DCIT Central Circle, Karnal V. Sheena Exports, Panipat

ITA 2957/DEL/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4204 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 17-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 19-09-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR RAKESH GUPTA
• Assessee Lawyers: GAJANAND MEENA
• Keywords: Unexplained investment; Depreciation; Business expenditure; Principle of natural justice; Bad and doubtful debts; Corroborative evidences; Onus to prove; Revenue expenditure
• Section: 43B; 80HHC; 69; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G NEW DELHI) BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T.A. NO.3076/D/08 ASSESSMENT YEAR : 2004-05 M/S SHEENA EXPORTS, VS. A.C.I.T., UJHA ROAD, PANIPAT CIRCLE, PANIPTAT PAN NO.AAEFS 4153N AND I.T.A. NO.2957/D/08 ASSESSMENT YEAR : 2004-05 D.C.I.T., VS. M/S SHEENA EXPORTS, CEN. CIRCLE, KARNAL. UJHA ROAD, PANIPAT (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. RAKESH GUPTA, ADVOCATE RESPONDENT BY : SHRI GAJANAND MEENA, CIT- DR ORDER PER K.G. BANSAL: AM: THESE CROSS APPEALS OF THE ASSESSEE AND THE REVENUE EMANATE FROM THE ORDER OF CIT(A), KARNAL, PASSED ON 18.07.2008 IN APPEA L NO.147/06-07 PERTAINING TO ASSESSMENT YEAR 2004-05. THE APPEALS WERE AR GUED IN A CONSOLIDATED MANNER BY THE LEARNED COUNSEL FOR THE ASSESSEE A ND THE LEARNED DR. THEREFORE, WE THINK IT FIT TO PASS A CONSOLIDATED ORDER. 2. GROUND NO.1 IN THE APPEAL OF THE ASSESSEE IS TO THE EFFEC T THAT THE LEARNED CIT(A) ERRED IN NOT REVERSING THE ORDER OF THE ASSESSING OF FICER IN NOT ALLOWING THE DEDUCTION U/S 80HHC ON EXPORT INCENTIVES IN FULL AS CLA IMED BY THE ASSESSEE IN THE 3076-2975-2008-SE 2 RETURN OF INCOME. ON THE OTHER HAND, GROUND NO.1 IN TH E APPEAL OF THE REVENUE IS THAT THE LEARNED CIT(A) ERRED IN ALLOWING DEDUCTION U/S 8 0HHC TO THE ASSESSEE ON THE EXPORT INCENTIVES RECEIVED AS SUPPORTING MANUFACTURER. 2.1 THE FACTS, AS STATED IN THE ASSESSMENT ORDER ARE THAT THE ASSESSEE IS A MANUFACTURER OF HOME FURNISHING PRODUCTS, WHICH ARE EXP ORTED DIRECTLY AS WELL AS THROUGH THE RECOGNIZED EXPORT HOUSE. IT RECEIVED EXPORT BENEF ITS IN RESPECT OF DIRECT EXPORTS AND ALSO IN RESPECT OF EXPORTS THROUGH THE RECOGN IZED EXPORT HOUSE. THE ASSESSING OFFICER ALSO FOUND THAT THE EXPORT TURN OVER OF THE ASSESSEE EXCEEDED TO `10 CRORES. HE REFERRED TO THE PROVISION CONTAINED IN THI RD PROVISO TO SUB-SECTION (3) OF SECTION 80HHC, INTRODUCED RESPECTIVELY IN THE PROVISION BY THE TAX LAWS (AMENDMENT) ACT, 2005. IN A CASE WHERE TURNOVER EXCEEDS `10 CRORE. THIS PROVISION COMES INTO OPERATION ON SATISFACTION OF TWO CONDITIONS, NAMELY, (A) THE ASSESSEE HAS AN OPTION TO CHOOSE EITHER THE DUTY DRAW BACK OR THE DUTY ENTITLEMENT PASS-BOOK SCHEME, BEING THE DUTY REMISSION SCHEME, AND (B) THE RATE OF DUTY DRAW BACK CREDITED ATTRIBUTABLE TO THE CUSTOMS DUTY IS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLEMENT PASS-BOOK SCHEME BEING THE DUTY REMISSION SCHEME. NONE OF THESE CONDITIONS HAS BEEN SATISFIED IN THE CASE OF THE ASSESSEE. ACCORDINGLY, THE CLAIM OF DEDUCTION IN RESPECT OF PROFI T ON TRANSFER OF DEPB BENEFIT SCHEME HAS BEEN REJECTED. THERE IS ALSO THE QUESTION WHETHER THE WORD PROFIT MEANS THE WHOLE OF THE BENEFIT RECEIVED ON TRANSFER OR ONLY THE PROFIT ELEMENT EMBODIED THEREIN, BEING THE DIFFERENCE BETWEEN TRANSFER CONSIDER ATION AND THE FACE VALUE OF THE LICENSE. THIS ISSUE WAS ALSO DECIDED AGAINST THE ASSESSEE AND IT WAS HELD THAT THE WHOLE OF THE AMOUNT CONSTITUTES PROFITS AS NO COST WAS PAID IN RESPECT OF THE BENEFIT. 3076-2975-2008-SE 3 2.3 COMING TO THE INCENTIVES RECEIVED FROM THE EXPORT HOUSE, A REFERENCE WAS MADE TO THE PROVISION CONTAINED IN CLAUSE (BAA) OF THE EXPLANATION, IN WHICH THE TERM PROFITS OF THE BUSINESS IS DEFINED TO MEAN THE PRO FITS OF THE BUSINESS AS COMPUTED UNDER THE HEADS PROFITS AND GAINS OF BUSINESS OR PROFESSION AS REDUCED INTER ALIA BY 90% OF ANY SUM REFERRED TO IN CLAUSES (III A), (IIIB), (IIIC), (IIID) AND (IIIE) OF SECTION 28. IN VIEW OF THIS CLAUSE IT WAS HELD THAT TH E PROFITS OF THE BUSINESS HAVE TO BE REDUCED BY 90% OF EXPORT INCENTIVES FOR DETERMINING THE P ROFITS OF THE BUSINESS FOR THE PURPOSE OF GRANTING DEDUCTION U/S 80HHC. 3. THE MATTER WAS AGITATED BEFORE THE CIT(A), KARNAL, IN RESPECT OF BOTH THE AFORESAID MATTERS. HE HAS MENTIONED THAT THE ASSESSEE IS A MANUFACTURE AND EXPORTER OF HANDLOOM PRODUCTS. IN THIS YEAR, IT RECEIV ED A SUM OF `5,16,23,777/- ON ACCOUNT OF TRANSFER OF BENEFITS UNDER THE DEPB SCHEME. THE ASSESSING OFFICER HAS COMPUTED SUCH AMOUNT AT `6,76,99,450/- BUT IT HA S BEEN CLAIMED THAT THE FIGURE OF ABOUT `5.16 CRORES, SUPPLIED BY THE ASSESSEE, IS CORRECT AND NO BASIS HAS BEEN FURNISHED BY THE ASSESSING OFFICER TO COMPUTE THE FIGU RE AT ABOUT 6.77 CRORES. THE EXPORT TURN OVER OF THE ASSESSEE IS `147,03,68,734/-, WHICH IS ALSO THE TOTAL TURN OVER OF THE ASSESSEE. ON THE BASIS OF THESE FACTS, IT HAS BEEN SUBMITTED BEFORE HIM THAT ONE OF THE MATERIAL CONDITIONS FOR GRANT OF D EDUCTION U/S 80HHC IN RESPECT OF AFORESAID BENEFITS IS THAT THE RATE AT WHICH THE BENEFI T IS GIVEN UNDER THE DEPB SCHEME SHOULD BE LOWER THAN THE RATE OF BENEFIT GRANTED UN DER DUTY DRAW-BACK SCHEME. THIS IS AN IRRATIONAL PROVISION AS THE CONDIT ION EMBODIED THEREIN CANNOT BE FULFILLED. THEREFORE, IT HAS BEEN ARGUED THAT THE BENEFIT SH OULD BE ALLOWED TO BE REDUCED FROM THE COST OF THE MATERIAL CONSUMED IN THE PROC ESS OF THE MANUFACTURE. IT HAS BEEN FURTHER ARGUED THAT WHAT CAN BE EXCLUDED IS ON LY THE PREMIUM RECEIVED ON TRANSFER OF THE BENEFIT BUT NOT THE WHOLE OF THE RECEIPT . 3076-2975-2008-SE 4 3.1 THE LEARNED CIT(A) CONSIDERED THE POSITION OF LAW AS OBTAINED AFTER INTRODUCTION OF THE THIRD PROVISO BY THE TAXATION LAW S (AMENDMENT) ACT, 2005, AND THE CORRESPONDING AMENDMENT MADE IN SECTION 28. IT IS HEL D THAT CUMULATIVE EFFECT OF THESE AMENDMENTS IS THAT DEDUCTION U/S 80HHC IS TO B E ALLOWED IN RESPECT OF THE BENEFIT IN CASES HAVING EXPORT TURN OVER EXCEEDING `10 CROR ES ONLY ON FULFILLMENT OF TWO CONDITIONS (I) THE DEPB RATE IS LOWER THAN THE R ATE OF DUTY DRAW BACK; (II) THE ASSESSEE HAS AN OPTION TO CHOOSE EITHER OF THE TWO BENEFIT S. THE ASSESSEE HAS NOT FULFILLED ANY OF THESE CONDITIONS. THEREFORE, THE BENEFIT I S NOT AVAILABLE IN RESPECT OF THE BENEFIT U/S 80HHC. HE ALSO REJECTED THE CLAIM THAT O NLY THE PREMIUM MAY BE EXCLUDED FROM THE PROFITS OF THE BUSINESS ON THE GROUND T HAT NO COST IS PAID FOR OBTAINING THE BENEFIT. 3.2 COMING TO THE ISSUE OF BENEFIT RECEIVED FROM THE EXPORT HOUSE, IKEA (INDIA) PRIVATE LIMITED, IT IS MENTIONED THAT THE ASSESSEE SUPPLIED GOODS OF THE VALUE OF `74,16,11,651/- TO THE EXPORT HOUSE. THE ASSESSEE HAS FI LED THE DISCLAIMER CERTIFICATE FROM THE AFORESAID IKEA. COMING TO THE DEDUC TION IN RESPECT OF THE EXPORT INCENTIVE RECEIVED FROM THE IKEA, IT IS MENTIONED TH AT DECISIONS OF THE TERRITORIAL HIGH COURT HAVE BEEN FILED BY THE ASSESSEE IN SU PPORT OF ITS CLAIM, WHICH HAVE BEEN MENTIONED ON PAGE 5 OF THE IMPUGNED ORDER. THESE D ECISIONS ARE BASED ON THE DECISION OF APEX COURT IN THE CASE OF CIT VS . BABY MARINE EXPORTS (2007) 290 ITR 323. FOLLOWING THESE DECISIONS, THE ASSES SEE WAS ALLOWED RELIEF OF DEDUCTION. 4. BEFORE US, THE CASE OF THE REVENUE IS THAT THE PROVISION CONTAINED IN SUB- SECTION (1A) OF SECTION 80HHC USES THE WORD A DEDUCTIO N TO THE EXTENT OF PROFITS, REFERRED TO IN SUB SECTION (1B), DERIVED BY THE ASSESSEE FRO M THE SALE OF GOODS OR MERCHANDISE TO THE EXPORT HOUSE. SIGNIFICANT EMPHASIS H AS BEEN LAID ON THE WORD 3076-2975-2008-SE 5 DERIVED, AND IT HAS BEEN MENTIONED THAT THIS WORD HAS A LONG HISTORY OF JURISPRUDENCE UNDER WHICH ONLY PROXIMATE PROFITS FROM T HE EXPORT BUSINESS FALL IN ITS AMBIT. PROFITS WHICH ARE ONE OR MORE STEPS REMOVED FROM THE ACTIVITY OF EXPORT CANNOT BE INCLUDED WITHIN ITS AMBIT. FURTHER, OUR ATT ENTION HAS BEEN DRAWN TOWARDS THE PROVISION CONTAINED IN SUB SECTION (3A), WHICH PRO VIDES FOR METHOD OF DEDUCTION, AND THIS PROVISION ALSO CONTAINS THE WORD PROFITS DERIVED BY A SUPPORTING MANUFACTURER FROM THE SALE OF GOODS OR MERCHANDISE. TH E ASSESSEE HAS EXPORT TURN OVER EXCEEDING `10 CRORES AND IN SUCH A SITUATION EVEN A D IRECT EXPORTER IS NOT ENTITLED TO THE BENEFIT. THEREFORE, IT WOULD BE INCONSISTENT IF THE BENEFIT IS GRANTED TO AN ASSESSEE WHO SELLS THE GOODS OR MERCHANDISE AS A SUPPOR TING MANUFACTURER TO THE EXPORT HOUSE. 4.1 THE CASE OF THE LEARNED COUNSEL IS THAT THE ISSUE STAN DS SQUARELY COVERED BY THE DECISION OF THE APEX COURT IN THE CASE OF BABY MARIN E EXPORTS (SUPRA) IN WHICH IT HAS BEEN HELD THAT THE INCENTIVE RECEIVED FROM THE EXPORT HO USE PARTAKE THE CHARACTER OF SALE PROCEEDS IN THE HANDS OF SUPPORTING M ANUFACTURER. SUB SECTION (3A) IS NOT SUCCEEDED BY ANY PROVISO AS IS THE CASE ON T HE SUB SECTION (3) IN THE CASE OF DIRECT EXPORTERS. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION S MADE BEFORE US. THE ADMITTED FACTS ARE THAT THE ASSESSEE HAS SUPPLIED GOODS OF THE VALUE OF ABOUT `74.16 CRORES TO THE IKEA, AS A SUPPORTING MANUFACTUR ER TO THE AFORESAID EXPORT HOUSE. REQUISITE DISCLAIMER CERTIFICATE HAS BEEN FILED WH ICH MEANS THAT THE IKEA WILL NOT CLAIM DEDUCTION U/S 80HHC IN RESPECT OF EXPORT TURN OVER OF THE AFORESAID AMOUNT AND, THEREFORE, THE BENEFIT OF THE SECTION DEVOLVES UP ON THE ASSESSEE, AND THE PROVISIONS CONTAINED IN SECTION 80HHC (1A) AND SECT ION 80HHC (3A) BECOME APPLICABLE TO THE FACTS OF THE CASE. IN SO FAR AS THE B ENEFITS RECEIVED BY THE ASSESSEE FROM THE EXPORT HOUSE ARE CONCERNED, THE MATTER IS NO LONGER RES-INTEGRA IN VIEW OF THE DECISION IN THE CASE OF BABY MARINE EXPORTS ( SUPREME COURT). IN THIS 3076-2975-2008-SE 6 CASE, IT HAS BEEN HELD THAT THE EXPORT HOUSE PREMIUM CAN BE INCLUDED IN THE PROFITS OF THE BUSINESS BECAUSE IT IS INTEGRAL PART OF THE BUSINES S OPERATIONS OF THE ASSESSEE, WHICH CONSISTS OF SALE OF GOODS BY THE ASSESSEE TO THE EXPORT HOUSE. THEREFORE, RESPECTFULLY FOLLOWING THIS DECISION, IT IS HELD THAT T HE PREMIUM RECEIVED BY THE ASSESSEE IS NOTHING BUT SALE PROCEEDS OF THE GOODS SOLD TO THE IKEA AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80HHC ON THE BENEFITS ALSO. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PORTIONS OF THE JUDGMENT AT PL ACITUM NOS. 34 TO 40 ARE REPRODUCED BELOW:- 34 THE RESPONDENT-A SUPPORTING MANUFACTURER SOLD THE GO ODS OR MERCHANDISE TO THE EXPORT HOUSE AND RECEIVED THE ENTIRE FOB V ALUE OF THE GOODS PLUS THE EXPORT HOUSE PREMIUM OF 2.25 PER CENT. OF THE FOB VALUE. THE RELEVANT CLAUSE 12 OF THE AGREEMENT HAS ALREADY B EEN EXTRACTED IN THE EARLIER PART OF THE JUDGMENT AND ACCORDIN G TO THE SAID CLAUSE, THE EXPORT HOUSE IS UNDER OBLIGATION TO PAY TO T HE SUPPORTING MANUFACTURER AN INCENTIVE OF 2.25 PER CENT. ON THE FO.B. VALUE ACCORDING TO THE TERMS OF THE AGREEMENT. THE RESPONDENT, A SUPPORTING MANUFACTURER, ADMITTEDLY SOLD THE GOODS TO THE EXPORT HOUSE IN RESPECT OF WHICH THE EXPORT HOUSE HAS ISSUED A CER TIFICATE UNDER PROVISO TO SUB-SECTION (1). ACCORDING TO THE SEC TION, THE RESPONDENT-ASSESSEE, IN COMPUTING THE TOTAL INCOME BE ALLOW ED A DEDUCTION TO THE EXTENT OF PROFITS REFERRED TO IN SUB-SECT ION (LB) DERIVED BY THE ASSESSEE FROM THE SALE OF GOODS TO THE EXPORT HOUSE. 35 THE APPELLATE TRIBUNAL HAS ARRIVED AT THE DEFINITE CON CLUSION THAT THE EXPORT HOUSE PREMIUM IS NOTHING BUT AN INTEGRA L PART OF SALE PRICE REALIZED BY THE ASSESSEE-A SUPPORTING MANUFACTURER F ROM THE EXPORT HOUSE THE TRIBUNAL FURTHER HELD THAT THE EXPORT HOUSE PREMIUM CANNOT POSSIBLY BE CONSIDERED TO BE EITHER COMMISSION OR BROKERAGE, AS A PERSON CANNOT EARN COMMISSION OR BROKERAGE FOR HI MSELF. 36. THE HIGH COURT HAS UPHELD THE FINDINGS OF THE TRIBU NAL. IN OUR CONSIDERED VIEW, THE ORDER OF THE APPELLATE TRIBUNAL IS BASED ON PROPER CONSTRUCTION OF SECTION 80HHC (LA) OF THE INCOM E-TAX ACT THAT THE EXPORT HOUSE PREMIUM IS AN INTEGRAL PART OF THE SAL E PRICE REALIZED BY THE ASSESSEE FROM THE EXPORT HOUSE. 3076-2975-2008-SE 7 37. WE FIND NO MERIT IN THE SUBMISSION OF THE APPELLAN T THAT INDIAN CURRENCY COULD NOT BE THE SUBJECT MATTER OF DEDUCTION UND ER SECTION 80HHC. THE REQUIREMENT OF REALIZING THE SALE PROCEEDS OF THE GOODS OR MERCHANDISE IN CONVERTIBLE MERCHANDISE IS APPLICABLE ON LY TO THE EXPORT HOUSE AND A CLAIM FOR DEDUCTION UNDER SECTION 8 0HHC(L). THE REQUIREMENT OF REALIZATION OF SALE PROCEEDS IN FOREIGN EXCHA NGE IS EXPRESSLY MADE INAPPLICABLE TO THE SUPPORTING MANUFACTUR ER BY SECTION 80HHC(2)(A) AND FURTHER THE SUPPORTING MANUFAC TURER'S CLAIM OF DEDUCTION IS ONLY UNDER SECTION 80HHC(LA) AND NOT U NDER SECTION 80HHC(L) WHICH APPLIES TO EXPORT HOUSES ONLY. 38. THE SUBMISSION OF THE APPELLANT THAT THE PREMIUM EAR NED BY THE RESPONDENT ASSESSEE IS TOTALLY UNRELATED. TO EXPORT IS F ALLACIOUS AND DEVOID OF ANY MERIT. THIS SUBMISSION OF THE APPELLA NT IS ALSO CONTRARY TO THE SPECIFIC TERMS OF THE AGREEMENT BETWEEN THE AP PELLANT AND THE RESPONDENT. 39. ON A PLAIN CONSTRUCTION OF SECTION 80HHC(LA), TH E RESPONDENT IS CLEARLY ENTITLED TO CLAIM DEDUCTION OF THE PREMIUM AM OUNT RECEIVED FROM THE EXPORT HOUSE IN COMPUTING THE TOTAL INCOME. TH E EXPORT HOUSE PREMIUM CAN BE INCLUDED IN THE BUSINESS PROFIT BECAU SE IT IS AN INTEGRAL PART OF BUSINESS OPERATION OF THE RESPONDENT, WH ICH CONSISTS OF SALE OF GOODS BY THE RESPONDENT TO THE EXPORT HOUSE. 40. THE ORDER OF THE TRIBUNAL, WHICH HAS BEEN UPHELD BY T HE HIGH COURT IN THE IMPUGNED JUDGMENT, IS BASED ON PROPER CONST RUCTION OF SECTION 80HHC OF THE INCOME-TAX ACT, 1961. THE APPEAL F ILED BY THE APPELLANT BEING DEVOID OF ANY MERIT IS ACCORDINGLY DISM ISSED. 5.1 THE RESULT OF THE DISCUSSION IS THAT GROUND NO.1 I N THE APPEAL OF THE REVENUE IS DISMISSED. 5.2 COMING TO THE DEDUCTION ON INCENTIVES RECEIVED BY TH E ASSESSEE IN RESPECT OF DIRECT EXPORTS, THE CASE OF THE LEARNED DR IS THAT IN VI EW OF THE PROVISION CONTAINED 3076-2975-2008-SE 8 IN THE THIRD PROVISO, THE ASSESSEE IS NOT ENTITLED TO FUR THER DEDUCTION AS ITS EXPORT TURN OVER EXCEEDS `10 CRORES. THE PROVISION READS AS UNDER:- PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVING EXP ORT TURNOVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR, THE PROF ITS COMPUTED UNDER CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB- SECTION OR AFTER GIVING EFFECT TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH BEARS TO N INETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OF SECTION 2 8, THE SAME PROPORTION AS /THE EXPORT TURNOVER BEARS TO THE TOTAL TU RNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE, IF THE ASSESSEE HAS NECES SARY /AND SUFFICIENT EVIDENCE TO PROVE THAT,- A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAWBACK OR T HE DUTY ENTITLEMENT PASS BOOK SCHEME, /BEING /THE DUTY REMISSION SCHEME; AND B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY E NTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME: 5.3 NO WORTHWHILE SUBMISSIONS HAVE BEEN MADE BY THE LEARNED COUNSEL IN THIS BEHALF. HOWEVER, IT MAY BE RECAPITULATED THAT BEFORE THE LEARNED CIT(A), IT WAS ARGUED THAT THE PROVISION IS IRRATIONAL AND IN ANY CA SE IT IS APPLICABLE ONLY IN RESPECT OF PREMIUM RECEIVED ON TRANSFER OF DEPB BENEFITS. 5.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIO NS MADE BEFORE US. CLAUSE (BAA) OF THE EXPLANATION DEFINES THE TERM PROFIT S OF THE BUSINESS. IT IS INTER ALIA PROVIDED THAT FROM THE COMPUTATION MADE UNDER THE H EAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, 90% OF THE BENEFITS MENTIONED IN CLAUSES (IIIA) TO (IIIE) OF SECTION 28 SHALL BE REDUCED. THERE IS NO CONTROVERSY IN R ESPECT OF APPLICABILITY OF THIS PROVISION. HOWEVER, SINCE CONDITIONS IN CLAUSES ( A) AND (B) OF THE THIRD PROVISO 3076-2975-2008-SE 9 ARE NOT SATISFIED AND THE EXPORT TURNOVER EXCEEDS `10 CRORES , THE ASSESSEE IS NOT ENTITLED TO ANY FURTHER DEDUCTION IN RESPECT OF THE AFORESA ID 90% OF THE BENEFITS. IN THIS CONNECTION, IT MAY BE MENTIONED THAT THE PLEA OF IRR ATIONALITY IS NOT ACCEPTABLE AS THE BENEFIT IS SOUGHT TO BE EXTENDED ONLY TO SMALL EXPO RTERS. FURTHER, THE PROVISION IS MADE RETROSPECTIVELY W.E.F. 01.04.1998 AND , THEREFORE, IT IS APPLICABLE TO THE PROCEEDINGS OF THIS YEAR. IN THE CASE OF CIT VS. KALPATARU COLOUR AND CHEMICALS (2010) 328 ITR 451 (BOMBAY), IT HAS BEEN HELD THAT THE WORD PROFIT USED IN THE THIRD PROVISO MEANS THE WHOLE OF THE AMOUNT R ECEIVED AS A CONSIDERATION OF THE TRANSFER OF THE BENEFIT. THUS, THE DECISION OF SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF TOPMAN EXPORTS VS. INC OME TAX OFFICER (2009) 318 ITR (AT) 87 STANDS SUPERCEDED. THEREFORE, THERE IS NO MERI T IN THIS CLAIM OF THE ASSESSEE ALSO. 5.5 THE RESULT OF THE AFORESAID DISCUSSION IS THAT GRO UND NO.1 IN THE APPEAL OF THE ASSESSEE IS ALSO DISMISSED. 6. GROUND NO.2 IN THE APPEAL OF THE ASSESSEE IS THAT THE L EARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKIN G DISALLOWANCE OF `4,43,308/- ON ACCOUNT OF EMPLOYEES SHARE OF PROVIDENT FUND. 3076-2975-2008-SE 10 6.1 IN THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOT ED THAT THREE PAYMENTS AGGREGATING TO `4,43,308/-, IN RESPECT OF EMPLOYEES CON TRIBUTION TO THE PROVIDENT FUND FOR THE MONTHS OF SEPTEMBER, NOVEMBER AND DECEMBER 2003, WERE MADE TO THE P.F. COMMISSIONER ON 21.10.2003, 21.01.2004, AND 21.10.2004 RESPECTIVELY. THEREFORE, THE DEDUCTION OF THIS SUM WAS NOT ALLOWED BY R ECORDING THE FOLLOWING REASONS:- AS PER CLAUSE (VA) OF SECTION 36(1) OF THE INCOME-TAX ACT, DEDUCTION ON A/C OF ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF HI S EMPLOYEES AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY P ROVIDENT FUND OR SUPERANNUATION FUND OR GRATUITY FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES SHALL BE ALLOWED IN COMPUTING THE INCO ME REFERRED TO IN SUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 OF THE INCOME- TAX ACT, IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMP LOYEES A/C IN THE RELEVANT FUND ON OR BEFORE THE DUE DATE AS DEFINED IN THE RELEVANT ACT, RULE, ORDER, NOTIFICATION ETC. AS PER THE E PF ACT, THE DUE DATE IS 15 TH DAY OF THE FOLLOWING MONTH AND IN THE PRESENT CASE THE ASSESSEE HAS MADE PAYMENT OF `4,43,308/-, ON ACCOUNT OF EMPLOYEES SHARE OF PROVIDENT FUND, FOR THE MONTHS OF SEPTEM BER, 2003, NOVEMBER, 2003 AND DECEMBER, 2003 IN TO THE GOVT. A/C ON 21.10.2003; 21.01.2004 & 21.10.2004 RESPECTIVELY, HENCE THE SAME IS NOT ALLOWABLE AS DEDUCTION IN THE HANDS OF THE ASSESS EE IN VIEW OF PROVISIONS OF SECTION 36(1)(VA) READ WITH SECTION 2(24 )(X) OF THE INCOME-TAX ACT. 6.2 THIS FINDING WAS CONFIRMED BY THE LEARNED CIT(A). 6.3 IT IS THE COMMON GROUND OF BOTH THE PARTIES BEFORE U S THAT THE ISSUE STANDS COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CA SE OF CIT VS. ALOM EXTRUSIONS LIMITED (2009) 319 ITR 306. IN THIS JUDG MENT, IT HAS BEEN HELD THAT THE 3076-2975-2008-SE 11 AMENDMENT IN THE ACT IN SECTION 43B BY THE FINANCE ACT, 20 03, IS CURATIVE IN NATURE, HENCE, IT ACTS RETROSPECTIVELY W.E.F. 01.04.1988. THE RELEVANT PORTION OF THE JUDGMENT AT PLACITUM NO.18 IS REPRODUCED BELOW:- WE FIND NO MERIT IN THESE CIVIL APPEALS FILED BY THE DEPAR TMENT FOR THE FOLLOWING REASONS : FIRSTLY, AS STATED ABOVE, SECTIO N 43B (MAIN SECTION), WHICH STOOD INSERTED BY THE FINANCE ACT, 1983 , WITH EFFECT FROM APRIL 1, 1984, EXPRESSLY COMMENCES WITH A NON OBST ANTE CLAUSE, THE UNDERLYING OBJECT BEING TO DISALLOW DEDUCTIONS CLAIM ED MERELY BY MAKING A BOOK ENTRY BASED ON THE MERCANTILE SYSTEM OF AC COUNTING. AT THE SAME TIME, SECTION 43B (MAIN SECTION) MADE IT MAN DATORY FOR THE DEPARTMENT TO GRANT DEDUCTION IN COMPUTING THE INC OME UNDER SECTION 28 IN THE YEAR IN WHICH TAX, DUTY, CESS, ETC., I S ACTUALLY PAID. HOWEVER, PARLIAMENT TOOK COGNIZANCE OF THE FACT THAT THE ACCOUNTING YEAR OF A COMPANY DID NOT ALWAYS TALLY WITH THE DUE DA TES UNDER THE PROVIDENT FUND ACT, MUNICIPAL CORPORATION ACT (OCTRO I) AND OTHER TAX LAWS. THEREFORE, BY WAY OF THE FIRST PROVISO, AN INCENT IVE/RELAXATION WAS SOUGHT TO BE GIVEN IN RESPECT OF TAX, DUTY, CESS OR FEE BY EXPLICITLY STATING THAT IF SUCH TAX, DUTY, CESS OR FEE IS PAID BEF ORE THE DATE OF FILING OF THE RETURN UNDER THE INCOME-TAX ACT (DUE DATE) , THE ASSESSEE(S) THEN WOULD BE ENTITLED TO DEDUCTION. HOWEVER, THI S RELAXATION/INCENTIVE WAS RESTRICTED ONLY TO TAX, DUTY, C ESS AND FEE. IT DID NOT APPLY TO CONTRIBUTIONS TO LABOUR WELFARE FUN DS. THE REASON APPEARS TO BE THAT THE EMPLOYER(S) SHOULD NOT SIT ON THE COLLECTED CONTRIBUTIONS AND DEPRIVE THE WORKMEN OF THE RIGHTFUL BEN EFITS UNDER SOCIAL WELFARE LEGISLATIONS BY DELAYING PAYMENT OF CONT RIBUTIONS TO THE WELFARE FUNDS. HOWEVER, AS STATED ABOVE, THE SECOND PROV ISO RESULTED IN IMPLEMENTATION PROBLEMS, WHICH HAVE BEEN MENTION ED HEREINABOVE, AND WHICH RESULTED IN THE ENACTMENT OF THE FINA NCE ACT, 2003, DELETING THE SECOND PROVISO AND BRINGING ABOUT UN IFORMITY IN THE FIRST PROVISO BY EQUATING TAX, DUTY, CESS, AND FEE WITH CONTRIBUTIONS TO WELFARE FUNDS. ONCE THIS UNIFORMITY IS BROUGHT ABOUT IN THE FIRST PROVISO, THEN, IN OUR VIEW, THE FINANCE ACT , 2003, WHICH IS MADE APPLICABLE BY PARLIAMENT ONLY WITH EFFECT FROM APR IL I, 2004, WOULD BECOME CURATIVE IN NATURE, HENCE, IT WOULD APPLY, RETROSPECTIVELY, WITH EFFECT FROM APRIL I, 1988. SECONDLY, IT MAY BE NOTED THAT, IN THE CASE OF ALLIED MOTORS P. LTD. V. CIT REPORTED IN [1997] 224 ITR 677 (SC), THE SCHEME OF SECTION 43B OF T HE ACT CAME TO BE EXAMINED. IN THAT CASE, THE QUESTION, WHICH AROSE FO R 3076-2975-2008-SE 12 DETERMINATION, WAS, WHETHER SALES TAX COLLECTED BY THE ASSES SEE AND PAID AFTER THE END OF THE RELEVANT PREVIOUS YEAR BUT WITHIN THE TIME ALLOWED UNDER THE RELEVANT SALES TAX LAW SHOULD BE DISALL OWED UNDER SECTION 43B OF THE ACT WHILE COMPUTING THE BUSINESS INCO ME OF THE PREVIOUS YEAR? THAT WAS A CASE, WHICH RELATED TO THE ASSES SMENT YEAR 1984-85. THE RELEVANT ACCOUNTING PERIOD ENDED ON JUNE 30, 1983. THE INCOME-TAX OFFICER DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE WHICH WAS ON ACCOUNT OF SALES TAX COLLECTED BY T HE ASSESSEE FOR THE LAST QUARTER OF THE RELEVANT ACCOUNTING YEAR. THE DEDUCTION WAS DISALLOWED UNDER SECTION 43B, WHICH, AS STATED ABOV E, WAS INSERTED WITH EFFECT FROM APRIL 1, 1984. IT IS ALSO RELEV ANT TO NOTE THAT THE FIRST PROVISO WHICH CAME INTO FORCE WITH EFFECT FROM APRIL 1, 1988, WAS NOT ON THE STATUTE BOOK WHEN THE ASSESSMENTS WERE MADE I N THE CASE OF ALLIED MOTORS P. LTD. [1997J 224 ITR 677. HOW EVER, THE ASSESSEE CONTENDED THAT EVEN THOUGH THE FIRST PROVISO CAME T O BE INSERTED WITH EFFECT FROM APRIL 1, 1988, IT WAS ENTITLED TO THE BENEFIT OF THAT PROVISO BECAUSE IT OPERATED RETROSPECTIVELY FROM APRI L 1, 1984, WHEN SECTION 43B STOOD INSERTED. THIS IS HOW THE QUESTIO N OF RETROSPECTIVITY AROSE IN ALLIED MOTORS P. LTD. [1997J 2 24 ITR 677. THIS COURT, IN ALLIED MOTORS P. LTD. [1997J 224 ITR 677 H ELD THAT WHEN A PROVISO IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND T O MAKE THE SECTION WORKABLE, A PROVISO WHICH SUPPLIES AN OBVIO US OMISSION IN THE SECTION AND WHICH PROVISO IS REQUIRED TO BE READ INTO THE SECTION TO GIVE THE SECTION A REASONABLE INTERPRETATION, IT COULD BE READ AS RETROSPECTIVE IN OPERATION, PARTICULARLY TO GIVE EFFECT T O THE SECTION AS A WHOLE. ACCORDINGLY, THIS COURT, IN ALLIED MOTORS P. LTD. [1997J 224 ITR 677, HELD THAT THE FIRST PROVISO WAS CURATIVE IN N ATURE, HENCE, RETROSPECTIVE IN OPERATION WITH EFFECT FROM APRIL 1, 1988 . IT IS IMPORTANT TO NOTE ONCE AGAIN THAT, BY THE FINANCE ACT, 2003, NOT ONLY THE SECOND PROVISO IS DELETED BUT EVEN THE FIRST PROVI SO IS SOUGHT TO BE AMENDED BY BRINGING ABOUT UNIFORMITY IN TAX, DUT Y, CESS AND FEE ON THE ONE HAND, VIS-AVIS CONTRIBUTIONS TO WELFARE FUN DS OF EMPLOYEE(S) ON THE OTHER. THIS IS ONE MORE REASON WHY WE HO LD THAT THE FINANCE ACT, 2003, IS RETROSPECTIVE IN OPERATION. MOR EOVER, THE JUDGMENT IN ALLIED MOTORS P. LTD. (SUPRA) IS DELIVERED B Y A BENCH OF THREE LEARNED JUDGES, WHICH IS BINDING ON US. ACCORDINGL Y, WE HOLD THAT THE FINANCE ACT, 2003, WILL OPERATE RETROSPECTIVELY WITH EFFECT FROM APRIL 1, 1988 (WHEN THE FIRST PROVISO STOOD INSER TED). LASTLY, WE MAY POINT OUT THE HARDSHIP AND THE INVIDIOUS DISCRIMI NATION, WHICH WOULD BE CAUSED TO THE ASSESSEE(S) IF THE CONTENTION OF THE DEPARTMENT IS TO BE ACCEPTED THAT THE FINANCE ACT, 2003, T O THE 3076-2975-2008-SE 13 ABOVE EXTENT, OPERATED PROSPECTIVELY. TAKE AN EXAMPLE-IN TH E PRESENT CASE, THE RESPONDENTS HAVE DEPOSITED THE CONTRIBUTIO NS WITH THE R. P. F. C. AFTER MARCH, 31 (END OF THE ACCOUNTING YEAR) BUT BEFORE FILING OF THE RETURNS UNDER THE INCOME-TAX ACT AND THE D ATE OF PAYMENT FALLS AFTER THE DUE DATE UNDER THE EMPLOYEES' PROVIDENT FUND ACT, THEY WILL BE DENIED DEDUCTION FOR ALL TIMES. IN VIEW OF THE SEC OND PROVISO, WHICH STOOD ON THE STATUTE BOOK AT THE RELEVANT TIME, EAC H OF SUCH ASSESSEE(S) WOULD NOT BE ENTITLED TO DEDUCTION UNDER SECTIO N 43B OF THE ACT FOR ALL TIMES. THEY WOULD LOSE THE BENEFIT OF D EDUCTION EVEN IN THE YEAR OF ACCOUNT IN WHICH THEY PAY THE CONTRIBUTI ONS TO THE WELFARE. FUNDS, WHEREAS A DEFAULTER, WHO FAILS TO PAY THE CONTRIBUTION TO THE WELFARE FUND RIGHT UP TO APRIL 1, 2004, AND WHO PAYS THE CONTRIBUTION AFTER APRIL 1, 2004, WOULD GET THE BENEFIT OF DEDUCTION UNDER SECTION 43B OF THE ACT. IN OUR VIEW, THEREFORE, THE FINANCE ACT, 2003, TO THE EXTENT INDICATED ABOVE, SHOULD BE READ AS RETR OSPECTIVE. IT WOULD, THEREFORE, OPERATE FROM APRIL 1, 1988, WHEN THE FIRST PROVISO WAS INTRODUCED. IT IS TIME THAT PARLIAMENT HAS EXPLICI TLY STATED THAT THE FINANCE ACT, 2003, WILL OPERATE W.E.F. APRIL 1, 2004. HOWEVER, THE MATTER BEFORE US INVOLVES THE PRINCIPLE OF CONSTRUCTION TO BE PLACED ON THE PROVISIONS OF THE FINANCE ACT, 2003. 6.4 IT IS SEEN THAT THE RETURN OF INCOME WAS DUE U/S 139( 1) ON 31.10.2004. ALL THE PAYMENTS HAVE BEEN MADE BEFORE THIS DATE. THEREFORE, THE DECISI ON IN THE CASE OF ALOM EXCLUSIONS LIMITED (SUPRA) IS APPLICABLE TO THE F ACTS OF THE CASE. RESPECTIVELY, FOLLOWING THIS DECISION, IT IS HELD THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION. ACCORDINGLY, GROUND NO.2 IS ALLOWED. 7. GROUND NO.3 TO 7 OF THE ASSESSEES APPEAL READ AS UND ER:- 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF T HE CASE, LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THA T AMOUNT OF `4,27,561/- INCURRED ON OFFICE RENOVATION IS NOT REVENUE EXPENDITURE. 3076-2975-2008-SE 14 4. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF T HE CASE, LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING TH E ACTION OF LEARNED ASSESSING OFFICER IN TREATING THE INCOME OF `3,85,684/- ON ACCOUNT OF INTEREST RECEIVED AS INCOME FROM OTHER SOURCES. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF T HE CASE, LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING TH E ACTION OF LD. ASSESSING OFFICER IN MAKING ADDITION OF `46,775/- ON ACCOUNT OF INTEREST PAID. 6. THAT IN ANY VIEW OF MATTER AND IN ANY CASE, ACTION OF LEARNED CIT(A) IN NOT REVERSING THE ACTION OF LEARNED ASSESSING OFFICER IN DISAL LOWING THE CLAIM OF DEDUCTION U/S 80HHC IS ILLEGAL, VOID AB-INITIO, AR BITRARY, UNJUSTIFIED, AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND CONTRARY TO THE LAW AND FACTS AND HAS FURTHER ERRED IN NOT QUASHING THE IMPUGNED ASSESS MENT ORDER FRAMED BY LEARNED ASSESSING OFFICER AFTER MAKING ABOVE ADDITIONS/DISALLOWANCES BEING ILLEGAL VOID AB INITIO, IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 7. THAT THE APPELLANT CRAVES THE LEAVE TO ADD, MODIFY, 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. 7.1 THESE GROUNDS WERE NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THEREFORE, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 8. WE NOW PROCEED WITH OTHER GROUNDS TAKEN BY THE REVENUE IN ITS APPEAL. GROUND NO.2 IS TO THE EFFECT THAT THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF `8,38,77,635/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF DIFFERENCE IN THE VALUE OF STOCK, AS PER STATEMENT SUBMITTED TO THE BANK AN D DECLARED IN THE BOOKS OF ACCOUNT. 3076-2975-2008-SE 15 8.1 IN THIS CONNECTION, IT HAS BEEN MENTIONED IN THE AS SESSMENT ORDER THAT THE ASSESSEE HAD SHOWN OUTSTANDING, SECURED LOAN OF `23,07,2 6,493/- FROM CITY BANK AGAINST THE SECURITY OF STOCK. THE STOCK AS PER BOOKS HAS BEEN SHOWN AT `22,07,16,036/- ONLY. SUMMONS WERE ISSUED TO THE BANK T O FURNISH THE INVENTORY OF STOCK SUBMITTED TO IT BY THE ASSESSEE. THE SAME WAS FURNI SHED, WHICH SHOWS THAT STOCK DECLARED TO THE BANK AS ON 25.03.2004 WAS OF THE VALUE OF `31,12,04,000/-. THE ASSESSEE WAS REQUESTED TO RECONCILE THE BANK-STOCK WITH THE BOOK-STOCK. IT WAS SUBMITTED THAT THE DECLARATION OF STOCK MADE TO THE BAN K WAS ONLY FOR THE PURPOSE OF AVAILING OF THE BANK LOAN AS PER THEIR NORMS. HOWEV ER, THE STOCK SHOWN IN THE ACCOUNTS IS BASED UPON STOCK REGISTER, WHICH HAS BEEN MA INTAINED ON BROADER CATEGORY-WISE BASIS. THE STOCK HAS BEEN VERIFIED BY THE MA NAGEMENT FROM TIME TO TIME AND ITS VALUATION HAS BEEN DONE. THE ASSESSING OFFI CER CONSIDERED THE BANK STATEMENT, STOCK AS PER BOOKS AND EXPLANATION OF THE ASS ESSEE. HE ALSO REFERRED TO THE AUDITORS REMARK IN THE TAX AUDIT REPORT, WHICH IS THAT THE FIRM IS ENGAGED IN MANUFACTURING AND EXPORTING OF COTTON FURNISHINGS. IT IS INFORMED THAT DUE TO NATURE OF BUSINESS ACTIVITIES, IT IS NOT PRACTICABLE TO MAIN TAIN STOCK RECORDS IN THE DESIRED FORMAT DUE TO VARIATION IN SIZE, COLOUR, DESIGN, STUFF ETC. HOWEVER, IN ORDER TO ASCERTAIN THE PROFITABILITY, THE ASSESSEE IS VALUING ITS STOCK AT THE END OF THE YEAR AFTER PHYSICAL VERIFICATION. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE. HE CONSIDERED THE RE-DRAWN MANUFACTURING-CUM -TRADING ACCOUNT 3076-2975-2008-SE 16 SUBMITTED BY THE ASSESSEE FOR THE WHOLE YEAR, WHICH HAS B EEN REPRODUCED IN PARAGRAPH NO. 6.5 ON PAGE NO.9, AND MENTIONED THAT THE RATIO OF MANUFACTURING EXPENSES TO THE TURN OVER IS 22.5% AND THE RATIO OF GROSS PROFIT TO THE TURN OVER IS 9.365% AFTER EXCLUDING EXPORT INCENTIVE. ON THE BASIS OF THESE RATIOS, HE DREW THE MANUFACTURING-CUM-TRADING ACCOUNT FOR THE PERIOD 26.0 3.2004 TO 31.03.2004 BY TAKING THE VALUE OF OPENING STOCK AT `31,12,04,000/-, AND CAME TO THE CONCLUSION THAT THE CLOSING STOCK AS ON 31.03.2004 SHOULD HAVE B EEN OF THE VALUE OF `30,45,93,671/-. IT WAS HELD THAT SINCE THE STOCK STA TEMENT WAS FURNISHED BY THE ASSESSEE TO THE BANK AS ON 26.03.2004, THE SAME IS CORRECT ON A PRIMA FACIE BASIS. A HEAVY BURDEN LIES ON THE ASSESSEE TO PROVE THAT THE STATEMEN T IS WRONG AND BOOK- STOCK HAS BEEN CORRECTLY WORKED OUT. THE STATEMENT TO THE BANK IS A SWORN STATEMENT, WHICH CANNOT BE TAKEN LIKELY. SINCE THE ASSESSEE H AS FAILED TO DISCHARGE THE BURDEN, THE DIFFERENCE IN THE VALUE OF STOCK WORKED OUT BY THE ASSESSING OFFICER AND SHOWN IN THE BOOKS, AMOUNTING TO `8,38,77,635/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 8.2 BEFORE THE LEARNED CIT(A), THE ASSESSEE FILED VARIOUS DOC UMENTS RELATED TO VAT ASSESSMENT, EXCISE RECORDS INCLUDING VALUATION OF TH E STOCK AND INVOICES AND BILLS FOR VALUATION OF THE STOCK. IT WAS SUBMITTED THAT THE STOCK HAS BEEN ACCEPTED BY THE VAT DEPARTMENT OF GOVERNMENT OF HARYANA AND THE SAME STOCK HAS BEEN TAKEN FOR THE PURPOSE OF EXCISE RECORDS. IT WAS FURTHER SUBMI TTED THAT THE ASSESSING OFFICER 3076-2975-2008-SE 17 HAS NOT SHOWN ANY DEFECT IN THE MAINTENANCE OF THE RECORD S, WHICH COULD LEAD TO THE REJECTION OF STOCK RECORDS. IT WAS ALSO SUBMITTED THAT THE STATEMENT SUBMITTED TO THE BANK IS MERELY A FIGURE, NOT SUPPORTED BY ANY QUANTI TATIVE DETAILS AND VALUATION THEREOF. THE STATEMENT TO THE BANK HAS NOT BEEN AFFIRMED ON OATH. THE METHOD OF PREPARING MANUFACTURING-CUM-TRADING ACCOUNT BY THE AS SESSING OFFICER FOR THE PERIOD 26.03.2004 TO 31.03.2004 WAS ALSO ASSAILED BY SUBMITTING THAT THE MANUFACTURING EXPENSES ETC. DO NOT HAVE ANY CO-RELATION WITH THE TURN OVER. IT WAS ALSO SUBMITTED THAT CREDIT LIMIT AVAILED OF WAS NOT ON LY AGAINST THE STOCK BUT ALSO BOOK DEBTS. IN THESE FACTS IT WAS ARGUED THAT NO ADJUS TMENT COULD BE VALIDLY MADE TO THE STOCK AS PER BOOKS OF ACCOUNT. THE LEARNED CIT( A) CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE HIM. IT WAS MENTIONED T HAT THE ADDITION COULD BE MADE ONLY IF QUANTITY OF STOCK SUBMITTED TO THE BAN K WAS HIGHER THAN THE QUANTITY AS PER BOOKS, WHICH WAS PLEDGED COUNTED OR VERIFIED BY TH E BANK OFFICIALS. IN THIS CASE QUANTITATIVE DETAILS WERE NOT GIVEN TO THE BANK. TH E STOCK WAS NOT PLEDGED TO THE BANK AND IT WAS ALSO NOT VERIFIED BY ANY BANK OFFI CIALS. THEREFORE, THE STATEMENT GIVEN TO THE BANK COULD NOT HAVE BEEN RELIED UPON. AT THE SAME TIME, NO DEFECT HAS BEEN POINTED OUT IN THE BOOKS IN RESPECT OF PURCHASE, SALE OR THE STOCK. THEREFORE, THE ADDITION WAS DELETED. 8.3 BEFORE US, THE LEARNED DR SUBMITTED THAT THE AUDITOR S REMARK SHOWS THAT PROPER RECORDS HAVE NOT BEEN MAINTAINED IN RESPECT OF THE ST OCK. THE INVENTORY OF 3076-2975-2008-SE 18 STOCK ON 31.03.2004 AS PER BOOKS HAS ALSO NOT BEEN FIL ED. HOWEVER, THE CLAIM OF THE ASSESSEE IS THAT THE STATEMENT FURNISHED TO THE BANK IS ONLY A FIGURE ESTIMATED ON THE BASIS OF CREDIT LIMIT AVAILED OF. THE LEARNED CIT(A ) RELIED ON THE RECORDS MAINTAINED TO COMPLY WITH VAT REGULATION AND EXCISE DU TY REGULATIONS. IT IS NOT SHOWN THAT THESE AUTHORITIES WERE AWARE OF THE STATEMENT OF STOCK FURNISHED TO THE BANK. IT IS FURTHER SUBMITTED THAT A WHOLESALE REJECTIO N OF BOOKS OF ACCOUNT IS NOT NECESSARY IN A CASE WHERE AN ADDITION IS SOUGHT TO BE MAD E ON A SPECIFIC POINT. THE ASSESSING OFFICER HAD MADE ADDITION OF `8,38,77,635 /- U/S 69, FOR WHICH IT WAS NOT NECESSARY TO REJECT THE BOOKS IN TOTO. THIS AD DITION WAS BASED UPON THE EVIDENCE GATHERED FROM THE BANK. THE ASSESSEE HAS NOT DENIED T HAT SUCH STATEMENT WAS MADE TO THE BANK. IT IS ALSO FAILED TO PROVE THAT THE STOCK SHOWN IN THE ACCOUNT IS MORE RELIABLE THAN THE STOCK STATEMENT FURNISHED TO THE BANK. IT IS ALSO SUBMITTED THAT THE BOOKS OF ACCOUNT HAD BEEN AUDITED U/S 44AB, AN D EVEN THE AUDITORS HAVE MADE ADVERSE REMARK ABOUT NON-MAINTENANCE OF PROPER RECORD AND THE FACT THAT THE AUDITORS HAVE NOT VERIFIED AND VALUED THE STOCK BUT A DOPTED THE FIGURE SUPPLIED BY THE ASSESSEE. IN THIS SITUATION, THE LEARNED CIT(A) CO ULD NOT HAVE COME TO THE CONCLUSION THAT THE BOOK-STOCK WAS MORE RELIABLE THAN T HE BANK-STOCK. BOTH THESE VALUATIONS HAD BEEN MADE BY THE ASSESSEE, AND NONE OF THEM IS AMENABLE TO VERIFICATION. ACCORDINGLY, IT IS ARGUED THAT THE CIT( A) ERRED IN DELETING THE ADDITION. 3076-2975-2008-SE 19 8.4 IN REPLY, THE LEARNED COUNSEL RELIED ON THE ORDER OF THE LEARNED CIT(A). OUR ATTENTION HAS BEEN DRAWN TOWARDS PAGE NOS.14 TO 22 OF T HE IMPUGNED ORDER. THESE PAGES CONTAIN THE OPERATING POTION OF THE ORDER. IT IS MENTIONED THAT THE CLAIM OF THE ASSESSEE IS THAT THE ANNUAL ACCOUNTS HAVE BEEN AUDITED AND THE POSITION OF STOCK IS AS PER EXCISE RECORDS. THIS POSIT ION HAS ALSO BEEN ACCEPTED BY VAT DEPARTMENT OF THE HARYANA GOVERNMENT. THESE FACTS HA VE NOT BEEN DISPUTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS AL SO NOT POINTED OUT ANY ERROR IN THE FINANCIAL RECORDS. THERE IS NO EVIDENCE THAT ANY UN ACCOUNTED STOCK WAS THERE IN THE POSSESSION OF THE ASSESSEE OR ANY UNACCOUNTED PURCHASE OR SALE WAS MADE. THE LEARNED CIT(A) ALSO CONSIDERED THE MANUFACTURING-CUM- TRADING ACCOUNT PREPARED BY THE ASSESSEE AND CAME TO THE CONCLUSION THAT TH E OVERHEAD EXPENSES HAVE NO CO-RELATION WITH THE TURN OVER. IT HAS ALSO B EEN RECORDED THAT AS PER ARRANGEMENT WITH THE BANK NOT ONLY STOCK BUT BOOK DEBT S WERE ALSO FURNISHED AS SECURITY AGAINST LOAN. IN VIEW OF THESE FACTS, IT HAS BEEN HELD THAT THE BOOK RESULTS HAVE BEEN WRONGLY DISTURBED WITHOUT REJECTION OF THE BOOK S OF ACCOUNT. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFFICER IN THIS REGARD HAS BEEN DELETED. 8.5 THE LEARNED COUNSEL ALSO DREW OUR ATTENTION TO VARIOU S PAPERS PLACED IN THE PAPER BOOK IN THIS REGARD. PAGE NOS. 164 TO 172 CONTA IN THE DETAILS OF MAJOR ITEMS FOR THE MONTH OF MARCH, 2004. THESE PAPERS INCLUDE DATE -WISE OPENING BALANCE, 3076-2975-2008-SE 20 QUANTITY OF GOODS MANUFACTURED, QUANTITY OF REMOVAL O F GOODS AND THE CLOSING STOCK. PAGE NO.174 CONTAINS THE DETAILS OF STOCK AS ON 25.03.2004 AS PER EXCISE REGISTER AND THE SAME HAS BEEN VALUED AT `21,97,34,620/- A S AGAINST THE STOCK OF ABOUT `3,112.04 LACS SHOWN TO THE BANK. FURTHER, PAG E NOS. 222 TO 224 CONTAIN THE ASSESSMENT ORDER UNDER VAT ACT, 2003, FOR THE YEAR 200 3-04. IT IS MENTIONED THAT THE ASSESSEE PRODUCED COMPUTERIZED ACCOUNTS ALONG WIT H INVOICES, BILLS, VOUCHERS RELATED TO PURCHASES AND SALES, WHICH HAVE BEEN EXA MINED. WHILE ALLOWING INPUT CREDIT, THE CLOSING STOCK IS SHOWN AT `22,07,16,036/-. PAGE NO.161 CONTAINS THE EXPLANATION OF THE ASSESSEE IN THIS MATTER SU BMITTED BEFORE THE ASSESSING OFFICER. IT IS MENTIONED THAT THE STOCK OF AB OUT `3,112.04 LACS AS ON 25.03.2004 SUBMITTED TO THE BANK IS THE FIGURE GIVEN ONL Y TO AVAIL OF THE CREDIT LIMIT AS PER THEIR NORMS. IT HAS BEEN GIVEN OUT OF BUSINESS C OMPULSION SO THAT THE FINANCIAL DEALINGS ARE NOT DISRUPTED. SOMETIMES THE STOCK IN THE RECO RD DOES NOT MATCH WITH THE STATEMENT GIVEN TO THE BANK. HOWEVER, STOCK HAS BEEN CA LCULATED AS ON 31.03.2004 AT `22,07,16,036/- ON THE BASIS OF THE STO CK REGISTER MAINTAINED ON A BROAD CATEGORY-WISE BASIS. THIS STOCK HAS BEEN DULY VER IFIED AND VALUED BY THE MANAGEMENT. ON THE BASIS OF AFORESAID EVIDENCES AND THE SU BMISSIONS IT IS ARGUED THAT THE LEARNED CIT(A) WAS RIGHT IN DELETING THE ADDITIO N. 9. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION S MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF MANUFACTURE AND SALE 3076-2975-2008-SE 21 OF HOME FURNISHING PRODUCTS. THE ASSESSEE FURNISHED A ST ATEMENT OF STOCK TO THE BANK AS ON 25.03.2004, SHOWING THE STOCK IN ITS POSS ESSION AT ABOUT `31 CRORES. HOWEVER, THE ASSESSEE SHOWED STOCK OF ABOUT `22 CRORES ONL Y IN THE BOOKS OF ACCOUNT. IN ORDER TO EXPLAIN THE DISCREPANCY, THE ASSESS EE FURNISHED STOCK REGISTER FOR THE MONTH OF MARCH, 2004, BEFORE THE ASSESSING OFFI CER AND PURCHASE BILLS FOR THE PURPOSE OF ITS VALUATION. THE STOCK AS PER EXCISE REG ISTER IS ALSO THE SAME. THE PURCHASES, SALES AND THE POSITION OF STOCK HAVE BEEN ACCEP TED BY VAT AUTHORITIES. THE EXPLANATION OF THE ASSESSEE ABOUT THE STATEMENT GIVEN TO THE BANK IS THAT A HYPOTHETICAL FIGURE WAS FURNISHED TO THE BANK SO AS TO COVER THE CREDIT LIMIT. THE SAME DOES NOT REPRESENT THE CORRECT VALUE OF STOCK. THE ST ATEMENT IS NOT GIVEN ON OATH AND THE STOCK HAS NOT BEEN VERIFIED BY THE BANK AUT HORITIES. THE QUESTION IS WHETHER THE ADDITION IN RESPECT OF THE DISCREPANCY CAN BE M ADE TO THE TOTAL INCOME BY INVOKING THE PROVISION CONTAINED IN SECTION 69 OF T HE ACT? 9.1 THE LEARNED DR RELIED ON THE DECISION OF HONBLE PUNJAB AND HARYANA HIGH COURT, BEING THE JURISDICTIONAL HIGH COURT IN THE CASE OF B.T. STEELS LTD. VS. CIT (2011) 196 TAXMAN 362. IN THIS CASE, THE ASSESSING OF FICER FOUND THAT THE STOCK STATEMENT OF HYPOTHECATED GOODS FURNISHED TO THE BANK WAS AT VARIANCE WITH THE STOCK ENTERED IN THE BOOKS OF ACCOUNT. THE BANK CONFIRM ED THAT THE ASSESSEE HAD GIVEN STATEMENT TO THE BANK WHICH WAS DULY SIGNED BY IT. IT WAS NOWHERE DENIED THAT THE BANK OFFICERS VISITED THE ASSESSEE IN RESPECT OF S TOCK WITH IT AS ON 3076-2975-2008-SE 22 31.12.1994. THE CONCEPT OF HYPOTHECATION OF GOODS AND VISITS REQUIRES PERIODICAL CHECKS BY THE BANK. HOWEVER, THE BANK DID NOT HAVE IN IT S POSSESSION THE RECORD OF VISITS ON OTHER DATES, OTHER THAN 31.12.1994. THE ASSES SING OFFICER ALSO RECORDED THE STATEMENT OF THE DIRECTOR IN THE COMPANY WHO WAS LOOK ING AFTER THE DEALINGS WITH THE BANK. THEREAFTER OPPORTUNITY WAS AFFORDED TO T HE ASSESSEE TO EXPLAIN THE VARIANCE OF `28,83,620/-. THE ASSESSEE DID NOT FILE ANY REPLY AND, THEREFORE, THE AFORESAID AMOUNT WAS ADDED TO THE TOTAL INCOME. THE HON BLE COURT MENTIONED THAT WHETHER THE DIFFERENCE JUSTIFIES ADDITION IS A QUESTIO N OF FACT, WHICH HAS TO BE DECIDED IN EACH INDIVIDUAL CASE. THE ASSESSING OFFICER HA S TO DETERMINE THE ISSUE ON THE BASIS OF BOOKS OF ACCOUNT AND OTHER MATERIAL AV AILABLE ON RECORD. THE TRIBUNAL POINTED OUT THAT THE ASSESSING OFFICER NOT ONL Y HAD THE BANK STATEMENT BEFORE HIM BUT ALSO THE VERIFICATION REPORT OF THE REGION AL OFFICER THAT THE STOCK WAS ACTUALLY LYING WITH THE ASSESSEE. THEREFORE, THE ADDITIO N MADE BY THE ASSESSING OFFICER WAS UPHELD. THE HONBLE COURT MENTIONED THAT NO DOUBT IT WAS A STATEMENT TO A THIRD PARTY, BUT THE SAID STATEMENT WAS NOT DENIED NOR ANY VALID EXPLANATION WAS FURNISHED. ACCORDINGLY, IT WAS HELD THAT THE TRIB UNAL WAS RIGHT IN UPHOLDING THE ADDITION. WHILE THE CASE OF THE LEARNED DR IS THAT THE FA CTS OF THE CASE ARE IDENTICAL, THE CASE OF THE LEARNED COUNSEL IS THAT THE FACTS ARE DISTI NGUISHABLE INASMUCH AS THE STATEMENT WAS NOT DENIED NOR ANY VALID EXPLANATION WAS FURNISHED ABOUT THE DISCREPANCY. 3076-2975-2008-SE 23 9.2 FURTHER, THE LEARNED DR RELIED ON THE DECISION OF MADRA S HIGH COURT IN THE CASE OF COIMBATORE SPINNING AND WEAVING COMPANY LIMITED VS. CIT (1974) 95 ITR 375. THE MAIN SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS CASE HAD BEEN THAT THERE WAS NO JUSTIFICATION FOR MAKING THE ADDI TION AS IT IS QUITE USUAL FOR BUSINESS HOUSES TO EXAGGERATE THEIR STOCK POSITION FOR O BTAINING HIGHER LOAN FROM THE BANK, AND THAT AS SUCH THE STOCK DECLARATIONS MADE TO THE BANK CANNOT BE TAKEN TO REPRESENT THE TRUE STOCK POSITION. IT MAY BE MENTIONED THA T THE ASSESSEE HAD SUBMITTED THE STATEMENT CONTAINING THE POSITION OF COTT ON STOCK IN WEIGHT, WHICH HAD BEEN PLEDGED TO THE BANK. IN VIEW OF THE AFORESAID ARG UMENTS, IT WAS SUBMITTED THAT THE TRIBUNAL SHOULD HAVE TAKEN JUDICIAL NOTE OF THE PRACTICE FOLLOWED BY THE BUSINESS HOUSES. IT WAS ALSO CONTENDED THAT EVEN I F THERE WAS EXCESS STOCK, IT WOULD NOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT T HE DISCREPANCY REPRESENTED THE INCOME OF THE ASSESSEE. ON THE OTHER HAND, THE REVENUE CONT ENDED THAT THE QUESTION IS REGARDING THE ACCEPTABILITY OR OTHERWISE OF T HE EXPLANATION OFFERED BY THE ASSESSEE, WHICH IS A QUESTION OF FACT. THE HONBLE CO URT MENTIONED THAT THE EXPLANATION HAD NOT BEEN ACCEPTED BY THE TRIBUNAL AND TH E RESULTANT POSITION IS THAT THERE IS EXCESS STOCK, NOT DISCLOSED IN THE BOOKS OF ACCO UNT, AND THAT THE NON- DISCLOSURE WAS ONLY WITH A VIEW TO SUPPRESS THE INCOME. ON THESE FINDINGS OF THE TRIBUNAL, THE ONLY IN-ESCAPABLE CONCLUSION IS THAT THE EXCESS STOCK SHOULD COME FROM UNDISCLOSED SOURCES. THE CASE MADE OUT BY THE LEARNED COUN SEL IS THAT THE FACTS ARE DISTINGUISHABLE BECAUSE IT IS A CASE OF THE PLEDGING OF T HE STOCK AND QUANTITATIVE 3076-2975-2008-SE 24 DETAILS WERE FURNISHED TO THE BANK. IN CASE OF A PLEDGE TH E STOCK REMAINS IN THE POSITION OF THE BANK AND THE ASSESSEE IS IN NO POSITION TO CHANGE THE STOCK POSITION IN THE STATEMENT. 9.3 THE LEARNED DR ALSO RELIED ON THE DECISION OF MADRAS H IGH COURT IN THE CASE OF CIT VS. INDIA CEMENTS LIMITED (1999) 154 CTR 167 I N WHICH IT HAD BEEN HELD THAT WHILE MAKING THE ASSESSMENT, THE VIOLATION OF OTHER LAWS CANNOT BE OVERLOOKED. THUS, IF REMUNERATION IS PAID TO THE MANAGING AGENTS IN VIOLATION OF SECTION 349 OF THE COMPANIES ACT, THE AMOUNT CANNOT BE ALLOWED MERELY ON THE GROUND THAT THE EXPENDITURE HAS BEEN INCURRED, AND REFLECTED IN THE BOOKS OF ACCOUNT. THE LEARNED DR RELIED IN THIS CASE FOR BRINGING HOME THE POINT THAT IF THERE IS INFRACTION OF OTHER LAWS OR REGULATIONS, THE SAME CANNOT BE IGNORED IN MAKIN G ASSESSMENT UNDER THE I.T. ACT. HOWEVER, THE CASE OF THE LEARNED COUNSEL IS THAT THE ISSUE DECIDED IN THIS CASE IS ENTIRELY DIFFERENT. 9.4 THE LEARNED DR ALSO RELIED ON THE DECISION OF ALLAHABA D HIGH COURT IN THE CASE OF SWADESHI COTTON MILLS COMPANY LIMITED VS. CIT (1989) 180 ITR 651. ONE OF THE QUESTIONS BEFORE THE HONBLE COURT WAS WHETHER THE FIN DING OF THE APPELLATE TRIBUNAL OF ADDITION OF `43,000/- TO THE BOOK RESULTS STANDS VITIATED BECAUSE IT DOES NOT TAKE INTO ACCOUNT SOME RELEVANT MATERIAL FACT AND TA KES INTO ACCOUNT SOME IRRELEVANT MATERIAL AND CONSIDERATIONS? THE HEAD NOTE MENT IONS THAT DIFFERENCE 3076-2975-2008-SE 25 BETWEEN STOCK DECLARED TO THE BANK AND STOCK RECORDED IN T HE BOOKS OF ACCOUNT HAS BEEN HELD TO BE ASSESSABLE. IN THE REPORT ON PAGE 654 IT I S MENTIONED THAT ALL QUESTIONS EXCEPT QUESTION NO.4 (WHICH IS DIFFERENT) ARE TO BE ANSWERED AGAINST THE ASSESSEE. THEREFORE, QUESTION NO.2, MENTIONED ABOVE HAS BEE N ANSWERED AGAINST THE ASSESSEE. AS THE FACTS HAVE NOT BEEN NARRATED IN REGARD TO THIS QUESTION, WE ARE NOT TAKING THIS DECISION INTO ACCOUNT. 9.5 IN THE CASE OF INCOME TAX OFFICER VS. EMERSON PAUL P LASTIC COMPANY, (1991) 191 ITR 560 (P&H), THE FACTS ARE THAT THE ASSESSING OFF ICER CAME TO KNOW THAT THE ACCOUNTS SUBMITTED BY THE ASSESSEE TO THE BANK WERE DIFFERENT FROM THE ACCOUNTS FILED WITH THE RETURN OF INCOME. BOTH THE ACCOUNTS RELAT E TO A FIRM BY THE NAME AND STYLE OF M/S EMERSON PAUL PLASTIC COMPANY LIMITED. TH E ACCOUNTS ARE SUBMITTED TO THE DEPARTMENT BY A PARTNERSHIP FIRM WITH SATPAL SINGH AL ANG AND HIS MOTHER AS PARTNERS. THE FIRM WHICH SUBMITTED THE ACCOUNTS TO THE BANK IS SAID TO BE A PROPRIETARY CONCERN OF SATPAL SINGH ALANG. A PROSECUTIO N COMPLAINT WAS FILED AGAINST THE ASSESSEE ON ACCOUNT OF DIFFERENCE IN ACCOUNT S, WHICH WAS DISMISSED BY RECORDING A FINDING THAT IF THE EVIDENCE IS REBUTTED, NO CASE WILL BE LEFT. THE HONBLE COURT HELD THAT THE POINT OF SIGNIFICANCE IS THAT NAME OF THE FIRM AND THE OCCURRENCE OF SATPAL SINGH ALANG IS COMMON. IN VIEW THEREOF, IT CA NNOT BE SAID THAT A PRIMA FACIE CASE CANNOT BE MADE OUT. SUCH A CONCLUSION CAN BE DRAWN ONLY WHERE THE EVIDENCE IS TOTALLY UNWORTHY OF CREDIT OR THE SAME IS PAT ENTLY ABSURD. ACCORDINGLY, 3076-2975-2008-SE 26 THE PETITION WAS ALLOWED AND THE CHIEF JUDICIAL MAGISTR ATE WAS DIRECTED TO PROCEED WITH THE CASE ON MERITS. THE CASE OF THE LEARNED DR IS TH AT IF THERE ARE DIFFERENCES IN THE TWO STOCK STATEMENTS, EVEN PROSECUTION CAN BE LAUNCHED WHILE WE ARE DEALING WITH THE ADDITION, WHICH CAN FIX TAX LIABILITY, WHIC H IS THE CIVIL LIABILITY. THE LEARNED COUNSEL SUBMITTED THAT THE DECISION ONLY STATES THAT THE PROSECUTION CAN BE PROCEEDED WITH IF PRIMA FACIE EVIDENCE IS AVAILABLE. HOWEVER , THE MAGISTRATE WAS DIRECTED TO PROCEED WITH THE CASE ON MERITS WHICH WAS NOT AFFECTED IN ANY MANNER BY THE DECISION OF THE COURT AND THIS WAS ALSO MADE CLEA R IN THE JUDGMENT ITSELF. THEREFORE, WHAT IS TO BE SEEN IN THIS CASE IS THE MERIT AND THE WEIGHT TO BE ATTACHED TO THE STATEMENT FURNISHED TO THE BANK IN THE LIGHT OF EVI DENCES PRODUCED BY THE ASSESSEE. 9.6 IN THE CASE OF RECON MACHINE TOOLS (P) LIMITED VS. C IT, (2006) 286 ITR 637 (KARNATAKA), THE HONBLE COURT MENTIONED THAT THE MATERIA L ON RECORD REVEALS A DIFFERENT FIGURE SHOWN IN THE BANK STATEMENT THAN THE FIGU RE SHOWN IN THE RETURN FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. NO ACCEPTABLE EVIDENCE HAS BEEN PLACED ON RECORD TO DISPLACE THE BANK STATEMENT. IN ABS ENCE OF ANY ACCEPTABLE EVIDENCE, IT IS NOT POSSIBLE TO DISLODGE THE FINDINGS ON THE FACTS RECORDED BY THE TRIBUNAL, PARTICULARLY IN THE LIGHT OF THE BANK STATEM ENT, WHICH IS UNDISPUTED. WHILE THE LEARNED DR RELIED ON THE JUDGMENT, THE LEARNED COUNSEL SUB MITTED THAT NO ACCEPTABLE EVIDENCE WAS ON RECORD TO DISPLACE THE STATEMENT F URNISHED TO THE BANK. 3076-2975-2008-SE 27 9.7 AS AGAINST THE AFORESAID, THE LEARNED COUNSEL RELIED ON THE DECISION IN THE CASE OF CIT VS. DAS INDUSTRIES, (2008) 303 ITR 199 (A LLAHABAD). THE ASSESSEE HAD FILED A DIFFERENT BALANCE SHEET BEFORE THE BANK, BUT THE BANK HAD NOT PHYSICALLY VERIFIED THE STOCK. THE ASSESSING OFFICER DID NOT DEVISE A NY MEANS TO ASCERTAIN THAT THE ASSESSEE HAD STOCK OF CERTAIN ITEMS NOT SHOWN IN THE A CCOUNTS FILED WITH THE RETURN OF INCOME. IT WAS ALSO FOUND THAT OPENING STOC K AS WELL AS CLOSING STOCK HAD BEEN INFLATED IN THE BALANCE SHEET SUBMITTED TO THE BANK. ON THESE FACTS, THE TRIBUNAL ACCEPTED THAT STOCK WAS INFLATED TO AVAIL OF HIGHER CREDIT FACILITY. THIS DECISION IS BASED ON MATERIAL ON RECORD. IT WAS HELD T HAT THERE IS NO ERROR IN THE ORDER OF THE TRIBUNAL. HE ALSO RELIED ON THE DECISION O F RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. LAXMI ENGINEERING INDUSTRIES (2009) 308 ITR 279. IN THIS CASE, WHILE QUANTITATIVE DETAILS OF THE STOCK HYPOTHECATED TO THE BAN K AND SHOWN IN THE RETURN WERE THE SAME, THE VALUATION OF STOCK WAS INFLATED IN THE STATEMENT SUBMITTED TO THE BANK. THE TRIBUNAL FOUND THAT EXAGGERATED VALUE HAS BEEN SHOWN TO AVAIL OF HIGHER CREDIT LIMIT. THEREFORE, THE ADDITION WAS DELETED. THE AP PEAL OF THE REVENUE WAS DISMISSED BY MENTIONING THAT MERE DIFFERENCES IN VALUATIO N COULD NOT RESULT IN INCOME FROM DISCLOSED SOURCES. THE LEARNED DR DISTINGUIS HED THE CASE BY MENTIONING THAT WHILE VALUE WAS FURNISHED TO THE BANK, Q UANTITATIVE DETAILS WERE NOT SUBMITTED AND, THEREFORE, IT IS NOT FEASIBLE TO COME TO C OME TO A CONCLUSION WHETHER THE QUANTITIES WERE THE SAME. 3076-2975-2008-SE 28 9.8 THE FACTS WHICH EMERGE ARE THAT THE ASSESSEE SUBMITTED A STATEMENT TO THE BANK SHOWING FIGURE OF STOCK TO BE HIGHER THAN THE FIGU RE CALLED OUT FROM THE BOOKS OF ACCOUNT. QUANTITATIVE DETAILS WERE NOT FURNISHED TO THE BANK. THE ASSESSEE MAINTAINED EXCISE RECORDS IN WHICH STOCK DETAILS WERE MAIN TAINED ON BROAD CATEGORY-WISE METHOD. THE ACCOUNTS IN THIS RESPECT SUBMI TTED BEFORE THE I.T. DEPARTMENT, VAT DEPARTMENT AND EXCISE DEPARTMENT ARE THE SAM E. HOWEVER, IT IS ALSO A FACT THAT A MUCH HIGHER VALUE WAS SHOWN TO THE BANK. THE QUESTION IS WHETHER BANK STOCK CAN BE SUBSTITUTED IN PLACE OF BOOK S TOCK TO COME TO THE CONCLUSION THAT UNACCOUNTED INVESTMENT WAS MADE IN THE S TOCK TO THE EXTENT OF THE DIFFERENCE IN VALUES? ALTHOUGH, A NUMBER OF CASES HAVE BEEN CITED, WE ARE OF THE VIEW THAT THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF B.T. STEELS LIMITED (SUPRA) LAYS DOWN THE CORRECT PRINCIPLES ON WHICH THE I SSUE OUGHT TO BE DECIDED. IN OUR OPINION, THE THRUST OF THE JUDGMENT IS AS TO EXAMIN E WHETHER THE STATEMENT SUBMITTED TO THE BANK COULD BE RELIED UPON WHEN SEEN IN TH E CONTEXT OF OTHER EVIDENCES FILED WITH THE RETURN. IN THE AFORESAID CASE, THE ASSESSEE HAD NOT SATISFACTORILY EXPLAINED THE DIFFERENCE. THE STATEMENT WAS ADMITTEDLY FILED BY THE ASSESSEE AND VERIFIED BY THE BANK. THEREFORE, IT HAD SUFFIC IENT MERIT AND COULD BE RELIED UPON IN PLACE OF THE EVIDENCE FILED WITH THE RETURN OF INCOME. FURTHER, WE ARE OF THE VIEW THAT A BLAND STATEMENT THAT THE STOCK WAS IN FLATED TO OBTAIN HIGHER CREDIT CANNOT BE ACCEPTED FOR THE SIMPLE REASON THAT ACCEPTING SU CH A STATEMENT WITHOUT 3076-2975-2008-SE 29 ANY BACKING EITHER BY AFFIDAVIT OR BY CORROBORATIVE ST ATEMENT OF THE BANK WILL PLACE PREMIUM ON FINANCIAL IMMORALITY. THEREFORE, EVEN IF THE PLEA OF THE PRACTICE BY BUSINESS HOUSES IS RAISED, THE SAME IS UNACCEPTABLE. WE AR E SUPPORTED IN THIS VIEW BY THE DECISION IN THE CASE OF COIMBATORE SPINNING AND WE AVING COMPANY LIMITED (SUPRA). THIS VIEW ALSO FINDS SUPPORT FROM THE DECIS ION IN THE CASE OF INDIA CEMENT LIMITED, ALTHOUGH THE QUESTION THERE WAS INFRACTION OF THE PROVISIONS OF THE COMPANIES ACT. THEREFORE, THE CASE ESSENTIALLY REVOLVES ARO UND THE ISSUE WHETHER BANK STATEMENT IS MORE RELIABLE OR THE BOOKS OF ACCOUNT ARE MORE RELIABLE. IN OTHER WORDS, WHAT IS THE RELATIVITY WEIGHT WHICH CAN BE ATTAC HED TO THESE TWO CONTRADICTORY EVIDENCES. THE CASE OF EMERSON PAUL PLAST IC COMPANY, THE QUESTION WAS REGARDING THE MAKING OF A PRIMA FACIE CASE FOR PROS ECUTION. WE ARE NOW AT THE STAGE OF FINAL DETERMINATION OF THE ISSUE. IN THE CA SE OF RECON MACHINE TOOLS (P) LIMITED, THERE WAS NO ACCEPTABLE EVIDENCE PLACED BEFORE THE AUT HORITIES TO DISPLACE THE BANK STATEMENT. IN THIS CASE ALSO, NO EVIDEN CE HAS BEEN PRODUCED WHICH COULD DIRECTLY CONTRADICT THE BANK STATEMENT OR TO PROVE IT TO BE FALSE. ONLY A STATEMENT HAS BEEN MADE THAT HIGHER STOCK WAS SHOWN TO AV AIL OF LARGER CREDIT. SUCH A STATEMENT IS NOT EVIDENCE. NONETHELESS AS STATED BY U S EARLIER, THE REAL QUESTION IS WHETHER THE BANK STATEMENT CAN BE RELIED UPON TO THE EXCLUSION OF OTHER EVIDENCES. IN THE CASE OF LAXMI ENGG. INDUSTRIES LIMITED , SIMILAR PLEA WAS TAKEN THAT THE STOCK HAS BEEN INFLATED TO OBTAIN HIGHER LIMIT. HOW EVER, THE QUANTITATIVE DETAILS TALLIED. THE COURT CAME TO THE CONCLUSION THAT WHEN QU ANTITIES ARE THE SAME, HIGHER 3076-2975-2008-SE 30 VALUATION SHOWN TO THE BANK WILL NOT LEAD TO THE INFER ENCE OF UNDISCLOSED INCOME. THEREFORE, THE FACTS ARE DISTINGUISHABLE. IN THE CASE OF DAS INDUSTRIES, THE ACCOUNTS FURNISHED TO THE BANK WERE NOT VERIFIED BY IT IN RESPECT OF CLOSING STOCK. THE ASSESSING OFFICER ALSO FAILED TO ESTABLISH THAT THE ASSES SEE WAS IN POSSESSION OF TWO ITEMS SHOWN TO THE BANK BUT NOT IN THE BOOKS. THUS, I T IS ALSO A CASE OF A SPECIFIC DISCREPANCY IN REGARD TO TWO ITEMS IN RESPECT OF WHICH N O FURTHER INQUIRY WAS MADE. THE ASSESSEE HAS NOT FURNISHED QUANTITATIVE DETAIL TO THE B ANK. THEREFORE, THE FACTS OF THIS CASE CAN ALSO BE DISTINGUISHED. HAVING SAID T HE AFORESAID, THE POINT IS WHETHER MERELY A VALUE FURNISHED TO THE BANK WITHOUT ANY D ETAIL OR VERIFICATION BY THE BANK; CAN BE RELIED UPON TO THE EXCLUSION OF ALL OTH ER EVIDENCES. WE FIND THAT THE ASSESSEE HAD MAINTAINED BROAD DETAILS OF THE STOCK, IT S CONSUMPTION, PRODUCTION AND CLOSING BALANCE. THESE ACCOUNTS HAVE BEEN MAINTAINED ON DAY-TO-DAY BASIS. THESE ACCOUNTS HAVE BEEN ACCEPTED BY THE EXCISE AUTHORITIES A ND THE VAT AUTHORITIES. THE ASSESSING OFFICER HAS ALSO NOT POINT ED OUT ANY DISCREPANCY IN THE BOOKS WITH REFERENCE TO PURCHASE, SALE OR CLOSING STOCK. LOOKING TO THESE FACTS, WE ARE OF THE VIEW THAT GREATER WEIGHT HAS TO BE ATTACHED TO T HE BOOKS OF ACCOUNT MAINTAINED IN REGULAR COURSE OF THE BUSINESS THAN TO TH E STATEMENT GIVEN TO THE BANK. THUS, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER SHOUL D HAVE ACCEPTED THE BOOK RESULTS LOOKING TO OVERALL FACTS OF THE CASE, NOTWITHS TANDING THE CONCLUSION THAT FURNISHING AN EXAGGERATED STATEMENT TO THE BANK CONSTITUT ES RATHER UNDESIRABLE ACT ON THE PART OF THE ASSESSEE. 3076-2975-2008-SE 31 9.9 IN RESULT, THIS GROUND IS DISMISSED. 10. GROUND NO.3 IS AGAINST THE DELETING OF THE ADDITION OF `45,41,188/- MADE BY THE ASSESSING OFFICER OUT OF BUILDING REPAIR AND MA INTENANCE EXPENSES. 10.1 IN THIS CONNECTION, IT IS MENTIONED IN THE ASSESSM ENT ORDER THAT ON BEING QUESTIONED, THE ASSESSEE SUBMITTED LEDGER ACCOUNT OF BUILD INGS, REPAIRS AND MAINTENANCE ACCOUNT. IT IS SEEN THAT THE ASSESSEE HAS PU RCHASED VARIOUS MATERIALS FOR CONSTRUCTION OF BUILDING AND PAYMENT TO THE LABOU RS. NO OTHER DETAIL OR SUPPORTING EVIDENCE HAS BEEN FILED. IN ABSENCE OF SUCH DETA ILS, THE EXPENDITURE HAS BEEN CAPITALIZED. 10.2 THE ASSESSEE FURNISHED THE DETAILS OF THE EXPENDITURE BEFO RE THE LEARNED CIT(A) AND VARIOUS BILLS IN RESPECT OF THE EXPENDITURE. THESE DETAILS WERE FORWARDED TO THE ASSESSING OFFICER, WHO SUBMITTED THAT THE ASSESSEE H AS CLAIMED DEPRECIATION ON THE CAPITALIZED AMOUNT IN RESPECT OF REPAIRS AND MAIN TENANCE OF THE BUILDING. THIS CLAIM MAY BE CONSIDERED IF THE ASSESSEE HAS PUT THE AS SET TO USE IN THIS YEAR. AFTER CONSIDERING THE DETAILS OF THE EXPENDITURE, AND THE S UBMISSIONS OF THE ASSESSING OFFICER, THE LEARNED CIT(A) MENTIONED THAT THE GEN UINENESS OF THE EXPENDITURE HAS NOT BEEN DOUBTED. THEREFORE, THE ONLY QUESTIO N IS WHETHER THE 3076-2975-2008-SE 32 EXPENDITURE IS REVENUE OR CAPITAL IN NATURE. IT IS THE CLA IM OF THE ASSESSEE THAT IT IS CARRYING ON THE BUSINESS FROM ITS OWN AS WELL AS RENTED PREMISES AND NO NEW STRUCTURE HAS BEEN CREATED. THE RENTED PREMISES REQUIRED EXPEND ITURE TO KEEP IT IN GOOD CONDITION. THEREFORE, VARIOUS MATERIALS SUCH AS B RICKS, CEMENT ETC. WERE REQUIRED. NO NEW STRUCTURE HAS BEEN CREATED. IN ANY CASE, THE RENTED PREMISES ARE TO BE VACATED AT THE END OF THE LEASE PERIOD. ON THESE FA CTS, THE LEARNED CIT(A) CAME TO THE CONCLUSION THAT THE EXPENSES ARE REVENUE IN NATUR E. 10.3 THE CASE OF THE LEARNED COUNSEL IS THAT THE EXPENDITUR E WAS INCURRED ON RENTED PREMISES AND NO NEW STRUCTURE HAD BEEN CREATED. THEREFO RE, THE LEARNED CIT(A) RIGHTLY DELETED THE DISALLOWANCE MADE BY THE ASSESS ING OFFICER. ON THE OTHER HAND, THE CASE OF THE LEARNED DR IS THAT THE EXPENDI TURE IS CAPITAL IN NATURE. HE DREW OUR ATTENTION TOWARDS THE DETAILS OF EXPENDITURE, P LACED IN THE PAPER BOOK ON PAGE NOS.225 TO 231, WHICH SHOW THAT THE EXPENDITURE HAS BEEN INCURRED ON PURCHASE OF BRICKS, CEMENT, BAJARI, SAND, DIGGING FOR NEW MACHINERY, ARCHITECT, LABOUR CHARGES, DOORS, GLASS, STEEL, EARTH AND WHITE WAS HING ETC. IT IS FURTHER SUBMITTED THAT THERE IS NO EVIDENCE ON RECORD TO SHOW WHETH ER THE EXPENDITURE WAS INCURRED ON THE PREMISES OWNED BY THE ASSESSEE OR RENTED BY IT. THE BURDEN TO PROVE THAT THE EXPENDITURE IS DEDUCTIBLE IS ON THE ASSESSEE. THE SAME DOES NOT STAND DISCHARGED MERELY ON FILING THE AFORESAID DETAILS, WHICH SHOW NEW CONSTRUCTION AS LARGE NUMBER OF BRICKS AND LARGE AMOUN T OF CEMENT, SAND, GLASS ETC. HAS BEEN PURCHASED. LEARNED COUNSEL PLACED RELIANCE ON TH E DECISION OF HONBLE 3076-2975-2008-SE 33 DELHI HIGH COURT IN THE CASE OF CIT VS. HI LINE PENS (P) LIMITED (CITATION); CIT VS. BINDAL APPARELS (2008) 169 TAXMAN 49; AND CIT VS. ES CORTS FINANCE LIMITED (2006) 205 CTR (DELHI) 574. THE LEARNED DR ARGUED THAT THE FACTS OF THESE CASES ARE DISTINGUISHABLE. 10.4 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSI ONS MADE BEFORE US. WE HAVE ALSO PERUSED THE DETAILS OF EXPENDITURE PLACED IN THE PAPER BOOK. FROM THE DETAILS IT IS SEEN THAT LARGE NUMBER OF BRICKS WERE PUR CHASED. PAGE 225 ITSELF SHOWS THAT 81 TRUCKS OF BRICKS WERE PURCHASED AND 1300 BAGS OF CEMENT WERE ALSO PURCHASED. SIMILAR ITEMS FIND PLACE ON SUBSEQUENT PAGES OF THE PAPER BOOK ALSO. PAGE NOS.221 SHOWS THAT THE DIGGING WAS UNDERTAKEN FOR NEW PLANT BOILER. SUBSTANTIAL EXPENDITURE WAS ALSO INCURRED ON PURCHASE OF GLASS, PAINT, SHUTTERS, MAKING CABINS AND LABOUR CHARGES. THE DETAILS LEAD TO AN IRRESISTIBLE CONCLUSION THAT THE EXPENDITURE HAS BEEN INCURRED FOR CREATING A NEW AS SET. IT IS NOT SHOWN ANYWHERE THAT THE STRUCTURE WAS WITHIN THE RENTED PREMISES, WHICH HAD TO BE HANDED OVER TO THE LANDLORD ON THE DEMISE OF THE LEASE. 10.5 IN THE CASE OF HI LINE PENS (P) LIMITED, THE HONBLE COURT DREW THE DISTINCTION BETWEEN CURRENT REPAIRS AND REPAIRS, AND MENTIONED THAT WHI LE THE FORMER IS A RESTRICTED TERMINOLOGY, THE LATTER IS A WIDER TERM. THEREFO RE, THE EXPENDITURE OF `14,03,835/- TOWARDS RENOVATION OF RENTED PREMISES WAS H ELD TO BE REVENUE 3076-2975-2008-SE 34 EXPENDITURE. IN THE CASE OF ESCORTS FINANCE LIMITED, THE EXPENDITURE WAS INCURRED ON REPAIR AND RENOVATION OF LEASED PREMISES, WHEREIN THE A MOUNT WAS SPENT ON PROVIDING WOODEN PARTITION, PAINTING, REPLACEMENT OF G LASS ETC. SO AS TO MAKING THE PREMISES SUITABLE FOR CARRYING ON THE BUSINESS. IT WAS HELD THAT THE EXPENDITURE WAS NOT CAPITAL IN NATURE. THE CASE OF BINDAL APPARELS IS FOUND TO DEAL WITH THE JURISDICTION OF THE ASSESSING OFFICER TO MAKE ASSESSMENT AND, THEREFORE, IT IS NOT MATERIAL IN DECIDING THE ISSUE AT HAND. 10.6 AS MENTIONED EARLIER, THE ASSESSEE HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE EXPENDITURE WAS INCURRED ON RENTED PREMISES . THEREFORE, THE RATIO OF THE CASES RELIED UPON BY THE LEARNED COUNSEL IS NOT APP LICABLE TO THE FACTS OF THE CASE. FURTHER, AS MENTIONED EARLIER, THE DETAILS OF EXPEN DITURE BY THEMSELVES LEAD TO A CONCLUSION THAT NEW CONSTRUCTION HAS BEEN MADE AND PARTITIONS PROVIDED THEREIN. ACCORDINGLY, IT IS HELD THAT THE EXPENDITURE IS CAPITAL IN NATURE. HOWEVER, THE ASSESSING OFFICER SHALL EXAMINE AS TO WHETHER THE PREMIS ES WERE PUT TO USE IN THIS YEAR, AND IF HE YES, THE DEPRECIATION SHALL BE DEDUCTED AT THE RATE PRESCRIBED IN RESPECT OF FACTORY BUILDING. 10.7 THIS GROUND IS PARTLY ALLOWED AS MENTIONED ABOVE. 3076-2975-2008-SE 35 11. GROUND NO.4 IS IN RESPECT OF DISALLOWANCE OF `33, 84,874/-, MADE ON ACCOUNT OF THE LOSS OF STOCK IN FIRE. IN THIS CONNECT ION, THE LEARNED DR REFERRED TO THE FINDINGS OF THE ASSESSING OFFICER IN PARAGRAPH NO.9. IT IS MENTIONED THAT THE ASSESSEE HAS NOT FILED DETAILS SUCH AS DATE OF FIRE, DAMA GE TO STOCK OR ANY OTHER ASSET, METHOD BY WHICH DAMAGED STOCK HAS BEEN WORKED OUT ETC. THE AUDITORS REPORT, AS MENTIONED EARLIER, ALSO SHOWS THAT STOCK DETAI LS HAVE NOT BEEN MAINTAINED IN THE DESIRED FORM. RELYING ON THESE FACTS, I T IS ARGUED THAT THE CLAIM OF LOSS HAS NOT BEEN SUBSTANTIATED BY THE ASSESSEE. 11.1 IN REPLY, THE LEARNED COUNSEL RELIED ON THE IMPUGNED OR DER, IN WHICH IT IS MENTIONED THAT VARIOUS DETAILS WERE FILED IN THE COURSE OF HEARING OF THE APPEAL. THE DETAILS SHOW THAT THE COST OF THE DAMAGED STOCK WAS `1,16,99,418/-. THE NATIONAL INSURANCE COMPANY SETTLED THE CLAIM AT `83,14 ,554/-. FINAL, PAYMENT OF `79,94,128/- WAS MADE BY THE INSURANCE COMPANY. THE LO SS IS EVIDENCED BY THE REPORT OF COST ACCOUNTANT. BILLS OF PURCHASE FOR ARR IVING AT THE COST HAVE BEEN FILED. COPY OF FEE-RECEIPT FROM THE FIRE BRIGADE, ITS REPORT AND FIR HAVE ALSO BEEN FILED. THESE DETAILS WERE COMMUNICATED TO THE ASSESSING OFFICER, W HO SUBMITTED THAT SUCH DETAILS WERE NOT FILED IN ASSESSMENT PROCEEDINGS, AND THE SA ME MAY BE CONSIDERED. THE LEARNED CIT(A) MENTIONED THAT AFTER CONSIDERING THE CLA IM PAID BY THE INSURANCE COMPANY, THE LOSS OF STOCK IN FIRE AMOUNTED TO `33,84, 874/-. THIS CLAIM IS REVENUE IN NATURE AND THUS DEDUCTIBLE IN COMPUTING THE TOTAL IN COME. 3076-2975-2008-SE 36 11.2 HAVING CONSIDERED THE AFORESAID DETAILS, IT IS SEEN T HAT THE LOSS IS IN RESPECT OF STOCK, WHICH IS ON TRADING ACCOUNT. THE DETAILS O F TOTAL LOSS AND CLAIM ENTERTAINED FINALLY BY THE INSURANCE COMPANY HAVE BEEN FILED. THEREF ORE, THERE IS NO REASON TO DISALLOW THE CLAIM. THUS, ORDER OF THE LEARNED CIT(A) I S UPHELD AND THIS GROUND IS DISMISSED. 12. GROUND NO.5 IS AGAINST THE ALLOWANCE OF A SUM OF `27,64,420/-, DEBITED TO PROFIT AND LOSS ACCOUNT AS BAD DEBTS. THE ASSESSING O FFICER HAS MADE THIS DISALLOWANCE ON THE GROUND THAT EVIDENCE REGARDING /THE D EBT BECOMING BAD HAS NOT BEEN FILED. ON PERUSAL OF THE ORDER OF LEARNED CIT(A) IT IS FOUND THAT THE AMOUNT IS IN RESPECT OF THREE PERSONS; - (I) M/S BRUMLOW HOME (U SA) -`26,90,007/-; (II) TEPPICH KIBIK, GERMANY - `60,785/- AND (III) W -C DESIGNS, USA - `13,628/-. THE ASSESSEE HAD ALSO FILED A SUIT AGAINST BRUMLOW HOME, BUT OTHER AMOUNTS HAVE BEEN WRITTEN OFF WITHOUT TAKING ANY LEGAL ACTION. THE DEBTS AROSE ON ACCOUNT OF EXPORT OF GOODS TO THESE PARTIES. THE CLAIM WAS ALLOWED BY MENTIO NING THAT THE AMOUNT HAD BEEN TAKEN INTO ACCOUNT WHILE COMPUTING INCOME OF EARLIER YEARS AND THE SAME HAS BEEN WRITTEN OFF IN THIS YEAR. NO PARTICULAR ARGUMENT W AS MADE BY THE LEARNED DR OR THE LEARNED CIT(A). HAVING CONSIDERED THE FACTS OF TH E CASE, BROUGHT OUT CLEARLY IN THE IMPUGNED ORDER, THAT (I) THE DEBTS HAD BEEN TAKEN INTO ACCOUNT IN COMPUTING INCOME OF EARLIER YEARS, AND (II) THE DEBTS HAVE BEEN WRITT EN OFF IN THIS YEAR BY DEBIT 3076-2975-2008-SE 37 TO PROFIT AND LOSS ACCOUNT, THE CLAIM OF THE ASSESSEE W AS JUSTIFIED IN LAW. THEREFORE, THIS GROUND IS ALSO DISMISSED. 13. GROUND NO.7 IS REGARDING RATE OF DEPRECIATION ON M ACHINERY PURCHASED UNDER TUF SCHEME. THE ASSESSING OFFICER ALLOWED DEPRECIATION AT LOWER RATE BY MENTIONING THAT ON COMPARISON OF THE LIST OF MACHINERY ELIGIBLE FOR HIGHER DEDUCTION UNDER TUFS AND THE MACHINERY MENTIONED IN PURCHASE BILLS, IT IS FOUND THAT THEY ARE NOT THE SAME. HOWEVER, THE LEARNED CIT(A) CONSIDERED THE M ATTER IN GREATER DETAILS. HE LISTED THE MACHINERY PURCHASED BY THE ASSESSEE A ND LISTED UNDER THE TUF SCHEME AND FOUND THAT THEY ARE THE SAME. THEREFORE, H IGHER DEDUCTION OF DEPRECIATION AT THE RATE OF 50% HAS BEEN ALLOWED, AFTER HEAR ING THE ASSESSING OFFICER IN THE MATTER. THE RIVAL PARTIES RELIED ON THE ORD ERS OF THE ASSESSING OFFICER AND THE LEARNED CIT(A). IT IS SEEN THAT THE LEARNED CIT(A) CAME TO THE APPROPRIATE CONCLUSION AFTER CONSIDERING THE DETAILS OF MACHINERY AN D HEARING THE ASSESSING OFFICER. HE FOUND THAT THE MACHINERY HAS BEEN PURCHASED A S PER TUF SCHEME, MAKING THE ASSESSEE ELIGIBLE FOR DEDUCTION AT THE HIGHER RAT E. NO ERROR HAS BEEN FOUND IN THIS ORDER BY THE LEARNED DR. THEREFORE, THERE IS NO REASON TO INTERFERE WITH HIS FACTUAL FINDING. 13.1 THUS, THIS GROUND IS DISMISSED. 14. GROUND NO.7 IS AGAINST ALLOWANCE OF FOREIGN TRAVEL EXPENSES, AMOUNTING TO `8,38,717/-. THE ASSESSING OFFICER HAD DISALLOWED THE EX PENDITURE BY MENTIONING 3076-2975-2008-SE 38 THAT NONE OF THE PERSONS WAS A PARTNER IN THE FIRM. HOW EVER, THE LEARNED CIT(A) EXAMINED THE MATTER FURTHER AND ALLOWED THE APPEAL ON THIS GROUND BY RECORDING THE FINDING : I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSI ONS OF THE ASSESSEE. THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE EXPENDITURE WAS NOT INCURRED OR THE EXPENDITURE WAS NOT RELATING TO FOREIGN TRAVEL. THE OBJECTION OF THE ASSESSING OFFICER IS THAT THE SAID P ERSONS WHO TRAVELED ABROAD WERE NOT THE PARTNERS AND THEREFORE, EXPENSES RELATING TO THEM IS NOT THE BUSINESS EXPENDITURE, WHEREAS, A SSESSEE HAS GIVEN A COMPLETE DETAIL THAT MR. PRAKASHJI (FULL NA ME MR. RAM PRAKASH CHUGH) IS A PARTNER OF THE ASSESSEE FIRM. MR. R . SINGHANIA IS AN ADVOCATE WHO TRAVELED ABROAD REGARDING RECOVERY OF OUT STANDING DUES FROM BRUMLOW HOME, USA, AGAINST WHOM SUBSEQUENTLY T HE CASE HAS BEEN FILED BY THE ASSESSEE IN DELHI HIGH COURT AND MR. KISHAN KUMAR IS A TECHNICIAN AND EMPLOYEE OF THE ASSESSEE WHO VISI TED ABROAD FOR PURCHASE OF MACHINE AND SUBSEQUENTLY, THE MAC HINES WERE PURCHASED AS IS EVIDENT FROM THE DETAILS FILED BY THE A SSESSEE IN THE FORM OF SCHEDULES OF BALANCE SHEET, THEREFORE, THE EXPENDIT URE INCURRED FOR FOREIGN TRAVEL OF THESE THREE PERSONS IS VERY MUCH RELATED TO THE BUSINESS OF THE ASSESSEE AND THEREFORE, IT IS THE BUSI NESS EXPENDITURE OF THE ASSESSEE, HENCE ALLOWABLE. THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER OF `8,38,717/- I S DELETED AND THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 14.1 THE CASE OF THE LEARNED DR IS THAT IDENTITY OF SHRI SI NGHANIA AND SHRI KRISHAN KUMAR HAS NOT BEEN ESTABLISHED. HOWEVER, THE FINDING OF T HE LEARNED CIT(A) IS THAT SHRI KRISHAN KUMAR IS A TECHNICIAN AND EMPLOYEE OF THE A SSESSEE FIRM, WHO VISITED ABROAD FOR PURCHASE OF MACHINERY. THE MACHINERY HAS B EEN PURCHASED SUBSEQUENTLY. SHRI R. SINGHANIA IS AN ADVOCATE WHO TRAV ELED ABROAD IN RESPECT OF RECOVERY OF DUES FROM BRUMLOW HOME (USA), AGAINST WHOM A CASE HAD BEEN FILED IN THE DELHI HIGH COURT FOR RECOVERY OF DEBT. LOOKING T O THESE FINDINGS, WE ARE OF 3076-2975-2008-SE 39 THE VIEW THAT THE LEARNED CIT(A) WAS RIGHT IN ALLOWING THE EXPENDITURE AS IT HAD BEEN INCURRED IN THE COURSE OF THE BUSINESS OF THE ASSESSEE FIRM. 15. IN RESULT, BOTH THE APPEALS OF THE ASSESSEE AND THE R EVENUE ARE PARTLY ALLOWED. THIS ORDER WAS PRONOUNCED IN OPEN COURT ON 21.04.2011. SD/- SD/- ( C.L. SETHI ) ( K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT ME MBER DT.21.04.2011. NS COPY FORWARDED TO:- 1. M/S SHEENA EXPORTS, UJHA ROAD, PANIPAT. 2. DCIT, CENTRAL CIRCLE, KARNAL. 3. THE CIT 4. THE CIT (A), NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY BY ORDER (ITAT, NEW DELHI).