M/s. TROPICATE TEXTILES P. LTD. (AMALGAMATING CO.), MUMBAI V. DCIT Rg. - 8(3), MUMBAI

ITA 1827/MUM/2006

• Counselvise Citation: 182719914 RSA 2006
• Duration Of Justice: 5 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 29-08-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 17-03-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBACHAN RAM
• Assessee Lawyers: NITESH JOSHI
• Keywords: Business income
• Section: 12; 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AN D SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 1827/MUM./2006 (ASSESSMENT YEAR : 2002-03 ) TROPICATE TEXTILES PVT. LTD. (AMALGAMATING COMPANY LEELA SCOTTISH LACE PVT. LTD.) LEELA BAUG, SIR M.V. ROAD ANDHERI (E), MUMBAI 400 059 PAN AAACT1870A .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX RANGE-8(3), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO. 2544/MUM./2006 (ASSESSMENT YEAR : 2002-03 ) DY. COMMISSIONER OF INCOME TAX (OSD) AAYAKAR BHAVAN, 101, M.K. ROAD MUMBAI 400 020 .. APPELLANT V/S TROPICATE TEXTILES PVT. LTD. (AMALGAMATING COMPANY LEELA SCOTTISH LACE PVT. LTD.) LEELA BAUG, SIR M.V. ROAD ANDHERI (E), MUMBAI 400 059 PAN AAACT1870A .... RESPONDENT ASSESSEE BY : MR. NITESH JOSHI REVENUE BY : MR. SUBACHAN RAM DATE OF HEARING 29.08.2011 DATE OF ORDER 30.09.2011 TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 2 O R D E R PER J. SUDHAKAR REDDY, A.M. THESE CROSS APPEALS ARE DIRECTED AGAINST THE IMPUG NED ORDER DATED 31 ST JANUARY 2006, PASSED BY THE COMMISSIONER (APPEALS) -XXIX, MUMBAI, FOR ASSESSMENT YEAR 2002-03. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS A PRIVATE LIMITED COMPANY, ENGAGED IN THE BUSINESS OF MANUFACTURING A ND EXPORT OF GARMENTS. IT FILED ITS RETURN OF INCOME ON 28 TH OCTOBER 2002, FOR ASSESSMENT YEAR 2002- 03, DECLARING TOTAL INCOME OF ` 19,55,521. THE ASSESSING OFFICER ASSESSED INCOME AT ` 8,19,81,730, INTER-ALIA, DISALLOWING DEDUCTION CLA IMED UNDER SECTION 10B OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) AND PARTLY DISALLOW THE CLAIM UNDER SECTION 80HHC, ETC. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE T HE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPEALS) GRANT ED PART RELIEF. AGGRIEVED, BOTH ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. 4. FIRST WE TAKE UP REVENUES APPEAL. GROUND NO.1, IS ON THE ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 10B. 5. THE FACTS, AS BROUGHT IN THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) VIDE PAGE-2, IS EXTRACTED BE LOW FOR READY REFERENCE:- APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF MAN UFACTURING AND EXPORT OF GARMENTS AND JOB WORK OF STITCHING. APPEL LANT HAS CLAIMED DEDUCTION U/S.10B TO THE TUNE OF RS.5,89,91,153/-. AFTER CONSIDERING THE OLD RECORDS, AO HAS OBSERVED THAT APPELLANT OPT ED FOR DEDUCTION FOR 5 YEARS FROM A.Y. 1996-97 TO A.Y. 2000-01. AS P ER THE CONDITION OF THE PROVISIONS OF SUB-SECTION (2) OF SECTION 10B OF THE L.T.ACT IF AN UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE AN ART ICLE OR THING ON OR AFTER 01.04.1994, IT IS ENTITLED FOR EXEMPTION FOR 5 CONSECUTIVE TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 3 ASSESSMENT YEARS FROM THE RELEVANT ASSESSMENT YEAR IN WHICH THE PRODUCTION STARTED. APPELLANT HAD STARTED THE PRODU CTION IN A.Y. 1993- 94 AND WAS REGISTERED AS 100% EXPORT ORIENTED UNIT ON 28.10.1992 AT BANGALORE. APPELLANT HAS GIVEN OPTION FOR TAX EXEMP TION PERIOD FROM A.Y. 1996-97 ONWARDS AND SAME HAS BEEN ACCEPTED BY THE AO ALSO. IN VIEW OF ABOVE, AO OBSERVED THAT APPELLANT COMPANY W AS ELIGIBLE FOR DEDUCTION FOR A PERIOD OF 5 ASSESSMENT YEARS FROM A .Y.1996-97 TO A.Y.2000-01 AND NOT THEREAFTER INCLUDING A.Y.2002-0 3, THE YEAR UNDER CONSIDERATION. AO, THEREFORE, ASKED THE APPELLANT T O EXPLAIN AS TO WHY DEDUCTION U/S.10B SHOULD BE ALLOWED AS THE APPELLAN T HAS OPTED FOR DEDUCTION U/S. 10B FROM A.Y. 1996-97 ONWARDS. APPEL LANT SUBMITTED ITS REPLY WHICH HAS BEEN REDUCED BY AO IN THE ASSES SMENT ORDER WHICH IS AS UNDER: (A) IN A.Y. 1993-94, OUR COMPANY WAS FORMED AND HAD DONE SOME JOB WORK OF GARMENTS FOR OUR PRINCIPAL COMPANY. IN A.Y. 1993-94, WE HAVE NOT PURCHASED AND INSTALLED ANY PLANT & MACHIN ERY AT OUR FACTORY AND FURTHER DUE TO THIS THE REDUCTION OF GARMENTS H AD NOT TAKEN PLACE IN OUR COMPANY/FACTORY. (B) IN A.Y. 1994-95, WE HAS STARTED PRODUCTION OF G ARMENTS AFTER BUYING NEW PLANT & MACHINERY AND WE HAD EXPORT SALE S IN THE SAME YEAR. FOR THIS YEAR WE HAD CLAIMED DEDUCTION OF INC OME U/S. 8OHHC OF THE INCOME-TAX ACT. (C) WE ARE ENGAGED IN THE BUSINESS OF MANUFACTURING GARMENTS FOR THE PURPOSE OF EXPORT. WE HAVE A UNIT, WHICH IS SET UP IN COCHIN EXPORT PROCESSING ZONE- BANGALORE WHICH IS 100% EOU AND THE SAID UNIT COMMENCED MANUFACTURING OPERATION IN A.Y. 1994 -95. WE HAD OBTAINED GREEN CARD NO. 251, DATED 15.06.1999 WHICH IS IN THE NATURE OF CERTIFICATE ISSUED FOR EXPORT ORIENTED UNIT, THE AFORESAID GREEN CARD CERTIFICATE WAS ISSUED BY THE MINISTRY OF COMMERC E, ASST. DEVELOPMENT COMMISSIONER COCHIN EXPORT PROCESSING ZONE BANGALORE. WE ARE SATISFYING ALL THE CONDITIONS MENTIONED IN S EC. 10B FOR TAKING THE BENEFIT OF DEDUCTION OF INCOME UNDER AFORESAID SECTION. AS PER OUR CONTENTION, THE AMENDMENT MADE BY THE FI NANCE ACT, 1994, FOR SECTION 10B(2) IS NOT APPLICABLE TO OUR C OMPANY DUE TO THE FACT THAT WE HAVE NOT COMMENDED PRODUCTION ON OR AF TER DAY OF APRIL, 1994. YOUR GOODSEIF HAS STATED THAT OUR UNDERTAKING HAS L OCAL TURNOVER IN PARA 1(I) OF YOUR QUESTIONNAIRE. IN THIS CONNECTION , PLEASE NOTE THAT WE DO NOT HAVE ANY LOCAL SALES / TURNOVER. WE HAVE INCOME IN THE NATURE OF STITCHING INCOME WHICH IS NOT CONSIDE RED AS OUR LOCAL SALES DUE TO THE FACT THAT STITCHING JOB WORK INCOM E WAS UNDERTAKEN ON CONTRACTUAL BASIS FOR DOING JOB WORK OF GARMENTS ONLY, WHEREIN WE HAVE RECEIVED ALL RAW MATERIAL/FABRICS FROM OUR GRO UP COMPANIES FOR UNDERTAKING STITCHING OF GARMENTS ONLY. THE AFORESA ID STITCHING WORK IS CONSIDERED AS LABOUR CHARGES DONE FOR STITCHING OF GARMENTS FOR OTHER PARTIES. TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 4 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ST RONGLY STATE THAT WE HAVE RIGHTFUL CLAIM OF DEDUCTION OF INCOME U/S. 10B OF THE I.T.. ACT, 1961. FURTHER, WE ONCE AGAIN STATE THAT AMENDMENT M ADE TO SEC. 10B(2)(IA) IS NOT APPLICABLE TO OUR COMPANY, SINCE WE HAD STARTED PRODUCTION OF GARMENTS BEFORE 1.4.1994 AND WE DO NO T HAVE ANY LOCAL SALES, WE HAVE ONLY EXPORT SALES. II) YOU HAVE STATED THAT WE ARE ELIGIBLE FOR OPTION U/S. 10B FROM A.Y. 1995-96 TO A.Y. 2000-01. AS PER OUR CONTENTION , WE ARE ELIGIBLE TO TAKE THE BENEFIT OF DEDUCTION OF INCOME U/S. 10B FOR A.Y.S AS PER PROVISIONS OF SEC. 10B(1) WHICH READ AS A DEDUCTIO N OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PERCENT EXPOR T ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BE GINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE SHALL BE ALLO WED FROM THE TOTAL INCOME OF THE ASSSESSEE. THEREFORE, IN VIEW OF THE AFORESAID SECTION 10B(1) WE ARE ELIGIBLE FOR DEDUCTION U/S. 10B FOR 10 CONSECUTIVE ASSESSMENT YE ARS FROM A.Y. 1994-95 TO 2003-04. AO CONSIDERED THE ABOVE SUBMISSION OF APPELLANT BUT WAS NOT SATISFIED WITH THE SAME. AO HAS OBSERVED THAT APPELLANT WAS E LIGIBLE FOR DEDUCTION FOR A PERIOD OF FIVE YEARS FOR WHICH IT H AS OPTED FROM A.Y. 1996-97 ONWARDS AND APPELLANT HAS THEREFORE EXHAUST ED ITS TAX HOLIDAY PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEARS FROM A.Y.1996-97 TO A.Y.2000-01. AO, THEREFORE. HELD THAT APPELLANT IS NOT ELIGIBLE FOR DEDUCTION U/S.10B FOR A.Y.2001-02 AND SUBSEQUENT AS SESSMENT YEARS AND DISALLOWED DEDUCTION ULS.10B IN A.Y.2002-03, TH E YEAR UNDER CONSIDERATION. WHILE DISALLOWING DEDUCTION ULS.10B, AO HAS ALSO OBSERVED THAT IN THE ASSESSMENT ORDER MADE U/S.143( 3) R.W.S.147 OF THE I.T.ACT FOR A.YS.1997-98, 1998-99 AND 1999-2000 IN APPELLANTS OWN CASE, DEDUCTION U!S.IOB WAS ALSO DISALLOWED. 6. THE COMMISSIONER (APPEALS), VIDE PAGES-12 & 13 OF H IS IMPUGNED ORDER, GRANTED RELIEF TO THE ASSESSEE. AGGRIEVED, T HE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. BEFORE US, LEARNED DEPARTMENTAL REPRESENTATIVE, MR. SUBACHAN RAM, ON BEHALF OF REVENUE, SUBMITTED THAT THE ASSESSEE C OMMENCED MANUFACTURING FOR THE FIRST TIME IN THE ASSESSMENT YEAR 1994-95, THOUGH IT WAS FORMED IN THE ASSESSMENT YEAR 1993-94. HE SUBMI TTED THAT THE ASSESSEE HAS NOT CLAIMED BENEFIT OF DEDUCTION UNDER SECTION 10B, FOR ASSESSMENT YEAR 1994-95 AND ASSESSMENT YEAR 1995-96 . HE SUBMITTED THAT TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 5 THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10 B FROM ASSESSMENT YEAR 1996-97 TO THE ASSESSMENT YEAR 2000-01, WHICH IS FO R THE PERIOD OF FIVE YEARS FROM OUT OF THE FIRST SEVEN YEARS. HE SUBMITT ED THAT, UNDER THESE CIRCUMSTANCES, THE ISSUE NOW STANDS COVERED IN FAVO UR OF THE REVENUE BY THE FOLLOWING CASE LAWS:- DCIT V/S INTERGOLD (I) LTD., (2009) 27 SOT 239 (MUM .); AND TATA TEA LTD. V/S JT. CIT (2003) 87 ITD 351 (CAL) 8. HE DREW THE ATTENTION OF THE BENCH TO THE PROVISION S OF SECTION 10B, SUB-SECTION (3) AND SUBMITTED THAT THE AMENDMENT BR OUGHT IN STATUTE BY THE I.T. (2 ND AMENDMENT) ACT, 1998, W.E.F. 1 ST APRIL 1999, THE WORD FIVE HAS BEEN SUBSTITUTED BY TEN . HE, ARGUING THAT THE LAW, AS APPLICABLE PRIOR TO THE AMENDMENT, IS TO BE APPLIED IN THIS CASE. 9. ON GROUND NO.2, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUBMITTED THAT THE ASSESSING OFFICER, AS A MATTER OF ABUNDANT CAUTION AND WITHOUT PREJUDICE TO HIS MAIN FINDING THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION UNDER SECTION 10B, ALSO HELD THAT DEDUCTION CANNOT BE GRANTED ON FOREIGN EXCHANGE GAIN AND JOB WORK RECEIPTS. ON FOREIGN EXC HANGE GAIN, HE SUBMITTED THAT IF THE FOREIGN EXCHANGE RELATED TO T HE TURNOVER OF THE CURRENT YEAR, THE SAME SHOULD BE ALLOWED AND IF THE EXCHANG E GAIN RELATES TO TURNOVER OF EARLIER YEAR, IT SHOULD BE DISALLOWED. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON JOB WORK CHARGES RECEIVED, SUBMITTED THAT SUCH INCOME IS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING AND, HENCE, NOT ELIGIBLE FOR RELIEF UND ER SECTION 10B. IN SUPPORT OF HIS ARGUMENTS, HE RELIED ON THE CHANDIGARH BENCH DECISION OF THE TRIBUNAL IN P.A. TIME INDUSTRIES V/S DCIT, (2006) 101 ITD 13 2 (CHD.). 11. LEARNED DEPARTMENTAL REPRESENTATIVE, REFERRING TO G ROUND NO.3, SUBMITTED THAT THE ARGUMENTS MADE IN GROUND NO.2, W OULD APPLY TO THIS GROUND. TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 6 12. ON GROUND NO.4, WHICH IS ON THE ISSUE OF DISALLOWAN CE OF MANUFACTURING EXPENSES ON AD-HOC BASIS, THE LEARNED DEPARTMENTAL REPRESENTATIVE, RELIED ON THE ORDER PASSED BY THE ASSESSING OFFICER. 13. ON GROUND NO.5, THE LEARNED DEPARTMENTAL REPRESENTA TIVE SUBMITTED THAT EMPLOYEES AND EMPLOYERS CONTRIBUTION TO P.F. AND ESIC WERE MADE WITHIN THE GRACE PERIOD AND THAT THE ISSUE IS COVER ED IN FAVOUR OF THE ASSESSEE. 14. LEARNED COUNSEL, MR. NITESH JOSHI, SUBMITTED THAT, AS FAR AS GROUND NO.1 IS CONCERNED, THE ISSUE IS COVERED IN FAVOUR O F THE ASSESSEE BY THE DECISION OF DELHI BENCH OF THIS TRIBUNAL IN TECH BO OKS ELECTRONICS SERVICES (P) LTD. V/S ACIT, (2006) 100 ITD 125 (DEL.). HE SUBMIT TED THAT THE DECISION IN CASE OF INTERGOLD (I) LTD. (SUPRA) AND THE DECISION IN TATA TEA LTD. (SUPRA) ARE DISTINGUISHABLE AS IN BOTH THESE CASES, THE ASS ESSMENT YEAR IN QUESTION WAS 1998-99 AND BY THAT TIME, THE ASSESSEE HAD EXHA USTED THE PERIOD OF 5 YEARS AND, WHEREAS THE AMENDMENT HAS COME INTO FORC E ONLY W.E.F. 1 ST APRIL 1999. HE SUBMITTED THAT THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION FROM ASSESSMENT YEAR 1997-98 TO 2000-01. HE REFERRED TO THE PROVISO INSERTED TO SECTION 10B, BY FINANCE ACT, 2000, AND SUBMITTED THAT THIS PROVISO WAS NOT A MATTER OF INTERPRETATIO N BY ANY BENCH OF THE TRIBUNAL. HE RELIED HEAVILY ON THE ORDER OF THE TRI BUNAL IN TECH BOOKS ELECTRONICS SERVICES (P) LTD. (SUPRA). LEARNED COUN SEL, WHILE RELYING ON THE MUMBAI BENCH DECISION OF THE TRIBUNAL IN M/S. CONSI NDIA PVT. LTD. V/S ITO, ITA NO.8270/MUM./2004, ORDER DATED 29 TH JANUARY 2008, SUBMITTED THAT THE FACTS OF THIS CASE ARE IDENTICAL TO THE FACTS OF TH AT CASE. HE ALSO RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN RELIANCE JUTE & INDUSTRIES LTD . V/S CIT , (1979) 120 ITR 921 (SC), FOR THE PROPOSITION THAT T HE LAW, AS IT EXCEEDS ON THE FIRST DAY OF APRIL OF THAT ASSESSMENT YEAR, SHO ULD BE APPLIED. 15. ON GROUNDS NO.2 AND 3, LEARNED COUNSEL SUBMITTED TH AT THE FOREIGN EXCHANGE GAIN IN QUESTION DOES NOT RELATED TO EFC A CCOUNT. HE RELIED ON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT I N CIT V/S AMBAR EXPORTS PVT. LTD., ITA NO.1249 OF 2007, WHEREIN THE COURT A GREED THAT THE FINDINGS OF TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 7 THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN CIT V /S AMBA IMPEX, (2006) 282 ITR 144 (GUJ.), AND HELD THAT THE AMOUNT RECEIV ED BY WAY OF EXCHANGE RATE FLUCTUATION CANNOT BE CONSIDERED AS ANY OTHER RECEIPT AS STIPULATED IN CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC OF THE ACT. HE FURTHER RELIED ON MUMBAI BENCH DECISION OF THE TRIBUNAL IN ITO V/S M/ S. JEWELEX INTERNATIONAL P. LTD., ITA NO.3302/MUM./2009, ORDER DATED 30 TH SEPTEMBER 2010, AND SUBMITTED THAT THE ISSUE, AS TO WHICH INCOME CAN BE SAID TO BE DERIVED FROM, IS TO BE DECIDED BASED ON THE FORMULA GIVEN IN SECT ION, AND NOT GENERAL INTERPRETATION. 16. ON GROUNDS NO.4 AND 5, THE LEARNED COUNSEL RELIED O N THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS). 17. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOWS:- 18. THE UNDISPUTED FACTS RELATING TO GROUND NO.1 ARE TH AT, THE ASSESSEE WAS INCORPORATED IN ASSESSMENT YEAR 1993-94, AND DU RING THAT YEAR, IT JUST DID SOME JOB WORKS OF GARMENTS. NO MACHINERY WAS PU RCHASED. DURING THE ASSESSMENT YEAR 1994-95, THE ASSESSEE STARTED PRODU CTION OF GARMENTS AND CLAIMED EXEMPTION UNDER SECTION 80HHC. SIMILAR IS T HE CASE FOR ASSESSMENT YEAR 1995-96. FOR THE FIRST TIME IN ASSESSMENT YEAR 1996-97, THE ASSESSEE OPTED TO CLAIM DEDUCTION UNDER SECTION 10B. THE ASS ESSEE CLAIMED DEDUCTION UNDER SECTION 10B FOR FIVE CONSEQUENT ASSESSMENT YE ARS I.E., FROM ASSESSMENT YEARS 1996-97 TO 2000-01, AND THE SAME W AS ALLOWED. 19. NOW, WE CONSIDER THE AMENDMENT BROUGHT IN STATUTE W .E.F. 1 ST APRIL 1999. SUB SECTION (3) OF SECTION 10B, READS AS FOLL OWS:- PROFITS AND GAINS REFERRED TO IN SUB-SECTION (1), S HALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE IN RESPECT OF A NY TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MA NUFACTURE OR PRODUCE ARTICLES OR THINGS. TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 8 20. THE WORD TEN WAS SUBSTITUTED FOR THE WORD FIVE BY THE I.T. (2 ND AMENDMENT) ACT, 1998, W.E.F. 1 ST APRIL 1999. THE STATEMENT OF OBJECTS AND REASONS CLAUSE (3), READS AS FOLLOWS:- 3. CLAUSE 3 SEEKS TO AMEND SECTION 10A OF THE ACT. UNDER THE EXISTING PROVISIONS, TAX HOLIDAY IS AVAILABLE TO NE WLY ESTABLISHED INDUSTRIAL UNDERTAKINGS SET UP IN FREE TRADE ZONES AND, TO UNITS SET UP IN SOFTWARE TECHNOLOGY PARKS FOR FIVE YEARS OUT OF THE BLOCK OF INITIAL EIGHT YEARS, SUBJECT TO FULFILLMENT OF CERTAIN COND ITIONS. THE PROPOSED AMENDMENT SEEKS TO EXTEND THE PERIOD OF TAX HOLIDAY FROM FIVE YEARS TO TEN YEARS IN ORDER TO GIVE ADDED THRUST TO EXPOR TS . CLAUSE 4 SEEKS TO SIMILARLY EXTEND THE FIVE YEAR TAX HOLIDAY PERIOD T O TEN YEARS TO THE EXPORT ORIENTED UNITS UNDER SECTION 10B OF THE ACT. [EMPHASIS OWN] 21. FROM THE ABOVE, IT IS CLEAR THAT THE PERIOD OF TAX HOLIDAY HAS BEEN EXTENDED FROM FIVE YEARS TO TEN YEARS. THE MUMBAI B ENCH OF THE TRIBUNAL IN M/S. CONSINDIA PVT. LTD. (SURPA), VIDE PARAS-2.3 AN D 2.4, HELD AS FOLLOWS:- 2.3 AFTER CONSIDERING THE SUBMISSIONS OF BOTH PARTI ES AND ORDERS OF THE AUTHORITIES BELOW, INCLUDING THE DECISIONS OF T HE TRIBUNAL IN CASE OF TATA TEA LTD. AND IN CASE OF TECH BOOKS ELECTRONICS SERVICES PVT. LTD., WE FIND THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10B. THERE IS NO DISPUTE AS PER ORIGINAL PROVISION OF LAW THAT THE A SSESSEE WAS ENTITLED FOR EXEMPTION U/S 10B FOR FIVE YEARS. THE ASSESSEE HAD ALREADY CLEARED THE DEDUCTION FOR FIVE YEARS I.E., FROM 1993-94 TO 1997-98. FOR ASSESSMENT YEAR 1998-99, THE DEDUCTION WAS CLAIMED UNDER SECTION 80HHC INSTEAD OF DEDUCTION UNDER SECTION 10B. WITH EFFECT FROM 1.4.1999, PROVISIONS OF SECTION 10B WERE AMENDED AN D THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION FOR TEN YEARS. AS P ER AMENDED PROVISIONS WHICH IS VERY CLEAR THAT THE PERSONS WHO ARE CLAIMING DEDUCTION U/S 10B EARLIER THEY CAN CLAIM DEDUCTION FOR TEN YEARS. SUPPOSE ANY PERSON HAVE CLAIMED DEDUCTION FOR FIVE YEARS THEN HE CAN CLAIM DEDUCTION FOR NEXT FIVE YEARS AND NOT TEN YEA RS FROM THE DATE I.E., 1.4.1999. THIS ISSUE HAS BEEN DISCUSSED IN DE TAIL BY THE DELHI BENCH IN CASE OF TECH BOOKS ELECTRONICS SERVICES (P ) LTD. (SUPRA). IN THAT CASE THE FACTS ARE SIMILAR AS A PARTNERSHIP FI RM IN THE NAME OF TECH BOOKS ELECTRONICS SERVICES (P) LTD. (SUPRA) WA S FORMED FOR CARRYING BUSINESS OF DEVELOPMENT AND EXPORT OF SOFT WARE DATA PROCESSING ON 14.12.1992, THE SOFTWARE TECHNOLOGY P ARK OF INDIA (STPI) GRANTED PERMISSION FOR THE FIRM FOR SETTING UP 100% EOU UNDER THE SOFTWARE TECHNOLOGY PARK SCHEME. LATER ON STPI HAS ALSO GRANTED APPROVAL UNDER SECTION 14 OF THE INDUSTRIES ACT, TO ENABLE IT TO AVAIL THE BENEFITS UNDER SECTION 10A AND 10B FROM FINANCI AL YEAR 1993-94 UP TO 18.9.1997, THE FIRM WAS EXCLUSIVELY EXPORTING IT S SOFTWARE TO AN AMERICAN COMPANY. ON 19.9.1997, THE FIRM WAS CONVER TED INTO A PRIVATE LIMITED COMPANY AND ALL THE ASSETS AND LIAB ILITY OF THE FIRM BECAME THE PROPERTY OF THE ASSESSEE COMPANY. CONSEQ UENTLY, ALL THE TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 9 PARTNERS BECAME SHARE HOLDERS IN THE ASSESSEE COMPA NY AND THE CAPITAL OF THE FIRM BECAME PAID UP CAPITAL OF THE A SSESSEE COMPANY. IN ASSESSMENT YEAR 2000-01, THE ASSESSEE COMPANY FOR T HE FIRST TIME CLAIMED EXEMPTION UNDER SECTION 10B. THE A.O. DENIE D THE EXEMPTION U/S 10B. THE CIT(A) ALSO CONFIRMED THE ACTION OF TH E A.O. ON SECOND APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL AFTER DISC USSING THE ISSUE IN DETAIL HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUC TION UNDER SECTION 10B. THE PROVISIONS OF SECTION 10B BEFORE AMENDMENT AND AFTER AMENDMENT WERE TAKEN INTO CONSIDERATION. AFTER TAKI NG INTO CONSIDERA- TION ALL THE ASPECTS INCLUDING THE DECISION OF CALC UTTA BENCH IN THE CASE OF TATA TEA, THE TRIBUNAL HAS HELD THAT ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10B FOR THE YEARS INVOLVED I.E., ASSE SSMENT YEAR 2000- 01 AND 2001-02. THE TRIBUNAL HAS CATEGORICALLY HELD THAT FIRST YEAR OF EXEMPTION U/S 10B WAS ASSESSMENT YEAR 1994-95 AS AS SESSEE IS ENTITLED FOR EXEMPTION UPTO ASSESSMENT YEAR 2003-04 . THEREFORE, THE CLAIM OF THE ASSESSEE FOR TWO YEARS AS MENTIONED AB OVE WAS ALLOWED. 2.4 AS STATED ABOVE, SIMILAR FACTS ARE INVOLVED HERE BE FORE US. THE FIRST YEAR OF EXEMPTION U/S 10B WAS 1993-94, AND IN THIS WAY THE ASSESSEE IS ENTITLED FOR EXEMPTION UPTO ASSESSMENT YEAR 1993-94. THE YEAR UNDER CONSIDERATION IS ASSESSMENT YEAR 2001-02 , THEREFORE, WE HOLD THAT ASSESSEE IS ENTITLED FOR EXEMPTION U/S 10 B FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE DIRECT THE A.O. TO A LLOW THE DEDUCTION UNDER SECTION 10B AS CLAIMED BY THE ASSESSEE. 22. THE DELHI BENCH OF THE TRIBUNAL IN TECH BOOKS ELECT RONICS SERVICES (P) LTD. (SUPRA), HELD AS FOLLOWS:- 10. WE HAVE CAREFULLY CONSIDERED THE ENTIRE RELEVAN T MATERIAL AND THE RIVAL SUBMISSIONS. ON GOING THROUGH THE RELEVANT PR OVISIONS OF LAW AND THE DECISIONS OF VARIOUS COURTS ON WHICH RELIANCE H AS BEEN PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND FORCE IN HIS SUBMISSIONS AND ACCEPT THE SAME. OUR FINDINGS AND OBSERVATIONS ARE AS UNDER. 10.1 THE EXEMPTION UNDER S. 10B, AS THE HEADING OF THE SECTION SUGGESTS, IS IN RESPECT OF 'NEWLY ESTABLISHED HUNDR ED PER CENT EOUS'. SEC. 10 WAS INSERTED BY THE FINANCE ACT, 1988 W.E.F . 1ST APRIL, 1989 AND LATER ON IT WAS AMENDED FROM TIME TO TIME. ACCO RDING TO THIS PROVISION, ANY PROFITS AND GAINS DERIVED BY AN ASSE SSEE FROM A HUNDRED PER CENT EOU SHALL NOT BE INCLUDED IN THE T OTAL INCOME OF THE ASSESSEE. AS PROVIDED IN CL. (2) OF S. 10B, THE EXE MPTION IS AVAILABLE TO UNDERTAKINGS WHICH FULFIL ALL THE FOLLOWING CONDITI ONS, NAMELY : '(I) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THI NG; (II) IN RELATION TO AN UNDERTAKING WHICH BEGINS TO MANUFACTURE OR PRODU CE ANY ARTICLE OR THING ON OR AFTER THE 1ST DAY OF APRIL, 1994, ITS E XPORTS OF SUCH ARTICLES AND THINGS ARE NOT LESS THAN SEVENTY FIVE PER CENT OF THE TOTAL SALES THEREOF DURING THE PREVIOUS YEAR; (III) IT IS NOT F ORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF A NY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT, RECO NSTRUCTION OR REVIVAL TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 10 BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH INDUSTR IAL UNDERTAKING AS IS REFERRED TO IN S. 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; (IV) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE.' THE LEARNED CIT(A) HAS ALSO HELD THAT THE ASSESSEE IS NOT ENTITLED TO THE CLAIM OF EXEMPTION IN VIEW OF THE AMENDED PROVI SIONS OF S. 10B. THIS FINDING OF LEARNED CIT(A) IS NOT BASED ON CONS TRUCTION OF RELEVANT STATUTORY PROVISIONS. THE CBDT VIDE CIRCULAR NO. 1 OF 2005 [(2005) 193 CTR (ST) 85] HAS CLARIFIED THE POSITION AND, TH EREFORE, IN VIEW OF THE PROVISIONS OF S. 10B AS AMENDED W.E.F. 1ST APRI L, 1999 THE ASSESSEE SHALL BE ENTITLED TO CLAIM EXEMPTION IN RE SPECT OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASS ESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS. THEREFOR E, THE EOU WHICH EXISTED BEFORE FINANCIAL YEAR 1998-99 AND WHICH WAS OTHERWISE ELIGIBLE FOR TAX HOLIDAY OF FIVE ASSESSMENT YEARS OUT OF BLO CK OF EIGHT ASSESSMENT YEARS, WOULD BE ELIGIBLE FOR TAX HOLIDAY FOR A BLOCK PERIOD OF TEN ASSESSMENT YEARS. HOWEVER, THE PERIOD OF TEN YEARS SHALL COMMENCE FROM THE FINANCIAL YEAR RELEVANT TO THE AS SESSMENT YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PROD UCE ARTICLES OR THINGS. IN THE INSTANT CASE, SINCE THE FIRM STARTED MANUFACTURING OR PRODUCING ARTICLES OR THINGS IN ASST. YR. 1994-95, FROM THAT ASSESSMENT YEAR THE FIRM SHALL BE ELIGIBLE FOR EXEMPTION FOR T EN CONSECUTIVE ASSESSMENT YEARS AND THE DEDUCTION SHALL BE AVAILAB LE FOR THE UNEXPIRED PERIOD OF TEN YEARS. 10.8 IN THE CASE OF THE ASSESSEE, NEITHER THE PERIO D OF FIVE YEARS NOR THE BLOCK PERIOD OF EIGHT YEARS EXPIRED WHEN THE AM ENDMENT REPLACING THE WORD TEN FOR FIVE WAS INTRODUCED BY IT (SEC OND AMENDMENT) ACT, 1998 W.E.F. 1 ST APRIL, 1999. SINCE THE ASSESSEE WAS ENTITLED TO EXEMPTION IN THE YEAR IN WHICH AMENDMENT BECAME EFF ECTIVE AND OPERATIVE, THE ASSESSEE WILL BE ENTITLED TO THE EXT ENDED PERIOD OF EXEMPTION BECAUSE THE PERIOD OF FIVE YEARS HAD NOT EXHAUSTED UPTO ASST. YR. 1999-2000. SINCE THE RIGHT OF THE ASSESSE E WAS CONTINUING IN THE YEAR OF AMENDMENT AND WAS NOT LOST ON THE DATE WHEN THE AMENDMENT CAME INTO EXISTENCE, THE VIEW TAKEN BY TH E LEARNED CIT(A) CANNOT BE UPHELD. 10.9 SO FAR AS THE OBJECTIONS OF THE LEARNED CIT(A) REGARDING CONDUCT OF THE ASSESSEE-FIRM IN NOT CLAIMING THE EXEMPTION IN EARLIER YEAR ARE CONCERNED, THE APPROACH OF THE LEARNED CIT(A) RAIS ING THIS OBJECTION, CANNOT BE LEGALLY JUSTIFIED BECAUSE IF THE ASSESSEE IS ENTITLED TO ANY BENEFIT UNDER ANY STATUTORY PROVISION THEN THE PAST CONDUCT CANNOT BE RELEVANT PARTICULARLY WHEN REFERENCE TO SUCH CONDUC T IS NOT MADE IN THE ACT. THE ELIGIBILITY OF THE ASSESSEE HAS TO BE SEEN IN THE YEAR IN WHICH THE CLAIM IS PREFERRED AND IF IN EARLIER YEAR S THE ASSESSEE WAIVED HIS RIGHT THEN HE CANNOT BE STOPPED IN CLAIMING THE BENEFIT IN THE SUBSEQUENT YEARS. TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 11 23. IN BOTH THE AFORESAID DECISIONS, THE TRIBUNAL WAS C ONSIDERING THE CLAIM FOR DEDUCTION IN ASSESSMENT YEAR 2001-02 AND ASSESS MENT YEAR 2000-01 RESPECTIVELY. IN OUR OPINION, THESE TWO CASES COVER THE CASE IN HAND. 24. COMING TO THE MUMBAI BENCH DECISION OF THE TRIBUNAL IN INTERGOLD (I) LTD. (SUPRA), RELIED UPON BY THE LEARNED DEPARTMENT AL REPRESENTATIVE, THE ASSESSMENT YEAR IN QUESTION WAS 1997-98, WHEN THE A MENDMENT WAS NOT IN THE STATUTE. THE ASSESSEE, IN THAT CASE, HAD ALREAD Y AVAILED DEDUCTION FOR A BLOCK OF FIVE ASSESSMENT YEAR FROM 1992-93 TO 1996- 97. AFTER THE AMENDMENT MADE W.E.F. 1 ST APRIL 1999, THE ASSESSEE SOUGHT DEDUCTION FOR THE ASSESSMENT YEAR 1997-98, WHICH IS PRIOR TO THE DATE OF AMENDMENT. THE TRIBUNAL RIGHTLY SO HELD THAT THE AMENDMENT DOES NO T APPLY TO ASSESSMENT YEAR 1997-98. THE TRIBUNAL, VIDE PARA-23, HAD OBSER VED AS FOLLOWS:- 23. IT IS SETTLED LEGAL POSITION THAT THE SUBSTANTI VE AMENDMENT IS NORMALLY PROSPECTIVE UNLESS STATED OTHERWISE. ON TH E CONTRARY THE PROCEDURAL PROVISIONS ARE REGARDED AS APPLICABLE TO PENDING PROCEEDINGS AS WELL. WHERE THE STATUTE CONFERS POWE R FOR THE FIRST TIME, IT CANNOT BE HELD THAT SUCH POWER IS MEANT TO BE EXERCISED IN RESPECT OF PAST PERIODS AS WELL. UNLESS RETROSPECTI VE OPERATION HAS BEEN ASSIGNED BY THE LEGISLATURE O A SUBSTANTIVE PR OVISION, IT CAN ONLY BE REGARDED AS PROSPECTIVE. OUR VIEW IS FORTIFIED B Y THE JUDGMENT OF THE HONBIE MADRAS HIGH COURT IN THE CASE OF S. SUB ASH V. IT [2001] 248 ITR 512. THUS A SUBSTANTIVE PROVISION I CONSIDE RED AS PROSPECTIVE UNLESS IT IS EXPRESSLY MADE APPLICABLE FROM AN EARL IER DATE. WE NOW TURN TO EXAMINE AS TO WHETHER SUB-SECTION (3) OF SE CTION 10A IS SUBSTANTIVE OR PROCEDURAL PROVISION. AS NOTED ABOVE THE DEDUCTION WAS ALLOWED TO THE ASSESSEE FOR FIVE CONSECUTIVE ASSESS MENT YEARS FALLING WITHIN THE PERIOD OF EIGHT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE INDUSTRI AL UNDERTAKING BEGAN TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS. BY VI RTUE OF THE AMENDMENT CARRIED OUT WITH EFFECT FROM 1-4-1999 THE DEDUCTION CAME 1-0 BE ALLOWED IN RESPECT OF TEN CONSECUTIVE ASSESS MENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE ASSESSMENT YEAR IN WHICH THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACT URE OR PRODUCE ARTICLE OR THINGS. WHEREAS IN THE PERIOD ANTERIOR T O THE AMENDMENT, THE DEDUCTION WAS ALLOWED FOR FIVE CONSECUTIVE ASSE SSMENT YEARS AT THE OPTION OF THE ASSESSEE, IN THE PERIOD POSTERIOR TO AMENDMENT IT CAME TO BE ALLOWED FOR TEN CONSECUTIVE ASSESSMENT Y EARS. OBVIOUSLY THE AMENDMENT SO MADE TO SUBSECTION (3) IS SUBSTANT IVE AS IT HAS EXPANDED THE PERIOD OF DEDUCTION FROM THE EARLIER F IVE YEARS TO TEN YEARS. THERE IS NOTHING LIKE GIVING ANY CLARIFICATI ON FOR THE EARLIER PROVISION OR LAYING DOWN ANY PROCEDURE IN RESPECT O F THE EXISTING PROVISION.\A NEW EXTENDED BENEFIT WAS CONFERRED FOR THE FIRST TIME. BY NO STRETCH OF IMAGINATION IT CAN BE SAID TO BE CLAR IFICATORY OR PROCEDURAL TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 12 SO AS TO THE BRANDED AS THE RETROSPECTIVE. IT IS IN DEED A SUBSTANTIVE AMENDMENT AND WILL HOLD THE FIELD FROM THE DATE WHE N IT HAS BEEN MADE APPLICABLE FROM, WHICH IN THE PRESENT CASE IS ASSESSMENT YEAR 1999-2000. THE POSITION WOULD HAVE BEEN DIFFERENT I F THE PERIOD OF FIVE YEARS HAD NOT YET EXPIRED AND THE AMENDMENT HAD COM E IN BETWEEN . IN THAT CASE THE ASSESSEE WOULD HAVE BEEN ENTITLED TO DEDUCTION FOR THE LARGER PERIOD AS PER THE AMENDMENT . [EMPHASIS OWN] 25. FROM THE LAST FOUR LINES OF THE ABOVE, IT IS CLEAR THAT THE TRIBUNAL WAS OF THE VIEW THAT, HAD THE PERIOD OF FIVE YEARS NOT YET EXPIRED, THE ASSESSEE WOULD HAVE BEEN ENTITLED FOR A LARGER PERIOD OF TEN YEARS WHICH IS EXACTLY THE CASE OF THE ASSESSEE BEFORE US. 26. COMING TO THE CALCUTTA BENCH DECISION OF THE TRIBUN AL IN TATA TEA LTD. (SUPRA), THE CLAIM WAS FOR ASSESSMENT YEAR 1998-99 AND THIS WAS ALSO FOR A PERIOD PRIOR TO THE SUBSTITUTION W.E.F. 1 ST APRIL 1999. IN THIS CASE ALSO, THE TRIBUNAL, WHILE REJECTING THE CLAIM OF THE ASSESSEE , VIDE PARA-7 (LAST FOUR LINES) OBSERVED AS FOLLOWS:- BE THAT AS IT MAY, EVEN ASSUMING, FOR ARGUMENTS S AKE, THAT GIVING FIVE MORE YEARS OF TAX HOLIDAY TO EXISTING UNIT WAS INDEED INTENTION OF THE LAW MAKERS BUT THAT QUESTION CAN ONLY BE EXAMIN ED IN THE YEAR IN WHICH THE AMENDED LAW IS TO TAKE EFFECT, I.E., ASST . YR. 1999-2000, OR THEREAFTER. THE TRIBUNAL, AT PARA-10, CONCLUDED AS FOLLOWS:- 10. IN VIEW OF THE ABOVE DISCUSSIONS, WE SEE NO ME RIT IN ASSESSEES GRIEVANCE. IN OUR CONSIDERED VIEW, THE ASSESSEE, HA VING ALREADY AVAILED S. 10B BENEFIT FOR FIVE CONSECUTIVE ASSESSM ENT YEARS, WAS NOT ELIGIBLE FOR EXEMPTION UNDER S. 10B ANY FURTHER, SO FAR AS ASST. YR. 1998-99 IS CONCERNED. ACCORDINGLY, WE CONFIRM THE C ONCLUSIONS ARRIVED AT BY THE AUTHORITIES BELOW AND DECLINE TO INTERFER E IN THE MATTER. 27. THUS, BOTH THESE CASE LAWS DO NOT COME TO THE RESCU E OF THE REVENUE. CONSEQUENTLY, RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL IN TECH BOOKS ELECTRONICS SERVICES (P) LTD. (SUPRA) AND M/S . CONSINDIA PVT. LTD. (SUPRA), WE UPHOLD THE FINDINGS OF THE COMMISSIONER (APPEALS) AND DISMISS GROUND NO.1 OF THE REVENUE. TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 13 28. COMING TO GROUND NO.2, WHICH IS ON THE ISSUE OF FOR EIGN EXCHANGE GAINS, THE UNDISPUTED FACT RECORDED BY THE COMMISSI ONER (APPEALS) IS THAT THE WHOLE OF THE GAIN IS ATTRIBUTABLE TO EXPORT SAL E REALIZATION OF THE CURRENT YEAR. THE HON'BLE JURISDICTIONAL HIGH COURT IN AMBA R EXPORTS PVT. LTD. (SUPRA), HELD THAT RECEIPT BY WAY OF EXCHANGE RATE FLUCTUATION IS INCLUDIBLE IN THE TOTAL TURNOVER OF THE ASSESSEE. 29. COMING TO THE JOB WORK CHARGES, THE MUMBAI J BENC H OF THE TRIBUNAL IN M/S. JEWELEX INTERNATIONAL P. LTD. (SUPRA) HAS B ROUGHT OUT THE DISTINCTION BETWEEN SECTION 80I, 80IA AND 80HHC, AS WELL AS SEC TION 10B. IT CONSIDERED THE JUDGMENTS OF THE HON'BLE SUPREME COURT IN LIBER TY INDIA V/S CIT, (2009) 317 ITR 218 (SC) AND CIT V/S K. RAVINDRANATHAN NAIR , (2007) 295 ITR 228 (SC), AND AT PARAS-5 & 6, THE TRIBUNAL HELD AS FOLL OWS:- 5. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. THERE IS NO DISPUTE THAT THE INTEREST WAS RECEIVED FROM MARGIN MONIES KEPT AS DEPOSITS WITH THE BANKS FOR THE PURPOSE OF BORROWING MONIES FOR THE BUSINESS. THE ASSESSEES BUSINESS IS IN THE EXPORT OF JEWELLERY AND IN THE FIRST PAGE OF THE ASSESSMENT ORDER IT HA S BEEN STATED BY THE ASSESSING OFFICER THAT THE ASSESSEE IS A 100% EXPOR T ORIENTED UNDERTAKING WITHIN THE MEANING OF SECTION 10B. IF T HAT IS THE FACTUAL POSITION, THE INTEREST HAS TO BE CONSIDERED AS HAVI NG BEEN DERIVED FROM THE EXPORT OF THE ARTICLES. EVEN IF IT IS ARGU ED THAT THE IMMEDIATE SOURCE OF THE INTEREST IS THE DEPOSITS WITH THE BAN KS AND NOT THE EXPORT OF ARTICLES, IN VIEW OF SUB-SECTION (4) OF SECTION 10B THE ASSESSEE IS ENTITLED TO SUCCEED. THE ASSESSING OFFICER HAS NOT ASSESSED THE INTEREST UNDER THE HEAD INCOME FROM OTHER SOURCES . HE HAS TREATED THE INTEREST AS PART OF THE PROFITS OF THE ASSESSEE S BUSINESS. SUB- SECTION (4) OF SECTION 10B STATUTORILY PRESCRIBES A FORMULA AS TO WHAT SHOULD BE CONSIDERED AS PROFITS DERIVED FROM EXPORT OF ARTICLES. THE PROFITS OF THE BUSINESS OF THE UNDERTAKING ARE TO B E ASCERTAINED FIRST AND THE NEXT STEP IS TO BIFURCATE THE SAME IN THE S AME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES BEAR S TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAK ING. IF THE INTEREST INCOME FORMS PART OF THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THEN IN THE LIGHT OF THE STATUTORY FORMULA THE RESU LTANT FIGURE AFTER APPLYING THE FORMULA HAS TO BE STATUTORILY CONSIDER ED AS PROFITS DERIVED FROM EXPORT OF ARTICLES. IN THE PRESENT CASE THE IN TEREST HAVING BEEN ASSESSED AS PART OF THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE FORMULA HAS TO BE APPLIED AND SUB-SECTION (4) LEAVE S NO CHOICE. IN THIS VIEW OF THE MATTER WE ARE IN AGREEMENT WITH THE SUB MISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 6. THE LEARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT IN THE CASE OF SECTION 80HHC, WHICH WAS CONSID ERED BY THE TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 14 SUPREME COURT IN K RAVINDRANATHAN NAIR (SUPRA), THE RE IS A SPECIFIC EXPLANATION (BAA) WHICH EXCLUDES 90% OF THE INTERES T, EVEN IF IT IS ASSESSED AS BUSINESS INCOME, FROM THE PROFITS OF TH E BUSINESS. HOWEVER, SUB-SECTION (4) OF SECTION 10B CONTAINS NO SUCH EXCLUSION NOR IS THERE ANY OTHER PROVISION IN THE SECTION SIM ILAR TO EXPLANATION (BAA) OF SECTION 80HHC. IN LIBERTY INDIA (SUPRA), T HE SUPREME COURT WAS CONCERNED WITH SECTIONS 80-I, 80-IA AND 80-IB. IN THESE SECTIONS ALSO THERE IS NO STATUTORY FORMULA TO PRESCRIBE AS TO WHAT ARE THE PROFITS ELIGIBLE FOR THE DEDUCTION. THERE IS NO STA TUTORY PRESCRIPTION OF SUCH PROFITS AS IN SUB-SECTION (4) OF SECTION 10B. SUB-SECTION (5) OF SECTION 80-IA, WHICH ALSO HAS TO BE READ AS PART OF SECTION 80-IB PROVIDES THAT THE PROFITS OF AN ELIGIBLE BUSINESS S HALL BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THIS IS NOT SIMILAR TO THE STATUTORY FORMULA PRESCR IBED IN SUB-SECTION (4) OF SECTION 10B. IT CANNOT ALSO BE STATED THAT T HE ASSESSEE WAS ADOPTING A DEVICE TO INFLATE THE PROFITS OF THE EXP ORT ORIENTED UNDERTAKING BY INCLUDING THE INTEREST INCOME THEREI N BECAUSE EVEN THE ASSESSING OFFICER DID NOT DISPUTE THAT THE INTEREST INCOME FORMS PART OF THE BUSINESS PROFITS. ONCE SUCH A CONCLUSION IS REA CHED, SUB-SECTION (4) OF SECTION 10B TAKES OVER. FOR THESE REASONS WE UPHOLD THE DECISION OF THE CIT(A) AND DISMISS THE FIRST GROUND TAKEN BY THE REVENUE. 30. IN VIEW OF THE AFORESAID FINDINGS OF THE TRIBUNAL, WE DISMISS GROUNDS NO.2 AND 3 OF THE REVENUE. 31. IN GROUND NO.4, THE COMMISSIONER (APPEALS), AT PAGE -21, RESTRICTED THE DISALLOWANCE TO 10%. WE WOULD BE DEALING WITH T HIS ISSUE IN ASSESSEES APPEAL WHEREIN IT IS RAISED AS GROUND NO.(C). 32. COMING TO GROUND NO.5, THE GROUND ITSELF STATES THA T THE PAYMENTS WERE MADE AFTER THE DUE DATE BUT WITHIN THE GRACE P ERIOD ALLOWED UNDER P.F. / ESIC ACTS. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY MUMBAI BENCH DECISION OF THE TRIBUNAL IN M/S. PIK PEN PVT. LTD. V/S ITO, ITA NO.6847/MUM./2008, ORDER DATED 28 TH JANUARY 2010. IN VIEW OF THIS DECISION OF THE TRIBUNAL, WE DISMISS GROUND NO .5 OF THE REVENUE. 33. IN THE RESULT, REVENUES APPEAL PARTLY ALLOWED. 34. NOW, WE TAKE UP ASSESSEES APPEAL. FOLLOWING GROUND S HAVE BEEN RAISED BY THE ASSESSEE. TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 15 A) INTEREST ON BANK FIXED DEPOSIT OF RS. 7,06,724 B E TREATED AS BUSINESS INCOME ELIGIBLE FOR DEDUCTION U/S. 10B / 8 0HHC OF THE INCOME-TAX ACT (REFER PAGE 24 &25 OF CIT(A)S ORDER ). 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN NOT TREATING INTEREST O N BANK FIXED DEPOSIT AS BUSINESS INCOME AND DISALLOWED DEDUCTION OF THE INTEREST INCOME FOR DEDUCTION U/S. 10B / 8OHHC. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT IS ENTITLED TO DEDUCTION U/S. 8OHHC ALONG SIDE DEDUCTI ON U/S. LOB. THE LEARNED ASSESSING OFFICER BE DIRECTED TO GRANT BOTH DEDUCTIONS CONCURRENTLY TO THE EXTENT THE AGGREGATED THEREOF D OES NOT EXCEED GROSS TOTAL INCOME. B) DISALLOWANCE OF EMPLOYERS CONTRIBUTION TO PF & E SIC OF RS.6,62,380 & RS.7,63,982 MADE BEFORE FILING RETURN OF INCOME U/S. 139(1) (REFER PAGE 22 & 23 OF THE CIT(A)S ORDER). 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF EMPLOYERS CONTRIBUTION TO PF & ESIC MADE BEFORE FILING RETURN OF INCOME U/S. 139(1). 4) THE LEARNED ASSESSING OFFICER BE DIRECTED TO ALL OW EMPLOYERS CONTRIBUTION TO PF & ESIC MADE BEFORE FILING RETURN OF INCOME U/S. 139(1). C) DISALLOWANCE OF PART OF MANUFACTURING EXPENSES ( REFER PARA IS OF THE CIT(A)S ORDER). 5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF 10% OF MANUFACTURING EXPENSES OF RS.1,58,53,438. 6) THE LEARNED ASSESSING OFFICER BE DIRECTED TO ALL OW FULLY MANUFACTURING EXPENSES. 35. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE INTEREST INCOME IN QUESTION IS EARNED BY THE ASSESSEE FROM OUT OF FIXE D DEPOSIT KEPT AS MARGIN MONEY FOR THE PURPOSE OF OBTAINING FACILITIES FROM THE BANK. THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER (APPEALS) HELD THAT THE INTEREST INCOME SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES . THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S INDO S WISS JEWELS LTD. & ANR., (2006) 284 ITR 389 (BOM.) HELD AS FOLLOWS:- THOUGH THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE, THE APPELLATE AUTHORITY IN THE FACTS OF THE CASE AND IN THE LIGHT OF THE TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 16 MATERIAL PLACED BY THE ASSESSEE ON RECORD, WAS SATI SFIED THAT THE FUNDS WERE KEPT BY THE ASSESSEE IN THE VARIOUS COMPANIES FOR SHORT-TERMS FOR PAYMENT FOR IMPORTED MACHINERY. IN THIS CONNECT ION, THE APPELLATE AUTHORITY HELD THAT THE BALANCE SHEET FOR THE NEXT YEAR ALSO SHOWED THAT ALL THESE DEPOSITS WERE WITHDRAWN AND PAID FOR THE MACHINERY. THE APPELLATE AUTHORITY WAS SATISFIED WITH THE EXPL ANATION PUT FORTH BY THE ASSESSEE. THE TRIBUNAL DID NOT FIND ANY ERROR I N THE APPROACH OF THE APPELLATE AUTHORITY, THAT THE MACHINERY WAS IN FACT IMPORTED BY THE ASSESSEE IS NOT IN QUESTION. FROM THE FACTS AND CIR CUMSTANCES OF THE PRESENT CASE IT IS CLEAR THAT THE INTERCORPORATE DE POSITS WERE MADE BY THE ASSESSEE FROM THE SURPLUS FUNDS THAT WERE SET A PART FOR THE PAYMENT OF IMPORTED MACHINERY. THAT THE SAID DEPOSI TS WERE WITHDRAWN AND PAYMENT WAS MADE TOWARDS IMPORT OF TH E MACHINERY IS ALSO NOT QUESTIONED BY THE REVENUE. THE INTEREST EA RNED ON THE SHORT- TERM DEPOSITS OF THE MONEY KEPT APART FOR THE PURPO SE OF BUSINESS HAS TO BE TREATED AS INCOME EARNED ON BUSINESS AND CANN OT BE TREATED AS INCOME FROM OTHER SOURCES. WE, ACCORDINGLY, ANSWER THE QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE TAX APPEAL IS DISMISSED. SINCE THE ASSESSEE HAS CHOSEN NOT TO APP EAR, NO ORDER AS TO COSTS. 36. RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF TH E HON'BLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE CONTENTION OF THE ASSESSEE THAT THE INCOME INTEREST IN QUESTION SHOULD BE ASSESSED UNDE R THE HEAD INCOME FROM BUSINESS . 37. COMING TO THE ISSUE WHETHER THE ASSESSEE IS ENTITLE D TO RELIEF UNDER SECTION 10B ON SUCH INTEREST INCOME, AS ALREADY HEL D IN THE REVENUES APPEAL, WE FOLLOW THE DECISION OF MUMBAI BENCH OF T HE TRIBUNAL IN M/S. JEWELEX INTERNATIONAL P. LTD. (SUPRA) AND DIRECT TH E ASSESSING OFFICER TO RECOMPUTE THE INCOME ACCORDINGLY. THE ASSESSEE IS N OT ELIGIBLE FOR DEDUCTION ON THIS INTEREST INCOME UNDER SECTION 80HHC IN VIEW OF CLAUSE (BAA) TO EXPLANATION TO SECTION 80HHC. 38. ON THE ISSUE WHETHER THE ASSESSEE IS ENTITLED TO DE DUCTION UNDER SECTION 80HHC, TO THE EXTENT NO RELIEF HAS BEEN CLA IMED UNDER SECTION 10B, AND TO THE EXTENT THE AGGREGATE DOES NOT EXCEED THE GROSS TOTAL INCOME, WE FOLLOW THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN M/S. GENESYS INTERNATIONAL CORPORATION LTD. V/S DCIT, ITA NO.694 5/MUM./2006, ORDER DATED 16 TH JANUARY 2009, WHEREIN THE TRIBUNAL HELD AS FOLLOWS :- TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 17 .. THE EXEMPTION UNDER SECTION 10A OF THE ACT IS LIMITED TO 90% OF THE PROFITS OF THE UNDERTAKING AND THE BALANCE 1 0% OF THE PROFITS ON NON-REFUNDABLE AS PART OF GROSS TOTAL INCOME OF THE ASSESSEE IS TO BE SUBJECTED TO THE DEDUCTION PROVIDED UNDER CHAPTER V I-A OF THE ACT BEFORE COMPUTING THE TOTAL INCOME OF PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN THE HANDS OF THE ASSESSEE. THERE IS NO MISCELLANEOUS DEDUCTION AS THE PROFITS WHICH ARE EL IGIBLE FOR THE BENEFIT OF THE EXEMPTION UNDER SECTION 10A OF THE ACT ARE R ESTRICTED TO 90% OF SUCH PROFITS AND THE BALANCE 10% IS INCLUDABLE IN T HE HANDS OF THE ASSESSEE AS PART OF HIS GROSS TOTAL INCOME. THE PRO VISIONS OF SECTION 10A(6) OF THE ACT ARE NOT A HINDRANCE TO SUCH ALLOW ANCE AS THE SAME ARE APPLICABLE AFTER THE HOLIDAY PERIOD IS OVER. IN ANY CASE SECTION 80HHE OF THE ACT IS NOT COVERED BY SECTION 10A(6) O F THE ACT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALL OW THE CLAIM OF THE ASSESSEE IN RESPECT OF THE DEDUCTION CLAIMED UNDER SECTION 80HHC OF THE ACT ON THE BALANCE PROFITS IN PROPORTION TO TOT AL TURNOVER AND RECOMPUTE THE INCOME OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE GROUND OF APPEAL NO.1 AN D 2 RAISED BY THE ASSESSEE ARE THUS ALLOWED. 39. IN VIEW OF THE AFORESAID FINDINGS OF THE TRIBUNAL, GROUND NO.(A) OF THE ASSESSEE IS ALLOWED IN PART. 40. COMING TO GROUND NO.(B), WE RESPECTFULLY FOLLOWING THE DECISION OF CO- ORDINATE BENCH OF THIS TRIBUNAL IN PIK PEN PVT. LTD . (SUPRA) AND ALLOW GROUND NO.(B) OF THE ASSESSEE. 41. COMING TO GROUND NO.(C), WHICH IS ON AD-HOC DISALLO WANCE OF MANUFACTURING EXPENDITURE, WE FIND THAT THE ASSESSI NG OFFICER COMPARED THE MANUFACTURING EXPENSES FOR THE ASSESSMENT YEAR 2001 -02 AND ASSESSMENT YEAR 2002-03 AND CAME TO A CONCLUSION THAT THE INCR EASE WAS ABNORMAL. HE WAS OF THE VIEW THAT THE MANUFACTURING EXPENDITURES HAVE INCREASED BY MORE THAN 100% IN THIS YEAR AS COMPARED TO THE PREV IOUS YEAR AND WHEREAS, THE REDUCTION OF SALARY / WAGES WAS ONLY TO THE TUN E OF ` 35,00,000. HE REJECTED THE ARGUMENTS OF THE ASSESSEE THAT MORE JO B WORKS WERE GIVEN TO OUTSIDE PARTIES AND THAT PRODUCTION HAS INCREASED, AS REASON FOR INCREASE IN EXPENSES, BY POINTING OUT THAT INCREASE OF PRODUCTI ON IS HARDLY 25% AND REDUCTION OF SALARY IS MARGINAL. THE ASSESSING OFFI CER, IN HIS REMAND REPORT, CALLED FOR BY THE COMMISSIONER (APPEALS) HAS NOT CO MMENTED ON ANY OF THE OBJECTIONS RAISED BY THE ASSESSEE. THE COMMISSIONER (APPEALS) HAS RECORDED TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 18 THESE OBJECTIONS AT PAGES-19, 20 AND 21 OF HIS ORDE R. AT PARA-21, THE COMMISSIONER (APPEALS) HELD AS FOLLOWS:- I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISS ION MADE BY APPELLANT. APPELLANT HAS CLAIMED MANUFACTURING EXPE NSES OF RS. 7,92,67,L89/- AS AGAINST RS.3,70,49,929/- IN THE PR ECEDING ASSESSMENT YEAR. DETAILS SHOW THAT MANUFACTURING EXPENSES OF R S.7.92 CRORES INCLUDING CHARGES OF RS.6,84,43,308/-, SAMPLE-IMPOR TS OF RS.95,562/-, TESTING FEES OF RS.2,53,444/-, PROCESSING/DYEING CH ARGES OF RS.38,87,799/- AND WASHING CHARGES OF RS.65,87,076/ -. SINCE MANUFACTURING EXPENSES CLAIMED IN THIS YEAR WERE VE RY HIGH AS COMPARED TO LAST YEAR, AO ASKED THE APPELLANT TO EX PLAIN THE SAME. APPELLANT SUBMITTED ITS EXPLANATION WHICH HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER AS WELL AS IN THIS ORDER. AFTER CO NSIDERING THE SUBMISSIONS MADE BY APPELLANT. AO HAS DISALLOWED 20 % OF THE TOTAL MANUFACTURING EXPENSES. HOWEVER, APPELLANT HAS CONT ENDED THAT INCREASE IN EXPENSE WAS LARGELY ATTRIBUTABLE TO INC REASE IN PRODUCTION FOR EXPORTS. AS AGAINST 9,69.498 NUMBER OF PIECES P RODUCED LAST YEAR, 12,16,340 PIECES WERE PRODUCED IN THE YEAR UNDER CO NSIDERATION. SECONDLY, EXPENSES DEPEND UPON AND VARY BASED ON PA TTERN, STYLE AND DESIGN OF PRODUCT. THIRDLY, THE CIRCUMSTANCE THAT T HERE WAS REDUCTION IN COST OF WAGES AND SALARY FOR THE. YEAR DOES ALSO REFLECT THAT, DURING THE YEAR, THERE WAS GREATER DEPENDENCE ON OUTSOURCI NG. HOWEVER, CONTENTIONS AND EXPLANATION OF APPELLANT ARE NOT FU LLY ACCEPTABLE. AS OBSERVED IN THE ASSESSMENT ORDER, WHILE THERE IS SU BSTANTIAL INCREASE IN THE MANUFACTURING EXPENSES, INCREASE IN THE PROD UCTION IS NOT COMMENSURATE TO THE MANUFACTURING EXPENSES. REDUCTI ON IN WAGES IS ONLY OF RS.35 LAKHS. IT IS INTERESTING TO NOTE HERE THAT AGAINST THE PROCESSING/DYEING CHARGES OF RS.85.364/- INCURRED I N A.Y.2001-02, APPELLANT, IN A.Y.2002-03, HAS INCURRED PROCESSING/ DYEING CHARGES OF RS.38,87,799/-. IN MY OPINION, IT CANNOT BE JUSTIFI ED BY ANY MEANS UNLESS AND OF COURSE SUPPORTED BY DETAILS AND EVIDE NCE. SIMILAR IS THE POSITION OF WASHING CHARGES AND STITCHING CHARGES. APPELLANT HAS NOT FILED ANY DETAILS AND EVIDENCE TO SUPPORT THE CLAIM OF SUCH HUGE EXPENDITURE INCURRED IN THE MANUFACTURING EXPENSES. MOREOVER, AS DISCUSSED IN THE ASSESSMENT ORDER, PAYMENT OF ` 6,84,43,308 BEING STITCHING CHARGES INCLUDED IN THE MANUFACTURING EXP ENSES HAS BEEN MADE TO CONCERNS WHICH ARE UNDER THE SAME MANAGEMEN T. TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE , IT CAN BE SAID THAT APPELLANT HAS FAILED TO DISCHARGE ITS ONUS TO JUSTI FY SUCH HUGE EXPENDITURE PAID TO ITS RELATED SISTER CONCERNS COV ERED U/S. 40A(2)(A) / 410A()(B) OF THE I.T. ACT. IN VIEW OF ABOVE DISCUSS ION, SOME DISALLOWANCE IS CALLED FOR. IN MY OPINION, DISALLOW ANCE OF 20% OF MANUFACTURING EXPENSES MADE BY AO IS EXCESSIVE AND SAME IS RESTRICTED TO 10%. ACCORDINGLY, AO IS DIRECTED TO R ESTRICT THE DISALLOWANCE TO 10% OF TOTAL MANUFACTURING EXPENSES OF RS. 7,92,67,189/-. 42. READING OF THE ABOVE MAKES IT CLEAR THAT THE ASSESS EE HAS NOT PRODUCED DETAILS AND EVIDENCE TO SUPPORT THE CLAIM OF SUCH HUGE EXPENDITURE TROPICATE TEXTILES PVT. LTD. ITA NO. 1827/MUM./2006 ITA NO. 2544/MUM./2006 19 INCURRED FOR MARKETING. THOUGH LEARNED COUNSEL CONT ENDED THAT THERE CANNOT BE AD-HOC DISALLOWANCE AS NO DEFECTS WERE FOUND IN THE BOOKS OF ACCOUNT AND AS NO ADVERSE MATERIAL WAS GATHERED BY THE ASSESSIN G OFFICER AND AS TAX WAS DEDUCTED AT SOURCE FROM ALL THE PARTIES AND THE PAR TIES WERE ASSESSED TO TAX AND THAT IT IS NOT A CASE WHERE MONEY WAS RECEIVED BACK BY THE ASSESSEE, WE FIND THAT THE ASSESSEE FAILED TO PRODUCE NECESSA RY EVIDENCE AND SATISFACTORILY EXPLAIN THE DISCREPANCIES POINTED OU T BY THE ASSESSING OFFICER. UNDER THESE CIRCUMSTANCES, AS ON FACTS THE NECESSAR Y EVIDENCES WERE NOT FURNISHED, WE ARE OF THE CONSIDERED OPINION THAT TH E AD-HOC DISALLOWANCE IN THIS CASE HAS TO BE SUSTAINED. THUS, GROUND NO.(C) OF ASSESSEES APPEAL IS DISMISSED. 43. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. 44. TO SUM UP, REVENUES APPEAL AS WELL AS ASSESSEES A PPEAL ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER 2011 SD/- V. DURGA RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH SEPTEMBER 2011 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, F BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI