ACIT, Faridabad V. M/s Knorr Bremse India (P.) Ltd., Faridabad

ITA 3441/DEL/2008

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5041 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 22-06-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 18-11-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VED JAIN ADV SHRI ASHISH GOEL
• Keywords: Gift; Depreciation; Business expenditure; Bad and doubtful debts; Corroborative evidences; Commercial expediency; Capital expenditure
• Section: 80HHC; 80IB; 28

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 3441& 3442/DEL/2008 (ASSESSMENT YEAR S : 2003 - 04 AND 2004 - 05 ) ITA NO. 1767/DEL/2010 (ASSESSMENT YEAR: 2006 - 07) A CIT(A) , CIRCLE - 1, FARIDABAD VS. M/S. KNORR BREMSE INDIA (P) LTD, 14/6, MATHURA ROAD, FARIDABAD (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ARUN KUMAR YADAV, SR. DR ASSESSEE BY: SHRI VED JAIN, ADV SHRI ASHISH GOEL, CA DATE OF HEARING 22/06/ 2017 DATE OF PRONOUNCEMENT 23 / 08 / 2017 O R D E R PER PRASHANT MAHARISHI , A. M. ITA NO. 3441/DEL/2008 AY 2003 04 1. THIS APPEAL IS FILED BY REVENUE AGAINST THE ORDER OF LD. CIT(A) , FARIDABAD DATED 05/09/2008. THE REVENUE HAS RAISED FOLLOWING 12 EFFECTIVE GROUNDS OF APPEAL AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE AS SESSING OFFICER TO TAKE THE TRADING PROFIT AS SHOWN BY ASSESSEE AT RS. 9 ,00,599/ - INSTEAD OF RS. 2,41,49,293/ - FOR CALCULATING. THE MANUFACTURING PROFIT FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/ S 80IB OF THE INCOME TAX ACT, 1961 DISREGARDING THE FACTS THE ASSESSEE DID NOT GIVE ANY BASIS AS TO HOW HE CALCULATED THE TRADING PROFIT AT RS. 900 599/ - EITHER BEFORE ASSESSING OFFICER OR BEFORE THE LD. CIT(A) AND THE PROFIT OF RS. 2,41,49,293/ - WAS EARNED BY ASSESSEE ON DIRECT TRADING OF GOODS AND NOT FROM MANUFACTURING ACTIVITY, AS SUCH THIS PROFIT OR INCOME CANNOT BE SAID AS DERIVED FROM MANUFACTURING OF ANY ARTICLE OR THING BY THE ASSESSEE COMPANY IN VIEW OF PROVISIONS OF SECTION 80 - IB OF THE INCOME TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDI TION OF RS. 17,23,116/ - BEING ADVANCES WRITTEN OFF BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR EVEN THOUGH THE ASSESSEE FAILED TO GIVE ANY EVIDENCE TO PROVE THAT THE DEBTS HAD BECOME IRRECOVERABLE IN THE RELEVANT ASSESSMENT YEAR. 3. ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 5,06,627/ - MADE ON ACCOUNT OF S ELLING COMMISSION EVEN THOUGH THE ASSESSEE DID NOT FURNISH ANY EVIDENCE REGARDING SERVICES RENDERED BY THE COMMIS SION AGENTS EVEN BEFORE PAGE 2 OF 18 THE LD. CIT(A) TO PROVE THAT ANY KIND OF SERVICES WERE RENDERED BY THE COMMISSION AGENTS TO WHOM COMMISSION WAS PAID. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS.18,18,761/ - MADE ON ACCOUNT OF FOREIGN TRAVEL EXPENSES ,EVEN THOUGH THE ASSESSEE FAILED TO PROVE THAT THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 5. ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING DISALLOWANCE OF RS. 300 022/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ENTERTAINMENT EXPENSES, EVEN THOUGH THE ASSESSEE FAILED TO PROVE THAT THESE EXPENSES' WERE INCURRED WHO LLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) (A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 13,78,128/ - MADE ON ACCOUNT OF INLAND TRAVEL EXPENSES EVEN THOUGH THE ASSESSEE FAILED TO PROVE' THAT THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 4,92,872/ - MADE OUT OF STAFF WELFARE EXPENSES EVEN THOUGH THE ASSESSEE FAILED TO SUBSTANTIATE THE GENUINENESS OF THE EXPENSES. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 1,40,594/ - MADE ON ACCOUN T OF GIFT EXPENSE SEVEN THOUGH THE ASSESSEE FAILED TO PROVE THAT THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE A DDITION OF RS. 1,12,000/ - MADE ON ACCOUNT OF INTEREST FREE LOAN GIVEN TO THE DIRECTOR OF THE COMPANY IN CONTRAVENTION TO THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT(A) , LUDHIANA VS. ABHISHEK INDUSTRIES (286 ITR 1). 10. ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 1,77,404/ - MADE ON ACCOUNT OF TELEPHONE EXPENSES EVEN THOUGH THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE TO PROVE THAT THE ENTIRE EXP ENSES WERE INCURRED FOR THE PURPOSES OF BUSINESS. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 1,11,215/ - MADE ON ACCOUNT OF VEHICLE MAINTENANCE EXPENSES EVEN THOUGH TH E ASSESSEE FAILED TO PRODUCE ANY EVIDENCE TO PROVE THAT THE ENTIRE EXPENSES WERE INCURRED FOR THE PURPOSES OF BUSINESS. 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) (A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE ASSESSING OFFIC ER NOT TO REDUCE THE PROFIT IN RESPECT OF SERVICE CHARGES, UNCLAIMED BALANCES WRITTEN BACK. MISC. INCOME AND SCRAP SALE BY THE 90% AND DEDUCTION U/S 80IA WHILE CALCULATING DEDUCTION U/S 8QHHC WHICH IS CONTRARY TO THE PROVISIONS OF SECTION 80HHC OF THE INCO ME TAX ACT, 1961. 2. RESPONDENT ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF RAILWAY BREAKS. ASSESSEE FILED ITS RETURN OF INCOME ON 27/11/2003 AT RS. 29189630/ . SUBSEQUENTLY THE RETURN WAS REVISED ON 28/10/2004 AT RS. 30304670/ - GIVING THE REASON THAT ONE OF THE SISTER CONCERN OF THE COMPANY MERGED WITH THE ASSESSEE COMPANY W.E.F. 1 ST . JANUARY 2003. AFTER SCRUTINY, THE LD. ASSESSING OFFICER ASSESSED THE COMPANY UNDER SECTION 143 (3) OF THE INCOME TAX ACT PAGE 3 OF 18 VIDE ORDER DATED 29/03/2006 AT TOTAL TAXABLE INCOME OF RS. 43309500/ . IN THE ASSESSMENT PROCEEDINGS LD. ASSESSING OFFICER MADE 12 ADJUSTMENT OF DISALLOWANCES AS WELL AS TINKERED WITH THE DEDUCTION GRANTED TO THE ASSESSEE UNDER SECTION 80 IB AND 80 HHC OF THE INCOME TAX ACT. 3. ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. AO PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO VIDE PARA NO. 45 OF HIS ORDER GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE ALLOWING ITS APPEAL AND THEREFORE REVENUE IS IN APPEAL BEFORE US. 4. ON ALL THE GROUNDS LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE LD. AO AND LD. AR HAS SUBMITTED A DETAILED CHART AND PAPER BOOKS TO SUPPORT HIS CONTENTIONS. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND WE PROCEED TO DECIDE EACH OF TH E GROUND AS UNDER. 5. THE 1 ST GROUND OF APPEAL OF THE REVENUE IS THAT LD. CIT(A), HAS DIRECTED THE ASSESSING OFFICER TO TAKE THE TRADING PROFIT OF RS. 900599/ INSTEAD OF RS. 24149293/ - FOR CALCULATING THE MANUFACTURING PROFIT FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80 IB OF THE INCOME TAX ACT. THE MAIN CONTENTION OF THE REVENUE IS THAT ASSESSEE HAS NOT GIVEN ANY BASIS AS TO HOW HE CALCULATED THE TRADING PROFIT AT RS. 900599/ - AS BEFORE THE AO OR BEFORE THE 1 ST APPELLAT E AUTHORITY ASSESSEE HAS NOT GIVEN ANY DETAILS, WHEREAS THE ACTUAL PROFIT E ARNED BY THE ASSESSEE WAS RS. 2 414 9293/ WHICH WAS DERIVED FROM ACTUAL TRADING OF GOODS. UNDISPUTEDLY THE ASSESSEE IS AN ELIGIBLE UNIT FOR CLAIMING DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT. IN T HE ANNUAL ACCOUNTS OF THE ASSESSEE IN POINT NO. 11 OF SCHEDULE 6 TO NOTES ON ACCOUNTS THE DETAILS OF THE PURCHASE VALUE AND THE SALES VALUE OF THE TRADED GOODS ARE PROVIDED FOR. ON SUBTRACTING PURCHASES FROM SALES, LD AO DERIVED THAT ASSE SSEE HAS EARNED PROFIT OF RS. 2 414 9293/ - ON DIRECT TRADING OF GOODS AND NOT MANUFACTURING ACTIVITY. THIS PROFIT OR INCOME, ACCORDING TO THE LD. ASSESSING OFFICER CANNOT BE SAID TO BE AS DERIVED FROM THE MANUFACTURING OF ANY ARTICLE OR THING BY THE ASSESSEE COMPANY. IN V IEW OF THIS, HE REDUCED THE ELIGIBLE PROFIT BY THE ABOVE SAID AMOUNT. ON APPEAL BEFORE THE LD. CIT(A) , ASSESSEE CONTESTED THAT APPELLANT IS ENGAGED IN BOTH TRADING AND MANUFACTURING ACTIVITIES AND ASSESSEE ITSELF HAS REDUCED FROM THE ELIGIBLE PROFIT SUCH T RADING PROFIT BY REDUCING FROM THE GROSS SALES, DIRECT COST IN RESPECT OF TRADED GOODS AND INDIRECT COST ALLOCATED TO THE TRADING ACTIVITIES. CLAIM OF THE ASSESSEE IS THAT THE EXPENSES WHICH ARE RELATABLE ONLY TO THE MANUFACTURING ACTIVITY MAY NOT BE ALL OCATED TO THE TRADING ACTIVITY FOR THE SIMPLE REASON THAT THE PROFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING IS TO BE ARRIVED AT AFTER REDUCING THE RELEVANT DIRECT AND INDIRECT COST. THE MAIN CLAIM OF THE ASSESSEE IS THAT EXPENSES LIKE DEPRECIATION ON PLAN T AND MACHINERY, PAGE 4 OF 18 AMORTISATION OF GOODWILL, PROVISION FOR DOUBTFUL ADVANCES, PROVISION FOR DOUBTFUL DEBTS ETC BEING TOTALLY RELATED TO MANUFACTURING ACTIVITY ARE REQUIRED TO BE ALLOCATED ONLY AGAINST THE MANUFACTURING PROFIT AND NOT TRADED PROFIT. FURTHER, THE EXPENSES LIKE PERSONAL EXPENSES, DEPRECIATION OTHER THAN PLANT AND MACHINERY, INTEREST ETC WHICH ARE COMMON TO BOTH THE ACTIVITIES HAVE BEEN ALLOCATED IN THE RATIO OF TURNOVER. THEREFORE THE CLAIM OF THE ASSESSEE WAS THAT TRADING PROFIT IS ARRIVED AT B Y MAKING THE AFORESAID ADJUSTMENT DERIVING NET PROFIT FROM THE TRADING ACTIVITIES CARRIED ON BY THE APPELLANT. BASED ON THE ABOVE SUBMISSION, THE LD. CIT(A) , HAS DIRECTED THE LD. ASSESSING OFFICER TO REDUC E ONLY RS. 9 00599/ - INSTEAD OF RS. 2 414 9293/ . WE HAVE ALSO PERUSED THE CHART GIVEN BY THE LD. AR WHEREIN THE WORKING OF THE TRA DING PROFIT IS DERIVED AT RS. 9 00599/ - . ACCORDING TO THAT CHART THE ASSESSEE HAS GIVEN A DETAILED OF TOTAL PROFIT EARNED BY THE ASSESSEE OF RUPEES FORD 066 5095 AND ALSO WORKED O UT THE PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB FROM MANUFACTURING ACTIVITY OF RS. 9 711645/ . FURTHER, IN THE CHART THE ASSESSEE HAS ALSO SHOWN EACH AND EVERY EXPENDITURE AND INCOME AND HOW IT HAS BEEN ALLOCATED WITH RESPECT TO THE TRADING PROFIT A S WELL AS THE MANUFACTURING PROFIT SHOWING THE ALLOCATION KEY. THE ASSESSEE HAS ALLOCATED PERSONAL EXPENDITURE OTHER OPERATING EXPENDITURE, DEPRECIATION OTHER THAN PLANT AND MACHINERY, INTEREST UNPAID BONUS, LOSS ON SALE OF ASSETS, DONATION, PROVISION OF G RATUITY AND DEPRECIATION ON OTHER THAN PLANT AND MACHINERY FOR INCOME TAX PURPOSES ON PRO RATA BASIS. FURTHER, CERTAIN DIRECT EXPENDITURE WHICH ARE RELATED TO THE MANUFACTURING ACTIVITIES OF INDIRECTLY ALLOCATED ONLY TO THE MANUFACTURING SEGMENT IN REDUCIN G THE PROFIT OF THE MANUFACTURING ACTIVITY. FURTHER MORE CERTAIN EXPENDITURE WHICH ARE DIRECTLY RELATED TO THE TRADING PROFIT WERE ALSO REDUCED FROM THE GROSS RECEIPTS OF THE TRADING ACTIVITIES. THE LD. AUTHORISED REPRESENTATIVE DEALT WITH IN DETAILED EACH OF THE EXPENDITURE AND THE INCOME COMPONENT OF THE ABOVE CHART. THE LD. AO HAS MERELY TAKEN THE FIGURES FROM THE TRADING ACTIVITY WHICH ARE CROSS SALES AND GROSS PURCHASES OF THE TRADED GOODS. THE LD. AO HAS NOT REDUCED THE TRADING PROFIT BY THE ACTUAL IN DIRECT EXPENDITURE INDIRECT EXPENDITURE OF TRADING ACTIVITIES. THE NOTES ON ACCOUNTS REQUIRED UNDER THE COMPANIES ACT, 1956, ONLY THE DETAILS OF TRADED GOODS WITH RESPECT TO ITS QUANTITIES AND VALUE AND EDITOR NOT REQUIRED TO DISCLOSE THE PROFIT AND SHREDD ED OF GOODS. SUCH FIGURE WAS REQUIRED TO BE ARRIVED FROM THE ANNUAL ACCOUNTS OF THE COMPANY. THEREFORE ACCORDING TO US THE LD. ASSESSING OFFICER MADE AN ERROR IN MERELY TAKING THE PURCHASE AND SALES VALUE OF THE TRADED GOODS FOR WORKING OUT THE PROFIT DERI VED FROM TRADING GOODS. THE LD. DRP, ARGUING BEFORE US ALSO COULD NOT CONTROVERT THAT WHAT IS THE ERROR IN THE STATEMENT PROVIDED BY THE LD. AO OF PAGE 5 OF 18 ALLOCATION OF VARIOUS EXPENDITURE. WITH RESPECT TO TRADING ACTIVITY AS WELL AS MANUFACTURING ACTIVITY. NONE O F THE ALLOCATION KEYS WERE ALSO DISPUTED. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) , IN DIRECTING THE ASSESSING OFFICER TO TAKE THE PROFIT OF TRADED GOODS AT RS. 9 00599 IS/ INSTEAD OF RS. 2414 9293/ TAKEN BY THE LD. ASSES SING OFFICER FOR WORKING OUT THE ELIGIBLE PROFIT FROM MANUFACTURING ACTIVITIES. IN THE RESULT GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 6. THE 2 ND GROUND OF APPEAL OF THE REVENUE IS AGAINST THE ORDER OF THE LD. CIT(A) , IN DELETING THE ADDITION O F RS. 1 723116/ BEING ADVANCES WRITTEN OFF BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR, EVEN THOUGH ASSESSEE HAS FAILED TO GIVE ANY EVIDENCE TO PROVE THAT THE DEBTS AND BECOME IRRECOVERABLE IN THE RELEVANT ASSESSMENT YEAR. THE BRIEF FACTS OF THE CASE IS THAT ASSESSEE HAS INCURRED CERTAIN EXPENSES ON BEHALF OF KB BRISTOL FOR SALARY AND OTHER OPERATING EXPENSES WHICH WERE ACCOUNTED FOR BY DAVID NOT DATED 15/12/1998 AND SAME WAS OFFERED FOR TAXATION. DURING THE YEAR. IT WAS FOUND THAT THE SAME IS NOT REC OVERABLE THEREFORE IT WAS WRITTEN OFF. ACCORDING TO THE ASSESSEE SAME WAS IN THE NATURE OF BAD DEBTS WRITTEN OFF. THE AO WAS OF THE VIEW THAT THESE ARE THE PRIOR PERIOD EXPENSES, AND FURTHER ASSESSEE HAS FAILED TO GIVE ANY EVIDENCE TO PROVE THAT THE DEBTS AND BECOME IRRECOVERABLE IN THE RELEVANT ASSESSMENT YEAR. THE LD. CIT(A) , DELETED THE ABOVE DISAL LOWANCE. A FURTHER SUM OF RS. 9 50,000 WAS ALONE GIVEN TO THE EMPLOYEE DIRECTOR WHO HAS LEFT THE ASSESSEE COMPANY AND SAME WAS ALSO CLAIMED AS DEDUCTION AND ALL OWED BY THE LD. CIT(A) . FURTHER MORE CERTAIN OTHER SUMS ARE ALSO ADVANCED FOR SUPPLY BY THE ASSESSEE AND THEREFORE THE AMOUNTS WERE BEGINNING IRRECOVERABLE AND THEREFORE SAME ARE WRITTEN OFF. THE ALLEGATION MADE BY THE LD. ASSESSING OFFICER WAS THAT THAT T HE ADVANCES ARE SUPPLIER CAPITAL IN NATURE AND THEREFORE THEY CANNOT BE ALLOWED AS DEDUCTION. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AS WELL AS THE ORDER OF THE LD. CIT(A) , WHO DELETED THE ABOVE DISALLOWANCE ALONG WITH THE ORDER OF THE LD. AO W HO MADE THE DISALLOWANCE. W ITH RESPECT TO THE SUM OF RS. 6 49423/ WAS THE SUM DEBITED BY THE APPELLANT TO THE ACCOUNT OF SISTER CONCERN IN RESPECT OF CERTAIN EXPENSES INCURRED BY THE APPELLANT. SUBSEQUENTLY THE ABOVE AMOUNT BECAME IRRECOVERABLE AND THEREFO RE SAME WAS WRITTEN OFF. THE ASSESSEE IS ALREADY DEBITED THE ACCOUNT OF THE ABOVE PARTY AND CREDITED THE SUM TO THE RESPECTIVE EXPENDITURE ACCOUNT AND THEREBY OFFERED THE INCOME TO THE PROFIT AND LOSS ACCOUNT AND ALSO WRITTEN OFF THE ACCOUNT OF THE DEBTOR AND SUCH THAT AS ARISE IN DURING THE COURSE OF THE BUSINESS OF THE ASSESSEE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. PAGE 6 OF 18 CIT(A) , IN DELETING THE ABOVE DISALLOWANCES AS IT COMPLIES ALL THE CONDITIONS OF BAD DEBT WRITE - OFF. NOW IT IS NO MORE AN ISSU E THAT ASSESSEE IS TO ESTABLISH THE DEBT HAS BECOME BAD DURING THE YEAR. IN THE RESULT TO THAT EXTENT, THE ORDER OF THE LD. CIT(A) , IS CONFIRMED. 8. THE 2 ND SUM WAS RS. 9 50,000 WHICH IS BEEN WRITTEN OFF BEING THE LOAN GIVEN TO ONE OF THE EMPLOYEE OF THE COMP ANY WHO HAS LEFT THE OFFICE AND DID NOT PAY THE OUTSTANDING BALANCE PAYABLE. THE FURTHER, THE BOARD RESOLUTION WAS ALSO PASSED ON 27/01/2003 FOR WRITING OFF SUCH ADVANCES. THE ABOVE ADVANCES ARE BEEN GIVEN DURING THE COURSE OF THE BUSINESS OF THE ASSESSEE AS LIVING LOAN TO THE EMPLOYEES CANNOT BE SAID TO BE A NON - BUSINESS ACTIVITY. FURTHER MORE DURING THE SAME YEAR THE EMPLOYEE HAS LEFT THE JOB AND WHICH IS BEEN ALSO APPROVED BY THE BOARD OF DIRECT AS THE SUM WAS NOT RECOVERABLE BY DISSOLUTION DATED 27/01/20 03, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN ALLOWING THE ABOVE EXPENDITURE IS DEDUCTIBLE FOR THE REASON THAT THE LOSS AS ARISE IN DURING THE COURSE OF THE BUSINESS AND DURING THE YEAR ITSELF. 9. WITH RESPECT TO THE BALANCE OF RS. 2 3693 / . THE SAME WERE FOUND TO BE OF CAPITAL IN NATURE AND ASSESSEE HAS NOT SHOWN THAT HOW THEY ARE NOT CAPITAL IN NATURE AND THEREFORE WE DO NOT AGREE WITH THE FINDING OF THE LD. CIT(A) APPEAL THAT HOW THE CAPITAL EXPENDITURE CAN BE ALLOWED TO THE ASSESSEE WHEN IT IS WRITTEN OFF. ACCORDING TO US IT IS A CAPITAL LOSS WHICH IS NOT COVERED UNDER THE PROVISIONS OF SECTION 28 OF THE INCOME TAX ACT. HENCE, WE REVERSE THE FINDING OF THE LD. CIT (A) TO THE EXTENT OF RS. 2 3693. 10. IN THE RESULT GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. 11. GROUND NO. 3 OF THE APPEAL OF THE REVENUE IS AGAINST THE DELETION OF THE ADDITION OF RS. 1806627/ - MADE ON ACCOUNT OF SELLING COMMISSION. DURING THE YEAR THE ASSESSEE HAS CLAIMED COMMISSION EXPEN SES ON SALES AMOUNTING TO RS. 1 806627/ - IN RESPECT OF 2 PARTIES. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO FURNISH THE SUPPORTING EVIDENCES OF SERVICES RENDERED BY THE ABOVE SAID PARTIES. I N RESPONSE TO WHICH THE ASSESSEE WIDE LETTER DATED 22/03/2006 FURNISHED COPIES OF THE BILLS OF COMMISSION ISSUED BY BOTH THE PARTIES. THE ASSESSEE ALSO FURNISHED COPIES OF SOME OF THE PURCHASE ORDERS WHICH ARE BEEN CLAIMED TO HAVE BEEN PROCURED THROUGH THE AGENTS ON COMMISSION BASIS. THE LD. ASSESSING OFFICER RAISED THE QUERY THAT AS THE ASSESSEE SUPPLY MATERIAL TO THE GOVERNMENT ORGANISATION LIKE DIFFERENT UNITS OF THE MINISTRY OF RAILWAYS ETC HOW THE COMMISSION AGENTS WERE UTILISED TO PROCURE THOSE ORDERS . THEREFORE HE REJECTED THE EVIDENCES PRODUCED BY THE ASSESSEE AND HELD THAT IN ABSENCE OF EVIDENCE OF ACTUAL RENDITION PAGE 7 OF 18 OF THE SERVICES IN PROCUREMENT OF SALE ORDERS THE ABOVE SUM WAS DISALLOWED. THE LD. CIT(A) , ALLOWED THE CLAIM OF THE ASSESSEE WIDE PARA NO. 15 TO 18 OF HIS ORDER. MAINLY THE CIT(A) , FOLLOWED TH E ORDER OF ASSESSMENT YEAR 2001 - 2000 TO WEAR SIMILAR EXPENDITURE DISALLOWANCE DELETED. ON QUERY IT WAS FOUND THAT THESE ORDER OF THE LD. CIT(A) WAS NOT CHALLENGED BEFORE THE HIGHER AUTHORITIES AND TH EREFORE IT HAS BECOME FINAL. THE PAYMENT OF THE COMMISSION OF BOTH THE PARTIES ARE SUPPORTED BY THE COPIES OF THE BILLS AS WELL AS THE AGREEMENTS ENTERED INTO BETWEEN THOSE AGENTS AND THE COMMISSION. THE NATURE OF THE SERVICES RENDERED WAS EXPLAINED TO THE ASSESSING OFFICER WIDE LETTER DATED 22/03/2006 BY THE ASSESSEE. SECONDLY THE CLAIM OF THE ASSESSING OFFICER THAT WHEN THE ASSESSEE IS DEALING WITH THE RAILWAY MINISTRY WHAT IS THE NEED OF PAYING OF THE COMMISSION. THE ASSESSEE EXPLAINED THAT THAT THE ORDE RS OF THE MINISTRY OF RAILWAY ARE OBTAINED THROUGH TENDER AND THE TENDER IS A TECHNICAL PROCESS AND TO UPGRADE AND GIVE ADVICE ON SUCH TENDERS THE SERVICES OF THE PARTIES WERE TAKEN. THESE CLAIM OF THE ASSESSEE WERE NOT CONTROVERTED BY THE REVENUE. AND FUR THER IN VIEW OF THE SIMILAR DISALLOWANCES DELETED BY THE LD. CIT(A) AND HIS ORDER BECOME FINAL. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) , EVEN ON THE STAND ALONE BASIS FOR THIS YEAR AS ASSESSEE HAS PROVED THE RENDITION OF SERVICES BY TH E COMMISSION AGENT TO THE ASSESSEE. IN THE RESULT GROUND NO. 3 OF THE APPEAL OF THE REVENUE IS DISMISSED. 12. GROUND NO. 4 OF THE APPEAL OF THE REVENUE IS AGAINST THE DELETION OF DISALLOWANCE OF RS. 1818761/ MADE ON ACCOUNT OF FOREIGN TRAVEL EXPENSES. THE CLA IM OF THE ASSESSEE IS THAT IT HAS INCURRED AN SUM OF RS. 1 818761/ ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES FOR WHICH THE DETAILS WERE SUBMITTED BEFORE THE ASSESSING OFFICER SHOWING THE PERSON WHO HAS TRAVELLED, PLACE OF VISIT, PERIOD OF VISIT AND AMOUNT INCURRED AS WELL AS THE PURPOSE OF THE VISIT. THE RELEVANT EXPENDITURE DETAILS IN THE FORM OF VOUCHERS ARE ALSO WERE SHOWN TO THE LORD ASSESSING OFFICER. THE LD. AO HAS DISALLOWED THE ABOVE EXPENDITURE TO STATE THAT THESE ARE THE CAPITAL EXPENSES AS THE A SSESSEE HAS BOUGHT TRAINING IN RELATION TO THE PRODUCTS IN WHICH THE ASSESSEE COMPANY DEALS. IT IS ALSO AN ACCEPTED FACT THAT THE ASSESSEE COMPANY IS ASSOCIATED TO A GERMAN COMPANY AND THEREFORE WE DO NOT FIND ANY REASON THAT SUCH TRAVELLING EXPENDITURE CA N BE DISALLOWED. IT WAS NOT THE CASE OF THE LD. THAT ASSESSING OFFICER THAT THESE EXPENSES ARE PERSONAL IN NATURE OR ARE NOT INCURRED FOR THE PURPOSES OF THE BUSINESS. WE ALSO FAILED TO APPRECIATE THAT THE EXPENDITURE INCURRED ON FOREIGN TRAVEL IS CAPITAL IN NATURE, LOOKING TO THE NATURE OF THE BUSINESS OF THE COMPANY. IN THE RESULT GROUND NO. 4 OF THE APPEAL OF THE REVENUE IS DISMISSED. PAGE 8 OF 18 13. GROUND NO. 5 OF THE REVENUE IS AGAINST DELETION OF DISALLOWANCE OF RS. 300022/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ENTERTAINMENT EXPENSES. THE CLAIM OF THE ASSESSING OFFICER WAS THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. DURING THE RELEVANT YEAR ASSESSEE HAS I NCURRED AN EXPENDI TURE OF RS. 6 00445 AS ENTERTAINMENT EXPENSES. FURTHER, THE MAIN REASON WAS THAT THAT ASSESSEE IS A GOOD THESE EXPENDITURE ON SELF - MADE VOUCHERS, AND MOSTLY IN CASE. THEREFORE, THE LD. ASSESSING OFFICER DISALLOWED 50% OF THOSE EXPENDITURE. THE LD. CIT(A) A, DELETED THE ABOVE DISALLOWANCES BASED ON HIS ORDER FOR ASSESSMENT YEAR 2001 - 02 AND 2002 - 03. THE ABOVE ORDER WAS NOT CHALLENGED BY REVENUE. IN THE PRECEDING ORDERS. THE LD. CIT(A) HAS DELETED THE ABOVE DISALLOWANCE BECAUSE IT IS ON AD HOC BASIS AND NO DEFE CTS COULD BE POINTED OUT IN THE DETAIL SUBMITTED BY THE ASSESSEE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) , IN DELETING THE ABOVE DISALLOWANCES. IN THE RESULT GROUND NO. 5 OF THE APPEAL OF THE REVENUE IS DISMISSED. 14. GROUND NO. 6 OF THE APPEAL OF REVENUE IS AGAINST DELETION OF INLAND TRAVEL EXPENSES DISALLOWANCE OF RS. 1 378128. THE ASSES SEE HAS INCURRED A SUM OF RS. 5 512515 ON ACCOUNT OF INLAND TRAVEL. THE LD. ASSESSING OFFICER DISALLOWED 25% OF SUCH EXPENSES. THE ABOVE DISALLOWANCES DELETED BY THE LD. CIT(A) BY RELYING ON HIS OWN ORDER FOR ASSESSMENT YEAR 2001 - 02 AND 2002 - 03. ANYWAY THE AMOUNT OF DISALLOWANCE HAS BEEN MADE BY THE LD. ASSESSING OFFICER WITHOUT POINTING OUT ANY DEFECT IN THE DETAILS SUBMITTED BY THE ASSESSEE AND POINTING OUT HOW THOSE EXPENDITURE ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. THE LD. ASSESSING OFFICER IN HIS ORDER HAS ALSO NOT POINTED OUT SINGLE INSTANCE WHILE MAKING ANY DISALLOWANCES. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ABOVE DISALLOWANCE. IN THE RESULT GROUND NO. 6 OF APPEAL OF THE REVENUE IS DISMISSED. 15. GROUND NO. 7 OF THE APPEAL IS AGAINST THE DELETION OF ADDITION OF RS. 492872 MADE BY THE LD. ASSESSING OFFICER OUT OF THE STAFF WE LFARE EXPENSES. THE BRIEF FACTS OF THE CASES THAT THAT TO EXPENDITURE IN CURRED BY THE ASSESSEE OF RS. 3 6960/ AND 216170/ AMOUNTING TO RS. 253130/ WERE TOTALLY DISALLOWED AND OUT OF THE BALANCE EXPENDITURE OF RUPEES RS. 198733/ 1/5 OF EXPENDITURE WAS DI SALLOWED BY THE ASSESSING OFFICER. THE LD. CIT(A) , DELETED THE ABOVE DISALLOWANCE HOLDING THAT THESE EXPENDITURE ARE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AND COMMERCIAL EXPEDIENCY. THE 2 BILLS WHICH ARE DISALLOWED BY THE LD. ASSESSING O FFICER ARE OF STAFF FAMILY RANCH GET - TOGETHER AS WELL AS FAMILY GET - TOGETHER ON OCCASION OF THE NEW YEAR. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) PAGE 9 OF 18 IN DELETING THE ABOVE DISALLOWANCES AS LD. ASSESSING OFFICER HAS FAILED TO SHOW HOW THESE EXPENDITURE ARE NOT BUSINESS EXPENDITURE. IN THE RESULT GROUND NO. 7 OF THE APPEAL OF THE REVENUE IS DISMISSED. 16. GROUND NO. 8 OF THE APPEAL OF THE REVENUE IS AGAINST DELETION OF RS. 140594/ DISALLOWED BY THE LD. ASSESSING OFFICER ON GIFT EXPENSES. THE ASSE SSEE HAS INCURRED THESE EXPENDITURE ON THE WEDDING OF THE EMPLOYEES OR ON CERTAIN SOCIAL OCCASION AS WELL AS TO THE CUSTOMERS AS A TOKEN OF GOOD GESTURE. THE LD. AO DISALLOWED THE ABOVE AMOUNT STATING THAT THE GENUINENESS OF INCURRING THE ABOVE EXPENSES FO R THE PURPOSES OF THE BUSINESS HAS NOT BEEN ESTABLISHED BY THE ASSESSEE AND FURTHER ASSESSEE HAS FAILED TO PROVE DISMISSED EXIGENCY AND EVIDENCE FOR INCURRING THE EXPENSES FOR THE PURPOSES OF THE BUSINESS. THE LD. CIT(A) HAS DELETED THE ABOUT DISALLOWANCE. RELYING UPON SEVERAL DECISIONS OF VARIOUS COURTS. WE DO NOT FIND THAT GIFT EXPENDITURE OF SUCH A MAGNITUDE LOOKING TO THE NATURE OF THE BUSINESS OF THE COMPANY CAN BE SAID TO BE FOR NON - BUSINESS PURPOSES. EXPENDITURE INCURRED ON THE WEDDING OF THE GIFT AS WELL AS CERTAIN SOCIAL OCCASION AND TO MAINTAIN THE GOOD RELATIONSHIP WITH THE CUSTOMER ARE EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOSES OF THE BUSINESS. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) , IN DELETING THE ABOUT DISALLOWANCE. HENCE WE DISMISS GROUND NO. 8 OF THE APPEAL OF THE REVENUE 17. GROUND NO. 9 OF THE APPEAL OF THE REVENUE IS AGAINST THE DELETION OF THE DISALLOWANCE OF INTEREST OF RS. 12000/ ON ACCOUNT OF ADVANCE OF INTEREST - FREE LO AN GIVEN TO ONE OF THE EMPLOYEES OF RS. 8 LACS. THE LD. ASSESSING OFFICER DISALLOWED THE ABOVE SUM FOR THE REASON THAT THE APPELLANT HAD NOT PRODUCED ANY EVIDENCE TO EFFECT THAT THE AMOUNT IT WAS WERE MADE OUT OF OWN FUNDS AN INTERNAL APPROVALS AND NOT OUT OF BORROWED FUNDS AND FURTHER THE LOAN GIVEN TO THE DIRECTOR SHOULD BE PRESUMED TO HAVE COME OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH THE APPELLANT. THE LD. CIT(A) DELETED THE ABOVE DISALLOWANCE FOLLOWING ITS OWN ORDER FOR ASSESSMENT YEAR 2001 02 A ND 2002 03. IT IS APPARENT THAT THE ASSESSEE HAS OWNED FUNDS MUCH HIGHER THEN THE ABOVE AMOUNT AND THEREFORE THE PRESUMPTION WOULD BE THAT THAT SUCH LOAN IS GIVEN OUT OF IN NON - INTEREST - BEARING FUNDS. IN ANY WAY IT CANNOT BE SAID THAT ADVANCE TO A STAFF WHO IS NOT A SHAREHOLDER IS NOT FOR THE PURPOSES OF THE BUSINESS. IT IS SIMPLY A STAFF LOAN. THEREFORE, THE INTEREST DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER IS ERRONEOUS AND WE CONFIRM THE FINDING OF THE LD. CIT(A) A, IN DELETING THE ABOUT DISALLOWA NCE. IN THE RESULT GROUND NO. 9 OF THE APPEAL OF THE REVENUE IS DISMISSED. PAGE 10 OF 18 18. GROUND NO. 10 IS AGAINST DISALLOWANCE OF RS. 177404 MADE BY THE LD. ASSESSING OFFICER OUT OF TELEPHONE EXPENSES AND GROUND NO. 11 IS AGAINST THE DISALLOWANCE OF RS. 111215/ MADE ON ACCOUNT OF VEHICLE MAINTENANCE EXPENSES. BOTH THESE EXPENSES HAVE BEEN DISALLOWED BY THE AO APPLYING 1/ 5 TH OF THE TOTAL EXPENSES AS NON BUSINESS PURPOSES. THE LD. CIT(A) HAS DELETED THE ABOUT DISALLOWANCE. IN BOTH THE CASES. THESE ARE MERELY A DOG DISALL OWANCES WITHOUT POINTING OUT ANY DEFECT IN THE DETAILS SUBMITTED BY THE ASSESSEE. AND IN THE CASE OF THE COMPANY, THERE CANNOT BE ANY ELEMENT OF PERSONAL EXPENDITURE. FURTHERMORE, THE LD. ASSESSING OFFICER IS ALSO DISALLOWED THE INSURANCE EXPENDITURE OF CA R AS WELL. THE DEPRECIATION OF VEHICLES WHICH IS NOT ACCEPTABLE. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) , IN DELETING THE ABOUT DISALLOWANCES WHICH ARE MADE ON AD HOC BASIS AND WITHOUT POINTING OUT ANY DEFECT OR POINTING OUT ANY INSTANCES OF PERSONAL EXPENDITURE OR NON - BUSINESS EXPENDITURE. IN THE RESULT GROUND NO. 10 AND 11 OF THE APPEAL OF THE REVENUE IS DISMISSED. 19. GROUND NO. 12 OF THE APPEAL IS WITH RESPECT TO THE DIRECTION OF THE LD. CIT(A) , 2 NOT TO REDUCE THE PROFIT ELIGIBL E FOR DEDUCTION UNDER SECTION 80 IA WITH RESPECT TO SERVICE CHARGES, UNCLAIMED BALANCES WRITTEN BACK, MISCELLANEOUS INCOME AND SCRAPE SALES BY 90% WHILE WORKING OUT DEDUCTION UNDER SECTION 80 HHC ETC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUN D THAT ASSESSEES CLAIM DEDUCTION UNDER SECTION 80 HHC OF THE INCOME TAX ACT OF RS. 6 48776/ WHICH WAS RESTRICTED BY THE LD. ASSESSING OFFICER TO RS. 1 64054/ . THE MAIN CONTENTION OF REDUCTION WAS THE EXCISE DUTY ELEMENT AND SALES TAX ELEMENT WHICH ARE B EEN INCLUDED IN TOTAL TURNOVER. THE LD. CIT(A) APPEAL HAS HELD THAT THE ABOVE CONTROVERSY HAS BEEN SET AT REST WITH THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF CIT(A) VERSUS LAXMI MACHINE WORKS 290 ITR 667. THE ABOVE ASPECT OF COMPUTATION OF DEDUC TION HAS NOT BEEN CHALLENGED BY THE REVENUE. NOW ONLY ISSUE REMAINS IS WHETHER THE INCOME OF SERVICE CHARGE, UNCLAIMED BALANCES WRITTEN BACK, MISCELLANEOUS INCOME AND SCRAPE SALES AMOUNTING TO RS. 6 379059/ ARE REQUIRED TO BE REDUCED BY 90% WHILE WORKING OUT THE DEDUCTION UNDER SECTION 80 HHC OF THE ACT. THE CLAIM OF THE ASSESSEE IS THAT THESE RECEIPTS ARE NOT IN THE NATURE OF RECEIPTS REFERRED TO UNDER SECTION 28 OF THE ACT OR NOT IN THE NATURE OF BROKERAGE COMMISSION INTEREST AND ETC AND THEREFORE SAME C ANNOT BE EXCLUDED. THE LD. CIT(A) A, HAS DELETED THE ABOVE REDUCTION IN THE DEDUCTION CLAIMED BY THE ASSESSEE. RELYING ON THE DECISION OF THE CENTRAL BOARD OF DIRECT TAXES AS WELL AS LETTER OF VARIOUS DECISIONS CIT(A) ED BEFORE HIM. THE LD. CIT(A) A WAS FURTHER CONVINCED BY CIRCULAR 621 WHEREIN THE PROVISIONS OF FINANCE ACT (NO. 2) HAS CLEARLY CLARIFIED THAT ONLY THOSE AMOUNTS ARE TO BE PAGE 11 OF 18 EXTRUDED WHICH DO NOT HAVE THE ELEMENT OF TURNOVER IN THEM SUGGESTS INTEREST COMMISSION ETC. THE LD. CIT(A) APPEA L HAS HELD THAT THE SERVICES ARE HAS RECEIVED BY THE ASSESSEE ARE IN THE NATURE OF ITS USUAL BUSINESS TURNOVER AND THERE IS NO JUSTIFICATION FOR EXCLUDING THE SAME FOR THE PURPOSE OF WORKING OUT DEDUCTION. HE FURTHER HELD SO WITH RESPECT TO OTHER RECEIPTS SUCH AS MISCELLANEOUS INCOME AND SCRAPE SALES. HONBLE DELHI HIGH COURT HAS ALSO HELD IN 336, ITR 444 THE INDUSTRIAL UNDERTAKING SET UP BY THE ASSESSEE WAS FOR THE PURPOSE OF MANUFACTURE OF STEEL FORGING, TRANSMISSION GEARS AND PART AND ACCESSORIES OF MOTO R VEHICLES AND THE SCRAP OF THESE ITEMS WAS STATED TO BE A BY PRODUCT OF MANUFACTURING PROCESS. THE ACTIVITY OF FORGING WAS MANUFACTURING WITHIN THE AMBIT OF SECTION 80 - IB . IT WAS IMMATERIAL THAT THE ASSESSEE WAS DOING THE JOB OF FORGING ALSO FOR CUSTOM ERS AND WAS CHARGING THEM ON JOB WORK BASIS OR ON THE BASIS OF LABOUR CHARGES. IT WOULD STILL BE QUALIFIED AS CARRYING ON ELIGIBLE BUSINESS UNDER SECTION 80 - IB. THE ACTIVITIES OF THE ASSESSEE WERE IN GIVING HEAT TREATMENT FOR WHICH IT HAD EARNED LABOUR CHA RGES AND JOB WORK CHARGES. IT COULD THUS BE SAID THAT THE ASSESSEE HAD DONE A PROCESS ON THE RAW MATERIAL WHICH WAS NOTHING BUT A PART AND PARCEL OF THE MANUFACTURING PROCESS OF THE INDUSTRIAL UNDERTAKING. THESE RECEIPTS COULD NOT BE SAID TO BE INDEPENDENT INCOME OF THE MANUFACTURING ACTIVITIES OF THE UNDERTAKING OF THE ASSESSEE AND THUS COULD NOT BE EXCLUDED FROM THE PROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80 - IB . THESE WERE GAINS DERIV ED FROM THE INDUSTRIAL UNDERTAKING AND SO ENTITLED FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80 - IB . THERE COULD NOT BE ANY TWO OPINIONS THAT MANUFACTURING ACTIVITY OF THE TYPE OF MATERIAL BEING UNDERTAKEN BY THE ASSESSEE WOULD ALSO GENERATE SCR AP IN THE PROCESS OF MANUFACTURING. THE RECEIPTS FROM SALE OF SCRAP BEING PART AND PARCEL OF THE ACTIVITY AND BEING PROXIMATE THERETO WOULD ALSO BE WITHIN THE AMBIT OF GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UND ER SECTION 80 - IB . IN VIEW OF THIS WE DISMISS GROUND NO. 12 OF THE APPEAL OF THE REVENUE. 20. IN THE RESULT APPEAL OF THE REVENUE IS PARTLY ALLOWED AS IN GROUND NO. 2 OF THE APPEAL PART OF THE GROUND OF THE APPEAL IS ALLOWED. ITA NO 3442/ DEL /2008 A Y 2004 - 05 21. THE ABOVE APPEAL OF THE REVENUE HAS 13 EFFECTIVE GROUNDS OF APPEAL. EXCEPT GROUND NO. 3 OF THE APPEAL ALL THE GROUNDS ARE HAVING IDENTICAL FACTS AND CIRCUMSTANCES IS IN APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2003 04 IN ITA NO. 3441/DEL/2008. BOTH TH E PARTIES ALSO CONFIRMED THAT THERE IS NO CHANGE IN THE FACTS AND PAGE 12 OF 18 CIRCUMSTANCES OR THE REASONS GIVEN BY THE LD. ASSESSING OFFICER WHILE DISALLOWING THE EXPENDITURE OR REASONS GIVEN BY THE LD. CIT(A) , IN DELETING THE ABOUT DISALLOWANCES OR ADDITIONS. FOR TH IS REASON, WE DISPOSE OF GROUND NO. 1 TO 13 OF THE APPEAL OF THE REVENUE EXCEPT GROUND NO. 3, AS UNDER: - GR NO OF APPEAL PARTICULARS RESPECTIVE GROUND OF REVENUE APPEAL FOR AY 2003 - 04 RESULT IN THIS APPEAL FOR AY 2004 - 05 1 & 2 REDUCTION IN PROFIT FOR ELIGIBLE DEDUCTION U/S 80 IA ON ACCOUNT OF TRADED GOODS GROUND NO 1 DISMISSED 4 DISALLOWANCE OF SELLING COMMISSION OF RS. 2 556039/ GROUND NO. 3 DISMISSED 5 DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF RS. 1 559311/ GROUND NO. 4 DISMISSED 6 DISALLOWANCE OF ENTERTAINMENT EXPENDITURE OF RS. 2 54843/ GROUND NO. 5 DISMISSED 7 DISALLOWANCE OF INLAND TRAVEL EXPENSES OF RS. 1 271196/ GROUND NO. 6 DISMISSED 8 DISALLOWANCE OF STAFF WELFARE EXPENDITURE OF RS. 4 72267 GROUND NO. 7 DISMISSED 9 DISALLOWANCE OF INTEREST ON INTEREST - FREE LOAN GIVEN TO DIRECTOR OF THE COMPANY OF RS. 90,000/ GROUND NO. 9 DISMISSED 10 DISALLOWANCE OF GIFT EXPENSES OF RS. 1 47916/ GROUND NO. 8 DISMISSED 11 DISALLOWANCE OF TELEPHONE EXPENSES OF RS. 3 09094/ GROUND NO. 10 DISMISSED 12 DISALLOWANCE OF VEHICLE MAINTENANCE EXPENSES OF RS. 1 07322/ - GROUND NO. 11 DISMISSED 13 REDUCTION OF THE PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HHC AS WELL AS 80 IA ON ACCOUNT OF SERVICE CHARGES, UNCLAIMED BALA NCES WRITTEN BACK, MISCELLANEOUS INCOME AND SCRAP VALUE GROUND NO. 12 DISMISSED PAGE 13 OF 18 22. NOW WE COME TO THE NEW GROUND OF THE APPEAL. IN THIS YEAR WHICH IS GROUND NO. 3, WHEREIN THE LD. ASSESSING OFFICER HAS DISALLOWED A SUM OF RS. 1 79514 4/ - OUT OF THE TOTAL LEGAL AND PROFESSIONAL EXPENSES IN CURRED BY THE ASSESSEE OF RS. 3 413807/ . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO PROVIDE THE DETAILS OF THESE EXPENSES. THE ASSESSEE SUBMITTED THE DETAILS OF PROFESSIONAL JUDGES HOWEVER, ACCO RDING TO THE LD. AO ASSESSEE HAS NOT ENABLED TO SHOW THE EVIDENCE OF RENDERING OF THOSE SERVICES. IN CASE OF RETAINER SHIP FEES OF RUPEES ONE 19514 FOR THE ASSESSEE ALSO COULD NOT PRODUCE THE EVIDENCE OF RENDERING OF SERVICES BY THE SAID PERSON. THEREFORE, THE LD. AO DISALLOWED A SUM OF RS. 179514 4/ - . THE ASSESSEE AGITATED THE ISSUE BEFORE THE LD. CIT(A) WHEREIN IT WAS SUBMITTED THAT THE DETAILS OF PROFESSIONAL EXPENSES RETAINER JUDGES AND THE COPIES OF INVOICES ALONG WITH THE COPIES OF TEDIOUS CERTIFICATES WERE FILED BEFORE THE ASSESSING OFFICER. HOWEVER, SAME WERE IGNORED. IT WAS FURTHER SUBMITTED THAT RETAINER SHIP EXPENSES ARE INCURRED FOR THE PURPOSE OF ANNUAL RETAINER SHIP CHARGES TO VARIOUS CONSULTANTS FOR PROVIDING THE SERVICES. REGARDING THE RENDITI ON OF THE SERVICES OF MR VINOD THE IT WAS SUBMITTED THAT SUM OF RS. 6 LACS WAS PAID ON ACCOUNT OF CONSULTATION JUDGES AND ASSEMBLE BILLS WERE ALSO PROVIDED FOR. THE LD. CIT(A) DELETED THE ABOUT DISALLOWANCE FOR THE REASON THAT LD. ASSESSING OFFICER IS TOTA LLY NEGATED THE PRINCIPAL OF THE COMMERCIAL EXPEDIENCY WHILE FRAMING THE ASSESSMENT ORDER. BEFORE US ALSO, THE SIMILAR ARGUMENTS WERE RAISED. WE HAVE ALSO NOTED THAT THE AMOUNT OF RETAINER SHIP CHARGES PAID TO VARIOUS RETAINERS THE COMPLETE DETAILS WERE PR OVIDED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. HOWEVER, OLD THOSE RETAINERS ARE PROVIDING ANNUAL SERVICES OF ROUTINE NATURE. AND FURTHER WITH RESPECT TO THE AMOUNT OF CONSULTATION CHARGES PAID TO MR VINOD THE ASSESSEE IS ALSO SUBMITTED THE DETAILS AL ONG WITH THE BILLS WHERE THE COMPLETE DETAILS OF RENDITION OF THE SERVICES IS ALSO SHOWN IN THE INVOICES. IN THE RESULT WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) , IN DELETING THE ABOUT DISALLOWANCES. IN THE RESULT WE DISMISS GROUND NO. 3 OF THE APPEAL OF THE REVENUE. 23. IN THE RESULT APPEAL OF THE REVENUE IN ITA NO. 3442/DEL/2008 FOR ASSESSMENT YEAR 2004 - 05 IS DISMISSED. ITA NO 1767/DEL/2010 AY 2006 - 07 24. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) , FARIDABAD DATED 11/02/2010. REVENUE HAS RAISED FOLLOWING 7 EFFECTIVE GROUNDS OF APPEAL: - PAGE 14 OF 18 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 22,60,596/ - MADE BY THE ASSESSING OFFICER ON ACCO UNT OF FREIGHT CHARGES EXPENSES WITHOUT GIVING ANY REASON AT HIS OWN AND SIMPLY RELYING ON HIS EARLIER YEARS APPELLATE ORDER AND EVEN THOUGH THE ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF BUSINESS AND IS IN CONTRARY TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT(A) VS CALCUTTA AGENCY LTD. (1951) 19 ITR 191 (SC) WHEREIN IT WAS HELD THAT IF THE ASSESSEE FAILED TO ESTABLISH THE FACTS NECESSARY TO SUPPORT HIS CLAIM FOR D EDUCTION U/S 37(1), THE CLAIM FOR DEDUCTION OF EXPENDITURE IS NOT ADMISSIBLE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 24,91,854/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF REPAIR AND MAINTENANCE EXPENSES WITHOUT GIVING ANY REASON AT HIS OWN AND SIMPLY RELYING ON HIS EARLIER YEARS APPELLATE ORDER AND EVEN THOUGH THE ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) (A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 19,47,010/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES WIT HOUT GIVING ANY REASON AT HIS OWN AND SIMPLY RELYING ON HIS EARLIER YEARS APPELLATE ORDER AND EVEN THOUGH THE ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 8,20,824/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SELLING EXPENSES WITHOUT GIVING ANY REASON AT HIS OWN AND SIMPLY RELYING ON HIS EARLI ER YEARS APPELLATE ORDER AND EVEN THOUGH THE ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) (A) HAS ERRE D ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 16,22,117/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF MISCELLANEOUS EXPENSES WITHOUT GIVING ANY REASON AT HIS OWN AND SIMPLY RELYING ON HIS EARLIER YEARS APPELLATE ORDER AND EVEN THOUGH THE ASSESSEE H AD FAILED TO DISCHARGE ITS ONUS THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 60,3 54/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEMURRAGE CHARGES DISREGARDING THE FACT THAT THE DEMURRAGE CHARGES IS A FINE IMPOSED UPON THE ASSESSEE FOR NOT ACTING UNDER THE LAW OR INFRINGEMENT OF LAW, AS SUCH NOT AN ALLOWABLE EXPENSES. 7. ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITION OF RS. 11,93,227/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF POWER AND FUEL EXPENSES DISREGARDING THE FACT THAT THE ASSESSEE, HAVING FAILED TO DISCHARGE THE ONUS THAT THE EXPENDITURE WAS INCURRED PAGE 15 OF 18 WH OLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. 25. WE HAVE HEARD THE RIVAL PARTIES. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE LD. ASSESSING OFFICER, WHEREAS THE LD. AUTHORISED REPRESENTATIVE SUBMITTED A DETAILED CHART ALONG WITH TH E PAPER BOOK AND MOSTLY RELIED ON THE ORDER OF THE LD. CIT(A) . 26. THE 1 ST GROUND OF APPEAL OF THE REVENUE IS AGAINST THE DELETION OF DISALLOWANCE OF RS. 2260596 MADE BY THE LD. ASSESSING OFFICER ON ACCOUNT OF FREIGHT CHARGES WHERE ACCORDING TO HIM THE ASSESSE E HAS FAILED TO DISCHARGE HIS ORDER THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EX WAS ONLY FOR THE PURPOSE OF THE BUSINESS. THE FACTS ARE THAT DURING THE YEAR ASSESSEE HAS INCURRED AN EXPENDITURE OF RS. 9042384 UNDER THE FREIGHT EXPENSES. LD. ASSESSING O FFICER FOUND THAT A SUM OF RS. 7548371 WAS INCURRED AS A FREIGHT OUTWARDS AND RS. 1 494013/ WAS INCURRED AS EXPORT FREIGHT. THE ASSESSEE SUBMITTED THE DETAILS OF THESE EXPENDITURE. HOWEVER, THE LD. ASSESSING OFFICER HELD THAT THESE EXPENDITURE ARE NOT FULL Y VERIFIABLE. IN SEVERAL CASES AND IT DID NOT HAVE SUPPORTING BILLS. THE LD. ASSESSING OFFICER THEREFORE DISALLOWED ONE FOURTH OF TOTAL EXPENSES. ON APPEAL BEFORE THE LD. CIT(A) THE ABOUT DISALLOWANCE WAS DELETED. ON CAREFUL CONSIDERATION OF THE ORDERS OF THE LOWER AUTHORITIE . IT IS APPARENT THAT THE LD. ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE ON AD HOC BASIS WITHOUT POINTING OUT ANY DEFECT IN THE DETAILS SUBMITTED BY THE ASSESSEE. FURTHER MORE, THE LD. ASSESSING OFFICER ALSO COULD NOT POINT OUT ANY OF THE EXPENDITURE WITH INSTANCES WHICH ARE NOT VERIFIABLE AND WHICH ARE NOT SUPPORTED BY THE PROPER VOUCHERS. THE ASSESSEE AND SUBMITTED THAT THE ABOVE EXPENDITURE ARE INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND NONE OF THE INSTANCES SH OWS THAT THESE ARE EXPENDITURE WHICH ARE NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE. IN THE RESULT WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ABOVE DISALLOWANCES. HENCE, GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS DISMI SSED. 27. GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS AGAINST THE DELETION OF DISALLOWANCE ON ACCOUNT OF REPAIRS AN D MAINTENANCE EXPENSES OF RS. 2 491854/ . THE ASSESSEE HAS INCURR ED A TOTAL EXPENDITURE OF RS. 1 245 9270 AND ASSESSEE SUBMITTED THE RELEVANT DETA ILS BEFORE THE LD. ASSESSING OFFICER. HOWEVER, THE LD. ASSESSING OFFICER HAS HELD THAT EXPENDITURE SEEMS TO BE CONSIDERABLY ON HIGHER SIDE WHICH ARE INCURRED FOR THE PURPOSE OF REDUCTION OF THE TAXABLE INCOME BY DEBITING ALL SUCH EXPENSES WHICH ARE NOT VER IFIABLE AND THEREFORE HE DISALLOWED 1/5 OF THE ABOVE SAID EXPENSES. THE LD. CIT(A) DELETED THE ABOUT DISALLOWANCE. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE ORDERS OF THE LD. AND ASSESSING OFFICER WHO MADE PAGE 16 OF 18 THE DISALLOWANCES AN D LD. CIT(A) WHO DELETED. ON CAREFUL CONSIDERATION OF THE ORDERS OF THE LOWER AUTHORITIES . IT IS APPARENT THAT THE LD. ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE ON AD HOC BASIS WITHOUT POINTING OUT ANY DEFECT IN THE DETAILS SUB MITTED BY THE ASSESSE E. FURTHER MORE, THE LD. ASSESSING OFFICER ALSO COULD NOT POINT OUT ANY OF THE EXPENDITURE WITH INSTANCES WHICH ARE NOT VERIFIABLE AND WHICH ARE NOT SUPPORTED BY THE PROPER VOUCHERS. THE ASSESSEE AND SUBMITTED THAT THE ABOVE EXPENDITURE ARE INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND NONE OF THE INSTANCES SHOWS THAT THESE ARE EXPENDITURE WHICH ARE NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE. WE ARE REALLY SURPRISED TO KNOW THE REASONING GIVEN BY THE LD. ASSESSING OFFICER WITHOUT POINTING OUT A SPECIFIC INSTANCE THAT THE ASSESSEE HAS INCURRED THIS EXPENSES WITH A VIEW TO REDUCE THE TAXABLE INCOME. NONE OF THE EXPENSES ARE PROVED AS BOGUS EXPENDITURE BY LD. ASSESSING OFFICER. IN THE RESULT WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ABOVE DISALLOWANCES. HENCE, GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 28. GROUND NO. 3 OF THE APPEAL OF REVENUE IS AGAINST THE DISALLOWANCE OF RS. 1947010/ - DELETED BY THE LD. CIT(A) . DURING THE YEAR THE ASSESSEE HAS INCUR RED AN EXPENDITURE OF RS. 1 947 0104/ . HOWEVER, THE LD. ASSESSING OFFICER FOR THE REASON THAT ASSESSEE COULD NOT FURNISH EVIDENCES ON SUPPORTING VOUCHERS, BILLS SHOWING THE GENUINENESS OF THE CLAIM DISALLOWED 1/10 OF THE ABOVE EXPENDITURE. THE LD. CIT(A) , DELETED THE ABOVE EXPENDITURE. ON CAREFUL CONSIDERATION OF THE ORDERS OF THE LOWER AUTHORITIES . IT IS APPARENT THAT THE LD. ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE ON AD HOC BASIS WITHOUT POINTING OUT ANY DEFECT IN THE DETAILS SUB MITTED BY THE AS SESSEE. FURTHER MORE, THE LD. ASSESSING OFFICER ALSO COULD NOT POINT OUT ANY OF THE EXPENDITURE WITH INSTANCES WHICH ARE NOT VERIFIABLE AND WHICH ARE NOT SUPPORTED BY THE PROPER VOUCHERS. THE ASSESSEE AND SUBMITTED THAT THE ABOVE EXPENDITURE ARE INCURRED FO R THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND NONE OF THE INSTANCES SHOWS THAT THESE ARE EXPENDITURE WHICH ARE NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE. IN THE RESULT WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ABO VE DISALLOWANCES. HENCE, GROUND NO. 3 OF THE APPEAL OF THE REVENUE IS DISMISSED. 29. GROUND NO. 4 OF THE APPEAL OF THE REVENUE IS AGAINST DISALLOWANCE OF RS. 8 0824 ON ACCOUNT OF SELLING EXPENSES. DURING THE YEAR THE ASSES SEE HAS INCURRED A SUM OF RS. 8 20342 O N ACCOUNT OF SELLING EXPENSES WHICH ARE BEING PAID AS A COMMISSION TO VARIOUS PARTIES. DURING THE YEAR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED EVIDENCES OF RENDERING OF THE SERVICES. ASSESSEE PAGE 17 OF 18 MERELY SUBMITTED THE BILLS. TH EREFORE, THE LD. ASSESSING OFFICER DISALLOWED THE TOTAL SUM. THE LD. CIT(A) APPEAL DELETED THE SAME FOLLOWING THE ORDERS OF THE EARLIER YEARS. THE ABOVE ISSUE IS ALREADY BEEN DEALT WITH IN GROUND NO. 3 OF THE APPEAL OF THE R EVENUE FOR ASSESSMENT YEAR 2003 - 04. FOR THE SIMILAR REASONS WE ALSO CONFIRM THE FINDING OF THE LD. CIT(A) IN DELETING THE ABOUT DISALLOWANCE. HENCE, GROUND NO. 4 OF THE APPEAL OF THE REVENUE IS DISMISSED. 30. GROUND NO. 5 OF THE APPEAL OF THE REVENUE IS AGAINST THE DE LETION OF DISALLOWANCE OF RS. 1 622117 ON ACCOUNT OF MISCELLANEOUS EXPENDITURE. LD. ASSESSING OFFICER NOTED DURING THE COURSE OF ASSESSMENT PROCEEDING THAT ASSESSEE IS DEBITED AN AMOUNT OF RS. 6565850/ - UNDER THE HEAD MISCELLANEOUS EXPENSES AND THE ASSESSEE HAS SUBMITTED THE DETA ILS AS PER ANNEXURE 7 SHOWING THAT THE ASSESSEE HAS INCURRED THIS EXPENDITURE ON BANK CHARGES MISCELLANEOUS EXPENSES RECRUITMENT CHARGES SCRUTINY CHARGES ETC ETC. THE LD. ASSESSING OFFICER HAS DISALLOWED ONE FOURTH OF THE ABOVE SAID EXPENSES HOLDING THAT T HE EXPENSES ARE INCURRED WHICH ARE NOT VERIFIABLE FULLY. LD. CIT(A) APPEAL DELETED THE SAME. ON CAREFUL CONSIDERATION OF THE ORDERS OF THE LOWER AUTHORITIES . IT IS APPARENT THAT THE LD. ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE ON AD HOC BASIS WITH OUT POINTING OUT ANY DEFECT IN THE DETAILS SUB MITTED BY THE ASSESSEE. FURTHER MORE, THE LD. ASSESSING OFFICER ALSO COULD NOT POINT OUT ANY OF THE EXPENDITURE WITH INSTANCES WHICH ARE NOT VERIFIABLE AND WHICH ARE NOT SUPPORTED BY THE PROPER VOUCHERS. THE ASS ESSEE AND SUBMITTED THAT THE ABOVE EXPENDITURE ARE INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND NONE OF THE INSTANCES SHOWS THAT THESE ARE EXPENDITURE WHICH ARE NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE. IN THE RESULT WE DO NOT FIND AN Y INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ABOVE DISALLOWANCES. HENCE, GROUND NO. 5 OF THE APPEAL OF THE REVENUE IS DISMISSED. 31. GROUND NO. 6 OF THE APPEAL OF THE REVENUE IS AGAINST THE DELETION OF DISALLOWANCE OF RS. 6 0354/ - MADE BY THE LD . ADDED ASSESSING OFFICER ON ACCOUNT OF DAYBREAK CHARGES. THE LD. ASSESSING OFFICER WAS OF THE VIEW THAT DAYBREAK CHARGES ARE FINE AND THEREFORE ARE NOT ALLOWABLE. THE LD. CIT(A) , DELETED THE ABOVE DISALLOWANCE. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTE NTION AND ALSO NOTED THAT THE DAYBREAK CHARGES PAID FOR COMPENSATION FOR INEFFICIENCY. THEREFORE THEY ARE NOT PENAL IN NATURE BUT ARE COMPENSATORY IN NATURE. THE HONBLE DELHI HIGH COURT IN ITA NO. 7, 82/2016 DATED 24 FOR 2017 IN PRINCIPAL COMMISSIONER OF INCOME TAX VERSUS NATIONAL FERTILISER LTD, HAS HELD THAT DEMURRAGE CHARGES ARE NOT PENAL IN NATURE. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ABOUT DISALLOWANCES. IN THE RESULT GROUND NO. 6 OF THE APPEAL OF THE REVENUE IS DISMISSED. PAGE 18 OF 18 32. GROUND NO. 7 OF THE APPEAL OF THE REVENUE IS AGAINST THE DELETION OF THE DISALLOWANCE OF RS. 1193227/ MADE BY THE ASSESSING ON ACCOUNT OF POWER AN D FUEL EXPENSES. THE BRIEF FACTS OF THE CASE IS THAT DURING THE YEAR THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS. 1932271/ UNDER THE HEAD POWER AND FUEL EXPEN SES OUT OF WHICH A SUM OF RS. 3 905468/ WAS INCURRED ON POWER AND EXPENDITURE OF RS. 8 026803/ WAS INCURRED ON DIESEL EXPENDITURE. THE LD. ASSESSING OFFICER WAS OF THE VIEW THAT ALL THESE EXPENDITURE ARE INCURRED BY THE ASSESSEE ON VOUCHERS AND THEREFORE THEY ARE NOT FULLY VOUCHED AND VERIFIABLE. HENCE HE DISALLOWED 1/10 OF THE TOTAL EXPENDITURE. ON APPEAL BEFORE THE LD. CIT(A) THE ABOVE IS DISALLOWANCE WAS DELETED FOR THE REASON THAT THE LD. AO COULD NOT POINT OUT ANY DEFECT IN THE DETAILS MENTIONED. ON CAREFUL CONSIDERATION OF THE ORDERS OF THE LOWER AUTHORITIES. IT IS APPARENT THAT THE LORD ASSE SSING OFFICER HAS DISALLOWED THE EXPENDITURE ON A DARK BASIS WITHOUT POINTING OUT ANY DEFECT IN THE DETAILS SUB MITTED BY THE ASSESSEE. FURTHER MORE, THE LD. ASSESSING OFFICER ALSO COULD NOT POINT OUT ANY OF THE EXPENDITURE WITH INSTANCES WHICH ARE NOT VERIF IABLE AND WHICH ARE NOT SUPPORTED BY THE PROPER VOUCHERS. THE ASSESSEE AND SUBMITTED THAT THE ABOVE EXPENDITURE ARE INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND NONE OF THE INSTANCES SHOWS THAT THESE ARE EXPENDITURE WHICH ARE NOT RELATABLE TO THE BUSINESS OF THE ASSESSEE. IN THE RESULT WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ABOVE DOUBT DISALLOWANCES. HENCE, GROUND NO. 7 OF THE APPEAL OF THE REVENUE IS DISMISSED. 33. IN THE RESULT APPEAL OF THE REVENUE FOR AS SESSMENT YEAR 2006 - 2007 IN ITA NO. 1767/ DEL /2010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 3 / 0 8 / 2017 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 3 / 08 / 2017 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT(A) 4. CIT(A) (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI