DCIT, Circle - 4, Kolkata V. M/s. Neptune Exports Ltd., Kolkata

ITA 1384/KOL/2009

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99865 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 02-06-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 11-08-2009
• Court: TRIBUNAL
• Department Lawyers: J M THARD; R P AGARWAL
• Keywords: Business expenditure; Commercial expediency; Revised return
• Section: 10AA; 80HHC; 37(1); 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI M. BALAGANES H, AM] I.T.A NOS.942 & 943/KOL/2009 ASSESSMENT YEARS: 2002-03 & 2003-04 NEPTUNE EXPORTS LIMITED VS. ASSISTANT COMMISSION ER OF INCOME-TAX, (PAN: AAACN8502F) CIRCLE-4, KOLKATA. ( APPELLANT ) ( RESPONDENT ) & I.T.A NO.1384&1385/KOL/2009 ASSESSMENT YEARS: 2002-03 & 2003-04 DEPUTY COMMISSIONER OF INCOME-TAX, VS. NEPTUNE EX PORTS LTD. CIRCLE-4, KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 24.09.2015 DATE OF PRONOUNCEMENT: 07.10.2015 FOR THE APPELLANT: S/ SHRI R. P. AGARWAL & J. M. T HARD, ADVOCATES FOR THE RESPONDENT: SHRI SANJAY MUKHERJEE, JCIT ORDER PER BENCH: THESE FOUR CROSS APPEALS TWO BY ASSESSEE AND TWO BY REVENUE, ARE ARISING OUT OF SEPARATE ORDERS OF CIT(A)-IV KOLKATA IN APPE AL NOS.185, 188/CIT(A)-IV/07- 08 DATED 03.03.2009. ASSESSMENTS WERE FRAMED BY AC IT, CIRCLE-4, KOLKATA U/S 143(3)/147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE SEPARATE ORDERS DATED 20.12.2007 FOR ASSESSMENT YEA RS 2002-03 AND 2003-04 RESPECTIVELY. 2. THE FIRST COMMON ISSUE IN BOTH THE APPEALS OF AS SESSEE AS WELL AS THE APPEALS OF REVENUE IS AGAINST THE ORDER OF CIT(A) DENYING T HE EXEMPTION U/S 10B OF THE ACT IN RESPECT TO TEA BLENDED AND EXPORTED BY IT, BY HO LDING THAT EVEN THOUGH ASSESSEE- COMPANY IS A 100% EXPORTED ORIENTED UNIT (EOU FOR S HORT) BUT MERELY ENGAGED IN TRADING ACTIVITY IN PURCHASE AND SALE OF TEA AND TH ERE WAS NO PROCESSING OR BLENDING OUT OF ACTIVITIES CARRIED OUT BY IT. SINCE COMMON G ROUNDS ARE RAISED IN BOTH THE APPEALS OF ASSESSEE AS WELL AS THE REVENUE AND ISSU E IS IDENTICAL, WE HAVE REPRODUCED THE GROUND AS RAISED BY ASSESSEE VIDE GR OUND NO. 2 IN AY 2002-03 AND THE GROUND AS RAISED BY REVENUE VIDE GROUND NO. 2 I N AY 2002-03: 2 ITA NO.942-943/KOL/2009 & ITA NOS.1384-1385/K/2009 NEPTUNE EXPORTS LTD.. AYS 02-03& 03-04 ASSESSEES GROUND IN AY 2002-03 2. A) FOR THAT THE LD. CIT(A) ERRED IN REJECTING T HE GROUNDS NOS. 4, 5, 6 & 7 TAKEN BEFORE HIM AGAINST DENIAL OF EXEMPTION OF RS.37,80, 468/- U/S. 10B OF THE I. T. ACT ON THE BASIS OF THE VIEW TAKEN IN THE ORDER IN THE APP EAL OF A GROUP COMPANY M/S. NORTHERN PROJECTS LTD. FOR THE ASST. YEAR 2003-04. B) FOR THAT THE LD. CIT(A) FAILED TO NOTICE THAT TH E SAID ASSESSEE M/S. NORTHERN PROJECTS LTD. HAD FILED APPEAL AGAINST THE ORDER OF THE LD. CIT(A) ON THE ISSUE OF THE DENIAL OF THE EXEMPTION U/S. 10B IN THE ASST. YEAR 2003-04 AND THE SAID ISSUE IN THE ASST. YEAR 2003-04 WAS STILL SUBJUDICE BEFORE THE A PPELLATE TRIBUNAL. REVENUES GROUND IN AY 2002-03: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN ALLOWING THE CLAIM OF DE DUCTION TO THE TUNE OF RS.26,96,282/- MADE BY THE ASSESSEE U/S. 80HHC AS A N ALTERNATIVE CLAIM IN CASE OF DENIAL OF EXEMPTION U/S. 10B, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE DID NOT CLAIM SUCH DEDUCTION IN THE ORIGINAL RETURN OR EVEN BY FILLING A REVISED RETURN AND ALSO NO STATUTORY AUDIT REPORT IN FORM NO. 10CC AC WAS SUBMITTED BY THE ASSESSEE. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE CLAIMED E XEMPTION U/S 10B OF THE ACT IN RESPECT OF 100% EOU AND IN SUPPORT OF ITS CLAIM, ASSESSEE FILED REPORT IN FORM NO. 56G U/S 10B OF THE ACT. BUT AO DENIED EXEMPTION TO THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO C ONFIRMED THE ACTION OF AO AND DENIED THE EXEMPTION U/S 10B OF THE ACT BY OBSERVIN G IN PARA-4.1 AND 4.2 AS UNDER:- 4.1. G. NOS. 4, 5, 6 & 7- THESE GROUNDS ARE AGAIN ST DENIAL OF THE EXEMPTION CLAIMED BY THE APPELLANT U/S. 10B OF THE I. T. ACT. THE APPELLANT HAD CLAIMED EXEMPTION OF INCOME OF RS.37,80,468/- U/S. 10B OF T HE I. T. ACT, 1961 ON THE BASIS OF THE CERTIFICATE OF THE CHARTERED ACCOUNTANT DTD. 28 TH OCTOBER, 2002 IN FORM NO. 56G. THE APPELLANT SUBMITTED THAT IT WAS A 100% EX PORT ORIENTED UNDERTAKING (EOU) W.E.F. 14.12.2001 AND WAS ENTITLED TO THE EXE MPTION FOR PART OF THE YEAR FROM 14.12.2001 TO 31.03.2002 AND ACCORDINGLY DEDUCTION U/S. 80HHC HAD BEEN CLAIMED FOR THE PART OF THE YEAR ONLY UP TO 13.12.2001. 4.2. I FIND THAT SIMILAR CLAIM FOR EXEMPTION U/S. 1 0B WAS MADE BY THE GROUP COMPANIES (I) V. N. ENTERPRISES LTD. (II) NORTHERN PROJECTS LTD. IN THE ASST. YR. 2003-2003. AFTER EXAMINING THE CLAIM IN DETAIL IN THE ASSESSMENTS OF THESE COMPANIES, THE AO HAD REJECTED THE CLAIM OF THOSE C OMPANIES. ON APPEAL THE CIT(A)-IV, KOLKATA (MY PREDECESSOR IN OFFICE) BY HI S ORDER DTD. 23.05.2008 IN THE CASE OF NORTHERN PROJECTS LTD. IN APPEAL NO. 47/CIT (A)-IV/06-07 HAS ALSO UPHELD THE ACTION OF THE AO AFTER DEALING WITH ALL ASPECTS OF THE ISSUE IN EXTENSOR. THIS ISSUE IS DEALT WITH IN PARAS 3 & 4 OF THE APPELLATE ORDER FOR THE SAID ASST. YR. 2003- 04 IN THE CASE OF NORTHERN PROJECTS LTD. THE APPEL LANTS SUBMISSIONS IN THIS CASE ARE IDENTICAL TO THOSE MADE IN THE APPEAL OF THE SA ID GROUP COMPANY NORTHERN PROJECTS LTD. FOR ASST. YR. 2003-04. I FIND MYSELF IN COMPLETE AGREEMENT WITH THE SAID DECISION OF MY PREDECESSOR. RESPECTFULLY FOLL OWING THE DECISION IN THE SAID ORDER, I UPHOLD THE REJECTION OF THE CLAIM FOR EXEM PTION U/S. 10B IN THE CASE OF THE APPELLANT COMPANY ALSO. GROUND NOS. 4, 5, 6 & 7 AR E REJECTED. 3 ITA NO.942-943/KOL/2009 & ITA NOS.1384-1385/K/2009 NEPTUNE EXPORTS LTD.. AYS 02-03& 03-04 AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE. 4. AT THE OUTSET, LD. COUNSEL FOR ASSESSEE, SHRI R. P. AGARWAL, SENIOR ADVOCATE STATED THAT THE ISSUE NOW STANDS COVERED BY THE ORD ER OF SPECIAL BENCH OF ITAT KOLKATA IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. V. DY. CIT (2012) 137 ITD 377 (KOL) (SB) AND HE REFERRED TO RELEVANT PARA 35 TO 37 OF THE ORDER, WHICH READS AS UNDER:- 35. WE FIND FROM THE ABOVE FACTS AND CIRCUMSTANCES AND CASE LAWS RELIED ON BY BOTH THE SIDES THAT THE ASSESSEE WAS EXCLUSIVELY EN GAGED IN BLENDING, PACKAGING AND EXPORT OF TEA BAGS, TEA PACKETS AND BULK TEA PA CKS. THE ASSESSEES DIVISION ENJOYS RECOGNITION AS A 100% EOU, WHICH IS GRANTED BY THE DEVELOPMENT COMMISSIONER, MINISTRY OF COMMERCE & INDUSTRY, GOVT . OF INDIA. THE ASSESSEE CLAIMED EXEMPTION U/S. 10B OF THE ACT FOR AYS 2000- 01 ONWARDS, WHICH WAS GRANTED UPTO THE AY 2003-04. HOWEVER, FOR THE AY 20 04-05, EXEMPTION WAS DECLINED FOR THE REASONS THAT BY THE FINANCE ACT 20 00, THE DEFINITION OF MANUFACTURE WHICH INCLUDED PROCESSING CONTAINED IN SECTION 10B OF THE ACT WAS DELETED W.E.F. 01.04.2001. THE ARGUMENT OF THE DEPARTMENT IS THAT MANUFACTURE OR PRODUCTION HAD LIBERAL MEANING UNDER THE DEFINITION CLAUSE CONTAINED IN SECTION 10B OF THE ACT UNTIL ITS DELET ION WHICH COVERS EVEN PROCESSING AND, THEREFORE, BLENDING AND PACKAGING OF TEA FOR E XPORT WAS TREATED AS MANUFACTURE OR PRODUCTION OF AN ARTICLE QUALIFY ING FOR EXEMPTION. WE ARE OF THE CONSIDERED VIEW THAT THE CONTENTION OF THE ASSE SSEE THAT THE SCHEME OF INCOME TAX EXEMPTION AVAILABLE TO UNITS IN THE SEZ U/S. 10 A OF THE ACT AND UNITS IN THE FREE TRADE ZONE PROVIDED U/S. 10AA OF THE ACT AND T HE EXEMPTION AVAILABLE TO 100% EOU U/S. 10B OF THE ACT ARE VERY SIMILAR IN NATURE AND THE WORDINGS OF THE STATUTORY PROVISIONS ARE SIMILAR IN NATURE IS CORRE CT. WE FIND THAT HONBLE KERALA HIGH COURT ALSO CONSIDERED THE JUDGMENT IN THE DECI SION OF SUPREME COURT IN TARA AGENCIES, (SUPRA) RELIED ON BY THE LD. CIT, DR , WHEREIN HONBLE SUPREME COURT CLEARLY HELD THAT BLENDING OF TEA DOES NOT AM OUNT TO MANUFACTURE OR PRODUCTION OF AN ARTICLE, BUT IS ONLY PROCESSING. WE FIND THAT THE ASSESSEE WAS EXCLUSIVELY ENGAGED IN BLENDING AND PACKING OF TEA FOR EXPORT AND WAS NOT MANUFACTURING OR PRODUCING ANY OTHER ARTICLE OR THI NG. IT WAS RECOGNISED AS A 100% EOU DIVISION AND THE DEPARTMENT HAD NO CASE TH AT THE ASSESSEES UNIT ENGAGED IN EXPORT OF TEA BAGS AND TEA PACKETS WAS N OT A 100% EOU. IF EXEMPTION WAS DENIED ON THE GROUND THAT PRODUCTS EXPORTED WER E NOT PRODUCED OR MANUFACTURED IN THE INDUSTRIAL UNIT OF THE ASSESSEE S 100% EOU, IT WOULD DEFEAT THE VERY OBJECT OF SECTIONS 10B OF THE ACT. 36. WE, IN VIEW OF THE ABOVE, HOLD THAT WHEN THE PR ODUCTS FOR WHICH THE ASSESSEES UNIT IS RECOGNIZED AS A 100% EOU ARE TEA BAGS, TEA IN PACKETS AND TEA IN BULK PACKS AND THE ASSESSEE IS EXCLUSIVELY ENGAGED IN BL ENDING AND PACKING OF TEA FOR EXPORT MAY NOT BE MANUFACTURER OR PRODUCER OF ANY O THER ARTICLE OR THING IN COMMON PARLANCE. HOWEVER, FOR THE PURPOSE OF SECTIO N 10A, 10AA AND 10B, WE HAVE TO CONSIDER THE DEFINITION OF THE WORD MANUFA CTURE AS DEFINED IN SECTION 2(R) OF SEZ ACT, EXIM POLICY, FOOD ADULTERATION RUL ES, 1955, TEA (MARKETING) CONTROL ORDER, 2003, ETC. WE ALSO FIND THAT THE DEF INITION OF MANUFACTURE AS PER SECTION 2(R) OF THE SEZ ACT, 2005 IS INCORPORATED I N SECTION 10AA OF THE INCOME- TAX ACT WITH EFFECT FROM 10.02.2006. HONBLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) HAD HELD SUCH AMENDMENT I N SECTION 10AA TO BE OF CLARIFICATORY IN NATURE. THE DEFINITION OF MANUFAC TURE UNDER THE SEZ ACT, EXIM POLICY, FOOD ADULTERATION RULES AND TEA (MARKETING) CONTROL ORDER IS MUCH 4 ITA NO.942-943/KOL/2009 & ITA NOS.1384-1385/K/2009 NEPTUNE EXPORTS LTD.. AYS 02-03& 03-04 WIDER THAN WHAT IS THE MEANING OF THE TERM MANUFAC TURE UNDER THE COMMON PARLANCE, AND IT INCLUDES PROCESSING, BLENDING, PAC KAGING ETC. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF GIRNAR INDUSTRIES (SUPRA) AND TATA TEA LIMITED ( SUPRA), WE HOLD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SECTION 10 B OF THE ACT ON ACCOUNT OF BLENDING OF TEA. SIMILARLY, IN OUR VIEW, THE INDUST RIAL UNITS ENGAGED IN THE VERY SAME ACTIVITY I.E. BLENDING, PACKING AND EXPORT OF TEA IN THE FREE TRADE ZONE SHALL ALSO BE ENTITLED TO ENJOY TAX EXEMPTION UNDER SECTI ON 10A OF THE ACT. 37. ACCORDINGLY, WE ANSWER THE QUESTION REFERRED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE ASSESSEES WHO ARE IN THE BUSINESS OF BLENDING AND PROCESSING OF TEA AND EXPORT THEREOF, IN 100% EOUS ARE MANUFACTUR ER/ PRODUCER OF THE TEA FOR THE PURPOSE OF CLAIMING EXEMPTION U/S. 10B OF THE A CT. FURTHER, ASSESSEES WHO ARE IN THE BUSINESS OF BLENDING AND PROCESSING OF TEA I N RESPECT OF UNDERTAKINGS IN FREE TRADE ZONES ARE MANUFACTURER/PRODUCER OF TEA F OR THE PURPOSE OF CLAIMING EXEMPTION U/S. 10A OF THE ACT. WE HAVE EXAMINED AND DISCUSSED THE FACTS IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. AND FOUND THAT THERE IS BLENDING OF TEA AND CONSEQUENTLY THE ASSESSEE IS ELIGIBLE FOR EXEMP TION U/S. 10B OF THE ACT AS PRAYED FOR. THEIR APPEAL FOR THE AY 2004-05 IS ALLO WED. AS REGARDS OTHER APPEALS AND THAT OF THE INTERVENERS, THE MATTERS ARE RESTOR ED BACK TO THE DIVISION BENCH, WITH DIRECTIONS TO DECIDE THOSE APPEALS IN THE LIGH T OF PRINCIPLE LAID DOWN HEREIN, SO FAR AS THE CLAIM FOR RELIEF U/S. 10A OR 10B OF T HE ACT IN ACCORDANCE WITH LAW. WHEN A QUERY WAS PUT TO LD. SENIOR ADVOCATE IN TERM OF THE DECISION OF SB OF ITAT KOLKATA IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD.(SUPRA), AS TO, WHETHER THERE IS A BLENDING OR NOT AND BLEND SHEETS WERE PRODUCED BEFORE THE AO OR NOT, HE REPLIED BY REFERRING TO AOS REMAND REPORT NO. ACIT, CIRCLE-4/MISC/06- 07/KOL/1227 DATED 06/03/2007, WHICH IS GIVEN IN ASS ESSEES PAPER BOOK AT PAGES 255 TO 263 AND PARTICULARLY HE DREW OUR ATTENTION T O FOLLOWING PARA OF THE REMAND REPORT, WHEREIN THE AO HAS DISCUSSED THE FACT AS UN DER:- THE FACTS OF THE CASE AS THEY EMERGE FROM THE RE CORDS AS WELL AS THE ASSESSEES SUBMISSION IN THE FORM OF A PAPER BOOK ARE THAT T HE APPELLANT COMPANY PURCHASES TEA FROM AUCTION CENTRES LOCATED IN VARIOUS PARTS O F THE COUNTRY AND THEN THE TEAS OF DIFFERENT QUALITIES / GRADES AS SELECTED ARE LAID D OWN ON THE FLOOR OF THE WAREHOUSE. THEREAFTER, THE TEA OF ONE TYPE/GRADE ARE MIXED/BLE NDED WITH ANOTHER TYPE/GRADE OF TEA TO ACHIEVE THE REQUIRED STANDARD OF TEA ON TH E BASIS OF BLENDSHEETS AS SELECTED BY EXPERTS. SUBSEQUENTLY, AFTER COMPLETION OF EACH BLEND THE TEA IS THEN PACKED, AS PER BUYERS REQUIREMENT IN THE PACKING MATERIALS PR OCURED FROM DIFFERENT SUPPLIERS AND EVEN IMPORTED AND THEN STUFFED IN CONTAINERS FO R ONWARD TRANSMISSION TO PORT FOR SHIPMENT TO OVERSEAS BUYERS. IN THE BACKGROUND OF THESE FACTS, THE ASSESSEE HAS PLEADED THAT SUCH MIXING / BLENDING /PACKING AMOUNTS TO PROCESSING OF GOODS. M ENTIONING FURTHER THAT THE EXPRESSIONS MANUFACTURE AND / OR PRODUCE HAVE NOT BEEN DEFINED IN THE INCOME TAX ACT 1961 IN AN EXHAUSTIVE MANNER, THE ASSESSEE HAS ARGUED IN ITS PAPER BOOK HAT FOR THE PURPOSES OF SECTION 100B OF THE INCOME TAX ACT 1961 AN EXCLUSIVE DEFINITION HAS BEEN GIVEN IN RESPECT OF THE SAID TW O WORDS AND THAT THE EXPRESSION MANUFACTURE HAS BEEN DEFINED TO INCLUDE INTER ALIA ANY PROCE SS FOR THE PURPOSES OF SECTION 10B OF THE INCOME TAX ACT 1961. PLACING RELIANCE ON VARIOUS 5 ITA NO.942-943/KOL/2009 & ITA NOS.1384-1385/K/2009 NEPTUNE EXPORTS LTD.. AYS 02-03& 03-04 JUDICIAL PRONOUNCEMENTS, THE ASSESSEE HAS PLEADED T HAT THE ACTIVITY OF BLENDING CARRIED OUT BY IT LEADS TO PRODUCTION OF TEA AND IS, THEREFORE, ELIGIBLE FOR BENEFIT OF DEDUCTION U/S. 10B OF THE INCOME TAX ACT 1961. IN VIEW OF THE ABOVE REMAND REPORT OF AO, LD. COUNS EL FOR ASSESSEE ARGUED THAT ASSESSEE HAS SUBMITTED COMPLETE PROCEDURE OF BLENDI NG OF TEA ALONG WITH BLEND SHEETS DURING THE REMAND PROCEEDINGS AND ONCE THE A O HAS ADMITTED THAT THERE IS BLENDING AND THIS IS EXACTLY IN LINE WITH ORDER OF ITAT KOLKATA SPECIAL BENCH IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. (SUPRA). ON QUERY FROM THE BENCH, LD. CIT-DR SHRI ADHIR KUMAR BAR RELIED ON THE ORDER OF AO. 5. WE FIND THAT FACTUAL THERE IS A BLENDING OF TEA IN THE PRESENT CASE OF ASSESSEE AND ASSESSEE BEFORE AO DURING REMAND PROCEEDINGS HA VE PROVED THE COMPLETE PROCEDURE EXPLAINING THAT THERE IS BLENDING OF TEA. THIS IS EXACTLY IN LINE WITH THE ORDER OF ITAT KOLKATA SPECIAL BENCH IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD (SUPRA). HENCE, RESPECTFULLY FOLLOWING THE ORDER OF ITAT KOLKATA SPECIAL BENCH, IN THE CASE OF MADHU JAYANTI INTERNATIONAL LTD. (SUPRA), WE FEEL THAT ISSUE IS NOW COVERED AGAINST REVENUE AND IN FAVOUR OF ASSESS EE. ACCORDINGLY, THIS ISSUE OF ASSESSEES APPEALS IS ALLOWED AND REVENUES APPEALS ARE DISMISSED. 6. NEXT COMMON ISSUE IN REVENUES APPEALS FOR AY 20 02-03 AND 2003-04 IS AS REGARDS TO THE ORDER OF CIT(A) DELETING THE DISALLO WANCE COMMISSION PAYMENT. FOR THIS, REVENUE HAS RAISED IDENTICAL ISSUE AND THE GR OUND RAISED IN AY 2002-03, READS AS UNDER:- 4) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE DISALLOWANC E OF PAYMENT OF COMMISSION TO THE TUNE OF RS.15,69,790/- WITHOUT APPRECIATING THE FACT THAT SUCH PAYMENT OF COMMISSION WAS ILLEGAL AS IT IS IN CONTRAVENTION TO THE UNO SPONSORED SCHEME OF IL FOR FOOD PROGRAMME IN IRAQ. EXPLANATION TO SEC . 37(1) IS SQUARELY APPLICABLE HERE. ILLEGAL BUSINESS EXPENSES FOR LEGAL BUSINESS ARE NOT ALLOWABLE. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET, WE FIND T HAT ISSUE IS COVERED IN FAVOUR OF ASSESSEE AND AGAINST REVENUE EXACTLY ON IDENTICAL F ACTS AND CIRCUMSTANCES OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. RAJARANI EXPORTS P. LTD. (2014) 361 ITR 152 (CAL). FURTHER, WE FIND THAT HON 'BLE JURISDICTIONAL HIGH COURT 6 ITA NO.942-943/KOL/2009 & ITA NOS.1384-1385/K/2009 NEPTUNE EXPORTS LTD.. AYS 02-03& 03-04 HAS CONSIDERED THAT ASSESSEE MADE PAYMENT OF COMMIS SION IN CONSIDERATION OF SERVICES RENDERED. THE CIT(A) HELD THAT THE COMMISS ION ON EXPORT ACTIVITY WAS FULLY DISCLOSED IN ALL CORRESPONDENCE AND ACTIVITIE S IN RELATION TO EXPORT, THE COMMISSION WAS PAID THROUGH BANKING CHANNELS WITH T HE RESERVE BANK APPROVAL AND IT WAS PAID PURSUANT TO AN AGREEMENT APPROVED B Y THE GOVERNMENT OF INDIA AND THE UNITED NATIONS, THAT THE PAYMENT OF COMMISSION WAS FOR BUSINESS CONSIDERATION AND THERE WAS NO ILLEGALITY IN IT, THAT BESIDES THI S, NOTHING WAS BROUGHT ON RECORD TO SHOW THAT THE TRANSACTION RELATING TO PAYMENT OF CO MMISSION WERE NOT GENUINE OR THAT THE PAYMENTS WERE EXCESSIVE OR UNREASONABLE, T HAT THE VOLKER COMMITTEE REPORT HAD DISCUSSED THE UTILISATION OF MONEY BY TH E RECIPIENT OF THE COMMISSION AND STATED THAT NEITHER THE ASSESSEE NOR THE GOVERN MENT OF INDIA WAS INVOLVED IN PARTING WITH SOME OF THE FUNDS SO RECEIVED AS COMMI SSION UNDER A PACT BETWEEN THE IRAQ GOVERNMENT AND THE UNITED NATIONS. THE TRIBUNA L HELD THAT THE ASSESSEE WAS CONCERNED WITH COMMERCIAL EXPEDIENCY OF THE PAYMENT AND NOT WITH THE ACTUAL COSTS INCURRED IN RENDERING THE SERVICES FOR WHICH THE PAYMENT WAS MADE. HONBLE CALCUTTA HIGH COURT CONFIRMED THE ORDER OF TRIBUNAL IN THE CASE OF CIT VS. RAJARANI EXPORTS P. LTD. (2014) 361 ITR 152 (CAL) B Y OBSERVING AS UNDER: AGGRIEVED BY THE ORDER OF THE COMMISSIONER (APPEAL S) THE REVENUE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL DISMISSED THE APPEAL HOLDING, INTER ALIA, AS FOLLOWS: THE ASSESSEE HAS MADE PAYMENT FOR COMMISSION AND H AS BEEN RENDERED SERVICES IN CONSIDERATION OF THE SAME. AS A MATTER OF FACT, IT IS NOT EVEN THE REVENUES CASE THAT NO SERVICES HAVE BEEN RENDERED AT ALL. THE FACT THAT SERVICES HAVE BEEN RENDERED BY A PARTY OTHER THAN T HE AGENT TO WHOM COMMISSION IS PAID IS WHOLLY IMMATERIAL SO FAR AS D EDUCTIBILITY IN THE HANDS OF THE ASSESSEE IS CONCERNED. AS FOR THE POSITION THAT THE PAYMENT WAS HIGHLY EXC ESSIVE VIS--VIS THE LOCAL COSTS, EVEN IF THAT BE SO, THAT ASPECT OF THE MATTE R DOES NOT AFFECT THE DEDUCTIBILITY IN THE HANDS OF THE ASSESSEE EITHER. THE ASSESSEE IS CONCERNED WITH COMMERCIAL EXPEDIENCY OF THE SAID PAYMENT AND NOT WITH WHAT ARE THE ACTUAL COSTS INCURRED IN RENDERING THE SERVICES FOR WHICH THE PAYMENT IS MADE. AS WE HAVE SEEN EARLIER IN THIS ORDER, FROM T HE EXTRAS OF THE VOLKER COMMITTEE REPORT ITSELF, IT WAS ABSOLUTELY NECESSAR Y FOR THE ASSESSEE TO MAKE THE IMPUGNED PAYMENTS AND, IN ANY EVENT, THE C OMMERCIAL EXPEDIENCY OF THESE PAYMENTS HAS NOT EVEN BEEN CALLED INTO QUE STION BY THE ASSESSING OFFICER. THE CASE OF THE REVENUE IS CONFINED TO INV OKING THE EXPLANATION TO SECTION 37(1). 7 ITA NO.942-943/KOL/2009 & ITA NOS.1384-1385/K/2009 NEPTUNE EXPORTS LTD.. AYS 02-03& 03-04 THE OBJECTIONS TO THE SAID COMMISSION PAYMENT ARE, THEREFORE NOT SUSTAINABLE IN LAW, SO FAR AS DEDUCTIBILITY UNDER S ECTION 37(1) IS CONCERNED. THE DEPARTMENT HAS COME UP IN APPEAL. MRS. SMITA DA S DE, LEARNED ADVOCATE, APPEARING IN SUPPORT OF THE APPEAL, COULD NOT SATIS FY US AS TO WHY WERE THE FINDINGS INDICATED ABOVE AS RECORDED BY THE COMMISSIONER (AP PEALS) AND THE TRIBUNAL INCORRECT EITHER ON FACT OR IN LAW. THERE IS, AS SU CH, NO REASONS WHY THE APPEAL SHOULD BE ENTERTAINED. 8. WE FIND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF ASSESSEE AND AGAINST REVENUE AND RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAJARANI EXPORTS P. LTD. (SUPRA) WE CONFIRM THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE. 9. IN THE RESULT, REVENUES APPEALS ARE DISMISSED A ND C.O. OF ASSESSEE IS PARTLY ALLOWED. 10. ORDER IS PRONOUNCED IN THE OPEN COURT ON 07.10. 2015. SD/- SD/- (M. BALAGANESH) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :07TH OCTOBER, 2015 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT M/S. NEPTUNE EXPORTS LTD., 6, OLD POST O FFICE STREET, 4 TH FLOOR, KOLKATA-700 001 2 RESPONDENT DCIT/ACIT, CIRCLE-4, KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .