The ITO, Ward-5(3), Ahmedabad V. Raj Ka Design Pvt. Ltd., Ahmedabad

ITA 3250/AHD/2004

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9154 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-08-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 08-11-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P M SHUKLA
• Assessee Lawyers: P M MEHTA; S N SOPARKAR
• Keywords: Depreciation; Business expenditure; Revenue expenditure; Capital expenditure; Set aside
• Section: 80HHC; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI P.K.BANSAL, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.3250 & 3260/AHD/2004 ASSESSMENT YEAR:2001-02 DATE OF HEARING:3.8.09 DRAFTED:3.9.09 INCOME TAX OFFICER, WARD-5(3), AHMEDABAD RAJ KA DESIGN PVT. LTD. 705, KAIVANNA, NR. PANCHWATI, ELLISBRIDGE, AHMEDABAD PAN NO.AAACR5477P V/S . V/S . RAJ KA DESIGN PVT. LTD., 705, KAIVANNA, NR. PANCHWATI, ELLISBRIDGE, AHMEDABAD INCOME TAX OFFICER, WARD-5[3], AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI S.N.SOPARKAR & SHRI P.M. MEHTA, AR REVENUE BY:- SHRI P.M. SHUKLA, SR. DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THESE CROSS APPEALS ONE BY THE REVENUE AND ANOTH ER BY THE ASSESSEE ARE ARISING OUT OF THE COMMON ORDER OF COM MISSIONER OF INCOME-TAX (APPEALS)-XI, AHMEDABAD IN APPEAL NO. CIT(A)-XI/56/ 2004-05 DATED 09-08- 2004. THE ASSESSMENT WAS FRAMED BY THE INCOME-TAX OFFICER, WARD-5(3), AHMEDABAD U/S.143(3) OF THE INCOME-TAX ACT, 1961 (H EREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 30-03-2004 FOR THE ASSESSMENT YEAR 2001-02. 2. THE FIRST COMMON ISSUE IN THESE CROSS APPEALS OF REVENUE AND ASSESSEE IS AS REGARDS TO THE ORDER OF CIT(A) IN RE STRICTING THE ADDITION AT ITA NO.3250 &3260/AHD/2004 A.Y. 2001-02 ITO WD-5(3), ABD V. RAJ KA DESIGN P. LTD. PAGE 2 RS.13,48,336/- AS AGAINST THE ADDITION MADE BY THE ASSESSING OFFICER AT RS.15,31,581/-. THE REVENUE IS AGAINST THE DELETION AND THE ASSESSEE IS AGAINST THE CONFIRMATION OF THE ADDITION. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORDS INCLUDING THE ASSESSMENT ORDER AS WELL AS THE ORDER OF CIT(A) AND ASSESSEES PAPER BOOK CONTAINING PAGES 1 TO 145. THE BRIEF FACTS AR E THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS PURCHASED AN INDUSTRIAL SHED AS PER SALE DEED DATED 01-07-1999 FROM M/S. J.B A PRINTING INKS LTD. FOR A TOTAL CONSIDERATION OF RS.42 LAKHS OUT OF WHICH AN AMOUNT OF RS.37,40,775/- HAS BEEN CAPITALIZED UNDER THE BLOCK OF LAND. IN RESPECT OF REPAIRS TO BUILDINGS THE ASSESSEE HAS SU BMITTED BIFURCATION OF THESE EXPENSES VIDE ITS LETTER DATED 17-01-2003 AS UNDER: - SL NO. HEAD OF EXPENSES COMP BUILDING BHUJ BLDG. FACTORY BLDG. 1. MATERIAL PURCHASES 59618 7176 3572 92 2. LABOUR CHARGES FOR COLOUR WORKS AND WHITE WASH 111087 5362 238272 3. WATER PROOFING WORK -- -- 6 1734 4. LABOUR CHARGES AND SUPERVISION -- -- 309480 5. ARCHITECH FEES -- -- 72100 6. MATERIALS FOR ELECTRICAL