9911796707
TMI Blog2019 (12) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... ) erred in law and on facts in upholding rejection of appellant's books u/s 145(2) and in retaining addition of Rs. 16,19,419/- in respect of alleged sale of appellant's solvent products at a price higher than the one at which they are recorded in the books particularly when the same was only on the basis of the estimation and also as observed by the learned CIT(A) herself is subject to recall/rectification based on the availability of further evidences. 2. The learned CIT(A) erred in confirming and retaining addition of Rs. 16,19,419/- particularly when the order of District Magistrate implicating the appellant is challenged in further proceedings, whose outcome is yet not final and particularly when no petrol pump owner was ever examined by the A.O. to support his findings in particularly when the complaint with the District Magistrate did not cover financial year 1997-98 relevant to assessment year 1998-99. 3. The learned CIT(A) erred in confirming and retaining the addition of Rs. 16,19,419/- in respect of alleged sale of solvent products to petrol pump owners ignoring some vital facts and giving incorrect findings contrary to the evidences and facts. 4. The learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold with the quantity and the details of the companies/parties as claimed by the assessee is available on pages 5 to 8 of the assessment order. 6. Before coming to the specific issue, it is pertinent to note the back ground of the dispute involved in the case on hand which goes as under: A. Brief history of the case There was a search conducted by the sale tax department dated 16th February 2000 and thereafter there was an inspection carried out by the district supply team at the factory premises of the assessee dated 18 February 2000 including the raids of the police. Accordingly, the various statements of the parties, transporter, driver and other associated persons were recorded by the Sales Tax/ DSO/ Police Officer etc. B. Search by the sales tax department dated 16 February 2000 The sale tax department in consequence to the search, vide order dated 31 August 2000 withdrew the benefit claimed by the assessee on the purchase of the goods and treated the entire amount of interstate sale as local sale and also increased the amount of sale on ad-hoc basis. Accordingly, the sales tax department raised demand of tax, charged interest and levied a penalty under the loca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bill book of the assessee were the registration number of other vehicles. (The details are available on page 238 of the paper book). There was also an inspection at the premises of the assessee by DSO on 24 June 1997 wherein it was found that the assessee is involved in the issuing of fake bills. Accordingly the DSO seized the solvent worth of Rs. 42,293.00. Similarly, there was one more inspection dated 18 November 1997 where the license of the assessee was cancelled after forfeiting the deposit of Rs. 25,000.00. However, the assessee obtained the stay against the cancellation of the license and continued his business activities. In view of the above the district supply team alleged that the assessee is engaged in the business of dispatching the goods in Gujarat by preparing fake sale bills. 7. Now, turning to the present facts of the case The AO based on investigating agencies such as district administration, district civil supply authorities, sales tax authorities and newspaper, reports found that the assessee is engaged in diverting the sales of its product namely solvent and other products to various petrol pump owners but in books it is showing sales in the name of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration, assessee has shown total sales of 40,56,714/- ltrs. of Solvent and other products to various parties as stated hereinabove. The average rate of this per litre comes to Rs. 10.46. However, in view of the fact that the entire sales was made to various petrol pumps, the rate prevailed at the relevant accounting year is adopted to work out the exact sale price. The consumer price of petrol during the relevant previous year was Rs. 26.13 paise. However, taking into consideration of the profit margin of petrol pump owner and the commission for accommodation of sales made to some bogus companies being the main lender as has been confirmed by M/s. Prime Chemicals, the average net sale price is taken at Rs. 24/- per liter. Thus, the total sales effected during the previous year and the suppressed sale consideration is worked out as under:- Total quantity of the products sold 40,56,714 Ltrs. Sale Price adopted as discussed above - Rs. 24/- per Liter Thus, the total sales realisatio is + 40,56,714/- X 24 Rs. 9,73,61,136/- Less: Sales realisation shown by the assessee Rs. 4,24,44,325/- NET DIFFERENCE Rs. 5,49,16,811/-." For the A.Y. 1999-00 Total quantity of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Arihant Petrochemicals Sachin 4,88,400/- 4. Mahavir Traders, Surat 1,50,000/-" 13. The assessee also furnished the affidavits from the parties, namely M/s Sarvanabava Chemical Industries, M/s Arihant Industries, M/s South Petrochemical Corporation, M/s Arihant Chemicals and M/s Galaxy Plasto Chem-industries Limited wherein it was stated that they have purchased solvent from it. Similarly, the assessee further claimed that there was no opportunity extended to it for the confrontation/cross-examination with the statements of the parties involved as elaborated above. Nevertheless, none of the petrol pump owner was examined by the AO to whom the assessee was alleged to have diverted its products at a higher price which was not recorded in the books in the guise of selling to the parties elaborated above/ recorded in its books. 14. The assessee further submitted that its sales policy was to deliver the goods to the buyer at its factory gate. Once, the buyer has taken the delivery from the assessee, the goods/products are not in its possession. Therefore, there is a possibility of misusing the products by the buyers for supplying the same to the petrol pump owners. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the competent court which is pending. Therefore, such complaints cannot be treated as conclusive evidence that the assessee was involved in the transactions as alleged by the AO. 21. The assessee further submitted that in the notice of the Magistrate it was alleged that; i. It (the assessee) was involved in diverting the products only in respect of few parties in whose name it (assessee) has shown sale as interstate sale amounting to Rs. 14,11,006/- only. ii. Similarly, there was the mismatch in the tanker nos. shown in the invoice viz a viz report from the RTO with respect to the 16 sales invoices. However, it (the assessee) furnished the 5 certificate of RTO out of 17 that the vehicle no. mention on the bill was the tanker registered with RTO. 22. The assessee further submitted that as per the notice issued by the Magistrate, the offence was committed by the assessee during the FY 1999-2000 pertaining to AY 2000- 01. Accordingly, the AO, based on the action taken by the district administrative team, cannot make addition in earlier year/s. 23. The assessee also claimed that its products cannot be mixed/ substituted with the patrol as alleged by the AO. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt etc. 30. The AO further admitted that Shri Jayes thakker, director of the company in his statement recorded on 21-03-2000 himself denied having involvement in any illegal sale of solvent. Therefore, no comment on the allegation that the statements were deposed under threat or pressure from the parties as discussed above. 31. The Ld.CIT (A) after considering the remand report and the submission of the assessee observed certain facts as enumerated below: A. The assessee was engaged in diverting the sales of its product either to the petrol pump owners or other parties for the use of non-industrial purposes in the garb of selling to the parties for the use of industrial activity. The observation of the learned CIT (A) was based on the following: i. There was no industrial activity carried out by M/s Parshwa Industries as evident from the statement of the owner as well as the order of the District Magistrate. Moreover, there was a blank Bill book of M/s Parshwa Industries was found with a person related to the assessee. ii. There was no clearance report/clean chit furnished by the police authorities for the involvement of alleged transactions. iii. There were the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) 1. Prime Chemicals 165 1904012 2. Parshwa Inds. 121.60 1348769 Total 286.60 3252781 Sales Realisation calculated At Rs. 17 per litre 4872200 Sales Realisation as per books 3252781 The Difference to be taxed 1619419 A.Y. 99-2000 1. M/s. Aristo Adechem P. Ltd. 246 2395174 2. Parshwa Inds. 1492.66 14037494 Total 1738.66 16432668 Sales Realisation calculated At Rs. 17 per litre 29557220 Sales Realisation as per books 16432668 The Difference to be taxed 13124552 A.Y. 2000-01 1. M/s. Aristo Adechem P. Ltd. 874.5 10683517 2. D A Enterprises 1571.0 18008174 3. Excel Organics 274.0 3441377 4. Parshwa Inds. 2242.5 24525025 Total 4962.0 56658093 Sales Realisation calculated At Rs. 17 per litre 84354000 Sales Realisation as per books 56658093 The Difference to be taxed 27695907 Being aggrieved by the order of the Ld. CIT (A), the assessee and the Revenue are in appeal before us. The assessee is in appeal against the confirmation of the addition for Rs. 16,19,419/- whereas the Revenue is in appeal against the deletion of the addition made by the AO for Rs. 5,32,97,392/- only. The rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee ? The actual sales price realized by the assessee by selling the goods is already recorded in the books. The learned AO's only allegation is that assessee has obtained more price by selling to petrol pump owners. There is no evidence for either the sale to petrol pump owners nor the price at which it is sold to petrol pump owners. The statement of driver at best tells that the goods were unloaded at petrol pump, but there is no mention of any evidence in any of the findings by the lower authorities as to whether there is any excess price realized over and above that recorded in the books. The sale policy of the assessee is to sale goods to the intending purchaser at the factory gate. Before selling goods to the parties, the assessee ensures that proper documentation in the form of genuineness of buyer are procured. Thereafter what the purchaser does with the goods sold to them is not in control of the assessee. If learned AO and CIT(A) came to conclusion on the hypothesis that assessee could have sold goods to petrol pump owners, that hypothesis equally apply to the proposition that the purchaser from the assessee also would have sold the same to the petrol pump owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there was an inspection by the district supplies team at the premises of the assessee dated 18 February 2000. But the district supply team did not find any records as the same was seized by the sale tax department. Accordingly, the district supply team collected the requisite information from the office of the sales tax department to carry out necessary inspection. The main thrust of the district supply team was to investigate whether the assessee is diverting its sales of the product namely solvent to the petrol pump owners. The solvent being a controlled item under the essential commodities Act was to be used only for the industrial purposes, but as per the district supply team the assessee was engaged in diverting its sales to the petrol pump owners which is an offence under the law. 38. The district supply team to investigate the matter travelled to Rajasthan to one of the party namely Parshwa Industries located at plot No. F/93, Ricco Industrial Estate, Swaroop Gang, Tal Pindwara, Distt. Sirohi, Rajasthan, to whom the assessee claimed to have sold solvent for the industrial purposes. But the district supply team found that there was no manufacturing facility available at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sold the entire quantity of all the items purchased during the year by diverting the same to petrol pump owners in the manner as discussed above. Further, such petrol pump owners were mixing such petroleum products with the petrol and selling the same at a market price of petrol Rs. 26.13 per liter. Accordingly, the AO further reduced the margin of the petrol pump owners i.e. Rs. 2.13 per liter from the sale price of the petrol Rs. 26.13 per liter and computed the sale price charge by the assessee to the petrol pump owners at Rs. 24 per liter. Accordingly, the AO multiplied the quantity sold by the assessee with the sale price of the patrol to work out the suppressed sale of Rs. 5,49,16,811.00 which was treated as income of the assessee. However, we find that the Ld.CIT (A) has concluded that the assessee has not diverted all products to the patrol pump owners but only the solvent. Therefore, the Ld.CIT (A) restricted the addition made by the AO with respect to the sale of the product solvent as diversion of sale to the patrol pump owners. 43. Now the controversy before us arises for our adjudication as detailed under: I. Whether the assessee was engaged in the activity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years of about 20 years ago, filed by the petitioner, have been pending for 10 to 16 years (2003-2009). In the light of these averments, this court is of the opinion that the President or the Senior Vice President concerned of the Tribunal should take appropriate steps and expedite the hearing in these appeals, so as to ensure that final orders in all these appeals are announced at the earliest, preferably within four months from today. Although these directions dispose of the petitioner's grievance, however, this court is of the opinion that given the nature of the averments in this petition, the President of the Tribunal, through the Registrar, should inform this court as to the nature of the pendency with respect to the old cases - particularly, the number of appeals pending which are over 5 years, in each Bench. A tabular statement indicating the age of these appeals as well as an action plan of the ITAT with respect to the likely time for their disposal, having regard to the priorities that ITAT may set in this regard, shall also be filed in this court within 8 weeks." Keeping in mind the aforesaid direction of the Hon'ble Delhi High Court, we deemed it fit to deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 and 2000-01 50. There was an inspection of the district supply team dated 18th February 2000 wherein it was alleged that the assessee is diverting its sales to the patrol pump owners/ for non industrial use. There was no specific mentioned about the period in the proceedings of district supply department but the district magistrate in its detention order has given a clear finding that there were two more inspections dated 24-06-1997 and 18- 11-1997 where the assessee was alleged to be engaged in the similar activity. The finding of the District Magistrate stands as under: "(11) In earlier year during 24.6.97 an inspection at your factory was carried out by the D.S.O., it was found during such inspection that the name of parties to whom the material was sold and upon inquiry with such parties it was found that your own employees had prepared false Bills and supply of solvent was found to have been sold to some parties in Gujarat or might have been sent to Petrol pump for adulteration in petrol was clearly proved and accordingly by an order No. SP -Mfg./B/Case 2nd No. 97/97 Vashi/5414 to 2097 dt. 29.12.98 issued by D.S.O, Stock of Solvent Worth Rs. 42,293/- was seized. (page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y solvent product for diverting the same to the petrol pump owner/ non-industrial use. The Ld. DR at the time of hearing has not controverted the finding of the Ld.CIT (A). Therefore we are of the view that the dispute revolves to the extent of the sale of the product namely solvent. We concur with the finding of the Ld. CIT-A to this extent. 54. We also note that a specific question was raised by the CIT (A) to the AO at the time of appellate proceedings whether there is any allegation for the diversion about the sale of Naptha and other purchased item, he simply replied that no other evidence available beside the items already mentioned in recorded. The relevant finding of the CIT-A stands as under: "The assessing officer was also directed to clarify whether there was any allegation specifically mentioning sale of naptha or other purchased items. the Assessing Officer during hearings clarified that there was no other evidence besides that already mentioned on record." 55. At the time of hearing, the above finding of the ld. CIT-A has not been controverted by the ld. DR for the Revenue. 56. We also note that the learned CIT (A) has clearly given a finding after analyzing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty except one, namely M/s Prime Chemical, which accepted to be involved in the bogus billing against the commission from the assessee. But the AO held that the assessee had used the name of all the parties for showing the sales of the petroleum products but in actuality the products were sold to the petrol pump owners without recording the same in the books of accounts. However, the Ld. CIT(A) held that there were 6 parties involved in creating fake bills by the assessee as per the detention order and enquiry of the AO. But the Ld. CIT-A found that M/s AVI Enterprises purchased the non-solvent product from the assessee. Therefore, he excluded the name of such party. Accordingly, the Ld. CIT (A) restricted the addition with respect to only 5 parties. Now the issue arises whether there were involved all the parties to whom the assessee has alleged to have made the sales as recorded in the books of accounts or only 5 parties as discussed above. 60. Admittedly, the notices issued under section 133(6) of the Act, to whom the assessee claimed to have made sales, were remained un-served. These parties are 25 in numbers for the AY 1998-99. However, we note that out of such number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein the name of 5 parties are recorded as discussed in the preceding paragraph. Thus in our considered view, the AO if the was to involve all the parties to whom the assessee has made sales, then he has to bring sufficient evidences justifying the diversion of the sale to the petrol pump owners. Indeed, the notices remained un-served but that cannot be conclusive evidence in the given facts and circumstances that the sales have been diverted. As such, if the sales had not been made to the concerned parties, then the onus shifts on the Revenue to prove based on cogent materials that the sales was made to the petrol pump owners/other industries. We also find that there was no mention of any petrol pump owner/other industry to which the sale was made. Even, there was not issued any notice to the petrol pump owners. Accordingly, we find no infirmity in the finding of the ld. CIT-A which has been reproduced in the preceding paragraph. Therefore it is clear that the matter for the diversion of sales of solvent is restricted only to parties mention in the order of the District Magistrate and ld. CIT-A. However, it is pertinent to note that our finding is subject to the question no. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , then there will not be any question of making any addition to the total income of the assessee on account of diversion of sales to the patrol pump owners/other industries. Then it shall be inferred that the assessee has sold the goods to the parties at the price shown by it in the books of accounts. 70. Now coming to the issue on merit, we note that the allegation of the AO is that the assessee has sold the products at Rs.24 per liter which was reduced by the learned CIT (A) to Rs.17 per liter as discussed above. In this regard we note that there is no right/ conclusive evidence available with the Revenue suggesting that the assessee has sold its products at Rs.17 per liter. There are certain circumstantial evidences suggesting that the assessee is involved in making fake sales bills to the parties, but there is no information about the price that the assessee has charged the to the petrol pump owners. In our considered view these circumstantial evidences may create the suspicion in the mind but these cannot be conclusive evidence to decide the issue on hand. Therefore there cannot be any addition on account of suppressed sales based on the suspicion. 71. We are also consciou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue has not brought anything on record about the investment made by the assessee/its directors or there was incurred any expenses by the assessee/its directors. 73. The AO in the assessment order recorded that the assessee might have incurred substantial expenses to sale the product to the petrol pump in this modus operandi of sale but these expenses are not recorded in the books of accounts. Therefore theses expenses were not allowable. The finding of the AO stands as under: "it was also pointed out that in this type of business, substantial expenditure has to be incurred which is not accounted for in the books of accounts. However, as against these claims the assessee has failed to furnish any evidence, accordingly, the same stands rejected." 74. On perusal of the reasoning given by the AO for rejecting the claim of the assessee for the expenses incurred against the sales diverted to the petrol pump owners/other industries, we note that the AO has taken contradictory stand. The AO on one hand is estimating the income which was not recorded in the books of accounts but on the other hand denied to allow the corresponding expenses on the ground that these expenses were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f having involved himself in any illegal sale of solvent vide statement dated 21.3.2000 recorded by the District Civil Supplies Officer. The statements of various persons recorded by the Police/Civil Supplies Authorities are available and will be produced as and when desired by your kind Honour. As the matter is sub-judice, however, no comments regarding anticipated final outcome are being made in this regard." From the above remand report, we note that there was no exercise carried out by the revenue to arrive at the conclusion that the assessee has diverted its product to the petrol pump owners/other industries despite having the information in hand. As such the entire addition was based on the investigation carried out by the district supply team/crime branch etc. 76. It is also important to note that there was a search by the sales tax department dated 16 February 2000 wherein it was alleged that the assessee is making sales within the state of Gujarat in actuality but it was showing in the books of accounts as interstate sale in order to avoid the tax liability. As such the rate of tax for the interstate sale under CST Act is 2% on furnishing of form C by the party t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es outstanding against M/s Kavit for the above years out of the assessment orders and the consequential demands raised by the sales tax authorities. 7. The above Affidavit is field to put in proper perspective the status of the demands raised by the sales tax authorities for the above years against M/s Kavit. Solemnly affirmed on this 10th Day of April, 2019 at Baroda." The contents of the above affidavit have not been controverted by the learned DR appearing for the revenue. 78. We also note that the assessee before the authorities below has claimed to have made sales to the parties at its factory gate which has not been disputed by them. Thus, there is a possibility that the parties to whom the assessee has sold the goods might have diverted the products to the petrol pump owners/other industries. If that be so, the assessee cannot be penalized for the act done by the other parties. However, the revenue has not brought anything on record contrary to the arguments of the assessee. Thus, in the facts and circumstances it cannot be concluded that the assessee was engaged in the diversion of its product as discussed above. However, it is pertinent to note that our finding i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 163 ITR 249 wherein it was held as under: "8. On a perusal of the order of the Tribunal it clearly appears that whether the said transactions were bogus or not was a question of fact. The Tribunal has also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns implicate vouchers to the assessee. Even the two statements do not implicate the transactions with the assessee in any way. With these observations the Tribunal ultimately has observed that there are certain doubtful features, but the evidence is not adequate to conclude that the purchases made by the assessee from these parties were bogus. It may be stated that the assessee was given credit facilities for a short duration and the payments were given by cheques. When that is so, it cannot be said that the entries for the purchases of the goods made, in the books of account were bogus entries. We, therefore, do not find that the conclusion arrived at by the Tribunal is against the weight of evidence. In that view of the matter we answe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as discussed above Rs. 64,74,065/- Rs. 91,93,835/- Add: Unaccounted investment as discussed above Rs. 64,74,065/- Rs. 1,56,67,920/- ==========" 87. Aggrieved assessee preferred an appeal to the Ld. CIT(A). 88. The assessee before the Ld. CIT(A) submitted that addition has been made considering the sale price of the unaccounted quantity at Rs. 24/- per litre to the petrol pump owners which is quite unreasonable and without any evidence. 89. The AO has not furnished the details breakup as requested by the assessee such as delivery order, transporters authority letter, delivery challans, detailed account statement, indent letter, invoice copies, payment details, copy of the journal voucher etc. for making the reconciliation. 90. The assessee without prejudice to the above also claimed the deduction of Rs. 64,74,065/- expenditure under section 37 of the Act. The assessee also claimed that such deduction/set off is available for the year under consideration as per section 69C of the Act. 91. The assessee further submitted that such the amount of purchases should be set off of against the amount of the addition made by the AO for Rs. 5.49 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase law cited on this point is very relevant. Secondly, most of the figures have been tallied then only the difference remaining should be the subject of taxation which is Rs. 13,68,584/-. 7. The next issue that arises is whether on these purchases, sales have to be estimated @ Rs. 24. In my view, again, firstly as per reasoning given in the earlier ... consider in respect of the main ground of appeal, the rate can never be taken at Rs. 24 and infact it has been considered at an average rate of Rs. 17. This also cannot be applied to the purchases as there is no proof that these items were either actually received and secondly, that they were actually sold to petrol pumps. In fact as discussed in ground no.1 above items like naptha, benzene and HSD as per chemical reports available are not capable of being mixed with petrol for use as motor spirit. The only possible thing is that the purchase themselves may have been diverted to outside parties without processing for any other nonindustrial use. However, in the absence of any proof of such sales, I find that the appellant's original argument that the first ground of appeal regarding unaccounted sales should also cover such additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely HPCL and the reliance industries Ltd. The difference was determined by the AO at Rs. 64,74,065/- which was reduced by the Ld. CIT (A) to Rs. 23,68,584/-. 106. The onus lies on the assessee to substantiate its claim for the purchases based on the documentary evidence. But the assessee failed to reconcile the difference in the amount of purchases despite sufficient opportunities were furnished to it. It was alleged by the authorities below that the assessee has purchased the goods outside the books of accounts which were also sold in the market without recording the same in its books of accounts. 107. The assessee in the case on hand failed to reconcile the amount of purchases amounting to Rs. 23,68,584/- which was added as income of the assessee as unexplained purchases under section 69C of the Act. However, we note that there was no evidence available with the authorities below that the assessee has made any investment in such purchases. In fact, we note that the Ld. CIT-A directed the AO to collect the details of the payment received by the parties from the assessee against such unaccounted purchases. But, the AO failed to collect any details from the parties listed abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is partly allowed and Ground of appeal of the Revenue dismissed. 109. The next issue raised by the assessee in ground No. 5 is that the Ld. CIT (A) erred in confirming the addition of Rs. 9,76,201/- on account of preoperative expenses under section 35D of the Act. 110. The assessee in the year under consideration has written off miscellaneous expenses amounting to Rs. Rs. 14,24,844/- in its profit and loss account under section 35D of the Act. The details of the expenses stand as under: 1) Preliminary expenses written off Rs. 10,560/- 2) Public issue expenses written off Rs. 4,38,083/- 3) Pre-operative expenses written off Rs. 9,76,201/- However, the AO found that the assessee is eligible for deduction under section 35D to the extent of Rs. 1,10,671/- as decided by his predecessor in the assessment year 1996- 97 vide order dated 26-2-1999 under section 143(3) of the Act. Accordingly, the AO disallowed the balance claimed by the assessee for Rs. 13,14,173/-and added to the total income of the assessee. 111. Aggrieved assessee preferred an appeal to the Ld. CIT(A). 112. The assessee before the Ld.CIT(A) submitted that if the preoperative expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current asstt. year works out to only Rs. 1,10,671/-. The total Capital employed by the assessee till the end of Jal Hi Power Petrochem Ltd. A.Y. 1996-97/Order u/s.143(3) the current year is Rs. 4,42,68,500/-. 2.5% of the sane comes to Rs. 11,06,712/-. Therefore, 1/10th of the admissible amount comas to only Rs. 1,10,671/- u/s.35D of the I. T. Act. 4. The balance amount of Rs. 36,49,179/- (97,78,171 - 61,28,992/-) is allowed to be write off over a period of 10 years considering the same as pro-operative/preliminary expenses since the assessee has not adjusted/capitalised the same as part of its assets as per the return of income filed. Therefore, on account of the same as against the write off of Rs. 6,77,959/- as per schedule 9 to the balance-sheet, only a sum of Rs. 3,64,917/- is allowed to be write off during the current year and the balance amount is to be adjusted in the later years as discussed above." 117. A plain reading of the above order shows that the AO as already allowed the claim of the assessee on account of preoperative expenses by amortizing over a period of 10 years. Thus, the amount to the extent of Rs. 3,64,917/- is arising from the earlier year as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal of the assessee is dismissed. In the result the appeal filed by the assessee is partly allowed. Coming to the Revenue's appeal bearing ITA number 1065/Ahd/2004 for the assessment 1998-99 128. The revenue has raised the following revised grounds of appeal: "1. On the facts and in the circumstances of the case and in law. The learned CIT(A), Baroda has erred in i) Deleting the addition made by the AO on account of bogus sales amounting to Rs. 5,32,97,392/-. ii) Disallowing the addition made of Rs. 91,416/- made on account non inclusion of excise duty on finished goods while valuing closing stock. The excise duty payable on finished goods should be included in the cost. The view is also accepted by the institution on C.As and as per instruction no. 1389 dated 24.3.1981 issued by the CBDT. The Hon. Supreme Court in the case of Mc. Dowell & Co. Ltd. vs. CIT (154 ITR 146) has also opined that it is a part of manufacturing cost. iii) Deleting the addition made by the AO on account of bogus purchases amounting to Rs. 1,32,99,336/- 2. On the facts and circumstances of the case and in law the learned CIT(A) ought to have uphold the order passed by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the submission of the assessee deleted the addition made by the AO by observing that the assessee is entitled for the deduction by virtue of the provisions of section 43B of the Act as the amount of excise duty liability was paid before filing the return of income. 137. Being aggrieved by the order of the Ld. CIT (A), the Revenue is in appeal before us. 138. The Ld. DR and the AR before us relied on the order of the authorities below as favourable to them. 139. We have heard the rival contentions of both the parties and perused the materials available on record. Indeed the provision of section 145A of the Act requires the assessee to include the amount of excise duty while valuing the closing stock of the finished goods as on 31st March 1998. However, the deduction for the same is allowed if such excise duty was paid by the assessee on or before filing the income tax return before the due date as specified under section 139(1) of the Act. The Ld. CIT(A) has given very clear finding that the amount of excise duty was paid on or before the due date of filing the income tax return. Thus in other words even the amount of excise duty not included in the value of closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for disallowance u/s 37. It is submitted that it be so held now and disallowance made be deleted. 5. The Learned AO as well as CIT(A) erred in confirming charging of interest u/s 243A, 234B and 234C of the Act. Your appellant prays for leave to add, alter, amend, drop or substitute all or any of the aforesaid grounds before this appeal is disposed off." 141. The 1st issue raised by the assessee is that the learned CIT (A) erred in confirming the addition made by the AO for Rs. 1,31,24,552.00. 142. The identical issue has already been decided by us in the appeal of the assessee bearing No. 1003/AHD/2004 pertaining to the assessment year 1998-99 vide paragraph number 37 to 82 of this order which we have decided in favour of the assessee. Respectfully following the same we allow the ground of appeal of the assessee. 143. The next issue raised by the assessee is that the Ld. CIT (A) erred in confirming the disallowance made by the AO for Rs. 73,447/- on account of prior period expenses. 144. The assessee in the year under consideration claimed certain prior period expenses related to salary, freight charges etc. However the AO was of the view that the assessee is mainta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other. 150. There is no ambiguity that such expenses were incurred for the purpose of the business. Therefore in our considered view, applying the principles of Bombay High Court as discussed above, we set aside the order of the Ld. CIT(A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. In the result the appeal of the assessee is allowed. Coming to the Revenue's appeal bearing ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver examined by the AO to support his findings. 3. The learned CIT(A) erred in confirming and retaining addition of Rs. 2,76,95,907/- in respect of alleged sale of solvent products to petrol pump owners ignoring some vital facts and giving incorrect findings contrary to the evidences and facts. 4. The learned CIT(A) erred in law and on facts in upholding the disallowance of Rs. 2,61,942/- as prior year expenses. It is submitted that since the liability to pay this amount crystallized during the year and that some of the expenses were to be allowed u/s 43B, the same should not have been considered for disallowance u/s 37. It is submitted that it be so held now and disallowance made be deleted. 5. The learned AO as well as CIT(A) erred in confirming charging of interest u/s 243A, 234B and 234C of the Act. Your appellant prays for leave to add, alter, amend, drop or substitute all or any of the aforesaid grounds before this appeal is disposed off." 155. The 1st issue raised by the assessee in ground 1 to 3 is that the learned CIT (A) erred in confirming the addition made by the AO for Rs. 2,76,95,907/-. 156. The identical issue has already been decided by us in the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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