ITO, Kanpur V. M/s. Heena Food Products Pvt. Ltd., Kanpur

ITA 645/LKW/2010

• Counselvise Citation: 64523714 RSA 2010
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 25-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P KUMAR
• Keywords: Unexplained investment; Business income; Opportunity of being heard; Bonafide belief; Source of fund; Valuation report; Condonation of delay
• Section: 133A; 69; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE HONBLE SHRI H.L. KARWA AND HONBLE SHRI N.K. SAINI ITA NO.645/LKO/2010 ASSESSMENT YEAR:2006-07 ITO 6(1) KANPUR V. M/S HEENA FOOD PRODUCTS PVT. LTD. 117/348, A BLOCK, GEETA NAGAR, KANPUR PAN:AABCH4314C (APPELLANT) (RESPONDENT) CO NO.16/LKO/2011 [ARISING OUT OF ITA NO.645/LKO/2010] ASSESSMENT YEAR:2006-07 M/S HEENA FOOD PRODUCTS PVT. LTD. 117/348, A BLOCK, GEETA NAGAR, KANPUR V. ITO 6(1) KANPUR (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI. P. KUMAR, D.R. ASSESSEE BY: SHRI. AMIT SHUKLA, ADVOCATE O R D E R PER N.K. SAINI: THE APPEAL BY THE DEPARTMENT AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 13.8.2010 OF THE LD. CIT(A)-II, KANPUR. IN THE DEPARTMENTAL APPEAL, THE FOLLOWING GROUNDS HAVE BEEN RAISED:- 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.58,97,075/- OUT OF RS.68,69,300/- MADE BY THE A.O. BY MAKING PROPORTIONATE DISALLOWANCE OF BOGUS LIABILITY TOWARDS DIESEL EXPENSES. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION WITHOUT APPRECIATING THE FACT THAT IT HAS BEEN :-2-: ESTABLISHED BEYOND DOUBT THAT THE LIABILITY TOWARDS DIESEL EXPENSES IS BOGUS AND NON-EXISTENT. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS TRIED TO MISLEAD THE DEPARTMENT BY FURNISHING FALSE CONFIRMATION OF CREDITOR AND BOGUS BILLS FOR PURCHASE OF DIESEL. 4. THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR BEING ERRONEOUS, IN LAW AND ON FACTS DESERVES TO BE VACATED AND THAT THE ORDER OF THE ASSESSING OFFICER BE RESTORED; AND 5. THAT THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF APPEAL GIVEN ABOVE AND/OR ADD ANY FRESH GROUND AS AND WHEN IT IS CONSIDERED NECESSARY TO DO SO. 2. THE ASSESSEE IN ITS CROSS OBJECTION HAS RAISED THE FOLLOWING GROUNDS:- 1. BECAUSE THE ID. CIT (A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING A DISALLOWANCE OF RS.9,72,225/- OUT OF EXPENSES CLAIMED UNDER THE HEAD 'DIESEL EXPENSES' ON THE GROUND THAT ASSESSEE'S CLAIM IS EXCESSIVE. 2. BECAUSE THE ID. CIT (A), ON A DUE CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE, PARTICULARLY THAT: (A) THE CLAIM UNDER THE HEAD 'DIESEL EXPENSES' ENTERED INTO COMPUTATION OF GROSS PROFIT RATE. (B) THE GROSS PROFIT RATE (AS COMPUTED AFTER TAKING INTO CONSIDERATION THE 'DIESEL EXPENSES') WAS HELD :-3-: TO BE REASONABLE IN THE ASSESSMENT AND ACCEPTED AS SUCH BY THE ASSESSING OFFICER HIMSELF, WHILE PASSING THE ASSESSMENT ORDER DATED 26.12.2008; (C) AFTER 'REASONABLENESS' OF 'GP RATE' STOOD ACCEPTED TO WHICH THERE WAS NO CHALLENGE EVEN AT THE APPELLATE STAGE, NO VARIATION COULD HAVE BEEN MADE THEREIN BY SUSTAINING THE IMPUGNED DISALLOWANCE; SHOULD HAVE HELD THE CLAIM OF EXPENSES TO BE FULLY VERIFIABLE AND NO DISALLOWANCE WAS CALLED FOR, EITHER ON FACTS OR IN LAW. 3. BECAUSE IN ANY CASE AFTER HAVING REJECTED THE BOOKS OF ACCOUNT, BY INVOKING THE PROVISIONS OF SECTION 145 (3), 'REASONABLENESS' OF 'GP RATE' REMAINED THE SOLELY DECISION FACTOR IN THE MATTER OF ADMISSIBILITY OF APPELLANT'S CLAIM FOR DEDUCTION UNDER THE HEAD DIESEL EXPENSES (SO ALSO OTHER COMPONENTS OF GP RATE) ONLY CRITERIA FOR JUDGING THE REASONABLENESS AND DISALLOWANCE OF RS.9,72,225/- AS SUSTAINED BY THE CIT (A) IS WHOLLY ERRONEOUS, BOTH ON FACTS AS WELL AS IN LAW. 3. THE CROSS OBJECTION FILED BY THE ASSESSEE IS BELATED. THE ASSESSEE MOVED AN APPLICATION FOR CONDONATION OF DELAY IN FILING THE CROSS OBJECTION AND THE EXPLANATION FOR DELAY IN FILING THE CROSS OBJECTION READS AS UNDER:- REG: APPEAL NO.645/LKW/2010 INCOME TAX OFFICER V/S HEENA FOOD PRODUCTS (P) LTD. RANGE-6(1) 117/348, A BLOCK KANPUR, GEETA NAGAR, KANPUR. (APPELLANT) (RESPONDENT & CROSS OBJECTOR) :-4-: SUB: PETITION FOR CONDONATION OF DELAY IN FILING OF CROSS OBJECTION IN THE ABOVE APPEAL IN THE AFORESAID CASE THE REVENUE HAS FILED APPEAL AGAINST ORDER DATED 13.08.2010, PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-LL, KANPUR CHALLENGING THE DELETION OF ADDITIONS OF RS.58,97,075/- OUT OF TOTAL DISALLOWANCE OF RS.68,69,300/- MADE BY THE ASSESSING OFFICER TOWARDS DIESEL EXPENSES. THE MEMO OF APPEAL ALONG WITH THE GROUNDS OF APPEAL WAS SENT BY REGISTRY OF ITAT WHICH WAS RECEIVED BY THE RESPONDENT ASSESSEE ON 01.11.2010. THE SAID MEMO OF APPEAL ALONG WITH THE RELEVANT PAPERS WERE SENT TO SR. COUNSEL, SRI S.K. GARG, AT ALLAHABAD FOR HIS OPINION AND TO CONDUCT THE APPEAL BEFORE THE HON'BLE ITAT. 2. AS PER THE LEGAL ADVICE GIVEN BY SRI S.K. GARG, CROSS OBJECTION WAS TO BE FILED AGAINST PART DISALLOWANCE SUSTAINED BY THE CIT (APPEALS) ON LEGAL AS WELL AS FACTUAL GROUNDS. ACCORDINGLY, THE 'CROSS OBJECTION' WAS DULY PREPARED AND SENT TO RESPONDENT ASSESSEE FOR SIGNING IT AFTER VERIFICATION AND TO BE SENT TO SRI AMIT SHUKLA, ADVOCATE AN ASSOCIATE OF S.K. GARG & COMPANY, ADVOCATES AT LUCKNOW OFFICE. THE RESPONDENT ASSESSEE HAS SENT THE SAID 'CROSS OBJECTION' THROUGH COURIER ON 02.12.2010. THE RESPONDENT ASSESSEE WAS UNDER A BONAFIDE BELIEF THAT THE SAME WOULD HAVE BEEN DELIVERED AND FILED BY 03.12.2010 AS THE DATE OF HEARING OF THE DEPARTMENTAL APPEAL BEING ITA NO.645/LKW/2010 WAS FIXED FOR HEARING ON 20.12.2010. HOWEVER, THE SAID APPEAL WAS ADJOURNED FROM TIME TO TIME. LATER ON, IT WAS TRANSPIRED FROM ENQUIRY FROM THE OFFICE OF SRI AMIT SHUKLA, ADVOCATE THAT THE SAID COURIER THROUGH WHICH THE CROSS OBJECTION WAS SENT COULD NOT BE RECEIVED AND MUST HAVE GOT MISPLACED EITHER IN THE TRANSIT OR FROM :-5-: THE OFFICE. THEREAFTER THE RESPONDENT ASSESSEE SENT ANOTHER 'CROSS OBJECTION' IN FORM-36A TO SRI AMIT SHUKLA, ADVOCATE, AT LUCKNOW OFFICE BY HAND. 3. THUS, THE DELAY IN FILING OF CROSS OBJECTION WAS WHOLLY DUE TO BONAFIDE REASON BEYOND THE CONTROL OF RESPONDENT ASSESSEE AS IT HAD IMPLICIT FAITH AND BELIEF THAT ITS 'CROSS OBJECTION' MUST HAVE BEEN RECEIVED IN THE OFFICE OF AMIT SHUKLA, ADVOCATE AT LUCKNOW AND WHO IN TURN MUST HAVE FILED THE 'CROSS OBJECTION' BEFORE THE REGISTRY. THE DELAY IN FILING OF 'CROSS OBJECTION' IS WHOLLY ON ACCOUNT OF NON COMMUNICATION BETWEEN THE RESPONDENTS ASSESSEE AND SRI AMIT SHUKLA, ADVOCATE AND THERE IS NO CALLOUSNESS OR NEGLIGENCE IN FILING OR PURSUING THE CROSS OBJECTION. PRAYER 4. IN VIEW OF THE FACTS AND CIRCUMSTANCES MENTIONED ABOVE, AND IN THE INTEREST OF JUSTICE, IT IS RESPECTFULLY PRAYED THAT YOUR HONOUR BE PLEASED TO CONDONE THE DELAY OF MORE THAN 7 MONTHS IN FILING OF CROSS OBJECTION AND HEAR THE GROUNDS RAISED IN THE CROSS OBJECTION ON MERITS AND IN ACCORDANCE WITH LAW AND OR GRANT SUCH OTHER RELIEF AS MAY BE FOUND ADMISSIBLE UNDER LAW AND EQUITY. RESPECTFULLY SUBMITTED, YOURS FAITHFULLY, FOR HEENA FOOD PRODUCTS (P) LTD., SD/-(VIJAY KUMAR GUPTA) DIRECTOR DATED: 7 TH JULY 2011 4. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE IN THE PETITION DATED 7.7.2011 FOR CONDONATION OF DELAY IN FILING THE CROSS OBJECTION IN THE ABOVE APPEAL. THE LD. D.R. COULD NOT CONTROVERT THE SAID CONTENTION. WE, THEREFORE, :-6-: CONSIDERING THE ABOVE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE, CONDONE THE DELAY AND THE CROSS OBJECTION IS ADMITTED. 5. FROM THE APPEAL OF THE DEPARTMENT AND THE CROSS OBJECTION OF THE ASSESSEE, IT APPEARS THAT THE ISSUE INVOLVED IS COMMON WHICH RELATES TO THE PROPORTIONATE DISALLOWANCE OF BOGUS LIABILITY TOWARDS DIESEL EXPENSES. 6. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE WAS RUNNING A FLOOR MILL AT RAWA SITUATED IN DISTRICT KANPUR DEHAT AND FILED RETURN OF INCOME ON 28.11.2006 SHOWING AN INCOME OF ` 2,72,218. THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE CONSUMPTION OF FUEL HAD INCREASED FROM ` 36,28,589 IN ASSESSMENT YEAR 2005-06 TO ` 64,66,666 IN ASSESSMENT YEAR 2006-07 WHICH REPRESENTED AN INCREASE OF 78.21%. HE ALSO POINTED OUT THAT CONSUMPTION OF RAW MATERIALS HAD INCREASED FROM 38538 QUINTALS TO 49977 QUINTALS WHICH REPRESENTED AN INCREASE OF 29%. ACCORDING TO HIM, THERE WAS A DISPROPORTIONATE INCREASE IN CONSUMPTION OF FUEL IN COMPARISON TO CONSUMPTION OF RAW MATERIALS. HE FURTHER NOTICED THAT THE ASSESSEE HAD SHOWN A LIABILITY OF `68,69,300 IN THE NAME OF M/S MAA DURGA SERVICE STATION FROM WHOM FUEL WAS PURCHASED BY THE ASSESSEE. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD PURCHASED 2 LAKHS LITERS OF OIL AMOUNTING TO `64,81,500 FROM THE SAID CREDITOR I.E. M/S MAA DURGA SERVICE STATION AND THE SAID PURCHASES WERE MADE THROUGHOUT THE YEAR. THE ASSESSING OFFICER REPRODUCED THE COPY OF ACCOUNT OF M/S MAA DURGA SERVICE STATION FOR ASSESSMENT YEAR 2006-07 AT PAGE 2 OF THE ASSESSMENT ORDER DATED 26.12.2008 WHICH READS AS UNDER:- DATE PARTICULARS DEBIT CREDIT BALANCE 01.04.05 OPENING BALANCE 7,71,800/- 18.04.05 BEING AMOUNT OF BILL NO.0384 5,79,200/- 20,000 LTR. 09.05.05 BEING AMOUNT OF BILL NO. 0468 2,91,900/- 10,000/- 16.06.05 BEING AMOUNT OF BILL NO.0487 2,91,900/- 10,000/- 25.07.05 BEING AMOUNT OF BILL NO. 0549 3,13,600/- 10,000/- :-7-: 17.08.05 BEING AMOUNT OF BILL NO. 0796 3,13,500/- 10,000/- 01.10.05 BEING AMOUNT OF BILL NO.0999 6,70,200/- 20,000 LTR. 25.11.05 BEING AMOUNT OF BILL NO. 1384 6,70,200/- 20,000 LTR. 17.12.05 BEING AMOUNT OF BILL NO. 2600 6,70,200/- 20,000 LTR. 12.01.06 BEING AMOUNT OF BILL NO.2745 6,70,200/- 20,000 LTR. 21.01.06 BEING AMOUNT OF BILL NO.3146 6,70,200/- 20,000 LTR. 31.01.06 BEING AMOUNT OF BILL NO.3459 6,70,200/- 20,000 LTR. 08.02.06 BEING AMOUNT OF BILL NO.3700 6,70,200/- 20,000 LTR. 28.02.06 BEING AMOUNT PAID AS CHE.NO.184198 3,84,000/- 2 LAC LTR. 68,69,300/- [CR.] 3,84,000/- 72,53,300/- 7. FROM THE ABOVE ACCOUNT, THE ASSESSING OFFICER POINTED OUT THAT THE ASSESSEE HAD MADE PURCHASES OF `64,81,500 DURING THE ENTIRE YEAR BUT HAD SHOWN PAYMENT OF `3,84,000 ONLY THROUGH A CHEQUE DATED 28.2.2006. SO IT WAS VERY PECULIAR THING THAT A SERVICE STATION GOES ON MAKING SUPPLY OF FUEL TO THE ASSESSEE ROUND THE YEAR WITHOUT TAKING ANY PAYMENT. THE ASSESSING OFFICER ASKED THE ASSESSEE FOR COMPLETE DETAILS OF THE SAID CREDITOR ALONG WITH CONFIRMATION, PAN AND WARD DETAIL (PLACE OF ASSESSMENT) ETC. THE ASSESSEE FURNISHED CONFIRMATION. THE ASSESSING OFFICER POINTED OUT THAT THE SAID CONFIRMATION DID NOT GIVE ANY ADDRESS OF THE SAID DEALER AND PERMANENT ACCOUNT NUMBER ABKCD7567N ALSO DID NOT GIVE ANYWHERE ABOUT THE PLACE OF ASSESSMENT OF THE ASSESSEE. ON SEARCHING THE SAID PAN DETAILS ON THE AST NETWORK OF THE INCOME TAX DEPARTMENT, THE ASSESSING OFFICER FOUND THAT THE SAID PAN WAS SHOWN AS INVALID. THE EXPLANATION OF THE