FITTING -- -- 309458 170705 12538 1348336 THE ASSESSING OFFICER FURTHER REQUIRED THE ASSESSEE TO EXPLAIN HOW THE EXPENSES OF RS.15,31,581/- WAS REVENUE EXPENSES. B EFORE THE ASSESSING OFFICER, THE ASSESSEE FILED BILLS / VOUCHERS RELATI NG TO BUILDING AND REPAIRING EXPENSES. AS PER ACCOUNT, THE TOTAL EXPENSES WAS I NCURRED AT RS.19,88,744/- AND OUT OF WHICH A SUM OF RS.3,76,955/- WAS CAPITAL IZED AND THE REMAINING BALANCE OF RS.15,31,581/- WAS CLAIMED AS REVENUE EX PENSES. THE AO ALSO REQUIRED THE CONTRACT WORK OF M/S. DIP CONTRACTORS, 323 K.K. NAGAR, NR. RANNA PARK, AHMEDABAD, AND WHAT WAS THE NATURE OF WORK CA RRIED OUT. FROM THE ITA NO.3250 &3260/AHD/2004 A.Y. 2001-02 ITO WD-5(3), ABD V. RAJ KA DESIGN P. LTD. PAGE 3 DETAILS FILED BY THE M/S. DIP CONTRACTORS, THE WORK DONE WAS ON ACCOUNT OF CONSTRUCTION WORK OF COMPOUND WALL, COMPLETE FLOORI NG, DOORS AND WINDOWS, CONSTRUCTION OF SECURITY CABIN, PLASTER WORK IN ELE CTRIC ROOM AND BADMINTON ROOM, EXCAVATION OF BOILER SHED, EXCAVATION OF SEPT IC TANK, COMPLETE PLASTERING ETC. THE ASSESSEE BEFORE THE AO SUBMITTED THAT OUT OF THE AMOUNT PAID TO M/S. DIP CONSTRUCTION, 1/3 RD OF THEIR TOTAL BILL IS CAPITALIZED AND DEBITED TO BUILDING ACCOUNT ON PRUDENT ESTIMATION BASIS. FROM THE DETA ILS OF WORK DONE BY M/S. DIP CONSTRUCTION, THE AO NOTED THAT THE SO-CALLED R EPAIRING EXPENSES HAVE BEEN INCURRED, THE DETAILS OF WORK DONE AS HAVE BEE N SEEN FROM THE BILLS SUBMITTED BY M/S DIP CONSTRUCTION AND WHICH HAVE BE EN DULY APPROVED BY THE COMPANY SHOWS THAT SO-CALLED REPAIRING EXPENSES HAV E BEEN INCURRED FOR CONSTRUCTION OF A NEW COMPOUND WALL, KOTAH STONE FL OORING, CONSTRUCTION OF FALSE CEILING, FORMATION OF RACKS, PLASTERING OF PI LLARS AND WALLS, CONSTRUCTION OF NEW OFFICE ROOM, SEPTIC TANK, DOOR AND WINDOWS. AC CORDINGLY, THE AO DISALLOWED THE REVENUE EXPENDITURE CLAIMED BY THE A SSESSEE OF RS.15,31,581/- AND ALLOWED DEPRECIATION AT THE APPR OPRIATE RATE. ACCORDINGLY, ADDITION WAS MADE AT RS.13,78,423/-. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND SAME ARGUMENTS WERE REITER ATED BEFORE THE CIT(A) AND CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE PARTLY AT RS.1,70,705/- AND RESTRICTED THE ADDITION AT RS.3,48,336/- BY GIVING FOLLOWING FINDING IN PARA-3.2 OF HIS APPELLATE ORDER:- 3.2 IN RESPONSE TO THE SHOW-CAUSE NOTICE, THE ASSE SSEE VIDE LETTER DTD. 24-03-2004 HAS, INER ALIA, CONTENDED AS UNDER:- 3.2. I HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSIONS OF THE A.R. OF THE APPELLANT CAREFULLY. I HAVE ALSO GONE T HROUGH THE DECISIONS RELIED UPON BY THE A.R. OF THE APPELLANT AND THE OB SERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. I AM OF THE VIEW THAT THE EXPENSES INCURRED BY ASSESSEE WHICH GIVE ENDURING B ENEFIT, THE SAME SHOULD BE TREATED AS CAPITAL IN NATURE. IN THE INST ANT CASE, IT IS SEEN THAT THE EXPENDITURE INCURRED BY THE APPELLANT FOR THE W ORK DONE BY M/S. DIP CONSTRUCTION I.E. CONSTRUCTION OF A NEW COMPOUND WA LL, KOTAH STONE FLOORING, CONSTRUCTION OF FALSE CEILING, FORMATION OF RACKS, PLASTERING OF PILLARS AND WALLS, CONSTRUCTION OF NEW OFFICE ROOM, SEPTIC TANK ETC. AND OTHER RENOVATION WORK GIVES ENDURING BENEFIT TO THE APPELLANT COMPANY. THE BUILDING HAS BEEN RENOVATED, THESE ARE NOT REPA IRING EXPENSES. ITA NO.3250 &3260/AHD/2004 A.Y. 2001-02 ITO WD-5(3), ABD V. RAJ KA DESIGN P. LTD. PAGE 4 HENCE, THE ASSESSING OFFICER HAS RIGHTLY TREATED TH E EXPENSES INCURRED B THE APPELLANT ON RENOVATION OF THE FACTORY SHED, WH ICH WAS UN-USED FOR MORE THAN 2 TO 3 YEARS PRIOR TO PURCHASE, AS CAPITA L IN NATURE. HOWEVER, THE ASSESSING OFFICER IS DIRECTED TO ALLOW CAMP BUI LDING REPAIRING EXPENSES OF RS.1,70,705/- AND REPAIRS OF BHUJ BUILD ING OF RS.12,538/- AS THE NATURE OF THESE EXPENSES IS REVENUE. THE RES T OF THE EXPENSES ARE TO BE TREATED AS CAPITAL EXPENDITURE. AGGRIEVED, BOTH CAME IN APPEAL BEFORE US. 4. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE CASE RECORDS, WE FIND THAT THE ASSESSEE HAS (BY DEED DATED 01-07- 1999) PURCHASED INDUSTRIAL SHED AT NARODA FROM J.B.A. PRINTING INKS LIMITED. THE SAID COMPANY HAD USED INDUSTRIAL SHED FOR MANUFACTURING OF INK R EQUIRED FOR INDUSTRIAL PURPOSES. THE SAID SHED WAS UN-USED FOR MORE THAN 2 TO 3 YEARS PRIOR TO PURCHASE BY THE ASSESSEE. THE ASSESSEE IS ENGAGED I N EXPORT OF HANDICRAFTS ITEMS AND ITS EXPORT TURNOVER FOR THE YEAR UNDER CO NSIDERATION WAS OF RS.3,51,69,440/- OUT OF TOTAL TURNOVER OF RS.3,54,4 0,746/-. SINCE THE PROPERTY IN QUESTION IS NOT UP TO THE MARK AS REQUIRED FOR A N EXPORT HOUSE, IT HAS TO CARRY OUT REPAIRING WORKS INCLUDING REPLACING OF FL OORING TILES, RE-PLASTERING OF BUILDING AND COMPOUND WALL, REPLACING BROKEN DOORS, WINDOWS AND GLASS FITTED ON IT, REPLACING ELECTRIC WIRING, CHANGES REQUIRED TO BE MADE UNDER FACTORIES ACT, POLLUTION CONTROL ACT AND OTHER REQUIREMENTS I MPOSED BY FOREIGN BUYER IN RESPECT OF QUALITY OF FINISHED PRODUCTS TO BE SUPPL IED BY THE ASSESSEE. BREAK UP OF THE TOTAL BUILDING REPAIR EXPENSES WAS FURNIS HED BY THE LETTER DATED 17- 01-2003 WHICH WAS NARRATED IN ASSESSMENT ORDER AT P AGE-2. THE TOTAL RENOVATION EXPENSES FOR INDUSTRIAL SHED AMOUNTED TO RS.11,30,803/- OUT OF WHICH 1/3 RD OF RS.3,76,935/- WAS CAPITALIZED DURING THE YEAR A ND REST OF RS.7,53,868/- WAS CLAIMED AS REVENUE EXPENDITURE AL ONG WITH EXPENDITURE OF RS.7,67,713/- INCURRED ON OTHER BUILDINGS OWNED BY THE ASSESSEE. THE CAPITAL EXPENDITURE WAS MADE OUT ON ACCOUNT OF COST OF BRIC KS, CEMENT, FABRICATION, KAPCHI, STEEL AND SUPERVISION CHARGES. LOOKING TO T HE NATURE OF EXPENSES NARRATED IN THE ASSESSMENT ORDER, IT WAS RIGHTLY CL AIMED AS BUSINESS EXPENDITURE. LD. COUNSEL POINTED OUT THAT BUILDING REPAIR EXPENDITURE INCURRED ITA NO.3250 &3260/AHD/2004 A.Y. 2001-02 ITO WD-5(3), ABD V. RAJ KA DESIGN P. LTD. PAGE 5 ON EXISTING BUILDING VIZ. CAMP BUILDING OF RS.1,70, 705/- AND BHUJ BUILDING OF RS.12,538/- SHOULD NOT BE CLUBBED WITH THE AFORESAI D EXPENDITURE AS THEY ARE MAINLY ON ACCOUNT OF WHITE WASHING AND REPLACING TH E OLD MATERIAL. IT IS, THEREFORE, SUBMITTED THAT ADDITION OF RS.13,78,423/ - MADE BY THE AO BE DELETED AND HE SHOULD BE DIRECTED TO TREAT THEM AS BUILDING REPAIR EXPENSES. ACCORDINGLY, THIS ISSUE OF REVENUES APPEAL IS DISM ISSED AND THAT OF THE ASSESSEE IS ALLOWED. 5. THE NEXT COMMON ISSUE IN THESE CROSS APPEALS OF THE REVENUE AND THAT OF ASSESSEE IS AS REGARDS TO THE ORDER OF CIT(A) IN RESTRICTING THE ADDITION OF RS.45,861/- AS AGAINST THE ADDITION MADE BY THE ASS ESSING OFFICER AT RS.91,722/- REGARDING EXPENDITURE OF EARTH-QUACK RE LIEF FUND DIRECTING THE ASSESSING OFFICER TO ALLOW 50% OF THE DEDUCTION REL ATED TO THE CLAIM OF EARTH- QUAKE RELIEF FUND. THE REVENUES CLAIM IS THAT NO EVIDENCE WAS PRODUCED BY THE ASSESSEE AND THE CIT(A) WRONGLY RELIED ON THE S AME SUBMISSION. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE BRIEF FACTS ARE THA T DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE-COMPANY HAS DEBITED THE SUM OF RS.1,12,722/- UNDER THE HEAD EARTH-QUAKE RELIEF FUND EXPENSES. A CCORDING TO THE AO FOR THE SUM OF RS.91,722/- THE ASSESSEE HAS NOT PRODUCED AN Y RECEIPT FOR DEDUCTION AND AFTER DISCUSSING THE ISSUE AT LENGTH IN THE ASS ESSMENT ORDER, THE AO DISALLOWED HE SUM OF RS.91,722/- AND ADDED TO THE T OTAL INCOME OF THE ASSESSEE-COMPANY. AGGRIEVED THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND CIT(A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE BY GIVING FOLLOWING FINDING IN PARA-7.2 OF HIS APPELLATE ORDER:- 7.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE A.R OF THE APPELLANT CAREFULLY. I HAVE ALSO GONE THROUG H THE DECISIONS, REFERRED O ABOVE, RELIED UPON BY THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. IT IS SEEN THAT THE APPELLANT HAS INCURRED THESE EXPENSES FOR ITS WORKE RS WHO ARE WORKING FOR THE COMPANY WHOSE FAMILY LIFE WERE DISTURBED DU E TO EARTHQUAKE OCCURRED ON 26-01-2001. IT IS FURTHER SEEN THAT TO GIVE SUPPORT TO THE ITA NO.3250 &3260/AHD/2004 A.Y. 2001-02 ITO WD-5(3), ABD V. RAJ KA DESIGN P. LTD. PAGE 6 WORKERS, THE APPELLANT HAD SUPPLIED BASIS MATERIALS FOR THEIR LIVELIHOOD SO THAT THEY COULD COME OUT OF FEAR AND STARTED WOR K FOR PENDING ORDERS. THIS SHOWS THAT THE EXPENDITURE INCURRED BY THE APP ELLANT HAD DIRECT NEXUS FOR EARNING THE APPELLANTS INCOME. I AM OF T HE VIEW THAT THERE ARE CERTAIN RESPONSIBILITIES AS A CORPORATE ENTITY FOR WELFARE OF THEIR EMPLOYEES WHICH SHOULD BE CONSIDERED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE AS HELD BY VARIOUS COURTS. IN THE INSTANT CASE THE APPELLANT HAS CLAIM ED TO HAVE INCURRED TOTAL AMOUNT OF RS.91,722/- FOR ITS WORKERS WHO ARE AFFECTED BY EARTHQUAKE. HOWEVER, THE APPELLANT HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE THAT WHOLE OF THE AMOUNT HAVE BEEN INCURRE D FOR ITS WORKERS. THE BILLS WERE ALSO NOT PRODUCED BEFORE THE ASSESSI NG OFFICER. THE APPELLANT HAS ALSO NOT GIVEN DETAILS OF WORKERS TO WHOM SUCH TYPE OF HELP WERE GIVEN. IN THESE CIRCUMSTANCES, I AM OF TH E VIEW THAT THE EXPENDITURE INCURRED BY THE APPELLANT IS NO HIGHER SIDE AND IT WOULD REASONABLE IF THE SAME IS RESTRICTED TO 50%. THUS, THE APPELLANT GETS RELIEF OF 50% I.E. RS.45,861/- AND THE BALANCE AMOU NT OF RS.45,861/- IS CONFIRMED. WE FIND FROM THE ABOVE THAT THE ASSESSEE IS UNABLE TO PRODUCE THE NECESSARY EVIDENCE FOR THE CLAIM AND IN THE ABSENCE OF THE SA ME THE CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION AT 50% AND ALLOWED THE RELIE F FOR THE BALANCE. IN VIEW OF THE ABOVE, WE CONFIRM THE FINDINGS OF CIT(A). A CCORDINGLY, THIS COMMON ISSUE OF BOTH THE APPEALS IS DISMISSED. 7. THE NEXT GROUNDS NO.2, 3 AND 7 IN THIS APPEAL O F ASSESSEE IN ITA NO.3260/AHD/2004 IS AS REGARDS TO ELECTRICAL REPAIR EXPENSES OF RS. 25,371/-, FOREIGN TOUR EXPENSES OF RS.3,85,523/- AND ADDITION OF RS.10,146/- FOR INTEREST INCOME DISALLOWED BY THE CIT(A). 8. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THE ABOVE THREE GROUNDS. ACCORDINGLY, WE DISMISS THE TWO GRO UNDS OF THE ASSESSEES APPEAL AS NOT PRESSED. 9. THE NEXT COMMON ISSUE IN THESE CROSS APPEALS IS AS REGARDS TO PART RELIEF ALLOWED BY THE CIT(A) ON ACCOUNT OF DEDUCTIO N U/S.80HHC OF THE ACT ON DEPB AND DUTY DRAWBACK. ITA NO.3250 &3260/AHD/2004 A.Y. 2001-02 ITO WD-5(3), ABD V. RAJ KA DESIGN P. LTD. PAGE 7 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE CIT(A) HAS ALLOWED T HE CLAIM OF THE ASSESSEE ON THE DEPB AND SET ASIDE THE ISSUE OF DUTY DRAWBAC K TO THE FILE OF THE ASSESSING OFFICER BY GIVING FOLLOWING FINDING IN PARA-10.2 TO 10.2.5 IN HIS APPELLATE ORDER:- 10.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE A.R OF THE APPELLATE CAREFULLY. I HAVE ALSO GONE TH ROUGH THE DECISIONS AS WELL AS APPELLATE ORDERS OF THE VARIOUS CIT(A) RELI ED UPON BY HE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS STATED THAT DEPB LINCENCE IS ISSUED UNDER FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 AND THEREFORE, NOT COVERED BY THE PROVISI ONS OF SECTION 28 OF THE I.T. ACT. THE REPEAL AND SAVINGS PROVISIONS OF THE 1992 ACT DO NOT SUPPORT THE VIEW TAKEN IN THE ASSESSMENT ORDER, AND FURTHER MORE, SECTION 4 OF THE 1992 ACT SPECIFICALLY SAVES THE OR DERS ISSUED UNDER THE 1947 ACT. IN PURSUANCE OF SECTION 8 OF THE GENERAL CLAUSE ACT (1D OF 1897), REFERENCE TO THE 1947 ACT IN SECTION 28(IIIA ) OF THE INCOME-TAX ACT, SHOULD BE TREATED AS REFERENCE TO THE 1992 ACT . A CAREFUL READING OF SECTION 8 OF GENERAL CLAUSES ACT AND THE CBDT CIRCU LAR DATED 23-02- 1998 MAKES THE THING CLEAR. SECTION 8 OF THE GENERA L CLAUSES ACT READS AS UNDER- 8. CONSTRUCTION OF REFERENCES TO REPEALED ENACTMEN TS:- (1) WHERE THIS ACT OR ANY (CENTRAL ACT) OR REGULATI ON MADE AFTER THE COMMENCEMENT OF THIS ACT, ENACTMENT, THEN REFER ENCES IN ANY OTHER ENACTMENT OR IN ANY INSTRUMENT TO THE PRO VISION SO REPEALED SHALL, UNLESS A DIFFERENT INTENTION APPEAR S, BE CONSTRUED AS REFERENCES TO THE PROVISION SO RE-ENAC TED. 10.2.1 IT IS CLEAR FROM ABOVE THAT WHEN AN OLD ACT IS REPEALED AND IN ITS PLACE NEW LEGISLATION IS ENACTED AND IF SOME OTHER STATUTE REFERS TO A PARTICULAR PROVISION OF THE OLD ACT, SUCH REFERENCE IS TO BE CONSTRUED AS REFERENCE TO NEWLY ENACTED ACT UNLESS A DIFFERENT I NTENTION APPEARS. THE AMENDMENT TO I.T. ACT BRINGING IN CLAUSES 28(IIIA), 28(IIIB) AND 28(IIIC) HAVE BEEN ENACTED BY FINANCE ACT, 1990 (W.E.F. 1.4. 1962) WHEREAS FOREIGN TRADE (DEVELOPMENT AND REGULATION ACT WAS E NACTED IN THE YEAR 1992. WHEN APPLIED TO THE PROVISION SECTION 28 (IIIA), 28(IIIB) ON 28(IIIC) OF THE I.T. ACT, THE REFERENCE TO IMPORTS (CONTROL) ORDER OF 1955 MADE UNDER IMPORTS AND EXPORTS (CONTROL) ACT OF 194 7 IS TO BE CONSTRUED AS REFERENCE TO 1992 ACT. FURTHER CBDT IN STRUCTION BEARING F. NO.133/131/97-TPL DATED 23.2.1998 (CLARIFICATION SOUGHT BY APPAREL EXPORT PROMOTION COUNCIL (AEKPC) AS TO WHETHER THE PREMIUM RECEIVED FOR THE TRANSFER OF EXPORT QUOTAS WOULD BE TREATED AS A PART OF EXPORT ITA NO.3250 &3260/AHD/2004 A.Y. 2001-02 ITO WD-5(3), ABD V. RAJ KA DESIGN P. LTD. PAGE 8 PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC O F INCOME-TAX OR NOT) READS AS UNDER:- 2. DEDUCTION UNDER SECTION 80HHC IS ALLOWED ON EXP ORT PROFITS WITH A VIEW TO ENCOURAGE EARNING IN CONVERTIBLE EXC HANGE. SINCE THE PREMIUM PAYMENT ON EXPORT QUOTAS UNDER ELECTRON IC TRANSFER SYSTEM DOES NOT INVOLVE ANY EARNINGS IN FOREIGN EXC HANGE, THIS AMOUNT DOES NOT QUALITY FOR DEDUCTION UNDER SECTION 80HHC. 3. TECHNICALLY EXPORT PREMIUM CAN BE EQUATED WITH T HE ITEMS MENTIONED IN SECTION 28(IIIA0 (PROFIT ON SALE OF IM PORT LICENCES), SECTION 28(IIIB) (CASH ASSISTANCE) AND SECTION (III C) (DUTY DRAW BACK). 4. THEREFORE, THE PRESENT ITEM VIZ THE PREMIUM ON SALE OF EXPORT QUOTAS STATUTORILY RECEIVE THE SAME TREATMENT AS PR OFIT ON SALE OF IMPORT LICENCES, CASH ASSISTANCE AND DUTY DRAW BACK 10.2.2 IT IS CLEAR FROM ABOVE THAT EXPORT PREMIUM (WITH REFERENCE TO APPAREL EXPORT) CAN BE EQUATED WITH THE ITEMS MENTI ONED IN SECTION 28(IIIA). WITH THE SAME LOGIC THE PROFIT ARISING FR OM THE SALE OF DEPB LICENCES IS COVERED BY THE PROVISION OF SECTION 28( IIIA) OF THE I.T. ACT. 10.2.3 THE HONBLE ITAT AHMEDABAD HAS IN THE CASE O F PRATIBHA SYNTAX LTD SPECIFICALLY HELD THAT THE INCENTIVE UND ER DEPB ARE COVERED UNDER SECTION 28(IIIB). THE CIT(A)-XIII, MUMBAI HAS IN THE ORDER DATED 26-3-2003 ALSO DECIDED THE ISSUE IN THE SAME WAY. S IMILAR ISSUE OF SALE OF DEPB LICENCE WAS BEFORE CIT(A)-V, AHMEDABAD IN T HE CASE OF ADANI EXPORTS LTD. WHEREIN VIDE HIS ORDER NO. CIT(A )-V/ITO OSD-1/48 DATED 05-06-2003 HE HELD THAT THE PROFIT ARISING FR OM THE SALE OF DEPB LICENCES IS COVERED BY THE PROVISO U/S.80HHC(#). IN ANOTHER CASE OF M/S. BHANDARI EXPORTS CIT(A)-XIII, AHMEDABAD HAS, R ELYING ON CBDT CIRCULAR NO.621 AND CBDT INSTRUCTION F. NO.133/131/ 97 DATED 23.2.98, AND ALSO RELYING ON THE ITAT (AHD) DECISION IN THE CASE OF PRATIBHA SYNTEX LTD., HELD (VIDE HIS ORDER IN APPEAL NO. CIT(A)XIII/CAIT.CIR.7/36/04-05 DATED 23-06-2004) TH AT THE DSEPB LICENCES ARE COVERED UNDER THE PROVISIONS OF SECTIO N 28(IIIA) OF THE I.T. ACT. 1961 AND ALLOWED DEDUCTION U/S.80HHC(3) OF THE ACT ACCORDINGLY. 10.2.4 IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSI NG OFFICER IS DIRECTED TO TREAT THE DEPB LICENCES AS COVERED UNDER THE PRO VISIONS OF SECTION 28(IIIA) AND ALLOW THE DE U/S.80HHC(3) ACCORDINGLY. 10.2.5 WITH REGARD TO THE APPELLANTS CONTENTION I N RESPECT OF NOT CONSIDERING DUTY DRAWBACK OF RS.1,43,841/-, THE ASS ESSING OFFICER IS DIRECTED TO DISPOSED OFF THE APPELLANTS RECTIFICAT ION APPLICATION WHICH IS PENDING BEFORE HIM. ITA NO.3250 &3260/AHD/2004 A.Y. 2001-02 ITO WD-5(3), ABD V. RAJ KA DESIGN P. LTD. PAGE 9 11. WE FIND FROM THE ABOVE ORDER OF CIT(A) ON THE I SSUE OF DEPB LICENCE, WE FIND NO INFIRMITY IN THE SAME. AS REGARDS TO DU TY DRAWBACK, WE FIND THAT THE ASSESSING OFFICER HAS CONSIDERED THAT THIS ISSUE HA S BEEN CONTESTED BY THE ASSESSEE U/S.154 OF THE ACT AND ACCORDINGLY THE SAM E WAS SET ASIDE TO THE FILE OF ASSESSING OFFICER. WE FURTHER STATE THAT THE AO WILL CONSIDER THE CLAIM OF DUTY DRAWBACK AND DECIDE ACCORDING TO LAW. AS FAR DUTY DRAWBACK IS CONCERNED, THE ISSUE IS SET ASIDE TO THE FILE OF AO AND ON DEPB THE REVENUES APPEAL IS DISMISSED. ACCORDINGLY, REVENUES APPEAL IS DISMISSED AND THAT OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PU RPOSES ON THIS ISSUE. 12. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE ADDITION OF RS.3,38,416/- ON ACCOUNT OF VALUATION OF CLOSING STOCK ON ESTIMATE BASIS. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE BRIEF FACTS RELATIN G TO THE ABOVE ISSUE ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS REQUIRED THE ASSESSEE TO EXPLAIN THE METHOD OF VALUATION OF CLOSING STOCK OF FINISHED GOODS. THE ASSESSEE HAS VALUED CLOSING STOCK OF FI NISHED GOODS AT COST OR MARKET VALUE, WHICHEVER WAS LOWER. BUT THE AO MENTI ONED IN THE ASSESSMENT ORDER THAT ANY SYSTEM OF ACCOUNTING WHICH INCLUDES FROM THE VALUATION OF CLOSING STOCK IN TRADE, ALL COSTS OTHER THAN THE CO ST OF RAW MATERIAL IS LIKELY TO RESULT IN DISTORTED PICTURE OF THE TRUE STATE OF AF FAIRS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING THE CHARGEABLE INCOME. ACCORDI NG TO THE AO FOR VALUATION OF CLOSING STOCK PROPORTIONATE OVERHEAD E XPENSES ARE REQUIRED TO BE ADDED. THEREFORE AFTER DISCUSSING THE ISSUE AT LENG TH IN THE ASSESSMENT ORDER, THE AO WORKED OUT PROPORTIONATE EXPENSES, DIFFERENT OF EXPENSES FOR CONVERSION OF RAW MATERIAL INTO FINISHED GOODS AS M ENTIONED IN THE ASSESSMENT ORDER AT RS.3,38,416/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE-COMPANY. AGGRIEVED, THE ASSESSEE PREFERRE D APPEAL BEFORE CIT(A) ITA NO.3250 &3260/AHD/2004 A.Y. 2001-02 ITO WD-5(3), ABD V. RAJ KA DESIGN P. LTD. PAGE 10 AND CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OF FICER BY GIVING FOLLOWING FINDING IN PARA-8.2 :- 8.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE APPELLANT CAREFULLY. I HAVE ALSO GONE THROUGH THE O BSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. I AGREE WITH THE OBSERVATIONS OF THE ASSESSING OFFICER MADE AT PAGE-10 OF THE ASS ESSMENT ORDER. I AM OF THE VIEW THAT CORRECT VALUATION OF CLOSING STOCK CAN ONLY GIVE TRUE PROFIT FROM BUSINESS ACTIVITY, AND THEREFORE, FOR C ORRECT VALUATION OF CLOSING STOCK RELATED EXPENSES ARE REQUIRED TO BE A DDED TO THE CLOSING STOCK. RELIANCE IS PLACED ON THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF CIT V. BRITISH PAINTS (I) LTD., REPORTE D IN 188 ITR 44 (1990). HAVING CONSIDERED THE FACTS OF THE CASE AND RESPECT FULLY FOLLOWING DECISION, REFERRED TO ABOVE, THERE IS NO JUSTIFICAT ION FOR INTERFERING WITH THE ADDITION MADE BY THE ASSESSING OFFICER. THE ADD ITION MADE BY THE A.O OF RS.3,38,416/- IS, THEREFORE, CONFIRMED. WE FIND FROM THE ABOVE THAT THE OVERHEAD EXPENSES W HICH ARE RELATING TO MANUFACTURING OR TRADING ARE TO BE INCLUDED IN THE VALUATION OF CLOSING STOCK. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF T HE CIT(A) AND WE CONFIRM THE SAME. 14. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S AS REGARDS TO CHANDLA EXPENSES CONFIRMED BY CIT(A) AND THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- [6] CHANDLA EXPENSES OF RS.3405/- [A] LEARNED CIT(A) HAS ERRED IN NOT GIVING ANY FIND ING ON THE GROUNDS OF APPEAL TAKEN BY THE APPELLANT FOR DISALLOWANCE CHAN DLA EXPENSES OF RS.3405/- AS ADMISSIBLE BUSINESS EXPENSES. [B] LEARNED CIT(A) OUGHT TO HAVE ALLOWED CHANDLA EX PENSES INCURRED ON AUSPICIOUS OCCASION OF EMPLOYEE / CONTRACTOR AS BUSINESS EXPENDITURE ON THE BASIS OF CUSTOM PREVAILING IN TH E INDUSTRIES. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS OF THE CASE RECORDS. WE FIND THAT THE ASSESSING OFFICER D ISALLOWED THE CLAIM OF EXPENSES ARE RELATED TO CHANDLA TO EMPLOYEES AND CO NTRACTORS DOES NOT APPLY IN THE PRESENT CASE AND AO ADDED THE TOTAL INCOME O F THE ASSESSEE. THE CIT(A) HAS NOT REFLECTED THIS ISSUE IN HIS ORDER AN D WE SET ASIDE THIS ISSUE TO ITA NO.3250 &3260/AHD/2004 A.Y. 2001-02 ITO WD-5(3), ABD V. RAJ KA DESIGN P. LTD. PAGE 11 THE FILE OF CIT(A) AND THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 16. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED AND THAT OF REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 04/09/2009 SD/- SD/- (P.K.BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 04/09/2009 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-XI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD