The DCIT, Bharuch Circle, Bharuch V. Gujarat Insecticides Limited, Ankleshwar

ITA 1371/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8636 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 25-02-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 05-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M G PATEL
• Keywords: Business income; Depreciation; Bad and doubtful debts; Assessment record; Revenue expenditure; Set aside
• Section: 80HHC; 80IA; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD B BENCH, BEFORE S/SHRI BHAVNESH SAINI, JUDICIAL MEMBER. AND S/SHRI A.N.PAHUJA ACCOUNTANT MEMEBER ITA NO.1371/AHD/2007 ASSESSMENT YEARS: 1999-2000 DEPUTY COMMISSIONER OF INCOME TAX, BHARUCH CIRCLE, BHARUCH. V/S GUJARAT INSECTICIDES LIMITED, 805/806, GIDC ESTATE, ANKLESHWAR. PAN NO. AAACG 8436 D (APPELLANT) (RESPONDENT) ITA NO.1438/AHD/2007 ASSESSMENT YEARS: 1999-2000 GUJARAT INSECTICIDES LIMITED, 805/806, GIDC ESTATE, ANKLESHWAR. V/S DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX, BHARUCH CIRCLE, BHARUCH. PAN NO. AAACG 8436 D (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI M.G.PATEL FOR DEPARTMENT: SHRI S.S.PANWAR AND SHRI S.R.MALIK CIT DR O R D E R PER SHRI BHAVNESH SAINI, J.M. THESE CROSS APPEALS FILED BY ASSESSEE AND BY THE RE VENUE ARE DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)VI, BARODA, DATED 31.01.2007 FOR ASSESSMEN T YEARS 1999- 2000. 2 2. WE HAVE HEARD LEARNED REPRESENTATIVES OF BOTH TH E PARTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW AND CONSI DERED THE MATERIAL AVAILABLE ON RECORD. THE APPEALS ARE DECI DED AS UNDER:- ITA NO.1438/AHD/2007(ASSESSEES) 3. ON GROUND NO.1 ASSESSEE CHALLENGE THE ORDER OF T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THA T THE ASSOCIATED CIVIL STRUCTURE OF RS.14,36,740/- FOR WA TER POLLUTION EQUIPMENT AND RS.5,98,534/- FOR ENERGY SAVING DEVIC E ARE NOT ELIGIBLE FOR DEPRECIATION @ 100% BUT ELIGIBLE FOR D EPRECIATION @ 25%. THE ASSESSING OFFICER HAS OBSERVED THAT THE AS SESSEE HAS CLAIMED 10% DEPRECATION ON FOLLOWING ITEMS. (1) WATER POLLUTION EQUIPMENT (26.12.1998) (A) CENTRIFUGE PUMP & PIPING RS. 2,22,701 (B) STRUCTURE RS. 14,36,740 (C) FILTER PRESS RS. 7,58,164 (D) ELECTRICALS RS. 25,133 (2) ENERGY SAVING DEVICES WATER HEAT RECOVERY BOILER (12.03.1999) (A) WASTE HEAT RECOVERY BOILER RS. 12,10,756 (B) PIPING & OTHERS RS. 6,76,323 (C) STRUCTURE RS. 5,98,534 (D) ELECTRICAL RS. 20,992 IT IS STATED BY ASSESSING OFFICER THAT THE COST OF CENTRIFUGE PUMP & PINING AND FILTER PRESS AMOUNT TO RS.9,80,86 3/- WHEREAS ON CIVIL STRUCTURE THERE WAS AN EXPENDITURE OF RS.14,3 6,740/-. SIMILARLY ON WATER HEAT RECOVERY BOILER AND PIPING THE ASSESS EE HAS INCURRED EXPENDITURE OF RS.18,87,079/-, WHEREAS ON STRUCTURE THE ASSESSEE HAS INCURRED EXPENSES OF RS.5,98,534/-. THE ASSESSI NG OFFICER DID NOT FIND THE CLAIM JUSTIFIABLE AND ALLOWED DEPRECIA TION ON THESE ITEMS 3 @ 25% TREATING THEM AS PART AND PARCEL OF PLANT AND MACHINERIES AND SINCE THESE MACHINERIES HAVE BEEN ADDED AFTER S EPTEMBER AND AS IT HAS WORKED FOR LESS THAN 180 DAYS THE DEPRECA TION WAS ALLOWED @ 12.5% AND THUS DISALLOWANCE OF RS.18,55,893/- WAS EFFECTED. IT WAS EXPLAINED THAT THE ITEM IN QUESTION I.E. WATER POLLUTION EQUIPMENT IS COVERED UNDER ITEM-III OF MACHINERY AN D PLANT, SUB ITEM 2(V)(N) OF APPENDIX-I AND ENERGY SAVING DEVICE EQUIPMENT, I.E. WASTE HEAT RECOVERY BOILER IS COVERED BY ITEM-III O F MACHINERY AND PLANT, SUB ITEM 3(III)C(A) OF APPENDIX-I OF INCOME TAX RULES, 1962. THE ASSESSEE ALSO SUBMITTED BILLS IN RESPECT OF THE SAID PURCHASES. FURTHER ASSESSEE ALSO FURNISHED BEFORE ASSESSING OF FICER CERTIFICATES IN RESPECT OF COMMISSIONING OF WATER POLLUTION CONT ROL SYSTEM WAS WASTE HEAT RECOVERY EQUIPMENT. IT IS ARGUED THAT BO TH THE PLANTS WERE INSTALLED AFTER SEPTEMBER AND THE ASSESSEE HAS CLAIMED DEPRECIATION AT 50%. IT IS CLAIMED THAT THE ITEMS A RE COVERED UNDER RULE FOR 100% DEPRECIATION AND THE ASSESSING OFFICE R IS NOT JUSTIFIED IN RESTRICTING THE CLAIM TO 25%. A TECHNICAL NOTE O N THESE ITEMS WAS ALSO SUBMITTED IN APPEAL AND IT WAS PLEADED THAT DE PRECIATION @ 100% IS TO BE ALLOWED ON THESE ITEMS. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERING NATURE OF BUSIN ESS OF ASSESSEE AS WELL AS ABOVE ITEMS NOTED THAT THE WATER POLLUTI ON CONTROL EQUIPMENT AND ENERGY SAVING DEVICE UNDER THE DEPREC IATION TABLE ARE ENTITLED FOR 100% DEPRECIATION. HOWEVER, THE CI VIL STRUCTURES ASSOCIATED WITH THE SAME ITEMS ARE NOT ENTITLED TO 100% DEPRECIATION BUT ELIGIBLE FOR DEPRECIATION AS THE G ENERAL RATE FOR MACHINERY AND PLANT AT 25%. THIS GROUND WAS ACCORDI NGLY, PARTLY ALLOWED. 3.1 LEARNED COUNSEL FOR ASSESSEE REITERATED THE SUB MISSION MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT CI VIL STRUCTURE IS PART OF WATER POLLUTION EQUIPMENT AND ENERGY SAVING DEVICE. CIVIL 4 STRUCTURE IS FOUNDATION OF THESE ITEMS WITHOUT WHIC H THESE EQUIPMENTS CANNOT WORK. HE HAS REFERRED TO PB-165 A ND 166 WHICH ARE THE CERTIFICATE GIVEN ON BOTH THE ITEMS TO CERT IFY THAT THE ABOVE ITEMS ARE INTEGRAL PART OF THE ABOVE SYSTEM WITHOUT WHICH THE SAID MACHINE CANNOT FUNCTION. HE HAS REFERRED TO DETAIL S ON THE SAME ITEMS AS EXPLAINED BEFORE THE ASSESSING OFFICER, PB -163 TO SHOW THAT EVEN THE CIVIL STRUCTURE IS ENTITLED FOR 100% DEPRECIATION. HE HAS SUBMITTED THAT LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) HAS GRANTED 100% ON THE EQUIPMENT EXCEPT ITS STRUCTURE ON WHICH REVENUE IS NOT IN APPEAL. THE STRUCTURES FORMS PART OF THE SAME EQUIPMENT THEREFORE, ENTITLED TO 100% DEPRECIATION. HE HAS RELIED UPON DECISION OF RAJASTHAN HIGH COURT IN THE CASE O F CIT VS. R.G.ISPAT LTD. 210 ITR 1018, IN WHICH IT WAS HELD T HAT ALL BUILDINGS ARE NOT PLANED-FUNCTIONAL TEST TO BE APPLIED. WHEN STRUCTURE IS USED FOR CARRYING ON BUSINESS AS A TOOL OF THE TRADE, TH E SAME CONSTITUTE PLANT. HE HAS ALSO RELIED UPON DECISION OF SUPREME COURT IN THE CASE OF CIT VS. SIVAKAMI MILLS LTD. 227 ITR 465, IN WHICH THE DECISION OF HIGH COURT WAS AFFIRMED THAT THE GUARAN TEE COMMISSION PAID TO THE BANK WAS REVENUE EXPENDITURE. ON THE O THER HAND, DEPARTMENTAL REPRESENTATIVE RELIED UPON ORDER OF TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND SUBMITTED THAT APPROPRIATE RELIEF IS ALREADY GRANTED TO THE ASSESS EE. 3.2 WE HAVE CONSIDERED RIVAL SUBMISSIONS. THE ASSES SEE IN THE REPLY BEFORE ASSESSING OFFICER SPECIFICALLY PLEADED THAT WATER POLLUTION EQUIPMENT AND ENERGY SAVING DEVICE SYSTEM S INCLUDES COST OF THE CIVIL STRUCTURE TO MAINTAIN THE ABOVE EQUIPM ENTS. THE CIVIL STRUCTURE WAS EXPLAINED TO THE FOUNDATION OF THE AB OVE ITEMS WITHOUT WHICH THE WATER POLLUTION EQUIPMENT AND ENERGY SAVI NG DEVICE WOULD NOT HAVE WORKED. THE PROPER CERTIFICATE TO THAT EF FECT WAS ALSO FILED CERTIFYING THE ABOVE FACTS. SINCE, THE STRUCTURE WA S PART OF THE SAME 5 ITEMS, THEREFORE, IT COULD NOT BE EXCLUDED FROM THE 100% DEPRECIABLE ITEMS. THE AUTHORITIES BELOW INSTEAD OF BRINGING AN Y ADVERSE MATERIAL AGAINST THE ASSESSEE ON THE EXPLANATION OF THE ASSE SSEE WITHOUT ANY BASIS CONSIDERED IT TO BE A DIFFERENT ITEM. HON 'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. R.G.ISPAT LTD. (S UPRA) HELD THERE MAY BE HEAVY STRUCTURES ON WHICH THE MACHINE RY IS INSTALLED WITH WHICH THE ACTIVITIES OF A MANUFACTUR ING CONCERN ARE CARRIED ON. THAT STRUCTURE COULD BE COVERED WIT HIN THE TERM PLANT. IF THE BUILDING OR STRUCTURE OR PART THERE OF IS SUCH BY WHICH THE BUSINESS ACTIVITIES ARE CARRIED ON THEN I T WOULD AMOUNT TO PLANT BUT WHERE THE STRUCTURE PLAYS NO PA RT IN CARRYING ON THE BUSINESS ACTIVITIES AND IS USED AS THE PLACE FOR CARRYING ON THE BUSINESS, IT WILL FALL WITHIN THE C ATEGORY OF A BUILDING AND IT CANNOT BE CALLED AS PLANT. WHERE PA RT OF THE CONSTRUCTION OF THE BUILDING IS SPECIALLY DESIGNED AND MEANT FOR CARRYING ON THE MECHANICAL PROCESS, IT WILL BE PLANT AND WHERE PART OF IT IS USED FOR VARIOUS ACTIVITIES LIK E RESEARCH, OFFICE OR THE LIKE, SUCH CONSTRUCTION WOULD NOT BE TREATED AS PLANT. THE FUNCTIONAL TEST IS WHETHER A STRUCTURE I S USED FOR CARRYING ON THE BUSINESS AND HENCE A TOOL OF THE TR ADE OR WHETHER IT IS ONLY THE PLACE OF BUSINESS IN WHICH T HE BUSINESS IS CARRIED ON. THEREFORE, WHERE PORTIONS OF A STRUC TURE ARE REQUIRED TO MAKE THE CRANES OPERATIVE AND IN THE AB SENCE OF WHICH IT IS NOT POSSIBLE TO OPERATE THE CRANES AND THE CONSTRUCTION OF SUCH STRUCTURE WAS SPECIALLY DESIGN ED FOR THAT PURPOSE, THE STRUCTURE WOULD FALL WITHIN THE DEFINI TION OF PLANT. THE EXTRA STRUCTURE WHICH IS IN ADDITION TO SUCH ST RUCTURE CANNOT BE CONSIDERED AS PLANT. THEREFORE, THE MAS SIVE REINFORCED CONCRETE STRUCTURE SPECIALLY DESIGNED TO TAKE UP LOADS CONSTITUTES PLANT WITHIN THE MEANING OF SEC TION 43(3) OF THE ACT. 3.3 CONSIDERING THE FACTS OF THE CASE AND MATERIAL ON RECORD IN THE LIGHT OF THE ABOVE JUDGEMENT, IT IS CLEAR THAT THE CIVIL STRUCTURE WAS PART OF WATER POLLUTION EQUIPMENT AND ENERGY SAVING DEVI CE WITHOUT WHICH THE ABOVE ITEMS COULD NOT HAVE WORKED PROPERLY. THE ABOVE ITEMS HAVE FOUNDATION ON CIVIL STRUCTURE, THEREFORE, IT B EING PART AND PARCEL OF THE SAME SHOULD BE TREATED AS WITHIN THE DEFINITION OF PLANT, AND THE AUTHORITIES BELOW SHOULD HAVE ALLOWED DEPRECIATION @ 100%. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDERS OF AUTH ORITIES BELOW AND 6 DELETE THE ADDITION. ASSESSING OFFICER IS DIRECTED TO ALLOW DEPRECIATION ON CIVIL STRUCTURE ALSO @ 100%. AS A RESULT, GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 4. ON GROUND NO.2, ORDER OF THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) IS CHALLENGED FOR HOLDING THAT ASSESSING OFFICER HAS RIGHTLY INCLUDED RS.41,42,140/- BEING THE AMOUN T OF EXCISE DUTY IN THE CLOSING STOCK. THE ASSESSING OFFICER NOTICED TH AT IN THE STATUTORY AUDIT REPORT THE ASSESSEE HAS NOT INCLUDED EXCISE D UTY OF RS.1,30,38,783/- TO THE FINISHED GOODS WHILE VALUIN G THE CLOSING STOCK AS ON 31.03.1999. IT IS ALSO SEEN THAT THE ASSESSEE HAS PAID EXCISE DUTY OF RS.88,96,643/- ONLY UPTO DUE DATE OF FILING OF RETURN. THE ASSESSING OFFICER THEREFORE, CONCLUDED THAT THE BAL ANCE OF EXCISE DUTY OF RS.41,42,140/- IS TO BE ADDED TO THE CLOSING STO CK. IN ASSESSMENT PROCEEDINGS, IT WAS EXPLAINED TO ASSESSING OFFICER THAT THE ASSESSEE WAS REGULARLY FOLLOWED THE METHOD OF VALUATION OF F INISHED STOCK BY EXCLUDING THE ELEMENT OF EXCISE DUTY AND THE SAME W AS ACCEPTED BY THE DEPARTMENT IN EARLIER YEARS. IT IS ALSO SUBMITT ED THAT THE TOTAL STOCK AT YEAR END HAS BEEN SUBSEQUENTLY CLEARED ON THE PA YMENT OF EXCISE DUTY OF RS.88,96,643/- ONLY AS AGAINST THE CONTINGE NT LIABILITY SHOWN FOR EXCISE DUTY AT RS.1,30,38,783/- ON CLOSING STOC K OF FINISHED GOODS. THE ASSESSEE ALSO EXPLAINED THE REASON FOR DIFFEREN CE IN PAYMENT OF EXCISE DUTY AGAINST THE TOTAL CONTINGENT LIABILITY WHICH ARE AS UNDER- (I) EXCISE DUTY IS PAYABLE ONLY ON TRANSFER OF MATE RIAL FROM ANKLESHWAR TO VARIOUS DEPOTS AT THE PREVAILING RATE . (II) SALES FROM ANKLESHWAR TO LOCAL PARTIES, I.E. W ITHIN INDIA. (III) NO DUTY IS PAYABLE IN CASE OF CAPTIVE CONSUMP TION AND EXPORT. IN VIEW OF THE ABOVE, IT WAS ALSO EXPLAINED TO THE ASSESSING OFFICER THAT THE ASSESSEE WAS NOT AT ALL REQUIRED TO PAY TH E BALANCE AMOUNT OF 7 EXCISE DUTY FOR THE REASON THAT CLOSING STOCK WAS E ITHER CAPTIVELY CONSUMED OR EXPORTED. 4.1 IT WAS SUBMITTED BEFORE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) THAT THE ASSESSEE WAS USING THE MATER IAL FOR CAPTIVE CONSUMPTION AS WELL AS EXPORTING THE SAME. THE CONT INGENT LIABILITY OF RS.1,30,38,783/- IS COMPUTED IN RESPECT OF THE CLOS ING STOCK ON ACCOUNT OF EXCISE DUTY. BUT THE ULTIMATE LIABILITY WAS WORKED OUT AT RS.88,96,643/- PRIOR TO FILING OF RETURN AND OUT OF THE SAID AMOUNT RS.87,40,196/- WAS PAID AND THE BALANCE OF RS.1,56 ,447/- WAS THUS DISALLOWED IN THE STATEMENT OF INCOME. IT IS SUBMIT TED THAT THE BALANCE AMOUNT OF EXCISE DUTY OF RS.41,42,140/- HAS NOT BEE N CHARGED TO THE PROFIT AND LOSS ACCOUNT AND THEREFORE, THERE IS NO QUESTION OF DISALLOWING THE SAME. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERING THE SUBMISSIONS OF THE ASSESS EE CONFIRMED THE ADDITION. HIS FINDINGS ARE REPRODUCED AS UNDER:- 7.3. I HAVE GONE THROUGH THE CONTENTION OF THE APP ELLATE AND THE ARGUMENTS OF THE ASSESSING OFFICER. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 1999-2000. W ITH EFFECT FROM 1.04.1999 SECTION 145A WAS INTRODUCED W HICH READS AS UNDER: NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145 , THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE I NCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION SHALL BE (A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING RE GULARLY EMPLOYED BY THE ASSESSEE; AND (B) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUAT ION. EXPLANATION. FOR THE PURPOSES OF THIS SECTION, ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) UNDER A NY LAW FOR THE TIME BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT. 7.3.1. IN VIEW OF THIS AMENDMENT THERE IS NO OPTION FOR ANY ASSESSEE TO EMPLOY THE EXCLUSION METHOD WHILE COMPU TING 8 THE VALUE OF OPENING AND CLOSING STOCK. THE EXCISE DUTY WAS TO BE ADDED TO THE OPENING AND CLOSING STOCK AND WH ATEVER DUTY HAS BEEN PAID BEFORE FILING OF RETURN THE SAME IS ALLOWABLE U/S. 43B. EXCISE DUTY IS LEVIED THE MOMEN T THE ITEM IS MANUFACTURED. SECTION 145A WHILE REFERRING TO VALUATION OF INVENTORY USES THE EXPRESSION PAID OR INCURRED AND THEREFORE UNDER THE MERCANTILE SYSTEM EXCISE DU TY HAS TO BE ADDED IN THE VALUATION OF FINISHED GOODS THRO UGH IT MAY BE LIABLE ONLY ON PAYMENT BY VIRTUE OF SECTION 43B. SO FROM 1.4.1999 THERE IS NO CHOICE LEFT WITH THE ASSESSEE TO FOLLOWING HIS OWN SYSTEM OF VALUING THE INVENTORY. IT IS ALSO NOTED DURING APPEAL THAT IN SUBSEQUENT ASSESSMENT Y EAR THE ASSESSEE IS FOLLOWING THE INCLUSIVE METHOD BY ADDIN G THE EXCISE DUTY TO THE CLOSING STOCK. THUS, IT WAS CONT INGENT LIABILITY OF RS.1,30,38,783/- IN RESPECT OF EXCISE DUTY WHEN THE EXPORT BUSINESS AS WELL AS THE CAPTIVE CONSUMPT ION WAS A FEATURE IN 1999-2000 AS WELL AS IN ALL EARLIER AS WELL AS SUBSEQUENT YEARS. THE POSITION OF EXCISE DUTY WHICH IS INCLUDED AT THE POINT OF MANUFACTURE IS WORKED OUT AT RS.1,30,38,783/- AS ON 31.03.1999 WHICH IS REQUIRED TO FORM PART OF CLOSING STOCK. 7.3.2. IN VIEW OF ABOVE, THE ASSESSING OFFICER WAS JUSTIFIED IN INCLUDING THE EXCISE DUTY OF RS.41,42,140/- IN C LOSING STOCK. THE GROUND THEREFORE, FAILS. 5. LEARNED COUNSEL FOR ASSESSEE REITERATED THE SUBM ISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT AS SESSEE DISALLOWED BALANCE OF RS.1,56,447/-. IN SECTION 145 A OF THE INCOME TAX ACT, 1961 THE WORDS USED ARE ACTUALLY PAID OR I NCURRED BY ASSESSEE TO BRING A GOOD TO THE PLACE OF ITS LOCATI ON, HOWEVER, THE ASSESSEE EXPLAINED THAT IT WAS ONLY A CONTINGENT LI ABILITY OF RS.1,30,38,783/- IN RESPECT OF CLOSING STOCK ON ACC OUNT OF EXCISE DUTY BUT ULTIMATELY ACTUAL LIABILITY WAS WORKED OUT TO R S.88,96,643/- PRIOR TO FILING OF THE RETURN OUT OF WHICH AMOUNT OF RS. 87, 40,196/- WAS PAID. HE HAS SUBMITTED THAT FOR SALE CONSUMPTION NO EXCIS E DUTY CHARGED. NO EXCISE DUTY IS PAYABLE IN CASE OF CAPTIVE CONSUM PTION AND EXPORT. HE HAS REFERRED TO PB.11 WHICH IS ANNEXURE TO FORM 3CD TO SHOW THE PROVISION OF EXCISE DUTY ON CLOSING STOCK OF FINISH ED GOODS AT RS.88,96,643/- PRIOR TO FILING OF A RETURN. PB 61 ( PARA.10.4) IS THE REPLY ON THE SAME LINE BEFORE ASSESSING OFFICER ALSO REFE RRED TO PB 67 9 WHICH IS THE DETAILS OF EXCISE DUTY PAID ON CLEARAN CE OF OPENING FINISHED GOODS AS ON 1.04.1999 TO SHOW THE ABOVE FI GURES AND THE BALANCE EXCISE DUTY OF RS.1,56,447/- IS ALSO MENTIO NED. LEARNED COUNSEL FOR ASSESSEE SUBMITTED THAT SECTION 145A W OULD NOT APPLY IN THE CASE OF THE ASSESSEE AND ASSESSEE WAS NOT REQUI RED TO PAY ANY BALANCE AMOUNT AS NOTED BY THE ASSESSING OFFICER. I N THE ALTERNATE CONTENTION, HE HAS SUBMITTED THAT IN CASE ADDITION IS CONFIRMED, BENEFIT MAY BE GIVEN OF ENHANCED OPENING STOCK IN T HE NEXT YEAR OF THE SAME AMOUNT. ON THE OTHER HAND, LEARNED DEPART MENTAL REPRESENTATIVE RELIED UPON ORDERS OF AUTHORITIES BE LOW. HE HAS SUBMITTED THAT EXCISE DUTY IS PAYABLE BY THE ASSESS EE, THE MOMENT GOODS ARE SHIFTED AND THE ASSESSEE HAS TO PROVE ITS CASE BY EVIDENCE. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERIA L AVAILABLE ON RECORD. THE ASSESSEE EXPLAINED BEFORE THE AUTHOR ITIES BELOW THAT IT WAS USING THE MATERIAL FOR CAPTIVE CONSUMPTION AS W ELL AS EXPORTING THE SAME. THE ASSESSEE COMPUTED THE CONTINGENT LIAB ILITY OF RS.1,30,38,783/- IN RESPECT OF CLOSING STOCK ON ACC OUNT OF EXCISE DUTY, BUT ULTIMATELY IT WAS WORKED OUT TO RS.88,96,643/- PRIOR TO FILING OF THE RETURN. THE ABOVE STATEMENT OF THE ASSESSEE FINDS S UPPORT FROM ANNEXURE TO FORMS 3CD (PB 11). THE ASSESSEE EXPLAIN ED THE SAME FACT BEFORE THE ASSESSING OFFICER IN ITS REPLY, COP Y OF WHICH IS FILED AT PB 56(61 PARA 10.4). THE ASSESSING OFFICER INSTEAD OF VERIFYING THE ABOVE FACT CHOOSE TO MAKE ADDITION AGAINST THE ASSE SSEE. PB 76 IS THE DETAILS OF EXCISE DUTY PAID ON CLEARANCE OF OPE NING FINISHED GOODS AS ON 1.04.1999 AND SHOWS TOTAL DUTY PAID BY ASSESS EE AT RS.87,40,196/- AND THE BALANCE EXCISE DUTY FOR THE PURPOSE OF THE CLOSING STOCK IS LEFT AT RS.1,56,447/-, WHICH ACCOR DING TO ASSESSEE IS ALREADY DISALLOWED IN THE STATEMENT OF INCOME. THE ABOVE FACTS, THEREFORE SHOW THAT THE ASSESSEE HAS NOT HAVING ANY OTHER LIABILITY OR THAT NO DUTY WAS PAYABLE BECAUSE OF CAPTIVE CONSUMP TION OR EXPORT. 10 IT THEREFORE, APPEARS THAT THE AUTHORITIES BELOW HA VE NOT APPRECIATED THE ABOVE FACTS AND HAVE MERELY ON THE BASIS OF CON TINGENT LIABILITY MADE THE ADDITION AGAINST THE ASSESSEE. WE MAY ALSO NOTE THAT SINCE THE ASSESSEE HAS NOT ACTUALLY PAID OR INCURRED THE AFORESAID AMOUNT ON CONTINGENT LIABILITY ASSUMED BY THE ASSESSING OF FICER THEREFORE, ADDITION WOULD BE UNJUSTIFIED. WE ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. AS A RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. ON GROUND NO.3, ASSESSEE CHALLENGED THE ADDITION OF RS.10,30,000/- ON ACCOUNT OF LEGAL AND PROFESSIONAL EXPENSES. LEARNED COUNSEL FOR ASSESSEE DID NOT PRESS THIS GRO UND. THE SAME IS ACCORDINGLY DISMISSED. 8. ON GROUND NO.4, ASSESSEE CHALLENGED THE ADDITION OF RS.7,12,866/- OUT OF SALE PROMOTION EXPENSES. THE A SSESSEE HAD INCURRED SALES PROMOTION EXPENSES OF RS.33,19,680/- AS COMPARED TO RS.13,69,055/- IN THE IMMEDIATELY PRECEDING YEAR. T HE EXPENDITURE OF RS.28,51,464/- WAS CLAIMED TOWARDS PAYMENT OF PURCH ASE OF SILVER COINS AND ARTICLES FROM M/S. PRATAP JEWELLERS, MUMB AI FOR DISTRIBUTING TO CUSTOMERS ON FORMULATION PACKS. ON BEING ASKED T HE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE ASS ESSEE DISTRIBUTED SILVER COINS AND OTHER ARTICLES TO CUSTOMERS FOR TH E FIRST TIME AS IT HAD LAUNCHED NEW PRODUCTS IN CONSUMER PACKS. IT WAS ALS O SUBMITTED THAT BECAUSE OF THIS THE SALE OF FORMULATION WAS RS.7.27 CRORES. ASSESSING OFFICER WAS OF THE VIEW THAT THE COINS WERE PURCHAS ED IN DECEMBER, 1998 & JANUARY, 1999 AND AS THE PRODUCT WAS LAUNCHE D IN SEPTEMBER, 1998 IT WOULD BE DIFFICULT TO ACCEPT THA T ENTIRE STOCK OF RS.28,51,464/- WAS EXHAUSTED BETWEEN DECEMBER, 1998 TO MARCH, 1999.THUS, 75% OF THE SAID CLAIM WAS ALLOWED AND TH E BALANCE 25% AMOUNTING TO RS.7,12,866/- WAS DISALLOWED. IT WAS S UBMITTED BEFORE 11 LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT A MOUNT WAS SPENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUS INESS AND THAT IN THE AY 1996-97, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THE IDENTICAL MATTER, DELETED THE ADDITION. THE LE ARNED COMMISSIONER OF INCOME TAX (APPEALS) HOWEVER, CONFIRMED THE ADDI TION. 9. AFTER HEARING RIVAL SUBMISSIONS, WE ARE OF THE V IEW THAT ADDITION IS CLEARLY UNJUSTIFIED. THE ASSESSING OFFI CER MADE PART OF THE ADDITION BY PRESUMING THAT THE ENTIRE STOCK WOULD N OT HAVE BEEN ADJUSTED UPTO MARCH 1999. THE ASSESSING OFFICER ON THE PRESUMPTION WITHOUT POINTING OUT ANY INADMISSIBLE ITEM, MADE TH E AD-HOC ADDITION WHICH IS NOT PERMISSIBLE IN LAW. THE ASSESSING OFF ICER HAS NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE LAID OU T WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS BY THE ASS ESSEE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIR MED THE PRESUMPTION OF THE ASSESSING OFFICER ON MAKING THE PART ADDITION BY HOLDING IT TO BE A VALID PRESUMPTION OF THE ASSESSI NG OFFICER IN DISALLOWING PART ADDITION. IT THEREFORE, APPEARS T HAT THE AUTHORITIES BELOW HAVE MADE THE ADDITION ON THIS ISSUE ON MERE PRESUMPTION WITHOUT BRINGING ANY ADVERSE MATERIAL AGAINST THE A SSESSEE. WE ACCORDINGLY SET ASIDE THE ORDERS OF AUTHORITIES BEL OW AND DELETE THE ENTIRE ADDITION. THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED. 10. ON GROUND NO.5, ASSESSEE CHALLENGED THE DISALLO WANCE OF RS.22,74,745/- MADE BY ASSESSING OFFICER ON ACCOUNT OF REIMBURSEMENT OF EXPENDITURE OF SALARY TO GHARDA CH EMICALS LTD. FOR AVAILING TECHNICAL AND FINANCIAL EXPERTISE AND GUID ELINES FROM DR. BOMI P. PATEL AND MR. U. A. MAROO UNDER SECTION 40A (2)( B) OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER ON PAGE 10 AND 11 OF THE ASSESSMENT ORDER HAS DISCUSSED THE ISSUE AND HAS ST ATED THAT THE REIMBURSEMENT OF SALARY TO GHARDA CHEMICALS LTD. CA NNOT BE JUSTIFIED 12 FOR THE REASON THAT THE ASSESSEE HAS NOT GAINED ANY THING FROM THE SERVICES RENDERED BY DR. BOMI PATEL AND U.A. MAROO. IT HAS ALSO BEEN STATED THAT THE SAID PAYMENT IS NOT COMMENSURATE WI TH THE BUSINESS EXPEDIENCY. THEREFORE, THE SAME IS DISALLOWABLE U/S . 40A(2)(B). THE ASSESSEE HAD CLAIMED SALARY PAYMENT OF RS.22,74,745 /- TO GHARDA CHEMICALS LTD. IT WAS CLAIMED BY THE ASSESSEE THAT THE SAID SALARY PAYMENT WAS MADE TO THE GHARDA CHEMICALS LTD. FOR A VAILING TECHNICAL AND FINANCIAL EXPERTISE AND GUIDELINES FR OM DR. BOMI P. PATEL AND MR. U.A. MAROO WHO ARE PROFESSIONALS EMPLOYED W ITH GHARDA CHEMICALS LTD. DR. BOMI P. PATEL IS M.SC., PHD AND HAS EXPERIENCE OF OVER 10 YEARS IN CHEMICAL INDUSTRIES. WHEREAS MR. U . A. MAROO IS CA AND CS OF GHARDA CHEMICALS LTD. VIDE RESOLUTION DAT ED 5.02.1999 BY ASSESSEE IT WAS RESOLVED THAT IN LIEU OF PROFESSION AL SERVICES AVAILED BY THE ASSESSEE FROM DR. BOMI P. PATEL AND MR. U.A. MAROO SUCH PERCENTAGE OF SALARIES, ALLOWANCES AND OTHER EMOLUM ENTS BE BORNE BY THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE DETAILS OF THE SERVICES RENDERED BY THESE PERSONS WERE NOT FURNISHED AND THE COMMENSURATE BENEFITS DERIVED BY THE ASSESSEE HAD A LSO NOT BEEN INDICATED. IT HAS ALSO BEEN POINTED OUT BY THE ASSE SSING OFFICER THAT THE RESOLUTION WAS PASSED AT THE FAG END OF THE FIN ANCIAL YEAR TO REDUCE THE PROFIT OF THE COMPANY AND THUS THE PAYME NT OF RS.22,74,745/- WAS DISALLOWED. THE SAME SUBMISSIONS WERE REPEATED BEFORE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND SUBMITTED THAT BOTH THE ABOVE PERSONS HAVE VAST EXP ERIENCE AND EXPERTISE IN REDUCING THE COST OF MANUFACTURING AND IMPROVING THE QUALITY OF PRODUCT. THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS), HOWEVER, DID NOT ACCEPT THE CONTENTION O F THE ASSESSEE AND CONFIRMED THE ADDITION BECAUSE THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS AND SUBSTANTIATE SPECIFIC SERVICES REND ERED BY THE TWO PROFESSIONALS TO THE ASSESSEE COMPANY IN THE ASSESS MENT YEAR UNDER CONSIDERATION AND THAT ONUS HAS NOT BEEN DISCHARGED BY THE 13 ASSESSEE. LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) RELIED UPON DECISIONS IN THE CASE OF L.H.SUGER FACTORIES AND OIL MILLS PVT. LTD. CIT 125 ITR 293 (SC), CIT VS. CHANDRAVILAS HOT EL 164 ITR 102 (GUJARAT) AND SABALGARH INDUSTRIES LTD. VS. CIT 46 ITR 978 (ALL). LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD T HAT ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS AS TO THE NATURE O F SERVICES RENDERED THEREFORE APPEAL WAS DISMISSED. 10.1. LEARNED COUNSEL FOR ASSESSEE REITERATED THE S UBMISSION MADE BEFORE THE AUTHORITIES BELOW AND REFERRED TO PB 162 ON THE CASE LAWS IN WHICH THE QUALIFICATIONS AND BOARD RESOLUTION IN FAVOUR OF PROFESSIONALS IS EXPLAINED. HE HAS SUBMITTED THAT N O EVIDENCE WAS CALLED BY ASSESSING OFFICER, THEREFORE, MATTER MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION OF THE C ORRESPONDENCE AVAILABLE WITH THE ASSESSEE TO PROVE THE SERVICES R ENDERED BY THESE TWO PROFESSIONALS. ON THE OTHER HAND, LEARNED DEPAR TMENTAL REPRESENTATIVE RELIED UPON ORDERS OF AUTHORITIES BE LOW AND SUBMITTED THAT NO EVIDENCE IS PRODUCED BY ASSESSEE TO PROVE A S TO WHAT SERVICES HAVE BEEN RENDERED BY THESE TWO PROFESSION ALS TO THE ASSESSEE. 10.2 WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATER IAL AVAILABLE ON RECORD. THE FINDINGS OF THE ASSESSING OFFICER SH OW THAT ASSESSEE EXPLAINED THIS ISSUE BEFORE ASSESSING OFFICER BY PR ODUCING THE RESOLUTION OF THE BOARD. IT WOULD THEREFORE, SHOW T HAT ASSESSEE WAS AWARE OF THE MATTER IN ISSUE. THEREFORE, IT WAS DUT Y OF THE ASSESSEE TO PRODUCE SUFFICIENT MATERIAL TO SUBSTANTIATE THE CLA IM FOR THE DEDUCTION OF THE EXPENDITURE. THE ONUS IS UPON ASSESSEE TO PR OVE THE EXPENDITURE LAID OUT FOR THE PURPOSE OF BUSINESS BE CAUSE, ASSESSEE CLAIMED DEDUCTION ON THIS HEAD. THE ASSESSING OFFIC ER HAS SPECIFICALLY NOTED THAT ABOVE PROFESSIONAL WERE FULL TIME EMPLOY EES OF M/S. 14 GHARDA CHEMICALS LTD., THEREFORE, THERE WERE NO REA SON FOR THEM TO CLAIM SALARY FROM THE ASSESSEE. THIS ITSELF CAST A DOUBT IN THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE EXPENDITURE. THE ASSESSING OFFICER ALSO NOTED THAT THAT ASSESSEE COMPANY HAS NOT ADDUC ED ANY EVIDENCE REGARDING THE SERVICES RENDERED BY THESE T WO PERSONS FOR THE ASSESSEE. THE ASSESSING OFFICER ALSO NOTED THAT ASSESSEE HAS NOT GOT ANY NEW PRODUCT FOR EXPANDED THE BUSINESS IN TH IS YEAR THEREFORE, THE ASSESSEE SHOULD HAVE EXPLAINED THE JUSTIFICATIO N OF THE SERVICES AND ADVICE RECEIVED FROM THESE PROFESSIONALS. THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) ALSO NOTED THA T ASSESSEE HAS NOT PRODUCED ANY DETAILS AND SUBSTANTIATED SPECIFIC SERVICES RENDERED BY THESE TWO PROFESSIONALS. THE ASSESSEE HAS THUS, FAILED TO DISCHARGE ONUS UPON IT TO PROVE THE GENUINENESS OF THE PAYMENT OF THE SALARY. THE SAME IS THE POSITION BEFORE THE TR IBUNAL. HONBLE KARNATAKA HIGH COURT IN THE CASE OF DCIT VS. MCDOWE LL AND CO. LTD. 291 ITR 107 HELD THAT NO EVIDENCE TO PROVE COMMISSI ON AGAINST RENDERED SERVICES TO THE ASSESSEE, NOT ENTITLED TO DEDUCTION OF THE EXPENDITURE. HONBLE PUNJAB AND HARIANA HIGH COURT IN THE CASE OF SMT. BIMLAVANTI 257 ITR 191 CONFIRMED THE DISALLOW ANCE OF SALARY PAID TO THE DAUGHTER IN LAW OF THE ASSESSEE BECAUSE NO EVIDENCE OF SERVICES RENDERED BY DAUGHTER IN LAW WAS FILED. CON SIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW T HAT ASSESSEE FAILED TO DISCHARGE ONUS LAY UPON IT TO PROVE THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS, THEREFORE, WE DO NOT FIND ANY JUSTIFICATION EVEN TO REMAND THE MATTER TO THE FILE OF ASSESSING OFFICER FOR FURTHER VERIFICATION. WE ACCORDINGLY CONFIRMED THE FINDINGS OF AUTHORITIES BELOW AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 11. ON GROUND NO.6, ASSESSEE CHALLENGED THE ADDITIO N OF RS.72,76,000/- ON ACCOUNT OF MARKETING EXPENSES PAI D TO HOLDING 15 COMPANY M/S. GHARDA CHEMICALS LTD. THE ASSESSEE CLA IMED FOLLOWING EXPENDI5TUE/REIMBURSEMENT INCURRED BY GHARDA CHEMIC ALS LTD. SALES PROMOTION RS.18,19,000/- TRAVELLING RS.10,91,400/- CONVEYANCE EXPENSES RS.14,55,200/- TRUNK, TELEPHONE & POSTAGE RS.21,82,800/- VEHICLE MAINTENANCE RS. 7,27,600/- RS.72,76,000/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE FILED COPY OF WRITTEN AGREEMENT BETWEEN ASSESSEE AND THE HOLDI NG COMPANY GHARDA CHEMICALS LTD., AS PER WHICH THE EXPENDITURE INCURRED IN REGARD TO MARKETING THE PRODUCTS OF THE ASSESSEE BY HOLDING COMPANY WAS TO BE REIMBURSED TO THE HOLDING COMPANY. A DEBI T NOTE WAS THE ONLY DOCUMENT AVAILABLE WITH THE ASSESSEE FOR SUCH PAYMENT. ASSESSING OFFICER WAS OF THE VIEW THAT THIS AGREEME NT IS NOTHING BUT DIVERSION OF PROFIT BY SUBSIDIARY COMPANY IN FAVOUR OF THE HOLDING COMPANY. IT IS FURTHER REMARKED BY THE ASSESSING OF FICER THAT THE ASSESSEE IS AN INDEPENDENT COMPANY ENGAGED IN THE M ANUFACTURING , SALE AND EXPORT OF THE PRODUCTS FOR WHICH IT HAS IT S OWN MARKETING NETWORK RENDERING SIMILAR SERVICES TO THOSE CLAIMED TO BE RENDERED BY THE HOLDING COMP-ANY. TO CITE AN EXAMPLE, IT WAS IN DICATED THAT ASSESSEE COMPANY HAS CLAIMED TELEPHONE EXPENSES OF RS/19,74,658/- FOR ITS OWN BUSINESS FOR THE WHOLE Y EAR AND OVER AND ABOVE THIS AMOUNT, THE ASSESSEE HAS CLAIMED TO HAVE PAID A SUM OF RS.21,82,200/- TO ITS HOLDING COMPANY UNDER THE HEA D TELEPHONE EXPENSES. SIMILARLY THE COMPANY HAS ITS OWN SELLING AGENT FOR WHICH SELLING COMMISSION IS CLAIMED. THUS THERE WAS NO JU STIFICATION FOR SALE PROMOTION EXPENSES OF RS.18,19,000/- TO THE HOLDING COMPANY. IT WAS ADDED BY THE ASSESSING OFFICER THAT THE DEBIT NOTE OF THE AMOUNT AND THE NARRATION ARE HANDWRITTEN AND ALL THE OTHER SUB MISSIONS AND 16 ENTRIES WERE COMPUTER GENERATED AND SUCH A CLAIM OF RS.72,76,000/- ON THE BASIS OF A HANDWRITTEN DEBIT NOTE APPEARED TO BE OF AMBIGUOUS NATURE. THUS THE ASSESSING OFFICER DISALL OWED THE SAID EXPENSES U/S. 40A (2) (A) READ WITH SECTION 40A(2) (B) OF THE IT ACT. IT WAS SUBMITTED BEFORE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT ALL THE FACTS WERE FULLY EXPLAINED AND JUSTIFI ED TO THE ASSESSING OFFICER AND THAT THE EXPENDITURE WAS FOR MARKETING OF FORMULATION PRODUCTS AND THE APPELLANT HAD BENEFITED SUBSTANTIA LLY THROUGH THE MARKETING CHANNELS OF GHARDA CHEMICALS LTD. AND THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING T HE ENTIRE MARKETING EXPENDITURE PAID TO GHARDA CHEMICALS LT D. IT WAS SUBMITTED THA T DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 15-03-2002 AND 23-03-2002 BEFORE THE ASSESSING OFFICER A JUSTIFICA TION NOTE WAS PROVIDED FOR APPOINTING GHARDA CHEMICALS LTD. AS MA RKETING AGENT FOR SELLING OF TOLL BAG PESTICIDES THROUGHOUT THE COUNT RY. GIST OF THE JUSTIFICATION NOTE WAS THAT GHARDA CHEMICALS IS IN THE BUSINESS OF CHEMICALS FOR MORE THAN 1Q5 YEARS AND HAS ESTABLISH ED MARKETING NETWORK THROUGHOUT THE COUNTRY AND THAT CONSIDERING THE COMPETITION IN THE MARKET IT WAS FELT THAT GUJARAT INSECTICIDES LTD. SHOULD ENTER INTO MANUFACTURING AND MARKETING OF FORMULATION AND CONS UMER BAGS UNDER THE REPUTATION AND CREDIBILITY OF GHARDA CHEM ICALS LTD. AND UNDER ITS SUPERVISION THE BOARD OF DIRECTORS OF COM PANY DECIDED TO APPOINT GHARDA CHEMICALS LTD. AS MARKETING AGENT FO R SETTING UP NECESSARY INFRASTRUCTURE AND SELLING THE PRODUCTS I N INDIA. IT IS THEREFORE, STRESSED THAT THE EXPENDITURE WAS REASON ABLE AND COMMENSURATE WITH THE BUSINESS EXPEDIENCY. THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) HOWEVER, CONSI DERING THE EXPLANATION OF THE ASSESSEE CONFIRMED THE ADDITION. HIS FINDINGS ARE REPRODUCED AS UNDER: 17 14.3 I HAVE GONE THROUGH THE CONTENTS OF THE APPEL LANT AND THE ARGUMENT OF THE ASSESSING OFFICER. THE MAIN GRO UNDS ON WHICH THE EXPENDITURE WERE DISALLOWED BY THE ASSESS ING OFFICER WERE AS UNDER: I) THAT THE APPELLANT HAS NOT PRODUCED ANY DETAILS REGARDING EXPENSES INCURRED UNDER VARIOUS HEAD BY T HE MARKETING AGENT. II) THAT THE AGREEMENT IS MERELY A DEBIT NOTE AND I T WAS ENTERED AT THE FAG END OF THE YEAR. III) THAT THE AGREEMENT IS NOTHING BUT DIVERSION OF PROFIT. 14.3.1 IN APPEAL NO SUBMISSIONS WERE MADE AS REGARD S JUSTIFIABILITY OF THE EXPENDITURE UNDER VARIOUS HEA DS SUCH AS SALES PROMOTIO9N, TRAVELLING, CONVEYANCE EXPENSES, TRUNK, TELEPHONE & POSTAGE AND VEHICLE MAINTENANCE. IT IS ALSO SEEN THAT THE APPELLANT HAS CLAIMED EXPENSES AND REIMBUR SEMENT OF THE EXPENSES INCURRED BY GHARDA CHEMICALS LTD. A ND THAT ALL THESE EXPENSES UNDER EACH HEAD ARE EXACT PERCEN TAGE OF THE SALES. TOTAL EXPENDITURE WHICH IS SHOWN AS UNDE R. SALES PROMOTION 75% TRAVELLING 15% VEHICLE MAINTENANCE 10% 100% (RS.72,76,000/-) 14,3,2 IT IS ALSO INTERESTING TO NOTE THAT THE EXPE NDITURE OF RS.72,76,000/- IS EXACTLY 10% OF THE TOTAL SALE OF RS.7.27 CRORES CLAIMED TO BE EFFECTED THROUGH THE HOLDING C OMPANY GHARDA CHEMICALS LTD. IN CASE IT IS CLAIMED THAT S UCH EXPENDITURE ARE REIMBURSEMENT IT WOULD BE DIFFICULT TO BELIEVE THAT THE EXPENSES UNDER VARIOUS HEADS WOULD BE EXAC T PERCENTAGE OF TOTAL AMOUNT EXPENDED. IT IS ALSO SEE N FROM THE 18 ASSESSMENT RECORDS THAT NO DETAILS OF EXPENDI5UE UN DER VARIOUS HEADS FOR SALES EFFECTED THROUGH GHARDA CHE MICAL LTD. WERE AVAILABLE. NEITHER ANY DETAILS WERE SUBMI TTED IN APPEAL. THE JUSTIFICATION NOTE WAS ALSO PERUSED BY ME AND THE DOCUMENT APPEARS TO BE ONLY SELF SERVING WITHOUT CO NTAINING EXACT DETAILS OF SUCH EXPENDITURE BEING INCURRED UN DER VARIOUS HEADS. IN MY VIEW THE ASSESSING OFFICER WAS FULLY J USTIFIED IN COMING TO A CONCLUSION THAT SUCH AN AGREEMENT AND HANDWRITTEN DEBIT NOTE SUBMITTED REFLECTED NOTHING BUT DIVERSION OF PROFIT IN FAVOUR OF HOLDING COMPANY. I N VIEW OF ABOVE THE ASSESSING OFFICERS ACTION OF DISALLOWING RS.72,76,000/- U/S. 40A(2)(A) R.W.S. 40A (2) (B) IS CONFIRMED. 12. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMI TTED THAT IT WAS REIMBURSEMENT OF THE MARKETING EXPENSES BY ASSESSEE TO THE HOLDING COMPANY. HE HAS REFERRED TO PB-131 WHICH IS THE AGR EEMENT DATED 7- 4-1997 BETWEEN ASSESSEE AND HOLDING COMPANY THROUGH WHICH ASSESSEE ENTERED INTO AGREEMENT TO APPOINT HOLDING COMPANY AS MARKETING AGENT TO CARRY OUT THE TASK OF MARKETING OF PRODUCTS OF THE ASSESSEE. HE HAS SUBMITTED THAT SINCE ASSESSEE WAS SELLING THE PRODUCTS IN WHOLE OF INDIA, THEREFORE, IT WAS NECES SARY TO APPOINT HOLDING COMPANY AS MARKETING AGENT. EXPENSES WERE, THEREFORE, REIMBURSED TO THE HOLDING COMPANY BY CHARGING 10% O N THE SALES. HE HAS SUBMITTED THAT HOLDING COMPANY HAS SHOWN THE SA ME AS INCOME IN THEIR RETURN OF INCOME. HE HAS REFERRED TO NOTE ON MARKETING COMMISSION PAID BY ASSESSEE (PB-167) IN WHICH IT WA S HIGHLIGHTED THAT ASSESSEE HAS STARTED MANUFACTURING AND SELLING OF FORMULATION (TOLLPACK) PRODUCT ALONG WITH THE TECHNICAL GRADE P RODUCTS AND OTHERS. SINCE HOLDING COMPANY HAD A WIDE EXPERIENCE IN THE SAME LINE THEREFORE, IT WAS APPOINTED AS MARKETING AGENT FOR SALE OF THE PRODUCT. 19 DETAILS OF THE SALES THROUGH HOLDING COMPANY IN SEV ERAL ASSESSMENT YEARS IS ALSO EXPLAINED. THE ASSESSEE THEREFORE HAD THE COMPOSITE PACKAGE WITH THE HOLDING COMPANY. HE HAS SUBMITTED THAT MARKETING FEES TAKEN BY HOLDING COMPANY FROM THE ASSESSEE WAS NOT FOR MAKING A PROFIT OUT OF THE FORMULATION (TOLLPACK) BUSINESS OF ASSESSEE BUT TO INTRODUCE THE ASSESSEE TO ALL OVER INDIA FOR THEIR NEW BUSINESS OF TOLLPACK AND TO INCREASE SALES TURNOVER OF THE ASSE SSEE. MAIN CONTRACT WAS ENTERED INTO ON 7.04.1997 AND SUPPLEME NT AGREEMENT DATED 9.10.1998 HAVE BEEN ENTERED INTO FOR MARKETIN G OF THE ASSESSEES PRODUCT ALL OVER INDIA. AS PER THE TERMS OF THE AGREEMENT THE HOLDING COMPANY BECAME MARKETING AGENT FOR THE ASSESSEE FOR SALE OF FORMULATION (TOLLPACK) PRODUCT ALL OVER IND IA FOR FIVE YEARS AND THE ASSESSEE AGREED TO PAY 10% AS MARKETING EXPENSE S FOR SALE OF THE PRODUCT. THE DETAILS WERE ALSO GIVEN IN THE NOT E. LEARNED COUNSEL FOR ASSESSEE THEREFORE SUBMITTED THAT SINCE RATE OF TAX IN BOTH THE COMPANY IS SAME THEREFORE, THERE IS NO EVASION OF T HE TAX. HE HAS REFERRED TO CBDT CIRCULAR ON SECTION 40A(2)(PB-270) , IN WHICH IT IS HIGHLIGHTED THAT ITO IS EXPECTED TO EXERCISE HIS JU DGEMENT IN A REASONABLE AND FAIR MANNER BY CONSIDERING THE ISSUE . HE HAS RELIED UPON DECISION OF BOMBAY HIGH COURT IN THE CASE OF C IT VS. INDO SAUDI SERVICES TRAVEL PVT. LTD. 12 DTR 304 IN WHICH IT WAS HELD THAT THE DEPARTMENT NOT BEING ABLE TO SHOW AS TO HOW 0.5 % HIGHER COMMISSION PAID BY ASSESSEE COMPANY TO ITS SISTER C ONCERNS, WHICH WAS ALSO BEING ASSESSED AT THE HIGHER RATE, RESULTE D IN TAX EVASION, TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITION. H E HAS SUBMITTED THAT HOLDING COMPANY HAS SPENT MORE EXPENSES UNDER THESE HEADS. THEREFORE, THERE IS NO BASIS TO MAKE THE ADDITION O N THIS HEAD. 13. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESE NTATIVE RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE EXPENSES ARE CLAIMED UNDER DIFFERENT HEAD BUT THE A SSESSEE FAILED TO 20 JUSTIFY PAYMENTS TO THE HOLDING COMPANY. NO SUPPORT ING EVIDENCES ARE FILED. THE ONUS IS UPON ASSESSEE TO PROVE THAT EXPE NDITURE IS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS BUT ASSESSEE FAILED TO DISCHARGE ITS ONUS. IT IS MERE STATEMENT OF THE ASSESSEE THAT EXPENDITURE IS SPENT FOR BUSINESS WHICH IS NOT SUPP ORTED BY ANY EVIDENCE. HE HAS SUBMITTED THAT EXPENDITURE HAS BEE N SPENT BY HOLDING COMPANY BUT IT IS NOT PROVED THAT THE SAME BENEFITED THE BUSINESS OF THE ASSESSEE. HE HAS SUBMITTED THAT NO ACTUAL EXPENDITURE IS EXPENDED FOR THE PURPOSE OF BUSINESS OF ASSESSEE. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE SUPPLEMENTARY AGREEMENT DATED 9.10.1998 WAS NOT PRO DUCED BY THE ASSESSEE. HE HAS SUBMITTED THAT NATURE OF THE EXPEN DITURE SHOWS THAT THE SAME EXPENDITURE WERE INCURRED BY THE HOLDING C OMPANY FOR THEIR OWN BUSINESS. 14. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERI AL AVAILABLE ON RECORD. LEARNED COUNSEL FOR ASSESSEE REFERRED TO AGREEMENT DATED 7.04.1997 (PB-131) EXECUTED BETWEEN ASSESSEE AND TH E HOLDING COMPANY THROUGH WHICH THE HOLDING COMPANY M/S. GHAR DA CHEMICAL COMPANY LTD. WAS APPOINTED AS MARKETING AGENT FOR T HE ASSESSEE TO CARRY OUT THE TASK OF MARKETING OF THE PRODUCTS OF THE ASSESSEE. IN THIS AGREEMENT, IT IS MENTIONED THAT THE MARKETING EFFOR TS AND FOR THE PRODUCT DEVELOPMENTS EFFORTS BY THE MARKETING AGENT , THE ASSESSEE BEING MANUFACTURER SHALL COMPENSATE THE MARKETING A GENT/ HOLDING COMPANY BY WAY OF PAYMENT OF ONE TIME FEES OF RS.2 CRORES (CLAUSE- 8). THIS PAYMENT SHALL BE MADE AFTER SUCCESSFUL PLA CEMENT OF THE PRODUCT IN CONCERNED STATE. THE ASSESSEE SHALL KEEP THE ABOVE AMOUNT AS SECURITY DEPOSIT AND THE AMOUNT WILL BE A DJUSTED AGAINST THE FEES OF MARKETING AGENT AND MARKETING AGENT SH ALL PAY INTEREST @ 13.5% PER ANNUM TO THE ASSESSEE FROM THE DATE OF RE CEIPT TO THE DATE OF ADJUSTMENT. WE MAY MENTION THAT NONE OF THE CLAU SES IN THIS 21 AGREEMENT HAVE EXPLAINED REIMBURSEMENT OF ANY MARKE TING EXPENDITURE BY THE ASSESSEE TO THE HOLDING COMPANY. THE ASSESSEE EXPLAINED THAT AFTER THIS AGREEMENT, ANOTHER SUPPLE MENTARY AGREEMENT WAS EXECUTED ON 9.10.1998 FOR PAYMENT ON MARKETING EXPENSES @10% OF SALES OF FORMULATION (TOLLPACK). HOWEVER, SUCH A SUPPLEMENTARY AGREEMENT OR THE JUSTIFICATION TO ENT ER INTO SUCH AGREEMENT, WHICH IS CONTRARY TO THE MAIN AGREEMENT DATED 7.04.1997 IS NOT EXPLAINED BEFORE THE AUTHORITIES BELOW AND D ID NOT FIND MENTION IN THE IMPUGNED ORDERS. BY SUPPLEMENTARY AGREEMENT DATED 9.10.1998, THE ASSESSEE HAS COMPLETELY CHANGED THE EARLIER AGREEMENT DATED 7.04.1997. DURING THE COURSE OF TH E AGREEMENT, THE LEARNED COUNSEL FOR ASSESSEE HAS NOT POINTED OUT AN Y JUSTIFICATION FOR EXECUTING SUCH A SUPPLEMENTARY AGREEMENT BY WHICH E NTIRE MAIN AGREEMENT WAS REVIEWED/CHANGED EXCEPT THAT IT WAS M ENTIONED IN THE NOTE ON MARKETING COMMISSION PB-167. ONLY DEBIT NO TE WAS PRODUCED BEFORE THE AUTHORITIES BELOW TO SHOW THAT THE PAYMENT IS MADE TO THE HOLDING COMPANY. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) SPECIFICALLY NOTED THE OBSERVATION OF THE ASSESSING OFFICER THAT ASSESSEE IS AN INDEPENDENT COMPANY ENGAGED IN ITS MANUFACTURING, SALE AND EXPORT OF THE PRODUCTS FOR WHICH IT HAS OWN MARKETING NETWORK. LEARNED COUNSEL FOR ASSESSEE DID NOT DISPUTE THE ABOVE FINDINGS OF THE AUTHORITIES BELOW DURING THE COURSE OF THE ARGUMENT. IT IS THEREFORE, CLEAR THAT ASSESSEE WAS DOING THE SAME MARKETING ACTIVITIES OF ITS PRODUCT WHICH WORK WAS ASSIGNED TO THE HOLDING COMPANY THROUGH THE SUPPLEMENTARY AGREEMENT . IN THE MAIN AGREEMENT, NO SUCH PAYMENT WAS AGREED FOR REIMBURSE MENT OF MARKETING EXPENSES. LEARNED COUNSEL FOR ASSESSEE T HOUGH REFERRED TO NOTE ON MARKETING COMMISSION PB-167, BUT NO SUBM ISSIONS ARE MADE AS REGARDS JUSTIFIABILITY OF THE EXPENDITURE U NDER THE HEAD SALES PROMOTION, TRAVELLING, CONVEYANCE, TELEPHONE ETC. A ND VEHICLE MAINTENANCE, BECAUSE THESE ARE THE COMMON EXPENDITU RE, WHICH IS TO 22 BE SPENT BY THE HOLDING COMPANY FOR ITS BUSINESS AL SO. THEREFORE, ASSESSEE WAS REQUIRED TO FILE SUFFICIENT EVIDENCE B EFORE THE AUTHORITIES BELOW TO CLAIM THAT SOME SERVICES ARE RENDERED BY T HE HOLDING COMPANY FOR THE ASSESSEE IN THIS WAY TO CLAIM REIMB URSEMENT OF THE EXPENDITURE BUT NO SUCH EFFORTS HAVE BEEN MADE. EVE N NO SUCH EVIDENCES WERE FILED BEFORE THE TRIBUNAL. IT IS ALS O NOT EXPLAINED AS TO WHY THE 10% OF THE SALES HAVE BEEN CLAIMED AS REIMB URSEMENT OF THE EXPENDITURE ON THE ABOVE EXPENSES ONLY. IT IS ALSO NOT EXPLAINED WHETHER HOLDING COMPANY HAS EXACTLY INCURRED THE SA ME EXPENDITURE ON THE ABOVE HEADS AT 10% OF THE SALES FOR AND ON B EHALF OF THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE IS THUS, NOT BELIEVABLE THAT THE HOLDING COMPANY EXACTLY SPENT EXPENDITURE OF 10 % OF THE SALES ON THE ABOVE EXPENDITURE. AS NOTED ABOVE, THE NATURE O F THE EXPENSES SHOWS THAT THE SAME WOULD BE SPENT BY THE HOLDING F OR ITS OWN PURPOSES THEREFORE, IN THE ABSENCE OF SPECIFIC EVID ENCE THAT THE AMOUNT IS SPENT BY THE HOLDING COMPANY FOR THE PURP OSE OF BUSINESS OF THE ASSESSEE, THE EXPLANATION OF THE ASSESSEE CO ULD NOT HAVE BEEN ACCEPTED. THE ASSESSEE HAS FAILED TO PROVE ANY NEX US BETWEEN THE PAYMENT TO THE HOLDING COMPANY AND THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. WE THEREFORE D O NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF AUTHO RITIES BELOW. THE DECISION CITED BY LEARNED COUNSEL FOR ASSESSEE AND THE CIRCULAR OF THE BOARD, WOULD NOT ADVANCE THE CASE OF THE ASSESSEE I N VIEW OF THE FACTS AND CIRCUMSTANCES NOTED BY THE AUTHORITIES BE LOW. WE ACCORDINGLY, CONFIRMED THE FINDINGS OF AUTHORITIES BELOW AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 15. LEARNED COUNSEL FOR ASSESSEE DID NOT PRESS GROU ND NO.7 OF THE APPEAL OF THE ASSESSEE CHALLENGING EXPORT EXPE NSES OF RS.5,88,523/-. THIS GROUND OF APPEAL OF ASSESSEE IS ACCORDINGLY DISMISSED BEING NOT PRESSED. 23 16. ON GROUND NO.8, ASSESSEE CHALLENGED THE ORDER O F LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THA T INTEREST INCOME ON LONG TERM INVESTMENT, DEPOSITS WITH BANKS, DIVID END INCOME, MISCELLANEOUS INCOME AND PROFIT ON SALE OF FIXED AS SETS AND INSURANCE CLAIMED TOTALLING TO RS.1,52,11,403/- IS NOT ELIGIB LE FOR DEDUCTION UNDER SECTION 80IA OF THE INCOME TAX ACT, 1961. THE ASSE SSING OFFICER WHILE COMPUTING DEDUCTION UNDER SECTION 80IA (INDIC ATED IN ANNEXURE- C OF THE ASSESSMENT ORDER) EXCLUDED PROPORTIONATE I NCOME FROM OTHER SOURCES IN RESPECT OF UNIT NO.V AND VI. IT IS SUBMI TTED THAT ALL THE INCOMES ARE RELATED TO BUSINESS CARRIED ON BY THE A SSESSEE. IT IS FURTHER ADDED THAT ON THE SIMILAR ISSUE FOR EARLIER YEARS THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY LEARNED COMMIS SIONER OF INCOME TAX (APPEALS). IT WAS ALSO SUBMITTED THAT E NTIRE OTHER INCOME IS PART OF THE BUSINESS. THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) HOWEVER, PARTLY ALLOWED THE CLAIM OF ASSE SSEE BY HOLDING:- 16.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE WORKING OF THE ASSESSING OFFICER. IT IS SEEN FROM THE BREAK UP OF INCOME FROM OTHER SOURCES THAT THE INTEREST INCOME ON LONG TERM INVESTMENTS, DEPOSITS WITH BANKS, DIVIDEND INCOME, MISCELLANEOUS INCOME AND PROFIT ON SALE OF FIXED ASSETS & INSURANCE CLAIM TOTALLING TO RS.15211403/- IS CLEARLY IN THE NATURE OF INCOME FROM OTHER SOURCES. THE BALANCE INCOME COMPRISING OF EXPORT INCENTIVES, BAD DEBTS RECOVERED, EXCESS PROVISIONS OF EARLIER YEARS IS IN THE NATURE OF BUSINESS INCOME. THE ASSESSING OFFICER IS THEREFORE, ACCORDINGLY DIRECTE D TO RECOMPUTED THE DEDUCTION U/S.80IA IN RESPECT OF UNI T NO.V & VI. THE GROUND IS THUS PARTLY ALLOWED. 17. LEARNED COUNSEL FOR ASSESSEE SUBMITTED THAT ISS UE IS COVERED BY ORDER OF ITAT, AHMEDABAD BENCH IN THE CASE OF TH E ASSESSEE FOR AY 1998-99 IN ITA NO.1522/AHD/2005 AND ITA NO.1594/ AHD/2005 DATED 20.11.2009. COPY OF WHICH IS FILED AT PAGE 70 OF THE PAPER BOOK ON CASE LAW AND RELEVANT PAGES AT PAGE 78 ONWARDS. THE DETAILS/BREAK UP IS GIVEN AT PAGE 69 OF THE SAME PA PER BOOK. ON THE 24 OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE SU BMITTED THAT NO BREAK UP IS GIVEN BY THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) IN THE IMPUGNED ORDER. 18. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND MATERI AL AVAILABLE ON RECORD. THE BREAK UP OF ABOVE INCOME FROM OTHER SOURCES AS HELD BY THE ASSESSING OFFICER AND LEARNED COMMISSIONER O F INCOME TAX (APPEALS) ARE GIVEN AT PAGE 69 OF THE PAPER BOOK RE FERRED TO ABOVE. COPY OF THE ORDER OF THE TRIBUNAL DATED 20.11.2009 IN THE CASE OF THE ASSESSEE (SUPRA) IS FILED AT PAGE 70 OF THE PAPER B OOK. THE IDENTICAL ISSUE FOR DEDUCTION UNDER SECTION 80IA IS CONSIDERE D BY THE TRIBUNAL AT PAGE 78 TO 81. THE TRIBUNAL ON THE ITEM OF DIVID END INCOME, MISCELLANEOUS INCOME HELD THAT THE SAME ARE NOT ELI GIBLE FOR DEDUCTION UNDER SECTION 80IA OF THE INCOME TAX ACT, 1961. PROFIT ON SALE OF FIXED ASSETS WERE TREATED AS CAPITAL PROFIT AND NOT ENTITLED FOR DEDUCTION. THE FINDINGS ARE FOLLOWED IN THIS YEAR ALSO AND WE CONFIRMED ORDER OF THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) IN HOLDING THAT THESE INCOME ARE IN THE N ATURE OF INCOME FROM OTHER SOURCES AND NOT ENTITLED FOR DEDUCTION U NDER SECTION 80IA OF THE INCOME TAX ACT, 1961. 19. AS REGARDS INTEREST INCOME ON LONG TERM INVESTM ENT, AND INSURANCE CLAIM, THE MATTER IS SET ASIDE TO THE FIL E OF ASSESSING OFFICER WITH DIRECTION TO RE-DECIDE THE ISSUE IN THE LIGHT OF THE FINDINGS GIVEN IN THE ORDER. ON THE ISSUE OF INTEREST FROM FIXED DEPO SITS, THE ASSESSEE CLAIMED BENEFIT OF NETTING OF INTEREST. THIS ISSUE IS ALSO RESTORED TO THE FILE OF ASSESSING OFFICER TO EXAMINE THE SAME AND P ASS THE APPROPRIATE ORDER. BY FOLLOWING THE SAME ORDER, OF THE TRIBUNAL DATED 20.11.2009, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THESE ITEMS/ISSUES TO THE FILE OF ASSESSING OFFICER WITH DIRECTION TO RE- DECIDE THE SAME IN THE LIGHT OF THE DIRECTIONS GIVE N BY THE TRIBUNAL IN 25 THE ORDER DATED 20.11.2009. AS A RESULT, GROUND NO .8 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 20. NO OTHER POINTS IS ARGUED OR PRESSED IN THE APP EAL OF THE ASSESSEE. 21. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ITA NO.1371/AHD/2007 (DEPARTMENTAL APPEAL) 22. ON GROUND NO.1 REVENUE CHALLENGED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN DIRECTING T HE ASSESSING OFFICER NOT TO EXCLUDE 90% OF MISCELLANEOUS INCOME OF RS.42,01,441/- WHILE CALCULATING DEDUCTION UNDER SECTION 80HHC OF THE ACT WITHOUT APPRECIATING THE SCHEME OF SECTION 80HHC AS REFLECT ED IN ITS SUB SECTION (1) AND (3) AND THE EXPLANATION (BAA) BELOW THIS SECTION. IT WAS SUBMITTED BEFORE ASSESSING OFFICER THAT 90% OF THE OTHER INCOME COMPRISES OF FOLLOWING ITEMS HAVE BEEN WRONGLY REDU CED BY THE ASSESSING OFFICER WHILE ALLOWING DEDUCTION UNDER SE CTION 80HHC. THE OTHER INCOME COMPRISED OF; 1. SALES OF WASTE PAPERS, EMPTY BAGS ETC. RS. 1,9 6,323/- 2. SALES OF SCRAPES RS.38,00,923/- 3. CREDIT BALANCE LYING IN SUPPLIERS ACCOUNT WRITTEN OFF RS. 2,04,195/- RS.42,01,441/- IT WAS SUBMITTED BEFORE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) THAT 90% OF THE MISCELLANEOUS INCOME OF R S.42,01,441/- FORMS PART OF BUSINESS INCOME WHICH HAS BEEN WRONGL Y REDUCED BY THE ASSESSING OFFICER. IT WAS SUBMITTED THAT FOR A Y 1996-1997 AND 1997-1998, THE ISSUE WAS DECIDED IN FAVOUR OF THE A SSESSEE BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THE LEARNED 26 COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE FORMED THAT ABOVE ITEMS ARE INTRINS ICALLY RELATED TO THE BUSINESS OF THE ASSESSEE AND THE INCOME IS THEREFOR E CONSIDERED AS PART OF THE BUSINESS AND ASSESSING OFFICER IS THERE FORE DIRECTED TO COMPUTE THE DEDUCTION UNDER SECTION 80HHC AFTER CON SIDERING THE ABOVE NARRATIONS. 23. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBM ITTED THAT ISSUE IS COVERED AGAINST THE REVENUE BY ORDER OF IT AT, AHMEDABAD BENCH IN THE CASE OF THE ASSESSEE IN ITA NO.1522/20 05 AND ITA NO.1594/2005 WHILE ORDER DATED 20-11-2009 WHEREBY, DEPARTMENTAL APPEAL IS DISMISSED ON THE SAME ISSUE. LEARNED DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 24. ON CONSIDERATION OF THE ABOVE FACTS, WE NOTE TH AT THE TRIBUNAL IN THE CASE OF THE ASSESSEE VIDE ORDER DATED 20-11- 2009 (SUPRA) CONSIDERED THE ABOVE ISSUE AND NOTED THAT THE PERUS AL OF THE ABOVE ITEMS OF RECEIPTS WOULD SHOW THAT THEY CANNOT BE CH ARACTERISED AS RECEIPTS WHICH ARE MENTIONED IN THE EXPLANATION (BA A) OR RECEIPTS BEARING A SIMILAR NATURE. HOWEVER, IT APPEARS THAT THE LEARNED CIT(A) HAS NOT EXAMINED THIS ISSUE IN THE LIGHT OF RECENT DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. K. RAVINDRANNA THAN NIAR 295 ITR 228. WE THEREFORE, SET ASIDE THE ORDER OF THE L EARNED CIT (A) AND RESTORE THIS ISSUE TO HIS FILE TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE ABOVE DECISION OF THE SUPREME COURT. AS A RESULT, T HIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 25. ON GROUND NO.2 REVENUE RAISED THE POINT WITH RE GARD TO CLAIM OF DEDUCTION UNDER SECTION 80IA AND 80HHC WITH THE IMPORT OF SECTION 80IA(9A) OF THE ACT. LD. REPRESENTATIVES O F BOTH THE PARTIES ADMITTED THAT THIS ISSUE IS NOT ARISING OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). LEARNED DEPAR TMENTAL REPRESENTATIVE HOWEVER SUBMITTED THAT AS REGARDS C ALCULATIONS OF THE DEDUCTION UNDER SECTION 80IA AND 80HHC, THE MATTER MAY BE 27 REMANDED TO THE ASSESSING OFFICER FOR CALCULATION O F THE SAME DEDUCTIONS AS PER SECTION 80IA(9A) OF THE ACT. ON CONSIDERATION OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT NO DIRECTIONS ARE REQUIRED IN THE MATTER BECAUSE THIS POINT IS NOT ARISING OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). THE MATTER O F CALCULATIONS OF THE DEDUCTIONS WOULD BE CONSIDERED BY THE ASSESSING OFFICER IN ACCORDANCE WITH LAW. AS A RESULT THIS GROUND STAND S DISPOSED OFF. 26. ON GROUND NO.3 REVENUE CHALLENGED THE DELETION OF ADDITION ON ACCOUNT OF SALES COMMISSION OF RS.97,47,404/-. BRIEFLY THE FACTS OF THE CASE ARE THAT, DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE HAS PAID COMMISSION TO THE FOLLOWING AGENTS: (I) NIKIM HOLDINGS PVT. LTD. :: RS. 3,582,561/- (II) NIPUN FINVEST PVT. LTD. :: RS. 500,000/- (III) TROPICAL AGRO SYSTEMS (I) LTD :: RS. 73 ,500/- (IV) MERCURY ENTERPRISE RS. 1,225,000/- (V) TRANS GLOBAL INC. :: RS. 1,562,771/- (VI) COURSIK IRELAND :: RS. 2,185,406/- (VII) TULIP INTERNATIONAL :: RS. 618,166/- RS. 9,747,404/- _______________ THE ASSESSING OFFICER IN PARA 6.1 OF THE ASSESSMEN T ORDER HAS STATED THAT THE ASSESSEE HAS PAID COMMISSION OF RS. 5 LAKH TO M/S. NIPUN FINVEST PVT. LTD. MUMBAI, RS.12,25,000/- TO M ERCURY ENTERPRISE, MUMBAI AND RS.73,500/- TO TROPICAL AGRO SYSTEMS (I) LTD. MADRAS, WHICH ARE IN ROUND FIGURES AND THEREFO RE, HE HAS CONCLUDED THAT THE SALES COMMISSION GIVEN TO THE AB OVE ARTIES ARE ON AD HOC BASIS AND NOT WORKED OUT ON THE BASIS OF COMMISSION PAYABLE AT SPECIFIED RATE OF SALES. FURTHER, IN RE SPECT OF COMMISSION PAYMENT OF RS.5 LAKH TO NIPUN FINVEST PVT. LTD., TH E ASSESSING OFFICER HAS STATED THAT IN ADDITION TO THE COMMISSI ON PAID, THE ASSESSEE HAS PAID LEGAL AND PROFESSIONAL FEES OF RS .10,30,000/- TO 28 THE SAID PARTY FOR EVALUATING OF FINANCIAL STATEMEN T OF POINT ENTERPRISES AND PRESENTING THE SAME TO RESERVE BANK OF INDIA FOR APPROVAL. THUS ACCORDING TO HIM THE SAID COMPANY I S IMPARTING LEGAL AND PROFESSIONAL SERVICES, WHEREAS THE ASSESSEE HAS PAID SALES COMMISSION TO THE SAID COMPANY WHICH IS CONTRADICTO RY. ACCORDING TO HIM A COMPANY WHICH IS ENGAGED IN IMPARTING LEGA L AND PROFESSIONAL SERVICES CANNOT SIMULTANEOUSLY DEAL IN PESTICIDES AND CHEMICALS. AS REGARDS COMMISSION PAYMENT OF RS.35, 82,561/- THE ASSESSING OFFICER IN PARA 6.3 HAS STATED THAT IN EA RLIER YEAR IT HAS NOT PAID ANY COMMISSION TO THE SAID PARTY AND FROM THE NOMENCLATURE OF THE NAME, ACCORDING TO HIM IT APPEARS THAT THE SAME IS NOT DEALING IN THE BUSINESS OF SELLING PESTICIDES. AFTER MAKING A BOVE OBSERVATION IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS D ISALLOWED COMMISSION OF RS.35,82,561/- AND RS.5 LAKH PAID TO NIKNIM HOLDINGS PVT. LTD. AND NIPUN FINVEST PVT. LTD. RESP ECTIVELY. REGARDING THE BALANCE AMOUNT OF COMMISSION OF RS.56 ,64,843/- THE ASSESSING OFFICER HAS DISALLOWED THE SAME ON THE GR OUND THAT THE SAME HAS NOT ACCRUED AT THE YEAR END FOR THE REASON THAT IN TERMS OF AGREEMENT ENTERED INTO BY THE ASSESSEE AND THE SELL ING AGENT THE COMMISSION WAS TO BE PAID ON REALIZATION OF SALES A ND THEREFORE, DISALLOWANCE IS MADE BY HIM. 27. THE ADDITION WAS CHALLENGED BEFORE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) AND IT WAS CONTENDED THAT BOTH NIKNIM HOLDINGS PVT. LTD. AND NIPUN FINVEST PVT. LTD., HAV E RENDERED SERVICES IN RESPECT OF SALES WHICH HAS BEEN EFFECTE D THROUGH THEM AND THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFI ED IN DISALLOWING THE SAME. EVEN THE REASON ADVANCED BY HIM THAT THE NAM E OF THE SELLING AGENT DOES NOT SUGGEST THAT IT IS ENGAGED I N CHEMICAL BUSINESS IS NO GROUND FOR MAKING DISALLOWANCE. IT I S STATED THAT THE ASSESSEE HAS DULY PAID THE COMMISSION BY A/C. PAYEE CHEQUE AND 29 BOTH THE COMPANIES ARE ASSESSED TO INCOME TAX. REG ARDING BALANCE AMOUNT OF COMMISSION OF RS.56,64,843/-, IT WAS SUBM ITTED THAT ONCE THE SALE IS EFFECTED THROUGH THE SELLING AGENTS THE LIABILITY IN RESPECT OF COMMISSION ACCRUED TO THE ASSESSEE AND HAS TO BE PROVIDED IN THE BOOKS OF ACCOUNT AS THE ASSESSEE IS FOLLOWING M ERCANTILE SYSTEM OF ACCOUNTING. MERELY BECAUSE THE SALES AGREEMENT PROVIDES THAT THE COMMISSION WILL BE PAID TO THE AGENT ON REALISA TION OF SALES CANNOT BE A GROUND FOR THE PURPOSE OF DISALLOWANCE. IT WAS FURTHER ADDED THAT THE ASSESSEE, VIDE LETTER DATED 11 TH MARCH, 2002 HAD POINTED OUT DURING ASSESSMENT PROCEEDINGS OF ASSESS MENT YEAR 1998-99, THAT ASSESSING OFFICER DISALLOWED COMMISSI ON OF RS.13,37,000/- PAYABLE TO HOUSEHOLD REMEDIES PVT. L TD. FOR THE REASON THAT THE SAME WAS NOT PERTAINING TO THAT YEA R BUT PERTAINED TO ASSESSMENT YEAR 1999-00. FOR ASSESSMENT YEAR 1999- 2000 THE ASSESSING OFFICER AT PARA 7 OF THE ORDER HAS STATED THAT PART OF THE SALES HAVE NOT BEEN REALIZED AND THEREFORE INSTEAD OF ALLOWING THE ENTIRE AMOUNT OF COMMISSION OF RS.13,37,000/- IT WA S RESTRICTED TO RS.12,54,016/-, RESULTING INTO DISALLOWANCE OF RS.8 2,984/-. THE ASSESSEE SUBMITTED DETAILED STATEMENT IN RESPECT OF COMMISSION PAID TO THE PERSONS CONCERNED, SHOWING THEREIN SALE S EFFECTED THROUGH THEM, RATE OF COMMISSION, DETAILS OF PAYMEN T OF COMMISSION, DETAILS OF REALISATION OF SALES, COPIES OF AGREEMEN TS WITH THE AGENTS AND OTHER SUPPORTING IN RESPECT OF THE SAME. REGARD ING COMMISSION OF RS.5,00,000/- TO M/S. NIPUN FINVEST PVT. LTD., I T IS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, PROVISION TOWA RDS COMMISSION PAYABLE TO THE SAID PARTY WAS MADE. HOWEVER, THE S AME HAS NOT BEEN PAID AND IN SUBSEQUENT YEAR, THE PROVISION HAS BEEN REVERSED AND SHOWN UNDER THE HEAD OF PRIOR PERIOD INCOME AND THE SAME HAS BEEN OFFERED FOR TAXATION IN SUBSEQUENT YEAR I.E. A .Y. 2000-2001. IN VIEW OF THIS, IT IS REQUESTED THAT ASSESSING OFFICE R BE DIRECTED TO EXCLUDE THE SAME FROM THE INCOME OF A.Y. 2000-2001 AND CONFIRM 30 THE DISALLOWANCE OF RS.5,00,000/- MADE BY THE ASSES SING OFFICER IN ASSESSMENT YEAR 1999-2000 SO AS TO AVOID DOUBLE TAX ATION. 28. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) CONSIDERING THE SUBMISSION OF THE ASSESSEE AND EXAM INING THE RECORD DELETED THE ADDITION. HIS FINDINGS ARE REPR ODUCED AS UNDER: 6.3 I HAVE GONE THROUGH THE CONTENTIONS OF THE APPE LLANT AND THE ASSESSMENT ORDER. AS ADMITTED BY THE APPEL LANT THE DISALLOWANCE OF RS.5 LAKHS ON SALES COMMISSION TO N IPUN FINVEST PVT. LTD. STANDS CONFIRMED. THE ASSESSING OFFICER HAVE DISALLOWED THE PAYMENT OF COMMISSION TO OTHER PARTIES AS UNDER; SR. NO. COMMISSION PAYMENT TO COMMISSION ON AMOUNT (RS) REASON FOR DISALLOWANCE BY A.O. (II) M/S TROPICAL AGRO SYSTEMS (I). LTD. 73,500/- (A) A.O. HAS CONSIDERED THAT THE COMMISSION IS PAID ADHOC AND NOT ON ANY BASIS OF SALES AS IT IS PAID IN ROUND FIGURE. (B) ACCORDING TO A.O. THE COMMISSION NOT ACCRUED AS THE SALES PROCEEDS ON WHICH COMMISSION PAYABLE, AS PER THE AGREEMENT, NOT REALISED. (III) M/S NIKNIM HOLDINGS PVT LTD. 35,82,561/- (A) IN THE EARLIER YEAR COMMISSION WAS NOT PAID TO THE SAID PARTY. (B) LOOKING TO THE NOMENCLATURE OF THE NAME OF THE PARTY, IT APPEARS THAT THE PARTY IS NOT DEALING IN THE BUSINESS OF PESTICIDES. (IV) M/S MERCURY ENTERPRISE 12,25,000/- (V) M/S TRANS GLOBAL INC. 15,62,771/- (VI) M/S COURSIK IRELAND 21,85,406/- (VII) M/S TULIP INTERNATIONAL 6,18,166/- ACCORDING TO A.O. THE COMMISSION NOT ACCRUED AS THE SALES PROCEEDS ON WHICH COMMISSION PAYABLE, AS PER THE AGREEMENT, NOT REALIZED. (VIII) M/S HOUSEHOLD REMEDIES PVT LTD (*OUT OF RS.13,37,000/-, RS.12,54,016/- REALISED AND BALANCE AMOUNT 82,984/- ACCORDING TO A.O. THE COMMISSION NOT ACCRUED AS THE SALES PROCEEDS ON WHICH COMMISSION PAYABLE, AS PER THE AGREEMENT, NOT REALIZED. 31 6.3.1. IT IS SEEN THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND MERELY BECAUSE THE SALES COMMISSION WERE PAID IN SUBSEQUENT YEAR WOULD NOT BE A GROUND FOR DISALLOWANCE OF THE SALES COMMISSION ACCRUED DURING THE YEAR. IN REGARD TO THE COMMISSION TO M/S. NIKNIM HOLDINGS PVT. LTD. OF RS.35,82,561/- THE ASSESSING OFFICERS ARGUMENT FOR DISALLOWANCE IS THAT FROM THE NOMENCLATURE OF THE NAME IT DOES NOT APPEAR THAT THIS COMPANY IS DEALING IN BUSINESS OF SELLING OF PESTICIDES. HOWEVER, THAT ALONE CANNOT BE A GROUND FOR DISALLOWANCE OF THE SALES COMMISSION AS LONG AS THE DETAILS FURNISHED BY APPELLANT WERE NOT CONTRAVERTED BY THE ASSESSING OFFICER REGARDING THE GENUINENESS OF SUCH PAYMENTS. IT IS ALSO SEEN THAT COMMISSION WAS PAID TO M/S. TRANS GLOBAL INC. DURING A.Y. 1997-98 AND 1998-99 AND ALSO IN SUBSEQUENT YEAR 2000-01 AND 2001-02 AND THESE WERE ALLOWED BY ASSESSING OFFICER. SIMILARLY IN RESPECT OF M/S. COURSIK IRELAND COMMISSION PAID FOR A.Y. 1996-97 TO 1998-99 WAS FULLY ALLOWED BY ASSESSING OFFICER. SO WAS THE CASE IN RESPECT OF COMMISSION PAID TO M/S. TULIP INTERNATIONAL WHICH WAS ALLOWED FOR A.Y. 1997-98 TO 1998-99. 6.3.2. IN VIEW OF FOREGOING THE DISALLOWANCE OF RS.97,47,404/- IS THEREFORE DELETED. 29. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND LD. COUNSEL F OR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. HE HAS SUBMITTED THAT ENTIRE EVIDENCES AND DETAILS WERE FI LED TO SHOW THAT SALES ARE AFFECTED THROUGH THE SAME PARTIES SUPPORT ED BY RATES OF COMMISSION, COPIES OF AGREEMENT ETC. AND SALES EFFE CTED THROUGH THEM. HE HAS REFERRED TO PB-275 TO 329 WHICH ARE T HE DETAILS ON THIS ISSUE TO SUPPORT THE FINDINGS OF LEARNED COMMISSION ER OF INCOME TAX (APPEALS). 30. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL ON THIS GROUND. T HE ASSESSEE HAS 32 FILED SUFFICIENT EVIDENCE BEFORE THE AUTHORITIES BE LOW TO SHOW THAT COMMISSION WAS PAID TO THE ABOVE PARTIES THROUGH WH OM SALES HAVE BEEN AFFECTED. THE DETAILS CONTAINED SALES AFFECTE D, RATE OF COMMISSION, DETAILS OF PAYMENT, REALIZATION OF SALE S AND COPIES OF AGREEMENTS ETC. SUFFICIENT EVIDENCE WAS ALSO FILED THAT LEGAL AND PROFESSIONAL SERVICES WERE PROVIDED TO THE ASSESSEE . IN CASE OF SOME OF THE PARTIES EVEN THE COMMISSION PAYMENT WAS NOT DOUBTED BY THE ASSESSING OFFICER IN EARLIER YEARS. THE ASS ESSEE MAINTAINED BOOKS OF ACCOUNTS ON MERCANTILE SYSTEMS OF ACCOUNTI NG, THEREFORE, THE MOMENT SALES ARE EFFECTED THROUGH THE AGENTS, A SSESSEE WOULD BE UNDER OBLIGATION TO PAY THE COMMISSION TO THEM. MERELY BECAUSE PAYMENT IS MADE IN SUBSEQUENT YEAR IS NO GROUND TO DISALLOW THE COMMISSION PAYMENT. THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) ON PROPER APPRECIATION OF THE EVIDENCES A ND MATERIAL ON RECORD, CORRECTLY NOTED THAT DISALLOWANCE IS CLEARL Y UNJUSTIFIED. THEREFORE, WE DO NOT FIND ANY CASE TO INTERFERE WIT H THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS). LEAR NED DEPARTMENTAL REPRESENTATIVE HAS NOT POINTED OUT ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) OR THE EVIDENCES AND MATERIAL FILED IN THE PAPER BOOK BY T HE ASSESSEE AT PAGES 275 TO 329 OF THE PAPER BOOK. WE THEREFORE, CONFIRM HIS FINDINGS AND DISMISS THIS GROUND OF APPEAL OF THE R EVENUE. 31. ON GROUND NO.4 REVENUE CHALLENGED THE DELETION OF DISALLOWANCE OF RS.22,10,479/-. BRIEFLY THE FACTS ARE THAT THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS PURCHASED STORE ITEMS WORTH RS.22,10,471/- FROM GHARDA CHEMIC ALS LTD. AND AS M/S. GHARDA CHEMICALS LTD. IS NOT AN ENGINEERING UNIT DEALING IN SPARES THE STORES ITEMS WORTH RS.22,10,471/- WAS HE LD TO BE NON GENUINE BY ASSESSING OFFICER. IN APPEAL IT WAS SUB MITTED THAT THE EXPENDITURE ON SUCH STORES ITEMS INCLUDED THE FOLLO WING PURCHASES 33 WHICH HAS ALREADY BEEN DISALLOWED BY THE ASSESSING OFFICER UNDER THE HEAD REPLACEMENT OF PLANT AND MACHINERY. 1) HDPE SYNTEX TANK 5000 LTR. RS. 77,880/- 2) GLASS LINED REACTOR 6300 LTR. R 310 RS.15,36,52 8/- RS.16,14,408/- IT IS ALSO SUBMITTED THAT THE BALANCE AMOUNT OF RS. 5,96,063/- ARE PRETTY STORES ITEMS WHICH ARE PURCHASED FROM GHARDA CHEMICALS LTD. IT IS FURTHER STRESSED THAT SUCH PURCHASES WERE MAD E BY ASSESSEE IN PAST AND NO DISALLOWANCE WERE MADE IN THE ASSESSEE S CASE. FURTHER THE PRICES PAID FOR THE PURCHASES ARE AT MA RKET RATE AND THE ASSESSING OFFICER WAS WRONG IN INVOKING THE PROVISI ON OF SECTION 40A(2)(B). THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION. HIS FINDINGS ARE REPRODUCED AS UNDER: 12.3 I HAVE GONE THROUGH THE CONTENTIONS OF THE APP ELLANT AND THE ARGUMENT OF THE ASSESSING OFFICER. THE CON TENTION OF APPELLANT IS CORRECT THAT EXPENDITURE ON ITEMS WORT H RS.16,14,408/- WAS ALREADY DISALLOWED AND TREATED A S CAPITAL NATURE BY ASSESSING OFFICER. AT PARA 8 OF THIS ORD ER THE ENTIRE EXPENDITURE OF RS.16,14,408/- HAS ALREADY BEEN TREA TED AS REVENUE AND ALLOWED BY ME. AS REGARDS TREATING THE SAME EXPENDITURE AS COVERED U/S. 40A(2)(B), IT IS SEEN T HAT THE ASSESSING OFFICER HAS FAILED TO PROVE THAT EXPENDIT URE IN EXCESSIVE AND UNREASONABLE HAVING REGARD TO FAIR MA RKET VALUE OF GOODS. THE ASSESSING OFFICER IS THEREFORE NOT JUSTIFIED IN MAKING ADDITION OF RS.22,10,471/- U/S. 40A(2)(B) WHICH THEREFORE STANDS DELETED. 32. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT PART OF THE CLAIM IS ALREADY ALLOWED BY THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) IN PARA 8 OF THE IMPUGNED ORDE R REGARDING AMOUNT OF RS.16,14,408/- AND FOR THE REST OF THE AM OUNT HE HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER. ON T HE OTHER HAND LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITY BELOW. 34 33. ON CONSIDERATION OF THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD, WE DO NOT FIND ANY JUSTIFICATION TO INTERFE RE WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS). LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) FOR AN AMOUNT OF 16,14,408/- HAS ALREADY ALLOWED THE APPEAL OF THE ASSESSEE IN P ARA NO.8 AS NOTED ABOVE ON WHICH REVENUE HAS NOT PREFERRED ANY APPEAL. FOR THE REST OF THE PART ADDITION, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED IN NOTING THAT SINCE ASSESSE E PURCHASED MATERIAL AND NO CASE OF EXCESSIVE PAYMENT IS MADE, THEREFORE, IN OUR VIEW, LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) WAS JUSTIFIED IN DELETING THE ADDITION. WE CONFIRM HIS FINDING AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. AS A RESULT, THIS GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 34. ON GROUND NO.5 REVENUE CHALLENGED ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN DIRECTING T HE ASSESSING OFFICER TO TREAT OTHER INCOME OF RS.3,61,24,906/- B EING INCOME FROM OTHER SOURCE FOR THE PURPOSE OF DEDUCTION UNDER SEC TION 80IA OF THE IT ACT. THIS ISSUE IS CONNECTED WITH GROUND NO.8 I N THE APPEAL OF THE ASSESSEE AND IS CONSIDERED AT PAGE 22 AND 23 OF THI S ORDER IN WHICH ALSO THE FINDING OF THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) HAVE BEEN REPRODUCED AS GIVEN IN PARA 16. 3 OF THE IMPUGNED ORDER. THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) CONSIDERING BALANCE INCOME COMPRISING OF EXPORT INCENTIVES, BAD DEBTS RECOVERED, EXCESSIVE PROVISIO N OF EARLIER YEARS NOTED THAT THESE ARE IN THE NATURE OF BUSINESS INCO ME. ASSESSING OFFICER WAS ACCORDINGLY DIRECTED TO RECOMPUTE THE D EDUCTION UNDER SECTION 80IA IN RESPECT OF UNIT NUMBER V AND VI. THIS GROUND WAS PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ISSUE OF EXPORT INCENTIVE IS NOW 35 COVERED AGAINST THE ASSESSEE BY THE RECENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 218 IN WHICH IT WAS HELD DUTY DRAWBACK RECEIPTS AND DEPB BENEFITS DO NOT FORM PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKINGS FOR THE PURPOSE OF THE DEDUCTION UNDER SECTION 80-I/80-IB O F THE INCOME-TAX ACT, 1961. OTHER ITEMS ARE NOT DISPUTED. LD. COU NSEL FOR ASSESSEE CONCEDED THE CLAIM OF LEARNED DEPARTMENTAL REPRESEN TATIVE. 35. ON CONSIDERATION OF THE SUBMISSIONS OF THE PART Y, WE ARE OF THE VIEW THAT THE INCOME COMPRISING OF EXPORT INCEN TIVES IS COVERED BY DECISION OF SUPREME COURT IN THE CASE OF LIBERTY INDIA(SUPRA) IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE AND ASSESSEE WOULD NOT BE ENTITLED FOR DEDUCTION ON THIS AMOUNT UNDER SECTION 80IA OF THE I.T. ACT. WE ACCORDINGLY, SET ASIDE TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THI S ITEM AND RESTORE THE ORDER OF THE ASSESSING OFFICER. FOR TH E REST OF THE INCOME, THERE IS NO DISPUTE THAT THE SAME ARE BUSIN ESS INCOME OF THE ASSESSEE. ACCORDINGLY, REST OF THE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS MAINTAINED. THIS GROUND OF THE REVENUE IS THEREFORE, PARTLY ALLOWED. 36. ON GROUND NO.6 REVENUE CHALLENGED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN DIRECTING T HE ASSESSING OFFICER TO EXCLUDE SALES TAX AND EXCISE DUTY FROM T URNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE I.T. ACT. LEARNED DEPARTMENTAL REPRESENTATIVE CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE REVENUE BY THE DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHI NE WORKS 290 ITR 667 IN WHICH IT WAS HELD THAT FOR THE PURPOSE O F SECTION 80HHC, EXCISE DUTY AND SALES TAX CANNOT FORM PART OF TURN OVER. BY FOLLOWING 36 THE SAME JUDGMENT, WE DISMISS THIS GROUND OF THE AP PEAL OF THE REVENUE. 37. AS A RESULT, DEPARTMENTAL APPEAL IS PARTLY ALLO WED. 38. NO OTHER POINT IS ARGUED OR PRESSED. 39. IN VIEW OF THE ABOVE BOTH THE CROSS APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON ___ MARCH, 2 010. (A.N.PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : /03/2010 PARAS* COPY OF THE ORDER FORWARDED TO : 1. THE RESPONDENT 2. THE APPELLANT. 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, 6. GUARD FILE BY ORDER DY.R/AR, ITA T, AHMEDABAD