TMI Blog2014 (2) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... t have pinpointed the discrepancies and omissions - Ad hoc disallowance cannot be resorted to in the absence of any specific discrepancy noted in the details submitted by the assessee – Relying upon the decision in National Industrial Corporation [2002 (8) TMI 93 - DELHI High Court] - The order of CIT(A) is upheld. Commission paid to managing director – Held that:- The Assessing Officer has made an ad hoc disallowance without appreciating the facts of the case that the turnover and profit of the company has been increased during the year - The payment has been made in accordance with Schedule-XIII of the Companies Act, 1956 and this payment has also been approved by the Board of Directors and shareholders of the company – The order of CIT(A) is upheld. Commission expenses – Held that:- The assessee has furnished complete details of expenses along with evidences - The Assessing Officer without making specific inquiry about the expenses made adhoc disallowance out of commission expenses - The Assessing Officer was free to examine further the commission agents to whom the payments were made by the assessee - The assessee has submitted explanation for making the payments which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n paid by banking channels - The assets had been found by the Chartered Engineer on the spot verification and the same was reported by him in his report dated 08.03.2001 - The suppliers of the machinery/equipments were well know like Tata Iron & Steel Co. etc. including Government organization BHEL - The lease rent paid on the assets in the subsequent years has never been disallowed by the revenue authorities nor the genuineness has been doubted - The lessors have confirmed having given the machinery on lease, the machinery was existed on the spot and being used - Decided against Revenue. Interest paid on utilization of funds for non-business purpose – Held that:- The CIT(A) has proved the genuineness of the lease rent paid, then the interest paid cannot be said to for non-business purpose – Decided against Revenue. Transactions with certain parties genuine or bogus – Held that:- Most of the payments made to these parties have been received back during the year, under consideration - The transactions relating to four parties shows there is a peak debit in the books of the assessee rather than the peak credit - There can be no addition on account of peak debit because it repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Rolling Mill Mining, and Crushing activities. The return of income was filed on 29.11.1996 declaring taxable income at Nil. The assessee has claimed carry forward depreciation allowance of Rs.57,68,88,192/- pertaining to Assessment Year 1994-95 and 1995-96 of Rs.29,62,98,768/- and Rs.28,05,89,429/-. The total turnover of the assessee during the year was more than Rs.670 crores and gross profit rate was 10.45% in comparison to 9.47% in the earlier years. 3. The grounds of appeal filed by the revenue read as under :- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs.1,22,73,504/- on account of preceding years expenses as the assessee was maintaining its accounts on mercantile system of accounting and the prior period expenses claimed were not allowable in the year under consideration. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs.50 lacs out of repair expenses without appreciating that the assessee could not establish the genuineness of these expenses and the department was already in appeal on this issue in the A.Y. 2001-02 which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of Rs.7,05,28,805/- out of expenses claimed on lease rent/lease management fees etc. following his order dated 22.09.2007 in assessee's case for the asstt. year 2001-02 which has not been accepted and the appeal filed by the department on the issue is pending before the ITA T for the asstt. year referred to above. 10. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs.8,55,60,070/-, Rs.18,05,500/- and Rs.8,64,400/- on account of lease rent, lease Management fee and lease rent of building respectively without appreciating that every year is independent and expenditure of each year is admissible on the facts and circumstances which did not warrant the allowance of above expenditure in the year under consideration. 11. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of interest out of interest claimed on account of utilisation of borrowed funds for non-business purposes by following his order passed in the assessee's case for the assessment year 2001-02 2002-03 which has not been accepted and the departmental appeal on the issue is pending befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the date of the transaction are liable to be taxed notwithstanding the fact that they are not actually received or deemed to be received under the Act. The profits earned and credited in the books of account constitute the basis of computation of income. This system postulates the existence of tax in so far as monies are due and payable by the parties to whom they are debited. For this proposition, the ld. DR relied on the decision of Hon'ble Supreme Court in the case of Keshav Mills Ltd. vs. CIT reported in 23 ITR 230 (SC). Ld. DR submitted that in the mercantile system of accounting, in order to determine the net income of an accounting period, the revenue and other income are matched with the cost of resources consumed (expenses). In this system, this matching is required to be done on accrual basis. He further submitted that under this matching system, revenue and income earned during an accounting period, irrespective of actual cash in flow is required to be compared with the expenses incurred during the same period, irrespective of actual outflow of cash. Ld. DR also relied on the decision of Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rashtra Cement, 213 ITR 523, the expenditure relating to prior period can only be allowed if the liability had accrued during the year. He further relied on the following judgments of ITAT :- (i) ITA NO.5708/Mum/2009 - Assessment Year-2004-05 M/s. Tipco Industries Ltd. Vs. The ACIT (ii) Haworth (India) P. Ltd. v. DCIT - 11 ITR (Trib) 757 (Del) Ld. DR also submitted that assessee has claimed net of the prior period income and expenses to the profit loss account. The assessee has not furnished the details of the following expenses claimed :- (a) Rs.7,52,000/- PTD Pithampura division - no evidence (ref : para 1 pg5-AO) (b) Sales tax:- could be penalties and not allowable (ref: para2 pg5-AO) (c) PTC Division Kashipur - Incomplete details for Rs.4310296 (ref: para 2 pg5-AO) (d) Most of the expenditure details not furnished - (ref: para 4 pg5-AO) (e) Even the claims detailed at pg3-4 of the asst order are general in nature - like that the statutory dues got settled, why no provision was made for bonus etc. Noagreement/order copy to show that the claims were finally settled during the year also furnished. Ld. DR further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has already offered the prior period of income for taxation in the earlier year. Therefore, by reducing the prior period expenses by that amount the assessee had done the right thing. With no imagination such prior period income can be added to prior period expenses disallowance. The Assessing Officer failed to understand how the income even though relating to earlier year offered to tax in the impugned Assessment Year can form the part of the total disallowance, income cannot be disallowed. Thus, the Assessing Officer s act was completely against the basis principles of accountancy. As per the Assessing Officer, the prior period expenses cannot be allowed in the said Assessment Year since the same is related to transactions entered into the earlier year. Following the matching concept in order to determine the net income of an accounting year, the revenue and other income are matched with the cost to find the correct income. The ld. AR further pleaded that the ld. DR relied on the judgment of Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd v. CIT, cited supra, wherein the Hon'ble Apex Court has held that there could be no computation of profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs as the bills in respect of these expenses were received during the year under consideration. In the note, it was explained that these amount of expenses were very small percentage of total expenses incurred by the assessee and if such expenses cannot be allowed in this year, then it shall be allowed in the respective years. The assessee filed details of these prior period expenses and the tax auditors also reported in his tax audit report in Form No. 3CD by giving the details of the nature of these expenses. A bare perusal of the details, it can be found that expenses are business in nature and are allowable. It is also submitted by ld. AR that out of these expenses, Rs.96,57,170/-, prior period expenses debited in the books amounting to Rs.75,51,613/- were covered by section 43B of the Act where allowability is only on the basis of payment as these were statutory liabilities. With regard to setting aside the issue in Assessment Year 1994-95, the ld. AR submitted that the Assessing Officer has decided the issue in favour of the assessee by relying on various judgements of Hon'ble High Courts. Ld. AR also placed a copy of order of Assessment Year 1994-95 in the paper book. Ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country and there can be instances and cases, where bills for expenses are received at much later dated or beyond the financial year and expenses could not be booked when they are incurred. For such a situation, the decision of Hon'ble Bombay High Court in the case of Nagri Mills Co. Ltd. (supra) is also a guiding force while deciding this issue of prior period expenses. The expenses were incurred wholly and exclusively for the purpose of business. The bonafide and genuineness of expenses is not doubted. However, the Assessing Officer observed that the bills of the expenses were not furnished during the Assessment Year proceedings. We have perused the audit report and the letter dated 15.03.1999 which give the details of expenses. The expenses are of varying nature. These pertain to freight, repair, electricity, water, telephone, entry tax, sales tax, interest, discount, exgratia, bonus, advertisement, sale commission etc. Assessee claims that expenses to the tune of Rs.75,51,613/- were to be disallowed u/s 43B of the Act for the reason that these were not paid during the relevant period and these expenses can be allowed only on actual payments. Thus, these expenses in any case ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly dated 15.03.1999. The division-wise expenditure was submitted on 29.1.1999 and further detailed break-up of repairs and maintenance of plant and machinery and others was submitted. The assessee has also informed the Assessing Officer that entire details were filed as required by him, therefore, no such disallowance was called for. The ld. AR submitted that these expenditure were at various cites, branches and division of the company all across the country. During the year under consideration, there was a substantial enhancement in the production capacity of various divisions. The details of repairs and maintenance running into 80 pages were filed during the course of assessment proceedings. The Assessing Officer did not pinpoint any defect or discrepancies in these details. The Assessing Officer has also not doubted the genuineness of expenditure. The ad hoc disallowance by making a guess work is not as per law. Ld. AR relied on the following decisions :- (a) Glorious Hospitality (P.) Ltd. v. Dept. of ACIT, ITA No.2124/De1/2012 (b) ITO v. Ethno Financial Research (P) Ltd (2010) 36 SOT 207 (Del) (c) Dy. CIT v. Mrs. Irene D'Souza (2006) 6 SOT 86 (Bang) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT (A) on this issue. 13. In the ground no.3, the issue involved is deleting the addition of Rs.1 lac out of MD s commission. 14. While pleading on behalf of the revenue, the ld. DR submitted that the CIT (A) deleted the addition merely by a non-speaking order showing a complete non-application of mind and must, therefore, be set aside and he relied on the order of the Assessing Officer. 15. On the other hand, ld. DR submitted that assessment has paid Rs.2.5 lacs as remuneration to the whole time Managing Director of the company. The Assessing Officer made ad hoc disallowance of Rs.1 lac therefrom. The total turnover of the company was more than Rs.617 crores in comparison to Rs.466 crores in the earlier year. The profit before tax was increased from Rs.44.16 crores to Rs.64.52 crores. The remuneration paid to the Managing Director was in accordance with the Schedule-XIII of the Companies Act, 1956. This payment of remuneration has been approved by the Board of Directors and shareholders of the company, therefore, ad hoc disallowance was not justified which the CIT (A) has rightly deleted. The ld. AR also relied on the judgment of Hon'ble Delhi High Court in the case of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sc. expenses claimed at Rs.2.37 crores debited by the assessee. 22. While pleading on behalf of the revenue, the ld. DR submitted that the ad hoc disallowance of Rs.5 lacs was made when item-wise details of expenses and relevant bills of major expenses were not furnished. The assessee has tried to justify the increase in the net profit and misc. expenses and some disallowances made suo-moto by the assessee. The assessee s pleadings are mis-placed and untenable. The Assessing Officer is under an obligation to examine the details and nature of any expenses before allowing it u/s 37 of the Act. He submitted that as held by the Hon'ble Allahabad High Court in the case of Rotomac Globals (P.) Ltd. reported in 320 ITR 66 (All.), the disallowance is warranted the moment the expenditure is not proved to be for business purpose; it may be for personal purpose or otherwise; sometimes where everything is produced before AO, ad hoc disallowance has been deleted; but the principle that personal or more appropriately non business expenditure are to be disallowed even in case of a corporate assessee. He also relied on the followings case laws where the ad hoc disallowance has been upheld :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995-96 in ITA No.2978/Del/2000 dated 13.12.2005. The ld. AR has submitted that assessee has himself disallowed Rs. 4,04,777/- as charity and donation and Rs. 3,70,968/- as entertainment expenses in the computation of income. Finally, ld. AR relied on the order of the CIT (A). 24. We have heard both the sides on the issue. We find that assessee has himself disallowed some expenditure which is not allowable. The Assessing Officer relied on the disallowance made in Assessment Year 1995-96 which has been finally deleted by the ITAT while deciding the ITA No.2978/Del/2000 dated 13.12.2005. The Assessing Officer has not pinpointed any specific defects in the details nor has he further asked any details in this regard, therefore, we find no defects in the order of CIT (A). Accordingly, we sustain the same. This ground of revenue s appeal is dismissed. 25. Ground No.6 is against deleting the addition of Rs.50 lacs out of commission expenses debited of Rs.1,47,34,764/-. 26. While pleading on behalf of the revenue, the ld. DR relied on the order of the Assessing Officer and also on the case laws which are being discussed below. The ld. DR submitted that expenditure should not be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turers vs. CIT, cited supra. In applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the income-tax department. He also submitted that mere agreement is not enough and could not be a substitute for the evidence whether real services have been rendered to earn commission. He also submitted that when expenditure is legal then only it can be allowed. He also submitted that burden of proof is on the taxpayer that a particular allowance is justifiable and in absence of any such evidence the finding of the Assessing Officer must be accepted. The burden of proof is on the assessee to claim a deduction and to bring all material facts on record to substantiate its claim. He submitted that mere payment cannot be entitled for deduction of an expenditure unless it is proved to be claimed for commercial considerations and the onus lies on the assessee as held by Hon'ble Gauhati High Court in the case of Assam Pesticides Agro Chemicals vs. CIT 227 ITR 846 (Gau.). He also relied on the broad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and deduction claimed by the assessee was not allowed. 27. On the other hand, the ld. AR submitted that the CIT DR has cited a large number of decisions for the proposition that even though there may be an agreement for making a payment yet the Assessing Officer can go beyond the agreement and take into consideration all relevant factors to enquire whether the amount is paid fulfills the conditions as per the requirement of section 37(1) of the Act. It is open to the Tribunal to come to the conclusion that the alleged payment is not real or that it is not incurred by the assessee in the character of a trader or it is not made out wholly and exclusively for the purpose of business. He submitted that the enough and not be a substitute for the evidence and the burden of proof to establish the claim of expenditure lies on the assessee. Ld. AR submitted that the assessee submitted partywise details of commission, copy of agreement with commission agents, PAN etc. vide its letter dated 15.03.1999. The commission to the agents was paid for services taken for booking of sale orders of sponge iron, steel ingot or heavy structure. The commission agents also help in collection of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were made for the work carried out by the agents for the smooth running of the business of the assessee. In view of these facts, we find no fault in the order of the CIT (A) and we sustain the same. This ground of revenue s appeal is dismissed. 29. In the ground no.7, the issue raised is against deleting the disallowance of depreciation of Rs.4.23 crores and Rs.42.5 lacs claimed respectively on machinery and wind electric generators by admitting additional evidence in the shape of a certificate from Tamil Nadu Electricity Board. Assessee claimed 100% depreciation on 5 wind generators show as purchased prior to 30.09.1995 from M/s. Airo Energy Ltd. of Rs.83,00,000/- each and cost of foundation and erection of Rs.8,55,788/- the same was disallowed treating purchase of these wind generators as non-genuine. Further, 50% depreciation disallowed on the six wind generators claimed by assessee which was purchased after 30.09.1995 from the same company. Assessing Officer treated the purchase of these as non-genuine. CIT (A) granted relief to assessee. 30. While pleading on behalf of revenue ld. DR submitted that admitting of additional evidence by the ld. CIT (A) in the shape of cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a sum of Rs. 44,49,31,239/-. Out of these, five were purchased from M/s Airo Energy Ltd and installed prior to 30.09.1995. The total cost including installation was Rs.4,23,55,785/-. One wind electric generator was purchased from M/s Airo Energy Ltd. for a sum of Rs.85 lacs and was installed after 30.09.1995 at the site which has been certified by Tamil Nadu Electricity Board (TNEC) and the power generated has been sold to TNEC. The TNEC has confirmed the installation and functioning of each of the 45 generators and the installation certificates were also filed before the Assessing Officer vide letter dated 19.03.1999 which is placed at page 718 of the paper book. The department s claim that confirmation/certificate of TNEC constitutes additional evidence since it was filed for the first time before CIT(A) is not correct. The confirmations were made available to the Assessing Officer itself which is confirmed by letter dated 19.03.1999, therefore, the CIT (A) was justified in deleting the addition. 32. We have heard both the sides on the issue. This issue has been discussed by the Assessing Officer in para 17.1 and 17.2 at pages 15 16 of Assessing Officer s order. The CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries Pvt. Ltd v. ACIT (1999) 63 TIJ 165 (Chd) (TM) (iii) Balaji Textiles Industries (P) Ltd. v, ITO (1994) 49 ITD 177 (Bom) (iv) Upper India Trading Ltd in I.T.A. No. 694/BOM/89 dated 04.08.1993 We also hold that the revenue s allegation that the firm from whom the machines were purchased were non-existent but the facts show that the wind electric generators were installed at the premises of TNEB which has been confirmed by the TNEB which is a Government Undertaking. The certificate submitted by the assessee from TNEB remains uncontroverted. The Assessing Officer could have verified the veracity of the certificate issued by TNEB if he was having any doubt regarding the supplier M/s. Airo Energy Ltd.. Merely not finding M/s. Airo Energy Ltd. that too without summoning the same at the premises cannot be made a basis to draw the conclusion that firm was non-existent. As it is not possible to ensure that the company will continue at the same premises in the coming time. Assessee requested for issuing summons to supply M/s Airo Energy Ltd which was not accepted by the Assessing Officer. Therefore, the evidence in the form of certificate from TNEB assumes a credence an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aryana High Court in the case of DCIT vs. Adinath Industries (supra) is very relevant and where the Hon'ble High Court has held as under :- "Details about purchase were furnished. Transactions were through a broker whose bill was produced. All details from the stage of receipt to production were produced. For further verification assessee produced gate pass. Avak Chithi (receipt note) and weight note. Assessee produced laboratory report and sample report. It pointed out the difference paid or recovered in view of reports. Assessee produced RG 4 Form to show that details entered as per Excise Rules. Assessee pointed out the production and purchase of raw materials. Assessee submitted that details about the transaction, truck number, etc. Thus, assessee produced relevant materials to show purchase of materials and its use in production. AD has accepted the existence of G in case of A for asst. yr. 1985-86. The Tribunal appreciated all these facts in arriving at a conclusion. It clearly appears that matter has been disposed of on appreciation of evidence and when the matter has been decided by the Tribunal on appreciation of evidence, it cannot be said that, that raises a quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is true that there is no concept of ad hoc disallowance of depreciation in the Act except that of section 34. But it is nonetheless imperative to note that depreciation is calculated on the WDV which is related to cost and when Assessing Officer doubts the genuineness of purchase and thus the expenses in this regard, the depreciation has to be disallowed for that reason. The disallowance of depreciation in Assessment Year 1995-96 by Assessing Officer was as per direction of CIT(A) to take a decision on the basis of submission of bills etc. The issue there was limited to absence of details and not genuineness of the transaction as such. He pleaded that the matter can be given a fresh look in the above context and for substantial justice in the matter. 36. On the other hand, the ld. AR submitted that the assessee furnished complete details of purchases made of Rs.49.68 crores. Out of this amount, wind electric generators comprised of Rs.44,49,31,239/-, the assessee purchased continue pusher type furnace at Stainless Steel Division at Bharuch, Gujarat and complete details were filed before the Assessing Officer vide letter dated 19.03.1999. In such a situation, the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been disallowed by the AO in any other assessment years. The ground of appeal no. 17 is allowed. This issue has been dealt by the Assessing Officer in para 18 at pages 17 to 19 of his order and CIT (A) has dealt this issue at paras 15 16 at pages 33 to 36 of his order. 39. While dealing with the grounds no.9 10, the ld. DR made common pleadings as the Assessing Officer as were as CIT (A) had also dealt these issues in the same paras. The ld. DR submitted that disputes relate to lease rent, lease management fee and least rent relating to various machineries taken by the assessee. Ld. DR relied on the order of Assessing Officer and submitted that assessee has not filed details of lease rents and Assessing Officer disallowed the same as per para 18 of his order. He further submitted that one such transaction is buying of machinery from a non existent concern, M/s. Sahib Engg Works, which has allegedly sold the machinery to the assessee which in turn has sold it to M/s Reliance Capital Ltd which in turn has leased it to assessee. The investigation established that M/s Sahib Engg Works is a bogus concern. M/s. Reliance Capital who is the owner has surrendered the depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the transport details of such machineries were not given. He stated that apparently the transaction appears genuine while a decision to be taken by CIT (A) on merits. But the crucial finding on which this observation of the Assessing Officer is based that the parties were not involved in the lease transactions for the Assessment Year 1993-94 and the addition was made for want of information in this regard. That itself shows that the finding for this year could not be applied mechanically. The ld. DR also submitted that as per para 8.5 of ITAT order for Assessment Year 1993- 94, the CIT (A) completely relied on such comments of Assessing Officer. Further there was an observation by ITAT that none of the concerns proved bogus has nothing to do with lease rent. Hon'ble Punjab Haryana High Court in its order held that since these are questions of fact, no substantial question of law arises. Even if two views were possible, the Hon'ble High Court would not disturb the findings. He submitted that the order of the Hon'ble High Court related to penalty proceedings as such and not quantum proceedings and hence not strictly applicable to assessee s case in this year. Ld. DR submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imha Reddy Ors. in Civil Appeal Nos. 6656 6657 of 2010 order dated 16th August, 2010 wherein the Hon'ble Apex court held that dishonesty should not be permitted to bear the fruit and benefit to the persons who played fraud or made misrepresentation and in such circumstances the Courts should not perpetuate the fraud. He also submitted that an act of fraud on court should also be viewed seriously. A collusion or conspiracy with a view to deprive the rights of the others in relation to a property would render the transaction void ab initio. Fraud and deception are synonymous. Although in a given case a deception may not amount to fraud, fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata. The fraud is proved when it is shown that a false representation has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly and carelessly whether it be true or false. Suppression of a material document would also amount to a fraud. He further submitted that avoidance of tax by ingenuine methods have to be dealt in strictly and to see further t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... although he may take into account the opinion of the Assessing Officer, it could not be a mechanical basis for a decision. Thus the whole thing needs a relook at the level of CIT (A) and hence the matter be set aside for this purpose. 40. While pleading on behalf of the assessee the ld. AR submitted that the revenue has disallowed the claim of the assessee of lease rent/ management fee of Rs.7,05,28,805/- on the basis that five parties, namely, M/s. Sahib Engineering Works, M/s. Ashish Engg. Works, M/s A.S. Mechanical Works, M/s A.S. Forgings and M/s Pioneer Engg Works, Gobindgarh, were non existent and the assessee has not been able to produce these parties despite numerous requests. The other allegation of the revenue was that all the machineries purchased by the lessers from these parties were installed at Champa, Chattisgarh and a survey u/s 133A was carried out at the business premises of the assessee at Champa for Assessment Year 1995-96 and the chartered engineer could not identify the machinery claimed to have been installed there. The lease rent claimed on the machinery purchased in the earlier years also disallowed. A few items were purchased during the period relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany by certain concerns namely (i) Sahib Engineering Works, Ludhiana (ii) A.S. Fordging Mandi Gobindgarh (iii) A. S. Mechanical Works (iv) Ashish Engineering Works and Pioneer Engineering Works, who were either no existence or concern having" no expertise and means to manufacture sophisticated machinery sold to leasing company. The assessee id not file the complete information as required by the A, O. during the course of assessment proceedings particularly the full name address and identity of the suppliers of the machinery invoice No. and date of sale etc. It was, however, been claimed that no such supplier as mentioned above in respect of which inquiries were made by the DIT(Inv), Ludhiana and have been round to be non-existence or have no expense or means to manufacture such sophisticated machinery is involved in the transaction of tease rental paid during the period relevant to asstt. Year 1993-94. But in the absence of complete information, it was not possible for the A.O, to see as to whether the assessee company has entered or not into any transaction with the above five bogus/non existent concerns or not. So, keeping in view of the above facts and also the non cooperati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the ratio of the decisions relied upon by the ld. DR is not applicable as the existence of the machinery is proved beyond doubt and the lease rent is paid by account payee cheques. He submitted that ld. CIT DR s contention that transaction was a fraud has no basis. When the machinery is in existence then how it can be said to be a fraud. Ld. AR submitted to sustain the order of CIT (A). 41. We have considered the rival contentions and the case laws relied up in view of the facts on record. The lease rent is being paid largely in respect of assets which have been in existence for the last 2-3 years. The lease rent has been allowed by the ITAT, Delhi in respect of Assessment Years 1993-94 and 1995-96 by holding that the assets were in existence as per the spot verification report dated 08.03.2001 of the chartered engineer appointed by the Income-tax Department. These decisions of the Tribunal have been approved by the Hon'ble jurisdictional Punjab Haryana High Court. Therefore, the lease rent paid is in respect of the assets purchased in the earlier years also deserve to be allowed in this year also. Besides this, we find that on the spot verification report, the\ D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipments paid to the same parties. On this account also, the approach of the Assessing Officer was inconsistent. He further submitted that assessee submitted that complete details of the lease rent along with lease agreement. These machines were purchased from well-known supplier like M/s Tata Iron Steel Co. Ltd, Flact India Ltd, Vestas RRB (I) Ltd, Daslagarway Wind Turbine Ltd, Ganon Dunkerley Co. Ltd., Bharat Heavy Electricals Ltd, Control Switch Gear Ltd, Crompton Greaves Ltd, Flender Mach. Gear Ltd, Inductotherm India Ltd, Sayaji Iron Steel Co. Ltd., Atlas Copco India Ltd., Electrotherm India Ltd etc. Therefore, the CIT (A) is completely justified in deleting such baseless disallowance and he pleaded to sustain the order of the CIT (A). 43. We have heard both the sides on this issue. We have also perused the details submitted. The total lease rent debited by the assessee for the year was Rs.15,87,58,775, out of which Rs.7,05,28,805/- was separately disallowed which we have considered while deciding ground no.9 of revenue s appeal in the preceding paras and we have upheld the order of CIT (A) for deleting the same. In this ground, the disallowance is of remaining lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the payment of lease rent raised in ground no.9, therefore, we find that there is no justification in disallowing the ad hoc amount of interest of Rs.2 crores from the interest debited in the books of account. Therefore, we sustain the order of CIT (A) for deleting this addition. This ground of revenue s appeal is dismissed. 48. In the ground no.12, the issue raised is against the deletion of lump sum addition of Rs.20 crores made by the Assessing Officer. The Assessing Officer made this ad hoc addition of R.20 crores by holding that transactions with five parties, namely, M/s. Sahib Engineering Works, M/s. Ashish Engg. Works, M/s A.S. Mechanical Works, M/s A.S. Forgings and M/s Pioneer Engg Works, Gobindgarh were not properly recorded and the method of accounting adopted by the assessee was not correct. The Assessing Officer observed in his order that huge amounts were paid by account payee cheques to M/s Pioneer Engg. Works, one of the five bogus parties and sales were also made to them. Assessing Officer also observed similar transactions were entered into with M/s Ashish Engg. Works as well. The Assessing Officer also observed that no particulars of sales made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the same manner and the very introducers in all cases lack credibility who were never produced either. He also relied on the notings of Assessing Officer with regard to the 3 parties whose method and manner of opening of accounts, manner of purchase from assessee and manner of opening accounts at Shivaji Marg Branch to make payments, non-production of introducers and transport details etc have not been commented upon by the assessee in any manner nor given the consideration these deserve by CIT(A). Such relevant materials could not have been dismissed as of no import rendering the decision of CIT(A) unsustainable, relying on Omar SalayMdSait 37 ITR 151 (SC), Dhirajlal Giridharilal 26 ITR 736{ SC), Daulatmal Rawatmull 87 ITR 349( SC) etc. He pleaded that the arguments now adduced in synopsis page 31 point 5 are misplaced. No addition has been made for such addition. The AO on page 22 refers to a different concern and different account and held also that this account belongs to assessee. The debit transaction referred to is for the purpose of showing the transactions other than pure and simple business transactions. He pleaded that similarly at point 4 page 30 of synopsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount were never rejected and no show cause was issued prior to such rejection. The ld. AR relied on this proposition that no estimation is permissible without rejection of the books of account. For this proposition, ld. AR relied on the following decisions :- (a) DCIT vs. Mewar Textiles Mills Ltd - (1999) 105 Taxman 199 (JP) (Mag) (b) CIT vs. Padamchand Ramgopal (1970) 76 ITR 719 (SC) (c) CIT vs. Maharaja Shree Umed Mills Ltd (1991) 192 ITR 565 (Raj) (d) Chiranji Lal Steel Rolling Mills vs. CIT (1972) 84 ITR 222 (P H) (e) Central Provinces Manganese Ore Co. Ltd vs. ITO - 191 ITR 662 Ld. AR further submitted that the Assessing Officer is not clear under what sections such ad hoc addition was made. The Assessing Officer has already disallowed lease rent in respect of the assets purchased by the lessors from the five parties then how this further addition can be made. There is no evidence of unexplained investment out of books and therefore there is no question of any addition under section 69 of the Act. Payments to all these five parties were made by account payee cheques. Similarly no addition can be made under section 68 of the Act as asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bit in the books of the assessee rather than the peak credit. In our considered view, there can be no addition on account of peak debit because it represents amount advanced through books of account to a particular party. How the advance made to the parties through account payee cheques from the books of account of the assessee can be added as income of the assessee. The addition u/s 68 of the Act deals with the peak credit. The credit in the accounts represents the advance during the year under consideration. The ITAT also dealt such issue in assessee s own case for the Assessment Year 1993-94 wherein the ITAT has held as under :- "On perusal of the copy of the account of M/s Sahib Engineering Works in the books of the assessee at page-102, we find that the AO has added total debit on account of sales up to 24th September 1992 totaling to Rs.1,48,74,249/-; These are debits in the books of the assessee and the AO has not made any addition on account of the amounts purportedly received from Bank Account NO.448 of M/s. Sahib Engineering Works. What is added as income is the amount of peak debit being value of goods sold by the assessee to M/s Sahib Engineering Works rather tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the staff welfare and sales promotion expenses. 54. This issue has been dealt by the Assessing Officer in para 5 at page 6 of his order. In computation of the income, the assessee himself has disallowed Rs.1,80,484/- u/s 37(2)(a) of the Income-tax Act, 1961 out of Rs.3,70,967/- shown towards the entertainment expenditure. The Assessing Officer found that assessee has debited Rs.67,83,464/- under the head staff welfare expenses and Rs.2,66,113/- under the head sales promotion expenses in the books of account for the year under consideration. Assessing Officer noticed that expenditure debited in the books under these heads was on account of the cost of foods, sweets and also entertainment expenses of the guests of the company and auditors. Some expenditure was also towards the donations given for the marriage. The Assessing Officer reached at a conclusion that it is not established that entire expenditure has been incurred on the welfare of the staff. Following the past history of the assessments of assessee, the Assessing Officer disallowed 10% of the total expenditure treating towards entertainment not admissible u/s 37(2) of the Act. This disallowance was also for want of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer in para 9 at page 7 of his order and the CIT (A) confirmed the same while dealing ground no.8 at page 10 of his order. This disallowance of Rs.57,115/- being 20% of Rs.2,85,584/- paid in cash otherwise then by account payee cheques/drafts. The ld. AR submitted that this expenditure was covered by the exemptions in Rule 6DD(h) of Income-tax Rules, 1962. The details of this expenditure is as under :- Head of account Particulars Amount Staff recruiting Paid to SWAIN Notice Pay 15990 Medical reimbursement Paid to H.P. Singh 11110 LTA Paid to D.P. Singh 23250 Medical Reimbursement Paid to N.K. Bhomia 10500 Gilcon Nirman Co. P. Ltd. Cash paid at. R.A. Bill 19540 - do - Cash paid against bill as advance 19540 - do- - do- 14665 - do- - do- 18160 - do- - do- 18850 Q.N. Construction - do- 20000 - do- - do- 19600 Total 210735 59. After going through the nature of the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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