CHIKA OVERSEAS P. LTD, MUMBAI V. ITO 1(1)(2), MUMBAI

ITA 6086/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8212 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 02-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJARSHI DWIVEDI
• Assessee Lawyers: AARTI VISSANJEE
• Keywords: Business income; Depreciation; Income from undisclosed sources; Earning of tax free income; Source of fund; Additional evidence; Capital expenditure
• Section: 43B; 14A; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C , MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO.6086/MUM/2011 ASSESSMENT YEAR : 2007-08 M/S. CHIKA OVERSEAS PVT. LTD. 5 TH FLOOR, INDUSTRIAL ASSURANCE BUILDING, CHURCHGATE MUMBAI-400 020. PAN NO. AAACC 2178 A INCOME-TAX OFFICER WARD 1(1)(2) ROOM NO.534, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. (APPELLANT) VS. (RESPONDENT) ITA NO.4970/MUM/2011 ASSESSMENT YEAR : 2007-08 INCOME-TAX OFFICER MUMBAI-400 020. M/S. CHIKA OVERSEAS PVT. LTD. MUMBAI-400 020. (APPELLANT) VS. (RESPONDENT) ASSESSEE BY : MS. AARTI VISSANJEE REVENUE BY : SHRI. RAJARSHI DWIVEDI DATE OF HEARING : 25.7.2012 DATE OF PRONOUNCEMENT : 3.8.2012 O R D E R PER RAJENDRA SINGH, AM: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 2.2.2011 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. TH ESE APPEALS WHICH WERE HEARD TOGETHER AND ALSO HAVE SOME CONNECTED I SSUES ARE ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 2 BEING DISPOSED OFF BY A SINGLE CONSOLIDATED ORDER FOR T HE SAKE OF CONVENIENCE. THE VARIOUS DISPUTES RAISED IN THESE APPEALS ARE DEALT WITH IN SUBSEQUENT PARAS. 2. THE FIRST DISPUTE IS REGARDING NATURE OF INCOME EAR NED BY THE ASSESSEE FROM THE BUSINESS CENTRE AND ALLOWABILITY OF EXPEN SES RELATING THERETO. THE AO DURING THE ASSESSMENT PROCEEDI NGS NOTED THAT THE ASSESSEE HAD SHOWN RECEIPTS OF RS.36,76,460/- FROM THE BUSINESS CENTRE WHICH HAD BEEN TREATED BY THE ASSESSEE AS INCO ME FROM BUSINESS. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY INCOME SHOULD NOT BE ASSESSED AS INCOME FROM HOUSE PROPERTY. THE ASSESSEE EXPLAINED THAT THE ACTIVITY OF GIVING OFFICE PREMISES A S BUSINESS CENTRE WAS IN THE REGULAR COURSE OF BUSINESS. THE ASSESSEE HAD ENTER ED INTO SERVICE AGREEMENT WITH ATLAS COPCO (INDIA) LTD. FOR PRO VIDING VARIOUS SERVICES SUCH AS USE OF BUSINESS CENTRE FACILITIES WHICH INCLUDED THE USE OF TABLE, CHAIRS, FILING CABINET, CUPBOARD, FURNITUR E AND FIXTURES, STORAGE FACILITIES AND USE OF EQUIPMENTS SUCH AS COMPUTERS, P RINTERS, FAX, COPYING MACHINE, INTERCOM FACILITIES AS WELL AS USE OF RECEPTION FACILITY, HOUSE KEEPING SERVICES AND ELECTRICITY AND WATER FACILITIES. THE INCOME WAS, THEREFORE, ASSESSABLE AS BUSINESS INCOME. THE AO, HOWEVER, DID NOT ACCEPT THE EXPLANATION GIVEN AND OBSE RVED THAT THE ASSESSEE HAD GIVEN ON RENT THE PROPERTY WITH FURNITURE, FIXTURE AND EQUIPMENTS. THE ASSESSEE WAS OWNER OF THE PROPERTY WHICH H AD BEEN ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 3 COMMERCIALLY EXPLOITED AND, THEREFORE, INCOME WAS ASSESSAB LE AS INCOME FROM HOUSE PROPERTY. THE AO, THEREFORE, COMPUT ED INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND AFTER ALLOWING STATUTORY DEDUCTION @ 30% , ASSESSED INCOME FROM THE BUSINESS CENTRE AT RS.25,73,522/-. 2.1 WHILE COMPUTING INCOME FROM THE BUSINESS CENTRE, ASSESSEE HAD CLAIMED DEPRECIATION OF RS.23,85,459/- ON THE BUILDING AND RS.3,20,312/- ON FURNITURE AND FIXTURES AGGREGATING T O RS.27,05,771/-. THE ASSESSEE HAD ALSO CLAIMED DIRECT EXPENSES RELATING TO BU SINESS CENTRE AS SERVICE CHARGES AMOUNTING TO RS.19,28,264/-. IN ADDITION, ASSESSEE CLAIMED INDIRECT EXPENSES AGGREGATING TO RS.2,52,13 ,255/- CONSISTING OF EMPLOYEE COST, ELECTRICITY EXPENSES, RATES AND TAXES, REPAIRS AND MAINTENANCE AND SUNDRY EXPENSES. THE AO OB SERVED THAT THE ASSESSEE HAS NOT FURNISHED DETAILS OF THE PREMISES LEASED FROM WHICH INCOME WAS RECEIVED AND HAD ALSO NOT GIVEN DEMARCAT ION OF EXPENSES TOWARDS SOURCES OF INCOME IN THE BOOKS OF ACCOUNT. THE AO, THEREFORE, ON ESTIMATE DISALLOWED 50% OF DEPRECIATION CLAIMED AMOUNTING TO RS.13,52,886/-, 100% OF SERVICE CHARGES OF RS.19,28,264/- AND 5% OF INDIRECT EXPENSES AMOUNTING TO RS.12,60,663/-, AGGREGATING TO RS.45,41,813/-. THE SAI D EXPENSES WERE ATTRIBUTED BY THE AO TO LEASING ACTIVITY AND DI SALLOWED AS INCOME HAD BEEN ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROP ERTY. ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 4 2.2 IN APPEAL CIT(A) FOLLOWING THE DECISION OF THE TR IBUNAL IN ASSESSMENT YEAR 2006-07 UPHELD THE ACTION OF AO ASSESSING I NCOME FROM BUSINESS CENTRE AS HOUSE PROPERTY INCOME. AS REGARDS DISALLOWANCE OF EXPENSES, CIT(A) HELD THAT THE ASSESSEE HAD INCURRED EXPENSES OF RS.6,76,965/- FOR PROVIDING SERVICES ATTACHED TO THE BUSINESS CENTRE . AS REGARDS THE DISALLOWANCE OF SERVICE CHAR GES OF RS.19,28,264/- AND INDIRECT EXPENSES OF RS.12,60,663/- @ 5% , CIT(A) ACCEPTED THE EXPLANATION OF THE ASSESSEE THAT THESE EXPENSE S HAD NO CONNECTION WITH THE PROPERTY INCOME AND WERE INCURRED SP ECIFICALLY FOR THE PURPOSE OF BUSINESS. CIT(A), THEREFORE, DELETED THE DISALLOWANCE OF RS.31,88,927/-. WITH REGARD TO DISALLOWANCE OF DEPRECI ATION OF RS.13,52,886/- @ 50% , CIT(A) NOTED THAT THE AO HAD DISALLOWED DEPRECIATION IN RESPECT OF THE PROPERTY ONLY AT RS.11,6 9,709/- AND REMAINING DISALLOWANCE OF DEPRECIATION WAS ON ACCOUNT OF FURNITURE AND FIXTURE AND EQUIPMENTS. HE, THEREFORE, HELD THAT DEPR ECIATION COULD BE DISALLOWED ONLY IN RELATION TO THE PROPERTY AND ACCOR DINGLY CONFIRMED THE DISALLOWANCE OF DEPRECIATION ONLY TO THE EXTENT O F RS.11,69,709/- AND THE BALANCE DISALLOWANCE OF DEPRECIATION OF RS.1,83, 177/- WAS DELETED. AGGRIEVED BY THE DECISION OF CIT(A), BOTH TH E PARTIES ARE IN APPEAL. WHEREAS THE ASSESSEE HAS DISPUTED THE DECISION OF CI T(A) TREATING THE INCOME FROM BUSINESS CENTRE AS INCOME FROM HO USE ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 5 PROPERTY AND UPHOLDING THE DISALLOWANCE OF DEPRECIATIO N OF RS.11,69,709/-. DEPARTMENT HAS CHALLENGED THE DECISION O F CIT(A) ALLOWING THE EXPENSES OF RS.6,76,965/- AND IN DELETIN G THE ADDITION OF RS.31,88,927/- ON ACCOUNT OF EXPENSES AND RS.1,83,177/- O N ACCOUNT OF DEPRECIATION. 2.3 BEFORE US, THE LD. AR FOR THE ASSESSEE AT THE VERY O UTSET POINTED OUT THAT THE ISSUE REGARDING NATURE OF INCOME FROM BUSI NESS CENTRE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN ASSESSMENT YEAR 2006-07 IN ITA NO.4002/M/10 IN WHICH THE TRIBUNAL FOLLOWING THE DECISION IN ASSESSMENT YEARS 2003-04 AND 2004-05 HELD THAT INCOME FRO M BUSINESS CENTRE HAD TO BE ASSESSED AS INCOME FROM OTHER SOURCE S. THE LD. AR ARGUED THAT SINCE INCOME FROM BUSINESS CENTRE HAD BEEN HELD AS ASSESSABLE AS INCOME FROM OTHER SOURCES UNDER SECTION 56(2)(II I), ASSESSEE WAS ENTITLED TO DEDUCTION OF EXPENSES UNDER SECTIO N 30,31, AND 32(2) AS PROVIDED UNDER SECTION 57(II) AND ALSO OTH ER EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING OF SUCH INCOME UNDER THE PROVISIONS OF SECTION 57(III). 2.4 THE LD. D.R ON THE OTHER HAND, SUBMITTED THAT CI T(A) HAD NOT GIVEN ANY BASIS FOR ALLOCATION OF EXPENSES TO THE BUSIN ESS CENTRE WHEN HE HAD HIMSELF ACCEPTED THAT INCOME HAD TO BE ASSESSED AS INCOME FROM PROPERTY. IT WAS ALSO POINTED OUT THAT CIT(A) H AD ADMITTED ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 6 ADDITIONAL EVIDENCES FOR WHICH THE DEPARTMENT HAS RAISED A SPECIFIC GROUND IN THE GROUNDS OF APPEAL. 2.5 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE DISPUTE IS REGARDI NG NATURE AS WELL AS COMPUTATION OF INCOME FROM THE BUSINESS CENTRE OWNED BY THE ASSESSEE. THE ASSESSEE IN AN AGREEMENT WITH ATLAS COPCO (INDI A) LTD. HAD LET OUT THE BUILDING OWNED BY IT ALONG WITH VAR IOUS SERVICES/FACILITIES SUCH AS USE OF TABLE, CHAIRS, FILING CABI NET, CUPBOARD, FURNITURE AND FIXTURES, STORAGE FACILITIES AND USE OF EQ UIPMENTS SUCH AS COMPUTERS, PRINTERS, FAX, COPYING MACHINE, INTERCOM FACIL ITIES AS WELL AS USE OF RECEPTION FACILITIES. THE ASSESSEE DURING THE YEAR HAD RECEIVED TOTAL SUM OF RS.36,76,460/- WHICH HAD BEEN DECL ARED AS BUSINESS INCOME. THE AO ASSESSED THE INCOME AS HOUSE PROPERTY INCOME WHICH HAS BEEN UPHELD BY CIT(A). THE ASSESSEE HAD CLAIMED SEVERAL EXPENSES AGAINST THE INCOME FROM BUSINESS CENTRE W HICH INCLUDED DEPRECIATION OF RS.27,05,771/-, SERVICE CHARGES OF RS.19,28,264/- AND INDIRECT EXPENSES OF RS.2,52,13,255/ -. THE AO DISALLOWED 50% OF DEPRECIATION, 100% OF SERVICE CHARGES AND 5% OF INDIRECT EXPENSES AS NOT RELATING TO THE HOUSE PROPERTY. CIT(A) HAS RESTRICTED THE DISALLOWANCE ONLY TO 50% OF DEPRECIATION ON BUILDING AND HAS ALLOWED OTHER EXPENSES. ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 7 2.6 IN SO FAR AS ISSUE RELATING TO NATURE OF INCOME FR OM BUSINESS CENTRE IS CONCERNED, THE SAME HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07 IN ITA NO.4002/M/10 IN WHICH THE TRIBUNAL FOLLOWING THE DECI SION IN EARLIER YEARS HAS HELD THAT INCOME HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THEREFORE, FOLLOWING THE DECISION OF THE TRIB UNAL (SUPRA), WE HOLD THAT INCOME WILL BE ASSESSED AS INCOME FROM OTHER SOUR CES. ONCE INCOME IS HELD ASSESSABLE AS INCOME FROM OTHER SOURCES, THE ASSE SSEE WILL BE ENTITLED TO EXPENSES ON ACCOUNT OF REPAIR, INSUR ANCE, RATES AND TAXES IN RELATION TO PROPERTY UNDER SECTION 30, REPAIR S AND INSURANCE EXPENSES ON ACCOUNT OF EQUIPMENTS, FURNITURE AND FIXTUR ES UNDER SECTION 31 AND DEPRECIATION UNDER SECTION 32(2) IN RESPECT OF ALL ASSETS OF THE BUSINESS CENTRE INCLUDING THE BUILDING AS SPECIFIC ALLY PROVIDED UNDER SECTION 57(II) BECAUSE THE INCOME HAS BEEN ASSESSED AS I NCOME FROM OTHER SOURCES UNDER SECTION 56(2)(III). IN ADDITION , THE ASSESSEE WILL ALSO BE ENTITLED TO DEDUCTION ON ACCOUNT OF OTHER EXPENSES OTHER THAN CAPITAL EXPENDITURE, LAID OUT OR EXPENDED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING AN EARNING OF SUCH INCOME AS P ROVIDED UNDER SECTION 57(III). THEREFORE, IN CASE ASSESSEE HAS INCURR ED ANY EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS CENTRE THE SAME HAS TO BE ALLOWED. THIS ASPECT HAS NOT BEEN CONSIDERE D AS AUTHORITIES BELOW HAD COMPUTED THE INCOME UNDER THE HE AD INCOME ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 8 FROM HOUSE PROPERTY. THEREFORE, THE COMPUTATION OF IN COME UNDER THE HEAD OTHER SOURCE IS RESTORED BACK TO AO FOR PASSING A F RESH ORDER AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORTU NITY OF HEARING TO THE ASSESSEE. 3. THE SECOND DISPUTE WHICH IS ALSO RELEVANT TO BOTH THE APPEALS IS REGARDING DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT. THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSE E HAD RECEIVED DIVIDEND INCOME OF RS.18,750/- WHICH WAS EXEMPT FROM TAX. THE AO ALSO NOTED THAT THE ASSESSEE HAD MADE INVESTMENT I N UNQUOTED EQUITY SHARES AND UNITS OF MUTUAL FUND WHICH WAS RS.3,89,64,435/- AS ON 31-3-2007 AND RS.2,04,01,125/- AS ON 30-03- 2006 AND INCOME FROM SUCH INVESTMENT WAS NOT TAXABLE. T HE AO THEREFORE, MADE DISALLOWANCE OF EXPENSES UNDER SECTION 14 A WHICH WAS COMPUTED AS PER RULE-8D AT RS.3,55,197/-. IN APPE AL THE ASSESSEE SUBMITTED THAT MAJORITY OF INVESTMENTS BY THE ASSESSE E WAS IN PRIVATE LIMITED COMPANIES AND INVESTMENTS IN MUTUAL FUND UNITS WAS ONE TIME INVESTMENT. THE DIVIDEND INCOME WAS CREDITED TO BANK ACCOUNT. NO EXTRA EFFORT WAS REQUIRED ON PART OF THE ASSESSEE TO EARN THE INCOME. IT WAS POINTED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.18,750/-, WHEREAS DISALLOWANCE OF EXPENSES BY AO UNDER SECTION 14A WAS RS.3,55,197/-. IT WAS ACCORDINGLY URGED T HAT THE DISALLOWANCE SHOULD BE DELETED. ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 9 3.1 CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE OBSERVED THAT RULE 8D WAS APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09 IN VIEW OF THE JUDGMENT HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ AND BOYCE MFG. CO. VS. DCIT (328 ITR 81) IN WHICH THE HONBLE HIGH COURT ALSO HELD THAT IN RELATION TO PRIOR YEARS EXPENSES BOTH DIRECT AND INDIRECT HAVE TO BE COMPUTED ON A REASO NABLE BASIS AFTER HEARING THE ASSESSEE. CIT(A), THEREFORE, RESTORED THE ISSUE TO THE FILE OF AO FOR FRESH ORDER AFTER NECESSARY EXAMINA TION IN THE LIGHT OF THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY (SUPRA) AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. AGGRIE VED BY THE DECISION OF CIT(A), BOTH THE PARTIES ARE IN APPEAL BEF ORE THE TRIBUNAL. 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING DISAL LOWANCE OF EXPENSES UNDER SECTION 14A IN RELATION TO EXEMPT INCOME . UNDER, THE PROVISIONS OF SECTION 14(2) AND 14(3), DISALLOWANCE OF EX PENSES UNDER SECTION 14A IS REQUIRED TO BE MADE AS PER METHOD PRESCRIB ED BY GOVERNMENT. GOVERNMENT HAS SINCE PRESCRIBED THE METHOD IN FORM OF RULE 8D. THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE O F GODREJ AND BOYCE MFG. CO. (SUPRA), HAVE HELD THAT RULE 8D WILL A PPLY ONLY FROM ASSESSMENT YEAR 2008-09 AND IN RESPECT OF PRIOR YEARS, IT WAS HELD THAT DISALLOWANCE OF EXPENSES BOTH DIRECT AND INDIRECT HA S TO BE MADE ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 10 ON A REASONABLE BASIS AFTER HEARING THE ASSESSEE. THE CIT( A) HAS FOLLOWED THE SAID JUDGMENT AND RESTORED THE SAID ISSUE T O THE AO FOR FRESH CONSIDERATION AFTER NECESSARY EXAMINATION IN THE LI GHT OF THE SAID JUDGMENT. WE, THEREFORE, SEE NO INFIRMITY IN THE ORD ER OF CIT(A) AND THE SAME IS, THEREFORE, UPHELD AND THE GROUNDS RAISED BY BOTH THE PARTIES ON THIS ISSUE ARE DISMISSED. 4. THE THIRD DISPUTE WHICH IS RELEVANT ONLY TO APPEAL BY THE REVENUE IS REGARDING DISALLOWANCE OF EXPENSES ON ACCOUNT OF EPF UN DER SECTION 43B OF THE ACT. THE AO NOTED THAT THE ASSESSEE HAD DEPOSI TED THE EMPLOYEES CONTRIBUTION TO PF WITH PF AUTHORITIES BEY OND THE DUE DATE IN CERTAIN MONTHS AND THE TOTAL PAYMENT MADE BEYOND D UE DATE WAS RS.1,77,407/- AS PER DETAILS GIVEN BELOW:- SR.NO. MONTH DATE OF PAYMENT DUE DATE AMOUNT OF PF(RS.) 1. APRIL06 17.05.2006 15.05.2006 48,228/- 2. MAY06 16.06.2006 15.06.2006 52,054/- 3. DEC.06 22.10.2007 15.01.2007 39,167/- 4. JAN07 19.02.2007 15.02.2007 37,958/- TOTAL 1,77,407/- 4.1 THE AO OBSERVED THAT AMOUNT DEPOSITED AFTER DUE DATE WAS REQUIRED TO BE ASSESSED AS INCOME UNDER SECTION 2(24)(X) R .W.S. 36(1)(VA). THE ASSESSEE HAD HOWEVER OFFERED ONLY INCOME OF RS.39,167/- ON THIS ACCOUNT. HE, THEREFORE, ADDED THE DI FFERENCE OF RS.1,38,240/- TO THE INCOME OF THE ASSESSEE. IN APPEAL CI T(A) ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 11 OBSERVED THAT IN VIEW OF THE AMENDED PROVISIONS OF SECTI ON 43B AND THE JUDGMENT OF HON'BLE HIGH COURT OF DELHI IN CIT VS. ANIMIL LTD., THE EMPLOYEES CONTRIBUTION TO PF DEPOSITED BEFORE DUE DA TE OF FILING THE RETURN OF INCOME WAS NOT REQUIRED TO BE TREATED AS I NCOME OF THE ASSESSEE. HE, THEREFORE, DELETED THE ADDITION MADE BY AO AGGRIEVED BY WHICH, REVENUE IS IN APPEAL BEFORE THE TRIBUNAL . 4.2 WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ASSESSMENT OF INCOME ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PF DEPOSITED AFTER DUE DAT E PRESCRIBED IN THE RELEVANT STATUTE. THE EMPLOYEES CONTRIBUTION IS RE QUIRED TO BE DEPOSITED BY 15 TH DAY OF THE FOLLOWING MONTH AND A FURTHER GRACE PERIOD OF 5 DAYS HAS BEEN PROVIDED UNDER INTERNAL INST RUCTIONS OF THE CONCERNED AUTHORITIES. THEREFORE, CONTRIBUTIONS DEPOSITE D AFTER GRACE PERIOD ARE REQUIRED TO BE TREATED AS INCOME UNDER SECTI ON 36(1)(VA). HOWEVER, THE HON'BLE SUPREME COURT IN CASE OF ALOM EXTR USIONS LTD. (319 ITR 306) HAVE HELD THAT IN VIEW OF AMENDMENT T O SECTION 43B BY THE FINANCE ACT, 2003 WHICH HAS RETROSPECTIVE APPLICATION , CONTRIBUTION TO PF ETC. COULD NOT BE ASSESSED AS INCOME IN CASE THEY ARE DEPOSITED BEFORE DUE DATE OF FILING OF RETURN OF INCOME. FOLLO WING THE SAID JUDGMENT, THE VARIOUS BENCHES OF THE TRIBUNAL HAVE TAK EN THE VIEW THAT EMPLOYEES CONTRIBUTION WOULD ALSO BE COVERED BY THE SAID AGREEMENT. IN THE PRESENT CASE, CONTRIBUTIONS HAVE BEEN DEPOSITED ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 12 BEFORE THE DUE DATE OF FILING RETURN OF INCOME ABOUT WHICH THERE IS NO DISPUTE. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF CIT(A) IN DELETING THE ADDITION AND THE SAME IS, THEREFORE UPH ELD. 5. THE FOURTH DISPUTE WHICH IS RELEVANT ONLY TO THE AP PEAL BY THE REVENUE IS REGARDING ADDITION OF RS.42,51,838/- ON ACCO UNT OF DIFFERENCES IN PURCHASES. THE AO DURING ASSESSMENT PROCEEDING S HAD ISSUED NOTICES TO VARIOUS PARTIES FROM WHOM THE ASSESSEE HAD MADE PURCHASES WITH A VIEW TO VERIFY THE GENUINENESS OF THE P URCHASES. AFTER RECEIPT OF REPLIES FROM THE PARTIES, THE AO NOTE D DISCREPANCIES IN THE VALUE OF PURCHASES SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AND CORRESPONDING VALUE OF SALES SHOWN BY THOSE PARTIES. T HE ASSESSEE EXPLAINED THAT THE DIFFERENCES WERE PURELY ON ACCOUNT O F ACCOUNTING OF EXCISE DUTY AS THE ASSESSEE IN ITS BOOKS HAD ACCOUNTED PURCHASE S AS NET OF EXCISE DUTY BASED ON AGREEMENTS ENTERED INTO WIT H SUPPLIERS. THE AO ACCEPTED THE DISCREPANCY ON ACCOUNT OF EXCISE DUTY COMPONENT, BUT DISCREPANCY AGGREGATING TO RS.42,51,838/ - REMAINED AS PER DETAILS GIVEN BELOW :- S.NO. NAME OF THE PARTY DIFFERENCE IN ACCOUNTS (RS.) DIFFERENCE ON ACCOUNT OF EXCISE COMPONENT (RS.) DIFFERENCES UNEXPLAINED 1. BHARAT DYECHEM 507708 430983 76725 2. LAKELAND CHEMICLAS 334475 00 334475 ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 13 (INDIA) LTD. 3. LOTUS ENTERPRISES 193913 193873 40 4. ORJET INTERMEDIATES PVT. LTD. 535011 229011 306000 5. RAMDOOT ENTERPRISES 3491548 3491548 3491548 6. VICTOR CHEMI COLOUR INDIA PVT. LTD. 36000 00 36000 7. VISWAAT CHEMICALS LTD. 7050 00 7050 4251838 5.1 THE AO THUS FOUND THE PURCHASES TO THE TUNE OF RS.42 ,51,838/- UNACCOUNTED IN THE BOOKS OF ACCOUNT AND ACCORDINGLY TREATE D THE SAME AS INCOME FROM UNDISCLOSED SOURCES AND ADDED THE SAME TO TO TAL INCOME. 5.2 THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT THE ASSESSEE HAD RECONCILED THE DIFFERENCE B EFORE AO VIDE LETTER DATED 10.12.2009 AND 12.1.2010. THE RECONCILI ATION GIVEN BEFORE AO WAS MENTIONED AS UNDER :- 1. BHARAT DYECHEM: THE TOTAL PURCHASES RECORDED IN THE BOOKS OF THE APPELLANT DURING THE YEAR (NET OF EXCISE) WERE RS.88,94,068/-. THE EXCISE DUTY PAYABLE ON THE SAME WAS RS.4,30,983/-. THUS, THE TOTAL CREDIT BALANCE OF BHARAT DYECHEM IN THE BOOKS OF THE APELLANT STOOD AT RS.93,25,051/-. THE NET DEBIT BALANCE IN THE APPELLANTS ACCOUNT IN THE BOOKS OF BHARAT DYECHEM STOOD AT RS.94,01,776/- ,THUS RESULTING IN A DIFFERENCE OF RS. 76,725/-. THE DIFFERENCE HAS ARISEN AS THE ASSESSING OFFICER HAS ONLY CONSIDERED THE DEBIT ITEMS IN ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 14 THE BOOKS OF BHARAT DYECHEM. THE ASSESSING OFFICER HAS NOT CONSIDERED THE FACT THAT THE MATERIAL WORTH RS.8O,000/- WAS RETURNED BY THE APPELLANT TO BHARAT DYECHEM DUE TO SOME DEFICIENCY AND THEY ISSUED ANOTHER LOT AGAINST THE SAME BILL IN THE NEXT YEAR INSTEAD OF CANCELING THE BILL AND RAISING A NEW BILL WHEN THE GOODS WERE DISPATCHED. FURTHER THE ASSESSING OFFICER HAS NOT CONSIDERED THE FACT THAT THE APPELLANTS HAD RAISED A DEBIT NOTE OF RS3,275/- ON BHARAT DYECHEM DURING THE YEAR. THEREFORE, THE TOTAL DEBIT BALANCE OF THE APPELLANT IN THE BOOKS OF BHARAT DYECHEM SHOULD HAVE BEEN RS.93,25,051/- AND ACCORDINGLY THERE ARE NO UNEXPLAINED PURCHASES. (COPIES OF LEDGER ACCOUNTS IN BOOKS OF BOTH PARTIES IS ENCLOSED ON PAGES 3135) 2. LAKELAND CHEMICALS LTD.: THE TOTAL PURCHASES RECORDED IN THE BOOKS OF THE APPELLANT DURING THE YEAR WERE RS.126,35,000/- AND THE CREDIT BALANCE IN LAKELAND CHEMICALS LTDS ACCOUNT STOOD AT RS.126,26,700/-. THE DEBIT BALANCE IN THE APPELLANTS ACCOUNT IN THE BOOKS OF LAKELAND CHEMICALS LTD. STOOD AT RS. 129,61,175/-. THE DIFFERENCE HAS ARISEN AS THE ASSESSING OFFICER HAS CONSIDERED THE CREDIT NOTES RAISED BY THE APPELLANT. THE APPELLANT HAD RAISED A CREDIT NOTE ON 01/09/2006 WORTH RS.3,24,000/- ON ACCOUNT OF GOODS RETURNED BACK TO THE PARTY AND OF RS.2,175/- ON ACCOUNT OF FREE SAMPLES SUPPLIED BY THE PARTY. FURTHER, A CREDIT NOTE OF RS.8,300 WAS RAISED ON 29/03/2007 ON ACCOUNT OF SHORTAGE IN THE GOODS SUPPLIED BY LAKELAND CHEMICALS LTD. THUS, IN EFFECT THE ASSESSING OFFICER HAS NOT CONSIDERED THE CREDIT IN THE APPELLANTS ACCOUNT TO THE EXTENT OF RS.3,34,475/-. ONCE THE EFFECT TO THE SAME IS GIVEN THERE WILL BE NO DIFFERENCE IN THE BOOKS OF THE APPELLANT AND LAKELAND CHEMICALS LTD. ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 15 (COPIES OF LEDGER ACCOUNTS IN BOOKS OF BOTH PARTIES IS ENCLOSED ON PAGES 36 39) 3. LOTUS ENTERNRISES: THE TOTAL PURCHASES :RECORDED IN THE BOOKS OF THE APPELLANT DURING THE YEAR (NET OF EXCISE ) WERE RS.35,48,040/-. THE EXCISE DUTY PAYABLE ON THE SAME WAS RS.1,93,873/-. THUS, THE TOTAL CREDIT BALANCE OF LOTUS ENTERPRISES IN THE BOOKS OF THE APPELLANT STOOD AT RS. 37,41,913/-, THE TOTAL DEBIT BALANCE IN THE BOOKS OF LOTUS ENTERPRISES AS AT 31ST MARCH 2001 STOOD AT RS.45,66,790/- LESS THE OPENING BALANCE OF RS.8,24,877/- WILL GIVE NET DEBIT DURING THE YEAR AT RS.37,41,913/- WHICH IS SAME AS PER THE BOOKS OF YOUR APPELLANT AND THUS THERE IS NO DIFFERENCE BETWEEN THE BOOKS OF THE APPELLANT AND THE BOOKS OF LOTUS ENTERPRISES. 4. ORJET INTERMEDIATES PVT. LTD. THE TOTAL PURCHASES RECORDED IN THE BOOKS OF THE APPELLANT DURING THE YEAR (NET OF EXCISE) WERE RS.121,78,600/-. THE EXCISE DUTY PAYABLE ON THE SAME WAS RS.2,29,011/-. THUS, THE TOTAL CREDIT , BALANCE OF ORJET INTERMEDIATES PVT. LTD. IN THE BOOKS OF THE APPELLANT STOOD AT RS.124,07,611/-. THE NET DEBIT BALANCE IN THE APPELLANTS ACCOUNT IN THE BOOKS OF ORJET INTERMEDIATES PVT. LTD. STOOD AT RS.127,13,611/-, THUS RESULTING IN A DIFFERENCE OF RS.3,06,000/-. THE DIFFERENCE HAS ARISEN AS THE ASSESSING OFFICER HAS CONSIDERED THE CREDIT NOTE RAISED BY THE APPELLANT. THE APPELLANT HAD RAISED CREDIT NOTE ON 30/11/2006 WORTH RS.3,06,000/- ON ACCOUNT OF GOODS PURCHASED ON 02/11/2006 RETURNED BACK TO THE ORJET INTERMEDIATES PVT. LTD. ONCE THE EFFECT TO THE ABOVE IS GIVEN THERE ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 16 WILL BE NO DIFFERENCE IN THE BOOKS OF THE APPELLANT AND ORJET INTERMEDIATES PVT. LTD. (COPIES OF LEDGER ACCOUNTS IN BOOKS OF BOTH PARTIES IS ENCLOSED ON PAGES 40 44) 5. RAMDHOOT ENTERPRISES: WHEN THE NOTICES U/S. 133(6) WERE ISSUED, NO REPLY WAS RECEIVED FROM THE PARTY. THEREFORE THE ASSESSING OFFICER RELIED ON THE LEDGER COPIES PRODUCED BY THE APPELLANT. AFTER THE PERUSAL OF THE BOOKS, OF ACCOUNT, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT SINCE THE PURCHASES FROM THE PARTY WERE SHOWN AT RS.1,99,64,050/- IN THE P&L A/C. AND IN THE LEDGER ACCOUNT SUCH PURCHASES WERE SHOWN AT RS.2,34,55,598/-, THE DIFFERENCE IS UNEXPLAINED PURCHASE AND ADDED THE SAME AS THE INCOME OF YOUR APPELLANT. IT IS SUBMITTED THAT THE PURCHASES FROM THE ABOVE MENTIONED PARTY ARE RS.1,99,64,050/- ONLY (NET OF EXCISE). THE PURCHASES AS REFLECTED IN THE PROFIT & LOSS ACCOUNT ARE CORRECT AND CORRESPOND TO THAT IN THE LEDGER ACCOUNT. THE ASSESSING OFFICER HAS WRONGLY CONSIDERED THE PAYMENTS OF RS.2,34,55,598/- MADE BY THE APPELLANT TO THE ABOVE MENTIONED PARTY AS THE PURCHASES MADE BY THE APPELLANT FROM RAMDHOOT ENTERPRISES. THE TOTAL CREDITS IN THE BOOKS OF THE APPELLANT IN RAMDHOOT ENTERPRISES ACCOUNT STOOD AT RS.2,47,78,282/- WHICH INCLUDES THE PURCHASES, EXCISE DUTY AND PAYMENTS RECEIVED BY THE APPELLANT FROM RAMDHOOT ENTERPRISES ON ACCOUNT OF DEBIT NOTES RAISED BY IT. DURING THE YEAR THE APPELLANTS HAD RAISED DEBIT NOTES ON RAMDHOOT ENTERPRISES TO THE EXTENT OF RS.42,314/- AND THUS TOTAL CREDIT IN THE PARTYS ACCOUNT STOOD AT RS.2,47,35,968/-. THIS IS THE SAME AS SHOWN IN THE LEDGER ACCOUNT OF THE APPELLANT IN THE BOOKS OF RAMDHOOT ENTERPRISES ATTACHED HEREWITH I.E. ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 17 THE DEBIT BALANCE IN THE APPELLANTS ACCOUNT IN THE BOOKS OF ACCOUNT OF RAMDHOOT ENTERPRISES STOOD AT RS.2,47,35,968/-. THE OPENING BALANCE AS ON 1 APRIL 2006 WERE RS.24,90,792/- AND THUS THE NET DEBIT DURING THE YEAR I.E. TOTAL PURCHASES AS PER RAMDHOOTS BOOKS WERE RS.2,22,45, 176/-. THE TOTAL PURCHASES AS MENTIONED ABOVE IN THE APPELLANTS BOOKS STOOD AT RS. 1,99,64,050/- (NET OF EXCISE). THE EXCISE DUTY PAYABLE BY THE APPELLANT ON THE GOODS PURCHASED FROM RAMDHOOT ENTERPRISES WERE RS.22,81,126/-. THUS, THE TOTAL CREDIT IN THE APPELLANTS BOOKS WAS RS.2,22,45,176/- WHICH IS THE SAME AS STANDING IN THE BOOKS OF RAMDHOOT ENTERPRISES AS EXPLAINED ABOVE. (COPIES OF LEDGER ACCOUNTS IN BOOKS OF BOTH PARTIES IS ENCLOSED ON PAGES 4550) 6. VICTOR CHEMI COLOUR INDIA PVT. LTD.: THE TOTAL PURCHASES RECORDED IN THE BOOKS OF THE APPELLANT DURING THE YEAR WERE RS.24,67,200/-. THE DEBIT BALANCE IN THE APPELLANTS ACCOUNT IN THE BOOKS OF VICTOR CHEMI COLOUR INDIA PVT. LTD STOOD AT RS.25,03,200/-, THUS RESULTING INTO A DIFFERENCE OF RS.36,000/- BETWEEN THE BOOKS OF THE PARTIES. THE DIFFERENCE HAS ARISEN AS THE ASSESSING OFFICER HAS CONSIDERED THE CREDIT NOTE RAISED BY THE APPELLANT. THE APPELLANT HAD RAISED A CREDIT NOTE ON 26/03/2007 WORTH RS.36,000/- ON ACCOUNT OF GOODS RETURNED BACK TO THE PARTY. THUS, IF THE APPELLANTS ACCOUNT IN VICTOR CHEMI COLOUR INDID PVT. LTD.S BOOKS IS CREDITED TO GIVE THE ABOVE EFFECT, THE BALANCE AS PER BOTH SETS OF BOOKS WILL BE THE SAME. 7. VISWAAT CHEMICALS LTD. ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 18 THE TOTAL PURCHASE RECORDED IN THE BOOKS OF THE APPELLANT DURING THE YEAR WERE RS.45,93,925/- . THE DEBIT BALANCE IN THE APPELLANTS ACCOUNT IN THE BOOKS OF VISWAAT CHEMICALS LTD STOOD AT RS.46,00,975/-, THUS RESULTING INTO A DIFFERENCE OF RS.7,050/- BETWEEN THE BOOKS OF THE PARTIES. THE DIFFERENCE OF RS. 7,050/- HAS ARISEN AS M/S. VISWAAT CHEMICALS LTD. HAD RAISED A DEBIT NOTE ON THE APPELLANTS ON ACCOUNT OF CERTAIN LOADING/ UNLOADING /TRANSPORT SERVICES RENDERED BY THEM. THE APPELLANTS HAD DEBITED THE SAME IN THE EXPENSE ACCOUNT AND NOT IN THE PURCHASE ACCOUNT AND THEREFORE THE SAME DID NOT REFLECT UNDER THE PURCHASES MADE BY THE APPELLANT. 5.3 THUS, THE DISCREPANCIES WERE EXPLAINED ON ACCOUNT OF T HE FACT THAT CERTAIN DEBIT/CREDIT NOTES ON ACCOUNT OF WHOM PROD UCTS, SAMPLES ETC. HAD NOT BEEN CONSIDERED BY THE AO. CIT(A) AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE DIRECTED THE AO TO DELETE TH E ADDITION SUBJECT TO VERIFICATION OF CLAIM MADE BY THE ASSESSEE IN R ESPECT OF DEBIT NOTES AND EXCISE DUTY PAYABLE AND VOUCHERS ISSUED IN CONNECTION WITH THE SAMPLES AND OTHER CREDIT NOTE DETAILS GIVEN IN ASSESSEES SUBMISSION. CIT(A) ALSO DIRECTED THE ASSESSEE TO PROVIDE NECE SSARY DETAILS IN SUPPORT OF THE CONTENTION MADE ON THE ISSUE . AGGRIEVED BY THE SAID DECISION, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 19 5.4 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE AP PEARING FOR THE REVENUE SUBMITTED THAT WHILE ACCEPTING THE CLAIM OF THE ASSESSEE CIT(A) HAD ENTERTAINED ADDITIONAL EVIDENCE WITHOUT O PPORTUNITY TO THE AO WHICH WAS NOT JUSTIFIED. IT WAS POINTED OUT THAT THE ASSESSEE HAD FILED RECONCILIATION BEFORE AO VIDE LETTER DATED 10.1 2.2009 WHEREAS THE ASSESSMENT ORDER DATED 29.12.2009 MADE IT CLEAR THAT THE DETAILS GIVEN VIDE LETTER DATED 12.1.2010 WERE NOT BEFORE A O. THE LD. AR HOWEVER, SUBMITTED THAT THE ASSESSEE HAD NOT GIVEN ANY A DDITIONAL EVIDENCE BEFORE CIT(A). IT WAS POINTED OUT THAT THE ASSESSEE HAD GIVEN RECONCILIATION BEFORE AO VIDE LETTER DATED 10.1 2.2009. IN LETTER DATED 12.1.2010 ADDRESSED TO AO, ASSESSEE HAD ONLY REQUEST ED TO GIVE THE COPIES OF DETAILS SUBMITTED BY PURCHASE PARTIES W HICH WERE REQUIRED BY THE ASSESSEE IN CONNECTION WITH FILING OF TH E APPEAL. THUS THERE WAS NO ADDITIONAL EVIDENCE FILED BEFORE CIT(A). 5.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ADDITION ON ACCOUNT OF DISCREPANCY NOTICED BY AO IN PURCHASES MADE BY ASSESSEE FROM O THER PARTIES. THE ADDITION AGGREGATING TO RS.42,51,838/- H AS BEEN MADE ON THE GROUND THAT THERE WERE DISCREPANCIES IN THE FIGURES PF PURCHASES SHOWN BY THE ASSESSEE WITH RESPECT TO THE FIGURES OF SALES DE CLARED BY THE SUPPLIERS IN THEIR ACCOUNTS. THE CASE OF THE ASSESSEE IS THAT IT HAD RECONCILED DISCREPANCIES VIDE LETTER DATED 10.12.2009 FI LED BEFORE AO. ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 20 CIT(A) HAS CONSIDERED RE-CONCILIATION GIVEN BY THE ASSESSE E AS PER DETAILS MENTIONED IN PARA 5.3 EARLIER. CIT(A) HAS DIR ECTED THE AO TO DELETE THE ADDITION AS DISCREPANCY HAS BEEN EXPLAINED AN D AT THE SAME TIME HAS ALSO DIRECTED THE AO TO MAKE VERIFICATION OF T HE CLAIM MADE BY THE ASSESSEE AFTER OBTAINING NECESSARY DETAILS. THE ASSESSE E HAS EXPLAINED DISCREPANCIES ON ACCOUNT OF THE FACT THAT CERTAIN DEBIT/CREDIT NOTES DUE TO RETURN OF GOODS, SAMPLES ETC. HAD NOT BEEN CONSIDERED BY AO IN THE COMPUTATION OF EXCESS PURCHASES. LD. DR ARGUED THAT CIT(A) HAD ADMITTED FRESH EVIDENCE BECAUSE HE REFERRED TO SOME DETAILS BEING FILED BEFORE AO VIDE LETTER DATED 12. 1.2010, WHICH WAS AFTER PASSING OF THE ASSESSMENT ORDER. THIS, HOWEVER, HAS N OT BEEN FOUND TO BE TRUE AS IN THE LETTER DATED 12.1.2010, A COPY OF WHICH HAS BEEN PLACED ON RECORD ASSESSEE HAS ONLY ASKED FOR DETAILS WH ICH THE ASSESSEE REQUIRED IN CONNECTION WITH FILING OF THE APPEAL . THUS, DETAILS HAD BEEN GIVEN BEFORE AO VIDE LETTER DATED 10.12.20 09 WHICH WAS BEFORE PASSING OF THE ASSESSMENT ORDER. HOWEVER, IT IS A FA CT THAT THESE DETAILS HAVE NOT BEEN PROPERLY VERIFIED. THE AO HAD NOT LOOKED INTO THESE DETAILS. CIT(A) HAS ALSO NOT VERIFIED WHIC H IS CLEAR FROM THE FACT THAT HE HAD DIRECTED AO TO MAKE VERIFICATION AFTE R OBTAINING NECESSARY DETAILS IN SUPPORT OF THE SUBMISSION OF THE ASSESSE E. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) ON THIS POINT AND RESTORE THE MATTER TO THE FILE OF THE AO TO PASS FRESH ORDER AFTER NECESSARY ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 21 VERIFICATION OF THE CLAIM OF THE ASSESSEE AND AFTER HEAR ING THE ASSESSEE. 6. THE FIFTH DISPUTE WHICH IS ONLY RELEVANT TO DEPARTM ENTAL APPEAL IS REGARDING ADJUSTMENT OF RS.51,88,772/- UNDER SECTION 14 5A OF THE ACT WHICH HAS BEEN DELETED BY CIT(A). THE AO DURING THE A SSESSMENT PROCEEDINGS NOTED THAT IN THE BALANCE SHEET AS ON 31.3.2 007 ASSESSEE HAD SHOWN CENTRAL EXCISE DUTY RECEIVABLE AT RS.51,88,772/ -. THE ASSESSEE EXPLAINED THAT PURCHASES WERE ACCOUNTED NET OF EXCISE DUTY BASED ON AGREEMENT ENTERED INTO WITH THE SUPPLIERS AS PER WHICH EXCISE DUTY SHALL BECOME PAYABLE ONLY ON RECEIPT OF REF UND FROM EXCISE DEPARTMENT. SINCE EXCISE DUTY WAS NOT CONSIDERED IN THE V ALUATION OF INVENTORY, THERE WAS NO NET IMPACT ON THE P&L ACCOUNT. AO HOWEVER DID NOT ACCEPT THE EXPLANATION GIVEN. IT WAS OBSERVED B Y HIM THAT THE ASSESSEE HAD PAID EXCISE DUTY ON THE MATERIALS AT THE TIME OF PURCHASES AND PART OF THE PURCHASES WHICH WERE NOT UTILIZ ED WAS APPEARING AS CLOSING STOCK AT THE END OF THE YEAR. THER EFORE, CLOSING STOCK OF MATERIAL WAS REQUIRED TO BE ADJUSTED TO THAT E XTENT UNDER PROVISIONS OF SECTION 145A. HE, THEREFORE, MADE ADDITIO N OF RS.51,88,722/- UNDER SECTION 145A OF THE ACT. CIT(A) WA S HOWEVER SATISFIED BY THE EXPLANATION GIVEN AND OBSERVED THAT T HE AO WAS NOT JUSTIFIED IN MAKING THE ADDITION AS THE ASSESSEE HAD BEEN CONSISTENTLY FOLLOWING THE SAME METHOD WHICH HAD BEEN ACCEPTED BY TH E ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 22 DEPARTMENT. CIT(A), THEREFORE, DELETED THE ADDITION SUBJECT TO VERIFICATION BY AO FROM THE ASSESSEES BOOKS OF ACCOUNT. AGG RIEVED BY SAID DECISION, THE REVENUE IS IN APPEAL BEFORE THE TRI BUNAL. 6.1 BEFORE US, THE LD. DR APPEARING FOR THE REVENU E SUBMITTED THAT CIT(A) DELETED THE ADDITION BASED ON ADMITTING ADDIT IONAL EVIDENCES WITHOUT OPPORTUNITY TO THE AO WHICH WAS NOT JUSTIFIED . THE LD. AR FOR THE ASSESSEE ON THE OTHER HAND SUBMITTED THAT CIT(A) HA D NOT ADMITTED ANY ADDITIONAL EVIDENCE BUT HAD DELETED TH E ADDITION BASED ON DETAILS GIVEN BEFORE AO. 6.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING ADJUSTMENT MADE BY AO TO THE CLOSING STOCK UNDER SECTION 145A BY A SUM OF RS.51,88,772/- ON ACCOUNT OF CENTRAL EXCISE DUTY. UNDER THE PROVISIONS OF SECT ION 145A, VALUATION OF PURCHASE, SALES AND INVENTORY HAS TO BE AS PER THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE A ND FURTHER ADJUSTMENT IS TO BE MADE ON ACCOUNT OF TAX, DUTY, CESS OR FEE, ACTUALLY PAID BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF I TS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. IN THE PRESENT CASE, THE ASSESSEE IS FOLLOWING THE EXCLUSIVE METHOD AS PER WHICH TA X, DUTY CESS ETC. IS NOT ROUTED THROUGH TRADING ACCOUNT. THEREFORE, THE ASSESSEE HAD NOT INCLUDED EXCISE DUTY EITHER IN PURCHASES OR IN T HE STOCK. IN ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 23 VIEW OF THE JUDGMENT OF HON'BLE HIGH COURT OF DELHI I N THE CASE OF MAHAVIR ALUMINIUM LTD. (297 ITR 77) ADJUSTMENT IS R EQUIRED TO BE MADE TO BOTH OPENING STOCK AND CLOSING STOCK AND AT ALL O THER STAGES SUCH AS PURCHASES ETC. WHERE TAX /DUTY IS INVOLVED. CIT(A) DELETED THE ADDITION SUBJECT TO VERIFICATION BY AO FROM ASSESSEES BOO KS OF ACCOUNT. IN OUR VIEW ANY ADDITION /DELETION ON THIS ACCO UNT HAS TO BE MADE AFTER NECESSARY VERIFICATION AND AFTER HEARING THE ASSESSEE. WE, THEREFORE, RESTORE THE ISSUE TO THE FILE OF AO FOR FRE SH ORDER AFTER NECESSARY VERIFICATION AND AFTER OPPORTUNITY OF HEARING TO THE ASSESSEE. 7. IN THE RESULT, BOTH APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3.8.2012. SD/- SD/- (D. MANMOHAN ) VICE PRESIDENT (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 3.8.2012. JV. ITA NO.6086/M/11 & 4970/M/11 A.Y. 07-08 24 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.