The ACIT, Vapi Circle, Vapi V. Themis Medicare Ltd., Vapi

ITA 2237/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80369 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-09-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 02-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K H KAJI WITH SHRI M K KAJI
• Assessee Lawyers: ROOP CHAND
• Keywords: Depreciation; Additional depreciation; Bad and doubtful debts; Valuation report; Assessment record; Revised return; Unabsorbed depreciation; Revenue expenditure
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO: 1911 / AHD/ 20 1 0 (A SSESSMENT YEAR: 2005 - 06) THEMIS MEDICARE LTD. 11/12, UDYOG NAGAR, S.V. ROAD, GOREGAON (WEST), MUMBAI - 400104. V/S THE A.C.I.T., VAPI CIRCLE, VAPI (APPE LLANT) (RESPONDENT) ITA NOS : 2237, 2238 & 2239/AHD/2010 (ASSESSMENT YEARS: 2005 - 06 TO 2007 - 08) THE A.C.I.T., VAPI CIRCLE, VAPI V/S THEMIS MEDICARE LTD. 11/12, UDYOG NAGAR, S.V. ROAD, GOREGAON (WEST), MUMBAI - 400104. (APPELLANT) (R ESPONDENT) PAN: AABCT1183B APPELLANT BY : SHRI K.H. KAJI, WITH SHRI M.K. KAJI, ADVOCATE RESPONDENT BY : SHRI ROOP CHAND, SR. D.R. ( )/ ORDER DATE OF HEARING : 01 - 09 - 2014 DATE OF PRONOUNCEMENT : 25 - 0 9 - 2014 PER SHRI ANIL CHATURVEDI,A.M. ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 2 1. THESE ARE 4 APPEALS OF WHICH 1 IS FILED BY TH E ASSESSEE AND THE OTHER 3 ARE FILED BY THE REVE NUE AGAINST T HE ORDER OF CIT(A), VALSAD, GUJARAT DATED 16.03.2010 & 25.03.2010 FOR A.YS. 2005 - 06 TO 2007 - 08 RESPECTIVELY . 2. BEFORE US, AT THE OUTSET THE LD. A.R. SUBMITTED THAT THOUGH THE APPEALS ARE FOR 3 DIFFERENT ASSESSMENT YEARS BUT ARE OF SAME ASSESSEE AND THE FAC TS AND CIRCUMSTANCES OF ALL THE APPEALS ARE IDENTICAL EXCEPT FOR THE AMOUNTS AND THE YEAR INVOLVED AND THEREFORE THE ARGUMENTS MADE BY THEM IN CASE OF ONE APPEAL WOULD BE APPLICABLE TO THE OTHERS AND THEREFORE ALL THE APPEALS CAN BE HEARD TOGETHER. THIS S UBMISSION OF THE LD. A.R. WAS NOT OPPOSED BY LD. D.R. WE THEREFORE, FOR THE SAKE OF CONVENIENCE PROCEED TO DISPOSE OF ALL THE APPEALS BY WAY OF A CONSOLIDATED ORDER AND THUS PROCEED WITH TH E FACTS FOR A.Y. 05 - 06 . 3. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 4. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MAN U FACTURING OF PHARMACEUTICAL ITEMS. ASSESS E E FILED ITS RETURN OF INCO ME FOR A.Y. 05 - 06 ON 31.10.2005 DECLA R ING TOTAL INCOME OF RS. 1,72,37,334/ - / . THE CASE WAS SE LECTED FOR SCRUTINY AND THEREAFTER THE AS SESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 28.12.2007 AND THE TOTAL INCOME W AS DETERMINED AT RS. 4,42,47,900 / - . AGGRIEVED BY THE ORDER OF A.O , ASSESSEE CARRIED THE MATTER BEFORE CIT(A) . CIT(A) VIDE ORDER DATED 25.03.200 2 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVE D BY THE ORDER OF CIT(A) , ASSESSEE AND REVENUE ARE NOW IN APPEAL BEFO RE US AND GROUNDS RAISED BY ASSESSEE HAS READS AS UNDER : - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDIN G THAT THE LIABILITY FOR PAYMENT OF COMPENSATION OF RS. 2,55,00,000/ - ON TERMINATION OF THE DISTRIBUTORSHIP AGREEMENT WITH M/S. VIVIDH DISTRIBUTORS PVT. LTD. ACCRUED OR AROSE IN F.Y. 2005 - 06 AND WHILE DOING SO HE AMONGST OTHERS FAILED TO APPRECIATE THAT: A . THE TERMINATION OF THE AGREEMENT AS ALSO THE LIABILITY FOR PAYMENT OF COMPENSATION WAS DETERMINED AND ASCERTAINED DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2005 - 06. B. THE CONTRACTUAL LIABILITY FOR PAYMENT OF COMPENSATION AROSE IMMEDIATELY ON TERMINATIO N OF AGREEMENT IN TERMS OF CLAUSE 28 OF THE DISTRIBUTORSHIP AGREEMENT. C. IN TERMS OF CLAUSE 28, THE ASSESSEE COMPANY DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2005 - 06 HAD APPOINTED SHRI P.K.TRIVEDI, CHARTERED ACCOUNTANT TO DETERMINE AND RECOMMEND THE FAIR VALUE OF LOSS ARISING ON TERMINATION OF AGENCY. ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 3 D. IN TERMS OF REFERENCE MADE TO THE CHARTERED ACCOUNTANT, THE C.A. VIDE HER REPORT DATED 9.6.2005 HAD DETERMINED THE ESTIMATED FAIR VALUE OF LOSS OF BUSINESS AT RS . 2,55,00,000/ - AS ON THE DATE OF TERMINAT ION OF AGREEMENT. WE FIRST TAKE UP ASSESSEE S APPEAL IN ITA NO. 1911/AHD/2010. THE ONLY GROUND IS WITH RESPECT TO DISALLOWANCE OF PAYMENT OF COMPENSATION ON TERMINATION OF DISTRIBUTIORSHIP AGREEMENT. 5. D U R ING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED T HAT ASSESSE E HAD MADE PAYMENT OF RS. 255 LAC TO VIVIDH DISTRIBUTORS PVT. L TD. (VDPL) ASSOCI ATE COMPANY , TOWARDS COMPENSATION ON ACCOUNT OF T ERMINATI ON OF DISTRIBUTOR SHIP OF THE PHARMACEUTI CAL PRODUCTS FOR THE AREAS OF PATNA , RANCHI , KOLKATA, GHAZ IABAD AND DELHI. A.O NOTE D THAT THE DISTRIBUTORSHIP WAS TERMINATED VIDE LETTER DATED 16 TH JUNE, 2005 AND THE VALUATION OF LOSS OF BUS INESS OF VDPL WAS BASED ON THE VALUATION DETERMINED BY CHARTERED ACCOUNTANT. THE ASSESSEE WAS ASKED TO JUSTIFY THE PAYMEN T OF COMPENSATION. THE ASSESSEE INTERALIA SUBMITTED THAT THE PAYMENT WAS MADE ON ACCO U NT OF TERMINATION OF DISTRIBUTORSHIP AND WAS BASED ON THE FAIR VALUATION REPORT OF THE CHARTERED ACCOUNTANT. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO TH E A.O FOR THE REASON THAT THE ASSESSEE AND VDPL WERE CONTROLLED BY DR. DINESH PATEL AND HIS FAMILY MEMBERS . A.O WAS OF THE VIEW THAT VDPL WAS CREATED JUST ON PAPER AND THE COMPENSATION AWARDED B Y THE ASSESSEE WAS AN ATTEMPT ON THE PART OF ASSESSEE TO PA RT WITH THE PROFIT EAR NED TO AVOID PAYMENT OF TAX, A.O WAS ALSO OF THE VIEW THAT VDPL WAS MERELY ENGAGED IN THE BUSINESS OF TRADING OF GOODS AND DID NOT CARRY ON ANY EFFECTIVE ACTIVITY OF DISTRIBUTION, THE APPOINTMENT AS WELL AS TERMINATION LETTER WERE ALL SH AM AND COLORABLE TRANSACTION. APART FROM THE AFORESAID HE ALSO NOTED THAT THE PAYMENT WAS MADE ON THE BASIS OF THE REPORT OF CHARTERED ACCOUNTANT DATED 09.06.2005 AND THEREFORE THE LIABILITY DID NOT ACCRUE AS ON 31.03.2005 I.E. T HE YEAR UNDER CONSIDERATION . HE ACCORDINGLY DENIED THE CLAIM OF COMPENSATION PAID BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS AND THE REMAND REPORT ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 4 RECEIVED FROM ASSESSEE AND ASSESSEE S REJOINDER TO A.O S REPROT DECIDED THE ISSUE BY HOLDING AS UNDER: 5.4 I HAVE CONSIDERED THE ASSESSMENT - ORDER, THE REMAND REPORT, THE SUBMISSIONS MADE BY THE A.R. AND THE CASE LAWS RELIED UPON BY THE AO AND THE AR, HAVING REGARDS TO THE FACTS AND CIRCUMSTANCES OF TH E CASE STATED ABOVE, THE FOLLOWING ISSUES REQUIRE TO BE DECIDED IN RELATION TO THE FIRST GROUND OF APPEAL: A. WHETHER THE PAYMENTS MADE BY THE APPELLANT UNDER THE DISTRIBUTORSHIP AGREEMENT DATED 6.4.1996 WAS A GENUINE OR SHAM TRANSACTION ? B. WHETHER THE C OMPENSATION PAID BY THE APPELLANT WAS EXCESS VIS - A - VIS THE SALES/REVENUE EARNED BY THE APPELLANT THROUGH THE DISTRIBUTOR AND WHETHER THE SAID EXPENDITURE WAS A CAPITAL OR A REVENUE EXPENDITURE? C. WHETHER, THE PAYMENT OF COMPE NSATION WAS ALLOWABLE IN THE F.Y . 2004 - 05 RELEVANT TO A.Y. - 2005 - 06 ? 5.5 THE APPELLANT COMPANY HAD ENTERED INTO A DISTRIBUTORSHIP AGRE EMENT WITH VDPL ON 06.04.1996. T HE APPELLANT COMPANY HAS GIVEN DISCOUNTS/COMMISSIONS ON T HE VARIOUS P RODUCTS DISTRIBUTED BY VDPL UN DER THE DISTRIBUTO RSHIP AGREEMENT TILL SUCH TIME THE AGREEMENT WAS TERMINATED. THE DETAILS OF DISCOUNTS / COMMISSIONS GIVEN TO VDPL WAS EXAMINED IN THE ASSESSMENT ORDERS U/S. 143(3) FOR THE EARLIER YEARS. IN NONE OF THE EARLIER YEARS, THE DISCOUNTS/COMMISSIONS GIVEN BY THE APPELLANT COMPANY TO VDPL UNDER THE DISTRIBUTORSHIP AGREEMENT, HAVE BEEN DISALLOWED NOR HAVE THEY BEEN TRE ATED AS NON - GENUINE EXPENDITURE. E VEN DURING THE YEAR VDPL HAS DISTRIBUTED THE PRODUCTS OF THE APPELLANT COMPANY AND IN TERMS OF THE AGREEMENT HAS BE EN ENTITLED TO DISCOUNTS. THE A.O WHILE COMPUTING THE PROFITS OF THE BUSINESS HAS ACCEPTED THE DISCOUNTS GIVEN BY THE APPELLANT COMPANY TO VDPL FOR THE PERIOD APRIL 2005 TO JANUARY 2006. THE DISCOUNTS SO OFFERED HAVE NOT BEEN ADDED BACK TO THE TURNOVER OF THE APPELLANT COMPANY, IN NONE OF THE YEARS HAS THE A.O. DOUBTED THE NATURE OF SERVICE RENDERED BY VDPL TO THE APPELLANT COMPANY. THE FACTUM OF VARIOUS SERVICES REQUIRED TO BE RENDERED BY VDPL UNDER THE DISTRIBUTORSHIP AGREEMENT HAVE ALSO NOT BEEN DOUBTED IN THE EARLIER YEARS. ONLY IN THE YEAR OF TERMINATION OF AGREEMENT, IT COULD NOT BE SAID THAT THE ARRANGEMENT: RUNNING OVER THE LAST EIGHT YEARS WAS NOT A GENUINE BUSINESS ARRANGEMENT, ONLY FOR THE PAYMENTS EFFECTED IN TERMS OF CLAUSE 28 OF THE AGREEMENT - IN THE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE DISTRIBUTORSHIP AGREEMENT WAS SHAM ARRANGEMENT OR A NON - GENUINE ARR ANGEMENT ENTERED INTO BETWEEN T HE VDPL AND APPELLANT COMPANY. AS A COROLLARY, THE FINDINGS OF THE A.O. THAT VDPL AND THE APPELLANT COMPANY WER E CONTROLLED BY DR. DINESH S. P ATEL AND FAMILY MEMBERS AND THAT THE DISTRIBUTOR COMPANY WAS CREATED JUST ON PAPER AND THE COMPENSATION AWARDED BY THE APPELLANT COMPANY WAS AN ATTEMPT TO PART WITH THE PROFIT EARNED TO AVOID PAYMENT OF TAXES - ARE HELD TO BE NOT GERMANE TO THE ISSUE FOR DECIDING WHETHER THE AGREEMENT WITH VDPL WAS GENUINE OR NOT. THE OB SERVATIONS OF THE A.O. THAT VDP L WAS MERELY ENGAGED IN THE BUSINESS OF TRADING OF GOODS AND DID NOT CARRY ON ANY EFFECTIVE ACTIVITY OF DISTRIBUTION ARE ALSO INCORRECT IN SO FAR AS IN NONE OF THE YEARS DURING THE TIME WHEN THE AGREEMENT WAS IN SUBSISTENCE, DID THE DEPARTMENT DISBELIEVE THE TRANSACTIONS. THE A.R., AS DIRECTED BY ME, PRODUCED FOR VERIFICATION THE ANNUAL ACCOUNTS AND ASSESSMENT RE CORDS OF VDP L , FOR SOME YEARS. ON A PERUSAL OF THESE ACCOUNTS AND ASSESSMENT RECORDS, F FIND THAT VDPL HAS INCURRED VARIOUS EXPENDITURES, WHICH HAVE BEEN ALLOWED BY THE DEPARTMENT AS EXPENDITURE INCURRED DURING THE CARRYING ON OF DISTRIBUTI ON BUSINESS. FURTHER THE APPELLANT HAD GENERATED SALES/REVENUE DURING F.Y.'S 2001 - 02 TO 2004 - 05, THROUGH VDPL'S DISCOUNT MARGIN (AFTER GIVING DISCOUNTS TO THE APPROVED STOCKIEST) ON THE PHARMACEUTICAL PRODUCTS PURCHASED WAS AS UNDER: FINANCIAL YEAR TOT AL PURCHASES (RS.) GROSS PROFIT FROM DISTRIBUTION (AFTER GIVING DISCOUNT OF APPROVED STOCKIEST) (RS.) PERCENTAGE OF GROSS PROFIT TO TOTAL PURCHASES 2001 - 0 2 9,81,60,927 74,77,966 8% 2002 - 03 10,40,96,5 97 72,26,446 7% 2003 - 04 8,74,85,838 53,18,474 6% ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 5 2004 - 05 1,77, 87,389 11,28,448 7% THE TOTAL PURCHASES IN COLUMN A IN THE AFORESAID CHART REPRESENTS THE SALES MADE BY THE APPELLANT TO VDPL FOR DISTRIBUTION IN THE TERRITORY OF PATNA, RANCHI, GHAZIABAD AND KOLKATA. I. O N THE BASIS OF THESE RECORDS, IT CANNOT BE SAID THAT VDPL DID NOT CARRY ON ANY ACTIVITY UNDER THE DISTRIBUTORSHIP AGREEMENT. THE A.O. HAS ALSO OBSERVED THAT THE APPOINTMENT AS WELL AS THE TERMINATION LETTERS WERE ALL SHAM AND C OLORABLE TRANSACTIONS, ENTERED INTO WITH A VIEW TO APPROPRIATE THE FUNDS OF THE APPELLANT COMPANY TO THEIR OWN USE BY THE DIRECTORS WHO CONTROLLED THE APPELLANT COMPANY. ON THE BASIS OF THE EVIDENCE PLACED ON RECORD IT IS ESTABLISHED THAT VDPL IS AN INDEPE NDENT ENTITY WHICH HAD SET UP ITS OWN ESTABLISHMENT AND INFRASTRUCTURE FOR DISCHARGING ITS OBLIGATIONS UNDER THE DISTRIBUTORSHIP AGREEMENT. IN THESE CIRCUMSTANCES IT WOULD BE INCORRECT TO SAY THAT THE APPOINTMENT AND TERMINATION WERE SHAM AGREEMENTS ENTERE D INTO SOLELY WITH AN INTENTION OF EVADING TAXES WOULD BE INCORRECT. II. THE SECOND ASPECT THAT WHETHER THE COMPENSATION PAID BY THE APPELLANT WAS EXCESS AND WHETHER IT IS A CAPITAL OR A REVENUE EXPENDITURE. THE UNDISPUTED FACT WAS THAT APPELLANT - TERMINAT ED THE DISTRIBUTORSHIP AGREEMENT WITH VDPL. THE APPELLANT - HAD REPLACED THE DISTRIBUTOR WITH A C & F AGENT. BY TERMINATION OF THE AGREEMENT, THE APPELLANT HAS MERELY ALTERED THE EXISTING MODE OF MARKETING AND FOR THE PURPOSES OF IMPROVING THE PROFIT EARNING OF THE BUSINESS. THE APPELLANT COMPANY HAS NOT ACQUIRED ANY NEW ADVANTAGE ON ACCOUNT OF TERMINATION OF AGREEMENT AND AS SUBMITTED BY THE ID. AR THE TERMINATION WAS DECIDED BY THE MANAGEMENT TO CARRY ON THE SAME BUSINESS MORE EFFICIENTLY. THE APPELLANT WAS ALSO CONTRACTUALLY BOUND TO PAY COMPENSATION ON TERMINATION OF THE AGREEMENT. THEREFORE, IN MY OPINION THE COMPENSATION PAID WAS REVENUE IN NATURE AND DEDUCTIBLE U/S. 37(1 ) OF THE ACT. THAT LEADS TO THE SECOND LIMB OF THE SECOND ASPECT THAT WHETHER THE CO MPENSATION PAID WAS EXCESS AS HELD BY THE AO. THE ID. AR SUBMITTED DETAILS ON MY QUERY IN THIS REGARDS AS UNDER; I) IN TERMS OF CLAUSE 3 OF AGREEMENT, THE DISTRIBUTOR (VDPL) WAS ENTITLED TO DISCOUNT OF APPROX. 15% TO 18% ON VARIOUS PHARMACEUTICAL PRODUCTS PURCHASED BY VDPL. THE DISCOUNT WAS TO BE CALCULATED ON THE MRP. OUT OF THE SAID AMOUNT OF DISCOUNT, VDPL WAS ALLOWED TO PASS ON DISCOUNT OF 8% TO 10% TO THE APPROVED STOCKIST. . II) AS PER THE VALUATION REPORT OF P.K.TRIVEDI, CHARTERED ACCOUNTANT, THE ESTI MATED FAIR VALUE OF LOSS OF BUSINESS HAS BEEN WORKED OUT TO APPROX. RS. 2,55,00 , 000/ - . THE WORKING OF THIS AMOUNT IS ON THE BASIS OF THE FOLLOWING WORKING: FINANCIAL YEAR TOTAL PURCHASES (RS.) GROSS PROFIT FROM DISTRIBUTION (TO.) WEIG HT WEIGHT ED PROFITS 2001 - 02 9,81,60,927 74,77,966 1 74,77,968 2002 - 03 10,40,96,597 72,26,446 2 1,44,56,892 2003 - 04 8,74,85,838 53,18,474 3 1,59,55,422 2004 - 05 1,77.87,389 11,28,448 --- TOTAL 6 3,78,90,282 VALUE OF ESTIMATED LOSS OF FUTURE EARNINGS= WEIGHTED PROFIT X 4 WEIGHTED(6) I.E 3,78,90282 X 4 = 2,52,576,520/ - 6 III) VDPL WAS PAID COMPENSATION IN TERMS OF CLAUSE NO. 28 OF THE DISTRIBUTION AGREEMENT DATED 6.4.1996. VDPL HAS CREDITED THE COMPENSATION RECEIVED OF RS. 2,55,00,000/ - IN ITS PROFIT & LOSS ACCOUNT FOR THE YEAR ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 6 ENDED 31.3.2005. IN THE DIRECTORS REPORT TO THE MEMBERS DATED 25.8.2005, THE DIRECTORS HAVE REPORTED AS UNDER: 'DISTRIBUTORSHIP AWARDED TO THE COMPANY BY THE MIS MEDICARE LTD., HAS BEEN TERMINATED DURING THE YEAR. ACCORDINGL Y COMPENSATION OF RS. 2,55,00,000 / - (PREVIOUS YEAR NIL ) IS ALLOWED FOR LOSS OF BUSINESS VALUE, WHICH IS ACCOUNTED AS COMPENSATION RECEIVED, AS TO THE CREDIT OF PROFIT & LO SS ACCOUNT. IN VIEW OF TERMINATION OF THE DISTRIBUTORSHIP THE COMPANY H AS CLOSED ITS BRANCHES AT PATNA, R ANCHI, GHAZIABAD AND KOLKATA DURING THE YEAR. ACCORDINGLY SUNDRY DEBTORS AGGREGATING TO RS. 2,48,99,675/ - FOR THESE BRANCHES HAVE BEEN WRITTEN OFF AS BAD DEBTS BEING FOUND IRRECOVERABLE.' NOTES FORMING PART OF ACCOUNT S FUR THE R YEAR ENDING 31.3.2005 HAVE ALSO REPORTED ON SIMILAR LINES. IV) VDP L IN THE RETURN OF INCOME FILED FOR A.Y. 2005 - 06 HAVE OFFERED THE COMPENSATION RECEIPT OF RS. 2,55,00,000/ - AS INCOME UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION'. THE COPY O F ACKNOWLEDGEMENT OF RETURN OF INCOME AND COPY OF ANNUAL ACCOUNTS IS ENCLOSED HEREWITH. V) VDPL HAS WRITTEN OFF AN AMOUNT OF RS. 2,48,99,675/ - , BEING THE AMOUNT DUE FROM SUNDRY DEBTOR S OF PATNA, RANCHI, GHA ZIABAD AND KOLKATA BRANCHES AS B AD DEBTS WHICH HAD BECOME IRRECOVERABLE. DURING THE F.Y'S 2001 - 02 TO 20 04 - 05, VDPL APART FROM CARRYING ON DISTRIBUTORSHIP BUSINESS IN THE TERRITORY OF PATNA, RANCHI, GHAZIABAD AND KOLKATA WAY ALSO CARR YING ON DISTRIBUTORSHIP BUSINESS IN OTHER TERRITORIES. 5.6 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AND THE OBSERVATIONS MADE BY THE AC. I HAVE ALSO PERUSED THE REMAND REPORT SUBMITTED BY THE AO. CONSIDERING THE FACTS AND THE CIRCUMSTANCES NARRATED ABOVE I AM CONVINCED THAT THE PAYMENTS MADE BY THE APPELLANT APPEARS TO BE IN ORDER. THE AMOUNT DETERMINED BY A QUALIFIED CA BEARS CREDENTIALS IN THE ABSENCE OF ANY OTHER WORKING FOR DETERMINING THE SAID VALUE. MOREOVER, THE RECEIVER (I.E. VDPL) HAS ALSO OFFERED THE SAME AMOUNT AS INCOME. ON CLOSE LOOK AT THE AFFAIRS OF THE VDPL IT WAS NOTICED THAT VDPL WAS WORKING FOR ONLY THE APPELLANT. THE FINANCIAL STATEMENT OF VDPL SHOWS HUGE BAD DEBTS. THESE BAD DEBTS WAS FROM THE SA LE OF T HE APPELLANT. THE APPELLANT CAN NOT RECOVER THOSE DEBTS AS VDPL HAS NO CAPACITY TO RECOVER SUCH BAD DEBTS. EVEN IF IT WAS PRESUMED FOR THE SAKE OF ARGUMENT THAT THE AMOUNT PAID WAS EXCESS BUT THE BAD DEBT WOULD HAVE COME TO THE APPELLANT SOONER OR LA TER. PERHAPS THE APPELLANT BEING A PUBLIC LIMITED COMPANY COULD NOT HAVE AFFORDED TO BE IN THAT SITUATION AT A LATER STAGE. IN THIS SITUATION WE CAN NOT CONSTRUE EVEN THE REVENUE LOSS ANGLE. THEREFORE, 1 AM OF THE VIEW THAT THE PAYMENT DETERMINED IS IN ORDE R. 5.7 THE THIRD ASPECTS IS THAT WHETHER THE CLAIM OF EXPENDITURE IS ALLOWABLE IN THE F.Y. 2004 - 05 RELEVANT LO A.Y.2 00 5 - 0 6. THE ID AR SUBMITTED THAT THE APPELLANT IS FOLLOWING MERCANTILE BASIS OF ACCOUNTING. AS PER THE DISTRIBUTOR AGREEMENT DATED 6.4.1996, THE APPELLANT COMPANY, IN TERMS OF CLAUSE 28, WAS REQUIRED TO PAY COMPENSATION ON TERMINATION OF THE AGREEMENT. THE SAID AGREEMENT WAS TERMINATED WITH EFFECT FROM FEB. 2005. THE LIABILITY FOR PAYMENT OF COMPENSATION, IN TERMS OF THE AGREEMENT, THUS AROSE IN FEBRUARY 2005(I.E. FROM THE DATE OF TERMINATION OF THE AGREEMENT). THE CHARTERED ACCOUNTANT, WAS SOLELY APPOINTED BY THE APPELLANT COMPANY IN TERMS OF CLAUSE 28 OF THE AGREEMENT FOR QUANTIFYING THE COMPENSATION PAYABLE TO VDPL CONSEQUENT TO TERMINATION OF THE AGREEMENT. THE CHARTERED ACCOUNTANT SUBMITTED HER REPORT DATED 9 TH JUNE 2005 TO THE APPELLANT COMPANY. THUS, IN THE FACTS OF APPELLANT'S CASE, THOUGH THE LIABILITY WAS INCURRED PRIOR TO 31.3.2005, THE SAME STOOD ASCERTAINED AND QUANTIFIED ONLY ON 9. 6.2005. MERELY BECAUSE THE LIABILITY WAS QUANTIFIED SUBSEQUENT TO THE END OF THE YEAR, IT CANNOT BE SAID THAT THE LIABILITY ACCRUED OR AROSE IN THE SUBSEQUENT YEAR. 5.8 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE ID. AR. 1 HAVE ALSO PERUSED THE DETAILS FURNISHED BY THE ID. AR BEFORE THE AO - THE UNDISPUTED FACTS THAT THE MS, P.K.TRIVEDI, CA WAS APPOINTED TO DETERMINED AND RECOMMEND VALUE OF LOSS OF BUSINESS IN CONNECTION WITH THE TERMINATION OF DISTRIBUTORSHIP OF VDPL. WHAT WAS IN THE DISPUTE WAS THAT THE EXPENDITURE CLAIMED WAS FOR THE F.Y.2004 - 05 RELEVANT TO THE A.Y. 2005 - 06. WHILE GOING THROUGH THE SUBMISSIONS 1 NOTICED A LETTER DATED I6 TH JUNE 2005 WRITTEN BY THE APPELLANT TO VDPL. THE MAIN CONTENT OF THE SAID LETTER WAS FORWARDING A COPY OF T HE RECOMMENDATION REPORT PREPARED BY MS, P. K. TRIVEDI. IN THE SAID LETTER INTER - ALIA MENTIONED THAT ' WE WOULD LIKE TO PUT ON RECORD, THE ROUND OF DISCUSSION WE HAD WITH YOU ON SEVERAL OCCASIONS WITH ,REGARDS TO TERMINATION OF YOUR DISTRIBUTORSHIPS OF OUR PHARMACEUTICAL PRODUCTS IN THE ABOVE MENTIONED AREAS'. THE CATCH IS THAT WHEN THE APPELLANT WAS ASKED TO SUBMIT DETAILS OF DISCUSSIONS HELD WITH VDPL WITH EVIDENCES, THE APPELLANT FAILED TO SUBMIT BEFORE ME ANY SUCH EVIDENCES. NEEDLESS TO MENTION THAT THE APPELLANT IS A PUBLIC LIMITED COMPANY AND ANY SUCH DECISIONS WITH HUGE FINANCIAL IMPLICATION CAN NOT BE DONE ORALLY OR WITHOUT PROPER RECORDING. SECONDLY, NO EVIDENCE WAS PRODUCED BEFORE ME REGARDING EVENTS LED TO THE APPOINT MS. P.K.TRIVEDI. THIRDLY, THE TERMS AND CONDITIONS FOR APPOINTMENT OF MS. TRIVEDI WAS NOT PRODUCED BEFORE ME. IT IS INCONCEIVABLE THAT THE PUBLIC LTD. COMPANY CAN APPOINT THE INDEPENDENT VALUER IN SUCH MANNER. THE VALUATION REPORT BY MS. TRIVEDI ALSO DOES NOT INDICATE THE DATE ETC. NO COMMUNICATION BETWEEN THE ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 7 APPELLANT AND THE VDPL WAS FURNISHED EITHER BEFORE AO OR BEFO RE ME. ON FURTHER PERUSAL OF RE CORDS IT CAN BE CLEARLY SEEN THAT THE PLANNING WAS EFFECTED DUE TO THE AMALGAMATION ORDER DATED. 26 LH MARCH, 2004 PASSED BY THE HON'BLE GU JARAT HC ALLOWING MERGER OF M/S. ARTEMIS BIOTECH LTD, A COMPANY REGISTERED AT. HYDERABAD WITH THE APPELLANT. THE EQUITY SHARES HELD BY THE APPELLANT IN M/S. ARTEMIS BIOTECH LTD RESULTED IN THE NET GAIN O F RS.250 2 LAKHS TO THE APPELLANT COMPANY. THE PLANNIN G FOR CANCELLATION OF DISTRIBUTORSHIP STARTED THERE AFTER. THERE MAY HAVE BEEN DISCUSSION IN THE MONTH OF MARCH'04 FOR C ANCELLATION OF DISTRIBUTORSHIP B UT IT WAS FINALIZED IN THE YEAR 2005 - 06 WHICH WAS CULMINATED AFTER THE VALUATION REPORT WAS FURNISHED AND ACCEPTED BY THE PARTIES. HOW CAN THERE BE A SETTLEMENT WITHOUT KNOWING THE VALUE OR WITHOUT QUANTIFICATION. IN THIS CIRCUMSTANCES, I HAVE NO HESITATION TO HOLD THAT THE EXPENDITURE FOR PAYMENT OF COMPENSATION WILL BE ALLOWED IN THE F.Y. 2005 - 06 RELEVANT T O THE A.Y. 2006 - 07. 5.9 IN SUMMARY, THIS GROUND OF APPEAL WAS PARTLY ALLOWED 6. AGGRIEVED BY THE ORDER OF LD CIT(A) , ASSESSEE IS NOW IN APPEAL BEFORE US. 7. BEFORE US, LD A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND CIT(A). HE FURTHER SUBMITTED THAT ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND ON TERMINATION OF THE DISTRIBUTORSHIP , THE LIABILITY ACCRUED IN F.Y. 04 - 05 RELEVANT TO A.Y. 05 - 06 AND WAS THEREFORE THE EXPENSES WAS ALLOWABLE AS DEDUCTION IN A.Y. 05 - 06. HE FURTHER POINTED TO CLAU SE 28 OF THE DISTRIBUTION AGREEMENT DATED 06.04.1996 WITH RESPECT TO THE PAYMENT OF COMPENSATION BY THE ASSESSEE IN THE EVENTUALITY OF TERMINATION OF DISTRIBUTORSHIP. HE ALSO RELIED ON THE VARIOUS DECISIONS NAMELY PUNA ELECTRIC SUPPLY CO. LTD. VS. CIT 1965 56 ITR 29, CIT VS. MEHSANA DISTRICT CO - OP . MILK PRODUCES UNION LTD. 2005 195 CTR 385 GUJARAT, CALCUTTA CO. LTD. VS. CIT 1959 37 ITR 1 (SC), METAL BOX CO. OF INDIA LTD. VS. THEIR WORKMAN 1969 73 ITR 53 (SC). THE LD D.R. ON THE OTHER HAND SUPPORTED THE ORDE R OF A.O. AND SUBMITTED THAT THE EXPE NSE WAS NOT AT ALL ALLOWABLE IN VIEW OF THE VARIOUS OBSERVATION S OF A.O. HE THUS SUPPORTED THE ORDER OF A.O. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ALL OW ABILITY OF PAYMENT OF COMPENSATION ON ACCOUNT OF TERMINATI ON OF DISTRIBUTORSHIP AGREEMENT WHICH THE ASSESSEE HAD PAID TO VIVIDH DISTRIBUTORS P. LTD. (VDPL) WE FIND THAT CIT(A) HAS GIVEN A FINDING THAT THE DISCOUNT S OFFERED BY THE ASSESSEE TO VDPL IN THE PAST AND TILL SUCH TIME THE AGREEMENT WAS TERMINATED HAS BEEN ACCEPTED BY THE A.O AND HAS NOT ADDED BACK TO THE TURNOVER OF THE ASSESSEE AND THE A.O HAS NOT DOUBTED THE NATURE OF ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 8 SERVICES RENDERED BY VDPL TO THE ASSESSEE IN EARLIER YEARS. HE HAS ALSO NOTE D THAT THE EXPENDITURE INCURRED BY VDPL ALSO HAS BEEN ALLOWED BY THE DEPARTMENT. HE HA S THUS GIVEN A FINDING THAT IT CANNOT BE SAID THAT VDPL DID NOT CARRY ON ANY ACTIVITY UNDER THE DISTRIBUTORSHIP AGREEMENT AND FURTHER IT WOULD BE INCORRECT TO SAY THAT TH E APPOINTMENT AND TERMINATION WERE SHAM AGREEMENT ENTERED INTO SOLELY WITH THE INTENTION OF EVADING TAX. WITH RESPECT TO THE ALLOW ABILITY OF CLAIM OF EXPENDITURE IN A.Y. 05 - 06, CIT(A) HAS NOTED THAT DISCUSSIONS WITH REGARD TO TERMINATION OF THE DISTRIBUTOR SHIP. HE HAS FURTHER NOTED THAT NO EVIDENCE WAS PRODUCED BY THE ASSESSEE REGARDING THE EVENTS WHICH LED TO THE APPOINTMENT OF MR. TRIVEDI AND THE TERMS AND CONDITIONS OF HIS APPOINTMENT. HE HAS FURTHER NOTED THAT NO COMMUNICATION BETWEEN THE ASSESSEE AND VDPL WAS FURNISHED EITHER BEFORE A.O OR BEFORE HIM. ASSESSEE HAD FAILED TO SUBMIT THE DETAILS OF THE DISCUSSION HELD WITH P.K. TRIVEDI, THE CHARTERED ACCOUNTANT THE DISCUSSIONS WITH REGARD TO TERMINATION OF THE DISTRIBUTORSHIP . ON SPECIFIC QUERY OF THE BENCH THE LD A./R. SUBMITTED THAT THERE WAS NO LETTER OF TERMINA TION ISSUED BY THE ASSESSEE TO VDPL. BEFORE US, THE ASSESSEE HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF CIT(A). WE FURTHER FIND THAT THE CASE WAS RELIED BY THE ASSESS EE ARE DISTINGUISHABLE ON FACTS AND DO NOT APPLY TO THE PRESENT FACTS. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF ASSESSEE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ITA NO. 2237/A/2010 (REVENUE S APPEAL ) 10. THE GROUND S RAISED BY REVENUE ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF COMPENSATION PAID AMOUNTING TO RS.2,55,00,000/ - WITHOUT CONSIDERING THE FACTS BROUGHT - IN BY THE AO IN ITS ENTIRETY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN THE GRANTING RELIEF IN RESPECT OF BELATED PAYMENTS OF PF AMOUNTING TO RS.76,354 / - IN RESPECT O F EMPLOYEES CONTRIBUTION, WITHOUT CONSIDERING THE FACT THAT PAYMENTS OF SUCH PF WERE MADE BEYOND THE DUE DATE OF THE RESPECTIVE MONTHS I.E. 15 TH /20 TH OF THE MONTH. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID, CIT(A) HAS ERRED IN DELETI NG THE DISALLOWANCE OF RS.2,67,357/ - IN RESPECT OF FOREIGN TRAVEL EXPENDITURE, WITHOUT CONSIDERING THE FACT THAT THE ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 9 ASSESSEE FAILED TO JUSTIFY THAT THE EXPENDITURE WAS INCURRED WHOLLY, EXCLUSIVELY AND NECESSARILY FOR THE PURPOSE OF BUSINESS. 4. IT IS, THE REFORE, PRAYED THAT THE ORDER OF THE LEARNED CIT(A) BE SET ASIDE AND THAT THE ORDER OF THE AO BE RESTORED. 11. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE GROUND NO. 1 OF PRESENT APPEAL IS INTERCONNECTED WITH GROUND NO. 1 OF ASSESSEE S APPEAL IN ITA NO. 19 11/AHD/2011. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON REOCORD. BEFORE US, BOTH THE PARTIES HAVE SUBMITTED THAT THE PRESENT GROUND IS CONNECTED WITH GROUND NO. 1 OF ASSESSEE S APPEAL IN ITA NO. 1911/AHD/2010. WHILE DECIDING THE ASSE SSEE S APPEAL IN ITA NO. 1911/AHD/2010, THE GROUND WAS DISMISSED. WE THEREFORE FOR THE SAME REASONS STATED WHILE DECIDING THE GROUND NO. 1 OF ASSESSEE S APPEAL IN ITA NO. 1911/AHD/2010 HEREINABOVE ALSO DISMISS THE PRESENT GROUND. GROUND NO. 2 IS WITH RES PECT TO DELETION OF ADDITION ON ACCOUNT OF EMPLOYEES CONTRIBUTION OF PROVIDENT FUND. 13. DUR ING THE COURSE OF ASSESSMENT PROC EEDINGS, A.O NOTICED THAT ASSESSEE HAS DEPOSITED EMPLOYEES CONTRIBUTION OF PROVIDENT FUND BEYOND T HE TIME LIMIT SPECIFIED IN THE A CT AND THE AGGREGATE AMOUNT OF SUCH DELAYED DEPOSITS WAS RS. 76,354/ - . A.O W AS OF THE VIEW THAT ASSESSEE WAS REQUIRED TO DEPOSIT THE EMPLOYEES CONTRIBUTION WITHIN THE TIME PRESCRIBED UNDER THE ACT AND SINCE THERE WAS DELAY IN ITS DEPOSITS HE DISALLOWED THE BELATED PAYMENT AMOUNTING TO RS. 76,354/ - . AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITIO N BY HOLDING AS UNDER: - 7.1 THE ISSUE REGARDING THE DEDUCIBILITY U/S. 438 OF BELATED PAYMENT OF EMPLOYERS CONTRI BUTION TO PF IS NOW SETTLED AS PER THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V ALOM EXTRUSIONS LTD. 319 ITR 306 (SC) WHEREIN THE HON'BLE SC HELD THAT IN CASE THE PAYMENT OF EMPLOY ERS CONTRIBUTION LO PF IS BEYOND THE DUE DATE, THEN ALSO T HE DEDUCTION IS AVAILABLE U/S. 43B IN CASE THE CONTRIBUTIONS HAVE BEEN PAID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SC, I DIRECT THE AO TO DELETE THE ADDITION MADE IN THIS GROUND OF APPEAL. ACCO RDINGLY, THIS GROUND OF APPEAL IS ALLOWED. 14. AGG RIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 10 15. B EFORE US AT THE OUTSET THE LD A. R . SUBMITTED THAT THE PRESENT ISSUE IS COVERED AGAINST THE ASSES SEE IN VIEW OF THE DECISION OF H ON BLE HIGH COURT IN A SSESSEE S OWN CASE. HE PLACED ON RECORD THE COPY OF THE DECISION OF HON BLE GUJARAT HIGH COUR T IN TAX APPEAL NO . 785 & 786/A/08 ORDER DATED 26. 12.2013. THE LD D. R ON THE OTHER HAND SUPPORTED THE ORDER OF A.O. 16. WE HAVE HEARD THE RIVAL SUBMISSION S AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE ABOUT BELATED PAYMENT OF EMPLOYEES CONTRIBUTION OF PF WAS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY HON BLE GUJARAT HIGH COURT IN ASSESSEE S OWN CASE IN TAX APPEAL NO. 785/A/05 (SUPR A) BY HOLDING AS UNDER: - 5. HAVING HEARD SHRI SUDHIR MEHTA, LEARNED ADVOCATE FOR THE REVENUE AND SHRI KAJI, LEARNED ADVOCATE FOR THE ASSESSEE SO FAR AS QUESTION NO. A I.E. WHETHER ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW WAS THE APPELLA TE TRIBUNAL RIG HT IN HOLDING THAT PAYMENTS OF PF AND ESIC PAID BEYOND THE DUE DATES OF THE RESPECTIVE ACTS, INCLUDING T HE GRACE PERIOD, WERE ELIGIBLE F OR DEDUCTION U/S 43B OF THE ACT IS CONCERNED, CONSIDERING THE FACT THAT IT WAS THE CASE OF EMPLOYEES CON TRIBUTION WHICH WAS NOT DEPOSITED WITHIN THE PRESCRIBED PERIOD UNDER THE PF ACT AND ESI ACT, THE SAID QUESTION / ISSUE IS TO BE HELD IN FAVOUR OF REVENUE AND AGAINST THE ASSESSES IN VIEW OF THE DECISION OF THIS C OURT IN TAX APPEAL NO.637 OF 20 13 AND OTHER ALLIED MATTERS. IN THE SAID DECISION IT HAS BEEN HELD THAT IF THE ASSESSEE HAS NOT DEPOSITED EM PLOYEES CONTRIBUTION TOWARDS PF AND ESIC ACT, THE ASSESSEE SHALL NOT BE ENTITLED TO THE DEDUCTI ONS IN THE SAME YEAR. APPLYING T HE RATIO AND LAW LAID DOWN BY THE DIVISION BENCH OF THIS CO URT IN TAX APPEAL NO. 637 OF 20 13, QUESTION NO. A IS HELD IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 17. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF HON BLE GUJARAT HIGH COURT IN ASSESSEE S OWN CASE IN EARLIER YEAR W E ARE OF THE VIEW THAT A.O HAD RIGHTLY DISALLOWED THE BELATED PAYMENT OF EMPLOYEES SHARE OF PROVIDENT FUND. THUS THIS GROUND OF REVENUE IS ALLOWED. GROUND NO. 3 IS WITH RESPECT TO DELET ING THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSES. 18. A.O NOTICED THAT ASSES SEE HAD DEBITED RS. 26, 73,520/ - UNDER THE HEAD FOREIGN TRAVEL EXPENSES. AO N OTED THAT ASSESSEE COULD NOT GIV E ANY JUSTIFICATION REGARDING THE VISIT AS WELL AS THE JUSTIFICA TION OF THE NUMBER OF DAYS STAY AND IN ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 11 PARTICULAR AS TO WHETHER THE VISIT WAS FOR TH E PURPOSE OF BUSINESS. HE WAS THEREFORE OF THE VIEW THAT THE EXPENSES WERE NOT FULLY VERIFIABLE AND ACCORDINGLY DISALLOWED 1/10 TH OF THE EXPEND IT U R E AMOUNTING TO RS. 2,67,352/ - . AGGR IEVED BY THE ORDER OF A.O, ASSES SEE CARRIED THE MATTER B E FORE CIT(A). CIT( A) DELETED THE ADDIT ION BY HOLDING AS UNDER: 9. GROUND. NO. 5 : THE FIFTH GROUND IN APPEAL IS REGARDING THE DISALLOWANCE OF RS. 2,6 7 ,352/ - OUT OF THE FOREIGN TRAVELING EXPENSES. THE A.O. HAS DISALLOWED THE EXPENSES FOR WANT OF PROPER EXPLANATION AND JUSTIF ICATION. THE A.O. CALLED UPON THE APPELLANT TO GIVE EXPLANATION/JUSTIFICATION OF THE STAY OF PARTICULAR PERSON IN A PARTICULAR CITY, THE PURPOSE TO WHICH THE VISIT WAS CARRIED OUT ETC. THE A.R. SUBMITTED THAT ENTIRE EXPENDITURE WAS INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSES OF APPELLANTS BUSINESS. HE FURTHER SUBMITTED THAT THE ENTIRE DETAILS REGARDING THE CLAIM OF EXPENSES WERE FILED/SUBMITTED BEFORE THE A,O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. FROM THE PERUSAL OF THE DETAILS FILED BEFORE THE A.O., I FIND THAT THE APPELLANT COMPANY HAD GIVEN THE DETAILS OF THE PERSONS WHO HAD UNDERTAKEN THE VISITS, THE NUMBER OF DAYS THEY RESIDED IN VARIOUS COUNTRIES, THE DATES OF TRIP, THE PURPOSE FOR THE VISITS AND THE NATURE OF EXPENSES INCURRED. NONE OF TH ESE DETAI LS HAVE BEEN DISPUTED BY THE AO. . CALLING UPON AN EXPORTER TO EXPLAIN THE DATE WISE JUSTIFICATION OF THE STAY AS ALSO THE SPECIFIC PURPOSE OF THE VISIT WOULD BE IMPROPER UNLESS IT IS PROVEN THAT THE EXPENSES CLA IMED ARE IMPROPER AND NOT INCURR ED F OR THE PURPOSES OF THE BUSINESS. IN THE CIRCUMSTANCES, THE DISALLOWANCE OF 10% OF FOREIGN TRAVEL EXPENSES IS DELETED - THE APPELLANT SUCCEEDS ON THIS GROUND OF APPEAL. 19. AGGRIEVED BY THE ORDER OF LD CIT(A) REVENUE IS NOW IN APPEAL B E FORE US, BEFORE US, LD D .R. RELIED ON THE ORDER OF A.O AND O N THE OTHER HAND LD A.R. SUPPORTED THE ORDER OF CIT(A). 20. WE HAVE HEARD THE R IVAL SUBMISSIONS AND WE FIND T HAT CIT(A) WHILE DELETING THE ADDITION HAS NOTED THAT ASSESSEE HAS GIVEN THE DETAILS OF THE PERSONS WHO HAD UNDE RTAKEN THE VISITS , THE NUMBER O F DAYS , THE DATES OF TRIPS , THE P U R POSE OF VISITS AND THE NATURE OF EXPENSES. HE HAS FURTHER NOTED THAT A.O HAS NOT POINTED ANY EXPENSES WHICH ARE NOT ALLOWABLE. BEFORE US, REVENUE COULD NOT CONTROVERT THE FINDINGS OF CIT(A) W E THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT (A) AND THUS THIS GROUND OF REV E N UE IS DISMISSED. 21. IN THE RESULT, TH E APPEAL OF REVENUE IS PARTLY ALLOWED . ITA NO. 2238/A/2010 A.Y.06 - 07 DEPARTMENT APPEAL ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 12 22. THE GROUNDS RAIS ED BY REVENUE READS AS UNDER: - 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO ALLOW CLAIM OF THE ASSESSEE IN RESPECT OF ADDITIONAL DEPRECIATION, AMOUNTING TO RS.49,37,170/ - 2.ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO ALLOW CLAIM OF COMPENSATION AMOUNTING TO RS.2,55,00,000/ - , EVEN THOUGH IT WAS A SHAM TRANSACTION ARRANGED BY THE SAME GROUP OF PEOPLE AND WITHOUT CONSIDERING THE FACTS BROUGHT - N BY THE AO IN ITS ENTIRETY. 3.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED DIRECTING THE ALLOW THE CLAIM OF COMPENSATION IN A.Y. 2006 - 07 INSTEAD OF IN A.Y. 2005 - 06, EVEN THOUGH THE LIABILITY WAS CRYSTALLIZED IN FEBRUARY, 2005. 4.IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LEARNED CIT(A) BE SET ASIDE AND THAT THE ORDER OF THE AO BE RESTORED. GROUND NO. 1 IS WITH RESPECT TO ALLOWANCE OF ADDITIONAL DEPRECIATION AMOUNTING TO RS. 47,37,170/ - . 23. DURING THE YEAR UNDER CONSIDE RATION ASSESSEE HAD SHOWN ADDITION TO PLANT AND MA CHINERY OF RS. 4,96,28,383/ - AND HAD ALSO CLAIMED DEPRECIATION ON AFORESAID ADDITIONS . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE VIDE LETTER DATED 24.10.20 08 REQUESTED THAT ADDITIONAL DE PRECIATI ON AT 20% OF NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED AFTER 31.03.2005 BE GRANTED. A.O DID NOT TAKE COGNIZANCE OF THE CLAIM FOR ADDITIONAL DEPRECIATION. AGGRIEVED BY THE DENIAL OF CLAIM OF ADDITIONAL DEPRECIATION , ASSESSEE CARRIED THE MATTER BEFORE C IT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ALLOWED THE CLAIM OF ASSESSEE BY HOLD ING AS UNDER: - 6.2 1 HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. I FIND THAT THE A.O. HAS NOT DISCUSSED THE ISSUE RELATING TO THE CLAIM OF THE APPE LLANT FOR GRANT OF ADDITIONAL DEPRECIATION U/S. 32(I)(IIA). HOWEVER, WHILE FRAMING THE ASSESSMENT, THE A.O. HAS CONSIDERED THE ISSUE OF ADDITION TO PLANT & MACHINERY AS ALSO WHETHER THE SAME WAS PUT TO USE. THE A.O. HAS ALLOWED DEPRECIATION ON THE NEW PLAN T & MACHINERY ACQUIRED AND INSTALLED AFTER 31.3.2005. THERE IS NO DISPUTE THAT THE NEW PLANT & MACHINERY WERE INSTALLED AND PUT TO USE DURING THE RELEVANT F.Y. THE NEWLY SUBSTITUTED SEC. 32(I)(IIA) ENVISAGES THAT IN THE CASE OF ANY NEW MACHINERY OR PLANT ( OTHER THAN SHIP AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER 31 DAY OF MARCH 2005, BY AN APPELLANT ENGAGED IN THE BUSINESS O F MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING, A. FURTHER SUM EQUAL TO 20% OF ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II). IN THE CIRCUMSTANCES, THE A.O, WAS BOUND TO ALLOW THE CLAIM OF ADDITIONAL DEPRECIATION U/S. 32(I)(IIA) ON THE NEW PLANT & MACHINERY ACQUIRED AND INSTALLED. RESULTANTLY THE CLAIM OF THE APPELLANT FOR AD DITIONAL DEPRECIATION U/S. 32(I)(IIA) OF RS. 49,37,170 / - IS ALLOWED AND THE APPELLANT SUCCEEDS ON THIS GROUND. 24. AGGRIEVED BY THE ORDER OF LD CIT(A) , REVENUE IS NOW IN APPEAL BEFORE US. ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 13 25. BEFORE US, LD D.R. SUBMITTED THAT ASSESSEE SHOULD HAVE CLAIMED ADDIT IONAL DEPRECIATION IN THE RETURN OF INCOME BUT THE SAME WAS NOT CLAIMED AND THEREFORE A.O WAS FULLY JUSTIFIED IN DENYING THE CLAIM OF ADDITIONAL DEPRECIATION. HE THUS SUPPORTED THE ORDER OF A.O. LD A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEF ORE CIT(A) AND SUPPORTED HIS ORDER. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE GRANTING THE RELIEF TO THE ASSESSEE HAS NOTED THAT THE NEW PLANT AND MACHINERY WERE ACQUIRED AND INSTALLED AFTER 31.03.2005 IS NOT IN DISPUT E. HE FURTHER NOTED THAT NEWLY SUBSTITUTED SECTION 32(1)(II A) ENVISAGED ADDITIONAL DEPRECIATION AT 20%. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDING OF CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A)AND THUS THIS GR OUND OF REVENUE IS DISMISSED. GROUND NO. 2 & 3 ARE INTERCONNECTED AND THEREFORE CONSIDERED TOGETHER. 27. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON REOCORD. BEFORE US, BOTH THE PARTIES HAVE SUBMITTED THAT THE PRESENT GROUND IS CONNECTED WITH GROUND NO. 1 OF ASSESSEE S APPEAL IN ITA NO. 1911/AHD/2010. WHILE DECIDING THE ASSESSEE S APPEAL IN ITA NO. 1911/AHD/2010, THE GROUND WAS DISMISSED. WE THEREFORE FOR THE SAME REASONS STATED WHILE DECIDING THE GROUND NO. 1 OF ASSESSEE S APPEAL IN ITA NO. 1911/AHD/2010 HEREINABOVE ALSO DISMISS THE PRESENT GROUND. 28. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO. 2239/A/2010 A.Y. 07 - 08 DEPARTMENT S APPEAL 29. THE GROUNDS RAISED BY REVE NUE READS AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO ALLOW INCORRECT SET OFF OF UNABSORBED DEPRECIATION OF RS. 47,43, 559/ - . 2. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LEARNED CI T(A) BE SET ASIDE AND THAT THE ORDER OF THE AO BE RESTORED. ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 14 30. ASSESSEE HAD FILED RETURN OF INCOME FOR A.Y. 07 - 08 ON 29.10.2007 DECLARING TOTAL INCOME OF RS. 3,62,62,490/ - UNDER THE NORMAL PROVISIONS OF THE ACT. ASSESSEE THEREAFTER FILED REVISED RETURN OF IN COME ON 9.3.2009 WHEREIN THE NORMAL INCOME W AS DISCLOSED AS 3,46,34,305/ - . T HE REASONS FOR REVISING THE RETURN INTERALIA SUBMITTED BY THE ASSESSEE WAS THAT IT HAD INADVERTENTLY NOT CLAIMED THE SET OFF OF BROUGHT FORWARD LOSS O F A.Y. 06 - 07 ON RS. 67,79,768/ - AND THE SAME WAS NOW CLAIMED. THE A SSESSEE S CLAIM OF SET OFF OF BROUGHT FORWARD LOSS WAS NOT ACCEPTED BY THE A.O. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 25.03.2010 ALLOWED THE APPEAL OF THE ASSE SSEE BY HOLDING AS UNDER: - 5 GROUNDS NO. 1: THE FIRST GROUND OF APPEAL RELATES TO THE NON SET - OFF OF BROUGHT FORWARD LOSS. THE APPELLANT HAS CLAIMED THAT THE A,O. OUGHT TO HAVE SET - OFF THE ENTIRE BROUGH T FORWARD LOSS OF RS. 67.79,768/ - WHICH WAS COMPUTED I N THE RETURN OF INCOME FILED FOR A.Y. 2006 - 07. THE ID. A.R SUBMITTED THAT THERE WERE VARIOUS ADDITIONS / DISALLOWANCES MADE IN THE ASSESSMENT ORDER PASSED U/S. 143(3) OF EARLIER YEARS ON ACCOUNT OF WHICH THE CLAIM OF SET - OFF OF BROUGHT FORWARD LOSSES WERE RESTRICTED BY THE A.O., WITHOUT CONSIDERING THE CHANGES UNDERGONE IN THE CARRY FORWARD POSITION, IN THE IMPUGNED ASSESSMENT ORDER IN APPEAL . I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. THE GROUND TAKEN RELATES TO THE INCORRECT APPLICATION OF CARRY FORWARD SET OFF BY THE AO. I HAVE ALREADY DISPOSED OFF THE APPEALS FILED BY THE APPELLANT FOR THE EARLIER YEARS. THE A.O. IS ACCORDINGLY DIRECTED TO RE - COMPUTE THE AMOUNT OF BROUGHT FORWARD LOSSES AS DETERMINED IN THE ORDERS PASSED WHILE GIVING EFFECT TO MY APPELLATE ORDER FOR EARLIER YEARS AND TO ALLOW SET OFF OF THE BROUGHT FORWARD LOSSES IN ACCORDANCE WITH LAW WHILE COMPUTING THE TOTAL INCOME OF THE APPELLANT FOR THE IMPUGNED YEAR IN APPEAL. SUBJECT TO THE AFORESAID DIRECTIONS THE APPEAL ON THIS GROUND IS ALLOWED 31. AGGRIEVED BY THE ORDER OF LD CIT(A) REVENUE IS NOW IN APPEAL BEFORE US. 32. BEFORE US, LD D.R. RELIED ON THE ORDER OF A.O . O N THE OTHER HAND LD A.R. SUPPORTED HIS ORDER OF CIT(A). 33. WE HAVE HEARD THE RIVAL SUBMISSIONS AN D PERUSED THE MATERIAL ON RECOR D. WE FIND THAT CIT(A) BY WELL REASONED ORDE R HAD ALLOWED THE CLAIM OF THE A SSESSEE. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE ITA NO S. 1911/A/2010 & 2237 TO 2239/A/10 . A.Y S . 2005 - 06 TO 2007 - 08 15 FINDINGS OF CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A). AND THUS THIS GROUND OF REVENUE IS DISMISSED. 34. THUS THE APPEAL OF REVENUE IS DISMISSED. 35. IN THE RE SULT, THE APPEAL OF REVENUE ( ITA NO. 2237/AHD/2010 FOR A.Y. 2005 - 06 IS ALLOWED AND THE OTHER APPEALS OF REVENUE AND ASSESSEE ARE DISMISSED. ORDER PRONOU NCED IN OPEN COURT ON 25 - 0 9 - 201 4 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD