The ITO Ward-1(3), Ahmedabad V. M/S Atul Ltd, Ahmedabad

ITA 3254/AHD/2002

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0261 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-08-2009
• Assessment Year: 1997-1998
• Appeal Filed On: 18-10-2002
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLY JINDAL
• Assessee Lawyers: J P SHAH
• Keywords: Gift; Business expenditure; Retrospective amendment; Revenue expenditure; Capital expenditure
• Section: 143(3); 251

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI R.V.EASWAR, VICE-PRESIDENT AND A.N. PAHUJA, ACCOUNTANT MEMBER) ITA NO.2782/AHD/2002 [ASSTT.YEAR : 1997-1998] ATUL LIMITED ASHOKA CHAMBERS, RASALA MARG ELLISBRIDGE, AHMEDABAD 380 006. VS. ITO, WARD-1(1) AHMEDABAD. ITA NO.3254/AHD/2002 [ASSTT.YEAR : 1997-1998] ITO, WARD-1(1) AHMEDABAD. VS. ATUL LIMITED ASHOKA CHAMBERS, RASALA MARG ELLISBRIDGE, AHMEDABAD 380 006. ASSESSEE BY : SHRI J.P. SHAH REVENUE BY : SHRI SHELLY JINDAL O R D E R PER R.V.EASWAR, VICE-PRESIDENT : THESE ARE CROSS-APPEALS RELATING TO THE ASSESSMENT YEAR 1997-98. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF EPOXY RESINS, S ULPHA DRUGS, HARDENERS, BISPHENOL-A ETC. THE APPEALS ARISE OUT OF THE ASSE SSMENT ORDERS PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT ON 28-3-2000. 2. ASSESSEES APPEAL. THE FIRST THREE GROUNDS QUESTIONING THE JURISDICTIO N OF THE ASSESSING OFFICER TO MAKE AN ASSESSMENT ON THE ASSESSEE COMPANY ARE DISM ISSED AS NOT PRESSED. 3. THE FOURTH GROUND RELATES TO THE DISALLOWANCE OF RS.33,198/- UNDER RULE 6D OF THE IT RULES. IN PARA-5 OF THE ASSESSMENT OR DER, THE AO INVOKED THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT IN CIT VS . CORAMANDEL FERTILIZERS LTD., (1996) 220 ITR 298 TO DISALLOW THE AFORESAID AMOUNT. RULE 6D PROVIDES FOR THE DISALLOWANCE OF TRAVELLING EXPENSES. IN TH E RETURN THE ASSESSEE COMPUTED THE DISALLOWANCE BY TAKING INTO CONSIDERAT ION ALL THE TRIPS UNDERTAKEN PAGE - 2 ITA NO.2782 AND 3254/AHD/2002 -2- BY A PERSON DURING THE RELEVANT ACCOUNTING YEAR. T HE AO HOWEVER ENHANCED THE DISALLOWANCE BY A FURTHER SUM OF RS.33,198/- BY CALCULATING THE AMOUNT ALLOWABLE ON THE ACTUAL NUMBER OF DAYS TRAVELLED BY THE EMPLOYEE DURING EACH TRIP. THE DISALLOWANCE MADE BY THE AO WAS CHALLENG ED BEFORE THE CIT(A) AND IT WAS CONTENDED THAT THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE WAS IN ITS FAVOUR. THE CIT(A) HOWEVER REJECTED THE ASS ESSEES CONTENTION, OBSERVING THAT THE JUDGMENT OF THE HIGH COURT OVERR IDES THE ORDERS OF THE TRIBUNAL AND ACCORDINGLY CONFIRMED THE DISALLOWANCE . 