TMI Blog2011 (10) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... utter disregard of the explanations rendered both during the appellate and assessment proceedings which is arbitrary unjustified. 3. That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding the addition of ₹ 46,120/- made u/s 40A(3) of the Act which is arbitrary unjustified. 4. That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding the charging of interest u/s 234B which is not chargeable in the instant case. 5. That the order of the Ld. Commissioner of Income Tax (Appeals) is erroneous, arbitrary, opposed to law and facts of the case and is, thus, untenable. 3. The issue in ground Nos. 1 and 2 is against the addition made u/s 68 of the Income Tax Act. 4. The brief facts of the case are that the assessee is engaged in the business of manufacturing of essential oil known as musk/attar, henna special. The industrial unit is established at Una. The assessee had started production on 30.5.2005 and assessment year 2006-07 was the first year in which deduction u/s 80IC was claimed. The Assessing Officer during the course of assessment proceedings relating to assessment year 2007-08 verified the claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... listic status in the trade circle of essential oil and perfumery compounds. The assessee admitted that as a policy it did not encourage or entertain over the counter sale due to difficulties involved in collecting the cash. However, due to extreme demand and to cater to various traders/end users, smaller retail quantity not exceeding 50 kgs. for sale were made across counter directly on cash basis. The assessee claimed to have manufactured synthetic essence PAN SHAMAMA for retail counter sale on test market basis and had sold 2.5 tons of the items at sale price of ₹ 12,000/- per kg. The said sale was made over the counter to buyers against cash and consequently no efforts were made to verify whether the addresses given by them were correct and complete. The goods were further sold to the buyers at Una, who had transported the same at their own cost. The reply of the assessee is incorporated under para 6.1 at pages 7 to 9 of the assessment order. Vide para 7 of the said letter it was stated by the assessee as under : We wish to state that we have stopped the counter sales for administrative reasons of collecting, counting, safe up keeping cash and for security reasons co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nuineness of sales. Stock record does not provide quantitative tally of raw material vis-vis production. It is a clear case of introduction of cash by the firm in the form of cash sales and credit to its books of account and transfer to the accounts of partners as cash withdrawals. The appellant has failed to discharge the ONUS to prove genuineness of cash sales amounting to ₹ 3.12 crores. Therefore, the addition of ₹ 3.12 crores u/s 68 is confirmed. The disallowance u/s 80IC has been rightly denied. As a result, these grounds are dismissed. 8. The assessee is in appeal against the order of the CIT (Appeals). The learned A.R. for the assessee pointed out that the total sales for the year were ₹ 95.28 crores and only sales of ₹ 3.12 crores during the year were made in cash. Further explanation of the assessee was that new product was tried in the market only in the month of September, 2006. It was further pointed out by the learned A.R. for the assessee that regular books of account have been maintained by the assessee which were not rejected by the Assessing Officer. Further the assessee claims to have maintained quantitative records of stock of raw mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC) ii) CIT Vs. Durga Prasad More, 82 ITR 540 (SC) iii) Prabhu Dayal Lallu Ram Vs. CIT, 277 ITR 537 (P H) 10. In rejoinder, the learned A.R. for the assessee pointed out that the additional income was offered in order to buy piece of mind. Strong objection was raised to the plea of the learned D.R. for the Revenue and it was pointed out that no evidence had been created by the assessee. Our attention was drawn to the finding placed at page 60 of the paper book in which the quantity of raw material purchased and issued is tabulated alongwith entries in the stock register. It was admitted by the learned A.R. for the assessee that the bills for cash sales were issued in seriatim number. 11. We have heard the rival contentions and perused the record. The assessee is engaged in the manufacturing of essential oil which in turn is utilized for perfumes, etc. The assessee firm has its office at JMJ House, 5th floor, Orchard Avenue, Hiranandani, Powai, Mumbai. The manufacturing unit is situated at Una, H.P. The assessee had started the manufacturing at Una unit on 30.5.2005 and had claimed deduction u/s 80IC of the Act for the first time in assessment year 2006-07. The profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing process. However, no quantitative details in respect of the raw material consumed and production thereof have been produced before us. The assessee has maintained stock register of the raw material purchased and copy of the same are placed alongwith photocopies of the purchase bills of the different items at pages 61 to 81 of the Paper Book. The first such account of raw material Comp J.M./B.2 in which the total purchases were of the quantity of 600 and on 22.7.2006 there was issue of 525 and on 30.8.2006 there is issue of 75. The second item is Comp J.M.E/5 and the copy of the stock register is placed at page 63 of the Paper Book in which quantity of 600 has been purchased against which items issued in July, 2006 were 512 and in August, 2006 were 88. Similarly, in respect of other raw materials the items have been purchased and issued by the assessee in either July or August, 2006 in totality and the stock is nil as on 30.8.2006. However, if we peruse the details of raw material used in the manufacturing of PAN SHAMAMA tabulated at page 68 of the Paper Book, we find that the assessee had tabulated quantity of 200 purchased on 10.7.2006 of Comp J.M./B.2, and against which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithdrawals by the respective persons have been made by way of cheques. 15. The assessee before us claims to have manufactured synthetic product known as PAN SHAMAMA. The total quantity of 2.5 tons of items for packing of 50 kg. were sold by way of sale over the counter to buyers against cash. The unit of the assessee is established in isolated area of Himachal Pradesh i.e. in Una. The assessee himself had admitted in its reply that as a policy over the counter sales were not encouraged or entertained by the assessee due to difficulty involved in handling of the cash. However, in the month of September, 2006, the assessee made cash sales totaling ₹ 3.12 crores. The cash sales as per the assessee were supported by sales invoices which were found to be wanting by the Assessing Officer as neither names nor complete addresses of the persons were available on the said sale invoices. The items manufactured by the assessee were not for general consumption. The said items have selected market and even the end users were selected. The Assessing Officer had show caused the assessee to prove the cash sales of ₹ 3.12 crores. The explanation of the assessee that the counter sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct on the aforesaid addition of ₹ 3.12 crores. Ground Nos.1 and 2 raised by the assessee are dismissed. 16. The issue in ground No.3 raised by the assessee is against the disallowance made u/s 40A(3) of the Act. The Assessing Officer had on examination of the books of account found that the payments totaling ₹ 2,30,600/- were made in cash exceeding ₹ 20,000/-. In view of the provisions of section 40A(3) of the Act 20% of such expenditure was held to be not allowable. Accordingly, the addition on this account was made to the total income of the assessee. The CIT (Appeals) upheld the order of the Assessing Officer. 17. The assessee is aggrieved by non-allowance of deduction u/s 80IC of on such addition to the income. The total addition made by the Assessing Officer was ₹ 46,120/-. The learned A.R. for the assessee pointed out that the said disallowance and its consequent addition to the income of the assessee is business income and the same is eligible for deduction u/s 80IC of the Act. 18. The learned D.R. for the Revenue stressed that the cash purchases made by the assessee attract the provisions of section 40A (3) of the Act. 19. We have heard t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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