ACIT, CIRCLE- 19(1), NEW DELHI vs. OJAS INDUSTRIES (P) LTD., NEW DELHI

ITA Nos. 3714 & 4143/Del/2017 3 Ojas Industries P Ltd., allowed as deduction. The adhoc disallowance made by the CIT(A) deserves to be deleted. 7. The above grounds are independent and without prejudice to one and other. 3. The Revenue has raised the following grounds of appeal in ITA No. 4143/Del/2017:- (i) On the facts and under the circumstances of the case, the Ld. CIT (A) has erred in law and the facts in deleting the disallowance of Rs. 1,59,939/- under Rule 8D out of the total disallowance of Rs. 1,77,633/- made by the Assessing Officer u/s 14A r.w.r. 8D by ignoring the mandatory provisions of sub- rule 8D r.w.s.14A of the Income-tax Act, 1961. (ii) On the facts and under the circumstances of the case, the Ld. CIT (A) has erred in law and the facts in restricting the disallowance under section 37 of the Act to 10% without considering the fact produced by the AO in assessment order as well as in the remand report. (iii) On the facts and under the circumstances of the case, the Ld. CIT (A) has erred in law and the facts in deleting the addition of Rs. 40,81,378 - on account of selling commission without considering the fact produced by AO in the assessment order as well as remand report. (iv) On the facts and under the circumstances of the case, the Ld. CIT (A) has erred in law and the facts in deleting the addition of Rs. 12,93,045/- on account of Insurance Expenses. (v) On the facts and under the circumstances of the case, the Ld. CIT (A) has erred in law and the facts in deleting the disallowance of Rs. 26,93,760/- on account of Legal and Professional fee. (vi) On the facts and under the circumstances of the case, the Ld. CIT (A) has erred in law and the facts in deleting the disallowance of Rs. 2,64,55,200/- on account of lease rent expense u/s 37 of I. T. Act, 1961 without considering the fact produced by AO in the remand report. (vii) On the facts and under the circumstances of the case, the Ld. CIT (A) has erred in law and the facts in deleting the disallowance of Rs. 4,48,85,715/- out of disallowance of Rs. 7,05,00,000/- made by Assessing Officer on account of repair to others, distribution expense & misc. expenses u/s 37 of I. T.

ITA Nos. 3714 & 4143/Del/2017 4 Ojas Industries P Ltd., Act, 1961 without considering the fact produced by AO assessment order as well as in the remand report. (viii) On the facts and under the circumstances of the case, the Ld. CIT (A) has erred in law and the facts in deleting the disallowance of Rs. 1,41,62,318/-made by Assessing Officer on account of interest paid is not allowable u/s 36(1)(iii) of I. T. Act, 1961. (ix) On the facts and under the circumstances of the case, the Ld. CIT (A) has erred in law and the facts in deleting the disallowance of Rs. 25 cr. made by Assessing Officer by applying provision of Section 145(3) of the Act on the Manufacturing cum trading A/c results. The Ld. CIT(A) in his order in para 16.5, wrongly observed that the A.O. has done calculation mistake by taking figure of molasses consumption at 11450998.9 qtls. instead of 7,33,400 qtls., Where as the AO, in para 15 of his order, though made typographical error in the table at the same page, but has taken correct figure in next table, which is used for analyzing unaccounted production to calculate additions. Hence the Ld. CIT(A) erred in reading the finding of AO.

Ad-hoc Disallowance:

ITA Nos. 3714 & 4143/Del/2017 5 Ojas Industries P Ltd., labourers. Considering the size of the organization the expenses are petty in nature are bound to be incurred in cash. In this connection, the assessee is enclosing month-wise details of cash expenses of Noida and Palia which is around Rs. 1, 25,61,475/-. Further, there are about 140 (average) vouchers every month related to such type of expenses. Due to the volume of the transactions, the assessee has given on test check basis the vouchers filed for April 2007 to July 2007. The nature of the expenses are mostly relating to staff welfare, conveyance, telephone expenses reimbursed to staff, travelling expenses reimbursed to staff, salary to casual/temporary workers. The natures of expenses are such that the support is of the concerned employees acknowledging the receipts. Further, there are expenses relating to transport payment supported by bills from the Transport Agency. From the above submissions as well as considering the nature and volume of the assessee's business and the staff involved, the ad-hoc disallowance of 20% is not warranted. We are giving the status of year-wise assessment position for the past 3 years along with copies of the assessment orders u/s 143(3). No such addition has been made in the past and therefore also, there is no reason for making any addition for this year."

ITA Nos. 3714 & 4143/Del/2017 6 Ojas Industries P Ltd., 7. The assessee has also submitted rejoinder to the remand report which is as under: “ In page no. 16 assessee has given the month-wsie summary of the cash expenses vouchers along with the amount of cash expenses to indicate that the cash expenses are in the nature of petty expenses which are incurred for by any manufacturing undertaking in the normal course of carrying out the business. The AO in the assessment order at page no.14 has noted from the photo copies of the vouchers produced for the month of April 2007 that the expenses are of the nature of conveyance, recruitment, staff welfare, stationary, business promotion, purchase of sweets, courier after noting the nature of expenses the AO disallowing 20% of the expenses on the ground that non-verification of expenses claimed as well as non production of vouchers. The AO has failed to appreciate that the turn-over of the assessee is Rs.202 crores and the expenditure of the nature of cash expenses is aggregating to 1.25 crores at different units at Neemrana, Palia in UP and bottling unit at Medak in Andhra Pradesh. In terms of percentage to the total turn over it comes to hardly 0.62%. Thus the adhoc addition made by the AO should be deleted. Moreover, the assessee has also given the earlier year position of assessment in page no.17 of the paper book wherein no such adhoc addition has been made in the earlier years. Therefore, the addition should be deleted." 8. The ld. CIT(A) restricted the addition to 10% expenses claimed. We find that the total staff employed by the assessee at Noida and Palia were around 350 daily labourers. The turnover of the asesssee was Rs. 394 crores and cash expense was Rs. 1.25 crores for the period of 12 months. They were about 140 vouchers every month which pertain to staff welfare conveyance, traveling expenses, purchase of sweets, courier charges, stationary and wages to casual and temporary workers. Hence, we hold that no disallowance on ad-hoc basis is warranted on the said.

ITA Nos. 3714 & 4143/Del/2017 7 Ojas Industries P Ltd., Rates & Taxes: 9. The AO has disallowed sum of Rs.3,99,795/- under rates & taxes. The allegation of the Assessing Officer was that an amount of Rs.1,58,000/- was incurred in respect of amounts paid as penalty on account of low recovery and further sum of Rs.2,41,795/- paid as retainer ship fees to Sunil Chandra Srivastava as not relating to business. It was submitted before us, that the amount paid of Rs. 1,58,000/- is (PB page no.147 to 154). The evidence is in the nature of orders of Central Excise Authorities. The levy of penalty is on account of the low recovery and not for infraction of law or any offence prohibited by law. State Govt. under the UP Excise Act 1910 has fixed up standard yield under ideal situation of production of alcohol and spirit. Hence, no disallowance is called for. With regard to the payment made to Shri Sunil Chandra it was submitted that they amounts have been duly paid by cheques after deduction of TDS for the services rendered by him on retainership arrangement from July to March 2008. Hence, no disallowance is called for. Legal and Professional Expneses: 10. The entire background of the issue is as under: On this ground, the Ld. AR stated as under: "The AO has disallowed sum of Rs.49,12,061/- under the head "Legal and professional fees". The disallowance has been made of Rs.44,12,061/- on the ground that these are bogus claims being the difference between the ledger amount of Rs. 52,91,843/- and the details provided by the assessee of Rs.8,79,782/- on the ground that the details were not provided by the assessee. From the details, of Rs.8,79,782/- provided by the assessee the AO has made an ad-hoc disallowance of Rs.5 lacs. The AO has failed to appreciate that the assessee being a corporate entity cannot claim expenses unless they are incurred and which are duly supported by vouchers, audited by Statutory Auditors. The company accounts are The

ITA Nos. 3714 & 4143/Del/2017 8 Ojas Industries P Ltd., AO should have realized that the details provided by the assessee are in respect of Gola and Noida units. The assessee is providing the summary of all the units. The assessee is also enclosing the copies of the bills for the professional services rendered along with the Form No.16A evidencing deduction of tax at source. The assessee submits that there was no show cause issued to the assessee for making any disallowance under this head. There was no occasion for the assessee to explain its case before the AO. Hence, the evidences may kindly be admitted. These evidences are additional evidence and may kindly be taken on record for adjudication."

10.2 The above submission alongwith evidences were forwarded to the AO. The comments of the AO in the remand report dared 02.06.2015 are as under:- "Regarding the addition of Rs.49,12,061 /- on account of legal and professional fee. The additional evidence submitted vide page no. 158 to 167 and 168 to 196 page no.158 to 167 pertaining to ledger account, legal and professional. Pages from 168 to 196 relating to bills raised are shown for retainership fees for management consultancy and some TDS certificates. Perusal of the above documents i.e. bill raised for the fees of retainership did not indicating the technical qualifications of the persons claimed the payments as retainership charges. The assessee has not produced the term and conditions letter for the appointments of the retainer.

Page No.180 of paper book showing the bill raised by M/s Bajaj Hindustan Ltd. Dated 30.9.2007 on account of Management Consultancy Charges for the month of April 2007 for Rs.26,93.760/-. The TDS Form No./6A showing the payment credited on 31.03.2008. The assessee has not produced the term and condition agreement and appointment document of the technical services rendered by the company. Page 169 to page 178 showing the bills raised by one Nikita Aggarwal as being retainership fee management Consultancy from the Month of May 2007 to March 2008 totalling to Rs. 11,40,093/-. TDS Form no.16A showing the amount credited into her account from 3rd May 2007 month-wise upto 31.03.2008 on the other hand perusal of the ledger account page no.158 and 159 showing the total amount credited on 31.03.2008. Mere payment by account payee cheque and deduction of tax is not sacrosant't nor can it make a non genuine transaction genuine. Under these circumstances, the AO has rightly made the above disallowance as discussed in the assessment order. The additional documents are not any material evidence in respect of the above expenses claimed by the assessee and the same is not acceptable."

10.3 The assessee filed rejoinder to the Remand Report as under:-

"The AO in the original assessment order has disallowed the expenses on the ground that no voucher has been produced by the assessee. Now when the vouchers have been produced by the assessee; the AO has disallowed on

ITA Nos. 3714 & 4143/Del/2017 9 Ojas Industries P Ltd., some other ground without making any enquiries. If the AO is of the view that these expenditure are not genuine then he must have undertaken further scrutiny of the expenditure by cross examining the party. No such steps have been taken.

The positive evidences filed by the assessee which are at paper book 158 to 196 clearly reflected that the said expenditure is incurred for management consultancy work. Further payment to Bajaj Hindustan Ltd. is not only supported by bill but there is an agreement for management support as per the agreement dated 25th April 2006 at page no.207 to 210. This has been completely ignored. The payment made by a/c payee cheque after deduction of tax at source cannot be brushed aside as not sacrosanct or not a genuine transaction. The assessee has produced vital evidence for allowability of the expenditure being legal and professional fees, the AO except for denying has not been able to give any reason for such denial despite the assessee producing the bill which was the only grievance at the time of original assessment."

10.4. I have carefully considered the assessment order, written submission filed, Remand Report of the AO and Rejoinder thereto. The AO made the disallowance of Rs.49,12,061/-comprising of Rs.44,12,061/- as bogus claim due to non submission of details by the assessee and a further sum of Rs.5,00,000 out of Rs.8,79,782/- on account of non production of vouchers. The assessee has now provided the details of Rs.44,12,061/-which includes bills raised for retainership fees paid to one Nikita Aggarwal as Management Consultancy at Rs.11,40,093/- and other major expenditure relating to bill raised by M/s. Bajaj Hindustan dated 30th Sept. 2007 for Rs.26,93,760/- for management consultancy which is part of the agreement dated 25th April 2006 at the time of taking over of the Palia Unit of M/s. Bajaj Hindustan Limited. The assessee has incurred the expenditure and the payments have been made through A/c payee cheques after due deduction of tax at source. Since the assessee has now furnished the details viz. bills, agreement which cannot be summarily rejected. However, nothing has been furnished to substantiate the services rendered by Nikita Aggarwal to show that the same is incurred for business purposes. In view thereof, it is held that the payment of Rs.11,40,093/- is not incurred wholly and exclusively for business purposes. Even with respect to details of Rs.8,79,782/- furnished before the AO from which ad-hoc disallowance of Rs.5,00,000/-was made, only some bills/vouchers were produced. There is no agreement for the impugned payment to show the nature of services received justifying the impugned payments. Considering the facts of the case and the additional evidence furnished, while there is justification for payment of Rs.26,93,760/- to M/s Bajaj Hindustan Ltd., the assessee has not furnished sufficient justification for the balance payments. In view of the totality of facts and circumstances, the assessee is allowed relief of Rs.26,93,760/- out of the total disallowance of Rs.49,12,061/-, the balance disallowance of Rs.22,18,301/- is confirmed. This ground of appeal is partly ruled in favour of the assessee.

ITA Nos. 3714 & 4143/Del/2017 10 Ojas Industries P Ltd.,

Effluent Treatment Plant Repairs

11.1. On this ground, the Ld. AR furnished written submission as under: "The AO has disallowed sum of Rs. 14,27,996/- on the allegations that no bills for the expenses on building repairs paid to M/s. K.K. Construction was provided. Further, he also states that the expenditure might be a capital expenditure and therefore also disallows the same. The assessee has provided the ledger account showing the payments to M/s. K.K. Construction. In the narration column it is mentioned as advance given at Rs.10.50 lacs but the fact of the matter is the advance was given at the different point of time and as and when the bills were submitted by KK Construction for the repair work done, the advances were adjusted. The same narration is appearing in all the bills adjusted against KK Constructions. The nature of work is repair of Effluent Treatment Plant (ETP) and Bio-manure site repair. Therefore, this is recurring day-to-day expenditure and is to be allowed as current repairs and not a capital expenditure as has been presumed by the AO. Again in case the AO had a doubt or wanted clarification then he should have asked for clarification or he should have given a show-cause before making any such addition. How can the assessee anticipate the query by the AO and also prepare reply. The expenses are wholly and exclusively incurred for the purpose of business and should be allowed."

ITA Nos. 3714 & 4143/Del/2017 11 Ojas Industries P Ltd.,

11.2. The above submission alongwith evidences were forwarded to the AO. The AO in the Remand Report observed as under:- "The assessee has produced the additional evidence page no. 197 to 200 in the form of copy of ledger account for the period 01.04.2007 to 31.03.2008. The assessee has not produced the required documents as discussed in the assessment order. The ledger accounts was already produced before the A.O. during the assessment proceedings and duly discussed in the order. The copy of ledger a/c again produced as additional evidence is not any material evidence. Therefore, the assessee is nothing to say in respect of this addition of Rs. 14,27,996/-" 11.3. The assessee filed rejoinder to the Remand Report is as under:- "The AO disallowed since the assessee has produced only copy of the ledger account. It is noted that the ledger account has clearly mentioned the nature of work done by the contractor which are in the nature of repairs as is evidenced by the description. The case of the assessee is if the AO had any further query or doubted the genuineness of the payment then he could have undertaken an independent exercise by calling for the information from the contractor. The AO has been given all the powers under the Income Tax Act to call for information and then satisfy himself regarding the expenditure. Mere rejection of the assessee's explanation cannot be a ground for disallowing the expenditure. The assessee is again enclosing the name and address of the contractor and the PAN number. The expenditure should be allowed."

ITA Nos. 3714 & 4143/Del/2017 12 Ojas Industries P Ltd., Similarly, the adhoc disallowances of Rs. 1,00,000/- on account of machinery are also directed to be deleted. Ad-hoc Disallowance out of Machinery Repairs- 14. The Assessing Officer disallowed sum of Rs. 7,05,00,000 /- on ad hoc basis in respect of certain heads of expenditure on the ground that ledger account of these expenses has not been produced to establish the nexus of the expenditure with business. The AO has dealt with in pg 11 & 12 of the Assessment order. The AO made an estimate on his own making comparison with previous years and allowing only part of the expenditure. The details are as under: S.No Nature of Expenses As per P&L Allowed by AO Disallowed 1. Repairs to others 5,48,048 48,048 5,00,000 2. Selling & Distribution 4,98,65,163 1,98,65,193 3,00,00,000 3. Miscellaneous expenses 5,20,43,927 1,20,43,927 4,00,00,000 Total 10,24,57,138 3,19,57,168 7,05,00,000 15. The ld. CIT(A) restricted the disallowance made by the AO of Rs. 7,05,00,000/- to Rs.56,14,285/-taking into consideration 25% of the total expenditure claimed. The assessee has filed all the details before the Revenue Authorities which have been duly mentioned at page no. 22-23 of the order of the ld. CIT(A). Though the details of expenses are very much available before the ld. CIT(A), the act of the ld. CIT(A) disallowing 25% of the expenses, without brining any cogent evidences or reasons cannot be upheld.

ITA Nos. 3714 & 4143/Del/2017 13 Ojas Industries P Ltd.,

ITA 4143/Del/2017 (Revenue Appeal) Disallowance u/s. 14A: 16. The exempt income claimed by the assessee was Rs. 2,00,000/-The AO computed disallowance under Rule 8D(2)(ii) at Rs.1,59,939/- and Rs.17,694/- as per Rule 8D(2)iii) aggregating to Rs. 1,77,633/. The ld. CIT(A) based on the assertion that there is no addition to investment during the year whereas the AO has held that there is increase in investments and that the share holders funds available at Rs.7.12 crores were much in excess of the investment as on 01.04.2007 of Rs.53,18,840/- and placing reliance on the judgment in the case of the Hon'ble High Court of Bombay in the case of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 held that, disallowance of Rs. 1,59,939/- under Rule 8D(2)ii) is not sustainable and is directed to be deleted. However, since expenditure for earning dividend cannot be ruled out disallowance of Rs.17,694/- as per rule 8D(2)(ii) is sustained. Since the order of the ld. CIT(A) is rational and as per the provisions of the Act, we decline to interfere with the order of the ld. CIT(A). Ground no. 2, 5 and 7 already decided above in the appeal of the assessee. Sales Commission: 17. The entire background of the issue is as under: "The AO has disallowed selling expenses of Rs.40,81,378/-. The AO has discussed this issue in page no.7 and 8 of his order. The reason or disallowance is that there is no evidence of any work done by the person.

ITA Nos. 3714 & 4143/Del/2017 14 Ojas Industries P Ltd., The AO has fairly mentioned the name of the party, the PAN no. and the amount paid by the assessee aggregating to Rs.40,81,378/-. Further, the AO has also mentioned that the assessee has submitted photo copy of form No.16A. The assessee is further enclosing copies of bills from the agents detailing the period as well as the nature of item for which the commission bill is raised. The bill also gives the complete details of name, address and other particulars. This is an additional evidence which may kindly be accepted. The AO has confused himself and is of the view that this payment is made as an agency commission to the agent who is working exclusively on behalf of the company on a principle-agent basis. The fact of the matter is that the sugar/spirit selling agents enable the assessee to locate customers and confirm the sale to those customers as well as realization of the sale proceeds. The assessee does not directly sell to retailers. This is the general business practice in the sugar and spirit industry which is acknowledged. The expenditure has the direct nexus to the sales income and therefore, is an allowable business expenditure u/s 37 of the Income Tax Act, 1961. In the last year, the assessee has incurred sum of Rs.48,19,782/- as selling commission. This was allowed in the regular assessment u/s 143(3) for the A.Y. 2007-08. Therefore also, there is no reason for making any addition for this year." 7.2 Comments of the AO in the Remand Report dated 02.06.2015 are as under:- "8.3.1 It is submitted that the assesses has submitted the additional evidences in respect of the selling Commission paid of Rs. 40,81.378/- from page no. 18 to 75 of the paper book. The page no 18 is only containing details of list of 20 parties to whom the selling commission has been paid as per the said list, the assessee has not given the full addresses of the parties before the AO. Page no. 19 to 25 pertains to the ledger account of the selling commission for the period 1.4.2007 to 31.03.2008. Perusal of these documents, it has been noted that most of the payments showing debited on 31.03.2008. Page no.26 to 75 pertain to the bills / invoices raised by the parties to whom the selling commission were paid, for example - page no.26 bill no.8 raised by M/s Panna Lal Rajeev Kumar Sugar Selling Agent 5431, Ground Market. Ambala Cant 133002 which shoeing the contents as under: 1. BillNo. 52 Dated: 23.11.2007 Commission bill for the Month Oct-Nov. 2007 Total amount Rs. 1, 10,663/- Remarks:

ITA Nos. 3714 & 4143/Del/2017 15 Ojas Industries P Ltd., Commission per month Rs. 7 Budhna 510 bags Thana bhawan - 7930 bags Gagnauli 5630 bags Sale from Ambala And another bill showing as under.- 2. Ekson i. Bill for the month of Sept. 2007 dated Sugar 1542/1 09.10.07 Rs.899 New ii. Bill for the Sept. dated 9.10.2007 for Chander Rs. 12,090/- Nagar, iii. Bill for the month of Oct 2007 dated Ludhiana Page no. 24 to 37 8.12.2007 - Rs. 1,76,823/- iv. -do- Rs. 1,14,940/- v. Nov. 2007 dated 08.12.2007 - Rs.4,868/- vi. Oct. 2007 dated 8.12.2007 for Rs.6,567/- vii. Nov. 2007 dated 8.12.2007 Rs. 76,804/- viii. Nov 2007 dated 8.12.2007 Rs.68,734/- ix. Oct. 2007 dated 8.12.2007 Rs. 37,446/- On perusal of the above invoice raised by the party showing 6 invoices raised on the same date i.e. on 08.12.2007. The additional evidence submitted by the assessee is not containing the reference of detail of dispatch of goods and transportation of goods from destination of seller to the destination .if purchaser. Number of sale bills invoices receipt of the consignment of sugar which was sold by the panics. In the absence, such details of documentary evidence are not any material evidence for the payment of commission to the parties. The assessee has not established the services rendered by the parties for the claim of the commission bill raised. Regarding the tax deduction at source on the payment of selling commission: The documents of TDS as per page no.76 to 95 seen and the TDS deducted by the assessee has not been recorded in the ledger account of selling commission for the period 01.04.2007 to 31.03.2008 as required by the accounting system. It is submitted that mere payment by account payee cheque and deduction of tax thereon is not sacrosanct nor can it make a non- genuine transaction genuine. Further also mere production of details PAN number does not establish the identity of the persons. The PAN is

ITA Nos. 3714 & 4143/Del/2017 16 Ojas Industries P Ltd., allotted as a facility to department to keep track of transaction cannot be treated as sufficient disclosing the identity of the person. It is seen there are discrepancies in the commission bill raised by the parties i.e. in some of the bills, the commission charges shown it Rs.7 per bag and also showing in some of the bills @ Rs.4 per bag. For example M/s Sanjeev Enterprises raised three commission bills 01.01.2008 whereas in two bills commission rate shown Rs.4 per bag and in the other bills same dated show @Rs.7. Some of the bills are not showing the complete addresses of the parties. Perusal of the above bills/invoices shows that the transaction is really sham and dubious transaction and was colourable devices. It is also submitted that during the course of assessment proceedings, the assessee did not produce the evidences and tried to avoid appearance before the AO. The assessee deliberately and intentionally failed to produce evidences before the AO, with the desire to prevent enquiry / investigation discrepancy of the case. It is submitted on the similar issue. The Hon'ble Supreme Court dismissing the SLP in the case of Umakant B Agrawal vs. DCIT dated Feb 13, 2015 (2015) 231 Taxman 227/57 Taxman.com 137 (SC) against the order of the Hon'ble High Court wherein it was held that since assessee failed to produce evidence regarding nature of services rendered by sub-agents. sub-agency commission paid could not be allowed. 7.3 The assessee filed rejoinder to the Remand Report as under:- "The AO has dealt with this issue at page no.7 and 8 of the assessment order. The assessee has provided to the AO at the time of assessment itself the party-wise details along with PAN number of all the parties and amount of commission paid. The assessee has also given Form No.16A, as noted by the AO in the assessment order. Besides this in the paper book which the AO has referred in the report assessee has given page no.19 to 75, the party wise copy of the ledger account of selling commission and the corresponding bills raised by the commission agents. The bills reflect the name, complete address, the quantity on which the commission is being paid. The AO has failed to appreciate that the assessee is in the business of sugar / spirit and to enable it to sell in the market it requires the help of sugar/spirit selling agents on day to day basis. It is the sugar/spirit selling agents who know the market and the buyers in the market and inform the company from time to time of

ITA Nos. 3714 & 4143/Del/2017 17 Ojas Industries P Ltd., the requirements of various customers. This is the general business practice. The selling commission paid to the selling agents is not in the capacity of a principle/agent basis as is understood in a general usage. The selling agents in this case are having their own business establishment, the company does not supply to them, and neither do they maintain any stock of these products. These agents are doing business in their own right and identify the customer to whom the assessee will be selling it ultimately. The assessee has given the details of the PAN number and the name and address particulars are given in the bills along with the quantity for which they have received the commission. The selling agents are not concerned with the movement of the goods, it is the assessee who dispatches the goods directly to buyers as introduced by the selling agents. If this is understood, the claim of the assessee should be allowed as the payments are all being made through the cheques for the services of the commission agents. The expenditure is wholly and exclusively for affecting the sale. The company is reflecting sales of Rs.294 crores (inclusive of excise) of both sugar and liquor together. Answering the doubt of the AO in the remand report: Most of the debits are made on the 31st of March 2008-reason being that the assessee has made provision in the books as on the close of the financial year for whatever bills received during the year. The AO has referred to page no.26 being the bill of Panna Lal Rajiv Kumar wherein the total commission amount is mentioned and the quantity is mentioned in bags supplied to different places aggregating to 14070. The party has also given the service tax number and the invoice number as also stated that this is the commission bills from the month of October to November 2007. Therefore this invoice has given all the particulars and the assessee has booked the expenses after duly deducting TDS at source. The relevant TDS certificate is given in paper book page no.92 corresponding to this party. The AO has also noticed another bill at page no.29 to 37. In respect of EEKSON sugar the allegation of the AO is that the invoice raised by the party showing 6 invoices on the same date i.e. on 8.12.2007. The AO has failed to appreciate that the dates are same in all bills but they pertain to material which got lifted from different locations of Ojas Limited. Bill at page 31, October 2007 dated 8.12.2007 for Rs.1,76,833 pertaining to Ojas, Palia Depot.

ITA Nos. 3714 & 4143/Del/2017 18 Ojas Industries P Ltd., Bill at page 32, October 2007 dated 8.12.2007 for Rs.1,14,940 pertaining to Ojas, Gola Gokharnath Deopt. Bill at page 33, Nov. 2007 dtd. 8.12.2007 for Rs. 4,868/- pertaining to Ojas, Palia Depot Bill at page 34, Oct. 2007 dtd. 8.12.2007 for Rs.6,567/- pertaining to Ojas, Kinauni Depot. Bill at page 37, Oct. 2007 dtd. 8.12.2007 for Rs.37,446/- pertaining to Ojas, Budhana Depot. Therefore, from the above it is clear that the commission is for lifting of sugar from various depots of the assessee for the month of October 2007. Therefore the doubt of the AO is clarified. The AO at page 7, last para has also stated that the document of TDS referred at page no.76 to 95 has not been recorded in the ledger account of selling commission. Again, the AO has failed to appreciate that what is recorded in the ledger account of selling expenses will be the gross /total amount of the bills which has been done so by the assessee. Please refer page no.19 in the paper book, the first entry relating to the commission to Panna Lal Rajiv Kumar sugar selling agent, as per the bill at page no.26 is Rs.1,10,663/- which is recorded in the ledger account. TDS is separately accounted for in the TDS payable account. The entry in the books are made as below: Selling expenses Debit Rs.110663 TDS a/c Credit Rs.12,538 Vendor a/c Credit Rs.98,125 The difference in commission per bag i.e. Rs.4 per bag and Rs.7 per bag depends upon the distance from the depot of the place of sale. Nearer the depot the more will be the agent's commission because the company has to absorb less transportation cost. Vice-versa is the case where the depot is at a distance because in such situation the company has to bear the transportation cost and consequently, the selling commission is given at a reduced rate. The expenditure has the direct nexus to the sales income and therefore, is an allowable business expenditure u/s 37 of the Income Tax Act, 1961. In the last year, the assessee has incurred sum of Rs.48,19,782/- as selling commission. This was allowed in the regular assessment u/s 143(3) for the A.Y. 2007-08. Therefore also, there is no reason for making any addition for this year."

ITA Nos. 3714 & 4143/Del/2017 19 Ojas Industries P Ltd., 18. The ld. CIT(A), deleted the addition holding that name and address of the parties are mentioned in the bill alongwith PAN as well as copy of TDS certificates issued to them were filed by the assessee and the assesee could prove direct nexus to the sales arising out of such commission payment . Since the order of the ld. CIT(A) is correct on facts of the case, we hereby affirm the order of the ld. CIT(A) on this issue. Insurance Expense: 19. The entire background of the issue is as under: "AO has disallowed sum of Rs. 12,93,045/- alleging that the assessee has not provided details and therefore, the expenses are bogus expenses to the extent of Rs.7,60,060/- and for the balance of Rs.5,32,985/-, the AO has treated this as expenditure for the period April 2006 to March 2007 and therefore pertaining to previous year. The AO has discussed it in page no.8 of his order. The disallowance made is totally erroneous and should be deleted. Firstly, the allegation of non provision of details cannot lead to a conclusion that the expenses are bogus. The assessee is enclosing the complete details of insurance paid aggregating to Rs.14,85,183/- as reflected in the Profit & Loss account. During the course of assessment proceedings, the assessee could not produce details of one of the units and therefore, part of the details were on record. The assessee is now placing before your Honours' the complete details which may kindly be admitted. From the details it can be seen that all the expenses are in relation to the insurance expenditure and are allowable business expenditure. Further, in respect of sum of Rs.5,32,985/- for building, plant & machinery at Palia, the insurance policy is taken by Bajaj Hindustan Limited and the respective debit is passed on by way of debit note to the assessee company (copy enclosed). The debit note came to the knowledge of the company only in the month of June 2007 and therefore correctly accounted for as expenditure in the said previous year. Even under the mercantile system of accounting the assessee can account for expenditure only when the liability is crystallized. This event has taken place only in the month of June 2007 and therefore rightly accounted for this expenditure by the assessee for this assessment year which should be allowed."

ITA Nos. 3714 & 4143/Del/2017 20 Ojas Industries P Ltd., 8.2 The above submission alongwith evidences were forwarded to the AO. The AO in the Remand Report stated as under:-

"Regarding the disallowance of Rs. 12,93,045 /- on account of insurance expenses. The assessee has produced the additional evidence vide page no.96 to 146. Page No.108, additional evidence pertaining to the ledger account of insurance which showing Rs. 5,32,985/- insurance policy of building and plant at Palia for the period 1.4.2006 till March 2007. Page No.104 pertaining to debit note no. 0708/010 dated 30.06.2007 given by M/s Bajaj Hindustan Ltd. for insurance charges which is not acceptable. The AO has rightly disallowed since this amount clearly shows relating to the earlier year and not relating to the year under consideration. The submission of the assessee is not accepted. In respect of the addition of Rs. 5.32,985/-. The details of insurance shown by the assessee are as under:- Gola Insurance Rs. 1,27,860 Transit Policy Rs. 24,921 Noida Insurance Rs. 5,71,772 Transit Policy Rs. 15,441 Mahindra Bollero Rs. 8737 Insurance on Vehicles Rs. 6,117 Palia Insurance Rs. 6,89,885 Andhra Insurance Rs. 40,450 Total Rs. 14,85,183 Pango.98 of paper book: The Transit policy: The ledger a/c showing the insurance from 12.10.2007 tó 11-10.2008- Rs.24,921/-. The above amount is not fully related to the A. Y. 2008-09. Page 99 and 100 of paper book: The total amount paid shown at page no.100 and 101 Insurance -Rs. 5,71,772/- and Transact Policy Rs. 15,441/-, Rs. 8,737 and Rs. 6,117/- is partly related to the and partly pertaining to the A. Y. 2009-10 as per the copy of ledger account maintained by the assessee company. The AO has rightly disallowed the amount of Rs. 12,93,045/-" 8.3 The assessee filed rejoinder on the Remand Report as under:- "The AO has discussed disallowance at page no.8 of the assessment order. The only reason for the disallowance given by the AO is no voucher for insurance claimed at Rs.7,23,123/- has been produced. The second reason given by the AO is that expense of Rs.5,32,985/- does not pertain to the year under consideration. With regard to the

ITA Nos. 3714 & 4143/Del/2017 21 Ojas Industries P Ltd., 7,60,060/- the AO disallowed on the ground that assessee has not provided the details and therefore treats the same as bogus expenses. The assessee has given full particulars from page 96 to 146. Despite giving the entire details even now the AO is alleging that the expenditure is not allowable on the ground that it does not pertain to the year under consideration. letter dated 30th Oct. 2012 at page no.5. Reference is invited to the written submissions vide The AO has failed to appreciate that the expenditure stands crystallized in the year under consideration and therefore the entire charge to the profit & loss account should be allowed. Further, the allegation that the insurance claim is for a period pertained to partly 2008-09 and partly 2009-10 is also not correct. Reference is made to page 98 of the paper book being a transit policy for a period of 12.10.2007 to 11.10.2008. The total policy is for Rs.53,195/- (page no.123), At page 121 the assessee has given the break up.

Total insurance premium paid Rs.53,195/- Insurance expense for the period 12.10.2007 to 31.03.08 Rs.24,921/- Pre-paid expenses from 1.04.2008 to 11.10.2008 Rs.28,274/-

Therefore, the allegation made by the AO is wrong. With regard to the page no.108, being the premium of Rs.5,32,985/- being the insurance policy of building and plant at Palia for the period 1.04.2006 till 31st March 2007. This liability is arising out of debit note no.0708/010 dated 30th June, 2007 given by M/s. Bajaj Hindustan Limited which is at paper book page no.104. This liability has crystallized only when the debit note is given by Bajaj Hindustan Limited before that the assessee has no knowledge as to what will be the insurance liability. In any case the assessee has only claimed for a period of 12 months only this is because in respect of insurance paid for 2007-08, the same would have been claimed for one full year in the A.Y. 2007-08 pertaining to the year 2006-07. Therefore, the claim of the assessee pertaining to insurance expenditure of Rs. 14,85,183/- may kindly be allowed."

ITA Nos. 3714 & 4143/Del/2017 22 Ojas Industries P Ltd., rightly deleted. With regard to the disallowance of Rs.5,32,985/- for insurance of building, plant & machinery at Palia for the period April 2006 to March 2007, the assessee has paid this amount to Bajaj Hindustan who raised a debit note no.0708/010 dated 30.06.2007. The debit note was examined by the ld. CIT(A). The ld. CIT(A) examined the lease agreement dated 25.04.2006 for obtaining the lease of land & building and plant & machinery by the assessee from M/s. Bajaj Hindustan Ltd. Since the assets were being used by the assessee, the debit note for the insurance charges relating to the assets has been raised on the assessee company. The assessee's submission is that the liability is crystallized only when the assessee received debit note. The debit note dated 30.06.2007 was received in the year under consideration and has been duly accounted for by the assessee. The AO has not disputed the nature of the expenditure i.e. being related to the insurance policy on assets at Palia used by the assessee for its business. In view thereof, expenses on the insurance of building and plant & machinery, used for the purpose of business and profession of the assessee of Rs.5,32,985/- is allowable. The addition of ld. CIT(A) on this issue is affirmed.

Lease Rent Expenes: 21. The entire background of the issue is as under: "The AO has disallowed sum of Rs. 2,64,55,200/- on the ground that there is no lease agreement produced by the assessee. Further, he assumed that there is no TDS deducted and therefore, also it is disallowable u/s 40(a)(ia). Reference is invited to letter dated 3rd Dec. 2010 wherein the assessee has given the details by way of ledger of lease rent aggregating to Rs. 2,64,55,200/-. The AO during the course neither of assessment proceedings nor in the

ITA Nos. 3714 & 4143/Del/2017 23 Ojas Industries P Ltd., notice u/s 142(1) had called for any lease agreement. How can the assessee anticipate and provide the document without calling for the same. Therefore the additions made merely on the ground that there is no evidence is totally erroneous and should be deleted. Without prejudice to the above the assessee is once again enclosing the ledger print out.of the lease rent aggregating to Rs. 2,64,55,200/-. We are enclosing the lease agreement also which is additional evidence and may kindly be taken on record. There are two lease agreement : a. Agreement with AP Met Engg Ltd. @ of Rs. 7,20,000/- pm. For 9 months. b. Agreement with Bajaj Hindusthan Ltd. for lease of Plant & Machinery "@ 11,44,000 /- pm.For 12 months less Rs. 1,85,400 (Cenvat) Rs 13542600 c. Agreement with Bajaj Hindusthan Ltd for lease of land & Building "@ 5,00,000/- pm plus taxes For 12 months Rs 6432600/- From the above details provided in respect of lease rent along with the copies of the lease deed as well as fact that TDS has been deducted the genuineness of the payment is established and since it is rent the same is allowable as deduction us 30 of the Income Tax Act, 1961."

13.2. The above submission alongwith evidences were forwarded to the AO. The AO in the Remand Report dated 02.06.2015 made the following observation:- "The assessee has produced the additional evidence vide page no.201 to 215. The assessee has produced a copy of lease agreement dated 29.05.2007 between M/S A.P. Met Eng. Ltd and M/s Ojas Industries Pvt. Ltd. in support of the lease rent for 9 months @ Rs.72,000/- p.m. Total payment shown at Rs.64,80,000/ Perusal of the lease rent agreement, it is noticed that the documents are unsigned by the first Company and the said documents are not registered document with the appropriate authority and the same is not legal document in the eyes of the law. Without prejudice to the above, there is no clause for tax deductions at source and the clause relating to Butatta service tax payments in the said agreement. The rent agreement produced as additional evidence is not any material evidence although the tax deducted at source shown vide form no.16A gaper book page no. 203. It is submitted that mere payment by account payee cheque and

ITA Nos. 3714 & 4143/Del/2017 24 Ojas Industries P Ltd., deduction of tax is not sacrosanct nor it can make a non-genuine transaction genuine. Further, the assessee also produced the additional evidence in the form of lease agreement with M/S. Bajaj Hindustan Limited for the lease of plant & machinery @ 11,44,000/- per month, Rs.1,35,42, 600/- and on the clause in agreement in respect of lease of land and building @ Rs.5 lacs per month Rs.64,32,600/-. Copy of the ledger account of lease rent of plant & machinery at page no.204 paper book, copy of lease rent of land and building for page205 of paper book, Form No.16A TDS deducted at source page no.206 rent agreement pages 207 to 2011. Perusal of the agreement it has been noted that the agreement is not registered with the appropriate authority and the same is not legal document in the eyes of law. Without prejudice to the above, it has been noted that clause 4 of the agreement which showing lease rent payable annually, the same is not applicable in the terms and conditions in lease agreements. There is no clause for tax deductions at source and the clause relating to statutory service tax payments in the said agreement. The rent agreement produced as additional evidence is not any material evidences although the tax deducted at source shown vide form no.16A paper book 203, It is submitted that mere payment by account payee cheque and deduction of tax is not sacrosanct nor it can make a non-genuine transaction genuine."

13.3. The assessee filed rejoinder to the Remand Report as under:- "The evidence in the shape of lease agreement was filed by the assessee in paper book page no.201 to 215. The officer has laid great emphasis on registration of the lease agreement, He has failed to appreciate that the claim of deduction of lease rent is allowable under the Income Tax Act if it is incurred for the purpose of business. The reading of the lease agreement clearly shows that Bajaj Hindustan Ltd. which was earlier running the distillery has w.e.f. 25th April 2006 lock, stock and barrel leased it to Ojas Industries, the assessee company for a lease payment as mentioned in the said agreement. The lease is for the plant & machinery and the building of the Distillery Unit at Palia (UP). The assessee is having its own factory unit at Neemrana and one more Unit at Andhra Pradesh at Medak which is a bottling unit.

ITA Nos. 3714 & 4143/Del/2017 25 Ojas Industries P Ltd., For payment to both the entities, the assessee has deposited TDS and has also provided them the TDS certificates which are enclosed at paper book page no.203 and 206. Further, the AO refers to clause-4 of the agreement showing lease rent payable annually but states that the same is not applicable in the terms and conditions in the lease agreement. Further, he states that there is no clause for tax deduction at source and clause relating to Statutory service tax payment in the said agreement. Firstly, so far as reference clause 4 of the agreement of lease agreement is concerned, it clearly states two types of lease payment one for land and building as well as plant & machinery which is payable annually and the other payment is for management support which is payable monthly. When the terms of the agreement are clear, there is no point of any confusion as pointed out by Secondly, so far as the statutory compliance like TDS, service tax payments are concerned, it is the duty of the person who has taken the property on lease to comply on those statutory requirement even if they are not mentioned in the lease agreement. Normally, the agreements do mention as a matter of abundant caution. Therefore, the assessed has given the supporting evidence by way of lease deed, the assessee has been using the leased assets for running its business, the applicable TDS has also been duly reflected and deposited into Govt, account. Therefore having satisfied all these conditions, there is no ground for making any disallowance alleging non-genuineness of the expenditure."

ITA Nos. 3714 & 4143/Del/2017 26 Ojas Industries P Ltd., from 1.06.2007 to 31.03.2008 i.e. for a period of 9 months which comes to Rs.64,80,000/- was agreed to be paid. The assessee has accordingly booked the expenses as per the said agreement and has made the payments through account payee cheques after deduction of tax at source and has enclosed the copy of Form No.16A. The ld. CIT(A) held that, the AO in his remand report has treated the agreement as defective on the ground that it is unsigned by one party and not registered. Further, there is no clause for TDS and service tax payment. The ld. CIT(A) held that, on this ground alone the AO cannot reject the lease agreement. Under the provisions of the Act Rent u/s 30 is allowable if the premises is used for the purpose of business or profession. It is not the case of the AO that the rent is paid in respect of premises which has not been used for the purpose of business. The AO has not questioned the genuineness of the payment. There is no finding that the asset in question has not been used for the purpose of business. Considering the positive evidence namely the lease agreement, the payment having been made through A/c payee cheque and also the TDS certificate under 16A giving the name and address of the lessor along with the PAN number, and the fact that the business is carried out from these premises during the year, there is no reason to disallow the expenditure incurred on lease rentals which is allowable as wholly and exclusively incurred for the business purposes. The order of the ld. CIT(A) is affirmed. The same ratio applies with regard to the payments made by the assessee in pursuance of the lease agreement with Bajaj Hindustan for the lease of plant & machinery and land & building is perused.

ITA Nos. 3714 & 4143/Del/2017 27 Ojas Industries P Ltd.,

Interest Paid: 24. The entire background of the issue is as under:

"The AO has disallowed sum of Rs. 1,41,62,318/- alleging that the assessee has not furnished the explanation for the interest claimed u/s 35(1)(iii). The interest expenditure incurred by the assessee is Rs.3,79,47,356. The AO has made a proportionate working of the disallowance on the ground that proportionate interest has been utilized for capital expenditure. The AO has dealt with the issue at pg 12 & 13 of the assessment order. The disallowance has been made on assumption & presumptions without having any nexus to the accounts and therefore is to be deleted. The reason for deletion is that the AO has assumed the borrowings have gone to finance capital work in progress. Whereas the facts remains that during the year the capital work in progress has increased only by Rs. 26,29,293/- (Opening Capital WIP 15,56,15,819 & the Closing WIP is 13,74,21,300) the assessee has capitalized a sum of Rs. 2,08,17,812 out of the Capital WIP. The AO is making an assumption that has the assessee has not invested the above funds towards its WIP there was no need to borrow the funds to this extent. The AO is stepping into the shoes of the management & directing the assessee how to conduct Its business. This is not the domain of the AO. He cannot instruct the businessman how he should conduct his business. This is the accepted legal principal. The list of cases of this legal proposition is enclosed for your ready reference. The allowability of interest depends on whether it has been used for the purpose of business as provided in section 36(1)(iii). In the order the AO has no dispute on this account. Hence the interest expenditure which is incurred on loans for the purpose of business should be allowed as business expenditure."

15.2. In the Remand Report, the AO commented as under:- “In connection with the above disallowance, the assessee has not filed any details as required by the A. O, during the course of assessment proceedings as discussed vide para 12 of the assessment order, In view of this, it is presumed that the assessee has nothing to say in the matter and the A.O has rightly made the addition of Rs.1,41,62,318.”

ITA Nos. 3714 & 4143/Del/2017 28 Ojas Industries P Ltd., 15.3 The assessee filed rejoinder to the Remand Report as under.- "At the outset, reference Is invited to page 12, para 12 of the AO's order. On a reading of the relevant para, the allegation of the AO is certain portion of the interest is being disallowed u/s. 26(1)(iii) on the ground that the same is not used for business purpose. On what ground the AO is making such allegation is not clear. The submission of the assessee is that for running the Distillery business, the assessee has to depend on the working capital. As can be seen from the pront & loss account, the sale of the assassee has increased from 121 crores to 294 crores and to meet the expenses for increase in the sales, the assessee has to incur loan for the purpose of running of the business and the interest on such borrowings are for the purpose of business and should be allowed u/s 36(1)(il). Further, with regard to capital work in progress there is no increase but only decrease from the assessee opening balance which clearly shows that there is no investment in any capital asset by the assesee. Considering the overall working results the interest should be allowed u/s 36(1)(ii). There is nothing that has been pointed out by the AO as relatable to non-business purposes. Moreover, it accepted legal proposition is the prerogative of the businessman as to how he should conduct his business. This Is the considered and the Interest of Rs. 1,41,62,318/- may kindly be allowed." 25. The AO in his order has disallowed the interest and finance charges of Rs. 1,41,62,318/- as not allowable u/s 36(1)(iii) on the ground that there is capital work in progress appearing in the Balance Sheet of the assessee. The reasoning of the AO is that had the assessee not invested the funds towards its work in progress there was no need to borrow funds to this extent by the assessee. The ld. CIT(A) held that, the Balance Sheet wherein the assessee has secured loans being overdraft from the bank and short term unsecured loans and there was no opening overdraft from bank. Short term loans were borrowings for the purpose of utilizing in the business of the assessee. There was no addition to the capital work in progress during the previous year except for sum of Rs.26,23,293/-. In fact, as per the Balance sheet, the closing work in progress is less than opening work in progress meaning thereby that there is net reduction in

ITA Nos. 3714 & 4143/Del/2017 29 Ojas Industries P Ltd., the work in progress. The assessee had sufficient funds of its own by way of share capital and reserves as well as the income during the year of Rs.294.26 crores and therefore there being mixed funds, there cannot be any disallowance of interest paid as relatable to capital borrowed for acquisition of an asset or for extension of existing business or profession. There is no specific loans/borrowings by the assessee for acquiring any asset or for extension of any existing business. There cannot be any proportionate disallowance without establishing nexus between the borrowed funds and the capital work in progress, more so when the assessee is having mixed funds. The ld. CIT(A) relied the Hon'ble apex Court in the case of SA Builder vs. CIT, 288 ITR 1 has endorsed the view taken by the Hon'ble Delhi High Court in the case of CIT vs. Dalmia Cement Ltd., 254 ITR 377 for the proposition that no businessman need be compelled to maximize his profit.

Disallowance of Rs. 25 crore-: 27. The entire background of the issue is as under:

“The AO has made an addition of Rs. 25 crores u/s 145(3) alleging that the assessee has paid the penalty for low recovery and that the recovery as compared to earlier year is less in comparison to the average recovery for the year in consideration. The conclusion drawn by the AO at the outset is without giving any opportunity to the assessee, suo moto coming to conclusion by computing wrongly the average consumption as well as reproducing the figures in-respect of items manufactured incorrectly.

ITA Nos. 3714 & 4143/Del/2017 30 Ojas Industries P Ltd., The assessee is manufacturer of rectified spirit, absolute alcohol, extra natural alcohol (ENA) and Ethyl Alcohol Denaturant (EAD). The assessee other business activity is trading in sugar. Enclosed herewith flow chart explaining the manufacturing process of the spirit. The raw material for manufacturing alcohol is molasses. The production of alcohol is strictly monitored by the excise department as it is a excisable commodity yielding revenue to the goverment. The complete process right from procurement of molasses upto the manufacturing of alcohol as well as subsequent variant is all governed by the State excise regulations. So much is the control of the excise authority that the full fledged team is stationed at the factory premises with the Asst. Commissioner heading the team. The stocks are also under the lock & key. Therefore it Is impossible to produce even a single litre without the knowledge of the excise department nor the assessee can take out a single litre outside the office premises without the knowledge of the excise department.

Therefore prima facia in respect of alcohol & liquor, the allegations of sale outside books on the assumptions that the assessee would have produced and reflected in the books cannot be imagined. For that matter the same penalty order raised by the excise authority if it is seen will clearly prove that excise authorities have complete control over the production & sale of the alcohol. The additions therefore are prima facia to be deleted.

The AO has invoked provisions of section 145(3) It can be invoked only in the case where the AO is not satisfied about the completeness & correctness of the account of the assessee & where the AO proceeds to make an assessment exparty in the manner provided u/s 144 of the Income Tax Act, 1961. Firstly, there is no mention in the assessment of recording any satisfaction regarding completeness & correctness of the accounts of the assessee. The fact that the AO has accepted the working result as declared by the assessee shows that the AO has accepted the books of account. Secondly, he has not pointed out as to how the accounts are incorrect or incomplete. The assessee Is a corporate entity, the accounts are audited by external auditors, the production & sale is under the supervision of state excise authority. Therefore there is no ground for invoking 145(3) provisions and making the additions of Rs. 25 crores as alleged sales outside books which is purely on assumptions & presumptions and therefore has to be deleted.

ITA Nos. 3714 & 4143/Del/2017 31 Ojas Industries P Ltd., The assessee further submits that on facts also the production details & the consumptions details has been wrongly considered by the AO and thereby leading to erogenous conclusion. In this connection we are enclosing the production of rectified spirit, absolute alcohol, ENA, EDA on a month to month basis as per RG 1 register. In respect of molasses consumed we are enclosing copies of FormVI& RG 23A register. Photo copies of the relevant copy of the register along with the summary giving production detail are enclosed. These are additional evidences which are duly audited by the excise authorities. The figure depicted by the AO at pg 15 of assessment order is erroneous. The total production of each of the items and the total consumption of the molasses is as under:-

2008-09 2007-08 Consumption of 7,80,720 5,57,460 Molasses Rectified Spirit 53,96,750 63,02,157 Absolute 99,93,778 57,84,570 Alcohol Extra Neutral 11,68,965 1,02,570 Alcohol (ENA) Volume 19,749 67,511 Gain/Internal Transfer Gross Total 1,65,79,241 1,22,56,892 Recovery Ratio 21.23 21.98 EAD 1,14,50,999 77,52,836

The mistake in the AO's order is summarized as below: (a) The month wise production data has been taken wrongly in certain months. (b) The year wise total has been wrongly calculated. (c) The consumption average has been worked out considering even EAD output which is a further product from spirit and not the product of molasses. (d) The consumption of molasses has been taken a 733400 quis whereas as per the audited accounts and the breakup given monthwise by the assessee it Is 780720qt/s (e) The total production of sprit/ alcohol is as per audited statement is 16579241 Itrs as against this the AO considered the production as

ITA Nos. 3714 & 4143/Del/2017 32 Ojas Industries P Ltd., 28396799 Ltrs (including EAD). Similar mistake has been committed for the earlier years thereby getting a average consumption of 38.72 Ltrs. per Qtls for the current year and 45.25 Ltrs for the last year. The average figures is not at all possible of achieving the average yield is around 21 to 22 percent in the state of UP . This efficiency data published by the all India Distillers Association for the month of August 2010 in the state of UP. relating to the actual recovery is enclosed for ready reference. The data is depicted in term of HL/MT.

(f)The AO is wrong in stating that there is a great difference in the month wise production & consumption in the month of July, this is because for 2006-07( A Y 2007-08) he has wrongly mentioned the figure of molasses consumption at 18329.2 Qtis whereas it is actually 50320 Qtis. Similarly the AO is in error in totalling the production of spirit & EAD in the previous year for the month of july, 2006 and arriving at a production figure of 3799493 Lts of production out of the 18329.2 Qt/s of molasses giving average yield of 207.29 Itrs which is ridiculous figure of yield worked out by the AO. The assessee Is enclosing monthwise yield for F Y 2007-08 as well as F Y 2006-07 which show an average yield per quis ranging between which is around 21-22 percent. (g) Even for the month of July, 2006 if we take the molasses consumption of 50320 qt/s, the production of sprit is 1358262 Itrs( EAD should be excluded because it is an output from transfer of sprit and not an independent production from molasses) which gave an yield ratio of 26.99. It may be noted that this is because in the month of July the factory is shut down which continues for August & Part of September due to rains. This is fact which exits in every distillery industry. (h) With all the above discrepancies in the consumption noted by the AO, he has wrongly come to the conclusion that there is short recovery without confronting the assessee, without understanding the facts and without appreciating that the recovery 207.29 Itrs of sprit out of 1 quis of molasses is not at all possible. The AO has also alleged that no evidence nor purchases aggregating to Rs 125,29,63,800 and stores spares and packing materials consumed and manpower cost claimed is reflected in schedule 11 & 12 of the audit report which was provided by the assessee. This again Is an

ITA Nos. 3714 & 4143/Del/2017 33 Ojas Industries P Ltd., allegation without providing any opportunity to the assessee. In this connection the details of purchases are enclosed. The purchase of in respect of: a. Sugar trading Rs. 475734259/- b. Liquor purchase Rs. 777229541/- Total Rs. 1252963800/- In respect of sugar trading the AO was provided with the complete ledger account and details of parties from whom purchase were made along with name & address. In respect of Liquor purchase assessee has filed copy of order from the UP government wherein the assessee is mandated to firstly sell the entire liquor to the representatives of State Government and later on purchase the same from the state goverment appointed agents and then sell it. This is the system prevalent in UP state. During the year under consideration the entire purchase is from Blue Industries Water Pvt. Ltd. which is a Govt. Appointed agency, copies of the sample bill for the month of March 2008 has been filed along with the purchase account to evidence the purchases. So far as stores, spares, packing material is concerned, these are issues from the stores and are voluminous, there is no substantive additions made on this account. Similarly, reference is made to man power cost only to support his case for trading additions. Both these details cannot have any connection for making trading additions unless there is any specific discrepancy noticed by the AO. The assessee has enclosed a chart showing the Gross Profit Ratio for the earlier 2 years. In the earlier years the assessments were completed u/s 143(3) accepting the trading results of the assleede. The question of making ad hoc addition of Rs. 25 crores does not arise and hence to be

16.2. The Ld. AR on this ground further submitted as under: "The A.O. in his order while making the addition of Rs.25 crores has invoked the provisions of section 145(3) and has made the addition rejecting the audited accounts summarily without giving any cogent reasons.

ITA Nos. 3714 & 4143/Del/2017 34 Ojas Industries P Ltd., A plain reading of the provisions of section 145(3) the Assessing Officer is empowered to make an assessment in the manner provided in section 144 (ex-parte assessment) only if:- (a) The AO is not satisfied about the correctness or completeness of the accounts of the assessee; (b) Where the method of accounting i.e. either cash or mercantile system of accounting regularly employed by the assessee for computation of income has not been followed. (c) Accounting standards as notified under sub-section (2) have not been regularly followed by the assessee. In the case before your Honours, the pre-requisite condition for invoking the provisions of section 145(3) have not been satisfied by the Assessing Officer. The AO has completed the assessment u/s 143(3) after examination o! the books of accounts and the records furnished by the assessee and also making disallowances of different expenditure under different heads, though these are contested in the present appeal. Secondly, nowhere in the assessment order, the AO has made out a case for rejection of accounts on the ground that they are unreliable, incorrect or incomplete. The so-called discrepancies as mentioned in the assessment order have been met by the assessee and duly explained based on excise records. The conclusion drawn by AO are erroneous, incorrect recording of data as well as understanding of facts. As explained, in our earlier submissions for calculation of rate of yield/recovery from the Molasses consumed the AO has wrongly considered EAD as one of the products manufactured from molasses. This is factually incorrect. EAD is the by-product of rectified spirit and cannot be considered as a product of molasses of calculating the yield. Assessee has also given supporting evidences of industry average yield of rectified spirit out of Molasses. Therefore, there Is no ground or reason for the AO to reject the books of Accounts.

Thirdly, the accounting standards have been duly followed by the assessee in the earlier years and in the year under consideration. There is no whisper in the assessment order by AO that the assessee has failed to follow the accounting standards. Hence, there is no case made out by the AO for resorting to 145(3) provisions. The AO has not even given the basis for estimation of Rs.25

ITA Nos. 3714 & 4143/Del/2017 35 Ojas Industries P Ltd., crores and on what legal ground is he making the addition. Therefore, legally this ground of the assessee may kindly be allowed and the addition of Rs. 25 cores should be deleted." 16.3. The above submission alongwith evidences were forwarded to the AO. The comments of the AO in the remand report dated 02.06.2015 are as under:- The assessee has produced the additional evidence in respect of the production of rectified sprit, absolute alcohol, ENA, EDA on a month to month basis as per RG I register. In respect; of molasses consumed and copies of Form VI & RG 23A register. Photo copies of the relevant copy of the register along with the summary giving production details have been submitted vide paper book pages no.482 to 498 (molasses) 499 to 546 (Production details) 547 to 631 (ER-1, ER-6) . The assessee has also submitted the copy of ledger account of sugar, purchase/liquor purchase account from 1.4.2007 to 31.03.2008 page nos. 632 to 651 The assessee has also filed the chart showing the gross profit'ratio for the earlier 2 years vide paper book page no. 670. Perusal of the documents filed by the assessee, it has been noted that page no.482 to 499 are relating to the consumption of molasses. From page no.500 to 546 of paper book are relating to Form No.RG / containing the details of excise duty payable. The documents page no.547 to 631 relating to form no.ER-1 return of excisable goods and availment of CENVAT credit and the details of receipts and consumption of principal inputs and finished excisable / goods. Paper book page no.632 to 634 pertaining to ledger book account of sugar purchased but the assessee has not enclosed any supporting purchase bills alongwith the ledger copy of the purchase shown at Rs.47,79,77,044/-. The paper book page no.635 to 651 pertain to ledger account of liquor purchased a/c for 1.4.2007 to 31.03.2008 for Rs.78,52,44, 136/-. This ledger book account is not indicating the name of the parties from whom the purchases have been made by the assessee. The documents filed by the assessee are not full filled- the requirement of the AO as discussed in the assessment order in detailed. The AO has rightly made the addition in the manufacturing trading account of Rs. 25 crores."

16.4. The assessee filed rejoinder to the Remand Report as under:-

ITA Nos. 3714 & 4143/Del/2017 36 Ojas Industries P Ltd., "The assessee submits that the AO has fairly noted that he has perused all the documents with respect to consumption of molasses, excise duty payable account for the production as well as Based on all these information, the assessee has tabulated month- wise consumption of molasses as well as month-wise production of rectified spirit, alcohol, extra neutral alcohol (ENA) which has also been given to the AO vide letter dated 28th The assessee has also worked out the average recovery yield which as per the working enclosed comes to 21.70 as the average recovery per quintal of molasses as against 21.90 in the immediately preceding year thereby the recovery is slightly lower than the earlier year. This working given to the AO has not been disputed. Therefore, what has been stated by the AO in the original assessment order has to be completely ignored and the figures as per the records have to be considered which has also been accepted by the AO in the Remand proceedings. Secondly, the AO has erred while stating that the assessee has only provided the ledger copy of sugar purchased and Ilquor purchased for the period 1.4.2007 to 31st March 2008. not correct because apart from ledger accounts, the assessee has also provided the entire bills for sugar and liquor purchased which are at page no.652 to 669 of the paper book. This will also be available in the copies provided to your Honours. Therefore, this allegation is completely wrong and cannot be a basis for rejecting the assessee's ground for deleting the addition of Rs.25 cores made on account of trading addition.

The assessee has given complete details of the production and consumption as well as the assessee has given the chart showing the gross profit ratio in comparison to last year which is showing an increasing trend. The assessee has also given the extracts of the All India Distillers' Association monthly newsletter wherein as per the efficiency data pertaining to UP, the actual recovery ranges from 21.1 BL per MT to 22.3. Therefore, accepting the result which have been duly supported by the records of the assessee, as stated above and having made the assessment considering the accounts of the assessee, there is no ground for invoking section 145(3). The AO has not made assessment ex-parte u/s 144. The AO should have either completely rejected the books of accounts and applied GP ratio and completed the assessment, whereas he has made assessment partly basing on the books of accounts and partly under sec. 145 which is legally incorrect. As a result as against the

ITA Nos. 3714 & 4143/Del/2017 37 Ojas Industries P Ltd., return filed by the assessee declaring income of Rs.10,32,35,866/-, the AO has determined an income of Rs.43,89,23,059/- more than 4 times the return income which has no basis as it is not supported by any evidence against the assessee. Therefore, the addition should be deleted and the results which are based on books of accounts and which have been duly audited by statutory auditors should be accepted."

ITA Nos. 3714 & 4143/Del/2017 38 Ojas Industries P Ltd.,

Order Pronounced in the Open Court on 07/02/2024.

Sd/- Sd/- (Yogesh Kumar US) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 07/02/2024 *NV, Sr. PS*