The DCIT, Baroda Circle-1, Baroda. V. Indu Nissan Oxo Chemical Ind. Ltd., Baroda.

ITA 4443/AHD/2003

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94907 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-09-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 18-12-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAGENDRA SINGH
• Assessee Lawyers: S N DIVETIA
• Keywords: Rejection of books of accounts; Unexplained investment; Unexplained expenditure; Business income; Depreciation; Proportionate interest; Assessment record; Block assessment; Notional interest
• Section: 69; 145

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA NO.4443/AHD/2003 [ASSTT/YEAR 1998-1999] DCIT, BARODA CIRCLE-1 BARODA. VS INDU NISSAN OXO CHEMICAL IND. LTD. BAJWA CHHANI ROAD B/H. GSFC COMPLEX BARODA. ./ ITA NO.4517/AHD/2003 [ASSTT/YEAR 1998-1999] INDU NISSAN OXO CHEMICAL IND. LTD. BAJWA CHHANI ROAD B/H. GSFC COMPLEX BARODA. VS DCIT, BARODA CIRCLE-1 BARODA. / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI NAGENDRA SINGH, SR.DR ASSESSEE BY : SHRI S.N. DIVETIA, AR ! / DATE OF HEARING : 23/09/2015 '#$ ! / DATE OF PRONOUNCEMENT: 16/12/2015 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEE AND THE REVENUE ARE IN CROSS-APPEALS A GAINST THE ORDER OF THE CIT(A) DATED 22.9.2003 PASSED FOR THE ASSTT.YEAR 1998-99. ITA NO.4443 AND 4517/AHD/2013 2 2. FIRST WE TAKE THE APPEAL OF THE ASSESSEE. 3. IN THE FIRST GROUND OF APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN UPHOLDING THE REJECTION OF THE BOOK RESULTS AND CONFIRMATION OF ADDITION OF RS.1,63,31,101/- WH ICH WAS MADE BY THE AO BY ESTIMATING THE GP. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 27.11.1998 DECLARING A LOSS OF RS.3,69,34 ,985/-. THIS RETURN WAS PROCESSED UNDER SECTION 143(1)(A) OF THE INCOME TAX ACT ON 26.2.1999 DETERMINING THE LOSS OF RS.3,60,92,980/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE UNDER SECTION 143(2) DATED 30.9.1999 WAS DULY ISSUED AND SERVED U PON THE ASSESSEE. DURING THE ACCOUNTING PERIOD, RELEVANT TO THIS ASSE SSMENT YEAR, THE ASSESSEE-COMPANY WAS ENGAGED IN THE BUSINESS OF MAN UFACTURING AND SALE OF OXO ALCOHOL, I.E. ISO OCTONAL AND ISO DECONOL USED IN PRODUCTION OF PLASTICIZERS. IT HAS DONE JOB WORK FOR OUTSIDE PARTIES ALSO. ON SCRUTINY OF THE ACCOUNTS, THE LD.AO HAS RECORDED A FINDING THAT IN SOME OF THE MONTHS, THE ASSESSEE DID NOT SHOW ANY PRODUC TION, BUT SHOWN CONSUMPTION. SIMILARLY, IN SOME MONTHS, IT HAS SHO WN PRODUCTION, BUT THERE IS NO CONSUMPTION. THE ASSESSEE WAS NOT MAIN TAINING DAY-TO-DAY REGISTER, WHICH CAN SHOW CO-RELATION BETWEEN THE CO NSUMPTION AND PRODUCTION. THEREFORE, THE AO HAS REJECTED THE BOO K RESULTS OF THE ASSESSEE. THE LD.AO HAS FURTHER RECORDED A FINDING THAT GP WAS SHOWN BY THE ASSESSEE AT 41.59%, 47.21% AND 44.84% IN THE ASSTT.YEAR 1995-96, 1996-97 AND 1997-98 RESPECTIVELY. THIS YE AR, THE GP HAS BEEN DECLINED TO 28.59%. ACCORDING TO THE AO, THER E IS NO PLAUSIBLE EXPLANATION AT THE END OF THE ASSESSEE FOR THIS DEC LINE IN THE GP. THE ASSESSEE HAS CONTENDED THAT THERE IS INCREASE IN TH E PURCHASE OF MATERIAL COST AND IT COULD NOT REALIZE THE SALE PRI CE EQUIVALENT TO THE ITA NO.4443 AND 4517/AHD/2013 3 EARLIER YEARS. THE LD.AO TOOK COGNIZANCE OF BOTH T HE FACTORS AND ARRIVED AT CONCLUSION THAT EVEN TAKING THESE TWO FACTORS, T HEN, THE TOTAL DECREASE IN THE PROFIT MARGIN WOULD BE TO THE EXTEN T OF 11.34%. THE MARGIN HAS BEEN DECLINED FROM 44.84% TO 28.59%. TH US, THE AO HAS MADE AN ADDITION AT THE RATE OF 4.91% OF THE TOTAL SALES AND WORKED OUT A FIGURE OF RS.1,63,31,101/-. HE MADE ADDITION OF THIS AMOUNT. 5. THE APPEAL TO THE CIT(A) DID NOT BRING ANY RELIE F TO THE ASSESSEE. 6. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONTE NDED THAT IN THE IMMEDIATELY PRECEDING YEAR, SAME ADDITION WAS MADE BY THE AO, WHICH WAS DELETED BY THE CIT(A). THE ORDER OF THE CIT(A) HAS BEEN CONFIRMED BY THE ITAT. HE PLACED ON RECORD COPY OF THE TRIBU NAL ORDER PASSED IN THE ITA NO.1077 AND 721/AHD/2001 FOR THE ASSTT.YEAR 1996-97 AND 1997-98. THE REVENUE HAS CHALLENGED THE ORDER OF T HE TRIBUNAL BEFORE THE HONBLE HIGH COURT AND THE APPEAL OF THE REVENU E HAS BEEN DISMISSED VIDE TAX APPEAL NO.1072 OF 2013. HE PLAC ED ON RECORD COPY OF THE HONBLE HIGH COURT ORDER DATED 28.1.2014. H E RELIED UPON THE ORDER OF THE TRIBUNAL IN THE ASSTT.YEAR 197-98. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SECTION 145 OF THE INCOME TAX ACT IS THE RELEVANT PROVISION FOR THIS ISSUE, THEREFORE, IT IS PERTINEN T TO TAKE NOTE OF THIS SECTION. IT READS AS UNDER : 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURC ES' SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE CO MPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. ITA NO.4443 AND 4517/AHD/2013 4 (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME [ACCOUNTING STANDARDS] T O BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLAS S OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECT ION (1) [OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE], THE ASSES SING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SE CTION 144.] 8. A BARE READING OF SECTION 145 WOULD REVEAL THAT IT PROVIDE THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE . ACCORDING TO SUB-SECTION 1, THE INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCE SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY EMPLOY ED BY AN ASSESSEE REGULARLY, SUBJECT TO SUB-SECTION 2 OF SEC TION 145 OF THE ACT. SUB-SECTION 2 PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME, THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, IT INDICATES THAT INCOME HAS TO BE COMPUTED I N ACCORDANCE WITH THE METHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE I .E. CASH OR MERCANTILE, SUCH METHOD HAS TO BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRAL GOVERNM ENT FROM TIME TO TIME. SUB CLAUSE 3 PROVIDES A SITUATION, THAT IS, I F THE ASSESSING OFFICER IS UNABLE TO DEDUCE THE TRUE INCOME. ON THE BASIS O F METHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE THAN HE CAN REJ ECT THE BOOK RESULT AND THE ASSESSEES INCOME ACCORDING TO HIS ESTIMATI ON OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFICER IN THAT CA SE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE A ND REQUIRED TO SEEK EXPLANATION OF THE ASSESSEE QUA THOSE DEFECTS. IF T HE ASSESSEE FAILED TO EXPLAIN THE DEFECTS THAN ON THE BASIS OF THE BOOK R ESULT, INCOME CANNOT BE DETERMINED AND ASSESSING OFFICER WOULD COMPUTE T HE INCOME ITA NO.4443 AND 4517/AHD/2013 5 ACCORDING TO HIS ESTIMATION KEEPING IN VIEW THE GUI DING FACTOR FOR ESTIMATING SUCH INCOME. 9. ON PERUSAL OF THE ASSESSMENT ORDER WOULD INDICAT E THAT THE LD.AO HAS MADE REFERENCE TO THE ASSESSMENT ORDER FOR THE ASSTT.YEAR 1997- 98. HE REPRODUCED SHOW CAUSE NOTICE ISSUED IN 1997 -98 ON PAGE NO.2 TO 3 OF THE ASSESSMENT ORDER. IN THE ASSTT.YEAR 19 97-98, THE ADDITION MADE BY THE AO ON GROUND THAT THERE IS A DECLINE IN YIELD. HE HARBOURED A BELIEF THAT THE ASSESSEE MUST HAVE MANU FACTURED MORE PRODUCTS WHICH WERE SOLD OUT OF BOOKS AND SHOWN A L OW YIELD IN THE ACCOUNTS. THIS UNACCOUNTED SALE ON ASSUMED YIELD R ATIO HAS BEEN ADDED IN THE ASSTT.YEAR 1997-98. THE CIRCUMSTANCES NARRATED BY THE AO IN THE ASSTT.YEAR 1997-98 FOR REJECTING THE BOOK RESULTS AND FOR MAKING ADDITION ON ACCOUNT LOW YIELD IS SIMILAR TO THIS YEAR. THIS ASPECT HAS BEEN CONSIDERED BY THE CIT(A) IN THE ASSTT.YEAR 1997-98 ELABORATELY, AND ADDITION MADE ON ACCOUNT OF LOW YI ELD SHOWN BY THE ASSESSEE HAS BEEN DELETED. THE ORDER OF THE CIT(A) HAS BEEN UPHELD BY THE TRIBUNAL. THEREFORE, CONSIDERING THE SIMILARIT Y OF THE ISSUE, WE DEEM IT APPROPRIATE TO TAKE NOTE OF THE TRIBUNALS FINDING ON THIS ISSUE. 41. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON EXAMINING THE BOOKS OF ACCOUNTS, ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NOT MAINTAINED DAY TO DAY CONSUMPTION, PRODUCTI ON RECORDS. ACCORDING TO AO, THERE WERE NO RECORDS WITH RESPECT TO STAGE-WISE PRODUCTION, CONSUMPTION, SHORTAGE ETC. INCLUDING FO R THE WORK DONE FOR ON JOB WORK BASIS. HE WAS THUS OF THE VIEW THAT IN A MANUFACTURING PROCESS IF THE PRODUCTION COULD NOT B E CORRELATED WITH THE CONSUMPTION OF RAW MATERIALS, IT IS A VALI D AND LEGALLY SOUND BASIS FOR REJECTION OF BOOKS OF ACCOUNTS U/S 145(3). HE FURTHER NOTED THAT THE YIELD RATIO WAS ADVERSE WHEN COMPARED WITH AY: 1994-95. HE WORKED OUT THE PRODUCTION OF T HE ASSESSEE FOR THE YEAR UNDER CONSIDERATION SHOULD HAVE BEEN 9 159 MT (ON THE BASIS OF YIELD FOR AY: 1994-95) WHEREAS THE ACT UAL PRODUCTION WAS 8738 MT AND THUS THERE WAS A SHORTFALL OF 421 M T WHICH ACCORDING TO HIM REPRESENT UNACCOUNTED PRODUCTION A ND AFTER ITA NO.4443 AND 4517/AHD/2013 6 CONSIDERING THE AVERAGE RATE OF RS. 36897/ MT, HE W ORKED OUT THE SALES OF RS. 1,55,33,637/- WHICH WAS OUTSIDE THE BO OKS OF ACCOUNTS. AGGRIEVED BY THE ORDER OF ASSESSING OFFIC ER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONS IDERING THE SUBMISSIONS OF ASSESSEE DELETED THE ADDITION BY HOL DING AS UNDER: THE CONTENTIONS OF THE APPELLANT AND ASSESSING OFF ICER ARE CONSIDERED. THE DECISION OF SUPREME COURT, VARIOUS HIGH COURTS AND TRIBUNALS RELIED ON BY THE APPELLANT AND ASSESSING OFFICER ARE PERUSED. IT IS SEEN THAT SUBS TANTIAL ADDITIONS HAD BEEN MADE IN THE APPELLANT'S CASE IN A.YS. 1994-95 TO 1996-97 ALSO ON ACCOUNT OF CATALYST CONSUMPTION AND LOW YIELD. THE APPEALS FILED BY THE APPELLANT IN RESPECT OF THESE ASSESSMENT YEARS ARE PENDING WITH DIFFERENT C1T(A)C.I.T. (A)-L, BARODA). THE ASS ESSMENT ORDERS OF THE SAID YEARS ARE PERUSED. IT IS OBSERVED THAT IN THE ASSESSMENT ORDER THE ASS ESSING OFFICER HAS DISCUSSED THE SUBMISSION OF THE APPELLA NT VERY BRIEFLY. FROM THE ASSESSMENT RECORDS IT IS SEEN THA T DURING THE ASSESSMENT PROCEEDINGS THE APPELLANT HAS GIVEN DETAILED EXPLANATIONS IN RESPECT OF ITS' MANUFACTUR ING ACTIVITIES AND VARIOUS QUERIES RAISED BY THE ASSESS ING OFFICER. THE ASSESSING OFFICER HAS REJECTED THE BOO KS OF ACCOUNT MAINTAINED BY THE APPELLANT MAINLY ON THE G ROUNDS THAT THE (I) APPELLANT HAS NOT MAINTAINED DAY-TO-DA Y CONSUMPTION AND PRODUCTION REGISTER FROM WHICH CONSUMPTION CAN BE CORELATED WITH YIELD (II).THE SA ID DETAILS IN RESPECT OF OWN PRODUCTION AND JOB WORK PRODUCTIO N ARE NOT MAINTAINED SEPARATELY AND (III) THE YIELD IN CU RRENT YEAR (A.Y. 1997-98) IS LESS THAN THE YIELD SHOWN IN THE ASSESSMENT YEAR 1995-96. THE ASSESSING OFFICER HAS ALSO DISPUTED THE JOB WORK CHARGES RECEIVED BY THE APPEL LANT FROM IT'S SISTER CONCERNS. THE GROSS PROFIT AND THE YIELD TO A.Y. 1995-96 TO A.Y. 1997-98 ARC GIVEN AS UNDER:- A.Y. A.Y. A.Y. 1995-96 1996-97 1997-98 GROSS PROFIT 41.59% 47.21% 44.84% YIELD 1.056% 0.987% 1.01% THE ASSESSING OFFICER HAS NOT COMPARED THE YI ELD WITH THE IMMEDIATE PRECEDING A.Y. 1996-97 ON THE ITA NO.4443 AND 4517/AHD/2013 7 REASONING THAT THE APPELLANT'S YIELD HAS NOT BEEN A CCEPTED BY THE ASSESSING OFFICER IN THE SAID YEAR. HE HAS A LSO REJECTED THE ARGUMENT THAT THOUGH THE YIELD HAS BEE N LESS IN A.Y. 1997-98 AS COMPARED TO A.Y. 1995-96 YET THE GROSS PROFIT IS MORE AT 44.84% AS COMPARED TO 41.59% AND THEREFORE NO ADVERSE VIEW CAN BE TAKEN FOR LESS YIE LD. HE HAS ALSO NOT ACCEPTED THAT IF YIELD IS TO BE COMPAR ED IT SHOULD BE COMPARED WITH IMMEDIATE PRECEDING ASSESSM ENT YEAR 1996-97 AND NOT WITH ASSESSMENT YEAR 1996- 97 AND ON SUCH COMPARISON, THE YIELD DURING THE CURRENT YE AR HAS INCREASED FROM .98% IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR TO 1.01%. IN MY VIEW, THE ASSESSING OFFICER IS NOT JUSTIFIED IN COMPARING THE YIELD OF CURRENT YEAR (A.Y. 97-98) WITH YIELD OF A.Y. 1995-96, IGNORING T HE FACT THAT YIELD OF CURRENT YEAR IS MORE THAN THE YIELD O F IMMEDIATE PRECEDING YEAR AND AT THE SAME TIME DISREGARDING INCREASE OF GROSS PROFIT IN CURRENT YE AR AS COMPARED TO A.Y. 1995-96. HE HAS ALSO NOT CONSIDERE D THE REASONS SUBMITTED BY THE APPELLANT FOR VARIATION IN YIELD. DURING THE ASSESSMENT PROCEEDINGS, THE APPELLANT CONTENDED THAT THE YIELD WAS AFFECTED BY LARGE NUMB ER OF FACTORS LIKE THE QUALITY OF MATERIAL RECEIVED, PROC ESSING PATTERN AND THE CHANGE IN THE PRODUCTION PROCESS. I T WAS FURTHER STATED THAT THE COMPANY WAS UNDERGOING SUBS TANTIAL CHANGES IN THE MANUFACTURING PROCESS OVER THE PERIO D OF AYS. 1995-96 AND 1996-97. THE APPELLANT CONTENDED T HAT IT OPTIMISED THE PROCESS PARAMETERS IN RAW-MATERIALS OXONATION & HYDROGENATION WHICH HAS GIVEN POSITIVE RESULT TO OPTIMISE CATALYST CONSUMPTION. DUE TO CHANGE IN THE USE OF CATALYST, CONSUMPTION OF CATALYST DECLINED SUBST ANTIALLY RESULTING INTO SLIGHTLY MORE CONSUMPTION OF RAWMATE RIAL. BUT THE NET EFFECT WAS INCREASE IN PROFITABILITY. THUS, THE- APPELLANT HAS PROPER REASONS FOR DECLINE IN YIELD I N THE CURRENT YEAR AS COMPARED TO A.Y. 1995-96. REGARDING NONMAINTENANCE OF CONSUMPTION AND PRODUCTION RECORD S, IT IS OBSERVED FROM THE DETAILS OF RECORDS MAINTAINED BY IT AS REPRODUCED IN PARA 19 ABOVE, THE APPELLANT HAS MAIN TAINED PROPER RECORDS OF CONSUMPTION AND PRODUCTION. ACCOR DING TO THE ASSESSING OFFICER, THE APPELLANT HAS NOT MAINTA INED CONSUMPTION AND PRODUCTION RECORD BUT MAINTAINED RE CORDS RELATING TO ENTRY OF RAW-MATERIAL AND EXIT OF FINIS HED PRODUCTS DUE TO WHICH CONSUMPTION OF RAW-MATERIAL C ANNOT BE CO-RELATED WITH PRODUCTION. I FIND THAT THIS OBS ERVATION IS NOT CORRECT AS THE APPELLANT HAS MAINTAINED PROPER ITA NO.4443 AND 4517/AHD/2013 8 CONSUMPTION AND PRODUCTION RECORDS AND ALSO IN ACCO RDANCE WITH THE RECORDS REQUIRED TO BE MAINTAINED BY THE E XCISE AUTHORITIES. DURING THE SEARCH AT THE APPELLANT'S F ACTORY PREMISES AND OTHER PREMISES IN 1998 THERE WAS MINOR DIFFERENCE IN BOOK STOCK AND PHYSICAL STOCK WHICH A CCORDING TO THE-ASSESSEE AROSE MAINLY ON ACCOUNT OF ERRORS I N CONVERSION, EVAPORATION, WASTAGE, SPILLAGE, TEMPERA TURE DIFFERENCE ETC. FROM THE BLOCK ASSESSMENT ORDER PAS SED BY THE SAME ASSESSING OFFICER, IT IS OBSERVED THAT IN THE SEARCH YEAR I.E. 1999-2000, THE APPELLANT CONTINUED TO MAI NTAIN THE SAME RECORDS OF PRODUCTION AND CONSUMPTION WHIC H WERE MAINTAINED BY IT IN THE YEAR UNDER CONSIDERATI ON. THUS, THE ASSESSING OFFICER'S FINDING THAT CONSUMPTION AN D PRODUCTION RECORDS WERE NOT MAINTAINED BY THE APPEL LANT IS NOT CORRECT. THE APPELLANT HAS GIVEN REASONS AS TO WHY IT CANNOT MAINTAIN CONSUMPTION OF PRODUCTION RECORDS I N RESPECT OF JOB WORK SEPARATELY. ACCORDING TO THE AP PELLANT, IT IS NOT POSSIBLE TO KEEP SEPARATE RECORDS FOR JOB WO RK AS IT HAS TO MAINTAIN SEPARATE STORAGE TANKS AND BEFORE PROCESSING THE MATERIAL FOR JOB WORK THE PLANT HAS TO BE SHUT DOWN AND THE REACTORS OF THE FACTORY TO BE EMP TIED. THE SAID EXPLANATION WAS GIVEN TO THE ASSESSING OFF ICER DURING THE ASSESSMENT PROCEEDINGS WHICH WAS NOT CONSIDERED / ACCEPTED BY THE ASSESSING OFFICER AT T HE TIME OF DECIDING THE ISSUE. IN MY VIEW, THE APPELLANT HA S PROPER REASONS DUE TO WHICH THE RECORDS IN RESPECT OF JOB WORK CANNOT BE MAINTAINED SEPARATELY AND THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TAKING IT AS A DETECT IN THE MAINTENANCE OF BOOKS OF ACCOUNT. IT IS NOTED TH AT THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT U/S. 145(3) OF THE ACT. UNDER THE SAID PROVISIONS, THE BOOKS OF ACCOUNT MAY BE RE JECTED IF ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORREC TNESS OR COMPLETENESS OF THE ACCOUNT OR THE METHOD OF ACCOUN TING PROVIDED IN SUB-CLAUSE 1 OF SECTION 145 OR ACCOUNTI NG STANDARDS AS NOTIFIED UNDER SUB-SECTION 2 OF SECTIO N 145 HAVE NOT BEEN REGULARLY FOLLOWED. IN THE PRESENT CA SE, THE ASSESSING OFFICER HAS NOT DISPUTED THE METHOD OF AC COUNTING OR ACCOUNTING STANDARDS FOLLOWED BY THE APPELLANT. THERE IS NO MATERIAL ON RECORD OR BROUGHT OUT BY THE ASSESSI NG OFFICER WHICH MAY DISPUTE THE CORRECTNESS OF THE AC COUNTS. REGARDING COMPLETENESS OF ACCOUNTS, THERE IS NO ADV ERSE MATERIAL EXCEPT ASSESSING OFFICER'S VIEW THAT THE A PPELLANT HAS NOT MAINTAINED PROPER RECORDS IN RESPECT OF ITA NO.4443 AND 4517/AHD/2013 9 CONSUMPTION AND PRODUCTION. HOWEVER, AS ALREADY DISCUSSED, THE APPELLANT HAD MAINTAINED THE CONSUMP TION AND PRODUCTION RECORDS AS PER REQUIREMENT OF THE CE NTRAL EXCISE AUTHORITIES WHICH ADEQUATELY COVERS THE DAY TO DAY CONSUMPTION AND PRODUCTION OF THE APPELLANT. THEREF ORE, THE ASSESSING OFFICER'S FINDING THAT THE APPELLANT HAD NOT MAINTAINED PROPER CONSUMPTION AND PRODUCTION RECORD S IS NOT CORRECT. FROM THE CASE RECORDS, I DO NOT FIND A NY MATERIAL WHICH MAY RAISE DOUBT ABOUT THE CORRECTNES S OR COMPLETENESS OF THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT THUS, THE ASSESSING OFFICER WAS NOT JUSTI FIED IN REJECTING THE BOOKS OF ACCOUNT U/S. 145(3) OF THE A CT. IT IS FURTHER OBSERVED THAT BOTH INPUT AND OUT PUT ARE GO VERNED BY THE EXCISE AUTHORITIES. THE APPELLANT CANNOT SEL L ANY GOODS MANUFACTURED BY IT UNLESS IT IS CLEARED BY TH E EXCISE AUTHORITIES AND ENTRIES ARE RECORDED IN THE PRESCRI BED REGISTERS. THE EXCISE RECORDS DO NOT SHOW ANY UNACC OUNTED SALE OF GOODS BY THE APPELLANT AND THEREFORE, IT CA NNOT BE SAID THAT THE APPELLANT HAS MADE ANY SALE OTHER THA N RECORDED IN THE REGISTERS UNLESS THE ASSESSING OFFI CER BRINGS OUT MATERIAL/EVIDENCE IN RESPECT OF SUCH UNACCOUNTE D SALE. THERE IS NO MATERIAL /EVIDENCE ON RECORD TO SHOW TH AT THE APPELLANT HAS MADE ANY UNACCOUNTED SALES. BESIDES, NO EVIDENCE WAS FOUND EVEN DURING THE SEARCH IN SUBSEQ UENT YEAR TO SHOW UNACCOUNTED SALE OF GOODS BY THE APPEL LANT. ON SUCH FACTS, THE ASSESSING OFFICER CANNOT REJECT THE BOOKS OF ACCOUNT AND ESTIMATE THE YIELD AT THE SAME PERCE NTAGE TAKE THE SAME YIELD AS SHOWN BY THE APPELLANT IN A. Y. 1995- 96 AND TREAT THE DIFFERENCE IN PRODUCTION AS SALE B Y THE APPELLANT OUTSIDE THE BOOKS. THUS, THE ADDITION OF RS. 1,55,33,637/- IS MADE BY THE ASSESSING OFFICER PURE LY ON PRESUMPTIONS WITHOUT ANY MATERIAL/EVIDENCE ON RECOR D WHICH CANNOT BE SUSTAINED. ; REGARDING ASSESSING OF FICER'S OBSERVATION IN RESPECT OF LESS CHARGING-OF JOB WORK @ OF RS. 10850 PMT, IT IS OBSERVED THAT THE APPELLANT HAS CH ARGED JOB WORK AT THE AVERAGE RATE OF RS.31.455 PMT, RS.2 0,745 PMT AND RS. 19,115 PMT IN THE ASSESSMENT YEARS 1995 - 96,1996-97 AND 1997-98 RESPECTIVELY. IN THE LETTER DATED 14.11.2000, THE ASSESSING OFFICER HAS GIVEN THE BAS IS FOR HIS REMARKS IN THE ASSESSMENT ORDER IN RESPECT OF AVERA GE JOB WORK CHARGES AT RS.30,000/- PMT IN A.YS. 1995-96 & 1996- 97. ACCORDING TO HIM, BOTH THE YEARS TAKEN TOGETHER THE JOB CHARGES RANGED FROM RS.20,000/- PMT TO RS.39,350/- PMT WITH OTHER FIGURES BEING RS.37,000/- AND RS.35,000/ - AND IN ITA NO.4443 AND 4517/AHD/2013 10 THE RANGE OF RS.33,000/- PMT. ACCORDING TO ASSESSIN G OFFICER IF THE EXTREME FIGURES ARE DISREGARDED FOR THE PURPOSE OF CALCULATING AVERAGE RATE PMT THEN THE JO B WORK CHARGES IN A.Y. 1995-96 WOULD COME TO AN AVERAGE RA TE OF RS.36,000/- PMT AND IF THE AVERAGE OF ONLY TWO YEAR S IS TAKEN I.E, A.Y. 1996-97 & 1995-96, THE CHARGES WOUL D BE APPROXIMATELY RS,30,0007- PMT WHICH WAS TAKEN IN TH E ASSESSMENT ORDER. IN MY VIEW, IN THE SAID WORKING T HE ASSESSING OFFICER HAS NOT FOLLOWED ANY METHOD OR AN Y ACCOUNTING PRINCIPLE OR ANY LOGIC. HE HAS DEVISED H IS OWN METHOD TO JUSTIFY HIS CALCULATION OF AVERAGE RATE A T RS.30,000/- PMT. IT IS DIFFICULT TO UNDERSTAND AS T O HOW AND ON WHAT BASIS THE ASSESSING OFFICER CAN EXCLUDE MAX IMUM, MINIMUM AND OTHER RATES OF JOB WORK CHARGES WHILE W ORKING OUT AVERAGE RATE FOR THE SAID YEARS. THE APPELLANT' S WORKING OF AVERAGE RATE WHICH DOES NOT EXCLUDE ANY JOB CHAR GES IS THE CORRECT FIGURES AND SHOULD BE TAKEN WHILE CONSI DERING THE ISSUE. ON THIS BASIS THE AVERAGE RATE OF JOB WO RK CHARGES FOR THE YEAR UNDER CONSIDERATION IS RS.19,1 50/- PMT AS COMPARED TO RS.20,745/- PMT IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR. IT IS SEEN THAT BY CHARG ING THE AVERAGE RATE OF RS.19,150/- PMT THE APPELLANT HAS E ARNED SUFFICIENT PROFIT AS IT'S COST OF PRODUCTION IN RES PECT OF JOB WORK CHARGES AS WORKED OUT IN PARA 17 ABOVE WAS RS. 10,8267- PMT. THE VARIABLE COST HAS BEEN WORKED OUT AT RS.8,807/- PMT. DURING THE HEARING BEFORE ME, THE ASSESSING OFFICER CONTENDED THAT THE AVERAGE COST O F PRODUCTION BY THE APPELLANT IN RESPECT OF JOB WORK COMES OUT TO RS.20,974/- PMT AGAINST WHICH THE APPELLANT BY IT'S OWN WORKING HAS SHOWN CHARGING OF JOB WORK AT THE A VERAGE RATE OF RS.19,150/- PMT, THUS INCURRING LOSS. IT IS OBSERVED THAT THE SAID FIGURES HAS BEEN TAKEN BY THE ASSESSI NG OFFICER ON THE BASIS OF STATEMENT SUBMITTED BY THE APPELLANT FOR THE PURPOSE OF VALUATION OF CLOSING STOCK OF FI NISHED GOODS. FROM THE SAID STATEMENT, IT IS NOTED THAT TH E COST OF FINISHED AT RS.36744/- SHOWN BY THE APPELLANT IS TH E COST BY TAKING INTO ACCOUNT ALL THE EXPENSES OF PROFIT & LO SS A/C. INCLUDING DEPRECIATION AND THE SAID FIGURE WAS ARRI VED AFTER EXCLUDING ONLY NET PROFIT. THE SAID COST OF PRODUCT ION IS NOT CORRECT AS IT TAKES INTO ACCOUNT FINANCIAL AND OTHE R COSTS WHICH ARE NOT APPLICABLE TO THE JOB WORK. IN MY VIE W, THE APPELLANT'S WORKING OF COST OF PRODUCTION AT RS. 10 ,826/- PMT IS CORRECT AGAINST WHICH THE APPELLANT HAS CHAR GED AT THE AVERAGE RATE OF RS. 19,150/- PMT. THEREFORE, NO ITA NO.4443 AND 4517/AHD/2013 11 ADVERSE VIEW CAN BE TAKEN AGAINST THE APPELLANT IN RESPECT OF JOB WORK CHARGES. AS ALREADY HELD IN THE PRECEDI NG PARAGRAPHS, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING ADDITION ON ACCOUNT OF UNACCOUNTED SALE. FURTHER, H E IS ALSO NOT JUSTIFIED IN HIS WORKING OF LESS CHARGING OF JO B WORK. THEREFORE, THE ADDITION OF RS. 1,55,33,697/- MADE B Y THE ASSESSING OFFICER IN THE TOTAL INCOME OF THE APPELL ANT CAN NOT BE SUSTAINED WHICH IS DELETED. 42. BEFORE US THE LD. D.R. POINTED TO THE FINDINGS OF ASSESSING OFFICER AND RELIED ON THE ORDER OF ASSESSING OFFICE R. ON THE OTHER HAND, THE LD.A.R. HAS SUBMITTED THAT THE ASSESSEE H AS MAINTAINED RECORDS OF PRODUCTION, CONSUMPTION ETC. AS REQUIRED UNDER THE EXCISE RULES. HE FURTHER SUBMITTED THAT T HOUGH THE YIELD HAS BEEN LESS AS COMPARED TO AY: 1995-96, THE GROSS PROFIT IS MORE AT 44.84% AS COMPARED TO 41.59% AND THEREFORE NO ADVERSE VIEW CAN BE TAKEN. THE LD. A.R. FURTHER SUB MITTED THAT YIELD IS AFFECTED BY LARGE NUMBER OF FACTORS LIKE Q UALITY OF RAW MATERIAL, PROCESSING PATTERN AND CHANGE IN PRODUCTI ON PROCESS. HE THUS SUPPORTED THE ORDER OF CIT(A). 43. WE HAVE HEA RD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT (A) WHILE DELETING THE ADDITION HAS GIVEN A FINDING THAT AO W AS NOT JUSTIFIED IN COMPARING THE YIELD OF AY 97-98 WITH THE YIELD O F AY 1995- 96 IGNORING THE FACT THAT THE YIELD OF CURRENT YEAR WA S BETTER THAN THAT IN THE IMMEDIATELY PRECEDING YEAR. HE HAS FURT HER HELD THAT THE ASSESSEE HAS MAINTAINED PROPER RECORDS OF PRODU CTION AND CONSUMPTION IN ACCORDANCE WITH THE EXCISE REGULATIO NS. HE HAS FURTHER NOTED THAT DURING THE SEARCH AT ASSESSEE'S PREMISES IN 1999-2000 MINOR DIFFERENCE IN STOCK WAS OBSERVED WH ICH WAS DUE TO VARIOUS EXPLAINABLE FACTORS. HE HAS FURTHER HELD THAT AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DISPUTE THE CORRE CTNESS OF BOOKS OF ACCOUNTS AND FURTHER NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO SUBSTANTIATE THE ALLEGATION OF UNRECORDED SALES. HE THUS BY A WELL REASONED ORDER DELETED THE ADDITION. BEFO RE US, NOTHING HAS BEEN BROUGHT ON RECORD BY REVENUE TO CONTROVERT THE FINDINGS OF CIT(A) AND THUS WE HAVE NO REASON TO INTERFERE W ITH THE ORDER OF CIT(A). THUS, THIS GROUND OF REVENUE IS DISMISSE D. 10. THERE IS NO DISPARITY ON FACTS IN THIS ASSESSME NT YEAR. THE ALLEGED DISCREPANCY POINTED OUT BY THE AO CAN BE RE SOLVED FROM PERUSAL OF THE EXCISE RECORD. IT IS ALSO IMPORTANT TO NOTE THAT THE TRIBUNAL HAS DISPOSED OF THE APPEALS FOR THE ASSTT.YEAR 1996-97 AND 1997-98 BY WAY ITA NO.4443 AND 4517/AHD/2013 12 OF A COMMON ORDER AND THE DEPARTMENT DID NOT CHALLE NGED THE ORDER OF THE TRIBUNAL IN THE ASSTT.YEAR 1997-98. BEFORE THE HONBLE COURT (AS INFORMED BY THE LD.COUNSEL FOR THE ASSESSEE). THE REFORE, WE ARE OF THE VIEW THAT THE LD.CIT(A) IS NOT JUSTIFIED IN CONFIRM ING THE ADDITION MADE BY THE AO. THUS, WE ALLOW THIS GROUND AND DELETE T HE ADDITION. 11. IN THE GROUND NO.2, THE GRIEVANCE OF THE ASSESS EE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.25.20 LAKHS OUT OF THE PAYMENT MADE TO SHRI MR.MEHOOL BHUVA TOWARDS REMUNERATION. THIS DISALLOWANCE HAS BEEN MADE BY THE AID OF SECTI ON 40A(2)(B) OF THE ACT. AT THE VERY OUTSET, IT HAS BEEN POINTED OUT B Y THE LD.COUNSEL FOR THE ASSESSEE THAT A SIMILAR DISALLOWANCE OF RS.25.2 0 LAKHS WAS MADE IN THE ASSTT.YEAR 1997-98. THIS DISALLOWANCE WAS DELE TED BY THE CIT(A). THE TRIBUNAL HAS CONFIRMED THE DELETION OF DISALLOW ANCE. FACTS ARE IDENTICAL IN THIS ASSESSMENT YEAR ALSO. THE LD.DR WAS UNABLE TO CONTROVERT THIS CONTENTION OF THE LD.COUNSEL FOR TH E ASSESSEE. 12. ON DUE CONSIDERATION FACTS AND CIRCUMSTANCES O F THE CASE, WE FIND THAT IDENTICAL DISALLOWANCE WAS MADE IN THE AS STT.YEAR 1997-98, THE TRIBUNAL HAS RECORDED THE FOLLOWING FINDINGS ON THE ISSUE: 44. 4TH GROUND IS WITH RESPECT TO DISALLOWANCE U/S 40A(2) OF RS. 25,20,000/-: 45. ASSESSING OFFICER NOTICED THAT ASS ESSEE HAS PAID RS. 30 LACS AS REMUNERATION TO SHRI MEHUL BHUVA, ON E OF THE DIRECTORS OF THE COMPANY WHO ALSO HAPPENED TO BE TH E SON OF THE CHAIRMAN-CUM-MANAGING DIRECTOR OF THE COMPANY. ASSE SSING OFFICER WAS OF THE VIEW THAT THE REMUNERATION WAS E XCESSIVE IN VIEW OF THE FACT THAT THE REMUNERATION WAS MORE THA N 10 TIMES THAT WAS PAID TO THE PRESIDENT OF THE COMPANY, MR. MEHUL BHUVA WAS ALSO THE MANAGING DIRECTOR OF ANOTHER COMPANY S ITUATED ABROAD. THUS, ACCORDING TO THE ASSESSING OFFICER TH E REMUNERATION OF RS. 40,000/- P.M. (RS 4.80 LACS P.A.) WOULD HAVE BEEN MOST APPROPRIATE AND ACCORDINGLY HE DISALLOWED THE EXCES SIVE PAYMENT OF RS. 25,20,000/- U/S 40A(2) AND ADDED TO THE INCO ME. ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONS IDERING THE ITA NO.4443 AND 4517/AHD/2013 13 SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER: THE CONTENTIONS OF THE APPELLANT ARE CONSIDERED. I T IS OBSERVED THAT THE ENTIRE SALARY OF RS. 30 LAKHS HAS BEEN TAXED IN THE HANDS OF SHRI BHUTRA AT MASIMUM RATE. IT IS SEEN THAT THE APPOINTMENT OF SHRI BHUVA WITH REMUNE RATION OF RS.30 LAKHS WAS PASSED IN THE ANNUAL GENERAL MEE TING AND WAS APPROVED BY THE BOARD OF DIRECTORS. THE COM PANY LAW BOARD HAS ALSO AFTER EXAMINING VARIOUS TERMS & CONDITIONS AND ALSO THE REMUNERATION PROPOSED TO GI VE SHRI MEHOOL N. BHUVA, APPROVED HIS APPOINTMENT. IN MY VI EW, THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. SHRIRAM PISTON & RINGS LTD. 181 ITR 230 IS APPLICAB LE TO THE APPELLANT ON FACTS OF THE CASE, WHICH HAS HELD THAT ONCE THE APPOINTMENT IS APPROVED BY THE COMPANY LAW BOARD, SECTION 40A(2) DOES NOT APPLY. THE COMPANY LAW BOAR D HAS GIVEN ITS APPROVAL AFTER EXAMINING HIS PROFESS IONAL QUALIFICATION AND EXPERIENCE OF THE INDIVIDUAL IN R ESPECT OF WHOM THE REMUNERATION WAS TO BE FIXED. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE DELHI HIGH COURT , THE ASSESSING OFFICER IS DIRECTED TO DELETE ADDITION OF RS.25,20,000/. 46. BEFORE US THE LD. D.R. RELIED ON THE ORDER OF A SSESSING OFFICER AND ON THE OTHER HAND THE LD A.R. REITERATED THE CO NTENTIONS MADE BEFORE CIT(A). HE THUS SUPPORTED THE ORDER OF CIT(A). 47. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS NOTE D THAT THE REMUNERATION TO MR. MEHUL BHUVA WAS APPROVED BY THE MEMBERS OF THE COMPANY IN THE ANNUAL GENERAL MEETING, AND W AS ALSO APPROVED BY THE COMPANY LAW BOARD. HE HAS FURTHER N OTED THAT THE SALARY WAS TAXED IN HIS HAND AT THE MAXIMUM RAT E. HE FURTHER RELIED ON THE DECISION OF DELHI HIGH COURT IN THE C ASE OF CIT VS. SHRIRAM PISTON & RINGS LTD. 181 ITR 230. NOTHING HA S BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTROVERT THE FINDINGS OF CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WI TH HIS ORDER. THUS, THIS GROUND OF REVENUE IS DISMISSED. 13. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNA L IN THE ASSTT.YEAR 1997-98, WE ALLOW THIS GROUND OF APPEAL AND DELETE THE DISALLOWANCE. ITA NO.4443 AND 4517/AHD/2013 14 14. IN THE NEXT GROUND OF APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.19.62 LAKHS OUT OF THE INTEREST EXPENSES. 15. BRIEF FACTS OF THE CASE ARE THAT THE IN THE ASS TT.YEAR 1997-98, THE AO HAS NOTED THAT THE ASSESSEE-COMPANY HAD ADVANCED A SUM OF RS.140 LAKHS TO PARTIES VIZ. M/S.P.B. TRADERS, MUM BAI AND MR.SRINIVAS PLATES, BARODA. ACCORDING TO THE AO, THE ASSESSEE MADE THIS ADVANCE FOR NON-BUSINESS PURPOSE. HE ALSO OBSERVED THAT TH E ASSESSEE HAD DIVERTED ITS NON-INTEREST BEARING FOR NON-BUSINESS PURPOSE, AND ACCORDINGLY, A PROPORTIONATE INTEREST DISALLOWANCE HAVE BEEN WORKED OUT AT 18%. BEFORE THE LD.CIT(A), IT WAS CONTENDED BY THE ASSESSEE THAT IT HAS MORE INTEREST FREE FUNDS THAN THE ADVAN CE MADE TO THESE CONCERNS. THESE WERE FOR BUSINESS PURPOSE. ACCORD ING TO THE ASSESSEE, UNLESS THE AO HAS ESTABLISHED THAT THE INTEREST BEA RING FUNDS HAVE BEEN USED FOR NON-BUSINESS PURPOSE, NO DISALLOWANCE COUL D BE MADE. 16. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. WE FIND THAT SIMILAR DISALLOWANC E WAS MADE IN THE ASSTT.YEAR 1997-98. THIS DISALLOWANCE WAS DELETED BY THE CIT(A) AND THE TRIBUNAL HAS CONFIRMED THE DISALLOWANCE. IN TH IS YEAR ALSO, THE ASSESSEE HAS CONTENDED THAT IT HAS MORE INTEREST FR EE FUNDS, THAN THE ONE GIVEN BY IT. THE LD.CIT(A) HAS REJECTED THIS C ONTENTION OF THE ASSESSEE BY OBSERVING THAT THE HONBLE ALLAHABAD HI GH COURT IN THE CASE OF CIT V. H.R. SUGAR FACTORY P.LTD., 187 ITR 363(A LL) HAS HELD THAT NEXUS BETWEEN INTEREST FREE FUND AVAILABLE AND THE LOAN ADVANCED IS NOT REQUIRED. TO OUR MIND, THIS REASONING OF THE CIT(A ) IS CONTRARY TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT RENDERED IN LARGE NUMBER OF CASES. IT IS SETTLED THAT NO NOTIONAL INTEREST CAN BE CALCULATED FOR MAKING DISALLOWANCE. IN OTHER WORDS, THE AO CANNOT FORCE THE ITA NO.4443 AND 4517/AHD/2013 15 ASSESSEE TO EARN INTEREST INCOME ON ITS IDLE FUND. ONCE THE ASSESSEE HAS MORE INTEREST FREE FUNDS, THEN, THE INTEREST EX PENDITURE ON ACCOUNT OF MAKING ADVANCE WITHOUT CHARGING INTEREST CANNOT BE DISALLOWED. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE ASSTT.YEAR 1997- 98, WE ALLOW THIS GROUND OF APPEAL AND DELETE THE D ISALLOWANCE. 17. IN THE NEXT GROUND, THE GRIEVANCE OF THE ASSESS EE IS THAT THE LD.CIT(A) HAS ERRED IN NOT ADJUDICATING THE GROUNDS OF DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO RS.8,42 ,000/-. NO SUCH GROUNDS WAS RAISED BEFORE THE CIT(A) AND IT DOES NO T ARISE FROM HIS ORDER. THIS GROUND IS TAKEN FOR THE FIRST TIME BEF ORE THE TRIBUNAL. WHEN WE CONFRONTED THE LD.COUNSEL FOR THE ASSESSEE THAT THIS GROUND WAS NOT RAISED BEFORE THE CIT(A), THEN HE DID NOT PRESS THI S GROUND OF APPEAL. ACCORDINGLY, THIS GROUND OF APPEAL IS REJECTED. 18. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 19. NOW, WE TAKE THE APPEAL OF THE REVENUE. 20. SOLITARY GRIEVANCE OF THE REVENUE IS THAT THE L D.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.58,38,000/- 21. BRIEF FACTS OF THE CASE ARE THAT, ACCORDING TO THE AO, THE ASSESSEE HAS SHOWN HUGE CASH BALANCE IN THE BOOKS OF ACCOUNT S, BUT WAS NOT POSSESSED SUCH CASH PHYSICALLY. DUE TO THIS REASON , THE LD.AO HAS MADE ADDITION WITH A PRESUMPTION THAT THE ALLEGED C ASH MUST HAVE BEEN EXPENDED BY THE ASSESSEE FOR SOME UNKNOWN PURPOSE, AND THEREFORE, IT IS TO BE TAXED AS UNEXPLAINED INVESTMENT OF THE ASS ESSEE. 23. ON APPEAL, THE LD.CIT(A) HAS DELETED THE ADDITI ON ON GROUND THAT THERE IS NO EVIDENCE WITH THE AO THAT THE ASSESSEE HAS EXPENDED THIS CASH FOR SOME UNKNOWN PURPOSE, AND IT WAS NOT HAVIN G THIS CASH. THE ITA NO.4443 AND 4517/AHD/2013 16 OBSERVATION OF THE AUDITORS WAS WITH REGARD TO THE FACT THAT THERE WAS NO NECESSITY TO MAINTAIN SUCH HUGE CASH BALANCE. 24. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. SECTION 69 HAS A DIR ECT BEARING ON THE CONTROVERSY. THEREFORE, IT IS PERTINENT TO TAKE NO TE OF THIS SECTION, WHICH READ AS UNDER: 69C. WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS I NCURRED ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY HIM IS NOT, IN THE OPINION OF THE [ASSESSING] OFFIC ER, SATISFACTORY, THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THER EOF, AS THE CASE MAY BE, MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR ] [PROVIDED THAT, NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, SUCH UNEXPLAINED EXPENDITURE WHICH IS DEEMED TO BE THE INCOME OF THE ASSESSEE SHALL NOT B E ALLOWED AS A DEDUCTION UNDER ANY HEAD OF INCOME.] 25. A BARE PERUSAL OF THIS SECTION WOULD INDICATE T HAT THIS SECTION CONTEMPLATES TWO SITUATIONS VIZ. THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE, AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF OR THE EXPLANATION OFFE RED BY HIM IS NOT, IN THE OPINION OF THE ASSESSING OFFICER, SATISFACTORY, THEN THE ALLEGED UNEXPLAINED EXPENDITURE WOULD BE TREATED AS INCOME OF THE ASSESSEE FOR THAT ASSESSMENT YEAR. IN THE INSTANT CASE, THE AO HAS HARBOURED A BELIEF THAT HUGE CASH BALANCE MUST NOT BE LYING WIT H THE ASSESSEE AND MUST HAVE BEEN EXPENDED FOR SOME UNKNOWN PURPOSES, THEREFORE, IT IS TO BE ADDED AS UNEXPLAINED INVESTMENT. ON DUE CO NSIDERATION OF ALL THESE FACTS, WE ARE OF THE VIEW THAT THERE IS NO EV IDENCE WITH THE AO TO SAY THAT HUGE CASH BALANCE WAS SHOWN BY THE ASSESS EE IN THE BOOKS OF ACCOUNTS WAS NOT AVAILABLE WITH IT. INFERENCE DR AWN BY THE AO IS ITA NO.4443 AND 4517/AHD/2013 17 PURELY ON PRESUMPTION BASIS. HAD THERE BEEN SEARCH AT THE PREMISES OF THE ASSESSEE, AND IT WAS FOUND THAT NO CASH BALANCE WAS AVAILABLE WITH THE ASSESSEE, THEN PROBABLY THE AO WOULD FIND A COR ROBORATION FOR HIS PRESUMPTION. BUT, THERE IS NO SUCH SITUATION IN TH E PRESENT CASE. THE ADDITION IS PURELY MADE ON PRESUMPTION, WHICH IS RI GHTLY DELETED BY THE CIT(A). WE DO NOT FIND ANY MERIT IN THIS APPEAL OF THE REVENUE. IT IS DISMISSED. 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 16 TH DECEMBER, 2015 AT AHMEDABAD. SD/- SD/- (MANISH BORAD) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER