Aggrieved by the order dt. 10th Sept., 1992 of the CIT(A) for the asst.
yr. 1989-90, the assessee is in appeal on the following grounds of objections : (i) The CIT(A) erred in confirming the disallowance of investment allowance of Rs. 36,18,035 made by the Assessing Officer.
(ii) The CIT(A) erred in confirming of the addition of Rs. 10,96,175 made by the Assessing Officer for alleged excessive consumption of coal and further erred in enhancing the said addition by Rs. 2,08,343.
(iii) The CIT(A) erred in sustaining the addition of Rs. 1,26,137 out of the addition of Rs. 1,42,075 made by the Assessing Officer for alleged undisclosed sale of coal ash.
(iv) The CIT(A) erred in sustaining the addition of Rs. 15,000 out of Rs. 25,000 made by the Assessing Officer by making disallowance of the total claim of expenditure.
(v) The CIT(A) erred in not directing the Assessing Officer, to compute the profits under S. 115J after considering the depreciation and investment allowance and brought forward losses, unabsorbed depreciation and investment allowance of earlier years.
The assessment year involved is 1989-90. The assessee was observing the calender year as its previous year. However, in view of amendment of S.3 of the IT Act, 1961 with effect from the instant asst. yr. 1989-90, this year consisted of 15 months from 1st Jan., 1988 to 31st March, 1989.
3. It is beyond dispute that the assessee installed new solvent extraction plant for manufacturing oil cake and oil from soya seed of 200 MT per day capacity in addition to the existed plant of 100 MT per day capacity. That new plant was installed during the period April, 1987 to January, 1988, that is to say, after the 31st March, 1987 and before the 1st April, 1988. The production was started on the 9th March, 1988. The assessee claimed investment allowance on the said plant at Rs. 36,18,035 under S. 32A(8B) of the Act. It was negatived concurrently by the Assessing Officer and the first appellate authority on the ground that for getting benefit of the investment allowance, the assessee failed to establish that it had entered into a contract for the purchase of the machinery and plant with the manufacturers before the 12th June, 1986.
4. The contention of learned counsel for the assessee is that the tax authorities below did not appreciate the material placed on record in proper perspective and thereby reached an erroneous finding that the assessee could not establish that it had entered into a contract for the purchase before the 12th June, 1986. Alternatively his contention is that in view of proviso to sub-cl. (ii) of cl. (a) of sub-s. (8B), no such condition was necessary for grant of investment allowance for the asst. yr. 1989-90. He took us through the papers contained in the paper book which we will advert to at appropriate places.
5. Learned Departmental Representative, on the other hand, vehemently opposed the appeal. It is contended by her that the machinery having been installed after the 31st March, 1987 and before the 1st April, 1988, the assessee had to discharge the onus probandi that it had entered into a contract for the purchase of the machinery before the 12th June, 1986. It is also her contention that the proviso to sub-cl.
(ii) cannot be construed to mean that the assessee is entitled to investment allowance without establishing the contract for the purchase of machinery having been finalised before the 12th June, 1986. She took us through the provisions of the Contract Act and the commentary thereon, reference to which will be made at appropriate places. As to the evidence of contract of purchase, she strenuously placed reliance upon the letter dt. 28th Oct., 1986 of Servotech Engineers Pvt. Ltd. and the letter dt. 30th Oct., 1986 of the assessee addressed to Servotech Engineers Pvt. Ltd. 6. In order to resolve this controversy, we proceed to examine the scheme of investment allowance contained in S. 32A and the modification undergone by virtue of notification dt. 12th June, 1986 and insertion of sun-s. (8B).
7. The scheme of initial depreciation allowance contained in S.32(1)(vi) was replaced by the scheme of investment allowance and as such S. 32A was inserted in the IT Act, 1961 w.e.f. 1st April, 1976. It was, however, not contemplated to be made available for all the time.
Sec. 32A(8) provided that the Central Government, if considered necessary or expedient, might withdraw the said allowance. But such withdrawal would not be earlier than three years from the date of the notification making the withdrawal. It appears that in view of introduction of the scheme of Investment Deposit Account introduced w.e.f. 1st April, 1987, the Government was in haste in withdrawing the investment allowance. For that purpose, the provision contained in S.32A(8) that the withdrawal of investment allowance would not be earlier than three years from the date of notification making the withdrawal, was amended by the Finance Act, 1986 w.e.f. 1st April, 1986 and thereby the condition of three years prior notice was withdrawn. Soon thereafter a Notification No. GSR 870(E), dt. 12th June, 1986 [(1986) 160 ITR (St) 55] was issued, which read as under : "In exercise of the powers conferred by sub-s. (8) of S. 32A of the IT Act, 1961 (43 of 1961), the Central Government hereby directs that the deduction allowable under this section shall not be allowed in respect of any ship or aircraft acquired or any machinery or plant installed after the 31st day of March, 1987." This sudden withdrawal of the relief of investment allowance w.e.f. 1st April, 1987, created an adverse situation for entrepreneurs, who were not able to get benefit of S. 32AB for the reasons of absence or inadequacy of profit in the year of investment. The Government, therefore, decided to reintroduce the investment allowance at least for some period. With that purpose in view, sub-s. (8B) of S. 32A was inserted by the Direct Laws (Amendment) Act, 1989 w.e.f. 1st April, 1989. It reads as under : "(8B). Notwithstanding anything contained in sub-s. (8) or the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. GSR 870(E), dt. 13th June, 1986, issued thereafter, the provisions of this section shall apply in respect of, - (a)(i) a new ship or new aircraft acquired after the 31st day of March, 1987 but before the 1st day of April, 1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer that he had, before the 12th day of June, 1986, entered into a contract for the purchase of such ship or aircraft with the builder or manufacturer or owner thereof, as the case may be; (ii) any new machinery or plant installed after the 31st day of March, 1987 but before the 1st April, 1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer that before the 12th day of June, 1986 he had purchased such machinery or plant or had entered into a contract for the purchase of such machinery or plant with the manufacturer or owner of, or a dealer in, such machinery or plant, or had, where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps for the manufacture of such machinery or plant : Provided that nothing contained in sub-s. (1) shall entitle the assessee to claim deduction in respect of a ship or aircraft or machinery or plant referred to in this clause in any previous year except the previous year relevant to the assessment year commencing on the 1st day of April 1980; (b) a new ship or new aircraft acquired or any new machinery or plant installed after the 31st day of March, 1988, but before such date as the Central Government, if it considers necessary or expedient so to do, may by notification in the Official Gazette, specify in this behalf." The said sub-section gave relief of the investment allowance in respect of certain specified ship or aircraft or machinery or plant. The rate of investment allowance at 25% was also reduced to 20% in respect of those specified assets and for that purpose first proviso was inserted in S. 32A(1) of the Act by the same Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st April, 1989.
8. The notification dt. 12th June, 1986 had the effect of not allowing investment allowance for the asst. yr. 1988-89 and onwards. As will be seen presently the effect of sub-s. (8B) is that the investment allowance has been continued till the asst. yr. 1990-91 on certain specified assets. Sub-s. (8B) was since introduced w.e.f. 1st April, 1989 and the notification dt. 12th June, 1986 had the effect of withdrawing the investment allowance from 1st April, 1988, the asst.
yr. 1988-89 falling in between these two periods met with the fate of not getting the benefit of investment allowance. The legislature in their wisdom did not think proper to give retrospective effect to sub-s. (8B). Minute analysis of sub-s. (8B) shows that the relief against the notification dt. 12th June, 1986 has been granted in respect of the following specified assets : (i) A new ship or a new aircraft acquired after the 31st day of March, 1987 but before the 1st day of April, 1988, if the assessee had entered into a contract for purchase of such ship or aircraft before the 12th day of June, 1986.
(ii) Any new machinery or plant installed after the 31st day of March, 1987 but before the 1st day of April, 1988, if such machinery or plant was purchased before the 12th day of June, 1986 or the assessee had entered into a contract for the purchase of such machinery or plant before the 12th day of June, 1986.
(iii) A new ship or a new aircraft acquired or any new machinery or plant installed after the 31st day of March, 1988 but before the 31st day of March, 1990 [see notification No. SO 233(E), dt. 19th day of March, 1990 printed at (1990) 186 ITR (St) 159].
9. There is no manner of doubt that the specified assets described in point Nos. (i) and (ii) above are entitled to investment allowance for the asst. yr. 1989-90. This has been made clear, by the proviso to sub-cl. (ii) of cl. (a) of sub-s. (8B).
10. It appears that the grievance of the entrepreneurs was that they had either purchased the assets or had entered into a contract for the purchase of the assets under the clear undertaking that they would be allowed investment allowance under S. 32A. They were also sure that the investment allowance would not be withdrawn without a prior notice of at least three years. However, in view of the anxiety of the Government to introduce the other scheme contained in S. 32AB with immediately effect, the benefit of investment allowance was withdrawn all of a sudden by amending S. 32A(8) and issuing Notification dt. 12th June, 1986. This difficulty was later realised and, therefore, the relief was proposed to be given only to such entrepreneurs who had either purchased or had entered into a contract for the purchase of the assets before the 12th day of June, 1986. Such assets for the purpose of S.32A formed a separate category of assets. Despite such restrictions, the Government further relaxed the said notification dt. 12th June, 1986 and allowed the benefit of investment allowance even to the ship or aircraft acquired or machinery or plant installed after the 31st day of March, 1988 but before the 31st day of March, 1990. Thus, this benefit was extended for the asst. yrs. 1989-90 and 1990-91 by virtue of cl. (b) of sub-s. (8B). It is significant to note that for these assets no condition as to the date of purchase or entering into a contract for the purchase was attached. The only condition was that the ship or aircraft acquired or machinery or plant installed was after the 31st day of March, 1988 and before 31st day of March, 1990. It is also significant to note that investment allowance was allowable under cl.
(a) for the asst. yr. 1989-90 and it was allowable under cl. (b) for both the asst. yrs. 1989-90 and 1990-91, but the description of such specified assets was different. The distinction between the cls. (a) and (b) for relief of investment allowance for the asst. yr. 1989-90 appears to be that in cl. (a) such assets have been specified which have been either purchased or contracted to be purchased under the belief that investment allowance would be allowable since till then there was no notification for withdrawal; whereas the assets described in cl. (b) are those assets in respect of which relief for the same asst. yr. 1989-90 has been allowed and no condition as to the date of purchase or the date of agreement to purchase has been put. It appears that the Government considered necessary or expedient to allow such relief for the asst. yrs. 1989-90 and 190-91 without imposing any condition as there were no such conditions till asst. yr. 1987-88. In this view of the matter, there has been unintended discrimination between the assets specified in cl. (a) and those specified in cl. (b).
However, in view of the facts that the Government considered necessary and expedient to allow investment allowance for the asst. yrs. 1989-90 and 1990-91 [vide cl. (b)], the conditions imposed in the sub-clauses of cl. (a) need to be taken in proper perspective.
11. In view of the above analysis, we do not subscribe to the interpretation put by the learned counsel for the assessee that in view of proviso to sub-cl. (ii) that the assessee was not required to establish that it had entered into the contract for the purchase before the 12th June, 1986. We entirely agree with the contention of the learned Departmental Representative that in order to get the benefit of investment allowance, the assessee must establish that it had entered into the contract for the purchase of the machinery before the 12th June, 1986. At the cost of repetition, but for the sake of clarity, it may be stated that the distinction between the cl. (a) and cl. (b) is that the machinery specified in cl. (a) is installed before the 1st April, 1988 and that specified in cl. (b) is installed after 31st March, 1988. The machinery specified in cl. (a) is inflicted with a rider that it should have been either purchased or the contract for its purchase was entered into before the 12th June, 1986. No such rider has been imposed in cl. (b). The reason of this distinction is obvious.
Clause (a) came into existence for allowing relief against the Notification dt. 12th June, 1986 and, therefore, the Government became rigid that such relief would be allowed only to such entrepreneurs who had either purchased or entered into a contract for the purchase before the 12th June, 1986. But it is not that such rigidity was absolute. A provision was made in sub-cl. (b) for giving relief to the other entrepreneurs also and the discretion was left with the executive to allow the relief where it considered necessary or expedient. The CBDT issued a notification and allowed relief for the asst. yrs. 1989-90 and 1990-91 without putting any condition as was put in cl. (a). Thus, what is significant to note is that the relief of investment allowance for the assets specified in cl. (b) was considered necessary and expedient in the light of the fact that the assets specified in cl. (a) were allowed such relief. The anomaly is on the fact that the relief allowed under cl. (a) was inflicted with certain conditions and that relief prompted the Government to allow relief under cl. (b) unconditionally considering the same necessary and expedient. Thus, for getting benefit of investment allowance for the asst. yr. 1989-90, the assets specified in cl. (a) burdened with the conditions and those specified in cl. (b) have no such burden. This analysis of the provisions need to be borne in mind while appreciating the material placed by the assessee for establishing that it had entered into a contract for the purchase of the machinery before the 12th June, 1986.
12. It is to be seen that the first solvent extraction plant was supplied to the assessee by M/s. Servotech and the Second plant was also supplied by them. In the light of these facts, we are inclined to accept the submission of the learned counsel for the assessee that the relation between the assessee-company and the supplier were coordial inasmuch as that the employees of the supplier were occasionally visiting the old plant of the assessee for its maintenance. The other circumstance which needs attention is that it is not that the assessee was making roving enquiries from other suppliers.
13. It is apparent that the CIT(A) was in error in observing in para 12.12 (page 33) that an oral contract could not be termed as a valid contract as it was not enforceable by law. The Contract Act does not require that a valid contract should necessarily be in writing. An oral contract by which itself the parties intend to be bound is valid and enforceable. Learned Departmental Representative finding herself unable to support such observation of the CIT(A) as to the legal requirement of a written contract contended that the assessee-company being a public company should not have resorted to any oral contract and such oral contract pleaded by the assessee should not be attached much probative value. It is further contended by her that Shri P. C. Mutha, Managing Director of the assessee-company had no written authority to enter into the contract with M/s. Servotech.
14. We find no merit in this contention of the learned Departmental Representative. It is to be seen that the assessee had received detailed quotations from M/s. Servotech vide their letter dt. 3rd March, 1986. Then there was a resolution dt. 31st March, 1986 of the Board of Directors authorising Shri P. C. Mutha, Managing Director to negotiate with the suppliers of plant and machinery and to take all necessary steps for increasing the capacity of solvent extraction plant upto 90,000 MT per annum. The resolution is in wider terms, viz., that it did not restrict the negotiation to be made with M/s. Servotech only. It was sufficient authority for Shri P. C. Mutha to enter into the contract for purchase of the plant and machinery.
15. Learned Departmental Representative also contended that there is no evidence on record to show that there was an offer by M/s. Servotech in definite terms and acceptance thereof. According to her, there might have been certain negotiations but such negotiations should not be taken as concluded contract. The contract being in respect of plant and machinery on turn key basis, the learned Departmental Representative argued, should have been in writing for the sake of being exact and definite. She also drew our attention to the letter dt. 28th Oct., 1986 sent by M/s. Servotech to the assessee in which M/s. Servotech mentioned "We have pleasure in enclosing herewith our offer for 200 MTD Soyabean processing complex on turn key basis". "In token of your acceptance, we would request you to kindly sign and send us duplicate copy of this letter". She also drew our attention to letter dt. 30th Oct., 1986 sent by the assessee to M/s. Servotech alongwith a cheque of Rs. 51,000 as a token advance against the order for solvent extraction plant.
16. It appears that much weight has been attached by the CIT(A) to these two letters, wherefrom he reached the conclusion that the letter dt. 28th Oct., 1986 was an offer by M/s. Servotech and the letter dt.
30th Oct., 1986 was acceptance by the assessee. Whether a concluded contract has been made or not is a question of fact to be determined in each case by consideration of all the relevant circumstances and facts and cannot be determined by picking up only these two letters. It may be repeated that the parties to the contract had cordial relation, though the correspondence, entered into between them appears formal.
Because of such relations, the correspondence indicated special mention "Kind attention -Mr. P. C. Mutha", "Attention - Mr. L. S. Rawlani". It is, thus, indicative of the fact that particular representatives of the parties to the contract were in contact with each other. As the sequence of events show, after receipt of the quotations from M/s.
Servotech dt. 3rd March, 1986, a resolution authorising Shri P. C.Mutha to negotiate with the suppliers was passed by the Board of Directors of the assessee-company on 31st March, 1986. Soon thereafter Shri P. C. Mutha visited Bombay and contacted M/s. Servotech during the period from 31st March, 1986 to 12th April, 1986. It is claimed by the assessee that visit of Shri P. C. Mutha during the period from 7th to 12th April, 1986 was for finalising of the contract and the contract was as such finalised. This stand of the assessee deserves to be accepted, since soon thereafter the assessee wrote letter dt. 26th April, 1986 to M. P. Consultancy Organisation Ltd. Bhopal for preparation of a project report for applying for term loan to ICICI.The said letter unequivocally mentioned "we have already obtained registration certificate from DGTD for increasing the capacity, xerox copy of which is enclosed herewith and further we have finalised plant with M/s. Servotech Engineers (P) Ltd., Bombay as per their quotation dt. 3rd March, 1986".
In reply thereto, M. P. Consultancy Organisation Ltd., vide their letter dt. 23rd June, 1986 required the assessee to make payment of Rs. 2,000. It is, thus, crystal clear that the contract for purchase of the plant was finalised between the assessee and M/s. Servotech before the 26th April, 1986. There is, therefore, truth in the contention of the assessee that the contract was entered into orally during 7th to 12th April, 1986 when Shri P. C. Mutha had visited M/s. Servotech in Bombay.
17. Had there not been such finalisation, the assessee-company would not have perhaps floated public issue of equity shares, vide prospectus dt. 21st April, 1986. The said prospectus clearly mentioned that the object of the public issue was to raise funds for expansion of the solvent extraction plant to 90,000 Tonnes per annum. It was clearly mentioned in the prospectus that the assessee-company would be entitled to deduction under S. 32A of the IT Act by way of investment allowance.
It is, thus, abundantly clear that the assessee-company had entered into the contract of purchasing the plant under the clear understanding that it would be entitled to benefit under S. 32A. The said prospectus also mentioned that the new solvent extraction plant with 200 MTD capacity was being installed with latest technology. The cost of the project was estimated at Rs. 348 lacs. Then there is central layout of the plant dt. 10th July, 1986 prepared by M/s. Servotech. These events go to show that the assessee had entered into the contract for the plant and machinery in April, 1986.
18. The letters dt. 28th Oct., 1986 and 30th Oct., 1986 were apparently mere formal documents in confirmation of the oral contract. It is difficult to assume that all these exercises for collection of funds by issue of shares and by applying to ICICI for loan were done by the assessee-company without entering into the contract for purchase before the 12th June, 1986. It was publicly known that no investment allowance would be allowed on the plant and machinery installed after 31st March, 1987. It would amount to impute insinuative motive to the assessee-company that it floated the public Issue of equity shares with a representation that it was entitled to deduction under S. 32A of the IT Act, when it was not entitled to the same. No such motive can be imputed unless clearly established by the Revenue.
19. These observations of the Honble Supreme Court in the case of K.Sriramulu vs. Aswatha Narayana AIR 1968 SC 1028 (1081) need attention in this context : "We proceed to consider the next question raised in these appeals, namely whether the oral agreement was ineffective because the parties contemplated the execution of a formal document or because the mode of payment of the purchase money was not actually agreed upon. It was submitted on behalf of the appellant that there was no contract because the sale was conditional upon a regular agreement being executed and no such agreement was executed. We do not accept this argument as correct.
It is well established that a mare reference to a future formal contract will not prevent a binding bargain between the parties. The fact that the parties refer to the preparation or an agreement by which the terms agreed upon are to be put in a more formal shape does not prevent the existence of a binding contract. There are, however, cases where the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed. The question depends upon the intention of the parties and the special circumstances of each particular case." 20. The letters dt. 28th Oct., 1986 and 30th Oct., 1986, if look in isolation, the stand of the Revenue that the contract was entered into sometime in October, 1986, appears attractive and impressive. But one has to look at all the circumstances cumulatively for reaching correct finding. Simply because the parties contemplated execution of a formal document or/and payment of such taken advance, the oral agreement entered into between them cannot be token ineffective. It is not the case of any of the parties that the oral agreement was subject to any written contract. In the words of the Honble Supreme Court (supra) a mere reference to the future formal contract will not prevent a binding bargain between the parties. The fact that the parties referred to the preparation of an agreement by which the terms agreed upon are to be put in a more formal shape does not prevent the existence of binding contract.
21. It appears that the tax authorities below were under the impression that a valid contract could be only in writing. Their impression was taken as reinforced by the letter of M/s. Servotech dt. 28th Oct., 1986 mentioning the offer and requiring the acceptance from the assessee and reply of the assessee dt. 30th Oct., 1986 coupled with the tender of a token advance of Rs. 51,000. Under such impression, the tax authorities below did not attach weight to the other relevant facts and circumstances as discussed above which clearly established conclusion of the contract by oral agreement.
22. In order to appreciate as to how a contract is brought about between the parties, the following excerpts from Chitty on Contracts, Twenty Third Edition, Pages 9-10, Para 12 reproduced with approval by the Honble Supreme Court in the case of Md. Ishaq vs. Md. Iqbal AIR 1978 SC 798 (801) need to be noticed : "Express and implied contracts. - Contracts may be either express or implied. The difference is not one of legal effect but simply of the way in which the consent of the parties is manifested. Contracts are express when their terms are stated in words by the parties. They are often said to be implied when their terms are not so stated, as for example, when a passenger is permitted to board a bus; from the conduct of the parties the law implies a promise by the passenger to pay the fare, and a promise by the operator of the bus to carry him safely to his destination. There may also be an implied contract when the parties make an express contract to last for a fixed term, and continue to act as though the contract still bound them after the term has expired. In such a case, the Court may infer that the parties have agreed to renew the express contract for another term. Express and implied contracts are both contracts in the true sense of the term, for they both arise from the agreement of the parties, though in one case the agreement is manifested in words and in the other case by conduct. Since, as we have seen agreement is not a mental state but an act, an inference from conduct, it follows that the distinction between express and implied contracts has very little importance, even if it can be said to exist at all." The parties to the agreement do not dispute as to the existence of concluded oral contract to purchase the machinery and plant. Their such stand is sufficiently corroborated by their subsequent conduct. In that regard the following facts and circumstances are of much importance : (1) The supplier M/s. Servotech was already known to the assessee and the quotation for 200 MTD plant on turn key basis was asked for by the assessee from M/s. Servotech by letter dt. 16th Sept., 1985.
(2) The assessee was serious about the expansion of the plant and, therefore, the assessee got registered with the Directorate General of Technical Development of Government of India, vide their letter dt.
23rd Sept., 1985.
(3) The assessee received quotation from M/s. Servotech, vide letter dt. 3rd March, 1986.
(4) Soon thereafter, resolution was passed by the Board of Directors on 31st March, 1986 authorising Shri P. C. Mutha to negotiate with the suppliers.
(5) Shri Mutha visited Bombay and contracted M/s. Servotech during 31st March, 1986 to 3rd April, 1986 and 7th April, 1986 to 12th April, 1986, and finalised the contract.
(6) This is evident from the letter dt. 26th April, 1986 written by the assessee to M. P. Consultancy Organisation Ltd. (A Public undertaking) mentioning that the plant was finalised with M/s. Servotech Engineers (P) Ltd. as per their quotation dt. 3rd March, 1986.
(7) The assessee, thus, took immediate steps for raising funds for installation of the said plant and as such got prepared project report from M. P. Consultancy Organisation Ltd. and also published the prospectus dt. 21st April, 1986 for public issue of equity shares for raising the funds for installation of the said plant.
(8) In sequence thereto M/s. Servotech Engineers prepared a general layout of the plant on 10th July, 1986. No such layout would have been prepared by M/s. Servotech on 10th July, 1986, had there not been concluded contract for installation of the plant prior to that date.
(9) Thus, the letter dt. 28th Oct., 1986 of M/s. Servotech came at the end of the series of the events just for the sake of giving a formal shape to the valid and legal oral contract already entered into. It does make reference to the detailed discussion entered into with Shri P. C. Mutha and so also it takes note of the desire of the assessee to commission the plant latest by the 31st March, 1987. Minute examination of the letter dt. 28th Oct., 1986 of M/s. Servotech evinces that the offer prepared by them was in respect of only those items as were already agreed to and, therefore, it is in variance with the formal offer dt. 3rd March, 1986. It is also pertinent to note that the letter dt. 28th Oct., 1986 further gave an option to the assessee to exercise option in respect of certain items, that is to say, the option was in the nature of novation of contract already entered into.
23. Thus, taking into account the totality of the facts and circumstances obtaining in this case, there is no manner of doubt that the contract was entered into by the assessee with M/s. Servotech for purchase of the plant and machinery in April, 1986. The assessee is, therefore, entitled to investment allowance.
The Assessing Officer examined the issue register of coal and reached the finding that there was much variation in the consumption of coal for the quantity of soya seed process and soya oil refined. He observed that the average consumption of coal per MT of soya crushed came to 544 kgs. In January, 1988, whereas the said average came to 108 kgs. in November, 1988. After taking into account the quantity of Soya oil refined, he computed the average consumption of coal at 409 kgs. in January, 1988 and 196 in April, 1988. In view of such variation, the Assessing Officer took that the assessee showed excess consumption of 1535.797 of coal. The inference of the Assessing Officer was that the assessee must have had sold that quantity of coal out of books. He valued that quantity at the rate of Rs. 571 per quintal which came to Rs. 8,76,940. He also assumed that the assessee must have had fetched price of that coal 25% higher than the purchase price, since the purchase was from the Government and rate of coal in the open market was more. He thereby calculated the market value of that coal at Rs. 10,96,175. On appeal, the CIT(A) not only endorsed the finding of the Assessing Officer but took the view that there was yet excess consumption of 291.1 MT of coal valued at Rs. 2,08,343. He, therefore, not only sustained the addition of Rs. 10,96,175 but enhanced the addition by Rs. 2,08,343.
25. Learned representatives of the parties are heard on this issue. We have minutely examined the documents placed in the paper book and have also seen the original coal receipt and issue register. It is apparent that, there has been misunderstanding as to the entries in the coal register. There is much force in the contention of the learned counsel for the assessee that the register pertained to the receipt and issue of coal and not the consumption of coal. Coal received is entered in that register and so also coal issued for consumption at the boiler site is entered therein. If it difficult to assume that there could be such variation in the consumption as is understood by the tax authorities below from the entries in the coal register.
26. We have ourselves examined the coal register. We find merit in the contention of the assessee that out of 9950 MT, the consumption of coal was of 9470 MT and there was sale of 480 MT coal stone. Such sale of coal stone finds place in the coal register. Simply because at one place there is some cutting in the register, it cannot be assumed that the sale was showed subsequently when such sale has already been entered in the miscellaneous receipts. As a matter of fact, the average consumption of coal comes to 181 kgs. per MT which cannot be taken as excessive in comparison to the consumption of coal shown by the assessee in earlier years. The addition of Rs. 10,96,175 and enhancement of Rs. 2,08,343 is, therefore, uncalled for. Such additions are based upon mere assumption without concrete basis. The addition of Rs. 13,04,518 is, therefore, deleted.
The assessee had shown an income of Rs. 2,15,000 from sale of coal ash.
According to the Assessing Officer, the assessee has suppressed the sale proceeds of coal ash. He took that there was consumption of 8502 MT (9950-1448) of coal which should have generated about 2,550.64 MT of coal ash and therefrom the assessee must have had fetched Rs. 3,57,075 at the rate of Rs. 140 per MT. Thus, according to him, the assessee suppressed the sale of coal ash to the extent of Rs. 1,42,075. He, thus, made addition of that amount to the income of the assessee. The CIT(A) allowed a relief of Rs. 15,938 only. He relied upon the letters of M/s. Premier Industries Ltd. and M/s. Prestige Goods Ltd. stating the market rate of coal ash.
28. Learned representatives of the parties are heard on this issue. It is contended by the learned counsel for the assessee that coal ash is a waste product and the manner of its disposal by sale is not uniformly adopted by all the manufacturers. According to him, the assessee had given contract of lifting coal ash for a period of nine months from 1st April, 1988 to 31st Dec., 1988 for a consideration of Rs. 90,000, vide agreement dt. 28th March, 1988 entered into with Shree Yadeshwari Trading Co. Thus, according to him, the assessee had not sold coal ash by weight. It was being lifted by the contractee from time to time during the period of contract. Thus, his contention is that the tax authorities below simply made imaginary calculations and the addition is based on such imagination. According to him, the total receipts for coal ash for the period of 21 months from the contractees was Rs. 2,15,000. In case the total consumption of coal is taken at 9,470 MT and generation of ash therefrom is taken at 30%, the total quantity of ash would work out to 2,841 MT and the rate of coal ash obtained by the assessee would work out to Rs. 75.67 per MT. Learned Departmental Representative, on the other hand, supported the orders of the tax authorities below.
29. We have minutely considered the respective submissions of the parties. We find that the manner in which receipts from sale of coal ash is computed by the tax authorities below, is not correct. One has to look at the case of a particular assessee in the manner in which he deals. The assessee had given contract for lifting coal ash and had not sold coal ash by weight in piecemeal. The case of the assessee should not, therefore, be compared with the other assessees. Moreover, the letters of M/s. Prestige Foods Ltd. and M/s. Premier Industries Ltd. cannot be used against the assessee, since the assessee had no means to know as to what was the quality of coal ash sold by them and what were the terms and conditions under which they had sold. For a moment, it may be assumed that the sale proceeds shown by the assessee are less than the market price but thereby one cannot jump to the conclusion that there was suppression of sale by the assessee. No attempt was made by the Assessing Officer to challenge the genuineness of the contract entered into by the assessee for lifting of coal ash on receipt of lump sum. It may be at the most said that the assessee was not prudent in selling coal ash by entering into such a contract and instead the assessee should have sold coal ash in the manner adopted by M/s.
Premier Industries Ltd. and M/s. Prestige Foods Ltd. But such imprudence on the part of the assessee should not result in penalising the assessee. It is, no doubt, duty of a taxing officer to find out if there is suppression of income but thereby the taxing officer cannot impose conditions as to in what manner the assessee should have transacted his business. He cannot assume facts which are not borne out from the record. The addition of Rs. 3,41,137 sustained by the CIT(A) is deleted.
The Assessing Officer made lump sum disallowance of Rs. 25,000 out of the miscellaneous expenses. According to him, there were number of items which were not vouched, for example on 3rd March, 1988, there was an expenditure of Rs. 100 as at "sale-tax", on 18th April, 1988, there was an expenditure of Rs. 294 as at "central excise", and there was an expenditure of Rs. 100 on 24th Aug., 1988 as at "labour office". He also observed that for expenses of conveyance, there were only self made vouchers and there were certain items of expenditure for which there were no vouchers. On appeal, the said disallowance has been reduced by the CIT(A) to Rs. 15,000.
31. It is contended by the learned counsel for the assessee that these days it has become necessary not only for the industrialists and businessmen but also for the general public to make some expenditure at the public offices for getting the work done in a proper manner without loss of time. Further, according to him, the employees of the assessee-company who attend the public offices and stay there for long time are also required to take some snacks, etc., and as such the expenditure is incurred. It is also his contention that it is not possible to obtain vouchers from the taxi drivers and, therefore, such expenditure is supported by the vouchers prepared by the employees who have spent on conveyance. Thus, according to him, despite the fact that the accounts of the assessee-company are completely audited, there has been disallowance on general grounds without any specific and valid objection. Learned Departmental Representative, on the other hand, supported the orders of the tax authorities below.
This ground of objection is consequential in nature. The Assessing Officer is directed to recompute the profit under S. 115J in accordance with law after giving effect to the order of the CIT(A) and so also the order of the Tribunal.