9911796707
TMI Blog1981 (5) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... O and also before the IAC during the course of proceedings under s.144B, the assessee contended that the cashier Shri Shrivastava who was making necessary entries in the cash book, falsely made an entry in the cash book of Rs. 13,798 instead of the actual expenditure of Rs.3,789 and, thus, defalcated a sum of Rs. 10,000. The assessee s contention was that since the sum of Rs. 10,000 was lost due to embezzlement by an employee it should be allowed as a revenue expenditure. The ITO did not accept the assessee s contention as, in his opinion, on evidence was furnished by the assessee in support of this contention, Accordingly, he added back the sum of Rs. 10,000 towards the total income of the assessee. On appeal, before the CIT(A), the assessee reiterated the contention which was made before the ITO. The CIT(A) also rejected the assessee s contention as, in his opinion, the loss of Rs. 10,000 came to the notice of the assessee much after the end of the accounting year, and, hence, it could not be allowed as a deduction during the relevant assessment year. Aggrieved, the assessee has agitated this point in the present appeal. 4. Before us, the ld. counsel of the assessee submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial used, the newly constructed shed was a second class factory building, and, hence, depreciation was to be allowed only @10 per cent instead of 100 per cent claimed by the assessee. Accordingly, he allowed depreciation only to the extent of Rs. 31,704. 8. The assessee went in appeal and before the CIT(A) it was submitted that the shed in question could not be described as a second class construction for the reasons that roofs were not supported by even side walls and it was open on the three sides and was supported by beams. It was pleaded that the ground on which the shed was erected is not made of cement and concrete. The CIT(A), while accepting the assessee s plea, that the shed in question could not be described as a second class construction but he was of the view that it could be treated as the third class factory building. Accordingly, he directed the ITO to allow depreciation @15 per cent as against the assessee s claim of 100 per cent. 9. Before us, the ld. counsel of the assessee argued at length and submitted that the shed in question was set up by virtue of a temporary licence issued by the BHEL and under the terms of the licence agreement which was only for a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired dhobighats for washing their garments in the export of which it was engaged. It had entered into an agreement to purchase a plot of a land on Nazafgath Road as also office-cum bungalow thereon on 24th Nov, 1975. On these lands the assessee put up some structure costing Rs. 50,313 and claimed depreciation @ 100 per cent thereon. The ITO rejected to assessee s claim, but, the AAC allowed the same. The matter taken by the department in second appeal before the Tribunal. The Tribunal, while agreeing with the findings of the AAC, observed as under: "After examining the facts of the case and perusing the orders of the lower authorities, we agree with the finding of the AAC. Three things are important in this respect. The firstly is that the land was still not transferred to the assessee and obviously, therefore, it could not think of putting the permanent structure. Secondly, the old material was used, thirdly the structures were without any proper foundations and without considerations of any design normally necessary in the construction of a structure of permanent nature. We, therefore, agree with the finding of the AAC that it was a purely temporary erection and was entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtners of the assessee firm. He further found that the ultimate cost of timber purchased from NTT, including commission, worked out at Rs. 12 per Sq. ft. whereas such cost was only Rs. 9.50 per cent. from M/s Mahavir Industries Shilling Rs. 11 per cft. from M/s Bishandas Kishandas Bhalla, Nagal Rs. 11.40 per cft. from other dealers. On the basis of the above facts. The ITO invoked the provisions of s. 40A (2A), r/w sub-cl. (b)(v) of the IT Act, 1961. Thus, in effect, the findings of the ITO were that the commission paid to the NTT was excessive or unreasonable having regard to the fair market value of the goods purchased through NTT or that payment for the services rendered by the NTT was excessive considering the legitimate need of the business carried on by the assessee firm. He, therefore, allowed deduction for commission to the NTT @ 5 per cent i.e. at a sum of Rs. 44,365. The balance payment of Rs. 50,975 was, however, added back towards the total income of the assessee. 16. Against the findings of the ITO, the assessee went in appeal and before the CIT (A) it was submitted on behalf of the assessee that prior to the foundation of the NTT, timber was purchased through the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asily discounted in the case of the appellant firm which have paid as much as Rs. 86,744 as interest on borrowed capital. This is besides the fact that the supply of goods quality timber was ensured by reason of the members of the family of R.R. Agarwal participating in the purchases of timber alongwith the former commission agent. I also find from the record that commission @ 10 per cent was allowed by the ITO as a deduction in the preceding assessment years. In view of these facts. I am of the opinion that the ITO has been able to make out a case for the application of the provisions of s. 40A(2)(a). The addition made by him, therefore, does not rest on proper foundation. Consequently, it is deleted. On this account, the assessment is reduced by Rs. 50,975." Aggrieved by the findings of the CIT (A), the Department has agitated the point in the present appeal. 18. We have heard the ld. Reps. of the parties at length, and, in our opinion, the findings of the CIT (A) do not call for any in the reference. The disallowance has been made by the ITO not on the ground that no services were rendered by the NTT, but on the ground that the payment of commission was excessive and unreaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this connection examined two carpenters, namely Babulal and Kanta Prashad. In their statements these persons satiated that they were paid charges @ 30 paise to 60 paise per cft. for various types of boxes manufactured for BHEL and Re. 1 per box manufactured for Hoshangabad Paper Mill. They also stated that their signatures were obtained frequently on blank vouchers or vouchers made in the names of other persons. The ITO found that the assessee, claimed payments to these persons @ Rs. 1.50 per cft. Thus, for 22,224 cft. of the work done by Kanta prasad, he was shown a payment of Rs. 33,336. The work done by Babulal was shown at 11,448 cft. and the payment in his name was shown at Rs. 17,227. Before the ITO, the assessee explained that even as per the cost of analysis prepared by BHEL, the average was per cft. were out to Rs. 1.35 per cft. The ITO was not satisfied with the explanation offered by the assessee. He relied mainly on the statements of Babulal and Kanta Prasad and came to the conclusion that the wages for packing cases supplied to BHEL should be allowed @ 60 per cf.t and those paid in respect of the boxes manufactured for Hoshangabad Paper Mill at Re. 1 per box. On this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.10 " As against the above estimates made by the Pricing Committee of BHEL the assessee claimed total charges only @ Rs. 5 per cft. 22. The CIT(A), after considering the above arguments of assessee, came to the conclusion that the claim for payment of wages to the carpenters to the extent of Rs. 1,93,662 was correctly made by the assessee and no disallowance is called for. In deleting the disallowance of Rs. 1,10,000 made by the ITO, the CIT (A) observed as under: "I am afraid, the addition made by the ITO does not rest on proper foundation. Perusal of the statements of Babulal and Kantaprashad reveal that these witnesses cannot be relied upon. They made contradictory and evasive statements at various stages. They also appeal to be in league with the main complaint S.K. Mangla in this case. In the course of cross examination of S.K. Mangla, the learned counsel for the appellant firm accused him of blackmailing and confronted him with documentary evidence in support of this allegation. The ITO s reading of the wage estimates made by the Pricing Committee of BHEL also does not seem to be correct. The payments made by the appellant firm are supported by vouchers. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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