ACIT, Jaipur V. M/S GERBICIDES INDIA LTD., Jaipur

ITA 633/JPR/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 47937 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL GOYAL
• Keywords: Rejection of books of accounts; Additional evidence; Notional interest; TDS
• Section: 40(a)(ia); 194C; 207; 192; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 633/JP/2010 ASSESSMENT YEAR 2007-08 PAN: AAAFH 6414 R THE ACIT VS. M/S. HERBICIDES (INDIA) LTD. CIRCLE- 3 12, INDUSTRIAL AREA, JHOTWARA JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) ITA NO. 533/JP/2010 ASSESSMENT YEAR 2007-08 PAN: AAAFH 6414 R M/S. HERBICIDES (INDIA) LTD VS. THE ADDL. CIT 12, INDUSTRIAL AREA, JHOTWARA RANGE -3 JAIPUR JAIPUR DEPARTMENT BY : SHRI SUNIL GOYAL ASSESSEE BY : SHRI P.C. PARWAL ORDER PER N.L. KALRA, AM:- THE REVENUE AS WELL ASSESSEE HAVE FILED APPEALS AGA INST THE ORDER OF THE LD. CIT(A)-I, JAIPUR DATED 16-03-2010 FOR THE ASSESSME NT YEAR 2007-08. 2.1 THE FIRST GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN REDUCING THE TRADING ADDITION OF RS. 16,47,469/- TO RS. 1.00 LAC WHILE THE ASSESSEE IS AGGRIEVED AGAINST THE CONFIRMATION OF TRADING ADDITION TO THE EXTENT OF RS 1.00 LAC. 2.2 THE AO DURING THE COURSE OF ASSESSMENT PROCEEDI NGS NOTICED THAT THE ASSESSEE HAS SHOWN GROSS PROFIT RATE OF 20.81% ON TURNOVER RS. 20,94,32,365/- AS AGAINST GROSS PROFIT RATE OF 21.61% ON TURNOVER OF RS. 19,34,90,999/- IN THE PRECEDING YEAR. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE FALL IN GROSS PROFIT RATE. THE ASSESSEE SUBMITTED THAT NEW UNITS 2 HAVE BEEN SET UP IN J & K STATE AND SUCH UNITS WERE HAVING VARIOUS FISCAL INCENTIVES LIKE EXCISE DUTY REFUND, INCOME TAX HOLIDAY, SALES TAX R EFUND ETC. THE COST OF PRODUCTION IN THESE NEW UNITS AFTER TAKING INTO ACCOUNT THE INCEN TIVES WAS LESS AS COMPARED TO THE CASE OF THE ASSESSEE AND THEREFORE, THE PROFITABILITY OF THE ASSESSEE BECAME LESS. THE COMPANYS WEEDICIDES FOR WHEAT I.E. DON (SULFOSULFU RAN), SUPERPOWER (FENOXAPROP) ETC. SUFFERED EROSION IN SELLING PRICES DUE TO IMPORT OF CHEAPER ANAUTHORISED CHINNES PRODUCTS IN THE MARKET. AFTER CONSIDERING THE ABOVE EXPLANAT ION, THE AO REQUIRED THE ASSESSEE TO GIVE WORKING OF THE REVISED GROSS PROFIT RATE AFTER CONSIDERING THE IMPACTING OF THE REASONS GIVEN BY IT AFTER MEASURING SUCH REASONS IN MONETARY TERMS. THE ASSESSEE MADE FOLLOWING SUBMISSIONS VIDE LETTER DATED 21 ST DEC. 2009. 1. DON MRP RS.360/- FOR THE YEAR 2006-07 AND MRP RS. 700/- & 465/- FOR THE YEAR 2005-06. IMPACT FOR THE YEAR 2006-07 SALE IN QTY. 41760PCS. * RS. 105=RS. 43,84,800/- 2. AWARD MRP RS. 500/- FOR THE YEAR 2006-07 AND MRP R S. 610/- FOR THE YEAR 2005-06. IMPACT FOR THE YEAR 2006-07 = SALES IN QTY. 7500 PC S* RS. 110=8,25,000/- COPIES OF SALES BILLS ARE ATTACHED FOR THE FINANCIA L YEAR 2005-06 * 2006-07 OF ABOVE PRODUCTS, FURTHER BESIDES THIS THERE ARE O THER NO. OF BILLS WHICH WILL BE PRODUCE IF REQUIRED BY YOUR GOODSELF. THE AO ON VERIFICATION OF THE BOOKS OF ACCOUNT, BIL LS AND VOUCHERS NOTICED FOLLOWING DEFECTS. CERTAIN PAYMENTS TO WAGES OF RS. 17,08,130/- HAVE BEEN MADE ON THE BASIS OF SELF MADE VOUCHERS AND WAGES REGISTER WITH OUT THE ADDRESSES OF THE RECIPIENTS AND THUS THOSE WERE NOT VERIFIABLE. FOLLOWING EXPENSES WERE NOT FULLY FOUND SUPPORTED W ITH BILLS/ INVOICES AND PAID PARTLY IN CASH ON SELF MADE VOUCHERS. - FREIGHT OUTWARDS RS. 1,17,85,404/- - SELLING EXPENSES RS. 29,51,897/- 3 - FREIGHT INWARD RS. 58,20,258/- - LABOUR WELFARE EXP. OF RS. 93,085/- - AGRICULTURE RESEARCH AND DEVELOPMENT EXPENSES OF RS . 2,50,023/- - REPAIRS AND MAINTENANCE (BUILDING) RS. 1,10,755/- - REPAIRS & MAINTENANCE (OTHER) RS. 77,434/- HENCE, THE ABOVE HUGE CLAIM OF EXPENSES ARE NOT VER IFIABLE. WHETHER SAME WERE INCURRED FOR THE PURPOSE OF BUSINESS OR NOT AN D EVEN GENUINENESS OF THOSE ARE UNABLE TO BE VERIFIED. IT WAS NOTICED THAT DURING THE PROCESS OF MANUFACTU RING OF FINISHED ITEMS SOME SHORTAGE/ WASTAGE / LOSS IS OCCURRED WHICH MAY BE ABOUT 1% AS STATED IN COURSE OF HEARING CONDUCTED ON 21-12-2009 BUT FOR THIS LOSS NO RECORDS ARE MAINTAINED. HENCE, THIS LOSS IS NOT VER IFIABLE. 2.3 IN VIEW OF THE DEFECTS NOTICED BY THE AO, THE A SSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE PROVISIONS OF SECTION 145(3) SHOULD NOT BE INVOKED. THE ASSESSEE VIDE REPLY DATED 23 RD DEC. 2009 ASSESSEE GAVE AN EXPLANATION FOR THE FAL L IN GROSS PROFIT RATE. IN RESPECT OF SHORTAGE, IT WAS SUBMITTED THAT SHORTAGE RANGES BETWEEN 1% TO 3% AND SHORTAGE SHOWN BY THE ASSESSEE IS REASONABLE. THE ASSESSEE H AS MAINTAINED THE QUANTITATIVE TALLY AND THEREFORE, THE PROVISIONS OF SECTION 145(3) ARE NOT APPLICABLE. 2.4 ACCORDING TO THE AO, THE ASSESSEE HAS QUOTED TH E SALE PRICE ONLY OF TWO ITEMS WHICH WERE FAVOURABLE TO THEM. THE ASSESSEE IS DEAL ING IN 17 ITEMS AND HE SHOULD HAVE GIVEN THE COMPARISON OF SALE RATE OF EACH PRODUCT F OR BOTH THE YEARS. THE COMPARISON GIVEN FOR TWO ITEMS DOES NOT GIVE CORRECT PICTURE I N SUPPORT OF FALL IN GROSS PROFIT RATE. WHILE COMPARING THE SALE RATE, ONE IS REQUIRED TO S EE THE FLUCTUATION IN THE COSTING OF THE PRODUCTS IN BOTH THE YEARS. HOWEVER, NO DETAILS IN RESPECT OF COSTING OF THE PRODUCTS HAVE BEEN GIVEN FOR BOTH THE YEARS. THE AO ACCORDINGLY I NVOKED THE PROVISIONS OF SECTION 145(3) AND APPLIED THE GROSS PROFIT RATE OF 20.81% ON THE DECLARED TURNOVER AND ACCORDINGLY MADE THE TRADING ADDITION OF RS. 17,47 ,469/-. 4 2.5 BEFORE THE LD. CIT(A), IT WAS CONTENDED ON BEHA LF OF THE ASSESSEE THAT THE ASSESSEE HAS MAINTAINED THE STOCK REGISTER AND QUANTITATIVE TALLIES ARE AVAILABLE. THE NATURE OF CERTAIN EXPENSES ARE SUCH THAT IT CANNOT BE FULLY S UPPORTED BY PUCCA VOUCHERS AND NECESSARILY TO BE MADE IN CASH. THE CASH PAYMENT CA NNOT BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNT. THE ASSESSEE HAS GIVEN THE REASON S FOR FALL IN GROSS PROFIT RATE. IT WAS FURTHER SUBMITTED THAT TRADING ADDITION SHOULD EITH ER BE DELETED OR LUMPSUM ADDITION SHOULD BE MADE AS IN THE ASSESSMENT YEAR 2005-06. T HE LD. CIT(A) AFTER CONSIDERING THE CONTENTION OF THE LD.AR REDUCED THE TRADING ADDITIO N TO RS. 1.00 LAC AFTER OBSERVING AS UNDER:- CONTENTION OF THE LD.AR IS CONSIDERED. THAT THE S TOCK REGISTER HAS BEEN MAINTAINED, VARIOUS PAYMENTS WERE MADE IN CASH WITH ARE NOT SUBJECT TO FULL VERIFICATION AND, THER EFORE, REJECTION OF BOOKS OF ACCOUNTS IS JUSTIFIED. THE FALL IN G.P. RA TE IS OF 0.8% BUT AT THE SAME TIME THE TURN OVER HAS GONE UP BY RS. 105 CRORES AND, THEREFORE, INSTEAD OF APPLYING FIXED G.P. RATE LUMP SUM TRADING ADDITION OF RS. 1 LAC IS DIRECTED TO BE MADE TO COV ER UP POSSIBLE LEAKAGE OF REVENUE. AS A RESULT, TRADING ADDITION O F RS. 1747469/- IS REDUCED TO RS. 1 LAC. 2.6 BEFORE US, IT WAS SUBMITTED THAT FINISH PRODUCT OF THE ASSSESSEE ARE EXCISABLE AND COMPLETE DETAILS OF THE STOCK WITH QUANTITATIVE DES CRIPTION ARE MAINTAINED. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE MAINTENANCE OF TH E RECORDS. THE WASTAGE / SHORTAGE IN PROCESSING IS AROUND 1% AND SUCH LOSS IS VERIFIABLE FROM THE STOCK RECORDS. EVEN IF SOME OF THE EXPENSES ARE NOT SUBJECT TO FULL VERIFICATIO N. IT DOES NOT MEAN THAT BOOKS OF ACCOUNT SHOULD BE REJECTED. FOR SUCH PROPOSITION, THE LD. A R RELIED UPON FOLLOWING DECISIONS . MALANI RAMJIWAN JAGANNATH VS 207 CTR 19 (RAJ.) DCIT VS ASSOCIATES STONE INDUSTRIES LTD. 22 TW 15 5 JP 5 CIT VS SMT. POONAM RANI, 326 ITR 223 (DEL) 2.7 IT WAS FURTHER POINTED OUT THAT THE AO MADE THE TRADING ADDITION OF RS.4,33,441/- IN THE ASSESSMENT YEAR 2005-06 WHICH WAS REDUCED TO RS.1.00 LAC BY THE LD. CIT(A) AND THE TRIBUNAL REDUCED THE SAME TO RS.50,000/- . IN T HAT YEAR , THE GROSS PROFIT RATE WAS 14.4O%. THE GROSS PROFIT RATE DECLARED DURING THE Y EAR IS MUCH BETTER AND, THEREFORE, NO TRADING ADDITION IS CALLED FOR. 2.8 ON THE OTHER HAND, THE LD. DR DREW OUR ATTENTIO N TO THE ORDER OF THE AO. THE ASSESSEE IS NOT MAINTAINING THE RECORDS TO VERIFY T HE LOSS TO THE EXTENT OF 1% IN THE PROCESSING/ MANUFACTURING. THE EXPENSES DEBITED ARE ALSO NOT VERIFIABLE AND THERE IS NOTHING ON RECORD TO SUGGEST THAT THE EXPENSES CLAI MED ARE COMPARABLE TO THE EXPENSES CLAIMED IN THE PRECEDING YEAR. THE LD.DR RELIED ON THE FOLLOWING DECISIONS FOR THE APPLICABILITY OF SECTION 145(3) OF THE ACT. 1. AWADESH PRATAP SINGH ABDUL REHMAN & BROS VS CIT, 70TAXMAN 106 (ALLAHABAD) 2. S.N.NAMASWERY CHETTIYAR VS CIT, 38 ITR 579 (SC) 3. AMIYA KUMAR ROY & BROS VS CIT (1994) TAXMAN 616 (CA L.) 2.9 WE HAVE HEARD BOTH THE PARTIES. THE AO IN HIS O RDER HAS MENTIONED CERTAIN EXPENSES DEBITED ARE NOT VERIFIABLE. IT IS NOT POSS IBLE FOR THE REVENUE TO VERIFY THAT SUCH EXPENSES HAVE BEEN INCURRED FOR THE PURPOSES OF THE BUSINESS. THE GENUINENESS OF SUCH EXPENSES IS ALSO NOT VERIFIABLE. ANOTHER REASON IS THAT THE ASSESSEE IS NOT HAVING THE RECORDS TO VERIFY THE SHORTAGE/LOSS OF 1% CLAIMED B Y THE ASSESSEE. THE ASSESSEE VIDE REPLY DATED 21 ST DEC. 2009 HAS ADMITTED THAT PRODUCTION SHEET FOR E VERY STAGE IS NOT MAINTAINED BY THE COMPANY. IT IS TRUE THAT THE ASSESSEE IS MAI NTAINING THE QUANTITATIVE DETAILS OF STOCK AS ON LAST DAY OF THE ACCOUNTING YEAR AND IS ALSO H AVING THE QUANTITATIVE DETAILS OF FINISHED 6 GOODS. WHEN CERTAIN EXPENSES ARE NOT VERIFIABLE THE N ONE HAS TO CONSIDER THE EXPENSES DEBITED IN EARLIER YEAR VIS A VIS THE TURNOVER OF E ARLIER YEAR SO AS TO ASCERTAIN AS TO WHETHER THERE IS ANY INFLATION IN RESPECT OF THE EXPENSES D EBITED. WHEN THE AO HAS POINTED THAT CERTAIN HUGE EXPENSES ARE NOT VERIFIABLE THEN THE A SSESSEE BEFORE THE LD CIT(A) HAS ARGUED THAT SUCH EXPENSES CANNOT BE FULLY SUPPORTED BY PUCCA VOUCHERS AND ARE NECESSARILY TO BE MADE IN CASH. THUS THE EXPENSES D EBITED IN THE TRADING ACCOUNT ARE NOT VERIFIABLE AND THERE IS NO MATERIAL TO SHOW THAT EX PENSES DEBITED DURING THE YEAR ARE COMPARABLE TO THAT OF THE LAST YEAR. THE TRIBUNAL I N THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 UPHELD THE TRADING ADDITION TO RS.50,000/- AFTER REJECTION OF BOOKS OF ACCOUNT. WE, THEREFORE, FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT. 2.10 THE ASSESSEE HAS GIVEN AN EXPLANATION FOR THE FALL IN GROSS PROFIT RATE. IN RESPECT OF TWO ITEMS, THE ASSESSEE HAS SHOWED THAT THERE IS AB NORMAL FALL IN THE SALE PRICE AS COMPARED TO LAST YEAR. IT IS TRUE THAT THE ASSESSEE MAY BE DEALING IN NUMBER OF ITEMS THEN IT WAS THE DUTY OF THE AO TO HAVE COMPARED THE SALE PRICE OF OTHER ITEMS TO SEE THE VARIATION IN THE GROSS PROFIT RATE DURING THE YEAR AS COMPARED TO LAST YEAR. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT FILED SUCH DETAILS. THE ASSESSEE HAS GIVEN THE QUANTITATIVE TALLY OF THE FINISHED PRODUCTS AT THE END OF THE LAST YEAR AND HAS ALSO GIVEN THE RATES. THE AO SHOULD HAVE COMPARED THE SALE PRICE O F SUCH ITEMS TO ASCERTAIN THE GROSS PROFIT RATE IN VARIOUS ITEMS. ONE HAS TO CONSIDER T HE GROSS PROFIT RATE OF AN ITEM WHICH IS THE MAJOR PART OF THE SALES TURNOVER. WHEN THE EXPL ANATION OF THE ASSESSEE IS THERE IN RESPECT OF FALL IN GROSS PROFIT RATE RELATING TO TW O ITEMS THEN THE ONUS IS SHIFTED ON THE REVENUE TO SHOW THAT THE GROSS PROFIT RATE IN OTHER ITEMS WAS MORE AS COMPARED TO LAST 7 YEAR SO AS TO ENABLE THE REVENUE TO MAKE THE TRADIN G ADDITION. IN ABSENCE OF COMPARISON OF VARIOUS EXPENSES VS TURNOVER DEBITED IN THIS YEA R AS COMPARED TO LAST YEAR, WE ARE NOT IN A POSITION TO SAY THAT THE TRADING ADDITION MADE BY THE AO IS REASONABLE. LOOKING TO THE TRIBUNALS ORDER IN THE CASE OF THE ASSESSEE FO R THE EARLIER YEAR, WE FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN REDUCING THE TRADING ADDITI ON. HOWEVER, LOOKING TO THE GROSS PROFIT RATE DECLARED DURING THE YEAR AS COMPARED TO ASSESSMENT YEAR 2005-06, WE FEEL THAT IT WILL BE FAIR AND REASONABLE TO REDUCE THE TRADIN G ADDITION TO RS 50,000/-. ACCORDINGLY, THE TRADING ADDITION IS REDUCED TO RS. 50,000/-. 3.1 THE SECOND GRIEVANCE OF THE REVENUE IS THAT THE LD CIT(A) HAS ERRED DELETING THE DISALLOWANCE OF RS.3,11,099/- OUT OF INTEREST PAYME NT. 3.2 THE AO DURING THE COURSE OF ASSESSMENT PROCEEDI NGS NOTICED THAT THE ASSESSEE HAS GIVEN LOAN OF RS.24,88,794/- TO ITS GROUP CONCERN M/S. DUGGAR PHOTO FILMS LTD AND NO INTEREST HAS BEEN CHARGED. THE AO ACCORDINGLY MADE THE ADDITION ON NOTIONAL INTEREST OF RS.3,11,099/-. 3.3 THE ASSESSEE CONTENDED BEFORE THE LD. CIT(A) TH AT THE ADVANCE WAS AN OLD ADVANCE . IN THE YEAR WHEN THE LOAN WAS GIVEN, NO S UCH ADDITION HAS BEEN MADE. IT WAS FURTHER SUBMITTED THAT THE CAPITAL OF THE ASSESEE I S AROUND RS.3.30 CRORES WHILE THE LOAN IS OF RS.22.00 LACS. THE LD CIT(A) DELETED THE ADDITIO N ON THE GROUND THAT THE LOAN HAS NOT BEEN GIVEN DURING THE YEAR UNDER CONSIDERATION AND NO DISALLOWANCE OF INTEREST WAS MADE IN EARLIER YEAR. FOR THIS PROPOSITION, THE LD. CIT( A) RELIED UPON THE FOLLOWING DECISIONS. 1. CIT VS SRIDEV ENTERPRISES, 192 ITR 165 (KAR.) 2. CIT VS TINBOX , 260 ITR 637 (DEL.) 3. CIT VS HOTEL SAVERA,231 ITR 795 (MAD.) 8 3.4 WE HAVE HEARD BOTH THE PARTIES. THE AO IN HIS O RDER HAS MADE ADDITION ON ACCOUNT OF NOTIONAL INTEREST. THE ADDITION ON ACCOU NT OF NOTIONAL INTEREST CANNOT BE MADE BECAUSE THE ASSESSEE HAS ALWAYS LIBERTY TO EARN THE INCOME OR NOT. THE AO CAN DISALLOW THE INTEREST IN CASE THE SAME IS NOT FOR THE PURPOS E OF BUSINESS. HENCE, THE ACTION OF THE AO IN ADDING BACK THE NOTIONAL INTEREST IS NOT IN A CCORDANCE WITH LAW. MOREOVER, THE TRIBUNAL HAS ALREADY HELD THAT THE PREVIOUS BALANCE CANNOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE OF INTEREST IN CASE THE INTEREST HA S NOT BEEN DISALLOWED IN EARLIER YEAR. WE PLACE OUR RELIANCE ON THE DECISION OF THE TRIBUNAL, JAIPUR BENCH DATED 30 TH APRIL, 2010 IN THE CASE OF AUTOLITE INDIA LTD. IN ITA NO.587/JP/09 . WHILE HOLDING SO, THE TRIBUNAL RELIED UPON THE ORDER DATED 31 ST AUGUST 2006 IN THE CASE OF AUTOLPAL INDUSTRIES FOR THE ASSESSMENT YEAR 1997-98. ACCORDINGLY, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.3,11,099/-. 4.1 THE THIRD GRIEVANCE OF THE REVENUE IS THAT THE LD CIT(A) HAS ERRED DELETING THE DISALLOWANCE OF RS.26,09,181/- OUT OF SALES PROMOTI ON EXPENSES. 4.2 THE AO ON VERIFICATION OF SALES PROMOTION EXPEN SES NOTICED THAT THE ASSESSEE HAS PAID THE SALES PROMOTION EXPENSES IN A SINGLE TRANS ACTION ABOVE RS20,000/- OR AGGREGATING TO RS.50,000/- IN THE YEAR UNDER CONSID ERATION. ACCORDING TO THE AO, THE ASSESSEE WAS REQUIRED TO DEDUCT THE TDS WHILE MAKIN G PAYMENTS BUT SUCH DEDUCTION HAS NOT BEEN DONE. SUCH PAYMENTS HAVE BEEN MADE THROUG H CREDIT NOTES ISSUED IN THE NAME OF THE C&F AGENTS AND DISTRIBUTORS OF THE ASSESSEE. THE AO REQUIRED THE ASSESSEE TO SUBMIT THE COPY OF THE AGREEMENT WITH EACH OF THE C &F AGENTS AND THE DISTRIBUTORS. NO COPY OF THE AGREEMENTS WERE FLIED EXCEPT THE AGREEM ENT WITH M/S. KASHMIR APEX AGRI CO-OPERATIVE MARKETING SOCIETY LTD. WHICH WAS A CON SIGNMENT AGENT. THERE WAS NO 9 CLAUSE IN THE AGREEMENT DATED 2 ND APRIL 2003 WITH M/S. KASHMIR APEX AGRI CO-OPERATIV E MARKETING SOCIETY LTD. IN RESPECT OF PAYMENTS TOWAR DS THE SALES PROMOTION EXPENSES. ACCORDING TO THE AO, THE SALES PROMOTION EXPENSES W ERE INCURRED AT THE INSTANCE OF THE ASSESSEE COMPANY BY THE C&F AGENTS AND DISTRIBUTORS AND, THEREFORE, THE PAYMENTS FOR SUCH EXPENSES ARE TO BE CONSIDERED AS PAID BY THE A SSESSEE. SINCE THE TDS HAS NOT BEEN DEDUCTED, THEREFORE, THE AO DISALLOWED A SUM OF RS. 25,84,782/- DEBITED TOWARDS SALES PROMOTION EXPENSES. THE ASSESSEE ALSO MADE THE PAYM ENT OF SELLING EXPENSES AND FREIGHT EXPENSES TO TWO PARTIES TO THE EXTENT OF RS.24,399/ - AND THESE WERE ALSO DISALLOWED U/S 40A(IA). THUS THE AO MADE THE TOTAL DISALLOWANCE OF RS.26,09,181/-. 4.3 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT TH ERE WAS NO AGREEMENT AND, THEREFORE, THE PROVISIONS OF SECTION 194C ARE NOT A TTRACTED. THE ASSESSEE IS DEALING IN AGRO-CHEMICALS RUNNING INTO NUMBER OF ITEMS OF VARI OUS QUALITIES AND SUCH PRODUCTS ARE SOLD DIRECTLY BY THE COMPANY OR THROUGH THE DISTRIB UTORS OR THOROUGH THE C&F AGENTS. TRANSACTIONS WITH THE DEALERS ARE OF SALE OF GOODS ONLY. NO WORKS CONTRACTS WITH THE DEALERS EXIST. THE COMPANY INCURS EXPENSES ON CONVE YANCE BY HIRING RICKSHAW, TEMPO ETC. IN SOME CASES, C&F AGENTS INCUR SUCH EXPENSES WHICH WERE REIMBURSED. THE LD. CIT(A) AFTER CONSIDERING THE CONTENTIONS OF THE LD. AR DELETED THE ADDITION OF RS26,09,181/- AFTER OBSERVING AS UNDER:- CONTENTION OF THE LD.AR IS CONSIDERED. THE PAYMEN TS MADE TO THE DISTRIBUTORS CANNOT BE CONSIDERED IN THE NATUR E OF CONTRACT AS THE DISTRIBUTORS AND ITS C & F AGENTS AS PER AGREEMENTS WERE SUPPOSED TO SALE THE ITEMS AND IN SOME CASES C & F AGENTS INCURS EXP ENSES ON SALES PROMOTION WHICH ARE REIMBURSED BY COMPANY. THE AO H AS PRESUMED THAT THE DISTRIBUTORS MIGHT HAVE PAID THESES EXPENSES TO VARIOUS PARTIES AT THE INSTANCE OF THE APPELLANT COMPANY. THAT BEING LOCAL PERSONS THEY COULD 10 HAVE ARRANGED THE JEEP, FILED ASSISTANT AND OTHER M ARKETING MODES AS PER INSTRUCTIONS OF EH APPELLANT COMPANY. THE AO BASED ON PRESUMPTION THAT THERE IS CONTRACT AGREEMENT BETWEEN APPELLANT AND I TS DISTRIBUTORS. THE AO FROM PERUSAL OF ONE COPY OF AGREEMENT HAS HIMSELF A DMITTED PARTY IS A CONSIGNEE AGENT FOR SALE OF PRODUCTS IN CERTAIN DIS TRICTS OF KASHMIR FOR THAT THEY ARE PAID COMMISSION AT A FIXED RATE. THIS ITSE LF MAKES IT CLEAR THAT THE EXPENSES ARE MORE IN THE NATURE OF REIMBURSEMENT OF EXPENDITURE INCURRED BY THE DISTRIBUTORS. THERE EXISTS NO CONTRACT OR WO RKS CONTRACT BETWEEN ASSESSEE AND DISTRIBUTORS OR C & F AGENTS. THE PROV ISIONS OF SECTION 194C WILL NOT BE ATTRACTED AND, THEREFORE, DISALLOWANCE MADE UNDER SECTION 194 IS NOT JUSTIFIED. THE AO IS, THEREFORE, DIRECTED TO DELETE THE ADDITION OF RS. 2609181/- AS WELL RS. 5,42,443/-. THIS GROUND OF AP PEAL IS DECIDED IN FAVOUR OF THE APPELLANT. 4.4 WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE IN THE PAPER BOOK HAS FILED THE COPIES OF THE AGREEMENTS OF CONSIGNMENT SALES AGEN CY WITH SEVEN PARTIES. THESE ARE AVAILABLE AT PAGES 72 TO 100 OF THE PAPER BOOK. HOW EVER, NONE OF SUCH AGREEMENTS RELATE TO PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. IT WAS THE CONTENTION OF THE LD. AR THAT AGREEMENTS MADE IN EARLIER YEARS WE RE CONTINUED. HOWEVER, IN THE AGREEMENTS, IT IS MADE CLEAR THAT THE AGREEMENTS CA N BE RENEWED FOR ONE YEAR . MOREOVER, THE AO HAS MENTIONED THAT THE COPIES OF THE AGREEME NTS WERE NOT FILED BEFORE HIM. THE LD. AR HAS FILED THE CREDIT NOTES OF TWO PARTIES AN D THESE ARE AVAILABLE AT PAGES 49 TO 71 OF THE PAPER BOOK. THE CREDIT NOTES HAVE BEEN ISSUED O N THE BASIS OF BILLS SUBMITTED BY THE DEALERS OR THE DISTRIBUTORS. THE VOUCHERS INDICATE THAT THE EXPENSES ARE INCURRED ON BEHALF OF THE ASSESSEE COMPANY. THESE VOUCHERS , THEREFORE , INDICATE THAT THE EXPENSES HAVE BEEN INCURRED ON BEHALF OF THE ASSESSEE COMPANY, THOUGH SUCH PAYMENTS HAVE BEEN MADE BY THE DEALERS / DISTRIBUTORS/C&F AGENTS.. THE EXPENSE S SO PAID ARE NOT COVERED WITHIN THE 11 MONETARY LIMIT OF SECTION 194C OF THE ACT. THE AO H AS CONSIDERED THAT SUCH PAYMENTS HAVEBEN MADE TO THE DEALERS/DISTRIBUTORS/ C&F AGENT S. THIS IS THE REIMBURSEMENT OF THE EXPENSES AND WORKS HAVE BEEN DONE THROUGH THE HELP OF DEALERS/ DISTRIBUTORS. SUCH DEALERS/ DISTRIBUTORS ONLY PROVIDED THE ASSISTANCE IN ARRANGING THE PERSONNEL OR OTHER ITEMS TO BE UTILIZED FOR THE PURPOSE OF SALES PROMOTION. HENCE, WE HOLD THAT THE SECTION 194C WAS NOT APPLICABLE IN RESPECT OF SUCH PAYMENTS MAD E TO CONSIGNMENT AGENTS AND DISTRIBUTORS AND, THEREFORE, THESE COULD NOT HAVE B EEN DISALLOWED U/U 40A(IA) OF THE ACT. THUS, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.26,09,181/-. 5.1 THE FOURTH GRIEVANCE OF THE REVENUE IS THAT THE LD CIT(A) HAS ERRED DELETING THE DISALLOWANCE OF RS.5,42,443/- OUT OF SELLING EXPENS ES. 5.2 OUR FINDINGS IS THE SAME AS GIVEN IN RESPECT OF DELETING THE DISALLOWANCE OF RS 26,09,181/-. WE, THEREFORE, HOLD THAT THE LD. CIT(A ) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.5,42,443/- 6.1 THE FIFTH GRIEVANCE OF THE REVENUE IS THAT THE LD CIT(A) HAS ERRED DELETING THE DISALLOWANCE OF RS.6,49,964/- OUT OF GODOWN EXPENSE S. 6.2 THE LD. CIT(A) AFTER CONSIDERING THE LEDGER ACC OUNT OF M/S.TRADE WORTH, INDORE, NOTICED THAT THE GODOWN RENT PAID IS RS.82,200/-. T HE AMOUNT SO PAID IS BELOW THE LIMIT PRESCRIBED U/U 194I OF THE ACT. ACCORDINGLY, THE LD . CIT(A) DELETED THE SUM OF RS.6.49,964/-. 6.3 WE HAVE HEARD BOTH THE PARTIES. PAGE 127 OF THE PAPER BOOK SHOWS THAT A SUM OF RS.82,200/- HAS BEEN DEBITED AS GODOWN RENT PAYABLE THROUGH M/S. TRADE WORTH. A SUM OF RS.6,49,964/- WAS CREDITED IN THE ACCOUNT OF M/S . TRADE WORTH ON ACCOUNT OF VARIOUS EXPENSES INCLUDING THE GODOWN RENT , FREIGHT ETC. S INCE, THE GODOWN RENT PAID IS LESS THAN 12 THE LIMIT PRESCRIBED U/S 194I, THEREFORE, THE LD. C IT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 7.1 THE SIXTH GRIEVANCE OF THE REVENUE IS THAT THE LD CIT(A) HAS ERRED DELETING THE DISALLOWANCE OF RS.1,06,59,672/- OUT OF FREIGHT EXP ENSES. 7.2 THE AO NOTICED THAT THE ASSESSEE HAS DEBITED FR EIGHT OUTWARDS EXPENSES OF RS.1,17,85,404/-. IT WAS NOTICED THAT THE ASSESSEE HAS PAID FREIGHT CHARGES EXCEEDING RS20,000/- IN A SINGLE TRANSACTION OR AGGREGATING T O RS.50,000/- IN THE YEAR UNDER CONSIDERATION TO NUMBER OF PARTIES. ACCORDING TO TH E AO, THE ASSESSEE WAS REQUIRED TO DEDUCT THE TDS U/U 194C OF THE ACT. THE ASSESSEE DI D NOT FILE ANY COPY OF THE AGREEMENT WITH THE DISTRIBUTORS ETC. EXCEPT THE AGREEMENT WIT H M/S. KASHMIR APEX AGRI CO- OPERATIVE MARKETING SOCIETY LTD.. THE PAYMENTS WERE MADE BY WAY OF CREDIT NOTES TO THE PARTIES WHOSE NAMES ARE AVAILABLE AT PAGE 16 OF THE ASSESSMENT ORDER. SUCH PAYMENTS WERE TO THE EXTENT OF RS.1,06,59,672/-. ACCORDING TO THE AO, THE ASSESEE HAS CONTRACT WITH ITS DISTRIBUTORS TO MAKE THE FREIGHT PAYMENTS AND OTHERS AS PER TERMS AND CONDITIONS OF THE AGREEMENT. THE AO ACCORDINGLY HELD THAT THE PROVISIONS OF SECTION 194C ARE APPLICABLE AND THE AMOUNT OF RS.1,06,59,672/- IS TO BE DISALLOWED U/S 40(A)(IA) OF THE ACT. 7.3 BEFORE THE LD CIT(A), IT WAS SUBMITTED THAT FRE IGHT CHARGES WERE PAID FOR SENDING THE GOODS TO THE DESTINATION OF THE DISTRIBUTORS OR C&F AGENTS. THE RESPONSIBILITY TO MAKE THE PAYMENTS ULTIMATELY LIES ON THE ASSESSEE COMPAN Y . THE DISTRIBUTORS HAVE NO AGREEMENT OR CONTRACT WITH THE COMPANY. THE DISTRIB UTORS MAKE SALES TO DIFFERENT BUYERS AND FOR DELIVERY OF THE GOODS THEY INCUR VAN OR RIC KSHAW, COOLIE CARTAGE ETC. AS THE FREIGHT IS TO BE BORNE BY THE COMPANY, THEREFORE, SUCH CHAR GES ARE REIMBURSED TO THE DISTRIBUTORS. SIMILARLY IN RESPECT OF C & F AGENTS, THE RESPONSIB ILITY OF TRANSPORTATION IS WITH THE 13 COMPANY. THERE IS NO CONTRACTUAL PAYMENT FOR FREIGH T AS C & F AGENTS ARE NOT TRANSPORTER. THE LD. CIT(A) AFTER CONSIDERING THE S UBMISSIONS DELETED THE DISALLOWANCE AFTER OBSERVING AS UNDER:- CONTENTION OF THE LD.AR IS CONSIDERED. PAYMENTS M ADE TO THE DISTRIBUTORS ARE NOTHING BUT REIMBURSEMENT OF EXPEN SES INCURRED. THE REIMBURSEMENT IS MADE ON THE BASIS OF CREDIT NOTES ISSUED. THERE IS NO AGREEMENT WITH THE DISTRIBUTORS AND AS SUCH THERE I S NO LIABILITY TO DEDUCT TAX AT SOURCE WHILE REIMBURSING THE TRANSPORTATION AND OTHER EXPENSES REIMBURSED TO THE DISTRIBUTORS. IN THE CASE OF C&F AGENTS THEY ARE ENTITLED TO GET COMMISSION ON SALE ONLY AND ANY EXPENSES INC URRED IS TO BE REIMBURSED ON THE INSTANCE OF CREDIT NOTE. THE AGRE EMENT WITH C&F AGENTS DOES NOT CAST ANY CONTRACTUAL LIABILITY BUT CONTRAC T IS ONLY FOR SALE AND NOT FOR TRANSPORTATION. FURTHER, FROM THE SUBMISSION OF AR, IT APPEARS THAT THERE ARE NO PAYMENTS MADE TO A SINGLE TRANSPORTER FOR MORE THAN RS.20,000/-. THE GOODS ARE TRANSPORTED FROM JAIPUR TO DELHI AND FREIGHT RANGES BETWEEN RS.4,000/- TO RS.5,500/- PER TRUCK A ND THEREAFTER TO LAKHANPUR CHECK POST WITH DIFFERENT TRANSPORTERS. A LL PAYMENTS WERE WITHIN THE PRESCRIBED LIMIT OF RS.20,000/- OF RS.20 ,000/- AT A TIME TO AN INDIVIDUAL TRUCK. THE AO HAS NOT GIVEN LIST OF TRAN SPORTERS TO WHOM PAYMENT MADE IN A SINGLE YEAR IS MORE THAN RS.50,00 0/- OR IN A SINGLE CASE RS.20,000/-. THE PROVISIONS OF SECTION 194C ARE THE REFORE, NOT APPLICABLE AND THEREFORE, DISALLOWANCE MADE UNDER SECTION 40(A )(IA) IS NOT JUSTIFIED. THE AO IS, THEREFORE, DIRECTED TO DELETE THE ADDITI ON OF RS.10659672/-. THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE A PPELLANT. 7.4 THE LD. DR DURING THE COURSE OF PROCEEDING BEFO RE US SUBMITTED THAT THE ASSESSEE HAS MADE PAYMENTS TO DIFFERENT 15 PARTIES. SUCH PAY MENTS ARE IN THE NATURE OF PAYMENTS FOR THE EXECUTION OF WORKS CONTRACT. THE OTHER PART IES MADE FREIGHT PAYMENTS AS PER TERMS 14 AND CONDITIONS OF THE AGREEMENT. IT WAS THEREFORE, SUBMITTED THAT THE PAYMENTS MADE TO 15 PARTIES IS COVERED U/S 194C FOR THE PURPOSE OF D EDUCTION OF TAX AT SOURCE. 7.5 ON THE OTHER HAND, THE LD.AR SUBMITTED THE PAYM ENT IS REIMBURSEMENT OF THE EXPENSES. THE DISTRIBUTORS AND C & F AGENT ARE ENTI TLED TO GET THE COMMISSION. NO SINGLE PAYMENT MADE TO THE TRANSPORTER IS MORE THAN RS. 20 ,000/-. THE LD.AR DREW OUR ATTENTION TO THE DETAILS PLACED AT PAGES 101 TO 125 OF THE P APER BOOK. ALL THESE DETAILS SHOW THAT THERE IS NO PAYMENT TO A SINGLE TRANSPORTER FOR MOR E THAN RS.20,000/-. SECTION 194C IS APPLICABLE ONLY WHEN A PERSON IS RESPONSIBLE FOR MA KING THE PAYMENT TO A CONTRACTOR FOR CARRYING OUT ANY WORK. THE ASSESSEE WAS ONLY REIMBU RSING THE EXPENDITURE ONLY TO THE DISTRIBUTORS AND C & F AGENTS. SECTION 194C IS NOT APPLICABLE AND FOR THIS PROPOSITION, THE LD.AR HAS PLACED RELIANCE OF FOLLOWING DECISION S. 1. CIT VS. UNITED RICE LAND LTD, 322 ITR 594 (P&H) 2. R.K. STEEL VS. ADDL. CIT (ITA NO.434/JP/2010 DATED 29-10-10) 7.6 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE COPY OF AGREEMENT OF CONSIGNMENT SALES AGENCY DATED 01-04-2000 (PBP 72 T O 78). AS PER THIS AGREEMENT, THE SECOND PARTY I.E. THE CONSIGNMENT AGENT HAS TO INCU R THE EXPENSES TOWARDS INWARD FREIGHT AND ALSO FOR THE SECONDARY TRANSPORTATION UPTO THE CUSTOMERS PLACE AND THEY WILL BE ENTITLED FOR REIMBURSEMENT FROM THE ASSESSEE ON MON THLY BASIS SUBJECT TO PRODUCTION OF ORIGINAL EVIDENCES OF THE EXPENDITURES. THUS 15 PAR TIES TO WHOM PAYMENTS HAVE BEEN MADE HAVE INCURRED THE EXPENSES ON BEHALF OF THE AS SESSEE AND HAVE CLAIMED THE REIMBURSEMENT FROM THE ASSESSEE. SUCH PARTIES ARE N OT HAVING ANY AGREEMENT FOR TRANSPORTING THE GOODS. SUCH PARTIES WERE REQUIRED TO PROVIDE THE ASSISTANCE FOR MUTUAL INTEREST. IT IS NOT THE CASE OF THE REVENUE THAT PA YMENT TO EACH TRANSPORTER IS EXCEEDING RS. 20,000/-. THE ITAT AHEMDABAD BENCH IN THE CASE OF DCIT VS. LAXMI PROTEIN 15 PRODUCTS (P) LTD, 3 ITR 768 (TRIBUNAL) HAD AN OCCAS ION TO CONSIDER THE AS TO WHETHER THE PAYMENTS MADE TO THE LABOURERS THROUGH THEIR REPRES ENTATIVE IS COVERED FOR DEDUCTION OF TAX AT SOURCE U/S 194C OF THE ACT. IN CASE THE SING LE PAYMENT TO LABOURER DOES NOT EXCEED RS. 20,000/- THEN THE TAX IS NOT REQUIRED TO BE DED UCTED AT SOURCE. THE AHEMDABAD SPECIAL BENCH IN THE CASE OF KAMREJ BVIHAG SAHAKARI KHAN UDYOG MANDI LTD. VS. ITO, 304 ITR 1 (AT) HAD AN OCCASION TO CONSIDER THE DEDU CTION OF TAX AT SOURCE WHEN THE PAYMENT HAS BEEN MADE THROUGH ZONE SAMITIES TO THE FARMERS. IT WAS HELD THAT THE PAYMENT MADE BY THE ASSESSEE TO ZONE SAMITIES IS FO R THE PURPOSE OF FARMERS AND THE TAX IS NOT REQUIRED TO BE DEDUCTED AT SOURCE BUT THE AS SISTANCE BY THE ZONE SAMITIES WAS IN MUTUAL INTEREST. IN THE INSTANT CASE ALSO, THE ASSI STANCE WAS IN THE MUTUAL INTEREST AS THE DISTRIBUTOR / C & F AGENT WERE SUPPOSED TO GET THE COMMISSION ON THE TURNOVER THE TRIBUNAL IN THE CASE OF R.K. STEELS VS. ADDL. CIT I N ITA NO. 434/JP/2010 , VIDE ORDER DATED 29-10-2010 HELD THAT THE PAYMENT TO THE TRANS PORTER IS NOT COVERED U/S 194C OF THE ACT BECAUSE THE PAYMENTS ARE MADE TO THE TRUCK DRIV ERS BY THE ASSESSEE. WE THEREFORE, HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 1,06,59,672/-. 8.1 THE LAST GROUND OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 15.00 LACS U/S 68 OF THE ACT. 8.2 THE ASSESSEE RECEIVED THE SHARE APPLICATION MON EY FROM THREE COMPANIES. THE AO CONSIDERED THE PAYMENTS OF SHARE APPLICATION MONEY OF RS. 5.00 LACS EACH FROM THREE PARTIES AS UNEXPLAINED U/S 68 OF THE ACT ON THE GRO UND THAT IDENTITY OF THE PARTIES HAS NOT BEEN PROVED. 8.3 THE LD. CIT(A) HAS DELETED THE ADDITION AFTER O BSERVING AS UNDER:- 16 CONTENTION OF THE AR IS CONSIDERED. THE AO HAS MA DE DISALLOWANCE ONLY ON THE GROUND THAT IDENTITY OF SH ARE APPLICANT WAS NOT ESTABLISHED AS NO CONFIRMATION WAS FILED AND SUMMON S ISSUED TO THEM WERE RETURNED UNSERVED. HOWEVER, AS THE SHARE APPLI CATION MONEY WAS MADE BY CHEQUE AND COPIES OF RETURN OF INCOME OF TH E APPLICANTS WERE FILED WITH THEIR PANS, THE IDENTITY OF M/S. SWASTIK SECURITIES & FINANCE LTD AND M/S. ROHAN FINANCE & SECURITIES LTD IS ESTA BLISHED. THE SHARE APPLICANT OF RS. 5 LACS EACH THUS IS PROVED. IN THE CASE OF M/S. BALRAMPUR COMMERCIAL ENTERPRISES LTD., IT WAS SUBMITTED BY TH E AR THAT THE COMPANY WAS CHANGED ITS NAME TO M/S. BALASHREE COMM ERCIAL ENTERPRISES LTD AND COPY OF INCOME TAX RETURN ACKNOWLEDGEMENT W AS FILED WITH COPY OF CERTIFICATION OF INCORPORATION ISSUED BY REGISTR AR OF COMPANIES, W.B. THE CERTIFICATES THAT M/S. BALRAMPUR COMMERCIAL ENT ERPRISES LTD. HAS CHANGED ITS NAME AS M/S. BALASHREE ENTERPRISES LTD W.E.F. 29 TH MARCH 2007. COPY OF FRESH CERTIFICATE OF INCORPORATION M/ S. BALASHRE COMMERCIAL LTD WERE FILE. THUS IDENTITY OF M/S. BALRAMPUR COMM ERCIAL ENTERPRISES LTD (RS.5 LAC) IS ALSO PROVED. AS THE IDENTITY OF A LL THE THREE CREDITORS IS ESTABLISHED, ADDITION CANNOT BE MADE U/S 68 ON ACCO UNT OF UNEXPLAINED SHARE APPLICATION MONEY. AS THE PAYMENTS WERE RECEI VED BY CHEQUES AND IDENTITY OF ALL THE THREE CREDITORS IS ESTABLISHED, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 15 LACS. THE GROUND OF APPEAL I S DECIDED IN FAVOUR OF THE APPELLANT. 8.4 WE HAVE HEARD BOTH THE PARTIES. THE AO HAS MADE THE ADDITION ON THE GROUND THAT THE CONFIRMATIONS FROM THE PARTIES HAVE NOT BEEN FI LED. THE ZEROX COPIES OF THE SHARE APPLICATION FORMS CANNOT BE CONSIDERED A CONCLUSIVE EVIDENCE FOR THE IDENTITY OF THE THREE PARTIES AS PER THE ARGUMENTS OF THE AO. THE ASSESSE E HAS FILED THE COPY OF LETTER ADDRESSED TO THE ADDL. CIT DATED 24 TH DEC. 2009. IN THIS LETTER, IT HAS BEEN MENTIONED IN HAND WRITING THE COPY THE COPY OF THE INCOME TAX RETURNS OF THESE COMPANIES ARE ALSO FILED THOUGH OTHER CONTENTS OF THIS LETTER DATED 24-12-20 09 ARE TYPED. THE AO HAS REPRODUCED THIS LETTER AT PAGE 24 OF THE ASSESSMENT ORDER. THE FACTS OF THE RECEIPT OF THE COPIES OF THE INCOME TAX RETURNS OF THESE COMPANIES ARE NOT MENTI ONED BY THE AO IN THE ASSESSMENT ORDER. THE WORDS MENTIONED IN WRITING IN THE LETTER FILED BEFORE US WHEN THE LETTER IS TYPED MAKES A CONFUSION AS TO WHETHER THE COPIES OF THE R ETURNS WERE FILED BEFORE THE AO. THE LD. CIT(A) HAS DELETED THE ADDITION ON THE GROUND T HAT THE IDENTITY OF SUCH PARTIES STAND 17 ESTABLISHED. WE THEREFORE, RESTORE THE MATTER ON TH E FILE OF THE AO TO VERIFY THE IDENTITY OF THESE PARTIES FROM THE COPY OF THE INCOME TAX RETUR NS AS COPIES OF SUCH RETURNS IS ALSO PROVIDED WITH PAN OF THESE COMPANIES. IN CASE THE I DENTITY IS ESTABLISHED THEN THE ADDITION U/S 68 WILL BE DELETED. IN CASE THE AMOUNT S ARE UNEXPLAINED THEN THESE ARE TO BE ADDED IN THE HANDS OF THE COMPANY WHO HAVE PAID THE SHARE APPLICATION MONEY. HENCE, FOR VERIFICATION OF THE IDENTITY OF THE THREE COMPA NIES, THE MATTER IS RESTORED BACK ON THE FILE OF THE AO FOR THE PURPOSE OF APPLICATION OF SE CTION 68 OF THE ACT. 8.5 IT IS NOTICED THAT THE ASSESSEE HAS FILED THE C ERTAIN EVIDENCE WHICH ARE RELEVANT IN RESPECT OF THE ADDITION MADE U/S 68 OF THE ACT VIDE LETTER DATED 29 TH DEC. 2009. THE ASSESSMENT ORDER IS DATED 24 TH DEC. 2009. IT MEANS THAT THE EVIDENCES WERE FILED WITH THE LETTER DATED 29 TH DEC. 2009 HAVE NOT BEEN CONSIDERED BY THE AO IN TH E ASSESSMENT ORDER. VIDE LETTER DATED 24-1-2009, THE ASSESSEE HAS FILED THE INCOME TAX RETURN ACKNOWLEDGEMENT FOR THE ASSESSMENT YEAR 2009-10 AND COPY OF MEMORANDUM OF ARTICLES OF ASSOCIATION OF M/S. BALRAMPURA COMMERCIAL ENTERP RISE, M/S. SWASTIKA SECURITIES & FINANCE LTD AND M/S. ROHAN FINANCE AND SECURITIES L TD. THE ASSESSMENT ORDER ALSO MENTIONS THE DATE OF HEARING AND THE LAST DATE OF H EARING IS 24 TH DEC. 209. THE LD. CIT(A) WHILE DELETING THE ADDITION OF RS. 15.00 LACS U/S 6 8 OF THE ACT HAS CONSIDERED THE EVIDENCE FILED WITH LETTER DATED 29 TH DEC. 2009. IT IS TRUE THAT THE AO HAS BEEN PRESENT IN HEARING BEFORE THE LD. CIT(A) BUT THE ADDITIONAL EVIDENCES, IF ANY, CAN BE ADMITTED ON THE GROUND MENTIONED IN RULE 46A. THE LD. CIT(A) HAS ALSO TO R ECORD IN WRITING THE REASONS FOR ADMITTING THE ADDITIONAL EVIDENCES. CONSIDERING THE ADDITIONAL EVIDENCES FILED BEFORE THE LD. CIT(A) AND NON-COMPLIANCE OF RULE 46A OF INCOME TAX RULES, WE FEEL THAT THE ISSUE OF ADDITION OF RS. 15.00 LACS IS REQUIRED TO BE RES TORED BACK ON THE FILE OF THE AO. 18 9.1 THE ASSESSEE IS ALSO AGGRIEVED AGAINST CONFIRMI NG THE ADDITION OF RS. 19,40,909/- ON ACCOUNT OF COMMISSION EXPENSES U/S 40(A)(IA) OF THE ACT. 9.2 THIS ISSUE IN OUR OPINION IS REQUIRED TO BE REF ERRED TO SPECIAL BENCH ON THE FOLLOWING QUESTION. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE EXPENDITURE OF COMMISSION OF RS. 19,40,909/- CAN BE DISALLOWED U/S 40(A)(IA). IT IS POINTED OUT THAT JAIPUR BENCH AND HYDERABAD B ENCH HAVE HELD THAT IN CASE ACTUAL PAYMENT IS MADE WITHOUT DEDUCTION OF TAX AT SOURCE AS PER CHAPTER XVII OF THE I.T. ACT THEN THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT AP PLIED WHILE THE BANGALORE AND KOLKATTA BENCHES HAVE HELD THAT PROVISIONS OF SECTION 40(A)( IA) WILL BE APPLICABLE EVEN IF PAYMENTS HAVE BEEN MADE PROVIDED TDS HAS NOT BEEN M ADE 9.3 THE MATTER WAS REFERRED TO THE HON'BLE PRESIDE NT, INCOME TAX APPELLATE TRIBUNAL FOR CONSTITUTING THE SPECIAL BENCHU. THE OBSERVATIO N OF THE HON'BLE PRESIDENT VIDE HEAD OFFICE U.O. NO.F.12-JD(AT)/2011 DATED 30-05-2011 H AS BEEN COMMUNICATED AS UNDER :- REFERENCE TO SPECIAL BENCH MADE IN THE CASE OF M/ S. MERILYN SHIPPING & TRANSPORTS, VIZAG VS. ADDL. CIT RANGE-1, VISHAKHAPATANAM IN ITA NOS. 477/VIZG/2008 OF ITA 250/VIZAG/2009 BY MY ORDER DATED 26/05/2011 ON AN IDENTICAL CONTROVERSY. HENCE REFER ENCE CONSIDERED UNNECESSARY IN THE ASSESSEE'S CASE. THE ASSESSEE HE REIN, IF SO ADVISED, MAY SEEK PERMISSION TO INTERVENE IN THE VIZG SPECIAL BE NCH CASE. INFORM JAIPUR BENCH, RETURN THE FILE. SD/- R.V. EASWAR PRESIDENT 9.4 AFTER GETTING THE OBSERVATION OF THE HON'BLE PR ESIDENT, ITAT , THE MATTER WAS AGAIN HEARD. THE ASSESSEE WAS INTIMATED THAT HE MAY SEEK PERMISSION TO INTERVENE IN VIZG 19 SPECIAL BENCH CASE OR ALTERNATIVELY THE MATTER IS T O BE KEPT PENDING. HOWEVER, BOTH THE PARTIES ADMITTED THAT THE ISSUE MAY BE RESTORED BAC K ON THE FILE OF THE AO. THE AO WILL CONSIDER THIS LEGAL ISSUE AGAIN AS PER DECISION OF THE SPECIAL BENCH WHICH MAY BE AVAILABLE TO HIM AT THE TIME OF DECIDING THE ISSUE AFRESH. THE AO WILL GIVE THE OPPORTUNITY TO THE ASSESSEE TO GIVE THE SUBMISSIONS AFRESH ON THIS ISSUE. WE HAVE ALSO NOTICED THAT AMENDMENT IN SECTION 40(A)(IA) WAS MAD E BY THE FINANCE ACT, 2010 W.E.F. 01-04-2010, HAS ALSO BEEN REFERRED TO THE SPECIAL B ENCH TO DECIDE AS TO WHETHER SUCH AMENDMENT COULD BE CONSIDERED AS CURATIVE AND TO BE CONSIDERED AS RETROSPECTIVE. IN CASE TDS HAS BEEN DEPOSITED BEFORE THE SPECIFIED DATE TH EN THE ASSESSEE WILL BE AT LIBERTY TO ARGUE THE CASE BEFORE THE AO THAT THE AMENDMENT MAD E BY FINANCE ACT 2010 IS CURATIVE IN NATURE. HENCE, THE ISSUE OF ADDITION OF RS. 19,4 0,909/- IS RESTORED BACK ON THE FILE OF THE AO. 10. IN THE RESULT, THE APPEALS OF THE ASSESSEE AS W ELL AS REVENUE ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT 17-06-2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 17/06/2011 *MISHRA COPY FORWARDED TO :- 1. THE ACIT, CIRCLE- 3, JAIPUR / THE ADDL. CIT, RANG E-3, JAIPUR 2. M/S. HERBICIDES (INDIA) LTD., JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.633/JP /10) A.R, ITAT, JAIPUR 20 21