Asstt. Commissioner of Income Tax, Lucknow V. M/s Ram Kutir Khandsari Udyog Pvt. Ltd., Lucknow

ITA 630/LKW/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1106 (ITAT-LUCKNOW)
• Duration Of Justice: 3 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 01-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P K KAPOOR
• Keywords: Depreciation; Principle of natural justice; Question of law
• Section: 142(1); 133(6); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B , LUCKNOW BEFORE SHRI. T.S. KAPOOR, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO. 630/LKW/2014 ASSESSMENT YEAR: 2010 - 11 ACIT RANGE V LUCKNOW V. M/S RAM KUTIR KHANDSA RI UDYOG PVT. LTD. 9, SHAHNAJAF ROAD LUCKNOW T AN /PAN : AACCR1613H (APP ELL ANT) (RESPONDENT) C . O .NO. NO.35/LKW/2014 [IN ITA NO. 630/LKW/2014] ASSESSMENT YEAR: 2010 - 11 M/S RAM KUTIR KHANDSARI UDYOG PVT. LTD. 9, SHAHNAJAF ROAD LUCKNOW V. ACIT RANGE V LUCKNOW T AN /PAN : AACCR1613H (APP ELL ANT) (RESPONDENT) DEPARTMENT BY SHRI RAJIV MOHAN, D.R. ASSESSEE BY: SHRI. P. K. KAPOOR, C.A. DATE OF HEARING: 26 02 201 8 DATE OF PRONOUNCEMENT: 27 0 2 201 8 O R D E R PER P ARTHA SARATHI CHAUDHURY, J.M : THE APP EAL PREFERRED BY THE REVENUE AND THE CROSS OBJECTION PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(A) - II, LUCKNOW DATED 12/4/2014. THE REVENUE HAS PREFERRED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO.630 & CO NO.35/LKW/2014 PAGE 2 OF 15 1 . THE COMMISSIONER OF INCOME - TAX (APPEALS), LUC KNOW HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION WITHOUT APPRECIATING THE FACTS OF RS. 63,05,208/ - ON ACCOUNT OF SUPPRESSED VALUE OF CLOSING STOCK. DURING THE ASSESSMENT PROCEEDING ASSESSING OFFICER NOTICED THAT THE GP RATE DECLINE 6 .55% IN COMPARISON TO LAST YEAR. ON VERIFICATION OF THE FACTS THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS SUPPRESSED THE VALUATION OF CLOSING STOCK. THE ASSESSEE HAS TAKEN THE AVERAGE SALE PRICE OF SUGAR PERTAINING TO PERIOD OF APRIL 2010 TO AUG UST 2010 FOR VALUATION. THE ASSESSING OFFICER REJECTED THE VALUATION MADE BY THE ASSESSEE AND VALUED THE CLOSING STOCK BASED ON THE PRINCIPLE IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD., REPORTED IN 188 ITR 44 (SC). 2 . THE COMMISSIONER OF INCOME - TAX (APP EALS), LUCKNOW HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION MADE BY THE ASSE S SING OFFICER OF RS. 1,00,000/ - ON ACCOUNT OF TRANSPORTATION AND INSTALLATION CHARGE. DURING THE ASSESSMENT PROCEEDING ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS NOT DEBITED TRANSPORTATION AND INSTALLATION CHARGES IN THE PROFIT AND LOSS ACCOUNT. THE CIT(A) HAS NOT APPRECIATING THE FACTS BROUGHT IN THE LIGHT BY THE ASSESSING OFFICER AND RESTRICTED THE ADDITION OF RS. 50,000/ - . 3 . THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY ONE OR MORE OF THE GROUNDS OF APPEALS, AS STATED ABOVE, AS AND WHEN NEED TO DO SO ARISES WITH THE PRIOR PERMISSION OF THE COURT. 2 . AT THE VERY OUTSET, WE NOTICE THAT THE MATTER HAS COME FROM THE HON'BLE JURISDICTIONAL HIGH COURT AN D IS PLACED BEFORE US AS PER DIRECTION OF THE HON'BLE HIGH COURT. 3 . THE FACTS IN THIS CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956 (HEREINAFTER REFERRED TO AS 'ACT, 1956'). IT IS ENGAGED IN MANUFACTURE OF 'KHANDSARI SUGAR' HAVING ITS INDUSTRIAL UNIT AT LAKHIMPUR KH ERI. THE ITA NO.630 & CO NO.35/LKW/2014 PAGE 3 OF 15 RETURN OF INCOME FOR ASSESSMENT YEAR 2010 - 11 WAS FILED ON 09.10.2010 DECLARING A TOTAL INCOME OF RS. 48,13,070 / - . THE CASE WAS SELECTED FOR SCRUTINY. NOTICE UNDER SECTION 1 43(2) OF ACT WAS ISSUED ON 29.09.2011 AND THEREAFTER FURTHER NOTICES WERE ISSUED UNDER SECTION 143(2) AND 142(1) ALONG WITH QUESTIONNAIRE, ETC. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKING ADDITION OF RS. 63,05,208 / - TOWARDS SUPPRESSED VALUE OF CLOSING STOCK AND RS. 1 LAC TOWARDS TRANSPORTATION AND INSTALLATION CHARGES. THE TOTAL INCOME AS PER ASSESSMENT ORDER WAS DETERMINED AT RS. 1,12,18,280 / - . 4 . AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, A SSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) - II , WHO PARTLY ALLOWED APPEAL OF THE ASSESSEE BY DELETING ADDITION OF RS. 63,05,208 / - AN D ALSO GRANTING RELIEF OF RS. 50,000 / - IN RESPECT OF ADDITION OF RS. 1 LAC TOWARDS TRANSPORTATION CHARGES, ETC. 5 . AGAINST THE AFORESAID ORDER OF THE LD. CIT(A), A N APPEAL WAS PREFERRED BY THE REVENUE BEFORE TRIBUNAL AND THE A SSESSEE HAD FILED CROSS OBJECTION. THE TRIBUNAL WHILE CONSIDERING THE APPEAL OF THE REVENUE WITH REGARD TO THE DELETION OF RS.63,05,208/ - BY THE LD. CIT(A), ACCEPTED THE CONTENTION OF THE REVENUE THAT VALU ATION OF CLOSING STOCK HAS TO BE MADE ON THE MARKET PRICE CL OSING ON 31.03.2010 AND, HENCE SET ASIDE ORDER OF CIT(A) WITH RESPECT TO VALUATION OF STOCK AND RESTORED THE ORDER OF ASSESSING OFFICER. HOWEVER, WITH RESPECT TO DELETION OF RS. 50,000 / - IN REGARD TO TRANSPORTATION CHARGES, ETC., APPEAL OF THE REVE NUE WAS NOT ACCEPTED. A SSESSEE'S CROSS OBJECTION WAS DISMISSED. ACCORDINGLY, TRIBUNAL ALLOWED APPEAL OF REVENUE THOUGH PARTLY BUT GRANTING SUBSTANTIAL RELIEF BY UPHO LDING ADDITION OF RS. 63,05,208/ - MADE BY ASSESSING OFFICER AND OTHERWISE FINDINGS RECORDED BY C IT (A) WERE REVERSED. ITA NO.630 & CO NO.35/LKW/2014 PAGE 4 OF 15 6 . IN THIS BACKDROP, ASSESSEE PREFERRED AN APPEAL BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT TO DECIDE A QUESTION OF LAW ABOUT THE PRINCIPLES ON WHICH VALUATION OF CLOSING STOCK HAS TO BE MADE. IN THIS REGARD, TRIBUNAL HAS RELIED UP ON THE JUDGMENT OF THE HON'BLE APEX COURT IN COMMISSIONER OF INCOME TAX VERSUS BRITISH PAINTS INDIA LTD. (1991) 188 ITR 44 (SC) . BEFORE THE HON'BLE HIGH COURT ALSO, THE LEARNED COUNSEL APPEARING FOR T HE REVENUE RELIED ON THE SAME DECISION WHILE ON THE PART OF THE A SSESSEE , RELIANCE WA S PLACED ON ANOTHER JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF CHALLAPALLI SUGARS LTD. VS. THE COMMISSIONER OF INCOME TAX, A.P., HYDERABAD (1975) 98 ITR 167 (SC). THE HON'BLE HIGH COURT GOES ON TO EVALUATE THE FACTS AND THE ISSUES INVOLVED IN THIS CASE AS FOLLOWS: - 14. CLOSING STOCK OF KHANDSARI SUGAR DISCLOSED BY ASSESSEE AS ON 31.03.2010 WAS 23,096 QUINTALS. DURING SUBSEQUENT PERIOD OF APRIL, 2010 TO AUGUST, 2010, TOTAL QUANTITY OF 19031 QUINTALS WAS SOLD OUT UPTO AUGUST, 2010. THE MONTH - WISE BREAK - UP OF QUANTITY OF KHANDSARI SUGAR SOLD OUT AND THE PRICE FETCHED TO ASSESSEE AS ALSO THE AVERAGE RATE PER QUINTAL DISCLOSED BY ASSESSEE IS AS UNDER: - KHANDSARI SUGAR 1 ST CLASS WEIGHT IN QTL. SALE AMOUNT IN RS. AVERAGE RATE PER QTL. APRIL, 2010 2800 8628560 3082 MAY, 2010 1850 5636800 3047 JUNE, 2010 320 886400 27770 JULY, 2010 6600 18516880 2806 AUGUST, 2010 7461 19375170 2597 TOTAL AVERAG E 19031 53043810 2787 ITA NO.630 & CO NO.35/LKW/2014 PAGE 5 OF 15 15. A.O. WHILE REFERRING TO JUDGMENT IN COMMISSIONER OF INCOME TAX VERSUS BRITISH PAINTS INDIA LTD. (SUPRA) OBSERVED THAT VALUATION OF STOCK SHOULD BE DONE EITHER AT COST PRICE OR MARKET PRICE, WHICHEVER IS LOWER, ON THE CLOSING DATE WHICH IN THE PRESENT CASE IS 31.03.2010. IN VIEW THEREOF, HE FURTHER OBSERVED THAT AVERAGE PRICE FETCHED TO THE ASSESSEE BETWEEN APRIL, 2010 TO AUGUST, 2010 WILL NOT BE RELEVANT FOR DETERMINING COST OF CLOSING STOCK AS ON 31.03.2010. HE, THEREAFTER, TOOK THE PRICE OF KHANDSARI SUGAR RECEIVED BY ASSESSEE AS ON 02.04.2010, I.E., RS. 3060/ - AND ON THAT BASIS, A.O. MADE VALUATION OF CLOSING STOCK WHICH CAME TO RS. 63,05,208/ - . 16. CIT(A) WHILE TAKING AN OTHERWISE VIEW HELD THAT VALUATION OF CLOSING STOCK BY ASSESSEE, ON THE BASIS OF NET REALISABLE VALUE, AND ALSO CONSIDERING THE ACCOUNTING STANDARD IS JUSTIFIED AND IN CONSONANCE WITH THE LAW LAID DOWN IN CHAINRUP SAMPATRAM VERSUS COMMISSIONER OF INCOME TAX (1953) 24 ITR 481 (SC) AND IN CHALLAPALLI SUGARS LTD. VS. THE COMMISSIONER OF INCOME TAX, A.P., HYDERABAD (SUPRA). HE ALSO OBSERVED THAT JUDGMENT IN COMMISSIONER OF INCOME TAX VERSUS BRITISH PAINTS INDIA LTD. (SUPRA) WOULD NOT BE APPLICABLE IN A CASE WHERE SYSTEM ADOPTED BY ASSESSEE WILL NOT RESULT IN DE TERMINATION OF COST, ILLUSORY OR DISTORTED, OR VAGUE, OR IMPROPER. 17. BROADLY SPEAKING, A CLOSING STOCK BY ITSELF IS NOT TO BE TREATED AS INCOME. NO SUCH PROVISION HAS BEEN SHOWN TO US BY LEARNED COUNSEL FOR REVENUE UNDER THE ACT, 1961. HOWEVER, VALUATIO N OF STOCK IN TRADE AT THE END OF ACCOUNTING YEAR IS COMPUTED FOR THE PURPOSE OF DETERMINING PROFIT AND GAINS FOR THE PURPOSE OF INCOME TAX WHICH CANNOT BE AN EXACT AND CORRECT INCOME WHICH AN ASSESSEE MAY ACTUALLY RECEIVE BUT IT ALWAYS INVOLVES A KIND OF ESTIMATION. LORD PRESIDENT IN WHIMSTER AND CO. VERSUS CIR (1925) 12 TAX CASES 813, SAID: '........ IN COMPUTING THE BALANCE OF PROFIT AND GAINS FOR THE PURPOSES OF INCOMES - TAX, ....TWO GENERAL AND FUNDAMENTAL COMMON PLACES HAVE ALWAYS TO BE KEPT IN MIND. IN THE FIRST ITA NO.630 & CO NO.35/LKW/2014 PAGE 6 OF 15 PLACE, THE PROFITS OF ANY PARTICULAR YEAR OR ACCOUNTING PERIOD MUST BE TAKEN TO CONSIST OF THE DIFFERENCE BETWEEN THE RECEIPTS FROM THE TRADE OR BUSINESS DURING SUCH YEAR OR ACCOUNTING PERIOD AND THE EXPENDITURE LAID OUT TO EARN THOSE RECEIPTS . IN THE SECOND PLACE, THE ACCOUNT OF PROFITS & LOSS TO BE MADE UP FOR THE PURPOSE OF ASCERTAINING THAT DIFFERENCE MUST BE FRAMED CONSISTENTLY WITH THE ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING, SO FAR AS APPLICABLE AND IN CONFORMITY WITH THE RULES OF T HE ACT, 1961, OR OF THAT ACT AS MODIFIED BY THE PROVISIONS AND SCHEDULES OF THE ACTS REGULATING EXCESS PROFITS DUTY, AS THE CASE MAY BE. FOR EXAMPLE, PRINCIPLES OF COMMERCIAL ACCOUNTING REQUIRE THAT IN THE PROFIT AND LOSS ACCOUNTS OF MERCHANT'S OR MANUFACT URER'S BUSINESS, THE VALUES OF THE STOCK - IN - TRADE AT THE BEGINNING AND AT THE END OF THE PERIOD COVERED BY THE ACCOUNT SHOULD BE ENTERED AT COST OR MARKET PRICE, WHICHEVER IS LOWER, ALTHOUGH THERE IS NOTHING ABOUT THIS IN THE TAXING STATUTE.....' (EMPHASI S ADDED) 18. THE ABOVE PASSAGE WAS QUOTED WITH APPROVAL IN COMMISSIONER OF INCOME TAX VERSUS BRITISH PAINTS INDIA LTD. (SUPRA) WHERE COURT SAID THAT A WELL RECOGNIZED PRINCIPLE OF COMMERCIAL ACCOUNTING TO ENTER IN THE PROFIT AND LOSS ACCOUNT IS VALUE OF S TOCK IN TRADE AT THE BEGINNING AND AT THE END OF ACCOUNTING YEAR AT COST OR MARKET PRICE WHICHEVER IS LOWER. COST ALSO HELD, WHERE MARKET VALUE HAS FALLEN BEFORE DATE OF VALUATION AND ON THAT DATE MARKET VALUE OF ARTICLE IS LESS THAN ITS ACTUAL COST, ASSES SEE IS ENTITLED TO VALUE THE ARTICLE AT MARKET VALUE AND THUS ANTICIPATE LOSS WHICH HE WILL PROBABLY INCUR AT THE TIME OF SALE OF GOODS. 19. THIS COURT ALSO IN COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KANPUR VS. INCOME TAX SETTLEMENT COMMISSIONER, IV F LOOR AND ANOTHER, WRIT TAX NO. 773 OF 2013 DECIDED ON 29.08.2016, IN PARA 53 AND 57, OBSERVED AS UNDER: - ITA NO.630 & CO NO.35/LKW/2014 PAGE 7 OF 15 '53. VALUATION OF STOCK - IN - TRADE AT COST OR MARKET VALUE, WHICHEVER IS LOWER, IS A MATTER ENTIRELY WITHIN THE DISCRETION OF ASSESSEE. BUT WHICHEVER MET HOD HE ADOPTS, IT SHOULD DISCLOSE A TRUE PICTURE OF HIS PROFIT AND GAINS. IF, ON THE OTHER HAND, HE ADOPTS A SYSTEM WHICH DOES NOT DISCLOSE TRUE STATE OF AFFAIRS FOR DETERMINATION OF TAX, EVEN IF IDEALLY SUITED FOR OTHER PURPOSES OF HIS BUSINESS, SUCH AS T HE CREATION OF A RESERVE DECLARATION OF DIVIDENDS, PLANNING AND THE LIKE, IT IS DUTY OF ASSESSING OFFICER TO ADOPT ANY SUCH COMPUTATION AS HE DEEMS APPROPRIATE FOR PROPER DETERMINATION OF TRUE INCOME OF ASSESSEE. THIS IS NOT ONLY A RIGHT BUT A DUTY THAT IS PLACED ON THE OFFICER, IN TERMS OF FIRST PROVISO TO SECTION 145 WHICH CONCERNS A CORRECT AND COMPLETE ACCOUNT BUT WHICH, IN THE OPINION OF OFFICER DOES NOT DISCLOSE A TRUE AND PROPER INCOME. 57. PROFITS OF BUSINESS COULD ONLY BE ASCERTAINED BY COMPARISON OF ASSETS AND LIABILITIES OF THE BUSINESS AT THE OPENING AND CLOSING OF THE ACCOUNTING YEAR. THE METHOD THAT AN ASSESSEE ADOPTS FOR CLOSING IS AN INTEGRAL PART OF ACCOUNTING, WITHIN THE MEANING OF SECTION 145. THERE ARE DIFFERENT METHODS OF VALUATION OF C LOSING STOCK. THE POPULAR SYSTEM IS COST OR MARKET, WHICHEVER IS LOWER. HOWEVER, ADJUSTMENTS MAY HAVE TO BE MADE IN THE PRINCIPLE, HAVING REGARD TO THE SPECIAL CHARACTER OF ASSETS, THE NATURE OF THE BUSINESS, THE APPROPRIATE ALLOWANCES PERMITTED, ETC., TO ARRIVE AT TAXABLE PROFITS. (EMPHASIS ADDED) . 7 . THEREAFTER THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD THAT IN THE PRESENT CASE THE TRIBUNAL HAS NOT LOOKED INTO THIS ASPECT OF THE MATTER THAT VALUATION CAN BE MADE ON THE BASIS OF ACTUAL COST PRICE, MARKET ING RATE WHICHEVER IS LOWER AND INSTEAD IT HAS TAKEN ONLY THE MARKET RATE AND THAT TOO AS ON 2/4/2010 I.E. JUST ONE DAY LATER TO DETERMINING FOR VALUATION OF STOCK IN TRADE WHICH IS NOT CONSISTENT WITH THE LAW LAID DOWN AS DISCUSSED ABOVE. ITA NO.630 & CO NO.35/LKW/2014 PAGE 8 OF 15 8 . IN THE MATTER OF SUGAR, THE HON'BLE HIGH COURT HAS OBSERVED THAT AS PER DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V S. PONNI SUGARS AND CHEMICALS LTD. (2008) 306 ITR.392 (SC) COURT, THEIR LORDSHIP ALLOWED THE VALUATION OF CLOSING STO CK AT LEVY PRICE THOUGH IT WAS LESS THAN COST OF MANUFACTURER OF SUGAR. THE ASSESSING OFFICER IN FACT HAS COMPLETELY LOST SIGHT THAT THE INTENTION OF VALUATION OF STOCK IN TRADE IS NOT TO PENALIZE ASSESSEE BY COMPUTING A HYPOTHETICAL INCOME WHICH HAS YET T O BE EARNED BY ASSESSEE BUT THE OBJECT IS THAT A PROPER VALUATION OF ENTIRE STOCK MUST BE AVAILABLE SO THAT PROFIT AND LOSS IN THE PARTICULAR ASSESSMENT YEAR MUST BE ASSERTED IN THE BEST POSSIBLE MANNER. THE HON'BLE HIGH COURT, THEREFORE, HELD THAT THE TR IBUNAL HAS ERRED IN LAW IN UPHOLDING VALUATION OF CLOSING STOCK ON THE BASIS OF PRICE RECEIVED BY A SSESSEE ON 02.04.2010 AND NOT IN THE LIGHT OF PRINCIPLES AS DISCUSSED ABOVE THAT IS THE ACTUAL COST PRICE OR MARKET RATE WHICHEVER IS LOWER. 9 . A CCORDINGLY, THE HON'BLE HIGH COURT ALLOWED THE APPEAL OF THE ASSESSEE AND THE JUDGMENT OF TRIBUNAL WAS SET ASIDE WITH REGARD TO THE ADDITION OF RS.63,05,208/ - AND THE MATTER WAS REMAND ED TO THE TRIBUNAL TO RECONSIDER THE VALUATION OF CLOSING STOCK IN THE LIGHT OF PRINCIP LES DISCUSSED IN THE ORDER OF THE HON'BLE JURISDICTIONAL HIGH COURT . 10 . WE HAVE PERUSED THE CASE RECORDS, ANALYSED THE FACTS AND CIRCUMSTANCES AND AS OBSERVED BY THE HON'BLE JURISDICTIONAL HIGH COURT , THE VALUATION OF CLOSING STOCK DONE ON THE BASIS OF ACTUAL COST PRICE OR THE MARKET RATE WHICHEVER IS LOWER, AND AS PER THE DIRECTIONS GIVEN BY THE HON'BLE HIGH COURT, WE SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND RESTORE THAT OF THE LD. CIT(A) ON THE ISSUE WHEREBY RS.63,05,208/ - WAS DELETED AND TH E RELIEF AS PER PRINCIPLES AND DIRECTIONS OF THE HON'BLE JURISDICTIONAL HIGH COURT IS HEREBY SUSTAINED. ITA NO.630 & CO NO.35/LKW/2014 PAGE 9 OF 15 11 . WITH REGARD TO THE OTHER ISSUE OF ADDITION OF RS.1 LAKH ON ACCOUNT OF TRANSPORTATION CHARGES, ETC., THE ASSESSING OFFICER HAS MADE ADDITION ON THE FOLLOWING FACT S: - '5. AS DIRECTED IN PARA 6.2 OF ORDER U/S 144A DATED 21.03.2013, AN ADDITION OF RS.1,00,000 / - IS BEING MADE TO THE TOTAL INCOME OF ASSESSEE ON ACCOUNT OF TRANSPORTATION AND INSTALLATION CHARGES OF PLANT AND MACHINERY. THE CIRCUMSTANCES AND DOCUMENTS LEA DING TO THIS ADDITION ARE ALREADY DISCUSSED IN DETAIL IN THE ORDER US 144A AND THEREFORE NO FURTHER DISCUSSION ON THE ISSUE IS NEEDED. THE AMOUNT OF RS.1,00,000/ - IS THUS ADDED TO THE TOTAL INCOME OF ASSESSEE COMPANY. SATISFACTION IS RECORDED THAT THE ASSE SSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME AND THEREFORE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T. ACT 1961 ARE BEING INITIATED FOR THIS DEFAULT.' (ADDITION: RS. 1,00,000/ - ) 12 . THE ASSESSEE THEREAFTER FILED WRITTEN SUBMISSION BEFORE THE LD. C IT(A), WHICH IS AS FOLLOWS: - '5 GROUND NOS. 7 & 8: THE ISSUE INVOLVED IN THESE GROUNDS OF APPEAL IS ADDITION OF RS.1,00,000/ - AS HAS BEEN MADE BY THE 'ASSESSING OFFICER', WITH THE APPROVAL OF ID. JCIT IN THE PROCEEDINGS UNDER SECTION 144 A OF THE ACT, ON A CCOUNT OF TRANSPORTATION CHARGES OF OLD PLANT AND MACHINERY PURCHASED FROM A PARTY FROM NEARBY SITE, TO THE FACTORY SITE OF THE 'APPELLANT' AND INSTALLATION CHARGES THEREOF. PURELY ON PRESUMPTION, CONJECTURE AND SURMISES, THE AUTHORITIES CONCERNED HAVE TAK EN A VIEW THAT TRANSPORTATION AND INSTALLATION COST OF OLD PLANT & MACHINERY PURCHASED BY THE APPELLANT FROM A PARTY IN THE NEARBY VICINITY MUST HAVE BEEN INCURRED BY THE APPELLANT AND FOR THE REASON THAT NO SUCH COST WAS ACCOUNTED FOR IN THE BOOKS OF ACCO UNT, THE ADDITION WAS CALLED FOR. 5.1 ON THE OTHER HAND, THE APPELLANT'S CASE IS THAT - A) SO FAR AS TRANSPORTATION IS CONCERNED, IT WAS ARRANGED BY THE SUPPLIER THEMSELVES AT THEIR COST; AND ITA NO.630 & CO NO.35/LKW/2014 PAGE 10 OF 15 B) THE INSTALLATION DID NOT REQUIRE ANY EXTRA COST AS T HE APPELLANT'S STAFF AS ALSO ITS DIRECTORS WERE WELL VERSED IN THE TECHNIQUE OWING TO THEIR LONG ASSOCIATION WITH - THIS LINE OF BUSINESS (WITH THE 'APPELLANT' COMPANY AS WELL AS ITS PREDECESSOR FIRM). 5.2 THE 'ASSESSING OFFICER' SIMPLY DISBELIEVED THE APP ELLANT'S VERSION AS ACCORDING TO HIM THERE DID NOT EXIST ANY DOCUMENTARY EVIDENCE TO SUPPORT SUCH A VERSION. 5.3 THE BACKGROUND BEHIND THE ADDITION OF RS.1,00,000/ - ON ACCOUNT OF TRANSPORTATION AND INSTALLATION CHARGES IS THAT THE ASSESSING OFFICER HAD PRO POSED A DISALLOWANCE OF DEPRECIATION OF RS. 34,27,500/ - ON THE PRICE PURCHASE OF OLD PLANT AND MACHINERY PURCHASED BY THE APPELLANT FROM M/S. ASHUTOSH SUGAR INDUSTRIES. DURING THE YEAR, THE ASSESSEE HAD SHOWN PURCHASE OF OLD PLANT AND MACHINERY AMOUNTING T O RS.2,28,50,000/ - FROM THE SAID FIRM. THE ASSESSING OFFICER MADE A DIRECT ENQUIRY FROM THE SAID PARTY BY ISSUING A NOTICE UNDER SECTION 133(6) OF THE ACT. THE TWO NOTICES ISSUED UNDER SECTION 133(6) OF THE ACT WERE RETURNED UN - SERVED. THE REASON FOR NON S ERVICE OF NOTICE ON THE SAID PARTY IS THAT AFTER DISPOSING OFF THE ASSETS, THEY HAD WOUND UP THEIR ACTIVITIES AND CLOSED DOWN THEIR SET - UP. HENCE, THERE WAS NONE ON THE SITE WHO COULD HAVE RECEIVED ANY NOTICE. THE ASSESSING OFFICER ALSO REQUIRED THE ASSESS EE TO PROVIDE DOCUMENTARY EVIDENCE OF TRANSPORTATION OF THE SAID PLANT AND MACHINERY AND INSTALLATION THEREOF. IT WAS STATED BY THE ASSESSEE, VIDE REPLY DATED 08.11.2012 THAT IT WAS AGREED WITH THE SELLER OF THE OLD PLANT & MACHINERY, THAT THEY WILL TRANSP ORT AND DELIVER THE PLANT AT THE ASSESSEE'S KHANDASARI UNIT AT THEIR EXPENSE. NO DOCUMENT SHOWING SUCH AN AGREEMENT WAS FURNISHED TO THE ASSESSING OFFICER. HOWEVER, THE ASSESSEE FURNISHED COPY OF PAN CARD AND ITR - V OF ASSESSMENT YEAR 2008 - 09 OF M/S. ASHUTO SH SUGAR INDUSTRIES, AS WELL AS COPY OF THEIR BANK ACCOUNT. AFTER DETAILED ENQUIRY, THE ASSESSING OFFICER HELD THAT NO NEW PLANT & MACHINERY WAS PUT TO USE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY, HE PROPOSED THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.34,27,500/ - ON THE VALUE OF PLANT & ITA NO.630 & CO NO.35/LKW/2014 PAGE 11 OF 15 MACHINERY SHOWN TO HAVE BEEN PURCHASED FROM M/S. ASHUTOSH SUGAR INDUSTRIES CLAIMED TO HAVE BEEN PUT ON USE DURING THE YEAR. 5.4 AGAINST THE PROPOSED DIS - ALLOWANCE OF DEPRECIATION AMOUNTING T O RS.34,27,500/ - , THE ASSESSEE MADE A WRITTEN SUBMISSION TO THE JT.CIT WHICH HAS BEEN REPRODUCED BY THE ASSESSING OFFICER ON PAGE 21 OF THE ASSESSMENT ORDER, AS UNDER: - '6.1 THE ASSESSEE FURNISHED REPLY BEFORE ME WHICH IS AS UNDER: - ' THE NEXT ADDITION PROPOSED BY THE LEARNED ASSESSING OFFICER IS OF RS.34,20,500/ - BEING PROPOSED DISALLOWANCE OF DEPRECIATION CLAIMS ON THE PLANT & MACHINERY PURCHASED BY US DURING THIS YEAR MERELY OF THE GROUND THAT NO EXPENSES HAVE BEEN INCURRED BY US ON THE TRANSPORTATIO N AND INSTALLATION OF THE MACHINERY PURCHASED. AS SUCH HE HAS HELD THAT THE PLANT & MACHINERY PURCHASED WAS NOT PUT TO USE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IN THIS RESPECT WE HAVE TO STATE THAT IT WAS MADE CLEAR TO THE LEARNED ASSESSING OFFICER THAT THE SELLER HAD AGREED TO DISMANTLE THE PLANT & MACHINERY AND TO TRANSPORT THE SAME TO OUR SITE. S THE SELLER FIRM HAS SOLD THE PLANT & MACHINERY TO US, THERE WAS NO WORK LEFT FOR THEIR LABOUR FORCE AS SUCH THEY AGREED TO DISMANTLE THE PLANT A ND TO TRANSPORT THE SAME TO OUR SITE. THIS DISTANCE BETWEEN THE SITE OF THE SELLER AND OUR SITE IS NOT MORE AS SUCH IT WAS CONVENIENT FOR THEM TO GET THE WORK DONE BY THEIR OWN LABOUR FORCE WITH BECAME IDLE DUE TO THE SALES OF THE MACHINERY TO US. THE INST ALLATION OF THE PLANT IS NOT VERY MUCH TECHNICAL WHICH WAS DONE BY OUR OWN STAFF 5.5 AFTER CONSIDERING THE REPLY FURNISHED BY THE APPELLANT, AS REPRODUCED ABOVE THE ID JT.CIT DID NOT APPROVE THE PROPOSED DISALLOWANCE OF RS.34,27,500/ - BUT HE PROPOSED AN AD HOC ADDITION OF RS.1,00,000/ - ON ACCOUNT OF TRANSPORTATION AND INSTALLATION CHARGES NOT HAVING BEEN ACCOUNTED FOR BY THE APPELLANT IN ITS BOOKS OF ACCOUNT. ITA NO.630 & CO NO.35/LKW/2014 PAGE 12 OF 15 5.6 THE APPELLANT BEGS TO SUBMIT THAT IN THE INCOME - TAX PROCEEDINGS, IT IS THE 'MATERIAL' THAT IS RE LEVANT AND NOT THE 'EVIDENCE' WHICH IS NEEDED FOR THE PURPOSE OF COURT. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING PASSAGE UNDER THE HEAD 'MATERIAL' AS APPEARING ON PAGE 4813 OF INCOME TAX LAW BY CHATURVEDI AND PITHISARIA'S FIFTH EDITION, VOL.3 (19 99) : - 'MATERIAL OR EVIDENCE - WHAT IT IS? - THE WORD 'EVIDENCE ' AS USED IN SECTION 143 (3) OBVIOUSLY CANNOT BE CONFINED TO DIRECT EVIDENCE. THE WORD IS COMPREHENSIVE ENOUGH TO COVER CIRCUMSTANTIAL EVIDENCE (PARAS DASS MUNNA LAL V. CIT (1937) 5 ITR 523, 5 26 (LAH). ALSO SEE, HOMI JEHANGIR GHEESTA V CIT (1961) 41 ITR 135, 142 (SC); CIT V KAMESHWAR SINGH (1933) 1 ITR 94, 106 (PC); KANHAIYA LAL UMRO SINGH VS. CIT (1941) 9 ITR 225, 239 (OUDH);, CHATURBHUJ V. CIT 9 ITR 286, 291 (OUDH), LAL MOHAN KRISHNA LAL PAUL V. CIT (1944) 12 ITR 441 (CAL); ABDULLABHAI ABDUL KADAR V. CIT (1953) 22 ITR 241 (BOM). THE WORD 'EVIDENCE HAS BEEN USED IN THAT SECTION IN A WIDER SENSE [CIT V KHEMCHAND RAMDAS (1940) 8 ITR 159, 1 76 (SIND) OR THE GENERIC SENSE, AND NOT IN THE ARRESTED S ENSE SO AS TO BE EITHER ORAL OR DOCUMENTARY EVIDENCE OR BOTH [CIT V. METAL PRODUCTS OF INDIA, (1984) 150 ITR 714, 717 (PUN)]. WHILE THE WORD 'EVIDENCE ' MAY RECALL THE ORAL AND DOCUMENTARY EVIDENCE AS MAY BE ADMISSIBLE UNDER THE INDIAN EVIDENCE ACT THE USE OF THE WORD 'MATERIAL' IN SECTION 143 (3) SHOWS THAT THE ASSESSING OFFICER NOT BEING A COURT, CAN RELY UPON MATERIAL, WHICH MAY NOT STRICTLY BE EVIDENCE ADMISSIBLE UNDER THE INDIAN EVIDENCE ACT, FOR THE PURPOSE OF MAKING AN ORDER OF ASSESSMENT, COURT OFTE N TAKES JUDICIAL NOTICE OF CERTAIN FACTS WHICH NEED NOT BE PROVIDE, WHILE ADMINISTRATIVE AND QUASI - JUDICIAL AUTHORITIES CAN TAKE 'OFFICIAL NOTICE ' OF WIDER VARIETIES OF FACTS WHICH NEED NOT BE PROVED BEFORE THEM. THUS, NOT ONLY IN RESPECT OF THE RELEVANC Y BUT ALSO IN RESPECT OF PROOF THE MATERIAL WHICH CAN BE TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER AND OTHER AUTHORITIES UNDER THE ACT IS FOR WINDER THAN THE EVIDENCE WHICH IS STRICTLY RELEVANT ITA NO.630 & CO NO.35/LKW/2014 PAGE 13 OF 15 AND ADMISSIBLE UNDER THE EVIDENCE ACT (ADDL. CIT V. JA Y ENGINEERING WORKS LTD. (1978) 113 ITR 389, 391 (DEL)] IN MAKING AN ASSESSMENT, THE ASSESSING OFFICER DOES NOT ACT MERELY ON WHAT IS TECHNICALLY DESCRIBED AS 'EVIDENCE' IN THE INDIAN EVIDENCE ACT. IT MAY BE SEEN FROM SECTIONS 142 AND 143 THAT HE MAY ALSO ACT ON 'THE MATERIAL GATHERED' BY HIM. THE WORK 'MATERIAL' CLEARLY SHOWS THAT THE ASSESSING OFFICER IS NOT FETTERED BY THE TECHNICAL RULES OF EVIDENCE AND THE LIKE, AND THAT HE MAY ACT ON MATERIAL WHICH MAY NOT, STRICTLY SPEAKING, BE ACCEPTED AS EVIDENCE I N A COURT OF LAW [VIMAL CHANDRA GOLECHA V. ITO (1982) 134 ITR 119, 130 (RAJ)] MATERIAL OR EVIDENCE ON WHICH TAXING AUTHORITIES MAY RELY UNDER THE INCOME - TAX ACT IS NOT CONFINED TO DIRECT TESTIMONY IN THE SHAPE OF STATEMENTS MADE BY WITNESSES. ALL RELEVANT CIRCUMSTANCES WHICH HAVE A BEARING ON THE ISSUE WHICH ARE REVEALED IN THE COURSE OF THE ASSESSMENT, WOULD BE COVERED BY THE EXPRESSION 'MATERIAL OR EVIDENCE ON WHICH THE INCOME - TAX OFFICER COULD RELY' [MANGALCHAND GOBARDHAR DAS V. CIT (1954) 26 ITR 706, 71 0 - 1 (ASSAM)]. SECTION 143 (3) IS NOT EXHAUSTIVE OR DEFINITIVE OF THE MATERIAL ON WHICH AN ASSESSMENT MAY BE BASED. THE MATERIAL ON WHICH RELIANCE MAY BE PLACED BY THE ASSESSING OFFICER, MAY BE WITHIN HIS OWN KNOWLEDGE AND MIGHT HAVE BEEN DERIVED BY HIM FRO M HEARSAY OR FROM INFORMATION OF A MOST AUTHENTIC CHARACTER. ASSESSMENT MAY BE BASED ON ALL SUCH INFORMATION AND MATERIAL EVEN THOUGH IT MAY NOT BE 'EVIDENCE' WITHIN THE MEANING OF THE INDIAN EVIDENCE ACT AND MAY BE MERELY SECONDARY OR HEARSAY EVIDENCE WIT HIN THE MEANING OF THAT ACT, PROVIDED THE ASSESSEE 'S ATTENTION HAS BEEN DRAWN TO THAT INFORMATION OR MATERIAL AND THE RULES OF NATURAL JUSTICE ARE NOT VIOLATED [SETH GURMUKH SINGH V CIT (1944) 12 ITR 393, 425 (LAH); GANGA RAM BALMOMAND V. CIT(1937) 5 ITR 464, 484 - 5 (LAH)]' ITA NO.630 & CO NO.35/LKW/2014 PAGE 14 OF 15 13 . THE LD. CIT(A) , ON THIS ISSUE , AFTER CONSIDERING THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS OF THE ASSESSEE , OBSERVED AND HELD THAT ASSESSEE COULD NOT ADDUCE SUF FICIENT EVIDENCE IN SUPPORT OF ITS CLAIM THAT SUPPLIERS OF OLD PLANT & MACHINERY HAD DELIVERED THE MATERIAL TO THE ASSESSEES SITE FREE OF COST AND THAT THE ASSESSEE WAS NOT REQUIRED TO INCUR ANY EXPENDITURE ON TRANSPORTATION/INSTALLATION. THEREFORE, IN THE ABSENCE OF ANY EVIDENCE SUBMITTED BY THE ASSESSEE BEFORE THE ASSES SING OFFICER AS WELL AS BEFORE THE LD. CIT(A), THE ADDITION FOR THE COST OF TRANSPORTATION HAS BEEN CORRECTLY MADE. HOWEVER, QUANTUM OF EXPENDITURE ESTIMATED BY THE JCIT AND ADDED BY THE ASSESSING OFFICER OF RS. 1 LAKH WA S CONSIDERED TO BE EXCESSIVE. THE LD. CIT(A) IN ALL FAIRNESS RESTRICTED THE ADDITION TO THE EXTENT OF RS.50,000/ - . 14 . WE HAVE CONSIDERED THE CASE RECORDS AND WE FIND THAT THE LD. CIT(A) , AFTER DETAILED ANALYSIS , HAS OBSERVED THAT THOUGH ASSESSEE WAS NOT ABLE TO FULLY EXPLAIN ITS CASE, HOWEVER , RS.1 LAKH DISALLOWANCE WAS EXCESSIVE AND , THEREFORE , IT WAS RESTRICTED TO RS.50,000/ - BY THE LD. CIT(A). WE FIND NO INFIRMITY WITH THE FINDINGS OF THE LD. CIT(A) AND , THEREFORE , WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 15 . GROUND NO.3 RAISED BY THE REVENUE IS GENERAL IN NATURE WHICH DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 16 . ACCORDINGLY, WITH REGARD TO GROUND NO.1 , AS PER DIRECTION OF THE HON'BLE JURISDICTIONAL HIGH COURT, THE RELIEF GRANTED BY THE LD. CIT(A) IS SUSTAINED AND WITH REGARD TO GRO UND NO.2, THE RELIEF GRANTED BY THE LD. CIT(A) TO THE EXTENT OF RS.50,000/ - IS SUSTAINED. 17 . NOW WE WILL TAKE UP THE CROSS OBJECTION FILED BY THE ASSESSEE. SINCE THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE LD. CIT(A), WHICH WE HAVE ALREADY CONFIRMED AND DISMISSED THE ITA NO.630 & CO NO.35/LKW/2014 PAGE 15 OF 15 APPEAL OF THE REVENUE, THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS AND IS LIABLE TO BE DISMISSED. 18 . IN THE RESULT, APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDE R PRONOUNCED IN THE OPEN COURT ON 27 / 0 2 / 201 8 . SD/ - SD/ - [ T.S. KAPOOR ] [PARTHA SARATHI CHAUDHURY ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27 TH FEBR UARY , 201 8 JJ: 2602 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR