The ACIT, Baroda Circle-4, Baroda V. M/S Synbiotics Ltd, Baroda

ITA 3465/AHD/2002

• Counselvise Citation: 346520514 RSA 2002
• Duration Of Justice: 9 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 19-01-2012
• Assessment Year: 1994-1995
• Appeal Filed On: 14-11-2002
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Assessee Lawyers: M K PATEL
• Keywords: Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. K. GARO DIA, AM) ITA NO.3465/AHD/2002 A. Y.: 1994-95 THE A. C. I. T., BARODA CIR-4, 4 TH FLOOR, AAYAKAR BAHAVAN, RACE COURSE CIRCLE, BARODA VS SYNBIOTICS LTD., WADI WADI, BARODA PA/GIR NO.31-009.CX-9519 (APPELLANT) (RESPONDENT) DEPARTMENT BY SHRI RAJEEV AGARWAL, CIT DR ASSESSEE BY SHRI M. K. PATEL, AR DATE OF HEARING: 19-01-2012 DATE OF PRONOUNCEMENT: 23-03-2012 O R D E R PER A. K. GARODIA: THIS REVENUES APPEAL IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-III, BARODA DATED 08-08-2002 FOR ASSESSMENT YEAR 1994-95. 2. GROUNDS NO. 1 AND 2 OF THE REVENUES APPEAL ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON OF RS.33,65,154/- BEING THE AMOUNT OF CORPORATE SERVIC E CHARGES PAID TO AMBALAL SARABHAI ENTERPRISES LTD., THE HOLD ING COMPANY, WHICH WAS DISALLOWED BY THE A. O. TREATING THE SAME AS NOT PAID FOR THE BUSINESS OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON OF RS.26,47,252/- BEING THE AMOUNT OF REIMBURSEMENT OF SALARY OF ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 2 STAFF OF THE HOLDING COMPANY, WHICH WAS DISALLOWED BY THE A. O., TREATING THE SAME AS NOT PAID FOR THE BUSINESS OF THE ASSESSEE. 3. THE FACTS OF THE CASE ARE THAT IT IS NOTED BY TH E AO IN PARA 4 OF THE ASSESSMENT ORDER THAT THE ASSESSEE COMPANY HAS PAID RS.33,65,154/- ON ACCOUNT OF SERVICE CHARGES AND TH E AMOUNT OF RS.26,47,252/- ON ACCOUNT OF REIMBURSEMENT OF SALAR Y OF OFFICE STAFF OF THE HOLDING COMPANY M/S. SARABHAI ENTERPRISES LT D. THE AO ASKED THE ASSESSEE TO JUSTIFY THE PAYMENT. IN REPLY, THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE MANAGEMENT AND SENIOR EXECUT IVES OF THE HOLDING COMPANY ARE PROVIDING GUIDANCE AND ADVICES ON CORPORATE MATTERS AND FOR THIS PURPOSE, THE SERVICE CHARGES O F RS.33,65,154/- WAS PAID. THE ASSESSEE WAS ASKED TO SUBMIT EVIDENCE S IN SUPPORT OF THE CLAIM THAT THE CORPORATE PLANNING AND POLICY MA NAGEMENT IS BEING RUN BY THE HOLDING COMPANY. THE AO ALSO ASKED THE A SSESSEE TO JUSTIFY QUANTUM OF PAYMENT EVEN IF SOME GUIDANCE IS RECEIVED FROM THE HOLDING COMPANY. THE AO NOTED THAT THE ASSESSEE HAS FAILED TO PROVIDE ANY EVIDENCE IN SUPPORT OF THE SERVICES REN DERED BY THE HOLDING COMPANY. IT WAS SUBMITTED BY THE ASSESSEE B EFORE THE AO THAT THIS MATTER HAS BEEN DEALT IN EARLIER YEARS AN D DECIDED BY THE APPELLATE AUTHORITIES. THE AO WAS NOT SATISFIED WIT H THE EXPLANATIONS OF THE ASSESSEE AND REJECTED THE CLAIM OF THE ASSES SEE REGARDING PAYMENT OF RS.33,65,154/-. REGARDING THE CLAIM OF R EIMBURSEMENT OF SALARY OF STAFF OF THE HOLDING COMPANY OF RS.26,47, 252/-, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT THE SE RVICES OF THE STAFF OF THE HOLDING COMPANY ARE UTILIZED FOR THE PURPOSE OF ASSESSEES BUSINESS. THE AO HAS STATED IN THE ASSESSMENT ORDER THAT THE ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 3 ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE EXCEPT THE NAMES AND DESIGNATIONS OF THE STAFF OF THE HOLDING COMPANY WH OSE SALARY HAS BEEN DISBURSED BY THE ASSESSEE COMPANY. THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND REJECTED T HE CLAIM OF THE ASSESSEE ON THIS ACCOUNT ALSO. 4. AGGRIEVED BY THIS, THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED CIT(A) WHO DELETED BOTH THE DISALLOWANCE ON THE BASIS THAT THIS ISSUE HAS BEEN COVERED IN FAVOUR OF THE ASSESS EE BY THE ORDER OF THE LEARNED CIT(A) IN AY 1981-82 TO 1991-92. WITH R EGARD TO THESE TWO ISSUES, IT WAS HELD BY THE LEARNED CIT(A) THAT THE HOLDING COMPANY HAD DEPUTED SOME OF ITS EMPLOYEES ON DEPUTA TION TO WORK FOR THE ASSESSEE COMPANY. HE ALSO STATED IN THE ORD ER THAT THE LETTER ADDRESSED TO THEM REGARDING DEPUTATION ETC. CLEARLY INDICATES THIS POSITION AND THEREFORE, THERE IS NO GROUND TO HOLD THAT THE ASSESSEE HAS WITHOUT AVAILING SUCH SERVICES MADE REIMBURSEME NT OF SALARY ETC. TO THE HOLDING COMPANY. HE DELETED BOTH THE ADDITIO NS. 5. THE REVENUE IS IN APPEAL BEFORE US. IT WAS SUBMI TTED BY THE LEARNED DR THAT NO DETAILS WERE SUBMITTED BY THE AS SESSEE BEFORE THE AO FOR VERIFYING THE DETAILS AND ITS BUSINESS P URPOSES. REGARDING EARLIER YEARS DECISION, IT WAS SUBMITTED THAT RES-J UDICATA DOES NOT APPLY IN INCOME TAX PROCEEDINGS. 6. IN REPLY, THE LEARNED AR SUBMITTED THAT THESE IS SUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS ORDER IN ASSESSEES OWN CASE IN PREVIOUS ASSESSMENT YEAR 198 1-82 COPY OF ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 4 WHICH ARE AVAILABLE AT PAGES 157 TO 170 FOR THE FIR ST ISSUE AND PAGES 171 TO 179 FOR THE SECOND ISSUE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE RECORDS AND GONE THROUGH THE ORDER OF THE TRIBUNAL IN ITS O WN CASE FOR AY 1992-93 AND 1993-94. WE FIND THAT AS PER THE TRIBU NALS ORDER, THE DISALLOWANCE WAS DELETED ON THE BASIS THAT IN EARLI ER YEARS, THE LEARNED CIT(A) HAS DELETED SIMILAR DISALLOWANCE FOL LOWING THE EARLIER ORDERS AND THIS ORDER OF THE TRIBUNAL IN THE EARLIE R WAS UPHELD BY THE TRIBUNAL. IT IS NOT COMING OUT FROM THIS ORDER OF T HE TRIBUNAL AS TO WHETHER THE DETAILS AND EVIDENCES WERE FURNISHED BY THE ASSESSEE BEFORE THE AO. IN THE PRESENT YEAR, THE BASIS OF TH E AO IS THAT DETAILS WERE NOT FURNISHED BEFORE HIM REGARDING EXPENSES. T HERE IS NO MENTION IN THE ORDER OF THE LD.CIT(A) ALSO THAT SUC H DETAILS WERE FURNISHED BEFORE HIM. HE HAS ALSO DELETED BOTH THE DISALLOWANCES REGARDING SERVICE CHARGES ON THIS BASIS THAT THE IS SUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE LEARNED CIT(A) IN EARLIER YEARS. FOR THE SECOND ISSUE, HE SIMPLY RELIED UPON THE LETTER ADDRESSED TO VARIOUS STAFF OF THE HOLDING COMPANY R EGARDING THEIR DEPUTATION. AS PER THE DETAILS AVAILABLE ON PAGES 1 52 TO 154 OF THE PAPER BOOK, WE FIND THAT, CORPORATE EXPENSES WERE R ECOVERED FROM THE ASSESSEE IN THE RATIO OF TURNOVER OF THE ASSESS EE AND VARIOUS OTHER GROUP COMPANIES. WE ARE OF THE CONSIDERED OPI NION THAT ALTHOUGH ALLOWABILITY OF THE EXPENSES IS COVERED BY THE TRIBUNALS ORDER, THE COMPUTATION OF THE SAME HAS TO BE EXAMIN ED BY THE AO TO SEE THAT THE SAME IS CORRECT AND HENCE, WE FEEL THA T THIS MATTER SHOULD GO BACK TO THE FILE OF THE AO FOR FRESH DECI SION. ACCORDINGLY, ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 5 WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON THI S ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR FRESH DEC ISION TO EXAMINE THE QUANTUM OF THE EXPENSES TO BE ALLOWED UNDER THE HEA D SERVICE CHARGES. THE AO SHOULD FIND OUT THE BASIS OF THESE EXPENSES ALLOWED IN THE EARLIER YEARS AND THE BASIS IN THE PRESENT Y EAR. WE ARE RESTORING THIS MATTER TO THE FILE OF THE AO FOR EXA MINING THE QUANTUM OF THE EXPENSES ALLOWABLE BECAUSE NO DETAILS WERE F URNISHED BEFORE THE AO IN THIS REGARD. BEFORE US ALSO COMPARATIVE P OSITION OF THE EARLIER YEARS AND PRESENT YEAR IS NOT MADE AVAILABL E. HENCE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS ALLOWED FOR ST ATISTICAL PURPOSES. 8. REGARDING GROUND NO.2, WE FIND THAT THE DETAILS ARE AVAILABLE FROM PAGES 171 TO 179 BUT THESE PAGES OF THE PAPER BOOK DO NOT CONTAIN THE DEPUTATION LETTERS ON WHICH MUCH STRETC H HAS BEEN LAID OUT BY THE LEARNED CIT(A) WHILE DELETING THIS DISAL LOWANCE. BEFORE THE AO, THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE EXC EPT THE NAMES AND DESIGNATION OF THE STAFF MEMBERS OF THE HOLDING COMPANY WHOSE SALARY IS CLAIMED TO HAVE BEEN REIMBURSED BY THE AS SESSEE COMPANY. THE AO ALSO STATED THAT THE ASSESSEE HAS FAILED TO GIVE ANY EVIDENCE IN SUPPORT OF THE CLAIM. UNDER THESE CIRCUMSTANCES, WE FEEL THAT THIS MATTER ALSO SHOULD GO BACK TO THE FILE OF THE AO FO R VERIFICATION AND EXAMINATION THAT THE STAFFS WERE DEPUTED AND WHETHE R THEY HAVE RENDERED ANY SERVICES TO THE ASSESSEE COMPANY. IF T HE ASSESSEE CAN ESTABLISH THESE TWO FACTORS BEFORE THE AO, THEN NO DISALLOWANCE MAY BE MADE. HENCE, WE RESTORE BACK THIS MATTER ALSO TO THE FILE OF THE AO FOR FRESH DECISION AS PER ABOVE DISCUSSIONS AFTER P ROVIDING ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 6 REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. GROUND NO.2 OF THE APPEAL OF THE REVENUE IS ALSO ALLOWED FOR ST ATISTICAL PURPOSES. 9. GROUND NO.3 OF THE APPEAL OF THE REVENUE READS A S UNDER: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON OF RS.1,00,00,000/- BEING THE AMOUNT OF SERVICES CHARG ES PAID TO SARABHAI CHEMICALS LTD., A DIVISION OF THE HOLDING COMPANY, WHICH WAS DISALLOWED BY THE A. O. UNDER SECTION 40A (2) (B) OF THE I. T. ACT, TREATING THE SAME AS NOT PAID FOR TH E BUSINESS OF THE ASSESSEE. 10. BRIEF FACTS ARE THAT IT IS NOTED BY THE AO IN P ARA 6 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS CLAIMED SERV ICE CHARGES OF RS.8,12,33,688/- ON ACCOUNT OF SERVICES OBTAINED FR OM M/S. SARABHAI COMMON SERVICES, A DIVISION OF THE HOLDING COMPANY. IT WAS CLAIMED BEFORE THE AO THAT M/S. SARABHAI COMMON SERVICES HA S PROVIDED STEAM, ELECTRICITY, WATER AND MANY OTHER COMMON SER VICES TO THE INDUSTRIES SITUATED IN THE SAME COMPOUND. IT IS FUR THER NOTED BY THE AO THAT IN ORDER TO EXAMINE THE REASONABLENESS OF T HE PAYMENTS TO THE HOLDING COMPANY, THE ASSESSEE WAS ASKED TO GIVE DETAILS OF TOTAL EXPENSES INCURRED BY THE HOLDING COMPANY ON COMMON SERVICES AND ALSO TO GIVE BASIS ON WHICH THESE EXPENSES HAVE BEE N APPORTIONED BETWEEN THE DIFFERENT UNITS. THEREAFTER, THE AO HAS NOTED THAT THE DETAILS HAVE NOT BEEN SUBMITTED AND UNDER THESE FAC TS, IT WAS HELD BY THE AO THAT AN AMOUNT OF RS.1,00,00,000/- IS UNREAS ONABLE WITHIN THE MEANING OF SECTION 40A (2) (B) OF THE IT ACT. HE M ADE DISALLOWANCE TO THAT EXTENT. BEING AGGRIEVED, THE ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A). ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 7 11. THE LEARNED CIT(A) DELETED THIS DISALLOWANCE ON THE BASIS THAT M/S. SARABHAI COMMON SERVICES HAVE PROVIDED THE ASS ESSEE NOT ONLY WITH THE DEBIT NOTES BUT ALSO THE ACTUAL AMOUN T OF UNITS OF STEAM, ELECTRICITY, RAW WATER, SOFT WATER, AFFLUENT TREATM ENT USED ALONG WITH RATE CHARGED MONTH WISE. IT WAS HELD BY HIM THAT IT CANNOT BE SAID THAT THERE IS NO BASIS FOR THE CHARGES PAID. HE DEL ETED THIS DISALLOWANCE. NOW, THE REVENUE IS IN APPEAL BEFORE US. 12. IT WAS SUBMITTED BY THE LEARNED DR THAT NO DETA IL WAS GIVEN BEFORE THE AO. REFERRING TO DETAILS SUBMITTED IN TH E PAPER BOOK, OUR ATTENTION WAS DRAWN TO PAGE 184 AND 185 OF THE PAPE R BOOK WHICH CONTAIN DETAILS OF AMOUNT PAID TO M/S. SARABHAI COM MON SERVICES FOR MAJOR SERVICES AVAILED I.E. STEAM, ELECTRICITY, RAW WATER, SOFT WATER AND AFFLUENT TREATMENT. IT WAS SUBMITTED THAT THIS IS MERE SUMMARY OF VARIOUS DEBIT NOTES ISSUED DURING THE YEAR BUT IT H AS NO BASIS. REGARDING DEBIT NOTES APPEARING FOR THE MONTH OF AP RIL, 1993 AVAILABLE ON PAPER BOOK PAGE 187, IT WAS SUBMITTED THAT THERE IS NO BASIS INDICATED REGARDING RATE PER UNIT CHARGED FOR VARIOUS SERVICES. HE ALSO SUBMITTED THAT ON PAGE 191 OF THE PAPER BOO K IS THE COPY OF DEBIT NOTE FOR THE MONTH OF MARCH, 1994 AS PER WHIC H THE RATE CHARGED IN THIS MONTH IS MUCH HIGHER THAN THE RATE CHARGED IN THE MONTH OF APRIL, 1993 AND THERE IS NO BASIS IN THE P APER BOOK TO SHOW THAT ON WHICH BASIS, RATE IS WORKED OUT. 13. AS AGAINST THIS, THE LEARNED AR SUPPORTED THE O RDER OF THE LEARNED CIT(A). HE ALSO SUBMITTED THAT ALL THE DETA ILS ARE AVAILABLE IN ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 8 THE PAPER BOOK AND HENCE, THE ORDER OF THE LEARNED CIT(A) SHOULD BE UPHELD. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDER OF TH E AUTHORITIES BELOW. WE FIND THAT NO DOUBT THE DEBIT NOTES ARE AV AILABLE IN THE PAPER BOOK BUT FOR THE PURPOSE OF EXAMINING AS TO W HETHER THE RATE CHARGED BY THE HOLDING COMPANY IS REASONABLE OR NOT , BASIS OF CHARGING THE RATE IN THE DEBIT NOTES HAS TO BE EXAM INED AND LOOKED INTO. THERE IS NO MENTION IN THE ORDER OF THE LEARN ED CIT(A) THAT THIS ASPECT WAS LOOKED INTO BY HIM. IN THE PAPER BOOK, D EBIT NOTES OF THE MONTH OF APRIL, 1993 AND MARCH, 1994 ARE AVAILABLE AS PER WHICH DIFFERENT RATES ARE CHARGED FOR VARIOUS SERVICES AN D THE RATE CHARGED IN THE MONTH OF MARCH, 1994 ARE HIGHER THAN THE RAT E CHARGED IN THE MONTH OF MARCH, 1993. SAME CAN BE REASONABLE IF IT IS ON PROPER BASIS, BUT THERE IS NO INDICATION REGARDING THE BAS IS ON WHICH THE RATES WERE CHARGED FOR VARIOUS SERVICES. HENCE, WE FEEL THAT IN THE INTEREST OF JUSTICE, THIS MATTER SHOULD ALSO GO BAC K TO THE FILE OF THE AO FOR FRESH DECISION AFTER EXAMINING THE BASIS OF RAT ES CHARGED BY M/S. SARABHAI COMMON SERVICES FOR THE VARIOUS SERVICES. HENCE, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE ALSO AND RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR FRESH DEC ISION AFTER EXAMINING THE BASIS OF RATES CHARGED BY M/S. SARABHAI COMMON SERVICES TO THE ASSESSEE AND CHARGED BY IT FROM OTHER UNITS FOR THE SAME SERVICES. THE AO SHALL PASS NECESSARY ORDER AS PER LAW IN THE LIGHT OF THE ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNI TY OF BEING HEARD ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 9 TO THE ASSESSEE. GROUND NO.3 OF THE APPEAL OF THE R EVENUE IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.4 OF THE APPEAL OF THE REVENUE READS AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON OF RS.50,00,000/- BEING THE AMOUNT OF SERVICES CHARGES PAID TO SARABHAI CHEMICALS LTD., A DIVISION OF THE HOLDING COMPANY, WHICH WAS DISALLOWED BY THE A. O. UNDER SECTION 40A (2) (B) OF THE I. T. ACT, TREATING THE SAME AS NOT PAID FOR TH E BUSINESS OF THE ASSESSEE. 16. BRIEF FACTS ARE THAT IT IS NOTED BY THE AO IN P ARA 7 OF THE ASSESSMENT ORDER THAT THE ASSESSEE COMPANY HAS CLAI MED EXPENSES OF RS.4,74,67,883/- ON ACCOUNT OF CERTAIN SERVICES AND PROCESSING DONE BY M/S. SARABHAI CHEMICALS, A DIVISION OF THE HOLDING COMPANY. THE AO ASKED THE ASSESSEE TO SUBMIT THE BASIS FOR W ORKING OUT THE SERVICE CHARGES. THE AO NOTED THAT THIS WORKING HAS NOT BEEN PROVIDED. UNDER THESE FACTS, IT WAS HELD BY THE AO THAT AN AMOUNT OF RS.50,00,000/- IS HELD TO BE UNREASONABLE WITHIN TH E MEANING OF SECTION 40A(2) (B) OF THE IT ACT AND HE DISALLOWED THE SAME. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE LEARNED CIT(A). 17. THIS DISALLOWANCE WAS DELETED BY THE LEARNED CI T(A) ON THE BASIS THAT OUT OF MAJOR AMOUNT OF RS.4,74,67,883/-, AN AMOUNT OF RS.2,36,90,248/- WAS PAID BY M/S. SARABHAI CHEMICAL S ON BEHALF OF THE ASSESSEE TO VARIOUS OTHER ENTITIES INCLUDING GO VERNMENT DEPARTMENTS AND AS SUCH THESE PAYMENTS ARE NOT FOR ANY SERVICES, ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 10 GOODS OR FACILITIES PROVIDED BY M/S. SARABHAI CHEMI CALS AND, THEREFORE, PROVISION OF SECTION 40A (2) (B) OF THE IT ACT ARE NOT APPLICABLE. HE FURTHER NOTED THAT WITH REGARD TO S ECOND MAJOR PAYMENT OF RS.2,33,03,286/-, IT IS SEEN THAT THESE ARE THE PROCESSING CHARGES FOR MANUFACTURING OF FORMULATIONS BY M/S. S ARABHAI CHEMICALS OUT OF BULK DRUGS SUPPLIED BY THE ASSESSE E. HE FURTHER NOTED THAT THE PROCESSING CHARGES IN RESPECT OF FOR MULATION ARE CONTROLLED BY THE GOVERNMENT OF INDIA ORDER DATED 1 5-07-1993 UNDER DRUGS & PRICES (CONTROL) ORDER, 1987 AND M/S. SARAB HAI CHEMICALS CLAIMED THE SAME AS PER THE ORDER. THEREFORE, FOR T HIS AMOUNT ALSO, SECTION 40A (2) (B) OF THE IT ACT IS NOT APPLICABLE . HE FURTHER NOTED THAT THE REMAINING AMOUNTS ARE COMPARATIVELY SMALL AND CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSE SSEE, NO DISALLOWANCE IS CALLED FOR U/S 40A (2) (B) OF THE I T ACT. NOW, THE REVENUE IS IN APPEAL BEFORE US. 18. BEFORE US, IT IS SUBMITTED BY THE LEARNED DR TH AT NO DETAILS WERE GIVEN BY THE ASSESSEE BEFORE THE AO AND HENCE, THE ORDER OF THE LEARNED CIT(A) SHOULD BE REVERSED AND THAT OF THE A O SHOULD BE RESTORED. 19. AS AGAINST THIS, IT WAS SUBMITTED BY THE LEARNE D AR OF THE ASSESSEE THAT THE DETAILS ARE AVAILABLE ON PAGES 21 2 TO 226 OF THE PAPER BOOK AND HE SUPPORTED THE ORDER OF THE LEARNE D CIT(A). 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF T HE AUTHORITIES BELOW. WE FIND THAT ON PAGE 212 OF THE PAPER BOOK D ETAILS OF ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 11 PROCESSING CHARGES PAID TO M/S. SARABHAI CHEMICALS TO THE EXTENT OF RS.233.03 LACS IS AVAILABLE. THIS IS SIMPLY A DETAI L OF MONTH WISE DEBIT NOTE WITH DEBIT NOTE NUMBER AND DATE AND THERE IS N O OTHER DETAIL AVAILABLE REGARDING RATES AND QUANTITY FOR WHICH TH E HUGE AMOUNT OF PROCESSING CHARGES WAS PAID BY THE ASSESSEE. ON PAG E 213 OF THE PAPER BOOK IS THE DETAILS OF PROCESSING CHARGED FOR THE MONTH OF APRIL, 1993 AND MAY, 1993 FOR WHICH PAYMENT OF RS.36.37 LA CS IS INCLUDED IN THE TOTAL EXPENSE OF RS.233.03 LACS. ON PAPER BO OK PAGE 203 TO 206 IS THE COPY OF GAZETTE OF INDIA. ON PAGE NO.207 OF THE PAPER BOOK, RATE FOR PLAIN TABLET PER 1000 NOS. FOR 350 M G. IS PRESCRIBED AT RS.10. ON PAGE 214 OF THE PAPER BOOK IS THE DETAILS OF DEBIT NOTE FOR THE MONTH OF JUNE, 1993 IN WHICH FOR 500 MG TABLETS , FOR A PACK OF 100 TABLETS, THE RATE CHARGED IS RS.3.675. IF THE P RESCRIBED RATE FOR 1000 NOS. OF TABLETS IS RS.10/-, THEN THE RATE FOR 100 NOS. OF TABLETS SHOULD BE RE.1/- ONLY. SIMILARLY, ON PAGE 214 OF T HE PAPER BOOK FOR 250 MG. CAPSULE FOR PACKING OF 200 CAPSULES, THE RA TE CHARGED BY M/S. SARABHAI CHEMICALS IS RS.8.20/-. AS PER PAGE 2 08 OF THE PAPER BOOK, THE PRESCRIBED RATE FOR CAPSULE PER 1000 NOS. IS RS.28/-. IF, THE PRESCRIBED RATE FOR PER 1000 CAPSULES IS RS.28/-, T HEN THE RATE FOR 200 CAPSULES COME SHOULD BE ONE FIFTH OF RS.28/- I.E. R S.5.60. BUT THE RATE CHARGED BY M/S. SARABHAI CHEMICALS IS RS.8.20/-. TH IS GOES TO SHOW THAT THE FINDING OF THE LEARNED CIT(A) IS NOT CORRE CT THAT THE RATES CHARGED BY M/S. SARABHAI CHEMICALS IS AS PER THE RA TES PRESCRIBED BY GOVERNMENT OF INDIA ORDER DATED 15-07-1993. FROM TH ESE FACTS, WE FEEL THAT THE ORDER OF THE LEARNED CIT(A) IS NOT SU STAINABLE AND HENCE, WE REVERSE THE SAME AND RESTORE THE ORDER OF THE AO ON THIS ISSUE. IN THE RESULT, GROUND NO.4 OF THE APPEAL OF THE REV ENUE IS ALLOWED. ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 12 21. GROUND NO.5 OF THE APPEAL OF THE REVENUE READS AS UNDER: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON OF RS.32,31,270/- BEING THE AMOUNT OF INTEREST DISALLO WANCE ON ACCOUNT OF INTEREST FREE ADVANCE GIVEN TO OPEC INNO VATIONS LTD., A SUBSIDIARY OF THE ASSESSEE COMPANY, WHICH W AS DISALLOWED BY THE A. O., TREATING THE SAME AS NOT P AID FOR THE BUSINESS OF THE ASSESSEE. 22. BRIEF FACTS ARE THAT IT IS NOTED BY THE AO IN P ARA 10 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS CLAIMED INTE REST OF RS.90.94 LACS IN RESPECT OF INTEREST ON TERM LOAN AND OTHER LOANS. THE AO FURTHER NOTED THAT AN AMOUNT OF RS.153.87 LACS IS O UTSTANDING FROM M/S. OPEC INNOVATIONS LTD., A SUBSIDIARY OF THE ASS ESSEE. THE AO WORKED OUT 21% INTEREST ON THIS AMOUNT WHICH COMES TO RS.32,31,270/-. THE AO ASKED THE ASSESSEE TO SHOW C AUSE AS TO WHY INTEREST COST OF FUND GIVEN TO M/S. OPEN INNOVATION S LTD. SHOULD NOT BE DISALLOWED SINCE IT IS NOT INCURRED FOR THE PURP OSE OF ASSESSEES BUSINESS. IN REPLY, IT WAS SUBMITTED BY THE ASSESSE E BEFORE THE AO THAT THIS AMOUNT WAS GIVEN TO OPEC INNOVATIONS LTD. ON ACCOUNT OF SALES OF GOODS. THE AO FURTHER NOTED THAT THIS SUBM ISSION OF THE ASSESSEE IS NOT SUPPORTED BY FACTS THAT IT IS RELAT ED TO TRADING ACCOUNT. HE DISALLOWED THE SAME. AGGRIEVED, THE ASS ESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A). 23. THE LEARNED CIT(A) DELETED THE DISALLOWANCE ON THE BASIS THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSE E BY THE LEARNED CIT(A) IN AY 1985-86 TO 1989-90. FOLLOWING THE ORDE R OF THE LEARNED CIT(A) IN THESE EARLIER YEARS, THE LEARNED CIT(A) D ELETED THE ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 13 DISALLOWANCE IN THE PRESENT YEAR ALSO. NOW, THE REV ENUE IS IN APPEAL BEFORE US. 24. THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER W HEREAS THE LEARNED AR SUPPORTED THE ORDER OF THE LEARNED CIT(A ). HE ALSO SUBMITTED THAT IN AY 1992-93 AND 1993-94, THIS ISSU E HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE A ND HE DREW OUR ATTENTION TO PARA 9 PAGE 7 OF THE TRIBUNALS ORDER. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE RECORDS AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. WE FIND THAT IN PARA 9 OF THE TRIBUNALS ORDER ALSO, THE ISSUE IS R EGARDING DISALLOWANCE OF INTEREST IN RESPECT OF DEBIT BALANC E OF M/S. OPEN INNOVATIONS LTD. THE TRIBUNAL HAS DELETED THIS DISA LLOWANCE ON THE BASIS OF EARLIER YEARS TRIBUNAL ORDER. SINCE IN TH E PRESENT YEAR ALSO, NO DIFFERENCE IN FACTS COULD BE POINTED OUT BY THE LEARNED DR OF THE REVENUE, WE FEEL THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LEARNED CIT(A). GROUND NO.5 OF THE APPEAL OF THE RE VENUE IS ACCORDINGLY DISMISSED. 26. GROUND NO.6 OF THE APPEAL OF THE REVENUE READS AS UNDER: 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITI ON OF RS.4,56,56,380/- BEING THE VALUE OF UNACCOUNTED PRO DUCTION AND SALE OF STREPTOMYCIN AND TETRACYCLINE. 27. BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE AO IN PARA 12 OF THE ASSESSMENT ORDER THAT SCHEDULE-K OF THE ANNU AL ACCOUNTS PREPARED AS PER COMPANIES ACT INCLUDES OPENING STOC K, PRODUCTION ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 14 ETC. HE FURTHER NOTED THAT FROM THE DETAILS, IT IS FOUND THAT THE SALES SHOWN IN THE BOOKS OF ACCOUNTS IS NOT IN ACCORDANCE WITH THE QUANTITY DETAILS SUBMITTED IN THE SCHEDULE. THE AO ASKED THE ASSESSEE TO EXPLAIN THIS DISCREPANCY. HE FURTHER NOTED THAT NO EXPLANATION HAS BEEN FURNISHED BY THE ASSESSEE. HE WORKED OUT THE A SSESSEES UNACCOUNTED PRODUCTION AND SALES ON PAGE 7 OF THE A SSESSMENT ORDER IN RESPECT OF STREPTOMYCIN AND TETRACYCLINE. HE WORKED OUT THE UNACCOUNTED SALES OF STREPTOMYCIN AT 15834 KGS AND OF TETRACYCLINE AT 11388 KGS. BY APPLYING AVERAGE RATE OF THESE TWO ITEMS, HE WORKED THE UNACCOUNTED SALES AT RS.4,56,56,380/- AN D ADDED THE SAME IN THE INCOME OF THE ASSESSEE. BEING AGGRIEVED , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT (A). 28. BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED THA T THE ALLEGED UNACCOUNTED PRODUCTION/SALES CALCULATED BY THE AO I S NOTHING BUT PRODUCTION OF STREPTOMYCIN AND TETRACYCLINE CAPTIVE LY CONSUMED FOR THE MANUFACTURE OF VARIOUS FORMULATIONS WHICH IS CL EARLY MENTIONED IN THE SCHEDULE K OF THE BALANCE SHEET. THE LEARNED CIT(A) HAS DELETED THE ENTIRE ADDITION AND NOW THE REVENUE IS IN FURTHER APPEAL BEFORE US. 29. THE LEARNED DR SUPPORTED THE ASSESSMENT ORDER. HE FURTHER SUBMITTED THAT NO OPPORTUNITY WAS GIVEN BY THE LEAR NED CIT(A) TO THE AO TO EXAMINE THE CLAIM OF THE ASSESSEE REGARDING C APTIVE CONSUMPTION BECAUSE THE EXPLANATION OF THE ASSESSEE ABOUT CAPTIVE CONSUMPTION WAS GIVEN BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE LEARNED CIT(A). THE LEARNED AR SUPPORTED THE ORDER OF THE LEARNED ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 15 CIT(A). HE ALSO SUBMITTED THAT THE DETAILS ARE AVAI LABLE FROM PAGES 236 TO 246 OF THE PAPER BOOK. 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE RECORDS AND GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW . WE FIND THAT CLEAR FINDING IS GIVEN BY THE AO IN THE ASSESSMENT ORDER THAT WHEN THE ASSESSEE WAS ASKED TO EXPLAIN THE DISCREPANCY, NO EXPLANATION HAS BEEN SUBMITTED BY THE ASSESSEE. THE EXPLANATION IN THE FORM OF THEORY OF CAPTIVE CONSUMPTION WAS GIVEN BY THE ASSE SSEE FOR THE FIRST TIME BEFORE THE AO AND NO OPPORTUNITY WAS GIVEN BY THE LEARNED CIT(A) TO THE AO ON THIS ASPECT BY ASKING FOR REMAN D REPORT. UNDER THESE FACTS, WE FEEL THAT THIS ISSUE SHOULD GO TO T HE FILE OF THE AO FOR FRESH DECISION. HENCE, WE SET ASIDE THE ORDER OF TH E LEARNED CIT(A) ON THIS ISSUE AND RESTORE BACK THE MATTER TO THE AO FOR FRESH DECISION. THE AO SHALL EXAMINE THE CONTENTION OF THE ASSESSEE REGARDING UNACCOUNTED SALES WORKED OUT BY HIM AND CONTENTION OF THE ASSESSEE THAT IT IS EXPLAINED BY ASSESSEES CAPTIVE CONSUMPT ION OF THESE TWO PRODUCTS AND IF THIS IS FOUND CORRECT, THEN NO ADDI TION IS CALLED FOR. THE AO SHOULD PASS NECESSARY ORDER AS PER LAW IN THE LI GHT OF THE ABOVE DISCUSSIONS AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF APPEAL OF THE REVENUE IS ALSO ALLOWED FOR STATISTICAL PURPOSES. ITA NO.3465/AHD/2002 (AY 1994-95) ACIT, BARODA CIR-4 VS SYNBIOTICS LTD. 16 31. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES IN TERMS AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT. 23/3/12 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A. K. GARODIA) ACCOUNTANT MEMBER ORDER PRONOUNCED ON SD/- SD/- L LL LAKSHMIKANT/ AKSHMIKANT/ AKSHMIKANT/ AKSHMIKANT/- -- - MKS AKG (JM) (AM) COPY OF THE ORDER FORWARDED TO: 23/3/12 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD