DCIT, Hisar V. Parkash Industries Ltd., Hisar

ITA 3036/DEL/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69299 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 05-06-2013
• Assessment Year: 1996-1997
• Appeal Filed On: 16-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DK MISHR A
• Keywords: Bogus purchase; Unexplained investment; Depreciation; Peak credit; Rule of consistency; Additional evidence; Question of law; Wrong claim; Avoidance of tax; Tax effect; Commercial expediency; Onus to prove; Capital expenditure
• Section: 43B; 5(2); 133A; 37(1); 131; 68; 69; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER ITA NO.3036/DEL./2010 (ASSESSMENT YEAR : 1996-97) DY. COMMISSIONER OF INCOME-TAX, VS. M/S. PRAKASH IN DUSTRIES LTD., KARNAL. DELHI ROAD. HISAR. CO NO.357/DEL./2010 (IN ITA NO.3036/DEL./2010) (ASSESSMENT YEAR : 1996-97) M/S. PRAKASH INDUSTRIES LTD., VS. JCIT, SPECIAL RA NGE, DELHI ROAD. KARNAL. HISAR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY WADHWA, ADVOCATE REVENUE BY : SHRI D.K. MISHRA, DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTI ON FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF CIT (APPEALS), ROHTAK DATED 12.04.2010. 2. THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF PVC PIPES, PICTURE TUBES, VIDEO TAPE, POWER GENERATION, SPONGE IRON, INDUCTION FURNACE, HEAVY S TRUCTURAL ROLLING ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 2 MILL & MINING, AND CRUSHING ACTIVITIES. THE RETURN OF INCOME WAS FILED ON 29.11.1996 DECLARING TAXABLE INCOME AT NIL. THE ASSESSEE HAS CLAIMED CARRY FORWARD DEPRECIATION ALLOWANCE OF RS.57,68,88 ,192/- PERTAINING TO ASSESSMENT YEAR 1994-95 AND 1995-96 OF RS.29,62,98, 768/- AND RS.28,05,89,429/-. THE TOTAL TURNOVER OF THE ASSESS EE DURING THE YEAR WAS MORE THAN RS.670 CRORES AND GROSS PROFIT RATE WAS 1 0.45% IN COMPARISON TO 9.47% IN THE EARLIER YEARS. 3. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS.1,22,73,504/- ON ACCOUNT OF PRECEDING YEARS EXPE NSES AS THE ASSESSEE WAS MAINTAINING ITS ACCOUNTS ON MERCAN TILE SYSTEM OF ACCOUNTING AND THE PRIOR PERIOD EXPENSES CLAIMED WERE NOT ALLOWABLE IN THE YEAR UNDER CONSIDERATION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS.50 LACS OUT OF REPAIR EXPENSES WITHOUT APPRECIATING TH AT THE ASSESSEE COULD NOT ESTABLISH THE GENUINENESS OF THE SE EXPENSES AND THE DEPARTMENT WAS ALREADY IN APPEAL O N THIS ISSUE IN THE A.Y. 2001-02 WHICH WAS PENDING BEFORE THE ITAT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS.1 LAC OUT OF MD'S COMMISSION WITHOUT APPRECIATING PRO PERLY THAT THE STEEP HIKE IN EXPENSES WAS NOT JUSTIFIED B Y THE GENUINE NEEDS OF BUSINESS AND THE DEPARTMENTAL APPE AL FILED ON THE ISSUE IS PENDING BEFORE THE LD. ITAT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS.1 LAC MADE OUT OF PROFESSIONAL EXPENSES CLAIMED AT RS .14.33 LACS WITHOUT APPRECIATING THAT THE ASSESSEE COULD N OT FURNISH COMPLETE DETAILS OF SUCH EXPENSES AND THE APPEAL FI LED BY THE ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 3 DEPARTMENT ON THE ISSUE IS PENDING BEFORE THE ITAT IN THE ASSESSMENTS YEARS 2001-02 TO 2005-06. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS.5 LACS OUT OF MISC. EXPENSES CLAIMED AT RS.2.37 CRORE S WITHOUT APPRECIATING THAT THE ASSESSEE COULD NOT FU RNISH COMPLETE DETAILS/ NECESSARY EXPLANATION IN RESPECT OF THESE EXPENSES AS WELL AS JUSTIFICATION FOR INCREASE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS.50 LACS OUT OF COMMISSION EXPENSES CLAIMED AT RS.L,47, 34,764/- WITHOUT APPRECIATING THAT THE CLAIM OF COMMISSION W AS NOT PROPORTIONATE TO THE LEGITIMATE NEEDS OF BUSINESS A ND FURTHER THE ASSESSEE ALSO FAILED TO DISCHARGE THE ONUS OF P ROVING THE GENUINENESS OF HUGE COMMISSION EXPENSES CLAIMED BY FURNISHING COPIES OF AGREEMENTS/CONFIRMATION FROM T HE CONCERNED PARTIES. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F DEPRECIATION OF RS.4.23 CRORES AND RS.42.50 LACS CL AIMED RESPECTIVELY ON MACHINERY AND WIND GENERATORS ON ADMISSION OF ADDITIONAL EVIDENCE IN THE SHAPE OF A CERTIFICATE FROM TAMILNADU WITHOUT AFFORDING ANY OPPORTUNITY IN THIS REGARD. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F DEPRECIATION OF RS.L CRORE ON THE SO-CALLED PURCHAS E OF MACHINERY FROM M/S ASHISH ENGINEERING WORKS WITHOUT APPRECIATING PROPERLY THAT THE GENUINENESS OF PURCH ASE OF MACHINERY COULD NOT BE ESTABLISHED CONCLUSIVELY BY THE ASSESSEE. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS.7,05,28,805/- OUT OF EXPENSES CLAIMED ON LEASE R ENT/LEASE MANAGEMENT FEES ETC. FOLLOWING HIS ORDER DATED 22.0 9.2007 IN ASSESSEE'S CASE FOR THE ASSTT. YEAR 2001-02 WHIC H HAS NOT BEEN ACCEPTED AND THE APPEAL FILED BY THE DEPARTMEN T ON THE ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 4 ISSUE IS PENDING BEFORE THE ITA T FOR THE ASSTT. YE AR REFERRED TO ABOVE. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS.8,55,60,070/-, RS.18,05,500/- AND RS.8,64,400/- ON ACCOUNT OF LEASE RENT, LEASE MANAGEMENT FEE AND LEA SE RENT OF BUILDING RESPECTIVELY WITHOUT APPRECIATING THAT EVERY YEAR IS INDEPENDENT AND EXPENDITURE OF EACH YEAR IS ADMI SSIBLE ON THE FACTS AND CIRCUMSTANCES WHICH DID NOT WARRANT T HE ALLOWANCE OF ABOVE EXPENDITURE IN THE YEAR UNDER CONSIDERATION. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE O F INTEREST OUT OF INTEREST CLAIMED ON ACCOUNT OF UTILISATION O F BORROWED FUNDS FOR NON-BUSINESS PURPOSES BY FOLLOWING HIS OR DER PASSED IN THE ASSESSEE'S CASE FOR THE ASSESSMENT YE AR 2001-02 & 2002-03 WHICH HAS NOT BEEN ACCEPTED AND THE DEPARTMENTAL APPEAL ON THE ISSUE IS PENDING BEFORE THE LD. ITAT. 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE LUMP-SUM ADDIT ION OF RS.20 CRORES WITHOUT PROPER APPRAISAL OF FINDINGS O F THE AO THAT THE TRANSACTION WITH M/S ASHISH ENGG. WORKS, M /S A.S. MECHANICAL WORKS AND A.S. FORGINGS, PIONEER ENGG. WORKS, R.K. VIDEO & OTHER CONCERNS AS RECORDED IN P ARA NO.21 OF THE ASSESSMENT ORDER WERE NOT PROPERLY REC ORDED AND THE METHOD OF ACCOUNTING FOLLOWED WAS SUCH THAT THE PROFITS CANNOT BE DEDUCTED THEREFROM. 13. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DI SPOSED OFF. 4. THE GROUNDS OF CROSS OBJECTION FILED BY THE ASSE SSEE READ AS UNDER:- 1. THAT IN THE FACTS & CIRCUMSTANCES OF THE CASE A ND IN LAW, THE COMMISSIONER OF I INCOME TAX. (APPEALS), ROHTAK [BRIEFLY 'THE CIT(A)'] ERRED IN CONFIRMING ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 5 ADHOC DISALLOWANCE OF RS.704957/- OUT OF STAFF WELFARE AND SALES PROMOTION EXPENSES. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.150000/- ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND PAID IN CASH MORE THAN RS.20,000/- SHOULD BE ALLOWE D RS.57117/- DUE TO SITUATION OF THE PAYMENT. 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN NOT ALLOWING THE ADDITION GROUND REGARDING PAYMENT OF P.F. & F.P.F. OF RS.28672/- DISALLOWED U/S 438 5. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN I NOT ALLOWING THE ADDITION AL GROUND DISALLOWED U/S 438 AS PER TAX AUDIT REPORT RS.25103/-.' WE HAVE HEARD BOTH SIDES ON THE GROUNDS RAISED IN A PPEAL AS WELL AS IN CROSS OBJECTION. 5. IN THE GROUND NO.1 OF THE REVENUES APPEAL, THE ISSUE INVOLVED IS DELETING THE DISALLOWANCE OF RS.1,22,73,504/- MADE ON ACCOUNT OF PRECEDING YEAR EXPENSES DEBITED IN THE BOOKS OF ACC OUNT. 6. WHILE PLEADING ON BEHALF OF THE REVENUE THE LD. DR SUBMITTED THAT THE ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNT ON ME RCANTILE SYSTEM AND PRIOR PERIOD EXPENSES SHOULD NOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. LD. DR SUBMITTED THAT IN MERCANTILE SYSTEM OF ACCOUNTING, THE EXPENSES ARE ALLOWED ON ACCRUAL. HE SUBMITTED T HAT BASICALLY THE MERCANTILE SYSTEM OF ACCOUNTING IS A DOUBLE ENTRY S YSTEM OF ACCOUNTING ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 6 AND PROFITS ARISING OR ACCRUING AT THE DATE OF THE TRANSACTION ARE LIABLE TO BE TAXED NOTWITHSTANDING THE FACT THAT THEY ARE NOT ACTUALLY RECEIVED OR DEEMED TO BE RECEIVED UNDER THE ACT. THE PROFITS EA RNED AND CREDITED IN THE BOOKS OF ACCOUNT CONSTITUTE THE BASIS OF COMPUT ATION OF INCOME. THIS SYSTEM POSTULATES THE EXISTENCE OF TAX IN SO FAR AS MONIES ARE DUE AND PAYABLE BY THE PARTIES TO WHOM THEY ARE DEBITED. FO R THIS PROPOSITION, THE LD. DR RELIED ON THE DECISION OF HON'BLE SUPREME CO URT IN THE CASE OF KESHAV MILLS LTD. VS. CIT REPORTED IN 23 ITR 230 (S C). LD. DR SUBMITTED THAT IN THE MERCANTILE SYSTEM OF ACCOUNTI NG, IN ORDER TO DETERMINE THE NET INCOME OF AN ACCOUNTING PERIOD, T HE REVENUE AND OTHER INCOME ARE MATCHED WITH THE COST OF RESOURCES CONSU MED (EXPENSES). IN THIS SYSTEM, THIS MATCHING IS REQUIRED TO BE DONE O N ACCRUAL BASIS. HE FURTHER SUBMITTED THAT UNDER THIS MATCHING SYSTEM, REVENUE AND INCOME EARNED DURING AN ACCOUNTING PERIOD, IRRESPECTIVE OF ACTUAL CASH IN FLOW IS REQUIRED TO BE COMPARED WITH THE EXPENSES INCURRED DURING THE SAME PERIOD, IRRESPECTIVE OF ACTUAL OUTFLOW OF CASH. LD. DR ALSO RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MA DRAS INDUSTRIAL INVESTMENT CORPN. LTD. V. CIT REPORTED IN 225 ITR 8 02 (SC) WHEREIN THE HON'BLE SUPREME COURT HAS HELD THAT THE DETERMINATI ON OF TRUE PROFITS OR LOSSES IN A PARTICULAR YEAR CANNOT BE DETERMINED CO RRECTLY IF EXPENDITURE RIGHTFULLY BELONGING TO A PARTICULAR YEAR ON ACCRUA L BASIS IS CLAIMED IN A SUBSEQUENT YEAR BASED ON PAYMENT METHOD AS IT WOULD DISTORT THE PROFIT OR ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 7 LOSS FIGURE IN BOTH THE YEARS, PARTICULARLY WHEN TH E AMOUNT IS SUBSTANTIAL. IN THE MERCANTILE SYSTEM OF ACCOUNTING, ONLY ASCERT AINED LIABILITY JUSTIFIES AN ENTRY IN THE BOOKS OF ACCOUNT MAINTAINED ON MERC ANTILE BASIS. LD. DR ALSO SUBMITTED THAT THE LIABILITY CLAIMED IN THE BO OKS OF ACCOUNT IS NOT ELIGIBLE FOR DEDUCTION UNLESS IT IS SHOWN THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR OF ACCOUNT, ALTHOUGH P ERTAINS TO AN EARLIER YEAR. LD. DR SUBMITTED THAT IN INCOME-TAX, EACH YEA R IS A SELF-CONTAINED PERIOD WITH REGARD TO WHICH PROFIT OR LOSS TO BE CO MPUTED. THE TRUE PROFITS AND GAINS OF A PREVIOUS YEAR IS REQUIRED TO BE COMP UTED FOR THE PURPOSE OF DETERMINING TAX LIABILITY. IN EACH CASE WHERE THE A CCOUNTS ARE MAINTAINED ON THE MERCANTILE SYSTEM BASIS IT HAS TO BE FOUND I N RESPECT OF ANY CLAIM, WHETHER SUCH LIABILITY WAS CRYSTALLIZED AND QUANTIF IED DURING THE PREVIOUS YEAR IS TO BE REQUIRED TO BE ADJUSTED IN THE BOOKS OF ACCOUNT OF THAT PARTICULAR PREVIOUS YEAR. FOR THIS PROPOSITION, THE LD. DR RELIED ON THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. V. CIT, 213 ITR 523(GUJA RAT) WHETHER THE ACCOUNTS ARE KEPT ON MERCANTILE SYSTEM BASIS, ALLOW ANCE MUST BE GRANTED IN THE YEAR IN WHICH THE LIABILITY IS INCURRED, IRR ESPECTIVE OF THE QUESTION WHETHER THE DISBURSEMENT HAS BEEN MADE OR NOT. FOR THIS, LD. DR RELIED ON THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF MADRAS FERTILIZERS LTD. VS. CIT 209 ITR 174. LD. DR SUBM ITTED THAT AS PER ACCOUNTING STANDARD NO.II NOTIFIED UNDER SECTION 14 5(2) THOUGH ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 8 APPLICABLE FROM ASSESSMENT YEAR 1997-98 WHERE IT IS PRESCRIBED THAT WHEN THERE IS MANDATORY ACCOUNTING STANDARD PRESCRI BED FOR THE PURPOSE, ASSESSEE CAN NO LONGER RESORT TO AN ARGUMENT FOLLOW ING NAGRI MILLS CASE 33 ITR 684 (MUM) THAT SINCE TAX RATES ARE SAME, REV ENUE NEED NOT UNNECESSARILY DO THE EXERCISE. LD. DR SUBMITTED THA T ASSESSEE HAS NO CHOICE IN THIS REGARD. LD. DR SUBMITTED THAT IN VI EW OF THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTR A CEMENT, 213 ITR 523, THE EXPENDITURE RELATING TO PRIOR PERIOD CAN O NLY BE ALLOWED IF THE LIABILITY HAD ACCRUED DURING THE YEAR. HE FURTHER R ELIED ON THE FOLLOWING JUDGMENTS OF ITAT :- (I) ITA NO.5708/MUM/2009 - ASSESSMENT YEAR-2004-05 M/S. TIPCO INDUSTRIES LTD. VS. THE ACIT (II) HAWORTH (INDIA) P. LTD. V. DCIT - 11 ITR (TR IB) 757 (DEL) LD. DR ALSO SUBMITTED THAT ASSESSEE HAS CLAIMED NET OF THE PRIOR PERIOD INCOME AND EXPENSES TO THE PROFIT & LOSS ACCOUNT. T HE ASSESSEE HAS NOT FURNISHED THE DETAILS OF THE FOLLOWING EXPENSES CLA IMED :- (A) RS.7,52,000/- PTD PITHAMPURA DIVISION - NO EVID ENCE (REF : PARA 1 PG5-AO) (B) SALES TAX:- COULD BE PENALTIES AND NOT ALLOWABL E (REF: PARA2 PG5-AO) (C) PTC DIVISION KASHIPUR - INCOMPLETE DETAILS FOR RS.4310296 (REF: PARA 2 PG5-AO) (D) MOST OF THE EXPENDITURE DETAILS NOT FURNISHED - (REF: PARA 4 PG5-AO) ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 9 (E) EVEN THE CLAIMS DETAILED AT PG3-4 OF THE ASST O RDER ARE GENERAL IN NATURE - LIKE THAT THE STATUTORY DUES GO T SETTLED, WHY NO PROVISION WAS MADE FOR BONUS ETC. NO AGREEMENT/ORDER COPY TO SHOW THAT THE CLAIMS WERE F INALLY SETTLED DURING THE YEAR ALSO FURNISHED. LD. DR FURTHER SUBMITTED THAT THUS, THE ASSESSING O FFICER HAS MADE DISALLOWANCE OF THE CLAIM MADE ON THE GROUNDS OF NO EVIDENCE OF PAYMENT FILED, NO EXPLANATION FURNISHED AND EVIDENC E OF DISPUTE TO WHOM PAYMENT MADE NOT GIVEN. THEREFORE, THE CIT (A) HAS COMPLETELY NOT APPLIED HIS MIND WHILE DELETING THE ADDITION. THE C IT (A) HAS ALSO FAILED TO CONSIDER THAT EACH PREVIOUS YEAR IS A SELF-CONTA INED PERIOD IN REGARD TO WHICH PROFIT OR LOSS TO BE COMPUTED AS HELD BY HON' BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL I NDUSTRIES LTD. VS. CIT, 213 ITR 523(GUJARAT). LD. DR ALSO SUBMITTED TH AT ASSESSEE HAS RELIED ON THE CASE OF TOYO ENGINEERING 5 SOT 616 (M UM). HE SUBMITTED THAT ASSESSEE COMPANY CAN AND ALWAYS MAKE A CORRECT COMPUTATION, AS IN HIS CASE OF AUDIT AND IN THE COM PUTATION POST-AUDIT HE CAN ALWAYS INCORPORATE THE CORRECT POSITION. THE VE RY AUDITING OF EXPENDITURE WILL SUFFICE, IN VIEW OF THE DECISION O F HON'BLE DELHI HIGH COURT IN THE CASE OF GOOD YEAR INDIA 246 ITR 116 ( DEL). IN THE CASE OF APPLICABILITY OF DECISION OF ITAT, AHMEDABAD BENCH IN THE CASE OF ATUL LIMITED 26 TAXMANN.COM 300 (AHD), LD. DR SUBMITTE D THAT SUCH A CASE CAN APPLY WHEN FACTS ARE MORE OR LESS AKIN TO EACH OTHER. THE BASIC ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 10 REQUIREMENT FOR AO IS TO EXAMINE THE EXACT NATURE O F LIABILITY, THE CRYSTALLIZATION OF SUCH LIABILITY AND IF ANY INCOME IS ALSO OF PRIOR PERIOD, THE NATURE OF SUCH INCOME AND THE ASSESSEES CASE I S MORE SIMILAR TO ATUL LTD THAN TOYO ENGINEERING. LD. DR ALSO SUBMITTED TH AT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1994-95, THE ITAT WHIL E DECIDING THE ITA 4344/DEL/2000 HAD SET ASIDE THE ISSUE TO THE FILE O F THE ASSESSING OFFICER. 7. ON THE OTHER HAND, WHILE PLEADING ON BEHALF OF T HE ASSESSEE, THE LD. AR RELIED ON THE ORDER OF THE CIT (A) AND FURTHER S UBMITTED THAT THIS ADDITION HAS BEEN MADE WITHOUT APPLYING ANY MIND BY THE ASSESSING OFFICER. THE TOTAL PRIOR PERIOD EXPENSES AS PER AUD IT REPORTS WERE OF RS.96,57,170/-. THERE WAS PRIOR PERIOD INCOME OF RS .26,16,334/-. THE ASSESSEE CLAIMED THE NET OF PRIOR PERIOD EXPENSES A FTER REDUCING THE PRIOR PERIOD INCOME IN THE PROFIT AND LOSS ACCOUNT OF RS. 70,40,836/-. THE ASSESSING OFFICER DID NOT APPLY HIS MIND AND HE DIS ALLOWED BOTH THE TOTAL PRIOR PERIOD EXPENSES BY ADDING THE PRIOR PERIOD IN COME ALSO. THIS FACT ITSELF SHOWS THAT ASSESSING OFFICER HAS COMPLETELY NOT APPLIED HIS MIND TO THE CORRECT FACTS OF THE CASE. THE ASSESSEE HAS ALR EADY OFFERED THE PRIOR PERIOD OF INCOME FOR TAXATION IN THE EARLIER YEAR. THEREFORE, BY REDUCING THE PRIOR PERIOD EXPENSES BY THAT AMOUNT THE ASSESS EE HAD DONE THE RIGHT THING. WITH NO IMAGINATION SUCH PRIOR PERIOD INCOME CAN BE ADDED TO PRIOR PERIOD EXPENSES DISALLOWANCE. THE ASSESSING O FFICER FAILED TO UNDERSTAND HOW THE INCOME EVEN THOUGH RELATING TO E ARLIER YEAR OFFERED TO ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 11 TAX IN THE IMPUGNED ASSESSMENT YEAR CAN FORM THE PA RT OF THE TOTAL DISALLOWANCE, INCOME CANNOT BE DISALLOWED. THUS, TH E ASSESSING OFFICERS ACT WAS COMPLETELY AGAINST THE BASIS PRIN CIPLES OF ACCOUNTANCY. AS PER THE ASSESSING OFFICER, THE PRIOR PERIOD EXPE NSES CANNOT BE ALLOWED IN THE SAID ASSESSMENT YEAR SINCE THE SAME IS RELAT ED TO TRANSACTIONS ENTERED INTO THE EARLIER YEAR. FOLLOWING THE MATCH ING CONCEPT IN ORDER TO DETERMINE THE NET INCOME OF AN ACCOUNTING YEAR, THE REVENUE AND OTHER INCOME ARE MATCHED WITH THE COST TO FIND THE CORREC T INCOME. THE LD. AR FURTHER PLEADED THAT THE LD. DR RELIED ON THE JUDGM ENT OF HON'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVE STMENT CORPORATION LTD V. CIT, CITED SUPRA, WHEREIN THE HON'BLE APEX C OURT HAS HELD THAT THERE COULD BE NO COMPUTATION OF PROFITS AND GAINS UNTIL THE EXPENDITURE WHICH IS NECESSARY FOR THE PURPOSE OF EARNING THE R ECEIPT IS DEDUCTED THEREFROM WHETHER THE EXPENDITURE IS ACTUALLY INCUR RED OR THE LIABILITY IN RESPECT OF THEREOF HAS ACCRUED. OTHER DECISIONS WER E ALSO CITED BY LD. DR FOR THE PROPOSITION THAT ONLY ASCERTAINED LIABILITI ES JUSTIFY AN ENTRY IN THE BOOKS OF ACCOUNT MAINTAINED ON MERCANTILE SYSTEM. T HE ALLOWANCE MUST BE GRANTED IN THE YEAR IN WHICH THE LIABILITY IS IN CURRED OR ACCRUED WAS ALSO A STAND TAKEN BY THE LD. DR. LD. AR SUBMITTED THAT THE JUDGEMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTR A CEMENT & CHEMICAL INDUSTRIES LTD. V. CIT, CITED SUPRA, RATHER SUPPORT S THE ASSESSEES CONTENTION THAT MERELY BECAUSE THE EXPENSES RELATE TO A TRANSACTION OF ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 12 EARLIER YEAR, IT DOES NOT BECOME THE LIABILITY PAYA BLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY IS DETERMI NED AND CRYSTALLIZED IN THE YEAR IN QUESTION. THE LD. AR FURTHER SUBMITTED THAT ASSESSEE HAS PUT A NOTE NO.3 WHICH ACCOMPANIED THE COMPUTATION OF INCO ME. THE RELEVANT NOTE READ AS UNDER:- 'AS PER THE TAX AUDIT REPORT A NET SUM OF RS.70,39,842/- HAS BEEN DEBITED TO THE PROFIT & LOS S A/C AS RELATING TO EARLIER YEARS/ FULL DETAILS ARE ENCL OSED HEREWITH AS ANNEXURE-II A SUM OF RS.25,84,131/- HAS BEEN SURRENDER AS INCOME ON ACCOUNT OF CREDIT ITEMS . A SUM OF RS.96,23,973/- HAS BEEN CLAIMED TOWARDS THE DEBIT ITEM. AS IT IS APPARENT FROM THE REMARKS GIVE N BY THE TAX AUDITOR, THE DEBITS HAVE BEEN MADE DURING T HE YEAR FOR THE REASON EITHER THAT THE BILLS/DEMAND WE RE RECEIVED/RAISED DURING THE YEAR OR THAT THE CLAIMS WERE SETTLED DURING THE YEAR OR THAT THE AMOUNTS WERE DE BITED BY THE BANK DURING THE YEAR OR PROVISION WAS LESS M ADE/ ALTHOUGH/ THE EXPENDITURE MAY BE RELATING TO SOME E ARLIER PERIODS. THESE EXPENSES COULD NOT BE BOOKED IN THE RESPECTIVE YEAR TO WHICH THEY RELATE SINCE THE ASSE SSEE COMPANY DID NOT HAVE ANY BASIS AS THE BILLS WERE RECEIVED DURING THE YEAR. THESE EXPENSES HAVE NEITH ER BEEN CLAIMED NOR ALLOWED IN THE ASSESSMENTS OF EARL IER YEARS. KEEPING IN VIEW THAT THE ABOVE AMOUNT IS A S MALL PERCENTAGE OF TOTAL EXPENSES INVOLVED THE SAME SHOU LD BE ALLOWED IN THE PRESENT YEAR. IN THE ALTERNATIVE I T HESE EXPENSES MAY BE ALLOWED IN THE RESPECTIVE YEARS IN WHICH CASE THE COMPANY WILL REDUCE THIS YEARS CLAIM ACCORDINGLY. AS PER THE NOTE, THE EXPENSES COULD NOT BE BOOKED I N THE EARLIER YEARS AS THE BILLS IN RESPECT OF THESE EXPENSES WERE RECEIVE D DURING THE YEAR UNDER CONSIDERATION. IN THE NOTE, IT WAS EXPLAINED THAT T HESE AMOUNT OF EXPENSES WERE VERY SMALL PERCENTAGE OF TOTAL EXPENSES INCURR ED BY THE ASSESSEE AND ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 13 IF SUCH EXPENSES CANNOT BE ALLOWED IN THIS YEAR, TH EN IT SHALL BE ALLOWED IN THE RESPECTIVE YEARS. THE ASSESSEE FILED DETAILS OF THESE PRIOR PERIOD EXPENSES AND THE TAX AUDITORS ALSO REPORTED IN HIS TAX AUDIT REPORT IN FORM NO. 3CD BY GIVING THE DETAILS OF THE NATURE OF THES E EXPENSES. A BARE PERUSAL OF THE DETAILS, IT CAN BE FOUND THAT EXPENS ES ARE BUSINESS IN NATURE AND ARE ALLOWABLE. IT IS ALSO SUBMITTED BY LD. AR T HAT OUT OF THESE EXPENSES, RS.96,57,170/-, PRIOR PERIOD EXPENSES DEB ITED IN THE BOOKS AMOUNTING TO RS.75,51,613/- WERE COVERED BY SECTION 43B OF THE ACT WHERE ALLOWABILITY IS ONLY ON THE BASIS OF PAYMENT AS THESE WERE STATUTORY LIABILITIES. WITH REGARD TO SETTING ASIDE THE ISSUE IN ASSESSMENT YEAR 1994-95, THE LD. AR SUBMITTED THAT THE ASSESSING OF FICER HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY RELYING ON VARIO US JUDGEMENTS OF HON'BLE HIGH COURTS. LD. AR ALSO PLACED A COPY OF O RDER OF ASSESSMENT YEAR 1994-95 IN THE PAPER BOOK. LD. AR ALSO SUBMIT TED THAT IN ASSESSMENT YEAR 1995-96, THE CIT (A) HAS ALLOWED TH E PRIOR PERIOD EXPENSES AND THE DEPARTMENT HAS NOT FILED FURTHER A PPEAL. LD. AR SUBMITTED THAT IN ASSESSMENT YEAR 1990-91, WHILE DE ALING WITH SETTING ASIDE THE PROCEEDINGS, THE ASSESSING OFFICER HAS AL LOWED THE PRIOR PERIOD EXPENSES VIDE ITS ORDER DATED 28.03.2001. THE ASSES SEE SUBMITTED COMPLETE DETAILS OF EXPENSES. THESE LIABILITIES TO PAY THESE EXPENSES AROSE AND CRYSTALLIZED WHEN THE SAME WAS ACKNOWLEDGED FOR PAYMENT OR THE BILLS WERE RAISED. LD. AR RELIED FOR THIS PROPOSITI ON ON THE DECISION OF ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 14 HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. EXX ON MOBIL LUBRICANTS PVT. LTD. REPORTED IN 328 ITR 17 (DEL). HE ALSO SUB MITTED THAT VARIOUS COURTS HAD HELD THAT MERELY BECAUSE EXPENSES RELATE TO TRANSACTIONS OF EARLIER YEAR, IT DOES NOT BECOME A LIABILITY PAYABL E IN THE EARLIER YEAR UNLESS IT IS PROVED THAT THE LIABILITY WAS DETERMIN ED AND THE SAME CRYSTALLIZED IN AN EARLIER YEAR. LD. AR ALSO BROUGH T TO OUR NOTICE THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F CIT V. NAGRI MILLS CO. LTD., 33 ITR 681 FOR THE PROPOSITION THAT THE D EPARTMENT SHOULD NOT FRITTER AWAY ITS ENERGY IN DECIDING THE ALLOWABILIT Y OF EXPENSES BASED ON THE YEAR TO WHICH IT RELATES. AS PER HON'BLE HIGH C OURT, THE ULTIMATE TAX EFFECT IS NEGLIGIBLE AND, THEREFORE, THE ISSUE OF E XPENSES RELATING TO EARLIER YEAR OR CURRENT YEAR SHOULD NOT BE GONE INTO WITH C LOCK LIKE PRECISION UNLESS THE EXPENSES DO NOT RELATE TO BUSINESS. 8. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO PERUS ED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE CASE LAWS RELIED UPON BY BOTH THE SIDES. THE ASSESSING OFFICER HAS MADE A PATENT MISTAKE WHILE ADDING THE PRIOR PERIOD EXPENSES TO THE INCOME OF T HE ASSESSEE. THE TOTAL PRIOR PERIOD EXPENSES WERE OF RS.96,57,170/- AND TH ERE WAS PRIOR PERIOD INCOME OF RS.26,16,334/-. THE ASSESSING OFFICER ADD ED BOTH THESE AMOUNTS WHICH IS PATENTLY WRONG. THEREFORE, THE CIT (A) HAS RIGHTLY APPRECIATED THIS FACT AND CONSIDERED THIS MISTAKE I N HIS ORDER. THE ASSESSEES CONTENTION FOR CONSISTENCY WHEREIN IT WA S CONTENDED THAT IN ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 15 RESPECT OF EARLIER YEARS ALSO, THIS ISSUE RELATING TO PRIOR PERIOD EXPENSES HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE A SSESSING OFFICER OR BY THE CIT (A). THE DEPARTMENT HAS ALSO NOT FILED FURT HER APPEAL. THE ASSESSEE COMPANY IS HAVING MANY DIVISIONS ALL ACRO SS THE COUNTRY AND THERE CAN BE INSTANCES AND CASES, WHERE BILLS FOR E XPENSES ARE RECEIVED AT MUCH LATER DATED OR BEYOND THE FINANCIAL YEAR AND E XPENSES COULD NOT BE BOOKED WHEN THEY ARE INCURRED. FOR SUCH A SITUATION , THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF NAGRI MILL S CO. LTD. (SUPRA) IS ALSO A GUIDING FORCE WHILE DECIDING THIS ISSUE OF P RIOR PERIOD EXPENSES. THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF BUSINESS. THE BONAFIDE AND GENUINENESS OF EXPENSES IS NOT DOUBTED. HOWEVER, THE ASSESSING OFFICER OBSERVED THAT THE BI LLS OF THE EXPENSES WERE NOT FURNISHED DURING THE ASSESSMENT YEAR PROCE EDINGS. WE HAVE PERUSED THE AUDIT REPORT AND THE LETTER DATED 15.03 .1999 WHICH GIVE THE DETAILS OF EXPENSES. THE EXPENSES ARE OF VARYING NA TURE. THESE PERTAIN TO FREIGHT, REPAIR, ELECTRICITY, WATER, TELEPHONE, ENT RY TAX, SALES TAX, INTEREST, DISCOUNT, EXGRATIA, BONUS, ADVERTISEMENT, SALE COMM ISSION ETC. ASSESSEE CLAIMS THAT EXPENSES TO THE TUNE OF RS.75,51,613/- WERE TO BE DISALLOWED U/S 43B OF THE ACT FOR THE REASON THAT THESE WERE N OT PAID DURING THE RELEVANT PERIOD AND THESE EXPENSES CAN BE ALLOWED O NLY ON ACTUAL PAYMENTS. THUS, THESE EXPENSES IN ANY CASE ARE TO B E DISALLOWED IN THOSE PARTICULAR YEARS AND TO BE ALLOWED IN THE YEAR OF A CTUAL PAYMENTS. FURTHER, ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 16 THIS APPEAL RELATES TO ASSESSMENT YEAR 1996-97 WHER E A CONSIDERABLE TIME HAS BEEN LAPSED. IN COMPARISON TO TOTAL TURNOVER, T HESE EXPENSES ARE NOT OF SIGNIFICANT VOLUME. THE ASSESSEE HAS SUO-MOTTO M ADE A DISCLOSURE OF THE PRIOR PERIOD EXPENSES BOTH BY WAY OF MENTIONING IN THE AUDIT REPORT AND BY FILING THE REPORT ALONG WITH RETURN OF INCOM E. HOWEVER, FOR WANT OF FURTHER FURNISHING OF DETAILS IF THE ISSUE IS RE STORED BACK TO THE ASSESSING OFFICER, NO USEFUL PURPOSE WILL BE SERVED . FURTHER, SUBSTANTIAL AMOUNT OF EXPENSES ARE IN THE NATURE OF THE EXPENSE S WHICH ARE ALLOWABLE ONLY ON THE PAYMENT BASIS ALSO PROMPT US NOT TO RES TORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. CONSIDERING ALL THES E FACTS, WE FIND IT APPROPRIATE TO SUSTAIN ADDITION OF RS.21,05,557/- B EING DIFFERENCE BETWEEN PRIOR PERIOD EXPENSES DEBITED IN PROFIT & L OSS ACCOUNT AND EXPENSES WHICH CAN BE ALLOWED ONLY ON ACTUAL PAYMEN TS. IT WILL BE SUFFICIENT TO MEET THE END OF JUSTICE. WE ORDER ACC ORDINGLY. THEREFORE, WE PARTLY ALLOW THIS GROUND OF REVENUES APPEAL. 9. IN THE GROUND NO.2, HE ISSUE INVOLVED IS AGAINST DELETING THE DISALLOWANCE OF RS.50 LACS OUT OF REPAIR EXPENSES. 10. WHILE PLEADING ON BEHALF OF THE REVENUE, LD. DR SUBMITTED THAT THE ASSESSEE HAS CLAIMED TOTAL EXPENSES OF RS.6.16 CROR ES ON ACCOUNT OF REPAIRS TO THE BUILDING IN COMPARISON TO RS.4.10 CR ORES IN THE IMMEDIATE PRECEDING YEAR. THE ASSESSING OFFICER DISALLOWED RS .50 LACS. THE DETAILS GIVEN BY THE ASSESSEE IS A BREAK UP OF EXPENSES DIV ISION WISE WITHOUT ANY ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 17 CORROBORATING DETAILS OR EVEN THE NATURE OF EXPENSE S. WHEN THE NATURE OF EXPENDITURE WAS NOT ASCERTAINABLE THE AO HAS HARBOU RED A DOUBT THAT IT CAN EVEN INCLUDE CAPITAL EXPENDITURE AND HE HAS RIG HTLY DISALLOWED OF RS.50 LACS WHEN THE NATURE OF EXPENDITURE IS NOT AC CEPTABLE. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE VOUCHERS IN EXCESS OF RS.25000/-, WHEN THE SAME WAS NOT PRODUCED. THE ASS ESSING OFFICER ALSO SHOW CAUSED FOR SUCH DISALLOWANCES AND ASSESSEE HAS NOT SATISFACTORILY EXPLAINED THE SAME. THUS, THE ASSESSEE FAILED TO DI SCHARGE THE ONUS CASTED ON IT. THE LD. DR ALSO DREW OUR ATTENTION TO THE NA TURE OF NARRATION OF SUCH EXPENSES, WHICH ARE PLACED AT PG 370-451 OF PB. 11. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT TH E ASSESSEE SUBMITTED A REPLY DATED 15.03.1999. THE DIVISION-WISE EXPENDI TURE WAS SUBMITTED ON 29.1.1999 AND FURTHER DETAILED BREAK-UP OF REPAI RS AND MAINTENANCE OF PLANT AND MACHINERY AND OTHERS WAS SUBMITTED. THE A SSESSEE HAS ALSO INFORMED THE ASSESSING OFFICER THAT ENTIRE DETAILS WERE FILED AS REQUIRED BY HIM, THEREFORE, NO SUCH DISALLOWANCE WAS CALLED FOR. THE LD. AR SUBMITTED THAT THESE EXPENDITURE WERE AT VARIOUS CI TES, BRANCHES AND DIVISION OF THE COMPANY ALL ACROSS THE COUNTRY. DUR ING THE YEAR UNDER CONSIDERATION, THERE WAS A SUBSTANTIAL ENHANCEMENT IN THE PRODUCTION CAPACITY OF VARIOUS DIVISIONS. THE DETAILS OF REPAI RS AND MAINTENANCE RUNNING INTO 80 PAGES WERE FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER DID NOT PINPOINT ANY DEFECT OR ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 18 DISCREPANCIES IN THESE DETAILS. THE ASSESSING OFFIC ER HAS ALSO NOT DOUBTED THE GENUINENESS OF EXPENDITURE. THE AD HOC DISALLOW ANCE BY MAKING A GUESS WORK IS NOT AS PER LAW. LD. AR RELIED ON THE FOLLOWING DECISIONS :- (A) GLORIOUS HOSPITALITY (P.) LTD. V. DEPT. OF ACIT , ITA NO.2124/DE1/2012 (B) ITO V. ETHNO FINANCIAL RESEARCH (P) LTD (2010) 36 SOT 207 (DEL) (C) DY. CIT V. MRS. IRENE D'SOUZA (2006) 6 SOT 86 ( BANG) (D) SUNITA MINE CHEM IND V. ITO (2008) 23 SOT 39 (J ODH-URO) (E) MIDLAND INTERNATIONAL LTD. V. DY. CIT (2007) 10 9 ITD 198 (DEL) (F) SILICON GRAPHICS SYSTEMS (I) (P) LTD. V. DY. CI T (2007) 17 SOT 29 (DEL) (URO) (G) HUGHES ESCORTS COMMUNICATIONS LTD. V. JCIT - 15 7 TAXMAN 46 (DEL) (MAG). HE FURTHER SUBMITTED THAT THE ONLY REQUIREMENT OF S ECTION 37 OF THE ACT IS THAT EXPENDITURE SHOULD BE INCURRED WHOLLY AND EXCL USIVELY FOR THE BUSINESS PURPOSE AND THE EXPENDITURE SHOULD NOT BE IN CAPITAL NATURE. ONCE THE EXPENSES ARE HELD TO BE INCURRED DURING TH E COURSE OF BUSINESS, PARTIAL DISALLOWANCE IS NOT PERMISSIBLE AS THESE EX PENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WITHOUT IDENTIFYING DISALLOWABLE EXPENDITURE OR PINPOINTING ANY DEFECT, ADHOC DISALLOWANCE CANNOT BE RESORTED TO. NO ADDITION CAN BE MADE ON T HE BASIS OF PRESUMPTION. THE LD. AR ALSO RELIED ON THE FOLLOWIN G DECISIONS (A) DY. CIT V. MRS. IRENE D'SOUZA (2006) 6 SOT 86 (BANG ), (B) MIDLAND INTERNATIONAL LTD. V. DY. CIT (2007) 109 IT D 198 (DEL), ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 19 (C) SILICON GRAPHICS SYSTEM (I) (P.) LTD. V. DY. CIT (2 007) 17 SOT 29 (DEL) (URO) (D) HUGHES ESCORTS COMMUNICATIONS LTD. JT. CIT (2006) 1 57 TAXMAN 46 (DEL) (MAG). 12. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE H AVE ALSO GONE THROUGH THE DETAILS OF THE REPAIRS AND MAINTENANCE IN THE PAPER BOOK AT PAGES 370 TO 451. WE HAVE ALSO PERUSED THE SHOW CAU SE ISSUED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS ASKED ONLY GENERAL DETAILS AND NO SPECIFIC BILLS WERE CALLED FOR. THE ASSESSIN G OFFICER SHOULD HAVE GONE THROUGH THE DETAILS AND INDICATE WHICH EXPENDI TURE HE WANT TO VERIFY FURTHER. THE ASSESSING OFFICER MUST HAVE APPLIED HI S MIND WITH THE DETAILS SUBMITTED BY THE ASSESSEE AND MUST HAVE PIN POINTED THE DISCREPANCIES AND OMISSIONS. AD HOC DISALLOWANCE CA NNOT BE RESORTED TO IN THE ABSENCE OF ANY SPECIFIC DISCREPANCY NOTED IN THE DETAILS SUBMITTED BY THE ASSESSEE. THE ASSESSING OFFICER HAS FAILED T O IDENTIFY THE EXPENSES AND AMOUNTS WHERE THERE WAS ANY DISCREPANCY AND HE PROPOSED TO DISALLOW THE SAME. IN VIEW OF THESE FACTS, WE FIND NO MERITS IN THE APPEAL OF THE REVENUE ON THIS GROUND. WE ALSO GET THE SUPP ORT FROM THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF NATIONAL INDUSTRIAL CORPORATION REPORTED IN 177 CTR 194 (DEL.). KEEPING THESE FACTS IN VIEW, WE SUSTAIN THE ORDER OF THE CIT (A) ON THIS ISSUE. 13. IN THE GROUND NO.3, THE ISSUE INVOLVED IS DELET ING THE ADDITION OF RS.1 LAC OUT OF MDS COMMISSION. ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 20 14. WHILE PLEADING ON BEHALF OF THE REVENUE, THE LD . DR SUBMITTED THAT THE CIT (A) DELETED THE ADDITION MERELY BY A NON-SP EAKING ORDER SHOWING A COMPLETE NON-APPLICATION OF MIND AND MUST, THEREF ORE, BE SET ASIDE AND HE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 15. ON THE OTHER HAND, LD. DR SUBMITTED THAT ASSESS MENT HAS PAID RS.2.5 LACS AS REMUNERATION TO THE WHOLE TIME MANAG ING DIRECTOR OF THE COMPANY. THE ASSESSING OFFICER MADE AD HOC DISALLOW ANCE OF RS.1 LAC THEREFROM. THE TOTAL TURNOVER OF THE COMPANY WAS MO RE THAN RS.617 CRORES IN COMPARISON TO RS.466 CRORES IN THE EARLIE R YEAR. THE PROFIT BEFORE TAX WAS INCREASED FROM RS.44.16 CRORES TO RS .64.52 CRORES. THE REMUNERATION PAID TO THE MANAGING DIRECTOR WAS IN A CCORDANCE WITH THE SCHEDULE-XIII OF THE COMPANIES ACT, 1956. THIS PAYM ENT OF REMUNERATION HAS BEEN APPROVED BY THE BOARD OF DIRE CTORS AND SHAREHOLDERS OF THE COMPANY, THEREFORE, AD HOC DISA LLOWANCE WAS NOT JUSTIFIED WHICH THE CIT (A) HAS RIGHTLY DELETED. TH E LD. AR ALSO RELIED ON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT V. DALMIA CEMENT (P.) LTD. REPORTED IN 254 ITR 377. 16. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO GONE THROUGH THE SUBMISSION MADE BY BOTH SIDES. WE FIND THAT THE ASS ESSING OFFICER HAS MADE AN AD HOC DISALLOWANCE WITHOUT APPRECIATING TH E FACTS OF THE CASE THAT THE TURNOVER AND PROFIT OF THE COMPANY HAS BEE N INCREASED DURING THE YEAR. THE PAYMENT HAS BEEN MADE IN ACCORDANCE WITH SCHEDULE-XIII OF ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 21 THE COMPANIES ACT, 1956 AND THIS PAYMENT HAS ALSO B EEN APPROVED BY THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE COMPANY. IN VIEW OF THESE FACTS, IT WAS UNJUSTIFIED TO MAKE AN AD HOC DISALLO WANCE OF RS. 1 LAC FROM THE TOTAL PAYMENT OF RS.2.5 LACS TO THE WHOLE TIME MANAGING DIRECTOR OF THE COMPANY. IN VIEW OF THESE FACTS, WE FIND NO MER ITS IN THIS GROUND OF REVENUES APPEAL AND WE SUSTAIN THE ORDER OF THE CI T (A) ON THIS ISSUE. THIS GROUND OF REVENUES APPEAL STANDS DISMISSED. 17. IN THE GROUND NO.4, THE ISSUE INVOLVED IS DELET ING THE DISALLOWANCE OF RS.1 LAC MADE OUT OF PROFESSIONAL EXPENSES CLAIM ED AT RS.14.33 LACS. 18. WHILE PLEADING ON BEHALF OF THE REVENUE THE LD. DR SUBMITTED THAT THE DETAILS AVAILABLE AT PAGES 497-540 OF THE PAPER BOOK SHOW THAT LEGAL AND PROFESSIONAL CHARGES ARE DEBITED TO SUCH HEAD S ITE-WISE WITHOUT ANY NARRATION WHATSOEVER AND THROWING NO LIGHT ON THE P URPOSE OF SUCH EXPENSES AND HE RELIED ON THE ORDER OF THE ASSESSIN G OFFICER AND ALSO HIS PLEADINGS IN THE OTHER GROUND OF SIMILAR DISALLOWAN CES. 19. ON THE OTHER HAND, LD. AR SUBMITTED THAT THE AS SESSEE HAS DEBITED PROFESSIONAL EXPENSES OF RS.14.33 LACS AND THE DETA ILS HAVE BEEN SUBMITTED RUNNING INTO MORE THAN 40 PAGES PLACED AT PAGES 497-540 OF THE PAPER BOOK. THE ASSESSING OFFICER HAS NOT PERUSED T HE DETAILS OR ASKED FOR ANY FURTHER SPECIFICATION INFORMATION IN THIS R EGARD. LD. AR PLEADED TO SUSTAIN THE ORDER OF CIT (A). ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 22 20. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE H AVE ALSO PERUSED THE DETAILS AVAILABLE ON RECORD. THE ASSESSEE SUBMI TTED THE DETAILS. THE ASSESSING OFFICER HAS NOT ASKED ANY FURTHER SPECIFI C INFORMATION. HE HAS ALSO NOT DOUBTED THE GENUINENESS OF THE EXPENSES. W E FIND NO SUBSTANCE IN MAKING THE AD HOC DISALLOWANCE WITHOUT GIVING AN Y SPECIFIC FINDING IN RESPECT OF ANY EXPENDITURE. THEREFORE, WE FIND NO M ERITS IN THIS GROUND OF REVENUES APPEAL AND THE SAME IS ACCORDINGLY DISMIS SED. 21. GROUND NO.5 IS AGAINST DELETING THE ADDITION OF RS.5 LACS MADE OUT OF MISC. EXPENSES CLAIMED AT RS.2.37 CRORES DEBITED BY THE ASSESSEE. 22. WHILE PLEADING ON BEHALF OF THE REVENUE, THE LD . DR SUBMITTED THAT THE AD HOC DISALLOWANCE OF RS.5 LACS WAS MADE WHEN ITEM-WISE DETAILS OF EXPENSES AND RELEVANT BILLS OF MAJOR EXPENSES WERE NOT FURNISHED. THE ASSESSEE HAS TRIED TO JUSTIFY THE INCREASE IN THE N ET PROFIT AND MISC. EXPENSES AND SOME DISALLOWANCES MADE SUO-MOTO BY TH E ASSESSEE. THE ASSESSEES PLEADINGS ARE MIS-PLACED AND UNTENABLE. THE ASSESSING OFFICER IS UNDER AN OBLIGATION TO EXAMINE THE DETAILS AND N ATURE OF ANY EXPENSES BEFORE ALLOWING IT U/S 37 OF THE ACT. HE SUBMITTED THAT AS HELD BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF ROTOMAC GLOBALS (P.) LTD. REPORTED IN 320 ITR 66 (ALL.), THE DISALLOWANCE IS WARRANTED THE MOMENT THE EXPENDITURE IS NOT PROVED TO BE FOR BUSINESS PU RPOSE; IT MAY BE FOR PERSONAL PURPOSE OR OTHERWISE; SOMETIMES WHERE EVER YTHING IS PRODUCED BEFORE AO, AD HOC DISALLOWANCE HAS BEEN DELETED; BU T THE PRINCIPLE THAT ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 23 PERSONAL OR MORE APPROPRIATELY NON BUSINESS EXPENDI TURE ARE TO BE DISALLOWED EVEN IN CASE OF A CORPORATE ASSESSEE. HE ALSO RELIED ON THE FOLLOWINGS CASE LAWS WHERE THE AD HOC DISALLOWANCE HAS BEEN UPHELD :- (I) NIKO RESOURCES LIMITED (2009) 123 TTJ 310 (AHD.); (II) ITC CLASSIC FINANCE LTD. (2000) 112 TAXMAN 155 (I TAT CAL.-A BENCH)(MAG.) (III) ROTOMACGLOBAL (P.) LTD. 320 ITR 616 (ALL.) (IV) ADDI INDUSTRIES LTD. - (2010) 2 ITR (TRIB.) 236 (DE LHI) (V) COLUMBIA TRI STAR FILMS 10 TAXMAN.COM (MUM.) (VI) V.K. DEWAN & CO. VS. ITO ITA NO.1817/DEL/2012 THE LD. DR ALSO SUBMITTED AS UNDER :- COMING TO FACTS OF THE CASE AT PB 541, THE FOLLOWI NG EXPENDITURES ARE INCLUDED UNDER THE HEAD MISC EXPEN SES : (A) GENERAL EXPENSES: 13,61,397(B) OFFICE MAINTENANCE 10,23,355 (C) TELEPHONE 51,02,219 (D) FILING FEE AND LISTING FEE 21.55 LAKH APART FROM TH E AMOUNT DISALLOWED SUO-MOTU OF CHARITY 4.04 LAKH AND ENTERTAINMENT OF 3 LAKH. AS HAS CORRECTLY BEEN HELD IN THE CASE OF M/S VRC CONSTRUCTION INDIA PVT. LTD., ITA NO.5310/DEL/2011 WHERE THE TRIBUNAL HELD THAT WE ARE MAKING IT CLEAR AS E ACH YEAR IS INDEPENDENT, THEREFORE, OUR VIEW IS BASED UPON THE PECULIAR FACTS OF THIS CASE ONLY.' RES JUDICATA OR CONSISTEN CY PRINCIPLE DOES NOT APPLY TO SUCH DISALLOWANCES AND THEREFORE THE PRECEDING YEAR'S DECISION AS CITED BY ASSESSEE IS O F NO AVAIL. THE CIT(A) DECISION AT PARA 10 OF HIS ORDER DELETIN G THE ADDITION MERELY FOLLOWING EARLIER ORDERS IS ABSOLUT ELY NON SPEAKING AND ON THAT GROUND ALONE DESERVES TO BE SE T ASIDE APART FROM THE LOGIC OR PROPRIETY OF SUCH A DECISIO N. WITHOUT ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 24 DOUBT} SUCH HIGH VOLUME OF EXPENSES WITHOUT PROPER CORROBORATION COULD NOT HAVE BEEN ALLOWED IN TOTO B Y AO AND THE AMOUNT OF DISALLOWANCE OUGHT TO HAVE BEEN H IGHER. THEREFORE CONSIDERING THE REASONABLE AMOUNT OF DISALLOWANCE THE SAME DESERVES TO BE UPHELD. 23. ON THE OTHER HAND, LD. AR SUBMITTED THE DETAILS OF THE MISCELLANEOUS EXPENSES BEFORE THE ASSESSING OFFICER . THESE EXPENSES INCLUDE FILING FEE, CRANE HIGHER CHARGES, FREIGHT, COOLIE, TELEPHONE EXPENSES, ELECTRICITY AND WATER, BOOKS AND PERIODIC ALS, INSPECTION AND TESTING ETC. THE DETAILS WERE SUBMITTED AND THE ASS ESSING OFFICER HAS NOT ASKED ANY FURTHER SPECIFIC DETAILS NOR POINTED OUT ANY DEFECTS OR INSTANCES IN THESE EXPENDITURE. THE TURNOVER OF THE ASSESSEE HAS GONE UP SUBSTANTIALLY AND SIMILARLY THE PROFITS FOR THE YEA R UNDER CONSIDERATION, THEREFORE, THE INCREASE IN MISCELLANEOUS EXPENSES I S JUSTIFIABLE. THE ASSESSING OFFICER RELIED UPON THE DECISION OF ITAT FOR THE ASSESSMENT YEAR 1995-96 IN ITA NO.2978/DEL/2000 DATED 13.12.20 05. THE LD. AR HAS SUBMITTED THAT ASSESSEE HAS HIMSELF DISALLOWED RS. 4,04,777/- AS CHARITY AND DONATION AND RS. 3,70,968/- AS ENTERTAI NMENT EXPENSES IN THE COMPUTATION OF INCOME. FINALLY, LD. AR RELIED ON TH E ORDER OF THE CIT (A). 24. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE F IND THAT ASSESSEE HAS HIMSELF DISALLOWED SOME EXPENDITURE WHICH IS NO T ALLOWABLE. THE ASSESSING OFFICER RELIED ON THE DISALLOWANCE MADE I N ASSESSMENT YEAR 1995-96 WHICH HAS BEEN FINALLY DELETED BY THE ITAT WHILE DECIDING THE ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 25 ITA NO.2978/DEL/2000 DATED 13.12.2005. THE ASSESSIN G OFFICER HAS NOT PINPOINTED ANY SPECIFIC DEFECTS IN THE DETAILS NOR HAS HE FURTHER ASKED ANY DETAILS IN THIS REGARD, THEREFORE, WE FIND NO DEFEC TS IN THE ORDER OF CIT (A). ACCORDINGLY, WE SUSTAIN THE SAME. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 25. GROUND NO.6 IS AGAINST DELETING THE ADDITION OF RS.50 LACS OUT OF COMMISSION EXPENSES DEBITED OF RS.1,47,34,764/-. 26. WHILE PLEADING ON BEHALF OF THE REVENUE, THE LD . DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND ALSO ON THE CASE LAWS WHICH ARE BEING DISCUSSED BELOW. THE LD. DR SUBMITTED THAT EXPENDITURE SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE AND IT SHOULD BE LAID OUT OR EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION AND IT SHOULD BE INCURRED IN THE PREVIOUS YEAR, THEN THAT SUCH EXPENSES ARE ALLOWABLE U/S 37 OF THE ACT. LD. DR RELIED ON THE DECISION OF EIMCO K.C.P. LTD. VS. CIT 242 ITR 659 (SC) FOR VARIOUS CONDITIONS TO BE FULFILLED FOR ALLOWABILITY OF ANY EXPENSES U/S 37 OF THE INCOME-TAX ACT, 1961. HE ALSO RELIED ON THE DECISIO N OF J.K. WOOLLEN MANUFACTURERS VS. CIT 72 ITR 612 (SC)(3 JUDGE BEN CH) AND SWADESHI MILLS CO. LTD. VS. CIT 63 ITR 57 (SC). LD. DR ALS O SUBMITTED THAT THE BURDEN OF PROVING THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS LAY UPO N THE ASSESSEE AND ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 26 WHEN NO EVIDENCE WAS LED TO THAT EFFECT, EXPENDITUR E MAY NOT BE ALLOWED. FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF LAKSHMIRATAN COTTON MILLS CO. LTD. V. CIT - 73 ITR 634 (SC)(3 JUDGE BEN CH). LD. DR ALSO RELIED ON VARIOUS OTHER DECISIONS OF HON'BLE SUPREM E COURT INCLUDING ASPRA LIMITED (1936) 4 ITR 264 (SC). HE ALSO SUBM ITTED THAT ASSESSING OFFICER AND ITAT CAN EXAMINE THE GENUINEN ESS (IF NOT WHOLE AMOUNT CAN BE DISALLOWED), WHETHER THE EXPENDITURE IS BORNE OUT IN THE CHARACTER OF A TRADER (IF NOT THE WHOLE AMOUNT CAN BE DISALLOWED) OR IS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE B USINESS (IF NOT, WHOLE OR PART CAN BE DISALLOWED). FOR THIS, HE RELIED ON THE DECISION OF J.K. WOOLLEN MANUFACTURERS VS. CIT 72 ITR 612 (SC)(3 J UDGE BENCH, CITED SUPRA. HE ALSO SUBMITTED THAT IT IS, OF COURSE, OPE N TO THE APPELLATE TRIBUNAL TO COME TO A CONCLUSION EITHER THAT THE AL LEGED PAYMENT IS NOT REAL OR THAT IT IS NOT INCURRED BY THE ASSESSEE IN THE CHARACTER OF A TRADER OR IT IS NOT LAID OUT WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF THE BUSINESS OF THE ASSESSEE AND TO DISALLOW IT. BUT IT IS ALSO HEL D THAT THEY CANNOT OF COURSE FIX THE EXPENDITURE BY THEIR OWN STANDARD WH ICH IS THE EXCLUSIVE DOMAIN OF THE BUSINESSMAN. FOR THIS ALSO, HE RELIED ON THE DECISION OF J.K. WOOLLEN MANUFACTURERS VS. CIT, CITED SUPRA. IN THE CASE OF PARTIAL DISALLOWANCE, HOW TO DETERMINE AND HOW MUCH DISALLO WANCE IS TO BE MADE, HE RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WALCHAND & CO. PVT. LTD. 65 ITR 381 (SC). HE PLEADED THAT ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 27 THE SAME IS UPHELD IN J.K. WOOLLEN MANUFACTURERS VS . CIT, CITED SUPRA. IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETE RMINING WHETHER AN EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE INC OME-TAX DEPARTMENT. HE ALSO SUBMITTED THAT MERE AGREEMENT IS NOT ENOUGH AND COULD NOT BE A SUBSTITUTE FOR THE EVIDENCE WHETHER REAL SERVICES H AVE BEEN RENDERED TO EARN COMMISSION. HE ALSO SUBMITTED THAT WHEN EXPEND ITURE IS LEGAL THEN ONLY IT CAN BE ALLOWED. HE ALSO SUBMITTED THAT BURD EN OF PROOF IS ON THE TAXPAYER THAT A PARTICULAR ALLOWANCE IS JUSTIFIABLE AND IN ABSENCE OF ANY SUCH EVIDENCE THE FINDING OF THE ASSESSING OFFICER MUST BE ACCEPTED. THE BURDEN OF PROOF IS ON THE ASSESSEE TO CLAIM A DEDUC TION AND TO BRING ALL MATERIAL FACTS ON RECORD TO SUBSTANTIATE ITS CLAIM. HE SUBMITTED THAT MERE PAYMENT CANNOT BE ENTITLED FOR DEDUCTION OF AN EXPE NDITURE UNLESS IT IS PROVED TO BE CLAIMED FOR COMMERCIAL CONSIDERATIONS AND THE ONUS LIES ON THE ASSESSEE AS HELD BY HON'BLE GAUHATI HIGH COURT IN THE CASE OF ASSAM PESTICIDES & AGRO CHEMICALS VS. CIT 227 ITR 846 ( GAU.). HE ALSO RELIED ON THE BROAD PRINCIPLES AS ELABORATED BY THE HON'BLE KERALA HIGH COURT IN THE CASE OF RAM BAHADUR THAKUR LTD. VS. CI T 1 KLT 687 (KER.)(FB). HE ALSO RELIED ON THE DECISION OF SASSO N J. DAVID AND CO. (P.) LTD. VS. CIT 118 ITR 261 (SC). FOR THE PROPOSITI ON THAT MERELY BECAUSE AN AUDIT REPORT IS AVAILABLE THERE IS NO FE TTER ON THE POWER OF THE ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 28 INCOME-TAX OFFICER TO REQUIRE THE ASSESSEE TO JUSTI FY ITS CLAIM WITH REFERENCE TO THE RECORDS, MATERIALS AND EVIDENCE, S UCH A POWER IS INHERENT IN AN ASSESSING OFFICER IN THE SCHEME OF THE ACT, H E RELIED ON THE DECISION OF GOODYEAR INDIA LTD. VS. CIT 246 ITR 116 (DEL.) . HE ALSO SUBMITTED THAT BASED ON THE ABOVE PRINCIPLES, THE FOLLOWING J UDGMENTS CAN BE VERILY RELIED UPON AS BINDING DECISIONS LAID DOWN IN TERMS OF PRINCIPLES SET BY HON'BLE APEX COURT :- (I) NUND & SAMMONT CO. (P.) LTD. 78 ITR 268 (SC)(3 JU DGE BENCH); (II) SWADESHI COTTON MILLS 63 ITR 57 (SC); (III) LACHMINARAYAN MADAN LAL 86 ITR 439 (SC); (IV) PRECISION ELECTRONICS LTD. [2007] 164 TAXMAN 67 ( DELHI); (V) ASSAM PESTICIDES & AGRO CHEMICALS 227 ITR 846 (GA U.); (VI) ESSESS KAY ENGINEERING CO. (P.) LTD. 151 ITR 636 (P&H); (VII) VISHNU AGENCIES (P.) LTD. 117 ITR 754 (CAL.) HE RELIED ON THE DECISION OF ITAT IN THE CASE OF M/ S. PRECISION ELECTRONICS LTD. VS. DCIT, DELHI (DATED 31.01.2006) 2006-TIOL-38- ITAT-DEL WHEREIN LD. DR SUBMITTED THAT BUSINESS EXP ENDITURE, PAYMENT OF COMMISSION, PROOF IS NECESSARY REGARDING NATURE OF SERVICES RENDERED AND PAYMENT THROUGH CHEQUES UNDER A WRITTEN AGREEME NT NOT A CONCLUSIVE PROOF OF SERVICES RENDERED. HE ALSO RELIED ON THE D ECISION OF ITAT IN THE CASE OF BISQUARE TECHNOLOGIES PVT. LTD. VS. ITO (DA TED 31.03.2008) ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 29 2008-TIOL-197-ITAT-DEL. FINALLY, HE RELIED ON THE D ECISION OF ITAT, BANGALORE BENCH IN THE CASE OF M/S. RAJESH EXPORTS LTD. VS. ACIT, BANGALORE (DATED 14.08.2008) 2008-TIOL-457-ITAT-B ANG AND SUBMITTED THAT IN THE CASE OF COMMISSION PAID TO AN AGENT, ADDITIONAL EVIDENCE IN THE FORM OF CERTIFICATES AMONGST OTHERS ONLY SELF SERVING AND NOT ADMISSIBLE. CREDIBLE EVIDENCE NOT PRODUCED AS T O THE NATURE OF SERVICES PROVIDED TO THE ASSESSEE. A COMMISSION PAY MENT FOR SERVICES RENDERED CAN BE ALLOWED AS A DEDUCTION ONLY WHEN TH E ASSESSEE PROVES TO THE SATISFACTION OF THE INCOME-TAX AUTHORITIES THAT THE AGENT HAS RENDERED SOME SERVICES JUSTIFYING THE PAYMENT OF COMMISSION AND DEDUCTION CLAIMED BY THE ASSESSEE WAS NOT ALLOWED. 27. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT TH E CIT DR HAS CITED A LARGE NUMBER OF DECISIONS FOR THE PROPOSITION THA T EVEN THOUGH THERE MAY BE AN AGREEMENT FOR MAKING A PAYMENT YET THE AS SESSING OFFICER CAN GO BEYOND THE AGREEMENT AND TAKE INTO CONSIDERATION ALL RELEVANT FACTORS TO ENQUIRE WHETHER THE AMOUNT IS PAID FULFILLS THE CONDITIONS AS PER THE REQUIREMENT OF SECTION 37(1) OF THE ACT. IT IS OPEN TO THE TRIBUNAL TO COME TO THE CONCLUSION THAT THE ALLEGED PAYMENT IS NOT R EAL OR THAT IT IS NOT INCURRED BY THE ASSESSEE IN THE CHARACTER OF A TRAD ER OR IT IS NOT MADE OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE SUBMITTED THAT THE SUMMARY OF THE CIT DRS CONTENTION IS THAT A MERE A GREEMENT IS NOT ENOUGH AND NOT BE A SUBSTITUTE FOR THE EVIDENCE AND THE BURDEN OF PROOF TO ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 30 ESTABLISH THE CLAIM OF EXPENDITURE LIES ON THE ASSE SSEE. LD. AR SUBMITTED THAT THE ASSESSEE SUBMITTED PARTYWISE DETAILS OF CO MMISSION, COPY OF AGREEMENT WITH COMMISSION AGENTS, PAN ETC. VIDE ITS LETTER DATED 15.03.1999. THE COMMISSION TO THE AGENTS WAS PAID F OR SERVICES TAKEN FOR BOOKING OF SALE ORDERS OF SPONGE IRON, STEEL INGOT OR HEAVY STRUCTURE. THE COMMISSION AGENTS ALSO HELP IN COLLECTION OF PAYMEN TS AND ALSO INSURE SMOOTH WORKING OF PRODUCTION CYCLE. THE COMMISSION AGENTS FACILITATE THE EFFECTIVE RUNNING OF THE BUSINESS AND ALSO PROV IDE NECESSARY LIQUIDITY TO THE ASSESSEE. THE ASSESSING OFFICER HAS NOT DEMO NSTRATED HOW THESE EXPENSES ARE EXCESSIVE OR UNREASONABLE. THE ASSESSI NG OFFICER HAS NO POWER TO HIMSELF TO DECIDE WHAT IS UNREASONABLE OR EXCESSIVE. SIMILAR COMMISSION HAS BEEN ALLOWED IN THE PAST YEARS. IF A NY DOUBT WAS THERE THEN THE ASSESSING OFFICER COULD HAVE CALLED THE AG ENTS AND ENQUIRED ABOUT. HE PLEADED TO SUSTAIN THE ORDER OF CIT (A) O N THIS ISSUE. 28. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE H AVE ALSO GONE THROUGH THE CONTENTIONS RAISED BY THE LD. DR. WE HA VE NO DOUBT REGARDING THE LEGAL ISSUES RAISED BY THE LD. CIT (DR). THE EX PENSES ARE ALLOWED ONLY IF IT IS INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS. THE BURDEN LIES ON THE ASSESSEE TO ESTABLISH THAT T HE EXPENDITURE RELATES TO THE BUSINESS. THUS, THERE IS NO QUARREL REGARDING T HE LEGAL ISSUE RAISED BY THE LD. CIT DR. BUT WE HAVE TO SEE HOW THESE LEGAL ISSUES ARE APPLICABLE IN ASSESSEES CASE. WHEN THE ASSESSEE HAS FURNISHED COMPLETE DETAILS OF ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 31 EXPENSES AS ASKED FOR BY THE ASSESSING OFFICER ALON G WITH EVIDENCES, THEN IT IS INCUMBENT UPON THE ASSESSING OFFICER TO SEEK SPECIFIC INFORMATION OUT OF THE DETAILS FURNISHED. WITHOUT MAKING SUCH E FFORTS, AD HOC DISALLOWANCE OUT OF COMMISSION EXPENSES IS UNJUSTIF IED. THE ASSESSING OFFICER WAS FREE TO EXAMINE FURTHER THE COMMISSION AGENTS TO WHOM THE PAYMENTS WERE MADE BY THE ASSESSEE. THEREFORE, THE LEGAL PROPOSITION RELIED UPON BY THE CIT DR ARE NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. AD HOC DISALLOWANCES CAN BE MADE ONLY WHEN TH ERE ARE NO DETAILS FURNISHED. WHEN DETAILS HAVE BEEN GIVEN BEFORE THE ASSESSING OFFICER AND ASSESSING OFFICER DID NOT SPECIFY ANY EXPENDITURE A ND IDENTIFY THOSE ITEMS OF EXPENDITURE WHICH HAS NOT BEEN MADE FOR WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEE THEN ONLY THE ASSES SING OFFICER CAN PROCEED FOR MAKING THE DISALLOWANCES BUT NO SUCH EX ERCISE HAS BEEN CARRIED OUT BY THE ASSESSING OFFICER IN THIS CASE. THE ASSESSEE HAS SUBMITTED EXPLANATION FOR MAKING THE PAYMENTS WHICH THE ASSESSING OFFICER HAS NOT FOUND FALSE. THE ASSESSEE IS HAVING LARGE NUMBER BRANCHES AND THE COMMISSION AGENTS PROCURE ORDERS, FACILITAT E IN COLLECTION OF PAYMENT FROM THE CUSTOMERS AND, THEREFORE, THE PAYM ENTS WERE MADE FOR THE WORK CARRIED OUT BY THE AGENTS FOR THE SMOOTH R UNNING OF THE BUSINESS OF THE ASSESSEE. IN VIEW OF THESE FACTS, WE FIND NO FAULT IN THE ORDER OF THE CIT (A) AND WE SUSTAIN THE SAME. THIS GROUND OF REV ENUES APPEAL IS DISMISSED. ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 32 29. IN THE GROUND NO.7, THE ISSUE RAISED IS AGAINST DELETING THE DISALLOWANCE OF DEPRECIATION OF RS.4.23 CRORES AND RS.42.5 LACS CLAIMED RESPECTIVELY ON MACHINERY AND WIND ELECTRIC GENERAT ORS BY ADMITTING ADDITIONAL EVIDENCE IN THE SHAPE OF A CERTIFICATE F ROM TAMIL NADU ELECTRICITY BOARD. ASSESSEE CLAIMED 100% DEPRECIATI ON ON 5 WIND GENERATORS SHOW AS PURCHASED PRIOR TO 30.09.1995 FR OM M/S. AIRO ENERGY LTD. OF RS.83,00,000/- EACH AND COST OF FOUNDATION AND ERECTION OF RS.8,55,788/- THE SAME WAS DISALLOWED TREATING PURC HASE OF THESE WIND GENERATORS AS NON-GENUINE. FURTHER, 50% DEPRECIATIO N DISALLOWED ON THE SIX WIND GENERATORS CLAIMED BY ASSESSEE WHICH WAS P URCHASED AFTER 30.09.1995 FROM THE SAME COMPANY. ASSESSING OFFICER TREATED THE PURCHASE OF THESE AS NON-GENUINE. CIT (A) GRANTED R ELIEF TO ASSESSEE. 30. WHILE PLEADING ON BEHALF OF REVENUE LD. DR SUBM ITTED THAT ADMITTING OF ADDITIONAL EVIDENCE BY THE LD. CIT (A) IN THE SHAPE OF CERTIFICATE FROM TAMILNADU ELECTRICITY BOARD WITHOU T AFFORDING AN OPPORTUNITY TO THE ASSESSING OFFICER WAS NOT PROPER AND AS PER LAW. DURING THE YEAR, ADDITION OF RS.54.18 CRORES WAS MA DE UNDER THE HEAD PLANT AND MACHINERY AND RS.5.49 CRORES UNDER THE HEAD ELECTRICAL INSTALLATION AS PER SCHEDULE 4 TO THE BALANCE SHEE T. OUT OF THIS ADDITION OF RS.54.18 CRORES TO THE PLANT AND MACHINERY, RS.49 .68 CRORES WERE CLAIMED TO BE 100% DEPRECIABLE ASSETS AND WIND ELEC TRIC GENERATORS OF RS.44,49,31,239/- WERE INSTALLED IN THE WIND FARM D IVISION AT TAMIL ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 33 NADU ELECTRICITY BOARD. THE TOTAL NUMBERS OF WIND E LECTRIC GENERATORS PURCHASED WERE 45. THE ASSESSING OFFICER DISALLOWE D DEPRECIATION OF RS.4,23,55,785/- TREATING THE CLAIM OF PURCHASE OF FIVE WIND ELECTRIC GENERATORS @ RS.83 LACS EACH FROM M/S. AIRO ENERGY LTD. AND THE COST OF FOUNDATION AND ERECTION OF RS.8,55,785/- AS NOT GEN UINE. THUS, THE TOTAL COST PERTAINING TO THESE FIVE WIND ELECTRIC GENERAT ORS PURCHASED FROM M/S. AIRO ENERGY LTD. WAS RS.4,23,55,785/-. ASSESSEE HA S CLAIMED THAT THESE WERE INSTALLED PRIOR TO 30.09.1995. THE ASSESSING O FFICER DISALLOWED ENTIRE AMOUNT OF DEPRECIATION ON THE BASIS THAT M/S . AIRO ENERGY LTD. IS A NON-GENUINE PARTY AS THE INSPECTOR VISITED THE ADDR ESS AND DID NOT FIND THE FIRM AT THE ADDRESS. WHILE PLEADING ON BEHALF OF TH E REVENUE THE LD. DR SUBMITTED THAT ON THE SPOT ENQUIRY AND IN THE SURVE Y, THE TRANSACTION WAS FOUND NON-GENUINE. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE SUPPLIER AND FURNISH THE DETAILED ADDRESS AND T HE ASSESSEE HAS NOT COMPLIED WITH A RESULT THE ASSESSING OFFICER MADE T HE DISALLOWANCES. LD. DR SUBMITTED THAT THE AMOUNT IS HUGE AND THE SUPPLI ER WAS NOT PRODUCED AND ALSO SPOT ENQUIRY INDICATED NON-GENUINENESS AND IN SUCH A SITUATION WHETHER A CERTIFICATE FROM THIRD PARTY CAN BE RELIE D ON THE ASSESSEE. THE DEPRECIATION IS ACTUALLY ALLOWED ON THE PURCHASE CO ST, GENUINENESS OF TRANSACTION AND TIME OF USE. SINCE ALL THESE HAVE N OT BEEN VERIFIED, THEREFORE, THE CIT (A) WAS NOT JUSTIFIED IN DELETIN G THE ADDITION AND HE FINALLY PLEADED TO REMIT BACK THE ISSUE TO THE AUTH ORITIES BELOW. ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 34 31. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT AS SESSEE HAS PURCHASED FIVE WIND POWER GENERATING MACHINES FROM M/S AIRO ENERGY LTD BEFORE 30.09.1995. THE LD. AR SUBMITTED THAT TO TAL NUMBER OF WIND ELECTRIC GENERATORS PURCHASED WERE 45 IN NUMBERS AN D THERE WERE PURCHASED FOR A SUM OF RS. 44,49,31,239/-. OUT OF T HESE, FIVE WERE PURCHASED FROM M/S AIRO ENERGY LTD AND INSTALLED PR IOR TO 30.09.1995. THE TOTAL COST INCLUDING INSTALLATION WAS RS.4,23,5 5,785/-. ONE WIND ELECTRIC GENERATOR WAS PURCHASED FROM M/S AIRO ENER GY LTD. FOR A SUM OF RS.85 LACS AND WAS INSTALLED AFTER 30.09.1995 AT TH E SITE WHICH HAS BEEN CERTIFIED BY TAMIL NADU ELECTRICITY BOARD (TNEC) AN D THE POWER GENERATED HAS BEEN SOLD TO TNEC. THE TNEC HAS CONFI RMED THE INSTALLATION AND FUNCTIONING OF EACH OF THE 45 GENE RATORS AND THE INSTALLATION CERTIFICATES WERE ALSO FILED BEFORE TH E ASSESSING OFFICER VIDE LETTER DATED 19.03.1999 WHICH IS PLACED AT PAGE 718 OF THE PAPER BOOK. THE DEPARTMENTS CLAIM THAT CONFIRMATION/CERTIFICAT E OF TNEC CONSTITUTES ADDITIONAL EVIDENCE SINCE IT WAS FILED FOR THE FIRS T TIME BEFORE CIT(A) IS NOT CORRECT. THE CONFIRMATIONS WERE MADE AVAILABLE TO THE ASSESSING OFFICER ITSELF WHICH IS CONFIRMED BY LETTER DATED 19.03.1999, THEREFORE, THE CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. 32. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THIS ISSUE HAS BEEN DISCUSSED BY THE ASSESSING OFFICER IN PARA 17.1 AND 17.2 AT PAGES 15 & 16 OF ASSESSING OFFICERS ORDER. THE CIT (A) HAS DEALT THE ISSUE IN PARA 15.2 ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 35 TO 15.10 AT PAGES 28 TO 33 OF HIS ORDER. WE HAVE AL SO PERUSED THE DETAILS SUBMITTED. AT THE OUTSET, WE WOULD LIKE TO STATE TH AT CONFIRMATION WAS MADE AVAILABLE TO THE ASSESSING OFFICER ON 19.03.19 99. THIS FACT HAS BEEN ACCEPTED BY THE LD. DR WHEN IT WAS POINTED OUT TO H IM DURING THE HEARING. IN VIEW OF THESE FACTS, WE HOLD THAT THE CONFIRMATI ON FILED FROM TNEC DID NOT CONSTITUTE ADDITIONAL EVIDENCE AND THE SAME WAS FILED BEFORE THE ASSESSING OFFICER. ON THE PERUSAL OF THE CONFIRMATI ONS, WE FIND THAT TNEC HAS CONFIRMED THAT 45 WIND ELECTRIC GENERATORS WERE INSTALLED BY THE ASSESSEE. THUS, THE EXISTENCE OF THE WIND ELECT RIC GENERATORS WAS CONFIRMED BY THE USER HIMSELF I.E. TNEC. THESE FACT S ESTABLISH THE FACTUM OF EXISTENCE OF THE ASSESSEE IS BEYOND ANY DOUBT. T NEC HAS ALSO CONFIRMED THAT ELECTRIC GENERATION WAS STARTED DURI NG THE YEAR UNDER CONSIDERATION AND THE POWER GENERATION IN TERMS OF UNITS HAS BEEN ALSO QUANTIFIED. IT AHS INCREASED FROM 54512790 IN ASSES SMENT YEAR 1995-96 TO 129741589 IN THE YEAR UNDER CONSIDERATION. THE I NCREASE IN THE POWER GENERATION WAS ATTRIBUTED TO THE ADDITION OF WIND E LECTRIC GENERATORS INSTALLED DURING THE YEAR. THE SALE OF THE POWER TH ROUGH WIND ELECTRIC GENERATORS WAS ALSO SOLD FOR A SUM OF RS.26,66,65,8 59/- WHICH IS REFLECTED IN THE AUDITED PROFIT & LOSS ACCOUNT AND BALANCE SH EET OF THE ASSESSEE COMPANY. THE DETAILS OF THE POWER SOLD, COPIES OF B ILLS OF PURCHASE OF WIND ELECTRIC GENERATORS WERE SUBMITTED TO THE ASSE SSING OFFICER. THE ASSESSING OFFICERS OBSERVATION THAT THE SUPPLIER W AS NOT FOUND AT THE ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 36 GIVEN ADDRESS BUT HE HAS NOT ISSUED ANY SUMMONS U/S 131 OF THE INCOME- TAX ACT, 1961 TO M/S AIRO ENERGY LTD. THE ASSESSEE REQUESTED THE ASSESSING OFFICER TO ISSUE THE SUMMONS WHICH HAS NO T BEEN ACCEPTED. WE WOULD ALSO LIKE TO MENTION THAT THE ISSUE HAS BEEN ALREADY SETTLED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN ASSESSMENT YE ARS 1993-94 AND 1995-96 WHEREIN WHILE EXAMINING THE ALLOWABILITY OF LEASE RENT THE EXISTENCE OF THE ASSET HAD BEEN ACCEPTED AND ESTABL ISHED. THE RELIANCE ON THE FOLLOWING DECISIONS OF ITAT ALSO MAKE US TO SUS TAIN THE ORDER OF CIT (A) ON THIS ISSUE WHEREIN IT IS DECIDED THAT LEASE RENTAL ALLOWABLE EVEN WHEN MANUFACTURER OF MACHINERY WAS NOT TRACEABLE BU T ASSETS ARE IN EXISTENCE :- (I) DCIT V. ADINATH INDUSTRIES (2001) 252 ITR 476 (GUJ) (II) J.R. SOLVENT INDUSTRIES PVT. LTD V. ACIT (199 9) 63 TIJ 165 (CHD) (TM) (III) BALAJI TEXTILES INDUSTRIES (P) LTD. V, ITO ( 1994) 49 ITD 177 (BOM) (IV) UPPER INDIA TRADING LTD IN I.T.A. NO. 694/BOM /89 DATED 04.08.1993 WE ALSO HOLD THAT THE REVENUES ALLEGATION THAT THE FIRM FROM WHOM THE MACHINES WERE PURCHASED WERE NON-EXISTENT BUT THE F ACTS SHOW THAT THE WIND ELECTRIC GENERATORS WERE INSTALLED AT THE PREM ISES OF TNEB WHICH HAS BEEN CONFIRMED BY THE TNEB WHICH IS A GOVERNMEN T UNDERTAKING. THE CERTIFICATE SUBMITTED BY THE ASSESSEE FROM TNEB REMAINS UNCONTROVERTED. THE ASSESSING OFFICER COULD HAVE VE RIFIED THE VERACITY OF THE CERTIFICATE ISSUED BY TNEB IF HE WAS HAVING ANY DOUBT REGARDING THE ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 37 SUPPLIER M/S. AIRO ENERGY LTD.. MERELY NOT FINDING M/S. AIRO ENERGY LTD. THAT TOO WITHOUT SUMMONING THE SAME AT THE PREMISES CANNOT BE MADE A BASIS TO DRAW THE CONCLUSION THAT FIRM WAS NON-EXIS TENT. AS IT IS NOT POSSIBLE TO ENSURE THAT THE COMPANY WILL CONTINUE A T THE SAME PREMISES IN THE COMING TIME. ASSESSEE REQUESTED FOR ISSUING SUM MONS TO SUPPLY M/S AIRO ENERGY LTD WHICH WAS NOT ACCEPTED BY THE ASSES SING OFFICER. THEREFORE, THE EVIDENCE IN THE FORM OF CERTIFICATE FROM TNEB ASSUMES A CREDENCE AND DESERVES TO BE CONSIDERED FOR ALLOWING THE DEPRECIATION ON THE ASSETS. IN THE ASSESSEES OWN CASE FOR ASSESSME NT YEAR 1995-96, THE ITAT HAS HELD AS UNDER :- 'WE HAVE EXAMINED IN DETAIL THE SPOT VERIFICATION R EPORT CARRIED OUT BY THE DR. DIRECTOR OF INCOME-TAX (INV) -I, RAIPU0 MP ON THE INSTRUCTIONS OF THE ADDL. COMMISSIONER OF INCOME-TAX HISSAR RANGE, HISSAR. WE FIND THAT THE A NNEXURE OF THE REPORT CONTAINS THE NAME OF EACH OF THE LESS OR TO WHOM LEASE RENT IS BEING PAID ALONG WITH THE ITEMS SUPPLIED BY HIM AND EXISTING AT THE SITE OF THE ASSESSEE COM PANY AT CHAMPA. THERE IS ALSO A COLUMN WHEREIN THE ITEMS VE RIFIED AT THE SITE BY THE CHARTERED ENGINEER HAVE BEEN MEN TIONED AND THESE ITEMS TALLY WITH THE ITEMS LEASED BY THE ASSESSEE COMPANY ON WHICH, LEASE RENT IS BEING PAID. THE CHA RT ENCLOSED ELSEWHERE IN THIS ORDER HAS BEEN VERIFIED BY US AND WE FIND THAT THE DIRECTIONS OF THE CIT(A), PATIALA VIDE HIS ORDER DATED 16.03.2000 HAVE IN FACT BEEN CARRIED OU T BY THE DEPARTMENT THOUGH BOTH THE ASSESSING OFFICER AND TH E CIT(A), ROHTAK CHOSE TO IGNORE THE SAME DESPITE SPE CIFIC REFERENCE BEING MADE BY THE ASSESSEE TO THE REPORT OF THE DEPARTMENTAL ENGINEER BEING AVAILABLE WITH THEM. TH E SOLE REASON FOR DISALLOWANCE OF LEASE RENT IS THAT THE S O CALLED SUPPLIERS HAVE NO CAPACITY TO MANUFACTURE AND HENCE THEY COULD NOT HAVE SOLD THE MACHINERY SAID TO BE LEASED . AS AGAINST THIS PRESUMPTION, THE PHYSICAL EXAMINATION SHOWS THAT MACHINERY DO EXIST IN THE PREMISES OF ASSESSEE AS A ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 38 RESULT OF WHICH PRODUCTION IS ALSO UNDERTAKEN. IF A PERSON HAS TO LOOK TO HIS HANDS HE NEED NOT SEE IT IN THE MIRR OR. THE FACTS SPEAK FOR ITSELF. THE EXISTENCE OF MACHINERY HAVING BEEN PROVED BY THE PHYSICAL EXAMINATION ITSELF, IT CAN NOT BE SAID THAT NO MACHINERY IS TAKEN ON LEASE FOR WHICH LEASE RENT IS PAID. THE OTHER CORROBORATIVE EVIDENCE LIKE LEAS E AGREEMENT PASSING OF MONEY BY BANKING CHANNELS, DEC LARING LEASE INCOME OF RECIPIENTS ETC. ARE OVERWHELMING EV IDENCE AGAINST THE PRESUMPTION THAT MANUFACTURERS DO NOT H AVE CAPACITY TO PRODUCE MACHINERIES. WE THEREFORE HOLD THE LEASE TRANSACTION AS GENUINE. THIS DECISION OF THE ITAT WAS UPHELD BY THE HON'BLE PUNJAB & HARYANA HIGH COURT. THE DECISION OF ITAT FOR THE ASSESSMENT YEAR 1993-94 IN ITA NO.2298/D/2004 HAS ALSO BEEN UPHELD BY THE HON' BLE PUNJAB & HARYANA HIGH COURT. WE WOULD ALSO LIKE TO STATE THA T THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF DCIT VS. ADINATH INDUSTRIES (SUPRA) IS VERY RELEVANT AND WHERE THE H ON'BLE HIGH COURT HAS HELD AS UNDER :- 'DETAILS ABOUT PURCHASE WERE FURNISHED. TRANSACTION S WERE THROUGH A BROKER WHOSE BILL WAS PRODUCED. ALL DETAI LS FROM THE STAGE OF RECEIPT TO PRODUCTION WERE PRODUCED. F OR FURTHER VERIFICATION ASSESSEE PRODUCED GATE PASS. AVAK CHIT HI (RECEIPT NOTE) AND WEIGHT NOTE. ASSESSEE PRODUCED LABORATORY REPORT AND SAMPLE REPORT. IT POINTED OUT THE DIFFERENCE PAID OR RECOVERED IN VIEW OF REPORTS. AS SESSEE PRODUCED RG 4 FORM TO SHOW THAT DETAILS ENTERED AS PER EXCISE RULES. ASSESSEE POINTED OUT THE PRODUCTION A ND PURCHASE OF RAW MATERIALS. ASSESSEE SUBMITTED THAT DETAILS ABOUT THE TRANSACTION, TRUCK NUMBER, ETC. THUS, ASS ESSEE PRODUCED RELEVANT MATERIALS TO SHOW PURCHASE OF MAT ERIALS AND ITS USE IN PRODUCTION. AD HAS ACCEPTED THE EXIS TENCE OF G IN CASE OF A FOR ASST. YR. 1985-86. THE TRIBUNAL APPRECIATED ALL THESE FACTS IN ARRIVING AT A CONCLU SION. IT CLEARLY APPEARS THAT MATTER HAS BEEN DISPOSED OF ON APPRECIATION OF EVIDENCE AND WHEN THE MATTER HAS BE EN ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 39 DECIDED BY THE TRIBUNAL ON APPRECIATION OF EVIDENCE , IT CANNOT BE SAID THAT, THAT RAISES A QUESTION OF LAW. THE TRIBUNAL POINTED OUT THAT AT BEST IT COULD BE INFER RED THAT THESE PARTIES WERE SET UP BY SOMEBODY ELSE AND THE REASONS COULD BE MANIFOLD FOR THAT. IT IS VERY MUCH SURPRIS ING THAT IN THE INSTANT CASE THE AD HAS DRAWN A PRESUMPTION THA T THE AMOUNT HAS COME BACK IN THE ASSESSEE' HANDS, WITHOU T ANY EVIDENCE WHATSOEVER MERELY ON THE BASIS OF WITHDRAW AL OF AMOUNTS FROM THE ACCOUNT OF G. IT GOES WITHOUT SAYI NG THAT IT WAS WITHIN THE KNOWLEDGE OF THE BANKER AS TO WHO WA S THE ACCOUNT HOLDER AND WHO WITHDREW THE AMOUNT FROM THE SAME BANK. THE AD BY DUE DILIGENCE COULD HAVE UNEARTHED THE FACT THAT G IS A BOGUS PARTY BY RECORDING STATEMENT OF THE BANK MANAGER, ACCOUNTANT OR CASHIER OR THE PARTY WH O INTRODUCED G TO THE BANK. THE MATTER IS IN THE REAL M OF APPRECIATION OF EVIDENCE AND NO INTERFERENCE IS CAL LED FOR IN THE MATTER. IN THE CIRCUMSTANCES, THE APPEALS ARE D ISMISSED'. KEEPING ALL THESE FACTS IN VIEW, WE HOLD THAT THE E XISTENCE OF THE MACHINERY AND ITS USE HAS BEEN ESTABLISHED BY ASSES SEE BEYOND ANY DOUBT. THE TWO DECISIONS OF ITAT IN ASSESSEES OWN CASE IN EARLIER YEARS WHICH HAVE BEEN ALSO CONFIRMED BY HON'BLE JURISDICT IONAL HIGH COURT ON THE ISSUE ALSO GOES IN FAVOUR OF ASSESSEE. THEREFOR E, RESPECTFULLY FOLLOWING THESE AFORESAID DECISIONS, WE UPHOLD THE ORDER OF THE CIT (A) AND DISMISS THIS GROUND OF REVENUES APPEAL. 33. IN THE GROUND NO.8, THE ISSUE INVOLVED IS AGAIN ST DELETING THE DISALLOWANCE OF DEPRECIATION OF RS.1 CRORE ON THE P URCHASE OF MACHINERY FROM M/S. ASHISH ENGINEERING WORKS. 34. THE LD. DR SUBMITTED THAT THE GENUINENESS OF TH E PURCHASE OF MACHINERY FROM ASHISH ENGINEERING WORKS RASMADA DUR G (M.P.) COULD ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 40 NOT BE ESTABLISHED CONCLUSIVELY BY THE ASSESSEE. TH E ASSESSING OFFICER MADE AN ADDITION TO THE COVER UP THE POSSIBLE LOOPH OLES/LEAKAGES FOR BOGUS MACHINERY CARRYING 100% DEPRECIATION. THE ASS ESSING OFFICER MADE A PRESUMPTION THAT WIND ELECTRIC GENERATORS PU RCHASED FROM M/S. ASHISH ENGINEERING WORKS WAS NOT GENUINE AND DISALL OWANCE WAS MADE TO COVER UP THE POSSIBLE LEAKAGE TOWARDS THE BOGUS PURCHASE ON WHICH ASSESSEE WAS ENTITLED 100% DEPRECIATION OTHER THAN THE WIND ELECTRIC GENERATORS DIVISION. THIS ISSUE HAS BEEN DEALT BY T HE ASSESSING OFFICER IN PARA 7.3 AT PAGES 16 & 17 OF HIS ORDER AND CIT(A) H AS DEALT THIS ISSUE AT PARA 15.10 AT PAGE 13 OF HIS ORDER. 35. WHILE PLEADING ON BEHALF OF THE REVENUE, THE LD . DR SUBMITTED THAT IT IS TRUE THAT THERE IS NO CONCEPT OF AD HOC DISAL LOWANCE OF DEPRECIATION IN THE ACT EXCEPT THAT OF SECTION 34. BUT IT IS NONETH ELESS IMPERATIVE TO NOTE THAT DEPRECIATION IS CALCULATED ON THE WDV WHICH IS RELATED TO COST AND WHEN ASSESSING OFFICER DOUBTS THE GENUINENESS OF PU RCHASE AND THUS THE EXPENSES IN THIS REGARD, THE DEPRECIATION HAS TO BE DISALLOWED FOR THAT REASON. THE DISALLOWANCE OF DEPRECIATION IN ASSESSM ENT YEAR 1995-96 BY ASSESSING OFFICER WAS AS PER DIRECTION OF CIT(A) TO TAKE A DECISION ON THE BASIS OF SUBMISSION OF BILLS ETC. THE ISSUE THERE W AS LIMITED TO ABSENCE OF DETAILS AND NOT GENUINENESS OF THE TRANSACTION AS S UCH. HE PLEADED THAT THE MATTER CAN BE GIVEN A FRESH LOOK IN THE ABOVE CONTE XT AND FOR SUBSTANTIAL JUSTICE IN THE MATTER. ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 41 36. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT TH E ASSESSEE FURNISHED COMPLETE DETAILS OF PURCHASES MADE OF RS.49.68 CROR ES. OUT OF THIS AMOUNT, WIND ELECTRIC GENERATORS COMPRISED OF RS.44 ,49,31,239/-, THE ASSESSEE PURCHASED CONTINUE PUSHER TYPE FURNACE AT STAINLESS STEEL DIVISION AT BHARUCH, GUJARAT AND COMPLETE DETAILS W ERE FILED BEFORE THE ASSESSING OFFICER VIDE LETTER DATED 19.03.1999. IN SUCH A SITUATION, THE ASSESSING OFFICER WAS NOT JUSTIFIED MERELY GOING ON SUSPICIONS AND MAKING AD HOC DISALLOWANCES WITHOUT THERE BEING ANY SPECIFIC FINDING. LD. AR ALSO SUBMITTED THAT UNDER WHICH SECTION THIS DISALLOWANCE HAS BEEN MADE IS NOT CLEAR. HOW CAN THE DISALLOWANCE BE MADE FROM THE PURCHASES OF CAPITAL GAINS OF PLANT AND MACHINERY B Y ACCOUNT PAYEE CHEQUES AND SHOWN IN THE BOOKS OF ACCOUNT? THE DIRE CTOR'S REPORT AND THE ANNUAL ACCOUNTS OF THE ASSESSEE COMPANY CLEARLY EST ABLISHES THAT MACHINERY WAS INSTALLED AT BHARUCH PROJECT AT GUJAR AT. THEREFORE, THE CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. 37. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE A RE NOT ABLE TO UNDERSTAND WHY THIS AD HOC DISALLOWANCE WAS MADE WI THOUT ANY BASIS OR SUBSTANCE. THE DISALLOWANCE CANNOT BE MADE MERELY T O COVER POSSIBLE LOOPHOLES OR LEAKAGES OF BOGUS PURCHASE OF CAPITAL GOODS. THE AO HAS TO ESTABLISH THAT NO ASSETS HAVE BEEN PURCHASED OR INS TALLED AND IN THAT CIRCUMSTANCES, HE CAN RESORT TO DISALLOW THE DEPREC IATION. NO EFFORTS HAVE BEEN MADE TO ESTABLISH THAT THE DETAILS SUBMITTED B Y THE ASSESSEE WERE NOT ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 42 CORRECT. THEREFORE, WE SUSTAIN THE ORDER OF CIT (A) FOR DELETING SUCH AD HOC ADDITION AND THIS GROUND OF REVENUES APPEAL IS DISMISSED. 38. IN THE GROUND NOS.9 & 10, THE ISSUE INVOLVED IS DELETING THE DISALLOWANCE OF RS.7,05,28,805/- OUT OF EXPENSES CL AIMED ON LEASE RENT/LEASE MANAGEMENT FEES ETC. AND ALSO DELETING T HE ADDITION OF RS.8,55,60,070/- ON ACCOUNT OF LEASE RENT, RS.18,05 ,500/- ON ACCOUNT OF LEASE MANAGEMENT FEE AND RS.8,64,400/- ON ACCOUNT O F LEASE RENT OF BUILDING RESPECTIVELY. THE CIT (A) HAS DELETED THE ADDITION BY HOLDING AS UNDER : THE ISSUE INVOLVED AND THE SUBMISSIONS MADE BY TH E APPELLANT HAVE BEEN CONSIDERED. THE LEASE RENT OF RS.70528805.00 PERTAINING TO THE SUPPLIES OF 5 PART IES IS ALLOWED ON THE SAME LINES AS IN THE APPEAL ORDER DA TED 22.9.2007 FOR THE A.Y. 2001-02 AND VIDE ORDER DATED 23.9.2009 FOR THE A.Y. 2002-03. AS REGARDS THE DISALLOWANCE OF LEASE RENT OF RS.85560070.00 PERTAINING TO THE SUPPLIES OF OTHER THAN FIVE PARTIES, SINCE THE AO HAS ALLOWED THE SAME IN THE S UBSEQUENT ASSESSMENT YEARS, THE SAME IS ALLOWED THIS YEAR ALS O AS THERE IS NO ISSUE INVOLVED FOR THE DISALLOWANCE OF LEASE RENT. LEASE MANAGEMENT FEES OF RS.18,05,500/- AND LEASE RENT OF RS.8,64,400/- WAS ALSO DISALLOWED BY THE ASSESSING OFFICER, THE SAME ARE ALLOWED BECAUSE THE SAME HAS NOT BEEN DISALLOWED BY THE AO IN ANY OTHER ASSESSMENT YEARS. THE GROUND OF APPEAL NO. 17 IS ALLOWED. THIS ISSUE HAS BEEN DEALT BY THE ASSESSING OFFICER IN PARA 18 AT PAGES 17 TO 19 OF HIS ORDER AND CIT (A) HAS DEALT THIS ISSUE AT PARAS 15 & 16 AT PAGES 33 TO 36 OF HIS ORDER. ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 43 39. WHILE DEALING WITH THE GROUNDS NO.9 & 10, THE L D. DR MADE COMMON PLEADINGS AS THE ASSESSING OFFICER AS WERE A S CIT (A) HAD ALSO DEALT THESE ISSUES IN THE SAME PARAS. THE LD. DR SU BMITTED THAT DISPUTES RELATE TO LEASE RENT, LEASE MANAGEMENT FEE AND LEAS T RENT RELATING TO VARIOUS MACHINERIES TAKEN BY THE ASSESSEE. LD. DR R ELIED ON THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT ASSESSEE HAS N OT FILED DETAILS OF LEASE RENTS AND ASSESSING OFFICER DISALLOWED THE SA ME AS PER PARA 18 OF HIS ORDER. HE FURTHER SUBMITTED THAT O NE SUCH TRANSACTION IS BUYING OF MACHINERY FROM A NON EXISTENT CONCERN, M/S. SAHIB E NGG WORKS, WHICH HAS ALLEGEDLY SOLD THE MACHINERY TO THE ASSESSEE WH ICH IN TURN HAS SOLD IT TO M/S RELIANCE CAPITAL LTD WHICH IN TURN HAS LEASE D IT TO ASSESSEE. THE INVESTIGATION ESTABLISHED THAT M/S SAHIB ENGG WORKS IS A BOGUS CONCERN. M/S. RELIANCE CAPITAL WHO IS THE OWNER HAS SURRENDE RED THE DEPRECIATION UNDER VDIS. IN SUCH A SITUATION, THE MERE EXISTENCE OF THE MACHINERY SHALL NOT PROVE THAT LEASE IS GENUINE. THE EXISTENC E OF MACHINERY IS ONE THING AND LEASING IT OUT IS ANOTHER. THE EXISTENCE OF MACHINERY IN ASSESSEE'S PREMISES PROVES THAT AT LEAST THE ASSESS EE COULD BE THE OWNER. THE LEASE TRANSACTION IS NOT PROVED THEREBY PARTICU LARLY AS THE CIRCUMSTANTIAL EVIDENCES PERTAINED TO THE CONTRARY. THE AO IS NOT BOUND BY NORMAL RULES OF EVIDENCE AND MAY RELY ON FACTORS AND INDIRECT EVIDENCES NORMALLY NOT ADMISSIBLE AS EVIDENCES IN A COURT OF LAW. LD. DR PLEADED THAT IT IS NOT FOR FUN THAT RELIANCE CAPITA L OFFERED THE AMOUNT AS ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 44 BOGUS CLAIM OF DEPRECIATION. AO CAN ALWAYS GO BEYON D THE AGREEMENTS TO EXAMINE AND UNRAVEL THE SUBSTANCE BEHIND THE TRANSA CTIONS. SAME IS THE CASE WITH OTHER SIMILAR MACHINERIES AS DETAILED IN PAGE 18 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER CALLED FOR THE SUPPLIERS OF MACHINERIES TO BE PRODUCED, BUT THE ASSESSEE HAS NO T DONE SO. SINCE 90% OF SUCH ASSETS ARE CLAIMED INSTALLED AT CHAMPA, A S URVEY WAS UNDERTAKEN AND INITIALLY THE MACHINERIES COULD NOT BE IDENTIFI ED NEITHER THE STRUCTURAL DESIGN OR BILLS, CHALLANS AND TRANSPORTER DETAILS P RODUCED BEFORE THE AO. AS REGARDS THE ROLLING MILLS ROLLS PURCHASED FROM T ISCO, THESE WERE NOT IDENTIFIED. THERE WERE DIFFERENCE IN SIZES AND THER E WERE VARIANCE IN PURCHASE RATES. SUCH IS THE STORY WITH OTHER MACHIN ERIES. THE ASSESSEE HAS STATED THAT THE RENT PERTAINING TO 5 SUCH BOGUS PAR TIES COMES TO RS.7.05 CR AND BALANCE TO OTHER PARTIES. THE CIT (A) ALLOWED T HE APPEAL FOR ASSESSMENT YEAR 2001-02 AND 2002-03. HE ALLOWED THE BALANCE PERTAINING TO OTHER PARTIES AS THE ASSESSING OFFICE R HAS ALLOWED THE RENT IN SUBSEQUENT YEARS. LD. DR SUBMITTED THAT CLAIM OF LE ASE RENTAL FALLING U/S 37 IS A MIXED QUESTION OF LAW AND FACTS AND AS IS W ELL KNOWN THAT THERE COULD BE NO RES JUDICATA OR CONSISTENCY IN SUCH MAT TERS AND CAN BE EXAMINED AFRESH EVERY YEAR. MERE FOLLOWING OF THE E ARLIER ORDERS OR SUBSEQUENT ORDERS WITHOUT INDEPENDENT EXAMINATION A S PLENARY AUTHORITY MAKES THE ORDER UNSUSTAINABLE ON THIS POINT. THE LD . DR SUBMITTED THAT THE ASSESSEE HAS TAKEN THE ARGUMENT THAT PAYMENT WA S MADE THROUGH ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 45 BANK, LESSORS WERE IN EXISTENCE AND MACHINERIES WER E PHYSICALLY FOUND. IN THE REMAND REPORT DATED 08.01.2004, THE ASSESSING O FFICER STATED THAT SOME OF THE DOCUMENTARY EVIDENCES WERE PRODUCED BEF ORE HIM ALTHOUGH THE TRANSPORT DETAILS OF SUCH MACHINERIES WERE NOT GIVEN. HE STATED THAT APPARENTLY THE TRANSACTION APPEARS GENUINE WHILE A DECISION TO BE TAKEN BY CIT (A) ON MERITS. BUT THE CRUCIAL FINDING ON WH ICH THIS OBSERVATION OF THE ASSESSING OFFICER IS BASED THAT THE PARTIES WER E NOT INVOLVED IN THE LEASE TRANSACTIONS FOR THE ASSESSMENT YEAR 1993-94 AND THE ADDITION WAS MADE FOR WANT OF INFORMATION IN THIS REGARD. THAT I TSELF SHOWS THAT THE FINDING FOR THIS YEAR COULD NOT BE APPLIED MECHANIC ALLY. THE LD. DR ALSO SUBMITTED THAT AS PER PARA 8.5 OF ITAT ORDER FOR AS SESSMENT YEAR 1993- 94, THE CIT (A) COMPLETELY RELIED ON SUCH COMMENTS OF ASSESSING OFFICER. FURTHER THERE WAS AN OBSERVATION BY ITAT T HAT NONE OF THE CONCERNS PROVED BOGUS HAS NOTHING TO DO WITH LEASE RENT. HON'BLE PUNJAB & HARYANA HIGH COURT IN ITS ORDER HELD THAT SINCE T HESE ARE QUESTIONS OF FACT, NO SUBSTANTIAL QUESTION OF LAW ARISES. EVEN I F TWO VIEWS WERE POSSIBLE, THE HON'BLE HIGH COURT WOULD NOT DISTURB THE FINDINGS. HE SUBMITTED THAT THE ORDER OF THE HON'BLE HIGH COURT RELATED TO PENALTY PROCEEDINGS AS SUCH AND NOT QUANTUM PROCEEDINGS AND HENCE NOT STRICTLY APPLICABLE TO ASSESSEES CASE IN THIS YEAR. LD. DR SUBMITTED THAT APPARENTLY AS CAN BE SEEN, THE ASSESSING OFFICER HA S FALLEN INTO ERROR IN LAW IN MAKING HIS CONCLUSION BASED ON WRONG PRESUMP TION THAT THE FIVE ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 46 CONCERNS HAVE NOTHING TO DO WITH THE LEASE TRANSACT IONS. THIS IS MISPLACED ARGUMENT THAT THE STEEL WAS SUPPLIED TO THESE PARTI ES WHICH IN TURN SUPPLIED THE MACHINERY TO THE SO CALLED LESSORS. TH ESE LESSORS IN TURN LEASED THE MACHINERY TO THE ASSESSEE. THUS THE VERY EXISTENCE OF THE CONCERNS IS ONE LINK IN THE CHAIN OF EVENTS AND IF PROVED BOGUS WOULD MAKE THE ENTIRE CHAIN OF EVENTS APPEAR SUSPICIOUS. THOUGH THE CONCLUSION IS ONE OF THE FACTS, THIS IS ONE MIXED QUESTION OF LAW AND FACTS AND HENCE NO RES JUDICATA OR CONSISTENCY WOULD APPLY TO MEREL Y BASE THE CONCLUSION ON THE BASIS OF FINDING FOR ANOTHER YEAR WITHOUT IN DEPENDENT EXAMINATION. LD. DR ALSO SUBMITTED THAT THE ITAT WAS ALSO SEEN T O BE SWAYED BY THE ARGUMENT THAT IF ASSETS EXIST, NO ADDITION CAN BE M ADE BECAUSE THE SELLER IS NOT FOUND. HE FURTHER SUBMITTED THAT THIS IS DIRECT LY IN CONFLICT TO THE WELL LAID PROPOSITION IN LA MEDICAL 17 TAXMAN 628 (DEL ). HE HAS SUBMITTED A COPY OF THE ORDER FOR THE PROPOSITION THAT ONCE I T WAS ACCEPTED THAT SUPPLIERS WERE BOGUS THEN TRIBUNAL COULD NOT HAVE C OME TO A CONCLUSION THAT PURCHASE COULD HAVE BEEN MADE FROM SOME OTHER SOURCE. THIS IS MORE TRUE WHEN THE TRANSACTION IS FICTITIOUS. FURTH ER WHEN ITAT LAYS DOWN A DECISION ON THE BASIS OF PART RELEVANT AND P ART IRRELEVANT CONSIDERATION, IT IS NOT POSSIBLE TO SAY AS TO WHAT EXTENT ITS DECISION WAS INFLUENCED BY THE LATTER AND HENCE BECOMES UNSUSTAI NABLE. THUS IT FOLLOWS THAT PART OF A TRANSACTION (OUT OF A CHAIN CLOSELY LINKED TO ONE ANOTHER) CANNOT BE JUSTIFIED WITHOUT THOROUGH VERIFICATION W HEN OTHER PART SEEMS TO ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 47 BE BOGUS OR SHAM OR NON-GENUINE. IT IS HELD IN THE CASE OF BEENA METALS 240 ITR 222( KER) THAT FAILURES TO PROVE DETAILS OF BROKERS THROUGH WHOM PURCHASES WERE MADE WHO ARE FOUND TO BE NON- EXISTE NT WILL RENDER THE PURCHASE BOGUS. LD. DR ALSO SUBMITTED THAT COURTS H AVE IN FACT HELD THAT FRAUD VITIATES JUDGMENT. IN THE CASE OF SMT. SHRISH T DHAWAN VS. M/S. SHAW BROTHERS - AIR 1992 SC 1555, IT HAS BEEN HELD THAT FRAUD AND COLLUSION VITIATE EVEN THE MOST SOLEMN PROCEEDINGS IN ANY CIVILISED SYSTEM OF JURISPRUDENCE. IT IS A CONCEPT DESCRIPTIV E OF HUMAN CONDUCT. HE ALSO RELIED ON THE DECISION OF HON'BLE SUPREME COUR T IN THE CASE OF MEGHMALA & ORS. VS. G. NARASIMHA REDDY & ORS. IN CI VIL APPEAL NOS. 6656 6657 OF 2010 ORDER DATED 16 TH AUGUST, 2010 WHEREIN THE HON'BLE APEX COURT HELD THAT DISHONESTY SHOULD NOT BE PERMI TTED TO BEAR THE FRUIT AND BENEFIT TO THE PERSONS WHO PLAYED FRAUD OR MADE MISREPRESENTATION AND IN SUCH CIRCUMSTANCES THE COURTS SHOULD NOT PER PETUATE THE FRAUD. HE ALSO SUBMITTED THAT AN ACT OF FRAUD ON COURT SHOULD ALSO BE VIEWED SERIOUSLY. A COLLUSION OR CONSPIRACY WITH A VIEW TO DEPRIVE THE RIGHTS OF THE OTHERS IN RELATION TO A PROPERTY WOULD RENDER T HE TRANSACTION VOID AB INITIO. FRAUD AND DECEPTION ARE SYNONYMOUS. ALTHOUG H IN A GIVEN CASE A DECEPTION MAY NOT AMOUNT TO FRAUD, FRAUD IS ANATHEM A TO ALL EQUITABLE PRINCIPLES AND ANY AFFAIR TAINTED WITH FRAUD CANNOT BE PERPETUATED OR SAVED BY THE APPLICATION OF ANY EQUITABLE DOCTRINE INCLUDING RES JUDICATA. THE FRAUD IS PROVED WHEN IT IS SHOWN THAT A FALSE R EPRESENTATION HAS BEEN ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 48 MADE (I) KNOWINGLY, OR (II) WITHOUT BELIEF IN ITS T RUTH, OR (III) RECKLESSLY AND CARELESSLY WHETHER IT BE TRUE OR FALSE. SUPPRES SION OF A MATERIAL DOCUMENT WOULD ALSO AMOUNT TO A FRAUD. HE FURTHER S UBMITTED THAT AVOIDANCE OF TAX BY INGENUINE METHODS HAVE TO BE DE ALT IN STRICTLY AND TO SEE FURTHER THAT SUCH ATTEMPTS ARE DESTROYED BY BRI NGING THAT AMOUNT TO TAX IN TERMS OF THE STATUTE AS HELD BY HON'BLE KERA LA HIGH COURT IN THE CASE OF BPL LTD VS. DCIT 293 ITR 321( KER). HE AL SO SUBMITTED THAT THE GENUINENESS OF TRANSACTION WOULD BE DECIDED FRO M PRIMARY MATERIAL AVAILABLE FROM RECORDS AND IT IS NOT REQUIRED TO HA VE CLINCHING MATERIAL TO PROVE THAT A TRANSACTION IS BOGUS AS HELD IN THE CA SE OF GOLECHA PROPERTIES 227 ITR 391( RAJ). HE FURTHER SUBMITTED THAT HON' BLE SUPREME COURT IN THE CASE OF RAGHUBIR MANDAL HARIHAR MANDAL VS. STAT E OF BIHAR 85 STC 770 (SC) HELD THAT ADDITION CAN STILL BE MADE EVEN IF THERE IS NO DIRECT EVIDENCE AND THE MATERIAL AVAILABLE SHOULD BE MORE THAN A MERE SUSPICION TO DO THE SAME. HE FINALLY PLEADED THAT CIT (A) SHO ULD NOT HAVE MECHANICALLY FOLLOWED OTHER YEARS ORDERS, PARTICULA RLY WHEN THE ASSESSING OFFICER HAS CALLED UPON THE ASSESSEE TO S UBMIT THE DETAILS OF TRANSACTION AND ADMITTEDLY NOT EVERYTHING REQUIRED WAS FURNISHED. IT IS WELL KNOWN THAT IF BEST EVIDENCES AVAILABLE WITH A PERSON ARE NOT PRODUCED BEFORE THE COURT, THE COURT MAY DRAW A PRE SUMPTION AGAINST THAT PERSON AS HELD BY HON'BLE DELHI HIGH COURT IN THE C ASE OF O.P. KAPURVS PADMA KAW - 1972 RLR 32 (DELHI HC) AND HON'BLE MADR AS HIGH COURT ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 49 IN THE CASE OF CIT VS. KRISHNAVENI AMMAL 158 ITR 826 (MADRAS) . THE ONUS IS ON THE ASSESSEE TO BRING ALL MATERIAL FACTS TO SUBSTANTIATE THE CLAIM AS HELD IN THE CASE OF L.H. SUGAR FACTORY & OIL MIL LS 125 ITR 293( SC) AND HE SHOULD DO IT AT THE EARLIEST POINT OF TIME. RELIANCE IS PLACED ON MANISH BUILDWELL 204 TAXMAN 106 (DELHI). LD. DR A LSO SUBMITTED THAT IT IS ALSO SETTLED LAW THAT THE PARTY (HERE REVENUE ) WHICH ALLEGES A DOCUMENT TO BE NON-GENUINE HAS TO PROVE NOTHING TIL L THE PARTY RELYING ON THE DOCUMENT PROVES ITS GENUINENESS AS HELD BY HON' BLE SUPREME COURT IN THE CASE OF RANGMAL VS. KUPPUSWAMY 2011 (2) (O JR) (9)(SC). HE FINALLY PLEADED THAT IN THE LIGHT OF THE ABOVE PROP OSITIONS, THE HEAVIER ONUS WAS ON THE ASSESSEE IN TERMS OF THE ATTENDANT CIRCUMSTANCES OF THE CASE MAKES IT MANDATORY ON THE CIT(A) AS A CORRECTI ONAL AUTHORITY TO MAKE A PROPER APPRECIATION OF THE WHOLE OF THE MATE RIAL AND NOT MERELY RELY ON THE STATEMENT OF ASSESSING OFFICER, PARTICU LARLY DURING REMAND WHICH IS MORE A PROCEEDING BEFORE THE CIT(A) AND A DECISION HAS TO BE TAKEN BY CIT (A) AS A HIGHER AND PLENARY AUTHORITY ON THE ISSUE BEFORE HIM, ALTHOUGH HE MAY TAKE INTO ACCOUNT THE OPINION OF THE ASSESSING OFFICER, IT COULD NOT BE A MECHANICAL BASIS FOR A D ECISION. THUS THE WHOLE THING NEEDS A RELOOK AT THE LEVEL OF CIT (A) AND HE NCE THE MATTER BE SET ASIDE FOR THIS PURPOSE. 40. WHILE PLEADING ON BEHALF OF THE ASSESSEE THE LD . AR SUBMITTED THAT THE REVENUE HAS DISALLOWED THE CLAIM OF THE ASSESSE E OF LEASE RENT/ ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 50 MANAGEMENT FEE OF RS.7,05,28,805/- ON THE BASIS THA T FIVE PARTIES, NAMELY, M/S. SAHIB ENGINEERING WORKS, M/S. ASHISH E NGG. WORKS, M/S A.S. MECHANICAL WORKS, M/S A.S. FORGINGS AND M/S PI ONEER ENGG WORKS, GOBINDGARH, WERE NON EXISTENT AND THE ASSESS EE HAS NOT BEEN ABLE TO PRODUCE THESE PARTIES DESPITE NUMEROUS REQUESTS. THE OTHER ALLEGATION OF THE REVENUE WAS THAT ALL THE MACHINERIES PURCHAS ED BY THE LESSERS FROM THESE PARTIES WERE INSTALLED AT CHAMPA, CHATTISGARH AND A SURVEY U/S 133A WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASS ESSEE AT CHAMPA FOR ASSESSMENT YEAR 1995-96 AND THE CHARTERED ENGINEER COULD NOT IDENTIFY THE MACHINERY CLAIMED TO HAVE BEEN INSTALLED THERE. THE LEASE RENT CLAIMED ON THE MACHINERY PURCHASED IN THE EARLIER Y EARS ALSO DISALLOWED. A FEW ITEMS WERE PURCHASED DURING THE PERIOD RELEVA NT TO ASSESSMENT YEAR UNDER CONSIDERATION. A DETAILED CHART SHOWING DATE OF PURCHASE AND INSTALLATION WAS SUBMITTED. LD. AR ALSO SUBMITTED T HAT THE ISSUE IS NO MORE RES-INTEGRA AND HAS BEEN FINALLY SETTLED IN TH E FAVOUR OF THE ASSESSEE. LD. AR SUBMITTED THAT A SPOT VERIFICATION WAS CARRI ED OUT BY THE DEPARTMENT ON 26.02.2001 IN RESPECT OF THE PROCEEDI NGS FOR THE ASSESSMENT YEAR 1995-96 ON THE DIRECTION OF THE CIT (A) PATIALA, THE MACHINERY PURCHASED FROM THESE FIVE PARTIES IN THE EARLIER YEARS AS WELL AS IN THE YEAR UNDER CONSIDERATION WAS VERIFIED ALONG WITH OTHER MACHINERY PURCHASED DURING THE COURSE OF SPOT VERIFICATION CO NDUCTED ON 26.02.2001. THE GOVERNMENT APPOINTED ENGINEER FOUND ALL THE ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 51 MACHINERIES AS CLAIMED TO BE IN EXISTENT AND WORKIN G AND EVEN NAMES OF THE LESSORS ON THE MACHINERY ALONG WITH DETAILED DE SCRIPTION OF THE MACHINERY WAS ALSO FOUND ON THE SPOT. AS REGARDS TO THE ROLLS, THE NAMES OF THE LESSORS COULD NOT BE FOUND BECAUSE THE ROLLS GET USED UP WITH TIME DUE TO CONTINUOUS WEAR AND TEAR AND THE NAMES OF TH E LESSER GET DEFACED. THEREFORE, TOTAL NUMBER OF ROLLS WERE COUNTED AND T ALLIED WITH THE BOOKS OF ACCOUNT BY THE CHARTERED ENGINEER AND FOUND TO B E IN ORDER. THE LEASE RENT CHART FILED BY THE ASSESSEE GIVING ALL THE PAR TICULARS OF PURCHASES MADE BY THE LESSORS FROM THE SAID FIVE PARTIES AND ALSO CARRIED THE PAGE NUMBERS OF THE VERIFICATION REPORT CONSEQUENT TO SU RVEY CONDUCTED ON 26.02.2001 BY THE ENGINEERS WHERE THE ASSETS WERE F OUND TO BE IN EXISTENT. THUS, THE ASSESSEE HAS PROVED BEYOND ANY DOUBT THAT THE MACHINERIES WERE PURCHASED FROM THESE FIVE PARTIES AND WERE ALSO BEING USED. LD. AR ALSO SUBMITTED THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1993-94 AND 1995-96, THE ITAT HAS HELD THAT S UPPLY OF THESE EQUIPMENTS ARE GENUINE SUPPLIERS AND M/S SAHIB ENGI NEERING WORKS WAS HELD TO BE EXISTENT. THE ASSESSING OFFICER IN THE A SSESSMENT YEAR 1993- 94 HIMSELF HAS ADMITTED IN THE REMAND REPORT THAT T HE MACHINERY HAS BEEN PURCHASED FROM THESE FIVE PARTIES, THEREFORE, THE D EPRECIATION WAS ALLOWABLE. THE REMAND REPORT SUBMITTED BY THE ASSES SING OFFICER AS APPEARING IN ITAT DECISION FOR ASSESSMENT YEAR 1993 -94 READ AS UNDER:- ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 52 'THE THEN AO DISALLOWED THE ABOVE LEASE RENTAL AFTE R GIVING THE DETAILS REASONS. AS PER INQUIRIES MADE BY THE D I (INV), LUDHIANA, THE ASSESSEE COMPANY HAD TAKEN ASSET ON L EASE, WHICH WERE SUPPLIED TO THE LEASING COMPANY BY CERTA IN CONCERNS NAMELY (I) SAHIB ENGINEERING WORKS, LUDHIA NA (II) A.S. FORDGING MANDI GOBINDGARH (III) A. S. MECHANIC AL WORKS (IV) ASHISH ENGINEERING WORKS AND PIONEER ENGINEERING WORKS, WHO WERE EITHER NO EXISTENCE OR CONCERN HAVING' NO EXPERTISE AND MEANS TO MANUFACTU RE SOPHISTICATED MACHINERY SOLD TO LEASING COMPANY. TH E ASSESSEE ID NOT FILE THE COMPLETE INFORMATION AS RE QUIRED BY THE A, O. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS PARTICULARLY THE FULL NAME ADDRESS AND IDENTITY OF THE SUPPLIERS OF THE MACHINERY INVOICE NO. AND DATE OF SALE ETC. IT WAS, HOWEVER, BEEN CLAIMED THAT NO SUCH SUPPLIER AS MENTIONED ABOVE IN RESPECT OF WHICH INQUIRIES WERE MADE BY THE DIT(INV), LUDHIANA AND HAVE BEEN ROUND TO BE NON-EXISTENCE OR HAVE NO EXPENSE OR MEANS TO MANUFA CTURE SUCH SOPHISTICATED MACHINERY IS INVOLVED IN THE TRA NSACTION OF TEASE RENTAL PAID DURING THE PERIOD RELEVANT TO ASSTT. YEAR 1993-94. BUT IN THE ABSENCE OF COMPLETE INFORMATION , IT WAS NOT POSSIBLE FOR THE A.O, TO SEE AS TO WHETHER THE ASSESSEE COMPANY HAS ENTERED OR NOT INTO ANY TRANSACTION WIT H THE ABOVE FIVE BOGUS/NON EXISTENT CONCERNS OR NOT. SO, KEEPING IN VIEW OF THE ABOVE FACTS AND ALSO THE NON COOPERA TIVE ATTITUDE OF THE ASSESSEE IN FILING THE COMPLETE INF ORMATION TO THE DEPARTMENT AS REQUIRED, THE AX), DISALLOWED ALL THE LEASE RENTALS PAID BY THE ASSESSEE ON A/C OF PLANT AND MA CHINERY, TO ALL THE ABOVE MENTIONED LESSORS, DURING THE PERI OD RELEVANT TO ASSESSMENT YEAR 1993-94. NOW AS THE ASSESSEE COMPANY HAS FILED ALL THE NECES SARY DETAILS, ALONG WITH SUFFICIENT DOCUMENTARY EVIDENCE , IT CAN BE INFERRED THAT THE TRANSACTION MADE BY THE ASSESS EE COMPANY IN RESPECT OF LEASE RENTALS CLAIMED TO HAVE BEEN PAID TO THE AFORESAID LESSOR COYS IS BEYOND DOUBT. THERE SEEMS NO INVOLVEMENT OF ANY, OUT OF THE FIVE CONCER NS PROVED BOGUS/NON EXISTENCE, IN THE TRANSACTIONS. TH OUGH, THE ASSESSEE HAS NOT FURNISHED THE NAME I.E. TRANSPORTE R, MAKE AND NUMBER OF VEHICLES, THROUGH WHICH MACHINERY WAS TRANSPORTED IN RESPECT OF-THE MACHINERY ON LEASE FR OM SEVEN LESSOR AS MENTIONED IN PARA -'D, YET THE EVIDENCES FURNISHED ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 53 BY THE ASSESSEE NOW APPEARS TO BE SUFFICIENT TO PRO VE THE GENUINENESS OF THE CLAIM.' IN THE ASSESSMENT YEAR 1995-96, THE ITAT IN ITS ORD ER DATED 15.5.2009 WHILE DECIDING ITA NO.427/DEL/2006 HAS DELETED THE DISALLOWANCE OF LEASE RENT HOLDING THE LEASE TRANSACTIONS TO BE GEN UINE. LD. AR HAS ALSO PLACED A COPY OF THE ORDER OF ITAT AT PAGES 838 TO 857 OF THE PAPER BOOK. IT WAS ALSO CONTENDED BY LD. AR THAT THE LEASE RENT PAID TO THESE FIVE PARTIES WERE SUO-MOTTO ALLOWED BY THE ASSESSING OFF ICER IN THE ASSESSMENT YEAR 2003-04 ONWARDS. LD. AR FURTHER SUB MITTED THAT HON'BLE PUNJAB & HARYANA HIGH COURT HAS UPHELD THE DELETION MADE IN THE EARLIER YEARS. THE LD. AR ALSO PLACED HEAVY REL IANCE ON THE SPOT VERIFICATION REPORT DATED 02.03.2001 WHICH IS PLACE D AT PAGES 740 780 OF THE PAPER BOOK WHERE THE PROPOSITION REGARDING T HE EXISTENCE OF ASSETS HAS BEEN PROVED IN FAVOUR OF THE ASSESSEE. WITH REG ARD TO CIT DRS CONTENTION THAT THE EXISTENCE OF THE FIVE PARTIES I S AN IMPORTANT LINK IN THE CHAIN OF EVENTS AND IF PROVED BOGUS, WOULD MAKE THE ENTIRE CHAIN OF EVENT SUSPICIOUS AND IT WAS A MIXED ISSUE OF LAW AND FACT S, THEREFORE, NO RES JUDICATA OR PRINCIPLE OF CONSISTENCY WOULD APPLY AN D INDEPENDENT EXAMINATION IS REQUIRED TO BE DONE. ON THIS ISSUE, LD. AR SUBMITTED THAT IT HAD NOT PURCHASED THE MACHINERY BUT IT WAS THE LESS ORS WHO HAD PURCHASED THE MACHINERY AND IT WAS NOT A CASE OF BO OKING EXPENSES ON ACCOUNT OF PURCHASE BUT PAYMENT OF LEASE RENT FOR U SE OF MACHINERY. ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 54 THEREFORE, THE RATIO OF THE DECISIONS RELIED UPON B Y THE LD. DR IS NOT APPLICABLE AS THE EXISTENCE OF THE MACHINERY IS PRO VED BEYOND DOUBT AND THE LEASE RENT IS PAID BY ACCOUNT PAYEE CHEQUES. HE SUBMITTED THAT LD. CIT DRS CONTENTION THAT TRANSACTION WAS A FRAUD HAS NO BASIS. WHEN THE MACHINERY IS IN EXISTENCE THEN HOW IT CAN BE SAID T O BE A FRAUD. LD. AR SUBMITTED TO SUSTAIN THE ORDER OF CIT (A). 41. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND TH E CASE LAWS RELIED UP IN VIEW OF THE FACTS ON RECORD. THE LEASE RENT I S BEING PAID LARGELY IN RESPECT OF ASSETS WHICH HAVE BEEN IN EXISTENCE FOR THE LAST 2-3 YEARS. THE LEASE RENT HAS BEEN ALLOWED BY THE ITAT, DELHI IN R ESPECT OF ASSESSMENT YEARS 1993-94 AND 1995-96 BY HOLDING THAT THE ASSET S WERE IN EXISTENCE AS PER THE SPOT VERIFICATION REPORT DATED 08.03.200 1 OF THE CHARTERED ENGINEER APPOINTED BY THE INCOME-TAX DEPARTMENT. TH ESE DECISIONS OF THE TRIBUNAL HAVE BEEN APPROVED BY THE HON'BLE JURISDIC TIONAL PUNJAB & HARYANA HIGH COURT. THEREFORE, THE LEASE RENT PAID IS IN RESPECT OF THE ASSETS PURCHASED IN THE EARLIER YEARS ALSO DESERVE TO BE ALLOWED IN THIS YEAR ALSO. BESIDES THIS, WE FIND THAT ON THE SPOT V ERIFICATION REPORT, THE DEPARTMENT FOUND ALL THE ASSETS WHICH HAVE BEEN ACQ UIRED / PURCHASED BY LESSORS FROM THE FIVE PARTIES MENTIONED ABOVE. DURI NG THE HEARING, LD. AR HAS ALSO TAKEN US TO ITEMS REFLECTED IN THE SPOT VE RIFICATION REPORT AND TALLIED IT WITH THE DESCRIPTION OF THE ITEMS OF PLA NT & MACHINERY ON WHICH LEASE RENT IS BEING PAID. HENCE, THE EXISTENCE OF T HE MACHINERY USED AND ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 55 PURCHASED FROM THE FIVE PARTIES IS ESTABLISHED. THE REFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT IN ASSESSMENT YE ARS 1993-94 AND 1995-96 WHICH HAS BEEN CONFIRMED BY HON'BLE PUNJAB & HARYANA HIGH COURT, WE UPHOLD THE DECISION OF CIT (A) FOR ALLOWI NG THE LEASE RENT AMOUNTING TO RS.7,05,28,805/-. 42. AS REGARDS TO GROUND NO.10 WHEREIN THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION MADE ON ACCOUNT OF LEASE RENT OF RS.8,55,60,070/-, LEASE MANAGEMENT FEE OF RS.18,05,500/- AND LEASE RE NT OF BUILDING OF RS.8,64,400/- AND WHERE THE PLEADINGS OF THE REVENU E ARE THE SAME AS PLEADED IN GROUND NO.9, LD. AR SUBMITTED THAT DURIN G THE YEAR, TOTAL LEASE RENT DEBITED IN THE BOOKS OF ACCOUNT WAS OF RS.15,8 7,58,775/- OUT OF WHICH RS.7,05,28,805/- WAS DISALLOWED WHICH HAS BEE N DELETED BY THE CIT (A) ON THE BASIS OF ITATS DECISION IN ASSESSME NT YEAR 1993-94 AND 1995-96 AND ON THE BASIS OF SPOT VERIFICATION REPOR T DATED 08.03.2001 GIVEN BY THE CHARTERED ENGINEER APPOINTED BY INCOME -TAX DEPARTMENT. THIS ORDER OF ITAT HAS BEEN CONFIRMED BY HON'BLE PU NJAB & HARYANA HIGH COURT. THE ASSESSING OFFICER FURTHER DISALLOWE D THE REMAINING AMOUNT OF THE LEASE RENT ON THE BASIS THAT ADEQUATE DETAILS WERE NOT FURNISHED AND LEASE RENT AS IN OTHER CASES MUST BE BOGUS. THE LD. AR RELIED ON THE ORDER OF CIT (A) AND FURTHER SUBMITTE D THAT THE LESSORS WERE WELL KNOWN SUPPLIERS/NBFCS/MANUFACTURES OF EQUIPMEN TS OF HEAVY MACHINERIES. THESE LEASE RENTS HAVE BEEN PAID THROU GH BANKING CHANNELS ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 56 ONLY. THE DEPARTMENT GOT VERIFICATION DONE THROUGH THE CHARTERED ENGINEER AND THE ASSETS HAVE BEEN FOUND ON THE SPOT VERIFICATION WHICH IS EVIDENT FORM THE REPORT DATED 08.03.2001. THEREFORE , THERE WAS NO JUSTIFICATION IN DISALLOWING THE LEASE RENT, LEASE MANAGEMENT FEE AND LEASE RENT OF BUILDING. THE RENT FOR THE BUILDING HAS BEE N PAID WHICH DOES NOT REQUIRE ANY OTHER EVIDENCE TO PROVE IT. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER, IN THE ASSESSMENT YEAR 1997- 98 AND THEREAFTER, HAVE NEVER DISALLOWED LEASE RENT ON THE SAME EQUIPM ENTS PAID TO THE SAME PARTIES. ON THIS ACCOUNT ALSO, THE APPROACH OF THE ASSESSING OFFICER WAS INCONSISTENT. HE FURTHER SUBMITTED THAT ASSESSEE SU BMITTED THAT COMPLETE DETAILS OF THE LEASE RENT ALONG WITH LEASE AGREEMEN T. THESE MACHINES WERE PURCHASED FROM WELL-KNOWN SUPPLIER LIKE M/S TATA IR ON & STEEL CO. LTD, FLACT INDIA LTD, VESTAS RRB (I) LTD, DASLAGARWAY WI ND TURBINE LTD, GANON DUNKERLEY & CO. LTD., BHARAT HEAVY ELECTRICAL S LTD, CONTROL & SWITCH GEAR LTD, CROMPTON GREAVES LTD, FLENDER MACH . GEAR LTD, INDUCTOTHERM INDIA LTD, SAYAJI IRON & STEEL CO. LTD ., ATLAS COPCO INDIA LTD., ELECTROTHERM INDIA LTD ETC. THEREFORE, THE CI T (A) IS COMPLETELY JUSTIFIED IN DELETING SUCH BASELESS DISALLOWANCE AN D HE PLEADED TO SUSTAIN THE ORDER OF THE CIT (A). 43. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. WE HAVE ALSO PERUSED THE DETAILS SUBMITTED. THE TOTAL LEASE RENT DEBITED BY THE ASSESSEE FOR THE YEAR WAS RS.15,87,58,775, OUT OF WHICH RS.7,05,28,8 05/- WAS SEPARATELY ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 57 DISALLOWED WHICH WE HAVE CONSIDERED WHILE DECIDING GROUND NO.9 OF REVENUES APPEAL IN THE PRECEDING PARAS AND WE HAVE UPHELD THE ORDER OF CIT (A) FOR DELETING THE SAME. IN THIS GROUND, THE DISALLOWANCE IS OF REMAINING LEASE RENT ON MACHINERY OF RS.8,55,60,070 /-, LEASE MANAGEMENT FEE OF RS.18,05,500/- AND LEASE RENT OF BUILDING OF RS.8,64,400/-. THIS DISALLOWANCE WAS MADE ONLY ON T HE BASIS THAT NO ADEQUATE DETAILS WERE FURNISHED, HENCE THESE PAYMEN TS MUST ALSO BE BOGUS. THE LEASE RENT HAS BEEN PAID BY BANKING CHAN NELS. THE ASSETS HAD BEEN FOUND BY THE CHARTERED ENGINEER ON THE SPOT VE RIFICATION AND THE SAME WAS REPORTED BY HIM IN HIS REPORT DATED 08.03. 2001. THE SUPPLIERS OF THE MACHINERY/EQUIPMENTS WERE WELL KNOW LIKE TAT A IRON & STEEL CO. ETC. INCLUDING GOVERNMENT ORGANIZATION BHEL. THE LE ASE RENT PAID ON THE ASSETS IN THE SUBSEQUENT YEARS HAS NEVER BEEN DISAL LOWED BY THE REVENUE AUTHORITIES NOR THE GENUINENESS HAS BEEN DOUBTED. T HE LESSORS HAVE CONFIRMED HAVING GIVEN THE MACHINERY ON LEASE, THE MACHINERY WAS EXISTED ON THE SPOT AND BEING USED. CONSIDERING ALL THESE FACTS, WE FIND NO FAULT IN THE ORDER OF CIT (A) AND WE SUSTAIN THE SA ME. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 44. IN THE GROUND NO.11, THE REVENUE HAS CHALLENGED THE DELETION OF THE ADDITION OF RS.2 CRORES ON ACCOUNT OF DISALLOWANCE OF INTEREST OUT OF THE INTEREST CLAIMED ON ACCOUNT OF UTILIZATION OF BORRO WED FUNDS FOR NON- BUSINESS PURPOSES. ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 58 45. WHILE PLEADING ON BEHALF OF THE REVENUE LD. DR SUBMITTED THAT THIS DISALLOWANCE IS INTIMATELY RELATED TO THE ISSUED RA ISED IN GROUND NO.9 AND IF THE LEASE RENT HAS BEEN HELD NOT GENUINE THEN TH E INTEREST PAID FOR BORROWED FUNDS TO PAY SUCH LEASE RENT WOULD BE FOR NON-BUSINESS PURPOSES AND NEEDS TO BE DISALLOWED. HENCE, HE PLEA DED THAT THE DECISION OF GROUND NO.9 WOULD DECIDE THE FATE OF THIS GROUND . 46. ON THE OTHER HAND, LD. AR SUBMITTED THAT THE IS SUE RAISED IN GROUND NO.9 REGARDING THE NON-GENUINENESS OF FIVE PARTIES WHO HAVE SUPPLIED THE MACHINERY AND EQUIPMENTS TO THE ASSESSEE ON LEASE I S NO MORE RES INTEGRA. THE ASSETS HAVE BEEN FOUND ON THE SPOT VERIFICATION CONDUCTED ON 26.02.2011 AT CHAMPA, CHHATISGARH WHICH IS PLACED A T PAGES 735 TO 780 OF THE PAPER BOOK. IN THE ASSESSMENT YEAR 1995-96, THE ITAT HAS TREATED THE PAYMENT OF LEASE RENT AS GENUINE. SINCE THERE W ERE ASSETS IN EXISTENCE AND BEING USED BY THE ASSESSEE, THE LEASE RENT WAS GENUINE AND THERE CANNOT BE ANY INTEREST ON THE LOAN TAKEN FOR THE NO N-BUSINESS PURPOSES. 47. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE H AVE ALSO PERUSED THE RECORD. WE HAVE UPHELD THE ORDER OF CIT (A) REG ARDING THE GENUINENESS OF THE PAYMENT OF LEASE RENT RAISED IN GROUND NO.9, THEREFORE, WE FIND THAT THERE IS NO JUSTIFICATION IN DISALLOWI NG THE AD HOC AMOUNT OF INTEREST OF RS.2 CRORES FROM THE INTEREST DEBITED I N THE BOOKS OF ACCOUNT. THEREFORE, WE SUSTAIN THE ORDER OF CIT (A) FOR DELE TING THIS ADDITION. THIS GROUND OF REVENUES APPEAL IS DISMISSED. ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 59 48. IN THE GROUND NO.12, THE ISSUE RAISED IS AGAINS T THE DELETION OF LUMP SUM ADDITION OF RS.20 CRORES MADE BY THE ASSESSING OFFICER. THE ASSESSING OFFICER MADE THIS AD HOC ADDITION OF R.20 CRORES BY HOLDING THAT TRANSACTIONS WITH FIVE PARTIES, NAMELY, M/S. S AHIB ENGINEERING WORKS, M/S. ASHISH ENGG. WORKS, M/S A.S. MECHANICAL WORKS, M/S A.S. FORGINGS AND M/S PIONEER ENGG WORKS, GOBINDGARH WER E NOT PROPERLY RECORDED AND THE METHOD OF ACCOUNTING ADOPTED BY TH E ASSESSEE WAS NOT CORRECT. THE ASSESSING OFFICER OBSERVED IN HIS ORDE R THAT HUGE AMOUNTS WERE PAID BY ACCOUNT PAYEE CHEQUES TO M/S PIONEER E NGG. WORKS, ONE OF THE FIVE BOGUS PARTIES AND SALES WERE ALSO MADE TO THEM. ASSESSING OFFICER ALSO OBSERVED SIMILAR TRANSACTIONS WERE ENT ERED INTO WITH M/S ASHISH ENGG. WORKS AS WELL. THE ASSESSING OFFICER A LSO OBSERVED THAT NO PARTICULARS OF SALES MADE TO THESE PARTIES AND THE AMOUNT PAID TO THEM WERE FURNISHED. THE ASSESSING OFFICER HAS ALSO OBS ERVED THAT THE AMOUNT PAID TO THESE PARTIES WAS MOSTLY RETURNED DURING TH E YEAR UNDER CONSIDERATION. IT IS ALSO OBSERVED THAT THERE WAS A PEAK DEBIT BALANCE OF RS.11,30,67,240/- ON ACCOUNT OF SALES OUTSTANDING A GAINST THESE PARTIES. THE ASSESSING OFFICER HELD THAT THESE PARTIES WERE NOT GENUINE AND THE RECEIPTS IN THEIR ACCOUNTS HAVE NOT BEEN EXPLAINED. ON THIS BASIS, THE ASSESSING OFFICER CONCLUDED THAT THESE ACCOUNTS BEL ONGED TO THE ASSESSEE AND SINCE THEY HAVE NOT BEEN RECORDED, THE BOOKS AR E NOT RELIABLE AND THEREFORE HE PROCEEDED TO MAKE THE ADDITION OF RS.2 0 CRORES. SIMILAR ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 60 ALLEGATIONS WERE ALSO MADE BY THE ASSESSING OFFICER IN RESPECT OF OTHER CONCERNS, I.E. M/S A.S. MECHANICAL WORKS AND M/S A. S. FORGINGS TO WHOM CHEQUES WERE ISSUED AND RECEIVED BACK. THE ASS ESSING OFFICER STATED THAT SEPARATE ADDITION ON ACCOUNT OF GP IS C ALLED FOR SINCE THERE WERE DEFECTS IN THE BOOKS OF ACCOUNT AS THE AUDITOR S REPORT SHOWED THAT PERCENTAGE OF YIELD, WASTAGE, CONSUMPTION OF RAW MA TERIAL ETC HAS NOT BEEN WORKED OUT. HE HELD THAT TRUE RESULTS CANNOT B E ASCERTAINED AND, THEREFORE, OVERALL ADDITION OF RS.20 CRORES IS JUST IFIED. 49. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND ALSO SUBMITTED THAT THE ADDITION WAS MADE ON OVERALL CON SIDERATION OF SEVERAL GROUNDS. THE SALE BILLS FOR 4 CONCERNS WERE NOT PRO DUCED. THE PERCENTAGE OF PRODUCTION AND WASTAGE WAS NOT GIVEN IN AUDIT RE PORT AS NOT ASCERTAINABLE. THERE WAS NO STOCK REGISTER. HE FURT HER PLEADED THAT SALES BILLS WERE NOT PRODUCED NOR THE INTRODUCERS OF ACCO UNT WAS PRODUCED. THE ASSESSING OFFICER REACHED AT DEAD END WHEN THE ASSE SSEE INTENTIONALLY WITHHELD THE INFORMATION TO STALL THE ENQUIRIES. RE GARDING THE NATURE OF THE TRANSACTION IN THE BANK ACCOUNTS OF THESE PARTI ES, NO DETAILS WERE FILED AND THE STATUS AND CAPACITY OF THESE PARTIES AS COM MENTED UPON THROUGH FIELD ENQUIRIES ARE NOT GIVEN THE WEIGHTAGE AND EXA MINATION, THEY DESERVED. THERE ARE HEAVY UNACCOUNTED DEPOSITS IN T HESE ACCOUNTS WHICH SHOULD HAVE BEEN VERIFIED BY CIT(A) AS A PLENARY AU THORITY AND BEING THE SUBJECT MATTER OF THE APPEAL. HE FURTHER SUBMITTED THAT AS TO THE NATURE OF ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 61 THE ACCOUNTS INVOLVED, IT IS NO SHEER COINCIDENCE T HAT ALL THESE PARTIES OPENED THE ACCOUNTS AT SHIVAJI MARG BRANCH, THE ADD RESS OF ASSESSEE UNDER SAME CIRCUMSTANCES AND IN THE SAME MANNER AND THE VERY INTRODUCERS IN ALL CASES LACK CREDIBILITY WHO WERE NEVER PRODUCED EITHER. HE ALSO RELIED ON THE NOTINGS OF ASSESSING OFFICER WITH REGARD TO THE 3 PARTIES WHOSE METHOD AND MANNER OF OPENING OF ACCOU NTS, MANNER OF PURCHASE FROM ASSESSEE AND MANNER OF OPENING ACCOUN TS AT SHIVAJI MARG BRANCH TO MAKE PAYMENTS, NON-PRODUCTION OF INTRODUC ERS AND TRANSPORT DETAILS ETC HAVE NOT BEEN COMMENTED UPON BY THE ASS ESSEE IN ANY MANNER NOR GIVEN THE CONSIDERATION THESE DESERVE BY CIT(A) . SUCH RELEVANT MATERIALS COULD NOT HAVE BEEN DISMISSED AS OF NO IM PORT RENDERING THE DECISION OF CIT(A) UNSUSTAINABLE, RELYING ON OMAR S ALAYMDSAIT 37 ITR 151 (SC), DHIRAJLAL GIRIDHARILAL 26 ITR 736{ SC), DAULATMAL RAWATMULL 87 ITR 349( SC) ETC. HE PLEADED THAT TH E ARGUMENTS NOW ADDUCED IN SYNOPSIS PAGE 31 POINT 5 ARE MISPLACED. NO ADDITION HAS BEEN MADE FOR SUCH ADDITION. THE AO ON PAGE 22 REFERS TO A DIFFERENT CONCERN AND DIFFERENT ACCOUNT AND HELD ALSO THAT THIS ACCOU NT BELONGS TO ASSESSEE. THE DEBIT TRANSACTION REFERRED TO IS FOR THE PURPOS E OF SHOWING THE TRANSACTIONS OTHER THAN PURE AND SIMPLE BUSINESS TR ANSACTIONS. HE PLEADED THAT SIMILARLY AT POINT 4 PAGE 30 OF SYNOPSIS WHAT THE ASSESSING OFFICER DISCUSSED IS RECEIPT OF THE SALE CONSIDERATIONS AND NOT THE OPPOSITE OF PAYMENT TO THE 5 BOGUS PARTIES. THE TECHNICAL OBJEC TIONS IN REJECTION OF ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 62 BOOKS AT POINT 2 PAGE 30 OF SYNOPSIS ETC ARE EQUALL Y MISPLACED AND MISDIRECTED. THE ASSESSING OFFICER HAS NOT ADOPTED ESTIMATION OF GP ALTHOUGH HE HAS HELD THAT BOOKS ARE NOT RELIABLE AN D QUITE NATURALLY SO. THERE HAVE BEEN UNSUBSTANTIATED SALES, ACCOUNTS HEL D TO BELONG TO ASSESSEE AND CREDIT ENTRIES THEREIN ARE MATTERS MAT ERIAL TO ASSESSMENT. EVEN COPY OF ACCOUNTS OF A PARTY WORTH RS.5 CRORES NOT SUBMITTED TO ASSESSING OFFICER. FUNDS HAVE BEEN MADE TO PARTIES WITH FAKE ADDRESS. PRODUCTION DETAILS AND STOCK REGISTER ARE NOT MAINT AINED. WHEN THE ASSESSING OFFICER HELD THAT CORRECT PROFIT CANNOT B E DEDUCED FROM SUCH ACCOUNTS, INCOMPLETE AND INSUFFICIENTLY EVIDENCED A ND PRODUCED, HE CAN REJECT THE BOOKS OR HE CAN MAKE ADDITIONS AS DEEMED FIT AND THERE IS NO BAR IN THE STATUTE TO DO SO. UNSUBSTANTIATED SALES MAY LEAD TO ADDITIONS AND CANNOT BE EXPLAINED BY MERE BOOK ENTRIES AS HEL D IN THE CASE OF G.R. COMPRESSORS 116 ITD 131 (TM)(DEL.). THE ADDITION U/S 68/69 OVERALL TO ESTIMATION HAS ALSO BEEN JUDICIALLY UPHELD 123 ITR 457(SC)/ 50 ITR L (SC). HE PLEADED THAT IN THAT VIEW OF THE MATTER , ADDITION MAY BE SUSTAINED OR BE REASONABLY DETERMINED. THE MATTER M AY ALSO BE SENT BACK FOR DETAILED QUANTIFICATION ON THESE GROUNDS. 50. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT TH E GROSS PROFIT RATIO AS WELL AS THE NET PROFIT RATIO WERE FAR BETTER THA N THE PRECEDING TWO YEARS. A COMPARABLE CHART WAS FILED AS BELOW :- A.Y. TURNOVER GROSS NET GP NP ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 63 PROFIT PROFIT RATIO (%) RATIO (%) 1994-95 235.32 51.46 19.76 23.34 8.35 1995-96 466.33 107.89 44.16 25.28 9.47 1996-97 617.40 147.63 64.52 25.79 10.45 THE GROSS PROFIT RATIO CHART WAS ALSO SUBMITTED BEF ORE THE ASSESSING OFFICER VIDE LETTER DATED 15.01.1999 PLACE AT PAGE NO.822 TO 824 OF THE PAPER BOOK. FOR THE YEAR UNDER CONSIDERATION, THE G ROSS PROFIT AS WELL AS THE NET PROFIT RATIO HAS INCREASED. IF THE AD HOC A DDITION OF RS.20 CRORES IS ADDED THEN THE GROSS PROFIT RAISED COMES TO 29.29% WHICH HAS BEEN NEVER ACHIEVED BY THE ASSESSEE COMPANY IN ITS HISTORY. TH E BOOKS OF ACCOUNT WERE NEVER REJECTED AND NO SHOW CAUSE WAS ISSUED PR IOR TO SUCH REJECTION. THE LD. AR RELIED ON THIS PROPOSITION THAT NO ESTIM ATION IS PERMISSIBLE WITHOUT REJECTION OF THE BOOKS OF ACCOUNT. FOR THIS PROPOSITION, LD. AR RELIED ON THE FOLLOWING DECISIONS :- (A) DCIT VS. MEWAR TEXTILES MILLS LTD - (1999) 105 TAXM AN 199 (JP) (MAG) (B) CIT VS. PADAMCHAND RAMGOPAL (1970) 76 ITR 719 (SC) (C) CIT VS. MAHARAJA SHREE UMED MILLS LTD (1991) 1 92 ITR 565 (RAJ) (D) CHIRANJI LAL STEEL ROLLING MILLS VS. CIT (1972 ) 84 ITR 222 (P & H) (E) CENTRAL PROVINCES MANGANESE ORE CO. LTD VS. IT O - 191 ITR 662 LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER IS NOT CLEAR UNDER WHAT SECTIONS SUCH AD HOC ADDITION WAS MADE. THE AS SESSING OFFICER HAS ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 64 ALREADY DISALLOWED LEASE RENT IN RESPECT OF THE ASS ETS PURCHASED BY THE LESSORS FROM THE FIVE PARTIES THEN HOW THIS FURTHER ADDITION CAN BE MADE. THERE IS NO EVIDENCE OF UNEXPLAINED INVESTMENT OUT OF BOOKS AND THEREFORE THERE IS NO QUESTION OF ANY ADDITION UNDE R SECTION 69 OF THE ACT. PAYMENTS TO ALL THESE FIVE PARTIES WERE MADE BY ACC OUNT PAYEE CHEQUES. SIMILARLY NO ADDITION CAN BE MADE UNDER SECTION 68 OF THE ACT AS ASSESSEE HAS PAID BY CHEQUE AND ASSESSEE HAS NOT RECEIVED AN Y AMOUNT. HENCE THERE IS A PEAK DEBIT AND NOT PEAK CREDIT. THIS ISS UE IS COVERED BY THE DECISION OF ITAT FOR THE ASSESSMENT YEAR 1993-94. L D. AR ALSO SUBMITTED THAT ON TWO DIFFERENT OCCASIONS, ONCE A S URVEY U/S 133A CONDUCTED ON 16.12.1997 AND SPOT VERIFICATION CONDU CTED ON 26.02.2001, ON BOTH THESE OCCASIONS, THE MACHINERY INSTALLED AT THE BUSINESS PREMISES OF THE ASSESSEE AT CHAMPA PLANT WAS FOUND. THESE MA CHINERIES WERE TAKEN ON LEASE FROM RENOWNED NBFC LESSORS. WITH REGARD TO THE TRANSACTIONS OF ALLEGED FIVE PARTIES, THE ITAT WHILE DECIDING ITA N O.2298 & 2720/DEL/2004 FOR THE ASSESSMENT YEAR 1993-94 DATED 24.10.2008 HAS FOUND THAT ALL THE FIVE PARTIES WERE GENUINE. THESE FACTS HAVE BEEN ACCEPTED BY HON'BLE PUNJAB & HARYANA HIGH COURT. FU RTHER ITAT WHILE DECIDING ITA NO.4610 & 846/EL/2005 & 2006 FOR ASSES SMENT YEAR 1994- 95 DATED 18.06.2009 HAS HELD THAT SAHIB ENGINEERING WORKS WAS A GENUINE PARTY. THIS AD HOC ADDITION OF RS.20 CRORES CANNOT BE SAID FOR ANY ESCAPED INCOME BUT IT IS THE NATURE OF A PUNISHMENT /PENALTY. WITH REGARD ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 65 TO THE REFERENCE TO PAYMENTS AND RECEIPTS OF CERTAI N AMOUNT FROM PIONEER ENGINEERING COMPANY, THE ASSESSEE SUBMITTED THAT VI DE LETTER DATED 12.12.1998 AND 08.03.1999, THE ASSESSEE EXPLAINED T HAT ASSESSEE HAS SUPPLIED HEAVY STRUCTURAL STEEL TO PIONEER ENGINEER ING COMPANY WHICH WAS SUPPLIER OF MACHINERY TO THE LESSORS OF THE ASS ESSEE. THE ASSESSING OFFICER ACCEPTED THE GENUINENESS OF PIONEERING ENGI NEERING AS PER ITAT ORDER FOR ASSESSMENT YEAR 1993-94. ALL MACHINERY SO LD BY PIONEER ENGINEERING TO LESSORS WAS FOUND ON THE SPOT VERIFI CATION BY THE DEPARTMENT. THE ASSESSING OFFICER HAS NOT FOUND ANY FAULTY OR SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. ALL THE TRANSACTIONS WITH ALLEGED PARTIES WERE THROUGH BANKING CHANNELS AND W ERE DULY RECORDED IN THE BOOKS. 51. WE HAVE HEARD BOTH THE SIDES. WE HAVE CONSIDERE D THE RELEVANT MATERIAL AVAILABLE ON RECORD. AFTER CONSIDERING ALL THE RELEVANT MATERIAL, WE FIND THAT THE ADDITION OF RS.20 CRORES IS PRIMAR ILY MADE ON THE GROUND THAT FIVE PARTIES WERE BOGUS AND THAT THE PAYMENTS BY CHEQUES HAVE BEEN MADE TO THEM BESIDE THE SALE OF RAW MATERIAL. MOST OF THE PAYMENTS MADE TO THESE PARTIES HAVE BEEN RECEIVED BACK DURING THE YEAR, UNDER CONSIDERATION. WE FIND THAT THE TRANSACTIONS RELATI NG TO FOUR PARTIES SHOWS THERE IS A PEAK DEBIT IN THE BOOKS OF THE ASSESSEE RATHER THAN THE PEAK CREDIT. IN OUR CONSIDERED VIEW, THERE CAN BE NO ADD ITION ON ACCOUNT OF PEAK DEBIT BECAUSE IT REPRESENTS AMOUNT ADVANCED TH ROUGH BOOKS OF ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 66 ACCOUNT TO A PARTICULAR PARTY. HOW THE ADVANCE MADE TO THE PARTIES THROUGH ACCOUNT PAYEE CHEQUES FROM THE BOOKS OF ACC OUNT OF THE ASSESSEE CAN BE ADDED AS INCOME OF THE ASSESSEE. THE ADDITIO N U/S 68 OF THE ACT DEALS WITH THE PEAK CREDIT. THE CREDIT IN THE ACCOU NTS REPRESENTS THE ADVANCE DURING THE YEAR UNDER CONSIDERATION. THE IT AT ALSO DEALT SUCH ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEA R 1993-94 WHEREIN THE ITAT HAS HELD AS UNDER :- 'ON PERUSAL OF THE COPY OF THE ACCOUNT OF M/S SAHIB ENGINEERING WORKS IN THE BOOKS OF THE ASSESSEE AT P AGE-102, WE FIND THAT THE AO HAS ADDED TOTAL DEBIT ON ACCOUN T OF SALES UP TO 24 TH SEPTEMBER 1992 TOTALING TO RS.1,48,74,249/-; THESE ARE DEBITS IN THE BOOKS OF THE ASSESSEE AND T HE AO HAS NOT MADE ANY ADDITION ON ACCOUNT OF THE AMOUNTS PURPORTEDLY RECEIVED FROM BANK ACCOUNT NO.448 OF M/ S. SAHIB ENGINEERING WORKS. WHAT IS ADDED AS INCOME IS THE AMOUNT OF PEAK DEBIT BEING VALUE OF GOODS SOLD BY T HE ASSESSEE TO M/S SAHIB ENGINEERING WORKS RATHER THAN THE PEAK CREDIT ADDITION U/S 68 IS NOT TO BE MADE IN RE SPECT OF PEAK OF DEBIT ENTRIES. THE MONEY TRAIL LEADS TO THE SAID THREE LEASING COMPANIES M/S KOTAK MAHINDRA FINANCE LTD., SRF FINANCE LTD AND TIMES GUARANTEE FINANCE LTD AND THE RE IS NO EVIDENCE TO ESTABLISH THAT THE SAID MONEYS REMIT TED BY M/S KOTAK MAHINDRA FINANCE LTD., SRF FINANCE LTD AN D TIMES GUARANTEE FINANCE LTD WERE THE ASSESSEES FUND S. UNDER THESE CIRCUMSTANCES, THE ADDITION OF RS.1,48, 74,249/- IS DELETED. ONCE THE ADVANCE MADE TO A PARTY AND THE SAME AMOUN T WAS RECEIVED BACK THEN THERE CANNOT BE ANY ADDITION FOR ESCAPEME NT OF INCOME, AT THE MOST, THE INTEREST MAY BE DISALLOWED IF THE ADVANCE S WERE MADE FOR NON- BUSINESS PURPOSES. THIS HAS NOT BEEN DONE BY THE AS SESSING OFFICER AND WE HAVE NO POWER TO DO IT. WITHOUT GOING DEEP INTO THE ACCOUNTS MERELY ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 67 STATING THAT ACCOUNTS WERE BENAMI OF THE ASSESSEE I S NOT JUSTIFIED. MOREOVER, THE ITAT IN ASSESSEES OWN CASE HAD HELD THAT FIVE PARTIES ARE GENUINE AND THE ASSESSING OFFICER IN REMAND REPORT HAS ALREADY TREATED THESE FIVE PARTIES AS GENUINE. THUS, ALLEGATIONS HO WSOEVER STRONG BUT THESE CANNOT TAKE PLACE OF EVIDENCE. THE ASSESSING OFFICER HAS FAILED TO DISCHARGE THE ONUS WITH REGARD TO ESTABLISHING THE FACT REGARDING THE BENAMI OF THESE SOURCES OF THE ASSESSEE. THE ASSESS ING OFFICER COULD HAVE ENQUIRED REGARDING THE PERSON WHO HAS INTRODUC ED THE ACCOUNTS FROM THE ACCOUNT OPENING FORM AND THE NECESSARY ENQUIRIE S COULD HAVE BEEN MADE FROM THE BANKS BUT NOTHING OF SUCH TYPE HAS BE EN DONE BY THE ASSESSING OFFICER. MERELY STATING THAT THE CHEQUES HAVE BEEN ISSUED TO THE PARTIES AND RECEIVED BACK DURING THE YEAR UNDER CON SIDERATION CANNOT BE A BASIS FOR MAKING SUCH HUGE ADDITION OF RS.20 CRORES . ADDITION CAN BE MADE ONLY IF THERE IS AN ESCAPEMENT OR EVASION OF I NCOME. THE ADDITION MADE FOR LEASE RENT PAID TO THESE PARTIES HAS BEEN DELETED IN VARIOUS YEARS. THE EXISTENCE OF THE ASSETS HAS BEEN ESTABLISHED. L EASE RENT PAID ON THE LEASE ASSETS HAS BEEN FOUND ALLOWABLE. IN THESE CI RCUMSTANCES, WE FIND NO FAULT IN THE ORDER OF THE CIT (A) AND WE SUSTAIN TH E SAME ON THIS ISSUE. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 52. GROUND NO.13 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION, HENCE DISMISSED. ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 68 53. IN THE CROSS OBJECTION FILED BY THE ASSESSEE, I N GROUND NO.1, THE ISSUE IS AGAINST THE SUSTAINING OF ADDITION OF RS.7 ,04,957/- MADE OUT OF THE STAFF WELFARE AND SALES PROMOTION EXPENSES. 54. THIS ISSUE HAS BEEN DEALT BY THE ASSESSING OFFI CER IN PARA 5 AT PAGE 6 OF HIS ORDER. IN COMPUTATION OF THE INCOME, THE A SSESSEE HIMSELF HAS DISALLOWED RS.1,80,484/- U/S 37(2)(A) OF THE INCOME -TAX ACT, 1961 OUT OF RS.3,70,967/- SHOWN TOWARDS THE ENTERTAINMENT EXPEN DITURE. THE ASSESSING OFFICER FOUND THAT ASSESSEE HAS DEBITED R S.67,83,464/- UNDER THE HEAD STAFF WELFARE EXPENSES AND RS.2,66,113/- U NDER THE HEAD SALES PROMOTION EXPENSES IN THE BOOKS OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION. ASSESSING OFFICER NOTICED THAT EXPEN DITURE DEBITED IN THE BOOKS UNDER THESE HEADS WAS ON ACCOUNT OF THE COST OF FOODS, SWEETS AND ALSO ENTERTAINMENT EXPENSES OF THE GUESTS OF THE CO MPANY AND AUDITORS. SOME EXPENDITURE WAS ALSO TOWARDS THE DONATIONS GIV EN FOR THE MARRIAGE. THE ASSESSING OFFICER REACHED AT A CONCLUSION THAT IT IS NOT ESTABLISHED THAT ENTIRE EXPENDITURE HAS BEEN INCURRED ON THE WE LFARE OF THE STAFF. FOLLOWING THE PAST HISTORY OF THE ASSESSMENTS OF AS SESSEE, THE ASSESSING OFFICER DISALLOWED 10% OF THE TOTAL EXPENDITURE TRE ATING TOWARDS ENTERTAINMENT NOT ADMISSIBLE U/S 37(2) OF THE ACT. THIS DISALLOWANCE WAS ALSO FOR WANT OF DETAILS TO SUBSTANTIATE THE CLAIM OF ASSESSEE. THE CIT (A) HAS SUSTAINED THE ADDITION. ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 69 55. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. WE HAVE ALSO CONSIDERED THE VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE AS WELL AS THE REVENUE. THE ASSESSING OFFICER HAS RESTRICTED T HE DISALLOWANCE TO 10% ON ACCOUNT OF STAFF WELFARE AND SALES PROMOTION EXPENSES DEBITED IN THE BOOKS OF ACCOUNT OF RS.67,83,464/- AND RS.2,66, 113/- RESPECTIVELY. SOME OF THE EXPENSES WERE SUO MOTO DISALLOWED BY TH E ASSESSEE HIMSELF. FULL DETAILS WERE NOT FILED BEFORE ASSESSING OFFICE R. KEEPING IN VIEW OF THE NATURE OF EXPENSES DEBITED UNDER THESE HEADS, W E FIND HAT CIT (A) WAS JUSTIFIED IN SUSTAINING THE ADDITION BEING 10% OF THESE EXPENSES BEING TREATED AS NOT ALLOWABLE IN VIEW OF THE PROVI SIONS OF SECTION 37(2) OF THE ACT. 56. IN THE GROUND NO.2, THE ISSUE IS RAISED AGAINST THE SUSTAINING OF DISALLOWANCE OF RS.1,50,000/- ON ACCOUNT OF FOREIGN TRAVELING EXPENSES. THIS ISSUE HAS BEEN DEALT BY THE ASSESSING OFFICER IN PARA 7 AT PAGES 6 & 7 OF HIS ORDER AND THE CIT (A) CONFIRMED THE SAME. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR THE EXPENDITURE ON AC COUNT OF FOREIGN TRAVELING DEBITED IN THE BOOKS OF ACCOUNT OF RS.13, 49,453/- AS AGAINST RS.10,63,018/- IN THE IMMEDIATELY PRECEDING YEAR. T HE AUDITOR OF THE ASSESSEE WORKED OUT THE DISALLOWANCE UNDER RULE 6D IN RESPECT OF INLAND TRAVELING BUT NOTHING WAS DONE IN RESPECT OF THE FO REIGN TRAVELING. THE ASSESSING OFFICER TREATED RS.1,50,000/- AS NOT MADE FOR BUSINESS PURPOSES OUT OF THE FOREIGN TRAVELING EXPENSES OF DIRECTORS AND EMPLOYEES. SUCH ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 70 DISALLOWANCE WAS ALSO MADE IN THE EARLIER YEAR ALSO . THE CIT (A) HAS SUSTAINED THIS ADDITION BY RELYING ON THE DECISION FOR ASSESSMENT YEAR 2001-02. 57. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. WE HAVE CONSIDERED THE DETAILS SUBMITTED IN THIS REGARD. ASSESSING OFFICER HAD DISALLOWED THIS AMOUNT OUT OF FOREIGN TRAVELING EXPENSES AS DETAILS SUBMITTED WERE NOT SUFFICIENT TO EXPLAIN THE EXPENDITURE TO JUSTIFY TO THAT EXTEND. SUCH DISALLOWANCES ARE BEING MADE IN PAST YEARS. LD. AR HAS FAILED TO SHOW ANYTHING ADVERSE REGARDING FATE OF ADDITION IN PAST YEARS. HENCE, WE SUSTAIN THE ADDITION. 58. IN THE GROUND NO.3 OF THE CROSS OBJECTION, THE ISSUE RAISED IS AGAINST SUSTAINING THE DISALLOWANCE OF RS.57,115/- BEING 20 % OF THE AMOUNT PAID IN CASH IN EXCESS OF RS.10,000/-. THIS ISSUE HAS BE EN DEALT BY THE ASSESSING OFFICER IN PARA 9 AT PAGE 7 OF HIS ORDER AND THE CIT (A) CONFIRMED THE SAME WHILE DEALING GROUND NO.8 AT PAG E 10 OF HIS ORDER. THIS DISALLOWANCE OF RS.57,115/- BEING 20% OF RS.2, 85,584/- PAID IN CASH OTHERWISE THEN BY ACCOUNT PAYEE CHEQUES/DRAFTS. THE LD. AR SUBMITTED THAT THIS EXPENDITURE WAS COVERED BY THE EXEMPTIONS IN RULE 6DD(H) OF INCOME-TAX RULES, 1962. THE DETAILS OF THIS EXPENDI TURE IS AS UNDER :- HEAD OF ACCOUNT PARTICULARS AMOUNT STAFF RECRUITING PAID TO SWAIN NOTICE PAY 15990 MEDICAL REIMBURSEMENT PAID TO H.P. SINGH 11110 LTA PAID TO D.P. SINGH 23250 MEDICAL PAID TO N.K. BHOMIA 10500 ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 71 REIMBURSEMENT GILCON NIRMAN CO. P. LTD. CASH PAID AT. R.A. BILL 19540 - DO - CASH PAID AGAINST BILL AS ADVANCE 19540 - DO - - DO - 14665 - DO - - DO - 18160 - DO - - DO - 18850 Q.N. CONSTRUCTION - DO - 20000 - DO - - DO - 19600 TOTAL 210735 59. AFTER GOING THROUGH THE NATURE OF THE EXPENDITU RE, WE FIND THAT THIS EXPENDITURE INCURRED IN CASH IS COVERED BY RULE 6DD (H), THEREFORE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW THIS GROUND OF ASSESSEES CROSS OBJECTION. 60. GROUND NOS.4 & 5 IN THE CROSS OBJECTION RELATIN G TO SUSTAINING THE ADDITION REGARDING PAYMENT OF PROVIDENT FUND AND EP F OF RS.28,672/- AND SUSTAINING THE DISALLOWANCE OF RS.25,103/- AS P ER TAX AUDIT REPORT UNDER SECTION 43B WERE NOT PRESSED AT THE TIME OF H EARING. THUS, THE SAME STAND DISMISSED. 61. IN THE RESULT, THE APPEAL OF THE REVENUE AS WEL L AS CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 24 TH DAY OF SEPTEMBER, 2013. SD/- SD/- (C.M. GARG) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 24 TH DAY OF SEPTEMBER, 2013 TS ITA NO.3036/DEL/2010 CO NO.357/DEL/2010 72 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), ROHTAK. 5.CIT(ITAT), NEW DELHI. AR/ITAT NEW DELHI DATE OF DICTATION.. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATI NG MEMBER DATE ON WHICH THE APPROVED DRAFT COME TO SR.PS/PS DATE ON WHICH FAIR ORDER SENT TO MEMBER FOR SIGNATURE DATE ON WHICH THE FAIR ORDER COMES BACK AFTER PRONOUNCEMENT TO THE SR.PS/PS DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE AR FOR SIGNATURE ON THE ORDER DATE OF DESPATCH OF THE ORDER