ASSESSEE WAS THAT THE DIESEL WAS PURCHASED FROM THE SAID PARTY AND NEW ADDRESS WAS PRESENTLY NOT KNOWN. IT WAS SUBMITTED THAT THE CREDIT BALANCE OF M/S MAA DURGA SERVICE STATION HAD BEEN PAID OF AND IS NIL AS ON 31.3.2008. THE ASSESSEE ALSO FILED COPY OF ACCOUNT FOR SUCCEEDING FINANCIAL YEARS I.E. 2006-07 AND 2007-08. THE ASSESSEE ALSO REQUESTED THAT :-8-: CONFIRMATION FROM THE HEAD OF THE DEPARTMENT MAY ALSO BE OBTAINED UNDER THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT, 1961. THE ASSESSING OFFICER ON PERUSAL OF THE COPY OF ACCOUNT OF FINANCIAL YEARS 2006-07 AND 2007-08 FOUND THAT THE ENTIRE CREDIT BALANCE FOUND SQUARED UP BY CASH PAYMENT OF `20,000 ON SUCCEEDING DAYS AND NONE OF THE PAYMENT HAD BEEN MADE THROUGH CHEQUE. ACCORDING TO THE ASSESSING OFFICER, THE ARGUMENT OF THE ASSESSEE THAT THE CONFIRMATION MAY BE OBTAINED BY THE DEPARTMENT THROUGH EXERCISE OF ITS POWER IS IMPOSSIBLE UNTIL AND UNLESS THE CORRECT AND PRESENT POSTAL ADDRESS IS FURNISHED BY THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE FAILED TO DISCHARGE ITS ONUS. HE, THEREFORE, TREATED THE LIABILITY AS BOGUS CREDITOR AND ADDED BACK TO THE INCOME OF THE ASSESSEE. ACCORDINGLY ADDITION OF `68,69,300 WAS MADE. 8. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND THE SUBMISSIONS OF THE ASSESSEE AS MENTIONED IN PARA 4.1 AND 4.4 IN THE IMPUGNED ORDER OF THE LD. CIT(A) ARE REPRODUCED VERBATIM AS UNDER:- '4.1 IN RELATION TO THE AFORESAID APPEAL, THE APPELLANT BEGS TO REFER AND RELY UPON THE AVERMENTS MADE IN THE STATEMENT OF FACTS ACCOMPANYING THE MEMO OF APPEAL ITSELF WHICH HAVE NOT SO FAR BEEN REBUTTED BY THE LEARNED ASSESSING OFFICER. THEREFORE, THE AVERMENTS SO MADE BY THE APPELLANT DESERVE TO BE TREATED AS AN 'ADMITTED FACTS' IN VIEW OF THE PRINCIPLE LAID DOWN BY THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF RAVI IRON INDUSTRIES VS. DIRECTOR OF INVESTIGATION AND OTHERS REPORTED IN (2003) 264 ITR 28 WHEREIN THEIR LORDSHIPS HAVE OBSERVED AND HELD AS UNDER :- ORDER 8, RULE 5 OF THE CODE OF CIVIL PROCEDURE, 1908, PROVIDES THAT EVERY ALLEGATION OF FACT IN THE PLAINT IF NOT DENIED SPECIFICALLY OR BY NECESSARY IMPLICATION OR STATED TO BE NOT ADMITTED IN THE PLEADING OF THE :-9-: DEFENDANT SHALL BE TAKEN TO BE ADMITTED EXCEPT AGAINST THE PERSON UNDER DISABILITY. ALTHOUGH THE PROVISIONS OF THE CODE OF CIVIL PROCEDURE ARE NOT APPLICABLE TO WRIT PETITIONS, THE GENERAL PRINCIPLES STATED IN THE CODE OF CIVIL PROCEDURE ARE APPLICABLE TO WRIT PROCEEDINGS, (PAGE 28) AND ACCORDINGLY THE APPEAL DESERVES TO BE DECIDED ON THE BASIS OF SUCH 'ADMITTED FACTS'. 2. SOLELY WITH A VIEW TO SUPPLEMENT THE SAID AVERMENTS, WHICH FORMED PART OF THE APPELLANT'S ARGUMENT ALSO IN THIS APPEAL, THE APPELLANT BEGS TO MAKE FURTHER SUBMISSIONS FOR FAVOUR OF CONSIDERATION BY YOUR HONOUR, THAT FOLLOW. 6. ENTRIES APPEARING IN SUCH BOOKS OF ACCOUNT, THEMSELVES CONSTITUTE AN EVIDENCE ABOUT THE CORRECTNESS THEREOF AS THE PROVISIONS OF SECTION 34 OF THE EVIDENCE ACT BECOME APPLICABLE. IN SUPPORT OF THIS CONTENTION, THE APPELLANT BEGS TO REFER AND RELY UPON THE DECISION OF HON'BLE GUWAHATI HIGH COURT IN THE CASE OF TOLARAM DAGA VS. CIT REPORTED IN 59 ITR 632 WHEREIN AT PAGE 636 THEIR LORDSHIPS HAVE OBSERVED AND HELD AS UNDER :- 'IT WOULD APPEAR THAT THE ACCOUNTS OF THE FIRM WHICH HAD BEEN PRODUCED IN THE CASE HAD BEEN ACCEPTED AND ACTED UPON BY THE DEPARTMENT AND NO SERIOUS CHALLENGE HAD BEEN MADE TO THEIR GENUINENESS OR THAT THEY WERE KEPT REGULARLY IN THE COURSE OF BUSINESS. THAT BEING THE CASE, THE ACCOUNTS ARE RELEVANT AND AFFORD PRIMA FACIE PROOF OF THE ENTRIES AND THE CORRECTNESS THEREOF UNDER SECTION 34 OF THE EVIDENCE ACT SO THAT WHERE A DEPOSIT IS FOUND TO HAVE BEEN MADE BY A THIRD PARTY IN THE ACCOUNTS OF THE FIRM, THAT ENTRY IS PRIMA FACIE PROOF THAT THE AMOUNT IN QUESTION :-10-: WAS DEPOSITED BY THE PERSON IN WHOSE NAME THE DEPOSIT STANDS. TO REQUIRE THE FIRM OR THE INDIVIDUAL PARTNERS TO GO FURTHER AND ADDUCE PROOF OF THE SOURCES FROM WHICH THE DEPOSITS IN QUESTION APPEARING IN THE ACCOUNTS OF THE NAME OF THIRD PARTIES WERE DERIVED BY THEM, WOULD BE PLACING A BURDEN ON THE FIRM AS WELL AS THE PARTNERS, WHICH IS NOT REQUIRED OR JUSTIFIED BY LAW. FOR AUGHT WE KNOW, IN MOST CASES IT MAY WELL- NIGH BE IMPOSSIBLE FOR THE FIRM OR THE PARTNERS TO KNOW OR DETERMINE THE SOURCES FROM WHICH THE MONEY DEPOSITED WITH THEM HAD BEEN REALIZED BY THE DEPOSITORS. ' (PAGE 636). 7. THE SAID POSITION OF LAW HAS SINCE BEEN APPROVED BY THE HON'BLE APEX COURT ALSO IN THE CELEBRATED CASE OF CBI VS. V. C. SHUKLA REPORTED IN 1998 AIR PAGE 1406. SOME RELEVANT EXTRACTS FROM THE SAID JUDGMENT, WHICH HAVE A DIRECT BEARING ON THE CASE OF THE APPELLANT, ARE REPRODUCED HEREUNDER :- '28. THAT BRINGS US TO THE QUESTION WHETHER IT WAS 'REGULARLY KEPT' SO AS TO SATISFY THE LAST REQUIREMENT OF SECTION 34 TO BE ADMISSIBLE IN EVIDENCE AS A RELEVANT FACT. MR. ALTAF AHMED SUBMITTED THAT THE ABOVE QUESTION HAS GOT TO BE ANSWERED KEEPING IN VIEW THE NATURE OF BUSINESS THE JAIN BROTHERS WERE CARRYING ON AND THAT WHEN MR. 71/91 IS SCANNED IN THAT PERSPECTIVE IT IS OBVIOUS THAT IT WAS REGULARLY KEPT. IN REFUTING THE ABOVE CONTENTIONS MR. SIBAL RELIED UPON 1550 OF AMERICAN JURISPRUDENCE, PROOF OF FACTS (VOLUME 34, SECOND SERIES) WHEREIN IT HAS BEEN OBSERVED THAT NO MERELY REGULARITY IS REQUIRED; THE ENTRY MUST HAVE BEEN FAIRLY CONTEMPORANEOUS WITH :-11-: THE TRANSACTIONS ENTERED. HE ALSO REFERRED TO 1526 OF THE SAME BOOK WHICH READS AS UNDER:- XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX THE ASSESSEE ALSO SUBMITTED BEFORE THE LD. CIT(A) AS UNDER:- 4.4. 'BY WAY OF PRELIMINARY OBJECTION, THE APPELLANT BEGS TO SUBMIT THAT SUCH AN APPROACH IS WHOLLY ERRONEOUS. REPEATEDLY AN ISSUE CAME UP FOR CONSIDERATION BEFORE THE APPELLATE COURTS/HON'BLE HIGH COURTS AS TO WHETHER EVEN AFTER ACCEPTING THE BOOKS OF ACCOUNT FOR THE PURPOSES OF COMPUTATION OF INCOME FROM BUSINESS, IT IS LEGALLY PERMISSIBLE FOR THE ASSESSING OFFICER TO REJECT THE SAME VERY BOOKS OF ACCOUNT AND MAKE ADDITION UNDER THE DEEMING PROVISIONS OF THE 'ACT'. IT HAS BEEN HELD THAT THE ASSESSING OFFICER CANNOT BLOW HOT AND COLD IN RELATION TO THE SAME VERY BOOKS OF ACCOUNT WITH REGARD TO TWO DIFFERENT SOURCES OF INCOME. A GIST OF SUCH CASE LAWS IS GIVEN HEREUNDER:- (I) SHRI HAR SAMP COLD STORAGE & GENERAL MILLS VS. ITO REPORTED IN 27 ITR PAGE 1 WHEREIN THE HON'BLE BENCH OBSERVED AND HELD AS UNDER: 'MAINTENANCE OF BOOKS OF ACCOUNT AND RECORDING OF THE INVESTMENTS IN THESE BOOKS OF ACCOUNT ARE TWO COMPULSIVE LEGISLATIVE REQUIREMENTS FOR SECTION 69 TO APPLY. IT CANNOT THEREFORE, BE AN ARGUMENT TO SAY THAT THAT BOOKS OF ACCOUNT ARE NOT RELEVANT FOR THE PURPOSE OF MAKING ADDITION UNDER SECTION 69 AND THAT THE BOOKS OF ACCOUNT BECOME RELEVANT ONLY FOR THE PURPOSES OF ASCERTAINING BUSINESS INCOME. THERE SHOULD BE CONTEMPORANEOUS EVIDENCE OF THE INVESTMENT AND THE EVIDENCE ON WHICH THE ASSESSEE CAN RELY ARE ONLY THE :-12-: BOOKS OF ACCOUNT MAINTAINED BY HIM AND THESE MATTERS CAN NOT BE LEFT TO THE GUESS ESTIMATE OF ANY AUTHORITIES IN EACH AND EVERY CASE. BY READING SECTION 69 AND 143 (3) TOGETHER, IT IS IMPERATIVE THAT THE ITO MUST, RATHER HE HAD A STATUTORY DUTY, TO EXAMINE THE EVIDENCE PRODUCED BY THE ASSESSEE IN SUPPORT OF HIS COST OF CONSTRUCTION, NAMELY, THE BOOKS OF ACCOUNT, RECORD A FINDING ABOUT THE FALSITY OR UNRELIABILITY NOT JUST BE EXPRESSING A CAPRICIOUS VIEW BUT BY POINTING OUT FLAWS IN THE EVIDENCE, IF ANY. IT WAS ONLY AFTER THE EVIDENCE WAS REJECTED THAT THE ITO WOULD GET THE POWER TO ESTIMATE THE COST OF CONSTRUCTION. IT WAS AT THAT POINT OF TIME THAT HE COULD RELY UPON THE REPORT OF THE VALUATION OFFICER. THE PRODUCTION OF TWO VALUATION REPORT BY THE ASSESSEE, IN THE PRESENT CASE, DID NOT MEAN THAT THE ASSESSEE HAD DISCARDED HIS BOOKS OF ACCOUNT AS UNRELIABLE. WHAT HE DID WAS TO REINFORCE THE ACCOUNTED VERSION BY PRODUCING THE VALUATION REPORTS, AS AN INDEPENDENT EXTERNAL AID AND AS A PIECE OF CORROBORATIVE EVIDENCE. THE ITO NOT HAVING POINTED OUT ANY DEFECTS IN THE ACCOUNT BOOKS SHOULD NOT HAVE REJECTED THE ACCOUNTED VERSION AND THE COMMISSIONER (APPEALS) HAVING FOUND THAT THE VALUATION MADE BY THE DVO AS EXCESSIVE TO A EXTENT, SHOULD HAVE EXAMINED THE MATTER IN GREATER DETAIL AND IN ANY CASE SHOULD HAVE FOUND OUT DEFECTS IN THE ACCOUNTED VERSION AND NOT HAVING DONE THAT, HIS ORDER ALSO SUFFERED FROM THE SAME DEFECT AS THAT OF THE ITO. ACCORDINGLY, THERE WAS NO JUSTIFICATION FOR SUSTAINING THE ADDITION MADE BY THE ITO AND THESE HAD TO BE DELETED.' :-13-: (II) ANAND PICTURE PALACE VS. ITO, ALLAHABAD BENCH OF THE ITAT WHEREIN THE HON'BLE MEMBERS OBSERVED AND HELD AS UNDER:- 'IN CASE THE COST OF CONSTRUCTION OF ACQUISITION OF MACHINERY HAS BEEN UNDER STATED IN THE BOOKS OF ACCOUNT, OR THE MATERIAL USED IN THE CONSTRUCTION IS MORE THAN WHAT HAS BEEN SHOWN IN THE BOOKS, THEN IT COULD BE HELD THAT THE BOOKS OF ACCOUNT ARE NOT RELIABLE. IN SUCH CIRCUMSTANCES, THE ASSESSING OFFICER WOULD BE JUSTIFIED IN MAKING AN ESTIMATE OF THE COST, WHICH MIGHT HAVE BEEN INCURRED BY THE ASSESSEE IN THE CONSTRUCTION OF THE BUILDING AND INSTALLATION OF THE MACHINERY. BUT IF THE ACCOUNT MAINTAINED BY THE ASSESSEE IS CORRECT, AND NO DEFECT IS DETECTED THEREIN, THEN THERE CAN BE NO JUSTIFICATION FOR MAKING THE ADDITION BY ESTIMATING THE COST. RECOURSE TO ESTIMATE CAN BE HAD ONLY IF THE ACCOUNTS DO NOT REFLECT THE TRUE STATE OF AFFAIRS. ' (III) CIT VS. PRATAP SINGH AMROSINGH RAJENDRA SINGH AND DEEPAK KUMAR REPORTED IN 200ITR PAGE 788 (RAJ) AND RELEVANT EXTRACT OF WHICH IS REPRODUCED HERE UNDER: 'IN RESPECT OF INVESTMENT MADE IN PROPERTY, THERE CAN BE ONLY TWO METHODS TO FIND OUT THE CORRECT POSITION - (I) EXAMINATION OF BOOKS OF ACCOUNT WHICH HAVE BEEN MAINTAINED PROPERLY AND (II) VALUATION REPORT. IF THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNT AND ALL DETAILS ARE MENTIONED IN SUCH BOOKS OF ACCOUNT, WHICH ARE DULY SUPPORTED BY THE VOUCHERS AND NO DEFECTS ARE POINTED OUT AND THE BOOKS ARE NOT REJECTED, THE FIGURES SHOWN THEREIN HAVE TO BE FOLLOWED. THE VALUATION REPORT CAN BE TAKEN INTO CONSIDERATION ONLY WHEN THE BOOKS OF ACCOUNT ARE NOT RELIABLE OR ARE NOT SUPPORTED BY PROPER VOUCHERS OR THE INCOME-TAX OFFICER IS OF THE OPINION THAT NO RELIANCE CAN BE :-14-: PLACED ON SUCH BOOKS OF ACCOUNT. IT IS TRUE THAT THE INCOME- TAX OFFICER HAS NO OPTION BUT TO RELY ON THE VALUATION REPORT WHICH IS A DOCUMENT PREPARED BY AN EXPERT AND IS ADMISSIBLE, BUT THERE MUST BE A FINDING BY THE INCOME-TAX OFFICER THAT THE BOOKS OF ACCOUNT MAINTAINING BY THE ASSESSEE ARE DEFECTIVE OR ARE NOT RELIABLE.' (IV) SHIV ENGG. WORKS VS. INCOME-TAX OFFICER REPORTED IN 53 TAXMAN PAGE 109 (JP) (MAG) WHEREIN IT HAS BEEN HELD THAT- 'UNLESS THE ITO WAS ABLE TO POINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE HE WOULD NOT BE JUSTIFIED IN REJECTING THE BOOK RESULTS AND SUBSTITUTING FIGURES, EVEN IF THEY WERE ALLEGED TO BE FIGURES OF UNDISCLOSED INVESTMENT BASED ON THE REPORT OF ANY EXPERT. THE ASSESSMENT ORDER SUFFERED FROM BASIC DEFECT ALSO. EVEN ON MERITS, IT WAS FOUND THAT A DIFFERENCE OF RS.6,600/- SPREAD OVER A PERIOD OF ABOUT 9 YEARS WAS ONLY A DIFFERENCE OF ESTIMATE AND COULD BE SAID WITH CERTAINTY TO BE AN INVESTMENT REALLY MADE BY THE ASSESSEE, WHICH WAS NOT DISCLOSED TO THE DEPARTMENT OR WHICH WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS. THEREFORE, THE ADDITION MADE BY THE ITO AND UPHELD BY THE COMMISSIONER (APPEALS) WAS DELETED.' (V) SHEIKHAR CHAND JAIN & SONS VS. INSPECTING ASSISTANT COMMISSIONER REPORTED IN 45 TAXMAN PAGE 82- (DELHI) (TAX MAG) WHEREIN IT HAS BEEN HELD THAT- 'THE ASSESSEE'S BOOKS OF ACCOUNT HAD BEEN ACCEPTED AND ITS INCOME FROM BUSINESS AS DECLARED HAD BEEN ACCEPTED AS CORRECT WITH ONLY ROUTINE MODIFICATION. THE ASSESSEE HAD BEEN DECLARING THE INVESTMENT FOR THE LAST FOUR YEARS AND THE INVESTMENT REPORTED BY IT SEEMED ACCEPTABLE BEING SUPPORTED BY THE REPORTS OF TWO REGISTERED :-15-: VALUERS. THERE WAS NO JUSTIFICATION FOR THE PLEA THAT THE CASE SHOULD BE SENT BACK TO THE IAC (ASSESSMENT) FOR EXAMINATION OF THE ACCOUNTS. IT WAS NOW TOO LATE TO ORDER SUCH AN INVESTIGATION WHEN NO MATERIAL WAS PLACED TO SHOW THAT SUCH AN INVESTIGATION WAS REALLY NECESSARY. IT WAS NOT CLEARLY ESTABLISHED THAT THE COST OF CONSTRUCTION AS DECLARED BY THE ASSESSEE WAS INCORRECT OR THAT ANY LARGER AMOUNT HAD BEEN SPENT ON CONSTRUCTION. THE COST OF CONSTRUCTION AS REPORTED BY THE VALUATION OFFICER OR AS DETERMINED BY THE IAC (ASSTT) WAS UNACCEPTABLE IN THE FACT OF SUFFICIENT AND BETTER EVIDENCE TO THE CONTRARY. THEREFORE, THE ADDITION MADE WAS UNJUSTIFIED AND WAS DELETED.' (VI) UMA BUILDERS PRIVATE LTD. LUCKNOW VS. ACIT, CIRCLE- 2(3), LUCKNOW WHEREIN THE HON'BLE MEMBERS OBSERVED AND HELD AS UNDER- THERE IS NO JUSTIFICATION FOR REPLYING ON THE REPORT OF THE DEPARTMENTAL VALUATION OFFICER IN PREFERENCE TO THE ACTUAL TRANSACTIONS RECORDED IN THE BOOKS OF ACCOUNT IN RESPECT OF VARIOUS EXPENSES MAINTAINED BY THE ASSESSEE DURING THE REGULAR COURSE OF BUSINESS AND THE SAME BEING SUBJECTED TO STATUTORY AUDIT AND ALSO UNDER THE COMPANIES ACT. THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(APPEALS) THOUGH ON DIFFERENT GROUND DESERVES TO BE DELETED. (VII) ITO VS. SMT. PARVIN BARI, VARANASI WHEREIN THE HON'BLE ALLAHABAD BENCH OF THE ITAT AFTER REFERRING TO VARIOUS DECISIONS CITED ABOVE HELD AS UNDER:- '7. AFTER CAREFUL CONSIDERATION, WE ARE OF THE OPINION THAT THE CONTENTION OF THE ID. COUNSEL FOR THE ASSESSEE MUST BE UPHELD. THE CIT(A) HAS ALREADY NOTED THAT THE REGULAR BOOKS :-16-: OF ACCOUNTS AND VOUCHERS WERE MAINTAINED FOR THE BUILDING CONSTRUCTION. ADDITION FOR UNEXPLAINED INVESTMENT, IF ANY, CAN BE MADE ONLY U/S 69 OF THE ACT AND WOULD FALL TO BE CONSIDERED AS 'INCOME FROM OTHER SOURCES'. SECTION 145 (1) OF THE ACT APPLIED TO INCOME FROM OTHER SOURCES ALSO. IT IS LAID DOWN THEREIN THAT SUCH INCOME SHALL BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. DEPARTURE CAN BE MADE ONLY IF THE CASE FALLS WITHIN THE PROVISO TO SECTION 145 (1) OR U/S 145(2). NO MATERIAL HAS BEEN PLACED BEFORE US TO SHOW THAT EITHER OF THEM WAS APPLICABLE. IT, THEREFORE, BECOMES MANDATORY TO COMPUTE THE INCOME IN ACCORDANCE WITH THE BOOKS AND THERE IS NO JUSTIFICATION FOR RESORTING TO AN ESTIMATE. THIS VIEW IS FULLY SUPPORTED BY THE CASE LAW RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. WE, THEREFORE, UPHOLD THE DELETION OF THE ADDITIONS MADE BY THE CIT(APPEALS) THOUGH FOR DIFFERENT REASONS. (VIII) M. SELVARAJ VS. ITO REPORTED IN 258 ITR PAGE 82 (AT SEC.) (CHENNAI) WHEREIN THE HON'BLE 3RD MEMBER HELD AS UNDER: - 'IF THE BOOKS OF ACCOUNT HAVE BEEN MAINTAINED WHEREIN INVESTMENT IS RECORDED, AS WAS THE CASE HERE, THE ASSESSING OFFICER HAS TO FIND SOME INFIRMITIES IN THE SAID BOOKS OF ACCOUNT PARTICULARLY WITH REFERENCE TO THE COST OF CONSTRUCTION AS ENTERED THEREIN, SO AS TO CLOTHE HIMSELF WITH JURISDICTION TO GET AN INFORMATION ABOUT THE TRUE 'COST' THEREOF BY MAKING A REFERENCE TO THE VALUATION OFFICER OR FROM ANY OTHER SOURCE. FURTHER, SECTION 69 OF THE ACT CLEARLY SAYS THAT ONLY SUCH INVESTMENT CAN BE TREATED AS 'UNDISCLOSED INCOME' OF THE ASSESSEE, WHICH HAS NOT BEEN FOUND RECORDED IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAS A FURTHER DUTY TO RECORD THE REASONS FOR ARRIVING :-17-: AT THE CONCLUSION THAT THE COST OF CONSTRUCTION SHOWN BY THE ASSESSEE IS NOT CORRECT. IN THE INSTANT CASE THE COMMISSION ISSUED BY THE ASSESSING OFFICER UNDER SECTION 131(1)(B) OF THE ACT WITHOUT RECORDING HIS SATISFACTION THAT THE COST OF CONSTRUCTION SHOWN BY THE ASSESSEE WAS NOT CORRECT, WAS NOT VALID (IX) K.K. SESHAIYER VS. CIT, REPORTED IN 246 ITR PAGE 351 (MAD) WHEREIN IT HAS BEEN HELD THAT 'WHEN THE ACTUAL COST OF CONSTRUCTION WAS DULY RECORDED BY THE ASSESSEE AND THAT COST ALSO WAS SET OUT IN THE AGREEMENT WITH THE CONTRACTOR, SPECIFYING THE RATES, AND WHICH RATES HAD BEEN ACCEPTED BY THE TRIBUNAL, AND THERE WAS NO FINDING THAT THE BUILDING IS LARGER THAN WHAT THE ASSESSEE HAS CLAIMED IT TO BE OR HAD BETTER QUALITY OF CONSTRUCTION OR FIXTURES THAN THAT WHICH THE ASSESSEE HAS RECORDED IN HIS BOOKS, THE OPINION OF THE VALUER CANNOT BE STRAIGHTAWAY SUBSTITUTED FOR THE ACTUAL COST THAT WAS RECORDED IN THE ASSESSEE'S BOOKS. THE TRIBUNAL HAS NOT FOUND THAT THE BOOKS MAINTAINED BY THE ASSESSEE ARE NOT CREDIBLE. IN FACT THE TRIBUNAL HAS NOT EXPRESSED OPINION ON THE CORRECTNESS OF THE ENTRIES IN THE ASSESSEE'S BOOKS. THOUGH IN THE ORDER INITIALLY MADE, THE TRIBUNAL FOUND FAULT WITH THE ASSESSEE FOR NOT HAVING PRODUCED THE AGREEMENT WITH THE CONTRACTOR, AFTER THE ASSESSEE POINTED OUT THAT THE AGREEMENT THAT HAD BEEN ENTERED INTO WITH THE CONTRACTOR HAD BEEN PRODUCED BEFORE THE ASSESSING OFFICER, THE TRIBUNAL MADE A FURTHER ORDER REFUSING TO RECONSIDER ITS EARLIER ORDER BUT AT THE SAME TIME ASSETING THAT THE RATES AS SET OUT IN THE AGREEMENT HAD BEEN ADOPTED BY THE TRIBUNAL IN DETERMINING THE VALUE OF THE BUILDING'. :-18-: (X) ITO VS. VIJETA EDUCATIONAL SOCIETY REPORTED IN (2009) 118 ITD 382 NOTWITHSTANDING EVEN IF A REFERENCE UNDER S. 142A IS MADE BY THE AO ON CERTAIN CONSIDERATIONS SUCH AS ANYTHING FOUND DURING THE COURSE OF SURVEY UNDER S. 133A OR ON THE BASIS OF A TAX EVASION PETITION OR A REFERENCE IS REQUIRED TO BE MADE DURING THE COURSE OF OTHER PROCEEDINGS OR A REPORT OF THE DVO IS AVAILABLE TO THE AO BEFORE MAKING AN ASSESSMENT OR REASSESSMENT THEN SAME CAN BE UTILIZED ONLY IN ACCORDANCE WITH SUB-S. (3) OF S. 142A I.E., THE ASSESSEE HAS TO BE GIVEN AN OPPORTUNITY OF BEING HEARD BEFORE SUCH A REPORT IS UTILIZED AND IN ACCORDANCE WITH S. 145 WHERE BOOKS OF ACCOUNT ARE REQUIRED TO BE REJECTED BY POINTING OUT SOME APPARENT DEFECTS. IN OUR CONSIDERED VIEW THE PROVISIONS OF S. 142A CANNOT BE READ IN ISOLATION TO S. 145. IN OTHER WORDS, IF BOOKS OF ACCOUNT ARE FOUND TO BE CORRECT AND COMPLETE IN ALL RESPECT AND NO DEFECT IS POINTED OUT THEREIN AND COST OF CONSTRUCTION OF BUILDING IS RECORDED THEREIN, THEN THE ADDITION ON ACCOUNT OF DIFFERENCE IN COST OF CONSTRUCTION COULD NOT BE MADE EVEN IF A REPORT IS OBTAINED WITHIN THE MEANING OF S. 142A FROM THE DVO. IT IS BECAUSE THE USE OF THE REPORT OF THE DVO OBTAINED UNDER S. 142A IS NOT MANDATORY BUT IS DISCRETIONARY AS THE WORD USED IS 'MAY' THEREIN. ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT IN THE PRESENT CASE WHEN AO HAS NOT REJECTED THE BOOKS OF ACCOUNT BY POINTING OUT ANY DEFECTS REFERENCE TO THE DVO WILL NOT BE VALID AND, THEREFORE, DVO'S REPORT COULD NOT BE UTILIZED FOR FRAMING ASSESSMENT EVEN IF SUCH A REPORT IS CONSIDERED TO BE OBTAINED UNDER S. 142A. SINCE REFERENCE TO DVO BEING HELD AS INVALID, THE ASSESSMENT/REASSESSMENT FRAMED THEREAFTER WOULD ALSO BE INVALID. AS A RESULT, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) THOUGH ON DIFFERENT :-19-: GROUNDS. WE DO NOT CONSIDER IT NECESSARY TO DEAL WITH THE OTHER ISSUES AS THEY ARE OF ACADEMIC INTEREST ONLY. 10, THE SAID CASE LAWS ALTHOUGH DELIVERED IN THE CONTEXT OF ADDITION ON THE BASIS OF DVO'S REPORT, ARE EQUALLY APPLICABLE, IF NOT WITH GREATER FORCE IN THE CASE OF THE APPELLANT ALSO AND IT IS PLEADED THAT THE ADDITION OF RS.68,69,300/- SHOULD BE DELETED STRAIGHTAWAY.' 9. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT NO DOUBT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN THE NORMAL COURSE OF ITS BUSINESS CONSTITUTES AN ADMISSIBLE EVIDENCE IN TERMS OF SECTION 34 OF THE EVIDENCE ACT, HOWEVER, IT IS A TRITE LAW THAT STRICT RULES OF EVIDENCE ACT ARE NOT APPLICABLE TO THE INCOME-TAX PROCEEDINGS AND THAT THE ACCOUNT BOOKS OF THE ASSESSEE ARE NOT SACROSANCT. ACCORDING TO HIM, THE ASSESSING OFFICER WAS PERFECTLY JUSTIFIED IN LAW TO CALL FOR DETAILS AND CONFIRMATIONS TO PROVE THE GENUINENESS OF THE ENTRIES IN THE ACCOUNT. THE LD. CIT(A), FROM THE RECORDS FOUND THAT THE ASSESSEE HAD PROVIDED VIDE ITS LETTER DATED 28.8.2008 THE COPIES OF ALL BILLS OF PURCHASES ISSUED BY ONE M/S MAA DURGA SERVICE STATION WHICH GAVE NAME AND ALSO SOME ADDRESS NAMELY INDIAN OIL DEALERS, RANIA, KANPUR DEHAT, UP AND ALSO GAVE UPST NUMBER. HE FURTHER OBSERVED THAT THE ASSESSEE HAD FILED VIDE ITS LETTER DATED 23.10.2008 A DULY SIGNED CONFIRMATION FROM THE AFORESAID PARTY. THE LD. CIT(A) AFTER GOING THROUGH THE CASE RECORDS AND THE ORDER SHEET ENTRIES DID NOT FIND A SINGLE LETTER THAT WAS WRITTEN AND SENT TO THE PARTY IN QUESTION BY THE ASSESSING OFFICER AND EVEN THERE WAS NO INSPECTORS REPORT ON THE RECORD. THE LD. CIT(A) STATED THAT HE FAILED TO UNDERSTAND AS TO FROM WHERE DID THE ASSESSING OFFICER GET MATERIALS TO CONCLUDE THAT THE ADDRESS GIVEN BY THE ASSESSEE WAS NOT COMPLETE. ACCORDING TO HIM, IN CASE THE ASSESSING OFFICER HAD ANY DOUBT ABOUT THE GENUINENESS OF THOSE BILLS OR THE IDENTITY OF THE PARTY, IT WAS THE BOUNDEN DUTY OF THE ASSESSING OFFICER TO MAKE NECESSARY ENQUIRIES BY SENDING WARD INSPECTOR OR BY ATLEAST SENDING A LETTER TO THE PARTY. HE, THEREFORE, DID :-20-: NOT UPHOLD THE OBSERVATIONS OF THE ASSESSING OFFICER ABOUT THE IDENTITY OF THE PARTY. THE LD. CIT(A) CALLED FOR A REMAND REPORT FROM THE ASSESSING OFFICER WHO SUBMITTED REPORT DATED 20.7.2010 WHEREIN HE HAD SUMMARIZED HIS FINDINGS AS UNDER:- '7. IN THE STATEMENT RECORDED, THE DIRECTOR STATED THAT THE ASSESSEE COMPANY HAS NO UPPCL CONNECTION FOR ELECTRICITY- THE FACTORY IS RUN ON GENERATOR FOR WHICH DIESEL IS USED- THAT THE FACTORY RUNS FOR 2-4 HOURS PER DAY SINCE BEGINNING- THE GENERATOR IS OF CROMPTON GREAVES COMPANY AND ITS CAPACITY IS 500 KVA- DIESEL OF 100-110 ITRS. IS CONSUMED PER HOUR BY THE GENERATOR. THE ASSESSEE FURTHER STATED THAT THE BILLS AND THE CONFIRMATION WERE ISSUED BY THE SUPPLIERS OF DIESEL- THAT BOTH THE DIESEL SUPPLIERS THEMSELVES USED TO BRING DIESEL TO THE ASSESSEE'S FACTORY THE PAYMENT WAS MADE ONLY AFTER VERIFYING THE QUALITY OF THE DIESEL, SO IT WAS NOT NECESSARY FOR THE ASSESSEE TO VERIFY THE ANTECEDENTS OF THE SUPPLIERS. THE ASSESSEE WAS SHOWN THE REPLY DATED 07.07.10 OF M/S. MAA DURGA SERVICE STATION WHEREBY THIS CONCERN HAS DENIED ISSUING ANY CONFIRMATION ON 18.09.08 (WHICH WAS SUBMITTED BY THE ASSESSEE) AND WAS REQUIRED TO EXPLAIN THE GENUINENESS. THE ASSESSEE STATED THAT THE BILL AND THE CONFIRMATION SUBMITTED BY IT (THE ASSESSEE) IS CORRECT. ON BEING QUESTIONED AS TO WHEN ALL THREE INDEPENDENT PARTIES I. E. IOC LTD., M/S. MAA DURGA SERVICE STATION AND M/S. INDIRA AUTOMOBILES ARE CONFIRMING THAT THERE IS NO SUCH CONCERN AS CLAIMED BY THE ASSESSEE COMPANY THEN HOW CAN THE DIESEL SUPPLIES, BILLS AND CONFIRMATION BE TREATED AS GENUINE, THE ASSESSEE HAS TAKEN THE STAND THAT IT HAS NO ELECTRICITY CONNECTION AND THE USE OF DIESEL IS A MUST FOR RUNNING THE FACTORY AND THE BILLS HAVE BEEN RAISED ONLY AFTER PROPER SUPPLIES OF DIESEL. A PERUSAL OF THE INDEPENDENT ENQUIRIES FROM IOC LTD., MAA DURGA SERVICE STATION AND INDIRA AUTOMOBILES AND THE :-21-: RECORDED STATEMENT OF THE ASSESSEE SHOWS THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THE GENUINENESS OF THE CREDITOR DURING THE YEAR UNDER CONSIDERATION BUT HAS RELIED ON THE FACT THAT IT HAS NO ELECTRICITY CONNECTION FOR RUNNING THE FACTORY.' 10. ON THE BASIS OF THE AFORESAID REMAND REPORT, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE DID NOT HAVE ANY UP ELECTRICITY BOARD POWER CONNECTION AND WAS GENERATING POWER FROM ITS OWN DG SETS AND THAT IT HAD SHOWN EXPENSES ON ACCOUNT OF CONSUMPTION OF DIESEL/LDO IN EARLIER YEARS AS WELL AS IN SUBSEQUENT YEAR. THUS, THERE WAS NO DOUBT THAT CERTAIN EXPENDITURE ON ACCOUNT OF CONSUMPTION OF DIESEL/LDO MUST HAVE ALSO BEEN INCURRED DURING THIS YEAR. AT THE SAME TIME, THE LD. CIT(A) OBSERVED THAT THE IMPUGNED PURCHASES OF DIESEL WERE NOT VERIFIABLE SINCE THE PERSONS FROM WHOM THE DIESEL ALLEGED TO HAVE BEEN PURCHASED ARE NON-EXISTENT. THE LD. CIT(A) CONFRONTED THE REMAND REPORT TO THE ASSESSEE WHO SUBMITTED THAT THE DIRECTOR OF THE COMPANY HAD ALREADY ATTENDED BEFORE THE ASSESSING OFFICER AND HIS STATEMENT WAS RECORDED WHEREIN IT WAS CATEGORICALLY STATED BY THE DIRECTOR THAT THE ASSESSEE RECEIVED THE DIESEL AT THE FACTORY ITSELF FROM THOSE SELLERS WHO HAD GIVEN THOSE BILLS AND THE REQUIREMENT OF DIESEL WAS A MUST FOR PRODUCTION PURPOSES. IT WAS ALSO SUBMITTED THAT EVEN IF THE BILLS WERE UNVERIFIABLE, THE PURCHASE AND CONSUMPTION OF DIESEL IN ANY CASE COULD NOT BE DENIED AND THAT IT WAS QUITE POSSIBLE THAT THE SUPPLIERS MAY NOT BE GIVING THEIR TRUE IDENTITY FOR THE REASONS BEST KNOWN TO THEM AND IN ANY CASE IF THE SUPPLIERS OF DIESEL DID NOT WANT TO COME FORWARD, THE ASSESSEE COULD NOT BE SADDLED AND BLAMED FOR NONE OF ITS FAULT. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE ACT SINCE THE ASSESSEE HAD NOT BEEN ABLE TO PLACE ANY MATERIAL BEFORE THE ASSESSING OFFICER TO PROVE THAT THE LIABILITY SHOWN TO BE OUTSTANDING WAS VERIFIABLE. 11. THE LD. CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAD NOT DISPUTED THE SALES MADE BY THE ASSESSEE NOR DOUBTED THE PURCHASE OF MATERIALS AND/OR CONSUMABLES. THE LD. CIT(A) POINTED OUT THAT BOTH THE :-22-: PURCHASES AND SALES HAD BEEN ACCEPTED AS SUCH AND ONCE THE CONSUMPTION OF DIESEL COULD NOT BE DENIED, THERE STANDS NO REASON THAT THE EXPENDITURE INCURRED ON PURCHASE OF DIESEL BUT NOT PAID DURING THE YEAR WOULD APPEAR AS LIABILITY IN THE BALANCE SHEET. THE LD. CIT(A) CATEGORICALLY STATED THAT THE ASSESSEE DID NOT HAVE POWER CONNECTION AND AT THE SAME TIME HAD MANUFACTURED GOODS AND THAT THE ASSESSING OFFICER IN HIS REMAND REPORT HAD ADMITTED THAT THE PLANT WAS RUN/OPERATED THROUGH GENERATOR ONLY. HE FURTHER OBSERVED THAT TO RUN GENERATOR, DIESEL IS ESSENTIAL INGREDIENT AND HENCE THE ASSESSEE MUST HAVE PURCHASED DIESEL BECAUSE THE GENERATOR COULD NOT BE PUT TO USE WITHOUT CONSUMPTION OF DIESEL. ACCORDING TO HIM, THE FACT THAT THE CREDITORS WERE NOT VERIFIABLE COULD NOT BE THE SOLE BASIS TO DISALLOW THE ENTIRE PURCHASES OF DIESEL, AT THE BEST IT COULD BE THE CASE OF INFLATED QUANTITY ON PURCHASE OF DIESEL. HE, THEREFORE, WAS OF THE VIEW THAT THE ACCOUNTS OF THE ASSESSEE DID NOT GIVE A COMPLETE, CORRECT AND TRUE STATE OF AFFAIRS AS UNDERSTOOD IN TERMS OF SECTION 145(3) OF THE ACT AND THEREFORE THE BOOKS OF ACCOUNT COULD NOT BE ACCEPTED AS SUCH. 12. THE LD. CIT(A) SUSTAINED THE DISALLOWANCE @ 15% OF THE TOTAL DIESEL PURCHASED DURING THE YEAR BY OBSERVING IN PARA 6.5 OF THE IMPUGNED ORDER AS UNDER:- 6.5 LAST YEAR, THE APPELLANT APART FROM CONSUMING DIESEL HAD ALSO CONSUMED LDO WHICH WAS PURCHASED FROM RELIANCE INDUSTRIES LTD. LDO IS MUCH CHEAPER THAN DIESEL. THIS YEAR, THE ASSESSEE HAS NOT BOUGHT ANY LDO; INSTEAD, IT HAS APPARENTLY CONSUMED ONLY DIESEL IN ITS DG SETS. IT'S PRETTY WELL KNOWN COMMERCIALLY THAT CONSUMPTION OF LDO IS ABOUT 15-20% HIGHER AS COMPARED TO DIESEL WHEN USED IN GENERATOR SETS. THUS, THE CONSUMPTION OF QUANTITY OF DIESEL (PRO-RATA) DURING THE CURRENT YEAR SHOULD HAVE BEEN LOWER AS COMPARED TO THE LAST-YEAR WHEN THE ASSESSEE HAD PRIMARILY USED LDO. FOR EXAMPLE - IF IN PREVIOUS YEAR, THE ASSESSEE USED 1 LAKH LITRES OF LDO TO RUN ITS DG SET AND IN THE NEXT YEAR IF IT CONSUMES ONLY DIESEL (INSTEAD OF LDO) FOR :-23-: THE SAME TIME PERIOD, CONSUMPTION OF DIESEL WOULD BE ONLY 85-90% WHICH IS 90,000 LITRES IN PLACE OF 1 LAKH LITRES OF LDO. SECONDLY, EVEN LAST YEAR, THE APPELLANT HAS PURPORTEDLY PURCHASED DIESEL FROM M/S INDIRA AUTOMOBILES, KANPUR, AND ALSO M/S MAA DURGA SERVICE STATION, KANPUR AMOUNTING TO RS.18,20,420/-. THESE ARE AGAIN THE SAME PARTIES WHICH ARE NOT VERIFIABLE AS PER THE REMAND REPORT OF THE AO. THUS, THE QUANTITY OF DIESEL PURCHASED DURING THE PREVIOUS YEAR IS ALSO NOT OPEN TO VERIFICATION. THE APPELLANT HAD USED DIESEL (58500 LITRES) ALONG WITH LDO (92782 LITRES) LAST YEAR, AND THIS YEAR IT HAS, PRIMA-FACIE USED 199,910,840 LITRES OF DIESEL COSTING RS.64,66,666.73 TO RUN ITS DG SETS. FOR THE REASONS MENTIONED ABOVE I.E. DIFFERENCE IN CONSUMPTION OF DIESEL AND LDO, IT SHOULD HAVE CONSUMED LESSER QUANTITY OF DIESEL ON PRO-RATA BASIS. MOREOVER, ONE CANNOT BE OBLIVIOUS OF THE ACT THAT THE PURCHASE OF QTY. OF DIESEL IS SUSPECT EVEN IN THE EARLIER YEAR (DISCUSSED SUPRA). BASED ON THE AFORESAID DISCUSSION AND LOOKING AT THE TOTALITY OF THE CIRCUMSTANCES, I DISALLOW 15% OF THE TOTAL EXPENDITURE INCURRED ON PURCHASE OF DIESEL FOR NON- VERIFIABILITY OF ITS PURCHASE AND ALSO ON ACCOUNT OF EXCESSIVE AND UNREASONABLE CONSUMPTION. I DIRECT THE ASSESSING OFFICER TO COMPUTE THE INCOME BY MAKING A DISALLOWANCE @ 15% OF THE TOTAL DIESEL PURCHASED DURING THE YEAR. 13. NOW THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST SUSTENANCE OF THE DISALLOWANCE/ADDITION WHILE THE DEPARTMENT IS IN APPEAL AGAINST THE DELETION OF THE DISALLOWANCE/ADDITION MADE BY THE ASSESSING OFFICER. 14. THE LD. D.R. REITERATED THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER DATED 26.12.2008 AND FURTHER SUBMITTED THAT THE ASSESSEE NEITHER PRODUCED THE PARTY FROM WHOM ALLEGED PURCHASES WERE MADE AND DID NOT GIVE COMPLETE ADDRESS, THEREFORE, THE :-24-: LIABILITY WAS BOGUS AND THE ASSESSING OFFICER HAD RIGHTLY MADE THE DISALLOWANCE/ADDITION. 15. IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE WAS NOT HAVING ANY ELECTRIC POWER CONNECTION, SO IT WAS SOLELY DEPENDENT ON THE GENERATOR FOR THE ELECTRIC POWER. HE FURTHER SUBMITTED THAT THE ASSESSEE PURCHASED DIESEL TO RUN GENERATOR SET AS SUCH CONSUMPTION OF DIESEL CANNOT BE DENIED PARTICULARLY WHEN THE ASSESSING OFFICER ACCEPTED THE SALE MADE BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ADDITION SUSTAINED BY THE LD. CIT(A) WAS ON HIGHER SIDE PARTICULARLY WHEN THE ASSESSING OFFICER HIMSELF HAS MADE A DISALLOWANCE OF ` 1.80 LAKHS ONLY OUT OF CONSUMPTION SHOWN BY THE ASSESSEE AT ` 24,18,288 FOR ASSESSMENT YEAR 2007-08 VIDE ORDER DATED 19.11.2010. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, THE SAID DISALLOWANCE WAS APPROXIMATELY 8% OF THE DIESEL EXPENSES CLAIMED BY THE ASSESSEE. HE, THEREFORE, SUBMITTED THAT THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A) @15% WAS HIGHLY EXCESSIVE. 16. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE PURCHASES OF DIESEL MADE BY THE ASSESSEE WERE NOT FULLY VERIFIABLE BECAUSE THE PARTY FROM WHOM DIESEL WAS PURCHASED WAS NOT PRODUCED AND MOST OF THE PAYMENTS IN THE SUCCEEDING YEARS AGAINST THE IMPUGNED PURCHASES WERE CASH PAYMENTS, THEREFORE, THE BOOK RESULTS OF THE ASSESSEE WERE RIGHTLY REJECTED BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. IN THE PRESENT CASE, THE LD. CIT(A) CATEGORICALLY STATED THAT IN THE PRECEDING YEAR, THE ASSESSEE APART FROM CONSUMING DIESEL HAD ALSO CONSUMED LDO WHICH WAS PURCHASED FROM RELIANCE INDUSTRIES LIMITED. HE ALSO POINTED OUT THAT THE LDO WAS MUCH CHEAPER THAN DIESEL. IN OUR OPINION THAT MAY BE ONE OF THE REASONS FOR INCREASE IN THE EXPENSES OF FUEL DURING THE YEAR UNDER CONSIDERATION IN COMPARISON TO THE EARLIER YEARS. IN THE INSTANT CASE, THIS FACT HAS NOT BEEN DISPUTED THAT THE ASSESSEE WAS USING GENERATOR SET BECAUSE IT :-25-: WAS NOT HAVING ANY ELECTRIC POWER CONNECTION. THE ASSESSING OFFICER ALSO ACCEPTED THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING AND THE SALES SHOWN BY THE ASSESSEE HAS NOT BEEN DOUBTED. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE ASSESSEE CONSUMED DIESEL TO RUN GENERATOR SET. HOWEVER, THE PURCHASE OF DIESEL WERE NOT FULLY VERIFIABLE, THEREFORE, SOME DISALLOWANCE WAS CALLED FOR. IN OUR OPINION, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE FOR THE ENTIRE PURCHASE CONSIDERING THE LIABILITY AGAINST PURCHASES AS BOGUS EVEN WHEN HE HAD ACCEPTED THAT THE ASSESSEE PURCHASED DIESEL IN THE YEAR UNDER CONSIDERATION AND MADE PAYMENT IN THE SUCCEEDING YEAR IN CASH TO THE PARTIES IN WHOSE NAME LIABILITY WAS SHOWN. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS HIGHLY EXCESSIVE. IN OUR OPINION, THE LD. CIT(A) IS FAIR AND REASONABLE IN DISALLOWING THE EXPENDITURE INCURRED ON PURCHASE OF DIESEL @ 15%. WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). ACCORDINGLY, WE DO NOT SEE ANY MERIT EITHER IN THE APPEAL OF THE DEPARTMENT OR IN THE CROSS OBJECTION OF THE ASSESSEE. 17. IN THE RESULT, APPEAL OF THE DEPARTMENT AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 13.7.2011) SD/- SD/- [H. L. KARWA] [ N. K. SAINI] VICE PRESIDENT ACCOUNTANT MEMBER DATED:13.7.2011 JJ:1307 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR