1992-VIL-155-ITAT-DEL
Equivalent Citation: ITD 042, 135, TTJ 044, 414,
Income Tax Appellate Tribunal DELHI
Date: 22.05.1992
GOYAL GASES (PRIVATE) LIMITED.
Vs
DEPUTY COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : A. KALYANASUNDHARAM., M. A. A. KHAN.
JUDGMENT
Per A. Kalyanasundharam, A.M.--These are two appeals preferred by the assessee, a limited company. In these two appeals, the assessee has raised a common grievance regarding the disallowance of the hire charges of gas cylinders of Rs. 2,63,000 and Rs. 10,60,936 for the asst. years 1986-87 and 1987-88 respectively. The assessee, in addition to the above-mentioned common issue, has raised a few minor issues as well in both the years.
2. Shri C.S. Agarwal, the learned counsel for the assessee-company, submitted that the previous years relevant to the two asst. years under appeal are,30th June, 1985and31st Dec. 1986respectively. He submitted that the assessee-company manufactures oxygen gas etc. and sells them in specially designed cylinders. He submitted that, the common issue as raised by the assessee-company relates to the claim of deduction of hire charges of the gas cylinders. He submitted that, the cylinders were taken on hire from M/s. Peckock Chemicals Pvt. Ltd. (hereinafter referred to as PCPL), a concern in which the Managing Director of the company, Shri S.C. Goyal (SCG) is also the Managing Director. In the asst. year 1986-87, the assessee had taken on hire 2050 oxygen gas cylinders and 750 DA cylinders and in the asst. year 1987-88, the hire was of 4000 oxygen gas cylinders. The dispute started with the Assessing Officer (hereinafter referred to as AO) examining the Audit Report under section 44AB. Column 6 of this report required details of payments made to certain persons specified in section 40A(2)(b) of the Income-tax Act. The report contained no reference to the payment of hire charges to the sister concern PCPL.
3. The revenue department conducted a survey at the factory and office premises of the company onFeb. 6, 1989, with the assistance of ADI,MeerutandDelhi. The survey covered examination of books and also recording of statements of officers. At a subsequent point of time, the books and other record were summoned, and were impounded. The AO examined the report as was prepared at the time of survey. AO framed his opinion that, PCPL had no office at Sahibabad, where the factory of the assessee was situated. AO felt that, the existence, if any is merely on paper, because he did not find any employee posted at Sahibabad, except for an Executive Director, Shri A.R. Singh. AO, was of the view that the statement of Shri Singh, which was recorded at the time of survey, indicated that, he had no knowledge about the whereabouts of the Registered Office of PCPL and he did not know, who were the other Directors. AO was further of the view that, the statement of Shri Singh also indicated that, PCPL did not carry out any commercial operation from Sahibabad. The statement also indicated that PCPL was owned by Shri S.C. Goyal, the Managing Director of the assessee-company.
4. AO carried out his examination of the accounts with reference to the claim of hire charges paid to PCPL. He made reference to the statement of the Accountant, especially to the answer to the query on the payment of hire charges of cylinders. The Accountant had stated that, the rental/hire charges of the cylinders were paid from the Head Office. The AO observed that, normally, the rental/hire charges were paid by the factory at Sahibabad. Since, in the instant case, the payment was made by the Head Office directly and the charge to the account was routed through the ledger, instead of the registers maintained, AO felt that, the claim is not proper and not allowable. He made reference to the hire charges paid toGujaratState Fertilizer Corporation (GSFC), which was routed though the registers maintained at the factory.
5. The doubt in the mind of the AO gathered further strength after the initial survey, at which time, certain books and records of PCPL were found in the premises of the assessee. AO therefore, directed the assessee to provide details of availability of cylinders with PCPL. The assessee obtained the details of cylinders from PCPL and submitted the same to the AO. The details indicated purchases of cylinders from a concern, which had been sharing the office with another concern at Bazar Sita Ram, which concern too had been shown as having sold cylinders to PCPL. AO noted from the details of cylinders with PCPL, that it had shown purchases of cylinders from five parties, three of whom were located at Bazar Sita Ram.
6. This aroused further suspicion in the mind of AO. He, therefore, contacted that Registrar of Companies and enquired about the five concerns. The information so obtained, revealed that, Sh. K.K. Gupta (KKG) was the Managing Director of those concerns. AO accordingly initiated second survey, this time at Bazar Sita Ram. Of the five concerns four were found as being run by KKG, either as sole-proprietor or as Managing Director. M/s. Gaurav Traders (GT) one of the five concerns, belonged to the father of KKG. The survey yielded a blank register belonging to M/s. Shiv Loha Bhandar (SLB), with the mark as pertaining to the year 1982-83. AO examined the details of availability of cylinders with PCPL, which showed 5054 cylinders and 750 DA cylinders. This detail showed that, PCPL had purchased 500 cylinders from SLB in the year 1982-83 while the survey yielded only a blank register of SLB. The details also showed sale of 1000 cylinders to GT on16-1-1984. The detail also showed transactions with M/s. Arya Industries (AI), a concern in which, Shri Akhilesh Kumar (AK) (brother of Shri. K.K. Gupta) and wife of Shri K.K. Gupta were partners. AK being the working partner of AI was questioned with reference to the transactions with PCPL. AK stated that his firm had no dealings with PCPL and had no godown to store the cylinders. KKG in his statement had stated that, he was paid commission for lending his name and for providing of adjustment entries through his bank account. Since, KKG was also the M.D. of M/s. Ambica Shoe Co. Pvt. Ltd. (ASCPL), he was questioned with reference to the claim of purchases of cylinders by PCPL from ASCPL in 1986. KKG testified that, his company did not sell any cylinders but received only commission and that, he did not maintain any accounts and all his concerns were being assessed on no account basis. AO after referring to the assessment records of KKG formed his opinion that, the claim made by KKG that, his income comprised of only commission was correct.
7. AO found that, all transactions were routed through the banking channels. The details of cylinders indicated that, transactions were made with Bank of Maharashtra, Vivek Vihar. AO summoned the Branch Manager of that bank and obtained particulars of the person, who had introduced the accounts. Of the five concerns belonging to KKG, two of them, viz,. M/s. Gupta Industries (GI) and M/s. Supreme Sales Corporation (SSC), the bank accounts were opened on the introduction of SCG, MD of GGPL. AO on examination of these bank accounts formed his view that, it reflected only those transactions that transpired between GGPL and other family concerns of KKG. Since the account revealed movements of funds between the concerns, he came to hold that, all the money that was allegedly paid by PCPL, routed back to it and on that basis, he expressed that PCPL did not make any payment for the purchase of the cylinders. The related factor which weighed on the mind of the AO was the encasement of several self cheques by Shri Hari Om Sharma, who was an employee of the assessee-company till asst. year 1986-87. The other factor, which AO gave weight to was, the disclosure made by PCPL under the Amnesty Scheme, regarding certain credits standing in the name of M/s. Ankur Trading Co. The examination of the bank account also showed that, Shri Hari Om Sharma had encashed several self cheques. AO noted the similarity in the manner of encashing of the self cheques and felt that, it could not be overlooked. AO confronted SCG with this aspect and the reply was that, his employees perhaps were working part-time with other concerns as well. AO was dissatisfied with the reply because, he felt that, unless an employer puts faith on an employee, he would not allow the employee to handle cash of the magnitude of Rs. 5 lakhs. AO with the above background, formed his opinion that, PCPL did not actually possess that many cylinders for being given on hire to assessee and the entries indicating hire were mere book entries, solely so made with the object of tax evasion. AO further was of the opinion, that the entries were so made purely with the object of obtaining loans from Financial Institutions on entirely false pretence.
8. A felt that the claim of hire charges could not be accepted. AO enquired from the assessee about the user of the cylinders. The reply was that, cylinders were being supplied from its units atBhavnagar, Nangal and Sahibabad, after being filled with the gas at Sahibabad. AO noted that, the assessee had provided the list of parties with whom, its cylinders were lying. AO called for their complete addresses and selected 28 parties. The assessee, as per AO, provided addresses of only six of the parties, vide its letter ofMarch 23, 1989. The assessee onMarch 27, 1989expressed its inability to provide any further detailed address than the one as was contained in the list of parties, with whom its cylinders were lying. Of the six parties, two were at Nainital andGhaziabadand the others were located at distant places like Kamal, Sonepat andFaridabad. AO deputed an Inspector to Karnal, Sonepat andFaridabad, who carried out the necessary enquiry. The statements of the parties were recorded by the Inspector on March 27th and 29th, 1989. The parties had stated that, on the day of the enquiry, they had no cylinders of GCPL and for the last five years, they had not taken any cylinders filled with gas from GCPL. They all stated that, their last supply from GCPL was sometime in May or Dec. 1983. AO referred to the details of cylinders lying with parties, which indicated amounts taken as security deposit. In one case of M/s. Industrial Medical Engineers, Rs. 50,000 was shown as the security deposit for 40 cylinders. The enquiry revealed that, the said firm had changed hands and the present partners were not in a position to state anything about the transactions that took place prior to May 1983. The list showed M/s. Oxy Traders as retaining 26 cylinders and having deposited Rs. 7,000 which firm was found to have become defunct many years back. The list showed M/s. Kapur Bros. at 10 DLF Industrial Area retaining 33 cylinders and having provided security of Rs. 39,000 of which Rs. 7,000 was refunded in the accounting year ending on30-6-1985. The inspector found at that address another concern by name M/s. Kapoor Air Products (P.) Ltd. It had stated that, it did have business with the assessee for the last few years, and it used to fill gases for the assessee, for which, cylinders were brought to its premises and were carried back after the filling was made. It had also stated that, it did not retain any cylinders of the assessee and that, it had not kept any money as security for the cylinders. The enquiry also indicated that the company was functioning from that address for the last few years and had never known of any firm having functioned at that address.
9. AO noticed that, in the earlier years the assessee had shown Rs. 1 lakh as receipt of security from M/s. Shahdara Oxygen. This amount was shown as refunded in the accounting year ending on31-12-1986, through SLB a concern belonging to KKG. AO had asked KKG about this return through his concerns and KKG had flatly denied of having any knowledge about this concern. The inspector, stated that, he could not locate that party at its location, despite seeking the help of the Police and the property dealers.
10. AO then called upon the assessee to file the receipts of octroi to verify the movement of the cylinders from PCPL to the assessee. The details were so called in respect of 952 cylinders in Dec. 1984, 773 cylinders in Jan. 1985 and 25 cylinders in Feb. 1995.The assessee submitted the details onMarch 27,1989. AO on examination of some registers, was of the opinion that, it did not indicate any increase in the no. of cylinders received in Jan. Feb. and in Apr. 1985. He was also of the opinion that, the accounts did not indicate any expenses on freight and octroi. AO's doubt got aroused because of the claim that, the cylinders were transported in assessee's own truck and that too in odd lots of 93, 182 etc. AO referred to the movement of truck No. DEG 136, which made several trips up and down Nangal, though the assessee had owned other trucks as well, which were plying on the same routes, but it was only truck No. DEG 136 which carried the cylinders, which according to him was rather strange. He then made reference to the trip onDec. 21, 1984on which date, the said truck had carried 182 cylinders and this very truck carried another consignment onDec. 23, 1984. AO thereupon called the assessee to explain the receipt of cylinders at Sahibabad. The explanation was that, all the filling had to be done only at Sahibabad and, therefore, the cylinders had to be carried to Sahibabad. The assessee had supported this statement with the fact of cylinders taken on hire from GSFC, were also carried to Sahibabad. AO on examination of the details of freight, was of the view that, they do not agree with the entries made in the books. AO also made an observation to the effect that, the proof regarding the various trips undertaken by the two trucks DEG 1413 and DEG 136 was inadequate and insufficient. AO came to this conclusion on the basis that, there was no log book maintained of the various trips undertaken by the trucks between Nangal and Sahibabad.
11. AO asked the assessee to provide complete particulars of the fresh deposits taken against the cylinders, to which the assessee had submitted that, the addresses as contained in the list of depositors is what has been provided to it and, therefore, it was unable to provide any further details. AO was of the view, that the list only contained names and names of villages which by itself was incomplete. Since the assessee filed confirmation in respect of three parties only, the AO considering the statement of denial recorded by the inspector from few of the parties, came to the conclusion, that, the deposits as unexplained.
12. AO had recorded the statement of KKG on more than one occasion and also of AK and had allowed their cross-examination by the assessee. KKG had stated that, cylinders could have been purchased through him, but AK denied any knowledge of the transactions. AO considering the statements of KKG and AK the bank transactions came to hold that, PCPL could not have possessed the cylinders. AO was also of the opinion that, the freight details and transportation not being verifiable combined with the statements of the parties denying holding of any cylinders belonging to the assessee, the hire of cylinders was also not established. AO however noted that, PCPL had claimed to have obtained loans from Financial Institutions, viz., PICUP and banks, for the purchase of the cylinders, were never utilized for the purchase of the cylinders but were used in the day to day affairs of PCPL. AO made observation to the effect that, the assessee had made efforts to give the transactions the colour of genuineness, with PCPL having reflected the hire as its income and PCPL claiming depreciation on the cylinders. AO observed that, the obtaining of the loans from PICUP, banks etc., were only with a view to show a better liquidity position, which was all a carefully thought of action. AO further observed that, in asst. year 1987-88, the assessee's declaring a profit of Rs. one crore, claim of purchase of 4,600 cylinders from PCPL which was earlier claimed as taken on hire, was squared off with the claim of depreciation on the cylinders. He observed that, all these book entries were part of a well designed plot to evade tax and in reality, PCPL never had any cylinders for giving on hire or sale and, therefore, disallowed the claim of hire charges.
13. Shri Agarwal, the counsel of the assessee-company, submitted that, GCPL was incorporated in 1973, with its Registered Office atDelhi. PCPL was incorporated in 1976, with its Registered office at 8/7 Industrial Area, Site 4, Sahibabad. The first subscribers were Shri Ish Kumar Goyal and Smt. Pushpa Devi. PCPL was being assessed right from the asst. year 1979-80 by the Assessing Officer,Company Circle,Ghaziabad. PCPL's main works was situated at Nangal under the name and style of 'Oxygen Sales Corporation'. This manufacturing unit is registered with the Small Scale Industries, having a separate licence for the manufacture of oxygen gas. Shri S.C. Goyal and Smt. Meena Goyal were the initial subscribers of the assessee-company. The plea advanced by the counsel for the company was that, the observation of the AO that, PCPL existed only on paper is clearly false, in the light of the above stated facts. PCPL used its office at Sahibabad for secretarial purposes only and, therefore, there was no need of any employee being posted there. The secretarial work was carried out by Shri Anil Jain along with a director, who visited the place from time to time. For using the portion belonging to the assessee, PCPL had been paying a rent of Rs. 500 per month, for the last several years, with which fact the department has no dispute at all.
14. The counsel submitted that, the AO in his order had observed that, one of the directors of PCPL was a former employee of the assessee. He submitted that, Shri Kushal Jain was in the employment of the assessee till Nov. 1987 after which he had become the Director of PCPL. Shri Kushal Jain was a technical person and was not concerned with other aspects and, therefore, the observation of the AO that, he had no knowledge about his company is baseless. Similarly, Shri A.R. Singh was a technical person and, therefore, could not state about other commercial matters. The use of part ofConnaught Placeby PCPL, for which they were not paying rent, should not have been objected to at all.
15. Shri Agarwal pleaded that CIT(A) had found considerable merit in the arguments, which were based on the facts, but he too was swayed away by the mere fact that PCPL and GCPI, had common Managing Director and Common Accountant, in addition to the Executive Director's lack of knowledge about the commercial operations and the non-payment of any rent for the portion used in Connaught Place by PCPL. He contended that, CIT(A) was confronted with the facts in its entirety in connection with claim of hire charges of gas cylinders. CIT(A) had noted that, the claim of hire charges was for 2050 cylinders in asst. year 1986-87 and for 4943 cylinders in asst. year 1987-88. Of the above 2050 and 4000 cylinders, the hire was paid to PCPL and for 943 cylinders, hire charges were paid to another concern. Towards the end of the accounting year relevant to the assessment year 1987-88, the assessee purchased 4000 cylinders from PCPL. The date of the said purchase wasDec. 25, 1986and the hire was claimed only tillDec. 24,1986. CIT(A) went through the statement of availability of cylinders with PCPL right from the year 1979. By the year 1983 PCPL had acquired 1000 cylinders and in that year, it had sold 1000 cylinders to GT, a concern owned by KKG's father (now deceased). In 1984, there was purchase of 3000 cylinders from AI (concern of brother of KKG and wife of KKG) and its acquisition of cylinders totalled to 5054 in 1986. As a consequence of the dissolution of a firm M/s. Bihar Acetelyne Co., PCPL, further received 750 DA cylinders as its share. The said 750 DA cylinders were also taken on hire by the company, which had been accepted by the CIT(A) on the same set of facts and had allowed the payment o f hire charges. On this relief obtained by the company, the revenue too has accepted the order of CIT(A) and had not challenged it in appeal before the Tribunal. CIT(A) had noted that, PCPL were still left with 950 cylinders after hiring 2050 to the assessee-company. In view of PCPL acquiring additional 1054 cylinders, PCPL was definitely in a position to offer the cylinders on hire to the assessee. CIT(A) considered the observation of the AO with reference to the examination of KKG, enquiries made of the firm belonging to KKG. CIT(A) also noted the blank ledger of SLB found for the year 1982-83, in which year PCPL claimed that, it had purchased 500 cylinders from it. CIT(A) also noted the fact that, the firm AI belonged to the brother of KKG and the wife of KKG and that, PCPL claimed to have purchased 3000 cylinders from it between Jan. and Feb. 1984. CIT(A) had noted that, the assessee had claimed that, it is from these that, PCPL had given on hire to it 2050 cylinders initially. CIT(A) considering the statement of KKG was also swayed away by his repeated claim that, he had only accounted for his commission, and since KKG claimed that, he had no godown and that, he never took physical possession of the cylinders. CIT(A) also proceeded on the basis that, KKG was to receive only his commission and that, he never effected any actual purchase or sale of the cylinders. CIT(A) also referred to the statement of KKG wherein he had flatly denied having made any sales either in 1979 or in 1982 by any of his concerns GI or SSC to PCPL. CIT(A) also gave weights to his statement, wherein, he had claimed that, he had only accommodated PCPL by providing bills of his firm, but he had merely received his commission. CIT(A) felt that, KKG statement denying any transactions with CPL should be treated as correct. CIT(A) had noted the fact that 3000 cylinders were shown as purchased from AI and there was a bill raised by that firm on PCPL, which bill was signed by AK, brother of KKG and also to the statement of AK, where, he had denied any knowledge about the transaction, though he admitted that, the bill was of his firm and it did contain his signature. CIT(A) felt that, the statement of AK should be accepted as such, because, he had stated that, his concern was making jalis and had not carried any other business. AK had stated that, the bill was prepared by Shri Mangtu Ram, who was an employee of KKG. Subsequently, AK refused to recognise his signature on the bill and also stated that, he had not employed Shri Mangtu Ram nor was he a partner of his concern AI. AK flatly denied of having dealt in oxygen cylinders. CIT(A) therefore, had come to hold that, PCPL's claim of purchase of 3000 cylinders from AI as not true and correct.
16. CIT(A) thereafter considered the purchase of 1000 cyliders from ASCPL in which KKG was the Managing Director. CIT(A) made reference to the Balance Sheet of ASCPL and observed that, it did not reflect any sale but showed of receipt of commission only. CIT(A) in this connection made reference to the statement of KKG, where he had stated to have received only his commission and had to invest nothing by way of capital outlay. KKG had stated that, the entire funds were provided by PCPL to the assessee through ASCPL and there was no actual delivery of any cylinders by his company to PCPL. KKG has stated to have received only his commission for providing his service from PCPL as well as from the company. Accordingly CIT(A) held that PCPL's claim of having purchased 4000 cylinders as an untrue claim. In support of this conclusion. CIT(A) made reference to the introduction of the bank accounts by SCG. He also had noted that, the bank account of AI was opened in the name of Shri Mangtu Ram, who was an employee of KKG. CIT(A) also had observed that, AI was a partnership concern in which the brother of KKG and wife of KKG were partners. The said bank account was opened with Rs. 100 and the rest of the transactions in the said bank were between the assessee, PCPL and other family concerns.
17. CIT(A) observed that, a bank account showed a transaction of Rs. 7.5 lakhs representing payment by assessee to PCPL, which was transferred on the same day in favour of GT, which in turn on the same day further transferred it to SLB, which again was found transferred to PCPL on that very day itself. CIT(A) with reference to the sale of 1000 cylinders by GT to PCPL in 1983, observed that Rs. 9 lakhs were transferred to GT and on that day itself, GT retransferred the like amount to PCPL. In regard to the purchase of 3000 cylinders from AI in 1986, he noted that Rs. 45 lakhs were transferred to AI, which it transferred on the same day in favour of GT, which found its way into the assessee-company on the same day to the tune of Rs. 41.5 lakhs and Rs. 3.5 lakhs to Shri Hari Om Sharma, an employee of the assessee. CIT(A) then referred to the transaction with ASCPL. The assessee company transferred Rs. 107.03 lakhs to ASCPL, of which it forwarded Rs. 106.23 lakhs to PCPL and the balance of Rs. 1,07,300 was returned to the assessee. Of the amount of Rs. 106.23 lakhs, PCPL transferred Rs. 30 lakhs to the assessee. The assessee and PCPL were called upon to explain the movement of funds. The explanation offered by the company was that, it had intended to purchase gas cylinder trollied from ASCPL, for which it had received proforma invoice for Rs. 62.40 lakhs, and for which purchase ASCPL were paid an advance of Rs. 12 lakhs on17-12-1986. Since the purchase was being made with the help of finance from PICUP, PICUP had issued a draft for Rs. 52.40 lakhs favouring ASCPL dated23-12-1986. Since it was a loan obtained by the company, appropriate entries regarding the loan, and its advance to ASCPL were made in the books of the assessee. There was another cheque that was issued favouring ASCPL for Rs. 44.90 lakhs and in all Rs. 107.3 lakhs was paid to ASCPL. On25-12-1986, ASCPL expressed their inability to supply the gas cylinders trollied. Therefore, the company thought of buying the cylinders from PCPL and accordingly directed payment to be made to PCPL.
18. Shri Agarwal submitted that, CIT(A) was confronted with the facts relating to the movement of funds between the various concerns and that, it all related to trading transactions of the assessee. He pleaded that, CIT(A) was explained that, the transaction of Rs. 59.93 lakhs with GI, a concern of KKG was in connection with sale of goods to that concern, the particulars and their evidences are part of the seized records, which could be got verified. The other sale for Rs. 25.48 lakhs was also stated as connected with a sale to ASCPL, which could also be verified from the seized records. The two concerns had paid by cheques drawn on Bank of Maharashtra and Punjab & Sind Bank. Shri Agarwal contended that, this clearly established that, the statement of KKG that, his concerns had no dealings with the assessee-company is clearly falsified, because not only there was delivery of the goods but also there was receipt of money by cheques. Shri Agarwal pleaded that, there is no dispute to the fact that, Rs. 106.23 lakhs was paid by ASCPL for supply of gas cylinders to the assessee, which was earlier ordered with ASCPL, based on which PICUP had agreed to finance the purchase. Shri Agarwal pleaded that, PICUP had no objection to the modification of its financial arrangements with the assessee-company, i.e., of the amounts being given over to PCPL for purchase of cylinders. Shri Agarwal contended that, the manner of utilization of the amount of Rs. 106.23 lakhs by PCPL is entirely their internal matter, with which, the assessee had no connection at all. The amount of Rs. 18 lakhs was kept in deposit with Fertilizer & Chemicals was only a intercorporate deposit.
19. Shri Agarwal pointed out to CIT(A) that, PCPL had made a payment of Rs. 45 lakhs to AI, but AI never paid the amount to the assessee. It was GT who paid Rs. 45 lakhs, against the supply of goods worth Rs. 50.93 lakhs. In the asst. year 1985-86 GT had paid the assessee Rs. 53.26 lakhs against the sale of goods to it. SSC advanced Rs. 27.30 lakhs for sale of cylinders to it, but, since the sale could not be effected, the advance was returned.
20. CIT(A) considered the above submissions of the assessee, but, expressed his opinion that, PCPL could not be said to have 4000 cylinders so as to give them on hire. For coming to this conclusion, he made reference to the details of availability of cylinders over the years, insufficiency of evidence on the payment of hire charges, frequent trips by the same truck, though there were other trucks plying on the same route, insufficiency of evidence on freight and octroi payment. CIT(A) also heavily relied on the order of AO, on the manner of payment of hire charges to PCPL, which was effected from the Head Office Books, while, hire charges paid to others were through the registers maintained at Sahibabad, including the hire paid to GSFC. CIT(A) also gave consideration of the submission that PCPL was paid for the supply of gas along with the cylinders that were taken on hire, and the cost of the gas has not been disputed or disallowed by the AO. CIT(A) was of the opinion that, the important evidence in support of the receipt of cylinders taken on hire would be the octroi receipts, which according to his was not produced to him. CIT(A) had observed that, the evidence that was adduced by the assessee was only the toll tax receipts, which do not have the same evidentiary value as the octroi receipts, because, they did not give the particulars of the nature of the goods transported. CIT(A) in para 5.16 of his order expressed his doubt about the supply of 1250 cylinders by PCPL at Sahibabad, when it had a mere secretarial office only. CIT(A) referred to the direct ledger entry at the Head Office of the hire charges paid to PCPL and also to the statement of the Accountant of the assessee, that all receipts and issues are duly entered in the books of the factory. In this connection, the Accountant was asked to show the entries in regard to the purchase of the cylinders in Dec. 1986, but he could not show any entry as having been made in the books maintained at the factory, despite the claim made by him, that, at the factory complete record is maintained in record to fresh receipts as well as the movement of the old cylinders. CIT(A) therefore, formed his view that, the claim of 2050 cylinders as having been taken on hire in asst. year 1986-87 as not established and expressed it so in para 5.18 of his order. In para 5.19 of his order, CIT(A) made a similar expression for the hire of 4000 cylinders in asst. year 1987-88.
21. CIT(A) rejected the claim of the appellant that, on the date of survey, it had as many as 6947 cylinders in its factory premises and that, it included the purchased cylinders as well, by observing that, he is concerned with the availability of the cylinders in asst. year 1986-87 and 1987-88 and that too between the period May 1984 to Dec. 1986 only. CIT(A) in para 6, observed that, since there was insufficient evidence in support of PCPL possessing the cylinders, it could not have given them on hire and also the purchase of 4600 cylinders was bogus, and consequently, he refused to allow depreciation on the cylinders. For coming to this conclusion, he made reference to the enquiries made with some of the parties, with whom, the assessee had claimed that, cylinders are lying, against the security standing to their credit. Since all of the six parties claimed that, they did not have dealings from 1983 and a few others could not be located at the addresses provided, but, he also made an observation to the effect that, based on the enquiry with persons who had dealings only upto 1983, he could not decide the issue of user of the cylinders. He also observed to the same effect because a few of the parties, the management and the ownership had changed.
22. Shri Agarwal on the above mentioned facts, submitted that, the revenue had made efforts to discredit the claim of hire charges and depreciation, by proceeding on the lines that PCPL could not have acquired the cylinders, despite the fact, financial institutions had advanced it funds for the purchase. Shri Agarwal contended that, the revenue had proceeded on the basis that PICUP, the financial institution had connived with PCPL and the assessee in drawing the picture of availability of cylinders with PCPL, it giving on hire to the assessee, the assessee in turn showing payment for the hire. He contended that, the revenue had made loud noise of fraud in connivance with PICUP, by allowing to finance the assessee for the non-existing cylinders. He pleaded that, the revenue which had been making such a loud noise of fraud in connivance with PICUP, while making the assessment of PCPL for asst. year 1988-89 had accepted the sale of 4600 cylinders in its hands as a genuine one. He also pleaded that, in the hands of PCPL, depreciation had been allowed on the cylinders which it had given on hire to the assessee. He submitted that, the revenue committed the blunder of holding the finance arrangement with PICUP as a fraudulent one, without realizing the fact that, no financial institution would come forward to finance the purchase of equipment, without carrying out the basic examination of the existence of the equipment itself. He submitted that, it is evident from records that, PICUP had agreed to finance the purchase of gas cylinders trollied from ASCPL and in view of ASCPL's inability to supply them, allowed modification of the arrangement of the purchase of cylinders from PCPL. He contended that if PICUP had refused the modification, there was no alternative left with ASCPL but to refund the amount to PICUP. He contended that, the mere fact that, the amount as was paid by PICUP to ASCPL, was allowed to be further remitted to PCPL is sufficient indication of the concurrence of PICUP. He submitted that, the records show that, the assessee had been complying with the repayment schedule with PICUP and repayment of the loans were being made to PICUP. He strongly contended that, there is no evidence in the possession of the revenue to the effect that, PICUP had commenced any proceeding for having defrauded it in obtaining its funds, without the existence of the cylinders. He further contended that, revenue did not carry out any enquiry with PICUP on the advance allowed by it. He pleaded that, the revenue merely to reject the claim of the appellant company, had lodged the various allegations, without any basis. He pleaded that, on the one hand the revenue had rejected the hire of cylinders, but at the same time had allowed the payment towards gas which were supplied along with the cylinders given on hire. He submitted that PCPL had its works at Nangal, from where, it filled up the gases and supplied the cylinders to the assessee. He also pleaded that, revenue has no dispute to the fact that, PCPL had been assessed on the gas charges recovered by it from the assessee, which was so supplied with the cylinders that were provided on hire.
23. Shri Agarwal insisted on arguing with reference to the records of PCPL, because, the revenue had proceeded to discredit the assessee not on its records, but, with reference to the statements from PCPL. He pleaded that, the statement of availability of cylinders with PCPL clearly showed the stock position over the years from 1979. He submitted that Nangal falls inPunjab, while the works of the assessee falls in U.P. and, therefore, whenever there is any movement of any goods or equipment, it has to necessarily pass through the octroi posts of each of the States. The octroi authorities after charging the requisite octroi, allow the goods to pass through the State borders. The octroi receipts as issued by the authorities, indicate the nature of the goods on which, they had levied the octroi. Referring to these octroi receipts, he pleaded that they clearly indicate that, the goods that passed through the border was gas cylinders.
24. Shri Agarwal made reference to the statement of KKG and submitted that KKG had full knowledge about the transactions of the appellant and PCPL, but when it came to the concerns owned by him and that owned by his wife and brother, he denies of possessing any knowledge. He contended that, the revenue's theory of non-availability of cylinders with PCPL is based on the statement of KKG, who had stated that, he only receive his commission and never gave actual delivery of the cylinders. Shri Agarwal submitted that, since it was convenient for KKG to state that, he did not maintain any books, because, he had shown only the receipt of commission and preferred it that way. He pleaded that, merely because KKG had accounted for receipts of commission only it does lead to the conclusion that, the transactions of purchase, sale, hire as recorded in the books of the assessee are non-genuine. He contended that, if KKG fails to paint a complete picture of the transactions of purchases and sales in his books, but only paints the skeleton of the commission, it does not lead to the conclusion that, he had received the commission only or that, he was a mere procuring or marketing broker. He submitted that, the revenue has taken the submission of KKG that, he has no knowledge about the actions of the concerns belonging to him or to his wife and brother, rather very lightly. He contended that, normally any person can be expected to have full knowledge about one's own affairs, whereas, in the instant case, KKG lacked knowledge about his affairs, does not remember the chronological happening of events concerning his concerns, but has complete track of the transactions of the appellant and PCPL which never occurred to the revenue as a strange matter.
25. Shri Agarwal carried us through the list of availability of cylinders with PCPL from 1978 toJune 30, 1987. He submitted with reference to this list that, it provided particulars of the date, bill no party from whom the cylinders were purchased, its cost, the party to which hired, party to whom sales of cylinders were made together with the sale price and also the amount of hire charges realized, as well as the sale of gas. He submitted that, this list showed that, between Feb. 1984 and Jan. 1985, 1750 cylinders as purchases from AI, a concern in which wife of KKG and brother were partners. The list further showed purchase of 1000 cylinders from ASCPL between Feb. 1985 and Mar. 1986. He submitted that, this list also showed receipt of hire charges of Rs. 3.70 lakhs and Rs. 5.73 lakhs in the asst. years 1985-86 and 1986-87 respectively. He submitted that the list indicated purchase of 500 cylinders in 1983 from SLB, which has been accepted as correct by the revenue. He submitted that AI had supplied to PCPL 3000 cylinders under cover of three bills in Jan. 1984 and four bills in Feb. 1984. He submitted that, SLB had paid/transfeffed Rs. 9 lakhs to GT, and GT in turn paid it to PCPL, for supply of 1000 gas cylinders. The department has no dispute at to the sale of these 1000 cylinders by PCPL on Jan. 1984. The revenue had misconstrued the payment by GT to PCPL, because, it did not bother to go into the actual fact of the transactions. He submitted that, the list showed that PCPL had purchased 1250 cylinders in Jan. 1984, 1750 cylinders in Feb. 1984 from Al. The purchases were made in lots of 500 on18-1-1984, 750 on21-1-1984, 500 on21-2-1984and 750 on24-2-1984. The entire lot of 1250 cylinders received in Jan. 1984 was hired out to M/s. Poysha Oxygen (P.) Ltd. (POPL) on27-1-1984out of which POPL returned 500 on1-12-1984and the balance of 750 was returned on10-2-1985. On1-12-1984, 500 cylinders were hired to ASCPL, which returned it on31-1-1985. The other lot of 1750 cylinders received in Feb. 1984 was hired to the assessee-company on1-12-1984. Shri Agarwal pausing here, submitted that as on1-12-1984, PCPL had in stock 2250 cylinders, which comprised of 1750 cylinders purchased in Feb. 1984 from AI and another 500 cylinders which POPL had returned on that day. In Feb. 1985, it had in stock 1250 cylinders, comprising of 500 cylinders received back from ASCPL in Jan. 1985 and 750 cylinders returned by POPL on10-2-1985. Out of this stock 300 cylinders were further hired out to the assessee-company on1-4-1985, bringing the total of the cylinders hired to the assessee to 2050 cylinders. In Mar. 1986, ASCPL by means of two bills dated 21st and 22nd sold 1000 cylinders to PCPL. Therefore, as of Mar. 1986, PCPL had in stock 1950 cylinders. From this stock, PCPL gave on hire 500 cylinders to Rajdahani Gases (P.) Ltd. (RGPL) on25-3-1986and balance of 1450 cylinders were hired out to the assessee on1-4-1986. RGPL returned the 500 cylinders on30-4-1986and this was further given on hire to the assessee on1-5-1986. Shri Agarwal pleaded that, if the contention of the revenue were to be true, then, how come that, PCPL came to provide on hire to POPL, ASCPL and RGPL which concerns were not at all sister concerns of the assessee or PCPL and why would these parties pay PCPL the hire charges, which were assessed as such by the revenue.
26. Shri Agarwal pleaded that Rs. 45 lakhs was paid to AI by PCPL for the purchase of cylinders from them. He pleaded that, the further payment made by AI to GT, a concern of KKG for Rs. 41.50 lakhs, the explanation should have been sought from AI or GT and not from the assessee or PCPL. He pleaded that, the CIT(A) had misunderstood the said payment by PCPL. He further pointed out that, the CIT(A) had also overlooked the vital fact of purchase of Breathing Apparatus by GT from the assessee at a cost of Rs. 55.57 lakhs, which sale by assessee had not been disputed. The CIT(A) had merely inferred from the payment by GT and flow of funds back to assessee, without going deep into the facts. The revenue also had refused to give any consideration of the receipt of the loan of Rs. 33.75 lakhs, representing 75 per cent of loan of Rs. 45 lakhs provided by PICUP, after due verification by PICUP.
27. Shri Agarwal referring to the list of availability of cylinders, submitted that, for the purchase of 1000 cylinders in Mar. 1986 from ASCPL, it was paid Rs. 17.34 lakhs, vide four cheques. The first was for Rs. 4 lakhs, vide cheque No. 410918 dated 24th Mar. 1986, the second is dated 24th Mar. 1986, ch. No. 410919, for Rs. 4.85 lakhs, the third is dated 27th March, 1986, ch. No. 410920 for Rs. 4 lakhs and the fourth is for Rs. 4.49 lakhs, vide ch. No. dated 27th Mar. 1986. Shri Agarwal submitted that KKG cannot deny this sale and its receipt at all, because, they are all through proper banking channels. He contended that, ASCPL had purchased Breathing Apparatus from the assessee at a cost of Rs. 25.48 lakhs, which sale has been accepted by the revenue as correct. He contended that, in asst. year 1985-86 assessee company had sold Breathing Apparatus to various concerns for a total consideration of Rs. 58.97 lakhs, of which sale to GT alone accounted for Rs. 55.57 lakhs. In asst. year 1986-87, sale of Breathing Apparatus to GT was for Rs. 4.34 lakhs. In asst. year 1987-88, sale of Breathing Apparatus was Rs. 76.41 lakhs. GT accounted for sale of Rs. 50.93 lakhs and ASCPL accounted for Rs. 25.48 lakhs. In all the three asst. years, the revenue had no dispute as to the sales of Breathing Apparatus.
28. Shri Agarwal submitted that, the assessee sells gas filled in the cylinders and without the cylinders being provided to the customers. It could not sell the gas. He contended that, the customers have to necessarily return the empty gas cylinders for being filled in once again for supply of gas to them. He submitted that, at the factory, the company maintained a register in which it entered according to the parties, the cylinders as supplied to them, received back for filling, and the balance lying with them. He submitted that, the supply of cylinders filled with gas was only done from Sahibabad, but, some of the filled cylinders were also kept at Nangal from where too supplies were made to parties. He submitted that, based on the stock register, which had complete record of the total cylinders available with the assessee, compilation had been made for each of the month.
29. He referred to the statement of availability of cylinders for the accounting period ending with June 1985 (pages 157-160) and Dec. 1986 (pages 164-166) and submitted that, this list showed the names of the parties together with the cylinders supplied to them with the gas and also the cylinders as at the platform, waiting for being filled with the gas. He submitted that, the perusal of these details showed that, the quantity of cylinders with the customers or parties were not uniform, but changing, depending upon their requirements. He submitted that, the appellant had its own cylinders numbering 6764 at the beginning of the asst. year 1986-87. It had taken on hire 1750 cylinders till Mar. 1985 and took additional 300 cylinders on1st Apr. 1985. This hire of 2050 cylinders continued for asst. year 1987-88 too and another set of 1950 cylinders were taken on hire in that asst. year, which hire continued till 24-12-1986. It was on25-12-1986, that the assessee-company had purchased 4600 cylinders from PCPL. He submitted that the list showed that, from Dec. 1984 to Mar. 1985, the cylinders at the platform were 1636, 1461, 907 and 1301 respectively. In the three months of Apr. to June 1985, the platform had 1959, 1553 and 2031 cylinders. The total No. of cylinders which were in circulation from Dec. 1984 to June 1985 were 6878, 6953, 7607, 6213, 6855, 7261 and 6782. He contended that, but for the availability of additional cylinders of 1750 till Mar. 1985, 2050 cylinders from Apr. to June 1985, it would not have been possible to have gas sales of Rs. 51.77 lakhs. He submitted that with the use of 6764 cylinders in asst. year 1985-86, the gas sale was to the tune of Rs. 27.48 lakhs only. In asst. year 1987-88, the sale of gas went up to more than Rs. 2.34 crores, with the use of 11364 cylinders (6764 own + 4000 on hire from PCPL + 600 hired from GSFC + 343 hired from others). He contended that, the revenue had accepted the increased gas sales, but refuses to accept the fact that, it would have been impossible to achieve increase in sale by 90% in asst. year 1986-87 and by almost nine times in asst. year, as compared to the sale made in asst. year 1985-86. Shri Agarwal pleaded that, the above fact clearly goes to establish the user of the cylinder.
30. Shri Agarwal pleaded that, the sale of 4600 cylinders by PCPL to the assessee having been accepted by the revenue in a substantive manner in the assessment of PCPL. It is no longer open to the revenue to challenge the availability of the cylinders with PCPL, for being provided on hire to the assessee. In support of this contention of his, he placed reliance on the Supreme Court ratio in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 and made specific mention to the observation made at page 328. He also made reference of Punjab & Haryana High Court decision in Jaswant Rai v. CWT [1977] 107 ITR 477, for the proposition that, if the revenue had accepted the valuation of the property, which is jointly owned by a few, in one of the co-owners hands, then it is not open for the department to take a different view in the case of the other co-owners. This was so relied upon for the proposition that, since the revenue had accepted the sale in substantive manner in the hands of PCPL, the revenue has no alternative but to accept the fact that, PCPL did hire the cylinders to the assessee, because, it could not so hire out without owning them or taking them on hire. Since PCPL had not taken on hire the cylinders, but purchased it, which purchase has been accepted to be sold at a later point of time, the conclusion is that, the purchase too is proved and genuine.
31. Shri Agarwal contended that, revenue had stated that, the list of security deposits as provided to it did not contain complete addresses, which is wrong. He carried us through page 37 of the paper book, which is the letter addressed to the AO, along with which is the party-wise list of security deposits, giving particulars of the name, with address, amount of security at the begining of the year, fresh deposits received during the year, amounts repaid to them and the balance at the close of the accounting period. He pleaded that, the addresses as were provided by the parties, were entered as such in the registers, from which the said statement was prepared. He submitted that, the parties included several prominent parties and few from distant places. He submitted that, CIT(A) had categorically observed that, the sample test of six parties, who had stopped buying gas from the assessee from 1983, could not be the basis for rejecting the user of the cylinder. He further contended that, the revenue closes its eyes to those cases, where there had been repayments of the security deposit, upon the surrender of the cylinders. The revenue also closes its eyes to the cases, where the assessee was compelled to initiate legal proceedings for the non-surrender of the cylinders. He therefore contended that, the stray cases, and that too of the parties, who had undergone change of ownership, or had stopped business with the assessee could not be the basis for holding that, the claim of the assessee of the user of the cylinder as unreliable.
32. He placed reliance on the Kerala High Court decision in M. Durai Raj. v. CIT [1972] 83 ITR 484, for the proposition that, where the assessee makes cash sales, it is not necessary that the assessee should have complete addresses of those customers. Reliance was also placed on the Bombay High Court decision in R.B. Jessaram Fatehchand (Sugar Department) v. CIT [1970] 75 ITR 33, for the proposition that, when assessee is making cash sales, merely for the reason, it could not provide the addresses of its customers, is no basis for rejecting the accounts of the assessee. On the same lines is the ruling in Md. Umer v. CIT [1975] 101 ITR 525 (Pat.). Shri Agarwal therefore contended that, the approach of the revenue in the instant case that since the revenue feels that, the addresses are incomplete, though, it accepts the sale of gas as genuine, its action of rejection of the claim of hire charges was totally baseless.
33. Shri Agarwal contended that, the revenue had proceeded to discredit the possession of the cylinders by PCPL, based on the movement of the funds. He submitted that, ASCPL after receiving the consideration for the sale of 1000 cylinders in Mar. 1986 utilized it for the purchase of Breathing Apparatus from the assessee, which sale in the hands of the assessee has been accepted as such. He submitted that, this itself showed the short sightedness of the revenue. He made reference to the Patna High Court decision in Addl. CIT v. Hanuman Agarwal [1985] 151 ITR 150, wherein at page 157, the observation was to the effect that section 131 of the Act permits the department to proceed with suspicion, but as soon as the assessee provides the names and the addresses as also the ward No., under which the parties are assessed, the onus that lay on the assessee stands discharged.
34. Shri Agarwal referred to the list of DA cylinders, which included 750 Nos. taken on hire from PCPL. The facts and circumstances of the hire, their movements etc., are identical with the hiring of the cylinders numbering 2050 and 4000 in asst. year 1986-87 and 1987-88 respectively. He submitted that, the revenue has mistook the certificate placed at page 384 of the paper book as pertaining to the hire of cylinders from Dec. 1984 to Mar. 1985, while it pertained to the cylinders additionally taken on hire from Apr. 1986. He submitted that, on1-12-1984, 1750 cylinders were taken on hire, and another lot of 300 cylinders were taken on hire on1-4-1985. The third lot of hire was of 1450 cylinders from1-4-1986and the fourth was from1-5-1986of 500 cylinders. He submitted that, the revenue had placed heavy reliance on the statements of KKG recorded on Feb. 15, Mar. 21, Mar. 27, July 7, July 17 and July 18, 1989. He pointed out that onJuly 7, 1989, the assessee was not present because, it had no notice of the same. He pleaded that, the reading of the statement of KKG would show several contradictions. He submitted that, KKG denies all knowledge in regard to the transactions of ASCPL, in which he is the M.D. KKG also denied of any knowledge of any transaction by Al, a firm in which his wife and brother were partners.
35. KKG stated onFeb. 15, 1989, that he would be able to provide complete account of purchases and sales as were made through him on commission basis fromJan. 1, 1981. KKG was asked of the accounts on March 27th, but, he had stated that, he does not maintain any books of accounts, and that records are available in his asst. folders and that he shall provide the details onApril 3, 1989. When KKG was asked of the transactions between the assessee with the various concerns and PCPL, he stated that, he would not be able to reply without looking to the records, but however, he later stated that, he does not maintain any records or books. KKG was also asked about the names of the customers to whom cylinders were sold, and the reply was that, he does not remember because, the moneys were received through dalals and he could not provide the names of the dalals, because he does not maintain any records. KKG however volunteered to provide details of transactions of his concerns, GI, SSC, SLB and ASCPL on3-4-1989. When KKG was asked about his company ASCPL had filed its return of income, he stated that, the return may have been late on account of some reason or the other. KKG stated that, he would be able provide complete details of the transactions of the assessee and PCPL regarding the transactions of cylinders. When he was confronted with the fact that PCPL claims to have made purchases from AI and GT, he flatly denied of any knowledge about their dealings. On3-4-1989, there was no examination of KKG, nor KKG file any details of transactions as promised by him earlier. KKG was examined onJuly 7,1989, on which date, the assessee had no information, thus could not be present, but the AO did not enquire about the details as promised by KKG, nor KKG voluntarily submitted it. KKG, never supplied this information to the AO. KKG was asked about the transactions in 1979, 1981 and 1983. To a question about the sale of 1000 cylinders by ASCPL to PCPL in March, 1986, the reply given was that, the assessee sold it to ASCPL, which in turn was purchased by PCPL. KKG submitted that, the transaction of sale by assessee to PCPL through ASCPL was so made only to accommodate the two parties and therefore,, ASCPL did not have any capital outstay. Since ASCPL was concerned only with its commission, there was no necessity of any capital outlay. KKG stated that, the money as provided by PCPL was forwarded to the assessee as such. ASCPL did not take actual delivery from assessee and also did not give any actual delivery to the PCPL. KKG stated that his concerns, GI, SSC, SLB and ASCPL never purchased the cylinders physically. KKG stated that the transfer of Rs. 7.5 lakhs was by PCPL out of its funds. KKG stated with reference to the various bank accounts which were being operated by him and some of which were introduced by SCG, M.D. of the assessee company, that, the entire control vested with SCG and it he who used to deposit and withdraw the amounts from the banks. KKG further stated that, the transactions appearing in the banks accounts did not include transactions of his cncerns and has no relation to the business of KKG. KKG stated onJuly 17, 1989, that he does not know the constitution of the firm Al. When he was told that, the partners were none other than his wife and brother, he did not comment. AO asked him, how he would be able to provide the transactions from 1978, the reply was from memory. AO asked his specifically to the purchase of 3000 cylinders in 1979 by PCPL from GT (a concern which belonged to the father of KKG, the reply was that, he does not remember and that, he also could not recollect as to whether, the sale was on commission basis, but stated that, it must be available on the record of the department. AO also specifically confronted to a sale of 200 cylinders by SSC to PCPL and the reply was that, he would have to check his records, because he does not remember. KKG replied in the same manner in regard to a sale of 500 cylinders in 1983 by SLB to PCPL. KKG was asked about the movement of funds between his various concerns, with special reference to GT and SLB. The reply was that, it may be on account of some commission bill and the AO should know it better. When KKG was reminded of his promise to produce records and details from 1981, he replied that, he has details only after 1985 and therefore cannot produce any details prior to 1985. AO asked KKG in regard to the bank operation of ASCPL, which KKG claimed as under the control of SCG, as to whether, the bank had been so informed, as to whether, the shareholders had any knowledge of it, the reply was, that, since he did not hold any annual general meeting, no resolution was ever passed. He added that, for any fault on his part under the Companies Act, in regard to his company ASCPL, he would suffer all the penalties as may be imposed by the Registrar of Companies. He submitted that, the accounts of his company could not be finalized because, the Auditor has left him and has also refused to sign the Balance Sheet. AO again put a direct question regarding the banking operation of bank accounts of ASCPL, whether he had disclosed in the Board Meeting, the answer was that, there are several accounts opened by him and he raised a counter query, as to what reply he should give. KKG categorically stated that, ASCPL was benefited with the commission on the sale of 1000 cylinders to PCPL and the commission amount was the difference between the purchase price and the sale price. When KKG was asked about the operation of the banks accounts of his various concerns, he replied that, he used to encash the cheques drawn on Bank of Maharashtra and Punjab & Sind Bank, and at time she would one of his employee, some time he had sent Shri Hari Om Sharma. He also stated that, who had encashed the cheques is of relevance, since the cheques were all signed by him. KKG when asked about the commission, raising of bills etc., he replied that, he merely provided the bills, but the supplies might have been made by other parties. KKG was asked as to whether this practice of providing of bills also continued in relation to the transactions of PCPL and the assessee, the reply was in the affirmative. KKG however denied that, the practice of raising of bills did not apply to the concerns belonging to him or to his family members.
36. Shri Agarwal submitted that, the perusal of the statement of KKG clearly goes to prove that, his statement is unreliable, because, he claims that he had merely raised the bills for the assessee or PCPL, without adducing any supporting evidence is statement. He had made the revenue to accept his statement on its face value, because, he does not maintain any records. The assessee on the other hands has on its records, which have been impounded by the revenue, the evidences in support of its purchases, sales etc. Shri Agarwal pleaded that the claim of KKG about the bills being raised for accommodation is incorrect, because PCPL paid Rs. 45 lakhs to ASCPL, but ASCPL never paid the assessee. GT purchased Breathing Apparatus from the assessee, for which GT paid Rs. 45 lakhs to the assessee. Shri Agarwal submitted that, he had provided full particulars of the sale of Breathing Apparatus to ASCPL and GT, against which, the said concerns had paid the assessee, which transactions are not disputed by the revenue. He pleaded that, by mixing the events and transactions, the revenue had tried to give it a colour of falsehood. Shri Agarwal pleaded that, SSC was to supply gas cylinders, which sale did not come through and as such the advance of Rs. 27.30 lakhs was returned back by it.
37. Shri Agarwal made reference to the shareholdings of the two companies. He submitted that SCG held 1100 shares out of a total of 14,980 shares of PCPL as of31st March, 1985. As of31st March, 1986SCG held 11000 shares out of 1,40,980 shares. As of30th June, 1987, SCG held 20,800 shares out of a total of 1,40,980 shares. He accordingly pleaded that, SCG is not the substantial shareholder of PCPL. He pleaded that, therefore, it would be wrong to hold that, the two concerns come within the definition of persons as in section 40A(2)(b) of the Act.
38. Shri Agarwal concluded his argument with the submission that, the facts as had been placed by him, supported with evidences are clearly indicative that, the revenue had proceeded with a coloured vision, refusing to accept the real fact, and substituting their surmises only, the disallowance of the hire charges are therefore without any basis and since the cylinders have been acquired in asst. year 1987-88, depreciation should be allowed to it, in the light of the Supreme Court decision in Smt. Tara Devi Aggarwal's case and Punjab & Harayanan High Court in Jaswant Rai's case 39. Shri Sandeep Tandon, the senior departmental representative, submitted that, the extensive examination as was carried by the AO, which was found to be sufficient to prove that, the claim of the assessee that, it had hired out cylinders is totally a false claim, because, AO had clearly established by cogent evidence that PCPL never possessed the cylinders and therefore, what it did not possess, it could not give on hire. He insisted that, the financial help obtained from PICUP is only to paint the picture as if it was a genuine one. He submitted that, KKG had stated that, he merely allowed raising of bills by his concerns for a paltry commission, and that, there was never any actual delivery of the cylinders. Shri Tandon submitted that, the assessee and PCPL have succeeded to raise finance on the strength of paper bills only, without there existing any actual cylinders. He pleaded that, KKG in his statement had stated that, the bank accounts were controlled by SCG. He made reference to the exhaustive observations made by the CIT(A) in pages 10, 16 and 17, wherein, the movement of funds between the various bank accounts was examined and it all lead to the goal either of the assessee or to PCPL. He contended that, the assessee and PCPL had used all the concerns of KKG for their own ends. He contended that, the encashment of cheques were by Shri Hari Om Sharma, who was in the employment of the assessee and this fact cannot be overlooked at all, because, it pierces through the transactions and indicates the falsity in them. He referred to the observations of the CIT(A) at pages 18 and 19 of his order.
40. Shri Tandon touched upon the aspect of octroi receipts, which were called by the AO as well as by CIT(A), which the assessee never produced. He submitted that, octroi receipts would show the type of goods that had passed the octroi posts. He contended that if in reality, the cylinders did exist and did pass through the octroi posts, then, nothing prevented the assessee from producing the same when called for. He contended, that, the mere fact, that the assessee did not produce despite being specifically called by AO and CIT(A), is indicative of the fact, that the claim of the assessee, that it did hire cylinders is not supported by any evidence. He also made reference to the statement of the accountant of the factory that, all movements of the cylinders whether into or out of the factory are recorded in the register maintained for the purpose. Then why the registers did not contain any entry either at the time of taking of hire or at the time of its purchase in Dec. 1986. AO also had called upon the assessee to produce the challans under cover of which, PCPL had despatched the cylinders to the assessee. Since normally, the customer would be provide with a copy of the challan for itself, for having effective control, if PCPL did have and did supply the cylinders to the assessee, then it would have supplied under cover of the challans, why was the assessee evasive in producing them before the authorities. He submitted that, the octroi authorities based on the challan or the bill, examine the truck carrying the goods, and levy the octroi charges and issue the receipt to the party, mentioning therein the particulars of challan No., date of challan, the nature of goods covered by the challans. This fundamental evidence was never made available by the assessee.
41. The AO therefore, desired to carry out his examination from the point of user of the cylinder. It was in that connection that, AO had directed the assessee to provide complete addresses of the parties who had provided security deposit against the cylinders taken on hire. He made reference to the details starting from page 34 of the paper book and submitted that, it merely stated the name of the party and the name of the village or a small town. He contended that, on these incomplete addresses, it was impossible to trace any of the customers. He contended that, since the assessee was supplying them the gases, assessee would maintain greater detail to protect itself, which it did not divulge to the AO. He contended that the assessee safely provided the addresses of six parties with which it had no transactions from 1983. He contended that, the assessee also did not obtain any confirmation from parties who had provided fresh deposits in the year. Inspite of the assessee's lack of co-operation CIT(A) fairly remanded the issue of verification of the security deposit to the A.O. Shri Tandon submitted that, the assessee surrendered some of these deposits as its income in the asst. years 1986-87 and 1987-88 and in support of this statement, he filed the copies of the order of the AO made under section 250 of the Act.
42. Shri Tandon referred to the statement of availability of cylinders. He submitted that, this statement does not tally with the platform register maintained at the factory and there was no means available to verify the veracity of this statement. He pleaded that, AO normally does not disturb the incomes as offered by the assessee and therefore, it does not mean that, the income so shown stands fully explained. He submitted that, the sale of gas has been shown at an increased figure in each of the asst. years, so as to give the colour of genuineness to the hire of cylinders. He pleaded that, the claim of hire is only a cover up for the generation of funds by assessee in the hands of PCPL. He contended that, since PCPL had shown sale of cylinders the AO of that company accepted it as such and therefore, it should not be treated to mean that, the assessee had established the availability of cylinders with PCPL and it having been provided on hire initially and subsequently as sold to the assessee. He strongly pleaded that, the entire transaction between the assessee and PCPL is nothing more than paper transactions and therefore, the orders of the authorities should be upheld. He filed copy of the statement of Shri Anil Jai, account of the assessee.
43. Shri Tandon raised strong objection to certain documents as have been placed by the assessee in the paper book, which have not been filed before the authorities and these being additional evidences should not be admitted at the stage of the Tribunal. He pleaded that, in the alternative, if the Tribunal intended to admit these evidences, then, the matter should be remanded to the file of the AO for fresh examination, in the light of these additional evidences.
44. Shri Agarwal contended that, the paper book does not contain any new or additional material. He submitted that, some of the statements have been redrawn from the statements as are on the record of the revenue, purely for better appreciation of the facts of the case. Shri Tandon opposing this claim of Shri Agarwal pleaded that, the assessee, should produce the challans pertaining to the cylinders purported to have been taken on hire, because, the challans that have been placed at page following 384 related to different supply of cylinders. Shri Agarwal provided the challans as issued by Oxygen Sales Corporation, the proprietory concern of PCPL, under cover of which the assessee had received cylinders from Dec. 1984 to Mar. 1985, alongwith the octroi receipts and also filed photocopies with the Bench and provided a copy of the same to the departmental representative. Shri Tandon was directed to examine them. Shri Tandon submitted that, these challans should not be allowed to be admitted at the stage of the Tribunal. He however, after examining the challans, pointed out that, one of challans bearing No. 1059, dated 6-1-1985, under cover of which 150 gas filled cylinders were stated to have been supplied, contained the rubber stamp of the Sales-tax barrier along with the date and the date so affixed by the Sales-tax authorities was 6-12-1984. He pleaded that, the said challan has no credibility value. He submitted that, in respect of the other challans, under cover of which gas filled cylinders were supplied by PCPL the date on these challans and that of the Sales-tax barrier are in agreement with one another.
45. Shri Tandon submitted that, he would be placing all of the impounded books and other records at the disposal of the Bench and under cover of his letter, he listed those impounded books and placed the same before the bench. He pleaded that, the counsel for the assessee had stated that, the revenue is only making efforts to take an extraneous view of the matter, and his objection to this statement was that, the assessee should have come with clean hands before the concerned authorities. He contended that, if the claim of the assessee were true that, it did receive the cylinders than, the accountant would have known about it and that, suitable entries would have been made in the books, whereas, the accountant was unaware of the receipt of cylinders and there was no entry also found in the books. He strongly pleaded that, the appeal of the assessee on the issue of claim of hire charges and depreciation deserves to be dismissed.
46. We have given our very careful consideration to the rival submissions as well as to the paper books as filed by the assessee and the departmental representative. We may observe that, subsequent to the hearing of the above appeals, Shri Tandon had filed a letter containing his submissions, datedFeb. 18,1992. In this letter-cum-submission. The plea advanced was for the non-entertaining of the additional evidence of the challans for the cylinders taken on hire between Dec. 1984 to Mar. 1985. He made reference to one of the challan dated6-1-1985, bearing No. 1059 appeared to be forged. He further submitted that, Tribunal may exercise its power under section 255(6) of the Act to cause an inquiry to be conducted directly or may direct the AO to carry out the examination and submit his report, on the genuineness of the Challans. He further had submitted that, if the inquiry revealed any forgery, then, Tribunal may take such suitable action as it may deem proper in the circumstances of the case.
47. The disputed issue relates to the hiring of oxygen gas cylinders from PCPL, a sister concern of the assessee-company. The assessee claims that, it had taken on hire 2050 cylinders in asst. year 1986-87 and 4000 cylinders in asst. year 1987-88 from PCPL. The assessee further claims to have purchased all of the cylinders, which it had earlier taken on hire from PCPL. The revenue, on the other hand had held that, PCPL did not own the cylinders and that, there was total lack of evidence of possession of the cylinders and therefore, what is did not possess, it could not have given on hire and could not have sold it. In order to appreciate the controversy, the following table had been drawn up, with the help of the seized or impounded records, materials supplied by the assessee and the revenue.
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Figure in lakhs of Rupees
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Assessment No of CylindersSale
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mo- Cylinder Breathing Security
years nth Own Hired Total hire Gas Apparatus Others Deposit
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1985-86 12 6764 - 6764 - 27.48 56.97 14.91 28.07
1986-87 12 6764 2050 8814 3.98 51.77 4.33 24.59 30.95
1987-88 18 11364 934 & 12307 12.45 234.79 76.40 109.05 33.56
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In asst. year 1987-88, the figure of cylinders owned includes purchase of 4600 cylinders, the figure of hire of 4000 cylinders got merged in the purchases, because, by the year end, they were purchased. &--This should have included 4000 cylinders taken on hire, but, for tallying the total cylinders available, and since it got merged with the purchases, the No. of hired cylinders have been excluded.
48. The Auditor's Report submitted under section 227(4A) of the Indian Companies Act, 1965, Annexure A, para No. 7 contained common remarks, which is reproduced for the sake of facility :
" The Company has purchased, taken on rent the cylinders or dealt otherwise with the firms, companies and parties in which the Directors are interested for a value exceeding Rs. 10,000 during the period ended on31st December, 1985/1986. As informed by the management, the prices and rent on cylinders charged by the parties are reasonable as compared to the prices and rent charged by other parties for similar items. "
49. The report of the auditor in Form No. 3CD, item No. 6(a) mentioned about the payment of salary to the Managing Director Shri S.C. Goyal and salary and rent paid to Shri Kushal Jain.
50. The revenue considered the above and since, the assessee claimed hire charges to a concern, in which the M.D. of the company was also the M.D., which was covered by the provisions of section 40A(2)(b) of the Act and in view of the report being silent on this aspect, it was taken to mean that, the assessee did not desire to highlight the same, had made efforts to suppress the information, so that, it escapes the attention of the assessing authority.
51. The table in para 47 gives the figures of hire charges of cylinders claimed by the assessee, sale of gas, sale of breathing apparatus, sale of other items, security deposit taken, figures of cylinders owned, hired and total, for the three assessment years from 1985-86 to asst. year 1987-88. The assessee-company had 6764 cylinders in asst. year, which yielded sale of gas of Rs. 27.48 lakhs. In asst. year 1986-87 the No. of available cylinders had increased by 2050 and the sale of gas had gone up to Rs. 51.77 lakhs. In asst. year 1987-88, the No. of cylinders increased further by 4943 and the sale of gas has gone up to Rs. 234.79 lakhs. When the sale of gas is compared with asst. year 1985-86, the increase is by Rs. 24.29 lakhs in asst. year 1986-87 and in asst. year 1987-88, the increase is by almost Rs. 207 lakhs. Since, asst. year 1987-88 is for eighteen months, taking proportionately for twelve months, the increase would be by about Rs. 156 lakhs. The increase in sale of gas indicates that, it is directly attributable to additional cylinders used by the assessee-company. As against the increase of sale by Rs. 24.29 lakhs in asst. year 1986-87, the claim of hire charges is just Rs. 3.98 lakhs. In asst. year 1987-88, the sale of gas has increased by Rs. 207 lakhs and the claim of hire charges is just Rs. 12.45 lakhs. It therefore is apparent that, the assessee company anticipating the increase in sale volume, had hired the cylinders. Since the hire charges accounted for just about 7 per cent in asst. year 1986-87 and just about 5.5 per cent in asst. year 1987-88, it would be wrong to hold that, the assessee had made efforts only to transfer income to PCPL by hiring of the cylinders. From this point of view, there is justification in the claim made by the assessee of the hire charges. We may also observe that, the submission made by the departmental representative that, the revenue had accepted the sale because, the assessee had shown it, in our view, is a baseless argument. The reason being that, no assessee would make effort to show something as sales, merely for the reason that, he enjoys paying tax on such income. The sale of gas is to parties and not to onself and the sales of gas is supported by the sale bills or cash memos, which the revenue has not found to be wrong. It is not the case of the revenue that, the accounts are manipulated. The revenue has considered certain circumstances such as hire being paid to a concern in which the Managing Director of the Company is also the Managing Director. The argument advanced by the departmental representative that, the increased sale was shown only to hoodwink the department, does not stand the test of scrutiny. The other argument of the departmental representative that, the effort was only to show that PCPL had the cylinders, which was subsequently purchased by it, is also a baseless submission, which collapses on the persual of the above table.
52. The auditor's report does not indicate any adverse remark made by him. The revenue had considered the transaction of hire as failing under section 40A(2)(b) of the Income-tax Act, This section considers transactions between two companies as falling under it, provided that, any director holds twenty per cent of the shares of the company, with which there are dealings. Shri Agarwal had submitted that, the shares held by SCG as Managing Director of PCPL was just 7 per cent and the persual of the order does not indicate that SCG in combination with other family members holds twenty percent of the shares of PCPL. Since the shares as are held by SCG is far below the 20 per cent limit, section 40A(2)(b) would not come into operation. Therefore, the auditor was not required to make any mention in column No. 6(a) of Form No. 3CD, the auditors report as is required under section 44AB of the Act. Therefore, nothing much turns out on this objection of the assessing authority or the CIT(A) or the departmental representative.
53. The AO was fully justified in carrying out enquiries in regard to the payment of hire charges. There is no doubt that, it is upon the assessee to establish the claim of deduction as related to the business and that, it had really been incurred. The evidence of supply of cylinders by PCPL through the challans, is no doubt the fundamental evidence. This was rightly called for by the AO. AO was also justified in giving the transaction a closer look, because of the common M.D. for the two companies. Since the survey revealed that PCPL used portion of the premises of the assessee at its Head Office and the factory and therefore, the AO had to necessarily exercise caution in his examination of the transactions between the two companies. The inquiry from Registrar of Companies did not yield beneficial information. The revenue's next line of action of the examination of the user with references to the cylinders was with the sole purpose of finding out the quantity of cylinders in circulation. Revenue, however got bogged down with the examination from the correctness of the deposit. It did notice that, the amount of deposit was just tittle over 50 per cent of the total sales of gas in assessment year and in assessment year, it was just 14 per cent of the total sales of gas. Therefore, there is hardly any relationship between the sales of gas and the security taken for the cylinders. The addresses of customers who had given the security deposit included several parties, who were located inFaridabadand other places. The six of the parties, from whom the revenue had conducted inquiries, did not have any dealings for the last few years and therefore the CIT (Appeals) was justified to hold that, the user of the cylinders could not be determined with reference to the security deposits.
54. Revenue had directed the assessee to provide evidence of octroi receipts and the challans under which the cylinder are claimed to have been received. The assessee claimed that, freight and octroi were incurred on the movement of the cylinders from Nangal to Sahibabad and that they are so recorded in the books, but, could not lay its hands on the delivery challans issued by PCPL. These delivery challans were filed before us. The assessee also produced from its vouchers, the freight and octroi as incurred by it on each of the consignment. The challans in original and the freight and octroi receipts in original as produced during the course of hearing were examined by the departmental representative Shri Tandon. He did object to the production of these during the hearing because, they tantamount to additional evidence, but, however proceeded to examine them and pointed out that, one of the challans bearing No. 1059, dated 6-1-1985, bears the Sales-tax barrier's stamp as 6-12-1984. Shri Tandon, subsequently by means of his letter, dated18-2-1992, claimed that, the challans should not be admitted and if it is felt proper, then, it may carry out the inquiry itself or direct the AO to carry out the examination of the challans, because, one of them, viz., the one dated6-1-1985appeared to be a forged one. There is no dispute regarding the other four challans, where the date of the challan and that of the Sales-tax barrier tally. The delivery challan dated6-1-1985was examined with reference to the vouchers relating to the payment of freight and octroi. The said delivery challan No. 1059, dated6-1-1985was found attached to cash voucher No. 30 dated8-1-1985, which indicated the charging of total expenses at Rs. 541. The expenses that were paid by this cash voucher contained, freight, octroi and other incidental expenses. The cash voucher was supported by the freight paid to transport service, octroi receipts etc. The perusal of the octroi receipt attached to the cash voucher indicated that, it was in respect of truck no. DEG 136 and also the particulars as gas cylinders. The challan dated6-1-1985indicated the supply of 150 gas filled cylinders and it also indicated the cost of gas as Rs. 1,350 and empty cylinders at Rs. 1,50,000.
55. The AO had asked for production of these challans, but, the same were not so produced. The contention raised by Shri Tandon, the senior departmental representative, that, these being in the nature of additional evidence, its admissibility must be with reference to the provisions of section 255(6) of the Act, is fully justified. However, this contention that, it need to be verified for the above mentioned challan appeared to be bogus, was so advanced with a view to strengthen revenue's contention that, the hiring of the cylinders was a bogus one, as PCPL never owned the cylinders. The background for this contention of the revenue is the statements of KKG and AKG. KKG had stated that, he had allowed the use of his concern ASCPL being used by the assessee and PCPL and it was in that connection, that, he had raised the bills for supply of cylinders to PCPL and in reality, he never took actual possession of the cylinders and also never gave possession to any buyer. KKG also had stated that, he was only concerned with his commission, which only was accounted for by him. He had claimed that, ASCPL never sold any cylinders in March, 1986 and the sale was initially made by the assessee to ASCPL, which forwarded it to PCPL, and therefore, it did not have to invest any capital for the transaction because, it was interested only on its commission. KKG stated that, in few cases there were actual delivery, but, by and large, the transactions only involved in his arranging the meeting between the buyer and the seller, they exchanging the goods and he receiving only his commission.
56. The records as are placed on our records, regarding the transactions of the assessee indicates that, the revenue had not contested the sale of gas, breathing apparatus, other items, but accepted them to be correct. The details of the sales of breathing apparatus shows that ASCPL had purchased breathing apparatus and GT also purchased breathing apparatus for amounts Rs. 25 lakhs and Rs. 55 lakhs in the assessment year 1987-88, the previous year of the assessee being 1-7-1985 to 31-12-1986, a period of 18 months. GT had paid the assessee Rs. 45 lakhs as consideration for the purchase of breathing apparatus, while, PCPL had shown that it purchased 1000 cylinders from ASCPL in March 1986, against which it had paid Rs. 45 lakhs. As observed earlier, revenue had accepted the sale of breathing apparatus to GT and ASCPL and had not disputed the transactions as well as the payments received against the sale. Revenue, placing reliance on the oral evidence of KKG, had discredited the claim of the assessee. Revenue has no dispute on the fact that, PCPL had obtained loan from PICUP for the purchase of the cylinders and utilized the same towards that end. Revenue, basing its conclusions on the oral statement of KKG, had held that, the transaction of loan from PICUP was a fraudulent one. PCPL had shown purchases of 3000 cylinders from Al, between Jan. 1984 and Feb. 1984, which has been discredited on the statement of KKG, though, the revenue were aware of the fact that the partners of AI were wife of KKG and AI. Revenue, did not consider it necessary to counter check the statement of KKG with the records of AI or ASCPL, because, it was lead to believe that, KKG did not maintain any records by himself and that, he only received his commission, for which he was so assessed and that, he had no comments about the transactions of AI with PCPL. Since, KKG had repeatedly stated that, there was hardly any movement of goods physically, and that, the bills as were raised by him were mere accommodation, revenue felt that, no further examination was called for by it, in connection with the transactions of hire by assessee. It is not the case of the revenue that, the evidence of purchase as was available from the records of PCPL was inadequate or insufficient. They had concluded that, the transactions of PCPL especially in connection with the purchase of cylinders as bogus, only on the statement of KKG, though, the records of PCPL exhibited to the contrary.
57. The revenue has not challenged the payment of gas charges to PCPL, which it had supplied along with cylinders that had been given on hire to the assessee, but, has allowed it. Revenue insisted that, assessee should establish that, PCPL did have the cylinders and the assessment order clearly indicates this fact. It was for this reason that, the counsel for the assessee too insisted on arguing with reference to PCPL's affairs, instead of with reference to the records of the assessee. The counsel for the assessee had submitted that for assessment year 1988-89, in the hands of PCPL, the sale of 4600 cylinders as were made on December 25, 1986 to the assessee had been accepted as such, with which fact, the senior departmental representative Shri Tandon had no dispute. Shri Tandon, in this connection had submitted that, the revenue accepts the figures as are shown by the assessee and therefore, this by itself should not be held as conclusive for the existence of the cylinders with PCPL. It was at this juncture that, the counsel for the assessee referred to the ruling of Supreme Court in Smt. Tara Devi Aggarwal's case also to the Punjab & Haryana High Court in Jaswant Rai's case that if the revenue accepts the value of a property in one of the joint owners hands, then, it is not open to the revenue to disregard the finding of another Assessing Officer, that too in regard to the very same property. This argument of the counsel has considerable merit, because, if the sale by PCPL has been accepted to be genuine, then, it is indicative of the fact that, revenue has accepted the existence of the cylinders with PCPL. It is but natural that, there could be sale of goods only if they existed and if sale by scller is true, then obviously, the purchase by the purchaser is equally true, because, the seller and the buyer have been identified and the goods which was traded in also has been identified. We are therefore of the opinion that, revenue cannot any longer dispute the purchase of the cylinders by the assessee.
58. Coming to the aspect of hire of cylinders, the objection of the revenue is that, hire was paid from the Head Office books, while, GSFC was paid the hire charges from the factory books. Revenue had further objected to the fact of hire of cylinders, because, the platform register found at the factory did not contain any entry regarding these cylinders which were taken on hire from PCPL. Shri Tandon, the senior departmental representative, submitted that, the perusal of the platform register does not contain any entry for the cylinders taken on hire and he also referred to the statement of the accountant, who could not pin-point the entry, even at the time of purchase. It therefore became necessary to peruse the platform register which was placed at our disposal by the revenue. The platform register, as has been listed, is really a misnomer, because, the register only contained party-wise particulars of the cylinders. A platform register, normally would mean a record, which, indicates the cylinders lying there for being filled up with gas, cylinders filled up with gas, ready for despatch, date-wise filling done etc. The platform register is not a stock ledger, which contains the full quantitative record of the cylinder. Therefore, drawing of the conclusion about the non-availability of the cylinders, with reference to the platform register is improper. The fact that gas was filled only at Sahibabad is not disputed, excepting for those received from PCPL, which gas was filled from Nangal, for which gas, payments were separately made. The stock register as was provided contained the quantitative records of cylinders, party-wise, at Sabibabad, Nangal etc. The entries on this register appear in chronological order. It is from this stock register that, the compilation of the availability of cylinders month-wise was submitted for both the assessment years under appeal. As per the stock register and this compliation of cylinder availability, the total of cylinders on stock, which included stocks with customers, at factory etc., in the months of Dec. 1984 to Mar. 1985 was 8514 and from Apr. to June 1985 was 8814. The stock at the platform was 1636, 1461, 907, 1301, 1959, 1553 and 2032 for Dec. 1984, Jan. to June 1985 respectively. The above stocks at the platform indicates that, all of the assessee's own cylinders are in circulation and even from out of the hired ones, they have been placed in circulation. It further indicates that, the circulation could not have been improved, but for the availability of additional cylinders. Therefore, considering the fact of increase in sales by Rs. 24 lakhs in asst. year 1986-87 and in asst. year 1987-88 by Rs. 207 lakhs, it is sufficiently established that, the assessee did have additional cylinders with it, which have been put into operation. Since it is nobody's case that, the assessee had bought the cylinders from its unaccounted funds, it is clearly established that, it did hire cylinders.
59. One of the arguments advanced by Shri Tandon for the revenue was that, the accountant could not show the entry in the books of the factory at the time of purchase of the cylinders onDec. 25, 1986. Since, the assessee had claimed that, it had received the hired cylinders between Dec. 1984 to May 1985, the stocks are already accounted for and therefore, only an adjustment entry was necessary on Dec. 25, 1986, which was effected with the help of the sale bills raised by PCPL on it and no separate entry in the stock register was called for. The narration that, the cylinders were taken on hire only required modification to indicate its purchase. Therefore, this objection of the revenue in support of its contention that, there was no entry found made of the stock at the time of purchase is of no consequence. We may also observe that, revenue has no dispute on the fact that, in the assessment of PCPL, the hire charges have been assessed in substantive manner, though the assessments are stated to have been reopened under section 148 of the Act.
60. The assessee had paid PCPL for 4600 cylinders Rs. 91.99 lakhs and the same is reflected in the schedule of fixed assets and the loan obtained for its acquisition of Rs. 71.70 lakhs has also been reflected in the Balance Sheet. The finance was provided by PICUP, a Punjab State Financial Corporation, which has no connection with either of the parties. Revenue has discredited this financial arrangement as bogus, based on the oral statement of KKG only and not by adducing any evidence establishing the connivance. It is also not the case of the revenue that PICUP had initiated any criminal proceedings against the assessee for utilizing funds for nonexistent cylinders. Therefore, this objection of the revenue too collapses in the light of the finance received from PICUP.
61. We may observe that, it is not the case of the revenue, that the increase in gas sales by Rs. 24 lakhs and Rs. 207 lakhs in the two asst. years 1986-87 and 1987-88, respectively, was on account of substantial increase in sale price of gas. In the light of above facts and circumstances. Keeping in mind the increase in sales of gas over the two years substantially, which is not possible without the help of additional cylinders, we have to hold that, the assessee did take cylinders on hire. Since, revenue has not claimed that, the cylinders were taken from some other party, and the hire charges having been paid to PCPL, it has to be concluded that, the cylinders were taken on hire from PCPL. This conclusion also is supported by the fact that, the day, the hire was converted to a purchase, no hire charges were paid to PCPL. We therefore, allow the claim of deduction of hire charges of the cylinders for the two asst. years.
Assessment year : 1986-87
62. The assessee had raised the issues relating to security deposit added as income, disallowance of Rs. 2,47,833 out of freight and cartage, loss on sale of diesel generator set of Rs. 1,23,623 and a part of the assessment being set aside by the CIT(A) to AO. The counsel for the assessee Shri Agarwal submitted that, he would not agitate these grounds and accordingly, these four issues are treated as dismissed, for not being pressed.
63. The assessee has raised the issue relating to the disallowance for personal usage of car, out of depreciation and car expenses. The counsel for the appellant Shri Agarwal pleaded that, the disallowance is uncalled for, because in the assessments the directors, the perquisite value had been considered and they have been taxed. He submitted that, the disallowance if at all could be with reference to the excess over the limits prescribed under section 40(c) of the Act. The revenue relied on the orders of the authorities. On this issue, we are of the opinion that, the matter must be verified by the AO, as to whether any perquisite value had been added in the hands of the directors, and if he finds that it has been so considered then, he would apply the provisions of section 40(c) or section 40A(5), whichever section had been applied by the assessing officer initially, and disallow only the excess over the limits prescribed under the Act.
64. The other issue that has been raised is with reference to the bonus paid to the staff, which in a few cases exceeded the limits prescribed under the Payment of Bonus Act, whether, the excess could be allowed or not. On this issue after considering the rival submissions, we are of the opinion that, since the amounts have been paid to the staff only, and on that consideration alone, the excess could at best be treated as additional salary and allowed as such. We therefore, delete the addition made on this account.
65. The claim included the amounts paid to the clubs and the assessee before us, claimed that, deduction is permissible to the extent of subscription paid to the clubs. In our opinion, this claim of the appellant being reasonable, we direct the assessing officer to allow deduction of the amounts to the extent it represents subscription to the club.
66. The issue of sales tax collected, but not paid during the year, for the reason that, the due date of payment under the Sales-tax Act fell after the close of the accounting year of the assessee. The jurisdiction of the assessee falls under the Delhi High Court and therefore, the ruling of the Delhi High Court would apply and in the light of the Delhi High Court decision in Escorts Ltd. v. Union of India [1991] 189 ITR 81, we have to uphold the disallowance. However, the assessing officer is directed to allow the deduction in asst. year 1987-88, when the assessee had paid it, after due verification that payment had been in that accounting year.
67. The assessee has challenged the levy of interest under section 217(1A) on the ground that, it had returned a loss and consequent to the additions that have been made in the assessment, the interest that had been levied is wrong and should be deleted. The rival submissions in this regard have been very carefully considered. The interest under section 217(1A) is levied with reference to non-filing of estimate of advance tax and has no relation to the filing of the return. Since the levy requires existence of certain circumstances, we only direct the assessing officer to allow an opportunity to the assessee as to whether those circumstances existed or not, before proceedings to apply the section.
Assessment year : 1987-88
68. The assessee had claimed depreciation on the cylinders purchased by it from PCPL which had not been allowed to it, because, the revenue was of the opinion that, PCPL did not possess the cylinders and therefore, could not have sold them. This claim is closely connected to the issue of claim of hire charges of the cylinders, which had been dealt with above upto paragraph 61. In view of our finding that the purchase has to be held as genuine, we direct the AO to allow the depreciation on the cylinders as per rules.
69. The issue of security deposit, which was remanded back by CIT(A) was not pressed during the course of hearing and accordingly, this ground is dismissed, for not being pressed.
70. The disallowance of Rs. 18,105 out of sales tax which remained unpaid in view of the due date of deposit falling after the close of the accounting year, has been considered in para 66 above and the observation made therein would equally apply here also.
71. The assessee had challenged the disallowance of foreign tour expenses of Shri S.C. Goyal and Shri Kushal Jain, aggregating to Rs. 76,164. The AO called for the details but, the assessee did not furnish the same. Even the report that was submitted to RBI was not filed with the AO. The CIT(A) did observe that the AO had never called for the report submitted to RBI, but, when he verified the report of RBI, he noticed that, it was not a report, but a narrative information submitted to RBI. He did not allow the claim of deduction, because, the assessee could not furnish the particulars of the import license, under cover of which, it had planned to import equipments and also the communication with any party concerning the import. The claim of the appellant before us was that, the narrative indicated the purpose for which the foreign tour was undertaken for the sole purpose of importing of equipment under the two import licenses issued to it by the Licensing Authority and the assessee only contacted the various companies for the import. He pleaded that, the issue may be remanded back. The departmental representative did not raise any objection to the remanding of the issue for the examination by AO. Since the CIT(A) had noted that, the details of the foreign tour contained the particulars of the import licenses, and that details mentioned the purpose of foreign tour as for import of equipment and cylinders and also to learn the methods of their maintenance, and the AO having not examined the veracity of the details, we have only to direct him to re-examine this issue and decide in accordance with law.
72. The assessee has also challenged the non-allowing of deduction under section 80G, but since, the CIT(A) had only directed the AO to verify the receipts of donations and allow deduction accordingly, this being a proper direction, we do not interfere.
73. The issue of disallowance out of car depreciation and car expenses, due to the personal use by its directors, has been dealt with in para 63 above and the observations made therein, would equally apply for this asst. year also.
74. The disallowance on account of payment to staff bonus in excess of the limits prescribed under the Payment of Bonus Act had been dealt in para 64 above and the observations made therein would equally apply to this asst. year also.
75. The disallowance of payments to clubs, have been considered in para 65 above and the AO is only directed to allow deduction to the extent of subscription payment.
76. The disallowance of Rs. 17,961 out of sales promotion has not been seriously challenged and accordingly, this ground is rejected.
77. The assessee has challenged the levy of interest under section 217(1A). The facts and circumstances being identical in nature as in asst. year 1986-87, the direction given in para 67 above, would be treated as our observation for this asst. year as well.
78. In the result, the appeals are allowed in part
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