The ITO, Ward-1(4), Ahmedabad V. M/s. Dishman Infrastructure Ltd., Ahmedabad

ITA 2663/AHD/2014

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 5602 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 30-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure; Audit objection; Question of law; Wrong claim; Procedural lapse; Competent authority; Retraction; Reason to believe; Capital expenditure; Set aside
• Section: 40A(3); 143(3); 37(1); 12A; 12AA; 10B; 143(2); 64; 13; 22; 147; 37; 132; 11

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT) BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI AMARJIT SINH, ACCOUNTANT MEMBER ITA NO.2593/AHD/2014WITH CROSS OBJECTION NO.42/AHD/2020 / ASSTT.YEAR : 2011-12 DISHMAN INFRASTRUCTURE LTD. 2, BHADRA-RAJ CHAMBERS SWASTIK CROSS ROADS NAVRANGPURA, AHMEDABAD. PAN : AACCD 4057 H VS. ITO, WARD - 1(4) AHMEDABAD. ITA NO.2663/AHD/2014 / ASSTT.YEAR : 2011-12 ITO, WARD - 1(4) AHMEDABAD. VS. DISHMAN INFRASTRUCTURE LTD. 2, BHADRA-RAJ CHAMBERS SWASTIK CROSS ROADS NAVRANGPURA, AHMEDABAD. PAN : AACCD 4057 H ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI S.N. SOPARKAR, SR.ADVOCATE SHRI PARIN SHAH, AR REVENUE BY : SHRI MOHD. USMAN, CIT-DR / DATE OF HEARING : 18/01/2021 / DATE OF PRONOUNCEMENT: 05/02/2021 !'/ O R D E R PER RAJPAL YADAV, VICE-PRESIDENT: REVENUE AND ASSESSEE ARE IN CROSS APPEAL AGAINST OR DER OF THE LD.CIT(A)-6, AHMEDABAD DATED 21.7.2014 PASSED FOR T HE ASSTT.YEAR 2011-12. COPY OF THE GROUNDS OF APPEAL IN THE ASSE SSEES APPEAL WAS SENT TO THE REVENUE ON 29.9.2014, BUT IT FILED CROS S-OBJECTION BEARING ITA NO.2663 & 2593 /AHD/2014 WITH CO 2 NO.42/AHD/2020, WHICH IS TIME BARRED. ALL THESE AP PEALS AND CO ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) H AS ERRED IN ACCEPTING THE CLAIM OF THE ASSESSEE FOR GRANT OF DE DUCTION UNDER SECTION 80IAB OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY WAS INCORPORATED ON 28.7.2006. IT IS A CLOSELY HELD PU BLIC LIMITED COMPANY HAVING 100% EQUITY SHARE HELD BY DISHMAN PHARMACEUT ICALS AND CHEMICALS LTD. (DPCL), WHICH IS A FLAGSHIP COMPANY. THIS COMPANY WAS INCORPORATED WITH A SOLE IDEA TO DEVELOP SPECIA L ECONOMIC ZONE. IT HAS FILED A RETURN OF INCOME ELECTRONICALLY ON 3 0.9.2011 DECLARING NIL INCOME. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) OF THE A CT WAS ISSUED ON 28.9.2012 WHICH WAS DULY SERVED UPON THE ASSESSEE. ON PERUSAL OF THE RETURN, IT WAS REVEALED TO THE AO THAT THE ASSESSEE -COMPANY HAS BEEN APPROVED FOR DEVELOPMENT OF SPECIAL ECONOMIC ZONE ( SEZ) AT BAVLA, NR. AHMEDABAD, GUJARAT. IT HAS SHOWN GROSS PROFIT OF RS.41.77 CRORES AND AFTER SET OFF OF CARRY FORWARD BUSINESS LOSS, I T HAS CLAIMED DEDUCTION UNDER SECTION 80IAB AT RS.41,62,61,487/-. THE LD.AO HAS MADE ANALYSIS ON THE ISSUE IN THE IMPUGNED ASSESSME NT ORDER, WHICH IS RUNNING INTO 54 PAGES. HOWEVER, THE DISCUSSION OVE R THIS ISSUE IS AVAILABLE FROM PAGE NO.1 TO 29 OF THE ASSESSMENT OR DER. THE LD.AO HAS EXAMINED THIS ASPECT UNDER FOUR DIFFERENT HEADS , AND HE SUMMARIZED AS TO WHY THIS DEDUCTION IS NOT ADMISSIB LE IN PARA-3.1 OF ITA NO.2663 & 2593 /AHD/2014 WITH CO 3 THE ASSESSMENT ORDER. THESE FOUR HEADS UNDER WHICH HE HAS MADE DETAILED EXAMINATION READ AS UNDER: 3.1 DURING THE COURSE OF SURVEY PROCEEDINGS AS WEL L AS SUBSEQUENT POST-SURVEY INQUIRIES AND ASSESSMENT PROCEEDINGS HA S ESTABLISHED BEYOND DOUBT THAT THE CLAIM OF THE DEDUCTION U/S 80 IAB OF THE ACT OF RS. 41,62,61,487 IS BOGUS AND PRIMA-FACIE WRONG. TH E FACTS LEADING TO THIS CONCLUSION ARE SUMMARISED AS UNDER: I. NO DEVELOPMENT OR INSIGNIFICANT DEVELOPM ENT OF SPECIAL ECONOMIC ZONE BY THE COMPANY TILL F.Y. CORRESPONDIN G TO A.Y. 2011- 12 AND IN SUBSEQUENT YEARS (ELABORATELY DISCUSSED I N PARAGRAPHS 4 TO 8 BELOW) II. INFRINGEMENT OF SEZ ACT & RULE, 2005 WH ILE CLAIMING LEASE RENTAL FROM SISTER CONCERN, M/S DISHMAN PHARMACEUTI CALS AND CHEMICALS LIMITED (ELABORATELY DISCUSSED IN PARAGRA PHS 9 TO 10 BELOW) III. ADMISSION OF WRONG CLAIM OF DEDUCTION U/ S 80IAB OF THE ACT BY THE MAIN PERSON OF THE COMPANY, SHRI JANMEJAY R. VYAS, MANAGING DIRECTOR & SURRENDER OF THE ENTIRE RECEIPT SHOWN IN THE P & L A/C OF RS. RS.41,77,29,824/- FOR THE PURPOSE OF TAXATION DURING THE COURSE OF SURVEY PROCEEDINGS (ELABORATELY DISCU SSED IN PARAGRAPHS 10 TO 16 BELOW) IV. HUGE CLAIM OF CAPITAL WORK IN PROGRESS (C WIP) IN SEZ WHICH HAS BEEN ESTABLISHED TO BE BOGUS & FAKE (ELABORATEL Y DISCUSSED IN PARAGRAPHS 17 TO 33 BELOW) THESE ARE ELABORATELY DI SCUSSED IN THE FOLLOWING PARAGRAPHS. HOWEVER, BEFORE PROCEEDINGS F URTHER, IN FACTS RELATED TO THE APPROVED SEZ ARE DISCUSSED AS UNDER. 4. WE WILL BE DEALING WITH THE REASONS GIVEN BY THE AO IN SERIATIM IN LATER PART OF THIS ORDER. 5. DISSATISFIED WITH THE DISALLOWANCE OF DEDUCTION, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THEREAFTER, THE LD.CIT(A) HAS ALSO NOTICED ARGUMENTS RAISED BY THE LD.COUNSEL FOR THE ITA NO.2663 & 2593 /AHD/2014 WITH CO 4 ASSESSEE AND ALLOWED DEDUCTION. THE RELEVANT PART OF THE IMPUGNED ORDER READS AS UNDER: 3.2 IN THE ASSESSMENT ORDER, A.O. OBSERVED THAT TH E APPELLANT HAD CLAIMED THE GROSS TOTAL INCOME OF RS. 41.62 CRORES AS DEDUCTION U/S 80IAB; APPELLANT WAS APPROVED FOR DEVELOPMENT OF SP ECIAL ECONOMIC ZONE[SEZ] AT BAVLA, NEAR AHMEDABAD; THE DE DUCTION U/S 801AB WAS NOT CLAIMED IN ANY PRECEDING OR SUCCEEDIN G YEAR; THE APPELLANT COMPANY WAS INCORPORATED ON 28-7-2006;IT IS PROMOTED BY M/S DISHMAN PHARMACEUTICAL & CHEMICALS LTD.[DPCL], FLAGSHIP COMPANY OF THE GROUP; SURVEY U/S L33A CARRIED OUT O N 10 TH &11 TH OCTOBER,20 L 3; DURING THE COURSE OF SURVEY PROCEED INGS THE CLAIM OF DEDUCTION WAS FOUND TO BE BOGUS AND PRIMA-FACIE WRO NG; APPELLANT HAD NOT CARRIED OUT ANY SIGNIFICANT DEVELOPMENT OF SEZ; IT INFRINGED SEZ ACT AND RULES 2005; SHRI JANMEJAY R.VYAS, M.D. ADMITTED THE WRONG CLAIM OF DEDUCTION; THE CLAIM OF CAPITAL WORK IN PROGRESS [CWIP] IN SEZ WAS FOUND TO BE BOGUS AND FAKE; APPEL LANT COMPANY HAD APPLIED FOR APPROVAL FOR DEVELOPING & SETTING U P OF SEZ ON 15- 05-2006; 'IN PRINCIPAL' APPROVAL WAS ISSUED BY THE MINISTRY OF COMMERCE & INDUSTRY ON 30-05-2007; FORMAL APPROVAL WAS GRANTED BY THE MINISTRY ON 17-04-2008; GAZETTE NOTIFICATION WAS PUBLISHED ON I3-L L-2009;APPELLANT FAILED TO FULFILL THE CONDITI ONS AS STIPULATED IN THE APPROVAL LETTER ISSUED UNDER SEZ ACT; THE DEVEL OPMENT COMMISSIONER, KANDLA SEZ HAD ISSUED SHOWCAUSE LETTE R TO THE APPELLANT ON 15-02-2013; AS SEEN FROM THE STATEMENT RECORDED FROM SHRI DOSHI, SUPERVISOR AT THE SITE OFFICE AND SHRI NAYAN PARIKH, MANAGING DIRECTOR OF M/S MULTI MEDIA CONSULTANCY PV T. LTD.. APPELLANT HAD NOT CARRIED OUT ANY DEVELOPMENT WORK IN THE NOTIFIED SEZ AND THEREBY VIOLATED THE PROVISIONS OF SEZ ACT; IT VIOLATED THE RULES OF SEZ ACT BY ALLOCATING SPACE/BUILTUP AREA T O M/S DPCL, WHICH WAS NOT AN APPROVED UNT AS ON 31-03-2011;THE REFORE THE RECEIPTS FROM DPCL WILL NOT QUALIFY FOR DEDUCTION U /S 801AB;SEC. 80IA(10) IS APPLICABLE DUE TO THE CLOSE CONNECTION BETWEEN THE APPELLANT AND THE DPCL; SHRI BHARAT PODIA, ED OF TH E APPELLANT COMPANY CONFIRMED THE DISCLOSURE MADE BY THE M.D DU RING THE COURSE OF SURVEY; HOWEVER, ON 16-12-2013 THE M.D. F ILED AFFIDAVIT DTD. 13-11-2013REFRACTING THE ADMISSION MADE DURING THE COURSE OF SURVEY; NO EVIDENCE WAS FURNISHED TO SHOW THAT THE STATEMENT RECORDED DURING THE SURVEY WAS INCORRECT EITHER ON FACTS OR IN LAW; THE RETRACTION WAS JUST A SELF SERVING STATEMENT AN D THEREFORE THE ITA NO.2663 & 2593 /AHD/2014 WITH CO 5 APPELLANT COMPANY WAS BEING HELD AS NOT ELIGIBLE FO R DEDUCTION U/S 801AB. ACCORDINGLY, A.O DISALLOWED THE CLAIM. 3.3 THE CONTENTIONS OF THE LD.A.R. ARE THAT BY VIRT UE OF SECTION 51(L) OF THE SEZ ACT, THE ACT HAS OVER RIDING EFFECT OVER OTHER LEGISLATION; UNDER THE SCHEME OF SEZ ACT, THE BOARD OF APPROVAL [BOA] IS EMPOWERED TO IMPLEMENT THE ACT; THE SAID BOA INCLUD ES MEMBER, WHO IS JT. SECRETARY TO THE GOVERNMENT OF INDIA REP RESENTING THE CENTRAL BOARD OF DIRECT TAXES; THE POWERS AND FUNCT IONS OF THE BOA ARE PROVIDED UNDER SECTON-9 OF THE SEZ ACT; THE PR OVISIONS OF SEC. 801ABWERE INTRODUCED BY THE SEZ ACT 2005[ AND NOT B Y THE INCOME- TAX ACT]; AS OBSERVED BY THE A.O HIMSELF IN THE ASS ESSMENT ORDER THE APPELLANT WAS GRANTED FORMAL LETTER OF APPROVAL BY THE COMMERCE MINISTRY VIDE THE LETTER DTD. 17-04-2008;GAZETTE NO TIFICATION WAS ALSO ISSUED ON 13-11-2009;THE A.O HAS NO LOCUS-STANDI OR JURISDICTION TO LOOK INTO WHETHER THE APPELLANT SATISFIED/FULFILLED THE TERMS AND CONDITIONS LAID DOWN IN THE LETTER OF APPROVAL; SEZ ACT IS A CODE IN ITSELF; TILL DATE THE APPELLANT HOLDS VALID LETTER OF APPROVAL GRANTED BY THE BOA; IT IS FOR THE BOA TO ENSURE THE FULFILLMEN T OF CONDITIONS LAID DOWN IN SEZ ACT AND THE A.O.'S SITTING IN JUDGEMENT OVER THE APPROVAL GRANTED BY BOA AMOUNTS TO JUDICIAL INDISCI PLINE. IN SUPPORT OF THIS CONTENTION HE RELIED ON AHMEDABAD T RIBUNAL'S DECISION DTD. 07-07-204,THE SUPREME COURT DECISION CITED AT L 17 ITR 1, THE GUJARAT HIGH COURT'S DECISIONS CITED AT 276 ITR 411 & 355 ITR 384 &AHMEDABAD TRIBUNAL'S DECISION CITED 124 TT J 176 & 45 SOT 529. 3.4 AS REGARDS THE A.O.'S FINDING THAT THE APPELLA NT INFRINGED SEZ RULES BY CLAIMING LEASE RENTALS FROM SISTER-CONCERN DPCL, IT WAS CONTENDED THAT THE DPCL HAD MADE APPLICATION TO THE DEVELOPMENT COMMISSIONER FOR APPROVAL TO SET UP UNIT IN THE SEZ ON 29-03- 2011;APPROVAL WAS GRANTED ON 26-06-201; THE OFFICE OF THE DEVELOPMENT COMMISSIONER HAD ACCEPTED THAT THEY HAD RECEIVED THE APPLICATION FROM DPCL ON 29-03-201L, THOUGH THE APP LICATION WAS ALLOTTED INWARD NO.16 DATED 05-04-201L AND LETTER O F APPROVAL GRANTED WOULD RELATE BACK TO THE DATE OF APPLICATIO N. LN SUPPORT THEREOF HE RELIED ON THE GUJARAT HIGH COURT DECISIO N CITED [236 ITR 251]. ALTERNATIVELY IT WAS CONTENDED THAT IF IT IS PRESUMED THAT THE APPROVAL GIVEN TO DPCL WAS RELATABLE TO THE SUCCEED ING YEAR, THEN THE LEASE RENTALS RECEIVED FROM DPCL WOULD BE ONLY AN ADVANCE TOWARDS LAND PREMIUM AND THEREFORE THE SAID AMOUNT RECEIVED FROM DPCL COULD NOT BE TREATED AS INCOME AT ALL IN THE H ANDS OF THE ITA NO.2663 & 2593 /AHD/2014 WITH CO 6 APPELLANT IN THE YEAR UNDER CONSIDERATION. IT WAS C ONTENDED FURTHER THAT INVOCATION OF THE PROVISIONS OF SEC. 801A(10) BY THE A.O WAS IMPROPER, AS THERE IS NOTHING ON RECORD TO SUGGEST THAT THE TRANSACTION WITH DPCL WAS SO ARRANGED AS TO GIVE TH E APPELLANT TAX ADVANTAGE. 3.5 AS REGARDS A.O.'S RELIANCE ON THE STATEMENT OF M.D OF THE APPELLANT COMPANY RECORDED DURING THE COURSE OF SUR VEY , IT WAS CONTENDED THAT THE AFFIDAVIT DTD. 13-11-2013 WAS FI LED ON 16-12-2013 CLARIFYING THE STATEMENT GIVEN BY HIM; THE DELAY OF TWO MONTHS IN FILING THE AFFIDAVIT WAS ON ACCOUNT OF THE FACT THA T COPY OF THE STATEMENT WAS NEVER PROVIDED TO THE APPELLANT AND A S NOTED BY THE A.O. HIMSELF AT PAGE-24 OF THE ASSESSMENT ORDER, AP PELLANT WAS GIVEN OPPORTUNITY TO EXAMINE THE IMPOUNDED MATERIAL AND T HE STATEMENT RECORDED ONLY BETWEEN 08-11-2013 AND L0-L L-2013; T HE AFFIDAVIT DTD. 13-11-2013WAS FILED ON 16-12-2013 AND THEREFORE, IM PUGNED DISALLOWANCE RELYING ON THE STATEMENT WAS NOT IN AC CORDANCE WITH LAW. 3.6 I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE FA CTS OF THE MATTER. THE UNDISPUTED FACTS ARE THAT THE MINISTRY OF COMME RCE & INDUSTRY HAD GRANTED 'IN PRINCIPAL' APPROVAL TO THE APPELLAN T ON 30-05-2007. FORMAL LETTER OF APPROVAL WAS ISSUED ON 17-04-2008. GAZETTE NOTIFICATION WAS ISSUED ON 13-1 1-2009.NOTFYING TH E APPELLANT AS A DEVELOPER UNDER THE SEZ ACT. SUCH RECOGNITION WAS V ALID DURING THE YEAR UNDER CONSIDERATION. THE APPROVAL GIVEN HAS NO T BEEN SUSPENDED. IT IS NOT THE CASE OF THE A.O THAT THE A PPELLANT HAD NOT SATISFIED THE CONDITIONS LAID DOWN U/S 801AB. I AM IN AGREEMENT WITH THE LD.A.R.'S CONTENTION THAT THE INCOME-TAX AUTHOR ITIES CANNOT SIT IN JUDGEMENT OVER THE APPROVAL GIVEN BY THE COMPETENT AUTHORITY UNDER SEZ ACT. SO LONG AS THE APPROVAL GIVEN IS VALID, IT IS NOT FOR OTHER AGENCY/DEPARTMENT TO SIT IN JUDGEMENT OVER THE ISSU E AS TO WHETHER THE APPELLANT SATISFIED THE PROVISIONS OF THE SEZ A CT OR NOT. THE CASE- LAWS RELIED ON BY THE LD. A.R. SUPPORT THIS FINDING . AHMEDABAD TRIBUNAL IN THE CASE OF M/S ZAVERI & CO. PVT. LTD. VS. CIT IN ITA NOS. 1395 & 1396/ AHD/2013, VIDE THE DATED 07/05/2014, HELD AS UNDER: ''31. WE FIND THAT NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THEREVENUE TO CONTROVERT THE ABOVE SUBMISSION OF TH E ASSESSEE. FURTHER, WE FIND THAT THE HON'BLE SUPREME COURT IN ITA NO.2663 & 2593 /AHD/2014 WITH CO 7 THE CASE OF GESTATNER DUPLICATORS PRIVATE LTD. VS. CIT117 /TR1 (SC) HELD AS UNDER: 32. TO THE SAME EFFECT IS THE DECISION OF THE HON'B LE GUJARAT HIGH COURT IN THE CASE OF NITIN P. SHAH ALIAS MODI VS. DCIT {2005) 276 ITR411 {GUJ.} AND DECISION OF THE AHMEDA BAD BENCH OF THE TRIBUNAL IN THE CASE OF GUJARAT INFORM ATION TECHNOLOGY FUND 64 DTR 169(AHD.) .IN OUR CONSIDERED VIEW, IT WAS NOT OPEN TO THE COMMISSIONER OF INCOME TAX T O TAKE THE VIEW CONTRARY TO THE APPROVAL ALREADY GRANTED BY TH E APPROVAL COMMITTEE APPOINTED UNDER SEZ ACT 2005 AND SEZ RULE S, 2006. 33. THUS, WE DO NOT FIND ANY MATERIAL TO ARRIVE AT THE FINDING THAT THE ASSESSEE HAS VIOLATED ANY PROVISION OF SEZ ACT, 2005 OR SEZ RULES,2006 OR THAT THE ASSESSEE WAS NOT AN ENTREPRENEUR REFERRED TO IN CLAUSE (J) OF SECTION 2 OF SEZ ACT, 2005 ....XXX' THE OBSERVATIONS OF THE HON'BLE SUPREME COURT IN TH E CASE OF GESTETNER DUPLICATIONS P. LTD. VS. CIT ( 117 ITR 1 ) RELIED ON BY THE TRIBUNAL ARE AS UNDER: '12. THE FACTS IN THE PRESENT CASE THAT NEED BE STR ESSED IN THIS BEHALF ARE THAT IT WAS AS FAR BACK AS 1937 THAT THE COMMIS SIONER OF INCOME- TAX HAD GRANTED RECOGNITION TO THE PROVIDENT FUND M AINTAINED BY THE ASSESSEE UNDER THE RELEVANT RULES UNDER 1922 ACT, T HAT SUCH RECOGNITION HAD BEEN GRANTED AFTER THE TRUE NATURE OF THE COMMISSION PAYABLE BY THE ASSESSEE TO ITS SALESMEN UNDER THEIR CONTRACTS OF EMPLOYMENT HAD BEEN BROUGHT TO THE NOTICE OF THE CO MMISSIONER AND THAT SAID RECOGNITION HAD CONTINUED TO REMAIN IN OP ERATION DURING THE RELEVANT ASSESSMENT YEARS IN QUESTION; THE LAST FACT IN PARTICULAR CLEARLY IMPLIED THAT THE PROVIDENT FUND OF THE ASSE SSEE DID SATISFY ALL THE CONDITIONS LAID DOWN IN RULE 4 OF PART A OF THE FOURTH SCHEDULE TO THE ACT EVEN DURING THE RELEVANT ASSESSMENT YEAR S. IN THAT SITUATION WE DO NOT THINK THAT IT WAS OPEN TO THE T AXING AUTHORITIES TO QUESTION THE RECOGNITION IN ANY OF THE RELEVANT YEA RS ON THE GROUND THAT THE ASSESSEE'S PROVIDENT FUND DID NOT SATISFY ANY PARTICULAR CONDITION MENTIONED IN RULE 4. IT WOULD BE CONDUCIV E TO JUDICIAL ITA NO.2663 & 2593 /AHD/2014 WITH CO 8 DISCIPLINE AND THE MAINTAINING OF CERTAINTY AND UNI FORMITY IN ADMINISTERING THE LAW THAT THE TAXING AUTHORITIES S HOULD PROCEED ON THE BASIS THAT THE RECOGNITION GRANTED AND AVAILABL E FOR THE PARTICULAR ASSESSMENT YEAR IMPLIES THAT THE PROVIDE NT FUND SATISFIES ALL THE CONDITIONS UNDER RULE 4OF PART A OF THE FOU RTH SCHEDULE TO THE ACT AND NOT SIT IN JUDGMENT OVER IT. THERE IS AMPLE POWER CONFERRED UPON THE COMMISSIONER UNDER RULE 3 OF PART A OF THE FOURTH SCHEDULE TO WITHDRAW AT ANY TIME THE RECOGNITION AL READY GRANTED IF, IN HIS OPINION, THE PROVIDENT FUND CONTRAVENES ANY OF THE CONDITIONS REQUIRED TO BE SATISFIED FOR ITS RECOGNITION AND IF DURING ASSESSMENT PROCEEDINGS FOR ANY PARTICULAR ASSESSMENT YEAR THE TAXING AUTHORITY FINDS THAT THE PROVIDENT FUND MAINTAINED BY AN ASSE SSEE HAS CONTRAVENED ANY OF THE CONDITIONS OF RECOGNITION, H E MAY REFER THE QUESTION OF WITHDRAWAL OF RECOGNITION TO THE COMMIS SIONER BUT UNTIL THE COMMISSIONER ACTING UNDER THE POWERS RESERVED T O HIM WITHDRAWS SUCH RECOGNITION THE TAXING AUTHORITY MUS T PROCEED ON THE BASIS THAT THE PROVIDENT FUND HAS SATISFIED ALL THE REQUISITE CONDITIONS FOR ITS RECOGNITION FOR THAT YEAR; ANY OTHER COURSE IS BOUND TO RESULT IN CHAOS AND UNCERTAINTY WHICH HAS TO BE AVOIDED. IN THE CASE OF NTIN P. SHAH ALIAS MODI VS. DCIT 27 6 ITR 411 (GU].], IT WAS HELD AS UNDER: '27. THE CIT, HAVING ISSUED CERTIFICATE UNDER SECTI ON 68(2) OF THE SCHEME, JUDICIAL DISCIPLINE REQUIRES THAT THE A UTHORITIES ENTRUSTED WITH ADMINISTERING LAW PROCEED ON THE BAS IS THAT THE CERTIFICATE GRANTED BY THE CIT WOULD INDICATE SATIS FACTION OF ALL THE REQUISITE CONDITIONS AS REQUIRED BY THE PRO VISIONS OF THE SCHEME AND IT IS NOT OPEN TO SUBORDINATE AUTHORITY TO SIT IN JUDGMENT OVER THE CERTIFICATE GRANTED BY THE CIT. T HE ASSESSING OFFICER IN THE PRESENT CASE HAS, WHILE MA KING ADDITION OF RS. 137 LAKHS IN THE FRESH ASSESSMENT M ADE PURSUANT TO ORDER OF SET ASIDE, TAKEN UPON HIMSELF TO GIVE GO- BYE TO THE CERTIFICATE ISSUED BY THE CIT AS IF THE SAID CERTIFICATE HAD BEEN ISSUED BY THE CIT WITHOUT VERIFICATION OR APPLICATION OF MIND. THE COURT IS NOT PREPARED TO PROCEED ON SU CH AN ASSUMPTION, THOUGH IT WAS SO CONTENDED BY THE LEARN ED COUNSEL FOR THE REVENUE. THE FACT THAT THE CIT IS SUPERIOR AUTHORITY INSOFAR AS THE ASSESSING OFFICER IS CONCERNED, IS N OT IN DISPUTE AND COULD NOT BE DISPUTED BY THE LEARNED COUNSEL FO R THE REVENUE. ONCE THAT IS THE POSTTION, THE FOLLOWING O BSERVATIONS ITA NO.2663 & 2593 /AHD/2014 WITH CO 9 MADE BY THE APEX COURT IN CASE OF GESTETNER DUPLICA TORS(P.) LTD. V. CIT [1979] 117 ITR 11, WOULD APPLY. IN A CA SE WHERE A PRIVATE COMPANY EMPLOYED SALESMEN WITH A FIXED MONT HLY SALARY AND ALSO COMMISSION AT FIXED PERCENTAGE OF T HE TURNOVER ACHIEVED BY THE SALESMEN, THE ASSESSEE-COM PANY PAID EMPLOYER'S CONTRIBUTION TO A PROVIDENT FUND MAINTAI NED BY THE COMPANY AFTER COMPUTING THE SAME BY CONSIDERING BOT H AS SALARY. THE FUND WAS RECOGNISED BY THE CIT. ACCORDI NG TO THE ASSESSING OFFICER, THE COMMISSION SO PAID DID NOT P ARTAKE THE CHARACTER OF SALARY AND, HENCE, THE CONTRIBUTION MA DE IN RELATION TO SUCH COMMISSION WAS PROPORTIONATELY DIS ALLOWED IN THE ASSESSMENT PROCEEDINGS. AFTER DECIDING ON THE M ERITS OF THE DISPUTE BETWEEN THE PARTIES AND TAKING INTO CONSIDE RATION THE TERMS OF THE CONTRACT, IT WAS OBSERVED BY THE COURT THAT : '... IT WOULD BE CONDUCIVE TO JUDICIAL DISCIPLINE A ND THE MAINTAINING OF CERTAINTY AND UNIFORMITY IN ADMINIST ERING THE LAW THAT THE TAXING AUTHORITIES SHOULD PROCEED ON T HE BASIS THAT THE RECOGNITION GRANTED AND AVAILABLE FOR ANY PARTICULAR ASSESSMENT YEAR IMPLIES THAT THE PROVIDENT FUND SAT ISFIES ALL THE CONDITIONS UNDER RULE 4 OF PART A OF THE FOURTH SCHEDULE TO THE ACT AND NOT SIT IN JUDGMENT OVER IT. THERE IS A MPLE POWER CONFERRED UPON THE CIT UNDER RULE 3 OF PART A OF TH E FOURTH SCHEDULE TO WITHDRAW AT ANY TIME THE RECOGNITION AL READY GRANTED IF, IN HIS OPINION, THE PROVIDENT FUND CONT RAVENES ANY OF THE CONDITIONS REQUIRED TO BE SATISFIED FOR ITS RECOGNITION AND IF DURING THE ASSESSMENT PROCEEDINGS FOR ANY PA RTICULAR ASSESSMENT YEAR THE TAXING AUTHORITY FINDS THAT THE PROVIDENT FUND MAINTAINED BY AN ASSESSEE HAS CONTRAVENED ANY OF THE CONDITIONS OF RECOGNITION, HE MAY REFER THE QUESTIO N OF WITHDRAWAL OF RECOGNITION TO THE CIT; BUT UNTIL THE CIT ACTING UNDER THE POWERS RESERVED TO HIM, WITHDRAWS SUCH RE COGNITION THE TAXING AUTHORITY MUST PROCEED ON THE BASIS THAT THE PROVIDENT FUND HAS SATISFIED ALL THE REQUISITE COND ITIONS FOR ITS RECOGNITION FOR THAT YEAR; ANY OTHER COURSE IS BOUN D TO RESULT IN CHAOS AND UNCERTAINTY WHICH HAS TO BE AVOIDED.' (P. 15) THEREFORE, IT IS NOT OPEN TO THE ASSESSING OFFICER TO GO BEHIND THE CERTIFICATE ISSUED BY THE CIT AND BY IGNORING S AME, ASSESS AN INCOME WHICH HAS ALREADY BORNE TAX UNDER VDIC. IN THE CASE OF AGRICULTURE PRODUCE MARKET COMMITTEE VS. ITO [355 ITR 384(GUJ.)], IT WAS HELD AS UNDER: ITA NO.2663 & 2593 /AHD/2014 WITH CO 10 10. THIS HIGH COURT IN THE CASE OF AHMEDABAD URBAN DEVELOPMENT AUTHORITY (SUPRA}, HAS HELD THUS: '9. SECTION 12AA OF THE ACT LAYS DOWN THE PROCEDURE FOR REGISTRATION IN RELATION TO THE CONDITIONS FOR APPLICABILITY OF SECTIONS 11 & 12 AS PROVIDED IN SE CTION 12A OF THE ACT. THEREFORE, ONCE THE PROCEDURE IS COMPLETE AS PROVIDED IN SUB-SECTION (1) OF SECTION 12AA OF THE ACT AND A CERTIFICATE IS ISSUED GRANTING REGISTRATION TO THE TRUST OR INSTITUTION IT IS APPA RENT THAT THE SAME IS A DOCUMENT EVIDENCING SATISFACTION ABOU T: (1) GENUINENESS OF THE ACTIVITIES OF THE TRUST OR INSTITUTION, (2) ABOUT THE OBJECTS OF THE TRUST OR INSTITUTION. SECTION 12A OF THE ACT STIPULATES THAT PROVISIONS OF SECTIONS 11 & 12 SHALL NOT APPLY IN RELATION TO INCOME OF A TRUST OR AN INSTITUTION UNL ESS CONDITIONS STIPULATED THEREIN ARE FULFILLED. THUS G RANTING OF REGISTRATION UNDER SECTION12AA OF THE ACT DENOTE S, AS PER LEGISLATIVE SCHEME, THAT CONDITIONS LAID DOWN I N SECTION 12A OF THE ACT STAND FULFILLED. APPLYING THE PRINCIPLES LAID DOWN BY THE APEX COURT IN THE CASE OF GESTETNER DUPLICATORS (P.) LTD. V. CIT[197 9] 117 ITR 1 (SC)/1 TAXMAN 1 (SC) THE COURT HELD THAT WHILE FR AMING ASSESSMENT ORDER, IT WAS NOT OPEN TO THE ASSESSING OFFICER TO IGNORE THE CERTIFICATE OF REGISTRATION GRANTED UNDE R SECTION 12AA OF THE ACT BY THE DIRECTOR OF INCOME TAX [EXEM PTION]. 11. A PERUSAL OF THE REASONS RECORDED SHOWS THAT TH E ASSESSMENT IS SOUGHT TO BE REOPENED ON THE GROUND T HAT EVEN IF THE PETITIONER HAS OBTAINED REGISTRATION UNDER SECT ION 12AA OF THE ACT AS AN INSTITUTION CARRYING ON CHARITABLE AC TIVITIES, THE PETITIONER IS NOT ENTITLED TO THE STATUS OF TRUST C ARRYING OUT CHARITABLE ACTIVITIES SINCE THE PETITIONER IS CONDU CTING THE BUSINESS AS AN 'ASSOCIATION OF PERSONS' AND NOT AS A 'TRUST'. THUS, THOUGH THE PETITIONER HAS BEEN GRANTED REGIST RATION UNDER SECTION 12AA OF THE ACT BY THE COMMISSIONER O F INCOME- TAX, THE ASSESSMENT IS SOUGHT TO BE REOPENED ON THE BASIS OF REVENUE AUDIT OBJECTION THAT THE PETITIONER IS NOT ELIGIBLE FOR EXEMPTION FOR THE AFORESAID REASONS. THE GROUNDS FO R ITA NO.2663 & 2593 /AHD/2014 WITH CO 11 REOPENING THE ASSESSMENT ARE CLEARLY CONTRARY TO TH E SETTLED LEGAL POSITION AS LAID DOWN BY THIS COURT IN THE CA SE OF HIRALA/BHAGWATI (SUPRA) AS WELL AS IN THE CASE OF A HMEDABAD URBAN DEVELOPMENT AUTHORITY (EXEMPTION), WHEREIN TH E COURT HAS HELD THAT SECTION 12AA OF THE ACT LAYS DOWN THE PROCEDURE FOR REGISTRATION IN RELATION TO THE CONDITIONS FOR APPLICABILITY OF SECTIONS 11 AND 12 AS PROVIDED IN SECTION 12A OF THE ACT. THEREFORE, ONCE THE PROCEDURE IS COMPLETE AS PROVID ED UNDER SUB-SECTION (1) OF SECTION 12AA OF THE ACT AND A CE RTIFICATE IS ISSUED GRANTING REGISTRATION TO THE TRUST OR INSTIT UTION, IT IS APPARENT THAT THE SAME IS A DOCUMENT EVIDENCING SAT ISFACTION ABOUT: (1) GENUINENESS OF THE ACTIVITIES OF THE TRU ST OR INSTITUTION, AND (2) ABOUT THE OBJECTS OF THE TRUST OR INSTITUTION. WHILE FRAMING THE ASSESSMENT ORDER, IT IS NOT OPEN TO THE ASSESSING OFFICER TO IGNORE THE CERTIFICATE OF REGI STRATION GRANTED UNDER SECTION 12AA OF THE ACT BY THE DIRECT OR OF INCOME TAX(EXEMPTION). 12. IN THE FACTS OF THE PRESENT CASE, THE ASSESSING OFFICER WHILE FRAMING THE ORIGINAL ASSESSMENT UNDER SECTION 143(3 ) OF THE ACT HAS, TAKEN INTO CONSIDERATION THE CERTIFICATE G RANTED BY THE COMMISSIONER OF INCOME TAX UNDER SECTION 12AA OF TH E ACT., AND HAS FOUND THAT THE PETITIONER CARRIES ON CHARIT ABLE ACTIVITIES. IN THE RETURN OF INCOME FILED BY IT, TH E PETITIONER HAD SPECIFICALLY CLAIMED DEDUCTION OF RS.32,401212/- AN D RS. 45,00,000/- TOTALLING TO RS. 77,40,212/- AS A CHA RITABLE TRUST REGISTERED UNDER SECTION 12AA OF THE ACT BY THE COM MISSIONER OF INCOME TAX. DURING THE COURSE OF ASSESSMENT PROC EEDINGS THE ASSESSING OFFICER HAD ISSUED NOTICE PURSUANT TO WHICH THE PETITIONER HAD GIVEN ITS REPLY EXPLAINING AS TO WHY IT WAS ENTITLED TO THE SAID DEDUCTIONS. THE ASSESSING OFFI CER AFTER CONSIDERING THE EXPLANATION GIVEN BY THE PETITIONER HAD PASSED A SCRUTINY ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT SPECIFICALLY ALLOWING THE ABOVE DEDUCTIONS. FROM TH E REASONS RECORDED, IT IS EVIDENT THAT THE ASSESSING OFFICER HAS NOT RECORDED ANY INDEPENDENT OPINION REGARDING INCOME H AVING ESCAPED ASSESSMENT FOR THE REASONS STATED THEREIN. THE SOLE GROUND FOR REOPENING THE ASSESSMENT APPEARS TO BE T HE OBSERVATIONS OF THE REVENUE AUDIT PARTY THAT THE AS SESSEE IS NOT ELIGIBLE FOR EXEMPTION TO THE TUNE OF RS. 77,40 ,212/- FOR THE YEARUNDER REFERENCE SINCE, THE ASSESSING OFFICER HA S NOT DISALLOWED THE EXEMPTION WHILE FINALIZING THE ASSES SMENT ITA NO.2663 & 2593 /AHD/2014 WITH CO 12 UNDER SECTION 143(3) OF THE ACT. THUS, IT APPEARS T HAT THE BELIEF THAT INCOME CHARGEABLE TO TAX ESCAPED ASSESSMENT IS THAT OF THE REVENUE AUDIT PARTY AND NOT OF THE ASSESSING OF FICER. IN THE CIRCUMSTANCES. THE CONDITION PRECEDENT FOR EXER CISE OF POWERS UNDER SECTION 147 OF THE ACT, NAMELY, THAT T HE ASSESSNG OFFICER SHOULD HAVE REASON TO BELIEVE THA T INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, DOES NOT APPEAR TO BE FULFILLED IN THE PRESENT CASE. 13. BESIDES, IN THE LIGHT OF THE ABOVE REFERRED DEC ISIONS OF THIS COURT, IT IS NOT PERMISSIBLE FOR THE ASSESSING OFFI CER TO GO BEHIND THE REGISTRATION OBTAINED BY THE ASSESSEE UN DER SECTION 12AA OF THE ACT. IN THE CASE OF ITO VS. E-INFOCHIPS LTD. 124 TTJ 176 (AHD.), IT WAS HELD AS UNDER: '7. NOW ADVERTING TO OTHER ASPECTS RELATING TO NO N EW UNDERTAKING HAVING BEEN ESTABLISHED AND VIOLATION O F STPI NORMS., THE AO FOUND THAT THE TAXPAYER WAS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT SINCE 1995 AND WAS REGISTERED AS 100 PER CENT EDU WITH STPI ON 31ST AU G., 1995. ACCORDING TO THE AO, THE UNDERTAKING WAS OLD AND BY CONVERSION IT CANNOT BECOME A NEWLY ESTABLISHED UND ERTAKING, AS IS REQUIRED UNDER S. 108. SINCE AT THE TIME OF R EGISTRATION WITH STPI THE UNDERTAKING WAS ALREADY IN EXISTENCE, AO HELD THAT IT COULD NOT BE HELD TO BE A NEW ESTABLISHED U NDERTAKING. HE ALSO REFERRED TO THE FACTS REGARDING NO NEW PURC HASE OF MACHINERIES AND COMMENCEMENT OF SOFTWARE DEVELOPMEN T IN ASST. YR. 1995-96AND EXPORTS IN ASST. YR. 1996-97. THIS PROVES THAT THE EOU WAS AND EXISTING UNIT WHICH HAD STARTE D PRODUCTION AND WAS IN OPERATION BEFORE REGISTRATION . BESIDES THE AO ALSO FOUND THAT THOUGH THE TAXPAYER WAS HAVI NG STATUS OF 100 PER CENT EOU, HE HAD MADE LOCAL SALES OF RS. 4,73,290 WITHOUT TAKING PRIOR APPROVAL FROM STPI. HE ALSO PO INTED OUT THE VIOLATION OF THE PROVISIONS OF THE CUSTOMS ACT IN DECEMBER, 2000, DETECTED DURING THE SEARCH BY THE C ENTRAL EXCISE AND CUSTOMS AUTHORITIES ON 11.TH DEC, 2001, WHEN CAPITAL GOODS WERE FOUND TO HAVE BEEN MOVED FROM BO NDED WAREHOUSE, WITHOUT OBTAINING PERMISSION FROM THE CO MPETENT AUTHORITY. INTER ALIA, ON THE BASIS OF THESE VIOLAT IONS, THE AO ITA NO.2663 & 2593 /AHD/2014 WITH CO 13 DISALLOWED THE CLAIM OF THE TAXPAYER FOR DEDUCTION UNDER S. 108 OF THE ACT. THE AO FURTHER OBSERVED THAT THE CO MPANY WAS INCORPORATED IN 1988 AND AT THAT POINT OF TIME DEDU CTION UNDER S. 108 WAS AVAILABLE FOR FIVE YEARS FROM ASST. YR. 1990-91. AS IN ASST. YR. 1996-97 NO NEW UNDERTAKING WAS ESTABLI SHED AND IT WAS MERELY A CONVERSION WHILE NO SEPARATE ACCOUNTS OF THE BUSINESS OF THE EOU WERE KEPT, THE TAXPAYER WAS NOT ENTITLED TO ANY DEDUCTION. 7.1 BEFORE THE LEARNED CIT(A), THE TAXPAYER SUBMITT ED THAT THERE IS NO VIOLATION IN RESPECT OF SUBMISSION OF F ORMS IN RESPECT OF EXPORT SALES EXCEPT THAT NO PRIOR INTIMA TION WAS GIVEN IN RESPECT OF DOMESTIC TARIFF AREA SALES-SALE S IN INDIA. THE AO FAILED TO APPRECIATE THAT THE ACT DOES NOT P ROVIDE FOR WITHDRAWAL OF THE EXEMPTION UNDER S..10B ON ANY VIO LATION OF STPI PERMISSION ETC. THE STPI AUTHORITIES WERE AWAR E OF THE VIOLATIONS IN RESPECT OF DOMESTIC SALES AND EVEN TH EN DID NOT WITHDRAW THE REGISTRATION. UNDER S. 10B THE UNDERTA KING IS PERMITTED TO MAKE SALES IN DOMESTIC MARKET, AS PER 2ND PROVISO TO S.10B(I) OF THE ACT. BESIDES, THE UNDERT AKING HAD SHIFTED ITS CAPITAL GOODS FROM BONDED WAREHOUSE TEM PORARILY DUE THE SHORTAGE OF SPACE. THE NOTIFICATION NO. 140 OF 1991, DT. 22ND OCT., 1991., UNDER CUSTOMS ACT, GRANTS EXE MPTION FROM WHOLE OF DUTY AND ADDITIONAL DUTY TO THE CAPIT AL GOODS IMPORTED BY 100 PER CENT EOU, SUBJECT TO CONDITION THAT IMPORTER AGREES NOT TO MOVE THE GOODS FROM THE UNIT S WITHOUT APPROVAL OF ASSTT. COMMR.OF CUSTOMS. THE CUSTOMS DEPARTMENT LEVIED A PENALTY OF RS. 2,00,000 FOR THE PROCEDURAL LAPSE AS MENTIONED ABOVE. IN THIS RESPECT THE ORDER OF THE ASSTT. COMMR.OF CUSTOMS., LEVYING PENALTY READS AS UNDER : I FIND FROM THE RECORDS THAT THE SAID UNIT HAS ALR EADY EXPORTED GOODS VALUED AT RS. 12,96, 73,255 TILL DEC EMBER, 2000, AS AGAINST TOTAL EXPORT OBLIGATION OF RS. 1,0 0,17.,106 FIXED AS PER TERMS AND CONDITIONS OF STPI., GANDHIN AGAR, AGAINST THE OF DUTY FREE CAPITAL GOODS. THUS THE UN IT HAS FULFILLED THE MAIN CONDITION REGARDING FULFILMENT O F EXPORT OBLIGATIONS. ONLY BREACH ON THE PART OF THE SAID UN IT IS SHIFTING OF CAPITAL GOODS (WAREHOUSED GOODS) FROM BONDED WAR EHOUSE TO A PREMISES OTHER THAN BONDED WAREHOUSE WITHOUT O BTAINING ANY PERMISSION FROM COMPETENT AUTHORITY., WHICH CAN BE ITA NO.2663 & 2593 /AHD/2014 WITH CO 14 CONSIDERED AS A PROCEDURAL LAPSE. THERE IS NO DUTY INVOLVEMENT IN RESPECT OF IMPORTED CAPITAL GOODS.' 7.1.1. IT WAS FURTHER SUBMITTED BEFORE LEARNED CIT( A} THAT SINCE THE UNDERTAKING HAS BEEN REGISTERED WITH STPI , WHICH FACT HAS BEEN ACCEPTED BY THE AO, HE WAS NOT COMPET ENT TO QUESTION THE RECOGNITION BY THE STPI ON THE BASIS O F ALLEGED VIOLATION OF ANY OF THE CONDITIONS PRESCRIBED BY ST PI WHILE GRANTING THE APPROVAL. IF THE AO SITS IN JUDGMENT O VER THE APPROVAL GRANTED BY STPI, THEN IT WILL AMOUNT TO JU DICIAL INDISCIPLINE WHICH IS NOT PERMITTED. IN THIS RESPEC T TAXPAYER RELIED ON THE JUDGMENT IN THE CASE OF GESTETNER DUPLICATORS(P.) LTD. V. CIT[1979] 8 CTR {SC) 371: [ 1979] 117 ITR 1 (SC), WHEREIN IT IS HELD: .. . ANY BUSINESSMEN ARE REQUIRED TO CARRY OUT ITS BUSIN ESS IN ACCORDANCE WITH THE RULES AND REGULATIONS LAID DOWN UNDER VARIOUS ACTS. BUT VIOLATION OF A RULES AND REGULATI ONS PROVIDED UNDER OTHER ACT DOES NOT AUTOMATICALLY DISQUALIFY T HE BUSINESSMEN FROM THE INCENTIVE SECTIONS, IF THE CON DITIONS AS MENTIONED IN THE RELEVANT PROVISION OF THE IT ACT A RE FULFILLED. IT IS ALSO NOTED FROM THE PROVISION OF S. 10B, THAT THE SECTION DOES NOT REQUIRE THAT THE BOOKS OF ACCOUNTS OF THE EOU SHOULD BE KEPT SEPARATELY. IN VIEW OF THE DECISION RELIED UPON BY THE APPELLANT, REJECTION OF THE BENEFIT ON THIS GROUND IS ALSO NOT JUSTIFIED. .. 7.5 WE HAVE HEARD THE RIVAL CONTENTION AND GONE THR OUGH THE FACTS OF THE CASE ON THE ASPECTS OF VIOLATION OF ST PI NORMS AND ESTABLISHMENT OF NEW UNDERTAKING, WE DO NOT FIND AN Y INFIRMITY IN THE FINDINGS OF LEARNED CIT(AJ'. IN THE CASE OF ITO VS. GUJARAT INFORMATION TECHNOLO GY FUND 45 SOT 529 (AHD.), IT WAS HELD AS UNDER: ITA NO.2663 & 2593 /AHD/2014 WITH CO 15 '(5)WHETHER AO CAN LOOK INTO WHETHER VENTURE CAPITA L FUND FULFILS CONDITIONS LAID DOWN IN SEBI {VENTURE CAPITAL FUNDS }REGULATIONS, 1996. 24. IN OUR CONSIDERED VIEW THE AO IS DUTY BOUND TO ENQUIRE WHETHER THE ASSESSEE TRUST IS REGISTERED UNDER THE REGISTRA TION ACT, 1908 AND HAS BEEN GRANTED CERTIFICATE OF REGISTRATION BY SEB I UNDER SEBI(VENTURE CAPITAL FUNDS) REGULATIONS, 1996. BUT HIS ROLE IS CONFINED TO SATISFY HIMSELF WITH SUCH CERTIFICATES GRANTED AND NOT BEYOND. SUB-CLAUSE (I) AND SUB-CLAUSE (II) OF CLAUS E (B) UNDER EXPLANATION L ONLY REQUIRES TO ENSURE THAT ASSESSEE TRUST HAS CERTIFICATES AS MENTIONED THEREIN. EVEN IF CERTIFIC ATES ARE GRANTED UNDER MISREPRESENTATION OF FACTS THEN IT IS FOR THE CONCERNED AUTHORITIES TO LOOK INTO THE MATTER AND TAKE ACTION UNDER THE PROVISIONS OF THE CONCERNED STATUTE UNDER WHICH CER TIFICATES ARE GRANTED. IN THIS REGARD THE OBSERVATIONS OF THE HON . SUPREME COURT IN THE CASE OF GESTETNER DUPLICATORS (P.) LTD. (SUP RA) ARE VERY RELEVANT. IN THAT CASE THE COMMISSIONER HAD GRANTED RECOGNITION TO THE P.F. AS FAR BACK AS 1937. THE ASSESSEE A PRIVAT E LIMITED COMPANY PAID TO SALESMEN A FIXED MONTHLY SALARY AND COMMISS ION AT FIXED PERCENTAGE OF TURNOVER AND ALSO PAID EMPLOYER'S CON TRIBUTION TO THE P. F. ON THE BASIS OF MONTHLY SALARY AS WELL AS COM MISSION AND CREDITED THEM INTO INDIVIDUAL ACCOUNT OF THESE SALE S-MEN IN P.F. MAINTAINED AND RECOGNIZED BY THE COMMISSIONER. A PA RT OF SUCH COMMISSION AND CONSEQUENTLY PROVIDENT FUND ON SUCH COMMISSION WAS SOUGHT TO BE DISALLOWED. THE MATTER WENT UP TO THE HON. SUPREME COURT. IT OBSERVED AS UNDER:- .. 25. SO FAR AS CONDITION LAID DOWN IN SUB-CLAUSE (II I) OF CLAUSE (B)UNDER EXPLANATION 1 IS CONCERNED WHAT WE CONSIDE R APPROPRIATE FOR THE AO IS TO FIND OUT WHETHER ANY A CTION FOR DEFAULT HAS BEEN TAKEN BY SEBI UNDER REGULATION -30 AS REFERRED TO ABOVE FOR DEFAULT COMMITTED BY THE ASSE SSEE TRUST. SO FAR AS ANY VIOLATION OF INVESTMENT PATTERN AS LA ID DOWN IN REGULATION 12(D) IS CONCERNED IT IS ALSO COVERED UN DER CLAUSE (A) OF REGULATION-30 WHICH SHOWS THAT ASSESSEE TRUS T CAN BE PENALIZED FOR CONTRAVENTION OF ANY PROVISION OF THI S ACT OR THESE REGULATIONS. THUS, IF ASSESSEE TRUST CONTRAVE NES REGULATION-12(D) THEN SEBI IS COMPETENT TO PENALIZE ASSESSEE TRUST WITHIN THE POWERS GIVEN UNDER REGULATION 30. SO LONG AS ITA NO.2663 & 2593 /AHD/2014 WITH CO 16 SEBJ DOES NOT FIND ANY DEFAULT OF ANY CONTRAVENTION OF THE PROVISIONS OF THE SEBI ACT OR SEBI (VCF)REGULATION 1996 THEN IT CAN BE INFERRED THAT ASSESSEE TRUST FULFILS THE CONDITIONS LAID DOWN UNDER THESE REGULATIONS. THE AO,, HOWEVER , CAN LOOK INTO THE ISSUE WHETHER ASSESSEE TRUST FULFILS SUCH CONDITIONS AS LAID DOWN IN REGULATION 12(D) (AND NO T UNDER REGULATON-8) AND REPORT THE MATTER TO SEB/ TAKING A PROTECTIVE VIEW UNDER L. T. ACT:. 1961. IF FINALLY SEBI DOES N OT FIND ANY DEFAULT ON THE PART OF THE ASSESSEE TRUST THEN VIEW OF THE AO THAT THERE IS VIOLATION CANNOT SURVIVE. IN OTHER WO RDS FULFILMENT OF CONDITION UNDER SUB-CLAUSE (III} IS SUBJECT TO T HE FINAL FINDING BY 581 AUTHORITIES. THEIR FINAL VIEW ON TH E ALLEGED CONTRAVENTION BY THE ASSESSEE TRUST WILL PREVAIL OV ER THE VIEW OF AO. THUS IN OUR VIEW ROLE OF THE AO IN EXAMINING THE ISSUE ABOUT FULFILMENT OF CONDITIONS LAID DOWN IN CLAUSE (B) IS LIMITED TO THE EXTENT AS DESCRIBED ABOVE. THEREFORE THE A.O'S FINDING THAT THE APPELLANT IS N OT ELIGIBLE FOR DEDUCTION U/S801AB SINCE IT VIOLATED THE PROVISIONS OF SEZ ACT IS NOT LEGALLY TENABLE. 3.7 SIMILARLY, THE A.O'S OBSERVATION THAT M/S DPCL WAS NOT AN APPROVED UNIT AS ON 31-03-2010 IS AGAINST THE FACTS ON RECORD. AS ADMITTED BY THE DEVELOPMENT COMMISSIONER'S OFFICE, DPCL HAD FILED APPLICATION FOR APPROVAL ON29-03-2011 AND THEREFORE THE APPROVAL GIVEN ON 26-06-2011 WILL DATE BACK TO THE DATE OF A PPLICATION. IN THE CASE RELIED ON BY THE A.R. AND CITED AT 326 ITR251 (GUJ), IT WAS HELD AS UNDER: '5. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LEARNED STANDING COUNSEL APPEARING FOR THE REVENUE AND WE H AVE ALSO PERUSED THE ORDERS PASSED BY THE AUTHORITIES BELOW. 6. THE TRIBUNAL HAS DISCUSSED THIS ISSUE AT LENGTH IN ITS ORDER. IT WAS CONTENDED BY THE ASSESSEE BEFORE THE TRIBUNA L THAT NOWHERE THE PROVISIONS PROVIDE THAT EXPENDITURE FRO M THE DATE OF APPROVAL ONLY HAS TO BE ALLOWED. IN THE ABSENCE OF THOSE WORDS, SUCH CONDITIONS CANNOT BE IMPUTED IN THE STA TUTE BY THE LOWER AUTHORITIES. DOING SO AMOUNTS TO READING MORE IN THE LAW WHICH IS NOT EXPRESSLY PROVIDED. THE WORDS USED ARE ANY EXPENDITURE INCURRED BY THE ASSESSEE ON SCIENTIFIC RESEARCH ON ITA NO.2663 & 2593 /AHD/2014 WITH CO 17 THE IN-HOUSE 'R & D' FACILITY APPROVED BY THE PRESC RIBED AUTHORITIES HAS TO BE ALLOWED BY DEDUCTION OF EXPEN DITURE SO INCURRED. MEANING OF THESE WORDS IS PLAIN AND CLEAR THAT THE FACILITY IS TO BE ESTABLISHED FIRST AND ON APPROVAL OF THE FACILITY ALL THE EXPENDITURE SO INCURRED BY THE ASSESSEE FOR DEVELOPMENT OF IN-HOUSE FACILITY IS TO BE HELD AS E LIGIBLE FOR WEIGHTED DEDUCTION. FORM NO. 3CM, WHICH IS ORDER OF APPROVAL AS PROVIDED BY THE RULES IN THIS BEHALF AL SO DOES NOT HAVE ANY MENTION OF DATE OF APPROVAL RATHER IT SPEA KS OF ONLY APPROVAL. THE LOWER AUTHORITIES ARE READING MORE TH AN WHAT IS PROVIDED BY LAW. A PLAIN AND SIMPLE READING OF THE ACT PROVIDES THAT ON APPROVAL OF THE 'R & D' FACILITY, EXPENDITURE SO INCURRED IS ELIGIBLE FOR WEIGHTED DEDUCTION. 7. THE TRIBUNAL HAS CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND TOOK THE VIEW THAT SECTI ON SPEAKS OF (I) DEVELOPMENT OF FACILITY; (II) INCURRING OF EXPE NDITURE BY THE ASSESSEE FOR DEVELOPMENT OF SUCH FACILITY; (III) AP PROVAL OF THE FACILITY BY THE PRESCRIBED AUTHORITY, WHICH IS 'DSI R'; AND {IV) ALLOWANCE OF WEIGHTED DEDUCTION ON THE EXPENDITURE SO INCURRED BY THE ASSESSEE. THE PROVISIONS NOWHERE SU GGEST OR IMPLY THAT 'R & D' FACILITY IS TO BE APPROVED FROM A PARTICULAR DATE AND IN OTHER WORDS, IT IS NOWHERE SUGGESTED TH AT DATE OF APPROVAL ONLY WILL BE CUT-OFF DATE FOR ELIGIBILITY OF WEIGHTED DEDUCTION ON THE EXPENSES INCURRED FROM THAT DATE O NWARDS. A PLAIN READING CLEARLY MANIFESTS THAT THE ASSESSEE H AS TO DEVELOP FACILITY, WHICH PRESUPPOSES INCURRING EXPEN DITURE IN THIS BEHALF, APPLICATION TO THE PRESCRIBED AUTHORIT Y, WHO AFTER FOLLOWING PROPER PROCEDURE WILL APPROVE THE FACILIT Y OR OTHERWISE AND THE ASSESSEE WILL BE ENTITLED TO WEIG HTED DEDUCTION OF ANY AND ALL EXPENDITURE SO INCURRED. T HE TRIBUNAL HAS, THEREFORE, COME TO THE CONCLUSION THA T ON PLAIN READING OF SECTION ITSELF, THE ASSESSEE IS ENTITLED TO WEIGHTED DEDUCTION ON EXPENDITURE SO INCURRED BY THE ASSESSE E FOR DEVELOPMENT OF FACILITY. THE TRIBUNAL HAS ALSO CONS IDERED RULE 6{5A) AND FORM NO. 3CM AND COME TO THE CONCLUSION T HAT A PLAIN AND HARMONIOUS READING OF RULE AND FORM CLEAR LY SUGGESTS THAT ONCE FACILITY IS APPROVED, THE ENTIRE EXPENDITURE SO INCURRED ON DEVELOPMENT OF 'R & D' FACILITY HAS TO BE ALLOWED FOR WEIGHTED DEDUCTION AS PROVIDED BY SECTI ON 35(2AB). THE TRIBUNAL HAS ALSO CONSIDERED THE LEGIS LATIVE INTENTION BEHIND ABOVE ENACTMENT AND OBSERVED THAT TO BOOST ITA NO.2663 & 2593 /AHD/2014 WITH CO 18 UP R & D FACLITY IN INDIA, THE LEGISLATURE HAS PRO VIDED THIS PROVISION TO ENCOURAGE THE DEVELOPMENT OF THE FACIL ITY BY PROVIDING DEDUCTION OF WEIGHTED EXPENDITURE. SINCE WHAT IS STATED TO BE PROMOTED WAS DEVELOPMENT OF FACILITY., INTENTION OF THE LEGISLATURE BY MAKING ABOVE AMENDMENT IS VERY C LEAR THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE ON DEVELOPMENT OF FACILITY, IF APPROVED, HAS TO BE ALL OWED FOR THE PURPOSE OF WEIGHTED DEDUCTION. 8. WE ARE IN FULL AGREEMENT WITH THE REASONING GIVE N BY THE TRIBUNAL AND WE ARE OF THE VIEW THAT THERE IS NO SC OPE FOR ANY OTHER INTERPRETATION AND SINCE THE APPROVAL IS GRAN TED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR I N QUESTION, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM WEIGHTED DEDUCTION IN RESPECT OF THE ENTIRE EXPENDI TURE INCURRED UNDER SECTION 35(2AB) OF THE ACT BY THE AS SESSEE. 9. WE ARE, THEREFORE, OF THE VIEW THAT NO SUBSTANTI AL QUESTION OF LAW ARISES OUT OF THE ORDER OF THE TRIBUNAL. THIS A PPEAL IS, THEREFORE, DISMISSED. EVEN IF IT IS PRESUMED THAT THE APPROVAL WAS APPLIC ABLE TO THE SUCCEEDING YEAR ONLY, THE MONEY RECEIVED FROM OPCL BY THE APPELLANT IS TO BE HELD TO BE AN ADVANCE AND CANNOT BE TAXED AS INCOME IN THE YEAR UNDER CONSIDERATION. A.O.'S PASS ING OBSERVATION AT PARA-10.2.4 [PAGE 20] OF THE ASSESSMENT ORDER[TH AT SEC. BOIA( 1 O) IS ATTRACTED TO THE TRANSACTION] IS WITHOUT ANY BASIS. 3.8 AS REGARDS THE STATEMENT GIVEN BY THE M.D OF TH E APPELLANT COMPANY, IT IS SEEN THAT THE STATEMENT WAS CLARIFIE D/RETRACTED BY THE AFFIDAVIT FILED AFTER 2MONTHS. THE TIME LAG WAS EXP LAINED BY THE APPELLANT TO BE ON ACCOUNT OF THE ILL-HEALTH OF THE M.D., THE NON- FURNISHING OF COPY OF THE STATEMENT BY THE A.O. TO THE APPELLANT AND THE APPELLANT BEING ALLOWED ONLY TO INSPECT THE STA TEMENT ON 8 TH , 9 TH AND 10 TH OF NOVEMBER,2013. FURTHER, ELIGIBILITY OR OTHERWIS E OF DEDUCTION IS TO BE DECIDED ON THE BASIS OF PROVISIO NS OF SEC. 801AB AND THE DOCUMENTARY EVIDENCE. JUDICIAL OPINION IS S ETTLED THAT THE STATEMENT RECORDED DURING THE COURSE OF SURVEY DOES NOT HAVE THE EVIDENTIARY VALUE OF THE STATEMENT RECORDED U/S 132 (4). RELIANCE IS PLACED IN THIS REGARD ON THE CASE-LAWS CITED AT210 TAXMAN 248 [SC] AND 300 ITR 157 [MAD]. ITA NO.2663 & 2593 /AHD/2014 WITH CO 19 3.9 1N THE LIGHT OF THE ABOVE DISCUSSION, I AM OF T HE CONSIDERED VIEW THAT DISALLOWANCE OF DEDUCTION U/S 801AB BY THE A.O . WAS BASED ON EXTRANEOUS OBSERVATIONS, WHICH ORE NOT RELEVANT TO THE ISSUE UNDER CONSIDERATION. A.O DID NOT BRING ANY MATERIAL ON RE CORD TO SHOW THAT THE APPELLANT DID NOT SATISFY THE CONDITIONS LAID D OWN U/S 801AB. DISALLOWANCE OF DEDUCTION IS NOT IN ACCORDANCE WITH LAW. IT IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 6. THE LD.DR RELIED UPON THE ASSESSMENT ORDER, AND SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN ACCEPTING THE CLAIM OF T HE ASSESSEE. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESSEE, SHRI S .N.SOPARKAR HAS RELIED UPON THE ORDER OF THE LD.CIT(A). HE SUBMITT ED THAT THE ISSUE IN DISPUTE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF B.A. RES EARCH INDIA LTD., 70 TAXMANN.COM 268 (GUJ). HE ALSO RELIED UPON THE DECISION OF THE ITAT IN THE CASE OF ZAVERI & CO. P. LTD., IN ITANO. 1395- 96/AHD/2013, COPY OF WHICH IS ALSO PLACED ON PAPER BOOK PAGE NO.507-533. HE SUBMITTED THAT THESE DECISIONS HAVE BEEN ELABORATELY DISCUSSED BY THE LD.CIT(A). IN BRIEF, HIS LINE OF ARGUMENT IS THAT ONCE THE APPROVAL FOR DEVELOPMENT OF SEZ IS BEING GRANTE D BY THE PRESCRIBED AUTHORITY, AND SUCH APPROVAL IS VALID, T HEN IT WOULD NO LONGER BE OPEN TO THE AO TO VERIFY THE SATISFACTION OF THE CONDITIONS PRESCRIBED IN THE DIFFERENT RULES IN ORDER TO DEDUC E DEDUCTION ADMISSIBLE UNDER SECTION 80IAB OF THE ACT. 7. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND GO NE THROUGH THE RECORD CAREFULLY. BEFORE WE EMBARK UPON AN INQ UIRY ON THE REASONS ASSIGNED BY THE AO, IN ORDER TO ASSESS SUST AINABILITY OF THE ORDER OF THE FIRST APPELLATE AUTHORITY, WE DEEM IT APPROPRIATE TO APPRAISE OURSELVES WITH REGARD TO THE BASIC CONDITI ONS REQUIRED TO BE ITA NO.2663 & 2593 /AHD/2014 WITH CO 20 FULFILLED BY ANY ASSESSEE FOR CLAIMING DEDUCTION UN DER SECTION 80IAB OF THE ACT. THUS, IN ORDER TO INQUIRE ESSENTIAL CO NDITIONS, WE HAVE TO TAKE A BRIEF LOOK INTO THE SCHEME OF SEZ AND HOW IT PROVIDES A TAX HOLIDAY TO AN ASSESSEE. FOR BETTER DEVELOPMENT OF INFRASTRUCTURE IN THE COUNTRY, GOVERNMENT OF INDIA AMONG VARIOUS OTHER ME ASURES AND LEGISLATIONS, ENACTED SEZ ACT OFFERING VARIOUS BENE FITS TO DEVELOPERS OF VARIOUS SEZS IN INDIA. THIS ACT WAS ENACTED IN 2005, AND HEREINAFTER REFERRED TO SEZ ACT. THE SECTION 51( 1) OF THE SEZ ACT, PROVIDES OVERRIDING EFFECT OVER ALL OTHER LEGISLATI ONS OR INSTRUMENT. UNDER THE SCHEME OF SEZ ACT, THE BOARD OF APPROVAL (BOA) IS CONSTITUTED, TO WHOM VIDE POWERS HAVE BEEN ENTRUSTE D I.E. FROM THE IMPLEMENTATION OF THE ACT, RULES AND OTHER ASPECTS. IT IS ALSO OBSERVED THAT IN THE DECISION OF THE SAID BOA, A JO INT SECRETARY TO THE GOVERNMENT OF INDIA REPRESENTING THE CENTRAL BOARD OF DIRECT TAXES IS ALSO BEING MADE A MEMBER. SECTION 9 OF THE SEZ ACT PROVIDES DUTIES, POWER AND FUNCTIONS OF THE BOA. SECTION 80IAB WAS NOT INTRODUCED BY THE INCOME TAX ACT, BUT BY THE SEZ ACT, 2005. I T ALSO AMENDED VARIOUS OTHER LAWS. RELEVANT INCOME TAX RELATED AM ENDMENTS ARE PROVIDED IN SECTION 27 OF THE SEZ ACT. SIMILARLY, SECOND SCHEDULE IN CLAUSE 13 ALSO AMENDS VARIOUS OTHER LAWS WHICH HAVE BEARING ON THE DEVELOPMENT OF SEZS IN INDIA. SECTION 80IAB INCOR PORATED IN THE INCOME TAX ACT BY SEZ ACT WITHOUT AMENDING THE FINA NCE ACT, WHICH READS AS UNDER: 'THE SECOND SCHEDULE' (13) NOTHING CONTAINED IN THIS SECTION SHALL APPLY TO ANY SPECIAL ECONOMIC ZONES NOTIFIED ON OR AFTER THE 1ST DAY OF APRIL, 20 05 IN ACCORDANCE WITH THE SCHEME REFERRED TO IN SUB CLAUSE (HI) OF CLAUSE (C) OF SUB-SECTION (4) '. ITA NO.2663 & 2593 /AHD/2014 WITH CO 21 (F) AFTER SECTION 80-IA, THE FOLLOWING SECTION SHAL L BE INSERTED, NAMELY:- DEDUCTIONS IN '80-1AB. (1) WHERE THE GROSS TOTAL IN COME OF AN ASSESSEE, BEING A DEVELOPER, INCLUDES ANY PROFITS AND GAINS D ERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS OF DEVELOPING A SPECIAL ECONOMIC ZONE, NOTIFIED ON OR AFTER THE 1ST DAY OF APRIL, 2005 UND ER THE SPECIAL ECONOMIC ZONE ACT, 2005, THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO ONE HUNDRED PER CEN T, OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIV E ASSESSMENT YEARS.' (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY, AT THE OPTION OF THE ASSESSEE, BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH A SP ECIAL ECONOMIC ZONE HAS BEEN NOTIFIED BY THE CENTRAL GOVERNMENT: PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F ANY UNDERTAKING, BEING A DEVELOPER FOR ANY ASSESSMENT YEAR, ITS PROFITS AN D GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF SUB-SE CTION (13) OF SECTION 80-1 A, THE UNDERTAKING BEING THE DEVELOPER SHALL BE ENT ITLED TO DEDUCTION REFERRED TO IN THIS SECTION ONLY FOR THE UNEXPIRED PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS AND THEREAFTER IT SHALL BE ELIGIBL E FOR DEDUCTION FROM INCOME AS PROVIDED IN SUB-SECTION (1) OR SUBSECTION (2) AS THE CASE MAY BE: PROVIDED FURTHER THAT IN A CASE WHERE AN UNDERTAKIN G, BEING A DEVELOPER WHO DEVELOPS A SPECIAL ECONOMIC ZONE ON OR AFTER THE 1S T DAY OF APRIL, 2005 AND TRANSFERS THE OPERATION AND MAINTENANCE OF SUCH SPE CIAL ECONOMIC ZONE TO ANOTHER DEVELOPER (HEREAFTER IN THIS SECTION REFERR ED TO AS THE TRANSFEREE DEVELOPER), THE 'DEDUCTION UNDER SUB-SECTION (1) SH ALL BE ALLOWED TO SUCH TRANSFEREE DEVELOPER FOR THE REMAINING PERIOD IN TH E TEN CONSECUTIVE ASSESSMENT YEARS AS IF THE OPERATION AND MAINTENANC E WERE NOT SO TRANSFERRED TO THE TRANSFEREE DEVELOPER.' 8. A PERUSAL OF THE ABOVE WOULD INDICATE THAT ON FU LFILLMENT OF THE CONDITIONS CONTEMPLATED IN THIS SECTION, DEDUCTION AT 100% OF THE PROFIT AND GAINS DERIVED FROM SUCH BUSINESS SHALL B E AVAILABLE TO THE ASSESSEE. THE CONDITIONS WHICH ARE REQUIRED TO BE SATISFIED BY AN ASSESSEE ARE; ITA NO.2663 & 2593 /AHD/2014 WITH CO 22 (A) GROSS TOTAL INCOME OF AN ASSESSEE DEVELOPER SHOULD INCLUDE ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS OF DEVELOPING A SEZ, (B) SUCH SEZ SHOULD BE NOTIFIED ON OR AFTER THE 1 ST DAY OF APRIL, 2005 UNDER THE SEZ ACT, 2005. SUB-SECTION (2) OF S ECTION 80IAB FURTHER PROVIDES THAT AT THE OPTION OF THE AS SESSEE, CLAIM OF DEDUCTION CAN BE MADE FOR ANY TEN CONSECUT IVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FRO M THE YEAR IN WHICH A SEZ HAS BEEN NOTIFIED BY THE CENTRA L GOVERNMENT. 9. CASE OF THE ASSESSEE IS THAT IT HAS BEEN GRANTED FORMAL APPROVAL BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AN D INDUSTRY, DEPARTMENT OF COMMERCE (SEZ SECTION) VIDE LETTER DA TED 17.4.2008 BEARING FORMAL APPROVAL NO.F.2/455/2006-SEZ. THE G OVERNMENT HAS ALSO ISSUED NOTIFICATION ON 13.11.2009 AND NOTIFIED THE ASSESSEE AS SEZ DEVELOPER VIDE NOTIFICATION NO.S.O.2891(E), DAT ED 13.11.2009. THUS, ACCORDING TO THE ASSESSEE IT HAS FULFILLED CO NDITIONS ENUMERATED UNDER CLAUSE (B) REFERRED ABOVE. WITH REGARD TO TH E FULFILLMENT OF CONDITIONS REQUIRED UNDER CONDITION NO.(A) ARE CONC ERNED, THE PROFIT AND GAINS SHOULD BE DERIVED BY AN UNDERTAKING FROM ANY BUSINESS OF DEVELOPMENT AN SEZ. ACCORDING TO THE ASSESSEE, IT IS NOT THE REQUIREMENT OF THE SECTION 80IAB OF THE ACT THAT FO R CLAIMING DEDUCTION UNDER THE SCHEME, FIRST THE SEZ SHOULD HA VE BEEN DEVELOPED AT FULL-FLEDGED AND FUNCTIONAL AT ITS FULLEST CAPAC ITY. ON THE OTHER HAND, THE LANGUAGE USED IN THE VERY PROVISION CONTE MPLATES THAT EVEN WHILE DEVELOPMENT OF SEZ IS IN PROGRESS, IF ANY INC OME HAS ANY ITA NO.2663 & 2593 /AHD/2014 WITH CO 23 BUSINESS CONNECTION, WHICH IS EARNED IN THE PROCESS OF DEVELOPMENT A SEZ, THE SAME CAN BE CLAIMED AS DEDUCTION UNDER SEC TION 80IAB OF THE ACT. IT WAS DEMONSTRATED BEFORE THE LD.CIT(A) THAT INTENTION WAS TO GRANT DEDUCTION TO AN UNDERTAKING WHICH DEVELOPS THE SEZ AND THEREFORE THE PROCESS OF DEVELOPMENT AND ANY INCOME ARISING THEREFROM HAS TO BE GRANTED THE DEDUCTION. IT IS A LSO PERTINENT TO NOTE THAT UNLIKE THE VERY RESTRICT AND NARROW MEANING OF THE TERM INCOME DERIVED FROM DEVELOPMENT OF SEZ, THE LEGISLATURE H AS, IN ITS OWN WISDOM USED THE PHRASE ANY PROFITS AND GAINS DER IVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS OF D EVELOPMENT A SPECIAL ECONOMIC ZONE. THUS, ACCORDING TO THE ASSE SSEE THE PHRASEOLOGY USED IN SECTION 80HH/80I AND OTHERS IDE NTICAL SECTIONS IN CHAPTER VI ARE DIFFERENT THAN THE EXPRESSION USED I N SECTION 80IAB OF THE ACT. IN OTHER WORDS, EXPRESSION DERIVED FROM INDUSTRIAL UNDERTAKING HAD BEEN USED BY STATUTE TO RESTRICT TH E DEDUCTIONS OF ONLY THOSE INCOME WHICH HAS DIRECTLY BEEN DERIVED FROM T HE INDUSTRIAL UNDERTAKING, AND NOT OTHER INCOME, WHICH IS INCIDEN TAL TO THE CARRYING ON INDUSTRIAL UNDERTAKING. IN SECTION 80IAB EXPRES SION USED IS PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM ANY BUSINESS OF DEVELOPMENT OF SEZ. IT CLEARLY SHOWS THAT THE INTE NTION OF THE LEGISLATURE WHILE INSERTING THE ADDITIONAL WORDS IN SECTION 80IAB I.E. ANY BUSINESS OF WAS TO GIVE BENEFIT OF DEDUCTION NOT ONLY TO THE PROFITS AND GAINS DERIVED FROM DEVELOPING SEZ BUT A LSO TO GIVE BENEFIT OF DEDUCTION IN RESPECT TO THE INCOME HAVING A CLOS E AND DIRECT NEXUS WITH THE PROFIT AND GAINS OF THE BUSINESS OF THE DE VELOPMENT OF SEZ. THEREFORE, ALL SORTS OF INCOME WHICH IS INEXTRICABL Y RELATED TO THE ITA NO.2663 & 2593 /AHD/2014 WITH CO 24 CARRYING ON THE BUSINESS OF DEVELOPMENT OF SEZ IS T O BE CONSIDERED FOR COMPUTING DEDUCTIONS UNDER SECTION 80IAB OF THE ACT. 10. AFTER GOING THROUGH THE ABOVE CONCEPTS/SCHEME O F THE ACT, LET US TAKE REASONS ASSIGNED BY THE AO WHILE REJECTING CLAIM OF THE ASSESSEE. THE FIRST OBJECTION RAISED BY THE AO IS, NO DEVELOPMENT OR INSIGNIFICANT DEVELOPMENT OF SEZ BY THE COMPANY TIL L FINANCIAL YEAR 2011-12, AND IN SUBSEQUENT YEARS (ELABORATELY DISCU SSED IN PARAGRAPHS 4 TO 8 IN THE ASSESSMENT ORDERS). DURING THE COURS E OF HEARING ON THIS PROPOSITION, THE LD.COUNSEL FOR THE ASSESSEE HAS SU BMITTED THAT THE AREA OF INQUIRY UNDERTAKEN BY THE AO WAS BEYOND THE SCOP E BECAUSE HE COULD LOOKED INTO DOCUMENTATION, WHETHER SEZ SCHEME WAS APPROVED BY THE BOA. IT HAS BEEN NOTIFIED OR NOT; BECAUSE L EGISLATURE HAS CONSTITUTED A SPECIAL BODY FOR THAT PURPOSE. THE A O CANNOT SIT OVER THEIR JUDGMENT AS AN APPELLATE AUTHORITY. IT WAS NO T HIS AREA, AND FOR THIS PROPOSITION ON THIS POINT, THE LD.COUNSEL FOR THE ASSESSEE MADE REFERENCE TO THE JUDGMENT OF HONBLE GUJARAT HIGH C OURT IN THE CASE OF B.A. RESEARCH INDIA LTD. (SUPRA) AND ITAT DECISI ON IN THE CASE OF ZAVERI & CO. (SUPRA). ON THE OTHER HAND, THE LD.CI T-DR POINTED THAT WHETHER THE ASSESSEE HAS DEVELOPED SEZ IN THE TERMS OF SCHEME APPROVED BY THE BOA WAS REQUIRED TO BE GONE INTO BY THE AO. IF THE ASSESSEE HAS PLAYED A FRAUD WITH THE REVENUE, AND W ITHOUT DEVELOPMENT ANY SEZ INTENDS TO AVAIL DEDUCTION, THE N SUCH CLAIM HAS TO BE WHITTLED DOWN BY THE AO. THEREFORE, THE AO H AS CARRIED OUT PROPER INVESTIGATION, AND DISBELIEVED THE CLAIM OF THE ASSESSEE. IN OTHER WORDS THE AO FOUND IT BOGUS. ITA NO.2663 & 2593 /AHD/2014 WITH CO 25 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON THIS IS SUE. THE AO, IN ORDER TO DEMONSTRATE THAT NO DEVELOPMENT OR INSIGNI FICANT DEVELOPMENT OF SEZ WAS CARRIED OUT BY THE ASSESSEE- COMPANY, AND THEREFORE IT IS NOT ENTITLED FOR DEDUCTION UNDER SE CTION 80IAB OF THE ACT, HAS MADE REFERENCE TO THE STATEMENTS OF RAVIN BIPINBHAI DOSHI AND SHRI NAYAN R. PARIKH, RECORDED DURING THE COUR SE OF SURVEY, AND SOME OF THE PICTURES OF THE SITE TAKEN DURING THE C OURSE OF SURVEY. THESE ARE ALSO PART OF THE ASSESSMENT ORDER. HOWEV ER, WE FIND THAT SEZ ACT IS A CODE IN ITSELF. SECTION 51 OF THE ACT PROVIDES THAT PROVISION OF THIS ACT SHALL HAVE EFFECT NOTWITHSTAN DING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW F OR THE TIME BEING IN FORCE OR IN ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY LAW OTHER THAN THIS ACT. THUS, SEZ ACT PROVIDES POWERS TO TH E BOA. ONCE AN APPROVAL HAS BEEN GRANTED BY THE BOA AND NEVER SUSP ENDED OR CANCELLED SUBSEQUENTLY, THEN NO OTHER AUTHORITY, HA S ANY RIGHT TO REAPPRECIATE OR DOUBT THAT APPROVAL. IF THE AO HAS ANY GRIEVANCE QUA THAT HE SHOULD HAVE CHALLENGED THAT APPROVAL; THIS ASPECT HAS BEEN CONSIDERED BY THE TRIBUNAL IN THE CASE OF ZAVERI & CO. LTD. (SUPRA) WHICH WE HAVE REPRODUCED WHILE TAKING COGNIZANCE OF THE FINDING OF THE LD.CIT(A) IN UPPER PART OF THIS ORDER. THE AO COULD EXAMINE, WHETHER THE LETTER OF APPROVAL GRANTED FOR THE SEZ DEVELOPMENT IS GENUINE OR NOT. IF HE WAS OF THE VIEW THAT THE ASS ESSEE DOES NOT QUALIFY THE REQUISITE CONDITIONS, THEN HE SHOULD HA VE APPLIED TO THE COMPETENT AUTHORITY FOR SUSPENSION OF APPROVAL OR W ITHDRAWAL OF THE APPROVAL; ONLY THEN HE COULD CONSIDER NON-GRANTING OF BENEFIT UNDER SECTION 80IAB OF THE ACT. THEREFORE, THIS ASPECT I S FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER DECISIONS OF THE TRIBUNAL AS WELL ITA NO.2663 & 2593 /AHD/2014 WITH CO 26 AS OF THE HONBLE HIGH COURT. THE LD.CIT(A) HAS RI GHTLY PUT RELIANCE UPON THOSE DECISIONS. IN THE CASE OF B.A. RESEARCH INDIA LTD. (SUPRA), THE ASSESSEE COMPANY WAS ENGAGED IN SCIENTIFIC RESE ARCH AND DEVELOPMENT. IT USED TO STORE CLINICAL SAMPLE IN S PECIFIC STORAGE CONDITIONS ON REQUEST OF ITS CUSTOMERS. THE ASSESS EE CHARGED AN AMOUNT FOR THIS PURPOSE AND CLAIMED IT TO BE INCOME FROM RESEARCH ACTIVITY. THE AO WAS OF THE VIEW THAT SAMPLE STORA GE INCOME WAS NOT DERIVED FROM RESEARCH AND DEVELOPMENT ACTIVITY; CON SEQUENTLY HE DISALLOWED DEDUCTION IN RESPECT OF SUCH INCOME UNDE R SECTION 80IB(8A) OF THE ACT. THE LD.CIT(A) CONCURRED WITH THE AO. HOWEVER, THE TRIBUNAL DID NOT APPROVE THIS VIEW OF THE REVENUE AUTHORITY AND ALLOWED DEDUCTION. THE REVENUE WENT IN APPEAL BEFORE THE HONBLE GUJARAT HIGH COURT, AND THE HONBLE COU RT HAS OBSERVED THAT ONCE THE APPROVAL TO SUCH ACTIVITY IS GRANTED BY THE PRESCRIBED AUTHORITY, AND SUCH APPROVAL IS VALID, IT WILL NO L ONGER BE OPEN FOR THE AO TO VERIFY THE SATISFACTION OF THE CONDITIONS PRE SCRIBED UNDER RULE 18DA IN ORDER TO REFUSE DEDUCTION UNDER SECTION 80I B(8A) OF THE ACT. HONBLE COURT HAS MADE REFERENCE TO THE DECISION OF HONBLE SUPREME COURT ALSO IN THE CASE OF GESTETNER DUPLICATORS P.L TD. VS. 117 ITR 1. THIS VERY DECISION HAS BEEN REFERRED BY THE ITAT IN THE CASE OF ZAVERI & CO. (SUPRA). THUS, FIRST HEAD UNDER WHICH THE LD .AO HAS EXAMINED THE CASE OF THE ASSESSEE IS NOT JUSTIFIABLE HEAD FO R REJECTING THE CLAIM. 12. IN THE NEXT LINE OF REASONING, THE LD.AO HAS OB SERVED THAT THE ASSESSEE HAS INFRINGED SEZ ACT AND RULES WHILE CLAI MING LEASE RENTAL FROM SISTER CONCERN, AS ELIGIBLE FOR GRANT OF DEDUC TION UNDER SECTION 80IAB. A PERUSAL OF THE IMPUGNED ORDER WOULD REVEA L THAT THE ITA NO.2663 & 2593 /AHD/2014 WITH CO 27 ASSESSEE HAS RECEIVED LEASE-PREMIUM FROM SISTER CON CERN VIZ. DISHMAN PHARMACEUTICALS & CHEMICALS LD. (DPCL ). WITH R EGARD TO THIS REASONING, IT IS OBSERVED THAT THE CASE OF THE AO W AS THAT AS ON 31.3.2011 DPCL I.E. SISTER CONCERN WAS NOT AN APPRO VED UNIT, AND THEREFORE, THE ASSESSEE COULD NOT GIVE LAND ON LEAS E TO DPCL. THUS, ACCORDING TO THE AO, ALLOTMENT OF LAND TO DCPL ON L EASE IS VIOLATION OF PROVISION OF SEZ ACT, AND THEREFORE, THE LEASE P REMIUM RECEIVED FROM DPCL DID NOT QUALIFY FOR DEDUCTION UNDER SECTI ON 80IAB OF THE ACT. WE FIND THIS ASPECT HAS BEEN GONE INTO BY THE CIT(A) IN DETAIL. THE DPCL HAD MADE APPLICATION TO THE DEVELOPMENT CO MMISSIONER FOR APPROVAL FOR SETTING UP SEZ ON 29.3.2011 WHICH WAS GRANTED BY THE DEVELOPMENT COMMISSIONER ON 22.6.2011. THE SAI D APPLICATION WAS DULY RECEIVED BY KASEZ ON 29.3.2011. THE ASSES SEE HAD SUBMITTED COMPLETE DETAILS ABOUT THE PROCEDURAL DOC UMENTATION ON THIS ASPECT AND AS PER RULE 6(2)(A) OF THE SEZ RULES, ON E OF THE UNITS IN SEZ COULD START COMMERCIAL PRODUCTION WITHIN THREE YEARS FROM THE DATE OF LETTER OF APPROVAL GRANTED BY THE BOA. UNL ESS THE LAND IS BEING PURCHASED, HOW PRODUCTION COULD BE STARTED. THIS ASPECT HAS BEEN CONSIDERED BY THE LD.CIT(A) WHILE TAKING NOTE OF THESE FACTS IN PARAGRAPH 3.4 AT PAGE NO.38 OF THE IMPUGNED ORDER. WE HAVE TAKEN COGNIZANCE OF THIS PARAGRAPH IN THE EARLIER PART OF THIS ORDER, THEREFORE WE ARE OF THE VIEW THAT THE LD.CIT(A) HAS APPRECIAT ED THE FACTS IN RIGHT PERSPECTIVE ON THIS REASONING ALSO, AND RIGHTLY DID NOT AGREED WITH THE AO. 13. UNDER THE THIRD FOLD OF REASONING, THE LD.AO HA S OBSERVED THAT MD OF DPCL, SHRI J.R. VYAS HAS ACCEPTED THAT A WRON G CLAIM OF ITA NO.2663 & 2593 /AHD/2014 WITH CO 28 DEDUCTION UNDER SECTION 80IBA WAS MADE. WE HAVE GO NE THROUGH THE DETAILS RECORDED ON THIS FOLD OF REASONING. IT WAS DEMONSTRATED THAT THIS STATEMENT WAS GIVEN UNDER MISCONCEPTION OF THE FACTS DEMONSTRATED BEFORE THE MD BY THE SURVEY TEAM. IT IS PERTINENT TO NOTE THAT STATEMENT MADE DURING THE COURSE OF SURVE Y UNDER SECTION 131(1A)(3) OF THE ACT WAS WITHOUT ADMINISTRATING OA TH, BECAUSE THE AUTHORIZED OFFICER CONDUCTING SURVEY IS NOT EMPOWER TO ADMINISTER OATH, AND SUCH STATEMENT DOES NOT CARRY MUCH EVIDEN TIARY VALUE. IT IS A JUST AN INFORMATION FOR CORROBORATION PURPOSE. A R ECENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF S. KADER KHAN & SONS, 352 ITR 480 (SC) AS WELL AS THE DECISION OF HONBLE KER ALA HIGH COURT REPORTED IN THE CASE OF PAUL MATHEWS & SONS VS. CIT , 263 ITR 101 ARE WORTH TO REFER FOR THE PROPOSITION THAT IF THE OFFICER IS NOT AUTHORIZED TO RECORD THE STATEMENT ON OATH, THE STA TEMENT TAKEN DURING THE COURSE OF SURVEY, HAS NO EVIDENTIARY VALUE AS C ONTEMPLATED UNDER LAW. THEREFORE, ON THE STRENGTH OF THIS STATEMENT, THE LD.AO CANNOT DENY THE DEDUCTION TO THE ASSESSEE. THIS ASPECT HA S ALSO BEEN GONE THROUGH BY THE LD.CIT(A). AFTER GOING THROUGH THE WELL REASONED FINDING OF THE LD.CIT(A) WE DO NOT WISH TO INTERFER E IN IT ON THIS ISSUE. 14. IN THE NEXT FOLD OF REASONING, THE LD.AO HAS OB SERVED THAT HUGE CLAIM OF CAPITAL WORK-IN-PROGRESS HAS BEEN MADE BY THE ASSESSEE, WHICH FOUND TO BE BOGUS AND FAKE. NO DOUBT THE ASS ESSEE HAS CLAIMED EXPENDITURE OF MORE THAN RS.17 CRORES TOWARDS WORK- IN-PROGRESS. BUT IT WAS NOT CLAIMED AS DEDUCTION IN THE PROFIT & LOS S ACCOUNT. WITH REGARD TO THE ABOVE ASPECT, WE ARE OF THE VIEW THAT BOA HAS GRANTED APPROVAL TO THE ASSESSEE. THIS APPROVAL HAS NOT BEE N CANCELLED OR ITA NO.2663 & 2593 /AHD/2014 WITH CO 29 SUSPENDED. IT WAS VALID. THE ASSESSEE HAS OFFERED A PIECE OF LAND MEASURING 299151 SQ.METERS TO DPCL AT RS.1400/- PER SQ.METER AS LEASE RENT FOR A PERIOD OF 99 YEARS, AND RS.2100/- PER SQ.METER TOWARDS DEVELOPMENT CHARGES. NOW THIS AMOUNT COMPUTED AT T HE RATE OF RS.1400/- PER SQ.METER HAS BEEN SHOWN BY THE ASSESS EE AS INCOME FROM SEZ. SISTER CONCERN HAS ALREADY APPLIED TO TH E BOA BEFORE THE 31 ST MARCH FOR APPROVAL. IT COULD NOT BE DOUBTED BY RE FERRING AN ASPECT THAT CAPITAL EXPENDITURE SHOWN AND CAPITALIZ ED UNDER THE HEAD WORK-IN-PROGRESS WAS BOGUS. ON THE BASIS OF SUCH A N OBSERVATION, DEDUCTION OTHERWISE ADMISSIBLE TO THE ASSESSEE CANN OT BE DENIED. THE ASSESSEE HAS FULFILLED ALL NECESSARY CONDITIONS UND ER SECTION 80IAB OF THE ACT. IT WAS HAVING VALID APPROVAL FROM BOA, AN D THEREFORE, IT HAS RIGHTLY CLAIMED DEDUCTION. THE LD.CIT(A) IN THE WE LL REASONED ORDER HAS EXAMINED ALL THESE REASONING GIVEN BY THE AO AN D THEREAFTER OBSERVED THAT THIS ASPECT HAS BEEN CONSIDERED BY TH E ITAT IN VARIOUS DECISIONS, AND THE CASE OF THE ASSESSEE DULY FALL W ITHIN THE AMBIT OF SECTION 80IAB OF THE ACT FOR GRANT OF DEDUCTION. A FTER GOING THROUGH ORDER OF THE LD.CIT(A), WE DO NOT FIND ANY REASON T O INTERFERE IN THIS FIRST FOLD OF GRIEVANCE RAISED BY THE REVENUE. GROU ND NO.1 AND 2 ARE REJECTED. 15. IN GROUND NO.3, REVENUE HAS PLEADED THAT THE LD .CIT(A) HAS ERRED IN HOLDING THAT EXPENDITURE FOR FINANCIAL CHA RGES WAS NOT FOR ANY VIOLATION OF INFRINGEMENT OF ANY LAW, AND THEREFORE , THESE ARE ALLOWABLE. ITA NO.2663 & 2593 /AHD/2014 WITH CO 30 16. DURING THE ASSESSMENT PROCEEDINGS, THE LD.AO NO TICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.4,13,494- IN THE P ROFIT & LOSS ACCOUNT, WHICH WAS TREATED AS PENAL INTEREST. TO THE QUERY, ASSESSEE EXPLAINED THAT THE SAME WAS INCURRED DUE TO LATE SU BMISSION OF DOCUMENTS TO THE IDBI BANK, WHICH IS WHOLLY AND EXC LUSIVELY FOR THE BUSINESS PURPOSES, AND THE SAME REQUIRED TO BE ALLO WED. HOWEVER, THE LD.AO DID NOT ACCEPT THIS CONTENTION OF THE ASSESSE E, AND HELD THAT THE EXPENSES INCURRED BY THE ASSESSEE IS PENAL IN NATUR E FOR THE VIOLATION OF PROVISIONS AND RULES, AND THEREFORE, HIT BY THE EXPLANATION-1 TO SECTION 37(1). HE ACCORDINGLY MADE ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, IN APPEAL, THE LD.FIRST APPELLAT E AUTHORITY REVERSED THE ACTION OF THE AO AND HELD THAT THE EXPENSES INC URRED BY THE ASSESSEE WAS NOT FOR ANY PURPOSE, WHICH WAS AN OFFE NCE PROHIBITED BY THE LAW WITHIN THE MEANING OF SECTION 37(1). AGGR IEVED REVENUE IS BEFORE THE TRIBUNAL. 17. BEFORE US BOTH THE PARTIES SUPPORTED ORDERS OF THE RESPECTIVE AUTHORITIES. 18. AFTER GOING THROUGH THE ORDERS OF THE REVENUE A UTHORITIES, WE FIND THAT THE LD.CIT(A) HAS JUSTIFIED IN ACCEPTING THE CONTENTION OF THE ASSESSEE THAT THE EXPENSES INCURRED FOR LATE SUBMIS SIONS OF THE DOCUMENTS TO IDBI BANK WHOLLY AND EXCLUSIVELY FOR P URPOSE OF ASSESSEES BUSINESS, AND NOT INCURRED FOR ANY OFFEN CE PROHIBITED BY THE LAW OR FOR VIOLATION OF ANY PROVISIONS. EXPLANATION 1 TO SECTION 37(1) OF THE ACT PROVIDES THAT THE PAYMENT OF ANY AMOUNT WHICH WAS PROHIBITED BY LAW WAS NOT A BUSINESS EXPENDITURE AN D IT COULD NOT BE ALLOWED AS AN EXPENDITURE. IT IS NEEDLESS TO MENTI ON HERE THAT THIS TYPE ITA NO.2663 & 2593 /AHD/2014 WITH CO 31 OF EXPENDITURE DO HAPPEN DURING NORMAL INCIDENT OF BUSINESS. LATE SUBMISSION OF THE DOCUMENTS AND PAYMENT FOR SUCH LA PSE WERE NOT COMMON IN THE NORMAL COURSE OF BUSINESS ACTIVITIES, AND THEREFORE, IT CANNOT BE TERMED AS AN EXPENDITURE FOR INFRACTION O F LAW SO AS TO ATTRACT THE EXPLANATION -1 OF SECTION 37(1) OF THE ACT, WHICH IS A RESIDUARY SECTION FOR ALLOWANCE BUSINESS EXPENDITUR E, BESIDES ALLOWANCE OF THE EXPENDITURE AS PER SECTIONS 30 TO 36. THEREFORE, WE ARE OF THE VIEW THE CASE OF ASSESSEE DOES NOT FALL UNDER THE EXPLANATION 1 TO SECTION 37(1), AND THEREFORE, WE CONFIRM THE ACTION OF THE LD.CIT(A) IN ALLOWING THE EXPENDITURE OF RS.4,1 3,494/- INCURRED TOWARDS LATE SUBMISSIONS OF THE DOCUMENTS. 19. NOW WE TAKE APPEAL OF THE ASSESSEE. THE FIRST FOUR GROUNDS ARE INTER-CONNECTED WITH EACH OTHER. THEREFORE, WE TAK E THEM TOGETHER. THE GROUNDS TAKEN BY THE ASSESSEE READS AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN NOT HOLDING THAT THE EXPENDITURE OF RS. 17, 50,00,000/- WAS GENUINE AND ACTUALLY INCURRED. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, ID. CIT(A) OUGHT TO HAVE DECIDED THE ISSU E RATHER THAN DELAYING THE DECISION IN THE YEAR OF ACTUAL OF CLAI M OF THE SAID EXPENDITURE. 2. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN NOT DECIDING THE DISALLOWANCE OF RS.29,78,0 50/- U/S 40A(3) OF THE ACT FOR THE YEAR UNDER CONSIDERATION ON THE GRO UND THAT SINCE THE EXPENDITURE IN QUESTION IS NOT CLAIMED IN P & L ACC OUNT, THE QUESTION OF DECIDING ITS ALLOWABILITY DOES NOT ARIS E. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, ID. CIT(A) OUGHT TO HAVE DECIDED THE ISSUE RATHER THAN DELAYING THE DECISION TO THE YEAR OF ACTUAL OF CLAIM OF THE SAID EXPENDITURE. 3. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN NOT DECIDING THE DISALLOWANCE OF RS.37,67,0 94/- MADE ON ITA NO.2663 & 2593 /AHD/2014 WITH CO 32 ACCOUNT OF THE SAME BEING NOT FOR THE PURPOSES OF T HE BUSINESS ON THE GROUND THAT SINCE THE EXPENDITURE IN QUESTION IS NO T CLAIMED IN P & L ACCOUNT, THE QUESTION OF DECIDING ITS ALLOWABILITY DOES NOT ARISE. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, ID. CIT(A) OUGHT TO HAVE DECIDED THE ISSUE RATHER THAN DELAYING THE DEC ISION TO THE YEAR OF ACTUAL OF CLAIM OF THE SAID EXPENDITURE. 4. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN NOT DECIDING THE DISALLOWANCE OF INTEREST O F RS.4,74,71,691/- FOR THE YEAR UNDER CONSIDERATION ON THE GROUND THAT SINCE THE EXPENDITURE IN QUESTION IS NOT CLAIMED IN P & L ACC OUNT, THE QUESTION OF DECIDING ITS ALLOWABILITY DOES NOT ARIS E. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, ID. CIT(A) OUGHT TO HAVE DECIDED THE ISSUE RATHER THAN DELAYING THE DECISION TO THE YEAR OF ACTUAL OF CLAIM OF THE SAID EXPENDITURE. 20. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUT SET SUBMITTED THAT THESE EXPENDITURES HAVE NOT BEEN CLAIMED BY THE ASS ESSEE IN THE INCOME-TAX RETURNS AS WELL AS PROFIT & LOSS ACCOUNT . THESE WERE NOT ROUTED THROUGH PROFIT & LOSS ACCOUNT AND STRAIGHT A WAY TAKEN TO CAPITAL WORK-IN-PROGRESS. THE AO HAS HELD THAT THESE EXPEN DITURES WERE NOT GENUINE, AND THEREFORE WERE NOT ALLOWABLE. THE LD. CIT(A) HAS OBSERVED THAT SINCE THE ASSESSEE HAS NOT DEBITED TH ESE AMOUNTS IN THE PROFIT & LOSS ACCOUNT, AND HAS NOT CLAIMED AS DEDUC TION, THEREFORE, THE ISSUE IN THE PRESENT YEAR IS AN ACADEMIC ONE. GRIE VANCE OF THE ASSESSEE IS THAT, ON ONE HAND, THE LD.CIT(A) HAS NO T ADJUDICATED THE ISSUE WITH REGARD TO GENUINENESS OF THE EXPENDITURE , AND ON THE OTHER HAND, HAS UPHELD THE FINDING OF THE AO. THE LD.COU NSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT SINCE THESE WERE DE BITED TO CAPITAL WORK-IN-PROGRESS, AND WORK-IN-PROGRESS HAS BEEN INC REASED IN THE YEAR IN WHICH THEY BE CLAIMED IN FUTURE, THEN THEIR GENU INENESS OR OTHERWISE SHOULD HAVE BEEN DECIDED ON MERIT IN THAT YEAR. OTHERWISE, ITA NO.2663 & 2593 /AHD/2014 WITH CO 33 THIS FINDING OF THE LD.CIT(A) UPHOLDING THE VIEW OF THE AO WOULD COME IN THE WAY OF THE ASSESSEE. 21. ON THE OTHER HAND, THE LD.CIT-DR SUBMITTED THAT THE AO HAS RIGHTLY TREATED THEM AS NON-GENUINE, AND THE LD.CIT (A) HAS RIGHTLY UPHELD THIS VIEW POINT OF THE AO. 22. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE T HROUGH THE RECORD CAREFULLY. THE OBSERVATION OF THE LD.CIT(A) THAT MAJOR ITEM OF EXPENDITURE DISALLOWED BY THE AO IS WORTH TO NOTE, WHICH READS AS UNDER: 5.3 HOWEVER, THE ID. AO HAS NOT APPRECIATED THE SUBMISSION FURNISHED BY THE APPELLANT AND MADE HUGE AMOUNT OF ADDITION, WITHOUT APPRECIATING FURTHER FACT THAT THE APPELLANT HAS NO T CLAIMED SUCH EXPENDITURE IN THE PROFIT & LOSS ACCOUNT. INFACT, T HE ID. AO HIMSELF HAS NOTED THAT THE SAME IS DEBITED TO CAPITAL WORK-IN-P ROGRESS ACCOUNT WHICH IS NOT DEBITED TO PROFIT & LOSS ACCOUNT IT IS SETTLED PRINCIPLE OF LOW THAT IF THE AMOUNT OF EXPENDITURE IS NOT CLAIME D IN THE PROFIT & LOSS ACCOUNT, THE SAME CANNOT BE DISALLOWED WHILE COMPUT ING TOTAL INCOME OF THE ASSESSEE. IN FACT, THE ID. AO IN THE SUBSEQU ENT PARAS HAS REDUCED THE EXPENDITURE FROM THE CAPITAL WORK-IN-PR OGRESS ACCOUNT AFTER HOLDING THAT THE RESPECTIVE EXPENDITURE WAS N OT CLAIMED IN PROFIT & LOSS -ACCOUNT, AND THEREFORE THERE WOULD NOT BE A NY EFFECT WHILE IF COMPUTING TOTAL INCOME OF THE APPELLANT. IT IS SUBM ITTED THAT WHEN THE EXPENDITURE IS NOT CLAIMED IN THE PROFIT & LOSS ACC OUNT AND IN TURN WHILE I COMPUTING TOTAL INCOME OF THE APPELLANT, HOW THE SA ID AMOUNT CAN BE ADDED IN THE HANDS OF THE APPELLANT* WHILE C OMPUTING ASSESSABLE INCOME IN FRAMING THE ASSESSMENT. THIS S HOWS THE SHEER INTENTION OF THE ID. AO IN MAKING HUGE ADDITIONS WI THOUT ANY BASIS. ON THIS SHORT GROUND ONLY, THE ADDITION MADE BY THE ID . AO DESERVES TO BE DELETED. 5.4 HOWEVER, IT IS PERTINENT TO NOTE THAT, THAT WH ENEVERIN .THE SUCCEEDING ASSESSMENT YEAR THE SAID EXPENDITURE IS CLAIMED AS REVENUE OR CAPITAL EXPENDITURE AT RELEVANT POINT OF TIME, THE APPELLANT RESERVES THE RIGHT TO AGITATE THE CONTENTIONS RAISE D BY THE ASSESSING OFFICER, IN THAT ASSESSMENT YEAR. 4.2 AT PARA NOS. 17 TO 27 OF THE ASSESSMENT ORDER, A.O. OBSERVED THAT DURING THE COURSE OF SURVEY MOST OF THE EXPENS ES CLAIMED UNDER ITA NO.2663 & 2593 /AHD/2014 WITH CO 34 THE HEAD CAPITAL WORK-IN-PROGRESS WERE FOUND TO BE BOGUS; ON VERIFICATION OF THE LEDGER ACCOUNT OF LAND LEVELING EXPENSES, IT WAS FOUND THAT ON 01-07-2010 PAYMENT OF RS. 17.5 CRORES WAS MADE TO M/S SUBHASH PROJECT & MARKETING LTD.[SPML], KOLKATA ; RS.7.15 CRORES WAS PAID IN JULY,2010 AFTER DEDUCTING TAX OF RS. 35 LAKHS STATEMENT WERE RECORDED FROM THE M.D OF MULTIMEDIA CONSULTANC Y PVT. LTD. [MCPL] AND SHRI G.M. PARIKH, MAIN PERSON OF THE FIR M M/S.BALAJI ASSOCIATES; AS SEEN FROM THE STATEMENTS, NO LAND DE VELOPMENT WAS CARRIED OUT BY THE APPELLANT COMPANY FOR THE REASON S RECORDED AT PARA-26, IT WAS ESTABLISHED BEYOND DOUBT THAT THE P AYMENTS TO M/S SPML WERE NOT MADE FOR THE PURPOSE MENTIONED; BUT I T WAS JUST PAPER TRANSACTION TO INFLATE THE EXPENDITURE, APPELLANT'S CLAIM [THAT SINCE THE EXPENDITURE WAS CAPITAL IN NATURE NO DISALLOWANCE W AS CALLED FOR] IS NOT RELEVANT AND THEREFORE RS. 17.5 CRORES WAS BEIN G ADDED. 4.3 THE CONTENTIONS OF THE LEARNED A.R. ARE THAT A. O. HIMSELF HAVE NOTED THAT IMPUGNED EXPENDITURE WAS DEBITED TO CAPI TAL WORK-IN- PROGRESS ACCOUNT AND NOT DEBITED -TO P&L ACCOUNT; S INCE THE EXPENDITURE WAS NOT CLAIMED, THE QUESTION OF DISALL OWANCE DID NOT ARISE AND AS AND WHEN THE EXPENDITURE IS CLAIMED IN THE SUCCEEDING YEARS THE APPELLANT RESERVES THE RIGHT TO HESITATE THE CONTENTIONS RAISED BY THE A.O. 4.4 THE UNDISPUTED FACT IS THAT IMPUGNED EXPENDITUR E WAS DEBITED TO THE CAPITAL WORK-IN-PROGRESS ACCOUNT. IT WAS NEITHE R DEBITED TO P&L ACCOUNT NOR WAS CLAIMED AS ALLOWABLE EXPENDITURE IN THE YEAR UNDER CONSIDERATION. THEREFORE, A.O.'S ACTION IN DISALLOW ING THE SAID SUM IS NOT IN ACCORDANCE WITH LAW. IMPUGNED ADDITION IS DE LETED. THE FINDING OF THE A.O. THAT THE SAID EXPENDITURE WAS BOGUS IS ACADEMIC AS FAR AS THE YEAR UNDER CONSIDERATION IS CONCERNED. A.O.'S F INDING IS UPHELD. THIS GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 23. IT IS ALSO PERTINENT TO NOTE THAT THE FINDINGS ON OTHER ISSUES IS ALMOST IDENTICAL BECAUSE ALL THESE ITEMS THE ASSESS EE HAS NOT CLAIMED IN PROFIT & LOSS ACCOUNT, AND THEREFORE, THE QUESTION OF DECIDING THEIR ALLOWABLE CANNOT BE TAKEN UP IN THIS ACCOUNTING YEA R. TAKING INTO CONSIDERATION THE ACADEMIC NATURE OF THE ISSUE UNDE R THESE FOUR HEADS OF THE APPEAL, WE RECORD A FINDING THAT ENDS OF JUS TICE WOULD MEET IF WE VACATE THE FINDING OF THE AO THAT THESE EXPENDIT URES ARE NON- GENUINE, BECAUSE IN THIS YEAR, THERE SHOULD NOT HAV E BEEN ANY OCCASION ITA NO.2663 & 2593 /AHD/2014 WITH CO 35 TO RECORD THIS FINDING WHEN THE EXPENDITURE HAVE NO T BEEN CLAIMED IN THE ACCOUNTS AS WELL AS IN THE RETURN. IT WILL BE OPEN FOR THE REVENUE TO DECIDE THE GENUINENESS OF THE EXPENDITURE AS AND WHEN THEY ARE BEING CLAIMED IN FUTURE YEARS BY THE ASSESSEE. WIT H THE ABOVE OBSERVATION, THE ABOVE FOUR GROUNDS OF THE APPEAL A RE PARTLY ALLOWED. 24. GROUND NO.5 READS AS UNDER: THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ADDITION OF RS.42,00,098/- OUT OF TO TAL ADDITION OF RS.60,00,646/- MADE IN RESPECT OF INTEREST INCOME A FTER HOLDING THAT THE SAME IS REQUIRED TO BE TREATED AS INCOME FROM OTHER SOURCES. 25. WITH REGARD TO THIS GROUND OF APPEAL, BRIEF SUB MISSIONS RAISED BY THE LD.COUNSEL FOR THE ASSESSEE IS THAT INTEREST INCOME TREATED BY THE REVENUE AUTHORITIES AS INCOME FROM OTHER SOURCES AM OUNTING TO RS.42,00,098/-, WHICH OTHERWISE QUALIFIES FOR DEDUC TION UNDER SECTION 80IAB OF THE ACT. APPELLANT SUBMITTED BEFORE THE R EVENUE AUTHORITIES, THE INTEREST INCOME EARNED BY IT FORMS PART OF THE BUSINESS INCOME, BECAUSE SURPLUS AND SPARE FUND OF THE BUSIN ESS WAS PARKED WITH THE BANKS FOR TEMPORARY PERIOD. ACCORDING TO HIM, THIS ASPECT HAS BEEN CONSIDERED BY THE HONBLE HIGH COURT IN TH E ASSESSEES OWN CASE IN TAX APPEAL NO.192 OF 2019 WHEREBY THE HONB LE COURT HAS HELD THAT INTEREST INCOME EARNED BY THE ASSESSEE HAS DIR ECT NEXUS WITH THE INCOME OF THE BUSINESS OF THE UNDERTAKING, THEREFOR E, THE SAME IS TO BE TREATED AS BUSINESS INCOME. ON THE OTHER HAND, THE LD.CIT-DR JUSTIFIED ORDERS OF BOTH THE REVENUE AUTHORITIES ON THIS ISSUE. ITA NO.2663 & 2593 /AHD/2014 WITH CO 36 26. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE T HROUGH THE RECORD CAREFULLY. WE FIND THAT HONBLE JURISDICTIO N HIGH COURT IN THE ASSESSEES OWN CASE FOR THE EARLIER PERIOD HAS HELD THAT INTEREST INCOME EARNED BY THE ASSESSEE IS DERIVED FROM BUSINESS OF THE UNDERTAKING AND THEREFORE ALLOWABLE AS BUSINESS EXPENDITURE. WE AR E OF THE VIEW THAT THE INCIDENTAL ACTIVITY OF PARKING OF SURPLUS FUNDS WITH THE BANKS IS A PART OF BUSINESS DECISION TAKEN IN VIEW OF THE COMM ERCIAL EXPEDIENCY AND THE INTEREST INCOME EARNED INCIDENTALLY CANNOT BE DETACHED FROM ITS PROFITS AND GAINS DERIVED BY THE UNDERTAKING; A ND THEREFORE, IN THIS YEAR ALSO CLAIM OF THE ASSESSEE IS TO BE ALLOWED. ACCORDINGLY, WE ALLOW THE CLAIM OF THE ASSESSEE AND TREAT THE INTER EST INCOME AS BUSINESS INCOME DERIVED FROM THE UNDERTAKING OF THE ASSESSEE. 27. AS FAR AS CROSS OBJECTION OF THE REVENUE IN THE ASSESSEES APPEAL IS CONCERNED, THE GROUND READS AS UNDER: 1) IN CASE THE HON'BLE TRIBUNAL IS INCLINED TO AGR EE WITH THE CIT(A) THAT THE EXPENDITURE WERE NON- GENUINE THEN, AT THE SAME TIME, IT SHOULD ALSO BE HELD THAT THE AO SHOULD HAVE LIBERTY TO RECAST T HE BALANCE SHEET OF THE ASSESSEE AS THE CWIP IS A PART OF BALANCE SHEET AND NOT ROUTED THROUGH PROFIT & LOSS ACCOUNT AND THEREFORE THE AO SHOULD T AKE CONSEQUENTIAL ACTION. 28. BY WAY OF PRESENT GROUND OF CO, THE REVENUE INT ENDS TO RAKE UP ALTOGETHER A NEW SITUATION. THE LD.AO DID NOT TAKE ANY ACTION FOR RECASTING OF THE BALANCE SHEET BY OBSERVING THAT EX PENDITURE DEBITED IN THE WORK-IN-PROGRESS HAS NOT BEEN CLAIMED IN THE PR OFIT & LOSS ACCOUNT. BY FILING CO, THE DEPARTMENT CANNOT TAKE UP A NEW ISSUE. THE SCOPE OF CO IS DISCERNIBLE FROM PLAIN READING O F SUB-SECTION (4) ITA NO.2663 & 2593 /AHD/2014 WITH CO 37 OF SECTION 253 OF THE INCOME TAX ACT, 1961. IT CON TEMPLATES THAT THE RESPONDENT COULD FILE A CO AGAINST IMPUGNED ORDER O N ANY PART OF THE ORDER. IN OTHER WORDS, IF THE REVENUE HAS ANY GRIE VANCE WITH THE IMPUGNED ORDER OF THE CIT(A), AND ON THAT ISSUE IT HAS NOT FILED APPEAL, THEN ON RECEIPT OF NOTICE IN THE ASSESSEES APPEAL, IT CAN FILE CO. BUT HERE THE REVENUE WANTS TO RAKE UP ALTOGETH ER A NEW ISSUE WHICH WAS NOT SUBJECT MATTER OF APPEAL BEFORE THE L D.CIT(A); EVEN IT WAS NOT A SUBJECT MATTER BEFORE THE AO IN THE ASSES SMENT PROCEEDINGS. THEREFORE, SUCH CO IS NOT MAINTAINABLE, HENCE DISMI SSED. 29. IN THE RESULT, APPEAL OF THE REVENUE AND ITS CR OSS OBJECTIONS ARE DISMISSED, WHEREAS THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 5 TH FEBRUARY, 2021 AT AHMEDABAD. SD/ - (AMARJIT SINGH) ACCOUNTANT MEMBER SD/ - (RAJPAL YADAV) VICE-PRESIDENT