K. S. VISWANATHAN, A.M.: These are two Departmental appeal against findigs of CIT(A) for asst. yr. 1977-78. Mainly two issues are raised. first is regarding addition of Rs. 80,000 being value of excess wastage and second being addition treating certain sales made by assessee as assessee s own and not on behalf of certain alleged principals. assessee is firm having business in export of textiles and wholesale dealings in yarn. We will first take up issue regarding certain sales being treated as on assessee s own account. It was claimed before ITO that assessee firm was acting as depot keepers from three mills of Coimbatore. mills are Sujan Textiles (P) Ltd., Trimurti Mills Ltd., and Jayalakshmi Mills (P) Ltd. ITO wanted evidence to show that assessee was only acting as depot keepers. He called for contract which would have been entered into by assessee and mills respectively. But no contract was produced before ITO. ITO also noted that assessee flatly refused to produce any sales vouchers pertaining to this business on ground that they were sent to Coimbatore. He then asked assessee to produce any evidence of receipt of goods in Bombay or despatch of books to Coimbatore. No such evidence was produced. He asked for evidence regarding remittance of sale proceeds. According to him, no evidence was produced on this account also in later part of draft order, he recorded that only evidence produced was certain sheets of statements which were showing amount of sales and amount due to be remitted. According to ITO, there statements were produced only as specimens without any actual proof of despatch to Coimbatore. He concluded that it was not easy to believe that assessee had effected considerable turnover without any record of goods having been received. He therefore gave finding that entire sale proceeds said to have been made on behalf of mills were nothing but benami transactions belonging to assessee alone. He estimated such turnover at Rs. 2.43 crores and brought to tax amount of Rs. 8,35,524. This includes commissions of Rs. 1,75,667 which assessee has shown as having been received from three mills. In 144B proceedings before IAC, it would appear that assessee had requested Department to issue summons to Coimbatore parties and get their evidence thereof. It would appear that some evidence was received but IAC, after perusing orders and hearing assessee, directed ITO to make assessment as he had suggested. Before CIT(A), assessee produced copies of agreement with all three mills. He also produced letters from Jayalakshmi Mills Ltd. confirming their appointment as commission agents. Similar letter was produced from Trimurti Mills. Evidence regarding sales-tax paid in Bombay by these three mills was also produced to show that sales were effected by mills only. It was also submitted that they had in reply to summons from ITO sent requisite information to him. CIT(A) accepted this evidence as sufficient to clear point in favour of assessee. Against this finding, Department has come on appeal. main thrust o f Departmental appeals as explained by Shri Roy Alphonso, is that CIT(A) had admitted additional evidence without recording reasons why it should b e admitted. He had also submitted that no notice was given to ITO regarding additional evidence. Submissions were also made that additions made by ITO were reasonable. We are of opinion that although CIT(A) did commit breach of rules, it is not something requiring setting aside of CIT(A) order. Now, assessee s case was that they were acting as depot keepers. books of account produced by assessee before ITO supported this claim. There are accounts for all three mills showing sales effected on their behalf and amounts remitted. books of account have been scrutinised by ITO. His attention had been specifically brought to statement of accounts sent by assessee from time to time to its principals. This has been noticed by ITO himself in his assessment order. But he dismissed them as specimens not amounting to any proof of its despatch to Coimbatore. Now, let us assume that assessee has not proved that they were acting as commission agents. books of account showed that goods had been sold. There is nothing in books to show purchase of these goods. Assuming that ITO s theory is correct, logically next enquiry should be how these goods have reached assessee and where are purchases entered. It might be that assessee had not deliberately brought value of purchases in books of accounts t o hoodwink Department. If that is hypothesis on which ITO proceeds, then it naturally is expected of him to get evidence of three mills. It would be only natural for any Enquiry Officer to ask mills whether goods were sent o their own or whether they were sold outright to assessee. We, therefore, think that even on basis of ITO s investigations reply from mills is absolutely essential before any inference could be drawn regarding transactions. What CIT(A) had done was only to fill up this lacuna. She had noted that three mills already replied to summons issued by ITO. These replies by and large confirmed assessee s version. Thus, when there are preliminary grounds to believe that assessee s version is supported by mills, CIT(A) thought it fit to consider other evidence. She had admitted assessee to produce for first time before her agreements pointing out assessee as depot keepers. This by itself does not advance assessee s case but perhaps it was thought as additionally required to bring in conviction of genuineness of assessee s case. other evidence on this point considered by CIT(A) is only supporting whatever has been submitted. Under these circumstances, we do not see any substantial grievance Dept. could have in method followed by CIT(A). Of course, she should have complied with rules and asked ITO to state his objection for admission of additional materials. She also ought to have referred to reasons which prevented assessee form filling these materials before ITO. Thus, we must admit Department s case that provisions of r. 46A have not been observed by her. But, we do not think that this lapse on her part is of such seriousness that matter should be sent back for proper disposal. In this connection we will refer to observation made by Supreme Court in case of Laxmi Ratan Engg. Works vs. Asstt. Commr. of ST (AIR 1968 SC 488) to following effect: "It is to be remembered that all rules of procedure are intended to advance justice and not to defeat it." We therefore do not find it worthwhile to accept first ground that provisions of r. 46A have been violated by CIT(A). Regarding merits of case, we think once it is accepted that assessee was acting only as depot keepers, no addition need be sustained at all. So, on merits also, we will uphold CIT(A) s order. second main grievance is regarding addition of Rs. 80,000 made by ITO in export account. assessee had exported certain quantities of coverlets used for beds, quilts, blankets, etc. turnover disclosed gross profit rate of 4.02 per cent. in prior year, rate was 7 per cent. Quantity particulars had been furnished. ITO felt that rate was low. He found that there were no particulars available regarding stitching charges or wastage. He suggested addition of about Rs. 9 lakhs on account of these reasons. IAC, however, accepted that proper stocks have been maintained and quantity details are available. gross profit rates varied because of fluctuations of foreign exchange rates. However, he found that wastage in conversion of cloth into coverlets amounted to 3.39 per cent. This was excessive. He held that only 1/3rd of what was claimed could be allowed as deduction. He reduced addition to Rs. 80,000. CIT(A), however, found that addition was unnecessary. Before her, certificate was produced from one of parties who made stitching to effect that there was wastage of 3,545 metres on 92,255 metres of cloth. She further noted that there are records to show what is quantity of goods sent for stitching. records also show what is quantity of coverlets received. By applying rate of conversion, it was possible to make out statement giving total quantity of goods consumed and wastage. Such statement was given at time of hearing before her. She also noted that wastage had no value and it was not taken back by assessee. It was also pointed out that material itself cost Rs. 3 to Rs. 5 per metre. On these facts, she deleted addition. Here also, Department s contention is that additional materials had been furnished before CIT(A). In this ground, we think Department s grievance, to some extent, is legitimate. ITO had made addition on account of gross profit rate deficit. But IAC had put it on ground of excess wastage. Certain statements had been furnished before IAC to show that wastage was only 3.39 per cent. IAC felt that this was excessive. Now, submission made before CIT(A) was that show materials sent and materials consumed. Certain statements had also been submitted on this basis. Now, we do not know why such submissions could not be made before IAC. consumption figures are on basis of certain assumptions regarding quantity consumed in terms of metres for each coverlet. assessee s records would be showing number of coverlets expected from various parties and how they were satisfied with out-turn. These records should have been produced before IAC. In so far as these had not been scrutinised by IAC, we are of opinion that this part of assessment order should be set aside. IAC must be give opportunity to go through records of original entry regarding goods sent and goods consumed. We are making this observation because there is no way of determining whether wastage of 3.39 per cent is reasonable or not. Unlike first issue before us, i.e., depot keeping business, in this issue question is reasonableness of certain claim which could only be decided by close scrutiny of books of original entry in absence of comparative cases. We will therefore, direct ITO/IAC to scrutiny books of original entry and decided this matter afresh. In ground No. 4, question is whether Rs. 28,705 spent on entertainment of foreign customers could be allowed weighted deduction. Department s view is that these expenses are in nature of entertainment expenditure and therefore hit by provisions of s. 37(3A). we are unable to accept Department s contention. provisions of s. 37(3A) govern only deduction under s. 37(1). It does not affect deduction available to assessee under s. 35B. So, we will uphold CIT(A) s finding on this point. last ground is whether assessee is entitled to 35B deduction in respect of Rs. 1,01,633. These are expenses involved in furnishing samples to foreign buyers. According to Department, deduction under s. 35B is available only on cost of samples. We are unable to agree. deduction is available in furnishing samples to buyer which would include all other ancillary expense also. So, this ground is also decided against Department. ancillary expense also. So, this ground is also decided against Department. above disposes of main appeal of Department. In ITA No. 1973 (Bom)/82, Department is objecting to certain rectifications made by CIT(A) in her original order. point at issue is fully covered by points already decided (supra). No separate orders are necessary. In result, ITA No. 96(Bom)/82 is partly allowed, while ITA No. 1973(Bom)/82 is dismissed. *** EIGHT INCOME TAX OFFICER v. MANILAL TALAKCHAND