The Jt. CIT., Navsari Range, Navsari V. M/s. T.J. Agro Fertilizers Pvt.Ltd., Navsari

ITA 298/AHD/2007

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9004 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-09-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 17-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Gross profit estimation; Rule of consistency; Set aside
• Section: 143(3); 80IB; 143(1); 143(2); 208; 264; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: AHMEDABAD BEN CHES D BENCH: AHMEDABAD (BEFORE S/SHRI H. L. KARWA, JM AND A N PAHUJA, AM) ITA NO. 298/AHD/2007 AND 3139, 3140 & 3041/AHD/2008 A. Y.:2003-04, 2000-01, 2001-02 AND 2005-06 JCIT NAVSARI RANGE, NAVSARI VS M/S. T. J. AGRO FERTILIZERS PVT. LTD., A-2/3 J. K. TOWER, NEAR GRID, KABILPORE, NAVSARI, [PAN: AAACT 7855P] APPELLANT RESPONDENT REVENUE BY SHRI C. K. MISHRA, DR ASSESSEE BY SHRI SAMIR JANI, AR ORDER A N PAHUJA : THESE FOUR APPEALS BY THE REVENUE DIRECTED AGAIN ST FOUR SEPARATE ORDERS DATED 16-10-2006 FOR THE AYS 2003-0 4 AND DATED 16-05-2008 FOR THE AYS. 2000-01, 2001-02 AND 2005-06 OF THE L EARNED CIT(A)- VALSAD, RAISE THE FOLLOWING GROUNDS: ITA NO.298/AHD/2007[ AY2003-04] 1. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/S 80 IB OF RS.12,29,1 05/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN DELETING AN ADDITION OF RS.29,58,629/- ON ACCOUNT OF LOW G. P. MADE BY THE A. O. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 4. IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) BE SET SIDE AND THAT OF THE ORDER OF THE A. O. BE RESTORED. ITA NO.3139/AHD/2008[AY-2000-01] I) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.20, 32,291 MADE ON ACCOUNT OF 80 IB OF THE I. T. ACT. ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 2 II) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN ALLOWING THE OTHER INCOME OF RS .1,03,750/- FOR COMPUTING THE ELIGIBLE PROFIT FOR DEDUCTION U/S 80 IB OF THE I. T. ACT. III) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE INTEREST EXPENSES OF RS.86,541/- BORNE BY THE ASSESSEE ON BEHALF OF ITS ASSOCIATED C ONCERN. IV) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO AND DISMISSED THE PLEA OF THE ASSESSEE. V) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) BE SET SIDE AND THAT OF THE ORDER OF THE AO BE RESTORED. VI) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY GROUNDS OF APPEAL. ITA NO.3140/AHD/2008[AY- 2001-02] I) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.46, 05,565 MADE ON ACCOUNT OF 80 IB OF THE I. T. ACT. II) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN ALLOWING THE OTHER INCOME OF RS .1,56,250/- FOR COMPUTING THE ELIGIBLE PROFIT FOR DEDUCTION U/S 80 IB OF THE I. T. ACT. III) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE INTEREST EXPENSES OF RS.1,73,321/- BORNE BY THE ASSESSEE ON BEHALF OF ITS ASSOCIATED C ONCERN. IV) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO AND DISMISSED THE PLEA OF THE ASSESSEE. V) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) BE SET SIDE AND THAT OF THE ORDER OF THE A. O. BE RESTORED. VI) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY GROUNDS OF APPEAL. ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 3 ITA NO.3141/AHD/2008 [AY-2005-06] I) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.17, 15,341 MADE ON ACCOUNT OF 80 IB OF THE I. T. ACT. II) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) HAS ERRED IN ALLOWING THE OTHER INCOME OF RS .1,15,04,254/- FOR COMPUTING THE ELIGIBLE PROFIT FOR DEDUCTION U/S 80 IB OF THE I. T. ACT. III) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE INTEREST EXPENSES OF RS.55,099/- BORNE BY THE ASSESSEE ON BEHALF OF ITS ASSOCIATED C ONCERN. IV) ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO AND DISMISSED THE PLEA OF THE ASSESSEE. V) IT IS THEREFORE, PRAYED THAT THE ORDER OF THE LD . CIT(A) BE SET SIDE AND THAT OF THE ORDER OF THE AO BE RESTORED. VI) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY GROUNDS OF APPEAL. SINCE SIMILAR ISSUES ARE INVOLVED IN THESE FOUR APP EALS OF THE SAME ASSESSEE, THESE WERE HEARD TOGETHER FOR THE SAKE OF CONVENIEN CE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER. 2. ADVERTING TO THE FIRST GROUND OF APPEAL IN TH ESE FOUR ASSESSMENT YEARS, FACTS, IN BRIEF, AS PER ASSESSMENT ORDER FOR THE AY 2003-04 ARE THAT RETURN DECLARING INCOME OF RS. 36,55,600/- FILED ON 23-10- 2003 BY THE ASSESSEE, ENGAGED IN MANUFACTURING NPK FERTILIZERS WITH THE M IXTURE OF UREA, DAP, MAP, SSP AND ROCKPHOSPHATE, AFTER BEING PROCESSED U/S 14 3(1) OF THE INCOME-TAX ACT,1961 [HEREINAFTER REFERRED TO AS THE ACT] WAS S ELECTED FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOT ICED THAT THE ASSESSEE REFLECTED GROSS PROFIT[GP] @ 14.47% ON TURNOVER OF RS.6,37,74,160/- AS AGAINST GP RATE OF 13.65% IN THE AY 2002-03 ON THE TURNOVER OF RS.6,39,17,455/- .THE ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 4 GP RATE IN THE AY 2001-02 WAS 19.11%. INTER ALIA, THE ASSESSEE CLAIMED DEDUCTION OF RS. 12,29,105/- U/S 80 IB OF THE ACT. TO A QUERY BY THE AO, THE ASSESSEE EXPLAINED THE PROCESS OF MANUFACTURING VID E LETTER DATED 27-3-2006 AS UNDER: PROCESS DETAILS THE GRANULATED FERTILIZER TECHNOLOGY, WHICH IS BASI CALLY DEVELOPED BY TENNNESE VALLEY AUTHORITY KNOWN AS TVA DESIGN, I S BEING ADOPTED IN OUR PLANT. THE DETAILED PROCESS OF MANUF ACTURING GRANULATED MIXED FERTILIZER IS DESCRIBED BELOW: 1. FIRSTLY, ALL THE RAW MATERIALS REQUIRED IS GATH ERED AT ONE PLACE IN PROPORTIONATE RATIO AND IS THOROUGHLY MIXE D. 2. THIS MIXED MATERIAL IS THEN LIFTED IN THE ELEVAT OR NO.1 WHERE IT IS GRINDED IN THE HAMMER MILL. 3. GRINDED MATERIAL THEN PASSES ON TO CONVEYOR BELT NO.1 THROUGH THE HOPPER. 4. CONVEYOR BELT NO.1 CONVEYS THE MATERIAL TO ELEVA TOR NO.2 WHICH LIFTS THE MATERIAL TO THE DRUM NO.1, I.E. THE GRANULATOR DRUM. 5. WATER IS THEN INJECTED ABOUT 10 TO 12% MOISTURE THROUGH SPRINKLER IN THE GRANULATOR DRUM IN THE PROPER PROP ORTION. 6. THIS MATERIAL PASSES THROUGH THE DRUM NO.2, I.E. DRYER DRUM, WHERE THE MATERIAL IS GIVEN HOT AIR THROUGH T HE FURNACE. 7. THIS MATERIAL IS THEN INJECTED TO THE DRUM NO.3 I.E. COOLER DRUM. THE MATERIAL IS COOLED DOWN THERE AS THE HOT AIR AND EXCESSIVE MOISTURE FROM DRYER DRUM AND COOLER DRUM IS PULLED AND SUCKED THROUGH THE BLOWER. 8. THE MATERIAL THEN LIFTED THROUGH THE ELEVATOR NO .3 TO SCREEN PASSES THROUGH THE CHAIN MILL WHERE IT IS CRUSHED A ND THIS CRUSHED MATERIAL IS AGAIN SENT FOR REPROCESS THROUG H THE RECYCLE CONVEYOR BELT NO.2. 9. THE MATERIAL WHICH IS UP TO THE MARK IN SIZE WHI CH PASSES ON THE UNDER SIZE GRANULES ARE SEPARATED AND THE SAME IS SENT FOR REPROCESS THROUGH THE RECYCLE CONVEYOR BELT NO. 2. 10. THE FINISHED GRANULATED MATERIAL, WHICH IS IN T HE RANGE OF 1 MM TO 5 MM, IS THEN SENT FOR PACKING THROUGH CONVEY OR BELT NO.3. 11. THIS FINISHED GRANULATED FERTILIZER IS THEN PAC KED DIRECTLY BY LIFTING IT THROUGH ELEVATOR NO.4 AND IS PACKED IN T HE HDPE BAGS IN 50 KGS. PACKING AND IS FINALLY STITCHED BY SEWING MACHINE. ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 5 2.1. RELYING UPON THE DECISIONS IN THE CASE OF CIT VS N. C. BUDHRAJA AND CO. 204 ITR 412 (SC), J. B. KHARWAR & SONS VS CIT 163 I TR 394(GUJ), CIT VS ABDUL AHAD NAJAR 248 ITR 746 (J & K), CIT VS DARSHAK LTD. 247 ITR 489 (KAR.), CIT VS RELISH FOODS 237 ITR 59 (SC), CIT VS GEM INDIA M ANUFACTURING CO. (2001) 249 UTR 307 (SC) AND HOTEL SHASHI PVT. LTD. VS CIT 245 ITR 538, THE ASSESSEE CONTENDED THAT SINCE THEY WERE MANUFACTURING NPK FE RTILIZERS, THEY ARE ENTITLED TO DEDUCTION U/S 80 IB OF THE ACT. HOWEVER, THE AO DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE PURCHA SED FINISHED FERTILIZERS I.E. UREA, DAP, MAP, SSP AND ROCKPHOSPHAT AND AFTER MIXI NG THESE IN PARTICULAR RATIO, PREPARED NPK FERTILIZER AS PER REQUIREMENT O F THE CUSTOMERS/FARMERS. THIS PROCESS INVOLVES INJECTING THE MOISTURE CONTENT OF 10-12% IN ONE DRUM AND THEN PASSING THROUGH HOT AIR IN ANOTHER UNIT IN ORDER TO ENSURE PROPER MIXING OF THESE FERTILIZERS. THUS, THIS PROCESS DOES NOT INVOLVE AN Y MANUFACTURING ACTIVITY AND ADMITTEDLY, NO CHEMICAL OR BIO-CHEMICAL IS INVOLVED IN MANUFACTURE OF NPK FERTILIZER, THE AO CONCLUDED. BESIDES, THE AO NOTIC ED THAT THE ASSESSEE USED TO PURCHASE SUBSTANDARD NPK MIXTURE AND SOLD DIRECTLY TO THE FARMERS WITHOUT MUCH CHANGE. IN THE LIGHT OF THESE FACTS , RELYING UPON THE DECISIONS IN THE CASE OF CIT VS RELISH FOODS (1999) 237 ITR 59 (SC), INDIAN HOTE LS COMPANY LTD. VS ITO (2000) 245 ITR 538 (SC), DIVISIONAL DC OF SALES TAX VS. BHERAGHAT MINERAL INDUSTRIES (2000) 246 ITR 230 (SC) AND CIT VS GEM I NDIA MANUFACTURING COMPANY (2000) 249 ITR 307 (SC), THE AO REJECTED TH E CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80 IB OF THE ACT IN THE AY 2003-0 4.SIMILAR FINDINGS HAVE BEEN ARRIVED AT IN THE OTHER THREE ASSESSMENT YEARS. 3. ON APPEAL, THE ASSESSEE WHILE EXPLAINING LEGAL P OSITION OF DEFINITION OF MANUFACTURE AND RELYING UPON A NUMBER OF DECISIONS CONTENDED THAT THEY WERE MANUFACTURING NPK FERTILIZER AND CONSEQUENTLY ENTIT LED TO DEDUCTION U/S 80 IB OF THE ACT. AFTER CONSIDERING THE SUBMISSIONS OF THE A SSESSEE, THE LEARNED CIT(A) IN HIS ELABORATE ORDER,AFTER ANALYZING THE PROCESS OF MANUFACTURE AND PRODUCTION IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS, CO NCLUDED AS UNDER: ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 6 18.35 APPLYING THE ABOVE PRINCIPLES TO THE CASE OF THE APPELLANT, I AM OF THE VIEW THAT THE NPK MIX FERTILIZER THE END PROD UCT MADE BY THE APPELLANT IS A COMMERCIALLY DIFFERENT COMMODITY F ROM THE RAW MATERIAL I.E. UREA, DAP, SSP,& POTASH. THE MIX FERT ILIZER HAS A DISTINCT CHARACTER, USE AND NAME AND THE END PRODUC T IS NOT CAPABLE TO BE BROUGHT BACK TO ITS ORIGINAL SHAPE. T HE RAW MATERIAL UNDERGOES VARIOUS PROCESSES AND WHAT EMERGES IS A N EW AND DIFFERENT PRODUCT AS UNDERSTOOD IN THE RELEVANT COM MERCIAL PARLANCE. THE COMBINATION OF UREA, SSP, DAP & POTAS H IS MADE SPECIFICALLY FOR THE PURPOSE OF MANUFACTURING OF TR ANSFORMERS AND IS USED AS KEY COMPONENT IN THE MANUFACTURE OF NPK MIX FERTILIZER. THOUGH PROCESS OF MIXING IS INVOLVED BUT, IT IS NOT MERE MIXING AS SOUGHT TO BE BROUGHT OUT BY THE ASSESSING OFFICER. VARIOUS PROCESSES ARE INVOLVED. TECHNICAL SPECIFICATIONS, C HEMICAL REACTION, PRECISION AND NEEDS OF THE INDUSTRY ARE ALSO INVOLV ED. I AM SATISFIED THAT THERE IS A NEW PRODUCT EMERGING. CONSIDERING M ANUFACTURING PROCESS IN TOTALITY WHAT EMERGED AT THE END OF MANU FACTURING IS DISTINCT PRODUCT. MOREOVER, THE APPELLANT IS ALSO R EGISTERED AS A MANUFACTURING CONCERN WITH THE STATE AND CENTRAL SA LES TAX AUTHORITIES, EXCISE LAW, ETC. AS MANUFACTURER, WH ICH FACT CANNOT BE IGNORED WHILE DETERMINING WHETHER THE APPELLANT IS MANUFACTURER FOR THE PURPOSE OF THE PROVISIONS OF THE INCOME TAX ACT . THUS, CONSIDERING ALL THE ASPECTS I AM CONVINCED THAT IN TERMS OF THE LEGAL POSITION SETTLED ON THE SUBJECT, THE APPELLANT IS E NGAGED IN THE PROCESS OF MANUFACTURING OF THE GOODS AND HENCE IS THEREFORE ELIGIBLE FOR THE BENEFIT OF DEDUCTION UNDER SECTION 80IB OF THE ACT. .. 18.40 IN CASE OF THE APPELLANT, THEY HAVE ESTABLIS HED WITH SUFFICIENT EVIDENCES THAT THEY HAVE SATISFIED ALL THE ABOVE TE STS, AS BELOW: A. THE RESULTANT PRODUCT I.E. NPK MIX FERTILIZER IS DISTINCTLY IDENTIFIABLE AND IS HAVING DISTINCT NAME, FUNCTION AND USE. THE RESULTANT PRODUCT IS KNOWN AS NPK MIX FERTILIZE R AS AGAINST RAW MATERIALS KNOWN AS UREA, DAP, SSP & POT ASH; B. THE FUNCTION OF BOTH THE PRODUCTS IS ALSO SEPARA TE: C. IN COMMERCIAL PARLANCE THE RESULTANT PRODUCT IS DISTINCTLY KNOWN AS NPK MIX FERTILIZER AS AGAINST THE RAW MATE RIALS, WHICH ARE KNOWN AS UREA, SSP , DAP & POTASH; D. BOTH THE PRODUCTS ARE NOT INTER-CHANGEABLE. THE RAW MATERIALS I. E. UREA, SSP, DAP & POTASH CANNOT BE U SED IN PLACE OF NPK MIX FERTILIZER. ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 7 18.49 THE APPELLANT HAS ALSO MADE DETAILED AND ELA BORATE SUBMISSIONS, SUBMITTING THAT THE EXPRESSION USED IN THE PROVISIONS OF SECTION 80 IB ARE MANUFACTURES ARTICLES OR THIN GS OR PRODUCES ARTICLES OR THINGS AND IN ANY CASE, THE ACTIVITIES CARRIED OUT BY THEM WITHOUT ANY DOUBT CONSTITUTE PRODUCTION, AS HELD BY A CATENA OF DECISIONS CITED BY THEM. THE APPELLANT HAS ALSO SUB MITTED THAT THE ASSESSING OFFICER FAILED TO TAKE THEIR PLEA ON PROD UCTION INTO CONSIDERATION AND HAS FAILED TO GIVE ANY FINDINGS O N THE SAME WHILE PASSING THE ASSESSMENT ORDERS, HOLDING THAT THE APP ELLANTS ACTIVITIES DOES NOT CONSTITUTE MANUFACTURE. IN TH IS REGARD SINCE I HAVE COME TO CONCLUSION THAT CONSIDERING THE FACTS OF THE CASE AS WELL AS IN LAW THE APPELLANTS ACTIVITIES ARE MANU FACTURE AND THEREFORE, IT ALSO IMPLIES THAT THE SAID ACTIVITIES ARE ALSO ACTIVITIES OF PRODUCTION AS THE EXPRESSION PRODUCTION IS MUCH W IDER THAN THE EXPRESSION MANUFACTURE, THERE IS NO NEED TO GIVE AN Y SEPARATE FINDINGS ON THE SUBMISSIONS ON THE GROUND OF PRODU CTION MADE BY THE APPELLANT. HOWEVER, SINCE THE APPELLANT HAS MAD E DETAILED SUBMISSION AND HAS DISTINGUISHED BETWEEN THE EXPRES SION MANUFACTURE AND PRODUCTION, I DEEM IT NECESSARY TO DEAL WITH THIS ISSUE RAISED BY THE APPELLANT ALSO. 18.52 WHEN THE RATIO OF THE AFORESAID JUDGEMENTS A RE APPLIED, IT CLEARLY ESTABLISHES THAT THE EXPRESSION PRODUCTION IS MUCH WIDER THAN THE EXPRESSION MANUFACTURE. SINCE THE PROVIS IONS OF SECTION 80 IB USES THE EXPRESSION MANUFACTURE OR PRODUCES , IT IMPLIES THAT THE BENEFIT OF DEDUCTION UNDER THE SAID PROVIS IONS IS ADMISSIBLE TO AN ASSESSEE, WHO EITHER MANUFACTURES OR PRODUCES THE ARTICLES OR THINGS. HENCE, IF THE ACTIVITIES OF ANY ASSESSEE IS PROVED TO BE OF PRODUCTION THEN ALSO THE BENEFIT OF DEDUCTION UNDER THE SAID PROVISIONS IS ADMISSIBLE. 18.53 CONSIDERING THE FACTS OF THE CASE, IT CANNOT BE DISPUTED THAT THE APPELLANT IS ENGAGED IN THE PRODUCTION ACTIVITY , BESIDES THE FACT THAT THEIR ACTIVITY IS CONSIDERED AS MANUFACTURE. THUS, THE APPELLANT IS SATISFYING BOTH THE TEST I.E., THE TES T OF, MANUFACTURE AS WELL AS PRODUCTION, AND THEREFORE ON THIS COUNT A LSO THE APPELLANT IS ELIGIBLE FOR T4HE BENEFIT OF DEDUCTION U/S 80 IB OF THE ACT. 18.54 THUS, AFTER CAREFULLY CONSIDERING THE FACTS OF THE CASE AND THE RATIO LAID DOWN BY VARIOUS COURTS IN THE DECISI ONS RELIED UPON BY THE ASSESSING OFFICER AS WELL AS BY THE APPELLANT, AS DISCUSSED ABOVE, I HAVE NO HESITATION TO HOLD THAT IN THE FAC TS OF THE CASE AS WELL AS IN LAW, THE APPELLANT SATISFIES THE CONDITI ON OF MANUFACTURE OR PRODUCES ARTICLES OR THINGS, AS STIPULATED UNDE R THE PROVISIONS OF SECTION 80 IB OF THE ACT, AND THE APPEAL FILED BY T HE APPELLANT ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 8 DESERVES TO BE ALLOWED, BOTH ON THE POINT OF FACTS OF THE CASE AS WELL AS LAW. 18.55 THEREFORE, I HOLD THAT THE ACTIVITY OF THE A PPELLANT FIRM IS OF MANUFACTURE AS WELL AS PRODUCTION AND THE APPEL LANT SATISFIES THE CONDITIONS STIPULATED UNDER U/S 80 IB OF THE AC T AND IS ELIGIBLE FOR THE BENEFIT OF DEDUCTION 3.1 RELYING UPON HIS AFORESAID FINDINGS, THE LD. C IT(A) ALLOWED THE CLAIM IN THE AYS 2000-01, 2001-02 AND 2005-06 ALSO. 4. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORESA ID FINDINGS OF THE LD. CIT(A). THE LD. DR RELIED UPON THE ORDER OF THE AO AND THE LD. AR ON BEHALF OF THE ASSESSEE WHILE SUPPORTING THE FINDINGS OF THE L EARNED CIT(A) CONTENDED THAT IN THE FIRST ASSESSMENT YEAR, WHEN CLAIM U/S 80 IB OF THE ACT WAS MADE, THE AO HIMSELF VIDE HIS ORDER DATED 20.12.1998 U/S 143(1) OF THE ACT ACCEPTED THE CLAIM OF THE ASSESSEE. IN THE AY 1998-99, THE AO ALLOWED THE CLAIM VIDE ORDER DATED 19-10-2000 U/S 143(3) OF THE ACT WHILE IN THE AY 1 999-2000 CLAIM WAS ACCEPTED U/S 143(1) OF THE ACT. IT WAS ONLY IN THE AY 2003-0 4 THAT FOR THE FIRST TIME, THE AO DISALLOWED THE CLAIM AND ON THAT BASIS, CLAIM IN AY S 2000-01 TO 2006-07 HAS BEEN DISALLOWED. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY, IN THE FIRST YEAR OF PRODUCTION OF NP K MIX FERTILIZER ,THE CLAIM FOR DEDUCTION U/S 80 IB OF THE ACT HAS BEEN ALLOWED BY THE AO HIMSELF IN HIS ORDER DATED 20.2.1998 U/S 143(1) OF THE ACT FOR THE AY 1 997-98. SUBSEQUENTLY, IN AY 1998-99 ALSO THE AO ALLOWED THE CLAIM VIDE HIS ORDE R DATED 19.10.2000 U/S 143(3) OF THE ACT WHILE IN THE AY 1999-2000, CLAIM WAS ACCEPTED U/S 143(1) OF THE ACT. IN THE YEARS UNDER CONSIDERATION, WE HAVE GONE THROUGH THE ELABORATE ORDER OF THE LEARNED CIT(A), WHO AFTER ANALYZING VA RIOUS DECISIONS AND THE PROCESS OF MANUFACTURING BY THE ASSESSEE CONCLUDED THAT NPK MIX FERTILIZER IS DISTINCTLY IDENTIFIABLE, HAVING DISTINCT NAME, FUNC TION AND USE IN COMMERCIAL PARLANCE AND THE FUNCTIONS OF INPUT AND OUTPUT ARE DIFFERENT AND ARE NOT INTER- ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 9 CHANGEABLE. THE PROCESS OF PREPARING THE NPK MIX F ERTILIZER AMOUNTS TO BOTH MANUFACTURE AND PRODUCTION, THE LD. CIT(A) CONCLUDE D . WE ARE OF THE OPINION THAT THE EXPRESSION 'PRODUCTION' HAS A WIDER CONNOTATION THAN THE EXPRESSION 'MANUFACTURE' AND, THEREFORE, THE QUESTION WHETHER ANY ACTIVITY FALLS WITHIN THE AMBIT OF SECTION 80-IB, THE EXAMINATION FROM THE PO INT OF VIEW OF ONLY MANUFACTURER IS NOT THE FINAL TEST. THE ESSENTIAL D ISTINCTION BETWEEN THE EXPRESSIONS 'MANUFACTURE' AND 'PRODUCTION' HAD RECE IVED ATTENTION IN VARIOUS JUDICIAL PRONOUNCEMENTS. THE DISTINCTION BETWEEN MA NUFACTURE AND PRODUCTION WAS NOTICED AND EXPLAINED BY THE HONBLE SUPREME CO URT IN CIT V. N. C. BUDHARAJA AND CO. [1993] 204 ITR 412 . THE APEX COURT CLEARLY OPINED THAT ALL ACTIVITIES FALLING WITHIN THE AMBIT OF MANUFACTURE RESULTS IN PRODUCTION BUT CONVERSE IS NOT TRUE. IN THE LIGHT OF VIEW TAKEN B Y APEX COURT IN THEIR VARIOUS DECISIONS REFERRED TO IN HE IMPUGNED ORDER AND CONS IDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, ESPECIALLY WHEN THE REVE NUE HAVE NOT PLACED ANY MATERIAL BEFORE US ANY MATERIAL CONTROVERTING THE F INDINGS OF THE LEARNED CIT(A) NOR REFERRED US TO ANY CONTRARY DECISION, WE ARE NO T INCLINED TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A). 5.1. EVEN OTHERWISE, THE CLAIM FOR DEDUCTION H AS BEEN ALLOWED BY THE AO IN THE INITIAL ASSESSMENT YEAR 1997-98 AND ALSO SUBSEQ UENTLY, EVEN IN HIS ORDER DATED 19.10.2000 U/S 143(3) OF THE ACT FOR THE AY 1 998-99. IT IS ONLY IN THESE ASSESSMENT YEARS THAT THE CLAIM WAS DECLINED. IT IS WELL-SETTLED IN TERMS OF PRINCIPLE OF CONSISTENCY THAT THE VIEW ADOPTED BY T HE ASSESSING OFFICER IN A PARTICULAR YEAR SHOULD NOT BE DEVIATED FROM IN THE SUBSEQUENT YEARS UNLESS THERE IS SOME CHANGE IN THE LEGAL OR FACTUAL SCENARIO JUS TIFYING DEPARTURE THEREFROM. IN THE CASE OF CIT V. A.R.J. SECURITY PRINTERS [2003] 264 ITR 276 (DELHI) WHEN THE DEPARTMENT WANTED TO NEGATIVE THE ASSESSEE'S CLAIM, WHICH WAS ACCEPTED IN THE PAST, THE HON'BLE HIGH COURT HELD THAT; 'HAVING ACC EPTED IN THREE ASSESSMENT YEARS THAT THE ASSESSEE'S BUSINESS ACTIVITY OF PRIN TING LOTTERY TICKETS FALL WITHIN THE AMBIT OF SECTION 80-I, THE REVENUE CANNOT BE ALLOWE D TO TURN AROUND AND CONTEND THAT THE DEDUCTION UNDER THE SAID SECTION IS NOT AL LOWABLE IN RESPECT OF THE ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 10 ASSESSMENT YEARS IN QUESTION'. THE SLP FILED BY THE REVENUE AGAINST THIS JUDGMENT STANDS DISMISSED IN [2004] 266 ITR 4 (ST.) . 5.2. THE PRINCIPLE OF CONSISTENCY HAS BEEN FOLLOWED BY IN SEVERAL CASES INCLUDING IN ARIHANT BUILDERS DEVELOPERS & INVESTORS (P.) LTD V. ITAT [2005] 277 ITR 239 (MP), ASSTT. CIT V. GENDALAL HAZARILAL & CO. [2003] 263 ITR 679 (MP), CIT V. NEO POLY PACK (P.) LTD [2000] 245 ITR 492 (DELHI),4. DHANSIRAM AGARWALLA V. CIT [1996] 217 ITR 4 (GAUHATI). CIT V. SHIV SAGAR ESTATE [2002] 257 ITR 59 (SC) UNION OF INDIA V. SATISH PANNALAL SHAH [2001] 249 ITR 221 (SC).IN THE CASE OF CWT V. M.K. GUPTA [1990] 185 ITR 393 (DELHI) THE TRIBUNAL APPLIED THE SAME VALUE OF PROPERTY WHICH WAS CONSIDERED IN THE CASE OF OTHER CO-OWNERS. THE HON'BLE HIGH COURT DECLINED TO INTERFERE WITH THE T RIBUNAL'S VIEW BY DISMISSING THE REVENUE'S APPEAL. IN VIEW OF THE FOREGOING LEGA L POSITION EMANATING FROM THE JUDICIAL PRONOUNCEMENTS, IT IS CLEAR THAT THE PRINC IPLE OF CONSISTENCY DOES NOT EMPOWER THE ASSESSING OFFICER TO DEVIATE FROM THE S TAND TAKEN BY HIM IN THE PREVIOUS YEAR UNLESS FACTUAL OR LEGAL POSITION JUST IFIES DEPARTURE IN THE INSTANT YEAR. IN OUR CONSIDERED OPINION, THE AO WAS NOT JUS TIFIED IN REFUSING DEDUCTION UNDER SECTION 80-IB IN THE YEARS UNDER CONSIDERATIO N, WITHOUT DISTURBING THE CLAIM IN THE INITIAL ASSESSMENT YEAR. 5.3 HONBLE JURISDICTIONAL HIGH COURT IN THE CONT EXT OF PROVISIONS OF SEC. 80J OF THE ACT HELD IN THE CASE OF SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES VS. CIT,123 ITR 669(GUJ) THAT THE TRIBUNAL WAS PERFECTL Y JUSTIFIED IN TAKING THE VIEW THAT IF THE RELIEF OF TAX HOLIDAY WAS GRANTED TO TH E ASSESSEE-COMPANY FOR THE ASSESSMENT YEAR 1968-69, THE ASSESSEE WAS ENTITLED TO CONTINUANCE OF THAT RELIEF FOR THE SUBSEQUENT FOUR YEARS AND THE ITO WOULD NOT BE JUSTIFIED IN REFUSING TO CONTINUE THE ALLOWANCE FOR THE ASSESSMENT YEAR UNDE R REFERENCE, I.E., 1969-70, WITHOUT DISTURBING THE RELIEF FOR THE INITIAL YEAR. SIMILAR VIEW WAS TAKEN IN CIT VS. BHILLAI ENGINEERING CORPORATION PVT. LTD.,133 ITR 6 87(MP) ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 11 5.4 IN VIEW OF THE FOREGOING, WE DO NOT FIND ANY MERIT IN THE GROUND NO.1 IN THESE FOUR APPEALS AND IS, ACCORDINGLY, DISMISSED. 6. GROUND NO. 2 IN THE APPEAL OF THE REVENUE IN AY 2003-04 RELATES TO ADDITION OF RS. 29,58,629/- ON ACCOUNT OF LOW GP. T HE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT GP RATE IN TH E YEAR UNDER CONSIDERATION DECLINED TO 14.47% AS AGAINST 19.12% IN AY 2001-02. TO A QUERY BY THE AO, THE ASSESSEE EXPLAINED VIDE LETTER DATED 08-02-2005 THA T GP RATE IN THE YEAR UNDER CONSIDERATION HAS INCREASED TO 14.47% FROM 13.65% I N THE PRECEDING YEAR. AS REGARDS DECLINE IN GP RATE VIS--VIS AY 2001-02 ,TH E ASSESSEE EXPLAINED THAT IN AY 2001-02 THE ASSESSEE HAD USED MORE SUB-STANDARD FERTILIZERS AVAILABLE FOR MANUFACTURE OF MIX FERTILIZERS WHILE IN THE YEAR U NDER CONSIDERATION, THE ASSESSEE USED VIRGIN MATERIALS. MOREOVER, THE COST OF PRODUCTION INCREASED BY 4.21% IN THE YEAR UNDER CONSIDERATION WHEN COMPARED WITH AY 2001-02 DUE TO INCREASE IN COST OF INPUTS. HOWEVER, THE AO DID NOT ACCEPT THIS EXPLANATION OF THE ASSESSEE ON THE GROUND THAT PURCHASE/SALE PRICE OF THE FERTILIZERS USED IN RAW MATERIAL AS WELL AS THE FINISHED PRODUCT WAS GENER ALLY FIXED BY THE GOVERNMENT. THEREFORE, CHANCE OF VARIATION/FLUCTUATION IN THE RATE OF SALE PRICE OF FERTILIZER WAS REMOTE. ON PERUSAL OF COMPARATIVE DETAILS OF EXPENS ES SUBMITTED BY THE ASSESSEE, THE AO OBSERVED THAT DESPITE DECLINE IN C ONSUMPTION OF RAW MATERIAL AND CONSEQUENT PRODUCTION, THE ASSESSEE INCURRED E XPENDITURE OF RS.18,37,898/- IN CASH UNDER THE HEAD REPAIR AND MA INTENANCE OF PLANT & MACHINERY, LABOUR CHARGES, LOADING AND UNLOADING, P ACKING OF DAP, SCREENING. LIKEWISE, INWARD TRANSPORT EXPENDITURE OF RS.43,69, 133/- AND OUTWARD TRANSPORT EXPENDITURE OF RS. 26,21,517/-WAS ALSO INCURRED IN CASH. IN THE ABSENCE OF ADDRESS OF VARIOUS PARTIES TO WHOM CASH PAYMENT WAS MADE, THE EXPENSES WERE NOT VERIFIABLE. BESIDES, THE ASSESSEE FAILED TO FUR NISH ANY JUSTIFICATION FOR VARIATION IN THE WASTE FROM YEAR TO YEAR NOR COULD JUSTIFY AD DITIONAL LABOUR CHARGES OF RS.2,45,472/-. MOREOVER, THE ASSESSEE ALSO DEBITED EXPENDITURE AGAINST COMMISSION, PURCHASES, TRANSPORTATION IN THE NAME O F RELATED PERSONS, WHO WERE RUNNING THEIR BUSINESS FROM THE SAME OFFICE AND MAN AGED BY SAME SET OF ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 12 STAFF/EMPLOYEES. IN THESE CIRCUMSTANCES, ESPECIALLY WHEN MANUFACTURING EXPENSES INCREASED FROM 77.7% IN AY 2001-02 TO 82 .32% IN THE YEAR UNDER CONSIDERATION, RELYING UPON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS BRITISH INDIA PAINTS LTD. REPORTED I N 188 ITR 44 , THE AO CONCLUDED THAT THE BOOKS OF ACCOUNT MAINTAINED BY T HE ASSESSEE WERE NOT COMPLETE AND CORRECT AND THUS, CORRECT PROFIT CAN N OT BE DEDUCED. ACCORDINGLY, THE AO REJECTED THE BOOK RESULTS, HAVING RECOURSE T O PROVISIONS OF SECTION 145 OF THE ACT AND ADDED AN AMOUNT OF RS.29,58,629/-, APP LYING THE GP RATE OF 19.11% DECLARED BY THE ASSESSEE IN THE AY 2001-02. 7. ON APPEAL, THE ASSESSEE CONTENDED THAT ALL THE A FORESAID EXPENSES WHICH ARE STATED TO HAVE BEEN INCURRED IN CASH, WERE INCU RRED BY THE ASSESSEE BY THE SAME MODE AS IN AY 2001-02. IT WAS POINTED OUT THAT EXPENDITURE ON REPAIR AND MAINTENANCE OF PLANT & MACHINERY WERE NOT INCURRED IN CASH NOR INWARD TRANSPORT EXPENSES WERE ENTIRELY INCURRED IN CASH. OUT OF SEL LING/OUTWARD TRANSPORTATION EXPENSES OUT OF RS. 26,21,517/- , AN AMOUNT OF RS. 39,783 WAS PAID IN CASH, THE ASSESSEE PLEADED WHILE CONTENDING THAT THE DECISION OF THE HONBLE SUPREME COURT RELIED UPON BY THE AO IN THE CASE OF BRITISH PAINTS INDIA LTD. (SUPRA) WAS NOT APPLICABLE. IT WAS ARGUED THAT WITHOUT PINPOINT ING ANY DEFECTS IN THE BOOKS OF ACCOUNTS, THE AO REJECTED THE BOOK RESULTS AND APPL IED GP RATE IN THE AY 2001- 02. SINCE THEIR BOOKS OF ACCOUNT WERE DULY AUDITED AND THE ASSESSEE MAINTAINED DAY TO DAY PURCHASE/SALE/STOCK REGISTERS WITH QUANT ITATIVE DETAILS WHILE PRODUCTION WAS REGULARLY MONITORED BY AGRICULTURE DEPARTMENT U NDER FERTILIZER CONTROL ORDER OF 1985 , THE AO WAS NOT JUSTIFIED IN REJECTING TRA DING RESULTS. THE ASSESSEE POINTED OUT THAT THE AO TOTALLY IGNORED THE FACT TH AT COST OF PRODUCTION HAS INCREASED IN THE YEAR UNDER CONSIDERATION BY 4.62%V IS--VIS AY 2001-02. RELYING UPON THE DECISIONS IN THE CASE OF R.B. JESSARAM FET HECHAND (SUGAR DEPT.) VS CIT (1969) 75 ITR 33 (BOM.) AND SURINDER KUMAR CHAR ANJIT KUMAR VS CIT (2006) 152 TAXMAN 641 ( P & H), THE ASSESSEE CONTENDED THA T THERE WAS NO JUSTIFICATION IN MAKING ANY TRADING ADDITION. IN THE LIGHT OF THE SE SUBMISSIONS AND AFTER HAVING A REMAND REPORT FROM THE AO, THE LEARNED CIT(A) CON CLUDED AS UNDER: ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 13 IT IS OBSERVED THAT, THE APPELLANT HAD CONTESTED T HIS ADDITION IN THEIR GROUNDS OF APPEAL , THEY HAVE MADE SUBMISSIONS IN T HEIR WRITTEN SUBMISSIONS AT THE TIME OF HEARING. RELYING UPON TH E FACTS AND JUDICIAL PRECEDENTS OF R.B. JESSARAM FETHECHAND (SU GAR DEPT.) VS CIT (1969) 75 ITR 33 (BOM.) AND SURINDER KUMAR CHAR ANJIT KUMAR VS CIT (2006) 152 TAXMAN 641 ( P & H) ALONG WITH TH E WRITTEN SUBMISSION AND THE REMAND REPORT FILED BY THE A. O. I AM OF THE OPINION THAT THE ADDITION MADE ON THIS ACCOUNT AMOU NTING TO RS.29,58,629/- IS WRONG AND DESERVES TO BE QUASHED. 18.59 DURING THE APPELLATE PROCEEDINGS A REMAND RE PORT WAS CALLED FROM THE A. O. TO CONFRONT THE SUBMISSIO NS MADE BY THE LD. AUTHORISED REPRESENTATIVE AND A COPY OF THE PAP ER BOOK FILED BY HIM WAS GIVEN TO HIM. THE A. O. HAS, IN THE REMA ND REPORT, OBSERVED AT PARA -3.3 OF HIS REPORT, AFTER VERIFICA TION OBSERVED THAT THE PRODUCTION REGISTER/STOCK REGISTER/ SALES REGIS TER ARE PERIODICALLY CHECKED AND A SEAL TO THAT EFFECT IS ALSO PUT BY AG RICULTURE INSPECTOR OF THE DEPARTMENT OF AGRICULTURE, GOVERNMENT OF GUJ ARAT. AT PARA - 3.4 OF HIS REMAND REPORT THE CONTENTION OF THE APPE LLANT THAT NO DISCREPANCY IN THE BOOKS OF ACCOUNT WAS POINTED BY THE A. O. AND NOT A SINGLE MISTAKE WAS BROUGHT TO THE NOTICE BY T HE A. O. DURING THE ASSESSMENT PROCEEDINGS, IS FOUND TO BE CORRECT BY THE A. O. AND HE FURTHER STATES THAT BOOKS OF ACCOUNTS WERE N OT REJECTED AS REQUIRED U/S. 145. FURTHER DOWN AT PARA -3.6 OF HIS REMAND REPORT, THE A. O., AFTER VERIFICATION OF SIX (6) BOX FILES, FOUND THE CONTEN TION OF THE APPELLANT THAT ALL THE PAYMENTS MADE IN CASH ARE PETTY PAYMEN TS BELOW RUPEES TWENTY THOUSAND DULY SUPPORTED BY VOUCHERS A ND OR BILLS. THE SAID FILES FOR BILLS AND VOUCHERS HAVE BEEN PRO DUCED DURING THE APPELLATE PROCEEDINGS FOR VERIFICATIONS. AT PARA -3 .7, THE A. O. CONFIRMS AFTER VERIFICATION THAT THE DRIVERS NAME, TRUCK NUMBER, DRIVERS LICENSE NUMBER AND THE TRANSPORT RECEIPT W AS AVAILABLE FOR VERIFICATION AND THE CONTENTION WAS FOUND TO BE COR RECT. AS REGARDS THE REASONABLENESS FOR THE PAYMENTS MADE TO SISTER CONCERNS HE HAS AT PARA-38 OF HIS REMAND REPORT CON FIRMED THAT THE EVIDENCES FOR THE TRANSACTION HAVING BEEN MADE WITH THE SISTER CONCERNS AT THE MARKET RATE WAS FILED DURING THE AS SESSMENT PROCEEDINGS AND IS AVAILABLE IN RECORD.. 8. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LD. CIT(A). THE LD. DR RELIED UPON THE ORDER OF THE AO WHILE TH E LD. AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT (A) . ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 14 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE FACTS OF THE CASE. UNDISPUTEDLY, AND AS POINTED OUT BY THE LEARNED CIT (A) WHILE REFERRING TO PARA 3.3 OF REMAND REPORT OF THE AO THAT NO DISCREPANC Y IN THE BOOKS OF ACCOUNT WAS POINTED BY THE A O WHILE NOT EVEN A SINGLE MISTAKE WAS BROUGHT TO THE NOTICE BY THE AO DURING THE ASSESSMENT PROCEEDINGS AND THUS, BOOKS OF ACCOUNTS COULD NOT BE REJECTED AS REQUIRED U/S. 145 OF THE ACT. T HE LD. CIT(A) FURTHER NOTED THAT IN PARA-3.6 OF HIS REMAND REPORT, THE AO, AFTER VE RIFICATION OF SIX (6) BOX FILES, FOUND THAT ALL THE PAYMENTS MADE IN CASH WERE BELOW RUPEES TWENTY THOUSAND AND DULY SUPPORTED BY VOUCHERS AND OR BILLS. SIMIL AR FINDINGS HAVE BEEN RECORDED BY THE AO IN PARA 3.7 AND PARA-3.8 OF HIS REMAND REPORT AND ACCORDINGLY, THE LD. CIT(A) DELETED THE ADDITION. H ONBLE GAUHATI HIGH COURT IN ALUMINIUM INDUSTRIES (P) LTD. V. CIT (I.T.R. NO. 12 OF 1990) OBSERVED THAT A LOWER RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE AS CO MPARED TO THE PREVIOUS YEAR, WOULD NOT IN ITSELF BE SUFFICIENT TO JUSTIFY ANY AD DITION. THE MERE FACT THAT THE PERCENTAGE OF LOSS OR GROSS PROFIT IS HIGH OR LOW I N A PARTICULAR YEAR DOES NOT NECESSARILY LEAD TO INFERENCE THAT THERE HAS BEEN S UPPRESSION. LOW PROFIT IS NEITHER A CIRCUMSTANCE NOR MATERIAL TO JUSTIFY ADDI TION OF PROFITS. THE RATIO OF THE JUDGMENTS IN DHAKESWARI COTTON MILLS LTD. V. CIT [1 954] 26 ITR 775 (SC); RAGHUBIR MANDAL HARIHAR MANDAL V. STATE OF BIHAR [1 957] 8 STC 770 (SC); STATE OF KERALA V. C. VELUKUTTY [1966] 60 ITR 239 (SC); STATE OF ORISSA V. MAHARAJA SHRI B.P. SINGH DEO [1970] 76 ITR 690 (SC); BRIJ BHUSAN LAL PARDUMAN KUMAR V. CIT [1978] 115 ITR 524 (SC); CHOUTHMAL AGARWALLA V. CIT [1962] 46 ITR 262 (ASSAM); R.V.S. AND SONS DAIRY FARM V. CIT [2002] 257 ITR 764 (MAD); INTERNATIONAL FOREST CO. V. CIT [1975] 101 ITR 721 (J & K) ; M. DURAI RAJ V. CIT [1972] 83 ITR 484 (KER); RAMCHANDRA RAMNIVAS V. STATE OF ORISSA [197 0] 25 STC 501 (ORISSA); ACTION ELECTRICALS V. DEPUTY CIT [2002] 258 ITR 188 (DELHI) AND KAMAL KUMAR SAHARIA V. CIT [1995] 216 ITR 217 (GAUHATI) INDICATE THAT THE AO IS NOT FETTERED BY ANY TECHNICAL RULES OF EVIDEN CE AND PLEADINGS, AND HE IS ENTITLED TO ACT ON MATERIAL WHICH ARE NOT ACCEPTABL E IN EVIDENCE IN A COURT OF LAW, BUT WHILE MAKING THE ASSESSMENT UNDER THE PRINCIPLE S OF BEST JUDGMENT, THE ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 15 INCOME-TAX OFFICER IS NOT ENTITLED TO MAKE A PURE G UESS WITHOUT REFERENCE TO ANY EVIDENCE OR MATERIAL. THERE MUST BE SOMETHING MORE THAN A MERE SUSPICION TO SUPPORT THE ASSESSMENT. LOW PROFIT IN A PARTICULAR YEAR IN ITSELF CANNOT BE A GROUND FOR INVOKING THE POWERS OF BEST JUDGMENT ASS ESSMENT WITHOUT SUPPORT OF ANY MATERIAL ON RECORD. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V S. AMITBHAI GUNWANTBHAI, 129 ITR 573 HELD THAT IF THER E WAS NO CHALLENGE TO THE TRANSACTIONS REPRESENTED IN THE BOOKS THEN IT IS NO T OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL S TATE OF AFFAIRS. SECONDLY, EVEN IF FOR SOME REASON, THE BOOKS ARE REJECTED IT IS NOT O PEN TO THE AO TO MAKE ANY ADDITION ON ESTIMATE BASIS OR ON PURE GUESS WORK. IT IS SETTLED LAW THAT THE TAX AUTHORITIES HAVING RELIED ON ONE PART OF THE TRANSA CTIONS CANNOT REJECT THE OTHER PART. IN THE INSTANT CASE, THE AO ACCEPTED THE SAL ES OF THE ASSESSEE AND APPLIED GP RATE OF 19.11% THEREON FOR THE AY 2001-02. WIT HOUT POINTING OUT ANY ERROR IN THE PROFIT AND LOSS ACCOUNT AND THE AUDITED ACCOUNT S, THE AO HAS NO JURISDICTION TO ESTIMATE THE GP AND ADD THE DIFFERENCE. IN ANY CASE, ON THE BASIS OF REMAND REPORTS OF THE AO, THE LD. COMMISSIONER OF INCOME-T AX (APPEALS) CONCLUDED THAT THAT AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RES ULTS AND CONSEQUENTLY, DELETED THE ADDITION. THE PROCEDURE ADOPTED BY THE COMMISSI ONER OF INCOME-TAX (APPEALS), IN OUR OPINION, IS FULLY JUSTIFIED. THE REVENUE HAVE NOT REFERRED US TO ANY MATERIAL CONTRARY TO THESE FINDINGS OF FACTS RE CORDED BY THE LEARNED CIT(A), FOR TAKING DIFFERENT VIEW IN THE MATTER. IF THERE W AS NO CHALLENGE TO THE TRANSACTIONS REPRESENTED IN THE BOOKS, THEN IT IS N OT OPEN TO REVENUE TO CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL S TATE OF AFFAIRS. IN THE LIGHT OF THESE OBSERVATIONS OF JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LEARNED CIT(A) AND ACCORDINGLY, GR OUND NO. 2 IN THE APPEAL OF THE REVENUE FOR THE AY 2003-04 IS REJECTED. 10. NOW ADVERTING TO GROUND NO. II IN THE APPEALS F OR THE AY 2000-01, 2001-02 AND 2005-06, THE AO DISALLOWED THE CLAIM FOR DEDUCT ION U/S 80 IB OF THE ACT ON OTHER INCOME OF RS.1,03,750/- IN AY 2000-01, RS.1,5 6,250/- IN AY 2001-02 AND RS. 1,15,254/- IN AY 2005-06. THE AO NOTICED THAT O N PERUSAL OF PROFIT & LOSS ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 16 ACCOUNT FOR AY 2000-01 THAT THE ASSESSEE INCLUDED GRANULATED JOB WORK INCOME OF RS.1,00,000/- AND RS. 56,250/- EARNED ON SALE OF EMPTY BAG WHILE CLAIMING DEDUCTION U/S 80 IB OF THE ACT. TO A QUERY BY THE A O, THE ASSESSEE EXPLAINED THAT THE SAID INCOME OF RS.1,00,000/- OUT OF GRANUL ATED JOB WORK RECEIPT AND RS.56,250/- OUT OF SALE OF EMPTY BAGS IS PART OF IN DUSTRIAL ACTIVITIES AND SUCH RECEIPTS ARE TO BE TREATED AS REVENUE RECEIPT, ENTI TLED TO DEDUCTION U/S 80 IB OF THE ACT. HOWEVER, THE AO REJECTED THE CONTENTIONS O F THE ASSESSEE ON THE GROUND THAT SALE OF EMPTY BAGS DID NOT HAVE ANY DIRECT NEX US WITH THE ACTIVITIES OF THE INDUSTRIAL UNDERTAKING AND WAS NOT DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. ACCORDINGLY, RELYING UPON THE DECISION S OF THE HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT (2003) 262 ITR 278 (SC) AND CIT VS STERLING FOODS (1999) 237 ITR 579(SC), T HE AO DISALLOWED THE CLAIM FOR DEDUCTION U/S 80 IB OF THE ACT ON THE AMOUNT OF OTHER INCOME. 11. LIKEWISE, IN AY 2001-02 THE AO DISALLOWED THE C LAIM FOR DEDUCTION U/S 80IB ON INTEREST INCOME OF RS.1000/- EARNED ON DEAL ERSHIP DEPOSIT AND RS.1,02,750/- ON SALE OF EMPTY BAGS. IN AY 2005-06, THE AO DISALLOWED CLAIM OF DEDUCTION ON THE FOLLOWING AMOUNTS: COMMISSION RECEIVED RS. 19,250/- INTEREST ON DEALERSHIP DEPOSIT RS. 900 /- SALES TAX REFUND RS. 1,29,746/- GOVT. SUBSIDY RECEIVED RS.1,13,54,254/- 12. ON APPEAL, THE ASSESSEE CONTENDED THAT IMMED IATE EFFECTIVE SOURCE OF CONCESSION IS PRODUCTION AND SALE OF SSP MANUFACTUR ED IN THE INDUSTRIAL UNDERTAKING AND ON THIS ACCOUNT CONCESSION ON PURCH ASE OF RAW MATERIAL IS RECEIVED. IN THE LIGHT OF THESE CONTENTIONS, THE LE ARNED CIT(A) WITHOUT RECORDING HIS SPECIFIC FINDINGS AS TO HOW THE JOB WORK INCOM E , INTEREST ON DEALERSHIP DEPOSIT AND SALE OF EMPTY BAGS IS DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING, HELD IN THE AY 2000-01 & 2001-02 THA T 17.17. IN THE LIGHT OF ABOVE DISCUSSI ON AND FINDINGS, THE APPEAL FILED BY THE APPELLANT IS ALLOWED ON THE ISSUE OF MANUFAC TURE AND THE ASSESSING ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 17 OFFICER IS DIRECTED TO CONSIDER THE ABOVE OTHER INC OME AS ELIGIBLE FOR DEDUCTION U/S80IB. 12.1 IN AY 2005-06, THE LD. CIT(A) DID NO RECORD HIS SPECIFIC FINDINGS ON THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT ON THE AMOU NT OF COMMISSION, INTEREST ON DEALERSHIP DEPOSIT OR EVEN SALES TAX REFUND .REGARD ING THE SUBSIDY AMOUNT OF RS. 1,13,54,254/-, THE ASSESSEE CONTENDED BEFORE TH E LD. CIT(A) THAT SCHEME FOR GRANT OF FERTILIZERS SUBSIDY IS SIMILAR TO THAT OF CUSTOM DUTY DRAWBACK, WHICH GOES TO REDUCE THE COST OF PRODUCTION. THE ASSESSEE ,WHI LE REFERRING TO THE SCHEME OF SUBSIDY AND RELYING UPON THE DECISIONS IN THE CAS E OF CIT VS. INDIA GELATINE AND CHEMICALS LTD.,275 ITR 284(GUJ) AND CIT VS. ELTEK S GS P LTD.,300 ITR 6(DELHI) CONTENDED THAT DEDUCTION U/S 80IB OF THE ACT IS AD MISSIBLE ON THE AMOUNT OF SUBSIDY. ACCORDINGLY, THE LD. CIT(A) CONCLUDED THAT THE IMMEDIATE AND EFFECTIVE SOURCE OF SUBSIDY IS PRODUCTION AND SALE OF SINGLE SUPER PHOSPHATE MANUFACTURED IN THE INDUSTRIAL UNDERTAKING AND DIRE CTED THE AO TO CONSIDER THE AFORESAID SUBSIDY AS INCOME ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. 13. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPPORTED THE FINDIN GS OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE RELIED ON THE ORDER OF THE LEARNED CIT(A). 14. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF CASE. AS ALREADY MENTIONED ABOVE , WE FIND THAT THE LD. CIT(A) HAS NOT RECORDED HIS SPECIFIC FINDINGS AS TO WHETHER OR NOT THE INTEREST ON DEALERSHIP DEPOSIT ,INCOME FROM JOB WORK ,COMMISSIO N AND SALES TAX REFUND HAD ANY NEXUS WITH THE MANUFACTURING ACTIVITIES CARRIE D ON BY THE ASSESSEE OR WERE DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING .APPARENTLY, THE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER ON THESE ISSUES 14.1 AS REGARDS SUBSIDY, NEITHER THE LD. DR NOR THE LD. AR REFERRED US TO THE RELEVANT SCHEME OF SUBSIDY NOR THE LD. AR EXPLAINED AS TO HOW SCHEME FOR GRANT ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 18 OF FERTILIZERS SUBSIDY IS SIMILAR TO THAT OF CUSTO M DUTY DRAWBACK, WHICH GOES TO REDUCE THE COST OF PRODUCTION. THE LD. CIT(A) WHIL E ALLOWING THE CLAIM ,INTER ALIA, REFERRED TO THE DECISIONS CITED BY THE ASSESSEE IN THE CASE OF INDIA GELATINE AND CHEMICALS LTD.(SUPRA) AND ELTEK SGS P LTD.(SUPRA) W HICH WERE RENDERED IN THE CONTEXT OF DEDUCTION U/S 80IB ON THE AMOUNT OF DUTY DRAW BACK .WE FIND THAT RECENTLY HONBLE APEX COURT IN THEIR DECISION DATED 31.8.2009 IN THE CASE OF M/S LIBERTY INDIA VS. CIT IN CIVIL APPEAL NOS. 5271/20 07 AND OTHERS, CONSIDERED THE AFORESAID DECISION IN THE CASE OF INDIA GELATINE A ND CHEMICALS LTD.(SUPRA) WHILE ADJUDICATING THE ISSUE OF DEDUCTION U/S 80IB OF THE ACT ON THE AMOUNT OF DEPB/DUTY DRAW BACK AND CONCLUDED THAT I) WHEN SECTION 80-IA/80-IB REFERS TO PROFITS DER IVED FROM ELIGIBLE BUSINESS, IT IS NOT THE OWNERSHIP OF THAT BUSINESS WHICH ATTRACTS T HE INCENTIVES. WHAT ATTRACTS THE INCENTIVES UNDER SECTION 80-IA/80-IB IS THE GEN ERATION OF PROFITS (OPERATIONAL PROFITS). II) PARLIAMENT HAS CONFINED DEDUCTION U/S 80IB TO PROFITS DERIVED FROM ELIGIBLE BUSINESSES MENTIONED IN SUB-SECTIONS (3) TO (11A) [ AS THEY STOOD AT THE RELEVANT TIME]. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. EAC H OF THE ELIGIBLE BUSINESS IN SUB-SECTIONS (3) TO (11A) CONSTITUTES A STAND-ALONE ITEM IN THE MATTER OF COMPUTATION OF PROFITS. THAT IS THE REASON WHY THE CONCEPT OF SEGMENT REPORTING STANDS INTRODUCED IN THE INDIAN ACCOUNTI NG STANDARDS (IAS) BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). III). IT IS EVIDENT THAT SECTION 80-IB PROVIDES FOR ALLOWING OF DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINES S. THE WORDS DERIVED FROM IS NARROWER IN CONNOTATION AS COMPARED TO THE WORDS A TTRIBUTABLE TO. IN OTHER WORDS, BY USING THE EXPRESSION DERIVED FROM, PARL IAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. IV) SUB-SECTION (13) OF SECTION 80-IB PROVIDES FOR APPLICABILITY OF THE PROVISIONS OF SUB-SECTION (5) AND SUB-SECTIONS (7) TO (12) OF SEC TION 80-IA,SO FAR AS MAY BE, APPLICABLE TO THE ELIGIBLE BUSINESS UNDER SECTION 8 0-IB.THEREFORE, AT THE OUTSET, WE STATED THAT ONE NEEDS TO READ SECTIONS 80I, 80-I AAND 80-IB AS HAVING A COMMON SCHEME. ON PERUSAL OF SUB-SECTION(5) OF SECT ION 80-IA, IT IS NOTICED THAT IT PROVIDES FOR MANNER OF COMPUTATION OF PROFITS OF AN ELIGIBLE BUSINESS. ACCORDINGLY, SUCH PROFITS ARE TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THEREFORE, T HE DEVICES ADOPTED TO REDUCE OR INFLATE THE PROFITS OF ELIGIBLE BUSINESS HAS GOT TO BE REJECTED IN VIEW OF THE OVERRIDING PROVISIONS OF SUBSECTION (5) OF SECTION 80-IA, WHICH ARE ALSO REQUIRED TO BE READ INTO SECTION 80-IB. [SEE SECTION 80-IB(1 3)]. ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 19 V) SECTIONS 80I, 80-IA AND 80-IB HAVE A COMMON SCHE ME AND IF SO READ IT IS CLEAR THAT THE SAID SECTIONS PROVIDE FOR INCENTIVES IN TH E FORM OF DEDUCTION(S) WHICH ARE LINKED TO PROFITS AND NOT TO INVESTMENT. ON ANALYSI S OF SECTIONS 80-IA AND 80-IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING, WHIC H BECOMES ELIGIBLE ON SATISFYING SUB-SECTION(2), WOULD BE ENTITLED TO DED UCTION UNDER SUB-SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED FROM SUCH IND USTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HENCE, APART FROM ELIGIBILITY, S UB-SECTION (1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMPORTANCE OF THE WORDS DERIVED FROM INDUSTRIAL UN DERTAKING AS AGAINST PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING. VI). DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW F ROM THE SCHEMES FRAMED BY CENTRAL GOVERNMENT OR FROM SECTION 75 OF THE CUSTOM S ACT,1962, HENCE, INCENTIVES PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80-IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PRO FITS OF SUCH UNDERTAKINGS. VII) . ANALYSING THE CONCEPT OF REMISSION OF DUTY D RAWBACK AND DEPB, WE ARE SATISFIED THAT THE REMISSION OF DUTY IS ON ACCOUNT OF THE STATUTORY/POLICY PROVISIONS IN THE CUSTOMS ACT/SCHEME(S) FRAMED BY THE GOVERNME NT OF INDIA. IN THE CIRCUMSTANCES, WE HOLD THAT PROFITS DERIVED BY WAY OF SUCH INCENTIVES DO NOT FALL WITHIN THE EXPRESSION PROFITS DERIVED FROM INDUSTR IAL UNDERTAKING IN SECTION 80- IB. VIII) DUTY DRAWBACK, DEPB BENEFITS, REBATES ETC. C ANNOT BE CREDITED AGAINST THE COST OF MANUFACTURE OF GOODS DEBITED IN THE PROFIT & LOSS ACCOUNT FOR PURPOSES OF SECTIONS 80-IA/80-IB AS SUCH REMISSIONS (CREDITS) W OULD CONSTITUTE INDEPENDENT SOURCE OF INCOME BEYOND THE FIRST DEGREE NEXUS BETW EEN PROFITS AND THE INDUSTRIAL UNDERTAKING. IX). IN THE CIRCUMSTANCES, WE HOLD THAT DUTY DRAWBA CK RECEIPT/DEPB BENEFITS DO NOT FORM PART OF THE NET PROFITS OF ELIGIBLE INDUST RIAL UNDERTAKING FOR THE PURPOSES OF SECTIONS 80I/80-IA/80-IB OF THE 1961 ACT. 14.2 SINCE THE LD. CIT(A) DID NOT HAVE THE BENEF IT OF AFORESAID DECISION OF THE HONBLE APEX COURT WHILE ADJUDICATING THE ISSUE OF DEDUCTION OF 80IB ON THE AMOUNT OF SUBSIDY AND HAD RELIED UPON DECISIONS OF THE HONBLE HIGH COURT IN INDIA GELATINE AND CHEMICALS LTD.(SUPRA) AND ELTEK SGS P LTD.(SUPRA) WHILE THE RELEVANT SCHEME OF SUBSIDY HAS NOT EVEN BEEN REFE RRED TO BEFORE US DURING THE HEARING OF APPEAL AND THE LD. CIT(A) DID NOT PASS A SPEAKING ORDER REGARDING CLAIM FOR DEDUCTION U/S 80IB ON THE AMOUNT OF INTE REST ON DEALERSHIP DEPOSIT, INCOME FROM JOB WORK ,COMMISSION AND SALES TAX REF UND NOR THERE IS ANY MATERIAL BEFORE US TO CONCLUDE AS TO WHETHER OR NOT THESE A MOUNTS HAD ANY NEXUS WITH ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 20 THE MANUFACTURING ACTIVITIES CARRIED ON BY THE ASSE SSEE OR WERE DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THESE ISSUES AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF OUR AFORESAID OBSERVATIONS, KEEPING IN VIEW THE AFORESAID DECISION OF HONBLE A PEX COURT AND OF COURSE, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES . NEEDLESS TO SAY THAT WHILE REDECIDING THESE ISSUES, THE LEARNED CIT(A) SHALL P ASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF S EC. 250(6) OF THE ACT. WITH THESE DIRECTIONS, GROUND NO. II IN THESE APPEALS IS DISPO SED OF . 15. GROUND NO. III IN THE APPEALS OF THE REVENUE FO R THE AYS 2000-01,2001-02 & 2005-06 RELATE TO DISALLOWANCE OF INTEREST OF, RS .1,73,321/- IN AY 2000-01, RS.86,541/- IN AY 2001-02 AND RS. 55,099/- IN AY 20 05-06. THE AO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN TH E AY 2000-01 THAT THE ASSESSEE SOLD RAW MATERIALS WORTH RS.89,56,041/- TO ITS ASSOCIATES CONCERNS M/S. T. J. AGRO INDUSTRIES,, HIND MARKETING SERVICE S AND KRISHNA CHEMICALS AND FERTILIZERS. TO A QUERY BY THE AO, THE ASSESSEE EXP LAINED THAT FROM SOME OF THE PARTIES, THE ASSESSEE IS RESTRAINED TO PURCHASE THE RAW MATERIALS DIRECTLY AND HENCE ON BEHALF OF ITS ASSOCIATE CONCERNS, THE ASSE SSEE BOUGHT THE RAW MATERIALS UNDER ITS INVOICES AND THEN TRANSFER THE SAME UNDER SEPARATE INVOICES TO ITS ASSOCIATE CONCERNS. IN THESE CIRCUMSTANCES, THE AO CONCLUDED THAT THE ASSESSEE MADE INVESTMENT IN PURCHASE OF RAW MATERIA LS ON BEHALF OF ITS ASSOCIATE CONCERNS ON NO PROFIT-NO LOSS BASIS WHILE THE EXPENDITURE OF RS.5,48,545/- HAS BEEN INCURRED TOWARDS INTEREST ON OVERDRAFT. ACCORDINGLY, THE AO WORKED OUT DISALLOWANCE OF RS. 1,73,321/- ON ACC OUNT OF INTEREST WHILE RELYING ON THE DECISIONS IN THE CASE OF TRIVEDI ENGINEERING WORKS LTD. VS CIT 167 ITR 742, PHATON SUGAR WORKS LTD. VS CIT 208 ITR 989, HI RA LAL AND SONS VS CIT 190 ITR 408, VIJAY KUMAR VS CIT 194 ITR , CIT VS SA RAYA SUGAR MILLS (P) LTD. 193 ITR 575 AND CIT VS H. R. SUGAR FACTORY (P) LTD. 187 ITR 363. LIKEWISE, DISALLOWANCE OF RS. 86,541/- WAS MADE IN AY 2001-02 AND RS. 55,099 IN THE AY2005-06. ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 21 16. ON APPEAL, THE LEARNED CIT(A) DELETED THE DISAL LOWANCE HOLDING AS UNDER IN THE AY 2005-06: 17.20 DURING THE APPELLATE PROCEEDINGS A REMAND REPORT WAS CALLED FROM THE A. O. TO CONFRONT THE SUBMISSIO NS MADE BY THE LD. AUTHORIZED REPRESENTATIVE AND A COPY OF THE PAP ER BOOK FILED BY HIM WAS GIVEN TO HIM. THE AO HAS, IN THE REMAND REPORT, OBSERVED AT PARA-4 OF HIS REPORT, FOR THE ISSUE REG ARDING DISALLOWANCE OF INTEREST EXPENSES TO THE EXTENT OF RS. 55099 TAKING INTO CONSIDERATION AN AMOUNT OF RS.1816244 BEING PA RT OF THE INTEREST BEARING FUNDS UTILIZED TO ACCOMMODATE THE BUSINESS OF ASSOCIATE CONCERNS. DURING THE APPELLATE PROCEEDINGS AND REMAND PROCEED INGS IT IS THE CONTENTION OF THE ASSESSEE THAT NO AMOUNT HAS BEEN DIVERTED TO ACCOMMODATE THE BUSINESS OF THE ASSOCIATE CONCERN. THE AMOUNTS OUTSTANDING CONSTITUTE UNPAID SALES REALIZATION. IT IS FURTHER CONTENDED BY THE ASSESSEE THAT WITHOUT PREJUDICE TO ANYTHING STATED HEREINBEFORE, THE ASSESSEE HAS INTEREST FREE FUNDS OF RS.21100000 FOR THE YEAR UNDER CONSIDERATION. THESE FACTS HAVE BEEN VERIFIED AND FOUND CORRECT. 17.21 ON CAREFUL CONSIDERATION OF THE CONTENTIONS OF THE APPELLANT, REMAND REPORT OF THE ASSESSING OFFICER A ND THE JUDICIAL PRECEDENTS, I AM OF THE OPINION THAT IT IS AN UNDIS PUTED FACT ACCEPTED BY BOTH, THE APPELLANT AND THE AO THAT THE APPELLANT HAD TO ITS DISPOSAL INTEREST FREE FUNDS AMOUNTING TO RS .21100000. THE AMOUNT ALLEGED TO HAVE BEEN ADVANCED WITHOUT INTERE ST TO ASSOCIATE CONCERN IS RS.1816244. THUS, THE APPELLAN T COMPANY HAD SUFFICIENT INTEREST FREE FUNDS TO ADVANCES THE AFORESAID SUM TO SISTER CONCERN. ON THE BASIS OF THE FACTS AS DISCUS SED ABOVE I DO NOT AGREE WITH THE VIEW OF THE ASSESSING OFFICER TH AT THE APPELLANT COMPANY HAS NOT DIVERTED INTEREST BEARING FUNDS TO SISTER CONCERN WITHOUT INTEREST AS A TAX SAVING DEVICE. THE APPELL ANT COMPANY SUCCEEDS IN THIS GROUND OF APPEAL. 16.1 RELYING UPON HIS OWN ORDER FOR THE AY 2005-06 , THE LEARNED CIT(A) DELETED THE DISALLOWANCE FOR THE AY 2000-01 AND 2001-02. ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 22 17. THE REVENUE IS NOW IN APPEAL AGAINST THE AFORES AID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPPORTED THE FINDIN GS OF THE AO WHILE THE LEARNED AR ON BEHALF OF THE ASSESSEE RELIED ON THE ORDER OF THE LEARNED CIT(A). 18. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS POINTED OUT BY THE LD. CIT(A) IN THE IMPUGNED OR DERS AND UNDISPUTEDLY, THE ASSESSEE HAD INTEREST FREE FUNDS OF RS. 21100000 I N THE AY 2005-06 WHILE ADVANCES TO ASSOCIATE CONCERNS WERE OF THE ORDER OF RS.18,16,244/-.SIMILARLY IN AY 2000-01 ASSESSEE HAD INTEREST FREE FUNDS OF RS.3 3,00,000 & IN AY 2001-02 , ASSESSEE RS.2,23,51,600 . IN THE LIGHT OF THESE UND ISPUTED FINDINGS OF FACTS RECORDED BY THE LD. CIT(A) AFTER OBTAINING REMAND R EPORTS FROM THE AO, ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED ANY MATERIAL BEFOR E US ANY MATERIAL FOR TAKING A DIFFERENT VIEW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A).THEREFORE, GROUND NO. III IN THE APPEALS OF THESE THREE ASSESSMENT YEARS IS DISMISSED. 19. GROUNDS NOS. 3 & 4 IN THE APPEAL FOR THE AY 2 003-04 & GROUND NOS. IV & V IN THE APPEALS FOR THE AY 2000-01, 2001-02 AND 20 05-06, BEING GENERAL IN NATURE, DO NOT REQUIRE ANY SEPARATE ADJUDICATION WH ILE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF RESIDUARY GROUND NO. VI IN THE APPEALS FOR THESE THREE ASSESSMENT YEARS, ALL THESE GROUNDS ARE DISMI SSED. 20. IN THE RESULT, APPEAL FOR THE AY 2003-04 IS DIS MISSED WHILE FOR THE AYS 2000-01,2001-02 & 2005-06 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER, 2009 SD/- SD/- (H. L. KARWA) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 18TH SEPTEMBER, 2009 ITA NO. 289/AHD/2007 AND ITA NOS. 3139,3140 & 3141/AHD/2008 M/S. T. J. AGRO FERTILIZERS PVT. LTD. 23 LAKSHMIKANT/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE 2. THE JCIT NAVSARI RANGE,NAVSARI 3. CIT(A)-VALSAD 4. THE CIT CONCERNED 5. THE D.R. ITAT, AHMEDABAD, 6. GUARD FILE BY ORDER DR/AR,ITAT,AHMEDAB AD