DCIT, BHILWARA V. M/s. Fashion Suitings Pvt. Ltd., BHILWARA

ITA 407/JODH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1611 (ITAT-JODHPUR)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-01-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 12-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Business income; Business expenditure; Opportunity of being heard; Rule of consistency; Additional evidence; Question of law; Reasonable cause; Fair market value; Corroborative evidences; Commercial expediency; Capital expenditure
• Section: 43B; 143(3); 234B; 37(1); 68; 263

Judgement Text

[1] IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NO.357/JODH/2012 ASSESSMENT YEAR:2009-10 M/S FASHION SUITINGS PVT. LTD., VS. JT.C.I.T., BHILWARA. BHILWARA RANGE, PAN:AAACF3294L BHILWARA. (APPELLANT) (RESPONDENT) I.T.A.NO.407/JODH/2012 ASSESSMENT YEAR: 2009-10 JT. C.I.T., VS. M/S FASHION SUITINGS PVT. LT D. BHILWARA RANGE, BHILWARA. BHILWARA, (APPELLANT) ASSESSEE BY : SHRI U. C. JAIN, SHRI RAJENDRA JAIN, ADVOCATES SHRI GAUTAM BAID REVENUE BY : SHRI SUBHASH CHANDRA, CIT, D. R. DATE OF HEARING : 22/01/2013 DATE OF PRONOUNCEMENT : 11.02.2013 ORDER PER BENCH: THESE CROSS APPEALS BY THE ASSESSEE AND THE DEPART MENT ARE DIRECTED AGAINST THE ORDER DATED 03/09/2012 OF CIT( A), AJMER. SOME ISSUES INVOLVED IN THESE APPEALS ARE COMMON AND THE APPEALS WERE HEARD [2] TOGETHER, SO THESE ARE BEING DISPOSED OF BY THIS CO NSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE WILL DEAL WITH THE ASSESSEES APPEAL IN I.T.A. NO.357/JODH/12. IN THIS APPEAL, THE ASSESSEE HAS R AISED THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) ERRED IN ARBITRARILY SUSTAINING THE DISA LLOWANCE MADE BY THE LD. AO FOR A SUM OF RS.1,25,00,00,000/- OUT OF PAYMENT OF RS.1,59,30,34,605/- HOLDING THAT SUCH PA YMENT WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF B USINESS. DISALLOWANCE SO SUSTAINED MAY KINDLY BE DELETED. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF RS.5,35,532/- U/S 43B. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE TO THE EXTENT OF RS.50,00,000/- OUT OF TOTAL DISALLOWANCE MADE BY LD. AO FOR RS.2,25,02,544/- FOR DAMAGE VALUE LOSS W ITHOUT APPRECIATING THE SUBMISSION OF THE APPELLANT THAT T HE WORKING OF THE LD. AO WAS GROSSLY ERRONEOUS. DISALL OWANCE SO SUSTAINED MAY KINDLY BE DELETED. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE THE EXPENSE ON FREIGHT FOR RS.27,03,858/-ON PROPORTION BASIS U/S 40(A)(IA) WITHOUT APPRECIATING THAT THE SHORT DEDUCTION WAS ON ACCOUNT OF LOWER DEDUCTION CERTIFI CATE OBTAINED BY THE PAYEE FROM THE INCOME TAX AUTHORITI ES AND WITHOUT CONSIDERING THE DECISION OF HON'BLE KOLKATA BENCH IN THE CASE OF DCIT VS M/S S K TEKRIWAL [48 SOT 515 (KOL)]. THE DISALLOWANCES SO SUSTAINED MAY KINDLY BE DELETE D. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE OF THE DIRECTOR REMUNERATION FOR RS.17,81,852/- MADE BY TH E [3] LD. AO ON THE BASIS THAT THE INCREASE IN THE DIRECT OR REMUNERATION FROM THE PREVIOUS YEARS IS EXCESSIVE AND UNREASONABLE. THE DISALLOWANCE SO SUSTAINED MAY KINDLY BE DELETED. 6. WITHOUT PREJUDICE TO ABOVE AND IN THE ALTERNATIV E: A) THE DISALLOWING OF THE DIRECTOR REMUNERATION ON THE BASIS THAT THE SAME IS INCREASED FROM THE DIRECTOR REMUNERATION PAID IN EARLIER YEAR IS ERRONEOUS PARTICULARLY WHEN THE AMOUNT PAID IN TH E YEAR UNDER CONSIDERATION WAS VERY REASONABLE THOUGH HIGHER THA N THE EARLIER YEAR. B) DISALLOWANCE U/S 40A(2) CAN BE MADE ONLY IF THE AO FOUND ANY PAYMENT TO SPECIFIED PERSON UNREASONABLE OR EXC ESSIVE, BUT SUCH SECTION DID NOT EMPOWER THE AO TO DISALLOW THE PAYMENT MADE TO SPECIFIED PERSONS ON THE BASIS THAT THE SAME WAS IN EXCESS THAN THE PAYMENT IN THE EARLIER YEAR. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) ERRED IN SUSTAINING THE FINDING OF THE L D. AO THAT THAT RS.6,23,832/- BEING THE LOSS SUFFERED BY THE C OMPANY IN THE SHARES TRANSACTION THROUGH PMS IS NOT BUSINE SS ACTIVITY PARTICULARLY WHEN THE SAME TRANSACTION WER E TREATED AS BUSINESS INCOME/ (LOSS) IN EARLIER YEARS. 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE CHARGING OF INTEREST U/S 234B IS ERRONEOUS. 9. THAT THE PETITIONER MAY KINDLY BE PERMITTED TO R AISE ANY ADDITIONAL OR ALTERNATIVE GROUND AT OR BEFORE THE T IME OF HEARING. 10. THE PETITIONER PRAYS FOR JUSTICE & RELIEF. 3. THE ASSESSEE HAS ALSO RAISED TWO ADDITIONAL GROU NDS, WHICH READ AS UNDER: 11. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSMENT ORDER PASSED BY THE LEARNED JCIT, BHILWA RA RANGE, BHILWARA WAS BAD IN LAW AND WITHOUT JURISDIC TION. [4] 12. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) OUGHT TO HAVE ANNULLED THE ASSESSMEN T ORDER PASSED BY THE LEARNED JCIT WHICH WAS WITHOUT DUE OPPORTUNITY TO THE ASSESSEE. 4. DURING THE COURSE OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR THE ADDITIONAL GROUNDS AND THE GROUND NOS . 9 AND 10 ARE GENERAL IN NATURE SO THESE DO NOT REQUIRE ANY COMMENT ON OUR PART. 5. VIDE GROUND NO. 1, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE SUSTENANCE OF DISALLOWANCE MADE FOR A SUM OF RS.125 CRORE OUT OF PAYMENT OF COMMISSION OF RS.159,30,34,605/-. 6. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE T HAT THE ASSESSEE FILED ITS E-RETURN ON 30/09/2009 DECLARING AN INCOME OF RS.38 ,09,12,700/-. THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSEE DERIVED INCOME FROM BUSINESS OF TEXTILE (FABRICS), FMCG PRODUCTS, READYMADE GARMENTS ETC. A ND ALSO SOLD ITS PRODUCTS THROUGH THE NETWORK OF ITS DISTRIBUTORS. DURING TH E YEAR THERE WAS AN ACTION AGAINST THE ASSESSEE COMPANY BY THE LOCAL POLICE AN D A CASE WAS REGISTERED UNDER THE PRIZE CHIT AND MONEY CIRCULATION (PROHIB ITION) ACT, 1978 ON 09/12/2011 AND THE BUSINESS PREMISES, BOOKS OF ACCO UNT ETC. WERE SEIZED, OPERATION OF BANK ACCOUNT WAS SUSPENDED AND THE EMP LOYEES OF THE COMPANY WERE ALSO DETAINED BY THE POLICE, THE ASSESSMENT PR OCEEDINGS WERE IN PROGRESS AT THAT TIME AND THE CASE WAS GETTING BARRED BY LIM ITATION ON 31/12/2011. THE AO ASKED THE ASSESSEE TO FURNISH VARIOUS DETAILS, WHIC H COULD NOT BE FURNISHED BECAUSE THE PREMISES OF THE ASSESSEE WERE SEIZED BY THE POLICE. DURING THE [5] COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED T HAT THE ASSESSEE HAD CLAIMED COMMISSION FOR RS.1,59,30,34,605/- IN RCM B USINESS I.E. MULTILEVEL MARKETING BUSINESS. HOWEVER, THE AO WAS OF THE VI EW THAT EVERY AGENT OF THE ASSESSEE HAS TO MAKE A CHAIN OF COMMISSION AGENTS A ND AGENTS MAKE A CHAIN OF MEMBERS AS LONG AS POSSIBLE. THE SAME HAD ALSO BEEN GATHERED FROM THE NEWSPAPER REPORTS RELATED TO THE CASE. THE AO ALSO REFERRED THE REPLIES DATED 07/03/2011 AND 11/11/2011 BY THE ASSESSEE WHEREIN I T WAS STATED AS UNDER: THE COMPANY HAS DISTRIBUTED THE COMMISSION TO DIS TRIBUTORS ON MONTHLY BASIS. THIS KIND OF CHAIN GRADUALLY ENCOMP ASSES A GREAT NETWORK IN ALL OVER INDIA FROM WHICH COMPANY IS ENG AGING GREAT BENEFIT OF MARKETING. THE DISTRIBUTORS WHOSE CHAIN OF PERSONS IS THE LONGEST, ELIGIBLE TO GET MORE COMMISSION, THAT IS M OST SIGNIFICANT THING TO MOTIVATE THE DISTRIBUTION FOR MAKING DISTR IBUTOR OF THE COMPANY CONTINUOUSLY... THE COMPANY HAS PAID COMMISSION TO SPECIFIED PERSONS DU RING THE YEAR. IT IS SUBMITTED THAT THE ABOVE COMMISSION HAS BEEN CALCULATED AND PAID AS PER THE COMPANY'S POLICY. THE COMPANY I S A MLM COMPANY AND COMMISSION IS PAID TO ALL THE MEMBERS WHO ARE S TANDING IN THE CHAIN. THE COMMISSION CALCULATION IS FULLY SOFTWARE DETERMINED & SOFTWARE BASED AND THERE IS NO INTERVENTION OR DISC RETION IN DECIDING THE COMMISSION FIGURE. THE AMOUNT OF COMMISSION IS CALCULATED ON BASIS OF BUSINESS OF THE COMPLETE CHAIN AND LEVEL O F THE MEMBER IN THE CHAIN. SO, THERE IS NO POSSIBILITY OF GIVING AN Y EXCESS COMMISSION OR UNDUE HIGHER COMMISSION TO THE SPECIFIED PERSONS . WE SHALL PRODUCE IN NEXT HEARING THE CALCULATION SYSTEM OF C OMMISSION APPLICABLE TO RELEVANT YEAR, ON THE BASIS OF WHICH COMMISSION HAS BEEN GIVEN TO THE AGENTS OF THE COMPANY IRRESPECTIV E OF THE FACT THAT THEY ARE RELATIVE OR NOT. THUS, AS THE CALCULA TION IS BASED ON FIXED SYSTEM, NO POSSIBILITY OF THE EXCESS COMMISS ION EXIST. TDS HAS BEEN DEDUCTED AT APPLICABLE RATES 6.1 ON THE BASIS OF THE ABOVE, THE AO WAS OF THE VI EW THAT EVERY AGENT TRIES TO MAKE A CHAIN OF AGENTS AS LONG AS POSSIBLE AND THAT IN RESPECT OF GOODS SOLD BY [6] THE LAST MEMBER IN THE CHAIN, EACH AND EVERY MEMBER ABOVE IN THE CHAIN ALSO GETS ITS COMMISSION. THE AO WAS ALSO OF THE VIEW T HAT A VERY LITTLE PART OF COMMISSION PAID ACTUALLY GOES TO THE PERSON WHO HAS ACTUALLY SOLD THE PRODUCTS I.E. WHO HAS RENDERED THE SERVICE AND REST GOES TO THE ENTIRE CHAIN OF PERSONS ABOVE WHO HAD NOT RENDERED ANY SERVICE IN THIS REGA RD WHICH SHOWS THAT OUT OF SUCH HUGE CLAIM OF COMMISSION MADE BY THE ASSESSEE FOR RS.159.3 CRORES, VERY LITTLE COMMISSION HAD ACTUALLY BEEN PAID FOR THE AC TUAL SERVICES RENDERED BY THOSE COMMISSION AGENTS. THE ASSESSING OFFICER, THEREFOR E, ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY OUT OF THE ABOVE CLAIM, PART O F THE COMMISSIONS CLAIMED BY IT SHOULD NOT BE DISALLOWED AND ADDED BACK TO ITS I NCOME AND TAXED IN ITS HANDS IN RESPECT OF WHICH NO SERVICES HAD BEEN RENDERED. IN LIEU OF THE ABOVE, THE ASSESSEE FURNISHED REPLY DATED 21/12/2011 AS MENTIO NED AT PAGE NOS. 4 TO 8 OF THE ASSESSMENT ORDER DATED 30/12/2011, THE SAME IS REPRODUCED VERBATIM AS UNDER: THE ASSESSEE IS A DIRECT MARKETING COMPANY I.E. IT IS MARKETING TO THE PEOPLE, FOR THE PEOPLE AND BY THE PEOPLE. N O INTERMEDIATES ARE INVOLVED AS IN THE NORMAL MARKETING COMPANY. IN A NORMAL MARKETING COMPANY, THERE IS A COMPLETE CHAIN OF INT ERMEDIATES I.E. COUNTRY DISTRIBUTOR, STATE DISTRIBUTOR, AREA DISTRI BUTOR, WHOLE SELLER, RETAILERS, BROKERS ETC, WHICH EATS UP ALL THE COMMI SSION. FURTHER, NORMAL MARKETING COMPANIES LIKE HINDUSTAN UNILEVER ETC. HAVE TO DO LOT OF MARKETING THROUGH PRINT AND MEDIA. ALL T HESE (APPROX.) 40-50% OF PRODUCT SALEL PRICE GOES IN HANDS OF THE MEDIATORS. WHILE IN CASE OF THE ASSESSEE COMPANY, EVERY CONSUM ER IS DOING DUAL ROLE I.E. THE CONSUMER IS AGENT OF THE COMPANY AS WELL AS FINAL [7] CONSUMER. THE COMMISSION WHICH WAS RESTRICTED TO FE W PERSONS IN A NORMAL MARKETING FIRM GETS DISTRIBUTED AMONG THE GENERAL CONSUMER. THIS SYSTEM OF MARKETING (I.E. NETWORK MA RKETING) IS A VERY COMMON SYSTEM, FINDING PLACE IN MOST OF THE CO UNTRIES OF WORLD. VARIOUS SYSTEM AND FORMULATIONS ARE AVAILABL E IN THIS MARKETING, AMWAY INDIA., TUPPERWARE, ORIFLAME, MEDI CATE, MARY KAY COSMETICS, K-LINK HEALTHCARE, AVON BEAUTY, AMC COOKWARE ETC ARE FOLLOWING SAME SYSTEM OF MARKETING AND DOIN G HUGE BUSINESS IN INDIA. WHATEVER COMMISSION IS GENERATED IS DISTRIBUTED IN A FIXED PATTERN AMONG THE WHOLE CHAIN (NETWORK) ON PREDETERMINED BA SIS. THE OVERALL COMMISSION IS FIXED AND THE PATTERN OF DIST RIBUTION HAS BEEN DESIGNED BY THE COMPANY TO SUIT ITS REQUIREMENT AS PER ITS BUSINESS POLICY. EVERY PERSON ASSOCIATED WITH THE C OMPANY IS AN AGENT OF THE COMPANY AND HE DIRECTLY- INDIRECTLY CO NTRIBUTES TO ANY GIVEN SALES. IT IS THE OUTLOOK OF THE MANAGEMENT TO DECIDE THE PATTERN TO DISTRIBUTE COMMISSION. EVEN, THE DIRECTO RS CANNOT MODIFY THE PATTERN OF DISTRIBUTION. THE PROCEDURE FOR DIST RIBUTION OF COMMISSION IS CLEARLY PROVIDED TO EVERY AGENT AT TH E TIME OF HIS ASSOCIATION WITH THE COMPANY. IT IS THE CONSTITUTIONAL RIGHT OF THE ASSESSEE TO D O BUSINESS. THE BUSINESSMEN CANNOT BE CHALLENGED FOR HIS BUSINESS D ECISION FOR HOW TO DO BUSINESS AND HOW TO DISTRIBUTE COMMISSION . COMMERCIAL EXPEDIENCY IS TO BE DECIDED BY THE BUSINESSMEN. IT IS ON THE BUSINESSMEN TO THINK WHETHER ANY EXPENDITURE IS EXC ESS OR NOT. THE ASSESSEE HAS DONE A BUSINESS AND EARNED PROFITS FROM IT. HE HAS PAID INCOME TAX AND ALL THE OTHER APPLICABLE TA XES ON IT. HE HAS DEDUCTED TDS ON THE EVERY ELIGIBLE EXPENSE. HE HAS SUFFICIENT PROOF OF EACH AND EVERY COMMISSION PAYMENT I.E. HE HAS COMPLETE DETAILS OF EACH AND EVERY AGENT, HIS NAMES, PAN, AD DRESS, BUSINESS DONE BY HIM DURING THE MONTH, CALCULATION SYSTEM OF COMMISSION. THE DEDUCTION OF COMMISSION HAS BEEN CL AIMED U/S 37(1). SECTION 37(1) IS A GENERAL PROVISION WHICH P ROVIDES FOR SOME POSITIVE CONDITION AND NEGATIVE CONDITION. IF THE P OSITIVE CONDITIONS ARE FULFILLED, THE EXPENSE IS ALLOWABLE. THE ASSESS EE HAS COMPLIED WITH THE PROVISIONS OF INCOME TAX WHICH REQUIRES CO MPLIANCE OF FOLLOWING CONDITIONS FOR CLAIMING ANY EXPENSE:- O IT SHOULD NOT BE A CAPITAL EXPENDITURE. [8] O IT SHOULD NOT BE A PERSONAL EXPENDITURE. O IT SHOULD BE INCURRED IN THE PREVIOUS YEAR. O IT SHOULD BE IN THE RESPECT OF THE BUSINESS OF THE ASSESSEE. O IT SHOULD NOT BE PROHIBITED BY LAW FOLLOWING CASE LAWS HAVE BEEN REFERRED FOR CONSIDER ATION :- CITV. INDIAN MOLASSES CO. (P) LTD. [1970] 78 ITR 47 4 (SC) JK COTTON MFRS. LTD. V. CIT [1975] 101 ITR 221 (SC) SASSON J. DAVID & CO. (P) LTD. VS. CIT [1979] 118 I TR 261 (SC) FURTHER, THE COMMISSION EXPENDITURE ALSO PASSES THE POSITIVE AND NEGATIVE TEST COINED BY GUJARAT HIGH COURT IN CIT V . NAVSARI COTTON SILK MILLS AND OF KERALA HIGH COURT IN RAM BHADUR T HAKUR V. CIT, WHICH MAY KINDLY BE REFERRED. THE OBJECTIVE OF INCOME TAX IS TO TAX THE INCOME I. E. PROFITS. THE WORD PROFIT IS TO BE UNDERSTOOD IN ITS NATURAL AND PROPER SENSE - IN A SENSE IN WHICH NO COMMERCIAL MAN WOULD MISUNDERSTOO D (GRESHAM LIFE ASSURANCE SOCIETY V. STYLES (SURVEYOR OF TAXES ) [1892] 3 TC 185 (HL). AND IN OUR SENSE, COMMISSION PAID TO AGENTS CANNOT BE AT ALL UNDERSTOOD AS PROFITS OF THE COMPANY FROM ANY RATIO NAL PERSPECTIVE. IN CIT V. NATIONAL BEARING CO. LTD, IT WAS HELD THA T UNDER INCOME TAX ACT, THOUGH THE PRINCIPLE OF RES JUDICATA ARE N OT APPLICABLE AND THE ASSESSEE AS WELL AS DEPARTMENT IS FREE TO CHALL ENGE THE ORDER IN A DIFFERENT YEAR, JUDICIAL PROPRIETY REQUIRES CONSI STENCY. IN CIT V. VELIMALAI RUBBER CO. LTD. [1990] 048 TAXM AN 0356 : [1990] 181 ITR 0299: HIGH COURT OF KERALA, IT WAS H ELD THAT THOUGH THE PRINCIPLE OF RES JUDICATA WILL NOT APPLY TO INC OME TAX PROCEEDINGS, WHEN A QUESTION OF LAW OR FACT IS DECI DED IN THE ASSESSEE'S OWN CASE FOR AN EARLIER ASSESSMENT YEAR, AND THE IDENTICAL QUESTION COMES UP FOR CONSIDERATION FOR A LATER YEAR, THE TRIBUNAL WILL BE JUSTIFIED IN PLACING RELIANCE ON T HE EARLIER DECISION TO BASE ITS CONCLUSION, IN THE ABSENCE OF ANY NEW MATE RIAL OR CHANGE IN CIRCUMSTANCES OF A FRESH LOOK NECESSITATED ON EX ISTING FACTS ON A CLOSER AND MORE INTELLIGENT ANALYSIS. [9] EVERY ASSESSEE KNOWS WHAT IS HIS BEST INTEREST (CIT V.DHANRAJGIRI RAJAJ NARASINIRIGJI & CIT V. MOTOR INDUSTRIES CO. L TD. THE DEPARTMENT CANNOT DICTATE THE CIRCUMSTANCES IN WHICH EXPENDITURE IS TO BE INCURRED. THE JURISDICTION OF THE REVENUE IS CONFINED TO DECIDING THE REALITY OF THE EXPENDITURE NAMELY, WHETHER THE AMOUNT OF EXPENDITURE HAS BEEN ACTUALLY INCURRE D OR NOT AND WHETHER IT WAS FOR BUSINESS PURPOSE ONLY OR NOT. S UPREME COURT HAS STRICTLY AND QUITE DEADLY SPECIFIED THAT TO DO BUSINESS AND HOW TO DO BUSINESS IS THE DISCRETION OF THE MANAGEMENT. HERE WHAT IS MORE IMPORTANT IS TO VERIFY THAT THE WHATEVER EXPEN DITURE HAS BEEN DONE IS FOR BUSINESS PURPOSE ONLY AND NO PERSONAL USE HAS BEEN MADE FROM IT. THE EXPENDITURE SHOULD BE VERIFIABLE FROM BOOKS OF ACCOUNTS. COMMISSION IS PAID UNDER A BUSINESS AGREEMENT AND H AS A LEGAL FORCE BEHIND IT. THE ASSESSEE IS UNDER LAW BOUND TO PAY THE AMOUNT AS PER CONTRACTUAL AGREEMENT. THE PAYMENT IS MADE F OR COMMERCIAL EXPEDIENCY. THE PAYMENT OF COMMISSION IS AN INTEGRA L PART OF PROFIT EARNING PROCESS BECAUSE THE BUSINESS COULD NOT HAVE PROCEEDED WITHOUT INCURRING THAT COMMISSION. FURTHER, YOUR IN FERENCE THAT COMMISSION IS PAID TO ALL MEMBERS WHO ARE IN CHAIN IS WRONG. COMMISSION IS PAID ON FULFILLMENT OF CERTAIN CONDIT IONS WHICH RESULT IN COMMISSION BEING DISTRIBUTED TO PERSONS WHO ARE ACTIVELY WORKING FOR THE SAME. NOT ALL THE AGENTS OF THE COMPANY A RE WORKING AND THUS NOT EACH AND EVERY PERSON IN THE CHAIN IS EARN ING COMMISSION. THERE ARE LARGE NUMBER OF AGENTS IN THE COMPANY WHO HAVE ASSOCIATED WITH THE COMPANY, BUT, NOT EVERY AGENT I S EARNING COMMISSION. THE PERSON WHO IS WORKING IS EARNING CO MMISSION, BUT TO THE COMMISSION DISTRIBUTION MODEL OF THE COMPANY , ONLY MEMBER WHO IS WORKING IS GETTING COMMISSION. BEING A PART OF CHAIN IS ONE OF THE CONDITIONS, BUT, IT IS NOT THE ONLY CONDITIO N TO EARN COMMISSION. THE RAJASTHAN HIGH COURT IN JAIPUR ELECTRO (P) LTD. V. CIT [1997] 223 ITR 535 STATED THAT THE GENERAL PRINCIPLE UNDE RLYING SECTION 37(1) WAS THAT AN EXPENDITURE WHICH WAS FOUND TO HA VE BEEN WHOLLY AND EXCLUSIVELY MADE OR LAID DOWN BY A BUSINESSMAN FOR PURPOSES OF HIS BUSINESS WAS TO BE FLOWED. THE BUSINESSMAN I S THE BEST JUDGE TO DETERMINE THE BUSINESS EXPEDIENCY AND, THE REFORE, WHERE HE CLAIMS TO HAVE INCURRED CERTAIN EXPENDITURE FOR BUSINESS EXPEDIENCY, HIS VERSION SHOULD ORDINARILY BE ACCEPT ED. THE FOLLOWING FACTS ARE ALSO SUBMITTED: [10] (A) THE ASSESSEE HAS SUBMITTED COMPLETE VOUCHERS, B ILLS, AND LEDGER ACCOUNT OF EXPENSES DURING THE COURSE OF ASS ESSMENT PROCEEDINGS. (B) NOT A SINGLE SPECIFIC INSTANCE OF PERSONAL OR N ON-BUSINESS USE IS POINTED IN CASE OF COMMISSION EXPENSES. (C) THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EX CLUSIVELY FOR BUSINESS PURPOSE ONLY. ALL THE ABOVE CONDITIONS ARE SATISFACTORILY FULFILL ED BY THE COMPANY AND HENCE ARE CLAIMABLE BY THE ACT. NO NON BUSINES S USE IS POSSIBLE BY GIVING COMMISSION TO THE COMMISSION AGE NTS WHO ARE NOT RELATIVES OF THE COMPANY 6.2 THE ASSESSING OFFICER, HOWEVER, WAS OF THE VIEW THAT THE ENTIRE COMMISSION HAS NOT BEEN PAID WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES, SINCE THE ASSESSEE HAD PAID THE DISTRIBUTOR COMMISS ION IN ITS MULTILEVEL MARKETING BUSINESS AND THE COMMISSION FOR A CERTAIN SALE MADE BY MEMBERS DOWN THE CHAIN WAS BEING GIVEN BY THE ASSESSEE TO A LL PEOPLE UPWARD IN THE CHAIN EVEN WHEN NO SERVICES WERE RENDERED BY THEM I N THIS REGARD. THE ASSESSING OFFICER ALSO REFERRED TO RCM COMMISSION P LAN, WHICH WAS DOWNLOADED FROM INTERNET AND HAD BEEN REPRODUCED AT PAGES NOS. 9 TO 17 OF THE ASSESSEES COMPILATION AND TO AVOID THE REPETITION THE SAME IS NOT REPRODUCED HEREIN. THE ASSESSING OFFICER POINTED OUT THAT IN THE AFORESAID RCM COMMISSION PLAN, FOLLOWING NOTES HAD BEEN MENTIONED : 1. COMMISSION SLABS ARE FOR YOU & YOUR GROUP'S REP URCHASES WHICH WILL BE ADDED TO THE TOTAL BUSINESS FOR THE PU RPOSE OF DECIDING YOUR TOTAL COMMISSION SLAB. [11] 2. BENEFIT OF ABOVE DIFFERENCE COMMISSION WILL BE G IVEN TO ONLY THOSE DISTRIBUTORS WHO HAVE THEIR OWN REPURCHASES I N THE SAME MONTH. 3. COMMISSION IS CALCULATED ON THE BASIS OF TOTAL B USINESS OF YOUR GROUP. YOU GET NET COMMISSION AFTER DEDUCTING THE C OMMISSION OF YOUR DOWN LINE GROUPS. 4. YOUR TOTAL GROUP BUSINESS IS A SUM OF YOU AND AL L YOUR DOWN LINE BUSINESS. 5. REPURCHASE IN SELF CODE IN THE SAME MONTH IS COM PULSORY TO EARN COMMISSION. 6.3 ACCORDING TO THE AO, THE IMPORTANT WAY TO GET I NCOME IN RCM BUSINESS WAS AS UNDER: 1. PURCHASES FOR SELF REQUIREMENT. 2. PURCHASES BY YOUR DOWN LINERS 3. RETAILING BY YOU OR YOUR DOWN LINERS 4. BUSINESS KIT PURCHASED BY NEW DISTRIBUTORS 6.4 THE AO WAS OF THE VIEW THAT FROM THE ABOVE PLAN IT WAS CLEAR THAT A PERSON WAS BEING PAID COMMISSION EVEN FOR PURCHASES AND RETAILING BY HIS DOWN LINERS I.E. FOR SERVICES RENDERED BY HIS DOWNLINES, WHICH IMPLIED THAT A PERSON WAS RECEIVING COMMISSION EVEN WITHOUT RENDERING ANY SERVICE HIMSELF. THE AO REFERRED TO THE RCM BUSINESS CALCULATION SHEET, WHI CH IS REPRODUCED AT PAGE NOS. 20 & 21 OF THE ASSESSMENT ORDER AND OBSERVED THAT ONE DISTRIBUTOR IN A GROUP GOT COMMISSION EVEN WHEN OTHER DISTRIBUTOR IN THE GROUP PURCHASED OR SOLD A PRODUCT & ALSO ONE GOT COMMISSION FROM BUSIN ESS KIT PURCHASED BY NEW DISTRIBUTORS, THEREFORE, THE ASSESSEE'S CASE WA S NOT A CASE OF SOLE SELLING AGENT OR DISTRIBUTOR IN NORMAL COURSE BUT W AS A CASE OF MULTILEVEL [12] MARKETING WHERE THE COMMISSION PAYMENT WAS MADE TO MULTILEVEL AGENTS OF THE CHAIN OTHER THAN PERSONS FROM WHOSE EFFORTS THE SALE TOOK PLACE OR THE BUSINESS TOOK PLACE AND THAT COULD NOT BE HELD AS I NCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. THE ASSESSING O FFICER WAS OF THE VIEW THAT AS PER THE PROVISIONS OF SECTION 37(1) OF THE ACT, ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS' OF BUSINESS OR PROFESSION BUT IN ASSESSE ES CASE THE COMMISSION PAID TO AGENTS IN MULTILEVEL MARKETING WAS NOT FOR SALE MADE BY THEM BUT FOR SALE MADE BY THE PERSONS DOWN THE LINE IN THE CHAIN OF A GENTS AND WAS NOT ALLOWABLE. THE ASSESSING OFFICER STATED THAT THE RIGHT OF BUSI NESSMEN TO DO BUSINESS IS NOT BEING CHALLENGED AT ALL AND THE RIGHT OF THE BUSINE SSMAN AS TO HOW TO DISTRIBUTE COMMISSION IS ALSO NOT BEING CHALLENGED BUT ONLY TH ING BEING EXAMINED WAS THE ALLOWABILITY OF SUCH AN EXPENDITURE AS PER THE PROV ISIONS OF THE I.T., ACT, 1961. THE ASSESSING OFFICER DID NOT ACCEPT THIS CONTENTIO N OF THE ASSESSEE THAT THERE WERE LARGE NUMBER OF AGENTS IN THE COMPANY WHO HAVE ASSOCIATED WITH THE COMPANY, BUT NOT EVERY AGENT WAS EARNING COMMISSION BECAUSE THE PERSON WHO WAS WORKING WAS EARNING COMMISSION. THE ASSESSING OFFICER OBSERVED THAT THE RCM COMMISSION PLAN, RCM MARKETING PLAN, RCM COMMIS SION CALCULATION SHEET ALL SHOWED THAT A PERSON IN THE CHAIN WAS GET TING COMMISSION EVEN FOR PURCHASE OR SALE MADE BY ALL THE DOWNLINERS IN THE CHAIN I.E. EVEN FOR PURCHASES MADE BY HIS DOWN LINERS AS WELL AS FOR RETAILING MA DE BY HIS DOWNLINERS I.E. A [13] PERSON WAS GETTING HUGE AMOUNT OF COMMISSION EVEN W ITHOUT ACTUALLY WORKING. THE ASSESSING OFFICER POINTED OUT THAT THE ASSESSEE COMPANY HAD MORE THAN 1,31,57,666 MEMBERS AS REPORTED IN THE NEWSPAPER D AINIK BHASKAR DATED 13/12/2011. HE OBSERVED THAT IN ASSESSEES CASE A PERSON WOULD GET COMMISSION EVEN WHEN CHAIN BELOW HIM PURCHASED GOOD S OF THE COMPANY OR ADDED NEW MEMBERS AS WAS EVIDENT FROM THE RCM COMMI SSION PLAN DOWNLOADED FROM THE INTERNET. ACCORDING TO HIM, IN ASSESSEES CASE JOINING BUSINESS IMPLIED JOINING OF NEW MEMBERS IN THE CHAI N WHICH CONSTITUTED A PART OF CALCULATION OF BUSINESS VOLUME ON WHICH COMMISSI ON HAD BEEN PAID WHICH CERTAINLY COULD NOT BE HELD AS PAID WHOLLY AND EXCL USIVELY FOR BUSINESS PURPOSE. HE WAS OF THE VIEW THAT THE COMMISSION PAID TO THE MEMBERS ABOVE IN THE PYRAMID DID NOT COMMENSURATE WITH THE SERVICES REND ERED BY HIM I.E. A MEMBER WAS PAID COMMISSION NOT BECAUSE OF SERVICE RENDERED BY THE MEMBER HIMSELF/HERSELF EVERY TIME BUT ALSO BECAUSE OF SERV ICE PROVIDED BY OTHERS. THE ASSESSING OFFICER OBSERVED THAT THE ENTIRE COMMISSI ON, WHICH WAS PAID TO ANY MEMBER, WAS NOT ATTRIBUTABLE TO THE ACTUAL SALE OR PURCHASE MADE BY HIM OR SERVICE RENDERED BY HIM AND, THEREFORE, SUCH AN EXP ENDITURE COULD NOT BE SAID TO BE INCURRED WHOLLY & EXCLUSIVELY FOR BUSINESS PURPOSE. THEREFORE, ONLY A SMALL PART OF THE SAID COMMISSION WAS ACTUALLY ATTR IBUTABLE TO BUSINESS ACTUALLY CONDUCTED BY THE PERSON HIMSELF AND A MAJO R PART OF THE COMMISSION GIVEN TO A PERSON WAS ON ACCOUNT OF BUSINESS CONDUCTED BY THE OTHER PERSONS DOWN IN THE CHAIN AND THAT DEPENDING UPON T HE LENGTH OF THE CHAIN, ALL [14] MEMBERS IN THE CHAIN GOT CERTAIN COMMISSION FOR SAL E OR PURCHASE OR SERVICE RENDERED BY A LARGE NUMBER OF MEMBERS DOWN IN THE C HAIN, WHICH COULD NOT BE CONSIDERED TO HAVE BEEN PAID WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE SINCE NO BUSINESS HAD ACTUALLY BEEN CONDUCTED BY THOSE PERSO NS THEMSELVES. THE ASSESSING OFFICER FURTHER OBSERVED THAT COMMISSION PAYMENT TO MULTILEVEL AGENTS OF THE CHAIN OTHER THAN PERSONS FROM WHOSE EFFORTS THE SALE DID TAKE PLACE OR BUSINESS HAD BEEN BROUGHT IN, SO, IT COULD NOT BE H ELD AS INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES, THEREFORE, THE S AME SHALL NOT BE ALLOWABLE U/S 37(1) OF THE IT ACT. THE RELIANCE WAS PLACED ON TH E FOLLOWING DECISIONS. 1. ITAT BENCH C NEW DELHI DECISION IN I.T.A. NO.3 919 & 3920/DEL/2002 ASSESSMENT YEAR 95-96 & 96-97 IN THE CASE OF M/S PRECISION ELECTRONICS LTD. VS. DY. CIT, CIRCLE 14(1 ), NEW DELHI 2. ITAT BENCH A MUMBAI DECISION IN I.T.A. NO.2251 /MUM/2010 ASSESSMENT YEAR 2006-07 IN THE CASE OF M/S AVIAS CO RPORATE SERVICES PVT. LTD. VS. ITO, 3(1)(1) MUMBAI. 3. HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF JAI PUR ELECTRO (P) LTD. V. CIT [1997] 223 ITR 535 6.5 THE ASSESSING OFFICER POINTED OUT THE ASSESSEE COULD NOT FURNISH CONFIRMATION FROM THREE PARTIES OUT OF TOP 10 PARTI ES TO WHOM DISTRIBUTOR COMMISSION HAD BEEN PAID, THEREFORE, THE COMMISSION PAID TO THOSE PARTIES WAS NOT ALLOWABLE. THE ASSESSING OFFICER ALSO POINTED OUT THAT THE ASSESSEE HAD PAID COMMISSION FOR RS.72,77,126/- TO SMT. SEEMA C HHABRA, RS.32,11,470/- TO SMT. LNDIRA DEVI CHHABRA AND RS.4,55,875/- TO SHRI KAILASH CHANDRA CHHABRA. ACCORDING TO HIM THE ASSESSEE WAS REQUIRED TO SPECI FY SERVICES RENDERED BY [15] THOSE PARTIES AND TO SPECIFY THE RATE AT WHICH COMMISSION HAD BEEN PA ID TO THEM BUT THE ASSESSEE FAILED TO FURNISH ANY DETAIL S AND EVIDENCE REGARDING SERVICES RENDERED BY THOSE PARTIES AND DID NOT EXPL AIN AS TO HOW THE SAID COMMISSION PAYMENTS WERE WORKED OUT. THE ASSESSING OFFICER, THEREFORE, WAS OF THE VIEW THAT EVERY MEMBER WAS GETTING HUGE AMOU NT OF COMMISSION ON ACCOUNT OF SERVICES RENDERED BY OTHERS AND SALES MA DE BY OTHER MEMBERS/ AGENTS DOWN THE CHAIN. HE ALSO POINTED OUT THAT TH E ABOVE MENTIONED 3 PARTIES WERE RELATED PARTIES OF THE ASSESSEE AND MUST BE FI GURING AT THE TOP LEVEL IN THE CHAIN AND WERE GETTING HUGE AMOUNT OF COMMISSION WI THOUT ANY BUSINESS ACTIVITY CONDUCTED BY THEM, MERELY ON ACCOUNT OF ADDING NEW MEMBERS OR ON ACCOUNT OF BUSINESS ACTIVITY CONDUCTED BY OTHER MEMBERS DOW N IN THE CHAIN. THE ASSESSING OFFICER ALSO REFERRED TO THE NEWS IN THE NEWSPAPER DAINIK NAVJYOTI DATED 13/12/2011 AT PAGE NO.32 OF THE ASSESSMENT OR DER. THE ASSESSING OFFICER, ALTHOUGH ADMITTED THAT THE ASSESSEE HAD FI LED CONFIRMATION FROM THOSE PARTIES IN RESPECT OF COMMISSION RECEIVED BY THEM, HOWEVER, HE WAS OF THE VIEW THAT MERE FILING OF THE CONFIRMATION BY THE ASSESSE E IN THAT REGARD DID NOT JUSTIFY THE COMMISSION PAID. A REFERENCE WAS MADE TO THE D ECISION OF THE ITAT BENCH C, NEW DELHI IN THE CASE OF M/S PRICISION ELECTRO NICS LTD. VS. DCIT, ITA NOS. 3919 & 3920/DEL/2002, ASSESSMENT YEARS 1995-96 & 19 96-97 WHEREIN IT HAS BEEN HELD THAT :- .. PAYMENT THROUGH CHEQUES UNDER A WRITTEN AGREEM ENT NOT A CONCLUSIVE PROOF OF SERVICES RENDERED. [16] ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HA D FAILED TO EXPLAIN/FURNISH DETAILS REGARDING SALES/ TRANSACTIONS IN RESPECT OF WHICH THE SAID COMMISSION HAD BEEN PAID AND FAILED TO EXPLAIN AS TO HOW THOSE COMMISSION PAYMENTS HAD BEEN WORKED OUT AND THAT MERELY FURNISHING AMOUNT O F COMMISSION PAID AND STATING THAT ITS CALCULATION WAS FULLY SOFTWARE DET ERMINED AND SOFTWARE BASED AND THERE WAS NO INTERVENTION OF DISCRETION IN DECIDING THE COMMISSION FIGURE DID NOT JUSTIFY THE SAID CLAIM. THE ASSESSING OFFICER HELD THAT THE MAJOR PART OF THE COMMISSION PAID TO THOSE PARTIES AS WELL AS OTHER P ARTIES PARTICULARLY ON THE TOP LEVELS WAS ON ACCOUNT OF SERVICES RENDERED AS WELL AS SALES MADE BY MEMBERS DOWN THE CHAIN. ACCORDINGLY, MAJOR PART OF COMMIS SION PAID TO ALL THOSE PARTIES WAS FOUND UNREASONABLE & UNJUSTIFIED AND WAS NOT ALLOWABLE. THE ASSESSING OFFICER ADDED A LUMP SUM AMOUNT OF RS.125 CRORE BY DISALLOWING THE COMMISSION U/S 37(1) OF THE ACT. 7. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT( A) AND FURNISHED VARIOUS DETAILS. IT WAS STATED THAT DUE TO POLICE ACTION A ND THE SHORTAGE OF TIME, THE VOLUMINOUS DETAILS REQUIRED BY THE ASSESSING OFFICE R COULD NOT BE FURNISHED DURING ASSESSMENT PROCEEDINGS BUT THE SAME ARE NOW AVAILABLE WHICH MAY BE CONSIDERED AS ADDITIONAL EVIDENCE. THE LEARNED CI T(A) WAS SATISFIED THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM FUR NISHING THE DETAILS BEFORE THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS . THE ASSESSEE WAS, THEREFORE, ALLOWED TO FURNISH THOSE DETAILS AS ADD ITIONAL EVIDENCE UNDER RULE 46A OF THE I.T. RULES, 1962. SINCE THOSE DETAILS W ERE NOT PRODUCED BEFORE THE [17] ASSESSING OFFICER, THE LEARNED CIT(A) ASKED HIM T O EXAMINE THE SAME AND FURNISH REPORT. THE ASSESSING OFFICER FURNISHED HI S REPORTS VIDE LETTERS DATED 18/06/2012 AND 11/07/2012, WHICH WERE CONSIDERED BY THE LEARNED CIT(A). THE ASSESSEE ALSO FURNISHED THE WRITTEN SUBMISSIONS TO THE LEARNED CIT(A), WHICH HAS BEEN INCORPORATED IN PARA 6.3 OF THE IMPUGNED A ND IS REPRODUCED VERBATIM AS UNDER: 6.3 2. THAT THE VARIOUS DISTRIBUTORS ARE THE BRAND AMBA SSADOR OF THE COMPANY AND THE COMPANY GETTING THE HUGE BUSINESS F ROM AND WITH HELP OF THE DISTRIBUTORS. VARIOUS DISTRIBU TORS CONDUCT MEETINGS AND SEMINARS WITH THE DOWN LINERS FOR INCR EASING THE BUSINESS OF THE COMPANY. THESE MEETINGS AND SEMINAR S ARE CONDUCTED BY THE DISTRIBUTORS AT THEIR OWN EXPENSES ONLY FOR TO EARN SUCH COMMISSION FROM THE COMPANY AS PER BUSINE SS PLAN OF THE COMPANY AND CONTRACTUAL AGREEMENT. THE AUDIT ED FINANCIAL STATEMENTS FOR THE YEAR UNDER CONSIDERATI ON OF SHRI MUKESH KOTHARI, WHO HAD EARNED COMMISSION OF RS.79,84,674/- FROM THE COMPANY IS SUBMITTED BEFORE YOUR HONOR AS ADDITIONAL EVIDENCE. FROM THE PERUSAL OF T HE PROFIT & LOSS A/C IT REVEALED THAT HE HAD INCURRED RS.25,87, 183/- ON MEETING & SEMINAR AND RS.12,58,118/- ON COMMISSION TO DISTRIBUTORS. THIS CLEARLY ESTABLISH THAT THE COMMI SSION PAID BY THE COMPANY TO THE DISTRIBUTORS AND NOT A WINDFALL, BUT THE DISTRIBUTORS ARE NEEDED TO WORK WITH DEDICATION AND MERELY BY JOINING OF THE NETWORK OF THE DISTRIBUTORS ONE CANN OT EARN COMMISSION FOR THE BUSINESS DONE BY OTHER. 3. THAT THE COMPANY IN ITS MONTHLY PUBLICATION 'RCM TIMES' PROVIDES DETAILS OF THE MEETINGS AND SEMINARS TO BE CONDUCTED IN THE FORTHCOMING PERIOD. THE CONDUCTION OF THE MEETING AND SEMINARS IS THE SERVICE TO THE COMPANY BY THE DISTRIBUTORS AND THE COMMISSION PAID IS THE REWARD FOR SUCH SERVICES AND THEREFORE THE COMMISSION PAID ON THE P URCHASE MADE BY THE DOWN LINER DISTRIBUTOR IF PAID TO DISTR IBUTOR IN UPPER LINE IS PAYMENT FOR SUCH EFFORTS MADE FOR THE COMPA NY AND CANNOT BE CONSIDERED AS PAYMENT WITHOUT ANY SERVICE BY THE [18] UPPER LINER DISTRIBUTORS AND THEREFORE IT CANNOT BE SAID THAT THE COMMISSION WAS PAID WITHOUT ANY BUSINESS NEXUS OR BUSINESS EXPEDIENCY. 4. THAT AN EXPENDITURE IS ALLOWABLE UNDER SECTION 3 7(1) IF THE FOLLOWING CONDITIONS ARE FULFILLED: A. IF THE EXPENDITURE IS NOT OF THE NATURE DESCRIBE D IN SECTION 30 TO 36; B. IF THE EXPENDITURE IS NOT IN THE NATURE OF CAPITAL EXPENDITURE; C. IF THE EXPENDITURE IS NOT IN THE NATURE OF PERSONAL EXPENDITURE; D. IF THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. 5. THAT PAYMENT OF COMMISSION TO VARIOUS DISTRIBUTO RS IS IN THE NORMAL COURSE OF BUSINESS, FOR THE PURPOSE OF BUSIN ESS AND ALL THE CONDITIONS LAID DOWN IN THE SECTION 37(1) ARE C OMPLIED AND THUS THE EXPENSES CLAIMED BY THE COMPANY IS IN ACCORDANCE WITH LAW AND IS AN ALLOWABLE EXPENDITURE . 6. THAT ON FRIDAY 16/12/2011 FOR THE FIRST TIME IT WAS ASKED TO SHOW CAUSE AS TO WHY THE PART OF THE COMMISSION PAI D TO DISTRIBUTORS NOT BE DISALLOWED ALONG WITH VARIOUS O THER QUERIES AND IT MAY APPRECIATE TO NOTE THAT THE QUER Y LETTER WAS RUNNING OVER 13 PAGES. THE APPELLANT COMPANY WA S ASKED TO FURNISH EXPLANATION ON 22/12/2011 AT 10:00 A.M. PROVIDING SUCH SHORTER PERIOD ITSELF SHOWS THAT THE HEARING OPPORTUNITY WAS GIVEN FOR THE NAME SACK AND THE DEC ISION FOR MAKING HUGE ADDITION BY DISALLOWANCE WAS TAKEN PRIO R TO ISSUANCE SHOW CAUSE NOTICE DATED 16/12/2011 AND AS SUCH THE DISALLOWANCE OF COMMISSION MADE WITH PREOCCUPIE D MINDSET IS ERRONEOUS AND NOT SUSTAINABLE. 7. THAT THE APPELLANT HAD ALREADY SUBMITTED IN THE FORM OF ADDITIONAL EVIDENCE, THE DISTRIBUTOR TREE BEGINNING FROM SMT. SEEMA CHHABRA UP TO 307 LEVEL BELOW SHOWING HOW MUC H DISTRIBUTORS EARN COMMISSION AND HOW MUCH DID NOT E ARN A SINGLE RUPEE DURING THE YEAR UNDER CONSIDERATION. F ROM THE PERUSAL OF THE DISTRIBUTOR TREE IT APPEARS THAT OUT OF 1,43,558 DISTRIBUTORS ONLY 1,587 EARNED COMMISSION DURING TH E YEAR UNDER CONSIDERATION AND 1,41,971 DISTRIBUTORS DID N OT EARN [19] ANYTHING IN THE FORM OF COMMISSION. THIS SHOWS THAT ALL THE DISTRIBUTORS ARE NOT EARNING COMMISSION AND ONLY TH OSE WHO ARE ACTIVELY ENGAGED IN THE BUSINESS EARN COMMISSIO N. THE TREE OF THE DISTRIBUTORS STARTS FROM SMT. SEEMA CHH ABRA. SMT. SEEMA DEVI CHHABRA FROM WHOM DISTRIBUTORS TREE STAR TS IS NOT THE TOP COMMISSION EARNER BUT THE TOP COMMISSION EA RNER IS SHRI MUKESH KOTHARI WHO IS AT 17 LEVEL BELOW SMT. S EEMA CHHABRA EARNS RS.79,94,409/- BUT SMT. SEEMA DEVI CH HABRA EARNS ONLY RS.72,77,126/-. FURTHER SHRI SURENDRA V ATS WHO WAS AT 51 LEVEL BELOW SMT. SEEMA CHHABRA EARNS COMMISSION OF RS.75,03,758/- THIS SHOWS THAT THE FI NDING OF LD. AO THAT THE PERSON WHO IS AT THE TOP OF DISTRIB UTORS TREE EARNS MORE COMMISSIONS THEN THE DISTRIBUTORS AT DOW N LEVEL IS ERRONEOUS AND PERVERSE. SIMILARLY DISTRIBUTOR TREE IS PROVIDED FOR SOME OTHER PERSONS AND PERUSAL OF SUCH REVEALED THAT ALL THE PERSONS ARE NOT EARNING THE COMMISSION. 8. THAT A LIST OF 1000 DISTRIBUTORS JOINED DURING T HE YEAR 2000 AND LIST OF ANOTHER 1000 DISTRIBUTORS JOINED AFTER THE YEAR 2000 IS ALSO SUBMITTED BEFORE YOUR HONOR AS ADDITIO NAL EVIDENCE. PERUSAL OF SUCH LISTS REVEALS THAT ALL TH E PERSON JOINING AT THE BEGINNING ARE NOT EARNING COMMISSION AND PERSONS JOINED AFTERWORD MAY EARN MORE THAN THE PER SON JOINED BEFORE. 9. THAT A PUBLICATION OF THE COMPANY TITLED, 'KAISE KARE RCM BUSINESS ' IS ALSO SUBMITTED BEFORE YOUR HONOR AS A DDITIONAL EVIDENCE. AFTER READING THE BOOKLET VARIOUS DOUBTS RAISED BY THE LD. AO GOT CLEARED. 10. THAT A LIST OF DISTRIBUTORS TO WHOM COMMISSION OF RS. ONE LAC OR MORE PAID IS SUBMITTED ALONG WITH PAN AND TAX DE DUCTED ON THE COMMISSION. 11. THAT AS REPORTED IN THE TAX AUDIT REPORT COMMIS SION PAID TO RELATED PARTIES WAS ONLY RS.1,09,44,471/- (RS.72,77 ,126/- SMT. SEEMA CHHABRA, RS.32,11,470/- SMT. INDRA DEVI CHHAB RA AND RS.4,55,875/- KAILASH CHANDRA CHHABRA) IS ONLY A FR ACTION OF TOTAL COMMISSION PAID BY THE COMPANY DURING THE COM PANY, EVEN LESS THAN ONE PERCENT OF THE TOTAL COMMISSION PAID. 12. THAT THE LD. AO DISALLOWED THE PAYMENT MADE TO THE DISTRIBUTORS AS PER TERMS AND CONDITIONS OF THE BUS INESS, IN THE NORMAL COURSE OF BUSINESS AND IGNORING THE FACT THA T THIS PAYMENT IS THE MAJOR FACTOR DUE TO WHICH THE COMPAN Y WAS [20] RUNNING ON THE PATH OF SUCCESS. THE BUSINESS OF THE COMPANY OTHER THAN DIRECT EMPLOYMENT TO ITS EMPLOYEE MADE OPPORTUNITY FOR THE GENERAL PUBLIC AND ALSO ABLE TO PAY HUGE REVENUE TO THE STATE AND CENTRAL GOVT. 7.1 THE RELIANCE WAS PLACED ON THE FOLLOWING CASE L AWS: A. J. K. WOOLLEN MANUFACTURERS VS. CIT (72 ITR 612) (SC) B. LAXMI ENGINEERING INDUSTRIES VS ITO (298 ITR 2 03) (RAJASTHAN) C. AIRLINE AGENTS ASSOCIATION VS. UNION OF INDIA (2 65 ITR 577) (MADRAS) D. CTP VS. DALMIA CEMENT (254 ITR 377) (DELHI) E. SHAHZADA NAND & SONS VS. CIT (108 ITR 358) (SC) F. SWASTIC TEXTILE CO. PVT. LTD. VS. CIT (150 ITR 155) (GUJ) G. CIT VS. LUCAS INDIAN SERVICE LTD. (239 ITR 429) (MAD) 7.2 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE AND THE REMAND REPORT OF THE ASSESSING OFFICER, OBS ERVED THAT THE MAJOR SALE OF ASSESSEE COMPANY WAS THROUGH MULTILEVEL MARKETING H AVING LARGE NETWORK OF DISTRIBUTORS AND EVERY PERSON WHO JOINED THE NETWOR K OF DISTRIBUTORS, GOT COMMISSION ON PURCHASES MADE BY HIM EITHER FOR HIS OWN CONSUMPTION OR SALE TO OTHERS AND THAT EVERY DISTRIBUTOR HAS TO MA KE A CHAIN OF DISTRIBUTORS AND FOR EVERY SALE MADE, COMMISSION WAS PAID NOT ON LY TO THE PERSON WHO MADE THE SALE BUT ALSO TO ALL THE PERSONS WHO WERE ABOVE HIM IN THE CHAIN. THEREFORE, IN THIS SITUATION FOR EVERY SALE, COMMISSION WAS PAID TO VARIOUS PERSONS WHO HAD NOT ACTUALLY RENDERED ANY SERVICE IN RELATION TO TH AT PARTICULAR SALE TRANSACTION. THE LEARNED CIT(A) WAS OF THE VIEW THAT THE OBSERV ATION OF AO THAT COMMISSION [21] PAYMENT TO SUCH OTHER PERSONS COULD NOT BE TREATED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WAS JUSTIFIED. THE LEARNED CI T(A) OBSERVED THAT THE ASSESSEE FAILED TO ESTABLISH THAT ANY SERVICES HAD BEEN ACTU ALLY RENDERED BY THE PERSONS (WHO ARE IN CHAIN ABOVE THE PERSON MAKING SALE) IN RESPECT OF WHICH COMMISSION HAD BEEN PAID TO THEM. THEREFORE, THE PAYMENT WAS NOT ALLOWABLE U/S 37(1) OF THE ACT. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: A. LAXMIRATAN COTTON MILLS CO. LTD. VS. CIT 73 ITR 634 (SC) B. LACHMINARAYAN MADAN LAL VS. CIT 86 ITR 439 (SC) C. CIT VS. PUNJAB BREWERIES LTD. 71 DTR 65 (PUNJAB & HARYANA) 7.3 THE LEARNED CIT(A) FURTHER OBSERVED THAT THE R ELIANCE PLACED BY THE ASSESSEE ON VARIOUS JUDICIAL DECISIONS WAS OF NO HE LP BECAUSE FACTS OF ALL CASES QUOTED BY ASSESSEE WERE DIFFERENT AND NONE OF THE D ECISION WAS IN CONTEXT OF MULTILEVEL MARKETING. ACCORDINGLY, THE LEARNED CIT (A) CONFIRMED THE DISALLOWANCE OF RS.125 CRORE MADE BY THE AO. NOW T HE ASSESSEE IS IN APPEAL. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE AD HOC DISALLOWANCE OF RS.125 CRORES WAS MADE BY THE AO AND SUSTAINED B Y LEARNED CIT(A) BY HOLDING THAT SUCH PAYMENT HAD NOT BEEN MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IT WAS ST ATED THAT HIGH PITCHED ASSESSMENT ORDER WAS PASSED BY THE AO SOLELY ON THE BASIS OF NEWS PAPER [22] REPORTS AND INFORMATION MADE AVAILABLE BY THE POLIC E AUTHORITY WITHOUT VERIFYING ITS CORRECTNESS FROM THE FINANCIAL STATEMENTS OF TH E ASSESSEE AND OTHER RECORDS AVAILABLE WITH HIM. IT WAS EMPHASIZED THAT THE NEW S PAPER CUTTINGS HAVE BEEN MADE PART OF THE ASSESSMENT ORDER WHICH IN FACT HAS NO IMPACT ON THE COMPUTATION OF INCOME OF THE ASSESSEE AND THE VARIO US ADDITIONS MADE WERE NOT ONLY ARBITRARY BUT ALSO DUE TO PREOCCUPIED MIND OF THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY DEFRAUD WITH PUBLIC AS REPORTED IN NEWS PAPERS AND TO PUNISH THE ASSESSEE FOR THE ALLEGED MISCONDUCT, MADE THE A DDITION. IT WAS ALSO EMPHASIZED THAT PREOCCUPANCY OF THE MIND OF THE ASS ESSING OFFICER CAN BE OBSERVED FROM THE VARIOUS REPRODUCTION OF THE NEWS PAPER CUTTING, WHICH HAS NO RELEVANCY IN THE ASSESSMENT OF INCOME OF THE ASSESS EE. THEREFORE, THE UNCALLED INFLUENCE FROM THE IMMATURE NEWS REPORTS AND OVERLO OKING THE FINANCIAL AND OTHER INFORMATION AVAILABLE WITH THE ASSESSING OFFICER WA S UNFORTUNATE. IT WAS CONTENDED THAT THE ASSESSING OFFICER DISALLOWED RS. 125 CRORES OUT OF TOTAL EXPENDITURE OF RS.159.30 CRORES CLAIMED BY THE ASSE SSEE ON THE FOLLOWING ALLEGATIONS: (I) THAT ALL THE PERSON IN THE CHAIN WERE EARNING C OMMISSION FOR THE SALE MADE BY THE PERSON BELOW HIM IN THE CHAIN OF M EMBERS AND THE ASSESSEE COULD NOT BE ABLE TO PROVIDE A LOGICAL SUPPORT FOR ITS CONTENTION THAT THE PERSONS WHO ARE WORKING ARE EARNING COMMISSION. (II) THAT THE COMMISSION IS PAID TO THE RELATED PAR TIES AND OTHER PARTIES AT THE TOP LEVEL IN THE CHAIN WITHOUT RENDE RING ANY SERVICE. [23] 8.1 IT WAS STATED THAT ON THE BASIS OF ABOVE TWO AL LEGATIONS, THE ASSESSING OFFICER HELD THAT THE EXPENDITURE COULD NOT BE CO NSIDERED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND, THEREFORE, NOT ALL OWABLE U/S 37(1) OF THE ACT. IT WAS ARGUED THAT THE ASSESSING OFFICER DESPITE EXAMI NATION OF THE BUSINESS MODEL OF MLM DIVISION IN DETAIL HELD THAT THE ASSES SEE COULD NOT BE ABLE TO PROVIDE A LOGICAL SUPPORT FOR ITS CONTENTION THAT T HE PERSONS WHO WERE WORKING WERE EARNING COMMISSION. HOWEVER, THE SAID INFEREN CE DRAWN BY THE ASSESSING OFFICER WAS CONTRARY TO HER OWN FINDING RECORDED A T PAGE 18 OF THE ASSESSMENT ORDER AFTER ANALYZING THE BUSINESS MODEL THAT: 2.BENEFIT OF ABOVE DIFFERENCE COMMISSION WILL BE G IVEN TO ONLY THOSE DISTRIBUTORS WHO HAVE THEIR OWN REPURCHASES IN THE SAME MONTH. . 5. REPURCHASE IN SELF CODE IN THE SAME MONTH IS COM PULSORY TO EARN COMMISSION.' IT WAS EMPHASIZED THAT AS REPORTED IN THE TAX AUDI T REPORT, COMMISSION PAID TO RELATED PARTIES WAS RS.1,09,44,471/- (RS.72,77,126/ - SMT. SEEMA CHHABRA, RS.32,11,470/- SMT. INDRA DEVI CHHABRA AN D RS.4,55,875/- SHRI KAILASH CHANDRA CHHABRA) WHICH WAS ONLY A FRACTION OF TOTA L COMMISSION PAID BY THE ASSESSEE COMPANY DURING THE YEAR, EVEN LESS THAN O NE PERCENT OF THE TOTAL COMMISSION PAID. THEREFORE, THE ASSUMPTION OF THE A SSESSING OFFICER THAT THE ASSESSEE WAS DIVERTING THE PROFIT TO THE RELATED P ERSONS IN THE NAME OF COMMISSION WAS ERRONEOUS AND RESULTANT INFERENCE TH AT THE EXPENDITURE WAS NOT ALLOWABLE AS BUSINESS EXPENDITURE WAS ALSO ERRONEOU S. IT WAS FURTHER STATED THAT [24] THE ASSESSEE FURNISHED VARIOUS DETAILS AND DOCUMENT S IN THE FORM OF ADDITIONAL EVIDENCE BEFORE LEARNED CIT(A) IN THE APPELLATE PR OCEEDINGS TO PROVE THAT THE ALLEGATIONS MADE BY THE ASSESSING OFFICER WERE ERRONEOUS AND, THEREFORE, THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS ALLOWABLE AS BUSINESS EXPENDITURE U/S 37(1) OF THE ACT. A REFERENCE WAS MADE TO PAGES NO. 293 TO 640 OF THE ASSESSEES PAPER BOOK, WHICH ARE THE DOC UMENTS AND DETAILS FURNISHED BY THE ASSESSEE TO THE LEARNED CIT(A). A REFERENCE WAS ALSO MADE TO PAGES NOS. 443 TO 462 AND 524 TO 570 OF THE ASSE SSEES PAPER BOOK, WHICH ARE THE COPIES OF PUBLICATION TITLED 'KAISE KARE R CM BUSINESS' AND 'RCM TIMES' RESPECTIVELY WHICH CONTAIN DETAILS OF THE MEETINGS AND SEMINARS TO BE CONDUCTED IN THE FORTHCOMING PERIOD. IT WAS STATED THAT FROM THE ABOVE SAID DOCUMENTS, IT WAS CLEAR THAT THE CONDUCT ION OF THE MEETING AND SEMINARS WAS THE SERVICE TO THE ASSESSEE BY THE DI STRIBUTORS AND THE COMMISSION PAID WAS THE REWARD FOR SUCH SERVICES AN D THAT THE COMMISSION PAID ON THE PURCHASES MADE BY THE DOWN LINER DISTRI BUTOR IF PAID TO DISTRIBUTOR IN UPPER LINE WAS PAYMENT FOR SUCH EFFORTS MADE FOR THE ASSESSEE AND COULD NOT BE CONSIDERED AS PAYMENT WITHOUT ANY SERVI CE BY THE UPPER LINER DISTRIBUTORS, THEREFORE, IT COULD NOT BE SAID THAT THE COMMISSION WAS PAID WITHOUT ANY BUSINESS NEXUS OR BUSINESS EXPEDIENCY. IT WAS STATED THAT DURING THE YEAR 1000 DISTRIBUTORS JOINED AND ANOTHER 1000 DIST RIBUTORS JOINED AFTER THE YEAR 2000. IT WAS SUBMITTED THAT THE PERUSAL OF TH E LIST OF AFORESAID DISTRIBUTORS REVEALED THAT ALL THE PERSONS JOINING AT THE BEGINNING WERE NOT [25] EARNING COMMISSION AND PERSONS WHO JOINED AF TERWORDS MAY EARN MORE THAN THE PERSON JOINED BEFORE. REFERENCE WAS MADE TO PA GE NOS. 293 TO 335 OF THE ASSESSEES PAPER BOOK AND IT WAS POINTED OUT THAT D ISTRIBUTOR TREE BEGINNING FROM SMT. SEEMA CHHABRA UP TO 307 LEVEL BELOW SHOWI NG HOW MUCH DISTRIBUTORS EARN COMMISSION AND HOW MUCH DID NOT E ARN A SINGLE RUPEE DURING THE YEAR UNDER CONSIDERATION. IT WAS ALSO P OINTED OUT THAT FROM THE PERUSAL OF THE DISTRIBUTOR TREE IT APPEARS THAT OUT OF 1,43,558 DISTRIBUTORS ONLY 1,587 EARNED COMMISSION DURING TH E YEAR UNDER CONSIDERATION AND 1,41,971 DISTRIBUTORS DID NOT EAR N ANYTHING IN THE FORM OF COMMISSION WHICH SHOWS THAT ALL THE DISTRIBUTORS WE RE NOT EARNING COMMISSION AND ONLY THOSE WHO WERE ACTIVELY ENGAGED IN THE BUSINESS EARN COMMISSION. IT WAS STATED THAT SMT. SEEMA DEV I CHHABRA FROM WHOM DISTRIBUTORS TREE STARTED WAS NOT THE TOP COMMISSION EARNER BUT THE TOP COMMISSIO N EARNER WAS SHRI MUKESH KOTHARI WHO WAS AT 17 LEVEL BELOW SMT. SEEMA CHHABRA, EARNED RS. 79,94,409/- BUT SMT. SEEMA DEVI CHHABRA EARNED ONLY RS.72,77,126/-. IN SUPPORT OF THE ABOVE, A RE FERENCE WAS MADE TO PAGE NO. 332 OF THE ASSESSEES PAPER BOOK. IT WAS ALSO STATED THAT SHRI SURENDRA VATS, WHO WAS AT 51 LEVEL BELOW SMT. SEEMA CHHABRA EARNED COMMISSION OF RS.75,03,758/- WHICH S HOWS THAT THE FINDING OF ASSESSING OFFICER THAT THE PERSON WHO WAS AT TH E TOP OF DISTRIBUTORS TREE EARNED MORE COMMISSIONS THAN THE DIS TRIBUTORS AT DOWN LEVEL [26] WAS ERRONEOUS AND PERVERSE. THE LEARNED COUNSEL FO R THE ASSESSEE MADE A REFERENCE TO PAGE NO. 336 TO 399 OF THE ASSESSEES PAPER BOOK AND SUBMITTED THAT DISTRIBUTOR TREE FOR SOME OTHERPERSO NS ALSOREVEALED THAT ALL THE PERSONS WERE NOT EARNING THE COMMISSION. I T WAS SUBMITTED THAT SHRI MUKESH KOTHARI, WHO HAD EARNED COMMISSION OF RS.79, 84,674/- FROM THE ASSESSEE COMPANY HAD INCURRED RS.25,87,183/- ON MEETING & SEMINAR AND RS.12,59,118/- ON COMMISSION TO DISTRIBUTORS, WHICH CLEARLY ESTABLISHED THAT THE COMMISSION PAID BY THE ASSESSEE TO THE DISTRIBUTORS WAS NOT A WINDFALL BUT THE DISTRIBUTOR S WERE NEEDED TO WORK WITH DEDICATION AND MERELY BY JOINING OF THE NETWOR K OF THE DISTRIBUTORS ONE COULD NOT EARN COMMISSION FOR THE BUSINESS DONE BY OTHERS. IN SUPPORT OF THE ABOVE, A REFERENCE WAS MADE TO PAGE NO. 587 OF THE ASSESSEES COMPILATION. IT WAS EMPHASIZED THAT N EITHER THE ASSESSING OFFICER NOR THE LEARNED CIT(A) RECORDED ANY FINDIN G THAT THE PAYMENT OF COMMISSION WAS WITHOUT ANY BUSINESS EXPEDIENCY. RA THER THE ASSESSING OFFICER RECORDED THE FINDING AFTER DETAILED ANALYSI S OF THE BUSINESS STRUCTURE THAT THE RIGHT OF BUSINESSMAN TO DO BUSINESS IS NO T BEING CHALLENGED AT ALL AND THE RIGHT OF THE BUSINESSMAN AS TO HOW TO DISTR IBUTE COMMISSION WAS ALSO NOT BEING CHALLENGED AND IT WAS NOT DENIED TH AT THE ASSESSEE WAS FREE TO DISTRIBUTE AS MUCH COMMISSION AS POSSIBLE. HOWE VER, EVEN AFTER HOLDING SO AFTER DETAILED EXAMINATION OF THE BUSINESS MODEL OF THE ASSESSEE, THE FINDINGS RECORDED IN THE ASSESSMENT ORDER THAT THE PAYMENT MADE BY THE [27] ASSESSEE TO DISTRIBUTORS COULD NOT BE CONSIDERED AS PAYMENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, WAS ERRONE OUS ON THE FACTS OF THE CASE PARTICULARLY WHEN THE ASSESSEE WAS PAYING TO T HE DISTRIBUTOR AS PER ITS BUSINESS PLAN AND AS PER THE CONTRACTUAL CONDITIONS WITH THEM. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 1. J. K. WOOLLEN MANUFACTURERS VS. CIT 72 ITR 612 ( SC) 2. CIT VS. KAMAL & CO. [1993] 203 ITR 1038 (RAJ) 3. LAXMI ENGINEERING INDUSTRIES VS. ITO 298 ITR 203 (RAJ) IT WAS SUBMITTED THAT IN THE ASSESSEES CASE IF THE COMMISSION ON THE PURCHASE MADE BY THE DISTRIBUTOR IN THE DOWN LINE WAS PAID T O DISTRIBUTOR IN THE UPPER LINE, EVEN THEN THE SAME COULD NOT BE CONSIDERED AS PAYME NT WITHOUT RENDERING ANY SERVICE BY THEM BECAUSE JOINING OF THE EACH DISTRIB UTOR IN THE DOWN LINE WAS DUE TO THE EFFORTS MADE BY DISTRIBUTOR IN THE UPPER LIN E AND COMMISSION PAID ON THE PURCHASE MADE BY THE DISTRIBUTORS IN DOWN LINE IF A NY PAID TO DISTRIBUTOR IN UPPER LINE WAS THE REWARD FOR THE EFFORTS MADE IN THE JOI NING OF SUCH DISTRIBUTOR. IT WAS FURTHER SUBMITTED THAT THE BUSINESS OF THE ASSESSEE DEPENDEND ENTIRELY ON ITS DISTRIBUTORS NETWORK AND THE BIGGER NETWORK OF DIST RIBUTORS RESULTED INTO MORE BUSINESS TO THE ASSESSEE AND TO ADD NEW DISTRIBUTOR S INTO THE NETWORK, THE ASSESSEE ENCOURAGED AND FACILITATED EXISTING DISTRI BUTORS FOR THE JOINING OF NEW DISTRIBUTORS BECAUSE ON APPOINTMENT OF ANY NEW DIST RIBUTOR THERE WAS BUSINESS OPPORTUNITY FOR THE ASSESSEE FOR FURTHER S ALE OF ITS PRODUCTS AND THE ASSESSEE COMPANY PAID INCENTIVE TO THE DISTRIBUTOR OR THE CHAIN OF DISTRIBUTOR [28] UNDER WHICH NEW DISTRIBUTORS WERE APPOINTED. IT WA S VEHEMENTLY ARGUED THAT THE EXPENDITURE ON COMMISSION TO DISTRIBUTORS WAS NOT P AID DURING THE YEAR FOR THE FIRST TIME, BUT THE COMPANY REGULARLY PAID SUCH COM MISSION IN THE SAME MANNER AND THE NATURE OF THE BUSINESS ALSO REMAINED SAME SINCE MANY YEARS EXCEPT INCREASE IN THE VOLUME OF SALE AS WELL AS TH E NUMBER OF DISTRIBUTORS. IT WAS EMPHASIZED THAT THE ASSESSMENT OF PAST SEVERAL YEAR S WAS MADE UNDER SECTION 143(3) OF THE ACT AND THE NATURE OF THE BUSINESS RE MAINED SAME OVER PAST SEVERAL YEARS WHEREIN COMMISSION PAID TO THE DISTRI BUTORS WAS ALLOWED IN ALL THE YEARS AFTER EXAMINATION OF THE BUSINESS MODEL OF TH E ASSESSEE AND THE SUBMISSIONS MADE BEFORE ASSESSING OFFICER ABOUT THE BUSINESS MODEL WAS NOT A NEW SUBMISSION AND THAT IN THE EARLIER ASSESSMENTS, THE SAME BUSINESS MODEL WAS EXPLAINED AND ACCEPTED BY THE ASSESSING OFFICER BY FRAMING THE ASSESSMENT. IT WAS STATED THAT FOR THE YEAR UNDER CONSIDERATION AL SO, THE ASSESSING OFFICER TILL THE POLICE ACTION AGAINST THE ASSESSEE HAD NOT DOUB TED OR RAISED ANY QUESTION ON THE BUSINESS MODEL. IT WAS STATED THAT A DETAILE D QUESTIONER WAS RAISED ON 05/10/2011 BY ORDER SHEET ENTRIES, MOST OF WHICH WERE RELEVANT TO THE VARIOUS FIGURE STATED IN THE FINANCIAL STATEMENT AND NOTHIN G WAS ASKED ABOUT THE COMMISSION PAID TO DISTRIBUTORS WHICH WAS A SUBSTAN TIAL ITEM OF PROFIT & LOSS ACCOUNT AND THE ASSESSING OFFICER FOR THE FIRST TIM E ON 16/12/2011 HAD SHOWN HER INTENTION TO DISALLOW THE COMMISSION PAID TO DI STRIBUTORS TO MAKE HIGH PITCH ADDITION FOR WHICH SHE WAS PREJUDICED FROM THE POLI CE ACTION AGAINST THE COMPANY. THE LEARNED COUNSEL FOR THE ASSESSEE REF ERRED TO PAGE NO. 12 OF HIS [29] WRITTEN SUBMISSIONS AND STATED THAT A COMPARATIVE C HART OF TRADING RESULTS FOR THE PAST FOUR YEARS REVEALED THAT THE ASSESSEE WAS INCU RRING SUCH EXPENDITURE OVER THE YEAR AND IN THE SCRUTINY ASSESSMENT OF ALL THE YEAR SAME WERE ACCEPTED BY DIFFERENT ASSESSING OFFICERS. IT WAS S TATED THAT THERE WAS NO EVIDENCE TO SHOW THAT THE COMMISSION WAS PAID TO THE NEAR RE LATIVES, FAMILY MEMBERS OR SISTER CONCERN AND THERE WAS NO IOTA OF EVIDENCE TO SHOW THAT THE PAYMENT OF COMMISSION REPRESENTED ONLY ACCOMMODATION ENTRY OR WAS ONLY A PAPER TRANSACTION. THEREFORE, THE DISALLOWANCE MADE BY T HE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A) WAS NOT JUSTIFIED. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 1. CIT VS. PRINTERS HOUSE (P) LTD. 188 TAXMAN 70 (D EL) 2. SHAHZADA NAND & SONS VS. CIT 108 ITR 358 (SC) 3. SWASTIC TEXTILE CO. PVT. LTD. VS. CIT 150 ITR 15 5 (GUJ) 8.2 IT WAS SUBMITTED THAT THE ASSESSEE COMPANY AT T IME OF ADMITTING A PERSON AS A DISTRIBUTOR AGREED THAT THEY WILL EARN INCOME WHENEVER THEY (I) BUY PRODUCT FROM THE COMPANY, (II) ANY PURCHASE BY THE DISTRIBU TORS IN DOWN-LINE OF SUCH DISTRIBUTOR, (III) ANY RESALE BY THEMSELVES OR BY T HE DISTRIBUTORS IN DOWN-LINE OF SUCH DISTRIBUTOR OR (IV) ON PURCHASE OF BUSINESS KI T BY ANY NEW DISTRIBUTORS IN DOWN-LINE OF SUCH DISTRIBUTOR AS PER BUSINESS MODEL . THEREFORE, THE PAYMENT MADE BY THE COMPANY TO THE VARIOUS DISTRIBUTORS DUR ING THE NORMAL COURSE OF BUSINESS WAS ALLOWABLE EXPENDITURE AND THE DISALLOW ANCE OF THE SAME WAS [30] ARBITRARY AND ERRONEOUS. IT WAS EXPLAINED THAT AFT ER JOINING THE NETWORK OF DISTRIBUTORS, A PERSON WAS ENTITLED TO PURCHASE THE PRODUCTS OF THE COMPANY FOR HIS OWN CONSUMPTION OR FOR SALE TO OTHER PERSONS AN D EARN INCENTIVE ON SUCH PURCHASES FROM COMPANY AND THE CALCULATION OF THE INCENTIVE WAS MADE AS PER PARAMETER SET BETWEEN THE ASSESSEE COMPANY AND DIST RIBUTORS AS PER CONTRACT AND HOW MUCH PAYMENT TO BE MADE TO EACH DISTRIBUTOR WAS DETERMINED IN A SYSTEMATIC MANNER. IT WAS FURTHER EXPLAINED THAT F IRSTLY AMOUNT PAYABLE TO GROUP OF DISTRIBUTORS AS PER BUSINESS MADE BY THEM COLLEC TIVELY WAS DETERMINED AND THEN DISTRIBUTED AMONGST THE VARIOUS DISTRIBUTORS I N SYSTEMATIC MANNER ON THE BASIS OF BUSINESS DONE BY THEM AND SUCH MANNER OF C ALCULATION OF COMMISSION TO BE PAID TO EACH DISTRIBUTOR WAS PREDE TERMINED AS PER BUSINESS PLAN OF THE ASSESSEE. IT WAS ALSO STATED THAT THE VARIOUS DISTRIBUTORS WERE THE BRAND AMBASSADOR OF THE ASSES SEE AND THE ASSESSEE COMPANY WAS GETTING HUGE BUSINESS FROM THE M AND WITH THEIR HELP. VARIOUS DISTRIBUTORS CONDUCTED MEETINGS AND S EMINARS WITH THE DOWN LINERS FOR INCREASING THE BUSINESS OF THE ASSE SSEE. THOSE MEETINGS AND SEMINARS WERE CONDUCTED BY THE DISTRIB UTORS AT THEIR OWN EXPENSES ONLY TO EARN INCOME FROM THE ASSESSEE AS P ER BUSINESS PLAN OF THE COMPANY AND CONTRACTUAL AGREEMENT. IT WAS STAT ED THAT THE ASSESSING OFFICER DISALLOWED THE REAL PAYMENT MADE TO THE DIS TRIBUTORS AS PER TERMS AND CONDITIONS OF THE BUSINESS, IN THE NORMAL COURS E OF BUSINESS AND IGNORING THE FACT THAT THIS PAYMENT WAS THE MAJOR F ACTOR DUE TO WHICH THE [31] ASSESSEE COMPANY WAS RUNNING ON THE PATH OF SUCCESS AND THE BUSINESS OF THE ASSESSEE OTHER THAN DIRECT EMPLOYMENT TO ITS EMPLOYEE MADE OPPORTUNITY FOR THE GENERAL PUBLIC AND ALSO ABLE TO PAY HUGE REVENUE TO THE STATE AND CENTRAL GOVT. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 1. CIT VS. LUCAS INDIAN SERVICE LTD. 239 ITR 429 (M AD) 2. CIT VS. DALMIA CEMENT (BHARAT) LTD. 254 ITR 377 (DEL) 3. BOMBAY MOTORS VS. CIT 214 ITR 342 (RAJ) 4. CIT VS. LD. DR. R. N. GOEL 177 TAXMAN 374 (DEL) 5. CIT VS. HINDUSTAN DEVELOPMENT CORPN. LTD. 101 TA XMAN 146 (CAL) 6. CIT VS. J. K. IRON & STEEL CO. (P) LTD. 188 ITR 144 (ALL) 7. CIT VS. TATA ENGG. & LOCOMOTIVE CO. LTD. 201 ITR 1036 (BOM) 8. CIT VS. TEXTOOL CO. LTD. 315 ITR 91 (MAD) 9. CIT VS. SPECIALITY PAPER CO. 316 ITR 415 (MAD) 8.3 IT WAS CONTENDED THAT THE PAYMENT OF COMMISSION TO VARIOUS DISTRIBUTORS WAS IN THE NORMAL COURSE OF BUSINESS F OR THE PURPOSE OF BUSINESS AND ALL THE CONDITIONS LAID DOWN IN SECTIO N 37(1) OF THE ACT WERE COMPLIED WITH, THUS THE EXPENSES CLAIMED BY THE ASS ESSEE WERE IN ACCORDANCE WITH LAW AND WERE ALLOWABLE. IT WAS STA TED THAT THE LEARNED CIT(A) SUSTAINED THE DISALLOWANCE MADE BY THE ASSES SING OFFICER WITHOUT APPRECIATING THE ADDITIONAL EVIDENCE AND THE DETAIL ED SUBMISSION SUPPORTED WITH JUDICIAL DECISIONS. IT WAS CONTENDE D THAT WHILE SUSTAINING THE DISALLOWANCE, THE RELIANCE WAS PLACED BY THE LE ARNED CIT(A) ON THE [32] THREE DECISIONS, WHICH WERE NOT IN CONTEXT OF MULTILEVEL MARKETING. ON THE CONTRARY, THE RATIO OF THE DECISIONS CITED BY THE ASSESSEE WERE APPLICABLE. IT WAS STATED THAT IN THE CASE RELIED BY THE LEARNED CIT( A), THE DISALLOWANCE OF EXPENDITURE WAS UPHELD ON THE FINDING THAT THE UNDE RLYING TRANSACTIONS WERE FOUND COLOURED TRANSACTION AND ONLY A TOOL TO DIVER T THE TAXABLE INCOME OF THE ASSESSEE TO CLOSELY RELATED PERSONS OF THOSE ASSESS EES BUT IN THE PRESENT CASE THE PAYMENT OF COMMISSION TO VARIOUS DISTRIBUT ORS WAS IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE AND EXCEPT A FRACTION, TOTAL COMMISSION WAS PAID TO PARTIES NOT RELATED TO THE ASSESSEE AND NOT COVERED BY SECTION 40A(2) OF THE ACT. THEREFORE, THE PAYMENT OF EXPENDITURE WAS IN ACCORD ANCE WITH THE BUSINESS PLAN OF THE ASSESSEE, WHICH WAS THOROUGHLY DISCUSS ED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. AS SUCH THE INFER ENCE DRAWN BY THE LEARNED CIT(A) FROM THE DECISIONS RELIED BY HIM WAS ERRONEO US. IT WAS SUBMITTED THAT THE SALES OF THE ASSESSEE WAS MORE THAN RS.668 CRORES I N ALL OVER THE COUNTRY AND THIS SALE WAS ACHIEVED WITH THE ACTIVE SUPPORT AND WORK OF THE DISTRIBUTORS WHO ARE SPREAD OVER THROUGHOUT THE COUNTRY AND THE ASSE SSEE DID NOT INCUR ANY EXPENDITURE ON THE ADVERTISEMENT EITHER BY ELECTRON IC MEDIA OR PRINT MEDIA AND THE SALES OF MORE THAN RS.668 CRORES WAS ACHIEVED W ITH THE ACTIVE PARTICIPATION OF THE DISTRIBUTORS TO WHOM THE COMPANY PAID THE CO MMISSION. IT WAS POINTED OUT THAT IN THE PRECEDING YEARS THE SIMILAR COMMISSION PAID IN IDENTICAL CIRCUMSTANCES WAS ACCEPTED BY THE VARIOUS ASSESSING OFFICERS. REFERENCE WAS MADE TO PAGE NOS. 768 AND 795 OF THE ASSESSEES COM PILATION, WHICH ARE THE [33] COPIES OF THE ASSESSMENT ORDERS U/S 143(3) OF THE A CT FOR THE PRECEDING YEARS. IT WAS STATED THAT LOOKING TO THE GROWTH OF THE ASSESS EE COMPANY, ITS INCREASING TURNOVER/NET PROFIT, SOME RIVAL ELEMENTS ATTEMPTED TO SHUT DOWN THE BUSINESS OF THE ASSESSEE AND AS SUCH THEY INSISTED CERTAIN PERSONS TO FILE F ALSE AND FABRICATED COMPLAINTS AGAINST THE ASSESSEE AND THEI R DIRECTORS UNDER THE PRIZE CHIT AND MONEY CIRCULATION (PROHIBITION) ACT, 1978, ON THE BASIS OF SUCH COMPLAINTS THE POLICE TOOK THE ACTION AND SEIZED TH E ENTIRE BUSINESS PREMISES ON 09/12/2011 AND EVEN THE DIRECTORS OF TH E ASSESSEE COMPANY AND THE KEY MANAGERIAL PERSONS WERE DETAINED BY THE POL ICE AND THE BOOKS OF ACCOUNTS, COMPUTER AND THE ACCOUNTS WERE SEIZED BY THE POLICE AUTHORITIES. IT WAS FURTHER STATED THAT ON THE BASIS OF FIR AND POLICE ACTION, NEWS WAS PUBLISHED IN THE NEWS PAPERS AND THE ASSESSING OFFI CER, ONLY ON THE BASIS OF THOSE NEWS, DISALLOWED THE COMMISSION PAID TO THE D ISTRIBUTORS TO THE EXTENT OF RS.125 CRORES. HOWEVER, NEITHER THE ASSESSING OFFI CER NOR THE LEARNED CIT(A), NOWHERE MENTIONED IN THEIR RESPECTIVE ORDERS THAT T HE BUSINESS CARRIED BY THE ASSESSEE FALLS UNDER THE CATEGORY OF PRIZE CHIT AN D MONEY CIRCULATION (PROHIBITION) ACT, 1978. THEREFORE, THE AD HOC DI SALLOWANCE OF RS.125 CRORES WAS ARBITRARY AND ALSO DUE TO PREOCCUPIED MIND OF T HE ASSESSING OFFICER THAT THE ASSESSEE COMPANY DEFRAUD WITH PUBLIC AS REPORT ED IN THE NEW PAPER. IT WAS STATED THAT IN THE PRESENT CASE, THE DISALLOWAN CE WAS MADE ONLY ON SUSPICION, WITHOUT ANY COGENT REASON, SO IT WAS NOT SUSTAINABLE. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: [34] 1. VASUDEO VISHWANATH SARAF VS. NEW EDUCATION INSTI TUTE [1986] 161 ITR 835 (SC) 2. DHANKESHWARI COTTON MILLS LIMITED VS. CIT [1954] 26 ITR 775 (SC) 3. SEWDUTTROY RAMBULLAV & SON VS. CIT 204 ITR 580 ( DEL) THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT ON THE PRINCIPLE OF CONSISTENCY ALSO, NO DISALLOWANCE WAS CALLED FOR BE CAUSE THE DEPARTMENT ACCEPTED THE PAYMENT OF COMMISSION IN SIMILAR CIRCU MSTANCES AND ALLOWED YEAR AFTER YEAR IN THE ASSESSMENT FRAMED U/S 143(3) OF T HE ACT. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUST AINED BY THE LEARNED CIT(A) IN ARBITRARY MANNER WAS NOT JUSTIFIED. RELI ANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 1. RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC) 2. CIT VS. MALBOROUGH PLOYCHEM P. LTD. [2009] 309 I TR 43 (RAJ) 3. CIT VS. HARYANA STATE INDUSTRIAL DEVELOPMENT COR PORATION LTD. 326 ITR 640 (P&H) 4. DECISION OF ITAT JODHPUR BENCH IN I.T.A. NO.871/ JODH/2007 IN THE DCIT VS. M/S MALANI IMPEX INCOME, ORDER DATED 18/09 /2008. 9. IN HIS RIVAL SUBMISSIONS, THE LEARNED D.R. STRO NGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT TH E ASSESSEE WAS ENGAGED IN MULTILEVEL MARKETING BUSINESS AND CLAIMED COMMISS ION OF RS.159.30 CRORES PAID TO THE AGENTS WHO WERE REQUIRED TO MAKE THE CH AIN OF MEMBERS AS LONG AS POSSIBLE. IT WAS CONTENDED THAT ON THE GOODS SOLD BY THE LAST MEMBER OF THE CHAIN.EACH AND EVERY MEMBER ABOVE IN THE CHAIN ALS O GOT THE COMMISSION [35] WHICH SHOWS THAT A VERY LITTLE PART OF THE COMMISSI ON PAID ACTUALLY GOES TO THE PERSON WHO SOLD THE PRODUCT I.E. WHO ACTUALLY RENDE RED THE SERVICES. IT WAS STATED THAT AS PER THE PROVISIONS OF SECTION 37(1) OF THE ACT, ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME BUT IN THE PRESENT CASE, THE COMMISSION PAID TO AGENT IN MULTI LEVEL MARKETING W AS NOT FOR THE SALE MADE BY THEM BUT FOR THE SALE MADE BY THE PERSON DOWN IN TH E LINE OF THE CHAIN, SO IT WAS NOT ALLOWABLE. IT WAS SUBMITTED THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE CONFIRMATION IN RESPECT OF COMMISSION PAID TO TOP 10 PARTIES. HOWEVER, DESPIT E REPEATED OPPORTUNITIES, THE CONFIRMATION WAS FURNISHED ONLY FROM THREE PERSONS TO WHOM COMMISSION WAS PAID AT RS.1,07,82,401/- BUT THE ASSESSEE FAILED TO FURNISH ANY DETAILS ALONG WITH EVIDENCE REGARDING SERVICES RENDERED BY THOSE PARTI ES. IT WAS STATED THAT EVERY MEMBER WAS GETTING HUGE AMOUNT OF COMMISSION ON ACC OUNT OF SERVICES RENDERED BY OTHERS AND SALES MADE BY OTHER MEMBERS DOWN THE CHAIN. IT WAS FURTHER STATED THAT THREE PERSONS NAMELY SMT. SEEM A CHHABRA, SMT. LNDIRA DEVI CHHABRA AND SHRI KAILASH CHANDRA CHHABRA TO WHOM CO MMISSION WAS PAID, ARE THE RELATED PARTIES OF THE ASSESSEE AND MUST BE FIG URING ON THE TOP OF THE CHAIN. THEY WERE GETTING HUGE AMOUNT OF COMMISSION WITHOUT ANY BUSINESS ACTIVITY CONDUCTED BY THEM AND MERELY ON ACCOUNT OF ADDING N EW MEMBER OR ON ACCOUNT OF BUSINESS ACTIVITIES CONDUCTED BY THE OTHER MEMBE RS DOWN IN THE CHAIN. IT WAS STATED THAT IN THIS CASE POLICE ACTION TOOK PLACE I N DECEMBER, 2011 AND A CASE [36] WAS REGISTERED BY THE LOCAL POLICE AGAINST THE ASSE SSEE UNDER PRIZE CHIT AND MONEY CIRCULATION (PROHIBITION) ACT, 1978 AND THIS REPORT ALSO APPEARED IN THE NEWS PAPER. IN SUPPORT OF THE ABOVE A REFERENCE WA S MADE TO PAGE NO. 32 OF THE ASSESSMENT ORDER. IT WAS STATED THAT IT HAD BE EN ALLEGED BY CERTAIN MEMBERS THAT THEIR NUMBERS CONNECTED TO THE CHAIN WERE DELE TED AND ADDED TO THE CHAIN OF MEMBER RELATED TO THE DIRECTORS AND THIS MATTER HAD BEEN REPORTED IN THE POLICE FOR FURTHER INVESTIGATION. IT WAS FURTHER S TATED THAT A SUBSTANTIAL PART OF THE CHAIN HAD NOT BEEN FOUND TO BE RENDERING SERVICES, WHICH AS PER THE ASSESSEES CONTENTION COULD BE DEEMED AS BUSINESS U/S 37(1) OF THE ACT. IT WAS SUBMITTED THAT IN ASSESSEES CASE THE INFORMATION OBTAINED FR OM THE LOCAL POLICE INDICATED THAT LEGALITY OF THE BUSINESS OF THE ASSESSEE WAS N OT PROVED, WHICH WAS EVIDENT FROM THE EXCERPTS OF THE FIR, THEREFORE, THE CLAIM OF COMMISSION EXPENSES TO THE TUNE OF RS.125 CRORE WAS RIGHTLY DISALLOWED U/S 37( 1) OF THE ACT BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) CLEARLY OBSERVED TH AT THE ASSESSEE FAILED TO ESTABLISH THAT ANY SERVICE HAD BEEN ACTUALLY RENDER ED BY THE PERSONS (WHO ARE IN CHAIN ABOVE THE PERSON MAKING SALE) IN RESPECT OF W HICH COMMISSION HAD BEEN PAID TO THEM. THEREFORE, IN SUCH SITUATION THE PAY MENT WAS NOT ALLOWABLE U/S 37(1) OF THE ACT. IT WAS EMPHASISED THAT LEARNED CIT(A) IN PARA 6.8 OF THE APPELLATE ORDER HAS ALSO HELD THAT THE RELIANCE PLA CED BY THE ASSESSEE ON VARIOUS JUDICIAL DECISIONS WAS OF NO HELP BECAUSE THE FACTS OF THE CASES QUOTED BY THE ASSESSEE WERE DIFFERENT. IT WAS STATED THAT THE DE CISION RELIED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) WERE APPLICABLE IN THE CASE OF THE ASSESSEE, [37] THEREFORE, THE LEARNED CIT(A) RIGHTLY SUSTAINED TH E DISALLOWANCE OF RS.125 CRORE MADE BY THE ASSESSING OFFICER. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- LAKSHMIRATAN COTTON MILLS CO. LTD. VS. CIT 73 ITR 634 (SC) LACHMINARAYAN MADAN LAL VS. CIT 86 ITR 439 (SC) 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT WHEN THE ASSESSMENT PROCEEDINGS WERE GOING, TH ERE WAS A POLICE ACTION AGAINST THE ASSESSEE AND A CASE WAS REGISTERED UND ER THE PRIZE CHIT AND MONEY CIRCULATION (PROHIBITION) ACT, 1978 ON 09/12 /2011, THIS FACT WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER BY THE ASSES SEE HIMSELF VIDE LETTER DATED 12/12/2011. IN THE PRESENT CASE ALTHOUGH THE CASE WAS REGISTERED UNDER THE PRIZE CHIT AND MONEY CIRCULATION (PROHIBITION) ACT, 1978 BY THE POLICE HOWEVER, NOWHERE IN THE ASSESSMENT ORDER DATED 30/12/2011 OR THE APPELLATE ORDER OF THE LEARNED CIT(A) DATED 03/09/2012 IT IS MENTIONED TH AT THE ASSESSEE WAS ENGAGED IN CHIT OR MONEY CIRCULATION BUSINESS. IT IS ALSO NOTICED THAT THE ASSESSING OFFICER IN THE FACE OF THE ASSESSMENT ORD ER DATED 30/12/2011 IN COL. 9 PERTAINING TO NATURE OF BUSINESS, CLEARLY STATED AS UNDER: NATURE OF BUSINESS: MANUFACTURING AND TRADING OF F ABRICS, READYMADE, HOSIERY, FMCG & EDIBLE ITEMS ETC. SELLING T HROUGH MULTILEVEL MARKETING / NETWORKING. [38] WHICH SHOWS THAT THE BUSINESS OF THE ASSESSEE WAS NOT CHIT FUND OR MONEY CIRCULATION BUSINESS. THE LEARNED CIT(A) ALSO AT PAGE NO. 4 OF THE IMPUGNED ORDER IN PARA 4 HAS STATED AS UNDER: 4.0 THE APPELLANT IS A PRIVATE LIMITED COMPANY AND DERIVES INCOME FROM BUSINESS OF TEXTILE (FABRICS), FMCG PRODUCTS, READYMADE GARMENTS ETC. THE APPELLANT SELLS ITS PRO DUCTS THROUGH THE NETWORK OF ITS DISTRIBUTORS. 10.1 FROM THE ABOVE NOTINGS OF THE ASSESSING OFFICE R AS WELL AS THE LEARNED CIT(A), IT IS CLEAR THAT THE ASSESSEE WAS ENGAGED I N THE MANUFACTURE AND TRADING OF TEXTILE (FABRICS), FMCG PRODUCTS, READYMADE GARM ENTS ETC. AND SELLING THROUGH MULTI LEVEL MARKETING NETWORK. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED COMMISSION OF RS.1,59,30,34,605/- IN MULTI LEVEL MARKETING BUSINESS. THE ASSESSING OFFICER DISALLOWED RS.125 CRORE OUT OF THE AFORESAID COMMISSION FOR THE REASON THAT A VERY LITTLE PART O F THE COMMISSION PAID ACTUALLY GOES TO THE PERSONS WHO HAD ACTUALLY SOLD THE PRODU CT BY RENDERING THE SERVICES AND THE MAJOR PORTION OF THE COMMISSION GOES TO THE ENTIRE CHAIN OF PERSONS ABOVE THE LINE WHO HAD NOT RENDERED ANY SERVICES IN THIS REGARD. IN OUR OPINION, THE SAID OBSERVATIONS OF THE ASSESSING OFFICER WERE NOT CORR ECT BECAUSE IT IS NOTICED THAT MANY PERSONS WHO WERE PLACED ABOVE THE LINES WERE N OT GETTING THE COMMISSION. FROM PAGE NO. 293 OF THE ASSESSEES PAPER BOOK, WHI CH IS THE SUMMARY OF TREE OF DISTRIBUTORS AND CHART OF DISTRIBUTORS COMMISSION I NCOME ON THE BASIS OF THEIR LEVEL, IT IS NOTICED THAT THERE WERE 17 DISTRIBUTORS AT L EVEL 2. THEY RECEIVED COMMISSION [39] OF RS.80/- ONLY WHILE 105 PERSONS AT LEVEL 36, RECE IVED COMMISSION OF RS.62,05,936/- AND 436 PERSONS AT LEVEL 37, RECEIVE D COMMISSION OF RS.1,091/- ONLY. SIMILARLY AT PAGE NO. 294 AT S.NO.40, 4 PERS ONS WERE AT LEVEL 47, WHO RECEIVED THE COMMISSION OF RS.1,828/- ONLY AND AT S .NO.78, 18 PERSONS WERE AT LEVEL 85, WHO RECEIVED COMMISSION OF RS.19,65,381/- . AT PAGE NO.296 OF THE ASSESSEES PAPER BOOK AT S.NO.159, 1 DISTRIBUTOR WA S AT LEVEL 168 WHO RECEIVED THE COMMISSION OF RS.53/- ONLY WHILE AT S.NO.172, 2 DISTRIBUTORS AT THE LEVEL OF 182 RECEIVED THE COMMISSION OF RS.10,14,428/-. AT PAGE NO. 297, S.NO.212, THERE WERE 7 DISTRIBUTORS AT LEVEL 233 WHO RECEIVED THE C OMMISSION OF RS.21,81,576/-. FROM THE ABOVE DETAILS IT IS CRYSTAL CLEAR THAT THI S ALLEGATION OF THE ASSESSING OFFICER THAT A VERY LITTLE PART OF COMMISSION PAID ACTUALLY GOES TO THE PERSON WHO HAS ACTUALLY SOLD THE PRODUCT AND THE MAJOR PORTION GOES TO THE ENTIRE CHAIN OF PERSONS ABOVE WHO HAD NOT RENDERED ANY SERVICE WAS WITHOUT ANY BASIS. ON THE CONTRARY, THE COMMISSION GOES TO THOSE PERSONS WHO RENDERED THE SERVICE AND PARTICIPATED IN REAL SALE OF THE PRODUCTS. IN THE PRESENT CASE, THE CONCEPT OF MULTI LEVEL MARKETING HAS BEEN ACCEPTED BY THE DEPARTMEN T IN THE EARLIER YEARS ALSO WHICH IS CLEAR FROM PAGE NOS. 768 TO 795 OF THE ASS ESSEES COMPILATION, WHICH ARE THE COPIES OF THE ASSESSMENT ORDERS FRAMED U/S 143( 3) OF THE ACT FOR THE ASSESSMENT YEARS 2005-06 TO 2008-09. IN THE SAID A SSESSMENT ORDERS, THE ASSESSING OFFICER ACCEPTED THAT THE ASSESSEE STARTE D THE NEW CONCEPT OF MARKETING CALLED AS MULTI LEVEL MARKETING. SO TH IS CONCEPT OF MULTI LEVEL MARKETING IS NOT THE NEW CONCEPT FOR THE YEAR UNDER CONSIDERATION BUT IT WAS ALSO [40] ACCEPTED BY THE DEPTT. IN THE EARLIER YEARS. IN TH E PRESENT CASE, THE ASSESSING OFFICER DISALLOWED THE IMPUGNED COMMISSION BY OBSER VING THAT A PERSON IN THE CHAIN WAS GETTING COMMISSION EVEN FOR PURCHASE OR S ALE MADE BY DOWN LINERS IN CHAIN I.E. EVEN IF PURCHASES MADE BY DOWN LINERS DI STRIBUTORS AS WELL AS RETAILING MADE BY DOWN LINERS, IN OTHER WORDS A PERSON WAS GE TTING HUGE AMOUNT OF COMMISSION EVEN WITHOUT ACTUALLY WORKING. THE SAID OBSERVATION OF THE ASSESSING OFFICER WAS NOT CORRECT BECAUSE IN MULTI LEVEL MAR KETING CONCEPT THE DISTRIBUTORS ARE APPOINTED AND THEY FURTHER INTRODUCE OTHER DIST RIBUTORS AND THE OTHER DISTRIBUTORS ALSO INTRODUCE THE DISTRIBUTORS AND SO ON BUT THE COMMISSION IS PAID ON THE SALES. IN THE PRESENT CASE, THE SALE OF THE AS SESSEE HAS BEEN ACCEPTED. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE SALE WAS SUPPRESSED OR THE RATE OF COMMISSION VARIED ON THE SIMILAR SALE MADE BY DIFFE RENT PERSON. IN THE INSTANT CASE, THE RATE OF COMMISSION WAS SAME ON THE SALE A ND EVEN IF A PURCHASE WAS MADE BY THE DOWN LINERS DISTRIBUTORS IN THE CHAIN, THAT PURCHASE WAS A SALE IN THE HANDS OF THE ASSESSEE AND COMMISSION WAS PAID ON TH AT SALE. THEREFORE, IT CANNOT BE SAID THAT THE COMMISSION PAID BY THE ASSE SSEE WAS NOT RELATED TO ITS SALE. IN THE PRESENT CASE, AS WE HAVE ALREADY POIN TED OUT THAT ALL THE DISTRIBUTORS WERE NOT EARNING THE COMMISSION BECAUSE IT DEPENDED UPON THE QUANTUM OF SALES MADE BY THE CHAIN OF DISTRIBUTORS AND THE AMOUNT OF COMMISSION WAS NOT CONSISTENT FOR ALL THE CHAINS OF DISTRIBUTORS AS W AS CLEAR FROM PAGE NOS. 293 TO 442 OF THE ASSESSEES COMPILATION WHICH IS THE COPY OF DETAILS OF DISTRIBUTORS COMMISSION ON THE BASIS OF THEIR LEVEL, PARTICULARL Y FROM PAGE NOS. 303 TO 307 IT IS [41] NOTICED THAT NONE OF THE DISTRIBUTOR AT LEVEL 5 TO 8 RECEIVED ANY COMMISSION, THAT MAY BE DUE TO THE REASON THAT THEY HAVE NOT CONTRIB UTED TO THE SALE OF THE ASSESSEE. IN THE INSTANT CASE THE PERCENTAGE OF CO MMISSION TO THE SALE FOR THE YEAR UNDER CONSIDERATION WAS LOWER AS COMPARED TO T HE PRECEDING YEARS, WHICH IS CLEAR FROM THE CHART FURNISHED BY THE ASSESSEE, COP Y OF WHICH IS PLACED AT PAGE NO.44 OF THE WRITTEN SUBMISSIONS OF THE ASSESSEE, A ND READS AS UNDER:- PARTICULARS 31/03/2009 31/03/2008 31/03/2007 31/0 3/2006 (RS. IN LAC) (RS. IN LAC) (RS. IN LAC) (RS. IN LAC) --------------------------------------------------- --------------------------------------------------- ----------- INCOME SALES TOTAL(A) 66868.32 57840.59 73343.30 43441.5 5 ADD:INCREASE/DECREASE) 1323.72 2964.48 5290. 52 5339.82 IN STOCK SUB-TOTAL (B) 68192.04 60804.07 78633.82 48781.37 EXPENDITURE RAW MATERIAL CONSUMED 1879.71 1086.77 153.43 72.74 FABRICS & FMCG PURCHASE 38460.67 35771.51 44159.08 27180.00 DISTRIBUTOR COMMISSION 15930.30 15795.79 24122.05 14980.42 23.82% 27.31% 32.89% 34.48% PAYMENT TO & PROVISION FOR 568.76 159.91 120.32 52.96 EMPLOYEE FREIGHT & CARTAGE 991.11 77.15 747.43 379.60 PACKING MATERIAL CONSUMED 1573.62 1436.70 2595.30 2 312.71 MANUFACTURING EXPENSES 732.11 303.72 290.66 53.3 6 GRADING & PACKING 52.57 34.00 57.32 34.33 TOTAL (C) 60189.93 55360.23 72245.60 45066.12 GROSS PROFIT (D)=(B-C) 8003.14 5443.84 6388.22 371 5.25 GP% OF TURNOVER (D/A) 11.97% 9.41% 8.71% 8.55% FROM THE ABOVE CHART IT IS NOTICED THAT PERCENTAGE OF COMMISSION TO THE SALE FOR THE ASSESSMENT YEAR 2006-07 TO 2009-2010 WAS AT 34. 48%, 32.89%, 27.31% AND 23.82% RESPECTIVELY [42] FROM THE ABOVE DETAILS IT IS CLEAR THAT THERE WAS DECREASING TREND IN PAYMENT OF THE COMMISSION ON THE SALE, SO IT CANNOT BE SAID TH AT THE ASSESSEE INFLATED THE COMMISSION EXPENSES. IT IS ALSO NOTICED THAT THE G ROSS PROFIT RATE FOR THE YEAR UNDER CONSIDERATION WAS AT 11.97% IN COMPARISON TO THE EARLIER YEAR AT 9.41%. IN FACT THERE WAS INCREASING TREND IN THE GROSS PRO FIT RATE SINCE THE ASSESSMENT YEAR 2006-07 ONWARDS. IN THE INSTANT CASE, IT IS N OTICED THAT THE DEPARTMENT HAD ACCEPTED THE DISTRIBUTOR COMMISSION IN PRECEDING YE ARS WHILE FRAMING THE ASSESSMENT U/S 143(3) OF THE ACT. COPIES OF THE SA ID ASSESSMENT ORDERS ARE PLACED AT PAGE NO. 768 TO 795 OF THE ASSESSEES PAP ER BOOK, WHICH ARE THE COPIES OF ASSESSMENT ORDERS FOR THE ASSESSMENT YEAR 2005-06 TO 2007-08. IT IS ALSO NOTICED THAT THE LEARNED CIT, AJMER RECEIVED A PROPOSAL U/S263 OF THE ACT FROM DY. CIT, CIRCLE-BHILWARA THROUGH ADDL. CIT, RA NGE-BHILWARA ON 11/01/11 FOR THE ASSESSMENT YEAR 2006-07. THE SAID PROPOSAL WAS MOVED BY THE ASSESSING OFFICER TREATING THE ORDER PASSED U/S 143(3) OF THE ACT ON 10/12/2008 AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AND THE LEARNED CIT WHILE PASSING THE ORDER U/S 263 OF THE ACT DATED 15 /03/2011, COPY OF WHICH IS PLACED AT PAGE NO. 826 TO 828 OF THE ASSESSEES COM PILATION, DID NOT DOUBT THE COMMISSION PAID IN MULTI LEVEL MARKETING BY THE A SSESSEE AND NO DIRECTION WAS GIVEN TO REVIEW THE COMMISSION PAID. IT IS ALSO NO T THE CASE OF THE DEPARTMENT THAT THERE IS ANY CHANGE IN THE FACT OF THE CASE FO R THE YEAR UNDER CONSIDERATION VIS--VIS THE AFORESAID ASSESSMENT YEAR 2006-07 WHE REIN THE REVERSIONARY POWER WAS EXERCISED BY THE LEARNED CIT, AJMER U/S 263 OF THE ACT. THEREFORE, KEEPING [43] IN VIEW THE PRINCIPLE OF CONSISTENCY ALSO, THE DEPA RTMENT OUGHT TO HAVE ACCEPTED THE COMMISSION PAID BY THE ASSESSEE ON SALE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION PARTICULARLY WHEN PERCENTAGE OF COMMI SSION TO SALES FOR THE YEAR UNDER CONSIDERATION WAS ON LOWER SIDE IN COMPARISON TO EARLIER YEARS. IN THIS REGARD IT IS RELEVANT TO POINT OUT THAT HON'BLE SUP REME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT [1992] 193 ITR 321 HAS H ELD AS UNDER: STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME-TAX PRO- CEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A UNIT , WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWIN G YEAR; WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERE NT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAI NED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPRO PRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 10.2 SIMILARLY, THE HON'BLE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT VS. MALABOROUGH POLYCHEM P. LTD. [2009] 309 ITR 43 (RAJ ) HELD THAT REASONING GIVEN BY THE TRIBUNAL WAS CORRECT AND THE ASSESSEE COULD NOT BE DENIED THE BENEFIT OF SECTION 80HH WHICH WAS GIVEN BY THE DEPARTMENT ALL THROUGH. IN THE SAID CASE THE TRIBUNAL HELD THAT THE PRINCIPLE OF CONSISTENCY REQUIRE THAT THE VIEW TAKEN BY THE DEPARTMENT IN PRECEDING YEAR SHOULD NOT BE DIST URBED UNLESS THERE WAS A CHANGE IN FACTUAL AND LEGAL POSITION. 10.3 IN THE PRESENT CASE ALSO THE DEPARTMENT ACCEPT ED THE CLAIM OF THE ASSESSEE IN ALL THE PRECEDING ASSESSMENT YEARS STAR TING FROM ASSESSMENT YEAR 2005-06 TO 2008-09 WHEREIN WHILE FRAMING THE ASSESS MENT U/S 143(3) OF THE ACT [44] NO DISALLOWANCE UNDER SIMILAR CIRCUMSTANCES ON ACCO UNT OF COMMISSION WAS MADE AND EVEN THE LEARNED CIT WHILE EXERCISING HIS POWER FOR REVISION U/S 263 OF THE ACT FOR THE ASSESSMENT YEAR 2006-07 DID NOT DOU BT THE COMMISSION PAID BY THE ASSESSEE IN THE MULTI LEVEL MARKETING TO ITS DI STRIBUTORS, SO THERE WAS NO OCCASION TO DOUBT THE COMMISSION FOR THE YEAR UNDE R CONSIDERATION PAID ON THE SALE IN IDENTICAL CIRCUMSTANCES. SIMILARLY, THEIR LORDSHIPS OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HARYANA S TATE IND. DEV. CORPORATION LTD. [2010] 326 ITR 640 AT PAGE NO. 641 OBSERVED AS UNDER: WE FIND THAT THE TRIBUNAL HAS TAKEN A CORRECT VIEW BY APPLYING THE PRINCIPLE OF CONSISTENCY. IT HAS RIGHTLY PLACED REL IANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT RENDERED IN T HE CASE OF RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321 (SC). THE HONBLE SUPREME COURT IN THAT CASE HAD NEGATED THE ARGUMENT REGARDING APPLICATION OF PRINCIPLES CONCERNING RES JUDICATA T O THE INCOME-TAX PROCEEDINGS. IT WAS OBSERVED THAT WHERE A FUNDAMENT AL ASPECT PERMEATING THROUGH DIFFERENT ASSESSMENT YEARS HAS B EEN FOUND AS A FACT ONE WAY OR THE OTHER AND THE PARTIES HAD ALL OWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THAT ORDER THEN IT WOULD NOT AT ALL BE APPROPRIATE TO PERMIT THAT POSITION TO BE CHANGE D IN A SUBSEQUENT YEAR. THE AFORESAID VIEW HAS BEEN WIDELY ACCEPTED, FOLLOWED AND APPLIED BY THE HONBLE SUPREME COURT I N VARIOUS JUDGMENTS INCLUDING THE JUDGMENT RENDERED IN THE CA SE OF MUNICIPAL CORPORATION OF CITY OF THANE V. VIDYUT METALLICS LT D. [2007] 8 SCC 688. 10.4 IN THE PRESENT CASE ALSO, AS WE HAVE ALREADY P OINTED OUT THAT THE DEPARTMENT HAS ACCEPTED THE PAYMENT OF COMMISSION O N THE SALES IN MULTI LEVEL MARKETING BY THE ASSESSEE CONTINUOUSLY FROM THE A SSESSMENT YEAR 2005-06 TO ASSESSMENT YEAR 2008-09, COPIES OF WHICH ARE PLACED AT PAGE NOS. 768 TO 795 OF THE ASSESSEES COMPILATION AND THE LEARNED CIT ALSO FOR THE ASSESSMENT YEAR [45] 2006-07 WHILE EXERCISING THE REVERSIONARY POWER U/S 263 DID NOT DOUBT THE PAYMENT OF COMMISSION ON THE SALES AND THE FACTS FO R THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS INVOLVED I N AFORESAID REFERRED TO ASSESSMENT YEARS, THEREFORE, THE AO WAS NOT JUSTIFI ED IN NOT ACCEPTING THE CLAIM OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION FO R THE COMMISSION TO THE DISTRIBUTORS ON THE SALE THROUGH THEM. IN THE PRES ENT CASE, IT IS AN UNDISPUTED FACT THAT THE AO DISALLOWED THE COMMISSION OF RS.12 5 CRORES OUT OF TOTAL COMMISSION OF RS.1,59,30,34,605/-. IN OTHER WORDS, THE AO DID NOT DOUBT THE GENUINENESS OF THE COMMISSION AMOUNTING TO RS.34,30 ,34,605/- (RS.1,59,30,34,605 RS.125 CRORES) AND ACCEPTED TH AT COMMISSION ON SALES BUT DISALLOWED RS.125 CRORES OUT OF THE COMMISSION PAID . THEREFORE, THE AO ACCEPTED PART OF THE COMMISSION AS GENUINE BUT DID NOT GIVE ANY REASON OR BASIS FOR DOUBTING THE REMAINING COMMISSION AND MAKING TH E AD HOC DISALLOWANCE. THE LEARNED CIT(A) ALSO WHILE CONFIRMING THE AD H OC DISALLOWANCE MADE BY THE AO IN SLIP SHOD MANNER HAD NOT GIVEN ANY COGENT REA SON PARTICULARLY WHEN HE ADMITTED IN PARA 6.5 OF THE IMPUGNED ORDER THAT THE MAJOR SALE OF THE ASSESSEE WAS THROUGH MULTI LEVEL MARKETING AND IN THE SAID S YSTEM THERE WAS A LARGE NUMBER OF DISTRIBUTORS WHEREIN EVERY PERSON WHO JOI NED THE NETWORK GOT COMMISSION. IN THE INSTANT CASE, IT IS NOT IN DISP UTE THAT THE PURCHASES MADE BY THE DISTRIBUTOR FOR THEIR OWN CONSUMPTION OR SALE M ADE TO THE OTHERS WAS IN FACT THE SALE IN THE HANDS OF THE ASSESSEE AND THE COMMI SSION WAS PAID ONLY ON THAT SALE, SO IT WAS A GENUINE EXPENDITURE FOR THE BUSIN ESS PURPOSE AND WAS ALLOWED [46] IN THE EARLIER YEARS ALSO SO IT WAS ALLOWABLE U/S 3 7(1) OF THE ACT FOR THE YEAR UNDER CONSIDERATION. AS WE HAVE ALREADY POINTED OUT THAT THE AO HAD NOT GIVEN ANY BASIS FOR MAKING THE AD HOC DISALLOWANCE OF RS.125 CRORE AND THE LEARNED CIT(A) IN A SLIP SHOD MANNER SUSTAINED THE DISALLOWANCE, T HEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, AS NARRATED HEREIN ABOVE, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY LEARNE D CIT(A) WAS NOT JUSTIFIED. IN THAT VIEW OF THE MATTER, WE DELETE THE IMPUGNED ADDITION. 11. IN GROUND NO. 2, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE SUSTENANCE OF DISALLOWANCE OF RS.5,35,532/- MADE BY THE AO U/S 43B OF THE ACT. 12. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD SHOWN A SUM OF RS.6,39,94,020/- AS STATUTORY AND GOVERNMENT LIABIL ITY UNDER THE HEAD CURRENT LIABILITY IN ITS BALANCE SHEET AS ON 31/03/2009. HE, THEREFORE, ASKED THE ASSESSEE TO FURNISH THE DETAILS IN RESPECT OF STATU TORY LIABILITY U/S43B OF THE ACT AND PROOF OF PAYMENT OF THE SAME. IN LIEU OF THAT, THE ASSESSEE IN REPLY DATED 07/03/2011 FURNISHED LEDGER ACCOUNT COPIES OF ALL T HE STATUTORY DUES AND ALSO THE CHALLANS. THE ASSESSING OFFICER POINTED OUT THAT O N VERIFICATION, ONLY COPIES OF LEDGER ACCOUNTS WERE FOUND ENCLOSED BUT CHALLANS WE RE NOT FOUND ENCLOSED. HE, THEREFORE, ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE STATUTORY LIABILITIES FOR WHICH PAYMENT PROOF HAD NOT BEEN FURNISHED, SHOULD NOT BE DISALLOWED U/S 43B OF THE IT ACT AND ADDED TO THE TOTAL INCOME. THE AS SESSING OFFICER POINTED OUT [47] THAT THE STATUTORY LIABILITIES OF RS.2,96,80,357/- WERE THERE, DETAILS OF WHICH IS GIVEN IN PARA 4 OF THE ASSESSMENT ORDER DATED 30/12 /2011. FOR THE COST OF REPETITION THOSE ARE NOT MENTIONED HERE. THE ASSES SEE STATED TO THE ASSESSING OFFICER VIDE REPLY DATED 21/12/2011 AS UNDER: '... REGARDING 43B PAYMENTS, AS ALL THE BOOKS ARE S EIZED AND AS WE HAVE RECEIVED THIS SHOW CAUSE NOTICE AFTER THE SEIZ URE, IT IS NOT POSSIBLE FOR US TO PRODUCE THE SAME. ALL THE 43 B P AYMENTS HAVE BEEN VERIFIED IN THE COURSE OF TAX AUDIT AND A CERT IFICATE HAS BEEN ISSUED FOR THE SAME IN THIS REGARDS.... ' 12.1 THE ASSESSING OFFICER, HOWEVER, OBSERVED THAT THE ASSESSEE FAILED TO FURNISH THE WORKING PAPER OF THE TAX AUDITOR IN SUP PORT OF ITS CLAIM AND ALSO FAILED TO FURNISH DOCUMENTARY EVIDENCE IN RESPECT OF PAYME NT MADE BEFORE THE DUE DATE. HE, THEREFORE, DISALLOWED RS.2,96,80,357/- U /S 43BOF THE ACT AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 13. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT (A) AND THE SUBMISSIONS MADE BEFORE HIM, AS MENTIONED IN PARA 9.2 OF THE IM PUGNED ORDER, WERE AS UNDER: THAT LD. AO MADE DISALLOWANCES OF RS.2,96,80,357/ - ON THE FINDING THAT THE PAYMENT OF THE STATUTORY LIABILITI ES WERE PROVED TO BE MADE WITHIN THE TIME LIMIT PRESCRIBED U/S 43B. THAT BEFORE SUBMITTING ON THE ISSUE OF DISALLOWANCE IT MAY BE WORTHWHILE TO BRING THE ERROR IN THE CALCULATION OF RS.2,96,80,357/-. AT PAGE 37 & 38 LD. AO RECORDED FINDING OF THE STATUTO RY LIABILITIES WHICH REMAINS UNPAID AS ON 31/03/2009. AT SERIAL NO 12 OF THE LIST LIABILITY OF ENTRY TAX PAYABLE WAS RECORDED FOR RS. 5,41,363/- INSTEAD [48] OF ACTUAL AMOUNT OF RS.54,136/- THEREFORE THE DISAL LOWANCE OF RS. : 4,87,227/- (RS.5,41,363/- LESS RS.54,136/-) WAS ERR ONEOUS AND DUE TO TYPOGRAPHIC ERROR. THAT ALL THE STATUTORY LIABILITIES WERE PAID PRIOR TO THE DUE DATE OF FILING OF RETURN AND IN THE FORM 3CD THE TAX AUDITO R HAD ALSO VERIFIED THE PAYMENT OF SUCH STATUTORY LIABILITIES BEFORE TH E DUE DATE OF FURNISHING OF RETURN. THE 3CD REPORT WAS AVAILABLE WITH THE LD. AO WHILE MAKING THE ASSESSMENT. THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, DE TAILS OF PAYMENT OF THE STATUTORY LIABILITY WAS SUBMITTED AS BACK AS ON 07/03/2011 AND VERIFIED THE SAME. BUT LD. AO VIDE LETTER DATED 16/ 12/2011 REQUIRED TO PRODUCE THE PROOF OF PAYMENT FOR THE SAME. THAT THE PROOF OF PAYMENT OTHER THAN ALREADY SUBMIT TED CANNOT BE PROVIDED AS ALL THE RECORDS WERE SEIZED BY THE POLI CE AUTHORITY AND THIS FACT WAS MADE AVAILABLE TO THE LD. AO. THAT THE TOTAL ADDITION OF RS.2,96,80,357/- IS UNDE R THE FOLLOWING HEAD: S. NO. PARTICULARS AMOUNT 1 ESI 132388 2 PF 362429 3 SERVICE TAX ON G. T.A. 405262 4-5 INTEREST ON TERM LOAN 625117 6 BONUS & EXGRATIA 65657 7 - 12 ENTRY TAX 842091 13- 46 SALES TAX 27247413 TOTAL 29680357 THAT THE EXPENSES ARE DISALLOWED ONLY FOR THE WANT OF DOCUMENTARY PROOF OF THE PAYMENT. THE APPELLANT H AD SUBMITTED BEFORE YOUR HONOR IN THE FORM OF ADDITION AL EVIDENCES UNDER RULE 46A ABOUT THE ACTUAL PAYMENT O F THE STATUTORY DUE AS ON 31/03/2009. THE SAME ARE ALSO V ERIFIED BEFORE THE LEARNED AO. [49] IN LIGHT OF ABOVE THE DISALLOWANCES MADE BY THE LD. AO BY INVOKING THE PROVISIONS OF SECTION 43B MAY KINDLY B E ALLOWED. ' 13.1 THE LEARNED CIT(A) ALSO ASKED THE REMAND REPO RT FROM THE ASSESSING OFFICER, THE CONTENTS OF WHICH ARE REPRODUCED IN PA RA 9.3 OF THE IMPUGNED ORDER, WHICH READ AS UNDER: IN THIS REGARD, A DISALLOWANCE OF RS.2,96,80,357/- WAS MADE U/S 43B FOR VARIOUS OUTSTANDING LIABILITIES. AFTER VER IFICATION OF DOCUMENTS FURNISHED BY THE AR OF THE ASSESSEE, IT I S FOUND THAT THE ASSESSEE HAS FAILED TO FURNISH DOCUMENTARY EVIDENCE S FOR FOLLOWING ENTRIES: 1. BONUS & EXGR. 65,657/- 2. ENTRY TAX M.P. GWALIOR 40,445/- 3. ENTRY TAX 14,263/- 4. ENTRY TAX 5,41,363/- 5. SALES TAX MIZORAM 3,23,3727- 6. SALES TAX SIKKIM 3 7,65 9/- FURTHER, WITH REGARD TO ENTRY TAX OF RS.5,41,363/-, THE AR OF THE ASSESSEE HAS POINTED OUT THAT THE ACTUAL FIGURE IS RS.54,136/- ONLY WHICH IS VERIFIABLE FROM AUDIT REPORT BUT WRONGLY D ISALLOWANCE WAS MADE FOR RS.5,41,363/-. AFTER CONSIDERING ABOVE FACTS, THE DISALLOWANCE U/S 43B REMAINS ONLY FOR RS.5,35,532/- FOR WHICH ASSESSEE FAILED TO FURNISH DOCUMENTARY EVIDENCES. ' 13.2 THE LEARNED CIT(A), AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE AND THE REMAND REPORT OF THE ASSESSING OFFICER, RES TRICTED THE DISALLOWANCE OF RS.5,35,532/- AS AGAINST RS.2,96,80,357/- MADE BY T HE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL. [50] 14. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE AMOUNT OF RS.65,657/- PERTAINED TO THE EMPLOYEES WHO HAD LEFT /RETIRED FROM THE JOB DURING THE FINANCIAL YEAR, THE PAYMENT OF THE BONUS WAS MA DE TO THOSE EMPLOYEES AT THE TIME OF FINAL SETTLEMENT OF THEIR DUES AND THE CREDIT BALANCE OF BONUS PAYABLE WAS REFLECTED UNDER LIABILITY, SIMULTANEOUSLY DEBIT BALANCE OF THE EMPLOYEES WAS ALSO REFLECTED IN THE BALANCE SHEET. REGARDING ENT RY TAX OF RS.40,445/- AND RS.54,136/-, IT WAS STATED THAT THE PAYMENT WAS VER IFIABLE FROM THE BANK STATEMENT DATED 20/07/2009 AND 12/05/2009 OF PUNJAB NATIONAL BANK AND AXIS BANK RESPECTIVELY. A REFERENCE WAS MADE TO PAGE NO . 285-286 AND 290-291 OF THE ASSESSEES COMPILATION. IT WAS FURTHER STATED THAT SALES TAX MIZORAM WAS PAYABLE AT RS.3,23,372/- OUT OF WHICH RS.1,10,000/- WAS PAID ON 22/04/2009 FROM BANK ACCOUNT MAINTAINED WITH STATE BANK OF IND IA AND BALANCE OF RS.2,23,372/- WAS TRANSFERRED TO INCOME IN FINANCIA L YEAR 2009-10. IT WAS ALSO STATED THAT THE PAYMENT OF SALES TAX SIKKIM AMOUNTI NG TO RS.37,659/- WAS VERIFIABLE FROM THE BANK STATEMENT OF SBI. IT WAS ACCORDINGLY SUBMITTED THAT THE ADDITION WAS SUSTAINED BY THE LEARNED CIT(A) WITHO UT APPRECIATING THE FACTS IN RIGHT PERSPECTIVE. 15. IN HIS RIVAL SUBMISSIONS, THE LEARNED D. R. ST RONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. [51] 16. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IT APPEARS FROM THE ABOVE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSE E THAT THE EVIDENCE FOR MAKING THE PAYMENT OF IMPUGNED AMOUNT OF RS. 5,35,5 32/- BEFORE THE DUE DATE EITHER WERE NOT CONSIDERED BY THE LEARNED CIT(A)/A SSESSING OFFICER OR WERE NOT AVAILABLE TO THEM, THEREFORE, TO MEET THE ENDS OF J USTICE, WE REMAND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND DIREC T HIM TO ALLOW THE RELIEF IF IT WAS FOUND THAT THE PAYMENT OF THE AFORESAID STATUTORY L IABILITIES WAS MADE BEFORE FILING OF THE RETURN OF INCOME CONSEQUENTIAL RELIEF TO BE ALLOWED TO THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43BOF THE ACT. 17. VIDE GROUND NO. 3, THE GRIEVANCE OF THE ASSESSE E RELATES TO THE SUSTENANCE OF DISALLOWANCE OF RS.50 LAC OUT OF THE TOTAL DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR RS.2,25,02,544/- FOR DAMA GE VALUE LOSS. 18. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE CLAIMED DAMAGE VALUE LOS S IN RESPECT OF CERTAIN ITEMS SUCH AS TEA, TEXTILES, TOOLS FMCG/EDIBLES ETC . AND THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS.2,25,02,544/- OUT OF TH E SAME BY MAKING THE FOLLOWING OBSERVATIONS: 'THE REPLY FURNISHED BY THE AR OF THE ASSESSEE WAS EXAMINED BUT NOT FOUND SATISFACTORY. NO QUANTITATIVE RECORDS WER E FURNISHED BY THE ASSESSEE. FURTHER, THE ASSESSEE FAILED TO SPECI FY WHETHER ANY AMOUNT WAS RECEIVED OR RECEIVABLE FROM SUCH DAMAGED STOCK. [52] FURTHER IT IS WORTHWHILE TO MENTION HERE THAT NO QU ANTITATIVE CHART SHOWING THE ACTUAL SHORTAGE OF TEA WAS FOUND ENCLOS ED AS STATED BY THE ASSESSEE IN ITS ABOVE MENTIONED REPLY. A REFERENCE WAS THUS MADE TO THE DETAILS IN FORM 3C D AND THE RETURN FILED BY THE ASSESSEE. THESE SHOWED THAT THE ASSESSEE HAD NOT SHOWN ANY VALUE OF DAMAGED STOCK. HUGE QUAN TITATIVE OF VALUE LOSS IN RESPECT OF DAMAGED STOCK HAD BEEN SHO WN BUT NO VALUE HAS BEEN ACCOUNTED FOR. SINCE, NO DETAILS WER E FURNISHED BY THE ASSESSEE, THEREFORE, THE VALUE OF DAMAGED ST OCK WAS WORKED OUT BY THIS OFFICE ON THE BASIS OF DETAILS F URNISHED BY THE ASSESSEE IN THE RETURN OF INCOME AND THE ENCLOSED F ROM 3CD SHOWING THE QUANTITATIVE DETAILS WHICH IS GIVEN AS BELOW:- SR. NO. NAME OF ITEM VALUE OF CLOSING STOCK CLOSING STOCK IN UNITS AVERAGE RATE PER UNIT VALU E LOSS IN UNIT VALUE LOSS IN RS. 1 FMCG GOODS 474132764 7878308 60.18 658813 39648720.09 2 HOSIERY & READYMADE 230656034 4961867 46.49 20050 932038.98 3 TEA KG 298130870 3259707 91.46 122991 11248683.96 4 - SALT KG 4048 839 1616194 2.51 29470 73827.33 5 OTHER PRODUCTS 316061591 23186879 13.63 215444 2936728.72 6 FABRICS 212044823 45308 4680.07 115 538208.59 7 EDIBLES 72366101 4802810 15.07 226164 3407714.83 8 RAW MATERIAL 118268116 1365522 86.61 59350 5140314.61 9 FINISHED GOODS 27284533 342588 79.64 139150 11082240.96 TOTAL 1752993671 47459183 36.94 1471547 75008478.06 THE ABOVE CHART SHOWS THE VALUE ASCERTAINED IN RESP ECT OF DAMAGED STOCK BY WAY OF AVERAGE PRICE CALCULATED FO R DAMAGED STOCK VIS-A-VIS AVERAGE VALUE OF CLOSING STOCK. THE ASSESSEE HAS NOT SHOWN ANY VALUE IN RESPECT OF ANY OF THE DAMAGED STOCK. IT IS NOT POSSIBLE THAT DAMAGED VALU E STOCK WOULD HAVE NIL VALUE. EVEN IF THE SAID STOCK WAS WORTHLES S, EVEN THEN IT WOULD HAVE FETCHED AT LEAST A NOMINAL PRICE. FURTHE R ATTENTION IS DRAWN TO THE REASONS/ JUSTIFICATION GIVEN BY THE AS SESSEE IN RESPECT OF VALUE LOSS OF VARIOUS ITEMS. FOR INSTANCE, IN RE SPECT OF TEA, THE JUSTIFICATION FOR VALUE LOSS GIVEN BY ASSESSEE IS W ASTAGE AND TEA DUST DURING THE COURSE OF GRADING AND MIXING PROCES S AND ALSO DUE [53] TO LABOUR HANDLING AND TRANSPORTATION. IN TEA, THE VALUE LOSS IN MONETARY TERMS COMES TO RS.1,12,48,683/-. IT IS THUS DIFFICULT TO UNDERSTAND A LOSS OF RS.11248683/- MERELY ON ACC OUNT OF ABOVE REASONS AND IT THUS APPEARS HIGHLY UNJUSTIFIED. FUR THER REGARDING SUITING AND SHIRTINGS IN TEXTILES, THE MAIN REASON QUOTED BY THE ASSESSEE IS TEAR AND WEAR OR DUE TO SAMPLES GIVEN O R MISHANDLING BY UNSKILLED LABOUR. THE VALUE LOSS AGA INST TEXTILES AGAIN APPEARS HIGHLY UNJUSTIFIED DUE TO ABOVE REASO NS GIVEN BY THE ASSESSEE. SIMILARLY, REASON FOR VALUE LOSS GIVE N BY ASSESSEE FOR TOOLS IS GIVEN AS MISHANDLING BY WORKERS, CD'S BROKEN BY WORKERS, CD'S BECOMING UNUSABLE, JOURNALS DISTRIBUT ED AT THE TIME OF CONFERENCE ETC. VALUE LOSS AS PER ABOVE CHART AP PEARS HIGHLY UNJUSTIFIED ON ACCOUNT OF ABOVE REASONS. FOR FMCG/ EDIBLES AGAIN, REASON GIVEN BY THE ASSESSEE DUE TO MISHANDLING BY WORKERS DURING TRANSPORTATION, WEAR AND TEAR DO NOT JUSTIFY SUCH A HUGE LOSS CLAIMED BY ASSESSEE. FURTHER, FROM THE REASONS FURNISHED BY THE ASSESSEE , IT CAN BE SEEN THAT SUCH GOODS CANNOT HAVE ZERO VALUE. FURTHE R EVEN IF THEY BECOME WORTHLESS, EVEN THEN THEY WOULD BE HAVING AT LEAST SOME NOMINAL VALUE AND WOULD BE FETCHING AT LEAST SOME P RICE. FURTHER, THE ASSESSEE NEITHER PROVED THAT THESE ITE MS WERE SOLD SUBSEQUENTLY AND WERE ACCOUNTED FOR IN THE SALES NO R DID IT FURNISH ANY DETAILS/ REPLY REGARDING ANY AMOUNT REC EIVED OR RECEIVABLE FROM SUCH DAMAGED STOCK. HENCE, THE ASSE SSEE HAS UNDERSTATED HIS INCOME BY NOT ACCOUNTING THEREIN TH E REALIZED OR RELEASABLE VALUE OF DAMAGED STOCK. THE ABOVE VALUE OF DAMAGED STOCK HAS BEEN CALCULATE D BY TAKING (AVERAGE PRICE OF CLOSING STOCK X QUANTITY OF DAMAG ED STOCK) ACCORDINGLY, THE TOTAL VALUE LOSS AS COMPUTED ABOVE COMES TO RS.75008478/-. THE ASSESSEE HAS NOT SHOWN ANY AMOUN T REALIZED OR REALIZABLE ON ACCOUNT OF THIS DAMAGED S TOCK. IT CAN NOT BE ASSUMED THAT THE VALUE OF DAMAGED STOCK WOUL D BE ZERO. AT LEAST IT IS EXPECTED TO HAVE NOMINAL REALIZABLE VALUE. THE REASON GIVEN BY THE ASSESSEE DO NOT JUSTIFY THE VAL UE LOSS COMPLETELY. FURTHER, FROM THE REASON GIVEN BY THE A SSESSEE FOR DAMAGED STOCK, IT APPEARS THAT THERE WAS NOT MUCH V ALUE LOSS IN RESPECT OF THESE ITEMS. HOWEVER, IN THE VIEW OF REP LY OF THE ASSESSEE, IT IS CONSIDERED THAT AT LEAST SUCH A DAM AGED STOCK WOULD HAVE REALISED/FETCHED AT LEAST 30% OF THE NOR MAL REALIZABLE VALUE. THUS, ACCORDINGLY IT IS HELD THAT THE INCOME HAS BEEN UNDER STATED BY THE ASSESSEE TO THE EXTENT OF SUCH REALIZ ABLE VALUE I.E. [54] 30% OF RS.75008478/- WHICH COMES TO RS.22502544/-. THUS, THE ASSESSEE HAS UNDERSTATED ITS INCOME TO THE EXTENT O F RS.22502544/- BY NOT SHOWING ANY AMOUNT RECEIVED OR RECEIVABLE FROM DAMAGED STOCK THUS BASED ON THE ABOVE DISCUSSI ON, THE SUM OF RS.22502544/- IS BEING ADDED TO THE TOTAL INCOME OF THE ASSESSEE AND TAXED IN ITS HANDS ON ACCOUNT OF ABOVE . ' 19. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO THE LEARNED CIT(A) AND THE SUBMISSIONS MADE BEFORE HIM, ARE MENTIONED IN PARA 10.2 OF THE IMPUGNED ORDER, WHICH ARE REPRODUCED VERBATIM AS UN DER: THAT THE REASONABILITY OF THE STOCK LOST DURING TH E PROCESS HAS TO BE JUDGED IN PERCENTAGE TERMS WITH REFERENCE TO TOTAL MATERIAL PROCESSED. BUT LD. AO WITHOUT TAKING INTO ACCOUNT T HE BASIC NATURE OF THE PROCESS AND VOLUME OF THE BUSINESS OF THE AP PELLANT, CONSIDERED ONLY ABSOLUTE VALUE AND DETERMINED THE R EASONABILITY OF THE VALUE LOSS. LD. AO AS PER HIS OWN CALCULATION T AKEN THE VALUE OF LOST TEA AT RS.1,12,48,683/- AND WITHOUT COMPAR ING THE VALUE WITH THE PURCHASE AND SALE OF TEA WHICH ARE RS.56,4 8,91,210/- AND RS.79,91,86,746/- RESPECTIVELY. CONSIDERING THE VOL UME OF THE BUSINESS OF THE ASSESSEE THE LOSS VALUED BY THE LD. AO FOR RS.1,12,48,683/- CANNOT BE CONSIDERED AS UNREASONAB LE. THAT THE LD. AO ERRED IN CONCLUDING, FIRSTLY, THAT THE VALUE LOSS STOCK IS AVAILABLE WITH THE ASSESSEE AND SAME WILL FETCH SOME VALUE AT-LEAST 30% OF THE FULL VALUE AND SECONDLY, THAT THE ABSOLUTE VALUE WITHOUT CONSIDERING THE BUSINESS VOL UME OF THE ASSESSEE IS THE DECISIVE FACTOR TO DETERMINE REASON ABILITY OF THE STOCK LOST DURING THE PROCESS OF PACKING/ HANDLING/ MANUFACTURING/ TRANSPORTATION. THAT THE ASSESSEE IS MAINTAINING DAY TO DAY INVENTO RY RECORDS OF EACH AND EVERY ITEMS. FURTHER VARIOUS ITEMS OF THE INVENTORY ARE GROUPED UNDER THE RELATED HEAD AND SUMMARISED DETAI LS OF SUCH GROUPED ITEMS ARE GIVEN IN THE 3CD AUDIT REPORT. TH E BLANKET AVERAGE VALUE OF THE GROUP TAKEN BY THE LD. AO IS E RRONEOUS AND NOT LEAD TO ANY REASONABLE CONCLUSION. FURTHER HOW THE LD. AO TAKEN THE CLOSING STOCK IN UNITS IS NOT UNDERSTANDA BLE AS THERE ARE 21 (20 SUB ANNEXURE AND TWO CATEGORY IN ONE GROUP ( FMCG). [55] THAT WHILE RECONCILING THE CLOSING STOCK IN UNITS T AKEN BY THE LD. AO WITH THE CLOSING STOCK SHOWN IN THE AUDIT REPORT FORM 3CD, THERE ARE SOME MISMATCH. A SUMMERY OF THE ANNEXURE E-L TO E-20 IS GIVEN IN BELOW TABLE. ANN EX URE NO. S. NO. OF TABL E IN AO ORDE R ITEM NAM E UNIT NAM E OPENI NG STOCK PROD UCT- ION PURCH ASE CONS UMPTI ON SALES CLOS- ING STOCK WASTA GE/ DAMA GE/ SHRINK A GE WA STA GE % E - L 1 FMCG GOODS NUM BERS 71824162 0 157583311 0 165373031 63409781 624661 0.27 E - L 1 FMCG GOODS KG 10591614 0 58156447 0 53722164 15014480 11417 0.02 E-2 2 HOUSERY AND READYM A DE NUM BERS 4397318 0 4759857 0 4346724 4793516 16935 0.18 E - 3 3 TEA KG 3730694 0 6117880 0 6465874 3259708 122992 1.25 E - 4 4 SALT KG 2052877 0 6858920 0 7266133 1616194 29470 0.33 E-5 5 OTHER PRODUCT S NUM BERS 12407794 0 117248020 0 106396983 23043387 215444 0.17 E - 6 7 EDIBLES NU M BERS 4355116 0 26574673 0 25946384 4757815 . 225590 0.73 E - 7 TEXTILES MTR 5518050 0 11130354 0 12799587 3646099 202718 1.22 E-7 TEXTILES NUM BERS 1020011 0 1228726 0 1340929 899976 7832 0.35 E-8 8 SPICE AND EDIABL E KG 631508 0 783394 877939 395554 127216 14193 1.00 E - 9 8 YARN KG 32365 0 1725996 1006851 751510 0 0.00 E-10 MISC. DETERGE N T KG 208952 0 243161 429379 0 22734 5.03 E-N 5 OTHER PRODUCT S NUM BERS 0 0 523401 308926 70983 143492 0 0.00 E-L 2 1 FMCG GOOD S KG'S 0 606731 0 0 606731 0 0 0.00 E-12 1 FMCG GOOD S NUM BERS 186763 1417360 0 0 1550075 54047 1 0.00 [ E-L 3 2 HOSIERY AND READYM A DE NUM BERS 415191 279916 0 523641 168351 3115 0.45 E-L 4 WIND POWER V NUM BERS 0 9886537 0 0 9852226 0 34311 0.35 [56] E - L 5 6 TEXTILES NUM BERS 42375 138288 0 0 135240 45308 115 0.06 E - L 6 7 EDIBLES NUM 900193 1814464 0 0 2669088 44995 574 0.02 BERS E - 17 8 TEXTILES (GREY )) MTR 0 3759713 0 236158 7 1225583 172543 0 0.00 E-18 8 TEXTILES( GREY PROCESS) MTR 0 2361587 0 2002176 0 314254 45157 1.91 E - 19 9 TEXTILES( FINISH) MTR 0 2002176 0 0 1532348 342588 127240 6.36 E - 20 5 OTHER PRODUCT S NUM BERS 0 79965 0 0 68055 0 11910 14.8 9 TOTAL 118314983 22346737 392934140 6986858 402287333 122605260 1716409 THAT LD. AO WHILE CALCULATING THE CLOSING STOCK IN UNITS OF FMCG GOODS (S. NO. 1 OF THE TABLE OF ASSESSMENT ORDER AN D ANNEXURE E-L & E-12 OF 3CD) TAKE QUANTITY AT RS.78,78,308/- INSTEAD OF RS.7,84,78,308/-. BECAUSE OF THIS ERROR AVERAGE VAL UE CALCULATED AT RS. 60.18 INSTEAD OF RS. 6.04 AND THEREFORE RESULT ING VALUE OF THE LOST STOCK TAKEN AT RS.3,96,48,720.09 INSTEAD OF RS .39,80,269.66. THAT LD. AO DID NOT CONSIDER AT ALL THE CLOSING STO CK OF TEXTILE SHOWN IN ANNEXURE E-7 WHICH LEAD TO THE ERRONEOUS UNIT PR ICE OF RS.4680.07 OF FABRIC IN S. NO. 6 OF THE TABLE GIVEN IN THE ASSESSMENT ORDER. THAT FOR THE CALCULATION OF AVERAGE RATE PER UNIT L D. AO TAKEN THE VALUE OF CLOSING STOCK FROM THE BALANCE SHEET 'SCHE DULE G' AND QUANTITY OF THE CLOSING STOCK WAS TAKEN FROM THE AU DIT REPORT FORM 3 CD. THE LD. AO FAILS TO MATCH THE ITEMS ONE TO ONE. THE FINISHED SHOWN IN SCHEDULE G FOR RS.2,72,84,533/- AND THIS C OMPRISES OF GRAY FABRIC LYING AT FACTORY AND SENT FOR PROCESS I .E. ANNEXURE E-17 & E-18 [PB PG 199 201]. BUT THE LD. AO TAKEN THE QU ANTITY OF TEXTILE (FINISH) (ANNEXURE E-19) TO DETERMINE THE AVERAGE V ALUE OF FINISHED GOODS. FURTHER QUANTITY OF GRAY FABRIC LYING AT FAC TORY AND SENT FOR PROCESS I.E. ANNEXURE E-17 & E-18 WERE CONSIDERED T O DETERMINE VALUE OF RAW MATERIAL. THEREFORE THE WORKING OF THE LD. AO IS COMPLETELY NON RELEVANT AND ERRONEOUS. THAT THE GRAY CLOTH PROCESSING WAS DONE BY THE JOB WORKER AND THE SHRINKAGE IN THE PROCESSING IS A NATURAL PROCES S AND FURTHER [57] SINCE THE PROCESS WAS DONE THROUGH JOB WORKER, THE SHRINKAGE IS AN EXTERNAL FACTOR AND IS NOT IN THE CONTROL OF THE CO MPANY. THE COMPANY SENDS GREY FOR PROCESSING AND WHEN THE GREY IS SUBJECTED TO HEAT, DYES AND CHEMICALS, IT GETS SHRINK. THE SH RINKAGE DEPENDS ON NATURE OF DYES AND FABRIC USED, QUALITY OF YARN, COLOR OF FABRIC AND TYPE OF PROCESSING(FINISHING REQUIRED). EACH QUALIT Y REQUIRES SPECIFIC FINISHING AND THE SHRINKAGE VARIES FROM ONE FABRIC TO OTHER. BOTH THE ENDS OF FABRIC ARE MARKED WITH SPECIAL PENS, WHICH ENSURE THAT NO FABRIC HAS BEEN CUT FROM BY THE PROCESSING COMPANY. EVEN THE PROCESSING CHARGE IS GIVEN FOR THE NET PROCESSING M ETERS. NOT ALLOWING THE SHRINKAGE IN THE TEXTILE PROCESS IS UN JUSTIFIED AND ARBITRARY. THAT AN ITEM WISE CHART OF THE FMCG GOODS IS PROVID ED AT PAPER BOOK PAGE 189 TO 198 WHICH SHOWS THAT THERE ARE TOT AL 276 ITEMS ARE GROUPED UNDER FMCG GOODS AND IF THE METHOD OF THE V ALUATION TAKEN BY THE LD. AO ADOPTED, THE VALUE OF LOST STOCK COME S TO RS.17,28,736/- INSTEAD OF THE VALUE ARRIVED AT RS.39,80,269.66 BY TAKEN THE BLANKET FIGURE OF THE GROUP. THIS CALCULATION SHOWS THAT TH E VALUE ADOPTED BY THE LD. AO IS GROSSLY ERRONEOUS. THE APPLICATION OF ANY VALUATION OF THE LAST STOCK IS SPECIFICALLY OPPOSED AND THE CALCULATION OF THE VALUE OF THE LOST STOCK IS ONLY TO SHOW THAT THE METHOD ADOPTED BY THE LEARNED ASSESSING OFFICE R IS ERRONEOUS. THAT THE STOCK LOST IN THE PROCESS OF PACKING/ MANU FACTURING/ GRADING/ TRANSPORTATION ETC. IN TERM OF PERCENTAGE ARE VERY NOMINAL CONSIDERING THE LEVEL OF BUSINESS OF THE ASSESSEE. THAT IN THE ASSESSMENT OF AY 2005-06 LD. AO ADDED RS.5,00,000/- FOR THE LOST STOCK. IN THE APPELLATE PROCEEDING YOUR GOOD SELF AFTER EXAMINATION THE ISSUE DELETE THE DI SALLOWANCE MADE BY THE LD. AO. IN LIGHT OF ABOVE SUBMISSION THE ADDITION MADE BY T HE LD. AO BY TAKING HYPOTHESIS ASSUMPTIONS THAT THE STOCK LOST I N THE PROCESS HAS SOME REALIZABLE VALUE AND TAKING THE VALUATION ON IRRATIONAL APPROACH AND INCORRECT INPUT MAY KINDLY BE DELETED. ' 19.1 THE LEARNED CIT(A), AFTER CONSIDERING THE SU BMISSIONS OF THE ASSESSEE, OBSERVED THAT CERTAIN LOSS WAS INEVITABLE IN THE PR OCESS OF PACKING/ GRADING/ [58] MANUFACTURING AND TRANSPORTATION AND THAT THE ASSES SING OFFICER MADE DISALLOWANCE @30%, OUT OF THE LOSS CLAIMED BY THE A SSESSEE AT RS.7,50,08,478/-WHICH WAS ON HIGHER SIDE. THE LEAR NED CIT(A) WAS OF THE VIEW THAT IT WOULD BE FAIR AND REASONABLE TO RESTRICT TH E DISALLOWANCE AT RS. 50,00,000/- AS AGAINST RS. 2,25,02,544/- MADE BY TH E ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL. 20. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSING OFFICER, VIDE LETTER DATED 27/12/2011 FOR THE FIRST TIME SHO WED HER INTENTION TO MAKE ADDITION FOR THE DAMAGE VALUE LOSS AND THE ASSESSEE DESPITE VERY SHORT TIME PROVIDED BY THE ASSESSING OFFICER, EXPLAINED IN DET AIL ON 28/12/2012. IT WAS FURTHER STATED THAT DESPITE DETAILED AND LOGICAL EX PLANATION FILED BY THE ASSESSEE, THE ASSESSING OFFICER ARBITRARILY REJECTED THE SAME AND MADE ADDITION. IT WAS CONTENDED THAT THE LOSS SHOWN IN THE QUANTITATIVE D ETAILS IN FORM 3CD OF AUDIT REPORT WAS THE LOSS/SHORTAGE/SHRINKAGE OF MATERIAL WHICH WAS PHYSICALLY NOT AVAILABLE AND AS SUCH NO QUESTION ARISES FOR THE VA LUATION OF THE SAME FOR THE PURPOSE OF INCLUSION OF THE SAME IN THE CLOSING STO CK. IT WAS STATED THAT THE LOSS OF STOCK WAS QUANTITY, WHICH HAD LOST DURING THE PR OCESS OF PACKING, REPACKING, MANUFACTURING PROCESS, TRANSPORTATION ETC. AND THUS PHYSICALLY NOT AVAILABLE WITH THE ASSESSEE. THEREFORE, THE VERY BASIS OF THE ADDITION WAS ERRONEOUS. IT WAS FURTHER STATED THAT THE ASSESSING OFFICER FAIL ED TO CORRELATE AMOUNT OF STOCK IN THE BALANCE SHEET AND QUANTITATIVE DETAILS MENTIONED IN THE FORM [59] 3CD OF AUDIT REPORT, THEREFORE, THE VALUE OF THE LO ST STOCK WORKED OUT BY THE ASSESSING OFFICER WAS TOTALLY ERRONEOUS. IT WAS C ONTENDED THAT THE ASSESSING OFFICER AS PER HIS OWN CALCULATION HAD TAKEN THE VA LUE OF LOST TEA AT RS.1,12,48,683/- WITHOUT COMPARING THE VALUE WITH T HE PURCHASE AND SALE OF TEA WHICH WERE AT RS.56,48,91,210/- AND RS.79,91,86 ,746/- RESPECTIVELY. THEREFORE, CONSIDERING THE VOLUME, THE LOSS VALUED BY THE ASSESSING OFFICER FOR RS.1,12,48,6837- I.E. 1.25% COULD NOT BE CONSID ERED AS REASONABLE. IT WAS CONTENDED THAT THE ASSESSEE MAINTAINED DAY TO D AY INVENTORY RECORDS OF EACH AND EVERY ITEMS AND FURTHER VARIOUS ITEMS OF T HE INVENTORY WERE GROUPED UNDER THE RELATED HEAD AND SUMMARISED DETAILS OF SU CH GROUPED ITEMS WERE GIVEN IN THE FORM 3CD OF THE AUDIT REPORT. A REFER ENCE WAS MADE TO PAGE NOS. 89 TO 95 OF THE ASSESSEES COMPILATION AND IT WAS S TATED THAT THE BLANKET AVERAGE VALUE OF THE GROUP TAKEN BY THE ASSESSING O FFICER WAS ERRONEOUS AND RESULTED VALUE OF LOSS STOCK WAS ALSO ERRONEOUS IN THE WORKING OF THE ASSESSING OFFICER. IT WAS CONTENDED THAT THERE WERE VARIOUS ERRORS IN THE WORKING OF THE ASSESSING OFFICER. A REFERENCE WAS MADE TO THE CLO SING STOCK IN UNIT OF FMCG GOODS FOR WHICH THE QUANTITY WAS TAKEN AT 78 ,78,308 INSTEAD OF 7,84,78,308, IT WAS POINTED OUT THAT DUE TO SUCH ER ROR AVERAGE VALUE WAS CALCULATED BY THE ASSESSING OFFICER AT RS.60.18 INS TEAD OF RS.6.04. IT WAS ALSO POINTED OUT THAT THAT THE ASSESSING OFFICER TOOK TH E VALUE OF FINISHED GOODS SHOWN IN SCHEDULE G FOR RS.2,72,84,533/- WHICH COM PRISED OF GRAY FABRIC LYING AT FACTORY AND SENT FOR PROCESS BUT THE ASSESSING OFFI CER TOOK THE QUANTITY OF TEXTILE [60] TO DETERMINE THE AVERAGE VALUE OF FINISHED GOODS AN D THE QUANTITY OF GRAY FABRIC LYING AT FACTORY AND SENT FOR PROCESS WERE CONSIDER ED TO DETERMINE VALUE OF RAW MATERIAL. THEREFORE, THE WORKING OF THE ASSESSING O FFICER WAS COMPLETELY INCORRECT AND ERRONEOUS. IT WAS CONTENDED THAT THE STOCK WAS LOST IN PROCESS OF PACKING, MANUFACTURING, GRADING AND TRANSPORTATION ETC. WHICH IN TERMS OF PERCENTAGE WAS VERY NOMINAL CONSIDERING THE LEVEL O F BUSINESS OF THE ASSESSEE. HOWEVER, THE LEARNED CIT(A) IN NOT CONSIDERING THE VARIOUS DEFECTS POINTED OUT BY THE ASSESSEE IN THE WORKING OF THE ASSESSING OFFICE R, SUSTAINED THE ADDITION OF RS.50 LAC AND DID NOT CONSIDER THIS VITAL FACT THAT THE ASSESSEE MAINTAINED ALL QUANTITATIVE DETAILS. THEREFORE, THERE WAS NO BA SIS FOR THE ADDITION SUSTAINED BY THE LEARNED CIT(A), THE SAME MAY BE DELETED. 21. IN HIS RIVAL SUBMISSIONS, THE LEARNED D. R. SU PPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THE A SSESSEE CLAIMED DAMAGE VALUE LOSS FOR SUBSTANTIAL QUANTITY, SO IT WAS REQUIRED T O STATE WHETHER THE SAID DAMAGE VALUE LOSS WAS SUPPORTED WITH DAY TO DAY QUANTITY R ECORD AND PROPER CERTIFICATION AT THE END OF THE YEAR, HOW DAMAGE VALUE LOSS HAD BEEN COM PUTED AND WHETHER ANY AMOUNT WAS RECEIVED OR RECEIVABLE FROM SUCH DAM AGED STOCK AND TO FURNISH DETAILS AND JUSTIFICATION OF THE SAME. THEREFORE, IN THE EVENT OF FAILURE ON THE ASSESSEE'S PART TO JUSTIFY THE ABOVE, THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY ADVERSE INFERENCE SHOULD NOT BE DRAWN AND DISALLOWANCE BE MADE ON ACCOUNT OF UNJUSTIFIED LOSS. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAD MADE A REFERENCE TO THE DETAILS IN FORM 3CD AND THE RETURN FILED BY THE [61] ASSESSEE, ON THAT BASIS THE VALUE LOSS WAS CALCULAT ED @ 30% OF THE TOTAL VALUE OF DAMAGE STOCK AT RS.2,25,02,544/- WHICH WAS VERY REASONABLE AND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE SAME TO RS.50 LAC. 22. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUN T, WHICH WERE DULY AUDITED AND NO SPECIFIC DISCREPANCIES HAVE BEEN POINTED OUT BY THE ASSESSING OFFICER WHILE MAKING THE DISALLOWANCE @30% OF THE WASTAGE C LAIMED BY THE ASSESSEE. IN THE PRESENT CASE, THE ASSESSEE EXPLAINED THE RE ASON FOR SHORTAGE, WHICH WAS MAINLY DUE TO PROCESS OF PACKING, MANUFACTURING, G RADING AND TRANSPORTATION ETC. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT TH E ASSESSEE SOLD THE STOCK OUTSIDE THE BOOKS OF ACCOUNT. IT IS ALSO NOT THE CASE THAT PROPER BOOKS WERE NOT MAINTAINED. THE ASSESSEE POINTED OUT CERTAIN DEFEC TS IN THE WORKING OF THE ASSESSING OFFICER, WHICH WERE ACCEPTED BY THE LEARN ED CIT(A) WHILE SUSTAINING THE DISALLOWANCE AT RS.50 LAC OUT OF THE DISALLOWANCE O F RS.2,25,02,544/- MADE BY THE ASSESSING OFFICER. HOWEVER, IN OUR OPINION, DISALL OWANCE SUSTAINED BY THE LEARNED CIT(A) IS ON HIGHER SIDE. WE, THEREFORE, CONSIDERI NG THESE FACTS THAT THE VOLUME OF THE TURNOVER WAS HIGH AND VOLUMINOUS ITEMS WERE THE RE IN WHICH THE ASSESSEE WAS DEALING, ARE OF THE OPINION THAT THERE ARE SOME CH ANCES OF MISTAKE. HOWEVER, NO SPECIFIC DEFECT HAS BEEN POINTED OUT BY THE ASSESSI NG OFFICER OR THE LEARNED CIT(A) EXCEPT A GENERAL REMARK THAT THERE IS SOME MISMATCH IN THE CLOSING STOCK IN UNITS TAKEN BY THE ASSESSEE AND SHOWN IN THE FORM NO. 3CD . IT IS ALSO TRUE THAT THE [62] ASSESSEE HAD NOT SHOWN ANY REALIZABLE VALUE IN RESP ECT OF THE DAMAGED STOCK, IF ANY, AND THE ASSESSING OFFICER WAS OF THE VIEW THA T IT WAS NOT POSSIBLE THAT DAMAGED STOCK VALUE WOULD BE NIL VALUE. WE, THEREF ORE, ARE OF THE VIEW THAT SOME DISALLOWANCE IS REQUIRED TO BE MADE IN SUCH TYPE O F CASES. HOWEVER, THE DISALLOWANCE SUSTAINED BY THE LEARNED CIT(A) HAD R S.50 LAC APPEARS TO BE ON HIGHER SIDE. WE, THEREFORE, BY CONSIDERING THE TOT ALITY OF THE FACTS AND TO MEET THE ENDS OF JUSTICE, ARE OF THE VIEW THAT IT WOULD BE FAIR AND REASONABLE TO SUSTAIN THE DISALLOWANCE OF RS.10 LAC. 23. THE NEXT ISSUE VIDE GROUND NO. 4 RELATES TO THE SUSTENANCE OF DISALLOWANCE OF EXPENSES ON AVERAGE FOR RS.27,03,858/- ON PROPOR TIONATE BASIS U/S 40(A)(IA) OF THE ACT. 24. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT I N SOME CASES THE ASSESSEE HAD MADE TDS AT A RATE LOWER THAN THE RATE PROVIDED UNDER THE HEAD FREIGHT. HE, THEREFORE, ASKED THE ASSESSEE TO FURN ISH DETAILS IN RESPECT OF PARTIES TO WHOM FREIGHT WAS PAID BUT LOW TDS HAD BEEN DEDUC TED AND LOW DEDUCTION CERTIFICATE IN SUPPORT, IF ANY. THE ASSESSEE STAT ED 5 CASES WHERE LOWER TDS HAD BEEN MADE. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE FURNISHED LOWER TDS CERTIFICATES U/S 197 OF THE ACT IN RESPECT OF 3 PARTIES ONLY BUT DID NOT FURNISH THE EVIDENCE IN RESPECT OF 2 PARTIES AS PER FOLLOWING D ETAILS: [63] SR. NO. NAME ADDRESS PAN AMOUNT OF FREIGHT RS. RATE OF TDS 1. RELOGISTICS (INDIA) PVT. LTD. 2 ND FLOOR, 68- A, BLOCK, SARVODAYA NAGAR , KANPUR - 05 AACCR3050J 2882233 0.16 2. ZENITH SERVICES AAAFZ1222F 29060 0.28 24.1 THE SUBMISSIONS OF THE ASSESSEE, BEFORE THE AS SESSING OFFICER WAS AS UNDER: '...REGARDING EXEMPTION CERTIFICATES FOR SHORT DEDU CTION OF TDS ON FREIGHT IN 2 PARTIES, THE ABOVE CERTIFICATES CAN NO T BE PRODUCED AS THE PREMISE OF ASSESSEE ARE SEIZED. IF POSSIBLE, WE REQUEST YOU TO KINDLY VERIFY THE SAME FROM THE DEPARTMENTAL RECORD S AS WE HAVE PROVIDED COMPLETE NAME, ADDRESS, PAN AND TDS DETAIL S...' 24.2 THE ASSESSING OFFICER OBSERVED THAT IT WAS THE DUTY OF THE ASSESSEE TO FURNISH THE COPIES OF CERTIFICATES OF LOWER TDS IN SUPPORT OF ITS CLAIM. HE, THEREFORE, IN THE ABSENCE OF THE SAID CERTIFICATE, MADE THE DI SALLOWANCE OF RS.27,03,858/- U/S 40(A)(IA) OF THE ACT AS PER THE FOLLOWING DETAILS: S. NO. NAME AMOUNT OF FREIGHT TDS REQUIRED TDS MODE BY THE ASSESSEE @ SHORT DEDUCTION % PROPORTIONATE DISALLOWANCE 1. RELOGISTICS (INDIA) PVT. LTD., 2 ND FLOOR, 68-A, BLOCK, SARVODAYA NAGAR, KANPUR - 05, PAN: AACCR3050J RS. 2882233 2.266% 0.16 92.94% RS. 2678747 2. ZENITH SERVICES, PAN: AAAFZ1222F RS. 29060 2.06% 0.28 86.41% RS. 25111 24.3 THE ASSESSING OFFICER ALSO OBSERVED THAT THE A SSESSEE FURNISHED THE LIST OF COMMISSION PAYMENT WHEREIN COMMISSION OF RS.29,92,1 91/- WAS PAID TO SHRI [64] RAKESH KUMAR WHEREAS THE TDS DEDUCTED WAS RS.67,272 /- ONLY. HE, THEREFORE, ASKED THE ASSESSEE TO FURNISH CLARIFICATION IN THIS RESPECT AND TO SHOW CAUSE AS TO WHY PROPORTIONATE DISALLOWANCE OUT OF THE ABOVE SHO ULD NOT BE MADE. THE ASSESSEE SUBMITTED TO THE ASSESSING OFFICER AS UNDE R: '... THE COMPANY HAS DEDUCTED TDS AS PER APPLICABLE RATES IN AIL THE DUE CASES. AS ON DATE, WE DO NOT HAVE ANY DETAI LS REGARDING ANY SUCH SHORTFALL OF TDS AS CLAIMED BY YOU. IN ABSENCE OF ANY DOCUMENTS IN HAND AS THE NOTICE HAS BEEN RECEIVED A FTER SEIZURE, IT IS NOT POSSIBLE FOR US TO CLARIFY THE I SSUE IMMEDIATELY...' 24.4 THE ASSESSING OFFICER WAS OF THE VIEW THAT THE TDS MADE BY THE ASSESSEE WAS BELOW THE PRESCRIBED RATE, WHICH ATTRACTED PROP ORTIONATE DISALLOWANCE U/S 40(A)(IA) OF THE ACT, WHICH CAME TO RS.23,97,978/- AFTER CONSIDERING TDS MADE BY THE ASSESSEE @2.25% AS AGAINST REQUIRED RATE OF TDS @11.33% ON COMMISSION AMOUNT OF RS.29,92,191/-. ACCORDINGLY, THE DISALLO WANCE OF RS.51,01,836/- (RS.27,03,858 ON FREIGHT + RS.23,97,978 ON COMMISSI ON) WAS MADE U/S 40(A)(IA) OF THE ACT. 25. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO THE LEARNED CIT(A) AND THE SUBMISSIONS MADE, AS INCORPORATED IN PARA 14.2 OF THE IMPUGNED ORDER, WERE AS UNDER: THAT THE LD. AO MADE A PROPORTIONATE DISALLOWANCE FOR RS.27,03,858/- OUT OF RS.29,11,293/- FREIGHT PAID T O TWO PARTIES BY INVOKING PROVISIONS OF SECTION 40(A)(IA) ON ACCO UNT OF LOWER DEDUCTION OF TDS. [65] THAT THE ASSESSEE DEDUCTED LOWER TDS ON ACCOUNT OF FURNISHING A CERTIFICATE OF LOWER DEDUCTION ISSUED BY THE COMPET ENT INCOME TAX AUTHORITY. THAT IN CASE OF SHORT DEDUCTION OF TDS NO PROPORTIO NATE DEDUCTION CAN BE MADE BY INVOKING THE PROVISION OF SECTION 40 (A)(IA) AS HELD BY HON'BLE ITAT KOLKATA BENCH IN THE CASE OF DCIT V S. M/S S K TEKRIWAL IN ITA NO. 1135/KOL/2010 [JUDICIAL DECIS IONS PG 115 TO 122]. THAT FURTHER LD. AO ERRED IN MAKING DISALLOWANCE WI THOUT CONFIRMING, FROM THE CONCERNED AO, WHETHER ANY LOWE R DEDUCTION CERTIFICATE ISSUED TO THE DEDUCTEE FOR WHICH PAN IS AVAILABLE WITH THE LD. AO. 25.1 THE LEARNED CIT(A) ASKED THE REMAND REPORT FR OM THE ASSESSING OFFICER, WHO SUBMITTED THE REPORT DATED 18/06/2012 BY STATIN G AS UNDER: 'IN THE ASSESSMENT ORDER, PROPORTIONATE DISALLOWANC E WAS MADE U/S 40(A)(IA) FOR DEDUCTION OF TAX AT A LOWER RATE THAN THE PRESCRIBED RATE ON CERTAIN PAYMENTS ON ACCOUNT OF F REIGHT AND COMMISSION AS DISCUSSED IN THE BODY OF THE ASSESSME NT ORDER. NOW, THE A.R. OF THE ASSESSEE HAS FURNISHED EVIDENC E REGARDING LOWER DEDUCTION OF TDS @ 2% IN THE CASE OF SHRI RAK ESH SHARMA. THEREFORE, THE RELIEF FOR THE DISALLOWANCE RELEVANT TO THE COMMISSION PAID TO SHRI RAKESH SHARMA MAY BE CONSIDERED.' 25.2 THE LEARNED CIT(A), AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE AND THE REMAND REPORT OF THE ASSESSING OFFICER, DELETED THE DISALLOWANCE OF RS.23,97,978/- MADE BY THE ASSESSING OFFICER IN RES PECT OF SHRI RAKESH KUMAR AND SUSTAINED THE DISALLOWANCE OF RS.27,03,858/- ON ACC OUNT OF LOW RATE OF TDS IN THE [66] CASE OF RELOGISTICS (INDIA) PVT. LTD. AND ZENITH SE RVICES BY OBSERVING THAT NO EVIDENCE HAD BEEN FURNISHED. NOW THE ASSESSEE IS I N APPEAL. 26. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE LEARNED CIT(A) SUSTAINED THE DISALLOWANCE WITHOUT APPRECIATING THE FACT THAT THE SHORT DEDUCTION WAS ON ACCOUNT OF LOWER DEDUCTION CERTIFICATE OBTAINED BY THE PAYEE FROM THE INCOME TAX AUTHORITIES. IT WAS SUBMITTED THAT THE ASSESSEE DE DUCTED LOWER TDS ON ACCOUNT OF FURNISHING OF CERTIFICATE OF LOWER DEDUCTION ISSUED BY THE COMPETENT INCOME TAX AUTHORITY. A REFERENCE WAS MADE TO PAGE NOS.823 TO 825 OF THE ASSESSEES COMPILATION WHICH ARE THE COPIES OF THE CERTIFICATE S ISSUED US 197(1) OF THE ACT IN RESPECT OF M/S RELOGISTIC (INDIA) PRIVATE LIMITED A ND M/S ZENITH SERVICES. IT WAS CONTENDED THAT NO DISALLOWANCE WAS TO BE MADE SINCE THE PAYMENT OF FREIGHT WAS MADE BEFORE THE END OF THE YEAR AND NO AMOUNT REMAI NED OUTSTANDING. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 1. DCIT VS. M/S S. K. TEKRIWAL 48 SOT 515 (KOL) 2. JAIPUR VIDYUT VITRAN NIGAM LIMITED VS.DCIT 123 T TJ (JAIPUR) 888 27. IN HIS RIVAL SUBMISSIONS, THE LEARNED D. R. S TRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 28. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE CERTIFICATE OBTAINED BY THE ASSESSEE FOR DEDUCTING THE TDS AT A LOWER RATE (COPIES OF [67] WHICH ARE PLACED AT PAGE NOS. 823 TO 825 OF THE ASS ESSEES COMPILATION) EITHER WERE NOT CONSIDERED BY THE AUTHORITIES BELOW OR THO SE WERE NOT AVAILABLE TO THEM. WE, THEREFORE, DEEM IT APPROPRIATE TO REMAND THIS I SSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE ASSE SSEE OBTAINED THE CERTIFICATE FOR DEDUCTING TDS AT LOWER RATE FROM THE COMPETENT AUTH ORITY INCOME TAX AUTHORITY AND IF THOSE CERTIFICATES WERE IN ORDER AND IN ACCORDAN CE WITH LAW THEN NO DISALLOWANCE TO BE MADE. ACCORDINGLY, THIS ISSUE IS REMANDED BA CK TO THE ASSESSING OFFICER TO BE DECIDED AFTER PROPER VERIFICATION. 29. THE NEXT ISSUE, VIDE GROUND NO. 5 AND 6 OF THE ASSESSEES APPEAL, RELATE TO THE SUSTENANCE OF DISALLOWANCE OF THE DIRECTORS RE MUNERATION AMOUNTING TO RS.17,81,852/- MADE BY THE ASSESSING OFFICER. 30. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED A SUM OF RS.78 LAC ON ACCOUNT OF DIRECTORS REMUNERATION AS AGAINST RS.48 LAC IN THE EARLIER Y EAR. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE REASONS FOR THE SAME. THE ASSESSEE, VIDE REPLY DATED 21/12/2011 STATED AS UNDER: ...REGARDING THE DIRECTORS REMUNERATION, IT IS FIR ST OF ALL MENTIONED THAT IT WAS DUE TO HARD WORK OF DIRECTORS THAT THE COMPANY HAS ATTAINED SUCH UTMOST HEIGHTS. THE COMPANY HAS GROWN FROM RS.1 CRORE TURNOVER COMPANY TO RS.1500 CRORE TURNOVER CO MPANY IN 10 YEARS. IT WAS THE PERSISTENT AND DEVOTION OF THE DI RECTORS THAT SUCH A HUGE PROFITABILITY AND SALES WERE POSSIBLE. REMUNER ATION TO DIRECTORS CANNOT BE MERELY LINKED TO PROFITABILITY OR SALES F OR EVERY YEAR. A CORRELATION CANNOT BE MADE IN SUCH A HIGHLY GROWING COMPANY [68] BETWEEN SALES AND PROFITABILITY. YOUR GOODSELF HAVE WENT UPTO 8-10 DECIMALS BELOW 1 TO COMPARE THE DIRECTOR REMUNERATI ON. BUT, IT WILL LEAD TO IMPRACTICAL AND IRRATIONAL INFERENCES. WHEN THE REMUNERATION OF EARLIER YEAR WAS GROSSLY UNDERPAID AND IN THE LA TER YEARS, THE REMUNERATION WAS NORMALIZED, THEN BOTH ARE NOT COMP ARABLE. IT IS FURTHER MENTIONED THAT THE DIRECTOR REMUNERATION IS BASED ON THE CONTRIBUTION AND SERVICES PROVIDED BY THESE PERSONS AND THE PROFITABILITY EARNED DUE TO CONTRIBUTION OF THESE P ERSON. THE BUSINESS OF THE COMPANY WAS EXPANDING FROM ONE CITY TO OTHER , ONE STATE TO OTHER AND NOW TO WHOLE NATION. THE DIRECTORS WORK H AS ALSO INCREASED CONTINUOUSLY WITH THE SIZE OF BUSINESS. FURTHER, SERVICES OF NO OTHER PERSON IN THE COMPANY IS COMPARABLE TO ABOVE SERVICES AS THE ABOVE PERSONS ARE HOLDING KEY PLACES AND DECISION MAKING PLACES. WE HAVE ALREADY REPLIED TO YOUR QUESTION EARLIER AS BELOW - 'THE COMPANY HAS PAID SALARY TO THE DIRECTOR AND TO THE SPECIFIED PERSONS AFTER GETTING CONSENT FROM THE BOARD OF DIR ECTORS OF THE COMPANY IN THE BOARD MEETING. WE WOULD LIKE TO MENT ION THAT THE COMPANY HAS PAID REMUNERATION ON THE PRINCIPLE OF C OMMERCIAL EXPEDIENCY AND ON THE BENEFIT DERIVED FROM THE SERV ICES OF THESE PERSONS. THE NET PROFIT FOR THE YEAR HAS INCREASED FROM 28.11 CRORES TO 43.19 CRORES DURING THE YEAR I.E. INCREASE OF MO RE THAN 15.00 CRORES. AS AGAINST IT, THE REMUNERATION PAID TO THE DIRECTORS FOR THE YEAR WAS RS. 48.OO LACS AS AGAINST 41.00 LACS IN E ARLIER YEARS I.E. INCREASE BY RS, 7.00 LACS MERELY. THE SALARY PAID T O THESE PERSONS IS NOWHERE COMPARABLE TO THE SALARY PAID TO MANAGER IAL LEVEL STAFF IN OTHER CONCERNS. DUE TO HARD WORK, DEDICATION OF THE DIRECTORS, THE COMPANY HAS ACHIEVED A NATIONAL LEVEL RECOGNITION I N MERE 6 YEARS. AS WERE REQUIRED BY YOU, WE ARE SUBMITTING HEREBY THE BOARD RESOLUTION FOR PAYMENT OF SALARY TO THE DIRECTORS AND OTHER RELATI VES U/S 40(A)(2B). A. REGARDING DIRECTOR REMUNERATION, IT IS SUBMITTED THAT THE COMPANY HAS PAID DIRECTORS REMUNERATION TO ITS DIRECTORS LOOKIN G AT THE WORK PROFILE, CONTRIBUTION TO THE BUSINESS OF THE COMPANY AND EXP ERIENCE OF THE DIRECTORS. THE REMUNERATION IS DETERMINED BY THE WH OLE MANAGEMENT IN THE BOARD MEETING, THE RESOLUTION PASSED AT THE MEETING HAS ALREADY BEEN FILED. SR. NO. NAME SALARY/ MONTH WORK DONE BY DIRECTOR EXPERIENCE [69] 1 TILOK CHAND CHHABRA 2.50 LACS/ MONTH LOOKING AFTTR OVERALL ADMINISTRATION OF THE COMPANY I.E. SUPERVISING & CONTROLLING EACH AND EVERY DIVISION OF THE COMPANY. MORE THAN 25 YEARS IN TEXTILE BHILWARA TEXTILE INDUSTRY 2 SAURABH CHHABRA 1.50 LACS/ MONTH LODKING AFTER OVERALL PRODUCTION/ PURCHASES DIVISION OF THE COMPANY B. COM AND MBA 3 PRIYANKA CHHABRA 1.00 LACS/ MONTH LOOKING AFTER OVERALL PURCHASES/ PRODUCTION OF THE COMPANY B.COM & MBA WITH EXPOSURE OF MORE THAN 10 YEARS 4 BHAG CHAND CHHABRA 1.50 LADS/ MONTH LOOKING AFTER MLM BUSINESS DEVELOPMENT OF THE COMPANY ALL OVER INDIA. MORE THAN 25 YEARS IN BHILWARA TEXTILE INDUSTRY NO SIMILAR EMPLOYEE DESIGNATIONS ARE AVAILABLE IN T HE COMPANY WHO ARE HAVING SUCH A VAST EXPOSURE OR EXPERTISE. FURTHER, THE ABOVE SALARY IS NOTHING AS COMPARED TO THE SALARY PAID TO DIRECTORS OF COMPANIES HAVING SUCH A HUGE PROFITABILITY. IT IS DUE TO PERS ISTENT EFFORTS OF THESE PERSONS, THE COMPANY HAS GROWN UP ITS SALES FROM ME RELY 5-10 CRORES & A THOUSHAND CRORE COMPANY, I.E. 100 FOLD RISE IN SALES.' NO FURTHER INFORMATION IS AVAILABLE AS THE BOOKS AR E SEIZED. ' 30.1 HOWEVER, THE ASSESSING OFFICER MADE THE DISALL OWANCE OF RS.17,81,852/- BY OBSERVING AS UNDER: THE REPLY OF THE ASSESSEE WAS EXAMINED BUT NOT FOU ND SATISFACTORY. THE ASSESSEE HAS FAILED TO JUSTIFY THE HUGE INCREAS E IN DIRECTORS' REMUNERATION DURING THE YEAR UNDER CONSIDERATION IN COMPARISON TO PRECEDING TWO YEARS. FURTHER, THE SUBMISSION MADE B Y THE AR REGARDING INCREASE IN TURNOVER IS NOT CORRECT IN VI EW OF THE FACT THAT DURING THE YEAR UNDER CONSIDERATION, THE TURNOVER O F THE COMPANY WAS AT 668.68 CRORES WHICH IS LOWER THAN THE TURNOV ER OF RS.733.43 CRORES IN A.Y. 2007-08 AND SLIGHTLY HIGHER THAN THE TURNOVER OF RS.578.40 CRORES IN A.Y. 2008-09. SIMILARLY, THE SUBMISSION THAT 'THE DIRECTOR REMUNE RATION IS BASED ON THE CONTRIBUTION AND SERVICES PROVIDED BY THESE PER SONS AND THE PROFITABILITY EARNED DUE TO CONTRIBUTION OF THESE P ERSON' ALSO LOOKS NOT ACCEPTABLE BECAUSE THE NET PROFIT OF THE COMPANY FO R THE YEAR UNDER CONSIDERATION IS ONLY RS.37.59 CRORES AS AGAINST RS 40.87 CRORES IN A.Y, 2007-08 & RS.60.07 CRORES IN A.Y. 2008-09. THE ABOVE SHOWS A DECREASE IN TURNOVER AND PROFITS, WHEREAS THE DIREC TORS' REMUNERATION HAS INCREASED TREMENDOUSLY. HOWEVER, CONSIDERING TH E SUBMISSION OF THE AR OF THE ASSESSEE, IF WE WORK OUT THE DIRECTOR 'S REMUNERATION ON [70] INCREASED TURNOVER ON THE SAME % AS PER LAST YEAR I T COMES TO RS.57,49,181/- AND EVEN AFTER CONSIDERING AT HIGHE R % THAN PREVIOUS YEAR AT 0.09%, IT COMES TO RS.60,18,148/- ONLY. ACCORDINGLY, THE INCREASED REMUNERATION CLAIMED BY THE COMPANY DURING THE YEAR UNDER CONSIDERATION IS EXCESSIVE AN D UNREASONABLE. THEREFORE, THE SAME IS ALLOWED UPTO RS.60,18,148/- AS DISCUSSED ABOVE AND THE REMAINING RS. 17,81,852/- STANDS DIS ALLOWED. 31. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT (A) AND THE SUBMISSIONS MADE, AS INCORPORATED IN PARA 16.2 OF THE IMPUGNED ORDER, ARE REPRODUCED VERBATIM AS UNDER: THAT DURING THE YEAR UNDER CONSIDERATION TOTAL DIR ECTOR REMUNERATION PAID TO FOUR DIRECTORS INCREASED FROM RS.48,00,000/ - TO RS.78,00,000/-. LD AO CONSIDERED SUCH INCREASED UNR EASONABLE AND DISALLOWED RS.17,81,852/-. THAT THE LD. AO ERRED IN DISALLOWING THE DIRECTOR REMUNERATION FOR RS.17,81,852/- ON THE BASIS THAT THE INCREASE IN THE DIRECTOR REMUNERATION FROM THE PREVIOUS YEAR S IS EXCESSIVE AND UNREASONABLE. THE DISALLOWANCE SO MADE IS ARBIT RARY AND WITHOUT EVEN STATING THE SECTION UNDER WHICH LD. AO DISALLOW THE EXPENSE CLAIMED BY THE COMPANY. THAT IF AN EXPENSE INCREASED FROM THE PREVIOUS YEAR CANNOT BE TREATED AS UNREASONABLE AND THE LD. AO GROSSLY ERRE D IN DISALLOWING THE DIRECTOR REMUNERATION ON THE BASIS THAT THE SAM E IS INCREASED FROM THE DIRECTOR REMUNERATION PAID IN EARLIER YEAR . THAT EVEN IF THE DISALLOWANCE IS PRESUMED TO BE MAD E U/S 40A(2), SAME IS ERRONEOUS AS THE DISALLOWANCE U/S 40A(2) CA N BE MADE ONLY IF THE AO FOUND ANY PAYMENT TO SPECIFIED PERSO N UNREASONABLE OR EXCESSIVE, BUT SUCH SECTION DID NOT EMPOWER THE AO TO DISALLOW THE PAYMENT MADE TO SPECIFIED PERSONS ON THE BASIS THAT THE SAME WAS IN EXCESS THEN THE PAYMENT IN THE EARLIER YEAR. THAT THE LD. AO RECORDED THE FINDING THAT SINCE THE DIRECTOR REMUNERATION IS SUBSTANTIALLY INCREASED FROM PREVIO US YEAR, BUT NOWHERE IN THE ASSESSMENT ORDER IT WAS RECORDED THA T THE DIRECTOR [71] REMUNERATION PAID BY THE COMPANY IS EXCESSIVE AND U NREASONABLE, THEREFORE THE DISALLOWANCE IS ERRONEOUS AND ARBITRA RY. THAT THE DIRECTOR REMUNERATION PAID TO FOUR DIRECTO RS WAS AS UNDER: A. TRILOK CHAND CHHABRA RS.30,00,000/- B. PRIYANKA CHHABRA RS.12,00,000/- C. BHAG CHAND CHHABRA RS.18,00,000/- D. SAURABH CHHABRA RS.18,00,000/- THAT THE REMUNERATION PAID TO THE DIRECTORS CANNOT BE CONSIDERED AS UNREASONABLE. THE DISTRIBUTORS OF THE COMPANY EA RNS COMMISSION MORE THAN THE HIGHEST DIRECTOR REMUNERAT ION OF RS.30,00,000/-. IN LIGHT OF ABOVE DISALLOWANCE MADE BY LD. AO WITHO UT ANY BASIS MAY KINDLY BE DELETED.' 31.1 THE LEARNED CIT(A), AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE, OBSERVED THAT THE MAJOR PORTION OF THE SALE OF THE ASSESSEE COMPANY WAS THROUGH MULTI LEVEL MARKETING, THEREFORE, THE MAJOR CONTRIB UTION IN GROWTH OF THE ASSESSEE WAS THROUGH THE AGENTS AND DISTRIBUTORS WHO SOLD TH E PRODUCTS AND MADE NEW AGENTS AND DISTRIBUTORS IN THE CHAIN. ACCORDING TO HIM, THE ASSESSEE FAILED TO MENTION ANY SPECIFIC CONTRIBUTION OR SERVICE RENDER ED BY DIRECTORS TO JUSTIFY THE INCREASE IN THEIR REMUNERATION. ACCORDINGLY, THE LEARNED CIT(A) SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. NOW TH E ASSESSEE IS IN APPEAL. 32. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE DISALLOWANCE OF THE DIRECTORS REMUNERATION ON THE BASIS THAT THE SAME WAS INCREASED IN COMPARISON TO THE EARLIER YEAR WAS NOT JUSTIFIED PARTICULARLY WHE N THE AMOUNT PAID FOR THE YEAR [72] UNDER CONSIDERATION WAS VERY REASONABLE, THOUGH HIG HER THAN THE EARLIER YEAR. IT WAS STATED THAT THE DISALLOWANCE U/S 40A(2) OF THE ACT CAN BE MADE ONLY IF THE ASSESSING OFFICER FOUND ANY PAYMENT TO SPECIFIED PE RSON UNREASONABLE OR EXCESSIVE BUT SUCH SECTION DOES NOT EMPOWER THE ASS ESSING OFFICER TO DISALLOW THE PAYMENT MADE TO SPECIFIED PERSONS ON THE BASIS THAT THE SAME WAS IN EXCESS THAN THE PAYMENT IN THE EARLIER YEAR. IT WAS CONTENDED THAT THE ASSESSING OFFICER MADE THE DISALLOWANCE BY LINKING THE DIRECTORS REMUNERA TION WITH THE TURNOVER OF THE COMPANY, WHICH IS WRONG BECAUSE THE DISALLOWANCE CA N BE MADE ONLY WHEN IT IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES BUT THE AMOUNT OF EXPENDITURE PAID IN THE IMMEDIATELY P RECEDING YEAR CANNOT BE CONSIDERED AN YARDSTICK TO THE FAIR MARKET VALUE. THEREFORE, THE ASSESSING OFFICER AND THE LEARNED CIT(A) EXCEEDED THEIR JURISDICTION IN INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE ACT. IT WAS CONTENDED THAT T HE APPROACH OF THE AUTHORITIES BELOW WAS NOT IN ACCORDANCE WITH THE REQUIREMENT OF THE LAW AND AS SUCH THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUST AINED BY THE LEARNED CIT(A) MAY BE DELETED. THE RELIANCE WAS PLACED ON THE DEC ISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. COMPUTER GRAPHICS LTD. 285 ITR 84 (MAD). 33. IN HIS RIVAL SUBMISSIONS, THE LEARNED D.R. STR ONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 34. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, IT APPEARS THAT THE [73] ASSESSING OFFICER DISALLOWED THE DIRECTORS REMUNER ATION BY LINKING IT WITH THE TURNOVER OF THE YEAR UNDER CONSIDERATION AND THE EA RLIER YEAR. HE WAS OF THE VIEW THAT WHEN THE COMMISSION WAS PAID TO THE DISTRIBUTO RS, THE REMUNERATION PAID TO THE DIRECTORS WAS ON HIGHER SIDE. IN OUR OPINION, THE REMUNERATION OF THE DIRECTORS CANNOT BE LINKED WITH THE TURNOVER OR THE PROFIT EA RNED BY THE ASSESSEE. THE ONLY THING IS TO BE SEEN AS TO WHETHER IT WAS EXCESSIVE FOR MAKING THE DISALLOWANCE U/S 40A(2) OF THE ACT. IN THE PRESENT CASE, THE ASSESSI NG OFFICER DID NOT DOUBT THE PAYMENT OF REMUNERATION TO THE DIRECTORS AND IT IS ALSO NOT THE CASE THAT THE SERVICES WERE NOT RENDERED BY THEM. IT IS ALSO NOT THE CASE OF THE AUTHORITIES BELOW THAT THE PAYMENT MADE TO THE DIRECTORS ON ACCOUNT OF REMUNER ATION WAS HIGHER THAN THE LIMIT PRESCRIBED IN COMPANY LAW. IN OUR OPINION THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A) WAS NO T JUSTIFIED PARTICULARLY WHEN THE DIRECTORS WHO ARE WELL EXPERIENCED AND HAVING PROPE R QUALIFICATION RENDERED THE SERVICES TO THE ASSESSEE COMPANY. WE, THEREFORE, D ELETE THE ADDITION MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT (A). 35. THE NEXT ISSUE, VIDE GROUND NO. 7, RELATES TO T HE SUSTENANCE OF DISALLOWANCE OF RS.6,23,832/- MADE BY THE ASSESSING OFFICER ON A CCOUNT OF LOSS SUFFERED BY THE COMPANY IN THE SHARE TRANSACTION THROUGH PMS. 36. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE CLAIMED LOSS OF RS.4,20,23,978/- ON SALE OF SHARES AND MUTUAL FUNDS UNDER THE HEAD OTHER INCOME. THE ASSESSING OFFICER FOUND THAT IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE [74] HAD ADDED BACK RS.4,14,00,146/- (RS.69,38,549 + RS. 3,44,61,597) OUT OF RS.4,20,23,978/- BUT NOT ADDED BACK REMAINING AMOUN T OF RS.6,23,832/-. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN TH E REASON FOR THE SAME. IN LIEU OF THAT THE ASSESSEE SUBMITTED AS UNDER: '...RS.6.24 LACS LOSS HAS NOT BEEN DISALLOWED AS TH IS LOSS RELATES TO LOSS MADE BY THE PORTFOLIO MANAGEMENT SE RVICE COMPANY DURING THE YEAR. BEING, PMS, THE LOSS IS BU SINESS LOSS AND NOT CAPITAL GAIN/LOSS. THE WORK OF PMS IS ONLY TO TRADE IN SHARES. HENCE, THE SAME HAS BEEN CONSIDERED AS BUSI NESS LOSS AND HENCE HAS NOT BEEN DISALLOWED...' 36.1 THE ASSESSING OFFICER WAS NOT SATISFIED FROM T HE ABOVE SUBMISSIONS OF THE ASSESSEE BY OBSERVING THAT THE ASSESSEE FAILED TO J USTIFY AS TO WHY THE LOSS RELATING TO PMS (WHEN IT HAS BEEN STATED BY THE AR ITSELF IN HIS REPLY THAT PMS IS ONLY RELATED TO TRADE IN SHARES) HAD BEEN CO NSIDERED AS BUSINESS LOSS AND NOT ADDED BACK WHEREAS THE OTHER LOSSES OF RS. 4.14 CRORES, WHICH ALSO RELATED TO SHARES & MUTUAL FUNDS TRANSACTIONS, WERE ADDED BACK TO ITS B USINESS INCOME BY THE ASSESSEE ITSELF AND CLAIMED UNDER THE HEAD CAPITAL GAIN. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SHARE TR ADING THROUGH PMS WAS NOT A REGULAR BUSINESS ACTIVITY OF THE ASSESSEE, THEREFOR E, THE LOSS OF RS.6,23,832/- CLAIMED ON ACCOUNT OF SHARE TRADING THROUGH PMS COU LD NOT BE SAID A BUSINESS LOSS. ACCORDINGLY, THE SAME WAS DISALLOWE D AND ADDED TO THE INCOME OF THE ASSESSEE. [75] 37. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO THE LEARNED CIT(A) AND SUBMITTED AS UNDER: THAT THE LD. AO DISALLOWED THE LOSS OF PMS ACTIVIT IES OF SHARES AS BUSINESS ACTIVITY OF THE APPELLANT. FURTHER EVEN AF TER HOLDING THE PMS ACTIVITY AS INVESTMENT ACTIVITY THE LD. AO DID NOT SET OFF THE LOSS AGAINST THE LONG TERM CAPITAL GAIN. THAT THE ACTIVITIES OF THE EARLIER ON ACCOUNT OF PM S TREATED UNDER BUSINESS HEAD, THEREFORE TREATING THE SAME FOR THE YEAR UNDER CONSIDERATION AS INVESTMENT ACTIVITY IS ERRONEOUS. THAT WITHOUT PREJUDICE TO ABOVE AND IN THE ALTERNAT IVE, IN CASE PMS ACTIVITY TREATED AS INVESTMENT ACTIVITY THE LOSS MA Y KINDLY BE SET OFF FROM THE LONG TERM CAPITAL GAIN.' 37.1 THE LEARNED CIT(A), AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE, OBSERVED THAT SHARE TRADING THROUGH PMS W AS NOT A REGULAR BUSINESS ACTIVITY OF THE ASSESSEE AND, THEREFORE, LOSS RELATING TO PMS COULD NOT BE TREATED AS A BUSINESS LOSS. HOWEVER, THE LE ARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO SET OFF THE LOSS FROM LONG TER M CAPITAL GAIN AS PER LAW. NOW THE ASSESSEE IS IN APPEAL. 38. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMI TTED THAT THE PROFIT / LOSS ON THE SHARES TRANSACTION FROM PMS WAS ASSESSED AS BUSINESS INCOME/ LOSS FROM YEAR TO YEAR BUT SINCE IN THE YEAR UNDER CONSI DERATION THERE WAS A LOSS FROM SUCH ACTIVITY, SAME WAS TREATED AS CAPITAL LOSS WHI CH COULD NOT BE ADJUSTED FROM THE BUSINESS INCOME. IT WAS CONTENDED THAT A LTHOUGH RES JUDICATA DOES NOT [76] APPLY TO THE TAX MATTERS, HOWEVER, CONSISTENCY IS T O BE MAINTAINED WHEN THE FACTS ARE SIMILAR IN THE PRECEDING YEARS AND THE YE AR UNDER CONSIDERATION. HE, THEREFORE, SUBMITTED THAT WHEN IN EARLIER YEARS THIS ACTIVITY WAS TREATED AS BUSINESS ACTIVITY, THE ASSESSING OFFICER WAS NOT JU STIFIED IN TREATING THE LOSS ON THE SHARE TRANSACTION FROM PMS AS CAPITAL LOSS A ND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION OF THE A SSESSING OFFICER. 39. IN HIS RIVAL SUBMISSIONS, THE LEARNED D. R. ST RONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 40. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IT IS NOTICED THAT THE FACTS RELATING TO THIS ISSUE ARE NOT CLEAR AS THE CONTEN TION OF THE ASSESSEE THAT IN ALL THE PRECEDING YEARS THE LOSS FROM SHARE TRANSAC TIONS THROUGH PMS WAS CONSIDERED AS BUSINESS ACTIVITY AND ONLY FOR THIS Y EAR THIS LOSS WAS TREATED AS CAPITAL LOSS, ON THE CONTRARY, THE ASSESSING OFFICE R OBSERVED THAT IT WAS NOT A REGULAR BUSINESS ACTIVITY. WE, THEREFORE, DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW. HE SHOULD ALSO VERIFY FROM TH E EARLIER RECORD AS TO WHETHER IN SIMILAR CIRCUMSTANCES THE SIMILAR LOSS W AS TREATED AS A BUSINESS LOSS OR NOT. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. [77] 41. AS REGARDS TO GROUND NO. 8 RELATING TO CHARGING OF INTEREST U/S 234B OF THE ACT, IT WAS COMMON CONTENTION OF BOTH THE PARTI ES THAT IT IS CONSEQUENTIAL IN NATURE. WE ORDER ACCORDINGLY. 42. NOW WE WILL DEAL WITH THE APPEAL OF THE DEPARTM ENT IN I.T.A. NO.407/JODH/2012. IN THIS APPEAL, THE DEPARTMENT H AS RAISED THE FOLLOWING GROUNDS: THE LD. CIT (A), AJMER IN THE PRESENT FACTS AND CI RCUMSTANCES OF THE CASE HAS ERRED IN:- 1. DELETING THE ADDITION OF RS.5,89,48,612/- MADE O N ACCOUNT OF UNEXPLAINED INCREASE IN CURRENT LIABILITIES, IGN ORING THE FACT THAT THE ASSESSEE FAILED TO FURNISH THE CONFIRMATIO NS FROM THE PARTIES BEFORE THE AO AND EVEN BEFORE CIT(A); 2. DELETING THE ADDITION OF RS.5,89,48,612/- MADE O N ACCOUNT OF UNEXPLAINED INCREASE IN CURRENT LIABILITIES, BY ADMITTING THE ADDITIONAL EVIDENCE, IGNORING THE REMAND REPORT OF THE AO, AS ESPECIALLY WHEN THE EVIDENCE WAS AVAILABLE TO THE PARTY AT THE INITIAL STAGE AND WHICH HAD NOT BEEN P RODUCED BEFORE THE AO, WITHOUT ANY SUFFICIENT CAUSE; 3. RESTRICTING THE ADDITION OF RS.2,25,02,544/- TO RS.50,00,000/- MADE ON ACCOUNT OF DAMAGE VALUE LOSS, HOLDING THE S AME ON HIGHER SIDE WHEN THE AO ESTIMATED THE SAME ON NORMA L REALIZABLE VALUE; 4. RESTRICTING THE ADDITION OF RS.2,25,02,544/- TO RS.50,00,000/- MADE ON ACCOUNT OF DAMAGE VALUE LOSS, WITHOUT APPR ECIATING THE FACTS AND CIRCUMSTANCES NARRATED IN THE ASSESSM ENT ORDER; 5. RESTRICTING THE ADDITION OF RS.2,25,02,544/- TO RS.50,00,000/- MADE ON ACCOUNT OF DAMAGE VALUE LOSS, WHEN THE ASSE SSEE'S OWN CLAIM IS ON HIGHER SIDE WITHOUT ANY BASIS/JUSTI FICATIONS; [78] 6. DELETING THE ENTIRE ADDITION OF RS.1,43,78,470/- MADE ON ACCOUNT OF UNEXPLAINED CASH DEPOSITS, IGNORING THE REMAND REPORT OF THE AO; 7. DELETING THE ADDITION OF RS.1,00,63,765/- MADE O N ACCOUNT OF DISALLOWANCE OUT OF DEPOT/AGENCY COMMISSION, IGNORI NG THE DECISIONS RELIED UPON BY THE ASSESSING OFFICER. 43. THE FIRST ISSUE VIDE GROUND NO. 1 & 2 RELATES T O THE DELETION OF ADDITION OF RS.5,89,48,612/- MADE BY THE AO ON ACCOUNT OF UNEXP LAINED INCREASE IN CURRENT LIABILITIES. 44. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT IN SCHEDULE- H OF THE AUDIT REPORT DATED 28/08/2009, THE ASSESSEE HAD SHOWN CURRENT LIABILIT IES UNDER THE HEAD 'AGENT AND DEALERS DEPOSITS' TO THE TUNE OF RS.1,57,81,66 ,886/- WHILE IN PREVIOUS YEAR, THE SAME WERE SHOWN AT RS.1,51,92,18,274/-. HE, T HEREFORE, ASKED THE ASSESSEE TO FURNISH LIST OF NAMES AND ADDRESSES A LONG WITH AMOUNT IN RESPECT OF PARTIES FROM WHOM ABOVE DEPOSITS HAD BEEN SHOWN FOR AN AMOUNT EXCEEDING RS5 LAC AND TO FURNISH CONFIRMATIONS AND PAN OF THO SE PARTIES WHOSE DEPOSITS EXCEEDED RS.1 CRORE. THE ASSESSEE WAS ALSO REQUIRED TO JUSTIFY THE INCREASE IN ABOVE IN RELEVANT ASSESSMENT YEAR AS COMPARED TO TH E PRECEDING PREVIOUS YEAR. THE ASSESSEE FURNISHED THE REPLY DATED 28/12/2011, BY STATING AS UNDER: ...REGARDING AGENT AND DEALER DEPOSITS COMPRISES O F REFUNDABLE SECURITY DEPOSITS AS WELL AS ADVANCE AGAINST GOODS FROM PICKUP CENTRES, WHICH ARE TAKEN FOR SAFETY PURPOSE. THE SE CURITY IS TAKEN [79] WHEN A PERSON IS AUTHORIZED BY COMPANY TO ESTABLISH A PICK UP CENTRE. DUE TO SHORT NOTICE OF LESS THAN 1 DAYS AND FURTHER AS THE COMPUTER SERVER OF THE COMPANY AS WELL AS THE RECOR DS OF THE COMPANY IS SEIZED BY THE POLICE DEPARTMENT, SO, IT IS NOT POSSIBLE FOR US TO SUBMIT LIST OF THE NAMES AND ADDRESS OF P ERSONS FROM WHOM ABOVE AMOUNT OF RS.5,89,48,612 WAS TAKEN DURIN G THE YEAR. WE WOULD LIKE TO REQUEST THAT WHEN THE EARLIER PREC EDING AO'S HAVE DULY VERIFIED AND SCRUTINIZED COMPLETE DETAILS OF P ERSONS FROM WHOM DEPOSITS OF RS.151.92 CRORES WERE TAKEN. THE ADDITI ON IN THAT LIST IS MERELY OF RS.5.89 CRORES WHICH ARE ABSOLUTELY SAME NATURE. HENCE, IN ABSENCE OF ANY RECORDS AND DUE TO INSUFFICIENT O PPORTUNITY, IT IS NOT POSSIBLE FOR US TO SUBMIT THE DESIRED DETAILS.. .' 44.1 THE ASSESSING OFFICER AFTER CONSIDERING THE CO NTENTION OF THE ASSESSEE REGARDING INSUFFICIENT OPPORTUNITY, ALLOWED ANOTHER OPPORTUNITY TO FURNISH THE ABOVE DETAILS VIDE LETTER DATED 29/12/2011 AS THE C ASE WAS GETTING TIME BARRED ON 31/12/2011. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAD NOT FURNISHED THE DETAILS IN RESPECT OF PARTIES FROM WH OM THE SAID DEPOSITS HAD BEEN RECEIVED. NEITHER THE NAMES NOR ADDRESSES AND AMOU NT IN RESPECT OF THOSE PARTIES WAS FURNISHED. HE. THEREFORE, CONSIDERED THE INCREASE IN CURRENT LIABILITIES ON ACCOUNT OF 'AGENT AND DEALER DEPOSIT ' DURING THE YEAR UNDER CONSIDERATION AS COMPARED TO THE PREVIOUS PRECEDIN G YEAR AMOUNTING TO RS.5,89,48,612/- AS UNEXPLAINED AND UNVERIFIABLE. ACCORDINGLY, ADDITION OF THE ABOVE AMOUNT WAS MADE IN THE HANDS OF THE ASSESSEE. 45. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND FURNISHED THE WRITTEN SUBMISSIONS, WHICH IS INCORPORATED IN PARA 7.2 OF THE IMPUGNED ORDER AND READ AS UNDER: [80] THAT THE LD. AO MADE ADDITION OF RS. 5,89,48,612/- BEING THE INCREASE IN THE BALANCE OF AGENTS AND DEALERS DEPO SITS FROM RS.1,51,92,18,274/- TO RS.1,57.81,66,886/- WITHOUT AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE APPELL ANT. THAT LD. AO KNOWING ABOUT THE SEIZURE OF THE BUSINE SS AND OTHER PREMISES AND RECORDS BY THE POLICE AUTHORITY AND IN ABILITY OF THE ASSESSEE TO FURNISH ANY . DOCUMENTARY EVIDENCES, VI DE LETTER DATED 27/12/2011 ALONG WITH OTHER DETAILS ASKED THE ASSES SEE, FOR THE FIRST TIME, TO FURNISH LIST OF NAMES AND ADDRESSES ALONG WITH AMOUNT IN RESPECT OF PARTIES FROM WHOM DEPOSITS HAD BEEN SHOW N FOR AN AMOUNT EXCEEDING RS. 5 LACS AND TO FURNISH CONFIRMA TIONS AND PAN OF THOSE PARTIES WHOSE DEPOSITS EXCEEDED RS. 1 CROR E. FURTHER THE INTENTION OF MAKING ADDITION WAS SHOWN BY STATING T HAT 'IN THE EVENT OF FAILURE ON ASSESSEE'S PART TO JUSTIFY THE ABOVE INCREASE, THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY THE I NCREASE IN LIABILITY SHOWN DURING THE YEAR AS COMPARED TO PREV IOUS YEAR FOR RS. 5,89,48,6127- SHOULD NOT BE CONSIDERED AS UNEXPLAIN ED AND THEREFORE BE ADDED TO ITS INCOME & TAXED IN ITS HANDS. THE LE TTER WAS SERVED ON THE LATE EVENING HOURS AND REPLY WAS SOUGHT ON 2 8/12/2011 BY 12:00 PM. THAT THE REPLIES FILED BY THE A/R OF THE APPELLANT ON 28/12/2011 IS REPRODUCED AS UNDER: 'REGARDING AGENT AND DEALER DEPOSITS COMPRISES OF REFUNDABLE SECURITY DEPOSITS AS WELL AS ADVANCE AGA INST GOODS FROM PICKUP CENTRES, WHICH ARE TAKEN FOR SAFE TY PURPOSE. THE SECURITY IS TAKEN WHEN A PERSON IS AUT HORIZED BY COMPANY TO ESTABLISH A PICK UP CENTRE. DUE TO SH ORT NOTICE OF LESS THAN 1 DAYS AND FURTHER AS THE COMPU TER SERVER OF THE COMPANY AS WELL AS THE RECORDS OF THE COMPANY IS SEIZED BY THE COMPANY, SO, IT IS NOT POS SIBLE FOR US TO SUBMIT LIST OF THE NAMES AND ADDRESS OF PERSO NS FROM WHOM ABOVE AMOUNT OF RS.5,89,48,612 WAS TAKEN DURING THE YEAR. WE WOULD LIKE TO REQUEST THAT WHEN THE EARLIER PRECEDING AO'S HAVE DULY VERIFIED AND SCRUT INIZED COMPLETE DETAILS OF PERSONS FROM WHOM DEPOSITS OF RS.151.92 CRORES WERE TAKEN. THE ADDITION IN THAT L IST IS MERELY OF RS. 5.89 CRORES WHICH ARE ABSOLUTELY SAME NATURE. HENCE, IN ABSENCE OF ANY RECORDS AND DUE TO INS WHICH ARE ABSOLUTELY SAME NATURE. HENCE, IN ABSENCE OF ANY RECORDS AND DUE TO INSUFFICIENT OPPORTUNITY, IT IS NOT POSSIBLE FOR US TO SUBMIT THE DESIRED DETAILS.' [81] THAT WHEN THE A/R OF THE APPELLANT SUBMITS ITS INAB ILITY TO SUBMIT DETAILS BECAUSE OF SEIZURE ACTION BY THE POLICE AUT HORITY, LD. AO FOR THE NAME SACK PROVIDES ANOTHER OPPORTUNITY TO PRODU CE THE DETAILS SOUGHT FOR BY 29/12/2011. THAT THE PRE-DECIDED ARBITRARY ADDITION FOR RS.5,89 ,48,612/- WAS MADE BY THE LD. AO WHILE PASSING THE ASSESSMENT ORD ER AFTER RECORDING FOLLOWING FINDING: 'ON EXAMINATION OF THE REPLY FILED BY THE AR OF THE ASSESSEE, IT WAS SEEN THAT HE HAD FURNISH ED A VERY GENERAL REPLY. NO DETAILS IN RESPECT OF PARTIES FRO M WHOM THE SAID DEPOSITS HAD RECEIVED WERE FURNISHED BY THE ASSESSE E. NEITHER NAMES NOR ADDRESSES AND AMOUNT IN RESPECT OF THESE PARTIES WAS FURNISHED BY THE ASSESSEE. THE ASSESSEE WAS ALSO RE QUIRED TO FURNISH CONFIRMATIONS AND PAN FROM THE PARTIES WHOS E DEPOSITS EXCEEDED 1 CRORE BUT THE ASSESSEE FAILED TO FURNISH THE ABOVE. FURTHER, THE ASSESSEE DID NOT EVEN FURNISH ANY REAS ON OR JUSTIFICATION FOR THE INCREASE IN THE SAID LIABILIT Y IN THE RELEVANT ASSESSMENT YEAR AS COMPARED TO THE PRECEDING YEAR. IN THE ABSENCE OF ABOVE, THE SAID CLAIM OF THE ASSESSEE RE MAINS UNVERIFIABLE. IN VIEW OF ABOVE DISCUSSION AND CONSIDERING THE REP LY FURNISHED BY THE AR OF THE ASSESSEE, THE INCREASE IN CURRENT LIA BILITIES ON ACCOUNT OF 'AGENT AND DEALER DEPOSIT' DURING THE RE LEVANT ASSESSMENT YEAR AS COMPARED TO THE PREVIOUS PRECEDI NG YEAR AMOUNTING TO RS.5,89,48,612/- IS BEING CONSIDERED A S UNEXPLAINED AND UNVERIFIABLE. THEREFORE, BASED ON THE ABOVE DISCUSSION, A SUM OF RS.5,89,48,612/- IS BEING ADDED TO THE INCOME OF TH E ASSESSEE AND TAXED IN THE HANDS ON ACCOUNT OF ABOVE. THAT SINCE THE BACK UP OF THE ACCOUNTS RELATED DATA IS NOW AVAILABLE WITH THE COMPANY, DETAILS OF THE DEPOSITS OUTSTANDI NG FOR MORE THAN RS.5 LAC AS ON 31/03/2009 ARE PRODUCED BEFORE YOUR HONOR AS ADDITIONAL EVIDENCE. SECURITY DEPOSIT WAS TAKEN IN THE NORMAL COURSE OF BUSINESS. ALL THE TRANSACTION ARE GENUINE AND IT IS RESPECTFULLY SUBMITTED THAT CONSIDERING THE ADDITIO NAL EVIDENCE SUBMITTED BEFORE YOUR HONOR, THE ADDITION MAY KINDL Y BE DELETED. [82] 45.1 THE LEARNED CIT(A) ALSO ASKED THE REMAND REPOR T FROM THE AO, WHO SUBMITTED THE REMAND REPORT DATED 18/06/2012, WHICH READ AS UNDER: 'IN THIS REGARD, IT IS SUBMITTED THAT DURING THE AS SESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO FURNISH C ERTAIN INFORMATION AND EVIDENCE REGARDING INCREASE IN CURR ENT LIABILITIES OF RS. 5,89,48,612/-. THE REPLY FURNISHED BY THE A.R. OF ASSESSEE ON 28.12.2011 HAS BEEN DISCUSSED IN THE ASSESSMENT ORD ER WHEREIN THE AR HAS NARRATED THAT RECORD IS SEIZED BY THE PO LICE DEPARTMENT ALONG WITH SOME OTHER EXPLANATIONS. THE AO HAS CONSIDERED THE FACTS AND PASSED THE ASSESSMENT ORDE R. IT IS NOTICED FROM THE DETAILS FURNISHED BY THE AR OF THE ASSESSEE THAT THE POLICE DEPARTMENT HAS RELEASED CERTAIN DOC UMENTS ON 25.12.2011. THE AO HAS PASSED ASSESSMENT ORDER ON 3 0.12.2011 AND AR OF THE ASSESSEE HAS FURNISHED REPLY ON 28.12 .2011. THUS, THE AR OF THE ASSESSEE HAS WRONGLY STATED THE STATU S OF AVAILABILITY OF DOCUMENTS WITH THE ASSESSEE INSPITE OF THE FACT THAT SUCH DOCUMENTS WERE RELEASED TO THE ASSESSEE O N 25.12.2011, A DATE PRIOR TO THE DATE ON WHICH REPLY WAS FILED B Y THE AR OF THE ASSESSEE BEFORE THE AO. FURTHER, IT IS ALSO FOUND THAT THE SUBMISSION MADE BY THE AR OF THE ASSESSEE BEFORE LD. CIT(A) IS NOT BASED ON THE DOCU MENTS RELEASED BY THE POLICE DEPARTMENT TO THE ASSESSEE O N 25.12.2011. THE LIST WHICH IS FURNISHED BY THE ASSE SSEE COMPANY BEFORE YOUR HONOUR IS CONSISTING OF NAMES AND ADDRE SS IN WHICH IT IS NARRATED ..SD BZR BAREILLY-CIVIL LINE ( INTREST) 504.. ' BUT THE ASSESSEE COMPANY HAS NOT FILED CONFIRMATION OF THE CONCERNED PERSON IN WHOSE NAME THE SECURITY DEPOSIT HAS BEEN SHOWN IN THE BOOKS OF COM PANY AND ALSO NOT FURNISHED ANY EXPLANATION REGARDING THE IN CREASE RS.5,89,48,612/- IN -LIABILITY SHOWN DURING THE YEA R UNDER CONSIDERATION AS COMPARED TO PREVIOUS YEAR. FURTHER, THE RULE 46A WITH REGARD TO FURNISHING OF ADDITIONAL EVIDENCES BEFORE CIT(A) IS APPLICABLE WITH CERTAIN CONDITIONS WHICH ARE NOT FULFILLED BY THE ASSESSEE. THEREFORE, IT IS REQUESTED THAT THE ASSESSEE'S SUBMISSION MAY NOT BE ACCEPTED BY YOUR H ONOUR. [83] 45.2 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE AND THE REMAND REPORT OF THE AO, OBSERVED THAT THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH THE DETAILS VIDE LETTER DATED 27/12/2011 AND ASSESSEE FURNISHED REPLY ON 28/12/2011 EXPRESSING ITS INABIL ITY TO FURNISH THE DETAILS IN VIEW OF ACTION BY POLICE DEPARTMENT AT ITS PREMISES. HE FURTHER OBSERVED THAT THE ASSESSING OFFICER AGAIN ASKED THE ASSESSEE TO FURN ISH THE DETAILS VIDE LETTER DATED 29/12/2011. AS THE CASE WAS GETTING BARRED B Y LIMITATION ON 31/12/2011, SO MORE TIME COULD NOT BE GRANTED AND THE ASSESSMEN T WAS COMPLETED. THE LEARNED CIT(A) WAS OF THE VIEW THAT THE ASSESSEE W AS PREVENTED BY SUFFICIENT CAUSE TO FILE THOSE DETAILS BEFORE ASSESSING OFFICE R DURING ASSESSMENT PROCEEDINGS. HE, THEREFORE, ALLOWED THE ASSESSEE S ADDITIONAL EVIDENCE IN VIEW OF CONDITIONS OF RULE 46A OF THE I. T. RULES. THE LEARNED CIT(A) OBSERVED THAT IN THE REMAND REPORT THE ASSESSING OFFICER HAD N OT GIVEN ANY COMMENTS ON DETAILS FURNISHED BY ASSESSEE AND MERELY MENTIONED THAT CONDITIONS OF RULE 46A ARE NOT SATISFIED, THEREFORE THE ASSESSEES SUBMISS ION WAS NOT ACCEPTABLE. THE LEARNED CIT(A), AFTER EXAMINING THE DETAILS FILED BY ASSESSEE FOUND THAT COMPLETE DETAILS OF PARTIES FROM WHOM SECURITY DEPO SITS ABOVE RS.5,00,000 WAS RECEIVED WERE AVAILABLE AND IN CASE OF MOST OF THE PARTIES, BALANCES HAD BEEN CARRIED FORWARD FROM EARLIER YEARS. HE ALSO OBSERV ED THAT DURING THE YEAR INCREASE IN THE AMOUNTS IN THEIR ACCOUNT WAS ON ACC OUNT OF INTEREST CREDITED FROM TIME TO TIME AND THAT THE COMPLETE DETAILS OF THOSE PARTIES WERE FURNISHED DURING REMAND PROCEEDINGS BUT ASSESSING OFFICER HAD NOT M ADE ANY ENQUIRY IN THIS [84] REGARD AND NOT BROUGHT ANY SPECIFIC MATERIAL TO HOL D THAT THE AMOUNTS MENTIONED IN THE NAMES OF THOSE PARTIES WERE NOT GENUINE. AC CORDINGLY, THE LEARNED CIT(A) DELETED THE IMPUGNED ADDITION MADE BY THE AS SESSING OFFICER. NOW THE DEPARTMENT IS IN APPEAL. 46. THE LEARNED D. R. STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THE ASSESSEE FAILED TO F URNISH THE DETAILS/EVIDENCE ASKED BY THE ASSESSING OFFICER INSPITE OF SUFFICIEN T OPPORTUNITY GIVEN TO IT, THEREFORE, THE ADDITION WAS RIGHTLY MADE. 47. IN HIS RIVAL SUBMISSIONS THE LEARNED COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER KNOWING ABOUT THE SEIZUR E OF THE BUSINESS AND OTHER PREMISES AND RECORDS BY THE POLICE AUTHORITY AND IN ABILITY OF THE ASSESSEE TO FURNISH ANY DOCUMENTARY EVIDENCES, ASKED THE ASSESS EE VIDE LETTER DATED 27/12/2011FOR THE FIRST TIME AND TO FURNISH LIST OF NAMES AND ADDRESSES ALONG WITH AMOUNT IN RESPECT OF PARTIES FROM WHOM DEPOSITS HAD BEEN SHOWN FOR AN AMOUNT EXCEEDING RS. 5 LAC AND TO FURNISH CONFIRMATIONS AN D PAN OF THOSE PARTIES WHOSE DEPOSITS EXCEEDED RS. 1 CRORE AND INTENTION OF MAKI NG ADDITION WAS SHOWN BY STATING THAT 'IN THE EVENT OF FAILURE ON ASSESSEE'S PART TO JUSTIFY THE ABOVE INCREASE, THE ASSESSEE WAS REQUIRED TO SHOW CAUSE A S TO WHY THE INCREASE IN LIABILITY SHOWN DURING THE YEAR AS COMPARED TO PREV IOUS YEAR FOR RS5,89,48,612/- SHOULD NOT BE CONSIDERED AS UNEXPLAINED AND THEREFO RE BE ADDED TO ITS INCOME & TAXED IN ITS HANDS.' IT WAS POINTED OUT THAT THE S AID LETTER WAS SERVED ON THE [85] ASSESSEE LATE EVENING HOURS ON 27/12/2011 AND REPLY WAS SOUGHT ON 28/12/2011 BY 12 PM AND THE AR OF THE ASSESSEE FILED EXPLANATI ON ON THE APPOINTED DATE AND SHOWED ITS INABILITY TO PRODUCE THE REQUIRED LI ST BECAUSE OF SEIZURE ACTION OF POLICE. HOWEVER, THE ASSESSING OFFICER FRAMED THE A SSESSMENT ORDER BY MAKING ARBITRARY ADDITION FOR RS.5,89,48,612/-. IT WAS FU RTHER STATED THAT THE ASSESSEE FILED APPLICATION UNDER RULE 46A OF THE I. T. RULES TO ADMIT ADDITIONAL EVIDENCES AND THE LIST OF PERSONS FROM WHOM SECURITY DEPOSIT OF MORE THAN RS.5,00,000/- WAS RECEIVED, WAS PROVIDED. IT WAS FURTHER STATED THAT THE LEARNED CIT(A) ADMITTED THE ADDITIONAL EVIDENCES AND A COPY OF THE SAME WAS FORWARDED TO THE ASSESSING OFFICER FOR HIS COMMENTS BUT THE ASSESSIN G OFFICER IN HIS REMAND REPORT DATED 18/06/2012 MERELY OBJECTED ON THE FILI NG OF ADDITIONAL EVIDENCES. IT WAS CONTENDED THAT THE OBJECTION RAISED BY THE ASSE SSING OFFICER REGARDING THE ADMISSION OF ADDITIONAL EVIDENCES ON THE ISSUE BY T HE LD. CIT(A) WAS ERRONEOUS AS THE ASSESSING OFFICER DID NOT RAISE SUCH OBJECT ION ON THE ADDITIONAL EVIDENCE FILED BEFORE THE LEARNED CIT(A) FOR THE ADDITION M ADE UNDER FOLLOWING HEADS: A. ON THE ISSUE OF DISALLOWANCE OF COMMISSION AMOU NTING TO RS.125 CRORE. B. ON THE ISSUE OF DISALLOWANCE BY THE LD. AO U/S 4 3B FOR RS.2,96,80,357/- [PB PG 186]. THE LD. AO IN ITS REM AND REPORT STATED THAT ADDITION TO THE EXTENT RS.5,35,532/- LI ABLE TO DISALLOW U/S 43B AFTER CONSIDERING ADDITIONAL EVIDENCES. C. ON THE ISSUE OF ADDITION MADE BY TH E LD. AO AMOUNTING TO RS.1,43,78,470/- TREATING THE SAME AS NEXPLAINED [PB PG 187]. THE LD. AO IN ITS REM AND REPORT [86] STATED THAT ADDITION TO THE EXTENT RS.5 5,72,460/- SUSTAINABLE AFTER CONSIDERING THE ADDITIONAL EVIDEN CE. D. ON THE ISSUE OF DISALLOWANCE OF COMMISSION U/S 4 0(A)(IA) AMOUNTING TO RS.23,97,978/- [PB PG 188]. THE LD. AO IN ITS REMAND REPORT STATED THAT CONSIDERING THE ADDITIONA L EVIDENCE FILED BY THE ASSESSEE RELIEF FOR THE DISALLOWANCE M AY BE CONSIDERED. E. ON THE ISSUE OF SHORT TERM CAPITAL LOSS AMOUNTIN G TO RS.3,20,93,849/- NOT VERIFIABLE [PB PG 189]. THE LD . AO IN ITS REMAND REPORT STATED THAT EXCEPT TWO DISCREP ANCY FOR RS.5,67,358/- REMAINS AND LOSS AMOUNTING TO RS.3,15,26,491/- IS VERIFIABLE. 47.1 IT WAS CONTENDED THAT WHEN THE ASSESSING OFFIC ER EXAMINED THE ADDITIONAL EVIDENCES FILED BEFORE THE LD. CIT(A) ON OTHER ISSU ES, OBJECTING THE FILING OF THE ADDITIONAL EVIDENCE ON THE PARTICULAR ISSUE IS ERRO NEOUS. IT WAS EMPHASIZED THAT THE LD. CIT(A) AFTER CONSIDERING THE ADDITIONAL EVI DENCES FILED BY THE ASSESSEE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND, THEREFORE, HE WAS FULLY JUSTIFIED IN DELETING THE ADDITION. 48. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE ASSESSING OFFICER ASKED CERTAIN DETAILS FR OM THE ASSESSEE FOR INCREASE IN LIABILITY UNDER THE HEAD AGENT AND DEALER DEPOSITS WHICH INCREASED TO THE TUNE OF RS.1,57,81,66,886/- IN THE YEAR UNDER CONSIDERATION FROM RS.1,51,92,18,274/- IN THE EARLIER YEARS. AS THE REQUIRED DETAILS WERE NO T FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER MADE THE ADDITION BY CONSIDERING THE INCREASE IN CURRENT LIABILITY AS INCORRECT. SINCE THE TIME GIVEN BY TH E ASSESSING OFFICER WAS NOT SUFFICIENT, THE ASSESSEE IN THE APPELLATE PROCEEDIN GS REQUESTED THE LEARNED [87] CIT(A) TO ADMIT THE ADDITIONAL EVIDENCES UNDER RULE 46A OF THE I.T. RULES AND THE LEARNED CIT(A) ON BEING SATISFIED THAT THERE WAS A REASONABLE CAUSE IN NOT FURNISHING THE DETAILS BEFORE THE ASSESSING OFFICER AS THE TIME GIVEN WAS NOT SUFFICIENT, ADMITTED THE ADDITIONAL EVIDENCE UNDER RULE 46A OF THE I.T. RULES AND ASKED THE REMAND REPORT FROM THE ASSESSING OFFICER. IN THE PRESENT CASE, THE ASSESSING OFFICER OBJECTED THE ADMISSION OF ADDITIO NAL EVIDENCE RELATING TO THIS PARTICULAR ADDITION BUT GAVE HIS REPORT ON ALL OTHE R ISSUES. CONSIDERING THAT FACT, IN OUR OPINION, THE OBJECTION OF THE ASSESSING OFFI CER WAS NOT SUSTAINABLE BECAUSE HE HAD COMMENTED ON THE ADDITIONAL EVIDENCE RELATING TO THE OTHER ISSUES BUT OBJECTED FOR THE ADMISSION OF THE ADDITI ONAL EVIDENCE RELATING TO THIS PARTICULAR ISSUE. THEREFORE, THE LEARNED CIT(A) W AS JUSTIFIED IN ADMITTING THE ADDITIONAL EVIDENCE. IN THE INSTANT CASE, THE LEAR NED CIT(A) EXAMINED ALL THE EVIDENCES FURNISHED BY THE ASSESSEE AND CAME TO THE CONCLUSION THAT IN MOST OF THE CASES THE BALANCES WERE CARRIED FORWARD FROM TH E PRECEDING YEAR AND INCREASE IN LIABILITY WAS DUE TO THE INTEREST. IN OUR OPINION, WHEN THE ASSESSING OFFICER HAD NOT DOUBTED THE CLOSING BALANCE OF THE PARTIES IN THE PRECEDING YEAR AND EXPENSES ON ACCOUNT OF INTEREST CREDITED IN THE ACCOUNT OF THOSE PARTIES, THERE WAS NO JUSTIFICATION IN TREATING THE INCREASE IN LIABILITY MAINLY ON ACCOUNT OF CREDITING INTEREST IN THE ACCOUNTS OF THE PARTIES, AS UNEXPLAINED AND UNVERIFIABLE LIABILITY. THEREFORE, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ARBITRARY ADDITION MADE BY THE ASSE SSING OFFICER. WE DO NOT SEE ANY MERIT IN THESE GROUNDS OF THE DEPARTMENTAL APPE AL. [88] 49. VIDE GROUND NO. 3 TO 5, THE GRIEVANCE OF THE DE PARTMENT, RELATES TO RESTRICTING THE ADDITION OF RS.2,25,02,544/- TO RS. 50 LAC MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DAMAGE VALUE OF LOSS. 50. THIS ISSUE WAS ALSO INVOLVED IN ASSESSEES APPE AL IN I.T.A. NO.357/JODH/2012 VIDE GROUND NO. 3, WHICH WE HAVE A LREADY ADJUDICATED IN THE FORMER PART OF THIS ORDER. THEREFORE, OUR FINDINGS GIVEN THEREIN SHALL APPLY MUTATIS MUTANDIS. IN THAT VIEW OF THE MATTER, WE DO NOT SE E ANY MERIT IN THESE GROUNDS OF THE DEPARTMENTAL APPEAL. 51. VIDE GROUND NO. 6, THE GRIEVANCE OF THE DEPARTM ENT, RELATES TO THE DELETION OF ADDITION OF RS.1,43,78,470/- MADE BY THE ASSESSI NG OFFICER ON ACCOUNT OF UNEXPLAINED CASH DEPOSIT. 52. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD MADE SOME CASH DEPOSIT TO ITS BANK ACCOUNTS AND AIR INFORMATION WAS RECEIVED REGARDING THE CASH DEPOSITS MADE IN ASSESSEES BANK ACCOUNTS. THE DETAILS HAS BEEN GIVEN BY THE ASSESSING OFFICER IN PARA 6 OF TH E ASSESSMENT ORDER DATED 30/12/2011. FOR THE COST OF REPETITION, THE SAME A RE NOT REPRODUCED HEREIN. THE ASSESSING OFFICER OBSERVED THAT A PART OF THOSE ENT RIES WERE VERIFIED FROM BANK ACCOUNT OF THE ASSESSEE DURING THE COURSE OF ASSESS MENT PROCEEDINGS BUT SOURCES OF THE DEPOSITS HAD NOT BEEN FURNISHED BY T HE ASSESSEE. SHE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN THE SOURCE OF THOSE C ASH DEPOSITS & TO PRODUCE [89] SUPPORTING DOCUMENTARY EVIDENCE AND TO SHOW CAUSE A S TO WHY THIS ENTIRE SUM IN RESPECT OF CASH DEPOSITS HOULD NOT BE TREATED AS UN EXPLAINED & SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. IN LIEU OF T HAT, THE ASSESSEE SUBMITTED AS UNDER: WE HAVE ALREADY VERIFIED TO YOU, EACH AND EVERY CA SH DEPOSIT ENTRY IN THE BANK ACCOUNT WHICH IS COMING IN AIR AN D WAS DEMANDED BY YOU FOR VERIFICATION. YOU HAVE PROVIDE D 2 AIR STATEMENTS OF ICICI BANK (NEW DELHI) IN THE QUESTIO NNAIRE. IT IS SUBMITTED THAT BOTH THE STATEMENTS ARE SAME AND OF SOME ICICI BANK, NEW DELHI ACCOUNT. THE ENTRIES IN BOTH THE A CCOUNT IS SAME, ONLY THE ORDER IS DIFFERENT IN BOTH CASES. YO UR GOODSELF HAS ALREADY TICKED AND VERIFIED EACH AND EVERY ENTR Y IN THE AIR REGARDING CASH DEPOSITS AND NO ERROR WAS FOUND IN T HE SAME. NOW, AS THIS NOTICE IS RECEIVED AFTER SEIZURE OF BO OKS, WE ARE ENABLE TO PRODUCE THE CASH BOOK STATEMENTS AGAIN. THE FACT FOR VERIFICATION OF THE CASH BOOK HAS BEEN ACCEPTED BY YOUR GOODSELF IN THE QUESTIONNAIRE. COMPLETE DETAI LS OF THE SOURCE OF CASH DEPOSIT WERE AVAILABLE IN THE CASH B OOK WHICH WAS PRODUCED TO YOU FOR VERIFICATION. BUT, NOW THIS NOTICE DATED 11.12.2011 IS RECEIVED AFTER THE SEIZURE OF RECORDS . HENCE, IT IS NOT POSSIBLE FOR US TO RE-PRODUCE THE CASH BOOK AGA IN FOR VERIFICATION. 53. THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE BY OBSERVING THAT THE ASSESSEE FAILED TO E XPLAIN THE SOURCE OF THOSE CASH DEPOSITS AND TO PRODUCE ANY SUPPORTING DOCUMEN TARY EVIDENCE. THE ASSESSING OFFICER ALSO OBSERVED THAT NO DOCUMENTARY EVIDENCE LIKE THE ACCOUNTS OF THOSE PARTIES WHO HAD MADE CASH DEPOSITS WAS FUR NISHED BY THE ASSESSEE AND NO DETAILS OF TRANSACTIONS IN RESPECT OF WHICH THOS E DEPOSITS WERE MADE BY THOSE PARTIES WERE FURNISHED BY THE ASSESSEE. THE ASSESS ING OFFICER ALSO POINTED OUT [90] THAT VIDE LETTER DATED 27/12/2011, THE AS SESSEE WAS GIVEN AN OPPORTUNITY TO FURNISH COPIES OF ALL ITS BANK ACCOUNTS WITH ICI CI BANK IN ORDER TO VERIFY THE ASSESSEE'S CONTENTION THAT BOTH THE ACCOUNT STATEME NTS MENTIONED IN THE SHOW CAUSE WERE THE SAME. THE ASSESSING OFFICER OBSERVE D THAT THE ASSESSEE FURNISHED ONLY COPY OF ITS BANK ACCOUNT WITH ICICI BANK BEARING THE NUMBER 024605000476. HOWEVER, AS PER LIST OF ITS BANK ACCO UNTS FURNISHED BY THE ASSESSEE, THE ASSESSEE WAS HAVING 2 DIFFERENT BANK ACCOUNTS WITH THE ICICI BANK, BEARING ACCOUNT NUMBER 024605000476 AND 02460 5001033 DURING THE RELEVANT YEAR BUT THE ASSESSEE FAILED TO FURNISH B OTH THE ACCOUNTS, THEREFORE, THE CONTENTION OF THE ASSESSEE REMAINED UNVERIFIABLE. THE ASSESSING OFFICER ACCORDINGLY MADE THE ADDITION OF RS.1,43,78,470/- O N ACCOUNT OF UNEXPLAINED CASH DEPOSITS IN THE BANK ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT. 54. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO LEARNED CIT(A) AND THE SUBMISSIONS MADE BEFORE HIM ARE MENTIONED IN PA RA 11.2 OF THE IMPUGNED ORDER, WHICH READ AS UNDER: THAT AS PER AIR INFORMATION AVAILABLE WITH THE LD. AO ON VARIOUS DATES THERE ARE CASH DEPOSITS IN THE BANK ACCOUNT O F THE COMPANY MAINTAINED WITH THE ICICI BANK AND SBBJ BANK. THE C ASH DEPOSITS IN THE BANK ACCOUNT ARE DULY RECORDED IN THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY AND ALSO VERIFIED IN THE ASSESSME NT PROCEEDING. THAT THE LD. AO ON 16/12/2011 ONCE AGAIN ASKED THE ASSESSEE TO VERIFY THE SAME FROM THE BOOKS OF ACCOUNTS, KNOWING THAT THE [91] BOOKS OF ACCOUNTS WERE SEIZED BY THE POLICE AUTHORI TIES AND IT WAS IMPOSSIBLE FOR THE ASSESSEE TO VERIFY THE SAME FROM THE BOOKS OF ACCOUNTS. THE AR OF THE APPELLANT SUBMITTED BEFORE THE LD. AO ABOUT ITS INABILITY TO PRODUCE BOOKS OF ACCOUNTS BECAUSE OF THE SEIZURE ACTION OF THE POLICE AUTHORITY. THAT THE LD. AO DESPITE ACCEPTING THAT THE PART OF ENTRIES VERIFIED FROM BOOKS OF ASSESSEE DURING THE COURSE OF ASSESSM ENT PROCEEDING BUT MADE ADDITION FOR THE RS.1,43,78,470/- INCLUDIN G THE ENTRIES ACCEPTED AS VERIFIED FROM THE BOOKS OF THE ASSESSEE . THIS MANNER OF PROCEEDING SHOWS THAT THE LD. AO INTENTIONALLY M ADE THE UNCALLED ADDITIONS WHICH HAS NO LEGS TO STAND ON JUDICIAL SC RUTINY. FURTHER THE LD. AO HAD TWO AIR REPORT FROM THE ICICI BANK ONE F ROM AGENCY CODE ICI011: ICICI, HARDIAN SINGH ROAD, KAROL BAGH, NEW DELHI AND ANOTHER FROM AGENCY CODE IC021: ICICI BANK, NEW DEL HI. IN BOTH THE STATEMENT OF AIR 42 INCIDENCE OF SAME AMOUNT, DATE AND BRANCH WERE STATED. INTERESTINGLY THE BANK ACCOUNT NO. IN WHICH SUCH CASH WAS DEPOSITED WAS NOT AVAILABLE WITH THE LD. AO, AT LEAST NOT MADE AVAILABLE TO ASSESSEE NEITHER STATED IN THE AS SESSMENT ORDER. FROM THE PERUSAL OF THE BOTH STATEMENT ONE REASONAB LE PERSON CAN UNDERSTAND THAT THE TRANSACTION STATED IN BOTH THE STATEMENTS ARE SAME, BUT LD. AO BEING PREJUDICE TO MADE HIGH PITCH ADDITION AT ANY COST, MADE ADDITION FOR ALL THE TRANSACTIONS FO R THE CASH DEPOSITED IN THE BANK ACCOUNT, THOUGH ALL THE ENTRI ES EXPLAINED FROM THE BOOKS OF ACCOUNTS. THAT ONE CAN VERIFIED THE ENTRIES OF AIR IN ABSENCE OF DETAILS OF BANK ACCOUNT DETAILS IN WHICH THE CASH WAS DEPOSITE D BY THE ASSESSEE AND FURTHER HOW IT CAN BE ESTABLISHED THAT SUCH DEPOSITS WERE MADE IN THE ACCOUNT MAINTAINED BY THE APPELLAN T COMPANY. THAT ONE FAILS TO UNDERSTAND THAT WHEN THE LD. AO H AD NO INFORMATION REGARDING THE ACCOUNT IN WHICH CASH WAS DEPOSITED HOW THE AMOUNT CAN BE TREATED AS UNEXPLAINED. THIS SHOW THAT THE ADDITION MADE WITHOUT ANY FORCE OF LAW AND ONLY ON THE HYPOTHESIS OF THE LD. AO THAT THE APPELLANT COMPANY IS CULPRIT AND LD. AO IS EMPOWERED TO PUNISH THE COMPANY WITHOUT ANY LEGAL F ORCE. THAT THE LD. AO MADE ADDITION BY INVOKING THE PROVI SIONS OF SECTION 68. THAT THE INVOCATION OF SECTION 68 PRESU PPOSES THAT SUCH ENTRY IS RECORDED IN THE BOOKS OF ACCOUNT AND WHEN THE DEPOSIT OF CASH IN THE BANK ACCOUNT IS FOUND RECORD ED IN THE BOOKS OF ACCOUNT, WHAT KIND OF FURTHER EXPLANATION WAS RE QUIRED BY THE LD. [92] AO. FURTHER BY DEPOSITING THE CASH IN BANK, BANK AC COUNT WILL BE DEBITED IN THE BOOKS OF THE APPELLANT COMPANY AND T HEREFORE, IN ABSENCE OF ANY CREDIT ENTRY IN THE BANK ACCOUNT THE ADDITION MADE WAS ERRONEOUS AND LIABLE TO BE DELETED. THAT BESIDE THE ILLEGAL ADDITION MADE UNDER SECTION 68, ALL THE RELEVANT BANK ACCOUNT ALONG WITH BANK BOOK SUBMITTED BEFORE YOUR HONOR AS ADDITIONAL EVIDENCE AND THE ENTRIES REPORTED IN AIR ONCE AGAIN VERIFIED TO THE LD. AO. IN LIGHT OF ABOVE THE ERRONEOUS ADDITION MAY KINDLY BE DELETED. 54.1 THE LEARNED CIT(A) ASKED THE REMAND REPORT FR OM THE ASSESSING OFFICER WHO SUBMITTED VIDE REPORT DATED 18/06/2012 AS UNDER : AN ADDITION OF RS.1,43,78,470/- WAS MADE IN THE AS SESSMENT ORDER IN RESPECT OF CASH DEPOSITED IN VARIOUS BANK ACCOUN TS OF THE ASSESSEE ON THE BASIS OF INFORMATION GATHERED FROM AIR. THE COPY OF BANK AIR IS ENCLOSED. ON VERIFICATION OF DETAILS/ DOCUMENTS SUBMITTED BEF ORE THE LD. CIT(A) IT IS FOUND THAT THE ASSESSEE COULD NOT PROD UCE THE DOCUMENTARY EVIDENCE REGARDING LIST OF 42 DEPOSITS ENTRIES TO ICICI, BANK AMOUNTING TO RS.55,72,460/- FOR WHICH I T HAS BEEN SUBMITTED BY THE AR OF THE ASSESSEE THAT THESE ENTR IES ARE . SIMILAR WITH ANOTHER LIST OF 42 ENTRIES FOR WHICH S UPPORTING EVIDENCES HAVE BEEN FURNISHED BY HIM REGARDING SOURCE OF DEPO SIT. HOWEVER, NO DOCUMENTARY EVIDENCE HAS BEEN FURNISHED BY HIM IN SUPPORT OF THIS SUBMISSION, HENCE THIS AMOUNT I.E. RS.55,12,460/- STANDS DISALLOWABLE AS AGAINST TOTAL DISALLOWANCE O F RS.1,43,18,410/- MADE, IN ASSESSMENT ORDER.' 54.2 THE ASSESSING OFFICER ALSO FURNISHED ANOTHER R EMAND REPORT DATED 11/07/2012 STATING THEREIN AS UNDER: 'WITH REGARD TO POINT NO. 3, IT IS SUBMITTED THAT A DDITION ON ACCOUNT OF CASH DEPOSITED TO THE ICICI BANK BY THE ASSESSEE HAS BEEN [93] MADE ON THE BASIS OF AIR INFORMATION AVAILABLE WITH THE AO WHERE THE 42 ENTRIES OF DEPOSITS ARE MENTIONED TWICE WITH DIFFERENT AGENCY CODE. SINCE, THE ASSESSEE HAS FAILED TO FURNISH ANY DOCUMENTARY EVIDENCE WHICH SHOWS THAT BOTH THE 42 ENTRIES ARE S AME, THE THAN AO MADE ADDITION THEREOF CORRECTLY. THE LETTER FROM ICICI BANK FURNISHED BEFORE YOUR GOODSELF HAD NOT BEEN PRESENT ED BY THE ASSESSEE BEFORE THE AO. THE LOCAL BRANCH OF THE ICI CI BANK HAS BEEN CONTRACTED BY THE UNDERSIGNED VIDE LETTER DATE D 03.07.2012 (COPY ENCLOSED) AND THE BANK WAS SPECIFICALLY ASKED TO CLARIFY THE LAST PARA OF THEIR LETTER DATED 18.06.2012 REGARDIN G THE NON-LIABILITY OF BANK AND ITS STAFF MEMBERS. THE REPLY RECEIVED ON 10/07/2012 FROM THE ICICI BANK IS ENCLOSED HEREWITH FOR YOUR K IND PERUSAL. 54.3 THE LEARNED CIT(A) ALSO RECEIVED A LETTER FR OM DY. BRANCH MANAGER, ICICI BANK, S. K. PLAZA BRANCH, BHILWARA WHICH WAS ADDRES SED TO THE ASSESSING OFFICER STATING AS UNDER: '1. THERE IS NO CODING OF ICI011-KAROL BAGH NEW DEL HI AND ICI021-NEW DELHI OF ANY BRANCH OR ANY TRANSACTION A T OUR END PLEASE CLARIFY FROM WHERE YOU HAVE IDENTIFIED THIS CODING AND PROVIDE DOCUMENTARY EVIDENCE FOR THAT 2. KAROL BAGH NEW DELHI AS A PLACE IS ITSELF SITUATED IN NEW DELHI SO WE ARE UNABLE TO CLARIFY THE DISTANCE BETWEEN TH ESE TWO PLACES. 3. ALL THE 42 ENTRIES MENTIONED IN OUR LETTER DATED 1 6.06.2012 WAS ONLY DEPOSITED ONCE IN CUSTOMER ACCOUNT NO. 024605000476 AND PERTAINS TO DIFFERENCE DATE WITHIN TWO FINANCIAL YEARS SO WE ARE UNABLE TO PROVIDE PHYSICA L CERTIFIED STATEMENT FOR TWO YEARS, SOFT COPY MAY BE PROVIDED WITHIN NEXT 15 DAYS ON YOUR SPECIFIC PERIOD. 4. THE PAY IN SLIP OF EACH TRANSACTION ARE OLD AND LY ING WITH THE BRANCHES WHERE THE TRANSACTION HAPPENED AND RETRIEV AL OF THAT MAY TAKE 15-30 DAYS ON YOUR SPECIFIC REQUEST. 5. ALSO WE HAVE VERBALLY CLARIFIED THE VARIOUS ASPECT S OF THESE TRANSACTIONS TO YOU AND HOPE THAT THESE TRANSACTION S IS NOW PROPERLY CLARIFIED TO YOU.' [94] 54.4 THE LEARNED CIT(A), AFTER CONSIDERING THE DET AILS FURNISHED BY THE ASSESSEE WHICH HAD BEEN EXAMINED BY THE ASSESSING O FFICER AND THE EXPLANATION GIVEN BY THE ICICI BANK, HELD THAT THER E WAS NO JUSTIFICATION FOR ADDITION OF RS.1,43,78,470/-. ACCORDINGLY, THE SAM E WAS DELETED. NOW THE DEPARTMENT IS IN APPEAL. 55. THE LEARNED D. R. STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT CERTAIN CASH DEPOSITS IN THE BAN K ACCOUNTS OF THE ASSESSEE WERE REPORTED THROUGH AIR INFORMATION AND THE ASSES SING OFFICER HAD VERIFIED THOSE ENTRIES WITH BANK BOOK OF THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS BUT SOURCES OF THE DEPOSITS HAD NOT BEE N FURNISHED BY THE ASSESSEE. THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN THE SO URCE OF THOSE CASH DEPOSITS & TO PRODUCE SUPPORTING DOCUMENTARY EVIDENCE AND TO SHOW CAUSE AS TO WHY THE ENTIRE SUM IN RESPECT OF THOSE CASH DEPOSITS SHOULD NOT BE TREATED AS UNEXPLAINED AND AS TO WHY THOSE SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE. IT WAS FURTHER STATED THAT THE REPLY FUR NISHED BY THE ASSESSEE WAS CONSIDERED BY THE ASSESSING OFFICER AND WAS NOT FOU ND SATISFACTORY AS THE ASSESSEE HAD FAILED TO EXPLAIN THE SOURCE OF THOSE CASH DEPOSITS AND NO DOCUMENTARY E VIDENCE LIKE THE ACCOUNTS OF THOSE PARTIES WHO HAD BEEN STATED TO HAVE MADE THOSE CASH DEPOSITS WAS FURNISHED BY THE ASSESSEE. THERE FORE, IN THE ABSENCE OF EXPLANATION REGARDING SOURCE, THOSE DEPOSITS REMAINED UNEXPLAINED AND ACCORDINGLY ADDITION WAS MADE U/S 6 8 OF THE IT ACT. IT WAS [95] FURTHER STATED THAT THE LEARNED CIT(A) DELETED THE ENTIRE ADDITION WITHOUT CONSIDERING THE FACTS DISCUSSED IN THE ASSESSMENT O RDER AND ALSO THE FACTS NARRATED IN THE REMAND REPORT DATED 11/07/2012. 56. IN HIS RIVAL SUBMISSIONS THE LEARNED COUNSEL FO R THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT THE AMOUNT TAKEN IN THE GROUND OF APPEAL AT RS.1,4 3,78,470/- WAS NOT THE AMOUNT IN DISPUTE SINCE THE ASSESSING OFFICER HIMS ELF VIDE ITS REMAND REPORT DATED 18/06/2012 RECORDED THE FINDING AFTER EXAMINA TION OF THE ADDITIONAL EVIDENCES FURNISHED BY THE ASSESSEE THAT THAT THE D ISPUTE WAS ONLY WITH REGARD TO RS.55,72,460/-. THE LEARNED COUNSEL FOR THE ASSESS EE REFERRED TO PAGE NO. 187 OF THE ASSESSEES COMPILATION, WHICH IS THE COPY OF THE REMAND REPORT OF THE ASSESSING OFFICER DATED 18/06/2012 AND SUBMITTED T HAT IN THE SAID REPORT THE ASSESSING OFFICER STATED AS UNDER: '5. ADDITION MADE FOR THE CASE DEPOSITED IN THE BANK AC COUNT OF THE COMPANY TREATING THE SAME AS UNEXPLAINED. AN ADDITION OF RS. 1,43,78,470/- WAS MADE IN THE AS SESSMENT ORDER IN RESPECT OF CASH DEPOSITED IN VARIOUS BANK ACCOUN TS OF THE ASSESSEE ON THE BASIS OF INFORMATION GATHERED FROM AIR. THE COPY OF BANK AIR IS ENCLOSED. ON VERIFICATION OF DETAILS/ DOCUMENTS SUBMITTED BEF ORE THE LD. CIT(A) IT IS FOUND THAT THE ASSESSEE COULD NOT PROD UCE THE DOCUMENTARY EVIDENCE REGARDING LIST OF 42 DEPOSITS ENTRIES TO ICICI, BANK AMOUNTING TO RS. 55,72,460/- FOR WHICH IT HAS BEEN SUBMITTED BY THE A.R. OF THE ASSESSEE THAT THESE ENTRIES ARE SIMILAR LIST OF 42 ENTRIES FOR WHICH SUPPORTING EVIDENCES HAVE BEEN FU RNISHED BY HIM REGARDING SOURCE OF DEPOSIT. HOWEVER, NO DOCUMENTAR Y EVIDENCE HAS BEEN FURNISHED BY HIM IN SUPPORT OF THIS SUBMIS SION, HENCE THIS [96] AMOUNT I.E. RS. 55,72,460/- STANDS DISALLOWABLE AS AGAINST TOTAL DISALLOWANCE OF RS. 1,43,78,470/- MADE IN ASSESSMEN T ORDER.' 56.1 IT WAS FURTHER SUBMITTED THAT THE DELETION OF ADDITION OF RS.88,06,010/- (RS.1,43,78,470 RS.55,72,460) OUT OF TOTAL ADDITI ON AMOUNTING TO RS.1,43,78,470/- MADE BY THE ASSESSING OFFICER IN T HE ASSESSMENT ORDER WAS NOT UNDER DISPUTE. IT WAS FURTHER STATED THAT THE ASSESSING OFFICER VERIFIED ALL THE ENTRIES FROM THE BOOKS OF ASSESSEE, EXCEPT CASH DEPOSIT FOR RS.55,72,460/- IN RESPECT OF 42 ENTRIES IN AIR STATEMENT AND THE S AME WAS ON ACCOUNT OF TWO SEPARATE AIR STATEMENTS RECEIVED BY THE ASSESSING O FFICER FROM DIFFERENT AGENCY CODE AND 42 ENTRIES ONCE VERIFIED FROM THE B OOKS OF ACCOUNT. IT WAS EMPHASIZED THAT THE ASSESSING OFFICER IN HIS REMAN D REPORT STATED THAT THE ASSESSEE HAD NOT FILED ANY EVIDENCE TO PROVE THAT I T WAS IN RESPECT OF SAME TRANSACTION AND TO SUPPORT THIS, THE ASSESSING OFFI CER ENCLOSED COPIES OF BOTH THE AIR STATEMENTS, REFERENCE WAS MADE TO PAGE NO.S 190 194 OF ASSESSEES PAPER BOOK. IT WAS POINTED OUT THAT FROM THE PERUS AL OF BOTH THE AIR STATEMENT AS SUPPLIED BY THE ASSESSING OFFICER IT WAS CLEAR THAT BOTH THE STATEMENTS WERE IN RESPECT OF SAME ACCOUNT NO. 24605000476 AND AS S UCH THE CONTENTION OF THE ASSESSEE WAS CORRECT THAT AMOUNT OF RS.55,72,460/- IN RESPECT OF 42 ENTRIES WERE NOT DIFFERENT BUT WERE THE SAME AND AS SUCH TH E CONTENTION OF THE ASSESSING OFFICER THAT ENTRIES WERE NOT VERIFIABLE FROM THE BOOKS WAS NOT CORRECT, THEREFORE, THE ADDITION SO MADE WAS NOT JU STIFIED AND THERE WAS NO SUBSTANCE IN THE CONTENTION OF THE ASSESSING OFFICE R IN HIS REMAND REPORT. IT [97] WAS POINTED OUT THAT A CERTIFICATE WAS OBTAINED FR OM THE ICICI BANK, WHICH WAS FURNISHED BEFORE THE LEARNED CIT(A) WHEREIN IT WAS CERTIFIED THAT ALL THE 42 INCIDENCES RECORDED IN THE TWO SEPARATE AIR STATEME NTS WERE SAME. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO PAGE N OS. 206 TO 212 OF THE ASSESSEES COMPILATION WHICH ARE THE COPIES OF THE REMAND REPORT DATED 11/07/2012 FURNISHED BY THE ASSESSING OFFICER AND S UBMITTED THAT THE ASSESSING OFFICER HIMSELF HAD ADMITTED THAT 42 ENTR IES OF DEPOSITS WERE MENTIONED TWICE. IT WAS ALSO POINTED OUT THAT THE ASSESSING OFFICER IN HIS REMAND REPORT FURNISHED THE REPLY RECEIVED ON 10/07 /2012 FROM ICICI BANK AND THE LEARNED CIT(A) CONSIDERING THE CONTENTS OF TH E SAID CERTIFICATE ALONG WITH THE REMAND REPORT OF THE ASSESSING OFFICER DELETED THE ADDITION. THEREFORE THE GROUND TAKEN BY THE REVENUE THAT THE ADDITION WAS D ELETED BY THE LD. CIT(A) WITHOUT CONSIDERING THE REMAND REPORT WAS ERRONEOUS AND PERVERSE. 57. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER MADE THE ADDITION OF RS. 1,43,78,470/- BY OBSERVING THAT THE CASH DEPOSITS IN BANK ACCOUNTS OF THE ASSE SSEE ON VARIOUS DATES WAS NOT VERIFIABLE. HOWEVER, IN HIS REMAND REPORT DATE D 18/06/2012 THE ASSESSING OFFICER ADMITTED THAT THE ASSESSEE COULD NOT PRODUC E THE DOCUMENTARY EVIDENCE REGARDING LIST OF 42 ENTRIES TO ICICI BANK AMOUNTIN G TO RS.55,72,460/-, THEREFORE, THE SAID AMOUNT WAS DISALLOWABLE AS AGAINST TOTAL D ISALLOWANCE OF RS.1,43,78,470/- MADE IN THE ASSESSMENT ORDER. IN THAT VIEW OF THE MATTER, WE [98] THE DISPUTE WAS RELATED TO THE DISALLOWANCE OF RS.5 5,72,460/- AND NOT RS.1,43,78,470/- MENTIONED BY THE DEPARTMENT IN THE GROUNDS OF APPEAL. AS REGARDS TO THE SAID AMOUNT OF RS.55,72,460/-, THE A SSESSING OFFICER SUBMITTED IN HIS REMAND REPORT DATED 11.7.2012 THAT 42 ENTRI ES OF DEPOSITS WERE MENTIONED TWICE WITH DIFFERENT AGENCY CODE. HOWEVE R, THE DY. BRANCH MANAGER, ICICI BANK, S. K. PLAZA BRANCH, BHILWARA, IN IS LETTER DATED 10/07/2012, WHICH WAS FORWARDED BY THE ASSESSING OF FICER HIMSELF TO THE LEARNED CIT(A), CLEARLY STATED THAT 42 ENTRIES ME NTIONED IN THEIR LETTER DATED 16/06/2012 WERE ONLY DEPOSITED ONCE IN CUSTOMER ACC OUNT NO. 024605000476 AND PERTAINED TO DIFFERENT DATES WITHIN TWO FINANCI AL YEARS. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN OBSERVING TH AT THOSE 42 ENTRIES APPEARED TWICE. IN THAT VIEW OF THE MATTER, WE ARE OF THE V IEW THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE IMPUGNED ADDITION AFT ER CONSIDERING THE REMAND REPORT OF THE ASSESSING OFFICER, EXPLANATION GIVEN BY ICICI BANK AND THE DETAILED SUBMISSION MADE BY THE ASSESSEE. WE, THER EFORE, DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 58. THE LAST ISSUE AGITATED BY THE DEPARTMENT VIDE GROUND NO. 7 RELATES TO THE DELETION OF ADDITION OF RS.1,00,63,765/- MA DE BY THE ASSESSING OFFICER ON [99] ACCOUNT OF DISALLOWANCE OUT OF DEPOT/AGENCY COMMISS ION. 59. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASKED T HE ASSESSEE TO FURNISH CONFIRMATION OF TOP 10 PARTIES TO WHOM DEPOT/AGENCY COMMISSION HAD BEEN PAID. THE ASSESSING OFFICER MENTIONED THE LIST OF THOSE PARTIES AS UNDER: DEPOT/ AGENT COMMISSION S. NO PARTICULAR ADDRESS PAN AMOUNT TDS AMOUNT 1 AYODHYA DEVI ASAWA PLOT NO. 4 BLOCK NO. 35 AUTO NAGAR VANASTHALI PURAM R. R. DISTRICT, HYDERABAD - 500070 AINPA4772E 1284436 145527 2 ANSU KUMAR ANSHU KUMAR, FORDO 6O\A REWA ROAD, NEAR ARRA MACHINE, MUZAFFARPUR AQOPK4008J 1158467 131255 3 PANKAJ KUMAR D- 27, INDUSTRIAL ESTATE, NEAR BDNARES BIDS, CHANDPUR LAHARTARA, VARONASI (U.P.) AQPPK2319D 1026899 116347 4 K.K.6UPTA E/L-6, SHRI AMBICA ESTATE NEAR RAGHUVEER ESTATE, ASTOLIBYPOSS, ASLALI- AHMED ABA D-382427 ABBPS6525G 1024893 116121 5 PRITHVI SHANKER GUPTA SISKOMART COMPLEX, NEARSHOP NO - 157, AGRICULTURAL MARKET YARD, PANDRA, RANCHI AHTTS2637F 1021975 115790 6 MANNA LAL CHODHARY KHASRA NO. - 12 PLOT NO. A - 1, 2 SHREE BALAJI NAGAR SFLNGRIYA, POWER HOUSE KE SAMNE,SALAVWS ROADI SRI SANGANAGAR ACKPL2614B 942343 106768 7 ATIVEER SETHI HNO - 3126/233 - C/O MAHIPAL S/O SHRL RAM KONSIWAS ROAD NEAR LEO CHOWKREWARI AOJPS2705H 929798 105345 8 ASHA SHARMA VILLAGE - MDND, B