ACIT 11(1), MUMBAI V. SHOBHNA DESAI PRODUCTION P. LTD, MUMBAI

ITA 985/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5882 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 23-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 03-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Unexplained investment; Capital asset; Business expenditure; Principle of natural justice; Corroborative evidences
• Section: 40A(3); 37(1)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH. , !' !' !' !' # # # # $% $% $% $% , !' !' !' !' BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & AMIT SHUK LA,JUDICIAL MEMBER /. ITA NO.985/MUM/2011, & & & & ' ' ' ' / ASSESSMENT YEAR-2006-07 ACIT 11(1) R.NO.439, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 VS SHOBHANA DESAI PRODUCTION P. LTD. A-401, 402 & 403 KOTIAN NIRMAN, PLOT NO.2, SHAH INDL. ESTATE, OPP. LAXMI INDL.ESTATE, ANDHERI(W) MUMBAI-400053 PAN: AAFCS165 5R ( () / APPELLANT) ( *+() / RESPONDENT) /. ITA NO.1097/MUM/2011, & & & & ' ' ' ' / ASSESSMENT YEAR-2007-08 ACIT 11(1) R.NO.439, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 VS SHOBHANA DESAI PRODUCTION P. LTD. A-401, 402 & 403 KOTIAN NIRMAN, PLOT NO.2, SHAH INDL. ESTATE, OPP. LAXMI INDL.ESTATE, ANDHERI(W) MUMBAI-400053 PAN: AAFCS165 5R ( () / APPELLANT) ( *+() / RESPONDENT) /. ITA NO.1127/MUM/2011, & & & & ' ' ' ' / ASSESSMENT YEAR-2006-07 SHOBHANA DESAI PRODUCTION P. LTD. A-401, 402 & 403 KOTIAN NIRMAN, PLOT NO.2, SHAH INDL. ESTATE, VEERA DESAI ROAD, ANDHERI(W) MUMBAI-400053 VS ACIT 11(1) R.NO.439, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 PAN: AAFCS1655R ( () / APPELLANT) ( *+() / RESPONDENT) /. ITA NO.1128/MUM/2011, & & & & ' ' ' ' / ASSESSMENT YEAR-2007-08 SHOBHANA DESAI PRODUCTION P. LTD. A-401, 402 & 403 KOTIAN NIRMAN, PLOT NO.2, SHAH INDL. ESTATE, VEERA DESAI ROAD, ANDHERI(W) MUMBAI-400053 VS ACIT 11(1) R.NO.439, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 PAN: AAFCS1655R ( () / APPELLANT) ( *+() / RESPONDENT) 2 ITA NOS. 985, 1097, 1127 & 1128 MUM 2011 SHOBHANA D ESAI PRODUCTION P. LTD. . ' , - / REVENUE BY : SHRI PITAMBER DAS &.# &.# &.# &.# - - - - / ASSESSEE BY : DR. K.SHIVARAM & RAHUL SARDA & & & & , ,, , #/ #/ #/ #/ / DATE OF HEARING : 20-03-2014 01' , #/ / DATE OF PRONOUNCEMENT : 26-03-2014 & & & & , 1961 , ,, , 254 )1( #2# #2# #2# #2# !$ !$ !$ !$ ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM !' !' !' !' & & & & : CHALLENGING THE ORDER OF THE CIT(A)-3,MUMBAI ASSESS ING OFFICER AND THE ASSESSEE HAVE FILED CROSS APPEALS FOR THE AY.2006-07 AND 2007-08.GROUND S OF APPEAL FILED BY THE AO READ AS UNDER : ITA/985/MUM/20 ,AY.2006-2007: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) MUMBAI HAS ERRED IN DELETING THE DISALLOWANCE OF FINANCE CHARGES OF RS.11,48,496/-, WHICH SHOULD HAVE BEEN EFFECTIVELY CAPITALIZED. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) MUMBAI FAILED TO APPRECIATE THE FACT THAT AS THE ASSESSEE COMPANY TH EMSELVES HAVE ADMITTED THAT NEARLY 42% OF THE EPISODES WERE KEPT AS WORK IN PROGRESS AND NOT SOLD TO THE RESPECTIVE CHANNELS. 3.THE APPELLANT PRAYS THAT THE ORDER OF CIT(APPEALS ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 1097/MUM/2011-AY.2007-08 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) MUMBAI HAS ERRED IN DELETING THE DISAL1OWANCE OF RS.1,00,000/-MADE O N ACCOUNT OF UNEXPLAINED INVESTMENT U/S.69B OF THE ACT. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) MUMBAI FAILED TO APPRECIATE THE FACT THAT THE ISSUE OF DEPOSIT WITH M/S. STUDIO GOLD REMAINS UN-RECONCILED AND THUS THE AFORESAID ADDITION IS CORRECTLY MADE. 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) MUMBAI ERRED IN DELETING THE ADDITION OF RS.2,09,24,075/-MADE ON AC COUNT OF SERVICE TAX, IGNORING THAT THESE RECEIPTS FORM PART OF TRADING RECEIPTS AND ARE COVE RED BY SEC.43B. 4.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) MUMBAI FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE FAILED TO SHO W THE DIFFERENCE OF RECEIPTS DECLARED AND THE RECEIPTS AS PER TDS CERTIFICATES RELATING TO SERVI CE TAX IN THE PROFIT AND LOSS ACCOUNT. 5.THE APPELLANT PRAYS THAT THE ORDER OF CIT(APPEALS ) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 6.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY ASSESSEE HAD FILED FOLLOWING GROUNDS OF APPEAL: 1127/MUM/2011-AY.2006-07 A.DISALLOWANCE OF 20% OF RS.71.99,877/-AS AD HOC C ASH EXPENSES OF I.E. RS.14,39,975/-. THE LEARNED CIT(A) ERRED IN CONFIRMING THE AD HOC D ISALLOWANCE OF 20% CASH EXPENSES OF RS.71,99,877/-,I.E. RS.14,39,975/-,PRODUCTION EXPEN SES,WITHOUT ANY BASIS AND THE ADDITION CONFIRMED BY THE CIT (A) MAY BE DIRECTED TO BE DELE TED. 2.THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE LEARNED ASSESSING OFFICER HAD NEITHER FOUND ANY DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE A SSESSEE NOR, THE BOOKS OF ACCOUNT HAD BEEN REJECTED, THE INSPECTOR WHO HAD TEST CHECKED THE VO UCHERS HAD NOT FOUND ANY DEFECTS,NEITHER PROVISIONS OF SECTION 40(A)(2)OR40(A)(3),WAS APPLIC ABLE ,THE APPELLANT BEING A COMPANY THERE WAS NO PERSONAL ELEMENT TO THE COMPANY, EVEN IN THE COU RSE OF SURVEY NO DEFECTS WERE FOUND IN THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT,AS THE APPELLANT HAD PROVED BEYOND REASONABLE DOUBT THE GENUINENESS OF CASH EXPENSES CONSIDERING THE NATURE OF APPELLANTS BUSINESS THE AD HOC DISALLOWANCE OF 20% CASH EXPENSES MAY BE DIRECTED T O BE DELETED. 3 ITA NOS. 985, 1097, 1127 & 1128 MUM 2011 SHOBHANA D ESAI PRODUCTION P. LTD. . 3.THE LEARNED CIT(A) AND AO ERRED IN MAKING THE OBS ERVATION THAT THE VOUCHERS ARE SELF MADE AND WITHOUT SUPPORTING EVIDENCE WAS FACTUALLY INCORRECT , WITHOUT ANY BASIS, AS ALL THE EXPENSES ARE AUTHORIZED BY THE PRODUCTION IN CHARGE SUPPORTED BY THE SIGNATURE OF RECIPIENT. 4.THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 1128/MUM/2011-AY.2007-08 A.DISALLOWANCE OF 20% OF CASH EXPENSES OF RS 1,26,7 5,490/- I.E. RS 25,35,098/- . THE LEARNED CIT (A) ERRED IN CONFIRMING THE AD HOC DISALLOWANCE OF 20% CASH EXPENSES OF RS.1,26,75,490/-I.E. RS.25,35,098/-,PRODUCTION EXPE NSES, WITHOUT ANY BASIS AND THE ADDITION CONFIRMED BY THE CIT (A) MAY BE DIRECTED TO BE DELE TED. 2.THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE LEARNED ASSESSING OFFICER HAS NEITHER FOUND ANY DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE A PPELLANT NOR, THE BOOKS OF ACCOUNT HAS BEEN REJECTED, THE INSPECTOR WHO HAS TEST CHECKED THE VO UCHERS HAS NOT FOUND ANY DEFECTS, NEITHER PROVISIONS OF SECTION40(A)(2) OR 40(A)(3), IS APPLI CABLE ,THE APPELLANT BEING A COMPANY THERE IS NO PERSONAL ELEMENT TO THE COMPANY, EVEN IN THE COURSE OF SURVEY NO DEFECTS WERE FOUND IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, AS THE ASSES SEE HAS PROVED BEYOND REASONABLE DOUBT THE GENUINENESS OF CASH EXPENSES CONSIDERING THE NATURE OF ASSESSEES BUSINESS THE AD HOC DISALLOWANCE OF 20% CASH EXPENSES MAY BE DIRECTED T O BE DELETED. B.AD HOC DISALLOWANCE OF 20% WAGES RS 17,78.418/- AND CONVEYANCE RS 3,16,081/- (TOTAL OF RS. 20,94,499/-) I.E . RS 4,18,900/- PAID TO SET WORKER S . 3.THE LEARNED CIT (A) ERRED IN CONFIRMING THE AD HO C DISALLOWANCE OF WAGES AND CONVEYANCE OF SET WORKERS WITHOUT ANY BASIS HENCE THE AD HOC DISALLOW ANCE MAY BE DIRECTED TO BE DELETED. 4.THE LEANED CIT (A) ERRED IN OBSERVING THAT THE VO UCHERS ARE SELF MADE AND PART OF THE EXPENSES WERE NOT SUPPORTED BY BILLS ,WHICH- ARE IN CORRECT, ALL THE VOUCHERS ARE SIGNED BY THE RECIPIENTS AND AUTHORISED BY THE PRODUCTION IN CHARGE HENCE AD HOC DISALLOWANCE CONFIRMED BY THE CIT (A) MAY BE DIRECTED TO BE DELETED. 5.THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER O R DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. ITA/985/MUM/20 ,AY.2006-2007: ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF PRODUC TION OF TV SERIALS,FILED ITS RETURN OF INCOME WAS FILED ON 9.11.2006 DECLARING TOTAL LOSS OF RS. 65,84,836/-.THE RETURN WAS PROCESSED U/S.143 (1)ON 28.09.2007.SUBSEQUENTLY,THE CASE WAS SELECTED FOR SCRUTINY.ASSESSMENT U/S.143(3) OF THE ACT WAS PASSED ON 28.10.2009 AT TOTAL INCOME OF RS. 19,09,580/-. 2. EFFECTIVE GROUND OF APPEAL DEALS WITH DISALLOWANCE OF FINANCE CHARGES OF RS.11,48,496/-. DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESS EE HAD TOTAL LOAN FUNDS AMOUNTING TO RS.99.59 LAKHS AS AGAINST FINANCE CHARGES OF RS.27. 34 LAKHS.AO DIRECTED THE ASSESSEE TO JUSTIFY INTEREST EXPENDITURE INCURRED.ASSESSEE INFORMED THE AO THAT OUT OF THE TOTAL INTEREST COST OF RS.27,34,571/-,RS.19.72 LAKHS PERTAINED TO ENTERTAI NMENT ONE,THAT SAME WAS FULLY LAID OUT FOR THE PURPOSE OF RUNNING ITS BUSINESS AS WELL AS PRODUCTI ON AND DELIVERY OF EPISODES OF ITS SERIALS.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,HE HELD THAT THE ASSESSEE HAD RECEIVED RS.1.93 CRORES AS SALES INCOME AGAINST PRODUCTION OF TV SOFTWARE A S AGAINST TOTAL EXPENSES OF RS.4.58 CRORES,THAT EPISODES OF TV SERIALS WERE MADE AND WERE DELIVERED TO TV CHANNELS FOR BEING AIRED,THAT THE ASSESSEE HAD INCURRED DIRECT EXPENSES OF RS.3.57 CR ORES AGAINST WHICH THERE EXISTED A CLOSING STOCK OF RS.1.38 CRORES,THAT THE ASSESSEE HAD CAPIT AL WORK IN PROGRESS OF RS.1.38 CRORES,THAT IT WORKED OUT TO 42% OF THE AMOUNT I.E.RS. 1.93 CRORES AND RS.1.38 CRORES,THE ASSESSEE HAD STATED THAT 42% OF THE EPISODES WERE KEPT AS CAPITAL WORK IN PROGRESS AND NOT SOLD TO THE RESPECTIVE CHANNELS.HE FINALLY HELD THAT 42% OF THE FINANCIAL CHARGES CLAIMED BY THE ASSESSEE WERE TO BE CAPITALISED AND AND A DISALLOWANCE OF RS. 11,48,496 /-WAS MADE BY THE AO TO THE TOTAL INCOME OF ASSESSEE. 2.1. BEFORE THE FAA IT WAS SUBMITTED THAT THE PROVISIONS OF ACCOUNTING STANDARD(AS) 2WERE APPLICABLE TO THE ASSESSEE,THAT SAME WAS MANDATORY AND IT DID NOT REQUIRE THE ADDITION OF FINANCE CHARGES FOR ARRIVING AT THE COST OF PRODUCTION OF T ELEVISION SERIALS,THAT COMPANY HAD PAID FINANCE CHARGES UNDER THE HEADS INTEREST ON LOAN FROM ENTER TAINMENT ONE(RS.19,72,000/-)INTEREST ON BANK OVERDRAFT-RS.(5,84,306/-)INTEREST ON CAR LOANS (RS.85,203/-),INTEREST ON OTHER LOANS FROM BANKS AGAINST PERSONA/GUARANTEES(RS.83,727/-),BANK CHARGES(RS.4,289)AND PROCESSING CHARGES 4 ITA NOS. 985, 1097, 1127 & 1128 MUM 2011 SHOBHANA D ESAI PRODUCTION P. LTD. . RS. (5,000),THAT IT HAD NOT HAD NOT CLASSIFIED WIP AS CAPITAL ASSET,THAT AO HAD DESIGNATED WIP AS CAPITALISED WIP,THAT THE COPYRIGHT OF THE SERIALS W ERE HELD BY THE CHANNELS THEMSELVES AND TO THAT EXTENT THE WIP WAS NOT A CAPITAL ASSET OF ASSESSEE, THAT NO OWNERSHIP RIGHTS WERE VESTED WITH THE ASSESSEE,THAT THE INTEREST PAYMENT WAS NOT COVERED UNDER THE PROVISIONS OF SECTION 36 (1) (III) OF THE ACT,THAT THE ENTIRE INTEREST EXPENSE WAS FOR T HE BUSINESS AND PROFESSION OF THE ASSESSEE,THAT OUT OF THE TOTAL INTEREST EXPENSE INCURRED BY IT IN TEREST EXPENSE ON MOTORCAR,COULD NOT BE CONSIDERED FOR PURPOSE OF DISALLOWANCE,THAT THE ASS ESSEE HAD EARNED INTERESTS ON THE DEPOSITS GIVEN TO SAMTA SAHAKARI BANK,THAT IT HAD RECEIVED A WAIVER OF OVER 18 LAKHS FROM A PARTY TO WHOM PAYMENTS WERE MADE,THAT THE WAIVER WAS MORE THAN T HE AMOUNT OF DISALLOWANCE OF INTEREST EXPENSE CONSIDERED BY THE AO,THAT THE DISALLOWANCE WAS ARBITRARY, ILLEGAL AND UNJUSTIFIED 2.2. AFTER CONSIDERING THE FACTS AND MATERIAL ON RECORD FAA HELD THAT THE ASSESSEE HAD ESTABLISHED UTILISATION OF LOANS FOR ITS BUSINESS PURPOSE AND E XPLAINED WHY INTEREST COULD NOT BE CAPITALISED, THAT THE AO HAD FURNISHED NO REASON FOR DEVIATION F ROM PAST PRACTICE AND HOLDING THE ASSESSEE LIABLE FOR CAPITALISATION OF INTEREST COST,THAT HE HAD ALSO NOT MENTIONED THE REASONS FOR HOLDING WIP TO BE A CAPITAL ASSET IN ASSESSEES HANDS,THAT THE AOS CALCULATION OF 42% WIP WAS ALSO UNCLEAR,THAT THE OWNERSHIP OF THE WIP WAS AN IMPORT ANT FACTOR TO DECIDE THE ISSUE,THAT INTEREST WOULD BE EXPECTED TO BE MET OUT OF ASSESSEES RECEI PTS AND NOT TO BE ADDED TO THE PRODUCTION COSTS OF SERIALS OWNED BY THE CHANNELS.FINALLY, FAA HELD THAT DISALLOWANCE MADE BY THE AO WAS NOT SUSTAINABLE. 2.3. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR) ARGUED TH AT THE TRANSACTION WITH ENTERTAINMENT ONE WAS NOT LOAN,THAT IT WAS AN ADVANCE,THAT AGAINS T THE UNSECURED LOANS OF RS.99 LAKHS THE ASSESSEE HAD PAID INTEREST OF RS.27.34 LAKHS,THAT I NTEREST RELATED TO WIP COULD NOT BE ALLOWED AS BUSINESS EXPENDITURE,THAT ASSESSEE ITSELF HAD ADMIT TED THAT WIP WAS 42%,THAT FAA IGNORED THE MATCHING PRINCIPLES.AUTHORISED REPRESENTATIVE(AR)SU BMITTED THAT BEING A COMPANY ASSESSEE HAD TO FOLLOW THE AS,AS PRESCRIBED BY THE LAW,THAT COST S SUCH AS INTEREST AND FINANCIAL CHARGES WERE NOT TO BE ADDED TO THE VALUATION OF WIP,THAT SAME PRACT ICE WAS FOLLOWED IN EARLIER YEARS. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT PROPORTIONATE DISALLOWANCE WAS MADE BY THE AO BECAU SE HE WAS OF THE OPINION THAT THE ASSESSEE HAD INCURRED DIRECT EXPENSES OF RS.3.57 CRORES AGAI NST WHICH THERE EXISTED A CLOSING STOCK OF RS.1.38CRORES AND PROPORTIONATE AND ACCORDINGLY DIS ALLOWANCE HAD TO BE MADE.WE FIND THAT ASSESSEE HAD CLAIMED THAT INTEREST WAS UTILISED BY IT FOR CARRYING OUT OF ITS BUSINESS.AO HAS NOT GIVEN ANY FINDING AS TO HOW THE SAID CLAIM OF THE A SSESSEE WAS INCORRECT.AO DID NOT COMMENT ANYTHING ABOUT THE OWNERSHIP OF THE SERIALS WHICH W AS VERY IMPORTANT FACTOR TO DECIDE THE ISSUE.ASSESSEE WAS FOLLOWING THE SAME PRACTICE,WRIT ING ITS BOOKS OF ACCOUNTS AS PER THE ACCOUNT - ING STANDARDS,IN EARLIER YEARS AND AO HAD NEVER POI NTED OUT ANY DEFECT IN THAT PRACTICE.IT IS TRUE THAT THE AO CAN DEVIATE FROM THE STAND TAKEN IN EAR LIER YEARS,BUT FOR DOING SO,HE HAS TO GIVE COGENT REASONS.WE DO NOT FIND ANY REASON IN THE ASSESSMENT ORDER.WE AGREE WITH THE FINDING OF FACT GIVEN BY THE FAA THAT BASIS FOR CALCULATING WIP AT 42% WA S NOT CLEAR.AS PER THE PROVISIONS OF THE ACT EXPENSES CAN BE CAPITALISED IN CERTAIN CONDITIONS,B UT IF AO WANTS TO CAPITALISE ANY EXPENSES HE HAS TO CLEARLY MENTION THE FACTS LEADING TO HIS CON CLUSION.ASSESSEE HAS NEVER CAPITALIED EXPENDITU -RE.CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.THEREF ORE,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO.APPEAL FILED BY THE AO STANDS DISMIS SED. 1097/MUM/2011-AY.2007-08 3. AO FINALISED THE ASSESSMENT FOR THE YEAR UNDER APPE AL ON 28.10.2010 U/S.143(3)R.W.W.144 OF THE ACT DETERMINING THE INCOME OF THE ASSESSEE AT RS.4. 22 CRORES,AS AGAINST THE INCOME OF RS.27.14 LAKHS SHOWN BY THE ASSESSEE IN THE RETURN OF INCOME FILED ON 27.10.2007. 3.1. FIRST GROUND OF APPEAL FOR THE YEAR IS ABOUT DELETI NG THE DISAL1OWANCE OF RS.1,00,000/-MADE BY THE AO,ON ACCOUNT OF UNEXPLAINED INVESTMENT U/S.69B OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS AO ISSUED A NOTICE U/S.133 (6) OF THE A CT TO M/S.STUDIO GOLD (SG) AND HE FOUND THAT SG HAD RENTED OUT ONE PREMISES TO THE ASSESSEE FOR THE PERIOD 01.01.07 TO 31.03.07 FOR A TOTAL 5 ITA NOS. 985, 1097, 1127 & 1128 MUM 2011 SHOBHANA D ESAI PRODUCTION P. LTD. . COMPENSATION OF RS.11.25 LAKHS,THAT THE ASSESSEE HA D PAID RS.20 LAKHS TO SG,THAT AS PER THE DETAILS OF LOANS AND ADVANCES OF THE ASSESSEE IT HA D PAID RS.19 LAKHS TO SG.AO MADE AN ADDITION OF RS.1LAKHS TO THE INCOME OF THE ASSESSEE UNDER TH E HEAD UNEXPLAINED INVESTMENT U/S.69B OF THE ACT. 3.1. IN THE APPELLATE PROCEEDINGS,FAA HELD THAT THE ASSE SSEE AO SHOULD HAVE CROSS CHECKED AND CROSS VERIFIED THE TRANSACTION IN QUESTION BEFORE M AKING ADDITION,THAT STUDIO MAGNUM(SM),THAT IT HAD PAID BACK RS.2 LAKHS TO THE ASSESSEE,THAT SM FO RGOT TO ENTER THE TRANSACTION IN ITS BOOKS OF ACCOUNTS,THAT THERE WAS NO UNDER REPORTING OF FIGUR E BY THE ASSESSEE AS FAR AS AMOUNT IN QUESTION WAS CONCERNED. 3.2. BEFORE US,DR SUBMITTED THAT THE ASSESSEE HAD ADVANC ED RS.20 LAKHS TO SG,THAT IN THE BOOKS OF ACCOUNTS OF SG RECEIPT OF RS.19 LAKHS WAS SHOWN,THA T THE THIRD PARTY INQUIRIES REVEALED THE TRUE PICTURE,THAT THE FAA HAS GIVEN DECISION ABOUT SM AN D NOT ABOUT SG.AR SUBMITTED THAT THE AO DID NOT CONFRONT THE ASSESSEE WITH THE INQUIRIES MA DE WITH SG,THAT PROVISIONS OF SECTION 69B WERE NOT APPLICABLE IN THE MATTER UNDER CONSIDERATION. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD HIRED A PREMISES AND PAID RS.20 LAKHS TO SG,THAT AO HAD GATHERED INFORMATION FROM SG BUT DID NOT INFORM THE ASSESSEE ABOUT THE RESULT OF HIS INQUIRY.AS PER THE ESTABLISHED PRINCIPLES OF TAX JURISPRUDENCE ASSESSEE AO HAS TO CONFRONT TH E ASSESSEE WITH THE INFORMATION THAT HE COLLECTS BEHIND THE BACK OF THE ASSESSEE AND USES AGAINST IT .WE FIND THAT THE AO HAS VIOLATED THE BASIC PRINCIPLE OF NATURAL JUSTICE AND ONLY ON THIS BASIS GROUND OF APPEAL TAKEN BY HIM CAN BE DISMISSED.BUT,WE FIND THAT THE FAA HAS HELD THAT TR ANSACTION WAS WITH THE SM.WE DO NOT KNOW WHETHER ASSESSEE HAD HIRED ANY OTHER PREMISES BESID ES THE SG.ON A SPECIFIC QUERY BY THE BENCH,AR ADMITTED THAT NO APPLICATION U/S.154 OF TH E ACT WAS FILED BY THE ASSESSEE BEFORE THE FAA FOR RECTIFYING THE MISTAKE IN THE NAMES OF THE STUDIOS.CONSIDERING THE PECULIAR FACT OF THE CASE WE ARE RESTORING BACK THE MATTER TO THE FILE O F THE FAA FOR FRESH ADJUDICATION AFTER HEARING THE ASSESSEE.GROUND OF APPEAL FILED BY THE AO IS ALLOWE D FOR STATISTICAL PURPOSES. 4. NEXT GROUND OF APPEAL DEALS WITH DELETING THE ADDIT ION OF RS.2,09,24,075/-MADE ON ACCOUNT OF SERVICE TAX(ST).FROM THE RECONCILIATION OF RECEIPTS AS PER TDS CERTIFICATES WITH P&L A/C. SUBMITTED BY THE ASSESSEE,AO FOUND THAT THERE WAS S HORT CREDIT OF RECEIPT TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD ST TO THE TUNE OF RS.2,09,24 ,075/-.HE FURTHER FOUND THAT THE ASSESSEE HAD DEBITED RS.1.42 CRORES TO ITS P&L ACCOUNT FOR ST.HE HELD THAT THE ASSESSEE WAS ROUTING THE ST THROUGH P&L ACCOUNT, THAT IT SHOULD HAVE DEBITED AN D CREDITED THE P&L ACCOUNT WITH REGARD TO THE ST,THAT THE ASSESSEE HAD ONLY DEBITED THE AMOUNT OF ST PAID TO THE P&L ACCOUNT,THAT IT DID NOT CREDIT THE RECEIPT,THAT THE P&L ACCOUNT REMAINED UN DER CREDITED BY RS.2.09 CRORES.FINALLY,HE MADE AN ADDITION OF RS.2.09 CRORES TO THE INCOME OF THE ASSESSEE. 4.1. DURING THE APPELLATE PROCEEDINGS,FAA CALLED FOR THE REMAND REPORT FROM THE AO.FAA FOUND THAT THE REMAND REPORT WAS SILENT ON THE FACT WHETH ER ASSESSEE HAD ACTUALLY DEBITED THE SERVICE TAX IN THE P&L ACCOUNT,THAT AOS REPORT WAS INCOMELETE, THAT ASSESSEE HAD MADE PAYMENT OF ST AFTER THE END OF THE YEAR UNDER APPEAL,THAT IT HAD FURNIS HED THE SAID INFORMATION IN THE AUDIT REPORT,THAT THE P&L ACCOUNT DID NOT REFLECT ANY PAYMENT OF SERV ICE TAX OR ANY DEBIT OF ST,THAT THE OBSERVATION OF THE AO THAT THE ASSESSEE WAS ROUTING ST THROUGH THE P&L ACCOUNT WAS NOT BASED ON FACTS. 4.2. BEFORE US,DR SUBMITTED THAT THE ASSESSEE HAD NOT RO UTED ALL THE ST ENTRIES THROUGH P&L A/C., THAT IT HAD ONLY DEBITED THE ST ENTRIES AND DID NOT MAKE ANY CREDIT ENTRY.AR SUBMITTED THAT THE ASSESSEE DID NOT PASS ST THROUGH PROFIT AND LOSS AC COUNT,THAT IN THE TAX AUDIT REPORT SAID FACT WAS CLEARLY MENTIONED,THAT THAT THE ENTIRE AMOUNT OF RS .2.09 CRORES WAS CREDITED TO ST LIABILITY IN THE BALANCE SHEET,THAT ASSESSEE HAD RECEIVED RS.1.42 CR ORES TILL 31.04.2007 AND SAME WAS DEPOSITED IN THE MONTH OF APRIL,2008,THAT ASSESSEE HAD NOT RECEI VED RS.65.19 LAKHS TILL 31.03.2007,THAT THE ASSESSEE WAS NOT LIABLE TO PAY THE SAME BEFORE THE END OF THE FINANCIAL YEAR,THAT NO DISALLOWANCE COULD BE MADE U/S.43B OF THE ACT.HE REFERRED TO THE PAGE 11 OF THE PAPER BOOK IN HIS SUPPORT. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.AFTER GOING THROUGH THE P&L ACCOUNT AND THE BALANCE SHEET OF THE ASSESS EE WE FIND THAT THE ASSESSEE WAS NOT ROUTING 6 ITA NOS. 985, 1097, 1127 & 1128 MUM 2011 SHOBHANA D ESAI PRODUCTION P. LTD. . THE TRANSACTIONS OF ST THROUGH THE P&L A/C. AND THA T IT WAS DEALING WITH ST ONLY IN THE BALACE SHEET.FAA HAS GIVE A FINDING OF FACT THAT THE BASIS FOR MAKING ADDITION WAS INCORRECT.WE AGREE WITH HER OBSERVATION AND ARE OF THE OPINION THAT HE R ORDER DOES NOT SUFFER FROM ANY LEGAL INFIRMITY. SO, CONFIRMING THE ORDER OF THE FAA,WE DECIDE GROUN D NO.2 AGAINST THE AO. APPEAL FILED BY THE AO STANDS PARTLY ALLOWED. 1127/MUM/2011-AY.2006-07 5. EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOWANCE OF CASH EXPENSES OF RS.14.39 LAKHS ON ESTIMATE BASIS.DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT AN ACTION U/S.133A OF THE ACT WAS CARRIED OUT THE BUSINESS PREMISES OF THE ASSESS EE WAS CARRIED OUT ON 01/08/2008 ,THAT MEMBERS OF THE SURVEY PARTY HAD FOUND THAT THE ASSE SSEE HAD INCURRED HEAVY CASH EXPENDITURE.HE CALLED FOR DETAILS IN THIS REGARD.REJECTING THE CLA IM MADE BY IT,AO HELD THAT THE EXPLANATION OF THE ASSESSEE-COMPANY WAS NOT ACCEPTABLE,THAT THERE WAS NO EVIDENCE TO PROVE THAT THE PARTIES HAD INSISTED ON PAYMENT IN CASH AND THAT THEY HAD EXPRE SSED UNWILLINGNESS TO RENDER SERVICES OTHER - WISE,THAT ASSESSEE HAD SIMPLY SUBMITTED BREAK UP OF CASH EXPENSES AND NO FURTHER DETAILS WERE FURNISHED,THAT ASSESSEE HAD SIMPLY SUBMITTED BREAK UP OF CASH EXPENSES AND NO FURTHER DETAILS WERE FURNISHED,THAT IT WAS NOT DENIED THAT THE RECI PIENT PARTIES ALSO HAD BANK ACCOUNTS AND THE BANK TRANSACTIONS WOULD HAVE BEEN FAR MORE EXPEDIEN T AND CONVENIENT.FINALLY,HE ALLOWED 20% OF THE TOTAL EXPENSES AND DISALLOWED THE BALANCE 80% O F THE EXPENSES. 5.1. IN THE APPELLATE PROCEEDINGS FAA HELD THAT THE ASS ESSEE HAD CLAIMED DIRECT EXPENSES OF RS. 3,57,26,324/-,THAT THE ASSESSEE HAD CLAIMED CASH EX PENSE TO THE TUNE OF RS.71,99,877/-,THAT THAT A SURVEY ACTION WAS CARRIED OUT IN ASSESSEES PREMISE S ON WHEREIN DETAILS WITH REGARD TO HUGE CASH WITHDRAWALS WERE FOUND,THAT QUERY WAS PUT ACROSS TO THE ASSESSEE-COMPANY TO EXPLAIN SUCH HUGE CASH WITHDRAWALS AND CORRESPONDING EXPENSES,THAT IT HAD SUBMITTED THAT CASH EXPENSES WERE INDISPENSABLE IN THE TV SERIAL MAKING INDUSTRY AND FORMED PART OF REGULAR BUSINESS ACTIVITY, THAT THE AOS ORDER DID NOT INDICATE AS IF A SINGLE BILL OR VOUCHER PERTAINING TO CASH EXPENSES WAS CALLED FOR/VERIFIED,THAT ASSESSMENT ORDER DID NOT R EFLECT THAT THE AO HAD IDENTIFIED BILLS OR VOUCHERS OF CASH EXPENSES THAT COULD BE DISALLOWED, THAT AO DID NOT FIND THAT THE PARTIES DID NOT EXIST OR THAT THE BILLS/ VOUCHERS WERE BOGUS,THAT T HERE WAS NO VERIFICATION BY THE AO TO INDICATE AS TO WHETHER ANY PAYMENTS HAD BEEN MADE IN EXCESS OF SECTION 40A(3) OF THE ACT,THAT THE ASSESSEE HAD FURNISHED A DETAILED EXPLANATION.FAA FURTHER HE LD THAT THAT THE DETAILS OF CASH EXPENSES FILED INDICATED THAT A NUMBER OF THE EXPENSES WOULD BE ON THE BASIS OF CASH VOUCHERS ONLY WITHOUT ANY SUPPORTING BILL OR RECEIPT,THAT SUCH BILLS INCLUDE D VARIOUS PAYMENTS OF WAGES AND FOOD MADE BY ASSESSEE IN THE COURSE OF ITS PRODUCTION,THAT THERE WAS ALSO A POSSIBILITY OF EXPENSES BEING PERSONAL /NON-PROFESSIONAL IN NATURE TO BE INCLUDED THEREIN ,THAT THE ASSESSEE HAD CLAIMED A LARGE PROPORTION OF EXPENSES FOR PRODUCTION AS HAVING BEEN INCURRED IN CASH,THAT THE DISALLOWANCE OF 80% OF EXPENSES INCURRED IN CASH WAS VERY HIGH.FINALLY,SHE RESTRICTED IT TO 20% . 5.2. BEFORE US,AR SUBMITTED THAT THE NATURE OF THE ASSES SEES BUSINESS AND THE INDUSTRY IN WHICH THE ASSESSEE OPERATED WAS SUCH THAT IT HAD TO MAKE CASH PAYMENTS,THAT AO AND THE FAA FAILED TO APPRECIATE THE BUSINESS EXPEDIENCY FOR MAKING PAYME NT IN CASH,THAT THERE WAS NO CONTRAVENTION OF THE PROVISIONS OF THE ACT RELATING TO PAYMENTS OF E XPENSES IN CASH [SECTION 40(A)(3) READ WITH RULE 6(DD)]BY THE ASSESSEE,THAT INFORMATION CALLED FOR WAS SUBMITTED ALONG WITH FULL BREAK-UP OF CASH EXPENSES,THAT DATE WISE DETAILS OF HEADS OF E XPENSES AND AMOUNT OF EXPENSES INCURRED WAS FURNISHED BY THE ASSESSEE,THAT EXPENDITURE INCURRED WAS SUPPORTED BY PAYMENT VOUCHERS,THAT AFTER THE ASSESSEE SUBMITTED THE DETAILS NO FURTHER QUERY WAS RAISED,THAT THE BOOKS OF ACCOUNTS WERE NOT REJCTED,THAT IN THE EARLIER YEAR DISALLOWANCE OF 1% OF THE EXPENDITURE WAS MADE BY THE AO,WHILE PASSING THE ASSESSMENT ORDER U/S.143(3)OF THE ACT.H E REFERRED TO PAGES 56-57,94,239,257-262 OF THE PAPER BOOK(PB).DR SUBMITTED THAT THE ASSESSEE D ID NOT ESTABLISH THAT THE EXPENDITURE WAS NOT INCURRED FOR BUSINESS PURPOSES,THAT DISALLOWANCE SU STAINED BY THE FAA WAS QUITE REASONABLE. 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD CLAIMED CASH EXPENSE TO THE TUNE OF RS .71,99,877/-,THAT DURING THE SURVEY OPERATION DETAILS OF CASH EXPENSES WERE CALLED FOR BY THE MEM BERS OF THE TEAM,THAT LATER ON THE AO HAD 7 ITA NOS. 985, 1097, 1127 & 1128 MUM 2011 SHOBHANA D ESAI PRODUCTION P. LTD. . DIRECTED THE ASSESSEE TO FILE THE ENTIRE CASH EXPEN SE DETAILS OF EXPENSES ABOVE RS.2,000/-,ON 07. 11.2008.ON 19.11.2008 ASSESSEE FILED DETAILS LIKE D ATE WISE PAYMENT/PARTY WISE PAYMENT/HEAD WISE PAYMENT.IT MADE A REQUEST TO THE AO TO FIX A S UITABLE TIME WHEN THE PERSONNEL OF THE ASSESSEE-COMPANY COULD SHOW ALL THE RELEVANT VOUCHE RS FOR CROSS VERIFICATION.AS PER THE DIRECTIONS OF THE AO ASSESSEE FILED FURTHER INFORMATION ON 24. 11.2008.WE FIND THAT AO DID NOT FIX THE DATE FOR VERIFYING THE MATERIAL SUBMITTED BY THE ASSESSE E,THAT HIS ORDER ALSO DID NOT MENTION THE ENQUIRIES MADE BY HIM.IT IS NOT KNOWN AS HOW DID HE ARRIVE AT THE CONCLUSION THAT 80% OF THE EXPENDITURE COULD NOT BE ALLOWED.AS PER HIS DIRECTI ONS ASSESSEE HAD FURNISHED ALL THE NECESSARY DETAILS,BUT HE CHOOSE NOT TO EXAMINE THEM.AO.S ARE NOT SUPPOSED TO MAKE DISALLOWANCES WITHOUT ASSIGNING REASONS FOR REJECTING THE CLAIM MADE BY A N ASSESSEE.IT IS DUTY OF THE AO NOT TO MENTION AS TO WHY THE EXPLANATION OF THE ASSESSEE IS NOT AC CEPTABLE. WE FIND THAT IN HIS ORDER NO REASONS HAVE BEEN ASSIGNED FOR REJECTING THE CLAIM MADE BY THE COMPANY.FAA HAS CLEARLY MENTIONED THAT AO HAD NOT VERIFIED EVEN A SINGLE BILL OR VOUCHER T HAT COULD BE TREATED AS BOGUS.HE MADE A LUMP SUM ADDITION ON AD HOC BASIS.IN OUR VIEW,SUCH APPRO ACH HAS BEEN RIGHTLY REJECTED BY THE FAA. BUT,WHILE GRANTING RELIEF,FAA RESTRICTED THE DISALL OWANCE TO 20%.WE FIND THAT FAA HAS ALSO NOT IDENTIFIED THE BILLS/VOUCHERS THAT COULD BE DISALLO WED.FAA COULD HAVE DIRECTED THE AO TO FURNISH A REMAND REPORT IN THIS REGARD OR COULD HAVE DIRECT ED THE ASSESSEE TO FILED FURTHER DETAILS OF PAYMENTS OF WAGES AND FOOD.BUT,FAA CHOOSE NOT TAKE ANY OF THOSE STEPS AND HELD THAT THERE WAS POSSIBILITY OF EXPENSES BEING PERSONAL/ NON-PROFESS IONAL IN NATURE.WE ARE NOT INCLINED TO ENDORSE THE VIEW THAT IN THE MATTER OF A COMPANY THERE CAN BE ANY PERSONAL EXPENDITURE.IN ABSENCE OF ANY DETAIL WE ARE UNABLE TO UNDERSTAND AS WHICH EXPENDI TURE COULD BE TERMED AS NON-PROFESSIONAL EXPENDITURE.POSSIBILITY OF INCURRING OF EXPENDITURE CANNOT TAKE PLACE OF EVIDENCES AND TAX LIABILITY CANNOT BE FASTENED TO AN ASSESSEE ON THE BASIS OF S OME POSSIBILITY.THEREFORE,WE ARE NOT ABLE TO PERSUADE OURSELVES TO CONFIRM THE ORDER OF THE FAA. REVERSING THE ORDER OF THE FAA,WE DECIDE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSE E. APPEAL FILED BY THE ASSESSEE IS ALLOWED. 1128/MUM/2011-AY.2007-08: 6. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF RS. 25,35,098/-.DURING THE ASSESSMENT PROCEEDI - NGS,AO FOUND THAT ASSESSEE HAD INCURRED CASH EXPENS ES,UNDER DIFFERENT HEADS,AMOUNTING TO RS.1.86 CRORES.AO HELD THAT IN THE FIELD OF SERIAL AND FILM PRODUCTION CERTAIN AMOUNT OF CASH EXPENSES WERE INEVITABLE,THAT THE ASSESSEE-COMPANY HAD NOT PRODUCED VOUCHERS/ OTHER SUPPORTING DOCUMENTS,THAT THE ALLOWABILITY OF THE EXPENSES REM AINED QUESTIONABLE.FINALLY, HE DISALLOWED THE AMOUNT OF RS. 93.40 LACS U/S. 37(1) OF THE ACT. 6.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA,WHO CAL LED FOR A REMAND REPORT FROM THE AO. AFTER CONSIDERING THE REMAND REPORT AND THE SUBMISS IONS OF THE ASSESSEE FAA HELD THAT SUMMARY OF CASH EXPENSES AND UTILISATION THEREOF WERE SUBMI TTED NOT ONLY DURING SURVEY PROCEEDINGS BUT ALSO DURING THE COURSE OF HEARING IN YEAR 2008,THAT THE AO HAD MADE NO MENTION OF THE SURVEY PROCEEDINGS OR HEARING OF 2008 IN THE ASSESSMENT OR DER/REMAND PROCEEDINGS,THAT THE AO WAS NOT CORRECT IN STATING THAT ASSESSEE HAD NOT FILED DETA ILS, THAT BOOKS OF ACCOUNT VOUCHERS, BILLS AS ASKED BY THE AO WERE PRODUCED BY THE ASSESSEE DURING THE COURSE OF REMAND PROCEEDINGS, THAT THE VOUCHERS FOR THE MONTH OF MARCH 2007 WERE PRESENTED AND WERE VERIFIED BY THE AO, THAT REMAND REPORT DID NOT INDICATE ANY DISCREPANCY OF THE VOUC HERS,THAT IN THE REMAND REPORT HE DID NOT GIVE THE DETAILS OF THE BILLS/VOUCHERS THAT WERE NOT SUP PORTED BY PROPER DOCUMENTS.DURING THE APPELLATE PROCEEDINGS,FAA CARRIED OUT A SAMPLE TEST CHECK OF THE VOUCHERS FOR THE PERIOD 01.03.2007-10. 03.2007AND HELD THAT CLAIM OF THE AO THAT ALL VOUCH ERS WERE ONLY SELF-MADE WAS FACTUALLY INCORRECT.FAA FURTHER HELD THAT THE PAYMENTS PERTAI NING TO SET WORKERS WAGES (RS. 17.78 LACS), PAYMENT TO ART DIRECTOR/ARTISTS- SUBJECT TO TDS (RS . 22.83 LACS), DISALLOWANCE U/S. 40A(IA) (RS. 77083/-),CASH PAYMENT SUBJECT TO FBT (RS.27.1 LACS) SSALARY TO STAFF AND DIRECTORS (RS. 3.23 LACS), LOAN DISTRIBUTED TO STAFF(RS. 32,000/-) COULD NOT B E CONSIDERED FOR DISALLOWANCE.WITH REGARD TO BALANCE EXPENSES OF RS. 1.26 CRORES(77.90 LACS +48. 85 LACS),FAA HELD THAT EXPENDITURE INCLUDED 8 ITA NOS. 985, 1097, 1127 & 1128 MUM 2011 SHOBHANA D ESAI PRODUCTION P. LTD. . PAYMENT IN CASH WHICH WOULD INVARIABLY SUFFERED FRO M DEFECTS IN RESPECT OF VOUCHERS SELF-MADE. FINALLY,THE DISALLOWANCE UNDER THE HEAD CASH EXPENS ES WAS RESTRICTED TO 20% TO MEET THE ENDS OF JUSTICE. 6.2. BEFORE US,AR MADE THE SAID SUBMISSIONS WHICH WERE M ADE FOR THE EARLIER YEAR WITH REGARD TO THE CASH EXPENSES INCURRED BY THE ASSESSEE IN THAT YEAR.DR SUPPORTED THE ORDER OF THE FAA.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MA TERIAL BEFORE US.WE FIND THAT FAA HAD CARRIED OUT SAMPLE TEST CHECK OF THE BILLS/VOUCHERS AND HEL D THAT THERE WAS NO DEFECT IN THE BILLS PRODUCED BY THE ASSESSEE. IN OUR OPINION,ONCE SHE HAD TAKEN A STAND THAT BILLS/VOUCHERS WERE NOT SUFFERING FROM ANY DEFECT,SHE SHOULD NOT HAVE MADE PARTIAL DI SALLOWANCE.WHILE DECIDING THE APPEAL FOR THE AY 2006-07,WE HAVE DECIDED THE IDENTICAL ISSUE IN F AVOUR OF THE ASSESSEE,AT PARA 5.3.OF OUR ORDER.FOLLOWING THE SAME,WE ALLOW THE GROUND OF APP EAL NO.1 FILED BY THE ASSESSEE FOR THE YEAR UNDER APPEAL. 7. NEXT GROUND OF APPEAL IS ABOUT AD HOC DISALLOWANCE OF 20% OF WAGES(RS.17.78 LAKHS) AND CONVE -YANCE(RS.3.16 LAKHS) PAID TO THE SET WORKERS.DURIN G THE ASSESSMENT PROCEEDINGS, AO DISALLOWED THE EXPENDITURES INCURRED UNDER THE HEADS WAGES TO SET WORKERS AND CONVEYANCE.IN THE APPELLATE PROCEEDINGS,BEFORE THE FAA,ASSESSEE SUBMITTED THAT DETAILS OF CASH EXPENSES UNDER THE HEADS IN DISPUTE WERE PROVIDED AS FAR BACK AS 05.12. 2008 PU RSUANT TO THE SURVEY ACTION,THAT THE DISALLOWAN -CE MADE BY THE AO WAS ARBITRARY,THAT DAILY WORKERS WOULD COLLECT THEIR WAGES ON DAILY/WEEKLY BASIS,THAT AO HAD NOT GIVEN AN OPPORTUNITY IN THIS REGARD,THAT WORKER-WISE DETAILS HAD BEEN PROVIDED TO THE AO,THAT PAYMENTS WERE MADE TO MORE THAN 170 WORKERS,THAT THE AMOUNTS PAID BY THE ASSESSEE RANGED FROM LESS THAN RS.1,000 TO RS.2 0,000,THAT ONLY 9 WORKERS WERE PAID ABOVE RS. 20,000,THAT EXPENDITURE OF RS.86 LACS WAS INCURRED FOR THE COST OF MATERIAL,THAT SET WORKERS WERE PAID RS.17.78 LACS ONLY. 7.1. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE REMAND REPORT,FAA HELD THAT EVEN DURING THE REMAND PROCEEDINGS,NO ATTEMPT WAS MADE B Y THE AO TO IDENTIFY BILLS/VOUCHERS WHICH COULD NOT BE VERIFIED DUE TO NON-AVAILABILITY OF VO UCHERS/INCOMPLETE DETAILS, THAT HE HAD MADE A GENERAL OBSERVATIONS STATING THAT VOUCHERS PRODUCED WERE SELF-MADE AND COULD NOT BE VERIFIED, THAT THERE WAS MERIT IN ASSESSEES ARGUMENT THAT DISALLO WANCE ON ACCOUNT OF WAGES TO THE SET WORKERS WAS HIGHER THAN THE ACTUAL DEBIT FOR THE PURPOSE, T HAT IF THE PURCHASE OF SAID MATERIAL WAS NOT DISPUTED PAYMENT TO LABOURS SHOULD HAVE BEEN ACCEPT ED. FINALLY THE DISALLOWANCE OF WAGES TO SET WORKERS AND CONVEYANCE ALLOWANCE WAS RESTRICTED TO 20% OF THE EXPENDITURE INCURRED I.E.TO RS.4. 18 LAKHS. 7.2 . BEFORE US,AR SUBMITTED THAT AO HAD NOT STATED THE F ACTS PROPERLY EVEN DURING THE REMAND REPORT,THAT HE HAD MIXED THE COST OF MATERIAL AS WE LL AS THE PAYMENT MADE TO THE WORKERS FOR MAKING THE DISALLOWANCE,THAT HE DID NOT QUESTION TH E GENUINENESS OF THE MATERIAL PURCHASED BY THE ASSESSEE DURING REMAND PROCEEDINGS,THAT WITHOUT THE LABOURS CONSTRUCTION OF SET WAS NOT POSSIBLE,THAT FAA HAD NOT GIVEN ANY REASON FOR REST RICTING THE DISALLOWANCE TO 20%. DR SUPPORTED THE ORDER OF THE FAA. 7.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT AO HAS FOLLOWED A VERY STRANGE PATH DURING THE ASSESSMENT AS WELL AS REMAND PROCEEDINGS.FROM THE BOOKS OF ACCOUNTS,IT WAS CLEARED THAT ASSESSEE HAD CLAIME D EXPENDITURE OF RS. 17.78 LACS ONLY UNDER THE HEAD WAGES TO THE SET WORKERS.IF HE WANTED TO MAKE DISALLOWANCE,HE SHOULD HAVE RESTRICTED IT TO THE SAID AMOUNT ONLY.BUT,HE ADOPTED THE FIGURE OF R S.1.06 CRORES AND MADE A DISALLOWANCE DURING THE ASSESSMENT PROCEEDINGS.EVEN DURING THE REMAND P ROCEEDINGS, HE DID NOT VERIFY THE FACTS I.E.THE AMOUNT INVOLVE AND SUPPORTED THE EARLIER ORDER.IN O UR OPINION FAA WAS CORRECT IN HOLDING THAT DISALLOWANCE SHOULD NOT BE MADE FOR THE MATERIAL PU RCHASED.WE FIND THAT FAA HAS RESTRICTED THE DISALLOWANCE TO 20% OF WAGES AND CONVEYANCE EXPENDI TURE. BUT SHE HAS NOT GIVEN ANY REASON FOR SUSTAINING THE PARTIAL DISALLOWANCE.WE HAVE DISCUSS ED THE ISSUE OF DISALLOWANCE MADE/SUSTAINED 9 ITA NOS. 985, 1097, 1127 & 1128 MUM 2011 SHOBHANA D ESAI PRODUCTION P. LTD. . BY THE AO/FAA UNDER THE HEAD CASH EXPENSES AT LENGT H IN THE EARLIER PART OF OUR ORDER AND WE HAVE HELD THAT WITHOUT POINTING OUT THE MISTAKES IN THE BOOKS OF ACCOUNTS OR IN THE VOUCHERS/BILLS MAINTAINED BY THE ASSESSEE,NO ADDITION COULD BE MAD E UNDER ANY HEAD OF EXPENDITURE. AO HAD TWO OCCASIONS TO PASS A REASONED ORDER OR BRINGING THE RELEVANT FACTS ON RECORD. BUT, AS STATED EARLIER, HE DID NOT APPLY HIS MIND.AS FAA HAS NOT GIVEN ANY REASONS FOR UPHOLDING THE ORDER OF THE AO,IN PART,SO,WE ARE UNABLE TO CONFIRM HER ORDER.REVERSIN G THE ORDER OF THE FAA, WE DECIDE GROUND OF APPEAL NO.2 IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE AO FOR THE AY 2006 -07 AND 2007-08 STAND DISMISSED AND PARTLY ALLOWED RESPECTIVELY. APPEALS FILED BY THE ASSESSEE FOR BOTH THE AY.S ARE ALLOWED. . #3&.# / 4 !5 , 2 & . #3&.# / 4 !5 , 2 & . #3&.# / 4 !5 , 2 & . #3&.# / 4 !5 , 2 &. .. . . .. .2006 2006 2006 2006- -- -07 07 07 07 , $#3< , # => ? & , $#3< , # => ? & , $#3< , # => ? & , $#3< , # => ? &. .. . . .. . 2007 2007 2007 2007- -- -08 08 08 08 , &< , # => , &< , # => , &< , # => , &< , # =>. .. .&.# 4 !5 , 2 !1&A & &.# 4 !5 , 2 !1&A & &.# 4 !5 , 2 !1&A & &.# 4 !5 , 2 !1&A &. .. .'B , C < , # =D 'B , C < , # =D 'B , C < , # =D 'B , C < , # =D. .. . ORDER PRONOUNCED IN T HE OPEN COURT ON 26 TH MARCH,2014. !$ , 01' C E!& 26 , 201 4 1 , 2 F SD/- SD/- ( # $% / AMIT SHUKLA) ( / RAJENDRA) !' !' !' !' / JUDICIAL MEMBER !' !' !' !' /ACCOUNTANT MEMBER / MUMBAI, E!& /DATE: 26 . 03 . 2014. SK !$ !$ !$ !$ , ,, , *#G *#G *#G *#G HG'# HG'# HG'# HG'# / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / () 2. RESPONDENT / *+() 3. THE CONCERNED CIT(A)/ I J , 4. THE CONCERNED CIT / I J 5. DR H BENCH, ITAT, MUMBAI / GK2 *#& , . . . 6. GUARD FILE/ 2 L +G# +G# +G# +G# *# *#*# *# //TRUE COPY// !$& / BY ORDER, M / = DY./ASST. REGISTRAR , /ITAT, MUMBAI