J.S.R. Enterprises vs Assistant Commissioner Of Income ...
1994 Latest Caselaw 94 Del

ORDER

N.S. CHOPRA, A.M. :

These three appeals of the assessed against orders dt. 16th Oct., 1990 are consolidated and disposed of by this common order, there being some common grounds of appeals.

2. The first common ground in all the three appeals is against disallowance of annual discount @ 3% given by the assessed to M/s Paris Beauty Sales Co. (PBSC for short) under s. 40A(2)(a) or IT Act. The disallowance was made by the Assessing Officer while framing assessment for asst. yr. 1986-87 and the same was disallowed for asst. yr. 1985-86 after reopening the assessment. This was followed in asst. yr. 1988-89. The relevant facts are that assessed is a partnership constituted of four partners of the same family, namely, Shri Narain Dass Wadhwa, Smt. Krishna Devi w/o Shri Leela Krishan, who is the brother of Shri Narain Dass Wadhwa, Shri Jagdish Chander Wadhwa son of Shri Narain Dass and Shri Ramesh Chander Wadhwa son of Shri Narain Dass; all have equal share of profits/losses. This firm came into existence in the asst. yr. 1982-83. The firm is engaged in manufacture and sale of ladies undergarments as also trading in hosiery goods. The assessed-firm has appointed M/s PBSC as its selling agency for the entire country. M/s PBSC is again a firm constituted of Ramesh Chander Wadhwa and Smt. Tripta Wadhwa, wife of Shri Jagdish Chander Wadhwa (with equal shares). Shri Ramesh Chander Wadhwa and Shri Jagdish Chander Wadhwa are also partners in the assessed-firm. There is another firm in the name and style of Wadhwa Son Sales Corporation (WSC for short), which is constituted of Shri Jagdish Chander Wadhwa and Smt. Kiran Wadhwa, wife of Shri Ramesh Chander Wadhwa who are also partners of the assessed-firm. This firm of WSC has a retail shop at Karol Bagh through which the assessed sells its second products, i.e., the products which have some manufacturing defects. The assessed also utilises M/s WSC for the sale of its rejected material in lot for retail sale. All the three firms, as is clear, are interconnected and interrelated coming within the ambit of s. 40A(2). The assessed had been utilising the services of M/s PBSC for the sale of its products throughout India at a discount of 15% of the listed price. In addition, it paid annual discount of 3% of M/s PBSC in terms of an agreement dt. 6th March, 1982. On 3rd Jan., 1984 the assessed executed a supplementary agreement increasing the annual discount to 6%. The Assessing Officer examined the claim of the assessed for increase in discount by 3% as given to PBSC and took the view that the same was not justified on facts and in the circumstances of the case. In reaching this conclusion, the learned Assessing Officer also noted that entry for the discount @ 6% amounting to Rs. 2,78,800 was passed through journal on 31st March, 1986, which is the close of the year. He rejected the contention of the assessed that discount at the same rate has already been allowed for the asst. yr. 1985-86. He further did not accept the submission made by the assessed that M/s PBSC had given notice of discontinuance of the earlier agreement because of continuous losses, thereby necessitating revision in the rate of discount. He also noted the claim made by the assessed that there had been a decline in the business transacted through M/s PBSC and after the revised rate of discount the sales had picked up but held that the increase in assesseds turnover was not attributable to any services rendered by M/s PBSC. He, therefore, took the view that the increase in sales effected by the assessed was, in fact, diversion of assesseds own sales which it could make at its own, thereby reducing its profits. He, thus, applying the provisions of s. 40A(2)(b) disallowed the additional 3% claimed by the assessed as discount paid to M/s PBSC, i.e., 50% to 6% of Rs. 2,78,000 leading to addition of Rs. 1,45,400. For similar reasons the Assessing Officer made an addition of Rs. 1,10,334 for asst. yr. 1985-86, the assessment of which was framed after reopening the earlier completed assessment under s. 147 vide order dt. 16th March, 1990. Again, the Assessing Officer made an addition of Rs. 2,31,238 in his order dt. 20th March, 1990 for asst. yr. 1988-89.

