The DCIT, Circle-1, Surat V. Alidhara Texpro Engineers Pvt.Ltd.,

ITA 925/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6035 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 09-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 01-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K MAHESH
• Assessee Lawyers: RASHESH SHAH
• Keywords: Unexplained cash credit; Unexplained investment; Business income; Depreciation; Opportunity of being heard; Maximum Marginal Rate; Fair market value; Set aside
• Section: 143(3); 80IB; 32; 68; 145; 27; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.925 AND 3777/AHD/2007 A. Y: 2003-04 AND 2004-05 THE D. C. I. T., ROOM NO. 108, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS ALIDHARA TEXPRO ENGINEERS PVT. LTD., FLAT NO.1, S. NO.55, PART NO. 1 & 3, DIST. VAPI PA NO. AACCA 0256 D (APPELLANT) (RESPONDENT) ITA NO. 1042 AND 3591/AHD/2007 A. Y: 2003-04 AND 2004-05 ALIDHARA TEXPRO ENGINEERS PVT. LTD., FLAT NO.1, S. NO.55, PART NO. 1 & 3, DIST. VAPI PA NO. AACCA 0256 D VS THE D. C. I. T., ROOM NO. 108, AAYAKAR BHAVAN, MAJURA GATE, SURAT (APPELLANT) (RESPONDENT) DEPARTMENT BY SHRI M. K. MAHESH, DR ASSESSEE BY SHRI RASHESH SHAH AND HARDIK VORA, AR O R D E R PER BHAVNESH SAINI: THE CROSS APPEALS FOR ASSESSMENT YEAR 2003-04 ARE DIRECTED AGAINST THE ORDER OF THE LEARN ED CIT(A)-I, SURAT DATED 18-12-2006. SIMILARLY THE CROSS APPEALS FOR A SSESSMENT YEAR 2004- 05 ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CI T(A)-I, SURAT DATED 19- 07-2007. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 2 ITA NO.925/AHD/2007 (DEPARTMENTAL APPEAL ) 3. ON GROUND NO.1 OF THE APPEAL, THE REVENUE CHALLE NGED THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION OF RS.8 ,65,314/- ON ACCOUNT OF DISALLOWANCE U/S 40A (2) (B) OF THE IT ACT. THE AO STATED THAT THE ASSESSEE HAD MADE HUGE PAYMENT OF RS.86,53,144/- TO ASHOKA TEXTOOLS, AVNHESH INDUSTRIES, SETU ENGINEERS PVT. LTD. AND AL IDHARA TECHOTEX INDUSTRIES WHICH IS A PERSON SPECIFIED U/S 40A(2)(B ) OF THE IT ACT. THE AO ASKED THE ASSESSEE TO GIVE JUSTIFICATION OF THE EXP ENDITURE. THE ASSESSEE REPLIED THAT LABOUR WORK WAS DONE THROUGH THE PARTI ES COVERED BY THE ABOVE PROVISIONS. ALL THESE PARTIES ARE ASSESSED TO TAX AT MAXIMUM MARGINAL RATE. THE EXPLANATION OF THE ASSESSEE WAS HOWEVER, NOT ACCEPTED ON THE REASON THAT THE ASSESSEE HAS NOT FO LLOWED DUE DILIGENCE HAS NOT INVITED TENDERS TO OBTAIN MINIMUM PRICE. TH E AO ACCORDINGLY DISALLOWED 10% OF THE ENTIRE EXPENDITURE AND MADE T HE ADDITION. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) A ND SAME FACTS WERE EXPLAINED. IT IS ALSO STATED THAT THE DISALLOWANCE IS AD HOC IN NATURE AND BASED ON SURMISES AND CONJECTURES. THE AO CANNOT DI SALLOW 10% OF THE EXPENDITURE WITHOUT BRINGING ON RECORD AS O HOW THE EXPENDITURE WAS IN EXCESS OF THE FAIR MARKET RATE. IT WAS SUBMITTED TH AT WORK WAS DONE BY SISTER CONCERN AS PER THE DESIGN GIVEN BY THE ASSES SEE AND THIS WORK WAS NOT DONE THROUGH OUTSIDE PARTIES. IT HAS BEEN STATE D THAT THE MACHINERY MANUFACTURED ARE OF VERY HIGH QUALITY AND THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE TO HAVE INVITED TENDERS. THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS VOLTAMP TRANSFORMERS PVT. LTD. 129 ITR 105 (GUJ.) I N WHICH HONBLE HIGH COURT HAS STATED THAT SO FAR AS LEGITIMATE BUSINESS NEEDS OF AN ASSESSEE OR THE BENEFIT DERIVED BY ACCRUING TO THE ASSESSEE FROM GOODS, SERVICES OR FACILITIES ETC. ARE CONCERNED, THESE ARE NOT TO BE JUDGED FROM THE VIEW POINT OF THE REVENUE BUT FROM THE VIEW POINT OF A B USINESSMAN. IT WAS ALSO STATED THAT IN JUDGING THE UNREASONABLENESS OR EXCESSIVENESS OF A 3 PARTICULAR PAYMENT FOR THE PURPOSE OF SECTION 40 A (2) ( B) OF THE IT ACT, IT IS ESSENTIAL THAT ONE SHOULD KEEP IN MIND THE RELEV ANT CONSIDERATION LIKE MARKET VALUE ETC. THE LEARNED CIT(A) ACCEPTED TH8E CONTENTION OF THE ASSESSEE BECAUSE THE AO CANNOT MAKE AD HOC ADDITION WITHOUT BRINGING ANY THING ON RECORD ABOUT THE REASONABLENESS OR EXC ESSIVENESS OF THE PAYMENT MADE IN COMPARISON WITH FAIR MARKET VALUE. ADDITION WAS ACCORDINGLY DELETED. 4. THE LEARNED DR SUBMITTED THAT THE ASSESSEE PURCH ASED RAW MATERIAL FROM SISTER CONCERN AND JOB WORK WAS ALSO DONE THROUGH THEM. NO OTHER DETAILS WERE FILED BEFORE THE AO TO SHOW T HAT THE ASSESSEE MADE REASONABLE PAYMENTS TO THE SISTER CONCERN. THEREFOR E, THE AO WAS JUSTIFIED IN MAKING THE DISALLOWANCE OF 10% OUT OF THE ABOVE EXPENDITURE. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE REITERATED THE SAME SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW T HAT EXCESSIVE OR UNREASONABLE PAYMENT WAS FOUND TO HAVE BEEN MADE TO THE SISTER CONCERN. HE HAS SUBMITTED THAT ALL THE SISTER CONCE RNS ARE PAYING TAX AT THE MAXIMUM RATE AND ARE ASSESSED TO TAX. THEREFORE , THERE IS NO REASON TO DIFFER WITH THE ORDER OF THE LEARNED CIT(A). HE HAS RELIED UPON THE ORDER OF ITAT AHMEDABAD BENCH IN THE CASE OF MAHAVI R DYEING & PRINT MILLS PVT. LTD. VS ITO IN ITA NO.1261/AHD/2007 DATE D 30-04-2010. COPY OF THE SAME IS FILED ON RECORD. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT REPORTED IN 301 ITR 306 B UT NO RELEVANT CASE LAW WAS FOUND ON THAT PAGE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD AND DO NOT FIND ANY JUSTIFICATI ON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). ITAT AHMEDABAD BENCH I N THE CASE OF MAHAVIR DYEING & PRINT MILLS PVT. LTD. (SUPRA) CONS IDERING THE PROVISIONS OF SECTION 40A (2) (B) OF THE IT ACT HELD AS UNDER : 4 4. WE HAVE HEARD BOTH THE SIDES AND ALSO CAREFULLY PER USED THE ORDERS OF THE AUTHORITIES BELOW AS FAR AS APPLICABI LITY OF PROVISION OF SECTION 40A(2)(B) IS CONCERNED, THE ACT PRESCRIBED THAT WHERE AN ASSESSEE INCUR ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE TO ANY OF A PERSON REFERRED THEREIN THEN IN THE OPINION OF THE ASSESSING OFFICER SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE, HAVING REGARD TO THE FAIR MARKET VALU E OF THE GOODS OR SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE, THEN SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY THE ASSESSING OFFICER TO BE EXCESSIVE OR UNREASONABLE SHALL NOT B E ALLOWED AS A DEDUCTION. ON CAREFUL READINGS OF THIS SECTION 4, I T IS WORTH TO MENTION THAT BEFORE APPLYING THE PROVISION IT IS RE QUIRED THAT THE ASSESSING OFFICER SHOULD FORM AN OPINION HAVING REG ARD TO FAIR MARKET VALUE OF THE SERVICE RENDERED. IN THE PRESEN T CASE THIS EXERCISE IS LACKING AND THE AO NEED NOT MAKE ANY AT TEMPT TO FIND OUT THE PREVAILING MARKET RATE.. MEANING THEREBY TH E ASSESSING OFFICER HAS NOT COLLECTED ANY INFORMATION, AS IS AP PARENT FROM THE ASSESSMENT ORDER ON THE BASIS OF WHICH IT COULD BE SAID THAT THE ASSESSING OFFICER HAS FORMED AN OPINION AFTER COLLE CTING NECESSARY INFORMATION FROM THE MARKET TO COMPARE THE PREVALEN T MARKET RATE OF THE JOB WORK DONE BY THE SAID SISTER CONCERN. RA THER, THE ASSESSING OFFICER WAS NOT SURE ABOUT HIS ACTION THE REFORE HE HAS USED THE TERMEOLOGY, APPEARED TO BE EXCESSIVE. H E HAD ALSO NOT ARRIVED AT AN EXACT FIGURE OF DISALLOWANCE RATHER M ADE THE DISALLOWANCE MERELY ON AN ESTIMATE BASIS. EVEN WH EN THE ISSUE WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY TH E SAME APPROACH WAS ADOPTED I.E. THE ESTIMATION OF THE DISALLOWANCE . THEREFORE, LD. CIT(A) HAS REDUCED THE DISALLOWANCE FROM 10% TO 5% MERELY ON AN AD HOC BASIS. IN ORDER TO CONSIDER THE OPINION, S UCH ESTIMATION FOR THIS TYPE OF DISALLOWANCE IS NOT DESCRIBED UNDER TH E STATUTE. BEFORE US LD. AUTHORIZED REPRESENTATIVE HAS CITED A DECISI ON OF BANGALORE TRIBUNAL IN THE CASE OF S.K. ENGINEERING V. JCIT (2 006) 286 ITR (AT) 210 (BANGALORE); IN THE CASE OF MARGHABHAI KIS HABHAI PATEL & CO. V. CIT (1997) 108 ITR 54 (GUJ) AND CIT V. JAIN CABLES (P) LTD. (2001) 252 ITR 785 (RAJ) FOR THE PROPOSITION THAT FOR THE PURPOSE OF DISALLOWANCE U/S.40A(2)(B) THE ASSESSING OFFICER IS EXPECTED TO COMPARE THE LIKE NATURE OF EXPENDITURE AND IF FOUND EXCESSIVE THEN ONLY ENTITLED TO INVOKE THE PROVISION OF THE SAID S ECTION. SINCE NO COMPARABLE INSTANCE WAS CITED FROM THE SIDE OF REVE NUE AND THIS PRIMARY ONUS WAS NOT DISCHARGED, THEREFORE TOTALITY OF THE CIRCUMSTANCES THUS WARRANTS TO REVERSE SUCH AN APPR OACH OF THE REVENUE DEPARTMENT. WE HEREBY ACCEPT THE CONTENTION S OF THE APPELLATE AND BY RELYING UPON THE AFORESAID DECISIO N, THIS GROUND OF THE ASSESSEE IS ALLOWED. 5 6. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE ORDER IT IS CLEAR THAT THE AO HAS NOT MADE OUT ANY CASE U/S 40A (2) (B) OF THE IT ACT BECAUSE NO MATERIAL WAS BROUGHT ON RECORD AGAINST T HE ASSESSEE THAT UNREASONABLE OR EXCESSIVE PAYMENT WAS MADE TO THE S ISTER CONCERN AS COMPARED WITH THE FAIR MARKET VALUE. THE AO HAS NOT POINTED OUT IN THE ASSESSMENT ORDER AS TO WHAT IS THE UNREASONABLE OR EXCESSIVE PAYMENT MADE TO THE SISTER CONCERN. ALL THE PARTIES ARE ASS ESSED TO TAX. THEREFORE, AD HOC ADDITION DISALLOWING THE EXPENDITURE BY 10% IS NOT JUSTIFIED IN THE MATTER. CONSIDERING THE FACTS OF THE CASE AS NOTED ABOVE, WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. WE ACCORDINGLY D ISMISS THIS GROUND OF APPEAL OF THE REVENUE. 7. ON GROUND NO.2 OF THE APPEAL, THE REVENUE CHALLE NGED THE DELETION OF ADDITION OF RS.10 LACS IN RESPECT OF INCOME ON A CCOUNT OF LOW NET PROFIT. IN THE ASSESSMENT ORDER THE AO HAS STATED THAT THE ASSESSEE HAS NOT SHOWN CORRECT VALUE OF SEMI-FINISHED GOODS/ WORK IN PROGRESS. NO DAY TO DAY QUANTITATIVE CONSUMPTION HAS BEEN MAINTAINED. R ECORD OF CONSUMPTION WAS ALSO NOT MAINTAINED. THE STOCK REGI STER IS ALSO NOT MAINTAINED. THE ASSESSEE IS A MANUFACTURER OF TEXTI LE MACHINERY AND MACHINERY PARTS. THE ASSESSEE HAS FAILED TO SHOW TH E CORRECT VALUE OF WORK IN PROGRESS AND ALSO THE PHYSICAL INVENTORY OF THE WORK IN PROGRESS AND THE BASIS ON WHICH THE SAME IS PREPARED. THE AO HAS SATED THAT HE ASSESSEE IS REQUIRED TO MAINTAIN QUANTITATIVE RECOR DS IN VIEW OF HE DECISION OF THE ITAT MUMBAI BENCH IN HE CASE OF DCI T VS. SAMEER DIAMONDS EXPORTS LTD. 71 ITD 75 IN WHICH IT WAS HEL D THAT WHERE THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS AND COMPLETE NESS OF THE ACCOUNTS OR WHERE NO METHOD OF ACCOUNTING HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE THE AO CAN REJECT THE BOOK RESULTS U/S 145 (2) OF THE IT ACT. THE AO ACCORDINGLY REJECTED THE BOOK RESULTS OF THE ASS ESSEE AND MADE ADDITION OF RS.10 LACS ON ACCOUNT OF REJECTION OF T HE BOOK RESULTS. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) A ND IT WAS SUBMITTED 6 THAT REJECTION OF BOOKS OF ACCOUNT IS WRONG AND THE RE IS NO BASIS FOR THE AO TO MAKE AD HOC ADDITION TO THE NET PROFIT. THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN MAINTAINING CO MPLETE STOCK RECORD AS PER THE EXCISE RULES, QUANTITATIVE DETAILS OF TH E PURCHASES ARE ALSO RECORDED SEPARATELY IN THE BOOKS OF ACCOUNT. AT THE END OF THE YEAR, INVENTORY IS TAKEN IN RESPECT OF ALL ITEMS OF RAW M ATERIAL, GOODS PURCHASED AND FINISHED GOODS. THERE WAS NO STOCK OF FINISHED GOODS AS ON 31-03-2003. THE ASSESSEE PURCHASED EXCISABLE MAT ERIAL AS WELL AS NON-EXCISABLE MATERIAL. THE QUANTITATIVE DETAILS IN RESPECT OF EXCISABLE MATERIAL ARE ENTERED IN THE EXCISE RECORD RG-23 A. IT HAS BEEN STATED THAT RAW MATERIAL ISSUED FOR PRODUCTION ARE ALSO RECORDE D IN THE REGISTER. PRODUCTION AND SALES OF FINISHED GOODS ARE RECORDED IN RG-1 REGISTER. THE AO HAS FAILED TO POINT OUT ANY SPECIFIC DEFECT IN T HE BOOKS OF ACCOUNT. THEREFORE, AD HOC ADDITION IS WITHOUT ANY BASIS. TH E LEARNED CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE AND THE MATERIAL AVAILABLE ON RECORD DELETED THE ADDITION. THE FINDING OF THE LEA RNED CIT(A) ARE REPRODUCED AS UNDER: 6.5 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND OBSERVATIONS OF THE A.O. THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED MAINLY BECAUSE THE ASSESSEE HAS NOT SHOWN CORRECT CLOSING STOCK OF SEMI-FINISHED GOODS ACID GOODS IN TRANSIT. BESIDES THIS, NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT. REGARDING NON-MAINTENANCE OF VARIOUS STOCK REG ISTER THE APPELLANT HAS POINTED OUT THAT IT HAS BEEN MAINTAIN ING RG-1, RG-23A AND VARIOUS OTHER REGISTERS PRESCRIBED BY TH E EXCISE AUTHORITIES. HOWEVER, AS PER THE SETTLED POSITION O F LAW EVEN IF T4HE BOOKS OF ACCOUNTS ARE REJECTED, ADDITION HAS T O BE MADE BY GIVING SOME SPECIFIC BASIS AND IT CANNOT BE AD-H OC. IN THE PRESENT CASE ALTHOUGH SOME DEFECTS HAVE BEEN POINTE D AND GROSS PROFIT HAS FALLEN SUBSTANTIALLY BUT EXCEPT FO R POINTING OUT AN INADEQUATE METHOD OF SEMI-FINISHED GOODS/WORK-IN - PROGRESS, THE AO HAS NOT BEEN ABLE TO POINT OUT ANY MAJOR DEFECT. HE UNDERVALUATION OF SEMI-FINISHED GOODS A ND GOODS IN TRANSIT HAS ALREADY BEEN TAKEN CARE OF BY THE AD DITION MADE BY8 THE AO AND CONFIRMED IN THIS ORDER. BESIDE S THIS, NO SPECIFIC DEFECT HAS BEEN POINTED OUT AND NO BASIS F OR ADDITION OF RS.10,00,000/- CANNOT THEREFORE BE SUSTAINED. HE NCE, THE 7 ADDITION IS DELETED AND THESE GROUNDS OF APPEAL ARE ALLOWED. 8. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THERE IS A FALL IN THE GROSS PROFIT RATE IN THE ASS ESSMENT YEAR UNDER APPEAL. THE AO HAS VERIFIED THE BOOKS OF ACCOUNT IN WHICH WORK IN PROGRESS WAS NOT FOUND VERIFIABLE. THEREFORE, THE B OOKS OF ACCOUNT WERE RIGHTLY REJECTED BY THE AO. HE HAS SUBMITTED THAT T HE ASSESSEE HAS ACCEPTED THE DISCREPANCY OF WORK IN PROGRESS IN A S UM OF RS.1,51,855/-. THEREFORE, THE BOOK RESULTS OF THE ASSESSEE WAS NOT VERIFIABLE AND HENCE THE SAME HAS BEEN RIGHTLY REJECTED THE AO. HE HAS RELIED UPON THE SAME DECISION IN THE CASE OF SAMEER DIAMONDS EXPORTS LTD . (SUPRA). ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A) THAT BOO KS OF ACCOUNTS CANNOT BE REJECTED U/S 145(3) HAS NOT BEEN CHALLENG ED BY THE REVENUE BEFORE THE TRIBUNAL DESPITE SPECIFIC GROUND WAS TAK EN BEFORE THE LEARNED CIT(A). HE HAS SUBMITTED THAT NO SPECIFIC DEFECT HA S BEEN POINTED OUT IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT BY THE ASSE SSEE. HE HAS SUBMITTED THAT SALES OF THE ASSESSEE IS ENHANCED A S COMPARED TO THE EARLIER YEARS AND EVEN NO COMPARABLE CASE HAS BEEN CITED TO SHOW THAT THE PROFIT DECLARED BY THE ASSESSEE WAS NOT REASONA BLE. HE HAS REFERRED TO PB-8 IN WHICH IT WAS EXPLAINED THAT THE AO HAS F AILED TO POINT OUT ANY SIGNIFICANT DISCREPANCY IN THE ITEMS OF INCOME AND EXPENDITURE AND IN THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. IT WAS EXPLAINED THAT THE ASSESSEE STARTED MANUFACTURING OF NEW TYPE OF CREPE MACHINE IN THE FINANCIAL YEAR 2000-10. THERE WAS NO COMPETITIO N IN INDIA AT THAT POINT OF TIME AS THE MACHINE WAS NEWLY DEVELOPED BY THE ASSESSEE. THE PRODUCTION OF THE ASSESSEE WAS ALSO NOT ENOUGH TO S UPPLY THE REQUIRED DEMAND. SO THE ASSESSEE GOT THE HIGHER SALE PRICE. THE ASSESSEE HAS SHOWN COMPLETE FIGURES IN THE BOOKS OF ACCOUNT. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS ALSO ALL THE FACTS WERE EXPL AINED BUT THE AO HAS FAILED TO CITE ANY COMPARABLE CASE WHERE BETTER RES ULTS ARE DECLARED. ALL 8 THE PAYMENTS ARE MADE THROUGH ACCOUNT PAYEE CHEQUES AND ALL EXPENSES PAYMENTS ARE MADE THROUGH ACCOUNT PAYEE CHEQUES ALS O. THE ASSESSEE MAINTAINED COMPLETE QUANTITATIVE RECORDS AS PER EXC ISE RULES AND ACCOUNTS ARE ALSO AUDITED. THEREFORE, THE LEARNED C IT(A) WAS JUSTIFIED IN DELETING THE AD HOC ADDITION. HE HAS RELIED UPON TH E DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE O F CIT VS OM OVERSEAS 315 ITR 185 AND THE DECISION OF THE HONBL E GUJARAT HIGH COURT IN THE CASE OF CIT VS VIKRAM PLASTI0CS AND OT HERS 239 ITR 161. HE HAS FURTHER SUBMITTED THAT IN THE ASSESSMENT YEAR U NDER APPEAL THE ASSESSEE HAS SHOWN TOTAL SALES OF RS.31.25 CRORES O N WHICH GROSS PROFIT RATE OF 24.35% HAS BEEN SHOWN. HE HAS SUBMITTED THA T IN THE ASSESSMENT YEAR 1998-99 THE AO U/S 143(3)/147 OF TH E IT ACT VIDE ORDER DATED 10-03-2006 ACCEPTED THE GROSS PROFIT RATE OF 24.94% ON THE TOTAL SALES OF RS.3.78 CRORES. HE HAS SUBMITTED THAT THE ORDER FOR ASSESSMENT YEAR 1998-99 WAS PASSED ON 10-03-2006 AND THE ASSES SMENT ORDER IN THE PRESENT APPEAL IS PASSED AT THE SAME TIME ON 16 -03-2006. THERE WAS NO REASON TO MAKE AD HOC ADDITION. HE HAS SUBMITTED THAT THE TOTAL GROSS PROFIT OF THE ASSESSEE IN THE ASSESSMENT YEAR UNDER APPEAL IS MUCH HIGHER AS COMPARED TO THE ASSESSMENT YEAR 1998-99. COPY OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1998-99 IS FIL ED IN THE PAPER BOOK AT PAGE 63. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD AND WE DO NOT FIND IT TO BE A F IT CASE FOR INTERFERENCE IN THE MATTER. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE ASSESSEE DEVELOPED A NEW MACHINE AND THE PRODUCTION WAS ALSO NOT ENOUGH TO MEET OUT THE REQUIRED DEMAND. IN THAT EVEN THE ASSE SSEE IS BOUND TO GET HIGHER SALE PRICE, ALL THE ITEMS OF SALES AND PURCH ASES AND EXPENSES ARE MADE THROUGH CHEQUES AND THE ASSESSEE MAINTAINED CO MPLETE QUANTITATIVE RECORDS AS PER EXCISE RULES AND THE BO OKS OF ACCOUNT OF THE ASSESSEE ARE ALSO AUDITED. THE AO HAS FAILED TO POI NT OUT ANY SPECIFIC 9 DEFECT IN MAINTENANCE OF THE BOOKS OF ACCOUNT BY TH E ASSESSEE. THE AO AT THE RELEVANT TIME OF PASSING THE ASSESSMENT ORDER I N THE MATER IN MARCH, 2006 ALSO PASSED THE ASSESSMENT ORDER FOR ASSESSMEN T YEAR 1998-99 U/S 143(3)/147 OF THE IT ACT DATED 10-03-2006 IN WHICH GROSS PROFIT OF 24.94% HAS NOT BEEN DISPUTED ON WHICH GROSS RECEIPT S WAS SHOWN AT RS.94,34,170/-. HOWEVER, IN THE ASSESSMENT YEAR UND ER APPEAL THE ASSESSEE HAS SHOWN, SIMILARLY GROSS PROFIT RATE OF 24.35% AND GROSS PROFIT OF RS.7,86,29,041/- WAS SHOWN. THE AO HAS THUS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE MAINTENANCE OF BOOKS OF ACCOUNT BY THE ASSESSEE. THE HONBLE PUNJAB AND HARYANA HIGH C OURT IN THE CASE OF CIT VS OM OVERSEAS (SUPRA) HELD THAT DISMISSING THE APPEAL, THAT THE FACTUAL FINDING GIVEN BY THE COMMISSIONER (APPEALS) THAT THE ADDITIONS WERE MADE BY THE ASSESSING OFFICER WITHOU T POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT WAS UPH ELD BY THE TRIBUNAL. AS NO PERVERSITY OR ILLEGALITY IN THE FIN DING WAS POINTED OUT BY THE DEPARTMENT, NO SUBSTANTIAL QUESTION OF L AW AROSE FOR DETERMINATION. HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS VIKRAM PLASTICS AND OTHERS (SUPRA) HELD THAT DISMISSING THE APPLICATION FOR DIRECTING REFERENCE, (I) THAT IN VI EW OF THE FINDING REACHED BY THE TRIBUNAL THAT THERE WERE NO DISCREPA NCIES OR DEFECTS POINTED OUT IN THE BOOKS OF ACCOUNT AND FUR THER THAT THEY WERE REGULARLY MAINTAINED AND ALSO ON THE FINDING T HAT THERE WAS NO MATERIAL BROUGHT ON RECORD TO ESTABLISH THAT PUR CHASES OR EXPENSES WERE INFLATED OR SALES SUPPRESSED AND ALSO IN VIEW OF THE FINDING THAT IT WAS NOT THE CASE THAT THERE WAS NO METHOD OF REGULAR ACCOUNTING EMPLOYED, THE TRIBUNAL WAS FULLY JUSTIFIED IN COMING TO THE CONCLUSION THAT THE PROVISIONS OF SEC TION 145(2) OF THE INCOME-TAX ACT, 1961, COULD NOT BE INVOKED. THI S CONCLUSION WAS BASED ON A FINDING OF FACT AND RAISED NO QUESTI ON OF LAW. 10. CONSIDERING THE FACTS OF THE CASE AND THE FINDI NGS GIVEN BY THE 10 LEARNED CIT(A) IT IS CLEAR THAT THE AO HAS NOT POIN TED OUT ANY SPECIFIC DEFECTS IN ANY OF THE SALES OR PURCHASES OR EXPENSE S. THE AO MERELY POINTED OUT THAT THERE IS SOME DISCREPANCIES IN THE WORK IN PROGRESS OF WHICH THE ASSESSEE HAS DECLARED RS.1,51,855/- ON AC COUNT OF CLOSING STOCK OF MATERIAL. THE AO THEREFORE, COULD HAVE MAD E SEPARATE ADDITION TO THAT EXTENT FOR WHICH THE AO ALSO MADE ESTIMATED ADDITION OF RS.5 LACS. HOWEVER, THERE WAS NO REASON TO REJECT THE EN TIRE BOOK RESULTS OF THE ASSESSEE OR TO MAKE THE HUGE ADDITION. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE ASSESSEE MAINTAINE D BOOKS OF ACCOUNT IN THE SAME PATTERN AND SAME METHOD OF ACCOUNTING H AS BEEN ADOPTED BY THE ASSESSEE IN THE EARLIER YEARS IN WHICH ALSO NO DEFECT HAS BEEN POINTED OUT. IN THE ASSESSMENT YEAR 1998-99 EVEN TH E GROSS PROFIT OF 24.94% HAS BEEN ACCEPTED IN THE ORDER U/S 143(3) OF THE IT ACT. IN THE CASE OF SAMEER DIAMOND EXPORTS LTD. (SUPRA) RELIED UPON BY THE AO THE ASSESSEE ADMITTED BEFORE THE AO THAT IT DID NOT MAI NTAIN DETAILS OF POLISHED DIAMONDS ON THE BASIS OF WEIGHT, CUT, CLAR ITY AND SHAPE AND NUMBER OF PIECES AND FURTHER DETAILS WERE NOT SUBMI TTED AS THE SAME HAVE BEEN DESTROYED AFTER THE GOODS WERE RECEIVED B ACK. THE FACTS OF THIS CASE ARE ALL TOGETHER DISTINGUISHABLE FROM THE FACT S OF THE ASSESSEES CASE. SINCE IN THE CASE OF THE ASSESSEE ALL THE ITEMS ARE EXCISABLE AND EVEN THE AO HAS NOT POINTED OUT ANY DEFECT IN THE EXCISE REG ISTERS OR OTHER RECORDS OF THE ASSESSEE WHICH ARE MAINTAINED IN THE SAME PA TTERN AS MAINTAINED IN THE EARLIER YEARS, THEREFORE, THERE IS NO JUSTIF ICATION TO MAKE AD HOC ADDITION. WE MAY ALSO NOTE HERE THAT THE ASSESSEE H AS TAKEN SPECIFIC GROUND OF APPEAL BEFORE THE LEARNED CIT(A) CHALLENG ING THE REJECTION OF THE BOOK RESULTS U/S 145(3) OF THE IT ACT AND THE L EARNED CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE BY DELETING THE ADDI TION. HOWEVER, THE REVENUE HAS NOT RAISED ANY GROUND DISPUTING THE FIN DINGS OF THE LEANED CIT(A) ON THE SPECIFIC GROUND RAISED BY THE ASSESSE E. THIS ITSELF IS SUFFICIENT TO HOLD THAT THE FINDINGS OF THE LEARNED CIT(A) ABOUT PROPER MAINTENANCE OF BOOKS OF ACCOUNT BY THE ASSESSEE HAV E NOT BEEN DISPUTED 11 BY THE REVENUE BEFORE THE TRIBUNAL. THE LEARNED CIT (A) WAS ALSO JUSTIFIED IN HOLDING THAT EVEN IF BOOK RESULTS ARE REJECTED S OME SPECIFIC BASIS HAS TO BE GIVEN FOR MAKING THE ADDITION. HONBLE RAJAS THAN HIGH COURT IN THE CASE OF CIT VS. GOTAN LIME KHANIJ UDHYOG 256 ITR 243 HELD THAT IT IS NOT ALWAYS NECESSARY TO MAKE THE ADDITION EVEN IF T HE BOOKS OF ACCOUNT HAVE BEEN REJECTED. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE IN THE LIGHT OF THE ABOVE DECISIONS AND THE DISCUSSIONS, WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE IN THE ORDER OF THE LEARNED CIT(A). WE ACCORDINGLY CONFIRM HIS FINDINGS AND DIS MISS THIS GROUND OF APPEAL OF THE REVENUE. AS A RESULT, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 11. AS A RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ITA NO.1042/AHD/2007 (ASSESSEES APPEAL) 12. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PR ESS GROUND NO.2 OF THE APPEAL, THE SAME IS DISMISSED AS NOT PRESSED. 13. ON GROUND NO.1 OF THE APPEAL, THE ASSESSEE CHAL LENGED THE ORDER OF THE LEARNED CIT(A) CONFIRMING THE ORDER OF THE AO I N MAKING ADDITION OF RS.5 LACS FOR ALLEGED UNDER VALUATION OF WORK IN PR OGRESS/SEMI FINISHED GOODS AND SOCK IN TRANSIT. THE AO OBSERVED HAT THE ASSESSEE HAD NOT SHOWN CLOSING SOCK OF EITHER THE WORK IN PROGRESS O R THE SEMI FINISHED GOODS. EVEN THE CLOSING STOCK OF FINISHED GOODS WAS NOT SHOWN. THE ASSESSEE EXPLAINED THAT WORK IN PROGRESS WAS SHOWN WITH LABOUR EXPENSES BUT THE OVERHEAD EXPENSES WERE NOT INCLUDE D IN THE WORK IN PROGRESS. THE ASSESSEE FURTHER STATED THAT SINCE TH E ADDITION OF CLOSING STOCK WOULD BE OPENING STOCK IN THE NEXT YEAR AND S INCE THE RATE OF TAXATION IS SAME FOR BOTH THE YEARS NO DISTURBANCE TO THE CLOSING STOCK SHOULD BE MADE. BUT THE AO DID NOT ACCEPT THE CONTE NTION OF THE ASSESSEE. THE AO RELIED UPON THE DECISION OF THE HO NBLE SUPREME COURT 12 IN THE CASE OF CIT VS BRITISH PAINTS INDIA LTD. 188 ITR 44. THE AO HAS REPRODUCED THE INVENTORY OF THE CLOSING STOCK ENCLO SED WITH THE RETURN OF INCOME IN TABLE C IN PARA 5.8 OF THE ASSESSMENT ORD ER. FROM THIS TABLE IT WAS NOTED THAT THE ASSESSEE HAS NOT SHOWN EITHER TH E WORK IN PROGRESS OR THE FINISHED GOODS CLOSING STOCK. ONLY THE CLOSING STOCK SHOWN WAS WITH ALL THE RAW MATERIALS. THEREFORE, ACCORDING TO THE AO, THE CONTENTION OF THE ASSESSEE THAT WORK IN PROGRESS WAS SHOWN AS LAB OUR CHARGES IS WRONG. SINCE THE ASSESSEE COULD NOT DENY THAT THERE WAS NO WORK IN PROGRESS THE ASSESSEE SATED THAT WORK IN PROGRESS W AS EMBEDDED IN THE RAW MATERIALS ITSELF. ACCORDING TO THE AO EVEN IF T HE RAW MATERIAL COST IS INCLUDED STILL THE OVERHEAD SPECIALLY THE CARRIAGE INWARDS ETC. HAS NOT BEEN INCLUDED. THE ASSESSEE HIMSELF HAS WORKED OUT THE OVERHEAD MANUFACTURING EXPENSES AT RS.1,51,850/- AND STATED THAT THIS FIGURE COULD HAVE BEEN ADOPTED. SIMILARLY, COST OF THE OTH ER PART HAVE BEEN SHOWN BY THE ASSESSEE AT RS.17,84,540/- BUT NO BASI S HAS BEEN GIVEN. IN VIEW OF THIS REASON THE AO CAME TO THE CONCLUSION T HAT THE ASSESSEE HAS NOT WORKED OUT THE CLOSING STOCK IN PROPER MANNER A ND THEREFORE, MADE THE ADDITION OF RS.5 LACS IN RESPECT OF VARIOUS OVE RHEADS AND LABOUR CHARGES. THE ADDITION WAS CHALLENGED BEFORE THE LEA RNED CIT(A) AND IT WAS SUBMITTED THAT AD HOC ADDITION IS MADE WITHOUT BRINGING ANY CONCRETE EVIDENCE ON RECORD MERELY ON THE BASIS OF SURMISES AND CONJECTURES. IT WAS SUBMITTED THAT DURING THE COURS E OF ASSESSMENT PROCEEDINGS DETAILS OF WORKING WAS GIVEN IN RESPECT OF SEMI FINISHED GOODS AND IT WAS ALSO STATED HAT ALL SEMI FINISHED GOODS WAS INCLUSIVE OF LABOUR CHARGES BUT OVERHEAD WAS NOT INCLUDED AS PER THE METHOD OF ACCOUNTING STANDARD FOLLOWED BY THE ASSESSEE. IT WA S SUBMITTED THAT THE ASSESSEE WAS FOLLOWING DIRECT COST METHOD AND, THER EFORE, IT CANNOT BE COMPELLED TO FOLLOW THE METHOD WHICH INCLUDED VARIO US INDIRECT COST ALSO. IT WAS STATED THAT THE OBSERVATION OF THE AO WITH R EGARD TO STOCK IN TRANSIT IS ALSO NOT CORRECT BECAUSE NO SUCH SPECIFI C QUERY WAS RAISED REGARDING THE STOCK IN TRANSIT AND THE ASSESSEE HAD GIVEN WORKING 13 RELATING TO SAID OVERHEADS WHILE FURNISHING DETAILS RELATING TO STOCK OF SEMI FINISHED GODS. THE LEARNED CIT(A) HOWEVER CONS IDERING THE EXPLANATION OF THE ASSESSEE DISMISSED THE APPEAL OF THE ASSESSEE. THE LEARNED CI(A) NOTED THAT THE CLOSING SOCK HAS TO BE VALUED BY INCLUDING OVERHEADS WHILE FREIGHT INWARD ETC. AND THE ASSESSE E HAD ADMITTED TO THE EXTENT OF RS.1,51,855/- THAT THE SAME IS NOT INCLUD ED IN THE SEMI FINISHED GOODS AND NO OTHER DETAILS ARE GIVEN. THE LEARNED CIT(A) IN VIEW OF ADMISSION OF THE ASSESSEE ABOUT UNDER VALUATION OF THE CLOSING STOCK OF RS.1,51,855/- CONFIRMED THE ADDITION OF RS.5 LACS. 14. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THE ASSESSEE MAINTAINED PROPER RECORDS AND EXCISE DUTY IS ALSO PAID. THE QUANTITATIVE DETAILS IN RESPECT OF EXCISABLE MATERI ALS ARE ENTERED IN EXCISE RECORD RG-23A. IT WAS STATED THAT THE RAW MATERIALS USED FOR THE PRODUCTION ARE ALSO RECORDED IN THE REGISTER. THE P RODUCTION AND SALES OF FINISHED GOODS ARE RECORDED IN RG-1 REGISTER; COMPL ETE QUANTITATIVE DETAILS WERE GIVEN BY THE ASSESSEE AND VERIFIED BY THE AUDITOR. THE AUDITOR HAS NOT MENTIONED ANYTHING AGAINST THE ASSE SSEE AND MENTIONED IN THE AUDIT REPORT PB -24 THAT STOCK OF FINISHED G OODS AND SPARE ETC. HAVE BEEN PHYSICALLY VERIFIED BY THE MANAGEMENT AND THE VERIFICATION IS REASONABLE. SIMILARLY, PROCEDURE OF PHYSICAL VERIFI CATION OF STOCK FOLLOWED BY THE MANAGEMENT WAS FOUND REASONABLE AND ADEQUATE IN RELATION TO THE SIZE OF THE COMPANY IN WHICH NO DISCREPANCY HAS BEEN NOTICED ON VERIFICATION. HE HAS SUBMITTED THAT NO UNDER VALUAT ION OF STOCK WAS FOUND. THE RAW MATERIALS ISSUED AND SENT TO THE MAC HINE ARE VERIFIABLE. WORK IN PROGRESS IS INCLUDED IN THE RAW MATERIAL. T OTAL IS 419.24 AS NOTED BY THE AO AT PAGE 4 OF THE ASSESSMENT ORDER. IT IS INVENTORY OF CLOSING STOCK. SUMMARY WAS GIVEN IN THE AUDIT REPO RT PB-39 AND AT SR. NO.25 AND 26 THE WORK IN PROGRESS WAS ADDED IN THE RAW MATERIAL ITEMS WHICH TALLY WITH THE DETAILS GIVEN BY THE AO IN THE ASSESSMENT ORDER AT 14 PAGE 4. HE HAS REFERRED TO PB-13 TO PB-18 WHICH ARE DETAILS OF CLOSING STOCK FILED BEFORE THE AUTHORITIES BELOW WHICH ARE OF THE RAW MATERIALS AND LABOUR CHARGES. HE HAS SUBMITTED THAT AD HOC AD DITION IS NOT JUSTIFIED IN THE MATTER. HE HAS SUBMITTED THAT PROV ISO TO SECTION 145 OF THE IT ACT HAS NOT BEEN DELETED. HE HAS SUBMITTED H AT AS PER SECTION 145 OF THE IT ACT THE ACCOUNT SHOULD BE MAINTAINED AS P ER THE ACCOUNTING STANDARD NOTIFIED UNDER SUB SECTION (2). THE ACCOUN TING STANDARDS ARE AS-1 AND AS-2. AS-1 IS ABOUT CONSISTENCY AND THE AS SESSEE FOLLOWED THE SAME ACCOUNTING SYSTEM IN THE EARLIER YEARS AS WELL AS IN THE SUBSEQUENT YEAR. HE HAS FURTHER SUBMITTED THAT IF ANY ADDITION HAS TO BE MADE TOWARDS WORK IN PROGRESS, THE ASSESSEE HAS ALREADY OFFERED RS.1,51,855/- HAS TO BE MADE BUT NO FURTHER ADDITION IS JUSTIFIED . HE HAS RELIED UPON THE ORDER OF THE ITAT HYDERABAD BENCH IN THE CASE O F T. C. I. FINANCE LTD. VS ACIT 91 ITD 537 IN WHICH IT WAS HELD THAT ACCOUNTING POLICIES MANDATED BY RESERVE BANK OF INDIA ARE NOT CONTRARY TO ACCOUNTING STANDARD NOTIFIED BY CENTRAL GOVERNMENT IN PURSUANC E OF SECTION 145(2). 15. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER S UBMITTED THAT THE AO HAS NOWHERE MENTIONED IN THE ASSESSMENT ORDER HA T THE ASSESSEE HAS NO FOLLOWED ACCOUNTING STANDARD NOTIFIED BY THE GOV ERNMENT. THE LEARNED COUNSEL FOR THE ASSESSEE BY REFERRING TO PAGE 4 OF THE ASSESSMENT ORDER SUBMITTED THAT ALL THE EXPENSES ARE MENTIONED WHICH INCLUDES THE FREIGHTS ALSO WHICH IS WRONGLY MENTIONED BY THE LEA RNED CIT(A) THAT THE SAME IS NOT INCLUDED IN THE CLOSING STOCK. THE LEA RNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT AD HOC ADDITION IS NOT JUSTIFIED. 16. ON THE OTHER HAND, THE LEARNED DR RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE H AS NOT MAINTAINED DAY TO DAY STOCK REGISTER AND THERE ARE OTHER ITEMS OF NON-EXCISABLE FOR WHICH NO STOCK REGISTER IS MAINTAINED. THEREFORE, T HE AO WAS JUSTIFIED IN 15 MAKING THE ADDITION ON ACCOUNT OF UNDER VALUATION O F WORK IN PROGRESS. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIALS AVAILABLE ON RECORD. ACCORDING TO THE ASSESSEE DETA ILS OF CLOSING STOCK WERE FILED BEFORE THE AUTHORITIES BELOW WHICH ARE M ENTIONED AT PB -13 TO PB-18. THE LEARNED COUNSEL FOR THE ASSESSEE DEMONST RATED ON THE BASIS OF THE ABOVE PAPERS THAT COMPLETE DETAILS WERE FILE D BEFORE THE AUTHORITIES BELOW SHOWING QUANTITATIVE DETAILS OF THE CLOSING S TOCK. THE DETAILS OF RAW MATERIALS ARE FILED AT PAGE 39 OF THE PAPER BOOK WHICH AT SR. NO.25 AND 26 THE ADDITION ON ACCOUNT OF WORK IN PROGRESS IS ALSO MADE. IT WOULD, THEREFORE, SHOW THAT IN THE RAW MATERIAL ITE MS, THE ITEMS OF WORK IN PROGRESS HAVE BEEN ADDED.THE SAME TALLY WITH THE DETAILS MENTIONED AT PAGE 4 OF THE ASSESSMENT ORDER.THE LEARNED CIT(A) N OTED THAT THE CLOSING STOCK IS TO BE VALUED BY INCLUDING OVERHEADS LIKE FREIGHTS INWARDS ETC. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED FROM T ABLE D RECORDED AT PAGE 4 OF THE ASSESSMENT ORDER THAT FREIGHTS AND TE MPO EXPENSES HAVE BEEN ADDED IN THE DETAILS FURNISHED BY THE ASSESSEE . THE ASSESSEE AFTER EXPLAINING EVERYTHING ON THIS ISSUE AND EXPLAINING THE QUANTITATIVE DETAILS ADMITTED AND QUANTIFIED THE OVERHEADS AT RS .1,51,855/- WHICH WERE TO BE ADDED TO THE VALUE OF WORK IN PROGRESS B EING OVERHEADS MANUFACTURING EXPENSES AT 3.5% ADMITTEDLY REMAINED TO BE INCLUDED TO THE VALUE. IT WOULD, THEREFORE, SHOW THAT THE ASSES SEE AFTER EXPLAINING EVERYTHING ON THIS ISSUE ADMITTED UNDER VALUATION O F THE CLOSING STOCK BY THE AFORESAID AMOUNT. THE AO HAS NOT GIVEN ANY OTHE R DETAILS IN THE ASSESSMENT ORDER AS TO HOW HE HAS COME TO THE UNDER VALUATION OF THE CLOSING STOCK IN A SUM OF RS.5 LACS. CONSIDERING TH E DETAILS POINT4ED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE IN THE PAPE R BOOK AND CONSIDERING THE FACT THAT FREIGHT IS ALSO ADDED IN THE CLOSING STOCK AND IN THE ABSENCE OF ANY ADEQUATE DETAILS WITH REGARD TO COMPUTATION OF THE ADDITION OF RS.5 LACS TO THE VALUE OF WORK IN PROGR ESS, WE ARE OF THE VIEW THAT AD HOC ADDITION OF RS.5 LACS IS CLEARLY UNJUST IFIED IN THE ISSUE. AT THE 16 BEST, ADDITION QUANTIFIED AND ADMITTED BY THE ASSES SEE ON ACCOUNT OF WORK IN PROGRESS TO BE RETAINED IN A SUM OF RS.1,51 ,855/- SHOULD HAVE BEEN CONSIDERED BY THE AO FOR THE PURPOSE OF MAKING THE ADDITION. IN THE ABSENCE OF ANY ADEQUATE DETAILS OF WORKING OF RS.5 LACS, WE CONFIRM THE FINDINGS OF THE AUTHORITIES BELOW IN PRINCIPLE THAT THERE WAS UNDER VALUATION OF SOCK BUT ADDITION SHOULD HAVE BEEN MAI NTAINED IN A SUM OF RS.1,51,850/- ONLY. WE ACCORDINGLY MODIFY THE ORDER S OF THE AUTHORITIES BELOW TO THAT EXTENT RESTRICTING THE ADDITION TO RS .1,51,850/- AS AGAINST THE ADDITION OF RS.5 LACS MADE AND SUSTAINED BY THE AUTHORITIES BELOW. AS A RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED PARTLY. 18. ON GROUND NO.3, THE ASSESSEE CHALLENGED THE DIS ALLOWANCE OF DEPRECIATION OF RS.4,08,477/-. IN THE ASSESSMENT OR DER THE AO HAS STATED THAT THE ASSESSEE HAS MADE CLAIM U/S 80 IB IN THE E ARLIER YEARS WITHOUT CLAIMING DEPRECIATION. SINCE THIS TREATMENT WAS NOT IN ACCORDANCE WITH LAW, THE AO ASKED THE ASSESSEE WHY DEPRECIATION MAY NOT BE ALLOWED BEFORE DEDUCTION U/S 80 IB OF THE ACT IS GIVEN. THE ASSESSEE STATED THAT CLAIM MADE BY THE ASSESSEE AT THE RELEVANT TIME WAS IN ACCORDANCE WITH LAW. THE AO DID NOT ACCEPT THE EXPLANATION AND IN V IEW OF THE DECISION OF THE ITAT AHMEDABAD SPECIAL BENCH IN THE CASE OF VAH ID PAPER CONVERTERS VS ITO 98 ITD 165 IN WHICH IT WAS HELD T HAT DEPRECIATION HAS TO BE ALLOWED BEFORE CALCULATING DEDUCTION U/S 80 I B OF THE IT ACT. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT UP TO THE ASSESSMENT YEAR 2001-02, THE CLAIM OF DEPRECIATION WAS NOT MANDATOR Y. THE LEARNED CIT(A) HOWEVER, DID NOT ACCEPT THE CONTENTION OF TH E ASSESSEE AND CONFIRMED THE ORDER OF THE AO FOR GIVING DEDUCTION U/S 80 IB OF THE IT ACT AFTER ALLOWING DEPRECIATION AS PER ORDER OF THE SPE CIAL BENCH AND ALSO FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CAMBAY ECLECTIC SUPPLY INDUSTRIAL CO. LTD. REPORTED IN 113 ITR 84 IN WHICH THE HONBLE SUPREME COURT HAS STATED THAT FOR THE PURPOSE OF DEDUCTION UNDER CHAPTER VI A, THE DEPRECIATION HA S TO BE MANDATORILY 17 ALLOWED. THIS GROUND OF APPEAL OF THE ASSESSEE WAS ACCORDINGLY DISMISSED. 19. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T IN THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAS CLAIMED DEPRECIA TION BUT IN THE PRECEDING ASSESSMENT YEAR UP TO 2001-02 CLAIM OF DE PRECIATION WAS NOT MANDATORY. HE HAS SUBMITTED THAT THE AO HAS COR RECTLY WORKED OUT THE WDV OF THE EARLIER YEARS. HE HAS SUBMITTED THAT OPENING WDV OF THE ASSESSMENT YEAR UNDER APPEAL CANNOT BE DISTURBED BY THE AO UNLESS THE AO HAS REOPENED THE CASE OF THE ASSESSEE FOR EARLIE R YEARS AND HE HAS FURTHER SUBMITTED THAT IN THE EARLIER YEARS CLAIM O F DEPRECIATION WAS NOT MANDATORY. HE HAS RELIED UPON THE ORDER OF THE ITAT AHMEDABAD BENCH IN CASE OF NATIONAL DAIRY DEVELOPMENT BOARD VS ADDL CIT 310(AT) ITR 325 AND THE ORDER OF THE ITAT RAJKOT BENCH IN THE C ASE OF KANDLA PORT TRUST VS ACIT 296 (AT) ITR 88. ON THE OTHER HAND, T HE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL AVAILABLE ON RECORD. ITAT AHMEDABAD SPECIAL BENCH IN THE CASE OF VAHID PAPER CONVERTERS (SUPRA) CONSIDERED THE FACTS THAT THE AS SESSEE DID NOT CLAIM DEPRECIATION ON FIXED ASSETS IN THE YEAR UNDER CONS IDERATION THOUGH IT HAS CLAIMED THE DEPRECIATION IN THE EARLIER YEARS E XCEPT FOR ASSESSMENT YEAR 2000-01. IN THE OPINION OF THE AO, BY NOT CLAI MING DEPRECIATION IT HAS NOT FORGONE ITS RIGHT TO CLAIM DEPRECIATION AND STARTED CLAIMING DEPRECIATION FROM THE SIXTH YEAR ON THE ORIGINAL CO ST OF THE ASSETS, WHEN DEDUCTION IS LIMITED TO 25% OF THE LEGITIMATE INCOM E OF HE ASSESSEE. ON THESE FACTS IT WAS HELD THAT DEPRECIATION WHICH IS THOUGH ALLOWABLE BUT NOT CLAIMED IN THE RETURN OF INCOME FOR NORMAL COMP UTATION OF INCOME HAS TO BE ALLOWED WHILE COMPUTING DEDUCTION UNDER C HAPTER VIA VIZ. SECTION 80 HH, 80 IA, 80IB ETC. OF AN INDUSTRIAL UN DERTAKING. THE ISSUE 18 HOWEVER, IN THE PRESENT APPEAL IS DIFFERENT WITH RE GARD TO DEPRECIATION NOT CLAIMED IN THE PRECEDING ASSESSMENT YEARS OTHER THA N THE ASSESSMENT YEAR UNDER APPEAL. LATER ON, ITAT AHMEDABAD BENCH I N THE CASE OF NATIONAL DAIRY DEVELOPMENT BOARD (SUPRA) WAS OF THE OPINION THAT IN THIS CASE, THERE IS NO SUCH SPECIFIC PROVISION FOR DEEME D ALLOWANCE UNDER THE ACT AND THEREFORE, WRITTEN DOWN VALUE IS TO BE ASCE RTAINED BY ACTUAL COST OF THE ASSETS. AS THE INCOME OF THE ASSESSEE WAS EX EMPT UNTIL EARLIER YEARS, NO NOTIONAL DEPRECIATION CAN BE ASSUMED AND THEREFORE, IT WOULD BE ENTITLED TO THE DEPRECIATION ON THE ORIGINAL COS T OF THE ASSETS. THE AO WAS ACCORDINGLY DIRECTED TO ALLOW THE DEPRECIATION IN ACCORDANCE WITH LAW. IN THE CASE OF KANDLA PORT TRUST (SUPRA) RAJKO T BENCH OF THE TRIBUNAL HELD THAT (I) THAT IF THE LANGUAGE IS PLAIN AND UNAMBIGUOUS, ONE CAN ONLY LOOK FAIRLY AT THE LANGUA GE USED AND INTERPRET IT TO GIVE EFFECT O THE LEGISLATIVE INTEN TION. THE KEY WORD IN SUB-CLAUSE (B) OF SECTION 43(6) IS ACTUALLY. I T IS THE ANTITHESIS OF THAT WHICH IS MERELY SPECULATIVE, THEORETICAL OR IM AGINARY. THE CONNOTATION OF THE PHRASE ACTUALLY ALLOWED IS THU S LIMITED TO DEPRECIATION ACTUALLY TAKEN INTO ACCOUNT OR GRANTED AND GIVEN EFFECT TO, I.E. DEBITED BY THE ASSESSING OFFICER AG AINST THE INCOME OF THE BUSINESS WHILE COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. IT COULD NOT MEAN NOTIONALLY ALLOWED OR MERELY ALLOW ABLE ON A NOTIONAL BASIS OR PROVIDED IN THE BOOKS OF ACCOUNT BY AN ACCOUNTING ENTRY. THUS, MERE PASSING OF ACCOUNTING ENTRY MADE FOR DEPRECIATION IN THE BOOKS OF ACCOUNT WAS NOT DEPREC IATION ACTUALLY ALLOWED, AS THERE WAS NO LIABILITY TO TAX AND AS TH ERE WAS NO ASSESSMENT TILL THE ASSESSMENT YEAR 2002-03. THUS, THE WRITTEN DOWN VALUE AS ON APRIL 1, 2002, WOULD BE THE ORIGIN AL COST LESS NIL, I.E. ORIGINAL COST. WE MAY FURTHER NOTE THAT THE ASSESSMENT YEAR UNDER APPEAL IS 2003-04 AND EXPLANATION (5) TO SECT ION 32 OF THE IT ACT WAS INSERTED BY THE FINANCE ACT WITH EFFECT FROM 1 ST APRIL, 2002.THE 19 AFORESAID EXPLANATION (5) TO SECTION 32 OF THE IT A CT IS, THEREFORE, APPLICABLE TO THE ASSESSMENT YEAR UNDER APPEAL WHIC H READS AS UNDER: [EXPLANATION 5.FOR THE REMOVAL OF DOUBTS, IT IS H EREBY DECLARED THAT THE PROVISIONS OF THIS SUB-SECTION SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT O F DEPRECIATION IN COMPUTING HIS TOTAL INCOME;] WE MAY ALSO NOTE HERE THAT AUTHORITIES BELOW HAVE FAILED TO TAKE INTO CONSIDERATION THE PROVISIONS CONTAINED IN SECTION 4 3(6) OF THE IT ACT WITH REGARD TO MEANING OF WRITTEN DOWN VALUE. ACCORDING TO WHICH IN CASE OF THE ASSETS ACQUIRED BEFORE THE PREVIOUS YEAR THE AC TUAL COST TO THE ASSESSEE LESS ALL DEPRECIATIONS ACTUALLY ALLOWED TO HIM UNDER THIS ACT SHALL HAVE TO BE CONSIDERED. A PERUSAL OF THIS PROV ISION WOULD SHOW THAT THE WDV IN RESPECT OF DEPRECIATION IS TO BE CALCULA TED AT THE ACTUAL COST OF ASSETS TO THE ASSESSEE AS REDUCED BY THE AMOUNT OF THE DEPRECIATION ACTUALLY ALLOWED TO THE ASSESSEE. THE AUTHORITIES B ELOW HAVE NOT TAKEN INTO CONSIDERATION THE ABOVE ASPECT AND HAVE NOT CL ARIFIED WHETHER ACTUAL DEPRECIATION WAS ALLOWED TO THE ASSESSEE IN THE EAR LIER YEARS OR WHETHER ANY STEPS HAVE BEEN TAKEN AGAINST THE ASSESSEE FOR TAKING SUCH ACTION AGAINST IT. HOWEVER, IT IS CLEAR THAT IT IS NOT OPE N TO THE REVENUE TO DEDUCT ANY AMOUNT FROM THE COST OF THE ASSETS TO DE TERMINE THE WDV ON THE GROUND THAT SUCH AMOUNT SHOULD HAVE BEEN CLAIME D BY THE ASSESSEE AS DEPRECIATION IN EARLIER YEAR. THE LEARNED CIT(A) HAS NOT CONSIDERED THIS ISSUE IN PROPER PERSPECTIVE AND HAS NOT PASSED ANY SPEAKING ORDER ON THIS ISSUE. THE AUTHORITIES BELOW MERELY FOLLOWI NG THE ORDER OF THE SPECIAL BENCH WITHOUT BRINGING ANY MATERIAL ON RECO RD AND CONSIDERING THE ISSUE PROPERLY, DECIDED THE ISSUE AGAINST THE A SSESSEE. 21. WE, THEREFORE, ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE LEARNED CIT(A). WE ACCORDINGLY, SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND RESTORE T HIS ISSUE TO HIS FILE WITH 20 DIRECTION TO RE-DECIDE THE SAME BY PASSING SPECIFIC REASONED ORDER IN THE MATTER IN ISSUE WHILE CONSIDERING THE ABOVE JUDGMEN TS REFERRED TO IN THIS ORDER. THE LEARNED CIT(A) SHALL GIVE REASONABLE SUF FICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AS A RESULT, THIS GROU ND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 22. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ITA NO.3591/AHD/2007 (ASSESSEES APPEAL ) 23. ON GROUNDS NO.1 AND 2, THE ASSESSEE CHALLENGED THE ORDERS OF THE AUTHORITIES BELOW IN REJECTING THE BOOK RESULTS U/S 145(3) OF THE IT ACT AND ADDITION OF RS.24,20,000/-. THE REVENUE IS IN A PPEAL ON THE SAME ISSUE ON GROUND NO.1 OF ITS APPEAL CHALLENGING THE RELIEF GRANTED TO THE ASSESSEE IN A SUM OF RS.43,33,842/- AS AGAINST ADDI TION OF RS.67,53,842/-. DURING THE YEAR THE ASSESSEE HAS SH OWN SALES OF RS.20.63 CRORES AND GROSS PROFIT RATE OF 23.83% AS AGAINST SALES OF RS.31.25 CRORES AND GROSS PROFIT RATE OF 24.35% IN THE PRECEDING ASSESSMENT YEAR. THE AO RECORDED SIMILARLY IN THIS ASSESSMENT YEAR ALSO THAT WORK IN PROGRESS DETAILS ARE NOT VALUED PROPER LY AND OVERHEAD EXPENSES ARE NOT FULLY DISCLOSED. THE ASSESSEE HAS VALUED THE SEMI FINISHED GOODS ON ESTIMATE BASIS WITHOUT ACTUAL CAL CULATION, NO STOCK REGISTER IS MAINTAINED AND NO QUANTITATIVE DETAILS ARE MAINTAINED. THE AO SIMILARLY FOLLOWED THE DECISION IN THE CASE OF S AMEER DIAMOND EXPORTS LTD. (SUPRA) AS WELL AS THE DECISION OF ALL AHABAD HIGH COURT IN THE CASE OF AVDHESH PRATAPSINGH ABDUL RAHMAN & BROT HERS VS CIT 210 ITR 406 FOR REJECTION OF THE BOOK RESULTS. THE AO A LSO NOTED THAT PAYMENTS ARE MADE IN VIOLATION OF SECTION 40A (2)(B ) OF THE IT ACT. THE AO ACCORDINGLY REJECTED THE BOOK RESULTS AND AVERAGE G ROSS PROFIT RATE OF TWO YEARS WAS TAKEN AT 27.1% AND MADE THE ADDITION OF R S.67,53,842/-. THE ASSESSEE MADE SIMILAR SUBMISSIONS AS WERE MADE IN T HE ASSESSMENT YEAR 2003-04. THE LEARNED CIT(A) HOWEVER, CONSIDERING TH E FACTS OF THE CASE 21 DIRECTED TO APPLY GROSS PROFIT RATE AT 25% AND ACCO RDINGLY GRANTED PART RELIEF TO THE ASSESSEE. BOTH THE PARTIES ARE IN APP EAL AS MENTIONED ABOVE. 24. THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES SUBMITTED THAT THE ISSUE IS SAME AS IS CONSIDERED IN ASSESSMENT YEAR 2 003-04 AND ON THE SAME TYPE OF FACTS AS NOTED IN THE ASSESSMENT YEAR 2003-04 THE AO AGAIN REJECTED THE BOOK RESULTS AND MADE THE ADDITION. TH E LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) APPL IED GROSS PROFIT RATE OF 25% BECAUSE NO OTHER SEPARATE ADDITION HAS BEEN MAD E AS WELL AS ON THE BASIS OF FINDING GIVEN WITH REGARD TO PRACTICE OF T HE LAST YEAR. HE HAS SUBMITTED THAT GROSS PROFIT RATE OF THE ASSESSEE DI SCLOSED IN THE ASSESSMENT YEAR IS ALMOST SIMILAR AS COMPARED WITH THE EARLIER YEAR; THEREFORE, ADDITION IS CLEARLY UNJUSTIFIED. THE LEA RNED DR HOWEVER, SUBMITTED THAT THE LEARNED CIT(A) THOUGH DELETED TH E ENTIRE ADDITION IN THE EARLIER YEAR BUT TOOK CONTRARY VIEW BY AGREEING WITH THE VIEW OF THE AO FOR THE PURPOSE OF REJECTION OF THE BOOK RESULTS AND ESTIMATING THE PROFIT. THE LEARNED DR THEREFORE, SUBMITTED THAT TH E ORDER OF THE AO MAY BE RESTORED. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIAL AVAILABLE ON RECORD AND WE DO NOT FIND ANY JUSTIFIC ATION IN SUSTAINING EVEN THE PART ADDITION ON THIS ISSUE. IT IS ADMITTE D FACT THAT BOOK RESULTS HAVE BEEN REJECTED ALMOST ON THE SAME REASONS WHICH WERE CONSIDERED IN THE PRECEDING ASSESSMENT YEAR 2003-04. IN ASSESSMEN T YEAR 2003-04, THE DEPARTMENT PREFERRED APPEAL BEFORE THE TRIBUNAL WITH REGARD TO DELETION OF ADDITION OF RS.10 LACS ON ACCOUNT OF RE JECTION OF BOOK RESULTS WHICH WAS DELETED BY THE LEARNED CIT(A). THE VIEW O F THE LEARNED CIT(A) IS CONFIRMED IN ASSESSMENT YEAR 2003-04. IT, THEREFORE , STANDS THAT THE BOOK RESULTS OF THE ASSESSEE ARE ACCEPTABLE. THE SI MILAR REASONS FOR REJECTION OF THE BOOK RESULTS BY THE AO HAVE NOT BE EN CONSIDERED PROPER FOR THE PURPOSE OF REJECTION OF THE BOOK RESULTS. I N THE ASSESSMENT YEAR 22 2003-04 ALSO, IT WAS NOTICED THAT IN THE PRECEDING ASSESSMENT YEARS ALSO THE ASSESSEE HAS EMPLOYED SAME METHOD OF ACCOUNTING WHICH HAVE NOT BEEN DOUBTED BY THE AUTHORITIES BELOW AND THE BOOK RESULTS OF THE ASSESSEE HAVE BEEN ACCEPTED. IN THE ASSESSMENT YEAR 1998-99 EVEN IN THE RE-ASSESSMENT PROCEEDINGS THE AO ACCEPTED THE B OOK RESULTS DECLARED BY THE ASSESSEE BY APPLYING GROSS PROFIT R ATE OF 24.94% DESPITE SALE WAS VERY SMALL AS COMPARED TO THE SALES DECLAR ED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. NO NEW FACT HAS BEEN BROU GHT AGAINST THE ASSESSEE. THEREFORE, THERE IS NO REASON TO DEVIATE FROM THE FINDINGS GIVEN IN THE EARLIER YEARS ESPECIALLY WHEN THE DEPARTMENT AL APPEAL HAS BEEN DISMISSED IN THE ASSESSMENT YEAR 2003-04. CONSIDERI NG THE TOTALITY OF THE FACTS AND CIRCUMSTANCES AND EARLIER HISTORY OF THE ASSESSEE, WE DO NOT FIND ANY JUSTIFICATION IN SUSTAINING THE FINDIN GS OF THE AUTHORITIES BELOW IN REJECTING THE BOOK RESULTS OF THE ASSESSEE AND IN MAKING THE ADDITION ON ACCOUNT OF ENHANCEMENT IN THE GROSS PRO FIT RATE. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION MADE BY REJECTING THE BOOK RESULT A ND ENHANCING THE GROSS PROFIT RATE. 26. AS A RESULT, GROUNDS NO.1 AND 2 OF THE APPEAL O F THE ASSESSEE ARE ALLOWED AND THE GROUND NO.1 OF THE DEPARTMENTAL APP EAL IS DISMISSED. 27. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PR ESS GROUND NO.3 OF THE ASSESSEES APPEAL, THE SAME IS ACCORDINGLY DISM ISSED. 28. ON GROUND NO.4 OF THE APPEAL, THE ASSESSEE CHAL LENGED HE DISALLOWANCE OF THE DEPRECIATION OF RS.3,06,294/-. IT IS SUBMITTED BY BOTH THE PARTIES THAT THIS GROUND IS SAME AS IS CONSIDER ED IN ASSESSMENT YEAR 2003-04 ON WHICH WE HAVE SET ASIDE THE ORDERS OF TH E AUTHORITIES BELOW AND RESTORED THE ISSUE TO THE FILE OF THE LEARNED C IT(A) FOR FRESH ADJUDICATION IN VIEW OF THE LATTER DECISION OF ITAT AHMEDABAD BENCH. AS A RESULT, WE SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND RESTORE THE 23 ISSUE TO THE FILE OF THE LEARNED CIT(A) FOR FRESH A DJUDICATION AS IS DIRECTED IN THE ASSESSMENT YEAR 2003-04. AS A RESULT, THIS G ROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 29. AS A RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED PARTLY. ITA NO.3777/AHD/2007 (REVENUES APPEAL) 30. GROUND NO.1 OF THE DEPARTMENTAL APPEAL WITH REG ARD TO REDUCTION OF GROSS PROFIT RATE IS ALREADY CONSIDERED AND DECI DED WHILE CONSIDERING ASSESSEES APPEAL. THIS GROUND OF DEPARTMENTAL APPE AL IS ACCORDINGLY DISMISSED. 31. ON GROUND NO.2 OF THE APPEAL, THE REVENUE HAS C HALLENGED THE DELETION OF ADDITION OF RS.97,391/- MADE ON ACCOUNT OF SUNDRY CREDITORS. THE AO STATED THAT THE ASSESSEE HAS SHOWN SUNDRY CR EDITORS HAVING SAME BALANCE FOR MORE THAN 3 YEARS. IN THE ABSENCE OF ANY CONFIRMATION, THE AO TREATED THE SAME AS UNEXPLAINED CREDIT AND M ADE ADDITION ACCORDINGLY. IT WAS SUBMITTED BEFORE THE LEARNED CI T(A) THAT THE CREDITORS ARE OLD AND THE AO HIMSELF HAS STATED THAT THEY CAN NOT BE DISALLOWED IN THE CURRENT YEAR. THE AO HAS NOT MENTIONED UNDER WH ICH SECTION THE ADDITION HAS BEEN MADE. THE ASSESSEE SUBMITTED THAT EVEN NO ADDITION CAN BE MADE U/S 41(1) OF THE IT ACT SINCE THE AO HA S FAILED TO PROVE THAT THERE IS ANY REMISSION OR CESSATION OF LIABILITIES DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE RELIED UPON THE DECISIO N OF THE HONBLE GUJARAT HIGH IN THE CASE OF AMBIKA MILLS LTD. VS CI T 54ITR 167 TO SAY THAT EVEN IF UNCLAIMED LIABILITIES ARE SHOWN AS SUB SISTING DEBIT IN THE BALANCE SHEET THEN SECTION 41(1) OF THE IT ACT CANN OT BE INVOKED. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS OF THE A SSESSEE DELETED THE ENTIRE ADDITION. THE LEARNED CIT(A) NOTED THAT THE AO HIMSELF HAS STATED THAT THESE ARE OLD CREDITORS. THEREFORE, ADDITION O N ACCOUNT OF 24 UNEXPLAINED CREDITS CAN BE MADE IN THE YEAR IN WHIC H THE CREDITS AROSE AND NOT IN THE CURRENT YEAR. THE LEARNED CIT(A) ACC ORDINGLY DELETED THE ADDITION. THE LEARNED DR RELIED UPON THE ORDER OF T HE AO AND SUBMITTED THAT SINCE THE BALANCES OF SUNDRY CREDITORS WERE AP PEARING FOR MORE THAN 3 YEARS AS THE SAME AMOUNT, THEREFORE, AO WAS JUSTI FIED IN MAKING ADDITION WITH THE AID OF SECTION 41(1) OF THE IT AC T. THE LEARNED DR HOWEVER, SUBMITTED THAT SIMILAR BALANCES HAVE BEEN SHOWN IN THE ASSESSMENT YEAR UNDER APPEAL WHICH WAS SHOWN IN THE EARLIER 3 YEARS. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 32. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT IT IS NOT A FIT CASE FOR INTERFERENCE. IT IS ADMITTED FACT THAT THE SUNDRY CREDITORS BALANCES HAVE BEEN APPEARING IN THE BOOKS OF ASSESSEE AT THE SAME BALANCE FOR MORE THAN 3 YEARS. IT, THEREFORE, PROVE THAT THERE WAS NO FRESH SUNDRY CREDITORS INTRODUCED IN THE ASSESSM ENT YEAR IN QUESTION. THE LEARNED CIT(A WAS, THEREFORE, JUSTIFIED IN DELE TING THE ADDITION ON ACCOUNT OF NO FRESH SUNDRY CREDITORS AROSE IN THE A SSESSMENT YEAR IN QUESTION. HOWEVER, AS REGARDS APPLICATION OF PROVIS IONS OF SECTION 41(1) OF THE IT ACT AS SUBMITTED BY THE LEARNED DR, WE DO NO T FIND ANY FORCE IN THE SUBMISSION OF THE LEARNED DR BECAUSE IF THE BAL ANCES OF EARLIER YEARS HAVE BEEN CONTINUOUSLY SHOWN IN THE SUBSEQUENT ASSE SSMENT YEAR WOULD PROVE THAT THE ASSESSEE HAS ACKNOWLEDGED THE LIABIL ITIES IN THE BALANCE SHEET AS WELL AS IN THE BOOKS OF ACCOUNT. THERE WAS NO CESSATION OR REMISSION OF LIABILITIES DURING THE YEAR UNDER CONS IDERATION. ITAT AHMEDABAD BENCH IN THE CASE OF SHRI NITIN S. GARG I N ITA NO.169/AHD/2009 AND OTHERS VIDE ORDER DATED 04-06-2 010 CONSIDERED THE ISSUE IN DETAIL AND HELD THAT PROVISIONS OF SEC TION 41(1) (A) OF HE IT ACT WOULD NOT APPLY IN SUCH A SITUATION. THE FINDIN GS IN THIS CASE FROM PARAS 8 TO 12 ARE REPRODUCED AS UNDER: 25 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL AVAILABLE ON RECORD. SECTION 41 (1) (A) OF THE IT A CT READS AS UNDER: 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXP ENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINA FTER REFERRED TO AS THE FIRST-MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHE THER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CE SSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFI TS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHA RGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHE THER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLO WANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR 8.1 HONBLE MADRAS HIGH COURT IN THE CASE OF TAMILN ADU WAREHOUSING CORPORATION (SUPRA) HELD AS UNDER: THE ASSESSEE FILED ITS RETURN FOR THE ASSESSMENT Y EAR 1989-90 AND ASSESSMENT ERAS COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HA D SURRENDERED THE GROUP GRATUITY SCHEME WITH LIC AND RECEIVED A SUM OF RS.8,22,925/- DURING THE YEAR REL EVANT TO THE ASSESSMENT YEAR 1989-90. AS THERE WAS NO PRO PER ENQUIRY MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED ON JANUARY 21,1992, THE COMMISSIONER PASSED ORDER UNDER SECTION 263 OF THE ACT AND SET ASIDE THE ASSESSMENT WITH A DIRECTION TO TH E ASSESSING OFFICER TO ASSESS THE SAID AMOUNT UNDER SECTION 41(1) OF THE ACT FOR THE ASSESSMENT YEAR 19 89- 90. THE TRIBUNAL SET AIDE THE ORDER OF THE COMMISSIONER. ON APPEAL TO THE HIGH COURT: HELD, THAT THE ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOUNT OF RS.8,22,925 AS LIABILITY IN THE BALANCE-SHEET. THE UNDISPUTED FACT WAS THAT IT WAS A LIABILITY REFLECTED IN THE BALANCE-SHEET. ONCE IT W AS SHOWN AS LIABILITY BY THE ASSESSEE, THE COMMISSIONE R WAS WRONG IN HOLDING THAT IT WAS ASSESSABLE UNDER 26 SECTION 41(1) OF THE ACT. UNLESS AND UNTIL THERE IS A CESSATION OF LIABILITY, SECTION 41 IS NOT APPLICABL E. 8.2 HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CA SE OF SMT. SITA DEVI JUNEJA (SUPRA) HELD AS UNDER: IT IS THE CONCEDED POSITION THAT IN THE ASSESSEES BALANCE SHEET THE AFORESAID LIABILITIES HAVE BEEN S HOWN, WHICH ARE PAYABLE TO THE SUNDRY CREDITORS. SUCH LIABILITIES, SHOWN IN THE BALANCE SHEET, INDICATE T HE ACKNOWLEDGEMENT OF THE DEBTS PAYABLE BY THE ASSESSE E. MERELY BECAUSE, SUCH LIABILITY IS OUTSTANDING FOR T HE LAST SIX YEARS, IT CANNOT BE PRESUMED THAT THE SAID LIABILITIES HAVE CEASED TO EXIST. IT IS ALSO CONCED ED POSITIN THAT THERE IS NO BILATERAL ACT OF THE ASSES SEE AND THE CREDITORS, WHICH INDICATES THAT THE SAID LIABIL ITIES HAVE CEASED TO EXIST. IN ABSENCE OF ANY BILATERAL A CT, THE SAID LIABILITIES COULD NOT HAVE BEEN TREATED TO HAV E CEASED. 8.3 ITAT AHMEDABAD BENCH IN THE CASE OF N. R. CHAUH AN (SUPRA) HELD AS UNDER: THE LD. COUNSEL FOR THE ASSESSEE SPECIFICALLY DRAW N OUR ATTENTION TO THE ACCOUNT COPIES AND STATED THAT THE SE ARE OUTSTANDING AS ON DATE AND THIS AMOUNT ARE NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT. ACCORDINGLY, T HE SAME CANNOT BE ADDED U/S. 41(1) OF THE ACT AS THE LIABILITY OF OUTSTANDING AND THE PARTIES ARE IN EXI STENCE. WE ARE IN FULL AGREEMENT WITH THE ARGUMENT OF THE L D. COUNSEL FOR THE ASSESSEE, AS IS SEEN FROM THE DOCUM ENTS AND PAPERS FILED BEFORE US THAT THE PARTIES DO EXIS T AND THESE AMOUNTS ARE OUTSTANDING IN THE BOOKS OF THE ASSESSEE AS PAYABLE. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE FEEL THAT THESE AMOUNTS CANNOT BE ADDED EITHER U/S. 68 OR 41(1) OF THE ACT. WE DELETE THE ADDITION AND THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 8.4 ITAT LUCKNOW BENCH IN THE CASE OF DCIT VS ALLIE D LEATHER FINISHERS (P) LTD. (SUPRA) HELD AS UNDER: 21.7 A LIABILITY COULD NOT BE TREATED AS A CESSATION IF IT WAS BEING MERELY CARRIED FORWARD FO R YEARS. A NON-GENUINE NON-TRADING LIABILITY STANDING IN THE BALANCE SHEET CAN BE TAXED BUT UNDER SECTION 68 IF 27 IT CAME IN THE BOOKS IN THE CURRENT YEAR. IF SUCH N ON- GENUINE NON-TRADING LIABILITY CAME IN THE BOOKS IN AN EARLIER YEAR THAN SAME CANNOT BE TAXED IN THE CURRE NT YEAR EVEN UNDER SECTION 68. A NON-GENUINE TRADING LIABILITY CAN BE CONSIDERED IN THE CURRENT YEAR IF IT IS RELATED TO CURRENT YEARS TRADING/MANUFACTURING OR PROFIT & LOSS ACCOUNT BUT NOT UNDER SECTION 41(1) O R UNDER SECTION 68. IT CAN BE CONSIDERED ONLY UNDER SECTION 28, I.E. IT CAN BE CONSIDERED FOR DISALLOWA NCE WHILE EXAMINING THE CLAIM OF EXPENSES OR OUTGOINGS AGAINST REVENUE RECEIPTS. CURRENT YEARS GENUINE TRADING LIABILITIES, WAVED/REMITTED OR CEASED TO EX IST IN THE CURRENT YEAR ITSELF WILL NOT FORM PART OF TRADING/MANUFACTURING OR P/L ACCOUNT EXCEPT A NOTE APPENDED TO THEM AS DISCLOSURE OF INFORMATION. 21.10 EVEN IN A CASE WHERE A LIABILITY CEASED TO EXIST DUE TO LIMITATION I.E. THE CLAIM OF THE CREDI TOR IS BARRED BY LIMITATION UNDER LIMITATION ACT OF 1963 BUT IF THE LIABILITY SUBSIST OR HAS NOT BEEN WRITTEN OF F BY THE ASSESSEE, OR THE ASSESSEE DOES NOT ABSOLVE HIMSELF FROM THE LIABILITY, THOUGH NOT LEGALLY ENFORCEABLE, IT C ANNOT BE TAXED UNDER SECTION 41(1). 8.5 THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS PRAMESHWAR BOHRA (SUPRA) HAS HELD AS UNDER: THE ASSESSEE ON THE FIRST DAY OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1993-94 I.E. ON APR IL 1, 1992, CREDITED AN AMOUNT OF INVESTMENT/CASH CREDIT OF RS.1,55,316 IN HIS BOOKS OF ACCOUNT. THE ASSESSING OFFICER ADDED THIS AMOUNT IN THE INCOME OF THE ASSE SSEE AS UNEXPLAINED INVESTMENT IN THE ASSESSMENT YEAR 1993-94. THE TRIBUNAL HELD THAT THIS WAS NOT A CASE OF CASH CREDIT ENTERED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE DURING THE YEAR BUT IT WAS A CASE IN WHICH THE ASSESSEE HAD INVESTED THE CAPITAL IN THE BUSINESS A ND THIS AMOUNT WAS SHOWN AS A CLOSING CAPITAL AS ON MARCH 31, 1992 AND ON APRIL 1, 1992, IT WAS AN OPEN ING BALANCE. THEREFORE THE TRIBUNAL HELD THAT WHAT WAS ALREADY CREDITED IN THE BOOKS OF ACCOUNT ENDING ON MARCH 31, 1992, FOR FINANCIAL YEAR 1991-92 RELEVANT TO ASSESSMENT YEAR 1992-93 COULD NOT BE UNEXPLAINED CA SH CREDIT OR INVESTMENT IN THE BOOKS OF ACCOUNT MAINTA INED 28 FOR THE FINANCIAL YEAR 1992-93, THE ACCOUNTING PERI OD FOR WHICH ENDED ON MARCH 31, 1993. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT THE CARRIED FORWARD AMOUNT OF THE PREVIOUS YEAR DID NOT BECOME AN INVESTMENT OR CASH CREDIT GENERATED DURING THE RELE VANT YEAR 1993-94. THIS ALONE WAS SUFFICIENT TO SUSTAIN THE ORDER OF THE TRIBUNAL IN DELETING THE AMOUNT OF R.1,55,316 FROM THE ASSESSMENT FOR THE ASSESSMENT YEAR 1993-94. 8.6 ITAT MUMBAI BENCH IN THE CASE OF ACIT VS VIP INDUSTRIES (SUPRA) HELD AS UNDER: SECTION 41(1) IS ATTRACTED WHEN THERE IS CESSATION FOR REMISSION OF A TRADING LIABILITY. SIMPLY BECAUSE A PERIOD OF THREE YEARS HAS EXPIRED AND THE CREDITOR CANNOT LAWFULLY ENFORCE HIS CLAIM, IT DOES NOT MEAN THAT THERE IS A CESSATION OR REMISSION OF LIABILITY. THE RE MAY BE SEVERAL SITUATIONS WHEN THE MONEY IS NOT CLAIMED OR PAID BY ONE PARTY TO ANOTHER WITHIN THREE YEARS AND THEREAFTER THE CLAIM IS MADE AND HONOURED BY THE OT HER. SO, SIMPLY BECAUSE A PARTICULAR AMOUNT IS OUTSTANDI NG FOR A PERIOD OF MORE THAN THREE YEARS, THAT DOES NO T CONSTITUTE INCOME UNDER SECTION 41(1). 9. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE PROVISIONS AND THE DECISION REFERRED TO ABOVE , IT IS CLEAR THAT THE EXPENDITURE CLAIMED AS DEDUCTION IN THE EA RLIER YEAR HAVE NOT BEEN DISALLOWED IN THE EARLIER YEAR IN WHI CH THEY WERE CLAIMED. EVEN THE AO IN THE EARLIER YEAR HAS N OT DOUBTED THE EXISTENCE OF THE PARTIES. THE LEARNED COUNSEL F OR THE ASSESSEE FILED COPIES OF BALANCE SHEET OF THE ALL Y EARS UNDER APPEAL, AS WELL AS PROCEEDINGS EARLIER ASSESSMENT Y EARS WHICH PROVE THAT THE OUTSTANDING LIABILITIES FROM E ARLIER YEARS WERE CARRIED FORWARDED TO THE ASSESSMENT YEARS UNDE R APPEAL STARTING FROM ASSESSMENT YEAR 2001-02. THE LIABILIT IES IN ASSESSMENT YEAR 2000-01 WERE IN A SUM OF RS.1,29,83 ,564/-. THE PARTICULARS OF THOSE PARTIES AGAINST WHOM THE L IABILITIES WERE SHOWN IS MENTIONED AT PB-3, 4 AND 5. THE SAME PARTIES CONTINUED IN THE ASSESSMENT YEAR 2001-02 UNDER APPE AL BUT THE BALANCES OF SOME OF THE PARTIES HAVE REDUCED WH ICH WOULD SHOW THAT PART PAYMENTS HAVE BEEN MADE TO THEM. THE ABOVE FACTS WOULD SHOW THAT THE LIABILITIES SHOWN IN THE BALANCE SHEET IN THE ASSESSMENT YEAR UNDER APPEAL I.E. 2001 -02 WHICH ARE OPENING BALANCES WHICH ARE CARRIED FORWARD FROM THE 29 PRECEDING ASSESSMENT YEAR. THE LIABILITIES HAVE BEE N SHOWN IN THE BALANCE SHEET OF THE ASSESSEE WHICH WOULD SH OW THAT THE ASSESSEE ACKNOWLEDGED THE LIABILITIES OF THE OU TSTANDING AMOUNTS. THE BALANCES WERE THUS CARRIED FORWARD FRO M EARLIER YEARS. IN ASSESSMENT YEAR 2002-03, THE AO MADE ADDI TION OF RS.1,60,590/- IN RESPECT OF ROYAL ENGINEERING WORK WHOSE BALANCE WAS ALSO OUTSTANDING IN THE ASSESSMENT YEAR 2000- 01 AND 2001-02. IT WOULD, THEREFORE, SHOW THAT SI MILAR ADDITION IS MADE IN THE ASSESSMENT YEAR 2002-03 WHI CH WOULD AMOUNT TO DOUBLE ADDITION IN RESPECT OF THE S AME PARTY. IN ASSESSMENT YEAR 2003-04 THE AO MADE ADDITION OF RS.40,032/- IN RESPECT OF SANJAY SPAL , RS.32/-, AN KIT ENGINEERING RS.20,000/- AND MOTILALJI RS.20,000 /-. THESE AMOUNTS WERE NOT CARRIED FORWARD FROM EARLIER YEARS AS PER THE DETAILS FILED IN THE PAPER BOOK. IT WOULD SHOW THAT THESE ARE THE CURRENT LIABILITIES OF THE ASSESSEE IN THE ASSESSMENT YEAR 2003-04. SIMILARLY, IN ASSESSMENT YEAR 2006-07 THE AO MADE ADDITION OF RS.1,32,118/- IN RESPECT OF AMOUNT OF RS.45,409/- AND RS.86,709/- IN RESPECT OF MAHALAXMI ROADWAYS AND NIHAL ROADWAYS. THESE WERE THE CREDIT BALANCES IN THE ASSESSMENT YEAR UNDER APPEAL WHICH WERE CARRIED FORWARD IN THE PRECEDING ASSESSMENT YEAR 20 05-06 AND IN THAT YEAR THERE WERE DEBIT BALANCES AGAINST THESE PARTIES AS PER THE DETAILS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THESE FACTS WOULD SHOW THAT THE A UTHORITIES BELOW HAVE NOT APPLIED THEIR MIND TO THE FACTS OF T HE CASE THAT THESE ARE NOT THE FIT CASES FOR INVOKING THE PROVIS IONS OF SECTION 41(1) OF THE IT ACT IN THE MATTER AS DONE B Y THE AO. 9.1 CONSIDERING THE FACTS OF THE CASE AS NOTED ABOV E IT IS CLEAR THAT THE ASSESSEE HAD CONTINUED TO SHOW THE A DMITTED AMOUNTS AS LIABILITIES IN ITS BALANCE SHEET. THE LI ABILITIES REFLECTED IN THE BALANCE SHEET CANNOT BE TREATED AS CESSATION OF LIABILITIES. MERELY BECAUSE THE LIABILITIES ARE OUTSTANDING FOR LAST MANY YEARS, IT CANNOT BE INFERRED THAT THE SAI D LIABILITIES HAVE CEASED TO EXIST. IT IS ALSO A FACT THAT THE AS SESSEE HAS NOT WRITTEN OFF THE OUTSTANDING LIABILITIES IN THE BOOK S OF ACCOUNT AND THE OUTSTANDING LIABILITIES ARE STILL IN EXISTE NCE WOULD PROVE THAT THE ASSESSEE ACKNOWLEDGED HIS LIABILITIE S AS PER THE BOOKS OF ACCOUNT. SECTION 41(1) OF THE IT ACT I S ATTRACTED WHEN THERE IS CESSATION OR REMISSION OF A TRADING L IABILITY. THE AO SHALL HAVE TO PROVE THAT THE ASSESSEE HAS OBTAIN ED THE BENEFITS IN RESPECT OF SUCH TRADING LIABILITIES BY WAY OF REMISSION OR CESSATION THEREOF. MERELY BECAUSE THE ASSESSEE OBTAINED BENEFIT OF DEDUCTION IN THE EARLIER YEARS AND BALANCES ARE CARRIED FORWARD IN THE SUBSEQUENT YEAR , WOULD 30 NOT PROVE THAT THE TRADING LIABILITIES OF THE ASSES SEE HAVE BECOME NON-EXISTENT. IT MAY ALSO BE NOTED HERE THAT THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION OF THE EXPEN DITURE IN ALL THE ASSESSMENT YEARS UNDER APPEAL. THE DECISION S CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE SQUARELY APPLY TO THE FACTS OF THE CASE. THEREFORE, WE ARE OF THE VIEW TH AT PROVISIONS OF SECTION 41 (1) (A) OF THE IT ACT HAVE BEEN WRONG LY APPLIED IN THE MATTER. WE MAY ALSO NOTE HERE THAT THE LEARNED COUNSEL FOR THE ASSESSEE HAS FILED DETAILS OF PARTICULARS O F PAYMENTS OF LIABILITIES IN SUBSEQUENT YEARS WHICH ARE IN THE NA TURE OF ADJUSTMENT THROUGH JOURNAL ENTRY, CASH PAYMENT AND SOME PAYMENTS BY BANKING CHANNEL. THE LEARNED DR OBJECTE D TO THE FILING OF SUCH DETAILS AT THIS STAGE AND FURTHER SU BMITTED THAT THE PAYMENT BY CASH AND JOURNAL ENTRY WOULD NOT PRO VE GENUINENESS OF THE PAYMENTS. WE DO NOT AGREE WITH T HE SUBMISSION OF THE LEARNED DR BECAUSE THOSE DETAILS WERE CALLED FOR BY THE BENCH DURING THE COURSE OF HEARIN G AND EVEN PAYMENT BY CHEQUES AND/OR JOURNAL ENTRY WOULD NOT A BSOLVE THE AO FOR MAKING OUT A CASE U/S 41 (1) (A) OF THE IT ACT. THE LAST CONTENTION OF THE LEARNED COUNSEL FOR THE ASSE SSEE WAS THAT SINCE INCOME OF THE ASSESSEE IS COMPUTED U/S 4 4AE OF THE IT ACT, THEREFORE, PROVISIONS OF SECTION 41(1) OF THE IT ACT WOULD NOT APPLY. HOWEVER, CONSIDERING THE FINDING G IVEN ABOVE THAT PROVISIONS OF SECTION 41 (1) WOULD NOT A PPLY TO THE FACTS AND CIRCUMSTANCES OF THE CASE; THERE IS NO NE ED TO GIVE FURTHER FINDINGS ON THIS ISSUE. 10. ON CONSIDERATION OF THE ABOVE DISCUSSION, WE FI ND THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE ADDITIONS AGAINST THE ASSESSEE IN ALL THE ASSESSMEN T YEARS UNDER APPEAL OF THE ABOVE AMOUNTS WITH THE AID OF SECTION 41(1)(A) OF THE IT ACT. AS A RESULT, WE SET ASIDE T HE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITIO NS. 11. IN VIEW OF THE ABOVE FINDINGS, THE DECISIONS CI TED BY THE LEARNED DR WOULD NOT SUPPORT THE CASE OF THE REVENU E. 12. AS A RESULT, THESE GROUNDS OF APPEAL OF THE ASS ESSEE IN ALL THE APPEALS ARE ALLOWED. 33. CONSIDERING THE ABOVE DISCUSSION, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADD ITION. WE CONFIRM HIS FINDINGS AND DISMISS THIS GROUND OF APPEAL OF THE R EVENUE. AS A RESULT, GROUND NO.2 OF THE APPEAL OF THE REVENUE IS DISMISS ED. 31 34. AS A RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. 35. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AND BOTH APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11-06-2010. SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 11 -06-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD