TaxTMI 
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2014 (2) TMI 53
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....ed 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 was pending before the ITAT. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs.1 lac out of MD's commission without appreciating properly that the steep hike in expenses was not justified by the genuine needs of business and the departmental appeal filed on the issue is pending before the Ld. ITAT. 4. On the facts and in the circumstances of the case....
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.... 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 before the Ld. ITAT. 12. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the lump-sum addition of Rs.20 Crores without proper appraisal of findings of the AO that the transaction with M/s Ashish Engg. Works, M/s A.S. Mechanical Works and A.S. Forgings, Pioneer E....
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....oks 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. CIT reported in 225 ITR 802 (SC) wherein the Hon'ble Supreme Court has held that the determination of true profits or losses in a particular year cannot be determined correctly if expenditure righ....
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....bsp; (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 thus, the Assessing Officer has made disallowance of the claim ....
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.... 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 and gains until the expenditure which is necessary for the purpo....
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....re 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 also submitted that in Assessment Year 1995-96....
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....here 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 are to be disallowed in those particular years and....
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....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) ....
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....'ble Delhi High Court in the case of National Industrial Corporation reported in 177 CTR 194 (Del.). Keeping these facts in view, we sustain the order of the 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 d....
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....his ground of revenue's appeal and the same is accordingly dismissed. 21. Ground no.5 is against deleting the addition of Rs.5 lacs made out of misc. 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 b....
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....ic details nor pointed out any defects or instances in these expenditure. The turnover of the assessee has gone up substantially and similarly the profits for the year under consideration, therefore, the increase in miscellaneous expenses is justifiable. The Assessing Officer relied upon the decision of ITAT for the Assessment Year 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. G....
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....cision of J.K. Woollen Manufacturers vs. CIT, cited supra. In the case of partial disallowance, how to determine and how much disallowance is to be made, he relied on the judgment of Hon'ble Supreme Court in the case of CIT vs. Walchand & Co. Pvt. Ltd. - 65 ITR 381 (SC). He pleaded that the same is upheld in J.K. Woollen Manufacturers 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 cl....
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....t in the case of commission paid to an agent, additional evidence in the form of certificates amongst others only self serving and not admissible. Credible evidence not produced as to the nature of services provided to the assessee. A commission payment for services rendered can be allowed as a deduction only when the assessee proves to the satisfaction of the Income-tax authorities that the agent has rendered some services justifying the payment of commission 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 su....
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....he purpose of the assessee then only the Assessing Officer can proceed for making the disallowances but no such exercise has been carried out by the Assessing Officer in this case. The assessee has submitted explanation for making the payments which the Assessing Officer has not found false. The assessee is having large number branches and the commission agents procure orders, facilitate in collection of payment from the customers and, therefore, the payments 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....
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....se. Since all these have not been verified, therefore, the CIT (A) was not justified in deleting the addition and he finally pleaded to remit back the issue to the authorities below. 31. On the other hand, the ld. AR submitted that assessee has purchased five wind power generating machines from M/s Airo Energy Ltd before 30.09.1995. The ld. AR submitted that total number of wind electric generators purchased were 45 in numbers and there were purchased 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 const....
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....95-96 wherein while examining the allowability of lease rent the existence of the asset had been accepted and established. The reliance on the following decisions of ITAT also make us to sustain the order of CIT (A) on this issue wherein it is decided that lease rental allowable even when manufacturer of machinery was not traceable but assets are in existence :- (i) DCIT v. Adinath Industries (2001) 252 ITR 476 (Guj) (ii) J.R. Solvent Industries 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 hav....
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....se agreement passing of money by banking channels, declaring lease income of recipients etc. are overwhelming evidence against the presumption that manufacturers do not have capacity to produce machineries. We therefore hold the lease transaction as genuine." This decision of the ITAT was upheld by the Hon'ble Punjab & Haryana High Court. The decision of ITAT for the Assessment Year 1993-94 in ITA No.2298/D/2004 has also been upheld by the Hon'ble Punjab & Haryana High Court. We would also like to state that the decision of Hon'ble Punjab & Haryana 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 ou....
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....depreciation. The Assessing Officer made a presumption that wind electric generators purchased from M/s. Ashish Engineering Works was not genuine and disallowance was made to cover up the possible leakage towards the bogus purchase on which assessee was entitled 100% depreciation other than the wind electric generators division. This issue has been dealt by the Assessing Officer in para 7.3 at pages 16 & 17 of his order and CIT(A) has dealt this issue at para 15.10 at page 13 of his order. 35. While pleading on behalf of the revenue, the ld. DR submitted that 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 transac....
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.... same lines as in the appeal order dated 22.9.2007 for the A.Y. 2001-02 and vide order dated 23.9.2009 for the A.Y. 2002-03. As regards the disallowance of lease rent of Rs.85560070.00 pertaining to the supplies of other than five parties, since the AO has allowed the same in the subsequent assessment years, the same is allowed this year also as there is no issue involved for the disallowance of lease rent. Lease management fees of Rs.18,05,500/- and lease rent of Rs.8,64,400/- was also disallowed by the Assessing Officer, the same are allowed because the same has not 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 tak....
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.... a mixed question of law and facts and as is well known that there could be no res judicata or consistency in such matters and can be examined afresh every year. Mere following of the earlier orders or subsequent orders without independent examination as plenary authority makes the order unsustainable on this point. The ld. DR submitted that the assessee has taken the argument that payment was made through bank, lessors were in existence and machineries were physically found. In the remand report dated 08.01.2004, the Assessing Officer stated that some of the documentary evidences were produced before him although 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 199....
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....the case of Beena Metals - 240 ITR 222( Ker) that failures to prove details of brokers through whom purchases were made who are found to be non- existent will render the purchase bogus. Ld. Dr also submitted that courts have in fact held that fraud vitiates judgment. In the case of Smt. Shrisht Dhawan vs. M/s. Shaw Brothers - AIR 1992 SC 1555, it has been held that fraud and collusion vitiate even the most solemn proceedings in any civilized system of jurisprudence. It is a concept descriptive of human conduct. He also relied on the decision of Hon'ble Supreme Court in the case of Meghmala & Ors. vs. G. Narasimha 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.....
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....its genuineness as held by Hon'ble Supreme Court in the case of Rangmal vs. Kuppuswamy - 2011 (2) (OJR) (9)(SC). He finally pleaded that in the light of the above propositions, the heavier onus was on the assessee in terms of the attendant circumstances of the case makes it mandatory on the CIT(A) as a correctional authority to make a proper appreciation of the whole of the material and not merelyrely on the statement of Assessing Officer, particularly during remand which is more a proceeding before the CIT(A) and a decision has to be taken by CIT (A) as a higher and plenary authority on the issue before him, 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, Gobin....
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....uppliers and M/s Sahib Engineering Works was held to be existent. The Assessing Officer in the Assessment Year 1993- 94 himself has admitted in the remand report that the machinery has been purchased from these five parties, therefore, the depreciation was allowable. The remand report submitted by the Assessing Officer as appearing in ITAT decision for Assessment Year 1993-94 read as under:- "The then AO disallowed the above lease rental after giving the details reasons. As per inquiries made by the DI (Inv), Ludhiana, the assessee company had taken asset on lease, which were supplied to the leasing company 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....
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.... existence of assets has been proved in favour of the assessee. With regard to CIT DR's contention that the existence of the five parties is an important link in the chain of events and if proved bogus, would make the entire chain of event suspicious and it was a mixed issue of law and facts, therefore, no res judicata or principle of consistency would apply and independent examination is required to be done. On this issue, ld. AR submitted that it had not purchased the machinery but it was the lessors who had purchased the machinery and it was not a case of booking expenses on account of purchase but payment of lease rent for use of machinery. 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....
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....factures of equipments of heavy machineries. These lease rents have been paid through banking channels only. The department got verification done through the Chartered Engineer and the assets have been found on the spot verification which is evident form the report dated 08.03.2001. Therefore, there was no justification in disallowing the lease rent, lease management fee and lease rent of building. The rent for the building has been paid which does not require any other evidence to prove it. The ld. AR further submitted that the Assessing Officer, in the Assessment Year 1997-98 and thereafter, have never disallowed lease rent on the same equipments 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 &....
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....e supplied the machinery and equipments to the assessee on lease is no more res integra. The assets have been found on the spot verification conducted on 26.02.2011 at Champa, Chhatisgarh which is placed at pages 735 to 780 of the paper book. In the Assessment Year 1995-96, the ITAT has treated the payment of lease rent as genuine. Since there were assets in existence and being used by the assessee, the lease rent was genuine and there cannot be any interest on the loan taken for the non-business purposes. 47. We have heard both the sides on the issue. We have also perused the record. We have upheld the order of CIT (A) regarding the 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 ....
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....l the enquiries. Regarding the nature of the transaction in the bank accounts of these parties, no details were filed and the status and capacity of these parties as commented upon through field enquiries are not given the weightage and examination, they deserved. There are heavy unaccounted deposits in these accounts which should have been verified by CIT(A) as a plenary authority and being the subject matter of the appeal. He further submitted that as to the nature of the accounts involved, it is no sheer coincidence that all these parties opened the accounts at Shivaji Marg Branch, the address of assessee under same circumstances 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 dism....
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.... 25.28 9.47 1996-97 617.40 147.63 64.52 25.79 10.45 The gross profit ratio chart was also submitted before the Assessing Officer vide letter dated 15.01.1999 place at page no.822 to 824 of the paper book. For the year under consideration, the gross profit as well as the net profit ratio has increased. If the ad hoc addition of Rs.20 crores is added then the gross profit raised comes to 29.29% which has been never achieved by the assessee company in its history. The books of account 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 C....
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....eged parties were through banking channels and were duly recorded in the books. 51. We have heard both the sides. We have considered the relevant material available on record. After considering all the relevant material, we find that the addition of Rs.20 crores is primarily made on the ground that five parties were bogus and that the payments by cheques have been made to them beside the sale of raw material. Most of the payments made to these parties have been received back during the year, under consideration. We find that the transactions relating to four parties shows there is a peak debit 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 ....
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....nt or evasion of income. The addition made for lease rent paid to these parties has been deleted in various years. The existence of the assets has been established. Lease rent paid on the lease assets has been found allowable. In these circumstances, we find no fault in the order of the CIT (A) and we sustain the same on this issue. This ground of revenue's appeal is dismissed. 52. Ground No.13 is general in nature and does not require any adjudication, hence dismissed. 53. In the cross objection filed by the assessee, in ground no.1, the issue is against the sustaining of addition of Rs.7,04,957/- made out 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 e....