The ACIT, Mehsana Circle, Mehsana V. Parth Parenterals Pvt. Ltd., Kalol

ITA 2794/AHD/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6734 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-03-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 22-06-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S N DIVETIA
• Assessee Lawyers: R K TOPIWALA
• Keywords: Depreciation
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI D.K.TYAGI, HONBLE JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, HONBLE ACCOUNTANT MEMBER ITA NO.2794-2795/AHD/2007 ASSESSMENT YEARS:2003-04 & 2004-05 DATE OF HEARING:30.3.11 DRAFTED:12.4.11 ACIT, MEHSANA CIRCLE, MEHSANA V/S . PARTH PARENTERALS PVT. LTD. 1, GIDC ESTATE, NATIONAL HIGHWAY ROAD, MEHSANA PAN NO.AABCP1588L (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI R.K. TOPIWALA, DR REVENUE BY:- SHRI S.N.DIVETIA, AR O R D E R PER D.K.TYAGI, JUDICIAL MEMBER:- THESE ARE TWO REVENUES APPEAL AGAINST THE ORDER O F COMMISSIONER OF INCOME-TAX(APPEALS)-XXI, AHMEDABAD IN APPEAL NO. CI T(A)-XXI/MEH/44- 45/06-07 BY EVEN DATE 28-03-2007 FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05. FIRST WE WILL TAKE UP REVENUES APPEAL NO.2794/AHD/ 2007. 2. THE GROUNDS NO.1,3 AND 4 READ AS UNDER:- 1. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND O N FACTS IN DELETING THE DISALLOWANCE OF MARKETING EXPENSES PERTAINING T O EARLIER YEAR OF RS.2,83,766/-. 3. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF OTHER EXPENSES RELATED TO EARLI ER YEAR OF RS.1,82,768/-. ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 2 4. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE OF FREIGHT INWARD EXPENSES PERTAINING TO EARLIER YEAR OF RS.21,785/-. 3. THE FACTS IN RESPECT OF THESE GROUNDS AS PER THE ASSESSMENT ORDER OF ASSESSING OFFICER ARE AS UNDER:- IN THE CASE OF ASSESSEE, THE RETURN OF INCOME FOR A.Y. 2003-04 SHOWING INCOME OF RS.20,89,030/- WAS FILED ON 28.11.2003 AL ONG WITH AUDIT REPORT U/S.44AB OF THE ACT. THE RETURN WAS PROCESSE D U/S.143(1) OF THE ACT ON 05.03.2004. THE CASE OF THE ASSESSEE WAS SEL ECTED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S.143(2) OF THE ACT WAS IS SUED AND DULY SERVED ON ASSESSEE ON 09.10.2004 I.E. WITHIN THE TIME LIMI T AS PRESCRIBED IN THE ACT. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS DO ING THE MANUFACTURING OF LARGE VOLUME OF VARIOUS PHARMACEUT ICAL PRODUCTS. ON PERUSAL OF ANNEXURE H-22(B) OF FORM NO.3CD, IT IS SEEN THAT THERE ARE EXPENDITURES OF PRIOR PERIOD AND WHICH ARE DEBITED IN CURRENT YEARS ACCOUNT. DETAILS OF SUCH EXPENDITURE ARE AS UNDER:- NAME OF THE PARTY TWO WHICH A/C DEBITED AMOUNT (RS) YEAR FIELD STAFF MARKETING SHRI GIRIRAJ MEDICOS MARKETING EXPENSES CONFERENCE EXPENSES 2,83,766/- 4,23,806/- 2001-02 MARCH, 2002 AS THE ABOVE EXPENDITURE ARE PERTAINING TO F.Y 2001 -02 RELEVANT TO A.Y 2002-03 AND THEREFORE, THE ASSESSEE VIDE ANNEXURE N O. ADDL. CIT/ MHN/ASSTT.PROCE./SCN/2005-06 DATED 23.02.2006 TO TH IS OFFICE NOTICE U/S.142(1) OF THE ACT DATED 23.2.2006 WAS REQUESTED TO SHOW CAUSE AS TO WHY SUCH EXPENSES WHICH ARE THOUGH PERTAINING TO F.Y 2001-02, BUT HAVE BEEN CLAIMED FOR THE YEAR UNDER CONSIDERATION (I.E F.Y 2002-03) SHOULD NOT BE DISALLOWED AND ADDED BACK TO ITS TOTA L INCOME. IN RESPONSE, THE ASSESSEE VIDE ITS LETTER DATED 27.02. 2006 HAS SUBMITTED AS UNDER:- WE HAVE DEBITED MARKETING EXPENSES OF RS.283766/- FOR THE MONTH OF MARCH-02 IN THE ACCOUNTING YEAR 2002-03 WH ICH IS RELATED TO FIELD STAFF MARKETING EXPENSES CLAIMED B Y THE PERSONS LATER ON. FURTHER WE HAVE TO STATE THAT THE COMPANY HAS DEBITED MARKETING EXPENSES OF RS.252431/- OF MARCH-03 PERTA INING TO FIELD STAFF MARKETING IN THE ACCOUNTING YEAR 2003-0 4. YOU ARE REQUESTED TO CONSIDER FOLLOWING POINTS BEFORE AND B ACK PRIOR PERIOD EXPENSES INTO OUT INCOME. ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 3 A. THE COMPANY HAS ACCOUNTING METHOD FOR NOT MAKING PROVISION OF UNCRYSTILISED LIABILITY IN BOOKS OF ACCOUNT AND DEBITED THE SAID EXPENDITURE AS WHEN CLAIMED BY THE PARTY. THIS IS THE CONSISTENT ACCOUNTANT POLICY OF THE COMPANY. B. THE COMPANY HAS ALSO DEBITED SUCH TYPE OF EXPENS ES IN THE ACCOUNTING YEAR 2003-04 AS STATED ABOVE WHICH SHOUL D BE ALLOWED IN THE CURRENT YEAR I.E. 2002-03 IF YOU ADD BACK THE PREVIOUS YEAR EXPENSES INTO OUR INCOME. C. THE COMPANY A PROFIT MAKING AND PAYING INCOME TA X SINCE LAST SO MANY YEARS HENCE, THE EXPENSES OF THE PREVIOUS Y EAR ARE DEBITED IN CURRENT YEAR OR PREVIOUS YEAR DOES NOT M AKE ANY DIFFERENT TO THE INCOME TAX DEPARTMENT IN VIEW OF I NCOME TAX COLLECTION BECAUSE IF WE CLAIMED THE SAID EXPENDITU RE IN PREVIOUS YEAR WE HAVE TO PAY LOWER INCOME TAX IN TH E SAID YEAR AND VICE VERSA. WE ARE ENCLOSING HEREWITH DETA IL STATEMENT OF AYURVEDIC CONFERENCE EXPENSES OF RS.42 3806/- CONTAINING THE BILLS AND VOUCHERS CONSIDERED BY YOU AS AN AUTHENTICATE, NON-AUTHENTICATE AND EVIDENCE NOT PRO VIDED BY US. YOU ARE REQUESTED TO CONSIDER EVIDENCES PROVIDE D BY US WHICH DID NOT CONTAIN SALES TAX NO.CST NO. ETC. OF THE PARTY TO WHOM THEY HAVE MADE THE PAYMENT FOR CONFERENCE EXPE NSES AS THE COMPANY WOULD RECEIVE THE EVIDENCE ONLY WHAT EVER THE PARTY HAD GIVEN. SECONDLY, REGARDING NON PROVIDING OF EVIDENCE EXPEN SES ARE SUCH EXPENSES WHICH WERE PAID BY STOCKIEST THROUGH OUR DISTRIBUTOR M/S. GIRIRAJ MEDICOSE, AJMR,. HENCE, TH E COMPANY HAS NO EVIDENCE AT PRESENT, EVEN THOUGH THE AMOUNT IS PAID TO AYURVEDIC MARKETING & COMPANY HAVE TO ARRANGE SUCH CONFERENCE FOR SALE OF THEIR PRODUCTS. BUT, THE ABOVE SUBMISSION OF THE ASSESSEE IS NOT AC CEPTABLE. THE ASSESSEE HAS PLEADED THAT IT HAS ACCOUNTING MET HOD FOR NOT MAKING PROVISION OF UNCRYSTRILISED LIABILITY IN BOOKS OF ACCOUNT AND DEBITED SUCH EXPENDITURE AS AND WHEN TH E SAME WERE CLAIMED BY THE PARTY. THE ASSESSEE HAS ALSO T AKEN THE PLEA THAT IT HAS ALSO DEBITED SUCH TYPE OF EXPENSES IN THE ACCOUNTING YEAR 2003-04 THOUGH THE SAME WERE PERTAI NING TO F.Y 2002-03 AND SHOULD HAVE BEEN ALLOWED IN THIS YE AR ONLY. BUT ALL THIS EXPLANATION OF THE ASSESSEE IS UNACCEP TABLE IN VIEW OF THE FACT THAT IT IS PERTAINING ITS BOOKS OF ACCOUNTS ON MERCANTILE BASIS AND NOT ON CASH BASIS. OBVIOUSLY, IN THIS SYSTEM OF ACCOUNT, IF EXPENDITURE ARE PERTAINING TO ONE PARTICULAR YEAR THEN THE SAME CANNOT BE CLAIMED IN ANOTHER YEAR. MERELY ON THE BASIS THAT IT IS NOT MAKING PRO VISION OF UNCRYSTILISED LIABILITY IN BOOKS OF ACCOUNTS, THE A SSESSEE CANNOT BE ALLOWED TO CLAIM EXPENDITURE OF F.Y 21001 -02 FOR ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 4 THE YEAR UNDER CONSIDERATION. IN VIEW OF THESE FACT S, THE ABOVE EXPENDITURE OF RS.2,83,766/- AND RS.4,23,806 AS SHO WN TO HAVE BEEN INCURRED ON ACCOUNT OF MARKETING EXPENSES AND CONFERENCE EXPENSES ARE HEREBY DISALLOWED ADDITION ADDED BACK TO ITS TOTAL INCOME. LIKEWISE, FOLLOWING OTHER EXPENSES ALSO THOUGH RELA TED TO PREVIOUS YEAR I.E. F.Y 2001-02 BUT ARE DEBITED IN C URRENT YEARS ACCOUNTS. THE ASSESSEE HAS DEBITED SUCH EXPENSES IN CURRENT YEAR I.E. F.Y 2002-03 WHICH IS THE YEAR UNDER CONSI DERATION. NAME OF PARTY TO WHICH ACCOUNT DEBITED/CREDITED AMOUNT (RS) TAPAN MEDICOS HARSH DIST. P. LTD. COMMISSION C & F COMMISSION & EXPENSES 4757 82295 R.M. DRUGS C & F COMMISSION & EXPENSES 49018 K.P. DISTRIBUTORS C.& F COMMISSION & EXPENSES 1148 MILTON PHARMA MARKETING EXPENSES 10000 SHRI GIRIRAJ MEDICOS TRADE DISCOUNT 19836 SHANTI MEIDINE AGENCY DISCOUNT EXPENSES 15714 TOTAL 182768 THE ABOVE EXPENDITURE AMOUNTING TO RS.1,82,768/- AR E ALSO DISALLOWED AND ADDED BACK TO THE TOTAL INCOME AS TH E SAME ARE PERTAINING TO ONE PARTICULAR YEAR I.E. F.Y. 200 1-02 AND HENCE THE SAME CANNOT BE ALLOWED TO BE CLAIMED FOR THE YEAR UNDER CONSIDERATION AS THE ASSESSEE IS MAINTAINING ITS BOOKS OF ACCOUNTS ON MERCANTILE BASIS. 4. BEFORE LD. CIT(APPEALS) ASSESSEE MADE FOLLOWING SUBMISSIONS IN RESPECT OF THESE ADDITIONS. 2. (I) THE LEARNED ADDITIONAL CIT HAS DISALLOWED F OLLOWING EXPENSES ONLY ON THE GROUNDS THAT THE COMPANY IS MAINTAINING ITS BOOKS OF ACCOUNTS ON MERCANTILE BASIS AND ON CASH BASIS AND EXPENSES ARE PERTAINING TO ONE PARTICULAR YEAR THAN THE SAME CAN NOT BE CLAIMED IN ANOTHER YEAR. (A) DISALLOWANCE OF MARKETING EXPENSES RS.2,83,766 /- (B) DISALLOWANCE OF CONFERENCE EXPENSES RS.4,23,80 6/- DISALLOWANCE OF OTHER EXPENSES RELATED TO PREVIOUS YEAR RS.1,82,768/- ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 5 (D) DISALLOWANCE OF EXPENSES OUT OF FREIGHT INWARD RELATED TO EARLIER YEARS RS. 1,785/- THE COMPANY HAS FOLLOWED MERCANTILE SYSTEM OF ACCOU NTING UNDER SECTION 145(2) OF THE INCOME TAX ACT WHICH ALSO IND ICATES THE METHOD OF ACCOUNTING SHOULD BE CONSISTENCE AND THERE IS NO CH ANGE IN METHOD OF ACCOUNTING. IN CASE OF D.K. ENTERPRISES VS. ITO (1991) 039 ITD 394 (BOM). IT WAS HELD THAT THE SYSTEM OF ACCOUNTS HAS BEEN FO LLOWED CONSISTENTLY AT PAST AND IT HAS ACCEPTED IN EARLIER THAN NO JUSTIFICATION FOR INVOKING PROVISION FOR SECTION 145 OF I.T. ACT. SEC ONDLY IN CASE OF SANDVIK ASIA LTD. VS. ITO (1985) 145 ITD 35 (BOM) IT WAS HELD THAT THERE IS NOTHING IN ACCOUNTANCY AND INCOME TAX LAW WHICH PROHIBITS FROM ADOPTING PARTICULAR METHOD. IN CASE OF CIT VS. INDO NIPPON CHEMICAL CO. LTD. (2003) 261 ITR 275 (SC). IT WAS HELD THAT ACCOUNTIN G METHOD SHOULD BE CONSISTENT WITH ACCEPTED PRINCIPLES OF AC COUNTANCY. IN CASE OF CIT VS. HAZRIBAGH COAL SYNDICATE PVT. LTD. (1989) 177 ITR 135 (CAL) IT WAS HELD THAT THE ACCOUNTING METHOD SHOULD BE RE GULAR AND THE SAID METHOD FOLLOWED SYSTEMATICALLY AND CONSISTENTLY. TAKING INTO CONSIDERATION OF ABOVE SUBMISSION OF AS SESSEE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE FACTS OF THE CASE. IT IS SEEN THAT THE DISPUTE IS O NLY REGARDING THE VARIOUS EXPENSES INCURRED BY THE APPELLANT DURING THE MONTH OF MARCH 2002. THE ASSESSING OFFICER DID NOT ALLOW THE ABOVE EXPEN DITURES OBSERVING THAT THE APPELLANT HAS BEEN MAINTAINING BOOKS OF AC COUNTS ON MERCANTILE BASIS AND NOT ON CASH BASIS. THE APPELLA NT IN THIS REGARD HAS STATED THAT SINCE THE LIABILITY OF EXPENSES INCURRE D IN THE MONTH OF MARCH 2002 DID NOT GET CRYSTALLIZE IN THAT MONTH BECAUSE OF THE FACT THAT THESE EXPENDITURE WERE CLAIMED BY THE VARIOUS PARTIES IN THE SUBSEQUENT MONTHS I.E. IN THE MONTH OF APRIL 2002, IT HAS DEBI TED ALL SUCH EXPENDITURES IN THE F.Y 02-03 RELEVANT TO THE CURRE NT A.Y. I FIND THAT THE FACT THAT WHOLE OF THE AMOUNT OF ABOVE EXPENDITURES GOT CRYSTALLIZED IN MONTH OF APRIL 2002 ONLY IS NOT DISPUTED BY THE ASS ESSING OFFICER ALSO. IT IS ALSO SEEN THAT THE APPELLANT HAS BEEN FOLLOWING THIS SYSTEM OF DEBITING THE UNCRYSTALLIZED LIABILITY OF MONTH OF M ARCH OF THE PRECEDING FINANCIAL YEAR IN THE NEXT PREVIOUS YEAR, IN THE PA ST YEAR AS WELL AS IN THE SUBSEQUENT FINANCIAL YEAR. IN VIEW OF THE ABOVE DIS CUSSION I HOLD THAT THE CLAIM OF THE APPELLANT OF DEBITING THE EXPENDIT URES OF THE PRECEDING YEAR IN THE CURRENT YEAR IS AS PER MERCANTILE SYSTE M OF ACCOUNTING ONLY AND SO IS ACCEPTABLE AND THEREFORE NO DISALLOWANCE BY THE ASSESSING OFFICER IS REQUIRED. IN VIEW OF THE ABOVE, THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER AS UNDER ARE DELETED. (A) DISALLOWANCE OF MARKETING EXPENSES RS.2,83,76 6/- ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 6 (B) DISALLOWANCE OF OTHER EXPENSES RELATED TO PREVIOUS YEAR RS.1,82,768/- DISALLOWANCE OF EXPENSES OUT OF FREIGHT INWARD RELATED TO EARLIER YEARS RS. 21,785 /- 5. SINCE THE FINDING OF LD. CIT(A) THAT WHOLE AMOUN T OF THE EXPENDITURE WAS GOT CRYSTALLIZED IN THE MONTH OF APRIL02 AND T HAT THE ASSESSEE HAS BEEN FOLLOWING THIS SYSTEM OF DEBITING THE UNCRYSTALLIZE D LIABILITY OF THE MONTH OF MARCH OF THE PRECEDING YEAR IN THE NEXT PREVIOUS YE AR IN THE PAST YEAR AS WELL AS IN THE SUBSEQUENT FINANCIAL YEAR WAS NOT DISPUTE D BY THE REVENUE AT THE TIME OF HEARING BEFORE US WE FIND NO INFIRMITY IN T HE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THESE THREE GROUNDS OF REVENUES APPEAL ARE DISMISSED. 6. GROUND NO.2 READS AS UNDER:- 2. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND O N FACTS IN SUSTAINING THE DISALLOWANCE OUT OF CONFERENCE EXPENSES TO THE EXTENT OF RS.1,87,758/- AS AGAINST THE TOTAL DISALLOWANCE OF RS.2,36,048/-. 7. THE ASSESSING OFFICER DURING THE ASSESSMENT PROC EEDINGS ASKED THE ASSESSEE TO PRODUCE COMPLETE BILLS AND VOUCHERS AND BEFORE MAKING THIS ADDITION OBSERVED AS UNDER:- AGAIN, WITHOUT PREJUDICE TO THE ABOVE VIEW THAT MA RKETING & CONFERENCE EXPENSES ARE NOT ALLOWABLE TO BE CLAIMED FOR THE YEAR UNDER CONSIDERATION AS THE SAME ARE PERTAINING TO E ARLIER YEAR, IT IS FURTHER STATED THAT ASSESSEE VIDE ANNEXURE TO THIS OFFICE NOTICES U/S.142(1) OF THE ACT DATED 14.12.2005 AND DATED 24 .01.2006 WAS REQUESTED TO FURNISH DETAILS AS WELL AS TO PRODUCE COMPLETE BILLS AND VOUCHERS IN RESPECT OF CONFERENCE EXPENSES OF RS.4, 23,806/-. DESPITE SUFFICIENT OPPORTUNITIES GIVEN TO THE ASSESSEE IT F AILED TO PRODUCE COMPLETE BILLS AND VOUCHERS IN RESPECT OF ABOVE CON FERENCE EXPENSES. THE ASSESSEE FINALLY PRODUCED BILLS AND VOUCHERS IN RESPECT OF ABOVE EXPENSES ONLY TO THE EXTENT OF RS.86,042/- AND FOR BALANCE AMOUNTS OF RS.3,37,764/- NO BILLS AND VOUCHERS COULD BE PRODUC ED BY IT. IT MAY BE MENTIONED THAT OUT OF ABOVE AMOUNTS OF RS.3,37,764/ - (I.E THE AMOUNTS FOR WHICH NO PROPER BILLS AND VOUCHERS WERE PRODUCE D) AN AMOUNT OF RS.32,643/- WAS SHOWN TO HAVE BEEN INCURRED ON ACCO UNT OF CONFERENCE HELD IN HOTEL NIROSAT SIKAR. HOWEVER, ASSESSEE COUL D NOT PRODUCE ORIGINAL BILL FOR ABOVE SUCH AMOUNT OF RS.32,643/- AND ONLY XEROX COPY ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 7 OF SUCH BILLS WERE PRODUCED FOR VERIFICATION. AGAIN , OUT OF ABOVE AMOUNT OF RS.3,37,764 AN AMOUNT OF RS.21,645/- WAS SHOWN T O HAVE BEEN INCURRED ON ACCOUNT OF FOOD ETC. FOR THE PERSONS AT TENDING CONFERENCE IN RASIO RESTAURANT IN AJMER. BUT, THE BILL PRODUCED F OR THIS EXPENDITURE WAS NOT BEARING SALES TAX NUMBER ETC. AND AUTHENTIC ITY OF SUCH BILL WAS NOT ACCEPTABLE. IT MAY BE MENTIONED THAT A PROPER V ERIFICATION WITH REGARD TO BILLS AND VOUCHERS PRODUCED FOR CONFERENC E EXPENSES WAS MADE AND IN THIS REGARD A CHART HAS BEEN PREPARED S HOWING THE CONFERENCE EXPENSES OF RS.86,042/- FOR WHICH BILLS WERE PRODUCED AND CONFERENCE EXPENSES OF RS.3,37,764/- IN RESPECT OF WHICH EITHER BILLS AND VOUCHERS WERE NOT PRODUCED OR FOR FEW OF THE EX PENSES THE BILLS PRODUCED WERE NOT AUTHENTIC. FOR CONFERENCE EXPENSE S OF RS.3,37,764/- SHRI DEEPAK GANDHI, AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE AND SHRI DARSHAN VYAS, ACCOUNTANT OF THE ASSESSEE HAVE ALSO AGREED THAT BILLS AND VOUCHERS FOR SUCH EXPENSES ARE NOT AVAILA BLE WITH THEM TO BE PRODUCED AND OTHER THESE TWO PERSONS HAVE PUT THEIR SIGNATURE ON THE ABOVE CHART IN THIS REGARD. I AM ENCLOSING HEREWITH THE COPY OF ABOVE CHART FOR REFERENCE AND THE SAME IS MARKED ANNEXURE A. IN VIEW OF THESE FACTS, THE ABOVE CONFERENCE EXPENSES OF RS.3, 37,764/- ARE HEREBY DISALLOWED AND ADDED BACK TO TOTAL INCOME FO R WANT OF BILLS AND VOUCHERS. THIS ADDITION OF CONFERENCE EXPENSES OF R S.3,37,764/- ARE MADE TO THE TOTAL INCOME OF THE ASSESSEE WITHOUT PR EJUDICE TO MY ABOVE VIEW THAT ENTIRE CONFERENCE EXPENSES OF RS.4,23,806 /- IS NOT ALLOWABLE AS THE SAME ARE PERTAINING TO F.Y 2001-02 AND NOT T O THE YEAR UNDER CONSIDERATION. FOR ADDITION OF RS.3,37,764/- TO THE TOTAL INCOME OF THE ASSESSEE, THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T. ACT ARE INITIATED SEPARATELY AS THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND HAS CONCEALED PARTICULARS OF INCOME. BEFORE LD. CIT(APPEALS) ASSESSEE MADE FOLLOWING SUB MISSIONS:- (II) NON ACCEPTANCE OF CONFERENCE EXPENSES OF RS.3 37764/-. REGARDING AYURVEDIC CONFERENCE EXPENSES OF RS 423806/-, THE L EARNED AO HAS INDICATED IN ITS ORDER THAT, WE HAVE NOT PRODUCE BI LLS AND OTHER EVIDENCE FOR RS.337764/-. IN REFERENCE TO THIS WE HAVE TO ST ATE THAT WE HAVE PROVIDED VOUCHERS FOR ALL THE CONFERENCE EXPENSES H AVING KACHHA BILL AND INVOICES OF HOTELS / RESTAURANT HAVING NO STD/C ST NO. WHICH THE LEARNED AO HAS NOT CONSIDER AS AN AUTHENTICATE EVID ENCE. WE HAVE ALSO INFORM THAT CONFERENCE ARE ARRANGE BY OUR DIST RIBUTORS M/S. GIRIRAJ MEDICOSE, AAJMER AND HE HAS INCURRED ALL EXPENSES O N BEHALF OF US FOR ARRANGING AYURVEDIC CONFERENCE AT VARIOUS PLACES OF RAJASTHAN. WE HAVE ALREADY INFORM HIM FOR SENDING THE FURTHER ANY EVIDENCED WITH HIM FOR CONFERENCE EXPENSES INCURRED. THE COMPANY HAS PROMOTED VARIOUS PRODUCTS OF AYURVE DIC WHICH ALWAYS REQUIRED PUBLICITY, ADVERTISEMENT AND AWARENESS AMO NG THE PEOPLE. ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 8 THE TREND OF PHARMACEUTICAL INDUSTRIES AND ITS NETW ORK OF MARKETING IS NOT DIRECTLY WITH THE RETAILER BUT THROUGH THE DIST RIBUTORS THAN COMES TO RETAILER AND ULTIMATE CUSTOMER. TO CREATE AWARENESS OF THE PRODUCTS, DISTRIBUTORS ARE ARRANGING CONFERENCES OF RETAILERS OF ITS AREA AND REIMBURSE THE EXPENSES FROM THE COMPANY AS PER MUTU ALLY AGREED BETWEEN THE DISTRIBUTORS AND THE COMPANY. IN OUR CA SE THE DISTRIBUTORS HAS ARRANGED THE VARIOUS CONFERENCES FOR AYURVEDIC PRODUCTS AND ALSO SEND THE FORM OF CANDIDATES PRESENT IN THE CONFEREN CE AT THAT TIME. THE DISTRIBUTORS ARE ARRANGING SUCH OF CONFERENCE AT TH E PLACE WHERE THE RETAILER AND OTHER CANDIDATES WISH TO REMAIN PRESEN T AND BUDGET GIVEN BY THE COMPANY. IN SUCH CASES THE PLACE MAY NOT BE REPUTED AND HAVING ST/CST NO. AND CARE TAKER MAY NOT GIVE BILLS / INVOICES BUT ONLY DETAILS ON KACHHA PAPER. ONE OF THE REPRESENTATIVE OF THE COMPANY ARE REMAIN PRESENT IN SUCH CONFERENCES AND ALSO STAKE PHOTO GRAPHS OF SUCH CON FERENCES WHICH JUSTIFIED THAT COMPANY HAS HELD THE CONFERENCES AND INCURRED THE EXPENSES. WE HAVE SHOWN APPROVED VOUCHERS WITH SOME KACHHA BILLS AND SOME PAKKA BILLS HAVING NO ST/CST NO. NOT TAKEN BY THE PARTY IS NOT A DEFAULT OF THE APPELLANT AND CREATING DOUBTS ON BILL IS NOT CORRECT VIEW. A) WE ARE PROVIDING XEROX COPY OF ALL THE VOUCHERS ALONG WITH A AVAILABLE EVIDENCE RECEIVED FROM THE STOCKIEST FOR THEIR CLAIM OF CONFERENCE EXPENSES AS PER DETAILS GIVEN IN ANNEXUR E A OF THE ASSESSMENT ORDER 2003-2004. B) THE COMPANY HAD APPOINTED M/S. VINAYAK MEDICAL A GENCIES M/S GIRIRAJ MEDICOSE, 8, MAYAUR MARKET, B/H SURYA H OTEL, AAJMER AS A SOLE DISTRIBUTOR FOR AYURVEDIC PRODUCTS FOR RAJASTHAN TERRITORY AND THE SOLE DISTRIBUTOR HAD AP POINTED STOCKIEST IN VARIOUS REGION OF RAJASTHAN WITH THE H ELP OF FIELD STAFF OF THE COMPANY. THE LIST OF VARIOUS STOCKIEST APPOINTED UNDER SOLD DISTRIBUTORS FOR RAJASTHAN TERRITORY WIT H NAME, ADDRESS AND TELEPHONE NOS. ARE GIVEN IN ANNEXURE AT TACHED HEREWITH AND THEY HAVE ARRANGED CONFERENCES AT VARI OUS PLACES OF THEIR REGION AND CLAIMED THE EXPENSES WIT H THE SOLE DISTRIBUTORS AND IN TURN SOLE DISTRIBUTORS HAD CLAI MED THE SAID EXPENSES WITH THE COMPANY. IN PHARMACEUTICAL INDUST RY. MARKETING OF THE PRODUCT WERE DONE IN THE ABOVE PAT TERN AND THEY CLAIMED THE EXPENSES ON THEIR LETTER PAD WITH AVAILABLE EVIDENCES WITH THEM. C) WE ARE ENCLOSING HEREWITH COPY OF AGREEMENT FOR SOLE DISTRIBUTORSHIP WITH GIRIRAJ MEDICOSE, IN WHICH WE HAD ALSO PUT THE CONDITION TO ARRANGE CONFERENCE ON BEHALF OF TH E COMPANY IN HIS TERRITORY AT OUR COST WITH PRIOR APPROVAL FR OM THE COMPANY. ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 9 D) WE ARE ALSO ENCLOSING HEREWITH THE COPY OF LETTE R GIVEN BY THE SOLE DISTRIBUTOR FOR ESTIMATED EXPENDITURE FOR ARRA NGING CONFERENCE AT VARIOUS PLACES BY THE STOCKIEST AND C OPY OF APPROVAL LETTER GIVEN BY THE COMPANY FOR ARRANGING CONFERENCE ON OUR BEHALF. E) WE ARE ALSO ENCLOSING HEREWITH THE LIST OF PROBA BLE ATTENDANT IN THE CONFERENCE GIVEN BY THE SOLE DISTRIBUTORS IN EACH CONFERENCE AND THE FORMS FILLED UP BY THE ATTENDANT AFTER COMPLETION OF THE CONFERENCE AND THE FORMS FILLED U P BY THE ATTENDANT AFTER COMPLETION OF THE CONFERENCE WHICH ALSO JUSTIFIED THAT THE COMPANY HAD ACTUALLY HELD THE CO NFERENCES AND CLAIMED THE EXPENDITURE IN THE RIGHTFUL MANNER. F) WE ARE ALSO ENCLOSING HEREWITH THE COPY OF STOCK STATEMENT AND FORWARD SALES MADE BY THE SOLE DISTRIBUTOR TO T HE STOCKIEST WHICH ALSO JUSTIFIED THAT THE EXPENDITURE CLAIMED B Y THE STOCKIEST ARE THE REAL STOCKIEST AND THEY HAD WORKE D FOR AYAURVEDIC PRODUCTS OF THE COMPANY IN THEIR REGION. IN VIEW OF CONCEPT OF PHARMACEUTICAL INDUSTRIES MAR KETING, PHOTOGRAPH OF CONFERENCE, FORM OF PRESENT CANDIDATE S GIVEN BY THE DISTRIBUTORS AND VOUCHERS APPROVED BY HIGHER AU THORITY OF THE COMPANY WITH AVAILABLE EVIDENCE AND THE AMOUNT OF CONFERENCE EXPENSES IS ONLY 0.17% OF THE TOTAL TURN OVER WHICH IS VERY NEGLIGIBLE LOOKING TO TURNOVER OF THE COMPA NY. YOU ARE REQUESTED TO DELETE THE ABOVE ADDITION DIN VIEW OF THE ABOVE DISCUSSION. 8. AFTER TAKING INTO CONSIDERATION THE SUBMISSION O F ASSESSEE LD. CIT(APPEALS) RESTRICTED THIS ADDITION TO RS.1,87,75 8/- BY OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE FACTS OF THE CASE. IN THE WRITTEN SUBMISSIONS THE L D. AUTHORIZED REPRESENTATIVE OF THE APPELLANT HAS REPEATED THE CO NTENTIONS RAISED BEFORE THE ASSESSING OFFICER. IT WAS FURTHER SEEN T HAT THE APPELLANT HAD PRODUCED BILLS IN RESPECT OF VARIOUS EXPENDITURE OF THE PARTIES LISTED BELOW BEFORE THE ASSESSING OFFICER ALSO. DATE NAME AMOUNT CONFERENCE PLACE 17.03.2002 25.12.2002 SHREE PALACE SUMAN ART 35000 850 SRI GANGANAGAR SRI GANGANAGAR 25.03.2002 SHREE HOTEL PREMDEEP 1200 BIJAINAGAR 25.03.2002 MODI TENT HOUSE 801 BIJAINAGAR 25.03.2002 ZAIKA RESTAURANT 7236 BIJAINAGAR 25.03.2002 SHREE HOTEL PREMEEP 306 BIJAINAGAR ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 10 09.03.2002 RITHUMBHARA RESORT 909 ALWAR 09.03.2002 RITHUMBHARA RESORT 990 ALWAR 09.03.2002 RITHUMBHARA RESORT 990 ALWAR 08.03.2002 HOTEL NIROS 23660 SIKAR 09.03.2002 09.03.2002 HOTEL NIROS HOTEL NIROS 2334 3899 SIKAR SIKAR 14.03.2002 HOTEL VINOD RESTAURANT 11000 BEAWAR 18.03.2002 RAJ VILASH PALACE 24020 BIKANER 19.03.2002 SHREE SHARMA LIGHT DECORATION 400 MERTA CITY 19.03.2002 SANGHVI AMRUT JAIN BHAVAN 4100 MERTA CITY 12.03.2002 MANDAP RESTAURANT 8960 JODHPUR 12.03.2002 ZEE PHOTOS 320 JODHPUR 19.02.2002 NATIONAL XEROX CENTRE 315 BILWARA 25.03.2002 KRISHAN SALES AGENCY 240 BILWARA 24.03.2002 PAYAL ELECTRICALS 400 BILWARA 24.03.2002 CHAUDHARY TENT HOUSE 1989 BILWRA 12.03.2002 RASOI RESTAURANT 19000 AJMER 12.03.2002 RASOI RESTAURANT 260 AJMER 12.03.2002 SWAMI INN 1510 AJMER TOTAL 150856 THE ASSESSING OFFICER DID NOT ACCEPT THE ABOVE BILL S AS GENUINE BECAUSE THESE BILLS WERE NOT BEARING SALES TAX NUMB ER ETC. HOWEVER I FIND THAT SUCH BILLS WERE BEARING THE ADDRESS AS WE LL AS TELEPHONE NUMBERS IN MANY CASES, THEREFORE, THE ASSESSING OFF ICER COULD HAVE EASILY MADE NECESSARY VERIFICATIONS IF REQUIRED TO ASCERTAIN THE GENUINENESS OF SUCH EXPENDITURE. IN VIEW OF SUCH BI LLS PRODUCED BY THE APPELLANT IN RESPECT OF ABOVE EXPENDITURES INCLUDED IN THE CONFERENCE EXPENSES FOR 2002-03, I HOLD THAT THE CLAIM OF THE APPELLANT THAT THESE EXPENDITURES WERE ACTUALLY INCURRED IS ACCEPTABLE A ND THEREFORE THE EXPENDITURES TO THE EXTENT OF RS.1,50,006/- ARE HEL D TO BE ALLOWABLE. THIS IS IN ADDITION TO THE AMOUNT OF RS.86,042/- WH ICH HAVE BEEN HELD AS ALLOWABLE EXPENDITURE BY THE ASSESSING OFFICER. HENCE, THE TOTAL ALLOWABLE EXPENDITURE WORKS OUT TO RS.86,042/- + 1, 50,006/- = RS.236048/-. THE BALANCE AMOUNT OF RS.1,87,758/- (4 ,23,806 2,36,048) OUT OF TOTAL CONFERENCE EXPENSES OF RS.4, 23,806/- IS CONFIRMED. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT ASSESSEE DID FILE BILLS IN SUPPORT OF ITS EXPENSES HAVING ADDRESSES, TELEPHONE NUMBERS OF THE PARTIES. BUT ASSESSING OFFICER WITHO UT MAKING ANY VERIFICATION OF THE DETAILS SUBMITTED BY ASSESSEE HELD THAT THE EXPENDITURE WAS NON- ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 11 GENUINE, WHICH ACCORDING TO US WAS NOT PROPER ON TH E PART OF ASSESSING OFFICER. THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING F URTHER EXPENDITURE TO THE EXTENT OF RS.1,50,006/- IN RESPECT OF WHICH BILLS W ERE DULY SUBMITTED BY THE ASSESSEE AND WERE NOT ACCEPTED BY AO WITHOUT MAKING ANY INQUIRY BEFORE HOLDING THEM TO BE NON-GENUINE. IN VIEW OF THIS, TH E ORDER PASSED BY LD. CIT(A) IS HEREBY UPHELD AND THIS GROUND OF REVENUE S APPEAL IS ALSO DISMISSED. 10. GROUND NO.5 READS AS UNDER:- 5. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND O N FACTS IN ALLOWING DEPRECIATION ON HIGH EFFICIENCY BOILER WHICH SHOULD HAVE BEEN HIGHER THAN 75% WHEREAS THE SAME AS PER THE ASSESSEES OWN LETTER DTD. 27.02.2006 WAS ONLY 66.5%. 11. THE FACTS AS THEY EMERGE IN RESPECT OF THIS GRO UND AS PER ASSESSMENT ORDER ARE AS UNDER:- LIKEWISE, THE ASSESSEE HAS CLAIMED DEPRECIATION @ ON AN AMOUNT OF RS.12,43,305/- WHICH IS THE COST OF HIGH EFFICIENCY BOILER. THE ASSESSEE HAS CLAIMED THE DEPRECIATION @ 100% ON THE HIGH EFF ICIENCY BOILER ON THE PLEA THAT THE SAME IS AIR POLLUTION CONTROL EQU IPMENT. IN CASE, IF ASSESSEES PLEA THAT HIGH EFFICIENCY BOILER IS AN A IR POLLUTION CONTROL EQUIPMENT IS ACCEPTED THEN ALSO THE DEPRECIATION ON SUCH ASSET IS ADMISSIBLE ONLY AT THE RATE OF 80% AND NOT AT THE R ATE OF 100% AS CLAIMED BY IT. ON THIS BASIS, ASSESSEE IS ENTITLED FOR DEPRECIATION OF RS.9,94,644/- (I.E. @ 80% OF RS.12,43,305/-) AND NO T FOR RS.12,43,305/- AS CLAIMED BY IT. THUS, ASSESSEE WILL BE ENTITLED F OR LESS DEPRECIATION OF RS.2,48,661/-. PENALTY PROCEEDINGS FOR FILING OF IN ACCURATE PARTICULARS OF INCOME AND FOR CONCEALMENT OF PARTICULAR OF INCOME ARE INITIATED. AGAIN, WITHOUT PREJUDICE TO THE ABOVE FACT THAT ASS ESSEE IS ELIGIBLE TO CLAIM DEPRECIATION ON THE HIGH EFFICIENCY BOILER ON LY @ 90%, IT IS FURTHER STATED THAT IT WAS NOT CLEAR FROM THE SUBMISSION FI LED BY THE ASSESSEE THAT HIGH EFFICIENCY BOILER IS ACTUALLY AN AIR POLL UTION CONTROL EQUIPMENT OR MACHINERY AND THEREFORE IN VIEW OF THIS, THE ASSESS EE VIDE ANNEXURE TO NOTICE U/S.142(1) OF THE ACT DATED 23.02.2006 WAS R EQUESTED TO EXPLAIN AS TO HOW HIGH EFFICIENCY BOILER IS AN AIR POLLUTIO N CONTROL EQUIPMENT OR MACHINE. IN RESPONSE, THE ASSESSEE VIDE ITS LETTER DTD. 27.2.2006 HAS SUBMITTED AS UNDER:- ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 12 STEAM WITH HIGH EFFICIENCY BY UTILIZING FIRE WOOD/ COAL. WE ARE ENCLOSING HEREWITH COMPARATIVE CHART AND ENERGY SAV ING IN THIS KIND OF HIGH EFFICIENCY BOILER. HENCE, WE HAVE CONS IDERED HIGH EFFICIENCY BOILER UNDER ENERGY SAVING AND THE DEPRE CIATION CLAIM BE ALLOWED UNDER ENERGY SAVING. BUT, THE ABOVE SUBMISSIONS OF THE ASSESSEE IS INCOR RECT AND HENCE NOT ACCEPTABLE. THE HIGH EFFICIENCY BOILER CAN BE SAID TO BE MACHINE WHICH IS MORE EFFECTIVE THAN BOILER, BUT IT CANNOT BE SAI D TO BE AN AIR POLLUTION CONTROL EQUIPMENT. IN THIS REGARD, REFERENCE IS MAD E TO APPENDIX I OF RULE 5 OF INCOME TAX RULES, 1962. IN THIS REFERRED APPENDIX TO THE RULE, TABLE OF RATE OF 80% AT WHICH DEPRECIATION IS ADMIS SIBLE ON AIR POLLUTION CONTROL EQUIPMENTS IS GIVEN. AS PER THE TABLE, THE DETAILS OF DEPRECIATION AND DETAILS OF AIR POLLUTION CONTROL EQUIPMENTS ARE GIVEN. AS PER THE SAID TABLE IT CAN BE SEEN THAT HIGH EFFICIENCY BOILER IS NOT AN AIR POLLUTION CONTROL EQUIPMENT AND HENCE DEPRECIATION ON THE SAM E IS NOT ADMISSIBLE EVEN AT THE RATE OF EVEN80%. THE HIGH EF FICIENCY BOILER IS NOT COMING IN THE CATEGORY OF ASSETS MENTIONED IN TABLE OF THIS REFERRED APPENDIX OF RULE 5 OF INCOME TAX RULE. THUS, THE AS SESSEE IS ENTITLED TO CLAIM DEPRECIATION ON HIGH EFFICIENCY BOILER ONL Y AT THE RATE OF 25% AND NOT AT THE RATE OF 100% AS CLAIMED BY IT FOR TH E YEAR UNDER CONSIDERATION. IN VIEW OF THIS, THE CLAIM OF DEPREC IATION OF ASSESSEE IS RESTRICTED TO 25% AND AS A RESULT OF THE SAME IT WI LL BE ENTITLED TO CLAIM DEPRECIATION ONLY TO THE EXTENT OF RS.3,10,826/-. T HUS, THE EXCESS CLAIM OF DEPRECIATION OF RS.9,32,479/- AS MADE BY THE ASS ESSEE ON HIGH EFFICIENCY BOILER IS HEREBY DISALLOWED AND ADDED BA CK TO ITS TOTAL INCOME. PENALTY PROCEEDINGS FOR FILING INACCURATE PARTICULA RS OF INCOME AND FOR CONCEALMENT OF PARTICULARS OF INCOME ARE INITIATED. BEFORE LD. CIT(A) ASSESSEES SUBMISSION WAS AS UNDE R:- SECONDLY HIGH EFFICIENCY BOILER PURCHASE BY THE CO MPANY WHICH IS ENERGY SAVING DEVICES AND COMES INTO CATEGORY -3 (I II) ENERGY SAVING DEVICES (A)(D) OF THE APPENDIX-I OF RULE 5 OF INCOM E TAX RULE. WE JUSTIFIED THAT HIGH EFFICIENCY BOILER PURCHASE COME S INTO ENERGY SAVING DEVICES VIDE OUR LETTER DATED 27.02.06 WHICH IS REP RODUCED AS UNDER:- THE COMPANY HAS PURCHASED HIGH EFFICIENCY WOOD/COA L FIRED STEAM BOILERS OF RS.1243305/- VIDE BILL NO. 15/02-0 3 DATED 5.09.02 FROM M/S HOVERT IMPEX PVT. LTD. AHMEDABAD. THE BOILER IS GENERATING STEAM WITH HIGH EFFICIENCY BY UTILIZI NG FIRE WOOD/COAL. WE ARE ENCLOSING HEREWITH COMPARATIVE CHART AND ENE RGY SAVING IN THIS KIND OF HIGH EFFICIENCY BOILER. HENCE WE HA VE CONSIDERED HIGH EFFICIENCY BOILER UNDER ENERGY SAVING AND THE DEPRECIATION CLAIM BE ALLOWED UNDER ENERGY SAVING. ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 13 THE LEARNED AO HAS WRITTEN OUR CLAIMED OF DEPRECIAT ION AS AIR POLLUTION CONTROL EQUIPMENT BUT IN FACT ITS COMES INTO ENERGY SAVING DEVICES. WE WILL PROVIDE FURTHER TECHNICAL DETAILS WHICH JUS TIFIED THAT OUR MACHINE IS ENERGY SAVING MACHINE AND COMES UNDER THE PURVIE W OF 80% DEPRECIATION CLAIM. HENCE YOU ARE REQUESTED TO ALLO W EXPENDITURE OF DEPRECIATION UP TO 80% AND NOT 25% OF FBD UNIT. WE HAVE DISCUSSED THE SAID MATTER IN OUR SUBMISSION DATED 04-10- 2006. FURTHER, WE INFORM THAT THE SUCH KIND OF LOW CAPACITY BOILER PURCHASED BY US IN ACCT. YEAR 2000-01 AND THE APPEL LANT HAS CLAIMED 100% DEPRECIATION UNDER ENERGY SAVING HEAD AND THE SAME WAS ALLOWED BY THE LEARNED ACIT. WE ARE ENCLOSING COPY OF THE ORDER AND STATEMENT OF DEPRECIATION FOR THE SAME. YOU ARE REQ UESTED TO ALLOW US THE SAID DEPRECIATION UP TO 80% AS PER INCOME TAX R ULES. DISALLOWED OF THE DEPRECIATION ON BOILER RS.932479/ -. THE APPELLANT HAD PURCHASED HIGH EFFICIENCY BOILER MACHINE OF RS.1243 305/- FROM M/S. HOVERRT IMPEX PVT. LTD. AHMEDABAD. THE LEARNED ACIT HAS CONSIDERED THIS MACHINE UNDER AIR POLLUTION CONTROL EQUIPMENT OF APPENDIX I OF RULE 5 OF I.T. RULES 1962 BUT IN FACT HIGH EFFICIENCY BO ILER IS ALSO ENERGY. SAVING MACHINE DUE TO ITS HIGH EFFICIENCY. HIGH EFF ICIENCY BOILER COMES UNDER THE ENERGY SAVING DEVICES OF APPENDIX I OF RU LES 5 OF I.T. RULES 1962 HOWEVER WE HAVE CLAIMED 1090% DEPRECIATION AS AFORESAID IN FBD MACHINE, BUT IN FACT 80% CLAIM SHOULD BE CONSID ERED. HOWEVER OUR DEPRECIATION CLAIM SHOULD BE RESTRICTED D TO 80% OF RS.1243305/- I.E. RS.994644/- AND DISALLOW RS.248661/-. WE ARE ENCLOS ING HEREWITH LITERATURE OF BOILER RECEIVED FROM THE MACHINERY SU PPLIER. IN VIEW OF THE ABOVE, HIGH EFFICIENCY BOILER SHOULD BE CONSIDERED AS AN ENERGY SAVING DEVICES INSTEAD OF AIR POLLUTION CONT ROL EQUIPMENT AS PER APPENDIX I OF RULE 5 OF I.T. RULES 1962 AND 80% OF RS.1243305/- I.E. RS.994644/- SHOULD BE ALLOWED AS DEPRECIATION AND A DDITION TO BE RESTRICTED TO RS.248661/- ONLY WHICH IS TO BE ALLOW ED AT 80% IN THE NEXT YEAR. THE TECHNICAL MISTAKE IN CALCULATION OF DEPRE CIATION RATE SHOULD NOT BE CONSIDERED AS CONCEALMENT OF INCOME AS THE S AID EXPENSES ARE DEFERRED TO ALLOW IN NEXT YEAR. AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF A SSESSEE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION AT 80% OF THE COST OF HIGH EFFICIENCY BOILER BY OBSERVING AS UNDER:- ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 14 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE FACTS OF THE CASE. IT IS SEEN THAT THE ASSESSING OF FICER HAS REJECTED THE CLAIM OF THE APPELLANT FOR 100% DEPRECIATION OBSERV ING THAT THE APPELLANT HAS CLAIMED 100% DEPRECIATION ON THE PLEA THAT IT IS AN AIR POLLUTION CONTROL EQUIPMENT. HOWEVER IN THE WRITTEN SUBMISSIONS IT HAS BEEN CLARIFIED BY THE APPELLANT THAT THE DEPRECIATI ON CLAIMED WAS ON THE BASIS OF ENERGY SAVING DEVICE AND NOT AS THE MACHIN ERY FALLS IN THE CATEGORY OF POLLUTION CONTROL DEVICE. THE APPELLANT HAS STATED THAT IN THE ACCOUNTING YEAR 2000-01, THE APPELLANT HAS PURCHASE D SUCH KIND OF HIGH EFFICIENCY BOILER AND IT CLAIMED 100% DEPRECIATION UNDER ENERGY SAVING HEAD AND SAME WAS ALLOWED BY THE ASSESSING OFFICER. AS PER THE DETAILS FILED FOR THE A.Y 2001-02 THE ABOVE CLAIM O F THE APPELLANT IS FOUND CORRECT. IT IS ALSO SEEN THAT AS PER THE SPEC IFICATION GIVEN THE HIGH EFFICIENCY BOILER PURCHASE BY THE APPELLANT COMES I NTO THE CATEGORY OF EQUIPMENT OF ENERGY SAVING DEVICES THEREFORE, THE A PPELLANT IS ENTITLED FOR DEPRECIATION AT HIGHER RTE WHICH IS 80% FOR THE CURRENT YEAR. THOUGH, THE APPELLANT HAD CLAIMED DEPRECIATION AT 100% THE DEPRECIATION ALLOWABLE FOR THE CURRENT YEAR IS DIRECTED TO BE AL LOWED AT 80% OF THE COST OF HIGH EFFICIENCY BOILER. ACCORDINGLY, THE AP PELLANT IS ENTITLED FOR DEPRECIATION OF RS.9,94,644/- AND NOT RS.12,43,305/ - AS CLAIMED BY IT. HENCE THE DISALLOWANCE OF RS.2,48,661/-OUT OF THE D EPRECIATION CLAIMED ON HIGH EFFICIENCY BOILER IS CONFIRMED. 12. THE ABOVE FINDING OF LD. CIT(A) REMAINED UN-CON TROVERTED BY THE REVENUE AT THE TIME OF HEARING BEFORE US. WE FURTHE R FIND THAT IN ASSESSEES LETTER DATED 27-02-2006 NOWHERE HAS BEEN MENTIONED THAT EFFICIENCY OF THE BOILER WAS ONLY 66.5% AS CLAIMED BY THE REVENUE IN ITS GROUND OF APPEAL. IN VIEW OF THIS, WE FIND NO MERIT IN THIS GROUND OF RE VENUE AND THE SAME IS HEREBY DISMISSED. 13. GROUND NO.6 & 7 READ AS UNDER:- 6. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE OUT OF VEHICLE EXPENSE S AND DEPRECIATION TO RS.18,490/- AS AGAINST THE DISALLOWANCE OF RS.1,84, 902/- MADE BY THE A.O. 7. THE LEARNED CIT(APPEALS) HAS ALSO ERRED IN NOT C ONSIDERING THE SUBMISSION OF THE ASSESSEE IN THIS CONNECTION WHERE IN THE ASSESSEE ITSELF HAS AGREED FOR SUCH DISALLOWANCE AT RS.55,47 0/-. ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 15 14. THE ASSESSING OFFICER DURING THE ASSESSMENT PRO CEEDINGS OBSERVED THAT ASSESSEE HAS CLAIMED VEHICLE EXPENSES OF RS.3, 65,533/- AND ALSO CLAIMED DEPRECIATION ON SUCH VEHICLES AT RS.7,43,88 2/-. THE ASSESSEE WAS ASKED TO JUSTIFY THAT THESE EXPENSES OF VEHICLES WE RE INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS. IN THE ABSENCE OF ANY SATIS FACTORY REPLY OF THE ASSESSEE ASSESSING OFFICER DISALLOWED 1/5 TH OF VEHICLE EXPENSES OF RS.3,65,533/- WHICH COMES TO RS.60,922/- AND 1/5 TH OF DEPRECIATION OF RS.7,43,882/- AS CLAIMED ON 11 VEHICLES WHICH COMES TO RS.1,23,980/-. THESE TWO AMOUNTS, THE TOTAL OF WHICH COMES TO RS.1,84,90 2/- WERE ADDED BACK TO THE TOTAL INCOME OF ASSESSEE. IN APPEAL, ASSESSEE R EQUESTED TO CONSIDER THIS DISALLOWANCES UPTO 1/20 TH OF THE TOTAL EXPENSES I.E. RS.55,470/- (1/20 TH OF RS.1,09,450/-). THE LD. CIT(A) HOWEVER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE REDUCED IT TO 10%. HOWEVER, WHILE QUANTIFY ING THE DISALLOWANCE HE TOOK THE FIGURE OF RS.18,490/- I.E. 10% OF THE DISA LLOWANCE MADE BY ASSESSING OFFICER INSTEAD OF 10% OF TOTAL EXPENSES OF RS.11,0 9,450/- WHICH COMES TO RS.1,01,046/-. THE ORDER PASSED BY LD. CIT(A) IS TH EREFORE ACCORDINGLY MODIFIED AND DISALLOWANCE IS QUANTIFIED AT RS.1,01, 046/-. THIS GROUND OF REVENUE IS PARTLY ALLOWED. COMING TO APPEAL NO.2795/AHD/2007 BY REVENUE. 15. GROUND NO.1 & 2 READ AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF MARKETING EXPENSES PERTAINING T O EARLIER YEAR OF RS.2,52,431/-. 2. THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF C & F COMMISSION AND EXPENSES O F RS.1,92,252/- 16. THE DISPUTE IN THESE TWO GROUNDS RELATE TO EXPE NSES INCURRED BY THE ASSESSEE UNDER THE HEAD OF MARKETING EXPENSE AND C & F COMMISSION DURING THE MONTH OF MAR03 AND CLAIMED IN APRIL03 FOLLOWI NG THE MERCANTILE SYSTEM OF ACCOUNTING. LD. CIT(A) WHILE GIVING RELIEF TO THE A SSESSEE HAS OBSERVED AS UNDER:- ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 16 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE FACTS OF THE CASE. IT IS SEEN THAT THE DISPUTE IS O NLY REGARDING THE VARIOUS EXPENSES INCURRED BY THE APPELLANT DURING THE MONTH OF MARCH 2003. THE ASSESSING OFFICER DID NOT ALLOW THE ABOVE EXPEN DITURES OBSERVING THAT THE APPELLANT HAS BEEN MAINTAINING BOOKS OF AC COUNTS ON MERCANTILE BASIS AND NOT ON CASH BASIS. THE APPELLA NT IN THIS REGARD HAS STATED THAT SINCE THE LIABILITY OF EXPENSES INCURRE D IN THE MONTH OF MARCH 2003 DID NOT GET CRYSTALISED IN THAT MONTH BECAUSE OF THE FACT THAT THESE EXPENDITURES WERE CLAIMED BY THE VARIOUS PARTIES IN THE SUBSEQUENT MONTHS I.E. IN THE MONTH OF APRIL 2003, IT HAS DEBI TED ALL SUCH EXPENDITURES IN THE F.Y 03-04 RELEVANT TO THE CURRE NT A.Y. I FIND THAT THE FACT THAT WHOLE OF THE AMOUNT OF ABOVE EXPENDITURES GOT CRYSTALISED IN MONTH OF APRIL 2003 ONLY, IS NOT DISPUTED BY THE AS SESSING OFFICER ALSO. IT IS ALSO SEEN THAT THE APPELLANT HAS BEEN FOLLOWI NG THIS SYSTEM OF DEBITING THE UNCRYSTALIZSED LIABILITY OF MONTH OF M ARCH OF THE PRECEDING FINANCIAL YEAR IN THE NEXT FINANCIAL YEAR IN THE PA ST YEAR AS WELL AS IN THE SUBSEQUENT FINANCIAL YEAR. IN VIEW OF THE ABOVE DIS CUSSION, I HOLD THAT THE CLAIM OF THE APPELLANT OF DEBITING THE EXPENDIT UR5ES OF THE PRECEDING YEAR IN THE CURRENT YEAR IS AS PER MERCANTILE SYSTE M OF ACCOUNTING ONLY AND SO IS ACCEPTABLE AND THEREFORE, NO DISALLOWANCE BY THE ASSESSING OFFICER IS REQUIRED. IN VIEW OF THE ABOVE, THE DISA LLOWANCE OF MARKETING EXPENSES OF RS.2,52,431/- & DISALLOWANCE OF C & F C OMMISSION EXPENSES OF RS.1,92,252/- ARE DELETED. IN VIEW OF OUR DECISION IN ITA NO.2794/AHD/2007 IN RESPECT OF GROUNDS NO.1,3 & 4, THE ORDER PASSED BY LD. CIT(A) IS UPHEL D. THESE TWO GROUNDS OF REVENUE ARE DISMISSED. 17. GROUND NO.3 READS AS UNDER:- THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON F ACTS IN CONFIRMING THE DISALLOWANCE OUT OF VEHICLE EXPENSES AND DEPREC IATION AT RS.20,004/- AS AGAINST THE DISALLOWANCE CONSENTED B Y THE ASSET AT RS.60,033/-. 18. THE ASSESSING OFFICER DURING THE ASSESSMENT PRO CEEDINGS OBSERVED THAT ASSESSEE HAS CLAIMED VEHICLE EXPENSES OF RS.2, 01,854/- AND ALSO CLAIMED DEPRECIATION ON SUCH VEHICLES AT RS.9,98,80 0/-. THE ASSESSEE WAS ASKED TO JUSTIFY THAT THESE EXPENSES OF VEHICLES WE RE USED FOR THE PURPOSE OF ASSESSEES BUSINESS. IN THE ABSENCE OF ANY SATISFAC TORY REPLY OF THE ASSESSEE ITA NO.2794-95/AHD/2007 A.YS 03-04 & 04-05 ACIT MEHSANA CIR V. PARTH PARENTERALS PVT. LTD. PAGE 17 ASSESSING OFFICER DISALLOWED 1/6 TH OF VEHICLE EXPENSES OF RS.2,01,854/- WHICH COMES TO RS.33,642/- AND 1/6 TH OF DEPRECIATION OF RS.9,98,800/- AS CLAIMED ON 11 VEHICLES WHICH COMES TO RS.1,66,400/-. THESE TWO AMOUNTS, THE TOTAL OF WHICH COMES TO RS.2,00,042/- WERE ADDED BACK TO THE TOTAL INCOME OF ASSESSEE. IN APPEAL, ASSESSEE REQUESTED TO CONSIDER THIS DISALLOWANCES UPTO 1/20 TH OF THE TOTAL EXPENSES I.E. RS.60,033/- (1/20 TH OF RS.12,00,654/-). THE LD. CIT(A) HOWEVER CONSIDERING THE SUBMISSIONS OF THE A SSESSEE REDUCED IT TO 10%. HOWEVER, WHILE QUANTIFYING THE DISALLOWANCE HE TOOK THE FIGURE OF RS.20,004/- I.E. 10% OF THE DISALLOWANCE MADE BY AS SESSING OFFICER INSTEAD OF 10% OF TOTAL EXPENSES OF RS.12,00,654/- WHICH COMES TO RS.1,20,065/-. THE ORDER PASSED BY LD. CIT(A) IS THEREFORE ACCORDINGLY MODIFIED AND DISALLOWANCE IS QUANTIFIED AT RS.1,20,065/-. THIS GROUND OF REVE NUE IS PARTLY ALLOWED. 19. IN THE RESULT, BOTH THE APPEAL OF REVENUE ARE PARTL Y ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 06/05/2011 SD/- SD/- (D.C.AGRAWAL) (D.K. TYA GI) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 06/05/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-XXI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD