The DCIT, Circle-4, Ahmedabad V. Medical Technologies Ltd., Ahmedabad

ITA 2098/AHD/2008

• Counselvise Citation: 209820514 RSA 2008
• Duration Of Justice: 4 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-04-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 30-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Keywords: Bogus purchase; Unexplained investment; Capital asset; Opportunity of being heard; Earning of tax free income; Additional evidence; Cost of acquisition; Corroborative evidences; Capital receipt
• Section: 142(1); 80HHC; 14A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, AHMEDABAD BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. NO. 2097, 2098, 2099/ AHD/2008 (ASSESSMENT YEAR 2000-01, 2001-02, 2002-03) DCIT, CIRCLE 4, AHMEDABAD VS. MEDICAL TECHNOLOGIES LTD., 4 TH FLOOR, A WING, NOBLES, ASHRAM ROAD, AHMEDABAD PAN/GIR NO. : AABCM0639H (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI RAHUL KUMAR, SR. DR RESPONDENT BY: SHRI BANDISH SOPARKAR, AR DATE OF HEARING: 15.06.2012 DATE OF PRONOUNCEMENT: .07.2012 O R D E R PER SHRI A. K. GARODIA, AM:- ALL THESE THREE APPEALS ARE FILED BY THE REVENUE, WHICH ARE DIRECTED AGAINST THREE SEPARATE ORDERS OF LD. CIT(A) VIII, A HMEDABAD DATED 12.03.2008 FOR THE ASSESSMENT YEAR 2000-01, DATED 1 3.03.2008 FOR THE ASSESSMENT YEAR 2001-02 AND DATED 14.03.2008 FOR TH E ASSESSMENT YEAR 2002-03. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CON VENIENCE. 2. FIRST, WE TAKE UP THE APPEAL IN I.T.A.NO. 2097/A HD/2008 FOR THE ASSESSMENT YEAR 2000-01. 2.1 GROUNDS NO. 1 & 2 ARE INTERCONNECTED WHICH ARE AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DIRECTING THE A.O TO RE-WORK THE DEDUCTION U/S 80HH C INCLUDING THE EXPORT PROCEEDS REALIZED UP TO THE PERIOD 31 ST JULY, 2001. I.T.A.NOS.2097,2098,2099/AHD/2008 2 2. THE LD. CIT(A) HAS GROSSLY ERRED IN ADMITTING FR ESH EVIDENCE IN VIOLATION OF RULE 46A OF THE I.T RULES ON THE BASIS OF WHICH THE LD CIT(A) DIRECTED THE A.O TO RE-WORK THE DEDUCTION U/ S 80HHC OF THE ACT. THE ASSESSEE THOUGH SPECIFICALLY CALLED FO R, HAS NOT SUBMITTED SUCH DETAILS BEFORE THE A.O DURING THE CO URSE OF ASSESSMENT PROCEEDINGS. 2.1.1 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHERE AS THE LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). HE FURTHER SUBM ITTED THAT IT IS CLEARLY NOTED BY LD. CIT(A) ON PAGE 6 OF HIS ORDER THAT THE RESERVE BANK OF INDIA HAVE GRANTED EXTENSION OF TIME FOR REALIZATIO N OF EXPORT PROCEEDS UP TO 31.07.2001. HE FURTHER SUBMITTED THAT LD. CIT(A ) HAS DIRECTED THE A.O. TO REWORK THE DEDUCTION U/S 80HHC INCLUDING EX PORT PROCEEDINGS REALIZED UP TO 31.07.2001 AND HENCE, HIS ORDER SHOU LD BE CONFIRMED. HE FURTHER SUBMITTED THAT THE PERMISSION LETTER OF RBI DATED 18.01.2002 IS AVAILABLE ON PAGE 20 OF THE PAPER BOOK. 2.1.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. REGARDING GROUND NO.2 OF THE REVENUES APPEAL, WE FIND THAT N OTHING COULD BE SHOWN BY THE LD. D.R. AS TO WHAT WAS THE ADDITIONAL EVIDENCE ADMITTED BY LD. CIT(A) AND CONSIDERED BY HIM TO DECIDE THE ISSUE IN DISPUTE. WE FIND THAT THIS DECISION OF LD. CIT(A) IS BASED ON T HE EXTENSION GRANTED BY RBI FOR REALIZATION OF EXPORT PROCEEDS UP TO 31.07. 2001. THE SAME IS AS PER LETTER DATED 18.01.2002 AVAILABLE ON PAGE 20 OF THE PAPER BOOK AND AS PER THE CERTIFICATE GIVEN IN THE PAPER BOOK, THIS P APER WAS ALSO SUBMITTED BY THE ASSESSEE BEFORE THE A.O. THE ASSESSMENT ORD ER IS DATED 28.12.2007. LD. D.R. COULD NOT SHOW THAT THE CERTI FICATE GIVEN BY THE ASSESSEE IN THE PAPER BOOK IS NOT CORRECT AND HENCE , GROUND NO.2 OF THE REVENUES APPEAL IS DEVOID OF ANY MERIT AND REJECTE D ACCORDINGLY. 2.1.3 REGARDING GROUND NO.1, WE FIND THAT SINCE THE DATE OF REALIZATION OF EXPORT PROCEEDS IS ENHANCED BY RBI, THE SAME HAS TO BE CONSIDERED FOR I.T.A.NOS.2097,2098,2099/AHD/2008 3 THE PURPOSE OF COMPUTATION OF DEDUCTION ALLOWABLE T O THE ASSESSEE U/S 80HHC AS PER THE PROVISIONS OF SUB-SECTION (2) AND ITS EXPLANATION TO SECTION 80HHC. HENCE, GROUND NO.1 OF THE REVENUE I S ALSO REJECTED AND AT THE SAME TIME A.O. IS DIRECTED TO CONSIDER ONLY THOSE RECEIPTS WHICH ARE REALIZED UP TO 31.07.2001 FOR WHICH EXTENSION I S GRANTED BY RESERVE BANK OF INDIA. 2.2 GROUND NO.3 IS AS UNDER: 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE DISALLOWANCE OF CLAIM OF LONG TERM CAP ITAL LOSS OF RS.5,23,41,9827-. 2.2.1 THE BRIEF FACTS OF THIS ISSUE TILL ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 5 OF HIS ORDER AND THE SAME IS REPRO DUCED BELOW: 5. THE GROUND OF APPEAL NO.6 IS AGAINST DISALLOWAN CE OF CLAIM OF LONG-TERM CAPITAL LOSS OF RS.5 , 23,41,982/- . THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF CAPITAL LOSS OF RS.5,23 ,41,982/-. THE A.O. OBSERVED THAT ONE OF THE GROUP CONCERNS M/S. S TUMBH FINANCIAL PVT. LTD HAD ACQUIRED SHARES OF 6 GROUP C OMPANIES DURING THE YEAR 1994-95 AND 1995-96 FOR RS.13,12,49 ,160/-. ON 1.4.99, M/S. STUMBH FINANCIAL PVT. LTD. AMALGAMATED WITH THE APPELLANT COMPANY AND ALL THE SHARES WERE TRANSFERR ED TO THE APPELLANT COMPANY ON PURCHASE COST BECAUSE MARKET P RICE WAS LOWER THAN THE PURCHASE PRICE AT THE TIME OF TRANS FER . THE INDEX COST OF SUCH SHARES WAS WORKED OUT AT RS.18,35,91,1 42/- AND THUS THERE WAS A LONG TERM CAPITAL LOSS OF RS.5,23,41,98 2/-. THE A.O. OBSERVED THAT TRANSACTIONS OF CAPITAL ASSET IN AMALGAMATION OF COMPANIES ARE NOT REGARDED AS TRANSFER AS PER SEC.4 7(VI) OF THE ACT AND AS THERE WAS NO TRANSFER , THERE WAS NO CAPITAL LOSS , THEREFORE HE DID NOT ALLOW THE LONG TERM /'CAPITAL LOSS AND TOOK THE SAME AS NIL. 2.2.2 BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) WHO HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND NOW, THE REVENUE IS IN APPEAL BEFORE US. LD. D.R. SUPPORTED THE ASSESSMENT ORDER. IT IS FURTHER SUBMITTED THAT AS PER SECTION 47(VI), THERE IS NO TRANSFER WHEN THERE IS ANY TRANSFER OF A CAPITAL ASSET IN A SCHEM E OF AMALGAMATION BY THE I.T.A.NOS.2097,2098,2099/AHD/2008 4 AMALGAMATING COMPANY TO THE AMALGAMATED COMPANY IF THE AMALGAMATED COMPANY IS INDIAN COMPANY. HE SUBMITTED THAT SINCE THERE IS NO TRANSFER, THERE CANNOT BE ANY CAPITAL LOSS. AS AGAINST THIS, LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). 2.2.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD. WE FIND THAT IT IS NOTED BY LD. CIT(A) IN PARA 5.1 OF HIS ORDER THAT AS PER THE DETAILS SUBMITTED BY THE ASSESSEE, THIS LOSS OF RS.523.42 LACS HAS ARISEN ON SALE OF SHARES OF SIX LIMITED CO MPANIES. NAMES OF THOSE SIX COMPANIES ARE NOTED BY LD. CIT(A) IN THE SAME PARA. HE HAS FURTHER NOTED THAT THESE SHARES WERE ORIGINALLY ACQ UIRED AND HELD BY STUMBH FINANCIAL PVT. LTD. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS PER PARA 5.1 & 5.2 OF HIS ORDER AND T HE SAME ARE REPRODUCED BELOW: 5.1 DISPUTING THE SAID FINDING OF THE A.O. , THE A.R. SUBMITTED THAT THE CLAIM FOR CAPITAL LOSS OF RS.5,2 3,41,982/- IS IN RESPECT OF LOSS SUSTAINED BY THE APPELLANT ON SALE OF SHARES OF \ THE FOLLOWING LIMITED COMPANIES'. 1) CLARIS LIFESCIENCES LIMITED 2) MERIDIAN INDUSTRIES LIMITED 3) SPECIFIC HOSPITALS LIMITED 4) SPAN MEDICALS LIMITED 5) SUN ENERGY LIMITED 6) MEDICAL TECHNOLOGIES LIMITED THESE SHARES WERE ORIGINALLY ACQUIRED AND HELD BY S TUMBH FINANCIAL PVT. LTD. AND ON AMALGAMATION OF THAT COM PANY WITH THE APPELLANT, THE APPELLANT BECAME OWNER OF THE SHARES . THESE SHARES WERE SOLD BY THE APPELLANT COMPANY AND ON SALE THER E WAS LOSS OF RS.5,23,41,962/-. FOR THE PURPOSE OF COMPUTATION OF CAPITAL LOSS ON SALE OF SHARES BY THE APPELLANT COMPANY, COST OF AC QUISITION HAD BEEN TAKEN KEEPING IN VIEW THE PROVISIONS OF SECTIO N 49 (1) (E) OF THE I.T. ACT. IT WAS SUBMITTED THAT THE TRANSACTION OF SALE OF SHARES OF COMPANIES BEING GENUINE; THE LONG TERM CAPITAL L OSS ARISING FROM SUCH GENUINE TRANSACTION CANNOT BE DISALLOWED. 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. C AREFULLY. THE PROVISIONS OF SECTION 47(VI) REFER TO ONLY TRANSACT ION OF CAPITAL I.T.A.NOS.2097,2098,2099/AHD/2008 5 ASSETS ON AMALGAMATION OF COMPANIES. BUT IN THE CAS E OF THE APPELLANT THE SHARES HELD BY STUMBH FINANCIAL PVT. LTD WERE TRANSFERRED IN THE NAME OF THE APPELLANT COMPANY AT THE PURCHASE COST ON AMALGAMATION OF STUMBH FINANCIAL PVT. LTD W ITH THE APPELLANT COMPANY. THE SHARES HAVE BEEN ACTUALLY SO LD BY THE APPELLANT DURING THE YEAR AND ALTHOUGH THERE WAS A PROFIT OF RS.49,99,960/- , ON ACCOUNT OF INDEXATION THERE WAS A CAPITAL LOSS. THE TRANSACTION OF SALE OF SHARES IS FOUND TO BE GE NUINE, THEREFORE, THE DISALLOWANCE OF LONG TERM CAPITAL LOSS IS HELD TO BE NOT PROPER AND THE SAME IS DELETED. 6. THE GROUND OF APPEAL NO.7 IS AGAINST OF CHARGING OF INTEREST U/S.234B OF THE I.T. ACT. THIS GROUND IS CONSEQUENT IAL, HENCE THE A.O. IS DIRECTED TO REWORK THE INTEREST WHILE GIVIN G EFFECT TO THIS ORDER. 2.2.4 FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A ), WE FIND THAT A CLEAR FINDING IS GIVEN BY HIM THAT THESE SHARES HAV E BEEN ACTUALLY SOLD BY THE ASSESSEE DURING THE YEAR AND ALTHOUGH THERE WAS A PROFIT OF RS.50 LACS APPROXIMATELY, THERE IS CAPITAL LOSS BECAUSE OF IND EXATION. SECTION 47(VI) IS IN RESPECT OF TRANSFER OF ASSET BY AMALGAMATING COMPANY TO AMALGAMATED COMPANY AND ON SUCH TRANSFER, THERE CAN NOT BE ANY CAPITAL GAIN OR CAPITAL LOSS BECAUSE THERE IS NO TRANSFER A S PER SECTION 47(VI). BUT IN THE PRESENT CASE, THE LOSS WAS CLAIMED BY THE AS SESSEE ON SUBSEQUENT SALE BY THE AMALGAMATED COMPANY, AND SHARES RECEIVE D BY IT FROM THE AMALGAMATING COMPANY AND HENCE, IN OUR CONSIDERED O PINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT( A) ON THIS ISSUE. THIS GROUND OF THE REVENUE IS ALSO REJECTED. 2.3 IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 3. NOW, WE TAKE UP THE APPEAL OF THE REVENUE FOR TH E ASSESSMENT YEAR 2001-02 IN I.T.A.NO. 2098/AHD/2008. 3.1 GROUNDS NO.1 & 2 ARE INTERCONNECTED AND ARE REP RODUCED BELOW: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE DISALLOWANCE OF COMMISSION EXPENSES OF RS.5,40,00,000/-. I.T.A.NOS.2097,2098,2099/AHD/2008 6 2. THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT SUBMITTED ANY DETAILS OR EVIDENCE IN RESPECT OF THE SERVICES RENDERED BY VARIOUS PERSONS TO WHOM THE AS SESSEE CLAIMED TO HAVE MADE THE PAYMENT THOUGH THE SAME WAS SPECIF ICALLY CALLED FOR BY THE ASSESSING OFFICER. 3.1.1 BRIEF FACTS TILL THE ASSESSMENT STAGE ARE NOT ED BY LD. CIT(A) IN PARA 4 OF HIS ORDER WHICH IS REPRODUCED BELOW: 4. THE GROUND OF APPEAL NO. 6 IS AGAINST DISALLOWA NCE OF COMMISSION OF RS.5,40,00,000/-. THE A.O. OBSERVED T HAT THE APPELLANT HAS NOT DEBITED ANY COMMISSION EXPENSES O N THE SALES OF RS.7.40 CRORES IN THE PRECEDING YEAR AND ON SALES O F RS.24.27 CRORES IN A.Y.1999-2000 AND THE APPELLANT HAS NOT P RODUCED ANY EVIDENCE TO JUSTIFY THE CLAIM OF COMMISSION AND THE GENUINENESS OF THE PAYMENT AND HAS NOT FURNISHED EVIDENCES IN SUPP ORT OF SERVICES RENDERED BY THE COMMISSION RECIPIENT AND THE ROLE O F THE COMMISSION RECIPIENT. THE A.O. ALSO OBSERVED THAT T HE BURDEN IS ON THE APPELLANT TO PROVE THE GENUINENESS OF THE PAYME NT. FURTHER HE OBSERVED THAT THE APPELLANT HAS SHOWN RESALE OF GOO DS FROM SISTER CONCERN AND HAS ENTERED INTO PAPER TRANSACTIONS TO DIVERT THE INCOME TO THE GROUP CONCERN. THEREFORE, THE A.O. TR EATED THE COMMISSION EXPENSES AS NOT GENUINE AND DISALLOWED T HE SAME. 3.1.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER IN APPEAL BEFORE LD. CIT(A) WHO DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DELETED THIS DISALLOWANCE AND NOW, THE REVENUE IS IN APPEAL BEFORE US. 3.1.3 LD. D.R. SUPPORTED THE ASSESSMENT ORDER. HE FURTHER SUBMITTED THAT THE DETAILS OF SERVICES RENDERED WERE NEVER PROVIDE D AND THE AGENT IS SISTER CONCERN AND, THEREFORE, THE ORDER OF LD. CIT (A) ON THIS ISSUE SHOULD BE REVERSED AND THAT OF THE A.O. SHOULD BE RESTORED . AS AGAINST THIS, LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). 3.1.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS P ER PARA 4.3 OF HIS ORDER WHICH IS REPRODUCED BELOW: I.T.A.NOS.2097,2098,2099/AHD/2008 7 4.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY. BECAUSE OF THE SERVICES RENDERED BY THE COMMISSION AGENT MATRIX LOGISTICS LTD, THE SALES OF APPELLANT HAVE INCREASE D FROM RS.7.40 CRORE TO RS.24.27 CRORES DURING THE YEAR UNDER CONS IDERATION. THE PAYMENT OF COMMISSION WAS MADE FOR THE FIRST TIME A S PER AGREEMENT EXECUTED ON 1.4.2000 FOR MAKING LOCAL SAL ES. THE PAYMENT OF COMMISSION HAS BEEN APPROVED BY THE BOAR D OF DIRECTORS IN ITS RESOLUTION RECORDED ON 19.3.2001. M/S. MATRIX LOGISTICS LTD. HAS SHOWN THE COMMISSION INCOME IN I TS INCOME TAX RETURN. AS PER THE AGREEMENT BETWEEN THE APPELLANT AND MATRIX LOGISTICS LTD. WHICH WAS EARLIER KNOWN AS GENESIS C ONSULTANTS LTD DATED 1.4.2000 THE LATTER CONCERN HAS PROVIDED SERV ICES FOR PROCURING ORDERS OF MEDICAL EQUIPMENTS ON BEHALF OF THE APPELLANT AND THE COMMISSION HAS BEEN PAID ON THE BASIS OF OR DERS PROCURED AS PER CLAUSE 3(D) 'OF THE AGREEMENT. THEREFORE, TH E DISALLOWANCE OF COMMISSION WITHOUT ANY ADVERSE INFORMATION OR MATER IALS OR EVIDENCE IS HELD TO BE NOT JUSTIFIED AND HENCE, THE DISALLOWANCE IS DELETED. 3.1.5 FROM THE ABOVE PARA, IT IS SEEN THAT IT IS NO TED BY LD. CIT(A) THAT THERE IS AN AGREEMENT REGARDING PAYMENT OF COMMISSI ON TO THIS PARTY AND THE SALE OF THE ASSESSEE HAS INCREASED CONSIDERABLY I.E. FROM RS.7.40 CRORES TO RS.24.27 CRORES. IT IS ALSO NOTED BY LD. CIT(A) THAT THIS AGREEMENT WAS EXECUTED ON 01.04.2000 FOR MAKING LOC AL SALES. IT WAS SUBMITTED BEFORE LD. CIT(A) THAT BEFORE THIS YEAR, THE ASSESSEE WAS MAINLY MAKING EXPORT SALES DIRECTLY OR INDIRECTLY A ND IT HAS DECIDED TO ENTER INTO LOCAL MARKET FOR SALE FOR THE FIRST TIME AND IT HAD NO INFRA STRUCTURE FOR ACHIEVING THE LOCAL SALES TO THIS EXT ENT. IT IS ALSO NOTED BY LD. CIT(A) THAT PAYMENT OF COMMISSION HAS BEEN APPR OVED BY THE BOARD OF DIRECTORS AND THE AGENT HAS SHOWN THE COMMISSION INCOME IN ITS RETURN OF INCOME. REGARDING SERVICES, IT WAS NOTED BY LD. CIT(A) THAT AGENT HAD PROVIDED SERVICES FOR PROCUREMENT OF ORDERS OF MEDICAL EQUIPMENTS ON BEHALF OF THE ASSESSEE AND THE COMMISSION HAD BE EN PAID ON THE BASIS OF ORDERS PROCURED AS PER CLAUSE (3)(D) OF THE AGRE EMENT. CONSIDERING THESE FACTS AND FINDING OF LD. CIT(A) WHICH COULD N OT BE CONTROVERTED BY I.T.A.NOS.2097,2098,2099/AHD/2008 8 THE LD. D.R., WE ARE OF THE CONSIDERED OPINION, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. WE, THEREFORE, REJECT THIS GROUND. 3.2 GROUNDS NO.3 & 4 ARE ALSO INTERCONNECTED WHICH ARE AS UNDER: 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE ADDITION OF RS.89,28,672/- ON ACCOUNT OF UNACCOUNTED INVESTMENT 4. THE LD. CIT(A) HAS GROSSLY ERRED IN ADMITTING FR ESH EVIDENCE IN VIOLATION OF RULE 46A OF THE I.T RULES ON THE BASIS OF WHICH THE LD C!T(A) DELETED THE ADDITION MADE BY THE ASSESSING O FFICER ON ACCOUNT OF UNACCOUNTED INVESTMENT. THE ASSESSEE THO UGH SPECIFICALLY CALLED FOR, HAS NOT SUBMITTED SUCH DET AILS BEFORE THE A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 3.2.1 BRIEF FACTS OF THIS ISSUE TILL THE ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 5 OF HIS ORDER WHICH IS REPRODUCED B ELOW: 5. THE GROUND OF APPEAL NO.7 IS AGAINST ADDITION O N ACCOUNT OF UNACCOUNTED INVESTMENT OF RS.89,28 , 672/- . THE A.O. OBSERVED AT PARA 5 OF THE ORDER THAT THE APPELLANT COMPANY HAS SHOWN PURCHASES DURING THE YEAR TO THE TUNE OF RS.19,07,9 7,190/-. HOWEVER, IN AUDITOR'S REPORT THE PURCHASES HAVE BEE N SHOWN AS RS.19,97,25,862/- AND THERE IS DIFFERENCE OF RS.89, 28,672/- BETWEEN THE TWO FIGURES AND THE APPELLANT HAS NOT F URNISHED ANY CLARIFICATION OR ANY EXPLANATION IN THE MATTER , TH EREFORE THE A.O. TREATED THE DIFFERENCE AS UNACCOUNTED INVESTMENT OF THE APPELLANT. 3.2.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER IN APPEAL BEFORE LD. CIT(A) WHO HAS DELETED THIS ADDITION AND NOW, T HE REVENUE IS IN APPEAL BEFORE US. 3.2.3 LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSM ENT ORDER WHEREAS THE LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). LD . D.R. ALSO SUBMITTED THAT COPIES OF CREDIT NOTE WERE NEVER PRODUCED BEFO RE THE A.O. AND THE SAME WERE PRODUCED BEFORE LD. CIT(A) AS ADDITIONAL EVIDENCE AND IT WAS NEVER CONFRONTED TO THE A.O. IN REPLY, IT WAS SUBM ITTED BY THE LD. A.R. THAT THE MATTER MAY GO BACK TO THE FILE OF THE A.O. FOR FRESH DECISION. I.T.A.NOS.2097,2098,2099/AHD/2008 9 3.2.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS P ER PARA 5.2 OF HIS ORDER WHICH IS REPRODUCED BELOW: 5.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY. AS PER THE SUBMISSIONS FILED BY THE A.R AND THE CERTIF ICATES FILED FROM CORE HEALTHCARE LTD. AND MATRIX LOGISTICS LTD. REGA RDING THE PURCHASES MADE FROM THEM, THE TOTAL PURCHASES FROM THEM ARE OF RS.I9.97 CRORES. IF OTHER PURCHASES OF RS.75.71 LAK HS ARE CONSIDERED AND CREDIT NOTE FOR RATE DIFFERENCE OF R S.1.65 CRORES IS TAKEN INTO ACCOUNT, THEN NET TOTAL PURCHASES COMES TO RS.19.0.7 CRORES WHICH TALLIES WITH THE FIGURE OF PURCHASES A S PER THE P & L ACCOUNT OF RS.19.07 CRORES. AS THE DIFFERENCE HAS B EEN RECONCILED THERE IS NO JUSTIFICATION OF ADDITION OF RS.89,28,6 72/-. HENCE THE ADDITION IS DELETED. 3.2.5 FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A ), WE FIND THAT THIS ISSUE IS DECIDED BY HIM ON THE BASIS OF CREDIT NOTE FOR RATE DIFFERENCE OF RS.1.65 CRORES. IT WAS THE SUBMISSION OF THE ASSES SEE BEFORE LD. CIT(A) THAT THIS DIFFERENCE HAS ARISEN BECAUSE OF OTHER PU RCHASES OF RS.75.71 LACS AND CREDIT NOTES FOR RATE DIFFERENCE OF RS.165 LACS NET MOUNT OF RS.98.29 LACS. THE RELEVANT CREDIT NOTES WERE NEVER PRODUC ED BEFORE THE A.O. AS PER THE SUBMISSION OF THE LD. D.R. AND IN REPLY, IT WAS NOT THE ARGUMENT OF THE LD. A.R. THAT THE CONCERNED CREDIT NOTES WER E PRODUCED BEFORE THE A.O. AND HE HAS FAIRLY AGREED THAT THE MATTER MAY G O BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. HENCE, WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE A.O. FOR FRESH DECISION AFTER CONSIDERING VARIOUS SUBMISSION S MADE BY THE ASSESSEE BE FORE LD. CIT(A) ALONG WITH CREDIT NOTES OF RS.16 5 LACS FOR RATE DIFFERENCE AND OTHER PURCHASES OF RS.75,71,328/-. WE WOULD LIKE TO MAKE IT CLEAR THAT THE BURDEN IS ON THE ASSESSEE TO PROD UCE THESE DOCUMENTS BEFORE THE A.O. AND THEREAFTER, THE A.O. SHALL DECI DE THE ISSUE AS PER LAW I.T.A.NOS.2097,2098,2099/AHD/2008 10 AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IF IT IS FOUND THAT THE CLAIM OF THESE OTHER PURCHASES OF RS.75.71 LACS AND CREDIT NOTES OF RS.165 LACS IS GENUINE AND THERE IS NO DIFFERENCE AFTER CONSIDERING THESE TWO AMOUNTS, THEN NO ADDITION IS CALLED FOR ON THIS ISSUE. THESE GROUNDS OF THE REVENUE ARE ALLOWED FO R STATISTICAL PURPOSES. 3.3 GROUNDS NO.5 & 6 ARE ALSO INTERCONNECTED WHICH ARE AS UNDER: 5. THE LD, CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE ADDITION OF RS.1,28,28,072/- MADE ON A CCOUNT OF WRITING BACK OF LOAN LIABILITY. 6. THE LD. CIT(A) HAS GROSSLY ERRED IN ADMITTING FR ESH EVIDENCE IN VIOLATION OF RULE 46A OF THE I.T RULES ON THE BASIS OF WHICH THE LD CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING O FFICER ON ACCOUNT OF WRITING BACK OF LOAN LIABILITY. SUCH DET AILS WERE NOT SUBMITTED BEFORE THE A.O DURING THE COURSE OF ASSES SMENT PROCEEDINGS. 3.3.1 BRIEF FACTS TILL THE ASSESSMENT STAGE ARE NOT ED BY LD. CIT(A) IN PARA 6 OF HIS ORDER WHICH IS REPRODUCED BELOW: 6. THE GROUND OF APPEAL NO .8 IS AGAINST ADDITION ON ACCOUNT OF WRITING-BACK OF LOAN LIABILITY OF RS.1,28,28,072/-. THE A.O. OBSERVED THAT THE APPELLANT HAD GAINED RS.1,28,28,0 72/-ON ACCOUNT OF SETTLEMENT OF LIABILITY AND IT HAS CLAIMED THE S AME AS EXEMPT AS PER NOTE IN PARA -4 OF THE NOTES FORMING PART OF ST ATEMENT OF TOTAL INCOME. ACCORDING TO THE A.O. THIS WAS INCOME OF TH E APPELLANT. THE APPELLANT HAD ENTERED INTO SETTLEMENT WITH THE ABOVE PERSONS TO WHOM THE APPELLANT HAD TO DISCHARGE THE LOAN LIABIL ITY AND THE APPELLANT HAD BENEFITED ON ACCOUNT OF SETTLEMENT RE ACHED. THE SETTLEMENT HAD RESULTED IN REDUCTION IN LIABILITIES AND THE APPELLANT HAD GAINED THE AMOUNT. THE BENEFIT BY WAY OF REMISS ION OF LIABILITY HAS ACCRUED TO THE APPELLANT AND IS COVERED WITHIN THE PROVISIONS OF SEC.41(L) OF THE ACT. THE BENEFIT HAS ARISEN DURING THE BUSINESS AND IT WAS NOT OUT OF CAPITAL ASSET, THEREFORE THE CLAI M OF CAPITAL RECEIPT WAS NOT ACCEPTED BY THE A.O . 3.3.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER IN APPEAL BEFORE LD. CIT(A) WHO HAS DELETED THIS ADDITION AND NOW, T HE REVENUE IS IN APPEAL BEFORE US. I.T.A.NOS.2097,2098,2099/AHD/2008 11 3.3.3 LD. D.R. SUPPORTED THE ASSESSMENT ORDER. HE FURTHER SUBMITTED THAT FRESH EVIDENCES WERE ADMITTED BY LD. CIT(A) AND NO REMAND REPORT WAS OBTAINED BY HIM FROM THE A.O. WITH REGARD TO THESE ADDITIONAL EVIDENCES. 3.3.4 AS AGAINST THIS, LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HONBLE GUJ ARAT HIGH COURT RENDERED IN THE CASE OF CHETAN CHEMICALS PVT. LTD. AS REPORTED IN 267 ITR 770. 3.3.5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE JUDGMENT CITED BY THE LD. A.R. WE FIND THAT THIS I SSUE HAS BEEN DECIDED BY LD. CIT(A) AS PER PARA 6.3 OF HIS ORDER WHICH IS REPRODUCED BELOW: 6.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY . FROM THE DETAILS FILED BY THE A.R. IT IS SEEN THAT THE APPELLANT HAD TAKEN LOAN OF RS.4.40 CRORES FROM CORE HEALTH CARE LTD. WHICH WAS TRANSFERRED TO THE ACCOUNT OF KOTAK MAHINDRA FI NANCE LTD. AS PER UNDERSTANDING BETWEEN THE COMPANIES. THE APPELL ANT PAID RS.1.36 CRORES TO KOTAK MAHINDRA FINANCE LTD AND TH E BALANCE AMOUNT OF RS.1.28 CRORES WAS SQUARED OFF. IN THE CA SE OF THE APPELLANT IT IS FOUND THAT IT IS NOT A REMISSION OF TRADING LIABILITY, RATHER IT IS A REDUCTION OF LOAN LIABILITY AND IT H AS NOT BEEN CLAIMED AS EXPENDITURE IN EARLIER, YEARS THEREFORE, IT CAN NOT BE TAXED U/S.41(L) AS CESSATION OF TRADING LIABILITY. AS IT IS ON CAPITAL ACCOUNT RELYING ON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN CHETAN CHEMICALS PVT. LTD THE REMISSION OF UNSECURE D LOANS IS HELD AS NOT TAXABLE U/S.41(L) THEREFORE, THE ADDITI ON MADE BY THE A.O. IS HELD TO BE NOT JUSTIFIED AND THE SAME IS DE LETED . 3.3.6 WE FIND THAT LD. CIT(A) HAS DECIDED THIS ISSU E IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE JUDGMENT OF HONBLE GUJAR AT HIGH COURT RENDERED IN THE CASE OF CHETAN CHEMICALS PVT. LTD. (SUPRA) AND AS PER THE PROVISIONS OF SECTION 41(1) OF THE INCOME TAX ACT, 1961. AS PER THIS JUDGEMENT OF HONBLE GUJARAT HIGH COURT, NO ADDITIO N CAN BE MADE U/S 41(1) OF THE INCOME TAX ACT, 1961 IN RESPECT OF REM ISSION OF ANY LOAN LIABILITY FOR WHICH NO DEDUCTION WAS ALLOWED TO THE ASSESSEE IN THE PRESENT I.T.A.NOS.2097,2098,2099/AHD/2008 12 YEAR OR IN ANY EARLIER YEAR. WE FIND THAT BEFORE T HE A.O. ALSO, RELIANCE WAS PLACED BY THE ASSESSEE ON THIS VERY JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CHETAN CHEMICALS PVT. LTD. (SUPRA). THE A.O. HAS DECIDED THIS ISSUE AGAINST THE ASSESSE E ON THIS BASIS THAT SINCE THE ASSESSEE HAS WRITTEN BACK THE LIABILITY I N THE BOOKS OF ACCOUNT, THE SAME IS TO BE TAXED IN THE HANDS OF THE ASSESSE E. THE SECOND BASIS OF THE A.O. IS THAT THE BENEFIT TO THE ASSESSEE HAS AR ISEN DURING THE BUSINESS BUT HE HAS FAILED TO CONSIDER THAT GIVING AND TAKIN G LOAN IS NOT THE BUSINESS OF THE ASSESSEE. THE ASSESSEE IS IN THE B USINESS OF TRADING IN EQUIPMENTS, PLANT & MACHINERY AND PHARMACEUTICAL PR ODUCTS AND PROVIDING TECHNICAL SERVICES AS HAS BEEN NOTED BY T HE A.O. ON PAGE 1 OF THE ASSESSMENT ORDER. THIS BEING SO, IT CANNOT BE SAID THAT THE BENEFIT HAS ARISEN TO THE ASSESSEE IN THE COURSE OF BUSINESS. THIS IS A DIFFERENT ASPECT THAT LOAN HAS BEEN TAKEN BY THE ASSESSEE FOR THE PU RPOSE OF BUSINESS BUT THIS DOES NOT MEAN THAT TAKING AND GIVING LOAN IS T HE BUSINESS OF THE ASSESSEE AND HENCE, IT CANNOT BE SAID THAT SECTION 41(1) CAN BE ATTRACTED FOR REMISSION IN RESPECT OF LOAN LIABILITY WHEN ADM ITTEDLY, NO DEDUCTION WAS ALLOWED TO THE ASSESSEE IN RESPECT OF SUCH LOAN LIABILITY IN THE PRESENT YEAR OR IN ANY EARLIER YEAR. WE ALSO DO NOT FIND T HAT ANY FRESH EVIDENCE WAS ADMITTED BY LD. CIT(A) BECAUSE HIS DECISION IS MAINLY ON THE BASIS OF JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CHETAN CHEMICALS PVT. LTD. (SUPRA) AND THIS JUDGEME NT IS ALSO CITED BEFORE THE A.O. THIS WAS NEVER IN DISPUTE BEFORE T HE A.O. OR BEFORE LD. CIT(A) THAT ADVANTAGE RECEIVED BY THE ASSESSEE IS I N RESPECT OF WAIVER OF LOAN LIABILITY FOR WHICH NO DEDUCTION WAS ALLOWED T O THE ASSESSEE AT ANY POINT OF TIME. HENCE, WE DO NOT FIND ANY MERIT IN GROUND NO.6 OF THE REVENUE AND GROUND NO.5 OF THE REVENUE IS ALSO DEVO ID OF ANY MERIT BECAUSE IN THE FACTS OF THE PRESENT CASE, SECTION 4 1(1) IS NOT ATTRACTED I.T.A.NOS.2097,2098,2099/AHD/2008 13 BECAUSE THIS BENEFIT HAS NOT ARISEN TO THE ASSESSEE IN THE COURSE OF BUSINESS OF TAKING AND GIVING LOAN AND NO DEDUCTION WAS ALLOWED TO THE ASSESSEE IN RESPECT OF THIS LOAN LIABILITY AT ANY P OINT OF TIME. HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. BOTH THESE GROUNDS OF THE REVENUE ARE REJECTED. 3.4 GROUND NO.7 IS AS UNDER: 7. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE DISALLOWANCE OF RS.1,05,030/- MADE OUT OF INTEREST EXPENSES. 3.4.1 BRIEF FACTS OF THIS ISSUE TILL THE ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 7 OF HIS ORDER WHICH IS REPRODUCED B ELOW: 7. THE GROUND OF APPEAL NO. 9 IS AGAINST DISAL LOWANCE OF RS.1,05,030/- OUT OF INTEREST. THE A.O. OBSERVED TH AT THE APPELLANT HAS DIVERTED INTEREST BEARING FUNDS TO ITS SISTER C ONCERNS AND HAS NOT SHOWN INTEREST INCOME FROM THE FUNDS DIVERTED TO IT S GROUP COMPANY AND THEREFORE, THE A.O. DISALLOWED THE I NTEREST EXPENSES OF RS.1,05,030/- PERTAINING TO THE AMOUNT ADVAN CED TO M/S. CATALYS VENTURES CAPS LTD. 3.4.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER IN APPEAL BEFORE LD. CIT(A) WHO DELETED THIS DISALLOWANCE AND NOW, T HE REVENUE IS IN APPEAL BEFORE US. 3.4.3 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHERE AS LD. A.R. SUPPORTED THE ORDER O LD. CIT(A). 3.4.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS P ER PARA 7.2 OF HIS ORDER WHICH IS REPRODUCED BELOW: 7.2 I HAVE CONSIDERED THE SUBMISSION 1 OF THE A.R. CAREFULLY . THE APPELLANT HAS INVESTED IN JOINT VENTURE' WITH A MAU RITIUS COMPANY. IT IS THE CONTENTION OF THE A.R. THAT NO BORROWINGS WERE MADE FOR INVESTMENT IN THE SAID JOINT VENTURE AND THE INVEST MENT HAS BEEN I.T.A.NOS.2097,2098,2099/AHD/2008 14 MADE FORM INTERNAL ACCRUALS AND RESERVES. FROM THE BALANCE SHEET FILED BY THE ID. A.R. IT IS OBSERVED THAT THERE ARE NO BANK LOANS AND THERE IS A BANK OVERDRAFT OF RS.5,97,641/- ONLY WHI CH HAS BEEN STATED TO HAVE BEEN INVESTED IN TRADING BUSINESS OF THE APPELLANT AND IT HAS BEEN STATED THAT ON UNSECURED LOANS NO I NTEREST HAS BEEN PAID . THE INTEREST EXPENSES OF RS.1,05,030/- PERTA IN TO TRADING BUSINESS OF THE APPELLANT ON ACCOUNT OF VARIOUS SER VICES RENDERED BY THE BANK FOR REALIZATION OF EXPORT PROCEEDS . CO NSIDERING THE SAID FACTS THE DISALLOWANCE OF INTEREST MADE BY THE A.O. IS DELETED. 3.4.5 FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A ), IT IS SEEN THAT A CLEAR FINDING IS GIVEN BY LD. CIT(A) THAT AS PER TH E BALANCE SHEET OF THE ASSESSEE, THERE IS NO BANK LOAN AND THERE IS BANK O VERDRAFT AMOUNTING TO R.5,97,641/- WHICH HAS BEEN STATED TO HAVE BEEN INV ESTED IN THE TRADING BUSINESS OF THE ASSESSEE AND NO INTEREST HAD BEEN P AID ON UNSECURED LOAN. HE HAS GIVEN THIS FINDING ALSO THAT INTEREST EXPENS ES OF RS.1,05,030/- PERTAINED TO TRADING BUSINESS OF THE ASSESSEE ON AC COUNT OF VARIOUS SERVICES RENDERED FOR REALIZATION OF EXPORT PROCEED S. THESE FINDINGS OF LD. CIT(A) COULD NOT BE CONTROVERTED BY THE LD. A.R . AND HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE ALSO. IN THE RESULT, GROUND NO.7 IS ALSO REJECTED. 3.5 GROUND NO.8 AND 9 ARE INTERCONNECTED WHICH ARE AS UNDER: 8. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE ADDITION OF RS.66,77,658/- MADE ON ACC OUNT OF INTEREST ON FIXED DEPOSIT. 9. THE LD. CIT(A) HAS GROSSLY ERRED IN NOT APPRECIA TING THE FACT THAT THOUGH THE ASSESSEE WAS SPECIFICALLY ASKED BY THE ASSESSING OFFICER VIDE NOTICE U/S. 142(1) OF THE ACT DATED 28 .11.2007 TO EXPLAIN THE ABOVE SAID DISCREPANCY, THE ASSESSEE CH OSE TO KEEP SILENT ON THIS ISSUE DURING THE COURSE OF ASSESSMEN T PROCEEDINGS AND NOT OFFERED ANY EXPLANATION BEFORE THE ASSESSIN G OFFICER. 3.5.1 BRIEF FACTS OF THE CASE ON THIS ISSUE TILL TH E ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 8 OF HIS ORDER WHICH IS REPRODUCED BELOW: I.T.A.NOS.2097,2098,2099/AHD/2008 15 8. THE GROUND OF APPEAL NO. 10 IS AGAINST ADDITION ON ACCOUNT OF INTEREST ON FIXED DEPOSIT OF RS.66,77,658/-. THE A. O. OBSERVED THAT NO INCOME HAS BEEN SHOWN BY THE APPELLANT ON F IXED DEPOSITS OF RS.14 CRORES MADE WITH BANK AS MARGIN MONEY/SECU RITY DEPOSIT FOR IMPORT LETTER OF CREDITS AND IN THE BALANCE SHE ET, INTEREST ACCRUED ON DEPOSIT IS REFLECTED AS RS.66,77,6557- , BUT THE APPELLANT HAS NOT OFFERED SUCH INTEREST FOR TAXATION AND THE APPELLAN T DID NOT FURNISH ANY BREAKUP OR DETAILS REGARDING INTEREST INCOME . HENCE THE A.O. MADE ADDITION TO THE INCOME. 3.5.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER IN APPEAL BEFORE LD. CIT(A) WHO HAS DELETED THIS ADDITION AND NOW, T HE REVENUE IS IN APP EL BEFORE US. 3.5.3 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHERE AS THE LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). 3.5.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS PER PARA 8.2 OF H IS ORDER WHICH IS REPRODUCED BELOW: 8.2 I HAVE CONSIDERED THE 'SUBMISSIONS OF THE A.R. CAREFULLY. IT IS FOUND THAT THE APPELLANT HAS ALREADY OFFERED INTERE ST INCOME OF RS.1.03 CRORES AS INTEREST ON FIXED DEPOSIT AND OUT OF THE SAID INTEREST INCOME THE AMOUNT OF RS.66.77 LAKHS HAS NO T BEEN RECEIVED SO THE SAME HAS BEEN SHOWN AS ACCRUED INTEREST IN T HE SCHEDULE-5 IN THE BALANCE SHEET. AS THE SAID INCOME HAS BEEN O FFERED, NO FURTHER ADDITION IS REQUIRED TO BE MADE AND THEREFO RE, THE ADDITION IS DELETED. 3.5.5 FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A ), WE FIND THAT LD. CIT(A) HAS GIVEN THIS FINDING THAT THE ASSESSEE HAS OFFERED INTEREST INCOME OF RS.1.03 CRORES AS INTEREST ON FIXED DEPOS ITS AND OUT OF THE SAID INTEREST INCOME, AN AMOUNT OF RS.66.77 LACS WAS NOT RECEIVED AND, THEREFORE, THE SAME HAS BEEN SHOWN AS ACCRUED INTER EST IN SCHEDULE V IN THE BALANCE SHEET. SINCE THIS INCOME WAS ALREADY O FFERED BY THE ASSESSEE, NO FURTHER ADDITION AS REQUIRED TO BE MADE AND ON T HIS BASIS, LD. CIT(A) I.T.A.NOS.2097,2098,2099/AHD/2008 16 HAS DELETED THIS ADDITION. LD. D.R. COULD NOT CONT ROVERT THESE FINDINGS OF LD. CIT(A) AND HENCE, ON THIS ISSUE ALSO, NO INTERF ERENCE IS CALLED FOR IN THE ORDER OF LD. CIT(A). THESE GROUNDS OF THE REVE NUE ARE ALSO REJECTED. 3.6 IN THE RESULT, THIS APPEAL OF THE REVENUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. 4. NOW, WE TAKE UP THE APPEAL OF THE REVENUE IN I.T .A.NO. 2099/AHD/2008 FOR THE ASSESSMENT YEAR 2002-03. 4.1 GROUND NO.1 IS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE DISALLOWANCE OF RS.3,35,08,600/- MADE ON ACCOUNT OF TRADING LOSS. 4.1.1 BRIEF FACTS OF THIS ISSUE TILL THE ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN HIS ORDER AT PARA 4, WHICH IS REPRODUCED BELOW: 4. THE GROUND OF APPEAL NO.5 IS AGAINST DISALLOWAN CE OF TRADING LOSS OF RS.3,35,08,600/-. THE A.O. HAS STATED IN TH E ASSESSMENT ORDER THAT THE APPELLANT HAS CLAIMED BUSINESS LOSS OF RS.3,35,08,600/- ON RESALE OF MEDICAL PRODUCTS AND THAT FROM THE QUANTITATIVE DETAILS IT IS CLEAR THAT SAME NUMBER O F PRODUCTS HAVE BEEN PURCHASED AT THE COST OF RS.26.89 CRORES AND S OLD AT RS.23.76 CRORES, THE SALES AND PURCHASES ARE MADE TO SISTER CONCERNS ONLY AND THAT THESE ARE ONLY PAPER / FINANCIAL TRANSACTI ONS. THE A.O. ALSO OBSERVED THAT THE APPELLANT HAS NEITHER MAINTAINED ANY OFFICE OR WAREHOUSING FACILITIES NOR WAS PAYING ANY RENT. THE A.O. FURTHER NOTED IN THE ASSESSMENT ORDER THAT NO GENUINE PURCH ASES OR SALES HAD TAKEN PLACE AND THE APPELLANT HAS NOT GIVEN ANY EVIDENCE REGARDING DELIVERY OF GOODS, HENCE THE LOSS CLAIMED IS BOGUS AND CANNOT BE ALLOWED TO BE CARRIED FORWARD. 4.1.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT ER IN APPEAL BEFORE LD. CIT(A) WHO HAS DELETED THIS ADDITION AND NOW, T HE REVENUE IS IN APPEAL BEFORE US. 4.1.3 LD. D.R. SUPPORTED THE ASSESSMENT ORDER. HE ALSO SUBMITTED THAT THERE IS NO EVIDENCE ABOUT MOVEMENT OF GOODS AND, T HEREFORE, ORDER OF LD. CIT(A) SHOULD BE REVERSED AND THAT OF THE A.O. SHOULD BE RESTORED. I.T.A.NOS.2097,2098,2099/AHD/2008 17 4.1.4 LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). ON REQUIREMENT OF THE BENCH, HE ALSO SUBMITTED ITEMWIS E, MONTHWISE AND PARTYWISE DETAILS OF PURCHASES AND SALE ALONG WITH QUANTITY. HE SUBMITTED THAT QUANTITIES ARE TALLYING OF THE PURCHASES AND S ALES. HE ALSO SUBMITTED THAT AS PER THESE DETAILS, THERE IS PROFIT IN RESPE CT OF LOCAL SALES AND IMPORTED ITEMS. HE ALSO SUBMITTED THAT THERE IS AL SO PROFIT IN RESPECT OF EXPORT OF ITEMS OUT OF DOMESTIC PURCHASE AND THE LO SS IS ONLY IN RESPECT OF DOMESTIC PURCHASES AND DOMESTIC SALES. HE FURTHER SUBMITTED THAT IN THE PRECEDING YEAR, I.E. ASSESSMENT YEAR 2001-02, THERE WAS SIMILAR DOMESTIC PURCHASE AND SALE AND THERE WAS PROFIT OF RS.514 LA CS DURING THAT YEAR. HE SUBMITTED THAT IF THERE IS PROFIT IN ONE YEAR AN D LOSS IN ANOTHER YEAR, IT CANNOT BE SAID THAT PROFIT IS GENUINE AND THE LOSS IS BOGUS. 4.1.5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS P ER PARA 4.4 OF HIS ORDER WHICH IS REPRODUCED BELOW: 4.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY . IT IS THE CONTENTION OF THE A.R. THAT THE A.O. HAS NOT FOUND ANY DEFECT IN THE BOOKS OF ACCOUNT OF THE APPELLANT AND THE BO OKS OF ACCOUNTS WERE AUDITED AND THE A.O. HAS NOT INVOKED PROVISION S OF SECTION 145 OF THE I.T. ACT AND HAS NOT REJECTED BOOKS OF A CCOUNTS OF THE APPELLANT. THE PURCHASES AND SALES ARE PROPERLY VOU CHED AND THE A.O. HAS NOT GIVEN ANY FINDING THAT THE PURCHASE PR ICES HAVE BEEN 'INFLATED. THE A.O. HAS NOT DETECTED ANY BOGUS PURC HASES. THE APPELLANT HAD SUBMITTED THE FULL NAMES AND ADDRESSE S AND PANS OF THE PARTIES FROM WHOM PURCHASES WERE MADE AND PARTI ES TO WHOM SALES WERE MADE. THE A.O. HAS NOT MADE ANY ENQUIRY WITH THE SUPPLIERS OF GOODS. THEREFORE, IT WAS CONTENDED THA T THE DISALLOWANCE OF LOSS WAS NOT PROPER. THE CONTENTION OF THE A.R. IS FOUND TO BE TENABLE, THE A.O. HAS DISALLOWED THE TR ADING LOSS ON THE GROUND THAT THE PURCHASES AND SALES WERE MADE TO SI STER CONCERNS AND PAPER TRANSACTIONS WERE CARRIED OUT AND NO GENU INE PURCHASES OR SALES HAVE TAKEN PLACE. I FIND THAT THE APPELLAN T HAD SUBMITTED BEFORE THE A.O. THE FULL NAMES AND ADDRESSES AND PA NS OF THE I.T.A.NOS.2097,2098,2099/AHD/2008 18 PARTIES FROM WHOM PURCHASES HAVE BEEN CARRIED OUT A ND OF THE PARTIES TO WHOM SALES WERE MADE. THE A.O. HAS NOT M ADE ANY ENQUIRY BUT HAS COME TO A CONCLUSION ON PRESUMPTION THAT THE TRANSACTIONS ARE BOGUS. FURTHER THE APPELLANT HAS E XPLAINED THAT THE AVERAGE PURCHASE PRICE OF IV FLUIDS WAS RS.1.75 PER UNIT AND AVERAGE SELLING PRICE WAS RS.1.31 PER UNIT AND THE APPELLANT HAS INCURRED LOSS OF RS.5.32 CRORES IN SALE OF IV FLUID S. CONSIDERING THESE FACTS AND ABSENCE OF PROPER' ENQUIRIES AND AN Y SUPPORTING EVIDENCE THAT THE TRANSACTIONS ARE NOT GENUINE ESPE CIALLY WHEN THE APPELLANT HAS DONE SIMILAR BUSINESS OF TRADING EQUI PMENTS, PLANTS AND MACHINERIES AND PHARMACEUTICAL PRODUCTS IN THE EARLIER YEARS AND IN THE SUBSEQUENT YEARS, THE DISALLOWANCE OF TR ADING LOSS IS HELD TO BE NOT PROPER AND HENCE THE SAME IS DELETED . 4.1.6 FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A ), WE FIND THAT IT IS NOTED BY LD. CIT(A) THAT THE A.O. HAD NOT FOUND ANY DEFECT IN THE BOOKS OF THE ASSESSEE AND THE BOOKS OF ACCOUNT WERE AUDIT ED AND THE SAME WERE NOT REJECTED BY THE A.O. THIS FINDING IS ALSO GIVE N THAT THE PURCHASES AND SALES WERE PROPERLY VOUCHED AND THE A.O. HAS NOT GI VEN ANY FINDING THAT THE PURCHASE PRICE HAD BEEN INFLATED. THIS FINDING IS ALSO GIVEN BY HIM THAT THE A.O. HAS NOT DETECTED ANY BOGUS PURCHASES. WE HAVE SEEN FROM THE DETAILS FILED BEFORE US THAT THE QUANTITY OF PU RCHASE AND SALES ARE TALLYING AND THERE IS PROFIT IN RESPECT OF IMPORTED PURCHASES AND LOCAL SALES AND LOCAL PURCHASES AND EXPORT AND THERE IS L OSS ONLY IN RESPECT OF DOMESTIC PURCHASE AND DOMESTIC SALES. IN SIMILAR T RANSACTION, IN THE PRECEDING YEAR, I.E. ASSESSMENT YEAR 2001-02, THERE WAS PROFIT OF RS.514 LACS. UNDER THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT MERELY BECAUSE THE ASSESSEE HAS INCURRED LOSS IN THE PRESE NT YEAR, IT CANNOT BE SAID THAT SUCH LOSS IS BOGUS MERELY BECAUSE THE TRA NSACTION OF PURCHASE AND SALES ARE WITH RELATED PARTIES WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD TO SHOW THAT EITHER THE PURCHASE PRICES A RE INFLATED OR THE SALES PRICES ARE DEFLATED OR THAT THE TRANSACTION IS BOGU S. ON SIMILAR TRANSACTION IN THE PRECEDING YEAR HUGE PROFIT OF RS.514 LACS WA S DECLARED BY THE I.T.A.NOS.2097,2098,2099/AHD/2008 19 ASSESSEE AND THE ALLEGATION OF THE A.O. AND THE LD. D.R. THAT THE ASSESSEE IS NOT MAINTAINING ANY OFFICE AND WAREHOUSING FACIL ITY AND ABSENCE OF EVIDENCE OF MOVEMENT OF GOODS ARE NOT CONCLUSIVE B ECAUSE THE SITUATIONS ARE THE SAME IN THE PRECEDING YEAR ALSO IN WHICH AS SESSEE HAS DECLARED HUGE PROFITS OF RS.514 LACS IN SIMILAR TRANSACTIONS WITH SIMILARLY RELATED PARTIES. BOOKS ARE NOT REJECTED BY THE A.O. AND NO DEFECT HAS BEEN POINTED OUT BY THE A.O. IN PURCHASE PRICE OR SALES PRICE OF THE GOODS TRADED BY THE ASSESSEE. CONSIDERING ALL THESE FAC TS AS DISCUSSED ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) BECAUSE THE QUANTITY OF PURCHASES AND SALES ARE ALSO TALLYI NG AND IDENTITY OF THE PARTIES WITH WHOM SUCH PURCHASES AND SALES HAVE TAK EN PLACE, IS NOT IN DOUBT AND THERE IS NO ALLEGATION REGARDING INFLATIO N OF PURCHASE PRICE OR DEFLATION OF SALES PRICE AND THE FACTS ARE NOT SHOW N TO BE DIFFERENT IN THE PRESENT YEAR AS COMPARED TO THE FACTS IN THE PRECED ING YEAR WHERE HUGE PROFITS WERE DECLARED BY THE ASSESSEE. HENCE, WE D ECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND OF THE REVENUE IS REJECTED. 4.2 GROUND NO.2 OF THE REVENUES APPEAL IS AS UNDER : 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE DISALLOWANCE OF RS.1,00,000/-OUT OF EX PENSES U/S. 14A OF THE ACT. 4.2.1 BRIEF FACTS OF THIS ISSUE TILL THE ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 5 OF HIS ORDER WHICH IS REPRODUCED B ELOW: 5. THE GROUND OF APPEAL NO.6 IS AGAINST DISALLOWANCE OF RS.1,00,000/- OUT OF EXPENSES. THE A.O. OBSERVED THAT THE APPELLANT COMPANY HAS INVESTED RS. 73,10,740/- IN T HE JOINT VENTURE MAURITIUS COMPANY M/S. CATALYS VENTURE CAPS LTD. AN D NO DIVIDEND INCOME OR ANY OTHER INCOME OR BENEFIT HAS BEEN DISCLOSED FROM THE SAID INVESTMENT. THE A.O. FURTHER OBSERV ED THAT THE APPELLANT HAD MADE FRESH INVESTMENT IN SHARE APPLI CATION TO THE EXTENT OF RS.16.04 CRORES BY WITHDRAWING FROM THE F IXED DEPOSIT OF I.T.A.NOS.2097,2098,2099/AHD/2008 20 RS.14 CRORES MADE WITH BANK . IN THE COURSE OF ASSE SSMENT PROCEEDINGS, THE A.O. ASKED THE APPELLANT TO SHOW CAUSE, WHY EXPENSES ON ACCOUNT OF INTEREST, ETC. ATTRIBUTABLE TO SUCH INVESTMENT SHOULD NOT BE DISALLOWED. WITH REGARD TO THE INVEST MENT IN THE JOINT VENTURE COMPANY OF CATALYST VENTURE CAPS LTD., THE APPELLANT EXPLAINED THAT THE INVESTMENT WAS MADE KEEPING IN V IEW THE EXPEDIENCY OF BUSINESS AND LARGER BUSINESS INTEREST OF THE COMPANY AND NON RECEIPT OF DIVIDEND CANNOT BE A REASON FOR MAKING DISALLOWANCE OUT OF EXPENSES PARTICULARLY SO WHEN T HE APPELLANT HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO THE SAID INVESTMENT WHICH IS OBVIOUS FROM THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET. AS REGARDS THE INVESTMENT IN SHARE APPLICATI ON OF RS. 16.04 CRORES, IT WAS EXPLAINED THAT THE APPELLANT COMPANY HAS NOT RECEIVED ANY INTEREST ON THE SAME AND THAT IT HAS N OT INCURRED ANY EXPENDITURE IN RELATION TO THE SAID INVESTMENT. THE A.O. HOWEVER DID NOT ACCEPT THE EXPLANATION OF THE APPELLANT AND DISALLOWED AN AMOUNT OF RS. 1,00,000/- BY INVOKING THE PROVISIONS OF SECTION 14A OF THE I.T, ACT. THE AO OBSERVED THAT THE PROV ISIONS OF SECTION 14A CLEARLY PROVIDE THAT EXPENSES INCURRED FOR EARNING EXEMPTED INCOME ARE NOT ALLOWABLE. 4.2.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MAT TER IN APPEAL BEFORE LD. CIT(A) WHO HAS DELETED THIS ADDITION AND NOW, T HE REVENUE IS IN APPEAL BEFORE US. 4.2.3 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHERE AS THE LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). 4.2.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIZ ES BELOW. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS P ER PARA 5.3 OF HIS ORDER WHICH IS REPRODUCED BELOW: 5.3 I HAVE CONSIDERED THE SUBMISSIONS OF A.R. CAREFULLY. THE A.O. HAS MADE DISALLOWANCE U/S.14A OF THE ACT IN RE SPECT OF INVESTMENT OF RS.73,10,740/- WITH JOINT VENTURE COM PANY OF CATALYST VENTURE CAPS LTD. AND IN RESPECT OF INVEST MENT IN SHARE APPLICATION MONEY OF RS.16.04 CRORES. IT IS THE CON TENTION OF THE A.R. THAT NO BORROWINGS WERE MADE FOR INVESTMENT IN THE SAID JOINT VENTURE AND THE INVESTMENT HAS BEEN MADE FORM INTER NAL ACCRUALS AND RESERVES. FROM THE BALANCE SHEET FILED BY THE I D. A.R. IT IS I.T.A.NOS.2097,2098,2099/AHD/2008 21 OBSERVED THAT THERE ARE NO BANK LOANS AND IT HAS BE EN STATED THAT ON UNSECURED LOANS NO INTEREST HAS BEEN PAID. THE INTE REST EXPENSES OF RS.30,137/- PERTAIN TO TRADING BUSINESS OF THE APPE LLANT ON ACCOUNT OF VARIOUS SERVICES RENDERED BY THE BANK FOR REALIZ ATION OF EXPORT PROCEEDS . AS CONTENDED BY THE A.R, THE APPELLANT HAS NOT RECE IVED ANY INCOME NOR THE APPELLANT HAS INCURRED ANY EXPENDITU RE WITH RESPECT TO THE ABOVE INVESTMENTS. AS THERE IS NO EXEMPTED I NCOME AND NO EXPENDITURE HAS BEEN INCURRED, I AGREE WITH THE SUB MISSIONS OF THE A.R. THAT THERE CAN BE NO DISALLOWANCE U/S.14A OF T HE ACT, ACCORDINGLY, THE DISALLOWANCE IS DELETED. 4.2.5 WE FIND THAT LD. CIT(A) HAS DELETED THIS DIS ALLOWANCE MAINLY ON THIS BASIS THAT THERE IS NO EXEMPT INCOME IN THE PR ESENT YEAR. IN OUR CONSIDERED OPINION, THIS IS NOT RELEVANT AS TO WHET HER THERE IS ANY DIVIDEND INCOME IN THE PRESENT YEAR OR NOT BECAUSE THIS IS ADMITTED FACT THAT THE ASSESSEE HAS MADE INVESTMENT OF RS.73.10 L ACS WITH JOINT VENTURE COMPANY AND FURTHER INVESTMENT OF RS.1604 LACS WAS MADE IN SHARE APPLICATION MONEY. THIS FINDING IS GIVEN BY LD. CI T(A) AND NO INTEREST BEARING FUNDS WERE USED FOR MAKING THESE INVESTMENT BUT EVEN THEN SOME DISALLOWANCE IN RESPECT OF ADMINISTRATIVE EXPENSES IS JUSTIFIED. THE A.O. HAS MADE DISALLOWANCE OF RS.1 LACS IN RESPECT OF IN TEREST EXPENDITURE AND OTHER EXPENSES. SINCE NO INTEREST EXPENDITURE IS A TTRIBUTABLE FOR THESE INVESTMENTS OUT OF TOTAL INTEREST EXPENDITURE INCUR RED BY THE ASSESSEE OF RS.30137/-, WE FEEL THAT THE DISALLOWANCE MADE BY T HE A.O. SHOULD NOT INCLUDE ANY AMOUNT IN RESPECT OF INTEREST EXPENDITU RE AND HENCE, THE DISALLOWANCE CAN BE OF BALANCE EXPENDITURE OF RS.70 ,000/- (RS.1 LACS (-) RS.30,000). CONSIDERING THE VOLUME OF INVESTMENT O F THE ASSESSEE OF RS.73.10 LACS AND RS.1604 LACS TOTAL RS.1677.10 LAC S, WE ARE OF THE CONSIDERED OPINION THAT DISALLOWANCE OF RS.70,000/- IS NOT EXCESSIVE IN THE FACTS OF THE PRESENT CASE AND HENCE, WE CONFIRM THE DISALLOWANCE TO THIS EXTENT. THIS GROUND OF REVENUE IS PARTLY ALLO WED. I.T.A.NOS.2097,2098,2099/AHD/2008 22 4.3 IN THE RESULT, THIS APPEAL OF THE REVENUE IS PA RTLY ALLOWED. 5. IN THE COMBINED RESULT, REVENUES APPEAL FOR THE ASSESSMENT YEAR 2000-01 IS DISMISSED, FOR THE ASSESSMENT YEAR 2001 -02 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND FOR THE ASSESSMENT YEA R 2002-03 IS PARTLY ALLOWED. 6. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED HEREINABOVE. SD./- SD./- (KUL BHARAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 3/7 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 4/7.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.4/7 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 20/7 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.20/7 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 20/7/12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .