ITD CEMENTATION INDIA LTD, MUMBAI V. ADDL CIT RG 1(3), MUMBAI

ITA 4492/MUM/2009

• Counselvise Citation: 449219914 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 03-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Keywords: Bogus purchase; Depreciation; Opportunity of being heard; Question of law; Bad and doubtful debts; Revenue expenditure; Capital expenditure; TDS
• Section: 44AD; 40A(3); 40(a)(ia); 133(6); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 4492/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. ITD CEMENTATION INDIA LTD. ADD. CIT, RANGE 1(3 ) 1ST FLOOR, DANI WOOLTEX COMPOUND AAYAKAR BHAVAN, M. K. ROAD 158, VIDYANAGRI MARG, KALINA VS. MUMBAI 400020 SANTACRUZ (E), MUMBAI 400098 PAN - AAACT 1420 A APPELLANT RESPONDENT ITA NO. 4679 & 4680/MUM/2009 (ASSESSMENT YEARS: 2005-06 & 2006-07) ADD. CIT, RANGE 1(3) M/S. ITD CEMENTATION INDIA LTD . AAYAKAR BHAVAN, M.K. ROAD 1ST FLOOR, DANI WOOLTEX C OMPOUND MUMBAI 400020 VS. 158, VIDYANAGRI MARG, KALINA SANTACRUZ (E), MUMBAI 400098 PAN - AAACT 1420 A APPELLANT RESPONDENT ASSESSEE BY: SHRI VIJAY MEHTA REVENUE BY: SHRI SANJIV DUTT DATE OF HEARING: 03.10.2011 DATE OF PRONOUNCEMENT: 25.10.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE APPEALS BY THE REVENUE FOR ASSESSMENT YE ARS 2005-06 AND 2006-07 AND CROSS OBJECTION BY THE ASSESSEE FOR A.Y . 2005-06. SINCE COMMON ISSUES ARE INVOLVED, THESE APPEALS WERE HEAR D TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. THE ASSESSEE IS IN THE BUSINESS OF CIVIL, MINING , MARINE AND SPECIALIST ENGINEERING AND CONSTRUCTION ACTIVITY. FOR THE ASST . YEAR 2005-06, THE ASSESSEE DECLARED LOSS AT ` 3,99,75,980/-. FOR ASST. YEAR 2006-07, THE ASSESSEE DECLARED LOSS OF ` 21,44,28,218/-. THE A.O., IN THE SCRUTINY ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 2 ASSESSMENT, REJECTED THE BOOKS OF ACCOUNT AND ESTIM ATED THE INCOME AT 5% OF THE GROSS TURNOVER OF THE COMPANY. WHILE DOING SO I N A.Y. 2005-06, THE A.O. ALSO DISALLOWED VARIOUS AMOUNTS CLAIMED UNDER DIFFE RENT HEADS BUT, HOWEVER, NO SEPARATE ADDITION WAS MADE AS BOOKS OF ACCOUNT W ERE REJECTED AND NET INCOME WAS BROUGHT TO TAX. 3. BEFORE THE CIT(A), THE ASSESSEE CONTESTED THE RE JECTION OF BOOKS OF ACCOUNT AND FILED VOLUMINOUS DETAILS WHICH WERE SEN T ON REMAND TO THE A.O.. AFTER CONSIDERING THE SUBMISSIONS, THE REMAND REPOR T AND COUNTER SUBMISSIONS, THE CIT(A) ACCEPTED THE ASSESSEES CON TENTION THAT BOOKS OF ACCOUNT CANNOT BE REJECTED. 4. THE REVENUE IS AGGRIEVED IN BOTH THE YEARS ON TH E ISSUE OF ESTIMATION OF INCOME BY REJECTING THE BOOKS OF ACCOUNT. IN BOT H THE APPEALS FOR ASSESSMENT YEARS 2005-06 AND 2006-07, THE REVENUE I S CONTESTING THE ISSUE OF REJECTION OF BOOK RESULTS BY THE A.O. AND DELETI NG THE ESTIMATION SO MADE BY THE CIT(A). THE REVENUE RAISED GROUND NOS.1 & 2 ACCORDINGLY IN BOTH THE ASSESSMENT YEARS. THE OTHER GROUNDS RAISED BY THE R EVENUE ARE ON THE ISSUES ON WHICH THE CIT(A) GAVE RELIEF AS THE ESTIM ATION WAS NOT UPHELD BY THE CIT(A). THE ASSESSEE IS CONTESTING PARTIAL CONF IRMATION OF THE DISALLOWANCES IN ITA NO.4492/MUM/2009 FOR A.Y. 2005 -06. THE ISSUES ARE DEALT WITH AS UNDER: - REVENUES GROUND NO.1 & 2 (A.YS. 2005-06 & 2006-07) : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN LAW IN HOLDING THAT THE REJECTION OF BOOK RESULT BY THE AO IS INCORRECT WITHOUT PROPER APPRECIATION OF THE FACTS BROUGHT OUT IN THE ASSESSMENT ORDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN HOLDING THAT THE INCOME OF THE ASSESSEE CA NNOT BE ESTIMATED AT ALL. THE A.O., IN THE COURSE OF SCRUTINY, ASKED FOR VARI OUS DETAILS FROM THE ASSESSEE. THE A.O. NOTICED THAT THERE ARE HUGE LOSS ES INCURRED BY THE ASSESSEE AND THE LOSSES CANNOT BE ACCEPTED AS THE P ROJECTS UNDERTAKEN BY THE ASSESSEE WERE HAVING ESCALATION CLAUSE. SINCE T HE ASSESSEE HAS NOT ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 3 FURNISHED COMPLETE DETAILS IN VARIOUS QUESTIONNAIRE S ISSUED AND HAS NOT RECONCILED THE GROSS RECEIPTS WITH REFERENCE TO TDS CERTIFICATES AND IN THE COURSE OF SCRUTINY SOME OF THE NOTICES UNDER SECTIO N133(6) WERE NOT RESPONDED AND ON THE REASONING THAT THE ASSESSEE HA S NOT PRODUCED STOCK REGISTER AND STOCK DETAILS IN SPITE OF REPEATED REQ UESTS, THE A.O. WAS OF THE OPINION THAT THE ASSESSEES BOOKS OF ACCOUNT CANNOT BE RELIED. THE A.O. DISCUSSED THESE ISSUES FROM PAGE 2 TO PAGE 11 OF HI S ASSESSMENT ORDER AS TO WHY HE HAS CONSIDERED THESE ISSUES FOR REJECTING TH E BOOKS OF ACCOUNT. BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT THE ASSESSE E WAS NOT GIVEN SUFFICIENT OPPORTUNITIES OF HEARING AND THAT THE ASSESSEE WAS ALSO SUFFERING FROM DIFFICULTIES INASMUCH AS THE RECORDS PERTAINING TO THE YEAR UNDER CONSIDERATION WERE DESTROYED IN WATER LOGGING DURIN G JULY 2005 AND FURTHER THE ISSUE RELATING TO THE INCREASE IN COST AND EXPE NSES WAS ONLY RAISED ON 4- 12-2007 AND TIME GIVEN WAS SHORT CONSIDERING THE VO LUME AND NATURE OF BUSINESS COUPLED WITH THE NATURE OF PROJECTS UNDERT AKEN DURING THE YEAR. THE DETAILS FURNISHED BY THE ASSESSEE WERE SENT ON REMAND TO THE A.O. WHO SUBMITTED HIS REPORT VIDE LETTER DATED 06.03.2009. THE FINDINGS OF THE A.O. IN THE REMAND REPORT ARE SUMMARIZED BY THE CIT(A) AS U NDER: - 3.3.2. THE FINDINGS OF THE ASSESSING OFFICER IN TH E REMAND REPORT AS SUMMARIZED AS UNDER: - I) SOME OF THE PROJECTS ARE SHOWING LOSSES WHICH CANNO T BE ACCEPTED AS THE PROJECTS UNDERTAKEN BY THE COMPANY WERE HAVING THE ESCALATION CLAUSE. II) THE INCREASE IN THE COST OF MATERIALS, ETC. IS ALSO NOT SATISFACTORILY EXPLAINED. III) IN A RUNNING PROJECT, THERE CANNOT BE ANY LOSS AND IF ANY LOSS HAS OCCURRED, IT WOULD OCCUR IN THE CLOSING YEAR. IV) THE RECONCILIATION OF THE GROSS RECEIPTS SHOWN IN T HE TRADING A/C. WITH REFERENCE TO THE TDS CERTIFICATES WAS NOT CARR IED OUT BY THE APPELLANT. V) OUT OF 29 PARTIES TO WHOM THE NOTICES U/S. 133(6) W ERE ISSUED, 15 PARTIES DID NOT RESPOND TO THE NOTICES ISSUED TO THEM. VI) THE APPELLANT HAS NOT PRODUCED THE STOCK REGISTER A ND STOCK DETAILS IN SPITE OF REPEATED REQUEST. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 4 THE SAID REPORT WAS PROVIDED TO THE ASSESSEE WHO FU RNISHED DETAILED EXPLANATIONS INCLUDING THE COPIES OF THE BILLS, VOU CHERS & LEDGER COPIES, WHICH WERE EXTRACTED BY THE CIT(A) IN PARA 3.3.3 O F HIS ORDER. AFTERWARDS, THE CIT(A) CONSIDERED THE DETAILED SUBMISSIONS OF THE A .R. AND OBJECTIONS RAISED IN THE REMAND REPORT AND GAVE THE FOLLOWING FINDING ( SOME OF THE PARAS ARE EXTRACTED FOR BREVITY): LOSSES FROM THE PROJECTS: 3.4.1. IN THE REMAND REPORT, THE MAIN OBJECTION OF THE ASSESSING OFFICER WAS THAT THE LOSS SHOWN BY THE APPELLANT WA S NOT GENUINE SINCE THE SAID LOSS WAS DETERMINED BASED ON THE EXC ESS CLAIM OF EXPENDITURE AND THAT THE NATURE OF PROJECTS UNDERTA KEN BY THE APPELLANT CANNOT REFLECT LOSS IN THE BUSINESS. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT THE APPELLANT HAS ALSO UNDER VALUED WIP WHICH HAS RESULTED IN THE NET LOSS FROM THE ROAD PR OJECTS UNDERTAKEN BY THE APPELLANT. IN ORDER TO ARRIVE AT THE CONCLUS ION, THE ASSESSING OFFICER HAS ALSO MADE A COMPARATIVE ANALYSIS OF THE PROJECTS AP/4A AND AP/4B FOR A.Y. 2004-05 AND 2005-06. THE SUMMARY OF THE SAID COMPARATIVE ANALYSIS IS GIVEN BELOW: (RUPEES IN CRORE S) PROJECT AP/4A PROJECT AP/4B PARTICULARS A.Y. 2004-05 A.Y. 2005-06 A.Y. 2004-05 A.Y. 2005-06 CONSUMPTION OF RAW MATERIALS 14.85 21.80 16.49 19.37 COST OF SUB- CONTRACT 8.55 7.10 7.45 6.27 TOTAL TURNOVER 29.30 31.36 33.82 27 .69 NET LOSS 8.65 17.33 60.98 16.41 NET LOSS (%) 29.50% 55.20% 18.00% 59.30% 3.4.2. BASED ON THE ANALYSIS SHOWING THE COMPARA TIVE ANALYSIS OF THE LOSSES IN 2 YEARS, THE ASSESSING OFFICER HAS DO UBTED THE LOSS SHOWN IN RESPECT OF THE SAID PROJECT ON THE GROUND HAT THE OTHER PROJECTS SHOWING PROFIT HAVE SHOWN SUBSTANTIALLY LO WER COST AND COMPARATIVE HIGHER PROFITABILITY. THE ASSESSING OFF ICER HAD ALSO COMPARED THE 5 TOP LOSS MAKING PROJECTS WITH THE 5 PROFIT MAKING PROJECTS AND HELD THAT PROPORTIONATE COST IN THE LO SS MAKING PROJECTS IS SUBSTANTIALLY HIGHER THAN THE PROPORTIONATE COST IN THE PROFIT MAKING PROJECTS. 3.4.3. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 5 3.4.4. 3.5. I HAVE GONE THROUGH THE SAID SUBMISSIONS AND THE ARGUMENTS MADE BY THE LD. AR AT THE TIME OF HEARINGS. I FIND THAT THE ANALYSIS DONE BY THE ASSESSING OFFICER IS NOT CORRECT SINCE THE SAID ANALYSIS HAS BEEN DONE IN RESPECT OF THE NET PROFIT AND LOSS AND NOT IN RESPECT OF THE GROSS/OPERATING PROFIT/LOSS. THE ASSESSING O FFICER HAS DONE THE ANALYSIS IN RESPECT OF THE PROFITS FROM EVERY PROJE CT AFTER CONSIDERING THE OVERHEADS AND ADMINISTRATIVE EXPENSES INSTEAD O F COMPARING THE GROSS/OPERATING MARGINS. CORRECT COMPARISON OUGHT T O HAVE BEEN DONE IN RESPECT OF THE OPERATING MARGINS OF THE PRO JECTS AND NOT IN RESPECT OF THE NET PROFIT OF THE PROJECTS (I.E. AFT ER REDUCING THE OVERHEADS). THE OVERHEADS BEING THE FIXED AND PERI OD COST, CANNOT BE CO-RELATED WITH THE VOLUME OF BUSINESS AND HENCE TH E COMPARISON OF THE NET RESULTS IS BOUND TO GIVE THE DISTORTED PICT URE. THE COMPARISON IN RESPECT OF THE NET LOSSES/PROFITS WOULD HAVE THE COUNTER EFFECT OF THE INCREASE OR DECREASE IN THE OVERHEADS AND HENCE CANNOT BE TAKEN AS A BASE FOR DETERMINING THE REASONABLENESS AND TH E CORRECTNESS OF THE PROFITS SHOWN BY THE APPELLANT FROM VARIOUS PRO JECTS. 3.5.1.. 3.5.2. EVEN ON THE GROUND OF JUSTIFICATION OF LOS SES, I HAVE GONE THROUGH THE REASONS GIVEN BY THE LD. AR IN THEIR WR ITTEN SUBMISSIONS JUSTIFYING THE LOSS SUFFERED BY THEM IN THE PROJECT S. IT IS SEEN THAT THE LOSSES ARE SUBSTANTIALLY DUE TO THE FACT THAT THERE WAS A VAST MISMATCH BETWEEN THE PRICE ADJUSTMENT ACTUALLY RECE IVED AND ACTUAL ADDITIONAL COSTS INCURRED ON ACCOUNT OF RISE IN MAT ERIAL PRICES IN COMPARISON WITH THE BASE ESTIMATES/PRICES SINCE THE PRICE ADJUSTMENT MECHANISM PROVIDED IN THE CONTRACTS IS B ASED ON VARIATION IN WHOLESALE PRICE INDEX AND NOT ON THE A CTUAL PRICE VARIATION EXPERIENCED BY THE APPELLANT. 3.5.3.. 3.5.4. IT IS, THEREFORE, HELD THAT THE LOSSES INCU RRED BY THE APPELLANT IN THEIR PROJECTS CANNOT BE CONSIDERED A VALID REAS ON FOR REJECTION OF THE BOOKS OF ACCOUNTS AND RESULTANT ESTIMATION OF I NCOME. THE INCREASE IN THE COST OF MATERIALS, LABOUR ETC. 3.6. AS SEEN FROM THE REMAND REPORT, THE ASSESSIN G OFFICER WAS OF THE VIEW THAT THE COST OF AGGREGATE, LABOUR EXPENSE S (SUB-CONTRACT), OTHER MATERIALS, BALANCE EXPENSES, ETC. WITH REFERE NCE TO THE TOTAL CONSUMPTION OF RAW MATERIALS VIS--VIS TURNOVER VAR IES TO A GREAT EXTENT. SUCH AN OBSERVATION WAS LED TO THE CONCLUSI ON THAT THE NET LOSS SHOWN BY THE APPELLANT IS NOT GENUINE AS THE E XPENSES ARE INFLATED. THIS SHOWS THAT BASED ON THE FINDINGS AS REGARDS THE INFLATED COST OF CONSUMPTION, THE ASSESSING OFFICER HAS CONSIDERED THE ENTIRE NET LOSS AS NOT GENUINE AND INFLATED. HE HAS NOT APPRECIATED ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 6 HAT THIS IS BECAUSE THE NET LOSS IS RESULTING OUT O F THE INCREASE IN OVERHEAD EXPENSES. 3.6.1 3.6.2 3.6.3 3.6.4.. 3.6.5 3.6.6. IN LIGHT OF THE ABOVE DISCUSSION, I DO NOT F IND ANY REASONS FOR REJECTING THE BOOKS OF ACCOUNTS WHEN NO SPECIFIC DE FECT IS POINTED OUT BY THE ASSESSING OFFICER IN THE BOOKS OF ACCOUNTS. MERELY BECAUSE THE NET RESULTS FROM THE PROJECT ARE LOSS, IT CANNOT BE SAID THAT THE BOOKS OF ACCOUNTS ARE NOT ACCEPTABLE. LOSSES IN RUNNING PROJECT 3.7 THE ASSESSING OFFICER HAS ALSO HELD THAT IN A R UNNING PROJECT, IF THE RA BILLS ARE RAISED AT COST PLUS MARGIN AND THE BALANCE UNFINISHED WORK IS HELD AS WIP, THERE CANNOT BE ANY LOSS, IF ANY LOSS HAS OCCURRED, IT WOULD OCCUR IN THE CLOSING YEAR. I N THIS CONTEXT, THE CONCLUSION IS DRAWN BY THE A.O. THAT THE WIP IS UND ERVALUED BY THE APPELLANT AND, ACCORDINGLY, THE NET LOSS OF RS.33.7 4 CRORES OUT OF THE TOTAL RS.59 CRORES IS SHOWN FROM 2 ROAD PROJECTS I. E. AP/4A AND 4B. 3.8. I HAVE GONE THROUGH THE SAID FINDINGS OF THE A SSESSING OFFICER AND THE DETAILED SUBMISSIONS MADE BEFORE ME BY THE LD. AR. IT WAS EXPLAINED THAT RUNNING ACCOUNT BILLS (R.A. BILLS) I S AN APPLICATION TO THE CUSTOMER FOR PAYMENT OF WORK CARRIED OUT IN A P ARTICULAR MONTH. R.A. BILLS ARE NOT RAISED AS COST PLUS PROFIT BUT T HE SAME ARE RAISED ON THE BASIS OF BOQ RATES IRRESPECTIVE OF ACTUAL COST INCURRED BY THE APPELLANT. THE CONTRACTEE CERTIFIES THE PAYMENT BAS ED ON R.A. BILLS WHICH ARE FRAMED IN LINE OF BILL OF QUANTITIES (B.O .Q) AVAILABLE IN THE CONTRACT. CUSTOMER AND RATES APPLICABLE IN THE CONT RACT CONDITIONS AS PER THE PAYMENT TERM CLAUSE. ALL R.A. BILLS ARE ON ACCOUNT PAYMENT AND, THEREFORE, ANY ERROR OR OMISSION IN A PARTICUL AR R.A. BILL CAN BE ADJUSTED IN THE NEXT BILLS. 3.8.1.. 3.8.2 I FIND THAT THE ASSESSING OFFICER HAS NOT CON SIDERED THE FACTUAL ASPECTS CORRECTLY. I DO NOT AGREE WITH THE ASSESSIN G OFFICER THAT IF IN A RUNNING PROJECT, THE RA BILLS ARE RAISED COST PLUS MARGIN AND THE BALANCE UNFINISHED WORK IS HELD AS WIP, THERE CANNO T BE ANY LOSS AND THAT IF ANY LOSS HAS OCCURRED, IT WOULD OCCUR I N THE CLOSING YEAR. THE ASSESSING OFFICER DID NOT CONSIDER THE FACT THA T IF THE COST OF CONSUMPTION HAS INCREASED DUE TO ADDITIONAL COST IN CURRED BY THE APPELLANT ON VARIOUS COUNTS WITHOUT CORRESPONDING I NCREASE IN THE INCOME/REVENUE, THE ACCOUNTING OF THE R.A. BILLS EV EN BY THE ABOVE METHOD WOULD SHOW LOSSES. THIS I BECAUSE THE COST A ND THE MARGIN ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 7 AS AGREED UPON WITH THE CONTRACTEE MAY NOT MATCH TH E ACTUAL REVENUE DUE TO LOWER REVENUE/INCOME AND HIGHER COST. MOREOV ER, THE COMPARISON OF RS.33.74 CRORES OF LOSS WITH THE TURN OVER OF RS.59 CRORES TO JUSTIFY THE VALUATION OF WIP IS ALSO NOT CORRECT SINCE THE LOSS OF RS.33.74 CRORES ALSO INCLUDES THE OVERHEAD EXPEN SES INCLUDING IDLE MANPOWER, COST OF PLANTS & MACHINERIES, HIRED CONST RUCTION EQUIPMENTS ETC. WHICH HAVE CONTRIBUTED TO THE LOSS FROM THE PROJECT. WITHOUT IDENTIFYING ANY FALSITY IN THE CLAIM OF THE OVERHEADS EXPENSE OR WITHOUT IDENTIFYING THE INFLATION IN SUCH EXPENS E, THE APPELLANTS CLAIM CANNOT BE DISPUTED. RECONCILIATION OF THE GROSS RECEIPTS WITH TDS CERTIFICATES. 3.10 THE ASSESSING OFFICER HAS ALSO RAISED SEVERAL ISSUES IN THE QUESTIONNAIRE ISSUED TO THE APPELLANT WHICH HAS NOT BEEN RESPONDED BY THE APPELLANT PROPERLY. THE ASSESSING OFFICER HA D CALLED FOR RECONCILIATION OF THE GROSS RECEIPTS SHOWN IN THE T RADING A/C. WITH REFERENCE TO THE TDS CERTIFICATES. HOWEVER, THE SAI D CONCILIATION WAS NOT DONE. THE APPELLANT HAS SUBMITTED THAT THE ENTI RE TDS STATEMENT CANNOT BE MATCHED WITH THE TURNOVER BECAUSE THE DED UCTIONS HAVE BEEN MADE BY THE DEBTORS ALSO ON ADVANCES GIVEN TO THE APPELLANT. MOREOVER, THE ADVANCES ON WHICH TDS WAS DEDUCTED IN THE LAST YEAR WAS ALSO INCLUDED IN THE TURNOVER DURING THE YEAR A ND SUBSEQUENT YEAR AS THE WORK WAS IN PROGRESS AND COMPLETED SUBS EQUENTLY. NO DISCREPANCY WAS NOTED BY THE ASSESSING OFFICER IN T HE ORDER AS REGARDS THE ITEMS WHICH HAVE BEEN RECONCILED. 3.11 NOW, BEFORE ME, THE AR HAS ALSO SUBMITTED THE RECONCILIATION OF THE TDS CERTIFICATE WITH THE AGGREGATE GROSS REC EIPTS. I AGREE WITH THE AR THAT SINCE PART OF THE AMOUNTS SUBJECTED TO TDS ARE SHOWN AS ADVANCE RECEIVED, THE TDS CLAIM CANNOT MATCH WITH T HE GROSS RECEIPTS SINCE PART OF THE AMOUNT ON WHICH TDS WAS DEDUCTED WAS EITHER INCLUDED IN ADVANCES OR THE ADVANCES ON WHICH TDS W AS DEDUCTED IN THE LAST YEAR IS INCLUDED IN THE TURNOVER DURING TH E YEAR. NO DISCREPANCY IS NOTED ON VERIFICATION OF SUCH RECONC ILIATION AS FILED BEFORE ME. HENCE, I DO NOT FIND ANY DEFECT IN THE S AID CLAIM OF TDS AND THE INCOME OFFERED TO TAX. NONETHELESS, THE SAI D DISCREPANCY CANNOT LEAD TO REJECTION OF THE BOOKS OF ACCOUNTS. OUT OF 29 PARTIES, 15 PARTIES DID NOT RESPOND TO T HE NOTICES U/S. 133(6). 3.12 THE ASSESSING OFFICER HAS ALSO STATED THAT SIN CE THE APPELLANT DID NOT OBTAIN CONFIRMATION OF THE PARTIES IN WHOSE NAMES EXPENSES WERE BOOKED, THE NOTICES U/S.133(6) WERE ISSUES TO VARIOUS SELECTED PARTIES. HOWEVER, ACCORDING TO THE ASSESSING OFFICE R, OUT OF 29 NOTICES, 15 PARTIES DID NOT RESPOND TO THE NOTICES ISSUED TO THEM. THE APPELLANT WAS THEREFORE ASKED AS TO WHY THE SAID 15 PARTIES DID NOT RESPOND TO THE NOTICES U/S. 133(6) OF THE ACT. IT WAS ARGUED BY THE LD. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 8 AR THAT MOST OF THE PARTIES WHO DID NOT SEND THEIR CONFIRMATIONS WERE PURSUED BY THE APPELLANT AND THE CONFIRMATION FROM 10 PARTIES WERE ALSO FILED BEFORE THE ASSESSING OFFICER. IT WAS SUB MITTED THAT PAGE NO. 1320 TO 1533 OF THE PAPERBOOK WHICH WERE SUBMITTED BEFORE THE ASSESSING OFFICER CONTAINS THE CONFIRMATION OF ACCO UNT S RECEIVED FROM 10 PARTIES AS STATED TO HAVE NOT BEEN RECEIVED BY T HE ASSESSING OFFICER. 3.13.. 3.14 I HAVE PERUSED THE SAID CONFIRMATIONS FILED BY THE APPELLANT BEFORE THE ASSESSING OFFICER. I FIND THAT THOUGH TH E CONFIRMATION LETTERS FOR 5 OF THE PARTIES WERE NOT RECEIVED OR R ETURNED UNSERVED, IT CANNOT BE SAID THAT THE APPELLANT HAD NOT REFLECTED THE TRUE AND CORRECT INCOME FROM THE BUSINESS CARRIED OUT. IT IS UNDISPUTED FACT THAT CONFIRMATIONS FROM MOST OF THE PARTIES WERE OB TAINED BY THE ASSESSING OFFICER. ALTHOUGH THE CONFIRMATIONS FROM 5 OF THE PARTIES HAVE NOT BEEN RECEIVED, THE ASSESSING OFFICER HAS N OT BROUGHT ANYTHING ON RECORD TO PROVE TH INCORRECTNESS OF THE AMOUNTS SHOWN IN THE NAME OF THOSE PARTIES WHO HAVE NOT RESPONDED. T HE ASSESSING OFFICER COULD HAVE ISSUED SUMMONS U/S.131 OF THE I T ACT TO THEM CALLING FOR THEIR PERSONAL ATTENDANCE OR CAUSED INQ UIRIES WITH THE BANK ETC IN ANY CASE, I HAVE PERUSED THE LEDGER ACC OUNT OF THOSE PARTIES WHO HAVE NOT RESPONDED TO THE NOTICES ISSUE D U/S.133(6) OF THE ACT. THE SAID LEDGER ACCOUNT SHOWS THAT THE PU RCHASES WERE MADE BY THE APPELLANT AND THE PAYMENTS FOR THE SAME WERE ALSO REGULARLY MADE. THE APPELLANT HAS ALSO FILED COPIES OF THE BILLS FOR PURCHASES, DELIVERY CHALLANS FOR SUPPLY OF MATERIAL S/GOODS TO THE APPELLANT, ETC. WHICH ESTABLISHES THE GENUINENESS O F THE TRANSACTION. HENCE, IN MY OPINION, NO ADVERSE INFERENCE CAN BE D RAWN IN RESPECT OF THE BOOKS OF ACCOUNTS MERELY BECAUSE THE PARTIES HAVE NOT RESPONDED. MOREOVER, THE LACK OF RESPONSE FROM THE PARTIES DOES NOT REFLECT ANY DEFECT IN THE BOOKS OF ACCOUNTS. THE AS SESSING OFFICER HAS ALSO NOT BROUGHT ON RECORD ANY EVIDENCE TO PROVE TH AT THE PURCHASES/EXPENSES ENTERED INTO THE BOOKS OF ACCOUN TS ARE NOT CORRECT AND THAT THE ENTRIES IN THE BOOKS OF ACCOUN TS ARE DEFECTIVE OR FALSE. THEREFORE, THE ACTION OF THE ASSESSING OFFIC ER IN REJECTING THE BOOKS OF ACCOUNTS FOR WANT OF CONFIRMATIONS FROM SO ME OF THE PARTIES CANNOT BE UPHELD. NON-PRODUCTION OF STOCK REGISTER 3.15 SIMILARLY, THE ISSUE OF THE STOCK REGISTER AND THE DETAILS NOT FILED BY THE APPELLANT WAS ALSO VERIFIED AND IT WAS NOTICED THAT THE APPELLANT HAD FILED THE DETAILS CALLED OR WHICH IS EVIDENCE FROM THE PAPER BOOK FILED BEFORE THE ASSESSING OFFICER AND P RODUCED BEFORE ME. HENCE, THE REJECTION OF THE BOOK RESULTS EVEN O N THE SAID AMOUNT IS INCORRECT. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 9 ESCALATION CLAIM NOT ACCOUNTED FOR 3.16 THE ASSESSING OFFICER HAS ALSO HELD THAT THE APPELL ANT HAD NOT ACCOUNTED FOR THE ESCALATION CLAIMS OF RS.4.32 CROR ES (OUT OF THE TOTAL ESCALATION CLAIMS OF RS.19.54 CRORES) AND HAS DEFER RED THE SAME TO THE SUBSEQUENT YEAR. THIS IS ALSO ONE OF THE REASON FOR THE ASSESSING OFFICER FOR REJECTING THE BOOK RESULTS. I HAVE PERU SED THE TAX AUDIT REPORT WHEREIN SUCH AN OBSERVATION IS MADE. I DO NO T FIND ANY MERIT IN THE CONTENTIONS OF THE ASSESSING OFFICER THAT NO OFFERING THE INCOME FROM ESCALATION CLAIM AMOUNTING TO RS.4.32 CRORES R ESULTS INTO DEFECTIVE BOOKS OF ACCOUNTS AND CONSEQUENT ESTIMATI ON OF INCOME. THIS IS MORE PARTICULARLY CORRECT SINCE THE ASSESSI NG OFFICER HIMSELF HAS MADE SEPARATE ADDITION IN RESPECT OF THE SAID E SCALATION CLAIM WHICH IS DEALT WITH BY ME IN GROUND OF APPEAL NO.19 . AFTER ELABORATELY DISCUSSING THESE ISSUES AND LEGAL PRINCIPLES ESTABLISHED BY THE DECISION OF MADNANI CONSTRUCTION CORPORATION PV T. LTD. 296 ITR 45 (GAU.) AND K.S. BHATIA (269 ITR 577) (P&H) AND OTHE R DECISIONS AS EXTRACTED IN PARA 3.19, THE LEARNED CIT(A) REJECTED ASSESSING OFFICERS ACTION IN REJECTING THE BOOKS OF ACCOUNT AND DELETED THE ESTI MATION OF INCOME BY GIVING THE FOLLOWING FINDING: - 3.22 IN THE RESULT, I AM OF THE OPINION THAT THE B OOKS RESULTS SHOWN BY THE APPELLANT IS INCORRECTLY REJECTED BY THE ASS ESSING OFFICER AND THAT WITHOUT BRINGING ON RECORD ANY EVIDENCE TO PRO VE THAT THE APPELLANT HAD NOT SHOWN THE PROFITS FROM THE BUSINE SS CORRECTLY. THE ASSESSING OFFICER HAS RAISED THE ISSUE OF EXCESS EX PENDITURE CLAIMED. HOWEVER, NO EVIDENCE HAS BEEN PLACED ON RECORD TO P ROVE THAT THE SAID EXPENDITURE CLAIMED WAS SNOT GENUINE OR THAT T HE APPELLANT HAS DELIBERATELY INFLATED THE EXPENDITURE WITHOUT ACTUA LLY INCURRING THE SAME. IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT TH E INCOME OF THE APPELLANT CANNOT BE ESTIMATED AT ALL, WITHOUT PREJUDICE TO THE FACT THAT AN ESTIMATE @ 5% OF THE TURNOVER IS HIGHLY EXCESSIVE AND THAT THE PROFIT SHOWN BY THE A PPELLANT SHOULD BE ACCEPTED AS CORRECT SUBJECT TO THE VARIOU S ISSUES RAISED IN THE OTHER GROUNDS OF APPEAL. THE ADDITION MADE BY THE ASSESSING OFFICER IS, THEREFORE, DELETED. THE G ROUNDS OF APPEAL NO.1 TO 5 ARE, ACCORDINGLY, ALLOWED. SIMILAR FINDINGS WERE GIVEN IN A.Y. 2006-07 FOLLOWI NG THE ABOVE. THE REVENUE IS AGGRIEVED IN BOTH THE YEARS. 5. THE LEARNED D.R. REFERRED TO THE FINDINGS IN THE OR DER OF THE A.O. AND REASONS FOR REJECTION OF THE BOOKS OF ACCOUNT AND S UBMITTED THAT THE CIT(A) WAS NOT CORRECT IN REJECTING THE ACTION OF THE A.O. ON EACH OF THE ISSUES ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 10 WITHOUT CONSIDERING THE CUMULATIVE EFFECT OF ALL TH E REASONS AS STATED BY THE A.O. IT WAS HIS SUBMISSION THAT THE CUMULATIVE REAS ON MENTIONED BY THE A.O. CALLS FOR REJECTION OF THE BOOKS OF ACCOUNT. IT WAS FURTHER SUBMITTED THAT THE A.O. WAS CORRECT IN ESTIMATION OF THE NET PROFIT WH ILE ESTIMATING THE INCOME AS THE PROVISIONS OF SEC. 44AD ALLOW THE A.O. TO ES TIMATE THE INCOME AT 8% ON THE GROSS RECEIPTS. BASED ON THE PROVISIONS OF SEC. 44AD THE A.O. COULD ARRIVE AT THE NET PROFIT RATHER THAN ESTIMATION OF GROSS PROFIT. HE FURTHER SUBMITTED THAT THE A.O. POINTED OUT 5 SPECIFIC DEFE CTS IN THE ORDER WHICH WERE REITERATED IN THE REMAND REPORT AND, THEREFORE , THE ACTION OF THE A.O. IS TO BE UPHELD. HE RELIED ON THE FOLLOWING CASE LAW: - 1. AWADESH PRATAP SINGH ABDUL REHMAN & BROS. VS. CIT 2 10 ITR 406 (ALL.) 2. NATIONAL PLASTICS INDUSTRIES VS. ITO 309 TR 191 (BOM). 6. THE LEARNED A.R., IN REPLY, SUBMITTED THAT THE A .O. WAS MISLED BY THE FACT THAT THERE WERE HUGE LOSSES IN THIS YEAR AS CO MPARED TO PROFITS IN EARLIER YEAR. IT WAS HIS SUBMISSION THAT THE ASSESSEE VENTU RED INTO ROAD BUILDING CONTRACTS AND HAS SUFFERED HUGE LOSSES IN THOSE CON TRACTS. IT WAS HIS SUBMISSION THAT SECTOR-WISE PROFITS AS SUBMITTED BE FORE THE CIT(A) DO INDICATE THAT THE ASSESSEE CONTINUES TO HAVE PROFIT S IN THE OTHER PROJECTS, WHEREAS IT HAS SUFFERED LOSSES IN ROAD BUILDING CON TRACTS. THE DETAILS ARE AS UNDER: - ITD CEMENTATION INDIA LIMITED ASSESSMENT YEAR : 2005-06 PROJECTWISE PROFIT AND LOSS EARNED DURING THE F Y 2 004-05 JOB CODE TURNOVER ( ` IN LAKHS) LOSS ( ` IN LAKHS) B2805 3,137 (1,733) B2806 2,769 (1,641) AA011 8,093 (540) AA014 7,029 (168) TOTAL ROAD PROJECT 21,029 (4,082) NON ROAD PROJECTS 29,149 2,804 GRAND TOTAL 50,177 (1,278) ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 11 HE REFERRED TO THE DETAILED EXPLANATION FILED BEFOR E THE CIT(A) AND THE REASONS FOR INCURRING LOSSES AND SUBMITTED THAT MERELY BECA USE THERE ARE LOSSES, THE BOOKS OF ACCOUNT CANNOT BE REJECTED. HE FURTHER SUB MITTED THAT THE COMPLETE DETAILS OF THE PARTIES, WHO HAVE NOT RESPONDED, WER E FURNISHED TO THE A.O. AND NO DEFECTS WERE POINTED OUT. HE ALSO REFERRED T O THE DETAILED PAPER BOOK FILED BEFORE THE A.O. AND CIT(A) TO SUBMIT THAT THE ASSESSEE HAS MAINTAINED STOCK REGISTERS AND THESE DETAILS WERE FURNISHED. H E REFERRED TO THE DETAILS EXTRACTED BY THE CIT(A) IN PARA 3.3.3 RUNNING FROM PAGE 4 TO 16 OF HIS ORDER TO SUBMIT THAT ALL THE DETAILS WERE FURNISHED TO TH E A.O. IN THE REMAND PROCEEDINGS TO JUSTIFY THE GENUINENESS OF TRANSACTI ONS OF THE ASSESSEES ACCOUNTS. HE REFERRED TO THE VARIOUS DETAILS FILED IN THE PAPER BOOK TO SUBMIT THAT THE CIT(A) HAS EXAMINED EACH OF THESE ISSUES A ND CAME TO THE CONCLUSION THAT THERE IS NO NECESSITY TO REJECT THE BOOKS OF ACCOUNT AS COMPLETE DETAILS WERE FURNISHED. HE ALSO SUBMITTED THAT THE A.O. ACCEPTED THE BOOK RESULTS IN ASSESSMENT YEARS 2007-08 AND 20 08-09 AFTER COMPLETION OF SCRUTINY ASSESSMENT, COPIES OF WHICH WERE PLACED ON RECORD. HE ALSO DISTINGUISHED THE CASE LAW RELIED ON BY THE D.R. TO SUBMITTED THAT THESE WILL NOT APPLY TO THE FACTS IN THE ASSESSEES CASE. 7. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE O RDER OF THE A.O., DETAILED SUBMISSIONS OF THE ASSESSEE, DETAILS PLACE D ON RECORD BEFORE THE AUTHORITIES COPIES OF WHICH WERE PLACED ON THE PAPE R BOOK BEFORE US, AND THE DETAILED ORDER PASSED BY THE CIT(A) ON ALL THE ISSU ES RAISED BY THE A.O., WE ARE OF THE OPINION THAT THERE IS NO NEED TO REJECT THE BOOKS OF ACCOUNT AS WAS DONE BY THE A.O.. THE PROVISIONS OF SEC. 145 WHICH EMPOWER THE A.O. IN REJECTING THE BOOKS OF ACCOUNT ARE AS UNDER: - 145. (1) INCOME CHARGEABLE UNDER THE HEAD PROFIT S AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURC ES SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED I N ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGU LARLY EMPLOYED BY THE ASSESSEE. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 12 (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOW ED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS 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-SECTION (1 ) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144. THE PROVISION EMPOWERS THE A.O. TO REJECT THE BOOKS OF ACCOUNT AND ESTIMATE INCOME AS PROVIDED UNDER SECTION 144 ONLY IF HE IS SATISFIED ABOUT THE CORRECTNESS AND COMPLETENESS OF ACCOUNTS OF ASSESSE E OR ACCOUNTING STANDARDS NOTIFIED HAVE NOT BEEN FOLLOWED BY THE AS SESSEE. AS SEEN FROM THE ORDER OF THE A.O., THERE IS NO FINDING THAT THE BOO KS OF ACCOUNT ARE NOT CORRECT OR COMPLETE. THERE IS ALSO NO FINDING THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS NOT IN ACCORDANCE WITH THE STANDARDS NOTIFIED. THE MAJOR PLANK FOR REJECTION OF THE BOOKS OF ACCOU NT SEEMS TO BE THE UNVERIFIABLE NATURE OF EXPENDITURE AND NON-MAINTENA NCE OF STOCK REGISTER. THE CIT(A) HAS NOT ONLY CONSIDERED THE ABOVE ISSUES BUT ALSO OTHER ISSUES RAISED BY THE A.O. IN THE REMAND PROCEEDINGS. AS SE EN FROM THE REMAND REPORT PLACED ON RECORD, THE A.O., INSTEAD OF EXAMI NING THE VOLUMINOUS DETAILS FILED BEFORE HIM AND GIVING A COMPLETE REPO RT, REITERATED THE OBJECTIONS AS STATED IN THE ASSESSMENT ORDER. AS THE ASSESSEE HAS FURNISHED COMPLETE DETAILS IN BOTH THE ASSESSMENT YEARS BEFORE THE CIT (A) AND THESE DETAILS WERE SENT TO THE A.O. ON REMAND, WE DO NOT FIND ANY REAS ON TO DIFFER FROM THE FINDINGS OF THE CIT(A). THE LEARNED D.R. VEHEMENTLY ARGUED THAT THE FIVE DEFECTS POINTED OUT BY THE A.O. WERE NOT EXAMINED B Y THE CIT(A) AND, THEREFORE, THERE IS NEED FOR REJECTION OF THE BOOKS OF ACCOUNT. WE DO NOT SEE ANY REASON TO DIFFER FROM THE ORDER OF THE CIT(A) A S HE HAS CONSIDERED ALL THE ISSUES. AS EXTRACTED ABOVE, THE CIT(A) CONSIDERED T HE ISSUE HEADWISE I.E. (A) LOSSES SUFFERED BY THE ASSESSEE IN PROJECTS, (B) IN CREASE IN COST OF RAW MATERIALS, (C) LOSSES IN RUNNING PROJECTS AND ESCAL ATION CLAUSE AND (D) RECONCILIATION OF GROSS RECEIPTS WITH TDS, (E) ACCO UNTS OF NON-RESPONDED PARTIES, AND (F) PRODUCTION OF STOCK REGISTER. AFTE R CONSIDERING THE DETAILED ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 13 ORDER OF THE CIT(A), WE AGREE WITH HIS FINDINGS. FO R THESE REASONS, THE REVENUES GROUNDS IN BOTH THE YEARS ARE REJECTED. 8. THE LEARNED D.R. RELIED ON THE JUDGMENT OF HONB LE ALLAHABAD HIGH COURT IN THE CASE OF AWADESH PRATAP SINGH ABDUL REH MAN & BROS. VS. CIT 210 ITR 406 WHERE THE ISSUE WAS REJECTION OF BOOKS OF ACCOUNT. THE HONBLE HIGH COURT HAS HELD AS UNDER: - THE ACCOUNT BOOKS WERE REJECTED BECAUSE ADMITTEDLY NO STOCK REGISTER WAS MAINTAINED NOR THE SALES WERE FOUND VE RIFIABLE IN ABSENCE OF THE CASH MEMOS. THE VOUCHERS OF EXPENSES WERE ALSO NOT FORTHCOMING AND THE INCOME RETURNED WAS RIDICULOUSL Y LOW AS COMPARED TO THE EXORBITANT TURNOVER AND THE EXTENT OF THE BUSINESS CARRIED ON BY THE ASSESSEE. IT IS DIFFICULT TO CATA LOGUE THE VARIOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSE E WHICH MAY RENDER REJECTION OF ACCOUNT BOOKS O THE GROUND THAT THE ACCOUNTS ARE NOT COMPLETE OR CORRECT FROM WHICH THE CORRECT PROF IT CANNOT BE DEDUCTED. WHETHER PRESENCE OR ABSENCE OF STOCK REGI STER IS MATERIAL OR NOT, WOULD DEPEND UPON THE TYPE OF THE BUSINESS. IT IS TRUE THAT ABSENCE OF STOCK REGISTER OR CASH MEMOS IN A GIVEN SITUATION MAY NOT PER SE LEAD TO AN INFERENCE THAT ACCOUNTS ARE FALSE OR INCOMPLETE. HOWEVER, WHERE ABSENCE OF A STOCK REGISTER, CASH ME MOS, ETC., IF COUPLED WITH OTHER FACTORS LIKE VOUCHERS IN SUPPORT OF THE EXPENSES AND PURCHASES MADE ARE NOT FORTHCOMING AND THE PROF ITS ARE LOW, MAY GIVE RISE TO A LEGITIMATE INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS AND THE SAME CANNOT BE RELIED UPON ASSESS TH E INCOME PROFITS OR GAINS OF AN ASSESSEE. IN SUCH A SITUATION THE AU THORITIES WOULD BE JUSTIFIED TO REJECT THE ACCOUNT BOOKS UNDER S. 145( 2) AND TO MAKE THE ASSESSMENT IN THE MANNER CONTEMPLATED IN THOSE PROV ISIONS. TAKING ALL THESE ASPECTS AND THE MATERIAL INTO CONSIDERATI ON, THE TRIBUNAL HAS FOUND AS A FACT THAT THE CLAIM OF THE ASSESSEE FOR ACCEPTANCE OF THE ACCOUNT BOOKS WAS NOT SUSTAINABLE. ON THE FINDI NGS OF FACT RECORDED BY THE TRIBUNAL, ITS ORDER DOES NOT GIVE R ISE TO ANY QUESTION OF LAW. AS CAN BE SEEN FROM THE ABOVE, IT IS DIFFICULT TO C ATALOGUE THE VARIOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH M AY RENDER REJECTION OF ACCOUNT BOOKS ON THE GROUND THAT THE ACCOUNTS ARE N OT COMPLETE OR CORRECT FROM WHICH THE CORRECT PROFIT CANNOT BE DEDUCED. IT IS NOT THE ISSUE IN THE ASSESSEES CASE. THE ASSESSEE HAS MAINTAINED COMPLE TE BOOKS OF ACCOUNT INCLUDING VOUCHERS AND ALSO JUSTIFIED THE INCREASE IN COST, REASONS FOR SUFFERING LOSSES AND ALSO THE FACT THAT STOCK REGIS TERS WERE MAINTAINED AT THE RESPECTIVE PLACES. JUST BECAUSE THE ASSESSEE HAS SU FFERED LOSSES, IT DOES NOT ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 14 MEAN THAT THE ASSESSEES BOOKS OF ACCOUNT ARE TO BE REJECTED. THE ASSESSEE ALSO JUSTIFIED WHY IT HAS SUFFERED LOSSES BY GIVING DETAILED REASONS INCLUDING THE ESCALATION CLAUSE, COST OF INCREASE IN MATERIAL AND DIFFICULTY IN IMPLEMENTING THE ROAD PROJECTS IN NAXAL-HIT AREAS A S A NEW VENTURE. THE FACTS OF THE ABOVE SAID CASE RELIED ON BY THE D.R. DO NOT APPLY TO THE FACTS OF THE ASSESSEES CASE. THE NEXT CASE RELIED ON BY THE D.R. IS WITH REFEREN CE TO NATIONAL PLASTICS INDUSTRIES VS. ITO 309 ITR 191 (BOM). THE ISSUE IN THE ABOVE CASE IS WITH REFERENCE TO THE FINDING OF THE A.O. THAT IN THE AB SENCE OF STOCK REGISTER AS ALSO QUANTITATIVE DETAILS OF STOCK OF FINISHED GOOD S, IT WAS NOT POSSIBLE TO VERIFY THE CORRECTNESS OF STOCK SHOWN BY THE ASSESS EE. THE A.O. ALSO FOUND THAT THERE WERE INSTANCES OF VARIOUS LEAKAGES OF RE VENUE IN THE BOOKS OF ACCOUNT AND METHOD OF ACCOUNTING APPLIED WAS NOT PR OPER. THE TRIBUNAL UPHELD THE FINDING OF THE A.O. REJECTING THE BOOK R ESULTS AND PARTLY CONFIRMED THE ADDITION ON ACCOUNT OF GROSS PROFIT. THE HONB LE BOMBAY HIGH COURT, IN APPEAL, CONCLUDED AS UNDER: - AO BEING TO VERIFY THE CORRECTNESS OF STOCK SHOWN BY THE ASSESSEE AS NO STOCK REGISTER OR QUANTITATIVE DETAILS OF THE ST OCK OF FINISHED GOODS WAS MAINTAINED AND HELD THAT THERE WERE VARIOUS INS TANCES OF LEAKAGE OF REVENUE IN THE BOOKS OF ACCOUNT, TRIBUNA L WAS JUSTIFIED IN UPHOLDING THE FINDINGS OF THE AO REJECTING THE BOOK RESULTS OF THE ASSESSEE AND PARTLY CONFIRMING THE ADDITION ON ACCO UNT OF ESTIMATED GP; NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSI DERATION. SINCE THE ISSUE WAS DECIDED ON FACTS, NO PRINCIPLE OF LAW CAN BE DEDUCED FROM THE ABOVE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT . IN VIEW OF THIS, AS THE FACTS IN THE PRESENT CASE DO INDICATE THAT THERE IS COMPLETE AND CORRECT MAINTENANCE OF ACCOUNTS AND ME THOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS ALSO ACCORDING TO THE PRINCIPLES LAID DOWN THEREIN, INVOKING OF THE PROVISIONS OF SEC. 145 CAN NOT BE JUSTIFIED. THEREFORE, GROUND NO. 1 & 2 RAISED IN A.Y. 2005-06 AND GROUND NO. 1 RAISED IN A.Y. 2006-07 ARE REJECTED. THERE ARE NO OTHER GROUNDS IN A.Y. 2006-07. THEREFORE, THAT APPEAL OF REVENUE STANDS DISMISSED. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 15 9. IN ASSESSEES APPEAL IN ITA NO. 4492/MUM/2009 AS SESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1) THE CIT(A) WAS UNJUSTIFIED IN NOT ALLOWING YOU R APPELLANTS CLAIM OF RS.8,00,000/- FOR PAYMENT MADE TO CEMINDIA EDUCA TION TRUST WITHOUT ASSIGNING PROPER REASONS FOR DISALLOWANCE. 2) THE CIT(A) WAS NOT JUSTIFIED IN DISALLOWING 5% OF RS.9,49,13,999/- FOR INFOTECH EXPENSES AND MISCELLA NEOUS EXPENSES INCURRED BY YOUR APPELLANT AS YOUR APPELLA NTS ACCOUNTS ARE DULY AUDITED AND THE EXPENSE HAS BEEN INCURRED FOR THE BUSINESS EXPEDIENCY. THEREFORE, THE SAME SHOULD BE ALLOWED IN FULL. 3) THE CIT(A) WAS NOT JUSTIFIED IN DISALLOWING 5% OF RS.8,13,61,000/- FOR TRAVELING EXPENSES INCURRED BY YOUR APPELLANT AS YOUR APPELLANTS ACCOUNTS ARE DULY AUD ITED AND THE EXPENSE HAS BEEN INCURRED FOR THE BUSINESS EXPEDIEN CY. THEREFORE, THE SAME SHOULD BE ALLOWED IN FULL. 4) THE CIT (A) WAS NOT JUSTIFIED IN DISALLOWING 5% OF RS.1,86,83,000/- FOR POSTAGE AND TELEGRAPH EXPENSES INCURRED BY YOUR APPELLANT AS YOUR APPELLANTS ACCOUNTS ARE DULY AUDITED AND THE EXPENSE HAS BEEN INCURRED FOR THE BUSINESS EXPEDIENCY. THEREFORE, THE SAME SHOULD BE ALLOWED IN FULL. DURING THE COURSE OF ARGUMENT THE LEARNED COUNSEL D ID NOT PRESS GROUND NO. 1, WHICH IS TREATED AS WITHDRAWN. GROUND NO. 2, 3 & 4 ARE DISCUSSED ALONGWITH THE RELEVANT GROUNDS IN REVENUE APPEAL FO R AY 2005-06. 10. IN ITA NO. 4679/MUM/2009 FOR A.Y. 2005-06, REV ENUE HAS RAISED THE FOLLOWING GROUNDS: - 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.1,64,87,00 0/- ON ACCOUNT OF BAD DEBTS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN DELETING THE DISALLOWANCES OF THE ALLEGED CLAIM OF ROYALTY PAYMENT OF RS.5,25,389/- WITHOUT APPRECIATING THAT THE ASSESSEE DOES SNOT OWN ANY QUARRY. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN LAW, DELETING THE DISALLOWANCE OF RS.14,28 ,652/- WITHOUT APPRECIATING THE FACT THAT THE AO HAS MADE THE DISA LLOWANCE NOT U/S.40A(3) BUT U/S.37(1) OF THE I.T. ACT. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 16 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OUT OF INFOTE CH EXPENSES TO 5% AS AGAINST 20% DISALLOWED BY THE ASSESSING OFFIC ER. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE ON ACCOUNT OF TRAVELING EXPENSES TO 5% AS AGAINST 10% DISALLOWED BY THE ASS ESSING OFFICER. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE ON ACCOUNT OF POSTAGE AND TELEGRAPH EXPENSES TO 5% AS AGAINST 10% DISALLOWED BY THE ASSESSING OFFICER. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN HOLDING THAT THE ESCALATION CLAIM OF RS.4. 32 CRORES CANNOT BE TAXED IN THE YEAR UNDER CONSIDERATION AS THE WOR K IN RESPECT OF SUCH CLAIM IS NOT COMPLETED IN THIS YEAR. 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.1,06,72,80 0/- OUT OF TEMPORARY SITE EXPENSES IGNORING THE ASSESSEES FAI LURE TO FURNISH COMPLETE DETAILS EVEN DURING THE REMAND PROCEEDINGS . 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.3,67,11,191/- MADE ON ACCOUNT OF UNEXPLAINED TRANSACTIONS WITH 22 PARTIES HOLDING THAT THE ASSESSEE HAS DISCHARGED THE ONUS OF PROVING THE GENUINENESS OF THE TRANSACTIONS AND THAT ASSESSING OFFICER WAS NOT ABLE TO FIND ANY INGENUINITY IN THE TRANSACTIONS OF THE ASS ESSEE WITH THESE PARTIES. 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT(A) ERRED IN HOLDING THAT THE STATUTORY DISALLOWANCE U/ S. 40(A)(IA) CANNOT BE ADDED TO THE TOTAL INCOME ESTIMATED. 11. GROUND NO.3 PERTAINS TO DISALLOWANCE OF ` 1,64,87,000/- ON ACCOUNT OF BAD DEBTS. THE SAID DISALLOWANCE WAS MADE BY THE AS SESSING OFFICER ON THE GROUND THAT THE SAID AMOUNTS WRITTEN OFF AS BAD DEB TS WERE FROM REPUTED COMPANIES LIKE JAIPRAKASH ASSOCIATES, TATA ELECTRIC , LJNPT, EXE. ENGINEER MINOR IRRIGATION AND SO ON. IT IS ALSO STATED THAT THE ASSESSEE, HAS NOT ESTABLISHED AS TO HOW THE SAID DEBT HAS BECOME BAD AND HENCE THE CLAIM OF BAD DEBT IS NOT ALLOWABLE AS DEDUCTION. THE ASSESSI NG OFFICER HAS RELIED UPON THE DECISION IN THE CASE OF SOUTH INDIA SURGICAL CO . LTD. V. ACIT (MAD HC) TO SUPPORT THE STAND TAKEN. BEFORE THE CIT(A) IT WAS S UBMITTED THAT THE BAD DEBTS WERE CLAIMED IN RESPECT OF THE EXCESS CLAIM O F CONTRACT PAYMENTS ON ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 17 ACCOUNT WHICH WERE NOT APPROVED AND PAID BY VARIOUS PARTIES. IT WAS ALSO SUBMITTED THAT THE AMOUNTS CLAIMED AS BAD DEBTS WER E ALREADY OFFERED AS INCOME AND HENCE THE CONDITIONS LAID DOWN UNDER SEC TION 36(2) WERE ALSO COMPLIED WITH SINCE AS PER THE AMENDED PROVISIONS, THE ASSESSEE IS NOT REQUIRED TO EXPLAIN THAT THE DEBT HAS BECOME BAD. I N SUPPORT, ASSESSEE HAS RELIED UPON THE DECISION IN THE CASE OF KANORIA SEC URITIES & FINANCIAL SERVICES LTD. 15 SOT 191 (MUM) WHICH HAS CONSIDERED THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDI A SURGICAL CO. LTD. (SUPRA) AND ALSO THE RECENT DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT VS. STAR CHEMICALS (BOMBAY) P. LTD. 22 0 CTR 3L (BOM). THE CIT(A) ALLOWED THE AMOUNT BY GIVING A FINDING AS UN DER: - 7.3. I HAVE GONE THROUGH THE SUBMISSIONS OF THE AP PELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESS MENT ORDER. I FIND THAT AS PER THE AMENDED PROVISIONS OF SECTION 36(L) (VII) OF THE IT ACT, THE APPELLANT IS ONLY REQUIRED TO WRITE OFF THE AMO UNTS IN THE BOOKS OF ACCOUNTS IN ORDER TO CLAIM THE BAD DEBTS. THE CONDI TIONS PRESCRIBED U/S. 36(2) SHOWS THAT THE AMOUNTS SO WRITTEN OFF SH OULD HAVE BEEN TAKEN IN TO ACCOUNT FOR THE PURPOSE OF DETERMINING THE INCOME OF THE APPELLANT. I FIND THAT THE ISSUE IN THE PRESENT CAS E IS SQUARELY COVERED BY THE DECISION IN THE CASE OF KANORIA SECURITIES & FINANCIAL SERVICES LTD. - 15 SOT 1 9 1 (MUM.) WHICH HAS DULY CONSIDERE D THE MADRAS HIGH COURT DECISION RELIED UPON BY THE ASSESSING OF FICER AND THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS . STAR CHEMICALS (BOMBAY) (P) LTD. - 220 CTR 319 (BOM) WHEREIN IT HA S BEEN HELD THAT WHERE THE ASSESSEE HAS WRITTEN OFF THE DEBTS IN THE BOOKS, IT IS SUFFICIENT COMPLIANCE OF THE CONDITIONS FOR CLAIMIN G BAD DEBTS. MOREOVER, THE ASSE SSING OFFICER HAS ALSO NOT DOUBTED THE BONAFIDE OF THE CLAIM OF BAD DEBTS BY THE APPELLANT. IN LIGHT OF THE ABOVE, FOLLOWING THE DECISION OF THE JURISDICTIONAL TRIBUN AL AND HIGH COURT, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DIS ALLOWANCE. THIS GROUND OF APPEAL IS, THUS, ALLOWED. 11.1 THE LEARNED D.R. SUBMITTED THAT THE AMOUNTS HA VE NOT BECOME BAD AS THE ASSESSEE HAS NOT GIVEN ANY REASON FOR WRITE OFF OF THE AMOUNT AND AS PER THE PROVISIONS ANY DEBT CANNOT BE WRITTEN OFF BUT O NLY A BAD DEBT CAN BE WRITTEN OFF. 11.2 THE LEARNED COUNSEL SUBMITTED THAT ASSESSEE HA S WRITTEN OFF THE AMOUNT IN THE BOOKS OF ACCOUNT AND THESE AMOUNTS HA VE BECOME REALLY BAD ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 18 AND RELIED ON THE ORDER OF THE CIT(A). HE ALSO SUBM ITTED THAT THE DETAILS WERE FURNISHED TO THE A.O. AND SINCE THESE AMOUNTS WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT THE PRINCIPLES ESTABLISHED BY THE HON'BL E BOMBAY HIGH COURT IN THE CASE OF DCIT VS. OMAN INTERNATIONAL BANK SOAG 3 13 ITR 128 WHICH IN TURN WAS CONFIRMED BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT 323 ITR 397(SC) WILL APPLY TO THE FACTS OF THE CASE. 11.3 AFTER CONSIDERING THE ARGUMENTS OF THE LEARNED D.R. AND THE LEARNED COUNSEL WE SEE NO REASON TO INTERFERE WITH THE FIND INGS OF THE CIT(A) AS THESE AMOUNTS WERE TAKEN INTO ACCOUNT IN EARLIER YEARS AN D THERE ARE DISPUTES WITH REFERENCE TO THE RECEIVABLES. THE EXCESS CLAIMS OF CONTRACT PAYMENT, WHICH CANNOT BE RECEIVED WERE TO BE WRITTEN OFF. THE ORDE R OF THE CIT(A) IS, THEREFORE, CONFIRMED. REVENUES GROUND IS REJECTED. 12. GROUND NO. 4 PERTAINS TO THE ISSUE OF PAYMENT M ADE IN CASH OF ` 5,25,389/- FOR PAYMENT OF QUARRY ROYALTY. THE SAID PAYMENT WAS DISALLOWED ON THE GROUND THAT THE PAYMENT WAS MADE IN CASH EXC EEDING THE PRESCRIBED LIMITS AND THAT ASSESSEE DOES NOT OWN ANY QUARRY. A SSESSEE HAS SUBMITTED THAT SINCE THE PAYMENT WAS MADE TO THE GOVERNMENT, THE PAYMENT FOR ROYALTY IN CASH CANNOT BE DISALLOWED. ASSESSEE SUBMITTED BE FORE THE CIT(A) THAT THE QUESTION OF OWNING THE QUARRY DOES NOT ARISE AND IF THE ASSESSEE OWNED ANY QUARRY, THE PAYMENT OF ROYALTY WOULD NOT ARISE. THE CIT(A) ALLOWED THE CLAIM BY GIVING THE FOLLOWING FINDINGS: - 8.2. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY T HE APPELLANT. I FIND THAT THE PROVISIONS OF RULE 6DD(B) STATES THAT THE PAYMENT MADE TO GOVERNMENT IS NOT HIT BY THE PROVISIONS OF SECTI ON 40A(3) AND HENCE NO DISALLOWANCE CAN BE MADE SOLELY ON THIS BASIS. I FIND THAT THE APPELLANTS CASE IS COVERED BY THE EXCEPTION PROVID ED IN RULE 6DD AND HENCE THE DISALLOWANCE MADE BY THE ASSESSING OFFICE R IS NOT WARRANTED. MOREOVER, I ALSO AGREE WITH THE LD. AR T HAT THE SAID ROYALTY IS REQUIRED TO BE PAID ONLY BECAUSE THE APPELLANT D ID NOT OWN ANY QUARRY AND THAT IF THE QUARRY IS OWNED BY THE APPEL LANT, THE QUESTION OF PAYMENT OF ROYALTY WOULD NOT ARISE. IN ANY CASE, THIS ASPECT HAS NO RELEVANCE TO THE DISALLOWANCE OF EXPENDITURE MADE I N CASH. IN THE LIGHT OF THE ABOVE DISCUSSION, THE GROUND OF APPEAL IS AL LOWED. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 19 13. SINCE THE AMOUNT WAS PAID TO THE GOVERNMENT, TH ERE IS NO NEED TO DIFFER FROM THE FINDINGS OF THE CIT(A). ACCORDINGLY REVENUES GROUND IS REJECTED. 14. GROUND NO. 5 OF REVENUE IS AGAINST DELETION OF DISALLOWANCE OF ` 14,28,652/- BY THE CIT(A) ON ACCOUNT OF PAYMENT IN CASH MADE FOR STAFF SALARY, WAGES, ETC. THE SAID DISALLOWANCE WAS MADE SINCE THE PAYMENT WAS MADE IN CASH IN EXCESS OF THE PRESCRIBED LIMIT. IT WAS ARGUED BEFORE THE CIT(A) THAT THERE IS NO DISPUTE THAT THE SAID AMOUN T WAS SPENT IN EXCESS OF THE PRESCRIBED LIMIT UNDER SECTION 40A(3). HOWEVER, IT WAS SUBMITTED THAT ASSESSEE HAD SUO MOTO DISALLOWED 20% OF ` 17,85,815/- (INCLUDING ` 14,28,652/-) OF THE SAID EXPENSE IN ACCORDANCE WITH SECTION 40A(3) BUT THE A.0. HAS DISALLOWED L00% OF THE SAID EXPENSES. THER EFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40A(3) AND SHOULD, THEREFORE, BE DELETED. T HE CIT(A) ALLOWED THE CLAIM BY GIVING A FINDINGS AS UNDER: - 9.2. I HAVE GONE THROUGH THE SUBMISSIONS OF THE AP PELLANT. THE PROVISIONS OF SECTION 40A(3) REQUIRES THAT IF THE P AYMENT OF ANY EXPENDITURE IS MADE IN EXCESS OF THE PRESCRIBED LIM IT, THE 20% OF SUCH EXPENDITURE SHOULD BE DISALLOWED. THE APPELLANT ITS ELF HAS CONCEDED THAT THE SAID EXPENDITURE IS HIT BY SECTION 40A(3) AND HENCE SUO MOTO, 20% OF THE AGGREGATE EXPENDITURE OF RS.17,85,815/- (INCLUDING RS.14,28,652/-) WAS DISALLOWED WHILE FILLING THE RE TURN OF INCOME. I FIND THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE DISALLOWANCE MADE BY THE APPELLANT SUO MOTO IN THE RETURN OF INC OME. FURTHER, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS ALSO NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40A AT THE RELEVANT POINT OF TIME SINCE SECTION 40A(3) REQUIRED DISALLOWANCE OF ONLY 20% OF THE TOTAL EXPENSES AND NOT THE ENTIRE EXPENDITURE. IN THE RESULT, I FI ND THAT THE DISALLOWANCE IS NOT WARRANTED AS THE SAME AMOUNTS T O DOUBLE DISALLOWANCE. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 14.1 AFTER CONSIDERING THE ARGUMENTS OF BOTH THE CO UNSELS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). T HE CIT(A) NOT ONLY EXAMINED THE FACTS BUT ALSO THE PROVISIONS OF SECTION 40A(3) WHICH REQUIRE DISALLOWANCE OF 20% OF THE TOTAL EXPENDITURE. SINCE ASSESSEE HAS ALREADY DISALLOWED THE AMOUNT THERE IS NO NEED FOR FURTHER DISALLOWANCE AS CONTENTED BY THE REVENUE. THE GROUND IS, THEREFORE, REJECTED. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 20 15. GROUND NO. 6 PERTAINING TO THE DISALLOWANCE OF ` 1,39,34,137/- BEING INFOTECH EXPENSES OUT OF THE TOTAL MISCELLANEOUS EX PENSES OF ` 9,49,13,999/-. WHILE COMPLETING THE ASSESSMENT THE A.O. NOT ONLY D ISALLOWED THE ENTIRE INFOTECH EXPENSES BUT ALSO DISALLOWED 20% OF THE TO TAL MISCELLANEOUS EXPENDITURE ON THE REASON THAT ASSESSEE HAS NOT FUR NISHED THE VOUCHERS. BEFORE THE CIT(A) IT WAS CONTENDED THAT THE A.O. HA S NOT GIVEN PROPER OPPORTUNITY OF BEING HEARD AND WAS NEVER CONFRONTED WITH THE FACT THAT HE DESIRED TO VERIFY THE VOUCHERS AND ADDRESSES OF PAR TIES. ASSESSEE FURNISHED THE DETAILED SUBMISSION INCLUDING COPY OF THE VOUC HERS WHICH ARE EXTRACTED BY THE CIT(A) IN PARA 11.2. IT WAS THE SUBMISSION T HAT THE A.O. DISALLOWED ` 1,39,34,137/- ON ACCOUNT OF INFOTECH EXPENSES WHICH ARE NOTHING BUT PAYMENT MADE FOR MAINTENANCE OF TELEPHONE AND INTER NET LINES TO CONNECT THE HEAD OFFICE AND DIFFERENT SITES SPREAD ALL-OVER INDIA. NOT ONLY THAT THE GROSS AMOUNT WAS ALSO CONSIDERED AGAIN FOR DISALLOW ING 20% OF THE EXPENDITURE WHICH INCLUDED THE EXPENDITURE FOR INFO TECH EXPENSES, WHICH IS NOTHING BUT DOUBLE ADDITION. IT WAS CONTENDED THAT NO DISALLOWANCE CAN BE MADE AS ASSESSEE HAD MAINTAINED COMPLETE PARTICULAR S INCLUDING THE VOUCHERS. 15.1 THE CIT(A) CONSIDERED THE ISSUE AND HE WAS OF THE OPINION THAT THERE WAS DOUBLE DISALLOWANCE OF ENTIRE EXPENDITURE ON IN FOTECH(100%) AS WELL AS 20% DISALLOWANCE OF GROSS AMOUNT. HE, HOWEVER, EXAM INED THE ENTIRE EXPENDITURE OF MISCELLANEOUS EXPENDITURE CLAIMED OF ` 9,49,13,999/- AND AFTER EXAMINING THE SAMPLE VOUCHERS AND GIVING A FI NDING THAT THE EXPENDITURE CANNOT BE STATED FOR NON-BUSINESS PURPO SES WAS HOWEVER, OF THE VIEW THAT THE NATURE OF EXPENDITURE INDICATES THAT THE EXPENSES MAY NOT BE PROPERLY SUPPORTED BY ANY EVIDENCE. THEREFORE, IN O RDER TO MEET THE END OF JUSTICE HE RESTRICTED THE DISALLOWANCE TO 5% OF THE AGGREGATE EXPENSES OF ` 9,49,13,999/- INCLUDING THE INFOTECH EXPENDITURE. R EVENUE IS CONTESTING THE RESTRICTION OF 100% DISALLOWANCE OF INFOTECH EXPEND ITURE TO 5% IN GROUND NO. 6 WHEREAS ASSESSEE IS CONTESTING THE DISALLOWANCE O F 5% OF MISCELLANEOUS EXPENDITURE AS WAS DONE BY THE CIT(A) IN GROUND NO. 2 IN ITS APPEAL. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 21 15.2 WE HAVE HEARD THE RIVAL PARTIES AND EXAMINED T HE DETAILS PLACED ON RECORD. AFTER CONSIDERING THE ISSUE WE ARE OF THE O PINION THAT THERE IS NO NEED FOR RESTRICTING ANY EXPENDITURE ON MAINTENANCE OF T ELEPHONE LINES AND INTER NET LINES. THE DETAILS FILED IN THIS REGARD INDICAT E THAT THESE ARE PERIODICAL PAYMENTS MADE TO GOVERNMENT ORGANIZATIONS AND INTER NET PROVIDERS, WHICH ARE ALL VERIFIABLE AND PROPER DETAILS WERE MAINTAIN ED. THEREFORE RESTRICTION TO 5% OF THE EXPENDITURE PERTAINING TO INFOTECH EXPEND ITURE, IN OUR VIEW IS NOT CORRECT AS ASSESSEE HAS MAINTAINED COMPLETE DETAILS AND THE EXPENDITURE IS VERIFIABLE IN NATURE. THERE IS ALSO NO FINDING THAT ANY CAPITAL EXPENDITURE HAS BEEN CLAIMED AS REVENUE EXPENDITURE IN INFOTECH EXP ENDITURE. THEREFORE, WE ARE NOT IN AGREEMENT WITH THE FINDINGS OF THE CIT(A ) IN RESTRICTING THE EXPENDITURE TO 5% EVEN ON INFOTECH EXPENDITURE. WIT H REFERENCE TO THE BALANCE EXPENDITURE OUT OF THE MISCELLANEOUS EXPEND ITURE, CONSIDERING THE EXTENT OF EXPENDITURE, NATURE OF EXPENDITURE, DETAI LS FURNISHED ON RECORD, WE ARE OF THE VIEW THAT THERE IS SOME POSSIBILITY OF N ON-VERIFIABLE NATURE IN THE EXPENDITURE SO CLAIMED. THEREFORE, WHILE UPHOLDING THAT SOME RESTRICTION IS REQUIRED WE AGREE WITH THE FINDINGS OF THE CIT(A) T HAT 5% OF THE EXPENDITURE WILL MEET THE ENDS OF JUSTICE. THEREFORE, WHILE REJ ECTING THE GROUND RAISED BY THE REVENUE IN RESTRICTING THE EXPENDITURE ON INFOT ECH, WE ALLOW ASSESSEES GROUND PARTIALLY IN DELETING 5% RESTRICTION OF INFO TECH EXPENSES. THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE OF 5% ON THE AGGREGATE EXPENDITURE OF MISCELLANEOUS EXPENSES EXCLUDING THE INFOTECH EXPEN DITURE. ACCORDINGLY REVENUES GROUND IS REJECTED AND ASSESSEES GROUND IS PARTLY ALLOWED. 16. GROUND NO. 7 PERTAINS TO TRAVELING EXPENSES OF ` 813.61 LAKHS, OUT OF WHICH A.O. MADE A DISALLOWANCE OF 10% ON THE GROUND THAT THE EXPENSES ARE NOT FULLY VERIFIABLE. BEFORE THE CIT(A) IT HAS SUBM ITTED THE DETAILS OF MONTHLY BREAKUP OF TRAVELING EXPENSES, TRAVELING EXPENSES O F ALL SITES FOR THE PERIOD 01.08.2004 TO 31.08.2004 AND TRAVELING EXPENDITURE OF SITE NO. B2759, AA0I 1 AND AA020 FOR THE PERIOD 01.08.2004 TO 31.08.2004 AND HEAD WISE DETAILS OF TRAVELING EXPENSES FOR THE PERIOD 01.04.2004 TO 31.03.2005 DULY SUPPORTED ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 22 BY BILLS / VOUCHERS. THE CIT(A) RESTRICTED THE DISA LLOWANCE BY GIVING THE FOLLOWING FINDING: - 12.2 I HAVE VERIFIED THE DETAILS FILED BY THE APPE LLANT BEFORE ME AND BEFORE THE ASSESSING OFFICER DURING THE REMAND PROC EEDINGS. I FIND THAT THE TRAVELING EXPENSES ARC DULY SUPPORTED BY V ARIOUS EVIDENCES. HOWEVER, THE POSSIBILITY OF THE UNVERIFIABLE EXPENS ES IN SUCH A HUGE QUANTUM OF EXPENDITURE CANNOT BE RULED OUT. I HAVE ALREADY HELD IN THE FOREGOING PARA THAT THE NATURE OF EXPENSE DOES NOT SHOW THAT ANY INGENUINE EXPENSE WOULD HAVE BEEN CLAIMED BY THE AP PELLANT MORE PARTICULARLY, WHEN THE ASSESSING OFFICER HAS NOT BE EN ABLE TO FIND ANY EVIDENCE TO THE CONTRARY. AS HELD EARLIER, THE COMP ANY WITH SUCH A HUGE TURNOVER AND WITH SEVERAL SITES RUNNING AT A T IME, WOULD HAVE TO INCUR HUGE EXPENSES ON VARIOUS TRAVELING AND THAT I T IS QUITE POSSIBLE THAT SOME PART OF THE EXPENSE MAY NOT HE PROPERLY S UPPORTED BY THE EVIDENCES SINCE OFTEN SUCH EXPENSES ARE INCURRED BY THE SITE WORKERS AND OTHER EMPLOYEES/LABOURERS WHO MAY NOT HAVE MAIN TAINED THE RECORDS PROPERLY. FURTHER SEVERAL TRAVELING EXPENSE S THROUGH PUBLIC TRANSPORT ARE NEVER SUPPORTED BY ANY EVIDENCES /SUP PORTING AND HENCE THE APPELLANT CANNOT BE ENFORCED WITH THE PRO DUCTION OF EVIDENCES FOR SUCH EXPENSES. IN LINE WITH THE FINDI NGS GIVEN BY ME IN THE GROUND OF APPEAL NO. 13 TO 15, THE DISALLOWANCE OF THE TRAVELING EXPENSES IS RESTRICTED TO 5% OF THE TOTAL TRAVELING EXPENSES. IN THE RESULT THE GROUND OF APPEAL IS PARTLY ALLOWED. 16.1 REVENUE HAS RAISED GROUND NO. 7 WITH REFERENCE TO RESTRICTION OF TRAVELING EXPENSES TO 5% WHEREAS ASSESSEE CONTESTED THE SAME IN GROUND NO. 3 IN ITS APPEAL. 16.2 AFTER HEARING THE RIVAL ARGUMENTS AND EXAMININ G THE RECORD WE ARE OF THE VIEW THAT RESTRICTION OF EXPENDITURE TO 5% OF T HE CLAIM IS JUSTIFIABLE ON THE FACTS OF THE CASE. THEREFORE WE DO NOT INTEND TO DI STURB THE FINDINGS OF THE CIT(A), WHO AFTER CONSIDERING VARIOUS DETAILS RESTR ICTED THE AMOUNT TO A REASONABLE PERCENTAGE. IN VIEW OF THIS BOTH REVENUE AND ASSESSEES GROUNDS ON THIS ISSUE ARE REJECTED. 17. GROUND NO. 8 PERTAINS TO DISALLOWANCE OF ` 18,68,300/- BEING 10% OF AGGREGATE POSTAGE AND TELEGRAPH EXPENSES OF ` 186.83 LAKHS MADE BY THE A.O. BUT RESTRICTED BY THE CIT(A) TO 5% OF THE TOTAL EXP ENDITURE IN LINE WITH HIS DECISION TO RESTRICT THE MISCELLANEOUS EXPENDITURE AND TRAVELING EXPENDITURE. CONSIDERING THE FACTS OF THE CASE AND ARGUMENTS OF THE RIVAL PARTIES WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE C IT(A). THEREFORE, THE ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 23 DISALLOWANCE OF 5% IS CONFIRMED. ACCORDINGLY REVENU ES GROUND NO. 8 AND ASSESSEES GROUND NO. 4 ARE REJECTED. 18. IN RESPECT OF GROUND NO. 9 THE REVENUE IS OBJE CTING TO THE DIRECTION OF CIT(A) THAT THE ESCALATION CLAIM OF ` 4.32 CRORES CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATI ON AS THE WORK IN RESPECT OF SUCH CLAIM WAS NOT COMPLETED IN THIS YEAR. THE A DDITION OF ` 4,32,00,000/- WAS MADE BY THE ASSESSING OFFICER ON THE GROUND THA T ASSESSEE HAS OFFERED THE ESCALATION CLAIMS UNDER DISPUTE AMOUNTING TO ` 15.22 CRORES AND THAT SINCE THE BALANCE ` 4.32 CRORES OUT OF THE AGGREGATE CLAIM OF ` 19.54 CRORES WAS ALSO IDENTICAL, THE SAID AMOUNT SHOULD ALSO BE HELD LIABLE TO TAX IN THE YEAR UNDER CONSIDERATION. BEFORE THE CIT(A) ASSESSE E HAS SUBMITTED THAT THE MATTER RELATED TO ESCALATION CLAIM WHICH WAS DISPUT ED IN NATURE AS NARRATED BY THE COMPANY AS WELL AS THE STATUTORY AUDITOR. TH E ESCALATION CLAIM TILL THE END OF 31.3.2005 WAS ` 1522 LAKHS AND THE SAME WAS ACCOUNTED FOR BY ASSESSEE. THE OBSERVATION OF THE AUDITOR IS REPRODU CED BELOW: 4. THE COMPANY HAS WHILE COMPUTING THE ESTIMATED L OSS FOR COMPLETION OF A CONTRACT, INCLUDED IN ITS AGGREGATE EXPECTED CONTRACTUAL REVENUE, AN AMOUNT OF RS.1,954 LAKHS RELATING TO ES CALATION CLAIMS WHICH ARE CURRENTLY BEING DISPUTED BY THE CUSTOMER. OF THIS AMOUNT, RS.1,522 LAKHS HAS BEEN RECOGNISED AS REVENUE UPTO MARCH 31, 2005. HOWEVER, PENDING THE ULTIMATE OUTCOME IN RESPECT OF THE DISPUTE RELATING TO THIS ESCALATION CLAIM, WE ARE UNABLE TO COMMENT ON THE ADJUSTMENTS, IF ANY, THAT MAY BE NECESSARY TO TURNO VER, DEBTORS, PROVISION FOR EXPECTED LOSS FOR COMPLETION OF THE C ONTRACT, THE LOSS BEFORE TAX AND EARNINGS PER SHARE REPORTED IN THE F INANCIAL STATEMENTS FOR THE YEAR ENDING MARCH 31, 2005. 18.1 THE CIT(A) DELETED THE ADDITION BY GIVING THE FOLLO WING FINDING: - 15.3. I HAVE GONE THROUGH THE SUBMISSIONS OF THE A PPELLANT. I FIND THAT THE ENTIRE ESCALATION CLAIM OF RS.19.54 CRORES IS IN DISPUTE WHICH IS ALSO NOT DISPUTED BY THE ASSESSING OFFICER. THE INCOME OF RS.15.22 CRORES WAS OFFERED DURING A.Y. 2005-06 SINCE THE SA ID ESCALATION CLAIMS THOUGH NOT APPROVED BY THE CONTRACTEE WAS WI THIN THE PERMISSIBLE LIMITS BASED ON THE ACTUAL WORK DONE. I T IS ALSO SEEN FROM THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER T HAT THE BALANCE RS.4.32 CRORES WAS IN RESPECT OF THE ESCALATION CLA IMS IN RESPECT OF WHICH THE WORK WAS NOT COMPLETED. I FIND FORCE IN T HE ARGUMENTS OF THE APPELLANT THAT ALTHOUGH THE CLAIM IS MADE, SINC E THE WORK IS NOT ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 24 CARRIED OUT IN RESPECT OF THE SAID ESCALATION CLAIM S MADE, THE INCOME CANNOT BE SAID TO HAVE ACCRUED DURING THE YEAR. THE SAID ESCALATION CLAIM CANNOT BE CONSIDERED AT PAR WITH THE OTHER ES CALATION CLAIMS OF RS.15.22 CRORES OFFERED DURING THE YEAR AS THE SAID AMOUNT OF RS.15.22 CRORES IS OFFERED ON THE GROUND THAT THE W ORK CORRESPONDING TO THE SAID ESCALATION CLAIM WAS DULY COMPLETED DUR ING THE YEAR WHEREAS THE WORK IN RESPECT OF THE BALANCE CLAIM OF RS.4.32 CRORES IS NOT CARRIED OUT. UNLESS THE WORK CORRESPONDING TO T HE BALANCE CLAIM OF RS.4.32 CRORES IS ALSO CARRIED OUT, IT CANNOT BE SA ID THAT THE SAID AMOUNT HAS ACCRUED TO THE APPELLANT. THIS WOULD BE CONTRARY TO THE REAL INCOME THEORY UNDER THE LAW WHERE THE APPELLAN T CAN BE TAXED ONLY IN RESPECT OF THE INCOME FOR WHICH THE RIGHT T O RECEIVE THE SAID INCOME HAD ACCRUED. ADMITTEDLY, THE NATURE OF TRANS ACTION SHOWS THAT THE APPELLANT DOES NOT HAVE THE RIGHT TO RECEIVE TH E SAID INCOME. MOREOVER, I ALSO FIND THAT THE APPELLANT HAS OFFERE D THE SAID AMOUNT OF RS.4.32 CRORES DURING A.Y. 2006-07 AND NO PREJUD ICE IS CAUSED TO THE DEPARTMENT. IN THE LIGHT OF THE ABOVE FINDINGS AND REASONS, I AM OF THE VIEW THAT THE SAID AMOUNT OF RS.4.32 CRORES CANNOT BE TAXED IN THE HANDS OF THE APPELLANT. IN THE RESULT, THIS GRO UND OF APPEAL IS ALLOWED. 18.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW THAT THE BALANCE CLAIM OF ` 4.32 CRORES HAS NOT ACCRUED TO THE ASSESSEE. THEREF ORE, IT WAS RIGHTLY EXCLUDED BY THE ASSESSEE WHILE ACCEPTIN G THE INCOME TO THE EXTENT OF ` 15.22 CRORES. UNLESS THE CONTRACTEE ACCEPTS THE ES CALATION CLAIM, NO INCOME CAN BE STATED TO HAVE ACCRUED TO THE PARTY A S THESE ARE CONTRACTUAL RECEIPTS AND NOT STATUTORY RECEIPTS. IN VIEW OF THI S, THERE IS NO REASON TO DIFFER FROM THE VIEW TAKEN BY THE CIT(A). WE, THEREFORE, C ONFIRM THE ORDER OF THE CIT(A) AND REJECT THE GROUND OF THE REVENUE. 19. GROUND NO.10 PERTAINS TO THE CLAIM OF TEMPORARY SITE INSTALLATION EXPENSES OF ` 1,06,72,800/- DELETED BY THE CIT(A). THE SAID EXPEN SE WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND T HAT ASSESSEE HAS NOT SUBMITTED THE REQUIRED DETAILS, NATURE, QUANTUM, GE NUINENESS AND CORRECTNESS OF THE SAID EXPENSES AND ALSO THAT THE SAID SITE EXPENSES ARE FOR THE SITES WHICH LAST FOR 5 TO 10 YEARS AND HENCE TH E SAME ARE NOT ALLOWABLE AS DEDUCTION DURING THE YEAR. BEFORE THE CIT(A) THE LE ARNED A.R. SUBMITTED THAT ALTHOUGH ASSESSEE HAS SUBMITTED MANY DETAILS, COMPL ETE DETAILS MAY NOT HAVE BEEN SUBMITTED DURING THE ASSESSMENT PROCEEDIN GS. FULL DETAILS OF TEMPORARY SITE INSTALLATION EXPENSES HAVE BEEN FILE D DURING THE REMAND ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 25 PROCEEDINGS VIDE SUBMISSION DATED 12.08.2008 AND TH E SAME RUNS FROM PAGE NO. 1090 TO 1144. THE AR ALSO ARGUED THAT NO ADVERS E COMMENTS HAVE BEEN GIVEN IN THE REMAND REPORT AS EVIDENT FROM THE PARA 13 OF THE REMAND REPORT. IT WAS THEREFORE SUBMITTED THAT THE CLAIM OF ASSESS EE OUGHT TO BE ACCEPTED AND THE DISALLOWANCE MADE SHOULD BE DELETED. THE CI T(A) DELETED THE SAME BY GIVING THE FOLLOWING FINDING: - 16.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT AND THE FINDINGS IN THE ASSESSMENT ORDER AND THE REMAND REP ORT. I FIND THAT THE APPELLANT HAS INCURRED EXPENDITURE FOR DEVELOPM ENT OF VARIOUS SITES AMOUNTING TO RS.533.64 LACS FOR THE YEAR. I A GREE WITH THE SUBMISSIONS OF THE APPELLANT THAT AT THE TIME OF HA NDING OVER OF THE SITE, BARE LAND IS HANDED OVER TO THE APPELLANT AND THAT THE APPELLANT IS REQUIRED TO SURFACE, LEVEL AND ADD VARIOUS FACIL ITIES TO THE LAND HANDED OVER. TO DO SO THE EXPENDITURES ARC INCURRED ON THE LAND OF OTHERS SO THAT THE WORK CAN BE STARTED. 1 ALSO FIND FORCE IN THE ARGUMENTS OF THE APPELLANT THAT THE EXPENSE INCURRE D ON SUCH LAND CANNOT RESULT IN ENDUING BENEFIT AS THE APPELLANT I S FORCED TO VACATE THE SITE ON ITS COMPLETION THEREBY LEAVING THE TEMP ORARY SITES AS IT IS. I AM, THEREFORE, OF THE VIEW THAT THE DISALLOWANCE OF THE TEMPORARY SITE EXPENSE IS INCORRECT. THIS GROUND OF APPEAL IS, THE REFORE, ALLOWED. 19.1 WE AGREE WITH THE FINDINGS OF THE CIT(A). WE D O NOT FIND ANY REASON TO INTERFERE WITH THE LEARNED CIT(A)S ORDER IN DELETI NG THE DISALLOWANCE OF `1,06,72,800/- OUT OF TEMPORARY SITE EXPENSES. EVEN OTHERWISE, IF IT IS TO BE CONSIDERED AS CAPITAL EXPENDITURE, THE SAME IS ALSO ELIGIBLE FOR 100% DEPRECIATION BEING TEMPORARY STRUCTURES. LOOKING IT EITHER WAY, THE AMOUNT IS TO BE ALLOWED AS DEDUCTION. HENCE, HIS ORDER IN THIS REGARD IS CONFIRMED AND GROUND NO.10 OF THE REVENUE IS REJECTED. 20. GROUND NO. 11 PERTAINS TO ADDITION OF ` 3,67,11,191/- MADE ON ACCOUNT OF UNEXPLAINED TRANSACTIONS WITH 22 PARTIES. THE A. O. HELD THAT ASSESSEE DID NOT FURNISH THE DETAILS OF THE SAID 22 PARTIES AND HENCE THE PAYMENTS COULD NOT BE VERIFIED. BEFORE THE CIT(A) ASSESSEE HAD INI TIALLY SUBMITTED THAT ASSESSEE WAS NOT ALLOWED SUFFICIENT TIME AND THAT T HE DETAILS ALREADY ON RECORD WERE NOT VERIFIED PROPERLY. IT WAS ALSO SUBM ITTED THAT DURING THE REMAND PROCEEDINGS, ASSESSEE HAD SUBMITTED THE DETA ILS RELATING TO 22 PARTIES AS MENTIONED ALONG WITH THE NAME, MAILING A DDRESSES, AND TRANSACTIONS WITH THEM. THE SAID INFORMATION WERE D ULY VERIFIED BY THE ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 26 ASSESSING OFFICER IN THE REMAND PROCEEDINGS. IT WAS THEREFORE ARGUED BY THE A.R. THAT THE SAID BALANCES ARE VERIFIED AND THAT N O DISCREPANCY IS NOTED BY THE ASSESSING OFFICER. THE CIT(A) DELETED THE ADDIT ION BY GIVING A FINDING AS UNDER: - 18.3. I HAVE GONE THROUGH THE SUBMISSIONS OF THE A PPELLANT, AND THE FINDINGS IN THE REMAND REPORT. I FIND THAT THOUGH T HE DETAILS AND INFORMATION WERE NOT SATISFACTORILY GIVEN TO THE AS SESSING OFFICER IN THE ASSESSMENT PROCEEDINGS, THE SAID DETAILS WERE L ATER SUBMITTED BY THE APPELLANT DURING THE REMAND PROCEEDINGS (PAGE N O. 574 TO 579, 671A TO 704 AND 758 TO 779 OF THE PAPER BOOK DATED 12TH AUGUST, 2008). THE ASSESSING OFFICER HAS ALSO STATED IN HIS REPORT THAT THE SUNDRY CREDITORS ABOVE 50 LAKHS COULD NOT HE CONFIR MED BY THE APPELLANT. HOWEVER, NO SPECIFIC DEFECT OR EVIDENCE IS BROUGHT ON RECORD BY THE ASSESSING OFFICER TO PROVE THAT THE S AID CREDITORS AND THE PAYMENTS MADE TO THEM ARE NOT GENUINE. I FIND T HAT MERELY BECAUSE ASSESSEE HAD MADE EXCESS PAYMENT TO THE CRE DITORS IN DUE COURSE OF BUSINESS, IT WOULD NOT BE A SUFFICIENT GR OUND TO HOLD THAT THE SAID PAYMENTS ARE NOT GENUINE. MOREOVER, THE ADVANC E PAYMENT IN NO MANNER CAN BE TREATED AS INCOME OF THE APPELLANT. T HE ASSESSING OFFICER HAS NOT IDENTIFIED ANY PAYMENTS OR PURCHASE S FROM THESE PARTIES AS INGENUINE OR CLOUDED WITH MALAFIDE INTEN TIONS. THE DECISIONS RELIED UPON BY THE ASSESSING OFFICER ARE ALSO NOT OF ANY HELP AS THE ASSESSING OFFICER HAS NOT BROUGHT ANY E VIDENCE ON RECORD THAT THE APPELLANT HAD ENTERED INTO BOGUS PURCHASE TRANSACTIONS. I AM THEREFORE, CONVINCED THAT THE ADDITION CANNOT BE MADE FOR THE PAYMENTS MADE TO THESE PARTIES WHEN THE APPELLANT H AD DISCHARGED THE ONUS BY PRODUCING AND SUBMITTING THE DETAILS AN D ADDRESS OF THE PARTIES AND THAT THE ASSESSING OFFICER WAS NOT ABLE TO FIND ANY INGENUINITY IN THE TRANSACTIONS OF THE APPELLANT. T HIS ADDITION, THEREFORE, DESERVES TO BE DELETED. THIS GROUND OF A PPEAL IS, ACCORDINGLY, ALLOWED. 20.1 AFTER CONSIDERING THE RIVAL CLAIMS AND EXAMINI NG THE ISSUE, WE AGREE WITH THE FINDINGS OF THE CIT(A). ACCORDINGLY THIS G ROUND OF THE REVENUE IS REJECTED. 21. REVENUE HAS RAISED GROUND NO. 12 THAT THE CIT(A ) ERRED IN HOLDING THAT THE STATUTORY DISALLOWANCE UNDER SECTION 40(A)(IA) CANNOT BE ADDED TO THE TOTAL INCOME ESTIMATED. WE FIND THAT THIS LEGAL GRO UND DOES NOT ARISE OUT OF THE ORDER OF THE CIT(A). WHILE REJECTING THE BOOKS OF ACCOUNT THE A.O. ESTIMATED THE INCOME AT 5% OF THE GROSS RECEIPTS AN D IN DOING SO HE ALSO INVOKED THE PROVISIONS OF SECTION 40(A)(IA) ON CERT AIN AMOUNTS STATED TO BE ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 27 AMOUNTS ON WHICH TDS WAS NOT DEDUCTED. THE CIT(A) D ID NOT APPROVE REJECTION OF BOOKS OF ACCOUNT, THEREFORE ESTIMATION OF INCOME AT 5% STANDS DELETED. WITH REFERENCE TO THE DISALLOWANCE UNDER S ECTION 40(A)(IA), IT WAS THE CONTENTION THAT ASSESSEE ITSELF HAS DISALLOWED AN A MOUNT OF ` 25,25,87,526/- AND THE AMOUNT OF ` 3,38,27,593/- DISALLOWED BY THE A.O. WAS PART OF TH E ALREADY DISALLOWED BY THE ASSESSEE WHILE FILING TH E RETURN OF INCOME. THESE ASPECTS WERE REMANDED TO THE A.O., WHO WAS DIRECTED TO EXAMINE THE ISSUE FACTUALLY. THE A.O., HOWEVER, REJECTED THE CONTENTI ON STATING THAT ASSESSEE HAS NOT FURNISHED DETAILS. ASSESSEE ALSO CONTENDED THAT PROVISIONS OF SECTION 40(A)(IA) HAS BEEN AMENDED RETROSPECTIVELY W.E.F. A .Y. 2005-06 AND ANY PAYMENT MADE BEFORE FILING OF RETURN THE TAX DEDUCT ED AT SOURCE IS TO BE EXCLUDED FROM CONDITION UNDER SECTION 40(A)(IA). ON THIS ISSUE THE A.O. HAS NOT OFFERED ANY COMMENTS. THE CIT(A), HOWEVER EXAMI NED THE ISSUE, RECONCILED ALL TAX DEDUCTED AT SOURCE IN DETAIL WHI LE CONSIDERING THE ISSUE OF EXAMINATION OF REJECTION OF BOOKS OF ACCOUNT AND HE CONSIDERED THIS ISSUE AS AN ACADEMIC ISSUE. BEFORE US, THE LEARNED COUNSEL R EFERRED TO THE COMPLETE DETAILS AND SUBMITTED THAT ON FACTS THE AMOUNT OF ` 3,38,22,593/- DISALLOWED BY AO WAS PART OF THE AMOUNT DISALLOWED BY THE ASSE SSEE ITSELF, THEREFORE, IT WAS A DOUBLE ADDITION. HE, HOWEVER, HAS NO OBJECTIO N IF THE MATTER IS EXAMINED AGAIN BY THE A.O ON FACTS. 21.1 WE HAVE CONSIDERED THE ISSUE. AS POINTED OUT T HE ISSUE WHICH WAS RAISED BY THE REVENUE IN THE GROUND DOES NOT ARISE OUT OF THE ORDER OF THE CIT(A) AS THE ISSUE OF ESTIMATION OF INCOME WAS REJ ECTED. SO DISALLOWANCE UNDER SECTION 40(A)(IA) CAN BE MADE IF FACTS SO WAR RANT. IT WAS ASSESSEES CONTENTION THAT THESE AMOUNTS DISALLOWED BY THE A.O . WERE PART OF AMOUNT DISALLOWED BY IT AND SO THERE IS NO NEED FOR DISALL OWING THE AMOUNTS AGAIN. SUBJECT TO VERIFICATION OF THIS CONTENTION BY THE A .O., WE ARE OF THE OPINION THAT THERE IS NO MERIT IN REVENUES GROUND. ACCORDI NGLY THE GROUND STANDS REJECTED. HOWEVER, THE A.O. IS DIRECTED TO EXAMINE THE FACTS ON THE CONTENTION THAT THE AMOUNTS STAND ALREADY INCLUDED IN THE AMOU NT DISALLOWED SUO MOTO BY THE ASSESSEE. ITA NO.4679,4680 &4492/MUM/2009 M/S. ITD CEMENTATION INDIA LTD. 28 22. IN THE RESULT, REVENUE APPEALS ARE DISMISSED AN D ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH OCTOBER 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 25 TH OCTOBER 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXI, MUMBAI 4. THE CIT I, MUMBAI CITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI NG: