ACIT, New Delhi V. M/s Kuwer Industries (P) Ltd., New Delhi

ITA 230/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3413 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-07-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 14-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRADR
• Assessee Lawyers: PRAMOD KAPOOR
• Keywords: Additional evidence
• Section: 40A(3); 14A; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESI DENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO.230/DEL./2011 (ASSESSMENT YEAR : 2002-03) ACIT, CIRCLE 5(1), VS. M/S KUWER INDUSTRIES (P) LTD ., NEW DELHI. D-1004, NEW FRIENDS COLONY, NEW DELHI. (PAN/GIR NO.AAACK1887E) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRAMOD KAPOOR, CA REVENUE BY : SHRI SALIL MISHRA,DR ORDER PER A.D. JAIN: JM THE IS DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2002-0 3 AGAINST THE ORDER DATED 9.11.2010, PASSED BY THE CIT(A)-VIII, NEW DELHI. THE FOLLOWING EFFECTIVE GROUNDS HAVE BEEN RAISED: 1. THE ORDER OF THE LD.CIT(APPEALS) IS ERRONEOUS AN D CONTRARY TO FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF `68,00,00 0 MADE BY THE ASSESSING OFFICER U/S 68 OF THE I.T. ACT, 1961 BEI NG THE UNEXPLAINED UNSECURED LOAN. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF `18,15,57 8 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF MANUFACTURING EXPE NSES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF `11,500 M ADE BY THE ASSESSING OFFICER ON ACCOUNT OF CLUB EXPENSES FEES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN RESTRICTING THE ADDITION U/S 14A TO `2925 AS AGAINST `21,434 MADE BY THE ASSESSING OFFICER. 6. THE CIT(A) ERRED IN LAW BY ACCEPTING THE ADDITIONAL EVIDENCES UNDER RULE 46A OF I.T. RULES, 1962. I.T.A. NO.230/DEL./2011 (A.Y. : 2002-03) 2 2. GROUND NO.1 IS GENERAL. 3. APROPOS GROUND NOS.2 & 6, THE ASSESSING OFFICER M ADE ADDITION OF `68 LAKHS U/S 68 OF THE I.T. ACT, 1961, ON ACCOUNT OF THE A SSESSEE HAVING RAISED LOANS FROM SHRI J.B. AGGARWAL, SMT. USHA AGGARWAL AN D SHRI TARUN AGGARWAL. WHILE DOING SO, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAD FAILED TO FILE BEFORE HIM, THE CONFIRMATIONS, COPY OF BANK STATEMENT AND COPY OF INCOME-TAX RETURNS CONCERNING OF THE THREE CASH CREDITORS OF THE ASSESSEE. 4. BY VIRTUE OF THE IMPUGNED ORDER, THE CIT(A) DELETED THE ADDITION. 5. AGGRIEVED, THE DEPARTMENT HAS RAISED GROUND NOS.2 & 6 BEFORE US. 6. LD.DR HAS CONTENDED THAT HE CIT(A) HAS ERRED IN DEL ETING THE ADDITION OF ` 68 LAKHS CORRECTLY MADE BY THE ASSESSING OFFICER IGNORING THE FINDINGS RECORDED BY THE ASSESSING OFFICER AND THE FACT THAT THE A SSESSEE FAILED TO DISCHARGE THE ONUS OF PROVING THE CREDITWORTHINESS OF TH E CREDITORS AND THE GENUINENESS OF THE TRANSACTIONS, IN SPITE OF HAVING BEE N PROVIDED DUE OPPORTUNITY TO DO SO IN THE ASSESSMENT PROCEEDINGS; AND THAT THE CIT(A) HAS ERRED IN ACCEPTING ADDITIONAL EVIDENCE WITH REGARD TO TH IS ISSUE, AT THE BACK OF THE ASSESSING OFFICER. 7. LD.COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER; THAT COPIES OF INCOME- TAX RETURNS AND BANK STATEMENT AND CONFIRMATIONS OF ALL THE THREE CREDITORS WER E DULY PLACED BEFORE THE ASSESSING OFFICER, BUT THEY WERE NOT CONSIDE RED BY HIM DUE TO PAUCITY OF TIME; THAT WHILE PRODUCING THESE DOCUMENTS BEF ORE THE CIT(A), AN AFFIDAVIT OF SHRI DEV SHANKER JHA, REPRESENTATIVE OF TH E ASSESSEE , WAS FILED; THAT THE MATTER WAS REMITTED TO THE ASSESSING OFFICER BY THE CIT(A); THAT IN THE REMAND REPORT, THE ASSESSING OFFICER COULD NOT CONTR OVERT THE ASSERTION MADE BY THE ASSESSEE; THAT IT IS WRONG TO STATE THAT ANY ADD ITIONAL EVIDENCE WAS ADMITTED BY THE CIT(A) AT THE BACK OF THE ASSESSING O FFICER; THAT IT WAS IN VIEW OF THE DOCUMENTARY EVIDENCE FILED THAT THE CIT(A) C ORRECTLY ARRIVED AT THE CONCLUSION THAT THE ASSESSEE HAD DULY DISCHARGED ITS ONUS U/S 68 OF THE ACT; AND THAT THEREFORE, THE ORDER OF THE CIT(A) IN THIS R EGARD BEING WELL VERSED, THE SAME DOES NOT REQUIRE ANY INTERFERENCE WHA TSOEVER. I.T.A. NO.230/DEL./2011 (A.Y. : 2002-03) 3 8. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND HAVE PE RUSED THE MATERIAL ON RECORD WITH REGARD THERETO. APROPOS THE ADMISSION O F ADDITIONAL EVIDENCE, ALLEGEDLY AT THE BACK OF THE ASSESSING OFFICER, IT IS S EEN THAT THE ASSESSEE HAD TAKEN THE LOANS FROM THE SHAREHOLDERS AND DIRECTORS OF THE COMPANY; THAT THE NECESSARY DETAILS THEREOF WERE GIVEN IN THE TAX AUDIT R EPORT; THAT FURTHER DETAILS, AS WELL AS COPY OF THE INCOME-TAX RETURNS FILE D BY THEM, COPY OF BANK STATEMENT OF THE BANK FROM WHERE THEY HAD ISSUED THE CHEQ UES AND THE CONFIRMATIONS GIVEN BY THEM, WERE FILED; THAT THE CREDITO RS WERE ALL REGULAR INCOME-TAX ASSESSEES; THAT THE ASSESSING OFFICER HAD AS KED THE ASSESSEE TO COMPILE THE DETAILS ABOUT THE SOURCE OF THE CREDITS IN BA NK STATEMENT OF THE CREDITORS I.E., THE SOURCE OF THE SOURCE OF THE CREDITS, AND ALSO TO FURNISH THEIR STATEMENT OF AFFAIRS, IN WHICH, THESE LOANS ADVANCED BY THEM WERE REFLECTED; THAT ON 21.12.2009, SHRI DEV SHANKER JHA, REPRESENTATIV E OF THE ASSESSEE, BEFORE THE ASSESSING OFFICER, HAD GONE TO THE ASSESSIN G OFFICER, TO FILE THE CONFIRMATIONS AND OTHER RELATED DOCUMENTS IN THE CASE OF SHRI J.B. AGGARWAL, SMT. USHA AGGARWAL AND SHRI TAKRUN AGGARWAL, THAT HOWE VER, THE ASSESSING OFFICER RETURNED THESE DOCUMENTS TO SHRI DEV SHANKER JH A, STATING THAT HE DID NOT HAVE SUFFICIENT TIME TO INVESTIGATE THE SOURCE OF THE C REDITS IN THE BANK STATEMENT OF THE CREDITORS; AND THAT IF HE KEPT THE SAID PAP ERS ON RECORD HE WOULD HAVE TO DEAL WITH THEM; THAT AS SUCH SHRI DEV SHAN KER JHA, REPRESENTATIVE EMPLOYEE OF THE ASSESSEE, HAD NO OPTION BUT TO OBEY THE ASSESSING OFFICERS ORDER; AND THAT THE ASSESSMENT ORDE R WAS PASSED ON 24.12.2009. 9. SHRI DEV SHANKER JHA FILED AN AFFIDAVIT BEFORE THE CIT(A), SWEARING BY THE AFORESAID FACTS. 10. ON THIS, THE CIT(A) REMITTED THE MATTER TO THE FILE OF TH E ASSESSING OFFICER, SEEKING A REMAND REPORT. IN THE REMAND REPO RT DATED 27.9.2010 (MENTIONED AT PAGE 3, PARA.3.3 OF THE ASSESSMENT ORDER) , HE OBJECTED TO THE ADMISSION OF THE ADDITIONAL EVIDENCE ON THE BASIS THAT TH E ASSESSEES REQUEST DID NOT QUALIFY THE CONDITIONS LAID DOWN UNDER RULE 46 A OF THE I.T. RULES, 1962. THE FACTUAL AVERMENTS, AS ABOVE, MADE BY THE AS SESSEE, HOWEVER, REMAINED UNCONTROVERTED IN THE REMAND REPORT, AS OBSERV ED BY THE CIT(A) IN PARA 3.5 OF HIS ORDER. I.T.A. NO.230/DEL./2011 (A.Y. : 2002-03) 4 11. IT WAS THEREUPON THAT THE CIT(A) ADMITTED THE DOCUMENTS PRODUCED BY THE ASSESSEE. WHILE DOING SO, IT WAS ALSO OBSERVED TH AT IT DID NOT APPEAR LOGICAL THAT THE ASSESSEE WOULD FIRSTLY WITHHOLD CRUCIAL EVIDENCE NOT FILE IT BEFORE THE ASSESSING OFFICER AND THEN, APPLY FOR ADM ISSION THEREOF AS ADDITIONAL EVIDENCE BEFORE THE CIT(A). 12. IN THESE FACTS, WE DO NOT FIND OURSELVES AT ONE WITH THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT BY WAY OF GROUND N O.6. THE ADDITIONAL EVIDENCE WAS NEVER ADMITTED BY THE CIT(A) AT THE BACK OF THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS GIVEN DUE OPPOR TUNITY TO REBUT ADMISSION OF THE ADDITIONAL EVIDENCE. THE ASSESSING OFFICER, H OWEVER, FOUGHT SHY OF ASSAILING THE SAME IN THE REMAND REPORT. ALSO, AS RIGH TLY OBSERVED BY THE CIT(A), THERE IS NO PLAUSIBLE REASON AS TO WHY THE ASS ESSEE WOULD FIRSTLY NOT FILE THE MATERIAL EVIDENCE BEFORE THE ASSESSING OFFICE R AND THEN PRESS IT BEFORE THE CIT(A), OTHER THAN FOR THE POSSIBLE REASON TH AT IT WAS NOT WITH THE ASSESSEE AT THE TIME OF THE ASSESSMENT PROCEEDINGS AND B ECAME AVAILABLE TO THE ASSESSEE ONLY AT THE FIRST APPELLATE STAGE, WHICH IS NOT THE CASE HEREIN. RATHER, IN THE PRESENT CASE, THE ASSESSEE HAS SUBMITTED I N WRITING BEFORE THE CIT(A), SUPPORTED BY A DULY SWORN AFFIDAVIT OF SHRI D EV SHANKER JHA, REPRESENTATIVE EMPLOYEE OF THE ASSESSEE, THAT THE EVIDENC E WAS, IN FACT, PRODUCED BEFORE THE ASSESSING OFFICER WHO REFUSED TO TAKE IT ON RECORD, STATING THAT HE DID NOT HAVE TIME TO INVESTIGATE INTO IT AND I F HE WERE TO TAKE IT ON RECORD, HE WOULD HAVE TO DEAL WITH IT. REMARKABL Y, IN THE REMAND REPORT, THE ASSESSING OFFICER HAD NO COMMENTS TO OFFER ON THESE SPECIFIC FACTUAL AVERMENTS MADE BY THE ASSESSEE. 13. HENCE, FINDING NO MERIT THEREIN, GROUND NO.6 IS R EJECTED. 14. NOW, COMING TO THE MERITS OF THE ADDITION, I.E., THE SUBJECT MATTER OF GROUND NO.2, THE CIT(A) HAS DELETED THE ADDITION THE BAS IS OF THE AFORESAID EVIDENCE FILED BY THE ASSESSEE. THIS DOCUMENTARY EVI DENCE COMPRISES OF CONFIRMATIONS OF ALL THE CASH CREDITORS, COPIES OF IN COME-TAX RETURNS OF ALL THESE CREDITORS, COMPUTATION OF INCOME, COPIES OF BANK ACCOUNTS AND STATEMENT OF AFFAIRS. ON REMAND, ALL THESE DOCUMENTS HA D BEEN EXAMINED BY THE ASSESSING OFFICER. ALL THE CASH CREDITS WERE CON FIRMED BY THE CASH CREDITORS. THESE CASH CREDITS WERE DULY REFLECTED IN THE RETURN OF INCOME AND I.T.A. NO.230/DEL./2011 (A.Y. : 2002-03) 5 THE BANK STATEMENT OF ALL THE CREDITORS. THE ASSESSING O FFICER HAD NO RESPONSE TO THIS COGENT DOCUMENTARY EVIDENCE FILED BY TH E ASSESSEE IN DISCHARGE OF THE ASSESSEES ONUS U/S 68 OF THE ACT. N OW, WHEN THE ASSESSEE HAD DULY FILED ALL THIS DOCUMENTARY EVIDENCE IN PROOF OF ITS CLAIM AND ALL SUCH DOCUMENTARY EVIDENCE REMAINED UN-REBUTTED, THE CIT(A) C ANNOT BE SAID TO HAVE COMMITTED ANY ERROR IN DELETING THE ADDITION. WE TH US CONFIRM THE ACTION OF THE CIT(A) IN THIS REGARD. GROUND NO.2, IN THIS MANNER, BEING SANS SUBSTRATUM, IS REJECTED. 15. SO FAR AS REGARDS GROUND NO.3, THE ASSESSING OFF ICER MADE DISALLOWANCE OF `18,15,578/- MADE OUT OF MANUFACTURIN G EXPENSES. THE ASSESSING OFFICER NOTICED THAT THE MANUFACTURING EXPENSE S OF THE ASSESSEE DURING THE YEAR HAD INCREASED BY 11.80% OVER THOSE OF THE PRECEDING ASSESSMENT YEAR, WHEREAS THE SALES HAD MARGINALLY INC REASED, I.E., BY LESS THAN 1%. THE MANUFACTURING EXPENSES DURING THE YEAR W ERE FOUND TO BE 30.36% OF THE TOTAL TURNOVER, AS AGAINST THOSE OF 27.37% IN THE IMMEDIATELY PRECEDING YEAR. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE REMAINED UNABLE TO JUSTIFY THE INCREASE IN MANUFACTURING EXPENSE S AND ALSO FAILED TO PRODUCE THE BOOKS OF ACCOUNT AND THE SUPPORTING DOCUMEN TS. 16. THE CIT(A) DELETED THE DISALLOWANCE. 17. LD.DR CONTENDS THAT WHILE WRONGLY DELETING THE DISAL LOWANCE, THE CIT(A) HAS IGNORED THE FINDINGS RECORDED BY THE ASSES SING OFFICER AS WELL AS THE FACT THAT THE ASSESSEE HAD REMAINED UNABLE TO FILE EV IDENCE IN SUPPORT OF THE INCREASED MANUFACTURING EXPENSES DURING THE YEAR. 18. LD.COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HA S STRONGLY SUPPORTED THE IMPUGNED ORDER, SUBMITTING THAT THE BOOKS OF ACCOUNT W ERE DULY PRODUCED BEFORE THE ASSESSING OFFICER; THAT THE BOOKS O F ACCOUNT WERE DULY AUDITED AND THE GROSS PROFIT WAS WORKED OUT ON THE BASIS OF THE AUDITED ACCOUNTS ONLY; THAT GROSS PROFIT DURING THE YEAR WAS 15. 12% AND IT WAS FAIRLY COMPARABLE WITH THE GROSS PROFIT OF 15.50% IN THE IMMED IATELY PRECEDING YEAR; THAT HOWEVER, THERE WERE CERTAIN ARITHMETICAL ERROR S IN THE INFORMATION SUBMITTED BEFORE THE ASSESSING OFFICER, DUE TO WHICH, TH E INFLATED PROFITS IN ASSESSMENT YEAR 2001-02 GOT SHOWN; THAT ALL PURCHASES A ND SALES TRANSACTIONS WERE FULLY VOUCHED AND RECORDED IN THE BO OKS, WHICH WERE DULY I.T.A. NO.230/DEL./2011 (A.Y. : 2002-03) 6 EXAMINED BY THE ASSESSING OFFICER WITH REFERENCE TO THE DETAILS FURNISHED BY THE ASSESSEE; THAT THE FACTUM OF THE ASSESSEE HAVING PROD UCED ITS BOOKS OF ACCOUNT AND MANUFACTURING RECORD BEFORE THE ASSESSING OFFICER WAS ADMITTED BY THE ASSESSING OFFICER IN THE REMAND REPORT SUBMITTED BEFORE THE CIT(A); AND THAT THE CIT(A) HAS CORRECTLY DELETED THE ADDITION WRO NGLY MADE. 19. SO FAR AS REGARDS THIS MATTER, IT IS FOUND THAT INDEE D, IT WAS A MATHEMATICAL ERROR WHICH RESULTED IN INFLATED PROFITS IN ASSESSMENT YEAR 2001-02 BEING SHOWN. IT REMAINS UNDISPUTED THAT THE GRO SS PROFIT RATIO AS PER THE TAX AUDIT REPORT FOR THE TWO SUCCESSIVE ASSESSMENT YEA RS SHOWED THAT THE GROSS PROFIT RATES HAD BEEN ALMOST THE SAME AS THAT OF 15 .12% IN THE ASSESSMENT YEAR 2002-03 AND OF 15.50% IN ASSESSMENT Y EAR 2001-02. IN THE GROSS PROFIT CHART PREPARED BY THE ASSESSEE, HOWEVER, THE GROSS PROFIT OF ASSESSMENT YEAR 2001-02 HAD BEEN ERRONEOUSLY TYPED AS 15.91% INSTEAD OF 15.19% AND THE GROSS PROFIT IN THE YEAR UNDER CONSIDER ATION WAS OF 13.75%. IT WAS THIS, WHICH GAVE A VARIATION OF 1.44%. THE STATE D ERROR WAS A TYPOGRAPHICAL ONE AND IT HAS NOT BEEN SHOWN AS MALA FI DE. IT IS ALSO NOT IN DISPUTE, SINCE IT HAS BEEN ADMITTED BY THE ASSESSING OFF ICER IN THE REMAND REPORT THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE, WHICH W ERE DULLY AUDITED, AND ON THE BASIS OF WHICH THE GROSS PROFIT WAS WORKED OUT, WERE DULY PRODUCED BEFORE THE ASSESSING OFFICER. THE GROSS PR OFIT IN THE YEAR UNDER CONSIDERATION WAS 15.12%. THIS IS FAIRLY COMPARABLE WITH THE GROSS PROFIT OF 15.50% IN ASSESSMENT YEAR 2001-02. A COMPARATIVE SHE ET OF THE MANUFACTURING EXPENSES OF THE ASSESSEE WAS FILED. FR OM IT, THE ASSESSING OFFICER OBSERVED THAT THE MANUFACTURING EXPENSES INCLUD ED PAYMENTS TOWARDS JOB CHARGES TO M/S ELLORA MECHANICAL PRODUCTS PVT. LTD., A SISTER CONCERN OF THE ASSESSEE COMPANY, UNDISPUTEDLY, THE FAC TUM OF M/S ELLORA MECHANICAL PRODUCTS PVT. LTD. BEING COVERED U/S 40A(3) OF THE ACT WAS MENTIONED IN THE TAX AUDIT REPORT OF THE ASSESSEE, DULY C ERTIFIED BY THE ASSESSEES CA, STATING THAT THE TRANSACTIONS HAD BEEN AT AR MS LENGTH. THE ASSESSEES MANUFACTURING EXPENSES HAD ALSO GOT INCREA SED DUE TO INCREASE IN POWER CHARGES. THE ASSESSEE EXPLAINED THESE FACTS BE FORE THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS. THE DETAILS OF THE QUANTITIES AND RATES PER K.G. OF THE JOB WORK DONE BY M/S ELLORA MEC HANICAL PRODUCTS PVT. LTD. IN THE PAST TWO YEARS WERE SOUGHT BY THE ASSESSING OFFIC ER TO BE EXPLAINED. I.T.A. NO.230/DEL./2011 (A.Y. : 2002-03) 7 HOWEVER, THESE DETAILS WERE NOT READILY AVAILABLE WITH THE ASSESSEE, BEING VERY OLD AND THE ASSESSEE SOUGHT SOME TIME FOR PRODUCTI ON THEREOF, WHICH REQUEST WAS TURNED DOWN BY THE ASSESSING OFFICER. IN THE REMAND REPORT, THE ASSESSING OFFICER ADMITTED THE FACTUM OF THE ASSESSEE HA VING PRODUCED ITS BOOKS OF ACCOUNT AND MANUFACTURING RECORD AND OF THE A SSESSING OFFICER HAVING VERIFIED THE SAME. 20. THERE HAS BEEN NO CHALLENGE AT ALL TO THE FINDING OF THE CIT(A) TO THE EFFECT THAT THERE HAD BEEN A SLIGHT INCREASE IN THE COST O F PURCHASES AND THE MANUFACTURING EXPENSES, WHICH INCLUDED THE JOB CHARGE S PAID TO M/S ELLORA MECHANICAL PRODUCTS PVT. LTD. ALL THE PURCHASE AND SAL E TRANSACTIONS WERE FULLY VOUCHED AND DULY RECORDED IN THE BOOKS OF ACCO UNT. THE ASSESSING OFFICER DID EXAMINE THE ASSESSEES BOOKS OF ACCOUNT. THE ASSESSE E HAD DULY MAINTAINED REGULAR STOCK REGISTERS FOR RAW MATERIAL AND FINISHED GOODS. THESE WERE SUBJECT TO SCRUTINY AND AUDIT BY THE EXCISE D EPARTMENT. THE STOCK RECORD MAINTAINED BY THE ASSESSEE WERE NEITHER FO UND TO BE DEFECTIVE, NOR FALSE. SO, THERE WAS NO OCCASION TO TINKER WITH THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE. IT WAS NOT A CASE WHERE STOC K REGISTERS, CASH MEMOS AND VOUCHERS WERE MISSING. THERE WAS INCREAS E IN JOB CHARGES FROM `1.04 CRORES TO `1.51 CRORES. THERE WAS INCREASE IN POWER AND FUEL EXPENSES FROM `95 LAKHS TO `1.08 CRORES. THIS WAS DUE TO INCR EASE IN FUEL PRICES. ON THE OTHER HAND, THE SALE PRICES HAD NOT INCREASED IN CO MPARISON TO THE INCREASE IN THE COST COMPONENT OR THE COST OF SALES. IT WAS DUE TO THIS, THAT THE G.P. RATE MARGINALLY DECLINED. THE ASSESSING OFF ICER REMAINED UNABLE TO POINT OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE DISALLOWANCE WAS ONLY AN AD HOC DISALLOWANCE, WITHOU T BASIS. WHEREAS THE PAYMENT OF JOB WORK CHARGES WAS AT `46 PER K.G. IN AP RIL, 2000, SUCH PAYMENT INCREASED TO `55 PER K.G. IN SEPTEMBER, 2000. THIS R ATE OF JOB CHARGES, CONTINUED DURING THE ENTIRE YEAR. HENCE, THERE WAS A S UBSTANTIAL INCREASE IN THE PAYMENT OF JOB CHARGES. IN JUXTAPOSITION, THE SELLI NG PRICE IN PROPORTION OF THE PURCHASE PRICE DID NOT REGISTER ANY INCREASE. 21. IN THE ABOVE FACTS, THE CIT(A), IN OUR CONSIDERED OPINION, CORRECTLY DELETED THE ADDITION. THIS ACTION OF THE CIT(A) IS HERE BY CONFIRMED AND GROUND NO.3 IS REJECTED. I.T.A. NO.230/DEL./2011 (A.Y. : 2002-03) 8 22. CONCERNING GROUND NO.4, THE ASSESSING OFFICER MA DE A DISALLOWANCE OF `11,500 ON ACCOUNT OF CLUB ENTRANCE FEE TERMING IT AS O F PERSONAL NATURE. 23. THE CIT(A) DELETED THIS ADDITION. 24. THE LD.DR CONTENDS THAT THE CIT(A) HAS ERRONEOUSLY DELETED THE ADDITION WITHOUT CONSIDERING THAT THE PAYMENT WAS OF A PER SONAL NATURE. 25. THE LD.COUNSEL FOR THE ASSESSEE MAINTAINS THAT THE E XPENDITURE WAS INCURRED SO AS TO ENABLE THE ASSESSEE COMPANY TO INCRE ASE ITS BUSINESS RELATIONS AND PROSPECTS AND THAT THE CIT(A) HAS CORRECTLY DELETED THE ADDITION. 26. IT IS NOT A CASE OF EITHER A LUXURY OR A PERSONAL BENEFIT HAVING BEEN EXTENDED TO A DIRECTOR OF THE ASSESSEE COMPANY. THE EX PENDITURE WAS INCURRED BY WAY OF PAYMENT OF CLUB ENTRANCE FEE. IT I S A BUSINESS EXPENSE, LAID OUT WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURP OSE OF THE ASSESSEE. THE ASSESSEE IS A COMPANY AND THE EXPENDITURE BY WAY OF S UBSCRIPTION TO CLUB WAS INDEED FOR THE PURPOSE OF PROMOTING THE BUSINESS O F THE COMPANY. IT HAS NOT BEEN FOUND OTHERWISE. THE OBJECT OF THE ASSESSEE W AS ENABLING THE DIRECTORS OF THE ASSESSEE COMPANY TO DEVELOP BUSINESS RELATIONS BY BECOMING/REMAINING MEMBERS OF THE CLUB/CLUBS. THERE FORE, GROUND NO.4 IS SHORN OF MERIT AND IS REJECTED AS SUCH. 27. UNDER GROUND NO.5, THE DEPARTMENT CHALLENGES THE AC TION OF THE CIT(A) IN RESTRICTING THE ADDITION U/S 14A OF THE ACT TO `2,925/- AGAINST THAT MADE BY THE ASSESSING OFFICER AT `21434/-. HERE ALSO, WE DO NOT FIND ANY FORCE IN THE GRIEVANCE OF THE DEPARTMENT. THE CIT(A) HAS DELETED THE DISALLOWANCE/ADDITION, BY OBSERVING AS FOLLOWS: 10.3 I HAVE CAREFULLY CONSIDERED THE ARGUMENTS MADE ON BEHALF OF THE APPELLANT COMPANY AND THE FINDINGS RECORDED BY THE ASS ESSING OFFICER. ON CONSIDERATION, I FIND THAT THE CLAIM OF THE APPELLANT COMPANY IS CORRECT ONLY TO THE EXTENT THAT THE RULE 8D WAS NOT APPLICAB LE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AS HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYACE CO. LTD. HOWEVER, I FIND THAT THE HONBLE COURT HAS UPHELD THE AUTHORITY OF THE ASSESSING OFFICER IN SO FAR AS MAKING DISALLOWANCE OF REASONA BLE AMOUNT OF AN EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT I NCOME. THEREFORE, DISALLOWANCE OF A SMALL SUM OF `2925 ON ACCOUNT OF ADMINISTRATIVE AND OTHER EXPENSES AGAINST AN INVESTMENT O F `585000 IS NEITHER EXCESSIVE NOR UNREASONABLE AND THE SAME IS BEING SUSTAINED. AS REGARDS, ANOTHER DISALLOWANCE OF `18509 MADE ON A CCOUNT OF INTEREST COST, I FIND THAT THE ASSESSING OFFICER HAS NOT B ROUGHT ANY I.T.A. NO.230/DEL./2011 (A.Y. : 2002-03) 9 MATERIAL ON RECORD TO JUSTIFY THE DISALLOWANCE IN QUESTI ON AND THE SAME IS BEING DELETED. 28. THESE CATEGORICAL FINDINGS RECORDED BY THE CIT(A) HAVE NOT BEEN CHALLENGED BEFORE US. THE CIT(A) HAS CORRECTLY FOLL OWED THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYACE MAN UFACTURING CO. LTD. VS. DCIT, 234 CTR 01. THEREFORE, GROUND NO.5 IS A LSO REJECTED. 29. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 22.07.2011 SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: JULY 22, 2011 SKB COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-VIII, NEW DELHI. 5. DR DEPUTY REGISTRAR