- MADE TO SHAH TRADERS IN RESPECT OF PURCHASE OF RAW HIDES, HOLDING THE SAME TO BE IN VI OLATION OF THE PROVISIONS OF SECTION 40A(3). 08. BECAUSE THE CIT(A) HAS FAILED TO APPRECIATE THAT THE ENTIRE PURCHASE OF RAW HIDE IS FULLY VERIFIABLE, WHICH PUR CHASES HAVE NOT BEEN DOUBTED, THE CIRCUMSTANCES UNDER WHICH THE PUR CHASES HAVE BEEN MADE HAS BEEN IGNORED AND HAS ARBITRARILY BEEN HELD THAT THE PROVISIONS OF SECTION 40A(3) HAVE BEEN VIOLATED . 09. BECAUSE ON A PROPER APPRAISAL OF FACTS AND CIRCUMSTANCES OF THE CASE, IT WOULD BE FOUND THAT THE ENTIRE PURCHASES M ADE FROM SHAH TRADERS AMOUNTING TO RS.22,10,155/- AS DISALLOWED A ND UPHELD BY THE CIT(A), IS IN RESPECT OF PURCHASE OF RAW HIDE F OR WHICH PAYMENT MADE IN CASH IS EXCLUDED AS PER RULE 6DD AN D ITS SUB- RULE OF THE INCOME-TAX RULES. 10. BECAUSE THE CIT(A) HAS FAILED TO APPRECIAT E THAT ONCE THE PAYMENTS ARE MADE THROUGH AGENTS, THEY FALL WITHIN THE PROVISIONS OF RULE 6DD, AS SUCH, ARE OUTSIDE THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 11. BECAUSE THE CIT(A) HAS FAILED TO APPRECIATE TH AT THE ASSESSEE HAS PURCHASED RAW HIDES FOR THE PURPOSE OF MANUFACTURIN G GOODS AND AS SUCH, THE CASE OF THE ASSESSEE IS COVERED BY THE PROVISO OF SECTION 40A(3) BEING PAYMENT MADE UNDER SUCH CIRCUM STANCES, BEYOND CONTROL OF THE ASSESSEE HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITY AVAILABLE, CONSIDERATION OF BUSINESS 20 EXPEDIENCY AND OTHER RELEVANT FACTORS, THE DECISION OF THE CIT(A) IN UPHOLDING THE ADDITION IS CONTRARY TO THE PROVIS IONS OF LAW, THE ADDITION MADE BE DELETED. 12. BECAUSE THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ADDITION OF RS.6,29,703/- MADE TO THE CONTRACTORS B Y APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, WHICH D ISALLOWANCE IS CONTRARY TO FACTS, BADE IN LAW AND BE DELETED. 13. BECAUSE THE CIT (A) HAS FAILED TO APPRECIATE TH AT NO PAYMENT HAS BEEN MADE EXCEEDING THE PRESCRIBED LIMIT, THE ADDIT ION OF RS.6,29,703/- MADE BY THE ASSESSING OFFICER AND CON FIRMED BY THE CIT(A) BE DELETED. 23. APROPOS GROUNDS NO. 1 AND 2, IT WAS SUBMITTED T HAT AFTER FILING THE RETURN, NOTICE U/S 143(2) WAS ISSUED ON 04.08.2009. LATER O N, ANOTHER NOTICE DATED 06.11.2009 U/S 142(1) WAS ISSUED ALONGWITH QUESTION NAIRE. THE CASE WAS TRANSFERRED VIDE CITS ORDER U/S 127(1) DATED 21.01 .2010 TO ACIT-4, KANPUR. NO COPY OF THE ORDER PASSED U/S 127(1) DATED 21.01.201 0 WAS SERVED UPON THE ASSESSEE. THEREFORE, THE NOTICE U/S 143(2) AND 142( 1) WERE ISSUED ON 15.04.2010 BY THE ACIT-4. AGAIN AN ORDER DATED 06.10.2010 WAS PASSED BY THE CIT-II KANPUR TRANSFERRING THE JURISDICTION TO ACIT-5, KANPUR. AG AIN NO COPY OF THE ORDER PASSED U/S 127(1) DATED 06.10.2010 WAS PROVIDED TO THE ASS ESSEE. HOWEVER THE ASSESSMENT ORDER HAS BEEN PASSED BY THE DCIT, CIRCL E-5, KANPUR. NO ORDER HAD BEEN PASSED U/S 127 TRANSFERRING THE FILE FROM ACIT -5, KANPUR TO DCIT, CIRCLE-5, KANPOUR. NO ORDER HAVING BEEN PASSED U/S 127(1) TRA NSFERRING THE FILE FROM ACIT- 5 TO DCIT, CIRCLE-5 KANPUR, THE IMPUGNED ASSESSMENT ORDER IS WITHOUT JURISDICTION IN AS MUCH AS DCIT, CIRCLE-5 DID NOT HAVE THE JURIS DICTION TO FRAME THE ASSESSMENT. 24. THE LD. DR HAS CONTENDED THAT NOTICES WERE ISSU ED BY THE ASSESSING OFFICER HAVING JURISDICTION OVER THE ASSESSEE AT THE RELEVA NT POINT OF TIME. THE FIRST NOTICE U/S 143(2) WAS ISSUED BY THE ASSESSING OFFICER HAVI NG JURISDICTION OVER THE ASSESSEE AND DURING THE COURSE OF ASSESSMENT PROCEE DING, JURISDICTION IS CHANGED AND SUBSEQUENT PROCEEDINGS ARE TO BE CONDUCTED BY T HE CONCERNED OFFICER. IT IS 21 NOT NECESSARY THAT EVERY TIME WHENEVER JURISDICTION IS SHIFTED OR TRANSFERRED TO ONE OFFICER TO OTHER OFFICER, THE SUBSEQUENT OFFICER WO ULD ISSUE A NOTICE U/S 143(2) OF THE ACT. THE LEGAL REQUIREMENT IS TO ISSUE NOTICE U /S 143(2) OF THE ACT BEFORE INITIATING THE ASSESSMENT PROCEEDING. THEREFORE, TH ERE IS NO REQUIREMENT OF LAW THAT THE OFFICER, WHO HAS COMPLETED THE ASSESSMENT, SHOULD HAVE ISSUED THE NOTICE TO THE ASSESSEE U/S 143(2) OF THE ACT. 25. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWE R AUTHORITIES, IN THE LIGHT OF RIVAL SUBMISSION, WE FIND THAT THE ASSESSEE HAS CON TENDED THAT THE ASSESSMENT WAS NOT FRAMED BY THE COMPETENT OFFICER AS HE HAS N OT ISSUED A NOTICE U/S 143(2) OF THE ACT. FROM THE CAREFUL PERUSAL OF THE ASSESSM ENT ORDER, WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, JURISDICTION W AS CHANGED FROM ONE OFFICER TO OTHER OFFICER. INITIALLY, THE NOTICE U/S 143(2) WAS ISSUED WITHIN THE PRESCRIBED PERIOD BY ASSESSING OFFICER HAVING JURISDICTION OVE R THE ASSESSEE. THEREFORE, IT CANNOT BE SAID THAT THE NOTICE U/S 143(2) WAS NOT I SSUED UPON THE ASSESSEE WITHIN THE PRESCRIBED PERIOD. IT IS ALSO EVIDENCE FROM THE ASSESSMENT ORDER THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, JURISDICTION W AS TRANSFERRED FROM ONE OFFICER TO OTHER OFFICER AND THE SUBSEQUENT OFFICER HAS COM PLETED THE ASSESSMENT. UNDER THESE CIRCUMSTANCES, WE FIND NO MERIT IN THE CONTEN TION OF THE ASSESSEE THAT EVERY TIME NEW OFFICER SHOULD ISSUE A NOTICE U/S 143(2) O F THE ACT. WHENEVER JURISDICTION IS TRANSFERRED FROM ONE OFFICER TO OTHER OFFICER TH E SUBSEQUENT OFFICER SHALL CONTINUE WITH THE PROCEEDING FROM THE STAGE LEFT BY THE EARLIER OFFICER. THERE IS NO REQUIREMENT OF LAW TO ISSUE A NOTICE U/S 143(2) EVE RY TIME BY THE NEW OFFICER, WE THEREFORE, FIND NO MERIT IN THE CONTENTION OF THE A SSESSEE AND WE