The ACIT, Baroda Circle- 4, Baroda V. Tyco Valves & Controls (India) Pvt. Ltd., Baroda

ITA 2981/AHD/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63042 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 22-08-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 21-08-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gift; Business income; Principle of natural justice; Assessment record
• Section: 80HHC; 10B; 148

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , ! '#, $% $ & BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER APPEAL(S) / CO BY SL. NO(S). ITA NO(S) / CO NO ASSESSMENT YEAR(S) APPELLANT (S) RESPONDENT(S) 1. 2981/AHD/08 2003-04 DY.CIT CIR-4 BARODA M/S.TYCO VALVES & CONTROL INDIA PVT.LTD. 302 A, IVORY TERRACE R.C.DUTT ROAD ALKAPURI, BARODA PAN : AAACK 8809L 2. 322/AHD/2009 2004-05 REVENUE ASSESSEE 3. CO 44/AHD/2009 (IN ITA NO.322/AHD/09) 2004-05 ASSESSEE REVENUE REVENUE BY : SHRI D.P.GUPTA, CIT-D.R. WIT H SHRI P.ORAM SR.D.R. ASSESSEE BY : SHRI J.P.SHAH, A.R. !' ( % / / / / DATE OF HEARING : 23/08/2012 *+, ( % / DATE OF PRONOUNCEMENT : 2/11/12 $- / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : [A] REVENUES APPEAL, ITA NO.2981/AHD/2008 FOR A.Y. 200 3-04 BEFORE WE DEAL WITH THE LEGAL ISSUE IN QUESTION, I T IS PERTINENT TO MENTION THAT FOR A.Y. 2003-04 EARLIER AN ORDER HAS BEEN PASSED BY ITAT ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 2 - D BENCH AHMEDABAD DATED 4.2.2011 AND THIS APPEAL OF THE REVENUE, I.E. ITA 2981/AHD/2008 WAS PARTLY ALLOWED FOR STATI STICAL PURPOSES. WE HAVE NOTED THAT THE IMPUGNED GROUND NO.2 WAS REPROD UCED BY THE TRIBUNAL AND IT WAS ADJUDICATED VIDE PARA 7 TO 10 A ND THEREUPON HELD THAT THE MATTER REQUIRES RECONSIDERATION AT THE STAGE OF THE AO. THERE WERE ALLEGED TO BE CERTAIN FACTUAL ERROR FROM THE SIDE O F THE ASSESSEE, YET TO BE EXAMINED, THEREFORE, THE MATTER WAS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. QUESTIONING THE SETTING ASIDE A MISCELLANEOUS PETITION WAS MOVED AND THAT PETITION WAS ALLOWED BY ITAT D BENCH AHMEDABAD IN MA NO.182/AHD/2011 (ITA NO.2981/AHD/20 08 A.Y. 2003-04) VIDE ORDER DATED 2.3.2012 AND GROUND NO.2 WAS DIRECTED TO BE DECIDED AFRESH. SINCE THE SAID EARLIER ORDER OF TH E TRIBUNAL DATED 4.2.2011 HAS BEEN RECALLED FOR THE LIMITED PURPOSE TO ADJUDICATE UPON GROUND NO.2, HENCE THIS ORDER. 2. GROUND NO.2 IS REPRODUCED BELOW:- THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN ALL OWING DEDUCTION U/S.10B OBSERVING THAT THE ACTIVITIES CAR RIED ON BY THE ASSESSEE WERE MANUFACTURING OVERLOOKING THE FACT TH AT IT WAS POLISHING THE VALVES WHICH IS IN CONTRADICTION TO A PEX COURTS RATIO LAID DOWN IN CIT VS. N.C.BUDHIRAJA (1993) 204 ITR 4 12 (SC). 2. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN ALLOWING DEDUCTION U/S.10B OBSERVING THAT THE ASSESSEE HAD P URCHASED THE MACHINERIES, COMPLETELY DISREGARDING THE FACT THAT THE ASSESSEE HAD EMPLOYED USED MACHINERY VALUE OF WHICH EXCEEDED 20% OF THE TOTAL VALUE OF THE MACHINERY EMPLOYED BY THE ASSESS EE: ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 3 - 2.1. THE A.O. IN THE IMPUGNED ASSESSMENT ORDER PASS ED U/S.143(3) DATED 30.3.2006 HAS MADE AN OBSERVATION THAT THE AS SESSEE HAD CLAIMED AN EXEMPTION U/S.10B OF THE ACT OF RS.2,79,90,231/- IN RESPECT OF CHENNAI UNIT. THE SAID CLAIM OF EXEMPTION WAS LATE R ON REVISED AT RS.2,53,24,882/-. THE AO HAS DISALLOWED THE CLAIM U/S.10B BY ASSIGNING A REASON THAT THE CHENNAI UNIT HAD MORE THAN 20% OF THE VALUE OF THE PLANT AND MACHINERY CONSISTING OLD MACHINERY USED E ARLIER FOR THE PRODUCTION PURPOSES. THE MAIN OBJECTION OF THE A O WAS THAT SECTION 10B REQUIRES THAT THE INDUSTRIAL UNIT SHOULD NOT BE FORMED BY THE TRANSFER OF PREVIOUSLY USED MACHINERY. AN ANOTHER FACT HA S ALSO BEEN NOTED THAT THE ORIGINAL COST OF THE PLANT & MACHINERY OF CHENN AI UNIT AS PER THE BALANCE-SHEET DRAWN AS ON 01/04/2002 WAS AT RS.8,23 ,63,972/-. IN A SHOW-CAUSE NOTICE ISSUED BY THE AO, HE HAS ACKNOWLE DGED THE FACT THAT THE ASSESSEE HAD CLAIMED THAT DURING THE F.Y. 2001- 02, THE ASSESSEE HAD TAKEN PLANT & MACHINERY ON LEASE FOR CHENNAI UNIT F ROM SAKHI RAIMONDI VALVES (INDIA) LTD. IT WAS AN ASSOCIATE CONCERN OF THE ASSESSEE COVERED U/S.40A(2)(B) OF IT ACT. THE AO HAS ALSO ACKNOWLEDGED THAT THE CHENNAI UNIT WAS SET UP IN F.Y. 1998-99 AND MOS T OF THE MACHINERY WERE PURCHASED IN THE YEAR 1996. ACCORDING TO HI M, BOTH THOSE MACHINERIES WERE ACQUIRED DURING THAT PERIOD. AT THAT JUNCTURE, THE AO HAS ALSO NOTED THAT WHILE FINALIZING THE ASSESSMENT OF M/S.SAKHI RAIMONDI IT WAS INFORMED THAT THE SAID ASSESSEE HAD TRANSFERRED THE MACHINERY TO THE ASSESSEES CHENNAI UNIT, THEREFORE IT WAS NOT ON LEASE BASIS BUT IT WAS AN OUTRIGHT PURCHASE. HE HAS TH EREFORE PROPOSED TO DISALLOW THE EXEMPTION U/S.10B ON THE GROUND THAT O N THE DATE OF TRANSFER, ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 4 - I.E. IN THE YEAR 1998 THE MACHINERY WAS TRANSFERRED FOR A SUM OF RS.4,03,13,086/- WHICH WAS IN EXCESS OF THE REQUIRE D PERCENTAGE OF 20% AS PER EXPLANATION-2 OF SECTION 10B OF THE ACT. H E HAS CONCLUDED THAT A SECONDARY MACHINERY WAS USED DUE TO WHICH THE EXEMP TION CLAIMED IN RESPECT OF THE PROFITS OF CHENNAI UNIT AND CONSEQUE NT THEREUPON EXEMPTION U/S.10B OF RS.2,79,90,231/- WAS REJECTED. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. LD.CIT(A) HAS FIRST OF ALL CORRECTED THE FIGURE AND NOTED THAT THE AO HAD DENIED THE CLAIM OF DEDUCTION U/S.10B OF RS. 2,53,24,882/-. IT WAS NOTED BY LD.CIT(A) THAT THE ASSESSEE IS A MANUF ACTURER OF VARIOUS TYPES CASTINGS, GATE-WALLS AND FLOW CONTROL DEVICES . THE ASSESSEE HAS A PLANT AT CHENNAI AND THAT UNIT IS REGISTERED AS 100 % EOU, THUS COVERED FOR DEDUCTION U/S.10B OF IT ACT IN RESPECT OF THE P ROFITS OF THE SAID UNIT. AT THIS JUNCTURE, LD.CIT(A) HAS NOTED THAT THE SAID CLAIM WAS ALLOWED TO THE ASSESSEE IN THE PAST AND THE YEAR UNDER CONSIDE RATION WAS FOUND TO BE THE 5 TH YEAR OF THE CLAIM. AN ANOTHER FACT HAS ALSO B EEN BROUGHT TO THE NOTICE OF LD.CIT(A) THAT IN THE CASE OF THE ASSESSE E IN THE PAST THE MATTER HAD GONE UPTO HONBLE GUJARAT HIGH COURT AND IN A SPECIAL CIVIL APPLICATION NOS. 29650 & 29651 OF 2007 VIDE AN ORDE R DATED 11.4.2008 AN ISSUE WAS RAKED-UP THAT THE ASSESSEE ALTHOUGH A MANUFACTURING CONCERN AND ELIGIBLE FOR DEDUCTION U/ S.10B WHICH WAS ALLOWED U/S.143(3) BUT VIDE A NOTICE U/S.148 FOR A. YS. 2000-01, 2001-02 & 2002-03, IT WAS REOPENED FOR THE DENIAL OF THE SA ID CLAIM. THE HONBLE COURT HAS OPINED THAT FOR A.Y. 2001-02, THE DEDUCTION WAS ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 5 - ALREADY ALLOWED AND IT WAS FOUND ELIGIBLE FOR CLAIM U/S.10B OF IT ACT AND SINCE THERE WAS NO NEW MATERIAL, THEREFORE REOPENIN G AFTER THE FOUR YEARS WAS NOT JUSTIFIABLE. THE ARGUMENT OF THE ASSESSEE WAS, THEREFORE, THAT THE ACTIVITY OF THE ASSESSEE WAS APPROVED BY THE HONB LE HIGH COURT AND ONCE THE CLAIM WAS ALLOWED IN THE PAST, THEN FOR SU BSEQUENT YEAR THE CLAIM SHOULD NOT BE DENIED. THE LD.CIT(A) HAS AC CEPTED THAT LEGAL POSITION AND VIDE PARA 3.3.1 CONCLUDED AS UNDER:- 3.3.1 IN VIEW OF THE CLEAR FINDING OF THE JURISDI CTIONAL HIGH COURT IN APPELLANTS OWN CASE, THERE IS NO SCOPE FO R DOUBT ON THIS ACCOUNT. ACCORDINGLY, IT IS HELD THAT THE A.O. WAS NOT JUSTIFIED IN DENYING THE CLAIM OF DEDUCTION U/S.10B ON THE GROUN D THAT THE ASSESSEE WAS NOT ENGAGED IN THE MANUFACTURE OF AN A RTICLE OR THING. WITH REGARD TO THE ALTERNATE ARGUMENT THAT THE VALUE OF USED MACHINES EXCEEDED 20% OF THE TOTAL VALUE, IT IS INT ERESTING TO NOTE THAT THE APPELLANT HAS SHOWN PAYMENT OF LEASE RENTA L IN RESPECT OF PLANT AND MACHINERY LEASED FROM M/S.SAKHI RAIMONDI VALVES (INDIA) LTD. THE A.O HAS CONCLUDED THAT THE LEASE WAS NOT IN FACT A LEASE BUT A CASE OF OUTRIGHT PURCHASE OF THE MACHIN ES, BASED ON THE FINDINGS OF THE A.O OF SAKHI RAIMONDI TO THE EFFECT THAT THE TRANSACTIONS INVOLVING THE IMPUGNED PLANT AND MACHI NERY CONSTITUTED OUTRIGHT SALES AND NOT A LEASING OPERAT ION. IN THE CASE OF THE PRESENT APPELLANT THERE IS NO FINDING TO SHO W THAT THE LEASE TRANSACTIONS WERE SHAM AND MERELY A COVER TO CAMOUF LAGE THE OUTRIGHT PURCHASE OF THE MACHINERY. THIS INFERENCE HAS BEEN DRAWN ONLY BY REFERENCE TO THE ORDER OF THE ACIT, C IRCLE-10(2), MUMBAI, I.E. THE A.O. OF SAKHI RAIMONDI. THIS ISSU E HAS BEEN DECIDED BY THE LD.CIT(A) IN SAKHIS CASE VIDE ORDER DATED 17-6- 2008. THE LD.CIT(A), IN APPEAL NO.CIT(A)-VI/ACIT.1 0(2)/TRS. 29/07-08 FOR A.Y. 2003-04, HAS HELD THAT THE CONCLU SION REACHED BY THE A.O. THAT THE TRANSACTION RELATING TO THE MACHI NERY CONSTITUTED OUTRIGHT SALE IS NOT EVIDENT FROM THE RECORDS. THE RECEIPT OF SHARE APPLICATION MONEY FROM A GROUP COMPANY OF THE PRESE NT APPELLANT CANNOT BE EQUATED TO RECEIPT OF SALES CONSIDERATION . IT WAS HELD THAT THE RECEIPT BY SAKHI RAIMONDI WAS LEASE RENTAL ONLY AND NOT ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 6 - SALES CONSIDERATION IN RESPECT OF PLANT AND MACHINE RY. WHEN THE FINDINGS OF THE A.O. IN THE CASE OF SAKHI RAIMONDI HAS BEEN OVERTURNED BY THE LD.CIT(A), THE CONSEQUENTIAL ADDI TION MADE IN THE CASE OF THE PRESENT APPELLANT CANNOT SURVIVE. THE A.O. IN THIS CASE HAS BASED THE ADDITION ON THE TREATMENT ACCORD ED TO THE IMPUGNED TRANSACTION BY THE A.O. OF SAKHI RAIMONDI AS A TRANSACTION OF SALE AND PURCHASE. SINCE THE VERY B ASIS OF THE ADDITION HAS BEEN OVERTURNED, IT IS HELD THAT THE A .O. WAS NOT JUSTIFIED IN TREATING THE LEASE TRANSACTION AS OUTR IGHT PURCHASE. HENCE, THE A.O. IS DIRECTED TO ALLOW THE CLAIM AMOU NTING TO RS.2,53,24,882/- U/S.10B. 4. BEING AGGRIEVED, THE REVENUE IS BEFORE US AND LD .CIT-DR MR.D.P.GUPTA APPEARED AND VEHEMENTLY SUPPORTED THE VIEW TAKEN BY THE AO. HE HAS ARGUED THAT THE REASON FOR DENIAL FOR T HE YEAR UNDER CONSIDERATION WAS THAT THE TRANSACTION IN RESPECT O F THE SAID MACHINERY HAD TAKEN PLACE IN THE YEAR UNDER CONSIDERATION. T HE ASSESSEE HAS KEPT ON CHANGING ITS STAND. IT WAS INITIALLY INFORMED T HAT THE MACHINERY WAS PURCHASED BUT LATER ON DURING APPELLATE PROCEEDINGS THE STAND OF THE ASSESSEE WAS THAT THE MACHINERY WAS TAKEN ON LEASE. ACCORDING TO HIM, A LEASE AGREEMENT WAS PLACED BEFORE LD.CIT(A), HOWE VER THAT WAS NOT BEFORE THE AO, THEREFORE IN THE INTEREST OF NATURAL JUSTICE THE MATTER DESERVES TO BE RESTORED BACK TO THE FILE OF THE AO. AT THIS JUNCTURE, HE HAS PLACED RELIANCE ON THE EARLIER FINDING OF THE T RIBUNAL GIVEN VIDE PARA- 10 OF THE IT ACT THROUGH WHICH IT WAS OBSERVED THAT THE LEASE AGREEMENT WAS REQUIRED TO BE EXAMINED WHETHER IT WAS EQUIVALE NT TO AN OUTRIGHT SALE OR NOT AND ALSO TO TAKE INTO ACCOUNT THE DECISION O F THE TRIBUNAL TO BE PRONOUNCED IN THE CASE OF M/S.SAKHI RIAMONDI. ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 7 - 5. FROM THE SIDE OF THE RESPONDENT-ASSESSEE, LD.AR MR.J.P.SHAH APPEARED AND AT THE OUTSET, PLACED RELIANCE ON AN O RDER OF HONBLE GUJARAT HIGH COURT PRONOUNCED IN THE CASE OF SAURAS HTRA CEMENT & CHEMICAL INDUSTRIES 123 ITR 669 (GUJ.). HE HAS ALS O PLACED RELIANCE ON TATA COMMUNICATIONS INTERNET SERVICES 130 TTJ 509 ( DEL.) AND BAJAJ TEMPO LTD. 196 ITR 188 (SC). HIS MAIN PLANK OF ARG UMENT WAS THAT SUCH A DEDUCTION COULD NOT BE DENIED IN THE SUCCEED ING YEAR WITHOUT DISTURBING RELIEF GRANTED FOR THE INITIAL YEAR. U SING HIS ELOQUENCE; MR.SHAH HAS ALSO ARGUED THAT IT WAS NOT ALL AN OUTR IGHT PURCHASE BUT PURELY A LEASE TRANSACTION AS IS EVIDENT FROM THE L EASE AGREEMENT WHICH WAS DULY ESTABLISHED BEFORE THE REVENUE AUTHORITIES . RATHER IN THE CASE OF M/S.SAKHI RAIMONDI, FROM WHOM IT WAS ALLEGED THA T THE MACHINERY WAS PURCHASED, WHILE DECIDING THE FIRST APPEAL FOR A.Y. 2003-04, LD.CIT(A)-VI, MUMBAI VIDE AN ORDER DATED 17.6.2008 HAS HELD THAT ALTHOUGH AO HAD TREATED THE LEASE TRANSACTION OF TH E MACHINERY AS OUTRIGHT SALES BUT THAT WAS NOT EVIDENT FROM THE RE CORD. THERE WAS NO QUESTION OF ANY CAPITAL GAIN AS WELL, QUOTED BY LD. CIT(A). LD. AR HAS DRAWN OUR ATTENTION PARA 3.6 OF THE SAID ORDER, WHE REIN IT WAS CONCLUDED THAT THE LEASE RENTALS RECEIVED BY M/S.SAKHI RAIMON DI WAS IN FACT LEASE RENTALS AND NOT OUTRIGHT SALE. LD.AR HAS THEN INF ORMED THAT THE SAID DECISION OF LD.CIT(A) WAS CONTESTED BY THE REVENUE AND ITAT E BENCH MUMBAI IN ITA NO.5479/MUM./2008 FOR A.Y. 2003 -04 ORDER DATED 23.03.2010 HAS CONTESTED OTHER ISSUES BUT NOT CONTESTED THE AFORESAID FINDING OF LEASE RENTAL OF LD.CIT(A). MR .SHAH HAS THEN PLEADED THAT AN INFERENCE CAN BE DRAWN THAT THE FAC T OF EARNING OF LEASE ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 8 - RENTAL WAS THUS ACCEPTED BY THE REVENUE DEPARTMENT BEING NOT CHALLENGED BEFORE THE TRIBUNAL. 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. W E HAVE ALSO PERUSED THE ORDERS REFERRED BEFORE US. BEFORE WE APPRECIATE THE FACTS OF THE CASE, WE MAY LIKE TO PLACE ON RECORD THE SCOPE OF THE INTRODUCTION OF SECTION 10B IN THE STATUTE. UNDER THE PROVISIONS OF SECTION 10A OF THE INCOME-TAX ACT, A FIVE YEAR TAX HOLIDAY IS ALLOWED TO INDUSTRIAL UNDERTAKINGS MANUFACTURING OR PRODUCING ARTICLES OR THINGS IN A FREE TRADE ZONE SUBJECT TO CERTAIN CONDITIONS. THE EXEMPTION IS AVAILABLE TO INDUSTRIAL UNDERTAKINGS WHICH HAVE BEGUN OR BEGIN T O MANUFACTURE OR PRODUCE ARTICLES OR THINGS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER APRIL 1, 198 1. THE TAX HOLIDAY IS AT THE OPTION OF THE ASSESSEE FOR FIVE CONSECUTI VE ASSESSMENT YEARS FALLING WITHIN THE BLOCK OF EIGHT YEARS BEGINNING W ITHIN THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE IND USTRIAL UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS . THE TERM MANUFACTURE INCLUDES PROCESSING OR ASSEMBLING OR RECORDING OF PROGRAMMES ON ANY DISC, TAPE, PERFORATED MEDIA OR O THER INFORMATION STORAGE DEVICE. THE ABOVE TAX HOLIDAY WAS NOT AV AILABLE TO A HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING. SUCH UNDERTA KINGS WERE ELIGIBLE ONLY FOR DEDUCTION OUT OF THEIR EXPORT PROFITS UNDE R SECTION 80HHC OF THE INCOME-TAX WITH A VIEW TO PROVIDING FURTHER INCEN TIVE FOR EARNING FOREIGN EXCHANGE, A NEW SECTION 10B HAS BEEN INSERT ED BY THE ACT, SO AS TO SECURE THAT THE INCOME OF A HUNDRED PER CENT, EX PORT-ORIENTED ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 9 - UNDERTAKING SHALL BE EXEMPT FROM TAX FOR A PERIOD O F FIVE CONSECUTIVE ASSESSMENT YEAR FALLING WITHIN THE BLOCK OF EIGHT A SSESSMENT YEARS. THE EXEMPTION PROVIDED UNDER THE NEW SECTION IS SIMILAR TO THE ONE PROVIDED TO INDUSTRIAL UNDERTAKINGS OPERATING IN FREE TRADE ZONES. THE EXEMPTION UNDER THE NEW PROVISIONS WILL BE SUBJECT TO THE FOL LOWING CONDITIONS:- (I) THAT THE UNIT MANUFACTURES OR PRODUCES ANY ARTICLES OR THINGS. THE TERM MANUFACTURE WILL INCLUDE ANY PR OCESSING OR ASSEMBLING OR RECORDING OF PROGRAMMES ON DISC, T APE, PERFORATED, MEDIA OR OTHER INFORMATION STORAGE DEVI CE; (II) THAT THE UNIT HAS NOT BEEN FORMED BY THE SPLITTING UP OR RECONSTRUCTION OF AN EXISTING BUSINESS; (III) THAT IT HAS NOT BEEN FORMED BY THE TRANSFER TO A NE W BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPO SE. UNLIKE THE PROVISIONS OF SECTION 10A OF THE INCOME- TAX ACT, EVEN THE EXISTING HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKI NGS WILL BE ELIGIBLE TO AVAIL OF THE TAX HOLIDAY FOR A FULL PERIOD OF FIVE ASSESSMENT YEARS IN A BLOCK OF EIGHT YEARS. THEREFORE, THE START POINT OF THE LIMITATION FOR C LAIMING THE BENEFIT FLOWING FROM SECTION 10B WOULD COMMENCE FROM THE YE AR OF MANUFACTURE OR PRODUCTION OF THE UNDERTAKING. IF T HE CONDITIONS PRESCRIBED IN THE SECTION ARE NOT SATISFIED IN THE YEAR OF COMMENCEMENT OF PRODUCTION, IT WOULD NOT BE ABLE TO CLAIM SUCH D EDUCTION IN THE SUBSEQUENT YEARS, UNLESS THE SAID INITIAL TEST ON T HE DATE OF THE STARTING POINT HAS BEEN SATISFIED. SECTION 10B THEREFORE D O NOT GIVE ANY INDICATION THAT IN EACH YEAR OF CLAIM ITS ELIGIBI LITY SHOULD BE NEWLY ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 10 - ESTABLISHED; BECAUSE THE RELEVANCE OF THE PHRASE N EWLY ESTABLISHED UNDERTAKING IS ONLY TO IDENTIFY INITIAL YEAR OF PE RIOD FOR WHICH ASSESSEE IS ELIGIBLE FOR CLAIM OF EXEMPTION U/S.10B OF IT AC T. THEREFORE, AT THE OUTSET, IT IS JUSTIFIABLE TO CONCENTRATE ON THE FAC T THAT WHETHER THE CHENNAI UNIT WAS ESTABLISHED IN THE YEAR UNDER CONSIDERATIO N OR NOT. ON EXAMINATION OF THE FACTS RECORDED BY THE AO, IT WAS NOTICED THAT THE CHENNAI UNIT WAS ESTABLISHED/ACQUIRED IN THE YEAR 2 000-01. THIS FACT WAS RATHER NOTED BY THE HONBLE GUJARAT HIGH COURT IN THE AFORECITED DECISION DATED 11.4.2008 AND MADE AN OBSERVATION TH AT THE YEAR 2001-02 WAS FOUND TO BE THE FIRST YEAR OF THE CLAIM OF DEDU CTION U/S.10B OF IT ACT. DUE TO THIS REASON, RELIANCE CAN BE PLACED ON SAURA SHTRA CEMENT & CHEMICAL INDUSTRIES 123 ITR 669 (GUJ.) AND THUS WE HOLD THAT IN THE ABSENCE OF ANY DISTURBANCE IN RESPECT OF RELIEF GRA NTED IN INITIAL YEAR, THERE WAS NO LEGAL JUSTIFICATION TO DISTURB THE CON TINUOUS DEDUCTION OF SECTION 10B IN ANY OF THE SUBSEQUENT ASSESSMENT YEA R. THE FIRST YEAR IS THE YEAR IN WHICH THE INQUIRY ABOUT THE FORMATION O F THE UNDERTAKING IS REQUIRED TO BE MADE BY THE AO. ALTHOUGH IT IS POS SIBLE, AS IN THE PRESENT CASE, THAT IN ANY OF THE SUBSEQUENT YEARS THE ASSES SEE HAD ACQUIRED NEW PLANT & MACHINERY, MAY BE OF SUBSTANTIAL VALUE, AS ALSO MAY BE INCREASE THE TURNOVER OR EFFICIENCY, NONETHELESS THE ACT SUB SCRIBES THAT THE UNDERTAKING MUST NOT BE FORMED BY THE SPLITTING UP OR THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. THE ACT ALSO SUBSCRIBES THAT THE PROFITS SHALL NOT TO BE INCLUDED IN THE TOTAL INCOM E IN RESPECT OF THE PRESCRIBED CONSECUTIVE ASSESSMENT YEARS BEGINNING W ITH THE ASSESSMENT YEARS UNDERTAKING BEGINS TO MANUFACTURE AN ARTICLE. THEREFORE, THE INITIAL ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 11 - YEAR IS THE YEAR TO ESTABLISH THE ELIGIBILITY OF TH E CLAIM. EVEN THE AHMEDABAD BENCHES ARE ALSO CONSISTENTLY SUBSCRIBING THIS VIEW AS HELD IN THE CASE OF GATEWAY TECHNOLABS PVT.LTD., ITAT C BENCH AHMEDABAD (IN ITA NO.2473 & 2519/AHD/2006 AY 2003 -04) ORDER DATED 4.9.2009. 6.1. AS FAR AS THE QUESTION OF ALLEGED PURCHASE OF THE MACHINERY IN QUESTION IS CONCERNED, THERE ARE FEW FACTS WHICH IN DICATE THAT THE AO HAS WRONGLY HELD THAT IT WAS AN OUTRIGHT PURCHASE BY TH E CHENNAI UNIT. IN THIS REGARD, THE FIRST APPELLATE AUTHORITY HAS GIVE N A FINDING OF FACT THAT IT WAS NOT EVIDENT FROM THE RECORDS THAT THE TRANSACTI ON RELATING TO THE MACHINERY CONSTITUTED OUTRIGHT SALE. LIKEWISE, AS ALSO SIMULTANEOUSLY IN THE CASE OF M/S.SAKHI RAIMONDI THE FIRST APPELLATE AUTHORITY HAS GIVEN A CLEAR-CUT FINDING THAT LEASE-RENTALS WERE RECEIVED, RELEVANT ORDER OF LD.CIT(A) HAS ALREADY BEEN REFERRED SUPRA. BECAUS E OF THESE FACTS AND OTHER EVIDENCES, SUCH AS THE AGREEMENT, ETC. WE HER EBY HOLD THAT THE AO HAS WRONGLY PRESUMED THAT THE TRANSACTION IN QUESTI ON WAS A PURCHASE OF MACHINERY BY CHENNAI UNIT. BECAUSE OF THIS FINDIN G ON FACTS A CONCLUSION CAN BE DRAWN THAT THE REJECTION OF DEDUC TION U/S.10B WAS BAD IN LAW. 6.2. AN ALTERNATE PLEA HAS ALSO BEEN RAISED BY LD.A R THAT THE MACHINERY WHICH WAS TAKEN ON HIRE HAD COSTED LESS THAN THE 20 % OF THE TOTAL VALUE OF THE MACHINERY, THEREFORE THE IMPUGNED RESTRICTIV E CLAUSE OF SECTION 10(B) WAS OTHERWISE INCORRECTLY INVOKED BY THE AO. FOR THIS ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 12 - PROPOSITION CASE LAWS CITED WAS CIT VS. NAYYARS MIN ERALS EXPORTS PVT.LTD. 231 ITR 864 (H.P.). A CALCULATION IN THI S REGARD HAS ALSO BEEN FURNISHED; HOWEVER, AT THIS STAGE OF SECOND APPEAL NO VERIFICATION ABOUT THE CORRECTNESS OF THE SAID CALCULATION IS POSSIBLE . LET IT BE AS IT IS; NOTWITHSTANDING THIS ALTERNATE PLEA DO NOT SURVIVE ANYMORE BECAUSE WE HAVE ALREADY TAKEN A VIEW IN ASSESSEES FAVOUR AS D ISCUSSED IN ABOVE PARAS. IN THE RESULT, WE HEREBY CONFIRM THE FIND INGS OF LD.CIT(A), THEREFORE THE CLAIM OF DEDUCTION U/S.10B IS DIRECTE D TO BE ALLOWED. 7. IN THE RESULT, GROUND NO.2 WHICH WAS RECALLED FO R READJUDICATION IS HEREBY DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE, HOWEVER THE FINAL OUTCOME OF THE ORDER AS ALREADY H ELD BY THE ITAT D BENCH AHMEDABAD IN RESPECT OF ITA NO.2981/AHD/2008 VIDE ORDER DATED 4.2.2011 SHALL STAND AS IT WAS, HENCE REVENUE S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. [B] REVENUES APPEAL, ITA NO.322/AHD/2009 FOR A.Y. 2004-05 8. THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE RE VENUE IN ITS APPEAL:- 1. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN ALLOWING DEDUCTION U/S.10B OBSERVING THAT THE ACTIVITIES CAR RIED ON BY THE ASSESSEE WERE MANUFACTURING OVERLOOKING THE FACT TH AT IT WAS POLISHING THE VALVES WHICH IS IN CONTRADICTION TO A PEX COURTS RATIO LAID DOWN IN CIT VS N.C. BUDHIRAJA (1993) 204 ITYR 412 (SC). ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 13 - 2 THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN ALLOWING DEDUCTION U/S.10B OBSERVING THAT THE ASSESSEE HAD P URCHASED THE MACHINERIES, COMPLETELY DISREGARDING THE FACT THAT THE ASSESSEE HAD EMPLOYED USED MACHINERY VALUE OF WHICH EXCEEDED 20% OF THE TOTAL VALUE OF THE MACHINERY EMPLOYED BY THE ASSESS EE. 3. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN HOLDING THAT INTEREST INCOME OF RS.1,30,66,020/- WAS NOT TO BE I NCLUDED IN THE TOTAL TURN OVER FOR THE PURPOSE OF COMPUTATION OF D EDUCTION U/S.80HHC OF THE ACT. 4. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON OF COMMISSION OF RS.15,08,500/- BY ADMITTING FRESH EVI DENCE IN CONTRAVENTION TO RULE 46A, THOUGH THE ASSESSEE COUL D TO SUBSTANTIATE ITS CLAIM BEFORE THE ASSESSING OFFICER TO PROVE THE LEGITIMACY OF THE EXPENDITURE. 8.1. GROUND NOS.1 & 2 ARE IN RESPECT OF DISALLOWANC E OF DEDUCTION U/S.10B OF THE IT ACT. REGARDING SR.NO.1 NOW THE R EVENUE IS AGITATING THE MANUFACTURING PROCESS AS WELL BY CONTENDING THA T POLISHING OF VALVES MAY NOT TANTAMOUNT TO MANUFACTURING ACTIVIT Y. IN THIS REGARD, WE ARE GOVERNED BY THE FINDINGS OF THE HONBLE JURISD ICTIONAL HIGH COURT PRONOUNCED IN ASSESSEES OWN CASE CITED SUPRA ORDER DATED 11.4.2008; WHEREIN IT IS HELD AS UNDER:- AT PAGE 6 OF THE PETITION, THE PETITIONER HAS SHOW N VARIOUS MANUFACTURING STEPS WHICH THE RAW CASTINGS HAVE TO UNDERGO [VIZ.TURNING, BORING, MILLING, RADIAL DRILLINGS AND BORING, DE- BURNING, ETC.]. HE PURCHASED RAW VALVES AND THEREA FTER PUT THEM UNDER THE AFORESAID PROCESS. THEREFORE, AFTER PROC ESSING THAT RAW VALVES, THAT BECOMES ALTOGETHER A NEW PRODUCT, WHIC H IS DISTINCT FROM RAW CASTING AND IS COMMERCIALLY MARKETABLE, AN D THAT COMES UNDER THE MANUFACTURING ACTIVITY. MR.SHAH PLACED R ELIANCE ON THE ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 14 - DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CI T V/S. PERFECT LINERS [1983] 142 ITR 654. FOLLOWING ITS EARLIER DECISION I.E. CIT V. M.R. GOPAL [1965] 58 ITR 598, THE MADRAS H IGH COURT HAS TAKEN THE VIEW THAT THE WORD MANUFACTURE HAS TO BE UNDERSTOOD IN A WIDE SENSE. AFTER THE ROUGH CASTIN G WAS POLISHED, THE PRODUCT WAS A NEW PRODUCT WHICH WAS UTILIZED AS A COMPONENT IN INTERNAL COMBUSTION ENGINES. IT IS TO BE SEEN W HETHER AFTER SOME PROCESSES UNDER WHICH THE RAW GOODS HAVE UNDERGONE, THE TYPE IS DIFFERENT FROM THE ORIGINAL GOODS WHICH WERE PUT UN DER THE PROCESS. HERE, CONSIDERING THE PROCESSES OF THE RA W VALVES FOR FINAL USE, WHEN THE DIFFERENT PRODUCT HAS COME OUT, THEN IT CANNOT BE SAID THAT IT IS THE SAME GOODS, AS THE RAW GOODS COULD NOT BE USED WITHOUT THE PROCESSES UNDER WHICH THE GOODS OF THE ASSESSEE HAVE GONE. THEREFORE, ONCE IT WAS ALLOWED AFTER SE EING ALL THESE FACTS AND WHEN THERE WAS NO CONCEALMENT OF FACTS FO R DEDUCTION UNDER SECTION 10B OF THE ACT, WE SEE NO JUSTIFICATI ON IN ISSUING NOTICES UNDER SECTION 148 FOR REOPENING OF THE ASSE SSMENT. THIS ENTIRE ISSUE HAS ALREADY BEEN DEALT WITH BY US IN REVENUES APPEAL FOR A.Y. 2003-04(SUPRA). THEREFORE, ON IDE NTICAL FACTS BOTH THE GROUNDS OF THE REVENUE FOR THIS YEAR AS WELL ARE HE REBY DISMISSED. 9. APROPOS TO GROUND NO.3, IT WAS NOTED THAT THE AO HAD INCLUDED CERTAIN AMOUNT IN THE TOTAL TURNOVER WHILE COMPUTIN G THE DEDUCTION U/S.80HHC OF IT ACT. DUE TO THIS INCREASE IN THE TOTAL TURNOVER, I.E. DENOMINATOR, THE RESULTANT FIGURE OF DEDUCTION U/S. 80HHC GOT REDUCED. ONE OF THE ITEM WHICH WAS INCLUDED PERTAINED TO INT EREST ON DEPOSIT WITH BANKS AMOUNTING TO RS.1,30,66,020/-. IDENTICAL ADD ITION WAS MADE IN A.Y. 2003-04 AND WHILE DECIDING THE REVENUES APPEA L THE RESPECTED ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 15 - COORDINATE BENCH IN THE ORDER CITED SUPRA DATED 4.2 .2011 HAS HELD AS UNDER:- 15. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERE D VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A) . THE REASONS ARE THAT INTEREST ONLY CONSTITUTES INCOME AND IT CA N NEVER BE PART OR EQUIVALENT TO TURNOVER. FURTHER IT IS ASSESSABL E UNDER THE HEAD INCOME FROM OTHER SOURCES AND IN NO CASE IT WILL FO RM PART OF COMPUTATION MECHANISM AS PROVIDED UNDER SECTION 80H HC UNLESS IT IS HELD AS BUSINESS INCOME AND IF IT IS SO THEN 90% THEREOF WOULD BE REQUIRED TO BE EXCLUDED. HONBLE DELHI HIGH COU RT IN CIT VS. DELHI BRASS & METAL WORKS (2009) 313 ITR 352 (DEL) HAS HELD THAT WHEN THERE IS NO IMMEDIATE NEXUS OF INTEREST O N F.D. WITH EXPORT EVEN THEY ARE TO BE TREATED AS INCOME FROM O THER SOURCES. ACCORDINGLY LD. CIT(A) WAS JUSTIFIED IN EXCLUDING I NTEREST FROM COMPUTATION MECHANISM OF SECTION 80HHC. AS A RESUL T, THIS GROUND OF REVENUE IS REJECTED. 9.1. EVEN FOR A.Y. 2002-03 (ITAT C BENCH AHMEDABA D) WHILE DECIDING ASSESSEES APPEAL BEARING ITA NO.981/AHD/2 006 ORDER DATED 10.12.2009, IT WAS HELD THAT THE INTEREST INCOME WA S NOT TO BE CONSIDERED FOR TOTAL TURNOVER BY FOLLOWING KANTILAL CHOTALAL 2 46 ITR 439 (MUM.) AND HERO CYCLES 84 TTJ 485 (CHANDIGARH ITAT). RESP ECTFULLY FOLLOWING THE DECISIONS OF THE COORDINATE BENCHES A S ALSO THE VERDICT OF THE HONBLE COURTS, WE HEREBY AFFIRM THE FINDINGS O F THE LD.CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 10. APROPOS TO GROUND NO.4, THE ASSESSEE HAS STAT ED THAT A SUM OF RS.15,08,500/- WAS PAID TO SEVERAL PARTIES AND THE TAX THEREON WHEREVER REQUIRED HAS ALSO BEEN DEDUCTED. WE HAVE NOTED TH AT IN A CRYPTIC MANNER THE AO HAD DISALLOWED THE CLAIM. HOWEVER, WHEN TH E MATTER REACHED TO ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 16 - LD.CIT(A), IT WAS HELD THAT THE PAYMENTS WERE MADE TO INDEPENDENT UNRELATED PARTIES. IT WAS ALSO HELD THAT THE PAYME NTS WERE MADE TO PROCURE THE BUSINESS. IN SUPPORT, THE DETAILS OF T HE COMMISSION AGENTS AND THE DETAILS OF THE TDS PAYMENTS WERE ALSO PLACE D ON RECORD. ON THAT BASIS, LD.CIT(A) HAS HELD THAT THE AO HAD NOT FOUND PAYMENT OF COMMISSION AS A BOGUS PAYMENT. HE HAS ALSO COMMENT ED THAT THE AO HAD NOT EXAMINED THE COMMISSION AGENTS. A RELIEF WAS GRANTED WHICH IS NOW CHALLENGED BY THE REVENUE. NOW BEFORE US, ALL THOSE DETAILS HAVE BEEN FURNISHED RUNNING FROM PAGE NOS.92 TO 112 OF T HE PAPER-BOOK. THE ASSESSEE HAS FURNISHED STATEMENT OF SALE COMMISSION , DESCRIBING THE NAME OF THE COMMISSION AGENT AND THE SERVICES RENDE RED BY THOSE PARTIES. FOR EXAMPLE, SAI ENTERPRISES WAS PAID COMMISSION A GAINST MSEB ORDER. LIKEWISE, WIT ELECTRONICS WAS PAID FOR IFCO KANDLA ORDER. THERE IS A LONG LIST OF THOSE PARTIES GIVING THE DESCRIPTION O F DOCUMENTS, VOUCHER NUMBERS, DATE OF PAYMENT, THEIR PAN NUMBERS, AMOUNT OF INVOICES, THE RATE OF COMMISSION, ETC. THE RATE OF COMMISSION HA D VARY FROM 2.2% TO 5% AND IN FEW CASES IT HAD REACHED UPTO 16%. THE DETAILS OF THE DEBIT- NOTES AND THE COMMISSION PAID THROUGH THOSE DEBIT-N OTES HAVE ALSO BEEN ENCLOSED. WE HAVE BEEN INFORMED THAT CERTAIN BASIC INFORMATION ABOUT THE PAYMENT OF COMMISSION WAS VERY MUCH PART OF THE RECORD AS ALSO HAD BEEN ENQUIRED BY THE AUDITOR, HENCE VERY MUCH PART OF THE ASSESSMENT RECORD. SO THE ARGUMENT IS THAT IF THE AO HAD AN Y DOUBT, THEN HE COULD HAVE INVESTIGATED. WITHOUT ANY INVESTIGATION HE HA S WRONGLY DISALLOWED CLAIM. WE FIND FORCE IN THE SUBMISSIONS OF LD.AR C ONSIDERING THE SURROUNDING CIRCUMSTANCES AND THE EVIDENCES PLACED ON RECORD. WE, ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 17 - THEREFORE, CONFIRM THE FACTUAL FINDING OF LD.CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 11. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. [C] ASSESSEES CO NO.44/AHD/2009 (IN ITA NO.322/A HD/2009) THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSES SEE IN ITS CROSS OBJECTION:- TYCO VALVES & CONTROLS INDIA PRIVATE LIMITED [HEREI NAFTER REFERRED TO AS THE RESPONDENT] OBJECTS TO THE APP EAL PREFERRED BY THE DEPUTY COMMISSIONER OF INCOME TAX, BARODA CIR CLE 4 [HEREINAFTER REFERRED TO AS THE APPELLANT] AND TH E ORDER DATED NOVEMBER 27, 2008 PASSED UNDER SECTION 250 OF THE I NCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT] BY THE COMMISSIONER OF INCOME TAX (APPEALS)-III, BARODA [H EREINAFTER REFERRED TO AS (CIT (APPEALS)] FOR THE INCOME TAX A SSESSMENT YEAR 2004-05 ON THE FOLLOWING GROUNDS: I. CROSS-OBJECTION TO GROUND NO.2 OF THE APPEAL P REFERRED BY THE APPELLANT THE RESPONDENT SUBMITS THAT THE APPELLANT HAS ERRED IN RAISING THE GROUND RELATING TO USE OF SECOND HAND MACHINERY AS HE HAD NOT CALLED FOR ANY DETAILS OR EXPLANATION FROM THE RESP ONDENT IN THE COURSE OF ASSESSMENT PROCEEDINGS AND HAS NO WHERE M ENTIONED ABOUT THE SAME IN THE ASSESSMENT ORDER. HOWEVER, T HE CIT(APPEALS) HAS, AFTER CONSIDERING THIS VERY ISSUE , ALLOWED THE DEDUCTION UNDER SECTION 10 . THE RESPONDENT PRAYS THAT THE ORDER OF CIT(APPEALS) BE UPHELD IN THIS MATTER. ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 18 - II. CROSS-OBJECTION TO GROUND NO.10 OF THE CIT (APP EALS) ORDER THE RESPONDENT SUBMITS THAT THE CIT(APPEALS) HAS ER RED IN MAKING AN AD-HOC DISALLOWANCE OF RS.1,00,000 OUT OF MISCEL LANEOUS EXPENSES. THE RESPONDENT PRAYS THAT THE AD-HOC DISALLOWANCE BE DELETED. YOUR RESPONDENTS CRAVE LEAVE TO ADD, TO AMEND, TO A LTER, TO SUBSTITUTE, TO MODIFY AND / OR WITHDRAW ANY OR ALL THE ABOVE GROUNDS OF CROSS-OBJECTIONS AS THEY MAY BE ADVISED TO DO SO AT OR BEFORE THE TIME OF HEARING OF THE CROSS-OBJECTION. 12. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE HAVE NOTED THAT THE PART RELIEF WAS GRANTED BY LD.CIT(A) IN THE FOL LOWING MANNER:- 11.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE C OUNSEL AND FACTS OF THE CASE. SINCE MOST OF THESE EXPENSES AR E INCURRED ON CASH BASIS AND INCURRED FOR SNACKS, FOOD AND HOTEL EXPENSES ETC. VARIOUS GIFT ITEMS WERE ALSO PURCHASED FOR DIFFEREN T PERSONS INCLUDING GUEST. SINCE THE BUSINESS PURPOSE OF TH ESE EXPENSES CANNOT BE FULLY VERIFIABLE PART DISALLOWANCE IS JUS TIFIED. HOWEVER LOOKING TO THE QUANTUM OF EXPENSE 10% DISALLOWANCE IS ON HIGHER SIDE. I RESTRICT THE SAME TO RS.1 LAC. THE BALANC E DISALLOWANCE OF RS.5,70,800/- IS DELETED. 12.1. WE FIND NO FALLACY IN THE AFORESAID VIEW TA KEN BY LD.CIT(A), HENCE HEREBY CONFIRMED. GROUND RAISED BY THE CROSS OBJECTION IS DISMISSED. ITA NOS.2981/AH D/08 & 322/AHD/2009 (BY REVENUE) CO NO.44/AHD/09 (BY ASSESSEE) DY.CIT VS. M/S.TYCO VALVES & CONTROL INDIA P.LTD. ASST.YEARS 2003-04 & 2004-05 - 19 - 13. WE SUMMARIZE THE RESULT AS UNDER:- (A) REVENUES APPEAL, ITA NO.2981/AHD/2008 FOR A.Y. 2003-04 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE S. (B) REVENUES APPEAL, ITA NO.322/AHD/2009 FOR A .Y. 2004-05 IS DISMISSED. (C) ASSESSEES CROSS OBJECTION NO.44/AHD/2009 I S DISMISSED. SD/- SD/- ( ! '# ) ( ) $% ( ANIL CHATURVEDI ) ( MUKU L KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 2/ 11 /2012 ...!, .!../ T.C. NAIR, SR. PS $- ( 01 2$1, $- ( 01 2$1, $- ( 01 2$1, $- ( 01 2$1,/ COPY OF THE ORDER FORWARDED TO : 1. 34 / THE APPELLANT 2. 0534 / THE RESPONDENT. 3. 6 / CONCERNED CIT 4. 6() / THE CIT(A)-III, BARODA 5. 19: 0! , , / DR, ITAT, AHMEDABAD 6. : ;' / GUARD FILE. $-! $-! $-! $-! / BY ORDER, 51 0 //TRUE COPY// < <<