M/s. Nuware India Ltd., Faridabad V. DCIT, Faridabad

ITA 2618/DEL/2011

• Counselvise Citation: 261820114 RSA 2011
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 09-04-2012
• Assessment Year: 1996-1997
• Appeal Filed On: 20-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI SENIOR
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Opportunity of being heard; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) SHRI RAJPAL YADAV, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2568/DEL./2011 (ASSESSMENT YEAR : 1996-97) DCIT, CENTRAL CIRCLE, VS. M/S. NUWARE INDIA LIMIT ED, FARIDABAD. PLOT NO.179, SECTOR 24, FARIDABAD. (PAN : AAACU6502G) ITA NO.2618/DEL./2011 (ASSESSMENT YEAR : 1996-97) M/S. NUWARE INDIA LIMITED, VS. DCIT, CENTRAL CIRC LE, PLOT NO.179, SECTOR 24, FARIDABAD. FARIDABAD. (PAN : AAACU6502G) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHWANI TANEJA, ADVOCATE REVENUE BY : SHRI R.S. NEGI, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : BOTH THESE CROSS APPEALS EMANATES FROM THE ORDER O F THE CIT (APPEALS), FARIDABAD DATED 17.02.2011. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTU RE AND TRADING OF MELAMINE CROCKERY ITEMS. DURING THE YEAR UNDER CON SIDERATION, NO ITA NO. 2568 & 2618/DEL./2011 2 MANUFACTURING ACTIVITY WAS CARRIED OUT BY THE ASSES SEE. AS PER THE BOOKS OF ACCOUNTS, THERE WAS AN OPENING STOCK OF FINISHED GO ODS, CROCKERY ITEMS AND CONSUMABLES. THE RETURN WAS FILED DECLARING LOSS O F RS.36,61,990/- ON 30.11.1996. 3. THE GROUNDS IN THE ASSESSEES APPEAL (ITA NO.261 8/DEL/2011) READ AS UNDER :- 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT (APPEAL) HAS ERRED IN LAW AND ON FACT S IN UPHOLDING THE ACTION OF THE A.O. IN MAKING AN ADDIT ION OF RS.32,35,402/- ON ACCOUNT OF STOCK OF PRINTED PAPER . 2. IN ANY VIEW OF THE MATTER AND IN ANY CASE THE OR DER UNDER APPEAL IS BAD IN LAW AND AGAINST THE FACTS AND CIRC UMSTANCES OF THE CASE. 3. THAT THE APPELLANT CRAVES THE LEAVE TO ADD, MODI FY, AMEND OR DELETE ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING AND ALL THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 4. IN THE ASSESSEES APPEAL, THE ONLY ISSUE INVOLVE D IS SUSTAINING THE ADDITION OF RS.32,35,402/- MADE ON ACCOUNT OF STOCK OF PRINTED PAPER. ASSESSEE HAD SHOWN OPENING STOCK OF PRINTED PAPER O F RS.32,35,402/- FOR THE YEAR. NEITHER SALES NOR THE CLOSING STOCK IS SHOWN OF THIS ITEM. THE ASSESSEE CLAIMED THAT IT WAS DESTROYED BY THE COMPANY DURING THE YEAR UNDER CONSIDERATION. ASSESSING OFFICER MADE ADDITION BY NOT BELIEVING THE EXPLANATION. CIT (A) CONFIRMED THE ADDITION. THE STOCK WAS SHOWN IN THE OPENING STOCK BY THE ASSESSEE. IT WAS CLAIMED THAT IT WAS DESTROYED ON ACCOUNT OF SHIFTING THE PREMISES FROM 80/6, FARIDAB AD TO 177/24, FARIDABAD ITA NO. 2568 & 2618/DEL./2011 3 TOWARDS THE END OF MARCH, 1995. THE ASSESSING OFFI CER HELD THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE THAT STOCK OF PRINTED PAPER WAS TRANSPORTED TO THE NEW PREMISES. THE ASSESSING OFFICER ALSO RECOR DED THE STATEMENT OF SHRI R.S. GUPTA, ASSISTANT MANAGER AND SHRI VIRENDER CHA DHA, AN EMPLOYEE OF THE COMPANY. IT WAS CLAIMED THAT THE STOCK BECAME UNSA LEABLE IN THE MARKET, THEREFORE, IT WAS OF NO USE, HENCE DESTROYED. CIT (A) CONFIRMED THE ADDITION BY HOLDING THAT SHRI R.S. GUPTA WHOSE STATEMENT WAS RECORDED WAS REPRESENTING THE COMPANY ITSELF, HENCE CROSS EXAMIN ATION WAS NOT REQUIRED. NO TECHNICAL EXPERTS HAVE EXAMINED THE STOCK WHICH IS CLAIMED TO HAVE BEEN DESTROYED AND NO EVIDENCE WAS PRODUCED BY THE ASSES SEE TO THE FACT THAT THE STOCK WAS DESTROYED. THE CIT (A) ALSO UPHELD THE O BSERVATION OF THE ASSESSING OFFICER THAT THE MINUTE BOOKS WERE MANIPU LATED AND FOR THE REASONS RECORDED BY THE ASSESSING OFFICER, THE ADDITION WAS CONFIRMED. 5. THE LD. AR FOR THE ASSESSEE PLEADED THAT IN THE SUBMISSIONS MADE BEFORE THE CIT (A), THE ASSESSEE HAD ALSO MADE AN A LTERNATE SUBMISSION THAT EVEN IF THE STOCK WAS NOT DESTROYED THAN ALSO, THE VALUE OF THE CLOSING STOCK OF THE PRINTED PAPER CANNOT BE TAKEN AT RS.32,35,402/- AS THE ASSESSEE IS VALUING THE STOCK AT LOWER OF THE COST OR MARKETING PRI CE ON THE DATE OF VALUATION. THE LD. AR ALSO PLEADED THAT THE NET RE ALIZABLE VALUE OF THE PRINTED PAPER, IF ANY, WAS VERY LOW AS COMPARED TO THE COST OF THE STOCK. LD. AR ITA NO. 2568 & 2618/DEL./2011 4 PLEADED THAT THE ISSUE MAY BE RESTORED TO ASSESSING OFFICER TO EXAMINE AND DECIDE THIS ASPECT OF THE ISSUE. 6. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE ADD ITION MAY BE SUSTAINED AND THE ORDERS OF THE AUTHORITIES BELOW DESERVE TO BE UPHELD. 7. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE AND O N PERUSAL OF THE ORDERS OF THE CIT (A) AS WELL AS THE ASSESSING OFFICER, WE FIND THAT THE ISSUE REGARDING VALUATION OF THE CLOSING STOCK OF THE PRI NTED PAPER HAS NOT BEEN CONSIDERED BY ANY OF THE AUTHORITIES BELOW. THE AS SESSEE HAS MADE AN ALTERNATE SUBMISSION BEFORE THE CIT (A) ON THIS ISS UE WHICH HAS NOT BEEN CONSIDERED. EVEN IF THERE WAS STOCK OF PRINTED PAP ER THEN ALSO IT REQUIRES TO BE VALUED AT COST OR MARKET VALUE WHICHEVER IS LOWE R. THEREFORE, IN THE INTEREST OF JUSTICE AND EQUITY, WE FIND IT PROPER T O RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE DE NOVO AFTER PR OVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. 9. THE GROUNDS OF REVENUES APPEAL IN ITA NO.2568/D EL/2011 READ AS UNDER :- '1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING TH E ADDITION OF RS.20,84,963/- MADE BY AO ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK IN VIEW OF THE FACT THAT THE ASSESSEE COMPANY HAS VALUED THE CLOSING STOCK AT A LOWER RATE BY RECLASS IFYING CERTAIN ITEMS OF CLOSING STOCK. ITA NO. 2568 & 2618/DEL./2011 5 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE DISAL LOWANCE OF RS.35,106/- MADE BY AO ON ACCOUNT OF REPAIR AND MAI NTENANCE OF MACHINERY EXPENSES WHEN NO MANUFACTURING ACTIVIT Y WAS CARRIED OUT BY THE ASSESSEE COMPANY DURING THE YEAR . 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDIT ION OF RS.96,295/- MADE BY AO ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK OF CONSUMABLE STORES WHEN THE ASSESSEE HAS CH ANGED ITS STAND STATING THAT THE STOCK OF CONSUMABLE ITEMS WA S DESTROYED. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE DISAL LOWANCE OF RS.98,293/- MADE BY AO ON ACCOUNT OF PACKING MATERI AL CONSUMED IN VIEW OF THE FACT THAT THE ASSESSEE COMP ANY HAS SOLD THE PACKING MATERIAL AT A VERY REDUCED PRICE. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDIT ION OF RS.47,110/- MADE BY AO ON ACCOUNT OF LEGAL EXPENSES WHEN THE ASSESSEE HAS NOT PROVED THE JUSTIFICATION OF THESE EXPENSES. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE DISAL LOWANCE OF RS.40,489/- MADE BY AO ON ACCOUNT OF CASH DISCOUNT IN VIEW OF THE FACT THAT THE SUBSTANTIAL DISCOUNT WAS ALREADY ALLOWED AND THERE WAS NO JUSTIFICATION FOR ALLOWING FURTHER CAS H DISCOUNT. 7. THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIM E OF HEARING OF APPEAL. 10. THE ISSUE IN GROUND NOS.1, 3 & 4 PERTAINING TO THE DELETION OF ADDITION OF RS.20,84,963/- MADE ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK OF FINISHED PRODUCT, ADDITION OF RS.96,295/- MADE ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK OF CONSUMABLE STORES AND DELETING THE ADDITIO N OF RS.98,293/- MADE ON ITA NO. 2568 & 2618/DEL./2011 6 ACCOUNT OF PACKING MATERIAL. ISSUE IN GROUND NO.2 IS DISALLOWANCE FROM REPAIR AND MAINTENANCE. 11. THE ISSUES RAISED IN THESE FOUR GROUNDS HAVE BE EN DEALT WITH BY THE CIT (A) IN PARAS 6.2 AND 6.3 WHICH READ AS UNDER :- 6.2. THE NEXT ISSUE IN GROUND NO.5 RELATES TO THE ADDITION OF RS.20,84,963/- ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK OF FINISHED GOODS. THE FACT THAT THE CLOSING STOCK OF FINISHED GOODS WAS SHOWN AT RS.22,27,392/- AS AGAINST THE SALES OF RS.11,82,056/- AND OPENING STOCK OF RS.66,00,141/- IS NOT DISPUTED. THE ASSESSEE'S CONTENTION WAS THAT CLOSIN G STOCK WAS VALUED AT LOWER OF COST OR MARKET PRICE WHICH THE A O HAS NOT ACCEPTED AND MADE ADDITION OF RS.20,84,963/- ONLY O N THE GROUND THAT SUCH METHOD OF VALUATION BASED ON ESTIM ATE HAS NOT BEEN ACCEPTED IN EARLIER YEARS. IT IS CORRECT THAT THE APPELLANT HAS ADOPTED A VALUATION METHOD ON ESTIMATE BASIS. THE A O HAS GIVEN A FINDING OF FACT IN THE ORDER THAT THE SALES OF FI NISHED GOODS WERE MADE AT A DISCOUNT OF 50% AND THE AO HAS NOT D ISPUTED THE SALES BILLS. THE APPELLANT HAS ALSO CONTENDED THAT SALE PRICE OF FINISHED GOODS WAS SUBSTANTIALLY REDUCED DUE TO OLD DESIGN, RUST, DUST AND SCRATCHING OF MELAMINE CROCKERY. SINCE, TH E AO HAS HIMSELF ACCEPTED THAT THE FINISHED GOODS IN FACT FE TCHED THE VALUE TO THE EXTENT OF 50% OF VALUE SHOWN IN THE OPENING STOCK, THERE SHOULD BE NO REASON TO ACCEPT THAT THE CLOSING STOC K OF THE SAME FINISHED GOODS WOULD NOT HAVE A VALUE HIGHER THAN T HAT FOR SOLD. AS SUCH, WHEN EVEN THE METHOD OF VALUATION AT ESTIM ATE BASIS IS NOT ACCEPTED, THE REGULARLY EMPLOYED METHOD OF VALU ATION OF CLOSING STOCK OF FINISHED GOODS AT COST OR MARKET P RICE IS TO BE ACCEPTED AS A MATTER OF PRINCIPLES OF ACCOUNTANCY. IN ORDER TO WORK OUT THE SUPPRESSED STOCK, THE AO HAS DOUBLED T HE VALUE OF SALES FROM RS.11,60,088/- TO RS.23,20,176/ - AND RE DUCED THE SAME FROM THE STOCK OF RS.66,32,531/- (ADJUSTED BY RS.32,390/- ON ACCOUNT OF GOODS MANUFACTURED DURING THE YEAR ON JOB WORK BASIS) AND WORKED OUT THE DIFFERENCE OF RS.20,84,96 3/- BY DERIVING THE CLOSING STOCK OF RS.43,12,355/- AS AGA INST STOCK SHOWN BY THE APPELLANT AT RS.22,27,392/-. KEEPING I N VIEW THE FACT THAT THE SALE PRICE OF FINISHED GOODS AT 50% O F THE VALUE SHOWN BY THE APPELLANT IN OPENING STOCK HAS BEEN AC CEPTED BY THE AO, THE CLOSING STOCK CANNOT BE VALUED AT MORE THAN THE ITA NO. 2568 & 2618/DEL./2011 7 PRICE REALIZED BY WAY OF SALES DURING THE YEAR. HEN CE, THE VALUATION ADOPTED BY THE AO IS NOT CORRECT IN THESE FACTS OF THE CASE. THE ADDITION OF RS.20,84,963/- MADE ON ACCOUN T OF UNDER VALUATION OF CLOSING STOCK OF FINISHED GOODS IS DEL ETED. THE GROUND NO. 5 OF APPEAL IS ALLOWED. 6.3. THE AO HAS MADE SEVERAL DISALLOWANCES OUT OF MANUFACTURING AND OTHER EXPENSES AS CHALLENGED BY T HE APPELLANT IN GROUND NO.6 OF APPEAL. AS REGARDS DISALLOWANCE O F RS.35,106/- OUT OF REPAIR AND MAINTENANCE OF MACHIN ERY ON THE GROUND THAT NO MANUFACTURING ACTIVITY WAS CARRIED O UT, THE APPELLANT HAS SUBMITTED THE ADDITION WAS MADE WITHO UT CONFRONTING THE ASSESSEE. THE DETAIL BIFURCATION OF SUCH EXPENSES HAS BEEN FILED AS REPRODUCED IN THE SUBMISSIONS OF THE APPELLANT IN PARA 5 ABOVE WHICH SHOW THAT THE MAJOR EXPENSES WERE IN RESPECT OF SHIFTING OF THE MACHINERY TO NEW PREMISE S AND INSTALLATION CHARGES. THE AO HAS NOT CONTESTED THE ALLOWABILITY OF THESE EXPENSES IN THE REMAND REPORT. I FIND THAT A DISTINCTION HAS TO BE MADE BETWEEN CARRYING OUT OF MANUFACTURIN G ACTIVITY AND CARRYING ON THE BUSINESS. THE FACT THAT THE APP ELLANT HAS CARRIED OUT THE BUSINESS DURING THE YEAR AND SOLD P ART OF THE STOCK OF FINISHED GOODS, THE EXPENSES CLAIMED UNDER THE HEAD REPAIRS AND MAINTENANCE ARE ALLOWABLE AS BUSINESS E XPENDITURE. HENCE, THE ADDITION OF RS.35,106/- MADE BY THE AO I S DELETED. THE AO HAS MADE ADDITION OF RS.96,295/- ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK OF THE CONSUMABLE STOR ES. THE APPELLANT'S CONTENTION IS THAT THE ADDITION HAS BEE N MADE PURELY ON SURMISES AND CONJECTURES AND WITHOUT CONFRONTING THE ASSESSEE. THERE WAS NO CLOSING STOCK OF CONSUMABLE STORES AS SOME OF THE STORES WERE DESTROYED, BEING NOT USABLE OR SALEABLE AND OTHERS WERE SOLD AT A VERY REDUCED VALUE AS SUB MITTED BEFORE THE AO. THE STOCK REGISTER WAS ALSO PRODUCED BEFORE THE AO SHOWING SALE OF THE CONSUMABLE STORES AND PACKING M ATERIAL. THE SALES BILLS WERE ALSO AVAILABLE WITH THE AO WHI CH WERE IMPOUNDED DURING THE ASSESSMENT PROCEEDINGS AND THE ADHOC ADDITION IS NOT SUSTAINABLE. THE AO HAS RAISED THE OBJECTION THAT THE ASSESSEE DID NOT FURNISH ANY EVIDENCE IN SUPPOR T OF ITS CONTENTION THAT THE REMAINING STOCK WAS DESTROYED. THE AMOUNT OF SALE WORTH RS.21,968/- HAS ALREADY BEEN ACCOUNTE D FOR BY THE AO AT THE TIME OF ASSESSMENT AND THE ADDITION FOR T HE REMAINING SUM OF RS.96,295/- IS JUSTIFIED. ON CONSIDERATION O F THESE FACTS, IT IS CLEAR THAT THE APPELLANT HAS NEVER RAISED THE ISSUE THAT THE ITA NO. 2568 & 2618/DEL./2011 8 CONSUMABLE STORES WERE ALSO DESTROYED. WHAT HAS BEE N CLAIMED THAT THE CONSUMABLE STORES WERE SOLD AT A VERY LESS PRICE. KEEPING IN VIEW MY DECISION IN RESPECT OF VALUATION OF CLOSING STOCK OF FINISHED GOODS WHEREIN THE FINISHED GOODS WERE SOLD AT 50% OF THE PRICES, THE APPELLANT CANNOT BE EXPECTED TO SALE THE CONSUMABLE STORES AT ANY MORE HIGHER PRICE AND SUCH SALE CAN AT BEST BE A KIND OF SCRAP SALE. THEREFORE, THE ADDITI ON MADE BY THE AO IS NOT SUSTAINABLE PARTICULARLY WHEN THE STOCK R EGISTER WAS PRODUCED BEFORE THE AO DURING THE ASSESSMENT. HENCE , THE ADDITION OF RS.96,295/- MADE BY THE AO IS DELETED. AS REGARDS ADDITION OF RS.98,293/- ON ACCOUNT OF PACKING MATER IAL CONSUMED, THE CONTENTIONS OF THE APPELLANT REMAIN S AME. THE AO HAS ALLOWED PACKING MATERIAL @ 5% OF THE TURNOVE R I.E. RS.L,16,008/- BEING 5% OF RS.23,20,176/- OUT OF TOT AL EXPENSES OF RS.2,14,301/- WITHOUT APPRECIATING THE FACT THAT PACKING MATERIAL OF RS.42,813 HAS ALSO BEEN SOLD AT A VERY REDUCED PRICE AS CONTENDED BEFORE THE AO. THE AO'S ONLY RELIANCE FOR MAKING THE ADDITION WAS THAT NO FURTHER EVIDENCE WAS FILED TO EXPLAIN THE SHORTAGE. HOWEVER, KEEPING IN VIEW THE FACT THAT T HE BUSINESS OF THE APPELLANT WAS FACING A CLOSURE AND ULTIMATELY C LOSED DOWN, THERE WAS NO CASE FOR SELLING THE PACKING MATERIAL AT THE PRICE FOR WHICH IT WAS VALUED IN THE OPENING STOCK. THE SALES OF FINISHED GOODS WERE MADE BY THE APPELLANT AT 50% DISCOUNT WH ICH IS AN ADMITTED FACT. THEREFORE, IT CANNOT BE INFERRED THA T THERE WAS ANY SUPPRESSION OF STOCK OF PACKING MATERIAL BY THE APP ELLANT WHEN THE PACKING MATERIAL HAS BEEN SOLD. THE ADDITION OF RS.98,293/- MADE BY THE AO IS DELETED. AS REGARDS DISALLOWANCE OF JOB CHARGES OF RS.13,522/-, THE APPELLANT HAS CONTENDED THAT THE BALANCE AMOUNT OF RS.13,522/ - HAS BEEN ACCOUNTED F OR IN THE CLOSING STOCK OF RAW MATERIAL AND THE AO HAS NOT OB JECTED TO THE SUBMISSIONS OF THE APPELLANT IN THIS REGARD IN THE REMAND REPORT. HENCE, THE ADDITION OF RS.13,522/- MADE BY THE AO I S DELETED. THE GROUND NO.6 OF APPEAL IS ALLOWED. 12. WE HAVE HEARD BOTH THE SIDES ON ALL THE ISSUES RAISED IN THESE FOUR GROUNDS. IN RESPECT OF THE DELETION OF THE ADDITIO N OF RS.20,84,963/- MADE ON ACCOUNT OF SUPPRESSION OF CLOSING STOCK OF FINISHED GOODS, WE FIND THE ASSESSEES CONTENTION THAT THE CLOSING STOCK HAS TO BE VALUED AT LOWER OF THE ITA NO. 2568 & 2618/DEL./2011 9 COST OR MARKET PRICE IN ORDER. THE ASSESSEE HAS VA LUED THE VALUATION ON ESTIMATED BASIS. THE SALES OF THE FINISHED GOODS W ERE MADE BY THE ASSESSEE AT A DISCOUNT OF 50%. THE ASSESSING OFFICER HAS ACCEP TED THE SALES ON THIS DISCOUNTED PRICE. THE SALE PRICE OF THE FINISHED G OODS WERE REDUCED ON ACCOUNT OF OLD DESIGN, RUST, DUST AND SCRATCHING OF MELAMINE CROCKERY IN WHICH THE ASSESSEE WAS DEALING. THE ASSESSING OFFI CER HAS ACCEPTED THE SALES AT THE 50% OF THE VALUE SHOWN IN THE OPENING STOCK. IN VIEW OF THESE FACTS, WE FIND NO REASON TO VALUE THE STOCK OF FINISHED GO ODS HIGHER THAN THAT. THEREFORE, WE FIND NO MERITS IN THE APPEAL OF THE R EVENUE ON THIS GROUND. 12.1 ON THE ISSUE OF ADDITION OF RS.96,295/- MADE O N ACCOUNT OF SUPPRESSION OF CLOSING STOCK OF THE CONSUMABLE STORES, WE ALSO FIND NO MERIT IN THE APPEAL OF THE REVENUE AS THE AS THE SALES WORTH OF RS.21,9 68/- WAS ALREADY DISCLOSED BY THE ASSESSEE. 12.2 THE NEXT ISSUE IS DELETION OF ADDITION OF RS.9 8,293/- MADE ON ACCOUNT OF PACKING MATERIAL CONSUMED. THE ASSESSING OFFICE R HAS MADE THIS ADDITION ON COMPLETELY AD HOC BASIS. THE ASSESSING OFFICER ALLOWED EXPENSES ONLY @ 5% OF TURNOVER. ASSESSEE HAD ALREADY SOLD PACKING MATERIAL OF RS.42,813/- AT REDUCED PRICE. THE SALES WERE MADE AT DISCOUNT. AS SESSEE COMPANY WAS FACING THE CLOSURE AND FINALLY CLOSED DOWN. IN VIE W OF THESE FACTS, NO INFERENCE CAN BE DRAWN THAT ASSESSEE HAD UNDERVALUE D THE STOCK. THEREFORE, THE CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. ITA NO. 2568 & 2618/DEL./2011 10 12.3 ON THE ISSUE OF DISALLOWANCE ON THE REPAIR AND MAINTENANCE THAT THESE EXPENSES WERE IN RESPECT OF SHIFTING OF THE MACHINE RY TO THE NEW PREMISES AND INSTALLATION OF THE SAME, THEREFORE, WE FIND NO MER ITS IN THIS GROUND ALSO. 12.4 IN VIEW OF THE ABOVE, GROUND NOS.1 TO 4 ARE DI SMISSED. 13. GROUND NOS.5 & 6 ARE RELATING TO DELETION OF AD DITION OF RS.47,110/- MADE ON ACCOUNT OF LEGAL EXPENSES AND RS.40,489/- M ADE ON ACCOUNT OF CASH DISCOUNT. 14. THE CIT (A) HAS DEALT WITH THIS ISSUE IN PARA 6 .4 WHICH READ AS UNDER :- 6.4. IN THE GROUND NO.7, THE APPELLANT HAS CHALLEN GED VARIOUS DISALLOWANCES/ADDITIONS MADE BY THE AO OUT OF ADMIN ISTRATIVE AND SELLING EXPENSES. THE APPELLANT CLAIMED EXPENSES OF RS.L,09,243/-UNDER THE HEAD LEGAL AND PROFESSIONAL CHARGES OUT OF WHICH THE EXPENSES OF RS.47,110/ - WERE PERTAINING TO THE EARLIER YEARS. THE AO DISALLOWED ON THE GROUND THAT THE ASS ESSEE DID NOT FILE ANY JUSTIFICATION THAT THE EXPENSES WERE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE APPELL ANT HAS CONTENDED THAT A SUM OF RS.47,110/ -OUT OF LEGAL AND PROFESSI ONAL CHARGES HAS BEEN DISALLOWED WHICH WERE INCURRED WHOLLY AND EXCL USIVELY FOR BUSINESS PURPOSE. SOME OF THE EXPENSES WERE INCURRE D IN RELATION TO THE APPEALS OF EARLIER YEARS AND IT CANNOT BE SAID THAT THE EXPENSES WERE FOR EARLIER YEAR WHEN THE BILLS WERE RECEIVED AND PASSED IN THE YEAR UNDER APPEAL ONLY. I FIND FROM THESE FACTS THA T THE EXPENSES INCURRED IN CONNECTION WITH APPEAL FOR WHICH BILLS WERE RECEIVED IN THE YEAR UNDER APPEAL ARE ALLOWABLE AS THE LIABILIT Y TO PAY SUCH EXPENDITURE CRYSTALLIZED ON THE RECEIPT OF BILLS. H ENCE, THE ADDITION OF RS.47,110/- MADE BY THE AO IS DELETED. AS REGARDS, DISALLOWANCE OF RS.36,313/- OUT OF MISC. EXPENSES OF RS.89,006/-, T HE AO HAS MADE DISALLOWANCE ON THE GROUND THAT THE AMOUNT OF RS.36 ,313/- WAS ON ACCOUNT OF SALES TAX PENALTY. SINCE, THE AMOUNT WAS PAID FOR INFRINGEMENT AND VIOLATION OF SALES TAX LAWS, THE S AME IS NOT ALLOWABLE IN VIEW OF PLETHORA OF JUDICIAL RULINGS O N THIS ISSUE. HENCE, ADDITION OF RS.36,313/- MADE BY THE AO IS CONFIRMED . REGARDING DISALLOWANCE OF RS.40,489/- CLAIMED ON ACCOUNT OF W ARRANTY, HANDLING CHARGES AND COMMISSION, THE AO HAS OBSERVE D THAT WHEN THE SALES WERE MADE AT 50% DISCOUNT, THERE WAS NO C ASE FOR CLAIMING SUCH EXPENSES. THE APPELLANT, BESIDES GIVING BREAK UP OF SUCH ITA NO. 2568 & 2618/DEL./2011 11 EXPENSES, HAS CONTENDED THAT WARRANTY, BREAKAGE AND HANDLING AND FORWARDING EXPENSES WERE INCURRED IN RESPECT OF GOO DS RETURNED FROM CSD, A PARTY OF THE ASSESSEE COMPANY AND THE COMMIS SION WAS PAID TO M/S. MERCHANDISING CORPORATION FOR COLLECTING PA YMENTS FROM SUPER BAZAAR. IT APPEARS THAT THE AO HAS NOT EXAMIN ED THE NATURE AND PURPOSE OF THESE EXPENSES AND DISALLOWED THE SAME O N PRESUMPTION BASED ON DISCOUNTED SALES. IN ABSENCE OF ANY FINDIN G TO THAT EFFECT AND IN ABSENCE OF PROPER VERIFICATION, THE ADDITION MAD E BY THE AO IS NOT SUSTAINABLE. HENCE, THE SAME IS DELETED. AS REGARDS DISALLOWANCE OF BAD DEBTS OF RS.25,487/- BY THE AO ON THE GROUND TH AT EVIDENCE OF EFFORTS MADE TO RECOVER WERE NOT FURNISHED AND ALSO EVIDENCE THAT THESE DEBTS HAVE BEEN INCLUDED IN INCOME OF EARLIER YEARS WERE NOT FURNISHED, THE APPELLANT HAS CONTENDED THAT THE SUM OF RS.25,487 PERTAINS TO SATELLITE DISTRIBUTORS AND THE COPY OF SALE BILL ALONG WITH CORRESPONDENCE WITH THE PARTY WERE FILED BEFORE THE AO VIDE LETTER DATED 17.09.1998. PLACING RELIANCE ON THE DECISION IN THE CASE OF TRF LTD. THE APPELLANT HAS CONTENDED THAT NO DISALLOWAN CE CAN BE MADE. THE AO HAS LEFT THIS ISSUE TO BE CONSIDERED IN THE LIGHT OF SUBMISSIONS MADE BY THE APPELLANT. THE ISSUE OF ALLOWABILITY OF BAD DEBT HAS NOW BEEN SETTLED BY THE HON'BLE SUPREME COURT IN THE CA SE OF TRF LTD. VS. CIT (323 ITR 397) IN WHICH IT HAS BEEN HELD THA T IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN' OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HENC E, THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF RS.25,487/ -. THE ADDITION MADE BY THE AO IS DELETED. THE GROUND NO.7 OF THE APPEAL IS PARTLY ALLOWED. 15. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. FR OM THE FACTS, WE FIND THAT THE EXPENSES OF RS.47,110/- WERE HELD TO BE PERTAIN ING TO THE EARLIER YEAR. HOWEVER, THESE WERE THE EXPENSES RELATED TO THE LEG AL AND PROFESSIONAL CHARGES FOR WHICH THE BILLS WERE RECEIVED BY THE AS SESSEE DURING THE YEAR ONLY. THEREFORE, THESE ARE ALLOWABLE EXPENSES DURING THIS YEAR ONLY. REGARDING DELETING THE DISALLOWANCE OF RS.40,489/- MADE ON AC COUNT OF CASH DISCOUNT, WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED T HE AMOUNT HOLDING THAT WHILE THERE WAS A SALE ON DISCOUNT THEN NO FURTHER EXPENSES SHOULD BE ALLOWED FOR WARRANTY, HANDLING CHARGES AND COMMISSION. THE FACTS SHOW THAT THE ITA NO. 2568 & 2618/DEL./2011 12 AMOUNT HAS BEEN INCURRED IN RESPECT TO THE GOODS RE TURNED FROM THE CSD, ONE OF THE CLIENTS AND THE COMMISSION WAS PAID TO M/S. MERCHANDISING CORPORATION FOR COLLECTING THE PAYMENT FROM SUPER B AZAAR. THESE EXPENSES WERE IN THE NATURE OF REVENUE AND THE SAME WAS INCU RRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THEREFORE, WE FIND NO FA ULT IN THE ORDER OF THE CIT (A) ON THIS ISSUE ALSO AND ACCORDINGLY DISMISS GROU ND NOS.5 & 6. 16. GROUND NO.7 IS GENERAL IN NATURE AND DOES NOT R EQUIRE ANY ADJUDICATION. 17. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 19. TO SUM UP : THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES WHEREAS THE APPEAL OF THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 13 TH DAY OF APRIL, 2012. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 13 TH DAY OF APRIL, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), FARIDABAD. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.