ELECON POLYMERS PRIVATE LTD., BHARATPUR V. ACIT, BHARATPUR

ITA 739/JPR/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5006 (ITAT-JAIPUR)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 19-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DR DHK
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Principle of natural justice; Deemed dividend; Competent authority; Capital receipt
• Section: 43B; 28

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 739/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12 M/S. ELECON POLYMERS PRIVATE LTD. E-10A, BRIJ INDUSTRIAL AREA BHARATPUR CUKE VS. THE ACIT CIRCLE- BHARATPUR BHARATPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAACE 8630 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI RAJENDRA AGARWAL, CA JKTLO DH VKSJ LS@ REVENUE BY :SHRI R.A.VERMA, ADDL. CIT -. DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 27/09/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 5/10/2016 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A), ALWAR DATED 30-07-2015 FOR THE ASSESSMEN T YEAR 2011-12 RAISING THEREIN FOLLOWING GROUNDS:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L D. CIT(A) HAS ERRED IN:- (1) CONFIRMING THE ADDITION OF RS. 13,463/- TOWARDS ESI & INTEREST ON ESI. (2) CONFIRMING THE DISALLOWANCE OF EXPENSE INCURRED ON FOREIGN TOUR RS. 85,512/-. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 2 (3) CONFIRMING THE ADDITION DEEMED DIVIDEND OF RS. 12,25,000/- AS PER SECTION 2(22)(E) OF THE I.T. ACT , 1961 (4) CONFIRMING THE DISALLOWANCE OF DISCOUNT OF RS. 1.00 LAC OUT OF ADDITION OF RS. 16,08,885/- MADE BY THE AO. (5) CONFIRMING THE ADDITION OF CAPITAL SUBSIDY OF R S. 5,79,650/- (6) CONFIRMING ADDITION OF RS. 1.00 LAC OUT OF DISALLOWANCE OF RS. 2,45,236/- OUT OF VARIOUS EXPE NSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT. (7) CONFIRMING THE DISALLOWANCE OF RS. 60,000/- U/S 40(A)(IA) OF THE I.T. ACT, 1961. 2.1 THE GROUND NO.1 OF THE ASSESSEE IS REGARDING CO NFIRMING THE ADDITION OF RS. 13,463/- TOWARDS ESI AND INTEREST O N ESI. IT IS NOTED THAT THE AO HAD DISALLOWED THE PAYMENT OF RS. 11,940/- T OWARDS LATE DEPOSIT OF ESI CONTRIBUTION FOR THE MONTHS OF OCT 2009 TO MARCH 2010 WHICH DOES NOT PERTAIN TO ASSESSMENT YEAR UNDER CONSIDERA TION. IT IS FURTHER NOTED THAT THE AO DISALLOWED RS. 1481/- (I.E. RS. 5 32/- FOR APRIL 2010, RS. 357/- FOR MAY 2010 AND RS. 592/- FOR AUG. 2010) TOW ARDS LATE DEPOSIT OF ESI CONTRIBUTION. THE AO ALSO DID NOT ALLOW THE AMOUNT OF RS. 1,523/- AS INTEREST PAID BY THE ASSESSEE BECAUSE OF LATE DE POSIT OF ESI CONTRIBUTION. HENCE, THE AO DISALLOWED THE AMOUNT O F RS. 14,944/- ( RS. 11,940 + RS. 1,481 + RS. 1,523) AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 3 2.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO HAD PARTLY ALLOWED THE ADDITION CONFIRME D BY THE AO BY OBSERVING AS UNDER:- 4.7 CONSIDERING THE EVIDENCE AVAILABLE ON RECORD AND THE PROVISIONS OF THE I.T. ACT, I FIND THAT A P AYMENT OF RS. 11,940/-PERTAINS TO THE PRECEDING YEAR I.E. 200 9-10 AND A.Y. 2010-11 AND THEREFORE, CANNOT BE ALLOWED AS DE DUCTION IN THIS YEAR. SIMILARLY, A PAYMENT OF RS. 1,523/- O N ACCOUNT OF INTEREST ON LATE DEPOSIT OF ESI CANNOT BE CLAIM ED AS A DEDUCTION AS INTEREST BEING PENAL IN NATURE. THE PE NAL AMOUNTS IN THE FORM OF INTEREST HAD BEEN PAID FOR N ON- COMPLIANCE OF THE PROVISIONS OF THE RELEVANT ACTS A ND THEREFORE, CANNOT BE CLAIMED AS DEDUCTION AS A BUSI NESS EXPENDITURE. HENCE, ADDITION OF RS. 13,463/- (RS. 11,940+1,523) MADE BY THE AO UNDER THIS HEAD IS CONFIRMED. 4.8 AS REGARDS THE PAYMENTS OF RS. 1,481/- ARE CONCERNED, THESE PAYMENTS PERTAIN TO F.Y. 2010-11 A ND HAVE BEEN PAID LATE BUT WERE DEPOSITED WITHIN THE FINANC IAL YEAR ITSELF I.E. BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. HENCE, THESE PAYMENTS ARE ALLOWABLE AS A DEDUCTION KEEPING IN VIEW THE JUDICIAL DECISIONS OF HON'BLE SUPREME COURT AND HON'BLE JURISDICTIONAL HIGH COURT ON THIS ISSUE. AC CORDINGLY, APPELLANT WOULD GET A RELIEF OF RS. 1,481/- UNDER T HIS HEAD. 2.3 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE PRAYED FOR DELETION OF ADDITION CONFIRMED BY THE LD. CIT(A). T HE LD. AR OF THE FILED THE WRITTEN SUBMISSION TO THIS EFFECT AS UNDER:- THE LD.AO MADE AN ADDITION OF RS.14,944/- TOWARDS E SI AND INTEREST ON ESI IN VIEW OF THE PROVISIONS OF SECTIO N 2(24)(X) OF THE I.T.ACT,1961 AND THE FACT THAT THE PAYMENT OF RS.11 ,940/- TOWARDS EPF (EMPLOYERS CONTRIBUTION) DOES NOT PERTAINS TO THIS A.Y. AS WELL AS ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 4 DEPOSITED LATE AND RS.1523/- WAS PAID AS INTEREST F OR LATE DEPOSIT WHICH IS NOT ALLOWABLE. SECTION 2(24)(X) AS WELL AS SECTION 36(1)(VA) OF TH E I.T.ACT,1961 ARE APPLICABLE TO ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTIONS TO ANY FUND AND NOT APPLICABL E TO THE EMPLOYERS CONTRIBUTION TO ANY FUND AND THIS VIEW H AS ALSO BEEN RIGHTLY STATED BY THE LD.AO HIMSELF AT PARA 1 OF THE PAGE N O.2 OF THE ASSESSMENT ORDER ITSELF. IN TERMS OF SECTION 43B OF THE I.T.ACT,1961 NOTWIT HSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS A CT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF (B ) ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY FUND FOR THE WELFARE OF EMPLOYEES, SHALL BE ALLOWED (IRRESPECTIV E OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDINGLY TO THE METHOD OF ACCOUNT REGULARLY EMPL OYED BY HIM) ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF T HAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM. AS EVIDENT FROM PB-1, THE EMPLOYERS CONTRIBUTION T OWARDS ESI FROM OCT.09 TO MARCH, 2010 RS.11,940/- WAS ACTUALLY PAID ON 28.06.2010 VIDE PNB CHEQUE NO.265424 AND HENCE IN VIEW OF THE ABOVE PARA, IT IS ALLOWABLE AS DEDUCTION THE A.Y.2011-12. FURTHER AS EVIDENT FROM THE TABLE GIVEN BY THE LD.A O AT PAGE NO.4 OF THE ASSESSMENT ORDER ITSELF, THE AMOUNT OF RS.53 2/-, RS.357/- AND RS.592/- HAVE BEEN PAID WELL BEFORE THE DUE DATE ST ATED BY THE LD.AO, HENCE DISALLOWANCE IS UNJUSTIFIED. FURTHER INTEREST OF RS.1523/- ON LATE DEPOSIT OF ES I CONTRIBTION WAS PAID IS PURELY A BUSINESS EXPENDITURE AND OTHERWISE NOT DISALLOWABLE UNDER ANY PROVISION OF THE I.T.ACT,1961 AND LATE DE POSIT HAD BENEFITTED TO THE ASSESSEE COMPANY IN SAVING OF INTEREST ON BANK LIMIT AS IF DEPOSIT WAS MADE IN TIME, IT WILL RESULT TO HIGHER BANK INTERES T, HENCE IT IS AN ALLOWABLE EXPENDITURE. KEEPING IN VIEW OF THE ABOVE SUBMISSIONS THE LD.AO ERRED IN MAKING ADDITION OF RS.14,944/- WHICH NEEDS TO BE DE LETED. VIDE REMAND REPORT DT.25.06.2015 (PB-46), THE LD.AO HIMSELF SUBMITTED THAT IN VIEW OF SECTION 2(24)(X) R.W.S.36 (1)(VA) THE CONTENTION OF THE AR MAY BE RELIED UPON TO THE EXTENT OF RS.11 ,940/- AND RS.1523/-. BUT THE LD.CIT(A) LEAVING ASIDE THE ALLOWABILITY A S GIVEN IN SECTION 43B OF THE I.T.ACT VERY ARBITRARILY DECIDED THAT THE PAYMENT OF RS.11,940/- PERTAINS TO THE PRECEDING YEAR I.E., 20 09-10 AND A.Y.2012-11 AND THEREFORE CANNOT BE ALLOWED AS DEDUCTION IN THI S YEAR, WHILE AS PER THIS SECTION 43B PAYMENT OF RS.11,940/- OUGHT TO BE ALLO WED IN THE A.Y.2011- ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 5 12 AS THE ACTUAL PAYMENT WAS MADE IN THIS YEAR. SIM ILARLY THE LD.CIT(A) HAS NOT ALLOWED PAYMENT OF INTEREST ON RS.1523/- CO NSIDERING IT AS PENAL AMOUNT WHILE INTEREST NEVER CAN BE TERMED AS PENALT Y. 2.4 THE LD. DR RELIED ON THE ORDER OF THE LOWER AUT HORITIES. 2.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTED FROM THE RECORD TH AT THE ASSESSEE HAD DEPOSITED THE EMPLOYERS CONTRIBUTION TOWARDS ESI F ROM OCT . 2009 TO MARCH 2010 AMOUNTING TO RS. 11,940/- ON 28-06-2010 VIDE PNB CHEQUE NO. 265424 AS PER PAGE 1 OF THE PAPER BOOK OF THE A SSESSEE WHICH IS ALLOWABLE AS DEDUCTION. AS REGARDS THE PAYMENT OF RS. 1,523/- ON LATE DEPOSIT OF ESI CONTRIBUTION BY THE ASSESSEE, I FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). THUS GROUND NO. 1 OF THE ASSESSEE IS PARTLY ALLOWED. 3.1 AS REGARDS NO. 2 OF THE ASSESSEE, THE AO OBSERV ED FROM THE LEDGER OF TRAVELLING EXPENSES THAT THE ASSESSEE HAD DE BITED A SUM OF RS. 85,512/- (I.E. RS. RS. 41,000/- ON 14-04-2010 A ND RS. 44,525/- ON 16-04-2010). THE AO REQUIRED THE INFORMATION FROM T HE ASSESSEE ABOUT SUCH HUGE EXPENSES WHO IN TURN REPLIED THAT SUCH AM OUNT WAS INCURRED BY THE DIRECTOR OF THE COMPANY SHRI VINEET AGARWAL FOR HIS VISIT TO CHINA AND THIS EXPENSES WAS INCURRED FOR THE BUSINESS OF THE ASSESSEE COMPANY. THE LD. AR OF THE ASSESSEE FURTHER FILED THE DETAIL ED SUBMISSION AS TO THE VISIT OF CHINA BY THE DIRECTOR OF THE COMPANY BUT T HE SAME WAS REJECTED ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 6 BY THE AO AND THE AO THUS MADE ADDITION OF RS. 85,5 12/- BY ADDING THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AND HOLDIN G THAT THE AMOUNT WAS NOT INCURRED FOR BUSINESS OF THE ASSESSEE COMPANY. 3.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO HAD CONFIRMED THE ACTION OF THE AO BY OB SERVING AS UNDER:- 5.7 HAVING CONSIDERED THE MATERIAL AVAILABLE ON RECORD, I FIND THAT THE APPELLANT HAS FURNISHED A GENERALLY R EPLY WITH REGARD TO THE JUSTIFICATION OF THE FOREIGN TRAVEL E XPENSES CLAIMED IN THE ACCOUNTS. THE APPELLANT HAS FAILED T O PRODUCE ANY SPECIFIC INVITE FOR THE TRADE FAIR IN HIS NAME AND ALSO FAILED TO SUBSTANTIATE ANY BUSINESS DEALING OR TRAN SACTION EXECUTED WITH ANY PARTY AT THE TRADE FAIR. FURTHER, DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT WAS ASKED TO PRODUCE A COPY OF THE BUSINESS VISA OBTAINED FOR VI SITING CHINA. IT IS ALSO SEEN FROM THE EVIDENCE FILED (A C OPY OF THE VISA ON THE PASSPORT) THAT APPELLANT HAD NOT VISITE D CHINA FOR BUSINESS PURPOSES AS THE VISA OBTAINED WAS ONLY FOR TOURISM PURPOSES (CATEGORY L VISA IS FOR TOURISM). 5.8 IN VIEW OF THE ABOVE FACTS, I HOLD THAT THE EXPENSES CLAIMED BY THE APPELLANT HAVE NOT BEEN INC URRED FOR THE PURPOSE OF BUSINESS. THEREFORE, I FIND THAT THE AO WAS JUSTIFIED IN MAKING A DISALLOWANCE ON ACCOUNT OF F OREIGN TRAVEL EXPENSES OF RS. 85,512/- AND CONFIRM THE SAM E. 3.3 DURING THE COURSE OF HEARING, THE LD. AR OF THE PRAYED FOR DELETION OF ADDITION CONFIRMED BY THE LD. CIT(A) AND THE LD. AR OF THE ASSESSEE FILED THE WRITTEN SUBMISSION TO THIS EFFECT AS UNDE R:- THE LD.AO MADE AN ADDITION OF RS.85,512/- ALLEGING THAT THE JOURNEY PERFORMED BY SHRI VINEET AGRAWAL IS RELATED WITH HIS OWN REASONS ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 7 NOT TO BUSINESS AND THE ASSESSEE COMPANY HAD WRONGL Y CLAIMED DEDUCTION OF THIS AMOUNT IN ITS P & L A/C. WHILE DURING THE COURSE OF ASSESSMENT PROCEEDINGS O RIGINAL INVITATION CARD (PB-2) OF CHINA PLAST 2010 (UNDER C HINA IMPORT AND EXPORT FAIR) HELD ON 24.04.2010 AT SHANGI-LA HOTEL, GUANGZHOU (CHINA) WAS PRODUCED FOR VERIFICATION BEFORE THE LD.AO AND DETAILS OF PAYMENTS OF RS.41,000/- AND RS.44,525/- WAS FURNISHED BEFORE THE LD.AO. THE LD.AO WRONGLY ALLEGED THAT THE INVITATION CARD HAS NOT NAME OF PERSON WHOM IT WAS GIVEN AS THE CHINA PLAST 2010 AS IT IS NOT A PRIVATE PROGRAM OF ANY PERSON WHO WILL SEND INVITATION CARD BY GIVING THE NAME, IT IS PUBLIC PROGRAM AND EACH AND EVERY PERSON CAN ATTEND AND PARTICIPATE THE EXHIBITION BY PAYING THE SPECIFIED CHARGES AND NO INDIAN WILL VISIT THE CHINA PLANT FOR HIS PERSONAL VACATION. FURTHER THE AOS ALLEGATION AS IT IS NOT RELEVANT T O PET BOTTLES AND JARS IS BASELESS AS THIS EXHIBITION IS A VERY BIG E XHIBITION WHEREIN EACH AND EVERY ITEM OF GENERAL UTILITY AND NEW MACHINERIES I NVOTATIONS FOR PRODUCING EACH AND EVERY ITEM ARE EXHIBITED AND THE ASSESSEE COMPANY BENEFITED BY THIS FOREIGN VISIT OF SHRI VINEET AGRA WAL, DIRECTOR OF THE COMPANY BY GETTING KNOWLEDGE OF NEW INNOVATIONS, NE W MARKET DEMANDS AND FUTHER THREATS FROM NEW MACHINERIES. THIS EXHIBITION IS ONLY AN EXHIBITION IN THE WORLD WHICH IS KNOWN AS PIONEER EXHIBITION IN THE FILED OF PET ITEMS AND ALL THE BUSINESS ACTIVITIES OF PET RELATED ITEMS WHETHER IN MANUFACT URING LINE OR TRADING LINE ARE DIRECTLY GUIDED BY THE CHINA PLAST. HENCE KEEPING IN VIEW OF THE ABOVE SUBMISSIONS THE LD.AO ERRED IN MAKING THIS ADDITION WHICH NEEDS DELETION. THE LD.CIT(A) DISALLOWED THE GROUND OF APPEAL OF TH E ASSESSEE ALLEGING THAT THE EXPS. CLAIMED BY THE APPEALLANT H AVE NOT BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS. SO FAR AS CATEGORY OF VISA CONCERNED, TO HAVE EASE IN GETTING VISA, TOURISM VISA WAS OBTAINE D AS THE BUSINESS VISA REQUIRED NUMEROUS COMPLIANCES ON THE PART OF THE VI SITER. AS THE TOURISM VISA WAS EASILY AVAILABLE AND IT COMPLIES ALL THE R EQUIREMENTS OF VISIT, TOURISM VISA WAS OBTAINED AND IT HAD NOT NEGATIVELY EFFECTED IN ANY WAY THE ESENSES OF FOREIGN TOUR. 3.4 THE LD. DR RELIED ON THE ORDER OF THE AUTHORITI ES BELOW. 3.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTED FROM THE RECORD TH AT THE AO HAD ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 8 DISALLOWED THE EXPENSES OF RS. 85,512/- IN CONNECTI ON WITH THE VISIT OF ITS DIRECTOR SHRI VINEET AGARAWAL TO CHINA WHICH HAD BE EN CONFIRMED BY THE LD. CIT(A) IN VIEW OF THE OBSERVATION OF THE AO. IT EMERGES FROM THE RECORD THAT THE DIRECTOR OF THE VINEET AGARAWAL VI SITED CHINA TO ATTEND THE TRADE FAIR ORGANIZED BY THE CHINA PLAST FAIR AN D CANTO FAIR BUYER MEET. IT IS ALSO NOTICED THAT IN SUCH TYPE OF FAIR, THERE ARE MULTIFARIOUS TRADE SHOWS TO GENERATE THE BUSINESS AND IT DEPENDS UPON THE PARTY WHICH TRADE SHOWS WILL ATTRACT HIM TO GENERATE THE BUSIN ESS AND ADOPT THE NEW TECHNIQUES TO ENHANCE THE BUSINESS. HENCE, IT IS TO BE SEEN THAT THE PURPOSE OF VISIT OF ASSESSEES DIRECTOR WAS TO ATTE ND THE TRADE FAIR AT CHINA FOR SEARCH OF GOOD BUSINESS DEVELOPMENT OR TO ADOPT THE NEW TECHNIQUES FOR BETTERMENT OF ITS BUSINESS. HENCE, IN VIEW OF T HE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SUBMISSIONS OF T HE ASSESSEE BEFORE THIS BENCH, LD. CIT(A) IS NOT JUSTIFIED TO SUSTAIN THE A DDITION OF RS. 85,512/- AS TO THE VISIT OF THE ASSESSEE'S DIRECTOR TO CHINA. T HUS , GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. 4.1 AS REGARDS GROUND NO. 3 OF THE ASSESSEE, THE AO OBSERVED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSES SEE COMPANY HAD PAID RS. 12.25 LACS TO SHRI VINEET AGARWAL, DIRECTOR OF THE COMPANY ON VARIOUS DATES. THE AO OBSERVED FROM THE DETAILS OF THE SHAREHOLDING FILED ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 9 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT S HRI VINEET AGARWAL HELD 11.28% SHARES DURING THE YEAR UNDER CONSIDERAT ION. ACCORDING TO THE AO SHRI VINEET AGARWAL HELD MORE THAN 10% SHARE IN ASSESSEE COMPANY WHICH HAD GIVEN THE LOAN. THE AO THUS OBSERVED THAT THE ASSESSEE COMPANY HAD ACCUMULATED PROFIT AMOUNTING TO RS. 30, 97,872/- AS ON 31-03-2011, THEREFORE, THE AMOUNT ADVANCED TO SHRI VINEET AGARWAL WAS CONSIDERED TO BE DIVIDEND PAID TO HIM IN VIEW OF TH E PROVISIONS OF SECTION 2(22)(E) OF THE ACT FOR WHICH THE AO VIDE ORDER SHE ET ENTRY DATED 6-020- 2014 ASKED THE ASSESSEE COMPANY TO SPECIFY THE NATU RE OF AMOUNT PAID SHRI VINEET AGARWAL. THE ASSESSEE COMPANY FILED THE REPLY BEFORE THE AO TO THIS EFFECT. THE AO OBSERVED THAT THE ASSESSEE C OMPANY HAD NOT COMMENTED ON SPECIFIC NATURE OF AMOUNT ADVANCED TO SHRI VINEET AGARWAL. THUS THE AO CONSIDERED THIS AMOUNT PAID TO SHRI VINEET AGARWAL AS DEEMED DIVIDEND IN THE HANDS OF SHRI VIN EET AGARWAL AND THUS MADE AN ADDITION OF RS. 12.25 LACS TO THE INCO ME OF THE ASSESSEE ON PROTECTIVE BASIS. THE AO ALSO TOOK THE REFERENCE OF DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HO TEL HILTOP 313 ITR 116 IN WHICH IT IS HELD THAT THE DEEMED DIVIDEND WOULD BE DEEMED DIVIDEND IN THE HANDS OF THE BENEFICIAL OWNER AND NOT THE CONCE RN. THEREFORE, A ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 10 REFERENCE WAS MADE TO THE AO OF SHRI VINEET AGARWA L FOR TAXING THE INCOME ON SUBSTANTIVE BASIS. 4.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO HAD CONFIRMED THE ACTION OF THE AO BY OB SERVING AS UNDER:- 6.7 CONSIDERING THE EVIDENCE BROUGHT ON RECORD, I FIND THAT THERE IS NO DISPUTE WITH REGARD TO THE FO LLOWING FACTS. (I) SHRI VINEET AGARWAL IS HAVING SHARE HOLDING OF 11.28% IN THE COMPANY; (II) ACCUMULATED PROFITS OF RS. 30.97 LACS ARE AVAILABLE IN THE BALANCE SHEET AS ON 31-03-2011 OF THE COMPANY; (III) RECEIPT OF RS. 12,25,000/- BY SHRI VINEET AGARWAL AS LOANS A LOANS AND ADVANCE FROM THE COMPA NY; THUS, ALL THE INGREDIENTS OF SECTION 2(22)(E) OF TH E I.T. ACT ARE SATISFIED AND HENCE, I CONFIRM THE ADDITION OF RS. 12,25,000/- ON ACCOUNT OF DEEMED DIVIDEND MADE BY THE AO UNDER THIS HEAD. THE FACT THAT AN AMOUNT OF RS. 5 L ACS HAS BEEN RETURNED BACK TO THE COMPANY BEFORE THE CLOSE OF THE FINANCIAL YEAR DOES NOT MATTER AS REGARDS THE TAXAT ION OF DEEMED DIVIDED IS CONCERNED, UNDER THE PROVISIONS O F THE ACT, THE AMOUNT RECEIVED AS LOANS OR ADVANCES DURIN G THE YEAR BY THE SHAREHOLDER HAS TO BE TAXED. IN THIS CA SE, IT IS SEEN FROM THE COPY OF THE ACCOUNT FILED BY THE APPE LLANT THAT AN AMOUNT OF RS. 12,25,000/- WAS TAKEN AS A LOAN/ A DVANCE FROM THE COMPANY AND ACCORDINGLY THIS AMOUNT HAS TO BE ASSESSED AS DIVIDEND. 4.3 DURING THE COURSE OF HEARING, THE LD. AR OF THE PRAYED FOR DELETION OF ADDITION CONFIRMED BY THE LD. CIT(A) AND THE LD. AR OF THE ASSESSEE FILED THE WRITTEN SUBMISSION TO THIS EFFECT AS UNDE R:- ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 11 THE LD. AO MADE AN ADDITION OF DEEMED DIVIDEND RS .12,25,000/- AS PER SECTION 2(22)(E) OF THE INCOME TAX ACT,1961 ON PROT ECTIVE BASIS IN REGARD TO AMOUNT ADVANCED TO SHRI VINEET AGRAWAL WITHOUT MAKI NG ANY RELEVANT ENQURIES AS EVIDENT FROM THE NOTE SHEET OF THE LD.AO (PB 3 TO 4 ). VIDE OUR WRITTEN SUBMISSIONS DT.12.12.2013 (PB-6) W E FURNISHED BEFORE THE LD.AO THE COPY OF CONFIRMATION OF SHRI S.S.AGRA WAL (PB-9) (SHRI SHYAM SUNDER AGRAWAL) FATHER OF SHRI VINEET AGRAWAL, DIRE CTOR OF THE COMPANY AND VIDE SIMILAR WRITTEN SUBMISSIONS DT.12.12.2013 (PB-7) WE FURNISHED THE COPY OF ACCOUNT OF SHRI VINEET AGRAWAL (PB-10). AS EVIDENT FROM (PB-10) ITSELF DURING THE YEAR CONC ERNED RS.12,25,000/- WERE GIVEN TO SHRI VINEET AGRAWAL ON DIFFERENT DATE S AND ON 03.01.2011 SHRI VINEET AGRAWAL DEPOSITED RS.5,00,000/- RESULTING TO NET RS.7,25,000/- WAS ADVANCED AND NOT RS.12,25,000/-. SHRI SHYAM SUNDER AGRAWAL, FATHER OF SHRI VINEET AG RAWAL, DIRECTOR OF THE COMPANY WAS SUFFERING FROM ACUTE LIVER CANCER A ND HE WAS TREATED IN INSTITUTE OF LIVER & BILARY SCIENCES NEW DELHI & FURTHER IN M AX HOSPITAL, SAKET, NEW DELHI AND HUGE EXPENDITURE WAS INCURRED ON HIS MEDICAL TR EATMENT AND FINALLY HE DIED ON12.04.2011 AS EVIDENT FROM THE DEATH CERTIFICATE OF SHRI SHYAM SUNDER AGRAWAL (PB-11). DUE TO ACUTE ILLNESS OF LIVER CANER SHRI SHYAM SUND ER AGRAWAL REMAINED ON BED AND WAS NOT IN A POSITION TO OPERATE HIS BAN K ACCOUNT, HENCE FOR INCURRING THE MEDICAL TREATMENT EXPENSES RS.7,25,000/- (AS ST ATED IN ABOVE PARA) WERE GIVEN FOR THE MEDICAL TREATMENT EXPENSES BY ISSUING CHEQU ES IN FAVOR OF SHRI VINEET AGRAWAL ON ACCOUNT OF RS.7,50,000/- AVAILABLE AS UN SECURED LOAN OF SHRI SHYAM SUNDER AGRAWAL IN THE BOOKS OF ACCOUNT JUST TO EASE THE BANKING OPERATIONS AND FOR TIMELY MEDICAL TREATMENT OF SHRI SHYAM SUNDER A GRAWAL AND AFTER DEATH OF HIM THE AMOUNT RS.7,50,000/- WAS TRANSFERRED TO THE ACCOUNT OF SHRI VINEET AGRAWAL. HENCE THEREFORE DURING THE YEAR CONCERNED NO AMOUNT WAS ADVANCED TO SHRI VINEET AGRAWAL, DIRECTOR OF THE COMPANY AND TH EREFORE THE LD.AO HAS ERRED IN MAKING THE ADDITION OF RS.12,25,000/- ON PROTECT IVE BASIS WHICH NEEDS DELETION. THE LD.CIT(A) WITHOUT CONSIDERING THE FACTS AND CIR CUMSTANCES, SUBMISSIONS PUT FORTH BEFORE HIM AND WITHOUT CONSID ERING THE HUMANITIES AND GENUINE NEEDS OF THE CANCER PATIENT LYING ON DEATH BED (FATHER OF THE DIRECTOR OF THE ASSESSEE COMPANY) VERY ARBITRARILY CONFIRMED TH E ADDITION EVEN WITHOUT SPECIFYING PROTECTIVE OR SUBSTANTIVE. FURTHER IN TERMS OF SECTION 2(22)(E) OF THE INCOME TAX ACT,1961 ANY DEEMED DIVIDEND IS TAXABLE IN THE HANDS OF THE RECI PIENT AND NOT IN THE HANDS OF THE COMPANY MAKING THE PAYMENT, HENCE QUESTION OF ANY ADDITION EITHER ON PROTECTIVE BASIS OR SUBSTANTIVE BASIS IN THE INCOME OF THE ASSESSEE COMPANY DOES NOT ARISES. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 12 4.4 THE LD. DR RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 4.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTED THAT THE AO HAD MA DE AN ADDITION TO THE TUNE OF RS. 12.25 LACS ON ACCOUNT OF DEEMED DIVIDE ND U/S 2(22)(E) OF THE ACT. THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE AO OBSERVING THAT SHRI VINEET AGARWAL WAS ADVANCED A SUM OF RS. 12.2 5 LACS AS LOAN DURING THE YEAR UNDER CONSIDERATION BY THE ASSESSEE COMPANY. SHRI VINEET AGARWAL, DIRECTOR OF THE COMPANY HAD HOLDING 11.28% OF SHARES AND THERE ARE ACCUMULATED PROFITS OF RS. 30.97 LACS IN THE BALANCE SHEET AS ON 31-03-2011 OF THE COMPANY. IT IS ALSO NOTED FROM TH E ASSESSEE'S PAPER BOOK PAGES 10 WHICH INDICATE THAT THE ASSESSEE HAD GIVEN AN ADVANCE OF RS. 5.00 LACS TO SHRI VINEET AGARWAL. IT IS FURTHER NOTED THAT SHRI VINEET AGAWAL WAS GIVEN A SUM OF RS. 7.50 LACS FOR INCURR ING THE MEDICAL TREATMENT EXPENSES AS HIS FATHER SHRI SHYAM SUNDER AGRAWAL WAS ADMITTED IN MAX HOSPITAL, SAKET, NEW DELHI DUE TO A CUTE ILLNESS OF LIVER CANCER AND HE WAS NOT IN A POSITION TO OPERATE THE BANK ACCOUNT. IT IS NOTED THAT AFTER THE DEATH OF SHRI VINEET AGRAWALS FATHER, THE AMOUNT OF RS. 7.50 LACS WAS TRANSFERRED TO THE ACCOUNT OF SH RI VINEET AGARWAL. LOOKING TO THE SUBMISSIONS OF THE ASSESSEE, IT WILL BE IN THE INTEREST OF JUSTICE TO RESTORE THE ISSUE IN QUESTION TO THE FI LE OF THE TO DECIDE IT DE ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 13 NOVO BY PROVIDING ADEQUATE OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE. THUS GROUND NO. 3 OF THE ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSES. 5.1 AS REGARDS GROUND NO. 4 OF THE ASSESSEE, THE AO OBSERVED FROM THE LEDGER OF DISCOUNT A/C THAT THE ASSESSEE HA D ALLOWED RS. 16,08,885/- (RS. 15,04,441+RS. 1,04,444) ON SAL E AND RECEIVED RS. 14,18,815 (RS. 13,83,815+RS. 35,049) AS DISCO UNT FROM OTHER PARTIES. AS SUCH DIFFERENCE OF RS. 1,90,070/- I.E. EXCESS AMOUNT ALLOWED BY ASSESSEE THAN RECEIVED HAD BEEN DEBITED BY THE A SSESSEE IN ITS PROFIT AND LOSS ACCOUNT. IT WAS ALSO NOTICED BY THE AO THA T THE ASSESSEE HAD RECEIVED AMOUNT OF DISCOUNT DIRECTLY IN HIS BANK AC COUNT WHILE IT HAD ALLOWED DISCOUNT THROUGH PASSING ENTRY ON SALE BILL S. THE AO ASKED THE ASSESSEE THROUGH QUESTIONNAIRE DATED 12-03-2014 TO FILE COPY OF SOME SALE BILLS THROUGH WHICH IT MAY BE ESTABLISHED THAT ASSESSEE HAD ALLOWED DISCOUNT ON ITS SALE. THE AO OBSERVED THAT THE ASSE SSEE HAD NOT FILED THE COPY OF SALE BILL AND THUS THE AO NOTICE THAT THE A SSESSEE HAD NOTHING TO SUBSTANTIATE ON THE CLAIM REGARDING DISCOUNT. THE A O OBSERVED FOLLOWING DEFECTS FROM THE BOOKS OF ACCOUNT OF THE WHICH PROV ES THAT THE ASSESSEE HAD NOT ALLOWED DISCOUNT ON ITS SALES. (I) ASSESSEE HAS NOWHERE MENTIONED RATE OF DISCOUNT ALLOWED BY HIM AS WELL AS DISCOUNT RECEIVED BY HIM. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 14 (II) ASSESSEE HAS MADE HUGE PART OF HIS SALE OF RSG SM, WHO HAS DEDUCTED TDS ON WHOLESALE AT THE RATE OF OP ERATOR. IT PROVES FROM THE TDS FILED BY THE ASSESSEE. IT ME ANS THAT ASSESSEE HAS ENTERED INTO A SALE PURCHASE CONTRA CT WITH RSGSM FOR A CERTAIN PERIOD. IN SUCH CASE RATE OF SA LE OF GOODS WHICH WAS FIXED ON CONTRACT BASIS, THEN ALLOW ABILITY OF DISCOUNT TO A PURCHASER TO WHOM SALE HAS BEEN FIXED , IS NOT BELIEVABLE AND IS AGAINST THE NORMAL PRINCIPAL OF A BUSINESS. (III) ASSESSEE HAS NOT ALLOWED DISCOUNT ON ITS AL E BILLS. THEREFORE, ASSESSEE HAS NOT ADOPTED AN EQUAL SCALE TO ALLOW DISCOUNT ON ITS SALE. ASSESSEE HAS ALLOWED DISCOUNT WITHOUT ANY PATTERN, THEREFORE, IT IS PROVED THAT ASSESSEE COMPANY HAS BOOKED DISCOUNT RANDOMLY TO DECLINE ITS PROFIT. THUS THE AO OBSERVED THAT THE ASSESSEE COMPANY HAD NOT ALLOWED ANY DISCOUNT ON ITS SALE MADE TO M/S. RSGSM AND COMPANY HAD WRONGLY CLAIMED DEDUCTION. HENCE, THE AO REJECTED THE CLAIM OF THE ASSESSEE COMPANY AND MADE AN ADDITION OF RS. 16,08,885/- AN D ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ACTION OF THE AO. 7.8 HAVING CONSIDERED THE SUBMISSIONS MADE, I FIN D THAT APPELLANT HAS EXPLAINED THAT MAJORITY OF THE D ISCOUNT ALLOWED WAS TO A RAJASTHAN STATE GOVT. PUBLIC UNDER TAKING AND THEREFORE, THERE CAN BE NO DOUBT WITH REGARD TO THE GENUINENESS OF THE CLAIM MADE. HOWEVER, THIS BEING ONLY A MAJOR PART OF THE DISCOUNT ALLOWED BY THE APPELLANT AND REGARDING THE DETAILS OF REMAINING AMOUNT NO EXPLAN ATION HAS BEEN GIVEN I THE COURSE OF PRESENT PROCEEDINGS. FUR THER WITH REGARD TO THE DISCLOSURE OF ONLY A NET AMOUNT OF RS . 1,90,070/- IN THE PROFIT AND LOSS ACCOUNT ON THIS ACCOUNT, IT MAY BE RELEVANT TO MENTION THAT IT IS NOT A DESIRAB LE ACCOUNTING PRACTICE UNDER THE CORPORATE GOVERNANCE NORMS. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 15 7.9 IN VIEW OF THE ABOVE FACT, I HOLD THAT IT WOULD BE JUST AND FAIR TO RESTRICT THE DISALLOWANCE TO RS. 1 .00 LAC OUT OF THE TOTAL DISALLOWANCE OF RS. 16,08,885/- MADE BY T HE AO UNDER THIS HEAD. 5.3 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE PRAYED FOR DELETION OF ADDITION SUSTAINED BY THE LD. CIT(A). A ND THE LD. AR OF THE ASSESSEE FILED THE WRITTEN SUBMISSION TO THIS EFFEC T AS UNDER:- DURING THE YEAR CONCERNED AS THE LD.AO HIMSELF STAT ED THE ASSESSEE COMPANY ALLOWED DISCOUNT OF RS.16,08,885/- AND RECEIVED DISCOUNT OF RS.14,18,815/- AS EVIDENT FROM THE DETA ILS OF DISCOUNT A/CS (PB-12 TO 30 ) MEANING THEREBY NET DISCOUNT OF RS.1 ,90,070/- WAS DEBITED IN THE PROFIT & LOSS ACCOUNT. THE LD.AO WRONGLY ALLEGED THAT THE ASSESSEE HAS REC EIVED AMOUNT OF DISCOUNT DIRECTLY IN HIS BANK A/C WHILE IT HAS A LLOWED DISCOUNT THROUGH PASSING ENTRY ON SALE BILLS, AS MOST OF DISCOUNT RE CEIVED IS ALSO THROUGH PASSING ENTRY ON PURCHASE BILLS EVIDENT FROM PB-12 TO 30. COMPLETE BILLS OF SALES WERE PRODUCED BEFORE THE LD .AO VIDE OUR WRITTEN SUBMISSIONS DT.24.03.2014 PB-32. MOST OF DI SCOUNT ALLOWED IS RELATED TO RSGSM (RAJASTHAN STATE GANGANAGAR SUGAR MILLS LTD.) A RAJASTHAN GOVERNMENT CONCERN AND THIS DISCOUNT AMOU NT PERTAINS OF THE BOTTLES REJECTED BY RSGSM DUE TO INFERIOR QUALITY, LEAKAGE AND FOR OTHER REASONS AS PER QUALITY CHECK DEPARTMENT OF RSGSM AN D DUE TO LATE DELIVERY. THIS IS BEYOND THE CONTROL OF THE ASSESSE E. THIS FACT COULD HAVE BEEN VERIFIED BY THE LD.AO FRO M THE BUYERS THEMSELVES DIRECTLY. FUTHER TOTAL DISCOUNT AMOUNT O F RS.16,08,885/- COMES IN THE TUNE OF ONLY 3.36% OF TOTAL SALES RS.4,78,80 ,753/- AND COMPARABLE WITH THE OTHER IDENTICAL INDUSTRIES OF THE AREA. THE DETAILED BILLWISE WORKING OF AMOUNT DEDUCTED BY RSGSM IS BEING ENCLOSED HEREWITH (PB-33 TO 42) AND COMPLETE RECORD OF CONFIRMATIONS FROM RSGSM WAS PRODUCED HEREWITH BEFO RE THE LD.AO. ALL THE DEFECT STATED BY THE LD.AO ARE BASELESS AS PER THE FOLLOWING SUBMISSIONS:- (I) RATE OF DISCOUNT FOR REJECTION OF BOTTLES BY TH E QUALITY CHECK DEPARTMENT CAN NOT BE MENTIONED ANY WHERE. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 16 (II) CONTRACT WAS EXECUTED WITH RSGSM TO SUPPLY THE BOTTLES AS PER THE QUALITY ACCEPTABLE TO THE QUALITY CHECK DEPARTMENT OF THE BUYER (III) AS THE QUALITY CHECK IS DONE BY THE BUYER AFT ER RECEIVING THE GOODS THE DISCOUNT CAN NOT BE STATED IN THE SAL E BILL, IT IS ACCOUNTED FOR ONLY AFTER RECEIVING THE PAYMENT FROM THE BUYER. SINCE THE ASSESSEE ACTUALLY RECEIVED LESS PAYMENT O F GOODS SUPPLIED TO BUYER AFTER REJECTION OF THE BOTTLES NO T ACCEPTABLE TO THE BUYER AND DUE TO LATE DELIVERY THE DIFFERENCE AMOUNT I.E. , DISCOUNT IS AN ALLOWABLE EXPENDITURE AND DISALLOWANCE OF ENTIRE DI SCOUNT OF RS.16,08,885/- BY THE LD.AO IS UNJUSTIFIED AND AGAI NST THE NATURAL JUSTICE, WHICH NEEDS TO BE DELETED. THE LD.CIT(A) AT PARA 7.8 AT PAGE NO.13 OF THE APPE AL ORDER VERY WELL ACCEPTED THAT APPELLANT HAS EXPLAINED THAT MA JORITY OF THE DISCOUNT ALLOWED WAS TO RAJASTHAN STATE GOVERNMENT PUBLIC UN DERTAKING AND THEREFORE CAN BE NO DOUT WITH REGARD TO THE GENUINE NESS OF THE CLAIM MADE. BUT THE LD.CIT(A) AT THE FIRST PARA OF PAGE NO.14 V ERY WRONGLY ALLEGED THAT HOWEVER THIS BEING ONLY A MAJOR PART OF THE DISCOUNT ALLOWED BY THE APPELLANT AND REGARDING DETAILS OF REMAINING AMOUNT NO EXPLANATION HAS BEEN GIVEN IN THE COURSE OF PRESENT PROCEEDINGS AND ACCORDINGLY RESTRICTED THE DISALLOWANCES TO RS.1,00,000/-. AS PER PB-33 TO 42 DETAILED WORKINGS OF THE DISCOUNT ALLOWED TO RSGMS AMOUNTING TO RS.14,14,206/- WAS GIVEN WHICH WAS VERY WELL ACCEPTED BY THE LD.CI T(A) AND NOW THE BALANCE DISCOUNT OF RS.(1608885-1414206) RS.1,94,67 9/- REMAINED AND KEEPING IN VIEW OF THIS QUANTUM OF RS.1,94,679/- TH E AMOUNT OF ADDITION OF RS.1,00,000/- CONFIRMED BY THE LD.CIT(A) IS MUC H HIGHER WHICH COMES IN THE TUNE OF 51.37% AND WHICH NEEDS DELETIO N. 5.4 THE LD. DR RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. 5.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AS PER ASSESSMENT ORDER, IT IS NOTED THAT THE AO HAD DISALLOWED THE AMOUNT OF RS. 16,08,885/- TOWARDS DI SCOUNT AS CLAIMED BY THE ASSESSEE IN THE LEDGER BOOK OF DISCOUNT A/C. IT IS NOTED THAT THE LD. CIT(A) HAD RESTRICTED THE DISALLOWANCE TO THE EXTEN T OF RS. 1.00 LAC OUT OF THE TOTAL DISALLOWANCE OF RS. 16,08,885/- MADE BY T HE AO UNDER THIS HEAD. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 17 IT IS NOTED FROM THE ASSESSEE'S PAPER BOOK PAGE 33 TO 42 WHEREIN THE ASSESSEE'S HAD SHOWN THE DETAILED WORKING OF THE DI SCOUNT ALLOWED TO RSGMS AMOUNTING TO RS. 14,14,206/-.THE AO HAD DISAL LOWED THE DISCOUNT TO THE TUNE OF RS. 16,08,885/-. THUS THE D IFFERENCE OF THE DISCOUNT AMOUNT IS RS. 1,94,679/- AND THE LD. CIT(A ) HAS ALLOWED THE DISCOUNT TO THE TUNE OF RS. 1.00 LAC WHICH IN MY CO NSIDERED VIEW IS IN ORDER. HENCE, THE LD. CIT(A) IS JUSTIFIED IN HIS OR DER WHICH IS SUSTAINED ON THIS ISSUE. THUS GROUND NO. 4 OF THE ASSESSEE IS DI SMISSED. 6.1 AS REGARDS GROUND NO. 5 OF THE ASSESSEE, THE AO ON PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE COMPANY OBSERVED THAT THE ASSESSEE COMPANY HAD RECEIVED THE CAPITAL SUBSIDY AMOUNTING TO RS. 5,79,650/- AND THIS AMOUNT WAS NOT INCLUDED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY. THE AO THROUGH QUESTIONNAIRE DATE D 12-03-2014 ASKED THE ASSESSEE ABOUT THE CAPITAL SUBSIDY I.E. F OR WHAT PURPOSE THE CAPITAL SUBSIDY HAD BEEN RECEIVED AND WHAT TREATMEN T HAD BEEN GIVEN TO THIS SUBSIDY IN HIS BOOKS OF ACCOUNT. THE AO OBSERV ED THAT THE ASSESSEE HAD NOT FILED ANY SATISFACTORY REPLY. THEREFORE, TH E AO HAD NO ALTERNATIVE EXCEPT TO TREAT THIS AMOUNT OF RS.5,79,650/- AS INC OME OF THE ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 18 6.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CITA) WHO HAS CONFIRMED THE ACTION OF THE AO BY OBS ERVING AS UNDER:- 8.8 I HAVE CAREFULLY PERUSED THE SUBMISSIONS MADE BY THE APPELLANT AND FIND THAT SUBSIDY RECEIVED BY THE APPELLANT WAS A CREDIT LINKED SUBSIDY AND WAS NOT M EANT FOR MEETING OUT THE COST OF ANY CAPITAL ASSET. THE CASE LAWS CITED BY THE APPELLANT ARE ON THE ISSUE OF CAPITAL SUBSID Y RECEIVED WHICH HAS BEEN DEDUCTED FROM THE COST OF THE ASSETS FOR THE PURPOSE OF COMPUTING DEPRECIATION ALLOWABLE UNDER T HE INCOME-TAX ACT. HOWEVER, IN THIS CASE, I FIND THAT SUBSIDY RECEIVED B THE APPELLANT IS IN THE NATURE OF A REVE NUE RECEIPT AS THE SAME IS NOT LINKED TO ANY SPECIFIC CAPITAL A SSET AND THEREFORE, UPHOLD THE ACTION OF THE AO IN CONFIRMIN G AN ADDITION OF RS. 5,79,650/- UNDER THIS HEAD. 6.3 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE PRAYED FOR DELETION OF ADDITION SUSTAINED BY THE LD. CIT(A). A ND THE LD. AR OF THE ASSESSEE FILED THE WRITTEN SUBMISSION TO THIS EFFEC T AS UNDER:- THE LD.AO HIMSELF STATED THAT THE ASSESSEE RECEIVED CAPITAL SUBSIDY OF RS.5,79,650/- AND CAPITAL SUBSIDY IS NOT A TAXABLE INCOME AS THE SAME IS A CAPITAL RECEIPT AND NOT A REVENUE RECEIPT , HENCE QUESTION OF INCLUSION OF THE SAME IN THE P & L A/C OF THE ASSES SEE COMPANY DOES NOT ARISES. IN RESPONSE TO QUESTION NO.1 OF QUESTIONAIR DT.12.0 3.2014 PB 43 & 44 VIDE WRITTEN SUBMISSIONS DT.24.03.2014 (PB-31) IT WAS VERY CLEARLY REPIED THAT RS.579650/- IS CAPITAL SUBSIDY RECEIVED . PURPOSE OF CAPITAL SUBSIDY WAS NEVER ASKED BY THE LD.AO. THOUGH THIS A MOUNT OF CAPITAL SUBSIDY WAS RECEIVED TO THE ASSESSEE FOR MAKING EXP ANSION OF THE PLANT AND UNDER THE SCHEME OF TECHNOLOGY UPGRADATION AND THIS CAPITAL SUBSIDY WAS RECEIVED FROM THE CENTRAL GOVERNMENT, WHICH IS NOT TAXABLE UNDER THE INCOME TAX ACT. IN SUPPORT OF CAPITAL SUBSIDY OF RS.5,79,650/- HAVE SUBMITTED THE FOLLOWING DOCUMENTS BEFORE THE LD.AO AND LD.CIT(A): - ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 19 (1) THE COPY OF LETTER DT.05.01.2011 (PB-48) ISSUED BY PUNJAB NATIONAL BANK, LAXMAN MANDIR CHOWK, BHARATPUR TO TH E SR.MANAGER (LOANS) PNB, CIRCLE OFFFICE, BHARATPUR AND (2) THE COPY OF THE AGREEMENT EXECUTED ON 18.08.2010 (P B-49 TO 51) FOR FINANCIAL ASSISTANCE UNDER CREDIT LINKED CAPITAL SUBSIDY SCHEME FOR TECHNOLOGY UPGRADATION OF THE SMALL SCALE INDUS TRIES (CLCSS) DULY SIGNED BY THE ASSESSEE COMPANY AND THE FINANCING BA NKER PUNJAB NATIONAL BANK, LMC, BHARATPUR. ON PERUSAL OF THESE PAPERS IT IS EVIDENT THAT THE A SSESSEE COMPANY HAD CLAIMED BEFORE THE GOVERNMENT OF INDIA THROUGH ITS NODAL AGENCY PUNJAB NATIONAL BANK FOR CREDIT LINKED CAPITAL SUBD IDY FOR TECHNLOGY UPGRADATION OF THE SMALLL SCALE INDUSTRIES UNDER TH E MINISTRY OF SSI & ARI, GOVT. OF INDIA FOR RS.8,67,739/- FOR SETTING U P A PROJECT (EXPANSION OF EXISTING PROJECT) UNDER THE SMALL SCALE INDUSTRI ES AND THE GOVERNMENT AFTER MAKING THE DISALLOWANCES, HAD SANCTIONED A C APITAL SUBSIDY OF RS.5,79,650/- WHICH WAS INITIALLY KEPT AS FDR BY TH E BANK BEING BACK ENDED CREDIT LINKED SUBSIDY AND AFTER COMPLETION OF THE SPECIFIED PERIOD OF 3 YEARS AFTER THE INSTALLATION OF THE ELIGIBLE PLAN T & MACHINERY ON WHICH SUBSIDY UNDER CLCSS HAVE BEEN OBTAINED, THE AMOUNT OF CAPITAL SUBSIDY OF RS.5,79,650/- WAS CREDITED IN THE ACCOUNT OF THE ASSESSEE COMPANY AS PER THE NOTING OF THE COMPETENT AUTHORITY ON 25.02. 2011 AVAILABLE AT THE AFORESAID LETTER DT.05.01.2011 ISSUED BY PNB. AS EVIDENT FROM THE ABOVE PAPERS AND SUBMISSIONS NO PORTION OF THE COST OF ANY ASSETS ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR ., BU T THE CENTRAL GOVERNMENT HAS PAID THE CREDIT LINKED BACK ENDED S UBSIDY FOR MAKING EXPANTION UNDER THE SCHEME OF TECHNOLOGY UPGRADATIO N. THE ASSESSEE MADE HUGE INVESTMENT IN BUILDINGS AS WELL AS PLANT & MACHINERY. IN THE CASE OF CIT V.MEENEZES FARMACO 236 ITR 780, THE HON'BLE BOMBAY HIGHCOURT ON THE SIMILAR FACTS AND CIRCUMSTA NCES HAS DECIDED THAT CENTRAL SUBSIDY RECEIVED BY THE ASSESSEE IS NOT A PAYMENT DIRECTLY OR INDIRECTLY TO MEET ANY PORTION OF ACTUAL COST BUT INTENDED AS AN INCENTIVE TO ENTREPRENEURS, NOT TO BE DEDUCTED FROM ACTUAL COST FOR CALCULATING DEPRECIATION. THE HON'BLE BOMBAY HIGH COURT HAS ALSO DECIDED TH AT THE FACT THAT ITS QUANTIFICATION IS DETERMINED AS A % OF THE FIXED CAPITAL COST DOES NOT CHANGE THE NATURE AND CHARACTER OF THE SUBSIDY. THE AMOUNT OF CENTRAL ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 20 SUBSIDY THEREFORE CANNOT BE DEDUCTED FROM THE ACTUA L COST FOR CALCULATING DEPRECIATION. VARIOUS LAND MARK JUDGEMENTS OF THE HON'BLE APPEX COURT, M.P.HIGH COURT, KARNATAKA HIGH COURT, BOMBAY HIGH C OURT, ANDHRA PRADESH HIGH COURT, P & H HIGH COURT, ALLAHABAD HIG H COURT, CALCUTTA HIGH COURT, GUJRAT HIGH COURT, KERALA HIGH COURT, M ADRAS HIGH COURT, ORISSA HIGH COURT AND RAJASTHAN HIGH COURT HAVE ALS O BEEN RELIED UPON AND AFTER DETAILED FACTS DISCUSSIONS CONCLUSION IN FAVOR OF THE ASSESSEE WAS TAKEN BY THE HONLE COURT. RELYING THE ON ABOVE JUDGEMENT OF THE BOMBAY HIGHCO URT THE THAN HONLE CIT(A), ALWAR IN APPEAL NO. 166/10-11 V IDE HIS APPEAL ORDER DT.10.08.2011 IN THE CASE OF M/S POOJA INDUSTRIES, BHARTATPUR, HAS DELETED THE ADDITION ON ACCOUNT OF DEPRECIATION ON CAPITAL SUBSIDY CONSIDERING ALL THE SIMILAR FACTS AND SUBMISSIONS. THE ABOVE LAND MARK JUDGEMENTS ARE SQUARELY APPLICA BLE IN THE CASE OF THE ASSESSEE, NEITHER THIS CAPITAL SUBSIDY IS TAXABLE AS REVENUE RECEIPT NOR ANY DISALLOWANCE OF DEPRECIATION CAN BE MADE. KEEPING ASIDE ALL THE FACTS & CIRCUMSTANCES AND SUB MISSIONS PUTFORTH AND EVEN THE FINDING OF THE LD.AO THE LD.C IT(A) VERY ARBITRARILY DECIDED THAT SUBSIDY RECEIVED BY THE APPEALLANT IS IN THE NATURE OF REVENUEW RECEIPT AS THE SAME IS NOT LINKED TO ANY S PECIFIC CAPITAL ASSET, WHILE NEITHER THE LD.AO CONSIDERED IT AS REVENUE RE CEIPT NOR IN ANY WAY IT CAN BE TERMED AS REVENUE RECEIPT. THE RECEIPT OF TH E CAPITAL SUBSIDY IS PURELY A CAPITAL RECEIPT. HENCE THEREFORE THE ADDITION OF RS.5,79,650/- MADE BY THE LD.AO & CONFIRMED BY THE LD.CIT(A) NEEDS DELETION BY THE HONLE BENCH. 6.4 THE LD. DR RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. 6.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE AO NOTED FROM THE BALANCE SHEET OF THE ASSESSEE COMPANY THAT IT HAD RECEIVED THE CAPITAL SUBSIDY AM OUNTING TO ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 21 RS. 5,79,650/-. THE AO MADE AN ADDITION OF RS. 5,79 ,650/- TO THE TOTAL INCOME OF THE ASSESSEE TREATING THE SAME AS REVENUE RECEIPT AND THE SAME IS CONFIRMED BY THE LD. CIT(A). AFTER CONSIDERING V ARIOUS CASE LAWS AND ALSO THE PROVISIONS OF SECTION 43(1) OF THE ACT WHE REIN THE DEFINITION FOR TERM ACTUAL COST AS PER SECTIONS 28 TO 41 OF TH E I.T. ACT HAS BEEN GIVEN WHERE ACTUAL COST MEANS THE ACTUAL COST OF THE ASSE TS TO THE ASSESSEE, REDUCED BY THAT PORTION OF THE COST THEREOF, IF ANY , AS HAS BEEN MET DIRECTLY OR INDIRECTLY BY ANY OTHER PERSON OR AUTHO RITY. SINCE THIS SUBSIDY HAS BEEN GIVEN BY THE GOVERNMENT TO THE ASSESSEE FO R UPGRADATION OF TECHNOLOGY UNDER THE SCHEME OF MINISTRY OF SMALL S CALE INDUSTRIES AND ARI, GOVT. OF INDIA FOR SETTING UP A PROJECT, THERE FORE, THIS WILL REDUCE THE ACTUAL COST OF THE ASSETS ON WHICH THE ASSESSEE IS CLAIMING DEPRECIATION. THUS GROUND NO. 4 OF THE ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSES TO RE-WORK OUT THE DEPRECIATION. 7.1 AS REGARDS GROUND NO. 6 OF THE ASSESSEE, THE AO IN THE PROFIT AND LOSS ACCOUNT OBSERVED THAT THE ASSESSEE HAD DEBITE D TRAVELING EXPENSES, CONVEYANCE EXPENSES, TELEPHONE EXPENSES, CAR EXPENS E AND CARRIAGE OUTWARD EXPENSES. THE AO OBSERVED THAT IN SUCH EXPE NSES, THE COMPONENT OF PERSONAL USE CANNOT BE DENIED FOR WHIC H THE AO REQUIRED THE ASSESSEE TO PRODUCE THE LOG BOOK OF VEHICLE AND CALL REGISTER OF PHONES ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 22 AND THE ASSESSEE DENIED THE MAINTAINING OF SUCH REC ORDS. THE AO ON PERUSAL OF LEDGER OF CARRIAGE OUTWARD EXPENSES OB SERVED THAT MOSTLY AMOUNTS WERE PAID IN CASH AND NO SPECIFIC INFORMATI ON AND SIGNATURE OF PERSON WHO RECEIVED THE AMOUNT WAS AVAILABLE ON THE BILLS. THE AO OBSERVED THAT THE CARRIAGE OUTWARD EXPENSES HAD B EEN INCREASED BY ALMOST 70% IN COMPARISON TO LAST YEAR WHILE SALE OF THE ASSESSEE HAD JUST A NORMAL INCREASE OF ONLY 6% WHICH WAS VERY LOW. TH E AO KEEPING VIEW IN SUCH EXPENSES DISALLOWED 10% OUT OF EVERY ITEM A S UNDER:- S.N. NAME OF EXPENSES AMOUNT OF EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT PERCENT OF EXPENSES DISALLOWED AMOUNT TO BE DISALLOWED (RS. ) 1. TRAVELLING EXPENSES 94,470/- 10% 9,447/- 2. CONVEYANCE EXPENSES 15,645/- 10% 1,564/- 3. TELEPHONE EXPENSES 71,684/- 10% 7,168/- 4. OFFICE EXPENSES 1,18,093 10% 11,809/- 5. CAR EXPENSES 25,031/- 10% 2,503/- 6. CARRIAGE OUTWARD EXPENSES 21,27,246/- 10% 2,21,725/- TOTAL DISALLOWANCES 2,45,235/- THE AO THUS DISALLOWED THE EXPENSES TO THE EXTENT O F RS. 2,45,235/-AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 7.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CITA) WHO HAS RESTRICTED THE ADDITION TO THE EXTENT OF RS. 1.00 LAC AO BY OBSERVING AS UNDER:- ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 23 9.7 CONSIDERING THE SUBMISSIONS MADE ON THIS ISSU E, I FIND THAT THE APPELLANT HAS FAILED TO PRODUCE ANY EVIDENCE TO CONTROVERT THE FINDINGS GIVEN BY THE AO. THE APPELL ANT HAS MADE ONLY GENERAL REMARKS WITHOUT EXPLAINING THE REASONS FOR ABNORMAL INCREASE OF EXPENSES CLAIMED UNDER THE HEAD CARRIAG E OUTWARD AND OTHER DEFICIENCIES POINTED OUT BY THE AO. HOWEVER, AO HAS MADE ONLY A ESTIMATE DISALLOWANCE AND CONSIDERING THE FA CTS, I HOLD THAT IT WOULD BE FAIR TO RESTRICT THE ADDITION TO RS. 1 LAC AS AGAINST THE DISALLOWANCE OF RS. 2,45,236/- MADE UNDER THESE HEA DS. 7.3 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE PRAYED FOR DELETION OF ADDITION SUSTAINED BY THE LD. CIT(A). A ND THE LD. AR OF THE ASSESSEE FILED THE WRITTEN SUBMISSION TO THIS EFFEC T AS UNDER:- THE LD.AO MADE DISALLOWANCE OF RS.2,45,236/- BEING 10% OUT OF TRAVELLING EXPS. RS.94,470/-, CONVYEANCE EXPS. RS.1 5,645/-, TELEPHONE EXPS. RS.71,684/-, OFFICE EXPS. RS.1,18,093/-,CAR E XPS. RS.25,031/- & CARRIAGE OUTWARD EXPS. RS.21,27,246/- ON A VERY ADH OC BASIS. NO SPECIFIC DEFECT HAS BEEN POINTED OUT BY THE LD.AO. THE LD.AO SIMPLY STATED THAT THE ASSESSEE HAS NOT MAINTAINED LOG-BOOK OF VEHICLE S AND CALL REGIER OF PHONES, CARRIAGE OUTWARD EXPS. INCREASE BY 70% IN C OMPARISION TO ONLY 10% INCREASE IS SALES. NO SPECIFIC INSTANCE OF DISCREPANCY EVEN A SINGLE O NE, HAS BEEN STATED IN THE ASSESSMENT ORDER AND NEITHER THE SAME HAS BEEN DISCUSSED WITH THE ASSESSEE/A.R. AT ANY TIME. THE LD.AO HAS MADE THESE LUMP SUM & ARBITRARY DISAL LOWANCES OF RS.2,45,236/- BY APPLYING ARBITRARY 10% OUT OF O F TOTAL EXPENSES CLAIMED SIMPLY ON THE BASIS OF HIS GUESS WORK, HIS OWN ARBITRARY ESTIMATES, PRESUMPTIONS, SUSPICION, CONJECTURE AND SURMISES WITHOUT CONDUCTING ANY ENQUIRIES AND IN ABSENCE OF ANY EVID ENCE. IN SUPPORT THE ABOVE SUBMISSIONS WE SUBMIT TO YOUR GOODSELF FOLLOWING JUDICIAL DECISIONS: - IN CASE OF RAMESH CHAND MODI VS.ACIT (21 TAX WORLD 510), HONLE ITAT, JAIPUR BENCH HAS DECIDED THAT ADDITIO N CAN NOT BE MADE SIMPLY ON THE BASIS OF ESTIMATES AND SURMISES WITHO UT CONDUCTING ANY ENQUIRIES AND IN ABSENCE OF ANY EVIDENCE. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 24 IN CASE OF ASHOK DOSHI VS. ACIT (22 TAX WORLD 282), HONLE ITAT, JAIPUR BENCH HAS DECIDED THAT NO ADDITION CAN BE M ADE ON THE BASIS OF PRESUMPTION, SUSPICION, CONJECTURE AND SURMISES. THEREFORE THIS LUMP SUM DISALLOWANCE OF RS.43174/- IS UNJUSTIFIED AND AGAINST THE NATURAL JUSTICE AND NEEDS TO BE DELETED . HONLE ITAT, JODHPUR BENCH IN THE CASE OF SHRI NAND LAL TANK V.ACTI 49 TAX WORLD 86 VIDE APPEAL ORDER DT.19.12.2012 HAS HELD THAT NO ADDITION CAN BE MADE WHEN THE LD.AO HAS NOT GIVEN ANY SPECIFIC INST ANCE OF ANY INGENUINE EXPESES. HON'BLE SUPREME COURT AND VARIOUS HIGH COURTS IN NUMBER OF CASES HAVE DECITED THAT THOUGH THERE IS AN ELEMENT OF GUESS WO RK IN A BEST JUDGEMENT ASSESSMENT, IT SHALL NOT BE A WILD ONE, BUT SHALL H AVE REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND CIRCUMSTANCES OF EACH CASE. STATE OF KERLA V.C.VELUKUTTY (1966) 60 ITR 239, 244 (SC), BRIJ BHHUSAN PRADUMAN KUMAR V.CIT (1978) 115 ITR 524, 530 (SC). THE QUANTUM OF BEST JUDGEMENT ESTIMATE MUST BE BASE D ON ADEQUATE AND RELEVANT MATERIAL. IN STATE OF ORISSA V.MAHARAJA SH RI B.P.SINGH DEO (1970) 76 ITR 690,691, THE HONLE SUPREME COURT HAS OBSERVED THAT APART FROM COMING TO THE CONCLUSION THAT THE MATERIAL PLACED BEFORE HIM BY THE ASSESSEE WERE NOT RELIABLE, THE ASSISTANCE COLLECTOR HAS GIVEN NO REA SONS FOR ENHANCING THE ASSESSMENT. HIS ORDER DOES NOT DISCLOSE THE BASIS O N WHICH HE HAS ENHANCED THE ASSESSMENT. THE MERE FACT THAT THE MATERIAL PLACED BY THE ASSESSEE BEFORE THE ASSESSING AUTHORITIES IS UNREALIABLE DOES NOT EMPOW ER THOSE AUTHORITIES TO MAKE AN ARBITRARY ORDER. THE POWER TO LEVY ASSESSMENT ON TH E BASIS OF BEST JUDGEMENT IS NOT AN ARBITRARY POWER, IT IS AN ASSESSMENT ON THE BASIS OF BEST JUDGEMENT. IN OTHER WORDS, THAT ASSESSMENT MUST BE BASED ON SOME RELEVA NT MATERIAL. IT IS NOT A POWER THAT CAN BE EXERCISED UNDER THE SWEET WILL AND PLEA SURE OF THE CONCERNED AUTHORITIES. THE SCOPE OF THAT POWER HAS BEEN EXPLA INED OVER AND OVER AGAIN BY THIS COURT. KEEPING IN VIEW OF THE ABOVE SUBMISSIONS THE LD.AO ERRED IN MAKING AFORESAID DISALLOWANCE OF RS.2,45,236/- WHICH NEEDS DELETION BUT THE LD.CIT(A) RESTRICTED THIS ADDITION TO RS.1 LAC AGAINST THE TO TAL DISALLOWANCE OF RS.2,45,236/- STATING THAT THE APPEALLANT HAS NOT EXPLAINED THE REASONS FOR ABNORMAL INCREASE IN CARRIAGE OUTWARD EXPS. BY 70% IN COMPARISION TO THE LAST YEAR. WHEN EACH AND EVERY EXPS. INCURRED ON CARRIAGE OUTW ARD DEBITED INTO THE PROFIT & LOSS ACCOUNT IS VOUCHED AND NO SPECIFIC E VEN A SINGLE ADVERSE OBSERVATION IN REGARD TO CARRIAGE OUTWARD EXPS. WAS OBSERVED BY EITHER THE LD.AO OR THE LD.CIT(A), THE QUESTION OF ADHOC DISALLOWANC E OF THE HUGE AMOUNT OF RS.1,00,000/- CONFIRMED BY THE LD.CIT(A) IS NOT ARI SES AND ADDITION CONFIRMED IN SUCH A WAY IS ARBITRARY AND ILLEGAL. 7.4 THE LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 25 7.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTED THAT THE AO HAD DI SALLOWED THE EXPENSES TO THE EXTENT OF RS. 2,45,236/- WHICH IS 10% OF THE TOTAL EXPENSES INCURRED IN THE ABOVE HEADS BY THE ASSESSEE. THE LD. CIT(A) HAS RESTRICTED THE EXPENSES TO THE EXTENT OF RS. 1.00 LAC. IT IS NOTED THAT WHEN THE EXPENSES INCURRED ON CARRIAGE OUTWARD DEBITED INTO THE PROFI T AND LOSS ACCOUNT WERE VOUCHED AND NO SPECIFIC ADVERSE REMARKS WITH REGARD TO CARRIAGE OUTWARD EXPENSES WERE OBSERVED BY THE LOWER AUTHORI TIES THEN THE QUESTION OF MAKING ADHOC DISALLOWANCE TO THE EXTENT OF RS. 1.00 LAC DOES NOT ARISE. IT IS ALSO NOTED FROM THE ORDER OF ITAT JAIPUR BENCH IN THE CASE OF RAMESH CHAND MODI VS. ACIT 21, TW 510 IN WHICH I T IS OBSERVED THAT ADDITION CANNOT BE MADE SIMPLY ON THE BASIS OF ESTI MATES AND SURMISE WITHOUT CONDUCTING ANY ENQUIRIES AND IN ABSENCE OF ANY EVIDENCE. HENCE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE INCLUDING THE CASE LAWS RELIED ON BY THE LD. AR OF THE ASSESSEE, ADHOC DISALLOWANCE SUSTAINED BY THE LD. CIT(A) TO THE EXT ENT OF RS. 1.00 LAC IS DIRECTED TO BE DELETED. THUS GROUND NO. 6 OF THE AS SESSEE IS ALLOWED. 8.1 AS REGARDS GROUND NO. 7 OF THE ASSESSEE, THE AO ON PERUSAL OF THE DETAILS OF THE EXPENSES DEBITED IN PROFIT AND LOSS AND DETAILS OF TDS DEDUCTED BY THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD NOT DEDUCTED THE ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 26 TDS ON LEGAL FEE OF RS. 60,000/- PAID TO SHRI R AJENDRA AGARWAL. THE AO THUS OBSERVED THAT THIS IS A AMOUNT ON WHICH DED UCTION OF TDS IS LIABLE TO BE DEDUCTED AS PER I.T. ACT. HENCE, THIS AMOUNT CANNOT BE ALLOWED AS DEDUCTION AS PER PROVISIONS OF SECTION 4 0(A)(IA) OF THE I.T. ACT AND THE AO THUS MADE AN ADDITION OF RS. 60,000/- AN D ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 8.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CITA) WHO HAS CONFIRMED THE ACTION OF THE AO BY OBS ERVING AS UNDER:- 10.7 I HAVE EXAMINED THE CONTENTIONS AND FIND NO FORCE IN THE ARGUMENTS OF THE APPELLANT AS AN AM OUNT OF RS. 60,000/- HAS BEEN SHOWN AS PAYABLE TO M/S. RAJENDRA AGARWAL ON ACCOUNT OF LEGAL EXPENSES. THE NORMAL JOURNAL ENTR Y PASSED BY THE COMPANY WOULD BE: LEGAL EXPENSES A/C DR RS. 60,000/- TO M/S. RAJENDRA AGRWAL & CO. RS. 60,000/- HENCE, I DO NOT FIND ANY JUSTIFICATION IN THE EXPLA NATION BEING GIVEN BY THE APPELLANT ON THIS ISSUE. FURTHER LIABILITY T O DEDUCT TAX ARISES ON THE APPELLANT AT THE MOMENT AN AMOUNT IS CREDITE D TO THE ACCOUNT OF THE PAYEE. THUS, THE PROVISIONS OF SECTION 40(A) (IA) ARE CLEARLY APPLICABLE IN THIS CASE. 10.8 I ALSO FIND THAT THE HON'BLE GUJARAT HIGH COU RT HAS HELD IN ITS JUDGEMNET DATED 2 ND MAY 2013 IN THE CASE OF CIT VS. SIKANDAR KAHAN, N TUNVAR AND OTHERS 259 CTR 57 (GUJ .) ALSO REPORTED IN 87 DTR 137 THAT PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE EVEN IF THE AMOUNT ON WHICH TDS WAS TO B E DEDUCTED HAS BEEN PAID DURING THE YEAR. 10.9. ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 27 10.10. IN VIEW OF THESE FACTS, I UPHOLD THE ACTI ON OF THE AO AND CONFIRM THE ADDITION OF RS. 60,000/- MADE BY THE AO U/S 40(A)(IA) OF THE I.T. ACT. 8.3 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE PRAYED FOR DELETION OF ADDITION SUSTAINED BY THE LD. CIT(A). A ND THE LD. AR OF THE ASSESSEE FILED THE WRITTEN SUBMISSION TO THIS EFFEC T AS UNDER:- NO PAYMENT OF RS.60000/- WAS PAID TO SHRI RAJENDRA AGRAWAL DURING THE YEAR CONCERNED. AS EVIDENT FROM THE DETA ILS OF LEGAL EXPS. PB- 45 AS PROVISION OF AUDIT FEES WAS MADE ON 31.03.201 1, HENCE THE QUESTION OF TDS ON MAKING PROVISION DOES NOT ARISES AS NEITH ER THE SAME WAS CREDITED TO THE ACCOUNT OF THE PAYEE NOR ANY PAYMEN T WAS MADE, HENCE DISALLOWANCE OF RS.60000/- ON THIS COUNT IS UNJUSTI FIED AND NEEDS TO BE DELETED. BUT THE LD.AO CONFIRMED THE ADDITION BY STATING THA T SECTION 40(A)(IA) COVERS NOT ONLY THE AMOUNTS WHICH ARE PAY ABLE AS ON 31 ST MARCH OF PARTICULAR YEAR, BUT ALSO WHICH WERE PAYABLE AT ANY TIME DURING THE YEAR, WHILE IT WAS NOT ISSUE IN DISPUTED BEFORE HIM . 8.4 THE LD. DR RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. 8.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS NOTED THAT THE ASSESSEE HAD PAID LEGAL FEE OF RS. 60,000/- TO SHRI RAJENDRA AGARWAL ON WHICH TDS WA S NOT DEDUCTED. THE AO THUS MADE AN ADDITION OF RS. 60,000/-TO THE TOTA L INCOME OF THE ASSESSEE AND THE SAME WAS CONFIRMED BY THE LD. CIT( A) ALSO. TAKING INTO CONSIDERATION ALL THE FACTS AND CIRCUMSTANCES OF TH E CASE INCLUDING THE WRITTEN SUBMISSION OF THE ASSESSEE, IT IS IMPERATIV E ON THE PART OF THE ASSESSEE TO DEDUCT THE TAX ON THE AMOUNT PAID BY TH E ASSESSEE TO THE PARTY ITA NO. 739/JP/2015 M/S. ELECON POLYMERS (P) LTD. VS. ACIT, CIRCLE- BHA RATPUR 28 CONCERNED. HENCE, I DO NOT FIND ANY REASON TO INTER FERE WITH THE ORDER OF THE LD. CIT(A) WHO HAS ELABORATELY DISCUSSED THE IS SUE IN QUESTION. THUS GROUND NO. 7 OF THE ASSESSEE IS DISMISSED. 9.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 /10/20 16 SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 5 /10/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. ELECON POLYMERS (P) LTD. , BHAR ATPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT,CIRCLE- BHARATPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 739/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR