THE ASSTT. CIT Circle-1, VALSAD V. VALSAD SAHAKARI KHAND UDHYOG MANDALI LTD., VALSAD

ITA 152/AHD/2003

• Counselvise Citation: [2005] 113 COUNSELVISE.COM (IT) 3324 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2005
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 10-01-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S KALYAN
• Assessee Lawyers: S N DIVETIA
• Keywords: Business income; Depreciation; Proportionate interest; Tangible material; Assessment record; Block assessment; Set aside
• Section: 143(3); 80HHC; 80IA; 192; 131; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI G.C. GUPTA, V.P. AND SHRI ANIL CHATURV EDI, AM) ITA NO.1077 & 721 /AHD/2001 (AY: 1996-97 & 1997-98) DCIT, CENTRAL CIRCLE 1, YASH KAMAL BUILDING, 2 ND FLOOR, SAYAJI GUNJ, BARODA-390005. VS M/S. INDU NISSAN OXO CHEMICAL INDUSTRIES LTD., BAJWA CHHANI ROAD, B/H GSFC COMPLEX, BARODA PAN: AAACI4359M (APPELLANT) (RESPONDENT) AND C.O. NO.152/AHD/2003 (AY: 1996-97) M/S. INDU NISSAN OXO CHEMICAL INDUSTRIES LTD., BAJWA CHHANI ROAD, B/H GSFC COMPLEX, BARODA PAN: AAACI4359M VS DCIT, CENTRAL CIRCLE 1, YASH KAMAL BUILDING, 2 ND FLOOR, SAYAJI GUNJ, BARODA-390005 (APPELLANT) (RESPONDENT) REVENUE BY SHRI D.S. KALYAN, SR. D.R. ASSESSEE BY SHRI S.N. DIVETIA DATE OF HEARING: 20.2.2013 DATE OF PRONOUNCEMENT: 17-05-2013 ORDER PER SHRI ANIL CHATURVEDI, A.M. : THESE TWO APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDER OF LEARNED CIT(A)-IV, BARODA, DATED 6.12.2000 FOR THE ASSESSMENT YEAR 1996-97 & 1997-98. ASSESSEE HAS ALSO FILED CROSS OB JECTION FOR THE ASSESSMENT YEAR 1996-97. ALL THE APPEALS ARE DISPOS ED OF BY A CONSOLIDATED ORDER. ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 2 OF 32 2. THE FACTS AS CULLED OUT FROM THE ORDERS ARE AS U NDER:- 3. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF CHEMICALS (ISO OCTONOL & ISO DECONAL) USED IN THE M ANUFACTURING OF PLASTICIZERS. ASSESSEE FILED ITS RETURN OF INCOME F OR AY: 1996-97 ON 28.11.1996 DECLARING TOTAL INCOME OF RS. 1,59,91,41 0/-. THE CASE OF SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 26.3.1999 AND THE TOTAL INCOME WAS DETERMINED AT RS. 9,65,93,239/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER (AO), ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) V IDE ORDER DATED 13.12.2000 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND ASSESSEE HAS ALSO FILED CROSS OBJECTIONS. THE GROUN DS RAISED BY THE REVENUE READS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF TRAVELLING EXPENSES OF RS. 10,1 1,025/-. 2. THE LD. CIT( A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF GUEST HOUSE EXPENSES OF RS. 1,1 4,319/-. 3. THE LD.CLT(A) HAS FURTHER ERRED IN LAW AND ON FA CTS IN DELETING THE ADDITION OF RS. 2,13,322/- ON ACCOUNT OF LOSS IN TRADING. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.96,43,855/- ON ACCOUNT OF EXCESS CONSUMPTION OF HEPTENE. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 86,87,381/- ON ACCOUNT OF EXCES S CONSUMPTION OF CATALYSTS. 6. THE LD. CIT( A) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE ON DEPRECIATION OF RS. 6,30,25,680 /- ON THE ASSETS LEASE BACK TO RAJASTHAN STATE ELECTRICITY BO ARD. 7. THE LD. C1T(A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION OF RS. 18,66,470/- ON ACCOUNT OF EXPEN DITURE INCURRED ON THE TRANSACTION OF LEASE BACK ASSETS. 8. THE I,D. CIT(A) HAS FURTHER ERRED IN LAW AND ON FACTS IN DIRECTING:-. (I) TO EXCLUDE THE AMOUNT OF EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 80H HC, (II) NOT TO EXCLUDE THE AMOUNT OF INTEREST, LEASE I NCOME AND MISCELLANEOUS INCOME FROM THE PROFIT ELIGIBLE FOR D EDUCTION U/S 80HHC ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 3 OF 32 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE A. O. 10. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD CIT(A) MAY KINDLY BE SET-ASIDE AND THAT OF THE A.O. BE RESTORE D TO THAT EXTENT. 4. 1ST GROUND IS WITH RESPECT TO DISALLOWANCE OF FO REIGN TRAVELLING EXPENSES OF RS. 10,11,025/ :- ASSESSING OFFICER NO TICED THAT ASSESSEE HAS INCURRED FOREIGN TRAVELLING EXPENSES OF RS. 10, 11,025/-. ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF EXPENSES. SINCE NO D ETAILS WERE FURNISHED, ASSESSING OFFICER HELD THAT IN THE ABSENCE OF DETAI LS THE EXPENSES CANNOT BE ALLOWED. HE ACCORDINGLY DISALLOWED THE ENTIRE EX PENDITURE. ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED TH E ADDITION FOR THE REASON THAT ASSESSEE HAD DEMONSTRATED BEFORE HIM TH AT THE DETAILS SOUGHT BY ASSESSING OFFICER WERE FURNISHED BEFORE H IM. CIT(A) ALSO NOTED THAT ON IDENTICAL FACTS IN ASSESSEES OWN CASE FOR AY 1994-95 AND AY 1995-96 HE HAD DELETED THE ADDITION. HE THUS FOLLOW ED HIS OWN DECISION OF EARLIER YEAR. AGGRIEVED BY THE ORDER OF CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 5. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF A SSESSING OFFICER WHEREAS ON THE OTHER HAND THE LD. A.R. SUPPORTED TH E ORDER OF CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT ASSESSING OFFICER HAD DISAL LOWED THE EXPENSES FOR THE REASON THAT THE ASSESSEE HAD NOT FURNISHED THE DETAILS. CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT THE DETAILS WE RE INDEED FURNISHED BY ASSESSEE BEFORE ASSESSING OFFICER. HE FURTHER NOTED THAT THE FACTS OF THE CASE IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF AY 1994-95 & 1995- 96 AND FOLLOWING HIS OWN ORDER FOR AFORESAID YEARS HE DELETED THE ADDITION. BEFORE US, REVENUE COULD NOT CONTROVERT THE FINDING S OF CIT(A) BY BRINGING ANY TANGIBLE MATERIAL ON RECORD. WE, THEREFORE, DO NOT FEEL NECESSARY TO ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 4 OF 32 INTERFERE WITH THE ORDER OF CIT(A). THUS, THIS GROU ND OF REVENUE IS DISMISSED. 7. 2 ND GROUND IS WITH RESPECT TO DISALLOWANCE OF GUEST HO USE EXPENSES OF RS. 114319/-:- ON PERUSING THE TAX AUDIT REPORT, ASSESSING OFFICER NOTICED THAT EXPENDITURE OF RS. 60000/- TOWARDS REN T AND RS. 54,319/- TOWARDS REPAIRS AND MAINTENANCE OF GUEST HOUSE WERE NOT CONSIDERED BY ASSESSEE FOR DISALLOWANCE OF GUEST HOUSE EXPENSES U /S 37(4). HE WAS OF THE VIEW THAT THE AFORESAID EXPENSES WERE DISALLOWA BLE AND ACCORDINGLY DISALLOWED THE AGGREGATE EXPENDITURE OF RS 1,14,319 /- U/S 37(4). AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) NOTED THAT THE ISSUE WAS DIRE CTLY COVERED IN ASSESSEES FAVOUR BY THE DECISION OF GUJARAT H.C IN THE CASE OF KAIRA DIST CO-OP. MILK PRODUCERS UNION 192 ITR 608 (GUJ) AND O THER DECISIONS OF GUJARAT H.C. HE FURTHER NOTED THAT ON IDENTICAL FAC TS, IN EARLIER YEARS, THE ADDITION WAS DELETED BY HIS PREDECESSOR. HE THEREFO RE FOLLOWING EARLIER YEAR'S ORDER DELETED THE ADDITION. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 8. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF A SSESSING OFFICER WHEREAS ON THE OTHER HAND THE LD. A.R. AT THE OUTSE T SUBMITTED THAT THE ISSUE IS COVERED AGAINST ASSESSEE IN VIEW OF THE DE CISION OF HON'BLE APEX COURT IN THE CASE OF BRITANNIA IND. VS CIT 278 ITR 546 (SC). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE EXPENSES INCURRED BY THE ASSESSEE ARE TOWARDS THE GUEST HOUSE. HON'BLE APEX COURT IN THE CASE OF BRITANNIA IND. (SUPRA) HAS CONCLUDED THAT EXPENSES TOWARDS RENTS, REPAIRS, MAINTENANCE AND DEPRECIATION OF PREMISES/ACCOMMODAT ION USED FOR THE PURPOSES OF GUEST HOUSE WERE TO BE DISALLOWED U/S 3 7(4). RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE APEX COURT, WE AR E OF THE VIEW THAT THE ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 5 OF 32 ACTION OF ASSESSING OFFICER IN DISALLOWING THE EXPE NSES CANNOT BE FAULTED. WE THUS, UPHOLD THE DISALLOWANCE. THUS, THIS GROUND OF REVENUE IS ALLOWED. 10. 3 RD GROUND IS WITH RESPECT TO DISALLOWANCE OF RS. 2,13 ,322/- ON ACCOUNT OF LOSS ON TRADING:- ASSESSING OFFICER NOTI CED THAT ASSESSEE HAS INCURRED LOSS OF RS. 2,13,322/- ON ACCOUNT OF SALE TO SHREEJI PLASTICIZERS, IT SISTER CONCERN. ASSESSING OFFICER DISALLOWED THE LO SS FOR THE REASON THAT ASSESSEE HAD NOT SUBMITTED ANY PROOF OF RECEIPT OF SALES CONSIDERATION AND FURTHER ASSESSEE DID NOT SUBMIT DETAILS OF THE MARKET RATE OF THE ITEM SOLD TO SISTER CONCERN. AGGRIEVED BY THE ORDER OF A SSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) D ELETED THE ADDITION BY HOLDING AS UNDER: I HAVE GONE THROUGH THE SUBMISSION AND FIND THAT E VEN IN THE TAX AUDIT REPORT, THE AUDITORS HAVE NOT REFERRED TO THE TRANSACTION WITH THE SAID PARTY AS TRANSACTION ATTRACTING THE P ROVISIONS OF SECTION 40A(2)(A). FURTHER, THE ASSESSING OFFICER H AS ALSO NOT BROUGHT ANY EVIDENCE ON RECORD EITHER TO SHOW THAT THE SAID PARTY IS AN ASSOCIATE CONCERN OR THAT THE TRANSACTI ON IS DONE AT A PRICE BELOW THE MARKET PRICE. THEREFORE, THERE IS N O GROUND ON WHICH THE ADDITION CAN BE SUSTAINED AND THEREFORE, THE RESULTANT DISALLOWANCE OF RS.2,13,322/- IS DELETED. 11. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. 12. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF ASSESSING OFFICER WHEREAS ON THE OTHER HAND THE LD. A.R. SUBMITTED TH AT THE SALE WAS NOT CONSIDERED BY THE AUDITORS TO BE TO AN ASSOCIATE CO NCERN. FURTHER NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE ASSESSIN G OFFICER TO SUPPORT HIS CONTENTION THAT THE PRICE CHARGED WAS BELOW THE MARKET PRICE. HE THUS, SUPPORTED THE ORDER OF CIT(A). ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 6 OF 32 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT WHILE DELETING THE ADDITION , CIT(A) AFTER CONSIDERING THE TAX AUDIT REPORT HAS GIVEN A FINDING THAT THE S ALE WAS NOT TO A PARTY WHICH WOULD ATTRACT THE PROVISIONS OF SECTION 40A(2 )(A). HE FURTHER NOTED THAT THERE IS NO MATERIAL ON RECORD TO PROVE THAT T HE SALE WAS MADE AT A PRICE WHICH WAS BELOW THE MARKET RATE. BEFORE US, R EVENUE COULD NOT CONTROVERT THE FINDINGS OF CIT(A) BY BRINGING ANY T ANGIBLE MATERIAL ON RECORD. WE, THEREFORE, DO NOT FEEL NECESSARY TO INT ERFERE WITH THE ORDER OF CIT(A). THUS, THIS GROUND OF REVENUE IS DISMISSED. 14. 4 TH GROUND IS WITH RESPECT TO ADDITION OF RS. 9643855/ - ON ACCOUNT OF EXCESS CONSUMPTION OF HEXENE:- ASSESSING OFFICER N OTICED THAT ASSESSEE HAS FETCHED 101% YIELD FOR PRODUCTION OF 5024 MT OF ISO OCTONOL WHEREAS IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE YI ELD WAS 111.81%. THE CONSUMPTION RATIO FOR HEPTENE WAS 98% AS COMPAR ED TO 89% IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. ASSESSEE INT ER ALIA SUBMITTED THAT IT HAD RECEIVED 2377 MT OF HEPTENE AGAINST WHI CH IT HAD MANUFACTURED 2222 MT OF OCTONOL ON JOB WORK BASIS F OR SHREEJI PLASTICIZERS AND BALAJI POLYMERS. ON PERUSING THE M ONTHLY DETAILS OF RECEIPT OF GOODS FOR CONVERSION, ASSESSING OFFICER NOTICED THAT 2873 MT OF HEPTENE WAS RECEIVED FOR CONVERSION. HE, THEREFORE, CONSIDERED THE UNEXPLAINED DIFFERENCE OF 488 MT (2873 MT MINUS 237 7 MT) AS ASSESSEE'S OWN PRODUCTION OF ISO-OCTONOL. TO THIS H E APPLIED THE AVERAGE SALES PRICE OF RS. 19762/MT AND WORKED OUT THE TOTA L VALUE OF GOODS OF RS. 95,43,855/- AS BEING THE SALES OUTSIDE THE BOOKS OF ACCOUNTS AND ADDED TO THE INCOME. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED TH E ADDITION BY HOLDING AS UNDER: THE NEXT 2 GROUNDS OF APPEAL RELATE TO THE ADDITIO N ON ACCOUNT OF EXCESS CONSUMPTION OF RAW-MATERIALS AND EXCESS CONSUMPTION OF THE CATALYSTS. THE ASSESSING OFFICER HAS OBSERVED THAT THE APPELLANT'S CONSUMPTION OF THE RA W-MATERIAL ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 7 OF 32 HAPTENE DURING THE YEAR UNDER CONSIDERATION HAS INC REASED AS COMPARED TO THAT OF THE IMMEDIATELY PRECEDING YEAR. THE ASSESSING OFFICER FURTHER OBSERVED THAT HAD THE CON SUMPTION RATIO OF HAPTENE REMAINED CONSTANT, THE PRODUCTION OF ISO- OCTONOL SHOULD HAVE BEEN MORE. THE ASSESSING OFFICE R, THEREFORE, CAME TO THE CONCLUSION THAT TO THAT EXTE NT THERE IS EXCESS CONSUMPTION, WHICH LED HIM TO PRESUME THAT T HE APPELLANT HAS SOLD THE SAID GOODS OUTSIDE BOOKS OF ACCOUNTS AND ACCORDINGLY MADE THE ADDITION OF RS.96,43,855/- . ON SIMILAR OBSERVATIONS, THE ASSESSING OFFICER ALSO MADE THE A DDITION OF RS.86,87,381/- ON ACCOUNT OF EXCESS CONSUMPTION OF NICKEL BASED AND COPPER BASED CATALYSTS. HOWEVER, FOR WORK ING OUT THE EXCESS CONSUMPTION OF THE CATALYSTS, THE ASSESS ING OFFICER HAS TAKEN THE BASIS OF THE CONSUMPTION FIGURES FOR A.Y. 1993-94 AND HAS IGNORED THE FIGURES OF CONSUMPTION FOR A.Y. L994-95 AND 1995-96 BEING IMMEDIATELY PRECEDING 2 YEARS. THE AP PELLANT'S COUNSEL PRIMARILY RELIED UPON THE SUBMISSIONS MADE FOR THE EARLIER 2 YEARS FOR SIMILAR ADDITIONS. THE APPELLAN T FURTHER SUPPLEMENTED THE ARGUMENTS WHICH CAN BE SUMMARISED AS UNDER: I) FOR WORKING OUT THE EXCESS CONSUMPTION OF RAW-M ATERIALS, THE ASSESSING OFFICER HAS IGNORED THE JOB-WORK CARRIED OUT. THE APPELLANTS COUNSEL SUBMITTED THAT IF THE SAME IS T AKEN INTO CONSIDERATION, THE CONSUMPTION FIGURES WOULD BECOME SUBSTANTIALLY COMPARABLE. THE EXCESS CONSUMPTION WO ULD BE LESS THAN 1.4 % OF THE TOTAL CONSUMPTION OF MATERIA L WHICH IS NORMAL IN THESE TYPE OF INDUSTRIES AND SHOULD BE IG NORED. II) THE ASSESSING OFFICER HAS FAILED TO POINT OUT A NY REASONS FOR REJECTION OF THE BOOKS OF ACCOUNTS BEFORE GOING FOR ESTIMATION OF THE INCOME. IT WAS POINTED OUT THAT DETAILED BOOKS OF ACCOUNTS INCLUDING QUANTITATIVE DETAILS THEREOF HAVE BEEN MA INTAINED BY THE APPELLANT AND, THEREFORE, THERE IS NO REASON FO R REJECTION OF THE SAME. : III) THERE IS INCREASE IN THE RATE OF GROSS PROFIT AS COMPARED TO EARLIER YEARS INCLUDING THE A.Y. 1993-94 WITH WHICH THE PRODUCTION FIGURES HAVE BEEN COMPARED. THE APPELLAN T SUBMITTED THAT THE RATE OF GROSS PROFIT WAS 40.93 % FOR A. Y. 1993-94 WHICH HAD GONE UP TO 41.59 % IN A.Y. 1995-9 6 AND HAD FURTHER RISEN TO 47.21 % IN THE YEAR UNDER CONSIDER ATION. THIS FACTOR WAS TOTALLY IGNORED BY THE ASSESSING OFFICER . I HAVE GONE THROUGH THE SUBMISSIONS MADE IN THIS BE HALF. I FIND THAT THE ISSUE IS CLEARLY COVERED BY MY DETAILED OR DER FOR A. YS. 1994-95 AND 1995-96 WHEREIN IT HAS BEEN HELD BY ME INTER ALIA THAT THERE IS NO JUSTIFICATION FOR REJECTION OF BOO KS AND CONSEQUENT ADDITION. FOLLOWING THE SAID DECISIONS A ND FOR THE DETAILED REASONS GIVEN IN THE ORDERS FOR THOSE TWO YEARS AND ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 8 OF 32 ALSO THE ADDITIONAL REASONS GIVEN ABOVE, BOTH THE A DDITIONS MADE ON ACCOUNT OF EXCESS CONSUMPTION OF RAW-MATERI AL HAPTENE AND EXCESS CONSUMPTION OF CATALYSTS ARE DE LETED. 15. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. 16. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF ASSESSING OFFICER WHEREAS ON THE OTHER HAND THE LD. A.R. SUBMITTED TH AT THE ASSESSING OFFICER HAS NOT REJECTED THE BOOK RESULTS NOR FOUND ANY DEFECT IN THE BOOKS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS M AINTAINED COMPLETE QUANTITY RECORDS AS PER CENTRAL EXCISE LAWS AND NO DEFECT WAS FOUND THEREIN. HE FURTHER SUBMITTED THAT GROSS PROFIT RAT E WAS BETTER COMPARED TO EARLIER YEARS. HE THUS SUPPORTED THE ORDER OF CIT(A ). 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT WHILE DELETING THE ADDITION , CIT(A) HAS HELD THAT THE FACTS IN THE PRESENT GROUND ARE IDENTICAL TO THAT A Y 1995-96 AND HE RELYING ON HIS ORDERS FOR AY 1994-95 AND 1995-96 DELETED TH E ADDITION. BEFORE US, ASSESSEE HAS SUBMITTED THAT IT HAS MAINTAINED COMPL ETE QUANTITY RECORDS AS PER CENTRAL EXCISE LAWS AND NO DEFECT HAS BEEN F OUND THEREIN. BEFORE US, REVENUE COULD NOT CONTROVERT THE FINDINGS OF CI T(A) OR THE SUBMISSIONS MADE BY ASSESSEE BY BRINGING ANY TANGIB LE MATERIAL ON RECORD. WE, THEREFORE, DO NOT FEEL NECESSARY TO INT ERFERE WITH THE ORDER OF CIT(A). THUS THIS GROUND OF REVENUE IS DISMISSED. 18. 5 TH GROUND IS WITH RESPECT TO ADDITION OF RS. 86,87,38 1/- ON ACCOUNT OF EXCESS CONSUMPTION OF CATALYST:- ASSESSING OFFI CER NOTICED THAT DURING THE YEAR CONSUMPTION OF CATALYST WAS MORE AS COMPAR ED TO THE CONSUMPTION IN AY 1993-94. HE ALSO NOTICED THAT DUR ING THE YEAR THE ASSESSEE HAS CONSUMED IMPORTED CATALYST MORE IN COM PARISON TO INDIGENOUS VARIETIES DESPITE WHICH THE CONSUMPTION OF CATALYST HAS NOT ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 9 OF 32 REDUCED. HE THUS HELD THE EXCESSIVE CONSUMPTION TO BE UNEXPLAINED FOR THE REASONS FOLLOWED IN AY 1994-95 AND AY 1995-96. HE, CONSIDERING THE CONSUMPTION FOR AY 1993-94, WORKED OUT THE TOTAL EX CESSIVE CONSUMPTION OF 1593 KG AND WORKED OUT THE NET ADDITION OF RS. 8 6,87,381/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS U NDER: THE NEXT 2 GROUNDS OF APPEAL RELATE TO THE ADDITIO N ON ACCOUNT OF EXCESS CONSUMPTION OF RAW-MATERIALS AND EXCESS CONSUMPTION OF THE CATALYSTS. THE ASSESSING OFFICER HAS OBSERVED THAT THE APPELLANT'S CONSUMPTION OF THE RA W-MATERIAL HAPTENE DURING THE YEAR UNDER CONSIDERATION HAS INC REASED AS COMPARED TO THAT OF THE IMMEDIATELY PRECEDING YEAR. THE ASSESSING OFFICER FURTHER OBSERVED THAT HAD THE CON SUMPTION RATIO OF HAPTENE REMAINED CONSTANT, THE PRODUCTION OF ISO- OCTONOL SHOULD HAVE BEEN MORE. THE ASSESSING OFFICE R, THEREFORE, CAME TO THE CONCLUSION THAT TO THAT EXTE NT THERE IS EXCESS CONSUMPTION, WHICH LED HIM TO PRESUME THAT T HE APPELLANT HAS SOLD THE SAID GOODS OUTSIDE BOOKS OF ACCOUNTS AND ACCORDINGLY MADE THE ADDITION OF RS.96,43,855/- . ON SIMILAR OBSERVATIONS, THE ASSESSING OFFICER ALSO MADE THE A DDITION OF RS.86,87,381/- ON ACCOUNT OF EXCESS CONSUMPTION OF NICKEL BASED AND COPPER BASED CATALYSTS. HOWEVER, FOR WORK ING OUT THE EXCESS CONSUMPTION OF THE CATALYSTS, THE ASSESS ING OFFICER HAS TAKEN THE BASIS OF THE CONSUMPTION FIGURES FOR A.Y. 1993-94 AND HAS IGNORED THE FIGURES OF CONSUMPTION FOR A.Y. L994-95 AND 1995-96 BEING IMMEDIATELY PRECEDING 2 YEARS. THE AP PELLANT'S COUNSEL PRIMARILY RELIED UPON THE SUBMISSIONS MADE FOR THE EARLIER 2 YEARS FOR SIMILAR ADDITIONS. THE APPELLAN T FURTHER SUPPLEMENTED THE ARGUMENTS WHICH CAN BE SUMMARISED AS UNDER: I) FOR WORKING OUT THE EXCESS CONSUMPTION OF RAW-M ATERIALS, THE ASSESSING OFFICER HAS IGNORED THE JOB-WORK CARRIED OUT. THE APPELLANTS COUNSEL SUBMITTED THAT IF THE SAME IS T AKEN INTO CONSIDERATION, THE CONSUMPTION FIGURES WOULD BECOME SUBSTANTIALLY COMPARABLE. THE EXCESS CONSUMPTION WO ULD BE LESS THAN 1.4 % OF THE TOTAL CONSUMPTION OF MATERIA L WHICH IS NORMAL IN THESE TYPE OF INDUSTRIES AND SHOULD BE IG NORED. II) THE ASSESSING OFFICER HAS FAILED TO POINT OUT A NY REASONS FOR REJECTION OF THE BOOKS OF ACCOUNTS BEFORE GOING FOR ESTIMATION OF THE INCOME. IT WAS POINTED OUT THAT DETAILED BOOKS OF ACCOUNTS INCLUDING QUANTITATIVE DETAILS THEREOF HAVE BEEN MA INTAINED BY ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 10 OF 32 THE APPELLANT AND, THEREFORE, THERE IS NO REASON FO R REJECTION OF THE SAME. : III) THERE IS INCREASE IN THE RATE OF GROSS PROFIT AS COMPARED TO EARLIER YEARS INCLUDING THE A.Y. 1993-94 WITH WHICH THE PRODUCTION FIGURES HAVE BEEN COMPARED. THE APPELLAN T SUBMITTED THAT THE RATE OF GROSS PROFIT WAS 40.93 % FOR A. Y. 1993-94 WHICH HAD GONE UP TO 41.59 % IN A.Y. 1995-9 6 AND HAD FURTHER RISEN TO 47.21 % IN THE YEAR UNDER CONSIDER ATION. THIS FACTOR WAS TOTALLY IGNORED BY THE ASSESSING OFFICER . I HAVE GONE THROUGH THE SUBMISSIONS MADE IN THIS BE HALF. I FIND THAT THE ISSUE IS CLEARLY COVERED BY MY DETAILED OR DER FOR A. YS. 1994-95 AND 1995-96 WHEREIN IT HAS BEEN HELD BY ME INTER ALIA THAT THERE IS NO JUSTIFICATION FOR REJECTION OF BOO KS AND CONSEQUENT ADDITION. FOLLOWING THE SAID DECISIONS A ND FOR THE DETAILED REASONS GIVEN IN THE ORDERS FOR THOSE TWO YEARS AND ALSO THE ADDITIONAL REASONS GIVEN ABOVE, BOTH THE A DDITIONS MADE ON ACCOUNT OF EXCESS CONSUMPTION OF RAW-MATERI AL HAPTENE AND EXCESS CONSUMPTION OF CATALYSTS ARE DE LETED. 19. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. 20. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF AO WHEREAS ON THE OTHER HAND THE LD. A.R. SUBMITTED THAT AO HAS MADE COMPARISON WITH AY 1993-94 THOUGH THE RATIO WAS REASONABLE WHEN COMPAR ED WITH THE RATIO OF AY 1994-95. HE THUS SUPPORTED THE ORDER OF CIT(A). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT WHILE DELETING THE ADDITION , CIT(A) HAS HELD THAT THE FACTS IN THE PRESENT GROUND ARE IDENTICAL TO THAT A Y 1995-96 AND HE RELYING ON HIS ORDERS FOR AY 1994-95 AND 1995-96 DELETED TH E ADDITION. BEFORE US, REVENUE COULD NOT CONTROVERT THE FINDINGS OF CIT(A) BY BRINGING ANY TANGIBLE MATERIAL ON RECORD. WE, THEREFORE, DO NOT FEEL NECESSARY TO INTERFERE WITH THE ORDER OF CIT(A). THUS, THIS GROU ND OF REVENUE IS DISMISSED. ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 11 OF 32 22. 6 TH AND 7 TH GROUNDS ARE INTERCONNECTED AND CONSIDERED TOGETHER : 6 TH GROUND IS WITH RESPECT TO DISALLOWANCE OF DEPRECIAT ION OF RS. 63025680/- ON ASSETS LEASED BACK TO RAJASTHAN STATE ELECTRICIT Y BOARD:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NOTICED THAT ASSESSEE HAD PURCHASED ASH HANDLING & EVALUATION SY STEM AND CIRCUIT BREAKERS FROM RAJASTHAN STATE ELECTRICITY BOARD AND GIVEN BACK ON LEASE ON THE SAME DAY TO RAJASTHAN STATE ELECTRICITY BOAR D. HE FURTHER NOTED THAT THE TRANSACTION WAS ONLY ON PAPER WITHOUT ANY PHYSICAL TRANSFER OF EQUIPMENTS. HE ALSO NOTICED THAT ASSESSEE HAD RECEI VED SECURITY DEPOSIT OF RS. 1,55,83,500/- AGAINST THE LEASE OF ASH HANDL ING SYSTEM WORTH RS. 6,23,34,000/-WHICH ACCORDING TO ASSESSING OFFICER W AS SHORT PAYMENT OF SALE CONSIDERATION. HE ALSO NOTICED THAT SIMILARLY SECURITY DEPOSIT OF RS. 4,97,25,200/- WAS APPROPRIATED BY ASSESSEE AGAINST SALE CONSIDERATION OF RS. 12,43,13,007/- PAYABLE FOR CIRCUIT BREAKERS. HE FURTHER NOTED THAT AGAINST THE PURCHASE OF ASSETS OF RS. 18,66,47,000/ - ASSESSEE HAD PAID ONLY RS. 3,90,16,582/- AND THE BALANCE WAS APPROPRI ATED AS INTEREST FREE DEPOSITS, FIRST MONTH'S RENT AND DEFERRED PRICE ARR ANGEMENT. HE THUS CONCLUDED THAT THE ASSESSEE DID NOT ENOUGH FUNDS TO MAKE SUCH HUGE INVESTMENTS IN NON CORE AREA OF COMPETENCE. FURTHER THIS WAS A SOLITARY TRANSACTION BY THE ASSESSEE. HE THUS CONCLUDED THAT THE ENTIRE TRANSACTION TO BE A COLOURABLE DEVICE TO REDUCE THE INCIDENCE O F TAXATION AND THEREFORE THE DEPRECIATION CLAIMED BY THE ASSESSEE WAS NOT AL LOWABLE. HE MADE A NET ADDITION OF RS 6,48,92,150/-. AGGRIEVED -BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER: THE APPELLANT'S COUNSEL RELIED PRIMARILY IN THE DE CISION OF THE HON'BLE ITAT, ANMEDABAD IN THE CASE OF UNIMED TECHN OLOGIES LTD. VS. DY. CIT 73 ITD 150. IT WAS SUBMITTED THAT THE APPELLANT'S CASE IS DIRECTLY COVERED BY THE RATIO O F THE SAID DECISION. IT WAS FURTHER SUBMITTED THAT THE FACTS OF THE APPELLANT'S CASE ARE ABSOLUTELY IDENTICAL WITH THE SAID DECISION AND, THEREFORE, THE CLAIM HE APPELLANT COMPANY WITH RESPECT TO THE DEPRECIATION SHOULD BE ALLOWED INCLUDING THE CA PITALISATION OF EXPENSES THEREON. THE APPELLANT SUMMARISED THE ARGU MENT BY ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 12 OF 32 COMPARING THE FACTS OF THE APPELLANT'S CASE WITH TH E CASE BEFORE THE HON'BLE ITAT AS UNDER: I)THE TRANSACTION IS WITH RAJASTHAN STATE ELECTRIC ITY BOARD, A STATE GOVERNMENT UNDERTAKING AND TO ACCEPT THAT THE GOVERNMENT OF RAJASTHAN WOULD BE A PARTY TO A SHAM TRANSACTION IS UNTENABLE. IT MAY BE MENTIONED THAT IN YOUR APPELLANT'S CASE ALSO THE CORPORATION INVOLVED IS T HE SAME RAJASTHAN STATE ELECTRICITY BOARD. II) THAT IN A SHAM TRANSACTION, NORMALLY THE CONSID ERATION WOULD NOT FLOW FROM ONE PARTY TO ANOTHER, WHEREAS IN THE CASE BEFORE THE HON'BLE ITAT THE CONSIDERATION ACTUALLY HAS MOV ED FROM ONE HAND TO OTHER. IT MAY BE MENTIONED THAT IN THE APPE LLANT'S CASE ALSO SUBSTANTIAL CONSIDERATION HAS MOVED FROM ONE H AND TO THE OTHER HAND. III)THAT THE APPELLANT IN THAT CASE HAD PAID SUBSTA NTIAL SUM OF MONEY AS LEASE MANAGEMENT FEES. IN THE APPELLANT'S CASE ALSO SUBSTANTIAL AMOUNT HAS BEEN PAID TOWARDS BROKE RAGE CHARGES WHICH IS AKIN TO THE LEASE MANAGEMENT FEES AS IN THE CASE BEFORE THE HON'BLE ITAT. IV)THAT THE CIRCULAR NO. 9 0F 23RD MARCH, 1943 ALSO , PERMITTED THE GRANT OF THE DEPRECIATION TO THE LESSOR OF' THE ASSET. V) WITH RESPECT TO THE VALUATION OF THE ASSET, THE HON'BLE ITAT OBSERVED THAT WHEN THERE IS A REPORT OF AN INDEPEND ENT VALUER ALSO PLACED ON RECORD, THE SAME CANNOT BE IGNORED A ND THE SAME WILL HAVE TO BE TAKEN INTO CONSIDERATION IN AB SENCE OF ANY OTHER CONCRETE EVIDENCE CM RECORD TO PROVE THE CASE OTHERWISE. VI)THAT THERE ARE LARGE NUMBER OF DECISIONS OF VARI OUS TRIBUNALS IN FAVOUR OF THE APPELLANT WHICH CONSIDERED THIS TY PE OF TRANSACTION AS GENUINE TRANSACTION. THE HON'B LE TRIBUNAL ALSO RELIED ON NUMBER OF DECISIONS OF THE SUPREME C OURT AND VARIOUS HIGH COURTS BEFORE COMING TO THE CON CLUSION THAT THE TRANSACTION IS A GENUINE TRANSACTION AND NOTHIN G IN LAW CAN PREVENT THE GRANTING OF THE DEPRECIATION ON THE ASS ETS ACQUIRED AND THE EXPENSES INCURRED ON ACQUIRING OR LEASING T HE SAID ASSET BACK TO THE OTHER PARTY. IT WAS FURTHER SUBMITTED BY THE APPELLANT THAT IT W AS OBSERVED BY THE HON'BLE ITAT THAT IN THE CASE BEFORE THE ITAT T HE SALES TAX ON THE SAID TRANSACTION WAS WAIVED BY THE RAJASTHAN GOVERNMENT. IT WAS SUBMITTED BY THE APPELLANT THAT IN THIS CASE ALSO THE SALES TAX WAS EXEMPTED BY THE GOVERNMENT O F RAJASTHAN, THE APPELLANT, THEREFORE, SUBMITTED THAT IN VIEW OF THE ABOVE SAID IDENTICAL FACTS, THE TRANSACTION MAY BE TREATED AS GENUINE TRANSACTION AND THE DEPRECIATION THEREON SH OULD BE ALLOWED TO THE APPELLANT. ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 13 OF 32 I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE APP ELLANT. IT IS SEEN THAT THE FACTS OF THE APPELLANT'S CASE ARE IDENTICAL WITH THOSE OF ABOVE MENTIONED CASE WHICH WAS DECIDED BY HON'BLE ITAT, AHMEDABAD. IN VIEW OF THE SAME AND FOLLOWING THE DECISION OF HON'BLE ITAT AHMEDABAD IN THE CASE OF U NIMED TECHNOLOGIES LTD. 73 ITD 150, I DIRECT THE ASSESSIN G OFFICER TO GRANT THE DEPRECIATION ON THE ASSETS ACQUIRED BY TH E APPELLANT FROM THE RSEB AND ALSO ALLOW THE DEPRECIATION ON TH E EXPENDITURE INCURRED FOR THE SAID TRANSACTION. 23. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. 24. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF ASSESSING OFFICER WHEREAS ON THE OTHER HAND THE LD. A.R. SUPPORTED TH E ORDER OF CIT(A). HE FURTHER SUBMITTED THAT THE ISSUE IS COVERED IN ITS FAVOUR IN VIEW OF THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF CIT V S GUJARAT GAS LTD. (2009) 308 ITR 243 (GUJ). BOTH THE PARTIES HOWEVER AGREED THAT THE ISSUE NEEDS TO BE EXAMINED IN THE LIGHT OF THE AFORESAID DECISION OF GUJARAT HIGH COURT. 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSING OFFICER HAS T REATED THE ENTIRE TRANSACTION TO BE A DEVICE USED TO REDUCE THE INCID ENCE OF TAX. HOWEVER, HE HAS NOT BROUGHT ANY-THING OF RECORD WITH RESPECT TO THE TREATMENT GIVEN BY THE ASSESSEE TO THE INCOME RECEIVED ON THE DISPU TED LEASE TRANSACTIONS. WE, THEREFORE, FEEL THAT THE ISSUE NE EDS TO BE EXAMINED IN ALL RESPECT IN LIGHT OF THE DECISION OF CIT VS GUJARAT GAS LTD (2009) 308 ITR 243 (GUJ). WE ACCORDINGLY SET ASIDE THE ISSUE TO TH E FILE OF ASSESSING OFFICER FOR HIM TO DECIDE THE ISSUE DE-NOVO AFTER A GIVING AN ADEQUATE OPPORTUNITY OF HEARING TO ASSESSEE. THUS, BOTH THES E GROUNDS OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 14 OF 32 26. 8 TH GROUND IS WITH RESPECT TO DEDUCTION U/S 80HHC: ASS ESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 80HHC ON EXPORT OF GOODS. HE ALSO NOTICED THAT ASSESSEE HAD EXCLUDE D EXCISE DUTY AND SALES TAX TO ARRIVE AT TOTAL TURNOVER. HE FURTHER N OTICED THAT ASSESSEE HAD INCLUDED OTHER INCOME OF LEASE RENT, INTEREST AND M ISC. RECEIPTS AS INCOME FOR THE PURPOSE OF BUSINESS. ASSESSING OFFICER WAS OF THE VIEW THAT EXCISE DUTY AND SALES TAX SHOULD BE CONSIDERED AS PART OF TURNOVER AND THE INCOME LIKE LEASE RENT, INTEREST AND MISC. RECEIPTS NEEDS TO BE EXCLUDED FOR WORKING THE DEDUCTION U/S 80HHC. HE ACCORDINGLY REWORKED THE DEDUCTION AT RS. 75,53,247/-. AGGRIEVED BY THE ORDE R OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). 27. CIT(A) GRANTED RELIEF TO THE ASSESSEE BY HOLDIN G AS UNDER: THE NEXT GROUND OF APPEAL RELATES TO THE RECOMPUTA TION OF THE DEDUCTION U/S. 80 HHC OF THE INCOME TAX ACT, 1961. THE APPELLANT'S COUNSEL BROUGHT TO MY NOTICE THAT THE C OMPUTATION OF THE ASSESSING OFFICER IS NOT CORRECT ON ACCOUNT OF THE FOLLOWING REASONS: (A) THE TOTAL TURNOVER HAS BEEN INCREASED BY THE AM OUNT OF EXCISE DUTY AND SALES TAX. THE APPELLANT'S COUNSEL SUBMITTED THAT THE SAID ASPECT IS DIRECTLY COVERED IN FAVOUR OF THE APPELLANT BY DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF SUDARSHAN CHEMICALS 112 TAXMAN 511 (BOM) WHEREIN IT HAS BEEN HELD THAT THE SAID AMOUNT IS NOT REQUIRED TO BE INCLUDED IN THE TOTAL TURNOVER FOR COMPUTING THE DEDUCTION U/S. 80 HHC. FOLLOWING THE SAID DECISION, I DIRECT THE ASSESSING OFFICER T O EXCLUDE THE AMOUNT OF EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER. B) THE SECOND OBJECTION RAISED BY THE APPELLANT IS WITH RESPECT TO THE EXCLUSION OF THE AMOUNTS OF INTEREST, MISCEL LANEOUS INCOME AND LEASE INCOME OUT OF THE PROFIT ELIGIBLE FOR DEDUCTION U/S 80 HHC AGGREGATING TO RS. 182.69 LACS. THE APPE LLANT'S COUNSEL SUBMITTED BEFORE ME THAT THE AMOUNT OF INTE REST EARNED IS ON ACCOUNT OF THE EITHER THE FIXED DEPOSITS FOR GETTING THE L/C. OR ON ACCOUNT DELAY IN PAYMENT FROM THE CUSTOMERS. IT WAS SUBMITTED THAT THESE ARE INEXTRICABLY ATTACHED TO T HE BUSINESS AND THEREFORE, SHOULD NOT BE EXCLUDED. IT WAS FURTH ER SUBMITTED THAT THE LEASE INCOME IS THE TRADING INCOME AND, TH EREFORE, ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 15 OF 32 ASSESSABLE AS PART OF THE BUSINESS INCOME. IT WAS F URTHER SUBMITTED THAT EFFECTIVELY THERE IS ACTUALLY NO INC OME FROM THE LEASE INCOME AND, THEREFORE, IF THE AMOUNT IS TO BE TREATED AS NON-BUSINESS INCOME, THERE WOULD BE INCREASE IN THE CLAIM AND NOT A REDUCTION THEREOF. IT WAS, THEREFORE, SUBMITT ED THAT THERE IS NO JUSTIFICATION FOR EXCLUDING THE SAME ALSO. AFTER HEARING THE APPELLANTS COUNSEL AND AFTER GOI NG THROUGH THE FACTS OF THE CASE, I AGREE WITH THE CONTENTION OF T HE APPELLANTS AND FIND THAT THE INTEREST AND THE LEASE INCOME CAN NOT BE EXCLUDED FROM THE TOTAL INCOME COMPUTED FOR THE PUR POSES OF DEDUCTION U/S 80 HHC OF THE I.T. ACT. THEREFORE, I DIRECT THE ASSESSING OFFICER NOT TO EXCLUDE THE AMOUNT OF INTE REST AND LEASE INCOME AND MISC. INCOME FROM THE ELIGIBLE PRO FITS CALCULATED FOR DEDUCTION U/S. 80 HHC OF THE I.T. AC T. 28. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. BEFORE US LD. D.R. RELIED ON THE ORDER OF AO. O N THE OTHER HAND THE LD. A.R. SUBMITTED THAT EXCISE DUTY AND SALES TAX W AS RIGHTLY EXCLUDED FROM TURNOVER AND FOR WHICH HE RELIED ON THE DECISI ON OF APEX COURT IN THE CASE OF LAXMI MACHINE TOOLS 290 ITR 667 AND IN THE CASE OF CIT VS. CATAPHARMA (INDIA) (P) LTD. 292 ITR 641. HE FURTHER SUBMITTED THAT NET INTEREST IS TO BE CONSIDERED AS PER THE DECISION IN THE CASE OF CIT VS SRIRAM HONDA POWER EQUIP & ORS (2007) 289 ITR 475 A ND THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF ASG CAPSULES ( 2012) 343 ITR 89 (SC). HE THUS SUPPORTED THE ORDER OF CIT(A). 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE DISPUTE IN THE PRESENT APPEAL BEFORE US IS OF CALCULATION OF DEDUCTION U/S 80HHC WITH RESPECT TO INCLUSION OF EX CISE DUTY AND SALES TAX AS PART OF TURNOVER AND CONSIDERING THE LEASE RENT, INTEREST ETC AS PART OF BUSINESS INCOME. 30. IN THE CASE OF LAXMI MACHINE TOOLS, (SUPRA), TH E HON'BLE APEX COURT HAS CONCLUDED THAT EXCISE DUTY AND SALES TAX ARE NOT INCLUDIBLE IN 'TOTAL TURNOVER' IN THE FORMULA CONTAINED IN SECTIO N 80HHC(3). RESPECTFULLY ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 16 OF 32 FOLLOWING THE AFORESAID DECISION OF HON'BLE APEX CO URT WE DIRECT THAT EXCISE DUTY AND SALES TAX TO BE EXCLUDED FROM TOTAL TURNOVER AND THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 31. IN THE CASE OF ASG ASSOCIATED CAPSULES (SUPRA) THE HON'BLE APEX COURT HAS HELD THAT ONLY 90% OF THE NET AMOUNT OF ANY RECEIPT OF THE NATURE MENTIONED IN CLAUSE (1), WHICH IS ACTUALLY I NCLUDED IN THE PROFITS OF THE ASSESSEE IS TO BE DEDUCTED FROM THE PROFITS OF THE ASSESSEE FOR DETERMINING 'PROFITS OF THE BUSINESS' OF THE ASSESS EE UNDER EXPLANATION (BAA) TO SECTION 80HHC. 32. FROM THE ASSESSMENT ORDER IT IS SEEN THAT THE A SSESSEE HAD EARNED INTEREST OF RS. 4,10,388/- FROM BANKS AND RS . 242000/- FROM SANGAM CHEMICALS. IT IS SUBMITTED THAT THE INTEREST HAS BEEN EARNED IN THE NORMAL COURSE OF BUSINESS AND HAS ALSO BEEN TAX ED AS BUSINESS INCOME. IT IS SEEN THAT WHILE PASSING THE ORDER U/S 143(3) THE ASSESSING OFFICER HAS MADE NO ADJUSTMENT TO THE INTEREST INCO ME AND CONSIDERED IT AS INCOME FROM BUSINESS. THE LD. D.R. COULD NOT CON TROVERT THE FACTS BY BRINGING ANY CONTRARY MATERIAL ON RECORD. IN THE CA SE OF CIT VS SHRI RAM HONDA POWER EQUIP. & ORS (SUPRA) WHILE DECIDING THE ELIGIBILITY OF DEDUCTION U/S 80HHC, IT HAS BEEN HELD THAT WHEN INT EREST INCOME IS TREATED AS BUSINESS INCOME, THE NET INTEREST IS REQ UIRED TO BE REDUCED TO WORK OUT THE DEDUCTION U/S 80HHC. 33. AS FAR AS THE INCLUSION OF LEASE RENT, INTEREST ETC IS CONCERNED WE FIND THAT THERE IS NO FINDING BY THE ASSESSING OFFI CER AS TO WHETHER THE SAME IS BUSINESS INCOME OR INCOME FROM OTHER SOURCE S. WE, THEREFORE, FEEL THAT THIS ASPECT NEEDS TO BE EXAMINED BY ASSESSING OFFICER IN THE LIGHT OF THE RATIO OF DECISION IN THE CASE ASG CAPSULES ( SUPRA) AND CIT VS SRI RAM HONDA POWER (SUPRA). WE, THEREFORE, DIRECT ACCO RDINGLY AND ALSO ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 17 OF 32 DIRECT THE AO TO GRANT TO ASSESSEE A REASONABLE OPP ORTUNITY OF HEARING. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOS ES. ITA NO 721: AY 1997-98: 'D' APPEAL: 34. 1 ST GROUND IS WITH RESPECT TO GUEST HOUSE EXPENSES: 35. BEFORE US BOTH THE PARTIES SUBMITTED THAT THE F ACTS OF THIS GROUND ARE IDENTICAL TO THAT OF GROUND NO. 2 OF ITA NO. 10 77 FOR AY 1996-97 EXCEPT FOR THE CHANGE IN FIGURES AND THUS THE SUBMISSIONS MADE BY THEM ARE EQUALLY APPLICABLE TO THE PRESENT APPEAL AND FURTHE R THEY HAVE NO NEW SUBMISSIONS TO MAKE. 36. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SINCE IT IS AN UNDISPUTED FACT THAT THE FAC TS ARE IDENTICAL TO THE GROUND NO 2 OF ITA NO. 1077 OF 2001, WE FOR THE REA SONS GIVEN WHILE DECIDING THE ISSUE HEREIN ABOVE AT PARA NO. 9, DECI DE THE ISSUE IN FAVOUR OF REVENUE AND THUS THIS GROUND OF REVENUE IS ALLOWED. 37. 2 ND GROUND IS WITH RESPECT TO DEPRECIATION ON LEASED A SSETS : 38. BEFORE US BOTH THE PARTIES SUBMITTED THAT THE F ACTS OF THIS GROUND ARE IDENTICAL TO THAT OF GROUND NO. 6 & 7 OF ITA NO . 1077 OF 2001 FOR AY 1996-97 EXCEPT FOR THE CHANGE IN FIGURES AND THUS T HE SUBMISSIONS MADE BY THEM ARE EQUALLY APPLICABLE TO THE PRESENT APPEA L AND FURTHER THEY HAVE NO NEW SUBMISSIONS TO MAKE. 39. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SINCE IT IS AN UNDISPUTED FACT THAT THE FAC TS ARE IDENTICAL TO THE GROUND NO 2 OF ITA NO. 1077 OF 2001, WE FOR THE .RE ASONS GIVEN WHILE DECIDING THE ISSUE HEREIN ABOVE AT PARA NO. 25 ALSO SET ASIDE THE ISSUE TO ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 18 OF 32 THE FILE OF ASSESSING OFFICER TO DECIDE IT DENOVO. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 40. 3 RD GROUND IS WITH RESPECT TO LOW YIELD AND GP ADDITIO N OF RS. 1,55,33,637/-: 41. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON EXAMINING THE BOOKS OF ACCOUNTS, ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NOT MAINTAINED DAY TO DAY CONSUMPTION, PRODUCTION RECOR DS. ACCORDING TO AO, THERE WERE NO RECORDS WITH RESPECT TO STAGE-WISE PR ODUCTION, CONSUMPTION, SHORTAGE ETC. INCLUDING FOR THE WORK DONE FOR ON JO B WORK BASIS. HE WAS THUS OF THE VIEW THAT IN A MANUFACTURING PROCESS IF THE PRODUCTION COULD NOT BE CORRELATED WITH THE CONSUMPTION OF RAW MATERIALS , IT IS A VALID AND LEGALLY SOUND BASIS FOR REJECTION OF BOOKS OF ACCOU NTS U/S 145(3). HE FURTHER NOTED THAT THE YIELD RATIO WAS ADVERSE WHEN COMPARED WITH AY: 1994-95. HE WORKED OUT THE PRODUCTION OF THE ASSESS EE FOR THE YEAR UNDER CONSIDERATION SHOULD HAVE BEEN 9159 MT (ON THE BASI S OF YIELD FOR AY: 1994-95) WHEREAS THE ACTUAL PRODUCTION WAS 8738 MT AND THUS THERE WAS A SHORTFALL OF 421 MT WHICH ACCORDING TO HIM REPRES ENT UNACCOUNTED PRODUCTION AND AFTER CONSIDERING THE AVERAGE RATE O F RS. 36897/ MT, HE WORKED OUT THE SALES OF RS. 1,55,33,637/- WHICH WAS OUTSIDE THE BOOKS OF ACCOUNTS. AGGRIEVED BY THE ORDER OF ASSESSING OFFIC ER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER: THE CONTENTIONS OF THE APPELLANT AND ASSESSING OFF ICER ARE CONSIDERED. THE DECISION OF SUPREME COURT, VARIOUS HIGH COURTS AND TRIBUNALS RELIED ON BY THE APPELLANT AND ASSESSING OFFICER ARE PERUSED. IT IS SEEN THAT SUBSTANTIAL AD DITIONS HAD BEEN MADE IN THE APPELLANT'S CASE IN A.YS. 1994-95 TO 1996-97 ALSO ON ACCOUNT OF CATALYST CONSUMPTION AND LOW YIE LD. THE APPEALS FILED BY THE APPELLANT IN RESPECT OF THESE ASSESSMENT YEARS ARE PENDING WITH DIFFERENT C1T(A)C.I.T. (A)-L , BARODA). THE ASSESSMENT ORDERS OF THE SAID YEARS ARE PERUSED. ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 19 OF 32 IT IS OBSERVED THAT IN THE ASSESSMENT ORDER THE ASS ESSING OFFICER HAS DISCUSSED THE SUBMISSION OF THE APPELLA NT VERY BRIEFLY. FROM THE ASSESSMENT RECORDS IT IS SEEN THA T DURING THE ASSESSMENT PROCEEDINGS THE APPELLANT HAS GIVEN DETA ILED EXPLANATIONS IN RESPECT OF ITS' MANUFACTURING ACTIV ITIES AND VARIOUS QUERIES RAISED BY THE ASSESSING OFFICER. TH E ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT MAINTAINE D BY THE APPELLANT MAINLY ON THE GROUNDS THAT THE (I) APPELL ANT HAS NOT MAINTAINED DAY-TO-DAY CONSUMPTION AND PRODUCTION RE GISTER FROM WHICH CONSUMPTION CAN BE CORELATED WITH YIELD (II).THE SAID DETAILS IN RESPECT OF OWN PRODUCTION AND JOB WORK P RODUCTION ARE NOT MAINTAINED SEPARATELY AND (III) THE YIELD IN CU RRENT YEAR (A.Y. 1997-98) IS LESS THAN THE YIELD SHOWN IN THE ASSESS MENT YEAR 1995-96. THE ASSESSING OFFICER HAS ALSO DISPUTED TH E JOB WORK CHARGES RECEIVED BY THE APPELLANT FROM IT'S SISTER CONCERNS. THE GROSS PROFIT AND THE YIELD TO A.Y. 1995-96 TO A .Y. 1997-98 ARC GIVEN AS UNDER:- A.Y. A.Y. A.Y. 1995-96 1996-97 1997-98 GROSS PROFIT 41.59% 47.21% 44.84 % YIELD 1.056% 0.987% 1.01% THE ASSESSING OFFICER HAS NOT COMPARED THE YIELD WITH THE IMMEDIATE PRECEDING A.Y. 1996-97 ON THE REASONING T HAT THE APPELLANT'S YIELD HAS NOT BEEN ACCEPTED BY THE ASSE SSING OFFICER IN THE SAID YEAR. HE HAS ALSO REJECTED THE ARGUMENT THAT THOUGH THE YIELD HAS BEEN LESS IN A.Y. 1997-98 AS C OMPARED TO A.Y. 1995-96 YET THE GROSS PROFIT IS MORE AT 44.84% AS COMPARED TO 41.59% AND THEREFORE NO ADVERSE VIEW CA N BE TAKEN FOR LESS YIELD. HE HAS ALSO NOT ACCEPTED THAT IF YIELD IS TO BE COMPARED IT SHOULD BE COMPARED WITH IMMEDIATE PR ECEDING ASSESSMENT YEAR 1996-97 AND NOT WITH ASSESSMENT YEA R 1996- 97 AND ON SUCH COMPARISON, THE YIELD DURING THE CUR RENT YEAR HAS INCREASED FROM .98% IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR TO 1.01%. IN MY VIEW, THE ASSESSING OFFICER IS NOT JUSTIFIED IN COMPARING THE YIELD OF CURRENT YEA R (A.Y. 97-98) WITH YIELD OF A.Y. 1995-96, IGNORING THE FACT THAT YIELD OF CURRENT YEAR IS MORE THAN THE YIELD OF IMMEDIATE PRECEDING YEAR AND AT THE SAME TIME DISREGARDING INCREASE OF GROSS PROFIT IN CURRENT YEAR AS COMPARED TO A.Y. 1995-96. HE HAS ALSO NOT CONSIDERED THE REASONS SUBMITTED BY THE APPELLANT FOR VARIATIO N IN YIELD. DURING THE ASSESSMENT PROCEEDINGS, THE APPELLANT CO NTENDED THAT THE YIELD WAS AFFECTED BY LARGE NUMBER OF FACT ORS LIKE THE ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 20 OF 32 QUALITY OF MATERIAL RECEIVED, PROCESSING PATTERN AN D THE CHANGE IN THE PRODUCTION PROCESS. IT WAS FURTHER STATED TH AT THE COMPANY WAS UNDERGOING SUBSTANTIAL CHANGES IN THE MANUFACTU RING PROCESS OVER THE PERIOD OF AYS. 1995-96 AND 1996-97. THE APPELLANT CONTENDED THAT IT OPTIMISED THE PROCESS P ARAMETERS IN RAW-MATERIALS OXONATION & HYDROGENATION WHICH HAS G IVEN POSITIVE RESULT TO OPTIMISE CATALYST CONSUMPTION. D UE TO CHANGE IN THE USE OF CATALYST, CONSUMPTION OF CATALYST DEC LINED SUBSTANTIALLY RESULTING INTO SLIGHTLY MORE CONSUMPT ION OF RAW- MATERIAL. BUT THE NET EFFECT WAS INCREASE IN PROFIT ABILITY. THUS, THE-APPELLANT HAS PROPER REASONS FOR DECLINE IN YIE LD IN THE CURRENT YEAR AS COMPARED TO A.Y. 1995-96. REGARDING NON- MAINTENANCE OF CONSUMPTION AND PRODUCTION RECORDS, IT IS OBSERVED FROM THE DETAILS OF RECORDS MAINTAINED BY IT AS REPRODUCED IN PARA 19 ABOVE, THE APPELLANT HAS MAIN TAINED PROPER RECORDS OF CONSUMPTION AND PRODUCTION. ACCOR DING TO THE ASSESSING OFFICER, THE APPELLANT HAS NOT MAINTAINED CONSUMPTION AND PRODUCTION RECORD BUT MAINTAINED RE CORDS RELATING TO ENTRY OF RAW-MATERIAL AND EXIT OF FINIS HED PRODUCTS DUE TO WHICH CONSUMPTION OF RAW-MATERIAL CANNOT BE CO-R ELATED WITH PRODUCTION. I FIND THAT THIS OBSERVATION IS NOT COR RECT AS THE APPELLANT HAS MAINTAINED PROPER CONSUMPTION AND PRO DUCTION RECORDS AND ALSO IN ACCORDANCE WITH THE RECORDS REQ UIRED TO BE MAINTAINED BY THE EXCISE AUTHORITIES. DURING THE SE ARCH AT THE APPELLANT'S FACTORY PREMISES AND OTHER PREMISES IN 1998 THERE WAS MINOR DIFFERENCE IN BOOK STOCK AND PHYSICAL STOCK WHICH ACCORDING TO THE-ASSESSEE AROSE MAINLY ON ACCOUNT O F ERRORS IN CONVERSION, EVAPORATION, WASTAGE, SPILLAGE, TEMPERA TURE DIFFERENCE ETC. FROM THE BLOCK ASSESSMENT ORDER PAS SED BY THE SAME ASSESSING OFFICER, IT IS OBSERVED THAT IN THE SEARCH YEAR I.E. 1999-2000, THE APPELLANT CONTINUED TO MAINTAIN THE SAME RECORDS OF PRODUCTION AND CONSUMPTION WHICH WERE MA INTAINED BY IT IN THE YEAR UNDER CONSIDERATION. THUS, THE AS SESSING OFFICER'S FINDING THAT CONSUMPTION AND PRODUCTION R ECORDS WERE NOT MAINTAINED BY THE APPELLANT IS NOT CORRECT. THE APPELLANT HAS GIVEN REASONS AS TO WHY IT CANNOT MAINTAIN CONSUMPT ION OF PRODUCTION RECORDS IN RESPECT OF JOB WORK SEPARATEL Y. ACCORDING TO THE APPELLANT, IT IS NOT POSSIBLE TO KEEP SEPARA TE RECORDS FOR JOB WORK AS IT HAS TO MAINTAIN SEPARATE STORAGE TAN KS AND BEFORE PROCESSING THE MATERIAL FOR JOB WORK THE PLANT HAS TO BE SHUT DOWN AND THE REACTORS OF THE FACTORY TO BE EMPTIED. THE SAID EXPLANATION WAS GIVEN TO THE ASSESSING OFFICER DURI NG THE ASSESSMENT PROCEEDINGS WHICH WAS NOT CONSIDERED / A CCEPTED BY THE ASSESSING OFFICER AT THE TIME OF DECIDING TH E ISSUE. IN MY VIEW, THE APPELLANT HAS PROPER REASONS DUE TO WHICH THE RECORDS IN RESPECT OF JOB WORK CANNOT BE MAINTAINED SEPARAT ELY AND ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 21 OF 32 THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TAKING IT AS A DETECT IN THE MAINTENANCE OF BOOKS OF ACCOUNT. IT I S NOTED THAT THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACC OUNT MAINTAINED BY THE APPELLANT U/S. 145(3) OF THE ACT. UNDER THE SAID PROVISIONS, THE BOOKS OF ACCOUNT MAY BE REJECT ED IF ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORREC TNESS OR COMPLETENESS OF THE ACCOUNT OR THE METHOD OF ACCOUNTING PROVIDED IN SUB-CLAUSE 1 OF SECTION 145 OR ACCOUNTI NG STANDARDS AS NOTIFIED UNDER SUB-SECTION 2 OF SECTION 145 HAVE NOT BEEN REGULARLY FOLLOWED. IN THE PRESENT CASE, THE ASSESS ING OFFICER HAS NOT DISPUTED THE METHOD OF ACCOUNTING OR ACCOUN TING STANDARDS FOLLOWED BY THE APPELLANT. THERE IS NO MA TERIAL ON RECORD OR BROUGHT OUT BY THE ASSESSING OFFICER WHIC H MAY DISPUTE THE CORRECTNESS OF THE ACCOUNTS. REGARDING COMPLETENESS OF ACCOUNTS, THERE IS NO ADVERSE MATER IAL EXCEPT ASSESSING OFFICER'S VIEW THAT THE APPELLANT HAS NOT MAINTAINED PROPER RECORDS IN RESPECT OF CONSUMPTION AND PRODUC TION. HOWEVER, AS ALREADY DISCUSSED, THE APPELLANT HAD MA INTAINED THE CONSUMPTION AND PRODUCTION RECORDS AS PER REQUI REMENT OF THE CENTRAL EXCISE AUTHORITIES WHICH ADEQUATELY COV ERS THE DAY TO DAY CONSUMPTION AND PRODUCTION OF THE APPELLANT. THEREFORE, THE ASSESSING OFFICER'S FINDING THAT THE APPELLANT HAD NOT MAINTAINED PROPER CONSUMPTION AND PRODUCTION RECORD S IS NOT CORRECT. FROM THE CASE RECORDS, I DO NOT FIND ANY M ATERIAL WHICH MAY RAISE DOUBT ABOUT THE CORRECTNESS OR COMPLETENE SS OF THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT THUS, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING TH E BOOKS OF ACCOUNT U/S. 145(3) OF THE ACT. IT IS FURTHER OBSER VED THAT BOTH INPUT AND OUT PUT ARE GOVERNED BY THE EXCISE AUTHOR ITIES. THE APPELLANT CANNOT SELL ANY GOODS MANUFACTURED BY IT UNLESS IT IS CLEARED BY THE EXCISE AUTHORITIES AND ENTRIES ARE R ECORDED IN THE PRESCRIBED REGISTERS. THE EXCISE RECORDS DO NOT SHO W ANY UNACCOUNTED SALE OF GOODS BY THE APPELLANT AND THER EFORE, IT CANNOT BE SAID THAT THE APPELLANT HAS MADE ANY SALE OTHER THAN RECORDED IN THE REGISTERS UNLESS THE ASSESSING OFFI CER BRINGS OUT MATERIAL/EVIDENCE IN RESPECT OF SUCH UNACCOUNTED SA LE. THERE IS NO MATERIAL /EVIDENCE ON RECORD TO SHOW THAT THE AP PELLANT HAS MADE ANY UNACCOUNTED SALES. BESIDES, NO EVIDENCE WA S FOUND EVEN DURING THE SEARCH IN SUBSEQUENT YEAR TO SHOW UNACCOUNTED SALE OF GOODS BY THE APPELLANT. ON SUCH FACTS, THE ASSESSING OFFICER CANNOT REJECT THE BOOKS OF ACCOUN T AND ESTIMATE THE YIELD AT THE SAME PERCENTAGE TAKE THE SAME YIELD AS SHOWN BY THE APPELLANT IN A.Y. 1995-96 AND TREAT THE DIFFERENCE IN PRODUCTION AS SALE BY THE APPELLANT O UTSIDE THE BOOKS. THUS, THE ADDITION OF RS. 1,55,33,637/- IS M ADE BY THE ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 22 OF 32 ASSESSING OFFICER PURELY ON PRESUMPTIONS WITHOUT AN Y MATERIAL/EVIDENCE ON RECORD WHICH CANNOT BE SUSTAIN ED. ; REGARDING ASSESSING OFFICER'S OBSERVATION IN RESPEC T OF LESS CHARGING-OF JOB WORK @ OF RS. 10850 PMT, IT IS OBSE RVED THAT THE APPELLANT HAS CHARGED JOB WORK AT THE AVERAGE R ATE OF RS.31.455 PMT, RS.20,745 PMT AND RS. 19,115 PMT IN THE ASSESSMENT YEARS 1995-96,1996-97 AND 1997-98 RESPEC TIVELY. IN THE LETTER DATED 14.11.2000, THE ASSESSING OFFIC ER HAS GIVEN THE BASIS FOR HIS REMARKS IN THE ASSESSMENT ORDER I N RESPECT OF AVERAGE JOB WORK CHARGES AT RS.30,000/- PMT IN A.YS. 1995-96 & 1996-97. ACCORDING TO HIM, BOTH THE YEARS TAKEN T OGETHER THE JOB CHARGES RANGED FROM RS.20,000/- PMT TO RS.39,35 0/- PMT WITH OTHER FIGURES BEING RS.37,000/- AND RS.35,000/ - AND IN THE RANGE OF RS.33,000/- PMT. ACCORDING TO ASSESSING OF FICER IF THE EXTREME FIGURES ARE DISREGARDED FOR THE PURPOSE OF CALCULATING AVERAGE RATE PMT THEN THE JOB WORK CHARGES IN A.Y. 1995-96 WOULD COME TO AN AVERAGE RATE OF RS.36,000/- PMT AN D IF THE AVERAGE OF ONLY TWO YEARS IS TAKEN I.E, A.Y. 1996-9 7 & 1995-96, THE CHARGES WOULD BE APPROXIMATELY RS,30,0007- PMT WHICH WAS TAKEN IN THE ASSESSMENT ORDER. IN MY VIEW, IN T HE SAID WORKING THE ASSESSING OFFICER HAS NOT FOLLOWED ANY METHOD OR ANY ACCOUNTING PRINCIPLE OR ANY LOGIC. HE HAS DEVIS ED HIS OWN METHOD TO JUSTIFY HIS CALCULATION OF AVERAGE RATE A T RS.30,000/- PMT. IT IS DIFFICULT TO UNDERSTAND AS TO HOW AND ON WHAT BASIS THE ASSESSING OFFICER CAN EXCLUDE MAXIMUM, MINIMUM AND OTHER RATES OF JOB WORK CHARGES WHILE WORKING OUT A VERAGE RATE FOR THE SAID YEARS. THE APPELLANT'S WORKING OF AVER AGE RATE WHICH DOES NOT EXCLUDE ANY JOB CHARGES IS THE CORRE CT FIGURES AND SHOULD BE TAKEN WHILE CONSIDERING THE ISSUE. ON THIS BASIS THE AVERAGE RATE OF JOB WORK CHARGES FOR THE YEAR U NDER CONSIDERATION IS RS.19,150/- PMT AS COMPARED TO RS. 20,745/- PMT IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR. IT IS SEEN THAT BY CHARGING THE AVERAGE RATE OF RS.19,150/- PM T THE APPELLANT HAS EARNED SUFFICIENT PROFIT AS IT'S COST OF PRODUCTION IN RESPECT OF JOB WORK CHARGES AS WORKED OUT IN PARA 1 7 ABOVE WAS RS. 10,8267- PMT. THE VARIABLE COST HAS BEEN WO RKED OUT AT RS.8,807/- PMT. DURING THE HEARING BEFORE ME, TH E ASSESSING OFFICER CONTENDED THAT THE AVERAGE COST OF PRODUCTI ON BY THE APPELLANT IN RESPECT OF JOB WORK COMES OUT TO RS.20 ,974/- PMT AGAINST WHICH THE APPELLANT BY IT'S OWN WORKING HAS SHOWN CHARGING OF JOB WORK AT THE AVERAGE RATE OF RS.19,1 50/- PMT, THUS INCURRING LOSS. IT IS OBSERVED THAT THE SAID F IGURES HAS BEEN TAKEN BY THE ASSESSING OFFICER ON THE BASIS OF STAT EMENT SUBMITTED BY THE APPELLANT FOR THE PURPOSE OF VALUA TION OF CLOSING STOCK OF FINISHED GOODS. FROM THE SAID STAT EMENT, IT IS ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 23 OF 32 NOTED THAT THE COST OF FINISHED AT RS.36744/- SHOWN BY THE APPELLANT IS THE COST BY TAKING INTO ACCOUNT ALL TH E EXPENSES OF PROFIT & LOSS A/C. INCLUDING DEPRECIATION AND THE S AID FIGURE WAS ARRIVED AFTER EXCLUDING ONLY NET PROFIT. THE SAID C OST OF PRODUCTION IS NOT CORRECT AS IT TAKES INTO ACCOUNT FINANCIAL AND OTHER COSTS WHICH ARE NOT APPLICABLE TO THE JOB WOR K. IN MY VIEW, THE APPELLANT'S WORKING OF COST OF PRODUCTION AT RS. 10 ,826/- PMT IS CORRECT AGAINST WHICH THE APPELLANT HAS CHAR GED AT THE AVERAGE RATE OF RS. 19,150/- PMT. THEREFORE, NO ADV ERSE VIEW CAN BE TAKEN AGAINST THE APPELLANT IN RESPECT OF JO B WORK CHARGES. AS ALREADY HELD IN THE PRECEDING PARAGRAPH S, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING ADDITI ON ON ACCOUNT OF UNACCOUNTED SALE. FURTHER, HE IS ALSO NOT JUSTIF IED IN HIS WORKING OF LESS CHARGING OF JOB WORK. THEREFORE, TH E ADDITION OF RS. 1,55,33,697/- MADE BY THE ASSESSING OFFICER IN THE TOTAL INCOME OF THE APPELLANT CAN NOT BE SUSTAINED WHICH IS DELETED. 42. BEFORE US THE LD. D.R. POINTED TO THE FINDINGS OF ASSESSING OFFICER AND RELIED ON THE ORDER OF ASSESSING OFFICER. ON TH E OTHER HAND, THE LD.A.R. HAS SUBMITTED THAT THE ASSESSEE HAS MAINTAI NED RECORDS OF PRODUCTION, CONSUMPTION ETC. AS REQUIRED UNDER THE EXCISE RULES. HE FURTHER SUBMITTED THAT THOUGH THE YIELD HAS BEEN LE SS AS COMPARED TO AY: 1995-96, THE GROSS PROFIT IS MORE AT 44.84% AS COMP ARED TO 41.59% AND THEREFORE NO ADVERSE VIEW CAN BE TAKEN. THE LD. A.R . FURTHER SUBMITTED THAT YIELD IS AFFECTED BY LARGE NUMBER OF FACTORS L IKE QUALITY OF RAW MATERIAL, PROCESSING PATTERN AND CHANGE IN PRODUCTION PROCESS . HE THUS SUPPORTED THE ORDER OF CIT(A). 43. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS GIVE N A FINDING THAT AO WAS NOT JUSTIFIED IN COMPARING THE YIELD OF AY 97-98 WI TH THE YIELD OF AY 1995- 96 IGNORING THE FACT THAT THE YIELD OF CURRENT YEAR WAS BETTER THAN THAT IN THE IMMEDIATELY PRECEDING YEAR. HE HAS FURTHER HELD THA T THE ASSESSEE HAS MAINTAINED PROPER RECORDS OF PRODUCTION AND CONSUMP TION IN ACCORDANCE WITH THE EXCISE REGULATIONS. HE HAS FURTHER NOTED T HAT DURING THE SEARCH AT ASSESSEE'S PREMISES IN 1999-2000 MINOR DIFFERENCE I N STOCK WAS ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 24 OF 32 OBSERVED WHICH WAS DUE TO VARIOUS EXPLAINABLE FACTO RS. HE HAS FURTHER HELD THAT AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DISPUTE THE CORRECTNESS OF BOOKS OF ACCOUNTS AND FURTHER NO EVI DENCE HAS BEEN BROUGHT ON RECORD TO SUBSTANTIATE THE ALLEGATION OF UNRECORDED SALES. HE THUS BY A WELL REASONED ORDER DELETED THE ADDITION. BEFORE US, NOTHING HAS BEEN BROUGHT ON RECORD BY REVENUE TO CONTROVERT THE FINDINGS OF CIT(A) AND THUS WE HAVE NO REASON TO INTERFERE WITH THE OR DER OF CIT(A). THUS, THIS GROUND OF REVENUE IS DISMISSED. 44. 4 TH GROUND IS WITH RESPECT TO DISALLOWANCE U/S 40A(2) OF RS. 25,20,000/-: 45. ASSESSING OFFICER NOTICED THAT ASSESSEE HAS PAI D RS. 30 LACS AS REMUNERATION TO SHRI MEHUL BHUVA, ONE OF THE DIRECT ORS OF THE COMPANY WHO ALSO HAPPENED TO BE THE SON OF THE CHAIRMAN-CUM -MANAGING DIRECTOR OF THE COMPANY. ASSESSING OFFICER WAS OF THE VIEW T HAT THE REMUNERATION WAS EXCESSIVE IN VIEW OF THE FACT THAT THE REMUNERA TION WAS MORE THAN 10 TIMES THAT WAS PAID TO THE PRESIDENT OF THE COMPANY , MR. MEHUL BHUVA WAS ALSO THE MANAGING DIRECTOR OF ANOTHER COMPANY S ITUATED ABROAD. THUS, ACCORDING TO THE ASSESSING OFFICER THE REMUNE RATION OF RS. 40,000/- P.M. (RS 4.80 LACS P.A.) WOULD HAVE BEEN MOST APPRO PRIATE AND ACCORDINGLY HE DISALLOWED THE EXCESSIVE PAYMENT OF RS. 25,20,000/- U/S 40A(2) AND ADDED TO THE INCOME. ASSESSEE CARRIED TH E MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER: THE CONTENTIONS OF THE APPELLANT ARE CONSIDERED. I T IS OBSERVED THAT THE ENTIRE SALARY OF RS. 30 LAKHS HAS BEEN TAX ED IN THE HANDS OF SHRI BHUTRA AT MASIMUM RATE. IT IS SEEN TH AT THE APPOINTMENT OF SHRI BHUVA WITH REMUNERATION OF RS.3 0 LAKHS WAS PASSED IN THE ANNUAL GENERAL MEETING AND WAS AP PROVED BY THE BOARD OF DIRECTORS. THE COMPANY LAW BOARD HA S ALSO AFTER EXAMINING VARIOUS TERMS & CONDITIONS AND ALSO THE REMUNERATION PROPOSED TO GIVE SHRI MEHOOL N. BHUVA , APPROVED HIS APPOINTMENT. IN MY VIEW, THE DECISION OF DELHI ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 25 OF 32 HIGH COURT IN THE CASE OF CIT VS. SHRIRAM PISTON & RINGS LTD. 181 ITR 230 IS APPLICABLE TO THE APPELLANT ON FACTS OF THE CASE, WHICH HAS HELD THAT ONCE THE APPOINTMENT IS APPROVE D BY THE COMPANY LAW BOARD, SECTION 40A(2) DOES NOT APPLY. T HE COMPANY LAW BOARD HAS GIVEN ITS APPROVAL AFTER EXA MINING HIS PROFESSIONAL QUALIFICATION AND EXPERIENCE OF THE IN DIVIDUAL IN RESPECT OF WHOM THE REMUNERATION WAS TO BE FIXED. R ESPECTFULLY FOLLOWING THE SAID DECISION OF THE DELHI HIGH COURT , THE ASSESSING OFFICER IS DIRECTED TO DELETE ADDITION OF RS.25,20,000/. 46. BEFORE US THE LD. D.R. RELIED ON THE ORDER OF A SSESSING OFFICER AND ON THE OTHER HAND THE LD A.R. REITERATED THE CONTEN TIONS MADE BEFORE CIT(A). HE THUS SUPPORTED THE ORDER OF CIT(A). 47. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS NOTE D THAT THE REMUNERATION TO MR. MEHUL BHUVA WAS APPROVED BY THE MEMBERS OF T HE COMPANY IN THE ANNUAL GENERAL MEETING, AND WAS ALSO APPROVED BY TH E COMPANY LAW BOARD. HE HAS FURTHER NOTED THAT THE SALARY WAS TAX ED IN HIS HAND AT THE MAXIMUM RATE. HE FURTHER RELIED ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. SHRIRAM PISTON & RINGS LTD. 181 ITR 230. NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTROVERT THE FINDINGS OF CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WI TH HIS ORDER. THUS, THIS GROUND OF REVENUE IS DISMISSED. 48. 5 TH GROUND IS WITH RESPECT TO INTEREST ON CASH BALANCE OF RS. 11,96,100/-: 49. ON PERUSING THE BOOKS OF ACCOUNTS ASSESSING OFF ICER NOTICED THAT ASSESSEE WAS MAINTAINING HUGE AMOUNT OF CASH BALANC E OF APPROXIMATE RS. 66.44 LACS FROM NOV. 2006 AND AT THE SAME TIME EVEN FOR SMALL EXPENDITURES, WITHDRAWALS WERE MADE FROM BANK. HE A LSO NOTED THAT THE MAINTENANCE OF HUGE CASH BALANCE WAS ALSO COMMENTED UPON BY THE ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 26 OF 32 AUDITORS IN THE ANNUAL REPORT. ASSESSEE'S SUBMISSIO N THAT THE BALANCE WAS MAINTAINED FOR PAYMENT OF CUSTOMS DUTY WAS NOT FOUN D ACCEPTABLE TO ASSESSING OFFICER. HE WAS OF THE VIEW THAT ASSESSEE HAS NOT BEEN IN A POSITION TO EXPLAIN SATISFACTORILY THE MAINTENANCE OF HUGE CASH BALANCE. HE THUS CONCLUDED THAT THE AMOUNT OF RS 66.44 LACS WAS NOT AVAILABLE WITH THE ASSESSEE AND HAS BEEN EXPENDED OUTSIDE THE BOOK S OF ACCOUNTS. SINCE THE NATURE OF EXPENSES WAS NOT KNOWN AND WHET HER IT WAS FOR BUSINESS OR FOR PERSONAL EXPENSES, ASSESSING OFFICE R WORKED OUT PROPORTIONATE INTEREST @ 18% AMOUNTING TO RS. 11.96 ,100/- AND DISALLOWED THE SAME. ASSESSEE CARRIED THE MATTER BE FORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE D ELETED THE DISALLOWANCE BY HOLDING AS UNDER: THE CONTENTIONS OF THE APPELLANT ARE CONSIDERED. I T IS OBSERVED THAT ASSESSING OFFICER HAS DISALLOWED INTEREST ON T HE REASONING THAT THE SAID CASH SHOWN IN THE CASH BOOK DOES NOT EXIST AND WAS USED FOR NON-BUSINESS PURPOSES. IT IS OBSERVED THAT THERE IS NO EVIDENCE/MATERIAL BEFORE THE ASSESSING OFFICER T O MAKE SUCH PRESUMPTIONS. THOUGH, IT IS NOT NORMAL TO HAVE SUCH HUGE CASH BALANCE AND THE APPELLANT HAS NOT GIVEN SATISFACTOR Y REASONS FOR THE SAME YET IT CANNOT BE PRESUMED THAT THE SAID MO NEY WAS NOT AVAILABLE TO THE APPELLANT OR THE SAID CASH WAS USED FOR NON- BUSINESS PURPOSES. I AGREE TO THE ALTERNATIVE CONTE NTION OF THE APPELLANT THAT IT HAS INTEREST FREE FUNDS OF RS.30 CRORES AVAILABLE TO IT AND THE SAID CASH BALANCE CAN BE TREATED AS P ART OF THE SAID FUNDS. IN THAT CASE, EVEN IF THE MONEY IS NOT USED FOR THE PURPOSE OF BUSINESS, NO DISALLOWANCE CAN BE MADE. T HEREFORE, ON BOTH REASONINGS, THE ASSESSING OFFICER IS NOT JU STIFIED IN DISALLOWING INTEREST ATTRIBUTABLE TO THE CASH BALAN CE APPEARING IN THE CASH BOOK OF THE APPELLANT. THE DISALLOWANCE OF RS.11,96,100/- IS DELETED. 50. BEFORE US THE LD. D.R RELIED ON THE ORDER OF AS SESSING OFFICER AND ALSO NO THE DECISION IN THE CASE OF VIJAYKUMAR MILL S LTD VS. CIT (1992) 194 ITR 197 (MADRAS). ON THE OTHER HAND ID A.R. RELIED ON THE ORDER OF CIT(A). 51. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS NOTE D THAT THE ASSESSING ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 27 OF 32 OFFICER HAD NO MATERIAL TO MAKE A PRESUMPTION THAT THE CASH BALANCE DID NOT EXIST AND WAS USED FOR NON BUSINESS PURPOSES. R EVENUE HAS NOT BROUGHT ANY TANGIBLE MATERIAL TO SUPPORT ITS CONTEN TION. THE CASE LAW RELIED UPON BY REVENUE ARE DISTINGUISHABLE ON FACT AND ARE THEREFORE NOT APPLICABLE. WE THUS FIND NO REASON TO INTERFERE WIT H THE ORDER OF CIT(A). THUS, THIS GROUND IS DISMISSED. 52. 6 TH GROUND IS WITH RESPECT TO INTEREST ON UNCONFIRMED ADVANCES. 53. FROM THE DETAILS FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED THAT ASSESSEE HAD ADVANCED RS. 140 LACS IN EARLIER YEARS TO 2 PARTIES NAMELY P.B. TRADERS MUMBAI AND SHRINIVAS PLATES AND STRUCTURAL, BARODA. TO ENQUIRE THE GENUINENESS OF TRANSACTION SUMMONS U/S 131 WERE ISSUED TO THE PART IES. SUMMONS TO P.B. TRADERS COULD NOT BE SERVED AND WAS RETURNED W ITH THE REMARK THAT NO SUCH PARTY EXISTED. SHRINIVAS PLATES DID NOT REP LY TO THE SUMMONS. ASSESSEE INTER ALIA SUBMITTED THAT THE ADVANCE WAS GIVEN FOR THE PURPOSE OF CONSTRUCTION OF STORAGE TANKS BUT THE SAME COULD NOT BE CONSTRUCTED DUE TO CHANGE IN BUSINESS PLAN. THE SUBMISSION OF A SSESSEE WAS NOT FOUND ACCEPTABLE TO ASSESSING OFFICER FOR THE REASO N THAT THE ASSESSEE COULD NOT PRODUCE THE BASIC WORK AGREEMENT FOR WHIC H THE AMOUNT WAS ADVANCED. HE THEREFORE CONCLUDED THAT THE REAL NATU RE OF EXPENSE COULD NOT BE ESTABLISHED FOR THE PURPOSE OF BUSINESS. HE ACCORDINGLY WORKED OUT PROPORTIONATE INTEREST AT 18% AND WORKED OUT THE DI SALLOWANCE OF RS 25.20 LACS. AGGRIEVED BY THE ACTION OF ASSESSING OF FICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DIRECTED THE AO TO VERIFY BY HOLDING AS UNDER: DURING THE ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAS ADV ANCED RS.140 LAKHS IN EARLIER YEARS TO TWO PARTIES M/S. P .B. TRADERS, MUMBAI AND M/S.SLUINIVAS PLATES AND STRUCTURAL, BAR ODA. IN ORDER TO KNOW THE GENUINENESS OF THE TRANSACTIONS, THE ASSESSING OFFICER ISSUED SUMMONS TO THE SAID PARTIE S WHICH ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 28 OF 32 COULD NOT BE SERVED AS THE PARTY AT MUMBAI WAS NOT TRACEABLE AND THE PARTY AT BARODA DID NOT REPLY. THE ASSESSIN G OFFICER SHOW CAUSE NOTICE AND THE APPELLANT'S EXPLANATIONS HAS BEEN DISCUSSED BY THE ASSESSING OFFICER IN PARA-11 OF TH E ASSESSMENT ORDER. THE ASSESSEE SUBMITTED TO THE ASS ESSING OFFICER THAT THE ADVANCES WERE GIVEN TO THE SAID PA RTIES FOR CONSTRUCTION OF THE STORAGE TANK. FURTHER, AS THE S TORAGE TANKS WERE NOT NEEDED BY THE ASSESSEE DUE TO THE CHANGE I N BUSINESS PLAN AND FOR OTHER REASONS THE SAID TANKS COULD NOT BE PURCHASED. THE PARTIES REFUSED TO REFUND THE MONEY AS THE STORAGE TANKS WERE ALREADY CONSTRUCTED BY THEM. THE APPELLANT SUBMITTED THAT SINCE THE AMOUNT WAS ADVANCED FOR TH E BUSINESS PURPOSE, NO DISALLOWANCE COULD BE MADE FOR THE INTE REST ATTRIBUTABLE TO THE ADVANCES. THE ASSESSEE HAS ADVA NCED ALTERNATIVE CONTENTION THAT IT HAS HUGE AMOUNT OF R S.32 CRORE AND THEREFORE, IT CANNOT BE SAID THAT ASSESSEE HAS DIVERTED INTEREST BEARING FUND TOWARDS GRANTING ADVANCE TO T HE SAID PARTIES. THE ASSESSING OFFICER DID NOT ACCEPT THE E XPLANATION OF THE ASSESSEE ON THE GROUND THAT ASSESSEE FAILED TO PRODUCE AGREEMENT / WORK CONTRACT ON THE BASIS OF WHICH ADV ANCES WERE MADE. HE FURTHER OBSERVED THAT THE ASSESSEE FAILED TO SHOW THAT THE ADVANCES WERE MADE FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER WORKED OUT THE INTEREST ATTRIBUTA BLE TO THE ADVANCE AT RS.25.20 LAKHS @ 18% AND DISALLOWED THE SAME. DURING THE APPELLATE PROCEEDINGS, SHRI MILIN MEHTA RAISED THE SAME CONTENTIONS AS WERE RAISED BY THE ASSESSEE DUR ING THE ASSESSMENT PROCEEDINGS. AFTER CONSIDERING FACTS OF THE CASE, I AM OF THE VIEW THAT THE APPELLANT WAS NOT ABLE TO S UBSTANTIATE THAT ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINES S. HOWEVER, FROM THE FACTS STATED BY THE ASSESSING OFFICER AND THE APPELLANT, IT IS NOT CLEAR WHETHER THERE WAS ANY NEXUS BETWEEN FUNDS BORROWED AND ADVANCES GIVEN. IF THERE IS A NEXUS BE TWEEN THE TWO AND THE ADVANCES WERE NOT GIVEN FOR THE PURPOSE OF BUSINESS, THE INTEREST ON BORROWED FUNDS NEEDS TO B E DISALLOWED. HOWEVER, IF THERE IS NO NEXUS BETWEEN T HE TWO, IT SHOULD BE PRESUMED TO HAVE BEEN GIVEN OUT OF CAPITA L, RESERVE, INTEREST FREE LOANS ETC. WHICH ARE CLAIMED TO BE MO RE THAN 30 CRORES BY THE APPELLANT. THE ASSESSING OFFICER IS D IRECTED TO FIND OUT THE FACTS AND DECIDE THE ISSUE ON THE BASIS OF AFORESAID OBSERVATIONS. 54. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE I S NOW IN APPEAL BEFORE US. ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 29 OF 32 55. BEFORE US, THE LD D.R. SUBMITTED THAT ASSESSEE HAS STATED TO HAVE GRANTED ADVANCE IN EARLIER YEARS FOR THE PURPOSE OF CONSTRUCTION OF TANKS. HOWEVER, THE ASSESSEE DID NOT SUBMIT THE COPIES OF THE WORK ORDERS ETC. TO SUBSTANTIATE ITS CLAIM. HE FURTHER POINTED OUT F ROM THE ASSESSMENT ORDER THAT THE TANKS WERE NOT CONSTRUCTED AND THE AMOUNT HAS ALSO NOT BEEN RETURNED. IN VIEW OF THESE FACTS THE ASSESSING OFFI CER WAS JUSTIFIED IN CALCULATING THE INTEREST AND DISALLOWING THE SAME. THE LD. A.R. ON THE OTHER HAND SUPPORTED THE ORDER OF CIT(A). 56. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE FACT ARISING IS THAT THE AMOUNT WAS ADV ANCED FOR THE CONSTRUCTION OF TANKS BUT THE SAME WAS NOT CONSTRUC TED. DURING THE COURSE OF HEARING THE BENCH INQUIRED AS TO WHETHER THE TAN K WERE CONSTRUCTED SUBSEQUENTLY OR TILL DATE TO WHICH THE LD. A.R. SUB MITTED IN THE NEGATIVE. IN VIEW OF THESE FACTS, WE DO NOT FIND ANY FAULT WITH THE ACTION OF ASSESSING OFFICER. THUS, THIS GROUND OF REVENUE IS ALLOWED. C.O. 152/AHD/2013 (A.Y.: 1996-97) 57. THE GROUNDS RAISED IN CO READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN FACT AND IN LAW BY CONFIRMING THE DISALLOW ANCE OF PART OF THE DEDUCTION U/S. 35D OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS.2,35,148. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW BY CONFIRMING THE DISALLOW ANCE OF RS.12,75,000 ON ACCOUNT OF EXPENSES INCURRED FOR IN CREASING AUTHORIZED SHARE CAPITAL. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN FACT AND IN LAW BY CONFIRMING THE ACTION O F THE AO IN NOT ALLOWING DEDUCTION U/S. 80 IA OF THE INCOME TAX ACT , 1961. 4. YOUR RESPONDENT CRAVES RIGHT TO ADD TO OR ALTER, AMEND, SUBSTITUTE, DELETE OR WITHDRAW ALL OR ANY OF THE AB OVE GROUNDS CROSS OBJECTION. ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 30 OF 32 58. GROUNDS NO. 1 AND 2 WERE NOT PRESSED, THEREFORE , THE SAME IS DISMISSED AS NOT PRESSED. 59. GROUND NO.3 IS WITH RESPECT TO DEDUCTION U/S 80 IA:- DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT AS SESSEE HAD CLAIMED DEDUCTION U/S 80 IA IN RESPECT OF EXPANSION CARRIED OUT IN 1990-91. THE AO DISALLOWED THE CLAIM OF ASSESSEE BY HOLDING AS U NDER:- 4.5 DEDUCTION U/S. 80-IA : ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IA IN RESPECT OF THE EXPANSION CARRIED OUT IN THE YEAR 1990-91. IT WAS S TATED BY THE ASSESSEE THAT THE UNIT WAS LOCATED AT THE SAME PREM ISES OF COMPANY AND EXPANSION RESULTED IN INCREASE IN INSTA LLED CAPACITY FROM 12500 TPA TO 25000 TPA OF OXOALCOHOLS . IT WAS FURTHER STATED THAT THE UNIT STARTED ITS COMMERCIAL PRODUCTION ON 16-1-1991. THE PROVISION OF SECTION 80IA WERE VERIFIED AND IT WAS FOUND THAT AS PER PROVISIONS OF SECTION 80IA, UNITS STARTING O PERATIONS FROM 1-4-91 ONLY ARE ELIGIBLE FOR DEDUCTION U/S. 80IA. A S THE SAID UNIT STARTED PRODUCTION BEFORE 1-4-91, IT IS NOT ELIGIBL E FOR DEDUCTION U/S. 80IA. IT IS FURTHER NOTED THAT IN FACT, THERE WAS NO NEW UNIT HAD BEEN STARTED BY ASSESSEE COMPANY. AS PER ASSESSEES OWN ANNUAL REPORT, THE COMPANY HAS COMMISSIONED ITS MODERISATI ON-CUM- EXPANSION PROJECT AND COMMENCED PRODUCTION ON AND F ROM 16 TH JANUARY, 1931. THUS THERE WAS ONLY MODERISATION AN D EXPANSION OF ITS EXISTING UNIT HENCE, THE BENEFITS OF PROVISION U/S. 80IA ARE NOT AVAILABLE. ASSESSEES CLAIM U/S 8 0IA IS REJECTED. 60. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER OF AO BY HOLDING AS UNDER:- I HAVE HEARD THE APPELLANTS COUNSEL AND GONE THROU GH THE SUBMISSIONS MADE BY HIM. I FIND THAT THE APPELLANT HAS NOT BEEN ABLE TO SHOW THAT THERE IS CREATION OF NEW UNIT. TH E APPELLANT HAS MERELY STATED THAT THERE IS EXPANSION WITHIN TH E SAME UNIT. THE EXPANSION CANNOT BE CONSIDERED TO BE CREATION O F THE NEW UNIT. I, THEREFORE, HOLD THAT THERE IS NO NEED TO I NTERFERE WITH THE FINDING OF THE ASSESSING OFFICER THAT THE APPELLANT IS NOT ENTITLED ITA NO.1077 & 721/AHD/2001 (AY: 1996-97 & 1997-98) C.O. NO.152/ AHD/2003 (AY: 1996-97) PAGE 31 OF 32 TO THE DEDUCTION U/S. 80 IA OR 80 I. I, THEREFORE, CONFIRM THE DISALLOWANCE OF THE DEDUCTION U/S. 80 IA MADE BY TH E ASSESSING OFFICER. 61. AGGRIEVED BY THE ORDER OF CIT(A), A IS NOW BE FORE US. BEFORE US LD. A.R. REITERATED SUBMISSIONS MADE BEFORE LOWE R AUTHORITIES ON THE OTHER HAND LD. D.R. SUPPORTED THE ORDER OF AO & CIT (A). 62. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, THE LD. A.R. COULD NOT CONTRO VERT THE FINDING OF A.O. & CIT(A). WE, FIND NO REASON TO INTEREFERE WIT H THE ORDER OF AO. THUS, THIS GROUND IS DISMISSED. 63. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE PARTLY ALLOWED AND CO OF ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.05.2013 SD/- SD/- (G.C. GUPTA) VICE PRESIDENT (ANIL CHATURVEDI) ACCOUNTANT MEMBER TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, AHMEDABAD