Gujarat Insecticides Ltd., Ankleshwar V. The ACIT., Bharuch Circle, Bharuch

ITA 1594/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0436 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-11-2009
• Assessment Year: 1998-1999
• Appeal Filed On: 10-06-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M G PATEL
• Assessee Lawyers: B S GEHLOT
• Keywords: Business income; Depreciation; Business expenditure; Opportunity of being heard; Competent authority; Revenue expenditure
• Section: 143(3); 80HHC; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI R.V.EASWAR, VICE-PRESIDENT AND P.K. BANSAL, ACCOUNTANT MEMBER) ITA NO.1522/AHD/2005 [ASSTT.YEAR : 1998-1999] ACIT, BHARUCH CIRCLE BHARUCH. VS. GUJARAT INSECTICIDES LTD., PLOT NO.805, 806, GIDC ANKLESHWAR. ITA NO.1594/AHD/2005 [ASSTT.YEAR : 1998-1999] GUJARAT INSECTICIDES LTD., PLOT NO.805, 806, GIDC ANKLESHWAR. VS. ACIT, BHARUCH CIRCLE BHARUCH. ASSESSEE BY : SHRI B.S.GEHLOT REVENUE BY : SHRI M.G.PATEL O R D E R PER R.V.EASWAR, VICE-PRESIDENT : THESE ARE CROSS APPEALS RELATING TO THE ASSESSMENT YEAR 1998-99. THE ASSESSEE IS A COMPANY ENGAGED IN THE MANUFACTURE OF PESTICIDES, INTERMEDIATES AND ENGINE ERING PLASTICS. IT IS A CLOSELY HELD COMPANY. THE APPEALS ARISE OUT OF THE ASSESSMENT MADE UNDER SECTION 143(3) OF THE INCOME TAX ACT BY ORDER DATED 29-12-2000. 2. WE TAKE UP THE ASSESSEES APPEAL FIRST FOR DISPO SAL. THE FIRST GROUND RELATES TO THE DISALLOWANCE OF THE HUNDRED PERCENT DEPRECIATION CLAIM ON POLLUTION CONTROL EQUIPMENT COSTING RS.1,26,991/-. IT IS THE ASSESSEES CASE THAT THE EQUIPMENT IS A SCRUBBER, ENTITLED TO 100% DEPRE CIATION AS AIR POLLUTION CONTROL EQUIPMENT UNDER THE HEAD MACHINERY AND PLA NT ITEM-(2)(IV)(D) OF THE DEPRECIATION TABLE APPLICABLE FOR THE RELEVANT ASSE SSMENT YEAR. THE AO ALLOWED THE GENERAL RATE OF 25% UNDER ITEM-(1) UNDER THE AF ORESAID HEAD. AFTER CONSIDERING THE RIVAL ARGUMENTS, WE SEE NO REASON T O INTERFERE. THE ORDERS OF THE INCOME TAX AUTHORITIES ON THIS POINT ARE UPHELD AND THE GROUND IS DISMISSED. PAGE - 2 ITA NO.1522 AND 1594/AHD/2005 -2- 3. GROUND NO.2 IS IN TWO PARTS. IN THE FIRST PART THE ASSESSEE HAS DISPUTED THE INCLUSION OF THE SALES-TAX AND EXCISE DUTY AMOU NTING TO RS.76,53,354.00 AND RS.6,03,67,032/- RESPECTIVELY IN THE TOTAL TURN OVER, WHICH IS THE DENOMINATOR IN THE FORMULA PRESCRIBED IN SECTION 80 HHC OF THE ACT. THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 29-3-2006 IN ITA NOS.3079 AND 3080/ AHD/2003 FOR THE ASSESSMENT YEARS 1996-97 AND 1997-98. THIS ISSUE ALSO STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE SUPREME COURT IN CI T VS. LAKSHMI MACHINE WORKS, 290 ITR 667. RESPECTFULLY FOLLOWING THE ORD ER OF THE TRIBUNAL AND THE JUDGMENT OF THE SUPREME COURT, WE DIRECT THE AO TO EXCLUDE THE SALES-TAX AND EXCISE DUTY FROM THE TOTAL TURNOVER. 4. THE SECOND PART OF THE GROUND NO.2 ALSO RELATES TO THE DEDUCTION UNDER SECTION 80HHC. THE ASSESSEE RAISED A BILL DATED 31 -3-1998 FOR RS.88,13,339/- ON M/S.GHARDA CHEMICALS LTD. OF LONDON. A COPY OF THE BILL WAS FILED BEFORE US AT OUR INSTANCE AND IT SHOWS THAT THE BILL WAS R AISED IN US DOLLARS 2,26,052/-. THERE IS NO DISPUTE THAT THE GOODS WERE ACTUALLY EX PORTED UNDER THIS BILL. UNDER CLAUSE (A) OF SUB-SECTION (2) OF SECTION 80HHC, THE SALE PROCEED IN CONVERTIBLE FOREIGN EXCHANGE SHOULD HAVE BEEN RECEIVED IN OR BR OUGHT INTO INDIA BY THE ASSESSEE WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORI TY MAY ALLOW IN THIS BEHALF. AT THE MATERIAL TIME THE COMPETENT AUTHORITY WAS TH E CHIEF COMMISSIONER OF INCOME TAX OR THE CIT. THE ASSESSEE IN THE PRESENT CASE OUGHT TO HAVE THEREFORE REALISED THE PROCEEDS OF THE BILL IN FORE IGN EXCHANGE ON OR BEFORE 30- 9-1998 BUT THE SAME WAS ACTUALLY REALISED ON 1-10-1 998. IN SUPPORT OF THE REALISATION THE ASSESSEE HAS FILED BEFORE THE DEPAR TMENTAL AUTHORITIES THE CERTIFICATE FROM THE BANK OF BARODA, ANKLESHWAR BRA NCH (PAGE 76 OF THE PAPER BOOK) SHOWING THAT THE PROCEEDS WERE REALISED ON 1- 10-1998. IN THIS CERTIFICATE THE DETAILS GIVEN REGARDING THE BILL TALLY WITH THE DETAILS IN THE ACTUAL BILL DATED 31-3-1998. HOWEVER, SINCE THERE WAS A DELAY OF ON E DAY, THE AO REDUCED THE EXPORT TURNOVER IN THE FORMULA PRESCRIBED BY SECTIO N BY THE AMOUNT OF PAGE - 3 ITA NO.1522 AND 1594/AHD/2005 -3- RS.88,13,339/-. THE CIT(A) CONFIRMED THE SAME ON T HE GROUND THAT THE ASSESSEE COULD HAVE APPLIED TO THE CIT FOR EXTENSIO N OF THE TIME BUT FAILED TO DO SO. THE ASSESSEE IS IN FURTHER APPEAL BEFORE US TO CONTEND THAT THE RESERVE BANK OF INDIA HAS BY LETTER DATED 1-4-2009, GRANTED POST-FACTO APPROVAL TO THE ASSESSEE AS A SPECIAL CASE FOR EXTENSION OF TIME LI MIT FOR REALISATION OF THE EXPORT PROCEEDS. THE COPY OF THIS LETTER IS AT PAG E 107 OF THE PAPER BOOK. WE HAVE PERUSED THE SAME AND WE FIND THAT THE DATE OF THE BILL AND THE INVOICE AMOUNT TALLY AND THAT EXTENSION OF TIME OF REALISAT ION OF THE PROCEEDS HAS BEEN GIVEN TILL 5-10-1998. IT HAS ALSO BEEN STATED IN T HE LETTER THAT THE APPROVAL HAS BEEN GRANTED AS A SPECIAL CASE AND THE ASSESSEE SHO ULD SUBMIT THE EXTENSION APPLICATION WELL IN TIME IN FUTURE. IN VIEW OF THIS LETTER FROM THE RBI EXTENDING THE TIME AND SINCE THE EXPORT PROCEEDS HAVE BEEN RE CEIVED IN INDIA ON 1-10- 1998 WHICH IS WITHIN THE EXTENDED PERIOD, WE DIRECT THE AO TO INCLUDE THE AMOUNT OF RS.88,13,339/- AS PART OF THE EXPORT TURN OVER. THUS, BOTH THE SUB- GROUNDS OF GROUND NO.2 ARE ALLOWED. 5. GROUND NO.3 RELATES TO THE DISALLOWANCE OF RS.2, 87,204/- OUT OF THE INTEREST CLAIMED BY THE ASSESSEE AS DEDUCTION. TH E INTEREST WAS PAID IN RESPECT OF THE CASH CREDIT ACCOUNT AND OVERDRAFT ACCOUNT WI TH THE BANK. FROM THE PERUSAL OF THE DETAILS OF BORROWINGS FROM THE BANK THE AO NOTICED THAT IT INCLUDED THE BORROWING FOR PAYMENT OF ADVANCE TAX O F RS.3.04 CRORES ON 12-3- 1998 AND DUE TO THIS BORROWING THE ASSESSEES ACCOU NT SHOWED A DEBIT BALANCE OF RS.3.73 CRORES. THE INTEREST WAS PAID BY THE AS SESSEE AT THE RATE OF 18% ON THE DEBIT BALANCE. THE AO, RELAYING ON SECTION 40( A)(II) OF THE ACT HELD THAT SINCE TAXES ON THE ASSESSEES INCOME ARE NOT ALLOWA BLE AS A DEDUCTION, THE INTEREST PAID ON BORROWINGS EFFECTED FOR PAYMENT OF TAXES CANNOT ALSO BE ALLOWED AS A DEDUCTION. HE CALCULATED THE INTERES T AT 18% FOR THE PERIOD 12-3- 1998 TO 31-3-1998 AT RS.2,87,204/- AND DISALLOWED T HE SAME WHILE COMPUTING THE BUSINESS INCOME. ON APPEAL, THE ASSESSEE CONTE NDED THAT THE ADVANCE TAX CANNOT BE SAID TO HAVE BEEN PAID OUT OF THE BORROWI NGS FROM THE BANK SINCE ALL THE SALE PROCEEDS OF THE YEAR WERE ALSO DEPOSITED I N THE SAME ACCOUNT WITH THE PAGE - 4 ITA NO.1522 AND 1594/AHD/2005 -4- BANK AND THAT THE PRESUMPTION IS THAT THE ADVANCE T AX WAS PAID OUT OF THE SALE PROCEEDS AND NOT OUT OF THE BORROWINGS. IN SUPPORT OF THIS SUBMISSION, THE ASSESSEE PLACED RELIANCE ON SEVERAL AUTHORITIES. I T WAS ALSO SUBMITTED THAT THE CASH PROFIT EARNED DURING THE YEAR WAS RS.11,79,41, 002/- AND THE BALANCE IN THE RESERVE ACCOUNT STOOD AT RS.62.71 CRORES. IT WAS THUS SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN FROM WHICH THE ADVANCE TAX MUST BE CONSIDERED TO HAVE BEEN PAID. THE LEARNED AO WHO ALSO APPEARED BEFORE THE CIT(A) ADMITTED THAT THE ASSESSEE COMPANY WAS DEPOS ITING THE SALE PROCEEDS IN THE CASH CREDIT ACCOUNT WITH THE BANK AND WAS ALSO MAKING PAYMENTS FOR EXPENSES FROM THE SAID ACCOUNT. HE HOWEVER SUBMIT TED THAT THERE WAS A FUND- FLOW PROBLEM AND ON THE DAY ON WHICH THE ADVANCE TA X WAS PAID, THE SALE PROCEEDS HAD GOT THEMSELVES EXHAUSTED AND THAT IS T HE REASON WHY THERE WAS A DEBIT BALANCE IN THE ACCOUNT ON THAT DAY. IT WAS THEREFORE SUBMITTED BY THE AO THAT THE INTEREST WAS RIGHTLY DISALLOWED. THE CIT( A) ACCEPTED THE SUBMISSIONS OF THE AO AND UPHELD THE DISALLOWANCE. 6. IN THE FURTHER APPEAL BEFORE US, THE LEARNED REP RESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION TO THE ASSESSEES LETTE R DATED 18-12-2000 TO THE AO (PAGES 77 AND 78 OF THE PAPER BOOK) AND POINTED OUT THAT THOUGH THERE WAS A DEBIT BALANCE OF RS.69,95,670/- ON 12-3-1998 ON WHI CH DATE THE ADVANCE TAX WAS PAID, SINCE THE TURNOVER FOR THE YEAR UNDER APP EAL AMOUNTED TO RS.7,642.28 LAKHS AND THE CASH PROFIT AMOUNTED TO RS.11.79 CROR ES, THE PRESUMPTION MUST BE THAT THE ADVANCE TAX WAS PAID OUT OF THE SALE PROCE EDS AND THE PROFITS FOR THE YEAR AND NOT OUT OF THE BORROWINGS. HE STRONGLY R ELIED ON THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF WOOLCOMBERS OF I NDIA LTD. VS. CIT, (1982) 134 ITR 219. ON THE OTHER HAND THE LEARNED SR-DR SUBMITTED THAT THE ONUS WAS ON THE ASSESSEE TO SHOW THAT THE ADVANCE TAX PA ID FROM THE BUSINESS RECEIPT WHICH ONUS HAD NOT BEEN DISCHARGED BY THE ASSESSEE IN THE PRESENT CASE. HE POINTED OUT THAT IF THE ADVANCE TAX PAYMENT ITSELF IS NOT A DEDUCTIBLE EXPENSE UNDER SECTION 40(A)(II), THE INTEREST PAID ON THE B ORROWINGS MADE TO PAY THE PAGE - 5 ITA NO.1522 AND 1594/AHD/2005 -5- ADVANCE TAX CANNOT BE ALLOWED AS BUSINESS EXPENDITU RE. HE ALSO SUBMITTED THAT THE CASE CITED BY THE ASSESSEE WAS DISTINGUISHABLE ON FACTS. 7. ON A CAREFUL CONSIDERATION OF THE FACTS AND RIVA L CONTENTIONS, WE ARE OF THE VIEW THAT THE JUDGMENT OF THE CALCUTTA HIGH COU RT (SUPRA) SUPPORTS THE ASSESSEES CASE. THERE THE ASSESSEE WAS HAVING AN OVERDRAFT ACCOUNT IN THE BANK AND THE ENTIRE PROFITS OF THE RELEVANT YEAR, W HICH WERE FAR IN EXCESS OF THE ADVANCE TAX LIABILITY, WERE DEPOSITED IN THE OVERDR AFT ACCOUNT. THE ASSESSEE WITHDREW MONIES FROM THE SAID ACCOUNT BOTH FOR BUSI NESS PURPOSES AND ALSO FOR PAYMENT OF ADVANCE TAX. THE FACTS IN THAT CASE SHO W THAT ON 12-12-1969 THE OVERDRAFT ACCOUNT SHOWED A DEBIT BALANCE OF RS.1,39 ,412/-. THE ASSESSEE PAID ADVANCE TAX ON 15-12-1969 IN THE AMOUNT OF RS.18,05 ,000/- WHICH INCREASED THE OVERDRAFT TO RS.14,63,593/- ON 31-12-1969 WHICH WAS THE LAST DAY OF THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR 197 0-71. WHILE DEALING WITH THE ASSESSEES CLAIM FOR DEDUCTION OF THE INTEREST PAID TO THE BANK ON THE OVERDRAFT ACCOUNT, BOTH THE AO AND THE FIRST APPELL ATE AUTHORITY HELD THAT THOUGH THE PROFITS OF THE BUSINESS WERE EMBEDDED IN THE COMBINED FINANCIAL TRANSACTIONS, YET AT THE TIME OF PAYMENT OF THE ADV ANCE TAX THE ASSESSEE DID NOT HAVE A CREDIT BALANCE IN THE OVERDRAFT ACCOUNT AND IT WAS FORCED TO RESORT TO THE OVERDRAFT FACILITY SPECIFICALLY FOR PAYMENT OF THE ADVANCE TAX AND THEREFORE A PART OF THE INTEREST WAS DISALLOWABLE. THE TRIBUN AL AFFIRMED THE ORDERS OF THE DEPARTMENTAL AUTHORITIES. ON A REFERENCE TO THE CA LCUTTA HIGH COURT THE CONTENTION OF THE ASSESSEE WAS THAT WHERE THE PROFI TS OF THE BUSINESS WERE SUFFICIENT TO COVER THE PAYMENT OF ADVANCE TAX PAID FROM AN ACCOUNT WHICH INCLUDED THE AMOUNT OF PROFITS AS WELL AS THE OVERD RAFT TAKEN SPECIFICALLY FOR THE PURPOSE OF THE BUSINESS, THE PRESUMPTION WOULD BE T HAT THE TAX WAS PAID OUT OF THE PROFITS AND NOT OUT OF THE OVERDRAFT ACCOUNT. IT WAS POINTED OUT THAT THE PROFITS FOR THE YEAR WERE RS.27 LAKHS AND THEY WERE ADMITTEDLY DEPOSITED IN THE OVERDRAFT ACCOUNT WITH THE BANK AND SINCE THE ADVAN CE TAX PAYMENT OF RS.18,05,000/- WAS BELOW THE PROFITS OF THE BUSINES S, THE TAX MUST BE HELD TO HAVE BEEN PAID OUT OF THE PROFITS AND NOT OUT OF TH E OVERDRAFT FACILITY. HIS PAGE - 6 ITA NO.1522 AND 1594/AHD/2005 -6- LORDSHIP JUSTICE SABYASACHI MUKHARJI (AS HIS LORDSH IP THEN WAS) SPEAKING FOR THE DIVISION BENCH OF THE CALCUTTA HIGH COURT AND O N REVIEW OF SEVERAL AUTHORITIES BEARING ON THE SUBJECTS HELD THAT IF IT APPEARS FROM THE FACTS THAT THE PROFITS OF THE BUSINESS FOR THE YEAR WERE DEPOSITED IN THE OVERDRAFT ACCOUNT AND THAT THEY WERE SUFFICIENT TO MEET THE ADVANCE TAX L IABILITY THEN IT SHOULD BE PRESUMED THAT IN ITS ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT AC COUNT FOR THE RUNNING OF THE BUSINESS. THIS DECISION APPLIES TO THE PRESENT CA SE. HERE ALSO THERE IS NO DISPUTE THAT THE ENTIRE SALE PROCEEDS OF THE BUSINE SS WERE DEPOSITED IN THE OVERDRAFT ACCOUNT WITH THE BANK. IN FACT IN PARA-5 .2 OF THE ORDER OF THE CIT(A) THERE IS A REFERENCE TO THE AO ACCEPTING THE FACT T HAT THE ASSESSEE WAS DEPOSITING THE SALE PROCEEDINGS IN THE CASH CREDIT ACCOUNT AND WAS MAKING PAYMENTS FOR EXPENSES ALSO FROM THE SAID ACCOUNT. THE SALE PROCEEDS FOR THE YEAR AS PER THE FINANCIAL STATEMENTS PLACED AT PAGE S 32 TO 56 OF THE PAPER BOOK, WERE RS.7,642.28 LAKHS WHICH WAS MUCH MORE THAN THE ADVANCE TAX PAYMENT OF RS.3.04 CRORES. EVEN THE PROFITS FOR THE YEAR WHIC H AMOUNTED TO RS.11.79 CRORES (PROFIT BEFORE DEPRECIATION) AS PER THE PROF IT AND LOSS ACCOUNT PLACED AT PAGE 31 OF THE PAPER BOOK) ARE MUCH MORE THAN THE A DVANCE TAX PAYMENT. THE FACTS ARE THUS SIMILAR TO THOSE IN THE CALCUTTA CAS E (SUPRA). AS IN THE CALCUTTA CASE, ON THE DATE OF PAYMENT OF THE ADVANCE TAX THE RE WAS A DEBIT BALANCE IN THE OVERDRAFT ACCOUNT. EVEN SO, AS HELD BY THE CALCUTT A HIGH COURT IN THE JUDGMENT CITED ABOVE, A PRESUMPTION SHOULD BE DRAWN THAT THE ADVANCE TAX WAS PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERD RAFT FACILITY. IT MAKES NO DIFFERENCE TO THIS PRINCIPLE THAT ON THE DATE OF MA KING THE TAX PAYMENT THERE IS A DEBIT BALANCE IN THE OVERDRAFT OR CASH CREDIT ACCOU NT. WHEN THERE IS A PRESUMPTION AS ABOVE, THEN THERE IS NO QUESTION OF THE ASSESSEE DISCHARGING ANY ONUS OF PROVING THAT THE TAX PAYMENT CAME OUT OF TH E BUSINESS RECEIPTS. THUS, RESPECTFULLY FOLLOWING THE JUDGMENT OF THE CALCUTTA HIGH COURT, WE HOLD THAT DEPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN DISA LLOWING RS.2,87,204/- FROM THE INTEREST CLAIM. WE DELETE THE DISALLOWANCE AN D ALLOW THE GROUND. PAGE - 7 ITA NO.1522 AND 1594/AHD/2005 -7- 8. THE FOURTH GROUND RELATES TO THE DISALLOWANCE OF THE EXPENDITURE OF RS.1,30,478/- INCURRED ON REPLACEMENT OF CRATES AND RS.93,635/- INCURRED ON STEAM EJECTOR SYSTEM. SO FAR AS THE EJECTOR SYSTEM IS CONCERNED, A SIMILAR EXPENDITURE HAS BEEN HELD TO BE REVENUE EXPENDITURE BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1992-93 AND 1993-94 AND THE RELEVANT ORDERS ARE FILED AT PAGES 18 TO 30 OF THE PAPER BOOK. IN ITA NO.4234/AHD/1993 FOR THE ASSESSMENT YEAR 1992-93 AN D ITA NO.3443/AHD/1996 THIS ISSUE HAS BEEN DECIDED IN FAV OUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THESE ORDERS, WE DIRECT THE AO TO ALLOW THE EXPENDITURE OF RS.93,635/- AS A DEDUCTION. AS REGARDS THE EXPE NDITURE ON CRATES THE SAME HAS BEEN TREATED BY THE ASSESSEE AS A CONSUMABLE ST ORE AND WRITTEN OFF IN THE ACCOUNTS, A METHOD WHICH IT HAS BEEN FOLLOWING CONS ISTENTLY. HOWEVER, THE CIT(A) HAS APPLIED THE JUDGMENT OF THE HONBLE GUJA RAT HIGH COURT IN THE CASE OF SAURASHTRA BOTTLING PVT. LTD. VS. CIT, 232 ITR 2 17 (SIC) TO SUSTAIN THE DISALLOWANCE. 9. WE HAVE CAREFULLY PERUSED THE JUDGMENT WHICH IS REPORTED AS CIT VS. SAURASHTRA BOTTLING PVT. LTD., (1998) 232 ITR 270. THIS WAS A CASE OF AN ASSESSEE CARRYING ON THE BUSINESS OF SOFT-DRINKS. IT WAS HELD THAT BOTTLES AND CRATES USED FOR DISTRIBUTION OF THE PRODUCTS (SOFT DRINKS) ARE TOOLS AND INSTRUMENTS TO ATTAIN THE PURPOSE OF THE ASSESSEES BUSINESS AND CANNOT BE CONSIDERED AS STOCK IN TRADE, BUT SHOULD BE CONSIDE RED AS PLANT ENTITLED TO 100% DEPRECIATION UNDER SECTION 32 OF THE ACT READ WITH SECTION 43(3) AND IF THE COST IS LESS THAN RS.750/- AS MENTIONED IN SECTION 32, T HEY SHOULD BE ALLOWED AS DEDUCTION. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT FROM THIS YEAR THE ASSESSEE HAS INTRODUCED PLASTIC CRATES FOR CARRYING LIQUID BROMINE GLASS BOTTLES WITHIN THE FACTORY PREMISES AND THE LIFE OF THE CRA TES IS MORE THAN TWO YEARS. THE AO HAS ALSO NOTED THAT IN THE EARLIER YEARS THE ASSESSEE WAS USING WOODEN CRATES. HOWEVER, THE COST OF EACH CRATE IS NOT KNO WN. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT CITE D ABOVE, WE DIRECT THE AO TO FIND OUT THE COST OF EACH CRATE AND IF IT IS FOU ND THAT IT IS LESS THEN THE LIMIT PAGE - 8 ITA NO.1522 AND 1594/AHD/2005 -8- PRESCRIBED BY SECTION 32 OF THE ACT, THE SAME SHOUL D BE ALLOWED AS DEDUCTION. THE AO MAY EXAMINE THIS FACTUAL ASPECT AND TAKE A F RESH DECISION IN ACCORDANCE WITH THE LAW AND AFTER ALLOWING THE ASSE SSEE DUE OPPORTUNITY OF SUBMITTING THE DETAILS REGARDING THE COST. THE GROU ND IS THUS PARTLY ALLOWED. 10. GROUND NO.5 IS AGAINST THE DISALLOWANCE OF THE CREDIT BALANCES AGGREGATING TO RS.84,053/- WRITTEN OFF BY THE ASSES SEE. THE AFORESAID AMOUNT CONSIST OF TWO ITEMS RS.51,175/- AND RS.32,878/-. THE JUSTIFICATION FOR WRITING OFF THE BALANCES HAS BEEN GIVEN BY THE ASSE SSEE AT PAGES 103 AND 104 OF THE PAPER BOOK. SO FAR AS THE AMOUNT OF RS.51,175 /- IS CONCERNED, IT REPRESENT INTEREST INCOME CREDITED AND OFFERED TO TAX TWICE, ONCE IN THE ASSESSMENT YEAR 1995-96 AND AGAIN IN THE ASSESSMENT YEAR 1996-97. THE CIRCUMSTANCES UNDER WHICH THE AMOUNT WAS WRONGLY CREDITED IN THE ACCOUN TS FOR THE ASSESSMENT YEAR 1996-97 HAVE ALSO BEEN NARRATED IN THE SAID PAGES. THIS MISTAKE, NAMELY, THAT THE INTEREST WAS TWICE OFFERED TO TAX, WAS SOUGHT T O BE CORRECTED BY REVERSING THE ENTRY IN THE ACCOUNTS FOR THE YEAR UNDER APPEAL . THE AO DOES NOT APPEAR TO DISPUTE THE FACTUAL POSITION, BUT SAYS THAT THE ASS ESSEE SHOULD HAVE CORRECTED THE MISTAKE IN THE ACCOUNTS OF THE YEAR ENDED 31-3-1995 , IN WHICH YEAR THE MISTAKE WAS COMMITTED, AND NOT IN THE ACCOUNTS FOR THE YEAR UNDER APPEAL. WE ARE UNABLE TO AGREE WITH THE VIEW TAKEN BY THE AO BECAU SE THE CLOSED ACCOUNTS FOR AN EARLIER YEAR CANNOT BE REOPENED AND CORRECTIVE M EASURES HAVE TO BE TAKEN ONLY IN THE ACCOUNTS OF THE YEAR WHICH ARE OPEN. A CCORDINGLY, WE DELETE THE DISALLOWANCE OF RS.51,175/-. 11. AS REGARDS THE INTEREST OF RS.32,878/- IT IS SE EN THAT THE ASSESSEE PAID THE SAME TO M/S.MRUGAKH INVESTMENT LTD. BUT DEBITED THE SAME TO THE PARTY ACCOUNT INSTEAD OF THE INTEREST ACCOUNT. EARLIER, DURING THE YEAR ENDED 31-3- 1995 THE ASSESSEE DISCOUNTED A BILL OF THE ABOVE PA RTY AND OFFERED THE PROCEEDS OF RS.3,39,740/- TO TAX IN THE ASSESSMENT YEAR 1995 -96. APPARENTLY, THIS AMOUNT INCLUDED THE INTEREST ALSO. SINCE THE INTER EST HAD BEEN OFFERED TO TAX IN THE ASSESSMENT YEAR 1995-96, THE ASSESSEE WROTE OFF THE DEBIT BALANCE IN THE PAGE - 9 ITA NO.1522 AND 1594/AHD/2005 -9- PARTYS ACCOUNT IN THE YEAR UNDER APPEAL, WHICH WAS DISALLOWED BY THE DEPARTMENTAL AUTHORITIES ON THE GROUND THAT THE INT EREST LIABILITY DID NOT ACCRUE OR ARISE IN THE YEAR UNDER APPEAL. IT SEEMS TO US THAT THE DEPARTMENTAL AUTHORITIES HAVE NOT APPRECIATED THE FACTUAL POSITI ON IN THE TRUE PROSPECTIVE. THE ASSESSEE IS NOT CLAIMING ANY DEDUCTION ON ACCOU NT OF INTEREST LIABILITY. ON THE CONTRARY THE INTEREST OF RS.32,878/- OFFERED FO R TAX TWICE, ONCE AS PART OF THE PROCEEDS OF THE BILL AND AGAIN AS INTEREST, IS SOUG HT TO BE CORRECTED BY MAKING AN APPROPRIATE ENTRY IN THE ACCOUNTS FOR THE YEAR U NDER APPEAL. THERE IS NO DISPUTE THAT THE INTEREST IS TAXABLE AND IN FACT TH E ASSESSEE HAS OFFERED TO TAX. THE MISTAKE COMMITTED BY THE ASSESSEE IS THAT IT WA S OFFERED TO TAX TWICE AND THAT WAS SOUGHT TO BE RECTIFIED. THE WRITE OFF IS THEREFORE ALLOWABLE AS A DEDUCTION. WE DELETE THE DISALLOWANCE OF RS.32,878 /- AND ALLOW THE GROUND. 12. GROUND NO.6 IS IN TWO PARTS. IN THE FIRST PART , WHICH RELATES TO THE DEDUCTION UNDER SECTION 80IA, THE ASSESSEE CLAIMS T HAT THE DEPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN HOLDING THAT THE OTHER INCOME SHOWN BY THE ASSESSEE WAS NOT ELIGIBLE FOR THE DEDUCTION AS IT W AS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING AS REQUIRED BY THE SECTION. THE AO HAS NOT GIVEN ANY REASONS IN PARA-7 OF HIS ORDER FOR EXCLUDING THE O THER INCOME FROM THE ELIGIBLE PROFIT. THE CIT(A) HELD THAT THE MAJOR PA RT OF OTHER INCOME CONSISTS OF INTEREST FROM BANKS AND OTHERS WHICH WAS NOT ELIGIB LE FOR THE DEDUCTION AS PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING. A PERUSAL OF ANNEXURE-B TO THE ASSESSMENT ORDER WHICH CONTAINS THE WORKING OF THE DEDUCTION SHOWS THAT THE FOLLOWING ITEMS OF INCOME HAVE BEEN CONSIDERED AS OTHER INCOME AND EXCLUDED FROM THE PURVIEW OF THE DEDUCTION: I) DIVIDEND : RS.7.50 II) PROFIT ON SALE OF FIXED ASSETS: RS.25,498.00 III) MISC. INCOME : RS.24,915.00 IV) NOTICE PAY : RS.8,749.00 V) PENALTY ACCOUNT : RS.98,206.00 VI) SALES (MISC.)ACCOUNT : RS.579.00 VII) INSURANCE CLAIM RECEIVED : RS.16,74,455.00 PAGE - 10 ITA NO.1522 AND 1594/AHD/2005 -10- VIII) INTEREST EARNED ON FDRS. : RS.43,79,814.00 IX) INTEREST EARNED-OTHERS : RS.35,86,163.00 13. SOME OF THE AFORESAID ITEMS OF RECEIPTS FOR THE ASSESSMENT YEARS 1996-97 AND 1997-98 HAVE BEEN CONSIDERED BY THE TRIBUNAL IN THE CONTEXT OF SECTION 80IA IN ITS ORDER DATED 22-11-2007 IN ITA NOS.2979 AND 3267/AHD/2003, A COPY OF WHICH HAS BEEN PLACED AT PAGES 123 TO 127 O F THE PAPER BOOK. THESE RECEIPTS HAVE BEEN CONSIDERED WHILE DEALING WITH TH E CLAIM FOR DEDUCTION UNDER SECTION 80IA IN RESPECT OF THE PROFITS OF UNITS-V A ND VI OF THE ASSESSEE. IN THE PRESENT YEAR ALSO WE ARE CONCERNED WITH THE SAME UN ITS. IN PARA-18 AND 19 OF THE AFORESAID ORDERS, THE TRIBUNAL HAS OPINED THAT THE DIVIDEND, RECOVERY FROM SUPPLIERS TOWARDS PENALTY FOR LATE SUPPLY AND MISCE LLANEOUS INCOME ARE NOT ELIGIBLE FOR THE DEDUCTION AS THEY ARE NOT PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING. RESPECTFULLY FOLLOWING THE AFORESAID ORDER, WE HOLD THAT THE DIVIDEND INCOME OF RS.7.50, PENALTY OF RS.98,206.00 AND MISC. INCOME OF RS.24,915.00 FOR THE YEAR UNDER APPEAL ARE NOT ELIG IBLE FOR THE DEDUCTION. THE NOTICE PAY RECOVERY OF RS.8,749.00 AND SALES (MISC. ) ACCOUNT OF RS.579.00 ARE HELD TO BE ELIGIBLE FOR THE DEDUCTION SINCE SIMILAR RECEIPTS HAVE BEEN HELD TO BE ELIGIBLE FOR DEDUCTION IN THE AFORESAID ORDER OF TH E TRIBUNAL. 14. WE ARE THUS LEFT WITH THE PROFIT ON SALE OF FIX ED ASSETS, INSURANCE CLAIM RECEIPT, INTEREST EARNED ON FIXED DEPOSITS RECEIPTS AND INTEREST EARNED FROM OTHERS. SO FAR AS PROFITS OF RS.24,498.00 EARNED ON SALE OF FIXED ASSETS ARE CONCERNED THEY ARE CAPITAL PROFITS AND HENCE NOT EL IGIBLE FOR THE DEDUCTION. AS REGARDS INSURANCE CLAIM OF RS.16,74,455.00, IT IS N OT CLEAR FROM THE ORDERS OF THE DEPARTMENTAL AUTHORITIES, AS TO THE NATURE OF T HE CLAIM WHETHER IT IS FOR LOSS OF PROFITS OR FOR FULL OR PARTIAL DESTRUCTION OR DA MAGE TO ASSETS OR RAW MATERIALS OR ANY OTHER TYPE OF INSURANCE RECEIPTS. UNLESS TH E NATURE OF THE INSURANCE RECEIPT IS KNOWN, IT IS NOT POSSIBLE TO ARRIVE AT A DECISION AS TO WHETHER THE RECEIPT CAN BE SAID TO BE DERIVED FROM THE INDUSTRI AL UNDERTAKING. WE ACCORDINGLY RESTORE THIS ISSUE TO THE AO WITH A DIR ECTION TO HIM TO EXAMINE THE PAGE - 11 ITA NO.1522 AND 1594/AHD/2005 -11- RELEVANT FACTS AND ARRIVE AT A DECISION IN ACCORDAN CE WITH THE LAW AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. 15. AS REGARDS, THE INTEREST FROM FIXED DEPOSITS AM OUNTING TO RS.43,79,814.00 NO NEXUS HAS BEEN SHOWN TO EXIST BE TWEEN THE EARNING OF THE INTEREST AND THE INDUSTRIAL UNDERTAKING AND THERE I S NO MATERIAL BROUGHT BEFORE US TO SHOW THAT THE INTEREST INCOME CAN BE CONSIDER ED AS PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING. HOWEVER, THE ASSESSEE CLAIMS THAT IT IS ONLY THE NET INTEREST THAT CAN BE EXCLUDED FROM THE ELIGIBLE PRO FITS AND NOT THE GROSS INTEREST. THE PRINCIPLE OF NETTING HAS BEEN ACCEPTED BY THE D ELHI HIGH COURT IN CIT VS. SHRI RAM HONDA POWER EQUIP, (2007) 289 ITR 475 IN T HE CONTEXT OF SECTION 80HHC AND PARTICULARLY WITH REFERENCE TO EXPLANATION ( BAA ) BELOW THE SECTION. WHILE THEREFORE ACCEPTING THE ASSESSEES CLAIM FOR NETTING, IN PRINCIPLE, WE RESTORE THE MATTER TO THE AO WITH THE DIRECTION TO HIM THAT ONLY THE NET INTEREST, THAT IS, AFTER ADJUSTING THE INTEREST PAID BY THE A SSESSEE, IF ANY, AGAINST THE INTEREST FROM THE FIXED DEPOSITS, CAN BE EXCLUDED F ROM THE ELIGIBLE PROFITS. HE MAY EXAMINE ALL THE RELEVANT FACTS IN THIS CONNECTI ON AND FIND OUT THE NET INTEREST AND EXCLUDE THE SAME. NEEDLESS TO ADD THA T THE ASSESSEE SHALL BE GIVEN DUE OPPORTUNITY OF BEING HEARD AND SUBSTANTIATE ITS CLAIM BEFORE THE AO TAKES ANY DECISION. 16. AS REGARDS THE INTEREST OF RS.35,86,163.00 EARN ED FROM OTHERS, IT IS STATED BEFORE US THAT ONLY THE INTEREST RECEIVED FR OM THE CUSTOMERS FOR LATE PAYMENT OF THE BILLS IS ELIGIBLE FOR DEDUCTION AS P ROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING. RELIANCE IS PLACED ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN NIRMA INDUSTRIES LTD. VS. DCI T, (2006) 283 ITR 402. THE LEARNED SR-DR HAS HOWEVER RELIED ON THE JUDGMEN TS OF THE SUPREME COURT IN PANDIAN CHEMICALS LTD. VS. CIT, (2003) 262 ITR 2 78 AND LIBERTY INDIA VS. CIT, (2009) 317 ITR 218. HOWEVER, WE FIND THAT TH E JUDGMENT OF THE HONBLE GUJARAT HIGH COURT CITED ABOVE HAS BEEN RENDERED AF TER CONSIDERING THE JUDGMENT OF THE SUPREME COURT IN PANDIAN CHEMICALS LTD., (SUPRA) AS CAN BE PAGE - 12 ITA NO.1522 AND 1594/AHD/2005 -12- SEEN FROM PARA-5 AT PAGE NO.410 OF THE REPORT. ULT IMATELY IT WAS HELD THAT IT WOULD BE AN INCORRECT PROPOSITION TO STATE THAT INT EREST PAID BY THE CUSTOMERS FOR LATE PAYMENT OF THE SALE PROCEEDS WOULD NOT FOR M PART OF THE ELIGIBLE INCOME FOR THE PURPOSE OF COMPUTING THE RELIEF UNDE R SECTION 80I. THE NATURE OF THE INTEREST WAS CONSIDERED IN THE LIGHT OF THE JUDGMENT OF THE SUPREME COURT IN CIT VS. GOVINDA CHOUDHARY & SONS, (1993) 203 ITR 881. THE HONBLE HIGH COURT ALSO EXAMINED THE MATTER FROM A SLIGHTLY DIFFERENT ANGLE AND HELD THAT THE CHARGING OF THE INTEREST REPRESENTS A CONV ERSE SITUATION TO OFFERING OF CASH DISCOUNT AND THE TRANSACTION MUST BE VIEWED AS IF THE PURCHASER PAYS A HIGHER PRICE IF HE DELAYS PAYMENT OF THE SALE PROCE EDS. IT WAS SPECIFICALLY HELD THAT IT IS INCORRECT TO STATE THAT THE SOURCE FOR T HE INTEREST IS THE OUTSTANDING SALE PROCEEDS. IT WAS POINTED OUT THAT THE ASSESSEES B USINESS IS NOT TO LEND FUNDS AND EARN INTEREST AND THAT THE DISTINCTION SOUGHT T O BE MADE BY THE REVENUE IS ARTIFICIAL IN NATURE AND IS NEITHER IN CONSONANCE W ITH THE LAW NOR COMMERCIAL PRACTICE. IN THE PRESENT CASE ALSO IT IS NOT THE ASSESSEES BUSINESS TO LEND FUND FOR INTEREST. THE JUDGEMENT OF THE HONBLE JURISDI CTIONAL HIGH COURT FULLY APPLIES TO THE PRESENT CASE AND IT IS HELD THAT THE INTEREST RECEIVED BY THE ASSESSEE FROM CUSTOMERS FOR DELAYED PAYMENT OF THE BILLS QUALIFY FOR THE DEDUCTION UNDER SECTION 80IA AS PROFITS DERIVED FRO M THE INDUSTRIAL UNDERTAKING. AS REGARDS THE JUDGEMENT OF SUPREME CO URT IN LIBERTY INDIA (SUPRA), IT IS SEEN THAT IT WAS IN CONNECTION WITH THE DUTY DRAW BACK RECEIPTS AND DEPB BENEFITS AND THE SUPREME COURT HELD THAT THESE RECEIPTS CANNOT BE SAID TO BE DERIVED FROM THE INDUSTRIAL UNDERTAKING AND TH AT THEIR SOURCE CAN BE TRACED TO THE SCHEMES FORMULATED BY THE GOVERNMENT AND NOT TO THE INDUSTRIAL UNDERTAKING. IN THE PRESENT CASE, WE ARE NOT CONCE RNED WITH THESE RECEIPTS BUT WITH INTEREST FOR LATE PAYMENT OF THE SALE PRICE WH ICH ARISES DIRECTLY OUT OF THE SALES OF THE PRODUCTS MANUFACTURED BY THE INDUSTRIA L UNDERTAKING. THUS, THE IMMEDIATE SOURCE OF THE INTEREST IS THE INDUSTRIAL UNDERTAKING. THE AO WILL EXAMINE THE QUANTUM OF SUCH INTEREST AND ALLOW THE SAME AS DEDUCTION, AFTER GIVING THE ASSESSEE DUE OPPORTUNITY OF BEING HEARD. PAGE - 13 ITA NO.1522 AND 1594/AHD/2005 -13- 17. THE SECOND PART OF THE GROUND NO.6 IS DIRECTED AGAINST THE CALCULATION OF THE GROSS TOTAL INCOME OF UNITS-V AND VI AS MADE BY THE AO FOR PURPOSE OF ALLOWING DEDUCTION UNDER SECTION 80IA. THE ANNEXU RE-B TO THE ASSESSMENT ORDER SHOWS THAT THE TOTAL INCOME OF THE AFORESAID UNITS HAVE BEEN TAKEN BY THE AO AS PER SALES INCOME RATIO, I.E. AFTER ESTIMATING THE EXPENDITURE OF THE RESPECTIVE UNITS ON THE BASIS OF THE SALES INCOME . HE HAS NOT ALLOWED THE ACTUAL EXPENSES AS A DEDUCTION, ON THE GROUND THAT THE ACTUAL EXPENSES HAVE BEEN UNDERSTATED IN ORDER TO INFLATE THE PROFITS FR OM THESE UNITS WHICH ARE ELIGIBLE FOR THE DEDUCTION. THE CONTENTION OF THE ASSESSEE BEFORE US IS THAT THE AUDIT CERTIFICATE FILED IN SUPPORT OF THE CLAIM FOR DEDUCTION CONTAINS THE CORRECT CALCULATIONS AND THEREFORE SHOULD BE THE BASIS FOR ALLOWING THE CLAIM. OUR ATTENTION HAS BEEN DRAWN TO THE ORDER OF THE TRIBUN AL IN THE ASSESSEES OWN CASE IN ITA NO.2626/AHD/1991 DATED 24-9-1993 FOR THE ASS ESSMENT YEAR 1985-86. RELIANCE IS ALSO PLACED ON THE ORDER OF THE BANGALO RE BENCH OF THE TRIBUNAL IN WIPRO GE MEDICAL SYSTEMS LTD. VS. DCIT, (2003) 81 T TJ 455. ON THE OTHER HAND THE LEARNED SR-DR CONTENDED THAT THE AUDIT CER TIFICATE CANNOT BE PREFERRED OVER THE AOS WORKING ON THE BASIS OF THE SALES RAT IO. AFTER GIVING CAREFUL CONSIDERATION TO THE MATTER, WE ARE OF THE VIEW THA T THE CALCULATIONS BASED ON THE AUDIT CERTIFICATE FILED BY THE ASSESSEE SHOULD FORM BASIS FOR COMPUTATION OF THE DEDUCTION. THE AUDIT REPORT IS AT PAGES 28 TO 31 OF THE PAPER BOOK FROM WHICH WE FIND THAT DEDUCTION OF RS.1,75,456/- AND R S.51,17,042/- HAVE BEEN CLAIMED RESPECTIVELY FOR UNITS-V AND VI. THE DETAI LED WORKING IS AT PAGE 29 OF THE PAPER BOOK WHICH SHOWS THAT ONLY INDIRECT EXPEN SES HAVE BEEN ALLOCATED AGAINST THE INCOME BY WAY OF SALES AND SO FAR AS DI RECT EXPENSES ARE CONCERNED, THE ACTUALS HAVE BEEN DEDUCTED FROM THE INCOME. TH E DEPARTMENTAL AUTHORITIES WOULD APPEAR TO HAVE PROCEEDED ON THE ASSUMPTION TH AT THE ASSESSEE UNDERSTATED THE ACTUAL EXPENSES IN THESE UNITS SO A S TO CLAIM MORE DEDUCTION. THIS ASSUMPTION APPEARS TO HAVE NO FACTUAL BASIS. THE CIT(A) IN PARA-8.8 OF HIS ORDER HELD THAT THIS ISSUE DOES NOT SURVIVE FOR DECISION, BECAUSE HE HAS DIRECTED THAT THE DEDUCTION UNDER SECTION 80HHC SHO ULD BE GIVEN FROM THE PAGE - 14 ITA NO.1522 AND 1594/AHD/2005 -14- PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA O F THE ACT. HE HAS THUS NOT DECIDED THE ISSUE. THE AO HAS NOT GIVEN ANY REASON FOR NOT ACCEPTING THE COMPUTATION OF THE DEDUCTION AS CLAIMED BY THE ASSE SSEE IN THE AUDIT CERTIFICATE. NOR HAS HE QUESTIONED THE CORRECTNESS OF THE FIGURE S IN THE AUDIT CERTIFICATE. FROM PARA 8.7 OF THE ORDER OF THE CIT(A) IT IS ALSO SEEN THAT THE CONTENTION OF THE ASSESSEE THAT IN THE PAST EACH UNIT HAS BEEN CO NSIDERED AS A SEPARATE UNIT AND ACCORDINGLY THE INCOME FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80IA WAS WORKED OUT SEPARATELY HAS NOT BEEN FOUND T O BE INCORRECT OR REFUTED BY THE AO WHO HAS APPEARED BEFORE THE CIT(A) AND MA DE SUBMISSIONS. NO JUSTIFICATION HAS BEEN GIVEN BY THE INCOME TAX AUTH ORITIES FOR MAKING A DEPARTURE FROM THE PAST PRACTICE. WE ACCORDINGLY UPHOLD THE ASSESSEES COMPUTATION OF DEDUCTION UNDER SECTION 80IA IN RESP ECT OF UNITS-V AND VI AND DIRECT THE AO TO ALLOW THE SAME ACCORDINGLY SUBJECT TO OUR DECISION IN RESPECT OF THE ELIGIBILITY OF THE OTHER INCOME CONTAINED IN THE PRECEDING PARAGRAPHS. THE GROUND IS PARTLY ALLOWED. 18. GROUND NO.7 IS DIRECTED AGAINST THE INCLUSION O F THE EXCISE DUTY ELEMENT OF RS.46,28,894/- IN THE VALUE OF THE CLOSING STOCK AS ON 31-3-1998. THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORD ER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, FOR THE ASSESSMENT YEAR 1996-9 7 AND 1997-98 IN ITA NOS.2979 AND 3267/AHD/2003 DATED 22-11-2007. IN P ARA-30 OF THIS ORDER, IT HAS BEEN HELD, FOLLOWING THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF ENGLISH ELECTRIC COMPANY, 243 ITR 512 THAT THE ELEM ENT OF EXCISE DUTY IS NOT TO BE INCLUDED IN VALUING THE CLOSING STOCK. THE CONTROVERSY IS THE SAME FOR THE YEAR UNDER APPEAL AND THEREFORE RESPECTFULLY FO LLOWING THE AFORESAOD ORDER OF THE TRIBUNAL, WE DELETE THE ADDITION OF RS.46,28 ,894/-. WE MAY ADD THAT SECTION 145A WAS INTRODUCED ONLY WITH EFFECT FROM 1 -4-1999 AND THEREFORE IS NOT APPLICABLE FOR THE YEAR UNDER APPEAL. THE GROU ND IS ALLOWED. 19. THE EIGHTH GROUND IS DIRECTED AGAINST THE DISAL LOWANCE OF THE FOREIGN TRAVEL EXPENSES OF RS.92,250/- INCURRED IN RESPECT OF RAKESH SURI, THE SALES PAGE - 15 ITA NO.1522 AND 1594/AHD/2005 -15- AGENT. THE REASONS FOR THE DISALLOWANCE IS MAINLY THAT IN THE AGREEMENT ENTERED INTO WITH HIM FOR PAYMENT SALES COMMISSION, THERE I S NO PROVISION TO THE EFFECT THAT HIS FOREIGN TRIP EXPENSES WOULD BE BORNE BY TH E ASSESSEE. IT IS NOT IN DISPUTE THAT RAKESH SURI, WHO WAS THE EMPLOYEE OF M /S.TULIP INTERNATIONAL, WAS CANVASSING THE ASSESSEES PRODUCTS FOR EXPORT A ND THROUGH HIM THE ASSESSEE WAS EXPORTING GOODS TO SOUTH AMERICAN COUNTRIES. I T IS ALSO NOT DISPUTED THAT THE PURPOSE OF HIS VISIT WAS TO UNDERSTAND THE REQU IREMENTS OF THE SOUTH AMERICAN BUYERS AND BRIEF THEM REGARDING THE ASSESS EES PRODUCTS. IT IS ALSO NOT IN DISPUTE THAT DURING THE RELEVANT YEAR, THE A SSESSEE HAD EXPORTED GOODS WORTH US DOLLARS 11,04,030. IF ALL THESE FACTS ARE NOT IN DISPUTE, MERELY BECAUSE THERE IS NO STIPULATION IN THE AGREEMENT WI TH TULIP INTERNATIONAL THAT THE ASSESSEE WOULD BEAR THE FOREIGN TRAVEL EXPENSES OF RAKESH SURI, NO DISALLOWANCE CAN BE MADE. WE HAVE TO TAKE A PRAC TICAL VIEW OF BUSINESS EXIGENCIES AND IT IS QUITE POSSIBLE THAT ENCOURAGED BY THE FRUITFUL EFFORTS TAKEN BY RAKESH SURI, THE ASSESSEE THOUGHT IT PRUDENT AND EXPEDIENT TO BEAR HIS FOREIGN TRAVEL EXPENSES. ALL THESE ARE BUSINESS D ECISIONS WHICH SHOULD BE NORMALLY LEFT TO BUSINESSMEN AS WAS HELD BY THE SUP REME COURT IN CIT VS. WALLCHAND & CO. PVT. LTD., (1967) 65 ITR 381. THE GENUINENESS OF THE EXPENDITURE AND THE PURPOSE OF THE VISIT AS ALSO TH E FACT THAT THE ASSESSEE WAS ABLE TO EXPORT GOODS TO SUBSTANTIAL EXTENT ARE NOT IN DISPUTE. THEREFORE WE HOLD THAT THE ASSESSEE WAS JUSTIFIED IN CLAIMING THE FOR EIGN TRAVEL EXPENSES INCURRED IN RESPECT OF RAKESH SURI AS BUSINESS EXPENDITURE. WE ALLOW THE SAME UNDER SECTION 37(1). THE GROUND IS ALLOWED. 20. GROUND NOS.9 AND 10 ARE GENERAL AND REQUIRE NO DECISION. 21. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY A LLOWED. 22. WE MAY NOW TAKE UP THE APPEAL FILED BY THE REVE NUE. THERE ARE ONLY TWO GROUNDS. THE FIRST GROUND RELATES TO THE DEDUC TION UNDER SECTION 80HHC. IT IS CLAIMED IN THE GROUND THAT THE CIT(A) ERRED I N DIRECTING THE AO NOT TO PAGE - 16 ITA NO.1522 AND 1594/AHD/2005 -16- EXCLUDE 90% OF THE MISCELLANEOUS INCOME OF RS.48,04 ,407/- WHILE CALCULATING THE DEDUCTION, WITHOUT APPRECIATING THE SCHEME OF T HE SECTION AS REFLECTED IN SUB-SECTIONS (1) AND (3) AND EXPLANATION -( BAA ) BELOW THE SECTION. AT THE TIME OF THE HEARING, IT WAS CLAIMED ON BEHALF OF THE ASS ESSEE THAT THIS GROUND STANDS COVERED BY THE ORDER OF THE TRIBUNAL IN THE ASSESSE ES OWN CASE FOR THE ASSESSMENT YEAR 1991-92 IN ITA NO.696/AHD/1998 DATE D 26-4-2005. A COPY OF THE ORDER HAS BEEN FILED BEFORE US. RELIANCE I S ALSO PLACED ON THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NI RMA INDUSTRIES LTD. VS. ACIT, 95 ITD 199. WHILE COMPLETING THE ASSESSMENT AND WHILE DETERMINING THE PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80H HC, THE AO DEDUCTED 90% OF THE MISCELLANEOUS INCOME OF RS.48,04,407/- FROM THE PROFITS ASSESSED UNDER HEAD BUSINESS PURPORTING TO ACT UNDER EXPLANATION ( BAA ) BELOW THE SECTION. THE MISCELLANEOUS INCOME CONSISTED OF THE FOLLOWING : I) MISC. INCOME : RS.24,915/- II) NOTICE PAY : RS.8,749/- III) PENALTY RECOVERED : RS.98,206/- IV) SALES (MISC.) ACCOUNT : RS.579/- V) SALES (SCRAP) ACCOUNT : RS.45,76,690/- VI) SALES TAX REFUND RECEIVED : RS.95,266/- TOTAL : RS.48,04,407/- THE ACTION OF THE AO RESULTED IN A LESSER DEDUCTION BEING ALLOWED UNDER SECTION 80HHC. THE CONTENTION OF THE ASSESSEE BEFO RE THE CIT(A) THAT AS PER THE AFORESAID EXPLANATION ONLY RECEIPTS IN THE FORM OF BROKERAGE, COMMISSION , INTEREST, RENT CHARGES, OR ANY OTHER RECEIPT OF SIM ILAR NATURE CAN BE REDUCED TO THE EXTENT OF 90% FROM THE PROFITS OF THE BUSINESS AND THE SIX RECEIPTS IN QUESTION, WHICH WERE NOT RECEIPTS OF THE NATURE OF BROKERAGE, COMMISSION, INTEREST OR RENT CHARGES THE AO WAS NOT JUSTIFIED I N DEDUCTING 90% OF RS.48,04,407/- FROM THE PROFITS OF THE BUSINESS. IT WAS ALSO POINTED OUT BEFORE THE CIT(A) THAT BY ORDER DATED 11-3-2002 FOR THE AS SESSMENT YEAR 1995-96 THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE. THE CIT(A) ACCEPTED THE ASSESSEES SUBMISSION AND DIRECTED THE AO NOT T O REDUCE 90% OF THE PAGE - 17 ITA NO.1522 AND 1594/AHD/2005 -17- MISCELLANEOUS INCOME AGGREGATING TO RS.48,04,407/- FROM THE PROFITS OF THE BUSINESS BY INVOKING EXPLANATION (BAA) . 23. THE REVENUE IS IN APPEAL AND WE HAVE CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. EXPLANATION ( BAA ) BELOW SECTION 80HHC DEFINES PROFITS OF THE BUSINESS TO MEAN PROFITS OF THE BUSINESS AS COMPUT ED UNDER THE HEAD BUSINESS AS REDUCED BY 90% OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS. A PERUSAL OF THE VARIOUS ITEMS OF RECEIPTS AGGREGATING TO RS.48,04,407/- WOULD SHOW THAT THEY CANNOT BE CH ARACTERISED AS RECEIPTS WHICH ARE MENTIONED IN THE EXPLANATION ( BAA ) OR RECEIPTS BEARING A SIMILAR NATURE. WE ACCORDINGLY UPHOLD THE DECISION OF TH E CIT(A) AND DISMISS THE GROUND NO.1 TAKEN BY THE REVENUE. 24. THE SECOND GROUND IS THAT THE CIT(A) ERRED IN D ELETING THE DISALLOWANCE MADE OUT OF THE DEDUCTION CLAIMED UNDER SECTION 80I A ON ACCOUNT OF PROPORTIONATE AMOUNT OF DEDUCTION UNDER SECTION 80H HC IN RESPECT OF THE RELEVANT UNITS. IT IS CLAIMED IN THE GROUND THAT THE CIT(A) FAILED TO APPRECIATE THE IMPORT OF SECTION 80IA(9A) AS IT STOOD AT THE R ELEVANT TIME. IT IS ALSO CONTENDED THAT THE DECISION OF CIT(A) WOULD RESULT IN DOUBLE DEDUCTION BEING GIVEN TO THE SAME PROFITS. IT IS SEEN FROM ANNEXU RE-B TO THE ASSESSMENT ORDER THAT BEFORE ALLOWING DEDUCTION UNDER SECTION 80IA, THE AO HAS REDUCED THE PROFITS OF UNITS V AND VI BY PROPORTIONATE DEDUCTIO N ALLOWABLE ON ACCOUNT OF SECTION 80HHC. THUS, THE DEDUCTION UNDER SECTION 8 0IA HAS BEEN GIVEN ON A LESSER AMOUNT OF PROFITS FROM THE UNITS. THE CIT(A ) HAS HELD THAT THE AO CANNOT REDUCE THE PROFITS OF THE RESPECTIVE UNITS B Y THE DEDUCTION ALLOWABLE UNDER SECTION 80HHC AND ALLOW DEDUCTION UNDER SECTI ON 80IA ONLY ON THE BALANCE OF PROFITS LEFT AFTER THE DEDUCTION UNDER S ECTION 80HHC. THIS CONTROVERSY HAS NOW BEEN SETTLED BY THE ORDER OF A SPECIAL BENCH OF FIVE MEMBERS SITTING AT DELHI IN THE CASE OF ACIT VS. HI NDUSTAN MINT AND AGRO PRODUCTS (P) LTD., (2009) 119 ITD 107. IT HAS BEEN HELD IN THIS ORDER THAT THE PAGE - 18 ITA NO.1522 AND 1594/AHD/2005 -18- PROFITS OF THE UNIT ELIGIBLE FOR DEDUCTION UNDER SE CTION 80IA HAVE TO BE FIRST REDUCED BY THE DEDUCTION, IF ANY, ALLOWABLE UNDER S ECTION 80HHC. THE SPECIAL BENCH HAS THEREFORE AGREED WITH THE VIEW TAKEN BY T HE AO IN THE PRESENT CASE. ACCORDINGLY, RESPECTFULLY FOLLOWING THE SPECIAL BEN CH DECISION, WE REVERSE THE ORDER OF THE CIT(A) ON THIS POINT AND RESTORE THAT OF THE AO. THE GROUND OF THE DEPARTMENT IS ALLOWED. 24. GROUND NO.3 IS GENERAL AND REQUIRES NO DECISION . 25. IN THE RESULT THE APPEAL OF THE REVENUE IS PART LY ALLOWED. TO SUM UP, BOTH THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 20 TH NOVEMBER, 2009. SD/- SD/- (P.K. BANSAL) ACCOUNTANT MEMBER (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 20-11-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD