Shri Mohan Lal Khandelwal, v. The I T O 5 (2),

ITA 281/IND/2008 | 2004-2005
Pronouncement Date: 26-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 28122714 RSA 2008
Assessee PAN AAFFM4290H
Bench Indore
Appeal Number ITA 281/IND/2008
Duration Of Justice 1 year(s) 8 month(s) 3 day(s)
Appellant Shri Mohan Lal Khandelwal,
Respondent The I T O 5 (2),
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 26-02-2010
Date Of Final Hearing 01-02-2010
Next Hearing Date 01-02-2010
Assessment Year 2004-2005
Appeal Filed On 23-06-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JM AND SHRI V.K. GUPTA AM ITA NO.281/IND/2008 AY: 2004-05 M/S. MOHANLAL KHANDELWAL (PAN AAFFM 4290 H) C/O K.R. MANDOVARA & CO. 2 WHITE CHURCH COLONY INDORE APPELLANT VS. ITO-5(2) INDORE RESPONDENT FOR ASSESSEE : SHRI R.P. MANDOVARA ADV. FOR DEPARTMENT : SMT. APARNA KARAN SR. DR ORDER PER V.K. GUPTA A.M. THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF ORDE R OF THE LD. CIT(A)-II INDORE DATED 3.3.2008 FOR THE ASSESSMENT YEAR 200 4-05. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PER USED THE MATERIAL AVAILABLE ON RECORD. 3. THE EFFECTIVE GROUNDS READ AS UNDER: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE AUTHORITIES BELOW ERRED IN MAKING THE FOLLOWING ADD ITIONS BEING A) RS.10000/- ON ACCOUNT OF DISALLOWANCE OUT OF TELEPHO NE EXPENSES. B) RS.24720/- ON ACCOUNT OF OUT OF PURCHASES U/S 40A(2)( B). C) RS.79041/- ON ACCOUNT OF DISALLOWANCE OUT OF INTERES T BEING NOTIONAL INTEREST. D) RS.100000/- ON ACCOUNT OF ALLEGED LOW G.P. 2 4. THE FACTS RELATING TO DISALLOWANCE OUT OF TELEPHO NE EXPENSES ARE THAT AO DISALLOWED 50% OF THE EXPENSES OF THE TELEPHONE CON NECTION INSTALLED AT THE RESIDENCE OF THE PARTNER ON ACCOUNT OF PERSONAL USE AND WORKED OUT THE SAME AT RS.12 500/-. THE LD. CIT(A) REDUCED IT TO RS.10 000/ -. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE REITERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW NARRATED THE FACTS. ON THE OTHER HAND THE LD. SR. AR PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 6. IN OUR OPINION THE ELEMENT OF PERSONAL USE CANN OT BE RULED OUT. HOWEVER THE RATE OF DISALLOWANCE APPEARS TO BE ON HIGHER SI DE HENCE WE REDUCE THE DISALLOWANCE TO RS.7 500/-. THUS THIS GROUND OF AS SESSEE STANDS PARTLY ALLOWED. 7. AS REGARD TO DISALLOWANCE OF RS.24 720/- OUT OF PURCHASES THE FACTS IN BRIEF ARE THAT THE ASSESSEE PURCHASED SEEDS AND FERTILIZE RS FROM M/S. VIKAS KRISHI SEVA KENDRA A SPECIFIED PERSON U/S 40A(2)(B). THE AO CAL LED THE DETAILS AND ON VERIFICATION THEREOF HELD THAT ASSESSEE HAS PAID A SUM OF RS.24 720/- EXCESSIVELY. THE AO ACCORDINGLY DISALLOWED THE SAME. 8. AGGRIEVED BY THIS THE ASSESSEE PREFERRED AN APP EAL BEFORE THE LD. CIT(A) WHEREIN IT WAS SUBMITTED THAT ASSESSEE HAD PURCHASE D GOODS FROM THE SAID FIRM AS WELL AS FROM OTHERS. IT WAS ALSO SUBMITTED THAT EXC ESS AMOUNT OF RS.24 720/- ON THE GOODS PURCHASED FROM IT HAD BEEN PAID ON ONE HAND A ND ON THE OTHER HAND A SUM OF RS.66 500/- WAS LESS PAID HENCE THERE WAS AN O VERALL GAIN OF RS.41 780/-. IT WAS ALSO CONTENDED THAT THE AMOUNT OF PURCHASE CONS IDERATION WAS IN CONSONANCE 3 WITH THE LEGITIMATE NEEDS OF THE BUSINESS OF THE AS SESSEE. IT WAS ALSO CONTENDED THAT NO TAX EVASION OR REDUCTION EXERCISE WAS INVOLVED. THE LD. CIT(A) HOWEVER CONFIRMED THE ACTION OF THE AO FOR THE REASON THAT APPELLANT DID NOT JUSTIFY THE EXCESS RATE CHARGED BY THE SISTER CONCERN FROM THE ASSESSEE VIZ-A-VIZ THE RATES CHARGED FROM OTHERS. THE LD. CIT(A) ALSO HELD THAT IN THIS FACTUAL BACKGROUND THE CASE LAWS RELIED ON BY THE ASSESSEE WERE NOT OF ANY HELP. 9. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFOR E US. 10. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE WAS A TRADING CONCERN AND IT WAS NOT A DIRECT DEALER OF ITEMS PUR CHASED FROM SISTER CONCERN HENCE IT HAD NO OPTION BUT TO PURCHASE THE ITEMS F ROM SUCH PARTIES AT THE RATE OFFERED BY THEM. HE FURTHER REITERATED THE SUBMISSI ONS MADE BEFORE THE LD. CIT(A). THE LD. SR. AR ON THE OTHER HAND PLACED STRONG REL IANCE ON THE ORDER OF THE LD. CIT(A). 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT ASSESSEE HAS PURCHASED THE GOODS FROM ITS SISTER CONCERN BOTH AT HIGHER PRICES AS WE LL AS LESSER PRICES. HOWEVER THE ASSESSEE HAS NOT BEEN ABLE TO JUSTIFY THE EXCESS PR ICE PAID TO ITS SISTER CONCERN PARTICULARLY WHEN THE ASSESSEE HAS PURCHASED GOODS IN LARGE QUANTITY AS CONTENDED BY THE ASSESSEE BEFORE US. THE FACT OF LESSER PRICE S PAID IN SOME OTHER TRANSACTIONS IN OUR OPINION CANNOT JUSTIFY THE PAYMENT OF EXCES S PRICE PER SE. THUS IN OUR OPINION THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE AD DITION MADE BY THE AO. ACCORDINGLY THIS GROUND OF THE ASSESSEE STANDS DIS MISSED. 4 12. AS REGARD TO THE ISSUE OF DISALLOWANCE OF NOTIO NAL INTEREST IS CONCERNED THE FACTS IN BRIEF ARE THAT THE ASSESSEE FIRM ADVANCE D SUBSTANTIAL SUM TO M/S. VIKAS COTTON FIBERS (IN SHORT VCF) WITHOUT ANY INTEREST. THE AO FOUND THAT IT HAD PAID INTEREST ON FUNDS BORROWED TO SISTER CONCERN @12%. THE AO FURTHER FOUND THAT ASSESSEE HAD PURCHASED KAPAS FROM M/S. VCF WORTH RS .11 25 086/-. THE AO REQUIRED THE ASSESSEE TO FURNISH INTEREST RECEIVABL E @12% EXCLUDING THE AMOUNT OF KAPAS PURCHASED FROM THE SAID PARTY. ACCORDINGLY H E DISALLOWED A SUM OF RS.79 041/-. 13. AGGRIEVED BY THIS THE ASSESSEE PREFERRED AN AP PEAL BEFORE THE LD. CIT(A) WHEREIN THE ASSESSEE MAINLY SUBMITTED THAT IT HAD S UFFICIENT NON-INTEREST BEARING FUNDS AND FOR THIS CLAIM RELIED ON THE BALANCE-SHE ET AS ON 31.3.2004. THE ASSESSEE ALSO SUBMITTED THAT SUCH AMOUNT HAD BEEN ADVANCED O N ACCOUNT OF COMMERCIAL EXPEDIENCY AND FOR THIS PROPOSITION HE RELIED ON T HE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD. 328 ITR 1. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THE HON'BLE M.P. HIGH COURT IN T HE CASE OF D & H SECHERON ELECTRODES P. LTD. AS REPORTED IN 142 ITR 528 FOR THE PROPOSITION THAT PART OF THE INTEREST PAID COULD NOT BE DISALLOWED NOTIONALLY. I T WAS ALSO SUBMITTED THAT AMOUNT DUE FROM M/S. VCF AT THE END OF THE YEAR WAS THE SA ME WHICH WAS OUTSTANDING ON THE FIRST DAY OF THE YEAR HENCE A DIFFERENT VIEW COULD NOT BE TAKEN NOW. THE ASSESSEE ALSO SUBMITTED THAT THE SAID FIRM WAS ALSO ASSESSED TO TAX AT THE SAME RATE HENCE THERE WAS NO LOSS OF REVENUE. 5 14. THE LD. CIT(A) HOWEVER HELD THAT AS AND WHEN T HE SISTER CONCERN REQUIRED THE FUNDS THE ASSESSEE ADVANCED THE SAME. HOWEVER THE ASSESSEE FAILED TO MAKE A CASE THAT SUCH INTEREST FREE ADVANCE WAS FOR COMMER CIAL EXIGENCY OF THE ASSESSEE FIRM. THE LD. CIT(A) ALSO HELD THAT COMMERCIAL/BUSINE SS NEED OF OTHER CONCERN COULD NOT BE SAID TO BE THE COMMERCIAL EXIGENCY OF THE ASSESSEE FIRM AS BOTH THE FIRMS WERE INDEPENDENT ENTITIES. THE LD. CIT(A) ALSO DREW SUPPORT FROM THE DECISION OF THE HONBLE P & H HIGH COURT IN THE CAS E OF CIT VS. ABHISHEK IND. P. LTD. AS REPORTED IN 286 ITR 1 FOR THE PROPOSITION THA T IT WAS IMPERATIVE FOR THE ASSESSEE TO PROVE THE NEXUS BETWEEN USE OF BORROWED FUNDS WITH THE PURPOSE OF BUSINESS TO CLAIM DEDUCTION U/S 36(1)(III) HENCE IN THE ABSENCE OF SUCH NEXUS BEING PROVED NOR NEXUS BETWEEN THE INTEREST FREE FU NDS AND SUCH INTEREST FREE ADVANCES BEING PROVED THE NOTIONAL DISALLOWANCE O N THE DIVERTED FUNDS FOR NON- BUSINESS PURPOSES MADE BY THE AO WAS TO BE CONFIRM ED. 15. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFO RE US. THE LD. COUNSEL FOR THE ASSESSEE NARRATED THE FACTS REITERATED THE SUBMISS IONS MADE BEFORE THE REVENUE AUTHORITIES BESIDES DRAWING OUR ATTENTION TO PAGE 1 8 OF THE PAPER BOOK CONTAINING COPY OF ACCOUNT OF THE SAID FIRM IN THE BOOKS OF AC COUNT OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE ALSO REFERRED TO PAGE 4 OF PAPER BOOK AND PAGE 22 TO 27 CONTAINING COPIES OF BALANCE-SHEETS TO SHOW THAT TH E INTEREST FREE FUNDS HAD BEEN UTILIZED. 16. THE LD. SR. AR ON THE OTHER HAND PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 6 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT ASSESSEE IS HAVING INTEREST BEARING BORROWED FUNDS. IT IS ALSO NOTED THAT ASSESSEE HAS GRANTED INTEREST FREE FUNDS TO M/S. VCF. THE LD. COUNSEL FOR THE ASSESSEE FROM THE BAL ANCE-SHEET HAS TRIED TO STATE THAT IT WAS HAVING INTEREST FREE FUNDS IN THE FORM OF SUNDRY CREDITORS PARTNERS CAPITAL ADVANCES ETC. HOWEVER ON THE OTHER SIDE O F THE BALANCE-SHEET THERE ARE DEBTORS INVESTMENTS STOCK-IN-TRADE AND ADVANCES G IVEN TO OTHER PARTIES. IN OUR VIEW ONLY A CASH-FLOW STATEMENT/FUNDS FLOW STATEME NT PREPARED ON THE DATE OF ADVANCE OF FUNDS WITHOUT INTEREST OR SUFFICIENT ACC RUAL OF PROFITS TILL THAT DATE CAN ESTABLISH THE FACT OF AVAILABILITY OF FUNDS AND THI S HAS NOT BEEN DONE HENCE WE REJECT THIS CONTENTION OF THE ASSESSEE. IN THIS REG ARD WE ALSO FIND THAT FOR AVAILABILITY OF FUNDS THE ASSESSEE HAS SUBMITTED D ETAILS AT PAGE 4 OF THE PAPER BOOK WHEREIN IT HAS CONSIDERED ONLY THE AMOUNT OUTSTANDI NG IN THE A/C OF M/S. VCF AS ON 31.3.2002 31.3.2003 AND 31.3.2004 WHICH IS NOT THE CORRECT METHODOLOGY AS STATED EARLIER HENCE SUCH DETAILS DO NOT PROVE TH E CASE OF THE ASSESSEE. WE FURTHER FIND THAT AS PER THE ASSESSEE ONLY OPENING OUTSTAN DING BALANCE WAS INVOLVED AND NO LOANS/ADVANCES WERE GIVEN DURING THE YEAR UNDER CONSIDERATION. THIS CLAIM OF THE ASSESSEE IS NOT SUPPORTED BY THE FACTS AS ON 7. 7.03 A SUM OF RS.10 LAKHS WAS GIVEN A SUM OF RS.2 LAKHS HAS BEEN GIVEN ON 7.11.0 3 A SUM OF RS.14 LAKHS HAS BEEN GIVEN ON 6.2.04 A SUM OF RS.15 LAKHS HAS BEEN GIVEN ON 12.3.04 AND A SUM OF RS.9 LAKHS HAS BEEN GIVEN ON 17.3.04 AND THE OUTST ANDING BALANCE IN ALSO IN THE 7 DEBIT AT THE END OF CLOSE YEAR WHICH PRIMA-FACIE IN DICATES THAT THROUGHOUT THE YEAR DEBIT BALANCE HAS REMAINED IN THE A/C OF THE PARTY. 18. THE ASSESSEE HAS ALSO PLEADED THAT SUCH ADVANCE WAS OUTSTANDING FROM EARLIER YEARS HOWEVER NO MATERIAL HAS BEEN BROUGH T ON RECORD TO SHOW THAT EVEN IN THOSE YEARS THE ADVANCE HAD BEEN MADE OUT OF INTER EST FREE FUNDS AVAILABLE WITH THE ASSESSEE ON A PARTICULAR DATE HENCE THIS CONTENTI ON OF THE ASSESSEE IS ALSO DEVOID OF ANY MERIT. WE FURTHER FIND THAT EXCEPT ONE OF TR ANSACTIONS OF PURCHASE OF KAPAS NO OTHER TRANSACTION OF KAPAS FROM THE SAID PARTY H AS TAKEN PLACE AND FOR THE QUANTUM OF PURCHASE THE AO HAS ALREADY GIVEN CREDI T IN CONTINUING THE PART DISALLOWANCE OUT OF INTEREST EXPENDITURE. WE FURTHE R FIND THAT ASSESSEE HAS MERELY STATED THAT IT WAS A CASE OF COMMERCIAL EXPEDIENCY. HOWEVER THIS FACT HAS NOT BEEN ESTABLISHED BY ADDUCING NECESSARY EVIDENCE. WE FURT HER FIND THAT IN THE CASE OF D & H SECHERON ELECTRODES P. LTD. (SUPRA) THE HON'BLE JURISDICTIONAL HIGH COURT REVERSED THE DECISION OF THE TRIBUNAL FOR THE REASON THAT THERE WAS NO FINDING BY THE TRIBUNAL THAT ANY PART OF THE CAPITAL BORROWED BY TH E ASSESSEE WAS NOT FOR THE PURPOSE OF BUSINESS WHEREAS IN THE PRESENT CASE TH E LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT CAPITAL BORROWED DIVERTED BY THE ASSESSEE FOR GIVING ADVANCE WITHOUT INTEREST IS A CASE OF BORROWED FUND S NOT UTILIZED FOR THE PURPOSE OF BUSINESS HENCE THE RATIO OF THIS DECISION DOES NO T HELP THE CAUSE OF ASSESSEE. IN THIS REGARD WE HUMBLY ADD THAT AS STATED EARLIER THE ASSESSEE HAS FAILED TO JUSTIFY GIVING OF SUCH ADVANCE FROM YEARS TOGETHER WITHOUT INTEREST FOR COMMERCIAL REASONS/EXPEDIENCY HENCE THE INTEREST BEARING BOR ROWED FUNDS STAND UTILIZED FOR 8 NON-BUSINESS PURPOSES TO THIS EXTENT. BEFORE PARTIN G WE MAY FURTHER ADD THAT TO CLAIM AN EXPENDITURE INITIAL BURDEN LIES ON THE AS SESSEE AND IT CAN SHIFT TO THE REVENUE ONLY WHEN THE REVENUE WANTS TO REJECT SUCH CLAIM OF THE ASSESSEE. IN VIEW OF THIS SETTLED JUDICIAL POSITION WHEN WE ANALYZE THE FACTS OF THIS CASE AT THE COST OF THE REPETITION WE STATE THAT NEXUS BETWEEN THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AT THE TIME OF GIVING INTEREST FREE AD VANCES HAS NOT BEEN ESTABLISHED BY ADDUCING THE REQUIRED MATERIAL/DETAILS HENCE THE ASSESSEE HAS FAILED TO DISCHARGED EVEN ITS INITIAL BURDEN. THE ASSESSEE HAS ALSO PLACE D RELIANCE ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF R. D. JOSHI & CO. VS. CIT AS REPORTED IN 251 ITR 332. HOWEVER IN THAT CASE THE ISSUE INVOLVED WAS REGARDING DISALLOWANCE OF INTEREST PAID TO THE CREDITORS ON T HE OVER-DRAWINGS AND CONSEQUENT DEBIT BALANCES IN THE ACCOUNTS OF THE PARTNERS AS S UCH OVER-DRAWINGS WERE TREATED FOR NON-BUSINESS PURPOSES. THE LD. CIT(A) HOWEVER REVERSED SUCH DECISION OF THE AO BY HOLDING THAT IT WAS NECESSARY ON THE PART OF THE DEPARTMENT TO PROVE THE NEXUS BETWEEN THE BORROWINGS AND THE WITHDRAWALS MA DE BY THE PARTNERS. AGGRIEVED BY THIS THE ASSESSEE PREFERRED AN APPEAL BEFORE THE HON'BLE HIGH COURT WHEREAS IT WAS POINTED OUT THAT THE TRIBUNAL HAD RES TORED THE ORDER OF THE AO WITHOUT DISLODGING THE FINDING OF THE CIT(A) AND WIT HOUT GIVING ANY REASONS FOR NOT FOLLOWING THE TWO ORDERS OF THE DIVISION BENCH OF THE HON'BLE JURISDICTIONAL HIGH COURT. THUS BEFORE US THE ISSUE INVOLVED IS T O SEE BOTH THESE ASPECTS. AS FAR AS DEPARTMENTS RESPONSIBILITY TO PROVE THE NEXUS I S CONCERNED WE HAVE ALREADY STATED THAT IT IS A SECONDARY STAGE AFTER THE DISCH ARGE OF INITIAL BURDEN BY THE 9 ASSESSEE TO CLAIM AN EXPENDITURE AND WHICH THE ASSE SSEE HAS FAILED TO DISCHARGE AS STATED EARLIER HENCE NO QUESTION OF SUCH NEXUS BE ING PROVED BY DEPARTMENT IN OUR OPINION ARISES AT THE FIRST INSTANCE. IN ANY CASE THE NECESSARY INFORMATION/DETAILS HAVE TO BE FURNISHED BY THE ASSESSEE TO ENABLE THE DEPARTMENT TO PROVE SUCH NEXUS AND FROM THE MATERIAL ON RECORD IT IS ABUNDANTLY C LEAR THAT SUCH DETAILS HAVE NOT BEEN FURNISHED AND IN THAT SITUATION DEPARTMENT HA S GOT EVERY RIGHT TO DRAW AN INFERENCE OF INTEREST BORROWING FUNDS BEING UTILIZE D FOR NON-BUSINESS PURPOSES. WE ALSO FIND NO MERIT IN THE CONTENTION OF THE ASSESSE E THAT SINCE IN LAST YEARS NO SUCH DISALLOWANCE HAS BEEN MADE HENCE THIS COULD BE ON LY ON ASSUMPTION THAT THESE ADVANCES WERE NOT OUT OF BORROWED FUNDS OF THE ASSE SSEE FOR THE REASON THAT IT IS A QUESTION OF FACT AND NOT OF ASSUMPTION OF FACTS. FU RTHER THE PRINCIPLE OF RES-JUDI- CATE IS ALSO NOT APPLICABLE TO THE INCOME-TAX PROCE EDINGS AND PRINCIPLE OF CONSISTENCY IS A EXCEPTION TO SUCH GENERAL RULE AND TO TAKE ASSISTANCE OF SUCH EXCEPTION THE ASSESSEE OUGHT TO HAVE ESTABLISHED T HAT THERE WAS NO DIFFERENCE IN THE FACTUAL MATRIX OF THIS YEAR FROM THOSE EARLIER YEARS. ACCORDINGLY IN OUR HUMBLE OPINION THE RATIO OF THE DECISION OF THE HONBLE C ALCUTTA HIGH COURT IN THE CASE OF CIT VS. SHRIDEV ENTERPRISES AS REPORTED IN 192 ITR 16 5 IS ALSO NOT APPLICABLE. IN THIS RAGED WE ALSO DRAW SUPPORT FROM THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF K. SOMASUNDARAM & BROTHERS VS. CIT AS REPORTED IN 238 ITR 939 WHEREIN THE HON'BLE HIGH COURT HELD THAT WHEN THE I NTEREST BEARING FUNDS REMAIN IN THE BUSINESS INSPITE OF HAVING PROFITS AND OTHER IN TEREST FREE RECEIPTS THEN IT COULD BE INFERRED THAT THE ASSESSEE CLEARLY DIVERTED THE FUNDS WHICH HAD BEEN BORROWED 10 AND AFTER SUCH DIVERSION THE INTEREST PAID ON THE CAPITAL BORROWED TO THE EXTENT OF THE AMOUNT DIVERTED COULD NO LONGER BE AN ITEM OF E XPENDITURE WHICH COULD BE CLAIMED FOR DEDUCTION AS AN ITEM OF BUSINESS EXPEND ITURE. THE ASSESSEE HAS ALSO SUBMITTED THAT IN AY 2002-03 AND 2003-04 THERE WER E CREDIT BALANCES OF M/S. VCF WHEREON NO INTEREST HAD BEEN PAID BY THE ASSESS EE. IN OUR VIEW THIS FACT IS ALSO NOT OF ANY HELP TO THE ASSESSEE BECAUSE IN AY 2002-03 THE MAGNITUDE OF TRANSACTION WAS VERY SMALL AND ULTIMATELY THERE WA S A DEBIT BALANCE AS ON 31.3.2003 AND SIMILARLY IN AY 2003-04 THE MAGNITU DE REMAINED OF SMALLER VALUE AND ULTIMATELY AT THE YEAR END THE BALANCE WAS RE COVERABLE FROM SUCH PARTY. FURTHER ASSESSEE IS NOT ENGAGED IN BUSINESS OF FIN ANCING HENCE SUCH TRANSACTIONS CANNOT BE CONSIDERED AS ENTERED INTO FOR THE PURPOS E OF BUSINESS. WE HAVING STATED SO THOUGH WE AGREE WITH THE CONTENTION OF THE ASSE SSEE THAT ASSESSING OFFICER CANNOT GUIDE AN ASSESSEE SO AS TO HOW HE SHOULD CON DUCT HIS BUSINESS HOWEVER THE ASSESSING OFFICER HAS GOT ALL THE POWERS TO EXAMINE THE CLAIM OF AN EXPENDITURE MADE BY THE ASSESSEE IN ACCORDANCE WITH THE PROVISI ONS OF LAW AND IN THAT PROCESS IT IS THE DUTY OF THE ASSESSEE TO ESTABLISH ITS CLA IM AND SUCH EXERCISE BY THE AO CANNOT BE TERMED BEYOND ITS SCOPE OF POWERS. THIS IS ALSO FOR THE REASON THAT THE AO IN THE PRESENT HAS NOT SAID THAT THE ASSESSEE COULD NOT GIVE INTEREST FREE FUNDS TO THE SAID PARTY AND HE HAS MERELY EXAMINED THE CL AIM OF INTEREST EXPENDITURE OF THE ASSESSEE AS PER PROVISIONS OF SEC. 36(1)(III) O F THE ACT. THUS THIS CONTENTION OF THE ASSESSEE IS ALSO REJECTED. IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION WE 11 CONFIRM THE ACTION OF THE LD. CIT(A). ACCORDINGLY WE DISMISS THIS GROUND OF THE ASSESSEE. 19. AS REGARD TO THE ADDITION OF RS.1 LAKH ON ACCOU NT OF LOW GROSS PROFIT. IN PESTICIDE ACCOUNT THE RELEVANT FACTS ARE THAT THE AO EXAMINED THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE IN RESPECT OF TRADING ACTIVIT IES OF PESTICIDES AND FOUND THAT GROSS PROFIT RATE OF 2.86% WAS MUCH LESS AND EVEN A FTER TAKING INTO ACCOUNT THE DISCOUNT AND INCENTIVES RECEIVABLE THE SAME AMOUNT ED TO 9.85% AS AGAINST 14.33% AND 7.24% IN PRECEDING TWO AYS RESPECTIVELY. THE AO ALSO OBSERVED THAT ASSESSEE WAS NOT MAINTAINING ANY QUANTITATIVE DETAI LS OF ITEMS TRADED BY IT. ACCORDINGLY THE AO TAKING INTO CONSIDERATION THESE FACTS MADE AN ADHOC DISALLOWANCE OF RS.1 LAKH. ON APPEAL THE LD. CIT(A ) ALSO CONFIRMED THE ORDER OF THE AO TREATING THE SAME AS REASONABLE. STILL AGGRI EVED THE ASSESSEE IS IN APPEAL BEFORE US. 20. THE LD. COUNSEL FOR THE ASSESSEE NARRATED THE FA CTS REITERATED THE SUBMISSIONS BEFORE THE LD. CIT(A) BESIDES CONTENDIN G THAT IN THE YEAR UNDER CONSIDERATION THE TURNOVER WAS TWO CRORES AS COMPA RED TO TURNOVER OF RS.85 LAKHS IN EARLIER YEARS. THE LD. COUNSEL FOR THE ASSESSEE A LSO SUBMITTED THAT SALES IN THE YEAR UNDER CONSIDERATION WERE MADE AT A LESSER MARG IN OF PROFIT. 21. THE LD. SR. AR ON THE OTHER HAND PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT ASSESSEE IS NOT MAINTAINING ANY 12 TRADING RECORDS AND HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE ITS CLAIM OF LOWER INCENTIVES AND SALES AT LESSER MARGIN AS P ER THE POLICY OF MANUFACTURES/DEALERS. HOWEVER THE FACT OF SUBSTANT IALLY HIGHER SALES CANNOT BE IGNORED. HENCE TAKING OVERALL VIEW OF THE MATTER WE HOLD THAT DISALLOWANCE OF RS.50 000/- WOULD MEET THE END OF THE JUSTICE. ACCO RDINGLY THIS GROUND OF THE ASSESSEE STANDS PARTLY ALLOWED. 23. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.2.2010. SD/- SD/- (JOGINDER SINGH) (V.K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26.2.2010 !VYAS! COPY TO: APPELLANT/RESPONDENT/CIT/CIT(A)/DR/GUARD FI LE