Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 0295 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 2 month(s) 2 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
01-07-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I1
Next Hearing Date
07-08-2017
Assessment Year
2011-2012
Appeal Filed On
29-04-2015
Judgement Text
PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - I : NEW DELHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI K. N. CHARY , JUDICIAL MEMBER ITA NO. 2502/DEL/2015 (ASSESSMENT YEAR: 2011 - 12 ) GL LITMUS EVENTS PVT. LTD, B - 90, SECOND FLOOR, VISHWAKARMA COLONY, NEW DELHI PAN: AADCG6909N VS. THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE - 7, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. K. TULSIYA N , ADV MS. NISHA RACHH , FCA MS. BHOOMIJA VERMA, ADV MS. LATA GOYAL, CA REVENUE BY: SHRI SANJAY I BARA, CIT DR DATE OF HEARING 23/04 / 201 9 DATE OF PRONOUNCEMENT 0 1 / 0 7 / 2019 O R D E R PER PRASHANT MAHARISHI, A. M. 1 . THIS APPEAL IS FILED BY GL LITMUS EVENTS PRIVATE LIMITED, (APPELLANT) AGAINST THE ORDER OF THE ASST COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 17, NEW DELHI (THE LEARNED AO) PASSED U/S 143 (3) READ WITH SECTION 153A READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 (THE ACT) DATED 25/2/ 2015 . THE IMPUGNED ORDERS WAS PASSED IN PURSUANCE OF THE DIRECTION OF THE DISPUTE RESOLUTION PANEL IV, NEW DELHI (THE LEARNED DRP) UNDER SECTION 144C (5) OF THE ACT DATED 26/12/2014 . SUCH DIRECTIONS WERE IN RESPONSE TO OBJECTION AGAINST THE DRAFT ASSES SMENT ORDER DATED 27/3/2014 COVERING VARIOUS ADDITIONS AND THE ADJUSTMENT TO THE ARMS - LENGTH PRICE OF THE INTERNATIONAL TRANSACTION DETERMINED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, TRANSFER PRICING OFFICER I (2), NEW PAGE | 2 DELHI ( THE LEARNED TPO) U/ S 92CA (3) OF THE ACT. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN REJECTING THE CASH METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND IN CONCLUDING THE ASSESSMENT AS PER ACCRUAL/ MERCANTILE METHOD OF ACCOUNTING. 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 35,85,00,000 / - (BEING THE VALUE OF ALLEGED ILLEGAL GRATIFICATION PAID BY THE ASSESSEE) TO THE TOTAL INCOME OF THE ASSESSEE. 2.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ARRIVING AT THE FINDING THAT A SUM OF RS. 35.85,00,000/ - WAS PAID BY THE ASSESSEE TO THE OFFICIALS OF ORGANIZING COMMITTEE, COMMONWEALTH GAMES, 2010 (OC) AND DELHI DEVELOPMENT AUTHORITY (DDA) IN AS MUCH AS THERE WAS NO MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAS MADE ANY PAYMENT ILLEGAL OR OTHERWISE TO THE OFFICIALS OF OC AND/OR DDA. 2.2 THAT THE ASSESSING OFFICER ERRED IN PLACING RELIANCE ON THE SEIZED PAPERS BEING PAGE 68 & 69 OF ANNEXURE A - L (PAR TY BR - 3) IN HOLDING THAT A SUM OF RS. 35,85,00,000 / - WAS PAID BY THE ASSESSEE TO THE OFFICIALS OF OC AND DDA. THE ASSESSING OFFICERS INTERPRETATION AND RELIANCE ON THE PAPERS IN QUESTION IS MISCONCEIVED, WITHOUT MERIT BOTH IN FACT, AND LAW. THE SEIZED PAP ERS IN QUESTION DO NOT IN ANY MANNER ESTABLISH THAT ANY PAYMENT ILLEGAL OR OTHERWISE WAS MADE TO THE OFFICIALS OF OC AND/OR DDA. ALL INTERPRETATIONS TO THE CONTRARY ARE ON THE FACE OF IT MISCONCEIVED. PAGE | 3 2.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 35,85,00,000 / - TO THE TOTAL INCOME OF THE ASSESSEE BY ERRONEOUSLY HOLDING THAT THE SAID AMOUNT REPRESENTS UNEXPLAINED EXPENDITURE UNDER SECTION 69(7 SECTION 37 OF THE ACT. 2.4 THA T THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS.35,85.00,000/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 292C OF THE ACT. 3. THAT THE ASSESSING OFFICER AND TRANSFER PRICING OFFICER (TPO) HAVE ERRED ON FACTS AND IN LAW IN MAKING TRANSFER PRICING ADDITION OF RS. 58,43,94,894/ - (BEING THE VALUE OF EXPENDITURE) TO THE TOTAL INCOME OF THE ASSESSEE. 3.1 THAT THE TRANSFER PRICING PROVISIONS ARE NOT APPLICABLE TO THE ASSESSEE IN AS MUCH AS PER THE CASH METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE NO INTERNATIONAL TRANSACTION HAS BEEN ENTERED WITH ANY ASSOCIATED ENTERPRISE. THE FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GROUND 3.1 ABOVE 3.2 THAT THE TRANSFER PRICING ADDITION OF RS. 58,43. 94.894 / - IS PATENTLY AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS THE TRANSFER PRICING STUDY FILED BY THE ASSESSEE HAS BEEN SUMMARILY REJECTED BY THE TPO WITHOUT ISSUING ANY SHOW CAUSE NOTICE. 3.3 THAT THE TPO HAS ERRED ON FACTS AND IN LAW IN REJECTING TRA NSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD AND IN ADOPTING COMPARABLE UNCONTROLLED PRICE METHOD (CIJP) AS THE MOST APPROPRIATE METHOD. PAGE | 4 3.4 THAT THE TPO HAS ERRED ON FACTS AND IN LAW IN SUMMARILY HOLDING THAT THE ARMS LENGTH PRI CE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE WITH ITS ASSOCIATED ENTERPRISE SHOULD BE TREATED AS NIL AS AGAINST RS. 58,43,94,894 / - . 3.5 THAT THE IPO HAS ERRED ON FACTS AND IN LAW IN AS MUCH AS TOTALLY IRRELEVANT AND EXTRANEOUS CONSIDERATIO NS HAVE BEEN RELIED UPON FOR TREATING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE WITH ITS ASSOCIATED ENTERPRISE AS NIL AS AGAINST RS. 58,43,94,894 / - . 3.6 THAT THE TPO HAS ERRED ON FACTS AND IN LAW IN SUMMARILY, WITHOU T ANY COGENT REASON REJECTING THE SUBSTANTIAL AND DETAILED SUBMISSIONS, DOCUMENT - INFORMATION FURNISHED BY THE ASSESSEE IN SUPPORT OF ITS COMPUTATION OF ARM'S LENGTH PRICE. 3.7 THAT THE ORDER PASSED BY THE I PO IS NON - SPEAKING, ARBITRARY AND VAGUE ANY THER EFORE LIABLE TO BE SET ASIDE ON THIS GROUND ALONE. 3.8 THAT THE TPO HAS ERRED ON FACTS AND IN LAW IN COMPLETELY IGNORING AND DISREGARDING THE SUBSTANTIAL AND DETAILED SUBMISSIONS, DOCUMENTS AND INFORMATION FURNISHED BY THE ASSESSEE IN SUPPORT OF ITS COMPUT ATION OF ARM'S LENGTH PRICE. 4. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. L1,22,32.956/ - (BEING THE VALUE OF SEIZED INVOICES) TO THE TOTAL INCOME OF THE ASSESSEE. 4.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING A SUBSTANTIVE ADDITION OF RS. PAGE | 5 L1,22,32,956/ - IN SPITE OF A SPECIFIC FINDING THAT SUCH ADDITION HAS TO BE MADE ON PROTECTIVE BASIS ONLY. THE FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GROUND 4.1 ABOVE 4.2 THAT THE ASSESSING OFFI CER ERRED ON FACTS AND IN LAW IN ARRIVING AT THE FINDING THAT THE ASSESSEE WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS IN AS MUCH AS THERE WAS NO MATERIAL WHATSOEVER ON RECORD TO SUGGEST THAT ANY OF THE ORIGINAL BILL PRODUCED BY THE ASSESSEE IS B OGUS. 4.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN SUMMARILY REJECTING THE ORIGINAL BILLS PRODUCED BY THE ASSESSEE BY TREATING THE SAME AS BOGUS, WITHOUT ANY REASON LEAVE ALONE A COGENT AND VALID REASON.. 4.4 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. L1,22.32,956/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 69C/ SECTION 37 OF THE ACT. 5. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 2,1 4,59,000/ - (BEING THE VALUE OF PER DIEM EXPENSES) TO THE TOTAL INCOME OF THE ASSESSEE. 5.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING A SUBSTANTIVE ADDITION OF RS. 2,14,59,000 / - IN SPITE OF A SPECIFIC FINDING THAT SUCH ADDITION HAS TO B E MADE ON PROTECTIVE BASIS ONLY. THE FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GROUND 5.1 ABOVE. 5.2 THAT THE ADDITION OF RS. 2,14,59,000 / - MADE BY THE ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL PAGE | 6 JUSTICE AS THE COPIES OF INCRIMINA TING MATERIAL/ DOCUMENTS ALLEGEDLY COLLECTED BY THE ASSESSING OFFICER FROM THIRD PARTIES AND RELIED UPON IN THE IMPUGNED ASSESSMENT ORDER WERE NOT SUPPLIED TO THE ASSESSEE IN SPITE REPEATED REQUESTS. 5.3 THAT THE ADDITION OF RS. 2,14,59.000/ - MADE BY THE A SSESSING OFFICER IS PATE PATENTLY AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS THE ASSESSING OFFICER FAILED TO PROVIDE TO THE ASSESSEE THE OPPORTUNITY TO CROSS EXAMINE THE RELEVANT OFFICERS OF M/S. PICO DEEPALI OVERLAYS CONSORTIUM WHOSE DOCUMENTS WHERE ALI EN A; OR ASSESSMENT ORDER FOR MAKING THE ADDITION OF RS. 2,14,59,000/ - TO THE TOTAL INCOME OF THE ASSESSEE. 5.4 THAT THE AO ERRED ON FACTS AND IN LAW IN SUMMARILY REJECTING THE DOCUMENTS PRODUCED BY THE ASSESSEE IN SUPPORT OF THE EXPENDITURE OF RS. 2,14,59 ,000/ - BY TREATING THE SAME, WITHOUT ANY REASONABLE BASIS AS SELF SERVING DOCUMENTS. 5.5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 2,14,59.000/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECT ION 69C SECTION 37 OF THE ACT. 6. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION I: RS.31.71,400/ - (RS.25,84,342/ - BEING THE VALUE OF PURCHASES FROM M S NITIN ENTERPRISES PLUS RS.5,87,058/ - BEING THE VALUE OF PURCHASES FROM M/S GARG ROAD LINES) TO THE TOTAL INCOME OF THE ASSESSEE. 6.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING A SUBSTANTIVE ADDITION OF PAGE | 7 RS.31.71.400/ - IN SPITE OF A SPECIFIC FINDING THAT SUCH ADDITION HAS TO BE MADE ON PROTECTIVE BASIS ONLY. TH E FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GROUND 6.1 ABOVE. 6.2 THAT THE ADDITION OF RS.31,71.400/ - MADE BY THE ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS THE COPIES OF THE ALLEGEDLY INCRIMINATING MATERIAL/ DOCUMENTS PURPORTEDLY COLLECTED BY THE ASSESSING OFFICER FROM THIRD PARTIES AND RELIED UPON IN THE IMPUGNED ASSESSMENT ORDER WERE NOT SUPPLIED TO THE ASSESSEE IN SPITE OF REPEATED REQUESTS MADE BY THE ASSESSE BOTH IN WRITING AND OTHERWISE. 6.3 THAT THE ADDITION OF RS.31,71.400/ - MADE BY THE ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS THE ASSESSING OFFICER FAILED DESPITE A SPECIFIC REQUEST BEING MADE BY THE ASSESSEE TO PROVIDE TO THE ASSESSEE WITH AN OPPORTUNITY TO CROSS EXAMINE THE PERSON WHOSE ALLEGED STATEMENT(S) WHERE RELIED UPON IN THE ASSESSMENT ORDER FOR MAKING THE ADDITION OF RS.31,71.400/ - TO THE TOTAL INCOME OF THE ASSESSEE. 6.4 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ARRIVING AT THE FINDING THAT THE ASSESSEE WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS IN AS MUCH AS THERE WAS NO MATERIAL WHATSOEVER ON RECORD TO SUGGEST THAT ANY OF THE ORIGINAL BILL PRODUCED BY THE ASSESSEE IS BOGUS. 6.5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN SUMMARILY REJ ECTING THE ORIGINAL BILLS PRODUCED BY THE ASSESSEE BY TREATING THE SAME AS BOGUS, WITHOUT ANY COGENT REASON. PAGE | 8 6.6 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS.31,71.400/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING TH E PROVISIONS OF SECTION 69C/ SECTION 37 OF THE ACT. 7. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 1.03,15.369/ - (BEING THE VALUE OF EXPENDITURE ON PROFESSIONAL SERVICES) TO THE TOTAL INCOME OF THE ASSESSEE. 7.1 THAT T HE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING A SUBSTANTIVE ADDITION OF RS. 1,03,15,369/ - IN SPITE OF A SPECIFIC FINDING THAT SUCH ADDITION HAS TO BE MADE ON PROTECTIVE BASIS ONLY. THE FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GRO UND 7.1 ABOVE. 7.2 THAT THE ADDITION OF RS. 1,03,15,369/ - MADE BY THE ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS THE SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER FAILED TO MAKE ANY MENTION OF ANY PROPOSAL TO MAKE SUCH AN ADDITIO N OF RS. 1,03,15,369/ - AND THEREFORE DENYING THE ASSESSEE A DUE OPPORTUNITY 7.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW ARRIVING AT THE FINDING THAT THE ASSESSEE WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS IN AS MUCH AS THERE WAS NO MATERIAL WHATSOEVER ON RECORD TO SUGGEST THAT ANY OF THE ORIGINAL BILL PRODUCED BY THE ASSESSEE IS BOGUS. 7.4 THAI THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DOUBTING/ CHALLENGING THE BUSINESS RATIONALE / PURPOSE OF THE ASSESSEE IN INCURRING THE E XPENDITURE ON PROFESSIONAL SERVICES. PAGE | 9 7.5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN SUMMARILY REJECTING E ORIGINAL BILLS PRODUCED BY THE ASSESSEE BY TREATING THE SAME AS BOGUS, WITHOUT ANY COGENT REASON. 7.6 THAT THE ASSESSING OFFICER ERRED O N FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 1,03,15,369/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISION , OF SECTION 37 OF THE ACT. 8. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS.5,39.23,60.3/ - (BEI NG THE VALUE OF EXPENDITURE ON TRAVELLING & CONVEYANCE) TO THE TOTAL INCOME OF THE ASSESSEE. 8.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING A SUBSTANTIVE ADDITION OF RS. 5,39,23,603/ - IN SPITE OF A SPECIFIC FINDING THAT SUCH ADDITION HA S TO BE MADE ON PROTECTIVE BASIS ONLY. THE FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GROUND 8.1 ABOVE. 8.2 THAT THE ADDITION OF RS. 5.39,23,603/ - MADE BY THE ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS THE COPIES OF ALL EGEDLY INCRIMINATING MATERIAL/ DOCUMENTS COLLECTED BY THE ASSESSING OFFICER FROM THIRD PARTIES AND RELIED UPON IN THE IMPUGNED ASSESSMENT ORDER WERE NOT SUPPLIED TO THE ASSESSEE IN SPITE OF REPEATED REQUESTS. 8.3 THAT THE ADDITION OF RS. 5,39,23,603/ - MADE BY THE ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS THE ASSESSING OFFICER FAILED DESPITE A SPECIFIC REQUEST BEING MADE BY THE ASSESSEE TO PROVIDE TO THE ASSESSEE THE OPPORTUNITY TO CROSS EXAMINE THE RELEVANT OFFICERS OF M/S PDOC WHOSE ALLEGED DOCUMENTS WHERE PAGE | 10 RELIED UPON IN THE ASSESSMENT ORDER FOR MAKING THE ADDITION OF RS. 5.39,23,603/ - TO THE TOTAL INCOME OF THE ASSESSEE. 8.4 THAT THE ADDITION OF RS. 5,39,23,603/ - MADE BY THE ASSESSING OFFICER IS AGAINST THE PRINCIPLE OF NATURAL JUST ICE IN AS MUCH AS THE SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER ONLY PROPOSED ADDITION OF RS. 97,40.350/ - AND THEREFORE, THE ADDITION IN EXCESS OF RS. 97,40,350/ - . WHICH WAS MADE WITHOUT GIVING AN OPPORTUNITY TO THE ASSESSEE TO DEAL WITH THE SAME I S LIABLE TO BE SET ASIDE. 8.5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ARRIVING AT THE FINDING THAT THE ASSESSEE WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS IN AS MUCH AS THERE WAS NO MATERIAL WHATSOEVER ON RECORD TO SUGGEST THAT A NY OF THE ORIGINAL BILL PRODUCED BY THE ASSESSEE IS BOGUS. 8.6 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN SUMMARILY REJECTING THE ORIGINAL BILLS PRODUCED BY THE ASSESSEE BY TREATING THE SAME AS BOGUS, WITHOUT ANY COGENT REASON. 8.7 THAT THE AS SESSING OFFICER ERRED ON FACTS AND IN LAW' IN MAKING AN ADDITION OF RS. 5.39,23,603 / - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 37 OF THE ACT. 9. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 4.90,08.835 - (RS. 15.57.987/ - BEING THE VALUE OF PURCHASES MADE FROM M/S LITMUS DESIGNS PRIVATE LIMITED PLUS RS. 4,74,50,848/ - BEING VALUE OF PURCHASE MADE FROM M/S PAGE | 11 MEROFORM INDIA PRIVATE LIMITED) TO THE TOTAL INCOME OF THE ASSESSEE. 9.1 THAT THE ASS ESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING A SUBSTANTIVE ADDITION OF RS. 4,90,08,835/ - IN SPITE OF A SPECIFIC FINDING THAT SUCH ADDITION HAS TO BE MADE ON PROTECTIVE BASIS ONLY. THE FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GROUND 9.1 ABOVE 9.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ARRIVING AT THE FINDING THAT THE ASSESSEE WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS IN AS MUCH AS THERE WAS NO MATERIAL WHATSOEVER ON RECORD TO SUGGEST THAT ANY OF THE ORIGIN AL BILL PRODUCED BY THE ASSESSEE IS BOGUS, LET ALONE MATERIAL TO SHOW ASSESSEES ALLEGED INVOLVEMENT IN PRACTICE OF RECEIVING BOGUS BILLS. 9.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DOUBTING/ CHALLENGING THE VALID AND LEGITIMATE BUSINESS RATIONALE/ PURPOSE OF THE ASSESSEE IN INCURRING THE EXPENDITURE ON PROFESSIONAL SERVICES. 9.4 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN SUMMARILY REJECTING THE ORIGINAL BILLS PRODUCED BY THE ASSESSEE BY TREATING THE SAME AS BOGUS, WITHOUT ANY COGENT BASIS. 9.5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 4,90.08,835 / - TO THE TOTAL INCOME OF THE ASSESSEE BY HOLDING THAT THE SAID AMOUNT REPRESENTS EXPENDITURE NOT ALLOWABLE UNDER SECTION 37 OF THE ACT. 9.6 THA T THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 4,90.08,835/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PAGE | 12 PROVISIONS OF SECTION 40A(2)(B) OF THE ACT IN AS MUCH AS NO FINDING WHATSOEVER HAS BEEN RECORDED BY THE ASSESSI NG OFFICER TO SUGGEST THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE. 10. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. L,22,696/ - (BEING THE VALUE OF ALLEGED NEGATIVE CASH BALANCE) TO THE TO TAL INCOME OF THE ASSESSEE IN TOTAL DISREGARD OF THE FACT THAT THE SAID NEGATIVE CASH BALANCE AROSE ONLY ON ACCOUNT OF AN INADVERTENT AND BONAFIDE CLERICAL ERROR MADE WHILE MAKING ENTRIES IN THE BOOKS OF ACCOUNTS WHICH HAD NOT BEEN DULY RECTIFIED UP TO THE DATE OF SEARCH PROCEEDINGS. 11. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 1,18.24.175/ - (BEING THE VALUE OF ALLEGED CAPITAL EXPENDITURE) TO THE TOTAL INCOME OF THE ASSESSEE. 11.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING A SUBSTANTIVE ADDITION OF RS. L,18,24,175/ - IN SPITE OF A SPECIFIC FINDING THAT SUCH ADDITION HAS TO BE MADE ON PROTECTIVE BASIS ONLY. THE FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GROUND 11.1 ABOVE. 11.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE EXPENDITURE OF RS. L,18.24,175/ - REPRESENTS CAPITAL EXPENDITURE LIABLE TO BE DISALLOWED UNDER SECTION 37 OF THE ACT. 12. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADD ITION OF RS. 1.22.626/ - (BEING THE VALUE OF PAYMENT MADE FOR SERVICES OF SECURITY GUARDS) TO THE TOTAL INCOME OF THE ASSESSEE BY TREATING PAGE | 13 THE SAME AS CAPITAL EXPENDITURE LIABLE TO BE DISALLOWED UNDER SECTION 37 OF THE ACT. 13. THAT THE ASSESSING OFFICER HA S ERRED ON FACTS AND IN LAW - IN MAKING ADDITION OF RS. 15.47.14!/ - . BEING THE VALUE OF CLOSING STOCK RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, BY TREATING THE SAME AS UNEXPLAINED CASH CREDITS UNDER SECTION 68 OF THE ACT. 13.1 THAT THE ASSESSING OF FICER HAS ERRED ON FACTS AND IN LAW IN TOTALLY DISREGARDING MATERIAL DETAILS LIKE METHOD OF VALUATION, DESCRIPTION OF ITEMS, QUANTITY, UNIT RATE AND TOTAL VALUE, ETC PROVIDED BY THE ASSESSEE IN RELATION TO CLOSING STOCK. 13.2 THAT THE ASSESSING OFFICER HAS ERRED ON ACTS ARM IN LAW IN TOTALLY DISREGARDING THE RELEVANT AND MATERIAL FACT THAT THE WHOLE OF THE CLOSING STOCK WAS SOLD AND OFFERED TO TAX DURING NEXT FINANCIAL YEAR. I.E. FINANCIAL YEAR 2011 - 2012. 14. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 11,58,75,146/ - BEING THE VALUE OF BALANCE SHEET ITEM OF ADVANCE RECOVERABLE TO THE TOTAL INCOME OF THE ASSESSEE. 14.1 THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN TOTALLY DISREGARDING THE FACT THAT THE VALUE OF ADVANCE RECOVERABLE ONLY REPRESENTS THE AMOUNT OF CREDIT REFUND AVAILABLE FOR VAT PAYMENTS, CUSTOMS DUTY PAYMENT. CENVAT CREDIT FOR SERVICE TAX AND OTHER MISCELLANEOUS ADVANCES FOR HOTELS, ETC. WHICH ARE NEITHER AN ITEM OF INCOME NOR AN ITEM OF EX PENDITURE FOR THE ASSESSEE. 14.2 THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING A HUGE ADDITION OF RS. PAGE | 14 L1,58,75.146/ - WITHOUT INDICATING ANY STATUTORY PROVISION OF THE ACT BASED ON WHICH SUCH ERRONEOUS ADDITION HAS BEEN PURPORTED TO BE MADE. 15. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS.4.65.78,484/ - BEING THE VALUE OF BALANCE SHEET ITEM OF SUNDRY CREDITORS AND RS.6.98.13.499/ - BEING THE VALUE OF BALANCE SHEET ITEM OF OTHER LIABILITIES, TO THE TOTA L INCOME OF THE ASSESSEE. 15.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ARRIVING AT THE FINDING THAT THE SUNDRY CREDITORS & OTHER LIABILITIES ARE BOGUS MERELY BECAUSE CONFIRMATION LETTERS HAVE NOT BEEN FILED BY THE ASSESSEE IN RELATION TO SU CH SUNDRY CREDITORS. 15.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW' IN MAKING AN ADDITION OF RS.4,65,78.484/ - PLUS RS.6,98,13,499/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 37/ SECTION 69C OF THE ACT. 15.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING A SUBSTANTIVE ADDITION OF RS.4.65.78,484/ - PLUS RS.6,98.13,499/ - IN SPITE OF THE FACT THAT DISPUTE RESOLUTION PANEL (DRP) HAD DULY DIRECTED THAT SUCH ADDITION SHOULD BE MADE ON PROTECTIVE BASIS ON LY. 16. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 15,53,10,286/ - BEING THE VALUE OF BALANCE SHEET ITEM OF STATUTORY LIABILITIES, TO THE TOTAL INCOME OF THE ASSESSEE. 16.1 THAT THE ASSESSING OFFICER HAS ERRED ON FACT S AND IN LAW IN TOTALLY DISREGARDING THE FACT THAT THE VALUE PAGE | 15 OF STATUTORY LIABILITY ONLY REPRESENTS THE VALUE OF VARIOUS STATUTORY PAYMENTS LIKE VAT, SALES TAX, SERVICE TAX. ETC. DEMANDED BY TAX AUTHORITIES BUT NOT YET PAID BY THE ASSESSEE, WHICH ARE NEITH ER AN ITEM OF INCOME NOR AN ITEM OF EXPENDITURE FOR THE ASSESSEE. 16.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW' IN MAKING AN ADDITION OF RS. 15,53,10,286/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 37/ SECTION 6 9C OF THE ACT. 17. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW M MAKING ADDITION OF RS. 1,05,10,000/ - BEING THE VALUE OF BALANCE SHEET ITEM OF UNSECURED LOANS TO THE INCOME OF THE ASSESSEE. 17.1 THAT THE ASSESSING OFFICER HAS ERRED ON FACTS A ND IN LAW IN TOTALLY DISREGARDING THE FACT THAT WHOLE OF THE VALUE OF UNSECURED LOAN REPRESENTS THE SHORT TERM LOAN RECEIVED BY THE ASSESSEE BY WAY OF ACCOUNT PAYEE CHEQUE FROM ITS DIRECTORS/ SHAREHOLDERS WHICH WERE ALSO REPAID BY W AY OF ACCOUNT PAYEE CHE QUES DURING THE RELEVANT FINANCIAL YEAR ITSELF. 17.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ARRIVING AT THE FINDING THAT THE UNSECURED LOANS RECEIVED FROM DIRECTORS/ SHAREHOLDERS ARE IN THE NATURE UNEXPLAINED CASH CREDITS MERELY BECAUSE CONFIRMATION LETTERS HAVE NOT BEE N PURPORTEDLY FILED BY THE ASSESSEE IN RELATION TO SUCH UNSECURED LOANS. 17.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN IGNORING THE FACT THAT MR. SEBASTIEN BRUNET (DIRECTOR OF ASSESSEE) HAD IN FACT DULY FURN ISHED A CONFIRMATION LETTER REGARDING RS.7,00,000/ - GIVEN AS UNSECURED LOAN TO THE ASSESSEE. PAGE | 16 17.4 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN IGNORING THE FACT THAT MR. BINU NANU (DIRECTOR OF ASSESSEE) HAD IN FACT DULY FURNISHED A CONFIRMATION LETTER REGARDING RS. 27,10,000/ - (RS. 27,00,000/ - PLUS RS. L0,000/ - ) GIVEN AS UNSECURED LOAN TO THE ASSESSEE. 17.5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. L,05,10,000 / - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKI NG THE PROVISIONS OF SECTION 68/ SECTION 68 OF THE ACT. 18. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS. 30,32,55,951 / - (BEING THE ALLEGED DIFFERENCE BETWEEN THE PURPORTED TARGET COST AND CONSIDERATION TO BE RECEIVED F ROM OC), TO THE TOTAL INCOME OF THE ASSESSEE. 18.1 THAT THE ADDITION OF RS. 30,32.55.951/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE ALLEGED DIFFERENCE BETWEEN THE PURPORTED TARGET COST AND CONSIDERATION TO BE RECEIVED FROM OC HAS LED TO DUPLICATIVE ADDITION AS THE ENTIRE CONSIDERATION RECEIVED/ RECEIVABLE BY THE ASSESSEE FROM OC HAS ALREADY BEEN ACCRUED IN THE PROFIT AND LOSS ACCOUNT. 18.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING A DUPLICATE ADDITION OF RS. 30, 32, 55, 951 / - IN SPITE OF THE FACT THAT, DRP HAD DIRECTED THAT NO DUPLICATE ADDITION SHOULD BE MADE. THE FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GROUND 18.1 & 18.2 ABOVE. 18.3 THAT THE ADDITION OF RS. 30,32,55,951 / - MADE BY THE ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS THE COPIES OF THE ALLEGEDLY INCRIMINATING MATERIAL/ DOCUMENTS RELIED UPON BY THE PAGE | 17 ASSESSING OFFICER IN THE ASSESSMENT ORDER WERE NOT SUPPLIED TO THE ASSESSEE. 18.4 THAT THE ASS ESSING OFFICER ERRED ON FACTS AND IN LAW IN DISREGARDING THE DETAILS SUBMISSIONS/ DOCUMENTS AND INFORMATION FURNISHED BY THE ASSESSEE. 18.5 THAT THE ASSESSING OFFICER ERRED ON FACTS IN NOT APPRECIATING THE NATURE OF ASSESSEES BUSINESS BY TREATING THE ASS ESSEE AS A RESELLER OF GOODS AS AGAINST A SERVICE PROVIDER, WHO HAD DULY PAID SERVICE TAX. 1 8.6 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DRAWING ADVERSE INFERENCE FROM THE SIZED PAPERS BEING PAGE 1 TO 4 OF ANNEXURE A - 3. PARTY BR 3. 18.7 THA T THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 30,32,55,951 / - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 69A OF THE ACT 19. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING AD DITION OF RS.34.10,40,959/ - (BEING THE ALLEGED DIFFERENCE BETWEEN THE PRICE QUOTED BY THE ASSESSEE TO OC IN COMPARISON TO THE PRICE ALLEGEDLY QUOTED BY OTHER VENDORS), TO THE TOTAL INCOME OF THE ASSESSEE. 19.1 THAT THE ADDITION OF RS.34,10,40,959/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE ALLEGED DIFFERENCE BETWEEN THE PRICE QUOTED BY THE ASSESSEE TO 0 (IN COMPARISON TO THE PRICE ALLEGEDLY QUOTED BY OTHER VENDORS HAS LED TO DUPLICATIVE ADDITION AS WHOLE OF THE CONSIDERATION RECEIVED/ RECEIVABLE BY THE ASSESSEE FORM OC HAS ALREADY BEEN ACCRUED IN THE PROFIT AND LOSS ACCOUNT. PAGE | 18 19.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 34,10,40,959 / - IN SPITE OF THE FACT THAT DRP HAD DIRECTED THAT NO DUPLICATE ADDITION SHOULD B E MADE. THE FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GROUND 19.1 & 19.2 ABOVE 19.3 THAT THE ADDITION OF RS. 34.10,40,959/ - MADE BY THE ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS THE COPIES OF THE ALLEGEDLY INCRIMINAT ING MATERIAL/ DOCUMENTS COLLECTED BY THE ASSESSING OFFICER FROM THIRD PARTIES AND RELIED UPON BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER WERE NOT SUPPLIED TO THE ASSESSEE IN SPITE OF REPEATED REQUESTED. 19.4 THAT THE ADDITION OF RS. 34,10,40,959 / - MA DE B) THE ASSESSING OFFICER IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AS THE ASSESSING OFFICER - FAILED TO PROVIDE TO THE ASSESSEE THE OPPORTUNITY TO CROSS EXAMINE THE RELEVANT OFFICERS OF OTHER VENDORS WHOSE PRICES HAVE BEEN RELIED UPON IN THE ASSESSMENT ORDER FOR MAKING THE ADDITION OF RS. 34,10,40,959 / - TO THE TOTAL INCOME OF THE ASSESSEE. 19.5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISREGARDING THE MATERIAL AND RELEVANT DETAILS SUBMISSIONS/ DOCUMENTS AND INFORMATION FURNISHED BY THE A SSESSEE AND HAS INSTEAD ERRONEOUSLY RELIED ON EXTRANEOUS CONSIDERATIONS FOR MAKING ADDITION OF RS. 34,10,40,959/ - TO THE TOTAL INCOME OF THE ASSESSEE. 19.6 THAT THE ASSESSING OFFICER ERRED ON FACTS IN NOT APPRECIATING THE NATURE OF ASSESSEE'S BUSINESS BY T REATING THE ASSESSEE AS A RESELLER OF GOODS AS AGAINST A SERVICE PROVIDER. PAGE | 19 19.7 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 34.10.40,959/ - AS THE SAID ADDITION ARISES ONLY AS A RESULT OF CHERRY PICKING IN AS MUCH AS O NLY THOSE ITEMS HAVE BEEN CHERRY PICKED WHERE THE PRICE QUOTED BY THE ASSESSEE WAS HIGH IN COMPARISON TO THE PRICE QUOTED BY OTHER VENDORS AND ALL THOSE ITEMS WHERE THE PRICE QUOTED BY THE ASSESSEE WAS LESS IN COMPARISON TO THE PRICE QUOTED BY OTHER VENDOR S HAVE BEEN SIMPLY IGNORED AND DISREGARDED. 19.8 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 34 , 10 , 40,959/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 69C OF THE ACT 20. THAT THE ASSESSIN G OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING AN AD HOC ADDITION OF RS. 129,27,50.026/ - (BEING THE VALUE OF EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT), TO THE TOTAL INCOME OF THE ASSESSEE. 20.1 THAT THE ADDITION OF RS. 129,27,50.026/ - MADE BY TH E ASSESSING OFFICER HAS LED TO DUPLICATIVE ADDITION AS VARIOUS ITEMS OF EXPENSES HAVE ALREADY BEEN SPECIFICALLY ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 20.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 129.27.50.026/ - IN SPITE OF THE FACT THAT DRP HAD DIRECTED THAT NO DUPLICATE ADDITION SHOULD BE MADE. 20.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 129,27.50,026/ - IN SPITE OF THE FACT THAT DRP HAD DIRECTED THAT 100% OF THE PAGE | 20 EXPEN DITURE INCURRED BY THE ASSESSEE CANNOT BE HELD AS BOGUS. THE FOLLOWING SUB - GROUNDS ARE WITHOUT PREJUDICE TO THE ABOVE GROUND 20.1. 20.2 AND 20.3 ABOVE. 20.4 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISREGARDING THE DETAILS SUBMISSIONS DOCUMENTS AND INFORMATION FURNISHED BY THE ASSESSEE AND HAS RELIED ON TOTALLY EXTRANEOUS CONSIDERATION FOR MAKING THE ADDITION OF RS. 129,27,50,026/ - TOT THE TOTA L INCOME OF THE ASSESSEE. 20.5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS. 129,27,50,026/ - TO THE TOTAL INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 69C OF THE ACT. 21. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN ASSESSING THE TOTAL INCOME OF RS. 359,40,96,540/ - AS AGAINST THE GROSS CONTRACTUAL RECEIPTS OF RS. 180,14,77,159/ - IN SPITE OF THE SPECIFIC DIRECTION OF THE DRP THAT THE TOTAL INCOME OF THE ASSESSEE CANNOT EXCEED 100% OF THE GR OSS RECEIPT. 22. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (1 )(C) OF THE ACT. 23. THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271G OF THE ACT. 2 . THE BRIEF FACTS OF THE CASE ARE RELATED TO XIX ADDITION OF COMMONWEALTH GAMES HELD IN NEW DELHI FROM 3 /10/2010 TO 14 /10/2010. THE ORGANIZATION AND CONDUCT OF THIS MEGA EVENT WAS CONTROLLED AND SUPERVISED BY THE COMMONWEALTH GAMES ORGANIZ ING COMMITTEE ( OC, CWT) SPECIFICALLY FORMED AND AUTHORISED TO DEAL PAGE | 21 WITH THE VARIOUS ASPECTS RELATING TO THE SMOOTH ORGANIZATION OF THE ABOVE EVENT. THE BUDGET OF THIS COMMITT EE WAS ESTIMATED AT ABOUT INR 2 300 CRORES. OUT OF THIS AMOUNT , THE SUM OF INR 60 0 CRORES WERE ESTIMATED TO BE SPENT ON THE EXECUTION OF THE OVERLAYS CONTRACTS. THESE CONTRACTS WERE AWARDED TO FOUR DIFFERENT PARTIES WITH EACH PARTY EXECUTING THE WORK IN RESPECT OF ONE OR MORE OF THE SEVEN CLUSTERS INTO WHICH THE SPORTING AND TRAINING VENUES WERE DIVIDED. 3 . M/ S GL EVENTS MEROFORM IS A CONSORTIUM FORMED ON 19/ 05 /2009 IS A JOINT VENTURE FOR MED FOR THE PURPOSE OF WINNING THE CONTRACTS FOR THE EXECUTION OF OVERLAYS PROJECTS TO BE AWARDED BY THE ORGANIZING COMMITTEE. THE CONSORTIUM COMPRISES OF TWO PARTNERS - ( 1) M / S GL EVEN T SERVICES, FRANCE WITH 70% SHARE AND (2) M/S M EROFORM INDIA PRIVATE LIMITED WITH 30% SHARE IN THE JOINT VENTURE. 4 . M / S GL EVENTS FRANCE HAD PREVIOUS EXPERIENCE OF PROVIDING OVERLAYS FO R MAJOR SPORTING EVENTS AS CLAIMED BY IT AND THEREFORE WAS THE LEAD PARTNER OF THE CONSORTIUM THAT BID FOR THE AWARD FOR OVERLAYS CONTRACTS AND THE OTHER PARTY WAS AN INDIAN PARTNER. 5 . THE CONTRACT FOR OVERLAYS WAS AWARDED BY THE OC TO THE CONSORTIUM IN RE SPECT OF TWO CLUSTERS. FIRST CLUSTER I.E. CLUSTER NUMBER III COMPRISED OF GAMES VILLAGE AND NOIDA EXPRESS HIGHWAY. THE 2 ND CLUSTER I.E. CLUSTER VII WAS COMPRISING OF 5 NONCOMPETITION VENUES SUCH AS INTERNAL BROADCASTING CENTRE AND MAIN MEDIA CENTRE, UN IFORM ACT AND ADDITIONS CENTRE, MAIN LOGISTICS CENTRE, AIRPORT AND HOTELS. 6 . ORIGINALLY, THE CONTRACT FOR THE ORGANIZING COMMITTEE WAS AWARDED TO THE CONSORTIUM FOR INR 1 65.45 CRORES AND AFTER SUBSEQUENT CHANGES IN THE BILL OF QUANTITIES ( BOQ), THE FINAL CLAIM RAISED BY THE ASSESSEE ON THE ORGANIZATION COMMITTEE FOR OVERLAYS CONTRACT IS OF INR 156.73 CRORES INCLUSIVE OF SERVICE TAX. HOWEVER, THE CONSORTIUM DID NOT ITSELF EXECUTIVE THE CONTRACT FOR OVERLAYS AWARDED TO IT BY THE ORGANIZATION COMM ITTEE BUT IT FORMED A COMPANY BY THE NAME OF GL LITMUS EVENTS PRIVATE LIMITED ( ASSESSEE, APPELLANT ) ON 3/3/2010 FOR PAGE | 22 THE EXECUTION OF THE CONTRACT. THE SAID COMPANY HAS TWO SHAREHOLDERS I.E. 70% OF THE HOLDING IS WITH GL EVENTS SERVICES FRANCE AND 30% IS WITH MEROFORM INDIA PRIVATE LIMITED. THIS COMPANY, APPELLANT, IS CONTROLLED BY MR. SEBASTIAN B RUNETTE, WHO REPRESENTS THE INTEREST OF GL EVENTS FRANCE IN THE CONSORTIUM AS WELL AS THE ASSESSEE COMPANY AND MR. BINU NANU, WHO CONTROLS THE AFFAIRS OF MEROFOR M INDIA PRIVATE LIMITED. 7 . THERE WERE ALLEGATIONS IN THE PUBLIC DOMAIN THAT THE CONTRACTS FOR OVERLAYS WORK WERE AWARDED AT VERY HIGH RATES RESULTING INTO HUGE MARGINS. THEREFORE HIGH POWER COMMITTEE KNOWN AS THE SHUNGLU COMMITTEE HAS BEEN APPOINTED BY THE HONOURABLE PRIME MINISTER OF INDIA TO REPORT ON THE ALLEGATIONS OF IRREGULARITIES IN THE CONDUCT OF COMMONWEALTH GAMES 2010. THE COMMITTEE HAS REPORTED ON VARIOUS ASPECTS RELATED TO THE COMMONWEALTH GAMES 2010. THE FIFTH REPORT OF THE COMMITTEE HAS DEALT WITH VARIOUS ASPECTS RELATED TO THE OVERLAY CONTRACTS. THE REPORT HAS ALSO COMMENTED THAT THE ORGANIZING COMMITTEE HAS PAID DIFFERENTIAL RATES TWO DIFFERENT CONTRACTORS FOR THE SAME ITEMS AND PAYING OF HIRE CHARGES FOR THE SAME ITEMS HAS RESULTED IN HUGE LOSS TO THE EXCHEQUER. IT WAS APPREHENDED THAT THE HUGE MARGINS ARE NOT TO BE DISCLOSED BY THE ASSESSEE TO THE IN COME TAX DEPARTMENT. THEREFORE, SEARCH U/S 132 OF THE INCOME TAX ACT WAS CARRIED OUT AT THE RESIDENCE AND BUSINESS PREMISES OF M/S GL LITMUS EVEN T S PRIVATE LIMITED AND THE M EROFORM GROUP ON 19/10/2010 AT NEW DELHI AND NOIDA. SURVEY UNDER SECTION 133A OF THE INCOME TAX ACT WAS ALSO CARRIED OUT ALONG WITH THE SEARCH ACTIONS. DURING THE COURSE OF SEARCH AND SURVEY, VARIOUS DOCUMENTS WERE FOUND AND SEIZED . STATEMENTS OF SHRI BINU NANU WERE RECORDED ON 19/10/2010 AND ON 16/12/2010. STATEMENT OF MR. SEBASTIAN BRUNET, DIRECTOR OF GLLE, WAS ALSO RECORDED ON 19/10/2010. 8 . MEANWHILE ON 05/01/2011 AN FIR NO.RC - DAI - 2011 - A - 0001 WAS FILED UNDER SECTION 154 CR.P.C BY CBI FOR CRIMINAL CONSPIRACY, PAGE | 23 CHEATING, AND ABUSE OF OFFICIAL POSITION AGAINST THE ASSESSEE AND OTHER PERSONS. THE FIR WAS IN THE NAME OF (1) SH V. K. VERMA (DG, OC, CWG ) ( 2 ) SH BINU NANU (MD OF M/S MEROFORM INDIA PVT. LTD. AND GLLE) (3) M/S PICO DEEPALI OVELAYS CONSORTIUM, DELHI (4) M/S NUSSLI (SWITZERLAND) LTD., SWITZERLAND . ( 5) M/S ESAJV:D ART: INDO CONSORTIUM, NEW DELHI. (6) M/S G.L EVENTS - MEROFORM, FRANCE (CONSORTIU M) (7) AND OTHERS. 9 . IT WAS COMPLAINED THAT DURING 2009 - 10 SHRI V K VERMA, DIRECTOR GENERAL, ORGANIZING COMMITTEE (OC) COMMONWEALTH GAMES 2010 AND OTHER OFFICIALS OF OC ENTERED INTO A CRIMINAL CONSPIRACY WITH (1) SHRI BINU NANU, MANAGING DIRECTOR OF M/S. MEROFORM INDIA PVT. LTD. / M/S. G.L. EVENTS PVT. L TD. MEROFORM, FRANCE; (2) M/S. PICO DEEPALI OVERLAYS CONSORTIUM, DELHI; , (3) M/S. NUSSLI (SWITZERLAND) LTD., SWITZERLAND AND (4) M/S. ESAJV:D ART: INDO CONSORTIUM, NEW DELHI IN THE AWARD OF CONTRACTS FOR OVERLAYS FOR DIFFERENT VENUES OF COMMONWEALTH G AMES 2010, DELHI AT EXORBITANT RATES. THE ACCUSED PUBLIC SERVANTS BY ABUSING THEIR OFFICIAL POSITIONS THEREBY CHEATED AND CAUSED UNDUE LOSS TO THE GOVERNMENT OF INDIA AND CORRESPONDING GAIN TO THE SAID FOUR COMPANIES AND THEMSELVES. 10 . ALSO, IMMEDIATELY ON 0 6/01/2011, IN PURSUANCE OF SEARCH WARRANT ISSUED U/S 93 CR PC, THE CBI CONDUCTED SEARCH AT THE OFFICE PREMISES OF SHRI BINU NANU, I.E. M/S G.L. EVENTS/M/S MEROFORM INDIA PVT. LTD. AT A - 37, SECTOR 80, PHASE II, NOIDA. IN ADDITION, CBI SEARCH WAS CONDUCTED O N 06/01/2011 AT THE RESIDENTIAL PREMISES OF SHRI BINU NANU AND SMT. BINU AT F - 18, SECTOR 40, NOIDA. 11 . MEANWHILE ASSESSEE WAS ALSO AWARDED A CONTRACT OF INR 5 4 CRORES FOR SUPPLY OF OVERLAY STRUCTURE BY THE DELHI DEVELOPMENT AUTHORITY. 12 . NOW PURSUANT TO THE ABOVE - MENTIONED SHUNGLU REPORT, THE FIR AND THE CBI SEARCH, THE OC, CWG STARTED WITHHOLDING BILLS OF ASSESSEE AGAINST SEVERAL OF ITS INVOICES. ONLY A PART PAYMENT OF RS.70.18 PAGE | 24 CRORES WAS MADE TO ASSESSEE AGAINST A FEW INVOICES, BEING INVOICES NO. 1,2,3 A ND INCLUDING PART PAYMENT OF RS. 27,17,14,981/ - TOWARDS INVOICE NO. 4 DATED 07/10/2010. VARIOUS COMMUNICATIONS WERE EXCHANGED BY THE APPELLANT AND THE FRENCH COMPANY WITH THE MINISTRY OF YOUTH AFFAIRS & SPORTS, GOVT. OF INDIA (BEING THE SUCCESSOR TO THE DI SSOLVED OC, CWG). MEANWHILE, INCREASING DISPUTES AND AGITATIONS TOWARDS PAYMENTS TO BE MADE TO ALL THE CONTRACTORS BY THE OC, CWG LED TO THE MINISTRY OF YOUTH AFFAIRS & SPORTS, VIDE ITS LETTER DATED 19/05/2011, TO INSTRUCT THAT PAYMENTS OF BILLS TO THE OV ERLAYS VENDOR, INCLUDING ASSES S EE COULD NOT BE HELD TO BE LEGITIMATE DUES AND HENCE IT WOULD NOT BE APPROPRIATE TO RELEASE THE SAID AMOUNT DUE TO THEM. FURTHER IN THE EVENT OF ABSOLUTELY NO PAYMENTS BEING RELEASED, THE APPELLANT COMPANY ON 12/07/2011, ISSUED NOTICE TO OC, CWG WHEREBY LISTING OUT ITS BILLS, IT INVITED DISCUSSION FROM OC, CWG REGARDING THE DISPUTES AND DIFFERENCES IN ORDER TO REACH A MUTUALLY AGREEABLE SOLUTION. AGAIN, SINCE THERE WAS NO RESPONSE FROM OC, CWG, ANOTHER LETTER DATED 23/08/2 011 WAS ISSUED TO OC, CWG, REQUESTING IT TO REFER THE DISPUTES TO ITS CHAIRMAN AND CEO FOR THEIR RESOLUTION. FINALLY THE OC, CWG VIDE ITS LETTER DATED 25/08/2011 APPRAISED THE APPELLANT COMPANY THAT THE CONTRACT RELATING TO OVERLAYS WAS UNDER INVESTIGATION OF VARIOUS AGENCIES INCLUDING THE CBI AND AN FIR HAD ALSO BEEN LODGED IN WHICH ASSESSEE WAS CITED AS AN ACCUSED FOR SUSPECTED OFFENCES OF CRIMINAL CONSPIRACY, CHEATING AND ABUSE OF OFFICIAL POSITION. IT WAS INFORMED TO THE APPELLANT COMPANY BY MINISTRY OF YOUTH AFFAIRS & SPORTS VIDE ITS LETTER DATED 19/05/2011 HAD INSTRUCTED THE OC, CWG THAT , UNTIL THE INVESTIGATIONS BY THE CBI ARE COMPLETE, THE PAYMENTS OF BILLS TO THE OVERLAYS VENDOR, INCLUDING ASSESSEE COULD NOT BE SAID TO BE LEGITIMATE DUES AND HEN CE IT WOULD NOT BE APPROPRIATE TO RELEASE THE SAID AMOUNT DUE TO THEM. 13 . MEANWHILE THE INCOME TAX DEPARTMENT VIDE ITS ATTACHMENT ORDER U/S 281B OF THE ACT DATED 02/01/2012 ATTACHED ALL THE FUTURE PAGE | 25 PAYMENTS OF THE BILLS FROM OC, CWG TO THE APPELLANT. IT IS ST ATED THAT SAID ATTACHMENT EXISTS UNTIL DATE WITH FURTHER EXTENSIONS . 14 . IN THE MEANWHILE AGAIN, DISPUTES REGARDING PAYMENTS NOT BEING RESOLVED, CLAIMS FOR OUTSTANDING BILLS WERE MADE BY ASSESSEE (CLAIMANT) AND COUNTER CLAIMS BY THE OC, CWG, (RESPONDENT) WER E MADE BEFORE THE ARBITRAL TRIBUNAL COMPRISING OF MR. JUSTICE ANIL DEV SINGH (RETD.), MR. JUSTICE A.P. SHAH (RETD.) AND MR. JUSTICE M.L. VARMA (RETD.). THE APPELLANT COMPANY MADE CLAIMS OF RS. 172.43 CRORES ON ALONG WITH OTHER CLAIMS. THE OCCWG, DENYING AL L THE CLAIMS OF THE APPELLANT, HAS IN FACT RAISED COUNTER CLAIMS FOR THE RECOVERY OF RS 70.18 CRO R ES (ALONG WITH INTEREST) ON THE CLAIM THAT THE AGREEMENT BECAME VOID AB INITIO DUE TO CRIMINAL CONSPIRACY/FRAUD. THE ARBITRAL TRIBUNAL BASED ON THE CLAIMS AND THE COUNTER CLAIMS FILED BY THE CLAIMANT AND THE RESPONDENT RESPECTIVELY, FRAMED THE SEVERAL ISSUES THAT WERE TO BE ADDRESSED AND DEALT BY THEM. 15 . UNDER THIS BACKGROUND , ASSESSEE FILED RETURN OF INCOME ON 31/3/ 2012 FOR ASSESSMENT YEAR 2011 12 DECLARING INCOME OF INR 5 , 23 , 39 , 490/ ADOPTING THE CASH SYSTEM OF ACCOUNTING. IT WAS THE ONLY METHOD AVAILABLE TO THE APPELLANT IN AS MUCH AS, EVIDENT FROM ALL THE ABOVE, ONLY THE BILLS WHICH STOOD REALIZED (ENCASHED) FRO M THE OC, CWG CONSTITUTED INCOME FOR THE APPELLANT. ALL THE BALANCE BILLS RAISED BUT NOT PAID WERE DENIED TO THE DUES OF THE APPELLANT COMPANY. THUS, IT WAS CLAIMED THAT THE BILLS RAISED BUT NOT PAID DID NOT CONSTITUTE INCOME OF THE APPELLANT. IN ADDITI ON, IT IS STATED THAT THE APPELLANT COMPANY HAS ALL ALONG, SINCE ITS FIRST YEAR OF COMMERCIAL OPERATION, BEING THE A.Y. 2011 - 12, MAINTAINED ITS BOOKS OF ACCOUNTS ON CASH SYSTEM OF ACCOUNTING FOR PURPOSES OF INCOME TAX. THUS, THE APPELLANT COMPANY FOLLOWED THE CASH SYSTEM OF ACCOUNTING FOR INCOME TAX PURPOSES. BOOKS WERE ALSO MAINTAINED ON THE ACCRUAL BASIS ALSO FOR PURPOSES OF COMPLIANCE WITH THE REQUIREMENTS OF SECTION 209 OF THE COMPANIES ACT , 1956. THUS, AC CORDINGLY, RETURN WAS FILED ON CASH BASIS AT AN INCOME OF RS. PAGE | 26 5,23,39,490/ - ASSESSEE DECLARED INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. IT WAS ALLEGED THEREIN THAT THE APPELLANT REGULARLY MAINTAINED BOOKS OF ACCOUNT ON ACCRUAL BASIS , RETURN OF INCOME ON CASH BASIS WAS REJECTED . AGAINST THE RETURNED INCOME OF THE ASSESSEE OF INR 5 2339490/ , THE LEARNED AO PASSED THE DRAFT ASSESSMENT ORDER ON 27/3/2014 DETERMINING THE TOTAL INCOME OF THE ASSESSEE OF INR 10 , 45 , 48 , 31 , 720/ . THERE WERE 25 DIFFERENT TYPE OF ADDITIONS WHICH ARE MADE BY THE LEARNED ASSESSING OFFICER AMOUNTING IN ALL INR 10 , 45 , 48 , 31 , 721/ . DURING THE COURSE OF ASSESSMENT PROCEEDINGS , REFERENCE U/S 92CA (1) WAS MADE BY THE LEARNED ASSESSING OFFICER TO THE LEARNED TRANSFER PRICING OFFICER TO DETERMINE ARMS THE PRICE OF THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THERE WERE NO INTERNATIONAL TRANSACTIONS BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES. HOWEVER THE LEARNED TRANSFER PRICING OFFICER FOUND THAT ASSESSEE HAS ENTERED INTO 5 DIFFERENT TYPES OF INTERNATIONAL TRANSACTIONS AS UNDER : - SERIAL NUMBER DETAILS OF INTERNATIONAL TRANSACTIONS AMOUNT PAID OR PAYABLE IN INR 1 PURCHASE OF CONSUMABLES 40117002 2 RENTAL EXPENSES PAID 349054107 3 CONTRACT MANPOWER/JOB WORK OR SERVICES AVAILED 116032264 4 MANAGEMENT FEES PAID 45996007 5 REIMBURSEMENT OF EXPENSES 33193514 16 . THE LEARNED TRANSFER - PRICING OFFICER NOTED THAT THE ASSESSEE HAS FURNISHED THE TRANSFER PRICING DOCUMENTATION ON 20/1/2014 HOWEVER, IT WAS NOT CORROBORATED WITH STATUTORY CERTIFICATE IN FORM NUMBER 3 CEB AND THEREFORE , HE REJECTED IT. HE FURTHER REFERRED TO THE SEARCH OPERATION UNDER SECTION 132 OF THE INCOME TAX ACT PAGE | 27 CONDUCTED ON THE ASSESSEE ON 19/10/2010 AND REFERRED TO THE POST SEARCH INVESTIGATION WHICH REVEALED THAT THE ASSESSEE IS ENGAGED IN THE MODUS OPERANDI OF RAISING BOGUS BILLS AND THEREBY INFLATING THE EXPENSES. ACCORDINGLY IN VIEW OF THE FINDING OF THE HIGH - POWERED COMMITTEE, THE POST SEARCH INCOME TAX PROCEEDINGS AND THE FIN DINGS BY THE STATUTORY AUDITOR IN FORM NUMBER 3 CEB , ASSESSEES PAYMENT TOWARDS INT ERNATIONAL TRANSACTION OF INR 5 8 , 43 , 92 , 894/ WAS REDUCED TO NIL USING THE COMPARABLE UNCONTROLLED PRICE METHOD. ACCORDINGLY THE LEARNED TRANSFER PRICING OFFICER PROPOSED AN ADJUSTMENT OF INR 58 , 43 , 92 , 894/ . 17 . AGAINST THE DRAFT ASSESSMENT, ORDER THE ASSESSEE - PREFERRED OBJECTION BEFORE THE LEARNED DISPUTE RESOLUTION PANEL IV, NEW DELHI WHO PASSED DIRECTIONS ON 26/12/2014. CONSEQUENT TO THE DIRECTION OF THE LEARNED DISPUT E RESOLUTION PANEL , FINAL ASSESSMENT ORDER U/S 143 (3) READ WITH SECTION 153A READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 WAS PASSED ON 25/2/2015 WHEREIN THE TOTAL INCOME OF THE ASSESSEE WAS COMPUTED AT INR 3 59 , 40 , 96 , 536/ AGAIN ST THE RETURNED INCOM E OF INR 5, 23 , 39 , 490/ . AGAINST THIS ORDER, THE ASSESSEE IS IN APPEAL BEFORE US RAISING VARIOUS GROUNDS OF APPEAL LISTED ABOVE. 18 . THE FIRST GROUND OF APPEAL IS AGAINST THE ORDER OF THE LEARNED ASSESSING OFFICER IN REJECTING THE CASH METHOD OF ACCOUNTING FOL LOWED BY THE ASSESSEE AND COMPLETING THE ASSESSMENT AS PER ACCRUAL/MERCANTILE METHOD OF ACCOUNTING. 19 . THE LEARNED ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER NOTED THAT ACCOUNTS OF THE APPELLANT SHOULD BE IN THE NATURE OF VENTURE ACCOUNT WHEREIN THE CORRECT PROFITABILITY COULD BE ARRIVED AT ONLY BY FOLLOWING THE ACCRUAL METHOD OF ACCOUNTING , REJECTED THE CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE LEARNED ASSESSING OFFICER NOTED IN THE SHOW CAUSE NOTICE DATED 9/1/2013 THAT THE ASSESSEE COMPANY HAS BEEN REGULARLY MAINTAINING BOOKS OF ACCOUNT ON ACCRUAL BASIS AS IS EVIDENT FROM THE FINANCIAL STATEMENTS FILED BY THE COMPANY UNDER THE COMPANIES ACT AND THE BOOKS OF PAGE | 28 ACCOUNT SEIZED DURING THE COURSE OF SEARCH. HE NOTED THAT EVEN FOR THE INCOME TAX PURPOSES THE COMPANY HAS FOLLOWED THE ACCRUAL BASIS OF ACCOUNTING INITIALLY AS IS EVIDENT FROM FORM NUMBER 3 CEB FILED BY THE ASSESSEE COMPANY. HE FURTHER NOTED THAT IN THAT FORM , IT IS STATED THAT THE INTERNATIONAL TRANSACTION ARE AS PER BOOKS OF ACCOUNTS WHICH HAVE BEEN DULY EXAMINED BY THE AUDITOR FOR THE PURPOSES AND THEREFORE IT SHOWS THAT THE ASSESSEE HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND ONLY TO DEFER THE TAX PAYMENTS SWITCH ED TO THE CASH SYSTEM OF ACCOUNTI NG. IN PARA NUMBER 12 (D) , HE FURTHER NOTED THAT ASSESSEE HAS INITIALLY CLAIM ED TO HAVE MAINTAINED ITS BOOKS OF ACCOUNTS IN CA SH BASIS. THE BOOKS OF ACCOUNTS FOR THE FINANCIAL YEAR 2010 11 OF THE ASSESSEE ANALYZE D DURING THE POST - SEARCH PROCEEDINGS , WHICH WERE REFLECTIVE OF THE ACTUAL PAYMENTS AND RECEIPTS ONLY AND DID NOT GIVE THE REAL POSITION OF THE PROFITABILITY OF THE ASSESSEE FROM THE CWG CONTRACTS. HE FURTHER NOTED THAT THE CONSORTIUM WAS FOUND WITH THE SPECIFIC AN D EXCLUSIVE PURPOSE OF EXECUT ING THE OVERLAYS CONTRACT FOR CWG 2010. OTHER THAN THAT THE OVERLAYS CONTRACTS IN CONTACT WITH D DA , IT IS NOT UNDERTAKEN ANY OTHER PROJECT EITHER IN RESPECT OF CWG OR OTHERWISE AND THEREFORE, THE ACTIVITIES OF THE ASSESSEE ARE NOT CARRIED FORWARD FROM ONE ACCOUNTING PERIOD TO THE NEXT. HE THEREFORE NOTED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE SHOULD THEREFORE BE IN THE NATURE OF VENTURE ACCOUNT ONLY AND THE CORRECT PROFITABILITY CAN BE ARRIVED AT BY FOLLOWING THE ACCRUAL METHOD OF ACCOUNTING ONL Y . THEREFORE , ACCORDING TO HIM , THE BOOKS OF ACCOUNTS OF THE ASSESSEE O N CASH BASIS, DESERVES TO BE REJECTED AND THE PROFIT NEEDS TO BE DETERMINED ON ACCRUAL BASIS. ON OBJECTION BEFORE THE LEARNED DISPUTE RESOLUTION PANEL , THE DISPUTE RESOLUTION PANE L NOTED THAT , FROM PERUSAL OF THE ASSESSMENT ORDER, IT IS CLEAR THAT THERE WERE VARIOUS DISCREPANCIES IN THE BOOKS OF ACCOUNTS AS NOTICED BY THE LEARNED ASSESSING OFFICER . T HE LEARNED DISPUTE RESOLUTION PANEL ALSO RELIED UPON THE DECISION OF HONOURABLE SU PREME COURT IN CASE OF BRITISH PAINTS INDIA LTD 188 ITR 44 AND HELD THAT THE ASSESSEE S PAGE | 29 BOOKS OF ACCOUNTS ARE NOT RELIABLE AT ALL AND THEREFORE THIS BOOKS OF ACCOUNTS HELD TO BE REJECTED UNDER SECTION 145 (3) OF THE INCOME TAX ACT . T HEREFORE IT DIRECTED THE LEARNED ASSESSING OFFICER TO INVOKE PROVISIONS OF SECTION 145 (3) OF THE ACT . CONSEQUENTLY, THE ASSESSMENT WAS TO BE COMPLETED IN THE MANNER PROVIDED UNDER SECTION 144 OF THE INCOME TAX ACT. IT WAS FURTHER NOTED BY THE LEARNED DISPUTE RESO LUTION PANEL THAT THE ASSESSEE IS NOT GOING TO INCUR ANY EXPENDITURE IN RELATION TO CWG, WHICH HAS NOT ACCRUED IN VIEW, AND THEREFORE THE ASSESSEES INCOME HAS TO BE WORKED OUT ON ACCRUAL BASIS. THUS, THE LEARNED ASSESSING OFFICER AS PER THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL REJECTED THE BOOKS OF ACCOUNTS OF THE APPELLANT MAINTAINED ON CASH BASIS AND PROCEEDED TO CONCLUDE THE ASSESSMENT AS PER ACCRUAL METHOD OF ACCOUNTING. 20 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE BUSINESS IN COME COULD BE COMPUTED AS BASED ON THE CASH SYSTEM OF ACCOUNTING OR ON MERCANTILE SYSTEM OF ACCOUNTING . C HOICE OF EMPLOYING EITHER OF THE TWO METHODS OF ACCOUNTING RESTS WITH THE ASSESSEE. HE FURTHER RELIED UPON THE PROVISIONS OF SECTION 5 OF THE INCOME T AX ACT AND SUBMITTED THAT CASH SYSTEMS OF ACCOUNTING AS WELL AS THE MERCANTILE SYSTEM OF ACCOUNTING BOTH ARE RECOGNIZED FOR THE PURPOSE OF THE COMPUTING TOTAL INCOME OF THE ASSESSEE. HE FURTHER REFERRED TO THE PROVISIONS OF SECTION 145 OF THE INCOME TAX A CT WHICH LAYS DOWN THAT THE BUSINESS INCOME IS REQUIRED TO BE COMPUTED IN ACCORDANCE WITH THE CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE , THEREFORE , SUBMITTED THAT IT IS OPEN FOR AN ASSESSEE TO FOLLOW EITHER CASH SYSTEM OF ACCOUNTING OR MERCANTILE SYSTEM OF ACCOUNTING IN COMPUTING ITS BUSINESS INCOME. HE FURTHER SUBMITTED THAT IT IS A SETTLED POSITION OF LAW THAT THE OPTION OF CHOOSING A SYSTEM OF ACCOUNTING RESTS WITH THE ASSESSEE AND THE TAX AUTHORITIES CANNOT INTERFE RE WITH SUCH A CHOICE WITH RESPECT TO THE SYSTEM OF ACCOUNTING. HE RELIED UPON THE DECISION OF THE HONOURABLE SUPREME COURT IN CASE OF CIT VS. PAGE | 30 MACMILLAN & CO 33 ITR 182 WHEREIN IT HAS BEEN HELD THAT THE CHOICE OF THE METHOD OF ACCOUNTING LIES WITH THE ASS ESSEE. HE FURTHER REFERRED TO THE DECISION OF THE HONOURABLE SUPREME COURT IN CASE OF INVESTMENT LTD VS. CIT 77 ITR 533 AND STATED THAT THE TAXPAYER IS FREE TO EMPLOY ANY METHOD OF ACCOUNTING BUT IT SHOULD BE CONSISTENTLY AND REGULARLY FOLLOWED BY HIM. H E FURTHER RELIED UPON THE DECISION OF THE HONOURABLE SUPREME COURT IN UNITED COMMERCIAL BANK 240 ITR 355 WHEREIN THE DECISION OF THE BRITISH PAINTS INDIA LTD 188 ITR 44 WAS CONSIDERED AND STATED THAT IF THE METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER IS C ONSISTENTLY AND REGULARLY , IT CANNOT BE DISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING OF ACCOUNTS. HE ALSO RELIED UPON THE DECISION OF THE HONOURABLE ALLOWABLE HIGH COURT IN CASE OF JUGGI LAL KAMLAPAT BANKER V CIT 101 ITR 40 AND HONOURABLE BOMBAY HIGH COURT IN CASE OF CIT VS. MRS. VIMLA D SONWANE 75 TAXMANN 335. SUPPORTING THE CASE OF THE ASSESSEE , THAT ASSESSEE IS FOLLOWING THE CASH METHOD OF ACCOUNTING REGULARLY STATED THAT THIS WAS THE 1 ST YEAR OF ITS COMMERCIAL OPERATION AND THE APPELLANT HAS FOLLOWED THE CASH BASIS OF ACCOUNTING FOR THE SAID YEAR AND FOR THE YEARS THEREAFTER. HE FURTHER REFERR ED TO THE PAGE NUMBER 50 51 AND 91 110 OF THE PAPER BOOK TO SHOW THAT THE ACCOUNTS ARE PREPARED ON CASH BASIS AND THE INCOME TAX RETURNS FOR THE ASSESSMENT YEAR AS WELL AS FOR THE FOLLOWING YEAR ARE MAINTAINED ON CASH BASIS. THEREFORE, HE SUBMITTED TH AT IT IS AMPLY PROVED THAT THE APPELLANT COMPANY IS EMPLOYING THE CASH BASIS OF ACCOUNTING RIGHT FROM THE COMMENCEMENT OF ITS COMMERCIAL OPERATIONS AND THEREAFTER REGULARLY AND CONS ISTENTLY EMPLOYING THE SAID CASH BASIS OF ACCOUNTING AS ITS METHOD OF ACC OUNTING FOR THE PURPOSES OF THE INCOME TAX. HE FURTHER SUBMITTED THAT THE APPELLANT COMPANY WAS JOINT VENTURE COMPANY OF TWO DIFFERENT PARTIES WHO WERE ENGAGED IN THE BUSINESS OF PROVIDING OVERLY SERVICES, EVENT MANAGEMENT SERVICES ET CETERA. DURING THE RELEVANT YEAR, THE APPELLANT PERFORMED A CONTRACT FOR ORGANIZING PAGE | 31 COMMITTEE COMMONWEALTH GAMES 2010 FOR PROVIDING OVERLAYS ON TURNKEY BASIS INCLUDING SUPPLY, INSTALLATION, TESTING, COMMISSIONING, OPERATION, MAINTENANCE AND THE DECOMMISSIONING AND REMOVAL OF THE GAMES OVERLAYS OF COMMONWEALTH GAMES 2010 IN RESPECT OF VARIOUS CLUSTERS ALONG WITH OTHER CONTRACT WITH THE DELHI DEVELOPMENT AUTHORITY . THUS BEING IN THE NATURE OF A JOINT VENTURE COMPANY IN THE 1 ST YEAR OF ITS OPERATION WITH THE LIMITED VISION OF C OMPLETING THE SIDE PROJECTS , IT WAS THE 1 ST CHOICE OF THE APPELLANT TO MAINTAIN THE NON - COMPLICATED CASH METHOD OF ACCOUNTING , WHEREIN INCOME WAS RECORDED ONLY WHEN IT IS RECEIVED AND EXPENSES WERE RECORDED ONLY WHEN IT IS PAID. HE FURTHER JUSTIFIED THE C ASH SYSTEM OF ACCOUNTING STATING THAT OWING TO THE NATURE OF THE INDUSTRY BEING THE SERVICE INDUSTRY IN WHICH THE APPELLANT COMPANY OPERATED AND THAT TOO WITH THE GOVERNMENT AGENCIES, THE INVOICES AND BILLS RAISED ON THE VARIOUS PROJECTS ARE SUBJECT TO FIN AL SETTLEMENT AND IN MANY CASES, THEY ARE SUBJECT TO REVISION AND EVEN REJECTION. HE FURTHER STATED THAT WHEN THE SERVICES RENDERED , WHICH IS INTANGIBLE IN NATURE , THERE IS ALWAYS A POSSIBILITY OF DISPUTES AND NEGOTIATION , THUS GIVING RISE TO THE ELEMENT OF UNCERTAINTY IN THE ACKNOWLEDGEMENT AND RECEIPT OF THOSE INVOICES , AND THUS THE FINAL INCOME FIGURES ARE ALWAYS UNCERTAIN. HE FURTHER REFERRED TO THE FACTS OF THE CASE OF THE APPELLANT AND STATED THAT ASSESSEE WAS AWARDED THE CONTRACT FOR THE VALUE OF INR 77.63 CRORES FOR ONE CLUSTER AND INR 72.36 CRORES FOR ANOTHER CLUSTER. ACCORDING TO THE TERMS OF THE CONTRACT, THE BILLS WERE RAISED FROM 22/6/2010 UNTIL 12/10/2010. HE SAID STATED THAT INVOICES OF INR 80.21 CRORES WERE RAI SED BY THE APPELLANT AGA INST WHICH PAYMENTS OF INR 70.18 CRORES ONLY WERE RECEIVED UP TO 15/10/2010 . H E FURTHER STATED THAT CERTAIN INVOICES WERE PAID ONLY PARTIALLY . H E REFERRED TO THE LEDGER ACCOUNT OF THE ORGANIZING COMMITTEE FOR THE PERIOD 1/4/2010 TIL L 31/3/2018. HE FURTHER SUBMITTED THAT DUE TO VARIOUS LITIGATIONS AND ALLEGATIONS , ALL FURTHER PAYMENTS TO THE APPELLANT FROM 15/10/2010 WERE WITHHELD BY THE ORGANIZING COMMITTEE. HE SUBMITTED THAT THOUGH THE PAGE | 32 ASSESSE E HAS RAISED THE BILLS OF INR 1 56.73 CRORES , HOWEVER ONLY PART PAYMENT OF INR 70.18 CRORE WERE MADE TO THE ASSESSEE AGAINST FEW INVOICES NUMBER 1, 2, 3 AND INCLUDING PART PAYMENT OF RS. . 27.17 CRORES TOWARDS INVOICE NUMBER 4. HE FURTHER REFERRED TO THE VARIOUS COMMUNICATION EXCHANGED WITH THE APPELLANT WITH THE GOVERNMENT OF INDIA MINISTRY OF YOUTH AFFAIRS AND SPORTS , AND ALSO REFERRED TO THE LETTER DATED 19/ 05 /2011 , WHEREIN IT HAS BEEN INSTRUCTED THAT THE PAYMENTS OF BILL TO THE OVERLAY VENDORS INCLUDING ASSESSEE COULD NOT BE H ELD TO BE LEGITIMATE DUES AND IT WOULD NOT BE APPROPRIATE TO RELEASE THE SAID AMOUNT DUE TO THEM. HE FURTHER STATED THAT IN THE EVENT OF ABSOLUTELY NO PAYMENT BEING RELEASED BY THE ORGANIZING COMMITTEE ON 12/7/2011 , ASSESSEE ISSUED NOTICES TO THE ORGANIZING COMMIT TEE. HE FURTHER REFERRED TO THE LETTER DATED 25/8/2011 ISSUED BY ORGANIZING COMMITTEE , WHEREIN THE APPELLANT HAS INFORMED THAT THE CONTRACT RELATING TO OVERLAYS WAS UNDER INVESTIGATION OF VARIOUS AGENCIES AND THEREFORE UNTIL THE INVESTIGATIONS OF THE VARIOUS AGENCIES ARE OVERPAYMENTS OF BILLS TO THE OVERLAYS VENDOR INCLUDING THE ASSESSEE COULD NOT BE SAID TO BE LEGITIMATE DU ES. HE THEREFORE SUBMITTED THAT BY 25/8/2011 , BILLS BEYOND INR 70 .18 CRORES DID NOT GIVE RISE TO ANY ACKNOWLEDGED SUM, INCOME COULD BE HELD TO ARISING AND ACCRUING ON THE REMAINING BALANCE OF INR 72.73 CRORES. HE THEREFORE SUBMITTED THAT THE APPELLANT COMPANY FOLLOWING THE PRUDENT ACCOUNTING PRINCIPLES AND ON COMMERCIAL PRUDENCE FILED ITS RETURN OF INCOME ON CASH SYSTEM OF ACCOUNTING , WHEREIN THE INCOME WAS RECOGNIZED ON ITS RECEIPTS AND EXPENSES ON THEIR PAYMENTS AND THUS ANY INVOICES AS AND WHEN REAL IZED IN FUTURE WOULD ACCORDINGLY BE OFFERED AS INCOME. HE FURTHER REFERRED TO THE FACT THAT THE ARBITRAL TRIBUNAL WAS FORMED AND ASSESSEE HAS MADE THE CLAIM OF INR 1 72.43 CRORES ALONG WITH OTHER CLAIMS AND THE ORGANIZING COMMITTEE DENIED ALL THE CLAIMS OF THE APPELLANT AND RAISED COUNTER CLAIM OF RECOVERY OF INR 70 . 18 CRORES ALONG WITH THE INTEREST ON THE CLAIM THAT THE AGREEMENT BECAME VOID AB INITIO DUE TO CRIMINAL CONSPIRACY/FRAUD. HE THEREFORE SUBMITTED PAGE | 33 THAT THE ORGANIZING COMMITTEE HAS NOT ONLY DEN IED ALL THE REMAINING BALANCE AS LEGITIMATE DUES BUT HAS RAISED COUNTERCLAIMS FOR THE RECOVERY. HE FURTHER REFERRED TO THE ORIGINAL AWARD DATED 23/2/2018 PASSED BY THE ARBITRAL TRIBUNAL, THE FINAL CORRECTED ARBITRATION AWARD DATED 14/05/2018 WHEREIN THE C LAIM OF THE ASSESSEE WITH RESPECT TO THE BALANCE OF THE BILL WAS MOSTLY ACCEPTED, AND THE COUNTERCLAIMS OF THE ORGANIZING COMMITTEE WERE REJECTED. HOWEVER, HE SUBMITTED THAT THE ABOVE AWARD IS STILL PENDING FINALIZATION AS THE WRIT PETITION HAS BEEN FILED BY BOTH THE PARTIES BEFORE THE HONOURABLE DELHI HIGH COURT. THEREFORE, HE STATED THAT THAT THE BILLS PENDING PAYMENT ARE STILL NOT ACKNOWLEDGED AND ACCEPTED AS DUES BY THE ORGANIZING COMMITTEE. HE THEREFORE SUBMITTED THAT ONL Y THE PAYMENT RECEIVED OF IN R 7 0.18 CRORE WAS ONLY THE ACKNOWLEDGED DUE AND THUS THE REAL INCOME OF THE APPELLANT. HE THEREFORE SUBMITTED THAT DUES TO THE TUNE OF INR 72.13 CRORES NOT EVEN BEING ACKNOWLEDGED BY THE ORGANIZATION COMMITTEE CANNOT BE HELD TO BE THE INCOME OF THE ASSESS EE . THEREFORE, HE SUBMITTED THAT THE ASSESSEE IS JUSTIFIED IN FILING THE RETURN ON CASH BASIS OF ACCOUNTING, WHICH DEPICTED THE TRUE INCOME AND CORRECT STATE OF AFFAIRS OF THE ASSESSEE COMPANY. THEREFORE, HE SUBMITTED THAT THE ASSESSEE HAS A STATUTORY RIGHT TO CHOOSE ITS METHOD OF ACCOUNTING FOR TAX PURPOSES AND IT HAS BEEN CHOSEN ON COGENT COMMERCIAL REASONS. WITH RESPECT TO THE MAINTENANCE OF THE BOOKS OF ACCOUNTS ON ACCRUAL BASIS , HE STATED THAT THE AP PELLANT COMPANY IN VIEW OF THE PROVISIONS OF SECTION 209 OF THE COMPANIES ACT ALSO MAINTAINED BOOKS OF ACCOUNT ON ACCRUAL BASIS FOR COMPLIANCE WITH THE COMPANIES ACT 1956. HE FURTHER SUBMITTED THAT THE PROVISIONS OF SECTION 209 OF THE COMPANIES ACT 1956 D OES NOT IN ANY WAY OVERRIDE THE PROVISIONS OF SECTION 1 45 OF THE INCOME TAX ACT AND LAY DOWN THAT THE BOOKS FOR INCOME TAX PURPOSES TO BE MAINTAINED UNDER ACCRUAL SYSTEM. HE SAID THERE IS NO SUCH MANDATE U/S 209 OF THE COMPANIES ACT AND SECTION 145 OF THE INCOME TAX ACT. TO SUPPORT ITS CONTENTION , HE RELIED UPON THE DECISION OF THE HONOURABLE DELHI HIGH COURT IN CYBER MEDIA INDIA PAGE | 34 LTD VS. CIT (2011) 338 ITR 177 (DEL) WHEREIN IT HAS BEEN HELD THAT THE COMPANY CAN FOLLOW MERCANTILE SYSTEM OF ACCOUNTING FOR P URPOSES OF COMPLYING WITH THE REQUIREMENT OF SECTION 209 OF THE COMPANIES ACT 1956 AND AT THE SAME TIME THE SAME COMPANY CAN ALSO FOLLOW CASH BASIS OF ACCOUNTING FOR INCOME TAX PURPOSES. HE FURTHER STATED THAT ONLY REQUIREMENT UNDER INCOME TAX LAW IS THAT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE FOR INCOME TAX PURPOSES SHOULD BE REGULARLY FOLLOWED BY THE ASSESSEE COMPANY. THEREFORE, HE SUBMITTED THAT THE CASH SYSTEM OF ACCOUNTING, WHICH HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE COMPANY, MUST BE ACCEPTED AS SUCH. HE FURTHER SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS INCORRECTLY HELD THAT THE ASSESSEE IS FOLLOWING REGULARLY BOOKS OF ACCOUNT ON ACCRUAL BASIS. H E SUBMITTED THAT SUCH REFERENCE IS WITH RESPECT TO THE PROVISIONS OF SECTION 209 O F THE COMPANIES ACT 1956. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS SUBMITTED ITS PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ON CASH BASIS ALONG WITH THE REQUISITE DETAILS, WHICH ABUNDANTLY PROVES THAT FOR THE PURPOSE OF THE INCOME TAX ACT THE ASSESSEE HA S FOLLOWED THE CASH SYSTEM OF ACCOUNTING. TO SUPPORT HIS VIEW HE REFERRED TO THE DRAFT ASSESSMENT ORDER AT PAGE NUMBER 4 WHERE THE ASSESSING OFFICER STATED THAT THE BOOKS OF ACCOUNTS FOR THE FINANCIAL YEAR 2010 11 OF THE ASSESSEE WERE ANALYZED DURING PO ST SEARCH PROCEEDINGS WERE THEREFORE REFLECTIVE OF THE ACTUAL PAYMENTS AND RECEIPTS ONLY. THEREFORE, HE SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS ALSO RECOGNIZED THAT THE ASSESSEE IS MAINTAINING THE BOOKS OF ACCOUNTS ON CASH BASIS. HE FURTHER SUB MITTED THAT MERE FILING A FORM NUMBER 3 CE B , THE ACCRUAL FIGURES DO NOT ESTABLISHED THAT FOR THE TAX PURPOSES APPELLANT MAINTAINED BOOKS OF ACCOUNT AS PER THE ACCRUAL METHOD OF ACCOUNTING. WITH RESPECT TO THE ORDER OF THE LEARNED DISPUTE RESOLUTION PANE L , HE SUBMITTED THAT THE LEARNED DISPUTE RESOLUTION PANEL HELD THAT VARIOUS DISCREPANCIES IN THE BOOKS OF ACCOUNTS AS NOTICED BY THE LEARNED ASSESSING OFFICER JUSTIFIED THE ORDER OF LD AO. HE DEALT WITH THE 1 ST OBSERVATION WITH RESPECT TO THE PAGE | 35 PRINT OUT OF AN EMAIL DATED 16/6/2010 AND STATED THAT THESE DOCUMENT IS NOT FOUND FROM THE OFFICE OF THE ASSESSEE AND THEREFORE IT DOES NOT BELONG TO THE ASSESSEE BUT IT BELONGS TO THE PERSON WHO SENT THIS MAIL I.E. SRI BINU NANU ONLY . E VEN OTHERWISE, HE STATED THAT THE SAID DOCUMENT POINTED OUT AND RELIED UPON BY THE LEARNED DRP AS ALLEGED PAYMENTS MADE TO ORGANIZING COMMITTEE AND THE DEVELOPMENT AUTHORITY BUT NO SUCH EVIDENCES ARE FOUND. EV EN OTHERWISE HE SUBMITTED THAT ALLEGATION ON THE ASSESSEE WAS OF HIGH MARGIN OF PROFIT IN THE CONTRACT FROM ORGANIZING COMMITTEE AND DELHI DEVELOPMENT AUTHORITY , WHEREAS THE ALLEGATION NOW MADE BY THE LEARNED DISPUTE RESOLUTION PANEL IS WITH RESPECT TO THE BOGUS BILLING IN THE BOOKS OF ACCOUNTS OF THE APPELLANT COM PANY, HE SUBMITTED THAT BOTH THESE ALLEGATIONS ARE CONTRARY TO EACH OTHER. HE FURTHER STATED THAT THERE IS NO EVIDENCE AVAILABLE DURING THE COURSE OF SEARCH WITH RESPECT TO THE ABOVE ALLEGATION. WITH RESPECT TO THE SECOND OBSERVATION OF THE LEARNED DISPU TE RESOLUTION PAN EL WITH RESPECT TO THE DIFFERENCE IN THE TOTAL BILL IS FOUND DURING THE COURSE OF SEARCH. HE SUBMITTED THAT BILLS OF INR 27 , 55 , 05 , 611/ WERE FOUND AND SEIZED , THOUGH THE TOTAL OF THESE PARTIES AS PER THE BOOKS OF ACCOUNTS ON 16/10/201 0 IS INR 38 , 77 , 38 , 567/ . H E THEREFORE SUBMITTED THAT AS PER THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL THE ASSESSEE PRODUCED ALL THE BEANS BEFORE THE LEARNED ASSESSING OFFICER HOWEVER, SAME WERE REJECTED STATING THAT SUCH BILLS CANNOT BE RELIED UPON AS THE ASSESSEE COMPANY WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS. HE SUBMITTED THAT ALL THE BILLS ARE RECORDED IN THE BOOKS, WHICH ARE DULY PAID BY ACCOUNT PAYEE CHEQUES , EVIDENCING THE FACT THAT EXPENSES WERE ALL INCURRED AND PAID. HE SUBMITTED THAT ONCE THE EXPENSES ARE RECORDED AND THE PAYMENT OF THE SAME HAVE BEEN MADE TO THE PARTIES WHO WERE NOT DECLARED AS BOGUS , ONUS LIES ON THE LEARNED ASSESSING OFFICER TO PROVE THAT THE PART PAYMENTS TO THE SAME PARTIES ARE BOGUS. HE THEREFORE STATED THAT THE DISALLOWING THE PART PAYMENT MADE TO THE SAME PARTY ONLY BECAUSE SOME BILLS WERE NOT SEIZED AND FOUND IS PAGE | 36 BASELESS. HE FURTHER STATED THAT THE LEAR NED DISPUTE RESOLUTION PANELS 3 RD GROUND AND STATED THAT THERE IS A NEGATIVE CASH BALANCE OF INR 1 , 22 , 696/ . HE FURTHER REFERRED THAT THIS WAS EXPLAINED TO THE LEARNED ASSESSING OFFICER BECAUSE OF MINOR CLERICAL ERRORS RAISING DOUBTS ON THE AUTHENTICITY OF THE ACCOUNTS MAINTAINED BY THE APPELLANT ON CASH BASIS. HE OTHERWISE SUBMITTED THAT HO W THE METHOD OF ACCOUNTING IS IMPACTED BY THIS ISSUE IS BEYOND COMPREHENSION. HE THEREFORE STATED THAT THE ABOVE THREE INSTANCES WHICH HAS BEEN RAISED BY THE LEARNED DISPUTE RESOLUTION PANEL FOR REJECTING THE BOOKS OF ACCOUNTS ARE BASELESS. HE FURTHER SUBMITTED THAT IN ORDER TO INVOKE THE PROVISIONS OF SECTION 145 (3) OF THE ACT AND TO DISTURB THE EXISTING SYSTEM OF ACCOUNTING , ASSESSING OFFICER MUST NECESSARILY EXPRESSES DISSATISFACTION ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASS ESSEE AND ALSO NOTE THAT SUCH SYSTEM OF ACCOUNTING WAS NOT REGULARLY FOLLOWED BY THE ASSESSEE IN WHICH EVENT ALONE THE ASSESSING OFFICER CAN EXERCISES JURISDICTION AND MAKE AN ASSESSMENT AS PROVIDED UNDER SECTION 144 OF THE INCOME TAX ACT. HE FURTHER SUBM ITTED THAT BEFORE THE REJECTION OF THE BOOKS OF ACCOUNTS AND NECESSARY OPPORTUNITIES REQUIRED TO BE GIVEN TO THE ASSESSEE WHERE BY THE LEARNED ASSESSING OFFICER HAS TO AFFORDED OPPORTUNITY TO THE ASSESSEE TO CONTRADICT THE MATERIALS UPON WHICH THE ASSESSIN G OFFICER WANTS TO REJECT THE BOOKS OF ACCOUNTS. HE SUBMITTED THAT NO SUCH OPPORTUNITY IS GIVEN. EVEN OTHERWISE, HE SUBMITTED THAT WHEN THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE REJECTED THEN THE ONLY OPTION AVAILABLE WITH THE LEARNED ASSESSING OFFICER I S TO ESTIMATE THE PROPER PROFIT OF THE ASSESSEE ON REASONABLE BASIS. HE SUBMITTED THAT NO SUCH EFFORT HAS BEEN MADE BY THE LEARNED ASSESSING OFFICER AND STATED THAT THE LEARNED ASSESSING OFFICER HAS COMPUTED THE INCOME OF THE ASSESSEE STARTING FROM THE PR OFIT OF INR 5 , 23 , 39 ,490/ BEING INCOME AS DECLARED BY THE APPELLANT AND MADE SEVERAL ADJUSTMENT/ADDITIONS THEREON. THEREFORE, HE STATED THAT THE LEARNED ASSESSING OFFICER HAS EVEN OTHERWISE NOT ESTIMATED THE PROFIT OF THE ASSESSEE BUT HAS MADE PAGE | 37 ADDITION TAKING THE PROFIT SHOWN BY THE ASSESSEE BASED ON BOOKS OF ACCOUNTS PREPARED ON CASH METHOD OF ACCOUNTING. IN VIEW OF THE ABOVE FACTS, HE SUBMITTED THAT THE ASSESSEE'S CASH SYSTEM OF ACCOUNTING SHOULD BE ACCEPTED AS IT COMPLIES WI TH THE PROVISIONS OF SECTI ON 5 AND SECTION 145 OF THE INCOME TAX ACT. 21 . COUNTERING THE ARGUMENTS OF THE LEARNED AUTHORISED REPRESENTATIVE, THE LEARNED DEPARTMENTAL REPRESENTATIVE EXTENSIVELY REFERRED TO THE ORDER OF THE LEARNED ASSESSING OFFICER , HE SUBMITTED THAT THE TOTAL VALUE OF THE BILLS FOUND AND SEIZED DURING THE COURSE OF SEARCH COMES TO INR 27 , 55 , 05 , 611/ AGAINST THE TOTAL OF THESE PARTIES AS PER THE BOOKS ON 16/10/2010 COMES ONLY INR 38 , 77 , 38 , 567/ . THEREFORE, THERE IS A DISCREPANCY OF APPROXIMATELY INR 110,000,000 FOR WHICH NO BILLS ARE AVAILABLE AND EVEN DURING THE POST - SEARCH ENQUIRIES THE ASSESSEE COULD NOT SUBMIT THE BILLS FOR REMAINING ENTRIES IN THE BOOKS OF ACCOUNTS . H E REFERRED TO THE DETAILED TABLE PRODUCED BY THE LEARNED ASSESSING OFFICER A T PAGE NUMBER 6 9 OF THE DRAFT ASSESSMENT ORDER. HE FURTHER REFERRED TO PAGE NUMBER 9 OF THE DRAFT ASSESSMENT ORDER AND STATED THAT OUTGOINGS AS PER THE CASH FLOW STATEMENTS WERE INR 9 32672998. HE FURTHER REFERRED THAT TOTAL INCOME OF RS 22890171 HAS BEEN RECEIVED BY TH E ASSESSEE FROM THE SALE OF SCRAP POSTS CWG, 2010. HOWEVER, IN THE AUDITED BALANCE SHEET OF THE ASSESSEE FOR ASSESSMENT YEAR 2011 12 THERE IS NO MENTION OF INCOME RECEIVED OR ACCRUING THROUGH THE SALE OF SCRAP. THEREFORE HE REFE RRED THAT THE ADDITION O F INR 1 32 , 04 , 11 , 565/ WAS MADE U/S 69C OF THE INCOME TAX ACT BEING UNEXPLAINED E XPENDITURE AN ADDITION OF INR 2 2890171/ AS DISCUSSED ABOVE HAS BEEN MADE. HE FURTHER REFERRED TO THE ORDER OF THE LEARNED DISPUTE RESOLUTION PANEL AT PARA NUMBER 5 AND NOTED THAT ON READING OF THE EMAILS FOUND DURING THE COURSE OF SEARCH , IT IS CLEAR - CUT THAT THE SUM OF INR 35 . 85 CRORE IS PAID BY THE ASSESSEE TO THE ORGANIZING COMMITTEE AND T HE DELHI DEVELOPMENT AUTHORITY WHICH DOES NOT GET REFLECTED IN THE BOOKS OF ACCOUN TS. HE FURTHER REFERRED TO THE DIFFERENCE IN THE BILLS DEBITED IN THE BOOKS OF ACCOUNTS AND THE BILLS FOUND DURING THE PAGE | 38 COURSE OF SEARCH SHOWING HUGE DIFFERENCE. THEREFORE, HE SUBMITTED THAT THE PROVISION OF SECTION 145 CLEARLY SHOWS THAT ASSESSEE HAS NOT FOLLOWED THE CASH SYSTEM OF ACCOUNTING. HE FURTHER REFERRED TO THE DECISION OF THE HONOURABLE SUPREME COURT IN CASE OF BRITISH PAINTS INDIA LTD 188 ITR 44 WHEREIN IT HAS BEEN HELD THAT IT IS THE DUTY OF THE LEARNED ASSESSING OFFICER TO CONSIDER WHETHER T HE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THEREFORE MORE NOT. HE FURTHER STATED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE NOT RELIABLE AT ALL AND THEREFORE THIS BOOKS OF ACCOUNTS HAVE TO BE REJECTED UNDER SEC TION 145 (3) OF THE INCOME TAX ACT. 22 . THE LEARNED AUTHORISED REPRESENTATIVE COUNTERING THE ARGUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY STATED THAT THE ASSESSEE HAS PRODUCED ALL THE BILLS BEFORE THE ASSESSING OFFICER AND THEREFORE THERE IS NO DISCREPANCY IN THE BOOKS OF ACCOUNTS. FURTHER WITH RESPECT TO THE SUM OF INR 35 . 85 CRORE, HE SUBMITTED THAT THIS ISSUE IS WITH RESPECT TO WHETHER THE ASSESSEE HAS INCURRED SUCH EXPENDITURE OR NOT DOES NOT DETERMINE WHETHER THE ASSESSEE HAS FOLLOW ED THE CORRECT METHOD OF ACCOUNTING OR NOT. HE FURTHER SUBMITTED THAT EVEN IF THIS ADDITION IS REQUIRED T O BE MADE IT CAN BE MADE DE HORS THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. WITH RESPECT TO THE SALE OF SCRAP, HE SUBMITTED THAT THE SALE OF SCRAP EVEN FALLS BEYOND THE ACCOUNTING PERIOD AND THEREFORE IT CANNOT SHOW THAT ASSESSEE HAS NOT MAINTAINED THE BOOKS OF ACCOUNTS IN ACCORDANCE WITH THE CASH SYSTEM OF ACCOUNTING. WITH RESPECT TO THE DIFFERENCE IN CASH IN HAND AND NEGATIVE CASH BALANC E IN THE CASH BOOK , HE STATED THAT EVEN OTHERWISE IF THE ADDITION IS REQUIRED TO BE MADE IT CAN BE MADE WHETHER THE ASSESSEE FOLLOWS THE CASH SYSTEM OF ACCOUNTING ON MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE HE STATED THAT ALL THE REASONS GIVEN BY THE L EARNED ASSESSING OFFICER AND CONFIRMED BY THE LEARNED DISPUTE RESOLUTION PANEL DOES NOT SUPPORT THE CASE OF THE LEARNED ASSESSING OFFICER TO INVOKE THE PROVISIONS OF SECTION 145 (3) OF THE INCOME TAX ACT. HE PAGE | 39 FURTHER SUBMITTED THAT ASSESSEE IS REGULARLY FO LLOWING THE CASH METHOD OF ACCOUNTING, THIS BEING THE 1 ST YEAR AND IN ALL SUBSEQUENT YEARS AND THEREFORE THE ASSESSEE MUST BE HELD THAT IT IS MAINTAINING ITS BOOKS OF ACCOUNT REGULARLY FOLLOWING THE CASH METHOD OF ACCOUNTING. ACCORDINGLY, HE SUBMITTED THAT THE ORDER OF THE LEARNED DISPUTE RESOLUTION PANEL, THE LEARNED ASSESSING OFFICER IS DEVOID OF ANY MERIT. 23 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE ONLY DISPUTE WITH RESPECT TO THE ABOVE GROUND OF APPEAL IS WHETHER THE ASSESSEE HAS MAINTAINED ITS BOOKS OF ACCOUNTS ON CASH BASIS OF ACCOUNTING FROM WH ICH THE CORRECT PROFIT CAN BE DEDUCED OR NOT. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS FOLLOWED THE CASH BASIS OF ACCOUNTING FOR THE PURPOSE OF INCOME TAX RETURN AND MAINTAINED ITS BOOKS OF ACCOUNTS ON ACCRUAL BASIS TO COMPLY WITH THE PROVISIONS OF SECTION 209 OF THE COMPANIES ACT 1956. ACCORDING TO THE PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT, TO COMPUTE THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCES , ASSESSEE CAN EITHER FOLLOW CASH OR MERCANTILE SYSTEM OF ACCOUNTING, WHICH IS REGULARLY EMPLOYED BY HIM. THIS IS SUBJECT TO THE PROVISIONS OF SUBSECTION (2) OF SECTION 145 OF THE INCOME TAX ACT. FURTHER , PROVISIONS OF SECTION 145 (3) ALSO PROVIDES THAT WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF ACCOUNTS OF THE ASSESSEE OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUBSECTION (1) HAS NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE , HAS NOT BEEN COMPUTED IN ACCORDANCE WITH THIS STANDARDS NOTI FIED UNDER SUBSECTION (2), THE ASSESSING OFFICER HAS TO MAKE AN ASSESSMENT IN THE MANNER PROVIDED UNDER SECTION 144 OF THE INCOME TAX ACT. ON PLAIN READING OF THE ABOVE SECTION , IT IS CLEAR THAT SECTION 145 PROVIDES FOR COMPUTATION OF INCOME U/S 2 8 - 29 B ASED ON THE BOOKS OF ACCOUNT AND METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER , IF HE IS NOT SATISFIED WITH THE CORRECTNESS OR PAGE | 40 COMPLETENESS OF THE BOOKS, HE MAY REJECT THEM AN D ESTIMATE THE INCOME TO THE BEST OF H IS JUDGMENT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 144 OF THE INCOME TAX ACT. IT IS ALSO IF IT IS THE OPTION OF THE ASSESSEE TO FOLLOW CASH METHOD OF ACCOUNTING OR MERCANTILE METHOD OF ACCOUNTING AND INCOME TAX AUTHORITY HAD NO OPTION O R JURISDICTIO N TO EITHER DIRECT ASSESSEE TO MAINTAIN ITS ACCOUNTS IN A PARTICULAR MANNER OR ADOPT DIFFERENT METHOD. THEREFORE, ASSESSEE HAS AN OPTION OR LIBERTY TO ADOPT ANY RECOGNIZED METHOD OF ACCOUNTING FOR ITS BUSINESS AND THE INCOME SHOULD BE COMPUTED IN ACCORDA NCE WITH SUCH REGULARLY MAINTAINED ACCOUNTING SYSTEM. HOWEVER , IT HAS A RIDER THAT WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED UNDER SECTI ON 145 (1) HAS NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE , THEN THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED UNDER SECTION 144 OF THE INCOME TAX ACT. WE WILL DEAL WITH THE EACH OF THE PROPOSITION WITH RESPECT TO THE ABOVE ISSUE RA ISED BY BOTH THE PARTIES. 24 . THE FIRST QUESTION THAT ARISES IS WHETHER THE ASSESSEE IS FREE TO CHOOSE PROPER METHOD OF ACCOUNTING OR NOT. THE PROVISIONS OF SECTION 145 (1) OF THE ACT CLEARLY SHOWS THAT PROFITS AND GAINS OF THE BUSINESS OF PROFESSION BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THEREFORE, ON READING OF THE ABOVE PROVISION IT IS AMPLY CLEAR THAT THE CHOICE OF METHOD OF ACCOUNTING LIES WITH THE ASSESSEE. THE HONOURABLE SUPREME COURT IN CASE OF UNITED COMMERCIAL BANK VS. COMMISSIONER OF INCOME TAX (1999) 240 ITR 355 (SC) AT PAGE NO 366 HAS HELD THAT : - FROM THE DECISIONS DISCUSSED ABOVE, IT CAN BE HELD: ( 1) THAT FOR VALUING THE CLOSING STOCK, IT IS OPEN TO THE ASSESSEE TO VALUE IT AT THE COST OR MARKET VALUE, WHICHEVER IS LOWER; PAGE | 41 (2) IN THE BALANCE SHEET , IF THE SECURITIES AND SHARES ARE VALUED AT COST BUT FROM THAT NO FIRM CONCLUSION CAN BE DRAWN. A TAXPA YER IS FREE TO EMPLOY FOR THE PURPOSE OF HIS TRADE, HIS OWN METHOD OF KEEPING ACCOUNTS, AND FOR THAT PURPOSE, TO VALUE STOCK - IN - TRADE AT EITHER COST OR MARKET PRICE. (3) A METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER CONSISTENTLY AND REGULARLY CANNOT BE D ISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNTS OR OF VALUATION. (4) THE CONCEPT OF REAL INCOME IS CERTAINLY APPLICABLE IN JUDGING WHETHER THERE HAS BEEN INCOME OR NOT, BUT, IN EVERY CASE, IT MUST BE APPLIED WITH CARE AND WITHIN THEIR RECOGNIZED LIMITS. (5) WHETHER THE INCOME HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE MUST BE JUDGED IN THE LIGHT OF THE REALITY OF THE SITUATION. (6) UNDER SECTION 145 OF THE ACT, IN A CASE WHERE ACCO UNTS ARE CORRECT AND COMPLETE BUT THE METHOD EMPLOYED IS SUCH THAT IN THE OPINION OF THE INCOME - TAX OFFICER, THE INCOME CANNOT BE PROPERLY DEDUCED THERE FROM , THE COMPUTATION SHALL BE MADE IN SUCH MANNER AND ON SUCH BASIS AS THE INCOME - TAX OFFICER MAY DETE RMINE. THEREFORE ACCORDING LY, PRINCIPLE EMERGES THAT THE METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER CONSISTENTLY IN REGULARLY CANNOT BE DISCARDED BY THE REVENUE ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNTS BUT THE CONC EPT OF REAL INCOME IS CERTAINLY APPLICABLE IN JUDGING WHETHER THERE HAS BEEN AN INCOME OR NOT AND SUCH PRINCIPLE MUST BE APPLIED WITH CARE AND PAGE | 42 WITHIN THEIR RECOGNIZED LIMITS. IT IS FURTHER HELD THAT THE INCOME HAS REALLY ACCRUED OR ARISE N TO THE ASSESSEE MUST BE JUDGED IN THE LIGHT OF THE REALITY OF THE SITUATION AND IF THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE , REAL INCOME OF THE ASSESSEE CANNOT BE PROPERLY DEDUCED THERE FROM , THE INCOME TAX OFFICER MAY DETERMINE THE INCOME AS PER HIS WISDOM. FURTHER, THE HONOURABLE SUPREME COURT IN CASE OF CIT VS. MA CMILLAN & CO (1958) 33 ITR 182 HAS HELD THAT THE CHOICE OF THE METHOD OF ACCOUNTING LIES WITH THE ASSESSEE. THE ONLY PRECONDITION IS THAT ASSESSEE MUST SHOW THAT HE HAS FOLLOWED THE METHOD REGULA RLY FOR HIS OWN PURPOSES. 25 . THE SECOND ISSUE THAT ARISES IS WHETHER THE ASSESSEE IS FOLLOWING THIS METHOD REGULARLY OR NOT. ADMITTEDLY, THIS IS THE 1 ST YEAR OF THE ASSESSEE. IN THIS YEAR, THE ASSESSEE HAS PREPARED BOOKS OF ACCOUNT FOR TAX PURPOSES FOLLOWING CASH METHOD OF ACCOUNTING. BEFORE US, THE ASSESSEE HAS SUBMITTED THE ANNUAL ACCOUNTS PREPARED FOR THE ASSESSMENT YEAR IN THE IMPUGNED APPEAL FOR ASSESSMENT YEAR 2011 12, WHICH ARE P LACED AT PAGE NUMBER 50 51 AND 91 110 OF THE PAPER BOOK. THE ASSESSEE SUBSEQUENTLY HAS ALSO PREPARED THE ACCOUNTS ON CASH BASIS FOR ASSESSMENT YEAR 2012 13, 2013 14 AND 2014 15, WHICH ARE ALSO SUBMITTED IN THE PAPER BOOKS PREFERRED BEFORE US. T HIS FACT HAS NOT AT ALL BEEN DISPUTED BY THE LEARNED ASSESSING OFFICER, DRP OR THE LEARNED DEPARTMENTAL REPRESENTATIVE BEFORE US. THEREFORE, FROM THE ABOVE IT IS CLEAR THAT THE APPELLANT COMPANY EMPLOYING THE CAS H BASIS OF ACCOUNTING , RIGHT FROM THE COMM ENCEMENT OF ITS COMMERCIAL OPERATION AND THEREAFTER IS PREPARING THE SAME ON CASH BASIS. SUCH ISSUE AROSE BEFORE THE HONOURABLE MOTHER HIGH COURT IN SUNDRAM AND CO LTD VS. COMMISSIONER OF INCOME TAX, MADRAS (1959) 36 ITR 162 (MAD) WHEREIN IT HAS BEEN HELD 8 PAGE NUMBER 167 168 AS UNDER: APPARENTLY THE TRIBUNAL ACCEPTED THE CONTENTION OF THE ASSESSEE, THAT THOUGH THE ACCOUNTS RELATED TO THE 1 ST ACCOUNTING PERIOD OF ITS ACTIVITIES, IT WAS A SYSTEM OF ACCOUNTING REGULARLY EMPLOYED WITHIN PAGE | 43 THE MEANING OF S ECTION 13 OF THE ACT, THOUGH THERE WAS NO SUCH EXPRESS FINDING. IN ANY EVENT, CONSIDERING IT WAS THE SAME SYSTEM OF ACCOUNTING THAT THE ASSESSEE ADOPTED IN THE SUBSEQUENT ACCOUNTING PERIOD IS ALSO, THE TEST OF REGULARLY EMPLOYED MUST BE HELD TO HAVE BEE N SATISFIED IN THIS CASE. THAT WAS THE PRINCIPLE LAID DOWN IN AN UNREPORTED DECISION OF A DIVISION BENCH OF THIS COURT IN MANICKAVASAGAM LTD V COMMISSIONER OF INCOME TAX ( CASE REFERRED NO 21 OF 1954). 26 . FURTHER, IN 149 ITR 738 AND AT PAGE NUMBER 79 IN CIT VS. SIKKA HONOURABLE DELHI HIGH COURT ALSO HELD SO. IN VIEW OF THIS, WE DO NOT HAVE ANY HESITATION IN HOLDING THAT THE ASSESSEE IS MAINTAINING ITS BOOKS OF ACCOUNTS ON CASH METHOD OF ACCOUNTING AND THE SAME METHOD OF ACCOUNTING IS REGULA RLY EMPLOYED BY THE ASSESSEE DURING THIS YEAR AS WELL AS IN SUBSEQUENT YEARS. THEREFORE IT CAN BE SAID THAT ASSESSEE IS FOLLOWING THIS METHOD OF ACCOUNTING REGULARLY HENCE IT IS REGULARLY EMPLOYED BY THE ASSESSEE. 27 . IT IS ALSO APPARENT THAT ASSESSEE IS A COMPANY AND THEREFORE THE PROVISIONS OF THE COMPANIES ACT APPLY TO IT. THUS, TO COMPLY WITH THE PROVISIONS OF SECTION 209 OF THE COMPANIES ACT 1956, WHERE IT IS PROVIDED THAT THE ASSESSEE COMPANY MUST MAINTAIN ITS BOOKS OF ACCOUNTS TO BE PRESENTED BEFORE THE SHAREHOLDERS AS WELL AS BEFORE THE MINISTRY OF CORPORATE AFFAIRS, IT SHOULD COMPLY THE ACCRUAL METHOD OF ACCOUNTING. SUCH MANDATE OF THE COMPANY LAW IS DEFINITELY REQUIRED TO BE COMPLIED BY THE ASSESSEE AND THEREFORE IT MAINTAINS ITS BOOKS OF ACCOUNT FOR SUCH PURPOSES EMPLOYING ACCRUAL METHOD OF ACCOUNTING. THE HONOURABLE SUPREME COURT IN 240 ITR 355 IN CASE OF UNITED COMMERCIAL BANK VS. COMMISSIONER OF INCOME TAX ( SUPRA) AT PAGE NUMBER 365 HAS HELD THAT FOR DETERMINING THE REAL INCOME, THE ENTRIES IN THE BALANCE - SHEET REQUIRED TO BE MAINTAINED IN THE STATUTORY FORM, MAY NOT BE DECISIVE OR CONCLUSIVE. AT PAGE NUMBER, 366 OF THE DECISION THE HONOURABLE SUPREME COURT PAGE | 44 FURTHER HELD THAT PREPARATION OF THE BALANCE SHEET IN ACCORDANCE WITH THE STATUTORY PROVISIONS WOULD NOT DISENTITLE THE ASSESSEE IN SUBMITTING THE INCOME TAX RETURN ON THE REAL TAXABLE INCOME IN ACCORDANCE WITH THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE CONSISTENTLY AND REGULARLY. THAT CANNOT BE DISCARDED BY THE DEPARTMENTAL AUTHOR ITIES ON THE GROUND THAT THE ASSESSEE WAS MAINTAINING THE BALANCE SHEET IN THE STATUTORY FORM BASED ON THE COST OF INVESTMENTS. THUS IT IS APPARENT THAT THE CASH SYSTEM FOLLOWED BY THE ASSESSEE CANNOT BE DISCARDED MERELY FOR THE REASON THAT ASSESSEE IS A LSO MAINTAINING ITS BOOKS OF ACCOUNT ON ACCRUAL BASIS TO COMPLY WITH THE PROVISIONS OF SECTION 209 OF THE COMPANIES ACT 1956. 28 . HOWEVER, THE CARDINAL PRINCIPLE THAT EMERGES IS THAT THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE MUST BE THAT WITH WHICH REA L PROFITS CAN BE DETERMINED. IT IS ALSO A PRINCIPLE THAT ASSESSEE IS REGULAR METHOD OF ACCOUNTING CANNOT BE DISTURBED MERELY BECAUSE THE AO THINKS THAT ANOTHER METHOD IS PREFERABLE. THEREFORE, THE IMPORTANT QUESTION THAT NEEDS TO BE ANSWERED IS WHETHER T HE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE OF CASH METHOD, FROM WHICH THE REAL PROFITS CAN BE DETERMINED, OR NOT. 29 . THE LEARNED ASSESSING OFFICER HAS HELD THAT OWING TO THE JOINT - VENTURE NATURE OF THE BUSINESS OF THE APPELLANT, THE APPELLANT COMPANY F OLLOWED THE CASH SYSTEM OF ACCOUNTING FOR INCOME TAX PURPOSES, WHICH IS NOT PROPER. ACCORDING TO HIM AS THE CONSORTIUM CONSISTING OF GL LITMUS EVENTS PRIVATE LIMITED WAS FOUND WITH THE SPECIFIC AN D EXCLUSIVE PURPOSE OF EXECUT ING THE OVERLAYS CONTRACT FOR CW G 2010. OTHER THAN THE OVERLAYS CONTRACTS AND CONTRACT WITH DDA IT HAS NOT UNDERTAKEN ANY OTHER PROJECT EITHER IN RESPECT OF COMMONWEALTH GAMES OR OTHERWISE. THEREFORE, ACCORDING TO THE ASSESSING OFFICER , ACTIVITIES OF THE ASSESSEE ARE NOT CARRIED FORWARD FROM ONE ACCOUNTING PERIOD TO THE NEXT. THEREFORE, ACCORDING TO HIM, THE BOOKS OF THE ASSESSEE SHOULD THEREFORE BE IN THE NATURE OF VENTURE ACCOUNT ONLY AND THE CORRECT PROFITABILITY CAN BE ARRIVED AT PAGE | 45 BY FOLLOWING THE ACCRUAL METHOD OF ACCOUNTING ONLY . THEREFORE, THE BOOKS OF ACCOUNTS MA INTAINED BY THE ASSESSEE ON CASH BAS I S WERE REJECTED. THE CLAIM OF THE ASSESSEE IS THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PERFORMING THE CONTRACT FOR SERVICES, AN D IS IN THE 1 ST YEAR OF ITS OPERATIONS WITH THE LIMITED VISION OF COMPLETING THE SAID VENTURE, THEREFORE THE CASH METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE WAS THE MOST SUITABLE AND EASIEST METHOD WHEREIN INCOME WAS RECORDED ONLY WHEN IT IS RECEIVED AN D EXPENSES WERE RECORDED ONLY WHEN IT IS PAID. ON CAREFUL PERUSAL OF THE PROVISIONS OF SECTION 145 (1) OF THE ACT , WE DO NOT FIND ANY DISTINCTION WITH THE NATURE OF THE BUSINESS FOR METHOD OF ACCOUNTING TO BE EMPLOYED REGULARLY. FURTHER, THE ASSESSEE ST ATED THAT AS ASSESSEE IS IN A CONTRACT BUSINESS THERE ARE ALWAYS POSSIBILITY OF DISPUTES AND NEGOTIATION GIVING RISE TO THE ELEMENT OF UNCERTAINTY IN ACKNOWLEDGEMENT OF AND RECEIPT OF THE INVOICES , THAT IS SUBJECT TO CERTAIN DEDUCTIONS OR ADJUSTMENT IS ALW AYS, IT WOULD BE FUTILE TO RECORD AN INCOME, WHICH HAS NOT ACCRUED TO THE ASSESSEE. THE LEARNED AR FURTHER STRESSED UPON THE FACTS OF THE CASE AND STATED THAT IN ASSESSEES CASE THIS HAS HAPPENED AS THE BILL IS RAISED IN THOSE YEARS HAVE NOT REALIZED TILL DATE AND ARE FACING THE PROTRACTED LITIGATION FOR INDEFINITE PERIOD. THE LEARNED AO IS CANVASSING THE ACCRUAL METHOD OF ACCOUNTING ONLY FOR THE REASON THAT THE ACTIVITIES OF THE ASSESSEE ARE NOT CARRIED FORWARD FROM ONE ACCOUNTING PERIOD TO THE NEXT. WE DO NOT FIND ANY JUSTIFICATION IN THE ARGUMENT OF THE LEARNED AO THAT THE ASSESSEE SHOULD HAVE MAINTAINED ITS BO OKS OF ACCOUNT ON ACCRUAL BASIS FOR THESE REASONS. THE ONLY CRITERIA ARE THAT THE INCOME OF THE ASSESSEE MUST BE PROPERLY DEDUCED FROM THE MET HOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. SUCH DISTINCTION CANNOT BE BASED ON THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE. THE LEARNED AO ALSO DID NOT SUPPORT THE ARGUMENT WITH A LOGICAL REASON THAT WHETHER IN SUCH NATURE OF BUSINESSES ONLY ACCRUAL METHO D OF ACCOUNTING IS ACCEPTABLE, MANDATORILY OR OTHERWISE BASED ON CERTAIN ACCOUNTING STANDARDS. THERE IS NONE PAGE | 46 PRODUCED BEFORE US. THEREFORE WE REJECT THIS ARGUMENT OF THE LEARNED AO THAT ASSESSEE SHOULD HAVE MAINTAINED ITS BOOKS OF ACC OUNTS ON ACCRUAL BASIS. EVEN LOOKING AT THE FACTS OF THE CASE OF THE ASSESSEE WHEREIN IT IS SHOWN THAT FOR A SUBSTANTIAL PERIOD OF TIME THE REVENUE IS LOCKED IN LITIGATION AND HAS STILL NOT BEEN RECEIVED. IN SUCH CASES, THE INCOME WOULD HAVE BEEN TAXED W ITHOUT ANY LIABILITY FOR PAYMENT BY THE RECIPIENT OF THOSE SERVICES. THEREFORE, IN SUCH CIRCUMSTANCES, WE DO NOT FIND ANY FAULT WITH THE CASH METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. 30 . ON CAREFUL ANALYSIS OF THE SECTION 5 OF THE ACT, IT IS AMPLY CLEAR THAT INCOME OF THE ASSESSEE IS CHARGEABLE TO TAX WHEN IT ACCRUES AND ARISES. THE ASSESSEE HAS RIGHT TO OFFER SUCH INCOME IF THE SAME IS THOUGH ACCRUED BUT NOT RECEIVED, TO OFFER IT FOR TAXATION ON RECEIPT BASIS. IN THIS CASE, THE BILLS THAT ARE NOT RECEIVED BY THE ASSESSEE ARE NOT AT ALL ADMITTED BY THE PERSON WHO IS SUPPOSED TO PAY IT. THUS, THERE IS NO OBLIGATION OF PAYMENT ON THE SHOULDER OF ORGANIZING COMMITTEE. THUS THE OUTSTANDING PAYMENTS, O N THE FACTS OF THE CASE, HAS NEITHER ACCRUED TO THE ASSESSEE, NOR RECEIVED BY IT. 31 . THE NEXT REASON GIVEN BY THE LEARNED AO FOR NOT ACCEPTING THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ON CAS H BASIS AND STATED THAT THE PROFIT OF THE ASSESSEE CANNOT BE DEDUCED FROM IT FOR THE REASON THAT I . TOTAL VALUE OF THE BILLS FOUND AND SEIZED DURING THE COURSE OF SEARCH COMES TO ONLY INR 2 75505611/ AS AGAINST THE TOTAL OF THE ABOVE PARTIES AS PER THE BOOKS OF ACCOUNTS ON 16/10/2010 COMES TO INR 3 87738567/ . THEREFORE, ACCORDING TO THE LEARNED ASSESSING OFFICER THERE IS A DISCREPANCY OF APPROXIMATELY INR 11 CRORE FOR WHICH NO BILLS ARE AVAILABLE. T O SUBSTANTIATE THIS LEARNED AO HAS TABULATED ON PAGE NUMBER 6 9 OF THE DRAFT ASSESSMENT ORDER , DETAILS OF 92 PAR TIES WHERE THERE IS A DIFFERENCE IN THE BILLS FOUND DURING THE COURSE OF SEARCH AS WELL AS BILLS RECORDED IN THE BOOKS OF ACCOUNTS. IN FACT THE ASSESSEE HAS RECORDED THE TOTAL BILLS OF INR 38 , 77 , 38 , 567/ WHEREAS THE PAGE | 47 BILLS FOUND DURING THE COURSE OF SEARCH ARE ONLY INR 27 , 55 , 05 , 611/ . THE CONTENTION OF THE ASSESSEE RAISED BEFORE THE LEARNED DISPUTE RESOLUTION PANEL WAS THAT THAT THE SEARCH PARTY FOUND OTHER BILLS BUT SEIZED ONLY THOSE BILLS, WHICH WERE OF THE AMOUNT OF ABOVE INR 100,000. THEREFORE, IT IS NOT OF FACT THAT NO BILLS WERE FOUND FOR A SUM OF INR 11 CRORES . THE AR FURTHER STATED THAT AS PER THE DIRECTION OF THE LEARNED DRP THE APPELLANT DID PRODUCE BEFORE THE ASSESSING OFFICER THE ORIGINAL RE MAINING BILLS FOR VERIFICATION WHICH WERE REJECTED BY THE LEARNED ASSESSING OFFICER STATING THAT THE ABOVE BILLS CANNOT BE RELIED UPON AS THE ASSESSEE COMPANY WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS. IN FACT, ON CAREFUL ANALYSIS OF THE FINDING OF THE LEARNED ASSESSING OFFICER , IT IS APPAREN T THAT ASSESSEE DID PRODUCE BEFORE THE LEARNED ASSESSING OFFICER AS PER THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANELS THE BALANCE BILLS. HOWEVER, THE LEARNED ASSESSING OFFICER WITHOUT EXAMINATION OF THE SAME , REJECTED STATING THAT THE ASSESSEE IS ENGAGED IN THE PRACTICE OF RECEIVING BOGUS BILLS AND THEREFORE SUCH BILLS WERE NOT ACCEPTED. IN FACT, BEFORE MAKING SUCH AN ALLEGATION THE LEARNED ASSESSING OFFICER SHOULD HAVE EXAMINE D THOSE BILLS AND MADE THE DETAI LED ENQUIRY WITH RESPECT TO THE GENUINENESS OF THOSE BILLS. WITHOUT MAKING ANY ENQUIRY ABOUT THOSE BILLS AND REJECTING THEM ON THE CONJECTURES AND SURMISES AND THEN TO STATE THAT THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE IS NOT PROPER IS NOT SUSTA INABLE IN THE EYE OF THE LAW. IN FACT , ASSESSEE PRODUCED IN THE FORM OF PAPER BOOK THE DETAILS OF SUCH BILLS AND STATED THAT THEY ARE ALL ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND ARE AVAILABLE FOR THE VERIFICATION OF THE LE ARNED ASSESSING OFFICER , WHICH WAS DIRECTED BY THE LEARNED DISPUTE RESOLUTION PANEL AND THEREFORE FOR THE REASON THAT ASSESSEE HAS NOT PRODUCED THE BALANCE BILL OF INR 11 CRORE CANNOT JUSTIFY THE REJECTION OF THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. IT IS FURTHER THE PAGE | 48 CASE THAT IT IS NOT FOR THE ASSESSEE TO SUGGEST THAT WHAT DOCUMENT SHOULD BE SEIZED BY THE SEARCH PARTY AND WHAT DOCUMENT SHOULD NOT BE SEIZED. IT IS SOLELY THE DISCRETION OF THE SEARCH TEAM TO DECIDE THAT. FURTHER, AL L THOSE VENDORS PARTIES WERE ALSO PAID BY ACCOUNT PAYEE CHEQUES. THUS MERELY FOR THE REASON THAT ASSESSEE PRODUCED THOSE BILLS BUT ASSESSING OFFICER REJECTED THEM FOR THE SOLE REASON THAT ASSESSEE IS IN PRACTICE OF RECEIVING BOGUS BILLS, WITHOUT PROVING THAT, THE LEARNED ASSESSING OFFICER IS NOT AUTHORISED TO REJECT THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THEREFORE, IT IS NOT PROPER TO STATE THAT FOR THIS REASON , THE PROFITS OF THE ASSESSEE CANNOT BE DERIVED FOR TAXATION PURPOSES C ORRECTLY. IN FACT THE REJECTION SHOULD BE BASED ON COGENT REASON AS HELD BY THE HONOURABLE SUPREME COURT IN CIT VS. BRITISH PAINTS 188 ITR 44 (SC). II . THE ANOTHER ISSUE FOR WHICH THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IS REJECTED IS FOR THE REASON THAT FROM THE RESIDENCE OF A DIRECTOR IN THE APPELLANT COMPANY ARE ROUGH HANDWRITTEN NOTE AND A PRINT OUT OF AN EMAIL DATED 16/6/2010 WHICH WAS SENT BY MR. OLIVER OF GL EVENTS FRANCE , WHEREAS THERE IS A WORKING OF A SUM OF INR 35 .8 5 CRORE AS IS EXPENSES ON ACCOUNT OF ORGANIZING COMMITTEE AND DELHI DEVELOPMENT AUTHORITY. SUCH EMAIL IS PLACED AT PARA NUMBER 5.2 OF THE DIRECTION. THE COPY OF THE EMAIL IS PRODUCED AT PAGE NUMBER 6 OF THE ORDER OF THE LEARNED DISPUTE RESOLUTION PANEL. AT PAGE NUMBER 7 OF T HE DIRECTION, ANOTHER DOCUMENT THAT IS SEIZED FROM THE RESIDENTIAL PREMISES OF MR. BINU NANU IS ALSO PLACED. ACCORDING TO THE LEARNED DISPUTE RESOLUTION PANEL THOSE DOCUMENTS SPEAKS A LOT ABOUT THE MONEY PAID/PAYABLE FOR OBTAINING THE CONTRACTS. THE LEA RNED DISPUTE RESOLUTION PANEL IN PARA NUMBER 5.4 HAS NOTED THAT THAT IT IS EVIDENT FROM THE ABOVE TWO DOCUMENTS THAT FOR TAKING CONTRACT FOR CWG FROM ORGANIZING COMMITTEE IN DELHI DEVELOPMENT AUTHORITY THE ASSESSEE HAS PAID THE SUM OF INR 27 CRORE FOR CONTRACT VALUE OF PAGE | 49 INR 1 6 5,00,00,000, 120 CRORES FROM ORGANIZING COMMITTEE AND INR 45,00,00,000 FROM DELHI DEVELOPMENT AUTHORITY, 15% OF THE CONTRACT VALUE TO ORGANIZING COMMITTEE AND 4.5% OF THE CONTRACT VALUE TO DELHI DEVELOPMENT AUTHORITY. THEREFORE , THE LEARNED DISPUTE RESOLUTION PANEL WAS ALSO OF THE VIEW THAT ABOVE SUM HAS BEEN SHOWN IN THE BOOKS OF ACCOUNTS AS THESE EXPENDITURE SHOULD HAVE BEEN INCURRED WHICH IS AN OFFENCE IN PRIVATE AND BY LAW AND THUS ARE NOT ALLOWABLE UNDER SECTION 37 OF THE INCOME TAX ACT. THEREFORE, IT WAS FOUND THAT THE MONEY ACTUALLY PAID BY THE ASSESSEE FOR OBTAINING THE ABOVE - MENTIONED CONTRACT FOR THE ORGANIZING COMMITTEE IN DELHI DEVELOPMENT A UTHORITY IS NOT LESS THAN INR 3 5.85 CRORES. IT WAS FURTHER NOTED THAT SINCE THIS AMOUNT HAS BEEN PAID BEFORE GETTING THE CONTRACT MONEY RELEASE D FROM THE ORGANIZING COMMITTEE IN DELHI DEVELOPMENT AUTHORITY AND THEREFORE THE SOURCE OF THE EXPENDITURE WHICH IS AN OFFENCE AND PROHIBITED BY LAW AND THUS ARE NOT ALLOWABLE U /S 37 REMAINED UNEXPLAINED , SAME HAS BEEN SHOWN TO RECOUP FROM THE CONTRACT VALUE THROUGH THE BOGUS BILLING. THUS, ACCORDING TO THE LEARNED DISPUTE RESOLUTION PANEL THE APPELLANT IS NOT EVEN FOLLOWING THE TRUE CASH SYSTEM WHILE ACCOUNTING ITS INCOME AND THAT IS WHY THE SUM OF INR 35 . 85 CRORE PAID BY THE ASSESSEE TO THE ORGANIZING COMMITTEE AND THE DELHI DEVELOPMENT AUTHORITY AS MENTIONED ABOVE DOES NOT GET REFLECTED IN THE BOOKS OF ACCOUNTS. THEREFORE, THE LEARNED ASSESSING OFFICER RELYING ON THESE FI NDINGS OF THE LEARNED DISPUTE RESOLUTION PANEL STATED THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE THAT IS CASH METHOD OF ACCOUNTING IS NOT ACCEPTABLE AND ASSESSEE SHOULD FOLLOW ACCRUAL METHOD OF ACCOUNTING. III . ON CAREFUL CONSIDERATION OF THE ARGU MENT OF THE LEARNED AO, WE DO NOT FIND ANY SUBSTANCE THAT FOR THIS REASON THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE CAN BE CHALLENGED OR THIS COULD BE THE REASON BECAUSE OF WHICH THE PROFITS OF THE ASSESSEE OR THE REAL INCOME EARNED BY THE ASSESSEE CANNOT BE DEDUCED. PAGE | 50 IN FACT , THE LEARNED DISPUTE RESOLUTION PANEL DESPITE HAVING THE COPIES OF THE EMAIL AND WAS HAVING A BELIE F THAT ASSESSEE HAS PAID INR 35.85 CRORES AS AN ILLEGAL GRATIFICATION BY BOOKING THE BOGUS B ILLS, THEREFORE, IT WAS MANDATORY FOR THE LEARNED ASSESSING OFFICER , LEARNED DISPUTE RESOLUTION PANEL TO HAVE ENQUIRED INTO THE BILLS DEBITED BY THE ASSESSEE AND TO SHOW THAT THESE ARE THE BOGUS BILLS. NOT ALL THESE EXERCISE HAS BEEN CARRIED OUT BY THE L EARNED ASSESSING OFFICER O R THE LEARNED DISPUTE RESOLUTION PANEL. OVER AND ABOVE , ASSESSEE WAS DIRECTED BY THE LEARNED DISPUTE RESOLUTION PANEL TO PRODUCE THE COPIES OF THE BILLS BEFORE THE LEARNED ASSESSING OFFICER, THE LEARNED ASSESSING OFFICER HAS STR AIGHT WAY REJECTED THESE BILLS STATING THAT ASSESSEE IS ENGAGED IN THE PRACTICE OF RECEIVING BOGUS BILLS. WITHOUT FINDING ANY OF THE BILLS RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS BOGUS, THE WHOLE ARGUMENT OF THE LEARNED DISPUTE RESOLUTION PA NEL AND THE LEARNED ASSESSING OFFICER , WITH RESPECT TO METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE CANNOT BE SUSTAINED. THE CORRECT METHODOLOGY SHOULD HAVE BEEN TO FIND OUT THE BOGUS BILLS BY THE ASSESSEE, IF ANY, AND THEN TO DISALLOW THOSE EXPENSES UN DER SECTION 69C OF THE INCOME TAX ACT. THE ADDITION U/S 69C OF THE INCOME TAX ACT CAN BE MADE IRRESPECTIVE OF ANY OF THE ACCOUNTING METHOD FOLLOWED BY THE ASSESSEE. THEREFORE, FOR THIS REASON THE BOOKS OF ACCOUNTS AND METHOD OF ACCOUNTING EMPLOYED BY T HE ASSESSEE CANNOT BE REJECTED. IV . THE NEXT REASON THAT HAS BEEN GIVEN BY THE LEARNED ASSESSING OFFICER IS THAT THAT THERE IS A NEGATIVE CASH BALANCE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE OF INR 1 , 22 , 696/ . DURING THE COURSE OF SEARCH, DAILY CASHBOOK OF T HE ASSESSEE COMPANY WAS FOUND. BASED ON THIS IT WAS FOUND THAT ON 09/04/2010 INR 15,000/ , ON 18/05/2010 2767/ AND ON 08/10/2010 INR 1 04929/ ARE THE NEGATIVE CASH BALANCES . T HEREFORE, THIS WAS ALSO GIVEN AS ONE OF THE REASON FOR REJECTING THE M ETHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. NO DOUBT CASHBOOK CAN NEVER HAVE PAGE | 51 ANY NEGATIVE CASH BALANCE. BEFORE THE LEARNED ASSESSING OFFICER, THE ASSESSEE EXPLAINED THE REASONS FOR HAVING SUCH N EGATIVE CASH BALANCES. HOWEVER, REJECTING THE EXPLANATION OF THE ASSESSEE, THE ADDITION HAS BEEN MADE BY THE LEARNED ASSESSING OFFICER AND WHICH ARE SEPARATELY CONTESTED BY THE ASSESSEE AS PER GROUND NUMBER 10 OF THIS APPEAL. BUT NOW WE ARE HERE TO SAY THAT WHETHER SUCH NEGATIVE CASH BALANCE IN THE CASH BOOK OF THE ASSESSEE CAN BE USED TO REJECT THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE OR NOT , HERE WE ARE NOT SUPPOSED TO DECIDE WHETHER THE ADDITION IS REQUIRED TO BE SUSTAINED OR NOT. ACCORDING TO US IF THERE IS A NEGATIVE CASH BALANCE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE , SAME IS REQUIRED TO ADDED UNDER SECTION 69C OF THE INCOME TAX ACT , IRRESPECTIVE OF THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE, BECAUSE THE ASSESSEE HAS INCURRED AN Y EXPENDITURE , SOURCE OF WHICH IS NOT KNOWN TO THE ASSESSE E. SUCH KIND OF ADDITION IS REQUIRED TO BE MADE IRRESPECTIVE OF THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. THEREFORE, FOR THIS REASON IT CANNOT BE STATED THAT THE PROFITS OF THE ASSESSEE CANNOT BE CORRECTLY DEDUCED BECAUSE THERE IS A NEGATIVE CASH BALANCE IN THE BOOKS OF THE ASSESSEE. IN VIEW OF THIS, WE DO NOT FIND THIS REASON TO SUSTAIN THE REJECTION OF THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE ON THIS GROUND. 32 . THUS THE ACCOUNTING DEFECT OF THE BILLS, EMAILS AND SEIZED DOCUMENTS FOUND AND NEGATIVE CASH CANNOT BE THE REASONS, INDIVIDUALLY OR COLLECTIVELY TO REJECT THE METHOD OF ACCOUNTING REGULARLY FOLLOWE D BY THE ASSESSEE TO REACH AT THE REAL PROFIT / INCOME OF THE ASSESSEE. 33 . THE LEARNED DISPUTE RESOLUTION PANEL/ASSESSING OFFICER HAS HEAVILY RELIED ON THE DECISION OF THE HONOURABLE SUPREME COURT IN CASE OF COMMISSIONER OF INCOME TAX VS BRITISH PAINTS INDIA LTD (1991) 188 ITR 44 (SC). THE LEARNED DISPUTE RESOLUTION PANEL IN PARA NUMBER 5.11 STATED THAT THE HONOURABLE SUPREME COURT IN CASE OF THE ABOVE PAGE | 52 DECISION HAS HELD THAT IT IS ONLY THE RIGHT BUT THE DUTY OF THE LEARNED ASSESSING OFFICER TO CONSIDER WHETH ER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THERE FROM ARE NOT. IT IS FURTHER HELD THAT THAT IT IS INCORRECT TO SAY THAT THE ASSESSING OFFICER IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, THE CORRECT METHOD WHICH HAD NOT BEEN QUESTIONED IN THE PAST AS THERE IS NO ESTOPPELS IN THIS MATTES A ND THE AO IS NOT BOUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS. ON CAREFUL ANALYSIS OF THE DECISION OF THE HONOURABLE SUPREME COUR T AT PAGE NUMBER 0049 IT IS HELD AS UNDER : - THE QUESTION TO BE DETERMINED BY THE ASSESSING OFFICER IN EXERCISE OF HIS POWER UNDER THIS PROVISION IS WHETHER OR NOT INCOME CAN PROPERLY BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY THE ASSESSEE, EVEN IF TH E ACCOUNTS ARE CORRECT AND COMPLETE TO THE SATISFACTION OF THE OFFICER AND THE INCOME HAS BEEN COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. WHAT IS TO BE DETERMINED BY THE OFFICER IN EXERCISE OF HIS POWER IS A Q UESTION OF FACT, I.E. , WHETHER OR NOT INCOME CHARGEABLE UNDER THE ACT CAN PROPERLY BE DEDUCED FROM THE BOOKS OF ACCOUNTS, AND HE MUST DECIDE THE QUESTION WITH REFERENCE TO THE RELEVANT MATERIAL AND IN ACCORDANCE WITH THE CORRECT PRINCIPLES. 34 . HONOURABLE SU PREME COURT FURTHER HELD AT PAGE NUMBER 52 AS UNDER: - WHERE THE MARKET VALUE HAS FALLEN BEFORE THE DATE OF VALUATION AND, ON THAT DATE, THE MARKET VALUE OF THE ARTICLE IS LESS THAN ITS ACTUAL COST, THE ASSESSEE IS ENTITLED TO VALUE THE ARTICLES AT MARKET VALUE AND THUS ANTICIPATE THE LOSS WHICH HE WILL PROBABLY INCURRED AT THE TIME OF THE SALE OF THE GOODS. VALUATION OF THE STOCK IN TRADE AT COST OR MARKET VALUE, WHICHEVER IS THE LOWER, IS A MATTER ENTIRELY WITHIN THE DESCRIPTION OF THE ASSESSEE. BUT WH ICHEVER PAGE | 53 METHOD HE ADOPTS, IT SHOULD DISCLOSE TRUE PICTURE OF HIS PROFITS AND GAINS. IF ON THE OTHER HAND, HE ADOPTS A SYSTEM WHICH DOES NOT DISCLOSE THE TRUE STATE OF AFFAIRS FOR THE DETERMINATION OF TAX, EVEN IF IT IS IDEALLY SUITED FOR OTHER PURPOSES OF BUSINESS, SUCH AS CREATION OF RESERVE, DECLARATION OF DIVIDENDS, PLANNING AND THE LIKE, IT IS THE DUTY OF THE ASSESSING OFFICER TO ADOPT ANY SUCH COMPETITION AS HE DEEMS APPROPRIATE FOR THE PROPER DETERMINATION OF THE TRUE INCOME OF THE ASSESSEE. THIS IS NOT ONLY A RIGHT BUT THE DUTY THAT IS PLACED ON THE OFFICER, IN TERMS OF THE 1 ST PROVISO TO SECTION 145, WHICH CONCERNS ARE CORRECT AND COMPLETE ACCOUNT BUT WHICH, IN THE OPINION OF THE OFFICER, DOES NOT DISCLOSE THE TRUE AND PROPER INCOME. 35 . FURTHER AT PA GE NUMBER 53 THE HONOURABLE SUPREME COURT FURTHER HELD THAT: - IT IS NOT ONLY THE RIGHT BUT THE DUTY OF THE ASSESSING OFFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME CAN BE DEDUCED THEREFROM. IT IS I NCORRECT TO SAY, AS CONTENDED ON BEHALF OF THE ASSESSEE, THAT THE OFFICER IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE THE CORRECTNESS OF WHICH HAD NOT BEEN QUESTIONED IN THE PAST. THERE IS NO ESTOPPEL IN THESE MATTERS AN D OFFICER IS NOT BOUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS. 36 . THEREFORE, IT IS EVIDENT FROM THE DECISION OF THE HONOURABLE SUPREME COURT THAT THE BOOKS OF ACCOUNTS AND THE METHOD OF ACCOUNTING REGULARLY EMPLOYED B Y THE ASSESSEE CAN BE DISCARDED, ONLY IF THE PROPER PROFITS, REAL INCOME, THERE FROM CANNOT BE DEDUCED . THEREFORE, IF AN ASSESSING OFFICER DESIRES TO REJECT THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE , HE MUST GIVE A COGENT REASON, WHICH CLEARLY SHOWS THAT PROFITS OF THE BUSINESS CANNOT BE CORRECTLY DEDUCED FROM THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. IN THE PRESENT CASE , THE LEARNED PAGE | 54 ASSESSING OFFICER HAS NOT SHOWN ANY REASON FOR WHICH IF AN ASSESSEE FOLLOWS CASH BASIS OF ACCOUNTING, THE PROFITS CANNOT BE DEDU CED CORRECTLY. EVEN OTHERWISE, THE REAL INCOME OF THE ASSESSEE IS REQUIRED TO BE TAXED. IN TH E PRESENT CASE ASSESSEE ITSELF HAS SHOWN THAT THOUGH IT HAS RAISED THE BILLS BUT SOME OF THE BILLS HAVE NOT BEEN RECEIVED TILL NOW BECAUSE OF PROTRACTED LITIG ATION WHICH ITSELF PROVES THAT EVEN IN THE MERCANTILE SYSTEM OF ACCOUNTING SUCH INCOME HAS NOT ACCRUED. N OTHING MORE COULD HAVE BEEN SHOWN AS AN INCOME THEN WHAT IS RECEIVED BY THE ASSESSEE. IT IS NOT THE CASE OF THE REVENUE THAT ASSESSEE HAS NOT SHOWN INCOME WHAT HAS BEEN RECEIVED BY IT . IT IS ALSO NOT THE CASE OF THE REVENUE THAT EXPENDITURE CLAIMED BY THE ASSESSEE HAS NOT BEEN PAID. IN VIEW OF THIS, BOTH RECEIPTS AND OUTFLOW OF CASH ARE UNDISPUTED. IN VIEW OF THIS, WE ARE OF THE VIEW THAT THE CASH METHOD OF ACCOUNTING, WHICH IS FOLLOWED BY THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR AS WELL AS SUBSEQUENTLY, CANNOT BE REJECTED AND THE INCOME OF THE ASSESSEE SHOULD NOT BE COMPUTED ON MERCANTILE METHOD OF ACCOUNTING. ACCORDINGLY, GROUND NUMBER 1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 37 . THE SECOND GROUND OF APPEAL IS WITH RESPECT TO THE ADDITION OF INR 35 . 85 CRORES BEING THE ALLEGED VALUE OF ILLEGAL GRATIFICATION PAID BY THE ASSESSEE. DURING THE COURSE OF SEARCH PROCEEDINGS, ONE EMAIL DATED 16/06 /2010 SENT BY MR. BINU NANU TO THE GL EVENTS FRANCE WAS FOUND AND SEIZED. THIS EMAIL IS EXTRACTED AT PAGE NUMBER 13 OF THE ORDER OF THE LEARNED ASSESSING OFFICER. AS PER THE DRAFT ORDER THE LEARNED ASSESSING OFFICER HAS DEALT WITH THE WHOLE ISSUE AS UNDER: - 14. DURING THE COURSE OF THE SEARCH, CERTAIN INCRIMINATING DOCUMENTS WERE SEIZED FROM THE RESIDENCE OF SHRI BINU NANU AT F - 18, SECTOR - 40, NOIDA WHICH SUBSTAN TIATE THE ALLEGATIONS OF CORRUPTION LEVIED IN THE VARIOUS SECTIONS OF THE MEDIA AND WHICH FIND PLACE IN THE PUBLIC DOMAIN. PAGE | 55 AT PAGE NO.69 OF ANNEXURE A - 1 (PARTY BR - 3) SEIZED FROM THIS PREMISES, IS THE PRINTOUT OF AN E - MAIL SENT BY MR. BINU NANU TO MR. OLIVIER FERRATION OF M/S. G L EVENTS FRANCE ON JUNE 16, 2010. IN THIS MAIL, SHRI BINU NANU HAS WRITTEN ABOUT EXPENSES OF 15% IN RESPECT OF OC, AND 5% IN RESPECT OF DDA, AND DISCUSSES THE METHODS BY WHICH THESE EXPENSES HAVE TO BE ADJUSTED IN THE B OOKS. SIMILARLY, AT PAGE NO.68 OF THE SAID ANNEXURE, THERE ARE HAND WRITTEN ENTRIES WHEREIN CALCULATIONS HAVE BEEN MADE CORRESPONDING TO THE DETAILS IN THE E - MAIL REFERRED ABOVE. AS PER THIS DOCUMENT, PAYMENTS TO THE EXTENT OF RS.27,00,00,000/ - ARE REQUI RED TO BE MADE TO THE OFFICERS OF THE OC, CWG AND DDA. THE DOCUMENT ALSO CONTAINS THE MODUS OPERANDI TO BE ADOPTED FOR THIS PURPOSE. IT STATES THAT RS.5,00,00,000/ - MAY BE ADJUSTED BY WAY OF ENTRIES IN THE FORM OF CONSULTATION AND RS.22,00,00,000/ - MAY BE ADJUSTED BY WAY OF BOGUS BILLS. THE E - MAIL, THEREFORE, MAKES IT CLEAR THAT BOGUS EXPENSES HAVE TO BE BOOKED SO THAT ILLEGAL GRATIFICATIONS MAY BE PAID TO OFFICIALS OF OC, CWG AND DDA. THE DETAILS CONTAINED IN THE E - MAIL AND THE MODUS OPERANDI DISCUSS ED IS CORROBORATED BY THE FINDINGS AS DISCUSSED IN THE PREVIOUS PARA OF THIS ORDER WHEREIN IT HAS BEEN CONCLUDED THAT THE HABIT BOGUS PURCHASES HAVE BEEN BOOKED FROM M/S. NITIN ENTERPRISES AND FROM M/S. GARG ROADLINES. THESE FINDINGS ARE IN CONSONANCE WIT H THE ENTRIES MADE IN ANNEXURE A - 2 FOUND AND SEIZED FROM THIS PREMISES (PARTY BR - 3, RESIDENCE OF SHRI BINUNANU). AT PAGE NO.8 OF THIS DIARY THERE IS AN ENTRY WHICH READS FROM NITIN (20L) THE DIARY ALSO CONTAINS PAGE | 56 NAMES OF CERTAIN PERSONS TO WHOM PAYMENTS APPEAR TO HAVE BEEN MADE. THESE DETAILS INDICATE PAYMENTS TO FEW OF THE DDA ENGINEERS, FEW FIELD OFFICERS & OFFICIALS OF THE ACCOUNTS SECTION. PAYMENTS TO CONSULTANTS ALSO FIND MENTION IN THE ANNEXURE AT PAGE 6. WHEN SHRI BINUNANU WAS ASKED TO EXPLAIN THE CONTENTS OF ALL THESE DOCUMENTS DURING THE COURSE OF SEARCH, HE HAD EVADED DOING THE SAME. SUBSEQUENTLY, NO DETAILS IN RESPECT OF THE SAME WERE SUBMITTED DURING THE COURSE OF POST SEARCH INQUIRIES. SHRI BINUNANU WAS AGAIN ASKED TO APPEAR BEFORE THE U NDERSIGNED VIDE NOTICE U/S.133(1) OF THE IT ACT, 1961 DATED 17.01.2014 AND SHOW CAUSE FOR IMPOSING PENALTY U/S.272A(1)(C) FOR NON - COMPLIANCE TO THE NOTICE ISSUED U/S.133(1) IN THIS CASE ON 05.02.2014. HOWEVER, SHRI BINUNANU NEVER APPEARED FOR THE HEARING IN THIS CASE TILL DATE. 31.......THE CONTENTS OF THE SAID PAGES WERE HELD TO BE ARE CORROBORATED BY THE DETAILS ENTERED IN DIARY MARKED AS ANNEXURE A - 2 SEIZED FROM THE SAME PREMISES. ON THESE PAGES THE FOLLOWING AMOUNTS ARE MENTIONED: TOTAL CONTRACTED AMOUNT FROM OC 200 CRORES EXPENSES 15% 30 CRORES TOTAL CONTRACTED AMOUNT FROM DDA 40 CRORES EXPENSES 5% 2 CRORES EXPENSES ON CONVERSION 12% 3.85 CRORES TOTAL: 35.85 CRORES PAGE | 57 DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE A. Y. 2010 - 11 THE STATEMENT OF SHRI BINU NANU WAS RECORDED ON OATH AND HE WAS ASKED TO EXPLAIN THE ABOVE MENTIONED DOCUMENTS. SHRI BINU NANU FAILED TO EXPLAIN THE SAME. HOWEVER, IN THE STATEMENT SHRI BINU NANU HAS ADMITTED THAT THE COMPANY M/S. G L LITMUS E VENTS PVT. LTD. IN WHICH HE IS A DIRECTOR, HAS GOT THE CONTRACTS FROM OC, CWG AND DDA RELATED TO THE COMMON WEALTH GAMES APPROXIMATELY OF THE AMOUNTS MENTIONED IN THE DOCUMENTS. FROM THIS, IT IS EVIDENT THAT THE DOCUMENTS BELONG TO THE COMPANY. SHRI BINU NANU HAS ADMITTED THAT PAGE NO.68 IS IN HIS OWN HANDWRITING AND AS IS EVIDENT FROM PAGE 69 THE MAIL HAS BEEN SENT BY SHRI BINU NANU HIMSELF. SHRI BINU NANU WAS NOT WILLING TO EXPLAIN THE DOCUMENTS DURING THE RECORDING OF HIS STATEMENT. AS DISCUSSED ABOVE , THE DOCUMENTS PERTAIN TO M/S. G L LITMUS EVENTS PVT. LTD. SHRI BINU NANU IS A DIRECTOR IN THE COMPANY. FURTHER THE DOCUMENTS HAVE BEEN FOUND IN THE POSSESSION OF SHRI BINU NANU. AS PER SECTION 292C OF THE ACT, THERE IS A PRESUMPTION, THAT DOCUMENTS FOU ND IN THE POSSESSION OR CONTROL OF ANY PERSON IN THE COURSE OF SEARCH U/S.132 BE PRESUMED THAT SUCH DOCUMENTS BELONG TO SUCH PERSON. HENCE, IN ORDER TO PROTECT THE INTEREST OF REVENUE, THE AMOUNT OF RS.35.85 CRORES WAS ADDED TO THE INCOME OF THE SHRI BINU NANU ON A PROTECTIVE BASIS. HENCE, THE SAME AMOUNT OF RS.35,85,00,000/ - IS NOW BEING ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION ON SUBSTANTIAL BASIS. PAGE | 58 38 . THE LEARNED DISPUTE RESOLUTION PANEL WITH RESPECT TO THE O BJECTION FILED BY THE ASSESSEE DEALT WITH THE WHOLE ISSUE AS UNDER: - 6.3 FOR ILLUSTRATION, IT IS MENTIONED HERE THAT THE WORKING AT PAGES 6873 AND 6874 OF THE PAPER BOOK VOLUME - 35 ARE WORKING OF THE MONEY TO BE PAID AT THE TIME OF FINALIZING THE CONTRACT AND ILLEGAL PAYMENTS OF THE SUM TO OC AND DDA AT THE POINT OF TIME THESE DOCUMENTS WERE WRITTEN/ E - MAILED. THESE TWO PAGES TALK ABOUT THE SAME EXPENSES WHICH VARIED LATER ON DUE TO VARIATION IN THE CONTRACT VALUE. THEREFORE, THE ADDITION ON THESE PAGES SHOULD NOT BE MADE SEPARATELY. THE ADDITION OF RS. 35.85 CRORES MADE ONCE INCLUDES THE SUM OF RS. 27.00 CRORES MENTIONED AT PAGE 6874 OF THE PAPER BOOK VOLUME - 35. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERIT IN ADDING RS.27.00 CRORES AGAIN AFTER MAKING ADDITION OF RS.35.85 CRORES. SIMILAR FINDING HAS TO BE GIVEN BY THE AO IN EACH REPETITIVE ADDITION/DISALLOWANCE, IF ANY, AFTER CARRYING OUT THE VERIFICATION WORK AS DIRECTED ABOVE FOR ASCERTAINING THE QUANTUM OF ADDITIONS/DISALLOW ANCE REPETITIVELY MADE IN THE DRAFT ASSESSMENT ORDER. IN VIEW OF THE ABOVE, WE FIND MERIT IN THE ADDITION OF RS. 35.85 CRORES SEPARATELY U/S 69C AS THE ASSESSEE WHO PAID THIS SUM AT THE TIME GETTING CONTRACTED/RELEASING FUND HAS NOT DEBITED THIS AS EXPEND ITURE ON THAT DATE IN ITS STATED BOOKS OF ACCOUNT. CONSEQUENTIALLY, THE GROUNDS OF OBJECTION A - 11 AND A - 28 GET DISPOSED OF. 6.4 WHILE ANALYZING THIS CASE, WE ARE SURPRISED TO NOTE THAT IN A CASE WHERE THE DEFAULT OF SECTIONS 37, 40A(3), 40(A)(IA), 43B, ETC. ETC. GET DULY ESTABLISHED FROM THE BOOKS OF ACCOUNTS, THEN THE INCOME OF THE ASSESSEE WOULD GO EVEN PAGE | 59 MORE THAN 100% OF THE GROSS RECEIPTS, BUT IN A CASE WHERE THE ASSESSEE HAS NOT MAINTAINED BOOKS OF ACCOUNT OR MAINTAINED BOOKS OF ACCOUNT IN SUCH A WAY WHERE THE EXPENDITURE HAVE BEEN ENTERED IN BOOKS OF ACCOUNT AFTER SPLITTING PAYMENTS TO OVERCOME THE PROVISIONS OF SECTIONS 40A(3) AND 40(A)(IA) OR BY DEBITING BOGUS EXPENDITURE, THE INCOME HAS TO BE ESTIMATED WHICH CAN NOT BE 100% OF THE GROSS RECEIPTS. THUS, IN SUCH CIRCUMSTANCES, THE ASSESSEE WHO CAN NOT BE MAINTAINING PROPER BOOKS OF ACCOUNTS IS BETTER PLACED THAN THOSE MAINTAINING PROPER BOOKS OF ACCOUNT. THE ASSESSEE HAS FAILED TO REBUT THE FINDING OF THE AO IN RESPECT OF VARIOUS PARTIES AS MENTIONED IN THE IMPUGNED ORDER THAT IT HAS NOT TAKEN BOGUS BILLS AND DEBITED IN ITS STATED BOOKS OF ACCOUNT WITH ANY CONCRETE EVIDENCE. THUS, FACTUAL MISTAKE AND TECHNICAL DEFAULT, IF ANY, IN THE IMPUGNED ORDER OR ON THE PART OF THE AO DOES NOT GIVE AN EDGE TO THE ASSESSEE TO CLAIM SUCH EXPENSES AS GENUINE EXPENSES. 6.5 HERE, IN THE PRESENT CASE, DEFINITELY 100% EXPENSES CAN NOT BE HELD BOGUS. DEFINITELY, NO BUSINESS CAN BE DONE WITHOUT INCURRING ANY EXPENDITURE. THEREFORE, WE DO NOT FIND MERIT IN DISALLOWANCE OF ENTIRE EXPENSES. DEFINITELY, IN VIEW OF ABOVE MENTIONED FACTS, AT LEAST THE SUM OF RS.35.85 CRORES PAID TO THE OC AND DDA HAVE BEEN RECOUPED THROUGH THE BOGUS BILLING DEBITED IN THE BOOKS OF ACCOUNT. BESIDE, OTHER SPECIFIC DISALLOWANCES BASED ON FACTS HAV E TO BE MADE SEPARATELY ON PROTECTIVE BASIS TO THE EXTENT OF BOGUS EXPENDITURE OF RS.35.85 CRORES AND DISALLOWANCE BASED ON FACTS OVER AND ABOVE OF RS. 35.85 CRORES ON SUBSTANTIVE BASIS TO AVOID DOUBLE TAXATION. PAGE | 60 39 . THE LEARNED AUTHORISED REPRESENTATIVE VEHEMENTLY CONTESTED THE ADDITION IN HIS SUBMISSIONS BROADLY WERE AS UNDER: - I . THAT THE DOCUMENTS SEIZED FROM THE RESIDENCE OF DIRECTOR IN THE APPELLANT COMPANY ARE HANDWRITTEN NOTE BY HIM AND PRINT OUT OF AN EMAIL AND IT WERE FOUND FROM THE RESIDENCE OF MR. BINU NANU AND NOT FROM THE OFFICE OF THE APPELLANT AND THEREFORE IT CANNOT BE TAKEN COGNIZANCE IN THE HANDS OF THE ASSESSEE. II . HE FURTHER SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS INCORRECTLY PLACED RELIANCE ON THE STATEMENT OF SHRI BINU NANU AND ONLY REFERRED PART OF HIS STATEMENT. HE THEREFORE STATED THAT THE ADDITION/DISALLOWANCE IS TOTALLY BASED ON SURMISES AND CONJECTURES AS NO EVIDENCES WERE FOUND DURING THE COURSE OF SEARCH III . H E FURTHER STATED THAT NONE OF THE BILLS SHOWN BY THE ASSESSEE ARE FOUND TO BE BOGUS . HENCE, ALLEGATION OF BOGUS BILLING DOES NOT HAVE ANY LEGS TO STAND . HE SUBMITTED THAT IF THE ARGUMENT OF BOGUS BILLING FAILS THEN NATURALLY THE ARGUMENT OF SPENDING ANY MONEY ON ALLEGED GRATIFICATION A LSO FAILS, AS THE BOGUS BILLING IS STATED TO BE THE SOURCES OF THE ILLEGAL GRATIFICATION. IV . EVEN OTHERWISE, ROUGH LOOSE SHEET TALKS ABOUT THE EXPENSES AND HOW IT CAN BE CORRELATED AS ILLEGAL GRATIFICATION IS NOT KNOWN. V . THE DATE OF EMAIL IS 16/6/2010. THE ORGANIZATION COMMITTEE GRANTED THE REQUEST FOR PROPOSAL ON 16/1/2010. LATER OF INTENT WAS ISSUED ON 18/ 05 /2010 WHEREIN THE VALUE OF THE CONTRACT FINALIZED THAT OF RS. 156,73,00,000. HE THEREFORE STATED THAT HOW THE EMAIL DATED 16/6/2010 CAN CONTAIN ES TIMATED FIGURES WHEN THE CONTRACT FOR WORK WAS ALREADY AWARDED. PAGE | 61 VI . HE FURTHER REFERRED TO THE HANDWRITTEN NOTE WHERE THE FIGURES 15, 120, 18 AND 20 ARE MENTIONED. HE SUBMITTED THAT THE CONTRACT VALUES EVEN IF IT IS PRESUMED ARE NOT THE SAME. VII . HE FURTHER SUB MITTED THAT THE EMAIL THOUGH CONTAINED DATE HOWEVER THE LOOSE SHEET DOES NOT HAVE ANY DATE , NAME OF THE PAYEE, NAME OF THE PAYER AND THE DETAILS OF PAYMENT ET CETERA THEREFORE THIS IS A DUMB DOCUMENT, WHICH CANNOT BE USED AGAINST THE ASSESSEE. HE FURTHER STATED THAT THE DOCUMENT ALSO DOES NOT CONTAIN ANY SIGNATURE. VIII . HE FURTHER SUBMITTED THAT THIS IS A DUMB DOCUMENT AND NO ADDITION CAN BE MADE BASED ON DUMB DOCUMENT. IX . HE SUBMITTED THAT DURING THE COURSE OF SEARCH NO EVIDENCE WAS FOUND OF ANY ILLEGAL GRATIFICATION FOR OPENING THOSE CONTRACTS. HE THEREFORE SUBMITTED THAT THESE DOCUMENTS ARE NOT AT ALL CORROBORATED. X . HE FURTHER STATED THAT EVEN IN THE PRESENT CASE, THERE WAS A SEARCH BY CENTRAL BUREAU OF INVESTIGATION AND AFTER THAT, NO CHARGE SHEET HAS BEEN FILED WHICH EVEN R EMOTELY SUGGESTS THAT THERE IS ANY ILLEGAL GRATIFICATION PAID BY THE ASSESSEE. HE FURTHER REFERRED TO THE 1 ST INFORMATION REPORT FILED BY CBI XI . HE FURTHER REFERRED TO THE ARBITRAL TRIBUNAL AWARD ON 19/12/ 2013, WHICH IS CLEARLY STATED THAT THERE IS NO ILLEGAL GRATIFICATION INVOLVED IN THE WHOLE CONTRACTS. HE EXTENSIVELY REFERRED TO PARAGRAPH NUMBER 31 62 WHERE THERE IS A DETAILED EXAMINATION AND CROSS - EXAMINATION OF EACH WITNESS. XII . HE FURTHER RELIED UP ON FOLLOWING DECISIONS: - A . COMMON CAUSE V UOI B . CBI V V C SHUKLA 3 SCC 410 C . ACIT V SATYAPAL WASSAN 295 ITR (AT)352 D . ACIT V ASHOK PODDAR ( KOL) 16 DTR 0055 E . CIT V PRAVEEN JUNEJA (DEL) (HC) ITA 57/2017 PAGE | 62 40 . IN VIEW OF ALL THIS ARGUMENT, HE SUBMITTED THAT THE ACTION OF THE LEARNED ASSESSING OFFICER TO MAKE ADDITION TO THE TUNE OF INR 35 . 85 CRORES BASED ON SUCH A ROUGH LOOSE SHEET CONTAINING SCRIBBLES AND CANCELLATION IS GROSSLY UNJUST, BASELESS AND IS CONTRARY TO THE FACTS. HE FURTHER S TATED THAT THE LEARNED ASSESSING OFFICER HAS SIMPLY WITHOUT ANY THOUGHT O R REASON , PRESUMED BASED ON S HUNGLU COMMITTEE REPORT, THE 1 ST INFORMATION REPORT AND THE CBI S EARCH THAT THE APPELLANT HAS MADE ILLEGAL PAYMENTS. HE FURTHER STATED THAT THE PRESUMPTION LAID DOWN BY THE LEARNED AO IS UNTENABLE, VERY INCORRECT AND NOT BASED ON FACTS AND IS CONTRARY TO THE CORRECT FACTUAL POSITION. HE FURTHER STATED THAT THE ENTIRE EDIFI CE OF THE LEARNED ASSESSING OFFICERS CASE IS FOUNDED UPON THE SHAKY FOUNDATION OF A SERIES OF INCORRECT AND MERITLESS PRESUMPTION, WHERE ONE INCORRECT PRESUMPTION IS REFERRED AND RELIED UPON TO SUBSTANTIATE ANOTHER. HE THEREFORE STATED THAT THE ABOVE ADD ITION IS REQUIRED TO BE DELETED. 41 . THE LD DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. HE EXTENSIVELY REFERRED TO THE DIRECTION OF LD DRP AND SUBMITTING THAT THE EMAILS THAT HAS BEEN FOUND AND THE SEIZED PAPER CLEARLY SHOWS THAT ASSESS EE HAS TO PAY THE SUM OF MONEY TO THE OFFICIAL OF ORGANIZING COMMITTEE AS WELL AS THE DDA. 42 . THE L D AR IN REJOINDER STATED THAT, ASSESSEE IS NOT A PARTY TO THE MAIL, NO EVIDENCES ARE FOUND DURING THE COURSE OF SEARCH , AND ARBITRAL TRIBUNAL AWARD SA YS THAT THERE IS NO SUCH EVIDENCE OF ILLEGAL GRATIFICATION BROUGHT ON RECORD. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE CAREFULLY CONSIDERED THE ONLY TWO SEIZED DOCUMENTS ONE EMAIL DATED 16/6/2010 AND ANOTHER LOOSE SHEET CONTAINING HANDWRITTEN NOTES. IT IS FIRST TO BE OBSERVED THAT THE SAID LOOSE SHEET APPEARS TO BE A PRINTOUT OF AN E - MAIL. THE EMAIL ID WAS BINU@MEROFORMINDIA.COM . IT THUS STANDS CLEAR THAT EMAIL IS PERTAINING TO SRI BINU NANU AND ADDRESSED TO GLLEVENTS FRANCE. THE SECOND DOCUMENTS ARE THE HANDWRITTEN NOTE OF SOME PAGE | 63 CALCULATIONS. THE SAID LOOSE SHEET CONTAINS SOME CANCELLATIONS AND RECALCULATIONS PROVING WITHOUT DOUBT THAT IT CONTAINED NOTING . HOWEVER ROUGH LOOSE SHEET TALKS ABOUT EXPENSE . THE EXPENSES WERE LINKED BY REVENUE AS ILLEGAL GRATIFICATION. HOWEVER, IN BOTH THESE DOCUMENTS IT IS NOWHERE USED ANY WORD WHICH POINTS TO ANY ILLEGAL GRATIFICATION/BRIBE BEING PAID AND TO WHOM. FURTHER ROUGH SHEET CONTAINS THE DATE OF THE EMAIL BEING 16/06/2010. IN FACTS, THE OC GRANTED TO THE APPELLANT COMPANY ON 16/01/2010 THE REQUEST FOR P ROPOSAL (RPF). NEXT VIDE LETTER OF INTENT (LOI) DATED 18/05/2010, THE VALUE OF THE CONTRACT STOOD FINALIZED AT RS.156.73 CRORES. THUS, IT IS NOT UNDERSTOOD AS TO HOW THE MAIL SENT ON 16/06/2010 STILL CONTAINED ESTIMATED FIGURES, WHEN THE FINAL FIGURES OF T HE CONTRACT WERE AVAILABLE. FURTHER CALCULATIONS AND HAND WRITTEN NOTES WERE DEFINITELY AFTER THE DATE OF THE MAIL. THUS, IT IS SEEN THAT THE DATE OF THE MAIL IN NO WAY MATCHES WITH ANY DATES RELATED TO THE CONTRACT AWARDED TO THE ASSESSEE COMPANY. FURTHE R ROUGH SHEET CONTAINS THE HANDWRITTEN FIGURES 15 AND THEN 120, THEN 18 AND A TOTAL OF 20. NOW AGAIN THE GENESIS OF THESE FIGURES IS NOT UNDERSTOOD. THE CONTRACT VALUES WERE NEVER 200 OR 150 OR 120. THEY ALSO COULD NOT BE DECIPHERED AND CORRELATED WITH TH E CONTRACT VALUE OF THE ASSESSEE. IN ADDITION, IT IS SEEN THAT THE PRINTOUT PER SE CONTAINS NO DATE AND IS DOES NOT SHOW ANY INGREDIENT OF TRANSACTIONS SUCH AS DATE, PAYEE, PAYER, DETAILS OF PAYMENT ETC. FURTHER DURING THE ENTIRE SEARCH PROCEEDINGS AND IN THE ASSESSMENT PROCEEDINGS FOLLOWING THE SAME, NOTHING AT ALL, EVEN A NOTING TO THE SAID EFFECT, WAS UNEARTHED BY THE LD.AO SHOWING ACTUAL PAYMENT MADE BY THE APPELLANT ON THIS ACCOUNT. NO CORROBORATIVE EVIDENCE WHATSOEVER HAS BEEN POINTED OUT BY THE L D. A.O. THAT CAN EVIDENCE THE PAYMENT OF SUCH A HUGE SUM OF MONEY BY THE APPELLANT. FURTHER, IT IS ALSO STRANGE TO NOTE THAT THERE IS NO EVIDENCE IN THE FORM OF ANY FURTHER MAIL, ANY NOTINGS, ANY COMMUNICATION BY LETTERS/NOTES OF ANY DISCUSSIONS REGARDI NG THE AMOUNT FINALIZED AND ANY ACCEPTANCE BY THE FRENCH PARTY OF THE SUM TO BE PAID AS THE PAGE | 64 ALLEGED ILLEGAL GRATIFICATION. IN THE STATEMENT OF SHRI BINU NANU, HE SUBMITTED THAT IT IS A ROUGH ESTIMATE OF THE EXPENSES ON THE PROJECT AND HE DOES NOT REMEMBER THE EXACT DETAILS THEREOF. I N HIS EXAMINATION, THE REVENUE DID NOT PROBE THAT WHERE THE EXPENSE ARE FOR ILLEGAL GRATIFICATION AND HOW THEY HAVE BEEN GEN ERATED AND HOW PAID. FURTHER, THE WHOLE SOURCES OF PAYMENT OF ILLEGAL GRATIFICATION WERE TO RECOVER MONEY FROM THE BOOKS BY DEBITING THE BOGUS BILLS. THOUGH A.O. HAS ALLEGED THAT THE SAID DOCUMENT POINTED OUT TO ALLEGED PAYMENTS MADE TO OC AND DDA, WH ICH WERE RECOUPED FROM THE CONTRACT VALUE THROUGH THE BOGUS BILLINGS. THE LD. A.O. HAS NOT POINTED TO ANY SPECIFIC INSTANCE OF A SINGLE BOGUS BILL FOUND IN THE SEARCH ON THE APPELLANT COMPANY. THUS, THE WHOLE MODUS OPRANDI OF THE ASSESSEE ALLEGED BY THE R EVENUE MERELY REMAINS ON THE PAPER AND NOT AT ALL INVESTIGATED BY IT . REVENUE HAS JUST CHOSEN TO MAKE A STATEMENT BASED ON SHUNGLU COMMITTEE REPORT ETC, THAT THE APPELLANT PAID ILLEGAL GRATIFICATIONS TO OBTAIN THE CONTRACTS AND THAT THE SAME WERE RECOU PED BY BOGUS BILLING. SUCH STATEMENTS WITHOUT ANY EVIDENCE IS ABSOLUTELY CANNOT BE USED FOR MAKING DISALLOWANCE . FURTHER IT IS ALLEGATION BY THE LD. A.O. STARTED WITH THE SHUNGLU COMMITTEE REPORT FOLLOWING WHICH THE SEARCH ACTION UNDER THE INCOME TAX WAS I NITIATED ON THE APPELLANT GROUP ON 19/10/2010 AND THE FIR DATED 05/01/2011 WAS FILED AGAINST THE CONSORTIUM U/S 154 CR.P.C BY CBI FOR CRIMINAL CONSPIRACY, CHEATING AND ABUSE OF OFFICIAL POSITION AGAINST THE ASSESSEE AND OTHER PERSONS. NEXT CBI RAID WAS CON DUCTED AND PAYMENT OF ALL PENDING BILLS TO THE APPELLANT WAS ALL STOPPED. FOLLOWING ALL THIS, THE APPELLANT APPROACHED THE ARBITRAL TRIBUNAL WHEREIN ALONG WITH THE FINANCIAL CLAIMS; THE ALLEGATION OF THE SAID ALLEGED BRIBE WAS ALSO TAKEN UP. IT IS HERE STA TED THAT THE SAID ARBITRAL AWARD HAS BEEN DULY PASSED ON 14/05/2018 WHEREIN AFTER DETAILED AND IN DEPTH EXAMINATION AND ANALYSIS OF VARIOUS FACTS ON RECORD, VARIOUS AFFIDAVITS ON RECORD AND AFTER VARIOUS STATEMENTS TAKEN, THE APPELLANT HAS BEEN GIVEN CLEAN CHIT FROM THE ALLEGATION THAT ANY BRIBE WAS PAID IN THE OBTAINING OF PAGE | 65 THE SAID OVERLAYS CONTRACTS . HOWEVER, BEFORE CONCLUDING ON THIS SUBJECT IT WOULD BE OF RELEVANCE TO ANALYZE IN DETAILS THE SEQUENCE OF EVENTS LEADING TO THE ARBITRAL AWARD AND THE FINDINGS OF THE ARBITRAL AWARD. 43 . FIRSTLY, IN THE FIR IT WAS COMPLAINED THAT DURING 2009 - 10 SHRI V K V ERMA, DIRECTOR GENERAL, ORGANIZING COMMITTEE (OC) COMMONWEALTH GAMES 2010 AND OTHER OFFICIALS OF OC ENTERED INTO A CRIMINAL CONSPIRACY WITH I . SHRI BINU NANU, MANAGING DIRECTOR OF M/S. MEROFORM INDIA PVT. LTD. / M/S. G.L. EVENTS PVT. LTD. MEROFORM, FRANCE; II . M/S. PICO DEEPALI OVERLAYS CONSORTIUM, DELHI; III . M/S. NUSSLI (SWITZERLAND) LTD., SWITZERLAND AND IV . M/S. ESAJV:D ART: INDO CONSORTIUM, NEW DELHI IN THE AWARD OF CONTRACTS FOR OVERLAYS FOR DIFFERENT VENUES OF COMMONWEALTH GAMES 2010 , DELHI AT EXORBITANT RATE S. THE ACCUSED PUBLIC SERVANTS BY ABUSING THEIR OFFICIAL POSITIONS THEREBY CHEATED AND CAUSED UNDUE LOSS TO THE GOVERNMENT OF INDIA AND CORRESPONDING GAIN TO THE SAID FOUR COMPANIES AND THEMSELVES. . 44 . THUS, IT IS SEEN THAT THE FIR RECORDED IN IT TH AT BRIBES WERE GIVEN TO THE OFFICIALS OF THE OC BY THE OVERLAYS CONTRACTORS AND THIS FORMED THE BASIS OF THE PRESUMED ALLEGATION BY THE A.O. IN THE ASSESSMENT THAT BRIBES OF RS. 35.85 WERE GIVEN BY THE APPELLANT COMPANY. HOWEVER NO CHARGE SHEET BASED ON TH E SAID FIR HAS STILL TO DATE BEEN FILED. THIS FACT HAS ALSO BEEN CONSIDERED BY THE ARBITRAL TRIBUNAL WHILE PASSING ITS AWARD. FURTHER ON 06/01/2011, THE CBI CONDUCTED SEARCH AT THE OFFICE PREMISES OF SHRI BINU NANU, I.E. M/S G.L. EVENTS/M/S MEROFORM INDIA PVT. LTD. AT A - 37, SECTOR 80, PHASE II, NOIDA. DUE TO THE CBI INVESTIGATIONS, THE INCREASING DISPUTES AND AGITATIONS TOWARDS PAYMENTS TO BE MADE TO ALL THE CONTRACTORS BY PAGE | 66 THE OC, CWG LED THE MINISTRY OF YOUTH AFFAIRS & SPORTS, VIDE ITS LETTER DATED 19/05/ 2011, TO INSTRUCT THAT PAYMENTS OF BILLS TO THE OVERLAYS VENDOR, INCLUDING GLLE COULD NOT BE HELD TO BE LEGITIMATE DUES UNTIL THE INVESTIGATIONS BY THE CENTRAL BUREAU OF INVESTIGATION (CBI) ARE COMPLETE. IT WAS THUS DIRECTED THAT IT WOULD THUS NOT BE APP ROPRIATE TO RELEASE THE SAID AMOUNT DUE TO THEM. FURTHER OC, CWG VIDE ITS LETTER DATED 25/08/2011 APPRAISED THE APPELLANT COMPANY THAT THE CONTRACT RELATING TO OVERLAYS WAS UNDER INVESTIGATION OF VARIOUS AGENCIES INCLUDING THE CBI AND AN FIR HAD ALSO BEEN LODGED IN WHICH GLLE WAS CITED AS AN ACCUSED FOR SUSPECTED OFFENCES OF CRIMINAL CONSPIRACY, CHEATING AND ABUSE OF OFFICIAL POSITION. IT WAS THUS INFORMED IT WOULD NOT BE APPROPRIATE TO RELEASE THE SAID AMOUNT DUE TO THEM. THUS FOLLOWING THE ABOVE, PAYMENT S NOT BEING RECEIVED, THE APPELLANT AND THE OC BOTH APPROACHED THE ARBITRAL TRIBUNAL ON 19/12/2013 WHEREIN CLAIMS FOR OUTSTANDING AMOUNTS WERE MADE BY GLLE (CLAIMANT) AND COUNTER CLAIMS BY THE OC, CWG, (RESPONDENT) BEFORE THE SAID ARBITRAL TRIBUNAL. THE AR BITRAL TRIBUNAL, BASED ON THE CLAIMS AND THE COUNTER CLAIMS FILED BY THE CLAIMANT AND THE RESPONDENT RESPECTIVELY, FRAMED THE FOLLOWING ISSUES WHICH INCLUDED AMONGST OTHER ISSUES THAT 8. WHETHER THE CONTRACT BETWEEN THE PARTIES IS VITIATED BY FRAUD, CON SPIRACY AND CORRUPT PRACTICE, AS ALLEGED BY THE RESPONDENT? IF SO, TO WHAT EFFECT?. PURSUANT TO THE ABOVE CLAIMS AND COUNTER CLAIMS, ARBITRAL TRIBUNAL COMPRISING OF MR. JUSTICE ANIL DEV SINGH (RETD.), MR. JUSTICE A.P. SHAH (RETD.) AND MR. JUSTICE M.L. VARMA (RETD.) DULY PASSED THE FINAL CORRECTED ARBITRATION AWARD ON 14/05/2018. IN THE S AID AWARD, THE ISSUE NO. 8 BEING PRELIMINARY IN NATURE WAS DEALT WITH FIRST. THE ISSUE WAS THAT THAT IN CASE THERE IS EVIDENCE TO SHOW THAT THE CONTRACT BETWEEN THE PARTIES IS VITIATED BY FRAUD, CONSPIRACY, AND CORRUPT PRACTICE, AS ALLEGED BY THE RESPONDENT, OC CWG, THE CLAIMS OF THE PAGE | 67 CLAIMANT WILL NOT SURVIVE. IT WAS SPECIFICALLY URGED BY THE RESPONDENT, OC CWG, (1) THAT THE CONSORTIUM SECURED THE CONTRACT BY CORRUPT MEANS AND BY PRACTICING FRAUD UPON THE OC CWG. (2) THAT THE CONSORTIUM ALONG WITH THREE OTHER OVERLAYS PROVIDERS COLLUDED WITH THE OFFICIALS OF THE OC CWG AND RECEIVED FAVOURABLE TREATMENT. (3) WITH REGARDS TO SH BINU NANU, IT WAS SPECIFICALLY URGED BY OC CWG THAT BINU - NANU OF THE CONSORTIUM MA DE ILLEGAL PAYMENTS TO THE OFFICIALS OF THE OC CWG TO THE EXTENT OF 15% OF THE CONTRACT MONEY AS PER THE FIR LODGED AGAINST THE ACCUSED BY THE CBI. (4) THAT THE CLAIMANT AND THREE OTHER OVERLAY PROVIDERS FORMED A CARTEL AND ACTED IN COLLUSION WITH EACH OT HER TO PREVENT COMPETITION WITH A VIEW TO JACK UP THE BIDS; (5) THAT SINCE THE CLAIMANT COLLUDED WITH THE OFFICIALS OF THE OC CWG, IT COMMITTED MATERIAL BREACH OF THE CONTRACT WITHIN THE MEANING OF CLAUSE 29.3 OF THE CONTRACT . THUS ALLEGATIONS WERE ALL B ASED ON THE INFERENCE THAT MR. V.K. VERMA, DG, IN ORDER TO PREVENT COMPETITION AND WITH A VIEW TO FAVOUR THE CLAIMANT AND THREE OTHER OVERLAYS PROVIDERS, RECOMMENDED THAT REQUEST FOR PROPOSAL (RFP) BE NOT ISSUED TO M/S. CITYNEON AND M/S. UNIPLAN, EVEN THOU GH THE EVALUATION COMMITTEE HAD SHORTLISTED SIX BIDDERS, INCLUDING M/S. CITYNEON AND M/S. UNIPLAN, FOR ISSUING RFP. THE OC,CWG IN SUPPORT OF THE AFORESAID ALLEGATIONS HAS PLACED HEAVY RELIANCE ON THE AFFIDAVIT OF ONE MR. NIKESH JAIN (RW1), DATED MAY 30, 2014. THE ARBITRAL TRIBUNAL HAS IN ITS AWARD, THROUGH PARAS 31 TO 62 EXAMINED, CROSS - EXAMINED EACH ALLEGATION/WITNESS/EVIDENCE, AND PASSED ITS VERDICT. THE AWARD OF THE TRIBUNAL WITH SPECIFIC RELEVANCE TO THE SAID MATTER IS AS BELOW: 54. OC CWGS EFFOR T TO CHARACTERIZE THE ACTIONS OF MR. VERMA AS MOTIVATED TO FAVOUR THE CLAIMANT AND THE OTHER THREE OVERLAY PROVIDERS AND INDICATIVE OF COLLUSION AND CORRUPTION IS FLAWED AS NO WORTHWHILE EVIDENCE HAS BEEN LED BEFORE US IN SUPPORT OF THE SAME. PAGE | 68 ON THE BASI S OF THE AFFIDAVIT OF RW1 IT WAS ARGUED BY LEARNED COUNSEL FOR THE OC CWG THAT THE ALLEGATIONS WERE MADE ON THE BASIS OF SHUNGLU COMMITTEE REPORT, CAG REPORT AND FIR LODGED BY THE CBI. IN THIS REGARD WE WERE REFERRED TO QUESTION NO.100 AND ANSWER OF RW - 1 THERETO: Q 100 IS YOUR ALLEGATION OF COLLUSION BASED ONLY ON THE FACT THAT MR. VERMA DID NOT MECHANICALLY AGREE WITH RECOMMENDATIONS OF SIX - MEMBERCOMMITTEE RECORDED AT PAGE 70 OF VOL R - 4 AND, WHILE PERFORMING HIS DUTY, GAVE HIS OPINION AS TO WHY HE FELT THOSE RECOMMENDATIONS MAY COMPROMISE ON THE TIME FACTOR AND MAY NOT BE ACHIEVABLE AS RECORDED IN PARA 7.7, PG. 70 BY THE SIX MEMBERS COMMITTEE ITSELF? A . AFTER THE GAMES WERE OVER, SHUNGLU COMMITTEE AND FIR LODGED BY THE CBI HAVE RAISED THESE ISSUES AND MY STATEMENT IN PARA 6 OF MY AFFIDAVIT DATED 30/05/2014 IS BASED ON THE SAME. 55. WHEN RW - 1 WAS ASKED TO SHOW EVEN ONE PARAGRAPH FROM SHUNGLU COMMITTEE REPORT OR CAG REPORT THAT REFERS TO COLLUSION BETWEEN VERMA AND CLAIMANT AS WAS ALLEGED BY HIM IN PARA 6 OF HIS AFFIDAVIT, HE HAD TO ADMIT THAT THERE WAS NO SUCH MENTION IN THE REPORTS. THE SAID QUESTION AND ANSWER THERETO IS REPRODUCED, WHICH WOULD SHOW THAT THE ALLEGATION WAS RECKLESSLY MADE: Q. 101 CAN U SHOW ONE PARAGRAPH FROM THE SHUNGLU COMMITTEE REP ORT OR THE CAG REPORTS WHICH SAY THAT THE OPINION EXPRESSED BY MR. V. K. VERMA IN HIS NOTE DATED PAGE | 69 APRIL 10, 2010 FROM PAGES 71 TO 73 OF VOL. R - 4 WAS PREPARED IN APPARENT COLLUSION WITH THE CLAIMANT? A . IT IS NOT THERE IN THE SAID REPORTS. 56. IT APPEARS THAT THERE HAS BEEN A MISREADING OF THE SHUNGLU COMMITTEE AND CAG REPORTS BY RW1. THE ALLEGATIONS, ACCORDING TO THE RW1, WERE ALSO BASED ON THE CONTENTS OF THE FIR LODGED AGAINST THE CLAIMANT. IT WILL BE APPOSITE TO SET OUT THE QUESTIONS PUT TO HIM IN RE GARD TO THE FIR AND HIS ANSWERS THERETO: Q. 102. IN SO FAR AS THE FIR IS CONCERNED IT WAS LODGED ON 5 TH JANURAY 2011, IS THAT CORRECT? A . YES. Q. 103. PURSUANT TO THE FIR HAS ANY CHARGE SHEET BEEN FILED AS OF TODAY I.E.1 ST APRIL 2015? A . NO, TO THE BEST OF MY KNOWLEDGE. Q. 104. SO, YOUR ALLEGATION IN PARA 6 IS BASED ON AN UNSUBSTANTIATED AND UNPROVEN ALLEGATION IN AN FIR FILED FOUR YEARS AGO PURSUANT TO WHICH NO CHARGE SHEET HAS SO FAR BEEN FILED, IS THAT CORRECT? PAGE | 70 A . YES. Q. 105. WHY DID YOU NOT MAKE A SIMILAR ALLEGATION AGAINST MR. JARNAIL SINGH, THE CEO WHO ALSO RECOMMENDED THE SAME APPROACH SUGGESTED BY MR. V. K. VERMA, IN HIS ENDORSEMENT DATED 15 TH APRIL 2010 ON MR. V.K.VERMAS NOTE ON 10 TH APRIL 2010 WHICH APPEARS AT PG 73 OF VOL R4, WHEN HE POSSESSED THE POWER TO COUNTERMAND MR. V.K.VERMAS RECOMMENDATION? A . AS PER THE FIR, ONLY MR. V.K.VERMA HAS BEEN NAMED. 57. IN ANSWER TO QUESTION NO.104, RW1 HAS ADMITTED THAT THE ALLEGATIONS AGAINST THE CLAIMANT AND THE OTHER THREE OVE RLAYS PROVIDERS WERE BASED ON UNSUBSTANTIATED AND UNPROVEN ALLEGATIONS IN THE FIR. MERE RELIANCE ON INSINUATIONS MADE IN THE FIR ARE NOT ENOUGH. THOUGH THE FIR IS OF JANUARY, 2011, EVEN THE CHARGE SHEET HAS NOT BEEN FILED SO FAR. ..................... 60 . HAVING REGARD TO THE AFORESAID DISCUSSION, WE ARE OF THE VIEW THAT THE OC CWG HAS NOT BEEN ABLE TO LEAD CLEAR, COGENT, LOGICAL AND CONVINCING EVIDENCE BEFORE US TO BRING HOME THE ALLEGATIONS OF FRAUD, COLLUSION, MALA - FIDES, CARTELIZATION, CORRUPT PRACTIC ES ETC., LEVELLED AGAINST THE CLAIMANT. SINCE THESE FINDINGS ARE BASED ON FAILURE OF THE OC CWG TO ADDUCE BEFORE US EVIDENCE OF THE NATURE MENTIONED ABOVE THEY SHALL NOT BE CONSTRUED AS AFFECTING THE INVESTIGATION OF THE CASE INITIATED ON THE BASIS OF FIR LODGED BY THE CBI AGAINST THE PAGE | 71 CLAIMANT, THE OTHER THREE OVERLAYS PROVIDERS AND MR. V.K. VERMA. 61. SCRUTINY OF THE EVIDENCE ON RECORD, PARTICULARLY CROSS EXAMINATION OF RW1 NEGATES THE ACCUSATIONS OF FRAUD, CORRUPT PRACTICES, COLLUSION AND CARTELIZATION LEVELLED AGAINST THE CLAIMANT. 62. IN VI EW OF THE AFORESAID DISCUSSION WE HOLD THAT THE OC CWG HAS FAILED TO PROVE ISSUE NO.8. THEREFORE, ISSUE NO.8 IS DECIDED AGAINST THE OC CWG. 45 . THUS FROM ALL OF THE ABOVE, IT CLEAR THAT THE ARBITRATION TRIBUNAL HAS CLEARLY NEGATED THE ACCUSATIONS OF FRAUD, CORRUPT PRACTICES, COLLUSION AND CARTELIZATION LEVELED AGAINST THE APPELLANT COMPANY (CLAIMANT). ALSO IT IS TO BE SEEN THAT FROM THE AWARD ABOVE, IT IS DERIVED THAT THE SAID ACCUSATION AGAINST THE APPELLANT WAS PURELY AND SOLELY BASED ON THE SHUNGLU COMMI TTEE REPORT , FIR LODGED BY THE CBI BASED ON WHICH THE SEARCH WAS CONDUCTED ON THE APPELLANT COMPANY AND PURSUANT TO WHICH IN THE ASSESSMENT ABOVE ADDITION WAS MADE. IN VIEW OF ABOVE FACTS AND WITHOUT COMMENTING ON ANY OTHER REPORT OR INVESTIGATION, IT I S APPARENT THAT CHARGES AGAINST THE ASSESSEE OF PAYING ILLEGAL GRATIFICATION AND ITS CONSEQUENT ADDITION U/S 69 OF THE INCOME TAX ACT IS WITHOUT ANY EVIDENCE OF INCURRING SUCH EXPENSES . THUS GROUND NO 2 OF THE APPEAL IS ALLOWED. 46 . GROUND NO 3 IS RELATIN G TO THE ADJUSTMENT OF RS 58 , 43 , 94 , 894/ - TOWARDS THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. DURING THE YEAR, THE ASSESSEE HAS ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTIONS ENTERED INTO WITH ITS ASSOCIATED ENTERPRISE. PAGE | 72 S.NO. DETAILS OF INTERNATIONAL TRANSACTIONS AMOUNT 1 PURCHASES OF CONSUMABLES 4,01,17,002/ - 2 RENTAL EXPENSES 34,90,54,107/ - 3 CONTRACT MANPOWER/JOB WORKER SERVICES AVAILED 11,60,32,264/ - 4 MANAGEMENT FEES PAID 4,59,96,007/ - 5 REIMBURSEMENT OF EXPENSES MADE 3,31,93,514/ - TOTAL 58,43,94,894/ - 47 . INITIALLY , THE ABOVE EXPENSES WERE NOT CLAIMED BY THE APPELLANT AS THE APPELLANT HAD MAINTAINED ITS BOOKS OF ACCOUNT ON CASH BASIS. BOTH THE AO AND THE TPO WERE INFORMED THAT SINCE THE APPELLANT HAD FOLLOWED CASH METHOD FOR INCOME TAX PURPOSES , NO INTERNATIONAL TRANSACTIONS WERE UNDERTAKEN IN THE YEAR UNDER REFERENCE AS IT HAD NEITHER PAID NOR RECEIVED ANY AMOUNT TO/FROM THE AES. HOWEVER, AT THE INSISTENCE OF THE AO THE APPELLANT SUBMITTED THE ACCOUNTS ON ACCRUAL B ASIS WHERE THE EXPENDITURE INCURRED IN RELATION TO INTERNATIONAL TRANSACTION WAS CLAIMED IN THE BOOKS OF ACCOUNT. AS CONTRACT FOR ORGANIZING, THE GAME WAS GIVEN TO FOUR BIDDERS AMONGST WHOM THE M/S G L EVENTS MEROFORM IS ONE. THE OC, CWG PROVIDED THE CONTR ACT OF OVERLAYS TO M/S G L EVENTS MEROFORM, FRENCH COMPANY, WHICH IS A CONSORTIUM, FORMED BY TWO PARTNERS M/S G L EVENTS SERVICES FRANCE WITH 70% SHARE AND M/S MEROFORM INDIA PVT LTD WITH 30% SHARE. SINCE, THE CWG 2010 WAS HELD FOR THE FIRST TIME IN INDIA , IT IS APPARENT THAT M/S MEROFORM INDIA PVT LTD (INDIAN COMPANY) HAD NO EXPERIENCE OF PROVIDING ANY OVERLAYS FOR SUCH SPORTING EVENTS. IT WAS M/S G L EVENTS SERVICES, FRANCE, WHO HAD EXPERIENCE OF PROVIDING OVERLAYS FOR MAJOR SPORTING EVENTS. THEREFORE, T HE CONTRACT FOR OVERLAYS WAS PROVIDED TO M/S G L EVENTS MEROFORM BASED ON THE EXPERIENCE OF M/S G L EVENTS SERVICES, FRANCE. LATER, PAGE | 73 THE PARTNERS OF THE CONSORTIUM AS PER THE TERMS OF THE CONTRACT FORMED AN INDIAN COMPANY NAMED G L LITMUS EVENTS PVT LTD FOR EXECUTION OF THE CONTRACT AWARDED BY OC, CWG IN INDIA. AS IT WAS NOT POSSIBLE FOR A FRANCE COMPANY TO DIRECTLY CONDUCT OVERLAYS ACTIVITIES IN INDIA AND THEREFORE IT WAS UNDERTAKEN BY FORMING AN INDIAN COMPANY. THE CONTRACT WAS PROVIDED BY THE CONSORTIUM T O THE COMPANY AT COST - TO - COST BASIS WITHOUT ANY MARK UP . AS IT IS APPARENT FROM ABOVE THAT CONTRACT OF OVERLAYS WAS AWARDED TO M/S G L EVENTS MEROFORM WHOSE PLACE OF BUSINESS IS FRANCE AND AN INDIAN COMPANY NAMED G L LITMUS EVENTS PVT LTD (APPELLANT) WAS FORMED BY THE PARTNERS OF CONSORTIUM ONLY TO MANAGE THE EVENT AND RELATED ACTIVITIES IN INDIA. HAD THE EVENT BEEN MANAGED BY M/S G L EVENTS MEROFORM, ALL THE EQUIPMENTS, PROFESSIONAL, EXPATRIATES, CONSUMABLES AND TECHNICAL SERVICES WOULD HAVE BEEN DEPLOYED BY IT FROM FRANCE DIRECTLY, BUT, THE EVENT WAS BEING MANAGED BY THE APPELLANT WHICH WAS ACTING AS SPECIAL PURPOSE VEHICLE ( SPV ) AND THEREFORE, THESE EQUIPMENTS, PROFESSIONAL, EXPATRIATES, CONSUMABLES AND TECHNICAL SERVICES WERE PURCHASED FROM ASSO CIATED ENTERPRISES. 48 . IN FORM NO 3CEB REPORT THE ACCOUNTANT DID NOT DETERMINE THE ARMS LENGTH PRICE RELATING TO INTERNATIONAL TRANSACTION AND COMMENTED AS UNDER : 4.THE TRANSFER PRICING STUDY OF THE INTERNATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRI SES AS PER THE PROVISIONS OF THE INCOME TAX ACT, 1961 HAS NOT BEEN PERFORMED TILL THE DATE OF THE ISSUE OF THIS REPORT. IN SPECIFIC, AS REQUIRED PER RELEVANT PROVISIONS OF THE INCOME TAX, FOLLOWING NECESSARY DOCUMENTS AND INFORMATION WERE NOT MADE AVAILABL E: A. DESCRIPTION OF THE FUNCTIONS PERFORMED, RISKS ASSUMED AND ASSETS EMPLOYED OR TO BE EMPLOYED BY THE PARTIES INVOLVED; PAGE | 74 B. RECORD OF THE ECONOMIC AND MARKET ANALYSES, FORECASTS, BUDGETS OR ANY OTHER FINANCIAL ESTIMATES PREPARED HAVING BEARING ON THE INTERNATIONAL TRANSACTIONS ENTERED INTO; C. RECORD OF THE NATURE, TERMS AND CONDITIONS RELATING TO ANY UNCONTROLLED TRANSACTION TAKEN INTO ACCOUNT ALONG WITH ITS COMPARABILITY ANALYSIS PERFORMED WITH THE RELEVANT INTERNATIONAL TRANSACTIONS; D. DESCR IPTION OF THE APPROPRIATE METHOD CONSIDERED FOR DETERMINING THE ARM'S LENGTH PRICE IN RELATION TO EACH INTERNATIONAL TRANSACTION ALONG WITH EXPLANATIONS RELATING TO SELECTION AND APPLICATION OF SUCH METHOD AND DETAILED WORKING RELATING TO DETERMINATION OF SUCH ARMS LENGTH PRICE; E. ANY ASSUMPTIONS, POLICIES AND PRICE NEGOTIATIONS OR ANY OTHER RELEVANT INFORMATION RELATING TO THE ASSOCIATED ENTERPRISES, WHICH HAVE CRITICALLY AFFECTED THE DETERMINATION OF SUCH ARMS LENGTH PRICE ALONG WITH ANY ADJUSTMENTS , WHICH WERE MADE TO ACCOUNT FOR DIFFERENCES BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS. F. DETAILS OF THE ADJUSTMENTS, IF ANY, MADE TO TRANSFER PRICES TO ALIGN THEM WITH ARM'S LENGTH PRICES DETERMINED UNDER THESE RULES AND CONSEQUENT ADJUSTMENT MADE TO THE TOTAL INCOME FOR TAX PURPOSES; PAGE | 75 CONSIDERING THE LIMITATION AND SIGNIFICANCE OF MATTER AS DISCUSSED IN ABOVE PARAGRAPH, THE PRICING AND METHOD CANNOT PRESENTLY BE DETERMINED AND, THEREFORE, WE ARE NOT IN A POSITIO N TO COMMENT WHETHER THE AMOUNTS REPORTED IN ANNEXURE READ WITH THE NOTES STATED AGAINST THE RELEVANT CLAUSES AND EXHIBIT 6 OF THE ANNEXURE TO THIS FORM ARE TRUE AND CORRECT. 49 . THEREAFTER, THE LD. AO REFERRED IT TO THE LD. TPO FOR DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISE. THE LD. TPO ISSUED NOTICE U/S 92CA ( 2) AND 92D ( 3) OF THE ACT ON 02.01.2013 AND ASKED THE APPELLANT TO FURNISH VARIOUS DETAILS AND DOCUMENTS. THE APP ELLANT VIDE LETTER DATED 14.2.2014 SUBMITTED THE REPLY TO THE AFORESAID NOTICE ALONG WITH DETAILS AND DOCUMENTS. SUBSEQUENTLY ON 15.01.2014, THE LD. TPO ISSUED SHOW CAUSE NOTICE IN WHICH, BASED ON THE ABOVE COMMENTS OF THE AUDITOR GIVEN IN FORM 3CEB, HE PROPOSED TO TREAT THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS AT NIL. THE APPELLANT SUBMITTED REPLY TO THE ABOVE NOTICE VIDE LETTER DATED 20.1.2014 ALONG WITH THE TRANSFER PRICING STUDY REPORT . ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD SELECTING THREE COMPARABLE S AND HOLDING THAT AS THE MARGINS OF THE COMPARABLE IS LESS THAN THE MARGINS OF THE ASSESSEE, ITS INTERNATIONAL TRANSACTION S ARE AT ARMS LENGTH PRICE. THUS, IT WAS SUBMITTED IN THE REPLY THAT IN VIEW OF THE TRANSFER PRICING STUDY ALL THE INTERNATIONAL TRANSACTIONS WERE AT THE ARMS LENGTH. THE LD. TPO AFTER REJECTING THE ABOVE TRANSFER STUDY AND PASSED AN ORDER U/S 92CA(3) DETERMINING THE ARMS LENGTH PRICE OF ALL THE INTERNATIONAL TRANSACTIONS UNDER CUP METHOD AT NIL. THE LD TPO IN THE ORDER REJECTED THE TRANSFER PRICING PAGE | 76 STUDY AND THE TNMM AS MOST APPROPRIATE METHOD F OR FOLLOWING REASONS : I . THE DOCUMENTATION U/S 92D IS NOT BASED ON VERIFIABLE INFORMATION AND DOCUMENTS II . THE STUDY IS BASED ON MULTIPLE YEAR DATA AND NOT BASED UPON THE CURRENT YEAR DATA III . INSTEAD OF BENCHMARKING THE ABOVE TRANSACTION SEPARATELY, YOU HAVE BENCHMARKED THE ENTITY LEVEL PERFORMANCE USING TNMM. IV . NO SUPPORTING DOCUMENTS/MATERIAL HAVE BEEN FURNISHED TO CORROBORATE THE TNMM METHOD. 50 . THE LD. AO MADE THE ABOVE ADJUSTMENT IN ITS DRAFT ORDER AT PARA NO 32 OF RS. 58,43,92 ,894/ - . THE LD DRP CONFIRMED THE SAME. THEREFORE, ASSESSEE IS IN APPEAL BEFORE US ON THIS GROUND. 51 . THE LEARNED AUTHORISED REPRESENTATIVE VEHEMENTLY SUBMITTED THAT THE P URCHASE OF CONSUMABLES OF INR 4 0117002/ IS COMPRISING OF TELEVISIONS, REFRIGERATORS ET CETERA PURCHASED FROM THE MANUFACTURER SUCH AS LG ELECTRONICS ET CETERA. HE STATE D THAT AS THE PAYMENT FOR THE ITEM WAS MADE BY THE ASSOCIATED ENTERPRISE THE APPELLANT REIMBURSED THE ABOVE AMOUNT TO THE ASSOCIATED ENTERPRISE ON COST - TO - COST BASIS, WITHOUT ANY MARK UP. FOR THIS , HE REFERRED TO THE VARIOUS DEBIT NOTE RAISED BY THE ASSOC IATED ENTERPRISE TO THE APPELLANT ALONG WITH THE INVOICES OF LG ELECTRONICS PRIVATE LIMITED TO THE ASSOCIATED ENTERPRISE AND SHOW THAT THESE INVOICES ARE FOR THE REFRIGERATORS ET CETERA , WHICH WERE PURCHASED IN INDIA ONLY . H OWEVER AS THE BILL WAS IN THE N AME OF THE ASSOCIATED ENTERPRISE AND THE PAYMENT WAS MADE BY THE ASSOCIATED ENTERPRISE, THE ASSOCIATED ENTERPRISE RAISED IN TURN AN INVOICE TO THE APPELLANT AT COST ONLY WITHOUT ANY MARK UP. FURTHER, WITH RESPECT TO THE BILLS OF TELEVISION SETS, HE STATED THAT THESE INVOICES CONSIST OF THE INVOICES RAISED BY THE MANUFACTURER SUPPLIERS STRAIGHTWAY TO THE GL MIDDLE EAST AND ASSOCIATED ENTERPRISE AND THE SAME INVOICES WERE PAID BY THAT ENTITY PAGE | 77 AND SUBSEQUENTLY ON THE SAME COST; THEY HAVE BEEN TRANSFERRED WITHO UT ANY MARK UP TO THE APPELLANT. HE THEREFORE SUBMITTED THAT THAT THERE IS NO REASON FOR THE LEARNED TRANSFER PRICING OFFICER TO DETERMINE THE ARMS - LENGTH PRICE AT NIL OF THESE MATERIAL PURCHASED BY THE ASSESSEE ON COST OR COST BASIS FOR WHICH THE BILL S OF THE ORIGINAL SUPPLIER ARE ENCLOSED AND PRODUCED BEFORE HIM . HE SUBMITTED THAT DETERMINATION OF ALP OF SUCH PURCHASES AT NIL IS DEVOID OF ANY MERIT. 52 . HE FURTHER REFERRED TO THE RENTAL EXPENDITURE OF INR 3 49054107 WHICH ARE PAID TO ASSOCIATED ENTERPRISE FOR EQUIPMENT TAKEN ON LEASE. HE SUBMITTED THAT VARIOUS EQUIPMENTS WERE TAKEN ONLY IS OUR TENTS INCLUDING FLOORING, DOORS, RAMPS, GRANDSTAND SEATING ET CETERA AND PORTABLE FACILITIES, CONTAINERS HOLDING, OF FICE FACILITIES, FURNITURE SAID FITTINGS ET CETERA. HE FURTHER REFERRED THAT THE RENTAL CHARGES WERE PAID AS WELL THE EQUIPMENT LEASE AGREEMENT. HE FURTHER STATED THAT IT COULDNT BE ANYBODYS CASE THAT WITHOUT THESE EQUIPMENTS THE APPELLANT COULD HAVE C OMPLETED THE CONTRACT UNDERTAKEN BY IT. ALL THESE WERE ITEMS WERE ESSENTIALLY TO COMPLETE THE WORK ASSIGNED TO IT AND EVIDENCE ARE THERE TO SHOW THAT SUCH ITEMS WERE IN FACT PROVIDED AND TRANSPORTED TO THE APPELLANT BY ITS ASSOCIATED ENTERPRISE. HE FURTH ER REFERRED TO THE FACT THAT THERE IS SHIPMENT FREIGHT OF INR 25.41 CRORES, THE CUSTOM DUTY OF INR 8.96 CRORES, WHICH HAS BEEN INCURRED BY THE ASSESSEE FOR IMPORT OF THESE EQUIPMENTS . HE THEREFORE STATED THAT THE CONSUMABLE PURCHASE AND EQUIPMENT TAKEN ON LEASE WERE DULY IMPORTED THROUGH AIRWAYS AND WATERWAYS HENCE THE LEARNED ASSESSING OFFICER/TRANSFER PRICING OFFICER CANNOT QUESTION THE GENUINENESS OF THE TRANSACTION AND AT LEAST CANNOT DETERMINE THE ARMS - LENGTH PRICE OF SUCH TRANSACTION AT RS. NIL . 53 . HE FURTHER REFERRED TO THE CONTRACT MANPOWER/JOB WORK SERVICE OF INR 116,000,000 AND STATED THAT APPELLANT HAD A TECHNICAL SERVICE AGREEMENT WITH ASSOCIATED ENTERPRISE IN RELATED RELATION TO TECHNICAL SERVICES. HE REFERRED THAT UNDER TECHNICAL SERVICES NUMB ER OF FOREIGN EXPECTORANT LIKE TECHNICAL WORK A TECHNICAL SPECIALIST AND PAGE | 78 COORDINATORS ARE HIRED FOR SETTING UP OF ALL TYPES OF TEMPORARY INSTALLATION. HE FURTHER SUBMITTED THE TECHNICAL SERVICES AGREEMENT AND STATED THAT THE COMPLETION OF THE CONTRACT REQ UIRED HIGHLY SKILLED MANPOWER WHICH HAD VAST EXPERIENCE IN ORGANIZING SUCH BIG EVENTS AND THE APPELLANT BEING A NEW AND A SPECIAL PURPOSE VEHICLE WAS NOT HAVING ANY SUCH MANPOWER AND THEREFORE IT WAS TO BE ACQUIRED FROM THE ASSOCIATED ENTERPRISE WHO WON TH E TENDER FOR ORGANIZING SUCH EVENTS. THEREFORE, THE ASSESSEE UTILIZES THE SERVICES OF THESE EMPLOYEES AND THE ASSOCIATED ENTERPRISE AND PAID THE SERVICE CHARGES AS PER THE AFORESAID AGREEMENT. HE STATED THAT IT CANNOT BE SAID THAT WITHOUT THE HELP OF THE SKILLED MANPOWER SUCH BE GIVEN COULD HAVE BEEN HELD. HE FURTHER SHOWN THE FLIGHT EXPENSES INCURRED FOR TRAVELLING OF THE TECHNICAL AND SPECIALIZED WORKERS FROM FOREIGN COUNTRIES TO INDIA AND BACK TO THAT COUNTRY CLEARLY SPECIFYING THAT THE CONTRACTUAL MA NPOWER SERVICES HAVE BEEN TAKEN BY THE APPELLANT FROM THE ASSOCIATED ENTERPRISE. HE EXTENSIVELY REFERRED TO THE COPIES OF THE LIGHT BILLS AND VARIOUS EXPENDITURE INCURRED BY THOSE PERSONS IN INDIA. IN VIEW OF THIS, HE STATED THAT THE SERVICES HAVE BEEN D EFINITELY PROVIDED BY THE ASSOCIATED ENTERPRISE TO THE ASSESSEE ON NEED BASIS AND RESULTING INTO DIRECT BENEFIT TO THE ASSESSEE. HE FURTHER STATED THAT SUCH SERVICES WERE NOT AT ALL DUPLICATIVE IN NATURE AND IN THE NATURE OF SHAREHOLDER SERVICES. HE THER EFORE SUBMITTED THAT THE ARMS - LENGTH PRICE OF SUCH SERVICES CANNOT BE DETERMINED AT RS. NIL . 54 . HE FURTHER REFERRED TO THE MANAGEMENT FEES PAID OF INR 45,900,000 AND STATED THAT APPELLANT WAS A NEWLY INCORPORATED COMPANY AND THE CONTRACT OF OVERLAYS WAS AWA RDED TO THE APPELLANT ONLY SEEING THE EXPERIENCE OF ITS HOLDING COMPANY THEREFORE THE APPELLANT WAS TAKING SPECIAL ADMINISTRATIVE, FINANCIAL, LEGAL AND TECHNICAL ASSISTANCE FROM THAT COMPANY AND FOR THAT THE APPELLANT HAS PAID 2.5% OF ITS ANNUAL NET SALES BEFORE TAX TO THE ASSOCIATED ENTERPRISE. HE FURTHER REFERRED TO THE AGREEMENT AND STATED THAT THE SERVICES HAVE BEEN RENDERED BY THE ASSOCIATED ENTERPRISE ON NEED BASIS AND THEY ARE NOT PAGE | 79 SHAREHOLDER SERVICES OR DUPLICATIVE IN NATURE RESULTING INTO DIRECT B ENEFIT TO THE ASSESSEE AND THEREFORE THEIR DETERMINATION OF THE PRIZE AT ARMS - LENGTH AT RS. NIL BY THE LEARNED TRANSFER - PRICING OFFICER IS INCORRECT. 55 . HE FURTHER REFERRED TO THE REIMBURSEMENT OF EXPENSES OF RS. 33193514 MADE BY THE ASSESSEE TO ITS ASSOCI ATED ENTERPRISE RELATING TO THE TRAVELLING, VIZ, CONSUMABLES, INSURANCE, TELEPHONE EXPENSES AND OTHER EXPENSES INCURRED BY ITS ASSOCIATED ENTERPRISE ON BEHALF OF THE APPELLANT. HE SUBMITTED THAT THESE EXPENSES ARE TO BE REIMBURSED BY THE APPELLANT TO THE AE AS THESE ARE THE EXPENDITURE FOR THE PURPOSE OF THE EVENT WHICH IS ORGANIZED IN INDIA AND SAME MAY BEEN REIMBURSED WITHOUT ANY COST BUT ON ACTUAL IS. HE FURTHER SUBMITTED THAT THAT SUCH EXPENDITURE ARE REQUIRED FOR THE PURPOSE OF ORGANIZING OF THE EVEN TS AND THEREFORE THE ARMS - LENGTH PRICE OF THESE EXPENDITURE CANNOT BE DETERMINED AT RS. NIL . 56 . WITH RESPECT TO THE DETERMINATION OF THE ALPA BY ADOPTING THE TRANSACTIONAL NET MARGIN METHOD, HE SUBMITTED THAT NOT ALL THESE TRANSACTIONS HAD ANY COMPARABLE AN D THEREFORE THE MOST APPROPRIATE METHOD WAS SELECTED AS TRANSACTIONAL NET MARGIN METHOD. HE STATED THAT THE ASSESSEE IS SELECTED AFTER CONDUCTING DETAILED SEARCH AND APPLYING THE PROPER FILTERS 3 INDEPENDENT COMPANIES CARRYING ON THE IDENTICAL ACTIVITIES AND THEIR MARGIN WAS COMPARED WITH THE MARGIN OF THE ASSESSEE. THE MARGIN OF THE ASSESSEE WAS MUCH HIGHER THAN THE MARGIN OF THE COMPARABLE COMPANIES AND THEREFORE THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE STATED TO BE AT ARMS - LENG TH. HE FURTHER REFERRED TO THE VARIOUS BALANCE SHEETS OF THE PARTIES, WHICH ARE SELECTED THAT THE COMPARABLE COMPANY TO SHOW THE FUNCTIONAL COMPARABILITY OF THOSE COMPANIES AND THE COMPUTATION OF THEIR MARGIN. WITH RESPECT TO THE DOCUMENTATION, IT IS SUB MITTED THAT EARLIER THE ASSESSEE DID NOT PREPARE THOSE DOCUMENTS HOWEVER AS DEMANDED BY THE LEARNED TRANSFER PRICING OFFICER/ASSESSING OFFICER THE ASSESSEE SUBMITTED THE COMPLETE TRANSFER PRICING STUDY REPORT PAGE | 80 SHOWING ALL THE DETAILS AND DULY SUPPORTED BY T HE VERIFIABLE INFORMATION AND THE DOCUMENTS AND THEREFORE BEFORE THE DETERMINATION OF THE ARMS - LENGTH PRICE THE ASSESSEE HAS COMPLIED WITH THE PROVISIONS OF SECTION 92D OF THE INCOME TAX ACT. WITH RESPECT TO THE AGGREGATION OF THE TRANSACTION S, WHERE TH E LEARNED TRANSFER PRICING OFFICER AND STATED THAT THE BENCHMARKING OF THE ABO VE TRANSACTION SHOULD HAVE BEEN DONE SEPARATELY , HE SUBMITTED THAT THOSE TRANSACTIONS ARE BENCHMARK ED USING THE TRANSACTIONAL NET MARGIN METHOD BECAUSE THERE ARE NO COMPARABLE DATA AVAILABLE IN THE PUBLIC DOMAIN WITH RESPECT TO THE IDENTICAL SERVICES PROVIDED AND THEREFORE THEY NEED TO BE BENCHMARKED TOGETHER AND ONLY OPTION AVAILABLE IS TO BENCHMARK THEM USING THE TRANSACTIONAL NET MARGIN METHOD. WITH RESPECT TO THE MULTIPLE YEARS DATA USED BY THE ASSESSEE IT IS SUBMITTED THAT AT THE REQUEST OF THE LEARNED TRANSFER PRICING OFFICER AND THE LEARNED ASSESSING OFFICER THE ASSESSEE HAS ALSO USED THE CURRENT YEAR DATA OF THOSE COMPARABLES. HE SUBMITTED THAT OUT OF THE 3 PARTIES ONE PARTY DID NOT EXIST IN THE CURRENT YEAR AND THEREFORE ONLY 2 PARTIES REMAINED AS A COMPARABLE COMPANY W HOSE AVERAGE MARGIN USING THE CURRENT YEAR DATA WAS 6.19% AS AGAINST THE MARGIN OF THE APPELLANT AT 12.57 %, WHICH IS MUCH HIGHER THAN THE MARGIN OF T HE COMPARABLES AND THEREFORE EVEN USING THE CURRENT YEAR DATA THE TRANSACTION OF THE ASSESSEE ARE AT ARMS - LENGTH. HE FURTHER SUBMITTED THAT ASSESSEE HAS GIVEN A DETAILED TRANSFER PRICING STUDY REPORT TO THE LEARNED TRANSFER PRICING OFFICER STATING THAT T RANSACTIONAL NET MARGIN METHOD IS THE MOST APPROPRIATE METHOD , HOWEVER THE LEARNED TO TPO HAS HELD THAT ONLY THE CUP METHOD IS THE MOST APPROPRIATE METHOD BUT NO DATA WAS PROVIDED BY THE LEARNED TRANSFER PRICING OFFICER. HE STATED THAT THE LEARNED TRA NSF ER PRICING OFFICER DETERMINES THE ARMS - LENGTH PRICE OF THE TRANSACTION OF INR 5 854392894/ AS RS. NIL ONLY. IN VIEW OF THIS , HE SUBMITTED THAT THE METHOD ADOPTED BY THE LEARNED TRANSFER PRICING OFFICER FOR DETERMINING THE ARMS - LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION AT RS. NIL ONLY IS NOT SUSTAINABLE. EVEN PAGE | 81 OTHERWISE, HE SUBMITTED THAT THE COMPLETE DATA IS AVAILABLE BEFORE THE COORDINATE BENCH AND THEREFORE THE COORDINATE BENCH SHOULD DECIDE THE ARMS - LENGTH PRICE OF THE INTERNATIONAL TRANSACTIO N AND THERE IS NO PURPOSE IN SENDING BACK THE ISSUE TO THE FILE OF THE LEARNED TRANSFER - PRICING OFFICER. 57 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED TRANSFER - PRICING OFFICER. 58 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LEARNED TRANSFER - PRICING OFFICER AND THE LEARNED DISPUTE RESOLUTION PANEL. WITH RESPECT TO THE ABOVE TRANSACTION, THE LEARNED TRANSFER - PRICING OFFICER IN PARA NUMBER 4 OF HIS ORDER NOTED THAT ASSESSEE WAS AWARDED THE CONTRACT FOR OVERLAYS WORK IN THE TWO CLUSTERS OF THE COMMONWEALTH GAMES 2010. THERE WERE ALLEGATIONS IN THE PUBLIC DOMAIN THAT THE CONTRACT FOR OVERLAYS WORKS WERE AWARDED AT HIGH RATES IN SUBSTANDARD MATERIALS WAS USED BY THE CONTRACTORS. HE THEREF ORE REFERRED TO THE ALLEGATIONS IN THE HIGH - LEVEL COMMITTEE OF SHRI VK SHUNGLU AND REFERRED TO ITS 5 TH STAND - ALONE REPORT DATED 28/3/2011. HE FURTHER REFERRED TO THE SEARCH OPERATION UNDER SECTION 132 OF THE INCOME TAX ACT DATED 19/10/2010 AND STATED THAT THE POST SEARCH INVESTIGATION ALSO REVEALED THAT THE ASSESSEE IS ENGAGED IN THE MODUS OPERANDI OF RAI SING BOGUS BILLS AND THEREBY INFLATING THE EXPENSES. HE THEREFORE SUBMITTED THAT IN VIEW OF THE FINDINGS OF THE HIGH - POWERED COMMITTEE, THE POST SEARCH INCOME TAX PROCEEDINGS, AND FINDING BY THE STATUTORY AUDITOR IN FORM NUMBER 3 CE B, ASSESSEES PAYMENT TO WARDS INTERNATIONAL TRANSACTION OF INR 5 84392894/ IS REDUCED TO NIL USING THE CUP METHOD AND THEREFORE HE STATED THAT THE LEARNED ASSESSING OFFICER SHALL MAKE AN UPWARD ADJUSTMENT OF THE ASSESSEES TAXABLE INCOME BY INR 5 84392894/ . ON OBJECTION BEFORE THE LEARNED DISPUTE RESOLUTION PANEL, THE LEARNED DISPUTE RESOLUTION PANEL DEALT WITH AT PARA NUMBER 11 OF THE DIRECTION AT PAGE NUMBER 38. THE LEARNED DISPUTE RESOLUTION PANEL RELYING ON THE AUDITORS REPORT IN FORM NUMBER 3 CE B AND THE FACT THAT NOTHIN G WAS STATED BEFORE THE PAGE | 82 TRANSFER - PRICING OFFICER OR BEFORE THE LEARNED DISPUTE RESOLUTION PANEL THAT THIS EXPENDITURE ARE AT ARMS - LENGTH AND THEREFORE THEY UPHELD THE FINDING OF THE LEARNED TRANSFER PRICING OFFICER. OVER AND ABOVE, IT REFERRED TO THE D ECISION OF THE HONOURABLE DELHI HIGH COURT IN CIT VS CUSHMAN WAKEFIELD INDIA PRIVATE LIMITED STATING THAT THE ABOVE DECISION DOES NOT PROHIBIT THE TRANSFER - PRICING OFFICER FOR DETERMINING THE ARMS - LENGTH PRICE OF A TRANSACTION AT NIL AS HAS BEEN DONE BY T HE LEARNED TRANSFER - PRICING OFFICER IN THIS CASE. IT FURTHER HELD THAT CONSIDERING THE FACTS OF THIS CASE , IT IS ALSO CLEAR THAT THE PAYMENT FOR INTRAGROUP SERVICES IS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS IN TERMS OF SECTION 37 (1) O F THE INCOME TAX ACT. IN VIEW OF THESE FACTS , THE LEARNED DISPUTE RESOLUTION PANEL FURTHER DIRECTED THE LEARNED ASSESSING OFFICER DISALLOWED THE SAME U/S 37 (1) OF THE ACT ON PROTECTIVE BASIS TO AVOID DOUBLE TAXATION. IT WAS FURTHER HELD THAT CONSEQUENT TO THIS FINDING, THE DISALLOWANCE OF THE ENTIRE EXPENSES MADE BY THE LEARNED ASSESSING OFFICER SHOULD BE FURTHER REDUCED BY INR 5 84346638/ TO AVOID DOUBLE TAXATION. ACCORDINGLY, THE LEARNED DISPUTE RESOLUTION PANEL NOTED THAT AS THE LEARNED ASSESSING OF FICER HAS BEEN DIRECTED TO DISALLOW T HE ABOVE EXPENDITURE COMPLETELY, THE ADJUSTMENT OF THE ARMS - LENGTH PRICE WILL RESULT INTO DOUBLE ADDITION AND THEREFORE PROTECTIVELY THERE WERE UPHELD THE TRANSFER PRICING ADJUSTMENT ALSO. HOWEVER WE ARE CONCERNED H ERE WITH WHETHER THE TRANSFER PRICING ADJUSTMENT MADE BY THE LEARNED TRANSFER PRICING OFFICER AND CONFIRMED BY THE LEARNED DISPUTE RESOLUTION PANEL TO THE INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE ARE IN ACCORDANCE WITH THE LAW NOT. ADMITTEDLY, O RIGINALLY ASSESSEE DID NOT SUPPORT ITS INTERNATIONAL TRANSACTIONS AS REPORTED IN FORM NUMBER 3 CEB WITH DOCUMENTARY EVIDENCES SUCH AS TRANSFER PRICING STUDY REPORT ET CETERA. HOWEVER WHEN DIRECTED BY THE LEARNED TRANSFER PRICING OFFICER/ASSESSING OFFICER THE ASSESSEE SUBMITTED THE COMPLETE DOCUMENTS ALONG WITH THE BENCHMARKING METHODOLOGY OF THE INTERNATIONAL TRANSACTIONS SELECTING 3 COMPARABLES USING MULTIPLE HERE DATA AND HOLDING THAT AS THE PAGE | 83 MARGINS OF THE 3 COMPARABLE COMPANIES IS LESS THAN THE MARGIN O F THE ASSESSEE, THE INTERNATIONAL TRANSACTIONS ARE AT ARMS - LENGTH. WHEN CONFRONTED THAT THE MULTIPLE YEAR DATA CANNOT BE USED, THE ASSESSEE FURTHER SUPPORTED ITS TRANSFER PRICING STUDY REPORT RETAINING ONLY 2 COMPARABLES, AS THE 3 RD COMPARABLE DID NOT EX IST IN THE CURRENT YEAR, COMPUTED THE MARGIN OF THE COMPARABLE COMPANIES AND FOUND THAT THE MARGIN OF THE ASSESSEE IS MUCH HIGHER THAN THE MARGINS OF THOSE COMPARABLE COMPANIES AND THEREFORE EVEN ON THE AN ALYSIS OF THE CURRENT YEAR DATA, THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE STATED TO BE AT ARMS - LENGTH. 59 . THE FIRST TRANSACTION OF THE PURCHASES OF CONSUMABLES OF RS. 4,01,17,002 IS COMPRISING OF CONSUMABLES COMPRISES OF TVS, REFRIGERATORS, ETC PURCHASED FROM LAFI PLATFORM DACATS IT AND LG ELECTRONICS. AS THE PAYMENT FOR ITEMS WAS MADE BY THE ASSOCIATED ENTERPRISES, THE APPELLANT REIMBURSED THE AMOUNT TO THE AES ON COST - TO - COST BASIS WITHOUT ANY MARK UP. AS SESSEE SUPPORTED IT WITH COPIES OF DEBIT NOTE RAISED BY THE ASSOCIATED ENTERPRISE TO THE APPELLANT ALONG WITH THE COPIES OF INVOICES BY LG ELECTRONICS INDIA PVT. LTD TO THE G L EVENT SERVICES (ASSOCIATED ENTERPRISE ) WHICH ARE PLACED PAGE 195 - 202 OF PAP ER BOOK VI. IT IS EVIDENT FROM THE INVOICES THAT THE REFRIGE RATORS WERE PURCHASED IN INDIA AND SINCE THE BILL WAS IN THE NAME OF ASSOCIATED ENTERPRISE AND PAYMENT WAS MADE BY ASSOCIATED ENTERPRISE, THE ASSOCIATED ENTERPRISE RAISED AN INVOICE TO THE APPELL ANT AT COST ONLY WITHOUT ANY MARK UP. THE DEBIT NOTE RAISED BY G L MIDDLE EAST, ASSOCIATED ENTERPRISES, FOR SUPPLY OF TV IS PLACED AT PAGE 195 OF THE PAPER BOOK VI. THE INVOICE CONSISTS OF THE REFERENCE OF THE INVOICE NUMBERS ALONG WITH THE DATE OF INVOICE AND AMOUNT AT WHICH THE TVS WERE PURCHASED BY THEM. HENCE, IT IS EVIDENT FROM THE INVOICE THAT THAT THE ASSOCIATED ENTERPRISE HAD CHARGED THE AMOUNT AT COST WITHOUT ANY MARK UP FROM THE APPELLANT. 60 . SECOND TRANSACTION OF RENTAL EXPENSES OF RS. 34,90,54,107 / - INCLUDE THE RENT PAID TO ASSOCIATED ENTERPRISES FOR THE EQUIPMENT PAGE | 84 TAKEN ON LEASE. VARIOUS EQUIPMENTS TAKEN ON LEASE ARE TENTS (INCLUDING FLOORING, DOORS, RAMPS), GRANDSTAND SEATING (UNDER STRUCTURE AND SEATS), PORTABLE ABLUTION FACILITIES, CONTAINERS, S CAFFOLDING, OFFICE FACILITIES, FURNITURE AND FIXTURES, FITTINGS AND EQUIPMENTS, CARPETING, PARTITIONING, CEILINGS, AUDIO - VISUAL EQUIPMENT, ELECTRICAL, POWER GENERATORS, IT & T, HVAC, PUBLIC ADDRESS SYSTEM, SECURITY, SIGNAGE ELEMENTS, FENCING, FLAG POLES, F IRE EQUIPMENT, SECURITY EQUIPMENT AND OTHER COMMODITIES WHICH MAY BE REQUESTED AS PART OF THE MAIN CONTRACT OR THE OTHER CONTRACTS. FURTHER, EQUIPMENT ALSO COMPRISES OF TV SCREENS, FENCES AND OTHER COMMODITIES THAT MAY BE REQUESTED AS PART OF MAIN CONTRACT OR THE OTHER CONTRACTS. THE RENTAL CHARGES WERE PAID AS PER THE EQUIPMENT LEASE AGREEMENT, WHICH IS ENCLOSED AT PAGE 93 - 112 OF PAPER BOOK VI. THE COPIES OF BILLS ARE ENCLOSED AT PAGE 203 - 227 OF PAPER BOOK VI. IT IS NOT THE CLAIM OF REVENUE THAT WITHOUT THESE EQUIPMENTS THE APPELLANT COULD HAVE COMPLETED THE CONTRACT UNDERTAKEN BY IT. ALL THESE ITEMS WERE ESSENTIAL TO COMPLETE THE WORK ASSIGNED TO IT. IT IS ALSO NOT THE CLAIM OF AO/ TPO THAT THE AES DID NOT SUPPLY THESE ITEMS. EVIDENCES ARE THERE TO SHOW THAT SUCH ITEMS WERE IN FACT PROVIDED AND TRANSPORTED TO THE APPELLANT BY ITS AES. FURTHER, TO JUSTIFY THAT THE ABOVE EXPENSES INCURRED BY THE APPELLANT ARE GENUINE AND TRUE, THE APPELLANT HAD PAID AIR AND SHIPMENT FREIGHT OF RS.25,41,62,9 63/ - COP IES OF THE INVOICES WERE ALRE ADY SUBMITTED BEFORE THE LD. AO . THE APPELLANT ALSO PAID CUSTOM DUTY OF RS. 8,96,74,424/ - OUT OF WHICH 1,92,32,793/ - WAS CLAIMED AS EXPENDITURE IN PROFIT AND LOSS ACCOUNT AND THE BALANCE OF RS.7,03,41,631/ - WAS STANDIN G IN BALANCE SHEET AS RECOVERABLE. ASSESSEE SUPPORTED IT WITH COPY OF CHALLAN PLACED AT PAGE 486 - 491 OF PAPER BOOK VII. THIS CLEARLY SHOWS THAT THE CONSUMABLES PURCHASED AND EQUIPMENT TAKEN ON LEASE WERE DULY IMPORTED THROUGH AIRWAYS & WATERWAYS AND T HE CUSTOM DUTY FOR THESE IMPORTS WAS DULY PAID. PAGE | 85 61 . THIRD TRANSACTION OF CONTRACT MANPOWER/JOB WORKER SERVICES AVAILED OF RS. 11,60,32,264 / - WHICH IS SUPPORTED WITH TECHNICAL SERVICE AGREEMENT WITH THE ASSOCIATED ENTERPRISES IN RELATION TO TECHNICAL SERVIC ES. UNDER TECHNICAL SERVICES, NUMBER OF FOREIGN EXPATRIATES LIKE TECHNICAL WORKERS, TECHNICAL SPECIALIST AND TECHNICAL COORDINATORS ARE HIRED FOR SETTING UP OF ALL TYPES OF TEMPORARY INSTALLATION (OVERLAYS), GENERALLY INCLUDING BUT NOT LIMITED TO TENTS ( INCLUDING FLOORING, DOORS, RAMPS), GRANDSTAND SEATING (UNDER STRUCTURE AND SEATS), PORTABLE ABLUTION FACILITIES, CONTAINERS, SCAFFOLDING, OFFICE FACILITIES, FURNITURE AND FIXTURES, FITTINGS AND EQUIPMENTS, CARPETING, PARTITIONING, CEILINGS, AUDIO - VISUAL EQ UIPMENT, ELECTRICAL, POWER GENERATORS, IT & T, HVAC, PUBLIC ADDRESS SYSTEM, SECURITY, SIGNAGE ELEMENTS, FENCING, FLAG POLES, FIRE EQUIPMENT, SECURITY EQUIPMENT INCLUDING, DESIGN, ERECTION, CONSTRUCTION, MANUFACTURE, DELIVERY, HIRING, MAINTENANCE DURING HIR E PERIOD AND DISMANTLING INCLUDING NECESSARY MAKING GOOD AND REINSTATEMENT ON COMPLETION. TECHNICAL SERVICE AGREEMENT IS PLACED AT PAGE 113 - 126 OF THE PAPER BOOK VI. COPIES OF BILLS ARE ALSO ENCLOSED AT PAGE 229 - 230 OF PAPER BOOK VI. UNDOUBTEDLY, THE COMPL ETION OF THE CONTRACT REQUIRED HIGHLY SKILLED MAN POWER , WHICH HAD VAST EXPERIENCE IN ORGANIZING SUCH BIG EVENTS. THE APPELLANT BEING NEW WAS NOT HAVING SUCH WORK FORCE . THE AES ON THE OTHER HAND WERE HAVING VAST EXPERIENCE OF ORGANIZING EVENTS LIKE COMMON WEALTH GAMES, G20 SUMMIT MEETINGS, CANNES FILM FESTIVALS, ORGANIZING MORE THAN 300 TRADE SHOWS ALL OVER THE WORLD, ETC AND HAVING OPERATIONS IN MORE THAN 19 COUNTRIES WITH EMPLOYEE STRENGTH OF MORE 3500 , DID HAVE THESE EXPERTISE . THE APPELLANT, THEREFORE, UTILIZED SERVICES OF THE EMPLOYEES OF THE AES AND PAID THEM THE SERVICE CHARGES AS PER THE AFORESAID AGREEMENT. IT IS NOT THE CASE OF AO/ TPO THAT SUCH BIG EVENTS CAN BE ORGANIZED WITHOUT THE HELP OF THE SKILLED MANPOWER. THERE IS ENOUGH EVIDENCE TO SHOW THAT SUCH EXPERIENCED PERSONNEL OF THE AES CAME TO INDIA AND RENDERED SERVICES TO THE APPELLANT. FURTHER, THE FLIGHT EXPENSE INCURRED FOR PAGE | 86 TRAVELLING OF TECHNICAL AND SPECIALIZED WORKERS FROM ABROAD TO INDIA AND BACK TO ABROAD ALSO CLEARLY SPECIFY THAT THE CONTRACTUAL MANPOWER SERVICE HAVE BEEN TAKEN BY THE APPELLANT FROM ASSOCIATED ENTERPRISE. THIS IS ALSO SUPPORTED BY COPIES OF FLIGHT BILLS PLACED AT PAGE 64 - 71 OF PAPER BOOK VII. FURTHER, THE SAMPLE COPIES OF BILL OF ENTRY ALONG WITH THE SUPPORTING DOCUMENTS ARE ENCLOSED AT PAGE 234 - 267 OF PAPER BOOK VI. FURTHER, THE SAMPLE COPY CONFIRMATION LETTER FROM THE OC, CWG DATED 11.05.2010 REGARDING THE MATERIAL IMPORTED IS ENCLOSED AT PAG E 231 - 233 OF PAPER BOOK VI. THIS VERY CLEARLY PROVIDES THAT THE TRANSACTION UNDERTAKEN BY THE APPELLANT WAS GENUINE. IT ALSO SATISFIES THE NEED TEST, BENEFIT TEST. SUCH SERVICES ARE NETHER DUPLICATIVE OR SHAREHOLDERS ACTIVITIES. 62 . FOURTH TRANSACTION OF MA NAGEMENT FEES PAID OF RS. 4,59,96,007 WAS ALSO JUSTIFIED AS APPELLANT WAS A NEWLY INCORPORATED COMPANY AND THE CONTRACT OF OVERLAYS WAS AWARDED TO THE APPELLANT ONLY SEEING THE EXPERIENCE OF G L EVENT SERVICES, FRANCE. THEREFORE, THE APPELLANT WAS TAKING SPECIAL ADMINISTRATIVE, FINANCIAL, LEGAL, AND TECHNICAL ASSISTANCE FROM M/S G L EVENT SERVICES TO MANAGE AND ORGANIZE THE CONTRACT RECEIVED IN RESPECT OF EVENT AND SPORTING ACTIVITIES. FOR THIS, IT WAS AGREED BY THE APPELLANT TO PAY 2.5% OF ITS ANNUAL NET SALES BEFORE TAX, REALIZED IN SALE, RENTAL, OR ANY OTHER SERVICES RENDERED OF A COMMERCIAL NATURE. IT IS ALSO SUPPORTED BY COPY OF AGREEMENT IS ENCLOSED AT PAGE 127 - 130 OF THE PAPER BOOK VI. NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE TPO THAT NO S UCH SERVICES WERE AVAILED BY THE APPELLANT. HE WAS THUS NOT JUSTIFIED IN DETERMINING THE ARMS LENGTH PRICE AT NIL. 63 . FIFTH TRANSACTION OF REIMBURSEMENT OF EXPENSES MADE OF RS 3,31,93,514/ - PERTAINS TO EXPENSE IN RELATION TO TRAVELLING, VISA, CONSUMAB LES, INSURANCE, TELEPHONE EXPENSES AND OTHER EXPENSES WERE PAID BY AE, M/S G L EVENT SERVICES ON BEHALF OF APPELLANT. THESE EXPENSES ARE TO BE REIMBURSED BY THE APPELLANT TO THE AE AND THEREFORE THESE EXPENSES ARE RECORDED AT COST - TO - COST BASIS WITHOUT ANY MARK UP. COPY OF BILL IS ENCLOSED AT PAGE 268 OF PAPER BOOK VI. PAGE | 87 SINCE THE PAYMENTS HAVE BEEN MADE ON COST - TO - COST BASIS AND NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE TPO THAT NO SUCH EXPENSES WERE INCURRED BY THE APPELLANT HE WAS NOT JUSTIFIED IN DETE RMINING THE ARMS LENGTH PRICE AT NIL. 64 . THUS IT IS APPARENT THAT ASSESSEE HAS DEMONSTRATED THAT THE ABOVE EXPENSES WERE NOT ONLY REQUIRED BUT WERE ALSO IN FACT INCURRED THE ONLY QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER OR NOT THE SAME WERE AT T HE ARMS LENGTH. IN THIS REGARDS IT IS HEREBY SUBMITTED THE LD. TPO ISSUED SHOW CAUSE NOTICE TO THE APPELLANT VIDE LETTER DATED 15.01.2014. THE APPELLANT, VIDE REPLY DATED 20.01.2014, SUBMITTED THE TRANSFER PRICING STUDY REPORT PLACED AT PAGE 34 - 92 OF PAP ER BOOK VI. THE LD. TPO REJECTED THE TP DOCUMENTATION ONLY BECAUSE THE SAME WAS NOT CORROBORATED WITH STATUTORY CERTIFICATE. IN THIS REGARDS, IT WAS SUBMITTED THAT THE STATUTORY CERTIFICATE IN FORM 3CEB WAS ALREADY FURNISHED BEFORE THE LD. TPO WHEREIN TH E AUDITOR HAD CLEARLY HELD THAT HE WAS UNABLE TO DETERMINE THE PRICE AND METHOD DUE TO LIMITATION AND SIGNIFICANCE OF THE MATTER. THE FORM 3CEB WAS PREPARED BASED ON ACCRUAL FIGURES AND WAS FILED BEFORE THE LD. AO ON 30.03.2012 IN ORDER TO AVOID THE PENALT Y. AS THE APPELLANT HAS STATED IN ITS SUBMISSION THAT IT WAS FOLLOWING CASH BASIS OF ACCOUNTING, THE PROVISION OF TRANSFER PRICING ARE NOT APPLICABLE FOR THE YEAR UNDER APPEAL. THEREFORE , THE TRANSFER - PRICING DOCUMENT WAS NOT PREPARED AT THAT TIME. THUS, THE TP STUDY REPORT WAS PREPARED AFTER THE CERTIFICATION OF FORM 3CEB WHICH WAS NOTHING BUT AN ADDENDUM TO FORM 3CEB. ANYWAY, THE TP DOCUMENTATION WAS SUBMITTED TO THE LD. TPO AS A PART OF REPLY TO SHOW CAUSE NOTICE THAT WAS REJECTED BY THE LD. TPO. THE LD. TPO INSTEAD OF ACCEPTING THE TP DOCUMENTS AS REPLY TO SHOW CAUSE NOTICE REJECTED THE SAME FOR WANT OF STATUTORY CERTIFICATE. 65 . WITH RESPECT TO THE FINDING OF LD TPO THAT DOCUMENTATION U/S 92D IS NOT BASED ON VERIFIABLE INFORMATION AND DOCUMENTS, THE TP DOCUMENT SUBMITTED ALBEIT LATER ON BUT BEFORE TP ASSESSMENT , WAS DULY SUPPORTED WITH THE AGREEMENTS ENTERED INTO BY THE APPELLANT PAGE | 88 WITH THE ASSOCIATED ENTERPRISES, TRANSACTION UNDERTAKEN AND THE AMOUNT OF EXPENDITURE IN RELATION TO THESE TRANSACTIONS. SUC H TRANSACTIONS WERE BENCHMARKED WITH SELECTING COMPARABLES FROM STANDARD DATABASES . ALL THE TRANSACTIONS UNDERTAKEN AND THE PRICE PAYABLE TO ASSOCIATED ENTERPRISES WERE ALSO BEFORE THE LD. TPO. FURTHER, IT WAS CLEARLY MENTIONED IN THE STUDY REPORT THAT THE INFORMATION WAS COLLECTED FROM THE PROWESS AND CAPITALINE DATABASES, THE TWO MOST COMMONLY USED DATABASES. A DETAILED SEARCH PROCESS WAS FOLLOWED AS CAN BE SEEN FROM THE REPORT ON REFERENCE TO INTERNAL PAGE 73 - 82 OF PAPER BOOK VI. THE APPELLANT ADOPTED THE COMPARABLE WHO WERE ENGAGED IN VARIOUS EVENT, EXHIBITION, AND SPORTS MANAGING A CTIVITIES. AND AFTER CONDUCTING DETAILED SEARCH AND AFTER APPLYING PROPER FILTERS, THE FOLLOWING 3 INDEPENDENT COMPANIES WERE ADOPTED AS COMPARABLES I . DEEPALI DESIGNS AND EXHIBITION PVT LTD II . N K KAPUR & COMPANY PVT. LTD. III . PAVILIONS & INTERIORS I PVT LTD 66 . LOOKING AT THE FIRST COMPARABLE I.E. M/S DEEPALI DESIGNS AND EXHIBITION PVT. LTD. WAS A COMPANY HAVING 20% SHARE IN PICO DEEPALI OVERLAYS CONSORTIUM. PICO DEEPALI OVERLAYS CONSORTIUM IS ITSELF ONE OF THE CONTRACTORS INVOLVED IN OVERLAYS CONTRACT OF CWG, 20 10. DEEPALI DESIGNS AND EXHIBITION PVT. LTD. IS AN EVENT AND EXHIBITION MANAGEMENT COMPANY, WHICH IS INVOLVED IN ORGANIZING VARIOUS TYPES OF EXHIBITIONS, SEMINARS, CONFERENCES, CORPORATE EVENTS, SPECIAL EVENTS, SPORTS EVENTS AND ENTERTAINMENT EVENTS ETC. ASSESSEE SUBMITTED THE BALANCE SHEET AT PAGE 284 - 301 OF PAPER BOOK VI. SECOND COMPARABLE SELECTED M /S N K KAPUR & COMPANY PVT LTD IS ALSO ENGAGED IN EVENT MANAGEMENT SERVICES, WHICH PROVIDE SERVICES IN RELATION TO DESIGNING, FABRICATION, CONSTRUCTION, AND EXECUTION OF VARIOUS WORKS IN ORGANIZING AN EVENT. COPY OF THE BALANCE SHEET ENCLOSED AT PAGE 302 - 314 OF PAPER BOOK VI. THE THIRD COMPARABLE THE PAVILIONS & INTERIORS I PVT LTD IS A PVT. LTD. COMPANY PAGE | 89 ENGAGED IN BUSINESS OF DESIGNING, CONSTRUCTING AND DECO RATING PAVILIONS IN EXHIBITIONS AND TRADE FAIRS. IT TAKES THE JOB ON A TURNKEY BASIS FOR ITS CLIENTS I.E. DESIGNING, DEVELOPING, AND CONSTRUCTING THE PAVILIONS AND INTERIOR DESIGNING. COPY OF THE BALANCE SHEET ENCLOSED AT PAGE 269 - 283 OF PAPER BOOK VI. THU S, IT IS APPARENT FORM THE ABOVE THAT THE ABOVE COMPANIES ARE ENGAGED IN SIMILAR KIND OF BUSINESS AS THAT OF APPELLANT. HENCE, THE FUNCTIONS, ASSETS AND RISK OF THOSE COMPARABLE ARE COMPARABLE WITH THE FAR ANALYSIS OF THE ASSESSEE. HENCE, THE INFORMATI ON AVAILABLE IN THE TP DOCUMENTATION CANNOT BE SAID TO BE UNJUSTIFIED AND UNVERIFIED. FURTHER, THE LD. TPO HAD NOT PROVIDED ANY REASON TO HOLD THAT THE INFORMATION IN THE DOCUMENTS WAS NOT VERIFIABLE. THIS SHOWS THAT THE LD. TPO HAD NO BASIS TO REJECT THE DOCUMENTS. 67 . WITH RESPECT TO MULTIPLE YEAR DATA USED BY THE ASSESSEE INITIALLY , ASSESSEE SUBMITTED THE CURRENT YEAR DATA ANALYSIS OF THOSE COMPARABLES AS CAN BE SEEN FROM PAGE 192 OF THE TP STUDY AT PAPER BOOK VI. EVEN IF CURRENT YEAR DATA WERE TO BE US ED THEN THERE WOULD HAVE BEEN TWO COMPARABLES NAMELY DEEPALI DESIGNS & EXHIBITS P LTD AND PAVILIONS & INTERIORS P LTD. THE AVERAGE MARGIN OF THESE TWO COMPARABLES USING CURRENT YEAR DATA WOULD COME TO 6.19% AS AGAINST THE APPELLANTS MARGIN OF 12.57 %, WHIC H IS MUCH HIGHER THAN THE ARMS LENGTH MARGIN. THUS, EVEN BY USING CURRENT YEAR DATA THE TRANSACTIONS WERE AT THE ARMS LENGTH. THE TPO WAS THUS NOT JUSTIFIED TO REJECT THE TP STUDY ON THIS GROUND. 68 . WITH RESPECT TO AGGREGATION OF TRANSACTIONS , NO DOUBT TH AT IDEALLY TRANSACTION - BY - TRANSACTION APPROACH SHOULD BE ADOPTED WHILE DETERMINING THE ALP BUT THE SAME CAN BE DONE ONLY WHEN RELIABLE DATA IS AVAILABLE IN THE PUBLIC DOMAIN. NO SUCH DATA WERE SHOWN BY THE LEARNED TRANSFER - PRICING OFFICER AVAILABLE IN PUBLIC DOMAIN. MOREOVER, EVEN THE OECD GUIDELINES STATE THAT IF THE TRANSACTIONS ARE INTER RELATED THEN THE AGGREGATED APPROACH CAN BE ADOPTED. IN THE APPELLANTS CASE, REASONS FOR ADOPTING AGGREGATION OF TRANSACTIONS ARE GIVEN IN DE TAIL IN THE TP STUDY AT PAGES 71 OF PAPER PAGE | 90 BOOK VI. SINCE, THE TRANSACTIONS ENTERED INTO WITH THE AES ARE INTRINSICALLY LINKED TO EACH OTHER AND NO RELIABLE DATA TO BENCHMARK THE SAME INDIVIDUALLY WERE AVAILABLE, THE APPELLANT WHILE APPLYING THE TNMM CORREC TLY ADOPTED THE ENTITY LEVEL APPROACH. HENCE, NO FAULT CAN BE FOUND WITH THE ADOPTION OF THE TRANSACTIONAL NET MARGIN METHOD BY ASSESSEE. EVEN OTHERWISE IN ABSENCES OF SUCH A SPECIFIC DATA AS REQUIRED BY CUP WAS NOT AVAILABLE IN PUBLIC DOMAIN. 69 . THE LAST REASON GIVEN BY THE TPO WHILE REJECTING THE TP STUDY IS THAT THE APPELLANT HAS NOT FURNISHED SUPPORTING DOCUMENTS/MATERIAL TO CORROBORATE THE TNMM. THIS OBSERVATION OF THE TPO IS FACTUALLY INCORRECT. AS MENTIONED ABOVE A DETAILED TP STUDY WAS SUBMITTED BE FORE HIM VIDE LETTER DATED 20.1.2014. IN THE STUDY DETAILED SEARCH PROCESS WAS GIVEN. IN ORDER TO CORROBORATE THE TNMM, THE APPELLANT HAD DULY SUBMITTED THE DATA COLLECTED FROM THE TWO DATABASES, COPIES OF AGREEMENT, COMPARABLES ADOPTED, AND ALL OTHER SUPP ORTING INFORMATION RELATED TO THEM. HOWEVER, THE LD. TPO REJECTED ALL THESE DOCUMENTS AND HELD THAT NO SUPPORTING DOCUMENTS WERE SUBMITTED TO CORROBORATE THE TNMM. IF ANY PARTICULAR OR SPECIFIC DOCUMENT WAS REQUIRED BY THE LD. TPO THEN, HE SHOULD HAVE ASKE D THE APPELLANT TO SUBMIT THE SAME. HOWEVER, NO SUCH SPECIFIC EFFORTS WERE MADE. APART FROM THE ABOVE, APPELLANT SUBMITTED THE TP DOCUMENTS ON 20.01.2014 IN RESPONSE TO THE SHOW CAUSE NOTICE. THE LD. TPO PASSED THE ORDER U/S 92C ON 28.01.2014. IT IS CLAIMED BY AR AND NOT CONTROVERTED BY LD DR THAT NO FURTHER NOTICE WAS ISSUED TO THE APPELLANT BETWEEN THE PERIODS OF 20.01.2014 TO 28.01.2014. THE LD. LD DR DID NOT SHOW THAT LD A SKED ANY OTHER INFORMATION FROM APPELLANT. THUS, THE LD TPO NEI THER ASKED THE APPELLANT TO FURTHER EXPLAIN ANY QUERIES NOR CALLED FOR ANY FURTHER DOCUMENTS IN SUPPORT OF TNMM. FURTHER, THE LD. TPO ALSO DID NOT PROVIDE ANY REASON OR JUSTIFICATION IN HIS ORDER IN RELATION TO THE ABOVE ALLEGATION. IN VIEW OF THE ABOVE, THE REASON OF REJECTING THE STUDY IS WITHOUT ANY BASIS . 70 . AS MENTIONED ABOVE THE TPO AFTER SUMMARILY REJECTING THE TP STUDY WHEREIN TNMM WAS USED TO DETERMINE THE ARMS LENGTH PRICE OF THE PAGE | 91 INTERNATIONAL TRANSACTION , HE APPLIED CUP METHOD. UNDER CUP, METHOD THE TPO SIMPLY STATED THAT SINCE THE ASSESSEE WAS ENGAGED IN OBTAINING BOGUS BILLS AND THEREBY INFLATING THE EXPENSES ITS PAYMENT TOWARDS INTERNATIONAL TRANSACTIONS AMOUNTING TO RS 58,43,92,894/ - IS REDUCED TO NIL USING CUP METHOD. THE AFORESAID ACTION OF THE TPO IS WHOLLY UNSUSTAINABLE FOR THE REASON THAT APPELLANT IN THE TP STUDY HAD CLASSIFIED THE TRANSACTIONS IN TWO CLASSES AS UNDER: CLASS I: CONSISTS OF RENTAL EXPENSES, MANAGEMENT FEES AND CONTRACT MANPOWER/JOB WORKER SERVICES AVAILED AS UNDER: S.NO. DETAILS OF INTERNATIONAL TRANSACTIONS AMOUNT 1 RENTAL EXPENSES 34,90,54,107/ - 2 CONTRACT MANPOWER/JOB WORKER SERVICES AVAILED 11,60,32,264/ - 3 MANAGEMENT FEES PAID 4,59,96,007/ - 71 . AFTER REFERRING TO RULE 10C OF THE IT RULES THE REASONS FOR NOT APPLYING CUP METHOD HAVE BEEN GIVEN IN THE TP STUDY AT PAGES 65 - 66 OF PAPER BOOK VI. FOLLOWING WAS CLEARLY MENTIONED IN THE TP STUDY : IN THE CASE OF GLLE INDIA, CUP METHOD CANNOT BE REGARDED AS THE MOST APPROPRIATE METHOD FOR DETERMINING ARMS LENGTH PRICE FOR ANY OF THE INTERNATIONAL TRANSACTION AS THERE IS NO DATA AVAILABLE IN RESPECT OF UNCONTROLLED COMPARABLE TRANSACTIONS, WHICH ARE SIMILAR OR ATLEAST CLOSELY SIMILAR TO THE TRANSACTIONS OF GL LE WITH ITS ASSOCIATED ENTERPRISES. PAGE | 92 SINCE THE SIMILARITY OF PRODUCTS AND SERVICES WILL HAVE GREATEST EFFECT ON COMPARABILITY UNDER THIS METHOD, THE INFORMATION WITH REGARDS TO UNCONTROLLED COMPARABLES, WHEREIN DIFFERENCES WITH REGARDS TO QUALITY OF PRODUC T, NATURE OF SERVICES AND THE CONTRACTUAL TERMS, ETC CANNOT BE RELIABLY QUANTIFIED AND ADJUSTED, HAVE NOT BEEN USED AS THE SAME MAY NOT BE RELIABLE. 72 . FROM THE ABOVE, IT IS CLEAR THAT THE RENTALS PAID FOR THE USE OF VARIOUS ITEMS TAKEN BY THE APPELLANT FRO M ITS AES WERE OF VERY HIGH QUALITY AND SPECIFICATIONS AND NO DIRECT COMPARABLES WERE AVAILABLE IN PUBLIC DOMAIN TO BENCHMARK SUCH PAYMENTS UNDER CUP METHOD. SIMILARLY, FOR AVAILING SERVICES OF THE AES MANPOWER, THE MANPOWER HIRED FROM THE ASSOCIATED EN TERPRISES WERE HIGHLY TRAINED AND EXPERIENCED IN CONSTRUCTING AND ORGANIZING ACTIVITIES, WHICH WERE NOT COMPARABLE WITH THAT MANPOWER LOCALLY AVAILABLE IN INDIA. THE HIGH QUALITY EQUIPMENTS IMPORTED FROM ASSOCIATED ENTERPRISE COULD NOT HAVE BEEN MANAGED BY THE LOCAL STAFF AVAILABLE IN INDIA DUE TO LACK OF KNOWLEDGE ABOUT FIXING SUCH EQUIPMENTS. THEREFORE, WHEN SUCH EQUIPMENTS A RE IMPORTED, IT IS APPARENT THAT THE KNOWLEDGEABLE PERSONS HAVING COMPLETE IDEA ABOUT THOSE EQUIPMENTS, MANAGING, AND FIXING THEM WILL BE REQUIRED. NO DIRECT COMPARABLES FOR APPLYING CUP METHOD WAS THUS AVAILABLE FOR SUCH PAYMENTS ALSO. FURTHER, CONTRACT WAS AWARDED TO THE APPELLANT ONLY BASED ON THE EXPERIENCE OF THE ASSOCIATED ENTERPRISE. THE ASSOCIATED ENTERPRISES ASSISTED THE APPELLANT IN THE ELABORATION OF ITS COMMERCIAL POLICY, ITS COMMUNICATION POLICY, ITS STRATEGY, ITS PURCHASES, ITS MANAGEMENT, AN D ITS ORGANIZATION . THE MAJOR ELIGIBILITY CRITERIA MENTIONED IN EXPRESSION OF INTEREST OF CWG, 2010 WAS THAT PAGE | 93 ... HAVE EXPERIENCE OF PROVIDING OVERLAYS FOR AT LEAST ONE MAJOR MULTI SPORTS EVENT OF OLYMPICS AND/OR COMMONWEALTH GAMES AND/OR ASIAN GAMES IN T HE LAST FIVE YEARS. 73 . SINCE, NO SUCH EXPERIENCED CONTRACTOR WAS AVAILABLE IN INDIA; NO SUCH COMPARABLE COULD BE ADOPTED. FURTHER, THE G L EVENT SERVICES, AN ASSOCIATED ENTERPRISE CHARGED ONLY 2.5% OF THE TOTAL TURNOVER FOR RENDERING ALL THE MANAGEMENT SERV ICES , WHICH CANNOT BE SAID TO EXORBITANT OR UNREASONABLE WITHOUT PLACING CONTRARY DATA ON RECORD, AS COMPARED TO THE WORK AND TERMS OF THE CONTRACT OF CWG, 2010. THE FEES CHARGED BY THE ASSOCIATED ENTERPRISE CANNOT BE COMPARED AND WAS AN INDEPENDENT TRANSA CTION AS IT IS BASED ON THE EXPERIENCE OF ORGANIZING INTERNATIONAL EVENTS. IT WAS FOR THIS REASON THAT THE APPELLANT APPLIED TNMM IN THE TP STUDY INSTEAD OF CUP METHOD. THUS APPLICATION OF TNMM AS MOST APPROPRIATE METHOD CANNOT BE FOUND FAULT WITH. W ITH RESPECT TO CLASS II TRANSACTIONS CONSISTING OF PURCHASES OF CONSUMABLES AND REIMBURSEMENT OF EXPENSES DETAILED AS UNDER: S.NO. DETAILS OF INTERNATIONAL TRANSACTIONS AMOUNT 1 PURCHASES OF CONSUMABLES 4,01,17,002/ - 2 REIMBURSEMENT OF EXPENSES MADE 3,31,93,514/ - 74 . IT WAS SUBMITTED THAT THESE INTERNATIONAL TRANSACTION ARE INCURRED ON COST - TO - COST BASIS WITHOUT ANY MARK UP. ASSESSEE HAS ALREADY PLACED E VIDENCE TO THIS BEFORE LOWER AUTHORITIES, WHICH WERE DISCARDED WITHOUT ANY REASON. THEREFORE, THE TRANSACTIONS CLASSIFIED IN CLASS II CATEGORY ARE AT ARMS LENGTH PRICE AND THE LD. TPO WAS NOT REQUIRED TO DETERMINE THE ARMS LENGTH OF THIS TRANSACTION. THE APPELLANT FINDS STRENGTH FROM THE DECISION OF COORDINATE BENCH IN PAGE | 94 THE CASE OF APOLLO INTERNATIONAL LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX (13.10.2014 - ITAT DELHI) [2015] 152 ITD 229 (DELHI), WHEREIN IT WAS HELD THAT: 18. WE FIND THAT THE TPO HAS ACCEPTED PROFITABILITY OF THESE TRANSACTIONS ON THE BASIS OF TNMM AND YET PI CKED UP THIS REIMBURSEMENT, WHICH CONSTITUTES A CHARGE ON SUCH PROFITABILITY, FOR REJECTION. THIS IS ESSENTIALLY A REIMBURSEMENT OF EXPENDITURE, WITHOUT ANY MARK UP TO THE AE. WHEN AN AE IS ACTING ONLY AS AN INTERMEDIARY IN THE PROVISION OF SERVICES AND IN CUR COSTS ON BEHALF OF THE ASSESSEE, WHICH THE ASSESSEE WOULD HAVE INCURRED DIRECTLY, IT MAY WELL BE APPROPRIATE FOR THE AE TO PASS ON THESE COSTS WITHOUT A MARK - UP. IT IS NOT IN DISPUTE THAT THE COSTS WERE ACTUALLY INCURRED BY THE AE UNDER INSTRUCTIONS FR OM THE ASSESSEE AND IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS REIMBURSED THESE COSTS, WITHOUT ANY MARK UP, TO THE AE. IT IS NOT EVEN THE CASE OF THE TPO THAT THIS REIMBURSEMENT WAS REIMBURSEMENT OF NORMAL BUSINESS EXPENDITURE OF THE AE, AND, THEREFOR E, IT CANNOT AMOUNT TO ANY ADVANTAGE TO THE AE THAT THESE EXPENSES ARE REIMBURSED BY THE ASSESSEE. AS LONG AS EXPENSES ARE INCURRED UNDER INSTRUCTIONS FROM, AND ON BEHALF OF, THE ASSESSEE, AS IS THE UNCONTROVERTED POSITION BEFORE US, THE ARM'S LENGTH PRICE OF THE SAME CANNOT BE TAKEN AT ZERO. WHETHER THE ASSESSEE WAS UNDER AN OBLIGATION TO MAKE THIS REIMBURSEMENT OR NOT COULD BE RELEVANT ONLY WHEN THE EXPENSES WERE NORMAL BUSINESS EXPENSES OF THE AE AND YET THE ASSESSEE DECIDES TO BEAR THE SAME. THERE IS NO THING TO INDICATE THAT THE REIMBURSEMENT IS FOR EXPENSES ALREADY INCURRED BY THE AE IN ITS NORMAL COURSE OF BUSINESS. IT IS SPECIFICALLY STATED THAT THESE EXPENSES WERE PAGE | 95 INCURRED ON BEHALF OF THE ASSESSEE, AND THIS POSITION REMAINS UNCONTROVERTED. WHETHER T HE ASSESSEE WAS UNDER AN OBLIGATION TO INCUR THESE EXPENSES OR NOT IS, THEREFORE, NOT REALLY RELEVANT. THE QUESTION OF INCIDENTAL BENEFIT TO THE ASSESSEE, FOR EXPENSES INCURRED BY THE AE, WOULD ARISE ONLY WHEN THE EXPENSES ARE INCURRED BY THE AE IN ITS OWN RIGHT THOUGH FOR THE COMMON BENEFIT OF GROUP AS A WHOLE. THE IMPUGNED ALP ADJUSTMENT IS, THEREFORE, DEVOID OF LEGALLY SUSTAINABLE BASIS ON THE FACTS OF THIS CASE. WE, ACCORDINGLY, DIRECT THE AO TO DELETE THE SAME. 75 . FURTHER, THE LD. TPO IGNORED THESE FACTS AND APPLIED THE CUP METHOD IN DETERMINING THE ARMS LENGTH PRICE. THE LD. TPO DID NOT PROVIDE ANY SPECIFIC REASON FOR APPLYING THE CUP METHOD AND DETERMINE THE ARMS LENGTH PRICE AT NIL. THUS THE INTERNATIONAL TRANSACTION ENTERED IN TO BY THE ASSESSEE SUP PORTED BY RELEVANT EVIDENCES, AGREEMENTS JUSTIFYING NEED OF THEM AND RESULTANT BENEFITS ARISING THERE FROM CANNOT BE HELD TO BE NOT GENUINE . AS SUCH, THE ROLE OF THE LD TPO IS TO JUST DETERMINE ALP OF SUCH TRANSACTIONS. HENCE, DETERMINING THE ARMS LENGTH PRICE OF SUCH EQUIPMENT AT NIL IS UNJUSTIFIED. 76 . FURTHER SECTION 92CA (3) READ WITH SECTION 92C(3) CLEARLY SPECIFIES THAT IF THE TPO IS NOT SATISFIED WITH THE ARMS LENGTH PRICE DETERMINED BY THE ASSESSEE , HE MAY DETERMINE THE SAME IN ACCORDANCE WITH SUB - SECTIONS (1) AND (2), ON THE BASIS OF SUCH MATERIAL OR INFORMATION OR DOCUMENT AVAILABLE WITH HIM. IN THE CASE OF THE APPELLANT, THE TPO HAS SIMPLY DE TERMINED THE ALP AT NIL PURPORTEDLY BY APPLYING THE CUP METHOD. HE NEVER SPECIFIED THE REASONS FOR APPLYING SUCH METHOD AND DID NOT FOLLOW PROPER PROCEDURE IN DETERMINING THE ALP. IF HE WAS OF OPINION THAT THE CUP METHOD IS APPLICABLE THEN HE SHOULD HAVE F OLLOWED THE SAME PRINCIPLES THAT ARE REQUIRED TO BE FOLLOWED BY THE APPELLANT. HE SHOULD HAVE PROVIDED THE COMPARABLES, DONE PRICING STUDY AND THEN PAGE | 96 DETERMINE THE ALP. THUS, HE HAS NOT CARRIED OUT STATUTORY DUTY ASSIGNED TO HIM. 77 . IN VIEW OF THE ABOVE FACTS, WE HOLD THAT METHOD APPLIED BY TPO IS NOT IN CONSONANCE WITH LAW AND THEREFORE, THE METHOD APPLIED BY THE APPELLANT BEING ILLUSTRATED BY SUFFICIENT DOCUMENTS AND EVIDENCES ON RECORD DESERVES TO BE ACCEPTED. THE LEARNED DISPUTE RESOLUTION PANEL HAS ALSO UPHELD THE ABOVE A LP OF TRANSACTION ONLY ON THE PROTECTIVE BASIS WITHOUT GIVING ANY REASON THAT WHY THEY ARE AGREEING WITH THE FINDING OF THE LEARNED TRANSFER - PRICING OFFICER TO APPLY THE CUP METHOD. EVEN DURING PROCEEDINGS BEFORE THEM, NO ENQUIRIES WERE MADE WITH RESPECT TO THE ARMS - LENGTH PRICE OF THESE INTERNATIONAL TRANSACTIONS WHEN COMPLETE DETAILS ARE AVAILABLE BEFORE THEM. NO REASONS ARE SHOWN BEFORE US BY THE LEARNED CIT DR THAT COMPARABLE SELECTED BY THE ASSESSEE DOES NOT HAVE THE SIMILAR FAR ANALYSIS. HE FURTHE R ALSO COULD NOT SHOW US THAT TAKING THE CURRENT YEAR DATA OF THE ABOVE COMPARABLE; THE MARGIN OF THE ASSESSEE IS NOT QUITE HIGH THEN THOSE COMPARABLES. IN VIEW OF THIS, WE DO NOT FIND ANY REASON TO UPHOLD THE ADJUSTMENT PROPOSED BY THE LEARNED TRANSFER - PRICING OFFICER TO THE ARMS - LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. ACCORDINGLY, GROUND NUMBER 3 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 78 . GROUND NUMBER 4 OF THE APPEAL OF THE ASSESSEE IS AGAINST THE DISALLOWANCE OF DIFFERENTIAL AMOUNT OF BILL SEIZED OF RS. 112232956/ . THE BRIEF FACT SHOWS THAT DURING THE SEARCH OPERATION UNDER SECTION 132 IN THE CASE OF THE APPELLANT 19/10/2000 INCOME OF THE BILLS AMOUNTING TO INR 2 75505611/ AGAINST THIS THE TOTAL OF THE PARTIES AS PER THE BO OKS OF ACCOUNTS WAS INR 3 87738567/ . THE AO ASKED THE RELEVANT QUERIES TO THE ASSESSING OFFICER IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED THAT THE INVOICES OF VALUE OF MORE THAN INR 1 LACS WERE SEIZED AND TAKEN BY THE INCOME TAX AUTHORITIES WHILE OTHER INVOICES WERE RETURNED TO THE COMPANY. IT WAS FURTHER STATED THAT AT THE TIME OF SEARCH AND SEIZURE PROCEEDINGS ALL THE NOTICES WERE NOT SEIZED IS DUE TO MULTIPLICITY OF PAGE | 97 THE PROJECT SITES AND THE BUNCHES WERE LYING AT DIFFERENT SITES. HOWEVER, THE LEA RNED ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND HELD THAT THE APPELLANT COULD NOT SUBMIT THE BILLS FOR THE REMAINING ENTRIES IN THE BOOKS OF ACCOUNTS AND THUS HAS MADE THE ADDITION OF THE DIFFERENCE OF INR 11 CRORE FOR WHICH NO BILLS WERE AVAILABLE. THE ASSESSEE RAISED THE OBJECTION BEFORE THE LEARNED DISPUTE RESOLUTION PANEL AND FURNISHED IN SUBMISSION THAT THE LEARNED AO DISALLOWED THE SUM ONLY ON THE GROUND THAT THE BILLS FOR NOT SUBMITTED AND THE EXPENSES REMAI NED UNEXPLAINED. IT WAS FURTHER STATED THAT THE BILLS WERE DULY SUBMITTED WIDE LETTER DATED 26/2/2014. HOWEVER, THE LEARNED DISPUTE RESOLUTION PANEL UPHELD THE ORDER OF THE LEARNED ASSESSING OFFICER. THUS IN THE FINAL ASSESSMENT ORDER THE ABOVE ADDITION OF RS. 112232956/ WAS MADE U/S 69C/37 OF THE INCOME TAX ACT. 79 . BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE HAS SHOWN THAT THE INCOME TAX AUTHORITIES SEIZED THE BILLS VALUED AT INR 2 75505611/ . HE REFERRED TO PAGE NUMBER 17 20 OF THE PAPER BOOK NU MBER 4 AND ALSO REFERRED TO THE DETAILS OF THE ENTRIES MADE IN THE BOOKS OF ACCOUNT AS ON 16/10/2010 OF INR 3 87738567/ . HE STATED THAT THE DIFFERENCE BILL OF RS. 112232956/ WERE NOT SEIZED DURING THE COURSE OF THE SUCH BY THE INCOME TAX AUTHORITIES AN D THIS CANNOT BE THE REASON FOR THE DISALLOWANCE AS THE BILLS FOR PURCHASE VALUING LESS THAN INR 100,000 WERE NOT SEIZED AND RETURNED TO THE COMPANY. HE FURTHER STATED THAT THE VARIOUS BILLS WERE LYING AT THE DIFFERENT SITES. HE FURTHER SUBMITTED THAT ME RELY BECAUSE SOME OF THE BILLS ARE NOT RECORDED IN PUNCH, BUT A STATEMENT WAS MADE BEFORE THE SEARCH PARTY DURING THE COURSE OF SEARCH THAT SOME OF THE BILLS ARE YET TO BE RECEIVED THEREFORE THE ADDITION MADE BY THE LEARNED AO IS DEVOID OF ANY MERIT. HE F URTHER REFERRED TO THE COMMENT OF THE STATUTORY AUDITOR ON THE AUDIT OF THE COMPANY. HE FURTHER REFERRED THAT THE CONTRACT AWARDED TO THE APPELLANT WAS 42 DIFFERENT CLUSTERS, WHICH ARE AT DIFFERENT SITES. HE FURTHER STATED THAT COMMONWEALTH GAMES 2010 WE RE COMPLETED ON 14/10/2010 AND THE SEARCH IN THE PAGE | 98 APPELLANT PREMISES WAS CONDUCTED ON 19/10/2010. THUS HE SUBMITTED THAT THE CONTENTION OF THE ASSESSEE THAT SOME OF THE INVOICES WERE LYING AT THE SITE SHOULD NOT HAVE BEEN REJECTED. HE FURTHER SUBMITTED TH AT THE REAL WORTH RS. 112232956/ WAS NOT SEIZED DURING THE SEARCH THE DETAILS OF ALL THE PARTIES ALONG WITH THEIR ADDRESS AND PERMANENT ACCOUNT NUMBER WERE AVAILABLE IN THE BILLS. THE PAYMENTS IN RELATION TO THOSE BILLS WERE MADE BY THE ACCOUNT PAYEE CH EQUES AND WERE ALREADY ON RECORD AT THE TIME OF SEARCH AS WELL AS BEFORE THE LEARNED ASSESSING OFFICER. HE FURTHER STATED THAT THE BANK STATEMENT IN THE DATE AND ORIGINAL COPIES OF THE BILLS WERE ALSO FURNISHED BEFORE THE LEARNED ASSESSING OFFICER AND THE REFORE THE ASSESSEE HAS SHOWN THAT THESE BILLS DO EXIST AND HAVE BEEN DISCHARGED THROUGH ACCOUNT PAYEE CHEQUES. HE THEREFORE SUBMITTED THAT IT IS NOT THE FACT THAT ASSESSEE HAS NOT SUBMITTED THE BILLS WHICH WERE NOT SEIZED BE BY THE INCOME TAX AUTHORITIES BUT MERELY BECAUSE THEY WERE NOT FOUND AT THE TIME OF SEARCH THE ADDITION HAS BEEN MADE. 80 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY RELIED ON THE ORDER OF THE LEARNED ASSESSING OFFICER AND SUBMITTED THAT DURING THE COURSE OF SEARCH THE BILLS WERE NOT FOUND WITH THE ASSESSEE AND THEREFORE THE THOSE BILLS CANNOT BE ACCEPTED AS GENUINE BILLS HENCE THE LEARNED ASSESSING OFFICER HAS MADE THE ADDITION CORRECTLY. HE STATED THAT THE LEARNED DISPUTE RESOLUTION PANEL HAS ALSO UPHELD THE ADDITION. 81 . WE HAVE CA REFULLY CONSIDERED THE RIVAL CONTENTION AND FIND THAT THOUGH THE BILLS WERE NOT S EIZED DURING THE COURSE OF SEARCH , HOWEVER SUBSEQUENTLY THE ASSESSEE HAS PRODUCED THE COPIES OF THE BILLS BEFORE THE LEARNED ASSESSING OFFICER OF RS. 112232956/ STATING THE NAME OF THE PARTIES ALONG WITH THEIR ADDRESSES AND PERMANENT ACCOUNT NUMBER. FURTHER THE PAYMENT OF SUCH BILLS WERE ALSO MADE BY ACCOUNT PAYEE CHEQUE AND WHICH WERE ALREADY ON RECORD AT THE TIME OF SEARCH AS WELL AS PRODUCED BEFORE THE LEARNED ASSESSING OFFICER. THE BANK STATEMENT OF THE ASSESSEE ALSO SHOWED THAT THOSE PAGE | 99 BILLS HAVE BEEN DISCHARGED BY THE ASSESSEE. BEFORE THE AO ASSESSEE ALSO PRODUCED THE ORIGINAL COPIES OF THE INVOICES. IT IS ALSO FACT THAT ASSESSEE WAS AWARDED THE CONTRACT OF THE TWO CL USTERS OF THE COMMONWEALTH GAMES WHICH IS AT DIFFERENT SITES. THE ONE SITE WAS GAMES , THE OTHER SI TE WAS A T THE NOIDA EXPRESS HIGHWAY AND THE ANOTHER CLUSTER ACTIVITIES WERE BEING CARRIED OUT AT 5 DIFFERENT SITES. THE EXPLANATION OF THE ASSESSEE ALSO C ANNOT BE DISCARDED THAT THE BILLS IN RELATION TO SUCH MATERIALS AND SERVICES WERE ALSO RECEIVED AT SITE ONLY AT THE TIME OF DELIVERY OF MATERIAL SERVICES. FURTHER , DESPITE THE PRODUCTION OF THE ORIGINAL INVOICES AND THE OVERWHELMING EVIDENCE OF PAYMENT O F THESE PARTIES THROUGH ACCOUNT PAYEE CHEQUES SHOWING THEIR NAMES, ADDRESSES, PERMANENT ACCOUNT NOS THE LEARNED ASSESSING OFFICER DID NOT MAKE ANY FURTHER ENQUIRY THAT WHETHER SUCH BILLS WERE RAISED BY THOSE PARTIES ARE NOT, IN ABSENCE OF THIS ENQUIRY , ME RELY BECAUSE THESE BILLS WERE NOT SEIZED AT THE TIME OF SEARCH, THE ADDITION HAS BEEN MADE. IT IS NOT IN THE HANDS OF THE ASSESSEE THAT WHAT DOCUMENTS MUST BE SEIZED BY THE SEARCH PARTY AND WHAT DOCUMENTS MUST BE LEFT OUT. IN VIEW OF THIS, THE ABOVE ADDI TION CANNOT BE SUSTAINED. THUS, GROUND NUMBER 4 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 82 . GROUND NUMBER 5 OF THE APPEAL IS WITH RESPECT TO THE DISALLOWANCE OF PART - TIME EXPENSES OF RS. 21459000/ . FACTS SHOWS THAT D URING THE COURSE OF SEARCH, THE INCOME TAX AUTHORITIES SEIZED THE LEDGER OF PER DIEM EXPENSES WHICH REVEALS THE DAILY CASH ALLOWANCES PAID TO SEVERAL FOREIGN EXPATRIATES, TOTALING TO RS. 2,14,59,000/ - . IN THIS REGARDS THE LD. AO DURING THE COURSE OF ASSES SMENT ISSUED NOTICE DATED 24.09.2014 TO THE APPELLANT TO SHOW CAUSE WHY THE SAID EXPENSES IN EXCESS OF RS. 20,000/ - SHOULD NOT BE DISALLOWED U/S 40A(3) OF THE ACT. IN RESPONSE THE ABOVE, THE APPELLANT SUBMITTED THE REPLY DATED 02.01.2013 WHEREIN THE EXTRAC T OF SECTION 40A(3) AND EXTRACT OF RULE 6DD WAS FURNISHED ALONG WITH THE DAILY ALLOWANCE DETAILS. ASSESSEE SUBMITTED THAT THE EXPATRIATES BEING SPECIALISTS IN THEIR AREAS VISITED INDIA AT SITE LOCATED IN DELHI. THEY VISITED INDIA ON PAGE | 100 A TEMPORARY VISA AND RE TURN ON COMPLETION OF WORK AND ACCORDINGLY DID NOT MAINTAIN BANK ACCOUNTS IN INDIA. ACCORDINGLY, CASH PAYMENTS MADE TO THEM MAY KINDLY NOT BE DISALLOWED UNDER SECTION 40A(3) OF THE ACT, KEEPING IN VIEW THAT THE FOREIGN EXPATRIATES BEING GROUP EMPLOYEES VISITED INDIA FOR A SHORT DURATION AND DID NOT HAVE ANY BANK ACCOUNT IN INDIA, BEING THE PLACE OF TEMPORARY POSTING; THE EXPATRIATES WERE PAID PER DIEM ALLOWANCES FOR MEETING THEIR DAILY EXPENSES IN THE NATURE OF PREPARATION, TRANSPORTATION AND MEDICAL EXPENSES. FOR THIS REASONS MAY PLEASE BE CONSIDERED AS CIRCUMSTANCES FALLING UNDER RULE 6DD OF THE IT RULES AND THUS THESE PAYMENTS SHOULD NOT BE DISALLOWED U/S 40A(3) OF THE ACT. HOWEVER, IN THE DRAFT ASSESSMENT ORDER THE LD. AO DID NOT CONSIDER THE REP LY OF THE APPELLANT AND COMPARED THE SAID EXPENSES WITH THE OTHER OVERLAYS CONTRACTORS I.E. M/S PICO DEEPALI OVERLAYS CONSORTIUM AND HELD THAT NO SUCH EXPENSES WERE CLAIMED BY THE OTHER CONTRACTORS. HENCE, HE DISALLOWED THE SAID EXPENSES ON THE GROUND THA T SUCH EXPENSES WERE NOT INCURRED BY OTHER OVERLAYS CONTRACTORS. THEREAFTER, THE APPELLANT RAISED AN OBJECTION BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER AND FURNISHED THE SUBMISSION IN ANNEXURE A - 7 ENCLOSED AT PAGE 86 - 105 OF THE PAPER BOOK V. THE APPELLANT MADE REFERENCE TO THE REPLY DATED 02.01.2013 SUBMITTED TO THE LD. AO. THE APPELLANT ALSO REFERRED THE DETAILS OF DAILY ALLOWANCES PAID ENCLOSED AT PAGE 51 - 63 OF PAPER BOOK VII TO PROVE THAT THE ALLEGATIONS MADE BY THE LD. AO ARE INCORRECT. THE AP PELLANT ALSO SUBMITTED THAT THE ADDITION WAS MADE ON THE BASIS OF COMPARISON OF SAID EXPENSES WITH THE THIRD PARTY I.E. PICO DEEPALI OVERLAYS CONSORTIUM WITHOUT PROVIDING THE OPPORTUNITY TO CROSS EXAMINE THE THIRD PARTY. THE APPELLANT IN SUPPORT OF ITS SUB MISSION PLACED RELIANCE ON SEVERAL CASE LAWS. AFTER CONSIDERING THE SUBMISSION OF THE APPELLANT, THE LD DRP ASKED THE LD. AO TO VERIFY THE SAID TRANSACTION TO ASCERTAIN THE QUANTUM OF DISALLOWANCE AND ALLOW CONSEQUENTIAL RELIEF TO THE APPELLANT, IF ANY. SUBSEQUENTLY, THE APPELLANT PRODUCES ALL THE SUPPORTING DOCUMENTS IN RELATION TO PAGE | 101 PAYMENT OF PER DIEM EXPENSES. HOWEVER, THE LD. AO DID NOT CONSIDER THE SAME AND HELD THAT THE ASSESSEE COMPANY FAILED TO PRODUCE ORIGINAL SUPPORTING DOCUMENTS IN ITS SUPPORT. THE DOCUMENTS PRODUCED BY THE ASSESSEE COMPANY ARE SELF - SERVING IN NATURE. THEREFORE, HE DISALLOWED THE PER DIEM EXPENDITURE OF RS. 2,14,59,000/ - U/S 69C/37 OF THE ACT. 83 . THE LEARNED AUTHORISED REPRESENTATIVE REFERRED TO THE AGREEMENT BY WHICH THE VARIOUS EX PATRIATES CAME TO INDIA FOR THE PERFORMANCE OF THE CONTRACT. HE FURTHER REFERRED THAT IN TERMS OF THE AGREEMENT OF TECHNICAL ASSISTANT THE ASSESSEE WAS TO REIMBURSE VARIOUS EXPENDITURE OF THOSE EXPATRIATES EMPLOYEES. AND THEREFORE IT WAS THE RESPONSIBILI TY OF THE APPELLANT TO PAY DELHI ALLOWANCES TO THE FOREIGN EXPATRIATES COMING TO INDIA FROM ABROAD FOR CONSTRUCTION IN SETTING UP OF THOSE ACTIVITIES HE ALSO REFERRED TO THE LIST OF 4 ANNEXURE EXPATRIATES WHO CAME TO INDIA ALONG WITH THE RESIGNATION AND PA SSPORT NUMBER. HE FURTHER SUBMITTED THAT ASSESSEE HAS PAID 26286000/ 02/01/1998 FOREIGN EXPATRIATES FOR 180 DAYS AND THUS FOR EACH DAY THE EXPENDITURE OF SUCH ELEMENTS AS INR 7 38 PER DAY PER FOREIGNER. HE THEREFORE STATED THAT THE ABOVE PART - TIME ALLOW ANCES ARE ONLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOSES OF ITS BUSINESS. WITH RESPECT TO THE COMPARISON OF THE SAME WITH THE OTHER CONTRACT, HE SUBMITTED THAT THE LEARNED ASSESSING OFFICER DID NOT FOUND THAT IDENTICAL TECHNICAL AGREEMENT WAS THERE AND THE FOREIGN EXPATRIATES CAME TO PERFORM SUCH ACTIVITIES. HE FURTHER REFERRED TO SEVERAL JUDICIAL PRECEDENT AND STATED THAT ABOVE EXPENDITURE CANNOT BE DISALLOWED. HE FURTHER STATED THAT COMPARISON WITH THE OTHER CONTRACT WITHOUT COMPARING T HE FACTS OF THE CONTRACT AND WITHOUT GIVING THE INFORMATION OBTAINED BY THE LEARNED ASSESSING OFFICER FROM THAT PARTY TO THE ASSESSEE THE LEARNED ASSESSING OFFICER SHOULD NOT HAVE DISALLOWED THE ABOVE EXPENDITURE. 84 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VE HEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER AND SUBMITTED THAT ASSESSEE PAGE | 102 HAS NOT GIVEN THE PROPER DETAILS BEFORE THE LEARNED ASSESSING OFFICER AND THE CONTRACTOR WHO IS SIMILARLY PLACED IN CARRYING ON THE SAME ACTIVITY HAS NOT INCURRED SUC H EXPENDITURE AND THEREFORE THE EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE ALLOWED AS A DEDU CTION AND EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF THE BUSINESS. 85 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE OR DERS OF THE LOWER AUTHORITIES. THE APPELLANT ENTERED IN TO A CONTRACT WITH G L EVENTS SERVICES, FRANCE IN RELATION TO TECHNICAL SERVICES. AS PER THE AGREEMENT, THE G L EVENT SERVICES, FRANCE HAD AGREED TO PROVIDE TECHNICAL WORKERS, TECHNICAL SPECIALISTS, AND TECHNICAL CO - COORDINATORS TO THE APPELLANT FOR SETTING UP ALL THE TEMPORARY STRUCTURES AND INSTALLATIONS AT SITES FOR CWG, 2010. AS PER PARA NO 3.3 OF THE AGREEMENT IT IS STATED: 3.3 IN CONNECTION WITH THE PROVISION OF TECHNICAL ASSISTAN CE, THE CLIENT SHALL, REIMBURSE/DISBURSE/BEAR THE BELOW MENTIONED COSTS, EXPENSES AND ALLOWANCES: A) CLIENT SHALL REIMBURSE TO THE CONSULTANT OR ITS PERSONNEL THE EXPENSE AND COSTS INCURRED THROUGH PAYMENT OF DAILY ALLOWANCES TO COVER EXPENSES IN THE NATU RE OF PREPARATION, TRANSPORTATION AND MEDICAL EXPENSE ETC THAT CONSULTANT PAYS TO ITS TECHNICAL PERSONNEL IN ACCORDANCE WITH THE RULE OF BUSINESS TRIP ABROAD BY CONSULTANT. SUCH DAILY ALLOWANCE SHALL BE CALCULATED FOR THE PERIOD COMMENCING ON THE DAY WHEN THE TECHNICAL PERSONNEL DEPARTS FROM ITS LOCATION ABROAD FOR THE CLIENT AND ENDING ON THAT DAY WHEN HE RETURNS TO ITS ORIGINAL LOCATION. PAGE | 103 B) ROUND TRIP EXPENSE FOR TRANSPORTATION BETWEEN ORIGINAL LOCATIONS ABROAD TO THE LOCATION OF THE CLIENT (TRIP TO INCL UDE ECONOMY CLASS AIRFARE) C) EXPENSES FOR POSTAGE, TELEPHONE TELEGRAM, CABLE AND OTHER COMMUNICATION PROVIDED THE SAME ARE APPROVED BY THE CLIENT D) TRAVEL AND HOTEL EXPENSES IN CASE WHERE THE TECHNICAL PERSONNEL MAKES A BUSINESS TRIP ON REQUEST OF THE CL IENT. E) OTHER COST AND EXPENSES NECESSARY FOR THE CONDUCT OF ACTIVITIES, ONLY AFTER DUE APPROVAL BY THE CLIENT. 86 . FROM THE ABOVE PARA OF THE AGREEMENT, IT IS CLEAR THAT IT WAS THE RESPONSIBILITY OF THE APPELLANT TO PAY DAILY ALLOWANCES TO THE FOREIGN EXPA TRIATES COMING TO INDIA FROM ABROAD FOR CONSTRUCTION AND SETTING UP ACTIVITIES. FURTHER, THE LIST OF FOREIGN EXPATRIATES WHO CAME TO INDIA ALONG WITH THEIR DESIGNATION AND PASSPORT NUMBER WAS SUBMITTED BEFORE LD AO AND ENCLOSED AT PAGE 47 - 50 OF PAPER BOOK VII. FURTHER COPIES OF BILLS IN RELATION TO THE TRAVEL AND COPIES OF PASSPORTS WERE ALSO SUBMITTED. THUS, IT CLEARLY SHOWS THAT FOREIGN EXPATRIATES WERE HIRED BY THE APPELLANT. THE LIST INCLUDES THE NAME OF 198 FOREIGN EXPATRIATES ALONG WITH THEIR DESIGNATION AND PASSPORTS NUMBER. FURTHER CONTRACT VERY CLEARLY SPECIFIES THAT THE PERIOD OF STAY FOR THOSE EXPATRIATES SHOULD NOT EXCEED 180 DAYS. HENCE, KEEPING IN VIEW OF THE INCOME TAX PROVISIONS AND THE TERMS OF CONTRACT, NO FOREIGN EXPATRIATES ST AY FOR PERIOD MORE THAN 180 DAYS. THE LD. AO IN PARA 17 OF PAGE 32 OF ASSESSMENT ORDER HAD DULY STATED THAT THE BILLS IN RELATION TO HOTEL ACCOMMODATION AND TRAVEL AND TRANSPORT CHARGES INCLUDES THE TRAVEL AND HOTEL EXPENSES OF THE FOREIGNERS. THUS, IT A LSO JUSTIFIES THAT THE APPELLANT HAD PAID FLIGHT BOOKING EXPENSES AND HOTEL EXPENSES FOR TECHNICAL PERSONNEL PAGE | 104 IMMIGRATING TO INDIA FOR THE PURPOSE OF CWG, 2010. SINCE, 198 FOREIGN EXPATRIATES WERE IN INDIA HIRED BY THE APPELLANT, IT WAS THE RESPONSIBILITY OF THE APPELLANT TO PROVIDE THEN PREPARATIONS, TRANSPORTATION, MEDICAL AND OTHER ALLOWANCES. THEREFORE, THE APPELLANT HAS PAID THE PER DIEM ALLOWANCE TO THOSE FOREIGN EXPATRIATES. DETAILS WERE ALSO PLACED BEFORE US AT PAGE 51 - 63 OF PAPER BOOK VII. HENCE, F ROM THE ABOVE IT IS APPARENT THAT THE APPELLANT HAS PAID DAILY ALLOWANCE AS A PER DIEM EXPENSE TO FOREIGN EXPATRIATES, WHICH IS INCURRED WHOLLY, AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HOWEVER, THE LD. AO ON MERE SURMISE AND SUSPICION HELD THAT THE DO CUMENTS PRODUCED BY THE ASSESSEE ARE SELF - SERVING . NOW, COMING TO THE ACCOUNTING PART, THE APPELLANT PAID TOTAL PER DIEM EXPENSES OF RS. 2,62,86,000/ - AS PER P/L ACCOUNT FOR PREPARATION, TRANSPORTATION, AND MEDICAL ALLOWANCES TO 198 FOREIGNERS FOR A PERIOD NOT EXCEEDING 180 DAYS. HENCE, THE PER DAY ALLOWANCE IS COMPUTED AS UNDER: PER DIEM PAID : RS.2,62,86,000/ - NO. OF FOREIGN EXPATRIATES : 198 FOREIGNERS NO. OF DAY : 180 DAYS PER DIEM PER DAY PER FOREIGNER: RS.2,62,86,000/(198*180) RS.738 PER DAY PER FOREIGNER. 87 . THE APPELLANT PAID RS. 738/ - PER DAY TO THE SINGLE FOREIGNER FOR DAILY ALLOWANCE WHICH WAS NOT SHOWN TO BE UNREASONABLE OR EXCESSIVE. HOWEVER, THE L D. AO HAS DRAWN A COMPARISON WITH M/S PICO DEEPALI OVERLAYS CONSORTIUM TO ALLEGE THAT THE EXPENDITURE IN NATURE OF PER DIEM PAYMENT HAS NOT BEEN INCURRED BY SUCH CONSORTIUM. THE LD. AO HAS COMPARED THE APPELLANT WITH M/S PICO DEEPALI OVERLAYS CONSORTIUM WITHOUT PROVIDING THE RELEVANT DETAILS OF THIS PARTY TO THE APPELLANT. ADMITTEDLY, NO OPPORTUNITY WAS GIVEN TO THE APPELLANT TO EXAMINE / CROSS - EXAMINE THE RELEVANT OFFICIALS OF M/S M/ PICO PAGE | 105 DEEPALI OVERLAYS CONSORTIUM TO CHALLENGE THE COMPARISON DRAWN WITH M/S PICO DEEPALI OVERLAYS CONSORTIUM. LD AO SHOULD HAVE AT LEAS T COMPARED THE REQUIREMENT OF FOREIGN TECHNICAL EXPERTS OF THAT COMPANY WITH THE APPELLANT. IT IS ALSO A CARDINAL PRINCIPLE THAT ANY MATERIAL USED AGAINST THE ASSESSEE, SHOULD BE CONFRONTED TO THE ASSE SSEE WITH REASONABLE OPPORTUNITY OF EXPLAINING IT. THIS HAS NOT BEEN DONE . THEREFORE , IN VIEW OF OVERWHELMING EVIDENCES PRODUCED BY THE ASSESSEE OF PRESENCE OF FOREIGN EXPATRIATES, WITH THEIR PASSPORT DETAIL AND EXPENSES DETAILS COUPLED WITH THE LIABILI TY O F ASSESSEE TO BEAR IT, IT CANNOT BE SAID THAT THESE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. IN VIEW OF THIS, WE DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS. 2 1459000 / MADE BECAUSE OF PART - DIEM PAYMENT MADE TO THE FOREIGN EXPATRIATES. ACCORDINGLY, GROUND NUMBER 5 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 88 . GROUND NUMBER 6 OF THE APPEAL RELATES TO THE DISALLOWANCE OF THE BOGUS PURCHASES OF INR 3 171400/ . THE BRIEF FACT SHOWS THAT THE SEARCH U/S 132 WAS CONDUCTED IN THE CASE OF APPELLANT ON 19.10.2010 AND SOME BILLS AMOUNTING TO RS. 9,93,917/ - OF NITIN ENTERPRISES AND RS. 5,87,058 OF GARG ROAD LINES WERE SEIZED. ASSESSEE SUBMITTED THAT THESE BILLS WERE DULY RECORDED IN THE BOOKS OF ACCOUNT OF THE APPELLANT AND ALL THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES. THE INVOICES AND THE PAYMENT ITSELF SPEAK ABOU T THE NATURE OF EXPENDITURE INCURRED BY THE APPELLANT, WHICH IS COMPLETELY FOR THE BUSINESS PURPOSE. HOWEVER, THE LD. AO DID NOT CONSIDER THE ABOVE AND ALLEGED THAT OUT OF THE TOTAL BILLS SEIZED DURING THE SEARCH U/S 132 IN THE CASE OF APPELLANT, THE BILL AMOUNT IN THE ORIGINAL INVOICE NO. 3112 AND 3110 DID NOT MATCH WITH THEIR PHOTOCOPIES AND ISSUED NOTICE DATED 29.09.2012 TO THE APPELLANT TO EXPLAIN THE SAME. THE APPELLANT, IN RESPONSE TO ABOVE, ASKED THE LD. AO TO PROVIDE COPIES OF THE SEIZED DOCUMENTS OR ALLOW THE APPELLANT TO CONDUCT AN INSPECTION OF SEIZED DOCUMENTS. THEREAFTER, THE LD. AO, TO VERIFY THE GENUINENESS OF TRANSACTION, PAGE | 106 CONDUCTED SURVEY U/S 133A IN THE CASE OF NITIN ENTERPRISES AND GARG ROAD LINES. DURING THE COURSE OF SURVEY, STATEMENT O F SH. NITIN BANSAL, PARTNER IN NITIN ENTERPRISES AND SH. PRAVEEN GARG, PARTNER OF GARG ROAD LINES WERE RECORDED AND THE PURCHASES WERE TREATED AS BOGUS. ON THE BASIS OF STATEMENT RECORDED, THE LD. AO HELD THAT THE BILLS RAISED BY THE NITIN ENTERPRISES AND GARG ROAD LINES CANNOT BE ACCEPTED AND ISSUED THE NOTICE DATED 13.12.2012 AND 24.01.2014 TO SHOW CAUSE WHY THE EXPENSE SHOULD NOT BE DISALLOWED. THE APPELLANT VIDE REPLY DATED 12.02.2014, 19.02.2014, 20.02.2014 AND 26.02.2014 REQUESTED THE LD. AO TO PROV IDE THE ALLEGED INCRIMINATING MATERIAL RELIED UPON BY HIM AND ALSO ALLOW AN OPPORTUNITY TO CROSS EXAMINE THE THIRD PARTY ON THE BASIS OF WHOSE STATEMENT THE QUERY IS RAISED. FURTHER, THE APPELLANT ALSO SUBMITTED THE LEDGER ACCOUNT OF NITIN ENTERPRISE AND G ARG ROAD LINES, WHICH PROVIDES THE INVOICE WISE DETAILS OF ALL THE PURCHASES MADE AND ALSO THE DETAILS OF PAYMENT MADE BY ACCOUNT PAYEE CHEQUE. AS REGARDS PAPERS SIZED AS PAGE 55 TO 58 OF ANNEXURE A - 2 OF PARTY BR 2 THE APPELLANT IN ITS WRITTEN SUBMISSI ON DATED JANUARY 11, 2013 HAD SUBMITTED THAT THERE IS NO MATERIAL ON RECORD OF GLLE TO ENABLE IT TO COMMENT ON THESE DOCUMENTS. ON THE FACE OF IT, THEY APPEAR TO BE INVOICES ADDRESSED ON GLLE. THEY HAVE NOT BEEN RECEIVED AT GLLES OFFICE AND NEITHER EN TERED IN GLLES BOOKS OF ACCOUNT. ACCORDINGLY, GLLE IS NOT IN A POSITION TO COMMENT ON THE SAME. HOWEVER, THE LD. AO PASSED DRAFT ASSESSMENT ORDER BY MAKING ADDITION OF RS. 79,93,917/ - ON ACCOUNT OF BILLS ISSUED BY NITIN ENTERPRISE AND RS. 5,87,058/ - ON A CCOUNT OF BILLS ISSUED BY GARG ROAD LINES. THE APPELLANT RAISED AN OBJECTION BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER AND FURNISHED THE SUBMISSION IN RELATION TO NITIN ENTERPRISE AND GARG ROAD LINES RESPECTIVELY. IN THE SUBMISSIONS, THE APPELLANT SUBMITTED THAT THE AO DID NOT PROVIDE ANY INCRIMINATING MATERIAL FOUND DURING THE SEARCH. THE AO ALSO DID NOT PROVIDE THE COPIES OF STATEMENT OF THIRD PARTY RECORDED BY HIM AND ALSO DID NOT PROVIDE AN OPPORTUNITY TO CROSS - EXAMINE THE THIRD PAGE | 107 PARTY. THE APP ELLANT PLACED RELIANCE ON SEVERAL CASE LAWS TO JUSTIFY THE SAME. THE APPELLANT ALSO SUBMITTED THE COPIES OF LEDGER ACCOUNT, COPIES OF BILLS AND THE BANK STATEMENT. FURTHER, THE APPELLANT IN THE SUBMISSION ALSO PRODUCED THE FACT THAT THE NOTICE WAS ISSUED FOR THE AMOUNT OF RS. 9,93,917/ - IN RELATION TO BILLS ISSUED BY THE NITIN ENTERPRISES AND THE ADDITION MADE WAS EXCESS BY RS.70,00,000/ - .THE APPELLANT ALSO SUBMITTED THAT THE ADDITION WAS MADE FOR THE AMOUNT OF RS. 79,93,917/ - FOR THE PURCHASES MADE FROM NITIN ENTERPRISE WHICH FAR EXCEEDS THE TOTAL ACTUAL PURCHASES AMOUNTING TO RS. 25,84,342/ - .THE APPELLANT ALSO SUBMITTED THAT IF FOR THE SAKE OF ARGUMENT IT IS PRESUMED THAT THE ALLEGED STATEMENT MADE BY M/S NITIN ENTERPRISES IS CORRECT, STILL THE PROPRIET OR OF M/S NITIN ENTERPRISES HAS AT BEST STATED THAT IT ISSUED BOGUS INVOICES TO M/S MEROFORM INDIA PVT. LTD. THIS STATEMENT CANNOT BE INTERPRETED TO HOLD THAT BOGUS INVOICES WERE ISSUED TO THE APPELLANT. FURTHER, THE APPELLANT IN THE SUBMISSION FURNISHED T HAT THE ONLY BASIS FOR MAKING THE SAID ADDITION IS THAT PURPORTEDLY THE PARTNER AND MANAGER OF M/S GARG ROAD LINES HAD STATED THAT THEY HAVE NOT SUPPLIED ANY MATERIAL TO THE ASSESSEE. IT IS CLAIMED THAT THE SAID ALLEGATION IS BASELESS, AS ALL PAYMENTS TO M /S GARG ROAD LINES HAVE BEEN MADE AGAINST ACCOUNT PAYEE CHEQUES. THE LD DRP CONSIDERED THE ABOVE SUBMISSION OF THE APPELLANT AND DIRECTS THE LD. AO TO VERIFY THE SAID TRANSACTION TO ASCERTAIN THE QUANTUM OF DISALLOWANCE AND ALLOW CONSEQUENTIAL RELIEF TO TH E APPELLANT, IF ANY. THEREAFTER THE APPELLANT PRODUCED THE ORIGINAL BILLS FOR VERIFICATION BEFORE THE LD. AO. HOWEVER, THE LD. AO DID NOT RELY UPON THE BILLS ALLEGING THAT THE APPELLANT WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS AND MADE ADDITIO N OF RS. 25,84,342/ - AND RS. 5,87,058/ - BEING THE VALUE OF BOGUS PURCHASES FROM NITIN ENTERPRISES AND GARG ROAD LINES RESPECTIVELY U/S 69C/37 OF THE ACT. PAGE | 108 89 . THE LD AUTHORISED REPRESENTATIVE SUBMITTED THAT APPELLANT HAD MADE SEVERAL REQUESTS TO THE LD. AO TO SUPPLY INCRIMINATING MATERIAL AS WELL AS TO PROVIDE OPPORTUNITY TO CROSS - EXAMINE M/S NITIN ENTERPRISES AND M/S GARG ROAD LINES AND THE COPIES OF STATEMENT RECORDED THEREON. HOWEVER, THE LD. AO FAILED TO DO SO AND MADE ADDITION OF RS. 31,71,400/ - WHICH IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. HE ALSO REFERRED TO THE FACTS OF BOTH THE PARTIES AND SUBMITTED THAT THE ISSUE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH WHEREIN THE ISSUE RELATED TO THE BOGUS BILLING OF TH E SAME PARTY WAS CONSIDERED. HE THEREFORE SUBMITTED THAT THE ISSUE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. 90 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER AND THE LEARNED DISPUTE RESOLUTION PANEL AND SUBMITTED THAT WHEN THE SURVEY WAS CONDUCTED BOTH THE PARTIES HAVE DENIED THE EXISTENCE OF THOSE BILLS AND THEREFORE THE IT IS THE ONUS OF THE ASSESSEE TO PROVE THAT THE PURCHASES WERE GENUINE. THEREFORE, IT STATED THAT THE LEARNED ASSESSING OFFICER AND THE LEARNED DISPUTE RESOLUTION PANEL HAVE CORRECTLY UPHELD THE DISALLOWANCE. 91 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE FACT SHOWS THAT IN CASE OF THESE TWO PARTIES THE LEARNED ASSESSING OFFICER HAS MADE THE ADDITION BECAUSE OF BOGUS PURCHASES. 92 . THE FACT SHOWS THAT IN CASE OF NIT IN ENTERPRISES , IN SPITE OF REQUEST BY THE APPELLANT TO SUPPLY THE STATEMENT OF MR. NITIN BANSAL, PARTNER IN M/S NITIN ENTERPRI SES, RECORDED BY THE INCOME TAX AUTHORITIES AND ALLOW THE OPPORTUNITY TO CROSS EXAMINE THE PARTY, THE LD. AO DID NOT OBLIGE THE APPELLANT. IT WAS THE CASE OF M/S MEROFORM INDIA PVT LTD, WHICH WAS ALSO BEING ASSESSED BY THE SAME ASSESSING OFFICER. FINALLY, WHEN THE CASE OF MEROFORM INDIA PVT LTD BEFORE THE COORDINATE BENCH , THE TRIBUNAL HELD THAT THE STATEMENT OF PARTNER RECORDED DURING THE SEARCH WAS FOUND TO BE INCREDIBLE AND HAD NO EVIDENTIARY VALUE AND THEREFORE THE RELIANCE COULD NOT BE PAGE | 109 PLACED ON SUCH STATEMENT. HENCE, THE ADDITION MADE BASED ON STATEMENT OF THE PARTNER OF NITIN ENTERPRISES IN THE CASE OF MEROFORM INDIA PVT LTD WAS DELETED. IN THAT CASE THE ADDITION OF PURCHASES FROM NITIN ENTERPRISES WERE MADE BY CONSIDERING THE STATEMENT OF NITIN BAN SAL RECORDED DURING THE SURVEY U/S 133A WHERE IT WAS STATED THAT NITIN ENTERPRISES HAS ISSUED BOGUS BILLS TO THE ASSESSEE AND SUPPLIES WERE NOT MADE IN RESPECT OF SUCH BILLS. IN THIS, REGARDS ASSESSEE SUBMITTED THAT M/S. NITIN ENTERPRISES, HAS FILED A SUI T FOR RECOVERY OF BALANCE DUE TO THEM BECAUSE OF PURCHASES MADE BY THE APPELLANT COMPANY WITH THE DELHI HIGH COURT VIDE PETITION CS (OS) NO. 2055 OF 2011. THE ASSESSEE WAS NOT PROVIDED AN OPPORTUNITY TO CROSS - EXAMINE THE THIRD PARTY BASED ON WHOSE STATEMEN T THE ADDITIONS WERE MADE. ALL THE DOCUMENTS SUCH COPY OF BILLS, COPY OF LEDGER, PAYMENT DETAILS, LEGAL NOTICE FOR RECOVERY OF OUTSTANDING DUES, SUIT FILED BEFORE HIGH COURT AND SETTLEMENT DEED BETWEEN THE ASSESSEE AND HIGH COURT AND THE SETTLEMENT ORDER O F HIGH COURT WERE SUBMITTED TO THE TRIBUNAL. RELYING ON THE AFORESAID, THE DELHI TRIBUNAL HELD THAT : - 25. AFTER HEARING THE RIVAL CONTENTIONS AND ON PERUSAL OF THE MATERIAL REFERRED TO BEFORE US, WE FIND THAT THE MAIN GROUND FOR MAKING THE ADDITION BY THE ASSESSING OFFICER IS THAT; DURING THE COURSE OF SURVEY MADE IN THE CASE OF M/S. NITIN ENTERPRISES WAS FOUND TO BE ENGAGED IN PROVIDING BOGUS BILLS AND ONE OF ITS PARTNER HAS GIVEN A STATEMENT THAT THE ASSESSEE WAS ALSO GIVEN THE BOGUS BILL AND HAS RECE IVED CHEQUE FROM THE ASSESSEE FOR THE SAID BILLS IN LIEU OF CASH FOR THE SAME AMOUNT RETURNED BACK TO THE ASSESSEE. ON THE OTHER HAND, THE ASSESSEE BEFORE THE ASSESSING OFFICER HAS GIVEN VARIOUS DOCUMENTS LIKE; (I) COPY OF LEGAL NOTICE ISSUED BY M/S. NITIN ENTERPRISES TO THE ASSESSEE FOR RECOVERY OF THE DUES RELATING TO SAME PAGE | 110 PURCHASES MADE BY THE ASSESSEE; (II) SUIT OF RECOVERY FILED BY M/S. NITIN ENTERPRISES BEFORE THE HON'BLE DELHI HIGH COURT; (III) COPY OF STATEMENT OF ACCOUNT AND RECONCILIATION FILED BY M/S. NITIN ENTERPRISES DURING THE SUIT FOR RECOVERY BEFORE THE HON'BLE HIGH COURT CONFIRMING THE TRANSACTION OF PURCHASE AND BALANCE AMOUNT RECOVERABLE FROM THE ASSESSEE; (IV) COPY OF LEDGER ACCOUNT AND RECONCILIATION OF BALANCE IN THE BOOKS OF ACCOUNT OF BOTH THE PARTIES; AND (V) SETTLEMENT DEED BETWEEN THE ASSESSEE AND M/S. NITIN ENTERPRISES WHEREBY PARTIES HAVE SETTLED THE DUES WHICH GOT RATIFIED BY THE SETTLEMENT ORDER OF THE HON'BLE DELHI HIGH COURT. ALL THESE EVIDENCES HAVE NEITHER BEEN REBUTTED NOR HAS ANY ADVERSE VIEW BEEN GIVEN BY THE ASSESSING OFFICER. APART FROM THAT, THERE IS A CATEGORICAL FINDING THAT THE STATEMENT OF SHRI NITIN BANSAL RECORDED BY THE SURVEY PARTIES WAS BEHIND THE BACK OF THE ASSESSEE AND THE COPY OF THE STATEMENT WAS NEITHER P ROVIDED NOR WAS ANY OPPORTUNITY GIVEN FOR CROSS EXAMINATION. THE ASSESSEE HAS MADE THE PAYMENT TO THE PARTY THROUGH BANKING CHANNELS AND SIMPLY RELYING UPON THE STATEMENT OF ONE OF THE PARTNER THAT CASH HAS BEEN RETURNED IN LIEU OF CHEQUE CANNOT BE ACCEPTE D WITHOUT SUCH A PERSON BEING SUBJECTED TO CROSS - EXAMINATION. EVEN OTHERWISE ALSO SUCH A STATEMENT ITSELF LOSES ITS CREDIBILITY AND EVIDENTIARY VALUE, WHEN THE FIRM ITSELF HAS TAKEN A LEGAL ACTION FOR RECOVERY OF SAME DUES FROM THE ASSESSEE ON THE PURCHASE S MADE FOR WHICH IT HAS ISSUED THE BILLS. NOT ONLY THAT, THERE HAS BEEN AMICABLE SETTLEMENT OF DUES AND PAYMENT HAS BEEN MADE BY THE ASSESSEE TO THE SAID PARTY. IN THE LIGHT OF THESE EVIDENCES FILED BEFORE THE HON'BLE HIGH COURT IN THE SUIT PROCEEDINGS, TH E STATEMENT OF THE PARTNER GETS MITIGATED AND NO CREDENCE CAN BE GIVEN TO SUCH A SETTLEMENT. THE DETAILED FINDING OF THE LEARNED COMMISSIONER OF INCOME - PAGE | 111 TAX (APPEALS) ON THIS ISSUE AS INCORPORATED ABOVE IS NOT ONLY BASED ON THE CORRECT APPRECIATION OF FACTS BUT ALSO IN LAW, THEREFORE, THE SAID FINDING IS AFFIRMED AND THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BOGUS PURCHASE IS DELETED. IN THE RESULT THE ISSUE OF BOGUS PURCHASES IN ALL THE ASSESSMENT YEARS FROM THE SAID PARTY STANDS DECIDED IN F AVOUR OF THE ASSESSEE AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 93 . THUS, THE STATEMENT OF PARTNER OF NITIN ENTERPRISE WAS HELD TO BE NON - CREDIBLE. THEREFORE, IN THE CASE OF APPELLANT ALSO THE SAID STATEMENT COULD NOT BE RELIED UPON. HENCE, THE L D. AOS ALLEGATION THAT THE BILLS RAISED BY THE NITIN ENTERPRISE ARE BOGUS IS NOT ACCEPTABLE, IN ABSENCE OF OPPORTUNITY OF CROSS EXAMINATION. FURTHER, THE APPELLANT HAD FURNISHED THE COPIES OF ORIGINAL BILLS, LEDGER ACCOUNT, AND THE BANK STATEMENT BEFORE T HE LD. AO, WHICH CLEARLY SHOWS THE GENUINENESS OF THE TRANSACTION. FURTHER THE LD. AO ALLEGATION FOR THE REJECTION OF ORIGINAL BILLS WAS THAT THE APPELLANT WAS INVOLVED IN RECEIVING THE BOGUS BILLS WHICH ITSELF IS ON SURMISE AND SUSPICION. HENCE, IT CAN BE CONCLUDED THAT THE LD. AO DOES NOT HAVE ANY BASIS OR REASON TO HOLD ALL THE BILLS AS BOGUS. IN VIEW OF ABOVE FACTS AND FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE OF THE SISTER CONCERN OF THE ASSESSEE WITH RESPECT TO THE SAME PARTY, WE DIR ECT THE LEARNED ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF BOGUS PURCHASES WITH RESPECT TO M/S NITIN ENTERPRISES . 94 . WITH RESPECT TO THE ADDITION OF RS. 587058/ - OF PURCHASES FROM M/S GARG ROADLINES , THE LD. AO MADE ADDITION OF RS. 5,87,058/ - ON ACCOUNT OF BOGUS BILLS ISSUED BY GARG ROAD LINES TO THE APPELLANT ON THE BASIS OF STATEMENT GIVEN BY SH. PRAVEEN GARG, PARTNER IN THE FIRM PAGE | 112 DURING THE COURSE OF SURVEY U/S 133A OF THE ACT, IN THE CASE OF GARG ROAD LINES. THE LD. AO STATED THAT - SH. PRAVEEN GARG STATED THAT THEY HAVE NOT SUPPLIED ANY DIESEL TO THE ASSESSEE. THE MANAGER IN THE FIRM STATED THAT HE HAS NEVER HEARD THE NAME OF APPELLANT. NO INVOICES CORRESPONDING TO ANY TRANSACTION WITH THE APPELLANT WERE RECOVERED DURING THE COUR SE OF SURVEY AND NO CORRESPONDING ENTRIES WERE FOUND IN THE BOOKS OF A/C OF GARG ROADLINES. . 95 . ON THIS ACCOUNT, THE PURCHASES MADE FROM GARG ROAD LINES WERE TREATED AS BOGUS. THE APPELLANT ON THE ABOVE ISSUE RAISED AN OBJECTION BEFORE THE DRP, HOWEVER THE SAME WAS REJECTED BY THE DRP. THE LD. AO DID NOT CONSIDERED THE SUBMISSION OF THE APPELLANT AND MADE ADDITION OF RS. 5,87,058/ - IN REGARDS TO THE ABOVE, IT IS SUBMITTED THAT DURING THE COURSE OF SURVEY U/S 133A IN THE CASE OF GARG ROAD LINES, IT WAS NOT F OUND THAT THE FIRM IS INVOLVED IN ISSUING BOGUS BILLS. THE ADDITION WAS MADE BASED ON STATEMENT OF PARTNER/MANAGER OF THE CONCERN THAT HE NEVER HEARD THE NAME OF APPELLANT, NO ENTRY FOUND IN THE BOOKS OF GARG ROAD LINES AND DIESELS WERE NOT SUPPLIED TO APP ELLANT. THE BILLS ISSUED BY M/S GARG ROAD LINES WERE ALREADY SEIZED DURING THE SEARCH U/S 132 IN THE CASE OF APPELLANT AND BEFORE THE LD. AO. FURTHER, BILL ISSUED BY AMRITSAR TRANSPORT WHICH IS IN RELATION TO TRANSPORT OF DIESEL TANKER FROM ADDRESS OF GAR G ROAD LINES TO THE APPELLANT WHICH WAS ALSO SEIZED DURING THE SEARCH U/S 132 IN THE CASE OF APPELLANT. THUS, APPELLANT MADE ALL THE PAYMENTS TO GARG ROAD LINES THROUGH ACCOUNT PAYEE CHEQUE AND THE SAME HAS BEEN DEBITED FROM THE ACCOUNT OF THE APPELLANT B EFORE THE DATE OF SEARCH AS EVIDENT FROM BANK STATEMENTS OF THE A SSESSEE . THIS VERY CLEARLY SHOWS THAT THE TRANSACTION ENTERED INTO BY THE APPELLANT WAS ON RECORD. HOWEVER, THE LD. AO WITHOUT CONSIDERING THE ABOVE FACTS SIMPLY RELIED ON THE STATEMENT OF PA RTNER/ MANAGER OF THE CONCERN THAT THEY HAVE NOT SUPPLIED DIESEL TO THE APPELLANT AND NEVER HEARD THE NAME OF APPELLANT. EVEN IF FOR THE SAKE OF ARGUMENT , IT IS PRESUMED THAT THE PAGE | 113 ALLEGED STATEMENT WAS MADE BY GARG ROAD LINES, THE STATEMENT COULD NOT BE RE LIED UPON AS IT IS COMPLETELY AGAINST THE TRANSACTIONS AND EVIDENCES ON RECORD. THE ENTRY IN THE BANK ACCOUNT OF THE APPELLANT CLEARLY STATES THAT THE PAYMENT WAS DEBITED AND THE SAME WOULD HAVE BEEN CREDITED IN THE BANK ACCOUNT OF THE GARG ROAD LINES. HEN CE, DENIAL OF TRANSACTION BY GARG ROAD LINES CLEARLY SHOWS THAT THEY HAVE NOT SHOWN THE SAID TRANSACTION IN THEIR BOOKS. FURTHER, THE BILL OF AMRITSAR TRANSPORT ALSO EVIDENT THE DELIVERY OF DIESEL FROM THE ADDRESS OF GARG ROAD LINES TO THE APPELLANT, HENCE , STATEMENT BY THE PARTNER OF THE GARG ROAD LINES THAT THEY HAVE NOT SUPPLIED DIESEL COULD NOT BE RELIED UPON. FURTHER, DURING THE SURVEY U/S 133A IN THE CASE OF GARG ROAD LINES, THE LD. AO STATED THAT NO INVOICES CORRESPONDING TO ANY TRANSACTION WITH THE APPELLANT WERE RECOVERED DURING THE COURSE OF SURVEY AND NO CORRESPONDING ENTRIES WERE FOUND IN THE BOOKS OF A/C OF GARG ROADLINES.. IT IS CLEAR FROM THIS THAT IN SPITE OF PAYMENT MADE TO THE GARG ROAD LINES AS EVIDENT FROM THE BANK STATEMENT, NO ENTRY WA S FOUND IN THE BOOKS OF GARG ROAD LINES. THIS SHOWS THAT GARG ROAD LINES HAD NOT SHOWN THE INCOME FROM SUPPLY OF THE DIESEL IN ITS BOOKS. NO ENTRY FOUND IN THE BOOKS OF THE GARG ROAD LINES CANNOT BE THE BASIS FOR ADDITION AS THE AMOUNT TRANSFERRED FROM THE BANK ACCOUNT OF THE APPELLANT TO THE GARG ROAD LINES WAS ON RECORD WHEN LD. AO CONDUCTED SURVEY ONLY BASED ON MATERIAL SEIZED FROM ASSESSEE . HE DID NOT VERIFY OUT WHETHER THE GARG ROAD LINES HAVE SHOWN THE EFFECT OF THE CREDIT ENTRIES IN ITS BANK ACCOUNT, WHICH RELATED TO THE AMOUNT RECEIVED FROM APPELLANT. HOWEVER, WE ARE NOT CONCERNED ABOUT THE BOOKS OF ACCOUNTS AND ITS VERACITY OF GARG ROADLINES. FURTHER, IT IS ALSO SETTLED LAW THAT THE INITIAL ONUS IS OF THE APPELLANT TO PROVE THE TRANSACTIO N AS GENUINE, WHICH WAS DULY DISCHARGED, BY THE APPELLANT BY PRODUCING THE ORIGINAL BILLS AND COPY OF LEDGER ACCOUNT AND BANK STATEMENT BEFORE THE LD. AO. AFTER THE APPELLANT DULY DISCHARGED ITS ONUS TO PROVE THE TRANSACTION AS GENUINE, THE ONUS SHIFTS TO THE LD. AO TO DISPROVE THE APPELLANT WITH DUE EVIDENCE AND REASONS. PAGE | 114 HOWEVER, IN THE INSTANT CASE THE LD. AO DID NOT PROVIDE ANY REASON OR ANY EVIDENCES AND ON COMPLETE SURMISE HELD THAT THE BILLS PRODUCED BY THE APPELLANT ARE BOGUS. FURTHER, THE LEARNED A SSESSING OFFICER HAS NOT COMMENTED ANYTHING ON THE AMOUNT OF PURCHASES MADE BY THE ASSESSEE FROM THE PARTY EXISTING AT THE SAME ADDRESS WITH THE GARG ROAD LINES. THE LEARNED ASSESSING OFFICER ALSO DID NOT GRANT ANY OPPORTUNITY OF CROSS - EXAMINATION OF THE PARTNER OF M/S GARG ROAD LINES TO THE ASSESSEE. THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS IN CASE OF M /S NITIN ENTERPRISES . THEREFORE WE DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF INR 5 87058/ BECAUSE OF PURCHASES MADE FROM GARG ROAD LINES TREATED BY HIM AS A BOGUS PURCHASES. ACCORDINGLY, GROUND NUMBER 6 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 96 . GROUND NUMBER 7 OF THE APPEAL RELATES TO THE DISALLOWANCE OF INR 1 0315369 BECAUSE OF PROFESSIONAL FEES PAID BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT, THE LD. AO VIDE PARA SEVEN OF NOTICE DATED 24.01.2014 ASKED THE APPELLANT TO FURNISH THE DETAILS OF ADMINISTRATIVE AND OTHER EXPENSES. IN RESPONSE TO ABOVE, THE APPELLANT FURNISHE D REPLY ON 12.02.2014 AND FURNISHED COMPLETE DETAILS OF ADMINISTRATIVE EXPENSES ALONG WITH THE COPIES OF LEDGER. FURTHER, THE COPIES OF BILLS IN RELATION TO THESE EXPENSES WERE ALSO PRESENTED. HOWEVER, THE LD. AO DID NOT CONSIDER THE SUBMISSION OF THE APPE LLANT AND DISALLOWED THE PROFESSIONAL FEES IN DRAFT ORDER STATING THAT THE APPELLANT MUST HAVE NECESSARY IN HOUSE EXPERTISE TO EXECUTE PROJECTS OF SUCH NATURE AND MAGNITUDE AND THE EXTERNAL LEGAL AND PROFESSIONAL SERVICES, IF REQUIRED AT ALL, SHALL BE ONL Y FOR LIMITED AND HIGHLY SPECIALIZED SERVICES ON A VERY SMALL SCALE. THE APPELLANT BEING AGGRIEVED BY THE DRAFT ASSESSMENT ORDER , RAISED AN OBJECTION BEFORE THE DRP. AFTER CONSIDERING THE SUBMISSION OF THE APPELLANT, THE DRP ASKED THE LD. AO TO VERIFY ASCE RTAIN THE QUANTUM OF DISALLOWANCE AND ALLOW CONSEQUENTIAL RELIEF TO THE APPELLANT, IF ANY. ON DIRECTION FROM THE DRP, THE APPELLANT PRESENT ALL THE ORIGINAL BILLS BEFORE THE LD. AO. SUBSEQUENTLY, THE LD. AO PAGE | 115 PASSED THE ASSESSMENT ORDER AND HELD THAT SUCH B ILLS PRODUCED BY THE APPELLANT CANNOT BE RELIED UPON AS THE ASSESSEE COMPANY WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS AND DISALLOWED THE SUM OF RS. 1,03,15,369/ - ON ACCOUNT OF PROFESSIONAL FEES U/S 37 OF THE ACT. 97 . THE LEARNED AUTHORISED REPRES ENTATIVE SUBMITTED THAT ASSESSEE HAS PAID THE TOTAL LEGAL AND PROFESSIONAL FEES OF INR 6 3282998/ OUT OF WHICH THE LEARNED ASSESSING OFFICER HAS ALLOWED THE EXPENDITURE OF PROFESSIONAL FEES OF RS. 2 852376/ AS SAME HAS BEEN PAID TO THE AUDITORS AND AUTHO RISED REPRESENTATIVE OF THE APPELLANT BEFORE VARIOUS GOVERNMENT AGENCIES. HE SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS NOT GIVEN ANY REASON BUT HAS MERELY DISALLOWED THE ABOVE SUM ON THE CONJECTURES AND SURMISES SURMISE. HE SUBMITTED THAT ASSESSEE HAS PRODUCED THE ORIGINAL BILLS BEFORE THE LEARNED ASSESSING OFFICER, WHICH CONTAINED THE COMPLETE DETAILS OF SUCH EXPENDITURE. EVEN OTHERWISE, HE SUBMITTED THAT THE DISALLOWANCE OF THE PROFESSIONAL FEES PAID TO THE VARIOUS PARTIES CANNOT BE DISALLOWED S TATING THAT COMPANY WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS WITHOUT VERIFICATION OF THOSE BILLS AND WITHOUT POINTING OUT ANY DEFECT IN THOSE BILLS. HE SUBMITTED THAT ASSESSEE HAS RECEIVED THE SERVICES FROM THOSE PROFESSIONALS, WHICH ARE NOT IN DISPUTE, AND HAS NOT BEEN CHALLENGED BY THE LEARNED ASSESSING OFFICER. HE FURTHER SUBMITTED THAT IN THE DRAFT ASSESSMENT ORDER THE LEARNED ASSESSING OFFICER HAS DISALLOWED THE ABOVE SUM HOLDING THAT THAT THE APPELLANT MUST HAVE NECESSARY IN - HOUSE EXPER TISE TO EXECUTIVE PROJECTS OF SUCH NATURE AND MAGNITUDE AND THE EXTERNAL LEGAL AND PROFESSIONAL SERVICES SHALL BE ONLY FOR LIMITED AND HIGHLY SPECIALIZED SERVICES ON A VERY SMALL SCALE. HE SUBMITTED THAT THE REASONS FOR DISALLOWANCE IN THE DRAFT ASSESSMEN T ORDER AND THE REASONS FOR UPHOLDING THE DISALLOWANCE IN THE FINAL ASSESSMENT ORDER ARE DIAMETRICALLY OPPOSITE. HE FURTHER STATED THAT THE IN THE ORIGINAL INVOICE SUBMITTED BY THE PROFESSIONALS THE COMPLETE DETAILS OF THE SERVICES PROVIDED BY THEM ARE ME NTIONED. HE PAGE | 116 ALSO NOTED THAT THE LEARNED ASSESSING OFFICER WITHOUT VERIFICATION HAS DISALLOWED THE ABOVE SUM AND HAS NOT OBSERVED THAT SUCH EXPENSES ARE EXCESSIVE OR ARE PAID TO RELATED PARTIES. IN VIEW OF THIS, HE SUBMITTED THAT ALL THESE EXPENSES HAVE B EEN INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS AND THEREFORE THEY SHOULD BE ALLOWED. 98 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER AND STATED THAT ASSESSEE IS IN THE PRACTICE OF RECEI VING THE BOGUS BILLS THE LEARNED ASSESSING OFFICER HAS CORRECTLY DISALLOWED THE ABOVE EXPENDITURE. 99 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ON APPRECIATION OF FACTS, IT IS FOUND THAT APPELLANT HAS INCURRED TOTAL LEGAL AND PROFESSIONAL FEES OF RS. 6,32,82,998/ - WHICH CONSISTS OF THE FOLLOWING. I . MANAGEMENT FEES : RS 4,59,96,007/ - II . PROFESSIONAL FEES : RS.1,31,67,745/ - III . REIMBURSEMENT OF EXPENSES : RS.16,93,746/ - IV . AUDITORS REMUNERATION : RS.24,25,500 / - TOTAL RS.6,32,82,998/ - 100 . THE LD AO OUT OF MANAGEMENT FEES OF RS.4,59,96,007/ - AND REIMBURSEMENT OF EXPENSES RS. 16,93,746/ - ARE AN INTERNATIONAL TRANSACTION AND ARE DEALT IN THE TRANSFER PRICING HENCE DELETED. HE ALLOWED THE AMOUNT OF RS. 28,52,376/ - IN DRAFT ASSESSMENT ORDER BEING PAID TO THE AUDITORS AND AUTHORISED REPRESENTATIVES OF THE APPELLANT BEFORE VARIOUS GOVT. AGENCIES. THE LD. AO DISALLOWED THE SUM OF RS. 1,03,15,369/ - ON ACCOUNT OF BOGUS BILLING. THE SAME WAS DISALLOWED WHILE DISALLOWING WHOLE OF THE EXPENSE AND HENCE THIS HAS LED TO DOUBLE DISALLOWANCE. FURTHER THE PROFESSIONAL FEES OF RS. 28,52,376/ - WAS ALLOWED BY THE LD. AO IN DRAFT ASSESSMENT ORDER HOLDING THAT THE SAME HAS BEEN PAID TO THE AUDITORS AND AUTHORISED REPRESENTATIVES OF THE APPELLANT BEFORE VARIOUS GOVT. AGENCIES. THE SAID EXPENSE HAS ALREADY BEEN DEALT BY THE LD. AO SEPARATELY IN PAGE | 117 PARA 16 OF DRAFT ORDER . THE LD. AO WHILE DISALLOWING THE ENTIRE EXPENSES IN PARA 24 OF THE DRAFT ORDER IGNORED THESE EXPENSES ALLOWED BY HIM ON ACCOUNT OF PROFESSIONAL FEES AND DISALLOWED THE SAME WHILE DISALLOWING ENTIRE EXPENSES ON SURMISE AND CONJECTURE. THIS VERY CLEARLY SHOWS THAT THE LD. AO MADE ASSESSMENT WHOLLY BASED ON SURMISE AND SUSPICION. HE DID NOT CON SIDER WHILE DISALLOWING THE ENTIRE EXPENSES THAT THE EXPENSE AMOUNTING TO RS. 28,52,376/ - IN RELATION TO PROFESSIONAL FEES WAS ALREADY ALLOWED BY HIM AND SHOULD BE REDUCED FROM THE AMOUNT OF ENTIRE EXPENSES. THE BALANCE OF THE PROFESSIONAL FEES OF RS. 1,27 ,40,869/ - (I.E. AFTER REDUCING THE AMOUNT OF RS. 459,96,007/ - PLUS 28,52,376/ - PLUS 16,93,746/ - ) CONSIST OF RS. 24,25,500/ - AS A PART OF AUDITORS REMUNERATION AND BALANCE RS. 1,03,15,369/ - WHICH WAS DISALLOWED BY THE LD. AO TWICE I.E. (I) DISALLOWED THE PROFESSIONAL FEES SEPARATELY AND (II) DISALLOWED WHOLE OF EXPENDITURE. THEREFORE, THE DISALLOWANCE OF RS. 1,03,15,369/ - BEING DOUBLE DISALLOWANCE HAVING BEEN ALREADY INCLUDED IN THE TOTAL EXPENDITURE DISALLOWED SHALL HAVE TO BE REDUCED IN TOTALING THE COMPUTATION OF INCOME MADE BY THE LD. AO. EVEN OTHERWISE, THE LD. AO DISALLOWED THE EXPENSE IN RELATION TO PROFESSIONAL FEES BY REJECTING THE ORIGINAL BILLS FURNISHED BEFORE HIM ALLEGING THAT THE APPELLANT WAS INVOLVED IN RECEIVING THE BOGUS BILLS. T HE DISALLOWANCE MADE BY THE LD. AO ON THIS GROUND WAS ON COMPLETE SURMISE AND SUSPICION. THE APPELLANT RECEIVED PROFESSIONAL SERVICES FROM VARIOUS CONSULTANTS AND PROFESSIONAL FOR PREPARATION OF AGREEMENT BETWEEN G L LITMUS EVENT PVT LTD AND G L EVENT SER VICES, HANDLING INCOME TAX MATTERS AFTER SEARCH AND SEIZURE, LEGAL ADVICE, STAFF RECRUITMENT, SERVICE TAX AND SALES TAX REGISTRATION AND RETURN MATTERS, OPINION ON SERVICE TAX, TDS, CUSTOMS AND VAT RELATED MATTERS, COMPANY REGISTRATION AND COMPLIANCE MATTE RS AND PRESENTATION BEFORE THE COURT REGARDING LEGAL MATTERS. THESE SERVICES ARE IN RELATION TO LEGAL AND TAXATION MATTERS OF THE APPELLANT COMPANY. ALL THE BILLS PRESENTED BEFORE THE LD. AO AND COPIES OF THE LEDGER HAVE PROPER DESCRIPTION OF SERVICES PAGE | 118 RE NDERED, WHICH EXPLAINS THE PROFESSIONAL SERVICES RECEIVED BY THE APPELLANT. THE APPELLANT PROVIDED THE COPIES OF LEDGER ACCOUNTS IN THE BOOKS, BILLS, AND BANK STATEMENT TO PROVE THE GENUINENESS OF THE TRANSACTION. HOWEVER, THE LD. AO DISMISSED SUCH BILLS F URNISHED BY THE APPELLANT ON SURMISE, SUSPICION, AND ADDED THE ENTIRE SUM BY DISALLOWING THE SAME WITHOUT ANY ENQUIRY OR INVES TIGATION. FURTHER, THE SERVICES WERE PROCURED BY THE APPELLANT FORM THE RENOWNED EXPERTS WHO ARE NOT RELATED TO THE APPELLANT AND NO ANY SUCH INFORMATION HAS BEEN RECEIVED BY THE LD. AO THAT THE VENDORS FROM WHOM PROFESSIONAL SERVICES ARE RECEIVED ARE ENGAGED IN RAISING ANY BOGUS BILLS. ALL THE COPIES OF AGREEMENT ARE AT PAGE 93 - 130 OF THE PAPER BOOK VI AND THE COPIES OF CONSORTIUM AGREEMENT IN PAPER BOOK I , WHICH WERE ALSO BEFORE THE LD. AO ARE THE EVIDENCE TO THOSE BILLS, WHICH WERE RAISED BY THE PROFESSIONAL FOR PREPARATION OF THESE AGREEMENTS. THE APPELLANT DURING THE YEAR HAD LEGAL ADVICE IN RELATION TO THE CUSTOMS DEMAND AND SA LES TAX DEMAND RAISED BY THE DEPARTMENT, WHICH WAS ALSO AN EVIDENCE FOR THOSE BILLS RAISED IN THESE RESPECTS. FURTHER, DURING THE PERIOD, THE SEARCH WAS CONDUCTED IN THE OFFICE OF THE APPELLANT AND THEREFORE THE APPELLANT HAD TAKEN LEGAL ADVICE FROM THE PR OFESSIONALS IN RELATION TO INCOME TAX MATTER HELD AFTER THE SEARCH PROCEEDINGS AND THE BILLS ARE IN RELATION TO THESE MATTERS. HENCE, THE PROFESSIONAL EXPENSES CLAIMED BY THE APPELLANT WERE SUPPORTED WITH ALL THE EVIDENCES AND WERE BEFORE THE LD. AO. IN T HE INVOICES AND COPY OF LEDGER ACCOUNT OF PROFESSIONAL FEES IS ENCLOSED AT PAGE 110 - 119 OF THE PAPER BOOK VII WHEREIN THE PURPOSES FOR WHICH THE PROFESSIONAL SERVICES WERE RECEIVED HAD BEEN SPECIFIED IN THE NARRATION. FROM THE ABOVE FACTS AND SUBMISSION S, WHICH ARE NOT CONTRADICTED, APPELLANT HAD DULY DISCHARGED ITS ONUS TO PROVE THE GENUINENESS OF THE TRANSACTION. ALL THE DETAILS AND DOCUMENTS IN ORDER TO JUSTIFY THE SAID TRANSACTION WERE SUBMITTED BEFORE THE LD. AO. HOWEVER, THE LD. AO IGNORING ALL T HE DETAILS AND DOCUMENTS ON RECORD AND WITHOUT PROVIDING ANY REASON HELD THAT THE BILLS ARE BOGUS AS THE APPELLANT WAS INVOLVED IN PAGE | 119 RECEIVING BOGUS BILLS, WHICH WAS UNCORROBORATED . EVEN OTHERWISE, THE LD. AO MADE THE ADDITION OF PROFESSIONAL FEES THREE TIM ES. FIRSTLY, THE PROFESSIONAL FEES OF RS. 1,03,15,369/ - WAS DISALLOWED WHILE DEALING WITH IT SEPARATELY UNDER PARA 19(G) OF THE ASSESSMENT ORDER. SECONDLY, THE PROFESSIONAL FEES OF RS. 1,03,15,369/ - WERE AGAIN DISALLOWED WHILE DISALLOWING ENTIRE EXPENSE IN PARA 28 OF THE ASSESSMENT ORDER. FURTHER, S A ME AMOUNT OF PROFESSIONAL FEES IS ALSO INCLUDED IN THE ADDITION MADE BECAUSE OF BILLS SEIZED, SUNDRY CREDITORS, AND EXPENSE LIABILITY. FURTHER, THE EXPENSES OF RS. 28,52,376/ - ALLOWED BY THE LD. AO IN PARA 16 OF DRAFT ORDER WAS ALSO IGNORED BY HIM WHILE COMPUTING TOTAL INCOME. IN VIEW OF ABOVE FACTS, THE DISALLOWANCE OF INR 1 0315369/ OUT OF THE PROFESSIONAL FEES CANNOT BE WITHHELD. ACCORDINGLY, WE DIRECT THE LEARNED AO TO DELETE THE ABOVE DISALLOWANCE. HENCE , GROUND NUMBER 7 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 101 . GROUND NUMBER 8 OF APPEAL IS AGAINST THE EXCESS OF EXPENDITURE ON TRAVELLING AND CONVEYANCE OF INR 53923603/ DISALLOWED BY THE LEARNED ASSESSING OFFICER. THE APPELLANT DURING THE YEAR INCURRED TO TAL TRAVELLING AND CONVEYANCE EXPENDITURE OF RS. 6,94,29,185/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO OBSERVED THAT THE SEIZED BILLS CORRESPONDING TO THE HEAD TRAVEL AND HOTEL ACCOMMODATION AMOUNTS TO RS. 40,45,629/ - AND RS. 56,94,721/ - R ESPECTIVELY AND THE SAID EXPENDITURE WERE RELATED TO AIR TICKETS AND HOTEL STAY OF FOREIGNERS. HE THEN COMPARED THE SAID EXPENDITURE WITH THE OTHER OVERLAYS CONTRACTOR I.E. PICO DEEPALI OVERLAYS CONSORTIUM WHOSE EXPENDITURE WAS VERY LOW AS COMPARED TO APPE LLANT. HE, THEREFORE, ASKED THE APPELLANT TO SHOW CAUSE WHY THE EXPENSES IN RELATION TO TRAVEL AND HOTEL ACCOMMODATION SHOULD NOT BE DISALLOWED. IN RESPONSE TO ABOVE, THE APPELLANT REPLY IN PARA 3 OF THE SUBMISSION DATED 05.02.2014. IN REPLY, THE APPELLANT REQUESTED TO PROVIDE FOR THE OPPORTUNITY TO CROSS EXAMINE THE SAID PERSON. THE REQUEST FOR SUCH CROSS - EXAMINATION WAS ALSO MADE VIDE SEVERAL SUBMISSIONS FURNISHED EARLIER. THE APPELLANT ALSO FURNISHED THE PAGE | 120 LEDGER OF TRAVELLING AND CONVEYANCE VIDE SUBMISSIO N DATED 12.02.2014. THE LD. AO HOWEVER DID NOT CONSIDER THE REQUEST OF THE APPELLANT AND PASSED DRAFT ASSESSMENT ORDER WHEREIN THE AMOUNT OF EXPENDITURE INCURRED BY M/S PDOC OF RS.32,62,098/ - WAS ALLOWED AND THE BALANCE OF RS. 6,61,067,087/ - WAS DISALLOWED BY THE LD. AO. THEREAFTER, THE APPELLANT RAISED AN OBJECTION BEFORE THE LD. AO AGAINST THE DRAFT ASSESSMENT ORDER . THE DRP CONSIDERED THE SUBMISSION OF THE APPELLANT AND DIRECTED THE LD. AO TO CONDUCT VERIFICATION AND GRANT CONSEQUENTIAL RELIEF TO THE AP PELLANT, IF ANY. THE APPELLANT ALSO PRODUCED ORIGINAL BILLS BEFORE THE LD. AO. HOWEVER THE LD. AO DID NOT RELY UPON THE BILLS ALLEGING THAT THE APPELLANT WAS INVOLVED IN PRACTICE OF RECEIVING BOGUS BILLS AND MADE ADDITION OF RS. 5,39,23,603/ - U/S 37 OF THE ACT AFTER REDUCING THE AMOUNT RELATED TO TRANSFER PRICING. 102 . LEARNED AUTHORISED REPRESENTATIVE REFERRED TO THE NATURE OF EXPENDITURE INCURRED SUCH AS CONVEYANCE, ACCOMMODATION IN HOTELS, FLIGHTS, AND TRAVELS. HE FURTHER REFERRED TO THE NATURE OF EACH OF TH E EXPENDITURE AND STATED THAT THIS EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS. HE SUBMITTED THAT THE COMPLETE DETAILS OF SUCH EXPENSES INCLUDING THE SUPPORTING VOUCHERS ET CETERA WERE PRODUCED BEFORE THE LEARNED ASSESSI NG OFFICER. HOWEVER, THE LEARNED ASSESSING OFFICER DISALLOWED THE ABOVE EXPENDITURE STATING THAT THE CONTRACTOR HAS INCURRED THE LESSER EXPENDITURE, THEREFORE CERTAIN EXPENDITURE INCURRED BY THE ASSESSEE IS EXCESSIVE IN NATURE, AND HENCE HE DISALLOWED THE ABOVE SUM. HE SUBMITTED THAT NO DEFECTS OR INFIRMITY IS FOUND IN THE DETAILS SUBMITTED BY THE ASSESSEE AND THEREFORE SUCH DISALLOWANCE CANNOT BE MADE. 103 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER AND REITER ATED THE FINDINGS. 104 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ON CAREFUL ANALYSIS OF THE TOTAL EXPENDITURE E INCURRED BY THE APPELLANT UNDER THIS HEAD , IT IS PAGE | 121 APPARENT THAT ASSESSEE HAS INCURRED THE EXPENDITURE ON CONVENIENCE, ACCOMMODATION HOTELS, FLIGHTS AND TO SEND TRAVELS AS UNDER AS UNDER PARTICULARS TOTAL AMOUNT OF EXPENDITURE EXPENDITURE CONSIDERED ON TRANSFER PRICING BALANCE UNDER THIS HEAD CONVEYANCE 8,44,340/ - - 8,44,340/ - ACCOMMODATION HOTELS 3,54,66,253/ - - 3,54,66,253/ - FLIGHTS 1,28,97,471/ - - 1,28,97,471/ - TOUR & TRAVELS 2,02,21,121/ - 1,22,43,484/ - 79,77,637/ - TOTAL 6,94,29,185/ - 1,22,43,484/ - 5,71,85,701/ - 105 . COMMON WEALTH PROGRAMME 2010 WAS HELD FOR THE FIRST TIME IN INDIA WHERE 71 NATIONS COMMONWEALTH TEAMS HAD PARTICIPATED. SINCE, THE COMMON WEALTH PROGRAMME WAS BEING ORGANIZED FOR THE FIRST TIME, THE APPELLANT CONTRACTED WITH ITS ASSOCIATED ENTERPRISE G L EVENT SERVICE FRANCE FOR TAKING VARIOUS EQUIPMENTS ON LEASE AS WELL AS TECHNICAL SERVICES. AS PER THE AGREEMENT, THE ASSOCIATED ENTERPRISE WOULD SUPPLY TECHNICAL WORKERS, SPECIALIST, AND COORDINATORS FOR THE SITE CONSTRUCTION OF COMMON WEALTH PROGRAMME 2010. SINCE, LARGE NUMBERS OF HIGH QUALITY EQUIPMENTS WERE HIRED FROM ABROAD, FOREIGN EXPERTS HAVING KNOWLEDGE TO ORGANIZE AND OPERATE THOSE EQUIPMENTS WOULD ALSO BE REQUIRED, AND THEREFORE THE APPELLANT HIRED THE FOREIGNERS FOR THE CONSTRICTION ACTIVITIES AT CWG, 2010. ASSESSEE S UBMITTED, LIST OF FOREIGN EXPATRIATES ALONG WITH PAGE | 122 THEIR DESIGNATION AND PASSPORTS NUMBER. THESE FOREIGN EXPERT STAFFS WERE ENGAGED IN CONSTRUCTION AND OTHER ACTIVITIES OF COMMON WEALTH PROGRAMMES. SINCE, THEY WERE HIRED BY THE APPELLANT, ALL THE EXPENSE IN RELATION TO FLIGHT, HOTEL ACCOMMODATION AND TOURS AND TRAVELS OF THE FOREIGN STAFFS WERE INCURRED BY THE APPELLANT. AGREEMENT ALSO PROVIDES THAT THESE EXPENDITURES BE REQUIRED TO BE INCURRED BY THE APPELLANT. ALL THESE EXPENSE ARE SAID TO BE INCURRED FOR BUSINESS PURPOSE. LOOKING AT THE NATURE OF VARIOUS EXPENSES, CONVEYANCE EXPENSES ARE NOMINAL AND THE SAME ARE BEING INCURRED FOR THE BUSINESS PURPOSE. THESE ARE THE EXPENSES INCURRED BY THE EMPLOYEES WORKING IN THE APPELLANT COMPANY AND ARE REIMBURSED BY THE APPELLANT COMPANY TO THE EMPLOYEES AND THEREFORE ARE INCURRED FOR THE PURPOSE OF BUSINESS. THEREFORE, THE DISALLOWANCE CANNOT BE MADE IN THIS REGARDS. WITH RESPECT TO HOTEL CHARGES, APPELLANT HIRED VARIOUS FOREIGN EXPERTS FOR THE CONSTRUCTION AND MAINT ENANCE OF SITE WHERE THE COMMON WEALTH PROGRAMME WAS HELD AND DISMANTLING THE SAME AFTER THE PROGRAMME. SINCE THE FOREIGN STAFFS WERE HIRED BY THE APPELLANT AND AS PER THE AGREEMENT, IT WAS THE DUE RESPONSIBILITY OF APPELLANT TO PROVIDE THEM A PLACE TO STA Y. THEREFORE, THE APPELLANT TOOK VARIOUS RESIDENTIAL BUILDING/ APARTMENTS ON RENT FOR THE RESIDENCE OF FOREIGN STAFF. THE ORIGINAL BILLS WERE DULY PRESENTED BEFORE THE LD. AO. THE AMOUNT FOR THE ACCOMMODATION WAS ALSO PAID THROUGH ACCOUNT PAYEE CHEQUES. TH E FLIGHT EXPENSES ARE THE EXPENDITURE INCURRED BY THE APPELLANT FOR BOOKING FLIGHT OF THE FOREIGN EXPATRIATES THROUGH ITS TRAVEL AGENT M/S SHARDA TRAVELS. THESE EXPENSES ARE DULY SUPPORTED WITH BILLS RECEIVED FROM M/S SHARDA TRAVELS AND PAYMENT WAS MADE TH ROUGH ACCOUNT PAYEE CHEQUE. THESE BILLS ARE THE VALID PROOF IN RESPECT OF FOREIGNERS HIRED BY THE APPELLANT. THE BILLS OF M/S SHARDA TRAVELS AMOUNTING TO RS.20,35,302/ - WERE ALSO SEIZED DURING SEARCH WHICH WERE ACCEPTED BY THE LD. AO AND THE PARTY WAS NOT FOUND TO BE BOGUS. THE TOUR AND TRAVEL EXPENSE INCLUDE THE EXPENDITURE INCURRED FOR THE RENEWAL OF VISA/PASSPORT OF THE FOREIGN STAFFS, PICK UP, AND DROP FACILITY AT PAGE | 123 AIRPORT , THEIR TOUR TO AGRA, AND OTHER PLACES ETC. ALL THESE EXPENSES ARE INCURRED IN CASH . NOW, DEALING WITH THE SUBMISSION, IT IS SUBMITTED THAT THE LD. AO DURING THE ASSESSMENT PROCEEDINGS ASKED THE APPELLANT TO EXPLAIN THE TRANSACTION AMOUNTING TO RS. 97,40,350/ - BASED ON BILLS SEIZED. THE LD. AO MADE COMPARISON BETWEEN THE EXPENDITURE INCU RRED BY THE APPELLANT UNDER THE HEAD TRAVEL AND TRANSPORT & HOTEL ACCOMMODATION WITH OTHER OVERLAY SUPPLIERS AND HELD THAT THE EXPENDITURE INCURRED BY OTHER OVERLAYS WERE MUCH LESS THAN THAT OF APPELLANT. IN THIS REGARDS THE APPELLANT ASKED THE LD. AO TO PROVIDE THE DETAILS OF THE OVERLAYS SUPPLIERS AND THE DETAIL OF THE PURPORTED SIMILAR TRANSACTION FOR CROSS EXAMINATION. HOWEVER LD. AO DID NOT PROVIDE OPPORTUNITY TO CROSS EXAMINE THE THIRD PARTY AND COMPARING THE SAID EXPENDITURE WITH THE EXPENDITURE INCURRED BY PDOC MADE ADDITION OF RS. 5,39,23,603/ - .FURTHER, THE APPELLANT ALSO SUBMITTED THAT THE SHOW CAUSE NOTICE WAS ISSUED ONLY FOR THE AMOUNT OF RS. 97,40,350/ - BUT THE ADDITION WAS MADE FOR RS. 5,39,23,603/ - WHICH IS AGAIN IN VIOLATION OF PRINCIPLE OF NATURAL JUSTICE. ALL THE EXPENDITURE INCURRED BY THE APPELLANT WAS DULY SUPPORTED WITH THE AGREEMENTS, LIST OF FOREIGNERS ALONG WITH THE COPIES OF PASSPORTS AND PASSPORTS NO., ORIGINAL BILLS, PAYMENT DETAILS AND THE COPIES OF LEDGERS ALONG WITH THE NAR RATIONS. THIS SHOWS THAT THE APPELLANT HAD MAINTAINED PROPER DOCUMENTATION AND RECORD OF ALL THE TRANSACTION AND PRODUCED BEFORE THE A.O. TO PROVE THE GENUINENESS OF THE TRANSACTION. THE LD. AO DID NOT FIND ANY REASON TO REJECT THE CLAIM OF THE APPELLANT A ND THEREFORE WITHOUT APPLYING HIS MIND DISALLOWED THE SAID EXPENSES SIMPLY ALLEGING THAT THE APPELLANT IS ENGAGED IN RECEIVING THE BOGUS BILLS. THE ACTION OF THE LD. AO WAS PURELY ON SURMISES AND CONJECTURES. EVEN OTHERWISE EXPENDITURE INCURRED BY M/S PICO DEEPALI OVERLAYS CONSORTIUM IS LESS THAN THE APPELLANT STILL SUCH ALLEGED FACTUM CANNOT FORM THE BASIS FOR DISALLOWING EXPENDITURE INCURRED BY THE APPELLANT UNDER SECTION 37 OF THE ACT. NO ADVERSE INFERENCE CAN BE DRAWN SIMPLY BECAUSE SOME OTHER PARTY HAS PAGE | 124 ALLEGEDLY INCURRED EXPENDITURE LESS THAN THE APPELLANT HAS . THE APPELLANT, BY NO STRETCH OF REASONING, CAN BE REQUIRED TO FOLLOW ON IDENTICAL BUSINESS MODELS TO THAT OF M/S PICO DEPALI OVERLAYS CONSORTIUM, AND THE FAILURE TO DO SO CANNOT BE A CONSIDERATIO N FOR DISREGARDING THE APPELLANTS EXPENDITURE. EVEN OTHERWISE, NONE OF THE EXPENDITURES HAS BEEN INCURRED ON THE RELATED PARTIES OR FOR NON BUSINESS PURPOSES. ON IDENTICAL REASONING, WE ALREADY DELETED DISALLOWANCE OF EXPENDITURE ON PER DIEM EXPENDITURE. ACCORDINGLY WE DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF INR 5 3923603/ BECAUSE OF TRAVELLING AND CONVINCE EXPENDITURE INCURRED BY THE ASSESSEE. ACCORDINGL Y, GROUND NUMBER 8 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 106 . GROUND NUMBER 9 OF THE APPEAL OF THE ASSESSEE IS WITH RESPECT TO THE DISALLOWANCE OF RS. 4 9008835/ MADE TO RELATED PARTY PAYMENTS, WHICH THE LEARNED ASSESSING OFFICER HAS TREATED AS BOGUS EXPEND ITURE. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE LD. AO ASKED THE APPELLANT TO FURNISH THE DETAILS OF TRANSACTION WITH ITS SISTER CONCERN I.E. M/S MEROFORM INDIA PVT LTD AND M/S LITMUS DESIGNS PVT LTD. THE APPELLANT FURNISHED THE DETAILS OF TRANSACT ION WITH M/S MEROFORM INDIA PVT LTD ALONG WITH COPY OF LEDGER ACCOUNT AND COPIES OF BILLS VIDE SUBMISSION DATED 20.02.2014. THE APPELLANT THE DETAILS OF TRANSACTION WITH M/S LITMUS DESIGNS PVT LTD ALONG WITH COPY OF LEDGER ACCOUNT AND COPIES OF BILLS VIDE SUBMISSION DATED 26.02.2014. HOWEVER, THE LD. AO IGNORING THE ABOVE DETAILS AND DOCUMENTS SUBMITTED BY THE APPELLANT HELD IN DRAFT ASSESSMENT ORDER THAT COMPLETE BOOKS OF A/C AND SUPPORTING DOCUMENTS IN RESPECT OF M/S MEROFORM INDIA PVT LTD AND M/S LITMU S DESIGNS HAS NOT BEEN SUPPLIED . HE FURTHER HELD THAT NOTICE U/S 131(1) WAS ISSUED TO THE DIRECTORS OF THE APPELLANT COMPANY AS WELL AS DIRECTORS OF SISTER CONCERN BUT NO ONE APPEARED TILL THE DATE OF HEARING. THEREFORE, THE LD. AO DISALLOWED THE TRANSACT ION DONE WITH THE RELATED PARTIES. THEREAFTER THE APPELLANT RAISED AN OBJECTION BEFORE THE DRP AGAINST THE DRAFT ASSESSMENT ORDER PASSED BY THE PAGE | 125 LD. AO. THE APPELLANT FURNISHED ALL THE COPIES OF LEDGER AND BILL, WHICH WERE DULY FURNISHED BEFORE THE AO AND FURNISHED THE COPIES OF THE REPLIES OF THE DIRECTORS TO WHOM NOTICES U/S 131, WAS SERVED. HOWEVER, THE DRP DID NOT CONSIDER THE REPLY OF THE APPELLANT AND PLACED RELIANCE ON THE LD. AOS FINDING. THE LD. DRP DECLINED TO INTERFERE WITH THE FINDING OF THE LD . AO. THEREAFTER, THE APPELLANT PRODUCED ORIGINAL BILLS BEFORE THE LD. AO. HOWEVER, THE LD. AO DID NOT RELY ON THE BILLS AND HELD THAT THE APPELLANT WAS INVOLVED IN PRACTICE OF RECEIVING BOGUS BILLS. HE, THEREFORE, MADE ADDITION OF RS. 4,90,08,835/ - ON ACC OUNT FOR BOGUS RELATED PARTY TRANSACTION U/S 40(2)(B)/37 OF THE ACT. 107 . THE LEARNED AUTHORISED REPRESENTATIVE REFERRED TO THE VARIOUS EXPENDITURE INCURRED BY THE ASSESSEE AND PAYMENT MADE TO THE RELATED PARTIES. HE SUBMITTED THAT 1 OF THE PARTY WAS ASSESSED BY THE SAME WAS ASSESSING OFFICER IS THAT OF THE APPELLANT AND SUCH INCOME WAS ALREADY OFFERED BY THAT PARTY IN ITS RETURN OF INCOME AND HAS PAID TAX DUE THEREON. ACCORDING TO HIM THE RECIPIENT OF THE INCOME HAS DULY SUFFERED TAX IN THE HANDS OF THE RECI PIENT AT THE SAME RATE AND THEREFORE DISALLOWANCE UNDER SECTION 40A (2) CANNOT BE MADE. HE FURTHER STATED THAT NO COMPARABLE CASES IS BROUGHT ON RECORD BY THE LEARNED ASSESSING OFFICER AND THEREFORE THE DISALLOWANCE CANNOT BE MADE HE REFERRED TO THE SEVER AL JUDICIAL PRECEDENT ON THE ISSUE. HE FURTHER STATED THAT THERE IS NO EVASION OF TAX AT THE APPELLANT COMPANY AS WELL AS THE RECIPIENT COMPANY ARE PAYING TAXES ON THE SAME DATE. HE FURTHER STATED THAT THE LEARNED ASSESSING OFFICER REJECTED MERELY ON THE SUSPICION AND THEREFORE THE DISALLOWANCE CANNOT BE MADE. 108 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER AND STATED THAT WHEN THE PAYMENTS HAVE BEEN MADE TO THE RELATED PARTY IT IS THE ONUS OF THE AS SESSEE TO SHOW THAT THESE ARE NOT EXCESSIVE AND UNREASONABLE. HE THEREFORE SUBMITTED THAT THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER IS IN ORDER. PAGE | 126 109 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES . IN THE PRESENT CASE ASSESSEE HAS MADE PAYMENTS TO FOLLOWING PARTIES COVERED U/S 40 A (2) ( B ) OF THE ACT. A . MEROFORM INDIA PRIVATE LIMITED : RS. 4,74,50,848/ - B . LITMUS DESIGNS PVT LTD : RS. 15,57,987/ - TOTAL RS.4,90,08,835/ - 110 . AS PER THE DETAILS SUBMITTED APPELLANT DURING THE YEAR HAD MADE FOLLOWING PAYMENTS TO THE M/S MEROFORM INDIA PRIVATE LIMITED U/S 40A(2)(B) OF THE ACT: NATURE OF TRANSACTION AMOUNT OF EXPENDITURE RENTAL 6,15,93,044/ - PURCHASES OF GOODS 50,00,000/ - OTHER SERVICES AVAILED 50,00,000/ - REIMBURSEMENT OF EXPENSE 1,23,20,033/ - TOTAL 8,39,13,077/ - 111 . THE LD. AO MADE ADDITION OF RS. 4,74,50,848/ - BY REDUCING THE ABOVE AMOUNT BY RS. 3,64,62,229/ - AS THE ADDITION FOR THE SAME HAS BEEN MADE UNDER PARA 16 OF THE ASSESSMENT ORDER. IN REGARDS TO ABOVE, IT WAS SUBMITTED THAT M/S MEROFORM INDIA PRIVATE LIMITED WAS ASSESSED BY THE SAME ASSESSING OFFICER AS THAT OF APPELLANT. THE IMPUGNED SUM PAID TO MEROFORM INDIA PRIVATE LIMITED WAS OFFERED AS INCOME DURING THE YEAR OF RECEIPT AND PAID TAXES ACCORDINGLY. COPY OF THE ORDER PASSED BY DELHI TRIBUNAL IN THE CASE OF MEROFORM INDIA PVT LTD IS ALSO SUBMITTED. THUS THE SAID SUM UNDER SECTION 40 A(2)(B) HAS DULY SUFFERED TAX IN THE HAND OF RECIPIENT AT THE SAME PAGE | 127 RATE OF TAXES . TO DISALLOW A SUM, WHICH HAS BEEN PAID TO A SISTER CONCERN FOR THE GOODS & SERVICES PROCURED AND REIMBURSEMENT OF EXPENSES WITHOUT PROVING THAT THE EXPENSES INCURRED ARE, EX CESSIVE IS INCORRECT. ADMITTEDLY, THE AO HAS NOT DOUBTED THE GENUINENESS OF THE PAYMENTS INVOLVED. HE HAS INVOKED THE PROVISIONS OF SECTION 40A(2) HOLDING THAT THE BILL PRODUCED CANNOT BE RELIED UPON AS THE ASSESSEE COMPANY WAS INVOLVED IN THE PRACTICE OF RECEIVING BOGUS BILLS. THE AO HAS HOWEVER, NOT BROUGHT ON RECORD ANY BASIS OR COMPARABLE CASES TO PROVE THAT THE PAYMENTS MADE BY APPELLANT COMPANY TO ITS SISTER CONCERN IS IN EXCESS OF THE FAIR MARKET VALUE OF THE SERVICES RENDERED BUT HAS PROCEEDED PURE LY ON ASSUMPTIONS. SUCH AN ACTION ON THE PART OF THE AO IS UNSUSTAINABLE IN THE EYES OF LAW. HONOURAB L E DELHI HIGH COURT IN CIT VS. MODI REVLON (PVT.) LTD. (2012) 78 DTR 342 (DELHI) HAS HELD THAT IN ORDER TO DETERMINE WHETHER THE PAYMENT IS NOT SUSTAINABLE, THE AO HAS TO FIRST RETURN A FINDING THAT THE PAYMENT MADE IS EXCESSIVE, UNDER SECTION 40 - A (2) OF THE INCOME TAX ACT. I F IT IS FOUND TO BE SO, THEN THE AO HAS TO DETERMINE WHAT CONSTITUTES THE FAIR MARKET VALUE OF THE SERVICES RENDERED AND DISALLOW THE DIFFERENCE BETWEEN WHAT IS CLAIMED AND WHAT IS SUCH VALUE DETERMINED (AS FAIR MARKET VALUE) . A PART FROM THE FACT THAT NO SUCH EXERCISE WAS UNDERTAKEN BY THE AO, THE COURT SEES THAT THE ASSESSMENT ORDER WENT OFF INTO A TANGENT, IN FOLLOWING A METHOD THAT WAS CLEARLY INAPPLICABLE . WE DO NOT SEE ANY REASON TO MULTIPLY OTHER JUDICIAL PRONOUNCEMENT S ON THIS ISSUE. IN THE INSTANT CASE , SINCE BOTH THE APPELLANT COMPANY AS WELL AS MEROFORM INDIA PVT LT D ARE ASSESSED TO INCOME TAX BY SAME ASSESSING OFFICER AND THE TOTAL AMOUNT RECEIVED FROM THE APPELLANT WAS DULY OFFERED TO TAX BY M/S MEROFORM INDIA PVT LTD, IT CANNOT BE SAID THAT THE AMOUNT WAS PAID BY THE APPELLANT AT AN UNREASONABLE RATE TO EVADE INCOME TAX. FINANCE ACT, 1968, CIRCULAR NO. 6 - P DATED 6.7.1968 MAKES CLEAR THAT THE PROVISIONS UNDER SECTION 40A (2) ARE MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO RELATIVES AND ASSOCIATE CONCER NS AND SHOULD NOT BE APPLIED IN A PAGE | 128 MANNER THAT WILL CAUSE HARDSHIP IN BONAFIDE CASES. WHERE THERE IS NO EVASION OF TAX BY THE ASSESSEE, NO DISALLOWANCE CAN BE MADE U/S 40A(2). HONOURABLE GUJARAT HIGH COURT IN CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. (2 015) 233 TAXMAN 532 (GUJ) HAS THAT 13. AS HAS BEEN FOUND BY US IN THE PRECEDING PARA OF THIS JUDGMENT THAT THE RESPONDENT COMPANY AS WELL AS THE PARENT COMPANY, BOTH ARE ASSESSED TO INCOME TAX AT THE MAXIMUM MARGINAL RATE AND, THEREFORE IT CANNOT B E SAID THAT THE SERVICE CHARGE IS PAID TO THE RESPONDENT COMPANY AT A UNREASONABLE RATE TO EVADE INCOME TAX. EVEN THE LEARNED COUNSEL MR. BHATT FOR THE REVENUE DOES NOT DISPUTE THIS FACT. 14. WE ARE IN AGREEMENT WITH THE OBSERVATIONS MADE BY THE TRIBUNA L AS WELL AS THE RATIO LAID DOWN BY THE COORDINATE BENCH OF THIS COURT IN THE CASE OF (1) COMMISSIONER OF INCOME TAX - I VS ENVIRO CONTROL ASSOCIATED (P) LTD., AS REPORTED AT (2014) 43 TAXMANN.COM 291 (GUJARAT); (2) COMMISSIONER OFINCOME TAX - III VS ASHOK J P ATEL, AS REPORTED AT (2014) 43 TAXMANN. COM 227 (GUJARAT) AND (3) COMMISSIONER OF INCOME TAX VS INDO SAUDI SERVICES (TRAVEL) P. LTD. AS REPORTED AS (2009) 310 ITR 306 (BOM). 15. IT IS PERTINENT TO NOTE THAT SO FAR AS THE CIRCULAR DATED 6.7.1968 IS CONCERNED, IT MAKES CLEAR THAT THE PROVISIONS UNDER SECTION 40A (2) AND PARTICULARLY WITH REGARD TO THE TRANSACTION BETWEEN THE RELATIVES AND ASSOCIATES IS CONCERNED, THE SAME SHALL BE TREATED AS BONA FIDE CASE UNLESS THE OFFICER PAGE | 129 FINDS IT THAT ONE OF THEM IS TRYING TO EVADE PAYMENT OF TAX. CONSIDERING THE OVERALL FACTS OF THE CASE AND THE RATIO LAID DOWN BY THE HONBLE APEX COURT, WE ARE OF THE OPINION THAT THE APPEALS ARE MERITLES S AND THE SAME DESERVE TO BE DISMISSED AND ACCORDINGLY DISMISSED 112 . IN THE PRESENT CASE THE LD AO HAS FAILED TO BRING ON RECORD ANY EVIDENCE OR CITE ANY COMPARABLE CASES TO PROVE THAT THE PAYMENT MADE BY THE APPELLANT COMPANY TO ITS SISTER CONCERNS FOR THE AFORESAID SERVICES WAS EXCESSIV E OR NOT AT ARMS LENGTH. THE A O HAS MERELY RESORTED TO AND SUSPICIONS IN MAKING THE IMPUGNED DISALLOWANCE U/S 40A(2). ALL THE ORIGINAL BILLS, LEDGER ACCOUNTS, AND BANK STATEMENT WERE ALREADY ON RECORD BEFORE THE A.O. THE TRANSACTION WAS ALSO ASSESSED IN THE CASE OF MEROFORM INDIA PVT LTD WHERE THE RECEIPTS FROM APPELLANT WERE DULY ACCEPTED AND OFFERED TO TOTAL INCOME BY THE MEROFORM INDIA PVT LTD. THEREFORE, TH E ACTION OF THE AO IN RESORTING MERELY TO SUSPICION INSTEAD OF PROCEEDING WITH MATERIAL ON RECORD AND TANGIBLE EVIDENCE IS BAD IN LAW AND DESERVES TO BE QUASHED. IN LIGHT OF THE JUDICIAL PRONOUNCEMENTS CITED SUPRA, IT IS APPARENT THAT IN THE INSTANT CAS E, THE APPELLANT HAS DULY EXPLAINED THE NATURE OF SERVICES RENDERED BY MEROFORM INDIA PRIVATE LIMITED AGAINST WHICH THE IMPUGNED PAYMENTS OF SERVICES CHARGES WERE MADE BY THE APPELLANT COMPANY. FURTHER, THE APPELLANT AND MEROFORM INDIA PVT LTD , BEING ASSES SED WITH THE SAME A.O., THE REVENUE AUTHORITIES DULY ACCEPTED THE SERVICES RENDERED AND THE AMOUNT RECEIVED BY THE MEROFORM INDIA PVT LTD. THE APPELLANT HAS CLEARLY ESTABLISHED THE NEXUS BETWEEN THE SERVICES CHARGES AND THE PURPOSE OF THE BUSINESS AND THE SAME SHOULD HAVE BEEN ALLOWED BY THE A.O UNLESS THE A.O PROVES BY BRINGING ON RECORD COMPARABLE CASES THAT THE SAME IS NOT AT ARMS LENGTH OR IN EXCESS OF THE FAIR PAGE | 130 MARKET VALUE OF SUCH SERVICES. THE A.O HAS FAILED TO BRING ON RECORD ANY SUCH COMPARABLE CAS E TO PROVE THAT THE AMOUNT PAID BY THE APPELLANT COMPANY IS UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE OR THE BENEFITS DERIVED BY T HE APPELLANT. FURTHER, THE APPELLANT HAS PAID RS. 1,23,20,033/ - FOR THE REIMBURSEMENT OF THE SALARIES OF THE STAFF PAID BY M/S MEROFORM INDIA PVT LTD ON BEHALF OF THE APPELLANT. THE REIMBURSEMENT WERE MADE AT COST TO COST BASIS WITHOUT ANY MARK UP, THEREFO RE, REIMBURSEMENT OF ACTUAL EXPENDITURE TO THE SISTER CONCERN CANNOT BE DISALLOWED U/S 40A(2). THEREFORE, THE DISALLOWANCE MADE BY THE A.O U/S 40A(2) IS DELETED. 113 . THE APPELLANT PAID THE AMOUNT OF RS. 26,55,954/ - TO M/S LITMUS DESIGNS PVT LTD FOR PURCHASE S OF CONSUMABLES. DURING THE COURSE OF SEARCH U/S 132 IN THE CASE OF APPELLANT, THE BILLS OF PURCHASE VALUING RS. 15,57,987/ - WAS SEIZED WHICH WAS ACCEPTED U/S 292C OF THE ACT BY THE AO. THE APPELLANT FURNISHED ORIGINAL BILLS, COPIES OF LEDGER ACCOUNT AND THE BANK STATEMENT BEFORE THE LD. AO TO PROVE THE GENUINENESS OF THE TRANSACTION. HOWEVER, THE LD. AO MADE ADDITION OF RS. 15,57,987/ - ALLEGING THAT BILLS COULD NOT BE RELIED UPON AS THE APPELLANT WAS ENGAGED IN THE PRACTICE OF RECEIVING BOGUS BILLS. IN RE GARDS TO ABOVE, HE REASON PROVIDED BY THE LD. AO IS NOT ACCEPTABLE FOR MAKING ADDITION U/S 40A(2)(B). THE LD. AO IS REQUIRED TO PROVIDE THE COMPARABLE CASES THAT THE SAME IS NOT AT ARMS LENGTH OR IN EXCESS OF THE FAIR MARKET VALUE OF SUCH SERVICES, WHICH WAS NOT DONE. FURTHER, THE ADDITION MADE BY THE LD. AO OF RS. 15,57,987/ - AGAINST THE BILL SEIZED INSTEAD OF PAID AMOUNT OF RS. 26,55,954/ - SHOWS THE NON - APPLICATION OF MIND BY THE AO. THE LD. AO DID NOT VERIFY THE AMOUNT OF ACTUAL PAYMENT OF RS. 26,55,954 / - , THE DETAILS OF WHICH WERE ALREADY ON RECORD BEFORE THE LD. AO. HE WAS ONLY CONCERNED WITH THE BILL SEIZED VALUE OF RS. 15,57,987/ - . THIS VERY CLEARLY SHOWS THAT THE A.O. DID NOT PROCEED IN ACCORDANCE WITH LAW. ACCORDINGLY, FOR THE REASONS PROVIDED IN DELETING THE DISALLOWANCE PAGE | 131 IN CASE OF MEROFORM P LTD, WE ALSO DIRECT THE LD AO TO DELETE THE ABOVE DISALLOWANCE. ACCORDINGLY GROUND NO 9 OF THE APPEAL IS ALLOWED. 114 . GROUND NO 10 OF APPEAL IS AGAINST THE ADDITION OF RS 1,22,696/ - . DURING THE SEARCH U/S 132 OF THE ACT IN THE CASE OF APPELLANT, THE CASHBOOK OF THE APPELLANT COMPANY WAS SEIZED BY THE INCOME TAX AUTHORITIES. IN THE SEIZED CASH BOOK, THE LD. AO OBSERVED THAT O N CERTAIN DATES THE CASH BALANCE IN THE BOOKS IS NEGATIVE AS UNDER : A) 9TH APRIL 2010 : RS.15,000/ - B) 18TH MAY 2010 : RS.2,767/ - C) 8TH OCT 2010 : RS.1,04,929/ - 115 . APPELLANT SUBMITTED THE REPLY ON 02.01.2013 WHERE HE EXPLAINED THAT THE NEGATIVE BALANCE IN THE BOOKS OF ACCOUNT WAS AN INADVERTENT CLERICAL ERROR WHILE MAKING ENTRIES IN THE BOOKS OF ACCOUNTS AND THE SAME WAS CORRECTED IN THE FINAL BOOKS OF ACCOUNTS OF AP PELLANT FO R THE F.Y. 2010 - 11. THE APPELLANT ALSO PRODUCED THE FINAL CASHBOOK BEFORE THE LD. AO. HOWEVER, THE LD. AO HAD NEVER GONE THROUGH THE AFORESAID REPLY OF THE APPELLANT AND AGAIN ISSUED NOTICE DATED 13.12.2012 AND NOTICE DATED 24.01.2014. THE AP PELL ANT IN RESPONSE TO ABOVE QUERY BY THE LD. AO TO REFER THE REPLY DATED 02.01.2013. SUBSEQUENTLY THE LD. AO PASSED DAO AND HELD THE FOLLOWING: THE REPLY OF THE ASSESSEE CANNOT BE ACCEPTED AS THERE IS NO ROOM FOR JUSTIFICATION AND REASON OF ERRORS IN THE B OOKS OF ACCOUNTS OF A MULTINATIONAL COMPANY LIKE M/S G.L. LITMUS. IN ADDITION, IF SUCH EXCUSE AND REASON OF ANY ASSESSEE ON ANY ISSUE MAY BE ACCEPTED THAN IN PAGE | 132 CASE OF EVERY ANOMALY OR THE AFTERTHOUGHT PRESENTATION OF THE DOCUMENTS OR THE INFORMATION BY ANY PERSON BEFORE ANY STATUTORY AUTHORITY SHALL BE PARDONABLE AND NO FACT WILL REMAIN WRONG ON THE FACE OF IT. ALSO THERE IS NO SECTION IN THE I.T. ACT, 1961 WHICH ALLOWS TO PROVIDE RELIEF TO THE ASSESSEE ON THE BASIS OF PRESUME MISTAKE OR ERROR WHICH IS ONLY REVEALED AFTER QUESTIONING THE AUTHENTICITY OF THE SAME BY THE REVENUE. HENCE, RS.1,22,696/ - IS BEING ADDED TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION U/S 69C BEING UNEXPLAINED EXPENDITURE. 116 . LD DRP DID NOT INTERFERE IN THE ORDER OF THE LD AO. LD. AO PASSED THE ASSESSMENT ORDER BY MAKING ADDITION OF RS.1,22,696/ - TO THE TOTAL INCOME OF THE APPELLANT COMPANY ALLEGING AS UNEXPLAINED EXPENDITURE U/S 69C OF THE ACT. 117 . LD AR SUBMITTED THAT THE APPELLANT DULY PROVIDED THE REASON FOR THE CASH BALANCE BEING NEGATIVE ON THE DATE MENTIONED ABOVE AND PRODUCED THE FINAL CASHBOOK WHICH WAS A PART OF AUDITED BOOKS OF ACCOUNTS. FURTHER THE ERROR IN THE CASH BOOK SEIZED IS DULY EXPLAINED AS UNDER: A) 9TH APRIL 2010 : RS.15,000/ - THE ERROR WA S THAT THE ACTUAL DATE OF TRANSACTION WAS 10TH APRIL 2010 BUT IT WAS WRONGLY RECORDED IN BOOKS AS 9TH APRIL 2010. THE COMPANY HAD NO CASH IN HAND AT THE BEGINNING OF THE YEAR. THE AMOUNT OF RS.50,000/ - WAS WITHDRAWN ON 10TH APRIL 2010 OUT PAGE | 133 OF WHICH THE SUM OF RS. 15,000/ - WAS PAID. HOWEVER, IT WAS ONLY DUE TO THE WRONG ENTRY OF DATE THAT THE CASH BALANCE BECAME NEGATIVE. B) 18TH MAY 2010: RS.2,767/ - SOME OF THE ENTRIES IN THE CASHBOOK WERE RECORDED BY THE ACCOUNTANT WHICH WERE NOT KNOWN TO HIM. THE SAME WAS IDENTIFIED WHILE FINALISING THE BOOKS AND FOUND THAT SUCH ENTRIES HAD NO RELATION WITH THE APPELLANT COMPANY. THUS THOSE ENTRIES WERE DULY REMOVED FROM THE FINAL CASH BOOK. C) 8TH OCT 2010 : RS.1,04,929/ - PROVIDES FOR THE ENTRIES DATED 08.10.2010 OF THE SEIZED CASH BOOK. THE ACCOUNTANT RECORDED THE ENTRIES OF RS.10,00,000/ - AND RS.19,78,000/ - AS PER DIEM ALLOWANCES WHICH CLEARLY SHOWS THAT THE ENTRIES WERE MADE BY THE ACCOUNTANT ON BULK AT ROUGH ESTIMATION. LATER WHILE FINALISING THE BOOKS, THE ENTRIES WERE DULY RECORDED AS DAILY ALLOWANCES PAID INDIVIDUALLY STATING THE NAME OF FOREIGNERS ALONG WITH THE PERIOD AND NO. OF DAYS FOR WHICH THE PAYMENT WAS MADE IN THE NARRATION (REFER PAGE 396 - 399 OF P/B VII) . WHILE DOING SO, THE DIFFERENCE THAT MIGHT HAVE ARISEN DUE TO THESE WAS DULY RECTIFIED. THIS WAS ALSO NOTHING BUT THE CLERICAL ERROR. PAGE | 134 HENCE, THE REASONS FOR NEGATIVE CASH BALANCE WERE ONLY DUE TO THE AFORESAID INADVERTENT CLERICAL ERROR MADE WHILE ACCOU NTING FOR THE SAME WHICH GOT RECTIFIED AT THE TIME OF FINALIZATION . FROM THE ABOVE, IT IS CLEAR THAT THE APPELLANT DID NOT MAKE ANY FRESH ENTRIES IN THE CASH BOOK. THE ENTRIES IN THE CASH BOOK WERE ONLY RECTIFIED AT THE TIME OF FINALIZATION OF ACCOUNTS A S PER THE CLERICAL ERRORS IDENTIFIED BY THE AUDITORS AND ON THEIR INSTRUCTIONS. FURTHER, PARA 9(C) OF THE FORM 3CD ENCLOSED AT PAGE 111 132 OF PAPERBOOKII AND EXHIBIT 1 ENCLOSED AT PAGE 123 OF P/B II CLEARLY STATES THAT THE CASH BOOK WAS EXAMINED BY T HE AUDITORS DURING THE COURSE OF AUDIT. AS PER THE AUDITED FINANCIALS, THE CASH BALANCE RECORDED IN THE BOOKS OF ACCOUNTS WAS OF RS.1,44,075/ - WHICH IS IN ACCORDANCE WITH THE CASH BOOK SUBMITTED AT PAGE 301 TO 474 PAPERBOOKVII. THE APPELLANT ALSO SUBMITT ED THE SAME CASH BOOK DURING THE COURSE OF ASSESSMENT PROCEEDINGS. FURTHER, IT IS ALSO SUBMITTED THAT SEARCH WAS CONDUCTED AT THE MID OF THE YEAR ON 19.10.2010. THE CASH BOOK WAS SEIZED ON THE DATE OF SEARCH AND THE NEGATIVE CASH BALANCE DUE TO CLERICAL ERROR SHOWING PAGE | 135 NEGATIVE CASH BALANCE OF RS.1,22,696/ - WAS ALSO THE PART OF SEIZED CASH BOOK. HENCE, THE NEGATIVE CASH BALANCE FOUND IN THE SEIZED CASH BOOK COULD NOT BE THE BASIS FOR ADDITION AS THE ACCOUNTS OF THE APPELLANT COMPANY WERE INCOMPLETE ON THE DATE OF SEARCH AND THE AUDIT WAS PENDING WHICH WAS TO BE DONE ONLY AFTER THE END OF THE FINANCIAL YEAR. HENCE, THE ADDITION MADE BY THE LD. AO ON THESE GROUNDS COULD NOT BE ACCEPTED AS APPELLANT COMPANY HAD DULY CORRECTED ALL THE CLERICAL ERRORS AS PER T HE IDENTIFICATION AND INSTRUCTION BY THE AUDITORS DURING THE COURSE OF AUDIT. THEREFORE, IT IS HUMBLY PRAYED BEFORE YOUR HONOURS TO DELETE THE ADDITION OF RS.1,22,696/ - ON ACCOUNT OF NEGATIVE CASH BALANCE MADE U/S 69C OF THE ACT. 118 . LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 119 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ON CAREFUL READING OF THESE ORDERS OF THE LOWER AUTHORITIES WE FOUND THAT THE CASHB OOK OF THE ASSESSEE SHOWED NEGATIVE BALANCE ON CERTAIN DAYS AND THEREFORE THE ADDITION IS MADE OF SUCH NEGATIVE BALANCE AS EXPENDITURE HAVE BEEN INCURRED BY THE ASSESSEE WITHOUT HAVING KNOWN SOURCE OF SUCH INCOME. WE HAVE ALSO CONSIDERED THE EXPLANATION G IVEN BY THE ASSESSEE BUT WE ARE NOT CONVINCED. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LEARNED ASSESSING OFFICER ON THIS ISSUE. GROUND NUMBER 10 OF THE APPEAL OF THE ASSESSEE IS DISMISSED PAGE | 136 120 . GROUND NO 11 OF THE APPEAL IS AGAINST DISALLOWANCE ON ACCOUNT OF REVENUE EXPENDITURE OF RS 1,18,24,175/ - TREATED AS CAPITAL EXPENDITURE . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO ALLEGED THAT THE FOLLOWING EXPENDITURE AMOUNTING TO RS. 2,16,76,703/ - F OUND FROM THE SEIZED MATERIAL ARE IN THE NATURE OF CAPITAL EXPENDITURE: S. NO. PARTY ITEMS OF PURCHASE AMOUNT(RS.) 1 DAKSH AUTOMATION FIRE DETECTION ALARMS 57,25,400/ - 2 JCB INDIA LTD JCB MACHINE PURCHASE 20,35,463/ - 3 DD MOTOR GYPSY PURCHASE 17,00,946/ - 4 AJS SCALE INTL TRAFFIC CONES 13,87,969/ - 5 GOLDEN FURNISHERS & DECORATORS FURNITURE PURCHASE 12,30,087/ - 6 HABY ENGINEERING FURNITURE 10,71,491/ - 7 NIZAMMUDIN FURNITURES FURNITURE 3,90,094/ - 8 ASSOCIATED BUSINESS COMPUTERS PRINTERS 3,32,325/ - 9 GEMINI HYDRAULICS DYNAMOMETER 2,80,445/ - 10 SAB COMPUTECH COMPUTERS 1,96,875/ - 11 KAMAL CONSTRUCTION MOBILE PHONES 1,42,450/ - 12 SPEED 4 PREFAB CHEMICAL TOILET BLOCKS 71,45,415/ - PAGE | 137 121 . DURING ASSESSMENT PROCEEDINGS ASSESSEE SUBMITTED THE EXPLANATION OF THESE EXPENDITURE AS UNDER : - SL PARTY ITEMS OF PURCHASE AMOUNT (RS.) TREATMENT IN BOOKS OF ACCOUNTS 1 DAKSH AUTOMATION FIRE DETECTION ALARMS 57,25,400/ - THESE FIRE ALARMS WERE DEPLOYED AT VARIOUS PROJECT SITES OF COMMON WEALTH GAMES. THESE ALARMS ARE GENERALLY NOT RE - USABLE AND HAVE A VERY LOW RE - SALE VALUE. THEREFORE AS PER THE METHOD OF ACCOUNTING FOLLOWED BY THE COMPANY, THE PURCHASE COST WAS CLAIMED AS EXPENDITURE AND SCRAP VALUE WAS REDUCED FR OM THE AMOUNT OF EXPENDITURE. 2 JCB INDIA LTD JCB MACHINE PURCHASE 20,35,463/ - CAPITALIZED AND SHOWN UNDER THE HEAD FIXED ASSETS 3 DD MOTOR GYPSY PURCHASE 17,00,946/ - REVENUE EXPENSE UNDER THE HEAD CONSUMABLE PAGE | 138 VEHICLES. THESE GYPSY WERE PURCHASED EXCLUSIVELY FOR THE PURPOSE OF COMMON WEALTH GAMES. FROM DAY ONE THEY WERE INTENDED TO BE SOLD ONCE THE GAMES WERE OVER. THEREFORE, AS PER THE METHOD OF ACCOUNTING FOLLOWED BY THE COMPANY, THE PURCHASE COST WAS CLAIMED AS EXPENDITURE AND SCRAP VALUE WAS REDUCED FROM THE AMOUNT OF EXPENDITURE. 4 AJS SCALE INTL TRAFFIC CONES 13,87,969/ - REVENUE EXPENSE UNDER THE HEAD OPERATING EXPENSE. THESE CONES ARE GENERALLY NO RE - USABLE AND HAVE A VERY LOW RESALE VALUE. THEREFORE AS PER THE METHOD OF ACCOUNTING FOLLOWED BY THE COMPANY, THE PURCHASE COST WAS CLAIMED AS EXPENDITURE AND SCRAP VALUE WAS REDUCED FROM THE AMOUNT OF EXPENDITURE. 5 GOLDEN FURNISHERS & FURNITURE PURCHASE 12,30,087/ - REVENUE EXPENSE UNDER THE HEAD OPERATING PAGE | 139 DECORATORS EXPENSE. THESE CONES ARE GENERALLY NO RE - USABLE AND HAVE A VERY LOW RESALE VALUE. THEREFORE AS PER THE METHOD OF ACCOUNTING FOLLOWED BY THE COMPANY, THE PURCHASE COST WAS CLAIMED AS EXPENDITURE AND SCRAP VALUE WAS R EDUCED FROM THE AMOUNT OF EXPENDITURE. 6 HABY ENGINEERING FURNITURE 10,71,491/ - REVENUE EXPENSE UNDER THE HEAD OPERATING EXPENSE. THESE CONES ARE GENERALLY NO RE - USABLE AND HAVE A VERY LOW RESALE VALUE. THEREFORE AS PER THE METHOD OF ACCOUNTING FOLLOWED B Y THE COMPANY, THE PURCHASE COST WAS CLAIMED AS EXPENDITURE AND SCRAP VALUE WAS REDUCED FROM THE AMOUNT OF EXPENDITURE. 7 NIZAMMUDIN FURNITURES FURNITURE 3,90,094/ - REVENUE EXPENSE UNDER THE HEAD OPERATING EXPENSE. THESE CONES ARE GENERALLY NO RE - USABLE A ND HAVE A VERY LOW RESALE VALUE. THEREFORE AS PER THE METHOD OF ACCOUNTING PAGE | 140 FOLLOWED BY THE COMPANY, THE PURCHASE COST WAS CLAIMED AS EXPENDITURE AND SCRAP VALUE WAS REDUCED FROM THE AMOUNT OF EXPENDITURE. 8 ASSOCIATED BUSINESS COMPUTERS PRINTERS 3,32,325/ - CAPITALIZED AND SHOWN UNDER THE HEAD FIXED ASSETS 9 GEMINI HYDRAULICS DYNAMOMET ER 2,80,445/ - REVENUE EXPENSE UNDER THE HEAD OPERATING EXPENSE. THESE CONES ARE GENERALLY NO RE - USABLE AND HAVE A VERY LOW RESALE VALUE. THEREFORE AS PER THE METHO D OF ACCOUNTING FOLLOWED BY THE COMPANY, THE PURCHASE COST WAS CLAIMED AS EXPENDITURE AND SCRAP VALUE WAS REDUCED FROM THE AMOUNT OF EXPENDITURE. 10 SAB COMPUTECH COMPUTERS 1,96,875/ - THE NATURE OF ASSET WAS NOT COMPUTERS INSTEAD THE SAME WAS IN THE NATURE OF DELINK CAT 6 BEING A COMPUTER PART. ACCORDINGLY THE SAME HAS BEEN SHOWN UNDER THE HEAD OVERHEADS - REPAIRS AND PAGE | 141 MAINTENANCE 11 KAMAL CONSTRUCTION MOBILE PHONES 1,42,450/ - CAP ITALIZED AND SHOWN UNDER THE HEAD FIXED ASSETS 12 SPEED 4 PREFAB CHEMICAL TOILET BLOCKS 71,45,415/ - CHEMICAL TOILET BLOCKS WERE NOT ASSETS OWNED BY GLLE, INSTEAD THE SAME WERE RENTED BY GLE FROM THE PARTY. 122 . HOWEVER, THE LD. AO REJECTED THE REPLY AND ADDED ALL THE ABOVE EXPENDITURE TO THE TOTAL INCOME OF THE ASSESSEE AS CAPITAL EXPENDITURE. THE ASSESSEE FILED OBJECTION BEFORE LD DRP CONFIRMED THE FINDINGS OF THE LD AO BUT REMITTED TO AO FOR VERIFICATION. SUBSEQUENTLY, THE LD. AO CONSIDERED THE REPLY OF THE LD. AO AND REDUCED THE AMOUNT OF RS.2,16,76,703/ - BY RS. 98,52,528 / - AND MADE PROTECTIVE ADDITION OF RS. 1,18,24,175 / - U/S 37 OF THE ACT. 123 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE APPELLANT COMPANY IS AN EVENT MANAGEMENT COMPANY. ALL THE ABOVE ITEMS WERE PURCHASED AS A PART OF ORGANIZING THE EVENT AND WERE UTILIZED IN THE EVENT ONLY. IN AN EVEN MANAGEMENT ORGANIZATION, THERE IS REQUIREMENT OF LARGE NUMBER OF ELECT RICAL EQUIPMENTS, FURNITURE AND FIXTURES AND OTHER CONSUMABLES. THESE TYPES OF ITEMS ARE EITHER TAKEN ON HIRE OR PURCHASED BY SUCH COMPANY. HE FURTHER SUBMITTED THAT APPELLANT IS AN ESPECIALLY INVOLVED IN HALL/SITE DESIGN AND DECORATION. SO, VARIOUS TYP ES OF EXPENDITURE IN RELATION TO NUMEROUS OF ELECTRICAL EQUIPMENTS LIKE LIGHTS & BULBS, SWITCHES, FIRE ALARMS, SMOKE AND HEAT DETECTORS ARE INCURRED. ALL MOST OF THESE ELECTRICAL EQUIPMENTS DAMAGES AND BECOMES SCRAP WHILE DISMANTLING. THESE EQUIPMENTS BECO ME TOTALLY SCRAP FOR THOSE EVENT MANAGEMENT PAGE | 142 COMPANIES AND CANNOT BE REUSED. THEREFORE, THESE TYPE OF EXPENSES FORMS PART OF DIRECT EXPENSES. HE STATED THAT THE APPELLANT BEING EVENT MANAGEMENT COMPANY HAD ACQUIRED FURNITURE & FIXTURES LIKE SOFA SETS, CHAI RS AND TABLE FRAMES IN LARGE NUMBERS. MANY OF THESE FURNITURE AND FIXTURES WERE DAMAGED DURING THE PERIOD OF GAMES. FURTHER THE APPELLANT ALSO DID NOT HAVE ANY GODOWN OR PLACE TO STORE ALL THESE FURNITURE AND FIXTURE. THIS FURNITURE AND FIXTURES WERE ONLY ACQUIRED FOR THE PURPOSE OF CWG. AFTER THE END OF CWG, THERE WAS NO USE OF SUCH LARGE NO OF FURNITURE TO THE APPELLANT. THEREFORE, THE APPELLANT SOLD THESE ITEMS OF PURCHASE AS LUMP SUM SCRAP. HE FURTHER STATED THAT SINCE, IT WAS NOT POSSIBLE FOR THE APPEL LANT TO DIVIDE THE SCRAP SALE VALUE INTO THE FURNITURE & FIXTURES, ELECTRICAL EQUIPMENTS AND OTHER SCRAP ITEMS, THE APPELLANT TREATED ALL THIS ITEMS AS PART OF CONSUMABLE CLAIMED AS DIRECT EXPENSES. HE STATED THAT IN THE EVENT NOT MANAGEMENT COMPANIES, ALL THE ITEMS, AND EQUIPMENTS PURCHASED FOR USE IN THE EVENT CAN FORM PART OF FIXED ASSETS. FOR EXAMPLE, IF 1000 SOFA/CHAIR IS PURCHASED IN EVENT AND ONLY 800 ARE USED IN THE EVENT AND 200 ARE LEFT TO BE UTILIZED , THEN HOW THIS WILL BE TAKEN AS FIXED ASSET IN THE BOOKS AND HOW THE DEPRECIATION WILL BE CLAIMED. THEREFORE, THIS WILL FORM PART OF STOCK AND NOT THE PART OF CAPITAL ASSET. HE STATED THAT THE ABOVE HAS BEEN DULY EXPLAINED VIA EXAMPLE OF CONSTRUCTION COMPANIES. IN CONSTRUCTION, COMPANIES, ALL THE MATE RIAL, AND EQUIPMENTS FORMS PART OF CONSUMABLES AND STOCK IN TRADE. ONLY THOSE MACHINERIES WHICH ARE PURCHASED AND USED IN CONSTRUCTION ACTIVITIES AND ARE REUSABLE IN FURTHER OTHER CONSTRUCTION PROJECTS FORMS PART OF FIXED ASSETS. LIKEWISE, IN THE EVENT MAN AGEMENT COMPANIES ALSO MATERIAL AND EQUIPMENTS ARE RECORDED AS CONSUMABLE. IF ANY NUMBER OF ITEMS LEFT UNUSED THEN IT FORMS PART OF STOCK IN TRADE AND NOT FIXED ASSETS . HE SUBMITTED THAT ASSET WHICH IS USED INTERNALLY AND ON WHICH THE DEPRECIATION IS CLAI MED HAS TO BE CAPITALIZED . THE AFORESAID CONSUMABLE NEITHER WAS USED BY THE APPELLANT COMPANY INTERNALLY FOR THE OPERATION OF THE COMPANY NOR WAS DEPRECIATION CLAIMED. THEY PAGE | 143 WERE USED TEMPORARILY IN THE COMMON WEALTH GAMES AND WERE SOLD AS SCRAP ON LUMP SUM AFTER THE GAMES. HE FURTHER STATED THAT AFTER THE END OF COMMON WEALTH GAMES, 2010, WHILE DISMANTLING THE SITE, ALL THE ELECTRICAL EQUIPMENTS AND FURNITURE AND FIXTURES THAT WERE DULY FIXED AT THE SITE REMAINED AS SCRAP TO THE APPELLANT. THESE CONSUMABLES WERE NOT FURTHER REUSABLE BY THE APPELLANT. HOWEVER, IF ANY OF THESE ITEMS WERE TO BE REUSED THEN APPELLANT WOULD BE REQUIRED TO PAY HUGE AMOUNT FOR THE REPAIRS AND MAINTENA NCE OF THESE CONSUMABLES. FURTHER, THE APPELLANT WOULD ALSO REQUIRE PAYING HIGH RENT ON GODOWN TO STORE THESE ITEMS. THEREFORE, THE APPELLANT INSTEAD OF REUSING THESE SCRAP CONSUMABLES SOLD IT AND THE SCRAP SALE WAS DULY ACCOUNTED IN THE BOOKS OF THE COMP ANY. THE APPELLANT SOLD ALL THE CONSUMABLES USED IN THE COMMON WEALTH GAMES, 2010 AS A SCRAP AT THE TOTAL VALUE OF RS. 3,27,49,252 / - AND ACCOUNTED THE SAME IN THE BOOKS. HE ALSO EXPLAINED THAT, THE ABOVE SCRAP SALE ALSO CONSISTS OF THE SALE OF GYPSY AT VAL UE OF RS.14,22,223/ - . (COPY OF SALE LEDGER ENCLOSED AT PAGE 322 OF P/B VIII. THE COST PRICE OF THE GYPSY WAS RS.17,00,946/ - . THIS WAS TAKEN AS CONSUMABLES BY THE APPELLANT BECAUSE THE GYPSY WAS PURCHASED ONLY FOR THE PURPOSE OF COMMON WEALTH GAMES AND WAS SOLD AFTER THE GAMES WERE OVER. HAD IT BEEN TAKEN AS THE ASSETS THEN ALSO THE IMPACT ON THE NET PROFIT WOULD BE SAME. ULTIMATELY, THE APPELLANT COMPANY HAD NO VEHICLES AT THE END OF THE YEAR. HE ALSO GAVE EXPLANATION TO THOSE ITEMS S. NO. PARTY ITEMS O F PURCHASE AMOUNT (RS.) TREATMENT IN BOOKS OF ACCOUNTS 1 DAKSH AUTOMATION FIRE DETECTION ALARMS 57,25,400/ - THIS EXPENSE ARE RELATED TO FIRE ALARMS, HEAT DETECTOR, HOOTER, SMOKE DETECTOR ETC. THESE DEVICES WERE PAGE | 144 DEPLOYED AT VARIOUS PROJECT SITES OF CWG. THESE TYPES OF DEVICES ARE NOT RE - USABLE. AFTER DISMANTLING THE SITE OF CWG, THESE DEVICES WERE ONLY SCRAP TO THE COMPANY WHICH HAD NO RESALE VALUE AND ARE NOT REUSABLE. THE APPELLANT SOLD THIS AS A PART OF SCRAP. THEREFORE, THESE ARE RECORDED AS CAPITAL E XPENDITURE. 2 DD MOTOR GYPSY PURCHASE 17,00,946/ - THE GYPSY WAS SOLD AND THE SALE DETAILS ENCLOSED AT PAGE 322 OF P/B VIII. SINCE, THESE WAS PURCHASED FOR VERY SHORT PERIOD AND WAS USED ONLY FOR COMMON WEALTH GAMES AND THEREAFTER IT WAS SOLD, IT WAS TREATED AS CONSUMABLES AND NOT ASSET. THE ULTIMATE IMPAC T IS SAME IN BOOKS AND HAD NO PAGE | 145 EFFECT IN THE PROFIT OF THE APPELLANT COMPANY. 3 AJS SCALE INTL TRAFFIC CONES 13,87,969/ - THESE ARE RECORDED UNDER THE HEAD CONSUMABLES. THE APPELLANT SOLD ALL THESE TRAFFIC BARRIERS AS SCRAP AND THEREFORE THESE WERE RECORDE D AS REVENUE EXPENDITURE. 4 GOLDEN FURNISHERS & DECORATORS FURNITURE PURCHASE 12,30,087/ - THESE FURNITURES WERE OF NO USE TO THE APPELLANT AND SOLD AS LUMP SUM SCRAP. HENCE, THE PURCHASE VALUE TAKEN AS CONSUMABLES 5 HABY ENGINEERING FURNITURE 10,71,491/ - THESE FURNITURES WERE OF NO USE TO THE APPELLANT AND SOLD AS LUMP SUM SCRAP. HENCE, THE PURCHASE VALUE TAKEN AS CONSUMABLES PAGE | 146 6 NIZAMMUDIN FURNITURES FURNITURE 3,90,094/ - THESE FURNITURES WERE OF NO USE TO THE APPELLANT AND SOLD AS LUMP SUM SCRAP. HENCE, THE PURCHASE VALUE TAKEN AS CONSUMABLES 7 GEMINI HYDRAULICS DYNAMOMETER 2,80,445/ - THESE EXPENSE ARE CAPITALISED IN BOOKS UNDER THE HEAD ELECTRICAL EQUIPMENT. LATER WHEN THESE ALL EQUIPMENTS WERE OF NO USE TO THE APPELLANT AND SOLD AS LUMP SUM SCRAP, THESE ASSETS WERE TRANSFERRED TO PROFIT AND LOSS ACCOUNT AS CONSUMABLES. 124 . THEREFORE HE SUBMITTED THAT , IT IS OBVIOUS THAT THE APPELLANT HAD SOLD ALL THE ABOVE CONSUMABLES AS SCRAP AFTER THE END OF THE COMMON WEALTH GAMES. THIS SHOWS THAT THE AFORESAID ITEMS WERE OF NO USE AFTER DISMANTLING. HENCE, THE APPELLANT CONTENTION TO RECORD THE AFORESAID ITEMS AS CONSUMABLES WAS FOUND GENUINE AND THEREFORE THE DISALLOWANCE ON THIS GROUND IS NOT JUSTIFIED. THEREFORE, HE SUBMITTED TO DELETE THE DISAL LOWANCE OF RS. 1,18,24,175/ - . PAGE | 147 125 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES AND STATED THAT THESE ARE THE CAPITAL EXPENDITURE, WHICH CANNOT BE ALLOWED AS REVENUE EXPENDITURE. HE FURTHER STATED THAT ASSESSE E HAS PURCHASED THE MOTOR CAR WHICH CANNOT BE HELD TO BE THE ITEM OF REVENUE EXPENDITURE. 126 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. AS ALREADY STATED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF THE EVENT ORGANIZATION AND HAS BEEN PART OF THE ORGANIZATION, WHICH CONDUCTED THE COMMONWEALTH GAMES 2010. LOOKING AT THE NATURE OF THE BUSINESS OF THE ASSESSEE THE FIRE DETECTION ALARM OF INR 5 725400 WHICH HAS BEEN FITTED AT THE VARIOUS PLACES CANNOT BE HEL D TO BE THE ITEM OF THE CAPITAL EXPENDITURE AS IT RELATED TO FIRE ALARMS, HEAT DETECTOR, SMOKE DETECTOR ET CETERA WHICH ARE DEPLOYED AT THE VARIOUS PROJECT SITES. THE ASSESSEE HAS ALSO INCURRED EXPENDITURE OF INR 1 387969/ ON THE TRAFFIC BARRIERS AND SHO WN IT IS A CONSUMABLES. FURTHER THE EXPENDITURE OF RS. 280445/ CANNOT ALSO BE CONSIDERED AS A CAPITAL EXPENDITURE WHICH IS INCURRED ON THE DYNAMOMETER FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY . T HEREFORE THE LEARNED ASSESSING OFFICER IS DIRECTED TO DELETE THE ABOVE DISALLOWANCE AND TREAT THE ABOVE EXPENDITURE A S REVENUE IN NATURE. IT IS THE CASE WITH RESPECT TO THE FURNITURE OF INR 1230087/ , OF INR 1071491/ - , AND INR 390094/ WHICH ARE USED ONLY FOR FEW DAYS OF THE EVENT. IT NEEDS TO BE UNDERSTOOD THAT ASSESSEE IS IN THE BUSINESS OF ORGANIZING SUCH EVENTS AND IT NEVER PURCHASED THESE FURNITURE WITH A VIEW TO HAVE ANY ENDURING BENEFIT. MERELY BECAUSE IT IS TITLED AS FURNITURE, IT CANNOT BE HELD TO BE CAPITAL EXPENDITURE. ITS USER IN THE HANDS OF THE ASSESSEE MUST BE EVALUATED. THUS, IT CANNOT BE HELD AS CAPITAL EXPENDITURE. 127 . HOWEVER WITH RESPECT TO THE PURCHASE OF MOTOR CAR OF INR 1 700946/ , HAS BEEN CORRECTLY TREATED BY THE LEARNED ASSESSING OFFICER AND THE LEARNED DISP UTE RESOLUTION PANEL AS CAPITAL EXPENDITURE. THE ASSESSEE IS ENTITLED FOR THE DEPRECIATION THEREON AT PAGE | 148 THE RESPECTIVE R ATES. MERELY BECAUSE OF THE REASON THAT ASSESSEE HAS SOLD THESE ITEMS AS A SCRAP DOES NOT MAKE THEM REVENUE EXPENDITURE. WHENEVER THER E IS A SALE OF A CAPITAL ITEM AS A SCRAP ON ITS DISCARD, THE SAME IS REQUIRED TO BE CREDITED TO THE BLOCK OF THE ASSETS AND THEREFORE AT THAT PARTICULAR TIME THE ASSESSEE WOULD GROUND WOULD BE GRANTED THE NECESSARY DEDUCTION OF THE CAPITAL LOSS IF ANY IN A CCORDANCE WITH THE PROVISIONS OF THE LAW. ONLY BECAUSE OF THE REASON THAT ASSESSEE HAS SOLD SCRAP OF THESE ITEMS AFTER THE COMPLETION OF THE EVENTS DOES NOT MAKE THEM REVENUE EXPENDITURE IN NATURE. ACCORDINGLY, GROUND NUMBER 11 OF THE APPEAL OF THE ASSES SEE IS PARTLY ALLOWED. 128 . GROUND NUMBER 12 OF THE APPEAL IS WITH RESPECT TO THE DISALLOWANCE OF INR 1 22626/ ON PAYMENT OF SERVICES OF SECURITY GUARD. THE BRIEF FACTS OF THE ISSUE SHOWS THAT LD. AO IN PARA 15 OF THE SHOW CAUSE NOTICE DATED 13.12.2012 ALLEG ED THAT THE APPELLANT MADE PAYMENTS TO M/S NEW STANDARD SECURITY SERVICES ON ACCOUNT OF SECURITY DEPOSIT AND ASKED THE ASSESSEE TO EXPLAIN THE SAME. IN RESPONSE TO THE SAID NOTICE, THE APPELLANT SUBMITTED THAT THE PAYMENT WAS MADE TO THE SAID PARTY FOR THE SECURITY GUARD SERVICE PROVIDED BY THE SAID PARTY AND NOT THE SECURITY DEPOSIT. HOWEVER, THE LD. AO DID NOT CONSIDER THE REPLY OF THE ASSESSEE AND REPEATEDLY HELD THAT THE PAYMENT WAS IN THE NATURE OF SECURITY DEPOSIT AND WAS REFUNDABLE AND THEREFORE THE SAME CANNOT BE IN THE NATURE OF REVENUE EXPENDITURE. THEREFORE THE LD. AO MADE ADDITION OF RS.1,22,626/ - TO THE TOTAL INCOME OF THE APPELLANT U/S 37 OF THE ACT. ON OBJECTION , THE DRP DIRECTED THE LD. AO TO VERIFY THE GENUINENESS OF THE AFORESAID EXPEN DITURE AND ALLOW THE RELIEF TO THE APPELLANT. HOWEVER, THE IGNORING THE DIRECTION OF THE DRP, THE LD. AO DISALLOWED THE EXPENDITURE OF RS.1,22,626/ - CONSIDERING IT AS SECURITY DEPOSIT IN THE ASSESSMENT ORDER. 129 . THE LEARNED AUTHORISED REPRESENTATIVE REITERATE D THE SUBMISSION MADE BEFORE THE LEARNED ASSESSING OFFICER AND STATED THAT WHEN THE SECURITY SERVICE CHARGES PAID BY THE ASSESSEE TO VARIOUS SECURITY PAGE | 149 GUARDS HAVE BEEN ADDED BY THE LEARNED ASSESSING OFFICER HOLDING THAT THIS IS A SECURITY DEPOSIT WHICH IS T OTALLY INCORRECT. 130 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER. 131 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE FACT SHOWS THAT APPELLANT HAS RECEIVED SECURITY SERVICE AMOUNTING TO RS. 1,22,626/ - FROM M/S NEW STANDARD SECURITY SERVICES. ASSESSEE ALSO SUBMITTED COPY OF INVOICE ALONG WITH THE REGISTER OF SECURITY GUARD WHICH IS PLACED AT PAGE 476 - 479 OF PAPER BOOKVII. IN THE INVOICE, IT WAS CLEA RLY MENTIONED THAT THE SECURITY SERVICE WAS BEING PROVIDED FOR CWG, 2010 AND 461 STAFFS WERE ON DUTY FOR 12 HOURS AT THE RATE OF RS. 266 PER 12 HOURS OF WHICH THE TOTAL AMOUNTS TO RS. 1,22,626/ - . FURTHER, THE INVOICE OF NEW STANDARD SECURITY SERVICES WAS A LSO A PART OF BILLS SEIZED DURING THE COURSE OF SEARCH AND THE PAYMENT WAS MADE THROUGH ACCOUNT PAYEE CHEQUE. THE LD. AO HAS INCORRECTLY CONSIDERED THAT EXPENDITURE WAS A SECURITY DEPOSIT IS COMPLETELY BASED ON SURMISE AND SUSPICION. THE INVOICE OF SECURIT Y SERVICE PROVIDES COMPLETE DETAILS OF WHAT KIND OF SERVICE WAS TAKEN AND FOR WHAT PURPOSE IT WAS TAKEN. FURTHER, THE LD. AO ALSO DID NOT PROVIDE ANY EVIDENCE FOR TREATING THIS EXPENDITURE AS SECURITY DEPOSIT, HOWEVER, ALL THE DETAILS AND DOCUMENTS AVAILAB LE WITH THE APPELLANT TRULY JUSTIFY THAT THE PAYMENT WAS MADE FOR SECURITY SERVICES PROVIDED AT CWG, 2010 WHICH ARE GENUINELY FOR THE PURPOSE OF BUSINESS. IN VIEW OF THIS WE DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF INR 1 22626/ ON ACCOUNT OF SECURITY DEPOSIT WHICH IS IN FACT THE PAYMENT FOR SECURITY CHARGES. ACCORDINGLY GROUND NUMBER 12 OF THE APPEAL IS ALLOWED. 132 . GROUND NUMBER 13 OF THE APPEAL IS WITH RESPECT TO THE ADDITION OF INR 1547141/ TOWARDS THE VALUE OF THE CLOSING STOCK. THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDING, ASKED THE APPELLANT TO FURNISH SUPPORTING EVIDENCE IN RELATION TO CLOSING STOCK O F RS.15,47,141/ - STANDING IN THE BOOKS OF ACCOUNTS. IN RESPONSE, THE PAGE | 150 APPELLANT SUBMITTED THE DETAILS OF CLOSING STOCK CONTAINING THE NAME OF ITEM, UNIT, QUANTITY, RATE, AND VALUE. THE LD. AO CONSIDERED THE REPLY OF THE APPELLANT AND PASSED DAO. HOWEVER, T HE LD. AO HELD THAT THE APPELLANT COULD NOT PRODUCE THE ORIGINAL INVOICES AND CONFIRMATIONS AND COULD NOT ESTABLISH THE GENUINENESS OF TRANSACTION AND AUTHENTICITY AND RELATION OF SUCH EXPENSES THEREIN WITH THE BUSINESS OF THE ASSESSEE. THEREFORE, THE LD. AO ADDED THE CLOSING STOCK OF RS. 15,47,141/ - TO THE TOTAL INCOME OF THE APPELLANT. ON OBJECTION BEFORE THE DRP AND FURNISHED SUBMISSION IN THE LD. AO WAS DIRECTED TO VERIFY THE SAID TRANSACTION. SUBSEQUENTLY, THE LD. AO PASSED ASSESSMENT ORDER, HELD THAT THE SUBMISSION OF THE APPELLANT WAS NOT SUFFICIENT TO ESTABLISH THE GENUINENESS OF THE CLOSING STOCK, AND THEREFORE DISALLOWED RS. 15, 47, 141/ - U/S 68 OF THE ACT. 133 . THE LD AR SUBMITTED THAT CLOSING STOCK IS NOT AN ITEM FOR CONSIDERATION U/S 68 OF THE A CT. HE FURTHER SUBMITTED THAT IN THE CASE OF APPELLANT, CLOSING STOCK RELATES TO THOSE PURCHASES OF MATERIAL LYING IN STOCK OF THE COMPANY FOR WHICH THE PAYMENT IS MADE OR TO BE MADE. HENCE, THE LD. AO HAS ERRED IN INVOKING THE PROVISION OF SECTION 68 OF THE ACT ON ACCOUNT OF CLOSING STOCK OF RS. 15,47,141/ - . HE SUBMITTED THAT THE APPELLANT DURING THE YEAR HAD CLOSING STOCK OF RS. 15,47,141/ - DETAILS OF WHICH IS ENCLOSED AT PAGE 480 OF THE P/B VII. THE APPELLANT HAS SHOWN THE CLOSING STOCK AS AN ITEM OF BALANCE SHEET AS WELL AS P/L ACCOUNT. IT IS EVIDENT FROM THE PROFIT AND LOSS STATEMENT OF THE APPELLANT ENCLOSED AT PAGE 72 OF THE PAPER BOOKII THAT THE CLOSING STOCK OF RS. 15,47,141/ - HAS DULY BEEN CREDITED TO PROFIT AND LOSS ACCOUNT WHICH HAS INCREAS ED THE NET PROFIT OF THE APPELLANT. THE CLOSING STOCK HAS ALREADY BEEN ADDED BY THE APPELLANT TO THE TOTAL INCOME IN THE PROFIT AND LOSS STATEMENT. HENCE, THE ADDITION MADE BY THE LD. AO TO THE TOTAL INCOME WILL LEAD TO THE DOUBLE ADDITION. HE FURTHER STAT ED THAT APPELLANT HAD DULY SOLD ALL THE CLOSING STOCK IN THE FINANCIAL YEAR 2011 - 12 AND THEREAFTER NO CLOSING STOCK WAS LYING WITH THE APPELLANT. THIS ALSO PAGE | 151 SHOWS THAT THE CLOSING STOCK LYING WITH THE APPELLANT WAS GENUINE BECAUSE IF THERE WOULD NOT HAVE BE EN CLOSING STOCK THEN THE QUESTION OF SALE WOULD NOT ARISE. H E THEREFORE SUBMITTED THAT IN LIGHT OF THE AFORESAID SUBMISSION IT IS REQUESTED TO DELETE THE ADDITION MADE ON ACCOUNT OF STOCK OF RS. 15,47,141/ - . 134 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEME NTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER. 135 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND FIND THAT THE ASSESSEE HAS SHOWN THE CLOSING STOCK OF INR 1 547141/ WHICH HAS BEEN ADDED BY THE LEARNED ASSESSING OFFICER U/S 68 OF THE INCOME TAX ACT. THE ASSESSEE HAS ALSO SHOWN THAT THE ABOVE STOCK IS ALREADY CREDITED TO THE PROFIT AND LOSS ACCOUNT AND THEREFORE IT IS ALREADY GONE TO SWELL THE PROFITS OF THE ASSESSEE FOR THE YEAR. THE ASSESSEE HAS ALSO SUBMITTED THE DETAILS OF THE CLOSING S TOCK STATING THE ITEMS, QUANTITY, RATE, AND AMOUNT OF THE CLOSING STOCK AND DESPITE THE ABOVE INFORMATION AVAILABLE WITH THE ASSESSING OFFICER HE MADE THE ADDITION U/S 68 OF THE INCOME TAX ACT. WE DO NOT FIND ANY REASON TO SUSTAIN THE ABOVE ADDITION FOR T HE REASON THAT , 1 ST OF ALL IT IS A DOUBLE ADDITION AND 2 ND IT CANNOT BE ADDED WHEN THE ASSESSEE HAS GIVEN A COMPLETE DETAILS OF THE QUANTITY AND THE ITEMS ALONG WITH THE RATES AND THE AMOUNT OF THE CLOSING STOCK CARRIED FORWARD TO THE NEXT YEAR , THE STOCK HAS ALSO BEEN SOLD BY THE ASSESSEE IN NEXT YEAR AND RECEIPT OF SUCH SALE HAS ALREADY BEEN DISCLOSED IN THE SUBSEQUENT YEAR. IN VIEW OF THIS GROUND NUMBER 13 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 136 . GROUND NUMBER 14 OF THE APPEAL IS WITH RESPEC T TO THE ADDITION OF RS. 115875146/ TOWARDS THE ADVANCES RECOVERABLE. THE LEARNED ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OF THE APPELLANT TO FURNISH THE SUPPORTING EVIDENCE IN RELATION TO THE CURRENT ASSETS AND LOANS AND ADVANCES OF INR 1044924844/ OUTSTANDING IN THE BOOKS OF ACCOUNTS. THE ASSESSEE SUBMITTED THE COMPLETE DETAILS OF THE ALL THE CURRENT ASSETS AND LOANS AND ADVANCES ALONG WITH THE COPIES OF THE LEDGER IN THE BOOKS OF PAGE | 152 ACCOUNTS OF THE ASSESSEE. HOWEVER THE LEARNED A SSESSING OFFICER MADE THE ADDITION IS APPELLANT COULD NOT PRODUCE THE ORIGINAL INVOICES AND CONFIRMATION AND COULD NOT ESTABLISH THE GENUINENESS OF THE TRANSACTION AND AUTHENTICITY IN RELATION OF SUCH EXPENSES THEREIN WITH THE BUSINESS OF THE ASSESSEE AND THEREFORE HE MADE AN ADDITION OF INR 1 049224844/ - . ASSESSEE RAISED OBJECTION BEFORE THE LEARNED DISPUTE RESOLUTION PANEL WHEREIN THE AO WAS DIRECTED TO VERIFY THE SAID TRANSACTION AND GRANT RELIEF TO THE APPELLANT IN ACCORDANCE WITH THE GENUINENESS OF TH E TRANSACTION. CONSEQUENT TO THAT THE LEARNED ASSESSING OFFICER MADE AN ADDITION OF RS. 115875146 WITH RELATION TO DUTIES AND TAXES PAID TO THE GOVERNMENT. 137 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED A COMPLETE CHART OF THE ITEM OF DISPUTE, WHICH IS CUSTOM DUTY RECOVERABLE, ASSIGNMENT CREDIT OF SERVICE TAX, COMMERCIAL TAX REFUND, ADVANCES TO EMPLOYEES AND SUNDRY DEBTORS OF INR 400,000. HE THEREFORE SUBMITTED THAT THE ADVANCES RECOVERABLE ARE NOTHING BUT THE REFUND DUE FROM THE GOVERNMENT OF INDIA WHI CH HAS BEEN ADDED BY THE LEARNED ASSESSING OFFICER TO THE TOTAL INCOME OF THE ASSESSEE. HE SUBMITTED THAT WHEN THE REFUND IS SHOWN AS A LOANS AND ADVANCES THE CREDIT EFFECT OF THE ABOVE SUM HAS ALREADY GONE TO THE PROFIT AND LOSS ACCOUNT AND THEREFORE IT AMOUNTS TO DOUBLE ADDITION AND IN ANY WAY THE ABOVE ADDITION CANNOT BE MADE. 138 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE LEARNED ASSESSING OFFICER. 139 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE LEARNED ASSES SING OFFICER HAS MADE AN ADDITION OF RS. 115875146/ . THE ABOVE SUM INCLUDED CUSTOM DUTY REFUNDABLE OF INR 7 0341631/ WHICH WAS PAID BY THE ASSESSEE TO THE GOVERNMENT OF INDIA. FURTHER SUM OF ASSIGNMENT CREDIT REFUND OF INR 2 4448598/ WAS WITH RESPECT TO THE SENATE CREDIT ON SERVICE TAX. FURTHER SUM OF INR 2 0675000/ WAS COMMERCIAL TAXES PAID BY THE ASSESSEE UNDER PROTEST TO U P SINCE TAX AUTHORITIES. RS. 9917/ WAS IN ADVANCE TO AN EMPLOYEE FOR THE EXPENSES INCURRED BY HER FOR PAGE | 153 THE BUSINESS OF THE ASSESSEE COMPANY. SINCE THE ADVANCES WERE NOT UTILIZED IT WAS OUTSTANDING AS IN ADVANCE. FURTHER SUM OF INR 4,000,000/ - IS OUTSTANDING RECEIVABLE ON SALE OF MOTORCAR WHICH WAS SOLD AS SCRAP. AS THE MOTOR CAR HAS BEEN HELD TO BE CAPITAL EXPENDITURE BY US IN EARLIER GROUND OF APPEAL THEREFORE THE ABOVE AMOUNT HAS ALREADY GONE TO THE CREDIT OF THE BLOCK OF THE ASSET OF THE MOTOR CAR. IN VIEW OF THIS WE FIND THAT THE LEARNED ASSESSING OFFICER HAS WRONGLY MADE AN ADDITION TO THE TOTAL INCOME OF THE ASSESSEE OF THE ABOVE SUM. IN VIEW OF THIS GROUND, NUMBER 14 OF THE APPEAL OF THE ASSESSEE IS ALLOWED AND AO IS DIRECTED TO DELETE DISALLOWANCE OF RS. 115875146/ TOWARDS THE ADVANCE RECOVERABLE. 140 . GROUND NUMBER 15 OF THE APPEAL IS WITH RESPECT TO THE ADDITION OF INR 4 6578484/ BEING THE SUNDRY CREDITORS AND INR 6 9813499/ BEING THE VALUE OF THE BALANCE SHEET ITEM OF THE OTHER LIABILITIES TO THE TOTAL INCOME OF THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEA RNED ASSESSING OFFICER ASKED THE ASSESSEE TO PROVIDE THE DETAILS OF ALL THE CURRENT LIABILITIES AND PROVISIONS RELATING TO OUTSTANDING IN THE BALANCE SHEET. IN RESPONSE TO THAT THE APPELLANT SUBMITTED THE COMPLETE DETAILS OF THE SUNDRY CREDITORS AND OTHER LIABILITIES ALONG WITH THE NAME AND ADDRESS OF THE PERSON/VENDOR AND AMOUNT. THE LEARNED ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AND STATED THAT APPELLANT COULD NOT PRODUCE THE ORIGINAL INVOICES AND CONFIRMATION AND COULD NOT ESTABLISH THE GENUINENESS OF THE TRANSACTION AND AUTHENTICITY IN RELATION OF SUCH EXPENSES AND LIABILITIES WHEREIN THE BUSINESS OF THE ASSESSEE , HE MADE THE ADDITION OF INR 898684373/ TO THE TOTAL INCOME OF THE APPELLANT. SUBSEQUENTLY THE OBJECTIONS WERE FILED BE FORE THE LEARNED DISPUTE RESOLUTION PANEL AND DRP DIRECTED THE LEARNED ASSESSING OFFICER TO VERIFY THE SAID TRANSACTION AND GRANT RELIEF TO THE APPELLANT IF REQUIRED. THE LEARNED DRP ALSO DIRECTED THE AO TO REDUCE THE AMOUNT OF CREDITORS BY THE AMOUNT COV ERED IN TRANSFER PRICING ADDITION MADE BY THE LEARNED TRANSFER PRICING OFFICER. SUBSEQUENT TO THAT THE LEARNED ASSESSING OFFICER AGAIN MADE THE PAGE | 154 ADDITION STATING THAT THE ASSESSEE HAS FAILED TO PROVIDE ANY CONFIRMATION IN RELATION TO THE LIABILITIES AND RE JECTED THE CONTENTION OF THE APPELLANT AND MADE THE ADDITION OF SUNDRY CREDITORS AND CURRENT LIABILITIES REDUCING THE SAME BY THE ADDITIONS ALREADY MADE WITH RESPECT TO THE RELATED PARTY TRANSACTION AND TRANSFER PRICING ADJUSTMENT. 141 . THE LEARNED AUTHORISED R EPRESENTATIVE SUBMITTED A NOTE WITH RESPECT TO THE DISALLOWANCE/ADDITION MADE BY THE ASSESSEE WITH RESPECT TO THE SUNDRY CREDITORS OF INR 4 6578484/ AND OTHER EXPENSES LIABILITIES OF INR 6 9813499/ AS UNDER: - I . SUNDRY CREDITORS: RS.4,65,78,484/ - : THE APPELLANT DURING THE A.Y 2011 - 12 PURCHASED VARIOUS CONSUMABLES, IMPORTED VARIOUS EQUIPMENTS FROM ABROAD, RECEIVED VARIOUS SERVICES SUCH AS JOB WORK SERVICES, PROFESSIONAL SERVICE, TRAVELLING, SITE PREPARATION, FIXED ASSETS ON HIRE ETC FOR ORGANISING THE CW G, 2010. THE CREDITORS OUTSTANDING IN THE BOOKS OF THE APPELLANT ARE PART OF THESE PURCHASES AND SERVICES PROCURED. IN ORDER TO PROVE THE GENUINENESS OF THE TRANSACTION, THE APPELLANT HAD SUBMITTED LIST OF ALL THE CREDITORS ALONG WITH THEIR ADDRESS AND AM OUNT INVOLVED BEFORE THE LD. AO (COPY ENCLOSED AT PAGE 492 - 494 OF THE PAPERBOOKVII). FURTHER, THE COPIES OF LEDGER ACCOUNTS AND THE ENTIRE BILL IN RELATION TO THOSE CREDITORS WERE ALSO FURNISHED BEFORE THE LD. AO. THE LEDGER ACCOUNT OF THE CREDITORS ALSO S HOWS THAT ALL THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUE AND THE BANK STATEMENT WAS BEFORE THE LD. AO. THE LEDGER ACCOUNT, COPIES OF BILLS AND ADDRESS OF THE CREDITORS WERE ENOUGH TO PROVE THAT THE TRANSACTIONS WERE PAGE | 155 GENUINE. HENCE, THE APPELLANT H AS DULY DISCHARGED THE ONUS TO PROVE THE GENUINENESS OF THE TRANSACTIONS. IT IS SETTLED LAW THAT ONCE THE ASSESSEE DISCHARGES ITS ONUS TO PROVE THE GENUINENESS OF TRANSACTION, THE ONUS SHIFTS TO THE LD. AO TO DISPROVE THE ASSESSEE. THEREFORE, IT WAS THE RESPONSIBILITY OF THE LD. AO TO DISPROVE THE APPELLANT AFTER THE SUBMISSION OF ALL THE RELEVANT DOCUMENTS IN RELATION TO ITS CLAIM. HOWEVER, THE LD. AO WITHOUT PROVIDING ANY REASON OR FINDINGS IN RELATION TO SUCH CREDITORS MADE ADDITION OF THE SUNDRY CREDI TORS ONLY BECAUSE THE APPELLANT COULD NOT PRODUCE THE CONFIRMATION, WHICH CANNOT BE THE ONLY BASIS TO REJECT THE DETAILS AND DOCUMENTS SUBMITTED BY THE APPELLANT. FURTHER THE DETAILS OF CREDITORS IS ENCLOSED AT PAGE 325 - 327 OF THE P/B VIII SHOWING TOTAL B ILLED AMOUNT, PAYMENT MADE, DISCOUNT RECEIVED, TDS DEDUCTED AND AMOUNT OUTSTANDING AS ON 31.03.2011. THE COPIES OF THE LEDGER ACCOUNTS AND THE ORIGINAL BILLS ALREADY FURNISHED BEFORE THE LD. AO. HENCE, THIS CLEARLY SHOWS THAT THE SAID CREDITORS ARE GENUINE . FURTHER, WHEN ALL THE EXPENSES ARE ALREADY DISALLOWED BY THE LD. AO IN PARA 28 OF THE ASSESSMENT ORDER THEN THE QUESTION OF DISALLOWING THE SUNDRY CREDITORS DOES NOT ARISE. THEREFORE, THE ADDITION MADE BECAUSE OF SUNDRY CREDITORS HAS LEAD TO DISALLOWANC E OF EXPENSES TWICE I.E. ONE BY WAY OF DISALLOWING EXPENSES AND SECOND BY ADDING SUNDRY CREDITORS. THIS CLEARLY SHOWS THAT THE ADDITION WAS MADE BY THE LD. AO ON SURMISES AND CONJECTURES. PAGE | 156 IN LIGHT OF THE AFORESAID SUBMISSION, IT IS HUMBLY PRAYED BEFORE YO UR GOOD SELF TO DELETE THE ADDITION MADE ON ACCOUNT OF SUNDRY CREDITORS OF RS.4,65,78,484/ - . II . OTHER EXPENSE LIABILITIES: RS.6,98,13,499/ - I . OTHER EXPENSE LIABILITIES COMPRISES OF THE FOLLOWING: CONVEYANCE PAYABLE: RS.1,625/ - SALARY PAYABLE: RS. 2,48,000/ - TELEPHONE EXPENSE PAYABLE: RS. 1,285/ - AUDIT FEES PAYABLE: RS. 15,40,500/ - CUSTOM CHARGES & DUTIES PAYABLE: RS. 21,09,651/ - FREIGHT & CARTAGE PAYABLE: RS. 6,59,12,438/ - TOTAL RS.6,98,13,499/ - II . FROM THE ABOVE LIST OF OTHER CURRENT LIABI LITIES, IT IS APPARENT THAT THE EXPENSE PAYABLE COMPRISES OF THE ITEMS FOR WHICH EXPENSE WAS CLAIMED IN THE P/L ACCOUNT. EXPENSE PAYABLE IS NEITHER AN ITEM OF INCOME AND NOR THERE EXIST ANY CASH OUTFLOW IN RELATION TO THESE PAYABLE. THESE EXPENSES WERE OUT STANDING IN BOOKS ONLY WHEN THE EXPENSES ACCRUED AND WERE BOOKED DURING THE YEAR . III . THE LD. AO MADE ADDITION OF RS.6,98,13,499/ - ON ACCOUNT OF OTHER EXPENSE LIABILITIES U/S 37/69C ALLEGING THAT THE CONFIRMATION LETTER IN RELATION TO THESE HAD NOT BEEN FILED BY THE APPELLANT. PAGE | 157 IV . IN THIS REGARD, IT IS SUBMITTED THAT NO ANY BILLS OR CONFIRMATION WAS AVAILABLE FOR CONVEYANCE PAYABLE, SALARIES PAYABLE AND TELEPHONE EXPENSE PAYABLE. THESE ARE THE EXPENSE PAYABLE TO THE OFFICE EMPLOYEES IN RELATION TO WORK DONE BY TH EM IN THE COMPANY. FURTHER, SALARIES FOR THE MONTH OF MARCH 2011 STANDS PAYABLE AS ON 31.03.2011 ON WHICH TDS HAS ALSO BEEN DEDUCTED. V . FURTHER, AUDIT FEES PAYABLE RELATES TO THE AUDIT FEES CHARGED BY THE AUDITORS FOR THE PURPOSE OF STATUTORY AUDIT, TAX AU DIT AND TRANSFER PRICING REPORT. THE SAID EXPENSES WERE ACCEPTED AS GENUINE BY THE LD. AO IN DAO (REFER PARA 16 OF PAGE 47 - 48 OF PAPER BOOK IV). HENCE, THE ADDITION OF THE AMOUNT PAYABLE TO AUDITORS SHOWS THAT THE LD. AO HAD NOT APPLIED HIS MIND AND ON SURMISE AND SUSPICION ADDED THE SAME. VI . FURTHER THE CUSTOM CHARGES & DUTIES PAYABLE AND FREIGHT & CARTAGE PAYABLE RELATES TO THOSE EXPENSES, WHICH ARE PAID BY THE SCHENKER INDIA PVT LTD ON BEHALF OF APPELLANT ON IMPORT AND EXPORT OF EQUIPMENTS LEASED FROM FRANCE FOR THE COMMON WEALTH GAMES, 2010. IMPORT AND EXPORT HAD TAKEN PLACE IN ACCORDANCE WITH THE PROVISION OF CUSTOMS ACT AND SOME COPIES O F CUSTOM DOCUMENTS HAS BEEN ENCLOSED AT PAGE 261 - 267 OF THE P/B VI WHICH PROVES THE GENUINENESS OF THE IMPORT AND EXPORT OF THE EQUIPMENTS. THEREFORE THE EXPENSES IN RELATION TO CUSTOMS AND FREIGHT PAYABLE ARE GENUINE AND DULY SUPPORTED WITH PROPER BILLS A ND SUPPORTING DETAILS, WHICH WERE DULY FURNISHED BEFORE THE LD. AO. PAGE | 158 VII . FURTHER, THE ORIGINAL BILLS IN RELATION TO THE PREVIOUSLY MENTIONED LIABILITIES AND COPIES OF THE LEDGER ACCOUNT WERE ALREADY FURNISHED BEFORE THE LD. AO, WHICH ASCERTAINS THE GENUINENES S OF THE TRANSACTION. HENCE, THE ONUS TO PROVE THE EXPENSE LIABILITY AS GENUINE WAS DULY DISCHARGED BY THE APPELLANT. IN ADDITION, THEREAFTER, AS PER LAW THE ONUS WAS ON THE LD. AO TO DISPROVE THE CLAIM OF APPELLANT. HOWEVER, THE LD. AO INSTEAD OF PROVIDIN G THE VALID REASON FOR REJECTION OF APPELLANT CLAIM ONLY HELD THAT THE CONFIRMATION WAS NOT SUBMITTED BY THE APPELLANT AND THEREFORE THE CLAIM COULD NOT BE ACCEPTED. THIS CLEARLY SHOWS THAT THE LD. AO HAD NO VALID REASONS TO REJECT THE CLAIM OF THE APPELLA NT. VIII . THE ORIGINAL BILLS PRODUCED BEFORE THE LD. AO AND THE LEDGER ACCOUNT AND THE BANK STATEMENT WERE SUFFICIENT TO ESTABLISH WHETHER THE TRANSACTIONS ARE GENUINE OR NOT. THE LD. AO HOWEVER DID NOT VERIFY ANY BILL OR LEDGER OR PAYMENT ENTRIES, WHICH WERE M ADE THROUGH ACCOUNT PAYEE CHEQUE. IX . FURTHER, WHEN ALL THE EXPENSES ARE ALREADY DISALLOWED BY THE LD. AO IN PARA 28 OF THE ASSESSMENT ORDER THEN THE QUESTION OF DISALLOWING THE SUNDRY CREDITORS DOES NOT ARISE. THEREFORE, THE ADDITION MADE BECAUSE OF SUNDRY CREDITORS HAS LEADED TO DISALLOWANCE OF EXPENSES TWICE I.E. ONE BY WAY OF DISALLOWING EXPENSES AND SECOND BY ADDING EXPENSE LIABILITY. THIS CLEARLY SHOWS THAT THE ADDITION WAS MADE BY THE LD. AO ON SURMISES AND CONJECTURES. PAGE | 159 142 . THE LEARNED DEPARTMENTAL REPRE SENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER AND STATED THAT WHEN THE ASSESSEE HAS FAILED TO PRODUCE THE CONFIRMATION AND THE RELATIONSHIP WITH THE BUSINESS OF THE ASSESSEE OF THE ABOVE LIABILITIES THE SAME HAVE BEEN CORRECTLY ADDED BY THE LEARNED ASSESSING OFFICER. 143 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND FOUND THAT THE ASSESSEE HAS SUBMITTED THE COMPLETE LIST OF ALL THE CREDITORS ALONG WITH THEIR ADDRESSES AND AMOUNT INVOLVED BEFORE THE LEARNED ASSESSING OFFICER. FURTHER THE ASSESSEE ALSO SUBMITTED THE COPIES OF THE LEDGER ACCOUNTS AND THE ENTIRE BILL IN RELATION TO THOSE CREDITORS WAS ALL OF ALSO FURNISHED BEFORE THE LEARNED ASSESSING OFFICER TO ALL THE CREDITORS THE ASSESSEE HAS MADE PAYMENT THROUGH ACCOUNT PAYC HECK AND THE BANK STATEMENT WAS ALSO SUBMITTED BEFORE THE LEARNED ASSESSING OFFICER. THE LEARNED ASSESSING OFFICER WITHOUT VERIFYING ALL THESE DETAILS HAVE MADE THE ADDITION. IN MOST OF THE CREDITORS, THE ASSESSEE IS ALSO DEDUCTED TAX AT SOURCE. EVEN OT HERWISE , WHEN THE LEARNED ASSESSING OFFICER HAS DISALLOWED THE ALL THE EXPENDITURE THE FURTHER DISALLOWANCE OF THE SUNDRY CREDITOR DOES NOT ARISE AT ALL. WITH RESPECT TO THE OTHER LIABILITIES, THE ASSESSEE HAS FURNISHED THE DETAILS OF THOSE OUTSTANDING EX PENSES. THE MAJOR AMOUNT OF SUNDRY CREDITOR INVOLVED PAYMENT OF CUSTOM CHARGES , DUTIES AND FREIGHT AND CARTAGES PAYABLE WHICH ARE RELATED TO THE IMPORT AND EXPORT OF EQUIPMENTS AND THOSE EXPENSES ALREADY PAID BY THE OTHER PARTY ON BEHALF OF THE APPELLAN T AND THEREFORE THE SAME ARE IN FACT STANDING OF THE CREDIT OF THAT PARTY. THE ASSESSEE ALSO SUBMITTED THE DOCUMENTS RELATING TO THE CUSTOM DUTY PAYABLE ON IMPORT AND EXPORT OF THE ABOVE EQUIPMENTS. THE LEARNED ASSESSING OFFICER HAS DISALLOWED/ADDED THE ABOVE SUM WITHOUT MAKING ANY ENQUIRY TO SUBSTANTIATE HIS BELIEF THAT THESE ARE NON - GENUINE LIABILITIES. AS THE ASSESSEE HAS PRODUCED ALL RELEVANT DETAILS AVAILABLE WITH RESPECT TO THE ABOVE SUNDRY CREDITORS AND OTHER EXPENSES OUTSTANDING AND THE LEARNED A SSESSING OFFICER HAS NOT MADE ANY ENQUIRY TO PROVE THAT THESE ARE NON - GENUINE LIABILITIES, PAGE | 160 THE ADDITION IN THE HANDS OF THE ASSESSEE CANNOT BE SUSTAINED. ACCORDINGLY, WE DIRECT THE LEARNED AO TO DELETE THE DISALLOWANCE OF INR 46578484/ WITH RESPECT TO S UNDRY CREDITORS AND INR 69813499/ TOWARDS THE OTHER EXPENSES OUTSTANDING AS LIABILITIES. ACCORDINGLY GROUND NUMBER 15 OF THE APPEAL OF THE ASSESSEE IS ALLOWED 144 . GROUND NUMBER 16 RELATES TO THE DISALLOWANCE OF STATUTORY LIABILITIES OF INR 155310286/ . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LEARNED ASSESSING OFFICER ASKED THE ASSESSEE TO PROVIDE THE DETAILS OF THE ALL THE CURRENT LIABILITIES AND PROVISIONS ALONG WITH SUPPORTING EVID ENCES. IN RESPONSE TO THIS, THE APPELLANT SUBMITTED THE DETAILS OF SUNDRY CREDITORS AND OTHER LIABILITIES ALONG WITH THE NAME AND ADDRESS OF THE PERSONS/VENDOR ET CETERA. THE LEARNED ASSESSING OFFICER DISALLOWED THE ABOVE SUM STATING THAT APPELLANT COULD NOT PRODUCE THE ORIGINAL INVOICES AND CONFIRMATION AND COULD NOT ESTABLISH THE GENUINENESS OF THE TRANSACTION AND AUTHENTICITY AND RELATIONSHIP OF SUCH EXPENSES AND LIABILITIES WITH THE BUSINESS OF THE ASSESSEE AND THEREFORE HE MADE AN ADDITION OF INR 8 9 8684373/ TO THE TOTAL INCOME OF THE ASSESSEE. FURTHER, ON OBJECTION BEFORE THE LEARNED DISPUTE RESOLUTION PANEL THE LEARNED DRP DIRECTED THE LEARNED AO TO VERIFY THE SAID TRANSACTION AND GRANT RELIEF TO THE APPELLANT IF REQUIRED. HOWEVER ON VERIFICATION THE LEARNED ASSESSING OFFICER MADE AN ADDITION OF INR 1 55310286/ WHICH IS VAT AND CST PAYABLE OF INR 1 794448/ , SERVICE TAX PAYABLE OF INR 9 7626284/ AND TEDIOUS PAYABLE OF INR 5 5889554/ . 145 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT ABOVE AR E THE STATUTORY LIABILITIES WHICH COMPRISES OF TAXES WHICH ARE TO BE PAYABLE TO THE TAX DEPARTMENT. HE SUBMITTED THAT VAT AND CST STANDS PAYABLE AS PER THE APPELLANT ON THE SALE OF THE SCRAP DURING THE YEAR. HE FURTHER STATED THAT THE SERVICE TAX IS ALSO PAYABLE BECAUSE OF PAYMENT FROM THE SAID CONTRACTORS. HE FURTHER STATED THAT THE TAX DEDUCTION AT SOURCE IS PAYABLE ON TDS DEDUCTED FROM VARIOUS PAGE | 161 PAYMENTS MADE BY THE ASSESSEE. HE FURTHER REFERRED THAT CERTAIN AMOUNT OF TAX DEDUCTION AT SOURCE IS ON SALA RIES AND PAYMENT MADE TO CONTRACTORS ET CETERA HE FURTHER STATED THAT THE ABOVE AMOUNT OF STATUTORY LIABILITIES ARE NEITHER THE PART OF INCOME NOR THE PART OF EXPENSES. THEREFORE THE PROVISIONS OF SECTION 37/69C OF THE INCOME TAX APPLIED BY THE LEARNED AS SESSING OFFICER IS NOT CORRECT. 146 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER AND STATED THAT EVEN IF THE RESULT THE STATUTORY LIABILITIES COMPRISING OF THE TAX PAYABLE TO THE TAX DEPARTMENT THE SAM E IS ONLY ALLOWABLE WITH RESPECT TO THE PAYMENT OF SUCH SUM BEFORE THE DUE DATE OF FILING OF THE RETURN OF THE ASSESSEE. 147 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE DO NOT FIND ANY REASON TO SUSTAI N THE DISALLOWANCE U/S 37/69C OF THE INCOME TAX ACT WITH RESPECT TO THE TAX DEDUCTION AT SOURCE PAYABLE OF INR 5 5889554/ . THE ABOVE AMOUNT IS THE AMOUNT OF TAX DEDUCTED BY THE ASSESSEE ON VARIOUS PAYMENTS OF THE SALARIES, INTEREST, PAYMENT TO CONTRACTOR S AND RENT TO VARIOUS SERVICE PROVIDERS. THIS AMOUNT HAS NOT BEEN CLAIMED BY THE ASSESSEE AS DEDUCTION FROM THE TOTAL INCOME. THEREFORE THE LEARNED ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF INR 5 5889554/ TO THE TOTAL INCOME OF THE ASS ESSEE. 148 . WITH RESPECT TO THE SERVICE TAX PAYABLE OF INR 97626284/ AND VAT AND CST PAYABLE OF INR 1794448/ , THE LEARNED ASSESSING OFFICER HAS INCORRECTLY MADE THE ABOVE ADDITION UNDER SECTION 37/69C OF THE INCOME TAX ACT. THESE ARE THE STATUTORY LIABILITIE S COVERED UNDER SECTION 43B OF THE INCOME TAX ACT. THE ABOVE PROVISIONS OF SECTION 43B OF THE INCOME TAX ACT APPLY TO EVERY ASSESSEE IRRESPECTIVE OF THE METHOD OF ACCOUNTING EMPLOYED BY THEM. IF THOSE SUMS HAVE BEEN PAID BY THE ASSESSEE BEFORE THE DUE DA TE OF THE FILING OF THE RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR , BOTH THESE SUMS ARE REQUIRED TO BE GRANTED AS DEDUCTION TO THE ASSESSEE. EVEN OTHERWISE , THE ABOVE ADDITION CANNOT BE SUSTAINED U/S 37/69C OF PAGE | 162 THE INCOME TAX ACT. THEREFORE , THE A BOVE GROUND OF APPEAL IS SENT BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER WITH A DIRECTION TO GRANT DEDUCTION OF TAX DEDUCTION AT PAYABLE OF RS. 55889554/ AND TO VERIFY THE PROVISIONS OF SECTION 43B WITH RESPECT TO VAT AND CST AS WELL AS SERVICE TA X PAYABLE , IF ASSESSEE HAS CLAIMED THE DEDUCTION THEREOF. ACCORDINGLY, GROUND NUMBER 16 OF THE APPEAL OF THE ASSESSEE IS ALLOWED WITH ABOVE DIRECTIONS. 149 . GROUND NUMBER 17 OF THE APPEAL IS WITH RESPECT TO THE ADDITION OF UNSECURED LOAN OF INR 1 0510000/ MADE BY THE LEARNED ASSESSING OFFICER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED ASSESSING OFFICER ASKED THE APPELLANT TO PROVIDE THE DETAIL S OF ADVANCES RECEIVED DURING THE YEAR ALONG WITH THE NAME, ADDRESS AND PERMANENT ACCOUNT NUMBER AND ASSESSMENT PARTICULARS OF THE CONCERNED PARTIES. THE ASSESSEE SUBMITTED ABOVE REPLY AS PER THE LETTER DATED 2/1/2013. ON RECEIPT OF THE REPLY OF THE ASSE SSEE, THE LEARNED AO FURTHER MADE CERTAIN ENQUIRIES ABOUT THE GENUINENESS OF THE TRANSACTION FROM THE ASSESSEE. THE ASSESSEE ALSO REPLIED TO THE ABOVE QUERY ON 20/2/2014 SUBMITTING THE BANK STATEMENT OF THE COMPANY AS WELL AS THE FURTHER DETAIL OF THE DEP OSITORS. HOWEVER, THE LEARNED ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER MADE THE ADDITION OF THE ABOVE SUM. THE ASSESSEE CHALLENGED THE SAME BEFORE THE LEARNED DISPUTE RESOLUTION PANEL, WHICH DIRECTED THE LEARNED ASSESSING OFFICER TO VERIFY THE ABO VE TRANSACTION AND GRANT RELIEF TO THE APPELLANT IF REQUIRED. HOWEVER SUBSEQUENTLY THE LEARNED ASSESSING OFFICER MADE AN ADDITION OF INR 10510000 U/S 68 OF THE INCOME TAX ACT OF UNSECURED LOAN OF THE ASSESSEE. 150 . THE LD AR SUBMITTED THAT APPELLANT HAS TAKE N ON LOAN DURING THE YEAR OF INR 2 700000/ FROM MR. BEENU NANU, WHO IS A DIRECTOR OF THE COMPANY, AND INR 7 100000/ FROM MEROFROM FROM INDIA PRIVATE LIMITED, AND INR 700,000 FROM SEBASTIAN BRUNETTE, WHO IS ALSO THE DIRECTOR OF THE COMPANY. HE SUBMITTED THAT ASSESSEE HAS SUBMITTED THE CONFIRMATION, NAME, ADDRESS, PERMANENT ACCOUNT NUMBER, PURPOSES FOR WHICH THE LOAN WAS TAKEN AND BANK STATEMENT OF THE PAGE | 163 APPELLANT COMPANY. HE SUBMITTED THAT THE DIRECTOR OF THE COMPANY AND THE PRIVATE LIMITED COMPANY FROM WH OM THE LOANS ARE TAKEN ARE ALSO ASSESSED WITH THE SAME ASSESSING OFFICER. THE ASSESSEE SUBMITTED THE COPIES OF THE BANK ACCOUNT OF THE LENDERS AND INCOME TAX RETURN FILED BY THEM. FURTHER, IN RESPONSE TO SUMMONS U/S 131 OF THE INCOME TAX ACT ALL OF THEM CONFIRMED THE ABOVE LOAN TRANSACTIONS. THUS, HE SUBMITTED THAT ASSESSEE HAS DISCHARGED INITIAL ONUS CAST UPON HIM AS PER PROVISIONS OF SECTION 68 OF THE INCOME TAX ACT. HE SUBMITTED THAT ASSESSEE COULD NOT HAVE PRODUCED MORE DETAILS THAN THIS. HE THEREF ORE SUBMITTED THAT ADDITION U/S 68 OF THE INCOME TAX ACT MADE BY THE LEARNED ASSESSING OFFICER DESERVES TO BE DELETED. 151 . LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LEARNED AO AND DISPUTE RESOLUTION PANEL. 152 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE APPELLANT COMPANY HAD NO OUTSTANDING UNSECURED LOANS IN THE BOOKS OF ACCOUNTS DURING THE YEAR. THE LOAN WAS TAKEN FROM THE FOLLOWING PARTIES WHICH WERE DULY REPAID DURING THE YEAR: B INU NANU (DIRECTOR) : RS.27,00,000/ - (ASSESSED BY SAME AO) CASH LOAN FROM DIRECTORS : RS.10,000/ - (ASSESSED BY SAME AO) MEROFROM INDIA PVT LTD : RS.71,00,000/ - (ASSESSED BY SAME AO) SEBASTIAN BRUNET (DIRECTOR) : RS.7,00,000 - 153 . IN THE INSTANT CASE, THE APPELLANT RECEIVED THE SUM OF RS.10,000/ - DURING THE A.Y.2010 - 11. APPLYING THE RATIO OF THE ABOVE DECISION TO THE FACTS OF THE CASE, IT IS CLEAR THAT THE LD. AO COULD NOT HAVE ADDED THE AMOUNT OF RS.10,000/ - UNDER THE PROVISIONS OF SECTION 68 OF THE INCOME TAX ACT, 1961 IN THE PRESENT YEAR SINCE THE SAID AMOUNT WAS RECEIVED IN EARLIER YEARS. THE BALANCE OF RS.1,05,00,000/ - RECEIVED PAGE | 164 DURING THE YEAR COULD HAVE BEEN A SUBJECT MATTER OF EXAMINATION BY THE LD. AO FOR THE PURPOSE OF SECTIO N 68 OF THE ACT IN THE CURRENT YEAR. FOR THIS APPELLANT HAD SUBMITTED THE NAME, ADDRESS PAN AND PURPOSE FOR WHICH THE LOAN WAS TAKEN. THE BANK STATEMENT OF THE APPELLANT COMPANY WAS ALSO SUBMITTED TO SHOW THAT TRANSACTION HAS BEEN TAKEN PLACE THROUGH ACCOU NT PAYEE CHEQUES ONLY. SINCE THE LOAN WAS TAKEN FROM THE DIRECTORS AND THE SHAREHOLDERS WHO AS WELL WERE ASSESSEES BEFORE THE SAME AO AND WERE REGULARLY CO - OPERATING WITH THE INCOME TAX AUTHORITIES DURING THE COURSE OF ASSESSMENT, THE IDENTITY, OF THE PAR TIES CANNOT BE QUESTIONED. FURTHER LD AO PARA 24(Y) OF THE ASSESSMENT ORDER HELD THAT ALL THESE LOANS ARE DULY VERIFIABLE FROM THE BANK ACCOUNT OF THE ASSESSEE COMPANY. THE ABOVE COMMENT OF THE LD. AO SHOWS THAT THE TRANSACTION ON ACCOUNT OF UNSECURED LO AN WAS DULY VERIFIED. HOWEVER, THE REASON FOR ADDITION WAS ONLY THAT THE APPELLANT FAILED TO FILE ANY CONFIRMATION LETTER. MR. BINU NANU AND MR. SEBASTIAN BRUNET HAD SUBMITTED A REPLY TO THE NOTI CE OF SUMMON U/S 131 OF THE ACT. I . MR. BINU NANU SUBMITTED THAT : - IT IS RESPECTFULLY SUBMITTED THAT DURING THE F.Y. RELEVANT TO A.Y. 2011 - 2012, I GAVE AN INT EREST FREE SHORT TERM LOAN OF R S.27,00,000/ - ON 22.05.2010 TO M/S G L LITMUS EVENTS PRIVATE LIMITED. THE SAID LOAN WAS DULY REPAID BY M/S G L LITMUS EVENTS PRIVATE LIMITED TO ME ON 12.06.2010. THIS TRANSACTION RELATED TO SHORT TERM LOAN AND ITS REPAYMENT IS DULY RECORDED IN MY BANK ACCOUNT STATEMENT, A COPY WHEREOF IS ENCLOSED HEREWITH AS ANNEXURE - 2. HE SUBMITTED COPY OF PAN CARD, ITR ACKNOWLEDGEMENT AND BA NK STATEMENT ALSO . II . IN REPLY TO NOTICE U/S 131, MRS. SEBASTIAN BRUNET STATED THE FOLLOWING: I GAVE AN INTEREST FREE SHORT TERM LOAN OF INR 7,00,000/ - ON MAY 25,2010 VIDE CHEQUE NO.107440 DRAWN ON HSBC BANK TO M/S G L LITMUS EVENTS PRIVATE LIMITED. THE SAID LOAN WAS DULY PAGE | 165 REPAID BY M/S G L LITMUS EVENTS PRIVATE LIMITED TO ME ON MAY 25, 2010 VIDE C HEQUE NO.657687 DRAWN ON HSBC BANK. THE ABOVE STATEMENT U/S 131(1) IS A CONFIRMATION OF LOAN ONLY. R EPAYMENT OF THE SAME WAS THE CONFIRMATION LETTER AS REQUIRED BY THE LD. AO . III . IN THE CASE OF MEROFORM INDIA PVT LTD , APPELLANT SUBMITTED THE COPY OF LEDGE R ACCOUNT OF G L LITMUS EVENTS PVT LTD IN THE BOOKS OF MEROFORM INDIA PVT LTD. THE LEDGER ACCOUNT OF MEROFORM INDIA PVT LTD IN THE BOOKS OF APPELLANT WAS ALSO SUBMITTED. THIS VERY CLEARLY SHOWS THAT THE LOAN OF RS.71,00,000/ - WAS TAKEN FROM MEROFORM INDI A PVT LTD. THESE DULY ACT AS CONFIRMATION OF THE LOAN. FURTHER, COPY OF ITR ACKNOWLEDGEMENT , PAN CARD AND BANK STATEMENT OF MEROFORM INDIA PVT LTD WAS SUBMITTED. 154 . IN LIGHT OF THE AFORESAID SUBMISSION, IT IS CLEAR THAT ALL THE MATERIAL INCLUDING THE PAR TY CONFIRMATION ON RECORD, THE LD. AO HAD MADE ADDITION OF RS. 1,05,10,000/ - WHICH CLEARLY SHOWS THAT ASSESSEE HAS DISCHARGED ITS ONUS CAS T UP ON IT U/S 68 OF THE ACT. THE LD AO HAS NOT CARRIED OUT ANY INQUIRY ON THE SAME. THUS, ADDITION WAS MADE INCORRECTLY BY THE LD. AO. FURTHER, THE LD. AO ALSO DID NOT HAVE ANY VALID REASON TO DISPROVE THE DOCUMENTS SUBMITTED BY THE ASSESSEE. THEREFORE, IT IS CLEAR THAT ASSESSEE HAS ESTABLISHED IDENTITY, CREDITWORTHINESS, AND GENUINENESS OF THE TRANSACTIONS BY SUBMITTING ADEQUATE EVIDENCES, WHICH HAS NOT BEEN DISAPPROVED BY THE LEARNED ASSESSING OFFICER BY COGENT INQUIRIES . IN VIEW OF THIS WE DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION U/S 68 OF THE INCOME TAX ACT OF INR 1 0510000/ MADE U/S 68 OF THE ACT. ACCORDINGLY, GROUND NUMBER 17 OF THE APPEAL IS ALLOWED. 155 . GROUND NUMBER 18 OF THE APPEAL IS WITH RESPECT TO ADDITION OF INR 3 03255951/ MADE BY THE LEARNED ASSESSING OFFICER BEING ALLEGED DIFFERENCE BETWEEN THE PURPORTED TARGET COSTS . BRIEF FAC TS OF THE ISSUE PAGE | 166 SHOWS THAT THE LD. A.O. AT PARA 26, PAGES 58 - 72 (AT PAGES 58 - 59 AND AT PAGE 72)OF HIS ASSESSMENT ORDER, RELIED UPON CERTAIN PAGES MARKED AS PAGES 1 - 4 OF ANNEXURE 3 WHICH WAS FOUND AND SEIZED FROM THE RESIDENTIAL PREMISES OF SHR BINU NANU AT F - 18, SECTOR 40, NOIDA. IT WAS ALSO STATED BY THE A.O. THAT THE SAME PAGES WERE ALSO MAINTAINED IN THE HARD DISK MARKED AS ANNEXURE A - 4 (PARTY BR - 3) AGAIN AT THE RESIDENCE PREMIS ES OF SH. BINU NANU. BASED ON THESE DOCUMENTS, THE LD. A.O. ALLEGED THAT THE SAID PAGES CONTAINED COMPARISON OF THE PRICES AT WHICH VARIOUS ITEMS (LISTED IN THOSE PARTICULAR SEIZED PAGES) WERE PROCURED FROM THE VENDORS FOR THE PURPOSE OF OVERLAYS CONTR ACTS WITH THE PRICES AT WHICH THE SAME WERE SUPPLIED TO THE OC, CWG. THE LD. A.O. THEN FURTHER PROCEEDED TO CHECK ACCURACY OF THE SAID DETAILS AS FOUND IN THE SAID SEIZED PAGES WAS CONFIRMED BY TALLYING THE SAME WITH THE ACTUAL BILLS SEIZED FROM THE PREMI SES OF THE APPELLANT ON A TEST CHECK BASIS. HE THUS LISTED A FEW ITEMS WHOSE COST PRICES (AS NOTED IN THE SEIZED PAPERS) CORRESPONDED WITH THE SEIZED PAPERS: S.NO. PARTICULARS OF ITEMS SUPPLIERS NAME 1 . MIRROR STANDING STELLAR & UNIMAX 2 . WALL CLOCK DELHI WATCH MARKETING PVT. LTD. 3 . TRAFFIC CONES AJS INTERNATIONAL 4 . TABLE PATIO SABHARWAL INTERNATIONAL 5 . DOOR MATS GEE BEE DISTRIBUTORS 6 . RUBBISH BINS PEAKSHOW 7 . FOLDING BEDS MADAN COTTON STORES 8 . FANS DELHI WATCH MARKETING PVT. LTD. 156 . THE LD. A.O. THEN ADOPTING THE ALLEGED COST RATES AND THE SELLING RATES AS APPEARING IN THE SEIZED MATERIAL AND APPLYING THE SAME TO BOQ AS RECORDED IN THE BOOKS OF THE APPELLANT DETERMINED THE PAGE | 167 MARGIN OF RS. 30,32,55,951 (AT G.P.OF 68%) AND ADDED U/S 69A O F THE ACT, THE SAID MARGIN TO THE TOTAL INCOME OF THE APPELLANT COMPANY AS THE UNEXPLAINED MONEY NOT RECORDED IN THE BOOKS OF ACCOUNTS FOR THE SAID A.Y.2011 - 12. : SR NO PARTICULARS AMOUNT IN RS 1 TOTAL SUPPLY VALUE TO OC, CWG OF THE ITEMS MENTIONED IN THE SEIZED PAGES RS.45,06,67,706/ - 2 TOTAL PURCHASE COST OF THE ITEMS MENTIONED IN THE SEIZED PAGES (AT THE RATES MENTIONED IN THE SAID SEIZED PAPERS) RS. 14,78,75,689/ - 3 MARGIN ADDED U/S 69A OF THE ACT RS. 30,32,55,951/ - 157 . ASSESSEE PREFERRED OBJECTION BEFORE THE LD . DRP, WHO HELD AT PARA 15, PAGE 42 OF ITS ORDER THAT : - THE NEXT ISSUE IS IN RESPECT OF ADDITIONS OF RS. 30,32,55,951/ - AND RS. 34,10,40,959/ - ON ACCOUNT OF EXORBITANT PROFIT MARGIN. THE ACTUAL COST OF THE GOODS AND SERVICES FOUND MENTIONED IN THE SEIZED DOCUMENTS VIS - - VIS RATE QUOTED TO OC/DDA DO REVEAL THE RATE OF MARGIN OF PROFIT. THE ASSESSEE WAS NOT DOING BUSINESS WHEREIN NORMAL PROFIT IS EARNED. ACTUALLY, IT IS COLLUSIVE LOOT OF OUR EXCHEQUER. THESE SEIZED MATERIALS ARE SIMPLE ILLUSTRATION OF THE PROFITEERING OF THE ASSESSEE. THE AVERAGE RATE OF PROFIT DISCLOSED IN THE SEIZED MATERIAL MENTIONED AT PAGE 10 TO 32 OF THE DRAFT ASSESSMENT ORDER MAY BE APPLIED ON THE ENTIRE CONTRACT VALUE OF RS.156.73 CRORES WITH THE OC AND RS.54.00 CRORES WITH DDA. THE ASSESSEES INCOME HAS TO B E WORKED OUT BOTH ON ACCRUAL AND INVESTMENT - EXPENDITURE BASIS AND THE HIGHER OF THE TWO PAGE | 168 HAS TO BE CONSIDERED TO AVOID DOUBLE TAXATION AS THE INCOME EARNED FROM THE BUSINESS HAS BEEN APPROPRIATED / MANIFESTED EITHER FOR DEPOSITING IN BANK ACCOUNTS / ACQUIRI NG ASSETS AND OR FOR INCURRING EXPENDITURE. THEREFORE, THE TELESCOPIC BENEFIT OF INCOME EARNED IN THIS AY HAS TO BE GIVEN IN RESPECT OF INVESTMENT / EXPENDITURE / OUTGOINGS MADE SUBSEQUENT TO THAT. HOWEVER, IN THE INTEREST OF JUSTICE, WE HEREBY DIREC T THE AO TO CARRY OUT THE VERIFICATION WORK FOR ASCERTAINING THE TRUE FACTS. HOWEVER, THE ABOVE ADDITIONS HAVE TO BE MADE ON PROTECTIVE BASIS ALSO. IN CASE, THE ASSESSEES INCOME ON THE BASIS OF OUTGOINGS / EXPENDITURE / INVESTMENTS IS MORE THAN THAT ON ACCRUAL BASIS BY APPLYING THE PROFIT MARGIN APPEARING IN THE ABOVE MENTIONED SEIZED DOCUMENTS; IS FOUND MORE, THEN THE ASSESSMENT HAS TO BE COMPLETED ON THE BASIS OF OUTGOINGS / EXPENDITURE / INVESTMENTS ON ACCRUAL BASIS. IT IS HEREBY CLARIFIED THAT THE SET OFF OF OUTGOINGS / EXPENDITURE / INVESTMENTS HAS TO BE SUBSEQUENT TO THE RECEIPT OF INCOME AS IT CANNOT PRECEDES TO THAT. ACCORDINGLY, GROUNDS OF OBJECTION A - 5 AND A - 6 ARE DISPOSED OF. 158 . FROM THE ABOVE IT IS THUS SEEN THAT THE DRP HAS HELD THE G.P. RA TE TO BE AT 68% WHICH SHOULD BE APPLIED TO THE ENTIRE CONTRACT. SO THIS ADDITION WAS MADE BY THE LD AO. HENCE, ASSESSEE HAS CHALLENGED THE SAME BEFORE US. 159 . LD AR SUBMITTED THAT THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES. IN PROVISION OF THE SERVICES OF THE ASSESSEE HAS PROCURED THAT THE MATERIAL AND GIVEN THE PRODUCT, INFRASTRUCTURE AS MENTIONED IN THE CONTRACT. HE SUBMITTED THAT THERE ARE MORE THAN PAGE | 169 1000 ITEMS OF DIFFERENT CHARACTERISTICS, WHICH WERE PROCURED IN ONE CLUSTER. THE LEA RNED ASSESSING OFFICER HAS RELIED UPON RANDOMLY SEIZED PAGES FOUND AT THE RESIDENCE OF THE DIRECTOR WHICH CONTAINED ONLY 66 ITEMS, OUT OF WHICH THE LEARNED AO COMPARED THE PRICES OF ONLY 8 ITEMS AND BASED ON THOSE ITEMS HE HAS MADE THE ADDITION OF SUCH A H UGE MAGNITUDE STATING THAT ASSESSEE HAS HIGHER GROSS PROFIT. HE FURTHER SUBMITTED THAT ALL THE GROSS RECEIPTS RECEIVED FROM THE COMMONWEALTH GAMES ORGANIZING COMMITTEE HAVE DULY BEEN RECORDED IN THE PROFIT AND LOSS ACCOUNT AS INCOME ACCORDING TO THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. THUS WHEN THE TOTAL SALE CONSIDERATION WHICH ACCORDING TO THE ASSESSING OFFICER 68% HIGHER THAN THE ACTUAL COST WHI CH IS ALREADY RECORDED IN THE CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT, THERE IS NO REQUIREMENT OF MAKING ANY ADDITION IN THE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE AS THE GROSS RECEIPTS ALLEGED BY THE LEARNED ASSESSING OFFICER HAS ALREADY BEEN SHO WN IN THE PROFIT AND LOSS. HE THEREFORE STATED THAT THAT ADDITION IS NOT SUSTAINABLE ON THIS GROUND ONLY. HE FURTHER STATED THAT THE LEARNED AO AS COMPARED THE PRICES OF THE MATERIAL HOWEVER HE HAS IGNORED COMPLETELY THE TRANSPORTATION COSTS, STAFF COST, OTHER VARIABLE COSTS, OVERHEADS AND SEVERAL OTHER COSTS WHICH ARE REQUIRED TO BE INCURRED TO PUT THE MATERIAL IN THAT PARTICULAR PLACE TO MAKE IT USABLE FOR THE COMMONWEALTH GAMES . HE FURTHER STATED THAT IN SEVERAL ITEMS THE RATES QUOTED TO THE ORGANIZI NG COMMITTEE ARE LESS THAN THE RATES AT WHICH THE MATERIAL IS AVAILABLE FROM THE OUTSIDE PARTIES AND THEREFORE IT IS NOT PROVE THAT THERE IS SUCH A HUGE MARGIN. HE FURTHER REFERRED TO THE AGREEMENT EXECUTED ON 2/6/2010 BETWEEN THE CONSORTIUM AND ORGANIZIN G COMMITTEE, WHICH STATED THAT THE ASSESSEE HAS TO MAINTAIN AND OPERATE THE ABOVE INFRASTRUCTURE FROM 10 TH SEPTEMBER UP TO 15/10/2010 AND TO REMOVE IT BY 30/11/2010. HE FURTHER REFERRED TO THE SCOPE OF THE WORK WHEREIN THE MOST OF THE SUPPLY AND INSTALLAT ION ON RENT OF VARIOUS TYPE OF TEMPORARY STRUCTURES WERE TO BE ERECTED HE THEREFORE SUBMITTED THAT THAT THE ABOVE CONTRACT WAS PAGE | 170 NOT GIVEN TO THE ASSESSEE FOR THE PURCHASE OF MATERIAL BUT TO ORGANIZE AN EVENT IN WHICH THE ASSESSEE AND CONSORTIUM MEMBERS HAVE EXPERIENCE THEREFORE LOOKING TO THE CONTRACT AND ITS NATURE IT IS UNFAIR TO COMPARE THE PRICES OF THE INDIVIDUAL ITEMS AND THEN TO MAKE AN ADDITION IN THE HANDS OF THE ASSESSEE. HE FURTHER REFERRED TO THE SCHEDULE OF OTHER OPERATING EXPENDITURE WHICH IS OF INR 1 416922016/ , HE THEREFORE STATED THAT THE ABOVE COST IS REQUIRED TO BE ADDED TO THE MATERIAL PRICE SHOWN ON THOSE WHEN THE PRICES WHICH HAS BEEN IGNORED BY THE LEARNED ASSESSING OFFICER. HE THEREFORE SUBMITTED THAT THE ABOVE ADDITION IS NOT SUSTA INABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 160 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER AND THE LEARNED DISPUTE RESOLUTION PANEL AND SUBMITTED THAT THERE IS A HUGE MARGIN BETWEEN THE PRICES QUOTED BY THE VENDOR AND THE PRICES AT WHICH THE MATERIAL HAS BEEN SUPPLIED BY THE ASSESSEE TO THE ORGANIZING COMMITTEE AND THEREFORE THE LEARNED ASSESSING OFFICER HAS MADE THE ADDITION U/S 69A OF THE INCOME TAX ACT. 161 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. APPARENTLY, IN THIS CASE CERTAIN DOCUMENTS WERE SEIZED DURING THE COURSE OF SEARCH, WHICH SHOWS THAT THE PRICE OF THE MATERIAL AT WHICH THE ASSESSEE HAS SUPPLIED TO THE ORGANIZING COMMITTEE AND THE PRICES AT WHICH IT IS AVAILABLE FROM THE VENDOR HAVE VAST DIFFERENCE. SEIZED MATERIAL CONTAINED THE LIST OF 66 ITEMS. FROM THE BILLS, THE AO COMPARED SUCH PRI C ES OF 8 ITEMS. HE FOUND THAT THERE IS A DIFFERENCE BETWEEN THE PRICE QU OTED BY THE VENDOR AND THE PRICES AT WHICH THE MATERIAL WAS TO BE SUPPLIED BY THE ASSESSEE TO THE ORGANIZING COMMITTEE. HE FURTHER FOUND THAT THE MARGIN IS APPROXIMATELY 68 PERCENTAGES . THEREFORE BASED ON THE SEIZED DOCUMENTS THE LEARNED ASSESSING OFFICER MADE AN ADDITION OF INR 3 03255951/ UNDER SECTION 69A OF THE INCOME TAX ACT WHICH WAS UPHELD BY THE LEARNED DISPUTE RESOLUTION PANEL. COMING TO THE 1 ST ARGUMENT OF THE LEARNED AUTHORISED REPRESENTATIVE , IT IS APPARENT PAGE | 171 THAT THE CLAIM OF THE LEARNED AO IS THAT ASSESSEE H AS SOLD GOODS AT HIGH PRICES WHEREAS IT HAS PROCURED GOODS FROM THE VENDORS AT A VERY LESS PRICE AND THUS THERE IS A HUGE MARGIN BETWEEN THE PRICE AT WHICH THE MATERIAL IS SOLD AND THE PRICE AT WHICH THE MATERIAL IS PURCHASED BY THE ASSESSEE , WHICH RESUL TED INTO THE GROSS PROFIT RATIO OF 65 PERCENTAGE. BE THAT IT MAY BE, ON SIMPLE ANALYSIS OF THE ABOVE STATEMENT IT IS APPARENT THAT ASSESSEE HAS SHOWN THE SALE PRICE WHICH IS 68% HIGHER THAN THE COST OF MATERIAL BOOKED BY THE ASSESSEE. THUS, THE SALE PRICE SHOWN BY THE ASSESSEE IS HIGHER THAN THE PURCHASE PRICE SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS. IT IS NOT THE CASE OF THE AO THAT ASSESSEE HAS SHOWN RECEIPTS EVEN RUPEE LESS THAN WHAT HAS BEEN PAID BY THE ORGANIZING COMMITTEE. THE LEARNED ASSESSING OFFICER COULD NOT DISPUTE AND FIND OUT THAT THE PURCHASE PRICE IS BOOKED BY THE ASSESSEE ARE NOT CORRECT. THE AO ALSO DID NOT DISPUTE THAT THERE IS OTHER OVERHEADS, WHICH HAS BEEN INCURRED BY THE ASSESSEE. THEREFORE, WHATEVER PROFIT HA S BEEN EARNED BY THE ASSESSEE WOULD AUTOMATICALLY COME INTO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE ON THE CREDIT SIDE AS THERE IS NO UNDERSTATEMENT OF SALE PRICE. NOW THE LEARNED ASSESSING OFFICER SHOULD HAVE LOOKED INTO THE DEBIT SIDE OF THE PROFIT AND LOSS ACCOUNT AND ASCERTAINED THAT THOUGH THE PRICE OF THE MATERIAL PURCHASED BY THE ASSESSEE IS ONLY 32% OF THE SALE PRICE WHEREAS THE PROFIT WAS GONE. IF HE CANNOT FIND THAT THE OTHER ITEMS OF THE PURCHASES BY THE ASSESSEE AND THE OTHER EXPENSES INCU RRED BY THE ASSESSEE ARE NOT INFLATED BY PRODUCING THE COGENT REASONS AND EVIDENCES, THE ABOVE ANALYSIS MADE BY THE LEARNED ASSESSING OFFICER IS FRUITLESS.. WE ARE NOT HERE TO DECIDE THE ASSESSEE HAS CHEATED THE ORGANIZING COMMITTEE OR NOT, WE ARE HERE TO DECIDE THAT ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNTS, WHICH ARE DULY SUPPORTED WITH THE RELEVANT EVIDENCES AND THE PROFIT DISCLOSED BY THE ASSESSEE AFTER INVESTIGATION BY THE LEARNED ASSESSING OFFICER CAN BE DISTURBED OR NOT. IN THE WHOLE ASSESSMENT ORDER, THE LEARNED ASSESSING OFFICER HAS NOT CARRIED OUT ANY INVESTIGATION TO SHOW THAT THE EXPENDITURE PAGE | 172 BOOKED BY THE ASSESSEE IS BOGUS AND THEREFORE THE ASSESSEE HAS EARNED HIGHER PROFIT BUT IT HAS DISCLOSED LESSER PROFIT. SUCH SUPPRESSION OF PROFIT SHO ULD HAVE BEEN INVESTIGATED BY THE LEARNED ASSESSING OFFICER INSTEAD OF THAT HE MERELY RELIED UPON THE REPORT OF OTHER COMMITTEES, AND OTHER ORGANIZATIONS ARE INVESTIGATIVE AGENCIES ET CETERA. MERELY ON THESE BAS ES , SUCH ADDITION CANNOT BE MADE. EVEN OTHE RWISE, THE LEARNED ASSESSING OFFICER DID NOT EVEN CARE TO LOOK AT THE NUMBER OF ITEMS THAT HAS BEEN USED BY THE ASSESSEE FOR THE PURPOSE OF PERFORMANCE OF THE CONTRACT, WHICH IS STATED TO BE MORE THAN 1000. OUT OF THIS, HE COULD FIND THE PRICE COMPARISON OF ONLY 66 ITEMS. OUT OF THE 66 ITEMS, HE COMPARED ONLY 8 ITEMS. THUS OUT OF THE 1000 ITEMS HE FOUND THE DIFFERENCE IN ONLY 8 ITEMS WHICH IS LESS THAN EVEN 1% OF THE TOTAL INVENTORY PURCHASED BY THE ASSESSEE. FURTHER THE LEARNED AR HAS ALSO SHOWN THE IN STANCES WHERE THE RATES OF VENDOR WERE HIGHER THAN THE RATES AT WHICH ASSESSEE SUPPLIED THE MATERIAL TO THE ORGANIZING COMMITTEE. THESE INSTANCES WERE NOT AT ALL CONTROVERTED BY THE LEARNED AUTHORISED DEPARTMENTAL REPRESENTATIVE, AO AND THE LEARNED DISPUT E RESOLUTION PANEL. SUCH INSTANCES QUOTED BY THE LEARNED AUTHORISED REPRESENTATIVE ARE AS UNDER : - WITHOUT PREJUDICE TO THE ABOVE, ANALYZING THE ACTION OF THE A.O. A BIT FURTHER, IT IS SEEN THAT THE LD. A.O. PROVIDING THE ALLEGED LIST OF 66 DIFFERENT ITEMS IN RELATION TO WHICH IT IS ALLEGED THAT THE MARGINS WERE VERY HIGH, HAS HOWEVER HIMSELF ADMITTED THAT OUT OF THESE 66 ITEMS, ALLEGEDLY THE ACTUAL PURCHASE PRICE (BEING ONLY THE DIRECT PROCUREMENT COST) OF ONLY 8 ITEMS TALLIED WITH THE TARGET PURCHASE PRICE STATED IN THE TABLE. HERE IT IS RELEVANT TO POINT OUT THAT IN THE SEIZED PAGES, THE FIRST ITEM BEING 7 .01 WOODEN STRUCTURE WAS RECORDED AT AN ALLEGED COST PRICE OF R S. 3500 PER UNIT. NOW WHEN COMPARED TO THE BILLS AS RAISED BY THE APPELLANT, IT IS SEEN THAT THE BILL PAGE | 173 RAISED IS OF RS.2100/ - ONLY. THE ANALYSIS OF THE BILL WILL REVEAL THAT THE UNIT PRICE IS VERY DIFFERENT (LOWER) AND ALSO THAT THE BILL CLEARLY LAYS OUT THAT THE AMOUNT WAS FOR ONLY THE DIRECT MATERIAL COST AND NOT FOR THE ENTIRE COST RELATING TO THE WOODEN PLATFORM. THE NEXT ITEM IN THE SEIZED LIST IS CHAIR SOFA 3 SEATER AND 2 SEATER. THE ALLEGED COST PRICE RECORDED THEREIN IS AT RS.7550 AND 5950/ - . NOW COMPARING AGAIN EITH THE PURCHASE ORDER OF THE APPELLANT COMPANY IT IS SEEN THAT THE PRICES RECORDED THREEIN ARE OF RS.14,250/ - AND 15,300/ - FOR 3 SETAER AND RS.10,200 FOR 2 SEATER. THUS HERE THE PRICE RECORDED IS HIGHER. THUS FROM THE ABOVE IT STANDS TO BE CLEARLY THE CASE OF THE APPELLANT THAT THE SEIZED MATERIAL CANNOT IN ANY W AY BE RELIED UPON AND USED IN COMPUTING THE G.P RATE WHICH THE APPELLANT COMPANY MIGHT HAVE EARNED. THUS IT IS SUBMITTED BEFORE YOUR HONOURS THAT THE FACTUAL FINDING OF THE A.O. THAT IN THE SAID PAGES, A COMPARISON HAS BEEN DRAWN OF THE PROCESS AT WHIC H VARIOUS ITEMS WERE PROCURED FROM VENDORS FOR THE PURPOSE OF OVERLAYS CONTRACTS, AND THE PRICES AT WHICH THEY HAVE BEEN SUPPLIED TO THE OC, CWG IS TOTALLY INCORRECT. 162 . THUS IT IS NOT THE CASE OF THE REVENUE THAT THERE ARE NO SUCH INSTANCES AT WHICH THE RA TES QUOTED BY THE VENDOR ARE HIGHER THAN THE RATES AT WHICH THE MATERIAL SUPPLIED BY THE ASSESSEE TO THE ORGANIZING COMMITTEE. FURTHER IT IS APPARENT THAT ASSESSEE HAS THE CONTRACT IN THE FORM OF TURNKEY AGREEMENT TO EXECUTIVE AND COMPLETE THE WORK OF THESE CLUSTERS FROM 15/10/2010 AND REMOVE IT BY 30/11/2010. THE TERMS AND CONDITIONS OF THE CONTRACT WERE NOT FOR SUPPLY OF ANY MATERIAL BUT DESIGN SERVICES. THE CONTRACT ALSO PAGE | 174 INCLUDED ALL THE COST ON THE ACCOUNT OF THE ASSESSEE.. SUCH COST INCLUDE ALL LABOUR, MATERIAL, PLANT AND EQUIPMENT NECESSARY TO CARRY OUT THE ABOVE AND ANY OTHER WORK THAT MAY BE REQUIRED TO ENSURE SUCCESSFUL FUNCTI ONING OF THE ENTIRE OVERLAYS CONTRACT. THUS THE NATURE OF CONTRACT WAS A TURNKEY BASIS CONTRACT THE RATES GIVEN IN THE SCHEDULE OF RATES SHALL INCLUDE ALL COST EXPENSES CHARGES AND INPUTS. THEREFORE MAKING THE ADDITION MERELY BASED ON COMPARISON OF THE P RICES AT MATERIAL IS PURCHASED THE ADDITION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE. UNDOUBTEDLY THE ASSESSEE INCURRED THE HUGE COST OF INR 1 416922016 TOWARDS THE FREIGHT PECKING FORWARDING, MANPOWER, CONSUMABLE JOB WORK CHARGES SITE PREPARATION EXPEN SES AND HIRE CHARGES ET CETERA. THUS MERELY LOOKING AT THE PRICE OF THE MATERIAL THE ADDITION CANNOT BE MADE IN THE HANDS OF THE ASSESSEE. EVEN OTHERWISE THE LEARNED ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 69A OF THE ACT WHICH CAN ONLY BE INVOKED IN THOSE CASES WHERE THE MONEY IN QUESTION IS NOT RECORDED IN THE BOOKS OF ACCOUNTS OF THE TAXPAYER. IN THE PRESENT CASE THE ASSESSEE HAS MOVED THE TOTAL SALE CONSIDERATION, THE TOTAL PURCHASE COST ON BY THE ASSESSEE AND THEREFORE THERE IS NOTHIN G WHICH IS EXCLUDED. HENCE, THE PROVISIONS OF SECTION 69A OF THE ACT CANNOT BE APPLIED. IN VIEW OF THIS WE DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION OF INR 3 03255951/ BEING THE DIFFERENCE BETWEEN THE PURPORTED TARGET COST AND THE CONS IDERATION TO BE RECEIVED FROM THE ORGANIZING COMMITTEE BY THE ASSESSEE UNDER SECTION 69A OF THE ACT. ACCORDINGLY, GROUND NUMBER 18 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 163 . GROUND NUMBER 19 OF THE APPEAL IS WITH R ESPECT TO THE ADDITION OF INR 3 4 , 10 , 40 , 959 / MADE BY THE LEARNED ASSESSING OFFICER BEING THE ALLEGED DIFFERENCE BETWEEN THE PRICE QUOTED BY THE APPELLANT TO ORGANIZING COMMITTEE IN COMPARISON TO THE PRICE ALLEGEDLY QUOTED BY OTHER VENDORS. THE BRIEF FACTS OF THE ADDITION SHOWS THAT AS PER THE PAR A NUMBER 27 OF THE ORDER OF THE LEARNED ASSESSING OFFICER HE NOTED THAT THERE IS AN ALLEGATION THAT FOR SEVERAL ITEMS DIFFERENT RATES PAGE | 175 CHARGED BY THE ORGANIZING COMMITTEE FROM DIFFERENT CONTRACTORS RESULTING IN UNDUE AND SELECTIVE FAVORITISM , A COMPARATIVE STUDY OF THE RATES QUOTED BY THE 4 VENDOR IS EXECUTING THE CONTRACT WAS MADE. BASED ON THIS, THE LEARNED ASSESSING OFFICER LISTED THE COMPARATIVE PRICES OF 4 CONTRACTORS AND HELD THE MINIMUM OF EACH TO BE THE BENCHMARK. HE THEREFORE CALCULATED ON SELECTI VE BASIS ON CERTAIN ITEMS WHERE THE APPELLANT COMPANY CHARGED ABOVE THE MINIMUM AS DETERMINED BY HIM AND THEREFORE HE FOUND THAT THERE IS A DIFFERENCE OF INR 341040959/ TO BE THE EXTRA PROFIT THAT IT HAS EARNED ON THE SUPPLY OF THE MATERIAL TO THE ORGANIZ ING COMMITTEE WITH THIS CONTRACT. THE LEARNED ASSESSING OFFICER REFERRED TO THE FINDINGS OF SHUNGLU COMMITTEE REGARDING THE FACT THAT THE ORGANIZING COMMITTEE HAD PAID DIFFERENTIAL RATES TO DIFFERENT CONTRACTORS FOR THE SAME ITEMS AND THE ALLEGATION THAT THE PAYING OF THE HIGHER RATES FOR SAME ITEMS RESULTED IN HUGE LOSS TO THE EXCHEQUER WHICH STOOD VINDICATED BY THE COMPUTATION OF INR 3 41040959/ AND HE MADE THE ADDITION U/S 69C OF THE ABOVE SUM BEING UNEXPLAINED EXPENDITURE. THE ASSESSEE CHALLENGED TH E SAME BEFORE THE LEARNED DISPUTE RESOLUTION PANEL BY FILING AN OBJECTION. 164 . THE LEARNED DISPUTE RESOLUTION PANEL DEALT WITH THE ABOVE OBJECTION AT PARA NUMBER 15 OF ITS DIRECTION AS UNDER: - THE NEXT ISSUE IS IN RESPECT OF ADDITIONS OF RS.30,32,55,951/ - AND RS.34,10,40,959/ - ON ACCOUNT OF EXORBITANT PROFIT MARGIN. THE ACTUAL COST OF THE GOODS AND SERVICES FOUND MENTIONED IN THE SEIZED DOCUMENTS VIS - - VIS RATE QUOTED TO OC/DDA DO REVEAL THE RA TE OF MARGIN OF PROFIT. THE ASSESSEE WAS NOT DOING BUSINESS WHEREIN NORMAL PROFIT IS EARNED. ACTUALLY, IT IS COLLUSIVE LOOT OF OUR EXCHEQUER. THESE SEIZED MATERIALS ARE SIMPLE ILLUSTRATION OF THE PROFITEERING OF THE ASSESSEE. PAGE | 176 THE AVERAGE RATE OF PROFIT DISCLOSED IN THE SEIZED MATERIAL MENTIONED AT PAGE 10 TO 32 OF THE DRAFT ASSESSMENT ORDER MAY BE APPLIED ON THE ENTIRE CONTRACT VALUE OF RS.156.73 CRORES WITH THE OC AND RS.54.00 CRORES WITH DDA. THE ASSESSEES INCOME HAS TO BE WORKED OUT BOTH ON ACCRUA L AND INVESTMENT - EXPENDITURE BASIS AND THE HIGHER OF THE TWO HAS TO BE CONSIDERED TO AVOID DOUBLE TAXATION AS THE INCOME EARNED FROM THE BUSINESS HAS BEEN APPROPRIATED / MANIFESTED EITHER FOR DEPOSITING IN BANK ACCOUNTS / ACQUIRING ASSETS AND OR FOR INCURR ING EXPENDITURE. THEREFORE, THE TELESCOPIC BENEFIT OF INCOME EARNED IN THIS AY HAS TO BE GIVEN IN RESPECT OF INVESTMENT / EXPENDITURE / OUTGOINGS MADE SUBSEQUENT TO THAT. HOWEVER, IN THE INTEREST OF JUSTICE, WE HEREBY DIRECT THE AO TO CARRY OUT THE VER IFICATION WORK FOR ASCERTAINING THE TRUE FACTS. HOWEVER, THE ABOVE ADDITIONS HAVE TO BE MADE ON PROTECTIVE BASIS ALSO. IN CASE, THE ASSESSEES INCOME ON THE BASIS OF OUTGOINGS / EXPENDITURE / INVESTMENTS IS MORE THAN THAT ON ACCRUAL BASIS BY APPLYING THE PROFIT MARGIN APPEARING IN THE ABOVE MENTIONED SEIZED DOCUMENTS; IS FOUND MORE, THEN THE ASSESSMENT HAS TO BE COMPLETED ON THE BASIS OF OUTGOINGS / EXPENDITURE / INVESTMENTS ON ACCRUAL BASIS. IT IS HEREBY CLARIFIED THAT THE SET OFF OF OUTGOINGS / EXPENDI TURE / INVESTMENTS HAS TO BE SUBSEQUENT TO THE RECEIPT OF INCOME AS IT CANNOT PRECEDES TO THAT. ACCORDINGLY, GROUNDS OF OBJECTION A - 5 AND A - 6 ARE DISPOSED OF. THE LEARNED ASSESSING OFFICER THUS MADE THE ABOVE ADDITION . PAGE | 177 165 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ABOVE ADDITION HAS BEEN MADE WITHOUT ANY EVIDENCES AND MERELY BASED ON THE CONJECTURES AND SURMISES BY COMPARING THE PRICES OF THE FOUR CONTRACTORS AND SELECTING THE MINIMUM PRICE OUT OF THEIR BIDS AND THEN WORKING OUT THE DIFFERENCE BETWEEN PRICES CHARGED BY THE ASSESSEE WITH THE MINIMUM PRICES OFFERED BY THE ASSESSEE, THE LD AO WORKED OUT THE DIFFERENCE OF INR 34 , 10 , 40 , 959/ . HE FURTHER SUBMITTED THAT THE LEARNED ASSESSING OFFICER HAS TO TALLY IGNORED THE CONCEPT OF THE SERVICE AND THE SALE OF GOODS . HE SUBMITTED THAT THE CONTRACT OF THE ASSESSEE WAS FOR THE PERFORMANCE OF THE SERVICE AND NOT FOR THE SALE OF GOODS AND THEREFORE MERELY COMPARING THE PRICES OF THE TWO SUPPLIERS , HE SHO ULD NOT HAVE MADE THE ADDITION BY CHERRY PICKING THE ITEMS. HE FURTHER STATED THAT THE ADDITION U/S 69C CANNOT BE MADE A S IT RELATES TO AN EXPENDITURE WHICH IS NOT APPLICABLE IN THE PRESENT CASE. HE THEREFORE SUBMITTED THAT THERE IS NO EVIDENCE AVAILABLE WITH THE ASSESSING OFFICER TO MAKE THE ABOVE ADDITION. 166 . THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER AND STATED THAT ASSESSEE HAS SUPPLIED THE MATERIAL TO THE ORGANIZING COMMITTEE AT A VERY HUGE PR ICE DIFFERENCE, THEREFORE THE LEARNED ASSESSING OFFICER COMPARED THE PRICES OF OTHER 4 CONTRACTORS AND FOUND THAT THE MINIMUM PRICE OF THE CONTRACT PRICE CITED BY THE 1 OF THE 4 CONTRACTORS WAS COMPARED WITH THE PRICE CHARGED BY THE ASSESSEE AND DIFFER ENTIAL AMOUNT THE ADDITION HAS BEEN MADE. 167 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS APPARENT THAT ABOVE ADDITION HAS BEEN MADE WITHOUT FINDING ANY EVIDENCES AGAINST THE ASSESSEE BUT ON MERE ALLEGATION THAT THE ASSESSEE HAS SUPPLIED THE MATERIAL TO THE ORGANIZING COMMITTEE AT ALLEGED HIGHER RATES VIS - A - VIS OTHER CONTRACTORS WITHOUT LOOKING INTO THE FACT THAT ASSESSEE HAS ALREADY BOOKED THIS RECEIPT / INCOME IN THE PROFIT AND LOSS ACCOUNT. IT IS NOT THE CASE OF THE REVENUE THAT ASSESSEE HAS NOT BOOK ED REVENUE OR LESS PAGE | 178 BOOKED IT . WHEN THE ASSESSEE HAS FULLY BOOKED REVENUE , THERE IS NO REASON TO MAKE A FURTHER ADDITION IN THE HANDS OF THE ASSESSEE UNLESS THE ASSESSING OFFICER FINDS THAT TH E PRICES CHARGED BY THE VENDORS TO THE APPELLANT ( WHICH IS A COST TO THE APPELLANT ) ARE ON THE HIGHER SIDE. HERE THE ISSUE IS ALTOGETHER A REVERSE. THE APPELLANTS CONTRACT WITH OC WAS NOT FOR SALE OF GOODS BUT FOR PERFORMANCE OF SERVICES. THE ASSESSEE HAS DULY SHARED PARTICULARS OF SERVICES PROVIDED BY IT UNDER THE CONTRACTS RELATING TO COMMONWEALTH GAMES. THE APPELLANT HAS DULY PROVIDED PARTICULARS OF THE SERVICES PROVIDED UNDER THE CONTRACT, INCLUDING THE SUPPLY COST IN RELATION TO ALL THE ITEMS INVOL VED IN THE EXECUTION OF OC CONTRACT. IN SUCH A CASE PICKING UP RANDOM ITEMS OF COST WITHOUT ANY JUSTIFICATION AND VERIFICATION AND COMPARING, THE SAME WITH AGAIN RANDOM PRICES IS WITHOUT ANY BASIS AND NOT BASED ON FACTS AND PROPER APPRECIATION OF THE ENTIR E STRUCTURE OF THE CONTRACT AND ITS ACCOUNTING PROCEDURE. WHENEVER A PROJECT LIKE COMMONWEALTH GAMES INVOLVING THOUSANDS OF ITEMS IS EXECUTED WHAT IS IMPORTANT IS THE OVERALL CONSIDERATION RECEIVED AND THE OVERALL COST. THE PROFITABILITY OF A PROJECT INVOL VING THOUSANDS OF DIFFERENT ITEMS CANNOT BE DETERMINED BASED ON CHERRY PICKING OF THE ALLEGED MARGINS EARNED IN RELATION TO FEW ITEMS BASED ON SOME ADHOC COMPARISONS. THE LD. AO HAS ONLY CARRIED OUT SELECTIVE COMPARISON BUT HAS CHERRY PICKED ONLY THOSE ITE MS WHERE THE PRICE QUOTED BY THE ASSESSEE WAS MORE IN COMPARISON TO THE PRICE ALLEGEDLY QUOTED BY THE OTHER VENDORS. HOWEVER, THE LD. AO HAS IGNORED THE ITEMS WHERE THE PRICE QUOTED BY THE ASSESSEE WAS LESS IN COMPARISON TO THE PRICE QUOTED BY THE OTHER VE NDORS. THIS CHERRY PICKING IS THE BASIS FOR LD. AOS ALLEGATION THAT THE ASSESSEE HAS EARNED EXORBITANT MARGINS AND THAT THE ASSESSEE HAS CAUSED HUGE LOSS TO THE EXCHEQUER. THEREFORE , THESE FACTUAL FINDINGS OF THE LD. AO REGARDING EXORBITANT MARGINS EARNE D BY ASSESSEE AND THAT THE ASSESSEE HAS CAUSED LOSS TO EXCHEQUER CANNOT BE THE BASIS FOR MAKING THE ABOVE ADDITION U /S 69C OF THE ACT. ON A BARE PERUSAL OF SECTION 69C OF THE PAGE | 179 ACT , IT WOULD SHOW THAT THE CONDITION PRECEDENT TO THE APPLICATION OF PROVISIONS OF SECTION 69C OF THE ACT IS THAT THE ASSESSEE SHOULD HAVE INCURRED ANY EXPENDITURE. IN THE INSTANT CASE, THE ASSESSEE HAS EXECUTED PROJECTS RELATED TO COMMONWEALTH GAMES. THE ALLEGATION OF THE LD. AO IS THAT THE ASSESSEE HAS CHARGED MORE CONSIDERATION FOR THESE PROJECTS IN COMPARISON TO OTHER VENDORS. EVEN IF IT IS PRESUMED THAT, THE ALLEGATION OF THE LD. AO IS CORRECT, STILL CHARGING OF HIGHER CONSIDERATION IS UNDOUBTEDLY AN ITEM OF INC OME FOR THE ASSESSEE, WHICH HAS BEEN DULY RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS PER THE METHOD OF ACCOUNTING AND NOT AN EXPENDITURE INCURRED BY THE ASSESSEE. THEREFORE, THE CONDITION PRECEDENT TO THE APPLICATION OF PROVISIONS OF SECTION 69C OF THE ACT IS NOT FULFILLED IN THE INSTANT CASE. IN VIEW OF THE ABOVE ACTION OF THE LD AO IN MAKING THE ADDITION OF RS 30,1040,959/ - INVOKING THE PROVISIONS OF SECTION 69C OF THE ACT IS NOT SUSTAINABLE . THUS, WE DIRECT THE LD AO TO DELETE THE SAME. GROUND NO 19 OF THE APPEAL IS ALLOWED. 168 . GROUND NO 20 OF THE APPEAL IS AGAINST THE DISALLOWANCE OF TOTAL EXPENDITURE INCURRED BY THE ASSESSEE OF RS. 129,27,50,026/ - . IN THIS ISSUE THE LD AO HAS DISALLOWED THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE DES PITE MAKING INDIVIDUAL DISALLOWANCES OF ALL THE EXPENSES. AS SUCH THEREFORE, IT IS DOUBLE DISALLOWANCE MADE BY THE LD AO. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO VIDE PARA 7 OF THE NOTICE DATED 24.01.2014 ASKED THE APPELLANT TO PROVIDE TH E DETAILS OF WHOLE OF THE EXPENDITURE INCURRED BY THE APPELLANT ALONG WITH THE COPIES OF BILLS, VOUCHERS AND ALSO THE RELATION OF SUCH EXPENSES DIRECTLY OR INDIRECTLY WITH THE BUSINESS ACTIVITY OF THE APPELLANT COMPANY FOR THE RELEVANT A.Y. THE LD. AO ASKE D THE APPELLANT TO SHOW CAUSE WHY THE EXPENDITURE SHOULD NOT BE DISALLOWED. IN RESPONSE TO THE ABOVE, THE APPELLANT FURNISHED REPLY ON 12.02.2014 SUBMITTED DETAILS INCLUDING NAME AND ADDRESS OF THE PERSON/VENDOR, MODE OF PAYMENT, NATURE OF WORK/SERVICE/MA TERIAL SUPPLIED, BILL NO. AND ITS DATE ETC IN RELATION TO WHOLE OF THE EXPENDITURE. THE APPELLANT ALSO PRODUCED THE BILLS IN PAGE | 180 RELATION TO ALL THE EXPENDITURE. HOWEVER, THE LD. AO DID NOT CONSIDER THE SUBMISSION OF THE APPELLANT AND PASSED DRAFT ASSESSMENT O RDER ON 27.03.2014 MAKING ADDITION OF WHOLE OF THE EXPENDITURE OF RS. 165,12,50,026/ - . REASON FOR MAKING ABOVE DISALLOWANCE BY THE LD AO IS THAT THE APPELLANT HAD NOT SUBMITTED ORIGINAL INVOICES AND OTHER SUPPORTING EVIDENCES AS REQUISITIONED EARLIER ON VARIOUS DATES AS DISCUSSED ABOVE , BUT PHOTOCOPY WHICH HAS BEEN SUBMITTED BY THEM DURING THE COURSE OF HEARINGS. TH E LD AO H ELD THAT THIS SHOWS THAT THE ASSESSMENT PROCEEDINGS WHICH STARTED ON 17.09.2012 AND CONTINUED THROUGH THE YEAR 2013 AND YEAR 2014 THE ASSESSEE DID NOT HAVE ANY ORIGINAL INVOICES. THOS FURTHER SHOWS THAT THE COPIES OF THE BILLS AND INVOICES OF CLAIMED EXPEN DITURE UNDER VARIOUS HEADS BY THE ASSESSEE FOR THE A.Y. 2011 - 12 ARE SHAM EXPENSES AS ALREADY PROVED IN THE EARLIER PARA OF THIS ORDER. IT WAS SUBMITTED THAT SEIZED DOCUMENTS SHOWS THOSE ORIGINALS WITH INCOME TAX DEPARTMENT. THEREAFTER, AFTER FEW MONT HS ORIGINAL INVOICES OF VALUE, LESS THEN RS.1 LAKH WERE RETURNED TO THE COMPANY WHILE ALL THE INVOICES OF VALUE , RS.1 LAKH AND ABOVE (IN ORIGINAL) WERE RETAINED BY THE INCOME TAX AUTHORITIES . FURTHER, THE LD. AO ALSO ALLEGED THAT ASSESSEE WAS GIVEN REP EATED OPPORTUNITIES BUT ASSESSEE FAILED. THUS IT RESULTED IN ADDITION/ DISALLOWANCE IN DRAFT ASSESSMENT ORDER. ASSESSEE FILED OBJECTIONS BEFORE LD DRP. THE LD DRP HELD THE FOLLOWING: HERE, IN THE PRESENT CASE, DEFINITELY 100% EXPENSES CANNOT BE HELD B OGUS. DEFINITELY, NO BUSINESS CAN BE DONE WITHOUT INCURRING ANY EXPENDITURE. THEREFORE, WE DO NOT FIND MERIT IN DISALLOWANCE OF ENTIRE EXPENSE. DEFINITELY, IN VIEW OF THE ABOVE - MENTIONED FACTS, AT LEAST THE SUM OF RS. 35.85 CRORES PAID TO THE OC AND DDA HA VE BEEN RECOUPED THROUGH THE BOGUS BILLING IN THE BOOKS OF ACCOUNTS. BESIDES, OTHER SPECIFIC DISALLOWANCES BASED ON FACTS HAVE TO BE MADE SEPARATELY ON PROTECTIVE BASIS TO THE EXTENT OF BOGUS EXPENDITURE OF RS. 35.85 CRORES AND PAGE | 181 DISALLOWANCE BASED ON FACTS OVER AND ABOVE OF RS. 35.85 CRORES ON SUBSTANTIVE BASIS TO AVOID DOUBLE TAXATION. 169 . SUBSEQUENTLY, THE APPELLANT PRODUCED THE ORIGINAL BILLS BEFORE THE LD. AO. HOWEVER, THE LD. AO DID NOT ACCEPTED THE BILLS AND ON DIRECTION OF THE DRP MADE ADDITION OF RS. 129,27,50,026/ - (RS. 165,12,50,026 RS. 35,85,00,000) U/S 69C OF THE ACT. 170 . THE LD AR SUBMITTED THAT I . THE APPELLANT FILED ITS RETURN OF INCOME FOLLOWING THE CASH METHOD AS OF THE IT ACT, 1961. ALL THE INCOMING AND OUTGOING OF RECEIPTS AND PAYMENTS WERE ALL EVIDENCED, VERIFIED AND ACCEPTED AS SUCH. HOWEVER, WHILE MAKING THE DISALLOWANCE WITH REGARDS TO THE EXP ENSES, THE AO HAS DISALLOWED IT ON ACCRUAL BASIS IN AS MUCH AS REJECTING THE CASH SYSTEM OF ACCOUNTING. THE AO ON NO BASIS WHATSOEVER ADOPTED THE ACCRUAL METHOD FOR DETERMINING THE APPELLANTS INCOME. II . APPELLANT PRODUCED ALL THE ORIGINAL BILLS BEFORE THE LD . AO DURING THE COURSE OF ASSESSMENT WHICH HAS BEEN DULY ACCEPTED BY THE LD. AO IN THE ASSESSMENT ORDER. HOWEVER, HE REJECTED ALL THE ORIGINAL BILLS ONLY SAYING THAT THE APPELLANT WAS INVOLVED IN RECEIVING THE BOGUS BILLS WITHOUT ANY REASONING. THE LD. AO ON NO BASIS ALLEGED THAT ALL THE BILLS ARE BOGUS AND THEREFORE THE STATEMENT OF THE LD. AO SOUNDS TO BE VAGUE. III . THE DRP ALSO DIRECTED THE LD. AO TO MAKE ADDITION ON PROTECTIVE BASIS. HOWEVER, IN SPITE OF SEVERAL SPECIFIC DISALLOWANCES WERE MADE IN RELATION TO TRANSFER PRICING EXPENSES, PER DIEM ALLOWANCES, PROFESSIONAL FEES, TRAVELLING EXPENSES, RELATED PARTY PURCHASES, SECURITY GUARD EXPENSES AND OTHER EXPENSES ALREADY COVERED FROM GROUND 3 TO GROUND 19 OF THE SUBMISSION, THE LD. AO DISALLOWED WHOLE OF THE EXPENDITURE CONSIDERING IT AS UNEXPLAINED, WHICH HAS LEAD TO TWICE AS WELL AS THRICE DISALLOWANCES . PAGE | 182 IV . HE SUBMITTED A CHART SHOWING DOUBLE DISALLOWANCES IS SUBMITTED SEPARATELY IN THE COURSE OF THIS HEARING. THIS VERY CLEARLY SHOWS THE ADDITION WAS MADE SUBSTANTIALLY MANY TIMES. V . ORIGINAL BILLS, COPIES OF LEDGER OF ALL THE EXPENSES ALONG WITH NARRATION, PAYMENT DETAILS, BANK, STATEMENT AND LEDGER OF PARTYS ACCOUNT FROM WHICH MATERIALS AND SERVICES WERE PROCURED AND ALSO EXPLAINED THE PURPOSE OF THE EXPEN DITURE BEFORE THE LD. AO. THE NARRATION IN THE LEDGER ACCOUNT AND THE BILLS ARE SUFFICIENT TO EXPLAIN THE PURPOSE FOR WHICH THE EXPENDITURES ARE INCURRED. THE APPELLANT HAD MAINTAINED CASH BASIS OF ACCOUNTING FOR INCOME TAX PURPOSES. IN ORDER TO COMPLY WIT H THE PROVISION OF SECTION 209 OF THE COMPANIES ACT, 1956, THE APPELLANT ALSO PREPARED AND MAINTAINED ITS BOOKS OF ACCOUNTS ON ACCRUAL BASIS. IT WAS ALSO ESTABLISHED THAT THE APPELLANT HAD MAINTAINED PROPER BOOKS OF ACCOUNTS AND ALL THE TRANSACTION IN RESP ECT OF INCOME, EXPENDITURE, ASSETS, AND LIABILITIES ARE DULY RECORDED IN THE BOOKS. THE LD. AO ALSO ACCEPTED THAT THE APPELLANT HAD MAINTAINED PROPER BOOKS OF ACCOUNTS AS ALL THE ADDITIONS AND DISALLOWANCES WERE MADE ACCORDING TO THE AMOUNT REFLECTED IN TH E BOOKS. HOWEVER, THE LD. AO INSTEAD OF EXAMINING THE MATERIAL ON RECORD AND BOOKS OF ACCOUNTS BEFORE HIM PROCEEDED PURELY ON HIS WHIMS, FANCIES, SURMISES, AND CONJECTURES AND DISALLOWED ALL THE EXPENDITURE. VI . BILLS AMOUNTING TO RS.27,55,05,611/ - WERE SEIZE D BY THE INCOME TAX AUTHORITIES DURING THE SEARCH U/S 132 CONDUCTED IN THE CASE OF APPELLANT WHICH WERE DULY ACCEPTED U/S 292C OF THE ACT. THE LIST OF EXPENSES IN RELATION TO THESE BILLS WHICH WERE RECORDED IN BOOKS ARE SL. NO. PARTICULARS AMOUNT PAGE | 183 1 AIR, SEA AND OTHER FREIGHT 5,90,66,914.00 2 CONSUMABLES 1,87,08,297.00 3 FIXED ASSETS & REPAIRS 22,32,338.00 4 GENERATOR RUNNING 1,57,73,803.00 5 JOB WORK 14,74,905.00 6 MOBILE HANDSET 1,42,450.00 7 OFFICE MAINTENANCE 1,81,299.00 8 PROFESSIONAL FEES 16,94,245.00 9 RENTAL 10,13,57,012.00 10 RENTAL & SITE EXP 2,32,14,182.00 11 SALARIES 9,48,014.00 12 SANITATION 83,85,103.00 13 SECURITY SERVICE 5,57,076.00 14 SITE PREPARATION 3,33,19,464.00 15 STATIONERY 3,31,988.00 16 TELEPHONE 3,88,498.00 17 TRAVEL 77,30,023.00 TOTAL 27,55,05,611.00 VII . TOTAL EXPENDITURE ALSO INCLUDES THE EXPENDITURE SUCH AS SALARIES AND BONUS, BANK CHARGES, RATES AND TAXES, INTEREST EXPENDITURE, INSURANCE AND OTHER SEVERAL EXPENDITURES, WHICH ARE TO BE VERIFIED SEPARATELY. IT WAS THE RESPONSIBILITY OF THE ASSESSING OFFICER TO VERIFY THE EXPENDITURE INDIVIDUALLY HEAD WISE. HOWEVER, INSTEAD OF DOING SO THE LD. AO ASSESSED ON OVERALL BASIS AND DISALLOWED WHOLE OF THE EXPENDITURE. VIII . LD. AO DID NOT R ECORD ANY PROPER REASON FOR DISALLOWING THE EXPENDITURE. THE LD. AO ALSO DID NOT HOLD THAT THE EXPENDITURE REMAINED UNEXPLAINED BY THE APPELLANT. IT SHALL BE EVIDENT FROM THE ABOVE THAT THE LD. AO HAD DISALLOWED ALL THE EXPENDITURE, WHICH WAS CLAIM BY THE APPELLANT IN THE P/L A/C. HOWEVER, HE WAS STILL DISSATISFIED AND THOUGHT OF AGAIN MAKING DISALLOWANCE IN TOTALITY OVER AND ABOVE INDIVIDUAL DISALLOWANCE MADE. THE ABSURDITY OF THE ACTION OF THE LD. AO WAS EVIDENT. IN THIS MATTER, THE ENTIRE ADDITION MADE C APRICIOUSLY WITHOUT ANY APPLICATION OF MIND NEED TO BE DELETED . PAGE | 184 171 . THE LD DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LD DRP. 172 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE APPELLANT FILED ITS RETURN OF INCOME FOLLOWING THE CASH METHOD AS OF THE IT ACT, 1961. ALL THE INCOMING AND OUTGOING OF RECEIPTS AND PAYMENTS WERE ALL EVIDENCED, VERIFIED AND ACCEPTED AS SUCH. HOWEVER, WHILE MAKING THE DISALLOWANCE ABOU T THE EXPENSES, THE AO HAS DISALLOWED IT ON ACCRUAL BASIS IN AS MUCH AS REJECTING THE CASH SYSTEM OF ACCOUNTING. THE AO ON NO BASIS WHATSOEVER ADOPTED THE ACCRUAL METHOD FOR DETERMINING THE APPELLANTS INCOME. THE APPELLANT PRODUCED ALL THE ORIGINAL BILLS BEFORE THE LD. AO DURING THE COURSE OF ASSESSMENT, WHICH HAS BEEN DULY ACCEPTED BY THE LD. AO IN THE ASSESSMENT ORDER. HOWEVER, HE REJECTED ALL THE ORIGINAL BILLS FOR THE ONLY REASON THAT THE APPELLANT WAS INVOLVED IN RECEIVING THE BOGUS BILLS. THE LD. AO WITHOUT ANY INQUIRY, INVESTIGATION, IDENTIFYING THE PARTIES, NATURE OF BILLS, NUMBER OF BILLS, AMOUNT INVOLVED, AND MODUS OPEARANDI ALLEGED THAT ALL THE BILLS ARE BOGUS AND THEREFORE THE STATEMENT OF THE LD. AO SOUNDS VERY VAGUE. FURTHER, THE DRP ALSO DIRECTED THE LD. AO TO MAKE ADDITION ON PROTECTIVE BASIS. HOWEVER, IN SPITE OF SEVERAL SPECIFIC DISALLOWANCES WERE MADE IN RELATION TO TRANSFER PRICING EXPENSES, PER DIEM ALLOWANCES, PROFESSIONAL FEES, TRAVELLING EXPENSES, RELATED PARTY PURCHASES, SECURITY GUARD EXPENSES AND OTHER EXPENSES ALREADY COVERED FROM GROUND 3 TO GROUND 19 OF THE SUBMISSION, THE LD. AO DISALLOWED WHOLE OF THE EXPENDITURE CONSIDERING IT AS UNEXPLAINED, WHICH HAS LEAD TO TWICE . AR SUBMITTED A CHART SHOWING DOUBLE DISALLOWANCES . FU RTHER, THE APPELLANT SUBMITTED ORIGINAL BILLS, COPIES OF LEDGER OF ALL THE EXPENSES ALONG WITH NARRATION, PAYMENT DETAILS, BANK, STATEMENT AND LEDGER OF PARTYS ACCOUNT FROM WHOM MATERIALS AND SERVICES WERE PROCURED AND ALSO EXPLAINED THE PURPOSE OF THE EX PENDITURE BEFORE THE LD. AO. THE NARRATION IN THE LEDGER ACCOUNT AND THE BILLS ARE SUFFICIENT TO EXPLAIN THE PURPOSE FOR WHICH THE EXPENDITURES ARE INCURRED. THE APPELLANT HAD MAINTAINED PAGE | 185 CASH BASIS OF ACCOUNTING FOR INCOME TAX PURPOSES. IN ORDER TO COMPLY WITH THE PROVISION OF SECTION 209 OF THE COMPANIES ACT, 1956, THE APPELLANT ALSO PREPARED AND MAINTAINED ITS BOOKS OF ACCOUNTS ON ACCRUAL BASIS. IT WAS ALSO ESTABLISHED THAT THE APPELLANT HAD MAINTAINED PROPER BOOKS OF ACCOUNTS AND ALL THE TRANSACTION IN R ESPECT OF INCOME, EXPENDITURE, ASSETS AND LIABILITIES ARE DULY RECORDED IN THE BOOKS. THE LD. AO ALSO ACCEPTED THAT THE APPELLANT HAD MAINTAINED PROPER BOOKS OF ACCOUNTS AS ALL THE ADDITIONS AND DISALLOWANCES WERE MADE ACCORDING TO THE AMOUNT REFLECTED IN THE BOOKS. FURTHER, THE TOTAL EXPENDITURE ALSO INCLUDES THE EXPENDITURE SUCH AS SALARIES AND BONUS, BANK CHARGES, RATES AND TAXES, INTEREST EXPENDITURE, INSURANCE AND OTHER SEVERAL EXPENDITURES, WHICH ARE TO BE VERIFIED SEPARATELY. IT WAS THE RESPONSIBILIT Y OF THE ASSESSING OFFICER TO VERIFY THE EXPENDITURE INDIVIDUALLY HEAD WISE. HOWEVER, INSTEAD OF DOING SO THE LD. AO ASSESSED ON OVERALL BASIS AND DISALLOWED WHOLE OF THE EXPENDITURE. FURTHER THE FINDING OF LD DRP IS THAT DEFINITELY 100% EXPENSES CANNOT BE HELD BOGUS. DEFINITELY, NO BUSINESS CAN BE DONE WITHOUT INCURRING ANY EXPENDITURE. HOWEVER, THEY HAVE DIRECTED TO MAKE THE DISALLOWANCE OF RS 35.85 CRORES, BUT ON WHAT BASIS THERE IS NO FINDING. THE ONLY REASON GIVEN IS THAT AT LEAST THE SUM OF RS. 35.85 CRORES PAID TO THE OC AND DDA HAVE BEEN RECOUPED THROUGH THE BOGUS BILLING IN THE BOOKS OF ACCOUNTS. THE LD DRP ALSO DID NOT CARE TO FIND OUT THE ACTUAL BOGUS EXPENDITURE, IF ANY INCURRED BY THE ASSESSEE. IN VIEW OF THIS WE DO NOT FIND ANY MER IT IN THE DISALLOWANCE MADE BY THE LD AO AND SUSTAINED BY THE LD DRP. ACCORDINGLY GROUND NO 20 OF THE APPEAL IS ALLOWED. 173 . GROUND NO 21 IS GENERAL IN NATURE AND NO SPECIFIC ARGUMENTS WERE ADVANCED THEREFORE IT IS DISMISSED. 174 . GROUND NO 22 IS AGAINST THE INITIATION OF PENALTY PROCEEDINGS, WHICH IS PREMATURE AT THIS STAGE. THOUGH ARGUMENTS ARE ADVANCED BY THE LD AR EXTENSIVELY BUT THERE IS NO APPEAL AGAINST THE INITIATION OF THE PENALTY PROCEEDINGS AS SEPARATE MECHANISM ARE PROVIDED. THE PAGE | 186 ASSESSEE HAS P ROPER OPPORTUNITIES ARE AVAILABLE FOR DEFENDING IT, THEREFORE IT IS PREMATURE AT THIS STAGE AND HENCE, DISMISSED. 175 . GROUND NO 23 IS AGAINST THE INITIATION OF PENALTY PROCEEDINGS U/S 271 G OF THE ACT FOR NON MAINTENANCE OF THE DOCUMENTS PRESCRIBED UNDER THE LAW FOR INTERNATIONAL TRANSACTIONS. IT IS ALSO SIMILAR TO GROUND NO 22 OF THE APPEAL. THOUGH ARGUMENTS ARE AD VANCED BY THE LD AR EXTENSIVELY BUT THERE IS NO APPEAL AGAINST THE INITIATION OF THE PENALTY PROCEEDINGS AS SEPARATE MECHANISM ARE PROVIDED. THE ASSESSEE HAS PROPER OPPORTUNITIES AVAILABLE FOR DEFENDING IT, THEREFORE IT IS PREMATURE AT THIS STAGE AND HE NCE, DISMISSED. 176 . BEFORE PARTING, WE WOULD LIKE TO SUBMIT THAT IN THE WHOLE APPEAL INVOLVING ALMOST 20 GROUNDS, THE VARIOUS ADDITIONS HAVE BEEN MADE IN THE HANDS OF THE ASSESSEE BASED ON ALLEGATION IN PUBLIC DOMAIN AND SUBSEQUENT COMMITTEE REPORTS AND CBI S EARCHES. INCOME TAX DEPARTMENT ALSO CONDUCTED SEARCHES. HOWEVER ON READING OF THE ENTIRE ASSESSMENT ORDER AND FINDINGS OF THE LD DRP, WE DO NOT FIND THAT INCOME TAX DEPARTMENT HAS MADE ANY MEANINGFUL INVESTIGATION / ASSESSMENT BASED ON WHICH VARIOUS ADDI TIONS ARE MADE. THE WHOLE ADDITION DISALLOWANCES ARE BASED ON FINDING OF VARIOUS OTHER AGENCIES WITHOUT UNDERSTANDING THAT THEIR ROLE, DUTIES ARE ALTOGETHER OF DIFFERENT NATURE AND HOW THAT CAN BE FITTED IN TO THE SCHEME OF THE INCOME TAX ACT. TH E LD AO HAS MADE SEVERAL DISALLOWANCES APPLYING VARIOUS SECTIONS, WHICH ARE NOT AT ALL RELEVANT ON CERTAIN GROUNDS. INSTEAD OF THAT THE LD AO SHOULD HAVE MADE DETAILED INQUIRY OF EACH OF THE EXPENDITURE INCURRED BY THE ASSESSEE . HE D SHOULD HAV E BROUGHT ON RECORD NECESSARY IRREFUTABLE EVIDENCES TO SHOW THAT WHAT ARE THOSE EXPENDITURE BOOKED BY THE ASSESSEE ARE BOGUS. HE SHOULD HAVE ALSO LOOKED AND INVESTIGATED IN TO THE TRAIL OF THE MONEY FLOWING FROM ASSESSEE THROUGH CHEQUE AND COMING BACK TO THE ASSESSEE IN CASH AND THEN REACHING THE HANDS OF BENEFICIARIES OF ILLEGAL GRATIFICATIONS. THEN IN THE END HE SHOULD HAVE SUPPORTED HIS ORDER BY THE REPORTS OF VARIOUS OTHER GOVERNMENT PAGE | 187 AGENCIES. IN THIS CASE, THE LD AO JOLLY WELL RIDES ON T HE BACK OF THE REPORTS OF THE OTHER GOVERNMENT AGENCIES AND MAKING ADDITIONS/ DISALLOWANCES, WHICH ARE NOT SUSTAINABLE, UNFOUNDED AND UNREASONABLE. 177 . ACCORDINGLY, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 1 / 0 7 / 2019 . - S D / - - S D / - ( K.N.CHARY ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 1 / 0 7 / 2019 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI
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