ACIT, Bareilly V. M/s. S.E.Enterprises Pvt.Ltd., Bareilly

ITA 485/LKW/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5325 (ITAT-LUCKNOW)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-12-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 09-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMOD BAJAJ
• Assessee Lawyers: J J MEHROTRA
• Keywords: Depreciation; Income from undisclosed sources; Opportunity of being heard; Corroborative evidences
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO. 485(LKW.)/2010 A.Y. : 2007-08 THE ACIT, CIR.II, VS. M/S.S.E.ENTEPRISES PVT. LTD ., BAREILLY. 56,CIVIL LINES, BAREILLY. PAN AADCS1819D (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAMOD BAJAJ, D.R. RESPONDENT BY : SHRI J.J.MEHROTRA, C.A. O R D E R PER H.L.KARWA, VICE PRESIDENT THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A), BAREILLY DATED 29.3.2010 RELATING TO THE ASSESSMENT YEAR 2007- 08. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER : 1. THE CIT(A) HAS ERRED IN LAW AND FACTS IN DELETI NG THE ADDITION OF RS.19,24,047/MADE BY THE ASSESSING OFFICER ON AC COUNT OF UNDER VALUATION OF CLOSING STOCK WITHOUT APPRECIATI NG THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY T HE ASSESSING OFFICER. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE ENJOYS INCOME FROM WHOLESALE DISTRIBUTOR OF RAYMONDS LTD. AND ITS RETAIL CUSTOMER. THE 2 ASSESSMENT WAS COMPLETED UNDER SECTION 143(1) OF THE INCOME-TAX ACT,1961 (IN SHORT THE ACT), THEREAFTER, SAME WA S SELECTED FOR SCRUTINY UNDER THE PROVISIONS OF GUIDELINES OF CBDT. THE NO TICES UNDER SECTION 142(1)/143(2) ALONGWITH QUESTIONNAIRE WERE ISSUED A ND WERE SERVED UPON THE ASSESSEE. ON EXAMINATION OF AUDITED ACCOUNTS, T HE AO NOTICED THAT THE ASSESSEE HAS DISCLOSED CLOSING STOCK OF RS.1,80,75, 953. THE AO REQUIRED THE ASSESSEE TO FURNISH THE DETAILS IN THE SHAPE OF L IST OF OPENING AND CLOSING BALANCES. APART FROM ABOVE, THE ASSESSEE WAS ALSO REQUIRED TO PRODUCE THE BOOKS OF ACCOUNT INCLUDING STOCK REGISTER. IN RESPO NSE TO ABOVE, QUERIES, NEITHER THE ASSESSEE FURNISHED ITEM-WISE DETAILS NO R DOCUMENTARY EVIDENCE I.E. COPY OF INVOICES AND BILLS OF SALE AS ON 31.3 .2007 OR BEFORE. THE ASSESSEE HAS ALSO NOT PRODUCED STOCK REGISTER AS RE QUIRED BY THE DEPARTMENT. THEREAFTER, ANOTHER SHOW CAUSE NOTICE DATED 3 RD DECEMBER,2009 WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO ABOVE QUERY, THE AS SESSEE HAS FURNISHED A WRITTEN REPLY DATED 10 TH DECEMBER,2009 STATING THEREIN VIDE PARA 4, WHICH I S AS UNDER : 4. DUE TO HUGE VARIETY/QUALITY OF CLOTH THE ASSESS EE HAS NOT MAINTAINED ANY STOCK REGISTER, VALUATION OF CLOSING S TOCK HAS BEEN MADE ON 31.3.2007 BY THE DIRECTORS OF THE COMPANY. FROM THE ABOVE REPLY, THE AO REACHED AT A CONCLUSIO N THAT THE ASSESSEE HAS NOT KEPT AND MAINTAINED PROPER STOCK REGISTER AND EVEN INVENTORY, WHEREAS THE ASSESSEE HAS RECEIVED ALL THE INVOICES FROM COM PANY AND IT SHOULD HAVE ISSUED THE BILLS/RECEIPTS TO THE SUB-DEALERS AND O THER CUSTOMERS. THE AO HAS OBSERVED THAT IN THESE DAYS THERE IS A TIME OF COMP UTER WHICH KEEPS READILY AVAILABLE AND MAINTAINS EACH AND EVERY THING AT AN Y MOVEMENT OF THE BUSINESS. ACCORDING TO THE AO, THE INTENTION OF TH E ASSESSEE WAS NOT POSITIVE IN CONNECTION WITH PAYMENT OF CORRECT TAX ES TO THE GOVERNMENT. 3 KEEPING IN VIEW THE ABOVE NOTED INFIRMITIES, THE AO DETERMINED THE VALUE OF CLOSING STOCK AT RS.2 CRORES AS AGAINST THE SUM OF RS.1,80,75,953 DISCLOSED BY THE ASSESSEE. THEREFORE,THE GROSS PROFIT AND THE REAFTER NET PROFIT WAS ENHANCED BY AN AMOUNT OF RS.19,24,047 WHICH WAS AB OUT 11% OF CLOSING STOCK DISCLOSED BY THE ASSESSEE. THE AO TREATED TH E AMOUNT OF RS.19,24,047 AS INCOME FROM UNDISCLOSED SOURCES AND SAME WAS ADD ED TO THE INCOME OF THE ASSESSEE FOR THE PERIOD UNDER CONSIDERATION. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). BEFORE, THE LD.CIT(A), THE ASSESSEE TOOK THE FOLLOWING LINE OF ARGUMENTS: (I) THAT WITH REFERENCE TO THE ADDITION OF RS.19,2 4,047 IN VALUE OF CLOSING STOCK BEING 11% OF THE VALUE OF CLOSING ST OCK, IT IS SUBMITTED THAT SALE & PURCHASE ARE SUPPORTED BY BILLS & VOUCHERS, BOOKS OF ACCOUNTS ARE AUDITED AND THE AUD ITORS HAD NOT POINTED OUT ANY DEFECT.; (II) THAT THE ASSESSEE DEALS IN ENORMOUS NUMBER OF ITEMS OF DIFFERENT VARIETY AND QUALITY. THE ASSESSEE PURCHA SES THE GOODS IN DIFFERENT QUANTITIES (I.E.THANS & BALES)WHILE TH E GOODS ARE SOLD IN DIFFERENT QUANTITIES, SUCH AS, METRES AND ITS DENOMINATIONS AS PER THE REQUIREMENT OF CUSTOMERS. HENCE IT IS NOT PRACTICABLE TO MAINTAIN STOCK RECORD FOR EACH AND EVERY ITEM TRADED BY THE COMPANY; (III) THAT THE VALUE OF CLOSING STOCK IS TAKEN AT THE END OF THE YEAR ON PHYSICAL VERIFICATION OF DIRECTORS. HOWEVER, EACH AND EVERY ITEM OF SALE AND PURCHASE IS SUPPORTED BY BILL. 4 (IV) THAT THE ASSESSEE HAS EARNED GROSS PROFIT OF RS.74, 57,478 ON TURNOVER OF RS.7,37,42,293 GIVING GROSS PROFIT RAT E OF 10.11% DURING THE YEAR UNDER CONSIDERATION AS AGAINST GROS S PROFIT OF RS.64,54,662 @ 10.08% ON TURNOVER OF RS.6,40,65,296 DURING THE JUST PRECEDING YEAR. (V) THAT THE GROSS PROFIT RATE DECLARED BY THE ASSESSE E IS SLIGHTLY BETTER AS COMPARED TO THE GROSS PROFIT RATE OF EAR LIER YEAR. (VI) THAT THE AO HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS PRODUCED BY THE ASSESSEE AND IN FACT HE HA S ACCEPTED THE SAME WHILE FRAMING THE ASSESSMENT. IN SUPPORT OF THE ABOVE CONTENTIONS, THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS : 1. HIMACHAL SHODDY MILLS PVT. LTD. VS. DY.CIT (1994) 5 0TTJ (DEL.); 2. ITO VS.GOBIND STEEL ROLLING MILLS (1991) 54 TAXMAN 72 (CHANDIGARH); 3. GARG INDIA PVT. LTD. VS. ITO (1983) 16 TTJ (ALLAHAB AD); 4. ITO VS. AMARNATH RAM KUMAR (1995) 81 TAXMAN 148(CHANDIGARH) 5. RAM PYARE SATISH KUMAR VS. ITO (1997) 59TTJ (DEL.) 352. 5. THE LD.CIT(A) DELETED THE ADDITION OBSERVING AS UNDER: THE CONTENTIONS OF THE A.R. WAS THAT THE ASSESSEE MAINTAINED PROPER BILLS AND VOUCHERS AND BOOKS OF ACCOUNT AND THE SAM E WERE AUDITED BY THE CHARTERED ACCOUNTANT. NO DEFECT WAS POINTED OUT BY THE AUDITORS. THE ASSESSEE WAS DEALING IN ENORMOUS NUMBER OF ITEM S OF DIFFERENT VARIETIES AND QUALITIES. THE GOODS WERE PURCHASED I N THANS AND BALES BUT THE SAME WERE SOLD IN DIFFERENT QUANTITIES ACCO RDING TO THE REQUIREMENT OF CUSTOMERS. THEREFORE, IT WAS NOT PRA CTICABLE TO MAINTAIN RECORD OF EACH AND EVERY ITEM TRADED BY TH E COMPANY. HENCE, THE VALUE OF CLOSING STOCK WAS RECORDED AT H E END OF THE F.Y. ON THE BASIS OF PHYSICAL VERIFICATION CARRIED OUT B Y THE DIRECTORS AND THE EMPLOYEES. IT WAS ALSO CONTENDED THAT THE GROSS PROFIT WAS 10.11% AS AGAINST THE G.P. @ 10.08% IN THE IMMEDIATE PRECE DING YEAR. 5 HOWEVER, THE A.O. DID NOT CONSIDER THIS FACT THAT T HE G.P. DISCLOSED WAS ON THE HIGHER SIDE. THERE WAS NO CHANGE IN THE METHOD FOLLOWED TO ASCERTAIN THE PHYSICAL QUANTITY OF CLOSING STOCK AND WORKING OUT VALUE OF IT. THERE WAS CONSISTENCY IN THIS METHOD W HICH HAS BEEN REGULARLY FOLLOWED SINCE MANY PAST YEARS. THE DEPAR TMENT ACCEPTED THIS METHOD IN THE ASSESSMENTS MADE U/S 143(3). THE AUDITORS DID NOT COME ACROSS TO ANY DEFECT OR IRREGULARITY WHICH WAS NOT IN CONFORMITY WITH THE ACCOUNTING STANDARDS ON THE ISSUE OF CLOSI NG STOCK. THE A.O. DID NOT POINT OUT ANY INSTANCE OF DETECTING ANY DEF ECT IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THESE BOOKS WER E PRODUCED BEFORE THE A.O. AND THE SAME WERE TEST CHECKED. THE ASSESSEE RELIED ON THE DECISION ON THE FOLLOWING CASES:- (I) GOBIND STEEL ROLLING MILLS (1991) 54 TAXMAN 72 (CHANDIGARH) (II) RAM PIYARE SATISH KUMAR (1997) 59 TTJ (DELHI ) 352 (III) AMARNATH RAM KUMAR (1995) 81 TAXMAN 148 ( CHANDIGARH) (IV) UTTAM GENERAL STORES 13 TTJ (INDORE) 271 (V) HIMACHAL SHODDY MILLS PVT. LTD. (1994) 50 TTJ 398 (DELHI) (VI) 5 MTC 771 (ALL) (VII) 6 MTC 1093 (LKO) (SMB) (VIII) ANANT METAL CORPORATION 173 TAXMAN 185 (MAD ) (IX) 36 DTR 336 (X) 105 TTJ 1040 (XI) MASCOT (INDIA) TOOLS AND FORGINGS (P) LTD. 320 ITR 116 (ALL) IT WAS SUBMITTED THAT THE CASE OF THE ASSESSEE WAS SCRUTINIZED FOR THE ASSESSMENT YEAR 2003-04. THE ASSESSEE MAINT AINED CASH BOOK, LEDGER, AND JOURNAL BUT STOCK REGISTER WAS NOT MAIN TAINED IN THAT F. Y. THE ASSESSEE FURNISHED COPY OF TAX AUDIT REPORT PER TAINING TO F.Y. 2002-03 RELEVANT TO THE ASSESSMENT YEAR 2003-04 AND ALSO COPY OF ASSESSMENT ORDER. IT WAS FOUND THAT IN THE TAX AUDI T REPORT IN FORM NO. 3CD, IT WAS MENTIONED AT SI. NO. 28 (A) THAT 'S TOCK REGISTER NOT MAINTAINED DUE TO VARIOUS SHADS AND COLORS'. THE AS SESSEE PRODUCED BOOKS OF ACCOUNT BEFORE THE A.O. AND THE SAME WERE ACCEPTED. THUS, IT IS CLEAR THAT THE ASSESSEE WAS REGULARLY MAINTAININ G THE BOOKS AS MENTIONED ABOVE. THEREFORE, THERE WAS NO DEVIATION OR CHANGE IN THE METHOD OF ACCOUNTING SINCE PAST YEARS. IT IS A FACT THAT THE G.P. SHOWN IN THE YEAR UNDER CONSIDERATION WAS HIGHER THAN THE G.P. OF THE CORRESPONDING PRECEDING YEAR. THIS FACT WAS EXPLAIN ED BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS ALSO. CONTENTS OF THE ASSESSMENT ORDER REVEAL THAT THE A.O. DID NOT FIND ANY DEFECT IN THE BOOKS OF ACCOUNT 6 MAINTAINED AND PRODUCED BEFORE HIM. IT APPEARS THAT THE ADDITION WAS MADE IN A CAUSAL MANNER. NO MATERIAL WAS GATHERED A ND PLACED ON THE RECORD WHICH COULD FORM A COGENT EVIDENCE TO ARRIVE AT THE CONCLUSION THAT THE ASSESSEE SUPPRESSED EITHER QUANTITY OR VAL UE OF CLOSING STOCK. THE ASSESSEE FURNISHED COPY OF ASSESSMENT ORDER DAT ED 203.2009 OF THE TRADE TAX DEPARTMENT. IT WAS NOTICED THAT THE B OOK RESULTS WERE ACCEPTED BY THE TRADE TAX DEPARTMENT OF THE STATE G OVERNMENT WITHOUT FINDING ANY DEFECT IN QUANTITY, VALUE, SALE S OR PURCHASES OF THE TAXABLE GOODS. I HAVE GONE THROUGH THE FACTS OF THE CASES, CITED B Y THE ASSESSEE AND ALSO THE FACTS OF THE CASE UNDER CONSIDERATION. THE HON'BLE JURISDICTIONAL HIGH COURT HAVE HELD IN THE CASE OF MASCOT (INDIA) TOOLS AND FORGINGS (P) LTD. 320 ITR 116 (ALL) THAT THE COMPANY WAS A MANUFACTURING CONCERN SINCE 1974. THE ASSESSEE FU RNISHED RETURN FOR THE ASSESSMENT YEAR 1988-89 DECLARING A GROSS PROFI T AT THE RATE OF 30.77 PER CENT. AS AGAINST 26.72 PERCENT IN THE PRE CEDING YEAR. THE ASSESSING OFFICER APPLYING A NET PROFIT RATE OF 22 PERCENT TO THE ENTIRE TURNOVER AND MADE ADDITIONS OF RS. 15,99,158, RS.37 ,68,113 AND RS.5,73,832 ON ACCOUNT OF SUPPRESSED SALES AND COMM ISSION PAYMENT. THE COMMISSIONER (APPEALS) PARTLY ALLOWED THE APPEA L BUT UPHELD THE MAJOR ADDITIONS MADE BY THE ASSESSING OFFICER. THE TRIBUNAL DELETED THE THREE ADDITIONS, HOLDING (A) THAT THE ADDITION OF RS.15,99,158 ON THE SALES DECLARED BY THE ASSESSEE WERE EXCISABLE G OODS, THAT THE CORRECTNESS OF SALES DECLARED WAS SUPPORTED BY REGU LAR BOOKS OF ACCOUNT WHICH HAD BEEN AUDITED BY THE AUDITORS AS R EQUIRED BY VARIOUS PROVISIONS OF THE COMPANIES ACT AND THE INCOME-TAX ACT, THAT THE AUDITORS HAD GIVEN UNQUALIFIED REPORTS AND THE EXCI SE AUTHORITIES HAD CHECKED AND VERIFIED PERIODICAL1Y AND THAT THE ADDI TION FOR SUPPRESSION OF DOMESTIC SALES WAS WRONG; (B) THAT T HE NET PROFIT RATE 22 PER CENT. ON THE ENTIRE AMOUNT OF TURNOVER WAS N OT WARRANTED AS THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE CO RRECT AND COMPLETE, THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE WAS ALSO VALID, THEREFORE, SECTION 145(1) OR (2) OF THE INCO ME-TAX ACT, 1961, WAS NOT APPLICABLE. THE ONLY GROUND OF ADDITION WAS THAT THE ASSESSEE D ID NOT MAINTAIN STOCK REGISTER. THE A.O., IT SEEMS, DID NO T MAKE ANY EFFORTS TO CARRY OUT NECESSARY INVESTIGATION OF THE CASE AN D ESTABLISH THAT THERE WAS EITHER SUPPRESSION OF SALES OR UNDERVALUATION O F CLOSING STOCK. [T 7 MAY BE SEEN FROM THE CONTENTS OF THE ASSESSMENT ORD ER THAT NO SUPPORTING EVIDENCE WAS PLACED ON THE RECORD TO MAK E THE ADDITION. AFTER TAKING INTO ACCOUNT THE SUBMISSION OF THE ASS ESSEE, CONTENTS OF THE ASSESSMENT ORDER, THE POSITION OF BOOK RESULTS IN COMPARISON TO PRECEDING F.Y., THE FACT THAT THE AO DID NOT PLACE ANY MATERIAL EVIDENCE TO ARRIVE AT THE FINDING THAT THE VALUE OF STOCK WAS NOT DISCLOSED CORRECTLY AND ALSO THE JUDICIAL PRONOUNCE MENTS ON THE ISSUE, I AM OF THE CONSIDERED VIEW THAT THE ADDITION WAS MADE WITHOUT ANY FACTUAL BASIS. ACCORDINGLY, THE SAME IS NOT SUSTAIN ABLE. APPEAL, ON THIS GROUND IS THEREFORE, ALLOWED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT I S RELEVANT TO STATE THAT SHRI PRAMOD BAJAJ, LD.D.R. SUBMITTED THAT THE LD.CIT(A) HAS NOT CORRECTLY APPRECIATED THE FACTS OF THE CASE AS MENTIONED IN T HE ASSESSMENT ORDER. HE ALSO SUBMITTED THAT THE FACTS OF THE CASE LAWS CITE D BY THE ASSESSEE IN SUPPORT OF THE SUBMISSIONS MADE BEFORE THE LD.CIT(A) ARE DIFFERENT THAN THE FACTS OF THE CASE OF THE ASSESSEE. HE, THEREFORE, SUBMITTED THAT THE ORDER OF THE LD.CIT(A) MAY BE REVERSED AND RESTORE THAT OF THE A O. SHRI J.J.MEHROTRA, C.A., LD. COUNSEL FOR THE ASSESSEE REITERATED THE S UBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 7. AFTER CONSIDERING THE ENTIRE FACTS AND CIRCUMSTA NCES OF THE CASE, WE ARE OF THE VIEW THAT THE ONLY GROUND OF ADDITION I S THAT THE ASSESSEE DID NOT MAINTAIN STOCK REGISTER. IN THE INSTANT CASE, THE A O HAS NOT MADE ANY EFFORT TO CARRY OUT NECESSARY INVESTIGATION OF THE CASE AN D ESTABLISH THAT THERE WAS EITHER SUPPRESSION OF SALES OR UNDERVALUATION OF CL OSING STOCK. THERE IS NO MATERIAL ON RECORD TO JUSTIFY THE ADDITION. IN FACT , THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO ARRIVE AT THE FINDING THAT TH E VALUE OF STOCK WAS NOT DISCLOSED CORRECTLY. WE FIND THAT THE SALES DECLARE D BY THE ASSESSEE WERE 8 SUPPORTED BY REGULAR BOOKS OF ACCOUNTS WHICH HAD BE EN AUDITED BY THE AUDITORS. THERE IS NO DISPUTE THAT THE VALUATION O F CLOSING STOCK WAS DONE AT THE END OF THE FINANCIAL YEAR ON THE BASIS OF PHYSI CAL VERIFICATION CARRIED OUT BY THE DIRECTORS AND THE EMPLOYEES. IT IS ALSO OB SERVED THAT THE GROSS PROFIT SHOWN AT 10.11% AS AGAINST 10.08% IN THE IMMEDIATE PRECEDING YEAR IS SLIGHTLY HIGHER. THE AO HAS NOT GIVEN ANY ADVERSE C OMMENTS REGARDING THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSE SSEE. IN FACT, THERE WAS NO CHANGE IN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE TO ASCERTAIN THE PHYSICAL QUANTITY OF CLOSING STOCK AND WORKING OUT VALUE OF IT. THE DEPARTMENT HAS ACCEPTED THE METHOD OF ACCOUNTIN G IN EARLIER YEARS UNDER SECTION 143(3) OF THE ACT. THE AO HAS NOT PO INTED OUT ANY INSTANCE OF DETECTING ANY DEFECT IN THE BOOKS OF ACCOUNT MA INTAINED BY THE ASSESSEE. THESE BOOKS WERE PRODUCED BEFORE THE AO AND THE SAM E WERE TEST-CHECKED. IN OUR VIEW, THE DECISIONS RELIED UPON BY THE LD.CI T(A) ARE FULLY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THEREFORE, WE REJECT THIS CONTENTION OF THE LD.D.R. THAT THE DECISIONS R ELIED UPON BY THE LD.CIT(A) ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE . IN OUR CONSIDERED VIEW, THE LD.CIT(A) HAS PASSED A WELL-REASONED ORDER AFTER A PPRECIATING THE FACTS OF THE PRESENT CASE AND HAS ALSO CORRECTLY APPLIED THE RATIOS OF THE DECISIONS CITED IN THE IMPUGNED ORDER. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT SEE ANY VALID GROUND FOR INTERFERING WITH THE ORDER OF THE LD.CIT(A) ON THI S ISSUE AND ACCORDINGLY WE UPHOLD THE SAME AND REJECT THE GROUND RAISED BY THE REVENUE. 8. GROUND NO.2 OF THE APPEAL READS AS UNDER : 2. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN RES TRICTING THE DISALLOWANCE OF RS.1,46,347/- AT 25% MADE BY TH E 9 ASSESSING OFFICER TO 10% ON ACCOUNT OF TELEPHONE AN D CAR EXPENSES INCLUDING DEPRECIATION THEREON WITHOUT APP RECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON R ECORD BY THE ASSESSING OFFICER. 9. WHILE FRAMING THE ASSESSMENT, THE AO DISALLOWED EXPENSES OF RS.1,46,347 AT THE RATE OF 25% OUT OF TELEPHONE, C AR EXPENSES INCLUDING DEPRECIATION ON THE GROUND THAT THE DIRECTORS OF TH E COMPANY HAD USED THE TELEPHONE AND CAR FOR THEIR OWN PURPOSES. 10. ON APPEAL, THE LD.CIT(A) RESTRICTED THE DISALLO WANCE TO 10% OF THE EXPENSES CLAIMED. 11. AFTER HEARING THE LD.REPRESENTATIVES OF BOTH TH E PARTIES, WE FIND THAT THE LD.CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISA LLOWANCE TO 10% OF THE EXPENSES CLAIMED. THE DISALLOWANCE MADE BY THE AO A T THE RATE OF 25% WAS ON HIGHER SIDE, PARTICULARLY WHEN HE HAS NOT QUOTED ANY SINGLE INSTANCE WHEN THE CAR AND TELEPHONE WERE USED FOR NON BUSINESS P URPOSES. IN FACT, THE AO HAS MADE AN AD HOC DISALLOWANCE AT THE RATE OF 25% OF THE EXPENSES CLAIMED BY THE ASSESSEE UNDER THE ABOVE HEADS. THUS, CONSID ERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE DO NOT SEE A NY VALID GROUND FOR INTERFERING WITH THE ORDER OF THE LD. CIT(A) ON THI S ISSUE AND ACCORDINGLY WE UPHOLD THE SAME AND DISMISS GROUND NO.2 OF THE APPE AL. 12. GROUND NO.3 OF THE APPEAL READS AS UNDER : 3. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.51,341/-MADE BY THE ASSESSING OFFICE R ON ACCOUNT OF TRAVELING EXPENSES, GENERATOR EXPENSES A ND PACKING EXPENSES WITHOUT APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE ASSESSING OFFICER . 10 13. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTICED THAT THE ASESSEE HAS CLAIMED EXPENSES UNDER SO MANY HEADS. THE AO REQUIRED THE ASSESSEE TO PRODUCE THE VOUCHERS OF EXPENSES THROUG H WHICH PAYMENTS WERE MADE. IN RESPONSE TO ABOVE QUERY, THE ASSESSEE PROD UCED VOUCHERS OF EXPENSES WHICH WERE EXAMINED BY THE AO. DURING THE COURSE OF EXAMINATION, IT WAS NOTICED BY THE AO THAT THE ASSE SSEE HAS NOT KEPT AND MAINTAINED PROPER VOUCHERS IN RESPECT OF TRAVELLING EXPENSES, GENERATOR EXPENSES AND PACKING EXPENSES CLAIMED AT RS.1,85,0 81, RS.49,458 AND RS.1,07,737 RESPECTIVELY I.E. TOTAL EXPENDITURE OF RS.3,42,276 AS CLAIMED IN TRADING AND PROFIT AND LOSS ACCOUNT. IN ABSENCE OF PROPER VOUCHERS, THE AO DISALLOWED RS.51,341, WHICH IS 15% OF RS.3,42,276. 14. ON APPEAL, THE LD.CIT(A) DELETED THE ADDITION O BSERVING AS UNDER : I HAVE PERUSED THE CONTENTS OF THE ASSESSMENT ORD ER. THE AO MADE ADDITION FROM THESE OVERHEADS WITHOUT GIVING A NY FACTUAL FINDINGS. THE CONTENTS OF THE ORDER SHOW THAT THER E WAS NO BASIS FOR MAKING THE DISALLOWANCE EXCEPT OBSERVATION THAT DET AILS WERE QUITE UNSPECIFIC. IT IS THE DUTY OF THE A.O. TO ESTABLISH THAT CERTAIN PART OF THE CLAIM WAS NOT GENUINE BY GATHERING MATERIAL ON RECO RD DURING ASSESSMENT PROCEEDINGS. IT IS A FACT THAT THE ASSES SEE PRODUCED BOOKS OF ACCOUNT AND SUPPORTING BILLS AND VOUCHERS BEFORE THE A.O. HE FURNISHED COPY OF ACCOUNT OF THESE EXPENSES IN THE APPEAL PROCEEDINGS ALSO. IN VIEW OF SUCH FACTS AND CIRCUMSTANCES, IT I S MY CONSIDERED VIEW THAT THE ACTION OF THE A.O., WITHOUT HAVING AN Y COGENT EVIDENCE ON THE RECORD, WAS NOT SUSTAINABLE. ACCORDINGLY, AD DITION ON THIS GROUND IS DELETED. 15. AFTER HEARING THE LD.REPRESENTATIVES OF BOTH TH E PARTIES, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS OBSERVED THAT IN ORDER TO PROVE THE 11 GENUINENESS OF THE EXPENSES, THE ASSESSEE HAS PRODU CED BOOKS OF ACCOUNTS AND SUPPORTING BILLS LAND VOUCHERS BEFORE THE AO. T HE ASSESSEE HAS ALSO FURNISHED COPIES OF ACCOUNT OF THESE EXPENSES. THE AO MADE THE ADDITION WITHOUT ANY BASIS AND WITHOUT ASSIGNING ANY COGENT REASONS. WE AGREE WITH THIS OBSERVATION OF THE LD.CIT(A) THAT IT WAS THE DUTY OF THE AO TO ESTABLISH THAT CERTAIN PART OF CLAIM WAS NOT GENUINE BY GAT HERING MATERIAL ON RECORD DURING ASSESSMENT PROCEEDINGS. HOWEVER, THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUPPORT THE ADDITION. THUS, THE ADDITION MADE BY THE AO HAS CORRECTLY BEEN DELETED BY THE LD.CIT(A). CON SEQUENTLY, WE DISMISS THE GROUND RAISED BY THE REVENUE. 16. GROUND NO.4 OF THE APPEAL READS AS UNDER : 4. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS.1,00,000/- MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF ADVERTISEMENT EXPENSES WITHOUT APPRECIAT ING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECOR D BY THE ASSESSING OFFICER. 17. WHILE FRAMING THE ASSESSMENT, THE AO MADE A DIS ALLOWANCE OF RS.1 LAC OUT OF ADVERTISEMENT EXPENSES OBSERVING THAT TH E ASSESSEE IS A WHOLESALE DISTRIBUTOR OF RAYMONDS LTD. COMPANY AND EITHER AL L THE ADVERTISEMENTS HAVE BEEN MADE BY RAYMONDS COMPANY OR ON BEHALF O F RAYMONDS COMPANY BY THE ASSESSEE-COMPANY. DURING THE COURSE OF HEARING, THE ASSESSEE ALSO COULD NOT PRODUCE ANY PROOF IN THE SH APE OF VOUCHERS. 18. ON APPEAL, THE LD.CIT(A) DELETED THE DISALLOWAN CE ON THE GROUND THAT IT IS THE DUTY OF THE AO TO ESTABLISH THAT THE CLA IM WAS NOT GENUINE BY GATHERING MATERIAL ON RECORD DURING ASSESSMENT PROC EEDINGS. MERE 12 MENTIONING THAT THE ASSESSEE DID NOT INCUR THESE EX PENSES CANNOT BE ANY BASIS FOR MAKING SUCH ADDITION. 19. AFTER HEARING THE LD.REPRESENTATIVES OF BOTH TH E PARTIES, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. WE FIND THAT TH E DISALLOWANCE OF RS.1 LAC OUT OF ADVERTISEMENT EXPENSES WAS MADE WITHOUT POI NTING OUT ANY SPECIFIC INFLATION OF ANY ENTRY OF ADVERTISEMENT EXPENSES. I T IS ALSO SEEN THAT WHILE MAKING THIS DISALLOWANCE, THE AO HAS NOT ISSUED ANY SHOW CAUSE NOTICE TO THE ASSESSEE. THE AO ALLEGED THAT ALL THE ADVERTIS EMENTS HAVE BEEN MADE EITHER BY THE RAYMONDS COMPANY OR ON BEHALF OF RAYM ONDS COMPANY, WHICH IS NOT TOTALLY TRUE AND NOT BASED ON FACTS. I N FACT, THERE IS NO MATERIAL ON RECORD TO SUPPORT THE ABOVE CONTENTION OF THE AO . WE ALSO FIND THAT WHILE MAKING THE ADDITION, THE AO HAS NOT GIVEN ANY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. HOWEVER, THE ASSESSEE HAS FI LED COPY OF ACCOUNT OF ADVERTISEMENT EXPENSES ALONGWITH BILLS AND VOUCHER S BEFORE THE COMMISSIONER. THUS, CONSIDERING THE ENTIRE FACTS AN D CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE LD.CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION. IN THIS VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THE GROUND RAISED BY THE REVENUE AND CONSEQUENTLY W E DISMISS THE SAME. 20. GROUNDS NO.5 AND 6 ARE GENERAL IN NATURE AND NE ED NO ADJUDICATION. 21. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 30.12.2 010. SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DECEMBER 30TH ,2010. 13 COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.