IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI N.V. VASUDEVAN, J.M. AND SHRI A.L. GEHL OT, A.M. ITA NO. 465/M/09 ASSESSMENT YEAR: 2005-06 M/S OLYMPUS ELEVATORS P. LTD., APPELLANT PRAMUKH PLAZA, GROUND FLOOR, CARDIAL GRQACIOUS ROAD, CHAKALA ANDHERI (W), MUMBAI. VS. JT. COMMISSIONER OF INCOME TAX, RESPONDENT RANGE 15(3), MUMBAI ITA NO. 619/M/09 ASSESSMENT YEAR: 2005-06 JT. COMMISSIONER OF INCOME TAX, APPELLANT RANGE 15(3), MUMBAI. VS. M/S OLYMPUS ELEVATORS P. LTD., RESPONDENT PRAMUKH PLAZA, GROUND FLOOR, CARDIAL GRQACIOUS ROAD, CHAKALA ANDHERI (W), MUMBAI. ASSESSEE BY : MR. K. SHIVRAM REVENUE BY : MR. YESHWANT CHAVAN ORDER PER A.L. GEHLOT, A.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE O RDER OF CIT(A)- VIII, MUMBAI, ON 14.11.2008 FOR THE ASSES SMENT YEAR 2005- 06. ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 2 2. THE ASSESSEE FILED CONCISE GROUND OF APPEAL; THE REFORE, THE APPEAL IS DECIDED ON THE BASIS OF THESE CONCISE GRO UNDS OF APPEAL FILED BY THE ASSESSEE. GROUND NO. 3 OF ASSESSEES APPEAL AND SOLE GROUND OF APPEAL OF REVENUE IS COMMON GROUND BASED ON IDENTIC AL SET OF FACTS, THEREFORE, BOTH ARE DECIDED TOGETHER. 3. GROUND NO. 1 IS AGAINST THE ADDITION OF RS. 18,1 0,116/- U/S 40(A)(IA). THIS GROUND HAS NOT PRESSED BY THE LEARN ED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US; THEREFOR E, THE SAME IS DISMISSED AS NOT PRESSED. 4. GROUND NO. 2 IS IN RESPECT OF DISALLOWANCE OF DE PRECIATION ON INTANGIBLE ASSETS. 5. BRIEFLY THE FACTS OF THE CASE ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED FROM THE AUD ITORS REPORT THAT THE ASSESSEE COMPANY HAS ACQUIRED INTANGIBLE ASSETS TO THE VALUE OF 39.24 CRORES. AS PER THE PROVISIONS OF SECTION 32 P ROVISO 5, THE ASSESSEE COMPANY HAD CLAIMED DEPRECIATION @ 25% TRE ATING IT AS BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE AS INTANGIBLE ASSET. THE AO FURTHER NOTICED THAT DURING THE YEAR UNDER C ONSIDERATION THE ASSESSEE COMPANY HAD PAID 33 CRORES TO BHARAT BIJIL EE LTD. FOR ACQUISITION OF ENTIRE LIFT OPERATION DIVISION. THE TOTAL AMOUNT PAYABLE TO THE SAID COMPANY WAS RS. 36.5 CRORE. THE BALAN CE AMOUNT OF RS. 3.5 CRORE WAS NOT FINALIZED DURING THE YEAR AS THE ARBITRATION PROCEEDINGS WERE NOT FINALIZED AND RS. 3.5 CRORE WE RE PAID DURING THE NEXT F.Y. 2005-06 AS PER THE AGREEMENT DATED 29 TH AUGUST, 2008. THE AO DISALLOWED THE ASSESSEES DEPRECIATION CLAIM OF RS. 9,81,01,366/-. THE RELEVANT FINDINGS OF THE AO ARE REPRODUCED FROM HIS ORDER, AS UNDER:- 5.17 THE MAINTENANCE PORTFOLIO IS NOT THE ONLY BUSI NESS OF BHARAT BIJLEE LTD., WHICH HAS BEEN TAKEN OVER BUT A LONG WITH THE ASSESSEE COMPANY HAS TAKEN OVER THE TANGIBLE FIXED ASSETS OF RS. 24,44,986/- AND OTHER ASSETS OF RS. 29,84,65,789/- SHOWN AS CURRENT ASSETS. OUT OF THIS TOTAL CURRENT ASSETS, R S. ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 3 10,04,18,373/- IS THE VALUE OF INVENTORY AND RS. 19 ,26,76,783/- ON ACCOUNT OF ACCOUNTS RECEIVABLES. THEREFORE, THE TOTAL AMOUNT PAID INCLUDING THE SUM PAID IN THE SUBSEQUENT YEAR I.E. RS. 3.5 CRORE IS PAID NOT ONLY FOR ACQUISITION OF FIXED ASS ETS BUT TOWARDS CURRENT ASSETS ALSO. AS PER SECTION 32 OF THE ACT, THE INTANGIBLE ASSETS ARE ONLY (1) BEING KNOWHOW, (2) PATENTS, (3) COPYRIGHTS, (4) TRADE MARK, (5) LICENCES, (6) FRANCHISES AND (7) AN Y OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE. THE ACQUISIT ION OF LIFT OPERATION DIVISION DOES NOT FIT INTO ANY OF THE AB OVE ASSETS AS MENTIONED IN SECTION 32. THEREFORE, THE CLAIM OF TH E ASSESSEE COMPANY CANNOT BE ACCEPTED THAT THE MAINTENANCE POR TFOLIO IS IN INTANGIBLE ASSET. 18. THIS BUSINESS CAN BE EQUATED ROUGHLY WITH THE I NSURANCE BUSINESS WHERE THE EXISTING POLICIES CAN BE COMPARE D WITH THE LIVE LIFT MAINTENANCE CONTRACTS. IN THIS CASE, THE BRAND NAME ACQUIRED FROM BHARAT BIJLEE LTD. HAS BEEN RETAILED BY THE TIGER ELEVATORS PVT. LTD. AND THE NAME OF TIGER ELEVATORS PVT. LTD. HAS BEEN CHANGED TO OLYMPUS ELEVATORS PVT. LTD. THEREFO RE, NOT ONLY THE ASSESSEE COMPANY HAS ACQUIRED THE BUSINESS OF T HE BHARAT BIJLEE LTD IT HAS ALSO ACQUIRED THE BRAND NAME ALSO OWNED BY BHARAT BIJLEE LTD. SO IT IS NOT A CASE WHERE THE BU SINESS HAS BEEN PURCHASED FOR SERVICE CONTRACTS MAINLY. THE EXISTIN G SERVICE CONTRACTS ARE NOT ASSETS BUT CONTINGENT LIABILITIES BECAUSE THE AMOUNT PAYABLE FOR PERIODIC MAINTENANCE CONTRACTS H AS BEEN CHARGED BY BHARAT BIJLEE LTD. AND TILL THE CONTRACT EXPIRES THE LIABILITY IS OF ASSESSEE COMPANY TO PROVIDE THE SER VICE. MOREOVER, THE VALUE OF NON-COMPETE AGREEMENT HAS NOT BEEN DET ERMINED, THE PURCHASE VALUE CONSISTS OF SIGNIFICANT AMOUNT PAYAB LE TOWARDS NON-COMPETE AGREEMENT ALSO, BUT THE AMOUNT IS NOT D ISCLOSED. BY ANY STRETCH OF ARGUMENT, THIS CANNOT BE CALLED AS I NTANGIBLE ASSETS. THEREFORE, THE CLAIM OF DEPRECIATION OF RS. 9,81,01,366/- IS DISALLOWED. 6. THE CIT(A) DIRECTED THE AO TO ALLOW DEPRECIATION @25% ON THE TOTAL VALUE OF INTANGIBLE ASSETS AMOUNTING TO RS. 2,90,89,225/- AFTER CERTAIN VERIFICATION. THE RELEVANT FINDINGS OF THE CIT(A) IS REPRODUCED BELOW:- 3.5 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT AND THE ORDER OF THE CAREFULLY. IT IS NOTICED THAT THE APPE LLANT COMPANY HAS PURCHASED THE ENTIRE LIFE OPERATION DIVISION FR OM M/S BHARAT BIJLEE LTD. FOR A CONSIDERATION OF RS. 39.24 CRORES . OUT OF THIS AMOUNT, RS. 33 CRORE WAS PAID DURING THE YEAR UNDER CONSIDERATION AND THE BALANCE PAYMENT OF RS. 3.5 CR ORES WAS MADE IN THE NEXT YEAR I.E. RELEVANT FOR AY 2006-07. THE AO IN PARA 5.17 OF THE ASSESSMENT ORDER HAS CONCLUDED THA T THE MAINTENANCE PORTFOLIO IS NOT THE ONLY BUSINESS OF M/S BHARAT BIJLEE LTD., WHICH WAS TAKEN OVER BY THE APPELLANT COMPANY BUT IT ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 4 HAS ALSO TAKEN OVER THE TANGIBLE FIXED ASSETS OF RS . 24,44,986/- AND OTHER ASSETS OF RS. 29,84,65,789/- SHOWN AS CUR RENT ASSETS. OUT OF THESE CURRENT ASSETS, RS. 10,04,18,373/- IS THE VALUE OF INVENTORY AND RS. 19,26,76,783/- ON ACCOUNT OF THE ACCOUNT RECEIVABLES. THEREFORE, IT WAS CONCLUDED THAT THE T OTAL AMOUNT PAID INCLUDING THE SUM PAID IN THE SUBSEQUENT YEAR I.E. RS. 3.5 CRORES IS PAID NOT ONLY FOR ACQUISITION OF FIXED AS SETS BUT TOWARDS CURRENT ASSETS ALSO. FROM THESE FIGURES, IT IS WORK ED OUT THAT OUT OF THE TOTAL PAYMENT OF RS. 33 CRORES DURING THIS Y EAR, RS. 24,44,986/- IS RELATED TO PURCHASE OF FIXED ASSETS AND RS. 29,84,65,789/- PAID FOR CURRENT/OTHER ASSETS WHICH HAS INCLUDED THE VALUE OF INVENTORY OF RS. 10,04,18,373/- AND RS . 19,26,76,783/- ON ACCOUNT OF ACCOUNTS RECEIVABLES ( 10,04,18,373 + 19,26,76,783 29,30,95,156). FROM THESE FIGURES, IT IS NOTICED THAT OUT OF THE TOTAL PAYMENT OF RS. 33 CRORES, RS. 29,84,65,789/- IS SHOWN AS THE VALUE OF INVENTORY AND ACCOUNTS REC EIVABLES. IF THIS AMOUNT IS REDUCED FROM THE TOTAL PAYMENT OF RS . 33 CRORES, THE BALANCE COMES TO RS. 3,15,34,211/-. OUT OF THIS , AN AMOUNT OF RS. 24,44,986/- BELONGS TO FIXED ASSETS. THEREFORE, THE BALANCE AMOUNT OF RS. 2,90,89,225/- IS THE ONLY AMOUNT WHIC H SHOULD BE RELATED TO THE PAYMENT OF ENTIRE LIFE OPERATION DIV ISION TREATED AS INTANGIBLE ASSET BY THE APPELLANT COMPANY. DURING A PPELLATE PROCEEDINGS, THE COUNSEL WAS ASKED TO PRODUCE THE D ETAIL OF INTANGIBLE ASSETS WITH THE VALUE OF EACH, BUT HE HA S SHOWN HIS INABILITY TO PRODUCE THE SAME. NO DETAIL WAS FILED TO THIS RESPECT BEFORE THE AO ALSO. THEREFORE, IT IS NOT POSSIBLE T O UNDERSTAND THE NATURE AND VALUE OF INTANGIBLE ASSETS. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. HOOGLY MILLS CO. LD., 287 IT R 333 (SC) HAS HELD AS UNDER:- GRATUITY LIABILITY TAKEN OVER BY ASSESSEE ALONG WI TH ACQUISITION OF AN INDUSTRIAL UNDERTAKING, THOUGH A CAPITAL EXPENDITURE, DOES NOT FALL UNDER ANY OF THE CATEGOR IES OF ASSETS SPECIFIED IN S. 32 AND, THEREFORE, NO DEPREC IATION CAN BE ALLOWED IN RESPECT OF GRATUITY LIABILITY. 3.6 THEREFORE, NO DEPRECIATION MAY BE GIVEN ON GRAT UITY AMOUNT. BUT THE APPELLANT COMPANY HAS NOT GIVEN ANY INFORMATION REGARDING THIS AMOUNT. THE AO IS DIRECT ED TO VERIFY THIS AMOUNT AS PER RECORD AND NO DEPRECIATION IS TO BE ALLOWED. THE APPELLANT HAS ALSO SUBMITTED COPY OF THE LEGAL OPINION RECEIVED FROM AN ADVOCATE DR. K. SHIVARAM, IN WHICH , HE HAS GIVEN HIS OPINION THAT AS PER THE AMENDED PROVISION S, DEPRECIATION IS ALLOWED ON KNOW-HOW, PATENTS, COPYR IGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS O R COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS A CQUIRED ON OR AFTER THE 1 ST DAY OF APRIL, 1998. THERE IS NO DOUBT THAT THIS PROVISION IS CLEAR THAT DEPRECIATION IS ALLOWABLE O N THESE INTANGIBLE ASSETS AFTER THE 1 ST DAY OF APRIL 1998. NO DETAILS HAVE BEEN SUBMITTED BEFORE ME REGARDING THE VALUE OF INT ANGIBLE ASSETS DEFINED IN THIS PROVISION. FROM GOING THROUG H THE ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 5 SUBMISSIONS OF THE APPELLANT AND THE LEGAL OPINION SUBMITTED, I AM OF THE VIEW THAT THE APPELLANT COMPANY HAS MADE PAYMENT TO M/S BHARAT BIJLEE LTD. FOR THE ACQUISITION OF INTA NGIBLE ASSETS TO THE VALUE OF RS. 2,90,89,225/-. THEREFORE, THE AO I S DIRECTED TO ALLOW DEPRECIATION @25% ON THE TOTAL VALUE OF THESE INTANGIBLE ASSETS AMOUNTING TO RS. 2,90,89,225/- AFTER VERIFYI NG FROM THE RECORD THAT IT INCLUDES THE KNOW-HOW, PATENTS, COPY RIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS O F COMMERCIAL RIGHTS OF SIMILAR NATURE, LICENCE, THE GROUND OF AP PEAL IS PARTLY ALLOWED. 7. THE LEARNED AR SUBMITTED THAT THE ASSESSEE COMPA NY ENTERED INTO AN AGREEMENT WITH BHARAT BIJLEE LTD. FOR ACQUI RED ELEVATOR FILED OPERATION DIVISION ON A GOING CONCERN BUSINESS. THE SCHEME OF ARRANGEMENT HAS BEEN APPROVED BY THE HIGH COURT OF BOMBAY ON 22.12.2004. THE LEARNED AR SUBMITTED THAT AS PER T HE AGREEMENT DATED 21.08.2005 THE PURCHASE CONSIDERATION HAD BEE N AGREED AND PAID AT RS. 36.5 CRORES. HE FURTHER SUBMITTED THAT AS PER THE INDEPENDENT VALUER/CHARTERED ACCOUNTANT, THE VALUE OF INTANGIBLE ASSETS WAS AT RS. 39.24 CRORE. THE LEARNED AR SUBMI TTED THAT THE VALUE OF INTANGIBLE ASSETS AT RS. 39.24 CRORE HAS B EEN TAKEN BY THE ASSESSEE ON THE BASIS OF AMOUNT CERTIFIED BY THE CH ARTERED ACCOUNTANT AND, ACCORDINGLY, CLAIMED DEPRECIATION @ 25% AS PER SECTION 32(1)(II) OF THE ACT, OF WHICH CALCULATION COMES TO RS. 9,81,01,366/-. THE LEARNED AR FURTHER SUBMITTED TH AT DURING THE YEAR ASSESSEE COMPANY HAS PAID RS. 33.5 CRORES AND THE B ALANCE OF RS. 3.5 CRORE WERE PAID IN THE NEXT FINANCIAL YEAR. THE LEA RNED AR SUBMITTED THAT IN PRINCIPLE THE CIT(A) AGREED THAT SUCH INTAN GIBLE ASSETS ARE ELIGIBLE FOR DEPRECIATION @ 25%. HOWEVER, WHILE ALL OWING DEPRECIATION, THE LEARNED CIT(A) RESTRICTED THE VALUE OF INTANGIB LE ASSETS AT RS. 2,90,89,225/- AS AGAINST RS. 39.24 CRORES SHOWN BY THE ASSESSEE. THE LEARNED AR SUBMITTED THAT THE CIT(A) HAS ARRIVED AT THAT FIGURE OF RS. 2,90,89,225/- WITHOUT CONSIDERING THE CURRENT LIABI LITY OF RS. 3,31,22,475/-. THE LEARNED AR SUBMITTED THAT THE AS SESSEE FILED RECTIFICATION APPLICATION U/S 154 BEFORE THE CIT(A) BUT THE SAME WAS DISMISSED BY THE CIT(A) VIDE ORDER DATED 06.08.2009 . THE LEARNED AR SUBMITTED THAT THE CIT(A) FAILED TO APPRECIATE THAT THE TOTAL ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 6 CONSIDERATION OF RS. 36.50 CRORES PAID BY THE ASSES SEE IS NOT ONLY THE COST OF ASSETS ACQUIRED, BUT HAVE ALSO UNDERTAKEN T O DISCHARGE THE NET CURRENT LIABILITIES OF RS. 3,31,22,475/-, WHICH RES ULTED IN TOTAL CONSIDERATION OF RS. 39,81,22,475/- WHICH INCLUDED COST OF ACQUISITION OF INTANGIBLE ASSET OF RS. 39,24,05,465 /-. THE LEARNED AR DREW OUR ATTENTION TO PAGE 175 OF PAPER BOOK WHERE THE COPY OF CALCULATION GIVEN BY C.A. HAS BEEN PLACED. FOR THE SAKE OF READY REFERENCE, THE SAME IS REPRODUCED BELOW:- NET CURRENT LIABILITY AS PER CHARTERED ACCOUNTANTS STATEMENT OF ASSETS AND LIABILITIES DETERMINED AS ON 31.03.2004 (EXCLUD ING THE VALUE OF INTANGIBLE ASSETS AND CONSIDERATION PAID). SL.NO. CURRENT ASSETS AMOUNT 1) INVENTORY 100,418,373.00 2) ACCOUNTS RECEIVABLES 192,676,783.00 3) EMPLOYEES BALANCES 1,128,029.00 4) EARNEST MONEY DEPOSITS AND SECURITY DEPOSITS 4,242,604.00 SUB TOTAL (A) 298,465,789.00 LIABILITIES 1) ADVANCES FOR CUSTOMERS 71,471,896.00 2) UNEXPIRED MAINTENANCE 60,717,331.00 3) ACCOUNTS PAYABLE 6,663,056.00 4) OUTSTANDING LIABILITIES 16,648,043.00 5) LIABILITY FOR LEAVE ENCASHMENT 4,294,144.00 6) LIABILITY TOWARDS WARRANTIES 15,344,070.00 7) LIABILITY FOR COMPLETION OF WORKS IN PROGRESS 11,691,121.00 8) LIABILITY FOR QUALITY IMPROVEMENT 53,229,480.00 9) LIABILITY FOR EXPENSES TO HANDOVER JOBS UNDER COMPLETION 4,480,000.00 10) PROGRESSIVE BILLING 87,049,123.00 SUB- TOTAL (B) 331,588,264.00 NET CURRENT LIABILITY (C) = (B-A) 33,122,475.00 FIXED ASSETS 1) TANGIBLE FIXED ASSETS NET BLOCK 2,444,986.00 2) INTANGIBLE FIXED ASSETS MAINTENANCE 392,405,465.0 0 3) INTANGIBLE FIXED ASSETS GOODWILL 3,272,024.00 SUB-TOTAL (D) 398,122,475.00 TOTAL CONSIDERATION PAID (D C) 365,000,000.00 7.1 THE LEARNED AR SUBMITTED THAT THE AO MAY BE DIR ECTED TO ALLOW DEPRECATION ON INTANGIBLE ASSETS AS CLAIMED BY THE ASSESSEE. ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 7 8. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDER OF THE CIT(A). 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. IT IS RELEVANT TO MENTION THAT A SPECIFIC QUERY RAISED BY THE BENCH TO LEARNED REPRESENTATIVES OF T HE PARTIES WHETHER ANY APPEAL IS FILED BY THE REVENUE AGAINST THAT ORD ER OF THE CIT(A).THE LEARNED REPRESENTATIVES OF THE PARTIES SUBMITTED TH AT REVENUE DID NOT FILE ANY APPEAL ON THIS ISSUE. SINCE THE REVENUE I S NOT IN APPEAL AND ONLY THE ASSESSEE IS IN APPEAL, THEREFORE, THE ISSU E TO BE EXAMINED IS A LIMITED ONE I.E. WHETHER THE CIT(A) HAS CORRECTLY T AKEN THE FIGURE OF INTANGIBLE ASSETS OF RS. 2,90,89,225/- AS AGAINST T HE ASSESSEES CLAIM AT RS. 39.24 CRORES. ON PERUSAL OF DETAILS, WE FIND THAT THE ASSESSEE HAS PAID RS. 36.5 CRORE TOTAL CONSIDERATION OUT OF WHICH RS. 3.5 CRORE WAS PAID IN SUBSEQUENT YEAR. THE TOTAL LIABILITIES TAKEN WERE RS. 33,15,88,264/-. IT MEANS THAT TOTAL OUT FLOW OF THE FUNDS IN CASE OF THE ASSESSEE WAS RS. 69,65,88,264/-, WHICH IS DETAI LED AS UNDER:- AMOUNT PAID BY THE ASSESSEE 36,50,00,000 TOTAL LIABILITIES 33,15,08,264 69,65,88,264/- =========== AGAINST THE TOTAL CONSIDERATION OF RS. 69,65,88,264 /-, THE ASSESSEE RECEIVED TOTAL FIXED AND CURRENT ASSETS INCLUDING G OODWILL RS. 30,41,82,799/-, WHICH IS DETAILED AS UNDER:- CURRENT ASSETS RS. 2,98,465,789 FIXED ASSETS RS. 2,444,986 GOOD WILL RS. 3,272,024 RS.30,41,82,799/-. ============== THE CLAIM OF THE ASSESSEE IS THAT THE BALANCE AMOUN T OF RS. 39,24,05,465/- (RS. 69,65,88,264 30,41,82,799) WE RE PAID AGAINST ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 8 INTANGIBLE ASSETS, WHICH IS SUBJECT TO DEPRECIATION . WE FIND THAT THE CIT(A) HAS CALCULATED THE AMOUNT OF INTANGIBLE ASSE TS IGNORING THE LIABILITIES TAKEN BY THE ASSESSEE, THEREFORE, THAT CALCULATION OF THE CIT(A) IS NOT CORRECT. THE CORRECT CALCULATION OF FIGURE IS RS. 39,24,05,465/- WE, THEREFORE, MODIFY THE ORDER OF C IT(A) BY TAKING THE FIGURE OF SO CALLED INTANGIBLE ASSETS FOR RS. 39,2 4,05,465/- INSTEAD OF RS. 2,90,89,225/- AS TAKEN BY THE CIT(A). WITH THI S MODIFICATION, THE ORDER OF CIT (A) IS CONFIRMED. 10. GROUND NO. 3 IS IN RESPECT OF ADDITION OF RS. 5 7,58,196/- U/S 68 OF THE ACT. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO ASKED THE ASSESSEE TO FURNISH CONFIRMATIONS FROM THE SUNDRY C REDITORS. THE ASSESSEE FAILED TO SUBMIT THE CONFIRMATIONS UP TO 2 5 TH DECEMBER07, I.E. THE LAST DATE OF HEARING BEFORE THE AO. THE AO , THEREFORE, ADDED THE ENTIRE CURRENT LIABILITIES AS PER SCHEDULE 8 OF RS. 45,49,23,000/- U/S 68 OF THE ACT. THE CIT(A) CALLED FOR THE REMAND REPORT FROM THE AO. AFTER EXAMINING THE DETAILS FURNISHED BY THE AS SESSEE BEFORE HIM, THE CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTEN T OF RS. 57,58,196/- BY OBSERVING AS UNDER:- 4.5 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELL ANT, THE ORDER OF THE AO AND THE REMAND REPORT SUBMITTED AS ABOVE. IT IS NOTICED THAT THE AO HAS GIVEN AN OPPORTUNITY TO THE APPELLANT TO SUBMIT THE CONFIRMATIONS OF SUNDRY CREDITORS WHICH WAS NOT SUBMITTED TILL THE LAST DAY OF HEARING I.E. 25.12.2 007. IN THE ABSENCE OF THE CONFIRMATIONS THE AO HAS NOT ONLY MA DE THE ADDITION OF SUNDRY CREDITORS BUT ADDED BACK TOTAL C URRENT LIABILITIES AS PER SCHEDULE 8 OF THE BALANCE SHEET OF RS. 45,49,23,000/-. THE BREAK UP OF RS. 45.49 CRORES AS GIVEN ABOVE SHOWS THAT THE ADVANCE FROM CUSTOMERS IS ONLY RS. 1 0.80 CRORES. IN THIS REMAND REPORT, THE AO HAS STATED THAT OUT O F THE LIST OF 425 CUSTOMERS TOTALING RS. 11,23,56,110/-, OUT OF R S. 10.80 CRORES APPEARING IN BALANCE SHEET, ONLY 10 CASES WE RE EXAMINED BY ISSUE OF NOTICE U/S 133(6) OF THE I.T. ACT AND T HE RESULT OF THIS ENQUIRY IS ALSO SUBMITTED BY THE AO IN THE REMAND R EPORT AS STATED ABOVE. FROM THE PERUSAL OF THIS INVESTIGATIO N OF 10 CASES, THE AO HAS HIMSELF ADMITTED THAT THE BALANCES AS PE R LIST SUBMITTED BY THE APPELLANT AND AS PER CONFIRMATIONS RECEIVED ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 9 FROM THE PARTIES U/S 133(6) IN SIX CASES, THE BALA NCES ARE TALLYING. ONLY IN FOUR CASES, THE AO HAS FOUND A DI FFERENCE TOTALING TO RS. 57,58,196/- I.E. SR.NO.1 TO 4 IN TH E ABOVE SAID LIST. THE COUNSEL OF THE APPELLANT HAS SUBMITTED A WRITTE N REPLY ALONG WITH COMPUTER GENERATED RECONCILIATION STATEMENTS O F SOME PARTIES WHICH ARE UNSIGNED AND NOT SUBMITTED BEFORE THE AO. KEEPING IN VIEW OF THE CASUAL APPROACH OF THE APPEL LANT COMPANY THAT THE SO CALLED RECONCILIATION STATEMENTS SUBMIT TED WITHOUT ANY SIGNATURE OF THE APPELLANT COMPANY OR THE AUTHO RIZED REPRESENTATIVE, IT HAS NO MEANING IN THE EYES OF LA W. MOREOVER, THIS INFORMATION WAS NOT SUBMITTED BEFORE THE AO EV EN THOUGH OPPORTUNITY WAS AFFORDED DURING THE REMAND PROCEEDI NGS. IN VIEW OF ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, I A M OF THE VIEW THAT THE AO HAS AGREED THAT THERE WAS A DIFFERENCE OF RS. 57,58,196/- IN THE BALANCE OF SUNDRY CREDITORS IN T HE CASE OF FOUR PARTIES ONLY. OUT OF THE TEN PARTIES, HE HAS ADMITT ED THAT IN SIC CASES, THE BALANCES HAVE BEEN TALLIED. FROM THESE F ACTS, IT IS CONCLUDED THAT THE AO HAS NO REASON TO ADD BACK THE TOTAL CURRENT LIABILITIES SHOWN IN THE BALANCE SHEET. THE REFORE, THE AMOUNT OF RS. 57,58,196/- I.E. THE DIFFERENCE IN BA LANCES OF FOUR PARTIES OF SUNDRY CREDITORS IS CONFIRMED AND THE BA LANCE ADDITION MADE WITHOUT ANY REASON IS DELETED (45,49,23,000 57,58,196 = 44,91,64,804). THE GROUND OF APPEAL IS PARTLY ALLOW ED. RELIEF ALLOWED RS. 44,91,64,804/-. 12. AGAINST THE ORDER OF CIT (A) BOTH REVENUE AND A SSESSEE ARE IN APPEAL WHILE THE ASSESSEE IS RAISING GROUND NO. 3 A ND REVENUE IS RAISING THE SOLE GROUND IN ITS APPEAL. 13. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS FURNISHED COMPLETE DETAILS OF THE CURRENT LIABILITIES VIDE TH EIR LETTER DATED 02.02.2008 TO THE CIT(A). THE CIT(A) SENT THE MATTE R TO THE AO AND OBTAINED REMAND REPORT. THE ASSESSEE FURNISHED THE REPLY TO THE REMAND REPORT VIDE LETTER DATED 14.03.2008 AND 19.0 3.2008. THE AO FURNISHED THE REMAND REPORT DATED 9 TH MARCH, 2008, OF WHICH COPY HAS BEEN PLACED AT PAGES 162 TO 164 OF THE PAPER BOOK. THE LEARNED AR SUBMITTED THAT THE AO IN REMAND PROCEEDINGS OUT OF 425 CUSTOMERS, 10 CASES WERE EXAMINED RANDOMLY BY ISSUE OF NOTICE U/S 133(6) WHEREIN ALL THE PARTIES CONFIRMED THE AMOUNT. HOWEV ER, OUT OF 10 CASES, 4 CASES WERE DIFFERENT IN FIGURES OF RS. 57, 58,196/-. THE LEARNED AR SUBMITTED THAT COMPLETE RECONCILIATION S TATEMENT OF ALL FOUR PARTIES WERE FURNISHED BEFORE THE CIT(A) BUT T HE CIT(A) DID NOT ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 10 ACCEPT THE SAME ON THE GROUND THAT IT DID NOT BEAR SIGNATURE OF THE ASSESSEE. THE LEARNED AR WAS REFERRING PAGE 9 OF C IT(A)S ORDER WHERE COMPARATIVE TABLE OF BALANCES OF 10 PARTIES AS PER THE BALANCES IN BOOKS OF ACCOUNT OF THE ASSESSEE AND AS PER THE CON FIRMATIONS. THE AMOUNTS SHOWN IN CONFIRMATIONS ARE HIGHER THAN THE BALANCE SHOWN BY THE ASSESSEE. HOWEVER, THE ASSESSEE HAS FURNISHE D RECONCILIATION OF ALL THE FOUR PARTIES, WHICH HAS BEEN PLACED AT PAGE S 176 TO 179 OF THE PAPER BOOK. THE LEARNED AR FURTHER SUBMITTED THAT T HE AO HAS ACCEPTED THE RECONCILIATION IN THE REMAND PROCEEDIN GS; HENCE, THE DEPARTMENTAL APPEAL MAY BE DISMISSED. THE LEARNED A R SUBMITTED THAT THE PROVISIONS OF SECTION 68 CANNOT BE APPLIED IN RESPECT OF CREDITS IN THIRD PARTIES BOOKS OF ACCOUNT. HE FURTH ER SUBMITTED THAT NO ADDITION U/S 68 CAN BE MADE BY CONSIDERING THE E XCESS AMOUNTS SHOWN BY THE CUSTOMER IN THEIR BOOKS OF ACCOUNT AS AGAINST THE CORRECT BALANCE SHOWN BY THE ASSESSEE. THE LEARNED AR FURTHER SUBMITTED THAT ACTION OF THE AO IN MAKING ENTIRE AD DITION OF THE CURRENT LIABILITIES IS NOT AT ALL JUSTIFIED, MORE S O, WHEN SUNDRY CREDITORS ARE ONLY 10.8 CRORES OUT OF WHICH 47 CUST OMERS AMOUNTING TO RS. 9.9 CRORE ARE ADVANCES RECEIVED FROM GOVERNM ENT OR GOVERNMENT AGENCIES. THE LEARNED AR DREW OUR ATTENT ION TO PAGE 133 OF ASSESSEES PAPER BOOK IN SUPPORT OF HIS CONTENTI ON. 14. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF AO AND SUBMITTED THAT THE CIT (A) CONSIDERED ONLY PART OF THE AMOUNT IN SCHEDUE-8 AND FOR THE REMAINING BALANCES, THE AO DI D NOT GET PROPER OPPORTUNITY FOR VERIFICATION. THE LEARNED DR SUBMIT TED THAT BALANCE AMOUNT OF THE SCHEDULE-8 OF CURRENT LIABILITIES IS SUBJECT TO VERIFICATION; THEREFORE, THE MATTER MAY BE SENT BAC K TO THE FILE OF THE AO. 15. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. THE AO MADE THE ENTIRE ADDITION OF SCHEDUE-8 CURRENT LIABILITIES MAY BE ON ACCOUNT OF VARIOUS RE ASONS, THERE MAY BE ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 11 CORRESPONDING EXPENDITURE ITEMS AND OTHER DEBIT BAL ANCES AND THE SAME NEED NOT BE CASH CREDITS. THE ASSESSEE MAINTAI NED REGULAR DAY- TO-DAY BOOKS OF ACCOUNT AND SCHEDULE-8 CURRENT LIAB ILITIES HAVE BEEN PREPARED ON THE BASIS OF REGULAR BOOKS OF ACCOUNT. THE AO MADE THE ADDITION MERELY ON THE GROUND THAT THE ASSESSEE DID NOT FILE CONFIRMATIONS FROM ALL THE PARTIES WITHOUT POINTING OUT SPECIFIC PARTIES AND SPECIFIC REASONS FOR THE CONFIRMATIONS. THE CIT (A) EXAMINED THE DETAILS AND ALSO CALLED FOR REMAND REPORT FROM THE AO. IT APPEARS FROM THE REMAND REPORT THAT THE AO WAS NOT SO SERIOUS RE GARDING BALANCE ADDITION. HE PREFERRED TO EXAMINE ONLY 10 PARTIES R ANDOMLY OUT OF 425 CUSTOMERS. UNDER THE CIRCUMSTANCES, THE ENTIRE ADDI TION MADE BY THE AO IS NOT SUSTAINABLE. THE CIT(A) HEAVILY RELIED UP ON THE CONFIRMATIONS FILED BY THE PARTIES. OUT OF THE 10 P ARTIES, IN CASE OF 4 PARTIES SOME DIFFERENCES WERE NOTICED. FOR THE PURP OSE OF READY REFERENCE, THE RELEVANT TOTALS GIVEN AT PAGE 9 OF C IT(A)S ORDER IS REPRODUCED BELOW:- SR. NO. NAME BALANCE AS PER LIST AS PER CONFIRMATION DATE OF CONFIRMATION 1 R.N.A. BUILDERS 43,73,027/- 46,66,000/- 19/3/2008 2 BOMBAY REAL ESTATE 41,87,155/- 73,75,465/- 3 SHREE MPJ BUILDERS 37,70,562/- 38,10,400/- 19/3/2008 4 R.G. SHIRKE & CO. 1,49,138/- 23,06,213/- 19/3/2008 5 NEEL SIDDHI ENTERPRISE 30,62,100/- 30,62,100/- 26/3/2008 6. S.S. CONSTRUCTION 24,00,000/- 24,00,000/- 18/3/2008 7. RAMGIRI DEVELOPERS 8,05,000/- 8,05,000/- 8. FLOWER VALLEY PROPERTIES 4,34,501/- 4,34,501/- 19/3/2008 9. SANDHA BROTHERS (P) LTD. 2,50,000/- 2,50,000/- 20/3/2008 10. SHASWAT REAL ESTATE 75,000/- 75,000/- 18/3/2008 1,95,06,483/- 2,52,64,679/- 15.1 ON PERUSAL OF ABOVE TABLE, WE FIND THAT THE AS SESSEE HAS SHOWN LESSER AMOUNT THAN THE AMOUNTS SHOWN IN THE CONFIRM ATIONS BY THE PARTIES THEREFORE, IN SUCH CASES, NO ADDITION IS WA RRANTED IN THE HANDS OF THE ASSESSEE, PARTICULARLY WHERE THE ASSES SEE HAS FURNISHED RECONCILIATION POINTING OUT REASONS OF DIFFERENCE, WHICH IS MAINLY ON ITA NOS. 465 & 619/M/09 M/S OLYMPUS ELEVATORS LTD. 12 ACCOUNT ADJUSTMENT ENTRIES OF THE TDS ETC. WE, THER EFORE, FIND NO SUBSTANCE IN SUSTAINING THE ADDITION OF RS. 57,58,1 96/- BY THE CIT(A). THEREFORE, WE DELETE THE SAID ADDITION OF RS. 57,58 ,196/-. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED ON THIS 17 TH DAY OF DECEMBER, 2009. SD/- SD/- (N.V. VASUDEVAN) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 17 TH DECEMBER, 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, C BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INITLS 1. DRAFT DICTATED ON 11.12.09 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 15.12.09 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER