ACIT CEN CIR 33, MUMBAI V. ESKAY KNIT (I) LTD, MUMBAI

ITA 7416/MUM/2011

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 7238 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 02-05-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 03-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN SHRI MAJUNATHA SWAMY
• Assessee Lawyers: SALIL KAPOOR MS SOUMYA SINGH
• Keywords: Depreciation; Additional evidence; Wrong claim; Corroborative evidences; Valuation report; Validity of assessment; Competent authority
• Section: 143(3); 142(1); 153A; 133(6); 131; 145

Judgement Text

1 ESKAY KNIT (I) LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI SAKTIJIT DEY(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.6816/MUM/2011 : AY 2002-03 I.T.A NO.6817/MUM/2011 : AY 2003-04 ESKAY KNIT (I) LTD KRISHNA HOUSE, RAGHUVANSWHI MILL COMPOUND, LOWER PAREL, MUMBAI-400 013 PAN : AABCS1363G VS ACIT, CENT.CIR.33, MUMBAI APPELLANT RESPONDENT I.T.A NO.7416/MUM/2011 : AY 2002-03 I.T.A NO.7417 /MUM/2011 : AY 2003-04 ACIT, CENT.CIR.33, MUMBAI VS ESKAY KNIT (I) LTD KRISHNA HOUSE, RAGHUVANSWHI MILL COMPOUND, LOWER PAREL, MUMBAI- 400 013 APPELLANT RESPONDENT ASSESSEE BY SHRI SALIL KAPOOR / MS. SOUMYA SINGH REVENUE BY SHRI V JUSTIN / SHRI MAJUNATHA SWAMY DATE OF HEARING 20 -07-2018 DATE OF PRONOUNCEMENT -09-2018 O R D E R PER G MANJUNATHA, AM : THESE TWO APPEALS FILED BY THE ASSESSEE FOR AYS 20 02-03 AND 2003-04 AND TWO APPEALS FILED BY THE REVENUE FOR AY 2002-03 & 2003-04 2 ESKAY KNIT (I) LTD ARE DIRECTED AGAINST SEPARATE, BUT IDENTICAL ORDERS OF THE CIT(A)-41, MUMBAI DATED 01-08-2011 AND 02-08-2011. SINCE, FAC TS ARE IDENTICAL AND ISSUES ARE COMMON, THESE APPEALS WERE HEARD TOG ETHER AND ARE DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF C ONVENIENCE. 2. THE ASSESSEE HAS RAISED MORE OR LESS COMMON GROU NDS OF APPEAL FOR BOTH THE ASSESSMENT YEARS. FROM THESE GROUNDS OF APPEAL, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LD.CIT(A) PARTIALLY CONFIRMING ADDITIONS MADE BY THE AO TOWARDS SALES RETURNS ALON GWITH ROYALTY, TRANSPORTATION CHARGES PAID TO TWO PARTIES IN CONNE CTION WITH SAID TRANSACTION. THE ASSESSEE ALSO HAS TAKEN A GROUND CHALLENGING THE ACTION OF THE LD.AO IN DISALLOWING DEPRECIATION ON PLANT & MACHINERY FOR AY 2003-04. THE REVENUE FOR AY 2002-03 HAS TAKEN A GROUND CHALLENGING THE ACTION OF THE LD.CIT(A) IN ALLOWING RELIEF ON ACCOUNT OF SALES RETURNS ON THE BASIS OF REMAND REPORT OF THE AO WITHOUT DISCUSSING THE ISSUES ON MERIT. THE REVENUE ALSO CHALLENGED T HE ACTION OF THE LD.CIT(A) IN ALLOWING PARTIAL RELIEF TOWARDS DISALL OWANCE OF TRANSPORTATION EXPENSES IN CONNECTION WITH SAID SALES RETURNS. FO R THE SAKE OF BREVITY, THE GROUNDS OF APPEAL TAKEN BY RELEVANT PARTIES FOR AY 2002-03 ARE EXTRACTED BELOW:- 3 ESKAY KNIT (I) LTD ASSESSEE: THE FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PREJUDI CE TO ONE ANOTHER. 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE APPE LLANT'S CASE AND IN LAW, THE LD.CIT(A) ERRED TO HOLD THAT SALES RETURN OF RS.3,4 1,53,476/- FROM 13 PARTIES ARE NOT GENUINE AND CONSEQUENTLY ERRED IN CONFIRMING THE AD DITION OF RS.3,41,53,476/-. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE APPE LLANT'S CASE AND IN LAW, THE LD.CIT(A) ERRED TO HOLD THAT THE SALES OF SLOW MOVI NG ITEMS MADE TO 3 PARTIES ARE NOT GENUINE AND CONSEQUENTLY ERRED IN CONFIRMING TH E ADDITION OF RS.8,42,020/-. 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE APPE LLANT'S CASE AND IN LAW, THE LD.CIT(A) ERRED TO HOLD THAT THE TRANSPORTATION CH ARGES PAID TO 2 PARTIES ARE NOT GENUINE AND CONSEQUENTLY ERRED IN CONFIRMING THE AD DITION OF RS.6,09,917/-. 4. THE APPELLANT CRAVE LEAVES TO ADD, AMEND, ALTE R, MODIFY AND OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL, WHICH ARE WITHOUT PREJ UDICE TO ONE ANOTHER. THE APPELLANT PRAYS THIS HON'BLE TRIBUNAL TO DELETE THE ADDITIONS TO THE EXTENT CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). REVENUE: 1: 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN HOLDING THAT THE CLAIM OF TH E ASSESSEE FOR RETURN OF GOODS, SOLD IN EARLIER YEAR, WORTH ? 151,36,56,0007- IS A GENUI NE CLAIM.' 2: 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN COMING TO THE CONCLUSION THAT CLAI M OF THE ASSESSEE FOR LOSS OF ? 109,06,77,5247- ON ACCOUNT OF REVALUATION OF GOODS SOLD RECEIVED BACK, IS GENUINE CLAIM MERELY ON THE BASIS OF REMAND REPORT OF THE A SSESSING OFFICER. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS ONLY EXPRESSED TH E OPINION THAT PART OF THE CLAIM LOOKS TO BE GENUINE AND HENCE THE CIT(A) SHOULD HAV E GIVEN THE DECISION ON MERIT OF THE CASE.' 3: 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD CIT (A) HAS ERRED IN COMING TO THE CONCLUSION THAT CLAI M OF THE ASSESSEE FOR LOSS OF? 20,07,98,9807-ON ACCOUNT OF SALE OF SLOW MOVING GOO DS IS A GENUINE CLAIM MERELY ON THE BASIS OF THE REMAND REPORT OF THE ASSESSING OFF ICER. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS ONLY EXPRESSED THE OPINION TH AT PART OF THE CLAIM LOOKS TO BE GENUINE AND HENCE CIT(A) SHOULD HAVE GIVEN THE DECI SION ON MERIT OF THE CASE.' \' 4: 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE LD CIT (A) HAS ERRED IN COMING TO THE CONCLUSION THAT CLAI M OF THE ASSESSEE FOR TRANSPORTATION EXPENSES OF ? 36,96,0837- IS A GENUINE CLAIM MERELY ON THE BASIS OF REMAND REPORT OF THE ASSESSING OFFICER. IN THE REMAND REPORT, THE AS SESSING OFFICER HAS ONLY EXPRESSED THE OPINION THAT PART OF THE CLAIM LOOKS TO BE GENU INE AND HENCE THE CIT(A) SHOULD HAVE GIVEN THE DECISION ON MERIT OF THE CASE'. 3. THE BRIEF FACTS OF THE CASE EXTRACTED FROM ITA N O.7416/MUM/2011 ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUS INESS OF MANUFACTURING COTTON YARN, CIRCULAR KNITTED HOSIERY CLOTH AND ALSO IN 4 ESKAY KNIT (I) LTD PROCESSING OF CLOTH, FILED ITS RETURN OF INCOME FOR AY2002-03 DECLARING TOTAL LOSS OF RS.144,76,18,197. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICES U/S 143(2) AND 142(1) OF TH E ACT, WERE ISSUED. THE ASSESSEE NEITHER APPEARED NOR FILED ANY ADJOURN MENT APPLICATION. THEREFORE, THE AO ISSUED FURTHER NOTICES ON 13-02-2 004, 21-06-2004 AND 22-07-2004. AGAIN THERE WAS NO RESPONSE FROM THE A SSESSEE. THEREFORE, SUMMONS U/S 131 WAS ISSUED TO THE MANAGI NG DIRECTOR, SHRI NAVISH K DAYAL. SINCE THE ASSESSEE DID NOT APPEAR ON THE DATES OF HEARING, EVEN THOUGH NUMBER OF OPPORTUNITIES HAVE B EEN GIVEN TO THE ASSESSEE TO FILE THE DETAILS, THE AO, ON THE BASIS OF INFORMATION AVAILABLE ON RECORD OBSERVED THAT THE ASSESSEE HAS DECLARED H UGE LOSSES ON ACCOUNT OF CLAIM OF SALES RETURNS AMOUNTING TO RS.1 51,36,56,000 WAS OF THE OPINION THAT HAVING REGARD TO THE NATURE AND CO MPLEXITY OF THE ACCOUNTS OF THE ASSESSEE AND IN THE INTEREST OF REV ENUE IT WAS NECESSARY TO DIRECT THE ASSESSEE TO GET THE ACCOUNTS AUDITED AS PER PROVISIONS OF SECTION 142(2A) OF THE INCOME-TAX ACT, 1961. HENCE , A PROPOSAL TO THIS EFFECT WAS SUBMITTED TO THE COMPETENT AUTHORITY AND AFTER OBTAINING NECESSARY APPROVAL, SPECIAL AUDITORS, M/S MALPANI & ASSOCIATES, CAS WERE APPOINTED FOR THE PURPOSE OF CONDUCTING THE SP ECIAL AUDIT OF BOOKS ACCOUNT OF THE ASSESSEE U/S 142(2A). ACCORDINGLY, A LETTER DATED 18-03- 2005 WAS ISSUED TO THE AUDITORS REQUIRING THEM TO S UBMIT THEIR REPORT ON THE ISSUES DISCUSSED IN THE LETTER. THE SPECIAL AU DITOR, M/S MALPANI & 5 ESKAY KNIT (I) LTD ASSOCIATES HAD TAKEN ALL EFFORTS FOR COMPLETING THE AUDIT, AS DIRECTED BY THE AO AND MADE NUMBER OF CORRESPONDENCE ON VARIOUS OCCASIONS AS MENTIONED BY AO, IN HIS ASSESSMENT ORDER ON PAGE 5. THE ASSESSEE, EVEN BEFORE THE SPECIAL AUDITOR WAS NON-COOPERATIVE AND HENCE, A LETTER WAS ADDRESSED BY THE AO TO THE ASSESSEE TO PROVIDE ALL THE BOOKS OF ACCOUNT AND RELEVANT DETAILS TO THE AUDITORS TO ENA BLE THEM TO COMPLETE THE AUDIT WITHIN THE SPECIFIED TIME. FINALLY, THE SPECIAL AUDITORS HAVE COMPLETED AUDIT OF BOOKS OF ACCOUNT OF THE ASSESSEE AND SUBMITTED THEIR REPORT IN FORM 6B WHICH HAS BEEN REPRODUCED BY THE AO IN HIS ORDER AT PARA 5 ON PAGES 6 TO 14. 4. THE AO, ON RECEIPT OF AUDIT REPORT U/S 142(2A) I SSUED NOTICE U/S 142(1) AND CALLED UPON THE ASSESSEE TO FURNISH PEN DING DETAILS AS REQUIRED BY THE AO AND ALSO A DETAILED NOTE WITH SU PPORTING EVIDENCE ON THE REMARKS OF THE SPECIAL AUDITOR. THEREAFTER, TH E ASSESSEE, VIDE LETTER DATED 05-10-2005 SUBMITTED THAT IT HAS FURNISHED NE CESSARY BOOKS OF ACCOUNT AND OTHER DETAILS BEFORE THE SPECIAL AUDITO R TO ENABLE THEM TO COMPLETE THE AUDIT AND ALSO GAVE REPORT ON THE ISSU E OF SALES RETURNS CLAIMED BY THE ASSESSEE. THE ASSESSEE ALSO EXPLAIN ED THE OBSERVATIONS MADE BY THE SPECIAL AUDITORS WITH REGA RD TO THE SALES RETURNS AND TRANSPORTATION CHARGES ALONGWITH NECESS ARY EVIDENCES AND SUBMITTED THAT THE COMPANY HAS MADE SALES TO ITS CU STOMERS IN THE PREVIOUS FINANCIAL YEAR. HOWEVER, SUCH SALES HAVE BEEN RETURNED BY THE 6 ESKAY KNIT (I) LTD CUSTOMERS IN THE IMPUGNED FINANCIAL YEAR BY STATING THAT THE GOODS ARE NOT IN ACCORDANCE WITH THE STANDARD SPECIFICATIONS PROVIDED AT THE TIME OF PURCHASE AND ALSO THE GOODS WERE OUT OF FASHION. THE ASSESSEE HAS ALSO FILED CONFIRMATIONS FROM CERTAIN PARTIES, WHER E THEY STATED THAT THEY HAVE RETURNED ALL THE GOODS DURING THE FINANCIAL YE AR RELEVANT TO AY 2002-03. THE ASSESSEE FURTHER EXPLAINED THAT THE G OODS RETURNED FROM THE CUSTOMERS HAVE BEEN SUBSEQUENTLY SOLD FOR A MUC H LESSER VALUE ON THE BASIS OF REPORT OF SALES, GENERAL MANAGER, WHO HAD VALUED THE GOODS CONSIDERING THE TYPE AND PATTERN OF THE GOODS SOLD TO THE CUSTOMERS AND ACCORDINGLY, THE COMPANY HAS SOLD SAI D RETURNED GOODS FOR A AMOUNT OF RS.38.88 CRORES RESULTING IN LOSS O F RS.128.48 CRORES. THE ASSESSEE HAS ALSO FILED QUOTATIONS, WHICH ARE P ART OF EXHIBIT A OF THE AUDIT REPORT ON THE BASIS OF WHICH THE ASSESSEE HAS CLAIMED THAT THE SALE PRICE WAS FIXED FOR THE RETURNED GOODS. TO EXAMINE THE GENUINENESS OF THE CLAIM OF THE ASSESSEE, THE AO ISSUED NOTICES U/ S 133(6) TO FEW PARTIES. THE NOTICES ISSUED TO PARTIES WERE RETURN ED BY THE POSTAL AUTHORITIES IN CASE OF CERTAIN PARTIES, AS LISTED B Y THE AO IN ASSESSMENT ORDER AT PARA 8. BUT, CERTAIN PARTIES HAVE FILED D ETAILS BEFORE THE AO. HOWEVER, THE AO OBSERVED THAT THE PARTIES HAVE FILE D INCOMPLETE SUBMISSIONS. THE DETAILS OF NOTICES ISSUED BY THE AO, NOTICES RETURNED, REPLIES RECEIVED FROM THE PARTIES, HAVE BEEN NARRAT ED BY THE AO IN HIS ORDER AT PARA 8 ON PAGES 23 & 24. THOSE FACTS WERE CONFRONTED TO THE 7 ESKAY KNIT (I) LTD ASSESSEE TO EXPLAIN WITH NECESSARY EVIDENCE. THOU GH, OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO PRODUCE FEW PARTIES WITH T HEIR BOOKS OF ACCOUNT, DOCUMENTS, ETC. TO EXAMINE THE GENUINENESS OF THE T RANSACTIONS OF SALES RETURN OF FINISHED GOODS, PAYMENT TO TRANSPORTERS, SALES OF SLOW MOVING ITEMS OF RETURNED GOODS, THE ASSESSEE HAS FAILED TO FILE THE SAME. IN VIEW OF THE ABOVE, THE AO OPINED THAT THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS IN COMPLIANCE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ALSO FAILED TO FILE NECESSARY DETAI LS BEFORE THE SPECIAL AUDITOR TO SHOW ITS COMMITMENT TO EXPLAIN THE ISSUE BEFORE THE AO AND ACCORDINGLY, OPINED THAT THE SALES RETURN CLAIMED B Y THE ASSESSEE AND CONSEQUENT LOSS ON SUCH SALES RETURN IS NOT EXPLAIN ED TO THE SATISFACTION OF THE AO AND ACCORDINGLY, MADE ADDITION OF RS.112, 48,31,000 LOSS TO THE TOTAL INCOME OF THE ASSESSEE. THE RELEVANT DIS CUSSION OF THE AO IS EXTRACTED BELOW:- 12. IN RESPECT OF LOSS CLAIMED OF RS. 11248. 31 LAKHS ON ACCOUNT OF DOWNWARD VALUATION OF RETURNED GOODS, IT CAN THUS B E CONCLUDED: A) THE ASSESSEE HAS NOT FOLLOWED THE GENERAL SYSTEM OF CONTROL REGARDING THE MOVEMENT OF GOODS AT THE FACTORY. THIS FACT IS ALSO CERTIFIED BY THE SPECIAL AUDITOR. B) THERE WAS NO MENTION OF OUTWARD ENTRY NUMBER ON THE OUTWARD STAMPS AFFIXED ON THE DELIVERY CHALLANS. C) SECURITY INWARD AND OUTWARD REGISTERS WERE ALSO NOT PRODUCED BEFORE THE SPECIAL AUDITOR ON THE GROUND THAT THEY WERE DAMPEN ED AND DESTROYED DURING THE FLOOD IN THE YEAR 2004. NO DOCUMENTARY EVIDENCE SUCH AS FIR. WAS FILED IN SUPPORT OF SUCH CLAIM. D) COPIES OF THE INVOICES PREPARED BY DEBTORS AT THE TIME OF SALES' RETURN WERE INCOMPLETE. E) THE ASSESSEE FAILED TO FURNISH BEFORE THE SPECIA L AUDITOR AND BEFORE THE UNDERSIGNED, THE NAMES AND COMPLETE ADDRESS OF PART IES WHICH RETURNED SALES. F) A FEW CONFIRMATIONS OF THE SALES RETURNED MADE A VAILABLE TO THE SPECIAL AUDITOR AS ON 31.03.2001 WERE ALSO INCOMPLETE. 8 ESKAY KNIT (I) LTD G) THE LORRY RECEIPT, COPY FOR SALES RETURN W ERE ALSO INCOMPLETE. THE ASSESSEE FAILED TO PRODUCE THE CONFIRMATION OF A NU MBER OF TRANSPORTERS TO THE AUDITOR. H) THE ASSESSEE CLAIMED THAT THE PAYMENTS WERE MADE TO THE TRANSPORTERS THROUGH THE PETTY CASH BOOK. HOWEV ER, THE SAME WAS NOT PRODUCED FOR VERIFICATION. I) NO OTHER DOCUMENTARY EVIDENCE S SUCH AS OCTROI CLEARANCE/PASSING WAS PRODUCED TO PROVE THE MOVEMEN T OF THE GOODS. J) THE QUOTATIONS PRODUCED BY THE ASSESSEE F OR ARRIVING AT THE SALE VALUE OF RETURNED GOODS ARE ALSO INCOMPLETE. K) NO OTHER SUPPORTING EVIDENCES ,VAS SUBMITTED TO SUBSTANTIATE THE CLAIM OF CHANGE IN FASHION AND SHIFTING OF THE PREFERENCE OF FABRICS BY THE CUSTOMERS. I) THOUGH THE GOODS ARE SAID TO BE LYING WITH THE A LLEGED PURCHASERS FOR MORE THAN A YEAR AND THAT TOO WITHOUT RECEIVING THE PAYM ENT IT IS SURPRISING THAT NO DOCUMENTS ARE AVAILABLE WITH THE ASSESSEE SHOWING T HE EFFORTS MADE FOR RECOVERY OF SALES CONSIDERATION. M) THE CONFIRMATIO NS OF PARTIES WHICH ALLEGEDLY RETURNED SALES AND TRANSPORTERS ARE EITHE R NOT SUBMITTED OR WERE VAGUE OR DID NOT BEAR ANY DATE AND ADDRESSES OR WER E INCOMPLETE. N) THE NOTICES U/S 133(6) WERE RETURNED BACK, IN MA JORITY OF THE CASES, BY THE POSTAL AUTHORITIES WITH THE REMARK 'NOT KNOWN/INCOM PLETE ADDRESS'. THIS ONLY INDICATES THAT SUCH PARTIES DO NOT EXIST; HOWEVER, THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO PRODUCE SUCH PARTIES. BUT, THE ASSES SEE FAILED TO DO SO. O) THE DETAILS FILED BY CERTAIN PARTIES WERE INCOMP LETE AND NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCES AND, THEREFORE, CANNOT BE ACCEPTED AS GENUINE. MOREOVER THE ASSESSEE HAS FAILED TO PRODUCE THE PAR TIES FOR CROSS- EXAMINATION. P) NON-CORPORATION OF THE ASSESSEE WITH THE DEPARTM ENT AND WITH THE SPECIAL AUDITOR AS MENTIONED EARLIER LEADS TO THE ONLY INFE RENCE THAT THE ASSESSEE IS UNDER THE IMPRESSION THAT IT STANDS TO GAIN BY HIDI NG INFORMATION FROM THE REVENUE. THIS HAS TO BE SEEN AS A DELIBERATE ATTEMP T TO THWART ANY INVESTIGATION INTO ITS AFFAIRS BY THE INCOME-TAX DE PARTMENT. Q) THE ONLY EVIDENCE FURNISHED BY THE ASSESSEE TO S UPPORT THE CLAIM OF HAVING TAKEN EFFORTS FOR RECOVERY ARE A FEW LETTERS OF THE SALES EXECUTIVES OF THE COMPANY. THESE LETTERS ARE ALSO NOT SUPPORTED B Y ANY CORRESPONDENCE OF THE DEBTORS OR OTHER PARTIES RELATED TO SUCH DEBTOR S. THESE ARE SELF SERVING PAPERS CREATED BY THE EMPLOYEES OF THE ASSESSEE COM PANY AND HAVE NO EVIDENCING VALUE. R) THE ASSESSEE CLAIMS TO HAVE DEALT WITH TH E PARTIES FOR DECADES, BUT HAS BEEN UNABLE TO PROVE THE TRANSACTIONS UNDER DIS PUTE OR ANY OTHER TRANSACTIONS OF EARLIER OR SUBSEQUENT PERIODS WIT H THEM BEFORE THE SPECIAL AUDITOR OR BEFORE THE UNDERSIGNED. S) DESPITE SEVERAL OPPORTUNITIES GIVEN, ADDRESSES O F THE PARTIES TO WHOM THE RETURNED GOODS ARE SAID TO BE SOLD DURING THE F.Y. 2002-0, QUANTUM INVOLVED ETC, HAS NOT BEEN FURNISHED TO ENABLE ME OR THE SPE CIAL AUDITOR TO VERIFY THE GENUINENESS OF THE TRANSACTIONS. T) THE ASSESSEE HAS FAILED TO PRODUCE THE PARTIES A LONG WITH THEIR BOOKS OF ACCOUNTS AND DOCUMENTARY EVIDENCES TO SUBSTANTIATE THE GENUINENESS OF THE TRANSACTIONS FOR THE CLAIM OF LOSS MADE. U) AS REGARDS THE CLAIM OF RETURNED GOODS SO LD IN F.Y. 2002-03, IT IS CLARIFIED BY THE SPECIAL AUDITOR THAT THE REMARK WAS GIVEN ONLY ON THE BASIS OF AUDITED ACCOUNTS OF THE F.Y. 2002-03 AND NOT AFT ER EXAMINING THE BOOKS OF ACCOUNTS OF F.Y. 2002-03. 9 ESKAY KNIT (I) LTD V) FOLLOWING FINDINGS OF FACTS CAN THUS BE S UMMARIZED:- I) THERE HAVE BEEN NO SALES RETURN AS ALLEG ED. II) THE GENUINENESS OF THESE TRANSACTION OF SALES RETURNS IS NOT PROVED. III) THE CLAIM OF LOSS MADE ON ACCOUNT OF ALL EGED RETURN OF GOODS IS A FRAUDULENT CLAIM. IV) LOWER VALUATION OF GOODS RETURNED HAS NO BASIS. IN VIEW OF THE FOREGOING THE CLAIM OF LOSS MADE BY THE ASSESSEE AT RS. 11248.31 LAKHS ON ACCOUNT OF ALLEGED RETURN OF GOOD S BY VARIOUS DEBTORS AND VALUED AT LOWER RATE AND SOLD SUBSEQUENTLY IN THE N EXT YEAR IS HELD TO BE A FRAUDULENT CLAIM AND IS NOT ACCEPTABLE. THEREFORE, THE SAID AMOUNT OF LOSS OF R. 11248.31 LAKHS IS ADDED TO THE TOTAL INCOME OF T HE ASSESSEE AND ASSESSED ACCORDINGLY. PENALTY PROCEEDINGS U/S 271(1)(C) IS A LSO INITIATED ON THIS ACCOUNT. 5. SIMILARLY, IN RESPECT OF LOSS CLAIMED ON ACCOUNT OF SALE OF SLOW MOVING STOCKS FOR RS.2,016.41 LAKHS, THE AO OBSERVE D THAT THERE WAS NO MENTION OF OUTWARD ENTRY NUMBER ON THE STAMPS FIXED ON THE DELIBIERY CHALLANS, OUTWARD REGISTERS WERE NOT PRODUCED ON TH E GROUND THAT THEY WERE DAMAGED AND DESTROYED DURING THE FLOOD, NO DOC UMENTARY EVIDENCE SUCH AS FIR WAS FILED IN SUPPORT OF THE CL AIM. NO DOCUMENTARY EVIDENCE SUCH AS OCTROI CLEARANCE / PASSING WAS PRO DUCED TO PROVE THE MOVEMENT OF GOODS. THE ASSESSEE HAS SOUGHT TO JUST IFY THE CLAIM OF LOSS ON THE BASIS OF THE APPROVAL NOTE OF THE SALES PERSONNEL OF THE ASSESSEE COMPANY AND THE QUOTATIONS STATED TO HAVE BEEN RECEIVED FROM THE MARKET. THEREFORE, HE OPINED THAT THE LOS S CLAIMED BY THE ASSESSEE ON ACCOUNT OF SLOW MOVING STOCK IS NOT GEN UINE AND ACCORDINGLY MADE ADDITIONS TO THE RETURNED INCOME. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW:- 13. IN RESPECT OF LOSS CLAIMED CLAIMED OF RS. 2016. 41 LAKHS ON ACCOUNT OF SALE OF SLOW 10 ESKAY KNIT (I) LTD MOVING STOCKS, THE FACTS EMERGED ARE THAT THERE WAS NO MENTION OF OUTWARD ENTRY NUMBER ON THE STAMPS AFFIXED ON THE DELIVERY CHALLA NS. THE OUTWARD REGISTERS WERE NOT PRODUCED ON THE GROUND THAT THEY WERE DAMPENED AND DESTROYED DURING THE FLOOD IN THE YEAR 2004. NO DOCUMENTARY EVIDENCES SUCH AS FIR WAS FILED IN SUPPORT OF THE CLAIM. THE DETAILS OF THE PARTIES TO WHOM THE ASSESSEE CLAIMS TO HAVE MADE THE SALES AND REALISED THE CONSIDERATION ARE ALSO INCOMPLETE IN ALL RESPEC TS. -NO DOCUMENTARY EVIDENCES SUCH AS OCTROI CLEARANCE/PASSING WAS PRODUCED TO PROVE T HE MOVEMENT OF THE GOODS. THE ASSESSEE HAS SOUGHT TO JUSTIFY THE CLAIM OF LOSS ON THE BASIS OF THE APPROVAL NOTE OF THE SALES PERSONNEL OF THE ASSESSEE COMPANY AND THE QUO TATION STATED TO HAVE BEEN RECEIVED FROM THE MARKET. AS REGARDS THE QUOTATIONS OBTAINED, DETAILED DISCUSSION AND CONCLUSION HAS ALREADY BEEN ARRIVED AT IN THE PRECE DING PARAS OF THIS ORDER (PARA 8). NO OTHER RECORDS OF TECHNICAL EVALUATION REPORT OR ANY OTHER SUPPORTING EVIDENCES HAS BEEN PRODUCED TO SHOW THAT THE STOCK CLAIMED TO HAVE BEE N SOLD AS SLOW MOVING STOCK WAS NOT CAPABLE OF BEING SOLD AS GOOD STOCK WHICH WOULD HAVE REALISED THE FULL VALUE. NO DOCUMENTARY EVIDENCES PROVING THE DETERIORATION IN THE QUALITY OF GOODS AND THEREBY REDUCTION IN VALUATION OF GOODS AS WELL AS THE REAS ONS FOR SUCH DETERIORATION IN THE QUALITY HAVE BEEN MADE AVAILABLE. IT IS THE BOUNDEN DUTY OF THE ASSESSEE TO SUBSTANTIATE WITH DOCUMENTARY EVIDENCES OF GENUINENESS OF ANY CLAIM. HERE THE ASSESSEE HAS NOT DISCHARGED HIS DUTIES BY PRODUCING THE PARTIES ALON G WITH THEIR BOOKS OF ACCOUNTS, DOCUMENTARY EVIDENCES ETC. IN SPITE OF THE ASSESSEE NOT DISCHARGING HIS DUTIES, NOTICES UNDER SEC.133(6) WERE ISSUED, BUT WERE NOT COMPLIED WITH BY THE THIRD PARTIES. THE FACT OF NON-COMPLIANCE BY THESE PARTIES WAS DULY INTIMATED TO THE ASSESSEE WHO WAS CALLED UPON TO PRODUCE THOSE PARTIES FOR EXAMINATION. HOWE VER, THIS REQUIREMENT WAS ALSO NOT COMPLIED WITH BY THE ASSESSEE. IN THESE CIRCUMSTANCES, FOR REASONS MENTIONED IN TH IS ORDER EARLIER, THE LOSS CLAIMED BY THE ASSESSEE OF RS. 2016.41 LAKHS IS DISALLOWED TRE ATING THE TRANSACTIONS ON THE BASIS OF WHICH THE LOSS HAS BEEN CLAIMED, AS 'SHAM' AND ASSE SSED ACCORDINGLY. PENALTY UNDER SEC.271(1)(C ) IS INITIATED SEPARATELY. 14 WITHOUT PREJUDICE TO THE ABOVE OBSERVATION, THE FAC T THAT THE SPECIAL AUDITOR HAS FOUND SPECIFIC DEFECT IN THE ACCOUNTS OF THE ASSESS EE IN THAT THE VALUATION OF THE STOCK-IN- TRADE HAS BEEN UNDERVALUED WITHOUT ANY PROPER MAINT ENANCE OF RELEVANT RECORDS IN SUPPORT OF THE ALLEGATIONS MADE BY THE ASSESSEE AGA INST THE DEBTORS. AS PER CLAUSE 22 OF AS2 RELATING TO THE VALUATION OF INVENTORIES (ST OCK), THE ESTIMATES OF NET REALIZABLE VALUE ARE TO BE BASED ON THE MOST RELIABLE EVIDENCE AVAILABLE AT THE TIME THE ESTIMATES ARE MADE AS TO THE AMOUNT THE INVENTORIES ARE EXPEC TED TO REALISE. THE MERE REPORT BY SOME SALES PERSONNEL AND A FACT FINDING REPORT NOT SUPPORTED BY AUTHENTICATED EVIDENCES CANNOT FORM A RELIABLE EVIDENCE AS PER AS 2. THE FACT FINDING REPORT HAS BEEN ESTABLISHED TO BE UNACCEPTABLE FOR THE REASONS ELAB ORATELY DISCUSSED IN PARA 7 OF THIS ORDER. THIS IS A CLEAR CASE WARRANTING THE REJECTIO N OF ACCOUNTS U/S.145(2) OF THE I.T.ACT. IN VIEW OF THE PARTICULAR FINDINGS RECORDED BY THE SPECIAL AUDITOR AND IN THE LIGHT OF THE SPECIFIC FACTS MENTIONED IN SUB PARAS 12 & 13 ABOVE , THE BOOK RESULTS ARE HEREBY REJECTED AND THE CLAIM OF EXCESSIVE LOSS & HEREBY R EJECTED, RELIANCE IS PLACED ON THE BELOW MENTIONED DECISIONS WHEREIN THE RIGHT OF THE ASSESSING OFFICER TO REJECT THE BOOKS OF ACCOUNT BASED ON HIS FINDINGS OF THE MATERIAL PL ACED BEFORE HIM AND TO INVOKE THE PROVISIONS OF SECTION 145(2) HAS BEEN UPHELD. DHONDIRAM DALICHAND V. CIT (81 ITR 609)(BOM.) ORISSA FISHERIES DEVELOPMENT CORPORATION V. CI T (111 ITR 923) (ORISSA) NARSINSHINGADAS RAMAKISHAN PUNGALIYA V.ACIT (272 I TR 467)(RAJ) 6. AS REGARDS LOSS CLAIMED ON ACCOUNT OF SCRAPPING FIXED ASSETS 11 ESKAY KNIT (I) LTD AMOUNTING TO RS.621.340 LAKHS, THE AO OBSERVED THAT SINCE THE ASSESSEE HAS AGREED FOR THE DISALLOWANCE OF THE LOS S BY FILING A REVISED STATEMENT OF COMPUTATION, NO FURTHER DISCUSSION IS NECESSARY ON THE ISSUE. THEREFORE, DISALLOWED LOSS CLAIMED BY THE A SSESSEE FROM SCRAPPING OF FIXED ASSETS. SIMILARLY, THE AO HAS D ISALLOWED TRANSPORTATION EXPENSES CLAIMED BY THE ASSESSEE FOR RS.43.06 LAKHS ON ACCOUNT OF TRANSPORTATION OF RETURNED GOODS BY HOLD ING THAT ALTHOUGH ASSESSEE CLAIMS TO HAVE PAID TRANSPORTATION CHARGES IN CASH AND RECORDED IN PETTY CASH BOOK, NO EVIDENCE HAS BEEN F ILED INCLUDING PETTY CASH BOOK FOR VERIFICATION. THE ASSESSEE HAS FILED COPIES OF LORRY RECEIPTS, BUT ON VERIFICATION OF THE LORRY RECEIPTS , IT IS OBSERVED THAT THERE WAS NO ACKNOWLEDGEMENT OF THE PAYMENTS TO THE TRANS PORTERS, SIGNATURE ON THE LORRY RECEIPTS, STAMP, ETC. NO FURTHER DOCU MENT SUCH AS RECEIPTS / VOUCHERS EVIDENCING THE PAYMENTS MADE TO TRANSPORTE RS RELATING TO RETURNED GOODS WERE PRODUCED. THEREFORE, OPINED TH AT TRANSPORTATION CHARGES CLAIMED BY THE ASSESSEE IS NON GENUINE IN N ATURE AND ACCORDINGLY DISALLOWED AN AMOUNT OF RS.43.06 LAKHS AND ADDED TO THE TOTAL INCOME. 7. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS TAKEN AN ADDITIONAL GROUND CHALLENGING THE VALIDITY OF ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT, DT 31-03-2005 BY STATING THAT ORDER PASSED BY THE AO IS BARRED 12 ESKAY KNIT (I) LTD BY LIMITATION AND, THEREFORE, THE SAME IS ILLEGAL A ND VOID AB INITIO ON THE GROUND THAT THE AO HAS TAKEN ADDITIONAL TIME LIMIT AS PROVIDED UNDER EXPLANATION 1 TO SECTION 153 BY TAKING RECOURSE TO THE ILLEGAL AND VOID AB INITIO ORDER U/S 142(2A) OF THE ACT WHICH WAS REREF ERRED TO BY THE AO IN ORDER TO BUY TIME FOR THE PURPOSE OF COMPLETING THE ASSESSMENT BEYOND THE TIME LIMIT U/S 153A OF THE ACT. THE ASSESSEE A LSO TAKEN A GROUND CHALLENGING THE ACTION OF THE AO IN REJECTING BOOKS U/S 145(2) OF THE INCOME-TAX ACT, 1961 BY STATING THAT THE AO HAS REJ ECTED BOOKS OF ACCOUNT WITHOUT POINTING OUT ANY SPECIFIC INSTANCES OF IRREGULARITIES IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ONLY ON WRONG PREMISE OF INTERPRETING THE FACTS BECAUSE THERE WAS NO NEED FO R THAT AT ALL. THE ASSESSEE ALSO FILED ELABORATE WRITTEN SUBMISSIONS O N THE ISSUE OF DISALLOWANCE OF LOSS CLAIMED ON ACCOUNT OF SALES RE TURNS WHICH HAS BEEN REPRODUCED BY THE LD.CIT(A) IN HIS ORDER AT PARA 5. 2 ON PAGES 7 TO 9. THE ASSESSEE HAS EXPLAINED THE OBSERVATIONS MADE BY THE AO IN THE LIGHT OF SPECIAL AUDIT REPORT TO ARGUE THAT IT HAS MADE SALES TO ITS REGULAR CUSTOMERS IN THE NORMAL COURSE OF BUSINESS. HOWEVE R, SUCH GOODS HAVE BEEN RETURNED BY THE CUSTOMERS STATING REASONS WHIC H IS BEYOND THE CONTROL OF THE ASSESSEE. THE ASSESSEE AFTER PUTTIN G IN ALL THE EFFORTS TO COLLECT THE DUES FROM THE CUSTOMERS HAS ACCEPTED TH E GOODS BACK. THE AO WITHOUT APPRECIATING THE FACTS, ON WRONG INTERPR ETATION OF FACTS HAS COME TO THE CONCLUSION THAT SALES RETURN CLAIMED BY THE ASSESSEE IS NOT 13 ESKAY KNIT (I) LTD GENUINE IN NATURE ONLY ON FLIMSY GROUNDS SUCH AS TH ERE WAS NO PROPER DOCUMENTATION KEPT TS MONITOR / ACCOUNT SALES RETUR NS IGNORING THE FACT THAT SUCH SALES RETURNED HAS BEEN SUBSEQUENTLY SOLD IN NEXT FINANCIAL YEAR FOR AN AMOUNT OF RS.38.85 CRORES ON THE BASIS OF QUOTATIONS RECEIVED FROM BIDDERS AND ALSO VALUATION DONE BY SA LES TEAM. THE ASSESSEE ALSO FILED VARIOUS ADDITIONAL EVIDENCE TO PROVE GENUINENESS OF SALES RETURNS. 8. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE CIT(A) HAS ADMITTED ADDITIONAL EVIDENCE FILED BY THE ASSESSEE AND REMIT TED THE CASE BACK TO THE AO TO VERIFY ADDITIONAL EVIDENCE FILED BY THE A SSESSEE FOR HIS VERIFICATION. THE AO VIDE HIS REMAND REPORT DATED 05-06-2009, 19-06- 2009 AND 10-07-2009 HAS COMMENTED ON THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. THE GIST OF OBSERVATIONS OF THE AO I N THE REMAND REPORT HAS BEEN REPRODUCED BY THE CIT(A) IN HIS ORDER AT P ARA 5.3 ON PAGES 10 TO 13. IN THE REMAND REPORT, THE AO HAS ACCEPTED T HE FACT THAT THE ASSESSEE HAS FILED VARIOUS DETAILS TO JUSTIFY RETUR NED GOODS. THE ASSESSEE WAS ASKED TO PRODUCE CERTAIN PARTIES FOR W HICH THE ASSESSEE HAS FILED NECESSARY DETAILS INCLUDING CONFIRMATION S FROM THE PARTIES. THE ASSESSEE ALSO PRODUCED CERTAIN PARTIES BEFORE THE A O AND THE AO HAS RECORDED STATEMENT ON OATH FROM THE PARTIES. THE A O ALSO ASKED THE ASSESSEE TO PRODUCE THE PARTIES TO WHOM SALE OF SLO W MOVING GOODS WAS MADE. THE ASSESSEE HAS PRODUCED CERTAIN PARTIES. THE ASSESSEE ALSO 14 ESKAY KNIT (I) LTD PRODUCED CERTAIN PARTIES, WHO TRANSPORTED GOODS AS REQUIRED BY THE AO. ALL THESE ASPECTS HAVE BEEN DISCUSSED BY THE AO IN HIS REMAND REPORT DATED 10-07-2009 AND OBSERVED THAT ON THE BASIS OF INFORMATION FURNISHED BY THE ASSESSEE AND ALSO SUPPORTING DETAI LS FILED BY VARIOUS PARTIES, THE TRANSACTION APPEARS TO BE GENUINE. 9. THE LD.CIT(A) AFTER CONSIDERING RELEVANT SUBMISS IONS OF THE ASSESSEE, REJECTED LEGAL GROUND TAKEN BY THE ASSESS EE CHALLENGING THE VALIDITY OF ASSESSMENT ORDER PASSED U/S 143(3) ON L IMITATION AND OBSERVED THAT THE AO HAS RESORTED TO SPECIAL AUDIT HAVING REGARD TO THE NATURE AND COMPLEXITY OF ACCOUNTS OF THE ASSESSEE A ND ALSO THE FACT THAT THE ASSESSEE HAS NOT FILED NECESSARY DETAILS BEFORE THE AO, EVEN THOUGH THE AO HAS GIVEN NUMBER OF OPPORTUNITIES. THE LD.C IT(A) FURTHER OBSERVED THAT THE AO HAS FOLLOWED DUE PROCEDURE FOR REFERRING TO SPECIAL AUDIT OF ACCOUNT OF THE ASSESSEE AFTER OBTAINING NE CESSARY APPROVAL FROM THE COMPETENT AUTHORITY, WHO ORDERED FOR SPECIAL AU DIT, THEREFORE, THERE IS NO LAPSE ON THE PART OF THE AO ORDERING SPECIAL AUD IT. INSOFAR AS ALLEGATION OF THE ASSESSEE REGARDING TIME BARRING O F THE CASE, IT IS BASELESS BECAUSE AS PER THE PROVISIONS OF SECTION 1 53(1)(A), THE TIME LIMIT HAS BEEN INCREASED AND THE AO HAS RIGHTLY PAS SED THE ASSESSMENT ORDER WITHIN THE LIMITATION. ACCORDINGLY, GROUND R AISED BY THE ASSESSEE HAS BEEN REJECTED. INSOFAR AS SECOND LEGAL GROUND TAKEN BY THE ASSESSEE CHALLENGING REJECTION OF BOOKS OF ACCOUNT, THE LD.CIT(A) 15 ESKAY KNIT (I) LTD OBSERVED THAT THE AO HAS GIVEN NUMBER OF OPPORTUNIT IES TO THE ASSESSEE TO SUBMIT COMPLETE DETAILS, BUT ONLY PARTIAL DETAIL S WERE SUBMITTED. SECONDLY, THE SPECIAL AUDITORS HAVE RAISED OBJECTIO N THAT BOOKS OF ACCOUNT, BILLS AND VOUCHERS WERE NOT MAINTAINED PRO PERLY. IN VIEW OF THESE FACTS, THE AO HAS GIVEN AN OPPORTUNITY TO THE ASSESSEE TO EXPLAIN WHY THE BOOKS OF ACCOUNT SHALL NOT BE REJECTED AS P ER THE PROVISIONS OF SECTION 145(2) OF THE ACT. SINCE THE AO HAS GIVEN DUE OPPORTUNITY TO THE ASSESSEE BEFORE REJECTION OF BOOKS OF ACCOUNT AND A LSO THE FACT THAT BOOKS OF ACCOUNT ARE COMPLEX IN NATURE WHICH IS FUR THER SUPPORTED BY THE FINDINGS OF THE SPECIAL AUDITOR IN THE REPORT, THER E IS NO MERIT IN THE ARGUMENTS OF THE ASSESSEE THAT THE AO WAS ERRED IN REJECTING BOOKS OF ACCOUNT U/S 145(2) OF THE ACT. THE RELEVANT PORTIO N OF THE ORDER IS EXTRACTED BELOW:- 4.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT, ORDER OF THE AO AND FACTS OF THE CASE CAREFULLY. IT IS NOTICED THAT DUR ING THE ASSESSMENT PROCEEDINGS, THE AO HAS GIVEN NUMBER OF OPPORTUNITI ES TO THE ASSESSEE TO SUBMIT COMPLETE DETAILS BUT ONLY PARTIAL DETAILS WE RE SUBMITTED. SECONDLY, THE SPECIAL AUDITORS HAS RAISED THE OBJECTION THAT BOOK S OF ACCOUNTS, BILLS AND VOUCHERS WERE NOT MAINTAINED PROPERLY. IN VIEW OF T HESE FACTS, THE AO HAS GIVEN AN OPPORTUNITY TO THE ASSESSEE TO EXPLAIN WHY THE BOOKS OF ACCOUNTS MAY NOT BE REJECTED AS PER THE PROVISIONS OF SECTIO N 145(2) OF THE IT. ACT. AFTER CONSIDERING THE REPLY CF THE APPELLANT, THE AO HAS REJECTED THE BOOKS OF ACCOUNT BECAUSE THESE WERE NOT GIVING CORRECT RESULT TO DETERMINE THE PROFIT FOR THE YEAR UNDER CONSIDERATION. TO STRENGT HEN THE VIEW OF THE AO, RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE S UPREME COURT IN THE CASE OF CIT VS. A. KRISHNASWAMY MUDALIAR 53 ITR 122 WHEREIN IT IS HELD THAT SEC. 145 DOES NOT COMPEL THE ITO TO ACCEPT IN ALL C ASES THE BALANCE-SHEET OF CASH RECEIPTS AND OUTGOING PREPARED FROM THE BOOKS OF ACCOUNT. SIMILARLY, THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MCMIL LAN & CO. 33 ITR 182 HAS ALSO HELD THAT THE ITO EVEN WHEN HE ACCEPTS A SSESSEE'S METHOD OF ACCOUNTING IS NOT BOUND BY THE FIGURE OF PROFIT SHO WN IN THE ACCOUNTS. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AND DECISION OF THE HON'BLE SUPREME COURT, IT IS HELD THAT THE AO HAS NOTICED S PECIFIC MISTAKES IN THE 16 ESKAY KNIT (I) LTD BOOKS OF ACCOUNTS WHICH HAS NOT GIVEN A CORRECT PROFIT FOR THE YEAR UNDER CONSIDERATION. THEREFORE, HE HAS RIGHTLY INVOKED TH E PROVISIONS OF SEC. 145(2) OF THE IT. ACT AND HAS RIGHTLY REJECTED THE BB~6L