The ITO, Ward-4(4), Ahmedabad V. Madhusudan Industries Ltd., Ahmedabad

ITA 1609/AHD/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76718 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-04-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 20-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Keywords: Business income; Business expenditure; Principle of natural justice; Proportionate interest; Additional evidence; Bad and doubtful debts; Onus to prove
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, J.M. & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NOS. 1609 /AHD/2007, 548/AHD/08 & 321/AHD/2 011 (ASSESSMENT YEAR: 2003-04, 04-05 & 0 5-06) THE ITO WARD 4(4), AHMEDABAD V/S MADHUSUDAN INDUSTRIES LTD. MADHUSUDAN HOUSE, OPP. NAVRANGPURA TELEPHONE EXCHANGE, NAVRANGPURA, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AABCM 0538M APPELLANT BY : SHRI O.P. BATHEJA, SR. D.R . RESPONDENT BY : SHRI S.N. SOPARKAR ALONG WITH URVASHI SHODHAN, A.R. ( )/ ORDER DATE OF HEARING : 02-04-20 14 DATE OF PRONOUNCEMENT : 16 -05-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE THREE APPEALS FILED BY THE REVENUE ARE AGAINS T THE ORDER CIT(A)- VII, AHMEDABAD DATED 25.01.2007 (FOR A.Y. 2003-04), ITA NO. 548/AHD/08 CIT(A)-VIII, AHMEDABAD DATED 29.11.2007 (FOR A.Y. 2004- 05) & ITA NO. 321/AHD/11 CIT(A)-XX, AHMEDABAD DATED 03.11.2010 (FOR A.Y. 2005-06) RESPECTIVELY . 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. ITA NO. 1609/AHD/2007 (FOR A.Y. 03-04) ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 2 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING AND DEALING OF VANASPATI, D-OILED CAK ES, SOLVENT EXTRACTED OILS ETC. IT FILED ITS RETURN OF INCOME FOR AY 2003 -04 ON 29.11.2003 DECLARING TOTAL INCOME OF RS 80,53,156/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U /S 143(3) VIDE ORDER DATED 27.3.2006 AND THE TOTAL INCOME WAS DETERMINED AT RS 1,24,63,924/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 25.01.2007 ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. THE GROUNDS RAISED BY THE REVENUE READS AS UNDER:- 1. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS 27,99,225/-, BEING PROPORTIONATE INTEREST EXPENSES RELATABLE TO THE ADVANCE OF RS. 5,44,25,000/- MADE TO M/S. SHUBHAM APPLIANCES (P) LTD, FOR IMPLEM ENTATION OF NEW PROJECT WHICH COULD NOT TAKE OFF, AFTER HOLDING THAT THE A.O. DID NOT BRING ANYTHING ON RECORD TO SHOW THAT THE SAID ADVANCES WERE MADE OUT OF BORROWED FUNDS IGNORING T HE FACT THAT IT IS THE ONUS OF THE ASSESSEE, WHO CLAIMS ANY EXPENDITURE TO PROVE THAT SAID EXPEN DITURE INCLUDING THE EXPENDITURE CLAIMED U/S, 36(I)(III) WAS FOR BUSINESS PURPOSES, AS HELD IN TH E CASES REPORTED AT 258 ITR 363{DEL), 254 ITR 449(DEL) ETC. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN HOLDING THAT THE ASSESSEE HAD OTHERWISE INTEREST FREE FUNDS IGNORING THE FACT THA T THE ASSESSEE WAS REQUIRED TO PROVE BY DEMONSTRATIVE EVIDENCE THAT ON THE DATE ON WHICH TH E ADVANCES WERE MADE, THE ASSESSEE HAD INTEREST FREE FUNDS AND THERE WAS NO DIVERSION OF I NTEREST FREE BEARING FUNDS FOR NON BUSINESS PURPOSES, AS HELD BY HON'BLE MUMBAI !TAT IN THE CAS E OF SANGHAVI SWISS REFILLS P. LTD. VS. 1TO 85 ITD 59. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE A.O. TO ALLOW THE DISALLOWANCE OF RS. 9,60,000/- MADE ON ACCOUNT OF P UBLICITY AND ADVERTISEMENT EXPENSES,, AFTER ADMITTING FRESH EVIDENCE IN VIOLATION OF RULE 46A, WITHOUT AFFORDING OPPORTUNITY TO THE A.O. 4. THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF SALES PROMOTION EXPENSES AT RS. 2,92,226/-. 5. THE LD.CLT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS. 3,59,317/- BEING THE PRIOR PERIOD EXPENSES IGNORING THE FACT THAT THE RELEVANT EVIDENCES OF CRYSTALLIZATION OR ASCERTAINMENT OF LIABILITY OF PR IOR PERIOD DURING THE YEAR UNDER APPEAL HAD NOT BEEN FURNISHED. GROUND. NO 1 & 2 ARE INTERCONNECTED AND THEREFORE C ONSIDERED TOGETHER: ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 3 4. ON PERUSING THE DETAILS OF LOANS AND ADVANCES, AO N OTICED THAT APART FROM GRANTING OF LOANS/ADVANCES TO VARIOUS OTHER PE RSONS, ASSESSEE HAD ALSO GRANTED INTEREST FREE ADVANCE OF RS 5,44,25,00 0/- TO SUBHAM APPLIANCES PVT LTD. THE SUBMISSION OF THE ASSESSEE THAT THE ADVANCE WAS FOR THE IMPLEMENTATION OF THE NEW PROJECT AND THE A DVANCE WAS FROM NON INTEREST BEARING SHARE CAPITAL AND RESERVES WAS NOT FOUND ACCEPTABLE TO THE AO. AO NOTED THAT ASSESSEE HAD NOT FURNISHED TH E DETAILS REGARDING THE NEW PROJECT TO BE IMPLEMENTED, THE NATURE OF SE RVICES TO BE PROVIDED, TERMS OF PAYMENT TO SUBHAM APPLIANCES. HE WAS FURTH ER OF THE VIEW THAT THE SHARE CAPITAL AND FREE RESERVES OF THE ASSESSEE WAS ALREADY DEPLOYED FOR THE ACQUISITION OF FIXED ASSETS, MAKIN G INVESTMENTS AND THEREFORE THE SUBMISSION THAT INTEREST FREE FUNDS H AVE BEEN USED FOR ADVANCING THE MONEY WAS NOT ACCEPTABLE. HE ALSO NOT ICED THAT ASSESSEE HAS BORROWED SECURED AND UNSECURED LOANS ON WHICH I T HAD PAID INTEREST. HE THEREFORE CONCLUDED THAT THE ADVANCE TO SUBHAM A PPLIANCES WAS FOR NON BUSINESS PURPOSE AND THE MONEY WAS ADVANCED OUT OF INTEREST BEARING LOANS. HE ACCORDINGLY WORKED OUT THE PROPOR TIONATE INTEREST AT RS 27,99,225/- BEING NOT RELATABLE TO BUSINESS, ON THE BASIS OF INTEREST EXPENSES CLAIMED TO THE TOTAL FUNDS AVAILABLE AND D ISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION MADE BY AO BY H OLDING AS UNDER:- 4.1 I HAVE CONSIDERED THE ABOVE SUBMISSIONS. AS PER BOARD RESOLUTION DATED 19.02.2003, IT WAS RESOLVED TO GIVE INTEREST FREE ADVANCE OF RS. 600 L AKHS TO SHUBHAM APPLIANCES P. LTD. THE RELEVANT PORTION OF THE RESOLUTION IS REPRODUCED AS UNDER: ' THE CHAIRMAN INFORMED THE BOARD THAT THE COMPANY HAS APPOINTED SHUBHAM APPLIANCES PVT. LTD FOR TECHNICAL ASSISTANCE FOR IMPROVING EFFICIENCY OF TH E EXISTING VANASPATI PLANT AT RAKHIAL. SHUBHAM APPLIANCES P. LTD HAS ALSO MADE PRESENTATION BEFORE THE BOARD. AFTER DISCUSSION AT LENGTH, MEMBERS OF THE BOARD AP PROVED TO ADVANCE RS.600 LACS TO SHUBHAM APPLIANCES P. LTD. AND AUTHORIZE SHRI. D.P. GOYAL, RESIDENT DIRECTOR TO TAKE NECESSARY ACTIONS AND DECISIONS IN THE MATTER FROM TIME TO TIME. MEMBERS OF THE BOARD THEM PASSED THE FOLLOWING RESOLUTION. 'RESOLVED THAT THE COMPANY DO TAKE TECHNICAL ASSIST ANCE AND TECHNICAL KNOW HOW FOR IMPROVING' THE EFFICIENCY OF THE VANASPATI PLANT LOCATED AT RA KHIAL AND AUTHORIZE SHRI. D.P. GOYAL, RESIDENT DIRECTOR TO TAKE NECESSARY ACTIONS AND DECISIONS IN THE MATTER FROM TIME TO TIME. ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 4 'RESOLVED FURTHER THAT THE INTEREST FREE ADVANCE OF RS. 600 LACS BE MADE TO SHUBHAM APPLIANCES P. LTD. SUBJECT TO THE CONDITION THAT TH EY WILL PROVIDE NECESSARY DETAILS AND ACTION PLAN F OR IMPROVEMENT OF EFFICIENCY ON OR BEFORE 31,5.2003 AN D UPON FAILURE THE ADVANCE GIVEN SHALL BE REFUNDED BY 30TH JUNE, 2003.' 4.2 AS PER THE ABOVE RESOLUTION PAYMENTS WERE MADE FROM 26.02.2003 TO 10.03.2003 AMOUNTING TO TOTAL RS. 5,44,25,000/-. AS THE PROJECT WAS NOT IMP LEMENTED THE AMOUNT WAS RECEIVED BACK. IT IS MENTIONED IN COPY OF RESOLUTION PASSED ON 19.06.200 3 AS UNDER: ' THE CHAIRMAN INFORMED THE BOARD THAT THE COMPANY HAS PASSED A RESOLUTION AT THEIR MEETING HELD ON 19.2.2003 FOR TECHNICAL ASSISTANCE FROM SHUBHAM APP LIANCES P. LTD. AND ADVANCED RS.540 LACS FOR THE SAME. THE RESIDENT DIRECTOR INFORMED THE BOARD THAT AFTER GOING THROUGH THE IMPROVEMENT AND FUTURE EFFICIENCY HE WAS NOT CONVINCED ABOUT EARLIER PAY B ACK OF FUNDS INVESTED, HENCE AFTER DISCUSSIONS HE HAD TAKEN DECISION NOT TO IMPLEMENT THE SCHEME AND RECALLED BACK OF FUNDS, WHICH HAS BEEN RECEIVED.' 4.3SINCE THE AMOUNT WAS GIVEN FOR A NEW PROJECT, TH E AO HELD THAT THE INTEREST RELATABLE TO THIS ADVANCE IS NOT A BUSINESS EXPENDITURE OR REVENUE EX PENDITURE. AS THE COMPANY HAS INCURRED INTEREST EXPENDITURE OF RS. 1,68,90,110/-, HE HELD THAT A PA RT OF EXPENDITURE OF INTEREST RELATING TO ABOVE RS. 5.44 CRORES IS NOT ALLOWABLE AS BUSINESS EXPENDITUR E. HOWEVER, ME AO HAS NOT ESTABLISHED THE NEXUS BETWEEN THE BORROWED FUNDS AND ADVANCE GIVEN TO SHU BHAM APPLIANCES TO PROVE THAT SHUBHAM APPLIANCES HAD BEEN GIVEN MONEY OF OUT BORROWED FUN DS. ON THE CONTRARY, FROM THE DETAILS FILED IT IS CLEAR THAT INTERCORPORATE DEPOSIT BY THE COMPANY RE CALLED DURING THE YEAR AND DEPOSITED IN STANDARD CHARTERED BANK ACCOUNT IS THE SOURCE OF ADVANCE TO SUBHAM APPLIANCES. THE ABOVE, FACTS IS EVIDENT FROM THE BANK STATEMENT. ON CONSIDERATION OF THE FA CTS OF THE CASE AND DETAILS FILED, HOLD THAT THERE IS NO BASIS TO HOLD THAT ADVANCE TO SHUBHAM APPLIANCES IS OUT OF BORROWED FUND. ACCORDINGLY, THERE IS NO JUSTIFICATION FOR DISALLOWING INTEREST OF RS. 27 ,99,226/-. THE DISALLOWANCE OF RS. 27,99,225/- IS, THEREFORE, DELETED. 5. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LD. DR POINTED TO THE FINDINGS OF AO AND FURTHER SUBMITTED THAT NO DETAILS OF THE PROJECT ETC WERE SUBMITTED B EFORE THE AO FOR HIS PERUSAL. HE FURTHER PLACED RELIANCE ON THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF INAMULHAQ S IRAKI (ITA NO 2 43/AHD/2011 ORDER DATED 31.1.2012). ON THE OTHER HAND THE LD.A.R. REI TERATED THE SUBMISSIONS MADE BEFORE CIT(A). HE FURTHER SUBMITT ED THAT THE PROJECT COULD NOT BE IMPLEMENTED AND THEREFORE THE MONEY WA S RECEIVED BACK BY THE ASSESSEE. HE POINTED TO THE LEDGER ACCOUNT PLAC ED AT PAGE 20, 21 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE ADVAN CE WAS FOR THE PURPOSE OF BUSINESS, SUBHAM APPLIANCES WAS NOT A RE LATED PARTY OF THE ASSESSEE AND THE TRANSACTION HAS NOT BEEN DOUBTED. HE FURTHER SUBMITTED THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FR EE FUNDS IN THE FORM OF CAPITAL AND RESERVES AND THEREFORE THE PRESUMPTION WAS THAT THE INTEREST ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 5 FREE FUNDS HAVE BEEN USED FOR THE PURPOSE OF MAKING ADVANCE. HE ALSO PLACED RELIANCE ON THE DECISIONS IN THE CASE OF RAG HUVIR SYNTHETICS 354 ITR 222 (GUJ), RELIANCE UTILITY & POWER LTD 313 ITR 340 (BOM) AND S A BUILDERS 288 ITR 1 (SC). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS A FACT THAT RS 5.44 CRORES WAS GIVEN AS AN AD VANCE TO SUBHAM APPLIANCES FOR THE NEW PROJECT OF THE ASSESSEE. IT IS ALSO A FACT THAT THE PROJECT COULD NOT BE IMPLEMENTED AND THE AMOUNT ADV ANCED WAS RETURNED BACK TO THE ASSESSEE IN SUBSEQUENT YEAR. CIT(A) WHI LE DELETING THE ADDITION HAS GIVEN A FINDING THAT THE INTER CORPORA TE DEPOSITS ADVANCED BY THE ASSESSEE WERE RECALLED DURING THE YEAR AND IT W AS THE SOURCE OF ADVANCE. CIT(A) HAS FURTHER NOTED THAT AO HAS NOT E STABLISHED THE NEXUS BETWEEN THE BORROWED FUNDS AND THE ADVANCE GIVEN TO SUBHAM APPLIANCES TO PROVE THAT THE MONEY HAS BEEN ADVANCE D OUT OF BORROWED FUNDS. BEFORE US, ID A.R. HAS SUBMITTED THAT SUBHAM APPLIANCES IS NOT A RELATED PARTY, THE TRANSACTION HAS NOT BEEN DOUBTED AND THE ADVANCE WAS FOR THE BUSINESS PURPOSE. BEFORE US, LD D.R. COULD NOT CONTROVERT THE FINDINGS OF CIT(A) AND LD. A.R. FURTHER THE CASE LA WS RELIED BY THE ID D.R. ARE DISTINGUISHABLE ON FACTS. CONSIDERING THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 3 RD GROUND IS WITH RESPECT TO DELETING THE DISALLOWA NCE OF RS 9,60,000 ON ACCOUNT OF PUBLICITY AND ADVERTISEMENT EXPENSES: ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 6 8. A.O NOTICED THAT ASSESSEE HAD PAID RS 9,60,000 TOWA RDS PUBLICITY TO KAMYANI SALES PROMOTION PVT LTD. AO ASKED THE ASSES SEE TO JUSTIFY THE EXPENSES AND SUBMIT THE DETAILS AND PROOF OF EXPEND ITURE. AO NOTED ASSESSEE FURNISHED ONLY THE LEDGER ACCOUNT BUT DID NOT FURNISH THE PAN NO, ADDRESS, COPIES OF THE INVOICE, TYPE OF ADVERTI SEMENT OR PUBLICITY CAMPAIGN. HE ACCORDINGLY HELD THAT ASSESSEE HAS NOT DISCHARGED THE ONUS TO PROVE THE EXPENSES AND ACCORDINGLY DISALLOWED TH E EXPENDITURE. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO DELETED THE ADDITION BY HOLDING AS UNDER :- 5. THE NEXT GROUND OF APPEAL IS REGARDING DISALLOWA NCE OF PUBLICITY AND ADVERTISEMENT EXPENSES OF RS.9,60,000/-. THE AO FOUND THAT THE APPELLANT HAS PAID RS.9,60,000/- TO KAMYANI SALES PROMOTION P. LTD. FOR PUBLICITY AND ADVERTISEMENT. HE DIRECTED THE APPELLANT TO FURNISH DETAILS OF ADVERTISEMENT A ND PUBLICITY WORK DONE BY KAMYANI SALES. SINCE THE A SSESSEE COULD NOT FURNISH PROOF OF ADVERTISEMENT CAMPAIGN, THE AO WAS OF THE VIEW THAT THE APPELLANT COMPANY HAS NOT DISCLOSED WHICH TYPE OF ADVERTISEMENT CAMPAIGN OR PUBLICITY WAS EFFECTED BY KAMYANI SALES PROMOTION P. LTD.. SO HE HELD THAT THE DEDUCTION FOR CLAIM OF EXPENSES INCURRED O N ADVERTISEMENT AND PUBLICITY AMOUNTING TO RS.9,60,000/- IS NOT ALLOWABLE EXPENDITURE. AS AGAI NST THIS, IT IS SUBMITTED THAT PAYMENT TOWARDS PUBLICITY AND ADVERTISEMENT WAS MADE TO M/S KAMYANI SALES P. LTD. FOR THE FIRST TIME DURING A.Y. 2002-03 AND SAME WAS REPEATED DURING THE PERIOD REL EVANT TO-CURRENT ASSESSMENT YEAR, IN SUPPORT OF THE ABOVE. CLAIM, THE FOLLOWING DOCUMENTS WERE FILE D BEFORE ME: (I) COPY OF ADVERTISEMENT CONTRACT PERFORMANCE REPO RT DATED 12.04.2003 OF KAMAYANI SALES PROMOTION P. LTD., KOLKATA. (II) COPY OF BILL DATED 30.04.02 FOR REMUNERATION F OR SERVICES RENDERED BY KAMAYANI SALES. (II) COPY OF FORM NO. 16A ISSUED BY THE APPELLANT C OMPANY TO KAMAYANI SALES FOR PAYMENT OF REMUNERATION AND TDS THEREON. (IV) COPY OF SURVEY REPORT MADHURAM VANASPATI PRE PARED BY KAMAYANI SALES AGENCY FOR 2002-03. (V) PRINTED PAMPHLETS OF PRODUCTS OF MADHUSUDAN IND USTRIES LTD. (PAGE 178 TO 184 OF THE PAPER BOOK). 6. I HAVE CONSIDERED THE ABOVE SUBMISSION AND GONE THROUGH THE DOCUMENTS. ON PERUSAL OF THE ABOVE DOCUMENTS IT IS CLEAR THAT KAMAYANI SALES HAS RENDE RED SERVICES TO THE APPELLANT COMPANY FOR THE PERIOD 1.04.2002 TO 31.03.2003 FOR WHICH TOTAL PAYM ENT OF RS. 9,60,000/- HAS BEEN MADE ON DIFFERENT DATES OUT OF WHICH RS. 10,080/- HAS BEEN DEDUCTION AS TAX AT SOURCE. THE DETAILS OF PUBLICITY WORK DO NE BY KAMAYANI SALES IS ALSO EVIDENT FROM THE SURVEY R EPORT AND COPY OF PAMPHLETS FOR PUBLICITY AND SALES PROMOTION OF PRODUCTS OF THE COMPANY WHICH WERE PRE PARED BY KAMAYANI SALES PROMOTION P. LTD. ON CONSIDERATION OF THE ABOVE FACTS AND DETAILS FILED, I HOLD THAT THE ABOVE EXPENDITURE IS AN ALLOWABLE BUSINESS EXPENDITURE, HENCE, I DIRECT THE A.,O TO A LLOW THE SAME. THE APPELLANT GETS A RELIEF OF RS. 9,60,000/-. 9. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, LD D.R. POINTED TO THE OBSERVATION OF TH E AO ABOUT THE NON FURNISHING OF THE REQUIRED DETAILS AND ALSO POINTED TO THE FINDING OF ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 7 CIT(A) WHEREIN HE HAS NOTED ABOUT THE SUBMISSION OF VARIOUS DETAILS. HE THEREFORE SUBMITTED THAT THE DETAILS WHICH WERE SUB MITTED BEFORE CIT(A) WERE NEVER BEFORE AO NOR ANY REMAND REPORT WAS CALL ED FROM A.O BY CIT(A). HE THEREFORE SUBMITTED THAT CIT(A) DECIDED THE MATTER AFRESH CONSIDERING THE ADDITIONAL EVIDENCE AND THEREBY THE PRINCIPLE OF NATURAL JUSTICE WAS VIOLATED. HE THEREFORE SUBMITTED THAT THE AO BE ALLOWED AN OPPORTUNITY TO EXAMINE THE ADDITIONAL EVIDENCE FILE D BEFORE CIT(A). LD AR ON THE OTHER HAND SUBMITTED THAT THE GENUINENESS OF THE EXPENSES WAS NOT DOUBTED AND FURTHER ALL THE DETAILS WERE BEFORE AO. HE THUS SUPPORTED THE ORDER OF CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT A.O WHILE DISALLOWING THE EXPENSES HAS NOTED THAT THE VARIOUS DETAILS LIKE ADDRESS, PAN NO, COPIES OF THE INVOICES WERE NOT FURNISHED BY THE ASSESSEE AND THEREFORE THE GENUINE NESS WAS NOT PROVED AND THEREFORE THE EXPENSES WERE DISALLOWED BY A.O. WE ALSO FIND THAT CIT(A) HAS NOTED THAT VARIOUS DETAILS LIKE COPY OF THE ADVERTISEMENT CONTRACT, COPY OF BILLS AND OTHER MATERIAL WERE FUR NISHED BEFORE HIM AND AFTER CONSIDERING THE EVIDENCES SUBMITTED BEFORE HI M, CIT(A) DELETED THE ADDITION. BEFORE US, NOTHING HAS BEEN PLACED ON REC ORD TO DEMONSTRATE THAT ON THE ADDITIONAL EVIDENCES THAT WERE SUBMITTE D BY ASSESSEE BEFORE CIT(A), ANY REMAND REPORT WAS CALLED FROM A.O. WE T HEREFORE FEEL THAT IN THE INTEREST OF JUSTICE AND FAIR PLAY, THE AO SH OULD BE GRANTED AN OPPORTUNITY TO EXAMINE THE ADDITIONAL EVIDENCES WHI CH WERE SUBMITTED BY ASSESSEE BEFORE CIT(A). WE THEREFORE REMIT THE I SSUE TO THE FILE OF AO TO DECIDE THE ISSUE AFRESH AS PER LAW AND AFTER CONSIDERING THE EVIDENCES FILED BY THE ASSESSEE BEFORE CIT(A). NEED LESS TO STATE THAT AO ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 8 SHALL GRANT AN ADEQUATE OPPORTUNITY OF HEARING TO T HE ASSESSEE. THUS THIS GROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOS ES. 4 TH GROUND IS WITH RESPECT TO DELETING THE DISALLOWANC E OF RS 2,92,226 ON ACCOUNT OF SALES PROMOTION EXPENSES: 12. A.O NOTICED THAT ASSESSEE HAD PAID RS 2,92,226/- TO GUJARAT SOAPS LTD ON ACCOUNT OF SALESMAN APPOINTED FOR SALES. HE ALSO NO TICED THAT GUJARAT SOAPS LTD HAD NOT MADE ANY SALES FOR ASSESSEE DURIN G AY 2001-02, 2002-03 AND 2003-04 AND THEREFORE ACCORDING TO AO T HERE WAS NO JUSTIFICATION FOR THE PAYMENT OF SALES PROMOTION EX PENSES. HE ACCORDINGLY DISALLOWED THE PAYMENT. AGGRIEVED BY THE ORDER OF A O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO DELETED THE ADDITION B Y HOLDING AS UNDER:- 6.2 I HAVE CONSIDERED THE ABOVE SUBMISSION AND GONE THROUGH THE FACTS OF THE CASE. THE APPELLANT COMPA NY VIDE AGREEMENT DATED 31.7.98 HAS REQUISITIONED THE SERVICES OF GUJARAT SOAPS P. LTD. FOR MARKETING ITS PRODUCTS. IT IS AGREED BETWEEN THE PARTIES AS PER C LAUSE 4 OF THE AGREEMENT AS UNDER. ' AND WHEREAS 'GSL' WILL CHARGE RS. 1500 PER MONTH AS FEES FOR PROVIDING MARKETING SERVICES TO 'MIL' A ND 'MIL' AGREES TO PAY RS. 1500 PER MONTH AS RETAINERS HIP FEES FOR THE MARKETING SERVICES TO BE PROVIDED BY THE GSL FOR A PERIOD OF ONE YEAR. 'MIL' ALSO AGREES TO REIMBURSE THE EXPENSES LIKE THAT SALARIES OF SA LES PERSONS, FORWARDING EXPENSES, CONVEYANCE EXPENSES E TC. INCURRED BY GSL' IN FULL ON SUBMISSION OF BILL RELATED TO RENDERING OF SUCH SERVICES' ACCORDING, THE COMPANY HAS MADE PAYMENT TOWARDS SAL ES PROMOTION EXPENDITURE TO GUJARAT SOAPS LTD. AS UNDER: ASSESSMENT YEAR FEES EXPENSES TOTAL 1999-2000 12,000 161,972 173,972 2000-2001 18,000 266,689.4 284,689.4 2001-2002 18,000 404,810.81 422,810.81 2002-2003 18,000 372,651.9 390,651,9 2003-2004 18,000 274,226 292,226 2004-2005 18,000 268,348 286,348 TOTAL 102,000 1. 748,698,11 1,850,698,11 ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 9 THE COMPANY ALSO JUSTIFIED THE ABOVE PAYMENT ON THE GROUND THAT ON ITS OWN THE EXPENDITURE TOWARDS SAL ES PROMOTION WOULD HAVE BEEN MUCH MORE. ON CONSIDERATI ON OF THE ABOVE FACTS OF THE CASE, I FIND THAT THIS IS A VALID BUSINESS EXPENDITURE AND THERE IS NO BASIS FO R DISALLOWING SUCH CLAIM. THE EXPENDITURE SHOULD BE ALLOWED AS A BUSINESS EXPENDITURE IN COMPUTATION OF TOTAL INCOME. ACCORDINGLY, THE DISALLOWANCE OF RS.2,92,226/- IS HEREBY DELETED. 13. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW I N APPEAL BEFORE US. 14. BEFORE US, LD D.R. SUBMITTED THAT LD. CIT(A) REFERR ED TO THE AGREEMENT DATED 31.7.1998 ENTERED BY THE ASSESSEE WITH GUJARA T SOAPS P. LTD AND AFTER CONSIDERING THE SAME, DELETED THE DISALLOWANC E. HE SUBMITTED THAT THE AFORESAID AGREEMENT WAS NOT BEFORE AO NOR CIT(A ) OBTAINED REMAND REPORT OR COMMENT FROM A.O ON THE AGREEMENT FURNISH ED BEFORE CIT(A). HE FURTHER SUBMITTED THAT IN THE ABSENCE OF SALES, THE PAYMENT WAS NOT JUSTIFIED. LD A.R. ON THE OTHER HAND SUBMITTED THAT ALL THE DETAILS REQUIRED WERE SUBMITTED BEFORE ASSESSING OFFICER AND THUS SU PPORTED THE ORDER OF CIT(A). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT A.O WHILE DISALLOWING THE EXPENSES HAS NOTED THAT THERE WAS NO SALES MADE THROUGH GUJARAT SOAPS P. LTD. IN 3 YE ARS AND HAS ALSO NOTED THAT THE DETAILS OF SALES MADE BY SALESMEN WERE NOT SUBMITTED BEFORE HIM. WE ALSO FIND THAT CIT(A) HAS REFERRED TO THE AGREEM ENT DATED 31/07/1998 ENTERED BETWEEN ASSESSEE AND GUJARAT SOAPS P. LTD. FOR ALLOWING THE EXPENSES. WE FIND THAT THE AFORESAID AGREEMENT WAS NOT BEFORE AO BUT WAS CONSIDERED BY CIT(A) FOR DELETING THE ADDITION. WE THEREFORE FEEL THAT IN THE INTEREST OF JUSTICE AND FAIR PLAY, THE AO BE GRANTED AN OPPORTUNITY TO EXAMINE THE AGREEMENT AND OTHER SUBM ISSIONS MADE BY ASSESSEE BEFORE CIT(A). WE THEREFORE REMIT THE ISSU E TO THE FILE OF AO TO ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 10 DECIDE THE ISSUE AFRESH AND AS PER LAW AND AFTER CO NSIDERING THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE BEFORE CIT(A). NEED LESS TO STATE THAT AO SHALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS GROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOS ES. 5 TH GROUND IS WITH RESPECT TO DELETION OF DISALLOWANCE OF PRIOR PERIOD EXPENSES AMOUNTING TO RS 3,59,317/- 16. A.O NOTICED THAT ASSESSEE HAD DEBITED PRIOR PERIOD EXPENSES OF RS 3,59,317/-. AO NOTED THAT SINCE THE ASSESSEE DID NO T FURNISH ANY EVIDENCE TO PROVE THAT THE LIABILITY OF PRIOR PERIOD CRYSTAL LIZED DURING THE YEAR AND SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THE EXPENSES WHICH DID NOT PERTAIN TO THE YEAR COULD NO T ALLOWED AND THEREFORE HE DISALLOWED THE EXPENSES. AGGRIEVED BY THE ORDER OF AO, THE MATTER WAS CARRIED BEFORE CIT(A). CIT(A) DELETED TH E ADDITION BY HOLDING AS UNDER:- 7.2 I HAVE CONSIDERED THE ABOVE SUBMISSIONS. THE A PPELLANT HAS FILED DETAILS OF EXPENDITURE IN RESPEC T OF BILLS WHICH WERE SUBMITTED BY DIFFERENT PARTIES AFTER THE END OF THE RELEVANT ACCOUNTING PERIOD. S INCE BILLS WERE NOR RAISED DURING THE EARLIER PERIOD, IT WAS NOT POSSIBLE FOR THE APPELLANT TO ASCERTAIN THE LIABILITY. IN OTHER WORDS, WHEN BILLS WERE PRODUC ED TO THE APPELLANT, IT CAN BE SAID THAT THE EXPENDITURE WERE CRYSTALLIZED OR ASCERTAINED AT THE TIME OF PRESENTATION OF THE BILL. SINCE THE LIABI LITY WAS CRYSTALLIZED AND ASCERTAINED DURING THE YEAR UN DER CONSIDERATION, THE SAME SHOULD BE ALLOWED. 17. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW BE FORE US. BEFORE US, ID DR POINTED TO THE OBSERVATION OF THE AO THAT NO DETAILS WERE FILED OF THE PRIOR PERIOD EXPENSES NOR ANY EVIDENCE WAS FILE D TO PROVE THAT THE EXPENSES CRYSTALLIZED DURING THE YEAR. HE FURTHER P OINTED THAT CIT(A) AFTER CONSIDERING THE DETAILS FILED BEFORE HIM ALLO WED THE DEDUCTION. HE FURTHER SUBMITTED THAT NO REMAND REPORT OR COMMENTS WERE CALLED FROM AO BEFORE DELETING THE EXPENSES. THE LD. A.R ON THE OTHER HAND ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 11 SUPPORTED THE ORDER OF CIT(A) AND ALSO PLACED RELIA NCE ON THE DECISION IN THE CASE OF CIT VS JAGATJIT INDUSTRIES LTD (2011) 3 39 ITR 382 (DEL). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT A.O WHILE DISALLOWING THE EXPENSES HAS NOTED THAT NO DETAILS WERE FURNISHED BY THE ASSESSEE NOR HAS THE ASSESSEE PROVED THAT THE EXPENSES CRYSTALLIZED DURING THE YEAR. WE FIND THAT CIT(A) HAS NOTED THAT BEFORE HIM THE ASSESSEE HAS FILED THE DETAILS OF EXPENDITURE IN RESPECT OF WHICH THE BILLS WERE RECEIVED AFTER THE END OF THE RELEVANT PERIOD AND THEREFORE THE LIABILITY CRYSTALLIZED. WE HOWEVER FIND THAT THERE ARE NO DETAILS OF THE NATURE OF EXPENSES IN THE ORD ER OF CIT(A) NOR THE DETAILS OF THE EXPENSES HAVE ALSO BEEN PLACED BEFOR E US. WE THEREFORE FEEL THAT IN THE INTEREST OF JUSTICE AND FAIR PLAY, THE AO SHOULD BE GRANTED AN OPPORTUNITY TO EXAMINE THE DETAILS THAT WERE FILED BEFORE CIT(A). WE THEREFORE REMIT THE ISSUE TO THE FILE OF AO TO DECI DE THE ISSUE AFRESH AND AS PER LAW AND AFTER CONSIDERING THE ADDITIONAL EVI DENCE FILED BY THE ASSESSEE BEFORE CIT(A) AND ANY OTHER EVIDENCE THAT IT MAY FILE IN SUPPORT OF ITS CLAIM. NEEDLESS TO STATE THAT AO SHALL GRANT AN ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS THIS GROUND OF REV ENUE IS ALLOWED FOR STATISTICAL PURPOSES. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 548 /AHD/2008 (FOR A.Y. 2004-05) THE GROUNDS RAISED BY REVENUE READS AS UNDER:- ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 12 1. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.7,09,101/-, BEING PROPORTIONATE INTEREST EXPENSE S RELATABLE TO ADVANCES MADE TO ESQUIRE HOLDING PVT. LTD AND SHUBHAM APPLIANCES PVT. LTD. 2. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.11,52,000/- OUT OF ADVERTISEMENT AND PUBLICITY E XPENSES. 3. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS.2,68,348/- OUT OF SALES PROMOTION EXPENSES. 4. THE LD.CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DIRECTING THE A.O TO COMPUTE THE DEDUCTION U/? 80HHC UNIT-WISE IGNORING THE FACT THA T THE LD. CIT(A) HIMSELF HAD GIVEN CONTRARY DECISION IN THE ASSESSEE'S OWN CASE FOR A. YRS.2000-01 & 2001-02 WHEREIN THE ACTION OF THE A.O IN TAKING ALL THE UNITS AS A WHOL E FOR THE PURPOSE OF DEDUCTION U/S 80HHC OF THE ACT WAS UPHELD. 5. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE A.O NOT TO INCLUDE SALES TAX AND EXCISE DUTY IN THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80HHC. 6. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE A.O TO TREAT MISCELLANEOUS INCOME AND OTHER INCOME EXCEPT INTERE ST INCOME AS PART OF BUSINESS PROFIT FOR WORKING OF DEDUCTION U/S 30HHC. GROUND NO. 1 IS WITH RESPECT TO DELETION OF DISALLO WANCE OF INTEREST. 20. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE FACT S AND ISSUE INVOLVED IN GROUND NO 1 IS IDENTICAL TO THE FACTS AND ISSUE OF GROUND NO 1 FOR A.Y 2003-04 EXCEPT FOR THE AMOUNTS AND THE SUBMISSIONS MADE BY THEM FOR A.Y 2003-04 ARE EQUALLY APPLICABLE TO THE GROUND NO 1 OF PRESENT APPEAL. WE THEREFORE FOR THE REASONS STATED HEREIN WHILE DE CIDING THE GROUND NO 1 FOR A.Y. 2003-04 IN ITA NO 1609/AHD/2007, ALSO DISM ISS THIS GROUND OF REVENUE AND THUS THIS GROUND OF REVENUE IS DISMISSE D. GROUND NO 2 AND 3 ARE WITH RESPECT TO DELETION OF S ALES PROMOTION AND ADVERTISEMENT AND PUBLICITY EXPENSES: 21. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE FACT S AND ISSUE INVOLVED IN GROUND NO 2 & 3 OF THE PRESENT APPEAL ARE IDENTICAL TO THE FACTS AND ISSUE OF GROUND NO 2 & 3 FOR A.Y. 2003-04 EXCEPT FOR THE AMOUNTS AND THE SUBMISSIONS MADE BY THEM FOR A.Y. 2003-04 ARE EQUAL LY APPLICABLE TO THE ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 13 GROUND NO 2 & 3 OF PRESENT APPEAL. WE THEREFORE FOR THE REASONS STATED HEREIN WHILE DECIDING THE GROUND NO 2 & 3 FOR AY 20 03-04 IN ITA NO 1609/AHD/2007, ALSO ALLOW THE GROUNDS IN THE PRESEN T APPEAL FOR STATISTICAL PURPOSES. GROUND. NO 4 TO 6 ARE IN CONNECTION WITH DEDUCTION U/S 80HHC 22. AO NOTICED THAT ASSESSEE HAD CLAIMED DEDUCTION U/S 80HHC FOR NIMBHAHERA UNIT ONLY AND THE DEDUCTION WAS WORKED O UT BY ASSESSEE AT RS 2,62,092/-.AO WAS OF THE VIEW THAT THE DEDUCTION U/S. 80HHC HAS TO BE WORKED OUT TAKING INTO CONSIDERATION THE TOTAL T URNOVER OF THE ENTIRE BUSINESS AND NOT FOR EACH OF THE UNIT SEPARATELY. A O WAS FURTHER OF THE VIEW THAT EXCISE DUTY AND SALES TAX HAS TO BE CONSI DERED AS PART OF THE TOTAL TURNOVER FOR WORKING OUT THE DEDUCTION U/S 80 HHC. A.O ALSO NOTICED THAT ASSESSEE HAD CLAIMED DEDUCTION U/S 80H HC ON THE MISCELLANEOUS INCOME WHICH INCLUDED ITEMS LIKE SALE OF SCRAP, MISCELLANEOUS HEADS, INTEREST ON FIXED DEPOSITS, SA UDA SETTLEMENT AND RECOVERED BAD DEBTS. A.O WAS OF THE VIEW THAT THE A FORESAID INCOME WERE NOT ELIGIBLE FOR DEDUCTION U/S 80HHC. HE ACCORDINGL Y WORKED OUT THE DEDUCTION (30% OF ELIGIBLE DEDUCTION) AT RS 16,865/ -. AGGRIEVED BY THE ORDER OF AO, THE MATTER WAS CARRIED BEFORE CIT(A). CIT(A) GRANTED PARTIAL RELIEF BY HOLDING AS UNDER:- 8.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE LD. AUTHORISED REPRESENTATIVE. AS REGARDS THE ISSUE WHETHER PROFITS OF THE COMPANY AS A WHOLE ARE TO BE CONSIDERED OR THE PROFITS AND TURNOVER O F ONLY THE EXPORT UNITS ARE TO BE CONSIDERED FOR WORK ING OUT DEDUCTION U/S. 80HHC, IT IS NOTICED THAT TH E APPELLANT HAS CLAIMED DEDUCTION U/S. 80HHC AFTER TA KING INTO ACCOUNT THE EXPORT SALES MADE BY THE SOLVENT EXTRACTION DIVISIONS, SITUATED AT NIMBHAHER A IN RAJASTHAN AND RAKHIAL. IN A.Y. 1993-94 THE HON'BLE ITAT DATED 6-7-2005 HAS UPHELD THE ORDER OF CIT (A) GIVING DIRECTION TO THE A.O. TO CONSIDER ONLY THE TOTAL TURNOVER OF UNITS I,II & III OF THE SANITARYWARE DIVISION FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC AS SUBMITTED BY THE A.R. AT PAG E 102 OF THE PAPER BOOK. THE CIT(A)-VIII HAD ALSO HELD FOR A.Y. 1998-99 VIDE ORDER DATED 30-1-20 03 IN PARA 11.5 THAT FOR THE PURPOSE OF SECTION 80HHC THE EXPORT TURNOVER, TOTAL TURNOVER AND THE P ROFITS OF THE BUSINESS IS TO BE CONSIDERED WITH ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 14 RESPECT TO MANUFACTURED/TRADED GOODS WHICH ARE EXPO RTED AND THEREFORE TO WHICH PROVISIONS OF SECTION 80HHC(1) APPLIES AND NOT THE ENTIRE BUSINESS AS TAK EN BY THE A.O. .SIMILAR FINDING IS ALSO GIVEN BY CIT(A) IN A.Y. 1999-00. THE A.O. IS DIRECTED TO COM PUTE DEDUCTION U/S.80 HHC IN ACCORDANCE WITH THE DECISION OF THE HON'BLE ITAT BENCH 'C' FOR A.Y. 199 3-94 AND ORDER OF CIT(A) FOR A.Y. 1998-99 I.E. TO CONSIDER THE EXPORT TURNOVER ,TOTAL TURNOVER AND PR OFITS OF BUSINESS WITH RESPECT TO MANUFACTURED /TRADED GOODS WHICH ARE EXPORTED AND NOT THE ENTIRE BUSINESS OF THE APPELLANT COMPANY . 8.3 AS REGARDS COMPUTATION OF TOTAL TURNOVER FOLLOW ING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LAXMI MACHINE WORKS (290 ITR 667) AND CATAP HARMA INDIA (292 ITR 641)(SC), THE AO IS DIRECTED TO EXCLUDE EXCISE DUTY AND SALES TAX ELEME NTS FROM THE TURNOVER IN BOTH NUMERATOR AND DENOMINATOR IN CALCULATING DEDUCTION U/S. 80HHC. 8.4 AS REGARDS THE EXCLUSION OF OTHER INCOME, INTER EST INCOME AND MISCELLANEOUS INCOME FROM BUSINESS PROFITS FOR COMPUTING DEDUCTION U/S.80HHC , THE INT EREST RECEIVED FROM COMPANIES AND BANK DEPOSIT IS HELD TO BE NOT A PART OF ELIGIBLE/ BUSINESS PROFIT FOLLOWING THE ORDER OF HON'BLE ITAT FOR A.Y. 1993-9 4 AND THE ORDER OF CIT (A) FOR A.Y. 1998-99 & A.Y. 19 99-00. REGARDING THE OTHER MISCELLANEOUS INCOME THE SAME IS CONSIDERED AS PART OF BUSINESS PROFIT, AS SIMILAR ISSUE HAS BEEN CONSIDERED BY THE CIT(A) FOR A.Y. 1998-99 & 1999-00 AND IT HAS BEEN HELD THA T OTHER MISCELLANEOUS INCOME EXCLUDING INTEREST IS PART OF BUSINESS PROFIT. ACCORDINGLY THE A.O. IS DI RECTED TO TREAT MISCELLANEOUS INCOME AND OTHER INCOME EXCEPT INTEREST AS PART OF BUSINESS PROFIT F OR WORKING OUT DEDUCTION U/S. 80HHC OF THE I.T. ACT . THIS GROUND IS PARTLY ALLOWED.. 23. BEFORE US, THE LD. D.R. SUPPORTED THE ORDER OF A.O. LD AR SUBMITTED THAT VARIOUS ISSUES WITH RESPECT TO DEDUCTION U/S 80HHC ALSO AROSE IN AY 2001-02 AND THE MATTER REACHED THE HON'BLE TRIBUNAL . HE FURTHER SUBMITTED THAT SINCE THE FACTS OF THE CASE IN THE Y EAR UNDER APPEAL ARE IDENTICAL TO THAT OF AY 2001-02, THE DECISION OF TR IBUNAL FOR AY 2001-02 BE FOLLOWED. HE ALSO PLACED ON RECORD THE COPY OF T HE DECISION OF TRIBUNAL IN ITA NO 782 AND 765 OF 2007 FOR AY 2001-02 ORDER DATED 30.3.2012. HE SUBMITTED THAT THE ISSUE OF CONSIDERING THE TURN OVER OF THE UNIT AND EXCLUSION OF SALES TAX AND EXCISE DUTY FOR THE PURP OSE OF CALCULATION OF DEDUCTION U/S 80HHC WAS ALSO DECIDED IN ASSESSEE'S FAVOUR BY TRIBUNAL IN AY 2001-02. HE ALSO SUBMITTED A CHART GIVING THE BREAKUP OF MISCELLANEOUS INCOME WHICH AS UNDER:- DETAILS OF MISC. INCOME INCLUDED IN OTHER SCHEDULE- 13 FOR ASST. YEAR 03-04 PARTICULARS VANASPATI RS. NIMBAHERA RS. WIND TURBINE PROJECT RS. INVESTMENT DIVISION RS CORPORATE OFFICE RS. TOTAL RS. SALES 135405.46 135405.46 ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 15 STORES/SCRAP MISC. SALES 90690.95 1210.00 91900.95 SALES ROUNDING OFF 4.20 4.20 INTEREST ON F.D. 3744.00 3744.00 MISC. INCOME 2970.00 2970.00 SAUDA SETTLEMENT 215615.00 215615.00 BAD DEBTS RECOVERED 74640.00 74640.00 TOTAL 428630.46 94439.15 0.00 0.00 1212.0 0 524279.61 24. FROM THE CHART HE POINTED OUT THAT THE ISSUE OF SAL E OF SCRAP AND BAD DEBTS RECOVERY IS COVERED IN ITS FAVOUR BY THE DECISION O F CO-ORDINATE BENCH IN AY 2001-02. WITH RESPECT TO MISCELLANEOUS INCOME AN D SAUDA SETTLEMENT, HE SUBMITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF TRIBUNAL FOR AY 2001-02. HE THEREFO RE SUBMITTED THAT FOLLOWING THE DECISION IN EARLIER YEARS, THE ISSUE BE DECIDED. 25. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL ON RECORD. WE FIND THAT THE ISSUES CONNECTED WITH DEDUCTION U/S 8 0HHC FOR AY 2001-02 WAS RAISED WAS BY ASSESSEE AND REVENUE BEFORE TRIBU NAL. THE CO- ORDINATE BENCH OF TRIBUNAL DECIDED VARIOUS ISSUES I N AY 2001-02 (ITA NO 782 & 765 OF 2007 VIDE ORDER DATED 30.3.2012 BY HOLDING AS UNDER:- 2. THE 1 ST GROUND OF APPEAL FILED BY THE REVENUE IS THAT THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE EXCISE DUTY AND SALES TAX FROM T OTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE INCOME TAX ACT, 1961 OF THE ACT HEREINAFTER). 3. AT THE OUTSET, THE LD. AUTHORISED REPRESENTATIVE SU BMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HONBLE SUPREME COURT I N THE CASE OF CIT VS. LAXMI MACHINE WORKS, 290 ITR 667 (SC) WHEREIN IT HAS BEEN HELD THAT THE EXCISE DUTY AND SALES TAX ARE NOT INCLUDABLE ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 16 IN TOTAL TURNOVER IN OF THE FORMULA CONTAINED IN SE CTION 80HHC (3) OF THE ACT. IN THE LIGHT OF LAW LAID DOWN BY THE APEX COURT, WE CONFIRM THE ORDER O F CIT(A) ON THE ISSUE. 6 THE 3 RD GROUND OF APPEAL FIELD BY THE REVENUE AND THE 2 ND GROUND OF APPEAL FILED BY THE ASSESSEE IS BASED ON IDENTICAL SET OF FACTS, THEREFORE, BOTH TH ESE GROUNDS OF CROSS APPEALS ARE DECIDED TOGETHER. THIS ISSUE IS IN RESPECT OF MISCELLANEOU S INCOME AT RS. 10,61,619/-, INTEREST INCOME AT RS. 1,153/- AND RS. 1,938/- FOR THE PURPOSE OF CALC ULATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. 7 DURING THE ASSESSMENT PROCEEDINGS, THE A.O NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80HHC ON MISCELLANEOUS INCOME OF RS. 20,66,258/-. THE ASSESSING OFFICER EXCLUDED THE SAID AMOUNT ON MISCELLANEOUS INCOME OF RS. 20,66,258/- F OR THE PURPOSE OF CALCULATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE CIT(A) DIRECTE D THE ASSESSING OFFICER TO EXCLUDE THE MISCELLANEOUS INCOME OF RS. 10,61,619/- AND INTERES T INCOME OF RS.. 1,153/- AND RS. 1,938/- IN PLACE OF RS. 20,66,568/-. THE DETAILS OF RS. 20,66 ,568/- NOTED BYDS THE CIT(A) IN HIS ORDER AT PAGE NO. 10 ARE AS UNDER:- (I) SALES STORES/SCRAP RS. 8,61,923/- (II)SALES ROUNDING OFF RS. 547/- (III)SUNDRY DR./WR. OFF RS. 53/- (IV)INTEREST RECD. ON PCD RS. 1,153/- (V)INTEREST ON FD RS. 1,938/- (VI) MISC. INCOME RS. 10,61,619/- (VII) HOUSE RENT RECEIVED RS. 79,279/- (VIII) SERVICE CHARGES RECEIVED RS. 0 /- (IX) FOREIGN EXCHANGE VARIATION RS. 29,503/- (X) TRANSIT INSURANCE RS. 0/- (XI) SAUDA SETTLEMENT RS. 73,665/- (XII) BAD DEBT RECOVERED RS. 15,894/- TOTAL RS. 20,66,568/- 8 THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFF ICER IN RESPECT OF MISCELLANEOUS INCOME RS.10,61,619/- AND INTEREST INCOME RS.1,153/- & RS. 1,938/-. HOWEVER, THE CIT(A) HELD THAT THE BALANCE AMOUNT OF MISCELLANEOUS INCOME IS BUSINESS INCOME AND HENCE SHOULD NOT BE EXCLUDED FROM THE PROFIT OF BUSINESS FOR THE PURPOSE OF CALC ULATION OF DEDUCTION UNDER SECTION 80 HHC OF THE ACT. THE ASSESSEE IS IN APPEAL THROUGH ITS GROU ND NO. 2 CHALLENGING THE ORDER OF CIT(A) IN RESPECT OF DEDUCTION FOR EXCLUDING OF MISCELLANEOUS INCOME RS. 10,61,619/- AND INTEREST INCOME RS. 1,153/- AND RS. 1,938/-. THE REVENUE IS IN APP EAL AGAINST THE BALANCE AMOUNT FOR WHICH THE CIT(A) DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE U/S. 80HHC OF THE ACT. 9 AT THE TIME OF HEARING, THE LD. AUTHORISED REPRESEN TATIVE SUBMITTED THAT THE SALE STORES/SCRAP AT RS.8,61,923/-, SALES ROUNDING OFF RS.547/-, SUNDRY DR./WRITTEN OFF RS.53/-, FOREIGN EXCHANGE VARIATION RS.29,503/- & BAD DEBT RECOVERED RS. 15,8 94/- ARE TO BE DECIDED IN FAVOUR OF THE ASSESSEE TREATING THE SAME AS INCOME BY VARIOUS BEN CHES OF I.T.A.T. AND OTHER ORDERS ON THE ISSUE. HOWEVER, INTEREST RECEIVED ON PCD RS. 1,153/- & RS. 1,938/-, HOUSE RENT RECEIVED 79,279/- & SAUDA SETTLEMENT RS.73,665/- MAY BE DECIDED AGAINST THE ASSESSEE. ACCEPTING LEARNED AR SUBMISSIONS WE DECIDE ACCORDINGLY. AS REGA RDS MISCELLANEOUS INCOME OF RS.10,61,619/-, THE LD. AUTHORISED RCPRESENTATIVE DID NOT PRESS FOR WAN T OF BREAK UP OF THE MISCELLANEOUS INCOME OF RS. 10,61,619/-. IN THE LIGHT OF THE FACT, THIS ISS UE RELATING TO MISCELLANEOUS INCOME RS. 10,61,619/- IS DECIDED AGAINST THE ASSESSEE. SINCE WE DECIDED T HE INDIVIDUAL ITEM OF THE MISCELLANEOUS INCOME AS ABOVE, THEREFORE, THE ORDER OF CIT(A) IS ACCORDI NGLY MODIFIED. 26. FURTHER, THE AFORESAID DECISION OF THE CO-ORDINATE BENCH WAS ALSO FOLLOWED WHILE DECIDING THE APPEAL OF ASSESSEE FOR AY 2000-01 VIDE ORDER DATED 28.02.2013. SINCE THE FACTS OF THE YEAR UNDER APPEAL ARE ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 17 IDENTICAL TO THAT OF AY 2001-02, WE RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH FOR AY 2001-02 AND FOR SIMILA R REASONS GIVEN WHILE DECIDING THE ISSUE FOR A.Y. 01-02,PARTLY ALLO W THE GROUNDS OF REVENUE. 27. IN THE RESULT THE APPEAL OF REVENUE IS PARTLY ALLOW ED . ITA NO.321/AHD/ 2011 (FOR A.Y. 2005-06) 28. THE GROUNDS RAISED BY REVENUE READS AS UNDER:- 1. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AN D ON FACTS IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES OF RS. 14,98,521 /-ON ACCOUNT OF INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE, WITHO UT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 1.2 IN DOING SO, THE LD. CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE ORDER OF TH E ID. CIT(A) FOR ASST. YEARS 2003-04 & 2004-05 HAS NO T BEEN ACCEPTED BY THE DEPARTMENT AND THE MATTER IS SUB-JUDICE BEFORE THE HON'BLE TRIBUNAL. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.2,89,693/- MADE BY THE AO OUT OF THE SALE PROMOTION EXPENSES, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 2.2 IN DOING SO, THE LD. CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE ORDER OF TH E ID. CIT(A) FOR ASST. YEARS 2003-04 & 2004-05 HAS NO T BEEN ACCEPTED BY THE DEPARTMENT AND THE MATTER IS SUB-JUDICE BEFORE THE HON'BLE TRIBUNAL. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 29. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE FACT S AND ISSUE INVOLVED IN THE GROUNDS RAISED IN PRESENT APPEAL ARE IDENTICAL TO THE FACTS AND ISSUE OF GROUNDS RAISED IN FOR A.Y. 2003-04 EXCEPT FOR THE A MOUNTS AND THE SUBMISSIONS MADE BY THEM FOR A.Y. 2003-04 ARE EQUAL LY APPLICABLE TO GROUNDS IN PRESENT APPEAL. WE THEREFORE FOR SIMILAR REASONS STATED HEREIN WHILE DECIDING THE GROUNDS FOR AY 2003-04 IN ITA NO 1609/AHD/2007 ALSO DECIDE THE GROUNDS. ITA NOS. 1609/A/07, 548/A/08 & 321/A/11 . A.YS. 2003-04, 04 -05 & 2005- 06 18 30. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLO WED. 31. IN THE RESULT THE APPEALS OF REVENUE ARE PARTLY ALL OWED ORDER PRONOUNCED IN OPEN COURT ON 16 - 05 - 2014. SD/- SD/- (MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,A HMEDABAD