The Asstt. Commissioner of Income Tax, Gandhidham-Kutch V. Overseas Trading & Shipping P. Ltd., Gandhidham

ITA 211/RJT/2007

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 3910 (ITAT-RAJKOT)
• Duration Of Justice: 11 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 09-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: YOGESH PHAR A R
• Keywords: Unexplained investment; Gift; Business expenditure; Double taxation relief; Cost of acquisition
• Section: 133(6); 131

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT LKOZJH LKOZJH LKOZJH LKOZJH OLHE OLHE OLHE OLHE VGEN] YS[KK VGEN] YS[KK VGEN] YS[KK VGEN] YS[KK LNL; ,O LNL; ,O LNL; ,O LNL; ,O EK/ EK/EK/ EK/KQFERK KQFERK KQFERK KQFERK JKW;] U; JKW;] U; JKW;] U; JKW;] U;KF KFKF KF;D ;D;D ;D LNL; DS LE{KA LNL; DS LE{KA LNL; DS LE{KA LNL; DS LE{KA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SMT MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO. 211/RJT/2007 ( / ASSESSMENT YEAR : 2003-04) ACIT, GANDHIDHAM CIRCLE. / VS. M/S. OVERSEAS TRADING AND SHIPPING CO. PVT. LTD., DBZ-S-140, WARD 12A, OPP: BOB GANDHIDHAM. ./ ./ PAN/GIR NO. : AAACO 4310 N ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI LALIT P. JAIN, SR. D.R. ! / RESPONDENT BY : SHRI YOGESH PHAR, A.R. ' #$ % ! & / DATE OF HEARING 05/07/2018 '( ! & / DATE OF PRONOUNCEMENT 28/09/2018 )* / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL)-II, RAJKOT [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-II/0100/06- 07 DATED 07-12-2006 ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UN DER S.143(3) OF THE INCOME TAX ACT, 1961(HERE-IN-AFTER REFERRED TO AS ' THE ACT') DATED 28.03.2006 RELEVANT TO ASSESSMENT YEAR (AY) 2003-04 . - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE AR E AS UNDER:- 1. THE LD CIT(A) HAS ERRED IN LAW AND IN THE FACTS AND IN LAW IN DELETING THE ADDITION OF RS.11315861/- MADE BY AO O N ACCOUNT OF DISALLOWANCE OF USANCE INTEREST. 2.. THE LD CIT(A) HAS ERRED IN LAW AND IN THE FACTS AND IN LAW IN DELETING OF RS.1949620/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF PRIOR PERIOD EXPENDITURE. 3. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN R ESTRICTING THE RS.13312/- AGAINST THE ADDITION OF RS.466919/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF SALES PROMOTION EXPENDIT URE. 4. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING THE ADDITION OF RS.2166127/- MADE BY AO ON ACCOUNT OF I NVESTMENT IN EXCESS STOCK OF SKO. 5. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN D ELETING THE ADDITION OF RS.64894/- ON ACCOUNT OF PROFIT ON SALE @3%. 6. ON THE FACTS OF THE CASE, THE LD CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 7. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3. THE FIRST ISSUE RAISED BY THE REVENUE IN THIS AP PEAL IS THAT LD CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A O FOR RS.1,13,15,861/- ON ACCOUNT OF USANCE INTEREST. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND A SUBSIDIARY OF A COMPANY BASED IN SING APORE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF IMPORT AND E XPORT OF SULPHUR, SUPERIOR KEROSENE OIL, FURNACE OIL, COAL, PULSES ET C. 4.1 THE ASSESSEE DURING THE YEAR HAS IMPORTED GOODS FROM ITS HOLDING COMPANY MAINLY M/S. SWISS SINGAPORE OVERSEAS ENTERP RISES PVT. LTD. BUT FAILED TO MAKE THE PAYMENT ON THE DUE DATE. THE REFORE, THE ASSESSEE - 3 - HAD TO PAY USANCE INTEREST FOR THE DELAYED PAYMENT TO ITS HOLDING COMPANY. THE USANCE INTERESTS WAS INCURRED BY THE A SSESSEE DURING THE YEAR FOR RS.1,13,15,861/- ONLY, WHICH WAS PAID WITH OUT DEDUCTING THE TDS U/S. 195 R.W.S. 40(A)(I) OF THE ACT. 4.2 THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS SUBMITTED THAT IT WAS NOT LIABLE TO DEDUCT THE TDS ON ACCOUNT OF THE FOLLOWING REASONS: I. THE PAYMENT FOR THE USANCE PERIOD WAS MADE TO TH E BANKER AND NOT TO THE CREDITOR AGAINST THE IMPORT OF THE GOODS. II. THE PAYMENT OF USANCE INTEREST IS IN THE NATURE OF PENALTY THEREFORE, THERE IS NO LIABILITY OF TDS UNDER THE P ROVISION OF THE DTAA. III. THE ASSESSEE IS TRYING TO TAKE PERMISSION FROM CBDT FOR INCURRING THE EXPENSE OF SUCH USANCE INTEREST WITHOUT DEDUCTI NG THE TDS. 4.3 HOWEVER, THE AO DISREGARDED THE CONTENTION OF T HE ASSESSEE BY HOLDING THAT THE PROVISIONS OF TDS IS VERY MUCH ATT RACTED ON THE PAYMENT OF INTEREST PAID TO ITS HOLDING COMPANY BASED IN SI NGAPORE. THE AO IN SUPPORT OF HIS ORDER RELIED ON THE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VIJAY SHIP BREAKI NG CORPORATION REPORTED IN 261 ITR 113. THUS, THE AMOUNT OF USANCE INTEREST WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD CI T(A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED AS UNDER: I. THE PAYMENT OF USANCE INTEREST WAS PAID TO THE I NDIAN BANK. AS SUCH THERE WAS NO PAYMENT MADE TO THE HOLDING COMPA NY FROM - 4 - WHICH THE GOODS WERE IMPORTED. THUS, THERE IS NO QU ESTION OF DEDUCTING ANY TDS ON THE PAYMENT OF INTEREST MADE T O THE BANK. ON THIS SUBMISSION OF THE ASSESSEE A REMAND REPORT WAS CALLED BY THE LD. CIT(A) WHEREIN, IT WAS SUBMITTED BY THE AO THAT THE PAYMENT WAS MADE TO THE PARTY FROM WHICH GOODS WERE IMPORTED BY THE ASSESSEE. II. THE INTEREST WAS PAID IN RELATION TO THE PURCHA SE OF GOODS. THEREFORE THE SAME SHOULD BE TREATED AS PART OF THE PURCHASE COST. THE ASSESSEE IN SUPPORT OF HIS CLAIM RELIED ON THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. IN DIA PISTONS LTD. REPORTED IN 295 ITR 550. III. THE PAYMENT OF USANCE INTEREST PAID ON ACCOUNT OF DELAYED IN THE PAYMENT TO THE CREDITORS ALSO DOES NOT FALL IN THE DEFINITION OF INTEREST AS PRESCRIBED U/S 2(28A) OF THE ACT. THE A SSESSEE ALSO SUBMITTED THAT THE AMOUNT OF INTEREST INCOME RECEIV ED FROM THE SUNDRY DEBTORS WAS HELD TO BE ELIGIBLE FOR DEDUCTIO N U/S 80-I OF THE ACT. THUS, THE AMOUNT RECEIVED ON ACCOUNT OF USANCE INTEREST FROM THE DEBTORS WAS TREATED AS SALE CONSIDERATION. THER EFORE, THE SAME LOGIC/ PROVISION CAN BE APPLIED IN RELATION TO THE USANCE INTEREST PAID FOR THE DELAYED PAYMENT TO THE CREDITORS. THE ASSESSEE IN SUPPORT OF HIS CONTENTION RELIED ON THE ORDER OF TH IS JURISDICTIONAL HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD VS. DCIT REPORTED IN 283 ITR 402. 5.1 THE ASSESSEE ALSO SUBMITTED THAT AS PER THE PRO VISIONS OF ARTICLE 11 OF DTAA BETWEEN INDIA AND SINGAPORE, SUCH INTEREST WAS HELD AS PENALTY CHARGES. THEREFORE, THE SAME NEEDS TO BE EXCLUDED F ROM THE DEFINITION OF INTEREST EXPENSE. 5.2 THE LD CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: - 5 - 3.2 I AGREE WITH ALL THE ABOVE EXPLANATIONS AND CO NTENTIONS OF THE APPELLANT AS ANALYSED IN ABOVE PAGES. THUS THE ASSE SSEES TRANSACTION WITH NON-RESIDENT CANNOT BE SEGREGATED INTO TWO COM PONENTS OF SALE PRICE AND INTEREST AND TAXED SEPARATELY. THE DECISI ON OF VIJAY SHIP BREAKING CORPN. IS NOT APPLICABLE IN THIS CASE. THE FACTS OF THIS CASE ARE SUPPORTED JUDICIALLY AS STATED IN THE ABOVE PARAGRA PH. THE DECISION IN THIS CASE OF CIT VS INDIA PISTON LT D. SQUARELY APPLIES AND THAT INTEREST ON UNPAID INSTALLMENTS PURCHASE P RICE DOES NOT HAVE NORMAL CHARACTER OF INTEREST. WHAT IS PAYABLE AS PU RCHASE PRICE IS PART OF CONSIDERATION OF PURCHASE AND THEREFORE NOT COVE RED BY SECTION 40(A)(I). EVEN READING OF DTAA PROVISIONS AND ALSO NON DISCRI MINATION CLAUSE GIVES INFERENCE THAT THE INTEREST PAYMENT IS NOT CO VERED BY ARTICLE 11 (INTEREST INCOME) OF DTAA, BUT IT IS COVERED UNDER ARTICLE 7 (BUSINESS PROFITS) UNDER DTAA. 3.3 THE ASSESSING OFFICER IS NOT RIGHT IN DISALLOWI NG AN AMOUNT OF RS.11315861/- U/S 40(A)(I) THAT THE TDS WAS NOT DED UCTED U/S. 195 IS NOT CORRECT IN LAW. THEREFORE, IS TO BE DELETED. THIS I SSUE IS DECIDED THUS IN FAVOUR OF THE ASSESSEE AND APPEAL ON THIS GROUND IS ALLOWED. THE AO IS DIRECTED TO DELETE THIS ADDITION OF RS.11315861/-. 5.3 BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DR BEFORE US SUBMITTED THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATIO N (SUPRA) HAS DECIDED THE ISSUE IN FAVOUR OF THE REVENUE. THEREFO RE, THE ASSESSEE WAS LIABLE TO DEDUCT THE TDS ON ACCOUNT OF USANCE INTER EST PAYMENT. 6.1 AS PER THE PROVISIONS OF DTAA BETWEEN INDIA AND SINGAPORE, THE ASSESSEE WAS LIABLE TO DEDUCT THE TDS ON THE PAYMEN T OF USANCE INTEREST - 6 - PAID TO ITS HOLDING COMPANY. THE AMOUNT OF INTEREST INCOME PAID TO HOLDING COMPANY WAS CHARGEABLE TO TAX IN INDIA. ACC ORDINGLY, THE PROVISIONS OF SECTION 195 OF THE ACT ARE ATTRACTED. 7. ON THE OTHER HAND, LD AR CONCEDED THE FACT THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION (SUPRA) HAS DECIDED THE ISSUE AGAINST THE ASSESSEE BUT FUR THER SUBMITTED THAT THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION WAS REVERSED BY THE HONB LE SUPREME COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION VS. CIT REPORTED IN 314 ITR 309. 8. IN HIS REJOINDER THE LD. DR SUBMITTED THAT THE H ONBLE SUPREME COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATIO N DECIDED THE ISSUE WHETHER THE INTEREST PAID FOR THE USANCE PERIOD WIL L BE TREATED AS PART OF PURCHASE PRICE. IN FACT, THE HONBLE SUPREME COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION HAS GIVEN RELIEF TO THE A SSESSEE ON ACCOUNT OF AMENDMENT BROUGHT UNDER THE STATUE UNDER THE PROVIS ION OF EXPLANATION- 2 SECTION 10(15)(IV)(C) OF THE ACT. THEREFORE, NO R ELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT CAN BE PLACED IN THE CASE ON HAND. THE LD. DR RELIED ON THE ORDER OF LD. AO. 9. THE LD.AR IN HIS REJOINDER FURTHER SUBMITTED THA T THE ORDER OF HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY SHI P BREAKING CORPORATION HAS BEEN MERGED WITH THE ORDER OF LD. C IT(A) IN VIEW OF THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF - 7 - KUNHAYAMMED AND OTHERS VS. STATE OF KERALA AND OTHE RS REPORTED IN 245 ITR 360. 9.1 THE LD.AR IN SUPPORT OF HIS CLAIM RELIED ON THE OECD MODEL CONVENTION 2014 AND ITS COMMENTARY ON ARTICLE 11 OF THE OECD MODEL CONVENTION 2014. THE LD.AR ALSO COMPARED THE DTAA B ETWEEN INDIA- SINGAPORE WITH INDIA AND PHILIPPINES, INDIA-RUSSIA, INDIA-AUSTRALIA & INDIA-ITALY. ACCORDINGLY, IT WAS CLAIMED THAT THE A SSESSEE WAS NOT LIABLE TO DEDUCT TDS U/S 195 R.W.S 40(A)(I) OF THE ACT. TH E LD. AR RELIED ON THE ORDER OF LD. CIT-A. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE EXPENSES INCURRED BY THE ASSESSEE ON ACCOUNT OF DELAYED PAYM ENT MADE TO THE PARTIES. AS PER THE ASSESSEE THE USANCE INTEREST SH OULD BE TREATED AS PART OF THE PURCHASE PRICE OF THE GOODS WHEREAS, THE CAS E OF THE REVENUE IS THAT THE USANCE INTEREST CANNOT BE TREATED AS PART OF PU RCHASE PRICE OF THE GOODS. 10.1 THE ARGUMENT OF THE LD.AR FOR THE ASSESSEE ARE BASED ON TWO COUNTS; FIRSTLY THE ORDER OF HONBLE GUJARAT HIGH COURT IN THE CAS E OF VIJAY SHIP BREAKING CORPORATION HAS BEEN MERGED WIT H THE ORDER OF HONBLE SUPREME COURT AS DISCUSSED ABOVE, SECONDLY THE PAYMENT OF USANCE INTEREST IS PART OF PURCHASE COST AS PER THE DTAA BETWEEN INDIA AND SINGAPORE. - 8 - 10.2 IT IS UNDISPUTED FACT THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION(SUPRA) HAS DECIDED THE ISSUE AGAINST THE ASSESSEE BY HOLDING AS UNDER: 28. FOR THE FOREGOING REASONS, WE DECIDE THE ABOVE QUE STIONS OF LAW FORMULATED IN THESE APPEALS AS UNDER : (1) THE USANCE INTEREST PAID BY THE ASSESSEES WAS N OT ANY PART OF THE PURCHASE PRICE OF THE SHIPS AND WAS INTEREST WITHIN THE MEANING OF THE DEFINITION OF THE TERM INTEREST UNDER SECTION 2(2 8A) OF THE INCOME-TAX ACT, 1961. (2) THE ASSESSEES WHO DID NOT DEDUCT TAX AT SOURCE UNDER SECTION 195(1) OF THE INCOME-TAX ACT, 1961 ON THE USANCE INTEREST PAYABLE OUTSIDE INDIA AND ON WHICH TAX HAD NOT BEEN PAID, ARE NOT E NTITLED TO DEDUCT THE AMOUNTS OF SUCH USANCE INTEREST IN COMPUTING TH EIR INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION'. THE TRIBUNAL WAS, THEREFORE, WRONG IN DELETING THE DISALLOWANCE UNDER SECTION 40(A)( I) OF THE ACT FOR FAILURE ON THE PART OF THE ASSESSEES TO DEDUCT TAX AT SOURCE, FROM USAN CE INTEREST PAID TO THE NON-RESIDENTS, UNDER SECTION 195(1) OF THE ACT. (3) THE ASSESSEES BEING RESPONSIBLE FOR PAYING TO T HE NON-RESIDENTS USANCE INTEREST WHICH WAS CHARGEABLE UNDER THE PROV ISIONS OF THE INCOME-TAX ACT, 1961, WERE LIABLE TO DEDUCT INCOME- TAX THEREON UNDER SECTION 195(1) THEREOF. THE TRIBUNAL WAS, THEREFORE , WRONG IN HOLDING THAT THE USANCE INTEREST PARTOOK THE CHARACTER OF P URCHASE PRICE AND THEREFORE, NOT LIABLE TO DEDUCTION AT SOURCE UNDER SECTION 195(1) OF THE ACT. (4) USANCE INTEREST IS INTEREST WITHIN THE MEANI NG OF THE ARTICLE CONCERNING TAXATION OF INTEREST IN THE RELEVANT DOU BLE TAXATION AVOIDANCE AGREEMENTS. THE TRIBUNAL WAS, THEREFORE, WRONG IN HOLDING THAT USANCE INTEREST WAS NOT INTEREST AS ENVISAGE D IN THE DOUBLE TAXATION AVOIDANCE AGREEMENTS. 10.3 SUBSEQUENTLY, THE VIEW TAKEN BY THE HONBLE GU JARAT HIGH COURT WAS REVERSED BY THE HONBLE APEX COURT. HOWEVER, WE NOTE THAT THE VERDICT OF THE HONBLE SUPREME COURT WAS DELIVERED ON A DIFFERENT REASON AS EVIDENT UNDER: - 9 - 9. AS REGARDS THE SECOND QUESTION, WE MAY STATE THAT IN THIS CASE, THE CONTROVERSY WHICH AROSE FOR DETERMINATION WAS WHETH ER THE ASSESSEE WAS BOUND TO DEDUCT TDS UNDER SECTION 195(1) OF THE 1961 ACT IN RESPECT OF USANCE INTEREST PAID FOR PURCHASE OF THE VESSEL FOR SHIPBREAKING? 10. ACCORDING TO THE DEPARTMENT, TDS WAS DEDUCTIBLE UN DER SECTION 195(1) WHEREAS, ACCORDING TO THE ASSESSEE, SUCH INT EREST PARTOOK OF THE CHARACTER OF THE PURCHASE PRICE AND, THEREFORE, TDS WAS NOT DEDUCTIBLE. THEREFORE, THE KEY QUESTION WHICH AROSE FOR DETERMI NATION WAS WHETHER THE ASSESSEE WAS IN DEFAULT FOR NOT DEDUCTING TDS U NDER SECTION 195(1) OF THE 1961 ACT? 11. IT MAY BE MENTIONED THAT WE ARE NOT REQUIRED TO EX AMINE THIS QUESTION IN THE LIGHT OF THE IMPUGNED JUDGMENT BECA USE AFTER THE IMPUGNED JUDGMENT WHICH WAS DELIVERED ON 20-3-2003, THE INCOME-TAX ACT WAS AMENDED ON 18-9-2003 WITH EFFECT FROM 1-4-1 983. BY REASON OF SAID AMENDMENT, EXPLANATION 2 WAS ADDED TO SECTION 10(15)(IV)( C), WHICH READS AS UNDER : 'EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT THE USANCE INTEREST PAYABLE OUTSIDE INDIA BY A N UNDERTAKING ENGAGED IN THE BUSINESS OF SHIP-BREAKING IN RESPECT OF PURCHASE OF A SHIP FROM OUTSIDE INDIA SHALL BE DEEMED TO BE THE INTEREST PAYABLE ON A DEBT INCURRED IN A FOREIGN COUNTRY IN RESPECT OF THE PURCHASE OUTSIDE INDIA.' ON READING THAT EXPLANATION, IT IS CLEAR THAT USANC E INTEREST IS EXEMPT FROM PAYMENT OF INCOME-TAX IF PAID IN RESPECT OF SH IP BREAKING ACTIVITY. THIS AMENDMENT CAME INTO FORCE ONLY AFTER THE IMPUG NED JUDGMENT. IT WAS NOT THERE WHEN THE IMPUGNED JUDGMENT WAS DELIVE RED. 12. FOR THE AFORESTATED REASONS, QUESTION NO. 2 AS TO WHETHER THE ASSESSEE WAS BOUND TO DEDUCT TDS UNDER SECTION 195( 1) IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. THE ASSESSEE WAS NOT BOUND TO DEDUCT TAX AT SOURCE ONCE EXPLANATION 2 TO SECTION 10(15)(IV )(C) STOOD INSERTED AS TDS ARISES ONLY IF THE TAX IS ASSESSABLE IN INDIA. SINCE TAX WAS NOT ASSESSABLE IN INDIA, TH ERE WAS NO QUESTION OF TDS BEING DEDUCTED BY THE ASSESSEE. THEREFORE, QUES TION NO. 2 IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT . - 10 - 10.4 BESIDES THE ABOVE, WE ALSO NOTE THAT THE HONB LE SUPREME COURT HAS GIVEN CLEAR CUT FINDING THAT THE ISSUE ON HAND HAS NOT BEEN ADJUDICATED AS DISCUSSED ABOVE. 10.5 FROM THE ABOVE, IT IS CLEAR THAT THE ISSUE WHE THER USANCE INTEREST PAID BY THE ASSESSEE IS PART OF PURCHASE PRICE WAS NOT ADJUDICATED BY THE HONBLE SUPREME COURT IN THE CASE OF VIJAY SHIP BRE AKING CORPORATION. 10.6 THE NEXT ISSUE ARISES FOR ADJUDICATION WHETHER THE ISSUE RAISED IN VIJAY SHIP BREAKING CORPORATION WAS MERGED WITH THE ORDER OF HONBLE SUPREME COURT. IN THIS REGARD, WE NOTE THAT THE DOC TRINE OF MERGER DOES NOT HAVE UNLIMITED/UNIVERSAL OBLIGATION. THE DOCTRI NE OF MERGER DEPENDS UPON THE NATURE OF JURISDICTION EXERCISED BY THE SU PERIOR FORUM. THE HONBLE SUPREME COURT HAS CATEGORICALLY STATED THAT THE ISSUE RAISED IN THE APPEAL FILED BY THE ASSESSEE WAS NOT ADJUDICATE D. THEREFORE IN OUR CONSIDERED VIEW THE DOCTRINE OF MERGER OF THE HONB LE GUJARAT HIGH COURT IN THE JUDGMENT OF HONBLE SUPREME COURT HAS NOT TAKEN PLACE. IN THIS CONNECTION, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF STATE OF MADRA S VS. MADURAI MILLS COMPANY LTD. REPORTED IN 1967 ITR 681, WHEREIN, IT WAS HELD AS UNDER: IN OUR OPINION, THE APPLICATION OF THE DOCTRINE DE PENDS ON THE NATURE OF THE APPELLATE OR REVISIONAL ORDER IN EACH CASE A ND THE SCOPE OF THE STATUTORY PROVISIONS CONFERRING THE APPELLATE OR RE VISIONAL JURISDICTION. FOR EXAMPLE IN AMRITLAL BHOGILAL & CO'S.(1) CASE IT WAS OBSERVED BY THIS COURT THAT THE ORDER OF REGIS- TRATION MADE BY THE INCOME-TAX OFFICER DID NOT MERGE IN THE APPELLATE ORDER OF THE APPELLATE COMMISSIONER, BECAUSE THE ORDER OF REGISTRATION WAS NOT THE SUBJECT- MATTER OF APPEAL BEFORE THE APPELLATE AUTHORITY. IT SHOULD BE NOTICED THAT THE ORDER OF ASSESSMENT MADE BY THE INCOME-TAX OFFI CER IN THAT CASE - 11 - WAS A COMPOSITE ORDER VIZ., AN, ORDER GRANTING REGI STRATION OF THE FIRM AND MAKING AN ASSESSMENT ON THE BASIS OF THE REGIST RATION. THE APPEAL WAS TAKEN BY THE ASSESSEE TO THE APPELLATE COMMISSI ONER AGAINST THE COMPOSITE ORDER OF THE INCOME-TAX OFFICER. IT WAS H ELD BY THE HIGH COURT THAT THE ORDER OF THE INCOME-TAX OFFICER GRAN TING REGISTRATION TO THE RESPONDENT MUST BE DEEMED TO BE MERGED IN THE A PPELLATE ORDER AND THAT THE REVISIONAL POWER OF THE COMMISSIONER OF IN COME-TAX CANNOT, THEREFORE, BE EXERCISED IN RESPECT OF IT. THE VIEW TAKEN BY THE HIGH COURT WAS OVER-RULED BY THIS COURT FOR THE REASON T HAT THE ORDER OF THE INCOME-TAX OFFICER GRANTING REGISTRATION CANNOT BE DEEMED TO HAVE MERGED IN THE ORDER OF THE APPELLATE COMMISSIONER I N AN APPEAL TAKEN AGAINST THE COMPOSITE ORDER OF ASSESSMENT. SIMILARL Y, IN THE STATE OF UTTAR PRADESH V. MOHAMMED NOOH (2), IT WAS HELD BY THIS COURT THAT THE PRINCIPLE OF MERGER CANNOT APPLY IN THE CASE OF AN ORDER OF DISMISSAL OF A PUBLIC SERVANT WHICH WAS MADE BY THE DEPARTMENTAL TRIBUNAL ON THE 20TH APRIL, 1948 AND AGAINST WHICH THE APPEAL WAS D ISMISSED BY THE APPELLATE AUTHORITY ON THE 7TH MAY, 1949, AND THE R EVISIONAL APPLICATION WAS REJECTED ON THE 22ND APRIL, 1950. I N THE CIRCUMSTANCES OF THE PRESENT CASE, IT CANNOT BE SAID THAT THERE W AS A MERGER OF THE ORDER OF ASSESSMENT MADE BY THE DEPUTY COMMERCIAL T AX OFFICER DATED THE 28TH NOVEMBER, 1952 WITH THE ORDER OF THE DEPUT Y COMMISSIONER OF COMMERCIAL TAXES DATED THE 21ST AUGUST, 1954 BECAUS E THE QUESTION OF EXEMPTION ON THE VALUE OF YARN PURCHASED FROM OUTSI DE THE STATE OF MADRAS WAS NOT THE SUBJECT-MATTER OF REVISION BEFOR E THE DEPUTY COMMISSIONER OF COMMERCIAL TAXES. THE ONLY POINT TH AT WAS URGED BEFORE THE DEPUTY COMMISSIONER WAS THAT THE SUM OF RS. 6,57,971-4-9 COLLECTED BY THE RESPONDENT BY WAY OF TAX SHOULD NO T BE INCLUDED IN THE TAXABLE TURNOVER. THIS WAS THE ONLY POINT RAISED BE FORE THE DEPUTY COMMISSIONER AND WAS REJECTED BY HIM IN THE REVISIO N PROCEEDINGS. ON THE CONTRARY, THE QUESTION BEFORE THE BOARD. OF REV ENUE WAS WHETHER THE DEPUTY COMMERCIAL TAX OFFICER, MADURAI WAS RIGHT IN EXCLUDING FROM THE NET TAXABLE TURNOVER OF THE RESPONDENT THE SUM OF RS. 7,74,62,706-1- 6 WHICH WAS THE VALUE OF COTTON PURCHASED BY THE RE SPONDENT FROM OUTSIDE THE STATE OF MADRAS. WE ARE (1)[1959] S.C.R . 713:341.T.R. :130 AT 136. (2) [1958] S.C.R. 595 10.7 IN VIEW OF ABOVE, WE HOLD THAT THERE IS NO MER GER OF THE ORDER OF THE HONBLE GUJARAT HIGH COURT WITH THE ORDER OF HO NBLE SUPREME COURT IN THE INSTANT CASE. - 12 - 10.8 WE ALSO NOTE THAT THE HONBLE GUJARAT HIGH COU RT IN THE CASE OF VIJAY SHIP BREAKING CORPORATION HAS CONSIDERED THE MEANING OF DEFINITION OF THE INTEREST GIVEN U/S 2(28A) OF THE ACT. 10.9 SIMILARLY, THE HONBLE GUJARAT HIGH COURT HAS ALSO CONSIDERED THE DTAA BETWEEN INDIA AND SINGAPORE, OECD MODEL CONVEN TION AND ITS COMMENTARY WHILE DECIDING THE ISSUE OF USANCE INTER EST. 10.10 THUS, THE OTHER ARGUMENTS RAISED BY THE LD. C OUNSEL AS DISCUSSED ABOVE DO NOT SUPPORT THE CASE OF THE ASSESSEE. IN VIEW OF THE ABOVE, WE HOLD THAT THE PRINCIPLES L AID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VIJAY SHI P BREAKING CORPORATION (SUPRA) STILL HOLD THE WATER AND IS APPLICABLE TO THE FACT S OF THE INSTANT CASE IN FULL STRENGTH. THUS WE REVERSE THE ORDER OF CIT(A) AND RESTORE THE ORDER OF THE AO. HENCE, THE GROUND OF A PPEAL OF THE REVENUE IS ALLOWED . 11. THE SECOND ISSUE RAISED BY THE REVENUE IS THAT LD CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 19,49, 620/- ON ACCOUNT OF PRIOR PERIOD EXPENDITURE. 12. THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS HAS FILED THE LEDGER SHOWING THE EXPENSES UNDER THE HEAD COMMISSI ON ON SALE FOR RS.24,88,787/- ONLY. OUT OF SUCH EXPENSES AN AMOUNT OF COMMISSION FOR - 13 - RS.19,49,620/- WAS SHOWN AS OSL (2001-02) ON VARIO US DATES. THEREFORE THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS CLAIMED COMMISSION EXPENSES PERTAINING TO THE EARLIER YEARS . ON QUESTION BY THE AO, THE ASSESSEE SUBMITTED THAT ALL THE COMMISSIONS PERTAIN TO THE YEAR UNDER CONSIDERATION AND IT HAS BEEN WRONGLY CLASSIF IED AS OSL (2001- 02) ON VARIOUS DATES. THE ASSESSEE IN SUPPORT OF H IS CLAIM ALSO FILED THE COPIES OF THE CONFIRMATION OF THE PARTIES TO WHOM T HE COMMISSION WAS PAID. HOWEVER, THE SAME WAS DISREGARDED BY THE AO O N THE GROUND THAT THE AMOUNT OF COMMISSION WAS NOT MATCHING BETWEEN T HE CONFIRMATION FILED VIS--VIS BOOKS OF ACCOUNTS OF THE ASSESSEE. ACCORDINGLY, THE AO TREATED THE AMOUNT OF COMMISSION EXPENSES FOR RS.19 ,49,620/- AS PRIOR PERIOD ITEMS AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 13. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LEAR NED CIT(A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT IT HAS PREPARED ITS FINANCIAL STATEMENTS ON 31 ST AUGUST, 2002 AND 31 ST JANUARY, 2003 ON PROVISIONAL BASIS. WHILE PREPARING THE FINANCIAL STATEMENT ON P ROVISIONAL BASIS ENTRIES FOR RS.1,00,000/- TO M/S. AGARWAL (AGENT) AS ON 31 ST AUGUST, 2002 WAS MADE IN THE BOOKS OF ACCOUNTS. 13.1 SIMILARLY, THE ENTRY OF COMMISSION ON PROVISIO NAL BASIS FOR RS.9,24,810/- ACCRUED FOR M/S. BLEACH CHEM (AGENT) WAS ACCOUNTED. HOWEVER, THESE ENTRIES WERE REVERSED WHILE PREPARIN G THE FINANCIAL STATEMENT ON 31 ST MARCH, 2003, BUT THE AO HAS NOT TAKEN INTO CONSIDERATION THE ENTRIES WHICH HAVE BEEN REVERSED IN THE BOOKS OF ACCOUNTS. THE ASSESSEE DURING THE ASSESSMENT PROCEE DINGS ALSO EXPLAINED - 14 - THE ENTRIES PASSED IN THE BOOKS OF ACCOUNTS ON THE PROVISIONAL BALANCE SHEET AND REVERSAL OF THE SAME WHILE FINALIZING THE FINANCIAL STATEMENT ON 31 ST MARCH, 2003. 13.2 THE ASSESSEE IN SUPPORT OF HIS CLAIM ALSO FILE D THE COPIES OF CONFIRMATION FROM M/S. AGARWAL AND M/S. BLEACH CHEM . 13.3 THE LD CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 6.1 THE ASSESSING OFFICE AFTER GOING THROUGH THE ABOVE COMMENTS DURING THE REMAND PROCEEDINGS HAVE FURTHER NOT GIVE N ANY FINDING EXCEPT THAT THE ASSESSEE IS ASKED TO PROVIDE AND FU RNISH SEPARATE ACCOUNTS FOR THE ENTRIES - 2001-02 AND 2002-03 UNDE R THIS HEAD SO THAT THE MATTER BECOMES CLEAR. 6.2 THE ASSESSING OFFICER PICKED UP ENTRIES FORM O UTSTANDING LIABILITIES ACCOUNT AND JUST MADE ADDITION WITHOUT EXAMINING WHETHER THOSE EXPENSES HAVE BEEN CLAIMED AS DEDUCTION OR NO T. THOSE ENTRIES PICKED UP WERE THE ENTRIES OF 2002-03 BUT ASSESSING OFFICER HAS CONSIDERED AS ENTRIES AS 2001-02 AND MADE ADDITION AS PRIOR PERIOD EXPENDITURE. 6.3 THE ASSESSEE GAVE ALL SUBMISSIONS AS REQUIRED AND CONFIRMATIONS OF THE PARTIES ALSO. THE ASSESSING OFFICER HAS STAT ED THAT TWO SEPARATE ACCOUNTS FOR EACH YEAR CALLED FOR WAS NOT SUBMITTED IN REMAND REPORT. ACCORDING TO ASSESSEE ADEQUATE TIME WAS NOT GIVEN. IN REPLY TO REMAND REPORT THE SAID ACCOUNT WERE FURNISHED. I HAVE EXAM INED THE ACCOUNT COPIES AND RELEVANT JOURNAL VOUCHERS. THE ENTRIES M ADE FOR A.Y. 2002- 03 ARE NOT ALL RELEVANT, AS NO ADDITION WAS MADE RE GARDING ENTRIES OF THIS YEAR. THE ADDITION IS FOR THIS YEAR I.E. 2003- 04 IS MADE ON ACCOUNT OF LIABILITY PROVIDED VIDE JOURNAL VOUCHERS NO. 681 DATED 31.08.2002 FOR RS.1,00,000/- VOUCHER NO.1278 DATED 31.01.03 FOR RS .9,24,810/- AND ALSO VOUCHER 1455 DATED 25.03.2003 FOR RS.9,24,810/ - THUS TOTAL ADDITION COMES TO RS.19,49,620/-. THE ASSESSING OFF ICER HAS NOT CONSIDERED THE REVERSED ENTRIES OF VOUCHER 1528 DAT ED 31.03.03 FOR RS.1,00,000/- AND RS. 9,24,810/-. THE EFFECT OF THE SE ENTRIES THE EFFECT OF - 15 - EARLIER TWO ENTRIES OF V. NO. 681 AND 1278 GETS NUL LIFIED. THE ACTUAL LIABILITY WHICH WAS PROVIDED BY VOUCHER NO. 1455 DA TED 25.03.03 PERTAINS TO A.Y. 2003-04. THE APPLICANT FURTHER SUB MITTED CONFIRMATION OF PARTY AND COPY OF BILL OF THE PARTY AND THE SAME IS PROVIDED TO ASSESSING IN THE PAPER BOOKS FOR REMAND REPORT. 6.4 THE ADDITION THUS MADE IS WITHOUT PRO PER VERIFICATION OF EVIDENCES AND EXPLANATION. THE ADDITION OF RS.19, 49,620/- IS THEREFORE DELETED. 13.4 BEING AGGRIEVED BY THE ORDER OF LD CIT(A) REVE NUE IS IN SECOND APPEAL BEFORE US. 14. THE LD DR BEFORE US SUBMITTED THAT THE AMOUNT O F COMMISSION SHOWN BY THE ASSESSEE IN THE CONFIRMATION FILED BY THE M/S. BLEACH CHEM WAS NOT MATCHING THEREFORE THE SAME CANNOT BE RELIE D UPON. 15. ON THE OTHER HAND, LD AR BEFORE US SUBMITTED TH AT IT HAS CLAIMED AN EXPENSE OF RS.16,43,754/- ONLY UNDER THE HEAD CO MMISSION TO SALES AGENT. THEREFORE, THE OBSERVATION OF THE AO THAT TH E ASSESSEE HAS CLAIMED COMMISSION EXPENSES OF RS.24,88,787/- IS NOT CORREC T. 15.1 THE LD AR FURTHER SUBMITTED THAT THE AO HAS NO T CONSIDERED THE REVERSED ENTRIES WHICH WERE REFLECTED IN THE LEDGER ACCOUNT OF COMMISSION TO SALES AGENTS. 15.2 THE LD AR IN SUPPORT OF HIS CLAIM DREW OUR ATT ENTION ON SCHEDULE 14 TO THE FINANCIAL STATEMENT WHICH IS PLACED ON PA GE 120 OF THE PAPER BOOK. - 16 - 15.3 THE LD AR ALSO DREW OUR ATTENTION ON THE DEBIT NOTE ISSUED BY M/S. AGARWAL EXPORTS AND M/S. BLEACH CHEM WHICH ARE PLAC ED ON PAGES 75 TO 77 OF THE PAPER BOOK AMOUNTING TO RS. 2,49,000/-, 2 ,95,260/- & 6,27,680/-. 15.4 BOTH THE LD DR AND LD AR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITY BELOW AS FAVORABLE TO THEM. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE COMMISSION EXPENSES CLAIMED BY THE ASSESSEE FOR RS. 24,88,787/- ONLY. AS PER THE AO COMMISSION EXPENSES AMOUNTING TO RS.1 9,49,620/- REPRESENTS THE PRIOR PERIOD EXPENDITURE. THEREFORE, THE SAME WAS DISALLOWED. 16.1 ON PERUSAL OF THE COPY OF THE LEDGER FOR COMMI SSION OF SALE PLACED ON PAGE 65 OF THE PAPER BOOK. WE NOTE THAT THE ASSE SSEE INTER ALIA HAS SHOWN COMMISSION EXPENSES AS OSL (2001-02) ON VARI OUS DATES AS DETAILED UNDER: SR NO. PARTICULARS DATE AMOUNT 1. OSL (2001-02) 31 ST AUGUST, 2002 1,00,000/- 2. OSL (2001-02) 31 ST JANUARY, 2003 9,24,810/- 3. OSL (2001-02) 25 TH MARCH, 2003 9,24,810/- 16.2 HOWEVER, FROM THE LEDGER AS DISCUSSED ABOVE, W E FURTHER NOTE THAT A REVERSAL ENTRY WAS ALSO PASSED FOR RS.10,24,810/- DATED 31 ST MARCH, - 17 - 2003 WHERE THE OSL ACCOUNT (2001-02) WAS CREDITED. THUS, IT IS CLEAR FROM THE ABOVE THAT THE ASSESSEE HAS NOT CLAIMED AN Y EXPENSE OF RS.10,24,810/- PERTAINING TO THE PERIOD OF EARLIER YEARS. NOW THE ISSUE REMAINS TO BE ADJUDICATED FOR THE EXPENSES CLAIMED BY THE ASSESSEE FOR RS. 9,24,810/- DATED 31 ST JANUARY, 2003 IN THE LEDGER OF COMMISSION ON SALE. IT IS A FACT THAT THIS COMMISSION WAS CLAIMED AS OSL (2001-02) WHICH CREATES A SUSPICION THAT IT PERTAINS TO THE E ARLIER YEARS. HOWEVER, THE ASSESSEE BEFORE THE LOWER AUTHORITIES CLAIMED T HAT IT PERTAINS TO THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE ASSESSEE FILED THE CONFIRMATION FROM THE PARTIES WHICH ARE PLACED ON P AGES 6 TO 67 OF THE PAPER BOOK. FROM THE CONFIRMATION ISSUED BY THE PAR TIES, IT IS CLEAR THAT IT PERTAINS TO THE YEAR UNDER CONSIDERATION. THE AO WA S EMPOWERED UNDER SECTION 133(6)/ 131 OF THE ACT TO VERIFY THE VERACI TY OF THE COMMISSION EXPENSES CLAIMED BY THE ASSESSEE IN CASE HE HAS DOU BT ON THE CLAIM OF THE ASSESSEE BUT HE FAILED TO DO SO. THEREFORE, WE ARE OF THE VIEW THAT ACCOUNTING ENTRIES CANNOT BE DECISIVE FACTOR WHEN T HE DOCUMENTS CONTRARY TO THE ACCOUNTING ENTRY ARE AVAILABLE ON R ECORD. 16.3 THE ARGUMENT OF THE LD COUNSEL FOR THE ASSESSE E ALSO GETS FORTIFIED FROM THE FINANCIAL STATEMENT WHEREIN, THE ASSESSEE HAS CLAIMED AN EXPENSE OF RS.16,43,754/- ONLY. 16.4 HOWEVER, WE NOTE THAT THE ASSESSEE HAS CLAIMED AN EXPENSE OF RS.9,24,810/- IN THE NAME OF M/S. BLEACH CHEM WHERE AS, THE CONFIRMATION REVEALS THE AMOUNT OF RS.9,22,940/-. T HUS, THERE IS A DIFFERENCE OF RS. 1870/- WHICH IN OUR CONSIDERED VI EW IS LIABLE TO BE - 18 - DISMISSED. ACCORDINGLY, WE DELETE THE ADDITION MADE BY THE AO BY RS. 19,47,750/- AND DIRECT THE AO TO MAKE THE ADDITION OF RS. 1870/- ONLY. THUS, THE GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED . 17. NEXT ISSUE RAISED BY THE REVENUE IS THAT THE LD CIT(A) ERRED IN REDUCING THE DISALLOWANCE OF SALES PROMOTION EXPENS ES FROM RS. 4,66,919/- TO RS.13,312/- ONLY. 18. THE ASSESSEE DURING THE YEAR HAS CLAIMED SALES PROMOTION EXPENSES FOR RS. 4,80,231/- BUT THE SAME WAS NOT SUBSTANTIAT ED ON THE BASIS OF DOCUMENTARY EVIDENCES. THEREFORE, THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 17. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD C IT(A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED AS UNDER: 7.2 THE AR HAS MADE THE FOLLOWING SUBMISSION: DURING THE PREVIOUS YEAR, THE APPELLANT COMPANY INC URRED EXPENDITURE OF RS.4,80,231 AS SALE PROMOTION EXPENSES. THESE EX PENSES WERE IN NATURE OF GIFTS TO CUSTOMERS ON DIWALI. INSTANCE OF EXPENSES INCURRED ARE AS FOLLOWS: NAME OF THE PARTY ITEM PURCHASED AMOUNT(RS.) BILL NO. SHREEJI JEWELLERS SILVER GIFT ITEMS 41,365.00 3403/DT.20.11.2002 SHREEJI JEWELLWERS SILVER GIFT ITEMS 25,820.00 3396/DT. 18.11.2002 NAME OF THE PARTY ITEM PURCHASED AMOUNT(RS.) BILL NO. SHREEJI JEWELLERS SILVER GIFT ITEMS 25,450.00 3390/DT.16.11.2002 - 19 - RADHIKA JEWELLERS GOLD GIFT ITEMS 38,035.00 600/DT.26.11.2002 DHOBLE & CO. MANGOES 3,22,065.00 1888 DT.14.05.2002 DAMODARDAS JEWELLERS GOLD GIFT ITEMS 10,912.50 02S0002128 DT. 01.08.2002 DAMODARDAS JEWELLERS GOLD GIFT ITEMS 5,240.00 02K0000078 DT. 01.08.2002 OTHERS GIFTS 7503.00 1000, 2390, 3340, 774 COMMISSION PAID ON OUT BEHALF BY SUMISU (INDIA) SYNTHETICS & FIBERS PVT. LTD. HAS BEEN WRONGLY DEBITED TO SALES PROMOTION A/C. 3,840.00 TOTAL. 4,80,231.00 THE LEARNED AO DISALLOWED THE SAME SINCE THE AP PELLANT HAD FAILED TO PRODUCE THE ABOVE MENTIONED BILLS BEFORE THE LEA RNED AO DUE TO YEAR END PRESSURES DURING THE MONTH OF MARCH AND LACK OF SUFFICIENT TIME GIVEN FOR SUBMITTING THE SAME. THE ASSESSEE HAD HARDLY GOT ANY TIME FOR THE SUBMISSION OF THE EVIDENCE AS MENTIONED ABOVE BEFORE THE DATE OF PASSING OF ORDER ON 28.03.2 006. APPELLANT COMPANY CONTENDS THAT EXPENSES OF RS.4,80 ,231 INCURRED FOR SATE PROMOTION ARE GENUINE BUSINESS EXPENSE. ALL TH E RELEVANT VOUCHERS AND INVOICES FOR SALE PROMOTION EXPENSES ARE SUBMIT TED ON PAGE 12-24 OF PAPER-BOOK-II). HENCE, IT IS SUBMITTED THAT EXPE NSES OF RS.4,80,231 BE ALLOWED AS BUSINESS EXPENSES. 18.1 THE LD CIT(A) CALLED FOR THE REMAND REPORT ON THE DETAILS FILED BY THE ASSESSEE. THE AO VIDE LETTER DATED 3 RD OCTOBER 2006 HAS POINTED OUT CERTAIN DEFECTS IN THE DETAILS OF THE EXPENSES FILE D BY THE ASSESSEE DURING THE REMAND PROCEEDINGS. THEREFORE, THE AO DISBELIEV ED ON THE DETAILS OF - 20 - THE BILLS FILED BY THE ASSESSEE DURING THE REMAND P ROCEEDINGS. HOWEVER, THE LD CIT(A) AFTER CONSIDERING THE SUBMISSION OF T HE ASSESSEE DELETED THE ADDITION IN PART BY OBSERVING AS UNDER: 7.4 IN VIEW OF THE ABOVE DETAILED BILLING EVIDENC ES AND CONSIDERING THE NATURE OF BUSINESS AND THE OCCASION THE EXPENSE S INCURRED BY THE ASSESSEE IS TO BE CONSIDERED FOR BUSINESS PURPOSES. 7.5 I HAVE PERUSED THE DETAIL ACCOUNTS. THE EXPEND ITURE WHICH IS SUPPORTED BY EVIDENCES AND IN THE COURSE OF BUSINES S CANNOT BE DISALLOWED. I CONSIDER THAT A SUM OF RS.13,312/- CL AIMED AS REIMBURSEMENT OF THE GIFTS TO ITS EMPLOYEES ALONE B E DISALLOWED. THEREFORE, ADDITION CONFIRMED ON THIS ACCOUNT IS RS .13,312/- AS AGAINST ADDITION OF RS.480,231/-. APPEAL PARTLY ALLOWED ON THIS GROUND. BEING AGGRIEVED BY THE ORDER OF LD CIT(A) REVENUE I S IN APPEAL BEFORE US. 19. BOTH THE PARTIES BEFORE US VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE PRESENT CASE, SALES PRO MOTION EXPENSES WAS DISALLOWED BY THE AO ON THE GROUND THAT THE ASSESSE E FAILED TO SUBSTANTIATE THE EXPENSES ON THE BASIS OF PROPER DO CUMENTARY EVIDENCES. 20.1 HOWEVER, WE NOTE THAT THE ASSESSEE HAS FILED A LL THE NECESSARY DETAILS FOR THE EXPENSES INCURRED BY IT WHICH ARE P LACED ON PAGES 78 TO 90 OF THE PB. - 21 - 20.2 HOWEVER, THESE DETAILS FILED BY THE ASSESSEE W ERE DISBELIEVED BY THE AO DURING THE REMAND PROCEEDINGS BUT ON PERUSAL OF THE BILLS FILED BY THE ASSESSEE, WE NOTE THAT THERE WERE ADDRESSES OF ALL THE PARTIES IN THE BILLS FILED BY THE ASSESSEE. IN CASE OF ANY DOUBT T HE AO SHOULD HAVE TAKEN CONFIRMATION FROM SUCH PARTIES. THEREFORE, IN OUR C ONSIDERED VIEW, THE AO HAS NOT EXERCISED HIS POWER GIVEN UNDER THE STAT UTE UNDER SECTION 133(6) AND 131 OF THE ACT. THERE CAN BE DEFICIENCY IN THE BILLS FILED BY THE PARTIES BUT THE ASSESSEE HAS NO CONTROL OVER TH OSE PARTIES. THEREFORE, IT WAS NECESSARY TO TAKE CONFIRMATION FROM THE PARTIES WHO HAVE FILED THE BILLS IN SUPPORT OF EXPENSES INCURRED BY THE ASSESS EE. 20.3 FROM THE PRECEDING DISCUSSION WE DRAW A CONCLU SION THAT THE AO FAILED TO EXERCISE HIS POWER GIVEN UNDER THE STATUT E. THEREFORE WE ARE INCLINED NOT TO INTERFERE IN THE FINDING OF LD CIT( A). THUS, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED . 21. THE INTERCONNECTED ISSUE RAISED BY THE REVENUE IN GROUND NO.4 AND 5 IS THAT LD CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 21,66,127/- ON ACCOUNT OF EXCESS STOCK AND OF RS.64 ,984/- ON ACCOUNT OF PROFIT @ 3% ON SUCH STOCK SHOWN OUTSIDE THE BOOKS O F ACCOUNTS. 21.1 THE ASSESSEE IN ITS STOCK STATEMENT FILED DURI NG THE ASSESSMENT PROCEEDINGS HAS SHOWN CLOSING STOCK OF 3665.569 MT AS ON 31 ST JULY 2002 WHEREAS THE STOCK AS ON 1 ST AUGUST, 2002 WAS DETERMINED FOR 3800.379 MT. ACCORDINGLY, THE AO WAS OF THE VIEW TH AT THERE WAS EXCESS STOCK OF 134.81 MT. ACCORDINGLY, THE AO WORK ED OUT THE COST OF - 22 - SUCH STOCK FOR RS. 21,66,127/- (16068/MT 134.81 M T) AND ADDED THE SAME AS UNDISCLOSED INVESTMENT IN THE STOCK. 21.2 THE AO FURTHER OBSERVED THAT SUCH UNDISCLOSED INVESTMENT IN STOCK MUST HAVE BEEN SOLD BY THE ASSESSEE OUTSIDE THE BOO KS OF ACCOUNTS AND THE PROFIT ON THE SAME HAS NOT BEEN OFFERED BY THE ASSESSEE TO THE INCOME TAX. THEREFORE, THE AO WORKED OUT THE GP@3% ON SUCH UNACCOUNTED CLOSING STOCK FOR RS. 64,984/- ONLY. THUS, THE AO T REATED THE PROFIT ON SUCH UNACCOUNTED STOCK AS UNDISCLOSED INCOME OF THE ASSESSEE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 22. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD C IT(A). THE ASSESSEE BEFORE THE LD CIT(A) FILED A RECONCILIATIO N STATEMENT AS DETAILED UNDER: (IN MT) STOCK AS APPEARING IN THE STOCK REGISTER WHEN SEIZE D 3800.379 LESS: SALES NOT RECORDED ERRONEOUSLY IN MONTHLY STO CK REGISTER 147.340 ADD: EXCESS STOCK DUE TO CLIMATIC CHANGES 1,770 STOCK AS ACTUALLY EXISTING A SON 31.07.2002 3654.80 9 THE MATTER WAS REFERRED TO THE COLLECTOR OF KUTCH W HO HAD PASSED HIS ORDER ON THIS MATTER UNDER SECTION 6(A) OF THE ESSE NTIAL COMMODITIES ACT, 1995 ON 29.4.2003,. THE COLLECTOR OF KUTCH IN HIS ORDER DATED 29.04.2003 (REFER PAGE 51-70 OF PB), HAS ACCEPTED T HE ABOVE RECONCILIATION AND THEREBY PASSED AN ORDER IN FAVOU R OF APPELLANT COMPANY. - 23 - 22.1 THE ABOVE RECONCILIATION STATEMENT WAS ALSO FI LED BEFORE THE DISTRICT SUPPLY OFFICER AND SAME WAS ACCEPTED BY TH E DSO WITHOUT POINTING OUT ANY DEFECT. 22.2 THE LD. CIT-A AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER : UNACCOUNTED INVESTMENT IN STOCK FOR RS.21,66,127/-: 8.3 THE ASSESSEE HAD GIVEN A DETAILED EXPLANATION AND ALSO THE RELEVANT EVIDENCES INCLUDING COPY OF THE COLLECTOR, KUTCH DATED 29.04.2003, WHEREIN HE HAD ACCEPTED THE ACCOUNTING OF SEIZED STOCK AND ACCORDINGLY RELEASED FDR OF RS.61 LACS OF THE ASSES SEE. THIS AMPLY SHOWS THAT THE RECONCILIATION STOCK POSITION OF THE ASSESSEE HAS BEEN AGREED UPON BY THE AUTHORITY COMPETENT TO MONITOR T HE SALE AND DISTRIBUTION OF STOCKS. THE EXPLANATION OF THE ASSE SSEE HAD NOT BEEN ACCEPTED BY THE ASSESSING OFFICER WITH THE BELIEF T HAT THERE IS EXCESS STOCK OF 134.81 MT VALUED AT RS.21,66,127/-. THE AS SESSEE'S EXPLANATION ACCOMPANIED BY RECONCILIATION OF STOCK CERTIFICATIO N OF THE COLLECTOR INFERRING THAT THERE ARE NO IRREGULARITIES IN THE S TOCK AMPLY SHOW THAT THERE IS NO EXCESS STOCK AND THEREFORE THE ASSESSIN G OFFICER IS DIRECTED TO DELETE THE VALUE OF EXCESS STOCK ADDED AMOUNTING TO RS.21,66,127/-. THE PROFIT ATTRIBUTABLE TO UNACCOUNTED STOCK: 9.1 IN THE EARLIER GROUNDS OF APPEAL ISSUE IS DEAL T RECONCILIATION OF STOCK AND I ULTIMATE CERTIFICATION BY THE COLLECTOR THAT THERE ARE NO IRREGULARITIES IN THE STOCK' HAS BEEN EXPLAINED. IN VIEW OF THIS FINDING THERE IS NO EXCESS STOCK AND THERE IS NO ANY IRREGU LARITIES IN THE STOCK POSITION. THUS ISSUE OF ESTIMATING 3 % ON STOCK THEREFORE DOES NOT ARISE. THEREFORE ADDITION OF RS.66,984/- @3% ON THE STOCK AS UNACCOUNTED SALE IS DELETED. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. - 24 - 23. BOTH THE PARTIES BEFORE US RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 24. HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FI ND THAT THE ASSESSEE HAS FILED A RECONCILIATION STATEMENT BEFORE THE DISTRIC T SUPPLY OFFICER JUSTIFYING THE DIFFERENCE IN THE QUANTITY OF STOCK AS DISCUSSED ABOVE. THE REPLY OF THE ASSESSEE WAS DULY ADMITTED/ ACCEPTED B Y THE DSO. THE ORDER OF DSO FOR THIS MISMATCH IN THE STOCK IS PLACED ON PAGES 101 TO110 OF THE PB. ON PERUSAL OF THE ORDER OF DISTRICT SUPPLY OFFICER WE NOTE THAT THE RECONCILIATION STATEMENT FILED BY THE ASSESSEE WAS DULY ACCEPTED BY THE DSO. IN THE CASE BEFORE US THE ADDITION WAS BAS ED ON THE BASIS OF MISMATCH OBSERVED BY THE DSO IN THE QUANTITY OF STO CK AS ON 1 ST AUGUST 2002. ONCE, THE DIFFERENCE OBSERVED BY THE DSO HAS BEEN RECONCILED AND RELIEF HAS BEEN GIVEN BY THE DSO THEN IN OUR CONSID ERED VIEW NO SEPARATE ADDITION ON ACCOUNT OF DIFFERENCE IN THE STOCK CAN BE MADE. THE RELEVANT EXTRACT OF DSO ORDER READS AS UNDER: DURING INSPECTION FROM DATE 30.7.02 TO 1.8.02 LOOK ING TO DRAW-BACK IN IMPORTED WHITE KEROSENE 3800.379 M. TONS VALUING RS .6.10,64,489/- OF M/S. OVERSEAS TRADING & SHIPPING CO. PVT. LTD., GAN DHTDHAM HAS BEEN SEIZED OUT OF THE SAME 100% I.E. FULL STOCK OF KERO SENE IS HEREBY ORDERED TO BE RELEASED AND THE NOTICE IS HEREBY WITHDRAWN 2. THE PARTY BE INFORMED ABOUT THE WRITTEN OR DERS 24.1 ONCE WE DELETE THE ADDITION ON ACCOUNT OF UNAC COUNTED INVESTMENT IN THE STOCK. WE ARE OF THE VIEW THAT THE QUESTION OF ANY GROSS PROFIT ON ACCOUNT OF SALE OF SUCH STOCK DOES NOT ARISE. THUS, WE DO NOT FIND ANY - 25 - REASON TO INTERFERE IN THE FINDING OF LD CIT(A). TH US, THE GROUND OF APPEAL FILED BY THE REVENUE IS DISMISSED . 25. IN THE RESULT, THE GROUNDS OF APPEAL FILED BY T HE REVENUE IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 28/09/2018 SD/- SD/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 28/09/2018 PRITI YADAV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. + & ' ,& / CONCERNED CIT 4. ' ,& ( ) / THE CIT(A)- II, RAJKOT. 5. -$. / 0&0# , , /DR,ITAT, RAJKOT 6. / 12 3 % / GUARD FILE. / BY ORDER, -& 0& //TRUE COPY// / ! '#$ ( DY./ASSTT.REGISTRAR) ! $%! & , / ITAT, RAJKOT