The assessed did not succeed in appeal before the learned CIT(A). The assessed is, therefore, in appeal before us.

3. The learned authorised representative for the assessed submitted that the authorities below misread the facts thereby reaching the erroneous conclusion. Shri Manian took us through the paperbook and submitted that the assesseds turnover through M/s PBSC had been declining and M/s PBSC expressed its unwillingness to continue with the existing agreement. It was, according to Shri Manian, by way of business necessity that the assessed entered into a revised agreement with M/s PBSC since the assessed did not have outlets of its own to effect such sales, as are done through PBSC. He submitted that PBSC was operating for the assessed on all India basis and the assessed had no option but to go in for revised terms. He submitted that subsequent increase in sales justified the higher discount @ 6% as against the original rate of 3%. Shri Manian submitted that the subsequent agreement dt. 3rd Jan., 1984 is not onesided, that is entirely in favor of M/s PBSC. He submitted that as a matter of fact the supplementary agreement was more stringent. He invited our attention to cl. (4) of the supplementary agreement which is to the effect that M/s PBSC "shall be entitled to an annual discount @ 6% of the total purchases made by them provided the annual purchases of the second party from the first party exceeds Rs. 35 lakhs, otherwise the annual discount will be 4%. Further provided that no annual discount shall be paid in case the total purchases in a financial year are less than Rs. 25 lakhs". It was, therefore, submitted that the assessed stood to gain, as has actually gained, from the revised rate of discount under the supplementary agreement paid to M/s PBSC when the assesseds profits increased from Rs. 92,353 of the last year on a turnover of Rs. 64,11,377 to Rs. 1,69,160 on a turnover of Rs. 62,05,516 for the asst. yr. 1985-86. He submitted that this has been possible only because of reduction in expenses, notably under the head advertisement, as also increase in turnover through the efforts of M/s PBSC. The learned authorised representative also referred to page 11 of his paperbook containing its reply dt. 19th Aug., 1988 to the Assessing Officer justifying revised rate of discount, as also subsequent reply dt. 7th Sept., 1988. He submitted that in asst. yr. 1985-86 the sales through PBSC have gone up to Rs. 36.78 lakhs as compared to the sales of Rs. 31.33 lakhs in the immediately preceding assessment year, on which annual discount of 6% stood allowed. He submitted that sales during the relevant previous year through M/s PBSC again showed a quantum jump from 36.78 lakhs to 46.46 lakhs. He submitted that it was incorrect on the part of the authorities below to infer that the assessed had diverted its open market sales to M/s PBSC. Shri Manian pointed out that there has been a continuous decline in sales made in open market from 27.33 lakhs for asst. yr. 1985-86 to Rs. 15.59 lakhs for asst. yr. 1986-87. It was, therefore, submitted that the extra discount is directly linked with the performance of M/s PBSC, vis-a-vis the assesseds business and it is not automatic that M/s PBSC would get 6% as trade discount as against earlier 3% at the same conditions as before. He submitted that under the supplementary agreement there is no discount in case the business done by M/s PBSC is below Rs. 25 lakhs, as was also provided for in the original agreement, but M/s PBSC under the supplementary agreement would be entitled to 6% of discount only if the business done by M/s PBSC exceeds Rs. 35 lakhs as otherwise it would be 4%. The learned authorised representative has also invited our attention to the copy of trading and P&L account of M/s PBSC for the year ending 31st March, 1986 at page 18-19 of the paperbook, as also for the period ending 31st March, 1987 and 31st March, 1988 and again for the asst. yr. 1985-86. In short, therefore, the argument of the learned authorised representative that the assesseds business through M/s PBSC was declining affecting its profitability, as also of M/s PBSC who were unwilling to continue to work any more with the assessed on the existing terms and conditions and assessed having no such specialised sales set up of its own, as also looking to its own business needs, entered into a supplementary agreement increasing the rate of discount on a sliding scale and the efforts made by PBSC brought their own results when assesseds sales increased as also its profitability. Shri Manian also pointed out that the authorities below have not even commented upon the terms and conditions as entered into between the assessed and M/s PBSC in the supplementary agreement. Thus, therefore, according to Shri Manian there was no basis whatsoever for making the impugned addition on facts and circumstances of the case.

4. The learned Departmental Representative, on the other hand, supported the reasoning of the learned Assessing Officer and stressed that the sales to PBSC stood diverted by the assessed at the cost of its open market sales. Under the circumstances, according to the learned Departmental Representative, the disallowance of extra 3% paid to M/s PBSC is fully justified.

5. We have heard both the parties at length and have perused the relevant record, the sales of the assessed including components thereof, i.e., as relating to PBSC and open market as also profits returned by the assessed. We have also gone through the copies of accounts of M/s PBSC to verify the nature of services rendered in support of claim of the assessed that as a result of efforts made by PBSC its sales thereto increased resulting in higher profitability. At page 21 of the paper book we find that the distribution expenses incurred by the assessed have come down from 22.25% for asst. yr. 1985-86 to 22.78% the decline being very perceptible under the head advertisement and publicity from 1.5% to 0.8%. It is also seen that M/s PBSC have incurred necessary expenditure for increasing assesseds sales thus rendering related services. The sales to M/s PBSC are to the tune of Rs. 46.46 lakh out of the total sales of the little over 62 lakh for the relevant previous year, while the cash sales amount to only 3.13 lakh. We are not impressed with the reasoning of the learned Assessing Officer that assessed could have effected increase in its turnover on its own and there was no necessity for giving increased discount to M/s PBSC for the purpose. It is nobody case that for the type of sales effected through PBSC the assessed has an outfit of its own. The assessed is already utilising M/s PBSC for effecting its sales throughout India at an existing discount of 15% plus 3%, increased to 6% as per supplementary agreement. It is nobody case that the agreement is not genuine. There is also evidence to the effect that assesseds sales went on increasing from year to year because of efforts of PBSC which are reflected in the statement of accounts of PBSC itself as filed in the paper book. In the case of CIT vs. Hind Commission Agents (1963) 48 ITR 615 (Bom) at page 625 it has been held that, "It is not necessary that in order that a business activity may be carried on by a person, he has to carry on transactions by himself only. He can as well carry them out through agents or servants or employees appointed by him for the purpose, himself remaining inactive. The transactions, however, carried out by the agents on behalf of the principal will be business transactions of the principal".

6. It is trite law that so far as the question of commercial expediency and business needs of an organisation are concerned, it is not the view of the Revenue Officer which would count, but it would be the viewpoint of an ordinary businessman dealing with a situation like the one faced by the assessed in question. The reasonableness of the expenditure for the purposes of business has to be adjudged from the point of view of a businessman and not of the Revenue [see CIT vs. Walchand & Co. (1967) 65 ITR 381 (SC)]. In the case of First ITO vs. Balsara Hygiene Products (1985) 12 ITD 335 (Bom), the Tribunal considered the disallowance under s. 40A(2) of payments to relatives and close associates disallowed by the Assessing Officer, when the assessed-firm appointed a company which was its close associate as selling agents and held that on facts and circumstances of the case, the disallowance of commission paid to selling agency (about Rs. 52 lakh) was not justified. The Tribunal held that, "selling agency is a matter of contract either of the contracting parties would be entering into this contract only if it is commercially profitable for them. Whether an agency is profitable to the selling agents has to be only decided by the expenditure that the agency will have to incur. Unless the agency commission was sufficient to cover the expenditure, no selling agency would be taken up in the course of business". On verification of facts on record in the form of copies of accounts of M/s PBSC we notice that the same is incurring reasonable expenses towards its business of selling agency having its own working force as also outlets as agents throughout India. Undoubtedly, the business of the assessed gained from the efforts made by PBSC. On a consideration of relevant facts and the circumstances of the case, we are clearly of the view that the disallowance made by the Assessing Office as also sustained by the learned CIT(A) is unjustified. It is deleted. The assessed, therefore, gets relief of Rs. 1,39,400 for asst. yr. 1986-87. Similar relief is available to the assessed for asst. yr. 1985-86 at Rs. 1,10,334 and Rs. 2,31,238 for the asst. yr. 1988-89.

7. The next ground contested by the appellant in its appeal for asst. yr. 1986-87 is against addition of Rs. 23,284 made by the Assessing Officer as alleged bogus purchases from M/s Ess Key Enterprises. The assessed showed purchases of Rs. 23,284 from M/s Ess Kay Enterprises during the relevant previous year. The Assessing Officer noted that assessed had incurred no expenditure by way of freight and cartage in respect of the purchases from Ess Kay Enterprises. He discussed the matter with the assessed when it was pointed out that M/s Ess Kay Enterprises was a dissolved firm, which was constituted of two groups of families, namely, Wadhwa family and Grover family when on disruption both the families went their separate ways when Wadhwa family started the business in the name and style of the assessed-firm. It was submitted that the purchase represented the stock as was available with the dissolved firm in 1982. The assessed also furnished particulars of purchase bills in support of purchases being genuine. The explanation given by the assessed was rejected by the Assessing Officer who made the impugned addition. This was sustained in appeal.

8. The learned authorised representative for the assessed submitted that the addition made is without justification. He submitted that for this very reason assesseds assessment for asst. yr. 1985-86, which stood completed on 10th Feb., 1988, was reopened on account of purchases of Rs. 2,51,060 having been made by the assessed during the relevant previous year from the said firm, i.e., M/s Ess Kay enterprises but while framing reassessment on 16th March, 1990 no addition was made by the Assessing Officer, who was satisfied about the genuineness of purchases. The learned authorised representative submitted that purchase is properly vouched for when he referred to pages 26-30 of his paperbook, which indicates necessary bills raised by M/s Ess Kay Enterprises as also annexure to the bill giving details of different items purchased. It was submitted that the assessed had issued declaration in favor of M/s Ess Kay Enterprises in form ST-I under the Delhi ST Rules, 1975. He also referred to the balance sheet of M/s Ess Kay Enterprises in support of the stocks being available with the same as on 31st March, 1982, as also copies of its trading and P&L account. Shri Manian also referred to the finding given by the same Assessing Officer in the order of reassessment for asst. yr. 1985-86, framed under s. 143(3) after reopening the completed assessment to the effect that, "As regards purchases made from M/s Ess Kay Enterprises it is claimed that there was dispute between the parties and stock available as on 31st March, 1982 remained as it was and when there was settlement made between the parties, 50% of the stock was taken over by the assessed and balance 50% was taken over by the other concern. The assessed has furnished copies of trading account of M/s Ess Kay Enterprises for the asst. yr. 1982-83 and it is claimed that the purchases made vide bill dt. 7th Jan., 1985, were entirely out of the stocks already declared to the Department. Since the assessed has documentary evidence in his favor, no adverse inference on this issue is being drawn".

9. Shri Manian submitted that even though the completed assessment stood reopened only for this reason, i.e., the purchase of Rs. 2,51,060 having not been disclosed by the assessed as coming from M/s Ess Kay Enterprises, yet the learned Assessing Officer was satisfied when the examined the issue at length ultimately leading to no addition. The learned Departmental Representative supported the order of the learned CIT(A).

10. We have heard both the parties and have perused the relevant record, including the paperbook filed by the assessed. We find no justification for the addition made when the purchases made by the assessed from M/s Ess Kay Enterprises are found duly accounted for in its books of accounts and is supported by necessary evidence. Therefore, the addition of Rs. 23,284 is deleted.

11. The next grievance of the assessed is against addition of Rs. 69,058 made by the Assessing Officer in asst. yr. 1986-87. The assessed disclosed a gross profit rate of 13% on a turnover of Rs. 62,05,516, as against 13.31 disclosed by the assessed for the immediately preceding assessment year on a turnover of Rs. 64,11,377 and again 13.31% on a turnover of Rs. 60.85 lakhs for asst. yr. 1984-85. The Assessing Officer noted that the assessed had not furnished the required details in respect of incomplete goods in fabrication along with quantity thereof and in case the same were lying with several parties, the names and addresses of such party and evidence of closing stock for fabrication. The assessed made its submission in its reply dt. 19th Aug., 1988 (page 11, para 3), wherein it was pointed out that complete details of raw materials stood already furnished and assessed, as in the past, was maintaining record of raw-material only when raw-material under fabrication has been taken into account for the purpose of valuation of closing stock. It was submitted that the practice followed has been accepted by the Revenue and the assessed had not changed the practice. The Assessing Officer was not satisfied with the explanation rendered and noted that the rate of G.P. at 13% disclosed by the assessed was not acceptable when the assessed had not furnished details of goods with each fabricator with quantity and fabrication charges on 31st March, 1983 and since information for the stock of goods was not available with regard to the outside parties doing job work for the assessed, the results declared could not be accepted. He further noted low withdrawals effected by partners at Rs. 43,803. He also took into account the purchases of Rs. 23,284 made by the assessed-firm M/s Ess Kay Enterprises the same having been treated as bogus. He, therefore, rejected the declared results shown by the assessed and as against the proposed rate of 15% as G.P. to be applied by the Assessing Officer, he applied the same at 14.5%, the same rate which was shown by the assessed for asst. yr. 1987-88. This led to the addition of Rs. 92,342. Since the Assessing Officer had already included the purchases of Rs. 23,284 towards the assesseds income he reduced this amount from the addition of Rs. 92,342 leading to addition of Rs. 69,058. This was sustained in appeal by the learned CIT(A).

12. The learned authorised representative for the assessed Shri Manian submitted that the addition made is wholly unjustified. He submitted that the assesseds books of accounts have not been rejected, inasmuch as no defects, deficiencies or omissions have been noticed by the assessed in the same. He submitted that the method of accounting followed by the assessed is the same as before and there had been no deviation either on the part of the assessed. It was submitted that the information required by the Assessing Officer with regard to the stage of fabrication of closing stock and names and addresses of parties with whom such stocks were lying, were not capable of being furnished, the assessed having not kept so as before. Shri Manian invited our attention to the written submissions made by the assessed before the Assessing Officer in its letter dt. 19th Aug., 1988 (page 11 of the paper book). He submitted that no maintain such details was impracticable and absence of such details in no way affected the assesseds profitability. It was stressed that all the purchases and sales were fully vouched and closing stock details duly maintained and further the books of accounts were maintained in the normal course of assesseds business in accordance with system of accounting regularly followed by the assessed. The learned Departmental Representative took us through the order of the Assessing Officer and submitted that the rejection of books of accounts was fully justified.

13. We have heard both the parties and have perused the relevant record. We are unable to subscribe to the view of the Revenue that the margin of gross profits disclosed by the assessed at 13% is not capable of being accepted for the alleged deficiency in the method of accounting followed by the assessed. The method of accounting followed by the assessed is same as before and the information required by the Assessing Officer was not capable of being furnished by the assessed, the same having not been kept in accordance with the method of accounting followed by the assessed. We have also held that the alleged discrepancy in the purchases to the extent of Rs. 23,284 has already been satisfactorily explained and that the margin of G.P. disclosed by the assessed is reasonable as compared to assesseds own history. On a consideration of relevant facts and circumstances we are of the view that addition made is not justified and as such the same is deleted. It is also noticed by us that no such condition had been made by the Assessing Officer during the course of reassessment proceedings for asst. yr. 1985-86 when the margin disclosed by the assessed at 13.31% stands accepted. This ground of appeal is accordingly allowed.

14. The next grievance of the assessed is against charging of interest under s. 217. This is only consequential and, therefore, the Assessing Officer is directed to recompute interest chargeable, if any, while giving effect to this order. This disposes of assesseds appeal for asst. yr. 1986-87.

15. The first ground of appeal for asst. yrs. 1985-86 and 1988-89 is against disallowances of Rs. 1,10,334 and Rs. 2,31,238 as annual discount @ 3% given to M/s PBSE. We have already deleted the additions as in paragraph 6 above. Therefore, these grounds of appeal are allowed.

16. The second ground of appeal in respect of asst. yrs. 1985-86 and 1988-89 is against disallowance of trade discount given to M/s Wadhwa Sons Sales Corpn. (WSC for short) under s. 40A(2)(a) of the IT Act at Rs. 66,736 for 1985-86 and Rs. 74,351 for 1988-89. The assessed makes use of the services of M/s WSG for sales of its second quality and rejects, for which the trade discount of 30% is allowed as against 15% allowed to other parties. The Assessing Officer took the view that the additional discount of 15% over and above the discount of 15% allowed by the assessed to unconnected parties was unjustified, rejecting the assesseds contention that the additional discount of 15% was allowed to WSC for the reason that sales made by the assessed to WSC were in unpacked condition, requiring WSC to incur expenses on packing and selling. It was also submitted that 15% trade discount was allowed on sale of first quality goods in the market and, therefore, there could be no comparison between the two rates. The Assessing Officer made disallowance of 15% for asst. yr. 1985-86 leading to addition of Rs. 66,766. For asst. yr. 1988-89 such disallowance was to the extent of 10% when the learned Assessing Officer noted that the assessed was allowing 20% discount to a few other parties and the Assessing Officer rejected the contention of the assessed that these parties were sold goods in packed condition while goods sold to M/s WSC were in unpacked condition. In other words the Assessing Officer treated the sales made to M/s WSC at par with sales made to unconnected parties and disallowed the excess discount. The assessed did not succeed before the learned CIT(A).

17. The learned authorised representative for the assessed submitted that the disallowance is made on misreading of facts. He submitted that no disallowance on this account has ever been made in earlier assessment year, including asst. yr. 1986-87 and the addition made in asst. yr. 1985-86 is as a result of reopening of assessment after completion of assessment for asst. yr. 1986-87. This apart, Shri Manian submitted that being a trade discount it does not come within the ambit of s. 40A(2) not being an expenditure. Even otherwise according to Shri Manian, the trade discount has been allowed to M/s WSC purely as a matter of commercial expediency and as per past when no such disallowance stood made on same facts and under similar circumstances. He submitted that the learned Assessing Officer chose to ignore the fact that assessed was selling its second quality goods and rejects to M/s WSC in unpacked conditions which required WSC to incur further expenses. He reiterated that on facts and in law the disallowance is not justified. He submitted that the discount is given in the sales bill and, therefore, does not enter the books of the assessed as an expenditure. He submitted that under s. 40A(2) only when the expenditure is incurred, which is found to be excessive or unreasonable in respect of which payments have been made to the sister concern and such expenditure is found by the Assessing Officer excessive or unreasonable, so much of such expenditure as is considered by the Assessing Officer to be excessive or unreasonable is not allowed. In this connection, the learned authorised representative referred to the judgment of the Madras High Court in the case of CIT vs. A. K. Subaraya Chetty & Sons (1980) 123 ITR 592 (Mad), as also the case of CIT vs. Hindustan Motors Ltd. (1991) 192 ITR 619 (Cal).

18. The learned Departmental Representative, on the other hand, supported the finding of the authorities below and submitted that the trade discount is nothing but an expenditure, which is described as trade discount but nevertheless is an expenditure.

19. We have heard both the parties and have also perused the relevant record. We are of the view that the assessed deserves to succeed on this account. There is no denying the fact that this very party, i.e., M/s WSC has been allowed trade discount by the assessed in earlier years @ 30% due to peculiar nature of its sales, that is, second qualify and rejects in unpacked conditions. Therefore, making the basis of trade discount as allowed to other parties, which are sold goods in packed conditions would be distortion of facts. Therefore, on facts alone we do not find any justification for the disallowance made by the Assessing Officer on facts alone. We delete additions of Rs. 66,736 for asst. yr. 1985-86 and Rs. 74,351 for asst. yr. 1988-89.

20. For asst. yr. 1985-86 the assessed is also in appeal against disallowance of sales-tax payable under s. 43B of Rs. 3,049. We do not find any material to interfere with the finding of the authorities below that the amount having not been paid during the relevant previous year, the assessed is entitled to the deduction claimed. The judgment of the jurisdictional High Court in the case of Sanghi Motors vs. Union of India (1991) ITR 703 (Del) is against the assessed. This ground of appeal is accordingly rejected.

21. The assessed is also aggrieved with the charging of interest under ss. 139(8) and 215 for asst. yr. 1985-86. So far as charging of interest under s. 139(8) is concerned, it is only consequential and the Assessing Officer will recompute the same. As regards charging of interest under s. 215 , the assessment being not a regular assessment, i.e., being the case of reassessment, no interest under s. 215 could be levied, in accordance with the ratio of jurisdictional High Court in the case of CIT vs. Pratap Singh of Nabha (1982) 138 ITR 27 (Del). The same is, therefore, deleted.

22. The assessed is also aggrieved with the reopening of assessment for asst. yr. 1985-86. It is submitted that the completed assessment was reopened for the reason that the purchases made by the assessed from M/s Ess Kay Enterprises to the extent of Rs. 2,04,000 were not genuine. The learned authorised representative submitted that the genuineness of such purchases on verification was accepted by the Assessing Officer when he made no addition on this account while framing the reassessment. It was, therefore, submitted that reopening of assessment was not justified. We have heard the learned authorised representative for the assessed. We have deleted the additions made during the course of reassessment, we do not consider it necessary to go into this ground or appeal.

23. In asst. yr. 1988-89 an addition of Rs. 14,652 has been made under s. 40A(3). The Assessing Officer noted that the assessed had paid amounts aggregating to Rs. 14,652 to various karigars by way of fabrication charges in violation of the provisions of s. 40A(3). It was explained by the assessed that the payments were vouched and parties identified when their affidavits were filed, as also the circumstances leading to such payments being made in violation of the provisions of s. 40A(3) (pages 79 to 83 of the paperbook). The Assessing Officer found no justification and made the impugned addition. This was sustained in appeal. The learned authorised representative submitted that full and proper explanation as rendered by the assessed before the Assessing Officer (pages 76 to 78 of the paperbook) supported with affidavits of various parties and the request made to the Assessing Officer on 3rd June, 1989 (page 84 of the paperbook) requesting him to appoint commission for examination of Shri Hem Raj, proprietor of Sunita Enterprises and its karigars and also karigar Shri Ghansham with their addresses. He submitted that evidence produced by the assessed was discarded without proper justification. The learned Departmental Representative supported the orders of the authorities below.

24. We have heard both the parties and seen the relevant record. On a consideration of relevant facts and circumstances, we are of the view that there was ample justification for the assessed for making impugned payments in violation of s. 40A(3) , inasmuch as karigars involved are small-time operators and it is not unusual on their part to insist on cash payment. Further, their affidavits were filed by the assessed with the request for appointment of commission to examine the concerned karigars. Therefore, we delete the addition.

25. The next grievance of the assessed is against 1/5th disallowance on car maintenance and car depreciation. After hearing both the parties, we direct such disallowance at 1/6th.

26. The assessed is also aggrieved with charging of interest under s. 217 for asst. yr. 1988-89. This is only consequential and, therefore, the Assessing Officer is directed to recompute interest while giving effect to this order.

27. In the result, appeals are allowed as indicated above.