4. BEFORE US, IT WAS POINTED OUT ON BEHALF OF THE A SSESSEE THAT THE JUDGMENT OF THE CALCUTTA HIGH COURT IN CIT VS. GENERAL ELECT RIC COMPANY OF INDIA LTD., (2002) 255 ITR 22 WAS IN FAVOUR OF THE ASSESSEES C ONTENTION AND HAVING REGARD TO THE RULE THAT WHERE TWO VIEWS ARE POSSIBL E ON THE INTERPRETATION OF A PROVISION THE VIEW THAT IS IN FAVOUR OF THE ASSESSE E SHOULD BE FOLLOWED, THE DISALLOWANCE MUST BE DELETED FOLLOWING THE CALCUTTA VIEW. WE HAVE EXAMINED THE MATTER. WE FIND THAT IN ADDITION TO T HE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT CITED ABOVE, THERE IS ALSO A JUD GMENT OF THE MADRAS HIGH COURT IN CIT VS. ASHOK LEYLAND LTD., (2002) 253 ITR 425 WHICH HAS TAKEN THE VIEW IN FAVOUR OF THE AO. THE CALCUTTA HIGH COURT IN ITS JUDGMENT CITED ABOVE HAS DISSENTED FROM THE MADRAS AND ANDHRA PRADESH HI GH COURTS AND HAS TAKEN THE VIEW WHICH IS IN ACCORDANCE WITH THE VIEW CANVA SSED BEFORE US ON BEHALF OF THE ASSESSEE. IN CIT VS. VEGETABLE PRODUCTS LTD., (1973) 88 ITR 192, THE SUPREME COURT OBSERVED THAT IF THE COURT FINDS THAT THE LANGUAGE OF A TAXING PROVISION IS AMBIGUOUS OR CAPABLE OF MORE MEANINGS THAN ONE, THEN IT SHOULD ADOPT THAT INTERPRETATION WHICH FAVOURS THE ASSESSE E. APPLYING THIS RULE, WE ACCEPT THE ASSESSEES CONTENTION THAT THE DISALLOWA NCE SHOULD BE WORKED OUT UNDER RULE 6D IN THE MANNER LAID DOWN IN THE JUDGME NT OF THE CALCUTTA HIGH COURT AND DIRECT THE AO TO DO SO. THE GROUND IS AL LOWED. PAGE - 3 ITA NO.2782 AND 3254/AHD/2002 -3- 5. THE FIFTH AND LAST GROUND RELATES TO THE DEDUCTI ON UNDER SECTION 80M OF THE ACT. IN PARA-8.1 OF THE ASSESSMENT ORDER THE A O OBSERVED THAT THE ASSESSEE HAS CLAIMED THE DEDUCTION WITHOUT REDUCING THE EXPE NSES INCURRED FOR EARNING THE DIVIDEND INCOME. SECTION 80M PROVIDES FOR DEDU CTION IN RESPECT OF CERTAIN INTER-CORPORATE DIVIDENDS FROM THE GROSS TOTAL INCO ME. THIS SECTION HAS TO BE READ WITH SECTION 80AA WHICH WAS INSERTED BY THE FI NANCE NO.2 ACT, 1980 WITH RETROSPECTIVE EFFECT FROM 1-4-1968. IT PROVID ED THAT THE DEDUCTION UNDER SECTION 80M IS TO BE ALLOWED AGAINST THE INCOME BY WAY OF DIVIDENDS AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT AND NOT WITH REFERENCE TO THE GROSS AMOUNT OF THE DIVIDENDS. APPARENTLY R ELYING ON THIS PROVISION, THE AO TOOK THE VIEW THAT 5% OF THE GROSS DIVIDEND INCO ME WOULD HAVE BEEN INCURRED BY THE ASSESSEE AS EXPENSES FOR EARNING TH E SAME. HE ACCORDINGLY REDUCED THE DEDUCTION FROM RS.25,47,279/- TO RS.24, 19,916/-. THE CIT(A) HAVING CONFIRMED THE VIEW OF THE AO THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 6. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 27-3-2009 IN THE ASSESSEES O WN CASE FOR THE ASSESSMENT YEAR 1995-96 IN ITA NOS.2779 AND 3252/AHD/2002 (CRO SS APPEALS). IN PARA-4 AND 5 OF THE ORDER THE IDENTICAL ISSUE HAS BEEN CON SIDERED AND IT WAS HELD THAT THE REVENUE COULD NOT POINT OUT ANY EXPENDITURE WHI CH IS ATTRIBUTABLE TO THE DIVIDEND INCOME. IT WAS FURTHER OBSERVED THAT EVEN IN THE EARLIER YEARS NO ALLOCATION OF EXPENSES WAS MADE BECAUSE NO SUCH EXP ENDITURE WAS INCURRED FOR EARNING THE DIVIDEND. IN THIS VIEW OF THE MATTER, THE TRIBUNAL HELD THAT THE ALLOCATION OF EXPENSES FOR EARNING THE DIVIDEND INC OME IS WITHOUT ANY BASIS. SINCE THE FACTS RELATING TO THE CONTROVERSY ARE THE SAME IN THE PRESENT YEAR, RESPECTFULLY FOLLOWING THE EARLIER ORDER OF THE TRI BUNAL CITED ABOVE, WE DIRECT THE AO TO ALLOW THE DEDUCTION UNDER SECTION 80M AS CLAIMED BY THE ASSESSEE AT RS.25,47,279/- WITHOUT ALLOCATING ANY EXPENSES AGAI NST THE DIVIDENDS RECEIVED. THE GROUND IS ALLOWED. PAGE - 4 ITA NO.2782 AND 3254/AHD/2002 -4- 7. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. 8. DEPARTMENTS APPEAL: THE FIRST GROUND IS THAT THE CIT(A) ERRED IN ALLOWI NG THE DEFERRED REVENUE EXPENDITURE OF RS.86,17,078/-. THE ISSUE IS DISCUS SED IN PARA-7 OF THE ASSESSMENT ORDER. THE ASSESSEE INCURRED ADVERTISEM ENT EXPENSES OF RS.1,29,25,616/-, BUT AS PER THE ACCOUNTING POLICY DEBITED RS.43,08,538/- TO THE PROFIT AND LOSS ACCOUNT AND CARRIED FORWARD THE BAL ANCE OF RS.86,17,078/- IN THE BALANCE SHEET. IN THE RETURN HOWEVER THE ASSESSEE CLAIMED THE ENTIRE EXPENSES OF RS.1,29,25,616/- AS A DEDUCTION. IT APPEARS THA T IN THE ASSESSMENT YEAR 1996- 97 THE AO HAD DISALLOWED THE AMOUNT CARRIED FORWARD TO THE BALANCE SHEET AND HAD ALLOWED ONLY THE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT. CONSISTENT WITH THE SAME, HE DISALLOWED AND ADDED B ACK THE AMOUNT OF RS.86,17,078/- IN THE ASSESSMENT ORDER. SIMILARLY , THE ASSESSEE HAD CAPITALIZED INTEREST AND COMMITMENT CHARGES OF RS.9,12,235/- IN ITS BOOK OF ACCOUNTS, BUT CLAIMED THE SAME AS A DEDUCTION IN THE RETURN. THE AO DISALLOWED THE CLAIM ON THE GROUND THAT THE ASSESSEE ITSELF HAD CAPITALIZED THE EXPENSES IN ITS BOOKS. BOTH THE DISALLOWANCES WERE CHALLENGED IN APPEAL BE FORE THE CIT(A) WHO DELETED THE DISALLOWANCES. HE HELD THAT THE ASSESS EE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THERE WAS NO DO UBT THAT THE EXPENSES HAD ACCRUED IN THE RELEVANT ACCOUNTING YEAR. ACCORDING TO HIM, THE ONLY POINT TO BE TAKEN NOTE OF, AND WHICH WAS ADVERSE TO THE ASSESSE E, WAS THAT IN THE BOOK OF ACCOUNTS THE ASSESSEE TREATED THE EXPENSES AS DEFER RED REVENUE EXPENDITURE. THE CIT(A) HOWEVER HELD THAT THIS CANNOT AFFECT THE INCOME TAX ASSESSMENT AS HELD BY THE SUPREME COURT IN THE CASE OF TUTICORIN ALKALIES, CHEMICALS AND FERTILISERS LTD. VS. CIT, 227 ITR 172. IN THIS JUD GMENT IT WAS OBSERVED THAT THE QUESTION HAS TO BE DECIDED ACCORDING TO THE PRI NCIPLES OF LAW AND NOT IN ACCORDANCE WITH ACCOUNTANCY PRACTICE AND THAT THE I NCOME TAX LAW DOES NOT PAGE - 5 ITA NO.2782 AND 3254/AHD/2002 -5- MARCH STEP-BY-STEP IN THE FOOT-PRINTS OF THE ACCOUN TANCY PROFESSION. APPLYING THIS DECISION, THE CIT(A) DIRECTED THE AO TO DELETE THE DISALLOWANCE OF THE ADVERTISEMENT EXPENSES. SO FAR AS THE INTEREST AND COMMITMENT CHARGES ARE CONCERNED, THE SAME RULE WAS APPLIED. IT WAS FURTH ER HELD THAT THE LOANS WERE TAKEN FOR THE PURCHASE OF PLANT AND MACHINERY OF TH E EXISTING BUSINESS OF THE MANUFACTURE OF APOXY RESINS, HARDENERS AND AUXILIAR IES AND SULPHA DRUGS INTERMEDIATES PLANTS. THESE ASSETS HAVE BEEN SHOWN BY THE ASSESSEE AS ITS BUSINESS ASSETS AND THERE WAS NO FINDING BY THE AO TO THE CONTRARY. IN THIS VIEW OF THE MATTER, AND ALSO FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CORE HEALT HCARE LTD., 251 ITR 61, THE CIT(A) DELETED THE DISALLOWANCE OF THE INTEREST AND COMMITMENT CHARGES. 9. THE REVENUE IS IN APPEAL AND WE HAVE HEARD THE R IVAL CONTENTIONS. SO FAR AS THE ADVERTISEMENT EXPENSES ARE CONCERNED, TH ERE IS NO DISPUTE THAT THE ADVERTISEMENT EXPENSES ARE ALLOWABLE AS BUSINESS EX PENDITURE. THE ONLY GROUND FOR DISALLOWING A PART OF THE ADVERTISEMENT EXPENSES WAS THAT THE ASSESSEE TREATED THE EXPENSES AS DEFERRED REVENUE E XPENSES IN ITS BOOKS OF ACCOUNTS. HOWEVER, AS RIGHTLY POINTED OUT BY THE C IT(A) IN HIS ORDER, FOLLOWING THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF TUTICORIN ALKALIES, CHEMICALS AND FERTILISERS LTD. (SUPRA) THE ACCOUNTI NG TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS IS NOT DECISIVE O R CONCLUSIVE OF ITS ALLOWABILITY IN THE INCOME TAX ASSESSMENT. FURTHER, THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE IN INCOME TAX LAW AND EXPENDITURE WHICH IS BASICALLY OF REVENUE NATURE OR IS INCIDENTAL TO THE DAY-TO-DAY CARRYING ON OF THE BUSINESS OF THE ASSESSEE CANNOT BE DISALLOWED MERELY BECAUSE THE BE NEFITS OF THE EXPENDITURE MAY INURE TO THE ASSESSEE BEYOND THE ACCOUNTING PER IOD. THIS ASPECT OF THE MATTER HAS BEEN EXAMINED AND SETTLED LONG BACK BY T HE ALLAHABAD HIGH COURT IN THE JUDGMENT REPORTED AS HINDUSTAN COMMERCIAL BA NK LTD., IN RE. (1952) 21 ITR 353. IN THAT CASE THE ASSESSEE BANK INCURRED A DVERTISEMENT EXPENSES IN THE OPENING OF NEW BRANCHES, SUB-BRANCHES AND PAY OFFIC ES. THEY WERE CLAIMED AS PAGE - 6 ITA NO.2782 AND 3254/AHD/2002 -6- BUSINESS EXPENDITURE. THE TRIBUNAL HELD THAT THE A DVERTISEMENT EXPENSES WERE DEFERRED REVENUE EXPENDITURE AND SPREAD IT OVER A P ERIOD OF 20 YEARS AND ALLOWED DEDUCTION OF 1/20TH OF THE EXPENDITURE IN T HE RELEVANT YEAR. THIS ACTION OF THE TRIBUNAL WAS DISAPPROVED BY THE HIGH COURT A ND IT WAS OBSERVED THAT THE LEARNED COUNSEL FOR THE COMMISSIONER HAS FRANKLY A DMITTED THAT HE CAN FIND NO PROVISION IN THE ACT FOR SPREADING OUT THE EXPENDIT URE OVER A PERIOD OF 20 YEARS. IF THE AMOUNT WAS LAID OUT AND EXPENDED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND WAS NOT IN THE NATURE O F A CAPITAL EXPENDITURE THE WHOLE OF IT WAS ALLOWABLE UNDER SECTION 10(2)(XV) O F THE ACT. ACCORDINGLY, IT WAS HELD THAT THERE WAS NO LEGAL JUSTIFICATION FOR SPREADING OUT THE EXPENSES OVER A PERIOD OF 20 YEARS. WE THEREFORE HOLD THAT THE CIT(A) COMMITTED NO ERROR IN DIRECTING THE AO TO ALLOW THE ENTIRE ADVER TISEMENT EXPENSES OF RS.1,29,25,616/- WITHOUT BEING INCOMMODED BY THE AC COUNTING TREATMENT GIVEN BY THE ASSESSEE. 10. AS REGARDS THE INTEREST CAPITALISED IN THE ASSE SSEES BOOKS, IT WAS NOT THE CASE OF THE DEPARTMENT EITHER IN THE ASSESSMENT ORD ER OR IN THE COURSE OF THE ARGUMENTS BEFORE US THAT THE LOANS ON WHICH INTERES T WAS PAID WERE NOT BORROWED FOR THE PURPOSE OF ACQUIRING PLANT AND MAC HINERY FOR THE EXISTING BUSINESS OF THE COMPANY. THE ONLY GROUND ON WHICH THE INTEREST WAS DISALLOWED WAS THAT IT WAS CAPITALISED IN THE BOOKS OF THE COMPANY. WE HAVE ALREADY SEEN THAT THE TREATMENT GIVEN BY THE ASSESS E IN ITS BOOKS OF ACCOUNT TO A PARTICULAR EXPENDITURE IS NOT DECISIVE OF ITS ALLOW ABILITY IN THE INCOME TAX ASSESSMENT. THERE IS ALSO NO FINDING THAT THE ASS ETS ACQUIRED OUT OF THE BORROWING WERE NOT BUSINESS ASSETS OF THE EXISTING BUSINESS OF THE ASSESSEE. IF THAT IS SO, WE ARE RESPECTFULLY BOUND TO APPLY THE JUDGMENT OF THE SUPREME COURT IN DCIT VS. CORE HEALTHCARE LTD., (2008) 298 ITR 194 IN WHICH THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN DCIT VS. CORE HEALTHCARE LTD., (2001) 251 ITR 61 WAS AFFIRMED. THE SUPREME COURT HAS HELD THAT INTEREST ON AMOUNTS BORROWED FOR PURCHASE OF MACHIN ERY FOR THE PURPOSE OF THE PAGE - 7 ITA NO.2782 AND 3254/AHD/2002 -7- BUSINESS IS ALLOWABLE IN THE PREVIOUS YEAR EVEN IF THE ASSET WAS NOT USED IN THE YEAR OF BORROWING. IT WAS HELD THAT THE PROVISO IN SERTED IN SECTION 36(1)(III) BY THE FINANCE ACT, 2003 WITH EFFECT FROM 1-4-2004 WIL L OPERATE PROSPECTIVELY AND WOULD APPLY FROM THE ASSESSMENT YEAR 2004-2005. I N THE LIGHT OF THE FINDINGS RECORDED BY THE CIT(A) WHICH ARE NOT DISPUTED BEFOR E US AND RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF THE SUPREME COU RT WE AFFIRM THE DECISION OF THE CIT(A) THAT THE INTEREST OF RS.9,12,235/- CA PITALISED IN THE ASSESSEES BOOKS WOULD NEVERTHELESS BE ALLOWED AS BUSINESS EXP ENDITURE. THUS, THE FIRST TWO GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 11. THE THIRD GROUND RELATES TO THE EXPENSES OF RS. 13,746/- ON GIFTS AND PRESENTS. THE DISALLOWANCE WAS MADE UNDER RULE 6B OF THE IT RULES ON THE GROUND THAT THE PRESENTATION ARTICLES COSTING MORE THAN RS.1000/- SHOULD BE DISALLOWED. THE CIT(A) FOUND THAT THE PRESENTATION ARTICLES INVOLVED WERE MANGO BASKETS, TAPESTRY ETC. ON WHICH THERE WAS NO LOGO OF THE ASSESSEE COMPANY. HE THEREFORE HELD THAT THE EXPENSES WERE NOT ADVERTISEMENT EXPENSES AND RULE 6B WAS NOT ATTRACTED. HIS DECIS ION IS IN CONFORMITY WITH THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN C IT VS. DASCROI TALUKA CO-OP. PURCHASE AND SALES UNION LTD., (1980) 126 IT R 413 AND THE JUDGMENT OF THE BOMBAY HIGH COURT IN ALLANA SONS PVT. LTD. 2 16 ITR 690. RESPECTFULLY FOLLOWING THESE JUDGMENTS, ONE OF WHICH IS OF THE J URISDICTIONAL HIGH COURT, WE CONFIRM THE DECISION OF THE CIT(A) AND DISMISS THE GROUND. 12. THE FOURTH AND LAST GROUND RELATES TO DEDUCTIO N UNDER SECTION 80I OF THE ACT. THE DEDUCTION WAS CLAIMED IN RESPECT OF THE B RL UNIT OF THE ASSESSEE. IN THE ASSESSMENT ORDER THE AO NOTED THAT THE CLAIM WA S EXAMINED IN THE ASSESSMENT YEAR 1995-96 AND FOR THE REASONS GIVEN I N THE ASSESSMENT ORDER FOR THAT YEAR THE CLAIM WAS FOUND TO BE EXCESSIVE. AD OPTING THE SAME REASONS FOR THE YEAR UNDER CONSIDERATION, THE AO REDUCED THE PR OFIT OF THE BRL UNIT TO RS.16,37,290/- AND ACCORDINGLY REDUCED THE DEDUCTIO N U/S.80I TO RS.4,91,187/- PAGE - 8 ITA NO.2782 AND 3254/AHD/2002 -8- AS AGAINST THE CLAIM OF RS.1,29,03,851/-. THE FOLL OWING REASONS WERE GIVEN IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1995-9 6. I) CUMULATIVE PROFIT OF THE AFORESAID PLANT WAS GR EATER THAN THE TOTAL PROFIT OF ASSESSEE COMPANY AND THEREFORE ASSESSEE W AS ASKED TO FURNISH SEPARATE PROFIT AND LOSS ACCOUNT FOR ALL UN ITS. THE UNIT- WISE PROFIT AND LOSS ACCOUNT WERE NOT FILED. II) THE TRANSFER PRICES ADOPTED BY THE ASSESSEE WAS NOT AS PER NORMAL PRACTICE BECAUSE AS PER ACCEPTED PRINCIPLES, INTERN AL TRANSFER HAS TO BE MADE AT COST PRICE BECAUSE A PERSON CANNOT EA RN PROFIT FROM ONESELF. III) ASSESSEE HAD NOT ADOPTED BULK PRICE OF PACKING CHAR GES AND SALE OVERHEADS. INSTEAD, ASSESSEE HAS ADOPTED PRICE TAK EN FOR SELLING GOODS, IN VERY SMALL QUANTITY WHICH INVOLVE A LIABI LITY OF PACKAGING COST AND WERE THUS TRANSFERRED AT VERY HI GH RATE. IV) THE PRICE OF THE INTERNAL TRANSFER WAS FOUND TO BE VERY DIFFERENT FROM THE RATE ADOPTED FOR VALUING CLOSING STOCK. V) IT WAS ALSO FOUND THAT ADMINISTRATIVE EXPENSES HAD NOT BEEN DEBITED TO THE INCOME AND EXPENDITURE STATEMENT SEP ARATELY PREPARED FOR THE ELIGIBLE UNIT. VI) ASSESSEE DID NOT FURNISH UNITWISE SEPARATE PROFIT A ND LOSS ACCOUNT THEREBY MAKING IT IMPOSSIBLE TO ASCERTAIN IMPACT OF THE TRANSFER ON THE PROFITS OF THE OTHER UNITS. 13. ON APPEAL THE CIT(A) HELD THAT THE AO WAS NOT J USTIFIED IN HIS VIEW THAT THE ASSESSEE WAS TRYING TO DIVERT MAXIMUM PROFITS T O THE ELIGIBLE INDUSTRY UNITS SO AS TO OBTAIN THE DEDUCTION UNDER SECTION 80I AND REDUCE THE TAX BURDEN. HE PAGE - 9 ITA NO.2782 AND 3254/AHD/2002 -9- HELD THAT UNDER SECTION 80I(A) IT WAS NECESSARY FOR THE AO TO ASCERTAIN THE MARKET VALUE OF THE GOODS AND ONLY IF HE FINDS THAT THE TRANSFER PRICE DOES NOT CORRESPOND TO THE MARKET VALUE OF THE GOODS ON THE DATE OF TRANSFER HE CAN ADOPT THE MARKET VALUE AND COMPUTE THE PROFITS OF THE ELI GIBLE UNITS ACCORDINGLY. THE CIT(A) FOUND THAT THE AO DID NOT OBTAIN THE MARKET VALUE OF THE GOODS TRANSFERRED TO THE ELIGIBLE UNIT EVEN THOUGH THEY W ERE FREELY AVAILABLE GOODS AND THE MARKET VALUE SHOULD HAVE BEEN EASILY AVAILA BLE. HE FOUND THAT THE AO WAS NOT JUSTIFIED IN ADOPTING AN ENTIRELY DIFFERENT BASIS FOR REWORKING THE PROFITS OF THE ELIGIBLE UNDERTAKING. ACCORDING TO HIM THE AO WAS NOT JUSTIFIED IN FIRST DETERMINING THE AVERAGE PROFITS FOR THE ENTIRE BUSI NESS AT 1.3% OF THE SALES AND APPLYING THIS PERCENTAGE TO THE TOTAL DEBIT IN THE PROFIT AND LOSS ACCOUNT OF THE ELIGIBLE UNIT AND IN ARRIVING AT THE PROFIT OF THE ELIGIBLE UNITS AT RS.16,37,290/-. ACCORDING TO THE CIT(A) THIS METHOD WAS NOT AUTHORI SED BY SUB-SECTION (8) OF SECTION 80I. HE FURTHER FOUND THAT THE AO WAS NOT JUSTIFIED IN DISREGARDING THE EVIDENCE PRODUCED BY THE ASSESSEE IN RESPECT OF THE MARKET PRICE OF THE GOODS. FOR THESE REASONS, HE DIRECTED THE AO TO ALLOW THE DEDUCTION AS CLAIMED. 14. THE REVENUE IS IN APPEAL AND WE HAVE HEARD THE RIVAL CONTENTIONS. THE ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1995-96 CITED SUPRA WHEREIN THIS ISSUE HAS BEEN CONSIDERED IN PARA-12 TO 14 OF THIS ORDER. A PERU SAL THEREOF SHOWS THAT IN THAT YEAR THE AO HAD ADOPTED 10% AS THE PROFITS EARNED B Y THE ELIGIBLE UNITS ON ADHOC BASIS. DISAPPROVING THIS APPROACH OF THE AO, THE CIT(A), IN IDENTICALLY WORDED ORDER DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE AGAINST WHICH THE REVENUE HAD COME IN APPEAL BEFORE THE TRIBUNAL. TH E TRIBUNAL AFTER REFERRING TO THE RELEVANT BILLS TO SHOW THE MARKET VALUE OF T HE GOODS, HELD THAT IF THE VALUE OF THE GOODS COMPUTED AFTER TAKING INTO ACCOUNT THE RAW MATERIAL COSTS, UTILITY COSTS, LABOUR AND PACKING, THE DIFFERENCE BETWEEN T HE TRANSFER PRICE SHOWN BY THE ASSESSEE AND THE MARKET VALUE SHOWN BY THE BILL S WAS VERY NOMINAL. THE TRIBUNAL ALSO FOUND THAT IN ALL THE EARLIER YEARS T HE PROFIT OF THE ELIGIBLE UNITS PAGE - 10 ITA NO.2782 AND 3254/AHD/2002 -10- WAS NEVER DISTURBED BY INVOKING THE SUB-SECTION. O N THESE FINDINGS, THE TRIBUNAL HAS UPHELD THE DECISION OF THE CIT(A) FOR THE ASSESSMENT YEAR 1995- 96. SINCE EVEN ACCORDING TO THE AO THE FACTS ARE T HE SAME FOR THE YEAR UNDER APPEAL AND THE REASONS GIVEN BY THE AO TO REDUCE TH E DEDUCTION CLAIMED BY THE ASSESSEE ARE ALSO ON THE SAME LINES AS IN THE ASSES SMENT YEAR 1995-96, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL CI TED ABOVE WE CONFIRM THE DECISION OF THE CIT(A) AND DISMISS THE GROUND TAKEN BY THE REVENUE. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMISSED . 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 16 TH OCTOBER, 2009. SD/- SD/- (A.N. PAHUJA) ACCOUNTANT MEMBER (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 16-10-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD