The DCIT, Circle-1(2), Baroda V. Jewel Consumer Care Pvt.Ltd., Baroda

ITA 2616/AHD/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94834 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-09-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 06-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P MAURYA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Unexplained cash credit; Business income; Depreciation; Additional evidence; Cost of acquisition; Bad and doubtful debts; Corroborative evidences; Royalty expenses; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB; 37(1); 37; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE S/SHRI KUL BHARAT, JM, & MANISH BORAD, AM. ITA NO.2615 & 2616/AHD/2010 ASST. YEARS:2004-05 & 2005-06 DY. CIT, CIR-1(2), BARODA. VS JEWEL CONSUMER CARE PVT. LTD., (ON BEHALF OF CORONET PRODUCTS PVT. LTD.) SUBHAAG B/15-16, RAMIN PARK, OLD PADRA ROAD, BARODA.. (APPELLANT) (RESPONDENT) PA NO.AABCC 5697K/AABCC5637K APPELLANT BY SHRI R.P. MAURYA, SR.DR RESPONDENT BY SHRI S. N. SOPARKAR, AR DATE OF HEARING: 9.9.2015 DATE OF PRONOUNCEMENT: 08/12/2015 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THESE TWO APPEALS BY THE REVENUE, ITA NO.2615/AHD/ 2010 IS DIRECTED AGAINST ORDER DATED 21.05.2010 PASSED BY T HE CIT(A)-I, BARODA, WHEREIN ASSESSMENT WAS FRAMED FOR ASST. YEA R 2004-05 ON 28.12.2006 U/S 143(3) OF THE INCOME-TAX ACT, 1961 ( IN SHORT THE ACT) BY ACIT, CIRCLE-1(1), BARODA AND ITA NO.2616/AHD/20 10 IS DIRECTED AGAINST THE ORDER OF CIT(A)-1, BARODA, DATED 25.5.2 010 FOR ASST. YEAR 2005-06 WHEREIN ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT ON 20/12/2007 BY DCIT, CIRCLE-1(1), BARODA. AS THE GRO UNDS RAISED IN BOTH THESE APPEALS ARE MOSTLY COMMON AND THE ASSESS EE IS SAME ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 2 THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP APPEAL IN ITA NO.2615/AHD/2010 FOR AY 2004- 05. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PLASTIC MOULDED PR ODUCTS, HOUSEHOLD BRUSHES, TOOTHBRUSHES, KITCHEN SCRUBBERS ETC. IN THE NAME OF CORONET PRODUCTS PVT. LTD. HOWEVER, THE APPEAL H AS BEEN FILED BY JEWEL CONSUMER CARE PVT. LTD. FOR AND ON BEHALF OF CORONET PRODUCTS PVT. LTD. RETURN OF INCOME FOR ASST. YEAR 2004-05 W AS FILED ON 30.10.2004 DECLARING TOTAL LOSS OF RS.1,44,22,082/- . THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143 (2) WAS ISSUED ON 1.8.2005. ASSESSMENT WAS COMPLETED BY MAKING AN ADD ITION OF RS.18,89,228/- AND LOSS WAS ASSESSED AT RS.125,46,2 62/- WHEREAS BOOK PROFIT WHICH WAS COMPUTED BY ASSESSEE IN THE I NCOME-TAX RETURN AT RS.25,84,151/- WAS ASSESSED AT NIL BY ASSESSING OFFICER. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE CIT(A) AND GOT PART RELIEF AND THEREAFTER ASSESSEE HAS NOT PREFERRED AN Y FURTHER APPEAL WHEREAS REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. FIRST WE TAKE UP GROUND NO.1 (REVISED GROUND) WH ICH READS AS UNDER :- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION OF ROYALTY CHARGES TO 50% OF DEDUCTION CLAIMED AT RS.3,09,912/- AS REV ENUE EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE ENTIRE PAYMENT OF ROYALTY WAS PAID UNDER A TECHNOLOGY TRA NSFER ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 3 AGREEMENT ENTERED INTO BY THE ASSESSEE IN RELATION TO THE ACQUISITION OF THE RIGHT TO MANUFACTURE THE PRODUCT OF CVG AND HENCE, THE EXPENDITURE IS OF CAPITAL IN NATURE. 5. THE LD. DR SUBMITTED THAT DURING THE COURSE OF A SSESSMENT PROCEEDINGS ASSESSING OFFICER NOTED THAT ASSESSEE H AD CLAIMED EXPENDITURE IN THE NATURE OF ROYALTY AT RS.17,10,42 8/- COMPUTED @ 1.5% OF TOTAL SALES AT RS.1,14,02,856/-. THE ROYALT Y WAS PAID UNDER THE TERMS OF TECHNOLOGY TRANSFER AGREEMENT ENTERED INTO BY THE ASSESSEE WITH M/S CORONET VERWALUNTNGSGESELLSHALFT GMBH (CVG), GERMANY. THE ASSESSING OFFICER WAS OF THE VIEW THAT PAYMENT OF ROYALTY IS IN RELATION TO THE ACQUISITION OF THE RI GHT TO MANUFACTURE THE PRODUCTS OF CVG IN INDIA AND ACCORDINGLY DISALLOWED THE ENTIRE PAYMENT OF RS.17,10,428/- BY TREATING IT AS CAPITAL EXPENDITURE. 6. ON THE OTHER HAND, LD. AR OF THE ASSESSEE SUBMIT TED THAT THE ROYALTY WAS PAYABLE IN TERMS OF TECHNOLOGY TRANSFER AGREEMENT SIGNED BY THE ASSESSEE WITH M/S CORONET VERWALUNTNGSGESELLSCHALFT GMBH (CVG), GERMANY AND THIS AGREEMENT HAS BEEN APPROVED BY GOVERNMENT OF INDIA (GOI) VIDE LETTER DATED 21 ST MAY, 2001 THROUGH THE MINISTRY OF COMMERCE AND INDUSTRY AND EFFECTIVE LY ENDORSED BY RESERVE BANK OF INDIA (RBI) ON 12.9.2001 AND REGIST RATION WAS GRANTED TO THE COLLABORATION ALONG WITH LAYING OUT PROCEDURE FOR REMITTANCES AS AND WHEN REQUIRED. 7. LD. AR ALSO BUTTRESSED HIS ARGUMENT BY TAKING US THROUGH THE RELEVANT CLAUSES OF THE TECHNOLOGY TRANSFER AGREEME NT WHICH PROVIDED THAT THE ASSESSEE COMPANY SHALL HAVE RIGHT TO USE S UCH TECHNOLOGY ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 4 BUT NOT TO OWN IT AND HENCE ASSESSEE-COMPANY IS PRO HIBITED FROM TRANSFERRING SUCH TECHNOLOGY TO ANY THIRD PARTY. TH IS AGREEMENT FURTHER NOTED THAT THIS TECHNOLOGY TRANSFER DOES NO T RESULT IN A SINGLE TRANSFER OF KNOW-HOW RATHER IT WOULD BE IN THE NATU RE OF TECHNICAL SUPPORT TO THE ASSESSEE ON DAY TO DAY BASIS AND IN RETURN OF WHICH ASSESSEE WAS TO PAY ROYALTY AS A PERCENTAGE OF ITS SALE AND THE TENURE OF AGREEMENT WAS NOT FIXED RATHER IT WAS EXC LUSIVELY AT THE OPTION OF EITHER OF THE PARTIES. THE LD. AR FURTHER SUBMITTED THAT THE ROYALTY PAYMENT WAS SOLELY DEPENDING ON THE SALES G ENERATED BY THE ASSESSEE AND THERE WAS NO CAP PROVIDED FOR SUCH ROY ALTY PAYMENT AND THEREFORE, THIS ROYALTY PAYMENT WAS RIGHTLY CLA IMED AS REVENUE EXPENDITURE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE TO BE EXAMINED IS THAT WHETHER ROYALTY PAYMENT CALCULATED BY APPLYING CERTAIN PERCENTAGE ON SALES OF THE ASSESSEE- COMPANY, WHICH IS PAYABLE TO A FOREIGN COMPANY UNDE R A TECHNOLOGY TRANSFER AGREEMENT IS IN THE NATURE OF CAPITAL EXPE NDITURE OR REVENUE EXPENDITURE. IN THE INSTANT CASE THERE IS PAYMENT O F RS.17,10,428/- MADE BY ASSESSEE COMPANY TO A FOREIGN COMPANY ON AC COUNT OF ROYALTY AND THIS AMOUNT HAS BEEN ADDED BACK BY THE ASSESSEE TO ITS TOTAL INCOME ON ACCOUNT OF NON-DEDUCTION OF TDS ON THE ROYALTY PAYMENT IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 40(A)(I) AND DURING THE YEAR UNDER APPEAL ASSESSEE HAS CLAIMED D EDUCTION OF ROYALTY OF RS.3,09,912/- IN ITS COMPUTATION OF INCO ME FOR THE ROYALTY WHICH PERTAINED TO ASST. YEAR 2003-04 BUT DISALLOWE D IN ASST. YEAR 2003-04 AS TDS WAS NOT DEDUCTED AND FINALLY DEDUCTE D AND ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 5 DEPOSITED IN ASST. YEAR 2004-05. FOR THIS REASON RE VENUE HAS REVISED ITS GROUND OF APPEAL BY REPLACING RS.17,10, 428/- BY RS.3,09,912/-. 9. GOING THROUGH THE FACTS OF THE CASE WE FIND THAT THE ROYALTY WAS PAID ON THE BASIS OF SALES GENERATED BY THE ASSESSE E AND WAS NOT A LUMP SUM PAYMENT. FURTHER THERE WAS NO NEW ASSET AC QUIRED BY THE COMPANY IN FORM OF TANGIBLE OR INTANGIBLE ASSET AS THE ASSESSEE WAS PROHIBITED FROM TRANSFERRING SUCH TECHNOLOGY TO ANY THIRD PARTY. SIMILAR ISSUE WAS DECIDED BY THE APEX COURT IN THE CASE OF MEWAR SUGAR MILLS LTD. VS. CIT (1973) 87 ITR 400 (SC) WHEREIN H ONBLE SUPREME COURT IN THIS JUDGMENT HAS ENDORSED THE FOLLOWING P RINCIPLES :- IF THE EXPENDITURE IS MADE FOR ACQUIRING OR BRINGI NG INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS IT IS PROPERLY ATTRIBUTABLE TO CAPITAL AND IS OF THE NATURE OF CAPITAL EXPENDITURE . IF ON THE OTHER HAND IT MADE NOT FOR THE PURPOSE OF THE BRINGING INTO EXISTENCE ANY SUCH ASSET OR ADVANTAGE BUT FOR RUNNING THE BUSINESS OR WORKING IT WITH A VIEW TO P RODUCE THE PROFITS IT IS A REVENUE EXPENDITURE. THE HONBLE SUPREME COURT HAS FURTHER HELD IN THE S AID CASE- THAT WHERE PAYMENT OF ROYALTY IS CORRELATED TO PR ODUCING, IT MAY BE A REVENUE EXPENDITURE. 10. SIMILARLY, HONBLE GUJARAT HIGH COURT IN THE CA SE OF CIT VS. GUJARAT CARBON LTD. (2002) 254 ITR 294 HAS HELD THAT WHERE ROYALTY PAID BY THE ASSESSEE TO COLLABOR ATOR IS BASED ON SALES, IN RETURN FOR SERVICES TO BE RENDERED BY COLLABORATOR, AND ON EX-FACTORY PRICE FOR SUPPLY OF INFORMATION ON DAY TO DAY DEVELOPMENT IN RANGE OF PRODUCTS, IT IS ALLOWABLE AS REVENUE EXPENDITURE. ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 6 11. IN THE CASE OF ASSESSEE THE FACTS ARE ALMOST ID ENTICAL TO THE FACTS DISCUSSED BY HONBLE APEX COURT AND HONBLE J URISDICTIONAL HIGH COURT IN THE ABOVE REFERRED TWO CASES, AS THE ASSESSEE IN ORDER TO EFFECT SALES NEEDS REGULAR TECHNOLOGY SERVICES F ROM M/S CVG, GERMANY AND ROYALTY IS @ 1.5% OF THE TOTAL SALES EF FECTED BY THE ASSESSEE COMPANY. 12. IN VIEW OF OUR ABOVE DISCUSSION AND JUDICIAL PR ONOUNCEMENTS, WE ARE OF THE CONSIDERED VIEW THAT THE ROYALTY PAYM ENT MADE BY THE ASSESSEE IS UNDOUBTEDLY REVENUE EXPENDITURE. THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A), WE UPHOLD THE SAME. THIS G ROUND OF REVENUES APPEAL IS DISMISSED. 13. THE NEXT GROUND RAISED IN REVENUES APPEAL READ S AS UNDER- GROUND NO.2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING T HE ADDITION OF RS.35,836/- MADE ON ACCOUNT OF TREATING REPAIR EXPE NDITURE AS CAPITAL WITHOUT APPRECIATING THE FACT THAT THE REPA IRS HAD AN ENDURING BENEFIT. 14. LD. DR SUBMITTED THAT ASSESSEE HAS INCURRED EXP ENDITURE ON ACCOUNT OF COST OF REPLACING STAMPING DIES LOGO FOR RS.27,041/- AND PURCHASE OF AC TO DC CONVERTORS FOR RS.13,914/- WH ICH THE ASSESSEE HAS CLAIMED AS REVENUE EXPENDITURE UNDER T HE HEAD RPAIR EXPENDITURE BUT THE ASSESSING OFFICER WAS OF THE VI EW OF TREATING THIS EXPENDITURE OF RS.35,386/- CAPITAL EXPENDITURE. ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 7 15. ON THE OTHER HAND, LD. AR SUBMITTED THAT THE AB OVE SAID EXPENDITURE WAS INCURRED FOR REPLACING OF SPARES AN D WAS IN THE NATURE OF CONSUMABLE SPARES WHICH ARE NORMALLY ACCO UNTED UNDER THE HEAD OF REPAIR OF EXPENSES AS REVENUE EXPENDITU RE. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE FINDINGS OF LD. CIT(A) WHEREIN HE HAS OBSERVED AS UNDER :- 6.2 I HAVE CONSIDERED THE SUBMISSION OF THE LD. AR AND THE FACTS OF THE CASE. OUT OF THE PLETHORA OF CASE LAWS ON THE ISSUE OF CATEGORIZATION OF A PARTICULAR EXPENSE AS CAPITA L OR REVENUE, SOME IMPORTANT PRINCIPLES HAVE BEEN CULLED OUT. AS EXPENDITURE WHICH (A) PROVIDES BENEFIT FOR LESS THAN ONE YEAR, (B) INVOLVES MERE REPLACEMENT OF A PART OF THE MACHINE AND NOT T HE ENTIRE MACHINE, OR (C) DOES NOT RESULT IN THE CREATION OF ANY NEW ASSET, CANNOT BE TERMED AS CAPITAL EXPENDITURE. IT WOULD A MOUNT TO A REVENUE EXPENSES, AND WOULD QUALIFY FOR DEDUCTION A S REPAIRS AND MAINTENANCE EXPENDITURE. CLEARLY, THE IMPUGNED EXPENDITURE LAY IN THE REVENUE FIELD AND NOT IN THE CAPITAL FIELD. ACCORDINGLY, THE NET ADDITION OF RS.35,836/- IS DIR ECTED TO BE DELETED. AFTER CONSIDERING THE TOTALITY OF FACTS AND CIRCUMS TANCES OF THE CASE, WE ARE OF THE OPINION THAT THE FIRST APPELLATE AUTH ORITY HAS RIGHTLY HELD THAT THE EXPENDITURE OF RS.35,836/- RELATES TO GENE RAL REPAIR ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 8 EXPENSES AND THERE IS NO CREATION OF NEW ASSET; AND THERE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). WE UPHOL D THE SAME. THE GROUND OF REVENUES APPEAL IS DISMISSED. 17. GROUND NO.3 OF REVENUES APPEAL READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS .3,60,809/- TO THE BOOK PROFIT U/S 115JB ON ACCOUNT OF PROVISIONS FOR LEAVE ENCASHMENT AND GRATUITY IGNORING THAT THE LIABILITI ES DO NOT FORM PART OF ASCERTAINED LIABILITIES. 18. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER . WHEREAS THE LD. AR OF ASSESSEE SUBMITTED THAT AS THE LEAVE ENCA SHMENT AND GRATUITY ARE ASCERTAINED LIABILITY WHICH IS CALCULA TED ON A SCIENTIFIC BASIS AND, ACCORDINGLY LD. CIT(A) HAS RIGHTLY DELET ED THE ADDITION OF RS. 3,60,809/- TO THE BOOK PROFIT U/S 115JB OF THE ACT MADE BY THE ASSESSING OFFICER. 19. LD. AR IN SUPPORT OF HIS ARGUMENT ALSO PLACED R ELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BH ARAT EARTHMOVERS VS. CIT 245 ITR 428 AND ON THE AUDITED FINANCIAL STATEMENT WHICH WERE PREPARED IN COMPLIANCE WITH AC COUNTING STANDARD ISSUED BY INSTITUTE OF CHARTERED ACCOUNTAN TS OF INDIA (ICAI). 20. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THIS CASE IS THAT WHETHER PROV ISIONS OF RS.3,60,809/- PERTAINING TO LEAVE ENCASHMENT AND GR ATUITY IS AN ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 9 ASCERTAINED LIABILITY, BECAUSE IF THE LIABILITY IS ASCERTAINED THEN IT NEED NOT BE ADDED BACK TO THE BOOK PROFIT REFERRED U/S 1 15JB OF THE ACT. 21. WHILE DELETING THE ADDITION MADE BY ASSESSING O FFICER, LD. CIT(A) HAS OBSERVED AS UNDER :- 9.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A R AND THE FACTS OF THE CASE. THE SUPREME COURT, IN THE CASE O F BHARAT EARTHMOVERS, HAS CLEARLY HELD THAT PROVISION FOR LE AVE ENCASHMENT WOULD BE AN ASCERTAINED LIABILITY. THE R ATIO OF THE ABOVE CASE IS SQUARELY APPLICABLE TO THE PRESENT CA SE. BOTH, PROVISION FOR LEAVE ENCASHMENT AND GRATUITY HAVE BE EN MADE BY THE ASSESSEE ON ACTUAL ACCRUED LIABILITY CALCULA TED ON A SCIENTIFIC BASIS AND THE SAME CANNOT BE TERMED AS UNASCERTAINED LIABILITY. HENCE, THE ADDITION OF RS. 3,60,809/- TO THE BOOK PROFIT FOR THE PURPOSE OF 115JB IS DIRECTE D TO BE DELETED. 22. WE FIND THAT HONBLE APEX COURT IN THE CASE OF BHARAT EARTHMOVERS VS. CIT (SUPRA) WHILE REVERSING THE DEC ISION OF HONBLE HIGH COURT HAS HELD THAT THE PROVISIONS MADE BY THE ASSESSEE FOR MEETING THE LIABILITY INCURRED BY IT UNDER THE LEAV E ENCASHMENT SCHEME PROPORTIONATE WITH THE ENTITLEMENT EARNED BY THE EMPLOYEES OF THE COMPANY INCLUSIVE OF OFFICERS AND STAFF SUBJ ECT TO THE CEILING ACCUMULATION AS APPLICABLE ON THE RELEVANT DATE WAS ENTITLED TO DEDUCTION OUT OF THE GROSS RECEIPTS OF THE ACCOUNTI NG YEAR DURING WHICH THE PROVISION IS MADE FOR THE LIABILITY. THE LIABILITY WAS NOT A CONTINGENT LIABILITY. 23. AS THE FACTS OF THE CASE OF ASSESSEE ARE IDENTI CAL TO THE FACTS DISCUSSED BY HONBLE SUPREME COURT IN THE CASE OF B HARAT ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 10 EARTHMOVERS VS. CIT (SUPRA) AND ALSO ASSESSEE HAS P REPARED ITS FINANCIAL STATEMENT BY FOLLOWING THE ACCOUNTING STA NDARD ISSUED BY ICAI AND THE PROVISIONS FOR LEAVE ENCASHMENT AND GR ATUITY HAS BEEN MADE ON THE BASIS OF ACTUAL LIABILITY ACCRUED TO TH E ASSESSEE- COMPANY BASED ON THE ACTUAL PERIOD OF WORKING AND W AGES FOR ITS EMPLOYEES AND HENCE THE PROVISION FOR LEAVE ENCASHM ENT AND GRATUITY AT RS.3,60,809/- IS AN ASCERTAINED LIABILI TY. IN THE LIGHT OF ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN T HE ORDER OF LD. CIT(A).WE UPHOLD THE VIEW TAKEN BY LD. CIT(A). THIS GROUND IS ALSO DISMISSED. 24. GROUND NO.4 RAISED IN REVENUES APPEAL IS AS FO LLOWS :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS .78,487/- ON ACCOUNT OF EXCISE DUTY CLAIM CONSIDERED TO BE PENAL IN NATURE ON THE BASIS OF THE ADDITIONAL EVIDENCE SUBMITTED B Y THE ASSESSEE DURING THE APPELLATE PROCEEDINGS WITHOUT G IVING DUE OPPORTUNITY TO THE AO AS MANDATED UNDER THE RULE 46 A OF IT RULES, 1962. 25. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER . WHEREAS LD. AR SUBMITTED THAT IN THE YEAR UNDER APPEAL ASSESSEE HAS DEBITED RS.78,487/- AS EXCISE DUTY EXPENDITURE ON ACCOUNT O F - A) CENVAT CREDIT REVERSAL RS.57,015/- B) ADDITIONAL EXCISE DUTY PAID RS.13,440/- C) SERVICE TAX PAID RS. 8,032/- ------------------- RS.78,487/- ------------------- HE FURTHER SUBMITTED THAT CENVAT CREDIT REVERSAL WH ICH WAS ACTUALLY CLAIMED BY ASSESSEE ON CENVAT CREDIT REVERSAL AGAIN ST EXCISE DUTY ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 11 PAYABLE AND THE SAME WAS NOT ALLOWED BY EXCISE DEPA RTMENT AND ACCORDINGLY THIS AMOUNT OF RS. 57,015/- WAS DEBITED AS EXPENSES BECAUSE THIS AMOUNT WAS EARLIER REDUCED FROM THE PU RCHASE COST OF THE ASSESSEE-COMPANY AND NOW WHEN THIS AMOUNT WAS R EVERSED BY EXCISE DEPTT. THE SAME HAS BEEN CLAIMED AS AN EXPEN DITURE AND IS NOT IN THE NATURE OF ANY PENALTY AS TREATED BY THE ASSESSING OFFICER. SIMILARLY RS. 13,440/- WAS AN ADDITIONAL EXPENDITUR E ON EXCISE DUTY AND RS.8,032/- IS AN EXPENDITURE FOR SERVICE TAX PA ID AND THESE EXPENSES OF RS. 57,015/-, RS. 13,440/- AND RS.8,032 /- ARE NOT IN THE NATURE OF ANY PENALTY IMPOSED BY THE EXCISE DEPARTM ENT. 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSING OFFICER HAS DISALLOWED THE ABOVE SAID EXPENDITURE OF RS.78,487/- JUST ON THE B ASIS OF HEADS OF EXPENDITURE AND HAS NOT TRIED TO CO-RELATE IT WITH THE SUPPORTING AMOUNT FOR TREATING THE SAME AS PENALTIES WHICH ARE NOT ALLOWABLE AS AN EXPENDITURE U/S 37. THE LD. CIT(A) WHILE DELETIN G THE ADDITION MADE BY ASSESSING OFFICER HAS OBSERVED :- 10.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. AR AND THE FACTS OF THE CASE. ON PERUSAL OF THE DETAILS FILED, I FIND THAT ITEM NO.)A_ IS A REVERSAL OF CENVAT CREDIT CLAIMED BY TH E ASSESSEE COMPANY. AT THE TIME OF CLAIMING OF CENVAT CREDIT, THE SAME WAS REDUCED BY THE COMPANY FROM ITS PURCHASE COST AND H ENCE AT THE STATE OF REVERSAL, THE SAME WILL BE CONSIDERED AS COST. FURTHER, ITEMS NO.(B) AND (C) ARE ACTUAL PAYMENTS M ADE DURING THE YEAR. A PERUSAL OF THE CHALLAN FOR THE SAID PAY MENTS CLEARLY REVEALS THAT THEY ARE NOT PENAL IN NATURE. IN VIEW OF THE ABOVE FACTS, I HOLD THAT THE SAID AMOUNT OF RS.78,487/- I S NOT PENAL IN ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 12 NATURE. THE DISALLOWANCE OF RS.78,487/- IS THEREFOR E DIRECTED TO BE DELETED. 27. AS THE THREE TYPES OF EXPENSES REFERRED IN THIS GROUND ARE OF GENERAL NATURE EXPENDITURE BECAUSE RS.57,015/- IS A REVERSAL OF CENVAT CREDIT WHICH WAS PREVIOUSLY REDUCED ON THE P URCHASE COST AND FOR SOME REASON THE CLAIM OF THIS CENVAT CREDIT WAS NOT ALLOWED BY THE EXCISE DEPARTMENT AND THEREFORE, ASSESSEE HAS DEBIT ED THAT DIFFERENCE AS EXPENDITURE AND THIS REVERSAL CANNOT BE TERMED AS A PENALTY AS REFERRED IN SECTION 37 AND SIMILARLY R.S .13,440/- AND RS.8,032/- ARE NORMAL EXPENDITURE IN THE ADDITIONAL EXCISE DUTY AND SERVICE TAX PAID AND THERE IS NO FINDING BY THE ASS ESSING OFFICER THAT THERE WAS ANY SPECIFIC PENALTY ORDER WHEREIN ABOVE REFERRED AMOUNT HAS BEEN IMPOSED AS PENALTY ON THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT LD. CIT(A) H AS RIGHTLY DELETED THE ADDITION. THERE IS NO INFIRMITY IN THE ORDER OF CIT(A). WE UPHOLD THE SAME. THIS GROUND OF REVENUE ALSO FAILS. 28. GROUND NO.5 : THE APPELLANT CRAVES TO LEAVE, TO ADD, TO AMEND, OR LATER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. THIS GROUND IS OF GENERAL NATURE, WHICH NEEDS NO AD JUDICATION. 29. NOW WE TAKE UP ITA NO.2616/AHD/2010 FOR ASST. Y EAR 2005-06. 30 GROUND NO.1 OF REVENUES APPEAL IS AS FOLLOWS :- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION OF ROYALTY ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 13 PAYMENT TO A FOREIGN COMPANY OF RS.23,55,046/- TO 5 0% I.E. RS.11,77,523/- TOWARDS CAPITAL EXPENDITURE AND THE BALANCE 50% TOWARDS REVENUE EXPENDITURE. THE LD. CIT(A) ERR ED IN NOT APPRECIATING THE FACT THAT THE ENTIRE ROYALTY PAYME NT WAS PAID UNDER A TECHNOLOGY TRANSFER AGREEMENT ENTERED INT O BY THE ASSESSEE IN RELATION TO THE ACQUISITION OF THE RIGH T TO MANUFACTURE THE PRODUCT OF CVG AND HENCE, THE EXPEN DITURE IS OF CAPITAL IN NATURE. 31. WE HAVE DEALT SIMILAR ISSUE IN ITA NO.2615/AHD/ 2010 FOR ASST. YEAR 2004-05 IN REVENUES APPEAL, WHEREIN WE HAVE D ISCUSSED THE SAME IN DETAIL AND DECIDED THE ISSUE VIDE PARA NOS. 8 TO 12 AND HELD THAT ROYALTY EXPENSES PAID BY THE ASSESSEE 1.5% OF ITS SALES TO M/S CVG, GERMANY IS A REVENUE EXPENDITURE. FOLLOWING OU R ABOVE VIEW WE DISMISS THIS GROUND OF REVENUE. 32. GROUND NO.2 OF REVENUES APPEAL IS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS .2,25,463/- MADE ON ACCOUNT OF DISALLOWANCE OF EXCESS CLAIM OF DEPRECIATION ON ELECTRICAL INSTALLATIONS. THE LD. C IT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE ITEMS WHICH HAVE BEEN GROUPED SEPARATELY DOES NOT ABSOLVE THE ASSESSEE OF THE ONUS TO PROVE THAT THE ITEMS GROUPED AS ELECTRICAL INSTA LLATION ARE NOT FURNITURE AND FITTING. 33. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER AND SUBMITTED THAT THE AMOUNT CLAIMED AS DEPRECIATION @ 25% ON EL ECTRIC INSTALLATION WAS NOT CORRECT BECAUSE HE EXPENDITURE WAS FOR ELECTRICAL FITTINGS AND, THEREFORE, ELIGIBLE FOR DEPRECIATION @ 15% AND, THEREFORE, THE EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE AT RS.2,25,463/- ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 14 WAS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER AND LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE SAME AND THEREFORE OR DER OF LD. CIT(A) TO BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTO RED ON THIS ISSUE. 34. ON THE OTHER HAND, LD. AR SUBMITTED THAT THE EX PENDITURE IN QUESTION WAS INCURRED FOR ELECTRIC INSTALLATION TO SUPPORT CONTROL PANEL, POWER CONTROL CENTERS ETC. WHICH ARE COVERED UNDER THE HEAD PLANT & MACHINERY AND ARE ELIGIBLE FOR DEPRECIATION @ 25% A ND ELECTRICAL FITTINGS AS REFERRED BY ASSESSING OFFICER ARE IN RE LATION TO FURNITURE AND FITTINGS WHICH INCLUDES, ELECTRICAL WIRING, SWITCHE S, SOCKETS, OTHER FITTINGS AND FANS ETC. AND, THEREFORE, ASSESSEE HAS RIGHTLY CLAIMED DEPRECIATION @ 25%. 35. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) HAS RIGHTLY HELD THAT THE EXPENDITURE REFERRED IN THIS GROUND AS EXPENDITURE ON ELECTRICA L EQUIPMENT AND MACHINERY ATTACHED TO THE PLANT AND MACHINERY BY OB SERVING AS UNDER :- 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A R AND THE FACTS OF THE CASE. ON A PERUSAL OF THE DETAILS OF A DDITIONS TO GROSS BLOCK, I FIND THAT MAINLY ELECTRICAL EQUIPMEN T AND ACCESSORIES ATTACHED TO THE PLANT & MACHINERY HAS B EEN GROUPED BY THE ASSESSEE COMPANY UNDER THE HEAD ELEC TRICAL INSTALLATIONS. ON THE OTHER HAND, ITEMS SUCH FANS, LIGHT FIXTURES ARE GROUPED UNDER FURNITURE & FITTINGS. ITEMS SUCH AS CONTROL PANELS & CABLES WOULD FORM A PART OF PLANT & MACHIN ERY, SINCE THEY ARE ATTACHMENTS TO MACHINES USED IN THE FACTOR Y. THEY HAVE NO UTILITY UNLESS CONNECTED TO THE MACHINES, A ND FORM AN INTEGRAL PART OF SUCH MACHINE. HENCE THESE ITEMS WO ULD BE ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 15 ELIGIBLE FOR DEPRECIATION @ 25%. ACCORDINGLY, THE D ISALLOWANCE OF RS.2,25,463/- IS DIRECTED TO BE DELETED. THEREFORE, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND WE UPHOLD THE SAME. THIS GROUND OF REVENUE IS D ISMISSED. 36. GROUND NO.3 OF REVENUES APPEAL READS AS UNDER :- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS .4.04,874/- MADE ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS WRITTE N OFF ON THE BASIS OF THE SUBMISSIONS MADE BY THE ASSESSEE DURIN G THE APPELLATE PROCEEDINGS WITHOUT GIVING DUE OPPORTUNIT Y TO THE AO FOR VERIFICATION OF THE ADDITIONAL FACTS ADMITTED B Y THE LD. CIT(A). 37. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER . WHEREAS THE LD. AR RELIED ON THE ORDER OF CIT(A) AND SUBMITTED THAT THE ASSESSING OFFICER DID NOT ALLOW THE BAD DEBTS OF RS.4,04,874/ - RELATING TO FOLLOWING PARTIES :- NAME OF THE PARTY AMOUNT (RS.) NATURE OF TRANSACTIO N M/S IKEA TRADING INDIA P. LTD. 1,000 RECOVERY OF EXPENSES -DO- 550 -DO- CRYSTAL CLOTHING CO. 1,100 -DO- FILATES INDIA LTD. 26,224 ADVANCE TO SUPPLIER MARG SOFTWARE LTD. 3,76,000 -DO- 4,04,874/- LD. AR SUBMITTED THAT FIRST THREE AMOUNTS ARE PETTY AMOUNTS ON ACCOUNT OF NON-RECOVERY OF EXPENSES, ITEM AT NO.4 I S ON ACCOUNT OF BAD DEBTS OCCURRED AS THE ADVANCE WAS MADE FOR SUPP LY OF RAW MATERIAL AND ON CANCELLATION OF THE ORDER THE ADVAN CE WAS NOT RECEIVED BACK AND ITEM NO. 5 REPRESENT IS AN ADVANC E PAID TO A ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 16 SOFTWARE COMPANY FOR IMPLEMENTING ERP SYSTEM BUT TH E SOFTWARE COMPANY NEITHER IMPLEMENTED THE ERP NOR REFUNDED TH E AMOUNT AND THE ASSESSEE HAS ALSO FILED A SUIT IN THE COURT FOR ITS RECOVERY AND, THEREFORE, HAS BEEN TREATED THE SAME AS BAD DEBTS A S THERE ARE LEAST CHANCES FOR ANY RECOVERY OF THESE AMOUNTS. 38. ON APPEAL AGAINST THE ORDER OF ASSESSING OFFICE R, BEFORE FIRST APPELLATE AUTHORITY, LD. CIT(A) DECIDED THE ISSUE B Y OBSERVING AS UNDER :- 10.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. AR AND THE FACTS OF THE CASE. SO FAR AS THE FIRST THREE ITEMS ARE CONCERNED, ALL THE CONDITIONS LAID DOWN UNDER SECTION 36(2) WE RE SATISFIED INASMUCH AS THE AMOUNT HAD ALREADY SUFFERED TAXATIO N IN THE EARLIER YEAR BY WAY OF REDUCING THE EXPENSES CLAIME D. HENCE THE WRITE OFF IN THE CURRENT YEAR WAS ALLOWABLE. TH E DISALLOWANCE OF RS.1,000/-, RS.550/- AND RS.1,100/- ARE THEREFORE DIRECTED TO BE DELETED. 10.3 THE DISALLOWANCE OF RS.26,224/- AND RS.3,76,00 0/- STAND ON DIFFERENT FOOTING. THEY DO NOT REPRESENT ANY DEB T WHICH HAS BEEN WRITTEN OFF BUT RATHER ADVANCES MADE TO SUPPLI ERS OF GOODS AND SERVICES, WHICH HOWEVER DID NOT MATERIALIZE IN THE SUPPLY OF CONTRACTED GOODS AND SERVICES. THE ASSESSEE HAS FIL ED SUIT FOR RECOVERY OF THE SAME. THUS IT REPRESENTED BUSINESS LOSS/TRADING LOSS WHICH WAS ALLOWABLE UNDER SECTION 37(1). ACCOR DINGLY THE DISALLOWANCE OF RS.26,224/- AND RS.3,76,000/- ARE A LSO DIRECTED TO BE DELETED. 39. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. AS FAR AS THE FIRST THREE PETTY AMOUNTS OF RS.1,000/-, RS.550/- AND RS.1,100/- ARE CONCERNED, THEY ARE IN THE NATURE OF RECOVERABLE EXPENSES INCURRED BY THE ASSESSEE WHICH COULD NOT BE ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 17 RECOVERED AND, THEREFORE, THEY HAVE BEEN WRITTEN OF F IN THE CURRENT YEAR BECAUSE THE SAME HAS ALREADY SUFFERED TAXATION IN EARLIER YEAR WHEN THEY WERE ACTUALLY NOT CLAIMED AS EXPENDITURE AND, THEREFORE, RIGHTLY CLAIMED AS PAID DEBTS. HOWEVER, THE AMOUNT OF RS. 26,224/- AND RS.3,76,000/- ARE ADVANCES GIVEN BY THE ASSESSE E TO ACQUIRE THE RAW MATERIAL AND IMPLEMENTATION OF ERP SYSTEM BUT F OR SOME REASON THESE TWO TRANSACTIONS COULD NOT BE COMPLETED AND T HE ADVANCES COULD NOT BE RECOVERED BY THE ASSESSEE, THEREFORE, THIS AMOUNT HAS BEEN CLAIMED AS EXPENDITURE AND CERTAINLY THIS EXPE NDITURE IS NOT OF THE NATURE OF BAD DEBTS BUT IT IS A GENERAL NATURE EXPENDITURE REFERRED IN SECTION 37(1) AND INCURRED WHOLLY AND EXCLUSIVEL Y IN THE COURSE OF REGULAR BUSINESS CARRIED ON BY THE ASSESSEE. THEREF ORE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) IN DELETING THE IM PUGNED ADDITION. WE UPHOLD THE SAME. ACCORDINGLY, THIS GROUND OF REVENU E IS DISMISSED. 40. GROUND NO.4 OF REVENUES APPEAL READS AS UNDER :- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS .82,62,000/- MADE U/S 68 OF THE ACT WITHOUT APPRECIATING THE FAC T THAT THE ASSESSEE HAD FAILED TO FULFILL THE BASIC CONDITIONS SUCH AS FURNISHING OF NECESSARY EVIDENCE REGARDING CREDITWO RTHINESS OF THE CREDITOR AND THE GENUINENESS OF THE TRANSACTION AND CONFIRMATION FROM THE CREDITOR. 41. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER , WHEREIN RS.82,62,000/- HAS BEEN TREATED AS UNEXPLAINED CAS H CREDIT AND MADE ADDITION U/S 68 OF THE ACT. HE SUBMITTED THAT LD. CIT(A) HAS WRONGLY DELETED THE SAME. ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 18 42. THE LD. AR SUBMITTED THAT THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY MR. AMIT GORADIA WAS ALSO MANAGING DIRECTOR OF THE FOREIGN SUBSCRIBING COMPANY M/S CVG, GERMANY. D URING THE YEAR UNDER APPEAL ASSESSEE COMPANY INCREASED ITS SHARE C APITAL BY RS.162.00 LAKHS OUT OF WHICH SHARE VALUING RS.82,62 ,000/- WAS SUBSCRIBED BY M/S CVG, GERMANY. LD. AR FURTHER SUBM ITTED THAT ASSESSING OFFICER OUGHT TO HAVE APPRECIATED THAT M/ S CVG, GERMANY WAS THE HOLDING COMPANY OF ASSESSEE-COMPANY ALREADY HAVING EQUITY SHARES WORTH RS.5.10 CRORES BEFORE THIS NEW INVESTMENT OF RS.82,62,000/- MADE DURING THIS YEAR. THE HOLDING C OMPANYS CREDENTIAL HAS ALREADY BEEN EXAMINED BY MANY GOVERN MENT AGENCIES INCLUDING THE DEPARTMENT OF INDUSTRIAL POL ICY & PROMOTION, MINISTRY OF COMMERCE AND INDUSTRIES WHICH HAS GIVEN APPROVAL TO M/S CVG, GERMANY TO INVEST 51% IN THE ASSESSEE COMPANY. THE LD. AR SUBMITTED THAT FDI WAS RECEIVED THROUGH THE BANKER OF ASSESSEE I.E. IDBI BANK LTD. AND DUE INTIMATION WAS GIVEN THROUGH ASSESSEES BANK TO R.B.I. FOR FDI RECEIPT AND THEREAFTER FORM FC-GPR WAS FILED WITH RBI PURSUANT TO THE ALLOTMENT OF SHARES AND, T HEREFORE, THIS WAS A GENUINE TRANSACTION OF SHARE INVESTMENT BY HOLDIN G COMPANY THROUGH PROPER BANKING CHANNELS AS PER RBI GUIDELIN ES AND LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY ASS ESSING OFFICER U/S 68 OF THE ACT. 43. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND FROM THE RECORDS THAT THERE WAS FDI BY HOLDING COMPANY OF THE ASSESSEE COMPANY AT RS.82.17 LACS FO R SUBSCRIBING TO 82,62,000 SHARES OF ASSESSEE COMPANY OF RS.10/- EACH I.E. ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 19 ACQUIRING EQUITY SHARES WORTH RS.82.62 LAKHS AND AS SESSING OFFICER HAS ADDED THIS AMOUNT OF RS.82.62 LACS TO THE INCOM E OF ASSESSEE UNDER THE PROVISIONS OF SECTION 68 BY TREATING IT A S UNEXPLAINED CREDIT AS THE ASSESSEE COULD NOT OFFER PROPER EXPLANATION TO SATISFY THE ASSESSING OFFICER ABOUT THE CREDITWORTHINESS, IDENT ITY AND GENUINENESS OF THE PERSON FROM WHOM THE AMOUNT WAS RECEIVED BY THE ASSESSEE. 44. WE HAVE GONE THROUGH THE FOLLOWING DOCUMENTS AN D SUPPORTING EVIDENCES TO VERIFY THE CONTENTIONS OF THE LD. AR : - (1) TECHNOLOGY TRANSFER AGREEMENT DATED 1.12.2001 B ETWEEN THE ASSESSEE AND ITS HOLDING COMPANY M/S CVG, GERMANY. (2) APPROVAL OF MINISTRY OF COMMERCE AND INDUSTRY, GOVT. OF INDIA DATED 21.5.2001 FOR REGISTRATION NUMBER FOR FOREIGN COLLABORATION BETWEEN M/S CVG, GERNANY AND ASSESSEE . (3) CERTIFICATE OF FOREIGN INWARD REMITTANCE DATED 2.2.2005 ISSUED BY IDBI BANK LTD. BEARING SL.NO.0019598 CERTIFYING THAT EURO 150,000.00 EQUIVALENT INDIAN RS.82,71,000.00 HAS BE EN RECEIVED TOWARDS SHARE APPLICATION MONEY FROM M/S C VG THROUGH REMITTING BANK DEUTSCHE BANK AG VIDE TT NO.1809400058, DT.26 TH MAY,2004. (4) ACKNOWLEDGEMENT LETTER DATED 15.3.2005 ISSUED B Y FOREIGN EXCHANGE DEPARTMENT OF RBI, AHMEDABAD FOR RECEIVING FORM FCGPR FOR ISSUE OF 80,62,000 EQUITY SHARES OF RS.10 /- EACH. (5) CERTIFICATE OF CHARTERED ACCOUNTANT DATED 7.12. 2004 CERTIFYING THAT ASSESSEE HAS ALLOTTED 82,60,000 EQUITY SHARES TO M/S CVG, GERMANY. ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 20 45. FURTHER WHENEVER ANY FORWARD/INWARD REMITTANCE IS RECEIVED BY AN AUTHORIZED DEALER I.E. SCHEDULED BANK AUTHORIZED BY RBI THEN THE FIRST STEP TO BE TAKEN BY THE BANK BEFORE CREDITING THE AMOUNT TO THE ACCOUNT OF THE ACCOUNT HOLDER IS TO PREPARE ON KYC REPORT (KNOW YOUR CLIENT) AND FOR PREPARATION OF KYC REPORT/INFORMATI ON IS SOUGHT BY THE RECEIVING BANK FROM THE REMITTING BANK ABOUT THE GE NUINENESS AND IDENTITY OF THE PARTY SENDING THE MONEY. ONLY AFTER THE SATISFACTION OF THE RECEIVING BANK I.E. THE BANK WHERE THE ASSESSEE HOLDS THE A/C. AND AFTER COMPLYING THE PROVISIONS OF RBI THEN ONLY THE AMOUNT IS CREDITED TO THE ACCOUNT OF THE ACCOUNT HOLDER AND T HE SAME PROCESS WAS COMPLETED BY IDBI BANK LTD. IN THE CASE OF ASSE SSEE. 46. AFTER RECEIVING THE FORWARD/INWARD REMITTANCE T OWARDS SHARE APPLICATION MONEY THE AUTHORIZED DEALER I.E. THE BA NK IS REQUIRED TO SEND INTIMATION TO RBI FOR SUCH REMITTANCE AND THER EAFTER WITHIN SIX MONTHS THE COMPANY HAS TO ALLOT THE EQUITY SHARES A ND GIVE PROPER INFORMATION THROUGH ITS BANKER TO RBI IN FORM FCGPR . 47. LOOKING TO THE ABOVE FACTS OF THE ASSESSEES CA SE, WE ARE OF THE VIEW THAT ALL THE CONDITIONS HAVE BEEN DULY ADH ERED AND FOLLOWED AND COMPLIED WITH BY THE ASSESSEE IN RELATION TO FD I RECEIPT TOWARDS SHARE APPLICATION MONEY FOR INVESTMENT IN 82,62,000 EQUITY SHARES OF RS.10/- EACH RECEIVED FROM THE HOLDING COMPANY FOR INVESTMENT IN THE SUBSIDIARY COMPANY AND THE IDENTITY OF THE HOLDING COMPANY STANDS WELL PROVED FROM THE LETTER OF MINISTRY OF COMMERCE AND INDUSTRY, DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION WHICH H AS GRANTED REGISTRATION FOR THE FOREIGN COLLABORATION BETWEEN M/S CVG AND THE ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 21 ASSESSEE. IN THESE CIRCUMSTANCES, WE ARE OF THE CON SIDERED VIEW THAT LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY ASSESSING OFFICER U/S 68 AND AS SUCH WE FIND NO INFIRMITY IN THE ORDE R OF CIT(A). WE UPHOLD THE SAME. THIS GROUND OF REVENUE ALSO FAILS. 48. THE LAST GROUND OF REVENUES APPEAL READS AS UN DER :- 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS .56,30,000/- MADE U/S 68 OF THE ACT WITHOUT APPRECIATING THE FAC T THAT THE ASSESSEE HAD FAILED TO FULFILL THE BASIC CONDITIONS SUCH AS FURNISHING OF NECESSARY EVIDENCE REGARDING CREDITWO RTHINESS OF THE CREDITOR AND THE GENUINENESS OF THE TRANSACTION AND CONFIRMATION FROM THE CREDITOR. 49. THE LD. DR SUPPORTED THE ORDER OF ASSESSING OFF ICER. 50. ON THE OTHER HAND, THE LD.AR RELIED ON THE ORDE R OF CIT(A) AND SUBMITTED THAT THE AMOUNT OF RS.56,30,000/- HELD BY THE ASSESSING OFFICER AS UNEXPLAINED CREDIT IN FACT REPRESENT AMO UNT RECEIVED BY ASSESSEE IN THE PRIOR FINANCIAL YEAR I.E. FY 2003-0 4. THE SAID AMOUNT, EQUIVALENT TO EURO 1,00,000/- WAS RECEIVED BY THE C OMPAY FROM M/S CVG ON 7 TH AUGUST, 2003. THE FOREIGN INWARD REMITTANCE CERTIF ICATE ISSUED BY M/S IDBI BANK IN THIS REGARD AS ALSO THE LOAN AGREEMENT EXECUTED BETWEEN M/S CVG AND THE APPELLANT ARE ENCL OSED IN PAGE NOS.93-94 OF THE PAPER BOOK. THE SAME WERE ALSO SUB MITTED TO THE ASSESSING OFFICER VIDE SUBMISSION DATED 3 RD NOVEMBER, 2007. ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 22 51. LD. AR SUBMITTED THAT ADDITION U/S 68 CAN BE MA DE IN RESPECT OF CREDIT IN THE BOOKS OF AN ASSESSEE DURING THE YEAR AND NOT PRIOR TO THAT YEAR. IN THE PRESENT CASE THE AMOUNTS UNDER CO NSIDERATION WAS RECEIVED IN THE PRIOR YEAR AND THE ASSESSSEE WAS DU LY ASSESSED DURING THE SAID YEAR U/S 143(3) AND THE LD. ASSESSI NG OFFICER HAD NOT FOUND ANY REASON TO TREAT THE SAME AS UNEXPLAINED C REDIT DURING THE SAID ASSESSMENT. BY TREATING A LOAN WHICH WAS ACTUA LLY RECEIVED IN THE PRIOR YEAR, THE LD. ASSESSING OFFICER HAS MADE AN ADDITION WHICH IS NOT TENABLE UNDER SECTION 68 OF THE ACT. IT IS F URTHER NOTEWORTHY THAT THE YEAR IN WHICH THE SAID LOAN WAS ACTUALLY RECEIV ED WAS ASSESSED U/S 143(3) AND LD. ASSESSING OFFICER DURING THE SAI D YEAR HAD NOT FOUND ANY REASON TO ADD THE SAME U/S 68 OF THE ACT. IN VIEW OF THE ABOVE, THE ADDITION OF RS.56,30,000/- MADE BY THE L D. ASSESSING OFFICER IS UNSUSTAINABLE. 52. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING T HE IMPUGNED ADDITION HAS OBSERVED AS UNDER :- 12.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. AR AND THE FACTS OF THE CASE. IT IS SEEN THAT THIS AMOUNT OF R S.56,30,000/- APPEARS AS AN OPENING BALANCE IN THE NAME OF CVG GE RMANY. IT WAS RECEIVED IN THE IMMEDIATELY PRECEDING ASSESSMEN T YEAR BY WAY OF LOAN. THE RECEIPT OF LOAN IS ALSO SUPPORTED BY CERTIFICATE OF FOREIGN INWARD REMITTANCE DATED 19.4.2004 ISSUED BY ICICI BANK LTD. THE AMOUNT WAS RECEIVED PURSUANT TO A LOAN AGREEMENT DATED 1.8.2003 ENTERED INTO BY THE ASSESS EE WITH CVG GERMANY. HENCE IT IS HELD THAT THE IDENTITY, FINANC IAL CAPACITY OF CVG GERMANY AND GENUINENESS OF THE TRANSACTION HAD BEEN ADEQUATELY ESTABLISHED AND THAT THE ADDITION OF RS. 56,30,000/- ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 23 WAS THEREFORE NOT WARRANTED. THE ADDITION IS DIRECT ED TO BE DELETED. 53. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND AS PER AUDITED FINANCIAL STATEMENT OF THE ASSESSEE WE ARE ABLE TO SEE THAT RS.56,30,000/- IS IN OPENING BALANCE IN THE NAME OF CVG GERMANY RECEIVED IN EARLIER YEAR AND WE HAVE ALREADY DECIDE D IN THE ABOVE GROUND NO.4 ABOUT THE IDENTITY, FINANCIAL CAPACITY , GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS OF M/S CVG AND ALS O LOOKING TO THE FACTS THAT THIS AMOUNT OF RS.56,30,000/- PERTAINS T O IMMEDIATELY PRECEDING YEAR AND, THEREFORE, ANY ACTION IF HAD TO BE TAKEN BY THE ASSESSING OFFICER WAS IN THE YEAR IN WHICH THE AMOU NT WAS RECEIVED. THEREFORE, THE ASSESSING OFFICER WAS NOT CORRECT IN MAKING THE ADDITION U/S 68 OF THE ACT IN THIS YEAR. THE LD. CI T(A) IS JUSTIFIED IN DELETING THE SAME. WE UPHOLD THE ORDER OF LD. CIT(A ). THIS GROUND OF REVENUE ALSO FAILS. 56. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH DECEMBER,2015 SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 08/12/2015 MAHATA/- ITA NO. 2615 & 2616/AHD/2010 ASST. YEAR 2004-05 & 2005-06 24 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 4/12/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 7/12/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 8/12/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: