ASST. COMMISSIONER OF INCOME TAX (CENTRAL)-I, BHOPAL , BHOPAL vs. SOM DISTILLERIES PRIVATE LIMITED, BHOPAL

आदेश / O R D E R

Per Bench:

Feeling aggrieved by appeal-order dated 30.05.2023 passed by learned Commissioner of Income-tax (Appeals)-3, Bhopal [“CIT(A)”] which in turn arises out of assessment-order dated 30.12.2016 passed by ITO, 1(3),

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Bhopal [“AO”] u/s 143(3) of the Act for AY 2014-15, the assessee and

revenue both have filed the captioned cross-appeals.

lower-authorities, they were heard together at the request of parties and are

being disposed of by this consolidated order for the sake of convenience,

brevity and clarity.

assessee is a company engaged in the business of manufacture of spirit,

IMFL & country liquor. For AY 2014-15, the assessee filed return u/s 139(1)

declaring a total income of Rs. 11,44,12,420/-. The case of assessee was

selected for scrutiny and notices u/s 143(2)/142(1) were issued from time to

time. Ultimately, the AO completed assessment u/s 143(3) after making

several additions on adhoc basis and determining total income at Rs.

26,79,97,140/-. Aggrieved, the assessee filed appeal to CIT(A) and

succeeded to a large extent. Now, the assessee and revenue both have come

in these appeals challenging the order of CIT(A).

Assessee’s Appeal:

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Ground No. 1: 5. In this ground, the assessee has challenged the CIT(A)’s action of

upholding disallowance of Rs. 8,21,450/- out of total disallowance of Rs.

94,72,996/- made by AO on account of donation expenses. This assessee’s

ground is a cross-ground to Ground No. 3 of revenue’s appeal, hence both

assessee’s ground and revenue’s ground shall be adjudicated analogously

in later part of this order. Finally, the assessee’s ground is allowed for

statistical purpose as per detailed discussion to follow.

Ground No. 2: 6. In this ground, the assessee has challenged the CIT(A)’s action of

upholding disallowance of Rs. 4,090/- out of total disallowance of Rs.

2,72,52,835/- made by AO on account of manufacturing expenses. This

assessee’s ground is a cross-ground to Ground No. 4 of revenue’s appeal,

hence both assessee’s ground and revenue’s ground shall be adjudicated

analogously in later part of this order. Finally, the assessee’s ground is

dismissed as per discussion to follow.

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Ground No. 3: 7. In this ground, the assessee has challenged the levy of interest u/s

234A, 234B and 234C. The levy of interest u/s 234A, 234B and 234C is

statutory as per provisions of Act. Further, no submission has been made

by either side qua this ground. Being so, this ground is rejected.

Revenue’s Appeal:

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Ground No. 1: 9. Ld. DR for revenue carried us to this ground which has two sub-

grounds 1(a) and 1(b) and made following submissions:

(i) In Ground 1(a), the revenue’s grievance is that the CIT(A) was not

justified in deleting various additions made by AO by observing that

the AO made disallowances ‘without pointing out any defect in bills

and vouchers’, without appreciating that the AO was disabled from

pointing out defects since the assessee did not provide copies of entire

set of bills/vouchers despite AO calling for. For this ground, Ld. DR

contended that the CIT(A) has not given opportunity to AO and

accepted assessee’s submission which is a clear violation of Rule 46A

of Income-tax Rules, 1962. Therefore, the matter must be remanded

back to AO/CIT(A).

(ii) In Ground 1(b), the revenue’s grievance is that the CIT(A) has wrongly

ignored the decision of Hon’ble Delhi High Court in ‘Jansampark

Advertising & Marketing (P) Ltd. (2015) 56 taxmann.com 286

(Delhi)’ holding that although it is an obligation of AO to conduct

proper enquiry but if the AO fails, the obligation shifts to CIT(A) and

therefore the CIT(A) cannot simply delete the addition made by AO.

For this ground, Ld. DR relies upon decision of Hon’ble Delhi High

Court.

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prayed to reject the grounds raised by revenue:

(i) That, the assessee did not adduce any new evidence to CIT(A). All

documents/evidences filed to CIT(A) were already before AO. The

assessee, vide letters dated 09.12.2016, 14.12.2016, 29.12.2016 and

30.12.2016, filed detailed replies, produced books of accounts and

bills/vouchers to AO. The letters of assessee have been filed in Paper-

Book and also re-produced in Para 3.1.1 and 3.1.2 of CIT(A)’s order.

Our specific attention is also drawn to letters dated 29.12.2016 and

30.12.2016 filed in Paper-Book at Page 95-96 according to which the

assessee produced copies of computerised books of account and bills/

vouchers of expenses to AO during assessment. The letter dated

29.12.2016 is acknowledged by seal of AO’s office. Further, another

letter dated 29.12.2016 but filed to AO’s office on 30.12.2016 is also

placed according to which the assessee also filed some more ledger

a/cs and vouchers/documents as per direction of AO of expenses. Ld.

AR submitted that the CIT(A) has only appreciated the submissions

made by assessee to AO in a proper and lawful manner and granted

relief, consequently there is no fallacy in CIT(A)’s order.

(ii) That, the decision of Jansampark Advertising & Marketing (P) Ltd.

(2015) 56 taxmann.com 286 (Delhi) relied by revenue is in respect

of addition made by AO on account of unexplained cash-credit u/s 68.

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In that decision, the CIT(A) deleted addition and ITAT concurred with

CIT(A)’s order holding that the AO had failed to point out ‘any

discrepancy’ in the evidence filed by assessee and the AO had failed to

‘pursue the matter further for making enquiries’ and therefore the

Hon’ble High Court had occasion to hold that the CIT(A)/ITAT are also

facts finding authority and they cannot delete addition by simply

finding mistake in AO’s function. The present case of assessee is

totally different. The AO has made disallowances of expenses on adhoc

basis without pointing out any specific defect in assessee’s books of

account, bills/vouchers and documents filed before him during

scrutiny. The assessee made compliances to the notices issued by AO

from time to time. In Para 3 of assessment-order, the AO has himself

noted that in response to his notices, Shri Ashok Sahani, AVP

Taxation and Shri Amit Solanki, Dy. Manager of assessee-company

attended the hearings from time to time and submitted replies to the

queries during the course of assessment proceedings and that various

aspects of the case were discussed with reference to the written

submissions filed which were considered and placed on record and

case was discussed with them. However, ultimately in assessment-

order, the AO has made general and vague remarks that the

documents were not filed or not filed fully. The CIT(A) has considered

assessee’s submissions properly and deleted the adhoc additions

made by AO. By placing reliance upon Jansampark Advertising

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(supra), Ld. AR contended, the AO is merely trying to justify his

baseless and bad approach of making adhoc additions. Ld. AR went

further on submitting that in the present case of assessee, the AO has

made ad hoc disallowances and that too without rejecting books of

assessee, therefore the CIT(A) has relied upon several judicial rulings

including the binding decision of Hon’ble Supreme Court and deleted

addition. The CIT(A) has perfectly relied upon one such decision in

PCIT Vs. R.G. Buildwell Engineers Ltd. (2018) 99 taxmann.com

284 (SC) which is directly applicable to assessee’s facts and wherein

the departmental appeal was dismissed by Hon’ble Supreme Court,

the relevant paras are as under:

“3. In respect of the first item i.e. expenses for bricks, machinery repair, cartage, etc. the AO concluded that insufficient evidence was adduced. He, therefore, disallowed 10% of the claim. This was reduced by half by the CIT(Appeals). The ITAT gave two reasons to set aside the findings of the A.O.- CIT(Appeals). Firstly, that the books of account were not rejected and secondly, that in the past, consistently such expenses were allowed in scrutiny assessments. Likewise, in the case of labour cases too, identical reasons were adduced by the A.O. to bring to tax a sum of Rs. 2.2 crores. The same were set aside ultimately by the ITAT. 4. This court is of the opinion that the principal reasoning of the ITAT, i.e. omission to reject the books of account, in which event the ad-hoc disallowance could have been adjusted and also the historical treatment of such expenses, cannot be termed as unreasonable; in support of its ultimate conclusion. In these circumstances, no substantial question of law arises.” 11. We have considered rival submissions and perused the orders of

lower-authorities in the light of judicial decisions. The grievances raised by

revenue in Ground 1(a) and 1(b) are also linked with other specific grounds

raised by revenues. Although we shall be adjudicating other grounds in

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subsequent discussions, at this stage we may mention that the Ld. AR has

made a categorical submission that the assessee filed written-replies,

produced audited books of account and submitted various details,

documents, bills and vouchers as and when called upon by AO. The

assessee’s replies filed to AO have also been incorporated in CIT(A)’s order

and considered by CIT(A) in disposing of first-appeal. Ld. AR has strongly

pleaded that there was no new submission before CIT(A), this particular

pleading of Ld. AR remains unrebutted by revenue. Further, we would also

see as we deal specific grounds in subsequent discussions that the CIT(A)

has vehemently considered the facts of assessee in the light of various

judicial rulings and thereafter deleted the additions made by AO wherever

deletion was warranted. That apart, the CIT(A) has also mentioned in Para

1.1 of his order that vide his notice dated 06.10.2021, he asked the AO to

specify whether he/she would like to be present at the time of hearing in

view of provision of section 250(2)(b) of the Act and in response to his notice,

the AO failed to submit any report. Further, in absence of any specific

request from the AO, the CIT(A) presumed that the AO did not want to

attend the hearings. Thus, when the case involved whopping addition and

the AO considered his additions on sound footing, he could have at least

attended the hearing before CIT(A) but the same was not done. Thus, it is

clear that the CIT(A) has merely analysed and appreciated assessee’s case

without new evidences and even the AO has not choosen to make any

attendance before CIT(A) when notified. Therefore, there was no violation of

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Rule 46A as being claimed by revenue. So far as the decision of

Jansampark Advertising (supra) is concerned, that is not applicable to

assessee’s case as rightly submitted by Ld. AR. Without repeating Ld. AR’s

submissions which we have already narrated in preceding para, we only

suffice to say that we agree with Ld. AR that the said decision is not

applicable to assessee’s facts. Rather the assessee’s case is covered by

decision of Hon’ble Supreme Court in R.G. Buildwell (supra). That brings

us to conclude that the Ground No. 1(a) and 1(b) of revenue are devoid of

any merit, accordingly they are rejected.

Ground No. 2: 12. In this ground, the revenue challenges the CIT(A)’s action of deleting

the disallowance of Rs. 6,00,00,000/- made by AO out of purchase

expenditure claimed by assessee.

as under:

“5.0 Total sales of the assessee has been decreased from Rs. 169.6 crore for F.Y.2012-13 to Rs. 167.6 crore in F.Y. 2013-14. The assessee has shown total purchases of Rs. 119.56 crore. In spite of giving so many opportunities to the assessee for producing bills of purchases and related vouchers, but the assessee failed to produce complete bills and vouchers to substantiate its claim. It is observed that assessee has debited Rs. 58,73,70,105/- for packing material which is included in the total purchases of Rs. 119.56 crore. Against the claim of expenses under the head Packing Material of Rs. 58,73,70,105/-, the assessee has produced only the copy of ledger of Purchase (Bottles) for Rs. 1,29,38,497/-, Purchase (CC) Boxes (MP) for Rs. 31,91,369/-, Purchase (PP) caps CL(IS) for Rs. 1,51,16,917/- and purchase of Label IMFL(IS) for Rs. 9,47,162/-. Against the ledger of purchase (Bottles) for Rs. 1,29,38,497/-, the assessee has produced only 03 purchase bills of Rs. 8,08,720/-, Rs.

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9,93,850/- and Rs. 8,65,961/-. Against the Purchase of (CC) Boxes (MP) for Rs. 31,91,369/-, the assesse has produced the bills only for Rs.1,97,630/-, Rs. 1,88,022/- and Rs. 1,42,747/-. Against the ledger of Purchase (PP) caps CL(IS) for Rs. 1,51,16,917/-, the assessee has produced only 03 bills for Rs. 3,61,381/-, Rs. 3,14,441/- and Rs. 3,37,610/-. Similarly, against the purchase of Label IMFL(IS) for Rs.9,47,162/-, the assessee has been able to produce only 03 bills of Rs. 1,88,622/-, Rs. 1,02,689/- and Rs. 1,01,758/-. It has been very clear that the assessee has failed to produce requisite bills and vouchers of purchases for verification and veracity of claim of purchases amounting to Rs. 119.56 crore. In the absence of complete bills and vouchers the claim of purchases amounting to Rs. 119.56 crore is not fully verifiable and sustainable. Hence, looking the inability of assessee to get purchase bill verified by this office, claim of purchases of Rs. 119.56 crore is disallowed @ 5% and addition of Rs. 6,00,00,000/- is made in the hands of the assessee.” 14. During first-appeal, the CIT(A) has reversed AO’s action and deleted

the disallowance fully by following order:

“3.2 Ground No 3:- Through this ground of appeal, the appellant has objected disallowance of Rs. 6,00,00,000/- on ad hoc basis out of expenses claimed under material purchase head.

3.2.1 The appellant during appellate proceedings has filed following written submissions:-

Ground No. 3 read with Ground No. 1 & 2 Adhoc disallowance of Rs. 6,00,00,000 out of material purchase account 1. The A.O. in Note-22 of the balance sheet has seen that in the relevant year, the assessee has purchases material of Rs. 1195658022/-. The A.O. says that the assessee failed to produce requisite bills and vouchers of purchases for verification of purchases and, therefore, in absence of complete bills and vouchers, 5% of the purchase value is disallowed and accordingly addition has been made at Rs. 6 crores (5% of 119.56 crores).

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evident from the letter dated 29.12.2016. The assessee submits that during the course of assessment proceedings when all the books of accounts, bills and vouchers produced, the A.O. did the test check and whatever copy of bills and vouchers, he wanted they were submitted and due to this reason, the A.O. in para 3 of the order clearly mentioned that the assessee duly replied all the queries raised in the assessment and, therefore, the assessment was completed u/s.143(3) of the I.T. Act. Thus the assessee submits that the findings of the A.O. are absolutely wrong and wholly incorrect that the bills and vouchers were not produced. The assessee submits that on the examination of books of accounts, bills and vouchers, when the A.O. did not find any specific item unverifiable in nature, he resorted to adhoc addition. The A.O. did not point out any item of purchase which was not found supported by bills and vouchers and had there been so, he would have certainly mentioned in his order. The estimated adhoc addition of Rs. 6 cores is arbitrary, based on conjectures and surmises, hence be deleted.

Comparative Chart of Cost of Material Consumed Assessment Sales Cost of Percentage Disallowance Year Material of Cost of Consumed Material by A.O. Consumed

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over Sales 2011-12 1124076111 820183286 73% Nil 2012-13 1459876134 1137020454 78% Nil 2013-14 1696000186 1310447304 77% Nil 2014-15 1676473072 1197323783 71% 60000000 2015-16 2033531437 1465856060 72% Nil 2016-17 1959496662 1273982788 65% Nil 2017-18 2116643788 1377259340 65% Nil 2018-19 2508293726 1745485500 70% Nil 2019-20 3383058990 2271546252 67% Nil 2020-21 3159634664 2643700044 84% Nil

appellant during appellate proceedings has contended that the Ld. AO during assessment proceedings, on perusal of note-22 of balance sheet, observed that the appellant purchased raw material for Rs. 119,56,58,022/- and appellant was required to establish genuineness of the said expenses with supportive bills and vouchers. The appellant duly complies with the queries of the Ld. AO vide written submission dated 09.12.2016 wherein complete bills and vouchers were produced for verification. Further, vide letter dated 14.12.2016, for subsequent year, the details month wise details of purchase/consumption/details of raw material/WIP/ finished goods/sales have been furnished. In addition, the appellant has also provided the Ld. AO the complete books of accounts in digital format alongwith ledger accounts, bills and vouchers vide letter dated 29.12.2016. This factual position has also been accepted by the Ld AO vide para 3 of the assessment order. Therefore, once, it is established beyond doubt that the appellant had furnished relevant bills and vouchers, the Ld AO cannot resort to adhoc addition without specifically pointing out any defects in the bills and vouchers maintained by the appellant. The appellant has also contended that during the year under consideration, the ratio of material consumed to finished goods have been shown @ 88% against the consumption rate @ 91% of preceding year. The consumption rate shown by appellant in immediate preceding year was higher as compared to the year under consideration and therefore, the cost of consumed material debited in P&L account cannot be doubted. The appellant has also filed a comparison of similar expenses in succeeding and preceding years where no such adhoc disallowance was made. The details filed by the appellant are in following manner:- AY Sale Cost of Percentage of Disallowance material cost of by AO consumed material consumed over sales 2011-12 1124076111 820183286 73 Nil 2012-13 1459876134 1137020454 78 Nil 2013-14 1696000186 1310447304 77 Nil 2014-15 1676473072 1197323783 71 60000000

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2015-16 2033531437 1465856060 72 Nil 2016-17 1959496662 1273982788 65 Nil 2017-18 2116643788 1377259340 65 Nil 2018-19 2508293726 1745485500 70 Nil 2019-20 3383058990 2271546252 67 Nil 2020-21 3159634664 2643700044 84 Nil 3.2.3 I have duly considered the discussion made by Ld AO in the assessment order and submissions of the appellant. The ld AO in para 5 of assessment order mentioned that the appellant has debited sum of Rs. 58,73,70,105/- towards packing material and has furnished ledger account of Purchase (Bottles) for Rs. 1,29,38,497/-, purchase (CC) boxes for Rs. 31,91,369/-, purchase (PP) caps CL(IS) for Rs. 1,51,16,917/- and purchase of label IMFL (IS) for Rs. 9,47,162/-. Against the ledger for Purchase (Bottles), the appellant has only filed three purchase bills of Rs. 8,08,720/-, Rs. 9,93,850/- and Rs. 8,65,961/-, against ledger for purchase of (CC) boxes the appellant again filed three bills of Rs 1,97,630/-, Rs. 1,88,022/- and Rs. 1,42,747/-, against purchase of (PP) caps CL(IS) the appellant filed three bills of Rs. 3,61,381/-, Rs. 3,14,441/- and Rs. 3,37,610/- and against purchase of label IMFL (IS) the appellant filed three bills of Rs. 1,88,622/-, Rs. 1,02,689/- and Rs. 1,01,758/-. Except the subject sub-heads under the head 'packaging material', the Ld AO did not whisper any infirmity in the submission put forth by the appellant on various dates (as mentioned in para 3.1 above). The Ld AO by making following observations has disallowed 5% of entire expense amounting to Rs. 6,00,00,000/-:- "it has been clear that the assessee has failed to produce requisite bills and vouchers of purchase for verification and veracity of claim of purchases amounting to Rs. 119.56 crores. In the absence of complete bills and vouchers the claim of purchase amounting to Rs. 119.56 crores is not fully verifiable and sustainable. Hence, looking the inability of assessee to get purchase bill verified by this office, claim of purchase of Rs. 119.56 crores is disallowed @ 5% and addition of Rs. 6,00,00,000/- is made in the hands of the assessee." From the above remark of the Ld AO it is evident that the impunged disallowance has been made on adhoc basis. It is also pertinent to mention that the Ld AO in the order has mentioned that appellant has debited sum of Rs. 58.73 crores towards packaging material. The said head 'packaging material' contain various sub-heads, however, the Ld AO has recorded his findings only in respect of four sub-heads namely Purchase (Bottles), purchase (CC) boxes, purchase (PP) caps CL(IS) and purchase of label IMFL (IS) and remained silent in respect of other heads. However, with regard to the difference amount of Rs. 60.83 crores (Rs. 119.56 - Rs. 58.73 crores) no discussion or adverse remark has been made in the assessment order. Per contra, the appellant vide its submission dated 29.12.2016 & 30.12.2016 has clearly and explicatively submitted the desired ledger accounts with supportive bills and vouchers. Even the books of account were provided in digital form for verification. Thus, it cannot be said that no ledger, bills and vouchers were furnished by the appellant.

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3.2.4 On perusal of Note-22 of balance sheet, I find that the appellant has shown opening stock of Rs. 1,17,67,416/-, purchases of Rs. 119,56,58,022/- and closing stock of Rs. 10,91,01,654/-. On flip side the appellant has shown consumption of raw material at Rs. 52,70,96,838/-, diesel of Rs. 50,16,467/-, coal of Rs. 7,78,40,373/- and packaging material of Rs. 58,73,70,105/-. The consumption percentage shown by the appellant in comparison to sales was at 71% for the year under consideration, likewise in AY 2013-14 the same has been shown @ 77%. Further, such ratio varies from 65% to 85% between AY 2011-12 to 2020-21. Historical data of the appellant shows that the ratio of consumption of material are fluctuating which depend upon various factors in the business. 3.2.5 Here, I also find from the assessment order that the Ld. AO has not made any attempt to verify the genuineness of purchase made from various concerns despite having complete details about them. In view of above discussion, the Ld. AO is not found factually correct on the issue that the appellant submitted incomplete details which lacks supporting material. The appellant has submitted various details on this issue during assessment which should have been considered while finalizing the assessment proceedings. Despite all information on record, No instance has been brought on record to show that the expenses under particular head were bogus by the Ld. AO. Only a general remark in the assessment has been made. The Ld. AO did not reject books of accounts before making such disallowance which is against the various judicial pronouncements wherein it has been held that such disallowance is not legally sustainable. Hon’ble Apex Court in the case of Dhakeshwari Cotton Mills Ltd reported in 26 ITR 776 (WB) has held that the Income Tax Officer is not entitled to make a pure guess work and make an assessment without reference to any evidence or material at all. Hon’ble M.P. High Court in the case of V.B. Gadkari Vs. STO – 59 STC 362 (M.P.) has held that “…The order of assessment does not refer to any material whatsoever on which the estimate is based. It is thus clear that the assessing authority made an assessment based on pure guess without reference to any evidence or material at all. Under the circumstances the order of assessment passed by respondent No. 1 and the order dismissing the revision petition passed by respondent No. 2 are vitiated by an error apparent on the face of record and deserve to be quashed. Accordingly, the estimate must be related to some evidence or material and it must be something more than suspicion which is completely missing in the instant case. Most importantly, while making adhoc addition, the Ld. AO has not rejected the books of account of the appellant. No adhoc addition can be made without rejecting books of account. Hon’ble ITAT Jodhpur Bench in the case of ACIT Vs. Ercon Composites as reported in (2014) 49 Taxmann.com 489 has held that without rejecting books of account addition on estimate basis was not justified. Similar view has been expressed by Hon’ble ITAT Raipur in the case of M/s. Sanjay Agrawal Vs. DCIT, ITA No. 339/RPR/2016, order dated 24.09.2021. In similar set of facts, the Hon’ble Calcutta High Court in M/s. Swadeshi Commercial Co. Ltd. vs. CIT ITA No. 219 of 2001 judgment dated 18th December, 2008 concluded that in the absence of rejection of books, the estimation of profit is arbitrary, unreasonable and perverse. In CIT vs. Anil Kumar & Co. (2016)

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386 ITR 702 (Kar.), the Hon’ble High Court echoed the same view. In CIT v. Paradise Holidays [2010] 325 ITR 13 (Delhi), the Hon’ble Delhi High Court has held that if accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. 3.2.6 Hon’ble ITAT Delhi in the case of Simbholi Sugar Mills vs ACIT on the issue in hand has held that adhoc disallowance cannot be upheld when no defect has been pointed out by the AO. The operative part of the decision is as under:- “47. Before us, learned Counsel for the assessee submitted that the tax authorities below have disallowed the expenses on ad hoc basis merely on the assumption that these might not have been incurred wholly and exclusively for the purpose of business and further because the element of personal use cannot be ignored, however, ignoring the audited schedule of manufacturing and other expenses having been filed by the assessee before the assessing officer and without pointing out any defect in the books of account and without identifying any expenses with regard to personal use and further without specifying any unverifiable expense. 48. On the reasoning given by us while disposing of the Ground No. 6 and Ground No. 4 of the respective appeals of the assessee the impugned ad hoc disallowances made out of the manufacturing and other expenses made/sustained by the tax authorities below cannot be upheld as the same were made arbitrarily and without any justifiable basis. Accordingly, the orders of the tax authorities below in this regard are set aside and the Ground No. 7 and Ground No. 5 of the respective appeals of the assessee are allowed.” 3.2.7 Similar view has been expressed by Hon’ble ITAT Indore in the case of Rajat Tradecom India Pvt Ltd, IT(SS)A No 182 & 183/Ind/2007 dated 12.09.2008 wherein it has been held as under:- “On consideration of the rival submissions, we are of the view that additions are ad hoc in nature and liable to be deleted. The AO has not pointed out as to which of the expenditure is not verifiable. The AO without mentioning anything specifically against the assessee made the routine disallowances. The learned, CIT(A) without any justification has exceeded the reasons by saying that assessee company is running like a partnership firm. We do not know from where learned CIT (A) has subscribed this view without bringing any material on record. The learned CIT(A) should confine to the issue before him and in case, any other reasons are to be quoted in the appellate order then the basis of the same should also be revealed in the order. We accordingly set aside the orders of authorities below and delete the entire additions on both the grounds in both the years. Ground Nos. 2 and 3 of the appeals of the assessee are accordingly allowed.”

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3.2.8 Hon’ble Supreme Court in the case of PCIT vs RG Buildwell Engineers Ltd (2018) 99 taxmann.com 284 (SC) has held that: ‘This court is of the opinion that the principal reasoning of the ITAT, i.e. omission to reject the books of account, in which event of ad-hoc disallowance could have been adjusted and also the historical treatment of such expenses, cannot be termed as unreasonable; in support of its ultimate conclusion. In these circumstances, no substantial question of law arises.’ Similar view was taken by Hon’ble Jurisdictional High Court in the case of CIT vs Pure Pharma (P) Ltd (2005) 277 ITR 273 (MP) by stating that If it is found as a fact that the assessee has incurred expenditure then the Revenue has no right to say that no such expenditure is called for or can be incurred or it is not necessary. It is for the assessee to prove the expenses and the manner in which it is to be incurred in its commercial expediency to run their business effectively. Any lawful payment if found incurred in the course of business for running the business is an allowable deduction. In this view of the matter, no case for interference is called for in the impugned order which does not involve any substantial question of law. The appeal is thus found to be totally devoid of substance. It is dismissed in limine. Furthermore, Hon’ble Apex Court in the case of Hero Cycles Pvt Ltd, (2015) 63 taxman.com 308 (SC) has held that it is for the AO to see whether the impunged expenditure was incurred for business of the assessee or not. Once, it is established that it pertains to the business of the assessee, the quantum of it cannot be decided by the Ld AO. In view of the cited decisions, the Ld AO was not justified in making addition on adhoc basis. Considering the above judicial pronouncements, the adhoc addition made by the Ld. AO is not found sustainable. 3.2.9 In view of the above discussion, I do not find any merit in the adhoc disallowance made by the Ld AO which has been made without pointing out any defect in bills and vouchers. Also, no independent investigation was done by the Ld AO. Thus, entire adhoc disallowance @ 5% amounting to Rs. 6,00,00,000/- is directed to be deleted. Therefore, appeal on this ground is allowed.” 15. Before us, Ld. DR for revenue emphasized the order of AO. He

submitted that the AO has firstly noted that the assessee filed only three

bills of Purchase (Bottles), three bills of Purchase (Boxes), three bills of

Purchase (Caps) and three bills of Purchase (Labels) and thereafter made

adhoc disallowance of 5% due to non-filing of full documents. He contended

that the CIT(A) has not given any specific finding to the observation of AO.

He prayed that the issue should be remanded to AO.

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CIT(A). He firstly submitted that the assessee produced sample bills for AO’s

verification because there are truck-load voluminous documents. Then, he

emphasised certain vital findings of CIT(A), namely (i) the assessee’s books

of account are audited, the auditors have examined and verified books of

accounts, bills and documents and there is no adverse comment in audit-

report, (ii) that the assessee has produced digitised audited books of

account, ledger a/cs of all purchases and bills/vouchers to AO which the

AO has scrutinised but the AO has not found a single defect even, (iii) that

the AO has not rejected books of account of assessee, (iv) that the AO has

resorted to make adhoc disallowance without pointing out any specific

defect in assessee’s books, bills or vouchers and (v) that the ratio of material

consumed to sales in current year was 71% which was lesser than the ratio

of 73%/78%/77% in preceding years and also within the range of 65% to

85% between AY 2011-12 to 2020-21. The historical data shows that the

ratio fluctuates depending upon various factors. He contended that the

CIT(A) has followed various judicial rulings where it has been vehemently

held that the AO cannot made ad hoc addition in such circumstance. He

pointed out that the AO has not made any such disallowance in past or

subsequent assessments of assessee. He placed a particular reliance on the

judgement of Hon’ble Supreme Court in RG Buildwell (supra) to argue that

the disallowance made by AO is not sustainable. He prayed that the CIT(A)

has rightly deleted the disallowance and his order must be upheld.

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the material held on record including the orders of lower-authorities.

Without reiterating the facts as elaborated in the findings of Ld. CIT(A),

during the course of assessment-proceeding the assessee has produced

books of account and also submitted the details of Purchase Expenditure

with supporting sample invoices. However, the AO has disallowed

expenditure on adhoc basis without finding any specific defect in assessee’s

books, bills or documents produced. The historical data of material

consumed to sales ratio mentioned in CIT(A)’s order also reveal that the

expenditure on purchase incurred by assessee during current year is on

lower side as compared to preceding years and within the historical range of

different years. The CIT(A) has also noted that no disallowance was made in

past and subsequent assessments of assessee qua this expenditure. The

CIT(A) has elaborated in his finding that the AO had no cogent basis for

making adhoc disallowance. The order passed by CIT(A) is in line with

various judicial rulings as mentioned in his order. In the case of RG

Buildwell (supra), the Hon’ble Supreme Court approved the decision of

ITAT/High Court holding that no adhoc disallowance can be made by AO in

a case where books of account maintained by assessee are not rejected and

the expenditure was allowed as deduction in past assessments of assessee.

The order passed by CIT(A) is in conformity with the decision of Hon’ble

Supreme Court. Therefore, we have no reason to interfere with the order of

CIT(A), the same is hereby upheld. This ground is accordingly rejected.

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Ground No. 3: 18. In this ground, the revenue challenges the CIT(A)’s action in deleting

the disallowance of Rs. 86,51,546/- out of disallowance of Rs. 94,72,996/-

made by AO on account of donation expenses. On the other hand, the

assessee has also challenged the CIT(A)’s action of upholding remaining

disallowance of Rs. 8,21,450/- in Ground No. 1 of cross-appeal as narrated

earlier. The revenue’s and assessee’s grounds are being adjudicated

analogously.

their respective grievances. Their respective submissions are on the same

lines as considered by lower-authorities.

incorporates the facts relating to issue as well as the reasoning adopted by

CIT(A) for adjudication:

“3.4.2 The appellant during appellate proceedings has contended that during the year under consideration, the appellant had made donation of Rs. 94,72,996/- to 24 different concerns. The details thereof are as follows:-

S. No. Name of the beneficiary Amount 1. Asha Mohan Foundation Society 5921046 CIT/BPL/Tech/80 G/33/2010- 11/dt.24.12.2010 2. Asha Niketan Hospital 30000 CIT/BPL/Tech/80G/104/2008-09 3. Prerna Seva Trust 24200 4. Shri Anantpur Trust 20200 5. Gaura Jan Uthanva Kalyan Sanstha 141000

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CIT/BPL/Tech/80 G/42/2012-13/20 dt. 1.4.12 6. Aarushi 131000 80G Exemption noted at Sl.No. 16 /2009-10 7. Sewa Bharati (Madhya Bharat) 129000 CIT/BPL/Tech/80 G/34/2012-13/19/6 8. Shri Sahastra Bahu, Kalchuri Mahasabha 251000 9. Swami Vivekanand, Sardh, Shati Samaroah 11000 Samiti 10. M.P. Congress 2500000 11. Ram Kumar Shrivastava 5000 12. Sindhi Kalyan Kendra 11000 13. Iscon 2100 14. Smt. Geeta Shukla 55000 15. CRY (Child Right & You) (Uttrakhand Flood) 100000 16. Mata Amrut Mai Satsang Samiti 50000 17. Ganesh Utsav Samiti, MP Nagar, Bhopal 2100 18. Durga Utsav Samiti MP Nagar Bhopal 2100 19. Ramlila Samaraoh Samiti 31000 20. Arera Colony Gurudwara 1700 21. Krusht Premkulam Ashram 20000 22. Paid to Sheeba-Office Staff 1450 23. Keshav Jaiswal 2100 24. BSSS College 31000 Total 9472996

The appellant further stated that all the details alongwith receipt were furnished, however, the same were not considered by the AO. Further, all the payments have been made through banking channel and are made in the interest of the company. The donation made to Asha Mohan Foundation have been made for running school and hospital in the factory premises of the appellant. The said organization runs a school where 300 students get education and most of the students are of the employees of the appellant. Since, the factory of the appellant is situated 40km from Bhopal, therefore, it is not possible for the employees of the appellant to send their students to Bhopal for elementary education and therefore, the maximum benefit of the origination is enjoyed by the staff of the appellant. The said organization also runs a hospital which renders free medical treatment, stay and medicines to employees and their family members and treats 200 patients every month. The hospital also organizes camps on regular intervals for pulse polio program, eye camp, cancer camp etc. therefore, the payment of donation is directly related to business of the appellant which wholly benefits employees of the factory and thus, is allowable deduction u/s 37(1) of the Act. A donation of Rs. 30,000/- was also paid to Asha Niketan which provides free medical facilities to the peoples. The staff of the appellant takes benefit as and when needed and gets priority for the reason that appellant makes donations to the said institution on regular intervals. In support of its claim appellant has placed reliance on the decision of Hon'ble jurisdictional ITAT in the case of sister concern of the appellant M/s Som Distilleries & Breweries Ltd in ITA

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No 720/Ind/2006 dated 27.03.2009, wherein donation to Asha Mohan Foundation was allowed as deduction u/s 37(1) of the Act. 3.4.3 The appellant in respect of donation of Rs. 25,00,000/- made to MP Congress stated that the said contribution to a political party is fully allowable u/s 80GGB of the Act. However, all the other donations have been made to promote culture, sports, education and other social activities. The appellant though these donations gets publicity and advertisement benefits and therefore, the same are allowable u/s 37(1) of the Act. 3.4.4 I have considered the fact of the case, plea raised by the appellant and findings of the AO. As apparent from assessment order, the major portion of donation have been made to Asha Mohan Foundation. The appellant during the year under consideration has paid made donation of Rs. 59,21,046/- to the said institution. It has been claimed that the said institution in involved in providing free education by running a school in the factory premises of the appellant. The children's of the employees of the factory and nearby village gets benefited from the services rendered by the said institution. Approx. 300 students gets education through the said institution. Admittedly, the factory of the appellant is situated in the village Sehatganj which is approximately 40km away from Bhopal. Therefore, the employees gets directly benefitted from the educational services being provided by the said institution. The said institution also runs a hospital providing free medical treatment, stay and medicines to employees of the appellant and their family members. The hospital treats approx 200 patients every month. The hospital also organizes regular camps for polio, eye checkup, cancer, etc. therefore, the employee are direct beneficiary of the services being provided by the said institution through its hospital. Considering, the free services provided by the said institution which are directly providing benefit to employees of the appellant, the donation made is allowable within the meaning of provisions of section 37(1) of the Act. A similar disallowance with regard to same institution was made in the case of M/s Som Distillers & Breweries Ltd (supra) in AY 2002-03 which was deleted by Hon'ble jurisdictional ITAT Indore bench by stating as under:- 7. From the above, we found that the assessee has made contribution for the welfare of its employees and workers as the employees/workers were getting education and medical facilities, which directly or indirectly facilitates in carrying on business activities of the assessee. Therefore, the contribution made by the assessee are allowable deduction u/s 37(1) of IT Act. A similar decision was rendered by Hon'ble Madras High Court in the case of CIT vs Radiators Ltd 236 ITR 719 (Mad) wherein the following has been held:- “The finding of the Tribunal is that by making the contribution to the Panchayat for upgrading the elementary school, the assessee-company was assured by the school management that it would give preference in the matter of admission to the children of the employees in the said

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school. The Tribunal placed reliance on a letter from the President of the Building Committee and Parents Teacher Association of the school. It is well settled that if a certain sum of money was expended for the education of the children of the employees of the assessee-company, it should be regarded as staff welfare expenditure, particularly in view of the fact that in these days it is very hard to get admission in educational institutions. The employees of the assessee are given the satisfaction by the donation made by the assessee that their employers have taken full care of the education of their ward and such a mental satisfaction on the part of the employees would generate good will and the expenditure can be regarded as staff welfare expenditure and allowable as business expenditure. The contribution made by the assessee to the Panchayat has resulted in the benefit of the assessee’s business in the sense that the assessee’s employees are the beneficiaries in getting preferential admission in the school. The fact that the benefit has percolated to the general public would not stand in the way of assessee getting the necessary deduction once the expenditure is held to be business expenditure. Hence, the Tribunal has come to the correct conclusion that the expenditure incurred by the assessee was a revenue expenditure. It should also be noted that the contribution made to the Panchayat was not in contravention of any law, nor was it opposed to public policy. In this view of the matter, the contribution made by the assessee to the Panchayat for the up- gradation of the elementary school should be regarded as an allowable business expenditure under the provisions of s. 37(1) “ Considering above discussion, donation of Rs. 59,21,046/- to Asha Mohan Foundation Society is an allowable expense u/s 37 of the Act. 3.4.5 A donation of Rs. 30,000/- was also made to Asha Niketan which provides free medical facilities to the peoples including employees of the appellant. The staff of the appellant takes benefit as and when needed and gets priority for the reason that appellant makes donations to the said institution on regular intervals. Since, the employee of the appellant are getting direct benefit from the services of the said institution and by applying ratio decidendi in the case of M/s Som Distillers & Breweries Ltd (supra), the donation is allowable u/s 37(1) of the Act. 3.4.6 The appellant has also made donation of Rs. 25,00,000/- to a political party MP Congress through cheque. MP Congress is a recognized political party as per section 29A of the Representation of the people Act, 1951 and has been functional for more than 3 years, therefore, the donation made by the appellant is allowable as deduction within the meaning of provisions of section 80GGB of the Act. For ready reference provisions of section 80GGB are reproduced hereunder:- [Deduction in respect of contributions given by companies to political parties.

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80GGB. In computing the total income of an assessee, being an Indian company, there shall be deducted any sum contributed by it, in the previous year to any political party 17[or an electoral trust]: 18[Provided that no deduction shall be allowed under this section in respect of any sum contributed by way of cash.] Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, the word “contribute”, with its grammatical variation, has the meaning assigned to it under section 293A19 of the Companies Act, 1956 (1 of 1956). The appellant has filed details of donation made to the said political party, on perusal it was found that a sum of Rs. 25,00,000/- was paid through cheque No 135856 on 27.11.2013 through its City Bank account. Hence, the conditions mentioned under section 80GGB are fully complied with and therefore, the donation made by the appellant is allowable for deduction u/s 80GGB of the Act. 3.4.7 Regarding the other donations amounting to Rs. 10,21,950/- made by the appellant, following have been observed:- (i) On perusal of submission of the appellant, following donations are supported by receipt wherein, reference number of registration u/s 80G of the Act has been mentioned. S. No. Name of the beneficiary Amount 1 Gaura Jan Uthanva Kalyan Sanstha 141000 CIT/BPL/Tech/80 G/42/2012-13/20 dt. 1.4.12 2 Aarushi 131000 80 G Exemption noted at Sl.No. 16 /2009-10 3 Sewa Bharati (Madhya Bharat) 129000 CIT/BPL/Tech/80 G/34/2012-13/19/6 Total 401000

Donation in above cases is covered by provisions of section 80G of the Act and hence, the appellant is eligible for deduction of 50% of Rs. 4,01,000/- i.e. Rs. 2,00,500/-. The appellant could not establish the nexus between the donation and its business activities. Therefore, expenditure claimed on account of donation to above institutions cannot be allowed u/s 37(1) of the Act. Accordingly, the appellant is eligible for claiming deduction of Rs. 2,00,500/- only u/s 80G. The Ld AO is directed to allow the deduction accordingly. Thus, addition of Rs. 2,00,500/- is hereby confirmed.

(ii) The appellant has claimed expenditure of Rs. 6,20,950/- on account of donation to following concerns/persons:- S. No. Name of the beneficiary Amount 1 Prerna Seva Trust 24200

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2 Shri Anantpur Trust 20200 3 Shri Sahastra Bahu, Kalchuri Mahasabha 251000 4 Swami Vivekanand, Sardh, ShatiSamaroah 11000 Samiti 5 Ram Kumar Shrivastava 5000 6 Sindhi Kalyan Kendra 11000 7 Iskcon 2100 8 Smt. Geeta Shukla 55000 9 CRY ( Child Right & You) (Uttrakhand Flood) 100000 10 Mata Amrut Mai Satsang Samiti 50000 11 Ganesh Utsav Samiti, MP Nagar, Bhopal 2100 12 Durga Utsav Samiti MP Nagar Bhopal 2100 13 Ramlila Samaraoh Samiti 31000 14 Arera Colony Gurudwara 1700 15 KrushtPremkulam Ashram 20000 16 Paid to Sheeba-Office Staff 1450 17 Keshav Jaiswal 2100 18 BSSS College 31000 Total 620950

From the above, it has been found that the appellant has not submitted receipts of donation in all cases. Further, maximum donations have been made to religious institutions. In my considered view, the other donations made does not provide any benefit in enhancing business activities of the appellant. In general stance also no religious institution in its event will promote sale and consumption of liquor. Thus, in view of decision of Hon’ble Chhattisgarh High Court in the case of Hira Ferro Alloys Limited Vs. CIT, 227 CTR 508 (CG), wherein it has been held that the expenditure incurred on account of diwali expenses cannot be treated as expenditure incurred wholly and exclusively for the purpose of business or profession and is not allowable u/s.37(1) of the Act, which is squarely applicable to the case of the appellant, the donation of Rs. 6,20,950/- is not allowable expense. Hon’ble High Court has held in the above case as under: “18. We are in respectful agreement with the law laid down by the Karnataka High Court in the matter of Sanghameshwar Coffee Estates Ltd. (supra) and the Bombay High Court in Kolhapur Sugar Mills Ltd. (supra) and accordingly, we hold that the expenditure incurred in Puja/Vishwakarma Puja by a company cannot be treated as expenditure incurred wholly and exclusively for the purposes of business or profession of a company, and the assessee cannot be allowed any deduction under s. 37(1) of the Act towards such expenditure. We find no illegality or infirmity in the order of the Tribunal restoring the order of the AO”. Considering the above discussion, disallowance of expenses of Rs. 6,20,950/- on account of donation is confirmed.

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3.4.8 In view of the above discussion, the addition made by the AO amounting to Rs. 86,51,546/- is deleted and the balance addition of Rs. 8,21,450/- is confirmed. Therefore, appeal on this ground is partly allowed.” 21. So far as the revenue’s ground is concerned, the CIT(A) has allowed

deduction of Rs. 86,51,546/- in four parts under different sections. Firstly,

vide Para 3.4.4, the CIT(A) has allowed deduction of Rs. 59,21,046/-

donated by assessee to ‘Asha Mohan Foundation Society’ u/s 37(1) after a

vehement discussion on business expediency as well as following the

decision of ITAT, Indore on the same issue in the case of assessee’s sister

concern M/s Som Distrilleries & Breweries Ltd. ITA No. 720/Ind/2006

dated 27.03.2009. The assessee has also filed a copy of ITAT’s order at

Page 124 of Paper-Book. Ld. AR for assessee also pointed out a fact that the

assessee has been donating consistently to the same donee for over ten

years owing to business expediency and the revenue has allowed deduction

in all other years except this solitary year. It is also a point that the revenue

has challenged this issue only in AY 2014-15 in present appeal but the

same deduction was also disallowed by AO but re-allowed in first-appeal by

CIT(A) in preceding AY 2013-14 for which the revenue has not contested in

appeal of that year separately decided by us. Secondly, vide Para 3.4.5, the

CIT(A) has allowed deduction of Rs. 30,000/- donated by assessee to ‘Asha

Niketan’ u/s 37(1) on account of business expediency applying the ratio

decidendi of the very same order of ITAT dated 27.03.2009. Thirdly, vide

Para 3.4.6, the CIT(A) has allowed deduction of Rs. 25,00,000/- donated by

assessee to a registered political party ‘M.P. Congress’ in terms of statutory

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provision of section 80GGB. Fourthly, the CIT(A) has allowed deduction of

Rs. 2,00,500/- (50% of donation of Rs. 4,01,000/-) in terms of statutory

provision of section 80G. This way, the CIT(A) has allowed total deduction of

Rs. 86,51,546/- relatable to donation of Rs. 88,52,046/-. Ld. DR for

revenue though dutifully advanced the ground of revenue but, however,

could not point out any error in the order of CIT(A). Therefore, we do not find

any merit in the ground raised by revenue, the same is hereby rejected.

qua the remaining donation of Rs. 6,20,950/-. The details of donations for

which the disallowance has been upheld by CIT(A) are given in Para 3.4.7(ii)

of CIT(A)’s order as under:

S. No. Name of the beneficiary Amount 1 Prerna Seva Trust 24200 2 Shri Anantpur Trust 20200 3 Shri Sahastra Bahu, Kalchuri Mahasabha 251000 4 Swami Vivekanand, Sardh, ShatiSamaroah 11000 Samiti 5 Ram Kumar Shrivastava 5000 6 Sindhi Kalyan Kendra 11000 7 Iskcon 2100 8 Smt. Geeta Shukla 55000 9 CRY ( Child Right & You) (Uttrakhand Flood) 100000 10 Mata Amrut Mai Satsang Samiti 50000 11 Ganesh Utsav Samiti, MP Nagar, Bhopal 2100 12 Durga Utsav Samiti MP Nagar Bhopal 2100 13 Ramlila Samaraoh Samiti 31000 14 Arera Colony Gurudwara 1700 15 KrushtPremkulam Ashram 20000 16 Paid to Sheeba-Office Staff 1450 17 Keshav Jaiswal 2100 18 BSSS College 31000 Total 620950

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Ld. AR prayed that these donations even if not allowable u/s 37(1), the

assessee is entitled for deduction u/s 80G of the Act. Therefore, he made a

limited prayer to remand this issue to AO for giving deduction u/s 80G

after factual verification. We agree that the deduction u/s 80G is a legal

legitimate claim of assessee and can be allowed even if deduction u/s 37(1)

has been denied. Therefore, the Ld. AR’s plea that the issue should be

remanded back to AO for factual examination is meritorious. We accept the

same and remand assessee’s ground to AO for necessary factual

examination and thereafter giving deduction of appropriate amount u/s

80G. This way, the assessee’s ground is allowed for statistical purpose.

Ground No. 4: 23. In this ground, the revenue challenges the CIT(A)’s action in deleting

the disallowance of Rs. 2,72,48,745/- out of disallowance of Rs.

2,72,52,835/- made by AO on account of manufacturing expenses. On the

other hand, the assessee has also challenged the CIT(A)’s action of

upholding the remaining disallowance of Rs. 4,090/- in Ground No. 2 of

cross-appeal as narrated earlier. The revenue’s and assessee’s grounds are

being adjudicated analogously.

same is re-produced below:

“8.0 It was noticed that the sales of the assessee decreased from Rs. 169.6 Cr in F.Y. 2012-13 to Rs. 167.6 crore in F.Y. 2013-14. Opening stock and closing stock figure remains almost static during the year. It is therefore clear that value of manufactured items during the year has not much changed.

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However, the manufacturing expenses claimed by the assessee during the year has been increased from Rs. 10,00,53,804/- in F.Y. 2012-13 to Rs. 15,45,59,475/- in F.Y. 2013-14 registering the growth @ 54.47 % against the decline in sale of Rs. 1,95,27,114/- registering a negative growth @ 1.15%. Having suspicious figures of manufacturing expenses during the relevant financial year 2013-14, the assessee was required to produce all the bills/vouchers of expenses claimed under manufacturing head to get them verified.

The following bifurcation has been produced by assessee against the claim of manufacturing expenses of Rs. 15,45,59,475/-:-

S.No. Name of Expense Amount in Rs. Remarks 1. Insurance Factory 2,02,699/- No ledger, bill/voucher produced 2. Repair 2,03,90,498/- No ledger produced, Bills & maintenance – of Rs. 2,38,301/-, P & M 9,21,430/-, 1,50,070/-, 68,903/- and one voucher of Rs. 13,335/- produced. This voucher was prepared against many bills including a bill of Rs. 4,090/- which was issued in the name of Som Group (I) Pvt. Ltd. and not in the name of assessee. 3. Repair & 6,67,31,828/- No ledger, bill/voucher maintenance – produced Building 4. Electricity Expenses 2,89,09,346/- No ledger, bill/voucher produced 5. Warehouse Expenses 3,57,17,104/- No ledger, bill/voucher produced 6. Breakage Duty 14,19,502/- No ledger, bill/voucher produced 7. Direct Expenses 14,280/- No ledger, bill/voucher Chhindwara produced 8. Labour charges 7,31,817/- No ledger, bill/voucher produced 9. Rent Generator 4,42,400/- No ledger, bill/voucher produced

It is apparent from the above table that assessee has claimed huge expenses which is beyond any reasonability and also failed to substantiate its claim of such high expenses. The assessee has been completely failed to justify any reason for claiming such high manufacturing expenses claimed in P&L A/c. Assessee has claimed Rs. 5,45,05,671/- more expenses under this head in comparison to preceding year whereas the sales has been marginally

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declined. The expenses of Rs. 2,72,52,835/- being 50% of Rs. 5,45,05,671/- is disallowed and added back to the total income of the assessee.”

“3.5 Ground No 6:- Through this ground of appeal, the appellant has objected disallowance of Rs. 2,72,52,835/- on adhoc basis out of manufacturing expenses. 3.5.1 The appellant during appellate proceedings has made following written submissions:- Ground No. 6 read with Ground No. 1 & 2 Disallowance of Rs. 2,72,52,835/- out of manufacturing expenses 1.This issue has been discussed by A.O. in para 8 of his order. The A.O.’s findings are that in the relevant year assessee claimed manufacturing expenses Rs. 15,45,59,475/-. The A.O. says that in immediately preceding year the said expenses were Rs. 10,00,53,804/- registering growth @ 54.47%. There is a decline in sales @ 1.15%. The A.O. therefore says that the huge expenses are beyond any reasonability. The assessee claimed comparatively more expenses of Rs. 5,45,05,671/- (15,45,59,475 – 10,00,53,804) under this head. The A.O. has disallowed Rs. 2,72,52,835/- being 50% of the aforesaid amount of Rs. 5,45,05,671/-.The assessee submits that the findings of A.O. are wholly wrong and opposed to facts. It is submitted that before the A.O. books of accounts were produced along with all bills and vouchers in the box filed several times in the course of hearing (Kindly refer Copy of assessee’s letter dated 15/11/2016, 09/12/2016, 14/12/2016 and two letters of the same dated i.e. 29/12/2016). The findings of the A.O. that the assessee fails to produce the ledger account of manufacturing expenses are wholly opposed to facts. The assessee submits, as may be seen from the aforesaid letters that the ledger accounts were furnished before the A.O. The books of accounts in digital form were also furnished. All vouchers which inter-alia included the vouchers relating to manufacturing expense were also produced repeatedly before the A.O., as is evident from the aforesaid letters. Vouchers for all expenses were also furnished for A.O.’s examination repeatedly. All these facts are appearing from the various letters/submissions as referred to in the initial paras of the submission. The assessee submits that no defects in the books of accounts were found and there is no findings that the provision of Section 145 are applicable. The books of accounts are also not been rejected, hence the adhoc disallowance are wholly unlawful and unjustified. The assessee submits that the disallowance is neither justified nor lawful. From the perusal of the chart, the increase in mainly on account

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Repairs & Maintenance Road work – Rs. 4,62,00,000/-. The higher expenses of repairs and maintenance as compared to last year are mainly on account of day to day increase in cost of materials etc. The assessee submits that all the expenses are fully supported by bills and vouchers, duly audited. Proper TDS has also been made and deposited by the assessee into exchequer. The sub-grouping of manufacturing expenses Rs. 154559475/- is as under : - S.No. Particulars Amount 1. Insurance factory 202699 2. Repair & Maintenance-Plant & Machinery 20390498 3. Repair & Maintenance- Building 66731829 4. Electricity Expenses (Factory) - MPEB 28909346 5. Warehouse Expenses 35717104 6. Breakage Duty 1419502 7. Sundry Direct Expenses 14280 8. Labour Charges 731817 9. Rent-Generator 442400 Total Manufacturing Expenses 154559475

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time, the internal roads of the factory got heavily damaged and therefore the said roads were repaired. No new roads were laid down inside the factory. Only the existing roads were repaired. Therefore, the expenditure incurred on the repairs and maintenance of road work is revenue expenditure deductible under the Income Tax Act for computing business income. Copy of related bills of the contractor is attached for your honor’s perusal. 3. The A.O. has disallowed the expenses purely on assumptions and presumptions and therefore the same be kindly deleted. 4. The assessee submits that the road repairing are revenue expenditure & fully deductible in computing the business income. The following decisions are relied upon :- (i) CIT Vs. Himalaya Drug Co. (P) Ltd – 234 ITR 167 (All). In this case, it is held as under :- Business expenditure—Capital or revenue expenditure—Expenditure incurred on resurfacing of the existing road—There is no finding by the Tribunal that by resurfacing the roads, the assessee received the benefit of enduring nature or any new road altogether came into existence— Expenditure not of capital nature—Expenditure incurred on usual and routine repairs could not be said to be capital expenditure. Held : There is no finding by the Tribunal that by resurfacing the roads, the assessee received the benefit of enduring nature or any new road altogether came into existence. The expenditure incurred by the assessee could not be said as the expenditure of capital nature. That unless a new tangible or intangible asset comes into being, or the expenditure incurred brings about an addition to or expansion of the profit-making apparatus of the assessee or the benefit of enduring nature is received by the assessee, the expenditure incurred on usual and routine repairs, could not be said to be of capital nature. Conclusion : Expenditure incurred by assessee on resurfacing of road did not result in enduring benefit, hence the expenditure is not capital expenditure. (ii) CIT Vs. Tractor & Farm Equipments – 133 ITR 147 (Mad) . In this case, it is held as under :- There was no question of any advantage much less an advantage of enduring nature arising out of expenditure. The condition of the roads depends on the heaviness of the rain during monsoon and, therefore, sometimes repairs would have to be effected more often or less often depending on the intensity of the monsoon. In such cases of mere redoing the surface, the expenditure could only be treated as revenue

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expenditure. Hence the expenditure was to be allowed as a revenue expenditure (iii) CIT Vs. Voith Paper Fabrics India Ltd – 346 ITR 70 (P&H) . In this case, it is held as under :- Business expenditure—Capital or revenue expenditure—Expenses on repair of road—Expenses on account of repair of road in factory were not incurred for acquiring a new building or the road—Road was existing in the premises—Since the same was not conducive to use in a way it was desired, certain repairs were carried out—Therefore, expenses incurred thereon were revenue in nature (Para 7) Conclusion : Expenses incurred by the assessee on repair of existing road in its factory premises to make it conducive for use are allowable as revenue expenditure. (iv) Bharat Forge Co. Ltd Vs. CIT – 240 ITR 654 (Bom): In this case, it is held as under :- Business expenditure—Capital or revenue expenditure—Expenditure on asphalting existing Kaccha road within the factory—Is revenue expenditure.—CIT vs. Chemaux Ltd. (1994) 74 Taxman 201 (Bom) followed (Para 3) Conclusion : Expenditure incurred by the assessee on resurfacing the kaccha roads inside its factory premises was allowable as revenue expenditure. (v) CIT Vs. Chemaux Ltd – 74 Taxman 0201 (Bom). In this case, it is held as under :- Business expenditure—Capital or revenue expenditure—Expenditure incurred on repair of approach road and resurfacing of the kaccha roads inside its factory premises—It is a revenue expenditure—It depreciation has been allowed on these amounts, the Tribunal shall make suitable directions for withdrawal of the same. Held : On perusal of the question itself, it is evident that expenditure on repairs and resurfacing of roads cannot be treated as capital expenditure. It is a revenue expenditure. This position is also not disputed by the counsel

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for the Revenue in view of the decisions of the Supreme Court and this Court. If depreciation has been allowed on these amounts, the Tribunal shall make suitable directions for withdrawal of the same in the light of the above answer.

Conclusion :

Expenses incurred by the assessee on (i) the repairs of the approach road, and (ii) resurfacing of the kaccha roads inside its factory premises are allowable as revenue expenditure. (vi) CIT Vs. Udaipur Mineral Development Syndicate Pvt Ltd – 203 ITR 556 (Raj) In this case, it is held as under :-

Capital or revenue expenditure—Repairs of Kucha road—Expenditure incurred for facilitating transportation of goods from mines to factory— Cannot be considered to be a payment made `once and for all' bringing into existence an enduring benefit—Same allowable as revenue expenditure—Further, question raised is purely a question of fact— Reference not warranted Held :

The expenditure was incurred for repairs of the roads. Repair means `restore (building, machine, garment, tissue, strength, etc.) to good condition; renovate or mend by replacing or refixing parts or compensating loss or exhaustion'. Incurring of expenditure on repairs could not be considered to be the payment made `once and for all'. It was not a capital expenditure, but was revenue. Making repairs of roads could not be considered to be of enduring benefit. The Tribunal was right in holding it to be a revenue expenditure. 5. It is submitted that that the total manufacturing expenses in this year were Rs. 154559475 out of which road repairing expenses were Rs. 46200000, hence the net manufacturing expenses worked out at Rs. 108359475 (154559475 – 46200000). As against this in the immediately preceding year, the expenses at Rs. 100053804 .Thus the assessee submits the increase is only 8.30% from the last year and not Rs. 54.47% as alleged by the A.O. The road repairing expenses are the extra ordinary revenue expenditure incurred at Rs. 46200000 during the year and since included in the manufacturing expenses, therefore, without appreciating the said facts, erroneous conclusion have been drawn by the A.O. The disallowance of Rs. 27252835, in these premises is wholly unjustified and unlawful and, therefore, be deleted.

Assessment Sales Manufacturing % of Disallowance Year Expenses Manufacturing by A.O.

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Claimed Expenses over Sales 2011-12 1124076111 82549447 7.34% Nil 2012-13 1459876134 92672692 6.34% Nil 2013-14 1696000186 100053804 5.90% Nil 2014-15 1676473072 154559475 9.22% 27252835 2015-16 2033531437 137880474 6.78% Nil 2016-17 1959496662 154004477 7.86% Nil 2017-18 2116643788 154662602 7.31% Nil 2018-19 2508293726 141328547 5.63% Nil 2019-20 3383058990 204255542 6.04% Nil 2020-21 3159634664 169665749 5.37% Nil

3.5.2 The appellant during appellate proceedings has contended that the allegation of the Ld AO that 54.47% more expenses have been claimed, in the year under consideration as compared to the immediate earlier year, is factually incorrect and beyond any reasonability. The appellant submitted that it had claimed Rs. 15,45,59,475/- as manufacturing expenses in the year under consideration which in immediate earlier year were at Rs. 10,10,53,804/-. Therefore, there was an increase of Rs. 5,45,05,671/-. The appellant had submitted that ledger account alongwith bills and vouchers were furnished during the assessment proceedings and books of account in digital form were also furnished. The Ld AO has not pointed out any defect in the books of account and treated any bills/vouchers bogus. The said increase has mainly been attributed due to expenses on account of repair and maintenance road work for Rs. 4,62,00,000/-. If this expenditure is considered then there is increase of 8.30% on this account in comparison to preceding year. However, it is only 9.22% of total sales of this year and there is no abnormal increase in the expenditure on this account. The appellant has also furnished comparative chart of this expenditure from AY 2011-12 to 2020-21 which shows that the ratio of expenditure varies from 5.30% to 9.22%. the appellant has further submitted that all the expenses are fully supported by bills and vouchers, and proper TDS have also been deducted and deposited to the exchequer. The appellant further, submitted that its factory premises is located in area of 185 acres and contains a network of roads and walkways. Trucks on daily basis enters the factory premises for unloading the molasses and other items required for manufacturing of various items required in the business activities of the appellant. Due to heavy movement of trucks/tankers and in the passage of time, the internal roads got heavily damaged and required repair and reconstruction. Further, no new road was constructed and therefore, the entire expenditure is revenue expenditure and is therefore, fully deductible in computing business income of the appellant. In support appellant has filed copies of relevant bills of the contractor.

3.5.3 I have considered the facts of the case, plea raised by the appellant and findings of the AO. The Ld AO during assessment proceedings found that the expenses of the appellant have taken a sharp rise and have increased by 54.47% when compared to the immediate previous year. However, the sales on other hand declined by 1.15%. Therefore, the Ld AO by making adhoc disallowance of 50% of difference (Rs. 5,45,05,671/-) on account of manufacturing expenses of current year and immediate previous year made addition in the hands of appellant amounting to Rs. 2,72,52,835/-. The

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appellant, however, has explained that out of increased expenditure of Rs. 5.45 crores sum of Rs. 4.62 crores was alone spent on repair and re-layering of existing roads in the factory premises which is on 185 acre of land. The appellant submitted that the existing road got damaged due to everyday movement of heavy trucks and tankers which carry raw material and other goods used on daily basis in the factory premises. Further, the roads got damaged due to passage of time and rainfall. Therefore, these required an urgent repaid and re-layering which was done by M/s Aryavrat Projects & Developers Pvt Ltd. the said company after completion of work raised a bill vide invoice No APDPL/2013-14/017 dated 21.03.2014. The appellant after deducting TDS of Rs. 9,24,000/- made payment of Rs. 4,52,76,000/-. The ld AO has not disproved the genuineness of any of the expenditure and also not found defect in the books of accounts and rejected them. Therefore, in view of the discussion made in para 3.2 of this order and decisions relied therein, the Ld AO is not justified in making ad hoc addition. Further, I also agree with the contentions of the appellant that if the expenditure incurred on account of road repairing and maintenance is considered the increase under this head comes to 8.30% which cannot be said to be unreasonable. I find force in the submission of the appellant that the expenses incurred on account of repair and maintenance of roads is revenue expenditure and allowable u/s 37 of the Act. I find support from the decision of Hon'ble Allahabad High Court in the case of CIT vs Himalaya Drug Co (P) Ltd 234 ITR 167 (All) wherein it has been held that when the expenditure is made for repair and resurfacing of roads then the same is revenue in nature and when the expenditure is made for construction of fresh roads the same shall be capital in nature. In the instant case, the existing roads were repaired and resurfaced in order to make them conducive for use and therefore, the expenditure is revenue in nature and is fully allowable as deduction. Similar view was taken by Hon'ble Madras High Court in the case of CIT vs Tractor & farm Equipments 133 ITR 147 (Mad). Hence, expenditure incurred on repair and maintenance of road is revenue expenditure.

3.5.4 The appellant has also filed a comparative chart of manufacturing expense from AYs 2011-12 to 2020-21 which shows that there was no abnormal rise in the claim of the appellant when expenditure of Rs. 4.62 crores is excluded. The relevant extract of comparison table is appended as under:-

Assessment Sales manufacturing % of Disallowance Year Expenses manufacturing by A.O. Claimed Expenses over Sales 2011-12 1124076111 82549447 7.34 Nil 2012-13 1459876134 92672692 6.34 Nil 2013-14 1696000186 100053804 5.90 Nil 2014-15 1676473072 108359475 6.46 27252835 2015-16 2033531437 137880474 6.78 Nil 2016-17 1959496662 154004477 7.86 Nil 2017-18 2116643788 154662602 7.31 Nil 2018-19 2508293726 141328547 5.63 Nil 2019-20 3383058990 204255542 6.04 Nil 2020-21 3159634664 169665749 5.37 Nil

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3.5.5 I find that the appellant has claimed expenses of Rs. 4,090/- in this account which pertains to M/s Som Group (I) Pvt Ltd. the appellant has not submitted any comment on this finding of the Ld AO. This expenditure does not pertain to appellant, hence, it cannot be allowed u/s 37(1) of the Act. Hence, addition of Rs. 4,090/- is confirmed. 3.5.6 In view of the above discussion, the addition made by the Ld AO amounting to Rs. 4,090/- is confirmed and appellant gets relief of Rs. 2,72,48,745/- Therefore, appeal on this ground is partly allowed.” 26. Before us, Ld. DR for revenue emphasized the order of AO. He

submitted that the AO has noted that the assessee did not file complete

bills/vouchers of expenses. Further, the AO has also observed that there

was a sharp increase in expenditure as against decline in sales of assessee,

hence the AO has rightly suspected the claim of assessee and made

disallowance. He further submitted that the CIT(A) was not justified in

admitting assessee’s claim of expenditure on repair of road amounting to Rs.

4.62 crore in violation of Rule 46A.

In particular, he emphasised the findings made by CIT(A) that (i) the AO has

merely computed increase of Rs. 5.45 crore in the quantum of

manufacturing expenditure from preceding year and disallowed 50% thereof

on mere suspicion, (ii) that the decline in sale was just 1.15% which is very

marginal, (iii) that out of total increase of Rs. 5.45 crore in expenditure

claimed by assessee, there was an exceptional expenditure of Rs. 4.62 crore

on repair of existing road in factory premise which was a business-cum-

revenue expenditure allowable as deduction to assessee as per decision in

CIT Vs. Himalaya Drug Co. (P) Ltd. 234 ITR 167 (All) and CIT Vs.

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Tractor & Farm Equipments 133 ITR 147 (Mad) relied by CIT(A). The

payment of Rs. 4.62 crore was made to M/s Aryavat Projects & Developers

Ltd. through Invoice No. APDPL/2013-14/017 dated 21.03.2014 after

deducting TDS of Rs. 9,24,000/-, (iv) that if the expenditure on repair of

road is excluded, the increase in expenditure would remain just 8.30%

which cannot be said to be unreasonable, (v) that the AO has neither

disapproved genuineness of any of the expenditure nor rejected books of

assessee, (vi) that the AO has resorted to make adhoc disallowance without

pointing out any specific defect in assessee’s books, bills or vouchers, (vii)

that the ratio of manufacturing expenses to sales in current year was just

6.46% which is in line with history of assessee in past and subsequent

years. Ld. AR contended that the CIT(A) has vehemently dealt this issue and

deleted the adhoc addition made by AO. He pointed out that the AO has not

made any such disallowance in past or subsequent assessments of

assessee. He placed a particular reliance on the judgement of Hon’ble

Supreme Court in RG Buildwell (supra) to argue that the disallowance

made by AO is not sustainable. He prayed that the CIT(A) has rightly deleted

the disallowance and his order must be upheld. In so far as the disallowance

of Rs. 4,090/- upheld by CIT(A) being contested in assessee’s ground is

concerned, Ld. AR did not make any objection and agreed to accept the

same.

the material held on record including the orders of lower-authorities.

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Without repeating the facts as elaborated in the findings of Ld. CIT(A), we

find that the AO has made adhoc disallowance of 50% of increase in

expenditure from preceding year without finding any specific defect in

assessee’s books, bills or documents produced. The historical data of

manufacturing expenditure to sales ratio mentioned in CIT(A)’s order also

reveal that the expenditure incurred by assessee during current year is in

line with the claim in preceding and subsequent years except an exceptional

item of Rs. 4.52 crore spent by assessee on repair of road for which payment

was made to M/s Aryavat Projects & Developers Ltd. against an invoice after

deducting TDS of Rs. 924,000/-. The TDS is a statutory liability which the

assessee has paid to the credit of Income-tax Department and the details of

payment, payee, etc. is required to be intimated to Income-Tax Department

in quarterly return of TDS which is available with Income-Tax Department.

So far the admissibility of deduction of expenditure is concerned, the CIT(A)

has rightly held that the expenditure on repair of road within factory

premise is a revenue expenditure. Further, there can hardly be any dispute

that such expenditure is for business purpose. Thus, the CIT(A) has given a

meticulous finding qua the expenditure of Rs. 4.52 crore and rightly held

the same as allowable expenditure. It is also a right observation of CIT(A)

that after exclusion of expenditure on repair of road, there remains net

increase of 8.30% which cannot be said to be unreasonable. Further, the

CIT(A) has also observed that the ratio of manufacturing expenses to sales

was in line with history of assessee. The CIT(A) has elaborated in his finding

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that the AO had no cogent basis for making adhoc disallowance. Thus, the

order passed by CIT(A) is in conformity with the ratio decided in RG

Buildwell (supra). Therefore, we have no reason to interfere with the order

of CIT(A), the same is hereby upheld. Accordingly, the revenue’s ground is

rejected.

4,090/- upheld by CIT(A) is concerned, Ld. AR has agreed that the assessee

does not have any objection against CIT(A)’s order. In that view of matter,

the CIT(A)’s order is upheld and assessee’s ground is rejected.

Ground No. 5: 30. In this ground, the revenue challenges the CIT(A)’s action of deleting

the disallowance of Rs. 2,87,06,065/- made by AO on account of sales

promotion expenses.

same is re-produced below:

“9.0 It has been noticed that the assessee has debited an amount of Rs. 3,20,58,990/- on account of sales promotion expenses during the year. On being perusal of comparative profit and loss account of the assessee for the financial year 2013-14 & 2012-13, it is found that the assessee has increased sales promotion expenses from Rs. 29,39,880/- in F.Y. 12-13 to Rs. 3,20,58,990/- in F.Y. 2013-14, which is clearly a huge enhancement of Rs. 2,91,19,110/-. The assessee was asked to explain and justify the said expenses. The assessee has failed to produce complete bills and voucher and unable to explain the reason for such huge enhancement in sales promotion. The assessee has produced sales promotion ledger only for Rs. 37,39,085/- and produced 03 bills amounting to Rs. 11,00,000/-, Rs. 11,14,605/- and Rs. 11,38,320/- totaling to Rs. 33,52,925/-. The claim of assessee under the head sales promotion expenses is restricted to Rs. 33,52,925/- and rest of the

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expenses i.e. 2,87,06,065/- is disallowed and added to the total income of the assessee.” 32. The CIT(A) has reversed AO’s action and deleted disallowance fully by

passing following order:

“3.6 Ground No 7:- Through this ground of appeal, the appellant has objected disallowance of Rs. 2,87,06,065/- on adhoc basis out of sales promotion expenses. 3.6.1 The appellant during appellate proceedings has made following written submissions:- Ground No. 7 read with Ground No. 1 &2 Disallowance of Rs. 2,87,06,065 /- out of sales promotion expenses 1. This issue the A.O. has discussed in Para 9 of his order. The A.O. says in his order that in the relevant year the assessee debited sales promotion expenses in its P&L account at Rs. 3,20,58,990/- however he only produced three bills of expenditure aggregating to Rs. 33,52,925/- only and therefore the A.O. has restricted the claim of expenditure only to the extent of Rs. 33,52,925/- and the rest amount of Rs. 28706065/- has been disallowed. The assessee submits that the findings of the A.O. are wholly wrong. All bills and vouchers along with the books of accounts produced before the A.O. for his examination and photocopy of three bills were furnished as per the A.O.’s directions along with the covering letter. Therefore, the findings of the A.O. are not justified. The assessee submits that all the sales promotion expenses are 100% supported by bills and vouchers and almost all major payments have been made by banking channels and there are hardly few payments of small amounts are in cash. Comparative chart of sales promotion expenses is given below. The ledger account of sales promotion expenses, all bills and vouchers along with complete set of books of accounts in the digital form were furnished before the Ld. A.O. vide letters dated 15/11/2016, 09/12/2016, 14/12/2016 and two letters of the same dated i.e. 29/12/2016. Several hearings took place in the course of assessment proceedings and every time books and vouchers were produced for the examination of the Ld. A.O. the copies of the three bills, as selected by the A.O. from the examination of books of account, were therefore furnished the findings of the A.O. is wholly wrong that since assessee failed to produce complete bills and voucher and therefore the disallowance of Rs. 28706065/- has been made. The assessee submits that the aforesaid letter shows that all bills and voucher were produced. The books of accounts are also examined by the A.O. with reference to the bills and vouchers and therefore after having examined the books the copy of three bills were submitted before A.O. The assessee submits that all the expenditure are fully

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vouched and supported by proper bills, all payments have been made through the banking channels and therefore the disallowance of Rs. 2,87,06,065/ - be kindly deleted.

Comparative Chart of Sales Promotion Expenses

Assessment Sales Sales Percentage Disallowance Year Promotion of Sales by A.O. Claimed Promotion Expenses over Sales 2011-12 1124076111 2186425 0.19% Nil 2012-13 1459876134 1891861 0.13% Nil 2013-14 1696000186 2939880 0.17% Nil 2014-15 1676473072 32058990 1.91% 2,87,06,065 2015-16 2033531437 23505467 1.16% Nil 2016-17 1959496662 76998402 3.93% Nil 2017-18 2116643788 19400417 0.92% Nil 2018-19 2508293726 31695414 1.26% Nil 2019-20 3383058990 Nil 48532162 1.43% 2020-21 3159634664 19267492 0.61% Nil

3.6.2 The appellant during appellate proceedings has contended that the Ld AO has restricted claim of the appellant to Rs. 33,52,925/- against actual claim of Rs. 3,20,58,990/- and made addition of difference amount of Rs. 2,87,06,065/-. The Ld AO has alleged that the appellant had only produced three bills and no other bill or vouchers were furnished for verification. The appellant had also claimed that all the bills and vouchers were furnished, however, on the directions of the Ld AO photocopies of three bills were furnished. Therefore, the facts narrated in the assessment order are factually incorrect. Further, all the major payments have been made through cheque and pity amounts were paid in cash.

3.6.3 I have considered the facts of the case, plea raised by the appellant and findings of the Ld AO. I find that the Ld AO has restricted claim of the appellant for want of bills and vouchers, which as per appellant were duly filed during assessment proceedings. The appellant had filed copy of letter dated 14.12.2016, wherein the monthwise details of sales promotion expenses alongwith names of recipient of more than Rs. 1 lacs were furnished before the Ld AO. The AO vide another query letter dated 28.12.2016 required the appellant to furnish proof/documentary evidences of various expenses debited in P&L accounts. The appellant in reply furnished the desired details with supporting vouchers including the head 'sales promotion expenses'. Thereafter, the appellant was again required to furnish ledger account and supportive vouchers for the month of March 2014. The details were again furnished by the appellant vide letter dated 29.12.2016. From the above factual position, it is evident that appellant had duly complied with the directions of the Ld AO and

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furnished desired ledger accounts with supportive bills and vouchers. Hence, it is held that the desired bills and vouchers were not considered by the Ld AO before making the impunged addition.

3.6.4 The appellant has also filed a comparative chart of manufacturing expense from AYs 2011-12 to 2020-21 which shows that there was no abnormal rise in the claim of the appellant. The relevant extract of comparison table is appended as under:-

Assessment Sales Sales % of sales Disallowance Year promotion promotion by A.O. Claimed Expenses over Sales 2011-12 1124076111 2186425 0.19 Nil 2012-13 1459876134 1891861 0.13 Nil 2013-14 1696000186 2939880 0.17 Nil 2014-15 1676473072 32058990 1.91 28706065 2015-16 2033531437 23505467 1.16 Nil 2016-17 1959496662 76998402 3.93 Nil 2017-18 2116643788 19400417 0.92 Nil 2018-19 2508293726 31695414 1.26 Nil 2019-20 3383058990 48532162 1.43 Nil 2020-21 3159634664 19267492 0.61 Nil

The ld AO had not found the expenses claimed as bogus or non-genuine. The details were available with him. But he did not make any enquiry to examine the veracity of expenses claimed or whether such expenses were actually incurred in connection with business purpose. In absence of any contrary finding, adhoc addition is not permissible. In view of decisions cited in para 3.2 of this order, the adhoc addition is not sustainable.

3.6.5 In view of the above discussion, the addition made by the Ld AO amounting to Rs. 2,87,06,065/- is hereby deleted. Therefore, appeal on this ground is allowed.”

respective favourable orders i.e. while the Ld. DR for revenue referred AO’s

order, Ld. AR for assessee relied upon CIT(A)’s order. The arguments of both

sides were on the same lines as in preceding grounds.

the material held on record including the orders of lower-authorities.

Without reiterating the facts as elaborated in the order of Ld. CIT(A), we only

suffice to mention that the factual position is broadly similar to the

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disallowances dealt in preceding grounds. Therefore, applying same

adjudication, we have no reason to interfere with the order of CIT(A), the

same is hereby upheld. This ground is accordingly rejected.

Ground No. 6:

the disallowance of Rs. 2,62,17,298/- made by AO out of various expenses.

the same is re-produced below:

“10. The assessee has claimed many other expenses in the profit and loss account but failed to produce the ledger, bills vouchers and other supporting documents. Details of expenses under various heads claimed by the assessee with comparison to expenses claimed in the preceding year is tabulated as under:-

S.No. Details of Amount claimed Amount Percentage Percen Amount of Expenses in F.Y. 13-14 claimed in increase tage of disallowance (in Rs). F.Y. 12-13 over last dis- (in Rs.) (in Rs). year allow- ances of expens es in F.Y. 13-14 01. Electricity & 32,04,133/- 30,57,943/- 4.78 5% 1,60,206/- Water charges 02. Postage, 12,25,476/- 7,75,391/- 58.04 40% 4,90,190/- Telegram and Telephone 03. Printing & 5,19,515/- 4,49,791/- 15.50 10% 51,951/- Stationery 04. Rent 1,11,56,000/- 91,56,000/- 21.84 20% 22,31,200/- 05. Repair & 2,90,63,177/- 98,93,588/- 193.75 50% 1,45,31,588/- maintenance 06. Rates, taxes 56,37,868/- 40,37,699/- 39.63 20% 11,27,573/- and charges 07. Travelling 1,97,10,282/- 1,24,30,416/- 58.56 30% 59,13,085/- and conveyance 08. Legal & 43,89,499/- 34,06,229/- 28.86 20% 8,77,900/- Professional 09. Supervision 22,80,000/- 14,40,000/- 58.33 30% 6,84,000/- charges

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Thus, the total amount of Rs. 2,62,17,298/- is hereby disallowed and added to the total income of the assessee on account of expenses claimed by the assessee as per the above table.”

passing following order:

“3.7.3 I have considered the facts of the case, plea raised by the appellant and findings of the Ld AO. As culled out from assessment order, the entire addition has been made on the premise that no bills and vouchers relating to the miscellaneous expenses (10 heads) were furnished by the appellant. As discussed herein above in para 3.1 & 3.2, the appellant time and again, as and when desired, has furnished required documents with supportive bills and vouchers which were verified by the Ld AO and no negative inference was drawn. Most importantly, the books of accounts are also audited by independent charted account and no adverse remark was made. Hence, the entire disallowance has been made without giving any proper finding and reasoning and on pure assumption and presumption. Another reason culled out from assessment order is that the Ld AO has made disallowance on vis-a- vis comparison of expenses with immediate previous year i.e AY 2013-14. Here, it is important to mention that each and every assessment is separate and the AO cannot determine expenses in comparison with the earlier year. Furthermore, adhocisim is not permissible in law to determine true and correct income of the appellant. The judicial pronouncements in support have already been discussed in para 3.2 of this order.

3.7.4 The appellant has also filed a comparative chart of manufacturing expense from AYs 2011-12 to 2020-21 which shows that there was no abnormal rise in the claim of the appellant. The relevant extract of comparison table is reproduced as under:-

Comparative Chart of Electricity and Water Charges Assessment Sales Electricity & % of Electricity Disallowance Year Water & Water by A.O. Charges Charges Claimed over Sales 2011-12 1124076111 984927 0.09% Nil 2012-13 1459876134 2879017 0.20% Nil 2013-14 1696000186 3057943 0.18% Nil 2014-15 1676473072 3204133 0.19% 160206 2015-16 2033531437 4246264 0.21% Nil 2016-17 1959496662 2856601 0.15% Nil 2017-18 2116643788 4049389 0.19% Nil 2018-19 2508293726 4843793 0.19% Nil 2019-20 3383058990 7090406 0.21% Nil 2020-21 3159634664 7458969 0.24% Nil

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Comparative Chart of Postage, Telegram & Telephone Charges Assessment Sales Postage, % of Postage, Disallowance Year Telegram Telegram & by A.O. &Telephone Telephone ChargesClaimed Charges over Sales 2011-12 1124076111 1165793 0.10% Nil 2012-13 1459876134 1159727 0.08% Nil 2013-14 1696000186 775391 0.05% Nil 2014-15 1676473072 1225476 0.07% 490190 2015-16 2033531437 906507 0.04% Nil 2016-17 1959496662 926680 0.05% Nil 2017-18 2116643788 1371530 0.06% Nil 2018-19 2508293726 2419034 0.10% Nil 2019-20 3383058990 1025451 0.03% Nil 2020-21 3159634664 998172 0.03% Nil

Comparative Chart of Printing & Stationary Charges Assessment Sales Printing % of Printing Disallowance Year &Stationary &Stationary by A.O. Charges Charges Claimed over Sales 2011-12 1124076111 372577 0.03% Nil 2012-13 1459876134 429878 0.03% Nil 2013-14 1696000186 449791 0.03% Nil 2014-15 1676473072 519515 0.03% 51951 2015-16 2033531437 667010 0.03% Nil 2016-17 1959496662 602769 0.03% Nil 2017-18 2116643788 1098873 0.05% Nil 2018-19 2508293726 969997 0.04% Nil 2019-20 3383058990 940385 0.03% Nil 2020-21 3159634664 901245 0.03% Nil

Comparative Chart of Rent Expenses Assessment Sales Rent Expenses % of Rent Disallowance Year Claimed Expenses by A.O. over Sales 2011-12 1124076111 7312431 0.7% Nil 2012-13 1459876134 8659000 0.6% Nil 2013-14 1696000186 9156000 0.5% Nil 2014-15 1676473072 11156000 0.7% 2231200 2015-16 2033531437 11144500 0.5% Nil 2016-17 1959496662 12207000 0.6% Nil 2017-18 2116643788 9913200 0.5% Nil 2018-19 2508293726 10967550 0.4% Nil 2019-20 3383058990 17176350 0.5% Nil 2020-21 3159634664 17082740 0.5% Nil

Comparative Chart of Repairs & Maintenance Expenses Assessment Sales Repairs & % of Repairs Disallowance Year Maintenance & by A.O. Expenses Maintenance Claimed Expenses over Sales 2011-12 1124076111 3525133 0.3% Nil 2012-13 1459876134 8110962 0.6% Nil 2013-14 1696000186 9893588 0.6% Nil 2014-15 1676473072 29063177 1.73% 14531588 2015-16 2033531437 72956218 3.59% Nil

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2016-17 1959496662 25654107 1.31% Nil 2017-18 2116643788 11423765 0.54% Nil 2018-19 2508293726 27128921 1.08% Nil 2019-20 3383058990 15037377 0.44% Nil 2020-21 3159634664 Nil 16743937 0.53%

Comparative Chart of Rates & Taxes Expenses Assessment Sales Rates & Taxes % of Rates & Disallowance Year Expenses Taxes by A.O. Claimed Expensesover Sales 2011-12 1124076111 3364242 0.30% Nil 2012-13 1459876134 160160 0.01% Nil 2013-14 1696000186 4037699 0.23% Nil 2014-15 1676473072 5637868 0.34% 1127573 2015-16 2033531437 19627885 0.96% Nil 2016-17 1959496662 49564627 2.53% Nil 2017-18 2116643788 15087384 0.71% Nil 2018-19 2508293726 6904862 0.28% Nil 2019-20 3383058990 - Nil 2020-21 3159634664 - Nil

Comparative Chart of Travelling & Conveyance Expenses Assessment Sales Travelling % of Disallowance Year &Conveyance Travelling by A.O. Expenses &Conveyance Claimed Expenses over Sales 2011-12 1124076111 9888305 0.88% Nil 2012-13 1459876134 9223600 0.63% Nil 2013-14 1696000186 12430416 0.73% Nil 2014-15 1676473072 19710282 1.17% 5913085 2015-16 2033531437 25760605 1.27% Nil 2016-17 1959496662 22127617 1.12% Nil 2017-18 2116643788 30857901 1.46% Nil 2018-19 2508293726 33046996 1.31% Nil 2019-20 3383058990 41336553 1.22% Nil 2020-21 3159634664 47289999 1.50% Nil

Comparative Chart of Legal &Professional Expenses Assessment Sales Legal & % of Legal & Disallowance Year Professional Professional by A.O. Expenses Expenses Claimed over Sales 2011-12 1124076111 947474 0.08% Nil 2012-13 1459876134 5321392 0.36% Nil 2013-14 1696000186 3406229 0.20% Nil 2014-15 1676473072 4389499 0.26% 877900 2015-16 2033531437 6036216 0.29% Nil 2016-17 1959496662 Nil 7458943 0.38% 2017-18 2116643788 9491557 0.45% Nil 2018-19 2508293726 8801130 0.36% Nil 2019-20 3383058990 12030075 0.36% Nil 2020-21 3159634664 16607267 0.53% Nil

Comparative Chart of Supervision Charges

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Assessment Sales Supervision % of Disallowance Year Charges Supervision by A.O. Claimed Charges over Sales 2011-12 1124076111 - Nil 2012-13 1459876134 1440000 0.10% Nil 2013-14 1696000186 1440000 0.08% Nil 2014-15 1676473072 2280000 0.13% 684000 2015-16 2033531437 2280000 0.11% Nil 2016-17 1959496662 3300000 0.17% Nil 2017-18 2116643788 1260000 0.06% Nil 2018-19 2508293726 3120000 0.12% Nil 2019-20 3383058990 1440042 0.04% Nil 2020-21 3159634664 2280000 0.07% Nil

The ld AO had not found the expenses claimed as bogus or non-genuine. The details were available with him. But he did not make any enquiry to examine the veracity of expenses claimed or whether such expenses were actually incurred in connection with business purpose. In absence of any contrary finding, adhoc addition is not permissible. In view of decisions cited in para 3.2 of this order, the adhoc addition is not sustainable.

3.7.5 In view of the above discussion, the addition made by the AO amounting to Rs. 2,62,17,298/- is hereby deleted. Therefore, appeal on this ground is allowed.”

the material held on record including the orders of lower-authorities. Here

also, the factual position and arguments of learned Representatives is no

different from the disallowances dealt in preceding grounds. Therefore,

applying same adjudication, we have no reason to interfere with the order of

CIT(A), the same is hereby upheld. This ground is accordingly rejected.

Ground No. 7:

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“6.0 The assessee has claimed expenses of Rs. 3,87,10,601/- under the head “Employee benefit expenses”. Assessee has debited salary & wages expenses, bonus, provident fund and staff welfare expenses under this head. Assessee was required to produce ledger to salary & wages expenses. Assessee has produced only the list of persons and their salary amount only for the month of February 2014 for which the expenses of salary & wages has been claimed by the assessee for Rs. 24,96,806/-. Since assessee has failed to produce ledger of salary & wages and other expenses claimed under this head, 5% expenses claimed under this head is disallowed and addition of Rs. 19,35,530/- is made in the hands of the assessee on this count.” 41. The CIT(A) has reversed AO’s action and deleted disallowance fully by passing following order:

“3.3.3 I have duly considered the facts of the case, plea of the appellant and findings of the AO. Briefly, the facts as culled out from assessment order are that the appellant claimed staff welfare expenses in its P&L account and appellant was required to explain genuineness of these expenses. The appellant, as per the Ld AO, only filed ledger account of salary and wages for the month of February 2014 and failed to furnish ledger account for entire year. Except this no other reasoning has been provided by the Ld AO for making adhoc disallowance @5% of the said expense. The appellant during appellate proceedings has brought on record some glaring facts which needed some discussion here. The appellant submitted that during the course of assessment proceedings the AO vide query letter dated 29.12.2016 specifically required the appellant to furnish details of salary & wages, manufacturing expenses, repair & maintenance, donation, packing material, sales promotion and miscellaneous expenses for the month of February 2014 & March 2014. The appellant in compliance, on 29.12.2016 filed the desired details with supporting bills and vouchers. The appellant also provided a soft copy of books of account for the year under consideration. Therefore, the details for the month of February 2014 were filed on specific query of the Ld AO and it cannot be said that no other details for remaining months of the FY were not filed by appellant. In fact, the details were filed, however, the same were not considered by the Ld AO before passing the impunged assessment order. Hence, the findings of the Ld AO prima facie are factually incorrect. 3.3.4 The appellant through its written submission has filed breakup of 'Employees Welfare expenses' which for the sake of ready reference is reproduced hereunder:-

S.No. Particulars Amount 1. Salary 28094115 2. Employer’s Contribution- EPF 686937

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3 PF Administrative charges 71824 4. Bonus 294269 352685 5 Gratuity 6 H.R.A. 5535534 752264 7 Incentives 8 Leave Encashment 139124 9 LTA & Medical 1495270 10 Staff Welfare Expenses 1288579 Grand Total : 38710601

The further break up of salary Rs. 2,80,94,115/- is as under:-

Salary Expenses 3107454 Salary Expenses – Power Division 551752 Salary Exp. Power Division (WPF) 872102 Salary Expenses (WPF) 7502508 Conveyance 5001235 Employee’s Meal Allowance 517500 Other Allowances 10541564 ----------------- Total :28094115 ---------------- The appellant has also filed copy of tax audit report as per the Act, which clearly states the payment and provisions made by the appellant in respect of professional tax payable, bonus payable, leave encashment payable and provision for gratuity. The appellant has also filed a comparative chart of employees benefit from AYs 2011-12 to 2020-21 which shows that there was no abnormal rise in the claim of the appellant. The relevant extract of comparison table is appended as under:-

Assessment Sales Employee % of Disallowance Year Benefit Employee by A.O. Expenses Benefit Claimed Expenses over Sales 2011-12 1124076111 21294685 1.89% Nil 2012-13 1459876134 24225697 1.66% Nil 2013-14 1696000186 30687174 1.81% Nil 2014-15 1676473072 38710601 2.31% 1935530 2015-16 2033531437 53885775 2.64% Nil 2016-17 1959496662 75157413 3.84% Nil 2017-18 2116643788 81146457 3.83% Nil 2018-19 2508293726 94605878 3.77% Nil 2019-20 3383058990 109973482 3.25% Nil 2020-21 3159634664 124124553 3.93% Nil

3.3.5 Here, I also find from the assessment order that the Ld. AO has not pointed out any defect in books of accounts/ledgers maintained by it. The genuineness of the expenses has also not been doubted by the Ld AO. Further, no contrary evidence has been brought on record to prove that the expenses claimed by the appellant are extrapolated or excessive. Thus, the Ld AO was not justified in making disallowance on sheer ad hoc basis and without giving

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any contrary finding in support of his disallowance. The judicial pronouncements in support have already been discussed in para 3.2 of this order. 3.2.6 In view of the above discussion, I do not find any merit in the adhoc disallowance made by the Ld AO which has been made without pointing out any defect in bills and vouchers. Also, no independent investigation was done by the Ld AO. Thus, entire ad hoc disallowance @ 5% amounting to Rs. 19,35,530/- is directed to be deleted. Therefore, appeal on this ground is allowed. ”

the material held on record including the orders of lower-authorities. The

arguments of learned Representatives qua this ground remain same as in

earlier grounds. On a careful consideration, we find that the AO has made

adhoc disallowance of 5% of Rs. 3,87,10,601/- debited by assessee to P&L

A/c in Schedule-24 titled “employee benefits expenses”. The expenditure

consists of salary, employer’s contribution to PF, PF administrative charges,

Bonus, Gratuity, HRA, Incentives, Leave encashment, LTA & Medical and

Staff Welfare Expenditure. The assessee is a company and regulated by

labour laws as is apparent from payment of bonus, gratuity, etc. Further,

the accounts of assessee were audited and the audit report is on record

wherein the auditors have not made any adverse comment. The CIT(A) has

passed a vehement order taking into facts of assessee and deleted the adhoc

disallowance made by AO. Therefore, we have no reason to interfere with the

order of CIT(A), the same is hereby upheld. This ground is also rejected

therefore.

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purpose and revenue’s appeal is dismissed.

Order pronounced in open court on 02.08.2024

Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Indore िदनांक / Dated : 02.08.2024 CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPYAssistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore

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