Horizon Microtexh Pvt. Ltd., Ahmedabad V. The Income tax Officer, Ward-4(3), Ahmedabad

CO 143/AHD/2007

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 4801 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 01-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 21-06-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Reasonable cause
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING:1.06.10 DRAFTED ON:1.06.10 ITA NO.1619/AHD/2007 WITH CROSS OBJECTION NO.143/AHD/2007 ASSESSMENT YEAR : 2003-2004 INCOME TAX OFFICER, WARD -4(3), AHMEDABAD. VS. HORIZON MICROTECH PVT. LTD. 608, SAKAR-V, B/H. NATRAJ CINEMA, ASHRAM ROAD, AHMEDABAD. PAN/GIR NO. : AAACK4762M (APPELLANT) .. (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY: SHRI C.K.MISHRA SR. D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEAR NED COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDABAD, DATED 15.01.20 07. 2. WHEN THE CASE WAS CALLED FOR HEARING, NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. AN ADJOURNMENT APPLICATION WAS FILED IN THE REGISTRY IN WHICH THE ADVOCATE OF THE ASSESSEE SHRI VARIS V. ISANI HAS REQUESTED FOR ADJOURNMENT OF THE HEARING TO THIRD W EEK OF JUNE 2010 AS THE DIRECTOR OF THE COMPANY WAS IN SINGAPORE AND THE AD VOCATE SHRI VARIS V. ISANI WAS TO VISIT U.S. AND CANADA BY END OF THIS W EEK. THE BENCH WAS OF THE VIEW THAT THE REASON FOR SEEKING ADJOURNMENT OF HEARING WAS NOT A PLAUSIBLE ONE AND HENCE REJECTED THE ADJOURNMENT AP PLICATION AND PROCEEDED TO DECIDE THE APPEAL AFTER HEARING THE LE ARNED DEPARTMENTAL - 2 - REPRESENTATIVE AND TAKING INTO CONSIDERATION THE MA TERIALS AVAILABLE ON RECORD. 3. GROUND NO.1 OF THE APPEAL OF THE REVENUE READS AS UNDER:- 1. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN ALLOWING THE ASSESSEES CLAIM OF DEDUCTION U/S.80IB AT RS.2,35,043/- REJECTED BY THE A.O. AS THE MANDATORY AUDIT REPORT UNDER SECTION 80IA(3) R.W.S.80IB(13) WAS NOT SUBMITTED ALONG WITH ITS RETURN OF INCOME BUT, IT W AS OBTAINED ON 19.12.2005 I.E. AFTER THE DATE OF FILING THE RET URN OF INCOME, IGNORING THE FACT THAT THE DELAY IN FILING OF REPORT CAN BE CONSIDERED PROCEDURAL IN NATURE AND NOT THE DELA Y IN GETTING THE AUDIT REPORT AS HELD IN THE CASE OF SHI VANAND ELECTRONICS 209 ITR 63(BOM). 4. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS DECIDED THE ISSUE AS UNDER:- 2. GROUND NO.1 IS AGAINST THE REJECTION OF CLAIM U NDER SECTION 80IB FOR RS.2,35,043/-. THE AO HAS DISCUSSE D IN PARA 4.4 OF HIS ORDER THAT THE AUDIT REPORT UNDER SECTIO N 80IA(3) R.W.S. 80IB(13) WAS FILED DURING THE COURSE OF ASSE SSMENT PROCEEDINGS AND NOT WITHIN THE DUE DATE UNDER SECTI ON 139(1). RELYING ON THE DECISION OF THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF CIT V. SHIVANAND ELECTORNICS 2 09 ITR 63(BOM), HE DISALLOWED THE CLAIM AS NOT TENABLE IN LAW. 2.1 BEFORE ME, THE LEARNED COUNSEL FOR THE APPELLAN T SHRI K.I.THAKKAR CONTENDED THAT IN VIEW OF AMENDMENT TO SECTION 80IA(7), REQUIRED AUDIT REPORT COULD NOT BE FILED A LONG WITH THE RETURN OF INCOME AND THE APPELLANT BEING A COMP ANY, THERE WAS NO REQUIREMENT TILL THE PRECEDING YEAR AN D THIS BEING THE FIRST YEAR AS TO THE REQUIREMENT OF AUDIT REPORT U/S.80IA(7) FOR THE APPELLANT, THERE WAS REASONABLE CAUSE IN FILING THE SAID AUDIT REPORT DURING THE COURSE OF A SSESSMENT PROCEEDINGS. HE ALSO RELIED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHIVANAND ELECTRONICS 209 ITR 63 AND THE DECISION OF THE HON' BLE GUJARAT HIGH COURT IN THE CASE OF ZENITH PROCESSING METAL VS. CIT 219 ITR 721. ACCORDING TO HIM, IN THE ABOVE CASES, FURNISHING OF AUDIT REPORT WAS PROCEDURAL AND THE S AME CAN BE ADMITTED WHILE THE CLAIM IS CONSIDERED. - 3 - (V) AS REGARDS FURNISHING OF RELEVANT AUDIT REPORT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND NOT ALONG WITH RETURN OF INCOME AS SPECIFIED U/S. 80IA(7), I AM IN CLINED TO AGREE WITH THE CONTENTION OF THE APPELLANT IN THE L IGHT OF THE JUDICIAL VIEWS RELIED ON THAT FURNISHING OF AUDIT R EPORT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS AN EVIDENCE FOR ALLOWANCE/REJECTION OF CLAIM AS PROCEDURAL IN NATUR E AND THE APPELLANT HAVING FURNISHED THE AUDIT REPORT DURING ASSESSMENT PROCEEDINGS TO ENABLE THE AO TO EXAMINE THIS CLAIM IS TO BE TAKEN AS SUBSTANTIAL COMPLIANCE AND THIS CANNOT BE A GROUND FOR REJECTION OF DEDUCTION U/S. 801B. THIS GROUND I S PARTLY ALLOWED. 5. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESEN TATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE I NSTANT CASE, THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAS OBTAINED AUDIT REPORT UNDER SECTION 80IB(7) ON 19.12.2005 AND FURNISHED THE SAM E DURING THE COURSE OF THE ASSESSMENT HEARING BEFORE THE LEARNED ASSESSING OFFICER. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVING THAT AUDIT REPORT WAS AVAILABLE BEFORE THE LEARNED ASSESSING OFFICER AT T HE TIME OF THE FINALIZATION OF ASSESSMENT AND THEREFORE, THE SAME AMOUNTED TO SUBSTANTIAL COMPLIANCE OF LAW AND THEREFORE, HE FOLLOWING THE J UDICIAL PRONOUNCEMENT IN THE CASE OF CIT VS. SHIVANAND ELECTRONICS 209 IT R 63 (BOM) AND ZENITH PROCESSING METAL VS. CIT 219 ITR 721 (GUJ) A LLOWED THE APPEAL OF THE ASSESSEE AND DIRECTED THE LEARNED ASSESSING OFF ICER TO ALLOW DEDUCTION UNDER SECTION 80IB OF THE ACT. 6. THE CONTENTION OF THE LEARNED DEPARTMENTAL REPR ESENTATIVE BEFORE US WAS THAT IN THE ABOVE CITED DECISION, THE RE WAS MERELY DELAY IN FURNISHING THE AUDIT REPORT BUT THE SAME WAS OBTAIN ED WITHIN THE PRESCRIBED TIME WHEREAS IN THE INSTANT CASE, THE AU DIT REPORT WAS NOT OBTAINED WITHIN THE PRESCRIBED TIME AND THEREFORE, THE ABOVE DECISIONS WERE NOT APPLICABLE IN THE INSTANT CASE AND THE LEA RNED COMMISSIONER OF - 4 - INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN ADMITTING THE ABOVE AUDIT REPORT. 7. IN OUR CONSIDERED OPINION, THE CRUX OF THE ISS UE IS THAT WHETHER THE AUDIT REPORT WAS AVAILABLE BEFORE THE L EARNED ASSESSING OFFICER AT THE TIME OF THE FINALIZATION OF THE ASSE SSMENT OR NOT. THE AUDIT REPORT IS REQUIRED TO BE OBTAINED FOR SOME PURPOSE AND THAT BEING TO ASSIST THE LEARNED ASSESSING OFFICER IN COMPUTING THE LIAB ILITY OF THE ASSESSEE IN ACCORDANCE WITH THE LAW. THUS, IN OUR CONSIDERED OP INION, EVEN IF IN CASES, WHERE AUDIT REPORT WAS OBTAINED WITH CERTAIN DELAY BUT WAS MADE AVAILABLE TO THE LEARNED ASSESSING OFFICER AT THE TIME OF THE FINALIZATION OF ASSESSMENT, THEN THE SAME AMOUNTS TO SUBSTANTIAL CO MPLIANCE WITH THE PROVISIONS OF LAW AND THE CLAIM OF THE ASSESSEE OF STATUTORY ALLOWABLE DEDUCTION CANNOT BE DENIED MERELY BECAUSE OF A TECH NICAL OR VENIAL BREACH OF LAW. THE LEARNED DEPARTMENTAL REPRESENTATIVE COU LD NOT POINT OUT ANY LOSS OR DIFFICULTY WHICH WAS POSED TO THE DEPARTMEN T BECAUSE OF ABOVE DELAY IN OBTAINING OF THE AUDIT REPORT BY THE ASSES SEE AND COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THERE WAS ANY M ALAFIDE INTENTION ON THE PART OF THE ASSESSEE BY DELIBERATELY DELAYING OBTAI NING OF THE AUDIT REPORT. IN THE CIRCUMSTANCES, WE DO NOT FIND ANY ERROR IN T HE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 8. GROUND NO.2 OF THE APPEAL OF THE REVENUE READS AS UNDER:- 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE A.O. TO RECOMPUTE THE DEDUCTION U/ S.80IB AFTER FOLLOWING SPECIFIC DIRECTIONS ISSUED TO HIM R EGARDING THE INSTALLATION AND SERVICE CHARGES IGNORING THE F ACT THAT THE INSTALLATION CHARGES WHETHER RECEIVED ON ACCOUNT OF GOODS MANUFACTURED ON THEIR OWN OR ON ACCOUNT OF TRADED G OODS CANNOT BE CONSIDERED AS INCOME DERIVED FROM THE - 5 - MANUFACTURING ACTIVITY OF THE UNDERTAKING. AT BEST THE INSTALLATION CHARGES CAN BE SAID TO BE ATTRIBUTABLE TO INDUSTRIAL BUT THE SAME CANNOT BE HELD TO BE INCOME DERIVED FR OM INDUSTRIAL UNDERTAKING. 9. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HELD AS UNDER:- HE ALSO HELD THAT IF OTHER INCOME ON ACCOUNT OF IN STALLATION & SERVICES CHARGES AT RS.27,08,776/- WERE TO BE EXC LUDED FROM THE PROFIT OF THE UNDERTAKING THEN THERE WAS N O POSITIVE INCOME AND HENCE DEDUCTION WOULD BE NIL. AS REGARDS THE SECOND CONTENTION OF THE AO THAT THE INCOME FROM INSTALLATION AND SERVICES CONSTITUTE INCOME OT HER THAN THE PROFIT OF THE INDUSTRIAL UNDERTAKING, THE APPEL LANT CONTENDED THAT THE ACTIVITY OF SUPPLY OF MATERIALS AND INSTALLATION WERE THE INTEGRAL PART OF THE MAIN ACT IVITY AND WAS NOT INCOME FROM OTHER BUSINESS. RELYING ON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF K. KARSANDAS FAMILY TRUST 195 CTR 577, IT WAS ARGUED T HAT DEDUCTION U/S. 80IB R.W.S. SECTION 80IA(7) IS ELIGI BLE TO THE APPELLANT. 2.2 I HAVE EXAMINED CAREFULLY THE SUBMISSIONS OF TH E APPELLANT AND ALSO PERUSED THE VARIOUS JUDICIAL VIE WS BROUGHT TO MY NOTICE IN THIS REGARD. THE AO HAS SPECIFICALL Y NOTED THAT THE INCOME FROM INSTALLATION AND SERVICE CHARG ES WAS SHOWN UNDER OTHER INCOME AND IF THE SAME WERE EXCLU DED THEN THE PROFIT OF THE UNDERTAKING WOULD BE A MINUS FIGURE. IT IS SEEN FROM THE RECORDS THAT SCHEDULE-I SHOWS THE INCOME FROM INSTALLATION AND SERVICES AT RS.27.08 LACS WHE REAS SCHEDULE-J - MANUFACTURING EXPENSES INCLUDE INSTALL ATION AND SERVICES EXPENSES OF RS.4.03 LACS. IT IS NOT MADE S PECIFIC AS TO WHAT AMOUNT OF INSTALLATION AND SERVICE INCOME I NCLUDE ANY OTHER INCOME AS RELATABLE TO SALES AS PER THE T ERMS IN THIS REGARD. THE EXPENDITURE CLAIMED ON INSTALLATION AND SERVICE BEING ONLY RS.4.03 LACS THE ENTIRE INCOME OF RS. 27 .08 LACS FOR INSTALLATION AND SERVICES CANNOT BE SAID TO BE LINKED TO SALE OF MANUFACTURING ITEMS. OBVIOUSLY SERVICE INCO ME NOT CONNECTED WITH SALE OF THE ARTICLES MANUFACTURED BY THE UNDERTAKING CANNOT BE TREATED AS DERIVED DIRECTLY F ROM THE BUSINESS UNDERTAKING IN THE LIGHT OF THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF STERLING FOODS 237 ITR 579 AND PANDIAN CHEMICALS LTD. 262 ITR 278, HOWEVER, THE EXPENDITURE AT RS.4.03 LACS ON INSTALL ATION AND SERVICES BEING TAKEN AS MANUFACTURING EXPENDITURE, THE SAME - 6 - CANNOT BE IGNORED AS NOT ATTRIBUTABLE TO MANUFACTUR ING ACTIVITY. IN VIEW OF THE FACTS SET OUT ABOVE, THE F OLLOWING DIRECTIONS ARE GIVEN TO THE AO IN RECOMPUTING THE D EDUCTION U/S. 801B : (I) THE EXACT AMOUNT OF INSTALLATION AND SERVICE CH ARGES SHOWN AS RECEIPTS AND CONNECTED WITH THE SALE OF MANUFACTURING ITEMS AS PER THE TERMS OF SALE SHALL BE TREATED AS PAN OF THE PROFIT DERIVED FROM THE INDUSTRIAL UN DERTAKING. (II) THE APPELLANT SHALL FURNISH BIFURCATION OF INS TALLATION AND SERVICE CHARGES RELATABLE TO SALE OF MANUFACTURED I TEMS AND THOSE NOT CONNECTED WITH SALE OF MANUFACTURED ITEMS . (III) THE EXPENDITURE AT RS.4.03 LACS SHOWN AS INST ALLATION AND SERVICE CHARGES SHALL BE TREATED AS PAIL OF MAN UFACTURING EXPENSES AS SHOWN IN SCHEDULE-J. (IV) INCOME SHOWN UNDER OTHER INCOME AND NOT CONNEC TED WITH THE MAIN ACTIVITY OF THE INDUSTRIAL UNDERTAKIN G WILL NOT BE ELIGIBLE FOR DEDUCTION U/S. 80IB IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT DECISION CITED ABOVE. THE AO SHALL REWORK THE DEDUCTION ALTER OBTAINING THE COMP LETE PARTICULARS AS SPECIFIED ABOVE. 10. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESE NTATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD AS UNDER:- 2.2 I HAVE EXAMINED CAREFULLY THE SUBMISSIONS OF T HE APPELLANT AND ALSO PERUSED THE VARIOUS JUDICIAL VIE WS BROUGHT TO MY NOTICE IN THIS REGARD. THE AO HAS SPECIFICALL Y NOTED THAT THE INCOME FROM INSTALLATION AND SERVICE CHARG ES WAS SHOWN UNDER OTHER INCOME AND IF THE SAME WERE EXCLU DED THEN THE PROFIT OF THE UNDERTAKING WOULD BE A MINUS FIGURE. IT IS SEEN FROM THE RECORDS THAT SCHEDULE-I SHOWS THE INCOME FROM INSTALLATION AND SERVICES AT RS.27.08 LACS WHE REAS SCHEDULE-J - MANUFACTURING EXPENSES INCLUDE INSTALL ATION AND SERVICES EXPENSES OF RS.4.03 LACS. IT IS NOT MADE S PECIFIC AS TO WHAT AMOUNT OF INSTALLATION AND SERVICE INCOME I NCLUDE ANY OTHER INCOME AS RELATABLE TO SALES AS PER THE T ERMS IN THIS REGARD. THE EXPENDITURE CLAIMED ON INSTALLATION AND SERVICE BEING ONLY RS.4.03 LACS THE ENTIRE INCOME OF RS. 27 .08 LACS FOR INSTALLATION AND SERVICES CANNOT BE SAID TO BE LINKED TO SALE OF MANUFACTURING ITEMS. OBVIOUSLY SERVICE INCO ME NOT CONNECTED WITH SALE OF THE ARTICLES MANUFACTURED BY THE UNDERTAKING CANNOT BE TREATED AS DERIVED DIRECTLY F ROM THE - 7 - BUSINESS UNDERTAKING IN THE LIGHT OF THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF STERLING FOODS 237 ITR 579 AND PANDIAN CHEMICALS LTD. 262 ITR 278, HOWEVER, THE EXPENDITURE AT RS.4.03 LACS ON INSTALL ATION AND SERVICES BEING TAKEN AS MANUFACTURING EXPENDITURE, THE SAME CANNOT BE IGNORED AS NOT ATTRIBUTABLE TO MANUFACTUR ING ACTIVITY. IN VIEW OF THE FACTS SET OUT ABOVE, THE F OLLOWING DIRECTIONS ARE GIVEN TO THE AO IN RECOMPUTING THE D EDUCTION U/S. 801B : (I) THE EXACT AMOUNT OF INSTALLATION AND SERVICE CH ARGES SHOWN AS RECEIPTS AND CONNECTED WITH THE SALE OF MANUFACTURING ITEMS AS PER THE TERMS OF SALE SHALL BE TREATED AS PAN OF THE PROFIT DERIVED FROM THE INDUSTRIAL UN DERTAKING. (II) THE APPELLANT SHALL FURNISH BIFURCATION OF INS TALLATION AND SERVICE CHARGES RELATABLE TO SALE OF MANUFACTURED I TEMS AND THOSE NOT CONNECTED WITH SALE OF MANUFACTURED ITEMS . (III) THE EXPENDITURE AT RS.4.03 LACS SHOWN AS INST ALLATION AND SERVICE CHARGES SHALL BE TREATED AS PAIL OF MAN UFACTURING EXPENSES AS SHOWN IN SCHEDULE-J. (IV) INCOME SHOWN UNDER OTHER INCOME AND NOT CONNEC TED WITH THE MAIN ACTIVITY OF THE INDUSTRIAL UNDERTAKIN G WILL NOT BE ELIGIBLE FOR DEDUCTION U/S. 80IB IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT DECISION CITED ABOVE. THE AO SHALL REWORK THE DEDUCTION ALTER OBTAINING THE COMP LETE PARTICULARS AS SPECIFIED ABOVE. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTEN DED BEFORE US THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPE ALS) WAS NOT JUSTIFIED IN DIRECTING THE LEARNED ASSESSING OFFIC ER TO ALLOW DEDUCTION UNDER SECTION 80IB IN RESPECT OF INSTALLATION CHARG ES AND SERVICES CHARGES RECEIVED IN RESPECT OF OWN MANUFACTURED GOODS. ACCO RDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE INSTALLATION CHARG ES AND SERVICES CHARGES EARNED BY THE ASSESSEE WERE INCIDENTAL TO ITS MANUF ACTURING BUSINESS ONLY AND THEREFORE, THE INCOME DERIVED FROM INSTALLATION CHARGES AND SERVICES CHARGES OF MANUFACTURED GOODS ARE ALSO NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING AND THEREFORE, ARE NOT ELIGIBLE FOR DED UCTION UNDER SECTION 80IB OF THE ACT. - 8 - 12. WE FIND FROM THE ORDER OF ASSESSMENT THAT THE ASSESSEES NATURE OF BUSINESS IS OF MANUFACTURING AND DEALING IN COMPUTERS AND MICROTECH SYSTEMS, PANELS ETC. THUS, IN OUR CONSI DERED OPINION, THE INSTALLATION CHARGES RECEIVED IN RESPECT OF OWN MAN UFACTURED GOODS ARE AN INTEGRAL PART OF THE PROCESS OF SALE OF MANUFACTURE D GOODS THEREFORE, THE INSTALLATION CHARGES RECEIVED IN RESPECT OF OWN MAN UFACTURED GOODS ARE DIRECTLY DERIVED FROM THE INDUSTRIAL UNDERTAKING TH EREFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS JUSTIFIED I N HOLDING THAT INSTALLATION CHARGES IN RESPECT OF OWN MANUFACTURED GOODS SHALL FORM PART OF PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO FINDS SUPP ORT FROM THE DECISIONS OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF K. KACHRADAS PATEL SPECIFIC FAMILY TRUST VS. CIT (2006) 282 ITR 317 (GUJ), WHEREIN IT WAS HELD THAT EXCESS RECOVERY OF ADVERTISEMENT CHAR GES ON THE BASIS OF SALE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80I. SIMIL AR WAS THE VIEW TAKEN BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS . FAL INDUSTRIES LTD. (2009) 27 DTR 157 (MAD) WHEREIN IT WAS HELD THAT IN COME EARNED BY WAY OF RECTIFICATION CHARGES BY THE MANUFACTURER OF VAC UUM CLEANER FROM ITS PURCHASERS IS COVERED BY EXPRESSION INCOME DERIVED FROM INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF DEDUCTION UNDER SE CTION 80HH. 12. HOWEVER, IN RESPECT OF INCOME EARNED BY THE A SSESSEE FROM SERVICE CHARGES IS INCOME EARNED FOR RENDERING SERV ICES AND THEREFORE, CANNOT BE HELD AS INTEGRAL PART OF SALE OF MANUFACT URED GOODS, THEREFORE, IN OUR CONSIDERED OPINION, INCOME DERIVED FROM SUCH SE RVICE CHARGES CANNOT BE TREATED AS INCOME DERIVED FROM THE INDUSTRIAL U NDERTAKING AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN DIRECTING THE LEARNED ASSESSING OFFICER TO ALLOW DE DUCTION UNDER SECTION 80IB IN RESPECT OF INCOME FROM SERVICE CHARGES RELA TING TO THE MANUFACTURED GOODS OF THE ASSESSEES INDUSTRIAL UND ERTAKING. OUR ABOVE - 9 - VIEW FINDS SUPPORT FROM THE DECISION OF DELHI TRIBU NAL IN THE CASE OF SONY INDIA (P) LTD. VS. DCIT (2008) 114 ITD 448. WE THER EFORE, MODIFY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) TO THE ABOVE EXTENT AND DIRECT THE LEARNED ASSESSING OFFICER TO RECOMPUTE DEDUCTION ALLOWABLE UNDER SECTION 80IB IN LIGHT OF THE DISCUS SION MADE HEREINABOVE AND ALSO DIRECT THE ASSESSEE TO PROVIDE BIFURCATION OF INSTALLATION CHARGES AND SERVICES CHARGES OF OWN MANUFACTURED GOODS SEPA RATELY BEFORE THE LEARNED ASSESSING OFFICER AS AND WHEN ASKED BY THE LEARNED ASSESSING OFFICER. THUS, THIS GROUND OF APPEAL OF THE REVENU E IS PARTLY ALLOWED. 13. GROUND NO.3 OF THE APPEAL OF THE REVENUE READS AS UNDER:- 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.2,81,251/- ON AC COUNT OF COMMISSION AND CONSULTANCY EXPENSES, WITHOUT GIVING ANY CLEAR FINDING ON THE ISSUE. THE LD.CIT(A) FURTHER E RRED IN VIRTUALLY SETTING ASIDE THE ISSUE TO THE FILE OF TH E A.O. AS W.E.F. 1.06.2001, U/S 251 OF THE ACT, THE LD.CIT(A) HAS NO POWER TO SET ASIDE THE ISSUE TO THE A.O. 14. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS HELD AS UNDER:- 4. GROUND NO.3 RELATES TO DISALLOWANCE OF COMMISSI ON AND CONSULTANCY EXPENSES OF RS.2,51,251/-. THE AO V IDE PARA 6 OF HIS ORDER HELD THAT THE APPELLANT DID NOT FURNISH COMPLETE DETAILS OF PAYEES AND THE PURPOSE AS REGAR DS COMMISSION EXPENSES OF RS.1,86,376/- AND TECHNICAL CONSULTANCY EXPENSES OF RS.94,875/-. AS THE ONUS CA ST UPON THE ASSESSEE WAS NOT DISCHARGED, THE PAYMENT WAS NO T PROVED THE SAME WAS DISALLOWED AND ADDED TO THE TAXABLE IN COME. 4.1 BEFORE ME, THE LEARNED COUNSEL FOR THE APPELLAN T CONTENDED THAT THE PAYMENTS WERE MADE BY ACCOUNT PA YEE CHEQUES AND THE DETAILS OF PERMANENT ACCOUNT NUMBER S WERE ALSO GIVEN. THE ADDITION MADE WITHOUT NECESSARY INQ UIRY IN RESPECT OF WHICH FULL PARTICULARS WERE FURNISHED CA NNOT BE JUSTIFIABLE. IT WAS ALSO CONTENDED THAT SUCH PAYMEN TS OF COMMISSION AND CONSULTANCY CHARGES WERE ALLOWED IN THE PRECEDING YEAR. ACCORDINGLY THE ADDITION WAS SOUGHT TO BE DELETED. - 10 - 4.2 IT IS SEEN FROM THE DETAILS FURNISHED, WHICH AR E CLAIMED TO HAVE BEEN FURNISHED BEFORE THE AO ALSO ON THE RELEV ANT ACCOUNT COPIES THAT SOME OF THE CASES WERE WITH PER MANENT ACCOUNT NUMBERS AND SPECIFIC ADDRESS WHEREAS THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES WI TH SPECIFIC ADDRESS, THE SAME CAN BE TAKEN AS ADEQUATE PROOF THERE BEING PAN AND COMPLETE ADDRESS AND REST OF TH E CASES WHERE PAYMENTS WERE BY CASH AND ADDRESS DETAILS ARE NOT AVAILABLE, THE SAME CANNOT BE TAKEN AS PROVED BEYON D DOUBT. IN THIS VIEW OF THE MATTER, I AM TO HOLD THAT ALL T HE CASH PAYMENTS WHERE ADDRESS OF THE PAYEES ARE NOT FURNIS HED TO BE DISALLOWED AS NOT PROVED. THE APPELLANT SHALL FURNI SH THE NECESSARY DETAILS TO ARRIVE AT THE RELEVANT ALLOWAB LE EXPENSES. THIS GROUND IS TREATED AS PARTLY ALLOWED. 15. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESE NTATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD AS UNDER:- 4.2 IT IS SEEN FROM THE DETAILS FURNISHED, WHICH A RE CLAIMED TO HAVE BEEN FURNISHED BEFORE THE AO ALSO ON THE RE LEVANT ACCOUNT COPIES THAT SOME OF THE CASES WERE WITH PER MANENT ACCOUNT NUMBERS AND SPECIFIC ADDRESS WHEREAS THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES WI TH SPECIFIC ADDRESS, THE SAME CAN BE TAKEN AS ADEQUATE PROOF THERE BEING PAN AND COMPLETE ADDRESS AND REST OF TH E CASES WHERE PAYMENTS WERE BY CASH AND ADDRESS DETAILS ARE NOT AVAILABLE, THE SAME CANNOT BE TAKEN AS PROVED BEYON D DOUBT. IN THIS VIEW OF THE MATTER, I AM TO HOLD THAT ALL T HE CASH PAYMENTS WHERE ADDRESS OF THE PAYEES ARE NOT FURNIS HED TO BE DISALLOWED AS NOT PROVED. THE APPELLANT SHALL FURNI SH THE NECESSARY DETAILS TO ARRIVE AT THE RELEVANT ALLOWAB LE EXPENSES. THIS GROUND IS TREATED AS PARTLY ALLOWED. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE CONTEN DED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT JUSTIFIED IN DELETING THE ADDITION WITHOUT GIVING ANY CLEAR FIND ING ON THE ISSUE AND THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ACT UALLY RESTORED THE - 11 - ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFF ICER WHICH HE WAS NOT PERMITTED AFTER 1.06.2001. 17. WE FIND THAT REVENUE HAS NOT DISPUTED THE FACT AS OBSERVED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TO THE EFFECT THAT IN RESPECT OF CERTAIN PAYMENTS OF COMMISSION AND CONSU LTANCY CHARGES FULL DETAILS OF NAME AND ADDRESS OF THE PAYEE ALONG WITH THEIR PAN WERE FURNISHED TO THE LEARNED ASSESSING OFFICER AND THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. FURTHER, THE FINDING OF T HE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THAT SAME PAYME NT MADE IN EARLIER YEAR WAS ALLOWED AS DEDUCTION TO THE ASSESSEE WAS A LSO NOT DISPUTED BEFORE US. 18. WE FIND THAT ON THE BASIS OF THE ABOVE, THE LE ARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS HELD THAT I N CASES WERE NAME AND ADDRESSES OF THE PAYEES ALONG WITH THEIR PAN AR E FURNISHED BY THE ASSESSEE, IT SHOULD BE TREATED AS GENUINE. THUS, WE FIND THAT LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN A FIN DING ON THE ISSUE AND IT CANNOT BE HELD THAT LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAD GIVEN NO FINDING ON THE ISSUE. FURTHER, WE FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN CLEAR DIRECTION TO THE LEARNED ASSESSING OFFICER TO TREAT THE CASES WHERE ASSESSEE FURNISHES NAME AND ADDRESS ALONG WITH PAN OF THE PAYEE AS GENUINE AND TO RESTRICT THE AMOUNT OF DISALLOWANCE ONLY IN RESPECT OF CASES WHE RE THE ASSESSEE IS NOT ABLE TO PROVIDE SUCH DETAILS. THUS, IN OUR CONSIDER ED VIEW, THE ABOVE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO CANNOT BE TREATED AS AN ORDER OF SET ASIDE IN THE SENSE THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAD NOT ADJUDICATED THE ISSU E AND RESTORED THE ISSUE TO BE ADJUDICATED AGAIN BY THE LEARNED ASSESS ING OFFICER. WE FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) HAS ADJUDICATED - 12 - THE ISSUE AND GIVEN A CLEAR DIRECTION WHICH REQUIRE S CERTAIN VERIFICATIONS AND THE LEARNED ASSESSING OFFICER HAS TO REFRAME TH E ASSESSMENT BY FOLLOWING THAT DIRECTION AFTER VERIFYING MATERIAL W HICH ARE TO BE PLACED BEFORE HIM BY THE ASSESSEE. IN OUR CONSIDERED OPINI ON, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)S POWER TO MAKE SUCH AN ORDER HAS NOT BEEN TAKEN AWAY BY THE AMENDMENT IN SECTION 251 OF THE ACT WITH EFFECT FROM 1.06.2001. WE THEREFORE DISMISS THIS GR OUND OF APPEAL OF THE REVENUE. 19. GROUNDS NO.4 AND 5 OF THE APPEAL ARE GENERAL I N NATURE AND REQUIRES NO SEPARATE ADJUDICATION BY US. CROSS OBJECTION 20. GROUND NO.1 OF THE CROSS OBJECTION READS AS UN DER:- 1. THE LEARNED C.I.T.(APPEALS) ERRED IN NOT QUANTI FYING THE DEDUCTION AVAILABLE U/S.80-IB OF THE INCOME TAX ACT . THE ASSESSEE SUBMITS THAT SO FAR AS THE INCOME ARISING OUT OF THE INSTALLATION CHARGES ON WHICH NO SUPPLY OF MACHINER IES HAVE BEEN MADE SHOULD HAVE BEEN CONSIDERED FOR QUALIFYIN G THE PROFIT. IN THIS RESPECT THE ASSESSEE SUBMITS THAT T HE NET PROFIT RECEIVED BY THE ASSESSEE BE CONSIDERED AS PROFIT NO T ELIGIBLE FOR DEDUCTION U/S.80-IB OF THE I.T.ACT. 21. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESE NTATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ABOV E ISSUE HAS ALSO ARISEN OUT OF THE DIRECTION OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHICH HAS BEEN QUOTED ABOVE WHILE DECIDING GROUND N O.2 OF THE APPEAL OF THE REVENUE. IN OUR CONSIDERED OPINION, THE ISSUE I S SQUARELY COVERED BY THE DECISION OF THE HON'BLE SPECIAL BENCH OF THE TRIBUN AL IN THE CASE OF LALSONS ENTERPRISES VS. DCIT (2004) 89 ITD 29 (DEL) (SB), WHEREIN IT WAS HELD THAT IF ANY RECEIPT IS TO BE TAKEN OUT OF THE PROFITS OF THE BUSINESS ON THE FOOTING THAT IT IS NOT DERIVED FROM THE INDUSTR IAL UNDERTAKING, IT SEEMS - 13 - ONLY FAIR AND REASONABLE TO HOLD THAT THE EXPENDITU RE HAVING A NEXUS WITH SUCH RECEIPT SHOULD ALSO BE TAKEN OUT OF THE SAID B USINESS PROFITS ON THE SAME FOOTING. THE INCOME TAX ACT ITSELF IS CONCERN ED WITH THE PRINCIPLE OF NETTING, IN THE SENSE THAT IT DOES TAX THE GROSS RE CEIPT BUT TAXES ONLY THE GROSS RECEIPT MINUS THE EXPENDITURE INCURRED IN REL ATION THERETO. WE THEREFORE RESTORE THIS ISSUE BACK TO THE FILE OF TH E LEARNED ASSESSING OFFICER AND DIRECT HIM TO COMPUTE THE DEDUCTION ALL OWABLE UNDER SECTION 80IB IN ACCORDANCE WITH THE ABOVE DECISION OF THE H ON'BLE SPECIAL BENCH. IN OTHER WORDS, THE LEARNED ASSESSING OFFICER SHALL ALSO EXCLUDE THE EXPENDITURE WHICH HAS A NEXUS WITH THE RECEIPTS WHI CH ARE HELD AS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR CALCULA TING THE AMOUNT OF NET PROFIT WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTIO N 80IB OF THE ACT. THE LEARNED ASSESSING OFFICER SHALL REFRAME THE ASSESSM ENT AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THIS GROUND OF CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 22. GROUND NO.2 OF THE CROSS OBJECTION READS AS U NDER:- 2. THE ASSESSING OFFICER HAS ERRED IN NOT GIVING T HE EFFECT TO THE APPELLATE ORDER. THE ASSESSING OFFICER BY LETTE R DATED 12.03.2007 ASKED US TO GIVE THE DETAILS FOR GIVING THE EFFECT TO THE ORDER OF THE LEARNED C.I.T(APPEALS) TO BE FI LED BY 28.03.2007. HOWEVER, THE ASSESSING OFFICER GAVE THE EFFECT TO THE ORDER OF C.I.T.(APPEALS) ON 12.03.2007 I.E. ON THE SAME DAY WITHOUT CONSIDERING THE DEDUCTION ALLOWED BY THE LEARNED C.I.T.(A). IT IS THEREFORE, SUBMITTED THAT THE ASSESSING OFFICER BE DIRECTED TO GIVE CORRECT DEDUC TION GIVEN BY THE LEARNED C.I.T.(A). 23. THIS GROUND OF CROSS OBJECTION DOES NOT ARISE OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WHICH IS UNDER APPEAL. HENCE, THE SAME IS DISMISSED. - 14 - 24. GROUND NOS.3 AND 4 OF THE CROSS OBJECTION ARE GENERAL IN NATURE AND REQUIRES NO SEPARATE ADJUDICATION BY US. 25. IN THE RESULT, THE APPEAL OF THE REVENUE AND T HE CROSS OBJECTION OF THE ASSESSEE BOTH ARE PARTY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON THIS 4 TH DAY OF JUNE, 2010. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; ON THIS 4 TH DAY OF JUNE, 2010 PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VIII, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 01.06.2010 -------------- ----- 2. DRAFT PLACED BEFORE AUTHORITY 02.06.2010 ---- --------------- 3. DRAFT PROPOSED & PLACED 02.06.2010 ----------- -------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 02.06.2010 ---------- --------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 03.06.2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 04.06.2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 04.06.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------