Superb Agrovet Inds. (P) Ltd.,, ... vs Department Of Income Tax

The A.C.I.T., Vs. M/s Superb Agrovet Inds.(P) Ltd., Circle 6(1), 583, Indl.Area, Phase-IX, Chandigarh. Mohali. PAN: AACCSO407Q (Appellant) (Respondent)

Appellant by : Shri Manjit Singh, DR Respondent by : Shri Tej Mohan Singh

Date of hearing : 07.05.2015 Date of Pronouncement : 19.05.2015

PER BHAVNESH SAINI, J.M. :

This appeal filed by the Revenue is directed

against the order of learned Commissioner of Income Tax

(Appeals), Chandigarh dated 3.3.2006, on the following

ground :

"1. On the facts and circumstances of the case, the Ld. CIT (A) vide appellate order No. 42/P/04-05 dated 03.03.2006 has erred in law and on the facts of the case in deleting the addition of Rs.1,33,73,713/- with regard to inflated expenses claimed by the assessee on account of transportation and handling of molasses."

2 2. We have heard the learned representatives of both

the parties and perused the material available on record.

3. The brief facts are that the assessee company was

incorporated on 11.10.1995. The assessee company

commencing from the assessment year 1997-98 had been

trading as suppliers of molasses to various distilleries in

Punjab for manufacture of IMFL (Indian Made Foreign

Liquor). The molasses is the bye-product in the

manufacture of sugar from sugarcane and it is a seasonal

product whose cost fluctuates quite substantially. The

distilleries require molasses for manufacture of IMFL

(Indian Made Foreign Liquor) and PML (Punjab Medium

Liquor) all throughout the year. The molasses is a highly

controlled commodity, which is procured from the sugar

mills and transported to the distilleries under permits

issued by the Excise & Taxation Departments of the

concerned States.

4. The assessee company had filed its return for the

assessment year under appeal on 31.10.2001 declaring an

income of Rs.51,38,948/-. The said return was

accompanied by the audited accounts. The assessee

company during the year under consideration for the first

and last time was awarded a contract through agreement

dated 26.04.2000, which entered into with the Excise &

Taxation Commissioner, Punjab to supply 10 lakh quintals

of molasses to four distilleries of Punjab for the

manufacture of PML at the flat F.O.R. (Free on Rail) rate of 3

Rs.259.25 per quintal. The four distilleries are located at

Banur, Patiala, Hamira and Khalsa i.e., at varying distances

from the sugar mills supplying the molasses. The entire

supply of this massive quantity of 10 lakh quintals of

molasses was to be made by the assessee company by

February, 2001, i.e., within a period of about 10 months

and any failure was fraught with grave penal consequences

including invocation of the bank guarantee of Rs.3 crores,

which was required to be furnished by the assessee company

under the said agreement. The system of billing as per the

agreement was that the bills in respect of the supplies of

molasses were directly to be raised by the sugar mills on the

distilleries and the differential between the contracted flat

rate of Rs.259.25 per quintal and the bills raised by the

sugar mills were to be paid by the distilleries to the

assessee company as 'transportation & handling' charges.

5. Since 10 lakh quintals of molasses could not be

sourced entirely from the sugar mills of Punjab, the

assessee company procured 4,57,515 quintals of molasses

from the sugar mills in Haryana and western Uttar Pradesh.

The transportation of the molasses from the sugar mills

located in the three States of Punjab, Haryana and UP to the

four distilleries in Punjab was carried out by the assessee

company through 16 transporters, particulars of whom are

mentioned on Page-2 of the assessment order. Out of these

transporters, twelve transporters were located in

Muzaffarnagar (western UP), three transporters were in 4

Mohali & Ludhiana (Punjab) and one transporter, namely,

M/s Ganpati Transport Co. was from Rohtak (Haryana).

The assessee company paid flat rate of Rs.82.50 per quintal

for transportation & handling of the molasses from the UP

sugar mills and flat rate of Rs.69/- per quintal for

transportation & handling of the molasses from the Haryana

sugar mills, irrespective of the distance between the point of

origin and the point of destination. The assessee company

for transportation within the State of Punjab, paid different

rates based on distances and on whether or not the

'handling' of the molasses was got done by another concern,

namely, M/s Santokh Ram Narinder Nath.

6. The Assessing Officer examined the claim of

the assessee for the transportation & handling charges and

was of the opinion that the flat rates as also the distance

based rates paid by the assessee company were not

commensurate with the prevailing market rates. The

Assessing Officer was of the view that no prudent

businessman would have paid such high rates to the

transporters and concluded that the over billed amounts

must have found their way back to the assessee company.

The Assessing Officer has made a detailed assessment order

and for the sake of brevity the same is not being reiterated

here. It would be enough to mention that the Assessing

Officer had made total disallowance of Rs.1,38,46,010/- out

of the transportation & charges as under :

(a) An amount of Rs.71,01,534/- was disallowed on the 5

transportation of molasses from Haryana to the distilleries at Chandigarh and Patiala by uniformly applying the rate of Rs.38/- per quintal which was paid to the transporter M/s Ganpati Transport Co., Rohtak (Haryana). While making the disallowance, the Id. A.O. has also compared the flat rate paid by the appellant vis-a-vis the distance rates paid by M/s Chandigarh Distillers & Bottlers Ltd., Chandigarh and M/s Patiala Distillers & Manufacturers Ltd., Patiala and concluded that the rate paid by the appellant was excessive;

(b) An amount of Rs.25,16,218/- was disallowed on the transportation of molasses from UP to the distilleries at Chandigarh and Patiala by applying the flat rate of Rs.64.50 per quintal which was based on the distance related rates paid by M/s India Glycols Ltd. and M/s Vam Organic Chemicals Ltd.

who are also the consumers of molasses, albeit, on a regular basis unlike the appellant and in much larger quantities of the order of 50 lakh quintals per annum;

(c) An amount of Rs.37.55,961/- was disallowed on the transportation of molasses within Punjab by uniformly applying the lowest rate of Rs.33/-

per quintal which was paid to the transporter M/s Dinesh & Co. by rejecting the assessee's contention that this rate was lower because of the short Distance involved and also because the said rate did not include the handling charges separately paid to M/s Santokh Ram M/s Narinder Nath. While making the disallowance, the Id. A.O. relied on the inculpatory statements of Shri Dinesh Bansal, prop, M/s Dinesh & Co., Ludhiana and Shri Harpal Singh, brother of Shri Amarjit Singh, prop., M/s Bedi Carriers, Ludhiana, which are annexed with the impugned assessment order. Shri Dinesh had deposed before the A.O. that no 'handling' of the molasses transported by him had been done by M/s Santokh Ram Narinder Nath. Shri Harpal Singh had deposited that over billing is routinely done in the transportation business and he had returned back the over billed 6

amount to the appellant company after withdrawing the same in cash from his bank account, although he did not remember what exact amount was returned back by him. The assessing officer has additionally held that out of the aforesaid amount of Rs.37,55,961/-, a sum of Rs.l4,95,302/- (should have been Rs, 19,34,533/-as per the A.O.'s formula) is also hit by section 40A(2)(b) being excess payment made to Shri Prabal Mittal, Prop., M/s New Janta Transport Co., Mohali, son of Shri A.K. Mittal, MD of the appellant company;

(d) An amount of Rs.4,72,297/- being the handling charges paid to M/s Santokh Ram Narinder Nath was disallowed relying on the aforesaid inculpatory statement of Shri Dinesh Bansal. Prop. M/s Dinesh & Co., Ludhiana.

6. The assessee challenged the above addition before

the learned CIT (Appeals). The question before the learned

CIT (Appeals) was whether the assessee had made an

inflated claim for expenditure incurred on transportation

and handling of molasses. The assessee filed written

submissions which are forwarded to the Assessing Officer

for verification and comments. The learned counsel for

assessee has made further submissions and also filed Paper

Book. A supplementary Paper Book containing pages from

179 to 183 was also filed by the learned counsel for

assessee. Besides other documents, these Paper Books

contained the sworn deposition of Shri Dinesh Bansal

retracting from his statement before the Assessing Officer

and affirming that he had agreed to the rate of Rs.33/- per

quintal keeping in view the short distances involved and

also confirming that the handling of molasses transported 7

by his concern was done by the representatives of M/s

Santokh Ram Narinder Nath; sworn deposition of the

partner of M/s Santokh Ram Narinder Nath confirming that

handling was done for both M/s Dinesh & Co. and M/s Bedi

Carriers, Ludhiana; a certificate from M/s Santokh Ram

Narinder Nath to the effect that they had arranged M/s Bedi

Carriers, Ludhiana, for transportation of molasses for the

assessee company and had paid transportation charges as

agreed and nothing was received back by the assessee

company and duly sworn depositions of S/Shri Jasveer

Singh & Harjinder Singh in confirmations of their

signatures, which have been looked upon with suspicion on

page-5 of the assessment order.

7. The learned counsel for assessee pointed out that

the subscribed capital of the assessee company as on 31.

3.2000 was Rs.48 lacs and after including reserves &

surplus of Rs.18 lacs, the total capital worth of the

company amounted to Rs.66 lacs, as against which, its

fixed assets as per WDV were at Rs.62 lacs. It was stated

that these figures clearly show that the company had no

surplus capital or liquidity/working capital either to invest

in stocks or in trade debtors. The learned counsel for

assessee has explained that upto the preceding assessment

year 2000-01, the assessee company was only trading in

molasses ex-godown and it had no direct dealings with the

transporters. It was only during the present assessment

year i.e. 2001-02, that the assessee company could secure 8

a contract for supply of 10 lacs quintals of molasses to the

four distilleries of Punjab for manufacture of PML (Punjab

Medium Liquor) @ Rs.259.25 per quintal F.O.R. (Free on

Rail) basis consolidated to the distilleries including taxes.

The excise duty and freight charges as per agreement

executed with the Excise & Taxation Commissioner, Punjab

dated 26.4.2000. The learned counsel for assessee has

strongly emphasized that time was of the essence in the said

contract, which can be straight away discerned from a plain

reading of its clauses. It Is pointed out that the assessee

company would have been visited with disastrous financial

penalties in the event of any failure to abide with the terms

of the contract and it was really a do or die situation for the

assessee company. The learned counsel for assessee

submitted that the assessee company neither had the

expertise nor the infrastructure nor the funds to handle

such a mammoth supply of molasses which required

deployment of about 100 specialized tankers on a day-to-day

basis. It is pointed out that the rate at which the molasses

had to be supplied on F.O.R. basis to the distilleries had

also been fixed for the whole year, which in itself, was an

extremely risk prone proposition as rates of molasses were

highly fluctuating. The learned counsel for assessee has

submitted that availability of molasses from sugar mills is

more during sugar cane crushing season, which is usually

from 2nd week of October to 31st March latest. The rates of

molasses during the crushing season are less as compared

to the rates thereafter and are also dependant on what 9

quantity has been stored by the sugar mills and what

capacity the mills have to store the material. It is pointed

out that 10 lacs quintals of molasses could not have been

made available either from all the sugar mills in Punjab or

Haryana but had to be arranged from U.P. also. The learned

counsel for assessee has explained that under this situation

the assessee company was in a real predicament, viz., either

to fulfill the terms of the contract or to loose heavily

including forfeiture of the Bank Guarantee of Rs.3 crores.

It is submitted that in order to insulate against any

impending losses, the Managing Director of the company ran

all over the place to ensure supplies of molasses to the four

distantly placed distilleries in time.

8. The learned counsel for assessee has further

submitted that in Punjab, the company sought the services

of a decades old concern dealing in molasses, namely, M/s

Santokh Ram Narinder Nath, Phagwara for proper handling

of molasses. It is submitted that the said 'handling' is not

mere physical lifting or transportation of the commodity but

it includes :

a) Liaison wi t h the Excise & T axation D e p a r t me n t f or securing necessary permits for the lif ting/tr ansportation of mo l a s s e s from sugar mills;

b) Q u a l i t y c h e c k s o f mo l a s s e s t o e n s u r e t h a t

t h e y c o r r e s p o n d t o t h e a g r e e d s p e c if i c a t i o n s o f mo l a s s e s , i . e . , n o t l e s s t h a n 4 2 % s u g a r content in the present case;

10

c) Ensuring that mo l a s s e s is lif ted and delivered at the right place and in time;

d) Supervise loading of mo l a s s e s f r o m s u g a r mills and unloading at Distilleries.

9. The learned counsel for assessee submitted that in

U.P., Shri Sudhir Goel and Shri Satya Parkash Goel,

Proprietors, M/s Sidharth Bulk Carrier, 45-B, New Mandi,

Muazaffar Nagar M/s. Aggarwal Bulk Carrier at the same

address respectively, who were already into trading and

transportation of molasses and were old family friends of

the Managing Director, Shri A.K.Mittal and Director, G.K.

Jain were contacted and they unequivocally confirmed

having done the transportation of molasses from Haryana

and U.P. sugar mills to distilleries in Punjab at the rates of

Rs. 69/- and Rs. 82.50 per quintal. Thus, to avoid loosing

financially and to fulfill the agreement in time, the supplies

of molasses to distilleries in Punjab as per quantity

earmarked for each distillery by the Excise Department, the

assessee company in its business prudence finalized

contracts for transportation of molasses from U.P. and

Haryana by various transporters at the flat rates of

Rs.82.50 and Rs.69/- per quintal of molasses, whereas in

Punjab the rates were finalised on the basis of the

distances undertaken by the Transporters. The learned

counsel for assessee also submitted that in Haryana, the

assessee company finalised the rate of molasses at

Rs.250.16 per quintal on F.O.R. basis to the distilleries at

Banur and Patiaia with one M/s. Ahuja Barrel Supply 11

Company, New Anaj Mandi, Rohtak (Haryana), as per

purchase order dated 5.8.2000 (copy placed at page 114 of

the Paper Book) in terms of which that party had to supply

molasses to distilleries at Banur and Patiaia at the rate of

212.16 per quintal to be directly billed by the sugar mills to

the aforesaid distilleries and the balance of Rs.38/- per

quintal was to be billed by them directly or through their

transporter namely, M/s Ganpati Goods Transport Co. as

transportation charges to the assessee company. The

learned counsel for assessee submitted that by so arranging

the transportation of molasses, the assessee company not

only adhered to terms of the contract with the Excise &

Taxation Commissioner, Punjab, but also made profit of

Rs.9.09 per quintal in the said transaction. The learned

counsel for assessee contended that the Assessing Officer

had grossly failed to understand the reality of this

transaction while making the disallowance of

Rs.71,01,534/- on a complete misreading of the facts. The

learned counsel for assessee has drawn attention to the

fact that at the of the financial year i.e. as on 31.3.2001

the assessee Company had to receive Rs,1,23,76,269/- from

the distilleries representing balance payment on molasses

and the company had to pay Rs.1,35,52,021/- to various

transporters who had done the transportation work. It was

submitted that in order to meet its requirement of funds,

the assessee company was compelled to raise additional

funds during the year under consideration by way of loans

from Directors, Shareholders and other corporate bodies 12

amounting to Rs.51,40,999/-. The assessee is aggrieved

that without appreciating these circumstances and solely on

the basis of outstanding transportation charges payable to

the molasses transporters, the Assessing Officer picked up

the case for scrutiny without observing that the assessee

company had returned income at Rs.51,38,948/- and

started making all roving and fishing enquiries into the

reasonableness of the transportation charges paid to

various transporters without considering the settled

position in law that it was for the businessman to so

arrange his affairs as would be in the best of interest of the

business. The learned counsel for assessee vehemently

contended that what expenditure is to be incurred in the

course of the business is not within the domain of the

Income Tax Department. It was submitted that expenditure

may be incurred voluntarily and without any necessity and

if it is incurred for promoting the business and to earn

profits, the expenditure is an allowable deduction even if

there is no compelling necessity to incur such expenditure

or that somebody other than the assessee is also benefited.

It was submitted that commercial expediency in order to

facilitate the carrying on of the business is the true test for

allowing an expenditure as deduction. The learned counsel

for assessee has placed reliance on the decisions mentioned

as under :

i) (1960) 38 ITR 601 (SC);

ii) (1961) 42 ITR 219 (SC);

iii) (1964) 53 ITR 140 (SC); 13

iv) (1966) 60 ITR 277 (SC):

v) (1967) 63 ITR 207 (SC);

vi) (1972) 84 ITR 735 (SC);

vii) (1973) 91 ITR 544 (SC):

viii) (1979) 118 ITR 261(SC):

ix) (1982) 133 ITR 756 (SC),

10. The learned counsel for assessee has pointed out that

without realizing and appreciating the circumstances as

they existed at the time of allotment of contract by the State

Government for supply of molasses, its magnitude and the

risk involved, the Assessing Officer issued commission to

the ADI (Inv), Meerut for summoning all the twelve

transporters in U.P. for recording their statements so as to

elicit the genuineness of the transportation charges paid

and payable to them. Our attention was invited to the fact

that all the transporters duly appeared before the ADI

(Investigation) in response to summons under section 131 of

the Act and they deposed categorically that they had done

the transportation of molasses for and on behalf of the

assessee company at the flat rate of Rs.82.50 per quintal

and also confirmed the transportation charges as were

receivable by them. It was also confirmed that the

payments received by them from the assessee company had

duly been declared in their returns and credit had been

claimed for the tax deducted at source. The learned

counsel for assessee was aggrieved that still not being

satisfied with the report of the ADI (Investigation) 14

and/or the confirmation by the transporters of having

charged the rates as shown in the books of account, the

Assessing Officer again issued summons under section 131

of the Act to the transporters at U.P. insisting upon their

personal presence in his office at Chandigarh. Our

attention was also drawn to the fact that two of the

transporters namely, Shri Jang Singh of Jang Singh & Co

and Shri Harjinder Singh of J.S. Transport Agency in

response to summons under section 131 of the Act, wrote

back to the Assessing Officer vide their communications

dated 22.11.2003. Shri Harjinder Singh wrote as under:

"1. That in connection with enquiry about my dealing with M/s Superb Agrovet Industries (P) Ltd., Mohali, I was earlier required to attend before the Asstt. Director of Income-tax (Investigation Wing) at Meerut on 10-10-2003. My statement on oath was recorded by the learned Astt. Commissioner of investigation, Meerut, and I furnished complete facts, derails of my dealings and all related documents & papers to him.

2. The learned Assistant Director of Investigation had tallied and verified the payments received by me from the said Company and statement on oath in regard to all the issues raised in your present notice were recorded at Meerut. I am regularly assessed to Income Tax at Muzaffarnagar and my P.A.N. No. has been mentioned above.

3. That I have been cooperating in the investigation throughout and have already submitted all the relevant and connected documents and papers including assessment orders, account statement. Bank statements and copies of the hills far the two years as asked for earlier and once again now. I have nothing to add further to my statement or documents already placed on records of the department.

15 4. Kindly treat the statement already recorded at Meerut and the earlier filing of all relevant records and documents before the Department, as sufficient compliance to your present notice U/s, 131, Your new Summons issued now for 27-11-2003 on the same points appear to he just to put undue pressure and to cause harassment to the assessee and to put hindrance in his day to day business of plying trucks which is his means of livelihood.

5. That in case, there are some other points besides the three points mentioned in your notice (already complied with the by the assessee) it is humbly requested that you may kindly issue commission to any local Income-tax Officer at Muzaffarnagar who may examine the assessee here if so deemed necessary even now.

6. That the statement on oath already recorded and the documents and records already furnished to the department be kindly treated as sufficient compliance to your present Summons."

11. Shri Jang Singh, Proprietor of M/s J.S Transport

Agency also similarly written to the Assessing Officer. The

learned counsel for assessee submitted that these

statements as also others, depose obviously not only having

carried out transportation for and on behalf of the assessee

c o m p a n y a t t h e f l a t r a t e s o f R s . 8 2 . 5 0 a n d Rs.69/- per quintal

of molasses but also unambiguously confirmed having received

the balance payments outstanding as on 31.03.2001 in the

immediately succeeding year. It is argued that the Assessing

Officer unnecessarily and just on baseless suspicion, inferred

that transportation expenses had been inflated and disallowed a

huge amount of Rs.1,38,46,010/- which is completely in violation

of the fundamentals of sound administration of justice d e l i v e r y 16

system, to make known that there has been proper and due

application of mind to the issue, besides being based on

principles of natural justice. The learned counsel for

assessee contended that the suspicion, however strong it

may be, cannot lead to any adverse inference being drawn

against the assessee. It is submitted that there is no

presumption in favour of illegality of a transaction; in fact

the presumption is the other way round. Reliance was

placed on the following judgments :

i) 34 ITR 328 (Mad);

ii) 117ITR 371 (Ker);

iii) 190 ITR 672 (Ker);

iv) 211 ITR 492 (All).

12. The learned counsel for assessee argued that the

Assessing Officer had gravely erred in basing his conjectural

conclusions on the untested statements of S/Shri Dinesh

Bansal and Harpal Singh brother of Shri Amarjit Singh,

which are annexed with the assessment order. It is

contended that these statements were recorded behind the

back of the assessee and no opportunity for cross

examination was accorded by the Assessing Officer. The learned

counsel for assessee has drawn the attention to the sworn

statements of Shri Dinesh and M/s Santokh Ram Narinder Nath

placed in the paper books and it was stated that an opportunity to

cross examine Shri Dinesh Bansal, as also S/Shri Amarjit

Singh/Harpal Singh of M/s Bedi Carriers may be a c c o r d e d 17

to the assessee. Reliance was also placed on the following

decisions :

i) 45 ITR 206 (SC); ii) 125 ITR 713(SC); iii) 172 ITR ------(SC)

13. The learned counsel for assessee also made

detailed submissions in respect of each of the subject

disallowances, so as to demonstrate, that the Assessing

Officer had not adhered to the basic tenant, that only like

can be compared with like. It is stated that the

comparisons made by the Assessing Officer with the rates

charged by the transporters for transportation of molasses

to either M/s India Glycols Ltd. or M/s Vam Organic

Chemicals Ltd. or M/s Chandigarh Distillers & Bottlers Ltd.,

or M/s Patiala Distillers & Mfg. Ltd., was completely a

misnomer and uncalled for as all these distilleries are

making regular & huge bulk purchases of molasses

directly from the sugar mills for the past many number of

years and they are in a position to dictate their rates to the

transporters. On the other hand, the assessee company

had to pay the rates of transportation as demanded, leaving

no margin for any uncertainties to avoid ending up in

financial disaster. It was pleaded that the entire

disallowance of Rs.1,38,46,010/-was based on nothing more

than suspicion and conjectures and the same deserves to be

deleted in toto.

18

14. The aforesaid submissions and Paper Books

tendered by the learned counsel for assessee were made

available to the Assessing Officer for comments. In

response, the Assessing Officer had intimated that Shri

Dinesh Bansal, Prop, M/s Dinesh & Co., Shri Narinder Nath

Ahuja, partner of M/s Santokh Ram Narinder Nath and Shri

Prabal MittaL Prop. M/s New Janta Transport Co., Mohali

(son of Shri A.K. Mittal. MD of the assessee company) had

appeared and deposed before him during the remand

proceedings and they had also been subjected to cross

examination by the learned counsel for assessee. The

Assessing Officer admitted that all three of them i.e. S/Shrl

Dinesh Bansal, Narinder Nath Ahuja & Prabal Mittal had

supported the case put up by the assessee company. In

fact, Shri Prabal Mittal deposed that he had charged much

higher rates from M/s Jagjit Industries Ltd., Hamira, and he

produced copies of the bills in support of the contention.

The Assessing Officer had also informed that Shri Amarjit

Singh, Prop. M/s Bedi Carriers, Ludhiana, and his brother

Shri Harpal Singh did not appear before him for cross-

examination, despite three summons being issued to them

under section 131 of the Act. All that they did, was to send

a letter to the Assessing Officer requesting that a copy of

their earlier statements be supplied to them and that they

be examined at Ludhiana because it was inconvenient for

t h e m t o c o m e t o C h a n d i g a r h . The Assessing Officer forwarded

the record of the remand proceedings to the office of CIT

(Appeals) in the form of a Paper Book running into 64 p a g e s . 19

But be that as it may, the Assessing Officer opined that the

other circumstances mentioned in the assessment order

were sufficient to establish the department's case and held

that all the impugned disallowances deserve to be

sustained.

15. In his rejoinder on the remand report, the learned

counsel for assessee has drawn special attention to the

following statement made by the Assessing Officer in

paragraph 16(b) of the said report :

"However, regarding the handling charges of molasses amounting to Rs.4,72,297/- disallowed by the Assessing Officer, it is submitted that Shri Narinder Nath Ahuja Prop. M/s. Santokh Ram Narinder Nath has furnished copies of the bills and has also confirmed these expenses in his statement dated 01-12-2004. "

16. The learned counsel for assessee also invited

attention to the fact that both the transporters Shri Dinesh

Kumar, Prop. M/s Dinesh Kumar & Co. and Shri Prabal

Mittal, Prop. M/s New Janta Transport Co., Mohali, had

categorically confirmed during the remand proceedings that

they had charged transportation rates from the assessee as

agreed to and the bills were raised therefor. Shri Dinesh

Kumar had also deposed during the remand proceedings,

that during the course of his examination at the time of

the assessment proceedings, he had not correctly

understood the connotation of the word, "handling" which

at that point of time he thought to be representing physical

lifting only. The learned counsel for assessee also drawn 20

attention to paragraph 14 of the remand report where the

Assessing Officer has mentioned as under :-

"Shri Prabal Mittal son of Shri A.K. Mittal, Prop. M/s. New Jama Transport Company, Mohali was also produced by the assessee and he was examined on oath on 10-11-2004 (Kindly see pages 8 to 12 of the Paper Book). He has confirmed to have charged transportation charges from M/s. Superb Agrovet at the rates of Rs.40/- to Rs.42/- per quintal and further stated that during the year, he charged transportation charges from M/s. Jagjit Industries Ltd.. Hamira at Rs.55-50p. per quintal and Rs.75/- per quintal for transporting molasses from sugar mills of Harvana and Punjab. He has produced photocopies of the bills in support of his contention."

17. The learned counsel for assessee has submitted

that no disallowance under section 40A(2)(b) of the Act can

at all be made in these circumstances.

18. The learned counsel for assessee vehemently

contended that the so-called incriminating statement of

Shri Harpal Singh, brother of Amarjeet Singh, Prop. M/s

Bedi Carriers. Ludhiana, as recorded during the assessment

proceedings, was merely a case of putting words in the

mouth of an illiterate person, in complete violation of all

judicial norms. It is stated that in law the statement

recorded behind the back of the assessee, does not

represent any material evidence and has necessarily to be

ignored. It is submitted that despite repeated summons

under section 131 of the Act neither Shri Amarjit Singh nor

Shri Harpal Singh appeared for cross-examination and, 21

therefore, in view of the decision of the Hon'ble Apex Court

in the case of Kishan Chand Chela Ram Vs. CIT, 125 ITR

713, the statement of Shri Harpal Singh as recorded by the

Assessing Officer would merit to be eliminated as of no

consequence at all. The learned counsel for assessee

submitted that there was no inflation in rates of

transportation as paid by the assessee company and all

transporters had duly claimed credit for the TDS in their

respective returns of income. It is submitted that the total

disallowances may be deleted.

19. The learned CIT (Appeals) considering the

submissions of the assessee, the report of the Assessing

Officer and after careful consideration of the material on

record deleted the addition and allowed the appeal of the

assessee. The findings of the learned CIT (Appeals) in

paras 6 to 7 of the appellate order are reproduced as under:

"6. I have fully considered the facts on record and rival positions. It is important to remember that in the present case, there is no clinching evidence on the department record to show that the subject expenditure had not actually been incurred by the appellant or that a particular over billed amount had actually been rotated back by any transporter to the assessee company. It may be recalled that for its deductibility, a business expenditure is governed by the provisions of sections 30 to 36 and 37. For allowance u/s 37(1), the following conditions are to be satisfied, i.e., (a) there must be expenditure, (b) such expenditure must not be of the nature described in sections 30 to 36. (c) the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee, and (d) the expenditure must have been laid out wholly and exclusively for the purposes of the business or profession. The word 22

"wholly" refers to the quantum of the expenditure, while the word "exclusively" refers to the motive, objective and purpose of the expenditure. It is well settled that the expression "wholly and exclusively", does not mean "necessarily" and an expenditure to which one cannot apply a empirical or subjective standard is to be judged from the point of view of a businessman. The principle was exposited by the Apex Court in CIT Vs. Walchand and Co. Pvt. Ltd. 65 ITR 381 (SC) where the court had held thus:-

"In applying the test of commercial expediency for determining whether the expenditure, was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of-the businessman and not of the revenue ".

The same view was reiterated in J.K. Woollen Manufacturers vs CIT (1969) 72 ITR 612 (SC).

In CIT Vs, Dhanrajgiriji Raja Narshinghiraj (1973) 91 ITR 544, the Supreme Court had opined as under:-

"It is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best".

In fact, the Apex Court went on to further expound this view in the decision reported in 118 ITR 261 Sassoon J, David and Co. (P) Ltd. Vs. CIT where it was held:-

"Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it in incurred for promoting the business and to earn profits, the assesses can claim deduction under s. 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure".

23 The Gauhati High Court in the case of Narsingdas Suraj Mal Properties (P) Ltd. (1981) 127 ITR 221 relying upon the decision rendered by the Supreme Court in Eastern Investments Ltd. Vs. CIT ( 1951) 20 ITR at page 1 held that :-

"In the absence of fraud, the question whether a transaction had the effect of reducing the assessee 's taxable income or whether it was a prudent or judicious transaction or whether it was indispensable or necessary for the assessee to enter into the transaction, are all irrelevant in determining whether the expenditure relating to that transaction should be allowed u/s 37 of the Act. In our opinion, the said principle and considerations are directly applicable while considering the question of "business expenditure " under section 37 of the IT. Act".

The Gujarat High Court in CIT vs City Ahmedabad Spinning and Weaving Mfg. Co. (1994) 207 ITR 427 (Guj) had spoken thus:-

"Merely because the assessee's income, after incurring such expenses, was found to be little or negligible, it cannot be said that the said expenditure became an impermissible deduction."

The Delhi High Court in CIT vs DalmiaCement (P) Ltd. (2002) 121

Taxman706 (Del) has also reiterated the same principle thus:-

"The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was a nexus between the expenditure and the purpose of the business , the revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the hoard of directors and assume the said role to decide how much is a reasonable expenditure having regard to the circumstances of the case",

6.1 It is well settled that expenditure in the course of the trade which is unremunerative is none the less a proper deduction if wholly and 24

exclusively made for the purposes of the trade. The presence of a receipt on the credit side is not always required to justify the deduction of an expense [Tata Sons Ltd. Vs. CIT (1950) 18 ITR 460 (Bom); Travancore Rubber & Tea Co. Ltd, Vs. C. Ag. IT.(1961) 41 ITR 751 (SC)]. If an expenditure falling into the phraseology of section 37(1) fits in any one of the positive tests laid down in CIT Vs. Navsari Cotton & Silk Mills (1982) 135 ITR 546 (Guj), then it can be allowed as a business expenditure. And some of these positive tests are - (i) with a view to bring profits or monetary advantage either today or tomorrow, (ii) in order to losses in foreseeable future, (iii) for effecting economy in working which may pay dividends today or tomorrow, (iv) for removing inefficiency in the working, and (v) where the expenditure incurred is such as a prudent, pragmatic, ethical man of the world of business would conscientiously incur with an eye on promoting his business prospects subject to the expenditure being genuine and within reasonable limits.

6.2 It may be recalled that the provisions of section 40A (2) come into play when tax liability is sought to be artificially reduced by diverting business and profits to relatives associate concerns in the form of excessive payments for goods and services, etc. The section empowers the A.O. if he considers any such expenditure or payment to be excessive or unreasonable, the expenditure or payment shall be disallowed to the extent of its being excessive or unreasonable. The excessiveness has to be measured assessing the fair market value of the goods, services or facilities rendered and the legitimate needs of the business or profession or the benefit derived by, or accruing to, the assessee by supply of such goods, services or facilities against the quantum of the expenditure or payment made.

It is, however, settled that transactions even with relatives and associate concerns cannot be discarded and price paid therefore cannot be disregarded unless it is shown - and the onus in this regard is on the department - that the transaction was a sham one , or the value shown in the books was not the value really paid, or the transaction was not a bona fide one [Margabhai Kishabhai Patel & Co, vs. (1977) 108 ITR 54 (Guj)], relying on Sri Ramalinga Choodambikai Mills Ltd . vs. CIT (1955) 28 ITR 952 25

(Mad), CIT Vs. Keshavlal Chandulal (1966) 59 ITR 120 (Guj) and Das & Co. Vs. CIT (1962) 45 ITR 369 (Pat)]. It is also trite that in so far as the legitimate business needs of an assessee or the benefit derived by or accruing to the assessee from goods, services or facilities, etc., are concerned, these are not to be judged from the view point of the revenue but from the view point of the business man [Voltamp Transformers Pvt. Ltd. vs. CIT (1981) 129 ITR 105, 113 (Guj)].

6.3 In the present matter, it has to be borne in mind, that retraction from an Admission is permissible in law. The following authorities can be adverted to in this connection :

(a) Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala (1973) 91 ITR 18

(SC)

Held :

That retraction from admission was permissible in law. It was open to the assessee who made the admission to show that it was incorrect.

(b) Pangambam Kalanioy Singh Vs. State of Manipur AIR 1956 SC 9 (SO

Held :

That the confession, even if inculpatory, should be corroborated, if retracted. The corroboration has obviously to be done on the basis of independent evidence.

(c) Palani Swami Vs. State of Tamilnadu AIR 1956 SC 593 Held:

That where circumstances cast a suspicion on the genuineness of confession, corroboration is necessary.

(d) Satinder Kumar (HUF) Vs. CIT(1977) 106 ITR 64. 74 (HP) Held:

That it is true that an admission made by an assessee constitutes a relevant piece of evidence, but it cannot be relied upon as such, without considering assessee 's case that he proceeded on mistaken understanding of the true position.

26 (e) CIT Vs. Chrestain Mica Industries Ltd. (1977) 109 ITR 324 (Cal.) Held:

That admission of fact by the counsel constituted evidence against his client. Nevertheless, it was open to assessee to prove that such admission was wrong.

(f) CIT Vs. Ms. Doris S. Luiz (1974) 96 ITR 646, 648 (Kerala) Held:

Inspite of the admission it is incumbent on the department to establish by relevant proof that the amount in question was income in the hands of the assessee.

g) Krishan Lai Shiv Chand Rai vs CIT (1973) 88 ITR 293 (Punj) Held:

It is an established principle of law that a party is entitled to show and prove that the admission made by him previously is in fact not correct and true. In the instant case the assessee had definitely alleged that the amounts surrendered were not in fact his undisclosed income, that the hundis in favour of the creditors were genuine and that the surrender was made simply to avoid botheration. That being so, it was incumbent upon the Inspecting Assistant Commissioner to have afforded the assessee full opportunity to prove his assertions, it was an indisputable right which had been denied to the assessee without any justification.

It seems clear to my mind that the issue involved in the present matter would have to be decided de hors of what was stated before the Id. A.O. by both Shri Dinesh Bansal and S/Shri Amarjit Singh/Harpal Singh. This is because Shri Dinesh Bansal has subsequently retracted, albeit with the production of M/s Santokh Ram Narinder Nath and other supporting evidence including the TDS certificates. S/Shri Amarjit Singh/Harpal Singh did not tender themselves for the appellant's cross examination despite three summonses being issued to them. Quite clearly, in these circumstances, the department was enjoined in law to prove its case independently, following the ratios laid down in the authorities supra.

27 6.4 Now it is well known that cross-examination is the since qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. The assessee must be supplied the contents of all such evidence, both oral and documentary, so that he can prepare to meet the case against him. If an assessing authority is relying on the testimony of a witness, the assessee is to be afforded an opportunity to cross-examine him [CIT Vs. Eastern Commercial Enterprises (1994) 210 ITR 103, 110-11 (Cal)]. It is not open to the assessing authority to get over this hurdle on the plea that the witness had not been produced by the assessee [Pahar Chand & Sons Vs. State of Punjab (1972) 30 STC 211 (Punj); Banwarilal Sitaram Vs. State of Orissa (1974) Tax LR 1960 (Ori) and Gargi Din Jwala Prasad Vs. CIT (1974) 96 ITR 97 (All)]. It is well settled that a quasi-judicial or administrative decision rendered, or an order made in violation of the audi alteram partem rule, is null and void and can be struck down as invalid on that score alone [Swadeshi Cotton Mills Co. Ltd. Vs. Union of India (1981) 51 Comp Cas 210, 255 (SC) = AIR 1981 SC 818 and Maneka Gandhi Vs. Union of India, AIR 1978 SC 597]. The proposition is trite that hostile statements of third parties which are untested by cross examination, cannot be used against the assessee.

6.5 The law as regards to onus probandi is enunciated in the well- known Roman dictum :

a) Incuinbit Probatio Qui Dicit Non Qui Negat

b) Affirmanti Non Neganti Incumbit Probatio

The underlying idea embodied in the dictum is that the burden lies upon one who alleges and not one who denies the existence of the state of fact.

It is also well settled that the fate of an assessee cannot be decided by the revenue on the basis of surmises, suspicions or probabilities and no addition or disallowance can be sustained on mere ipse dixit of the Assessing Officer. Two landmark Constitutional Bench decisions of the Apex Court in Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC) and Dhirajlal Girdharilal Vs CIT (1954) 26 ITR 736 (SC) come to mind. In the case of Dhakeswari Cotton Mills Ltd., the highest Court of this land spoke thus - 28

"As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of Section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under Section 23(3). The rule of law on this subject has, in our opinion, been fairly and, rightly stated, by the Lahore High Court in the case of Seth Gurmukh Singh v. Commissioner of Income-tax, Punjab".

In Dhirajlal Girdharilal Vs CIT (1954) 26 ITR 736 (SC) the principle was exposited thus:-

"The learned Attorney-General frankly conceded that it could not be denied that to a certain extent the Tribunal had drawn upon its own imagination and had made use of a number of surmises and conjectures in reaching its result. He, however, contended that eliminating the irrelevant material employed by the Tribunal in arriving at its conclusion, there was sufficient material on which the finding of fact could be supported. In our opinion, this contention is not well founded. It is well established that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises".

It was also settled in Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC) that there is no presumption of bad faith against an assessee and even notoriety is no basis for making an 29

addition on a mere possibility. In Uma Charan Shaw & Ors vs. CIT (1959) 37 ITR 271 (SC) the basic principle was succinctly stated thus -

"There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in these matters".

6.6 It is hardly necessary to point out that a case can only be decided on its own facts, and the desire to base one's decision on another case in which the facts appear to be near enough, sometimes leads to error. It is well to remember the wholesome advice given by Lord Dunedin in Green v. Gliksten & Son Ltd that -

"in these Income-fax Act cases one has to try, as far as possible, to tread a narrow path, because there are quagmires on either side into which one can easily be led ........". To my mind, every matter has to be considered pragmatically keeping in view the vicissitudes and the exigencies of business, where it is not always possible to get things done or to anticipate the course of events with infallible precision. In my opinion and applying the principles exposited in the authorities supra, to the facts of the present case, the conclusion seems to be inescapable that the disallowances from out of the transportation & handling charges were not warranted. The impugned disallowances totaling to Rs.1,38,46,010/- are deleted.

7. In fine, the appeal is allowed."

20. The learned D.R for the Revenue relied upon the

order of the Assessing Officer. The learned D.R for the

Revenue submitted that the Assessing Officer collected all

the possible evidence against the assessee and it is well

settled that rigor of Evidence Act do not apply to the Income

Tax proceedings. The learned D.R for the Revenue relied u p o n 30

the decision of the Hon'ble Supreme Court in the case of

Sumati Dayal Vs. CIT,214 ITR 801 on the proposition that

the Courts and the Tribunals have to judge the evidence

before them by applying the principle of human probability. The learned D.R for the Revenue also relied upon the

decision of the Hon'ble Supreme Court in the case of ITO

Vs. M.Pirai Choodi, 334 ITR 262 and submitted that the

matter could have been remanded to the Assessing Officer

for giving opportunity to cross examine the witnesses, who

have deposed against the assessee at the assessment stage.

The learned D.R for the Revenue, however, fairly stated that

the Assessing Officer had made addition on estimated basis.

21. On the other hand, the learned counsel for

assessee reiterated the submissions made before the

authorities below and submitted that in the year under

consideration, it was the first and last contract with the

government department for supply of molasses to the

distilleries of Punjab. The assessee also gave bank

guarantee of Rs.3 crores. The tankers have quoted rates

which were paid by the assessee for transportation and

handling of the molasses as per the agreement with the

Excise and Taxation Commissioner (PB-24), 42% sugar

contents have to be supplied and that the time was the

essence of the agreement. Therefore, it is very specialized

job to be performed by the tankers. Therefore, whatever

amount was settled by them for supply of molasses to the

distilleries was reasonable and fair. He has referred to various

summons issued at the remand proceedings by the Assessing Officer 31

under section 131 of the Act to S/Shri Amarjit Singh and

Harpal Singh but they did not appear before the Assessing

Officer at the remand proceedings. Therefore, their

statements remained without cross examination at the

instance of the assessee. Therefore, it would not be read in

evidence against the assessee. Shri Prabal Mittal and Shri

Dinesh Bansal appeared before the Assessing Officer in the

remand proceedings and in their statements they have

supported the case of the assessee. Shri Narinder Nath

also furnished bills and confirmed the payments made by

the assessee. Therefore, the learned CIT (Appeals) was

justified in deleting the entire addition. No case of

unreasonable or excessive payment have been made by the

Assessing Officer. Therefore, the Departmental appeal has

no merit and may be dismissed.

22. We have considered the rival contentions and

material available on record. The facts as noted above are

not in dispute. It is not in dispute that the assessee was

awarded contract for supply of molasses to distilleries in

Punjab. It was a contract of bulk supply of molasses in

which the assessee also gave bank guarantee of Rs.3 crores

and assessee was to arrange the molasses from different

sugar mills. The time was the essence of the contract for

supply of molasses as well as sugar contents of minimum 42%

were to be supplied, otherwise the assessee would be subject to

penalty. It is also not in dispute that the price structure of

molasses was highly fluctuating and was dependent upon 32

various crushing seasons. The assessee claimed that since

it was the first year of business of the assessee for supply

of molasses, therefore, the assessee was dependent only

upon the experienced transporters having specialized

tankers for transportation. It was also explained before

the learned CIT (Appeals) that the handling of molasses was

a highly skilled job, which includes liaison with the Excise

and Taxation Department for taking permission for

lifting/transportation of molasses from sugar mills, ensure

and quality check of molasses and delivery at the specified

time and also to supervise entire work. The amounts paid

by the assessee to various owner/occupier of the various

tankers through bills have not been disputed by the

authorities below. The Assessing Officer issued commission

to the ADI (Investigation), Meerut for summoning all the

twelve transporters in U.P. for recording their statements so

as to confirm the genuineness of the transportation charges

paid and payable to them. The transporters appeared

before the ADI (Investigation) and have deposed

categorically that they have done transportation of molasses

for and on behalf of the assessee company and also

confirmed the transportation charges. The Assessing Officer

even summoned some of the transporters at the assessment

stage and they have confirmed receipt of transportation

charges from the assessee.

22.1 The assessee also explained that when the entire

molasses could not be procured from sugar mills of Punjab, 33

then the assessee company procured the substantial

molasses from U.P. and Haryana for supply to the

distilleries of Punjab as per the agreement. The Assessing

Officer merely noted that the rates given by the assessee for

handling and transportation charges were not as per the

prevailing market rates and assumed that the over billed

must have been done in this case and accordingly, opined

that the excessive rates have given by the assessee. The

Assessing Officer recorded the statements of Shri Dinesh

Bansal, Proprietor of M/s Dinesh & Co. and Shri Harpal

Singh, brother of Shri Amarjit Singh, Proprietor of M/s Bedi

Carriers in support of his findings that excessive

transportation and handling charges had been paid.

Similarly, with regard to disallowance under section

40A(2)(b) of the Act it was found that the assessee made

excessive payment to Shri Prabal Mittal. The Assessing

Officer also disallowed handling charges in respect of M/s

Santokh Ram Narinder Nath. However, later on, Shri

Dinesh Bansal retracted from his statement and confirmed

the rates given by the assessee company to him for

transportation and handling charges. The sworn

depositions of M/s Santokh Ram Narinder Nath were filed

for doing similar handling and transportation charges in

which they have confirmed doing job for the assessee and

receipt of the amount. M/s Dinesh & Co. and Bedi Carriers

also filed certificate from M/s Santokh Ram Narinder Nath

for doing job for the assessee. It is not in dispute that the

assessee company has no infrastructure for supply of 34

molasses to the distilleries. Therefore, the assessee

company remained dependent upon the tankers for supply of

huge quantity of molasses. S/Shri Dinesh Bansal and

Prabal Mittal appeared before the Assessing Officer in the

remand proceedings for cross examination and had

supported the case of the assessee for payment in question

for supply of the molasses to the distilleries. Shri Narinder

Nath of M/s Santokh Ram Narinder Nath furnished bills of

payments and confirmation of payments before the

Assessing Officer. However, S/Shri Amarjit Singh and

Harpal Singh did not appear before the Assessing Officer in

the remand proceedings. The Assessing Officer issued

summons under section 131 of the Act to these persons and

they did not appear for cross examination on behalf of the

assessee. They have sent their replies before the Assessing

Officer, in which they have asked copies of their statements

recorded earlier and the Assessing Officer did not supply

these statements to these persons. It is, therefore, clear

that the statements of S/Shri Amarjit Singh and Harpal

Singh were recorded behind the back of the assessee and no

opportunity of cross examination was given by the Assessing

Officer. In this case, it appears, the learned CIT (Appeals)

directed the Assessing Officer at the appellate proceedings to give

right of cross examination to the assessee of their statements but

even at the stage of remand proceedings S/Shri Amarjit Singh

and Harpal Singh did not appear before the Assessing Officer for

cross examination. Therefore, the judgment of the Hon'ble

Supreme Court in the case of Kishinchand Chellaram Vs. 35

CIT, 125 ITR 713 clearly apply against the Revenue and,

therefore, the statements cannot be read in evidence against

the assessee. The learned D.R for the Revenue, however,

relied upon the decision of the Hon'ble Supreme Court in

the case of M.Pirai Choodi (supra) in which the Hon'ble

Supreme Court has directed the High Court should direct

the Assessing Officer to grant opportunity to the assessee to

cross examine the concerned witnesses. In the case of the

present assessee, the learned CIT (Appeals) has already

directed the Assessing Officer to grant opportunity to the

assessee to cross examine the concerned persons but the

Assessing Officer failed to produce these persons for cross

examination even at the stage of remand proceedings.

Therefore, this judgment would not support the case of the

Revenue. The learned counsel for assessee also referred to

the statements of various persons which are recorded by the

ADI (Investigation) under section 131 of the Act, in which

transporters have confirmed receipt of the amounts in

question from the assessee company, which includes

confirmation by S/Shri Harbhajan Singh, Harjinder Singh

and Jang Singh. The copies of their statements are filed in

the Paper Book. The TDS was also deducted and claimed in

the returns by all these transporters. The learned counsel

for assessee, therefore, rightly argued that all the

transporters including S/Shri Dinesh Bansal and Prabal

Mittal, have confirmed the transportation charges paid by

the assessee company.

36

22.2 The Assessing Officer has also not brought any

material on record to prove how excessive payments have

been made under section 40A(2)(b) of the Act. The

Assessing Officer has merely assumed certain facts without

bringing any evidence or material against the assessee of

excessive payments. The findings of the Assessing Officer

are based on mere inference of the Assessing Officer, which

would not be relevant criteria to make addition against the

assessee. It is well settled law that the suspicion howsoever

may be strong, it cannot take place of legal proof. It is,

therefore clear that in the present case, there is no

clinching evidence on record to show that the expenditure in

question had not actually been incurred by the assessee

company or that a particular over billed amount had

actually been rotated back by any transporter to the

assessee company. The assessee incurred transportation

and handling charges wholly and exclusively for the purpose

of business and expenditure incurred by the assessee for

business purpose should be judged from the point of view of

the businessman and not from the point of view of the

Assessing Officer. The learned CIT (Appeals) was, therefore,

justified in relying upon several decisions in support of his

findings that the entire expenditure was wholly and

exclusively for the purpose of business. The entire case was

made out by the Assessing Officer against the assessee on

the basis of statements recorded at the assessment stage of

Shri Dinesh Bansal and S/Shri Amarjit Singh and Harpal

Singh. Shri Dinesh Bansal had subsequently retracted f r o m 37

his statement and produced M/s Santokh Ram Narinder

Nath with supporting evidence including the TDS certificate

and supported case of assessee in remand proceedings.

However, S/Shri Amarjit Singh and Harpal Singh did not

appear before the Assessing Officer at the remand

proceedings for cross examination on behalf of the assessee.

Therefore, their statements can not be read in evidence

against the assessee.

22.3 The assessee on the basis of the above

overwhelming evidences on record has been able to prove

that because of the commercial expediency, the assessee

company had to procure substantial molasses from U.P. and

Haryana. In performing its specialized transaction to

supply molasses with particular quality, (subject to check

by the Excise and Taxation Department), if the assessee had

paid the amount in question to the transporters/tankers,

nothing excessive or unreasonable payments have been paid

to any of the transporters. The learned CIT (Appeals) on the

basis of the entire facts, material and evidence on record, correctly

analysed the facts and correctly deleted the addition in question.

The learned CIT (Appeals) has passed a speaking and reasoned order

into the matter and since the evidence and material on record is

sufficient to hold that the amount in question was paid wholly and

exclusively for the purpose of business, therefore, mere estimated

disallowance made by the Assessing Officer on assumption would

not be justified. The Assessing Officer has not brought any

evidence on record to contradict the findings of the learned CIT 38

(Appeals). Therefore, the decision in the case of Sumati

Dayal (supra) relied upon by the learned D.R for the

Revenue would not support the case of the Revenue.

23. Considering the totality of the facts and

circumstances, material on record in the light of the

findings of the learned CIT (Appeals), we do not find any

error in the order of the learned CIT (Appeals) in deleting

the entire disallowance. We, therefore, do not find any

merit in the appeal of the Revenue and the same is

accordingly dismissed.

24. In the result, the Departmental appeal stands dismissed.

Order pronounced in the open court on this 19th day

of May, 2015.

Sd/- Sd/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated : 19 t h May, 2015

*Rati*

Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.

Assistant Registrar, ITAT, Chandigarh