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TMI Blog2017 (11) TMI 1364X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment and that all sales and purchases were duly vouched and supported by bills and even assessed by the Sales Tax Department, have not been controverted by the Revenue. The assessee has demonstrated by way of a certificate filed from the bank that the last inspection for the year was undertaken on 1.2.2010 for verifying the stock statement on 31.12.2009 which again has not been controverted by the Ld. DR. No cognizance therefore can be taken of this report for the purpose of determining the stock as at the end of the year. . There is therefore merit in the contention of the Ld. counsel for assessee that having furnished a satisfactory explanation, there was no reason to make any addition by relying on the stock statement submitted to the Bank . Thus the assessee has demonstrated by way of a certificate filed from the bank that the last inspection for the year was undertaken on 1.2.2010 for verifying the stock statement on 31.12.2009 which again has not been controverted by the Ld. DR. No cognizance therefore can be taken of this report for the purpose of determining the stock as at the end of the year. There is therefore merit in the contention of the Ld. counsel for assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of Capital Expenditure as against revenue expenditure as claimed disregarding the explanations rendered which is illegal. arbitrary and unjustified. 4. In the above ground, the assessee has challenged the treatment of extension fees paid to the Forest Department, Haryana as capital in nature, as against revenue treated by the assessee. 5. Brief facts relevant to the issue are that during the course of assessment proceeding, the Assessing Officer noted that the assessee had debited an amount of ₹ 9 lacs as extension fees paid to its profit and loss account. This sum was paid to the Chief Conservator of Forests, Panchkula for grant of license for installing the 'press'. The assessee was asked to show cause why this amount of ₹ 9 lacs should-not be capitalized to the cost the press installed by the assessee during the year, In response to the show cause notice, the assessee filed reply. After considering the reply of the assessee, the Assessing Officer held that the extension fee payable to Chief Conservator of forests was an expenditure for the acquisition of the right to manufacture and thus a capital expenditure. Moreover, the AO held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made before the lower authorities stating that the said expenditure was revenue in nature since it had not resulted in purchase of any asset, nor any right of a permanent character had emerged. The Ld. counsel for assessee contended that no advantage of enduring nature had been acquired, nor any capital asset created by virtue of the said expenditure. The Ld. counsel for assessee further stated that the expenditure was an integral part of the profit making process of the assessee and had been incurred in connection and in relation to the carrying on of the business of the assessee. The Ld. counsel for assessee relied upon various decisions of the Hon'ble Supreme Court and Hon'ble Calcutta High Court which were cited even before the Ld.CIT(Appeals) and reproduced at para 4.1 of the order as under: i) CIT vs. New India Sugar Mills Ltd. 206 ITR 212 (Cal), ii) Gotan Lime Syndicate Vs. CIT 59 ITR 718 (SC), iii) M.A. Jabbar Vs. CIT 68 ITR 493 (SC), iv) Bikaner Gypsums Ltd. Vs. CIT 187 1TR 39 (SC). 8. The Ld. DR, on the other hand, relied upon the order of the Ld.CIT(Appeals) and stated that the extension fee had been paid for installing a new plant and machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, dismissed. 10. Ground Nos.2 and 3 raised by the assessee are interconnected and related to rejection of books of account of the assessee u/s 145(3) of the Income Tax Act, 1961 (in short the Act ) and addition made thereafter amounting to ₹ 26,76,022/-. The same are, therefore, being taken up together for adjudication. 11. Brief facts relevant to the issue are that during the course of assessment proceedings, the Assessing Officer found various discrepancies in the books of account maintained by the assessee, being difference in the stock submitted to the bank and that shown as per books of account, non-maintenance of primary records for payment of salary, non-production of bills or vouchers for purchase of firewood and certain vouchers relating to carriage inward account. The Assessing Officer, therefore, held that the books of account of the assessee did not reflect the true affairs of the business carried out during the year and, therefore, he rejected the same u/s 145(3) of the Act. Thereafter the income was assessed on estimate basis by applying the average of the gross profit ratio returned by the assessee in the last three years. The GP was thus computed at &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvations of the Assessing Officer in this regard was that the stock of items i.e. core veneer, finished goods, phenol and consumables were found short in the statement submitted to the bank, while the stock of face veneer, timber logs, formaldehyde and pet cock was recorded more in the statement given to the bank as compared to the books of account. The Ld. counsel for assessee submitted that the excess stock submitted to the bank amounted to ₹ 17,,97,772/-, while the shortage in stock submitted to the bank amounted to ₹ 45,61,843/-. The Ld. counsel for assessee submitted that it is evident from the above that in any case the assessee had reflected excess stock in its books as compared to that shown to the bank and therefore no adverse inference could be drawn. The Ld. counsel for assessee further submitted that the assessee had hypothecated its stock with the bank and not pledged the same. The Ld. counsel for assessee stated that since hypothecated stocks could be used by the assessee, the figures of hypothecated stock were given to the bank on estimate basis only and they generally varied from the actual figure reflected in the books. The Ld. counsel for assessee furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for the months of April, 2009 October, 2009 and March, 2010. Further the Ld. counsel for assessee stated that the challans in respect of EPF deposited in the bank were also filed. The Ld. counsel for assessee drew our attention to the above documents placed in the Paper Book page Nos.21 to 59. The Ld. counsel for assessee, therefore, submitted that the contention that the primary records relating to salary were not maintained was contrary to the facts of the case. 17. On the issue of vouchers or bills relating to purchase of firewood for the month of April, May and June not produced by the assessee, the Ld. counsel for assessee submitted that it was pointed out that this was factually incorrect since all payment vouchers duly signed by the recipients of cash were maintained and produced before the lower authorities. The Ld. counsel for assessee drew our attention to the copy of the same placed at Paper Book Page Nos.93 to 136. The Ld. counsel for assessee further stated that it was explained to the lower authorities that the firewood was purchased from petty farmers from unorganized sector who did not maintain any bill books and payment was made to them in cash on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and stated that it was rightly held by the Ld.CIT(Appeals) that the facts of discrepancy in the stock statement submitted to the bank and those recorded in the books of account, had not been explained by the assessee despite the fact that the item-wise discrepancy was pointed out by the Assessing Officer. The Ld. DR further submitted that it was a fact that primary records of payment of salary were not produced before the Assessing Officer, nor sufficient reason given for not producing them. As far non-production of vouchers of firewood where payments were made in cash, no reasonable cause was given by the assessee for the same. The Ld. DR further stated that no proper explanation had been provided regarding discrepancy noted in the payment made to two transporters and, therefore, the Ld.CIT(Appeals) was justified in rejecting books of account u/s 145(3) of the Act. 20. Having heard the contentions of both the parties, we find merit in the contentions of the Ld. counsel for assessee. As pointed out to us above, the Ld. counsel for assessee had explained each and every discrepancy pointed out by the Assessing Officer vis- -vis the difference in the stock submitted to the bank an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, we hold that it cannot be said that the assessee was not maintaining primary records of wages register. Even the vouchers for firewood were duly produced before the lower authorities and were explained to them as to why no bills pertaining to the same were present since as explained by the assessee, firewood was purchased from petty farmers from the unorganized sector who did not raise or maintain any bill books. Further even the discrepancy vis- -vis payment on account of transportation reflected on two different dates in the books of account of the assessee as against the same being reflected on one date in the bills of the transporters was duly explained as being on account of cash being paid on different dates to the transporters, one by the supplier of goods which was adjusted against the cost of material and balance being paid by the assessee on receipt of supply. The Ld. DR, we find, has not pointed out any anomaly in this explanation and the fact remains that vis- vis quantum of expenses debited on account of transportation undertaken by said two parties, there is no dispute. Therefore, in view of the above, it cannot be said that there was any material discrepancy in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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