1986-VIL-86-ITAT-CHD

Equivalent Citation: TTJ 027, 535,

Income Tax Appellate Tribunal CHANDIGARH

Date: 28.07.1986

OSWAL WOOLLEN MILLS LTD.

Vs

INCOME TAX OFFICER.

BENCH

Member(s)  : F. C. RUSTAGI., RAM RATTAN.

JUDGMENT

These two cross-appeals, one each by the assessee and the Revenue, were heard together and since pertained to one and the same asst. yr. 1981-82 and as certain common points are involved therein, are hereby disposed of by this consolidated order for the sake of convenience.

2. For the sake of convenience, we first wake up the assessee's appeal. But while dealing with certain grounds in the assessee's appeal, we also propose to deal with common grounds raised by the Department in respect of certain items. The first ground in the assessee's appeal pertains to its request for annulment of the assessment order as, according to it, the same was barred by limitation as prescribed in the IT Act, but at the time of hearing it was not pressed and the same as such is hereby rejected.

3. The second ground is in respect of Sur-tax liability which has not been allowed as a deduction in computing the total income by either of the two lower authorities. The ld. counsel for the assessee was fair enough to say that this ground is covered and his attempt is only to keep the issue alive. The ld. Sr. DR. Mr. R.K. Bali, on the other hand, submitted that consistently this Bench has been against the assessee on this issue. Undoubtedly, the consistent view of this Bench in general on Sur-tax liability and specifically in the assessee's own case for asst. yr. 1976-77 has been against the assessee. This ground as such is also rejected for the very same reasons given by us in our order pertaining to asst. yr. 1976-77.

4. Ground No. 3 pertains to the status of the assessee-appellant and the dispute raised was that it was a limited company in which public are substantially interested and no finding was given by the CIT (A), but at the time of hearing, the ld. counsel for the assessee did not seem to be serious about it and ultimately after brief discussion elected not to press the same. This ground as such is rejected.

5. Coming to ground No. 4 which is in respect of s. 80J relief, the ld. counsel for the assessee himself submitted that the issue having been laid at rest by the Supreme Court decision, this has become academic. This ground as such is hereby rejected.

6. The fifth ground pertains to the assessee's claim of weighted deduction under s. 35B in respect of travelling expenses of Rs. 77,713 incurred regarding export development by the assessee and also in not allowing weighted deduction of Rs. 1,28,176 as claimed before the ITO. The Revenue in its appeal has also disputed the action of the CIT(A) who allowed the amount of Rs. 77,713 out of travelling expenses, which is ground No. 7. Therefore, ground No. 5 in the assessee's appeal and 7 in the Revenue's appeal are disposed of together. The facts in the background relevant to the issue, as given before the CIT (A), are also placed before. For facts, para 8(iii) at page 5 of the statement of facts filed before the CIT(A) followed by chart, read as under:

"8(iii) The deduction claimed under s. 35B being one and one third times was a sum of Rs. 10,32,780 on actual export development expenses of Rs. 7,74,585. Broad details of the claim made, those allowed and disallowed by the d. ITO are as under.

The sum of Rs. 2,31,793 as per column 6 above consists of Rs. 1,54,080 disallowed vide para 12 page 12 and Rs. 77,713 disallowed vide para 11 page 11 of the said order"

The assessee had claimed weighted deduction on expenses on samples foreign tour, delegation expenses, as per details in column 1 of the above chart. As apparent from column 2, total expenses amounting to Rs. 7,74,585 are incurred on different items. The assessee claimed weighted deduction, as per column 3. in a sum of Rs. 10,32,780. What is held by the ITO as deduction under s. 37 is in a sum Rs. 6,96,872. The difference, therefore, of columns 2 and 4 is in a sum of Rs. 77,713 which has been disallowed by the ITO on account of foreign tour even as a deduction under s. 37. This addition was considered by the CIT(A) in para 18 at page 7 of his order. He allowed the same as deduction under s. 37 but held that the assessee is not entitled to weighted deduction. The Department in ground No. 7 of its appeal, referred to above, challenges the action of the CIT(A) in allowing the said sum of Rs. 77,713 under s. 37 whereas the assessee has come in appeal in respect of its claim of weighted deduction on the said amount.

7. The ld. Sr. D.R. in respect of the dispute pertaining to weighted deduction relied on the orders of the ITO and the CIT(A). He submitted that this was an expenditure of capital nature as the assessee had no exports to the countries in respect of which the said travelling expenditure pertained but they had gone to purchase a machine which they did not. In support of his contention, he submitted that since it was a capital expenditure, the same should not have been allowed as a deduction. Regarding the assessee's claim of weighted deduction he said, under the circumstances, the same could not be allowed because the said foreign travelling expenses could not be co-related with exports. He ultimately expressed even for withdrawal of deduction under s. 37.

8. The ld. counsel for the assessee, on the other hand, submitted that tour of Mr. Abhey Kumar and Mr. Narinder Kumar was as per permission obtained from the Reserve Bank of India and its necessary report was also set to the relevant parties. Foreign exchange was utilised for exploration of export market through their visit. They studied working of latest textile machinery required for modernisation of export plant. He stated at Bar that the foreign tour was for the purpose of exploration of foreign market as well as for purchase of machinery required for modernisation of export plant. No plant was though purchased because it was not found satisfactory, question of capitalisation of said expense could never arise. He submitted that in a running concern where business and natural activities are continuing, travelling expenses of the employees could not be capital expenditure. He relied on the Spinning Mill's decision and submitted that the CIT(A) has rightly allowed the said expenditure under s. 37. Regarding its claim for weighted deduction in the assessee's appeal, the ld. counsel for the assessee submitted that provisions of s. 35B do not suggest that weighted deduction would be allowed on travelling expenses only if there were exports to foreign countries. He submitted that the assessee was a domestic company and expenditure incurred was after 29th March, 1968 but before 1st March, 1983. The assessee company had directly incurred the expense on travelling of its employees, which was not of capital nature. Therefore, according to him, this expenditure was directly covered under s. 35B (1)(b)(vii). It was further claimed that exploration of foreign market was as such promotion of sales outside India. He went on to say that even exploring the possibility of buying machinery for modernisation of existing plant, was directly a promotion of sales outside India of the gods in which the assessee was dealing. The assessee in respect of its contention relied on the well-known decision of M/s J. Hem Chand and Co. in ITA Nos. 3255 and 3330/Bom/76 77 dt. 17th June, 1978. At this juncture, the assessee being a company in which the public are substantially interested, the claim should be allowed for one and a half rather than one third times.

9. We have carefully considered the submissions made by both the parties and facts available on record. The expenses of Rs. 77,713 is clearly of revenue nature in the facts of the instant case. We, therefore, find no reason to interfere with the finding of the CIT (A) given in para 18 of his order on this issue. Since the assessee has asserted that no machinery was purchased from Italy therefore, question of capitalisation of the said expenses could not arise. However, we may observe here that in case the ITO has allowed depreciation and investment allowance on the same, as he has capitalised the said expenditure, the same would be withdrawn Regarding the assessee's claim for one and a half times, we have already rejected ground No. 3 raised by the assessee in its appeal having not been pressed and therefore, the claim of one and a half times against one-third times losses the very bottom.

10. Coming to the assessee's claim of weighted deduction under s. 35B on the said ground we are in agreement with the ld. counsel for the assessee that actual export is not a must for claiming weighted deduction on foreign travelling. This is also held in the Special Bench decision referred to above. Undoubtedly, RBI permission is there and naturally report was filed but since it is not the case of the assessee that the visit was purely for exploration of foreign market for exports and it is also a fact that no machinery was brought we are of the view that on the basis of the principles laid down in the Special Bench decision the assessee's claim deserves to be allowed on 50 per cent of the said expenses because we are constrained to differ from the ld. counsel for the assessee that visit by employees of the assessee for purchase of foreign machine is also for promotion of exports since the assessee deals in exports. The assessees claim could be allowed in toto, if the contentions were that the main purpose of the foreign visit was exploration of foreign market for exports and by the way they looked into important type of machinery etc. Since the case is that the visit was for both the purposes, as per principles laid down in the special Bench decision, it will meet the ends of justice in the case assessee's claim in order to be allowed for weighted deduction on 50 per cent of Rs. 77,713 Since there is no dispute or controversy about the fact that this was a total expense on foreign travelling and the purpose was duel, exploration to foreign market and looking to the advance technology or foreign machines to improve tool products, it was allowable as above said.

11. Coming to the claim of the assessee for further weighted deduction for Rs. 1,28,176, we find from column 5 of the above chart that the claim pertains to weighted deduction on samples, delegation expenses, ECGC premium, commission to Hosiery Exports Association etc. The ITO allowed only on travelling of certain guests. We are aware that the provisions of s. 35B were amended by the Finance (No. 2) Act, 1980, w.e.f 1st April, 1981. Clauses (ii), (iii), (v), (vi) and (viii) of s. 35B were omitted w.e.f. 1st April, 1981. The assessee had argued that this provision was introduced w.e.f. 29th Feb., 1968, i.e. from the date when Finance Bill for 1968 was presented. It was also argued that the expenses to be covered under s. 35B are those which are incurred after 29th Feb., 1968 but before 1st March, 1983. It was also argued that the Finance (No. 2) Bill 1980, was introduced on 18th June, 1980, as is evident from (1980) 123 ITR (St) 32. This bill was passed by the legislature and it received the assent of the President of India on 21st Aug., 1980, as per (1980) 124 ITR (St) 64. The Finance (No. 2) Act, 1980, amended the provisions of s. 35B withdrawing the above mentioned clauses w.e.f. 1st April, 1981. It was accordingly argued that the 'previous year' of the assessee since ended on 31st March, 1980, therefore, as per common sense, natural justice and promissory estoppel, expenditure incurred upto 1st April, 1981 should be considered without amendment of the section. In the alternative, he submitted that even under the amended section, the assessee's claim would be admissible on samples and delegation expenditure. The said samples, according to him, were given either to exporters here in India or sent outside. Therefore, if was nothing but act of sales promotion. According to him, as per cl. (i) advertisement or publicity and delegation expenses were covered. The ld. Sr. DR on the other hand, relied on the order of the CIT (A) and submitted that specific provisions would always exclude the general clause. If the samples were previously covered under cl. (vi) which had been deleted, it clearly showed that the legislature did not intend to continues s. 35 deduction on samples. Delegation expenses could not be covered as advertisement outside India and lastly he argued that for any type of expenditure to be considered under the general head of s. 35B(1)(b)(i). it was natural that the expense itself should have been incurred outside India.

12. After taking into consideration the rival submissions carefully and going through the amended section, we are unable to accept the request of the assessee. Whatever Act has been brought on the statute w.e.f. 1st April, 1981 would be applicable to asst. yr. 1981-82. We are also unable to accept the alternative plea of the assessee that at least on foreign delegation and samples, it should be entitled to weighted deduction. In the light of amendment of the relevant provisions w.e.f. 1st April, 1981, we don't find any reason to interfere in the finding of the CIT (A). Therefore, in respect of ground No. 5 the assessee succeeds only to get deduction on one and a half of Rs. 77,713 and on the balance and also on the amount of Rs. 1,28,176 the assessee fails.

13. Coming to ground No. 6 which is in respect of hotel expenses of the employees being in excess of limit under r. 6D in a sum of Rs. 17,803, the ld. counsel for the assessee was fair enough to say that identical issue had been before the Tribunal and there is no mistake in calculation of excess of the limit prescribed under s. 6D and his attempt is only to keep the issue alive. We also don't find any change in the facts of the case, circumstances or arguments of the ld. Sr. DR. Therefore, for the reasons given by us in our earlier order in the assessee's own case, we uphold the finding of the CIT (A) in disallowing the excess amount as per computation according to r. 6D and confirm the finding given in para 20 of the CIT (A)'s order.

14. Coming to ground No. 7 in respect of Rs. 12,000 pertaining to entertainment and guest house expenses, the ld. counsel for the assessee agreed that it was covered against the assessee. The ITO under this head disallowed Rs. 20,000 and the CIT (A) reduced the same to Rs. 12,000. The ld. Sr. DR relied on the order of the CIT (A). We don't see any reason to interfere with his finding given at page 8 in para 21 of the CIT (A)'s order. His action, therefore, is hereby confirmed and the assessee fails on this ground also.

15. Coming to ground No. 8 which is in respect of deduction of Rs. 91,273 regarding sale promotion expenses under Fully Fashioned unit, this disallowance is dealt with by the ITO vide para 24 at page 17 of the assessment order. The expenses relate to pieces of crockery items. The ITO classified the same as advertisement expenses and hence disallowed. The assessee before the CIT (A) submitted that it was not for advertisement but for sale promotion. He dealt with issue in paras 26 to 28 at pages 9 and 10 of his order. The ld. counsel for the assessee submitted that these were pure and simple presentation on sale promotion. He said that these items were given to agents in appreciation of their sales efforts and they were required to distribute the same to sub-dealers or customers. It was absolutely their discretion. He drew our attention to the certificates obtained from the agents. He submitted that these were distributed purely in appreciation of agent's services and further promotion of sales. In the alternative, he submitted that even as advertisement expenses Rs. 58,960 plus Rs. 5,000 Rs. 63,960 vide page 17 of the ITO's order should at least be allowed. The ld. Sr. Dr on the other hand, relied on the orders of the two lower authorities and submitted that distribution of crockery items tea-pot could not be connected with the business of assessee. The expenditure was clearly ex gratia or in the nature of advertisement and was rightly disallowed. He submitted very strongly that even names of the ultimate beneficiaries of these items were not filed before the ITO, IAC, or CIT(A).

16. After taking into consideration the rival submissions, we are unable to interfere in the finding of the CIT(A) on this issue. When the assessee failed even to come forward with the list of persons to whom the items were given either before the two lower authorities or even before us, the assessee's claim could not be admitted under the circumstances. It is not the case of the assessee that whatever was given to the agents for promotion of sales were retained by them. Once it is contended that these items were given through the agents, the agents apparently became conduit pipe and in the absence of names of the ultimate beneficiaries, the assessee could not succeed on this ground. The action the CIT (A) is, therefore, confirmed and the assessee fails on this ground.

17. Coming to ground No. 9 which is in respect of deduction of Rs. 33,996 pertaining to claim of M/s Gulabchand Ratanlal in respect of their Sales-tax liability, this issue has been discussed and dismissed by the CIT (A) in paras 33 and 34 at pages 11 and 12 of his order. The ITO has discussed this claim in para 29 at pages 22-23 of assessment order. By referring to pages 8 and 9 of the paperbook, the ld. counsel for the assessee argued that the assessee sold palm oil on consignment basis to M/s Gulabchand Ratanlal, Commission Agents of Ranchi. The assessee received sale vouchers regularly from the said party. Most of the sales were made by the said party in June, July, August and September, 1977 and thereafter in January, 1978. He drew our attention to the letter from the said party indicating that they had sent Sales-tax bills to the assessee in respect of the goods sent to them. It was argued that in consignment sale, it is not the consignee claiming sales-tax vis-a-vis the actual customer. In fact, the consignee acts as customer in principal to principal. The only understanding is that goods which remained unsold with the consignee, can be sent back by him. It was, therefore, argued that while M/s Gulabchand Ratanlal were selling goods to their customers, they were not acting on behalf of the Oswal Wollen Mills Ltd. He read out the letter and said that the same indicated that there was some confusion regarding sales-tax on palm oil. Most of the parties were selling palm oil in Bihar free of sales-tax but eventually the High Court held that sale of palm oil in Bihar was liable to sales-tax. M/s Gulabchand Retanlal to whom the goods were sent on consignment basis by the assessee-mill, were selling goods to their own customers under their own bills without charging any sales-tax. It was stressed that there was no privity of contract between the assessee mill and customers of M/s Gulabchand Ratanlal. When the High Court decision came, to sales-tax Department charged M/s Gulabchand Ratanlal to sales-tax in respect of their sales of palm oil to customers, on which they had not charged any sales-tax from the customers. It was pointed out that this was clearly the liability of M/s Gulabchand Ratanlal but as the assessee's credit balance of Rs. 24,033 was available with them, they adjusted the same and further demanded Rs. 9,963. All these details are available in the letter, to which our attention was drawn. The ld. counsel for the assessee further argued that in the interest of business, he suffered this liability but business liability cast on the assessee by M/s Gulabchand Ratanlal. It was strongly denied that M/s Gulabchand Ratanlal were the agents. Without prejudice to this argument, the ld. counsel for the assessee took additional plea that even if this liability thrusted upon him by M/s Gulabchand Ratanlal Because they were rather efficient in organising sales. He reiterated that this was not a case of sales tax liability is considered to be sales-tax liability, it was to be allowed during the year under consideration because it had been discharged during the year under consideration. He drew our attention to the Punjab and Haryana High Court decision in the case of Sirsa Industries vs. CIT (1983) 36 CTR (P&H) 130 : (1984) 147 ITR 238 (P&H) and submitted that it is to be allowed during the year when it was paid irrespective of the fact whether it related to earlier year.

18. The ld. Sr. DR on the other hand, relied on the orders of the ITO and the CIT (A). Nevertheless, according to him, the fact remains that M/s Gulabchand Ratanlal could not dare to claim this amount from the assessee because they must have been authorised to sell palm oil without charging sales-tax. He, therefore, argued that as per decisions of the Punjab and Haryana High Court in the case of CIT vs. United India Wollen Mills (1981) 24 CTR (P&H) 244 : (1981) 132 ITR 457 (P&H) based on the Supreme Court decision in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC), liability co ld. not be allowed during the year under consideration as it will be allowed in the year when it accrued. Sales were mostly made during the accounting year 1979-80.

19. After taking into consideration the rival submissions looking to the facts in the background and case-law cited by both the parties, it will not retain us for long that M/s Gulabchand Ratanlal were acting as agents of the assessee inasmuch as they could not violate the terms of the contract with the assessee-mill. The sales-tax liability was, therefore, on them, i.e. M/s Gulabchand Ratanlal. On the basis of these facts, therefore, the case law cited by either party do not affect the issue. Now the other part of the matter cannot also be ignored that since the money of the assessee was under control to the extent of 24,000 or so of M/s Gulabchand Ratanlal, the assessee did not want to spoil its relation with them, it was nothing but a business affairs as per which the said amount was usurped by M/s Gulabchand Ratanlal If it was pure and simple issue pertaining to Sales-tax liability, the assessee could not be made to suffer because it actually pertained to asst. yr. 1979-80, but here the sales-tax liability could not be that of the assessee. For no reason and rhyme virtually M/s Gulabchand Ratanlal usurped up the said amount because credit balance of the assessee was lying with them. Perusing the letter, it is apparent that the assessee suffered the loss during the year under consideration. The action of the CIT (A) is, therefore, reversed and the assessee succeeds on this ground.

20. Had we come to the conclusion that this was sales-tax liability in the light of cases relied upon by the ld. Sr. DR and the ld. counsel is for the assessee, the issue would have gone in favour of the Revenue because both the decisions in (1981) 24 CTR (P&H) 244 : (1981) 132 ITR 457 (P & H) and (1983) 35 CTR (P &) 130 : (1984) 147 ITR 238 (P & H) are of Punjab and Haryana High Court but earlier decision being of a bigger Bench should have prevailed. But we have found as a fact in the instant case that sales were not effected by M/s Gulabchand Ratanlal on behalf of the assessee, as they were not their agents because the assessee's money was lying in the their pocket, they could recover the said amount and when Rs. 24,000 odd were their in the credit balance, for petty sum of Rs. 9,000 and odd, a big assessee as the appellant is, would not have ruined its relations. Therefore, unauthorisedly they recovered but the assessee was obliged to suffer the said loss as to sustain its business and since the assessee got the bill during the year under consideration from M/s Gulabchand Ratanlal for the said amount and as per its letter, it was allowed as such. The action of the CIT (A) is, therefore, reversed in respect of this issue.

21. Coming to ground No. 10 which is in respect of addition of Rs. 53,896 in respect of electricity bill provided in the books in the course of assessment proceedings, the ITO has dealt with this issue in para 46 at page 32 of the assessment order. He allowed the total claim of the assessee in a sum of Rs. 1,03,796 on account of electricity bill, for which entry was passed by the assessee but since there was some dispute, only part payment was made to the Electricity Department. When the matter came before the CIT(A), he dealt with it in para 43 at pages 15 and 16 of his order and partly granted relief to the assessee, i.e. in a sum of Rs. 49,900 and sustained the balance addition of Rs. 53,896. The Revenue is also in appeal on this issue and the ground raised is No. 17 there. The facts in the background are detailed on item 18(vii) at page 12 of the statement of facts filed before the CIT (A). Which is also placed on the assessee's compilation before us. The said facts indicate that in the month of August, 1979, total electricity bill in respect of Oswal Solvent Extraction Unit was for Rs. 1,03,796 Since the Government liabilities were accounted for by the assessee on mercantile basis, this bill was also debited to the electricity account and credited to the bills payable account. As the assessee thought that the bill was on higher side, he protested against the same. In order to avoid disconnection, the assessee paid under verbal direction of the Electricity Department a sum of Rs. 49,900 during the relevant accounting period. The balance of Rs. 53,896 remained outstanding on the last date of the accounting year. i.e. on 30th June, 1980. The assessee explained that in subsequent year ending 30th June, 1981, a sum of Rs. 65,664 was credited to miscellaneous income account. The ITO disallowed the whole sum of Rs. 1,03,796. The CIT (A) allowed Rs. 49,900 and disallowed Rs. 53,896, as above said. Both the assessee and the Revenue are in appeal, therefore, the assessee's contention was that merely because a liability was disputed, the assessee should not be disentitled from claiming it as deduction. The ld. counsel for the assessee submitted that s. 43B was introduced by the Finance Act, 1980. w.e.f. 1st April, 1984. This section specifically provided that.

"(a) any sum payable by the assessee by way of tax or duty under any law. would not be allowed as a deduction unless the same has been paid. He argued that introduction of this section clearly shows that upto 1st April, 1984, Govt. de deduction or duty was allowable and deduction even if it was contested had hot been paid. This method of accounting was mercantile in the case of the assessee. He submitted that the CIT (A) was in error in disallowing a part of the sum in a sum of Rs. 53,896. The ld. Sr. DR on the other hand for both ground No. 10 in the assessee's appeal and ground No. 17 in the Revenue's appeal, relied on the assessment order and pointed out that introduction of s. 43B gave an indication that even in earlier years if any Govt duty has been disputed, it should be disallowed. He submitted that the assessee could not have the best of both the words.

22. After taking into consideration the rival submissions, we are of the view that since there is no controversy about the fact that the assessee is maintaining its accounts on mercantile system and the electricity bill was received during the relevant accounting period, therefore, the liability which did arise during the year under consideration but not paid, had to be allowed as a deduction. It is trite law by now that in mercantile system of accounting any liability which has accrued during the year has to be provided in the books and charged to profit and loss account. Any remission of the sum in subsequent years makes the assessee liable to credit the sum in the income account. Therefore, even if the assessee is contesting the payment of the electricity bill it has got to be allowed because the bill is received and the system adopted by the assessee is mercantile. In the instant case whatsoever received subsequently has been shown income of the assessee. Mere factum of part payment of the said liability shall not change the character of the entire payment. The assessee's contentions are directly supported by the Supreme Court decision in (1971) 82 ITR 363 (SC). We, therefore, confirm the action of the CIT (A) in respect of Rs. 49,900 and reverse is finding in respect of the balance amount of Rs. 53,896. In other words, the assessee's claim is to be allowed during the year under consideration on a total sum of Rs. 1,03,796. The assessee, therefore succeeds on this ground No. 10 whereas the Revenue fails on ground No. 17 of its appeal.

23. In ground No. 11, the assessee has claimed deduction of Rs. 7,050 regarding three intercom telephones and 24 fire-extinguishers. The ITO in assessment proceeding disallowed the said amount while scrutinising the details of 'general repair' in export wing, as he held the same to be of the capital nature. He, however disallowed depreciation of 20 per cent on intercom telephones and of 10 per cent on fire-extinguishers. He, in other words, added WDV of these two items in a sum of Rs. 7,997. The CIT (A) confirmed the action of the ITO in para 48 at page 16 of his order. The ld. counsel for the assessee while disputing the same drew our attention to statement of facts. He reiterated that the three intercom telephones were in replacement and that is why the said expenses was available in the general repair account. Against 24 fire-extinguishers each costing Rs. 212, which were also replacement of the existing fire-extinguishers, there being no controversy about these facts, the ld. counsel for the assessee submitted that the said expense was, therefore, allowable as revenue expenditure. He drew our attention to the fact that even if fire-extinguisher were purchased new, total cost was allowed as deduction as, according to him life of fire-extinguisher is not more than a year. Since the expense is less than Rs. 720, according to him, so far fire-extinguisher concerned, it should have been allowed it is entirety The ld. Sr. DR. on the other hand, relied on the orders of the two lower authorities.

24. Considering the facts available on record and appreciating the rival contentions, we hold that the expense is of revenue nature and should have been allowed as a total deduction. The action of CIT (A) is, therefore, reversed. Firstly so far fire-extinguishers are concerned, they were 24 in number. Apparently each of the same cost less than Rs. 750. So far intercom telephones are concerned, they were three. But three instruments in themselves have many sub-instruments and, if each is taken into account, it costs less than Rs. 750. However, to avoid any misunderstanding, no depreciation is admissible on the same total amount on both the items is to be allowed.

25. Next ground No. 12 is in respect of sum of Rs. 59,773 being the replacement cost of carpet and jute-holding cone and fire-extinguishers in export wing, held to be of capital nature by both the ITO and the CIT (A). The ITO dealt with this issue in para 53 at page 35 of the assessment order and the CIT (A) confirmed his action and dealt with the same in para 49 at page 17 of his order. The assessee's contention was that these were nothing but replacement of worn out items, as per page 14 of the statement of facts. The linolum 859-1 feet in leneth was replaced in the factory as the old jute carpets were worn out. The ITO actually added Rs. 59,773 out of total claim of Rs. 66,414, balance being depreciation. Identical issue had been before us in the assessee's own case for earlier years where carpets were held deductible on account of replacement. So far replacement of fire-extinguishers is concerned, we have already dealt with it in earlier part of this order. The claim of the assessee is, therefore, ordered to be admitted in respect of replacement of carpet, jute holding cone and fire-extinguisher.

26. Coming to ground No. 13 in respect of a sum of Rs. 3,492 being expenses on wall-clocks distributed to dealers in appreciation of their sales performance, the said claim was disallowed by the ITO as per para 55 at page 37 of the assessment order and the said disallowed by the CIT (A) in para 50 at page 17 of his order. Like distribution of crockery sets and other items which we have held against the assessee in earlier part of this order, final beneficiaries were not identified by the assessee. The ld. counsel for the assessee went on reiterating that it was in order to promote the sales and for better performance. This was revenue expenditure, according to him. The distributors did not keep the list of of dealers/sub-dealers to whom they had passed on the wall-clocks. In the alternative, he submitted that these were 240 wall-clocks in all and even at the cost of Rs. 40 each, the assessee's claim was to be allowed for Rs. 12,000. The ld. Sr. DR relied on the orders of two lower authorities. We are unable to accept the contention of the ld. counsel for the assessee but are of the view that the assessee should get a relief of Rs. 12,000 total wall-clocks being 240 and price @ Rs. 50 each. In other words, we accept the alternative contention of the assessee.

27. Coming to ground No. 14 which is in respect of deduction of Rs. 10,105 on account of dinner to participants of Asian games and same employees of the company, its claim was rejected both by the ITO and the CIT (A). Before us, it was argued that the employees of the assessee also participated in the dinner. The facts given at item 21 (iii) of the statement of facts were relied upon. The ld. Sr. DR relied on the orders of the two lower authorities. We don't find any force in the contention of the assessee. The action of the ITO and the CIT (A) in this regard is therefore, confirmed. The assessee fails on this ground.

28. Regarding ground No. 15 where the assessee has claimed deduction of Rs. 3,000 in respect of water-tax paid, brief facts are given at item 21 (iv) at page 15 of the statement of facts. From these facts, the ld. counsel for the assessee submitted that the charges related to the earlier year but were paid during the year under consideration because the demand was raised only this year as per vouchers shown to the ITO. When this fact was pointed out to the ld. Sr. DR he hardly had anything to say. We are of the opinion that this claim is to be allowed because, though it related to earlier year, the authorities themselves had raised the demand only during the year under consideration. The liability against the assessee could not accrue earlier than that. The action of the CIT (A) in this regard is, therefore, reversed and the assessee succeeds to this ground.

29. Coming to ground No. 16 in respect of reduction of Rs. 25,570 said to be wrongly added back by the assessee in its return regarding interest under s. 40A (8), the ld. counsel for the assessee drew our attention to item 22 at page 15 of the statement of facts. The assessee pleaded that the sum of Rs. 25,570 under s. 40A(8) may be reduced from the total income because it had no nextus with the income earned or that could be earned by the company. In other words, virus of the provision is being challenged. Neither the CIT (A) nor we are in a position to entertain such a challenge. According to us, the assessee's claim was rightly dismissed by the CIT (A). We see no reason to interfere in the same. The assessee fails.

30. Coming to ground No. 17, the dispute is regarding the assessee's claim of investment allowance on the new machinery installed in Wool Combing Unit. The facts are detailed as per item, 23(i) at page 15 of the statement of facts. The addition to machinery was of humidifiers and exhaust fans, weighing scales and laboratory equipment. The assessee claimed that all these items are part and parcel of the plant as without these items the combing unit would not work efficiently. The contention of the assessee was that these contribute as much the processing and production of goods as the card clothing or the combers. When the ITO did not allow investment allowance on any of these items, the issue came before the CIT (A) who directed that investment allowance be allowed on humidifiers and exhaust fans which became part of the combing plant, subject to the assessee's fulfilling the conditions regarding investment allowance reserve etc. The assessee's claim of weighing scales and lab equipment was not allowed by the CIT (A). The assessee has claim investment allowance before us on items disallowed by the CIT (A) in ground No. 17 whereas the Revenue has disputed the action of the CIT (A) in respect of investment allowance allowed on humidifiers and exhaust fans as per ground No. 18 in the Revenue's appeal. We have carefully gone though the facts and perused the orders of the two lower authorities carefully. The action of the CIT (A) in para 55 at page 17 of his order does not call for any interference. Both the assessee and the Revenue in their respective grounds of appeals on this issue fail.

31. We may observe, before we part with the matter that without humidifiers and exhaust fans, the combing unit will be incomplete in its functioning. But so far weighing machine and lab equipment is concerned, it cannot be treated as part of the plant. Therefore, we have confirmed the action of the CIT (A).

32. In ground No. 18, the assessee's claim is again of investment allowance in a sum of Rs. 46,741 on outgoing switch board in Madras Vanaspati plant. The assessee's claim when not allow by the ITO, was dealt with by the CIT (A) at the instance of the assessee, who discussed and dismissed the same as per para 57 at page 18 of his order. Before the CIT (A), the dispute was in respect of outgoing switchboard and hydrogen cell. He allowed the assessee's claim in respect of hydrogen cell but rejected it for the outing switch board. The assessee is in appeal against this decision. It is contended that the outgoing switchboard is as much a part and parcel of the Vanaspati unit as hydrogen cell. The Vanaspati unit can neither function without hydrogen cell nor without outgoing switch board. The ld. Sr. departmental representative, relied on the orders of the ITO and the CIT (A) and argued that even if outgoing switch-board was considered to be a 'plaint' it did not manufacture any item or thing. Therefore, investment allowance could not be granted. Considering the arguments from both the sides, as per our consistent view and our earlier decision in the assessee's own case, we hold that outgoing switch-board having been installed becomes part and parcel of Vanaspati unit. Therefore, the same is entitled to investment allowance. The ITO is directed to grant the same subject to the condition prescribed under the Act regarding reserve etc.

33. In ground No. 19 again the dispute is regarding investment allowance in respect of solvent unit pertaining to electrical machinery worth Rs. 2,22,129. This claim was dealt with by the ITO at page 28 in para 43 of the assessment order and the CIT (A) upheld his action in para 60 at page 19 of his order. The main reason for disallowing the investment allowance was that it was electrical machinery. The assessee's claim, on the other hand, is that electrical machinery when installed in solvent plant becomes inseparable and without it the plant cannot function. We had occasion to deal with this issue earlier in the assessee's own case and for the very same reasons, we hold that electrical machinery becomes part and parcel of the plant and, therefore, it contributes in manufacture of articles and things as such other machinery in solvent plant did. Accordingly the ITO is directed to allow investment allowance on this machinery also, provided the assessee fulfills other conditions regarding creation of investment allowance reserve etc.

34. Ground No. 20 is again in respect of investment allowance on generators worth Rs. 1,54,990 and electrical machinery worth Rs. 23,742 in Export wing unit. The ITO has dealt with it in para 51 at page 35 of the assessment order whereas the CIT(A) has upheld his action in para 62 at page 20 of his order. The facts in the background and arguments of both the parties are identical as in respect of issue in ground No. 19, dealt with above. We hold for the very same reasons that electrical machinery installed in the Export wing unit had become part and parcel of the plant and was entitled to investment allowance. The assessee, therefore, also succeeds on this ground and the ITO is directed to allow the same, in case other conditions prescribed under the Act are fulfilled.

35. Next ground No. 21 is in respect of depreciation on wooden cabins erected in fully fashioned unit and double shift allowance. This issue is discussed by the ITO in para 26 page 20 of his order and while confirming the same, the CIT(A) upheld his finding in para 66 at page 21 of his order. Relevant facts are given at item 25(ii) page 17 of the statement of facts. In respect of wooden cabins, the issue is covered by our earlier decision in the assessee's own case for asst. yr. 1977-78. Since we hold that they were removable and temporary structures, are entitled to 100 per cent depreciation. Regarding not allowing depreciation @ 15 per cent for double shift working on electrical installation, we are of the view that machinery of fully-fashioned unit is entitled to the same for the very same reasons for which the assessee's claim was allowed in Export unit wing. The cost or WDV of the electrical installation coming from earlier years had since become part and parcel of the unit, depreciation should, therefore, be granted on the same and also double shift allowance is directed to be granted on the very same basis on which the assessee's claim is allowed in hosiery machinery of this unit. The assessee therefore, succeeds on Ground No. 21 as well.

36. In ground No. 22, the dispute is regarding the assessee's claim of depreciation on Vanaspati @ 15 per cent and extra shift allowance depreciation on weigh bridges. We had occasion to deal with these issue earlier in the assessee's own case and adjudicated the same against the assessee. For the very same reasons, the action of the CIT(A) is confirmed and ground raised by the assessee is dismissed.

37. Coming to ground No. 23 which is in respect of extra shift allowance for 258 days in Ludhiana Refinery Unit, the ld. counsel for the assessee elected not to press the same. The same as such is rejected.

38. In ground No. 24, the dispute is regarding depreciation @ 10 per cent on the building at harbour used for storage tank of incoming raw material by the Madras Refinery unit. Mere fact that Harbour is far away from the factory building does not mean that it cannot be used for storage tank, according to the ld. counsel for the assessee. We had occasion to deal with this issue in asst. yr. 1977-78. Even from these facts that storage tank is not a godown nor an office building nor quarters, once it built by the assessee for the purpose of storing oil, it is to be entitled to depreciation as per Appendix 1 Part I Item I(2). of the IT Rules. The ITO is directed to allow the depreciation @ 10 per cent on the same.

39. In ground No. 25, the dispute is regarding extra shift allowance for full year in OWM solvent unit. The CIT(A) rejected the claim of the assessee in para 74 at page 23 of his order Since the evidence was neither placed before the two lower authorities nor before us to controver the finding given by them, the assessee's claim is rejected.

40. In ground No. 26, the assessee's claim is regarding extra shift allowance, depreciation on new machinery installed in OWM Solvent unit and additional depreciation on the machinery. This claim of the assessee is dealt with by the CIT(A) in para 75 at page 23 of his order. The assessee's claim for ESA depreciation on the said machinery for full year is rejected. However, ESA depreciation on the said machinery is to be allowed for 105 days as on the additional depreciation also, in view of the Board's circular and for the reasons on the basis of which we have accepted the assessee's claim of ESA depreciation on additional machinery as agitated in Ground No. 31 by the assessee in its appeal. The ITO would look into the matter while giving effect to this order whether the assessee fulfills the condition laid down under s. 32(1)(iia), as he is directed to grant additional depreciation @ 1/2 per cent of normal depreciation on the machinery installed after 31st March, 1980. Since this aspect of the matter is not looked into by the ITO.

41. In ground No. 27, the assessee's claim is regarding depreciation on electrical machinery worth Rs. 2,22,129 installed in OWM Solvent, Ludhiana, which became part and parcel of the plant and machinery. This issue is converted by our earlier decision in the assessee's own case and also as per our observation made earlier in this order. The ITO is directed to allow ESA as allowed to own Solvent Unit on the WDV as per record of the electrical machinery installed in the factory.

42. Next ground No. 28 is regarding the assessee claim of depreciation @ 20 per cent on generator installed in Oswal Solvent. Ludhiana. This issue is also covered against the assessee in its own case for earlier year, subsequently he got the same in the light of our decision in the case of Advanced Micro Device 19 TLR 469 (Chd) and Madras Tribunal's decision in ITA No. 1484/79. Since on earlier occasion, the assessee was not serious and lost its claim but subsequently got the same, as above said, the same is, therefore, ordered to be allowed here also.

43. Coming to ground No. 29 which is in respect of the assessee's claim of depreciation @ 15 per cent on plant and machinery of Ludhiana Vanaspati Unit and extra shift allowance on electrical machinery, the assessee's claim of depreciation @ 14 per cent on plant and machinery is rejected because of our earlier decision in the case of the assessee itself. However, in respect of ESA on electrical machinery, it has already been held that it became part and parcel of the plant and ESA is, therefore, directed to be granted on the basis of WDV, as per record.

44. In ground No. 30 again, the claim is regarding extra shift allowance depreciation on electrical machinery installed in Oswal Export Wing Unit, which is also directed to be allowed as per our observation given above.

45. Coming to ground No. 31, in which the assessee has contested extra shift allowance in addition to the machinery installed during the year under consideration, the submission of the ld. counsel for the assessee was that the machinery was installed during the year under appeal. Normal depreciation has been allowed by the ITO. The ITO disallowed the ESA on the plea that the machinery was installed at the end of the 'previous year'. The ld. counsel for the assessee pointed out that the ITO has discussed this disallowance in para 54 at page 36 of the assessment order. The ld. counsel for the assessee submitted that the ITO should have looked into the fact the factory worked triple shift. The working of individual machinery is not relevant. Reliance was placed by him on the Board's circular. He reiterated that the Board's instructions are binding. The ld. Sr. departmental representative on the other hand, submitted that ESA claim is to be considered on each item individually. Therefore the assessee is obliged to prove to the satisfaction of the ITO that the entire machinery worked for the number of days. He submitted that the machinery was installed on the last day of the 'previous year'. Therefore, the assessee's claim was rightly rejected. We have considered the rival submissions and looked into the facts triple carefully. There is no controversy about the fact that main textile unit had worked tripe shift and the ITO had allowed depreciation at the rate applicable to triple shift working for the whole year. However, on said machinery the ITO has restricted the claim on the basis of number of days working. If we go carefully through Appendix I Part I Item III (iv) and Board's circular, referred to above, we find that it goes in favour of the assessee. The said Circular No. 109 (F. No. 202 21/71-IT(A-11)) dt. 20th March, 1973 reads as under:

"The Board have decided that where a concern has worked double shift or triple shift, extra shift allowance will be allowed in respect of the entire plant and machinery used by the concern without making any attempt to determine the number of days on which each machinery actually worked double or triple shift during the relevant previous year."

In the light of above circular, we are of the view that the assessee's claim of ESA on machinery installed during the year under consideration and which has been put to use, is to be allowed. Board's circular is binding, is trite law by now. We, therefore, reverse the finding of the CIT(A) and direct the ITO to allow ESA on the entire of machinery as has been allowed by him on rent of the machines of this unit. The assessee, therefore succeeds on this ground.

46. Coming to ground No. 32 which is in respect of depreciation on building and furniture of Export Display House, neither any evidence was produced before the two lower authorities nor before us to prove that the same was used or was ready for use during the year under appeal. This ground of appeals is, therefore, rejected and the action of the CIT(A) is confirmed.

47. The last ground No. 33 in the assessee's appeal is regarding ESA depreciation on generator of main textile unit. This claim was disallowed by both the lower authorities. This issue is covered in favour of the assessee by our earlier decision in the assessees own case. The action of the CIT(A) therefore, in the light of our observations made in earlier years order is hereby reversed.

48. Now what survives for our consideration is the appeal filed by the Revenue. The first ground is regarding deletion Rs. 2,36,934 made by the ITO under the head 'leave with wages'. Ground No. 2 an argument raised in support of same. The issue is covered in favour of the assessee by the our earlier order in the assessees own case pertaining to asst. yr. 1976-77 in ITA Nos. 168 and 185/Chandi/80 dt. 21st Jan., 1984, which was subsequently followed for other years. The ld. Sr. Dr. was fair enough to say that the issue is covered and his attempt is only to keep it alive.

49. In Ground No. 3 the Revenue has contested the action of the CIT(A) who granted depreciation and investment allowance in respect of grain analyser. The assessee had claimed deduction at Rs. 2,06,165 under s. 35(i)(iv) in respect of grain analyser. It was contended that grain analyser was an apparatus with which the assessee was conducting research. In the alternative, the assessee had requested for depreciation of investment allowance on the same. The assessee's claim having been rejected under 35(1)(iv), its claim for depreciation and investment allowance was accepted. It is the later direction which is challenged by the Revenue. The ld. Sr. DR relied on the reason given by the ITO and has also mentioned that there was no proof that the grain analyser had been utilised. Accordingly, the action of the CIT(A) was sought to be reversed. The ld. counsel for the assessee submitted that the grain analyser was purchased to conduct research as to whether oil contents and contents of deoil extraction could be predicted. If it could be of great help to the unit as it would save considerable time and money is otherwise necessary for detailed chemical analysis. The apparatus was utilised in solvent plant, as has been observed by the ITO in para 6 of his order. To quote extract words, the ITO had said:

"It is very clear that this grain analyser is a part of the machinery of Oswal Solvent Unit and is to be used for checking the quality of the grain purchased/likely to be purchased by the assessee."

The grain analyser, according to the assessee, was used but unfortunately the record could not be produced as it was not traceable. It was submitted, had the record been available and produced the assessee would have got 100 per cent deduction under s. 35(1)(iv). He relied on CIT vs. Viswanath Bhasker Sathe (1937)5 ITR 621 (Bom) wherein it has been held by the Bombay High Court that machinery kept ready for use in a factory would be entitled for depreciation even if it could not be used for some reason or other. We have taken into consideration the rival submissions. There may be no dispute that grain analyser formed part and parcel of the solvent plant. Since depreciation in Solvent plant has been allowed, we don't find any valid reason why the same has been disallowed on this apparatus. The assessee has already suffered enough by loosing its claim under s. 35(1)(iv). Once grain analyser has been acquired before accounting year was out and it is admittedly a part and parcel of the solvent plant, depreciation has got to be allowed and the CIT(A) has rightly reversed the finding of the ITO. His action is hereby confirmed. The revenue, therefore fails on the ground.

50. In Ground No. 4 the dispute is regarding deletion of Rs. 8,26,000 in respect of unexplained investment on the purchase of factory building. The ld. Sr. DR relied on the order of the ITO, and submitted that the CIT(A) has wrongly relied on the decision in Supreme Court in the case of K.P. Verghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC), which was entirely on a different issue. The ld. counsel for the assessee, on the other hand, submitted that item 6 of the statement of facts clearly show that the assessee-company purchased part of the factory building of M/s Pearl Mech. Engg. and Foundry Works P. Ltd. situated in industrial Area 'A', Ludhiana for Rs. 10 lakh and that too through intervention of Court. Since it was a Court sale therefore, possibility of any underhand value payments was not there. It was also pointed out that the said property was mortgaged with the Punjab National Bank by the vendor and the assessee, its price was settled after the approval of the bank and payment was made to the bank through Court. The report of the valuation officer was explained to the suffering from many defects. In any case, it was mentioned that the said report was not sent by the ITO alongwith his letter dt. 30th Feb., 1984 nor there was any mention of the same in the said letter. Otherwise, the assessee should have explained the discrepancy, if any. He repeated off said argument from the side of assessee that valuation report could not be equated with sale price. There was no law which could grant a presumption to the ITO that purchase of the property was made by the assessee for a sum of Rs. 18,31,000 The proposition for which the Verghese's case was relied upon was, if there was no evidence for the payment received under table by the vendor, by then the Department could not charge the vendor, for any capital gains in respect of the alleged difference in the fair market value of the property and stated sale consideration. It was argued, if the vendor could not charge the difference, similarly there could not be any presumption that the vendors has paid anything more than the consideration under table. Our attention was drawn to the fact that acquisition proceedings were knocked down by the Tribunal in Acq. Appeal Nos. 1 and 2 of 1982 dt. 16th Aug., 1982 to which one of us (Judicial Member) was a party. Moreover, the said decision was by this very Bench. We are unable to appreciate the interjunction of the ld. Sr. DR made at this stage that the said decision was not since accepted by the Revenue, there should be no value for it.

51. When we peruse the facts available on the issue and go through the rival submissions, we find that the CIT(A) has not only taken into consideration the said Tribunal decision but has also dealt with the merit of the valuation officers report which have been commented upon in paras 38 and 39 of our order dt. 16th Aug., 1982. When we go through the said order, we find, it was held that:

"On each of the grounds stated above the acquisition proceedings and the order resulting therefrom are bad in law. The order of acquisition is cancelled."

We also cannot ignore the defects of the valuation report which was based on sale transaction of residential plot of 1000 sq. yds. can not be ignored. As observed by us, like was not compared with like. Such a defective valuation report should not have aroused any suspicion in the mind of ITO and any presumption drawn by him on the basis of the same is unjustified and illegal. When we take into consideration the rival submissions and look into the facts, we do not find any evidence at all with the ITO to say that any extra payment had been made by the assessee to the vendor nor is there any evidence on record. Moreover, sale was through intervention of Court and could not apparently be collusive transaction. Under these circumstances, the presumption of the ITO are without any basis. The property was mortgaged with the bank is uncontroverted, payment was made to the bank through Court is also an admitted fact. Under these circumstances, no authority should have even suspected any under deal. The Hon'ble Supreme Court decision though relevant in the instant case only for charge of capital gains, could certainly be relied upon by vendee also because, if the presumption in respect of deal of capital gains could not be raised against the vendor, it naturally followed that the vendee could also not be asked to explain any alleged investment outside the books on the basis of such presumption. In view of the above discussion and for the reasons given by the CIT(A) in his order we unhesitatingly come to the conclusion that there is no evidence on record to show that any unaccounted investment was made by the assessee in purchasing the factory building from M/s Pearl Mech. Engg. and Foundry Works P. Ltd. The addition of Rs. 8,26,000 was therefore, rightly ordered to be deleted by the ld. CIT(A). The revenue fails on this ground.

52. In ground No. 5, the Revenue has challenged s. 80J relief in respect of the refinery units and group No. 6 is an argument in support of the same. Both the ld. Sr. DR and the ld. counsel for the assessee relied on their respective arguments in respect of the assessee's appeals for 1978-79 and 1980-81 assessment years. The issue is concluded in favour of the assessee by our orders in the assessee's own case for those years. For the very same reasons, we uphold the decision of the CIT(A) and ground Nos. 5 and 6 are therefore, rejected. In other words, these are converted by our decisions in the assessee's own case for earlier years.

53. Coming to ground No. 7 which is in respect of foreign travelling expenses of Rs. 77,713, we have already dealt with the same above while dealing with the assessees ground pertaining to weighted deduction (ground No. 5 in the assessee's ground and upheld the same against the Revenue).

54. In ground No. 8 deletion of Rs. 20,328 from the assessee's income from Madras Solvent Unit is challenged. The ld. Sr. DR took us through para 18 at pages 14-15 of the ITO's order. He pointed out that there was difference in the opening stock and stock sold. The valuation of the difference only had been added by the ITO, as the assessee could not explain the same. Even before the CIT(A), evidence was not forthcoming and, therefore, the assessee failed to explain the alleged difference. The ld. counsel for the assessee brought to our notice statement of fact at item 12 page 7. It was explained that the Madras Solvent Unit was eventually closed down. Therefore, there was no production of deoil, during the year under appeal. All the old stock of deoil, rice bran cakes etc. were cleared from the godowns by selling the stock. It was explained that deoil extraction is a powdry substance and over a long period of storage in a manufacturing concern of the assessee's magnitude, it was not unusual to expect such type of loss especially when a unit was finally closed. Both the parties have been heard and looking to the magnitude of the assessee's trade and facts explained by the assessee, we are in agreement with the ld. counsel for the assessee that in such circumstances when the unit closed there could not be possibly any evidence regarding such stock then entries in the books of account and stock registers specially when goods are destroyed or infected by insects. On the basis of these facts, we are of the view that the CIT(A) has rightly accepted the assessees contention as per para 23 ai page 8 of his order. His finding is, therefore, confirmed.

55. Coming to ground No. 9 which is in respect of deletion of Rs. 3,14,462 made by the ITO but deleted by the CIT(A), the addition was for under-valuation of closing stock. The ld. Sr. DR. took us through pages 18 to 20 of the ITOs order and argued at length that the ITO found that the assessee was systematically undervaluing the closing stock of seminfinished and finished goods. Regarding semifinished goods, he found that manufacturing cost per piece instead of being Rs. 5.74 should be Rs. 40 calculated by the ITO in para 25 at page 18 of the assessment order. However, difference charged by the ITO was a on reasonable basis. As per the ld. Sr. DR he did not value the semi-finished goods at Rs. 40 but instead adopted only Rs. 20 per piece, i.e. 50 per cent to what he did. This, according to the ld. Sr. DR was most reasonable and therefore, the action of the ITO was more than fair and covered all the possible objections of the assessee. The addition of this score was Rs. 2,27,447. Further the ITO found that the assessee was reducing 35—from the sale price of finished goods in order to arrive at the cost of the same for the purpose of valuing the closing stock. The ITO found that the gross profit of the assessee was 31.31 per cent. So it was obvious, according to the ld. Sr., DR that finished goods had been valued below the cost. The addition on this score made by the ITO was only of Rs. 87,015 which was most reasonable and justified. According to the ld. Sr. DR, total addition of Rs. 3,14,452 had been proved by the ITO as under valuation of closing stock and he added the same on the basis of three cases cited at page 20 of the assessment order. It was, therefore, argued that the deletion made by the CIT(A) in para 32 at page 11 of his order was not justified.

56. The ld. counsel for the assessee on the other hand, argued that the alleged discrepancies pointed out by the ITO had been duly explained to him as well as in s. 144B proceedings before the IAC. It was argued that the addition was made by the ITO on two counts. One being value of semifinished goods and finished goods. In respect of semifinished goods, amount of Rs. 574 per piece added by the assessee to their cost, was only in respect of processing charges. This was over and above the cost of yarn. The difference in two calculations was explained to be due to addition of Rs. 8,71,742 by the ITO regarding store consumption. The auditors of the assessee company had not taken this into consideration because it included items like threads, butters and sips etc. These were used only when pieces were finished. It was argued that the auditors had rightly not included the stores consumed for semifinished goods. The other items of difference adopted by the ITO in valuing the closing stock was on account of manufacturing expenses which was taken by him at Rs. 19,61,145 whereas the auditors of the assessee had only taken the same at Rs. 1,36,503 as wages to machine operators and Rs. 51,790 as machine repairs. This was consistent practise of the auditors for all the past years and the same was followed subsequently also. It was also argued that according to the principles of cost, whenever cost per piece of manufactured item is to be determined only production based expenses are to be taken into consideration. The auditors who were qualified chartered accountants were justified according to the ld. counsel for the assessee, in adopting the method of valuing the closing stock. It was further argued that manufacturing expenses included 16 items details of which were submitted before the ITO. Except for wages to machine operators and machine repairs more of the other expenses were linked with direct production of semi-finished goods. Moreover, the ITO had taken electricity expenses twice. Once separately at page 18 and then again as part of manufacturing expenses. It was also argued by the ld. counsel for the assessee that fabrication charges amounting to Rs. 15,52,386 included in the manufacturing expenses of Rs. 19,61,145 considered by the ITO at page 18 of his order were actually in respect of payment to outside labour for job work on finished goods. Thus the question of including the same while valuing the seminfinished goods could not arise and conclusion of the ITO was absolutely erroneous. It was also pointed out that dying charges included in the manufacturing expenses were not relevant because all the items in closing stock were of hosiery goods for which dyed yarn had been used. This yarn was transferred by other unit and was only dyed by this unit. Similarly, it was also argued that provident fund, ESI, bonus, leave with wages in respect of non machine operators could not be considered in valuing the stock of seminfinished goods. It was further submitted that the ITO was himself satisfied that his conclusion was not justified in accordance with the principle of cost because after arriving at a cost of Rs. 40 per piece he had for the purpose of determining the under valuation adopted only an amount of Rs. 20 per piece. The deletion, therefore, by the CIT(A) is in order.

57. Regarding finished goods, it was argued that it had also been consistent practice of the assessee, again on the advice of the auditors, to first adopt sale price of finished goods and then reduce the same by 35 per cent to arrive at the cost of finished goods. This method prescribed by the auditors had been followed by the assessee year after year consistently. It was argued that the gross profit, as per profit and loss account, would be nearly 35 per cent, if excess element is included in the same, as was done in all the year by the assessee. It was also submitted that the Excise duty on hosiery good was 8 per cent. Therefore, if selling price of finished good per piece inclusive of Excise duty was taken at Rs.100, then actually sale price of the goods would be only Rs. 92 (100-8). If the g.p. computed by the ITO at 31.31 per cent is reduced, profit element would be 31.31 per cent of 92, i.e. 28.80. This profit element along with Excise duty when reduced from the sale price of Rs. 100 would give the cost at Rs. 63.20 (100-8-28.80). It was thus argued that the assessee on the basis of the consistent practice and as advised by the auditors, was reducing 35 per cent and adopting the cost price at Rs. 65 perpiece. This was obviously more than actual cost admissible above, viz, Rs. 63.20. It was also argued that the ITO was not justified in assailing even the value of finished goods in the closing stock of fully fashioned unit. The assessee, it was argued, was a public limited company where fixed rate of tax was chargeable year after year without any basic deduction. Thus, according to the assessee, there could not be any incentive or motive for him to reduce its profit in one year and the increase the same in other. It was, therefore, argued that all the three cases cited by the ITO were not applicable to the facts of the assessee's case because in the said decisions, method of valuation was arbitrary and in one case stock had been valued even below the market price. It was argued that the method adopted by the assessee was direct cost method for semi-finished goods, which was a recognised method of costing adopted by exports and was being followed consistently year after year. Opening stock of the assessee was also valued on the same basis. Thus the true profit were being reflected. According to the ld. counsel for the assessee, value of closing stock was demonstrated to be not below the cost. Therefore, according to him, the CIT(A) was justified in holding what he held.

58. After taking into consideration the rival submissions in detail and going through the fact available on record, we find that this is the first year in which method of accounting adopted by the assessee in this unit has been assailed specially regarding the closing stock. The uncontroverted facts are that the method adopted for valuing the semifinished goods is direct cost method, which is a recognised method. The same has been followed year after year by the assessee consistently at the instance of the auditors who were chartered accountants. The item of expenses relating to outside Labour of job work on finished goods could obviously not be included in the value of finished goods. The items of stores were not such which could only be used when pieces were finished. Such expenses could also not form part of cost of semi-finished goods. Hosiery items being manufactured from dyed yarn supplied by other units of the assessee, there is no justification in including the dying expenses in the costing of semi-finished goods. Again the consistent method of valuing the finished goods adopted by the auditors was justified and the value determined was not below the cost price. Explanation submitted by the assessee at pages 20 to 24 of the paperbook was satisfactory and alleged discrepancies had been duly explained. In the year under appeal, this unit had declared a profit of Rs. 19,35,163 as against loss of Rs. 1,22,202 in the earlier year. These figures are available at pages 25 and 26 of the paperbook. There is no justification of doubt in reduction of profit by manipulation of closing stock. We hold that the assessee's method of valuing its closing stock on direct cost basis was justified and in order as it was a recognised method adopted as per directions of the chartered accountants. In view of the above-said reasons we are of the opinion that the ld. CIT(A) was justified in holding that the method of valuing the closing stock of this unit prescribed by the auditors year after year and consistently adopted as such could not be disturbed. We accordingly up-hold his decision even in para 32 at page 11 of the first appellate order and hold that the ITO was not justified in invoking the provisions of s. 145(1). Ground No. 9 of the Revenue is, therefore, rejected.

59. Coming to ground No. 10 which is in respect of ad hoc addition of Rs. 20 lakhs in the Ludhiana Refinery Unit, made by the ITO but deleted by the CIT(A), the ld. Sr. DR mainly relied on the order of the ITO. He argued that the paras 30 to 33 at pages 23 to 25 of the assessment order, the ITO has proved that net profit has fallen from 7.33 per cent to 3. 28 per cent, a fall of more than 50 per cent as compared to earlier year. The wastage in refining of oil was more than three times of the mean FFA of oil, which was usual norm of shortage. He also argued that the assessee had shown purchases in its books out of which three parties were suspected and despite the opportunity given by the ITO, none was produced. The burden of the assessee was not thus discharged. He argued that in this conspectus ad hoc addition of Rs. 20 lakh, which was more or less in the fall of net profit, was justified. He requested that deletion by the CIT(A) was wholly unwarranted. The ld. counsel for the assessee, on the other hand, relied on statement of facts at pages 9-10 item 16. He also relied on the assessee's letter dt. 1st March, 1984 filed before the ITO. It was argued that the facts were undisputed. When all the books of account and registered prescribed by the Excise and VOP authorities including returns were produced before the ITO and examined, no discrepancy was pointed out. In its letter dt. 2nd Dec., 1983, the assessee gave details of stock statement, increase in manufacturing expenses and other queries of the ITO were adequately replied to. Bank statements were also produced for the ITO's inspection. It was further pointed out that in its letter dt. 25th Feb., 1984, addresses of suppliers were given. In its another letter dt. 1st March, 1984, the assessee produced statement of the banks, quantity of oil purchased as well as loss incurred in refining and also supplied many other details demanded by the ITO. No discrepancy was even pointed out. The rate of g.p. was explained before the ITO as not being constant. According to the assessee, it varied from year to year and from assessee to assessee. It was argued that the sales had gone up by merely 250 per cent. Therefore, the ITO should not have doubted the shortfall in the percentage of profit. It was also explained that the shortage in the process of refining was within the norms allowed by the STC and prescribed by the experts. There was no occasion for the ITO, to doubt the shortage. It was also argued that regarding details of sales, the assessee had explained that it was very lengthy and accordingly the sale book was twice left with the ITO, and he agreed to test-check the same. The matter was also restored by the ITO to the Inspector who after thorough scrutiny noted down a number of parties from the sale book. Consumptions registers were also left with the ITO, as is apparent from undisputed fact of item 16 of the statement of fact. The consumption of the alleged excessive wastage, if the shortage allowed in the previous years was taken as a standard, was prepared on the directions of the ITO and were filed without prejudice to the claim that the shortage was in order and did not call for any comment or objection or addition. This was done in order to cooperate with the ITO. The assessee also argued that the ITO had not communicated any reason for doubting the purchases made from M/s Pyarelal & Sons, Arora Sales Corpn. and Pahwa Industies Pvt. Ltd. Pyarelal & Sons had been examined in the previous years' assessments. The assessment order of M/s Pharelal & Sons for 1980-81 and M/s Arora Sales Corpn. for 1980-81 and 1982-83 were filed by the assessee at pages 38 to 42 of the paperbook. Request had also been made by the assessee to the ITO that he may call anybody in evidence to whom he desires. Diet money had been deposited. It was argued that summons had been issued to M/s Pahwa Industries Pvt. Ltd. as well as M/s Arora Sales Copn. The assessee referred to page 59 of the paperbook in connection with its letter dt. 19th March, 1984 in reply to the ITO's letter dt. 16th March, 1984 (No. 609) and argued that M/s Pahwa Industries Pvt. Ltd appeared twice before the ITO along with their books of account. This fact was assailed by the assessee in its letter and has not been denied. In any case, it was argued that when service of summons had been made on M/s Pahwa Ind. P. Ltd. and M/s. Arora Sales Corpn., it was duty of ITO to enforce their presence. The assessee, therefore, argued that it had discharged its burden of producing all the evidence which was available with it and which a businessman maintains in the normal course of business. It was accordingly prayed that the order of the ld. CIT (A) being Proper and justified be confirmed.

60. After taking into consideration the facts available on record in the form of correspondence and statements and rival contentions from both the sides, we are unable to interfere in the finding of the CIT(A). As an matter of fact, this issue is covered to a great extent by our earlier order where in a case of this type where accounts have been subjected to Govt. scrutiny and no discrepancy has been found, the claim should not have been disturbed. Moreover, sales are improved and g.p. rate quite differs on more than one counts. Then it is trite law by now that ad hoc additions are not approved by the Courts. The ITO has not pointed out any defect in the books of account of the assessee except low g.p. rate. The shortage of refining was within the norms and should not have been doubted. The assessee has proved the purchases even from the three suspected suppliers by overwhelming evidence. The assessment orders of two find place on record. Pyarelal & Sons had been accepted by the CIT(A) and by us as a genuine party in earlier years. The assessment order of M/s Pyarelal & Sons, as above said, was on record. Similarly, the assessment order of M/s Arora Sales Corpn, was also on record. This party had received the summons but if he never cared for the same, the ball was in the ITO's Court and he should have exercised his powers for theirs presence, as power to enforce compliance is vested with the ITO. M/s Pahwa Ind. P. Ltd. has not only received summons but as per the assessee's two letters, referred to above, which remained uncontroverted, they appeared before the ITO twice along with their books of account. Under such circumstances, we hold that the burden on the assessee was fully discharged and the assessee had proved its purchases from these parties. For the aforesaid reason alone, we don't find any reason to interfere in the finding of the CIT(A) given in para 40 at page 14 of his order. Reliance by him on the decision of the Pubjab and Haryana High Court on the case of Jhandumal Tara chand Rice Mills. vs. CIT (1969) 73 ITR 192 (P&H) is well-placed. The finding of the CIT(A) is, therefore, confirmed.

61. Ground No. 11 raised by the Revenue is more of an argument in respect of ground No. 10. As we have held above that the assessee discharged its onus and suspected parties were in existence and genuine parties who were income-tax assessee and had books of account and one of them had been accepted as such by us in the immediately preceding year, the Revenue does not have any case.

62. Coming to next ground No. 12 which pertains to deletion of Rs. 5,20,000 in the Madras Refinery Unit, the ld. Sr. DR took us through para 41 at pages 27 and 28 of the ITO's order and argued that there was a fall of 2.60 per cent in the net profit for the sales nearly remaining the same. The percentage of the store consumed was high as compared to earlier year and there was marginal increase in the percentage of manufacturing expenses and other administrative expenses. He submitted that the information required by the ITO was not filed. Therefore, the ITO was justified in rejecting the books of account and in estimating the net profit at 15.96 per cent as shown by the assessee in earlier year as against 13.36 per cent of year the under appeal. The addition of Rs. 5,20,000 as a consequence of that was, therefore, justified. The ld. counsel for the assessee, on the other hand, relied on item No. 17 at page 10 of the statement of facts. He argued that these facts remained uncontroverted. He also relied on the order of the CIT(A) in para 31 at page 14 of his order. The assessee also relied heavily on the decision of the Tribunal pertaining to asst. yrs. 1976-77 and subsequent years. It was explained that the main ledger, sundry creditors, ledger, sundry debitors ledger, sale-patti registers, cash book and stock registers along with purchases and sale vouchers were all produced and examined by the ITO. These books were maintained as required under the Excise Act as well as by VOP controller. The quantitative details prescribed by various returns were also produced for the ITO's examination/inspection. These were found to be in order, as no discrepancy was pointed out. It was further argued that quantitative details of oil purchases and issued to the plant for refining, were filed along with the assessee's letter dt. 13th March, 1984. The reason for increase of expenses regarding store consumed were explained to be that tins worth Rs. 21,22,042 were purchased on account of STC for their job work for which the company received Rs. 34,78,139 as job work charges. Total job work realisation from third parties were explained to be Rs. 47,22,279. Details of inter-unit transfer for Rs. 7,42,636 were also filed along with letter dt. 1st Dec., 1983. Details of packing and freight being very lengthy and of small items were shown to the ITO from the ledger and this fact was also confirmed by the assessee vide its letter dt. 1st Dec., 1983. It was also argued that the g.p. rate of 21.76 per cent as against 22.19 per cent of last year was explained vide the assessee's letter dt. 19th March, 1984 along with annexure, which are available at pages 27 to 29 of the assessee's paper book. The consolidated manufacturing, trading profit and loss account given at page 29 of the paper book, show comparative figures for the year under appeal as well as earlier years. During the year under consideration g.p. of Rs. 29,61,642 on sales of Rs. 1,36,09,694 is normally 21.76 per cent. As against this, in the previous year total sales were 1,89,32,442 and g.p. Rs. 42,21,145 which was approximately 22.29 per cent. It was, therefore, argued that there was no occasion to doubt the books of account on marginal difference in the g.p.

63. We have carefully considered the arguments of both the sides and looked into the facts mentioned by the assessee, which have been relied upon by the CIT(A) in para 41 of his order, which are not controverted. There is no change of material facts as compared to earlier year in Madras Refinery Unit. As a matter of fact, this issue is also covered by our earlier decision because all the books are subjected to check from Excise and VOP authorities. The ITO failed to point out any discrepancy ever found by any of the Government Department. We have ruled earlier that in case books are subject to check by Govt. agencies and no defect is found, their sanctity should not be challenged by the Revenue. We don't find any material with the ITO for rejection of the books of the assessee. A small variation, as above said in past in the assessee's own in case in the rate of g.p. could be due to any reason, administration quality of raw material, so much so even political conditions cannot be ignored more so when the records are maintained as required and when the production is under control supervision and check of VOP. Reliance of the ld. counsel for the assessee on our earlier decision is well placed and we only found that the issue is covered. In the light of above discussion and for the reasons given by the CIT (A) in his order in para 41 at page 14 of his order, his action is hereby confirmed.

64. Coming to ground No. 13 which again is regarding ad hoc addition and this time of Rs. 50 lac in Oswal Solvent Unit and OWM Solvent Unit, the ld. Sr. departmental representative relied in the finding of the ITO given in paras 45 to 47 at pages 29 to 32 of the assessment order. It was argued that since the purchases of one unit were entirely different from other unit, therefore, the ITO considered the result of both the units and in the addition made by him was in respect of both Oswal Solvent Unit, an OWM Solvent Unit. The yield of the assessee was much less than 15.61 Per cent which was considered normal and had been adopted by the Department in earlier years. Purchases from five parties mentioned in page 31 of the ITO's order was doubted and the assessee failed to prove these parties. Therefore, according to the ld. Sr. DR the ITO was justified in rejecting the books of account and making the addition of Rs. 50. Lakhs. The assessee, on the other hand, relied on the facts mentioned at item 18 at pages 11 to 13 of the statement of facts. He has also relied on our earlier orders in the assessee's own case for asst. yrs. 1976-77 onwards. The assessee also relied on order of the CIT (A) in para 42 at page 15 of his order. It was argued that regarding these two units against, cash books, ledgers, purchase books sale books stock registers of raw material, stock registers of RB oil, returns sent to Solvent Extractors' Association and record prescribed by the Food and Supplies Department were all produced before the ITO. Regarding Excise record for hexene and other registers were also produced for examination of the ITO. No discrepency was ever pointed out by the ITO in the books. It was also argued that comparison of g.p. with other units was not justified. More so because yield of the assessee has been accepted by the CIT (A) in all the past years and his decision stands confirmed by the Tribunal right from 1976-77 assessment years onwords. In respect of five parties doubted by the ITO at page 30 of his order, the assessee informed that he wrote letters to all of them M/s shahji International did not acknowledge their letter despite the fact that they were doing extensive business and had banking facilities with Bank of America and other leading banks. The details of business transaction of M/s Shahji International as per their audited accounts were noted from the record of the Registrar of Companies, Delhi, and filed before the ITO. The assessee had deposited Rs. 1000 as diet money and had requested the ITO to call any body in evidence if found necessary. The assessee nevertheless made it clear that he was depositing diet money and making request only by way of cooperation with the Department and that it should not be presumed that it was the assessee burden to prove those parties Regarding Aro a Sales Corpn. it was argued that the assessee received a replay alongwith which the party sent copies of their assessment orders, which were filed before the ITO. The documentary evidence regarding transactions with M/s Arora Sales Corpn. in the form of bills payment received etc had also been produced before the ITO. Regarding three parties from Amritsar. which had also been doubted, the assessee informed that they did not respond to its letters. In respect of these parties, memos vouchers, for all the purchases had been produced and payments proved to have been made to the parties by account payees cheques. The goods purchased from these parties had been duly recorded in the stock books. Accounts had been processed and the end product sold in India or abroad. All these facts were supported and corroborated by the books of account, stock register and other evidence which were available with the assessee in the normal course of business and which it had produced before the ITO who had examined the same but did not point out any defect. It was, therefore, argued that the assessee had discharged its burden to prove the purchases from all the five parties. Regarding yield from these two units it was argued that the same could not be doubted because no defect was pointed out in the books of account. By presuming the yield of oil from rice husk to be constant at 4 Per cent. it was argued that yield of RB oil from rice bran in OWM Solvent Unit would be 9 per cent and that of Oswal solvent Unit 10.51 per cent as per detailed chart filed. It was argued that the discrepancy mentioned by the ITO in para 47 was adequately explained. The sum of Rs. 1,28,303 debited in Oswal Solvent Unit to rice bran expenses account was regarding unloading of raw material worth Rs. 82,387. It was this amount which was transferred from OWM Solvent Unit and direct purchases as mentioned in para 47 of the ITO's order. Manufacturing and trading account of Oswal Solvent Unit showed direct purchases at 'nil. It was argued that details of transfer purchase amounting to Rs. 90,26,690 were filed under cover of the assessee letter dt. 20th Dec., 1983 and these details showed Rs. 1,28,303 as rice bran expenses on transfer purchases of Rs. 88,98,307. The ledger was also produced for inspection of the ITO as well as the CIT (A) and was also produced for our inspection in the Court. The sum of Rs. 1,28,303 was paid to one Shri Babu Ram contractor for unloading of raw material. TDS was deducted from the payments made to the contractor. Since these expenses related to raw material. Therefore, these were included in the cost of raw material shown at Rs. 90,26,690 in the manufacturing account. It was also explained that a sum of Rs. 90,068 discussed and allowed by the ITO in para 47 of hid order, related to loading of finished product, i.e. de-oiled rice bran into trucks (not unloading of raw material). This amount was also paid to the same contractor and is debited to selling expenses account, separate monthly details of which were submitted with the assessee's letter dt. 18th Dec., 1983. It was therefore, explained that expenses of Rs. 1,28,303 were entirely different from the items of expenses of Rs. 90,068. It was submitted that this confusion in the mind of the ITO was adequately explained before the CIT (A). Reliance was placed on the cases of Pandit Bros. vs. CIT (1954) 26 ITR 159 (P&H) and Jhandumal Tarachand Rice Mills vs. CIT (1969) 73 ITR 198 (P&H) in support of the assessee's contention.

65. After taking into consideration the rival submissions and perusing carefully the facts in the back ground of the Issue we do not find that the ITO found any discrepancy in the books of account which was not duly explained by the assessee. It is clear that the books were not rightly rejected. Reliance of the assessee on (1969) 73 ITR 192 (P&H) has been rightly placed. Though the said case was under the old Act but there an ad hoc addition of Rs. 15,000 which was confirmed by the AAC and accounts of the assessee were accepted in all the years upto and including the asst. yrs. 1957-58. The sales were rejected by the ITO because no day to day dryage register had been maintained. Their Lordships of the Punjab and Haryana High Court in the said case held as under:

(1) That the method of accounting by the assessee having been accepted by the Department in the previous years and the income computed on that basis, there were not sufficient grounds for applying the proviso to s. 13 to the fact of the case,

(2) that even assuming that the proviso was attracted the IT authorities not having determined any basis or manner of computation of the true income profits and gains of the assessee firm were not justified in arbitrarily adding Rs. 15,000 in round figure to the income of the assessee firm."

Reliance was placed on the earlier decision of the Punjab High Court in the case of Pandit Bros. This too was under the old Act but their Lordships held, that in all cases under s. 13 there must be material before the ITO leading to the conclusion that the method employed is defective. According to this case, the ITO must discover evidence or material aliunde before he could give such a finding. The ITO should adopt the same method or basis for the addition. Ad hoc additions therefore, cannot be sustained it was rightly deleted by the ld. CIT (A). As per submissions made by the ld. counsel for the assessee and from perusal of the order of the CIT (A), it is clear that all that was possible for a normal business man to prove the purchases of raw material from the five suspected parties, was done. Diet money had been deposited and the ITO issued notices under s. 131 which were served in the parties. In other words, existence of the parties stood proved. If they did not appears before the ITO, the ITO had the power to enforce their presence and that could not be a reason for penalising the assessee. It is also though it was not wanted of the assessee but it made valiant efforts in sending his employee to the office of the Registrar of Companies, Delhi for collecting the information from the audited accounts of some of the suspected parties, which was placed before the ITO. Information collected regarding M/s Shahji International is available in the assessee's letter dt 15th March, 1984 which finds place at pages 30 to 33 of the paper book. The registered office of that company, as per Registrar of Companies record was communicated. The share holders of the company, as on 31st Dec., 1980 were collected by the assessee and communicated to the ITO. Even summary of the balance sheet of the company from the audited accounts as on 30th June 1980 was submitted. The asset side of the balance sheet was Rs. 73,61,901. Turnover of the company in respect of oil, rice bran, de-oiled cakes, soap stock, refined oils, was given alongwith quantity and value, which were also noted down from the Registrar of Companies' office. Details of raw material consumed were also furnished with production of goods in it. The assessee wrote to the ITO that all these facts could be verified by him from the Registrar of Companies office, New Delhi. Even their assessment order for 1982-83 was filed along with copy of account of Shahji International in the books of the assessee. M/s Pyarelal and Sons and M/s Arora Sales Corpn. were mentioned to be registered firms. Copies of their assessment orders were also filed. These details are available at pages 34 to 47 of the paperbook. Regarding M/s Bharat Feed Supply Co. M/s Hind Feed Supply Co. and M/s Bharat Tarading Co. the assessees latter dt. 1st March, 1984 is placed at page 48 of the paper book. Despite request by the assessee to attend the ITO's office along with their books of account, these parties did not do so. The ITO was requested to exercise his power to force their presence under s. 131. In the footnote of the said letter dt. 1st March, 1984. the assessee even indicated that due to disturbances in Punjab in general and Amritsar in particular employees of the assessee company could not be perused to go to Amritsar because of daily killings in March, 1984, just three months before the Operation Blue Star. We also find that in the assessee's letter dt. 21st March. 1984 regarding Vanaspati Unit and OWM Solvent Unit, information was given regarding Arora Vanaspati Pvt. Ltd. Which was collected by the assessee from the office of the Registrar of Companies, Jullundhur. Here also, registered number and registered office of the supplier company collected from the Registrar of Companies office, shareholding of the company, particular of the directors and auditors of the company particulars, summary of balance sheet, details of turnover giving weight as well as amount, details of the sales of various kinds of oils, purchase of various items etc. were collected from the Registrar's office and filed before the ITO. These details find place at pages 48 to 54 of the paper book. The submission of the assessee that it was with great difficulty that one of its employees Shri Beant Walia was peresuaded to go to Jullundur and collected the above information because of the disturbed conditions prevailing in Punjab, seems to be correct. Official receipt No. 30458 dt. 20th March, 1984 issued by the Registrar to Companies was also produced and photostat copy thereof filed. The assessee offered verification of the facts if the ITO so desired. When we go through the said letter, we find that in the end it was also mentioned that the information was being collected by the assessee in compliance with the directions of the ITO through, as per the assessee it was hardly its burden. Even this prayer is available from the said correspondence that cooperation and obedience of the assessee to the ITO should not be construed against the assessee in respect of any other party. We find that even in s. 144B Proceedings the assessee had explained the discrepancies mentioned by the ITO in para 47 of his order on which lot of emphasis was laid by the ld. Sr. DR before us. When we peruse the assessees letter written to the IAC in April/May 1984 under s. 144B proceedings, which are placed on the assessee's compilation at pages 55 to 58 we are convinced that the position was adequately explained by the assessee. Regarding yield of the assessee, as observed by us even in earlier years, it cannot be the same from year to year and all through. We may even go to observe that, if it is exactly the same it is always calculated and can be result of manoeuvre. Year after year, yield had been different in the assessee's case and also in other cases, as we dealt with the same in the immediately proceeding year. This should, on the other hand, go to prove that production was faithfully recorded. Even if two units OWM and OWM Solvent Unit showed different yields, we don't find anything unnatural about it. We also earlier referred to a decision of this very Bench in the case of M/s Jain Solvent in which much lesser yield was accepted by us. Mere difference in the yield was accepted by yrs. Mere difference in the yield could not justify the rejection of accounts Regarding the observation of the ITO that expenses which could not be verified from the witnesses were presumed to be bogus, according to us, is nothing more than a suspicion. There are complete set of books and regularly maintained, on the one hand, and, on the other hand, there is suspicion which as per trite law, cannot be basis for rejection of accounts. Looking to the evidence of record we hold that the assessee has proved all his purchases and there was no occasion for the ITO to have doubted the yield. Accordingly the addition made by the ITO was rightly deleted by the CIT (A) in Oswal Solvent Unit and OWM Solvent Unit.

66. Coming to ground No. 14 in which the Department has contested the deletion of Rs. 5 lakh made by the ITO in Ludhiana Vanspati Unit on account of excess wastage and doubtful purchases etc. We may also deal with it ground Nos. 15 and 16 which are nothing but argument in support of the same. We therefore, take all these three grounds together. The ld. Sr. DR relied on the facts and arguments recorded by the ITO in para 49 at pages 33 and 34 of the assessment order. It was submitted that wastage in the manufacture of ghee depended upon mean FFA of the oils used and that it was normally three times the FFA. This was the method adopted by the ITO even in earlier years. Accordingly when the ITO checked the wastage incurred by the, assessee, he found that 20.041 MT was the excessive wastage. Moreover,. It was argued that this excess was worked out by the assessee itself. At the average sale price, addition regarding excessive wastage would be Rs. 2,25,920. The ITO also found that purchases from M/s Arora Vanaspati (P) Ltd., M/s Arora Sales Corpn. and M/s Shaji nternational (P) Ltd. were not proved. The assessee had purchased tilli oil from these parties. Despite many opportunities, the assessee failed to prove these parties and, therefore, the assessee could not prove the purchase of cotton seed oil and rice bran oil from M/s Pahwa Ind. (P) Ltd. Moreover, there was difference in the purchase of price of oil by M/s Pahwa Ind. (P) Ltd. and sale price of the same oil to the assessee. The ld. Sr. DR submitted that this difference was Rs. 7,000 per tanker. Purchases from these parties were since recorded in the books of account of the assessee, the burden of producing them before the ITO was on the assessee. According to him, since the assessee failed to prove the purchases, the ITO was justified in rejecting the books and further he was fair enough in adding Rs. 5 lakh in the declared result of this unit. It was also argued that the CIT(A) without any material before him accepted the yield of the assessee and also wrongly held that the assessee had discharged its burden. The ld. counsel for the assessee, on the other hand, relied on item No. 19 at page 13 of the statement of facts. He also relied on realer order pertaining to asst. yr. 1976-77 in the assessee's own case where identical addition was knocked down by the CIT(A) and his action was confirmed by the Tribunal. The assessee also relied on the above referred to two Punjab and Haryana High Court decisions. It was submitted that since the books of account, stock registers excise reports vouchers etc, were maintained in the normal course of business as per requirement of COP Controller and Excise authorities which were inspected by Govt. authorities and found to be correct and complete, the same could not be rejected by the ITO. The ad hoc addition, as per Punjab and Haryana High Court discussions could not be made the way the ITO, made. Regarding the four parties, the assessee pointed out that these were the very same parties which have been dealt with while dealing with Oswal Solvent Unit etc. And merely it will be repetition because in respect of the same information was collected from the office of the Registrar of Companies and in respect of some even assessment orders were placed on record. It was also argued that M/s Pahwa Ind. (P) Ltd. had appeared before the ITO, though this fact is denied by him. It was also argued that the ITO could not mention in the first line at page 34 of his order that purchase price and sale price of the assessee showed a difference of Rs. 7,000 per tanker. This could only be done, if the ITO had examined the books of account of M/s Pahwa Ind. (P) Ltd. The ld. counsel for the assessee highlighted the fact that in the assessee's letter dt. 19th March, 1984, referred to above and placed at pages 59 to 61 of the paper book, M/s Pahwa Ind. (P) Ltd. appeared twice with books of account, yet it is held that the assessee did not discharge its buden. Regarding excessive shortage, the assessee in the case of refinery unit relied on the expert's opinion considered in the assessee's own case for earlier years. He mainly relied on the Tribunal's decision pertaining to asst. yr. 1976-77 regarding yield. According to him, yield was within the prescribed norms fixed by the STC. Even at the cost of repetition, the ld. counsel for the assessee referred to pages 30 to 57 of the paper book containing various letters of the assessee in respect of Vanaspati Unit, Refinery Unit and Solvent Unit in respect of four suspected suppliers. Diet money of Rs. 1,000 had been deposited by the assessee's letter dt. 21st July 1984 at page 68 of the paper book was issued to all the four suspected suppliers along with which duplicate copies of their accounts from the book were furnished. Such letter, it was argued had not only been sent in respect of suspected suppliers but in respect of suppliers of all other unit wherever the ITO had doubted the same. He drew our attention to pages 71 and 72 of the paper book under which he prepared a consolidated chart showing production of vanaspathi month-wise and shortage involved in the process. It was also submitted that VOP returns which contained detailed information even in respect of bye product such as soap stock, spent earth etc. (as given in Appendix 'C' filed before the Directorate of vanaspati and Excise Department) were produced for inspections of the ITO also with sale book. In the light of this voluminious evidence, it was argued that the assessee had discharged the burden and all purchases were proved. In the light of the Punjab and Haryana High Court decisions even addition was not warranted due to low yield as the yield was within the prescribed norms. From the comparative chart and calculation made as per direction of the ITO, this was all done without prejudice just in order of show that there was excessive shortage.

67. After taking into consideration the rival submissions and looking to the facts in respect of these grounds also, we hold that the assessee had discharged its burden by producing the books of account, stock register, bills, vouchers etc. and by proving that all the payments were made by account payees cheques. The initial burden of the assessee stood discharged by production of such evidence which is normally maintained in a business house in respect of business transactions. Special when the assessment orders and other information regarding suppliers which was collected from the Registrar's office was furnished by the assessee, as above said it shows that the burden was discharged. If some people did not appear under s. 131 proceedings it was not the assessee who could be blamed because the ITO alone could enforce their presence. This is also not disputed that diet money was deposited and request made to the ITO to call in person anyone. That having not been done, the assessee should not be penalised for it. Regarding yield reliance on earlier two decisions of the Punjab and Haryana High Court, with which we have deal with above, is correctly placed. For the above said reasons also, we hold that the assessee had discharged its burden and proved its purchases from all the parties in respect of this unit. The ITO should not have disbelieved the yield and, if he suspected, on suspicion, no ad hoc addition could be made. The books were, therefore, wrongly rejected. The order of the CIT(A) on this issue is also hereby confirmed.

68. Ground No. 17 in respect of unpaid electricity bill and reduction of Rs. 49,900 by the CIT (A) has already been considered by us while we dealt with the assessee's appeal and a ground to that effect above.

69. In ground No. 18, the dispute is regarding investment allowance on exhaust fan and humidifire in the Wool Combing Plant. This ground has also been considered by us earlier when we dealt with ground No. 17 yet of the assessee claiming investment allowance on weighing scale and fire equipment of Wool Combing Plant.

70. In ground No. 19, the Department has contested grant of investment allowance in respect of the new machinery added in Ludhiana Refinery unit and Madras Oil Refinery Unit. The ld. Sr. DR submitted that refining was not a manufacturing process. Therefore, investment allowance could not be allowed. The ld. counsel for the assessee, on the other hand, relied on our earlier decision in the assessee's own case pertaining to asst. yr. 1978-79 where the contention of the assessee was accepted. According to us the issue stands concluded in favour of the assessee by our finding that refining was a manufacturing process. It will not be out of place to mention that we have also confirmed s. 80J relief granted by the CIT(A) in refinery unit. For the above said reasons and for the reasons given by the CIT(A), his action in this regard is hereby confirmed.

71. In ground No. 20, the Revenue has challenged depreciation allowed by the CIT (A) @ 100 per cent on gas cylinders. The ld. Sr. DR relied on para 28 at pages 21 and 22 of the assessment order. He submitted that in the immediately preceding year, no registers were produced and like-wise this year also no registers were produced of the gas production. However, the ITO verified from the office of the Director of Explosives, Nagpur, that M/s Goyal Gases (P) Ltd. Gaziabad, was not on the approved list. According to him, the claim of the assessee for having gas cylinders tested was proved to be wrong. It was, therefore, argued that no depreciation could be allowed on gas cylinders even though the assessee had shown sale of oxygen gas in cylinders. The ld. counsel for the assessee, on the other hand, relied on the facts narrated in item 24(iii) at page 18 of the statement of facts. He submitted that gas cylinders valuing Rs. 2,57,544 were used to sell oxygen gas manufactured as by product. This was an exciseable item and was sold under Excise gate-passes. Production record were produced before the ITO on 21st March, 1984 when these were examined by the Inspector and he had communicated his satisfaction to the ITO. He want on to say that this was wrongly added by the ITO and rightly deleted by the CIT (A).

72. After taking into consideration the rival submissions and looking to the facts on record, even if the assessee was selling oxygen in gas cylinders without having the same properly tested by the concerned authority, which was on the approved list, no doubt could be cost on the actual use of the cylinders. It was at best on irregularity of the assessee for which he could be separately punished. There is no dispute about that fact that depreciation is admissible @ 100 pre cent on gas cylinders. Therefore, we hardly find any reason to interfere in the finding of the CIT (A) on this ground.

73. Ground No. 21 is nothing but an argument in respect of ground No. 20 and shall be treated as disposed of against the Revenue.

74. Coming to ground No. 22, the Department has contested the allowance of extra shift allowance in respect of storage and cooling tower. The ld. Sr. DR argued that the storage tank and cooling tower were items of such nature which were akin to building rather than machinery. He argued that depression on these item should have been allowed under the head 'factory building' and not 'machinery'. That being so, he argued, question of ESA on storage tank and cooling tower does not arise. He also raised a legal issue that since this issue was not agitated before the ITO, it could not be agitated before the CIT (A), as no claim was made in the depreciation chart filed before the ITO. He submitted that no extra shift claim was made before the ITO and, therefore, there was no discussion in the assessment order. He submitted that Thali Bhai R. Jain & ors. vs. ITO in the light of 1975 101 ITR. 1 (Kar) the CIT(A) should not have dealt with it. The ld. counsel for the assessee admitted that the claim was not made before the ITO but it was argued that buildings which are specially designed as a necessity for the industry such as steel furnaces which have a factory shed carrying metal etc. were considered under the head 'factory building' and not 'machinery'. Therefore, ESA had been rightly allowed.

75. After taking into consideration the rival submissions and argument advanced by both the parties, no doubt both storage tank and cooling tower should be considered as 'machienery' but we are unable to confirm the finding of the CIT (A) because no claim was made before the ITO in the prescribed form in respect of ESA. The CIT (A) was not justified in entertaining that in the first appeal of the assessee. This ground of the Revenue, therefore, is accepted and the action of the CIT (A) is reversed. The revenue succeeds here.

76. Coming to ground No 23 in which depreciation allowed by the CIT(A) on godowns and toilets in the factory premises is contested the CIT (A) has directed the depreciation @ 100 per cent to be allowed vide his finding given in para 77 at page 23 of his order. The ld. Sr. DR objected to this either being typographical mistake or illegal error. It was argued that even if godowns and toilets were in the factory premises, even then the same did not become factory premises and depreciation on the same should be allowed as second class building. On the other hand, the ld. counsel for the assessee submitted that these were in the factory building which was nothing but extension of the same. In one shed, processing of the raw material is being carried out while in the other there is storage. It was, therefore, argued that these two sheds are adjacent to save time and raw materials reach easily from godowns to machines. It was, therefore, submitted that depreciation @10 per cent was allowable. The assessee fairly conceded that allowance @100 per cent appeared to be typographical mistake. We have heard both the parties and are of the view that the ld. CIT (A) was in error in directing 100 per cent depreciation. However, we agree with the assessee that toilets are part of the factory building and cannot be treated by any stretch of imagination as quarters for the employees. However, as far as godowns are concerned, the argument of the ld. Sr. DR is unsustainable. Appendix I Part I clearly mentions in Item I(2) that special rate to factory building is allowed @10 per cent which will not be applicable to godowns. We accordingly direct the ITO to allow depreciation on toilets in factory building @ 10 per cent and on godowns @ 5 per cent. The order of the CIT(A) is therefore, modified to the extent indicated above.

77. The revenue in ground No. 24 has challenged triple shift allowance on Vanaspati Plant including storage tank for full year. The ld. Sr. DR firstly argued that the storage tank was not part of machinery and, therefore, depreciation should have been allowed 5 per cent. Secondly, he claimed that TSA should be granted on the plant for the proportionate number of days during which the plant had worked TSA and not for full year. In respect of his argument, he referred to Appendix I. The ld. counsel for the assessee, on the other hand, had brought to our notice item 24(viii) at page 19 of the statement of facts. It was pointed out that metallic storage tank was part of the plant. Therefore, it should not be considered as a factory building. It was argued that the CIT(A) has rightly considered the storage tank as part of machinery. It was also submitted that Ludhiana Vanaspati Unit worked triple shift for 256 days. This fact stands accepted both by the ITO and the CIT(A). Our attention was drawn to Appendix I part I Item III dealing with machinery and plant. Sub-item (iv) mentions that for allowing ESA, number of days for which the concern worked triple shift shall be calculated and depreciation would be a proportion of the said number of days to normal working days. It was argued that 'normal working days' were defined in sub-item (d) as 240 days. It was, therefore, submitted that since this unit had admittedly worked triple shift for 256 days, the order of the CIT(A) was justified.

78. We have heard the parties in respect of electrical equipment fixed in Ludhiana Vanaspati Unit. The assessee had claimed that this had become part and parcel of the plant. The assessees contention on this issue in his appeal has already been accepted by us. For the very same reasons given by us in the assessee's appeal (ground No. 29), we hold that metallic storage tank had also become part and parcel of the plant and it was rightly treated so by the CIT(A). Regarding triple shift allowance, the assessee's contention is correct. The plant had admittedly worked triple shift for more than 240 days. TSA was, therefore, allowable for the full year. For the aforesaid reasons, we hereby confirm the finding of the CIT(A) and the Revenue fails on this issue.

79. In ground No. 25, grant of additional depreciation under s. 32(1)(iia) at half the normal rate allowed by the CIT(A) in head office textile unit, has been challenged. The ld. Sr. DR mentioned that the machinery though purchased earlier had been capitalised on 30th June, 1980. He further submitted that the said machinery was purchased before 31st March, 1980. Therefore, additional depreciation allowed by the CIT(A) was not justified. The ld. counsel for the assessee, on the other hand, relied on item 24(x) at page 19 of the statement of facts. It was argued that admittedly new machinery in textile unit was purchased after 31st March, 1980 but its bills and vouchers were all shown to the ITO. The same was capitalised in the books on 30th June, 1980 but it had been justalled after 31st March, 1980. It was submitted that all depreciation was not dependent on number of days during which the machine worked. He further submitted that for additional depreciation, date of installation of machine is relevant. The CIT(A) was justified, according to him because it was independent of number of days during which the machine had worked in the previous year.

80. After taking into consideration the rival submissions, we hold that the CIT(A) was justified in granting additional depreciation because there is no dispute about the fact that the machine was new and had been installed after 31st March, 1980. For granting this depreciation, number of days for which it had worked was not relevant. As such and for the reasons given by the CIT(A) in his order, his action is hereby confirmed.

81. In ground No. 26, the Department has contested the grant of depreciation @ 25 per cent on the WDV in respect of a building of Export Display House. It was argued by the ld. Sr. DR that Guest House building which was partly used as office and partly as Export Display House could not be granted depreciation @ 25 per cent. Even depreciation @ 2.5 per cent was not justified because, according to him, income therefrom should be assessed under s. 22 to 24 of the IT Act. The assessee, on the other hand argued that the building belonged to the company and a part of it was used as Export Display House and used as office of the company where most of the meetings of the Board of Directors took place and part of the building was directed to be occupied by one of the directors who was instructed with looking after the welfare of foreign customers who visit the assessee-factory. It was denied at Bar that any part of it was let out. The use allowed on lease and licence basis to the employees of the concern was exclusively in business interest of the company. We have considered the arguments from both the sides. Grant of depreciation @ 25 per cent by the CIT(A) appears to be typographical mistake. The same is directed to be reduced to 2.5 per cent only. We, however, hold that the building, if given on lease-licence basis to the employee of the concern is exclusively for interest of the company and will not be considered as let out. The finding of the CIT(A) is, therefore, accordingly modified.

82. Ground Nos. 27 and 28 of the appeal are general in nature and do not call for any adjudication.

83. In the result, both the appeals of the assessee and the Revenue are partly allowed.

 

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