TMI Blog1986 (7) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... ir enough to say that this ground is covered and his attempt is only to keep the issue alive. The ld. Sr. DR. Mr. R.K. Bali, on the other hand, submitted that consistently this Bench has been against the assessee on this issue. Undoubtedly, the consistent view of this Bench in general on Sur-tax liability and specifically in the assessee's own case for asst. yr. 1976-77 has been against the assessee. This ground as such is also rejected for the very same reasons given by us in our order pertaining to asst. yr. 1976-77. 4. Ground No. 3 pertains to the status of the assessee-appellant and the dispute raised was that it was a limited company in which public are substantially interested and no finding was given by the CIT (A), but at the time of hearing, the ld. counsel for the assessee did not seem to be serious about it and ultimately after brief discussion elected not to press the same. This ground as such is rejected. 5. Coming to ground No. 4 which is in respect of s. 80J relief, the ld. counsel for the assessee himself submitted that the issue having been laid at rest by the Supreme Court decision, this has become academic. This ground as such is hereby rejected. 6. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction under s. 37 is in a sum Rs. 6,96,872. The difference, therefore, of columns 2 and 4 is in a sum of Rs. 77,713 which has been disallowed by the ITO on account of foreign tour even as a deduction under s. 37. This addition was considered by the CIT(A) in para 18 at page 7 of his order. He allowed the same as deduction under s. 37 but held that the assessee is not entitled to weighted deduction. The Department in ground No. 7 of its appeal, referred to above, challenges the action of the CIT(A) in allowing the said sum of Rs. 77,713 under s. 37 whereas the assessee has come in appeal in respect of its claim of weighted deduction on the said amount. 7. The ld. Sr. D.R. in respect of the dispute pertaining to weighted deduction relied on the orders of the ITO and the CIT(A). He submitted that this was an expenditure of capital nature as the assessee had no exports to the countries in respect of which the said travelling expenditure pertained but they had gone to purchase a machine which they did not. In support of his contention, he submitted that since it was a capital expenditure, the same should not have been allowed as a deduction. Regarding the assessee's claim of weight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e substantially interested, the claim should be allowed for one and a half rather than one third times. 9. We have carefully considered the submissions made by both the parties and facts available on record. The expenses of Rs. 77,713 is clearly of revenue nature in the facts of the instant case. We, therefore, find no reason to interfere with the finding of the CIT (A) given in para 18 of his order on this issue. Since the assessee has asserted that no machinery was purchased from Italy therefore, question of capitalisation of the said expenses could not arise. However, we may observe here that in case the ITO has allowed depreciation and investment allowance on the same, as he has capitalised the said expenditure, the same would be withdrawn Regarding the assessee's claim for one and a half times, we have already rejected ground No. 3 raised by the assessee in its appeal having not been pressed and therefore, the claim of one and a half times against one-third times losses the very bottom. 10. Coming to the assessee's claim of weighted deduction under s. 35B on the said ground we are in agreement with the ld. counsel for the assessee that actual export is not a must for cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne, 1980, as is evident from (1980) 123 ITR (St) 32. This bill was passed by the legislature and it received the assent of the President of India on 21st Aug., 1980, as per (1980) 124 ITR (St) 64. The Finance (No. 2) Act, 1980, amended the provisions of s. 35B withdrawing the above mentioned clauses w.e.f. 1st April, 1981. It was accordingly argued that the 'previous year' of the assessee since ended on 31st March, 1980, therefore, as per common sense, natural justice and promissory estoppel, expenditure incurred upto 1st April, 1981 should be considered without amendment of the section. In the alternative, he submitted that even under the amended section, the assessee's claim would be admissible on samples and delegation expenditure. The said samples, according to him, were given either to exporters here in India or sent outside. Therefore, if was nothing but act of sales promotion. According to him, as per cl. (i) advertisement or publicity and delegation expenses were covered. The ld. Sr. DR on the other hand, relied on the order of the CIT (A) and submitted that specific provisions would always exclude the general clause. If the samples were previously covered under cl. (vi) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see fails on this ground also. 15. Coming to ground No. 8 which is in respect of deduction of Rs. 91,273 regarding sale promotion expenses under Fully Fashioned unit, this disallowance is dealt with by the ITO vide para 24 at page 17 of the assessment order. The expenses relate to pieces of crockery items. The ITO classified the same as advertisement expenses and hence disallowed. The assessee before the CIT (A) submitted that it was not for advertisement but for sale promotion. He dealt with issue in paras 26 to 28 at pages 9 and 10 of his order. The ld. counsel for the assessee submitted that these were pure and simple presentation on sale promotion. He said that these items were given to agents in appreciation of their sales efforts and they were required to distribute the same to sub-dealers or customers. It was absolutely their discretion. He drew our attention to the certificates obtained from the agents. He submitted that these were distributed purely in appreciation of agent's services and further promotion of sales. In the alternative, he submitted that even as advertisement expenses Rs. 58,960 plus Rs. 5,000 Rs. 63,960 vide page 17 of the ITO's order should at least be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y him. It was, therefore, argued that while M/s Gulabchand Ratanlal were selling goods to their customers, they were not acting on behalf of the Oswal Wollen Mills Ltd. He read out the letter and said that the same indicated that there was some confusion regarding sales-tax on palm oil. Most of the parties were selling palm oil in Bihar free of sales-tax but eventually the High Court held that sale of palm oil in Bihar was liable to sales-tax. M/s Gulabchand Retanlal to whom the goods were sent on consignment basis by the assessee-mill, were selling goods to their own customers under their own bills without charging any sales-tax. It was stressed that there was no privity of contract between the assessee mill and customers of M/s Gulabchand Ratanlal. When the High Court decision came, to sales-tax Department charged M/s Gulabchand Ratanlal to sales-tax in respect of their sales of palm oil to customers, on which they had not charged any sales-tax from the customers. It was pointed out that this was clearly the liability of M/s Gulabchand Ratanlal but as the assessee's credit balance of Rs. 24,033 was available with them, they adjusted the same and further demanded Rs. 9,963. All th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat since the money of the assessee was under control to the extent of 24,000 or so of M/s Gulabchand Ratanlal, the assessee did not want to spoil its relation with them, it was nothing but a business affairs as per which the said amount was usurped by M/s Gulabchand Ratanlal If it was pure and simple issue pertaining to Sales-tax liability, the assessee could not be made to suffer because it actually pertained to asst. yr. 1979-80, but here the sales-tax liability could not be that of the assessee. For no reason and rhyme virtually M/s Gulabchand Ratanlal usurped up the said amount because credit balance of the assessee was lying with them. Perusing the letter, it is apparent that the assessee suffered the loss during the year under consideration. The action of the CIT (A) is, therefore, reversed and the assessee succeeds on this ground. 20. Had we come to the conclusion that this was sales-tax liability in the light of cases relied upon by the ld. Sr. DR and the ld. counsel is for the assessee, the issue would have gone in favour of the Revenue because both the decisions in (1981) 24 CTR (P H) 244 : (1981) 132 ITR 457 (P H) and (1983) 35 CTR (P ) 130 : (1984) 147 ITR 238 (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 49,900 during the relevant accounting period. The balance of Rs. 53,896 remained outstanding on the last date of the accounting year. i.e. on 30th June, 1980. The assessee explained that in subsequent year ending 30th June, 1981, a sum of Rs. 65,664 was credited to miscellaneous income account. The ITO disallowed the whole sum of Rs. 1,03,796. The CIT (A) allowed Rs. 49,900 and disallowed Rs. 53,896, as above said. Both the assessee and the Revenue are in appeal, therefore, the assessee's contention was that merely because a liability was disputed, the assessee should not be disentitled from claiming it as deduction. The ld. counsel for the assessee submitted that s. 43B was introduced by the Finance Act, 1980. w.e.f. 1st April, 1984. This section specifically provided that. "(a) any sum payable by the assessee by way of tax or duty under any law. would not be allowed as a deduction unless the same has been paid. He argued that introduction of this section clearly shows that upto 1st April, 1984, Govt. de deduction or duty was allowable and deduction even if it was contested had hot been paid. This method of accounting was mercantile in the case of the assessee. He su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent on intercom telephones and of 10 per cent on fire-extinguishers. He, in other words, added WDV of these two items in a sum of Rs. 7,997. The CIT (A) confirmed the action of the ITO in para 48 at page 16 of his order. The ld. counsel for the assessee while disputing the same drew our attention to statement of facts. He reiterated that the three intercom telephones were in replacement and that is why the said expenses was available in the general repair account. Against 24 fire-extinguishers each costing Rs. 212, which were also replacement of the existing fire-extinguishers, there being no controversy about these facts, the ld. counsel for the assessee submitted that the said expense was, therefore, allowable as revenue expenditure. He drew our attention to the fact that even if fire-extinguisher were purchased new, total cost was allowed as deduction as, according to him life of fire-extinguisher is not more than a year. Since the expense is less than Rs. 720, according to him, so far fire-extinguisher concerned, it should have been allowed it is entirety The ld. Sr. DR. on the other hand, relied on the orders of the two lower authorities. 24. Considering the facts availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue expenditure, according to him. The distributors did not keep the list of of dealers/sub-dealers to whom they had passed on the wall-clocks. In the alternative, he submitted that these were 240 wall-clocks in all and even at the cost of Rs. 40 each, the assessee's claim was to be allowed for Rs. 12,000. The ld. Sr. DR relied on the orders of two lower authorities. We are unable to accept the contention of the ld. counsel for the assessee but are of the view that the assessee should get a relief of Rs. 12,000 total wall-clocks being 240 and price @ Rs. 50 each. In other words, we accept the alternative contention of the assessee. 27. Coming to ground No. 14 which is in respect of deduction of Rs. 10,105 on account of dinner to participants of Asian games and same employees of the company, its claim was rejected both by the ITO and the CIT (A). Before us, it was argued that the employees of the assessee also participated in the dinner. The facts given at item 21 (iii) of the statement of facts were relied upon. The ld. Sr. DR relied on the orders of the two lower authorities. We don't find any force in the contention of the assessee. The action of the ITO and the CIT (A) in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) who directed that investment allowance be allowed on humidifiers and exhaust fans which became part of the combing plant, subject to the assessee's fulfilling the conditions regarding investment allowance reserve etc. The assessee's claim of weighing scales and lab equipment was not allowed by the CIT (A). The assessee has claim investment allowance before us on items disallowed by the CIT (A) in ground No. 17 whereas the Revenue has disputed the action of the CIT (A) in respect of investment allowance allowed on humidifiers and exhaust fans as per ground No. 18 in the Revenue's appeal. We have carefully gone though the facts and perused the orders of the two lower authorities carefully. The action of the CIT (A) in para 55 at page 17 of his order does not call for any interference. Both the assessee and the Revenue in their respective grounds of appeals on this issue fail. 31. We may observe, before we part with the matter that without humidifiers and exhaust fans, the combing unit will be incomplete in its functioning. But so far weighing machine and lab equipment is concerned, it cannot be treated as part of the plant. Therefore, we have confirmed the action of the CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also, provided the assessee fulfills other conditions regarding creation of investment allowance reserve etc. 34. Ground No. 20 is again in respect of investment allowance on generators worth Rs. 1,54,990 and electrical machinery worth Rs. 23,742 in Export wing unit. The ITO has dealt with it in para 51 at page 35 of the assessment order whereas the CIT(A) has upheld his action in para 62 at page 20 of his order. The facts in the background and arguments of both the parties are identical as in respect of issue in ground No. 19, dealt with above. We hold for the very same reasons that electrical machinery installed in the Export wing unit had become part and parcel of the plant and was entitled to investment allowance. The assessee, therefore, also succeeds on this ground and the ITO is directed to allow the same, in case other conditions prescribed under the Act are fulfilled. 35. Next ground No. 21 is in respect of depreciation on wooden cabins erected in fully fashioned unit and double shift allowance. This issue is discussed by the ITO in para 26 page 20 of his order and while confirming the same, the CIT(A) upheld his finding in para 66 at page 21 of his order. Relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent unit. The CIT(A) rejected the claim of the assessee in para 74 at page 23 of his order Since the evidence was neither placed before the two lower authorities nor before us to controver the finding given by them, the assessee's claim is rejected. 40. In ground No. 26, the assessee's claim is regarding extra shift allowance, depreciation on new machinery installed in OWM Solvent unit and additional depreciation on the machinery. This claim of the assessee is dealt with by the CIT(A) in para 75 at page 23 of his order. The assessee's claim for ESA depreciation on the said machinery for full year is rejected. However, ESA depreciation on the said machinery is to be allowed for 105 days as on the additional depreciation also, in view of the Board's circular and for the reasons on the basis of which we have accepted the assessee's claim of ESA depreciation on additional machinery as agitated in Ground No. 31 by the assessee in its appeal. The ITO would look into the matter while giving effect to this order whether the assessee fulfills the condition laid down under s. 32(1)(iia), as he is directed to grant additional depreciation @ 1/2 per cent of normal depreciation on the machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee pointed out that the ITO has discussed this disallowance in para 54 at page 36 of the assessment order. The ld. counsel for the assessee submitted that the ITO should have looked into the fact the factory worked triple shift. The working of individual machinery is not relevant. Reliance was placed by him on the Board's circular. He reiterated that the Board's instructions are binding. The ld. Sr. departmental representative on the other hand, submitted that ESA claim is to be considered on each item individually. Therefore the assessee is obliged to prove to the satisfaction of the ITO that the entire machinery worked for the number of days. He submitted that the machinery was installed on the last day of the 'previous year'. Therefore, the assessee's claim was rightly rejected. We have considered the rival submissions and looked into the facts triple carefully. There is no controversy about the fact that main textile unit had worked tripe shift and the ITO had allowed depreciation at the rate applicable to triple shift working for the whole year. However, on said machinery the ITO has restricted the claim on the basis of number of days working. If we go carefully through A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue has contested the action of the CIT(A) who granted depreciation and investment allowance in respect of grain analyser. The assessee had claimed deduction at Rs. 2,06,165 under s. 35(i)(iv) in respect of grain analyser. It was contended that grain analyser was an apparatus with which the assessee was conducting research. In the alternative, the assessee had requested for depreciation of investment allowance on the same. The assessee's claim having been rejected under 35(1)(iv), its claim for depreciation and investment allowance was accepted. It is the later direction which is challenged by the Revenue. The ld. Sr. DR relied on the reason given by the ITO and has also mentioned that there was no proof that the grain analyser had been utilised. Accordingly, the action of the CIT(A) was sought to be reversed. The ld. counsel for the assessee submitted that the grain analyser was purchased to conduct research as to whether oil contents and contents of deoil extraction could be predicted. If it could be of great help to the unit as it would save considerable time and money is otherwise necessary for detailed chemical analysis. The apparatus was utilised in solvent plant, as has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the vendor and the assessee, its price was settled after the approval of the bank and payment was made to the bank through Court. The report of the valuation officer was explained to the suffering from many defects. In any case, it was mentioned that the said report was not sent by the ITO alongwith his letter dt. 30th Feb., 1984 nor there was any mention of the same in the said letter. Otherwise, the assessee should have explained the discrepancy, if any. He repeated off said argument from the side of assessee that valuation report could not be equated with sale price. There was no law which could grant a presumption to the ITO that purchase of the property was made by the assessee for a sum of Rs. 18,31,000 The proposition for which the Verghese's case was relied upon was, if there was no evidence for the payment received under table by the vendor, by then the Department could not charge the vendor, for any capital gains in respect of the alleged difference in the fair market value of the property and stated sale consideration. It was argued, if the vendor could not charge the difference, similarly there could not be any presumption that the vendors has paid anything more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of such presumption. In view of the above discussion and for the reasons given by the CIT(A) in his order we unhesitatingly come to the conclusion that there is no evidence on record to show that any unaccounted investment was made by the assessee in purchasing the factory building from M/s Pearl Mech. Engg. and Foundry Works P. Ltd. The addition of Rs. 8,26,000 was therefore, rightly ordered to be deleted by the ld. CIT(A). The revenue fails on this ground. 52. In ground No. 5, the Revenue has challenged s. 80J relief in respect of the refinery units and group No. 6 is an argument in support of the same. Both the ld. Sr. DR and the ld. counsel for the assessee relied on their respective arguments in respect of the assessee's appeals for 1978-79 and 1980-81 assessment years. The issue is concluded in favour of the assessee by our orders in the assessee's own case for those years. For the very same reasons, we uphold the decision of the CIT(A) and ground Nos. 5 and 6 are therefore, rejected. In other words, these are converted by our decisions in the assessee's own case for earlier years. 53. Coming to ground No. 7 which is in respect of foreign travelling expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ITO in para 25 at page 18 of the assessment order. However, difference charged by the ITO was a on reasonable basis. As per the ld. Sr. DR he did not value the semi-finished goods at Rs. 40 but instead adopted only Rs. 20 per piece, i.e. 50 per cent to what he did. This, according to the ld. Sr. DR was most reasonable and therefore, the action of the ITO was more than fair and covered all the possible objections of the assessee. The addition of this score was Rs. 2,27,447. Further the ITO found that the assessee was reducing 35—from the sale price of finished goods in order to arrive at the cost of the same for the purpose of valuing the closing stock. The ITO found that the gross profit of the assessee was 31.31 per cent. So it was obvious, according to the ld. Sr., DR that finished goods had been valued below the cost. The addition on this score made by the ITO was only of Rs. 87,015 which was most reasonable and justified. According to the ld. Sr. DR, total addition of Rs. 3,14,452 had been proved by the ITO as under valuation of closing stock and he added the same on the basis of three cases cited at page 20 of the assessment order. It was, therefore, argued that the del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of payment to outside labour for job work on finished goods. Thus the question of including the same while valuing the seminfinished goods could not arise and conclusion of the ITO was absolutely erroneous. It was also pointed out that dying charges included in the manufacturing expenses were not relevant because all the items in closing stock were of hosiery goods for which dyed yarn had been used. This yarn was transferred by other unit and was only dyed by this unit. Similarly, it was also argued that provident fund, ESI, bonus, leave with wages in respect of non machine operators could not be considered in valuing the stock of seminfinished goods. It was further submitted that the ITO was himself satisfied that his conclusion was not justified in accordance with the principle of cost because after arriving at a cost of Rs. 40 per piece he had for the purpose of determining the under valuation adopted only an amount of Rs. 20 per piece. The deletion, therefore, by the CIT(A) is in order. 57. Regarding finished goods, it was argued that it had also been consistent practice of the assessee, again on the advice of the auditors, to first adopt sale price of finished goods an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il and going through the fact available on record, we find that this is the first year in which method of accounting adopted by the assessee in this unit has been assailed specially regarding the closing stock. The uncontroverted facts are that the method adopted for valuing the semifinished goods is direct cost method, which is a recognised method. The same has been followed year after year by the assessee consistently at the instance of the auditors who were chartered accountants. The item of expenses relating to outside Labour of job work on finished goods could obviously not be included in the value of finished goods. The items of stores were not such which could only be used when pieces were finished. Such expenses could also not form part of cost of semi-finished goods. Hosiery items being manufactured from dyed yarn supplied by other units of the assessee, there is no justification in including the dying expenses in the costing of semi-finished goods. Again the consistent method of valuing the finished goods adopted by the auditors was justified and the value determined was not below the cost price. Explanation submitted by the assessee at pages 20 to 24 of the paperbook was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy was pointed out. In its letter dt. 2nd Dec., 1983, the assessee gave details of stock statement, increase in manufacturing expenses and other queries of the ITO were adequately replied to. Bank statements were also produced for the ITO's inspection. It was further pointed out that in its letter dt. 25th Feb., 1984, addresses of suppliers were given. In its another letter dt. 1st March, 1984, the assessee produced statement of the banks, quantity of oil purchased as well as loss incurred in refining and also supplied many other details demanded by the ITO. No discrepancy was even pointed out. The rate of g.p. was explained before the ITO as not being constant. According to the assessee, it varied from year to year and from assessee to assessee. It was argued that the sales had gone up by merely 250 per cent. Therefore, the ITO should not have doubted the shortfall in the percentage of profit. It was also explained that the shortage in the process of refining was within the norms allowed by the STC and prescribed by the experts. There was no occasion for the ITO, to doubt the shortage. It was also argued that regarding details of sales, the assessee had explained that it was very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A). As an matter of fact, this issue is covered to a great extent by our earlier order where in a case of this type where accounts have been subjected to Govt. scrutiny and no discrepancy has been found, the claim should not have been disturbed. Moreover, sales are improved and g.p. rate quite differs on more than one counts. Then it is trite law by now that ad hoc additions are not approved by the Courts. The ITO has not pointed out any defect in the books of account of the assessee except low g.p. rate. The shortage of refining was within the norms and should not have been doubted. The assessee has proved the purchases even from the three suspected suppliers by overwhelming evidence. The assessment orders of two find place on record. Pyarelal Sons had been accepted by the CIT(A) and by us as a genuine party in earlier years. The assessment order of M/s Pyarelal Sons, as above said, was on record. Similarly, the assessment order of M/s Arora Sales Corpn, was also on record. This party had received the summons but if he never cared for the same, the ball was in the ITO's Court and he should have exercised his powers for theirs presence, as power to enforce compliance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndry debitors ledger, sale-patti registers, cash book and stock registers along with purchases and sale vouchers were all produced and examined by the ITO. These books were maintained as required under the Excise Act as well as by VOP controller. The quantitative details prescribed by various returns were also produced for the ITO's examination/inspection. These were found to be in order, as no discrepancy was pointed out. It was further argued that quantitative details of oil purchases and issued to the plant for refining, were filed along with the assessee's letter dt. 13th March, 1984. The reason for increase of expenses regarding store consumed were explained to be that tins worth Rs. 21,22,042 were purchased on account of STC for their job work for which the company received Rs. 34,78,139 as job work charges. Total job work realisation from third parties were explained to be Rs. 47,22,279. Details of inter-unit transfer for Rs. 7,42,636 were also filed along with letter dt. 1st Dec., 1983. Details of packing and freight being very lengthy and of small items were shown to the ITO from the ledger and this fact was also confirmed by the assessee vide its letter dt. 1st Dec., 1983 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding of the ITO given in paras 45 to 47 at pages 29 to 32 of the assessment order. It was argued that since the purchases of one unit were entirely different from other unit, therefore, the ITO considered the result of both the units and in the addition made by him was in respect of both Oswal Solvent Unit, an OWM Solvent Unit. The yield of the assessee was much less than 15.61 Per cent which was considered normal and had been adopted by the Department in earlier years. Purchases from five parties mentioned in page 31 of the ITO's order was doubted and the assessee failed to prove these parties. Therefore, according to the ld. Sr. DR the ITO was justified in rejecting the books of account and making the addition of Rs. 50. Lakhs. The assessee, on the other hand, relied on the facts mentioned at item 18 at pages 11 to 13 of the statement of facts. He has also relied on our earlier orders in the assessee's own case for asst. yrs. 1976-77 onwards. The assessee also relied on order of the CIT (A) in para 42 at page 15 of his order. It was argued that regarding these two units against, cash books, ledgers, purchase books sale books stock registers of raw material, stock registers of RB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and which it had produced before the ITO who had examined the same but did not point out any defect. It was, therefore, argued that the assessee had discharged its burden to prove the purchases from all the five parties. Regarding yield from these two units it was argued that the same could not be doubted because no defect was pointed out in the books of account. By presuming the yield of oil from rice husk to be constant at 4 Per cent. it was argued that yield of RB oil from rice bran in OWM Solvent Unit would be 9 per cent and that of Oswal solvent Unit 10.51 per cent as per detailed chart filed. It was argued that the discrepancy mentioned by the ITO in para 47 was adequately explained. The sum of Rs. 1,28,303 debited in Oswal Solvent Unit to rice bran expenses account was regarding unloading of raw material worth Rs. 82,387. It was this amount which was transferred from OWM Solvent Unit and direct purchases as mentioned in para 47 of the ITO's order. Manufacturing and trading account of Oswal Solvent Unit showed direct purchases at 'nil. It was argued that details of transfer purchase amounting to Rs. 90,26,690 were filed under cover of the assessee letter dt. 20th Dec., 1983 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even assuming that the proviso was attracted the IT authorities not having determined any basis or manner of computation of the true income profits and gains of the assessee firm were not justified in arbitrarily adding Rs. 15,000 in round figure to the income of the assessee firm." Reliance was placed on the earlier decision of the Punjab High Court in the case of Pandit Bros. This too was under the old Act but their Lordships held, that in all cases under s. 13 there must be material before the ITO leading to the conclusion that the method employed is defective. According to this case, the ITO must discover evidence or material aliunde before he could give such a finding. The ITO should adopt the same method or basis for the addition. Ad hoc additions therefore, cannot be sustained it was rightly deleted by the ld. CIT (A). As per submissions made by the ld. counsel for the assessee and from perusal of the order of the CIT (A), it is clear that all that was possible for a normal business man to prove the purchases of raw material from the five suspected parties, was done. Diet money had been deposited and the ITO issued notices under s. 131 which were served in the parties. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... killings in March, 1984, just three months before the Operation Blue Star. We also find that in the assessee's letter dt. 21st March. 1984 regarding Vanaspati Unit and OWM Solvent Unit, information was given regarding Arora Vanaspati Pvt. Ltd. Which was collected by the assessee from the office of the Registrar of Companies, Jullundhur. Here also, registered number and registered office of the supplier company collected from the Registrar of Companies office, shareholding of the company, particular of the directors and auditors of the company particulars, summary of balance sheet, details of turnover giving weight as well as amount, details of the sales of various kinds of oils, purchase of various items etc. were collected from the Registrar's office and filed before the ITO. These details find place at pages 48 to 54 of the paper book. The submission of the assessee that it was with great difficulty that one of its employees Shri Beant Walia was peresuaded to go to Jullundur and collected the above information because of the disturbed conditions prevailing in Punjab, seems to be correct. Official receipt No. 30458 dt. 20th March, 1984 issued by the Registrar to Companies was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly deleted by the CIT (A) in Oswal Solvent Unit and OWM Solvent Unit. 66. Coming to ground No. 14 in which the Department has contested the deletion of Rs. 5 lakh made by the ITO in Ludhiana Vanspati Unit on account of excess wastage and doubtful purchases etc. We may also deal with it ground Nos. 15 and 16 which are nothing but argument in support of the same. We therefore, take all these three grounds together. The ld. Sr. DR relied on the facts and arguments recorded by the ITO in para 49 at pages 33 and 34 of the assessment order. It was submitted that wastage in the manufacture of ghee depended upon mean FFA of the oils used and that it was normally three times the FFA. This was the method adopted by the ITO even in earlier years. Accordingly when the ITO checked the wastage incurred by the, assessee, he found that 20.041 MT was the excessive wastage. Moreover,. It was argued that this excess was worked out by the assessee itself. At the average sale price, addition regarding excessive wastage would be Rs. 2,25,920. The ITO also found that purchases from M/s Arora Vanaspati (P) Ltd., M/s Arora Sales Corpn. and M/s Shaji nternational (P) Ltd. were not proved. The assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sale price of the assessee showed a difference of Rs. 7,000 per tanker. This could only be done, if the ITO had examined the books of account of M/s Pahwa Ind. (P) Ltd. The ld. counsel for the assessee highlighted the fact that in the assessee's letter dt. 19th March, 1984, referred to above and placed at pages 59 to 61 of the paper book, M/s Pahwa Ind. (P) Ltd. appeared twice with books of account, yet it is held that the assessee did not discharge its buden. Regarding excessive shortage, the assessee in the case of refinery unit relied on the expert's opinion considered in the assessee's own case for earlier years. He mainly relied on the Tribunal's decision pertaining to asst. yr. 1976-77 regarding yield. According to him, yield was within the prescribed norms fixed by the STC. Even at the cost of repetition, the ld. counsel for the assessee referred to pages 30 to 57 of the paper book containing various letters of the assessee in respect of Vanaspati Unit, Refinery Unit and Solvent Unit in respect of four suspected suppliers. Diet money of Rs. 1,000 had been deposited by the assessee's letter dt. 21st July 1984 at page 68 of the paper book was issued to all the four suspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons also, we hold that the assessee had discharged its burden and proved its purchases from all the parties in respect of this unit. The ITO should not have disbelieved the yield and, if he suspected, on suspicion, no ad hoc addition could be made. The books were, therefore, wrongly rejected. The order of the CIT(A) on this issue is also hereby confirmed. 68. Ground No. 17 in respect of unpaid electricity bill and reduction of Rs. 49,900 by the CIT (A) has already been considered by us while we dealt with the assessee's appeal and a ground to that effect above. 69. In ground No. 18, the dispute is regarding investment allowance on exhaust fan and humidifire in the Wool Combing Plant. This ground has also been considered by us earlier when we dealt with ground No. 17 yet of the assessee claiming investment allowance on weighing scale and fire equipment of Wool Combing Plant. 70. In ground No. 19, the Department has contested grant of investment allowance in respect of the new machinery added in Ludhiana Refinery unit and Madras Oil Refinery Unit. The ld. Sr. DR submitted that refining was not a manufacturing process. Therefore, investment allowance could not be allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hardly find any reason to interfere in the finding of the CIT (A) on this ground. 73. Ground No. 21 is nothing but an argument in respect of ground No. 20 and shall be treated as disposed of against the Revenue. 74. Coming to ground No. 22, the Department has contested the allowance of extra shift allowance in respect of storage and cooling tower. The ld. Sr. DR argued that the storage tank and cooling tower were items of such nature which were akin to building rather than machinery. He argued that depression on these item should have been allowed under the head 'factory building' and not 'machinery'. That being so, he argued, question of ESA on storage tank and cooling tower does not arise. He also raised a legal issue that since this issue was not agitated before the ITO, it could not be agitated before the CIT (A), as no claim was made in the depreciation chart filed before the ITO. He submitted that no extra shift claim was made before the ITO and, therefore, there was no discussion in the assessment order. He submitted that Thali Bhai R. Jain ors. vs. ITO in the light of 1975 101 ITR. 1 (Kar) the CIT(A) should not have dealt with it. The ld. counsel for the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l rate to factory building is allowed @10 per cent which will not be applicable to godowns. We accordingly direct the ITO to allow depreciation on toilets in factory building @ 10 per cent and on godowns @ 5 per cent. The order of the CIT(A) is therefore, modified to the extent indicated above. 77. The revenue in ground No. 24 has challenged triple shift allowance on Vanaspati Plant including storage tank for full year. The ld. Sr. DR firstly argued that the storage tank was not part of machinery and, therefore, depreciation should have been allowed 5 per cent. Secondly, he claimed that TSA should be granted on the plant for the proportionate number of days during which the plant had worked TSA and not for full year. In respect of his argument, he referred to Appendix I. The ld. counsel for the assessee, on the other hand, had brought to our notice item 24(viii) at page 19 of the statement of facts. It was pointed out that metallic storage tank was part of the plant. Therefore, it should not be considered as a factory building. It was argued that the CIT(A) has rightly considered the storage tank as part of machinery. It was also submitted that Ludhiana Vanaspati Unit worked tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) was justified, according to him because it was independent of number of days during which the machine had worked in the previous year. 80. After taking into consideration the rival submissions, we hold that the CIT(A) was justified in granting additional depreciation because there is no dispute about the fact that the machine was new and had been installed after 31st March, 1980. For granting this depreciation, number of days for which it had worked was not relevant. As such and for the reasons given by the CIT(A) in his order, his action is hereby confirmed. 81. In ground No. 26, the Department has contested the grant of depreciation @ 25 per cent on the WDV in respect of a building of Export Display House. It was argued by the ld. Sr. DR that Guest House building which was partly used as office and partly as Export Display House could not be granted depreciation @ 25 per cent. Even depreciation @ 2.5 per cent was not justified because, according to him, income therefrom should be assessed under s. 22 to 24 of the IT Act. The assessee, on the other hand argued that the building belonged to the company and a part of it was used as Export Display House and used as office o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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