ACCORDINGLY REJECT THE SAME. 26. APROPOS GROUND NO.3, IT IS NOTICED THAT THE AO MADE A DISALLOWANCE OF RS.25,000/- HAVING INVOKED THE PROVISION OF SECTION 40(A)(IA) OF THE ACT ON THE GROUND THAT THE ASSESSEE MADE A PAYMENT OF PROFESSI ONAL FEE OF RS.25,000/- TO ONE SHRI G.C. AGARWAL WITHOUT DEDUCTION OF TAX AT S OURCE UNDER THE PROVISION OF SECTION 194J OF THE ACT. AGGRIEVED, ASSESSEE PREFER RED AN APPEAL BEFORE THE 22 CIT(A) WITH THE SUBMISSION THAT THE COPY OF THE ACC OUNT OF MR. G.C. AGARWAL, WHICH WAS PLACED BEFORE THE CIT(A), IT IS CLEAR THA T THE PAYMENT WAS SPLITTED IN THE FRACTION OF RS.20,000/- AS PROFESSIONAL CHARGES AND RS.5000/- AS ACCOUNTANCY FEES. IT WAS FURTHER CONTENDED THAT BONAFIDE OF THE EXPENDITURE AND THE IDENTITY OF SHRI G.C. AGARWAL WAS NOT DOUBTED, THEREFORE THERE SHOULD NOT BE ANY DISALLOWANCE. THE CIT(A) WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND HE CONFIRMED THE ADDITION. NOW, THE ASSESSEE IS BEFORE US WITH THE SUBMISSION THAT EVEN THE RECIPIENT HAS PAID TAXES ON THIS AMOU NT, THEREFORE, NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT IN THE LIGHT O F VARIOUS JUDICIAL PRONOUNCEMENT. 27. LD. DR ON THE OTHER HAND, HAS CONTENDED THAT IN SUCH CIRCUMSTANCES, THE MATTER MAY BE RESTORED BACK TO THE AO FOR VERIFICAT ION OF THESE FACTS, WHETHER THE TAX WAS PAID BY THE RECIPIENT AND IF PAID NO DISALL OWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT IN THE HANDS OF THE ASSESSEE. 28. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWE R AUTHORITIES, IN THE LIGHT OF RIVAL SUBMISSION, WE FIND FORCE IN THE CONTENTION O F THE ASSESSEE AND WE ACCORDINGLY RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE FACTS AND IF THE RECIPIENT HAS PAID THE TAXES ON TH IS RECEIPT NO DISALLOWANCE BE MADE IN THE HANDS OF THE ASSESSEE IN THIS REGARD. 29. APROPOS GROUND NO.4, IT IS NOTICED THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, ASSESSING OFFICER HAS NOTED THAT THE AS SESSEE HAS DEBITED A SUM OF RS.1,41,753/- IN THE NAME OF ALL WORLD MOVERS LOGIS TICS PVT. LTD. ON ACCOUNT OF FREIGHT CHARGES AGAINST BILL DATED 24.03.2007. SINC E THE ASSESSEE HAS DEBITED PRIOR PERIOD EXPENSES, IT WAS DISALLOWED BY THE AO. THE A SSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT IT HAS P AID RS.1,41,753/- TO ALL WORLD MOVERS LOGISTICS PVT. LTD. ON MARCH 24, 2007 TOWARD S SEA CONSIGNMENT OF RAW HIDES COMING FROM SPAIN. THE PAYMENT WAS DEBITED TO PREPAID EXPENSES ACCOUNT DURING FY 2006-07 AND CARRIED FORWARD TO THE NEXT F INANCIAL YEAR. THE VOUCHERS SHOWING ADVANCE PAYMENT IS ENCLOSED FOR PERUSAL. TH E CONSIGNMENT WAS RECEIVED 23 ON APRIL 05, 2007 I.E. IN THE NEXT FINANCIAL YEAR. ON RECEIPT OF THE CONSIGNMENT, THE AMOUNT OF RS.1,41,753/- WAS DEBITED TO FREIGHT AND CARTAGE INWARD ACCOUNT AND PREPAID EXPENSE ACCOUNT WAS CREDITED. THE ACCOUNTIN G TREATMENT OF THE ADVANCE OF RS.1,41,753/- IS CORRECT AND HAS BEEN DISALLOWED ERRONEOUSLY. THE ASSESSEE ALSO FILED COPIES OF BILLS FOR PERUSAL AND VERIFICATION BEFORE THE CIT(A). BUT THE CIT(A) WAS NOT CONVINCED AND MADE THE DISALLOWANCE. 30. AGGRIEVED ASSESSEE BEFORE US REITERATED ITS CON TENTION AND FROM THE CAREFUL PERUSAL OF THE DETAILS FURNISHED BY THE ASSESSEE, W E FIND FORCE THEREIN. THE ASSESSEE HAS CREDITED THE PRE PAID EXPENSES ACCOUNT AND DEBITED IT TO THE FREIGHT AND CARTAGE INWARD ACCOUNT. WE, THEREFORE, FIND NO INFIRMITY IN THE ACCOUNTING SYSTEM. SINCE THERE IS NO LOSS TO REVENUE, WE FIND NO MERIT IN THE DISALLOWANCE. ACCORDINGLY, WE SET ASIDE THE ORDER OF CIT(A) IN TH IS REGARD AND DELETE THE ADDITION. 31. APROPOS GROUND NO.5, IT IS NOTICED ON THE BASIS OF THE SPECIAL AUDITORS REPORT THAT THE AO HAS OBSERVED THAT THE OPENING BA LANCE OF RS.30,099/- IN THE NAME OF IRFAN HYDERABAD WAS ADJUSTED AGAINST TWO CR EDIT ENTRIES AMOUNTING TO RS.18,250/- AND RS.11,849/- DATED 31.08.2007 AND DA TED 30.09.2007 AGAINST FREIGHT AND CARTAGE (INWARD). ASSESSEE WAS ASKED TO FURNISH THE SPECIFIC BILLS BUT THE ASSESSEE COULD NOT FURNISH THE BILLS AND THE AO HAS MADE THE DISALLOWANCE OF RS.30,099/- FOR WANT OF CORROBORATING EVIDENCE. BEF ORE THE CIT(A), IT WAS CONTENDED THAT ACCOUNT OF MR. IRFAN HYDERABAD SHOWE D A DEBIT BALANCE IN THE BEGINNING OF THE YEAR. THE BALANCE HAS BEEN CARRIED FORWARD FROM EARLIER YEARS AND IS NOT RECOVERABLE. THE AMOUNT BEING BAD DEBT W AS REQUIRED TO BE WRITTEN OFF AS SUCH. INADVERTENTLY THE DEALING CLERK DEBITED TH E RESPECTIVE EXPENSE HEADS TO CLEAR THE DEBIT BALANCES, INSTEAD OF WRITING OFF AS BAD DEBTS. THIS EXPLANATION WAS NOT ACCEPTED BY THE CIT(A) AND HE CONFIRMED THE ADD ITION. LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT IF IT IS NOT A BAD DEBT THE ASSESSEES CLERK HAS MADE INCORRECT ENTRIES INSTEAD OF CLAIMING IT TO BE A BAD DEBTS. DURING THE COURSE OF HEARING, LD. COUNSEL FOR THE ASSESSEE HAS CONTEN DED THAT LET THE MATTER BE SEND 24 BACK TO THE AO TO VERIFY THE FACTS. IF THE ASSESSEE SUCCEEDS IN ESTABLISHING IT TO BE A BAD DEBT, SAME BE ALLOWED. LD. DR HAS PLACED RELI ANCE UPON THE ORDER OF THE CIT(A). 32. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOW ER AUTHORITIES, WE ARE OF THE VIEW THAT IT IS NOT CLEAR FROM THE ORDERS OF LOWER AUTHORITIES THAT REQUISITE CONDITIONS OF SECTION 36(2) ARE FULFILLED ARE NOT F OR CLAIMING A BAD DEBTS. THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE CLAIM OF BAD DEBTS IN THE LIGHT OF FACTS WHETHER THE ASSESSEE HAS FULFILLED THE REQUISITE CO NDITIONS OF SECTION 36(2) OF THE ACT. 33. APROPOS GROUNDS NO. 6 TO 11, THE AO MADE AN ADD ITION OF RS.22,10,155/- BEING CASH PAYMENT TO SHAH TRADERS AND RS.1,57,630/ - TO UNIQUE TRADERS AND THESE GROUNDS HAVE BEEN ADJUDICATED WHILE DEALING G ROUNDS NO. 4 AND 5 OF THE REVENUES APPEAL. THEREFORE, WE FIND NO JUSTIFICATI ON TO READJUDICATE IT AGAIN IN THE ASSESSEES APPEAL. ACCORDINGLY, FOLLOWING THE VIEW TAKEN IN THE REVENUES APPEAL, THE ADDITION OF RS.12,25,130/- IS DELETED AND THE A DDITION OF RS.1,57,650/- IS CONFIRMED. 34. APROPOS GROUNDS NO. 12 AND 13, IT IS NOTICED TH AT DURING THE COURSE OF ASSESSMENT PROCEEDING ASSESSEE WAS CONFRONTED WITH THE REPLY IN WHICH HE HAS STATED THAT THE PAYMENTS WERE MADE TO THE WORKERS I NDIVIDUALLY AND NOT TO THE CONTRACTORS THEREFORE THE TDS WAS NOT REQUIRED TO B E DEDUCTED. IN RESPONSE THERETO, THE ASSESSEE HAS FURNISHED THE COPIES OF P AYMENT BILLS AND VOUCHERS AND LOOSE SHEETS CONTAINING PERIOD OF TIME, NAMES OF WO RKERS, NATURE OF WORK DONE BY THEM BASIS OF CALCULATION OF AMOUNT DUE TO THEM, TO TAL AMOUNT PAID TO THEM AND THEIR SIGNATURES/THUMB IMPRESSION. THE CONTENTION O F THE ASSESSEE WAS NOT ACCEPTED BY THE AO AND HE HAD MADE THE DISALLOWANCE OF THE PAYMENT OF RS.6,29,703/- HAVING OBSERVED THAT THE PAYMENTS WER E MADE TO THE CONTRACTORS WITHOUT DEDUCTING TDS. THE ASSESSEE PREFERRED AN AP PEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT HE HAS NOT MADE ANY PAYMENT TO THE CONTRACTORS. RATHER THE 25 PAYMENTS WERE MADE TO THE INDIVIDUAL WORKERS, A DET AILS OF WHICH ARE AVAILABLE ON THE WORKSHEET WITH FULL PROOF OF PAYMENTS. SINCE NO NE OF THE PAYMENT EXCEEDS TO PRESCRIBE LIMIT QUESTION OF DISALLOWANCE OF THE SAM E DOES NOT ARISE. THE CIT(A) WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSES SEE AND HE ACCORDINGLY CONFIRMED THE ADDITION. 35. AGGRIEVED, THE ASSESSEE BROUGHT THE MATTER BEFO RE THE TRIBUNAL AND REITERATED ITS CONTENTION BUT NO DOCUMENTARY EVIDEN CE IS PLACED BEFORE US IN SUPPORT THEREOF. THE LD. COUNSEL FOR THE ASSESSEE H OWEVER CONTENDED THAT IF THE MATTER IS RESTORED TO THE AO HE WILL PROVE THAT PAY MENTS WERE MADE TO WORKERS DIRECTLY. SINCE THE ASSESSEE HAS MADE PAYMENT TO WO RKER DIRECTLY INSTEAD OF CONTRACTOR BUT NO EVIDENCE IS PLACED BEFORE US, WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE, THE MATTER BE RESTORED TO THE AO TO VERIFY THESE FACTS AGAIN. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RE STORE IT TO THE AO FOR VERIFICATION. 36. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (A.K. GARODIA ) (SUNIL KUMAR Y ADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30/10/2015 AKS COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASST T. REGISTRAR