TMI Blog2019 (12) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... ent evidences justifying the diversion of the sale to the petrol pump owners. Indeed, the notices remained un-served but that cannot be conclusive evidence in the given facts and circumstances that the sales have been diverted. As such, if the sales had not been made to the concerned parties, then the onus shifts on the Revenue to prove based on cogent materials that the sales was made to the petrol pump owners/other industries. We also find that there was no mention of any petrol pump owner/other industry to which the sale was made. Even, there was not issued any notice to the petrol pump owners. There was no information available from the authorities below that the assessee or its directors have made some unaccounted investments or has incurred some expenditure outside the books of accounts. The income of the assessee can be determined based on assets or the expenditure. There is no information about any undisclosed investments or unexplained expenditure. Thus, even if the real income theory test is applied in the case on hand, we note that the revenue has not brought anything on record about the investment made by the assessee/its directors or there was incurred any expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith respect to such unaccounted transaction. It is undoubtedly a business transaction. Hon ble Gujarat High Court in the case of CIT vs. President Industries . [ 1999 (4) TMI 8 - GUJARAT HIGH COURT] has directed to make the addition only to the extent of gross profit. Addition of the gross profit to the total income of the assessee on account of such purchases will meet the end of justice. However, in the case on hand, we note that the assessee has already been alleged by the district supply department to have made sales at a higher price by diverting to the petrol pump owners/for non-industrial use as discussed in the ground No. 1. The matter is still pending before the competent court of law. Therefore we are of the view that, it will be difficult to find out the exact amount/date of gross profit embedded in such transaction of unaccounted purchase. However, to put a full stop on the ongoing dispute, we feel that an addition to the extent of 25% of such unaccounted purchases will meet the end of justice. In view of the above, we direct the AO to make the addition of the amount being 25% of such unaccounted purchases Addition on account of preoperative expenses u/s 35D - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 43B - HELD THAT:- The impugned issue is covered in favour of the assessee by the order of Bombay High Court in the case of CIT v. Nagri Mills Co. Ltd. [ 1957 (9) TMI 30 - BOMBAY HIGH COURT] - there is no ambiguity that such expenses were incurred for the purpose of the business. Therefore in our considered view, applying the principles of Bombay High Court as discussed above, we set aside the order of the Ld. CIT(A) and direct the AO to delete the addition made by him - ITA Nos. 1003 to 1005/Ahd/2004, ITA Nos. 1065 to 1067/Ahd/2004 - - - Dated:- 24-10-2019 - SHRI P. P. BHATT AND SHRI WASEEM AHMED, JJ. Appellant by : Shri Sanjay R. Shah, A.R. Respondent by : Shri Ramesh Chandra Danday, CIT-D.R. ORDER SHRI WASEEM AHMED, J. These are six appeals filed by the assessee and Revenue against the separate orders of the Ld. Commissioner of Income Tax (Appeals)-I, Baroda, dated 28.01.2004 for the Assessment Years (AYs) 1998-99 to 2000-01. 2. First we take up assessee s appeal bearing ITA No.1003/AHD/2004 for the A.Y. 1998-99. The assessee has raised the following concise grounds o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant s Managing Director. Your appellant submits that the same were for business purpose and hence additions confirmed be deleted. 7. The learned CIT(A) erred in confirming disallowance of ₹ 18,376/- in respect of Diwali, office and staff welfare expenses. It is submitted that it be so held now and additions confirmed be deleted. 8. The learned A.O. as well as CIT(A) erred in confirming charging of interest u/s. 234B and 234C of the Act. 3. The 1st issue raised by the assessee in ground numbers. 1 to 3 is that the Ld. CIT-A erred in confirming the addition in part amounting to ₹ 16,19,419.00 only representing the sale price higher than the price recorded in the books on account of unaccounted sale to the petrol pump owners/other industries and after rejecting the books of accounts. 4. The same issue was also raised in the AYs 1999-2000 and 2000-01, therefore we have clubbed all of them for the sake of brevity, convenience and adjudication. 5. The facts as culled out from the order of the authorities below are that the assessee in the present case is a limited company and engaged in the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As all the documents were seized by the sales tax department, the district supply team collected the necessary details from the Sales tax office about the parties to whom the assessee claimed to have sold the goods. The district supply team accordingly to verify the genuineness of the parties to whom the assessee sold the goods visited to the business premises of one of the party of the assessee namely, Parshwa Industries on 01-03-2000 located at plot No. F/93, Ricco Industrial Estate, Swaroop Gang, Tal Pindwara, Distt. Sirohi, Rajasthan. But the team did not find any factory in existence at the given address. However, the owner of Parshwa Industries namely Shri Gopal Bhai Shah admitted in his statement dated 7th march 2000 that it used to purchase the products from the assessee. But later on, Shri Gopal Bhai Shah in his statement dated 22 March 2000 changed his stand and admitted that it used to provide bogus entries to the assessee on commission basis at the rate of ₹ 0.40 per liter through the involvement of Shri Manoj Nayak a person close to the director of the assessee company. There was also a raid at the residence of Shri Manoj Nayak dated 8th of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r industries in the manner as discussed above. The assessee was doing so in order to achieve high profit margin. As such the impugned products used to be mixed with the petrol by the petrol pump owners. Accordingly, the AO to verify the veracity of the sales made by the assessee issued notices under section 133(6) of the Act to all the parties to whom the assessee claimed to have sold the products. However, all such notices except one remained unserved with the remarks not existing/available at the given address . One of the party, namely Prime Chemicals has replied vide letter dated 16-03-2001 that it was engaged in bogus transaction with the assessee against the commission income of ₹ 0.50 per litre. The AO also observed that there was substantial reduction in the manufacturing expenses incurred by the assessee in the year under consideration viz a viz in the immediate preceding assessment year despite the fact the turnover for the current year has become double. The assessee in the immediate preceding assessment year has claimed expenses for electricity power and fuel at ₹ 8,29,372.00 against the turnover of ₹ 2,05,45,425.00 whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Sale Price @ ₹ 24 per liter ₹ 27,64,55,040/- Less: Sales shown by the assessee ₹ 10,46,85,702/- ₹ 17,17,69,338/- For the A.Y. 2000-01 Total quantity of the product sold : (13762155 x ₹ 24) ₹ 33,02,91,720/- Less: Sales shown by the assessee ₹ 11,77,32,609/- ₹ 21,25,59,111/- In view of the above, the AO made the addition of the amount stated above in the different assessment years to the total income of the assessee. 8. The aggrieved assessee preferred an appeal to the Ld. CIT(A). 9. The assessee before the Ld. CIT(A) submitted that the addition has been made by the AO after placing his reliance on the statement/ reply of the owner/proprietor of M/s Parshwa chemicals, prime chemicals, report of the district supply authority, tanker driver and the investigation carried out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further claimed that there was no opportunity extended to it for the confrontation/cross-examination with the statements of the parties involved as elaborated above. Nevertheless, none of the petrol pump owner was examined by the AO to whom the assessee was alleged to have diverted its products at a higher price which was not recorded in the books in the guise of selling to the parties elaborated above/ recorded in its books. 14. The assessee further submitted that its sales policy was to deliver the goods to the buyer at its factory gate. Once, the buyer has taken the delivery from the assessee, the goods/products are not in its possession. Therefore, there is a possibility of misusing the products by the buyers for supplying the same to the petrol pump owners. Accordingly, the assessee cannot be penalized for the action of the buyers. 15. The assessee also submitted that the parties namely M/s Parshwa chemicals, prime chemical have not stated that the assessee was engaged in supplying the products to the petrol pump owners/ other non-industries. 16. The assessee also claimed that it used to collect the licenses, affidavits/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It (the assessee) was involved in diverting the products only in respect of few parties in whose name it (assessee) has shown sale as interstate sale amounting to ₹ 14,11,006/- only. ii. Similarly, there was the mismatch in the tanker nos. shown in the invoice viz a viz report from the RTO with respect to the 16 sales invoices. However, it (the assessee) furnished the 5 certificate of RTO out of 17 that the vehicle no. mention on the bill was the tanker registered with RTO. 22. The assessee further submitted that as per the notice issued by the Magistrate, the offence was committed by the assessee during the FY 1999-2000 pertaining to AY 2000- 01. Accordingly, the AO, based on the action taken by the district administrative team, cannot make addition in earlier year/s. 23. The assessee also claimed that its products cannot be mixed/ substituted with the patrol as alleged by the AO. The assessee in support of his contention filed the certificates of various authorities before the Ld.CIT (A). 24. The assessee also submitted that its directors and its employees in any proceeding have nowhere admitted that it was supplying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denied having involvement in any illegal sale of solvent. Therefore, no comment on the allegation that the statements were deposed under threat or pressure from the parties as discussed above. 31. The Ld.CIT (A) after considering the remand report and the submission of the assessee observed certain facts as enumerated below: A. The assessee was engaged in diverting the sales of its product either to the petrol pump owners or other parties for the use of non-industrial purposes in the garb of selling to the parties for the use of industrial activity. The observation of the learned CIT (A) was based on the following: i. There was no industrial activity carried out by M/s Parshwa Industries as evident from the statement of the owner as well as the order of the District Magistrate. Moreover, there was a blank Bill book of M/s Parshwa Industries was found with a person related to the assessee. ii. There was no clearance report/clean chit furnished by the police authorities for the involvement of alleged transactions. iii. There were the statements recorded by the police authorities, district supply officers, drivers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 98-99 Name of the company Kilolitres Sale price shown (Rs.) 1. Prime Chemicals 165 1904012 2. Parshwa Inds. 121.60 1348769 Total 286.60 3252781 Sales Realisation calculated At ₹ 17 per litre 4872200 Sales Realisation as per books 3252781 The Difference to be taxed 1619419 A.Y. 99-2000 1. M/s. Aristo Adechem P. Ltd. 246 2395174 2. Parshwa Inds. 1492.66 14037494 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Their case is based purely on assumption when we read the complaint which is mentioned in following words you used to prepare false bills in the name of Parshwa Industries and above supply of solvent stated in bills was either used for adulteration in petrol pumps or sold to other parties in Gujarat . No examination of any petrol pump owner. No evidence for the same except one statement of driver which too has not been cross examined for finding out its veracity. Therefore, it has evidential value. Without prejudice to above, no evidence about the price at which the said solvent could have been sold to the petrol pump owners. The entire exercise done by the learned AO as well as confirmed by CIT(A) is purely on the basis of hypothetical price which cannot be done. The assessee is this regard relies on several decisions attached at paper book No. 3. Amount involved in so called violation under essential commodities act mentioned in the complaint of Civil Supplies Authorities is only ₹ 14 Lakhs, whereas on that basis addition of crores of rupees is made in three years by extra polating the figures, which cannot be sustained in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold by the assessee. The GP percentage of assessment year 1 998-99 is better than the GP percentage of A.Y. 1997-98 (Assessment Order page 2, para 3). In A.Y. 1 997-98 there is no such allegations made nor addition made on account of suppression of sale. Since GP A.Y. 1998-99 is better than that of A.Y. 1997-98, such additions on the basis of hypothetical sale price cannot be sustained. 33. On the other hand the Ld. DR before us submitted that the assessee during the remand proceedings was granted the opportunity for the cross-examination. But the assessee failed to avail the same on the ground that its director namely Shri Jayesh Thakkar is outside India. As per the assessee Shri Jayesh Thakkar was the key person and therefore he was in a position to answer the questions of the Revenue. 34. The Ld. DR also alleged that the assessee did not approach to the AO for seeking any other date for the cross-examination as the key person was outside India during the relevant time. The Ld. DR in support of his contention drew attention on pages 205 where the copy of the remand report is placed. 35. The Ld. DR further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion with the assessee in the later statement. Thus it was concluded that Parshwa Industries was not engaged in any manufacturing activity. 39. The district supply team also recorded the statement of the parties involved with the assessee i.e. the director namely Jayesh Thakkar of the assessee company, the driver of the tanker, Manoj Nayak providing tankers to the assessee, confession of Shri Navin Gandhi a person related to the assessee that he is holding the blank bill book of Parshwa Industries. 40. The district supply department further noticed that the assessee has claimed to have sold its products to certain parties and delivered the goods to them through the tankers. But the district supply team on verification of those tankers registration numbers from the office of the RTO found that these were not actually tankers but they were the registration numbers of some other vehicles. The list of such parties along with Bill numbers date the product name with quantity bill amount, so-called tankers numbers mention in the bill and information obtained from the RTO are available on page 18 of the ld. CIT-A order. In view of the above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 1998-1999, 1999-2000 and 2000-01. III. Whether the assessee has diverted only solvent product to the petrol pump owners in the manner as given above or all the products. IV. Whether the assessee has diverted solvent product to the parties mentioned in the detention order of the district magistrate or all the parties to whom it had sold solvent products. V. Whether the assessee has diverted its solvent product to the petrol pump owners/other black markets at the rate of ₹24 per litre being the purchase price of the petrol pump. 44. Now we proceed to adjudicate the above question one by one as detailed under: Whether the assessee was engaged in the activity of diverting the sale of its products to the patrol pump owners/ for non-industrial use in the garb of supplying the products to the parties as discussed above. 45. In this regard we note that the entire thrust of the Revenue is that the assessee is charging higher amount of sale price over and above the price declared in the return of income based on the proceedings of district supply department which is pending in the court of law. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the outcome of the competent court where the matter is pending. 47. We also note that the Government is also intending not to prolong the disputes where it is the party as applicant. Therefore, it appears that the focus of the Government is to reduce pendency. In this regard, we also find that there is a recent circular issued by CBDT bearing No. 17 of 2019 dated 8-8-2019 where the appeal is pending before the ITAT involving tax effect of ₹50 lakhs or less has been withdrawn. The relevant extract of the circular stands as under: 2. As a step towards further management of litigation. it has been decided by the Board that monetary limits for filing of appeals in income-tax cases be enhanced further through amendment in Para 3 of the Circular mentioned above and accordingly. the table for monetary limits specified in Para 3 of the Circular shall read as follows: S.No. Appeals/SLPs in Income-tax matters Monetary Limit (Rs.) 1 Before Appellate Tribunal 50,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of solvent was found to have been sold to some parties in Gujarat or might have been sent to Petrol pump for adulteration in petrol was clearly proved and accordingly by an order No. SP Mfg./B/Case 2nd No. 97/97 Vashi/5414 to 2097 dt. 29.12.98 issued by D.S.O, Stock of Solvent Worth ₹ 42,293/- was seized. (page No. 301-313) (12) Your company was inspected on 18.11.97 by Gandhinagar Inspection team an in reference thereto the District Supply Office Vadodara by his order No. SP/ENFO/B/Case Register No. 15/97/Washi/5936 to 5940/98 dt. 25. .99 cancelled the Production and Wholesale Licence and the forfeiture of deposit of ₹ 25,000/- looking to the facts of the Case. Against this order you had gone in appeal before the collector Vadodara who by his order No. SP/ENFO/B/Appeal/17/98/Washi/3131 to 36. 51. Similarly, it was also noticed by the District Magistrate that the assessee was involved in similar activity in earlier year also. Further the search conducted in FY 1999- 2000 relates to the activity carried out by the assessee in the earlier years. Therefore, it appears that the assessee, if proved in the question no. 1 as above, was involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er there was any allegation specifically mentioning sale of naptha or other purchased items. the Assessing Officer during hearings clarified that there was no other evidence besides that already mentioned on record. 55. At the time of hearing, the above finding of the ld. CIT-A has not been controverted by the ld. DR for the Revenue. 56. We also note that the learned CIT (A) has clearly given a finding after analyzing the technical report furnished by the assessee that the only product solvent can only be used for mixing with the petrol. The other products are not capable of mixing with the patrols. The finding of the learned CIT (A) is extracted below: On the contrary, in all the allegations made, the word constantly used is solvent . Therefore, it has to presumed that out of all the products treated or manufactured by the appellant, it is the solvent item which are likely to have been sold to petrol pumps or other parties for non-industrial use. This is also verifiable from the chemical analysis of other items where the reports show that they cannot be mixed with the petrol. 57. The above finding has not been controve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduct from the assessee. Therefore, he excluded the name of such party. Accordingly, the Ld. CIT (A) restricted the addition with respect to only 5 parties. Now the issue arises whether there were involved all the parties to whom the assessee has alleged to have made the sales as recorded in the books of accounts or only 5 parties as discussed above. 60. Admittedly, the notices issued under section 133(6) of the Act, to whom the assessee claimed to have made sales, were remained un-served. These parties are 25 in numbers for the AY 1998-99. However, we note that out of such number of parties, the assessee had filed the confirmation with respect to 4 parties pertaining to the AY 1998-99 as detailed under: Sr. No. Party Name Amount 1. Sidimo Ineraux Pvt Ltd. 8,43,300/- 2. Mazad Chem 1,19,480/- 3. Arihant Petrochemicals 4,88,400/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the sales. 64. We also note that the main thrust of the AO was based on the inspection carried out by the district supply department wherein the name of 5 parties are recorded as discussed in the preceding paragraph. Thus in our considered view, the AO if the was to involve all the parties to whom the assessee has made sales, then he has to bring sufficient evidences justifying the diversion of the sale to the petrol pump owners. Indeed, the notices remained un-served but that cannot be conclusive evidence in the given facts and circumstances that the sales have been diverted. As such, if the sales had not been made to the concerned parties, then the onus shifts on the Revenue to prove based on cogent materials that the sales was made to the petrol pump owners/other industries. We also find that there was no mention of any petrol pump owner/other industry to which the sale was made. Even, there was not issued any notice to the petrol pump owners. Accordingly, we find no infirmity in the finding of the ld. CIT-A which has been reproduced in the preceding paragraph. Therefore it is clear that the matter for the diversion of sales of solvent is restric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of profit/sale price charged by the assessee from the petrol pump owners and other industries. Situation two: the assessee succeeds in its case before the competent court of law. 69. In case, the assessee succeeds before the competent court of law, then there will not be any question of making any addition to the total income of the assessee on account of diversion of sales to the patrol pump owners/other industries. Then it shall be inferred that the assessee has sold the goods to the parties at the price shown by it in the books of accounts. 70. Now coming to the issue on merit, we note that the allegation of the AO is that the assessee has sold the products at ₹24 per liter which was reduced by the learned CIT (A) to ₹17 per liter as discussed above. In this regard we note that there is no right/ conclusive evidence available with the Revenue suggesting that the assessee has sold its products at ₹17 per liter. There are certain circumstantial evidences suggesting that the assessee is involved in making fake sales bills to the parties, but there is no information about the price that the assessee has charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have made some unaccounted investments or has incurred some expenditure outside the books of accounts. The income of the assessee can be determined based on assets or the expenditure. There is no information about any undisclosed investments or unexplained expenditure. Thus, even if the real income theory test is applied in the case on hand, we note that the revenue has not brought anything on record about the investment made by the assessee/its directors or there was incurred any expenses by the assessee/its directors. 73. The AO in the assessment order recorded that the assessee might have incurred substantial expenses to sale the product to the petrol pump in this modus operandi of sale but these expenses are not recorded in the books of accounts. Therefore theses expenses were not allowable. The finding of the AO stands as under: it was also pointed out that in this type of business, substantial expenditure has to be incurred which is not accounted for in the books of accounts. However, as against these claims the assessee has failed to furnish any evidence, accordingly, the same stands rejected. 74. On perusal of the reasoning gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Chennai, Bangalore and Goa, to get the denial of solvent buyers, but not a single statement of petrol pump owners was recorded though indications were available to them. In the circumstances, the Assessing Officer was justified in adopting a reasonable price to estimate suppressed income. No comments can be made as to the allegation that the statements were deposed under threat or pressure. In fact, Shri Jayeoh Thakkar himself has denied of having involved himself in any illegal sale of solvent vide statement dated 21.3.2000 recorded by the District Civil Supplies Officer. The statements of various persons recorded by the Police/Civil Supplies Authorities are available and will be produced as and when desired by your kind Honour. As the matter is sub-judice, however, no comments regarding anticipated final outcome are being made in this regard. From the above remand report, we note that there was no exercise carried out by the revenue to arrive at the conclusion that the assessee has diverted its product to the petrol pump owners/other industries despite having the information in hand. As such the entire addition was based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistant Commissioner of Sales Tax with a direction to decide the same on merits. 4. The Assistant Commissioner of Sales Tax (Vadodara) then remanded case to Sales Tax Officer for further inquiry vide his orders dated 31.05.2003. 5. Thereafter, the Sales Tax Officer (Vadodara) satisfied with the case of M/s. Kavit did not pass any order and at present there are no demands outstanding for the above years from Sales Tax Department against M/s. Kavit. 6. Whatever is mentioned above is true and nothing but the truth and there are no salesjax liabilities outstanding against M/s Kavit for the above years out of the assessment orders and the consequential demands raised by the sales tax authorities. 7. The above Affidavit is field to put in proper perspective the status of the demands raised by the sales tax authorities for the above years against M/s Kavit. Solemnly affirmed on this 10th Day of April, 2019 at Baroda. The contents of the above affidavit have not been controverted by the learned DR appearing for the revenue. 78. We also note that the assessee before the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. 82. After considering the facts involved in the present case in totality, we are of the view that it was the question of fact before the revenue to find out that the assessee has diverted the sales to the petrol pump owners/other industries which is possible to decide on the basis of documentary evidence. But the revenue has not brought necessary tangible materials in support of his claim. Thus in our considered view, the addition made by the authorities below is not sustainable in the absence of sufficient documentary evidence. In this regard we find support and guidance from the judgment of Hon ble Gujarat High Court in the case of CIT versus MK brothers reported in 163 ITR 249 wherein it was held as under: 8. On a perusal of the order of the Tribunal it clearly appears that whether the said transactions were bogus or not was a question of fact. The Tribunal has also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns implicate vouchers to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86. Similarly, the assessee agrees with the transaction shown by it with the reliance industries but requested to furnish the copy of journal voucher. However the AO disagreed with the contention of the assessee by observing that it failed to reconcile the difference of the purchases with the confirmation received from the parties. The AO also observed that the assessee is already engaged in making/diverting it sales to the patrol pump owners/for non-industrial use at a higher price without recording the same in its books. Accordingly, the AO made the addition of ₹ 1,56,67,920/- after rejecting the books of accounts in the manner as detailed under: Net sale at the rate of ₹ 24/- per ltr. for unaccounted sales of 652.830 ltrs. ₹ 1,56,67,920/- Less: Purchase consideration as discussed above ₹ 64,74,065/- ₹ 91,93,835/- Add: Unaccounted investment as discussed above ₹ 64,74,065/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in response to the enquiries letters sent to it. The AO also submitted that even the version of the assessee is presumed correct, still there is the difference of ₹ 20,82,836/- with respect to the transactions with HPCL. 98. The AO regarding the purchases from the reliance industries Ltd submitted that the assessee failed to reconcile the purchases amounting to ₹ 2,85,748/- only. 99. The Ld. CIT (A) after considering the remand report and the submission of the assessee deleted the addition made by the AO in part by observing as under: 6.9 After going through the entire details submitted from both sides, I find that the appellant have been able to reconcile most of the differences except as per the figures mentioned by the Assessing Officer in his remand report. There is also some substance in the appellant s claim that there may be some cause for mistake entries or other mal practices in the concerned oil companies which were also highlighted in the press at the same time as the allegations against the appellant company. Taking into account all the factors discussed into consideration, I hold that firstly, this is no case for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a matter of right by department should not be accepted as fulfilling requirements for admission of additional ground. 2. On factual aspect of correctness of the addition made, learned A.O. in his remand report has already accepted that at the best addition could be sustained is for ₹ 23,68,584/-only for following two parties: Rs. i) HPCL 20,82,836 ii) Reliance Industries 2,85,748 Total ₹ 23,68,584 3. Even above addition of ₹ 23,68,584/- cannot be sustained as upto Asst. Year 1998-99 (before amendment in section 69C w.e.f. A.Y. 1999-00 by insertion of proviso) whatever addition is made u/s 69C will be allowed as deduction u/s 37 and net addition will be NIL. Assessee relies on following decisions which are also mentioned in CIT(A) order. a) S. F. Wadia v/s ITO 19 ITD 306 (Ahmedabad) b) Nishant Housing Dev. 52 ITD 103 (Patna) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rected to make the addition only to the extent of gross profit. The relevant extract of the order is reproduced as under: The amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represent the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that the investment by way of incurring cost in acquiring goods which have been sold has been made by the assessee and that has also not been disclosed, the question whether entire sum of undisclosed sales proceeds can be treated as income, answers by itself in the negative. In view of the above, we are of the view that the addition of the gross profit to the total income of the assessee on account of such purchases will meet the end of justice. However, in the case on hand, we note that the assessee has already been alleged by the district supply department to have made sales at a higher price by diverting to the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isregarded the contention of the assessee by observing as under: 8.2 I am not in agreement with the appellant on the above point. The issue of preliminary and preoperative expenses written of have already been dealt with in A.Y. 1996-97 and cannot be reconsidered now. The deduction as specified in that order have been correctly followed by the Assessing Officer, Hence, the disallowance of the excess claim is confirmed. However, the Assessing Officer is directed to take the figure, as finalized u/s 144 in the previous year s order dated 18.02.2002. 113. Being aggrieved by the order of the Ld.CIT (A), the assessee is in appeal before us. 114. The Ld. AR before us submitted that the preoperative expenses to the extent of ₹ 3,64,917/- was amortized over a period of 10 years by the AO in the assessment framed under section 143(3) of the Act for the assessment AY 1996- 97. Accordingly the Ld. AR for the assessee prayed for the deduction of such amount. 115. On the other hand the Ld. DR vehemently supported the order of the authorities below. 116. We have heard the rival contentions of both the parties and per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we grant the relief to the assessee to the extent of ₹ 3,64,917/- being the amount brought forward from the earlier year. Accordingly, we reject the claim of the assessee for the balance amount of ₹ 6,11,284/- only. Hence the ground of appeal of the assessee is allowed in part. 118. The issue raised by the assessee in ground No. 6 is that the Ld. CIT (A) erred in confirming the addition made by the AO for ₹ 1,67,606/- on account of foreign travelling expenses. 119. At the outset the Ld.AR for the assessee conceded that the impugned issue can be decided against the assessee. Therefore, we reject the ground of appeal of the assessee. Hence the ground of appeal of the assessee is dismissed. 120. The issue raised by the assessee in ground No. 7 is that the Ld. CIT (A) erred in confirming and expense of ₹ 18,376/- on account of personal expenses. 121. The assessee in the year under consideration has claimed certain expenses as detailed below: 1) Gift expenses 53,558/- 2) Diwali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty payable on finished goods should be included in the cost. The view is also accepted by the institution on C.As and as per instruction no. 1389 dated 24.3.1981 issued by the CBDT. The Hon. Supreme Court in the case of Mc. Dowell Co. Ltd. vs. CIT (154 ITR 146) has also opined that it is a part of manufacturing cost. iii) Deleting the addition made by the AO on account of bogus purchases amounting to ₹ 1,32,99,336/- 2. On the facts and circumstances of the case and in law the learned CIT(A) ought to have uphold the order passed by the Assessing Officer. 3. It is therefore, prayed that the order of the CIT(A) be set aside and that of Assessing Officer be restored. 129. The issue raised by the Revenue in ground No. 1 (a) has already been adjudicated along with the appeal of the assessee bearing ITA No. 1003/Ahd/2004 which we have decided in favour of the assessee. For the detailed discussion, please refer the relevant paragraph bearing number 37 to 82 of this order. Respectfully following the same we, the ground of appeal of the Revenue is dismissed. 130. The 2nd issue raised by the assessee in gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vourable to them. 139. We have heard the rival contentions of both the parties and perused the materials available on record. Indeed the provision of section 145A of the Act requires the assessee to include the amount of excise duty while valuing the closing stock of the finished goods as on 31st March 1998. However, the deduction for the same is allowed if such excise duty was paid by the assessee on or before filing the income tax return before the due date as specified under section 139(1) of the Act. The Ld. CIT(A) has given very clear finding that the amount of excise duty was paid on or before the due date of filing the income tax return. Thus in other words even the amount of excise duty not included in the value of closing stock, then also the assessee was entitled for the deduction of such payment of excise duty under the provisions of section 43B of the Act. Accordingly there was no impact on the taxable income of the assessee. Accordingly we do not find any reason to interfere in the order of the Ld. CIT (A). Hence the ground of appeal of the Revenue is dismissed. In the result, the appeal filed by the revenue is allowed in part. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll or any of the aforesaid grounds before this appeal is disposed off. 141. The 1st issue raised by the assessee is that the learned CIT (A) erred in confirming the addition made by the AO for ₹ 1,31,24,552.00. 142. The identical issue has already been decided by us in the appeal of the assessee bearing No. 1003/AHD/2004 pertaining to the assessment year 1998-99 vide paragraph number 37 to 82 of this order which we have decided in favour of the assessee. Respectfully following the same we allow the ground of appeal of the assessee. 143. The next issue raised by the assessee is that the Ld. CIT (A) erred in confirming the disallowance made by the AO for ₹ 73,447/- on account of prior period expenses. 144. The assessee in the year under consideration claimed certain prior period expenses related to salary, freight charges etc. However the AO was of the view that the assessee is maintaining its books of accounts based on mercantile system of accounting. Therefore the same cannot be allowed in the year under consideration. Therefore the AO added the same to the total income of the assessee. 145. Aggriev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under: 3. We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other. 150. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 2,76,95,907/- in respect of alleged sale of appellant s solvent products at the price higher than the one at which they are recorded in the books particularly when the same was only on the basis of the estimation and also as observed by the Learned CIT(A) herself is subject to recall/rectification based on the availability of further evidences. 2. The Learned CIT(A) erred in confirming and retaining addition of ₹ 2,76,95,907/- particularly when the order of District Magistrate implicating the appellant is challenged in further proceedings, whose outcome is yet not final and particularly when no petrol pump owner was ever examined by the AO to support his findings. 3. The learned CIT(A) erred in confirming and retaining addition of ₹ 2,76,95,907/- in respect of alleged sale of solvent products to petrol pump owners ignoring some vital facts and giving incorrect findings contrary to the evidences and facts. 4. The learned CIT(A) erred in law and on facts in upholding the disallowance of ₹ 2,61,942/- as prior year expenses. It is submitted that since the liability to pay this amount crystallized during the year an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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