The JCIT, V. M/s Prestige Foods,

ITA 354/IND/2001

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1417 (ITAT-INDORE)
• Duration Of Justice: 8 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 23-10-2009
• Assessment Year: 1992-1993
• Appeal Filed On: 28-08-2001
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: H P VERMA
• Keywords: Bogus purchase; Business expenditure; Speculation loss; Set aside
• Section: 40A(3); 80HH

Judgement Text

PAGE 1 OF 27 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JM AND SHRI V.K. GUPTA, AM ITA NO.724/IND/1998 AY: 1991-92 M/S. PRESTIGE FOODS LTD. (PAN 18-115-CZ-0697) C/O. K.C. BETALA & CO., 11, USHAGANJ, INDORE (MP) ..APPELLANT V/S. DY. CIT (ASSESSMENT), SR-2, INDORE ..RESPONDENT ITA NO.867/IND/1998 AY: 1991-92 JCIT (ASSESSMENT), SR-2, INDORE ..APPELLANT V/S. M/S. PRESTIGE FOODS LTD. 30, JAORA COMPOUND, INDORE (PAN 18-115-CZ-0697) ..RESPONDENT ITA NO.354/IND/2001 AY: 1992-93 JCIT-RANGE-5, INDORE ..APPELLANT V/S. M/S. PRESTIGE FOODS LTD. 30, JAORA COMPOUND, INDORE (PAN 18-115-CZ-0697) ..RESPONDENT ASSESSEE BY : S/SHRI H.P. VERMA & ASHISH GOYAL DEPARTMENT BY : SHRI K.K. SINGH, CIT, DR ORDER PAGE 2 OF 27 PER JOGINDER SINGH, JM THE ASSESSEE AS WELL AS REVENUE HAS PREFERRED CROSS -APPEALS FOR AY 1991-92 WHEREAS THE REVENUE IS IN APPEAL FOR AY 199 2-93. FIRST WE SHALL TAKE UP APPEAL OF THE ASSESSEE (ITA NO.724/IND/1998) WHE REIN GROUND NO.1 (A) RAISED IS THAT THE LD. FIRST APPELLATE AUTHORITY ER RED IN NOT ALLOWING EXPENSES TO THE EXTENT OF RS.58,931/- UNDER THE HEAD PAST YEAR EXPENSES/PRIOR PERIOD EXPENSES WHICH WERE ASCERTAINED AND DETERMINED DUR ING THE YEAR. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THESE EXPEN SES HAVE TO BE ALLOWED WHEREAS THE LD. CIT, DR STRONGLY DEFENDED THE IMPUG NED ORDER. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON THE FIL E. BRIEF FACTS ARE THAT THE ASSESSEE IS A SOLVENT EXTRACTION PLANT. AS PER TAX AUDIT REPORT, THE ASSESSEE DEBITED THE NET AMOUNT OF RS.9,45,340/- AS PRIOR PE RIOD ADJUSTMENTS CONSTITUTING VARIOUS INCOME/EXPENSES PERTAINING TO EARLIER YEARS AND DETERMINED DURING THE YEAR. THE LD. ASSESSING OFFIC ER ASKED THE ASSESSEE TO PROVE THE GENUINENESS OF THE EXPENDITURE OF THE CLA IMED DEDUCTION DURING THE YEAR. ADMITTEDLY, THE ASSESSEE VIDE REPLY DATED 24. 1.94 ENCLOSED THE DETAILS OF THESE EXPENSES. THE LD. ASSESSING OFFICER FOUND THAT EXCEPT FOR THE AMOUNT OF RS.3,49,382/-, ON ACCOUNT OF COMMISSION TO ORISS A CONSUMER CO-OPE. FEDERATION, RS.2,05,394/- ON ACCOUNT OF INTEREST CH ARGED BY STATE BANK OF INDIA AND THE AMOUNT OF RS.70,197/- WHICH RELATES T O SHORTAGE ON ACCOUNT OF FREIGHT AND CARTRIDGE EXPENSES (TOTAL RS.6,24,973/- ), THE REMAINING AMOUNT OF PAGE 3 OF 27 RS.3,20,367/- REPRESENTS THE EXPENDITURE OF PAST YE ARS WHICH WAS NOT DETERMINED, CONSEQUENTLY, NOT ADMISSIBLE AS DEDUCTI ON, THEREFORE, IT WAS ADDED TO THE TOTAL INCOME. ON APPEAL, THE LD. FIRST APPELLATE AUTHORITY HELD THAT ONLY THE AMOUNT OF RS.58,931/- CANNOT BE ALLOW ED SINCE THE ASSESSEE FAILED TO PROVE THAT SUCH LIABILITY WAS ACTUALLY AS CERTAINED AND DETERMINED/QUANTIFIED IN THE ACCOUNTING YEAR 1990-9 1 (AY 1991-92). THE ASSESSEE IS IN APPEAL AGAINST SUCH PART DISALLOWANC E BEFORE THIS TRIBUNAL. IF THE TOTALITY OF THE FACTS ARE CONSIDERED, THE FOLLO WING EXPENSES OF EARLIER YEAR WERE CLAIMED AS DEDUCTION IN AY 1991-92: A) C.C.S. ON EXPORT SALES LESS RECEIVED B) PROFESSIONAL FEES C) SHORTAGE CLAIM D) SALES-TAX E) QUALITY DISPUTE F) FREIGHT G) TRAVELLING EXPENSES H) EXPORT EXPENSES & OTHER EXPENSES THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCO UNTING AND THE RECEIPT AND THE EXPENSES ARE ACCOUNTED ON ACCRUAL A ND ASCERTAINED BASIS. IN AY 1994-95, THE ASSESSEE CLAIMED PREVIOUS YEAR EXPE NSES AT RS.9,62,354/- WHEREIN AN AMOUNT OF RS.97,101/- WAS OFFERED FOR TA XATION AS THE ASSESSEE COULD NOT FURNISH DETAILS THEREOF. THE CLAIM OF THE ASSESSEE IS THAT THE DEPARTMENT HAD BEEN TAKING DIVERSION STRENGTH ON ID ENTICAL ISSUE ON THE PAGE 4 OF 27 GROUND THAT IN AY 1991-92, THE ASSESSING OFFICER DI SALLOWED THE EXPENSES WHICH PERTAINED TO EARLIER YEARS WHEREAS IN AY 1994 -95, ALMOST ENTIRE EXPENSES PERTAINING TO EARLIER YEARS WERE ALLOWED. WE HAVE FOUND THAT THE LD. FIRST APPELLATE AUTHORITY HAS DEALT WITH EACH AND E VERY DISALLOWANCE IN DETAIL AND HAS ALSO CONSIDERED THE ORDER IN AY 1992-93 DAT ED 23.11.95. THE EXPENSES PERTAINING TO EARLIER YEARS CAN BE ALLOWED AS BUSINESS EXPENDITURE IN LATER YEARS PROVIDED IT IS PROVED/EXPLAINED BY THE ASSESSEE THAT SUCH LIABILITY ACTUALLY ASCERTAINED AND DETERMINED IN THE CONCERNE D AY. THERE IS A SPECIFIC FINDING IN THE IMPUGNED ORDER THAT LARGE NUMBERS OF PROVISIONS MADE IN EARLIER AY COULD BE FINALISED/SETTLED AND QUANTIFIED ONLY I N ACCOUNTING YEAR 1990-91. THERE IS A FURTHER FINDING THAT EXPENDITURE TO THE EXTENT OF RS.58,931/- WAS NOT EXPLAINED BY THE ASSESSEE AS THAT IT COULD NOT BE ASCERTAINED WHETHER THE IMPUGNED LIABILITY WAS ACTUALLY DETERMINED/QUANTIFI ED IN 1990-91 (AY 1991- 92). IT IS NOT THE CASE THAT THE LD. CIT(A) BLINDLY ALLOWED RS.2,61,430/- OUT OF THE TOTAL CLAIMED DEDUCTION OF RS.3,20,367/-. IN VI EW OF THIS FACT, THE STAND OF THE LD. CIT(A) IS AFFIRMED SPECIALLY WHEN NOTHING C ONTRARY WAS BROUGHT ON RECORD AND ALSO IT WAS NOT EXPLAINED THAT THE IMPUG NED AMOUNT WAS DETERMINED/QUANTIFIED PRIOR TO THE BEGINNING OF THE IMPUGNED AY. 3. THE NEXT PART OF GROUND 1 I.E. 1(B) IS THAT THE LD. FIRST APPELLATE AUTHORITY ERRED IN HOLDING THAT THE PAYMENT OF RS.6 ,37,344/- PAID TO VARIOUS PARTIES AS SPECULATION LOSS IN PLACE OF TRADING LOS S AS THE SAME WERE PAID AS PAGE 5 OF 27 DAMAGES ON BREACH OF CONTRACT. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT SINCE THE IMPUGNED AMOUNT WAS PAID AS DAMAGES FOR B REACH OF CONTRACT, IT HAS TO BE ALLOWED. ON THE OTHER HAND, THE LD. CIT, DR DEFENDED THE IMPUGNED ORDER. ON PERUSAL OF RECORD AND AFTER HEARING THE R IVAL SUBMISSION, IT IS SEEN THAT THE ASSESSEE CLAIMED AN AMOUNT OF RS.6,37,344/ - AS BUSINESS LOSS WHICH WAS TREATED AS SPECULATIVE LOSS BY THE ASSESSING OF FICER. CERTAIN BUSINESS CONTRACTS WERE SETTLED FOR BREACH OF THE CONTRACT A ND, CONSEQUENTLY, THE IMPUGNED AMOUNT WAS PAID AS DAMAGES MEANING THEREBY THE ASSESSEE AGREED TO SELL THE GOODS TO OUTSIDE PARTIES BUT SUB SEQUENTLY SUCH CONTRACTS WERE CANCELLED DUE TO BUSINESS CONSIDERATIONS. HOWE VER, ON CANCELLATION OF SUCH CONTRACTS OF SALE OF GOODS, THE ASSESSEE PAID IMPUGNED AMOUNT AS DAMAGES/COMPENSATION. SIMILARLY, THE ASSESSEE COMPA NY AGREED TO BUY CERTAIN GOODS FROM OUTSIDE PARTIES AND SUBSEQUENTLY CANCELLED AND AGREED TO PAY DAMAGES. THIS FACTUAL POSITION HAD NOT BEEN DIS PUTED BY THE REVENUE. THE LD. FIRST APPELLATE AUTHORITY HAS PLACED RELIAN CE UPON CERTAIN JUDICIAL DECISIONS DIRECTED THE ASSESSING OFFICER TO DECIDE THE ISSUE ON MERIT WITH FURTHER OBSERVATION THAT THE CLAIM OF THE ASSESSEE APPEARS TO BE GENUINE. IN VIEW OF THIS FACT, SINCE THE AMOUNT WAS FOR ACTUAL BREACH OF CONTRACT, CONSEQUENTLY, IT HAS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. 4. THE NEXT GROUND I.E. 1(C) IS THAT THE LD. FIRST APPELLATE AUTHORITY ERRED IN DISALLOWING THE CASH PAYMENT OF RS.15,000/- U/S 40A (3) MADE TO PRESTIGE ENGINEERING & CONSULTANTS P. LTD. ON A QUERY FROM T HE BENCH, IT WAS FAIRLY PAGE 6 OF 27 AGREED THAT THE PAYMENT WAS MADE TO ONE OF THE ASSO CIATE CONCERN, CONSEQUENTLY, THE CASH PAYMENT IS CLEARLY IN CONTRA VENTION OF SEC. 40A(3) OF THE ACT BECAUSE UNLESS AND UNTIL THE ASSESSEE PROVE S OTHERWISE, THE AMOUNT HAS TO BE PAID BY AN ACCOUNT PAYEE CHEQUE/DRAFT. IT WAS FAIRLY AGREED THAT THE CASH PAYMENT WAS ABOVE PRESCRIBED LIMIT. THERE WAS NO URGENCY/COMPELLING CIRCUMSTANCES TO MAKE SUCH PAYMENTS AND THAT TOO AN ASSOCIATE CONCERN. THE CASE OF THE ASSESSEE IS CLEARLY HIT BY RULE 6DD(J) OF THE IT RULES, CONSEQUENTLY, THE STAND OF THE LD. CIT(A) IS AFFIRM ED. 5. THE NEXT GROUND I.E. 1(D) PERTAINS TO CALCULATIO N OF DEDUCTION U/S 80HH & 80I OF THE ACT ON INTEREST RECEIPT OF RS.1,38,995 /- TREATED AS INCOME AND SET OFF AGAINST INTEREST EXPENSES AND TREATING THE SALE S TAX REFUND OF RS.1,20,411/- AND SUNDRY BALANCES WRITTEN OFF AT RS .8,74,929/- AS NON- MANUFACTURING INCOME. THE LD. CIT, DR STRONGLY DEFE NDED THE IMPUGNED ORDER WHEREAS THE ASSESSEE ADVANCED HIS ARGUMENT WHICH IS IDENTICAL TO THE GROUND RAISED. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON THE FILE. IT IS SEEN THAT THE LD. ASSE SSING OFFICER HAS DISCUSSED THE ISSUE IN PARA 7 OF THE ASSESSMENT ORDER WHEREIN THE LD. ASSESSING OFFICER DISALLOWED THE DEDUCTION BY RESTRICTING THE SAME TO RS.65,55,150/- BY EXCLUDING CERTAIN INCOME FROM TOTAL INCOME WHILE CA LCULATING THE QUANTUM OF DEDUCTION ALLOWABLE U/S 80HH & 80I LIKE INTEREST IN COME OF RS.138995/-, SALE TAX REFUND OF RS.1,25,411/- AND SUNDRY BALANCES WRI TTEN OFF RS.8,74,929/-. PAGE 7 OF 27 BEFORE COMING TO ANY CONCLUSION, WE ARE SUPPOSED TO ANALYSE THE LANGUAGE CONTAINED IN SEC. 80HH/80I OF THE ACT. THE SEC. 80I SPEAKS ABOUT ANY PROFIT AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING. THOUGH THE WORD INDUSTRY HAS A WIDE IMPORT STILL THE TRUE FOCUS I S FUNCTIONAL AND THE DECISIVE TEST IS THE NATURE OF AMOUNT SO CLAIMED AS DEDUCTIO N. THERE MUST BE DIRECT NEXUS BETWEEN THE AMOUNT WITH THE INDUSTRY AND IT S HOULD BE DERIVED FROM SUCH INDUSTRY AS WAS HELD BY THE HONBLE APEX COURT IN CIT VS. STERLING FOODS (237 ITR 579) (SC). THE IMPUGNED AMOUNT CANNOT BE S AID TO BE DERIVED FROM THE INDUSTRIAL UNDERTAKING. RELIANCE CAN BE P LACED UPON PARAS OIL EXTRACTIONS LTD. VS. CIT, 230 ITR 226, CONSEQUENTLY , WE ARE IN AGREEMENT WITH THE STAND OF THE LD. CIT(A) AS FAR AS THE ISSU E OF INTEREST IS CONCERNED. ON THE ISSUE OF SALES TAX REFUND, THE DECISION IN T HE CASE OF CIT VS. PARAS OIL EXTRACTION LTD. (230 ITR 266) WAS REFERRED. WE HAVE FOUND THAT THE HONBLE JURISDICTION HIGH COURT IN THIS CASE DECIDED THE IS SUE ON SPECIAL DEDUCTION FOR NEW UNDERTAKING WHEREIN THE INCOME WAS DERIVED FROM LETTING OUT WEIGHING MACHINE AND GRANTING LOANS. THE ACTIVITIES WERE FOU ND TO BE NOT INCIDENTAL TO ACTIVITIES OF ASSESSEE INDUSTRIAL UNDERTAKING. THER EFORE, THE ASSESSEE WAS HELD TO BE NOT ENTITLED TO RELIEF IN RESPECT OF WEIGHMEN T CHARGES AND INTEREST RECEIVED INCLUDED IN MISC. RECEIPTS. IT HAS TO BE S EEN WHETHER SALES-TAX EARLIER HAD BEEN TREATED AS EXPENDITURE OF ELIGIBLE UNDERTA KING OR NOT AND IF THAT BE SO THEN SALES-TAX REFUND SUBSEQUENTLY OF SUCH TAX I S TO BE TREATED AS ELIGIBLE DEDUCTION U/S 80HH & 80I, THEREFORE, ON SALES-TAX, WE DECIDE THE ISSUE IN PAGE 8 OF 27 FAVOUR OF THE ASSESSEE. AS FAR AS THE AMOUNT OF RS. 8,74,929/- IS CONCERNED, THE ASSESSING OFFICER EXCLUDED THE SUNDRY BALANCE W RITTEN OFF RS.8,74,929/- FROM THE PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKING WHEREAS THE LD. CIT(A) REVERSED SUCH DECISION OF THE ASSESSING OFFICER. HE NCE, THE GROUND NO.1(D)(II) OF THE ASSESSEES APPEAL IS MISCONCEIVED AND, THERE FORE, DISMISSED. 6. THE REMAINING GROUNDS ARE GENERAL IN NATURE, REQ UIRE NO DELIBERATION FROM OUR SIDE. CONSEQUENTLY, THE APPEAL OF THE ASSE SSEE IS PARTLY ALLOWED. 7. NOW WE SHALL TAKE UP APPEAL OF THE REVENUE (ITA NO.354/IND/2001) WHEREIN THE FIRST GROUND IS THAT ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE, THE LD. FIRST APPELLATE AUTHORITY ERRED IN CO NSIDERING THE LIABILITY AS PAYABLE IN AY 1992-93 AND DELETING THE DISALLOWANCE OF RS.79,431/- MADE ON ACCOUNT OF EARLIER YEARS EXPENSES. THE LD. CIT, DR SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. COUNSEL FOR ASSESSEE RELIED U PON THE DECISION OF THE LD. FIRST APPELLATE AUTHORITY. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON THE FILE. IT IS SEEN THAT ON EARLIER O CCASION, THE MATTER TRAVELLED TO THE TRIBUNAL WHEREIN IT WAS REMANDED BACK WITH SPEC IFIC DIRECTIONS FOR FRESH ASSESSMENT. THE ASSESSING OFFICER ON 30.3.2001 (FRE SH ASSESSMENT ORDER) MADE ADDITION OF RS.89,24,773/- (RS.6,20,000 ON ACC OUNT OF EXCESSIVE SHORTAGE IN RAPESEED OIL, RS.79,431 ON ACCOUNT OF D ISALLOWANCE OF PREVIOUS YEARS EXPENSES AND RS.82,25,342 ON ACCOUNT OF INFLA TED PURCHASES). THE TOTAL PAGE 9 OF 27 INCOME WAS COMPUTED AT RS.2,81,25,641/-. THE AMOUNT OF RS.79,431/- RELATES TO AN INCREMENT GRANTED TO EMPLOYEES OF THE ASSESSE E COMPANY AND THE EXPENSES RELATES TO THE AY 1991-92. THIS INCREMENT WAS ALLOWED TO THE EMPLOYEES IN FY 1990-91 WHEREAS A SETTLEMENT WAS FI NALLY REACHED IN FY 1991-92. THERE IS NO DISPUTE TO THE FACT THAT ALL R ELATED CORRESPONDENCE WAS FILED BEFORE THE ASSESSING OFFICER. HOWEVER, HE WAS NOT SATISFIED WITH THE EXPLANATION AND MADE THE DISALLOWANCE OF RS.79,431/ -. ADMITTEDLY THE LIABILITY CRYSTALISED IN THE LATER YEAR, THOUGH PERTAINING TO EARLIER YEAR, BUT IT IS ASCERTAINED AND QUANTIFIED, CONSEQUENTLY, IT HAS BE EN RIGHTLY CLAIMED. IT IS NOT THE CASE THAT THE LIABILITY IS BOGUS OR A TAX EVASI ON FORMULA HAS BEEN DEVISED. SINCE THE ASSESSEE COULD NOT ASCERTAIN THIS ADDL. L IABILITY OF INCREMENT IN THE PREVIOUS YEAR AND WAS FINALLY SETTLED IN OCT. 1991 (AY 1992-93), THEREFORE, THIS GROUND OF THE REVENUE IS HAVING NO MERIT SPECI ALLY WHEN NOTHING CONTRARY WAS BROUGHT ON RECORD BY THE REVENUE, CONSEQUENTLY, DISMISSED. 8. THE NEXT GROUND PERTAINS TO DELETING THE ADDITIO N OF RS.6,20,000/- MADE ON ACCOUNT OF EXCESSIVE SHORTAGE IN YIELD. THE LD. CIT, DR IS IN SUPPORT TO THE ASSESSMENT ORDER WHEREAS THE LD. COUNSEL FOR ASSESSEE DEFENDED THE IMPUGNED ORDER. OUR ATTENTION WAS INVITED TO PAGE 1 2 PARA 7 OF THE SYNOPSIS WHEREIN IT IS MENTIONED THAT YIELD WAS ACCEPTED FRO M 98.58 TO 99.24% IN EARLIER YEARS AND AS PER THE SOPA, IT CAN BE 90 TO 102%. THE ASSESSEE SHOWED THE YIELD AT 99.90%. WE HAVE PERUSED THE COM PARATIVE CHART (PAGES 592 TO 598 OF THE PAPER BOOK). THE ASSESSEE DULY PR ODUCED THE DAY-TO-DAY PAGE 10 OF 27 PRODUCTION/CONSUMPTION RECORD BEFORE THE ASSESSING OFFICER WHEREIN NO INFIRMITY WAS POINTED OUT. ADMITTEDLY, THE YIELD DE PENDS UPON SO MANY FACTORS. THE ASSESSEE INVITED OUR ATTENTION TO BAJR ANG EXTRACTIONS (PB 173) WHEREIN AS PER SOPA, THE YIELD WAS 101.3% BUT ACTUA LLY IT WAS 98.08%. IT WAS CLAIMED THAT IT HAS BEEN ACCEPTED BY THE DEPART MENT (PB 610 TO 613). SINCE THE ASSESSEE HAS FURNISHED QUANTITATIVE DETAI LS IN RESPECT OF PURCHASES, PRODUCTION AND SALES OF SOYABEAN, WHICH HAS NOT BEE N DOUBTED. THE YIELD SHOWN BY THE ASSESSEE IS ALSO COMPARABLE WITH THE Y IELD SHOWN IN THE EARLIER YEARS. IN OTHER COMPARABLE CASE OF M/S. BAJRANG EXT RACTION, THE YIELD WAS ACTUALLY 98.08% WHICH HAS BEEN ACCEPTED BY THE DEPA RTMENT. THUS, THESE FACTS SUPPORT THE CASE OF THE ASSESSEE. ACCORDINGLY , WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). CONSEQUENTLY, THERE IS NO MERIT IN THIS GROUND OF THE REVENUE, THEREFORE, DISMISSED. 9. THE LAST GROUND RAISED IS THAT THE LD. CIT(A) ER RED IN DELETING THE ADDITION OF RS.82,25,342/- MADE ON ACCOUNT OF BOGUS PURCHASES OF SOYA SEEDS. DURING HEARING OF THIS GROUND, THE LD. CIT, DR INVITED OUR ATTENTION THAT THERE IS ONE BHARAT MODI GROUP WHO SHOWED HUGE AGRI CULTURAL INCOME WHICH WAS FOUND TO BE BOGUS. IT WAS PLEADED THAT THE ASSE SSING OFFICER ONLY DISALLOWED THOSE TRANSACTIONS WHICH RELATES TO MODI GROUP. SHRI R.P. SHARMA, MANAGER OF MODI FAMILY WAS EXAMINED, WHO AS PER THE REVENUE, CLAIMED THAT ACTUALLY THERE WAS NO LEASE AGREEMENT. THE ASSESSEE MADE PURCHASES FROM THREE TRADERS AND OUT OF APPROX. RS.3 CRORES, ONLY RS.82 LAKHS WAS DISALLOWED PAGE 11 OF 27 OF WHICH THE BILLS WERE BOGUS. IT WAS CONTENDED THA T BILLS OF THOSE TRADERS WERE EXAMINED AND THE NUMBER OF VEHICLES CLAIMED AS TRUCKS WERE FOUND CONTAINING THE NUMBERS OF SCOOTERS. IT WAS FURTHER PLEADED THAT EITHER THE WEIGHMENT SLIPS WERE NOT SIGNED OR WERE FOUND BOGUS . PLEA WAS ALSO RAISED THAT NO BHADA CHITTHI WAS FOUND. ON THE OTHER HAND, THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT THE ASSESSEE MADE PURCHASES FROM THREE PARTIES I.E. M.M. GENERAL MERCHANTS, NILESH TRADERS/GARG TRADERS AND SHRI BHARAT MODI & FAMILY. IT WAS FAIRLY ADMITTED THAT THE AGRICULTURA L INCOME IN THE CASE OF BHARAT MODI WAS REJECTED. THE FOLLOWING CHART OF PU RCHASES/DISALLOWANCES WILL FURTHER CLARIFY THE POSITION: NAME OF THE PARTIES TOTAL PURCHASES MADE (IN RS.) DISALLOWANCE MADE BY THE AO (IN RS.) MM GENERAL MERCHANT 1,05,83,000 11,43,377 NILESH TRADERS 2,07,06,981 12,23,291 GARG TRADERS 56,71,226 58,58,673 TOTAL: 3,69,61,207 82,25,341 IN THE CASE OF SHRI BHARAT MODI, CERTAIN FARMERS WE RE EXAMINED AND ULTIMATELY, THE AGRICULTURAL INCOME, CLAIMED BY HIM , WAS FOUND TO BE BOGUS. THE ASSESSING OFFICER OUT OF THE TOTAL PURCHASES OF RS.3,69,61,207/- ONLY DISALLOWED RS.82,25,341/-. THE STAND OF THE ASSESSE E IS THAT THE BOOKS OF ACCOUNT ARE AUDITED AND THE PAYMENTS ARE BY ACCOUNT PAYEE CHEQUE. BROADLY WE ARE OF THE VIEW THAT IF THE BOOKS OF ACCOUNT ARE AUDITED OR THE PAYMENTS PAGE 12 OF 27 ARE MADE BY ACCOUNT PAYEE CHEQUE ALWAYS MAY NOT BE THE SOLE GROUND/CRITERIA TO CLAIM THAT THE TRANSACTIONS WERE GENUINE BECAUSE THE ATTENDANT CIRCUMSTANCES ARE SUPPOSED TO BE KEPT IN MIND. THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT THE ASSESSEE ALSO MADE PU RCHASES FROM MOHANLAL CHUNNILAL & CO, RAJAT INDUSTRIES, WHEREIN, BOTH THE SE CONCERNS ALSO MADE PURCHASES FROM BHARAT MODI & FAMILY BUT THE PURCHAS ES OF THE ASSESSEE FROM THESE CONCERNED WERE ACCEPTED BY THE DEPARTMENT (PB 169 PARA G). PLEA WAS ALSO RAISED THAT THE STATEMENT OF THIRD PARTY IS NO T BINDING IN THE CASE OF THE ASSESSEE. IT WAS ALSO POINTED OUT THAT AT THE DIREC TION OF THE TRIBUNAL, SHRI R.P. SHARMA WAS DIRECTED TO BE CROSS-EXAMINED. HOWE VER, DURING SET ASIDE PROCEEDINGS, HE DIED, THEREFORE, COULD NOT BE EXAMI NED. FACT REMAINS THAT SHRI R.P. SHARMA COULD NOT BE EXAMINED. THE PLEA OF THE ASSESSEE IS THAT THE STATEMENT OF A DEAD PERSON IS NOT AN ADMISSIBLE EVI DENCE SPECIALLY WHEN HE WAS NOT SUBJECTED TO CROSS-OBJECTION. THE RELEVANT PORTION OF THE STATEMENT OF SHRI R.P. SHARMA (PB PAGE 561, 656) IS REPRODUCED H EREUNDER: ESA C;KU UGHA NS LDRK A ESJS LJ ESA NNZ GS A FQJ FPYYKDJ CKSYK DH ESJH CSBZTTRH DH TK JGH GS A ESA L GH CKR CKSYQWAXKK RKS VKI D;K DJKSXS OG EQ>S EKJ MKYSX K A JKSUK EPK JGS GS VKSJ ESJH RFC;R [KJKC GS A ;G TK S VKIUS FY[KK GS OG EQ>S EKJ MKYSXK OG ESAUS UGHA FD;K GS A ADMITTEDLY, IN THE STATEMENT OF SHRI R.P. SHARMA, T HERE ARE CERTAIN CONTRADICTIONS. THE CLAIM OF THE ASSESSEE IS THAT T HE ASSESSEE MADE PURCHASES PAGE 13 OF 27 FROM THREE PARTIES AND THEY HAVE CONFIRMED. ANOTHER PLEA WAS RAISED THAT ASSESSEE IS NOT SUPPOSED TO EXPLAIN SOURCE OF SOURC E. 10. IF THE CONCLUSION DRAWN IN THE ASSESSMENT ORDER /IMPUGNED ORDER, FACTS OF THE CASE AND THE ARGUMENTS ADVANCED BY THE LD. R ESPECTIVE COUNSEL ARE KEPT IN JUXTAPOSITION AND ANALYSED, IT IS SEEN THAT THE PRODUCTION OF THE ASSESSEE AND SALES HAS NOT BEEN DOUBTED. WHILE DISP OSING OF GROUND NO.2 OF THIS APPEAL, THE ADDITION OF RS.6,20,000/- WAS DELE TED BY LD. CIT(A) ON ACCOUNT OF EXCESSIVE SHORTAGE IN YIELD HAS BEEN UPH ELD FOR THE REASON THAT PURCHASES, PRODUCTION AND SALES OF SOYBEAN HAD NOT BEEN DOUBTED. AS FAR AS THE STATEMENT OF SHRI R.P. SHARMA IS CONCERNED, IT IS AN ADMITTED FACT THAT CROSS-EXAMINATION OF SHRI SHARMA WAS NOT ALLOWED BY THE ASSESSING OFFICER. THE TRIBUNAL SET ASIDE THE APPEAL TO THE LD. ASSESS ING OFFICER WITH A DIRECTION TO CROSS-EXAMINE SHRI R.P. SHARMA. THE OBSERVATION OF THE TRIBUNAL FROM THE ORDER DATED 26.10.1998 (PB PAGE 109) IS REPRODUCED HEREUNDER: BEFORE US IT WAS VEHEMENTLY ARGUED ON BEHALF OF THE ASSESSEE THAT THE COPY OF THE STATEMENT DT. 14.2.1995 OF SHRI R.P. SHARMA WAS NOT SUPPLIED TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THEREFORE THE ASSESSEE WAS NOT IN A POSITION TO REBUT THE AOS ALLEGATION EFFECTIVELY . THE LD. DR ON VERIFICATION OF THE RECORDS ADMITTED BEFORE US THAT THE COPY OF STATEMENT OF SHRI R.P. SHARMA RECORDED ON 14.2.1995 IN CONNECTION WITH THE ENQUIRY OF MODI FAMILY WAS NOT GIVEN TO THE PAGE 14 OF 27 ASSESSEE AT THIS JUNCTURE, IT WAS CONSIDERED PROPER TO SET-ASIDE THIS ISSUE AND RESTORE IT BACK TO THE FILE OF THE AO FOR RE-DECISION AFTER HE HAS CONFRONTED THE ASSESSEE WITH THE STATEMENT OF SHRI R.P. SHARMA, MANAGER OF MODI GROUP OF FAMILY. IT IS PERTINENT TO MENTION HERE THAT AFTER THE SET -ASIDE PROCEEDINGS, IT WAS FOUND THAT SHRI R.P. SHARMA HAD ALREADY DIED, T HEREFORE, HE COULD NOT BE CROSS-EXAMINED, THEREFORE, THE ASSESSING OFFICER RE PEATED HIS EARLIER ORDER BY MAINTAINING THE ADDITIONS. NOW, QUESTION ARISES WHE THER THE STATEMENT OF A PERSON WHO HAS ALREADY DIED AND NO CROSS-EXAMINATIO N WAS PROVIDED TO THE ASSESSEE CAN BE RELIED UPON OR NOT. ONE VIEW IS THA T IT IS NOT AN ADMISSIBLE EVIDENCE (DORAISAMI VS. BALASUNDARA; A 1927 M 507; 52 MLJ 477). THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PRABHAVATI & OTHERS (231 ITR 188) (MP) WHEREIN THE ASSESSEE DIED BEFORE PROCEEDINGS FOR ASSESSMENT ARE COMPLETED, IT WAS HE LD THAT ASSESSMENT WAS VOID AB-INITIO FURTHER SUPPORTS THE CASE OF THE ASS ESSEE. HOWEVER, IT IS PERTINENT TO MENTION THAT THERE ARE CONTRADICTIONS IN THE STATEMENT OF SHRI R.P. SHARMA AS OUT OF AS MANY AS 72 QUESTIONS PUT T O HIM BY THE REVENUE, HE ANSWERED ALL QUESTIONS AND STATED THAT THE SALES WE RE MADE BY MODI GROUP TO AADTIYAS (COMMISSION AGENTS) AND THE ASSESSEE PURCH ASED THE PRODUCTS FROM AADTIYAS ONLY. EVEN IN THE SET-ASIDE PROCEEDINGS, N EITHER ANY INDEPENDENT INQUIRY WAS MADE BY THE ASSESSING OFFICER NOR ANY E VIDENCE WAS BROUGHT ON RECORD TO PROVE THAT THE EXPENDITURE WAS NOT ALLOWE D RATHER THE SAME PAGE 15 OF 27 ADDITIONS WERE REPEATED WHICH WERE DELETED BY THE L D. CIT(A). ANOTHER FACT WHICH GOES TO THE FAVOUR OF THE ASSESSEE IS THAT TH E ASSESSEE PURCHASES SOYBEAN FROM THREE TRADERS I.E. M/S. NILESH TRADERS , M/S. M.M. GENERAL MERCHANTS AND M/S. GARG TRADERS, WHO IN TURN, CLAIM ED TO HAVE PURCHASED SOYBEAN FROM BHARAT MODI FAMILY. THE PAYMENT WAS MA DE THROUGH CHEQUE AND THE DELIVERY OF GOODS WAS DULY TAKEN FROM THESE TRADERS, THEREFORE, IT CAN BE SAID THAT THE ASSESSEE IS NOT SUPPOSED TO PROVE THE SOURCE OF SOURCE. THERE IS NO DISPUTE TO THE FACT THAT THE BEHAVIOUR OF SHRI MODI WAS NON- COOPERATIVE DURING THE ASSESSMENT PROCEEDINGS AS IS EVIDENT FROM PAPER BOOK PAGE 166, 273 AND 155. EVEN SHRI R.P. SHARMA, MANAG ER OF SHRI MODI STATED THAT CROPS WERE GROWN AND AGREEMENTS WERE MADE WITH THE FORMERS FOR SUCH CROPS AND DELIVERY OF GOODS TO THE ASSESSEE ETC. TH E LD. ASSESSING OFFICER HAS TRIED TO ESTABLISH THAT MODI GROUP DID NOT GROW SOY BEAN AND THEY HAD NO AGRICULTURAL INCOME. EVEN IF THIS CLAIM OF THE REVE NUE IS ADMITTED TO BE CORRECT, STILL IT CAN BE SAID THAT THE ASSESSEE IS NOT CONCERNED WHETHER MODI GROUP PURCHASED SOYBEAN OR DID NOT GROW THE CROPS B ECAUSE THE ASSESSEE MADE PURCHASES FROM ABOVEMENTIONED THREE TRADERS, W HO HAVE CONFIRMED THE SALE OF SUCH GOODS WHICH WERE FURTHER FORTIFIED BY THE DELIVERY OF GOODS, PAYMENT MADE THROUGH CHEQUE. AS FAR AS THE ALLEGATION OF THE REVENUE THAT THE TR ANSPORT VEHICLE NOS. FURNISHED BEFORE THE DEPARTMENT WERE OF SCOOTER ETC . DURING HEARING OF THIS APPEAL, IT WAS EXPLAINED BY THE LD. COUNSEL FOR ASS ESSEE THAT THE SOYBEAN PAGE 16 OF 27 WAS DELIVERED THROUGH TRUCKS/FOUR-WHEELERS BY EXPLA INING THAT IN BETWEEN ALPHABET IN THE REGISTRATION NO. WERE WRONGLY MENTI ONED OR INADVERTENTLY LEFT BY THE WORKERS AND THE CORRECT NOS. WERE SUBSEQUENT LY FURNISHED TO THE ASSESSING OFFICER. IT WAS ALSO CLAIMED THAT RELEVAN T VERIFICATION FROM OFFICE OF THE RTO OF THE VEHICLES/TRUCKS WERE SUBMITTED (PB 3 87 TO 405), WHEREIN, NO DISCREPANCY WAS FOUND. IT WAS ALSO EXPLAINED THAT T HE ASSESSEE ADOPTED A PROPER PROCEDURE FOR RECEIVING THE GOODS SUPPORTED BY GATE-PASS, RECORDING OF TRUCK NO., GOODS WERE SUBJECTED TO LAB-TESTING, WEIGHMENT ETC. AND THE GOODS WERE DULY RECORDED IN THE STOCK REGISTER. IT WAS ALSO EXPLAINED THAT THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES AND WER E DEPOSITED IN THE BANK A/C OF SHRI KALA. DURING HEARING, IT WAS POINT ED OUT BY THE LD. DR THAT THE PAYMENTS WERE MADE TO SHRI KALA, WHO WITHDREW M ONEY FROM THE BANK AND SHRI BHARAT MODI FAMILY WAS GETTING ACCOMMODATI ON BY GETTING THEIR NAMES SUBSTITUTED IN NAMES OF ACTUAL SUPPLIERS AS M ODI WANTED ACCOMMODATION TO SHOW THAT HE WAS HAVING AGRICULTUR AL INCOME AND WAS DULY ACCOMMODATED. IT IS SEEN THAT ON 20.1.1992, RS.10,5 0,000/- WERE GIVEN BY THE ASSESSEE TO SHRI KALA FOR PURCHASE OF SOYBEAN. THIS AMOUNT WAS DEPOSITED IN THE A/C OF SHRI KALA ON 21.1.1992 AND SHRI KALA WITHDREW THIS AMOUNT. THE STAND OF THE REVENUE IS THAT SHRI MODI WAS ACCOMMODATED. WE ARE OF THE VIEW THAT EVEN IF IT IS PRESUMED THAT SH RI MODI WAS ACCOMMODATED, STILL THE LIABILITY CANNOT BE FASTENED UPON THE ASS ESSEE BECAUSE IF ANY BENEFIT HAS ARISEN, THAT MIGHT BE TO MODI FAMILY AND NOT TH E ASSESSEE. THE PURCHASES PAGE 17 OF 27 FROM M/S. GARG TRADERS AND M/S. NILESH TRADERS WERE DULY RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE GOODS SO RECE IVED WERE DULY RECORDED IN THE GATE-PASS AND NO DISCREPANCY WAS FOUND BY TH E REVENUE. EVEN IF SHRI PURSHOTTAM AGRAWAL WAS THE REAL OWNER OF M/S. GARG TRADERS, NO LIABILITY CAN BE FASTENED AGAINST THE ASSESSEE. EVEN OTHERWISE, I T CAN BE SAID THAT WITH FURNISHING THE DETAILS IN RESPECT OF PURCHASES, PRO DUCTION AND SALES OF SOYBEAN, ALL PARTIES FROM WHOM THE GOODS WERE PURCH ASED ARE NON-RELATED AND WHO HAVE CONFIRMED ON OATH THAT THEY SOLD THE G OODS TO THE ASSESSEE, ALL PAYMENTS WERE MADE BY THE ACCOUNT PAYEE CHEQUE, THE REFORE, NO LIABILITY CAN BE FASTENED UPON THE ASSESSEE. EVEN OTHERWISE, IF A NYTHING WRONG HAS BEEN DONE BY BHARAT MODI FAMILY IN ACQUIRING SOYBEAN, IT IS NOT THE CONCERN OF THE ASSESSEE AND THE SAME CANNOT BE THE BASIS FOR MAKIN G THE ADDITION BECAUSE THE ASSESSEE HAS DULY DISCHARGED THE ONUS CAST UPON IT BECAUSE EVEN OTHERWISE, THE ASSESSEE IS NOT EXPECTED TO PROVE TH E ORIGIN OF ORIGIN OR SOURCE OF SOURCE, CONSEQUENTLY, THERE IS NO INFIRMITY IN T HE CONCLUSION DRAWN BY THE LD. FIRST APPELLATE AUTHORITY. IT IS UPHELD. 11. IN THE RESULT, THIS APPEAL OF THE REVENUE IS DI SMISSED. 12. NOW WE SHALL TAKE UP THE APPEAL OF THE REVENUE IN ( ITA NO.867/IND/1998 ) WHEREIN FIRST GROUND RAISED IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. FIRST APPELL ATE AUTHORITY ERRED IN DELETING RS.2,61,430/- OUT OF THE TOTAL ADDITION OF RS.3,20, 367/- MADE ON ACCOUNT OF EARLIER YEARS EXPENSES. IN THE SECOND GROUND, THE R EVENUE HAS CHALLENGED PAGE 18 OF 27 ADMISSION OF FRESH EVIDENCE ON THE PLEA THAT IT WAS NOT PRODUCED DURING ASSESSMENT PROCEEDINGS. THE CONTENTION ON BEHALF OF THE REVENUE IS IN SUPPORT TO THE ASSESSMENT ORDER WHEREAS LD. COUNSEL FOR ASSESSEE DEFENDED THE IMPUGNED ORDER. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON THE FILE. BRIEF FACTS ARE THAT THE ASS ESSING OFFICER DISALLOWED RS.3,20,367/- ON THE GROUND THAT THE IMPUGNED EXPEN SES PERTAIN TO EARLIER YEARS AND CLAIMED IN AY 1991-92. THE ASSESSEE IS FO LLOWING THE MERCANTILE SYSTEM OF ACCOUNTANCY. THE RECEIPT AND EXPENSES WER E ACCOUNTED ON ACCRUAL AND ASCERTAINED BASIS. THE EXPENSES WERE DETERMINED ON FINALITY, CONSEQUENTLY, THE LIABILITY WAS SETTLED AFTER THE D ISPUTES WERE ALSO SETTLED, CONSEQUENTLY, FINALLY THE EXPENSES COULD BE QUANTIF IED IN THE SUBSEQUENT AY. WE ARE OF THE VIEW THAT SIMPLY BECAUSE CERTAIN EXPE NSES PERTAIN TO EARLIER YEARS MAY NOT BE A DECIDING FACTOR IN ALLOWING OR D ISALLOWING THE SAME IN SUBSEQUENT AY. IT IS NOT THE CASE THAT THE EXPENSES WERE BOGUS OR ASCERTAINED IN THE CONCERNED AY ITSELF. A BILL-WISE CHART CONTAINING AMOUNT, QUANTITY AND RATE OF SETTLEMENT WAS DULY SUBMITTED BY THE ASSESSEE EVIDENCING THAT THE LIABILITY ACTUALLY/FINALLY ASCE RTAINED AND DETERMINED DURING AY 1991-92. IT IS ALSO NOT THE CASE THAT THE IMPUGN ED EXPENSES WERE CLAIMED EARLIER. CERTAIN EXPENSES OF BOMBAY OFFICE COULD NO T BE SUBMITTED, CONSEQUENTLY, THE ASSESSING OFFICER DISALLOWED AN A MOUNT OF RS.1,95,885/- IN THE ABSENCE OF CERTAIN DETAILS WHICH PERTAIN TO PRE VIOUS YEAR. THE PREVIOUS PAGE 19 OF 27 YEAR EXPENSES CLAIMED AND DEBITED TO THE P & L ACCO UNT, THIS YEAR WERE TO THE TUNE OF RS.6,95,908/- AND WERE ALLOWED AS DEDUCTION THOUGH PERTAINING TO THE EARLIER YEAR IN THE ASSESSMENT ORDER FOR AY 1994-95 . THE LD. FIRST APPELLATE AUTHORITY HAS DULY CONSIDERED ALL THESE FACTS AND E VEN FOUND THAT FOR AY 1995- 96, THE ASSESSEE CLAIMED AN AMOUNT OF RS.11,20,796/ - TO BE ALLOWED AS DEDUCTION IN THE YEAR 1995-96 THOUGH THE SAME PERTA INS TO AY 1994-95. A ELABORATED ATTEMPT HAS BEEN MADE BY THE LD. FIRST A PPELLATE AUTHORITY AS IS EVIDENCED FROM PAGES 2 & 3. DURING HEARING, IT WAS POINTED OUT THAT THE DEPARTMENT HAS BEEN TAKING DIVERSION STAND ON IDENT ICAL ISSUE LIKE IN AY 1991- 92, HE DISALLOWED THE EXPENSES OF EARLIER YEAR WHIL E SUBSEQUENTLY IN AY 94-95, ALMOST ENTIRE EXPENSES PERTAINING TO EARLIER YEAR W ERE ALLOWED EXCEPT THE EXPENSES FOR WHICH NO DETAILS WERE SUBMITTED. WE HA VE FOUND THAT IN THE PRESENT AY, THE FULL DETAILS OF EXPENSES LIKE AMOUN T-WISE, QUANTITY-WISE, BILL- WISE AND DATE-WISE BILLS WERE SUBMITTED ALONG WITH THE DATE OF SETTLEMENT AND QUANTIFICATION. WHEN THE BILLS WERE SETTLED/ASCERTA INED IN THE SUBSEQUENT YEARS, SUCH LIABILITY HAS TO BE ALLOWED AS BUSINESS EXPENDITURE IN THE YEAR WHEN THEY ARE FINALLY SETTLED. IN VIEW OF THESE FAC TS AND THE ACCEPTED LEGAL POSITION, THERE IS NO INFIRMITY IN THE STAND OF THE LD. CIT(A). IT IS ALSO SEEN THAT THE LD. FIRST APPELLATE AUTHORITY HAS ONLY ALLOWED THE EXPENSES WHICH WERE FINALLY SETTLED AS THE AMOUNT OF RS.58,931/- WAS NO T ALLOWED WHERE THE ASSESSEE COULD NOT PROVE THAT SUCH LIABILITY WAS AC TUALLY ASCERTAINED/QUANTIFIED/DETERMINED IN THE ACCOUNTING YEAR 1990-91, RELEVANT TO PAGE 20 OF 27 AY 1991-92. EVEN OTHERWISE, FOR THE SAKE OF CONSIST ENCY, THE DEPARTMENT IS NOT PERMITTED TO TAKE A CONTRARY STAND THAT TOO WIT HOUT ADDUCING ANY CONTRARY MATERIAL/FACTS. OUR VIEW FINDS SUPPORT FROM THE DEC ISION CWT VS. ALLIED FINANCE P. LTD. (289 ITR 318) (DEL), UNION OF INDIA & OTHERS VS. KAUMUDINI NARAYAN DALAL & OTHERS (249 ITR 219) (SC) AND UNION OF INDIA VS. SATISH PANNALAL SHAH (249 ITR 221) (SC). IN VIEW OF THESE FACTS, THE AMOUNT OF RS.2,61,430/- WAS RIGHTLY ALLOWED AS BUSINESS EXPEN DITURE OUT OF TOTAL AMOUNT OF RS.3,20,357/- SPECIALLY WHEN THE REVENUE HAS NOT ADDUCED ANY EVIDENCE CONTRADICTING THE STAND OF THE LD. FIRST APPELLATE AUTHORITY. AS FAR AS ADMISSION OF FRESH ADMISSION IS CONCERNED, WE HAVE NOT FOUND ANY VIOLATION IN THE SAME SPECIALLY WHEN THE EVIDENCES WERE DULY PRODUCED BEF ORE THE ASSESSING OFFICER, CONSEQUENTLY, THERE IS NO MERIT IN GROUND NO.2 ALSO. BOTH THESE GROUNDS ARE, ACCORDINGLY, DISMISSED. 13. THE NEXT GROUND I.E. GROUND NO.3, RAISED IS THA T ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. FIRST APPELLATE AUTHORITY ERRED IN DELETING THE ADDITION OF RS.36,900/- MADE U/S 40A(3) OF THE ACT. THE STAND OF THE REVENUE IS THAT THE CASH PAYMENTS WERE MADE IN VIOLATION OF SEC. 40A(3) OF THE ACT WHEREAS THE CONTENTION OF THE ASSESSEE IS THAT CERT AIN PAYMENTS WERE MADE IN CASH DUE TO BUSINESS NEED AND EXCEPTIONAL AND UN AVOIDABLE CIRCUMSTANCES. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON FILE. IT IS SEEN THAT AMOUNT OF RS.36, 900 WAS PAID IN CASH TO ROYAL CONSULATE GENERAL, UAE IN CONNECTION WITH EXPORT EX PENSES MADE TO UAE FOR PAGE 21 OF 27 LEGALISATION OF DOCUMENTS PREPARED FOR EXPORTS SO M ADE. THE PAYMENT IN CASH WAS MADE DUE TO THE URGENT BUSINESS NEED AS THE ASS ESSEE WAS SUPPOSED TO GET THE DOCUMENT CLEARED IN ORDER TO AVOID DELAY OT HERWISE THERE WOULD HAVE BEEN FINANCIAL LOSS TO THE ASSESSEE. THERE IS A FIN DING THAT IN IDENTICAL SITUATION, CERTAIN PAYMENTS WERE ALLOWED FOR AY 199 2-93 ALSO. UNDER THESE FACTS, WE ARE OF THE VIEW THAT THE CASE OF THE ASSE SSEE IS COVERED BY RULE 6DD(J) OF THE IT RULES. THE ITO IS SUPPOSED TO TAKE A PRACTICAL APPROACH TO PROBLEMS AND STRIKE A BALANCE BETWEEN THE DIRECTION OF LAW AND HARDSHIP/EXCEPTION CIRCUMSTANCES TO THE ASSESSEE. H E SHOULD NOT ENMESH HIMSELF IN TECHNICALITIES. AFTER ALL, THE OBJECT IS NOT TO DEPRIVE OF THE ASSESSEE OF THE DEDUCTION WHICH HE IS OTHERWISE ENTITLED TO CLAIM UNLESS AND UNTIL CONTRARY FACTS ARE BROUGHT ON RECORD. THE OBJECT OF PROVISION OF SEC. 40A(3) IS TO CURB FLOW OF BLACK MONEY AND NOT TO PUT AN IMPED IMENT OVER THE TRADE AND BUSINESS. OUR VIEW FINDS SUPPORT FROM THE DECISION IN CIT VS. BRIJMOHAN & CO., (209 ITR 753) (P & H) AND GIRDHARILAL GOYANKA VS. CIT. THIS GROUND OF THE REVENUE IS, THEREFORE, DISMISSED. 14. THE NEXT GROUND RAISED IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. FIRST APPELLATE AUTHORITY ERRED I N DELETING THE ADDITION OF RS.7,87,130/- MADE ON ACCOUNT OF BOGUS PURCHASES. T HE LD. DR SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. COUNSEL FOR ASSESS EE DEFENDED THE IMPUGNED ORDER. PAGE 22 OF 27 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL AVAILABLE ON FILE. BRIEF FACTS ARE THAT THE ASSESSE E PURCHASED GOODS FROM M/S. GARG TRADERS AND MADE PAYMENTS BY ACCOUNT PAYEE CHE QUE. THE ASSESSEE REGULARLY MAINTAINED THE ACCOUNTS WHICH CLEARLY SHO WS THAT THE ASSESSEE PURCHASED AND RECEIVED GOODS FROM M/S. GARG TRADERS . THE BILLS/INVOICES ISSUED BY M/S. GARG TRADERS WERE PRODUCED BEFORE TH E ASSESSING OFFICER AND THE SAME WERE VERIFIED. THE ASSESSEE IS A PUBLIC LI MITED CO. AND THE TURNOVER IS RUNNING IN CRORES AND THE GOODS WERE PURCHASED I N NORMAL COURSE OF BUSINESS. THERE IS NO EVIDENCE ON RECORD THAT EITHE R THE GOODS WERE NOT PURCHASED OR WERE NOT TRANSPORTED/RECEIVED BY THE A SSESSEE COMPANY. PROPER ENTRIES WERE MADE IN THE STOCK REGISTER AND THE PRO DUCTION REGISTER. THE PRODUCTION HAS NOT BEEN DENIED, THEREFORE, WE ARE O F THE VIEW THAT THERE CANNOT BE ANY PRODUCTION WITHOUT RAW MATERIAL WHICH IS NOT POSSIBLE WITHOUT PURCHASES. SHRI PURUSHOTTAM AGRAWAL FROM M/S. GARG TRADERS CONFIRMED THE SALE WHICH WAS DULY SUPPORTED BY AN AFFIDAVIT, CONS EQUENTLY, THE SUSPICION OF THE LD. ASSESSING OFFICER IS NOT BASED UPON ANY MAT ERIAL FACT. WE ARE OF THE VIEW THAT SUSPICIOUS CANNOT TAKE THE SHAPE OF EVIDE NCE, HOWEVER STRONG IT MAY BE. THE BILL-WISE DETAILS OF PURCHASES FROM M/S . GARG TRADERS HAS BEEN MENTIONED IN THE ASSESSMENT ORDER ITSELF WHICH ARE AS UNDER: BILL NO. DATE AMOUNT (RS.) 3991 30.1.91 78631 3562 30.1.91 65878 PAGE 23 OF 27 3482 6.1.91 88662 3507 7.1.91 70182 3484 6.1.91 70890 3681 13.1.91 91392 3357 3.1.91 66113 3682 13.1.91 81032 3978 30.1.91 76674 TOTAL: 6,89,454/- DURING HEARING OF THE APPEAL, THE LD. REPRESENTATIV ES FROM BOTH THE SIDES CONTENDED THAT THIS ISSUE IS IDENTICAL TO GRO UND NO.3 IN ITA NO.354/IND/2001, THEREFORE, THE SAME ARGUMENTS MAY BE CONSIDERED FROM BOTH SIDES AS THE FACTS ARE IDENTICAL. IN VIEW OF T HIS FACT, THE STAND OF THE LD. FIRST APPELLATE AUTHORITY IS AFFIRMED. 15. IN GROUND NO.5, THE REVENUE IS DISSATISFIED WIT H THE DIRECTION OF THE LD. CIT(A) TO INCLUDE INTEREST INCOME OF RS.1,38,995/- WHILE ALLOWING THE DEDUCTION U/S 80HH & 80I. THE CRUX OF ARGUMENTS ON BEHALF OF THE REVENUE IS THAT NO NEXUS WAS PROVED BY THE ASSESSEE FOR WHICH OUR ATTENTION WAS INVITED TO PARA 7 OF THE ASSESSMENT ORDER AND ALSO PAGE 16 & 17 OF THE IMPUGNED ORDER. ON THE OTHER HAND, THE LD. COUNSEL FOR ASSES SEE DEFENDED THE IMPUGNED ORDER. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE NATURE OF THESE RECEIPTS AND ULTIMATELY, DISALLOWED. ON APPEAL, THE LD. CIT(A) HELD THAT THE PAGE 24 OF 27 INTEREST INCOME IS NOT TO EXCLUDED FROM THE GROSS T OTAL INCOME, CONSEQUENTLY, THE REVENUE IS AGGRIEVED AND IS IN APPEAL BEFORE TH E TRIBUNAL. THE INTEREST EXPENDITURE OF RS.72,04,655/- HAS BEEN CONSIDERED I N COMPUTING THE PROFITS OF THE ASSESSEE. THE INTEREST INCOME OF RS.1,38,995/- EVEN IF TAXED AS INCOME FROM OTHER SOURCES, AND THOUGH IT MAY NOT BE DERIVE D FROM THE INDUSTRIAL UNDERTAKING, THEN ALSO, THE SAME FORMS PART OF GROS S TOTAL INCOME AND THAT STAGE, THE TOTAL AMOUNT ELIGIBLE FOR DEDUCTION U/S 80HH/80I HAS TO BE COMPUTED AFTER CONSIDERING SUCH INTEREST INCOME AS PART OF GROSS TOTAL INCOME. ACCORDINGLY, THE STAND OF THE LD. CIT(A) IS CONFIRMED. 16. THE NEXT GROUND PERTAINS TO DIRECTING THE ASSES SING OFFICER TO INCLUDE THE AMOUNT OF RS.8,74,929/- ON ACCOUNT OF SUNDRY BA LANCES WRITTEN OFF WHILE ALLOWING DEDUCTION U/S 80HH & 80I THOUGH THE BALANC ES WRITTEN OFF REPRESENTED SUNDRY DISCOUNT RECEIVED ON PURCHASES O F GOODS. THE LD. COUNSEL FOR THE REVENUE SUPPORTED THE ASSESSMENT ORDER, WHE REAS, THE LD. COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDER. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON FILE. BRIEF FACTS ARE THAT THE ASSESSI NG OFFICER EXCLUDED CERTAIN ITEMS FROM THE TOTAL INCOME WHILE CALCULATING THE Q UANTUM OF DEDUCTION ALLOWABLE U/S 80HH & 80I. THE STAND OF THE ASSESSEE IS THAT THE SUNDRY BALANCES WRITTEN OFF REPRESENTS DISCOUNT RECEIVED O N PURCHASE OF GOODS SUCH AS SOYA ETC. WHICH WAS CONSUMED FOR PRODUCTION OF S OYA OIL. THE MANUFACTURING RECEIPTS ARE INTEGRALLY CONNECTED WIT H THE PURCHASE OF RAW PAGE 25 OF 27 MATERIAL FOR THE PRODUCTION OF SOYA OIL, CONSEQUENT LY, IT CANNOT BE SEPARATED FROM INDUSTRIAL UNDERTAKING SINCE IT IS CLOSELY REL ATED TO PURCHASE OF GOODS AND REDUCTION IN THE COST OF PURCHASES WHICH WAS ALLOWE D BY WAY OF REBATE AND DISCOUNT, THEREFORE, IT WILL CONSTITUTE INCOME DER IVED FROM INDUSTRIAL UNDERTAKING. THOUGH THE ASSESSEE HAS GROUPED IT UND ER SUNDRY BALANCES WRITTEN OFF BUT IS INCOME DERIVED FROM INDUSTRIAL UNDERTAKING, THEREFORE, IT IS AN ELIGIBLE DEDUCTION. THE STAND OF THE LD. CIT(A) IS UPHELD. 17. IN THE NEXT GROUND, THE REVENUE IS AGGRIEVED BY THE DIRECTION TO THE ASSESSING OFFICER NOT TO DEDUCT/REDUCE THE AMOUNT O F DEDUCTION ALLOWED U/S 80HH WHILE ALLOWING DEDUCTION U/S 80HH & 80I. THE LD. COUNSEL FOR THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS THE ASSESSEE DEFENDED THE IMPUGNED ORDER. RELIANCE WAS PLACED UPON THE DECISI ON OF THE HONBLE JURISDICTIONAL HIGH COURT IN JB TOBACCO P. LTD. VS. CIT, 229 ITR 123 (MP). WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL AVAILABLE ON FILE. WITHOUT GOING INTO MUCH DELIBERA TION AND IN VIEW OF THE BINDING DECISION FROM THE HONBLE JURISDICTIONAL HI GH COURT IN J.P. TOBACCO PRODUCTS P. LTD. (SUPRA) WHEREIN IT WAS HELD THAT F OR COMPUTING RELIEF U/S 80I, THE RELIEF GRANTED U/S 80HH IS NOT TO BE DEDUCTED F ROM GROSS TOTAL INCOME, THEREFORE, THERE IS NO INFIRMITY IN THE STAND OF TH E LD. CIT(A), CONSEQUENTLY, IT IS UPHELD EVEN AS AGREED BY THE LD. COUNSEL FROM BO TH SIDES DURING HEARING OF THIS APPEAL. THIS GROUND OF THE REVENUE IS, THEREFO RE, DISMISSED. PAGE 26 OF 27 18. THE LAST GRIEVANCE OF THE REVENUE IS THAT ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. FIRST APPELLATE AUTHORITY ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 80I ON GROSS TOTAL INCOME WITHOUT ALLOWING THE DEDUCTION U/S 80HH OF THE ACT. THE LD. REPRESENTATIVES FROM BOTH SIDES FAIRLY AGREED THAT THERE IS NO INFIRMITY IN T HE IMPUGNED ORDER. IN VIEW OF THIS ARGUMENT, WE ARE IN AGREEMENT WITH THE CONCLUS ION OF THE LD. CIT(A) BECAUSE SUB-SEC. 9 TO SEC. 80HH IS ONLY CLARIFICATO RY SETTING PREFERENCE FOR ALLOWANCE FOR VARIOUS DEDUCTIONS UNDER CHAPTER VIA AS IT DOES NOT STIPULATES REDUCTION OF TOTAL INCOME FROM THE GROSS TOTAL INCO ME FOR CALCULATING DEDUCTION U/S 80I. SEC. 80B(5) R.W. 80A & 80AB ARE VERY MUCH CLEAR WHICH DEFINES THE GROSS TOTAL INCOME ELIGIBLE FOR DEDUCTION UNDER CHA PTER VIA. SEC. 80AB IS DECLARATORY IN NATURE AS WAS HELD BY THE HONBLE BO MBAY HIGH COURT IN GRASIM INDUSTRIES LTD. VS. ACIT (115 TAXMAN 278) (B OM) AND N.N. BHAGWATI VS. CIT (247 ITR 206) (SC). SEC. 80AB STARTS WITH T HE WORD WHERE ANY DEDUCTION IS REQUIRED TO BE MADE OR ALLOWED UNDER A NY SECTION INCLUDED IN THIS CHAPTER AND FURTHER PROVIDES THAT NOTWITHSTANDING ANYTHING CONTAINED IN THAT SECTION, THUS, SEC. 80AB HAS BEEN GIVEN AN OV ERRIDING EFFECT OVER ALL OTHER SECTIONS IN CHAPTER VIA. EVEN OTHERWISE, THE DECISION IN THE CASE OF J.P. TOBACCO PRODUCTS P. LTD. (SUPRA) IS VERY MUCH BINDI NG ON THE ISSUE. IN VIEW OF THIS FACT, THE STAND OF THE LD. CIT(A) IS AFFIRMED. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. PAGE 27 OF 27 FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLO WED, WHEREAS, APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.11.2009 . SD/- SD/- (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27.11.2009 !VYAS! COPY TO: APPELLANT/RESPONDENT/CIT/CIT(A)/DR