DCIT 4(2), MUMBAI V. GOPALDAS VISRAM & CO. LTD, MUMBAI

ITA 4584/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9658 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 17-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 04-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KALARA
• Keywords: Bogus purchase; Capital asset; Depreciation; Business expenditure; Loose papers; Opportunity of being heard; Principle of natural justice; Additional depreciation; Earning of tax free income; Period of limitation; Additional evidence; Tangible material; Fair market value; Corroborative evidences; Avoidance of tax; Accommodation entries; Assessment record; Retraction; Condonation of delay; Revenue expenditure; Capital expenditure
• Section: 69C; 133A; 234B; 14A; 133(6); 37(1); 80G; 201(1); 147; 131; 69; 148; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE SHRI C.N. PRASAD , JM AND SHRI RAJESH KUMAR, AM ITA NO. 3513 , 3514 , 3 515,3616 AND 351 7 /MU M/201 6 ( / ASSESSMENT YEAR S : 2010 - 11 AND 2 0 08 - 09 ,2009 - 10 , 2011 - 12,2012 - 13 ) GOPALDAS VISRAM AND CO. LTD, 8, FIDA BUILDING, 18, SHAMALDAS MARG, MUMBAI - 400002 / VS. DY. COMMISSIONER OF INCOME TAX - 4 (2) , MUMBAI ( / APPELLANT) : ( / RESPONDENT ) ITA NO.3518/MUM/2016 ( / ASSESSMENT YEAR: 2009 - 10) GOPALDAS VISRAM AND CO.LTD, 8, FIDA BUILDING, 18, SHAMALDAS MARG, MUMBAI - 400002 / VS. ASSTT. COMMISSIONER OF INCOME TAX - 4(2), MUMB AI ( / APPELLANT) : ( / RESPONDENT ) ITA NO.458 4 , 4585 , 4586, 4587 AND 4588 /MUM/2016 ( / ASSESSMENT YEARS: 2008 - 09 , 2009 - 10 ,201 0 - 11,201 1 - 12 AND 2012 - 13 ) DY. COMMISSIONER OF INCOME TAX - 4(2), ROOM NO.640, 6 TH FLOOR, AA YAKAR BHAVAN M K ROAD, MUMBAI - 400020 / VS. GOPALDAS VISRAM AND CO.LTD, MUMBAI. ( / APPELLANT) : ( / RESPONDENT ) 2 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS ./ PAN : AAAC CG4503F ( / APPELLANT) : ( / RESPONDENT ) / ASSESSE E BY : SHRI RAJEEV KHANDELWAL / REVENUE BY : MISS VIDISHA KALARA / DATE OF HEARING : 23 .6. .2017 / DATE OF PRONOUNCEMENT : 21. 9 . 201 7 / O R D E R PER BENCH : THE SE CROSS APPEALS FILED BY THE A SSESSEE AND THE REVENUE RELATE TO THE ASSESSMENT YEARS 2008 - 09 TO 2012 - 13. ALL THESE APPEALS ARE DIRECTED AGAINST THE SEPARATE ORDER DATED 30.3.2016 PASSED BY LD CIT(A) - 9 . SINCE I SSUES ARE COMMON IN A LL THESE APPEALS , THEY ARE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. AT THE TIME OF HEARING, THE LD. DR SUBMITTED THAT THERE IS A DELAY OF 367 AND 366 DAYS IN FILING APPEAL S BEARING NO.4585,4586 , 4587 AND 4588 /MUM/2016 RESPECTIVELY A ND SUBMITTED THAT THE DELAY WA S CAUSED BECAUSE OF THE OFFICER IN - CHARGE OF THESE APPEALS WERE CHANGE D FREQUENTLY AND WHEN IT WAS REALIZED THAT THE FILING OF APPEALS WAS DELAYED THEREAFTER THE INCUMBENT OFFICER PROCEEDED TO PREPARE THE APPEAL PAPERS AND G O T SANCTIONED FROM THE HIGHER AUTHORITIES. THE LD. DR SUBMITTED THAT THE REVENUE DEPARTMENT IS A GOV ERNMENT DEPARTMENT AND MANAGED BY THE GOV ERNMENT EMPLOYEES. THUS THE REVENUE HAS TO DEPEND ON THE SE 3 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS EMPLOYEES AND THEREFORE DELAY CANNOT BE ATTRIBUTED TO A NYONE . THIS DELAY IS NOT MOTIVATED NOR INTENTIONAL ONE AS NO ONE IS PERSONALLY INTERESTED OR HAS GAINED OUT OF THE ADMISSION OF THESE APPEALS . THE LD D R SUBMITTED BEFORE THE BENCH THAT THE JUSTICE AND RIGHT OF BEING HEARD ON MERIT SHOULD NOT BE DENIED ON M ERE TECHNICAL REASONS. HENCE, THE LD.DR PRAYED THAT THE DELAY IN FILING THESE APPEALS BE CONDONED. 3 . ON THE OTHER HAND, THE LD. AR , HEAVILY OPPOSED THE SUBMISSIONS OF T HE LD. D R SEEKING CONDONATION OF DELAY IN FILING THE APPEALS. 4. AFTER HEARING BOTH T HE PARTIES, AND ON PERUSAL OF THE RECORD WE FIND THAT THE DELAY IN FILING THESE APPEALS ARE NOT INTENTIONAL ONE AS THERE IS NO VESTED INTEREST ON THE PART OF ANY OFFICER WORKING IN REVENUE DEPARTMENT. IF THE DELAY IS NOT CONDONED IT WOULD BE AGAINST THE P RINCIPLE OF N ATUR AL JUSTICE WHICH IS NOT THE INTENT OF LEGISLATION. WE ALSO FIND THAT THE REASONS FOR DELAY ADVANCED BY THE LD. DR ARE GOOD, GENUINE AND REASONABLE AND HENCE WE ACCEPT THE SAME BY ADMIT TING THESE APPEALS FOR ADJUDICATION. 5 . SINCE THE IS SUES AGITATED IN ALL THESE APPEALS FILED BY THE ASSESSEE AND REVENUE ARE ALMOST IDENTICAL IN NATURE, WE SHALL TAKE UP THE APPEAL S RELATING TO THE ASSESSMENT YEAR 20 1 0 - 1 1 FILED BY THE REVENUE FIRST AS THIS BEING THE LEAD CASE. THE FACTS RELATING TO THE ISS UES UNDER CONSIDERATION ARE DISCUSSED HEREUNDER WITH REFERENCE TO A.Y 20 10 - 11 . 4 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 6. GROUNDS OF APPEAL TAKEN BY THE REVENUE IN ITA NO.458 6 /MUM/2016 FOR ASSESSMENT YEAR 2010 - 11 IS AS UNDER : 1. THE LD. CIT(A) ERRED IN GIVING RELIEF OF A TOTAL OF RS. 5,78,94,079 / - IN RESPECT ADDITIONS MADE U/S 69A/69C ON ACCOUNT OF BOGUS PURCHASES/UNPROVEN PURCHASES OF RAW MATERIAL AND PACKING MATERIAL TO THE ASSESSEE BASED ON NEW EVIDENCES SUBMITTED BY THE ASSESSEE WITHOUT GIVING THE ASSESSING OFFICER AN OPPORTUNITY TO EXAMINE T HE SAME, THEREBY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. THE BREAKUP OF THE AMOUNT AS DISCUSSED IN VARIOUS PARAGRAPHS IN ASSESSMENT ORDER IS LISTED BELOW: - A) PURCHASE OF RAW MATERIAL & PACKING MATERIAL (PARA - 3) - RS. 51,25,885 /- B) PURCHASE OF PACKI NG MATERIAL (PARA 4) - RS. 23,20,807 / - C) PURCHASE OF RAW MATERIAL U/S.69A/69C (PARA 5) - RS. 3 8 ,04,521/ - (D) PURCHASE OF RAW MATERIAL U/S 69A/69C (PARA 6) - RS. 1,62,860/ - (E) PURCHASE OF FROM HAWALA PARTIES (PARA 12 ) - RS. 1,68,31,380/ - (F) PURCHASES U/ S.69/69C (PARA3 2 ) - RS.2, 96,48,62 6 / - TOTAL == 5,78,94,079 / - 2. THE LD. CIT(A) HAS ERRED IN GIVING RELIEF TO THE ASSESSEE OF RS. 29,39,122/ - ON ACCOUNT OF CLOSING STOCK VALUATION, WHEN THE ASSE SS ING OFFICER HAD POINTED OUT SPECIFIC DISCREPANCIES IN EXCI SE RECORDS AND BIN CARE STOCK OF T HE AS S ES SEE . 3. . THE LD. CIT(A) HAS ERRED IN GIVING RELIEF TO THE ASSESSEE OF RS.29,39,122/ - ON ACCOUNT OF CLOSING STOCK VALUATION, BY ACCEPTING THE NEW SUBMISSIONS/EVIDENCES FROM THE ASSESSEE WITHOUT GIVING THE ASSESSI NG OFFICER A CHANCE TO EXAMINE THE S A ME, THUS VIOLATING T HE PRINCIPLE OF NATURAL JUSTICE . 4. THE LD. CIT(A) ERRED IN GIVING RELIEF OF RS.3,76,000/ - TO THE ASSESSEE ON ACCOUNT OF LEGAL AND PROFESSIONAL FEES WHEN THE ASSESSEE FAILED TO PRODUCE PARTIES AND T HE PARTIES DID NOT COMPLY WITH SUMMONS U/S 131 AND HENCE DID NOT DISCHARGE ONUS OF FULLY PROVING THE EXPENSES INCURRED. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSEE OF RS.1,58,40,500/ - OF AMOUNT PA ID TO MIDC; 5 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 6. THE LD. CIT(A) ERRED IN GIVING RELIEF OF RS.16,57,094/ - ON ACCOUNT OF CAPITAL EXPENDITURE DISALLOWED BY THE AO, E V EN WHEN THE ASSESSEE HAD PURCHASED AN ASSET GIVING HIM ENDURING BENEFIT . 7. GIVEN THE FACTS AND CIRCUMSTANCES OF THE C ASE , THE LD.CIT(A) ERRED IN GIVING RELIEF OF RS.6,38,679/ - ON ACCOUNT OF SHIFTING OF PROFIT TO M/S DEEP ENTERPRISE. IN ADDITION TO THESE GROUNDS THE REVENUE HAS ALSO TAKEN FOLLOWING ADDITIONAL GROUNDS: 1 THE LD. CIT(A) ERRED IN ADMITTING NEW EVIDENCES UND ER RULE 46A(4) AS THE AO HAD SOUGHT DETAILS/ CLARIFICATIONS ON THE VERY SAME ISSUES DURING ASSESSMENT PROCEEDINGS AND THE ASSESSEE HAD FAILED TO PRODUCE THE SAME DESPITE REPEATED OPPORTUNITIES PROVIDED. 2 THE NEW EVIDENCES WERE AT BEST TO ADMITTED UNDER RULE 46A(1) AND OPPORTUNITY UNDER RULE 46A(3) SHOULD HAVE BEEN GIVEN TO THE AO, WHICH WAS DENIED BY THE LD. CIT(A) IN CLEAR VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. 3 RELIANCE OF CIT(A) ON CIT VS SAGAR CONSTRUCTIONS 56 TAXMAN.COM 343 (PATNA) IS MISPL ACED AS THE FACTS OF THE CASE ARE DIFFERENT. 4 THE ORDER OF THE AO MAY BE UPHELD AND RELIEF GIVEN BY LD. CIT(A) MAY BE REVERSED. 7. WE WILL FIRST DISPOSE OF THE ADDITIONAL GROUNDS FILED BY THE REVENUE. 7. 1 THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE FILED RETURN OF INCOME ON 30.9.2010 DECLARING TOTAL INCOME OF RS. 3,58,47,950/ - . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PHARMACEUTICAL FORMULATION S AND IS A CLOSELY HELD PUBLIC LIMITED COMPANY HAVING ITS REGISTERED OFFICE AT OFF ICE NO.18, 1 ST FLOOR, 8 - FIDA BUILDING, SHAMALDAS GANDHI MARG, MUMBAI - 400002 WITH ADMINISTRATIVE OFFICE AT GROUND FLOOR, 6 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS PLOT NO. 434, PERS I AN APARTMENT, V P ROAD, ANDHERI(W) - 400058 . THE AO RECEIVED THE INFORMATION FROM THE SALES TAX DEPARTMENT, MUMBAI, TH AT THE ASSESSEE WAS ONE OF THE BENEFICIARY OF ACCOMMODATION ENTRIES FROM VARIOUS HAWAL A DEALERS AND THEREAFTER A SURVEY ACTION U/S 133A WAS CONDUC T ED BY THE DEPARTMENT ON 19.12.2012 WHEREIN VARIOUS ANOMALIES WERE FOUND IN THE RECORDS MAINTAINED BY THE ASSE SSEE . IN THE STATEMENT RECORDED ON OATH U/S 13 1 OF THE ACT DATED 20.12.2012, THE ASSESSEE DECLARED A SUM OF RS.10 CRORES COVERING THE ASSESSMENT YEARS 2008 - 09 TO 2012 - 13 ON VARIOUS ANOMALY AND DISCREPANC IES. HOWEVER, LATER ON THE DIRECTOR OF THE ASSES SEE COMPANY VIDE AFFIDAVIT DATED 15.2.2013 RETRACTED THEIR STATEMENT WITH DRAWING THE SURRENDER AND CONSEQUENTLY NOT DECLAR ING RS.10 CRORES IN THE RETURN OF INCOME FILED FOR THESE ASSESSMENT YEARS. THE AO, THEREAFTER ISSUED NOTICE U/S 148 OF THE ACT ON 26.3.2013 WHICH WAS REPLIED BY THE ASSESSEE VIDE ITS LETTER DATED 3.4.2013 AND ALSO REQUESTED TO SUPPLY THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT. THE ASSESSEE ASKED THE REASONS VIDE LETTER D ATED 16.9.2013 FOR REOPENING THE ASSESSMENT AND FILED OBJECTION ON 18.11.2013 WHICH WERE DISPOSED OFF BY THE AO VIDE ORDER DATED 16.12.2013. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE VIDE LETTER DATED 25.3.2014 WAS ASKED TO SHOW CAUSE AS TO WHY THE SPECIAL AUDIT SHOULD NOT BE CONDUCTED U/S 14 2(2A) OF THE ACT IN VIEW OF COMPLEXITY INVOLVED IN THE ACCOUNTS AND IN ORDER TO BRING THE INCOME TO TAX CORRECTLY , WHICH WAS 7 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS OBJECTED BY THE ASSESSEE VIDE LETTER DATED 27.3.2014 AND THE SAID OBJECTIONS FILED BY THE ASSESSEE WERE ALSO DISPOSED OFF VIDE ORD ER DATED 27.3.2014. THE AO REFERRED THE CASE OF THE ASSESSEE FOR SPECIAL AUDIT U/S 142(2A) OF THE ACT TO M/S SGCO, CHARTERED ACCOUNTANTS AND THE SAID FIRM WAS ASKED TO GIVE A REPORT AND DETAILED FINDINGS ON THE ISSUE MENTIONED WITHIN A PERIOD OF SIXT Y DAYS. THE SAID FIRM SUBMITTED ITS REPORT ON 22.7.2014 AFTER OBTAINING VARIOUS EXTENSIONS FROM TIME TO TIME. THE AO CONFRONTED THE REPORT TO THE ASSESSEE TO FILE COMMENTS THERE ON ON OR BEFORE 27.8.2014. THEREAFTER T HE ASSESSEE REPLIED TO T HE VARIOUS PO INTS IN THE REPORT OF THE SPECIAL AUDITOR BY FILING VARIOUS REPLIES FROM TIME TO TIME . 8. THE LD.DR WHILE ARGUING THE ADMISSIONS OF THE ADDITIONAL GROUNDS SUBMITTED THA T THE ADDI TI ONAL G R OUNDS WERE MATERIALLY TO BE RAISED IN THE ORIGINAL APPEAL MEMO BUT D UE TO INADVERTENCE, THE SAME COULD NOT BE RAISED. THE LD. DR SUBMITTED THAT THE ISSUE RAISED IN THE ADDITIONAL GROUNDS OF APPEAL EMANATED FROM THE ASSESSMENT RECORD S AVAILABLE BEFORE THE AUTHORITIES BELOW AND REQUIRE D NO VERIFICATION . THEREFORE, THE LD. DR PRAYED BEFORE THE BENCH THAT THE SAME BE ADMITTED AND ADJUDICATED ACCORDINGLY . 8.1. HAVING HEARD BOTH THE PARTIES ON THE ISSUE IF ADMISSION OF LEGAL GROUNDS AS FILED BY THE REVENUE, WE ARE CONVINCED THAT THE GROUNDS RAISED BY THE REVENUE AROSE OUT OF THE RECORDS OUT OF FILING SOME EVIDENCES 8 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS BEFORE THE CIT(A) BY THE ASSESSEE AND THE ADMISSION WHEREOF REQUIRE NO VERIFICATION. ACCORDINGLY WE ARE ADMITTING THE SAME FOR ADJUDICATION. 9. THE ISSUE RAISED IN THE ADDITIONAL GROUND NO.1 IS REGARDING T HE ADMISS ION OF NEW EVIDENCE UNDER RULE 46A OF THE INCOME TAX RULES, 1962 BY CIT(A) . THE LD.DR SUBMI TTED THAT THERE HAS BEEN CLEAR VIOLATION OF PRINCIPLE OF NATURAL JUSTICE BY T HE LD.CIT(A) BY ADMITTING THE ADDITIONAL EVIDENCES/ DOCUMENTS SUBMITTED BY THE ASSESSEE DURING T HE APPELLATE PROCEEDINGS UNDER RULE 46 A ( 4 ) OF THE INCOME TAX RULE, 1962 AS THE DOCUMENTS/EVIDENCES WERE TO BE ADMITTED/CONSIDERED UNDER RULE 46A(1) ON FULFILLMENT OF CERTAIN CONDITION S GIVEN UNDER SUB - RULE 8 OF RULE 46A(1). THE LD.DR ARGUED THAT THE LD.CIT(A) WAS DUTY BOUND TO PROVIDE THE AO AN OPPORTUNITY TO EXAMINE THESE DOCUMENTS BEFORE ADMITTING AND RELYING ON THE SAME. THE LD. DR SUBMITTED DURING THE ASSESSMENT PROCEEDING THE AO SPECIFICALLY ASKED THE ASSESSEE ON VARIOUS DA T ES TO FURNISH THE DETAILS/CLARIFICATION ON VARIOUS ISSUES INCLUDED ON VARIOUS POINTS IN THE REPORT OF SPECIAL AUDIT OR . S INCE THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE S / EXPLANATION S ON VARIOUS POINTS RAISED DESPITE FAIR , AND REASONABLE OPPORTUNITY GIVEN T O THE ASSESSEE, T HE ACTION OF LD.CIT(A) IN ADMITTING THE S E EVIDENCE S U/R 46A (4) WAS CLEAR VIOLATION OF PRINCIPLE OF NATURAL JUSTICE. THE LD. DR CONTENDED THAT BEFORE ADMISSION OF ADDITIONAL EVIDENCES B Y THE LD.CIT(A) , THE NECESSARY CONDITION S AS ENVISAGED UNDER RULE 46A( 2) WERE TO BE FULFILLED AND THE AO WAS TO BE GIVEN AN 9 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS OPPORTUNITY UNDER SUB - RULE (3A) OF RULE 46A. FINALLY THE LD.DR PRAYED BEFORE THE BENCH IN VIEW OF THE VIOLATION OF PRINCIPLE S OF NATURAL JUSTICE AND VARIOUS PROCEEDINGS AS LAID DOWN UNDER RULE 46A, THE ORDER OF T HE LD. CIT(A) SHOULD BE QUASHED AND THAT OF AO BE RESTORED . 10. THE LD.AR OBJECTED TO THE ISSUE RAISED BY THE LD.DR THAT THE LD.CIT(A) WAS WRONG IN ADMITTING THE NEW EVIDENCES/ DOCUMENTS U/R 46A(4) OF THE RULES S T ATIN G THA T THE LD. CIT(A) SPECI FICALLY REQUIRED TH E ASSESSEE TO F URNISH THE EVIDENCES IN VIEW OF THE FA CT THAT T HE LD.CIT(A) CHOSE TO EXAMINE THE F A CTS OF THE CASE IN DETAIL IN EXERCISE OF POWERS U/S 25 0(4) OF THE ACT. THE LD. AR SUBMI TT ED TH A T THE LD.CIT(A) HAS POWER TO CALL FOR ADD ITIONAL MATERIAL /EVIDENCES WHICH HE DEEMS FIT TO ENABLE HIM TO DISPOSE OF THE GROUND S OF APPEAL. 11. THE LD.AR HEAVILY RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT RENDERED IN THE CASE OF SMT. PRABHAVATI S. SHAH VS CIT(1998) 231 IT R 1 (BOM) ,ORISSA HIGH COURT IN B.L.CHOUDH URY VS CIT (1976)105 ITR 371 AND ITO VS INDUSTRIAL ROADWAYS 112 ITD 293(MUM) AND REQUESTED THE BENCH TO DISMISS THE ADDITIONAL GROUND RAISED BY THE REVENUE AS THE INFORMATION AND DOCUMENTS WE RE NOT FILED BY THE A SSESSEE ON ITS OWN TO WHICH THE LD.CIT(A) IS NOT OBLIGED U/R 46A(2) TO GIVE OPPORTUNITY TO THE ASSESSING OFFICER BUT T HE INFORMATION /DETAILS/EVID ENCES W ERE CALLED FOR BY T HE LD. CIT(A) UNDER RULE 46A (4) AND THEREFORE T HE 10 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS ADDITIONAL GROUND RAISED BY T HE RE VENUE OF NOT OFFERING AND AFFORDING ANY OPPORTUNITY TO THE AO TO CONFRONT THESE RECORD S WAS WITHOUT ANY MERIT AND SUBSTANCE AND DESERVE TO BE DISMISSED. THE LD COUNSEL FURTHER SUBMITTED THAT THE EVIDENCES SUBMITTED BEFORE THE LD CIT(A) ARE NOT NEW EVID ENCES AND ALL THESE EVIDENCES WERE IN FACT FURNISHED BEFORE SPECIAL AUDITORS W AS CONDUCTED AUDIT U/S 142(2A) OF THE ACT AT THE INSTANCE OF LD A.O. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL PLACED BEFORE US INCLUDING THE IM PUGNED ORDERS AND CASE LAW RELIED UPON BY THE ASSESSEE. WE FIND THAT THE LD.CIT(A) HAS CALLED FOR INFORMATION /DETAILS FROM THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS WHICH WAS FILED BY THE ASSESSEE ACCORDINGLY . WE FURTHER FIND THAT EVEN FRO M THE FACTS BEFORE US THESE DETAILS WERE NOT FILED BY THE ASSESSEE ON ITS OWN AND THEREFORE NOT COVERED BY THE PROVISIONS OF RULE 46A(2) OF THE ACT RESULTING IN NO VIOLATION OF PRINCIPLE S OF NATURAL JUSTICE . MOREOVER, THE CASE OF THE ASSESSEE IS ALSO SQUA RELY COVERED BY THE RATIO LAID DOWN IN THE DECISIONS RELIED UPON BY THE LD AR . ACCORDINGLY, THE ADDITIONAL GROUNDS RAISED BY THE REVENUE ARE DISMISSED. FURTHER THE EVIDENCES CALLED FOR BY THE CIT(A) AND FILED BY THE ASSESSEE WERE ALSO BEFORE THE SPECIAL AU DITORS IN THE PROCEEDINGS U/S 142(2A) OF THE ACT. 11 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS HENCE THEY ARE NOT NEW EVIDENCES FILED FOR THE FIRST TIME BEFORE THE LD CIT(A). 13. COMING TO THE REGULAR GROUND S OF APPEAL NO 1(A) TO 1(F) RAISED BY THE REVENUE IN THIS APPEAL FOR THE ASSESSMENT YEAR I S AGAINST THE DELETION OF RS.5,78,94,079/ - MADE U/S69A/69C ON ACCOUNT OF BOGUS PURCHASES/UNPROVEN PURCHASES OF RAW MATERIAL S AND PACKING MATERIAL S BASED ON NEW EVIDENCES SUBMITTED BY THE ASSESSEE WITHOUT GIVING THE ASSESSING OFFICER AN OPPORTUNITY TO EXAMI NE THE SAME . 14. FACT S IN BRIEF ARE THAT THE AO , DURING THE COURSE OF ASSESSMENT PROCEEDINGS , CALLED FOR CERTAIN DETAILS IN RESPECT OF RAW MATERIALS FROM T HE ASSESSEE WHICH WERE FILED ACCORDINGLY . THE AO CARRIED OUT ANALYSIS OF THE REPORT OF THE SPECIAL A UDITOR APPOINTED U/S 142(2A) OF THE ACT VIS - A - VIS REPLY OF THE ASSESSEE TO THE VARIOUS POINTS RAISED BY THE AUDITORS IN ITS REPORT AND FOUND THAT THERE WERE SOME DISCREPANCIES AS NOTICED BY THE SPECIAL AUDITOR FOR WHICH NO REPLY HAS BEEN FILED BY THE ASSES SEE WITH RESPECT TO RS.36,56,925/ - QUA RAW MATERIAL AND AN AMOUNT OF RS.14,91,460/ - FOR PACKING MATERIAL . THE DETAILS OF DISCREPANCIES ARE AS UNDER : PARTICULARS FOR RAW MATERIAL (RS.) FOR PACKING MATERIAL (RS.) DISCREPANCY AS REPORTED BY THE AUDITOR 36,56,925 14,91,460 LESS: DISCREPANCY A MATCHED BY YOU A PER YOUR REPLY DATED 6.8.2014 NIL 22,500 BALANCE UNRESOLVED DISCREPANCIES - SUPPORTING NOT PROVIDED BY THE 36,56,925 13,58,958 12 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS ASSESSEE - VARIANCE IN QTY AS PER PURCHASE REG AND QC REG. - VARIANCE IN PRODUCT NAME AS PE R SUPPORTING PROVIDED NIL NIL 103,915 6 , 088 TOTAL OF UNRESOLVED DISCREPANCIES 36,56,925 14,68,960 FINALLY THE AO ADDED THE SAME UNDER SECTION 69 A/69 C ON THE GROUND THAT THE ASSESSEE HAS NOT GIVEN ANY DETAILS . SIMILARLY, IN RES PECT OF THE GROUND OF APPEAL NO 1(B) THE AO MADE AN ADDITION OF RS.23,20,807/ - ON ACCOUNT OF PACKING MATERIALS BY OBSERVING AND HOLDING AS UNDER : 4.5 THEREFORE, BY RELYING ON SECTION 114(G) OF THE INDIAN EVIDENCE ACT , IT IS PRESUMED THAT HE ASSESSEE H A S NOT GIVEN D ETAILS BECAUSE IT WOULD HA V E BE E N AGAINST IT. THERE IS NO OPTION BU T TO MAKE ADDITION IN RESPECT OF THESE MATERIALS PURCHASED OUT OF BOOKS ON SOME REASONABLE BASIS BOOKS ON SOME REASONABLE BASIS. SO, VALUE OF QTY OF RAW MATERIAL WHICH WERE POINT ED OUT BY THE AUDITOR COMES TO RS.18,44,149/ - (5533 X RS.333.30/KG). RAW MATERIA L CONSUMED DURING THE YEAR ARE AMOU N TING TO RS.31,98,22,141 AND PROPORTION ATE AMOUNT OF DISCREPANCY FOUND IN RAW MATERIAL COMES TO 0.58%. THE BALANCE SHEET DO ES NOT CONTA IN QUATITATIVE DETAILS OF PACKING MATERIALS CONSUMED DURING THE YEAR. SO, APPLYING SAME PROPORTION AS DISALLOWANCE MADE IN RAW MATERIALS COMES T O RS.4,76,658 (0.58% OF RS.8,21,82,402) AMOUNT TO PACKING MATERIAL. IN TH E CIRCUMSTANCES, IN ABSENCE OF SATISFAC TORY EXPLANATION AND COOPERATION BY TH E ASSESSEE, AN ADDITION OF RS. 23,20,807/ - IS HEREBY ADDED TO THE TOTAL INCOME OF TH E ASSESSEE U/S 69A / 69C OF THE INCOME TAX ACT, 1961. 15. IN RESPECT OF GROUND OF APPEAL NO 1(C) OF THE REVENUE, THE FACT IS THAT T HE AO ADDED A SUM OF RS.38,04,521/ - BY OBSERVING AS UNDER: 5.7 THE AUDITOR HAS GIVEN CATEGORICAL FINDING OF THE ABOVE MATERIALS NOT FOUND IN THE BIN CARDS / STOCK REGISTER. THEREFORE, IT IS EVIDENT THAT THESE MATERIALS WERE NOT RECEIVED / CONSUMED BY THE ASSESSEE AND ONLY ACCOUNTING ENTRIES WERE MADE IN THE PURCHASE REGISTER. AS DISCUSSED EARLIER. THAT THE ASSESSEE HAS BEEN INDULGING IN SUCH PRACTICES FOR WHICH 13 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS SPECIFIC INFORMATION WAS RECEIVED FROM THE INVESTIGATION DEPARTMENT. ALL THE MATERIALS PLACED ON RECORD HAVE BEEN CONSIDERED AND IT SHOWS THAT THE ASSESSEE HAS CLAIMED WRONG DEDUCTION OF THESE PURCHASES FOR WHICH GOODS ARE NOT RECEIVED / CONSUMED. THEREFORE. BY RELYING ON SECTION 114(G) OF THE INDIAN EVIDENCE ACT. IT IS PRESUMED THAT THE ASSESSEE HAS NOT GIVEN DETAIL BECAUSE IT WOULD HAVE BEEN AGAINST IT. THE DISCREPANCIES AMOUNTING TO RS. 38.04.521/ - (19,03,117 FOR RAW MATERIAL + 19,01,404 FOR PACKING MATERIAL) ARE HEREBY DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 16. IN RESPECT OF GR OUND OF APPEAL NO 1(D) OF THE REVENUE, THE FACT IS THAT THE AO ADDED A SUM OF RS 1,62,860/ - BY OBSERVING AS UNDER - 6.5 THE ASSESSEE HAS FAILED TO EXPLAIN EXPLAIN TO AS TO WHY THE SAID MATERIAL HAS BEEN APPEARING IN THE BIN CARD / STOCK REGISTER AND NOT ACCOUNTED FOR IN THE PURCHASE REGISTER. THE ASSESSEE HAS ALSO FAILED TO PROVIDE THE VALUATION OF THE SAID MATERIAL. THEREFORE, BY RELYING ON SECTION 114(G) OF THE INDIAN EVIDENCE ACT, IT IS PRESUMED THAT THE ASSESSEE HAS NOT GIVEN DETAIL BECAUSE IT WOULD HAVE BEEN AGAINST IT. THERE IS NO OPTION BUT TO MAKE ADDITION IN RESPECT OF THESE MATERIALS PURCHASED OUT OF BOOKS ON SOME REASONABLE BASIS. SO, VALUE OF QTY OF RAW MATERIAL WHICH WERE POINTED OUT BY THE AUDITOR COMES TO RS.1,29,987(390 X RS.333.30/KG). RA W MATERIALS CONSUMED DURING THE YEAR ARE AMOUNTING TO RS.31,98,22,141 AND PROPORTIONATE AMOUNT OF DISCREPANCY FOUND IN RAW MATERIAL COMES TO 0.04%. THE BALANCE SHEET DOES NOT CONTAIN QUANTITATIVE DETAILS OF PACKING MATERIALS CONSUMED DURING THE YEAR. SO, A PPLYING SAME PROPORTION AS DISALLOWANCE MADE IN RAW MATERIALS COMES TO RS.32,873 (0.04% OF 821,82,402) AMOUNT TO PACKING MATERIAL. IN THE CIRCUMSTANCES, IN ABSENCE OF SATISFACTORY EXPLANATION AND COOPERATION BY THE ASSESSEE, AN ADDITION OF RS.1,62,860 / - IS HEREBY MADE TO THE TOTAL INCOME OF THE ASSESSEE U / S 69A / 69C OF THE INCOME TAX ACT, 1961 . 1 6 . IN RESPECT OF GROUND OF APPEAL NO 1(D) OF THE REVENUE, THE FACT IS THAT THE AO ADDED A SUM OF RS 2,96,48,626/ - BY OBSERVING AS UNDER - 32.4 THE FINDINGS OF THE AUDITOR AND THE ASSESSEES COMMENTS THEREON HAVE BEEN CONSIDERED. THE ASSESSEES COMMENTS ARE NOT SATISFACTORY. IT IS ALSO OBSERVED THAT STILL PURCHASE DISCREPANCIES WHICH ARE REPORTED IN EXHIBIT OF AUDIT REPORT WITH REG AR D TO LR/DR/GRN NOT AVAILA BLE REMAIN UNEXPLAINED. SO, CONSIDERING THE 14 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS FINDINGS OF THE AUDITOR AND EXPLANATION AND EVIDENCE PRODUCED BY ASSESSEE, THE SUMMARY O F THE PURCHASE REMAINED UNEXPLAINED ARE AS UNDER : FY 2009 - 10 LOCATION FROM QTY AMOUNT (RS.) CHERYL GBC PACKAGING 92,7 44 8,59,692 SAI CHAYA PLAST EMPIRE INDUSTRIES LTD VITRUM GLASS DEEP ENTERPRISES ORIENT CONTAINERS 96,376 8,37,900 1,00,320 8,40,000 9,16,230 13,12,285 13,00,809 4,25,959 MAHAPE GELNOVA VADODARA KANCHAN RASAYAN POTECH NEUT RACEUTICALS PIRAMAL GLASS LTD KWALITY CONTAINERS DEEP ENTERPRISES EMPIRE INDUSTRIES LTD SUNRISE CONSAINER LTD SETH PET AND POLYMERS P LTD SAI CHAYA PLAST KRUPA POLYMERS ORIENTAL CONTAINERS LTD PARAMOUNT PRINT PACKAGING LTD PROFESSIONALS PRISTINE C ARE PRODUCT PVT LTD. ASHIRWAD POLY PRINT BINA - MEGNISH PACKAGING INDUSTRIES GEM PA CKING JAINEEKET ENTERPRISES SAHYOG ENTERPRIES SUPERPACK MISCELLANEOUS PARTIES MISCELLANEOUS PARTIES (PACKAGING MATERIAL MISCELLANEOUS PARTIES (RAW MATERIAL) 16,200 14,000 4,500 - 59,040 9,516 3,36,690, 19,500 66,420 33,369 1,02,744 6,50,950 5,40,250 61,950 2,51,320 1006 23,700 3,304 - 1,418 - 5,545 1,99,317 22,883 33,67,445 8,177 5,31,640 33,52,500 9,90,000 - 3,79,464 3,17,680 7,23,824 1,08,067 4,07,626 5,20,87 4 1,98,681 3,32,566 2,67,633 1,20,661 7,66,333 3,21,099 17,008 78,022 - 27,759 - 10,21,315 6,06,912 41,75,182 48,89,816 46,78,992 TOTAL 78,10,232 29648629 THE EXPLANATION OF THE ASSESSEE IS NOT FOUND TO BE SATISFACTORY AND FURTHER TILL DATE ASSESS EE FAILED TO GIVE ANY DETAIL ALONG WITH SUPPORTING EVIDENCES AS ASKED FOR SO BY DOING ON SECTION 114(G) OF THE INDIAN EVIDENCE ACT, IT IS PRESUMED THAT THE ASSESSEE NOT GIVEN 15 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS DETAIL BECAUSE IT WOULD HAVE BEEN AGAINST IT . ACCORDINGLY, AN AMOUNT OF RS.2 ,96,48,626/ - IS DISALLOWED U/S 69A/69C. 1 7 . AGGRIEVED BY THE ORDER OF THE AO , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE .CIT(A) WHO DELETED THE ADDITION OF RS . 51,25,885 / - AFTER CONSIDERING THE VARIOUS CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE DURING THE APPELLATE PROCEEDINGS AND ALSO AFTER CALL ING FOR AND CONSIDERING VARIOUS RECORDS AS TO THE PURCHASES OF RAW MATERIALS AND PACKING MATERIAL BY OBSERVING AND HOLDING AS UNDER : 8.3. I CONSIDERED THE FACTS OF THE CASE, STAND OF THE AO AS WELL AS SU BMISSIONS OF THE APPELLANT. AFTER CONSIDERING THE ENTIRE FACTS OF THE CASE, THE APPELLANT WAS DIRECTED TO SUBMIT FURTHER SUPPORTING DOCUMENTS / EVIDENCES TO SUBSTANTIATE THE OBJECTION / CLAIMS RAISED IN THE GROUNDS OF APPEAL AND SO AS TO ENABLE ME TO DISPO SE OF THE GROUND OF APPEAL. 8.3.1. THEREAFTER, THE ID. AR SUBMITTED EXPLANATIONS / DETAILS VIDE LETTER DATED 7TH JANUARY, 2016 GIVING EXPLANATION WITH REGARD TO (I) RE RAW MATERIALS APPEARING IN THE PURCHASE REGISTER AND NOT APPEARING IN THE QUALITY C HECK REGISTER - RS 36,56,925/ - , (II) RE PACKING MATERIALS APPEARING IN THE PURCHASE REGISTER AND NOT APPEARING IN THE QUALITY CHECK REGISTER - RS 13,58,958/ - , (III) RE PACKING MATERIALS APPEARING IN THE PURCHASE REGISTER AND NOT APPEARING IN THE QUALIT Y CHECK REGISTER (VARIATION IN QUANTITY) - RS 103,915/, AND (IV) RE PACKING MATERIALS APPEARING IN THE PURCHASE REGISTER AND NOT APPEARING IN THE QUALITY CHECK REGISTER (VARIATION IN THE NAME OF THE PRODUCT) - RS 6,088/ - . 8.3.2. A PERUSAL OF THE EXPLAN ATION VIS - A - VIS ASSESSMENT ORDER SHOW THAT - 16 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS (I) THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ENTRIES AMOUNTING TO RS . 36,56,925 DOES NOT APPEAR IN THE QUALITY REGISTER IS INCORRECT. THE SAID ENTRIES ARE DULY SUPPORTED BY QC REGISTER AT PAGE NOS 4 - 2 T O 4 - 37. FURTHER, THERE ARE CERTAIN PRODUCTS FOR EXAMPLE ACETONE, CITRIC ACID, GLYCERIN ETC WHICH ARE FOR INTERNAL USAGE IN FACTORY AND HENCE, IT IS NOT SUBJECTED TO QUALITY CHECK. THE SAID REMARKS ARE MENTIONED IN THE 'POST ASSESSMENT/ SUBMISSION' COLUMN A ND HENCE, THERE ARE NO UNRESOLVED DISCREPANCIES. (II) THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ENTRIES AMOUNTING TO RS . 13,58,958 DOES NOT APPEAR IN THE QUALITY REGISTER IS INCORRECT. THE SAID ENTRIES ARE DULY SUPPORTED BY QC REGISTER AT PAGE NOS 4 - 38 TO 4 - 106. FURTHER, THERE ARE CERTAIN PRODUCTS RECEIVED ON SAMPLE BASIS AND HENCE, IT IS NOT SUBJECTED TO QUALITY CHECK. THE SAID REMARKS ARE MENTIONED IN THE 'POST ASSESSMENT/ SUBMISSION' COLUMN HENCE, THERE ARE NO UNRESOLVED DISCREPANCIES. (III) T HE OBSERVATION OF THE ASSESSING OFFICER THAT THE ENTRIES AMOUNTING T O RS. 1,03,915 DOES NOT APPEAR IN THE QUALITY REGISTER IS INCORRECT. THE SAID ENTRIES ARE DULY SUPPORTED BY QC REGISTER AT PAGE NOS 4 - 107 TO 4 - 111. THE SAID REMARKS ARE MENTIONED IN THE 'P OST ASSESSMENT/ SUBMISSION' COLUMN AND HENCE, THERE ARE NO UNRESOLVED DISCREPANCIES. (IV) THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ENTRIES AMOUNTING TO RS. 6,088 DOES NOT APPEAR IN THE QUALITY REGISTER IS INCORRECT. THE SAID ENTRIES ARE RECEIVED ON THE TRIAL BASIS. THE SAID REMARKS ARE MENTIONED IN THE 'POST ASSESSMENT/ SUBMISSION' COLUMN AT PAGE NOS 4 - 112 TO 4 - 114 AND HENCE, THERE ARE NO UNRESOLVED DISCREPANCIES.' THUS, IT IS SEEN THAT THE APPELLANT HAS GIVEN THE SUPPORTING DOCUMENTS IN RESPEC T OF RAW MATERIAL AND PACKING MATERIAL FOR WHICH THE ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER. IT HAS FURTHER BEEN EXPLAINED THAT THE RAW MATERIAL AND PACKING MATERIAL WERE RECEIVED BY IT. THE REMARKS COLUMN OF THE STATEMENT PROVIDED BY THE APPELLAN T IS QUITE EXHAUSTIVE AND PROVES THE POINT THAT THE RAW MATERIAL AND PACKING MATERIAL PURCHASED HAS BEEN RECEIVED BY THEM. IT SHOW THAT AO MERELY TOOK A MYOPIC AND PARTIAL VIEW REGARDING THE TRANSACTIONS AND ITS RECORDING IN THE RELEVANT BOOKS. TO ARRIVE A T ANY FINAL CONCLUSION, ONE HAS TO TAKE A WHOLISTIC/ OVERALL VIEW. ACCORDINGLY, I DIRECT THE ASSESSING OFFICER TO DELETE THE 17 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS DISALLOWANCE ON ACCOUNT OF PURCHASE OF RAW MATERIAL AND PACKING MATERIAL OF RS 51,25,885/ - . 18 . SIMILARLY, THE ASSESSEE PREFERRE D AN APPEAL BEFORE THE LD.CIT(A) WHO DELETED THE ADDITION OF RS . 23,20,807 / - AFTER CONSIDERING THE VARIOUS CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE DURING THE APPELLATE PROCEEDINGS AND ALSO AFTER CALLING FOR AND CONSIDERING VARIOUS RECORDS AS TO THE P URCHASES OF RAW MATERIALS AND PACKING MATERIAL BY OBSERVING AND HOLDING AS UNDER : ON, JEWELRY OR VALUABLE ARTICLE AND SUCH MONEY AND HENCE, THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER CANNOT BE HELD AS JUSTIFIABLE. FURTHER, THE PRE - REQUISITES FOR INVOKING THE PROVISIONS OF SECTION 69C ARE THAT (A) THE ASSESSEE HAS INCURRED ANY EXPENDITURE. (B) THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE. AS PER THE FACTS MENTIONED ABOVE, THE APPELLANTS CONTEND THAT THE PRE - REQUI SITE TO ASSUME JURISDICTION UNDER SECTION 69C ARE NOT SATISFIED AS PURCHASES CANNOT BE TREATED AS EXPENDITURE AND HENCE, THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER IS BAD IN LAW AND REQUIRES TO BE DELETED. 19 . SIMILARLY, THE ASSESSEE PREFERRED A N APPEAL BEFORE THE LD.CIT(A) WHO DELETED THE ADDITION OF RS 38,04,521 AFTER CONSIDERING THE VARIOUS CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE DURING THE APPELLATE PROCEEDINGS AND ALSO AFTER CALLING FOR AND CONSIDERING VARIOUS RECORDS AS 18 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS TO THE PURCHA SES OF RAW MATERIALS AND PACKING MATERIAL BY OBSERVING AND HOLDING AS UNDER : (VI) THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ENTRIES AMOUNTING TO RS . 6,81,244 HAS VARIANCE IN PRODUCT NAME CANNOT BE HELD AS FINAL AND CONCLUSIVE. THE APPELLANT HAS S UBMITTED THAT IT WAS POINTED OUT TO THE SPECIAL AUDITORS THAT THE PRODUCT NAMES ARE WRITTEN IN SHORT AS PER CONVENIENCE FOR INTERNAL USAGE SUCH AS ON GRN WHEREAS TECHNICAL NAME IS USED BY THE VENDOR ON THE INVOICE. HOWEVER, THE CHEMICAL COMPOSITION OR THE PRODUCT DOES NOT VARY. THE SAME HAS BEEN EXPLAINED AND SUPPORTED BY QC REGISTER AND BIN CARD REGISTER AT PAGE NOS 6 - 88 TO 6 - 154. THE SAID REMARKS ARE MENTIONED IN THE POST ASSESSMENT/ SUBMISSION COLUMN AND HENCE, THERE ARE NO UNRESOLVED DISCREPANCIES. (V II) THE OBSERVATION OF THE ASSESSING OFFICER THAT THE ENTRIES AMOUNTING TO RS . 2,66,566 HAS VARIANCE IN THE NAME OF TWO PARTIES NAMELY (I) PARAMOUNT PRINTPACKAGING LTD AND (II) PRISTINE CARE PRODUCTS PVT LTD IS INCORRECT. IT WAS POINTED OUT TO THE SPECIAL A UDITORS THAT ORIGINALLY IT WAS PARAMOUNT PRINTING PRESS PVT LTD LATER SINCE 02.06.2010 IT WAS CONVERTED TO PARAMOUNT PRINT PACKAGING PVT LTD. LATER, FROM 24.07.2010 WAS CONVERTED TO PARAMOUNT PRINT PACKAGING LTD AND THEREFORE, FOR CONVENIENCE IN THE ACCOUN TS DEPARTMENT THE SAME IS USED TO AVOID THE CONFUSION. FURTHER, FRESH CERTIFICATE OF INCORPORATION CONSEQUENT UPON CHANGE OF NAME ON CONVERSION TO PUBLIC LIMITED COMPANY HAS BEEN ENCLOSED AT PAGE NOS 6 - 155 TO 6 - 157. RE PRISTINE CARE PRODUCTS PVT LTD - IT W AS BOUGHT TO THE NOTICE OF THE SPECIAL AUDITORS THAT FOR THE SAKE OF CONVENIENCE THE NAME OF THE PARTY IS WRITTEN IN SHORT IN INTERNAL DOCUMENTS. SAMPLE BILL HAS BEEN ENCLOSED AT PAGE NO 6 - 158. THE SAID REMARKS ARE MENTIONED IN THE POST ASSESSMENT/ SUBMISS ION COLUMN AND HENCE, THERE ARE NO UNRESOLVED DISCREPANCIES.' TO SUM UP, THE APPELLANT HAS GIVEN THE SUPPORTING DOCUMENTS IN RESPECT OF RAW MATERIAL AND PACKING MATERIAL FOR WHICH THE ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER. I HAVE FURTHER PERUSE D THE VARIOUS ENTRIES IN THE STATEMENT PROVIDED BY THE APPELLANT AND FIND THAT THE RAW MATERIAL AND PACKING MATERIAL HAS BEEN RECEIVED BY THE APPELLANT. THE EXPLANATION PROVIDED BY THE APPELLANT IS QUITE EXHAUSTIVE AND PROVES THE POINT THAT THE RAW MATERI AL AND PACKING MATERIAL PURCHASED HAS BEEN RECEIVED BY THEM. ACCORDINGLY, I DIRECT THE AO TO DELETE THE DISALLOWANCE ON ACCOUNT OF PURCHASE OF 19 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS RAW MATERIAL AND PACKING MATERIAL OF RS.38,04,521/ - . BASED ON THE ABOVE, GROUND NO.6 IS ALLOWED. IN THE RESULT , THE APPELLANTS THIS GROUND OF APPEAL IS ALLOWED 2 0 . SIMILARLY, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A) WHO DELETED THE ADDITION OF RS 1,62,860 AFTER CONSIDERING THE VARIOUS CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE DURING THE APPELLATE PROCEEDINGS AND ALSO AFTER CALLING FOR AND CONSIDERING VARIOUS RECORDS AS TO THE PURCHASES OF RAW MATERIALS AND PACKING MATERIAL BY OBSERVING AND HOLDING AS UNDER : A COMPARATIVE PERUSAL OF THE APPELLANTS SUBMISSIONS VIZ - A - VIS ASSESSMENT ORDER SHOW T HAT - ( I ) THE OBSERVATION OF T HE A SSESSING O FFICER THAT THE ENTRIES OF HAVING QUANTITIES TOTALING TO 390 NOS DOES NOT APPEAR IN THE PURCHASE REGISTER IS IN CORRECT. THE SAID ENTRIES ARE DULY SUPPORTED BY T HE DOCUMENTS AND EXPLANATIONS AT PAGE NO.7 - 1. THE SAI D REMARKS ARE MENTIONED IN THE POST ASSESSMENT/SUBMISSION COLUMN AND HENCE, THERE ARE NO UNRESOLVED DISCREPANCIES. ( II ) THE OBSERVATION OF THE A SSESSING O FFICER THAT THE ENTRIES OF HAVI NG QUANTITIES TOTALING TO 3,75,732 NOS DOES NOT APPEAR IN THE PURCHASE REG ISTER IS IN CORRECT. THE SAID ENTRIES ARE DULY SUPPORTED BY THE DOCUMENTS AND EXPLANATION AT PAGE NO.7 - 2 TO 7 - 50. THE SAID REMARKS ARE MENTIONED IN THE POST ASSESSMENT/SUBMISSION COLUMN AND HENCE, THERE ARE NO UNRESOLVED DISCREPANCIES . ( III ) FURTHER, THE A SSESS ING O FFICER HAS CALCULATED THE CONSUMPTION RATIO OF RAW MATERIAL WHICH COMES TO 0.04%. THE A SSESSING O FFICER APPLIED HE SAME PROPORTION OF DISALLOWANCE FOR PACKING MATERIALS WHICH IS NOT CORRECT AS THE CONSUMPTION RATIO OF RAW MATERIAL CANNOT BE APPLIED T O PACKING MATERIALS . IN VIEW OF THE ABOVE, IT CAN BE CONCLUDED THAT THE APPELLANT HAS GIVEN EXPLANATIONS ALONG WITH THE SUPPORTING DOCUMENTS IN RESPECT OF RAW MATERIAL AND PACKING MATERIAL FOR WHICH THE ADDITION HAS BEEN MADE BY THE A SSESSING O FFICER . THE VARIOUS ENTRIES IN THE 20 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS STATEMENT PROVIDED B Y T HE APPELLANT HAVE BEEN PERUSED AND IT CAN BE CONCLUDED THAT THE RAW MATERIAL AND PACKING MATERIAL WHICH APPEARS IN BIN CARD/STOCK REGISTER ARE ALSO TO BE TAKEN AS ACCOUNTED IN PURCHASE REGISTER BY THE A PPELLANT. THE REMARKS COLUMN OF THE STATEMENT PROVIDE BY THE APPELLANT IS QUITE EXHAUSTIVE AND PROVES THE POINT THAT THE RAW MATERIAL AND PACKING MATERIAL PURCHASED HAS BEEN RECORDED IN PURCHASE REGISTER . ACCORDINGLY , I DIRECT THE A SSESSING O FFICER TO DELETE THE DISALLOWANCE ON ACCOUNT OF PURCHASE OF RAW MATERIAL AND PACKING MATERIAL OF RS.1,62,860/ - . 21 . SIMILARLY, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A) WHO DELETED THE ADDITION OF RS 2,96,48,626 AFTER CONSIDERING THE VARIOUS CONT ENTIONS AND SUBMISSIONS OF THE ASSESSEE DURING THE APPELLATE PROCEEDINGS AND ALSO AFTER CALLING FOR AND CONSIDERING VARIOUS RECORDS AS TO THE PURCHASES OF RAW MATERIALS AND PACKING MATERIAL BY OBSERVING AND HOLDING AS UNDER : IN THE RESULT, THE APPELLA NTS THIS GROUND OF APPEAL IS ALLOWED 37.3 I CONSIDERED THE FACTS OF THE CASE, STAND OF THE AO AS WELL AS SUBMISSIONS OF THE APPELLANT. AFTER CONSIDERING THE ENTIRE FACTS OF THE CASE, THE APPELLANT WAS DIRECTED TO SUBMIT FURTHER SUPPORTING DOCUMENTS /EV IDENCES TO SUBSTANTIATE THE OBJECTION /CLAIMS RAISED IN THE GROUNDS OF APPEAL AND SO AS TO ENABLE ME TO DISPOSE OF THE GROUND OF APPEAL 37.3.1. THEREAFTER, THE LD.AR SUBMITTED EXPLANATIONS/DETAILS VIDE LETTER DATED 7 TH JANUARY , 2016 GIVING EXPLANATION WIT H RE GA RD TO POINT NO.VI 1) ON PAGE NO 21 OF LETTER DATED 6TH AUGUST, 2014 OF RSK IN RESPONSE TO THE SPECIAL AUDITORS' REPORT UNDER SECTION 142(2A) OF THE ACT WHICH IS REPRODUCED BELOW - 'THE SPECIAL AUDITORS ARE NOT DISPUTING THE ABOVE PURCHASES. THEY H AVE MENTIONED ABOUT THE NON - AVAILABILITY OF SUPPORTING DOCUMENTS. THE SAME ARE BEING RETRIEVED FROM THE OLD RECORD FILES, FOR SUBMISSION IN DUE COURSE. FURTHER, SPECIFICALLY IN 21 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS RESPECT OF FORM 403, WE SUBMIT THAT THIS DOCUMENT IS MADE IN TRIPLICATE, WITH O NE COPY BEING RETAINED AT THE BORDER CHECK - POST, ONE COPY BEING RETAINED BY THE TRANSPORTER AND THE THIRD COPY BEING RETAINED BY THE JOB WORKER FACTORY. THE FACT THAT THE SALES TAX DEPARTMENT HAS ISSUED THE NECESSARY C FORMS AGAINST ALL SUCH INTER STATE PU RCHASES IS PROOF ENOUGH OF THE GENUINENESS OF THE TRANSACTIONS' LATER, THE APPELLANTS HAVE FURNISHED THE REQUIRED DETAILS ON 17TH SEPTEMBER, 2014 TO THE ASSESSING OFFICER - REFER PAGE NO S. 1 TO 111 (PHOTO COPY ENCLOSED OF THE SUPPORTING MENTIONED IN THE AFORESAID RESPONSE) DURING THE APPELLATE PROCEEDINGS, THE APPELLANT AS DIRECTED, HAS GIVEN THE SUPPORTING DOCUMENTS IN RESPECT OF RAW MATERIAL AND PACKING MATERIAL FOR WHICH THE ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER. THE MATERIAL/SUBMISSIONS / EXPLANATIONS PROVIDED BY THE APPELLANT HAVE BEEN EXAMINED. IT IS FOUND THAT THE L D. AR HAS BEEN ABLE TO EXPLAIN AND SUBSTANTIATE THAT THE VARIOUS ENTRIES IN THE STATEMENT PROVIDED BY THE APPELLANT AND THE RAW MATERIAL AND PACKING MATERIAL ARE BACKED BY SUP PORTING DOCUMENTS. THE REMARKS COLUMN OF THE STATEMENT PROVIDED BY THE APPELLANT IS QUITE EXHAUSTIVE AND PROVES THE POINT THAT THE RAW MATERIAL AND PACKING MATERIAL PURCHASED ARE SUPPORTED BY NECESSARY DOCUMENTS. ACCORDINGLY, I DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE ON ACCOUNT OF PURCHASE OF RAW MATERIAL AND PACKING MATERIAL OF RS 2,96,48,626/ - . BASED ON THE ABOVE, GROUND NO.33 IS ALLOWED 2 2 . WE HAVE HEARD THE RIVAL CONTENTIONS, ARGUMENTS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUD ING THE IMPUGNED ORDERS AND WRITTEN SUBMISSIONS BY BOTH THE PARTIES . WE FIND THAT IN THE PRESENT CASE, THE LD.CIT(A) HAS SPECIFICALLY REQUIRED THE ASSESSEE TO PRODUCE THE NECESSARY EVIDENCES IN THE FORM OF STOCK - REGISTER, BILLS AND VOUCHER S AND OTHER RECO RDS TO VERIFY THE PURCHASE OF RAW MATERIAL AND PACKING MATERIAL AND AFTER EXAMINATION OF THE RECORD S , DETAILS AND EVIDENCES AND ONLY AFTER 22 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS CONSIDERING ALL THESE EVIDENCES, FINDINGS OF FACT HA VE BEEN RECORDED BY THE CIT(A) CULMINATING INTO PASS ING THE R EASONED ORDER DELETING THE VARIOUS ADDITIONS MADE BY THE AO ON ACCOUNT OF PURCHASE S OF RAW MATERIAL S AND PACKING MATERIALS . THE LD.AR TO DEMONSTRATE HIS POINT OF VIEW TOOK US THROUGH THE REMARKS COLUMN IN THE STATEMENTS FILED BEFORE THE CIT(A) FOR THE V ARIOUS ADDITIONS MADE BY THE AO VIS - - VIS THE SUPPORTING DOCUMENTS IN A FEW CASES. HAVING GONE THROUGH THE SAME WITH THE PAPER BOOKS AND SUPPORTING DOCUMENTS FILED BEFORE US AND AFTER HEARING THE LEARNED COUNSEL S , WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A) WHICH HAS BEEN PASSED AFTER COMPREHENSIVE VERIFI CATION OF RECORDS AND DETAILS SPECIFICALLY CALLED FOR FROM THE ASSESSEE . IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE D O NO T FIND ANY R EASON TO INTERFERE WITH THE ORDER OF THE LD CI T (A) ON THIS ISSUE . ACCORDINGLY , GROUND OF APPEAL NOS . 1(A) TO 1(D) AND 1(F) RAISED BY T HE REVENUE STANDS DISMISSED. 2 3 . THE REVENUE HAS INADVERTENTLY RAISED GROUND OF APPEAL NO 1(E) IN RESPECT OF PURCHASE FROM HAWALA PARTIES OF RS. 1,68,31,380/ - IN AS MU CH AS THIS GROUND IS DISMISSED BY THE CIT(A). THE LD.DR ACCEPTED THE SAME AND HENCE, THIS GROUND STANDS WITHDRAWN. 2 4 . THE ISSUE RAISED IN THE GROUND NO.2 AND 3 OF THE APPEAL IS IN RESPECT OF WRONGFUL DELETION OF ADDITION OF RS.29,39,122 / - MADE BY THE AO O N 23 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS ACCOUNT OF VALUATION OF STOCK BY IGNORING THE SPECIFIC DISCREPANCIES POINTED IN THE RECORD BY THE AO. 2 5 . BRIEF FACTS OF THE CASE ARE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS, FOUND THAT THE IN THE STOCK REGISTER , CLOSING STOCK S OF RS.3 , 41 , 147/ - WERE FOUND RECORDED IN THE BIN CARD STOCK, HOWEVER, THE SAME W ERE NOT CONSIDERED WHILE CALCULATING THE CLOSING S T OCK OF THE MATERIAL S AT THE YEAR END . SIMILARLY, A SUM OF RS.23,31,559/ - WAS NOT CHARGED TO THE PROFIT AND LOSS ACCOUNT BUT AT THE TIME OF FILING OF INCOME TAX RETURN , THE SAME WAS CLAIM ED AS DEDUCTION BY THE ASSESSEE AS DIFFERENCE IN OPENING STOCK S AS THE SAME HAS CASCADING EFFECT FOLLOWING VALUATION OF CLOSING STOCK AS THE PROVISIONS OF SECTION 145A OF THE ACT. THIS WAS ALSO POINTED OUT BY THE SPECIAL AUDITOR AND THE AO ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 18.5. THE ASSESSEE FAILED TO GIVE ANY REPLY FOR THE SAME VIDE THEIR SUBMISSION DATED 15.09.2014, 17.9.2014 AND 18.09.2014. AS THE ASSESSEE HAS NOT PROVIDED ANY DETAILS WITH REGARD TO THE ABOVE QUERY, THEREFORE, BY RELYING ON SECTION 114(G) OF THE INDIAN EVIDENCE ACT, IT !IS PRESUMED THAT THE ASSESSEE HAS NOT GIVEN DETAIL BECAUSE IT WOULD HAVE BEEN AGAINST IT. THERE IS NO OPTION BUT T O MAKE A FAIR ESTIMATION OF THE CLOSING STOCK NOT ACCOUNTED FOR IN THE CLOSING STOCK SUMMARY AT RS. 2,66,416/ - (ON THE BASIS OF FINISHED GOODS DISCREPANCIES RATIO WITH CLOSING STOCK. FOR RAW MATERIAL AND PACKING MATERIAL RS.2,32,577/ - = 341147/ 49810398*3 3958240 AND FOR WLP RS.33,839 =341147/ 49810398*4940812). THE CLOSING STOCK OF FINISHED GOODS NOT FOUND IN BIN CARD STOCK OF RS.3,41,147/ - IS ADDED ALONGWITH ABOVE ESTIMATED VALUE OF RS.2,66,416/ - . THUS, THE TOTAL ADDITION ON THIS ACCOUNT IS RS.6,07,563/ - . PENALTY PROCEEDINGS U/S 271(1)( C ) ARE INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME. 24 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 18.6 'FURTHER THE AMOUNT ADDED TO THE OPENING STOCK BY THE ASSESSES IS NOT ALLOWED AS THE ADDITION M ADE LAST YEAR IN THE CLOSING STOCK IS NOT ACCEPTED BY THE ASSESSEE AND IT IS IN APPEAL. THE ASSESSEE ALSO FAILED TO RESPOND ON THIS ISSUE. SO, AN ADDITION OF RS.23,31,559/ - ON ACCOUNT OF DIFFERENCE IN OPENING STOCK IS MADE BY DECREASING THE OPENING STOCK BY THIS AMOUNT. (ADDITION= RS.29,39,122/ - ) 2 6 . IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) DELETED THE ADDITION AFTER CONSIDERING THE CONTENTIONS AND SUBMISSIONS OF THE A SS ESSEE BY OBSERVING AND HOLDING AS UNDER : 2 3 .3. I HAVE CONSIDERED THE STAND OF THE AO AS WELL AS SUBMISSIONS OF THE APPELLANT. IT MAY FURTHER BE POINTED OUT THAT IN THE ASSESSMENT ORDER AT PAGE 97, THE AO HAS CALCULATED THE ADDITION AT RS. RS.29,39,122/ - WHICH IS SUM TOTAL OF RS.3,4 1, 147/ - (CLOSING STOCK OF FINISHED NOT FOUND AS PER BIN CARD STOCK) PLUS RS.2,66, 416/ - BEING THE ESTIMATED FIGURE ON THE BASIS OF FINISHED GOODS DISCREPANCIES RATIO WITH CLOSING STOCK AND PLUS RS.23,31,559/ - (ON ACCOUNT OF DIFFERENCE IN OPENING STOCK SAID TO BE MADE BY THE DECREASING OPENING STOCK BY THE AO BUT WHILE CALCULATING THIS FIGURE, THE A.O HAS NOT BEEN ABLE TO APPRECIATE THE BASIC PRINCIPLES OF ACCOUNTANCY. THE APPELLANT IS PURELY DOING JOB WORK FOR SHALINA AS THE RAW MATERIAL AND PACKING MATERIAL IS BEING SUPPLIED BY SHALINA. THUS, THE STOCK OF RAW MATERIAL AND PACKING MATER IAL AS AT 31.03.2010 IS THE PROPERTY OF SHALINA AND NOT THE APPELLANT AND THUS, CORRECTLY NOT CONSIDERED BY THE APPELLANTS IN THEIR CLOSING STOCK. THE A O IS THUS, DIRECTED TO DELETE THE ADDITION OF CLOSING STOCK OF RAW MATERIAL AND PACKING MATERIAL MADE BY HIM OF RS 3,41,147. FURTHER, IN RESPECT OF VALUATION OF STOCK AS PER SECTION 145A, I HAVE GONE THROUGH THE CONTENTION OF THE AR AND FIND THE SAME TO BE IN ORDER. IT IS ONLY CASCADING EFFECT THAT IF THE CLOSING STOCK OF THE PREVIOUS YEAR IS UNDER/ OVERVALU ED THEN THE OPENING STOCK OF THE SUBSEQUENT YEAR IS ALSO UNDER/ OVERVALUED AND THUS, THE AMOUNT OF RS 23,31,558 IS CORRECTLY CLAIMED BY THE APPELLANT AND IS ALLOWABLE. 25 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS TO CONCLUDE, IN VIEW OF THE ABOVE EXPLANATION OF THE APPELLANT AS WELL AS KEEPING IN V IEW OF THE ACCOUNTING PRINCIPLES, THE ADDITION MADE BY THE A O TOTALING TO RS.29,39,122/ - CANNOT BE SUSTAINED UNDER THE ABOVE HEADING. ACCORDINGLY THE AO IS DIRECTED TO DELETE THIS AMOUNT. IN THE RESULT, APPELLANT'S THIS GROUND OF APPEAL IS ALLOWED. 2 7 . THE LD. DR RELIED HEAVILY ON THE ORDER OF AO. THE LD DR SUBMITTED THAT THE ASSESSEE DID NOT SUBMIT ANY RECONCILIATION OF VARIOUS DISCREPANCIES EVEN IN THE SUBMISSIONS FILED ON VARIOUS HEARINGS. THE LD DR ARGUED THAT THERE WAS NO ARGUMENT OF THE ASSE SSEE BEFORE THE CIT(A) NOR NAY FINDING BY THE CIT(A). THE LD DR FURTHER STATED THAT LD CIT(A) ACCEPTED THE SUBMISSIONS MADE FOR THE FIRST TIME BEFORE THE CIT(A) WITHOUT GIVING ANY OPPORTUNITY TO THE REVENUE OR EVEN DID NOT CALL FOR HIS COMMENTS THER E BY C AUSING VIOLATION OF PRINCIPLE OF NATURAL JUSTICE. 2 8 . THE LD. AR VEHEMENTLY SUBMITTED BEFORE US THAT THE ALLEGED DISCREPANCY OF RS.3,41,147/ - REPRESENTED STOCK BELONGING TO ANOTHER PARTY KNOWN AS SHALINA FOR WHICH THE ASSESSEE USE D TO DO JOB WORK. S HALINA SENT RAW MATERIAL S AND PACKING MATERIAL S TO THE ASSESSEE WHICH W ERE SPECIFICALLY DISCLOSED BY THE ASSESSEE THAT THE SAID STOCK OF RAW MATERIAL AND PACKING MATERIAL DID NOT BELONG TO THE ASSESSEE AND THEREFORE W ERE NOT CONSIDERED IN THE STOCK OF THE ASSESSEE HOWEVER THE SAME WAS DULY ENTERED IN THE BIN AS THE SAME WAS NECESSARY TO MAINTAIN THE ACCOUNT OF THE STOCK IN THE PREMISES OF THE ASSESSEE . IN RESPECT OF 26 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS DISALLOWANCE OF RS.23,31,559/ - WHICH WAS CLAIMED IN THE COMPUTATION OF TOTAL INCOME AT T HE TIME OF FILING OF INCOME TAX RETURN , T HE LD. AR SUBMITTED THAT THE VALUATION OF STOCK S AS PER A UDITED ACCOUNT AS ON 31.3.2009 VALUE AS PER SECTION 145A OF THE ACT THERE WAS A DIFFERENCE OF RS. 23,31,559 A ND THE SAID DIFFERENCE OF RS. 23,31,559/ - WA S DUE TO ENHANCED VALUATION OF OPENING STOCK WHICH CLAIMED BY THE ASSESSEE IN THE COMPUTATION OF INCOME CORRECTLY. THE SAID STOCK WAS AS PER THE VALUATION OF THE PROVISIONS OF SECTION 145A OF THE ACT AND THEREFORE THE SAID AMOUNT WAS ALLOWABLE AS DEDU CTION. THE LD. CIT(A) AFTER EXAMINING THE ISSUE THOROUGHLY ALLOWED THE DEDUCTION AND THEREFORE IT SHOULD BE UPHELD AS THE CLAIM BEING PER THE PROVISIONS OF THE ACT. THE LD DR ON THE OTHER HAND RELIED ON THE ORDER OF AO AND PRAYED FOR RESTORING THE SAME. 29 . AFTER HEARING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE MATERIAL PLACED BEFORE US, WE FIND THAT THE FINDINGS RECORDED BY THE FAA ARE CORRECT AS THERE IS NO DISCREPANCY IN THE CLOSING STOCK S . THERE ARE TWO ADDITIONS AGGREGATING TO RS.29, 3 9,122 C OMPRISING OF RS.3,41,147/ - ON ACCOUNT OF CLOSING STOCK FOUND IN THE BIN CARD BUT NOT SHOWN IN THE CLOSING STOCK FOR THE REASONS THAT THE STOCKS BELONG TO THIRD PARTY FOR WHOM THE ASSESSEE WAS DOING JOB WORK AND SECOND IS OF RS. 2 3,31,559/ - WHICH WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT BUT CLAIMED AS DEDUCTION AT THE TIME OF FILING OF THE RETURN BECAUSE THE SAME COULD NOT BE CHARGED TO THE PROFIT 27 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS AND LOSS ACCOUNT . AFTER HEARING THE LD.AR AND GOING THROUGH THE ORDER OF LD.CIT(A), WE FIND THERE IS NO DISCREPANCY IN THE STOCKS AND HENCE WE FIND NO INFIRMITY IN THE ORDER OF LD.CIT(A). ACCORDINGLY, WE UPHOLD THE ORDER OF THE FAA BY REJECTING THE GROUND BY THE REVENUE ON THIS ISSUE . WE ALSO OBSERVE THAT THE ASSESSEE HAS NOT FILED ANY ADDITIONAL EVIDEN CE OR DOCUMENTS BEFORE THE LD.CIT(A) BUT FILED INFORMATION S/DETAILS AS CALLED FOR BY THE FAA UNDER RULE 46A(4) DURING THE COURSE OF APPELLATE PROCEEDINGS AND THEREFORE THERE IS NO QUESTION OF VIOLATION OF PRINCIPLE OF NATURAL JUSTICE DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE FAA. GROUND NO.2 AND 3 ARE DISMISSED ACCORDIN G LY . 3 0 . THE ISSUE RAISED IN THE GROUNDS OF APPEAL NO.4 IS WITH REGARD TO THE DELETION OF ADDITION OF RS . 3,76,000/ - BY CIT(A) AS MADE BY THE AO ON ACCOUNT OF LEGAL AND PROFES SIONAL CHARGES. 3 1 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, W HEN THE ASSESSEE FAILED TO PRODUCE THE PARTIES TO WHOM THE PROFESSIONAL CHARGES WERE PAID , A LSO WHEN T HE SAID RECIPIENT S OF PAYMENTS DID NOT COMP LY WITH THE SUMMONS UNDER SECTION 131 OF THE ACT. THEREAFTER, THE AO ADDED THE EXPENDITURE INCURRED ON LEGAL AND PROFESSIONAL CHARGES ON T HE GROUND THAT THE ASSESSEE FAILED TO FILE THE BILLS AND VOUCHERS AND ALSO THE SUMMONS ISSUED U/S 131 OF THE ACT TO THE RECIPIENTS WERE ALSO NOT COMPLIED WIT H BY THE RECIPIENTS . 28 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 3 2 . IN THE APPELLATE PROCEEDINGS, BEFORE THE LD.CIT(A) , THE LD.AR SUBMITTED ALL THE FACTS AND DETAILS QUA THE LEGAL AND PROFESSIONAL CHARGES AS UNDER : 24.7.1 DETAILS OF DISALLOWANCES MADE BY THE ASSESSING OFFICER IN RESPECT OF LEGAL AND PROFESSIONAL FEES IS GIVEN BELOW - PARTICULARS AMOUNT PAPER BOOK REFERENCE MILI C. MODY 1,25,000 PAGE NO 24 - 10 MITALI M. SETH 1,51,000 PAGE NOS 24 - 11 AND 24 - 12 SHWETA SINGH 1,00,000 PAGE NO 24 - 13 T OTAL 3,76,000 24.7.2 REFER POI NT NO 6 OF XXX ON PAGE NOS 101 TO 104 OF LETTER DATER 6 TH AUGUST, 2014 OF RSK IN RESPONSE TO THE SPECIAL AUDITORS REPORT UNDER SECTION 142(2A) O THE ACT WHICH INFORMS THAT THE INVOICES HA V E BEEN RAISED BY THE ABO V E NAMED PARTIES AND TAX HAS BEEN DEDUCE D T SOURCE THEREON (ENCLOSED THEREWITH) 24.8 CONTENTIONS 24.8.1 THE APPELLANTS SUBMIT THAT FROM THE DETAILS AND SUPPORTING BILLS AND MEMOS IT WILL BE APPRECIATED THAT THE LEGAL AND PROFESSIONAL FEES HAVE BEEN INCURRED DURING THE COURSE OF BUSINESS. 2 4.8.2 THE APPELLANTS FURTHER, SUBMIT THAT ON THE BASIS OF FACTS AND SUPPORTING DOCUMENTS AS SUBMITTED, THE AVERMENT OF THE ASSESSING OFFICER THAT THE IMPUGNED EXPENSES INCURRED BY THE APPELLANTS AND THE SERVICES PROVIDED BY THE PROFESSIONALS ARE BOGUS IS W ITHOUT ANY BASIS AND DEVOID OF ANY MATERIAL ON RECORD. ONLY BECAUSE THE PERSONS DID NOT APPEAR IN PURSUANCE OF SUMMONS UNDER SECTION 13 1 , THE ASSESSING OFFICER CANNOT MAKE THE DISALLOWANCE. 24.8.3 FURTHER, IT WOULD NOT BE OUT OF PLACE TO MENTION THAT TAX HAS BEEN DEDUCTED AT SOURCE ON SUCH PAYMENTS, OR CREDIT, AS THE CASE MAY BE, AS PER THE PROVISIONS OF THE ACT AND THE TAX SO DEDUCTED AT SOURCE HAS BEEN PAID INTO THE GOVERNMENT TREASURY. 24.8.4 THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER IS DE HORS THE MATERIAL ON RECORD, WITHOUT ANY BASIS AND ONLY ON THE BASIS 29 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS OF ASSUMPTIONS, PRESUMPTIONS, CONJECTURES AND SURMISES. 111E APPELLANTS SUBMIT THAT AN ADDITION MADE ON THE BASIS OF ASSUMPTIONS AND PRESUMPTIONS CANNOT BE SUSTAINED. THE APPELLANTS CON TEND THAT THE IMPUGNED EXPENSES HAVE BEEN INCURRED IN THE PURSUIT OF BUSINESS AND HENCE, ARE ALLOWABLE UNDER SECTION 37(1) OF THE ACT; THE DISALLOWANCE THUS, NEEDS TO BE DELETED.' 3 3 . THE LD. CIT(A) AFTER CONSIDERING THE DETAILS SUBMITTED BY THE ASSESSEE DELETED THE ADDITION BY OBSERVING AND HOLDING AS UNDER : 28.3. I HAVE CONSIDERED THE STAND OF THE AO AS WELL AS THE SUBMISSIONS OF THE APPELLANTS SUBMIT THAT FROM THE DETAILS AND SUPPORTING BILLS AND MEMOS IT WILL BE APPRECIATED THAT THE LEGAL AND PROFE SSIONAL FEES HAVE BEEN INCURRED DURING THE COURSE OF BUSINESS. THE AO HAS NOT BEEN ABLE TO DISPROVE THE SAME. ONLY BECAUSE THE PERSONS DID NOT APPEAR IN PURSUANCE OF SUMMONS UNDER SECTION 131. T HE ASSESSING OFFICER CANNOT MAKE THE DISALLOWANCE FOR NON COM PLIANCE ON 131 NOTICE BY ANY RESPECTIVE PARTIES, THE AO HAS SUFFICIENT POWER TO ENFORCE ATTENDANT AND EXAMINED THEM ON OATH AND FURTHER PROCEED FURTHER. BUT FOR THIS APPELLANT CANNOT BE FAULTED WITH. FURTHER, IT WOULD NOT BE OUT OF PLACE TO MENTION THAT T AX HAS BEEN DEDUCTED AT SOURCE ON SUCH PAYMENTS, OR CREDIT, AS THE CASE MAY BE, AS PER THE PROVISIONS OF THE ACT AND THE TAX SO DEDUCTED AT SOURCE HAS BEEN PAID INTO THE GOVERNMENT TREASURY. THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER IS NOT 'BAS ED ON ANY RELIABLE MATERIAL ON RECORD. THE A O HAS FAILED TO CONSIDER THE SUBMISSIONS NAMELY, THE LEDGER ACCOUNT, SUPPORTING INVOICES AND INCOME - TAX RETURN TOGETHER WITH COMPUTATION OF TOTAL INCOME OF THE PROFESSIONALS WHOSE EXPENSES ARE DISALLOWED BY THE A O SUBMITTED BY THE AR. THE A O HAS MADE THE DISALLOWANCES ON ASSUMPTIONS AND PRESUMPTIONS. IN VIEW OF THE SAME, THE DISALLOWANCE MADE BY THE A O UNDER THE HEADING LEGAL AND PROFESSIONAL FEE CANNOT BE SUSTAINED. ACCORDINGLY, I DIRECT THE AO TO DELETE THE DISA LLOWANCE OF RS 3,76,000 MADE ON THIS GROUND. BASED ON THE ABOVE, GROUND NO.24 IS ALLOWED. 30 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 3 4 . AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE MATERIAL PLACED BEFORE US , WE FIND THAT THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE AFTER CALLING FO R VARIOUS RECORD S , BILLS AND VOUCHERS RELATING TO LEGAL AND PROFESSIONAL CHARGES ON WHICH EVEN THE TDS HAS BEEN DEDUCTED AT SOURCE AND DEPOSITED IN THE GOVERNMENT TREASURY . WE FIND THAT THE ASSESSEE HAS FILED THE DETAILS OF THESE EXPENSES ALONG WITH THE TDS MADE ON SUCH PAYMENTS , B UT THE AO FAILED TO APPRECIATE THE FACTS AND CORRECTLY. THUS , THE ADDITION MADE BY THE AO IS DE HORS THE MATERIAL S ON RECORD. THEREFORE WE DO NOT FIND ANY MERIT IN THE ARGUMENTS OF LD DR THAT THERE WAS NO PROOF OF SERVICES BEING AVAILED BY THE ASSESSEE. WE DO NOT FIND ANY MISTAKE OR INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A), HENCE WE AFFIRM THE SAME . ACCORDINGLY, GROUND NO.4 IS DISMISSED. 3 5 . THE ISSUE RAISED IN GROUND OF APPEAL NO.5 IS IN RESPECT OF DELETION OF DISALLOWANC E OF RS.1,58,40,500/ - BY CIT(A) BEING AMOUNT PAID TO M AHARASHTRA INDUSTRIAL DEVELOPMENT CORPORATION (MIDC) ON ACCOUNT OF DIFFERENCE BETWEEN AGREEMENT VALUE AND READY RECKONER RATES OF THE STAMP VALUATION AUTHORITY . 3 6 . THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE ENTERED INTO LEASEHOLD AGREEMENT WITH MIDC AND PAID A PREMIUM OF RS.3,96,00,000/ - FOR ACQUISITION OF LEASE HOLD RIGHT FROM MIDC AND THE AGREEMENT W A S DULY REGISTERED. IN THE STATE OF MAHARASHTRA , THERE IS A PRACTICE OF AFFIXING INDEX TOOL ON THE DOCUMENTS REGISTERED IN THE REGISTRY OF STATE OF MAHARASHTRA 31 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS WHICH DULY CONTAIN S THE VALUE AT WHICH THE AGREEMENT IS ENTERED INTO AND THE MARKET VALUE AS PER EXISTING READY RECKONER RATES. . AS THE MARKET VALUE OF THE PROPERTY WAS RS.5,54 , 40,500/ - WHER EAS AS PER THE AGREEMENT IT WAS RS 3,96,00,000 AND AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE DIFFERENC E SHOULD NOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE U/S 69 OF THE ACT . T HE ASSESSEE FURNISHED REPLY STATING TH A T THE PREMIUM OF R S. 3,96,00,000/ - WAS PAID TO MIDC FOR ACQUIRING THE SAID LEASEHOLD LAND . THE SAID REPLY DID NOT FIND FAVOUR WITH THE ASSESSING OFFICER AND HE ADDED THE DIFFERENCE TO THE TOTAL INCOME OF THE ASSESSEE. 3 7 . IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) DELETED THE ADDITION AFTER CONSIDERING THE SUBMISSIONS AND CONTENTIONS RAISED BY THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 35.3. I HAVE CONSIDERED THE STAND OF THE AO AS WELL AS SUBMISSIONS OF THE APPELLA NT. IT MAY BE POINTED OUT THAT MAHARASHTRA INDUSTRI AL DEVELOPMENT CORPORA TION (MIDC) IS A STATE GOVERNMENT UNDERTAKING FROM WHICH THE ALLOTMENT ON LEASE OF P LOT NO A327 WAS RECEIVED / OBTAINED BY THE APPELLANT. THEREFORE, THERE CAN NOT BE ANY DOUBT OR PRESUMPTION AGAINST APPELLANT WITH REGARD TO ANY INVOLV EMENT OF ANY KI ND OF ON - MONEY CHANGING HANDS IN SUCH A TRANSACTION. AS PER SECTION 69 OF THE I T ACT 'WHERE IN THE FINANCIAL YEAR IMMEDIATE LY PRECEDING THE ASSESSMENT YEAR, THE ASSESSEE HAS MADE INVESTMENTS WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, MAINTAINED BY HIM FOR ANY SOURCE OF THE INCOME, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVESTMENTS OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE ASSESS ING OFFICER, SATISFACTORY, VALUE OF INVESTM ENTS MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE OF SUCH FINANCIAL YEAR'. IT WOULD BE 32 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS PERTINENT TO MENTION THAT INVESTMEN TS HAVE BEEN DULY RECORDED IN THE BOOKS OF ACCOUNT OF THE APPELLANT AND HENCE, T HE PROVISIONS OF SECTION 69 ARE NOT ATTRACTED. F ROM A BARE READING OF SECTIONS 69B AND 69C, IT IS EVIDENT THAT THE ASSESSIN G OFFICER CANNOT DRAW INFERENCES AND ASSUME THAT THERE HAS BEEN SOME ILLEGALITY IN TH E ASSESSEE'S TRANSACTION IN THE ABSENCE OF ANY MATERIAL IN ITS POSSESSION. IT WOULD BE PERTINEN T TO MENTION THAT THE ASSESSING OFFICER HAS MERELY ASSUMED THA T THE APPELLANTS HAVE INCURRED AN EXPENDITURE OF RS .5,54,40,500/ - (BEING THE MARKET VA LUE PER STAMP DUTY VALUATION) WITHOUT ANY MATERIAL! EVIDENCE ON RECORD. THE ASSESSING OFFICER HAS CAST THE ON US ON THE APPELLANTS TO PROVE THAT THEY HAVE PAID ONLY RS.3 , 96,00,000/ - TO MIDC AS PREMIUM FOR ACQUISITION OF LEASEHOLD RIGHTS WHEN THE FACT REMAINS THAT THE SAID SUM HAS BEEN SHOWN AS PAID IN THE BOOKS OF ACCOUNT. IF THE ASSESSING OFFICER ALLEGES THAT A HIGHER SUM HAS BEEN PAID TO ACQUIRE THE LEASEHOLD RIGHTS THEN, IT IS HIS DUTY AND OBLIGATION OF THE AO TO PROVE THE ALLEGATION BY BRINGING TANGIBLE MATERIAL ON RECORD. THE ASSESSING OFFICER HAS NOT BEEN ABLE TO BRING ANY SUCH MATERIAL ON RECORD BEFORE MA KING THE IMPUGNED ADDITION. THEREFORE, IN MY OPINION , THE AO WAS NOT JUSTIFIED IN PRESUMING THAT CERTAIN 'ON MONEY' PAYMENT WAS INVOLVED IN THIS TRANSACTION. THEREFORE, THE ADDITION MADE BY THE AO UNDER THIS HEADING AMOUNTING TO RS. 1 ,58,40,500/ - IS DELETE D. BASED ON THE ABOVE, GROUND NO.31 IS ALLOWED. IN THE RESULT, APPELLANT'S THIS GROUND OF APPEAL IS ALLOWED. 3 8 . HAVING HEARD BOTH THE SIDES AND PERUSING THE RELEVANT RECORDS AS PLACED BEFORE US , WE FIND THAT THE LD.CIT(A) HAS GIVEN WELL REASO NED FINDINGS ON THE ISSUE THAT THE MIDC IS A STATE OWNED CORPORATION AND THEREFORE THERE COULD NOT BE ANY QUESTION OF ON MONEY PAYMENT IN THE TRANSACTION . FURTHER, WE ARE ALSO IN AGREEMENT WITH THE FINDINGS OF THE LD. CIT(A) THAT THE INVESTMENT S WERE DUL Y RECORDED IN THE BOOKS OF ACCOUNT AND THE PROVISIONS OF SECTION 69 COULD NOT BE INVOKED. FURTHER THE 33 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS LD.CIT(A) HAS ALSO OBSERVED THAT THE AO COULD NOT DRAW ANY INFER ENCE THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. RS.5,54,40,500/ - BEING VALU E AS PER THE STAMP DUTY VALUATION. FURTHER, THERE IS FORCE IN THE ARGUMENT OF THE LD.AR THAT THE STAMP DUTY VALUATION IS OF THE LAND WHEREAS THE ASSESSEE HAS ACQUIRED ONLY THE LEASEHOLD RIGHTS IN THE LAND AT MIDC. HENCE, THE COMPARISION ITSELF IS FAULTY. THE REVENUE ALSO COULD NOT PROVE WITH THE EVIDENCES THAT THE ASSESSEE PAID CONSIDERATION TO MIDC OVER AND ABOVE RS. 3,96,00,000/ - . THE ADDITION/DISALLOWANCE IS ONLY MADE BY THE AO IS ONLY ON SURMISES. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY MERIT IN THE SUBMISSIONS OF THE LD.DR AND THUS , UPHOLD THE ORDER OF LD.CIT(A) ON THIS ISSUE. ACCORDINGLY, THE GROUND TAKEN BY T HE REVENUE IS DISMISSED . 39 . THE GROUND NO.6 TAKEN BY THE REVENUE IS AGAINST THE DELETION BY THE CIT(A) OF ADDIT ION OF RS.16,57,094/ - ON ACCOUNT OF CAPITAL EXPENDITURE DISALLOWED BY THE AO ON THE GROUND THAT THE ASSESSEE HAS PURCHASED ASSETS WHICH ARE OF ENDURING NATURE. 4 0 . THE FACTS OF THE ISSUE ARE THAT THE SPECIAL AUDITOR S OBSERVED THAT THE ASSESSEE HAS INCU RRED EXPENSES OF RS.81,81,695 / - UNDER THE HEAD REPAIRS AND MAINTENANCE WHICH W ERE CHARGED TO THE PROFIT AND LOSS ACCOUNT. OUT O F THE SAID AMOUNT , RS.19,49,552/ - WAS INCURRED ON PVC CABL ING AND POLYFABS. ACCORDING TO THE AO, THE SAID EXPENDITURE WAS OF NATURE OF CAPITAL EXPENDITURE AS BENEFIT OF ENDURING NATURE HAS ACCRUED . THEREFORE, 34 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS THE AO WAS OF THE VIEW THAT THE EXPENDITURE C OULD NOT BE ALLOWED AS REVENUE AND SHOULD BE CAPITALIZED. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE EXPENDITURE INCURRED ON REPLACEMENT OF CABLE S WAS OF REVENUE IN NATURE AND RIGHTLY CLAIMED IN THE PROFIT AND LOSS ACCOUNT . HOWEVER, THE AO REJECTED THE CONTENTION S OF THE ASSESSEE AND CAPITALIZED THE SAID EXPENDITURE UNDER THE HE A D ELECTRICITY & FITTING AND ALLOWED DEP RECIATION AT THE RATE OF 15% TO THE TUNE OF RS.2,92,428/ - WHICH HAS RESULTED IN NET DISALLOW ANCE OF RS.16,57,094/ - . 4 1 . IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) DELETED THE DISALLOWANCE BY OBSERVING AND HOLDING AS UNDER : 27.3. I HAVE CONSIDE RED THE STAND OF THE AO AS WELL AS THE SUBMISSIONS OF TH E NATURE HAS TO BE DECIDED ON THE BASIS OF ITS PURPOSE, WHICH IS REPLACEMENT CABLES WITH THE NEW ONES AND AS SUCH, HAS BEEN CORRECTLY DEBITED TO THE PROFIT AND LOSS ACCOUNT AS REPAIRS AND MAINTENANCE. THE CONTENTIONS OF THE AR THAT THE EXPENSES ARE RECURRING IN NATURE AND DO NOT MEET THE ASSET RECOGNITION CRITERIA IS CORRECT. FURTHER THE REPAIRS S SUBMITTED BY T HE AR RANGE FROM 1 PER CENT TO 4 PERCENT OF THE GROSS BLOCK OF ASSET WHICH IS VERY NEGLIGIB LE . THE R E IS NO CAPITAL ASSET TH A T COMES INTO EXISTENCE ON ACCOUNT OF THE SAID REPAIRS AND MAINTENANCE AND HENCE, THE EXPENDITURE CLAIMED TO BE REVENUE IN NATURE IS TO BE UPHELD. THE AO H A S NOT APPRECIATED THESE FACTS WHILE MAKING T HE DISALLOWANCE OF REP AIRS AND MAINTENANCE EXPENSES. ACCORDINGLY, I DIRECT THE AO TO DELETE THE DISALLOWANCE MADE ON THIS GROUND BASED ON THE ABOVE, GROUND NO.23 IS ALLOWED. IN THE RESULT, APPELLANTS THIS GROUND OF APPEAL IS ALLOWED. 4 2 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL PLACED BEFORE US DURING THE COURSE OF HEARING AND ALSO THE FINDING 35 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS RECORDED BY THE LD. CIT(A) ON THIS ISSUE. IN OUR OPINION THE FINDINGS OF THE LD.CIT(A) APPEAR TO BE CORRECT AS THE EXPENSES INCURRED BY THE ASSESSEE IS RE CURRING IN NATURE AND DO NOT GIVE ENDURING BENEFIT TO THE ASSESSEE . WE, THEREFORE ARE IN COMPLETE AGREEMENT WITH THE FINDING S OF THE FAA THAT THE EXPENDITURE INCURRED ON REPLACEMENT OF THE PVC CABLE S AND PLOYFABS CONSTITUTE D REVENUE EXPENDITURE ON REPAIR S AND MAINTENANCE AND ACCORDINGLY UPHOLD THE SAME BY DISMISSING THE GROUND RAISED BY THE REVENUE. 4 3 . THE GROUND NO.7 IS RAISED AGAINST THE DELETION OF RS.6,38,679 / - BY THE LD.CIT(A) AS MADE BY THE AO ON ACCOUNT OF SHIFTING OF PROFIT TO M/S DEEP ENTERPRI SES. 44 . THE FACTS OF THE ISSUE ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS MADE PAYMENT OF RS.60,38,679/ - TO M/S DEEP ENTERPRISES WHICH INCIDENTALLY WAS A PROPRIETARY CONCERNS OF MRS.PRAVINA A POBARA WHO I S THE MOTHER OF MR. VISHAL THAKKAR . HE IS ONE OF THE PARTNER S IN GBC PACKAGING AND IS RELATED PARTY OF ONE OF THE DIRECTOR S OF THE ASSESSEE COMPANY I.E. WIFE OF MR.DINESH THAKKAR . THE AO FURTHER OBSERVED THAT THE PURCHASE S FROM THE SAID PROPRIETARY CONCE RNS COULD NOT BE CONSIDERED AS TAX NEUTRAL AS T HE ASSESSEE WAS A COMPANY WHERE AS THE SUPPLIER WAS PROPRIETARY CONCERN. IT WAS ALSO NOTED BY THE AO THAT THE ASSESSEE PURCHASE D PACKING MATERIALS FROM M/ S DEEP ENTERPRISES AND ALSO PAID COMMISSION TO M/S DE EP 36 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS ENTE RPRISES FOR ARRANGING PACKING MATERIAL S FROM GBC PACKAGING , AN ASSOCIATE CONCERN OF THE ASSESSEE. ON THE BASIS OF SAID FACT, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE COMPANY WAS SHIFTING ITS PROFIT TO THE RELATED ENTITIES. THE AO AFTER ANALYZI NG THE ACCOUNTS OF M /S DEEP ENTERPRISES CALCULATED THE GP OF DEEP ENTERPRISES AT 12.22% AND ACCORDINGLY ADDED A SUM OF RS.6,83,679/ - BEING 12.22% OF THE TOTAL PURCHASES OF RS.55,94,758/ - MADE BY THE ASSESSEE FROM M/S DEEP ENTERPRISES. 45 . IN THE APPELLAT E PROCEEDINGS, THE LD.CIT(A) SET ASIDE THIS ISSUE TO AO BY OBSERVING AND HOLDING AS UNDER : 36.3 I HAVE CONSIDERED THE STAND OF THE AO AS WELL AS SUBMISSIONS OF THE APPELLANT. DURING THE APPELLATE PROCEEDINGS, IT HAS BEEN ARGUED BY T HE LD.AR THAT THE AO CANNOT MAKE AN ADDITION ON THE BASIS OF AIR WITHOUT BRINGING ANY MATERIAL ON RECORD AND HENCE, THE IMPUGNED ADDITION NEEDS TO BE DELETED. HOWEVER, KEEPING IN ALL FAIRNESS, IT WILL BE BETTER THAT THE AO CARRIED OUT VERIFICATION OF THE MATERIALS AVAILAB LE WITH HIM AND THEN MODIFY /DELETE THE DISALLOWANCES AFTER GETTING CLARIFICATION FROM THE APPELLANT. ACCORDINGLY, DISALLOWANCE MADE BY THE AO IS ALLOWED FOR STATISTICAL PURPOSES SUBJECT TO THE VERIFICATION . HENCE, GROUND NO.32 IS ALLOWED SUBJECT TO VERIF ICATION BY THE AO. IN THE RESULT, APPELLANTS THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES SUBJECT TO VERIFICATION . 4 6 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS ON THE ISSUE AND PERUSED THE MATERIAL PLACED BEFORE US. WE OBSERVE T HAT THE AO HAS FAILED TO POINT OUT THE UN REASONABILITY I N THE PRICES PAID FOR THE TRANSACTIONS OF THE ASSESS EE W ITH ITS ASSOCIATE CONCERN S I.E WHETHER AT THE PREVAILING 37 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS MARKET RATE OF THE SIMILAR TRANSACTIONS. IN ORDER TO INVOKE THE PROVISIONS OF SECT ION 4 0 A (2)(A) OF THE ACT , THE AO HAS TO RECORD A SATISFACTION THAT THE RATES AT WHICH THE TRANSACTIONS WERE ENTERED INTO WITH THE ASSOCIATE CONCERNS WE RE MORE THAN THE MARKET RATE S OF THE SIMILAR ITEMS BUT NOT OTHERWISE. THEREFORE, WE ARE AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD.CIT(A) . IN ANY CASE THIS ISSUE IS SET ASIDE TO AO FOR VERIFICATION AND TO DECIDE BASED ON THE MATERIALS THERE SHOULD NOT BE ANY GRIEVANCE TO THE REVENUE. IN VIEW OF THESE FACTS AND POSITION OF LAW WE UPHOLD THE ORDER OF T HE L D .CIT(A). GROUND NO.7 TAKEN BY THE REVENUE IS SET ASIDE. 4 7 . IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 4 8 . WE NOW TAKE THE APPEAL OF THE ASSESSEE FOR A.Y. 2010 - 11 IN ITA NO.3513/MUM/2016 49 . GROUNDS OF APPEAL TAKEN B Y THE ASSESSEE IN THIS APPEAL ARE AS UNDER: 1. THE COMMISSIONER OF INCOME - TAX (APPEALS) - 9, MUMBAI (HEREINAFTER REFERRED TO AS THE CIT(A)) ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME - TAX - 4(2), MUMBAI (HEREINAFTER REFERRED TO AS THE ASSESSING OFFICER) IN ISSUING A NOTICE UNDER SECTION 148 OF THE ACT. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ISSUE OF NOTICE UNDER SECTION 148 IS BAD IN LAW AND NEEDS TO BE QUASHED. THE APPELLANTS FURTHER, CONTEND THAT THE SAID NOTICE ISSUED BY THE ASSESSING OFFICER IS AB INITIO VOID INASMUCH AS THE ASSESSING OFFICER IN RECORDING THE REASONS/ ISSUING THE NOTICE DATED 26.03.2013 ONLY 38 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS MENTIONS OF THE STATEMENT ON OATH ADMINISTERED DURING THE COURSE OF SURVEY PROCEEDINGS, WHICH ITSELF IS BAD IN LAW, AND HAS, THOUGH WITHIN HIS KNOWLEDGE, NOT TAKEN COGNIZANCE OF THE RETRACTION THAT HAS BEEN FILED WITH HIM ON 7TH MARCH, 2013 THAT IS, BEFORE THE ISSUE OF THE IMPUGNED NOTICE UNDER SECTION 148; AND HENCE, THE REASONS RECORDED BY HIM FOR RE - OPENING THE ASSESSMENT ARE BAD IN LAW AND CONSEQUENTLY, THE IMPUGNED ASSESSMENT ORDER IS ALSO BAD IN LAW. 2. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER ON FACTS AND IN LAW IN REQUIRING THE APPELLANTS TO GET THEIR BOOKS OF ACCOUNT FOR THE YEAR UNDER REFERENCE AUDITED BY A SPECIAL AUDITOR PER THE PROVISIONS OF SECTION 142(2A) OF THE ACT. THE ASSESSING OFFICER HAS WITHOUT APPLICATION OF MIND REQUIRED THE APPELLANTS TO GET THEIR BOOKS OF ACCOUNT AUDITED BY A SPECIAL AUDITOR AS NO FACTS REQUIRED FOR INVOCATION OF THE PROVISIONS OF SECTION 142(2A) EXISTED TO JUSTIFY THE SAME. THE PURPOSE OF INVOCATION OF THE PROVISIONS OF SECTION 142(2A) IS ONLY TO EXTEND THE PERIOD OF LIMITATION WITHOUT JUSTIFYING THE JURI SDICTIONAL CONDITION AND HENCE, THE ASSESSMENT ORDER IS BAD IN LAW. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE INVOCATION OF PROVISIONS OF SECTION 142(2A) OF THE ACT IS BAD IN LAW AND NEEDS TO BE QUASHED . 3. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF RS 31,36,199 BY INVOKING THE PROVISIONS OF SECTION 40A(2)(A), ON THE GROUND THAT THE PRICE CHARGED BY THE RELATED PARTIES FOR SUPPLY OF PACKING MATERIAL TO THE APPELLANTS IS EXCESSIVE AND UNREASONABLE. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE IMPUGNED DISALLOWANCE INASMUCH AS T HE ASSESSING OFFICER HAS NOT GIVEN ANY COMPARATIVE RATES FOR PURCHASE OF PACKING MATERIAL FROM RELATED AND UNRELATED PARTIES AND THUS, THE CONCLUSION ARRIVED AT BY THE ASSESSING OFFICER THAT EXCESS RATES HAVE BEEN CHARGED BY RELATED PARTIES IN SUPPLYING PA CKING MATERIAL TO THE APPELLANTS IS BASELESS AND ERRONEOUS AND AS SUCH, THE SAID DISALLOWANCE SUFFERS FROM LEGAL INFIRMITY; HENCE, REQUIRES TO BE DELETED. 4. (I) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF RS 5,74,719 BY INVOKING THE 39 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS PROVISIONS OF SECTION 40A(2)(B), ON THE GROUND THAT THE APPELLANTS, INSPITE OF HAVING LICENSE AND PRODUCTION CAPACITY AT THEIR DISPOSAL, HAVE GIVEN JOB WORK TO CHERYL LABORATORIES PVT. LTD. AND HAVE PAID JOB WORK CHARGES THEREFOR. (II) THE CIT(A) FURTHER, ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF RS 64,004 BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B), ON THE GROUND THAT THE APPELLANTS HAVE PAID JOB WORK CHARGES TO CHERYL LABORATORIES PVT. L TD. FOR WHICH THERE IS NO AGREEMENT. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CITCA) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE IMPUGNED DISALLOWANCE INASMUCH AS THE ASS ESSING OFFICER HAS NOT CORRECTLY APPRECIATED THE FACTS OF THE CASE IN ITS ENTIRETY AND HENCE, THE SAID DISALLOWANCE REQUIRES TO BE DELETED. 5. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE ENTIRE BUSINESS PROMOTION EXPENSES RS 26,74,430 DEBITED TO THE PROFIT AND LOSS ACCOUNT, ON THE GROUND THAT THE APPELLANTS HAVE GRAVELY FAILED TO ESTABLISH THE NEXUS OF SUCH EXPENDITURE WITH ITS BUSINESS REQUIREMENTS. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE IMPUGNED DISALLOWANCE INASMUCH AS THE SOLE BASIS OF THE DISALLOWANCE IS THE STATEMENT ON OATH OF THE DIRECTORS ADMINISTERED DURING THE COURSE O F SURVEY PROCEEDINGS, WHICH IN ITSELF IS BAD IN LAW, AND THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUPPORT THE IMPUGNED DISALLOWANCE; HENCE, THE SAID DISALLOWANCE ON FACTS AND IN LAW, REQUIRES TO BE DELETED. 6. THE CIT(A) ERRE D IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING COMMISSION PAID TO THE TUNE OF 1,51,856 DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT N OT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE IMPUGNED DISALLOWANCE INASMUCH AS THE ASSESSING OFFICER HAS NOT CORRECTLY APPRECIATED THE 40 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS FACTS OF THE CASE AND HENCE, THE SAID DISALLOWANCE REQUIRES TO BE DELETED. 7. THE CIT(A) ERRED I N UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN MAKING AN ADDITION OF A SUM OF RS 1,68,31,380 BY INVOKING THE PROVISIONS OF SECTION 69A / 69C OF THE ACT MERELY ON THE GROUND THAT THE SAID PURCHASES ARE FROM HAWALA DEALERS. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE PRESCRIPTION OF THE PROVISIONS OF SECTIONS 69AI 69C ARE NOT APPLICABLE AND FURTHER, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE IMPUGNED ADDITION INAS MUCH AS THE ASSESSING OFFICER HAS NOT CORRECTLY APPRECIATED THE FACTS OF THE CASE IN ITS ENTIRETY AND HENCE, THE SAID DISALLOWANCE REQUIRES TO BE DELETED. 8. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING RS 4,82,250, BE ING THE CLAIM OF DEDUCTION UNDER SECTION 80G, ON THE GROUND THAT THE DONATIONS THAT HAVE BEEN PAID ARE NOT GENUINE. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION O F THE ASSESSING OFFICER IN MAKING THE IMPUGNED DISALLOWANCE OF THE CLAIM OF DEDUCTION UNDER SECTION 80G OF THE ACT INASMUCH AS THE SOLE BASIS OF THE DISALLOWANCE IS THE STATEMENT ON OATH OF THE DIRECTORS ADMINISTERED DURING THE COURSE OF SURVEY PROCEEDINGS , WHICH IN ITSELF IS BAD IN LAW, AND THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUPPORT THE IMPUGNED DISALLOWANCE; HENCE, THE SAID DISALLOWANCE ON FACTS AND IN LAW, REQUIRES TO BE DELETED. 9. THE CIT(A) ERRED IN UPHOLDING THE AC TION OF THE ASSESSING OFFICER IN MAKING A DISALLOWANCE OF A SUM OF RS 5,01,611 DEBITED TO THE PROFIT AND LOSS ACCOUNT, ON THE GROUND THAT THE UNDERLYING LOAN AVAILED FOR DEHRADUN UNIT IS ALREADY DISPOSED OF IN THE EARLIER YEAR AND HENCE, THE SAID INTEREST IS NOT ALLOWABLE. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE IMPUGNED DISALLOWANCE INASMUCH AS THE ASSESSING OFFICER HAS NOT CORRECTLY APPRECIATED THE FACTS OF THE CASE AND HENCE, REQUIRES TO BE DELETED. 41 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 10. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN MAKING AN ADDITION OF A SUM OF RS 1,83,62,550, BEING 10 PER CENT OF TURNOVER IN CIRCULAR TRADING TRANSACTIONS. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE IMPUGNED ADDITION INASMUCH AS THE ASSESSING OFFICER HAS RELIED ON THE STATEMENT ON OATH OF THE DIRECTORS ADMINISTERED DURING THE COURSE OF SURVEY PROCEEDINGS, WHICH IN ITSELF IS BAD IN LAW, AND THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUPPORT THE IMPUGNED ADDITION; HENCE, THE SAID ADDITION ON FACTS AND IN LAW, REQUIRES TO BE DELETED. THE APPELLANTS FURTHER, CONTEND THAT THE GROSS PROFIT OF RS 2,01,000 SHOWN BY THE APPELLANTS ON SUCH CIRCUITOUS TRANSACTIONS WITH HAWALA DEALERS BE REDUCED FROM THE TOTAL INCOME INASMUCH AS THE TRANSACTIONS AD MITTEDLY ARE PAPER TRANSACTIONS. 11. THE CIT(A) OUGHT NOT TO HAVE UPHELD THE WITHOUT PREJUDICE STAND OF THE ASSESSING OFFICER FOR DISALLOWANCE UNDER SECTION 40(A)(IA) OF INTEREST PAID RS 2,78,994 TO KOTAK MAHINDRA PRIME LTD WITHOUT DEDUCTION OF TAX AT SO URCE IS UNTENABLE BY VIRTUE OF FIRST PROVISO TO SECTION 201(1) OF THE ACT. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE WITHOUT PREJUDICE STAND OF THE ASSESSING OFFICER INASMUCH AS THE ASSESSING OFFICER HAS NOT CORRECTLY APPRECIATED THE FACTS OF THE CASE IN ITS ENTIRETY; HENCE, THE SAID DISALLOWANCE REQUIRES TO BE DELETED . 12. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE ENTIRE STAFF WELFARE EXPENSES RS 9,09,863 DEBITED TO THE PROFIT AND LOSS ACCOUNT, ON THE GROUND THAT THE EXPENSES ARE NOT GENUINE BUSINESS EXPENSES/ ACCOMMODATION! ADJUSTMENT ENTRY/ PERSONAL EXPENSE. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER INASMUCH AS THE ASSESSING OFFICER IN MAKING THE IMPUGNED DISALLOWANCE HAS SOLELY RELIED ON THE 42 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS STATEMENT ON OATH ADMINISTERED ON THE DIRECTORS DURING THE C OURSE OF SURVEY PROCEEDINGS, WHICH ITSELF IS BAD IN LAW, AND THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUPPORT THE IMPUGNED DISALLOWANCE. THE DISALLOWANCE IS MADE BY THE ASSESSING OFFICER ON THE BASIS OF SURMISES AND CONJECTURES AND H ENCE, THE SAME OUGHT TO BE DELETED 13. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING EXPENSES INCURRED FOR EARNING DIVIDEND INCOME BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(2)(III). THE APPELLANTS CO NTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER OUGHT NOT TO HAVE MADE THE IMPUGNED DISALLOWANCE INASMUCH AS THE SAME IS NOT IN ACCORDANCE WITH THE PRESCRIPTION OF SECTION L4A READ WITH RULE 8D(2)(III). THE APPELLANTS FURTHER, CONTEND THAT THE CALCULATION OF THE DISALLOWANCE IS NOT IN ACCORDANCE WITH THE PROVISIONS OF RULE 8D(2)(III). 14. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING ADDITIONAL DEPRECIATION RS 45,000 ON WA TER CHILLING PLANT. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE IMPUGNED DISALLOWANCE INASMUCH AS THE ASSESSING OFFICER HA S NOT CORRECTLY APPRECIATED THE FACTS OF THE CASE IN ITS ENTIRETY AND HENCE, THE SAID DISALLOWANCE REQUIRES TO BE DELETED. 15. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE DEDUCTION OF RS 5,66,271 CLAIMED UNDER SEC TION 35D OF THE ACT ON THE GROUND THAT THE APPELLANTS HAVE NOT PROVIDED ANY WORKING FOR ADMISSIBILITY OF DEDUCTION UNDER SECTION 35D. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE IMPUGNED DISALLOWANCE INASMUCH AS THE APPELLANTS HAVE FURNISHED THE WORKING TOGETHER WITH ALL DETAILS AND 43 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS HENCE, THE SAID DISALLOWANCE REQUIRES TO BE DELETED. 16. THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN CHARGING INTEREST RS 3,17,51,163 AND RS 98,329 UNDER SECTIONS 234B AND 234C OF THE ACT, RESPECTIVELY. THE APPELLANTS CONTEND THAT THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN CHARGING T HE IMPUGNED INTEREST UNDER SECTIONS 234B AND 234C INASMUCH AS - (A) THE ASSESSING OFFICER HAS NOT GIVEN AN OPPORTUNITY TO THE APPELLANTS BEFORE CHARGING THE SAID INTEREST AS REQUIRED BY THE PRINCIPLES OF NATURE JUSTICE, (B) THE CHARGING OF INTEREST IS NOT IN ACCORDANCE WITH LAW. 5 0 . THE ISSUE RAISED IN GROUND OF APPEAL NO.1 IS AGAINST THE UPHOLDING OF THE RE - OPENING U/S 148 OF THE ACT. 5 1 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT PROCEEDINGS WERE REOPENED BY ISSUING THE NOTICE UNDER SECTION 1 48 OF THE ACT ON 26.3.2013 UPON RECEIVING INFORMATION FROM THE SALES TAX DEPARTMENT , GOVERNMENT OF MAHARASHTRA (GOM) THAT THE ASSESSEE WAS ONE OF THE BENEFICIAR IES OF ACCOMMODATION ENTRIES FROM HAWALA DEALERS AS PER THE LIST PUBLISHED IN THE WEBSITE OF THE GOVERNMENT OF MAHARASHTRA. A SURVEY WAS CONDUCTED ON THE PREMISES OF THE ASSESSEE U/S 133A OF THE ACT ON 19.12.2012 IN WHICH IN THE STATEMENT RECORDED U/S 131 OF THE ACT THE ASSESSEE SURRENDERED RS. 10 CR TO COVER VARIOUS DISCREPANCIES IN THE ASSESSM ENT YEARS 2008 - 09 TO 2012 - 13 BUT SUBSEQUENTLY THE SURRENDER WAS WITHDRAWN AND THE INCOME WAS NOT OFFERED IN THE RETURNS OF INCOME FILED. THE REASONS FOR RE - OPENING WERE DULY RECORDED AND SUPPLIED TO THE 44 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS ASSESSEE AND AFTER THE ASSESSEE FILED OBJECTIONS AGAI NST THE RE - OPENING , THE SAME WERE DISPOSED OF BY SEPARATE ORDER. 5 2 . THE REOPENING OF THE ASSESSMENT WAS CHALLENGED BEFORE THE LD.CIT(A) WHO ALSO UPHELD THE REOPENING OF THE ASSESSMENT U/S 148 OF THE ACT ON THE GROUND THAT INFORMATION WAS RECEIVED FROM THE SALES TAX DEPARTMENT, GOM AND CONSTITUTED A VALID INFORMATION FOR RE - OPENING THE ASSESSMENT . THE OBSERVATIONS AND FINDINGS OF THE LD.CIT(A) ARE AS UNDER : 6.3. I HAVE CONSIDERED THE FACTS OF THE CASE, STAND OF THE AO AS WELL AS SUBMISSIONS MADE BY THE ID. AR ON BEHALF OF THE OF THE APPELLANT. THE CASE HAS BEEN REOPENED BY THE AO ON THE BASIS OF CERTAIN DISCREPANCIES NOTED BY THE AO DURING THE COURSE OF SURVEY AND BECAUSE TWO DIRECTORS, SHRI CHANDRESH THAKKER AND SHRI DINESH THAKKER ALSO MADE DI SCLOSURE OF INCOME OF RS.10 CRORES SPREADING IN VARIOUS ASSESSMENT YEARS AND WHEREBY THE DIRECTORS HAVE ACCEPTED THE DISCREPANCIES FOUND WITH REFERENCE TO THE BOOKS OF ACCOUNTS / LOOSE PAPERS / STOCKS ETC. WHICH WAS POINTED OUT BY THE SURVEY TEAM DURING THE SURVEY. THE CONTENTION OF THE AO IS ITERATED, 'THE FACT THAT THE ASSESSEE SUO - MOTTO GAVE A STATEMENT DURING THE COURSE OF SURVEY PROCEEDINGS IS A SUFFICIENT REASON FOR THE ASSESSING OFFICER FOR PRIMA - FACIE BELIEVING THAT THE INCOME ASSESSABLE HAS ESC APED ASSESSMENT IS ESTABLISHED. SUFFICIENCY OF REASONS CANNOT BE QUESTIONED AT STAVE OF THE INITIATION OF THE PROCEEDINGS UNLESS PROCEEDINGS ARE CONTINUED TO THE ASSESSMENT STAGE. THEREFORE, THE AO WAS JUSTIFIED IN INVOKING SECTION 147 AND ISSUING NOTICE U/S 148 FOR REOPENING OF THE CASE. IT WILL BE ALTOGETHER A DIFFERENT PROPOSITION AS TO HOW MUCH ADDITION WILL BE ACTUALLY WARRANTED IN THE PRESENT CASE, BUT THE FACT REMAINS THAT HE ASSESSMENT WAS REOPENED ON THE BASIS OF INFORMATION AVAILABLE WITH THE AO. IT MAY FURTHER BE POINTED OUT THAT THE APPELLANT HAS PARTICIPATED IN THE RE - ASSESSMENT PROCEEDINGS AND NOW IT IS TOO LATE TO RAISE ANY OBJECTION WITH REGARD TO RE - OPENING OF THE CASE. THEREFORE, THE ACTION OF THE AO WAS JUSTIFIED. IN T HE RESULT, APP ELLANTS GROUND NO.2 REGARDING REOPENING OF THE CASE ID DISMISSED. 45 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 5 3 . AFTER PERUSING THE MATERIAL ON RECORD AND HEARING BOTH THE SIDES, WE FIND THAT THE ASSESSMENT WAS PRIMARILY REOPENED BY THE AO AFTER RECEIVING THE INFORMATION FROM THE SALES TAX D EPARTMENT OF GOM THAT THE ASSESSEE WA S ONE OF THE BENEFICIAR IES OF THE HAWALA TRANSACTIONS AND THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THE REOPENING WAS DONE ON THE BASIS OF INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT, GOM WHICH WAS NOT IN PO SSESSION OF THE AO AT THE RELEVANT POINT OF TIME I.E. AT THE TIME OF FRAMING OF ORIGINAL ASSESSMENT AND THEREFORE, WE ARE IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD.CIT(A) THAT ASSESSMENT WAS RIGHTLY REOPENED. ACCORDINGLY, THE GROUND RAISED BY TH E ASSESSEE IS DISMISSED. 5 4 . GROUNDS OF APPEAL NO.2 TAKEN BY THE ASSESSEE IS AGAINST THE UPHOLDING OF THE ACTION OF THE AO IN APPOINTING SPECIAL AUDITOR U/S 142(2A) OF THE ACT. 5 5 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE REC ORDS OF THE ASSESSEE WERE COMPLEX , BULKY, VOLUMINOUS AND CONTAIN ED MESSY INFORMATION S / DETAILS AND THEREFORE IN ORDER TO ASSESS THE INCOME CORRECTLY THEY SHOULD BE AUDITED BY INDEPENDENT AUDITOR S SO THAT THE ASSESSMENT COULD BE FRAMED AND THE INCOME OF TH E ASSESSEE COULD B E BROUGHT TO TAX CORRECTLY . ACCORDINGLY , THE ASSESSEE WAS ISSUED A SHOW CAUSE AS TO WHY THE SPECIAL AUDITORS SHOULD NOT BE APPOINTED U/S 142(2A) 46 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS OF THE ACT. THE AO AFTER BRUSHING ASIDE THE OBJECTIONS OF THE ASSESSEE APPOINTED SPECIAL AU DITOR U/S 142(2A) OF THE ACT AFTER FOLLOWING THE DUE PROCEDURE IN THE ACT . 5 6 . IN THE APPELLATE PROCEEDINGS BEFORE THE FAA, THE ASSESSEE CHALLENGED THE ACTION OF THE AO OF APPOINTING THE SPECIAL AUDITORS . THE LD. CIT(A) ALSO DISMISSED THE PLEA OF THE ASSE SSEE BY OBSERVING AND HOLDING AS UNDER : 7.3 I HAVE CONSIDERED THE FACTS OF THE CASE, STAND OF THE AO AS WELL AS SUBMISSIONS OF THE APPELLANT. THE APPELLANT HAS NOT MADE OUT ANY CASE THAT THE BOOKS OF ACCOUNTS AND MATERIALS FOUND DURING THE COURSE OF S URVEY WERE NOT COMPLEX SO AS TO PROVE THAT THE AO WAS NOT JUSTIFIED IN REFERRING THE MATTER TO THE SPECIAL AUDIT. FURTHER, THE APPELLANT HAS NOT MADE OUT ANY CASE THAT PRINCIPLE OF NATURAL JUSTICE WAS NOT FOLLOWED BY THE AO WHILE REFERRING THE MATTER FO R SPECIAL AUDIT U/S.142(2A). NO CASE HAS BEEN MADE OUT BEFORE ME REGARDING THE PROCEDURE FOLLOWED BY THE AO WHILE REFERRING THE MATTER FOR SPECIAL AUDIT. THEREFORE, THE AO WAS JUSTIFIED IN REFERRING THE MATTER FOR SPECIAL AUDIT. FURTHER, UNDER THE GIVEN FA CTS AND CIRCUMSTANCES, THE SUBMISSIONS OF THE LD.AR IS NOT FOUND TO BE TENABLE INASMUCH AS THE APPELLANT COULD HAVE TAKEN THIS GROUND IN WRIT BEFORE THE HIGH COURT AND NOT BEFORE ME. THEREFORE, AT THIS STAGE, THE OBJECTIONS OF THE APPELLANT REGARDING REFERE NCE OF MATTER FOR THE SPECIAL AUDIT BY THE AO CANNOT BE ENTERTAINED. IN RESULT, APPELLANTS THIS GROUND OF APPEAL NO.3 IS DISMISSED. THE RESULT 5 7 . HAVING HEARD TO BOTH THE PARTIES AN D CONSIDERING THE RELEVANT MATERIAL S ON RECORDS, IT IS OBSERVED THA T THE ACCOUNTS OF THE ASSESSEE WERE SO COMPLEX THAT THE AO HAS TO DEPEND ON SOME PROFESSIONAL HEL P TO ASSESS THE INCOME CORRECTLY. W E ARE , THEREFORE, IN AGREEMENT WITH T HE 47 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS CONCLUSION DRAWN BY T HE FAA THAT IN THE APPOINTMENT OF SPECIAL AUDITOR, THE AO HAS F OLLOWED PROPER PROCEDURE AS LAID DOWN BY THE ACT AND DID NOT CAUSE PREJUDICE/ HARM TO THE ASSESSEE AND HAS ALSO NOT VIOLATED PRINCIPLE S OF NATURAL JUSTICE A S WITHOUT SUCH AUDIT BY SPECIAL AUDITOR S, THE CORRECT ASSESSMENT OF INCOME COULD NOT HAVE BEEN POSSIB LE. ACCORDINGLY, WE UPHOLD THE ACTION OF THE AO AND CONFIRM THE CONCLUSION DRAWN BY THE LD.CIT(A). ACCORDINGLY , GROUND NO.2 TAKEN BY THE ASSESSEE STANDS DISMISSED. 5 8 . GROUND NO.3 IS AGAINST THE UPHOLDING OF THE ACTION OF AO IN DISALLOWING A SUM OF RS. 31,36,199 BY INVOKING THE PROVISIONS OF SECTION 40A(2)(A), ON THE GROUND THAT THE PRICE CHARGED AT WHICH THE TRANSACTIONS WAS MADE WITH THE RELATED PARTIES WERE EXCESSIVE AND UNREASONABLE. 59 . FACTS OF THE ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE PURCHASES OF RAW MATERIAL AND PACKING MATERIALS FROM RELATED PARTIES. ASSESSING OFFICER AFTER GOING THROUGH THE COMPARATIVE DATA OF THE ASSESSEE AND RELATED PARTIES CAME TO THE CONCLU SION THAT THE PRICE CHARGED FOR THE PURCHASE OF MATERIAL FROM THE RELATED PARTIES WAS UNREASONABLE AND EXCESSIVE. A CCORDINGLY , THE AO ADDED A SUM OF RS.31,36,19 9 / - BY INVOKING THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT BY APPLYING THE RATE 22 .59% ON THE AMOUNT OF PURCHASE S OF RAW MATERIAL RS 25,596 AND 48 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS PURCHASES OF PACKING MATERIAL RS 1,38,57,533 DETAILS OF WHICH ARE GIVEN BELOW : ASSOCIATE CONCERN RAW MATERIAL (RS) PACKING MATERIAL (RS) CHERYL LABORATORIES PVT LTD 25,596 (20,618) GBC PACKING - 7 8,91,149 GEM PACKAGING - 59,87,005 TOTAL 25,596 1,38,57,533 6 0 . AGGRIEVED BY THE ORDER OF THE AO , THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD CIT(A) . HOWEVER, THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE AFTER CONSIDERING THE CONTENTI ONS RAISED BY THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : REPLY OF THE APPELLANT HAS BEEN CONSIDERED BUT NOT FOUND TO BE ACCEPTABLE AND SELF - SERVING ONLY. THE APPELLANT HAS FAILED TO EXPLAIN THE REASONABLENESS OF THE PRICE CHARGED BY THE RELATED PAR TIES AND THEREFORE, PACKING MATERIAL PURCHASED FROM RELATED PARTIES IS AT PRICE WHICH WAS EXCESSIVE AND UNREASONABLE. THEREFORE, AN AMOUNT OF RS.31,36,199/ - AS DISALLOWED BY THE AO AND ADDED TO THE TOTAL INCOME OF THE APPELLANT U/ S.40A(2)(A) OF THE INCOM E TAX ACT, 1961 IS FOUND TO BE JUSTIFIABLE. TO CONCLUDE THE CONTENTION OF THE APPELLANT REGARDING GBC PACKAGING THAT THE RATES ARE NOT COMPARABLE HAS BEEN FOUND UNTENABLE AND MERELY A COVERING EXERCISE ON THE PART OF THE APPELLANTS. FURTHER, AS POINTED O UT BY THE AO THAT THE GENERAL PRACTICE OF CHARGING HIGHER RATES FOR LOWER QUANTITY IS ITSELF CONTRADICTING THE SUBMISSIONS MADE BY THE AR SINCE THE APPELLANTS ARE FOUND TO BE THE SECOND BIGGEST CUSTOMER IN TERMS OF QUANTITY. ALSO, THE RATE CHARGED BY GBC P ACKAGING, THE RELATED CONCERN TO THE APPELLANTS IS MUCH HIGHER AS COMPARED TO THE RATE CHARGED BY GBC PACKAGING TO THE OTHER RELATED CONCERNS. SIMILARLY, THE CONTENTION OF APPELLANT REGARDING GEM PACKAGING AND CHERYL LABORATORIES IS NOT ACCEPTABLE AND S ELF - SERVING ONLY. 49 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS FURTHER, THE APPELLANT HAS MISERABLY FAILED TO EXPLAIN THE REASONABLENESS OF THE PRICE CHARGED BY THE RELATED CONCERNS. AS IT MAY BE SEEN FROM THE SUBMISSIONS AND CONTENTIONS, THE APPELLANTS' REAL MOTIVE IN PAYING UNREASONABLE AND EXCE SSIVE PURCHASE PRICE IS TO SUPPRESS THE TRUE PROFITS AMONGST GROUP CONCERNS. BASED ON THE ABOVE, AN AMOUNT OF RS.31,36,199/ - AS DISALLOWED BY THE AO AND ADDED TO THE TOTA L INCOME OF THE APPELLANT U/S 40A(2)(A) OF THE INCOME TAX ACT, 1961, THIS GROUND NO .8 IS UPHELD IN THE RESULT, THE APPELLANTS THIS GROUND OF APPEAL IS DISMISSED. 6 1 . THE LD.AR SUBMITTED THAT THE PACKING MATERIAL PURCHASED FROM GB C PACKAGING WAS A RELATED PARTY. T HE SPECIAL AUDITORS IN THEIR REPORT OBSERVED THAT THE APPELLANT HA S NOT PURCHASED SIMILAR ITEMS FROM OTHER PARTIES AND HENCE, THE COMPARATIVE RATES WERE NOT AVAILABLE FOR VERIFICATION. THEREFORE, THE SPECIAL AUDITORS OBTAINED THE SALES REGISTER OF GBC PACKAGING TO ASCERTAIN THE PRICE CHARGED BY THEM TO OTHER RELATED PARTIE S AND COMPARED THE RATES CHARGED IN RESPECT OF ONE OF THE PACKING MATERIAL NAMELY, 120 ML AMBER PET BOTTLE AS MENTIONED AT PAGE NOS 38 AND 39 OF THE ASSESSMENT ORDER. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT GB C PACKAGING HAS SOLD THE AFORESAID PACKIN G MATERIAL TO RELATED AS WELL AS NON - RELATED PARTIES. THE RATE AT WHICH THE MATERIAL WAS SOLD TO SHALINA LABORATIES LTD AT RS 1.51 WAS THE LOWEST PRICE AMONGST ALL. HOWEVER, THE SAME PRODUCT HAS BEEN SOLD TO THE APPELLANTS AT RS 1.75. IT WAS EXPLAINED TO THE SPECIAL AUDITORS AND ALSO THE ASSESSING OFFICER (REFER LETTER DATED 6TH AUGUST,2014 - PAGE NOS 8.1 TO 8.8 OF THE PAPER BOOK) THAT THERE IS A DIFFERENCE IN RATES AS QUANT UM OF MATERIALS IN TERMS 50 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS OF VALUE SOLD TO SHALINA LABORATORIES LTD WA S 24.27 LACS AS AGAINST 14.44 LACS TO THE APPELLANT, WHICH WA S 68% MUCH HIGHER. IT IS A GENERAL BUSINESS PRACTICE THAT HIGHER THE QUANTITY LOWER IS THE RATE OFFERED AND HENCE, THE PRICE CHARGED TO SHALINA LABORATORIES LTD DIFFER ED FROM THE PRICE CHARGED TO THE APPELLAN T. FURTHER, IT WAS EXPLAINED THAT GBC PACKAGING HAS CHARGED RS 1.57 TO DEEP ENTERPRISE AS I T WAS TO ENCOURAGE THE NEW ENTRANTS INTO THE BUSINESS AND IT WOULD NOT BE OUT OF PLACE TO MENTION THAT SAMPLES WERE SUPPLIED/ PROVIDED AT LOWER RATE AND NOT THE PROD UCT OF MAIN SUPPLY . AND HENCE, T HE RATES CHARGED TO DEEP ENTERPRISE WERE NOT COMPAR ABLE WITH THE PRICE CHARGED TO THE APPELLANT S . THE APPELLANT S CONTEND ED THAT THE DIFFERENCE BETWEEN THE RATES CHARGED TO THE APPELLANT AND SHALINA LABORATORIES LTD IS ONLY R S 0.24 WHICH IS ONLY 15.89% AND HENCE, THE IMPUGNED ADDITION C OULD NOT BE SUSTAINED. FURTHER, THE APPELLANTS CONTEND ED THAT PAYMENT FOR SUCH EXPENDITURE HAS TO BE VIEWED FROM BUSINESSMAN'S POINT OF VIEW AND NOT FROM THE VIEW POINT OF THE REVENUE. REVENUE C ANNOT JUSTIF Y ITS ACTION BY PUTTING ITSELF IN THE ARMCHAIR OF A BUSINESSMAN AND ASSUME THE SAID ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE WITHOUT HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. THE WRITTEN SUBMISSION STATE THAT IN RESPECT OF PAC KING MATERIAL PURCHASED FROM GEM PACKAGING I T WOULD BE PERTINENT TO MENTION THAT THE SPECIAL AUDITORS IN THEIR REPORT HAVE NOT GIVEN ANY ADVERSE REMARKS NOR HAS THE ASSESSING OFFICER GIVEN ANY COMPARATIVE RATES AS FAR AS PURCHASES 51 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS FROM GEM PACKAGING WE RE C ONCERNED TO ARRIVE AT THE CONCLUSION THAT EXCESS RATE HAS BEEN CHARGED BY THEM TO THE APPELLANTS. THE ASSESSING OFFICER HAS E XTRAPOLATED THE EXCESS RATE @ 22.59%, BEING THE ALLEGED AVERAGE DIFFERENCE CHARGED IN EXCESS BY GB C PACKAGING , TO THE TURNOVER OF GEM PACKAGING , WHICH ON FACTS AND IN LAW, IS NOT TENABLE AND HENCE, THE IMPUGNED ADDITION IS NOT SUSTAINABLE. WITHOUT PREJUDICE TO THE ABOVE, IT WOULD BE PERTINENT TO MENTION THAT THE APPELLANTS PURCHASED CORRUGATED BOXES FROM GEM PACKAGING AND THERE C OU LD BE NO COMPARISON OF RATES AS THESE BOXES ARE OF DIFFERENT SIZES AND MANUFACTURED AS PER THE REQUIREMENTS OF THE CUSTOMERS AND THUS, THE IMPUGNED DISALLOWANCE CANNOT BE MADE . THE LD. AR IN SUPPORT OF HIS CONTENTION S REFERRED BEFORE US THAT D ISALLOWANC E UNDER SECTION 40A(2)(A) CAN BE MADE ONLY IF THE FOLLOWING CONDITIONS ARE SATISFIED; - WHERE THE ASSESSEE INCURS ANY EXPENDITURE ; - THE PAYMENT FOR SUCH EXPENDITURE IS MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF SECTION 40A(2) AND - THE ASSESSING OF FICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITY FOR WHICH THE PAYMENT IS MADE. HE REFERRED TO WRITTEN SUBMISSIONS WHICH STATED THAT WHERE EXPENDITURE BEI NG EXCESSIVE OR UNREASONABLE, THE FAIR MARKET VALUE OF SUCH SERVICES / MATERIALS HAVE TO BE DETERMINED FIRST AND UNLESS THIS BENCHMARK IS SE T , OR THERE IS A CATEGORICAL FINDING ABOUT THE FAIR MARKET VALUE AND THE ASSESSEE IS GIVEN AN OPPORTUNITY OF HEAR ING ON THE AOS FINDING ABOUT 52 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS SUCH FAIR MARKET VALUE, THERE C OULD N OT BE ANY QUESTION OF ANY DISALLOWANCE UNDER SECTION 40A(2) OF THE ACT . ONLY THE EXCESS OF SUCH BENCHMARK CAN BE HELD TO BE EXCESSIVE OR UNREASONABLE; AND IF SUCH BENCHMARK IS NOT SET BY THE ASSESSING OFFICER, NO DISALLOWANCE C OULD BE MADE . 6 2 . IN THE CASE ON HAND, THE APPELLANTS CONTEND ED THAT THE ASSESSING OFFICER HAS NEITHER BROUGHT ANY MATERIAL ON RECORD TO SHOW EXCESS PRICE CHARGED BY GEM PACKAGING, HAS NO T SET ANY BENCHMARK TO MAKE ANY COMPARISON WITH RATES CHARGED BY GEM PACKAGING AND HENCE, HAS NOT SATISFIED THE PREREQUISITES OF MAKING A DISALLOWANCE UNDER SECTION 40A(2). FURTHER, IT WOULD NOT BE OUT OF PLACE TO MENTION THAT GEM PACKAGING IN RESPECT OF WHICH THE DISALLOWANCE HAS BEEN MADE IS IN THE SAME TAX BRACKET AS THE APPELLANT S AND THUS, THERE IS NO LOSS OF TAX TO THE EXCHEQUER AND THEREFORE THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT COULD NOT INVOKED . THE LEGAL PROPOSITION IS THAT PAYMENT TO SISTER CONCERN CANNOT BE DIS ALLOWED UNDER SECTION 40A(2)(B) OF THE ACT UNLESS TAX AVOIDANCE MOTIVE IS ESTABLISHED. IN SUPPORT OF HIS CONTENTIONS THE LD.AR PLACED RELIANCE ON THE FOLLOWING CASE LAW S : (I) CBDT CIRCULAR NO 6 - P - 66 DATED 6TH JULY, 1968 (II) CBDT CIRCULARS ARE BINDING ON THE ASSESSING OFFICER UCOBANK 237 ITR 889 (SC) PAPER PRODUCTS LTD 247 ITR 128 (SC) INDIAN OIL CORP. LTD 267 ITR 272 (SC) BEST PLASTICS (P.) LTD 295 ITR 256 (DEL) 53 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS (III) BOMBAY HIGH COURT DECISION IN THE CASE OF INDO SAUDI SERVICES (TRAVEL) PVT LTD - 310 ITR 306 (IV) MUMBAI TRIBUNAL IN THE CASE OF TRIUMPH SECURITIES LTD - ITA NO 2614 / M / 2004 AND EDWISE CONSULTANTS PVT LTD - ITA NO 5376IMUMI2011, 4121IMUMI2014, 5941MUML2013 (CONSOLIDATED ORDER). THE LD. AR I N RESPECT OF PURCHASES FROM CHERYL LABORATORIES PVT LTD CONTENDED THAT NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF SMALLNESS OF THE AMOUNT INVOLVED AND IN ANY VIEW OF THE MATTER, THE CONTENTIONS MADE ABOV E IN RESPECT OF GEM PACKAGING SQUARELY APPLY TO CHERYL LABORATORIES PVT LTD. HE FURTHER SUBMITTED THAT THE TOTAL PURCHASES OF PACKING MATERIAL DEBITED TO THE PROFIT AND LOSS ACCOUNT IS RS 8,36,93,103 THE PURCHASES FROM ASSOCIATE CONCERNS AGGREGATING RS . 1,38,7 8,151 / - IS JUST 16.58% OF THE TOTAL PURCHASES AND THUS, 'SUBSTANTIAL' PURCHASE OF TOTAL PAC KING MATERIAL IS NOT MADE BY THE APPELLANT S , AS OBSERVED BY THE ASSESSING OFFICER. WITHOUT PREJUDICE TO THE CONTENTIONS MENTIONED ABOVE, THE ASSESSING OFFICER HAS ERRED IN COMPUTING THE RATE OF 22.59% WHICH IS AN AVERAGE OF THE EXCESS RATES CHARGED FOR INCOME - TAX ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 INSTEAD OF CONSIDERING 15.89% WHICH IS THE EXCESS RATE CHARGED FOR THE YEAR UNDER REFERENCE - REFER PAGE NO 42 OF THE ASSESSMENT ORDER IN RESPECT OF GB C PACKAGING ONLY.' 6 3 . PER CONTRA, THE LD DR RELIED ON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT SUCH PAYMENTS 54 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS ARE NOT EXCESSIVE AND UNREASONABLE. THE LD. DR STRONGLY RELIE D ON THE ORDER OF AUTHORITIES BELOW. 6 4 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED ORDER. WE FIND MERIT IN THE SUBMISSIONS OF THE LD.AR THAT THE AO HAS FAILED TO POINT OUT WHETHER PRICE PAID BY THE A SSESSEE IS EXCESSIVE AND UNREASONABLE IN TERMS OF PROVISIONS OF SECTION 40A(2 )( A) OF THE ACT BY BRINGING ON RECORD THE COMPARATIVE CASES . D ISALLOWANCE CANNOT BE MADE ON SURMISES OR AT THE WHIMS AND FANCY OF THE AO. MOREOVER IN THE CASE OF G E M PACKAGING THE PROVISIONS OF SECTION 40A(2 )(A ) CAN BE INVOKED ONLY WHEN THE TAX AVOIDANCE MOTIVE IS ESTABLISHED AS HAS BEEN DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT. VS. INDO SAUDI SERVICES (TRAVEL) PRIVATE LIMI TED REPORTED IN (2009) 310 ITR 306 (BOM) AND THE CBDT CIRCULAR NO 6 - P - 66 DATED 6TH JULY, 1968 . I N THE GIVEN CASES BOTH THE PARTIES ARE IN THE SAME TAX BRACKET. IN VIEW OF THESE FINDINGS, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT BY ALLOWING THE GROUN D OF APPEAL OF THE ASSESSEE ON THIS ISSUE. 6 5 . THE GROUND NO.4 IS AGAINST THE PAYMENT OF JOB WORK CHARGES OF RS.6,38,723/ - PAID TO RELATED PARTIES BY THE AO BY INVOKING THE PROVISIONS O F SECTION 40A(2 )( B) OF THE ACT. 6 6 . FACTS IN BRIEF ARE THAT DURI NG THE ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE PAID A SUM OF RS.5,74,719/ - TO M/S CHERYL 55 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS LABORATORIES AS JOB WORK CHARGES FOR WHICH LICENSE AND PRODUCTION CAPACITY WAS AVAILABLE WITH THE ASSESSEE AND RS.64,004/ - WAS ALSO PAID FOR JOB WORK CHARGES WHICH WAS NOT AS PER NORMAL AGREEMENT. THE AO OBSERVED THAT THE OBSERVATION OF THE SPECIAL AUDITOR WAS CORRECT THAT THE CHARGES PAID FOR JOB WORK CARRIED OUT BY THE RELATED PARITIES DESPI T E HAVING PRODUCTION CAPACITY AVAILABLE WITH THE ASSESSEE AND ACCORDINGLY JOBWORK CHARGE S PAID TO THE ASSOCIATE PERSONS U/S 40A(2)(B) OF THE ACT WERE DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE . ON APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO ON THIS POINT AFTER CONSIDERING THE S UBMISSIONS RAISED BY THE ASSESSEE AS RAISED DURING THE APPELLATE PROCEEDINGS BY OBSERVING AS UNDER PAGE 88 OF CIT(A): THEREFORE, THE JOBWORK CHARGES OF RS.6,38,723/ - WHICH IS EXCESSIVE AND UNREASONABLE FOR THE VARIOUS REASONS MENTIONED ABOVE IS DISALLOW ED BY THE AO. THUS, IT IS OBSERVED FROM THE CONTENTIONS OF THE AO THAT THE APPELLANT HAD AVAILABLE PRODUCTION CAPACITY AND THERE WAS NO NEED FOR THEM TO OUTSOURCE THE JOB WORK TO ITS RELATED CONCERNS. ALSO, THE JOB WORK CHARGES W ERE NOT AUTHORIZED BY AN Y AGREEMENT AND WAS CONSIDERED EXCESSIVE AND UNREASONABLE. FURTHER , AS POIN T ED OUT BY THE AO THA T THE APPELLANT HAVE PRACTICE OF SHIFTING HE INCOME BETWEEN RELA T ED CONCERN AS PER THEIR CONVENIENCE IS FOUND JUSTIFIED AND ACCORDINGLY, THE ADDITION OF RS.6 ,38,723/ - ON ACCOUNT OF EXCESSIVE PAYMENT TOWARDS JOB WORK CHARGES MADE BY THE AO IS UPHELD. BASED ON THE ABOVE DISCUSSION GROUND NO.9 IS DISMISSED. IN THE RESULT, APPELLANTS THIS GROUND OF APPEAL IS DISMISSED 6 7 . IN THE WRITTEN SUBMISSION IT IS ST ATED AS UNDER 56 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS THAT THE SPECIAL AUDITORS HAVE OBSERVED THAT THE PRODUCTION CAPACITY OF THE APPELLANTS HAS BEEN UNDER - UTILISED AND YET THE APPELLANTS HAVE ASSIGNED JOB WORK TO ITS ASSOCIATE CONCERN, CHERYL LABORATORIES PVT LTD. THE ASSESSING OFFICER HAS RE LIED ON THE AFORESAID OBSERVATION IN MAKING THE IMPUGNED DISALLOWANCE. THE APPELLANTS CONTEND THAT PRODUCTION IS DONE AS PER AVAILABILITY OF RAW MATERIAL AND WORK FORCE AT THE RESPECTIVE FACTORIES. EVEN THOUGH THE PRODUCTION CAPACITY WAS NOT FULLY UTILISED , THE WORK FORCE FOR THE YEAR UNDER REFERENCE WAS APPROXIMATELY FULLY UTILISED AND HENCE, THE JOB WORK ASSIGNED TO CHERYL LABORATORIES PVT LTD STANDS JUSTIFIED. THE APPELLANTS FURTHER, CONTEND THAT THE ISSUE OF AVAILABILITY OF CAPACITY AND OTHER SIMILAR IS SUES SHOULD BE LEFT TO THE BEST JUDGMENT OF THE ASSESSEE AND, AS HELD BY COURTS TIME AND AGAIN, THE REVENUE OFFICERS SHOULD NOT SIT IN THE ARMCHAIR OF THE BUSINESSMAN AND MAKE DECISIONS. THE APPELLANTS THUS, CONTEND THAT THE PAYMENT FOR SUCH EXPENDITURE IN THE NATURE OF JOB CHARGES HAS TO BE VIEWED FROM BUSINESSMAN'S POINT OF VIEW AND NOT FROM THE VIEW POINT OF THE REVENUE. FURTHER, THE SPECIAL AUDITORS HAVE OBSERVED THAT THE JOB WORK ASSIGNED FOR MANUFACTURING OF CERTAIN PRODUCTS WAS NOT MENTIONED IN THE JOB WORK AGREEMENT. THE APPELLANTS SUBMIT THAT THERE CAN ALWAYS BE AN ORAL AGREEMENT IN LAW AND IN THE CASE ON HAND THERE IS NO DENIAL OF THE FACT THAT THE APPELLANTS HAVE GOT THE PRODUCTS MANUFACTURED BY CHERYL AND PAID JOB CHARGES THEREFOR AND HENCE , THE RE CAN BE NO DISALLOWANCE FOR THE REASON THAT THE PRODUCT MANUFACTURED IS NOT MENTIONED IN THE AGREEMENT. THE LD. AR FURTHER STATED THAT THE ASSESSING OFFICER IN HIS ORDER HAS MENTIONED THAT 'THE ASSESSEE HAVE THE PRACTICE OF SHIFTING THE INCOME BETWEEN RELATED CONCERN AS PER ITS CONVENIENCE'. THE APPELLANTS CONTEND THAT THE ASSOCIATE CONCERN, CHERYL IN RESPECT OF WHICH THE DISALLOWANCE HAS BEEN MADE IS IN THE SAME TAX BRACKET AS THE APPELLANTS AND THUS, THERE IS NO PURPOSE THAT IS SERVED IF THE INCOMES ARE SHIFTED. FURTHER, THERE IS NO LOSS OF TAX TO THE EXCHEQUER, A PREREQUISITE TO INVOKE THE PROVISIONS OF SECTION 40A(2)(B). THE LEGAL PROPOSITION IS THAT PAYMENT TO SISTER CONCERN CANNOT BE DISALLOWED UNDER SECTION 40A(2)(B) OF THE ACT UNLESS TAX AVOIDA NCE MOTIVE IS ESTABLISHED. THE A PPLICABILITY OF THE PROVISIONS OF SECTION 40A(2) IS DISCUSSED IN THE GROUND OF APPEAL N O . 3 WHICH APPLY TO THE FACTS OF THE CASE ON HAND AND HENCE, THE APPELLANTS SUBMIT THAT THE SAME MAY BE CONSIDERED HERE. IN VIEW OF THE ABOVE, THE IMPUGNED DISALLOWANCE HAS NO LEGAL SANCTITY AND HENCE, THE SAME NEED TO BE DELETED. THE LD.AR FURTHER CONTENDED THAT W ITHOUT PREJUDICE, THE ENTIRE AMOUNT OF JOB WORK CHARGES PAID TO CHERYL LABORATORIES PVT LTD HAS BEEN 57 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS DISALLOWED WHICH IS TOTAL LY INCORRECT; AT BEST, THE GP OF CHER Y L L A BORATORIES PVT LTD. CAN HE CONSIDERED FOR DISALLOWANCE. 6 8 . ON THE OTHER HAND, THE LD.DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 69 . AFTER HEARING BOTH THE PARTIES ON THE ISSUE AND PERUSING THE WRITTEN SUBMIS SIONS OF BOTH THE PARTIES AND ON PERUSAL OF MATERIAL PLACED BEFORE US, WE FIND THAT THE AO HAS DISALLOWED THE JOB WORK CHARGES ON THE GROUND THAT IT WAS PAID TO RELATED PARTIES DESPITE HAVING UN - UTILIZED PRODUCTION CAPACITY. WE ALSO FIND THAT THE LD.AR HA S DULY EXPLAINED BEFORE THE AO AS WELL AS FAA THAT THE PRODUCTION CAPACITY REMAINED UNUTILIZED FOR THE VARIOUS REASONS VIZ THAT DUE TO VARIOUS STRIKES AND BREAKDOWN IN THE FACTORY AND LACK OF MAN POWER AT THE RELEVANT POINT OF TIME. WE FIND MERIT IN THE SUBMISSIONS OF THE LD.AR THAT IT IS FOR THE ASSESSEE TO DECIDE WHETHER MANUFACTURING OF A PARTICULAR ITEM IS TO BE MANUFACTURED IN HOUSE OR TO BE OUTSOURCE D, IRRESPECTIVE OF THE FACT THAT THERE IS UN - UTILIZED PRODUCTION CAPACITY . T HE SAME IS A PURELY COMM ERCIAL DECISION. ACCORDINGLY, WE HOLD THAT THE CONCLUSION DRAWN BY THE LD.CIT(A) IS NOT CORRECT AND HENCE WE DIRECT THE AO TO DELETE THE ADDITION ON THIS POINT. GROUND NO.4 IS ALLOWED AS INDICATED ABOVE. 7 0 . THE ISSUE RAISED IN THE GROUND OF APPEAL NO .5 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF ENTIRE BUSINESS PROMOTION EXPENSES OF RS 26,74,430/ - . 58 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 7 1 . FACTS OF THE ISSUE IN BRIEF ARE THAT DURING THE COURSE OF SURVEY PROCEEDING, THE STATEMENT U/S 131 OF THE ACT WAS RECORDED IN WHICH THE DIRECTORS AD MITTED THAT THE BUSINESS EXPENSES WERE NOT GENUINE. HOWEVER, LATER ON THE DIRECTORS RETRACTED THE SAME. THE AO ON THE BASIS OF THE STATEMENT ON OATH, CAME TO THE CONCLUSION THAT THE SAID EXPENSES WERE NOT GENUINE AND ACCORDINGLY ADDED THE SAME TO THE TOTA L INCOME OF THE ASSESSEE. IN THE APPELLATE PROCEEDINGS, THE FAA CONFIRMED THE ACTION OF THE AO BY OBSERVING AND HOLDING AS UNDER : TO CONCLUDE, THE APPELLANT WAS GIVEN AN OPPORTUNITY TO PRO V E THE GENUINENESS OF THE BUSINESS PROMOTIONS EXPENSES THEREBY EXP LAINING IS NEXUS WITH THE BUSINESS BY PRODUCING THE LIST OF BENEFICIARIES ALONG WITH THEIR NAMES AND ADDRESSES TO WHOM SUCH GOLD/SILVER COINS HAVE BEEN DISTRIBUTED . HOWEVER, THE APPELLANT HAS FAILED TO PRODUCE SUCH LIST OF BENEFICIARIES. FURTHER, THE DIREC TORS OF THE APPELLANT COMPANY HAVE THEMSELVES ADMITTED IN THE STATEMENT ON OATH THAT THE BUSINESS PROMOTION EXPENSES ARE NOT GENUINE AN D ARE INFLATED . THE RETRACTION OF THE STATEMENT MADE DURING THE SURVEY IS AN AFTERTHOUGHT AND IS MERELY NOT ALLOWED. BASE D ON THE ABOVE, GR OUND NO.10 IS DISMISSED. IN THE RESULT, APPELLANTS THIS GROUND OF APPEAL IS DISMISSED 7 2 . THE LD.AR BEFORE THE BENCH SUBMITTED THAT THE OBSERVATIONS OF THE SPECIAL AUDITOR THAT THE ASSESSEE HAS MADE HUGE BUSINESS PROMOTION PAYMENT WAS WRONG AS THE SAME CANNOT BE JUDGED ON THE BASIS OF MERELY THE AMOUNT INCURRED BUT ALSO THE MATERIAL ITY OF THE SAME HAS TO BE SEEN. THE LD. AR POINTED OUT THAT THE BUSINESS PROMOTION EXPENSE WERE ONLY TO THE EXTENT OF 0.4 6 % OF THE TOTAL TURNOVER. 59 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 7 3 . THE LD.AR ALSO SUBMITTED THAT S PECIAL AUDITORS HAVE MENTIONED THAT THE APPELLANTS HAVE MADE 'HEAVY' PAYMENTS T OWARDS BUSINESS PROMOTION EXPENDITURE. THE APPELLANT CONTEND ED THAT BUSINESS PROMOTION CANNOT BE SEEN ON A STANDALONE BASIS. THE MATERIALITY OF BUSINESS PROMOTION SEEN IN RELATION TO THE TURNOVER OF THE APPELLANT - COMPANY WHICH IS GIVEN BELOW - PARTICULARS RS IN CRORES BUSINESS PROMOTION EXPENDITURE 0.26 TURNOVER 57.90 % OF BUSINESS PROMOTION TO TURNOVER 0.46% ON PERUS AL OF THE ABOVE TABLE, IT IS OBSERVED THAT THE BUSINESS PROMOTION EXPENDITURE INCURRED IS JUST MINIMAL PERCENTAGE TO THE TURNOVER OF THE BUSINESS. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER IN HIS ORDER HAS MENTIONED THAT 'NO NEXUS TO THE BUSINESS HAS BEEN ESTABLISHED OR EXPLAINED' WHEREAS ALL THE NECESSARY DETAILS WERE FILED AS REPRODUCED BELOW.. SR NO. PARTICULARS REMARKS REFERENCE TO THE PAPER BOOK. 1 GANDHI CORPORATION DATED 25.09.2009 THIS EXPENDITURE HAS BEEN INCURRED FOR STALL AT EXHIBITION AT AHMEDABAD 10 - 41 2 REPRESENTATIVES OF FDA FROM AFRICA DATED 06.06.2009 TO 22.7.2009 REPRESENTATIVES OF FDA FROM AFRICA HAD VISITED THE APPELLANTS/INDIA. GOLD COINS WERE GI VEN AS IT IS THE CUSTOM! TRADITION/ POLICY OF THE TO GIVE GOLD/SILVER COINS TO BUSINESS COLLEAGUES/ CUSTOMERS AND AS A GOOD GESTURE OUR CLIENTS BORNE THE EXPENDITURE OF THEIR STAY AT SEA GREEN HOTEL AND ALSO, OTHER EXPENDITURES INCURRED BY THEM DUR ING THEIR VISIT 10 - 42 TO 10 - 46 60 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 3 P M ZAVERI & CO THE APPELLANTS LAUNCHED A NEW COSMETIC PRODUCT 'MOIBELLE'. P.M. ZAVERI & CO HAVING GOOD FOOT HOLD IN THE MARKETS OF GUJARAT, MAHARASHTRA AND WEST BENGAL WERE APPOINTED IN DECEMBER , 2009 AS MARKETING AGENTS TO PROMOTE THE PRODUCT. 10 - 50 TO 10 - 71 4 MAYFAIR ROOMS AND GRAVISS CARTERING PVT LTD THE APPELLANTS COMPLETED 60 YEARS IN BUSINESS AND HENCE, A CELEBRATION GET TOGETHER OF EXI STING AND PROSPECTIVE CUSTOMERS WAS HELD. 10 - 79 TO 10 - 80 T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON HAVING GIVEN THE AFORESAID DETAILS IN RESPECT OF P.M. ZAVERI & CO, DID NOT REQUIRE THE APPELLANTS TO GIVE ANY FURTHER DETAIL S AND HENCE, THE ASSESSING OFFICER HAS FALLEN IN ERROR AS HE HAS DISALLOWED THE IMPUGNED EXPENSES FOR WANT OF DETAILS OF DISTRIBUTORS. THE LD AR SUBMITTED THAT T HE ASSESSING OFFICER IN RESPECT OF THE EXPENSES INCURRED FOR THE FUNCTION AT MAYFAIR HAS MENTIO NED IN HIS ORDER THAT ''FROM RO C SITE IT WAS SEEN THAT THE COMPANY I S NOT EVEN 10 YEARS OLD, SO THERE CAN'T BE ANY QUESTION OF 60 YEARS COMPLETION'. IN VIEW OF THE SAME, THE APPELLANTS CONTEND THAT GOPALDAS VISRAM & CO LTD WAS CONVERTED TO A COMPANY ON 20. 10.2005 AND WERE EARLIER CARRYING ON THE BUSINESS AS A PARTNERSHIP FIRM SINCE 1947. LD AR INVITED OUR ATTENTION TO THE ABOVE SUBMISSIONS. IT IS, T HEREFORE, SUBMITTED THAT 60 YEARS IN BUSINESS IS CALCULATED SINCE THE YEAR IT WAS FOUNDED AND NOT THE YEAR IT WAS CONVERTED INTO A COMPANY . 7 4 . THE ASSESSING OFFICER HAS ALSO MADE THE IMPUGNED DISALLOWANCE FOR THE REASON THAT THE LIST OF BENEFICIARIES IS NOT PROVIDED BY THE APPELLANTS. 61 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS T HE APPELLANT CONTENDED THAT THEY HAVE HAS NOT MAINTAINED SUCH A LIST EVEN I N THE PAST WHEN THE SAID EXPENSE HAS BEEN ALLOWED BY THE DEPARTMENT. 7 5 . LD AR FURTHER SUBMITTED THAT F OR ALLOWANCE UNDER SECTION 37(1), FOLLOWING CONDITIONS ARE TO BE SATISFIED, I.E., (A) THERE MUST BE EXPENDITURE, (B) SUCH EXPENDITURE MUST NOT BE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36, (C) THE EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE, (D) THE EXPENDITURE MUST HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUS INESS OR PROFESSION. THE WORD 'WHOLLY' REFERS TO THE QUANTUM OF EXPENDITURE, WHILE THE WORD 'EXCLUSIVELY' REFERS TO THE MOTIVE, OBJECTIVE AND PURPOSE OF THE EXPENDITURE. AN EXPENDITURE TO WHICH ONE CANNOT APPLY AN EMPIRICAL OR SUBJECTIVE STANDARD IS TO BE JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN AND IT IS RELEVANT TO CONSIDER HOW THE BUSINESSMAN HIMSELF TREATS A PARTICULAR ITEM OF EXPENDITURE. THE REASONABLENESS OF THE EXPENDITURE CAN BE GONE INTO ONLY FOR THE PURPOSE OF DETERMINING WHETHER, IN FACT, THE AMOUNT IS SPENT. ONCE IT IS ESTABLISHED THAT THERE IS A NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS, THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCHAIR OF A BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSU ME THE SAID ROLE TO DECIDE HOW MUCH IS A REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. 62 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 7 6 . IT IS, FURTHER, SUBMITTED THAT THE APPELLANTS BY LETTER DATED 15.09.2014 OF RSK REQUESTED THE ASSESSING OFFICER TO INVOKE THE POWERS VES TED IN HIM UNDER SECTION 133(6) OF THE ACT TO VERIFY THE GENUINENESS OF BUSINESS PROMOTION EXPENDITURE INCURRED. HOWEVER, THE ASSESSING OFFICER, FOR REASONS BEST KNOWN TO HIM, HAS FAILED IN DOING SO. THIS IMPLIES THAT THE ASSESSING OFFICER IS EITHER SATISF IED WITH THE EXPLANATION PROVIDED TO HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR HAS ABRUPTLY MADE THE IMPUGNED ADDITION WITHOUT CROSS - VERIFICATION. 7 7 . THE LD.AR FURTHER CONTENDED THAT ON T HE ADMISSION OF THE DIRECTORS OF THE APPELLANT - COMPANY AT THE TIME OF SURVEY THAT THAT THE IMPUGNED EXPENSES HAVE BEEN INFLATED, THE DEPARTMENT CANNOT TAKE A STATEMENT ON OATH DURING SURVEY PROCEEDINGS AND THE STATEMENT RECORDED DURING SURVEY PROCEEDINGS HAS NO EVIDENTIARY VALUE UNLESS THERE IS A CORROBORATIVE M ATERIALS /EVIDENCES TO SUBSTANTIATE SUCH STATEMENT . RELIANCE IS PLACED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF S. KHADER KHAN SON (254 CTR (SC) 228). IT IS HELD THAT SECTION 1 33A DOES NOT EMPOWER AN OFFICER TO EXAMINE ANY PERSON ON OATH AND HEN CE, ANY STATEMENT RECORDED DURING THE SURVEY PROCEEDINGS UNDER SECTION 133A HAS NO EVIDENTIARY VALUE; CONSEQUENTLY, ANY ADMISSION MADE DURING SURVEY IN STATEMENT CANNOT BE MADE THE BASIS OF ADDITION. IT IS HELD BY COURTS THAT CONFESSION DURING SURVEY PROC EEDINGS IS NOT CONCLUSIVE AND IT IS OPEN TO T HE ASSESSEE TO ESTABLISH THAT THE SAME WAS NOT TRUE BY FILING COGENT EVIDENCE - 231 CTR 63 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS (CHATTIS) 165. THE LD COUNSEL SUBMITTED THAT THE APPELLANT HA S BROUGHT EVERY MATERIAL ON RECORD TO ESTABLISH THAT THE STATE MENT GIVEN ON OATH BY THE DIRECTORS OF THE APPELLANT - COMPANY DURING SURVEY PROCEEDINGS WAS ON FACTS, ERRONEOUS AND HENCE, RETRACTED. 7 8 . THE LD.AR FURTHER CONTENDED THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE AFFIDAVIT (RETRACTION) THAT HAS BEEN F ILED WITH HIM AND ALL THE SUPPORTING DOCUMENTS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER HAS NOT DEALT WITH THE SUBMISSIONS OF THE APPELLANTS IN THE RIGHT PERSPECTIVE. THERE IS NO PROPER REASONING GIVEN BY THE ASSESSING OFFIC ER TO MAKE THE IMPUGNED ADDITION. THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER THUS, NEEDS TO BE DELETED. 79 . THE LD.AR SUBMITTED THAT T HE ASSESSING OFFICER HAS RELIED ON THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF SYNTHETIC COLOUR CHEM INDUS TRIES AND THE FACTS IN THAT CASE ARE DISTINGUISHABLE FROM THE FACTS ON HAND AND HENCE, THE ASSESSING OFFICER HAS FALLEN IN ERROR TO BASE THE IMPUGNED ADDITION ON THE SAID DECISION. 8 0 . ON THE CONTRARY, THE LD.DR RELIED ON THE ORDER OF THE AUTHORITIES BEL OW . 64 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 8 1 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS ,WRITTEN SUBMISSIONS FILED BEFORE US AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED ORDERS OF AUTHORITIES BELOW. WE FIND THAT THE AO DISALLOW ED THE BUSINESS PROMOTION EXPENSE S MERELY ON THE BASIS OF STATEMENT ON OATH OF THE DIRECTOR S O F THE COMPANY RECORDED UNDER SECTION 131 OF THE ACT DURING THE COURSE OF SURVEY PROCEEDINGS CONDUCTED UNDER THE PROVISIONS OF SECTION 133 A OF THE ACT WHICH WAS RETRACTED BY THE ASSESSEE LATER ON . WE DO AGREE WITH THE CONTENTION OF THE LD.AR THAT THE STATEMENT ON OATH GIVEN DURING THE SURVEY PROCEEDINGS CANNOT BE RELIED AS A P IE CE OF EVIDENCE IN VIEW OF THE DECISIONS RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. S. KHADER KHAN SON ( 2012) 254 CTR (SC) 228 (2013) 352 ITR 480 (SC) UNLESS SUCH STATEMENT IS PROVED TO BE WRONG WITH EVIDENCES . THE LD. AR SUBMITTED THAT THERE WAS NO MATERIALS FOUND DURING THE SURVEY IN CORROBORAT ION OF THE STATEMENT GIVEN BY THE ASSESSEE DURING THE COURSE O F SURVEY PROCEEDINGS U/S 13 3A OF THE ACT. THEREFORE, IN OUR VIEW TO RELY SOLELY ON THE STATEMENT ON OATH WOULD BE UNREASONABLE AND UNJUSTIFIED. THEREFORE WE ARE NOT IN AGREEMENT WITH THE CONCLUSION OF CIT(A) ON THIS ISSUE. ACCORDINGLY, THE AO IS DIRECTE D TO DELETE THE ADDITION . THIS GROUND OF APPEAL IS ALLOWED. 8 2 . THE NEXT ISSUE RAISED IN GROUND OF APPEAL NO.6 IS AGAINST THE CONFIRMATION OF COMMISSION PAID OF RS.1,51,856/ - FOR ARRANGING PURCHASES . 65 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 8 3 . THE FACTS IN BRIEF ARE THAT THE SPECIAL AUDITORS OBSERVED THAT DURING THE VERIFICATION OF COMMISSION PAID THER E W ERE DO DETAILS ON THE DEBIT NOTES AS TO THE SERVICES RENDERED AND ONLY THE AMOUNTS WERE MENTIONED. THE SPECIAL AUDITORS REPORTED THAT THE THERE WAS NO NEXUS OF THE COMMISSION PAID WITH THE BUSINESS OF THE ASSESSEE . DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE PROVIDED DETAILS OF PARTYWISE COMMISSION PAID AND SUBMITTED THAT THE COMMISSION WAS GENUINE. THE ASSESSEE ALSO SUBMITTED THAT THE DIRECTORS OF THE ASSESSEE COMPANY HAS RETRACTED THE STATEMENT GIVEN DURING THE SURVEY AND THAT HAS NO EVIDENTIARY VALUE. THEREAFTER THE AO ISSUED SHOW CAUSE NOTICE AS TO WHY THE COMMISSION SHOULD NOT BE DISALLOWED WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED THAT THE COMMISSION IS SUPPORTED WITH BIL LS AND VOUCHERS AND PAYMENTS PROOFS AND ALSO REQUESTED THE AO TO ISSUE NOTICE U/S 133(6) OF THE ACT TO VERIFY THE GENUINENESS AS THE NECESSARY DETAILS OF RECIPIENTS STANDS FILED WITH THE AO. THE AO ISSUED NOTICES U/S 133(6) OF THE ACT WHICH WAS REPLIED BY THE PARTIES AND IT WAS CONFIRMED THAT THE COMMISSION WAS RECEIVED BY THEM. BUT THE AO MADE THE ADDITION ON THE GROUND THAT M/S DEEP PACKAGING WAS PAID COMMISSION FOR ARRANGING PURCHASES OF P ACKING MATERIALS FROM GBC PACKAGING AN ASSOCIATE CONCERN OF TH E ASSESSEE AND IN THE CASE OF OMAN TRADE ANOTHER RECIPIENT OF COMMISSION ADDED THA T COMMISSION WITHOUT CONSIDERING THE EXPLANATION OF MR SAMPAT PARTNER OF OMAN TRADE. 66 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS IN THE APPELLATE PROCEEDINGS THE LD CIT PARTLY ALLOWED THE APPEAL BY SUSTAINING ADDITION IN RESPECT OF DEEP ENTERPRISES AND DELETING THE ADDITION IN RESPECT OF COMMISSION PAID TO OMAN TRADE BY OBSERVING THAT IN THE CASE OF FORMER THE DIRECTORS OF THE ASSESSEE HAS ADMITTED IN THE STATEMENT RECORDED DURING THE COURSE OF SURVEY THAT THE COMMISSI ON WAS NOT GENUINE AND FURTHER HOLDING THAT RETRACTION WAS AN AFTERTHOUGHT AND NOT ACCOMPANIED WITH CORROBORATIVE MATERIALS WHEREAS IN THE SECOND CASE THE CIT(A) RECORDED A FINDINGS THAT THE AO FAILED TO CONSIDER THE EXPLANATION OFFERED BY THE PARTY . AFTE R CONSIDERING THE RIVAL SUBMISSIONS OF THE PARTIES AND RELEVANT RECORDS INCLUDING WRITTEN SUBMISSIONS OF THE PARTIES WE FIND THAT THE AO HAS PRIMARILY RELIED THE STATEMENT OF THE DIRECTORS OF THE COMPANY WHICH HAS BEEN RETRACTED AND THE CIT(A) HAS SUSTAINE D THE ADDITION THAT RETRACTION WAS WITHOUT ANY CORROBORATIVE MATERIAL. ACCORDING TO THE FACTS MRS. PRAVINA POBARA WAS THE PROPRIETOR OF M/S DEEP ENTERPRISES AND HER RELATIVES WERE PARTNERS IN GBC PACKAGING WITH PROFIT RATIO OF 20%. GBC PACKAGING IS A RELA TED PARTY BUT THE ASSESSEE DID NOT HAVE ANY INTEREST IN THE DEEP ENTERPRISES. BOTH THE AUTHORITIES BELOW HAS FAILED TO BRING ANY MATERIALS TO PROVE THE UNREASONABLENESS OF THE RATE AT WHICH THE COMMISSION WAS PAID. SIMILARLY THE COMMISSION PAID TO RE BHAI RAV SETH OF RS. 1900/ - WAS DISALLOWED WITH ANY REASON. THE BASIS OF THE ADDITION IS 67 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS ONLY STATEMENT OF THE DIRECTORS OF THE ASSESSEE WHICH HAS BEEN RETRACTED. UNDER THESE FACTS AND CIRCUMSTANCES W E ARE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD CI T(A) AND THE AO IS DIRECTED TO DELETE THE ADDITIONS. T HIS GROUND OF APPEAL IS ALLOWED. 8 4 . GROUND NO.7 IS AGAINST THE CONFIRMATION OF RS. 1,68,31,380/ - BY THE LD.CIT(A) AS MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 69A/69C OF THE ACT ON THE GROUND THAT THE SAID PURCHASES ARE FROM H AWALA DEALERS. THE FACTS IN BRIEF ARE THAT T HE SPECIAL AUDITOR IN HIS REPORT HAS STATED THAT THE ASSESSEE MADE PAYMENT FOR PURCHASES BY CHEQUES TO VARIOUS PARTIES WHO WERE LISTED AS HAWALA DEALERS IN THE LIST OF SALES TAX DEPARTMENT, GOVERNMENT OF MAHARASHTRA. ACCORDINGLY, THE AO ISSUED THE SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY SUCH ADDITION SHOULD NOT BE DISALLOWED AND BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ULTIMATELY, THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND ADDED AN AMOUNT OF RS.1,68,31,380/ - TO THE TOTAL INCOME OF THE ASSESSED BY PLACING RELIANCE ON THE DECISION OF ITAT, MUMBAI IN THE CASE OF SYNTHETIC COLOUR CHEM INDUSTRIES V/S DCIT. IN THE APPELLATE PROCEEDING S, THE LD.CIT(A) VIDE PARA 17.3.3 OF THE APPELLATE ORDER DISMISSED THE APPEAL OF THE ASSESSEE OBSERVING AS UNDER: - 68 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 17. 3.3. I HAVE CONSIDERED THE SAND OF THE AO AS WELL AS SUBMISSIONS OF THE APPELLANT, AND FIND THAT THE APPELLANT HAS ADMITTED OF BEING ONE OF THE BENEFICIARIES TO THAT TRANSACTIONS OF ISSUING BOGUS BILLS IN ITS STATEMENT UNDER OATH IN RESPONSE TO THE SUMMONS U/ S.131 AND ALSO DURING SURVEY. HERE I WOULD LIKE TO MENTION THAT THE HON'BLE ITA T, MUMBAI HAS GIVEN MANY JUDGMENTS WHERE IT HAS DELE TED THE ADDITION MADE BY THE AO WITH REGARD TO TRANSACTIONS INVOLVING PURCHASES FROM HAWALA DEALERS VIOLATED M V AT. HOWEVER, AT THIS STAGE, IT MAY BE POINTED THAT THIS CASE IS DIFFERENT FROM OTHER CASES OF MVAT BECAUSE IN THE PRESENT CASE, CERTAIN DISCREPA NCIES WERE NOTED BY THE SURVEY TEAM AND THE TWO DIRECTORS OF THE APPELLANT COMPANY ACCEPTED AND AGREED TO SUCH DISCREPANCIES AND ALSO VOLUNTARILY DISCLOSED SUCH TRANSACTIONS FOR TAXATION PURPOSE. THIS MAKES THE PRESENT CASE DISTINGUISHABLE FROM THOSE CAS ES WHERE THE HON'BEL ITAT HAVE GIVEN RELIEF TO THE CASES RELATED TO HAWALA DEALERS WHERE THERE WAS NO SURVEY AT ALL. KEEPING IN VIEW OF THESE FACTS, IT IS CONCLUDED THAT THE SUBMISSIONS MADE BY THE APPELLANT AND RETRACTION OF STATEMENT MADE DURING THE SURV EY IS AN AFTER THOUGHT AND NOT CORROBORATED WITH ANY RELIABLE MATERIAL. EVEN AT THE COST OF REPETITION , IT IS POINTED OUT THAT THE DIRECTORS OF THE ASSESSEE COMPANY HAD ADMITTED ON OATH THAT THE THEY HAD INFLATED PURCHASES OF RS.75,57,784/ - FOR WHICH THER E IS NO CORRESPONDING SALES. THE APPELLANT WAS ISSUED A SHOW CAUSE ON 10.9.2014 BY THE AO STATING THAT DURIN G THE COURSE OF SURVEY PROCEEDINGS, UNDER A STATEMENT TAKEN ON OATH, THE APPELLANT HAD AGREED THAT THERE WAS INFLATED PURCHASE FOR AY 2010 - 11 TO TH E EXTENT OF RS.75,57,784/ - FOR WHICH NO CORRESPONDING SALES WAS AVAILABLE. THE APPELLANT WAS REQUIRED TO SHOW CAUSE, WHY THE SAID PURCHASE OF RS.75,57,784/ - BE NOT' DISALLOWED AND ADDED TO YOUR TO TOTAL INCOME. SO FAR, THE APPELLANT HAS NOT BEEN ABLE TO SUBSTANTIATE THAT SUCH PURCHA SES WERE GENUINE PURCHASES FROM THE HAWALA DEALERS. KEEPING IN VIEW ENTIRE FACTUAL MATRIX OF THE CASE, I DO NOT FIND ANY REASON TO DIFFER WITH THE AO. THEREFORE, AMOUNT OF RS.1,68,31,380/ - BEING PURCHASES INVOICE RECEIVED FR OM HAWALA DEALERS IS HELD TO BE JUSTIFIABLE ADDED BACK BY THE AO. BASED ON THE ABOVE, GROUND NO.13 IS DISMISSED. IN THE RESULT, APPELLANT S THIS GROUND OF APPEAL IS DISMISSED. 8 5 . WE HAVE HEARD THE RIVAL PARTIES AND CONSIDERED THE RELEVANT MATERIALS PL ACED BEFORE US. THE LD AR SUBMITTED THAT IT IS INCORRECT THAT 69 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS THERE ARE HAWALA PURCHASES WITHOUT CORRESPONDING SALES AS THE IT WAS SPECIFICALLY REPLIED IN JOINT STATEMENT IN RESPONSE TO QUERY NO . 14 OF STATEMENT RECORDED DURING SURVEY THAT PURCHASES AND SALES WERE BOOKED WITHOUT THERE BEING ANY ACTUAL PURCHASE AND SALES OF MATERIALS. IN REPLY TO QUERY NO 18 OF STATEMENT RECORDED DURING SURVEY IT WAS STATED THAT IN ORDER TO SHOW HIGH VOLUME OF TRANSACTIONS TO THE FINANCIAL INSTITUTIONS AND BANKS AND ALSO TO GRAB ORDERS FROM INTERNATIONAL MARKET THE INFLATION IN THE PURCHASES AND SALES WERE MADE WITHOUT THERE BEING ANY ACTUAL PURCHASE AS WELL AS SALE . ALL THESE TRANSACTION WERE ONLY PAPERS TRANSACTIONS WITHOUT ANY PURCHASE FROM THE GREY MARKET AND THEREF ORE DIFFERENT FROM NORMALLY HAWALA TRANSACTIONS. THE SOLE MOTIVE WAS ONLY TO SHOW HIGHER PURCHASES AND TURNOVER. IN THIS CASE THERE IS NO REVENUE LEAKAGES AS IS THE CASE IN CASE OF NORMAL HAWALA TRANSACTIONS . IN THIS CASE BOTH THE PURCH AS ES AND SALES WERE TO THE HAWALA PARTIES AND ALL THESE TRANSACTIONS WERE OF CIRCUITOUS NATURE AND WHATEVER PROFIT THE ASSESSEE HAS MADE WAS SHOWN IN THE BOOKS OF ACCOUNTS. W E FIND THAT CONFIRMATION OF ENTIRE PURCHASE S FROM HAWALA DEALERS BY THE LD.CIT(A) IS NOT CORRECT AS THESE ARE CIRCUITOUS TRANSACTIONS . IN THE CASE OF HAWALA PURCHASES THE CO - ORDINATE BENCHES OF THE TRIBUNAL ARE TAKING CONSISTENT VIEW TO MAKE DISALLOWANCE BETWEEN 2% TO 12.5% OF THE SUCH PURCHASES BUT THE FACTS IN PRESENT CASE ARE DIFFERENT . BUT IN THE INSTANT CASE BEFORE US THE TRANSACTIONS ARE OF CIRCUITOUS NATURE ON WHICH THE PROFIT HAS BEEN SHOWN 70 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS IN THE BOOKS OF ACCOUNTS. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE , WE DEEM IT FI T AND FAIR THAT A REASONABLE DISALLOWANCE IS TO BE MADE . ACCORDINGLY, WE DIRECT THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 2 % OF THE PURCHASE S FROM SUCH HAWALA PARTIES . THEREFORE, T HIS GROUND OF APPEAL IS PARTLY ALLOWED. 8 6 . THE 8 TH GROUNDS OF APPEAL OF ASSESSEE IS AGAINST THE CONFIRMATION OF DISALLOWAN CE OF RS 4,82,250 / - BY THE LD.CIT(A) MADE BY THE AO BEING THE CLAIM FOR DEDUCTION UNDER SECTION 80G OF THE ACT , ON THE GROUND THAT THE DONATIONS PAID ARE NOT GENUINE. 87 . FACTS OF THE ISSUE ARE THAT DURING THE COURSE OF SURVEY PROCEEDINGS U/S 13 3A OF TH E ACT AND IN THE STATEMENT RECORDED U/S 131 OF THE ACT , THE DIRECTORS ADMITTED THAT DONATION S TO THE TUNE OF RS.9,46,501/ - TO SHREEMAD RAJACHANDRA SEVAMANGAL TRUST AND OTHER TRUSTS WERE NOT GENUINE. THE DIRECTORS LATER RETRACTED THEIR STATEMENT S . T T HE NOTICES SENT TO THESE PARTIES RETURNED UNSERVED. ON THE BASIS OF THIS , THE AO DISALLOWED RS. 4,82,250/ - BEING 50% OF DONATION S TREATING THEM AS NOT GENUINE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN THE APPELLATE PROCEEDINGS, THE LD.CI T(A) VIDE PARA 19.3.6 UPHELD THE ACTION OF THE AO OBSERVING AS UNDER : 19.3.6 . ACCORDINGLY THE APPELLANT WAS CONFRONTED WITH THE ABOVE INFORMATIONS AND VIDE OFFICE NOTE SHEET DATED 23.3.2016, THE APPELLANT/LD.AR WAS ALLOWED OPPORTUNITY TO FIL E REBUTTAL , IF ANY. IN 71 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS RESPONSE, THE LD. AR WHO APPEARED ON 23.3.2016 SUBMITTED THAT REGARDING THE GENUINITY OF THE CLAIM, THE APPELLANT HAS ALREADY MADE SUBMISSIONS ON EARLIER OCCASIONS AND HAS NOTHING FURTHER TO SUBMIT ANYTHING MORE. THE SUBMISSION MA DE BY TH E APPELLANT ON THE EARLIER OCCASION OF HEARING HAS ALREADY BEEN DISCUSSED IN EARLIER PARAGRAPH WHERE THE CLAIM OF THE APPELLANT HAS NOT BEEN ACCEPTED AND ALLOWED FOR THE REASONS MENTIONED IN EARLIER PARAGRAPHS. IN VIEW OF THE ABOVE INFORMATIONS A ND THE FAC T S, IT IS CONCLUDED THAT THE CLAIM MA D E BY THE APPELLANT REGARDING GENUIN ITY OF DONATION IS NOT CORRECT. THEREFORE, I HAVE GONE ONE MORE REASON TO UPHOLD THE DISALLOWANCE MADE BY THE AO AS REFERRED ABOVE. BASED ON THE ABOVE, THE GROUND NO.15 I S DISMISSED. 88 . AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF RECORD, WE FIND THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80G OF THE ACT ON THE DONATION PAID TO SHREEMAD RAJACHANDRA SEVAMANGAL TRUST AND OTHER TRUSTS . THE DISALLOWANCE WAS MADE BY THE AO ON THE BASIS OF THAT NOTICES TO PARTIES RETURNED UNSERVED AND FOR NOT PROVING THE GENUINENESS OF THE DONATIONS MADE . ON HEARING BOTH THE PARTIES WE ARE OF THE VIEW THAT THE MATTER NEEDS VERIFICATION AT THE LEVEL OF AO, THEREFORE, WE RESTORE THE SAME TO THE FILE OF THE AO TO REDO THE SAME AFTER GIVING FAIR AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THEREFORE, T HIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES . 89. AT THE TIME OF HEARING, GROUND OF APPEAL NO.9 WHICH PERTAINS TO THE DISAL LOWANCE OF INTEREST PAID FOR LOAN ON DEHRADUN UNIT WA S WITHDRAWN BY THE LD . AR . ACCORDINGLY; WE DISMISS THIS GROUND OF APPEAL . 72 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 9 0 . THE GROUND NO.10 PERTAINS TO THE ADDITION OF RS 1,83,62,550/ - CONFIRMED BY THE LD.CIT(A), BEING 10 PER CENT OF TURNOVER IN C IRCULAR TRADING TRANSACTIONS. 9 1 . THE GROUND IS SIMILAR TO GROUND NO 7 SUPRA. DURING THE COURSE OF SURVEY PROCEEDINGS, THE DIRECTORS ADMITTED TO HAVE INDULGED IN THE CIRCULAR TRADING TRANSACTIONS FOR THE SAKE OF INFLATING THE TURNOVER. ACCORDINGLY, BO TH THE SALES AND PURCHASE S WERE VERIFIED BY THE SPECIAL AUDITOR AND MADE DETAILED REPORT ON SUCH TRANSACTION . HOWEVER , THE DIRECTORS LATER RETRACTED THEIR STATEMENT S AND STATED THAT SALES AND PURCHASE WERE GENUINE . THE AO MADE ADDITION BY OBSERVING AND H OLDING AS UNDER (17.5) : 17.5 THE REPLY OF T HE ASSESSEE HAS BEEN CONSIDERED AND THE SAME IS NOT ACCEPTABLE. ON SALE OF RS.18,36,25,490/ - , THE ASSESSEE HAD SHOWN PROFIT OF ONLY RS.2,01,000/ - WHICH IS NEGLIGIBLE. THE ASSESSEE ITSELF ADMITTED THAT IT WAS TRADING SO THE ASSESSEE MUST HAVE DEBITED ALL THE DIRECT AND INDIRECT EXPENSES OTHER THAN PURCHASES AGAINST T HE ACTUAL SALES AND THE R EBY REDUCED I T S ACTUAL PROFITS. SO, FOR THIS ONCE THE ASSESSEE ITSELF IS SHOWING TRADING THEN THE INCOME OF THE ASSESSEE HAS TO BE INCREASED BY THE G . P WITHOUT CONSIDERING EVEN THE DIRECT EXPENSES OTHER THAN PURCHASES . THE ASSESSE E S COMMENTS ARE NOT SATISFACTORY . SO, CONSIDERING T HE FINDINGS OF THE AUDITOR AND STA TE MEN T OF THE D IRECTORS OF THE ASSESSEE COMPANY TAKEN ON OATH AN AMOUNT EQUAL TO RS.1,83,62,550/ - (10% OF 18,36,25,490/ - ) BEING G ROSS P ROFIT ON THE TURNOVER OF CIRCULAR TRADING IS DISALLOWED. 9 2 . IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO BY OBSERVING AND HOLDING A S UNDER (PG 175 (CIT(A) : 22.3 73 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS KEEPING IN VIEW OF THE ABOVE FACS BROUGHT ON RECORDS BY THE AO, THE REPLY OF THE APPELLANT IS NOT FOUND TO BE ACCEPTABLE. IT MAY BE NOTED THAT ON SALE OF RS.18,36,25,490/ - THE ASESSE HAD SHOWN PROFIT OF ONLY RS.2,01,00 0/ - WHICH IS NEGLIGIBLE . FURTHER, THE APPELLANT ITSELF ADMITTED THAT IT WAS TRADING SO THE ASSESSEE MUST HAVE DEBITED ALL THE DIRECT AND INDIRECT EXPENSES OTHER THAN PURCHASE AGAINST THE ACTUAL SALES AND THEREBY REDUCED ITS ACTUAL PROFITS SO FOR THIS O NCE THE APPELLANT ITSELF IS SHOWING TRADING THEN THE INCOME OF THE ASSESSEE HAS TO BE INCREASED BY THE GP WITHOUT CONSIDERING EVEN THE DIRECT EXPENSES OTHER THAN PURCHASES, KEEPING IN VIEW OF T HE ENTIRE FACTUAL MATRIX OF THE CASE, THE DISALLOWANCE MA D E BY THE AO @ 10% GP ON THE TURNOVER OF RS.18,36,25,490/ - HAS JUSTIFIABLY BEEN ESTIMATED AT RS.1,83,62,550/ - BEING GP ON THE TURNOVER OF CIRCULAR TRADING, BASED ON TH E ABOVE, GROUND NO.18 IS D ISMISSED. IN THE RESULT, THE APPELLANTS THIS G ROUND OF APPEAL I S D ISMISSED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 9 3 . THE LD. AR SUBMITTED BEFORE US THAT THOUGH THE TRANSACTIONS WERE ADMITTED TO BE OF CIRCUITOUS NATURE DURING THE COURSE OF SURVEY PROCEEDINGS BUT THE SAME HAS BEEN RETRACTED BY THE DIRECTORS THEREAFTER. THE LD. AR SUBMITTED THAT THE TRANSACTION S OF SALE AND PURCHASES WERE PAPER TRANSACTIONS AND THAT EACH SUCH PURCHASE WAS BACKED BY CORRESPONDING SALES OR VICE - VERSA. EVEN THE SPECIAL AUDIOR ACCEPTED AFTER DETAI LED EXAMINATION THAT THE TRANSACTIONS OF PURCHASES AND SALES WERE OF CIRCUITOUS NATURE AS THEY HAVE NOT GIVEN ANY ADVERSE COMMENT ON THE SAME. THE LD. AR ARGUED THAT THE AO HAS NOT DOUBTED THE PURCHASES AND SALES OR HAS BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THERE WAS ANY 74 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS DISCREPANCY IN THE CIRCUITOUS TRANSACTIONS . SO MUCH SO, THE BOOKS OF ACCOUNT WERE ALSO NOT REJECTED AND THEREFORE THE ADDITION AS MADE BY THE AO AND CONFIRMED BY THE FAA ON ACCOUNT OF GROSS PROFIT OF CIRCULAR TRANSACTION WAS B AD I N LAW. THE LD.AR CONTENDED THAT ALL THESE TRANSACTIONS WERE DULY REFLECTED IN THE BOOKS OF ACCOUNT AND THE CUMULATIVE PROFIT ON ALL THESE TRANSACTIONS WAS DULY REFLECTED IN THE ANNUAL ACCOUNT S OF THE APPELLANT. IT WAS ALSO ARGUED THAT THE AO RELIED ON THE STATEMENT DURING SURVEY PROCEEDINGS TO MAKE THE ADDITION WHEN IT IS TRITE LAW THAT SUCH STATEMENT HAS NO EVIDENTIARY VALUE UNLESS CORROBORATED BY SOME OTHER EVIDENCES. THE LD AR RELIED ON THE DECISION OF CIT V. S. KHADER KHAN SON (2013) 352 ITR 480 (SC) . ON THE OTHER HAND THE ASSESSEE HAS FILED ENOUGH EVIDENCES TO PROVE THAT THE STATEMENT DURING SURVEY WAS ERRONEOUS AND HENCE RETRACTED. FINALLY THE LD AR CONTENDED THAT IMPUGNED ADDITION WAS ONLY MADE ON THE BASIS OF STATEMENT WHICH HAS BEEN RETRACTED LATER ON WITHOUT BRING ANY MATERIALS ON RECORDS WHICH RENDERED THE ADDITION MADE AS BAD IN LAW. THE AO HAS NOT BOTHERED TO IXSUE THE NOTICES U/S 131/133(6) OF THE ACT TO CALL FOR THE DETAILS/INFOR MATION FROM THE PARTIES INVOLVED IN CIRCUITOUS TRANSACTIONS TO ASCERTAIN THE VERACITY THEREOF. THEREFORE THE LD AR PRAYED THAT THE SAID ADDITION WAS UNCALLED FOR AND SHOULD BE DELETED. 9 4 . THE LD. DR ON THE OTHER HAND RELIED ON THE ORDERS OF AUTHORITIES BELOW. 75 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 9 5 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL PLACED BEFORE US. WE NOTE THAT FACTS ARE SIMILAR AND RELATED TO GROUND NO 7 SUPRA. WE FIND THAT IN THE PRESENT CASE, THESE TRANSACTIONS ADMITTED TO CIRCULAR NATURE AIMING TO INFLATE THE SALES AND PURCHASES OF THE ASSESSEE BUT THE SAME HAS BEE N WITHDRAWN LATER ON BY THE ASSESSEE. EVEN IF THE CONCLUSION OF THE AO IS TAKEN AS CORRECT EVEN THOUGH WE FIND IT DIFFICULT TO AGREE WITH THE AUTHORITIES BELOW THAT THE ASSESSEE HAS MADE GP OF 10% ON THE SAID TRANSACTIONS WHICH WERE PURELY GUESS WORK A ND WITHOUT BRINGING ANY SUBSTANTIVE MATERIAL ON RECORD. THE AUTHORITIES BELOW EVEN DID NOT INVESTIGATE THE MATTER FURTHER. THE ASSESSEE HAS FULLY ACCOUNTED ALL THE SALES AND PURCHASES IN ITS BOOKS OF ACCOUNTS . EVEN THE SPECIAL AUDITORS DID NOT MADE ANY A DVERSE INFERENCE ON SUCH CIRCUITOUS TRANSACTIONS. THEREFORE, TO ESTIMATE THE GP @ 10% ON THE SAID TRANSACTIONS WOULD BE UNREASONABLE AND DE - HORS THE FACTS AND MATERIALS ON RECORD AS THE SOLE PURPOSE WAS TO IN FLATE/IN CREASE THE VOLUME OF TRANSACTIONS OF PURCHASE S AND SALES FOR THE PURPOSE OF SHOWING HIGHER TURNOVER TO ITS BANKERS AND ALSO PROCURING ORDER FROM FOREIGN MARKETS AND NOT TO EARN ANY PROFIT . HOWEVER IN THESE KIND OF TRANSACTIONS WE HAVE ESTIMATED THE REASONABLE PROFITS AS ADDITION AT 2% WHILE DECIDING GROUND 7 IN PARA 86 ABOVE. ACCORDINGLY, WE DIRECT THE AO TO RESTRICT THE ADDITION TO 2% OF THE PURCHASES. . 76 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 9 6 . THE ISSUE RAISED IN GROUND OF APPEAL NO.11 IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.2,78,994/ - BY THE LD.CIT(A) AS MADE BY T HE AO U/S 40(A)(IA) FOR NON DEDUCTION OF TAX AT SOURCE. 9 7 . BRIEF FACTS OF THE CASE ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS PAID A SUM OF RS.2,78,994/ - TO KOTAK MAHINDRA PRIME LTD ON CAR LOANS. HOWEVER, NO TDS WAS DEDUCTED. THE AO AFTER ISSUING SHOW CAUSE NOTICE TO THE ASSESSEE AND CONSIDERING IT ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE US/ 40(A)(IA) OF THE ACT. ON APPEAL BEFORE THE LD.CIT(A) , HE REJECTED THE SAME AND CONFIRMED THE ADDITION MADE BY THE AO VIDE 26.3 OF THE APPELLATE ORDER WHICH IS REPRODUCED BELOW: 26.3..(PAGE 196 , 197)..FURTHER, AS POINTED OUT BY THE AO THE APPELLANTS HAVE FAILED TO DEDUCT TAX ON INTEREST ON CAR LOAN OF RS.2,78,994/ - PAID TO KOTA K MAHINDRA PRIME LTD. AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THE AO HAS RIHTLY DISALLOWED THE AMOUNT OF INTEREST PAID ON CAR LOAN RS.2,78,994/ - . B ASED ON THE ABOVE , THE DISALLOWANCE OF RS.2,78,994/ - MADE BY T HE A SSESSING O FFICER IS UPHELD AND HENCE, G ROUND N O.22 IS P ARTLY A LLOWED. 9 8 . AFTER HEARING BOTH THE PARTIES ON THE SUBJECT , WE FIND MERIT IN THE ARGUMENTS OF THE LD.AR THAT IF THE INTEREST HAS BEEN SHOWN BY THE PAYEE IN THE RETURN OF INCOME AN D PAID DUE TAXES THEREON THEN ASSESSEE CANNOT BE TREA T ED IN DEFAULT AND NO DISALLOWANCE IS U/S 40(A)(IA) IS CALLED FOR. ACCORDINGLY, WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR VERIFICATION OF 77 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS THIS FACT AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE . THEREFORE, T HIS GROUND IS ALLOWED FOR STATISTICAL PUR POSES. 99 . THE GROUND NO.12 PERTAINS TO THE CONFIRMATION OF ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE ENTIRE STAFF WELFARE EXPENSES OF RS. 9,09,863 DEBITED TO THE PROFIT AND LOSS ACCOUNT, ON THE GROUND THAT THE EXPENSES ARE NOT GENUINE BUSINESS E XPENSES BUT PERSONAL EXPENSE S OF THE DIRECTORS . 100 . THE BRIEF FACTS OF THE CASE ARE THAT THE SPECIAL AUDITOR IN HIS REPORT NOTED THAT THE ASSESSEE HAS DEBITED VARIOUS EXPENDITURES TOWARDS STAFF WELFARE ACCOUNT WHICH REPRESENTED PURCHASE OF LIFEGUARD POLI CY AND HOSPITAL CARE POLICY AS STATED AT PAGES 110 AND 111 OF THE ASSESSMENT ORDER. ACCORDINGLY, THE AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THESE EXPENSES SHOULD NOT BE DISALLOWED AND BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE, IN REPLY TO WHICH THE ASSESSEE SUBMITTED THAT ALL THE EXPENSES ARE GENUINE IN NATURE AND SUPPORTED WITH BILLS AND VOUCHERS. HOWEVER, THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR OF THE AO AND DISALLOWED THE SAME ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY OBSER VING AND HOLDING AS UNDER (25.5.AO) : 25.5 THE REPLY O F THE ASSESSEE IS CONSIDERED BUT THE SAME IS NOT ACCEPTABLE. THE ASSESSEE PROVIDED THE NAME OF POLICY HOLDER WHOSE PREMIUM WAS PAID BY IT HOWEVER IT DID NOT PROVIDE THE NAME OF THE BENEFICIARY AND ALSO FAILED TO PROVE THE BUSINESS NEXUS OF THE SAME. SO RS.2,58,267/ - PAID TOWARDS VARIOUS LIFE INSURANCE POLICIES WHOSE SUPPORTING DOCUMENTS WERE NOT PROVIDED TO THE AUDITOR IS DISALLOWED CONSIDERING IT TO BE PERSONAL EXPENSES OF THE DIRECTORS OF THE 78 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS COMPA NY. THE ASSESSEE IN ITS REPLY FOR THIS POINT IN A.Y.2011 - 12 STATED THAT IT HAD PAID RS.36,000/ - TO SUMMER BANQUETS FOR FUNCTION ON 4.11.2010, RS.2,36,800/ - TO GRAND CUISINE FOR FUNCTION ON 13.3.2011 AND AND RS.1,16,000/ - TO J.K. BANQUETS FOR FUNCTION ON 31.3.2011 FOR CELEBRATING 60 YEARS IN BUSINESS. IN PARA 9 ABOVE THE SAME REPLY OF THE ASSESSEE IS SPECIFIED FOR BUSINESS PROMOTION EXPENSE IN WHICH IT STATED THAT 60 YEARS OF ASSESSEE IN BUSINESS IS CELEBRATED BY PAYING AMOUNT TO MAYFAIR ON 22.1.2010 . THIS SHOWS THAT THE ASSESSEE IS CHANGING HEADS OF EXPENSES AS PER ITS CONVENIENCE AND THERE IS NO CONSISTENCY AND THE ASSESSEE IS CELEBRATING 60 YEARS IN BUSINESS IN BOTH A.Y.2010 - 11 AND A.Y.2011 - 12. IT IS NOT P OSSIBLE THAT THE CELEBRATIONS LASTED FOR 2 COMPLETE Y EARS AND THE ASSESSEE CELEBRATED THE SAME OCCASION AT FOUR DIFFERENT LOCATIONS ALL IN MUMBAI AND ON FOUR DIFFERENT DATES . F URTHER, IT IS PERTINENT TO MENTION THAT THE ASSESSEE COMPANY CAME INTO E XISTENCE O N LY ON 2005 SO THERE CAN'T BE CELEBRATI ON OF 60 YEARS IN BUSINESS. THIS C L EARL Y SHOWS THAT THESE EXPENSES ARE NOT GENUINE BUSINESS EXPENSES RATHER AT BEST CAN BE THE PERSONAL EXPENSES OF THE DIRECTORS. FURTHER, THE DIRECTORS OF THE ASSESSE E COMPANY HAD ADMITTED DURING SURVEY PROCEEDINGS THAT A LL THE EXPENSES INCURRED TOWARDS STAFF WELFARE ARE NOT GENUINE. NOW THE ASSESSEE HAD SUBMITTED AFFIDAVIT OF MR DINESH THAKKER AND MR CHANDRESH THAKKER WHEREIN THEY HAD RETRACTED THEIR EARLIER STATEMENT GIVEN ON OATH. HOWEVER RELYING ON JUDGEMENT OF - SYNTH ETIC COLOUR CHEM INDUSTRIES V /S D CIT (ITAT MUMBAI) WHEREIN IT WAS LAID THAT - RETRACTION OF STATEMENT MADE ;DURING THE SURVEY IS AN AFTER THOUGHT AND IS MERELY NOT ALLOWED. SO, ENTIRE E XPENSES OF STAFF WELFARE OF RS. 909,863/ - NEEDS TO BE DISALLOWED CONSI DERING THE SAME T O BE A CCOMMOD A TION / ADJUSTMENT ENTRY / PERSONAL EXPENSE. AGGRIEVED BY THE ORDER OF AO , THE ASSESSEE PREFERRED AN APPEAL ON THIS GROUND BEFORE THE LD.CIT(A) WHO ALSO VIDE PARA 30.3 OF THE ORDER DISMISSED THE CLAIM OF THE ASSESSEE BY OBSE RVING AND HOLDING AS UNDER (30.3 CIT(A) : 30.3. I HAVE CONSIDERED THE STAND OF THE AO AS WELL AS SUBMISSIONS OF THE APPELLANT. IT IS SEEN THAT THE ASSESSEE PROVIDED THE NAME OF POLICY HOLDER WHOSE PREMIUM WAS PAID BY IT HOWEVER IT DID NOT PROVIDE THE N AME OF THE BENEFICIARY AND ALSO FAILED TO PROVE THE 79 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS BUSINESS NEXUS OF THE SAME. SO RS.2,58,2671 - PAID TOWARDS VARIOUS LIFE INSURANCE POLICIES WHOSE SUPPORTING DOCUMENTS WERE NOT PROVIDED TO THE AUDITOR IS DISALLOWED CONSIDERING IT TO BE PERSONAL EXPENSES OF THE DIRECTORS OF THE COMPANY. THE ASSESSEE IN ITS REPLY FOR THIS POINT IN AY.2011 - 12 STATED THAT IT HAD PAID RS.36,000 / - TO SUMMER BANQUETS FOR FUNCTION ON 04.11.2010, RS.2,36,800 / - TO GRAND CUISINE FOR FUNCTION ON 13.3.2011 AND RS.1,16 ,000/ - TO J K B ANQUETS FOR FUNCTION ON 1.3.2011 FO R CELEBRATING 60 YEA~ BUSINESS. IN PARA 9 ABOVE THE SAME REPLY OF THE ASSESSEE IS SPECIFIED FOR BUSINESS PROMOTION EXPENSE IN WHICH IT STATED THAT 60 YEARS OF ASSESSEE IN BUSINESS IS CELEBRATED BY PAYING AMOUNT TO MAYFAIR ON 22.1.2010. THIS SHOWS THAT THE ASSESSEE IS CHANGING HEADS OF EXPENSES AS PER ITS CONVENIENCE AND THERE IS NO CONSISTENCY AND THE ASSESSEE IS CELEBRATING 60 YEARS IN BUSINESS IN BOTH AY.2010 - 11 AND AY.2011 - 12. ITS NOT POSSIBLE THAT THE CELEBRATIONS LAST ED FOR 2 COMPLETE YEARS AND THE ASSESSEE CELEBRATED THE SAME OCCASION AT FOUR DIFFERENT LOCATIONS ALL IN MUMBAI AND ON FOUR DIFFERENT DATES. FURTHER, IT IS PERTINENT TO MENTION THAT THE ASSESSEE COMPANY CAME INTO EXISTENCE ONLY ON 2005 SO THERE CAN'T BE CE LEBRATION OF 60 YEARS IN BUSINESS. THIS CLEARLY SHOWS THAT THESE EXPENSES ARE NOT GENUINE BUSINESS EXPENSES RATHER AT BEST CAN BE THE PERSONAL EXPENSES OF THE DIRECTORS. FURTHER, THE DIRECTORS OF THE ASSESSEE COMPANY HAD ADMITTED DURING SURVEY PROCEEDING S THAT ALL THE EXPENSES INCURRED TOWARDS STAFF WELFARE ARE NOT GENUINE. NOW THE ASSESSEE HAD SUBMITTED AFFIDAVIT OF MR DINESH THAKKER AND MR CHANDRESH THAKKER WHEREIN THEY HAD RETRACTED THEIR EARLIER STATEMENT GIVEN ON OATH. THE RETRACTION OF STATEMENT MAD E DURING THE SURVEY IS AN AFTER THOUGHT AND IS NOT SUPPORTED BY ANY CORROBORATIVE MATERIAL FAVROURABLE TO THE APPELLANT. SO, ENTIRE EXPENSES OF STAFF WELFARE OF RS. 909,863/ - N EEDS TO BE DISALLOWED CONSIDERING THE SAME TO BE ACCOMMODATION /ADJUSTMENT ENTR Y/PERSONAL EXPENSES THE APPELLANT HAS FAILED TO ESTABLISH NEXUS OF STAFF - WELFARE EXPENSES WITH THE BUSINESS OF THE APPELLANTS. FURTHER, THE APPELLANTS HAVE FAILED TO PROVIDE THE NAME OF THE BENEFICIARY OF THE POLICY WHOSE PREMIUM ON LIFE INSURANCE HAS BEEN PAID BY THEM. IN ABSENCE OF SUFFICIENT DOCUMENTARY EVIDENCE, THE AO WAS RIGHT IN MAKING THE DISALLOWANCE. FURTHER, THE DIRECTORS OF THE APPELLANT COMPANY HAVE THEMSELVES ADMITTED IN THEIR STATEMENT ON OATH THAT THE STAFF WELFARE EXPENSES MADE BY THE APP ELLANT COMPANY ARE BOGUS. THE RETRACTION OF THE STATEMENT MADE DURING THE SURVEY IS AN AFTERTHOUGHT AND IS MERELY 80 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS NOT ALLOWED. RELIANCE IS PLACED ON SYNTHETIC COLOUR CHEM INDUSTRIES VS. DCIT (ITAT MUMBAI). BASED ON THE ABOVE, GROUND NO.26 IS DISMISSED. IN THE RESULT, APPELLANT'S THIS GROUND OF APPEAL IS DISMISSED . 10 1 . BEFORE US, THE LD.AR ARGUED THAT SAID EXPENDITURE REPRESENTED GENUINE BUSINESS EXPENSES AND BACKED BY THE SUPPORTING DOCUMENTS FILED ON RECORD AND THEREFORE THE SAME COULD NOT BE TREATED AS NON BUSINESS EXPENDITURE . O N THE OTHER HAND THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. ON PERUSAL OF THE RECORDS AND AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE AO CANNOT RELY ON THE ADMISSION MADE BY THE DIRECTORS DUR ING T HE CO URSE OF SURVEY PROCEEDINGS THAT ALL THESE EXPENSES WERE BOGUS. HOWEVER, WE ARE OF THE VIEW THAT THE REASONABLE DISALLOWANCE SHOULD BE MA D E TO COVER THE POSSIBILITY OF SOME PERSONAL NATURE. ACCORDINGLY, WE DIRECT THE AO TO DISALLOWED THE SAME A T THE RATE OF 20% OF THE ENTIRE STAFF WELFARE EXPENSES. ACCORDINGLY, THIS GROUND IS PARTLY ALLOWED . 10 2 . THE GROUND NO.13 IS AGAINST THE UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING R S 1,58,227 / - TOWARDS EXPENSES INCURRED FOR EARNING DIV IDEND INCOME BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. 10 3 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE MADE INVESTMENT IN M/S CHERYL LABORATORIES PVT LTD AND 81 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS THE ASSESSEE HAS NOT DISALLOWED ANY EXP ENSES ATTRIBUTABLE TO EARNING OF THE EXEMPT INCOME OF RS.12,00,050/ - AND THEREFORE ISSUED SHOW CAUSE NOTICE DATED 10.9.2014. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO WORKED OUT THE DISALLOWANCE AT RS.8,23,879/ - COMPRISING OF RS.6,65,652/ - UND ER RULE 8D(2)(II) AND RS.1,58,227/ - U/S RULE 8D(2)(III). IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) DELETED DISALLOWANCE AD MADE UNDER RULE 8D(2)(II) OF THE I.T. RULES OF RS.6,65,652/ - AND SUSTAINED THE DISALLOWANCE MADE UNDER RULE 8D(2)(III). 10 3 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. IT HAS BEEN ARGUED BY THE LD.AR THAT M/S CHERYL LABORATORIES PVT LTD IS A SISTER CONCERN OF THE ASSESSEE AND THE INVESTMENT MADE THEREIN IS OF STRATEGIC NATU RE TO GAIN CONTROL OVER THE SAID CONCERN AND THEREFORE CONSTITUTES STRATEGIC INVESTMENTS ON WHICH NO DISALLOWANCE WAS CALLED FOR . IN VIEW OF DECISION OF THE CO - ORDINA T E BENCH OF THE TRIBUNAL IN THE CASE OF GARWARE WALL ROPES LTD VS. ACIT (ITAT MUMBAI) REP ORTED IN 65 SOT 80(MUM), WE ARE OF THE CONSIDERED VIEW THAT NO DISALLOWANCE IS REQUIRED TO BE MADE IN THE CASE OF STRATEGIC INVESTMENTS. WE ARE NOT IN CONCURRENCE WITH THE CONCLUSION DRAWN BY THE LD.CIT(A) AND ACCORDINGLY SET ASIDE THE ORDER OF THE LD.CIT( A) AND DIRECT THE AO TO EXCLUDE THE STRATEGIC INVESTMENTS WHILE CALCULATING THE DISALLOWANCE UNDER RULE 8D(2)(III). ACCORDINGLY, T HIS GROUND OF APPEAL IS ALLOWED . 82 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 10 4 . GROUNDS OF APPEAL NO.14 , BEING DISALLOWANCE ON ACCOUNT OF ADDITIONAL DEPRECIATION IS N OT PRESSED. THEREFORE, DISMISSED AS NOT PRESSED. 10 5 . GROUNDS OF APPEAL NO.15. IS AGAINST THE DISALLOWANCE CONFIRMED BY THE CIT(A) AS MADE BY THE AO OF RS 5,66,271/ - CLAIMED UNDER SECTION 35D OF THE ACT ON THE GROUND THAT THE APPELLANTS HAVE NOT PROVIDE D ANY WORKING FOR ADMISSIBILITY OF DEDUCTION UNDER SECTION 35D. 108 . THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.5,66,271/ - U/S 35D IN RESPECT OF PRELIMINARY EXPENSES. THE SPECIAL AUDITOR S STATED IN THEIR REPORT THAT THE DETA ILS OF PRELIMINARY AND DIFFERENT REVENUE EXPENSES WERE NOT PROVIDED DESPITE REPEATED REMINDERS AND THEREFORE THEY ARE NOT ABLE TO COMMENT ON THE SAME. ACCORDINGLY, THE SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AND T HE AO AFTER CONSIDERING THE EXPLANA TION REJECTED THE SAME AND ADDED AN AMOUNT OF RS.5,66,271/ - TO THE TOTAL INCOME OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER (PG.125 OF AO): 29.5 THE EXPLANATION OF T HE ASSESSEE IS NOT FOUND TO BE SATISFACTORY AND NOT PROVIDED WITH ANY WORKING SHOWI NG ADMISSIBILITY OF DEDUCTION U/S 35D, THE DEDUCTION OF RS.566,271/ - AS CLAIMED BY ASSESSEE IS DISALLOWED. 10 6 . THE LD.CIT(A) UPHELD THE ACTION OF THE AO BY OBSERVING AND HOLDING AS UNDER (34.4): 83 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 34.3. I HAVE CONSIDERED THE STAND OF THE A O AS WELL AS THE SUBMISSIONS OF THE APPELLANT. HOWEVER, I AM NOT CONVINCED WITH THE DETAILS SUBMITTED AND THE ARGUMENTS OF THE AR. FIRSTLY, IT MAY BE SEEN THAT ASSESS E E HAS W / OFF EXPENSE IN BOOKS AND CLAIMING THE DEDUCTION U /S S 35 D THE DETAILED BREAK UP OF WHICH HA S BEEN GIVEN BY THE AO, WHICH HAS BEEN REPRODUCED IN EARLIER PARAGRAPH. IT IS FURTHER SEEN THAT THE PROVISIONS OF SEC.3 5 D PROVIDES FOR DEDUCTION IN RESPECT OF CERTAIN SPECIFIED EXPENDITURES WHICH ARE INCURRED BY A COMPANY BEFORE COMMENCEMENT OF BUSINESS AND AFTER COMMENCEMENT IN CONNECTION WITH EXTENSION OF UNDERTAKING OR SETTING UP A NEW UNIT. 1/5TH OF SUCH EXPENDITURE IS AVAILABLE AS DEDUCTION FOR 5 YEARS. ON PERUSAL OF THE PROFIT & LOSS ACCOUNT, IT WAS OBSERVED THAT APART FROM PRELIMINARY EXPENSES, THE ASSESSEE HAS CLAIMED EVEN THE DEFERRED REVENUE EXPENSES OF DIFFERENT AMOUNT IN DIFFERENT YEARS. IT MAY FURTHER BE NOTED THAT ASSESSEE HAS SUBMITTED ONLY NATURE OF EXPENSE AND LEDGERS OF EXPENSES, BUT NOT SUBSTANTIATED THE ELIGIBILITY OF EXPENSES WITH RE FERENCE TO SECTION 35 D. THE EXPLANATION OF THE ASSESSEE IS NOT FOUND TO BE SATISFACTORY BECAUSE IT HAS NOT PROVIDED WITH ANY SOUND AND RELIABLE / WORKABLE WORKING DEMONSTRATING ADMISSIBILITY OF DEDUCTION U / S. 35D. THEREFORE , THE A O WAS JUSTIFIED IN DISALLOW ING THE F CLAIM OF THE DEDU CTION US.35D OF THE I T ACT, 1961. ACCORDINGLY, I UPHOLD THE DISALLOWANCE MADE BY THE AO, BASED ON THE ABOVE, G ROUND NO.30 IS D ISMISSED. IN THE RESULT, APPELLANTS THIS GROUND OF APPEAL IS D ISMISSED. 1 07 . AFTER HEARING BOTH T HE PARTIES ON THE ISSUE AND ON PERUSAL OF THE MATERIAL PLACED BEFORE US, WE FIND THAT THE ASSESSEE HAS NOT SUBMITTED THE DETAILS PERTAINING TO THE SAID EXPENSES BEFORE THE AUTHORITIES BELOW AND THEREFORE, THE LD.AR REQUESTED BEFORE US THAT THE MATTER BE RE STORED TO THE FILE OF THE AO SO THAT THE NECESSARY DETAILS BE FILED BEFORE HIM AND THE SAME BE DECIDED AS PER LAW AND FACTS. THE LD. DR VERY FAIRLY AGREED TO THE CONTENTIONS OF THE LD.AR. UNDER THESE CIRCUMSTANCES OF THE CASE, WE 84 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS DEEM IT FIT AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE AO FOR FRESH APPRECIATION OF FACTS AND DECISION THEREON. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 108 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ITA NO S .458 4, 4585, 4587 &4588/MUM/2016 109 . THE ISSUE RAISED IN GROUND NO.1 IN ITA NO. 4584 /MUM/2016 ( AY2008 - 09 ) , IN ITA NO.4585 /MUM/2016( AY 2009 - 10 ) , ITA NO.4587 /MUM/2016 ( AY - 2011 - 12 ) AND IN ITA NO.4588 /MUM/2016( AY - 2012 - 13 ) IS IDENTICAL TO ONE DECIDED BY US IN GR OUND NO. 1 IN ITA NO.4586 /MUM/2016( AY - 2010 - 11 ) AND THEREFORE OUR FINDINGS ON GROUND NO. 1 IN ITA NO.4586 /MUM/2016 (SUPRA) WOULD , MUTATIS MUTANDIS , APPLY TO THESE GROUNDS AS WELL. ACCORDINGLY THE GROUND RAISED IN ALL THESE APPEALS STANDS DISMISSED. 110 . THE ISSUE RAISED IN GROUND NO. 4 & 5 IN ITA NO . 4584 /MUM/2016 ( AY - 2008 - 09 ) , GROUND NO. 2 & 3 IN ITA NO. 4585 /MUM/2016 ( AY 2009 - 10 ) , GROUND NO. 3 & 4 ITA NO. 4587 /MUM/2016 (AY 2011 - 12) AND GROUND NO.3 & 4 IN ITA NO. 4588 /MUM/2016( AY 2012 - 13 ) IS SIMILAR TO ONE AS DECIDED BY US IN GROUND NO. 2 & 3 IN ITA NO. 4586 /MUM/2016 ( AY 2010 - 11 ) AND OUR DECISION WOULD MUTATIS MUTANDIS APPLY TO THESE GROUNDS. ACCORDINGLY THESE ARE DISMISSED. 85 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 1 1 1 . THE ISSUE IN GROUND NO. 7 IN ITA NOS. 4584 /MUM/2016 ( AY2008 - 09 ) , G ROUND NO. 4 IN ITA NO. 4585 /MUM/2016 ( AY 2009 - 10 ) , GROUND NO. 5 IN ITA NO. 4587 /MUM/2016 ( AY 2011 - 12 ) & ITA NO. 4588 /MUM/2016 ( AY - 2012 - 13 ) IS SAME AS DECIDED BY US IN GROUND NO. 4 IN ITA NO. 4586 /MUM/2016 ( AY 2010 - 11 ) , THEREFORE, THE DECISION THEREIN WO ULD APPLY MUTATIS MUTANDIS TO THESE GROUNDS AS WELL. 1 1 2 . THE GROUND NO. 7 & 8 IN ITA 4588 /MUM/2016 ( AY - 2012 - 13 ) ARE IDENTICAL TO GROUND NO. 6 & 7 IN ITA NO.4586 /MUM/2016 ( AY 2010 - 11 ) RESPECTIVELY AND THEREFORE OUR FINDINGS ON GROUND NO. 6 & 7 IN ITA 4586 /MUM/2016 WOULD MUTATIS MUTANDIS APPLY TO THE SE GROUNDS ALSO. ACCORDING THE GROUND RAISED BY THE REVENUE ARE DISMISSED . 1 1 3 . THE GROUND NO. 6 RAISED BY THE REVENUE IN ITA NO. 4584 /MUM/2016 FOR AY 2008 - 09 AGAINST THE DELETION ADDITION OF RS. 36,00,000 / - BY THE CIT(A) AS MADE BY THE AO U/S 40A(2) OF THE ACT. 1 1 4 . THE FACTS IN BRIEF ARE THAT THE ASSESSEE PAID RENT TO ASSOCIATE CONCERN M/S CHERYL LABORATORIES PVT LTD FOR HIRING THE GODOWN TEMPORARILY FOR WHICH THERE WAS NO AGREEMENT ENTERED INTO. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS DISALLOWED THE SAME U/S 40(A)(2) OF THE ACT ON THE BASIS OF AUDITORS QUALIFICATION THAT AGREEMENT WAS NOT PRODUCED FOR VERIFICATION AND THEY ARE NOT ABLE TO COMMENT ON THE SAME. THE LD CIT(A) 86 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS ALLOWED THE GROUND R AISED BY THE ASSESSEE BY HOLDING THAT THE SIMILAR ISSUE WAS ALSO THERE IN AY 2010 - 11 WHICH WAS ALLOWED IN FAVOUR OF THE ASSESSEE . 11 5 . AFTER HEARING THE RIVAL PARTIES AND PERUSING THE MATERIALS ON RECORDS, WE FIND THAT THE SIMILAR ISSUE WAS ALSO THERE IN A Y 2010 - 11.WE ALSO FIND THAT THE BOTH THE ASSESSEE AS WELL AS THE RECIPIENT OF RENT ARE BEING ASSESSED AT THE SAME TAX BRACKET AND FIND MERIT IN THE CONTENTION OF THE LD AR THAT THE PROVISIONS OF SECTION 40A(2) OF THE ACT CAN ONLY BE INVOKED WHERE THERE IS AVOIDANCE OF TAX. MOREOVER THE LD AO HAS NOT REACHED OR RECORDED ANY FINDINGS THAT THE RENT PAID IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE FAIR MARKET PRICE OF THE SIMILAR PROPERTY AND THUS THE BASIC INGREDIENTS OR PRECONDITIONS FOR INVOKING PROV ISIONS OF SECTION 40A(2) OF THE ACT WERE NOT SATISFIED. WE ARE, T HEREFORE, IN COMPLETE AGREEMENT WITH THE LD CIT(A) THAT THAT THE ADDITION ON ACCOUNT OF DISALLOWANCE OF RENT IS WRONG AND UNCALLED FOR. ACCORDINGLY WE DISMISS THE GROUND RAISED BY THE REVENUE . 1 16 . THE ISSUE RAISED IN GROUND NO 2 IN ITA NO . 4584 /MUM/2016 ( AY 2008 - 09 ) IS AG AINST THE DELETION OF COMMISSION EXPENSES OF RS. 7,33,906/ - BY CIT(A) AS MADE BY THE AO. 1 17 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE PAID COMMISSION TO TWO PARTI ES NAMELY M/S DIOS ENTERPRISES AND MILLENNIUM ENTERPRISES AT RS. 7,03,471/ - AND RS. 30,435/ - RESPECTIVELY AND THE AUDITOR WAS 87 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS SPECIFICALLY ASKED TO VERIFY THE SAID EXPENSES AS THE DIRECTORS DURING SURVEY U/S 133A OF THE ACT ACCEPTED THE FACT THAT THE COMM ISSION WAS NOT GENUINE BUT LATER ON RETRACTED THE SAME. THE AO ON THE BASIS OF SPECIAL AUDITORS REPORT AND STATEMENT ON OATH OF THE DIRECTORS ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 1 18 . IN THE APPELLATE PROCEEDINGS, T HE LD CIT(A) ALLOWED THE AP PEAL OF THE ASSESSEE BY OBSERVING AND HOLDING THAT THE AO HAS FAILED TO BRING A N Y MATERIALS ON RECORDS TO PROVE THAT THE COMMISSION PAID IS AS NON GENUINE AND WHEREAS THE ASSESSEE HAS PROVED WITH CORROBORATIVE EVIDENCES INCLUDING CONFIRMATIONS OF ACCOUNT F ROM THE RECIPIENTS. THE CIT(A) FURTHER HELD THAT SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN AY 2010 - 11 ON SIMILAR FACTS. 1 19 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIALS ON RECORDS. WE FIND THAT THE ASSESSEE HAS FILED THE NECESSARY EVIDENCES INCLUDING CONFIRMATIONS FROM THE PARTIES TO PROVE THE PAYMENT OF COMMISSION AS GENUINE . THE AO HAS RELIED SOLELY ON THE BASIS OF STATEMENT RECORDED DURING SURVEY BUT FAILED TO BRING ANY MATERIAL ON RECORDS. THE LD CIT(A) HAS FOLLOWED OWN ORDER IN AY 2010 - 11 DECIDING THE SAME ISSUE. AFTER EXAMINING ALL THE FACTS AND EVIDENCES AND ORDER OF CIT(A) WE FIND THAT THE LD CIT(A) HAS PASSED A VERY REASONED ORDER WHICH 88 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS CALL FOR NO INTERFERENCE AND ACCORDINGLY WE ARE INCLINED TO DISMISS THE GROUND RAISED BY THE REVENUE. 1 20. THE ISSUE RAISED IN GROUND NO 2 IN ITA NO . 4587 /MUM/2016 ( AY 2011 - 12 ) AND IN ITA NO. 4588 /2016 ( AY 2012 - 13 ) IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO 2 IN ITA NO. 4584 /MUM/2016 ( AY 2008 - 09 ) . THEREFORE OUR DECIS ION IN THE SAID ITA NO . 4584 /MUM/2016 ( AY 2008 - 09 ) WOULD, MUTATIS MUTANDIS, APPLY TO THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. ITA NO.3514,3518,3515,3516 & 3517/M UM/ 2016 1 2 1 . THE ISSUE RAISED IN T HE GROUND NO.1 IN ITA NO . 3514 /MUM/2016 ( AY 2008 - 09 ) , ITA NO. 3518 /MUM/2016 & ITA NO. 3515 /MUM/2016 ( AY 2009 - 10 ) AND ITA NO. 3516 /MUM/2016( AY 2011 - 12 ) IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 1 IN ITA NO . 3513/MUM/2016 (AY - 2010 - 11 ) WHERE WE HAVE DISMISSED THE GROUND RAISED BY THE ASSESSEE. OUR DECISION IN THE SAID APPEAL WOULD, MUTATIS MUTANDIS, APPLY TO THESE APPEALS AS WELL. ACCORDINGLY, THE GROUND OF APPEAL AS RAISED IN ALL THESE APPEALS FOR DIFFERENT YEARS STANDS DISMISSED. 12 2 . THE ISSUE IN GROUND NO 2 IN ITA N O . 3514 /MUM/2016 ( AY - 2008 - 09 ) AND ITA NO. 3516 /MUM/2016 ( AY 2011 - 12 ) IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 2 IN ITA NO . 3513/MUM/2016 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 2 IN ITA NO. 3513/MUM/2016 (AY - 2010 - 11 ) WOULD 89 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS MUTATIS MUTANDI S , APPL Y TO THE GROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUND NO.2 IN THESE YEARS ARE DISMISSED. 12 3 . THE ISSUE IN GROUND NO 3 IN ITA NO . 3514 /MUM/2016 ( AY - 2008 - 09 ) , GROUND NO. 3 & 4 IN ITA NO. 351 8 /MUM/2016 ( AY 2009 - 10 ) , GROUND NO. 6 IN ITA NO. 3516 /MUM/2016 ( AY 2011 - 12 ) AND GROUND NO 1 & 2 IN ITA NO. 3517 /MUM/2016 ( AY 2012 - 13 ) IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 3 IN ITA NO .3513/MUM/2016 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 3 IN ITA NO. 3513/MUM/2013 (AY - 2010 - 11 ) WOULD, MUTATIS MUTANDIS , APPLY TO THE GROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY AND ALLOWED. 124 . THE ISSUE IN GROUND NO . 13 IN ITA NO . 3514 /MUM/2016 ( AY 2008 - 09 ) , GROUND NO. 5 IN ITA NO. 351 8 / MUM/2016 ( AY 2009 - 10 ) , GROUND NO. 7 IN ITA NO. 3516 /MUM/2016 ( AY 2011 - 12 ) AND GROUND NO 3 IN ITA NO. 3517 /MUM/2016 ( AY 2012 - 13 ) IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 4 IN ITA NO .3513/MUM/2016 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 4 IN ITA NO . 3513/MUM/2016 (AY - 2010 - 11 ) WOULD, MUTATIS MUTANDIS , APPLY TO THE GROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY AND ALLOWED. 90 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 125 . THE ISSUE IN GROUND NO 4 IN ITA NO 3514/MUM/2016 AY 2008 - 09 ,ITA NO. 3518 / MUM/2016 AY 2009 - 10 , ITA NO. 3517/MUM/2016 AY 2012 - 13 AND GROUNDNO. 5IN ITA NO.3516/MUM/2016 AY 2011 - 12 IS IDENTICAL TO G ROUND NO 5 IN ITA NO. 3513/MUM/2016 AY 2010 - 11 . THEREFORE OUR DECISIONS ON GROUND 5 IN THE ITA NO. 3513/MUM/2016 WOULD, MUTATIS MUTANDI, APPLY TO SAID ISSUE IN THESE YEARS . ACCORDINGLY THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY AND ALLOWED. 1 26 . THE ISSUE IN GROUND NO 4 IN ITA NO. 351 5 /MUM/2016 ( AY 2009 - 10 ) , GROUND NO. 3 IN ITA NO.3516 /MUM/20 16 ( AY 2011 - 12 ) AND GROUND NO 5 IN ITA NO. 3517 /MUM/2016 ( AY 2012 - 13 ) IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 6 IN ITA NO .3513/MUM/2016 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 6 IN ITA NO. 3513/MUM/2016 (AY - 2010 - 11 ) WOULD, MUTATIS MUTANDI S , AP PLY TO THE GROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY AND ALLOWED. 127 . THE ISSUE IN GROUND NO 5 IN ITA NO. 3514 /MUM/2016 ( AY 2008 - 09 ) , GROUND NO. 3 IN ITA NO. 351 5 / MUM/2016 (AY - 2009 - 10) , GROUND NO. 2 IN ITA NO. 351 8 /MUM/2016 ( AY 2009 - 10 ) IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 7 IN ITA NO .3513/MUM/2016 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 7 IN ITA NO. 3513/ MUM/2016 (AY - 2010 - 11 ) WOULD, MUTATIS MUTANDI S , APPLY TO THE GRO UND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY 91 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY AND PARTLY ALLOWED. 1 28 . THE ISSUE IN GROUND NO 6. IN ITA 3514 /MUM/2016 ( AY 2008 - 09 ) , GROUND NO. 8 IN ITA NO. 351 8 /MUM/2016 ( AY 2009 - 10 ) , GROUND NO. 9 IN ITA NO. 3516 /MUM/2016 ( AY 2011 - 12 ) AND GROUND NO 6 IN ITA NO. 3517 /MUM/2016 ( AY 2012 - 13 ) IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 8 IN ITA NO .3513/MUM/2016 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 8 IN ITA NO. 3513/MUM/2016 (AY - 20 10 - 11 ) WOULD, MUTATIS MUTANDI S , APPLY TO THE GROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY . 129 . THE ISSUE IN GROUND NO 7. IN ITA NO. 3514 /MUM/2016 ( AY 2008 - 09 ) , GROUND NO. 6 IN IT A NO. 351 8 /MUM/2016 ( AY 2009 - 10 ) AND GROUND NO. 8 IN ITA NO. 351 6 /MUM/2016 ( AY 2011 - 12 ) IS IDENTICAL TO ONE IN GROUND NO. 9 IN ITA NO .3513/MUM/2016 ( AY 2010 - 11 ) WHICH HAS BEEN WITHDRAWN BY THE LD AR DURING HEARING AND DISMISSED ACCORDINGLY .. ACCORDINGL Y THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY . 1 30 . THE ISSUE IN GROUND NO 8. IN ITA 3514 /MUM/2016 ( AY 2008 - 09 ) , GROUND NO. 5 IN ITA NO. 351 5 /MUM/2016 & GROUND NO. 9 IN ITA NO. 351 8 /MUM/2016 ( AY 2009 - 10 ) IS IDENTICAL TO ONE AS DECIDE D BY US IN GROUND NO. 10 IN ITA NO .3513/MUM/2013 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 10 IN ITA NO. 3513/MUM/2016 (AY - 2010 - 11 ) WOULD, MUTATIS 92 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS MUTANDI S , APPLY TO THE GROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY . 1 3 1 . THE ISSUE IN GROUND NO 9. I N ITA NO. 3514 /MUM/2016 AY 2008 - 09 , GROUND NO. 4 IN ITA NO.3516 /MUM/2016 ( AY 2011 - 12 ) AND GROUND NO 7 IN ITA NO 3514/MUM/2016 ARE IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 11 IN ITA NO . 3513/MUM/2016 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 11 IN ITA NO. 3513/MUM/2016 (AY - 2 010 - 11 ) WOULD, MUTATIS MUTANDI S , APPLY TO THE GROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY . 1 3 2 . THE ISSUE IN GROUND NO 10. I N ITA 3514 /MUM/2016 ( AY 2008 - 09 ) , GROUND NO. 4 IN ITA NO. 351 5 /MUM/2016 ( AY 2009 - 10 ) , GROUND NO. 10 IN ITA NO. 3516 /MUM/2016 ( AY 2011 - 12 ) AND GROUND NO. 10 IN ITA NO. 3517 /MUM/2016 ( AY 2012 - 13 ) IS IDENTICAL TO ONE AS DECI DED BY US IN GROUND NO. 12 IN ITA NO . 3513/MUM/2016 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 12 IN ITA NO . 3513/MUM/2016 (AY - 2010 - 11 ) WOULD, MUTATIS MUTANDI S , APPLY TO THE GROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED IN THESE APPE ALS ARE DISPOSED OFF ACCORDINGLY . 133. THE ISSUE IN GROUND NO 11 I N ITA NO. 3514 /MUM/2015 ( AY 2008 - 09 ) AND GROUND NO. 11 IN ITA NO. 3516 /MUM/2016 ( AY 2011 - 12 ) AND GROUND NO 7 IN ITA 3517/M/2016 (AY 2012 - 13) AND IN ITA NO .3513/MUM/2016 ( AY 2010 - 11 ) . O UR FINDINGS ON GROUND NO 13 IN ITA NO. 3513/MUM/2016 93 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS (AY - 2010 - 11 ) WOULD, MUTATIS MUTANDI S , APPLY TO THE GROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY . 1 34 . THE ISSUE IN GROUND NO 12 IN ITA NO. 3516 /MUM/2016 ( AY 2011 - 12 ) AND GROUND NO. 8 IN ITA 3517 /MUM/2016 ( AY 2012 - 13 ) IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 14 IN ITA NO .3513/MUM/2016 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 14 IN ITA NO. 3513/MUM/2016 (AY - 2010 - 11 ) WOULD , MUTATIS MUTANDI S , APPLY TO THE GROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY . 135 . THE ISSUE IN GROUND NO 12. IN ITA 3514 /MUM/2016 ( AY - 2008 - 09 ) , GROUND NO. 7 IN ITA NO. 351 8 /MUM/2016 AND GROUND NO. 9 IN ITA NO. 3517 /MUM/2016 ( AY 2012 - 13 ) IS IDENTICAL TO ONE AS DECIDED BY US IN GROUND NO. 15 IN ITA NO .3513/MUM/2016 ( AY 2010 - 11 ) . OUR FINDINGS ON GROUND NO 15 IN ITA NO. 3513/MUM/2016 (AY - 2010 - 11 ) WOULD, MUTATIS MUTANDI S , APPLY TO THE G ROUND RAISED IN THESE APPEALS AS WELL. ACCORDINGLY THE GROUNDS RAISED IN THESE APPEALS ARE DISPOSED OFF ACCORDINGLY . 1 36 . THE ISSUE RAISED IN GROUND NO. 2 IN ITA NO. 351 5 /MUM/2016 ( AY 2009 - 10 ) IS AGAINST THE UPHOLDING THE DISALLOWANCE BY THE AO OF RS.3 0,00,000/ - CLAIMED BY THE ASSESSEE U / S 35(1)(III) OF THE ACT. 94 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS 13 7 . THE FACTS IN BRIEF ARE THAT THE ASSESSEE DONATED A SUM OF RS.30,00,000/ - TO RESEARCH FOUNDATION FOR JAINOLOGY WHEREAS THE THERE WAS NO APPROVAL U/S 35(1)(III) OF THE ACT WITH THE SAID SOCIE TY AND ACCORDINGLY THE AO DISALLOWED THE SAME. 1 38 . IN APPELLATE PROCEEDINGS THE LD CIT(A) ALSO DISMISSED THE GROUND RAISED BY THE ASSESSEE. 13 9 . THE LD AR AT THE OUTSET SUBMITTED BEFORE US THAT THE SAID RESEARCH ASSOCIATION HAS MOVED TO THE HIGH COURT AGAINST THE REJECTION OF APPROVAL BY THE CBDP WHICH IS PENDING. THE LD AR PRAYED THAT THE AO BE DIRECTED TO FOLLOW THE HIGH COURT ORDER WHEN THE APPEAL OF THE ASSESSEE IS FINALLY DECIDED. THE LD DR FAIRLY APPEARED CONVINCED WITH THE CONTENTION OF THE LD AR . WE ACCORDINGLY SET ASIDE THE TO THE FILE OF THE AO TO DECIDE THE ISSUE AS PER THE DECISION OF THE HIGH COURT. THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 140. IN SUM AND SUBSTANCE THE APPEALS OF THE REVENUE ARE DISMISSED WHEREAS THE APPEALS OF THE AS SESSEE STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21ST SEPT , 2017. S D SD (C.N. PRASAD) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 21. 9 .2017 SRL,SR.PS 95 ITA NO. 3513/MUM/2016 AND OTHER 10 APPEALS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELL ANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI