Deputy Commissioner of Income Tax Vs. Concept Data Management (P) Ltd. - Court Judgment

Excerpt:
1. this appeal has been filed by the department against the order of learned cit(a) dt. 14th may, 1999 for asst. yr. 1992-93.2. shri r.r. prasad, senior departmental representative appeared on behalf of the revenue whereas shri r.p. garg and shri vijay gupta, chartered accountants represented the assessee.3. ground no. 1, raised by the revenue, challenges the direction of the learned cit(a) in allowing the claim of software development expenses amounting to rs. 6,76,000.3.1 the learned senior departmental representative pointed out that the learned cit(a) has not assigned any reason in deleting the disallowance and the findings have been recorded without appreciating the true nature of the accounts of the assessee. he also submitted that its software programs if prepared then the same will last at least 4-5 years and therefore, the assessee will derive benefit of enduring nature. in support, he also placed reliance on the ratio of decision in the case of cit v. arawali construction co. (p) ltd. (2003) 259 itr 30 (raj). he also made reference to the decisions reported in shriram refrigeration industries ltd. v. cit (1981) 127 itr 746 (del); cit v.elecon engineering co. ltd. (1987) 166 itr 66 (sc); cit v. premier automobiles ltd. (1993) 206 itr 1 (bom), and (2003) 259 itr 30 (raj) (supra).3.2 the learned counsel for the assessee on the other hand, submitted that the nature of the business of the assessee basically was trading in hardware computers. he pointed out that in the first round vide order dt. 8th march, 1996, while setting aside the assessment and restoring the matter to the file of ao for fresh examination, the learned cit(a) had issued specific directions but the learned ao reframed the assessment without making any enquiry and without making compliance to such directions. the learned counsel also contended that the assessee had maintained account books and in the account books relevant entries were made. according to learned counsel, the learned cit(a) has deleted the addition by making reference to the order of his predecessor.3.3 we have carefully considered the entire material on record. the assessee-company had shown payment of rs. 6,76,520 to 13 parties under the head "software development charges". during the course of original assessment proceedings, the ao required the assessee to file confirmation from these parties in respect of these payments. the assessee failed to file confirmations. since confirmations could not be filed, the ao himself conducted enquiries and found that the parties were not existent. he, therefore, proposed to disallow the expenses. on behalf of the assessee it was submitted that the transactions were genuine and the payments were made through account payee cheques. it was also explained that confirmation could not be filed since the parties had changed their office and the assessee-company was not aware of the new addresses. the assessee also filed a letter from ltf graphics tally & technologies (p) ltd. stating that bill no. 242 dt.14th march, 1992 for rs. 24,000 was for photo composition english pages. on verification the ao found that in the earlier letter filed by the assessee of this company, this transaction was not appearing. thus, he was of the view that the assessee was changing its stand. the assessee also filed confirmation from pustron computer system. however, this party could not be produced. the ao, therefore, did not accept the confirmation in respect of other parties also. independent enquiries were conducted by the ao in the case of vipps electronics to whom payment of rs. 40,050 was shown. likewise in the case of kapsi electronics, payment of rs. 1,66,065 was shown. on spot enquiry these parties were not found on the given address. in view of these investigations and enquiries the ao held that software development charges, claimed to have been made by the assessee-company, were not genuine at all as the assessee could not substantiate the genuineness of these payments. he, therefore, disallowed the claim of the assessee and made an addition of rs. 6,76,520.3.4 findings of the ao were challenged before the learned cit(a) who vide his order dt. 8th march, 1996 restored the matter to the file of ao after setting aside the assessment. while doing so he directed the ao to make thorough enquiry in respect of each of the parties with the aid of information made available before him by the assessee and also the information originally furnished by it. the learned cit(a) also directed the ao to examine the nature and services rendered by these parties and the nature of software sold to the assessee.3.5 in compliance to the order of the learned cit(a) dt. 8th march, 1996, the ao directed the assessee to furnish details. he has observed that the assessee could not give any evidence about the claim of payment of software development charges. he has also observed that on the date of hearing, i.e., 17th march, 1998, shri a.k. jain, ca was present and hearing of the case was adjourned to 19th march, 1998. on 19th march, 1998 shri ajay jain was produced and his statement was recorded and hearing was adjourned to 20th march, 1998. on 20th march, 1998 none appeared, hence the ao made fresh assessment by filing (sic) the order of his predecessor.3.6 in the impugned order, the learned cit(a) has observed that in view of the clear direction of his predecessor the requisite evidence was already on record and it was for the ao to take cognizance of the same and thereafter to arrive at a reasonable decision. according to him, instead of doing so the ao has simply proceeded to frame assessment which is nothing but a replica of assessment order framed earlier. on this basis, the learned cit(a) has deleted the disallowance by holding that the disallowance has been made without appreciating the true nature and business of the assessee-company.3.7 the learned departmental representative while challenging the order of learned cit(a) submitted that the software development expenditure was in the nature of revenue expenditure. according to him, despite several opportunities having been provided by the ao during the original assessment order and also during the fresh assessment order made in compliance to the direction of the learned cit(a), the assessee totally failed to substantiate the claim.3.8 on the other hand, the learned counsel for the assessee submitted that the ao did not appreciate the true nature of the business of the assessee while making the disallowance. the learned counsel placed reliance on the impugned order of learned cit(a) and repeated this argument before us also.3.9 we have gone through the entire material on record and considered the rival submissions. the addition of rs. 6,76,520 was challenged before the learned cit(a) in the first stage. while deciding the issue, the learned cit(a) considered the additional evidence afresh before him for facilitating the identification, etc. of the payees. as observed by him in para 3.3 that such information was sent to the ao under rule 46a. the ao had pointed out that the confirmation letters were not filed even before him in respect of eight parties. the learned cit(a) thereafter proceeded to observe as under: "3.4. i have considered the submissions of the appellant and also the comments furnished by the ao. i am of the view that the disallowance has been made without appreciating the nature of business carried on by the appellant and also without carrying out investigation to their logical end. it is not disputed that the appellant is engaged in manufacture and sale of software, inter alia. the explanation of the appellant that many of the persons had come to the office of the appellant to deliver the software and also to pick up the cheques should not be brushed aside, especially in view of the fact that this is a highly competitive field with more and more persons engaging themselves in software development. once the appellant furnished the address as found in its records and had also confirmed that the payments had been made by cheques and had also indicated the nature of purchases made from them, the primary onus cast on the appellant should be deemed to be discharged. thereafter if the payments are to be held as bogus or for extra commercial consideration, then the only way would be to examine the bank accounts through which the cheques issued by the appellant had been cleared to see the ultimate beneficiaries of the payments. it is also not uncommon that between the time of the actual transaction and the point of enquiries by the department, the concerned persons might change their business premises. this is substantiated by the fact that the appellant has furnished now the new addresses of m/s govind computers and m/s goyal computers. in these circumstances, i am of the view that the entire issue should be restored to the file of the ao for making thorough enquiries in respect of each of the persons, with the aid of the information now made available by the appellant and also the information originally furnished by him in the course of the assessment proceedings. for this purpose the assessment has to be set aside back to the ao for making a fresh assessment in this regard. in the course of fresh assessment the ao shall, inter alia, examine the nature of service rendered by these persons/the nature of software sold to the appellant, make enquiries both at the clearing bank and also at the relevant post offices, etc." 3.10 in view of the specific direction, the ao was called upon to examine the bank accounts through which the cheques issued to the assessee were cleared to see the beneficiaries of the payments. he was also required to examine the nature of services rendered by the payees.3.11 as observed by the learned cit(a) in the impugned order the entire material was with the department. in any case the ao could have examined the bank account to see the mode of clearance. this was not a difficult task. even if the assessee failed to file confirmations etc.before him, then the material collected during the appellate stage, which was referred to the ao, could have been examined. the ao while passing the order dt. 30th march, 1998, has not even mentioned about the fresh evidence filed before the learned cit(a). in his order dt.30th march, 1998 the ao has observed that on 17th march, 1998 part details were filed, he has also observed that statement of shri ajay jain was recorded on 19th march, 1998. as observed in para 3.3 of the appellate order dt. 8th march, 1996, confirmations were filed in all cases except eight parties. thus, the confirmations from five parties were received. while passing the assessment order, the ao has not considered these confirmations and has not given even part relief.3.12 from the material on record, as referred to above, it is clear that payments were made through account payee cheques. the ao did not make efforts to examine the bank accounts for knowing the mode of clearance, etc. hence, default was definitely with him. he did not make full enquiry nor provided proper opportunity to the assessee. further, he has not considered the relevant material on record. he has also not cared to look into the record which was already with the department. in view of the above, we are of the opinion that the observations made by the learned cit(a) for deciding the issue and deleting the disallowance are fully justified. hence, we uphold the same. in the result, ground no. 1 taken by the department is rejected.4. ground no. 2: this ground is directed against the deletion of rs. 8,28,000 on account of advance received from parties. the assessee has shown receipt of advance from 53 parties. during the assessment proceedings, the assessee was required to file confirmation from these parties. the assessee could not file the confirmation. the ao also made independent enquiries and held that the assessee had picked bogus liabilities. he, therefore, made addition of rs. 8,24,918 by observing as under : "the above discussion clearly proves that the advances shown by the assessee-company are nothing but means of suppression of this taxable income. the assessee could file acceptable confirmation from anmol leasing for an advance of rs. 52,000 and in response to summons under section 131, m.b. sons of jaipur have confirmed advances of rs. 19,250 to the assessee-company. this way advances of 71,250 are explained. the assessee has received total advances of rs. 8,96,168. out of these, advances to the extent of rs. 8,24,918 (8,96,168 -71,250) remained unexplained. accordingly, an addition of rs. 8,24,918 is hereby made in the income of the assessee as unexplained advances." 4.1 this addition was challenged and the learned cit(a) set aside this issue also to the ao by observing as under: "4.2. i have considered the observations of the ao and also the contentions of the appellant. in my opinion, the investigation in respect of the advances did not reach their logical conclusions. after all, the amounts received were not in the nature of cash credits or loans but were for the purposes of purchase of hardware or software from the appellant. one would, therefore, expect that the accounts of these parties in the next year would be examined to see whether the advances had been transferred to the income account and if so at what point of time and on what basis. it may be only in such of those cases where the advances had been returned without fructifying into a sale that the ao could possibly examine whether they were in the nature of bogus cash credits. in the course of appeal proceedings, i referred the explanation now offered by the appellant to the present ao who has responded through his letter dt. 25th jan., 1996. he has not made any adverse comments on the explanation now given by the appellant. in my opinion, therefore, it is necessary to restore this issue also back to the file of the ao with a direction to examine the account of each party to see whether the advances have fructified into sales in the next year and have been accounted for as income as such. it is only in those cases whether the actual sales are found to be made during the present accounting year that the ao could possibly treat the sum as sales under the mercantile system of accounting. in fact, the explanation given by the appellant in the case of m/s tata tea ltd. is so convincing that it would appear that if only the ao had examined the accounts of the parties over a period of time he could have easily identified the manner in which the advances were transferred to the income account. in the circumstances, this matter is also set aside to the ao for a fresh assessment according to law." 4.2 while passing the fresh assessment order, the ao has made disallowance out of advances received from customers on estimate basis.this was done at rs. 1,25,000 as against the original addition of rs. 8,24,918. the ao has mentioned that part of these details had been furnished. the disallowance of rs. 1,25,000 was challenged before the learned cit(a). in the impugned order, the learned cit(a) has deleted the addition by observing that in compliance with the order of his predecessor the ao was required to examine the account of each party to see as to whether the advances had fructified into sales in the next year and had been accounted for as an income or not. he has observed that since this exercise had not been carried out by the ao and the matter could not be kept alive perpetuatedly, the addition was deleted.4.3 after going through the various orders, referred to above, we find that the ao was duty-bound to examine the matter in the light of directions issued to him by the learned first appellate authority.since he failed to do so, in our opinion, the learned cit(a) was justified to delete the remaining addition. it may be pointed out that the learned ao had made the disallowance only on ad hoc basis by estimate. in our considered view this course was not available to him because the parties were specific and details were specific. hence, disallowance of any amount relating to advance could have been specific. thus, we are unable to accept the plea of the department.ground no. 2 is accordingly rejected.5. ground no. 3 : this ground is directed against the direction of the learned cit(a) in allowing commission of rs. 2,23,464.5.1 the assessee-company had shown payment of commission at rs. 2,33,464. the ao disallowed the claim and made addition of rs. 2,33,464. on this issue also the matter was set aside by the learned first appellate authority. while making fresh assessment, in compliance, the ao has repeated the disallowance made in the original assessment order on the ground that no details/clarification was furnished by the assessee.5.2 in the impugned order the learned cit(a) has observed that the ao had not brought any specific material on record to justify the disallowance. in our view such findings also does not call for any interference. hence, the ground taken by the department is rejected.6. ground no. 4 : this ground is directed against the application of net profit rate.6.1 the learned cit(a) restored this issue back to the file of the ao by observing as under : "estimation of sales outside the books: my predecessor had directed that even assuming that the books of account were to be rejected and profits were to be estimated, the ao should still consider the normal rate of gross profit and net profit declared by other leading companies in the same line of business which had been pointed out by the appellant-company. i, therefore, leave it to the ao to apply a normal and reasonable rate of profit in this case." 6.2 since the matter has been restored to the file of ao by the learned cit(a) for deciding the issue afresh, in our view, there should be no grievance to the department against direction of the learned cit(a).ground fails. otherwise also the learned departmental representative has not been able to point out any error in the direction issued by the learned cit(a). in view of the above, we do not find any force in the ground taken before us by the department, which stands rejected.

Judgment:
1. This appeal has been filed by the Department against the order of learned CIT(A) dt. 14th May, 1999 for asst. yr. 1992-93.

2. Shri R.R. Prasad, senior Departmental Representative appeared on behalf of the Revenue whereas Shri R.P. Garg and Shri Vijay Gupta, Chartered Accountants represented the assessee.

3. Ground No. 1, raised by the Revenue, challenges the direction of the learned CIT(A) in allowing the claim of software development expenses amounting to Rs. 6,76,000.

3.1 The learned senior Departmental Representative pointed out that the learned CIT(A) has not assigned any reason in deleting the disallowance and the findings have been recorded without appreciating the true nature of the accounts of the assessee. He also submitted that its software programs if prepared then the same will last at least 4-5 years and therefore, the assessee will derive benefit of enduring nature. In support, he also placed reliance on the ratio of decision in the case of CIT v. Arawali Construction Co. (P) Ltd. (2003) 259 ITR 30 (Raj). He also made reference to the decisions reported in Shriram Refrigeration Industries Ltd. v. CIT (1981) 127 ITR 746 (Del); CIT v.Elecon Engineering Co. Ltd. (1987) 166 ITR 66 (SC); CIT v. Premier Automobiles Ltd. (1993) 206 ITR 1 (Bom), and (2003) 259 ITR 30 (Raj) (supra).

3.2 The learned counsel for the assessee on the other hand, submitted that the nature of the business of the assessee basically was trading in hardware computers. He pointed out that in the first round vide order dt. 8th March, 1996, while setting aside the assessment and restoring the matter to the file of AO for fresh examination, the learned CIT(A) had issued specific directions but the learned AO reframed the assessment without making any enquiry and without making compliance to such directions. The learned counsel also contended that the assessee had maintained account books and in the account books relevant entries were made. According to learned counsel, the learned CIT(A) has deleted the addition by making reference to the order of his predecessor.

3.3 We have carefully considered the entire material on record. The assessee-company had shown payment of Rs. 6,76,520 to 13 parties under the head "software development charges". During the course of original assessment proceedings, the AO required the assessee to file confirmation from these parties in respect of these payments. The assessee failed to file confirmations. Since confirmations could not be filed, the AO himself conducted enquiries and found that the parties were not existent. He, therefore, proposed to disallow the expenses. On behalf of the assessee it was submitted that the transactions were genuine and the payments were made through account payee cheques. It was also explained that confirmation could not be filed since the parties had changed their office and the assessee-company was not aware of the new addresses. The assessee also filed a letter from LTF Graphics Tally & Technologies (P) Ltd. stating that bill No. 242 dt.

14th March, 1992 for Rs. 24,000 was for photo composition English pages. On verification the AO found that in the earlier letter filed by the assessee of this company, this transaction was not appearing. Thus, he was of the view that the assessee was changing its stand. The assessee also filed confirmation from Pustron Computer System. However, this party could not be produced. The AO, therefore, did not accept the confirmation in respect of other parties also. Independent enquiries were conducted by the AO in the case of Vipps Electronics to whom payment of Rs. 40,050 was shown. Likewise in the case of Kapsi Electronics, payment of Rs. 1,66,065 was shown. On spot enquiry these parties were not found on the given address. In view of these investigations and enquiries the AO held that software development charges, claimed to have been made by the assessee-company, were not genuine at all as the assessee could not substantiate the genuineness of these payments. He, therefore, disallowed the claim of the assessee and made an addition of Rs. 6,76,520.

3.4 Findings of the AO were challenged before the learned CIT(A) who vide his order dt. 8th March, 1996 restored the matter to the file of AO after setting aside the assessment. While doing so he directed the AO to make thorough enquiry in respect of each of the parties with the aid of information made available before him by the assessee and also the information originally furnished by it. The learned CIT(A) also directed the AO to examine the nature and services rendered by these parties and the nature of software sold to the assessee.

3.5 In compliance to the order of the learned CIT(A) dt. 8th March, 1996, the AO directed the assessee to furnish details. He has observed that the assessee could not give any evidence about the claim of payment of software development charges. He has also observed that on the date of hearing, i.e., 17th March, 1998, Shri A.K. Jain, CA was present and hearing of the case was adjourned to 19th March, 1998. On 19th March, 1998 Shri Ajay Jain was produced and his statement was recorded and hearing was adjourned to 20th March, 1998. On 20th March, 1998 none appeared, hence the AO made fresh assessment by filing (sic) the order of his predecessor.

3.6 In the impugned order, the learned CIT(A) has observed that in view of the clear direction of his predecessor the requisite evidence was already on record and it was for the AO to take cognizance of the same and thereafter to arrive at a reasonable decision. According to him, instead of doing so the AO has simply proceeded to frame assessment which is nothing but a replica of assessment order framed earlier. On this basis, the learned CIT(A) has deleted the disallowance by holding that the disallowance has been made without appreciating the true nature and business of the assessee-company.

3.7 The learned Departmental Representative while challenging the order of learned CIT(A) submitted that the software development expenditure was in the nature of revenue expenditure. According to him, despite several opportunities having been provided by the AO during the original assessment order and also during the fresh assessment order made in compliance to the direction of the learned CIT(A), the assessee totally failed to substantiate the claim.

3.8 On the other hand, the learned counsel for the assessee submitted that the AO did not appreciate the true nature of the business of the assessee while making the disallowance. The learned counsel placed reliance on the impugned order of learned CIT(A) and repeated this argument before us also.

3.9 We have gone through the entire material on record and considered the rival submissions. The addition of Rs. 6,76,520 was challenged before the learned CIT(A) in the first stage. While deciding the issue, the learned CIT(A) considered the additional evidence afresh before him for facilitating the identification, etc. of the payees. As observed by him in para 3.3 that such information was sent to the AO under Rule 46A. The AO had pointed out that the confirmation letters were not filed even before him in respect of eight parties. The learned CIT(A) thereafter proceeded to observe as under: "3.4. I have considered the submissions of the appellant and also the comments furnished by the AO. I am of the view that the disallowance has been made without appreciating the nature of business carried on by the appellant and also without carrying out investigation to their logical end. It is not disputed that the appellant is engaged in manufacture and sale of software, inter alia. The explanation of the appellant that many of the persons had come to the office of the appellant to deliver the software and also to pick up the cheques should not be brushed aside, especially in view of the fact that this is a highly competitive field with more and more persons engaging themselves in software development. Once the appellant furnished the address as found in its records and had also confirmed that the payments had been made by cheques and had also indicated the nature of purchases made from them, the primary onus cast on the appellant should be deemed to be discharged.

Thereafter if the payments are to be held as bogus or for extra commercial consideration, then the only way would be to examine the bank accounts through which the cheques issued by the appellant had been cleared to see the ultimate beneficiaries of the payments. It is also not uncommon that between the time of the actual transaction and the point of enquiries by the Department, the concerned persons might change their business premises. This is substantiated by the fact that the appellant has furnished now the new addresses of M/s Govind Computers and M/s Goyal Computers. In these circumstances, I am of the view that the entire issue should be restored to the file of the AO for making thorough enquiries in respect of each of the persons, with the aid of the information now made available by the appellant and also the information originally furnished by him in the course of the assessment proceedings. For this purpose the assessment has to be set aside back to the AO for making a fresh assessment in this regard. In the course of fresh assessment the AO shall, inter alia, examine the nature of service rendered by these persons/the nature of software sold to the appellant, make enquiries both at the clearing bank and also at the relevant post offices, etc." 3.10 In view of the specific direction, the AO was called upon to examine the bank accounts through which the cheques issued to the assessee were cleared to see the beneficiaries of the payments. He was also required to examine the nature of services rendered by the payees.

3.11 As observed by the learned CIT(A) in the impugned order the entire material was with the Department. In any case the AO could have examined the bank account to see the mode of clearance. This was not a difficult task. Even if the assessee failed to file confirmations etc.

before him, then the material collected during the appellate stage, which was referred to the AO, could have been examined. The AO while passing the order dt. 30th March, 1998, has not even mentioned about the fresh evidence filed before the learned CIT(A). In his order dt.

30th March, 1998 the AO has observed that on 17th March, 1998 part details were filed, He has also observed that statement of Shri Ajay Jain was recorded on 19th March, 1998. As observed in para 3.3 of the appellate order dt. 8th March, 1996, confirmations were filed in all cases except eight parties. Thus, the confirmations from five parties were received. While passing the assessment order, the AO has not considered these confirmations and has not given even part relief.

3.12 From the material on record, as referred to above, it is clear that payments were made through account payee cheques. The AO did not make efforts to examine the bank accounts for knowing the mode of clearance, etc. Hence, default was definitely with him. He did not make full enquiry nor provided proper opportunity to the assessee. Further, he has not considered the relevant material on record. He has also not cared to look into the record which was already with the Department. In view of the above, we are of the opinion that the observations made by the learned CIT(A) for deciding the issue and deleting the disallowance are fully justified. Hence, we uphold the same. In the result, ground No. 1 taken by the Department is rejected.

4. Ground No. 2: This ground is directed against the deletion of Rs. 8,28,000 on account of advance received from parties. The assessee has shown receipt of advance from 53 parties. During the assessment proceedings, the assessee was required to file confirmation from these parties. The assessee could not file the confirmation. The AO also made independent enquiries and held that the assessee had picked bogus liabilities. He, therefore, made addition of Rs. 8,24,918 by observing as under : "The above discussion clearly proves that the advances shown by the assessee-company are nothing but means of suppression of this taxable income. The assessee could file acceptable confirmation from Anmol Leasing for an advance of Rs. 52,000 and in response to summons under Section 131, M.B. Sons of Jaipur have confirmed advances of Rs. 19,250 to the assessee-company. This way advances of 71,250 are explained. The assessee has received total advances of Rs. 8,96,168. Out of these, advances to the extent of Rs. 8,24,918 (8,96,168 -71,250) remained unexplained. Accordingly, an addition of Rs. 8,24,918 is hereby made in the income of the assessee as unexplained advances." 4.1 This addition was challenged and the learned CIT(A) set aside this issue also to the AO by observing as under: "4.2. I have considered the observations of the AO and also the contentions of the appellant. In my opinion, the investigation in respect of the advances did not reach their logical conclusions.

After all, the amounts received were not in the nature of cash credits or loans but were for the purposes of purchase of hardware or software from the appellant. One would, therefore, expect that the accounts of these parties in the next year would be examined to see whether the advances had been transferred to the income account and if so at what point of time and on what basis. It may be only in such of those cases where the advances had been returned without fructifying into a sale that the AO could possibly examine whether they were in the nature of bogus cash credits. In the course of appeal proceedings, I referred the explanation now offered by the appellant to the present AO who has responded through his letter dt.

25th Jan., 1996. He has not made any adverse comments on the explanation now given by the appellant. In my opinion, therefore, it is necessary to restore this issue also back to the file of the AO with a direction to examine the account of each party to see whether the advances have fructified into sales in the next year and have been accounted for as income as such. It is only in those cases whether the actual sales are found to be made during the present accounting year that the AO could possibly treat the sum as sales under the mercantile system of accounting. In fact, the explanation given by the appellant in the case of M/s Tata Tea Ltd. is so convincing that it would appear that if only the AO had examined the accounts of the parties over a period of time he could have easily identified the manner in which the advances were transferred to the income account. In the circumstances, this matter is also set aside to the AO for a fresh assessment according to law." 4.2 While passing the fresh assessment order, the AO has made disallowance out of advances received from customers on estimate basis.

This was done at Rs. 1,25,000 as against the original addition of Rs. 8,24,918. The AO has mentioned that part of these details had been furnished. The disallowance of Rs. 1,25,000 was challenged before the learned CIT(A). In the impugned order, the learned CIT(A) has deleted the addition by observing that in compliance with the order of his predecessor the AO was required to examine the account of each party to see as to whether the advances had fructified into sales in the next year and had been accounted for as an income or not. He has observed that since this exercise had not been carried out by the AO and the matter could not be kept alive perpetuatedly, the addition was deleted.

4.3 After going through the various orders, referred to above, we find that the AO was duty-bound to examine the matter in the light of directions issued to him by the learned first appellate authority.

Since he failed to do so, in our opinion, the learned CIT(A) was justified to delete the remaining addition. It may be pointed out that the learned AO had made the disallowance only on ad hoc basis by estimate. In our considered view this course was not available to him because the parties were specific and details were specific. Hence, disallowance of any amount relating to advance could have been specific. Thus, we are unable to accept the plea of the Department.

Ground No. 2 is accordingly rejected.

5. Ground No. 3 : This ground is directed against the direction of the learned CIT(A) in allowing commission of Rs. 2,23,464.

5.1 The assessee-company had shown payment of commission at Rs. 2,33,464. The AO disallowed the claim and made addition of Rs. 2,33,464. On this issue also the matter was set aside by the learned first appellate authority. While making fresh assessment, in compliance, the AO has repeated the disallowance made in the original assessment order on the ground that no details/clarification was furnished by the assessee.

5.2 In the impugned order the learned CIT(A) has observed that the AO had not brought any specific material on record to justify the disallowance. In our view such findings also does not call for any interference. Hence, the ground taken by the Department is rejected.

6. Ground No. 4 : This ground is directed against the application of net profit rate.

6.1 The learned CIT(A) restored this issue back to the file of the AO by observing as under : "Estimation of sales outside the books: My predecessor had directed that even assuming that the books of account were to be rejected and profits were to be estimated, the AO should still consider the normal rate of gross profit and net profit declared by other leading companies in the same line of business which had been pointed out by the appellant-company. I, therefore, leave it to the AO to apply a normal and reasonable rate of profit in this case." 6.2 Since the matter has been restored to the file of AO by the learned CIT(A) for deciding the issue afresh, in our view, there should be no grievance to the Department against direction of the learned CIT(A).

Ground fails. Otherwise also the learned Departmental Representative has not been able to point out any error in the direction issued by the learned CIT(A). In view of the above, we do not find any force in the ground taken before us by the Department, which stands rejected.