M./s N. K. Pharma Industries, Ahmedabad V. The ACIT, Circle -6, Ahmedabad

ITA 3530/AHD/2004

• Counselvise Citation: 353020514 RSA 2004
• Duration Of Justice: 7 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-12-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 07-12-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Assessee Lawyers: A C SHAH
• Keywords: Gift; Depreciation; Initiation of penalty proceedings; Revenue expenditure
• Section: 244A; 234B; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI G.C. GUPTA, VP AND SHRI A. MOHAN ALANK AMONY, AM) ITA NO.3530/AHD/2004 A. Y.:2001-02 M/S. N. K. PHARMA INDUSTRIES, 1814-B, PHASE- II, GIDC VATVA, AHMEDABAD PA NO. AACFN 2912 L VS THE A. C. I. T., CIRCLE 6, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI A. C. SHAH, AR RESPONDENT BY SHRI S. K. GUPTA, SR. DR DATE OF HEARING: 07-12-2011 DATE OF PRONOUNCEMENT: 2-03-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL OF THE ASSESSEE FIRM IS DIRECTED AGAINST THE IMPUGNED ORDER OF THE LD. CIT (A)-XII, AHMEDABAD IN APPEAL NO. CIT(A)-XII/CIR.6/197/03-04 DATED 6.10.2004 FOR THE ASSESSMENT YEAR 2001-02. 2. THE ASSESSEE FIRM HAD RAISED ITS GROUNDS IN AN I LLUSTRATIVE AND NARRATIVE MANNER. IN THIS CONNECTION, THE ASSESSEE S SPECIFIC ATTENTION IS INVITED TO RULE 8 OF THE INCOME-TAX (APPELLATE T RIBUNAL) RULES, 1963 WHEREIN IT HAS BEEN PRESCRIBED UNDER THE CAPTION CONTENTS OF MEMORANDUM OF APPEAL THAT 2 8. EVERY MEMORANDUM OF APPEAL SHALL BE WRITTEN IN ENGLISH AND SHALL SET FORTH, CONCISELY AND UNDER DI STINCT HEADS, THE GROUNDS OF APPEAL WITHOUT ANY ARGUMENT OR NARRATIVE; AND SUCH GROUNDS SHALL BE NUMBERED CONSECUTIVELY . 2.1. TURNING TO THE ISSUE ON HAND, TO BE PRECISE, T HE GRIEVANCES OF THE ASSESSEE WERE THAT:- (1) THE LD. CIT (A) HAD ERRED IN CONFIRMING AND HOL DING THAT UNIT 2 WAS ALTOGETHER NEW BUSINESS AND THEREBY ERRED IN DI SALLOWING RS.34,49,138/- BEING THE EXPENDITURE INCURRED PRIO R TO THE DATE OF COMMENCEMENT OF UNIT NO.2; (2) THE CIT (A) HAD ERRED IN CONFIRMING THE ADDITIO N OF CASH CREDITS AND INTEREST OF RS.1,09,583/-; (3) ALSO ERRED IN CONFIRMING THE INTEREST PAID TO S TANDARD CHARTERED BANK ON CAR LOAN; (4) INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT; AND (5) CHARGING OF INTEREST U/S 234B, 234D AND 244A OF THE ACT. 2.1.1. AS FAR AS THE GROUND NO.4 WAS CONCERNED, WE WOULD LIKE TO REITERATE THAT SINCE INITIATION OF PENAL PROCEED INGS U/S 271(1)(C) OF THE ACT BEING IN ITS INFANCY WHEN THE ASSESSMENT PR OCEEDING WAS CONCLUDED , IT CANNOT, THEREFORE, BE AGITATED IN TH IS APPEAL. THUS, THIS GROUND DOESNT DESERVE ANY ADJUDICATION. 2.1.2. WITH REGARD TO CHARGING OF INTEREST U/S 234 B, 234D AND 244A OF THE ACT (GROUND NO.5), THE IMPUGNED ASSESSM ENT ORDER DATED 6.2.2004 (ON PAGE 7), REVEALS ONLY THAT CHARGE INTEREST U/S 3 234A/B/C, IF APPLICABLE AND, THUS, THE ASSESSING OFFICER OR HIS OFFICE FOR THAT MATTER WAS OBLIGED TO CHARGE INTEREST U/S 234A, 234B AND 234C OF THE ACT ONLY. EVEN THEN, CHARGING OF INTERE ST UNDER THE ABOVE SECTIONS IS MANDATORY AND CONSEQUENTIAL IN NATURE; THIS GROUND IS DISMISSED AS NOT MAINTAINABLE. 3. REVERTING BACK, THE FACTS OF THE ISSUES, IN BRI EF, ARE THAT THE ASSESSEE FIRM (THE ASSESSEE IN SHORT) ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING PHARMACEUTICAL MACHINERY AND SPARE PARTS; THAT DURING THE COURSE OF ASSESSMENT PROCEED INGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD CLAIMED DED UCTION TO THE TUNE OF RS.34,49,138/- BEING, AMONG OTHERS, AFC BI LL OF RS.398085, LABORATORY EXPENSES OF RS.107105/-, DEPRECIATION OF RS.2253645/- AND INTEREST OF RS.5,23,853/-. ACCORDING TO THE AS SESSEE, THOSE EXPENSES WERE RELATED TO THE BUSINESS IDENTIFIED BY THE ASSESSEE AS UNIT NO. LI. HOWEVER, THE AO TOOK A STAND THAT FOR AND UP-TO AY 2000-01, THE ASSESSEES BUSINESS WAS TO MANUFACTURE PHARMACEUTICAL MACHINERY AND ITS SPARE PARTS ONLY, THAT FROM THE CURRENT YEAR THE ASSESSEE SET UP UNIT II TO MANUFAC TURE PHARMACEUTICAL ITEMS I.E., MEDICINES AND, THEREFORE , HE WAS OF THE VIEW THAT UNIT II WAS NOTHING BUT A NEW BUSINESS AN D NOT THE 4 EXPANSION OF THE ASSESSEES EARLIER BUSINESS AND, T HEREFORE, THE EXPENSES CLAIMED IN RESPECT OF THE PERIOD UP-TO 16. 3.2001 I.E., THE DATE WHEN COMMERCIAL PRODUCTION COMMENCED IN UNIT I I WAS NOT ALLOWABLE EXPENDITURE. 3.1. ON BEING QUERIED, THIS WAS HOTLY CONTESTED BY THE ASSESSEE THAT THE DATE OF SET UP OF THE BUSINESS IN UNIT II WAS 2.12.1999 (SIC) 21.12.1999 WHICH WAS THE DATE WHEN THE ASSESSEE HAD PURCHASED AND RECEIVED THE MACHINERY FROM HOECH ST IN THIS UNIT; THAT THE COMMERCIAL PRODUCTION WAS STARTED IN THIS CASE ON 16.3.2001; AND THAT BOTH THE UNITS 1 & 2 WERE UNDER THE SAME P ARTNERSHIP WHICH WAS HAVING THE SAME PARTNERS AND AS SUCH THERE WAS NO CHANGE EITHER IN THE CONSTITUTION OF THE FIRM OR PARTNERS OR THEIR PROFIT SHARING RATIO DURING THAT RELEVANT PERIOD. IT WAS, THEREFO RE, ASSERTED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS ALLOWABLE R EVENUE EXPENDITURE. HOWEVER, THE AO TOOK A DIVERGENT VIEW BY TAKING REFUGE IN THE RULING OF THE HONBLE JURISDICTIONAL HIGH CO URT IN THE CASE REPORTED IN 251 ITR 133 (GUJ) AND OBSERVED THAT FOR THE COMMENCEMENT OF THE BUSINESS, PRODUCTION OF THE ART ICLES FOR THE MANUFACTURE OF WHICH A PLANT HAD BEEN SET UP, WAS A N ESSENTIAL PRE- CONDITION FOR HOLDING THAT THE BUSINESS OF THAT ASS ESSEE HAD STARTED. 5 ACCORDING TO THE AO, AS THE ASSESSEE COMMENCED ITS PRODUCTION IN UNIT II ONLY ON 16.3.2001, THE EXPENDITURE INCURRED BEFORE THAT DATE WAS NOT ALLOWABLE AND, ACCORDINGLY, DISALLOWED RS.3 4,49,138/-. 4. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE, AMON G OTHERS, BEFORE THE CIT (A) WHO HAD, AFTER DUE CONSI DERATION OF THE ASSESSEES CONTENTIONS AS RECORDED ELABORATELY IN H IS IMPUGNED ORDER UNDER DISPUTE, OBSERVED THUS: (ON PAGE 5: THE APPELLANT IS SHOWN TO BE ALREADY RUNNING UNIT NO.1 FOR MANUFACTURING OF PHARMACEUTICAL MACHINERY AND ITS S PARE PARTS. ON THE OTHER HAND, UNIT NO. II IS SET UP TO MANUFACTURE MEDICINE S. AS OBSERVED BY THE AO, THIS IS ALL TOGETHER A NEW BUSINESS AND MANUFACTURE OF M EDICINES CANNOT BE TAKEN TO BE ONE AND THE SAME THING AS MANUFACTURE OF PHARMAC EUTICAL MACHINERY AND ITS SPARE PARTS. AS CONTENDED BY THE LD. COUNSEL TO EX AMINE AS TO WHETHER A NEW UNIT SET UP BY AND ASSESSEE IS TO BE TAKEN AS THE NEW BUSINESS OR EXPANSION OF AN EXISTING BUSINESS, VARIOUS FACTORS ARE TO BE CONSID ERED. AS HELD BY VARIOUS COURTS, UNIT OF CONTROL, COMMON MANAGEMENT, COMMON ADMINISTRATION AND COMMON FUNDS ETC; ARE SOME OF THESE FACTORS WHICH M AY BE RELEVANT FOR DECIDING SUCH AN ISSUE. HOWEVER, THIS CANNOT BE DECIDED SOL ELY ON THE BASIS OF ONE OR TWO SUCH FACTORS. AS HELD BY HONBLE RAJASTHAN HIGH CO URT IN THE CASE OF CIT V. MOHAN ENTERPRISES 208 ITR 145, THE BURDEN IS ON AN ASSESSEE TO ESTABLISH THAT DIFFERENT VENTURES CONSTITUTED PART OF THE SAME BUS INESS. IT IS ALSO HELD BY THE HONBLE HIGH COURT THAT SUFFICIENT EVIDENCE HAS TO BE PRODUCED ABOUT THE UNIT OF CONTROL AND MANAGEMENT AND INTER RELATION OF THE BU SINESS OR EMPLOYMENT OF THE SAME STAFF ETC., TO RUN THE BUSINESS OR THE POSSIBI LITY OF ONE AFTER BEING CLOSED AFFECTING OTHER BUSINESS ETC., TO PROVE THE SAME. THOUGH IN APPELLANTS CASE IT IS CONTENDED THAT BOTH THE UNITS ARE UNDER THE SAME PA RTNERSHIP, AND THAT THEREFORE, THERE WAS COMMON MANAGEMENT AND COMMON CONTROL AND THAT SOURCE OF FINANCE FOR RUNNING BOTH THE ACTIVITIES WAS ALSO ONE AND SA ME, SOMEHOW, NOTHING HAS BEEN BROUGHT ON RECORD BY THE APPELLANT, WHAT TO SA Y OF SUFFICIENT EVIDENCE EITHER DURING THE ASSESSMENT PROCEEDINGS OR DURING THE APPELLATE PROCEEDINGS TO PROVE AS ABOVE. FURTHER, AS IS BROUGHT OUT IN A NU MBER OF DECISIONS ON THIS ASPECT, AN IMPORTANT FACTOR TO DECIDE THE ISSUE IN QUESTION IS TO SEE IF THE CLOSURE OF ONE BUSINESS AFFECTS THE RUNNING OF THE OTHER BU SINESS OR NOT IN APPELLANTS CASE CLOSURE OF BUSINESS IN THE SECOND UNIT WHERE T HE APPELLANT IS MANUFACTURING MEDICINES WOULD NOT AFFECT IN ANY MANNER, THE RUNNI NG OF THE BUSINESS IN UNIT NO.1,WHERE THE APPELLANT IS MANUFACTURING PHARMACEU TICAL MACHINERY AND ITS 6 SPARE PARTS. THEREFORE, FROM THIS ANGLE ALSO THE C ONTENTION OF THE APPELLANT IS NOT ACCEPTABLE. COMING TO THE VARIOUS DECISIONS RELIED UPON BY THE LD. COUNSEL, IT MAY BE MENTIONED THAT HONBLE SUPREME COURT IN THE CASE OF WATKINS MAHYOR (AGRICO) PVT. LTD. V. CIT 219 ITR 563 HAS DISTINGUISHED THE CASE OF PRITHVI INSURANCE CO. LTD. (SUPRA) AND OF PRODUCE EXCHANGE CORPORATION (S UPRA) RELIED UPON BY THE LD. COUNSEL. IT IS OBSERVED BY THE HONBLE SUPREME COU RT IN THE SAID DECISION THAT ALL THESE DECISIONS WERE RENDERED WITH REFERENCE TO SECTION 24(2) OF THE IT ACT 1922 AND THAT QUESTION IN ALL THESE CASES WAS WHETH ER THE BUSINESS CONTINUED BY THAT ASSESSEE IN THE RELEVANT ASSESSMENT YEAR WAS T HE VERY SAME BUSINESS, WHEREIN LOSS WAS ORIGINALLY SUSTAINED WITHIN THE MEANING OF SECTION 24(2). THE HONBLE SUPREME COURT, THEREFORE, HELD THAT QUESTION CONSID ERED IN THESE DECISIONS IS NOT THE SAME AS CONCERNED IN THE CASE OF WATKINS MAYOR (AGRICO) PVT. LTD V. CIT 209 ITR 563. THE ISSUE IN QUESTION IN THIS CASE WAS AS TO WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THAT CASE, THE VARIOUS LINES O F ACTIVITY LIKE TEA ESTATE, COFFEE ESTATE AND PLANTATION, ETC, DID NOT CONSTITUTE ONE SINGLE AND INTEGRATED ACTIVITY OF BUSINESS, BUT, INDEPENDENT UNIT OF BUSINESS. IT WA S HELD BY THE HONBLE SUPREME COURT IN THE FACTS AND CIRCUMSTANCES OF THIS CASE T HAT THE QUESTION HAS TO BE DECIDED ON CONSIDERATION OF THE RELEVANT FACTS AND CIRCUMSTANCES AND ALL OVER VIEW HAS TO BE TAKEN AND THE CONCLUSION ARRIVED AT. THE HONBLE COURT FURTHER HELD THAT EVEN IF IT WAS FOUND THAT ONE OR TWO CIRC UMSTANCES, AMONG THE SEVERAL CIRCUMSTANCES RELIED UPON WAS FOUND THAT ONE OR TWO CIRCUMSTANCES, AMONG THE SEVERAL CIRCUMSTANCES RELIED UPON WERE NOT RELEVANT , THE FINDING OF THE FACT RECORDED BY THE TRIBUNAL COULD NOT BE INTERFERED WI TH IF THERE WERE OTHER RELEVANT CIRCUMSTANCES TO SUSTAIN THE FINDINGS. THEREFORE, IN THEN FACTS AND CIRCUMSTANCES OF THIS CASE IN SPITE OF EXISTENCE OF CENTRALIZED MANAGEMENT, MAINTENANCE OF SINGLE SET OF ACCOUNTS, THERE BEING NON EVIDENCE RELATING TO INTERLACING, INTER CONNECTION, INTER DEPENDENCE OF THE VARIOUS ESTATES IN THE DAY- TO-DAY AFFAIRS OR THEIR FUNCTIONING BEING DOVETAILE D INTO ONE AN OTHER AND CONSIDERING THAT ALL THE ACTIVITIES OF THAT ASSESSE E WERE INDEPENDENT AND CLOSURE OF ONE WOULD NOT AFFECT THE CONTINUATION OF ANOTHER , THE HONBLE SUPREME COURT UPHELD THE FINDING THAT THE DIFFERENT ACTIVITIES CA RRIED ON BY THAT ASSESSEE DID NOT CONSTITUTE ONE SINGLE AND INTEGRATED ACTIVITY OF TH E BUSINESS. IN VIEW OF THE RATIO OF THIS DECISION, ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE APPELLANTS CASE ALSO IT HAS TO BE HELD SIMILARLY THAT THE BUSINESS OF TH E APPELLANT IN UNIT NO.II IS NOT THE EXPANSION OF THE EARLIER EXISTING BUSINESS IN U NIT NO.I. THE DECISIONS OF THE JURISDICTIONAL HIGH COURT I.E., HONBLE GUJARAT HIG H COURT IN THE CASE OF RAINBOW DYESTUFF LTD V. CIT REPORTED AT 213 ITR 560 WHEREBY DISTINGUISHING THE CASE OF CIT V. ALEMBIC GLASS INDUSTRIES LTD (SUPRA) AND WHICH CASE IS RELIED UPON BY THE LD. COUNSEL CAN ALSO BE REFERRED TO HOL D AS ABOVE. THE FINDING IS ALSO BE SUPPORTED BY THE DECISION OF HONBLE CALCUTTA HI GH COURT IN THE CASE OF ASHOK MARKETING LTD V. CIT REPORTED AT PAGE 208 ITR 941 AND THAT OF CIT V. MOHAN ENTERPRISES OF HONBLE RAJASTHAN HIGH COURT ( SUPRA). IN VIEW OF THE ABOVE, IT IS HELD THAT THE SETTING UP OF UNIT NO. I I BY THE APPELLANT IS NOT THE EXPANSION OF THE EXISTING BUSINESS OF UNIT NO. I. 7 COMING TO THE CONTENTION OF THE APPELLANT THAT THE BUSINESS IN UNIT NO. II SHOULD BE TAKEN TO HAVE BEEN SET UP FROM 2.12.1999, WHEN THE MACHINERY FOR THE MANUFACTURING OF MEDICINE IN THAT UNIT WAS PURCHASE D, THE SAME CANNOT BE ACCEPTED. IF THIS CONTENTION OF THE LD. COUNSEL IS ACCEPTED THEN IN ALL THE CASES THE BUSINESS WOULD HAVE BEEN TAKEN TO BE SET UP WHE N THE ASSESSEES PURCHASED PLANT AND MACHINERY FOR THEIR FACTORIES. HOWEVER, AS IS WELL KNOWN, IN A NUMBER OF DECISIONS, IT HAS BEEN RATHER HELD THAT EVEN THE TRIAL RUN I.E., WHEN THE ENTIRE PLANT AND MACHINERY IS NOT ONLY PURCHASED BUT INSTA LLED AND READY FOR PRODUCTION, IS NOT THE SET UP OF THE BUSINESS IF EV ERYTHING IS NOT FOUND TO BE IN ORDER IN THE SAID TRIAL RUN. THE DECISION RELIED U PON BY THE LD. COUNSEL IN THIS REGARD WOULD ALSO NOT HELP THE APPELLANTS CASE. I N THE DECISION OF SARABHAI CORPORATION LTD V. CIT (SUPRA), THE HONBLE GUJRAT HIGH COURT WAS NOT DEALING WITH THE CASES OF MANUFACTURING UNIT AS IS THE CASE OF THE APPELLANT. THEREFORE, THE RATIO OF THAT DECISION WHICH IS IN RELATION TO CERTAIN COMPANY LETTING OUT A BUILDING, ON LEASE AND LICENSE WOULD NOT APPLY TO T HE FACTS AND CIRCUMSTANCES OF APPELLANTS CASE. SIMILARLY, IN THE CASE OF HONBL E GUJARAT HIGH COURT IN PREM CONDUCTORS V. CIT (SUPRA), THE QUESTION WAS NOT OF PURCHASE OF PLANT AND MACHINERY, AS CONTENDED IN APPELLANTS CASE, BUT TH E ISSUE WAS AS TO WHETHER STARTING SECURING ORDERS AGAINST FURTHER PRODUCTION OF THE GOODS MANUFACTURED BY A COMPANY COULD BE SAID TO BE SETTING UP OF ITS BUS INESS OR NOT. THEREFORE, THIS DECISION WOULD ALSO NOT HELP THE APPELLANTS CASE. SIMILARLY, THE DECISION OF SAURASHTRA CEMENT AND CHEMICALS INDUSTRIES LTD V. C IT (SUPRA) RELIED UPON BYH THE LD. COUNSEL HAS BEEN RENDERED ON FACTS AND CIRC UMSTANCES DISTINGUISHABLE FROM THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE. THEREFORE, THIS WOULD ALSO NOT HELP THE APPELLANTS CASE. IT IS ACCORDIN GLY HELD THAT THE AO IS FULLY JUSTIFIED IN DISALLOWING THE DEDUCTION OF EXPENDITU RE OF RS.34,49,138 INCURRED BY THE APPELLANT IN UNIT NO. II BEFORE 16.3.2001, WHEN THE APPELLANT ADMITTEDLY COMMENCED BUSINESS BEING COMMERCIAL PRODUCTION IN T HAT UNIT. COMING TO THE ALTERNATIVE CONTENTION OF THE APPELL ANT, THE APPELLANT IS, HOWEVER, ENTITLED TO DEDUCTION OF DEPRECIATION ON P LANT AND MACHINERY ITEMS AS THE COMMERCIAL PRODUCTION COMMENCED FROM 16.3.2001. HOWEVER, AS THE PLANT AND MACHINERY ITEMS HAVE BEEN PUT TO USE FOR THE PE RIOD LESS THAN 180 DAYS, DEPRECIATION IS TO BE ALLOWED @ 50% OF THE NORMAL R ATES. THE AO IS DIRECTED TO ALLOW THE APPELLANT DEPRECIATION ON THE PLANT AND M ACHINERY IN UNIT NO. II AS ABOVE AFTER DUE VERIFICATION ETC. ONE OTHER CONTEN TION OF THE APPELLANT ALSO MERITS CONSIDERATION. THIS IS THAT THE PRE-OPERATI VE EXPENSES SHOULD BE APPORTIONED AMONGST THE VARIOUS ASSETS AND THAT WHI LE ALLOWING DEPRECIATION THESE CAPITALIZED EXPENSES SHOULD ALSO BE TAKEN INT O ACCOUNT. THE APPELLANT IS FULLY JUSTIFIED IN CLAIMING AS ABOVE. WHILE WORKIN G OUT THE ALLOWABLE DEPRECIATION TO THE APPELLANT AS ABOVE FOR UNIT NO. II, THE AO SHOULD ALSO TAKE INTO ACCOUNT THE CAPITALIZED EXPENSES FOR WORKING O UT SUCH DEPRECIATION. 5. AGITATED, THE ASSESSEE HAS COME UP WITH THE PRE SENT APPEAL. IT WAS THE CASE OF THE ASSESSEE THAT THE C IT (A) HAD ERRED IN 8 CONFIRMING THE DISALLOWANCE OF REVENUE EXPENDITURE, DEPRECIATION AND INTEREST OF RS.34.49 LAKHS AS EXPENDITURE. THE SUB MISSIONS MADE BY THE LD. A R ON THE ABOVE ISSUES ARE SUMMARIZED AS U NDER: (I) DEPRECIATION OF RS.22.53 LAKHS : THE MACHINERY WAS USED FROM 15.3.2001 ONWARDS AND, THUS, THE ASSESSEE WAS ENTIT LED FOR DEPRECIATION FOR SIX MONTHS. (II) INTEREST OF RS.5.23 LAKHS : SINCE THE ASSESSEE HAD BORROWED FUNDS FOR ITS BUSINESS PURPOSE FOR THE PURCHASE OF MACHINER Y AND THE INTEREST PAID WAS RS.5.23 LAKHS WHETHER IT WAS USED EITHER FOR REVENUE OR CAPITAL PURPOSE WAS OF ANY RELEVANCE. RELIES ON: (A) DCIT V. CORE HEALTH CARE LTD 298 ITR 194 (SC) ; & (B) GUJARAT STATE FERTILIZER AND CHEMICALS LTD V. A CIT 313 ITR 244 (GUJ) SLP DISMISSED 313 ITR 32 (STATUTE) (III) REVENUE EXPENDITURE OF RS.6.71 LAKHS: THE ASSESSEE BEING A PARTNERSHIP FIRM CONSISTING OF TWO PARTNERS, WAS THE MANUFACTURER OF PHARMACEUTICAL MACHINERIES UP-TO TH E AY 2000-01 AND FROM 16.3.2001 [AY 01-02], THE ASSESSEE HAD EXPANDED ITS BUSINESS IN PHARMACEUTICALS AND STARTED MANUFACTURING PHARMACEU TICAL DRUGS IN UNIT II WHICH WAS EXTENSION OF ITS BUSINESS; THAT IT HAD SE T UP UNIT II TO MANUFACTURE DRUGS WHICH WAS THE SAME BUSINESS SINCE IT WAS EXPA NSION AND EXTENSION; AND THAT THE TEST OF THE SAME BUSINESS WAS UNITY OF CONTROL, INTER-LACING, COMMON MANAGEMENT, ADMINISTRATION AND COMMON FUNDS. THE FOLLOWING FACTS PROVE THE ASSESSEES CLAIM, NAMELY: (A) BOTH THE PARTNERS WERE IN OVERALL CONTROL OF BO TH THE ACTIVITIES WHICH WERE OWNED AND CARRIED ON BY THE ASSESSEE WHICH HAS BEEN ACKNOWLEDGED BY THE AO - ON PAGE 3 OF HIS ASSESSMENT ORDER; (B) THERE WAS COMMON FUND FROM WHICH THE NECESSARY CAPITAL AND WORKING FUNDS WERE DRAWN TO BOTH THE BUSINESS ACTIVITIES; A ND THAT THE GAIN OR LOSS OF THE BUSINESS WAS ALSO WORKED OUT BY A CONSOLIDATED P & L ACCOUNT AND BALANCE SHEET; (C) THERE WAS COMMON STAFF FOR CARRYING ON BOTH THE BUSINESS ACTIVITIES; & (D) THE SOURCE OF FINANCE FOR RUNNING BOTH THE ACTI VITIES WAS, THUS, ONE AND THE SAME AND THERE WAS CONSOLIDATION OF ACCOUNTS FOR TH E PURPOSE OF ASCERTAINING 9 THE ULTIMATE WORKING RESULT OF THE BUSINESS CARRIED ON BY THE ASSESSEE AND THAT THERE WAS COMPLETE UNITY OF CONTROL IN THE MAN AGEMENT AND ADMINISTRATION OF BOTH THE BUSINESS ACTIVITIES; - IT WAS, THUS, CLEAR FROM THE ABOVE THAT THE CONTR OL WAS WITH BOTH THE PARTNERS WITH COMMON MANAGEMENT AND COMMON FUNDS; AND THAT T HERE WAS INTERLACING AND UNITY CONTROL IN BOTH THE ACTIVITIES. (E) REBUTTING THE AOS CLAIM AND DISTINGUISHING TH E CASE LAW REPORTED IN 251 ITR 133 (GUJ) RELIED ON BY THE REVENUE, IT WAS CLAI MED THAT IN THE CASE OF ASSESSEE, IT WAS A CASE OF EXPANSION AND EXTENSION OF THE EXISTING BUSINESS AND NOT SETTING UP ALTOGETHER A NEW UNIT AND THE DI SPUTE WAS WHETHER THE EXPENDITURE INCURRED PRIOR TO THE COMMERCIAL PRODUC TION, PARTICULARLY, WHEN THERE WAS ALREADY AN EXISTING BUSINESS. ON THE FAC TS, THE ASSESSEE CASE WAS COVERED BY THE RATIO LAID DOWN IN THE CASE OF ALEM BIC GLASS [103 ITR 715 (GUJ)] AND JAY ENGINEERING WORKS V. CIT [ 311 ITR 4 05 (DEL)] (F) SETTING UP OF UNIT-II WAS THE EXTENSION AND EXP ANSION TO THE EXISTING BUSINESS OF UNIT-I AND SINCE UNIT I & II WERE OF TH E SAME BUSINESS, THE LOSSES FROM ONE BUSINESS CAN BE SET-OFF AGAINST THE PROFIT S OF THE OTHER BUSINESS; RELIES ON CASE LAWS: (I) CIT V. PRITHVI INSURANCE CO. LTD 63 ITR 632 ( SC); (II) PRODUCE EXCHANGE CORPN. LTD V. CIT 77 ITR 739 (SC); (III) BANSIDHAR PVT. LTD V. CIT 127 ITR 65 (GUJ) (IV) CIT V. MODI INDUSTRIES LTD 200 ITR 341 (DEL) (V) VEECUMSEES V. CIT 220 ITR 185 (SC); (VI) JAY ENGINEERING WORKS LTD V. CIT 311 ITR 405 ( DEL) ALTERNATIVELY: (G) SET-UP OF BUSINESS : WHEN ANY ACTIVITY TO SET UP THE BUSINESS WAS CAR RIED ON, THE BUSINESS WAS SAID TO HAVE BEEN SET UP. THE REVENUE EXPENDITURE AND INTEREST INCURRED BETWEEN THE DATE OF SET UP AN D DATE OF COMMERCIAL PRODUCTION IS ALLOWABLE REVENUE EXPENDITURE RELIES ON CASE LAWS: (I) SARABHAI MANAGEMENT CORPORATION LTD V. CIT 102 ITR 25 (GUJ); (II) PREM CONDUCTORS P. LTD V. CIT 108 ITR 654 (GUJ ) (H) THE CIT (A) HELD, RELYING ON THE CASE LAWS REPO RTED IN (I) 208 ITR 146 (RAJ), (II) 209 ITR 563 (SC); (III) 208 ITR 94 (CAL ); & (IV) 213 ITR 560 (GUJ) WITH REGARD TO SETTING UP OF UNIT FOR MANUFACTURING OF PHARMACEUTICAL DRUGS, WAS NOT THE EXPANSION OF BUSINESS AND THAT THE ASSE SSEE HAD NOT BROUGHT ON 10 ANY EVIDENCE ON RECORD TO PROVE THAT THERE WAS INTE RLACING, INTER CONNECTION AND UNITY OF CONTROL. REJECTING THE CIT (A)S OBSE RVATION, THE ASSESSEE EXPLAINED THAT THE AO HIMSELF RECORDED IN HIS ASSES SMENT ORDER THAT: (ON PAGE 3) FURTHERMORE, BOTH UNIT I & II ARE UNDE R THE SAME PARTNERSHIP FIRM NAMELY M/S. N.K. PHARMA INDUSTRIES AND HAVING SAME PARTNERS, NAMELY, MR. N.R. MEWADA AND DARSHAN N MEW ADA AND ALSO HAVING SAME RATIO I.E., 50% AND 50%. THERE IS NO C HANGE EITHER IN CONSTITUTION OF THE FIRM AND/OR PARTNERS AND/OR THE IR PROFIT SHARING RATIO DURING THE RELEVANT PERIOD. THIS CLEARLY SHOWS THAT WITHOUT LOOKING INTO THE FA CTS OF THE ISSUE AND ASSERTION OF THE AO, THE CIT (A) HAD GIVEN A FINDING; (I) THAT THE CASE LAWS REPORTED IN 208 ITR 146 (RAJ ) AND 77 IT 739 (SC) RELIED ON BY THE CIT (A) WERE ON THE DIFFERENT FOOTING AND TH E SC HAD REMANDED BACK THE ISSUE AS NO EVIDENCES WITH REGARD TO UNITY OF CONTR OL, INTER LACING AND INTER CONNECTION WERE FURNISHED; THAT THE FACTS WERE DIF FERENT IN THE CASE LAWS REPORTED IN 208 ITR 941 (CAL) ALSO IN THE CASE OF RAINBOW D YESTUFF LTD V. 213 ITR 560 (GUJ.). (J) WITH REGARD TO CASH CREDIT OF RS.1,09,583/- U/S 68 OF THE ACT, IT WAS SUBMITTED THAT THE MINORS THROUGH THEIR GUARDIAN(S) HAVE CONF IRMED THE DEPOSITS WHICH HAVE BEEN THROUGH BANKING CHANNELS. RELIES ON THE CASE LAW: 256 ITR 360 (GUJ). 5.1. TO STRENGTHEN HIS ARGUMENT, THE LD. AR HAD FURNISHE D, DURING THE COURSE OF HEARING, A PAPER BOOK WHICH CO NSISTS OF, AMONG OTHERS, COPIES OF (I) DEED OF PARTNERSHIP; (II) AUD ITED ACCOUNTS; (III) INVOICE OF HOCHEST MARION ROUSSEL LTD; (IV) VARIOUS CASE LAWS ETC., 5.2. ON THE OTHER HAND, THE LD. D R WAS VERY EMPHATIC IN HIS RESOLVES THAT, AFTER DULY ANALYZING THE PROS AND CO NS OF THE ISSUES, THE AO HAD DISALLOWED THE EXPENSES CLAIM OF RS.34.4 9 LAKHS INCURRED BY THE ASSESSEE IN UNIT II BEFORE 16.3.2001 WHEN TH E ASSESSEE ADMITTEDLY COMMENCED ITS BUSINESS COMMERCIAL PROD UCTION OF UNIT 11 II WHICH HAS BEEN JUDICIOUSLY SUSTAINED BY THE CI T (A). IT WAS, THEREFORE, PLEADED THAT THE ASSESSEES PLEA IN OTHE RS ISSUES ALSO REQUIRED TO BE REJECTED. HE HAD PLACED STRONG RELI ANCE ON THE CASE LAWS REPORTED IN 90 ITR 318 & 63 ITR 478. 6. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS, DILI GENTLY PERUSED THE RELEVANT CASE RECORDS, VARIOUS DOCUMENT ARY EVIDENCES ADDUCED BY THE LD A R IN THE SHAPE OF A PAPER BOOK (SUPRA) AND ALSO THE JUDICIAL PRONOUNCEMENTS ON SIMILAR ISSUES ADVOC ATED BY EITHER PARTY. 6.1. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE FIRM C ONSISTING OF TWO PARTNERS WAS THE MANUFACTURERS OF PHARMACE UTICAL MACHINERIES AND SPARE PARTS UP-TO THE ASSESSMENT YE AR 2000-01 AND FROM THE ASSESSMENT YEAR UNDER CONSIDERATION, I.E., FROM 16.3.2001 HAD EXPANDED ITS BUSINESS IN PHARMACEUTICAL DRUGS A ND STARTED MANUFACTURING PHARMACEUTICAL DRUGS IN UNIT II WHICH WAS RATHER EXTENSION OF ITS EARLIER LINE OF THE EXISTING BUSIN ESS. BOTH THE ACTIVITIES, NAMELY, MANUFACTURING OF PHARMACEUTICAL MACHINERIES, SPARE PARTS AND MANUFACTURING OF PHARMACEUTICAL DRU GS WAS, UNDOUBTEDLY IN THE SAME LINE OF BUSINESS. THE OUT COME OF THE 12 SCANNING OF TEST OF UNITY OF CONTROL, INTER-LACING, COMMON MANAGEMENT, COMMON ADMINISTRATION, COMMON FUNDS ETC ., THE FOLLOWING VITAL ISSUES HAVE EMERGED, NAMELY: (I) THE PARTNERS OF THE ASSESSEE (FIRM) WERE IN OV ERALL CONTROL OF THE ACTIVITIES OF UNIT I AND II WHICH WERE OWNED AND CA RRIED ON BY THE ASSESSEE; AND THAT THIS VERY FACT HAS BEEN VOUCHED IN NO UN-CERTAIN TERMS; (II) THERE WAS COMMON FUNDS FROM WHICH CAPITAL AND WORKING FUNDS WERE CHANNELED FOR THE TWIN ACTIVITIES OF THE BUSINESS; (III) A CONSOLIDATED P & L ACCOUNT AND BALANCE SHEE T WERE IN PLACE TO TRACE THE GAIN/LOSS OF THE BUSINESS OF THE ASSESSEE; (IV) COMMON STAFFERS WERE PUT IN PLACE TO CARRY OUT THE BOTH BUSINESS ACTIVITIES OF THE ASSESSEE; & (V) COMPLETE UNITY OF CONTROL IN THE MANAGEMENT AND ADMINISTRATION OF THE BUSINESS ACTIVITIES OF THE ASSESSEE; 6.1.1. THE ABOVE FACTS HAVE CLEARLY EXHIBITED THAT THERE WAS INTER-LACING AND UNITY OF CONTROL IN BOTH THE ACTIV ITIES. THE ASSESSEE PLACED AN ORDER TO IMPORT THE REQUIRED MACHINERY FO R PRODUCTION OF DRUGS WITH HOECHST MARION ROUSSEL LTD. WHICH WAS SU BSEQUENTLY IMPORTED VIDE INVOICE NO.FACT/ACCTS/2118 DATED 21.1 2.1999 AND CLEARED BY THE AMC (OCTROI) [COURTESY: P 60 & 61 OF PB AR). HOWEVER, WE ARE NOT CONVINCED WITH THE THEORY OF TH E LD. CIT (A) THAT THE ASSESSEE WAS SHOWN TO BE RUNNING UNIT I FOR MAN UFACTURING OF PHARMACEUTICAL MACHINERY AND ITS SPARE PARTS AND ON THE OTHER HAND SETTING UP OF UNIT II TO MANUFACTURE OF MEDICINES W AS ALTOGETHER A 13 NEW BUSINESS AND MANUFACTURE OF MEDICINES CANNOT BE TAKEN TO BE ONE AND THE SAME THING AS THAT OF MANUFACTURE OF PH ARMACEUTICAL MACHINERY AND SPARE PARTS. 6.1.2. FOR INSTANCE, IF BOSCH A LEADING MANUFACTURER OF SPARK PLUGS, FUEL INJECTION EQUIPMENTS AND ALLIED ITEMS F OR VEHICLES VENTURES TO MANUFACTURE PHARMACEUTICAL DRUGS, THEN IT CAN BE CLASSIFIED THAT THE BOSCHS SCHEME IS NOTHING BUT A LTOGETHER A NEW BUSINESS WHICH HAS NO NEXUS WITH THE EXISTING BUSIN ESS MANUFACTURING OF SPARK PLUS, FUEL INJECTION EQUIPME NTS AND ALLIED ITEMS FOR VEHICLES. HOWEVER, IN THE CASE UNDER CON SIDERATION, THE ASSESSEES MAIN BUSINESS BEING MANUFACTURE OF PHARM ACEUTICAL MACHINERY AND SPARE PARTS WHICH INTENDS TO MANUFACT URE PHARMACEUTICAL DRUGS WHICH, IN OUR CONSIDERED VIEW, CANNOT BE CLASSIFIED AS ALTOGETHER A NEW LINE OF BUSINESS AS BRANDED BY THE AO WHICH WAS RATIFIED BY THE CIT (A). 6.1.3. AS CONCEDED BY THE CIT (A) [ON PAGE 5 O F HIS IMPUGNED ORDER], AN ASSESSEE HAS TO BE PUT UNDER AC ID TEST - AS TO WHETHER THE NEW UNIT SET UP BY IT IS TO BE TERMED A S EXTENSION OF AN EXISTING BUSINESS OR A NEW BUSINESS SUCH AS UNITY OF CONTROL, 14 COMMON MANAGEMENT, COMMON ADMINISTRATION, COMMON FU NDS ETC., AS SUBSCRIBED BY VARIOUS JUDICIARY. IN THE PRESENT CASE, THE ASSESSEE HAD PROVED TO BE UNITY OF CONTROL, COMMON MANAGEMEN T, COMMON ADMINISTRATION, COMMON FUNDS ETC., AS ACKNOWLEDGED BY THE AO IN HIS IMPUGNED ORDER (ON PAGE 3 AT THE COST OF REPETITI ON): FURTHERMORE, BOTH UNIT NOS. I & II ARE UNDER THE S AME PARTNERSHIP FIRM, NAMELY, M/S.N.K. PHARMA INDUSTRIES. AND HAVIN G SAME PARTNERS NAMELY MR. N.R. MEVADA & DARSHAN N MEVADA AND ALSO HAVING SAME RATIO I.E., 50% AND 50%. THERE IS NO CHANGE EITHER IN CONSTITUTION OF FIRM AND/OR PARTNERS AND/OR THEIR PROFIT SHARING RA TIO DURING THE RELEVANT PERIOD. 6.1.4. WITH REGARD TO THE CONDITIONS PRESCRIBED BY THE HONBLE RAJASTHAN HIGH COURT REPORTED IN 208 ITR 146 (RAJ) RELIED ON BY THE CIT (A), THE ASSESSEE HAD PLACED SUFFICIENT EVIDENC E TO THE EFFECT THAT: (I) THE PARTNERS OF THE ASSESSEE FIRM WAS IN OVERAL L CONTROL OF BOTH THE ACTIVITIES WHICH WERE OWNED AND CARRIED ON BY THE ASSESSEE; (II) THERE WERE COMMON FUNDS AND THAT THERE WAS COMMON STAFF FOR CARRYING ON BOTH THE BUSINESS ACTIVITIES. 6.1.5. THE ABOVE FACTS AMPLY PROVE THAT THERE W ERE UNITY OF CONTROL AND MANAGEMENT AND INTER-RELATION OF THE BU SINESS OR EMPLOYMENT OF THE SAME STAFFERS TO RUN THE BUSINESS . 6.2. LET US NOW DIVERT OUR ATTENTION TO PERUSE THE JUDICIARY VIEWS ON A SIMILAR ISSUE. 15 EXPANSION AND EXTENSION OF BUSINE SS: (1) CIT V. PRITHVI INSURANCE CO. 63 ITR 632 (SC): (I) IT WAS RULED BY THE HONBLE COURT THAT THE RESPONDENT COMPANY WAS ENTITLED TO THE SET-OFF CLAIMED BY IT AS THE LIFE INSURANCE BUSINESS AND THE GENERAL INSURANCE BUSINE SS CONSTITUTED ONE COMPOSITE BUSINESS. THE INTER-CONNECTION, INTE R-LACING, INTER- DEPENDENCE AND UNIT WERE FURNISHED BY THE EXISTENCE OF COMMON MANAGEMENT, COMMON BUSINESS ORGANIZATION, COMMON ADMINISTRATION, COMMON FUND AND A COMMON PLACE OF B USINESS. (II) IT WAS, FURTHER, HELD THA T (ON P.633) IF ONE BUSINESS CANNOT CONVENIENTLY BE CARRIED ON AFTER CLOSURE OF THE OTHER, THERE WOULD BE A STRONG INDICATION THAT THE TWO CONSTITUT ED THE SAME SAME BUSINESS BUT NO DECEIVE INFERENCE MAY BE DRAWN FROM THE FACT THAT AFTER THE CLOSURE OF ONE BUSINESS, ANOTHER MAY CONV ENIENTLY BE CARRIED ON. (2) PRODUCE EXCHANGE CORPORATION LTD V. CIT (CENTRA L) CALCUTTA - 77 ITR 739 & 742 (SC): IT WAS HELD BY THE HONBLE COU RT: (I) THAT THE DECISIVE TEST WAS UNITY OF CONTROL AND NOT THE NATURE OF THE TWO LINES OF BUSINESS; (II)THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE SHARE BUSINESS AND OTHER BUSINESSES CARRIED ON BY THE APPELLANT-COMPANY CONSTITUTED THE SAME BUSINESS WITHIN THE MEANING OF SECTION 24(2) AS IT STOOD BEFORE ITS AMENDMENT IN 1955; 16 REFERRING TO ITS EARLIER RULING IN THE CASE OF CIT V. PRITHVI INSURANCE CO. LTD [63 ITR 632 (SC) REFERRED (1) ABO VE WHEREIN IT HAD RAISED A QUESTION AND ANSWERED ITSELF WHICH ARE AS UNDER: (QUOTE)WAS THERE ANY INTER-CONNECTION, ANY INTER-L ACING, ANY INTER-DEPENDENCE, ANY UNITY AT ALL EMBRACING THOSE TWO BUSINESSES? THAT INTER-CONNECTION, INTER-LACING, INTER-DEPENDEN CE AND UNITY ARE FURNISHED IN THIS CASE BY THE EXISTENCE OF COMMON MANAGEMENT, CO MMON BUSINESS ORGANIZATION, COMMON ADMINISTRATION, COMMON FUND AND A COMMON PLA CE OF BUSINESS. (3) CIT V. ALEMBIC INDUSTRIES LTD. (1976) 103 ITR 715 (GUJ): REFERRING TO THE RULING OF THE HONBLE APEX COURT IN THE CASE OF CIT V. PRITHVI INSURANCE CO. LTD [63 ITR 6 32 (SC), THE HONBLE JURISDICTIONAL HIGH COURT RULED THAT: (ON PAGE 716) EVEN ASSUMING THAT THE TEST FOR CONSI DERING WHETHER A PARTICULAR UNIT IS A SEPARATE BUSINESS FROM THE BUSINESS OF TH E OTHER UNIT OR NOT, IS TO SEE WHETHER THE CLOSURE OF ONE UNIT WOULD AFFECT THE OT HER UNIT OR NOT, AS CONTENDED BY THE REVENUE, THE CLOSURE OF ANY OF THE TWO UNITS HERE WOULD SURELY AFFECT THE WORKING AND THE BUSINESS OF THE REMAINING UNIT FOR SIMPLE REASON THAT A LARGER LIABILITY OF THE WHOLE BUSINESS WOULD OBVIOUSLY HAV E TO BE BORNE BY THE OTHER UNIT ON THE CLOSURE OF ONE UNIT. THE TRIBUNAL WAS, THEREFORE, JUSTIFIED IN LAW IN HO LDING THAT THE NEW FACTORY AT BANGALORE DID NOT CONSTITUTE A NEW BUSINESS BUT WAS ONLY AN ESTABLISHMENT OF A NEW UNIT OF THE EXISTING BUSINESS AT BARODA. (4) YET ANOTHER RULING, THE HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF BANSIDHAR PVT. LTD V. CIT [127 ITR 65 ( GUJ)] HAD OBSERVED: (ON PAGE 66) THAT THE BOARD OF DIRECTORS OF THE AS SESSEE WHICH WAS A PRIVATE COMPANY WAS IN OVERALL CONTROL OF ALL THE FIVE BUSI NESS ACTIVITIES WHICH WERE OWNED AND CARRIED ON BY THE ASSESSEE. THERE WAS A COMMON FUND FROM WHICH THE NECESSARY CAPITAL AND WORKING FUNDS WERE SUPPLI ED TO THE VARIOUS BUSINESS ACTIVITIES. THE ULTIMATE GAIN OR LOSS OF THE BUSIN ESSES WAS ALSO WORKED OUT BY A 17 CONSOLIDATED PROFIT AND LOSS ACCOUNT AND BALANCE SH EET. THE SOURCE OF FINANCE FOR RUNNING THE VARIOUS BUSINESSES WAS THUS ONE AND THE SAME AND THERE WAS CONSOLIDATION OF ACCOUNTS FOR THE PURPOSE OF ASCERT AINING THE ULTIMATE WORKING RESULT OF THE BUSINESSES CARRIED ON BY THE ASSESSEE . MERELY BECAUSE THERE WAS A SEPARATE STAFF WHICH WAS NOT INTER-TRANSFERABLE, TH E UNITY OF CONTROL WAS NOT AFFECTED SINCE AT THE APEX, THERE WAS COMMON MANAGE MENT AND ADMINISTRATION WITH AN OVERALL CONTROL OF THE VARIOUS BUSINESSES V ESTING IN THE BOARD OF DIRECTORS OF THE ASSESSEE-COMPANY. THOUGH SOME OR MOST OF TH E BUSINESSES WERE CARRIED ON AT DIFFERENT PLACES, THE ULTIMATE CONTROL WAS EX ERCISED AT THE REGISTERED OFFICE OF THE ASSESSEE-COMPANY AND THAT CIRCUMSTANCE ALSO DID NOT DETRACT FROM THE UNITY OF CONTROL. THE EMPHASIS ON THE WIDELY DIFFE RENT NATURE OF THE BUSINESS ACTIVITIES, THOUGH NOT ALTOGETHER IRRELEVANT, WAS N OT BY ITSELF DECISIVE. THE FACT THAT MANUFACTURING BUSINESS WAS COMBINED WITH TRADI NG ACTIVITIES WAS AGAIN A MATTER OF NO CONSEQUENCE BECAUSE THAT BY ITSELF, OR COUPLED WITH OTHER CIRCUMSTANCES, WOULD NOT LEAD TO THE CONCLUSION THA T THERE WAS NO INTERLACING OR INTERDEPENDENCE, SINCE THERE WAS UNITY OF CONTROL. EVEN IF DIFFERENT BOOKS OF ACCOUNT WERE MAINTAINED AND THE TRANSACTIONS INTER SE BETWEEN THE DIFFERENT BUSINESS UNITS WERE RECORDED IN THOSE BOOKS OF ACCO UNTS; THAT CIRCUMSTANCE WOULD PALE INTO INSIGNIFICANCE ONCE IT WAS FOUND TH AT ULTIMATELY THERE WAS A COMMON PROFIT AND LOSS ACCOUNT AND BALANCE SHEET. THE FACT THAT THE CLOSURE OF ONE BUSINESS DID NOT AFFECT OR LEAD TO THE CLOSURE OF THE OTHER BUSINESSES WAS ALSO NOT OF MUCH CONSEQUENCE BECAUSE NO DECISIVE INFEREN CE CAN BE DRAWN THERE- FROM. THEREFORE, THERE WAS COMPLETE INTERCONNECTION, INTE RLACING, INTERDEPENDENCE AND DOVETAILING OF THE DIFFERENT BUSINESS ACTIVITIES CA RRIED ON BY THE ASSESSEE AND ALL THE ACTIVITIES CONSTITUTED ONE AND THE SAME BUSINES S.. 6.2.1. TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTA NCES OF THE ISSUE AS DISCUSSED ABOVE AND IN CONFORMITY WITH THE RULINGS OF THE JUDICIARY AS DETAILED SUPRA, WE ARE OF THE FIRM VIE W THAT SETTING UP OF UNIT II BY THE ASSESSEE WAS , INDEED, LACED UP WITH AN EXPANSION OF THE EXISTING BUSINESS IN UNIT-I. IT IS ORDERED ACC ORDINGLY. 6.3. WITH REGARD TO REVENUE EXPENSES OF RS.6,71,6 40/-, WE RECALL THE RULING OF THE HONBLE HIGH COURT OF DELH I IN THE CASE OF JAY ENGINEERING WORKS LTD V. CIT REPORTED IN (2009) 311 ITR 405 (DELHI) 18 WHEREIN THE ISSUE, IN BRIEF, WAS THAT THE ASSESSEE- COMPANY MANUFACTURED FANS AND SEWING MACHINES AT VARIOUS UN ITS INCLUDING IN HYDERABAD. IT DECIDED TO EXPAND ITS ACTIVITIES AND, THEREFORE, UNDERTOOK A FUEL INJECTION EQUIPMENT PROJECT IN HYD ERABAD AND INCURRED AN EXPENDITURE OF RS.1.56 CRORES, OUT OF W HICH, RS.1.35 CRORES BEING ACQUISITION OF PLANT AND MACHINERY. T HIS CLAIM OF THE ASSESSEE WAS TURNED DOWN BY THE AO WHICH WAS UPHELD BY THE CIT (A) AND THE TRIBUNAL AS WELL. HOWEVER, THE HONBLE COURT, ON REFERENCE, HELD: (ON PAGE 406) THAT IT WAS CLEAR THAT THE CONTROL O VER THE TWO UNITS WAS IN THE HANDS OF THE SAME MANAGEMENT AND ADMINISTRATION. T HERE WAS NO DOUBT ON THIS SCORE AND IN FACT, THE ANNUAL REPORT OF THE ASSESSE E MADE A REFERENCE TO THE PROJECT AT HYDERABAD. THE FACTS ON RECORD SHOWED T HAT THE NEW VENTURE WAS MANAGED FROM COMMON FUNDS AND THERE WAS THE NECESSA RY UNITY OF CONTROL LEADING TO AN INTERCONNECTION, INTERDEPENDENCE AND INTERLACING OF THE TWO VENTURES SUCH THAT IT COULD BE SAID THAT THE FUEL I NJECTION EQUIPMENT PROJECT WAS ONLY AN EXTENSION OF THE EXISTING BUSINESS OF THE A SSESSEE AND, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE ON THIS PROJEC T WAS REVENUE EXPENDITURE. 6.3.1. IN VIEW OF THE FACTS AS DISCUSSED ABOVE AND IN CONFORMITY WITH THE JUDICIAL PRECEDENT, WE ARE OF THE CONSIDER ED VIEW THAT THE ASSESSEE WAS ENTITLED TO CLAIM THE EXPENDITURE OF R S.6,71,640/-. 6.4. IN RESPECT OF THE DEPRECIATION CLAIM OF RS.22 ,53,645/-, WE FIND AND ALSO FAIRLY CONCEDED BY THE ASSESSEE ITSEL F THAT SINCE THE MACHINERY WAS PUT TO USE ONLY ON 15.3.2001 WHICH WA S LESS THAN 180 DAYS, THE AO SHALL WORK OUT AND ALLOW THE ELIGIBLE PERCENTAGE OF 19 DEPRECIATION AS PER THE I.T. RULES PREVAILED AT THA T RELEVANT PERIOD. IT IS ORDERED ACCORDINGLY. INTEREST OF RS.5,23,853/-: 6.5. AT THE OUTSET, WE WOULD LIKE TO REITERATE THA T THE HONBLE HIGHEST JUDICIARY OF THE LAND IN ITS WISDOM IN THE CASE OF DCIT V. CORE HEALTH CARE LTD REPORTED IN (2008) 298 ITR 194 (SC) HAD HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S 36(1)(II I) OF THE ACT PRIOR TO ITS AMENDMENT BY THE FINANCE ACT, 2003, IN RELATION TO MONEY BORROWED FOR PURCHASE OF MACHINERY EVEN THOUGH THE ASSESSEE HAD NOT USED THE MACHINERY IN THE YEAR OF HEARING. 6.5.1. FURTHER, THE JURISDICTIONAL HONBLE HIGH COURT, IN ITS RULING IN THE CASE OF GUJARAT STATE FERTILIZER & CHEMICALS LTD V. ACIT REPORTED IN (2009) 313 ITR 244 (GUJ) BY APPLYING T HE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF DCIT V. C ORE HEALTH CARE LTD (SUPRA), HAD HELD THAT SINCE THERE WAS NO DISPUTE ABOUT THE FACT THAT THE CAPITAL BORROWED WAS USED FOR THE PURPOSE OF BUSINESS, THE INTEREST ON THE BORROWED CAPITAL WAS DEDUCTIBLE U/S 36(1)(III) OF THE ACT. IRONICALLY, THE HONBLE SUPREME COURT HAD DISMISSED THE SPL OF THE REVENUE AGAINST THE JUDGMENT OF THE HONBLE GUJ ARAT HIGH COURT (SUPRA) REPORTED IN (2009) 313 IT (ST) 32. 20 IN CONFORMITY WITH THE RULING OF THE HONBLE APEX COURT AS WELL AS THE JURISDICTIONAL HONBLE HIGH COURT REFER RED SUPRA, WE AFFIRM THAT THE ASSESSEE WAS ENTITLED TO INTEREST CLAIM OF RS.5,23,853/- PAID ON THE BORROWED FUNDS. IT IS ORDERED ACCORDINGLY. 6.6. ADDITION OF CASH CREDITS AND INTEREST RS.1,0 9,583/ -: THE CIT (A) HAD, AFTER CONSIDERIN G THE CONTENTIONS OF THE ASSESSEE AS WELL AS PERUSING THE REASONING OF THE A O, CONFIRMED THE ADDITION FOR THE REASONS RECORDED IN HIS IMPUGNED O RDER, THE RELEVANT PORTION WHICH ARE EXTRACTED AS UNDER: (ON PAGE 12)IN THE CASE OF THE APPELLANT THOUGH IT IS CLAIMED THAT THE AMOUNT WAS DEPOSITED OUT OF THE SAVINGS FROM GIFTS RECEIVED BY THE MINORS ON DIWALI ETC., THE ENTRIES SHOWN IN THE BANK ACCOUNT DID NOT REFLECT THE SIMILAR POSITION. IF THE AMOUNTS ARE DEPOSITED IN THE BANK ACCOUNT OUT OF GIFTS, ETC., AS EXPLAINED ABOVE, SMALL AMOUNTS WOULD HAVE BEEN D EPOSITED ON VARIOUS OCCASIONS IN THE BANK ACCOUNTS OF THE MINORS. HOWE VER, FROM THE COPIES OF THE BANK ACCOUNTS FILED BEFORE THE AO AND ALSO DURI NG THE APPELLATE PROCEEDINGS, IT IS SEEN THAT COMPARATIVELY BIG AMOU NTS HAVE RATHER BEEN DEPOSITED ON VERY FEW OCCASIONS IN THE BANK ACCOUNT . IN THE FACE OF POSITION DEPICTED IN THIS BANK ACCOUNT, IT WAS ALL THE MORE DESIRABLE THAT THE DETAILS CALLED FOR BY THE AO WITH REGARD TO THE OCCASIONS O N WHICH THE GIFTS WERE RECEIVED BY THE MINORS AS ALLEGED, THE AMOUNTS RECE IVED BY THEM ETC., WERE FURNISHED DURING THE ASSESSMENT PROCEEDINGS. IN TH E ABSENCE OF SUCH DETAILS, THE AO CANNOT BE SAID TO BE UNJUSTIFIED IN COMING T O THE CONCLUSION THAT THE DEPOSITS WERE NOT EXPLAINED SATISFACTORILY. THE RA TIO OF THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE ROHINI BUILD ERS (SUPRA) WHICH HAS RELIED UPON BY THE LD. COUNSEL WOULD ALSO NOT HELP THE CASE OF THE APPELLANT. IN THIS DECISION, THE HONBLE HIGH COURT CONFIRMED THE FINDINGS OF THE ITAT, AHMEDABAD BY WHICH THEY HAD DELETED THE ADDITION MA DE U/S 68 IN RESPECT OF THE DEPOSITORS WHICH WERE SHOWN TO BE INCOME-TAX AS SESSEES AND INTEREST ON WHICH DEPOSITS WAS NOT DISALLOWED BY THE AO. THERE FORE, THE FACTS AND CIRCUMSTANCES OF THAT CASE ARE TOTALLY DIFFERENT FR OM THE FACTS AND CIRCUMSTANCES OF APPELLANTS CASE. THE OTHER CASE LAWS RELIED UPON BY THE LD. COUNSEL WOULD ALSO NOT GO TO FAVOUR THE APPELLANT I N THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND WHICH ARE DIS CUSSED AS ABOVE. IN 21 VIEW OF THE ABOVE DISCUSSION, THE ADDITION OF RS.1, 09,583/- MADE BY THE AO U/S 68 OF THE IT ACT HAS TO BE CONFIRMED. IT IS RATHER STRANGE AND RATHER APPALLING ON THE PART OF THE CIT (A) TO MENTION THAT (AT THE COST OF REPETITION) IT IS CLAIMED THAT THE AMOUNT WAS DEPOSITED OUT OF THE SAVINGS FROM GIFTS RECEIVE D BY THE MINORS ON DIWALI ETC., THE ENTRIES SHOWN IN THE BANK ACCOUNT DID NOT REFLECT T HE SIMILAR POSITION. IN THE PAYING-IN SLIPS, THE DEPOSITOR IS NOT REQUIRED TO INDICATE/DISCLOSE THE ORIGIN/SOURCE OF THE AMOUNT INTENDS TO BE DEPOSITED IN HIS/HER BANK ACCOUNT. AS A MATTER OF FACT, IDENTICAL AMOUNT OF RS.50,000/- WAS LENT THROUGH BANKING CHANNELS AND THE CHEQUE NOS.51 051 AND 51052 WERE CLEARLY MENTIONED IN THE PASS BOOK OF TH E LENDERS (THOUGH MINORS, THROUGH THEIR GUARDIAN) [COURTESY: PASS BOOK AND RELEVANT ENTRIES - P 58 & 59 OF PB AR]. IN THIS CO NNECTION, IT IS PERTINENT TO MENTION HERE THAT THE ASSESSEE HAD DUL Y DISCHARGED ITS ONUS, I.E., FURNISHING OF CONFIRMATION LETTER BEFOR E THE AO DISCLOSING THE NAMES, ADDRESSES ETC., AND DURING THE COURSE OF HEARING BEFORE THIS BENCH, THE ASSESSEE HAD ALSO FURNISHED THE DOC UMENTARY EVIDENCE (CITED SUPRA) TO THE EFFECT THAT THE AMOUN TS IN QUESTION WERE THROUGH PROPER BANK CHANNELS. CONSIDERING THE FACT S OF THE ISSUE, WE ARE OF THE FIRM VIEW THAT AS FAR AS THE ASSESSEE WA S CONCERNED, IT HAD DISCHARGED ITS LEGITIMATE ONUS FULLY WHICH CANNOT B E PUT UNDER A 22 SCANNER. ADDITION, IN OUR CONSIDERED VIEW, WAS ON A WHIMSICAL WAY WHICH REQUIRES TO BE DELETED AND, ACCORDINGLY, RS.1 ,09,583/- (PRINCIPAL AMOUNTS + INTEREST THEREON) IS DELETED. 6.7. MOTOR CAR EXPENSES: THE ASSESSEE ON ITS OWN ACCORD DI SALLOWED 1/5 TH EXPENSE OUT OF MOTOR CAR EXPENSE, OWNING POSSIBILITY OF PER SONAL USE OF THE VEHICLE. HOWEVER, THE ASSESSEE, ACCORDING TO THE A O, HAD NOT DISALLOWED DEPRECIATION AND INTEREST PAID TO BANK O F RS.46,876/- AND RS.26,670/- RESPECTIVELY, BY NOT APPLYING THE SAME RATIONALITY - IN THE CASE OF DEPRECIATION AND INTEREST. THE AO, ACCORDI NGLY, DISALLOWED ONLY RS.14,710/- BEING PROPORTIONATE DEPRECIATION A ND INTEREST. IN ITS GROUNDS OF APPEAL, THE ASSE SSEE HAD OBJECTED TO THE CONFIRMING OF INTEREST PAID TO THE BANK ON CAR LOAN , BUT NOT DISPUTED THE DISALLOWANCE OF PROPORTIONATE DEPRECIATION WHIC H ALTOGETHER CAME TO A PALTRY AMOUNT OF RS.14,710/-. WHEN THE ASSESS EE ITSELF WAS MAGNANIMOUS IN DISALLOWING 1/5 TH OF EXPENSE OUT OF MOTOR CAR EXPENSE, IT WAS EXPECTED TO EXTEND THE SAME GESTURE WHILE CLAIMING DEPRECIATION AND BANK INTEREST ALSO. 23 CONSIDERING THE FACTS OF THE ISSUE, WE ARE OF THE VIEW THAT THE AO WAS JUSTIFIED IN HIS STAND WHICH WARRANTS NO INTERVENTION OF THIS BENCH. 7. IN THE RESULT , THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2T H DAY OF MARCH, 2012. SD/- SD/- (G. C.GUPTA) VICE PRESIDENT (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/- -- - COPY OF THE ORDER FORWARDED TO: 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 DY. REGISTRAR, ITAT, AHMEDABAD