Smt. Seema Ranka, Baroda V. The Addl.CIT.,Range-2, Baroda

ITA 3175/AHD/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1833 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-11-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 09-09-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMEETA SAINI
• Keywords: Business income; Depreciation; Question of law; Onus to prove; Revenue expenditure; Capital expenditure; Capital Gains
• Section: 43B; 234B; 80IB; 37(1); 80HH

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI P. K. BANSAL. A.M. AND D.T.GARASIA, J.M. ITA NO.3175/AHD/2008 ASST. YEAR: 2005-06 SMT. SEEMA RANKA, ZYDEX INDUSTRIES, 25- A, GANDHI OIL MILL COMPOUND, NEAR GIDC, GORWA, BARODA. V/S . ADDL. CIT, RANGE-2, BARODA, PAN NO.ABLPR 6874 K (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI MILIN MEHTA, AR RESPONDENT BY:- SMT. AMEETA SAINI, CIT, DR O R D E R PER P. K. BANSAL, ACCOUNTANT MEMBER. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 18.06.2008 BY TAKING THE FOLLOWING GRO UNDS OF APPEAL :- 1. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN TAXING THE TRANSACTION IN SHARES/SECURITIES UNDER THE HEAD INCOME FROM BUSIN ESS OR PROFESSION INSTEAD OF INCOME FROM SHORT TERM CAPI TAL GAINS AS CLAIMED BY THE APPELLANT. 2 2. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONSIDER ING SHORT TERM CAPITAL GAINS OF RS.4064989/- ON ACCOUNT OF SA LE OF SHARES, MUTUAL FUND AND GAINS ARISING OUT OF PORTFOLIO MANA GEMENT SCHEME (PMS) AS BUSINESS INCOME INSTEAD OF SHORT TE RM CAPITAL GAINS. 3. THE LD. CIT(A) ERRED IN FACT IN LAW IN NOT DIRECTIN G THE ASSESSING OFFICER TO ALLOW SET OFF OF SHORT TERM CA PITAL LOSS OF RS.103325/- WHILE COMPUTING THE INCOME OF THE APPEL LANT. 4. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN MAKING DISALLOWANCE OF LEGAL AND PROFESSIONAL CHARGES AMOUNTING TO RS.15,61,080/- IN VOKING PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME-TAX A CT, 1961. 5. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN MAKING DISALLOWANCE OF PROVISION FOR LEAVE SALARY PAYABLE AMOUNTING TO RS.8,42,525/- U/S 43B OF THE INCOME-TAX ACT, 1961. 6. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING REPLACEMENT EXPENSES TO PLANT & MACHINERY AMOUNTING TO RS.2,37,268/- ON THE GROUND THAT THE SAME ARE OF CAPITAL NATURE. 7. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN MAKING AD-HOC DISALLOWA NCE OF TELEPHONE EXPENSES, VEHICLE EXPENSES AND DEPRECIATI ON ON VEHICLE AMOUNTING TO RS.1,10,153/- BEING 10% OF THE SAME EXPENSES ON ALLEGED GROUND OF PERSONAL USE. 8. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN MAKING AD-HOC DISALLOWA NCE OF DOMESTIC TRAVELING EXPENSE AMOUNTING TO RS.2,61,944 /- BEING 1/10 TH OF TOTAL TRAVELING EXPENSES ON THE GROUND THAT IT IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PU RPOSE. 9. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN REDUCING THE FOLLOWING AMOUNTS FROM THE PROFIT OF THE UNDERTAKING WHILE COMPUTING DEDUCTION U/S 80 IB OF THE INCOME-TAX ACT, 1961 ON THE GROUND THAT THEY DO NOT CONSTITUTE INCOME OF UNDERTAKING :- 3 PARTICULARS AMOUNTS (RS.) GROSS AMOUNT OF EXPORT INCENTIVES 34,08,736 GROSS AMOUNT OF INTEREST ON MARGIN MONEY DEPOSIT 2,16,960 TOTAL 36,25,696 10. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN REDUCING GROSS AMOUNT I NSTEAD OF NET INCOME. 11. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN CHARGING INTEREST U/S 2 34B. 12. THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE ASSESSING OFFICER IN INITIATING PENALTY PROC EEDINGS U/S 271(1)(C). 2. GROUND NO.2 HAS BEEN SUBSTITUTED BY THE ASSESSEE VIDE HIS LETTER DATED 11.11.2009 WITH THE FOLLOWING GROUND :- THE LD. CIT(A) ERRED IN FACT AND IN LAW IN CONSID ERING SHORT TERM CAPITAL GAINS OF RS.1,43,609/- ON ACCOUNT OF SALE O F SHARES AND GAINS ARISING OUT OF PORTFOLIO MANAGEMENT SCHEME AS BUSINESS INCOME INSTEAD OF SHORT TERM CAPITAL GAINS. 3. AFTER HEARING BOTH THE PARTIES, WE ADMIT THE SUB STITUTION OF GROUND NO.2. AT THE TIME OF HEARING THE LD. AUTHORISED REP RESENTATIVE WAS FAIR ENOUGH TO CONCEDE THAT GROUND NO.1 & 2 RELATE TO TH E SAME ISSUE RELATING TO THE PROFITS AND GAINS RECEIVED BY THE ASSESSEE O N THE SALE OF SHARES UNDER PORTFOLIO MANAGEMENT SCHEME. THE ISSUE INVOLV ED IN THESE GROUNDS IS COVERED AGAINST THE ASSESSEE VIDE ITAT O RDER IN ITA NO.4517/AHD/2007 FOR ASSESSMENT YEAR 2004-05. 4. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON TH E ORDER OF CIT(A) AND SUPPORTED THE SAME. 4 5. AFTER HEARING THE RIVAL SUBMISSIONS AND CONSIDER ING THE MATERIAL ON RECORD, WE NOTICE THAT THE ISSUE INVOLVED IN GROUND NOS.1 &2 IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN ITA NO.4517/AHD/2007 FOR ASSESSMENT YEAR 2004-05 AND OT HERS DATED 19.12.2008 IN WHICH THE TRIBUNAL WHILE DEALING WITH THE SAME ISSUE UNDER PARA 8 HAS HELD AS UNDER :- 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE CA SE LAW AS HAS BEEN CITED BEFORE US. WE FIND THAT IN THE CASE OF C IT(CENTRAL) CALCUTTA VS. ASSOCIATED INDUSTRIAL DEVELOPMENT COMP ANY (P) LTD.(82 ITR 586), THE HONBLE SUPREME COURT HAS HEL D AS UNDER :- WHETHER A PARTICULAR HOLDING OF SHARES IS BY WAY O F INVESTMENT OR FORMS PART OF THE STOCK-IN-TRADE IS A MATTER WHICH IS WITHIN THE KNOWLEDGE OF THE ASSESSEE WHO H OLDS THE SHARES AND HE SHOULD IN NORMAL CIRCUMSTANCES, BE IN A POSITION TO PRODUCE EVIDENCE FROM HIS RECORDS AS TO WHETHER HE HAS MAINTAINED ANY DISTINCTION BETWEEN THOSE SHA RES WHICH ARE HIS STOCK-IN-TRADE AND THOSE WHICH ARE HE LD BY WAY OF INVESTMENT. IN THE CASE OF CIT, BOMBAY VS. HOLCK LARSEN (160-I TR-67), THE HONBLE SUPREME COURT HAS HELD AS UNDER :- IN ORDER TO DETERMINE WHETHER ONE WAS A DEALER IN SHARES OR AN INVESTOR, THE REAL QUESTION WAS NOT WHETHER T HE TRANSACTION OF BUYING AND SELLING THE SHARES LACKS THE ELEMENT OF TRADING, BUT WHETHER THE LATER STAGES OF THE WHOLE OPERATION SHOW THAT THE FIRST STEP THE PURPOSE OF T HE SHARES WAS NOT TAKEN AS, OR IN THE COURSE OF, A TRADING TR ANSACTION. THE TOTALITY OF ALL THE FACTS WILL HAVE TO BE BORNE IN MIND AND THE CORRECT LEGAL PRINCIPLES APPLIED TO THESE. IF A LL THE RELEVANT FACTS HAVE BEEN TAKEN INTO CONSIDERATION A ND THERE HAS BEEN NO MISAPPLICATION OF THE PRINCIPLES OF LAW , THEN THE CONCLUSION ARRIVED AT BY THE TRIBUNAL CANNOT BE INT ERFERED WITH BECAUSE THE DIFFERENCE IS A QUESTION OF LAW, I F SUCH AN INFERENCE WAS A POSSIBLE ONE, SUBJECT, HOWEVER, THA T ALL THE 5 RELEVANT FACTORS HAVE BEEN DULY WEIGHED AND CONSIDE RED BY THE TRIBUNAL THE INFERENCE REACHED BY THE TRIBUNAL SHOULD NOT BE INTEREFERED WITH. IN VIEW OF THE AFORESAID DECISIONS, WE ARE OF THE VIEW THAT WHETHER THE PROFIT FROM THE SHARES IS A CAPITAL GAIN OR BUS INESS INCOME WILL DEPEND ON THE FOLLOWING FACTORS: -WHETHER THE SHARES ARE HELD BY THE ASSESSEE AS IS OR STOCK-IN-TRADE; -WHETHER THE SHARES ARE PURCHASED WITH AN INTENTIO N TO KEEP THEM AS INVESTMENTS; -WHETHER THE SHARES PURCHASED WITH AN INTENTION TO SELL; -WHETHER THE SHARES WERE PURCHASED WITH AN INTENTI ON TO EARN THE PROFIT IN THE SHORT TERM; -WHETHER THE SHARES ARE HELD TO MAXIMIZE THE RETUR N; -WHETHER THE SHARES HAVE BEEN PURCHASED FROM THE P RIMARY MARKET; -WHETHER THE SHARES HAVE BEEN PURCHASED BY SUBSCRI PTION TO PUBLIC ISSUE; -WHETHER THE SHARES HAVE BEEN HELD FOR FAIRLY LONG PERIOD; AND -WHETHER THE SHARES ONCE SOLD HAVE NEVER BEEN RE-P URCHASED. SO FAR AS THE CAPITAL GAIN ON THE SALE OF SHARES A MOUNTING TO RS.35,04,977/- IS CONCERNED, AND THE PROFIT SO EARN ED, IN OUR OPINION, WILL BE CAPITAL GAIN AS THE SHARES WERE FA IRLY HELD BY THE ASSESSEE FOR THE LONG PERIOD. THUS, THE GROUND TAKE N BY THE REVENUE IN THIS REGARD STANDS DISMISSED. SO FAR AS THE LONG TERM CAPITAL GAIN OF RS.54,50,4 10/- IS CONCERNED, THESE SHARES HAVE BEEN ACQUIRED BY THE A SSESSEE OUT OF ITS OWN FUNDS AND INVESTED DURING THE YEAR 2001-02. THE SAME WERE SOLD IN THE FINANCIAL YEAR 2003-04. THUS, THES E WERE CLEARLY HELD FOR MORE THAN ONE YEAR. THUS, THE SHARES WERE TREATED AS INVESTMENTS. THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY HELD THE PROFIT ARISING OUT OF THESE TRANSA CTIONS TO BE THE 6 LONG TERM CAPITAL GAINS AND ACCORDINGLY NO INTERFER ENCE IS CALLED FOR IN THE ORDER OF THE CIT(A) IN THIS REGARD. NOW COMING TO THE SHORT TERM CAPITAL GAINS OF RS.5 0,20,921/- DIVIDED BETWEEN THE ASSESSEE AND HIS WIFE, THIS PRO FIT HAS ARISEN ON ACCOUNT OF MUTUAL FUNDS TRANSACTIONS, THE TRANSACTI ONS UNDER EQUITY SHARES AND TRANSACTIONS CARRIED OUT UNDER THE PORTF OLIO MANAGEMENT SCHEME. MOST OF THE TRANSACTIONS ARE UNDER THE PMS. THE TRANSACTIONS UNDER THE PMS SCHEME ARE DONE ON DAY T O DAY BASIS FOR AND ON ACCOUNT OF THE ASSESSEE. THESE TRANSACTI ONS ARE NOT RECORDED IN THE BOOKS OF PMS MANAGER AS THEY ARE DO NE FOR THE CUSTOMERS. IT IS JUST LIKE THE SHARE BROKER DOING T HE TRANSACTIONS ON BEHALF OF THE ASSESSEE. THE INSTRUCTIONS FOR CARRYI NG OUT THESE TRANSACTIONS MAY BE GIVEN EITHER IN THE BEGINNING O R THE SAME MAY BE LEFT AT THE DISCRETION OF THE PORTFOLIO MANAGEME NT BUT ALL THESE TRANSACTIONS BELONGED TO THE CUSTOMERS AND PMS MANA GER WORKS ON BEHALF OF THE CUSTOMER, I.E. THE ASSESSEE. IT IS NOT DISPUTED THAT THE TRANSACTIONS CARRIED OUT THROUGH PMS FOR THE SA LE ARE 212 AND FOR THE PURCHASE ARE 615. THE FREQUENCY AND VOLUME OF THE BUSINESS AND THE PURPOSE OF TRANSACTIONS ARE SUCH THAT THIS CAN BY NO POSSIBILITY BE TREATED AS INVESTMENT. IN THE CASE O F INVESTMENT, AN OBJECTIVE IS TO EARN THE REGULAR INCOME FROM THE IN VESTMENT WHILE IN THE CASE OF THE BUSINESS THE OBJECTIVE IS TO EAR N THE PROFIT FROM THE PURCHASE AND SALE TRANSACTIONS. THE TRANSACTION S THROUGH PMS ARE BEING DONE WITH THE CLEAR OBJECTIVE OF MAXIMIZE THE RETURN FROM THE PURCHASE AND SALE TRANSACTIONS. IT CANNOT BE WI TH THE OBJECT OF HOLDING THE SHARES AS INVESTMENTS. THE LD. AUTHORIS ED REPRESENTATIVE COULD NOT BRING TO OUR NOTICE ANY CI RCULAR OR INSTRUCTION EXCEPT THE NEWS ITEM WHICH IN OUR OPINI ON, CANNOT BE REGARDED TO BE THE CIRCULAR OR INSTRUCTION SO THAT IT CANNOT BE BINDING ON THE REVENUE. IN OUR OPINION, THE CIT(A) HAS DEALT WITH THE ISSUE EXTENSIVELY AND HAS RIGHTLY DECIDED DEALI NG WITH EACH AND EVERY ASPECT OF THE ARGUMENTS TAKEN BY THE LD. AUTH ORISED REPRESENTATIVE. THECIT(A) HAS RIGHTLY TREATE THE TR ANSACTIONS THROUGH PMS TO BE THE INCOME FROM BUSINESS, AND NOT AS CAPITAL GAINS. WE ARE ACCORDINGLY OF THE VIEW THAT NO INTER FERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A) IN THIS REGARD AND A CCORDINGLY WE CONFIRM THE ORDER OF THE CIT(A) DISMISSING GROUND N OS.1 & 2 IN THE APPEAL OF DR. AJAY RANKA, GROUND NOS.1 & 2 IN T HE APPEAL OF SMT. SEEMA AJAY RANKA AND ALSO DISMISSING GROUND NO S.1 & 2 TAKEN BY THE REVENUE IN CASES OF BOTH THE ASSESSEES . THUS THIS GROUND STANDS DISMISSED. 7 6. GROUND NO.3 RELATES TO THE SET OFF OF SHORT TERM CAPITAL LOSS OF RS.1033251/- NOT ALLOWED BY THE ASSESSING OFFICER. THE LD. AUTHORISED REPRESENTATIVE CONTENDED THAT ENTIRE INCOME UNDER T HE CAPITAL GAIN WAS TREATED AS BUSINESS INCOME, THEREFORE, THE SET OFF OF THE SHORT TERM CAPITAL LOSS WAS NOT ALLOWED BY THE ASSESSING OFFICER. THE CIT(A) HAS HELD THAT THE GAINS ON SALE OF MUTUAL FUNDS IS TO BE TREATED AS INVESTMENT ACTIVITY AND TAXED UNDER THE HEAD CAPITAL GAINS. THUS IT WAS CONTENDED THAT IN VIEW OF THE CAPITAL GAINS AVAILABLE FOR SET OFF, TH E ASSESSEE IS ENTITLED TO CLAIM SET OFF OF SHORT-TERM CAPITAL LOSS. SO IT IS MERELY CONSEQUENTLY IN NATURE. 7. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON TH E ORDER OF A.O. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE MATERIAL ON RECORD. WE NOTED THAT THE CIT(A) HA S HELD THAT THE SALE OF MUTUAL FUND IS TO BE TREATED AS INVESTMENT ACTIVITY AND IS TAXABLE UNDER THE HEAD CAPITAL GAINS. THE LD. AUTHORISED REPRESEN TATIVE SINCE ASSURED US THAT NO APPEAL HAS BEEN FILED BY THE REVENUE SO FAR HIS KNOWLEDGE IS CONCERNED AGAINST THIS FINDING, THE FINDING OF THE CIT(A), THEREFORE, BECAME FINAL. SINCE THE GAIN ON SALE OF MUTUAL FUND S IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS, WE DIRECT THE ASSESSI NG OFFICER TO ALLOW THE SET OFF OF THE SHORT TERM CAPITAL LOSS AGAINST THIS CAPITAL GAINS. THUS THIS GROUND IS ACCORDINGLY ALLOWED. 9. GROUND NO.4 RELATES TO THE DISALLOWANCE MADE WHI LE INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE INCOME-TAX A CT, 1961. 8 10. THE FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS PAID A SUM OF RS.15,61, 080/- TO HER SON MR. MOULIK MEHTA, ENGINEERING STUDENT OF USA AND HE HAS NOT VISITED INDIA AND IN THE UNIVERSITY HE COULD NOT DO ANY RESEARCH WORK FOR ZYDEX INDUSTRIES. DR. AJAY RANKA, HUSBAND OF THE ASSESSEE HAS CERTIFIED THAT MR. MOULIK MEHTA WORKED FOR THREE MONTHS IN ZYDEX LAB D URING SUMMER TO SUPPORT THE RESEARCH BUT IN WHICH SUMMER MR. MOULIK HAD WORKED IS NOT MENTIONED. THE ASSESSING OFFICER WAS OF THE OPINION THAT MR. MOULIK MEHTA HAS NOT GIVEN ANY SERVICES TO ZYDEX INDUSTRIE S. EVEN AS PER APPOINTMENT LETTER DATED 04.01.2005 WHICH OFFERS RE MUNERATION OF $3000 P.M. FROM 1.11.2004 TO 31.3.2005 FOR 5 MONTHS IS ME NTIONED WHILE THE ASSESSEE HAS CLAIMED REMUNERATION OF $36000. THE AS SESSING OFFICER, THEREFORE, TOOK THE VIEW THAT THE EXPENDITURE HAS N OT BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND HE DISALLOWED THE SAME. 11. THE LD. AUTHORISED REPRESENTATIVE REITERATED TH E SUBMISSIONS MADE BEFORE CIT(A) AND CONTENDED THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND MARKETING OF SPECIALITY POLYMERS AND FORMULATIONS. THE ASSESSEE IS CATERING TO THE NEEDS OF TEXTILE, P AINT AND PAPER INDUSTRY IN INDIA AND ABROAD. THE SERVICES OF MR. MOULIK RANKA WERE UTILIZED FOR PROVIDING LITERATURE SEARCH OF ALL SILANE TECHNOLOG Y WHICH WILL INCLUDE JOURNALS AND PATENTS, TO GATHER ALL INFORMATION ABO UT SILANE WHICH ARE OFFERED IN MARKET IN US AS WELL AS WORLDWIDE BASIS, MARKETING OF SILANE PRODUCTS; AND EXPLORE AND ESTABLISH CONTACTS FOR TH E APPELLANT IN MARKETING NEW GENERATION OF WATER BASED INKS AND PO LYMERS IN TEXTILE MARKET. MR. MOULIK RANKA HAD DONE INCREDIBLE WORK F OR THE ASSESSEE. DURING HIS ASSIGNMENT HE HELPED THE COMPANY TO GAIN AN UNDERSTANDING OF THE SUBJECT OF SILANES, WHICH HAS CONTRIBUTED IT S ROLE IN THE DEVELOPMENT OF THE PATENTED NANO TECHNOLOGY OF WATE RPROOFING USING 9 ORGANO SILANE. HE DREW OUR ATTENTION TOWARDS THE SU BMISSIONS MADE BEFORE THE CIT(A) AND CONTENDED THAT THE EXPENDITUR E SO INCURRED MUST BE ALLOWED. 12. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND RELIED ON THE ORDERS OF LOWER AUTHORITIES AND CONTENDED THAT MR. MOULIK RANKA WAS STUDYING ENGINEERING IN USA. EVEN HE MAY NOT BE MAJ OR DURING THAT PERIOD. HE WAS NOT IN THE EMPLOYMENT WITH THE ASSES SEE COMPANY BUT STILL HE WAS PAID A SUM OF RS.15,61,080/-. THERE IS NO EV IDENCE ABOUT THE SERVICES RENDERED BY MR. MOULIK. THE EXPENDITURE HA S BEEN INCURRED ONLY FOR THE PURPOSE OF CARRYING OUT EDUCATION OF MR. MO ULIK MEHTA. RELIANCE WAS ALSO PLACED ON THE ORDER OF CIT(A) AND CONTENDE D THAT NO INFERENCE SHOULD BE CALLED FOR IN THE ORDER OF THE CIT(A). 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF CIT( A). THIS IS A FACT THAT MR. MOULIK RANKA WAS THE SON OF THE ASSESSEE AND HE WAS STUDYING ENGINEERING IN USA. THE MAIN CONTENTION OF THE ASSE SSEE IS THAT HIS SERVICES WERE INSTRUMENTAL IN DEVELOPMENT OF CATERI NG PRODUCT WHICH ASSISTED THE ASSESSEE IN HIS BUSINESS. BUT THERE IS NO EVIDENCE BEING BROUGHT ON RECORD. WE ALSO NOTED THAT ALTHOUGH THE ASSESSEE HAS SUBMITTED THE APPOINTMENT LETTER DATED 4.1.2005 BEF ORE THE ASSESSING OFFICER OFFERING REMUNERATION OF $3000 P.M. FROM 1. 11.2004 TO 31.3.2005 TO DO LITERATURE SEARCH OF ALL SILANE TECHNOLOGY W HICH WILL INCLUDE JOURNALS AND PATENTS, TOGETHER ALL INFORMATION ABOU T SILANE WHICH ARE OFFERED IN MARKET IN USA, THE APPOINTMENT WAS MADE IN JANUARY, 2005 WHILE THE CLAIM WAS MADE FOR WHOLE OF THE YEAR. MR. MOULIK RANKA DID NOT HAVE ANY TECHNICAL QUALIFICATION AT THE TIME HE WAS APPOINTED. EVEN THE LD. AUTHORISED REPRESENTATIVE COULD NOT FIND TH E EXACT PROOF WHETHER 10 HE WAS MAJOR OR NOT. HE WAS STUDYING IN USA AND HE HAD GONE TO USA TO TAKE THE EDUCATION. REMITTANCES WERE SENT BY THE AS SESSEE TO HIM TO MEET THE EDUCATION EXPENSES WHICH WERE CLAIMED AS SALARY PAID TO MR. MOULIK RANKA. ONUS OF THE ASSESSEE HAS NOT BEEN PROVED THA T THE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSE SSING OFFICER CAN ALWAYS LOOK INTO THE GENUINENESS OF THE EXPENDITURE . THE BURDEN OF PROOF IN OUR OPINION IS MUCH HEAVIER IN CASE THE ASSESSEE MADE THE PAYMENT TO HIS RELATIVE, THAT THE EXPENDITURE HAS BEEN INCURRE D FOR THE PURPOSE OF HIS BUSINESS. THERE IS NO EVIDENCE ON RECORD WHICH MAY PROVE THAT MR. MOULIK WAS ALSO EMPLOYED WITH ANY CONCERN OR WITH T HE ASSESSEE AND HAS GONE TO OBTAIN THE HIGHER EDUCATION FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. NO CONCRETE EVIDENCES WERE BROUGHT TO OUR KNOWLEDGE WHICH MAY PROVE THAT THIS MONEY SENT TO MR. MOULIK WAS FO R THE PURPOSE OF BUSINESS AND NOT TO MEET HIS EDUCATION EXPENSES. PR OPER EDUCATION TO THE CHILD/CHILDREN IS THE PERSONAL OBLIGATION OF THE AS SESSEE AND EXPENSES INCURRED, THEREFORE, ARE PERSONAL EXPENSES NOT ALLO WABLE UNDER SECTION 37(1) WHICH HAVE BEEN SPECIFICALLY DISALLOWED AS PE RSONAL EXPENSES. UNDER THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT(A) W HO HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER DISALL OWING THE EXPENDITURE OF RS.15,61,080/-. THIS GROUND IS DISMISSED. 14. GROUND NO.5 -THIS GROUND WAS NOT PRESSED HENCE STANDS DISMISSED AS NOT PRESSED. 15. GROUND NO.6 RELATES TO THE DISALLOWANCE OF RS.2 ,37,268/- INCURRED BY THE ASSESSEE FOR REPAIR OF THE PLANT AND MACHINE RY WHICH WERE TREATED BY THE ASSESSING OFFICER TO BE OF CAPITAL NATURE. 11 16. THE FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSEE HAS INCURRED EXPENDITURE IN REPAIRING ON TWO DG SET WHICH WERE C LAIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER TREATED THE EXPE NDITURE TO BE A CAPITAL EXPENDITURE AS THE AMOUNT WAS MUCH AND THE ASSESSEE HAS PURCHASED SECOND HAND GENERATOR. 17. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING T HROUGH THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT SINCE THE ASSESS EE HAS NOT INCURRED EXPENDITURE FOR REPLACEMENT OF DG SET BUT FOR ITS R EPAIR AND MAINTENANCE, THEREFORE, THE EXPENSES SO CLAIMED ARE OF THE REVEN UE NATURE AND ARE TO BE ALLOWED. MERELY THE QUANTUM OF THE EXPENDITURE IS M ORE THE EXPENDITURE INCURRED WILL NOT BECOME A CAPITAL EXPENDITURE. WE ACCORDINGLY DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION AMOUNTING TO RS.2,67,268/-. 18. GROUND NO.7 RELATES TO THE AD HOC DISALLOWANCE OUT OF TELEPHONE EXPENSES, VEHICLE EXPENSES AND DEPRECIATION ON VEHI CLES @ 10% DUE TO PERSONAL USE BY THE ASSESSEE. 19. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING T HROUGH THE PROVISIONS OF SECTION 38(2), WE ARE OF THE VIEW THA T THE ONUS IS ON THE ASSESSEE TO PROVE THAT THE EXPENDITURE HAS NOT BEEN INCURRED FOR PERSONAL PURPOSES AND PERSONAL USE OF THE VEHICLES, WHICH HA S NOT BEEN DENIED BEFORE US. IN OUR OPINION THE CIT(A) WAS FAIR ENOUG H TO RESTRICT THE DISALLOWANCE TO 1/10 TH OF SUCH EXPENSES. THUS THIS GROUND IS DISMISSED. 20. GROUND NO.8 RELATES TO THE AD HOC DISALLOWANCE OUT OF DOMESTIC TRAVELING EXPENSES. THE ASSESSING OFFICER NOTED THA T THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.26,19,436/- ON ACCOUNT OF T RAVELING EXPENSES OUT OF WHICH A SUM OF RS.1,21,370/- WAS INCURRED ON LOC AL TRAVELING. THE 12 ASSESSING OFFICER DISALLOWED 1/10 TH OF THE TRAVELING EXPENSES ON AD HOC BASIS. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTED THAT OUT OF TRAVELING EXPENSES OF RS.26,19,436/- ONLY A SUM OF RS.1,21,370/- HAS BEEN INCURRED FOR THE TRAV ELING CARRIED OUT BY THE ASSESSEE. THE ASSESSEE HAS TO INCUR EXPENSES FO R TRAVELING FOR THE PURPOSE OF THE BUSINESS. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER IS NOT CORRECT IN DISALL OWING 1/10 TH OF THE TOTAL EXPENSES ON AD HOC BASIS WITHOUT POINTING OUT HOW T HE EXPENSES RELATE TO THE PERSONAL PURPOSES. WE ACCORDINGLY DELETE THE DI SALLOWANCE OF RS.1,21,370/-. THUS THIS GROUND IS ALLOWED. 22. GROUND NO.9 RELATES TO THE CLAIM OF DEDUCTION B Y THE ASSESSEE UNDER SECTION 80IB IN RESPECT OF THE FOLLOWING INCO ME :- PARTICULARS AMOUNTS (RS.) GROSS AMOUNT OF EXPORT INCENTIVES 34,08,736 GROSS AMOUNT OF INTEREST ON MARGIN MONEY DEPOSIT 2,16,960 TOTAL 36,25,696 23. AFTER HEARING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT SO FAR THE INCOME FROM EXPORT INCENTIVE ARE CONCERNED, THI S ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 218 (SC) IN WHICH THE HONBLE SUPREME COURT HAS CATEGORICALLY HELD THAT EXPORT INCENTIVES CANNOT BE REGARDED TO BE DERIVED FROM THE INDUSTRIAL UNDERTAKING. WE THER EFORE, DISMISS THE CLAIM OF THE ASSESSEE UNDER SECTION 80IB IN RESPECT OF THE EXPORT INCENTIVE. SIMILARLY, SO FAR AS THE INTEREST ON MAR GIN MONEY DEPOSIT IS 13 CONCERNED THIS ISSUE IS ALSO DULY COVERED AGAINST T HE ASSESSEE IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 (SUPREME COURT) WHEREIN IT WAS HELD AS UNDER :- THE WORDS DERIVED FROM IN SECTION 80HH OF THE IN COME-TAX ACT, 1961 MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A DIRECT OR IMMEDIATE NEXUS WITH THE ASSESSEES INDUSTRIAL UNDE RTAKING. ALTHOUGH ELECTRICITY MAY BE REQUIRED FOR THE PURPOS ES OF THE INDUSTRIAL UNDERTAKING, THE DEPOSIT REQUIRED FOR IT S SUPPLY IS A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTA KING. HELD ACCORDINGLY, THAT INTEREST DERIVED BY THE IND USTRIAL UNDERTAKING OF THE ASSESSEE ON DEPOSITS MADE WITH T HE ELECTRICITY BOARD FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DER IVED BY THE UNDERTAKING FOR THE PURPOSE OF THE SPECIAL DEDUCTIO N UNDER SECTION 80HH. THUS THIS GROUND OF APPEAL IS DISMISSED. 24. GROUND NO.10 RELATES TO THE REDUCTION OF THE NE T INCOME INSTEAD OF GROSS INCOME WHILE COMPUTING DEDUCTION UNDER SECTIO N 80IB. 25. AFTER HEARING THE RIVAL SUBMISSIONS, WE NOTED T HAT THIS ISSUE IS COVERED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 475 ( DELHI). WE ACCORDINGLY DIRECT THE ASSESSING OFFICER WHILE SCRU TINIZING THE INCOME FROM EXPORT INCENTIVE, INTEREST AND MARGIN MONEY FO R THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IB HE SHOULD EX PLORE ONLY THE NET INCOME FROM EXPORT INCENTIVE AND INTEREST ON MARGIN MONEY PROVIDED THE ASSESSEE PROVED THAT THE ASSESSEE HAS INCURRED EXPE NDITURE FOR THE PURPOSE 14 OF EARNING EXPORT INCENTIVE AND INTEREST ON MARGIN MONEY DEPOSITS. THUS THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 26. GROUND NO.11 WHICH RELATES TO THE INTEREST UNDE R SECTION 234B IS CONSEQUENTIAL IN NATURE AND ACCORDINGLY THE ASSESSI NG OFFICER IS DIRECTED TO RECOMPUTED THE INTEREST UNDER SECTION 234B AFTER GIVING EFFECT TO THIS ORDER. 27. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 18 /12 /2009 SD/- SD/- (D.T.GARASIA) (P. K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 18/12/2009 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD