A.P. Processors , Delhi vs Assessee

2 ITA No.3803/Del/2010 ITA No.4117/Del/2010 These are cross appeals filed by the assessee and the revenue against the order of the Ld. CIT(A)-XXII, New Delhi dated 16.06.2010, pertaining to assessment year 2007-08.

2. The revised grounds raised by the assessee reads as under:-

"1(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of an amount of RS.1,36,578/- made by the AO on account of depreciation on machinery.

(ii) That the above disallowance was made despite the machinery being put to use during the year.

2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of AO in disallowing an amount of Rs.1,90,000/- on account of rent, invoking the provisions of section 40(a)(ia) of the Act.

3(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of AO in not allowing additional depreciation of Rs.9,96,715/- on account of new machinery purchased.

(ii) That the above said disallowance was made despite the fact that the assessee is engaged in manufacturing and eligible for the same.

4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of Rs.11,00,000/- made by the AO under section 68 of the Act on account of capital introduced by Sh. Pankaj Gupta, Partner of the appellant firm as unexplained credit.

5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in not allowing the deduction under section 80IB of the Act, despite the assessee being eligible for the same.

3 ITA No.3803/Del/2010 ITA No.4117/Del/2010 6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming addition of Rs.74,500/- made by AO on account of fabric shrinkage, despite fact that the AO has made the additions arbitrarily in adhoc manner.

7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.6,098/- made by AO. on account of difference in accounts of the appellant and the supplier, M/s. Tulsi Ram Ghanshyam Dass.

8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in not allowing the credit of TDS claimed by the assessee with the return of income.

9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the interest levied by AO. under section 234B and 234C of the Act.

10. That the appellant craves leave to add, amend or alter any of the grounds of appeal."

3. The grounds raised by the revenue reads as under:-

(i) The Ld. CIT(A) erred in law and on the facts in deleting the addition of Rs. 3,13,379/- made by the AO as trading addition.

(ii) The Ld. CIT(A) erred in law and on the facts in restricting the addition of Rs. 2,36,009/- to the extent of Rs. 74,500/-

made by the AO on account of undisclosed stock.

(iii) The Ld. CIT(A) erred in law and on the facts in deleting the addition of Rs. 49,566/- made by the AO on account of cash purchases under section 40A(3).

(iv) The Ld. CIT(A) erred in law and on the facts in deleting the addition of Rs. 5,51,580/- made by the AO on account of 4 ITA No.3803/Del/2010 ITA No.4117/Del/2010

income from other sources as receipts from insurance company.

(v) The appellant craves leave to amend or alter all or any of

the aforesaid grounds of appeal and add any other ground of appeal."

4. The brief facts of the case are that the assessee filed return showing income at Rs.5,34,123/- was filed on 29.10.2007. Notice u/s. 143(2) of the Income Tax Act 1961, (herein after the Act), was issued on 24.9.2008. In compliance thereto and subsequent notices, A.R. of the assessee alongwith partners etc. have attended and produced books of accounts consisting of cash book, ledger and vouchers of purchase and sales and job work which was examined and checked on test check basis. The AO notes that required details called for have been filed and placed on record. However, the AO rejected the books of assessee u/s 145(3) of the Act and profit has been estimated on three year average profit rate and after disallowing certain claims and making certain addition, the AO made an addition of Rs.31,24,707/- and thus computed the total income of assessee as Rs.36,58,828/- in place of assessee total income as per return of Rs.5,34,123/-. On appeal, the ld. CIT (A) has partly allowed the assessee's appeal. Against the said order of the ld. CIT (A), both revenue and assessee has preferred cross appeals before us.

REVENUE'S APPEAL (ITA NO.4117/DEL/2010)

5. First of all, we will deal with the revenue's appeal (ITA No.4117/Del/2010). Ground no 1, i.e. with regard to deletion of addition of Rs.3,13,379/- made by the assessing officer as trading addition. 5.1 Facts in brief on this count are that the assessee stated before AO that it continues to derive income from dyeing of textiles as job work charges. During the year under consideration, total job work receipts have been disclosed at Rs.4,12,29,930/- and gross profit thereon at Rs. 58,74,129/-. The assessee was 5 ITA No.3803/Del/2010 ITA No.4117/Del/2010

asked by AO to furnish details of job work showing date of receipt of material, processing done and goods returned back after processing. In compliance thereto, the assessee admitted that the job work details are kept only in the form of bills issued at the time of dispatch and whatsoever details regarding movement of goods for job work and processing is not being maintained. Further, it was also noticed by the AO that the assessee has also executed some work done by outsourcing the same to other concerns on job work sub-contract basis and for this purposes expense of Rs.97,34,241/- has been debited in the P&L account as against earlier years expenses of Rs. 31,18,647/-. Thus, according to AO, there is increase of job work expenses of about 212%. The AO observed that the assessee has not maintained any record for the goods sent for outsourced job work and received after the job-work executed from the outsourced concerns. The AO observed that in most of the cases the job work charges has been shown paid in cash showing amount less than at Rs. 20,000/- and rejected the books holding it as unreliable and invoked section 145 (3) to estimate the profit by taking the profit rate of last three years and estimated the rate as 15% and made an addition of Rs.3,13,379/-. On appeal, the ld. CIT (A) has been pleased to delete the said addition. Now, the revenue is in appeal against the said deletion ordered by the ld. CIT (A).

5.2 The ld DR contended that for execution of job work, no proper record was kept by the assessee for material received and returned after job work has been executed by it. The AO has taken note that the payment of job work charges which are outsourced are mostly in cash, though each time shown below as Rs.20,000/-. The valuation of work in process and valuation about the same has not been accepted by the AO. The AO in his order has observed the purchase from M/s. Tulshiram Ghanshiyan Dass and Co could not be matched with the copy of the account collected directly from the party and took our attention to Page 21 of the impugned order, wherein, as per the assessee's book 6 ITA No.3803/Del/2010 ITA No.4117/Del/2010

an amount of Rs.1,56,567/- is recorded, whereas as per books of M/s. Tulishiram Ghanshyam Dass & Co., it is recorded as Rs.1,61,509/-. The ld DR took our attention to the fact that the assessee sale to Dynamic Fashions (P) Ltd had been shown at Rs.23,71,588/- and the detail of job work charges received as filed before AO reads as Rs.23,63,054/-. So, according to the ld. DR, for these defects/differences, as pointed out, the AO has rightly invoked provisions of Section 145(3) by pointing the defects as stated above for rejecting the books of account and estimated profit taking into account profit rate for previous three years on percentage basis. Thus, according to him, the AO has therefore rightly made an addition of Rs.3,13,379/- in the trading account by best judgment assessment and rejected the books of account by the assessee and the ld CIT(A) has erred in deleting the same. Therefore he wants us to reverse the decision of the ld CIT(A) and restore the order of AO.

5.3 On the other hand the ld AR supported the decision of the ld CIT(A) and does not want us to disturb the same.

5.4 We have heard both the parties and have perused the records. We find that AO had made an addition of Rs.3,13,379/- by applying an estimated profit rate of 15% on estimated receipt of Rs.12,50,000/- after rejecting the books of account of the assessee as against profit of 14.25% in the year under consideration of actual receipt of Rs.12,29,930/- as compared to profit rate of 12.03% in the preceding assessment year 2006-07 and 17.95% for assessment year 2005-06.. We further find that the learned CIT(A) has dealt with this issue elaborately in para 6.2 starting from page 38 to 42. The CIT(A) on page 40 has recorded a finding of fact as below -

"(i) It may be seen that the rejection was done without any finding on the correctness or completeness of the books of account. The AO has not disputed the method of accounting followed by the assessee and the compliance of the accounting standards. The assessee has furnished 7 ITA No.3803/Del/2010 ITA No.4117/Del/2010

explanation regarding the reasons of not maintaining the stock record. The assessee has furnished explanation regarding the gross profit rate. The AO has not been able to point out any transaction which has been left out between entries in the books of account or that the appellant has sold some of the items at a price what has been disclosed in the books of account or proper particulars, such as bills, vouchers, etc. are not forthcoming.

(ii) On the basis of the above held that the books of account cannot be rejected without assigning specific reasons."

5.5 We further note that Ld. CIT(A) also held that the books of account are free from any defect. The CIT(A) has further held that the G.P. rate was not lower in this year as compared to last year. Furthermore, he has observed that decline of G.P. rate is not a sufficient ground for rejection of books of account. The ld. CIT (A) has made a find that the estimation of the income made by the AO is without any basis. The ld. CIT (A) has taken into account that the assessee has been consistently following a particular method of account and is as prescribed under Section 44AB of the Act. It should be kept in mind that the accounts maintained have to be taken as correct unless there are sufficient reasons to indicate that they are unreliable and incorrect which could be clearly pointed out by the AO and an opportunity should be granted to the assessee to explain any defects which he takes note before he rejects the books and invoke section 145 (3) for best judgment assessment. The ld. CIT (A) has taken note that the assessee has maintained proper details of goods received and dispatched to the parties. The ld. CIT (A) has taken note of the fact that the ownership of the fabric received for processing is not of the assessee, nor the shortage due to shrinkage, etc. of the fabrics belong to the assessee. Hence, the ld. CIT (A) has accepted the explanation of the assessee that no stock register is maintained is justified as each receipt of goods and dispatched after job work has been supported by challan and sales bill and has been checked by the AO. We have 8 ITA No.3803/Del/2010 ITA No.4117/Del/2010

perused paper book page 360 to 412 which are copy of manufacturing, trading and profit and loss account, copy of sales register, copies of challans of job work and confirmation of the various bills and details of party wise purchases and their ledger account. We find that there was no basis for the AO to adopt a G.P. rate of 15% when the fact remains that in the previous year it was only 12.03% which means that this year the profit rate is in any way is 14.25% which is more than the previous year. Further there was no basis for the AO to estimate the receipt at Rs.4,12,50,000/- in the absence of any allegation that any receipts have been suppressed or there is any error in the profit rate declared by the assessee. In view of the above, the deletion of the addition made by the CIT(A) is correct and justified. So we do not find any infirmity in the order of the Ld. CIT(A), hence, we uphold the same on this issue and decide the ground no. 1 against the Revenue accordingly.

6. The next ground is about restricting the addition of Rs.2,36,009/- on account of undisclosed closing stock. We find that this ground is common in Revenue's Appeal being Ground No. 2 as well as in Assessee's Appeal being Ground No.6, so we are going to decide this issue together. The ld DR contended that the assessee in his trading account has failed to disclose closing stock of fabric and the AO has pointed out that in the case of purchases from Tulshi Ram Ghanshyam Dass for Rs.1,61,509/- on 10.02.2007 as one such omission to prove that assessee did not disclose any stock of material, in his trading account. The assessee even failed to disclose this amount in purchase as evident from the purchases account reproduced at Pg. 5 of the assessment order. So the ld DR contented that the assessee was having closing stock of fabric (Rs.1,49,003/- + Rs.1,61,509/-) which was not disclosed in the closing stock. And the ld DR contended that the assessee's plea regarding shrinkage cannot be accepted in totality as the assessee has not maintained any details of the same. After taking into consideration all the fact, the assessee claimed of shrinkage of 9 ITA No.3803/Del/2010 ITA No.4117/Del/2010

Rs.1,49,003/- was restricted to reasonable amount of Rs.50% and the balance amount of Rs.74,500/- fabric purchased from Tulsi Ram Ghanshyam Dass of Rs.1,61,509/- was added in the total income as undisclosed stock of fabric purchased. So the ld DR pleaded that the ld CIT(A) erred in restricting the addition to Rs.74,500/- which according to him, need to be reversed. 6.1 On the other hand, the ld AR while supporting the order of the ld CIT(A) in respect to the partial relief granted to the assessee, however, assailed the Ld CIT(A)'s order on this issue for restricting the addition to Rs.74,500/-. He contended that the assessee is a processing house and not a trader in fabric and was receiving the material for dyeing and processing from various parties and hands them back their fabric after doing the dyeing. In this year, according to ld. AR, some separate direct deals for sale of dyed fabric which had been sold which was not job-work but sale of finished dyed fabric was undertaken by assessee and executed, for which shrinkage is claimed. So, ld. Counsel submitted that shrinkage was claimed and that was normal, the fabric shrinkage/ wastage did take place in the process. He submitted that this fact had already been brought to the knowledge of the AO by letter filed before the AO in December 2009, wherein it is stated that :

Cambric - shrinkage - 5% and further - 2% to - 5%. If it is further required residual shrinkage as zero.

Crapes - 10% and further - 2% if it required line dry (dry in air).

Other than the above shrinkage, there is another loss of fabric by 2% on account of grey and dyed fabs.

Ld. Counsel submitted that in order to buttress its claim, the aforesaid claim of shrinkage is reasonable, the assessee brought to the knowledge of AO as well as 10 ITA No.3803/Del/2010 ITA No.4117/Del/2010

ld. CIT (A) the shrinkage schedule from one of the leading process house Creative Dyeing & Printing Mills (P) Ltd., 14/13, Main Mathura Road, Faridabad, so that it could give an idea of shrinkage rate which happens in this trade. He submitted that as per their standard shrinkage pattern, the claim of assessee was quite lower and reasonable and each unit claimed its own percentages but comparable cases could be considered to evaluate the claim of the assessee. He further submitted that in the aforesaid letter, it was requested by the assessee that if the AO had any other rate of shrinkage, which could be used in this case, the same may be provided to allow the assessee to rebut the same. Ld. Counsel submitted that the aforesaid letter clearly showed that the shrinkage in case of fabric of client belongs to the parties who brought the job work and the assessee has no responsibility and so not claimed. But in this year, as stated above, where the assessee purchased the fabric and dyed and these were sold as a product, for which only shrinkage was claimed. It was pointed out by the ld. Counsel that there was no trading of fabric in past/last year and it is a single transaction. According to him, the rate of shrinkage is quite normal and without anything contrary to the suggest otherwise, it needed to be accepted by the AO. The ld. AR submitted that on going through the order of the CIT (A) on page 42 in para 6.3, it can be noted that the CIT (A) has not given any reason for confirming this addition. Ld. AR further submitted that the CIT (A) in the last para at page 24 has also stated that assessee vide letter dated 17.12.2009 (pages 7 to 15 of the paper book) has explained the shrinkage and has also filed schedule of the shrinkage which is the normal shrinkage in the trade (page 221 of the paper book). The ld. Counsel also submitted that it had explained the rate of shrinkage which was less than the normal shrinkage. He contended that disallowance made at the rate of 50% of the shrinkage by the AO was arbitrary based on surmises and conjectures and there was no reason given whatsoever why it was restricted to 50%. Accordingly, he pleaded that the 11 ITA No.3803/Del/2010 ITA No.4117/Del/2010

addition confirmed by the CIT (A) without assigning any reason on this ground is unjustified and the same may be deleted.

6.2 We have heard both the parties and have perused the records, we find that the AO has made an addition of Rs.2,36,009/- comprising of two figures i.e. Rs.74,500/- being 50% of the shrinkage of fabric totaling Rs.1,49,003/- and Rs.1,61,509 being fabric purchases from M/s. Tulsi Ram Ghanshyam Das & Co on the ground that this has not been disclosed in the closing stock. The CIT(A) on page 42 in para 6.3 has upheld the contention of the assessee that the AO was wrong in assuming that purchases of Rs.1,61,509/- from M/s. Tulsi Ram Ghanshyam Das & Co. was wrongly considered as unaccounted for by the AO. The assessee has accounted for purchases of Rs.1,56,567/- which is after deducting a sum of Rs.5,843/- from the total bill of Rs.1,61,509/- of M/s. Tulsi Ram Ghanshyam Das & Co.. This fact is supported by the invoices of M/s. Tulsi Ram Ghanshyam Das Bill & Co. No.1752 dated 10.02.2007 and the copy of account is placed at paper book page 222-223 where purchases of Rs.1,56,567 have been duly entered. The assessee has also filed before the AO details of the purchases party wise, a copy of which is placed in the paper book at page 407 at item no.41 is entered in the name of M/s. Tulsi Ram Ghanshyam Das & Co. showing purchases of Rs.264139/-. The copy of account of M/s. Tulsi Ram Ghanshyam Das & Co. is also placed at paper book page 223 where all three purchases have been accounted for. The above fact clearly demonstrate that the AO erred in assuming the debited bill of Rs.1,61,509/- as separate purchase and so the ld. CIT(A) was justified in deleting the addition of Rs.1,61,509/- made by the AO which we find to be correct and so we concur with the ld. CIT (A) and this ground of Revenue is dismissed. 6.3 However, the ld. CIT(A) has confirmed an addition of Rs.74,500/- made by the AO on account of shrinkage which is ground of appeal 6 in assessee's appeal. The ld. AR submitted that on going through the order of the ld. CIT (A) 12 ITA No.3803/Del/2010 ITA No.4117/Del/2010

on page 42 in para 6.3, it can be noted that the ld. CIT (A) has not given any reason for confirming this addition. Ld. AR further submitted that the ld. CIT (A) in the last para at page 24 has also stated that assessee vide letter dated 17.12.2009 (pages 7 to 15 of the paper book) has explained the shrinkage and has also filed schedule of the shrinkage which is the normal shrinkage in the trade (page 221 of the paper book). The ld. Counsel also submitted that it had explained the rate of shrinkage which was less than the normal shrinkage. He contended that disallowance made at the rate of 50% of the shrinkage by the AO was arbitrary based on surmises and conjectures and there was no reason given whatsoever why it was restricted to 50%. So, therefore, the ld. AR pleads that 50% disallowance should also be deleted.

6.4 We find that the assessee this year had not only done job-work for consumers but has undertaken manufacturing also, i.e. it bought gray fabric from market and thereafter dyed it and sold the finished dyed fabric as a product on its own account; and it is common knowledge that on dyeing the fabric shrinks. The assessee has brought to the knowledge of the authorities below that the gray (un-dyed fabric) shrinks after dyeing and finishing. It has been explained that first the gray (undyed fabric) is dipped in desired coloured water with some chemicals, then it is heated and when ready is taken out of the coloured water. Thereafter, it is dried and handed over to customers. It has been brought to the notice of the authorities below that once the fabric is dipped in water, the shrinkage takes place and as per the terms of the trade, shrinkage/wastages belongs to the customers and the assessee has not claimed the said shrinkage. However, during the year under consideration, we find that as stated before, assessee firm has made some purchase of fabric which they dyed and then sold it to the customers. The figures given in the assessment order is as under :-

13 ITA No.3803/Del/2010 ITA No.4117/Del/2010 Fabric Purchase (Mtrs) Sale (Mtrs) Shortage % of Shortage Cambric 26980.10 24523.40 2456.70 9.10% Crape 55017.95 49188.80 5829.15 10.59%

We find that the AO has allowed shrinkage of 50% of the claim and for the rest of the fabric, valuing them on cost, has made an addition for the cost of shrinkage disallowed was to the tune of Rs.74,500/-. We find that during the course of assessment proceedings, the assessee vide letter dated 17.12.2009 had provided a copy of the printed chart for leading dyeing house i.e. Creative Dyeing & Printing Mills (P) Ltd. to compare the wastage claimed by the assessee. From the perusal of the said schedule of that company, the rate of shrinkage is much higher than the rate which was claimed by the assessee. The ld. AR pointed out that each processing unit has its own percentage of shrinkage but comparable costs can be considered to evaluate this fact. We find that without any basis, the AO has made the disallowance of 50% and he has not brought any kind of comparables to substantiate his disallowance whereas we find assessee has brought in similar company whose claim of shrinkage has been much higher. In the absence of any evidence to the contrary, the order of the AO to reject the claim of the shrinkage of the assessee amounts to arbitrariness. Therefore, we are of the considered view that the ld. CIT (A) erred in confirming the said disallowance without assigning any reason and it has to be deleted and we order accordingly. Thus, this ground of assessee (ground no.6 of assessee's appeal) is allowed and ground no.2 of revenue's appeal is dismissed.

7. The next ground is regarding deletion incurred as purchases exceeding Rs.20,000/- and addition of Rs.49,566/- made by the assessing officer on account of expenditure u/s 40A(3) of the Act.

14 ITA No.3803/Del/2010 ITA No.4117/Del/2010 7.1 The ld DR contended that the assessee had made purchases from M/s. Jubaid Enterprises and Ravi Textiles, so the AO called for information u/s 133(6) of the Act, however the notice returned back un-served with the remarks "No such firm". According to ld. DR, the assessee had shown purchases from M/s. Jubaid to the tune of Rs.89,130/- and M/s. Ravi Textiles at Rs.1,58,698/-. The AO has held that the assessee incurred expenditure exceeding Rs.20,000/- in cash, therefore, the 20% of the purchase amount of Rs.2,47,828/- which comes at Rs.49,566/- was rightly disallowed and added to the total income of the assessee which according to him has been wrongly deleted by the ld. CIT (A). So the impugned order may be reversed and order of the AO restored. 7.2 On the other hand, the ld AR supported the order of the ld CIT(A). According to him, the ld CIT(A) observed that the assessee purchased goods from two parties aggregating to Rs.2,47,828/-; and made payment in cash; and no payment at a time on a day was below Rs.20,000/-. He pointed out that the AO has not doubted the genuineness of purchase but has only found fault in cash payment. So, according to him, the genuine transaction undertaken by the assessee on a single day payment to each party is below Rs.20,000/- so, is not hit by the provisions of section 40A(3) of the Act, so the addition was rightly deleted by the ld. CIT (A) and does not want us to interfere in the said order. 7.3 We have heard both the parties and have perused the records, we find that the AO has made addition of Rs.49,566/- on the ground that the assessee has incurred expenses exceeding Rs.20,000/- in cash to the extent of Rs.2,47,828/- and so, 20% of the said sum i.e. Rs.49,566/- was disallowed under section 40A(3) of the Act. We find that the AO has not held that the transactions with the two firms are not genuine. However, he made the disallowance because the cash transaction is hit by Section 40A(3) of the Act. However, we note that the ld. CIT (A) rightly points out that the AO does not mention the details of specific payments which in his opinion are hit by the provisions of section 15 ITA No.3803/Del/2010 ITA No.4117/Del/2010

40A(3) of the Act, i.e. the date of payments, bill number, mode of payment, amount of payment, name of the party etc. In the absence of these findings, the ld. CIT (A) rightly observed that the contention of the assessee is justified and the addition of Rs.49,566/- made on this ground is deleted. In view of the above, we do not find any infirmity in the order of the Ld. CIT(A), hence, we uphold the same on this issue and decide the ground no. 3 against the Revenue.

8. The next grounds is regarding deletion of addition of Rs.5,51,580/- made by the AO on account of income from other sources as receipts from insurance company.

8.1 The ld DR contended that the assessee has claimed loss from fire in the premises on 17.04.2006 of Rs.1,29,513/-. So the assessee was asked by the AO to furnish details of loss by fire and in compliance thereof, the assessee filed details of loss by fire for Rs.6,80,513/-. The AO took note of the fact that out of Rs.5,51,580/- has been received from the insurance company and so the balance amount was debited in P&L A/c. According to Ld DR, since the fire incident was on 17.04.2006, the assessee was required to prove availability of stock as on that date which it claims to have been destroyed in the fire. The assessee filed copy of bill of M/s National Processors dated 17.04.2006 showing purchases of cotton crop for Rs.42,058/- and a letter dated 10.06.2006 from Sumit Textiles for Rs.4,44,373/-showing that this amount has been debited on account of goods burned in the factory. The ld DR pointed out that the assessee was not able to furnish any record regarding availability of stock as on 17.04.2006 i.e. before the fire, which was burnt down. According to ld. DR, the assessee just created documents to claim loss from insurance company. The AO has observed that the assessee has shown total losses on account of goods destroyed for fire for Rs.5,73,413/- and received Rs.5,51,580/- on account of receipts from insurance company which is income for the assessee from other sources. Therefore, the AO has rightly added the amounted received from the 16 ITA No.3803/Del/2010 ITA No.4117/Del/2010

insurance company to the extent of Rs.5,51,580/- as income from other sources and the ld. CIT (A) erred in deleting the same and want us to restore the order of AO.

8.2. The ld AR pointed out that though all the relevant documents related to insurance claim were submitted before AO during the assessment proceedings along with copy of FIR lodged before Police Station; and the reports of the surveyor (valuer and loss assessor). The AO disbelieved all the evidences on the basis that how can insurance company grant the claim without assessee maintaining any stock register. The assessee has asserted that since the assessee was not the owner of the fabric but the goods were received in the factory and all relevant documents such as challans and sales bills were produced before the AO. However, the AO disbelieved all these evidences and added the amount received from insurance company to the total income of the assessee, which, according to him, was rightly deleted by the ld. CIT (A), which does not need any interference.

8.3. We have heard both the parties and have perused the records, we find that the AO made an addition of Rs.551580/- which the assessee received from the Insurance Company on the ground that the assessee was not maintaining any stock register and so stocks as claimed by the assessee as destroyed by the fire was not accepted by the AO. The CIT(A), after detailed examination in para 6.5 on page 43-44 has held that all the relevant documents relating to insurance claim were submitted before the AO during the assessment proceedings along with FIR lodged before the Police; and report of Verifier (Valuation and Loss Assessor). The ld. CIT(A) has observed that the AO has disbelieved all these evidences in the absence of stock register and the loss claimed by the assessee. The CIT(A) took note that the assessee was not the owner of the fabric but the goods were received in the factory and all relevant documents such as challans and sales bills were produced before the AO to substantiate its claim. The 17 ITA No.3803/Del/2010 ITA No.4117/Del/2010

CIT(A) also took note of the fact that the AO failed to bring any evidence to support his basis of the addition. The CIT (A) has taken note that the AO has gone wrong in assuming that the assessee's claim was not genuine and the ld. CIT (A) appreciated that the case of the assessee was that it received the goods for job work and that is why the assessee was entitled and has rightly claimed the insurance claim which has been also appraised and approved by the insurance company. Documents in the paper book are placed in paper book page 415 to 453 which are intimation to the Fire Department, copy of the insurance policy, report of the surveyor, correspondence with the insurance company, ledger account of the parties whose goods were destroyed in the fire. In the absence of any proof being adduced or basis to prove that the fire incident was fabricated to claim insurance, the ld. CIT (A), after taking note of the evidences produced by the assessee to establish the fire incident and the losses reflected by it, has rightly deleted the addition. All these evidence proves beyond any doubt about the genuineness of claim and as such the addition has been rightly deleted by the CIT(A). In view of the above detailed discussions, we do not find any infirmity in the order of the Ld. CIT(A), hence, we uphold the same on this issue and decide the ground no. 4 against the Revenue.

9. In the result, the Revenue's appeal stands dismissed.

ASSESSEE'S APPEAL ITA No.3803/Del/2010)

10. The ground no. 1, is about confirmation of disallowance of an amount of Rs. 1,36,578/- on account of depreciation on machinery. The ld. AR for assessee, Shri Ved Jain contended that a new machinery for Rs.l8,21,040/- was purchased from M/S Gopal Fabricators vide bill dated 26.03.07 and it was received at the appellant's factory on 28.03.07 and the engineer Mr. John Mathews of M/s. Gopal Fabricators, who was stationed at Delhi/Faridabad, installed the said machinery that day itself. And on 29.03.07 it was put to use 18 ITA No.3803/Del/2010 ITA No.4117/Del/2010

immediately. The appellant claimed depreciation @7.50%, on this new machinery, since it was purchased and used for the business within the previous year. He further submitted that the AO, issued notice u/s 133(6) of the Act to M/S Gopal Fabricators for verification of the aforesaid facts. According to ld. AR, the machine supplier M/s. Gopal Fabricators vide letters sent to AO (dated 17.11.09 & dated 10.12.09) had confirmed that its representative Mr. John Mathews installed the machine at appellant's factory on 29.03.07; and further informed that since some delay took place in dispatch of machine, damages were claimed by the appellant from it i.e. M/s Gopal Fabricates vide letter dated 30.03.07, though the machine was started on 29.03.07. According to Ld AR, when third party verification was there on record and there is no iota of evidence before AO to disbelieve all these evidence on record, disallowance was unwarranted. According to him, the AO has imagined some facts and without any cogent evidence or reason have written on page 9 the facts for which there is nothing on file to sustain his imaginations. According to the ld. AR, in the assessment order a line from the letter of M/s Gopal Fabricator has been reproduced without any reference to the fact that in a subsequent letter that part has been clarified. The Ld AR emphasized that there is nothing before the AO to disallow the claim and his conclusion on imagination is factually incorrect. When the machinery supplier as well as machinery purchaser both are confirming the fact, since there being no other evidence to contradict the same before AO, such an act of disallowance of the normal depreciation claimed of Rs.l,36,578/- is not justified. And, according to him, the Ld. CIT(A) has simply confirmed the decision of AO without giving any reason, which is not valid and legal, so the claim of the assessee be allowed.

10.1 On the other hand, the ld DR supported the order of the authorities below and does not want to us interfere in the same.

19 ITA No.3803/Del/2010 ITA No.4117/Del/2010 10.2 We have heard both the parties and have perused the records, we find that the assessee has claimed depreciation of Rs.1,36,578/- in respect of addition of plant and machinery of Rs.18,21,040/- during the year. The AO disallowed the same on the ground that the assessee has failed to furnish any proof for use of the machine during the year under reference. The CIT(A) has confirmed the above action ignoring the evidences adduced by the assessee before the AO. We find that the findings recorded by the AO and CIT(A) are factually incorrect. The facts recorded by the AO are incomplete because he has not taken in to consideration subsequent letter from M/s Gopal Fabricators Pvt. Ltd. (the machine supplier). The Ld AR took our attention to paper book pages 18 to 20 which are the copies of the purchase invoices dated 26.03.2007 of the machine from M/s Gopal Fabricators Pvt. Ltd. At page 21 of P.B. is letter dated 17th November, 2009, whereby the supplier has confirmed that the machines are sent for ready to use and it takes only 5 to 7 hours for their engineers to install and guide the assessee's employees to use the machine. This is the letter sent by the supplier directly to the AO in response to notice issued under Section 133(6) of the Act. We find that by another letter dated 10th December, 2009 addressed to assessing officer (placed in paper book page 22), the supplier has confirmed that this machine was started on 29th March, 2007 and has also given the name of the engineer who started this machine viz. Mr. John Mathew. In the said letter the supplier has also made a reference to the complaint made by the appellant company regarding delay in supplying the machinery and it is dated 30th March, 2007 which also according to assessee confirms that the machinery was supplied before 31st March, 2007. Without contradicting the evidence adduced by the assessee, the AO cannot disbelieve the facts stated by the assessee without assigning any reasons. The observation of the AO in this regard are purely based on surmises and conjecture and stems from the letters answered by the supplier to the effect informing ignorance of the date of supply 20 ITA No.3803/Del/2010 ITA No.4117/Del/2010

and who installed the machine. Thereafter, we find that the supplier has come forward with certain documents in their possession to correct themselves and bring evidence to prove the fact in issue and these evidences are on record. Without any evidence to contradict the evidences placed before the AO, the impugned action is unwarranted and so we order to delete the addition of Rs.1,36,578/- and accordingly decide the ground no. 1 in favor of the Assessee.

11. The ground no. 2 is about confirmation of disallowance of an amount of Rs. 1,90,000/- on account of rent, invoking the provisions of section 40(a)(ia) of the Act.

11.1 The ld AR contended that Rent for plant & machinery taken on hire for the period from 01.04.06 to 30.06.06 was paid to M/s. Indra Textile Inds. (P) Ltd., amounting to Rs.1,90,000/-. According to him, the provision of sec 194-1, being TDS on rent of plant and machinery, came into force after 30.06.06 and was not there in statute for the period to which this claim of rent pertains. So, according to him, no TDS was due nor it was deducted. According to the ld. AR, the TDS provisions are immediately applicable when the entry for credit or payment which was earlier done in the accounts books. The entire rent was accounted for and pertaining to the period before 30.06.06 and since no TDS on rent provision was in force on that date, TDS was rightly not deducted. The ld. AR submitted that out of the total sum payable, Rs.1,00,000/- was paid before 30.06.06 (Rs.50,000/- was paid vide cheque no. 034051 on 28.04.06 and Rs.50,000/- was paid vide cheque no. 034097 on 06.05.06). Balance amounting to Rs.90,000/- was also paid by cheque on 09.03.07. The ld. AR pointed out that even the said payment of Rs.90,000/- do not attract TDS as minimum limit for attracting TDS, for the A.Y was Rs.1,20,000/- per annum. In order to substantiate the said claims, the ld. AR took our attention to the confirmation letter from M/s. Indra Textile Inds. (P) Ltd. with their PAN which was filed 21 ITA No.3803/Del/2010 ITA No.4117/Del/2010

before the AO. However, according to ld. AR, AO did not give any attention to the above facts and has disallowed full sum of Rs1,90,000/- invoking the provisions of sec 40a(ia) of the Act. According to AO, TDS was applicable on full amount U/s 194-I and since the TDS was not deducted, the full expenditure is disallowable. The ld. AR submitted that from the above stated facts, the following four facts emerge :-

(a) The rent is for 01.04.06 to 30.06.06 when TDS on rent u/s 194-I was not in operation.

(b) Two payments of Rs.50,000/- each were before 30.06.06 and only balance Rs.90,000/- was paid after 30.06.06. The minimum TDS attraction limit is Rs.1,20,000/- p.a. & no TD S is called for since payment was only Rs.90,000/-.

(c) The bank statement for full year with narrations was before the CIT and he could have verified the payment dates from the same.

(d) The TDS on rent of plant and machinery is applicable the moment it is paid or credited whichever is earlier. When the entire rent was accounted for before' 30.06.06 and no TDS on rent of plant and machinery was in force at that time, no liability was there for any TDS on this rent.

11.2 Therefore, according to the ld. AR, the AO has erred on facts as well as on law to apply sec. 40a(ia) of the Act in this case. The ld. AR pointed out that confirmation from owner of machinery is on record with his PAN No. According to ld. AR, As there is no requirement of TDS in this case, no disallowance is called for and the ld. CIT (A) without appreciating these facts have blindly upheld the decision of AO which is wrong and the addition so made be deleted.

22 ITA No.3803/Del/2010 ITA No.4117/Del/2010 11.3 On the other hand, the ld DR supported the order of the authorities below and does not want us interfere in the same.

11.4 We have heard both the parties and have perused the records, we find that the AO has made a disallowance of Rs.1,90,000/- being the rent paid for the machineries for the period from April to June 2006 on the ground that this payment was liable for tax deduction at source and accordingly the addition has been made under section 40(a)(ia) of the Act. The CIT(A) has confirmed the same in para 6.7 on page 44 on the ground that the payment was made during year Rs. 1,90,000/- and accordingly it was liable for TDS. We find that both AO and CIT(A) have ignored the fact that the liability to deduct TDS on payment of rent on machinery has been introduced by the Taxation Law Amendment Act, 2006 w.e.f. 13.7.2006 as is evident from the Circular No. 1/2007 dated 27.4.2007 issued by the Central Board of Direct Taxes. The payment of this rent by the assessee was for the period from 1st April, 2006 to 30th June, 2006 as is evident from the confirmation of the party filed with the AO placed in the paper book page no.24; and Rs.90,000/- paid by cheque on 09.03.2007 also does not attract TDS because it did not cross the monetary limit of Rs.1,20,000/- for the year under consideration, so the addition made by the AO and confirmed by the CIT (A) is not as per law. In view of the above, we set aside the impugned order and delete the addition of Rs. 1,90,000/- and accordingly decide the ground no. 2 in favor of the Assessee.

12. The ground no. 3 is about not allowing additional depreciation of Rs.9,96,715/- on account of new machinery purchased by the AO and confirmed by the Ld. CIT(A).

12.1 Ld. AR submitted that as per Section 32(1)(iia) of the Act provides for claim of additional depreciation @ 20% on the value of machinery purchased during the previous year. The schedule of fixed assets filed with the return, which show addition in machinery at Rs. 49,83,575/- and its 20% works out to 23 ITA No.3803/Del/2010 ITA No.4117/Del/2010

Rs.9,96,715/-. The original claim for additional depreciation for Rs.5,30,645/- was thus corrected/revised vide. letter dated 24.12.09 filed before the AO during the course of assessment proceedings. On page 10 of the assessment order the AO has mentioned, denying the claim in full by reasoning that the additional depreciation U/s 32 (1)(iia) is allowable only if the appellant is engaged in the business of manufacture or production of any article or thing. He has held that as the appellant is neither a manufacture nor producing any article or thing and simply earning income from job work of dyeing of clothes. On the said finding, the AO disallowed the entire claim. According to the ld. AR, copy of two Supreme Court decisions were filed before the AO to point out that the textile dyeing and printing on job work basis amounts to manufacturing. According to him, there is no mention about these submissions or case laws in the assessment order and in the impugned CIT (A) order which is under appeal. 12.2 The ld. AR took our attention to Hon'ble Supreme Court decision in Empire Industries Ltd. Vs. Union of India (3 Judges Bench) reported as 162 ITR 846 wherein it was held that textile dyeing and printing amounts to manufacturing.

12.3 According to him, this issue was again considered by the Hon'ble Supreme Court (5 Judges Bench) in the case of Ujagar Prints vs. Union of India wherein, the Hon'ble Chief Justice of India (at that time), Mr. Justice P.N. Bhagwati held that the process of bleaching, dyeing, printing, mercerizing etc. carried on by processor on job work basis in respect of grey cotton fabrics and man-made fabrics belonging to the customer and entrusted by him for processing amounts to manufacturing. According to the ld. AR, this case law is squarely applicable on the issue covered in this ground of appeal. The ld. AR pointed out that the Central Excise Duty was charged on the appellant after Ujagar Prints decision treating him as a manufacturer.

24 ITA No.3803/Del/2010 ITA No.4117/Del/2010 12.4 Thereafter the ld. AR took our attention to another recent Supreme Court decision in CIT vs. Oracle Software India Ltd. Reported as (2010) 320 ITR 546. 12.5 The term 'manufacture' implies a change, but every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the above process. If an operation/process renders a commodity or article fit for use for which it is otherwise not fit, the operation/process falls within the meaning of the word 'manufacture'. 12.6 Following this view, the Supreme Court again in the case of CIT vs. Emptee Poly-Yam (P) Ltd. - (2010) 320 ITR 665 in which it was held that the structure, the character, the use and the name of the product are indicia to be taken into account while deciding the question whether the process is a manufacture or not.

12.7 Citing the aforesaid decisions, the ld. AR submitted that it is quite clear that the work of the appellant is also manufacturing. The assessee, according to him, converts grey fabric into dyed fabric. The process of conversion is quite complicated, mechanized and special in character. After dyeing and furnishing the character, use, name and structure of fabric changes. Therefore, it amounts to manufacturing. The ld. AR pointed out that in last two cases cited before us to support his case, the work of that companies were copying blank CDs to pre- recorded CDs and that of twisting of thread to make it fit for specific use, which were held to be manufacturing by the Hon'ble Apex Court.

12.8 According to ld. AR, when dyeing, bleaching of grey fabric amount to manufacturing, the view held by the AO without referring to these judgments is not correct. It was brought to our notice that additional depreciation in the case of assessee was claimed and allowed in the earlier year also. However, the AO erred and ld. CIT (A) confirmed the same without applying his mind on the aforesaid averment and case laws presented before him. It is therefore, prayed 25 ITA No.3803/Del/2010 ITA No.4117/Del/2010

by the ld. AR that the appellant be held as manufacturer and so is entitled to additional depreciation @20% on Rs.49,83,575/- which comes to Rs.9,96,715/-. 12.9 On the other hand, the ld DR supported the order of the authorities below and does not want us interfere in the same.

12.10 We have heard both the parties and have perused the records, we find that the assessee has claimed additional depreciation of Rs.5,30,645/- under section 32(1)(iia) of the Act. The AO disallowed the same on the ground that the assessee is neither a manufacturer or producer of an article or thing and it is only doing job work. The appellant brought to the notice of AO that Hon'ble Supreme Court has held that textile dyeing and printing has been held to be manufacturing in the case of Empire Industries Ltd. vs Union of India 162 ITR 846 (S.C). Thereafter, the Hon'ble Supreme Court in the case of Ujagar Prints vs: UOI & Anr. has reconfirmed the same. The issue of job work is also seen to be covered in favour of the assessee by the judgment of the jurisdictional Delhi High Court in the case of CIT vs. Northern Aeromatics Ltd. (2005) 196 CTR (Del) 479. The above decision has been followed in the case of CIT vs. Sadhu Forging Ltd . (2011) 336 ITR 444 (Del.). In this judgment the Court has framed the following questions of law and has held as under:-

"i) Whether income received from job work/labour charges on work done based on material supplied by the customers qualifies for deduction under s. 80-IB of the IT Act, 1961?

(ii) Whether income received from job work/labour charges on work done on material "(supplied by the customers is profits derived from industrial undertaking to be eligible for deduction under s. 80-IB of the IT Act?

12.11 Thus, in view of above case laws, we find that the activity of processing done by the assessee was "manufacturing". It was immaterial that the assessee 26 ITA No.3803/Del/2010 ITA No.4117/Del/2010

was doing the job of processing also for outside customers too and was charging them on job work basis or on the basis of labour charges. We hold that it will still be qualified as carrying eligible business under s.32(1)(iia) of the Act. The ratio of the decisions in the cases of (i) CIT vs. Metalman Auto(P)m Ltd. ( 011) 52 DTR (P&H) 385; (ii) CIT vs. Vallabh Yams (P) Ltd. (2011) 51 DTR (P&H) 236; (iii) CIT vs. Impel Forge & Allied Industries Ltd. (2010) 326 ITR 27 (P&H); (iv) CIT vs. Rane (Madras) Ltd. (1998) 148 CTR (Mad) 404 : (1999) 238 ITR 377 (Mad) and (v) Dy, CIT vs. Harjivandas Juthabhai Zaveri & Anr . (2002) 258 ITR 785 (Guj.) strengthens our aforesaid view. In view of the above detailed discussions and precedents, we hold that assessee is a manufacturer and eligible for deduction u/s 32(1)(iia) of the Act and so we allow the additional depreciation @20% on Rs. 49,83,575/- which comes Rs. 9,96,715/- and accordingly decide the ground no. 3 in favor of the Assessee.

13. The ground no. 4 is about confirmation of disallowance of Rs. 11,00,000/- made by the AO u/s. 68 of the Act on account of capital introduced by Sh. Pankaj Gupta, Partner of the assessee firm as unexplained credit. 13.1 The ld AR contended that during the previous year, one of the partner of the firm Sh. Pankaj Gupta has shown an addition in his capital account for Rs.11 lakhs (9 Cheques). According to him, all the additions are by account payee cheques from the side of the said partner. When asked by the AO to prove the genuineness of the said additions, the appellant explained before the AO that the said sum has been received by Sh. Pankaj Gupta from his father Sh. OP Gupta. Confirmation from Sh. Pankaj Gupta as well as from Sh. O.P. Gupta with their PAN number. were filed before the AO. According to the Ld AR all transactions are by cheque & confirmations with PAN number. are there before AO not only from the source but from the source of source. Copy of bank account of Pankaj Gupta and Sh. O.P. Gupta both were before the Assessing Officer. Books of accounts of M/s. Jagannath Tea Co. of which Sh. O.P. Gupta 27 ITA No.3803/Del/2010 ITA No.4117/Del/2010

is proprietor and his sales tax return for 2 year (copies) were called and were filed before the AO. Copy of Balance Sheet of Sh. O.P. Gupta and M/s. Jagan Nath Tea Company for two years were also filed. And affidavit on oath of Sh. O.P. Gupta was also filed before the AO stating the aforesaid total facts. 13.2 Ld AR submitted that even though all the aforesaid evidence was there the AO while concluding the view on this issue in last para of page 14 of the assessment order, has opined that genuineness and creditworthiness of deposit of Rs.11 lakhs has not been proved within the meaning of section 68 of the Act and added Rs.11 lakhs as undisclosed income of the firm.

13.3 According to the Ld AR the initial burden under sec 68 is on the appellant to prove (a) the identity of lender (b) genuineness of transaction and (c) Credit worthiness of the lender to make the loan transaction acceptable. In this case according to the Ld AR all the three ingredients were fully met and the action of the AO to make the addition u/s 68 of the Act in this respect is not correct and is against the facts of the case. The Ld AR, submitted that to prove (a) Identity- the assessee furnished PAN No, I.T. asstt. orders, affidavit and personal appearance of Sh. Om Prakash Gupta before the AO, proves beyond doubt his identity. And it has not been doubted by the AO. And in order to prove the (b) Genuineness of Transaction, i.e. that the transaction must have taken place for proving that the money has flown in reality, it was brought to the notice of the AO that the firm has received cheques from Mr. Pankaj Gupta, partner and Mr. Pankaj Gupta by account payee cheques from his father Sh. Om Prakash Gupta. Both bank pass book of the assessee/appellant firm, Pankaj Gupta, Shri Om Prakash Gupta were there before the AO on his file and each entry flow is linked, so according to the Ld AR the genuineness of transaction has been proved. The AO, according to Ld AR, has mixed the credit worthiness of lender in to genuineness of the transaction and so got confused. And in order to prove (c) Credit worthiness of lender the Ld AR explained that the lender as 28 ITA No.3803/Del/2010 ITA No.4117/Del/2010

far as the firm is concerned is its partner Sh. Pankaj Gupta. He is a separate income tax payee (PAN NO. AAFPGI280R) and relied on CIT Vis Sh. Shakti Timbers (1998) 229 ITR 505(MP), wherein the Hon'ble High Court has held that where the partner of the firm has introduced his capital in the firm and the partner is a separate tax payee, it was the partner to explain the source of deposit and the amount cannot be added as income of the firm u/s 68 of the Act. The Ld AR cited the following cases to buttress his said view :-

(i) Narayandar Kedarnath vis CIT 22 ITR 18 (Bombay) . (ii) Suganchand Chandanmal vs ITO (1997) Tax LR 1046 (Calcutta).

(iii) Indo- European Machinery Co. vis CIT 28 ITR 493 (Punjab).

(iv) A. Govindarajula Mudaliar vis CIT 34 ITR 807 (SC). (v) Balhadra Chand Munnalal vis CIT 33 ITR 781 (Allahabad).

13.4 It was pointed out by the ld. AR that in Addl CIT v/s Precision Metal Works (1985) 156 ITR 593 the Delhi High Court has held that where certain deposits are found in the books of firm in the name of partner, it is not open to treat such deposits as income of the firm. Therefore, the Ld AR submitted that in this case as the deposit is by the partner who is a separate tax payer, in the assessment of firm no addition was called for.

13.5 In the instant case, according to Ld AR, the firm received the money by its partner Mr. Pankaj Gupta. Mr. Pankaj Gupta received the cheque from Mr. Om Prakash Gupta (father). Both are available and have confirmed the transactions with PAN No. & bank a/c details. Under the provisions of law, asking source of source is not justified. However Mr. Om Prakash Gupta filed his sales tax return, sales, & purchase bills, his books of accounts & balance sheets, filed an affidavit on oath before the AO in confirmation of facts & loan, given his PAN No. and over 10 years old assessment orders etc. Inspite of all these evidence on record of the AO and personal appearance of Mr. Om Prakash 29 ITA No.3803/Del/2010 ITA No.4117/Del/2010

Gupta before AO, he had not found the source of source satisfactorily explained more than enough has been done by the appellant in this case to discharge the onus laid by law and without anything contrary on record, merely on doubt, the AO has discarded all the evidence before him. This by any standard is not justified and the addition of Rs.l1 lakhs so made needs to be deleted. 13.6 On the other hand, the ld DR supported the order of the authorities below and does not want us interfere in the same.

13.7 We have heard both the parties and have perused the records, we find that the AO made an addition of RS.11,00,000/- on account of addition to the capital of the Partner, Shri Pankaj Gupta. The reason given by the AO is that the genuineness and credit worthiness of the credit in the partner's account has not been proved. The CIT(A) has confirmed the same by observing "I observe that there exists every chance that the income from the undisclosed source was returned through his father and appellant failed to prove all these improbabilities". We find that the finding of the AO on this issue and the observation of the CIT(A) on the same are both legally as well as factually wrong. It is a case of the partnership firm and Mr. Pankaj Gupta is one of the Partner. Mr. Pankaj Gupta is being assessed individually and the firm has received the amount from its partner. The partner has confirmed the amount and has also given the source of the said amount and corroborated the same. Thus there is no reason for making an addition in the hands of the firm as held in CIT vs Rameshwar Aass Suresh Pal Cheeka 208 CTR 459 (P&H); CIT vs Jaiswal Motor Finance 141 ITR 706 (All) and Metal & Metal of India 208 CTR 457 (P&H).

13.8 We find that before the AO, Mr. Pankaj Gupta (Partner) has led evidence in support of this amount of Rs.11,00,000/-. This amount, according to him, was received from his father, Shri Om Prakash Gupta, who is an income tax payer for the last 30 years. To prove the identity, creditworthiness and genuineness of 30 ITA No.3803/Del/2010 ITA No.4117/Del/2010

the transaction, the source i.e. Shri Om Prakash Gupta's confirmation affidavit, assessment order passed in his case and computation, balance sheet for the last 10 years were filed before the AO including the balance sheet of the firm, Jagan Nath Tea Co. from where this money has been paid by the father to his son. Copy of the purchase ledger, copy of bank account of M/s. Jagan Nath Tea Co. were also filed and he personally appeared before the AO. However, we find that the AO and the CIT(A) have simply ignored all these evidences and merely on surmises and conjectures without any basis has confirmed the addition. We find that the assessee firm having discharged its burden of proof, the onus was on the AO, thereafter to either accept the same or disprove the evidence produced by the assessee by cogent materials or the impugned addition is bad in the eyes of law and has to necessarily go. However, we would like to add that in such cases, when the assessee has discharged the initial burden of proof, then if the AO is not satisfied as to the source of source, then he should take steps to initiate action against the source of source i.e. in this case, Shri Om Prakash Gupta in accordance to law and not make the addition on the assessee/appellant. In view of the above detailed discussions and precedents cited, we delete the addition of Rs. 11,00,000/- and accordingly decide the ground no. 4 in favor of the Assessee.

14. The ground no. 5 is about not allowing deduction under section 80IB of the Act, claimed by the assessee. While rejecting the claims of the assessee, the Ld. CIT(A) has observed that the assessee has made the claims during assessment proceedings vide letter dated 17.12.2009 and the documents were filed but the AO kept silent on this issue. However, the ld. CIT (A) has rejected the said claim of the assessee on the following reasons :-

31 ITA No.3803/Del/2010 ITA No.4117/Del/2010 a) The assessee did not furnish audit report in the prescribed form i.e. Form No. 10 CCB with the return of income for claiming the deduction u/s. 80-IB.

b) The assessee did not claim the deduction u/s. 80-IB at the time of filing the return of income and has not furnished any reason for this omission.

c) The assessee filed the return of income on 29.10.2007, notice u/s. 143(2) was issued on 24.9.2008. The assessee has not submitted any reasonable and sufficient cause for the reason why he claimed for deduction only on 17.12.2009, i.e. at the fag end of the assessment proceedings. The AO was not having sufficient time to verify the claim made by the assessee.

14.1 Before the assessment proceedings concluded, the assessee claimed that it is eligible for deduction under section 80IB since it is a small scale industrial undertaking manufacturing fabric. We find that the assessee in this regard has filed evidences before the AO in the form of Certificate of registration with the SSI to satisfy that the unit has started production before 31.03.2002. It also filed letter in December 2009 for claiming this deduction u/s 80IB along with various documents and registration certificate. The AO has not adjudicated this issue and the ld. CIT (A) has not allowed the deduction claimed u/s 80IB during appellate proceedings by stating that the claim was submitted before the AO at the fag end of the assessment proceedings. The assessee having made the claim has to prove that it is eligible as per section 80IB. There is no reason why the same has not been adjudicated and if the assessee fulfills all the conditions 32 ITA No.3803/Del/2010 ITA No.4117/Del/2010

necessary to qualify for the claim prescribed u/s 80IB then the deduction needs to be allowed, so in view of the aforesaid facts and circumstances, it would be ideal if the issue is remitted back to the file of AO to examine the claim of the assessee afresh. Needless to add that the assessee should be granted adequate opportunity of being heard before passing the order on this claim of the assessee.

15. The ground no. 7 is regarding confirmation of addition of Rs. 6098/- made by the AO on account of difference in accounts of the assessee and the supplier, M/s Tulsi Ram Ghansham Dass. This issue was not pressed because of smallness of the amount in issue, so the same is dismissed. 15.1 The ground no. 8 relates to not allowing the credit of TDS claimed by the assessee along with the return of income. Ld. AR submitted that the return in this case was filed online and the copy of acknowledgment was attached. As per returned income of Rs. 5,34,123/- a tax (incl. education cess etc.) was due at Rs. 1,79,790/-. The TDS was claimed at Rs. 6,82,733/-. In the ITNS-150, the credit for TDS of this sum was totally absent / denied. However, no reason has been given for the same in assessment order nor on ITNS-150. Though in the concluding para of assessment order (under appeal), direction was given by the AO for allowing credit for the prepaid taxes but no such credit has been given in tax calculations. So, according to the ld. AR, the claim and details were there in the return filed, so the denial of credit for TDS by the AO is not justified. Hence, it was prayed that the credit for TDS of Rs. 6,82,733/- be allowed to the assessee. We find that as the assessment order has been passed on last date of time barring limitation i.e. 31.12.2009, though the AO has mechanically directed to allow the credit for prepaid taxes, however, it has not been done and the ld. CIT (A) is also silent on this issue. So, it would be ideal for the issue be resolved by the AO himself, so we remit this issue also back to the file of the AO, to give credit to prepaid taxes in accordance to law.

33 ITA No.3803/Del/2010 ITA No.4117/Del/2010 16. As regards ground no. 9 is concerned, which is related to levying interest under section 234B and 234C, the same is consequential in nature and needs no adjudication.

17. In the result, the Revenue Appeal is dismissed and the Assessee's appeal is partly allowed for statistical purposes.

Order pronounced in the Open Court on 17/07/2015.

Sd/- sd/- (N. K. SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 17/07/2015 TS Copy forwarded to

1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT

ASSISTANT REGISTRAR ITAT, New Delhi