ITO, New Delhi V. M/s Vikas Books Ltd., New Delhi

ITA 2729/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65400 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 28-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 26-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHUMANA SEN
• Keywords: Opportunity of being heard; Rule of consistency; Additional evidence; Reasonable cause; Commercial expediency
• Section: 143(3); 194C; 10B

Judgement Text

ITA NOS. 3437 & 2729/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER I.T.A. NO. 3437/DEL/2011 A.Y. : 2007-08 M/S VIKAS BOOKS LTD., 306, 2 ND FLOOR, EMCA CHAMBERS, 51, DARYAGANJ, NEW DELHI 110 002 (PAN: AABCV 8357P) VS. INCOME TAX OFFICER, WARD -17(3), NEW DELHI AND ITA NO. 2729/DEL/2011 A.Y. : 2007-08 INCOME TAX OFFICER, WARD 17(3), NEW DELHI VS. M/S VIKAS BOOKS LTD., 306, 2 ND FLOOR, EMCA CHAMBERS, 51, DARYAGANJ, NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. K. SAMPATH, ADV. DEPARTMENT BY : MR. SHUMANA SEN, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THESE CROSS APPEALS FILED BY THE ASSESSEE AND R EVENUE EMANATING OUT OF ORDER OF THE LD. COMMISSIONER OF IN COME TAX (APPEALS)-XIX, NEW DELHI DATED 14.3.2011 AND PERTA IN TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED IN ASSESSEES APPEAL IN ITA NO. 3437/DEL/2011 READ AS UNDER:- ITA NOS. 3437 & 2729/DEL/2011 2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (A) ERRED I N CONFIRMING THE FOLLOWING ACTIONS OF THE ASSESSING OF FICER: 1) IN MAKING AN ADDITION OF ` 1,03,179/- U/S. 40(A)(IA) OF THE I.T. ACT, 1961 EVEN THOUGH THE PAYMENTS WERE NOT IN CONTRAVENTION OF SECTION 194C OF THE INCOME TAX ACT, 1961; 2) IN MAKING ADDITION OF ` 4,12,150/- INCURRED ON PAYMENTS MADE TO AUTHORS EVEN THOUGH THE SAID PAYMENTS WERE MADE ENTIRELY FOR THE PURPOSE OF BUSINESS WERE THUS ALLOWABLE AS A DEDUCTION U/S. 37 OF THE ACT; THE ABOVE ACTIONS BEING ARBITRARY, ERRONEOUS AND UNLAWFUL MUST BE QUASHED WITH DIRECTION FOR APPROPRIATE RELIED. 3. THE GROUND NO. 1 WAS NOT PRESSED BY THE LD. CO UNSEL OF THE ASSESSEE. HENCE, THE SAME IS DISMISSED AS NOT PRESSE D. 4. APROPOS THE ISSUE OF ADDITION OF ` 412150/- ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASSES SEE HAS CLAIMED ` 412150/- TOWARDS BOOK WRITING EXPENSES. ASSESS EE WAS ASKED TO FURNISH THE LIST OF SUCH BOOKS WHICH WERE PUBLIS HED IN HOUSE AND ALSO TO PRODUCE EVIDENCE TO THE EFFECT THAT THESE BOOKS WERE WRITTEN BY THE SAID PERSONS AND ALSO PUBLISHED BY THE ASSESSEE COM PANY. SINCE NO REPLY WAS RECEIVED IN THIS REGARD, A SUM OF ` 412150 /- WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. ITA NOS. 3437 & 2729/DEL/2011 3 5. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT ASSESSEE IS A TRADER OF BOOKS. HE FU RTHER NOTED THAT THE EXPENDITURE IS NOT IN RESPECT OF ANY PUBLICATION MA DE BY IT. HE NOTED THAT WRITERS ARE PAID BY THE PUBLISHERS BY WAY OF R OYALTY. HE FURTHER HELD THAT NO PROPER DETAILS WERE FURNISHED TO THE ASSESSING OFFICER TO SUBSTANTIATE ITS STAND. HENCE, ASSESSING OFFICER CONFIRMED THE ASSESSING OFFICERS ACTION. 6. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THA T DISALLOWANCE HAS BEEN MADE IN THIS REGARD AS THE ASSESSEE WAS NOT IN A POSITION TO SUBMIT THE RELEVANT DETAILS. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HE SHOULD BE GIVEN ONE MORE OPPORTUN ITY BEFORE THE ASSESSING OFFICER TO ENABLE HIM TO SUBSTANTIATE TH E DETAILS IN THE IMPUGNED ISSUE. UPON CAREFUL CONSIDERATION, IN THE INTEREST OF JUSTICE, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER. THE ASSESSING OFFICER SHALL EXAMINE THE ISSUE AFTER GIVING THE AS SESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. 8. IN THE RESULT, THIS APPEAL BY THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSE. 9. THE GROUNDS RAISED IN REVENUES APPEAL IN ITA N O. 2729/DEL/2011 READ AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES AND IN LAW THE L D. COMMISSIONER OF INCOME TAX (A) ERRED IN ADMITTING THE ADDITIONAL EVIDENCES, AS THERE WAS NO APPARENT ITA NOS. 3437 & 2729/DEL/2011 4 REASONABLE CAUSE FOR NOT FILING THE SAID EVIDENCES DURING THE ASSESSMENT PROCEEDINGS. 2. ON THE FACTS AND CIRCUMSTANCES AND IN LAW THE LD . COMMISSIONER OF INCOME TAX (A) ERRED IN FORWARDING THE ADDITIONAL EVIDENCES WITHOUT A SPECIFIC DIRECTI ON AS TO THE NATURE OF ENQUIRIES TO BE MADE BY THE ASSESS ING OFFICER. 3. ON THE FACTS AND CIRCUMSTANCES AND IN LAW THE LD . COMMISSIONER OF INCOME TAX (A) ERRED IN FORWARDING THE ADDITIONAL EVIDENCES WITHOUT ANY SPECIFIC DIREC TION FOR NATURE OF ENQUIRY TO BE MADE BY THE ASSESSING OFFICER IGNORING THAT THERE WAS NOTHING ON RECORD S, FROM WHICH THE ASSESSING OFFICER COULD HAVE VERIFIE D THE ADDITIONAL EVIDENCES. 4. ON THE FACTS AND CIRCUMSTANCES AND IN LAW THE LD . COMMISSIONER OF INCOME TAX (A) ERRED IN DELETING ADDITION OF ` 5 LACS WHICH THE ASSESSING OFFICER H AD MADE ON A/C NON-VERIFICATION OF CLOSING STOCK IN THE ABSENCE OF STOCK REGISTER. 5. ON THE FACTS AND CIRCUMSTANCES AND IN LAW THE LD . COMMISSIONER OF INCOME TAX (A) ERRED IN ALLOWING THE FOLLOWING RELIEF TO THE ASSESSEE ON THE BASIS OF ADDITIONAL EVIDENCES FILED DURING THE APPELLATE PROCEEDINGS, WHICH REMAINED TO BE EXAMINED BY THE ASSESSING OFFICER BY WAY OF ENQUIRY AND EVEN BY TH E LD. COMMISSIONER OF INCOME TAX (A): ITA NOS. 3437 & 2729/DEL/2011 5 A) ON ACCOUNT OF TRADING RESULTS AS THE ASSESSEE DI D NOT MAINTAIN STOCK REGISTER. - ` 5 LACS B) ON ACCOUNT OF EXPENSES DEBITED TO NON EOU UNIT UNDER SECTION 10B(7) READ WITH SECTION 80IA(10) - ` 10 LACS C) ON ACCOUNT OF COMMISSION PAID FOR WANT OF SERVICES RENDERED - ` 4,46,836/- D) DEDUCTION U/S. 10A/10B - ` 30,50,940/- 10. APROPOS GROUND NO. 1, 2 AND 3 RELATING TO ADMIS SION OF ADDITIONAL EVIDENCES BY THE LD. COMMISSIONER OF INCOME TAX (A) . 11. IN THIS REGARD ASSESSING OFFICER NOTED THAT A SSESSEE HAS CLAIMED DEDUCTION U/S. 10B AMOUNTING TO ` 30,50,940/-, AS PE R FORM 56G. THE ASSESSEE WAS ASKED TO FURNISH/JUSTIFY ITS CLAIM IN RESPECT OF THIS DEDUCTION WITH REFERENCE TO THE PRODUCTION OF COMP UTER SOFTWARE FOR EXPORT AS WELL AS THE CLAIM OF EXPENSES THAT HAD BE EN CHARGED TO ITS EXPORT UNIT. ASSESSING OFFICER REFERRED TO THE PROVISION OF SECTION 10B OF THE ACT. HE NOTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, DESPITE BEING GIVEN ADEQUATE OPPORTUNI TIES AND SUFFICIENT TIME, THE ASSESSEE COULD NOT ESTABLISH THAT IT WA S APPROVED AS 100% EOU AS PRESCRIBED UNDER EXPLANATION 2(IV) OF INCOME TAX ACT, 1961 OR ANY OTHER AUTHORITY IN ACCORDANCE WITH THE SAID PR OVISIONS. ASSESSING OFFICER FURTHER NOTED THAT IN THE ASSESSMENT PROCE EDINGS, AFTER THE REALIZATION THAT ITS CLAIM U/S. 10B WAS NOT TENABLE , THE ASSESSEE HAS SHIFTED ITS STAND FOR CLAIM OF DEDUCTION FROM SECTIO N 10B TO SECTION 10A. IT WAS THEREAFTER BROUGHT ON RECORD THAT AS SESSEE IS REGISTERED UNDER THE STPI SCHEME OF THE GOVERNMENT OF INDIA AND HENCE ENTITLED ITA NOS. 3437 & 2729/DEL/2011 6 TO DEDUCTION FOR THE COMPUTER SOFTWARE EXPORTED BY I T. THE ASSESSING OFFICER ASKED TO SUBMIT THE FOLLOWING DOCUMENTS :- I) COPY OF AGREEMENT WITH STPI; II) COPY OF AGREEMENT FOR EXPORT OBLIGATION AND ACCE PTANCE OF TERMS AND CONDITIONS WITH STPI; III) COPY OF THE ACCEPTANCE OF THE LEGAL AGREEMENT B Y THE STPI AND THE MONTHLY REPORTS REQUIRED TO BE FILED WITH S TPI FOR THE MANUFACTURE AND EXPORT OF COMPUTER SOFTWARE. NONE OF THE DOCUMENTS WERE FILED BY THE ASSESSEE AND ASSESSEE SUBMITTED THAT THE FILE OF STPI BEING MAINTA INED BY THE ASSESSEE IS NOT TRACEABLE AND THE EFFORTS HAVE BEE N MADE TO FIND THE SAME. ASSESSEE ALSO SUBMITTED THAT ITS CLAIM FOR DEDUCTION U/S. 10B FOR THE A.YRS. 2005-06 AND 2006-07 HAS BEEN ALLOW ED. ASSESSING OFFICER DID NOT FIND THIS GROUND SUSTAINABLE AS HE FOUND THAT FOR THE ASSESSMENT YEAR 2006-07 THE CASE WAS COMPLETED U/S. 143(1). AS REGARD ASSESSMENT YEAR 2005-06 IS CONCERNED, ASSE SSING OFFICER OBSERVED THAT IT WAS THE FIRST YEAR OF DEDUCTION U/ S. 10B AND OBSERVED THAT ON VERIFICATION OF RECORD, IT WAS NOT SEEN TH AT THE ISSUE WAS NOT PROPERLY EXAMINED. ASSESSING OFFICER PROCEEDED T O HOLD THAT THE ASSESSEE HAS NOT PROVIDED THE RELEVANT DETAILS. HE HELD THAT THE CLAIM OF THE ASSESSEE BOTH UNDER SECTION 10A AND 10B OF T HE I.T. ACT CANNOT BE ALLOWED AND THE SAME WAS DISALLOWED. 12. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT ASSESSEE HAS FILED A PETITION U/S. 46 A DATED 20.9.2010 ENCLOSING THE FOLLOWING DOCUMENTS AS ADDITIONAL EVI DENCE IN SUPPORT OF GROUND RAISED IN THIS REGARD. ITA NOS. 3437 & 2729/DEL/2011 7 S.NO. PARTICULARS PAGES 1. COPIES OF SOFTEX FORMS SUBMITTED WITH STPI FOR THE F.Y. 2006-07 01-34 2. COPIES OF MONTHLY PROGRESS REPORT SUBMITTED WITH STPI 35-70 3. COPIES OF LETTER DATED 04.11.2004 SUBMITTED WITH STPI CONTAINING A. LETTER OF ACCEPTANCE B. LEGAL AGREEMENT C. LETTER OF APPROVAL D. OTHER ENCLOSURES E. CHANGE OF ADDRESS LETTER 71-83 4. CERTIFICATE BY DATACOM SERVICE PROVIDER 84 5. CERTIFICATE FROM SIFY FOR INTERNET CONNECTION. 85 6. COPY OF JOB ORDER 86 7. COPY OF GREEN CARD RENEWAL LETTER 87-88 12.1 LD. COMMISSIONER OF INCOME TAX (A) ASKED FOR REM AND REPORT WITH RESPECT TO THE ADDITIONAL EVIDENCES FILED. LD. CO MMISSIONER OF INCOME TAX (A) HELD THAT AFTER CAREFUL CONSIDERATION OF TH E FACTS BROUGHT ON RECORD, THE ADDITIONAL EVIDENCE IS FOUND CRUCIAL AN D NECESSARY TO DECIDE THE ISSUES AND THE SAME ARE ADMITTED. LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT ASSESSEE CLAIMED DEDUCTIO N U/S. 10B FOR ` 30,50,940/- AS PER FORM NO. 56G. THE ASSESSING OFF ICER DISALLOWED THE DEDUCTION U/S. 10B MAINLY ON THE GROUND THAT THE FOLLOWING DOCUMENTS WERE PRODUCED:- I) COPY OF AGREEMENT WITH STPI; II) COPY OF AGREEMENT FOR EXPORT OBLIGATION AND ACCE PTANCE OF TERMS AND CONDITIONS WITH STPI; ITA NOS. 3437 & 2729/DEL/2011 8 III) COPY OF THE ACCEPTANCE OF THE LEGAL AGREEMENT B Y THE STPI AND THE MONTHLY REPORTS REQUIRED TO BE FILED WITH S TPI FOR THE MANUFACTURE AND EXPORT OF COMPUTER SOFTWARE. 12.2 LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT A SSESSEE HAS SET UP 100% EXPORT ORIENTED UNIT (EOU) UNDER THE STPI SC HEME FOR THE DEVELOPMENT AND MANUFACTURE OF COMPUTER SOFTWARE/ IT AT ENABLED SERVICES. LD. COMMISSIONER OF INCOME TAX (A) FUR THER NOTED THAT ASSESSEE HAS INTIMATED THAT SHIFTING OF THE PREMISES TO THE NEW ADDRESS. LD. COMMISSIONER OF INCOME TAX (A) FURTHER NOTED THAT ASSESSEES COUNSEL HAS BROUGHT ON THE RECORD VARI OUS DOCUMENTS BY WAY OF ADDITIONAL EVIDENCE TO SUPPORT THE CLAIM WH ICH WAS NOT MADE AVAILABLE TO THE ASSESSING OFFICER . LD. COMMISSIONE R OF INCOME TAX (A) FURTHER NOTED THAT THE SAID INADEQUACY WAS THE FOUNDATION FOR REJECTION OF ASSESSEES CLAIM FOR BENEFIT U/S. 10B. LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT IN VIEW OF THE DOCUMENTS SUBMITTED BY THE ASSESSEE AS ADDITIONAL EVIDENCES ALONGWITH THE DOCU MENTS PRODUCED IN THE COURSE OF ASSESSMENT PROCEEDINGS HE NOTED THAT ASSESSEE HAS FULFILLED THE CRITERIA LAID DOWN. HE FURTHER NOT ED THAT ALL THE OBJECTIONS OF THE ASSESSING OFFICER ARE SUCCESSFULLY MET WITH COGENT EVIDENCE. LD. COMMISSIONER OF INCOME TAX (A) FURTHER NOTED THAT DEDUCTION WAS ALLOWED IN ASSESSMENT YEAR 2005-06 IN ASSESSMENT MADE U/S. 143(3) OF THE I.T. ACT. LD. COMMISSIONER OF INCOME TAX (A) FURTHER OBSERVED THAT RULE OF CONSISTENCY IS TO BE FOLLOWED, UNLES S THERE IS A CHANGE OF FACTS AND POSITION OF LAW. IN THE BACKGROUND OF TH E AFORESAID DISCUSSION, LD. COMMISSIONER OF INCOME TAX (A) HELD TH AT ASSESSEE IS ELIGIBLE FOR RELIEF U/S. 10B AS IN THE EARLIER YEA RS. 13. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPE AL BEFORE US. ITA NOS. 3437 & 2729/DEL/2011 9 14. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. LD. DEPARTMENTA L REPRESENTATIVE SUBMITTED THAT THERE IS A GROSS VIOLATION OF RULE 4 6A IN THIS CASE. SHE CLAIMED THAT LD. COMMISSIONER OF INCOME TAX (A) HAS E RRED IN ADMITTING THE ADDITIONAL EVIDENCES AS THERE WAS NO APPARENT REASONABLE CAUSE FOR NOT FILING THESE DOCUMENTS DUR ING THE ASSESSMENT PROCEEDINGS. LD. COUNSEL OF THE ASSESSEE ON THE O THER HAND SUBMITTED THAT THE ADDITIONAL EVIDENCES SUBMITTED BY THE ASSESSEE WERE IN PUBLIC DOMAIN. HENCE HE PLEADED THAT LD. COMMISSIONER OF INCOME TAX (A) HAS CORRECTLY ADMITTED THE ADDITIONAL EVIDENCES AND ALSO GOT REMAND REPORT FROM THE ASSESSING OFFICER. HE PLEADED THAT ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) BE SU STAINED IN THIS REGARD. WE HAVE CAREFULLY CONSIDERED THE SUBMISS IONS AND PERUSED THE RECORDS. WE FIND THAT ASSESSEE IN THIS CASE HAS NOT INITIALLY SUBMITTED THE RELEVANT DETAILS TO THE ASSESSING OFFICER, AS IT WAS CLAIMED THAT RELEVANT FILES IN THIS REGARD WAS MISPLA CED. LD. COMMISSIONER OF INCOME TAX (A) UPON EXAMINATION THE RELEVANT DETAILS AND SUBMISSIONS OF THE ASSESSEE HAS ALLOWED THE ASSESSEES CLAIM. IN OUR CONSIDERED OPINION, IN THE FACTS AN D CIRCUMSTANCES OF THE CASE, THIS ISSUE NEEDS TO BE REMITTED TO THE FIL E OF THE ASSESSING OFFICER. HENCE, THIS ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO EX AMINE THE ISSUE WITH REFERENCE TO THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE BEFORE THE LD. COMMISSIONER OF INCOME TAX (A). 15. APROPOS DELETION OF ADDITION OF ` 5 LACS :- ASSESSING OFFICER IN THIS REGARD NOTED THAT A PER USAL OF THE TAX AUDIT REPORT FILED BY THE ASSESSEE REVEALS THAT INSTEAD OF GIVING ITA NOS. 3437 & 2729/DEL/2011 10 QUANTITATIVE DETAILS OF THE GOODS TRADED BY THE ASS ESSEE, THE VALUE FIGURES HAD BEEN FURNISHED. ASSESSEE IN THIS REGA RD SUBMITTED THAT IT HAS NOT MAINTAINED ANY STOCK REGISTER AND THE OPENIN G AND CLOSING STOCK ARE VALUED ON THE BASIS OF THE STOCK TAKEN ON THE LAST DAY OF THE ACCOUNTING YEAR AND VALUED ACCORDING TO THE COST OR MARKET PRICE WHICHEVER IS LOWER. ASSESSING OFFICER DID NOT F IND THIS EXPLANATION ACCEPTABLE. HE HELD THAT ASSESSEE IS ONLY TRADIN G THE BOOKS AND THE PURCHASE AND SALE THEREOF ARE CLEARLY QUANTIFIABLE ON THE BASIS OF NUMBER OF BOOKS PURCHASED AND SOLD. ASSESSING OFFI CER HELD THAT IN THE ABSENCE OF THE PROPER VERIFICATION, THE TRADI NG RESULTS OF THE ASSESSEE COULD NOT BE RELIED UPON AND HENCE NEED DE TERMINATION ON AN ESTIMATED BASIS ONLY. THE ASSESSING OFFICER MADE THE ADDITION OF ` 5 LACS AND HELD THAT THE ADDITION WAS MADE TO TRADING RESULTS DECLARED BY THE ASSESSEE COMPANY IN NON EOU. 16. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT ASSESSING OFFICER HAD MADE ADHOC ADDITIO N OF ` 5 LACS BY REJECTING THE TRADING RESULTS MERELY ON THE GROUND THAT ASSESSEE COMPANY HAS NOT MAINTAINED ANY STOCK REGISTER. LD. COMMISSIONER OF INCOME TAX (A) FURTHER NOTED THAT ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. THE BOOKS OF ACCOUNTS WERE DULY AUDITED AND PURCHA SES AND SALES WERE DULY RECORDED AND THERE WAS AN INCREASE IN GP F ROM 18.70% TO 26.94%. LD. COMMISSIONER OF INCOME TAX (A) FURTHER N OTED THAT ASSESSEE HAS PROPERLY EXPLAINED THE REASON FOR NOT MAINTAINING THE STOCK REGISTER. THIS WAS DUE TO THE FACT THAT A SSESSEE WAS DEALING IN BOOKS AND IT WAS NOT POSSIBLE TO MAINTAIN THE STOC K REGISTER IN THIS REGARD. REFERRING TO VARIOUS DECISION RELIED UP ON BY THE ASSESSEE LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT THE CONSEN SUS OF JUDICIAL ITA NOS. 3437 & 2729/DEL/2011 11 OPINION IS THAT THE MERE ABSENCE OF A STOCK REGI STER CANNOT BE BASIS TO REJECT THE TRADING VERSION. HENCE, LD. COMMISS IONER OF INCOME TAX (A) HELD THAT THERE IS NO REASON FOR REJECTING THE BOOKS RESULTS WARRANTING AN ADDITION MUCH LESS AN ADHOC ADDITION. HENCE, LD. COMMISSIONER OF INCOME TAX (A) DELETED THE ADDITION OF ` 5 LACS IN THIS REGARD. 17. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPE AL BEFORE US. 18. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE NOTE IN T HIS REGARD THAT ASSESSEE HAS MAINTAINED NECESSARY BOOKS AND RECORD S PROPERLY AND NO DEFECT HAS BEEN FOUND BY THE ASSESSING OFFICER IN THIS REGARD. IN OUR CONSIDERED OPINION, MERE ABSENCE OF STOCK REGIS TER CANNOT BE SO FATAL SO AS TO RENDER THE TRADING RESULTS NOT ACCE PTABLE. WE AGREE WITH THE FINDING OF THE LD. COMMISSIONER OF INCOME T AX (A) THAT WHEN THE BOOKS OF ACCOUNTS WERE DULY AUDITED AND PURCHAS E AND SALES WERE DULY RECORDED AND THE GP HAS INCREASED CONSIDERABLY FROM PREVIOUS YEAR, THERE WAS NO JUSTIFICATION OF ADHOC ADDITION IN THIS REGARD. HENCE, WE AFFIRM THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 19. APROPOS ISSUE OF EXPENSES DEBITED TO NON EOU OF ` 10 LACS ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASSESS EE HAS TWO UNITS ONE EOU CLAIMED DEDUCTION U/S. 10B AND SECOND ONE DOING INLAND BUSINESS. ASSESSING OFFICER NOTED THAT ASSESS EE HAS NOT APPORTIONED THE EXPENSES ON ACTUAL BASIS. HE NOT ED THAT ONE CONSOLIDATED BALANCE-SHEET IS PREPARED. ASSESSI NG OFFICER FURTHER OBSERVED THAT WHILE EXAMINING THE BOOK OF ACCOUNTS, IT WAS SEEN THAT THE SALARY OF PERSONS NAMELY SH. PRADEEP GULATI AND SH. RAVI GUPTA TO ITA NOS. 3437 & 2729/DEL/2011 12 NAME A FEW ARE BOOKED IN THE CASE OF EOU WHEREAS TH EY ARE EMPLOYEES OF NON-EOU. COLLECTION CHARGES HAS ALSO B EEN SHOWN PAID TO THESE EMPLOYEES. ASSESSING OFFICER FURTHER O BSERVED THAT ADVERTISEMENT EXPENSES ARE BOOKED IN EOU AT ` 7,03 ,949/- AND IN THE CASE OF NON EOU AT ` 21,73,088/- WHEREAS THERE ARE NO SEPARATE BILLS IN THE CASE OF EOU AND NON EOU. SIMILARLY, IN RESPECT OF OTHER EXPENSES ALSO. ASSESSING OFFICER OBSERVED THAT IT IS NOT P OSSIBLE TO BIFURCATE THE EXPENSES ON ACTUAL BASIS AS BOTH THE UNITS FUNCTION UNDER ONE ROOF. THERE IS ONE CONSOLIDATED BALANCE SHEET AND VEHICL ES ARE COMBINEDLY STATED TO USED ON 50:50 BASIS WHICH IS NOT PRACTICA LLY POSSIBLE AS IN THE CASE OF SOFTWARE BUSINESS OF THE ASSESSEE, HARDLY ANY TRAVELING IS INVOLVED. ASSESSING OFFICER OBSERVED THAT THE A BOVE CITED ILLUSTRATION ARE NOT ONLY FEW EXAMPLES TO THE FACT THAT THE EXPEN SES HAVE NOT BEEN ASSIGNED TO THE UNITS ON ACTUAL BASIS. UNDER THE SE CIRCUMSTANCES, IT IS NOT POSSIBLE TO BIFURCATE THE EXPENSES ON ACTUAL BASIS AND ASSIGN THE EXPENSES EXACTLY TO EACH UNIT. ASSESSING OFFICER FURTHER REFERRED TO THE PROVISION OF SUB-SECTION 10 OF SECTION 80IA. A SSESSING OFFICER HELD THAT SOME OF THE EXPENSES OF EOU HAS BEEN SHIFTED TO NON EOU ONLY TO REDUCE THE PROFIT OF NON- EOU AND ENHANCE THE P ROFIT EOU AND ACCORDINGLY TO ENHANCE DEDUCTION CLAIMED U/S. 10B OF INCOME TAX ACT, 1961. ASSESSING OFFICER HELD THAT THE ALLOCATIO N OF EXPENSES HAS PRODUCED TO THE EOU MORE THAN THE ORDINARY PROFITS W HICH MIGHT BE EXPECTED FROM THIS ELIGIBLE BUSINESS OF COMPUTER SOFT WARE EXPORT. ACCORDINGLY, ASSESSING OFFICER MADE THE ADDITION OF ` 10 LACS TO THE TRADING RESULTS DECLARED BY THE ASSESSEE IN THE CAS E OF THE NON-EOU UNIT OF THE ASSESSEE. 20. BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) AS SESSEE SUBMITTED THE DETAILED SUBMISSION AS UNDER:- ITA NOS. 3437 & 2729/DEL/2011 13 SINCE THE AO HAS REFUSED DEDUCTION UNDER SECTION 1 0A/10B OF THE ACT, HE HAD NO AUTHORITY TO INVOKE THE CONTE NTS OF SECTION 10B(7) AND 10B(8) AND SECTIONS 80-IA (10) O F THE ACT. HAD HE GIVEN THE DEDUCTION U/S 1OB OF THE ACT AS CLAIMED, THEN THERE COULD BE SOME JUSTIFICATION FOR RA ISING THIS OBJECTION. SINCE THE DEDUCTION HAS BEEN DENIED IN TOTO, THE AO HAD NO JURISDICTION TO INVOKE THE TWO PROVISI ONS AS CITED BY HIM. EVEN OTHERWISE, THE AO'S VIEW THAT SINCE ONE CONSOL IDATED BALANCE SHEET HAD BEEN PREPARED, HE WAS UNABLE TO A SSESS AND ATTEST THE ALLOCATION OF EXPENSES, IS GROSSLY I NCORRECT. EXPENSES ALLOCATION CANNOT BE MADE FROM THE PREPARAT ION OF THE BALANCE SHEET. THE EXPENSES ARE REQUIRED TO BE GAUGED AND ALLOCATED FROM P&L ACCOUNT. DIFFERENT P&L ACCOUNTS DO MERGE INTO ONE BALANCE SHEET SO AS TO DE PICT THE TOTAL FINANCIAL STATUS OF THE ENTITY. HOWEVER, THE MERE FACT THAT ONE SINGLE BALANCE SHEET HAS BEEN PROJECT ED TO LEAD TO THE CONCLUSION THAT THE EXPENSES ALLOCATION ARE BY THEMSELVES WRONG. IN ANY CASE WITH THE APPELLANT, E ACH OF THE TWO UNITS HAVE SEPARATE PROFIT & LOSS ACCOUNT, AND A COMBINED BALANCE SHEET, WHICH ACCORDS WITH LAW AND PRACTICE. THE AO FURTHER OBSERVES THAT SHRI PRADEEP GULATI AN D SHRI RAVI GUPTA WERE EOU EMPLOYEES AND THAT THEY WERE DISCHARGING THE DOMESTIC RESPONSIBILITIES IS GROSSLY INCORRECT. HIS FURTHER REMARKS THAT THERE WERE A FEW OTHERS LIKE THEM, WHO WERE DOING SO, IS VAGUE AND AMBIGUOUS AND ITA NOS. 3437 & 2729/DEL/2011 14 FOR THAT REASON HIS FURTHER REMARKS SHOULD BE IGNOR ED. AS TO SHRI PRADEEP GULATI AND SHRI RAVI GUPTA, THE AO DID NOT MENTION THE FACTUM OF THEIR HAVING CONTACTS IN THIS L INE OF BUSINESS OF BOOK TRADING. IT IS DUE TO UTILIZATION OF THESE CONTACTS AND FURTHER WITHOUT EXPENDING ANY TIME ON S UCH PURSUITS, THAT THEY DISCHARGED THIS JOB. IT IS NOTE -WORTHY THAT THERE ARE NO REVENUE EXPENSES WHICH HAVE BEEN PAID FOR BY THE ASSESSEE IN RESPECT OF PURSUITS OF SHRI PRADEEP GULATI AND SHRI RAVI GUPTA IN THE DISCHARGE OF THE DOMESTIC UNITS' FUNCTIONING. FURTHER THE AO'S CHARGE IN THIS REGARD IS WRONG. IF THE EXPENSES OF AN EXEMPT BUSINESS ARE DEBITED TO THE EXPENSES' OF A TAXABLE BUSINESS, THE ASSESSEE MAY ST AND TO GAIN. BUT THAT WOULD BE IN A SITUATION WHERE THE AC T WILL GO UNNOTICED. IN THE SUBJECT CASE, THE ASSESSEE COULD NOT HAVE DONE IT IN THAT WAY FOR THE SIMPLE REASON THAT IT CO ULD NEVER ANTICIPATE AT THAT ROUND OF TIME THAT THE LEGITIMATE CLAIM U/S LOB OF THE ACT, WOULD BE DENIED BY THE AO AND S O THIS EXPEDIENT WOULD BE NECESSARY. SO FAR AS THE BILLING IS CONCERNED, THE COMMON EXPENS ES HAD BEEN DULY ALLOCATED ON THE BASIS OF AN EQUITABL E FORMULA. THE AO HAS RESERVATIONS IN TERMS OF LETTER D ATED 23.12.09 THAT ALLOCATION COULD BE MADE ON THE BASIS OF TURNOVER. THE ASSESSEE'S CASE HAS BEEN THAT THE ALL OCATION ON TURNOVER BASIS DOES NOT LEAD TO A LOGICAL END AS WAS STATED IN PARA 6 OF THE ASSESSEE'S LETTER DATED 24.1 2.2009. THESE DETAILS AND EXPLANATIONS WERE IGNORED BY THE AO. ITA NOS. 3437 & 2729/DEL/2011 15 IN THESE CIRCUMSTANCES, DIRECTIONS ARE SOLICITED FO R ANNULLING THE ACTION OF THE AO. 21. CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT ASSESSING OFFICER HAS FOUND THAT THE RE IS SHIFTING OF EXPENSES FROM THE EOU UNIT TO DOMESTIC UNIT TO INFLATE THE PROFITS OF EXEMPTED UNIT AND REDUCE THE PROFITS OF DOMESTIC UNIT TO PAY LESSER TAXES. LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT ASSESSEE HAS GIVEN THE REASONABLE BASIS FOR APPORTIONING OF THE EXPENSES. LD. COMMISSIONER OF INCOME TAX (A) FURTHER OBSERVED THAT THE EXPLANATIONS BROUGHT ON RECORD WERE IGNORED BY THE ASSESSING OFFICER. ACCORDINGLY, ASSESSING OFFICER HELD THAT THERE IS NO CASE FOR ADDITION ON ACCOUNT OF SHIFTING OF EXPENSES. 22. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 23. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT IN THE PRESENT CASE NO CASE HAS BEEN MADE OUT AGAINST THE ASSESSEE THAT THE EXPENSES WERE BOGUS. ASSESSING OFFICERS ONLY GRIEVANC E IS THAT EXPENSES WERE NOT PROPERLY ALLOCATED BETWEEN THE EOU AND NON -EOU UNIT. IN THIS REGARD, WE FIND THAT ASSESSEE HAS SUBMITTED T HAT THERE WAS REASONABLE BASIS FOR ALLOCATION OF THE EXPENSES BET WEEN THE EOU AND NON-EOU UNIT. WE FIND THAT ASSESSEES SUBMISSIO NS ARE COGENT ONE. UNDER THE CIRCUMSTANCES, WE AFFIRM THE ORDER OF THE L D. COMMISSIONER OF INCOME TAX (A) ON THIS ISSUE AND DECIDE THE ISSU E IN FAVOUR OF THE ASSESSEE. 24. APROPOS ADDITION ON ACCOUNT OF COMMISSION PAID O F ` 4,46,836/- ITA NOS. 3437 & 2729/DEL/2011 16 ON THIS ISSUE ASSESSING OFFICER NOTED THAT ASSESS EE HAS PAID COMMISSION TO TWO PERSONS. ASSESSEE WAS ASKED TO PR ODUCE THE DOCUMENTARY EVIDENCE AS TO WHAT SERVICES HAD BEEN RE NDERED BY THESE PARTIES WHICH HAD RESULTED IN THE PAYMENT OF COMMISSION TO THEM. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE DID NOT FURNISH ANY COGENT EVIDENCE IN SUPPORT OF SERVICES RENDERED BY THESE TWO INDIVIDUALS. HE HELD THAT DEDUCTION OF TAX AT SOUR CE AND PAYMENT BY CHEQUE IS ALSO NOT SACROSANCT. THE ASSESSING OFFI CER OBSERVED THAT WHILE EXAMINING THE BOOKS OF ACCOUNTS NO EVIDENCE WA S FOUND AND SUBSEQUENTLY ALSO NO COGENT EVIDENCE WAS FILED. ASSESSING OFFICER HELD THAT ASSESSEE HAS FAILED TO FILE COGENT EVIDE NCE REGARDING SERVICES RENDERED BY THE PERSONS TO WHOM COMMISSION W AS PAID, A SUM OF ` 4,46,836/- WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 25. BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) AS SESSEES SUBMISSIONS WERE AS UNDER:- THE AO WAS PROVIDED THE DETAILS OF SUPPLIES MADE TH ROUGH AMARDEEP AND HARJEET SINGH. THE NAMES OF THE PARTIES TO WHOM THESE PERSONS HAD MADE THE SUPPLIES ALONGWITH T HEIR LOCATIONS WERE DULY FURNISHED TO THE AO. THE AO ADO PTED AN ARM-CHAIR APPROACH AND DESPITE SUCH PLAUSIBLE EVIDE NCE ON RECORD, HE HAS CHOSEN TO DUB THE SAME AS BEING NOT COHERENT EVIDENCE AND HAS MADE THE DISALLOWANCE UNNECESSARILY. THERE IS NOTHING TO SUGGEST IN TERMS OF THE ACTION OF THE AO THAT THE ASPECT OF ENTIRE EXPENDIT URE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS WAS NOT ESTABLISHED. MOREOVER, BOOK ENTRIES WILL NOT CONTAI N PROOF OF ITA NOS. 3437 & 2729/DEL/2011 17 SERVICE AS MISCONCEIVED BY THE AO. SELLING OF BOOKS IS THE ASSESSEE'S BUSINESS AND IN THE TASK OF SELLING BOOK S, OTHER PERSONS HAVE BEEN ENGAGED WHO HAVE ASSISTED THE APPELLANT IN THE SELLING OF BOOKS. THAT BY ITSELF MA KES THE EXPENDITURE BEING INCURRED EXCLUSIVELY FOR THE PURP OSE OF BUSINESS. FULL DETAILS HAVE BEEN GIVEN TO THE AO. T HE ONUS IS ON HIM TO EFFECT ANY VERIFICATION. HE DID NOT IND ULGE IN ANY ACT OF SUCH SORT. COMMERCE EMERGES IN THE CONTEXT OF NATURE OF BUSINESS. THE NATURE OF BUSINESS IS SALE OF BOOKS. THE SALE OF BOOKS REQUIRES REACHING OUT AS EXTENSIV ELY AS POSSIBLE. THIS IS WHAT THE APPELLANT HAS DONE BY AV AILING THE SERVICES OF AMARDEEP AND HARJEET SINGH. THE AO HAS F AILED TO APPRECIATE THE FACTS IN THEIR PROPER PERSPECTIVE AND EVEN THE SCOPE OF THE APPLICABLE LAW AND HAS ERRONEOUSLY DISALLOWED THE AMOUNT. THE ADDITION SO MADE BY THE AO , MUST BE VACATED.' 26. CONSIDERING THE ABOVE, LD. COMMISSIONER OF INCOM E TAX (A) HELD THAT THE ASSESSING OFFICER HAS DISALLOWED THE COMMI SSION PAYMENT ON THE GROUND THAT NO COGENT EVIDENCE WAS LED IN SUPPO RT OF THE SERVICES RENDERED BY THEM MAKING IT AN ALLOWABLE EXPENDITURE U NDER S. 37 AND LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT ASSESSE ES COUNSEL HAS BROUGHT ON RECORD THAT SH. HARJEET SINGH HAS BROUGH T BUSINESS OF ` 44,57,640/- ON WHICH 5% COMMISSION WORKING OUT TO ` 2,22,882/- WAS PAID. SIMILARLY, SH. AMARDEEP SINGH WAS PAID ` 2 ,23,954/- BEING 5% OF ` 44,79,080/- REPRESENTING THE BUSINESS DONE T HROUGH HIM. IN VIEW ITA NOS. 3437 & 2729/DEL/2011 18 OF THE AFORESAID, LD. COMMISSIONER OF INCOME TAX (A) HELD THAT THE COMMISSION PAYMENT IS TO BE ALLOWED. 27. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 28. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT O F THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT ASSESSEE HAS PAID COMMISSION TO TWO PERSONS FOR BRINGING THE BUSINES S TO THE ASSESSEE. THE NAME AND ADDRESS OF THE SAID PERSONS WERE DULY GIVEN. THE BUSINESS DONE THROUGH THE AFORESAID PERSONS WAS ALSO QUANTIFIED. HENCE, IN OUR CONSIDERED OPINION, ASSESSEES SUBMISS IONS ARE COGENT HERE AND DISALLOWANCE IN THIS REGARD IS NOT CALLED FOR. ASSESSING OFFICER HAS NOT HELD THAT THE EXPENSES ARE BOGUS. BUT HE HAS OPINED THAT EXPENSES WERE NOT EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THIS REGARD, WE FIND THAT THE HONBLE APEX COURT IN THE CASE OF CIT, BOMBAY VS. WALCHAND AND CO. PRIVATE LTD. IN 65 ITR 3 81, HAS HELD THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR D ETERMINING WHETHER AN EXPENDITURE WAS WHOLLY AND EXCLUSIVELY F OR BUSINESS, THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VI EW OF THE BUSINESSMAN AND NOT OF REVENUE'. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF THE LD. COMM ISSIONER OF INCOME TAX (A) ON THIS ISSUE. ACCORDINGLY, WE AFFIRM THE O RDER ON THIS ISSUE. ITA NOS. 3437 & 2729/DEL/2011 19 29. IN THE RESULT, BOTH THE APPEALS FILED BY THE A SSESSEE AND REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE S. ORDER PRONOUNCED IN THE OPEN COURT ON 31/8/2012. SD/- SD/- [C.M. GARG] [C.M. GARG] [C.M. GARG] [C.M. GARG] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE: 31/8/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES