DCIT, New Delhi V. M/s. Eastern Medikit Ltd., New Delhi

ITA 2335/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53405 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 17-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANT MISHRA
• Assessee Lawyers: M K GIRI
• Keywords: Depreciation; Income from undisclosed sources; Question of law
• Section: 43B; 143(3); 133A; 194C; 147; 68; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B DELHI BEFORE SMT. DIVA SINGH AND SHRI K.G. BANSAL ITA NO. 2335(DEL)/2010 ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME M/S EASTERN MEDIKIT LTD., TAX, CIRCLE 11(1), NEW DELHI. VS. 3 , DR. G.C. NARANG MARG, NEW DELHI. PAN: AAACE0706G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JAYANT MISHRA, CIT , D.R. RESPONDENT BY : SHRI ANOOP SHARMA, ADVOCATE & SHRI M.K. GIRI, ADVOCATE DATE OF HEARIN G: 02.12.2011 DATE OF PRONOU NCEMENT: 23.12.2011. ORDER PER K.G. BANSAL : AM THE FACTS OF THE CASE IN BRIEF ARE THAT THE AS SESSEE-COMPANY FILED ITS RETURN ON 31.10.2007 DECLARING TOTAL INCOME OF RS. 5,97,73,402/-. THE RETURN WAS PROCESSED U/S 143(1). THEREAFTER, TH E CASE WAS TAKEN UP FOR SCRUTINY BY SERVING A NOTICE U/S 143(2) DATED 2 2.09.2008 ON THE ASSESSEE. FURTHER, A SURVEY WAS CONDUCTED AT THE BUSINES S PREMISES OF THE ASSESSEE ON 08.01.2007. THE SURVEY PARTY RECORDED TWO IM PORTANT FINDINGS OF FACT THAT-(I) PHYSICAL STOCK FOUND WAS IN EXCESS OF BO OK STOCK BY AN AMOUNT OF RS. 1,44,25,183/-; AND (II) CASH FOUND WAS SHORT OF THE CASH AS PER CASH ITA NO. 2335(DEL)/2010 2 BOOK BY AN AMOUNT OF RS. 80,31,100/-. STATEMENT OF THE DIRECTOR-CUM- DGM (FINANCE) WAS RECORDED, WHO COULD NOT EXPLAI N THE REASONS FOR EXCESS STOCK AND SHORTAGE OF CASH. HE OFFERED BOTH THESE AMOUNTS FOR TAXATION. HOWEVER, AT THE TIME OF FILING THE R ETURN, ONLY EXCESS STOCK OF RS. 1,44,25,183/- WAS INCLUDED IN THE TOTAL INCOME . THE SHORT CASH OF RS. 80,31,100/- WAS NOT INCLUDED IN THE INCOME. ASSE SSMENT U/S 143(3) WAS COMPLETED ON 29.12.2009 AT TOTAL INCOME OF RS. 9,27,85,010/-. WHILE COMPUTING THE TOTAL INCOME THE SHORT CASH AMOU NTING TO RS. 80,31,100/-, UNCLAIMED LIABILITIES AGGREGATING TO RS. 2,36,904/ -, RS. 2,17,11,006/- DEDUCTED FROM SALARIES PAID TO THE EMPLOYEES BY WA Y OF CONTRIBUTION TO PROVIDENT FUND AND ESI BUT NOT DEPOSITED IN THE RELEVANT ACCOUNTS BEFORE THE DUE DATE DEFINED U/S 36(1)(VA), RS. 20.00 LAKH RELATABLE TO INTEREST EXPENDITURE AND RS. 10,27,038/- IN RESPECT OF AD VERTISEMENT EXPENSES WERE ADDED OR DISALLOWED, AS THE CASE MAY BE. THESE ADDITIONS/DISALLOWANCES WERE DELETED BY THE CIT( APPEALS)-XIII, NEW DELHI, IN THE IMPUGNED ORDER. AGGRIEVED BY THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US. 2. IN REGARD TO GROUND NOS. 1 AND 2 DEALING WITH PERVERSITY OF THE IMPUGNED ORDER AND ADDITION OF RS. 80,31,100/- IN RESPECT OF SHORT CASH ITA NO. 2335(DEL)/2010 3 ON THE DATE OF SURVEY, THE LD. CIT, DR REFERR ED TO THE FACTS THAT EXCESS STOCK AND SHORTAGE IN CASH WERE FOUND ON THE DA TE OF SURVEY. BOTH THESE AMOUNTS WERE OFFERED FOR TAX IN STATEMENT REC ORDED U/S 133A(3)(III). AS AGAINST THE AFORESAID, IT WAS MENTIONED IN THE NOTES ON ACCOUNTS ANNEXED WITH THE AUDIT REPORT THAT NO ENTRY HAS BEEN PASSED IN THE BOOKS IN RESPECT OF EITHER OF THESE ITEMS AS THE ASS ESSEE WAS FORCED TO SURRENDER THE AMOUNT. THE BOARD OF DIRECTORS ARE OF THE VIEW THAT THE SURRENDER SHOULD NOT BE ACCEPTED AND THE COMPANY SHOULD EXPLAIN THE FACTS TO THE ASSESSING OFFICER. THIS STAND WAS P ARTLY CHANGED WHEN THE RETURN WAS FILED ON 31.10.2007, IN WHICH EXCESS STOCK WAS OFFERED FOR TAXATION BUT SHORTAGE IN CASH WAS NOT OFFERED FO R TAXATION. CHALLENGING THE NOTE, IT WAS SUBMITTED THAT THE STATEMENT WAS FURNISHED BY WAY OF FREE WILL WITHOUT ANY PRESSURE OR COERCION. TW O OBJECTIVE FACTS EXIST ON RECORD IN THIS MATTER, NAMELY, THAT-(I) THERE I S DISCREPANCY IN CASH FOUND AND CASH RECORDED IN THE BOOKS ON 08.01.2007, AND (II) THE AMOUNT HAS BEEN OFFERED FOR TAXATION U/S 133A(3) IN A STA TEMENT FURNISHED BY DIRECTOR-CUM-DGM (FINANCE), WHO IS WELL CONVERSAN T WITH THIS MATTER. AT THE TIME OF SURVEY OR SOON THEREAFTER, NO CO NTRARY A DIFFERENT FACT HAS BEEN BROUGHT TO THE NOTICE OF THE AO THAT CASH WAS KEPT ELSEWHERE. ITA NO. 2335(DEL)/2010 4 THEREFORE, IT IS ARGUED THAT THE DECISION OF TH E LD. CIT(APPEALS) IS PERVERSE IN THE MATTER. 3. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ADDITION HAS BEEN MADE SOLELY ON THE CONFESSIONARY STATEMENT FURNISHED BY THE DIRECTOR-CUM-DGM (FINANCE). THE STATEMENT W AS GIVEN UNDER CONFUSED STATE OF MIND, NONETHELESS, IT WAS A CONDITIONAL SURRENDER, THE CONDITION OF WHICH HAS NOT BEEN ACCEPTED BY THE AO . IT IS FURTHER SUBMITTED THAT THE SURRENDER WAS OBTAINED BY FORC E TO JUSTIFY THE SURVEY. THEREFORE, IT IS ARGUED THAT THE LD. CIT(APPEAL S) RIGHTLY DELETED THE ADDITION AND THE IMPUGNED ORDER MAY BE UPHELD. 4. IN THE REJOINDER, THE LD. CIT, DR SUBMITTED THAT DISCREPANCIES WERE FOUND IN RESPECT OF STOCK AND CASH. THE ADMITT ED DISCREPANCY IN THE RETURN IN RESPECT OF STOCK LEADS TO AN INFERENC E THAT THE BOOKS CANNOT BE RELIED UPON. IN FACT, THE ASSESSEE ITSELF HAS ADMITTED THE INACCURACY OF BOOKS BY OFFERING EXCESS STOCK FOR TAXATION IN THE RETURN OF INCOME. THE SURVEY YIELDED VALUABLE INFORMATION IN RESPECT OF DISCREPANCIES IN STOCK AND CASH. THEREFORE, IT CANNOT BE SAID THAT SUR VEY OPERATION HAD FLOPPED MOTIVATING THE AUTHORIZED OFFICERS TO OBTAIN S URRENDER OF INCOME BY FORCE. ITA NO. 2335(DEL)/2010 5 IT IS FURTHER SUBMITTED THAT CASH DISCREPANCY BY ITSELF IS A MATERIAL FACTOR TO COME TO THE CONCLUSION THAT THE BOOK S OF ACCOUNT ARE NOT RELIABLE. THE ASSESSEE WAS NOT ABLE TO FURNISH ANY EXPLANATION AT THE TIME OF SURVEY. IF THE CLAIM MADE NOW HAD BEEN SUB MITTED TO THE SURVEY PARTY, IT HAD THE OPTION TO GO TO OTHER PLACES U/S 133A TO EXAMINE THE TRUTHFULNESS OF THE CLAIM. IT IS ALSO SUBMITTED THAT THE REMARKS MADE IN THE NOTE REGARDING SURRENDER BY COERCION OR PRESSURE STAND REFUTED BY THE ASSESSEE ITSELF WHEN IN THE RETURN THE EXCESS STOCK WAS OFFERED FOR TAXATION. IT IS ARGUED THAT SINCE THE ASSESSE E HAD NOT COME OUT CLEAN IN THIS MATTER, THE TEST OF HUMAN PROBABILITIES SHOULD BE EMPLOYED IN TESTING ITS CLAIM MADE IN THE RETURN OF INCOME. IF SO DONE, THE CONCLUSION WHICH CAN BE DRAWN IS THAT THE LD. CIT(APPEALS) OUGHT TO HAVE CONFIRMED THE ADDITION MADE BY THE AO IN RESPECT OF SHORT CASH. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. WE MAY INITIALLY EXAMINE THE EVIDE NCE ON RECORD IN THIS MATTER. PAGE NOS. 22 AND 23 OF THE PAPER BOOK C ONTAIN THE STATEMENT OF SHRI MAHINDER PAL, THE DIRECTOR & DGM (FINANCE) O F THE ASSESSEE- COMPANY. IT IS SPECIFICALLY DEPOSED THAT HE IS FINANCE DIRECTOR AND LOOKING AFTER FINANCE AND ACCOUNTS. HE IS MA NAGING DIRECTOR AND ITA NO. 2335(DEL)/2010 6 OPERATING BANK ACCOUNTS. WHEN CONFRONTED WITH TH E DISCREPANCIES IN CASH BY WAY OF QUESTION NO. 8, IT IS DEPOSED THAT HE HAS NO EXPLANATION TO OFFER. THE SAME IS REITERATED IN QUESTION NO. 9 BUT IT IS ALSO FURTHER DEPOSED THAT TO BUY PEACE OF MIND THE AMOUNT OF DISCREPANCY IS OFFERED FOR TAXATION PROVIDED NO PENALTY OR PROSECUTION PROCEEDING I S INITIATED. IT IS ALSO DEPOSED THAT HE AGREES WITH THE VALUATION OF ST OCK DONE BY THE SURVEY PARTY AND HE HAS NO EXPLANATION REGARDING DIFF ERENCE OF RS. 1,44,25,183/- AT PRESENT. THIS AMOUNT IS ALSO SURRENDERED FOR TAXATION SUBJECT TO CONDITIONS MENTIONED EARLIER IN RESPECT OF CASH . THE SURRENDER OF BOTH THE AMOUNTS IS AGAIN REITERATED IN ANSWER TO QUESTION NO. 11 WHERE SURRENDER OF RS. 2,24,56,283/- IS MADE. AS POINTED OUT BY THE LD. CIT, DR, THE STATEMENT DOES NOT CONTAIN ANY CLUE REGARDING AP PLICATION OF PRESSURE OR COERCION. THE CASE OF THE LD. COUNSEL HOWEVER IS THAT ANSWER TO QUESTION NO. 8 THAT I HAVE NO EXPLANATION TO OFFER IS GIVEN UNDER A CONFUSED STATEMENT OF MIND. THE SURRENDER OF DISCREPANCY IN CASH IN ANSWER TO QUESTION NO. 9 IS UNDOUBTEDLY CONDITIONAL THAT NO PENALTY OR PROSECUTION PROCEEDINGS WILL BE INITIATED. 5.1 IN NOTE NO. 13 MADE BY THE AUDITORS IN ANN UAL REPORT AND ACCOUNTS, IT IS MENTIONED THAT- DURING THE YEAR, A SURV EY WAS CONDUCTED BY THE ITA NO. 2335(DEL)/2010 7 INCOME TAX DEPARTMENT (INVESTIGATION), NEW DELHI & FORCED THE COMPANY TO SURRENDER RS. 2.25 CRORES AS SURRENDER VALUE. THE DEPARTMENT TOOK POST-DATED CHEQUES WORTH RS. 71 LACS ON ACCOUNT OF INCOME TAX ON THE SURRENDER VALUE. THE COMPANY DID NOT PASS ANY T RANSACTION IN THE BOOKS OF ACCOUNTS ON ACCOUNT OF ABOVE, EXCEPT RS. 71 L ACS SHOWN AS ADVANCE TAX. BOARD OF DIRECTORS IS OF THE VIEW THE COMPA NY SHOULD NO ACCEPT THE SURRENDER AMOUNT & EXPLAIN THE FACT THE ASSESSI NG OFFICES AT THE TIME OF ASSESSMENT. (UNQUOTE). THE NOTE INDICATES THAT D EPARTMENT TOOK AWAY CHEQUES OF THE AGGREGATE VALUE OF RS. 71.00 LAKH TO SATISFY THE TAX DEMAND LIKELY TO ARISE ON ACCOUNT OF SURRENDER OF INCOME OF RS. 2.25 CRORE. THE SAME IS SHOWN AS ADVANCE-TAX PAID B Y THE ASSESSEE IN THE BOOKS. HOWEVER, THE NOTE DOES NOT CONTAIN ANY DETAIL REGARDING FORCE APPLIED BY THE SURVEY PARTY FOR OBTAINING THE S URRENDER. IT IS A MATTER OF FACT ON RECORD THAT THE CONTENTS OF THIS NOTE HA VE NOT BEEN ACTED UPON FULLY AS THE DISCREPANCY IN STOCK WAS OFFERED FOR TAXA TION AT THE TIME OF FILING THE RETURN OF INCOME, WHEN NO PRESSURE OR COERCION EXI STED IN FACT OR PERCEIVED. THEREFORE, THE CONTENTS OF THIS NOTE HAVE TO BE TA KEN IN THE LIGHT OF SUBSEQUENT FACTS BROUGHT BY THE ASSESSEE ITSEL F ON RECORD OF THE REVENUE. ITA NO. 2335(DEL)/2010 8 6. HAVING DESCRIBED THE FACTS BROUGHT TO OUR NO TICE, WE MAY DISCUSS THE CASES RELIED UPON BY THE RIVAL PARTIES TO S UPPORT THEIR RESPECTIVE POSITIONS. 6.1 IN THE CASE OF PULLANGODE RUBBER PRODUCE CO. LTD. VS. STATE OF KERALA & ANOTHER , (1973) 91 ITR 18, HONBLE SU PREME COURT OBSERVED THAT IT IS NO DOUBT TRUE THAT ENTRIES IN THE ACCOUNT BOOKS OF THE ASSESSEE AMOUNT TO AN ADMISSION THAT THE AMOUNT IN QUEST ION WAS LAID OUT OR EXPENDED FOR CULTIVATION, UPKEEP OR MAINTENANCE OF IMMATURE PLANTS FROM WHICH NO AGRICULTURAL INCOME WAS DERIVED DURING THE PREVIOUS YEAR. AN ADMISSION IS AN EXTREMELY IMPORTANT PIECE OF EVI DENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIVE. IT IS OPEN TO THE PE RSON WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT. THE LD. CIT, DR S TRESSED ON THE FINDING THAT AN ADMISSION IS AN EXTREMELY IMPORTANT PIECE OF EVIDENCE AND THAT IT IS FOR THE ASSESSEE TO SHOW THAT IT IS INCORRECT IF IT WANTS THAT IT SHOULD NOT BE ACTED UPON. FURTHER, HE RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. S. KHADER KHAN SON, (2008) 300 ITR 157. REFERRING TO THE DECISIONS IN THE CASE OF DR. S .C. GUPTA VS. CIT, (2001) 248 ITR 782 AND PULLANGODE RUBBER PRODUCE CO. L TD. (SUPRA), IT HAS BEEN MENTIONED AT PAGE 163 THAT WHERE ASSESSEE SU RRENDERS SOME INCOME FOR ITA NO. 2335(DEL)/2010 9 TAXATION PURSUANT TO A SURVEY, WHICH IS RETRACTE D IN THE COURSE OF ASSESSMENT PROCEEDINGS ON THE GROUND THAT IT WAS RENDERED UNDER DURESS, THE FINDING OF THE TRIBUNAL THAT THE STATEMENT IS VALID AND IT WAS MADE WITHOUT DURESS IS BASED ON EVIDENCE ON RECORD. N O QUESTION OF LAW AROSE FROM THIS FINDING. AT PAGE 164, REFERRING TO THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF PAUL MATHEWS & S ONS VS. CIT (2003) 263 ITR 101, IN WHICH DISTINCTION WAS MADE BE TWEEN STATEMENTS RECORDED U/S 132(4) AND 133A, IT HAS BEEN MENT IONED THAT SINCE AUTHORIZED OFFICER IS NOT ENTITLED TO ADMINISTER OATH AND TAKE ANY SWORN STATEMENT, THEREFORE, THE STATEMENT HAS NO EVIDEN TIARY VALUE. THE LD. CIT, DR DISTINGUISHED THE FACTS BY STATING THAT THE ASSESSMENT WAS NOT BASED MERELY ON THE STATEMENT BUT ON THE FACTUAL FIND ING OF SHORTAGE OF CASH FOLLOWED BY THE STATEMENT U/S 133A. HE ALSO R ELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. P RADEEP KUMAR GUPTA & ANOTHER, (2008) 303 ITR 95. IT HAS BEEN HELD THAT ONCE SECTIONS 147 AND 148 ARE RESORTED, THE AO MUST FIRST DISCHA RGE THE BURDEN OF SHOWING THAT INCOME HAS ESCAPED ASSESSMENT. IT IS ONLY THEREAFTER THAT THE ASSESSEE HAS TO PROVIDE ALL ANSWERS. THE CAS E OF THE LD. CIT, DR ON THE BASIS OF THIS DECISION IS THAT IT IS FOR THE ASSESSEE FIRST TO SHOW THAT THE STATEMENT WAS RECORDED UNDER COERCION AND IT WILL BE ONLY THEREAFTER THAT ITA NO. 2335(DEL)/2010 10 THE REVENUE HAS TO BRING CORROBORATIVE EVIDENCE ON RECORD. THE LD. CIT, DR RELIED ON THE DECISION IN THE CASE OF SURJE ET SINGH CHHABRA VS. UNION OF INDIA & OTHERS, AIR 1997 SC 2560. I T HAS BEEN HELD THAT CUSTOM OFFICIALS ARE NOT POLICE OFFICERS. THE CONFESSION, THOUGH RETRACTED, IS AN ADMISSION AND BINDS THE PETITIONER. SO T HERE IS NO NEED TO CALL WITNESSES FOR EXAMINATION AND CROSS-EXAMINATION BY THE PETITIONER. IT IS HIS CASE THAT THE DECISION SHALL APPLY MUTA TIS MUTANDIS TO THE OFFICERS OF INCOME TAX DEPARTMENT. RELIANCE HAS ALSO B EEN PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF AIRPORTS AUTHORITY OF INDIA VS. CENTRAL BOARD OF EXCISE AND CUSTOMS, (2 007) 207 CTR 196. THE ONLY GRIEVANCE OF THE PETITIONER WAS THAT T HE RESPONDENTS HAVE RECOVERED A SUM OF RS. 20.00 CRORE AS SERVICE TAX UNDER THREAT AND COERCION. IT HAS BEEN HELD THAT WRIT JURISDICTIO N IS PURELY DISCRETIONARY ESPECIALLY WHEN THE PETITIONER IS SEEKING WRIT OF MANDAMUS. THERE IS NOTHING BEFORE COURT TO SHOW THAT ANY OF THE RE SPONDENTS THREATENED, COERCED OR HARASSED THE PETITIONER FOR PAYING THE AMOUNT. ON THE CONTRARY, THE LETTER WHICH THE PETITIONER HIMSELF HAS PLACE D ON RECORD, SUFFICIENTLY SHOWS THAT THE SUM OF RS. 20.00 CRORE HAS BEEN VOL UNTARILY OFFERED BY THE PETITIONER PENDING FINALIZATION OF THE ASSESSMENT . THE FACT THAT PAYMENT IS MADE UNDER PROTEST DOES NOT MEAN THAT THE SAME IS MADE BECAUSE OF ANY ITA NO. 2335(DEL)/2010 11 COERCION OR HARASSMENT. THE CASE OF THE LD. CIT , DR IS THAT THE ASSESSEE HAS HIMSELF OFFERED MAJOR AMOUNT FOR TAXATION R ELATING TO DISCREPANCY IN STOCK. THE ASSESSEE HAS CHANGED HIS STAND WHIL E SUGGESTNG NOTES ON ACCOUNTS, WHICH HAS ALSO BEEN PARTLY CHANGED SU BSEQUENTLY. SINCE THE ASSESSEE HAS NOT TAKEN ANY CONSISTENT STAND ON STATEMENT, THE ADDITION MADE BY THE AO SHOULD BE UPHELD. 6.2 RELIANCE HAS ALSO BEEN PLACED ON THE DECI SION OF HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF HIRA S INGH & CO. VS. CIT, (1998) 230 ITR 791. ON THE FACT OF THE CASE, THE HONBLE COURT MENTIONED THAT FROM THE QUESTIONS AND ANSWERS IT TRANSPIRES THAT THE TRANSACTION WAS NOT DISOWNED BY THE ASSESSEE. T HE ASSESSEE ACCEPTED THE GENUINENESS AND TRUTH OF THE BILL AND ONLY ADD ED THAT IT WAS A KACHA BILL AND IT WOULD NOT FIND A PLACE IN THE REGULAR A CCOUNTS. THIS WAS ONLY A QUESTION OF FACT WHICH WAS DECIDED BY THE APPEL LATE TRIBUNAL ON THE BASIS OF EVIDENCE ON RECORD BY UPHOLDING THE ADDITIO N OF RS. 1,12,275/-. ON THE BASIS OF THIS CASE, IT IS ARGUED THAT DISC REPANCY IN CASH IS A QUESTION OF FACT ON THE BASIS OF WHICH AN ADMISSION HAS BEEN MADE, THEREFORE, THE ADDITION SHOULD BE UPHELD. ITA NO. 2335(DEL)/2010 12 6.3 RELIANCE HAS ALSO BEEN PLACED ON THE DECIS ION IN THE CASE OF CARPENTERS CLASSICS (EXIM) (P) LTD. VS. DCIT, (200 7) 108 ITD 142 (BANGALORE). IN THIS CASE EVIDENCE ABOUT CERT AIN UNACCOUNTED SALES IN CASH WAS FOUND IN THE COURSE OF SEARCH. AFTER THE CONCLUSION OF THE SEARCH, A SUM OF RS. 1.07 CRORE WAS OFFERED FOR TAX. HOWEVER, THIS INCOME WAS NOT DECLARED IN THE RETURN FILED PURSUANT T O NOTICE U/S 158BC. THE EXPLANATION WAS THAT ADDITIONAL CIVIL WORK WAS DO NE AND THE MARGIN OF PROFIT WAS ONLY 8% TO 10%. THE TRIBUNAL HELD T HAT THERE WAS A LARGE GAP BETWEEN THE DATE OF FILING THE LETTER REGA RDING SURRENDER OF INCOME AND FILING THE RETURN OF INCOME. IN SUCH CIRCUMST ANCES, THE CIT(APPEALS) WAS JUSTIFIED IN DETERMINING UNDISCLOSED INCOME ON THE BASIS OF THE LETTER FILED BY THE ASSESSEE. 6.4 REFERRING TO THE DECISION IN THE CASE OF CI T VS. TIRUPATI ENTERPRISES, (2008) 10 DTR 17 (RAJ.), IT IS SUBM ITTED THAT THE ASSESSEE CONCEALED FACTS AT THE TIME OF SURVEY AND AT T HAT POINT OF TIME IT WAS NOT SUGGESTED THAT THE MISSING CASH IS LYING ELSEWHER E. THEREFORE, THE TWO EVIDENCES TAKEN TOGETHER, I.E., SHORTAGE OF CAS H AND THE STATEMENT LEAD TO THE CONCLUSION THAT THE BOOKS OF ACCOUNT CANNOT BE RELIED UPON IN REGARD TO ITA NO. 2335(DEL)/2010 13 SUBSEQUENT EXPLANATION OF THE CASH. THUS, THE S TATEMENT IS A RELEVANT EVIDENCE U/S 5 OF THE INDIAN EVIDENCE ACT. 6.5 ON THE OTHER HAND, THE CASE OF THE LD. COUNSE L IS THAT THE QUESTION IS ESSENTIALLY A QUESTION OF FACT AND MUCH RELIANC E SHOULD NOT BE PLACED ON VARIOUS CASES WHICH HAVE BEEN DECIDED ON THE FACT S OF THOSE CASES. HE RELIED ONLY ON THE DECISION IN THE CASE OF AB HI DEVELOPERS VS. ITO, (2007) 12 SOT 444 (AHD.). IN THIS CASE, IT HAS BEEN HELD THAT NO EVIDENTIARY VALUE CAN BE ATTACHED TO A STATEMEN T RECORDED U/S 133A UNLESS IT IS SUPPORTED BY SOME MATERIAL. THE A SSESSEE WAS A CIVIL CONTRACTOR. IN THE COURSE OF SURVEY A DIARY W AS FOUND IN WHICH DETAILS OF RECEIPT OF ON-MONEY WAS RECORDED. STATEMEN T OF ONE OF THE PARTNERS WAS RECORDED, WHO AGREED TO PAY TAX ON THE O N-MONEY. THE ASSESSEE FILED RETURN AS PER PROVISION CONTAINED IN SECTI ON 44AD, DECLARING NET PROFIT OF 9.56% OF THE TOTAL CONSIDERATION. THE AO MADE THE ADDITION OF THE ON-MONEY. IN COMING TO THE CONCLUSION THAT THE ADDITION WAS NOT WARRANTED, THE TRIBUNAL NOTED TWO FACTS THAT-(I) THE ASSESSEE HAD DECLARED PROFIT OF MORE THAN 8% OF TOTAL SALES, AND (II) THERE WAS NO EVIDENCE OR MATERIAL ON RECORD TO MAKE THE ADDITION OF ON- MONEY. ITA NO. 2335(DEL)/2010 14 7. THUS, THE FACTS ARE THAT SURVEY WAS CONDUCTE D AT THE BUSINESS PREMISES OF THE ASSESSEE ON 08.01.2007. TWO IMPO RTANT FACTS WERE RECORDED, I.E., EXCESS STOCK OF RS. 1,44,25,183/- WAS FOUND AND THERE WAS CASH DEFICIENCY OF RS.80,31,100/-. BOTH THESE A MOUNTS WERE OFFERED FOR TAXATION IN THE STATEMENT FURNISHED BY DIRECTOR -CUM-DGM (FINANCE) TO THE AUTHORIZED OFFICER. THE ASSESSEE-COMPANY REN EGED COMPLETELY FROM THE STATEMENT AND IT WAS MENTIONED IN NOTES ON ACCOUNTS THAT THE STATEMENT WAS OBTAINED BY FORCE AND THAT THE MATT ER SHOULD BE EXPLAINED TO THE AO. IN VIEW OF THIS STAND, NO ENTRY WAS P ASSED IN RESPECT OF STOCK OR CASH IN THE BOOKS OF ACCOUNT. THIS STAND WAS ALS O PARTLY CHANGED WHILE FILING THE RETURN OF INCOME, IN WHICH THE DISCREP ANCY IN STOCK WAS OFFERED FOR TAXATION BUT DISCREPANCY IN CASH WAS NOT O FFERED FOR TAXATION. THE CASE OF THE LD. COUNSEL IS THAT THE ASSESSEE HAS B EEN TAKING SHIFTING STANDS ON VARIOUS POINTS OF TIME. THE AO HAS MADE ADDIT ION NOT MERELY ON THE BASIS OF STATEMENT BUT ALSO ON ACCOUNT OF CASH DISCREPANCY NOTED BY THE SURVEY OFFICER. THE ASSESSEE HAS DISPLAYED DISMA L TAX MORALITY. THERE IS NOTHING ON RECORD TO SHOW THE APPLICATION OF FORC E OR COERCION. THEREFORE, THE ADDITION MADE BY THE AO IS REQUIRED TO BE RESTORED. ON THE OTHER HAND, THE BURDEN OF THE ARGUMENT OF THE LD. COUNSE L IS THAT THE ADDITION HAS BEEN MADE SOLELY ON THE STATEMENT, WHICH DOES NOT HAVE EVIDENTIARY VALUE. ITA NO. 2335(DEL)/2010 15 THE EXCESS STOCK WHICH RESULTS IN INCOME HAS BEEN OFFERED FOR TAXATION NOTWITHSTANDING THE STAND TAKEN IN THE NOTES ON A CCOUNTS. HOWEVER, SHORTAGE OF CASH DOES NOT LEAD TO INFERENCE OF INCOME. THE SHORTAGE WAS EXPLAINED DURING THE COURSE OF ASSESSMENT AS TH E CASH WAS LYING ELSEWHERE. THEREFORE, THE ADDITION IS MADE MER ELY ON THE STATEMENT, WHICH DOES NOT HAVE ANY EVIDENTIARY VALUE. 7.1 IN THE CASE OF PULLANGODE RUBBER PRODUCE CO . LTD. (SUPRA), THE DISTINGUISHING FEATURE IS THAT ENTRIES WERE MADE IN THE BOOKS OF ACCOUNT MAINTAINED IN THE REGULAR COURSE OF BUSINESS. TH E HONBLE COURT HELD THAT THIS ADMISSION IS AN IMPORTANT PIECE OF EVIDENCE BUT IT WAS OPEN TO THE ASSESSEE TO SHOW THAT IT IS NOT CORRECT. IN THE CASE OF S. KHADER KHAN SON (SUPRA), THE TRIBUNAL HAD RECORDED A FINDING THAT THERE IS NO EVIDENCE OF DURESS. WE FIND THAT THERE IS NO EVIDENCE OF DURES S IN THIS CASE ALSO. TO THE CONTRARY, THE ASSESSEE HAS TAKEN UP SHIFTING ST ANDS IN VARIOUS TIMES AND, THEREFORE, THERE IS REASON TO COME TO THE CONCLU SION THAT THE ASSESSEE TRIED TO FORECLOSE ENQUIRY BY MAKING CONFESSION AT THE TIME OF SURVEY. ITS CONDUCT HAS BEEN DUBIOUS. HOWEVER, THE QUESTION S TILL REMAINS AS TO WHETHER AN ADDITION HAS TO BE SUSTAINED ON THE BA SIS OF EVIDENCE ON RECORD OR MERELY BECAUSE THE ASSESSEE HAS BEEN TAKIN G SHIFTING STANDS. FURTHER, ITA NO. 2335(DEL)/2010 16 THERE IS UNANIMITY OF OPINION THAT STATEMENTS U /S 132(4) AND 133A STAND ON DIFFERENT FOOTINGS. THE STATEMENT RECORDED U /S 132(4) IS ON OATH AND THE STATUTE SPECIFICALLY PROVIDES THAT THIS S TATEMENT CAN BE USED FOR THE PURPOSE OF THE ACT. ON THE OTHER HAND, STATEMENT U/S 133A IS NOT ON OATH AND THE SECTION DOES NOT PROVIDE THAT IT CAN B E USED FOR THE PURPOSE OF THE ACT. THEREFORE, EVIDENTIARY VALUE OF STATEMENT U/S 133A IS MUCH LOWER THAN THE EVIDENTIARY VALUE OF STATEMENT U/S 132 (4). THERE IS ANOTHER FACTOR IN THIS CASE THAT THE FACT DISCOVERED RE GARDING SHORTAGE IN CASH IPSO FACTO DOES NOT LEAD TO INFERENCE OF EARNING I NCOME OF RS. 80,31,100/-. THE STATEMENT IS IN RELATION TO THE INFERENCE T O BE DRAWN RATHER THAN THE POSITION OF FACT. THE QUESTION IS-WHETHER, A STATEMENT REGARDING INFERENCE CAN BE BINDING WITHOUT ANY FURTHER EVI DENCE OF THE ACTUAL EARNING OF INCOME? WE FIND THAT EVEN IF THE EXPL ANATION OF THE ASSESSEE THAT THE CASH IS LYING ELSEWHERE IS NOT ACCEPTE D AND, THEREFORE, THERE IS AN ACTUAL DISCREPANCY IN CASH, THE AMOUNT OR ANY PART THEREOF CANNOT BE BROUGHT TO TAX STRAIGHTWAY UNLESS IT IS SHOWN TH AT THE MONIES WERE USED FOR EARNING UNACCOUNTED INCOME BY ENTERING INTO UNDISCLOSED TRANSACTIONS. THIS CONCLUSION, ACCORDING TO US, S TAYS EVEN IN THE FACE OF THE ARGUMENT OF THE LD. CIT, DR THAT THE ASSESSEE HAS DISPLAYED LOW TAX MORALITY. IT IS IN THIS CONTEXT THAT THE CIRCU LAR OF THE BOARD, REFERRED TO BY ITA NO. 2335(DEL)/2010 17 THE LD. CIT(APPEALS), ASSUMES IMPORTANCE. THE O FFICERS HAVE BEEN ADVISED THAT THERE SHOULD BE FOCUS AND CONCENTR ATION ON COLLECTION OF EVIDENCE OF INCOME WHICH LEADS TO INFORMATION ON WHAT HAS NOT BEEN DISCLOSED OR WHAT IS NOT LIKELY TO BE DISCLOSED BEFORE THE REVENUE. THEY HAVE BEEN FURTHER ADVISED THAT NO ATTEMPT SHOULD BE MADE TO OBTAIN CONFESSION AS TO THE UNDISCLOSED INCOME. HAVING GONE THROUGH THE STATEMENT, WE FIND THAT IT WAS TENDERED VOLUNTARI LY AND THERE WAS NO ATTEMPT TO OBTAIN THE CONFESSION. HOWEVER, THE SU RVEY OFFICERS LOST FOCUS AND CONCENTRATION ON COLLECTION OF EVIDENCE OF INCO ME WHICH LEADS TO INFORMATION ON WHAT HAS BEEN DISCLOSED OR WHAT IS NOT LIKELY TO BE DISCLOSED IN THE RETURN. THEY WERE HAPPY BECAUS E THE DIRECTOR-CUM- DGM (FINANCE) MADE A STATEMENT SURRENDERING THE CAS H FOR TAXATION AND DID NOT GO FURTHER TO GATHER FACTS AS TO WHAT HAS HAPPENED TO THE MISSING CASH. WHILE WE MAY AGREE WITH THE LD. CIT, DR THAT THE ASSESSEE HAS DISPLAYED LOW TAX MORALITY, THAT CANNOT BE A GROUND FOR SUSTAINING AN ADDITION, WHICH INFERENCE IS OTHERWISE NOT DEDUCTIBLE UNDE R THE LAW. THE DEPARTMENT HAS NO EVIDENCE EXCEPT SHORTAGE OF CASH, WHICH DOES NOT LEAD TO THE INFERENCE OF EARNING EQUIVALENT IN COME. IN THESE CIRCUMSTANCES, THE ORDER OF THE LD. CIT(APPEALS) CANNOT BE SAID TO BE ITA NO. 2335(DEL)/2010 18 PERVERSE OR ILLEGAL. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LD. CIT(APPEALS) WAS RIGHT IN DELETING THIS ADDIT ION. 8. GROUND NO. 3 IS AGAINST THE FINDING IN THE IMPUG NED ORDER IN WHICH THE ADDITION OF RS. 2,36,904/-, MADE BY THE AO BY INVO KING THE PROVISION CONTAINED IN SECTION 68 OF THE ACT, HAS BEEN DELE TED. IN THIS CONNECTION, THE LD. CIT, DR DREW OUR ATTENTION TO THE FINDINGS OF THE LOWER AUTHORITIES. IT IS MENTIONED IN THE ASSESSMENT ORDER THAT THE BA LANCE-SHEET CONTAINS ENTRIES INVOLVING THE AGGREGATE AMOUNT OF RS. 15,4 0,04,443/- SHOWN AS SUNDRY CREDITORS. THE DETAILS OF OPENING AND CLOSING BALANCES HAVE BEEN FURNISHED, BUT CONFIRMATIONS WERE FURNISHED ONLY IN RESPECT OF SOME CREDITORS. THE DETAILS SHOWED 53 ENTRIES INV OLVING AGGREGATE SUM OF RS. 20,68,550/-, WHERE THE OPENING AND CLOSING BA LANCES ARE THE SAME. THESE ENTRIES OF UNCLAIMED LIABILITIES HAVE BEE N PENDING FOR MORE THAN ONE YEAR. A CHART HAS BEEN FURNISHED SUBMITTIN G THE DETAILS OF THESE CREDITORS AT THE END OF THE YEAR AND THE TREATME NT GIVEN TO THEM IN THE SUCCEEDING YEAR. THIS CHART SHOWS THAT THERE ARE STILL LIABILITIES AGGREGATING TO RS. 2,36,904/- WHICH HAVE NOT BEEN PAID EVEN IN THE SUCCEEDING YEAR. THEREFORE, THIS AMOUNT HAS BEEN BROUGHT TO TAX UNDER SECTION 68. ITA NO. 2335(DEL)/2010 19 8.1 IN THE IMPUGNED ORDER, IT IS MENTIONED THAT OSTENSIBLY THE ADDITION MADE BY INVOKING THE PROVISION CONTAINED IN SECTI ON 41(1) AS THE PROVISION CONTAINED IN SECTION 68 IS NOT APPLICABL E FOR THE SIMPLE REASON THAT THESE CREDITS WERE NOT MADE FOR THE FIRST T IME IN THIS YEAR IN THE BOOKS OF ACCOUNT. THEREFORE, THE ADDITION HAS BEEN MADE ON THE GROUND THAT THESE LIABILITIES HAVE CEASED TO EXIST. THE PROVIS ION CONTAINED IN SECTION 41(1) IS APPLICABLE ONLY WHEN THE LIABILITY CEASES TO EXIST ETC. THIS CONDITION IS NOT SATISFIED BECAUSE THE ASSESSEE HAS SHOWN T HE LIABILITY IN THE BOOKS OF ACCOUNT THEREBY HOLDING ITSELF TO BE IN DEBT T O THE RESPECTIVE PARTY. THE AMOUNT HAS ALSO NOT BEEN WRITTEN OFF UNILATERALLY TO THE CREDIT OF PROFIT AND LOSS ACCOUNT. IF THE AMOUNT HAD BEEN SO CREDITE D, IT WOULD HAVE BEEN TAKEN AS INCOME UNDER EXPLANATION-1 TO SECTION 41(1). IN ABSENCE THEREOF, THE AMOUNT CANNOT BE TAKEN AS THE INCOME OF THE ASSESSEE EITHER UNDER SECTION 68 OR 41(1). 8.2 THE LD. CIT, DR THEREAFTER DID NOT MAKE A NY ARGUMENT REGARDING JUSTIFICATION OF THE ADDITION MADE BY THE AO. 8.3 ON THE OTHER HAND, THE LD. COUNSEL REFERRED TO THE UNDISPUTED FACTS THAT THE LIABILITIES DO NOT PERTAIN TO THIS YEAR AND NONE OF THEM HAS BEEN ITA NO. 2335(DEL)/2010 20 WRITTEN OFF IN THE BOOKS IN THIS YEAR. SINCE THE CREDITS ARE NOT MADE IN THE BOOKS IN THIS YEAR, THE PROVISION OF SECTION 68 IS NOT APPLICABLE. FURTHER, THE ASSESSEE CONTINUES TO SHOW ITSELF AS THE DEBTOR, THEREFORE, IT CANNOT BE DEEMED THAT THE LIABILITIES HAVE CEASED ETC. THUS, THE PROVISION CONTAINED IN SECTION 41(1) IS ALSO NOT APPLICABLE . 9. WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. THE FACTS SUBMITTED BY THE LD. COUNSE L REGARDING THE CREDITS BEING OLD AND THEIR NOT BEING WRITTEN OFF IN THE BOOKS OF ACCOUNT STAND UNDISPUTED. AS THE LIABILITIES ARE OLD NO C REDIT HAS BEEN MADE IN THE BOOKS IN SO FAR AS THESE LIABILITIES ARE CONCER NED. THEREFORE, THE PROVISION U/S 68 IS NOT APPLICABLE AS RIGHTLY CON TENDED BY THE LD. COUNSEL. THE LIABILITIES HAVE NOT BEEN WRITTEN OFF, THUS, THE LIABILITIES HAVE NOT CEASED TO EXIST ETC. THEREFORE, THE PROVISION CO NTAINED IN SECTION 41(1) IS ALSO NOT APPLICABLE. THUS, WE DO NOT FIND AN Y ERROR IN THE ORDER OF THE LD. CIT(APPEALS) ON THE BASIS OF THE PLAIN READ ING OF THE PROVISIONS UNDER SECTIONS 68 AND 41(1). THEREFORE, THIS GROUND IS DISMISSED. 10. GROUND NO. 4 IS AGAINST DELETING THE ADDITI ON OF RS. 2,17,11,006/-, MADE BY THE AO ON ACCOUNT OF EMPLOYEES CONTRIBUTI ONS TO PROVIDENT FUND ITA NO. 2335(DEL)/2010 21 AND THE ESI. IN THIS CONNECTION, THE LD. CIT, DR REFERRED TO THE FINDING OF THE AO RECORDED ON PAGE NO. 4 OF THE ASSESS MENT ORDER. IT IS MENTIONED THAT THE TERM DUE DATE FOR DEPOSITIN G SUCH CONTRIBUTIONS TO THE GOVERNMENT-TREASURY IS DEFINED IN THE EXPLANA TION TO SECTION 36(1)(VA), WHICH STATES THAT FOR THE PURPOSE OF THIS CLA USE DUE DATE MEANS THE DATE BY WHICH ASSESSEE IS REQUIRED AS AN EMPL OYER TO CREDIT AN EMPLOYEES CONTRIBUTION TO THE EMPLOYEES ACCOU NT IN THE GIVEN FUND UNDER ANY ACT, RULE, ORDER OR NOTIFICATION ISSUE D THEREUNDER OR UNDER ANY STANDING ORDER, AWARD, CONTRACT OF SERVICE OR OTHERWISE. THE RESPECTIVE ACTS PUT THE DUE DATE AT THE 21 ST DAY OF IMMEDIATELY FOLLOWING MONTH, WHICH INCLUDES RELAXATION PER IOD PROVIDED U/S 14B OF THE PROVIDENT FUND ACT. THE PAYMENT HAS NOT BEEN SO MADE. THEREFORE, THE ADDITION OF RS. 2,17,11,006/- HAS BEEN MADE. T HE CASE OF THE LD. CIT, DR IS THAT THE PROVISION CONTAINED IN SECTION 2 (24)(X) DEEMS ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND S ET UP UNDER THE PROVISIONS OF THE EMPLOYEES STATE INSURANCE ACT, 1948 (34 OF 1948), OR ANY OTHER FUND FOR THE WELFARE OF SUCH EMPLOYEES TO BE THE INCOME IN THE FIRST INSTANCE. SECTION 36(1)(VA) ALLOWS THE DEDUCTI ON IN RESPECT OF ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYE ES TO WHICH THE ITA NO. 2335(DEL)/2010 22 PROVISION OF SECTION 2(24)(X) APPLIES IF SUCH SU M IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVA NT FUND OR FUNDS ON OR BEFORE THE DUE DATE. THE DEFINITION OF THE TERM DUE DATE IS CONTAINED IN THE EXPLANATION, WHICH HAS BEEN REPRODUCED EARL IER. FURTHER, THE PROVISION CONTAINED IN SECTION 43B ALLOWS THE DE DUCTION ON THE BASIS OF ACTUAL PAYMENT AND IN VIEW OF AMENDMENT, IT HAS BE EN INTERPRETED EVEN IN THE CASE OF EMPLOYEES CONTRIBUTIONS THAT PAYME NT UP TO DUE DATE OF FILING OF THE RETURN U/S 139(1) IS DEDUCTIBLE I N COMPUTING THE TOTAL INCOME. HOWEVER, THE FIRST HURDLE TO BE CROSSED FOR GETTI NG THE DEDUCTION IS UNDER SECTION 36(1)(VA). THE ASSESSEE HAS NOT CROS SED THIS HURDLE BY DINT OF WHICH THE MONEY RECEIVED FROM THE EMPLOYEES BECO ME INCOME AND CORRESPONDING DEDUCTION IS NOT ADMISSIBLE. 10.1 IN REPLY, THE LD. COUNSEL SUBMITTED THAT T HE PAYMENTS HAVE BEEN MADE BEFORE THE DUE DATE OF FILING THE RETURN OF I NCOME U/S 139(1), WHICH IS 31.10.2007. OUR ATTENTION HAS BEEN DRAWN TO PAGE NOS. 11 TO 13 OF THE PAPER BOOK, WHICH IS A PART OF EXPLANATION FUR NISHED IN THIS MATTER BEFORE THE LD. CIT(APPEALS). RELIANCE HAS BEEN PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALO M EXTRUSIONS LTD. (2009) 319 ITR 306, A COPY OF WHICH HAS BEEN PLACED ON RECORD ON PAGE ITA NO. 2335(DEL)/2010 23 NOS. 86 TO 92 OF THE PAPER BOOK. RELIANCE HAS AL SO BEEN PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN A CONSOL IDATED ORDER PASSED ON 23.12.2009 IN I.T.A. NOS. 1063 OF 2006, 755, 1214, 1246 OF 2008, 204, 50 & 78 OF 2009. ON THE BASIS OF THESE DECISIONS, IT IS ARGUED THAT IF THE AMOUNT BECOMES DEDUCTIBLE U/S 43B, THERE IS NO NE ED TO GO INTO THE PROVISION CONTAINED IN SECTION 36(1)(VA). 10.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT DURING THE YEAR THE ASSESSEE HAD INTER-ALIA DEDUCTED AN AMOUNT OF RS. 2,17,11,006/- FROM THE SALARIES PAID TO THE EMPLOYEES. HOWEVER, THE AMOUNTS WERE NOT CREDITE D TO RESPECTIVE ACCOUNTS OF THE EMPLOYEES BEFORE THE DUE DATE D EFINED U/S 36(1)(VA). THE LD. CIT, DR HAD RIGHTLY CONTENDED THAT THES E AMOUNTS HAVE TO BE TAKEN AS INCOME OF THE ASSESSEE AT THE FIRST INSTANCE UNDER THE PROVISION CONTAINED IN SECTION 2(24)(X). THE ADMITTED FACT IS THAT THE AMOUNTS WERE PAID AFTER THE EXPIRY OF DUE DATE, AS DEFINED IN EXPLANATION TO SECTION 36(1)(VA). THIS PROVISION ALLOWS THE DEDUCTION ONLY IF THE AMOUNTS ARE PAID ON OR BEFORE THE DUE DATE AS DEFINED IN THE PROVISION ITSELF. HOWEVER, THE CASE OF THE LD. COUNSEL IS THAT THE A MOUNTS HAVE BEEN PAID PRIOR TO THE DUE DATE OF FILING THE RETURN U/S 139(1) OF THE ACT. THIS FACT ITA NO. 2335(DEL)/2010 24 IS ALSO NOT UNDER DISPUTE. THE DEDUCTION OF SUCH AMOUNTS HAS BEEN CONSIDERED BY HONBLE SUPREME COURT IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA). IT HAS BEEN HELD THAT THE FINANCE ACT, 2003, IS CURATIVE IN NATURE, HENCE IT IS RETROSPECTIVE AND IT WOULD OPERATE WITH EFFECT FROM 01.04.1988, WHEN THE FIRST PROVISO CAME TO BE INSE RTED. IN THE LIGHT OF THIS JUDGMENT, THE AFORESAID AMOUNT BECOMES DEDUCTIBL E IN COMPUTING THE INCOME OF THIS YEAR U/S 43B OF THE ACT. THUS, EV EN IF THE AMOUNT IS NOT DEDUCTIBLE U/S 36(1)(VA), IT IS DEDUCTIBLE U/S 43B. ACCORDINGLY, THIS GROUND IS ALSO DISMISSED. 11. GROUND NO. 5 IS THAT THE LD. CIT(APPEALS) ERRE D IN DELETING THE ADDITION OF RS. 20.00 LAKH, MADE BY THE AO BY IN VOKING PROVISION U/S 36(1)(III) IN RESPECT OF DIVERSION OF INTEREST- BEARING FUNDS TO ITS SUBSIDIARY COMPANY. 11.1 IT WAS OBSERVED BY THE AO THAT THE AUDITORS REPORT MENTIONED THAT THE ASSESSEE-COMPANY HAS GRANTED INTEREST-FREE UNSECURED LOANS TO ITS SUBSIDIARY COMPANY. THE MAXIMUM AMOUNT OUTSTANDING IN THE YEAR WAS RS. 8.09 CRORE AND THE BALANCE AT THE END OF THE YEAR WAS RS. 1.00 CRORE. THE ASSESSEE HAS ALSO CLAIMED THE DEDUCTION OF INTEREST IN THIS YEAR. IN ITA NO. 2335(DEL)/2010 25 THIS CONNECTION, THE ASSESSEE WAS REQUIRED TO EX PLAIN AS TO WHY INTEREST DEBITED IN THE ACCOUNTS TO THE EXTENT IT RELATES TO THE AFORESAID ADVANCES SHOULD NOT BE DISALLOWED. IT WAS EXPLAINED THA T THE ASSESSEE HAS SUFFICIENT PAID-UP CAPITAL AND GENERAL RESERVES TO COVER THE ADVANCES. THEREFORE, IT CANNOT BE SAID THAT ANY INTEREST-BEA RING FUND HAS BEEN ADVANCED TO THE SUBSIDIARY COMPANY. THE AO CONSIDE RED THE FACTS AND THE SUBMISSIONS MADE BEFORE HIM. IT IS MENTIONED THAT THE WORKING CAPITAL WAS UTILIZED FOR THE PURPOSE OF PURCHASE OF RAW-MA TERIAL AND INCURRING DIRECT AND INDIRECT EXPENSES FOR MANUFACTURE OF GOODS. THE SALE PROCEEDS WERE PART OF THE CIRCULATING CAPITAL. AT THE TI ME OF GRANT OF ADVANCES, THE ASSESSEE WAS HAVING NEGATIVE BALANCE IN ITS BANK A CCOUNT. THE CAPITAL AND RESERVES HAVE BEEN UTILIZED FOR INVESTMENT IN FIX ED ASSETS. THEREFORE, THE BORROWED MONIES HAVE BEEN USED FOR MAKING ADVANC ES TO THE SUBSIDIARY COMPANY. THE INTEREST PAID TO THE BANK IN RESPECT OF SUCH ADVANCES WAS COMPUTED AT RS. 20.00 LAKH. THIS AMOUNT HAS BE EN DISALLOWED IN COMPUTING THE TOTAL INCOME. 11.2 VARIOUS SUBMISSIONS WERE MADE BEFORE THE FIR ST APPELLATE AUTHORITY. AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BEFORE HIM, IT IS MENTIONED THAT ALL SALE PROCEEDS HA VE BEEN CREDITED TO THE ITA NO. 2335(DEL)/2010 26 CURRENT ACCOUNT MAINTAINED WITH ALLAHABAD BANK. TH E ADVANCES HAVE BEEN MADE TO THE SUBSIDIARY COMPANY FROM THIS ACCOUNT. THEREFORE, THE MONEY HAS BEEN ADVANCED OUT OF OWN FUNDS. THE LD. CIT(A) ALSO CONSIDERED THE BALANCE-SHEET AS ON 31.03.2006 AND CAME TO THE CONCLUSION THAT ON THIS DATE, THE ASSESSEE WAS IN POSSESSION OF INTEREST -FREE FUNDS OF ABOUT RS. 22.56 CRORE. IN VIEW OF THESE FACTS, THE DISALL OWANCE MADE BY THE AO WAS DELETED. 11.3 BEFORE US, THE LD. CIT, DR SUBMITTED THAT AD MITTEDLY THE ADVANCES WERE MADE FROM THE CURRENT ACCOUNT IN WHICH SALE PROCEEDS WERE CREDITED. THE SALE PROCEEDS DO NOT REPRESENT TH E OWN FUNDS OF THE ASSESSEE AND ONLY PROFIT EMBEDDED IN SALES CAN AT B EST BE SAID TO BE THE MONEY BELONGING TO THE ASSESSEE. THEREFORE, THE F INDING OF THE LD. CIT(APPEALS) SUFFERS FROM INHERENT CONTRADICTION . WHILE COMING TO THE ISSUE OF AVAILABILITY OF OWN FUNDS, IT HAS BEEN S UBMITTED THAT THE UTILIZATION OF THE FUNDS HAS TO BE TAKEN INTO ACCOUNT, I.E., WHETHER THE FUNDS HAVE BEEN INVESTED IN FIXED ASSETS OR THEY WERE AVAILABLE WITH THE ASSESSEE FOR MAKING ADVANCES TO THE SISTER CONCERN. IT IS A LSO SUBMITTED THAT WHILE ADVANCES WENT UP TO THE EXTENT OF RS. 8.09 CRORE , THE PROFIT OF THE ASSESSEE IN THIS YEAR WAS ONLY ABOUT RS. 5.00 CRORE. THER EFORE, IT HAS BEEN ARGUED ITA NO. 2335(DEL)/2010 27 THAT EITHER THE FINDINGS OF THE AO MAY BE RESTOR ED OR THE MATTER MAY BE REMANDED TO THE AO/LD. CIT(APPEALS) FOR DECIDING THE ISSUE IN THE RIGHT PERSPECTIVE AFTER TAKING ALL FACTS INTO ACCOU NT. 11.4 IN REPLY, THE LD. COUNSEL MADE REFERENCES TO THE PAPER BOOK. PAGE NOS. 13 TO 19 CONTAIN THE EXPLANATION TENDERED BY THE ASSESSEE BEFORE THE LD. CIT(APPEALS). IT IS STATED THAT THE ASSES SEE HAD ITS OWN INTEREST-FREE FUNDS OF ABOUT RS. 20.37 CRORE. THE AO HAS COMM ITTED AN ERROR IN ARRIVING AT SUCH FUNDS BECAUSE THE DEPRECIATION CL AIMED ON FIXED ASSETS HAS NOT BEEN ADDED BACK. THE PROVISION CONTAINED IN SECTION 36(1)(III) WERE EXPLAINED THAT INTEREST SHOULD BE PAYABLE O N BORROWED CAPITAL WHICH HAS BEEN USED FOR THE PURPOSE OF BUSINESS FOR CLA IMING DEDUCTION. IT IS FURTHER STATED THAT ALL ADVANCES WERE MADE FR OM A SEPARATE ACCOUNT IN WHICH ONLY SALES WERE CREDITED. THEREFORE, THE ADVANCES HAVE NO NEXUS WITH THE BORROWINGS. PAGE NOS. 26 TO 31 CONTAIN THE EXPLANATION OF THE ASSESSEE. IN PARAGRAPH NO. 7, IT IS STATED THAT LEDGER ACCOUNT OF INKAM ENTERPRISES AND PHOTOCOPY OF BANK ACCOUNT ARE ENC LOSED. HOWEVER, NONE OF THESE DOCUMENTS ARE FILED IN THE PAPER BOOK. IN FURTHER EXPLANATION BEFORE THE AO (PAGE NO. 32 OF THE PAPER BOOK), IT IS MENTIONED THAT OWN INTEREST-FREE FUNDS AMOUNT TO ABOUT RS. 20.36 CROR E AS PER ANNEXURE-A. ITA NO. 2335(DEL)/2010 28 THIS ANNEXURE IS ALSO NOT THERE IN THE PAPER BOOK. PAGE NO. 93 SHOWS THE POSITION OF OWN FUNDS AVAILABLE AS ON 31.03.2006. THE COMPUTATION IS REPRODUCED BELOW:- PARTICULARS AMOUNT (RS.) PAID-UP CAPITAL 9,51,93,000.00 GENERAL RESERVE 57,62,58,913.00 TERM LOAN FROM: BANKS 7,18,09,562.00 OTHERS 60,52,863.00 7,78,62,425.00 DEPRECIATION ON ASSETS 57,64,78,220.00 TOTAL: 1,32, 57,92,558.00 LESS: FIXED ASSETS 1,10,01,96,641.00 BALANCE 22,55,95,917.00 SIMILAR CALCULATION IN RESPECT OF OWN FUNDS AS ON 31.03.2007 IS WORKED OUT ON PAGE NO. 94 OF THE PAPER BOOK AS UNDER:- PARTICULARS AMOUNT (RS.) AMOUNT (RS.) PAID UP CAPITAL 95,193,000.00 GENERAL RESERVE 563,570,719.00 TERM LOAN FROM: BANKS OTHERS 54,480,148.00 7,519,186.00 61,999,334.00 DEPRECIATION ON ASSETS 669,088,373.00 1,389,851,426.00 LESS: FIXED ASSETS 1,186,157,487.00 BALANCE AVAILABLE 203,693,939.00 ITA NO. 2335(DEL)/2010 29 VARIOUS DETAILS IN RESPECT OF CURRENT ACCOUNT W ITH ALLAHABAD BANK ARE PLACED ON PAGE NOS. 96 TO 116. 11.5 THE ARGUMENTS OF THE LD. COUNSEL ARE TWO-FO LD. FIRSTLY, THE ASSESSEE OWNED INTEREST-FREE FUNDS FAR EXCEEDING THE ADV ANCES MADE TO THE SUBSIDIARY COMPANY. SECONDLY, THE ADVANCES HAVE BEEN MADE FROM THE CURRENT ACCOUNT IN WHICH SALES ARE CREDITED AND, THUS, ADVANCES HAVE NO NEXUS WITH THE BORROWED CAPITAL. 12. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE AD VANCED MONIES TO THE SISTER CONCERN FREE OF INTEREST. THE MONIES WERE ADVAN CED FROM A CURRENT ACCOUNT IN WHICH ONLY SALES PROCEEDS WERE CREDITE D. THE ASSESSEE HAS OTHERWISE BORROWED FUNDS ON WHICH INTEREST IS BEIN G PAID. THE QUESTION IS- WHETHER, THE LD. CIT(APPEALS) WAS RIGHT IN DEL ETING THE DISALLOWANCE OF RS. 20.00 LAKH MADE BY THE AO BY HOLDING THAT BO RROWINGS TO THE EXTENT OF ADVANCES MADE TO M/S INKAM ENTERPRISES ARE N OT FOR THE PURPOSE OF BUSINESS? 12.1 AT THIS STAGE, WE MAY EXAMINE THE CASES RELIED UPON BY THE RIVAL PARTIES. THE LD. CIT, DR RELIED ON THE DECISION IN THE CASE OF MAROLIA ITA NO. 2335(DEL)/2010 30 &SONS VS. CIT, (1981) 129 ITR 475. IN THE DECISI ON, IT HAS BEEN MENTIONED THAT FOR GETTING DEDUCTION OF INTEREST U/S 36(1)(III), THERE SHOULD BE A BORROWING FOR THE BUSINESS PURPOSE O N WHICH INTEREST HAS BEEN PAID. FROM THE STATEMENT OF THE CASE, IT WO ULD APPEAR THAT FROM THE BORROWINGS MADE BY THE FIRM, A LARGE AMOUNT HAS BEEN GIVEN TO RAM DEO MAROLIA FOR HIS PERSONAL PURPOSES. AS THE BORRO WINGS HAD NOT BEEN USED FOR THE BUSINESS OF THE ASSESSEE-FIRM, THE TRIBU NAL HELD THAT THE DEDUCTION CLAIMED BY THE ASSESSEE WAS NOT ADMI SSIBLE. ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE WAS SINCE THE BORR OWING WAS MADE FOR THE PURPOSE OF BUSINESS, THE INTEREST PAID THEREON S HOULD BE DEDUCTED IRRESPECTIVE OF FINAL UTILIZATION OF THE MONEY. THIS ARGUMENT HAS NOT BEEN ACCEPTED BY THE COURT. IT WAS OPINED THAT TH E QUESTION OF DISALLOWANCE OF INTEREST ON BORROWINGS WAS NOT A DIFFERENT QUESTION, BUT ANOTHER ASPECT OF THE SAME MATTER AND, THUS, PURPOSE OF BORROWING AND ITS UTILIZATION WERE INEXTRICABLY LINKED. 12.2 FURTHER, RELIANCE HAS BEEN PLACED ON THE D ECISION IN THE CASE OF CIT VS. SARAYA SUGAR MILLS (P) LTD., (1992) 193 ITR 575. THE ASSESSEE HAD BORROWED CERTAIN AMOUNT FROM THE BANK AND IT CLAIMED DEDUCTION OF THE AMOUNT PAID AS INTEREST. THE ITO FOUND TH AT A SUBSTANTIAL PORTION OF ITA NO. 2335(DEL)/2010 31 THE MONEY BORROWED FROM THE BANK WAS LENT TO THE DIRECTORS FREE OF INTEREST. SIMILAR LOANS WERE EXTENDED TO A F IRM IN WHICH THE DIRECTORS WERE INTERESTED. THEREFORE, IT WAS HELD THAT THE INTEREST RELATABLE TO THE AMOUNT LENT TO THE DIRECTORS AND THE FIRM CANNOT BE ALLOWED TO BE DEDUCTED BECAUSE THE MONEY BORROWED TO THAT EXTENT WAS NOT UTILIZED FOR THE PURPOSE OF BUSINESS. THE HONBLE COURT CAME TO T HE CONCLUSION THAT THE ISSUE STANDS COVERED BY THE DECISION IN THE CAS E OF CIT VS. H.R. SUGAR FACTORY (P) LTD., (1991) 187 ITR 363. THEREFO RE, THE QUESTION WAS ANSWERED AGAINST THE ASSESSEE. 12.3 RELIANCE HAS ALSO BEEN PLACED ON THE DECISION IN THE CASE OF CIT & ANOTHER VS. RADICO KHAITAN LTD., (2005) 274 ITR 354. THE HONBLE COURT MENTIONED ABOUT THE THREE CONDITIONS WHICH MUST NECESSARILY BE FULFILLED FOR CLAIMING THE DEDUCTION OF INTEREST ON THE BORROWINGS. THE TRIBUNAL HAD RECORDED A FINDING THAT THE COMPANY HAD SUFFICIENT FUNDS OTHER THAN BORROWED MONEY FOR GRANTING LOAN TO TH E SISTER CONCERN. THIS FINDING HAS NOT BEEN SPECIFICALLY CHALLENGED IN THE APPEAL. THEREFORE, IT WAS HELD THAT THE CONDITIONS MENTIONED IN SECTIO N 36(1)(III) ARE FULFILLED. THERE WAS ANOTHER ASPECT THAT THE AO HAD HIMSELF ALLOWED THE PROPORTIONATE AMOUNT OF INTEREST ON THE AFORES AID LOAN IN THE ASSESSMENT ITA NO. 2335(DEL)/2010 32 YEAR IN WHICH THE MONEY HAD BEEN ADVANCED BY THE A SSESSEE TO ITS SISTER CONCERN. THIS ASPECT DOES NOT EXIST IN THE CA SE AT HAND AS NONE OF THE PARTIES HAS MADE ANY MENTION ABOUT IT. 12.4 BOTH THE PARTIES HAVE RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT & ANOT HER, (2008) 298 ITR 298. IN THIS CASE, THE QUESTION OF DEDUCTIBILIT Y WAS CONSIDERED UNDER SECTIONS 40(B)(IV) AND SECTION 36(1)(III). IT IS MENTIONED THAT THE ASSESSEE WAS REQUIRED TO ESTABLISH IN THE FIRST INSTANCE THAT IT WAS ENTITLED TO CLAIM DEDUCTION U/S 36(1)(III) AND THAT IT WAS NOT D ISENTITLED TO CLAIM SUCH DEDUCTION ON ACCOUNT OF APPLICABILITY OF SECTION 40(B)(IV). IT WAS FURTHER MENTIONED THAT SECTIONS 30 TO 38 CONTAIN OTHE R DEDUCTIONS WHEREAS SECTION 40 IS A LIMIT ON THE DEDUCTION. THEREF ORE, EVEN IF THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 36(1)(III), THE AS SESSEE WOULD NOT BE ENTITLED TO CLAIM DEDUCTION FOR INTEREST PAYMENT EXCEEDING 1 8/12% PER ANNUM. IN THIS CASE, THE LOANS WERE GRANTED IN AUGUST/S EPTEMBER, 1991, WHICH CONTINUED UP TO ASSESSMENT YEAR 1997-98. THE L OANS WERE ADVANCED FOR THE BUSINESS PURPOSE AND THE INTEREST THEREON DI D NOT EXCEED 18/12% PER ANNUM. THE PAYMENT OF INTEREST WAS ALLOWED IN E ARLIER ASSESSMENT YEARS. ITA NO. 2335(DEL)/2010 33 THEREFORE, IT WAS HELD THAT THE ASSESSEE WAS ENT ITLED TO DEDUCTIONS UNDER BOTH THE PROVISIONS AS INDICATED IN THE ORDER. 12.5 ON EXAMINATION OF THE FACTS ON RECORD, IT IS SEEN THAT THE MONIES WERE ADVANCED FROM THE CURRENT ACCOUNT, IN WHIC H ONLY SALE PROCEEDS WERE CREDITED. THE CLAIM OF THE ASSESSEE IS TH AT SUCH ADVANCES ARISING OUT OF THIS ACCOUNT HAD NO NEXUS WITH THE BO RROWINGS WHICH WERE CREDITED IN ANOTHER ACCOUNT. WE ARE NOT IN AGR EEMENT WITH THIS ARGUMENT. THE REASON IS THAT SALES CONTAIN ONLY A SMAL L PORTION OF PROFIT, WHICH CAN BE SAID TO BE THE MONEY BELONGING TO THE ASS ESSEE. THE BULK OF THE AMOUNT IS SPENT IN PURCHASING RAW-MATERIAL AND IN THE PROCESS OF MANUFACTURE. THEREFORE, ONLY PROFIT EMBEDDED IN S ALES COULD BE SAID TO BE THE ASSESSEES OWN MONEY. THE OTHER ARGUMENT IS THAT THE ASSESSEE WAS IN POSSESSION OF ITS OWN MONEY TO THE EXTENT OF ABOUT RS. 22.56 CRORE AS ON 31.03.2006 AND ABOUT RS. 20.37 CRORE AS ON 31.03.2007. HOWEVER, IT IS NOT CLEAR WHETHER THIS MONEY WAS AVAILABLE WITH THE ASSESSEE FOR MAKING ADVANCES TO THE SISTER CONCERN OR IT WAS LOCKED ELSEWHERE. IF THE AMOUNT HAD BEEN UTILIZED ELSEWHERE ON THE DATE O F THE LENDING, IT WOULD BE DIFFICULT TO HOLD THAT THE AMOUNT WAS STILL A VAILABLE WITH THE ASSESSEE FOR MAKING THE ADVANCES. THUS, THE MAIN ACCOUNT AN D THE ACCOUNT FROM ITA NO. 2335(DEL)/2010 34 WHICH ADVANCES HAVE BEEN MADE WILL HAVE TO BE SEEN CUMULATIVELY FOR ARRIVING AT A DECISION AS TO WHETHER ANY OWN MONEY WAS AVAILABLE FOR MAKING ADVANCES AS AFORESAID. IT MAY ALSO BE MENTIONED THAT THERE IS NO FINDING THAT THE ADVANCES HAD BEEN MADE IN TH E EARLIER YEAR AND, THEREFORE, THE POSITION WILL HAVE TO BE SEEN FROM CONSOLIDATION OF BANK ACCOUNTS PERTAINING TO THIS YEAR. THIS EXERCISE H AS NOT BEEN CARRIED OUT BY ANY OF THE LOWER AUTHORITIES. THE AO MADE TH E DISALLOWANCE BECAUSE MONIES WERE ADVANCED WITHOUT STIPULATION OF C HARGING INTEREST TO A SISTER CONCERN. THE LD. CIT(APPEALS) LOOKED AT THE TOTAL PICTURE OBTAINED FROM THE BALANCE SHEET AT THE BEGINNING AND AT T HE END OF THIS YEAR IN ACCORDANCE WITH COMPUTATION FURNISHED BY THE ASSESS EE AS IF THE WHOLE MONEY WAS AVAILABLE WITH IT. AS NO ATTEMPT HAS BEEN MADE TO FIND OUT THE NEXUS BETWEEN BORROWING AND LENDING, WE T HINK IT FIT TO RESTORE THE MATTER TO THE FILE OF THE AO FOR ADJUDICATING TH E MATTER AGAIN AFTER HEARING THE ASSESSEE. IN THE RESULT, THIS GROUND IS TRE ATED AS ALLOWED. 13. THE LAST GROUND IS THAT THE LD. CIT(A) ERRE D IN DELETING THE DISALLOWANCE OF RS. 10,27,038/- MADE BY THE AO B Y INVOKING THE PROVISION CONTAINED IN SECTION 40(A)(IA). ITA NO. 2335(DEL)/2010 35 13.1 IT IS MENTIONED IN THE ASSESSMENT ORDER THA T THE ASSESSEE DEBITED A SUM OF RS. 21,73,686/- UNDER THE HEAD ADVERTISE MENT EXPENSES. THE DETAILS OF THE EXPENSES WERE FURNISHED. IT WAS FOUND THAT A SUM OF RS. 4,13,438/- HAS BEEN PAID TO M/S SUMIT ENTERPRISES ON 07.10.2006, AND ANOTHER SUM OF RS. 6,13,600/- HAS BEEN PAID TO M/ S ROLLER ACT PRESS SERVICES ON 31.03.2007. ON PERUSAL OF THE BILL OF M/S SUMIT ENTERPRISES, IT WAS FOUND THAT THE PAYMENT IS MADE FOR PRINTING D IARIES WITH THE LOGO AND THE NAME OF THE COMPANY. THE PAYMENT WAS MADE TO ROLLER ACT PRESS SERVICES FOR PRINTING OF PRODUCT CATALOGUE AND F OLDER. THE AO HELD THAT THESE PAYMENTS WERE IN PURSUANCE OF A WORKS-CO NTRACT AND, THEREFORE, THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE BY DINT OF PROVISION CONTAINED IN SECTION 194C. THE TAX HAD NOT BEEN DEDUCTED. THEREFORE, THE AMOUNT WAS DISALLOWED BY INVOKING THE PROVISION CONTAINED IN SECTION 40(A)(IA). 13.2 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT THE MANUFACTURE AND SUPPLY OF A PRODUCT IN ACCORDANCE WITH THE SPEC IFICATION OF THE ASSESSEE DOES NOT AMOUNT TO A WORKS CONTRACT AS IT HAS NOT SUPPLIED ANY MATERIAL. THEREFORE, THE PROVISION CONTAINED IN SECTION 19 4C DOES NOT APPLY. THE LD. CIT(APPEALS) CONSIDERED THE FACTS AND S UBMISSIONS MADE BEFORE ITA NO. 2335(DEL)/2010 36 HIM. IT HAS BEEN HELD BY HIM THAT PURCHASE OF ADVERTISEMENT MATERIAL FROM A PERSON WITHOUT SUPPLYING ANY MATERIAL US ED IN PREPARATION OF THE MATERIAL CANNOT BE TERMED AS WORKS CONTRACT . THEREFORE, THE PROVISION CONTAINED IN SECTION 194C IS NOT APPLICA BLE. ACCORDINGLY, THE ADDITION HAS BEEN DELETED. 13.3 THE LD. CIT, DR REFERRED TO THE FACT THAT DIARIES, CATALOGUE AND FOLDERS WERE PREPARED AND SUPPLIED TO THE ASSE SSEE BY THE AFORESAID TWO PARTIES. THE ASSESSMENT ORDER IS SILENT ABOUT WHETHER THE ASSESSEE SUPPLIED THE MATERIAL OR NOT. THEREFORE, IT IS URG ED THAT THE ISSUE MAY BE RESTORED TO THE FILE OF THE AO FOR ASCERTAINING ALL FACTS AND DECIDING THE MATTER AGAIN. 13.4 IN REPLY, THE LD. COUNSEL REFERRED TO PAGE NOS. 19 AND 20 OF THE PAPER BOOK, BEING SUBMISSIONS MADE BEFORE THE LD. CIT(AP PEALS). THESE PAGES CONTAIN THE DETAILS OF THE EXPENDITURE. OUR A TTENTION IS DRAWN TOWARDS CLAUSE (IV)(E) OF THE EXPLANATION TO SECTION 194C , REPRODUCED THEREIN, WHICH STATES THAT WORK INCLUDES MANUFACTURING OR SUPPLYING A PRODUCT ACCORDING TO REQUIREMENT OR SPECIFICATION OF A C USTOMER BY USING MATERIAL PURCHASED FROM SUCH CUSTOMER, BUT DOES NOT INCL UDE MANUFACTURING AND ITA NO. 2335(DEL)/2010 37 SUPPLYING A PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM A PERS ON OTHER THAN SUCH CUSTOMER. IT WAS CONTENDED THAT THE ASSESSEE DI D NOT SUPPLY ANY MATERIAL TO THESE PARTIES. THEREFORE, THE PROVISION CO NTAINED IN SECTION 194C IS NOT APPLICABLE. FURTHER, A REFERENCE IS MADE TO PAGE NOS. 117 TO 124 CONTAINING THE DETAILS OF ADVERTISEMENT EXPENSES . THE CASE OF THE LD. COUNSEL IS THAT UNDER THE APPLICATION PROVISION OF SECTION 194C, MANUFACTURING AND SUPPLYING OF MATERIAL ACCORDING TO REQUIREMENT OF THE ASSESSEE WHERE NO MATERIAL IS SUPPLIED BY THE AS SESSEE DOES NOT AMOUNT TO WORK CONTRACT. 14. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT PAYMENTS HAVE BEEN MADE TO TWO PARTIES FOR PREPARATION OF DIARIES, CATALOGUES AND FOLDER S AS PER REQUIREMENT OF THE ASSESSEE. NO MATERIAL WAS SUPPLIED AS SPECIFICA LLY STATED BEFORE THE LD. CIT(APPEALS). THE REVENUE HAS NOT BROUGHT ANY MA TERIAL ON RECORD TO DISPUTE THIS FACT. THEREFORE, THE MANUFACTURING A ND SUPPLYING DOES NOT AMOUNT TO A WORKS CONTRACT. THE AO HAS ALSO REFE RRED TO NOTIFICATION NO. 275/51/2009-IT(B) DATED 07.10.2009, WHICH POINTS OUT THAT THE PROVISIONS CONTAINED IN SECTION 194C HAVE BEEN AMENDED BY FI NANCE BILL, 2009, WITH ITA NO. 2335(DEL)/2010 38 EFFECT FROM 01.10.2009 WITH A VIEW TO INCLUDE WI THIN THE AMBIT OF WORK THE MANUFACTURING OR SUPPLYING A PRODUCT ACCORDING TO REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PU RCHASED FROM SUCH CUSTOMER. HOWEVER, IN RESPECT OF THE WORK-CONTRA CT MENTIONED IN CLAUSE (IV)(E) OF THE EXPLANATION, TAX SHALL BE DEDUCTE D AT SOURCE ON THE INVOICE VALUE EXCLUDING THE VALUE OF THE MATERIAL, IF SUC H VALUE IS MENTIONED SEPARATELY IN THE INVOICE; OR ON THE WHOLE OF TH E INVOICE, IF THE VALUE OF MATERIAL IS NOT MENTIONED SEPARATELY IN THE INVOIC E. OBVIOUSLY, THIS PROVISION COMES INTO FORCE IN RESPECT OF WORKS CO NTRACT EXECUTED ON OR AFTER 01.10.2009. THIS AMENDMENT IS NOT APPLICAB LE TO THE PROCEEDINGS OF ASSESSMENT YEAR 2007-08, WHICH ARE BEING DECIDED . THEREFORE, IT IS HELD THAT THE EXPENDITURE WAS NOT IN RESPECT OF A WOR KS CONTRACT, THEREFORE, THE ASSESSEE WAS NOT OBLIGED TO DEDUCT TAX AT SOURCE. IN OTHER WORDS, THE AMOUNT INVOLVED IN THE PAYMENT COULD NOT HAVE BEEN DISALLOWED U/S 40(A)(IA). THUS, THIS GROUND IS ALSO DISMISSED. 15. IN THE RESULT, THE APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (DIVA SINGH) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA ITA NO. 2335(DEL)/2010 39 COPY OF THE ORDER FORWARDED TO:- EASTERN MEDIKIT LTD., NEW DELHI. DCIT, CIRCLE 11(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.