The Dy. CIT, Circle-1(2), Ahmedabad V. M/s. Artex Apparels, Ahmedabad

ITA 1450/AHD/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3503 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-03-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 14-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SHANKAR
• Assessee Lawyers: T P HEMANI; PARIMAL S PARMAR
• Keywords: Rejection of books of accounts; Related party transaction; Capital asset; Business expenditure; Opportunity of being heard; Principle of natural justice; Additional evidence; Fair market value; Wrong claim; Bad and doubtful debts; Notional interest; Capital expenditure
• Section: 271(1)(c); 10AA; 13

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV , VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMB ER ./ I.T.A. NO. 1450/AHD/2017 WITH CROSS OBJECTION NO.24/AHD/2019 ( ASSESSMENT YEARS : 2012-13) DCIT CIRCLE-1(2), ROOM NO. A-109, 1 ST FLOOR, PRATYAKSH KAR BHAVAN, AMBAWADI, AHMEDABAD, PIN-380015 / VS. M/S. ARTEX APARELS PLOT NO.50, GIDC, APPARELS PARK, KHOKHARA, AHMEDABAD-380008 ./ ./ PAN/GIR NO. : AAEFA7531J ( APPELLANT / RESPONDENT ) .. ( RESPONDENT / CROSS OBJECTOR ) / REVENUE BY : SHRI T. SHANKAR, SR.D.R. / ASSESSEE BY : SHRI T. P. HEMANI, SR. ADV. & SHRI PARIMAL S. PARMAR, A.R. DATE OF HEARING 05/03/2020 ! / DATE OF PRONOUNCEMENT 05/03/2020 / O R D E R PER T. S. KAPOOR - AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT(A)-10, AHMEDABAD, DATED 20/03/2017 RELA TING TO ASSESSMENT YEAR 2012-13. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL: ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 2 - (1) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE OF EXPENSES CLAIMED UNDER THE HEAD MAT ERIAL ACCESSORIES OF RS.1,22,62,031/-. (2) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 10AA OF THE ACT RS. 3 5,20,119/-. (3) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE OF EPF & ESI CONTRIBUTION OF RS. 15,62 ,361/-. (4) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE DISALLOWANCE OF INTEREST ON DEPOSITS OF RS.4,03,200 /-. (5) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE OF BAD DEBTS OF RS.54,148/-. (6) THAT THE LD. CIT(A) HAS ERRED IN LAW AND O N FACTS IN DELETING THE DISALLOWANCE OF PENALTY OF RS 89,419/-. (7) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION U/S 40A(2)(B) OF RS.3,17,941/-. 3. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION TO T HE APPEAL FILED BY THE REVENUE AND THE GROUNDS OF CROSS OBJECTION T AKEN BY THE ASSESSEE ARE AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED, BOTH IN LAW AND O N THE FACTS OF CASE, IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN DISALLOWING EMPLOYEE'S CONTRIBUTION TOWARDS PF AND ESIC OF RS.I5.62.36I/- U/S 36(1)(VA) R.W.S.2(24)(X)OF THC A CT. 2. ALTERNATIVELY AND WITHOUT PREJUDICE, THE LOWER A UTHORITIES HAVE ERRED IN LAW AND ON THE FACTS OF THE CASE IN MAKING DISALLOWANCE OF PAYMENTS MADE WITHIN THE GRACE PERIOD. 3. ALTERNATIVELY AND WITHOUT PREJUDICE, MATTER SHOU LD BE REMANDED THE AO TO VERIFY WHETHER THE SUM WAS DEPOSITED WITH IN 21 DAYS FROM THE END OF MONTH OF PAYMENT OF SALARY AS CONTE MPLATED UNDER THE PROVISIONS OF EMPLOYEES PROVIDENT FUNDS & MISCELLANEOUS PROVISIONS ACT, 1952 AND EMPLOYEES ST ALE INSURANCE ACT, 1948 4. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDER S WITHOUT PROPERLY APPRECIATING THE FACTS AND THAT THEY FURTH ER ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN C LEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 3 - 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE ID. AO IN LEVYING INTEREST U/S 234A/B/C/D OF THE ACT. 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE ID. AO IN INITIATING PENAL TY U/S 271(1)(C) OF THE ACT. 4. THE LEARNED AR, AT THE OUTSET, SUBMITTED THAT TH ERE IS A DELAY OF 283 DAYS IN FILING THE CROSS OBJECTION BY THE ASSES SEE AND WHICH HAD HAPPENED DUE TO THE FACT THAT MAJOR ADDITIONS MADE BY THE AO WERE DELETED BY CIT(A) AND ASSESSEE COMPANY WAS UNDER IM PRESSION THAT NOTHING FURTHER WAS REQUIRED TO BE DONE AT ITS END AND LATER ON WHEN THE APPEAL WAS FIXED FOR HEARING ON 11.03.2019 NECE SSARY PARTICULARS PERTAINING TO THE SAID APPEAL WERE FORWARDED TO THE CONCERNED ADVOCATE AND THE ADVOCATE TOOK ADJOURNMENT ON 11.03 .2019 AND THE MATTER WAS ADJOURNED TO 09.05.2019. IT WAS SUBMITT ED THAT WHEN THE CONCERNED ADVOCATE MINUTELY LOOKED INTO THE PAPERS, IT WAS REALIZED THAT GROUNDS WITH RESPECT TO EMPLOYEES CONTRIBUTIO N TO PF & ESIC THOUGH FORMING PART OF DEPARTMENTAL APPEAL WAS ACTU ALLY REJECTED BY LEARNED CIT(A), HENCE, THE ASSESSEE WAS ADVISED THA T CROSS OBJECTION MUST BE FILED BEFORE THE HONBLE ITAT AND IMMEDIATE LY THEREAFTER THE CONCERNED ADVOCATE PREPARED MEMORANDUM OF CROSS OBJ ECTION AND FILED THE SAME. THE LEARNED AR IN THIS RESPECT FIL ED AN AFFIDAVIT DULY SIGNED AND SWORN IN BY PARTNER OF THE ASSESSEE FIRM AND IT WAS PRAYED THAT IN VIEW OF THE SUBSTANTIAL JUSTICE, THE CROSS OBJECTIONS FILED BY THE ASSESSEE MAY BE CONDONED AND MAY BE HEARD ON MERITS . LEARNED DR DID NOT OBJECT TO THE APPLICATION FOR CONDONATION O F DELAY AND FINDING THE REASON FOR DELAY IN FILING CROSS OBJECTION REAS ONABLE, WE CONDONE THE DELAY AND LEARNED AR WAS DIRECTED TO PROCEED WI TH HIS ARGUMENTS. 5. REGARDING MERITS OF CROSS OBJECTIONS, THE LEARNE D DR FAIRLY AGREED THAT THE ISSUE OF DISALLOWANCE OF PF & ESIC WAS IN FACT AGAINST THE ASSESSEE, THEREFORE, SAME MAY BE DECIDED ACCORD INGLY. ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 4 - 6. LEARNED DR AS REGARDS THE REVENUES APPEAL SUBMI TTED THAT ASSESSEE WAS HAVING TWO UNITS; ONE IN SEZ AND ONE I N NON SEZ AND HAD CLAIMED EXCESSIVE EXPENDITURE IN THE NON SEZ UN IT AS COMPARED TO SEZ UNIT AND THEREFORE, HAD SUPPRESSED ITS PROFITS IN NON SEZ UNIT AND IN THIS RESPECT, OUR ATTENTION WAS INVITED TO ASSES SMENT ORDER WHERE THE AO HAD OBSERVED VARIOUS RATIO OF VARIOUS EXPENSES I N SEZ UNIT VIS-- VIS NON SEZ UNIT. IT WAS FURTHER SUBMITTED THAT ASSES SEE DID NOT GIVE THE QUANTITATIVE DETAILS OF OPENING AND CLOSING STO CK ALONG WITH THEIR VALUATION. HE SUBMITTED THAT COST OF ACCESSORIES I .E. ZIPPER, ELASTIC LABELS, BUTTONS, THREADS ETC. WAS 55.91% TO THE COS T OF CLOTH AND ASSESSEE WAS NOT ABLE TO SUPPORT ITS CLAIM AND THER EFORE, AO RIGHTLY REJECTED THE BOOKS OF ACCOUNTS AND RIGHTLY REDUCED COST OF ACCESSORIES IN NON SEZ UNIT TO 23.7% THUS RESULTING INTO AN ADD ITION OF RS.1,22,62,031/-. HE SUBMITTED THAT LEARNED CIT(A) HAS WRONGLY ALLOWED RELIEF TO THE ASSESSEE BY RELYING ON THE AD DITIONAL EVIDENCE WHICH WERE NOT PRODUCED BEFORE THE AO. 7. ARGUING GROUND NO.2, THE LEANED DR SUBMITTED THA T THE AO HAD RIGHTLY HELD THAT ASSESSEE HAD WRONGLY ALLOCATED EX PENSES UNDER VARIOUS HEADS FOR NON SEZ AND SEZ UNITS AND THEREFO RE, AO HAD RIGHTLY DISALLOWED THE CLAIM OF ASSESSEE UNDER S.10 AA OF THE ACT. 8. AS REGARDS GROUND NO.3, THE LEARNED DR SUBMITTED THIS GROUND HAS BEEN WRONGLY TAKEN AS LEARNED CIT(A) HAD CONFIR MED THIS ADDITION AND THEREFORE DID NOT PRESS THE SAME. 9. AS REGARDS GROUND NO.4, THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES AND THERE FORE, THE AO HAD RIGHTLY DISALLOWED INTEREST AS THE ASSESSEE WAS NOT ABLE TO DEMONSTRATE AS TO WHETHER THESE ADVANCES WERE MADE FOR BUSINESS PURPOSES. 10. AS REGARDS GROUND NO.5 REGARDING DELETION OF BA D DEBTS, THE LEARNED DR SUBMITTED THAT HE BAD DEBTS RELATED TO S EZ UNIT AND ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 5 - THEREFORE, AO RIGHTLY DISALLOWED THE SAME FROM THE NON SEZ UNIT AS THE ASSESSEE HAD WRONGLY ALLOCATED THE SAME TO THE NON SEZ UNIT. 11. ARGUING GROUND NO.6, THE LEARNED DR SUBMITTED T HAT ASSESSEE HAD DEBITED PENALTY OF RS.89,419/- IN PROFIT & LOSS ACCOUNTS WHICH WAS NOT ALLOWABLE AND THEREFORE, AO HAD RIGHTLY MAD E THE ADDITION. 12. AS REGARDS LAST GROUND OF APPEAL, THE LEARNED D R SUBMITTED THAT ASSESSEE HAD PURCHASED PLANT AND MACHINERY FROM A R ELATED PARTY AND THE DEPRECIATED VALUE OF WHICH WAS 9,84,436/- WHERE AS THE ASSESSEE HAS PURCHASED THE SAME FOR RS.13,02,377/-. THEREFO RE, THE AO HAD RIGHTLY MADE THE ADDITION AS EXCESSIVE PAYMENT UNDE R S.40A(2)(B) OF THE ACT. 13. THE LEARNED AR, ON THE OTHER HAND, REPLYING TO THE ARGUMENT OF LEARNED DR SUBMITTED THAT AO HAD WRONGLY REJECTED T HE BOOKS OF ACCOUNTS WHICH ACTION OF THE AO HAS BEEN HELD TO BE NOT VALID BY LEARNED CIT(A) AND DEPARTMENT HAS NOT FILED ANY APP EAL AGAINST SUCH FINDING OF LEARNED CIT(A). FURTHER, IT WAS SUBMITT ED THAT LEANED CIT(A) HAD RIGHTLY DELETED THE ADDITION BY RELYING ON THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. IT WAS SUBMITTED T HAT SUCH ADDITIONAL EVIDENCES WERE FORWARDED TO AO FOR HIS REMAND REPOR T ON THE MERITS OF DOCUMENTS BUT AO DID NOT MAKE ANY COMMENTS ON THE M ERITS OF THE EVIDENCES AND REQUESTED THE LEARNED CIT(A) NOT TO A CCEPT THE ADDITIONAL EVIDENCE. IT WAS FURTHER SUBMITTED THAT AO DID NOT COMPARE COST OF SEZ UNIT AND NON SEZ UNIT IN THE CORRECT MA NNER AS THE PRODUCTS MANUFACTURED IN SEZ AND NON SEZ UNITS WERE DIFFERENT AND CERTAIN PRODUCTS WERE OF CUSTOMIZED AS PER THE REQU IREMENTS OF CUSTOMERS. FURTHER, CONSUMPTION OF ACCESSORIES DIFF ERS FROM PRODUCT TO PRODUCT. IT WAS FURTHER SUBMITTED THAT DETAILED SU BMISSIONS REGARDING COST OF MANUFACTURE PER UNIT WAS PROVIDED TO LEARNE D CIT(A) WHICH WERE FORWARDED TO AO AND FROM THE EXPLANATIONS FILE D BEFORE THE LEARNED CIT(A). IT WAS DEMONSTRATED THAT PER UNIT COST IN BOTH THE ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 6 - UNITS WAS PRIMARILY SAME AND THEREFORE, LEARNED CIT (A) HAD RIGHTLY DELETED THE ADDITIONS. 14. REGARDING GROUND NO.2, THE LEARNED AR SUBMITTED THAT AO HAD DISALLOWED CERTAIN EXPENSES AS IN HIS OPINION THE S AME RELATED TO SEZ UNIT ONLY WHEREAS THE ASSESSEE HAD APPORTIONED THE SAME BETWEEN TWO UNITS. IT WAS SUBMITTED THAT THE REASON FOR DISALL OWING THE SAME WAS THAT AO HELD THAT EXPORTS WERE MADE ONLY FROM SEZ U NIT WHICH IS FACTUALLY INCORRECT AS THE EXPORTS WERE BEING MADE FROM SEZ AS WELL AS NON SEZ UNIT AND WHICH WAS EVIDENT FROM THE ANNU AL AUDITED ACCOUNTS. SIMILARLY, IT WAS SUBMITTED THAT THE BAD DEBTS DISALLOWED BY THE AO WERE ALSO NOT JUSTIFIED AS THE INVOICE TO TH E SAID PARTY WAS ISSUED BY NON SEZ UNIT AND IN THIS RESPECT OUR ATTE NTION WAS INVITED TO PAPER BOOK PAGE NO.78 WHERE THE COPY OF BILL WAS PL ACED. THE AR HEAVILY PLACED RELIANCE ON THE ORDER OF LEARNED CIT (A). 15. REGARDING 3 RD GROUND, LEARNED AR STATED THAT THIS ISSUE WAS CONFIRMED BY LEARNED CIT(A) AND THEREFORE, THIS GRO UND OF APPEAL DOES NOT ARISE FROM THE ORDER OF LEARNED CIT(A). 16. AS REGARDS THE ADDITION ON ACCOUNT OF INTEREST FREE ADVANCES, THE LEANED AR SUBMITTED THAT AS AGAINST INTEREST FREE A DVANCES, THE ASSESSEE HAD SUBSTANTIAL AMOUNT OF INTEREST FREE RE SERVES AND OUR ATTENTION WAS INVITED TO PAPER BOOK PAGE NO.26 WHER E THE COPY OF PARTNERS CAPITAL ACCOUNT WAS PLACED AND THEREFORE, IT WAS ARGUED THAT LEARNED CIT(A) HAD RIGHTLY ALLOWED RELIEF TO THE AS SESSEE. RELIANCE IN THIS RESPECT WAS PLACED ON THE FOLLOWING: > CIT VS. RELIANCE INDUSTRIES LTD. - 410 ITR 466 ( SC); > CIT VS. TORRENT POWER LTD. - 363 ITR 474 (GUJ.); > CIT VS. SUZLON ENERGY LTD. - 354 ITR 630 (GUJ); > CIT VS. GUJARAT POWER CORPORATION LTD. - 352 ITR 583 (GUJ); > CIT VS. RELIANCE UTILITIES & POWER LTD. - 313 IT R 340 (BOM); ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 7 - > MUNJAL SALES CORPORATION VS. CIT - 298 ITR 298 (S C); > CIT VS. HITACHI HOME & LIFE SOLUTIONS (I). LTD. - (2014) 41 TAXMANN.COM 540 (GUJ); 17. AS REGARDS DISALLOWANCE OF BAD DEBTS, IT WAS SU BMITTED THAT AO FAILED TO APPRECIATE THAT INVOICE TO THE SAID PARTI ES WERE ISSUED BY NON SEZ UNIT AND OUR ATTENTION WAS INVITED TO PAPER BOO K PAGE NO.78 WHERE THE COPY OF INVOICE WAS PLACED. 18. AS REGARDS TWO ITEMS AMOUNTING TO RS.29,092/- O UT OF PENALTY DEBITED IN P&L ACCOUNT, THE ASSESSEE ITSELF HAD DIS ALLOWED THE SAME IN COMPUTATION OF INCOME. AS REGARDS THE OTHER AMOUNT S, IT WAS SUBMITTED THAT SUCH PENALTIES IN THE FORM OF INTERE ST ON SALES TAX WAS NOT INFRACTION OF ANY LAW BUT RATHER THE SAME WERE COMPENSATORY IN NATURE AND THEREFORE WERE ALLOWABLE EXPENDITURES AN D LEARNED CIT(A) HAD RIGHTLY ALLOWED THE SAME. 19. ARGUING LAST GROUND OF APPEAL, THE LEARNED AR S UBMITTED THAT SECTION 40A(2)(B) OF THE ACT APPLIES TO REVENUE EXP ENDITURE WHEREAS THE AMOUNT IN QUESTION WAS PAID FOR PURCHASE OF PLA NT AND MACHINERY WHICH IS CAPITAL IN NATURE AND THEREFORE, ASSESSEE HAD NOT CLAIMED ANY EXPENSES AND LEARNED CIT(A) HAD THEREFORE RIGHTLY A LLOWED THE RELIEF TO THE ASSESSEE. 20. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIALS PLACED ON RECORD. 21. WE FIND THAT AO HAD MADE VARIOUS ADDITIONS AFTE R ANALYZING THE VARIOUS RATIO OF EXPENSES TO MATERIAL CONSUMED AND ALSO BY HOLDING THAT SOME OF THE EXPENSES SPECIFICALLY RELATED TO S EZ UNIT WHICH THE ASSESSEE HAD WRONGLY ALLOCATED TO BOTH THE UNITS. BEFORE THE LEARNED CIT(A), THE ASSESSEE FILED DETAILED EXPLANATIONS AN D ALSO FILED ADDITIONAL EVIDENCES AND ALSO FILED DETAILED CALCUL ATIONS OF COST PER ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 8 - UNIT IN SEZ UNIT AS WELL AS IN NON SEZ UNIT. FROM THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A), WE HAVE OBSERVED TH AT COST PER UNIT IN BOTH UNITS WERE ALMOST SAME AND THEREFORE, HE RI GHTLY DELETED THE ADDITION BY HOLDING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS OF THE APPELLANT. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER AND REMAND REPORT SUBMITTED BY THE AO AND REJOINDER FILED BY THE APPELLANT. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS REJECTE D THE BOOKS OF ACCOUNTS OF THE APPELLANT AFTER HOLDING THAT:- > THE APPELLANT FAILED TO FURNISH ANY QUANTITATIV E DETAILS OF OPENING AND CLOSING STOCK ALONG WITH ITS VALUATION WHICH WA S ASKED BY AO VIDE QUESTIONNAIRE DATED 10/01/2014. > THE APPELLANT F AILED TO FURNISH PURCHASES AS SOUGHT VIDE QUESTIONNAIRE DATED 10/01/2014. > THE APPELLANT IN ITS LETTER DATED 0 1/10/2014 ADDRESSED TO AO ADMITTED THAT IT DID NOT MAINTAIN STOCK REGISTER. AO THEN OBSERVED THAT THE COST OF ACCESSORIES CLAIM ED IN NON SEZ UNIT AMOUNTED TO RS. 1,60,70,813/- WHICH WAS 87.74% OF T HE COST OF RAW CLOTH CLAIMED (RS. 1,83,15,581/- ) IN NON SEZ UNIT WHEREAS THE COST OF ACCESSORIES CLAIMED IN SEZ UNIT AMOUNTED TO RS. 42, 89,478/- WHICH WAS 23.70% OF THE COST OF RAW CLOTH (RS.L ,80,98,116/- ) IN SEZ UNIT. AO WAS OF THE VIEW THAT THE APPELLANT IN ORDER TO REDUCE P ROFIT OF THE TAXABLE UNIT HAS CLAIMED EXTREMELY EXCESSIVE EXPENSES WHICH CANNOT BE CONSIDERED AS REASONABLE. THEREFORE ON THE BASIS OF THE SAME AO AFTER REJECTING THE BOOKS, ALLOWED EXPENSES @ 23.7% OF TO TAL EXPENSES CLAIMED UNDER THE HEAD MATERIAL ACCESSORIES AT RS.1 ,60,70,813/- IN NON SEZ UNIT WHICH AMOUNTED TO RS.38,08,782/- AND DISAL LOWED THE REMAINING AMOUNT OF RS.1,22,62,031 /- BY CONSIDERIN G IT AS EXCESS AND BOGUS CLAIM OF EXPENDITURE MADE BY THE APPELLANT. F ROM THE VERIFICATION OF EVIDENCE PLACED BY THE APPELLANT, I T WAS FOUND THAT THERE WAS A CHANGE IN INCUMBENT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS AND THE SUCCEEDING AO NEVER CALLED FOR QUANTITATIVE DETAILS. IT CAN BE FURTHER FOUND THAT THE APPELLANT DID PLACE THE DETA ILS OF PURCHASE AS ASKED BY AO AND WHICH WERE PLACED ALONG WITH THE LE TTER DATED 01/10/2014 PLACED AT PAGE NO. 50 OF THE PAPER BOOK (P/B), REFERRING TO THE LETTER DATED 01/10/2014, IT CAN FURTHER BE OBSE RVED THAT THE APPELLANT NEVER ADMITTED OF NOT MAINTAINING 'STOCK REGISTER'. FROM PERUSAL OF TAX AUDIT REPORT, IT CAN BE OBSERVED THA T THE BOOKS OF THE APPELLANT ARE MAINTAINED IN ERP SYSTEM AND ACCORDIN GLY ALL THE SUBSIDIARY BOOKS ARE MAINTAINED ELECTRONICALLY. THE AO NEVER CONFRONTED THE APPELLANT ABOUT THESE OBSERVATIONS A ND WITHOUT GIVING OPPORTUNITY OF BEING HEARD, REJECTED THE BOOKS OF A CCOUNTS. IT IS A SETTLED POSITION OF LAW THAT THE APPELLANT HAS TO B E GIVEN AN OPPORTUNITY OF BEING HEARD BEFORE REJECTING THE BOOKS OF ACCOUN TS. STILL, THE ADDITIONAL EVIDENCES FILED BY THE APPELLANT IN SUPP ORT OF HIS CLAIM WERE FORWARDED TO THE AO FOR HIS COMMENTS. INSTEAD OF GI VING COMMENTS ON THE ADDITIONAL EVIDENCES FILED BY THE APPELLANT, TH E AO JUST REITERATED THE BASIS OF ADDITIONS MADE IN THE ASSESSMENT ORDER . THE AO HAS NOT GIVEN ANY COMMENTS, WHATSOEVER, IN THE REMAND REPOR T ON THE ADDITIONAL EVIDENCES FILED DURING THE COURSE OF APP EAL PROCEEDINGS. IT IS ALSO SEEN THAT THE AO IN THE REMAND REPORT HAS NOT PLACED ANY FINDINGS ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 9 - CONTRARY TO THE SUBMISSIONS OF THE APPELLANT. ACCOR DINGLY, LOOKING UPON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE REJECT ION OF BOOKS OF ACCOUNTS IS NOT JUSTIFIED. ACCORDINGLY, THE CASE IS NOW BEING DECIDED ON MERITS OF THE CASE. THE APPELLANT FURTHER SUBMITTED QUANTITATIVE DETAIL S IN THE FORM OF CHARTS MENTIONING THE AVERAGE COST OF RAW-MATERIAL INCLUDING ACCESSORIES CONSUMPTION PER UNIT OF FINISHED PRODUC T PRODUCED AT NON SEZ (DOMESTIC AND EXPORT] & NON SEZ UNIT AS ADDITIO NAL EVIDENCES. THIS CHART IS PLACED AT PAGE NO 98 OF THE PAPER BOO K. AS PER THIS CHART, THE APPELLANT PRODUCED 4,52,608 UNITS IN NON-SEZ UN IT WHEREAS THE PRODUCTION OF THE SAME IN SEZ UNIT IS 2,37,783. THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING CHILDREN G ARMENTS. THEREFORE, THE COST HAS TO BE SEEN VIS A VIS THE PRODUCTION OF NO. OF UNITS. THE SAME CANNOT BE SEEN IN THE ABSOLUTE NUMBERS AS HAS BEEN DONE BY THE AO. AS PER THIS CHART, THE COST OF RAW-MATERIAL INCLUDING THE ACCESSORIES PER UNIT COMES TO 78.49 IN CASE OF NON-SEZ UNIT WHEREAS THE COST OF RAW- MATERIAL INCLUDING THE ACCESSORIES PER UNIT CORNES TO 78.37 IN CASE OF SEZ UNIT. THEREFORE, FROM THE ABOVE ANALYSIS, IT IS SEEN THAT THERE IS HARDLY ANY DIFFERENCE BETWEEN THE COST OF TOTAL RAW MATERIAL INCLUDING THE ACCESSORIES. EVEN THE PRODUCT MIX OF THE APPELL ANT IS QUITE DIFFERENT IN BOTH THE UNITS WHICH HAS ALSO NOT BEEN TAKEN INT O ACCOUNT BY THE AO WHILE MAKING THE ADDITION. IN SUCH CIRCUMSTANCES, T HE ADDITION MADE BY THE AO IS NOT BASED ON THE FACTS OF THE CASE AND TH EREFORE, THE ADDITION MADE OF RS. 1,22,62,031/- BY THE AO IS DIRECTED TO DELETED IN VIEW OF THE ABOVE DISCUSSION. ACCORDINGLY, GROUNDS NO. 1 & 2 OF THE APPEAL ARE ALLOWED. THE REVENUE WAS NOT ABLE TO CONTROVERT THE DETAILED FINDINGS MADE BY LEARNED CIT(A) WHICH ARE BASED ON THE DETAILED SUBM ISSIONS MADE BEFORE HIM AND WHICH WAS FORWARDED TO AO FOR HIS CO MMENTS. THEREFORE, FINDING NO INFIRMITY IN THE ORDER OF LEA RNED CIT(A), GROUND NO.1 IS DISMISSED. 22. NOW COMING TO GROUND NO.2, WE FIND THAT THIS AD DITION WAS MADE BY AO BY REDUCING THE CLAIM UNDER S.10AA OF THE ACT . THE AO HAD MADE THIS DISALLOWANCE BY HOLDING THAT SOME OF THE EXPENSES SPECIFICALLY RELATED TO SEZ UNIT WHICH THE ASSESSEE HAD WRONGLY ALLOCATED BETWEEN TWO UNITS BEFORE THE LEARNED CIT( A). DETAILED SUBMISSIONS WERE MADE WHEREIN IT WAS EXPLAINED THAT FROM NON SEZ UNIT ALSO THE EXPORTS WERE MADE. THE LEARNED CIT(A ) AFTER REPRODUCING THE SUBMISSIONS OF ASSESSEE AND AFTER G IVING OPPORTUNITY TO THE AO FOR REMAND REPORT ALLOWED RELIEF TO THE A SSESSEE BY HOLDING AS UNDER: ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 10 - 11 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER AND REMAND REPORT SUBMITTED BY THE AO AND REJOINDER FILED BY T HE APPELLANT. BRIEF FACTS OF THE ISSUE IS THAT THE APPELLANT FIRM IS EN GAGED IN MANUFACTURING KIDS READYMADE GARMENTS FOR THE CHILDREN BELOW OR O F 16 YEARS OF AGE AND EXPORT THE SAME FROM BOTH NON SEZ AND SEZ UNIT RESPECTIVELY. APPELLANT CLAIMED DEDUCTION U/S. 10AA AT RS. 35,20, 119/- AND A LOSS OF RS. 1.55.719/- IN ITS NON SEZ UNIT. AO ASKED THE AP PELLANT TO JUSTIFY THE CLAIM OF EXPENSES MADE IN NON SEZ UNIT. APPELLANT S TATED IT HAD MAINTAINED SEPARATE BOOKS FOR ITS SEZ AND NON SEZ U NIT. THE EXPENSES WHICH COULD HAVE BEEN DIRECTLY ATTRIBUTABLE TO SPEC IFIC UNIT WERE ALLOCATED ON ACTUAL BASIS AND FOR THE REST, EXPENSE S WERE ALLOCATED IN THE RATIO OF THE TURNOVER OF NON SEZ AND SEZ UNIT A ND THE DETAILS OF THE SAME WERE PROVIDED BY THE APPELLANT. AFTER PERUSING THE DETAILS OF THE EXPENSES AS MENTIONED ABOVE SUBMITTED BY THE APPELL ANT, THE AO OBSERVED THAT THE ENTIRE EXPORT SALE AMOUNTING TO R S.7,49,27,019/- WAS MADE BY THE APPELLANT THROUGH SEZ UNIT AND THUS THE EXPENSES NAMELY F.O.C EXPORT (OUTWARD) EXPENSES AMOUNTING TO RS. 3, 70,155/- AND FOREIGN FLUCTUATION LOSS AMOUNTING TO RS.30,21,148/ - SHOULD HAVE BEEN ALLOCATED TO SEZ UNIT, HOWEVER THE SAME WERE BOOKED IN NON SEZ UNIT. AO ALSO POINTED OUT THAT THE TOTAL CLAIM OF BAD DEB T AMOUNTING TO RS.1,63,685/- IN PROFIT & LOSS ACCOUNT, PERTAINS TO EXPORT SALE MADE TO AL-BANDAR INTERNATIONAL HOUSE WHEREIN THE REVENUES WERE BOOKED IN SEZ UNIT. AO HELD THAT THE ABOVE EXPENSES WERE RELA TED TO EXPORT SALES MADE AND THEREFORE THE SAME SHOULD BE ALLOCATED TO SEZ UNIT AS THE ENTIRE EXPORT WAS MADE THROUGH ITS SEZ UNIT. ON THE BASIS OF THE SAME AO ALLOCATED EXPENSES TO THE TUNE OF RS. 34,49,451/ - [RS. 30,21,148/- + RS. 3,70,155/- + 58.148/-] TO SEZ UNIT. AO FURTHER APPORTIONED ALL THE EXPENSES ON THE BASIS OF TURNOVER AND THUS HELD THA T THE APPELLANT HAS DISPROPORTIONATELY ALLOCATED EXPENSES ON ACTUAL BAS IS IN ORDER TO REDUCE THE PROFIT OF TAXABLE UNIT AND INCREASE THE PROFIT OF THE UNIT ELIGIBLE FOR DEDUCTION U/S. 10AA OF THE ACT.ON THE BASIS OF THE SAME AO CONCLUDED IN ALLOCATING AGGREGATE TOTAL DIRECT EXPE NSES AMOUNTING TO RS.6,69,51,778/- CLAIMED BY THE APPELLANT IN BOTH U NITS ON TURNOVER BASIS AND THAT RESULTED IN ALLOCATION OF DIRECT EXP ENSES 38,17% OF TOTAL EXPENSES IN SEZ UNIT AND THEREFORE AN AMOUNT OF RS. 62,49,704/- WAS ALLOCATED TO SEZ UNIT. AO THEREBY CONCLUDED THAT TH E APPELLANT WAS NOT HAVING SUFFICIENT PROFITS IN ITS SEZ UNIT AND THUS DENIED BENEFIT U/S 10AA OF THE ACT. I HAVE CONSIDERED THE FACTS AND SU BMISSIONS PLACED BY THE APPELLANT. THERE ARE TWO ISSUES INVOLVED IN THE ISSUE UNDER CONSIDERATION. FIRST BEING THE CORRECTNESS AND ALLO CATION OF FOC EXPENSES AND FOREIGN FLUCTUATION LOSS IN NON SEZ UN IT. SECOND BEING CORRECTNESS OF ALLOCATION OF DIRECT EXPENSES BETWEE N THE TWO UNITS. WITH REGARDS TO CORRECTNESS OF TREATMENT OF FOREIGN FLUCTUATION LOSS AND FOC EXPENSES ARE CONCERNED, THE AO HELD THAT THE SA ME SHOULD HAVE BEEN ALLOCATED IN SEZ UNIT INSTEAD OF NON SEZ UNIT, AS THE APPELLANT HAS EXPORTED GOODS OUT OF ITS SEZ UNIT ONLY AND THE EXPENSES WERE DIRECTLY RELATED TO ITS EXPORTS. THE APPELLANT BEFO RE ME THROUGH ITS FINANCIAL STATEMENTS POINTED OUT THAT THE APPELLANT HAS EXPORTED GOODS THROUGH NON -SEZ UNIT AND SEZ UNIT. THE DETAILS OF THE TOTAL SALES, EXPORT SALES FROM BOTH SEZ AND NON-SEZ UNITS HAVE B EEN GIVEN BY THE APPELLANT IN SCHEDULE 10 TO THE FINAL ACCOUNTS. ON A PERUSAL OF THE SAME, IT IS NOTICED THAT THE APPELLANT HAS SHOWN MA NUFACTURING EXPORT SALES OF RS.6,63,62,229/- FROM NON-SEZ UNIT AND EXP ORT SALE OF RS.7,49,27,019/- FROM SEZ UNIT. THEREFORE, THE APPE LLANT HAS SHOWN ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 11 - CONSIDERABLE SALE OF EXPORTS FROM NON-SEZ UNIT AND THEREFORE THE FOREIGN FLUCTUATION LOSS AND FOC EXPENSES HAVE RIGH TLY BEEN ALLOCATED IN THE RATIO OF TURNOVER BY THE APPELLANT. THE AO, WHILE PASSING THE ORDER, HAS SOMEHOW OVERLOOKED THE EXPORT SALES OF T HE NON-SEZ UNIT AND THEREFORE ARRIVED AT THIS CONCLUSION WHICH IS N OT FACTUALLY CORRECT. IN CASE OF CLAIM OF BAD-DEBTS ALSO, IT HAS CLEARLY BEEN SUBMITTED BY THE APPELLANT THAT THE EXPORT TO AL-BANDAR INTERNATIONA L HOUSE HAS BEEN MADE BY THE APPELLANT FROM NON-SEZ UNIT ONLY. THERE FORE, THE BAD DEBTS WOULD ALSO BE DEBITED IN THIS UNIT ALSO. THER EFORE, THE AO'S OBSERVATION ON THIS ISSUE IS ALSO FACTUALLY WRONG A ND THEREFORE CANNOT BE SUSTAINED. WILH REGARDS OF TREATMENT OF DIRECT EXPENSES ADOPTE D BY THE APPELLANT, AO WAS OF THE VIEW THAT SUCH EXPENSES SHOULD HAVE A LLOCATED ALL SUCH EXPENSES ON THE BASIS OF TURNOVER. THE APPELLANT DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, IN ITS SUBMISSION DATED 28/ 01/2014 SUBMITTED THAT THE APPELLANT MAINTAINED SEPARATE BOOKS FOR EA CH OF ITS UNIT IE. SEZ AND NON SEZ UNIT. THE APPELLANT FURTHER SUBMITT ED THAT THE DIRECT EXPENSES WHICH WERE DIRECTLY LINKED TO A UNIT WERE ALLOCATED ON ACTUAL BASIS WHEREAS COMMON EXPENSES SUCH AS DESIGNING AND ALTERATION EXPENSES WERE ALLOCATED ON TURNOVER BASIS. THE OBJE CTION OF AO THAT ALL THE EXPENSES SHOULD HAVE BEEN ALLOCATED ON THE BASI S OF TURNOVER IS NOT CORRECT. IT IS A WELL SETTLED RULE THAT THE EXPENSE S HAVE TO BE APPORTIONED ON ACTUAL BASIS, HOWEVER WHEN SUCH APPO RTIONMENT IS NOT POSSIBLE, THEN THE ASSESSE HAS TO RETORT TO OTHER METHODS. IN THE PRES ENT CASE THE APPELLANT SUBMITTED THE LIST OF EXPENSES W HICH WERE APPORTIONED ON THE ACTUAL BASIS AND THE DETAILS OF SUCH EXPENSES AND THE JUSTIFICATION FOR ACCOUNTING IT ON ACTUAL BASIS . REGARDING THE SEGREGATION ON THE ACTUAL BASIS OF TH E APPELLANT, THE AO HAS NOT FOUND ANY FAULT WITH THE BASIS OF ALLOCATIO N ON ACTUAL BASIS. IF THE EXPENSES ARE ALLOCATED ON THE ACTUAL BASIS, THE N IT IS THE BEST METHOD OF ALLOCATION. IF ANY EXPENSE CANNOT BE BIFU RCATED ON THE ACTUAL BASIS, THEN ONLY THE ALLOCATION HAS TO BE RESORTED TO. SINCE THE APPELLANT HAS BOOKED ALL THESE EXPENSES ON THE BASI S OF ACTUAL, AND THE AO HAS NOT POINTED OUT ANY SPECIFIC FAULT IN SUCH A CTUAL BASIS OF BOOKING, THE SAME CANNOT BE DISALLOWED ON THE BASIS OF GENERAL OBSERVATION BY THE AO UNTIL AND UNLESS SOME DEFECTS IN THE BOOKING OF EXPENSES ON ACTUAL BASIS IS POINTED OUT. ACCORDINGL Y, THE NEGATIVE ADJUSTMENT AMOUNTING TO RS.62,49,704/- MADE BY AO T O THE ELIGIBLE PROFITS U/S 10AA IS NOT JUSTIFIED. ACCORDINGLY, GRO UNDS NO. 3 TO 5 ARE ALLOWED AND THE ADDITION MADE BY THE AO IS DELETED. THE ABOVE FINDINGS OF LEANED CIT(A) ARE QUITE EXHAU STIVE AND DO NOT REQUIRE ANY INTERFERENCE, HENCE GROUND NO.2 IS DISM ISSED. 23. COMING TO GROUND NO.3, WE FIND THAT LEARNED CIT (A) HAS ALREADY DISMISSED THIS GROUND OF APPEAL AND THEREFORE, THER E WAS NO OCCASION TO REVENUE TO FILE THIS GRIEVANCE, HENCE GROUND NO. 3 IS DISMISSED. ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 12 - 24. COMING TO GROUND NO.4 REGARDING DISALLOWANCE ON ACCOUNT OF NOTIONAL INTEREST, WE FIND THAT ASSESSEE HAD GIVEN ADVANCES TO GUJARAT APPARELS LTD. AND SHRI PRAFULKUMAR B. SHAH AS IN TH E OPINION OF AO THE SAME WERE NOT GIVEN FOR BUSINESS PURPOSES. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT ADVANCE OF GUJARAT A PPARELS LTD. WAS IN FACT A SECURITY DEPOSIT WHICH WAS GIVEN WAY BACK IN 1997-98 AND WHICH WAS WRONGLY CLASSIFIED UNDER THE HEAD LOANS AND ADVANCES. SIMILARLY, IT WAS SUBMITTED THAT THE ADVANCE GIVEN TO SHRI PRAFULKUMAR B. SHAH WAS ADVANCED AGAINST BUSINESS EXPENDITURE W HICH WAS ADJUSTED DURING THE FY 2012-13. THE LEARNED CIT(A) HAS THEREFORE ALLOWED RELIEF TO THE ASSESSEE BY HOLDING THAT ASSE SSEE HAD FURNISHED FACTUAL SUBMISSIONS AND THE ADVANCES WERE GIVEN FOR BUSINESS PURPOSES AND THEREFORE, SAME CANNOT BE TREATED AS NON-BUSINE SS PURPOSES. MOREOVER, THE ASSESSEE HAD SUFFICIENT INTEREST FREE RESERVES TO FINANCE INTEREST FREE ADVANCES. IN VIEW OF THE ABOVE, GROU ND NO.4 IS ALSO DISMISSED. 25. NOW COMING TO GROUND NO.5 REGARDING BAD DEBTS, WE FIND THAT THE AO HAD MADE THIS ADDITION BY HOLDING THAT THE S ALE WAS MADE OUT OF SEZ UNIT WHEREAS THE FACT IS OTHERWISE AS THE SA LE WAS MADE FROM NON SEZ UNIT. THE LEARNED CIT(A) HAS MADE A FINDIN G OF FACT THAT SALE TO THE PARTY WAS MADE OUT OF NON SEZ UNIT. FINDING NO INFIRMITY IN THE ORDER OF LEANED CIT(A), GROUND NO.5 IS ALSO DIS MISSED. 26. AS REGARDS, GROUND NO.6 REGARDING DELETION OF P ENALTY, WE FIND THAT OUT OF SAID PENALTIES, PENALTY AMOUNTING TO RS .29,092/- WERE TOWARDS EPF PENALTY AND PENALTY ON LATE SUBMISSION OF EXCISE RETURN WHICH WAS SUO MOTTO DISALLOWED BY THE ASSESSEE. THIS OBSERVATION HAS BEEN SPECIFICALLY MADE BY LEARNED CIT(A) IN HIS ORD ER. WE FURTHER FIND THAT THE REMAINING AMOUNT OF PENALTY RELATED T O INTEREST ON SALES TAX AND RE-CONNECTION CHARGES OF ELECTRICITY BOARD AND LEARNED CIT(A) HAD RIGHTLY HELD THAT INTEREST CHARGED BY SALES TAX WAS COMPENSATORY IN NATURE AND RE-CONNECTION CHARGES CHARGED BY ELECTRI CITY BOARD WERE ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 13 - ALSO COMPENSATORY IN NATURE AND WERE NOT PENAL IN N ATURE AND THEREFORE HAD RIGHTLY ALLOWED THE RELIEF. IN VIEW OF THE AB OVE, GROUND NO.6 IS ALSO DISMISSED. 27. NOW COMING TO LAST GROUND REGARDING DELETION OF ADDITION UNDER S.40A(2)(B) OF THE ACT, WE FIND THAT PROVISIONS OF SECTION 40A(2)(B) OF THE ACT ARE APPLICABLE ON EXPENSES CLAIMED AS DE DUCTION WHEREAS THE ASSESSEE HAD PURCHASED A CAPITAL ASSET AND THER EFORE, LEARNED CIT(A) HAD RIGHTLY ALLOWED RELIEF TO THE ASSESSEE B Y HOLDING AS UNDER: 15. GROUND # 10 CHALLENGES THE ACTION OF AO IN IN MAKING AN ADDITI ON OF AN AMOUNT OF RS.3,17,941/- BY CONSIDERING IT AS EXCESS PAYMENT MADE U/S. 40A(2)(B) OF THE ACT I HAVE CONSIDERED THE ASSESSMENT ORDER AND SUBMISSI ONS PLACED BY THE APPELLANT. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT APPELLANT PURCHASED PLANT & MACHINERY FROM ARTEX AP PARELS PVT. LTD (A PERSON COVERED U/S. 40A(2)(B) OF THE ACT). AO FU RTHER OBSERVED THAT THE DEPRECIATED VALUE OF PLANT & MACHINERY WAS AT R S.9,84,436/- AND THE APPELLANT PURCHASED THE SAID PLANT & MACHINERY AT RS.13,02,377/-. LD. AO THEREBY CONCLUDED THAT THE APPELLANT HAS PUR CHASED THE CONCERNED PLANT & MACHINERY AT AN AMOUNT PAID IN EX CESS OF THE FAIR MARKET VALUE OF THE PLANT & MACHINERY TO ITS SISTER CONCERN WHICH IS COVERED U/S. 40A(2)(B) OF THE ACT. HOWEVER, IT IS S EEN, ON A PERUSAL OF THE PROVISIONS OF S.40A(2)(B), THAT THEY ARE NOT AP PLICABLE TO CAPITAL EXPENDITURE, TO THE EXPENSES CAPITAL IN NATURE. FOR CLARITY SAKE, THE PROVISIONS OF SECTION 40A(2)(A) ARE REPRODUCED AS U NDER - ' WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESP ECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REF ERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES F OR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO H IM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION :' PLAIN READING OF THE ABOVE PROVISIONS ENVISAGES THA T THE PROVISIONS OF S,40A(2){B) OF THE ACT ARE APPLICABLE ON EXPENSES C LAIMED AS DEDUCTION. AS THE APPELLANT HAS NOT CLAIMED ANY DED UCTION OUT OF THE RELATED PARTY TRANSACTION, THE PROVISIONS OF S.40A( 2)(B) CANNOT BE APPLIED. ACCORDINGLY, THE SAID GROUND OF APPEAL IS ALSO ALLOWED. THE AO IS DIRECTED TO DELETE THE SAID ADDITION. IN VIEW OF THE ABOVE, GROUND NO.7 IS ALSO DISMISSED . 28. IN A NUTSHELL, THE APPEAL FILED BY REVENUE IS D ISMISSED. 29. NOW COMING TO CROSS OBJECTIONS FILED BY THE ASS ESSEE, WE FIND THAT GROUND NOS. 1 TO 4 TAKEN BY THE ASSESSEE ARE R EGARDING THE ACTION ITA NO. 1450/AHD/17 WITH CO NO.24/AHD/19 [M/S. ARTEX APPARELS] A.Y. 2012-13 - 14 - OF LEARNED CIT(A) BY WHICH HE HAS CONFIRMED THE ACT ION OF AO IN DISALLOWING EMPLOYEES CONTRIBUTION PF & ESIC. IN T HIS CONNECTION, WE FIND THAT LEARNED CIT(A) HAS DISMISSED THIS GROU ND OF APPEAL BY RELYING ON THE JUDGMENT OF HONBLE GUJARAT HIGH COU RT IN CASE OF GUJARAT STATE ROAD TRANSPORT CORPORATION AND NO ARGUMENT WAS ADVANCED BY THE LEARNED AR, THEREFORE, THERE IS NO INFIRMITY IN THE ORDER OF LEARNED CIT(A). IN VIEW OF THE ABOVE, GRO UND NOS. 1 TO 4 ARE DISMISSED. 30. AS REGARDS GROUND NOS. 5 & 6, THESE ARE CONSEQU ENTIAL IN NATURE AND DO NOT REQUIRE TO BE ADJUDICATED. IN VIEW OF A BOVE, CROSS OBJECTION FILED BY ASSESSEE ARE DISMISSED. 31. IN THE COMBINED RESULT, REVENUES APPEAL AND A SSESSEES CO BOTH ARE DISMISSED. SD/- SD/- (RAJPAL YADAV) (T. S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD: DATED 05/03/2020 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- $. / REVENUE 2. / ASSESSEE &. '() * / CONCERNED CIT 4. *- / CIT (A) -. ./0 122()3 ()!3 45' / DR, ITAT, AHMEDABAD 6. 078 9 / GUARD FILE. BY ORDER / 3 /4 ()!3 45' THIS ORDER PRONOUNCED IN OPEN COURT 05/03/20 20