M/S GENUS POWER INFRASTRUCTURES LTD., Jaipur V. ADD. CIT, Jaipur

ITA 38/JPR/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5304 (ITAT-JAIPUR)
• Duration Of Justice: 4 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 13-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MEENA CIT DR DHK
• Assessee Lawyers: O P AGARWAL
• Keywords: Business income; Depreciation; Business expenditure; Rule of consistency; Additional depreciation; Capital receipt; Revised return; Revenue expenditure; Capital expenditure
• Section: 133A; 37(1); 10

Judgement Text

ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 1 VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH FOE FLA G ;KNO] YS[KK LNL; DS LE{K BEFORE:SHRI R.P.TOLANI, JM & SHRI VIKRAM SINGH YADA V, AM VK;DJ VIHY LA-@ ITA NO. 38/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 M/S. GENUS POWER INFRASTRUCTURES LTD. (PREVIOUSLY KNOWN AS GENUS OVERSEAS ELECTRONICS LTD.), SPL-3, RIICO INDUSTRIAL AREA, SITAPURA, TONK ROAD, JAIPUR CUKE VS. THE ADDL. CIT RANGE-7 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AACCG 1218 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 257/JP/2012 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 THE ITO WARD- 7 (2) JAIPUR CUKE VS. M/S. GENUS POWER INFRASTRUCTURE LTD. (PREVIOUSLY KNOWN AS GENUS OVERSEAS ELECTRONICS LTD.), SPL-3, RIICO INDUSTRIAL AREA, SITAPURA, TONK ROAD, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AACCG 1218 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MANISH AGARWAL AND SHRI O.P. AGARWAL , CA JKTLO DH VKSJ LS@ REVENUE BY : SHRI M.S. MEENA, CIT -DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 22/04/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 20 /05/2016 VKNS'K@ ORDER PER R.P. TOLANI, JM:- BOTH THESE APPEALS ARE THE CROSS APPEALS AGAINST T HE ORDER OF THE LD. CIT(A)-III, JAIPUR DATED 5-12-2011 FOR THE ASSESSME NT YEAR 2008-09. FOLLOWING GROUNDS ARE RAISED ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 2 ASSESSEES APPEAL ITA NO. 38/JP/2012 : LD. CIT(A) ERRED IN LAW AND ON FACTS IN:- (1) CONFIRMING THE DISALLOWANCE OF RS. 4,14,72,012/ - MADE BY LD. AO, WHICH COMPRISES OF RS. 3,69,09,943/- ON ACCOUNT OF COMMISSION AND BROKERAGE A/C AND RS. 45,62,069/- PA ID TOWARDS SERVICE TAX THEREON. THIS EXPENDITURE STANDS ALLOWE D BY ITAT, JAIPUR IN ASSESSEES OWN CASE IN EARLIER YEARS, LD. CIT(A) ERRED IN NOT FOLLOWING THE BINDING JUDGMENTS OF ITAT. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN CONFIRMING AN ADDITION OF RS. 3 5.00 LACS MADE ON ACCOUNT OF DISALLOWANCE OF COMMISSION PAID TO M/S. VIDARBHA ELECTRICAL NAGPUR WITHOUT CONSIDERING THE GENUINENE SS OF THE CLAIM. HENCE, THE ADDITION SO SUSTAINED DESERVES TO BE DEL ETED. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIR MING THE REDUCTION IN DEDUCTION CLAIMED U/S 80IC FROM RS. 27,65,18,465 /- TO RS. 25,72,60,579/- BY DISALLOWING A SUM OF RS. 1,92,57, 886/- AS TABULATED BELOW STATING THE ADJUSTMENT DONE TO THE PROFITS OF THE ELIGIBLE UNDERTAKING AT HARIDWAR (UTTRANCHAL STATE) WITHOUT PROPERLY APPRECIATING THE SUBMISSION MADE AND EVIDENCES ADDU CED, THUS THE ASSESSEE IS ENTITLED TO FULL DEDUCTION U/S 80IC AS CLAIMED AT RS. 27,65,18,465/-. S.N. PARTICULARS AMOUNT 1. PURCHASES FROM JAIPUR UNIT 1,07,46,813 2. SALE PRICE TO JAIPUR UNIT 11,88,073 3. ALLEGED COMMON EXPENSES 75,23,000 TOTAL 1,92,57,886 ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 3 REVENUES APPEAL ITA NO. 257/JP/2012 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN :- (I) THE LD. CIT(A) HAS PASSED A PERVERSE ORDER IN DELETING THE DISALLOWANCE OF SOFTWARE EXPENSES OF R S. 1,61,91,680/- EVEN WHEN THE FACTUM/QUANTUM THEREOF WAS DISPROVED BY THE EVIDENCE UNEARTHED AT PREMISES OF ONE SHRI S.K. GUPTA, CA AS DETAILED BY THE AO (II) THE LD. CIT(A) HAS PASSED A PERVERSE ORDER IN HOLDING THAT THE PAYMENT OF RS. 2.52 CRORES PAID TO M/S. ENAM SECURITIES (P) LTD. WAS COVERED U/S 35D(2)(IV) AND THEREBY RESTRICTING THE DISALLOWANCE TO RS. 50.40 LAKHS. (III) THE LD. CIT(A) HAS PASSED A PERVERSE ORDER IN HOLDING THAT THE RECEIPTS OF RS. 83,19,753/- WAS IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE , A CAPITAL RECEIPT (IV) THE LD. CIT(A) HAS ERRED IN HOLDING THAT SALES TAX INCENTIVE OF RS. 2,81,87,608/- WAS A CAPITAL RECEIP T EVEN WHEN THE RATION OF THE DECISION CITED BY THE ASSESSEE I. E. 88 ITD 273 ETC. WAS NOT APPLICABLE IN VIEW OF THE DISTINGUISHA BLE FACTS AND CIRCUMSTANCES OF THE ASSESSEE AND THE DECISION OF T HE SUPREME COURT IN THE CASE OF NOVA PEN INDIA, REPORTED IN 3 HON'BLE SUPREME COURT 606 AND EXPLANATION 10 TO SECTION 43( 1) OF THE ACT. (V) THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE EN TIRE EXPENSES ON PUBLICITY AND SALE PROMOTION WERE ALLOW ABLE U/S 37(1) OF THE I.T. ACT EVEN WHEN NOT JUSTIFIED IN TH E FACTS AND CIRCUMSTANCES OF THE CASE. (VI) THE LD. CIT(A) HAS ERRED IN ALLOWING DEPRECIAT ION AT RS. 7,12,286/-ON PICK AND PLACE MACHINE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 4 (VII) THE LD. CIT(A) HAS PASSED A PERVERSE ORDER IN DIRECTING THE AO TO ALLOW DEDUCTION OF RS. 15,68,66 7/- CLAIMED U/S 80IA(4). (VIII) THE LD. CIT(A) HAS PASSED A PERVERSE ORDER I N ALLOWING DEDUCTION U/S 80JJAA OF RS. 60,66,380/- AS CLAIMED BY THE ASSESSEE. 2.1 BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT IS A PUBLIC LIMITED COMPANY INCORPORATED ON 06.08.1992 UNDER THE COMPAN IES ACT, 1956 AS GENUS OVERSEAS ELECTRONICS LTD., W.E.F. 31.3.2007 T HE NAME STOOD CHANGED TO M/S GENUS POWER INFRASTRUCTURE LTD. IT IS ENGAGE D IN THE BUSINESS OF MANUFACTURE AND SALE OF ENERGY METERS, HMC, PCB AND TAXI METERS, INVERTORS AND EXECUTES TURNKEY PROJECTS RELATED TO RURAL ELECTRIFICATION. RETURN OF INCOME FOR AY 2008-09 WAS E FILED ON 29-0 9-2008 DECLARING TOTAL INCOME AT RS.13,56,08,890/- WHICH WAS SUBSEQUENTLY REVISED ON 27-03-2010 MAKING CERTAIN REVISIONS IN RELATION TO CLAIMS OF D EPRECIATION (NOT ADDED IN ORIGINAL RETURN), INTEREST AND WAGE SUBSIDY, DEDUCT ION U/S 80IA AND DEPRECIATION ON PICK & PLACE MACHINE WHICH WAS REDU CED IN REVISED RETURN. DURING THE COURSE OF ASSESSMENT PROCEEDINGS VARIOUS QUERIES AND COMPLIANCES WERE REQUIRED BY LD. AO WHICH ACCORDING TO ASSESSEE WERE DULY COMPLIED WITH. HOWEVER ASSESSE EXPLANATIONS WERE NO T FULLY ACCEPTED BY AO WHICH LEAD TO HUGE ADDITIONS WHICH ARE RAISED IN RESPECTIVE APPEAL. THE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 5 ASSESSMENT WAS COMPLETED VIDE ORDER DT. 31-12-2010 AT A TOTAL INCOME OF RS. 43,59,18,790/-. 2.2 AGGRIEVED AGAINST THE ORDER OF LD. AO, AN APPEA L WAS FILED BEFORE LD. CIT (APPEALS)-III JAIPUR WHO VIDE ORDERS DATED 05-1 2-2011 ALLOWED PART RELIEF TO THE ASSESSEE. AGGRIEVED THEREON, BOTH ASS ESSEE AND DEPARTMENT ARE IN APPEAL BEFORE US. 3.1 APROPOS GROUND NO. 1 LD. COUNSEL FOR THE ASSESS EE INVITED OUR ATTENTION TO THE RELEVANT PORTION OF THE LD. CIT (A )S ORDER REJECTING ASSESSEES CLAIM IN THIS BEHALF:- FROM THE CONTENTS OF THE ABOVE FINDINGS OF MY PREDE CESSORS, IT IS EVIDENT THAT ALL THE FACTS AND CIRCUMSTANCES OF SUCH YEAR ARE TOTALLY IDENTICAL AND SIMILAR TO THE PRESENT A.Y., UNDER CO NSIDERATION. ACCORDINGLY, IN MY CONSIDERED VIEW, THE RULE OF C ONSISTENCY DEMANDS THAT THE FINDINGS GIVEN BY MY LD. PREDECESS OR, ON THE ISSUE OF ALLOWABILITY OF COMMISSION PAYMENT GIVEN IN EARL IER YEAR, ARE SQUARELY APPLICABLE TO THE CURRENT YEAR ALSO. MOREO VER. I AM ALSO AGREED TO HIS OPINION THAT SINCE THE DISALLOWANCE O F COMMISSION PAYMENTS IN SUBSEQUENT ASSESSMENT YEARS (I.E.2007-0 8 AND ONWARD), AS RESULT OF THE ADVERSE RELEVANT ASPECTS FOUND DUR ING THE SURVEY PROCEEDING, THEREFORE, THE DECISION OF HONBLE ITAT JAIPUR BENCH, GIVEN IN THIS REGARD AND IN FAVOUR OF THE APPELLANT BUT PRIOR TO SUCH DEVELOPMENT, IS NOT BINDING ON THE SUBSEQUENT ASSES SMENT YEARS. IN VIEW OF THE ABOVE, IT IS HELD THAT THE APPELLANT HA S FAILED TO SUBSTANTIATE ITS CLAIM OF COMMISSION AND BROKERAGE PAYMENT OF 3,69,09,943/- MADE U/S 37(1) IN DESIRED MANNER. SI MILARLY THE PAYMENT OF SERVICE TAX/CESS OF 45,62,069/- TOWARDS SUCH UNPROVEN COMMISSION PAYMENT IS ALSO FOUND NOT MEANT FOR THE BUSINESS PURPOSES, UNDER THE GIVEN CIRCUMSTANCES. ACCORDINGL Y, THE DISALLOWANCE MADE BY THE AO OF 4,14,72,012/- IN TH IS REGARDS IS UPHELD. CONSEQUENTLY THE GROUND OF APPEAL NO. 1 ST AND 2 ND ARE REJECTED. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 6 IT IS PLEADED THAT THE SIMILAR DISALLOWANCES BY RAI SING SAME ISSUES UNDER IDENTICAL FACTS AND CIRCUMSTANCES WERE ALSO MADE IN THE PAST IN THE CASE OF ASSESSEE CASE. THE ITAT BY DETAILED ORDERS PASSED F OR ASSESSMENT YEARS 1999-2000 TO 2007-08 DELETED THESE ADDITIONS. LD. C IT(A) HAS ALSO OBSERVED AT PAGE 16 OF THE ORDER THAT THE FACTS AND CIRCUMST ANCES OF THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS OF EARLIER YEARS AND IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. A.Y. 2007-08. THE I TAT, JAIPUR IN ASSESSE OWN CASE (PAGE 38 TO 120; CONCLUDING OBSERVATIONS A T PAGE 119 PARA 61.11) DELETED THESE ADDITIONS VIDE ITS ORDER DATED 22.12. 2011 IN ITA NO. 358/JP/11 BY FOLLOWING OBSERVATIONS: 49. GROUND NO. 1 IS AGAINST UPHOLDING DISALLOWANC E OF RS. 28,87,65,173/- DISALLOWED BY THE AO ON ACCOUNT OF EXPENDITURE INCURRED ON COMMISSION AND BROKERAGE. PAGES 68 TO70 (ITAT ORDER):- THE LD. CIT(A) UPHELD THE ORDER PASSED BY THE ASSES SING OFFICER BY HOLDING AS UNDER:- THE REAL ISSUE INVOLVED IS AS TO WHETHER THE PARTIE S, TO WHOM THE ASSESSEE HAS CLAIMED TO HAVE MADE PAYMENTS OF C OMMISSION, ACTUALLY RENDERED ANY SERVICES FOR THE ASSESSEE TO EARN THAT COMMISSION. IN THIS REGARD, ON PERUSAL OF THE RELEV ANT RECORDS, IT IS SEEN THAT THE COMMISSION PAYMENTS IN QUESTION, HAVE BEEN MADE MAINLY WITH REFERENCE TO THE PROCUREMENT OF ORDERS BY THE ASSESSEE FROM THE ELECTRICITY BOARDS OF VARIOUS STATES, WHIC H ARE GOVERNMENT/ PUBLIC SECTOR BODIES. THE LD. AO HAD JUSTIFIABLY, REQUIRED THE ASSESSEE T O SPECIFY THE SERVICES ACTUALLY RENDERED BY THE COMMISSION AGENTS , FOR PROCURING ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 7 THE SUPPLY ORDERS FROM THOSE ELECTRICITY BOARDS/ CO MPANIES AND TO FURNISH DOCUMENTS/ EVIDENCES TO PROVE THE RENDERING OF THOSE SERVICES BY THE COMMISSION AGENTS. THE LD. AO, AS PER HIS DETAILED DISCUSSION IN THE A SSESSMENT ORDER HAS BEEN ABLE TO ESTABLISH THAT THOUGH THE AS SESSEE HAS MENTIONED THE NATURE OF SERVICES, WHICH WERE TO BE PROVIDED BY THE COMMISSION AGENTS, YET THE ASSESSEE HAS FAILED TO P RODUCE ANY SPECIFIC DOCUMENT/EVIDENCE TO PROVE THAT ANY OF THOSE SERVIC ES WAS ACTUALLY RENDERED BY THE COMMISSION AGENTS. IN ADDITION, IT IS NOTICED THAT EVEN DURING THE SURVEY ACTION U/S 133A OF THE ACT AT THE FACTORY PREMISES OF THE ASSESSEE ON 05.09.2007, CONDUCTED BASICALLY TO VERIFY THE GENUINENESS OF THE CLAIM OF THE COMMISSION PAYMENT BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FAIL ED TO PRODUCE ANY SPECIFIC DOCUMENT/RECORD/CORRESPONDENCE TO PROVE AN D ESTABLISH THAT THE COMMISSION AGENTS, IN QUESTION, ACTUALLY RENDER ED ANY SERVICE FOR OBTAINING PURCHASE ORDERS FROM THE CONCERNED STATE ELECTRICITY BOARDS (SEBS). THERE IS NO DOCUMENT/EVIDENCE WITH THE ASSESSEE TO PROVE THAT THE SERVICES, SPECIFIED IN THE AGREEMENTS, WERE ACT UALLY RENDERED BY THE COMMISSION AGENTS. HENCE, IN SUCH CIRCUMSTANCES , MERELY ESTABLISHING THE IDENTITY OF THE COMMISSION AGENTS, HAVING AGREEMENTS WITH THEM OR MAKING PAYMENTS, BY CHEQUES, TO THEM O R FILING THEIR CONFIRMATIONS IS NOT ENOUGH. THE APPELLANT ASSESSEE COULD NOT PRODUCE BEFORE US ANY DOCUMENT/EVIDENCE TO PROVE ACTUAL RENDERING OF ANY SERVICE BY THE COMMISSION AGENTS, WHICH HELPED THE ASSESSEE TO PRO CURE THE PURCHASE ORDERS FROM THE ELECTRICITY BOARDS/ ELECTR ICITY COMPANIES. HENCE, THE CLAIMED COMMISSION PAYMENTS WERE CORRECT LY DISALLOWED BY THE LD. AO. REGARDING THE CONTENTION OF THE APPELLANT ASSESSEE THAT THE IDENTICAL ISSUE HAS BEEN DECIDED IN ITS FAVOUR IN E ARLIER YEARS BY THE HONBLE TRIBUNAL, THE CIT(A) ALLEGEDLY FOUND THAT A NUMBER OF COMMISSION AGENTS TO WHOM THE COMMISSION PAYMENTS H AVE BEEN CLAIMED IN THIS YEAR, ARE DIFFERENT AS COMPARED TO THE COMMISSION AGENTS, TO WHOM THE COMMISSION PAYMENT HAD BEEN CLA IMED IN THE EARLIER YEAR. IN ADDITION, THE CIT(A) ALLEGEDLY OBS ERVED THAT LD. AO ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 8 HAS BROUGHT ON RECORD SOME NEW FACTS RELATING TO TH E ISSUE INVOLVED IN THIS GROUND IN THIS YEAR, WHICH WERE NOT THERE IN T HE EARLIER YEARS. THEREFORE, AS EACH ASSESSMENT YEAR IS AN INDEPENDEN T YEAR FOR THE PURPOSE OF THE INCOME-TAX AND AS ALSO THE FACTS ARE DIFFERENT IN THIS YEAR AS COMPARED TO THE EARLIER YEARS, THEREFORE TH E DECISION OF THE HONBLE ITAT GIVEN IN THE EARLIER YEARS, IS NOT BIN DING IN THIS YEAR. PAGES 115 PARA 61 (ITAT ORDER). 61. WHILE DECIDING THE APPEALS IN ITA NOS. 536 AND 537/JP/2008 FOR ASSESSMENT YEARS 2003-04 AND 04-05 SIMILAR FINDINGS HAVE BEEN GIVEN BY THE TRIBUNAL. THEREFORE, IT CAN NOT BE SAID THAT THERE IS A CHANGE IN FACTS OR SOME NEW FACTS HAVE B EEN BROUGHT ON RECORD. NEITHER THERE IS A CHANGE IN FACTS NOR ANY NEW FACTS HAVE BEEN BROUGHT BY THE AO OR BY LD. CIT (A). OUT OF 6 PARTIES, 5 PARTIES ARE OLD. THEREFORE, IT WAS WRONG ON THE PART OF LD . CIT (A) IN OBSERVING THAT NUMBERS OF PARTIES ARE NEW AND NEW F ACTS HAVE BEEN BROUGHT ON RECORD BY THE AO AND, THEREFORE, HE IS N OT FOLLOWING THE ORDER OF THE TRIBUNAL. IN OUR VIEW, THE LD. CIT (A ) WAS NOT JUSTIFIED IN NOT FOLLOWING THE ORDER OF THE TRIBUNAL WHICH IS BI NDING IN NATURE, AS HELD BY HONBLE SUPREME COURT IN CASE OF J.K. CHARI TABLE TRUST, 308 ITR 161 (SC) AND IN CASE OF M/S. BERGER PAINTS, 266 ITR 99 (SC) AND IN VARIOUS OTHER CASES MENTIONED IN THE ORDER OF LD . CIT (A) AT PAGES 15 AND 16. RULE OF CONSISTENCY HAS TO BE FOLLOWED IF THERE IS NO CHANGE IN MATERIAL FACTS. 61.1. ONE OF THE ARGUMENTS OF THE DEPARTMENT IS THA T ASSESSEE DEALS WITH THE GOVERNMENT DEPARTMENTS AND GOVERNMEN T DEPARTMENT DOES NOT DEAL WITH THE THIRD PARTY AND, THEREFORE, THERE WAS NO REASON TO MAKE PAYMENT TO THE COMMISSION AGENTS. SIMILAR I SSUE CAME BEFORE THE VARIOUS BENCHES OF THE TRIBUNAL AT DELHI DECIDE D IN ITA NO. 2535/DEL/06 DATED 30.1.2008 IN CASE OF NESTOR PHARM ACEUTICALS (P) LTD. THIS CASE HAS BEEN CONSIDERED BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2006-07. THIS ORDER OF DELHI BENCH OF THE TRIBUNAL HAS BEEN AFFIRMED BY HONBLE DELHI HIGH CO URT VIDE ITS ORDER DATED 19.11.2009. THIS ORDER OF HONBLE HIGH COURT WAS ALSO CONSIDERED BY THE TRIBUNAL WHILE DECIDING THE APPEA L FOR ASSESSMENT YEAR 2006-07. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 9 61.2. ANOTHER DECISION OF DELHI BENCH I.E. IN CASE OF M/S. ELECTRIC CONSTRUCTION AND EQUIPMENT COMPANY LTD. WA S ALSO TAKEN INTO CONSIDERATION BY THE TRIBUNAL WHILE DECIDING T HE APPEAL FOR ASSESSMENT YEAR 2006-07. NOT ONLY ON SIMILAR BUT O N IDENTICAL FACTS, THE COMMISSION PAYMENT WAS DENIED BY THE AO. IN TH E CASES BEFORE DELHI BENCHES OF THE TRIBUNAL, THE TRIBUNAL HAS DEC IDED THE ISSUE IN FAVOUR OF THE ASSESSEE. OPERATIVE PARA OF THE ORDE R OF THE TRIBUNAL FOR ASSESSMENT YEAR 2006-07 HAS BEEN REPRODUCED SOMEWHE RE ABOVE IN THIS ORDER WHERE THESE CASES HAVE BEEN DISCUSSED. THEREFORE, WE ARE NOT IN HESITATION IN HOLDING THAT LD. CIT (A) WAS N OT JUSTIFIED IN NOT FOLLOWING THE ORDER OF THE TRIBUNAL FOR EARLIER YEA RS. EVEN THE AO IN HIS ORDER HAS MENTIONED THAT HE IS MAKING ADDITION FOR THE REASON THAT ORDER OF THE TRIBUNAL FOR THE EARLIER YEARS HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AS APPEALS ARE PENDING BEFORE THE HO NBLE RAJASTHAN HIGH COURT. 61.3. IT IS FURTHER SEEN THAT THE ASSESSEE HAS DEDU CTED TAX ON THE AMOUNT OF TAX AS PER PROVISIONS OF LAW. THE SE RVICE TAX AND CESS ON SERVICE TAX HAS BEEN RECOVERED FROM THESE PARTIE S AND NO DEDUCTION HAS BEEN CLAIMED BY THE ASSESSEE ON THIS AMOUNT. 61.4. IT IS ALSO SEEN THAT THERE ARE MANY GOVERNMEN T DEPARTMENTS WHICH ARE SPREAD OVER IN ALL OVER COUNT RY AND THESE PARTIES TO WHOM COMMISSION HAS BEEN PAID HAVE APPRO ACHED THE GOVERNMENT DEPARTMENT ON BEHALF OF THE ASSESSEE FOR NECESSARY WORK TO BE DONE FOR THE ASSESSEE I.E. OBTAIN INFORMATION IN RESPECT TO ORDERS, THEN OBTAIN TENDER FORMS, SUBMIT THE TENDER FORMS, FULFILL THE ORDERS AS PER ORDER OBTAINED ON BEHALF OF THE ASSESSEE. ALL THE EVIDENCES IN RESPECT OF THESE HAVE BEEN PLACED ON RECORD. IT IS ALSO NOT A CASE OF THE DEPARTMENT THAT ASSESSEE HAS SIMULTANEOUSLY INC URRED EXPENDITURE BY DEPUTING ITS OWN STAFF FOR OBTAINING INFORMATION IN RESPECT TO ORDERS OR TO SUBMIT TENDER FORMS AND OBTAIN ORDERS AND THEN SUPPLY THE MATERIAL. ALL THESE WORKS HAVE BEEN DONE BY TH ESE RESPECTIVE COMMISSION AGENTS TO WHOM THE COMMISSION HAS BEEN P AID. 61.5. IT IS ALSO A MATTER OF FACT THAT A SURVEY OPE RATION UNDER SECTION 133A WAS CONDUCTED AT THE PREMISES OF THE A SSESSEE ON 5.9.2007 AND ADMITTEDLY DURING THE COURSE OF SURVEY CLINCHING EVIDENCES IN THE FORM OF COMMISSION AGREEMENT, INVO ICES, CONTRACT DETAILS OF COMMISSION AGENTS AND PURCHASE ORDERS ET C. WERE FOUND TO ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 10 ESTABLISH BEYOND DOUBT THAT THE CLAIM OF DEDUCTION OF THE ASSESSEE WAS GENUINE BEING INCURRED IN THE COURSE OF BUSINESS OF THE ASSESSEE. BESIDES DOCUMENTARY EVIDENCE, ORAL EVIDENCE IN THE FORM OF STATEMENT RECORDED OF SHRI R.K. AGARWAL, DIRECTOR OF THE ASSE SSEE COMPANY, OF SHRI S.K.GUPTA, GENERAL MANAGER (FINANCE) AND OF SH RI ANANT LUHADIA, GENERAL MANAGER (MARKETING) AND THESE OFFI CIALS OF THE COMPANY HAVE CATEGORICALLY ADMITTED IN HAVING ENGAG ED THE COMMISSION AGENTS. THEREFORE, IT IS NOT A CASE THA T ASSESSEE HAS CLAIMED BOGUS EXPENDITURE ON ACCOUNT OF COMMISSION PAYMENT. 61.6. IT IS ALSO SEEN THAT COMMISSION AGENTS WHO AR E ENGAGED BY ASSESSEE WERE NOT DOING THE BUSINESS OF COMMISSI ON FOR ASSESSEE ALONE AS THEY ARE DOING THE COMMISSION AGENCY WORK FOR OTHER PARTIES ALSO. A CHART OF COMMISSION PAYMENT BY ASSESSEE AN D COMMISSION EARNED BY THESE PARTIES FROM OTHER PARTIES IS ALSO TABULATED SOMEWHERE ABOVE IN THIS ORDER AND IT IS SEEN THAT P ERCENTAGE OF COMMISSION EARNED BY THESE PARTIES IS MUCH LESS THA N AS COMPARED TO PERCENTAGE OF COMMISSION EARNED FROM OTHER PARTIES. THEREFORE, IT IS ALSO NOT A CASE THAT THESE PARTIES ARE NAME LENDER AND HAVE NO EXPERIENCE OF WORK ASSIGNED TO THEM. VARIOUS SERV ICES RENDERED BY THEM HAVE ALSO EXPLAINED IN THE WRITTEN SUBMISSIONS WHICH ARE REPRODUCED SOMEWHERE ABOVE IN THIS ORDER. 61.7. IT IS FURTHER SEEN THAT ONE OF THE REASONS WA S THAT ONE SHRI S.K. GUPTA, CHARTERED ACCOUNTANT ON WHOSE PREM ISES SURVEY WAS CONDUCTED AT DELHI AND IN ONE OF THE BILLS, THE NAM E OF ASSESSEE WAS APPEARING. SHRI S.K. GUPTA HAS STATED THAT HE WAS INDULGING IN ISSUING BOGUS BILLS. ASSESSEE HAS NOT PAID ANY COM MISSION THROUGH SHRI S.K. GUPTA NOR HE WAS RELATED TO THE VARIOUS C ONCERNS TO WHOM THE ASSESSEE HAS PAID COMMISSION. 61.8. EVEN THE ASSESSEE HAS OBTAINED LIST OF DIRECT ORS OF THOSE COMPANIES AND NOWHERE NAME OF SHRI S.K. GUPTA IS AP PEARING. DETAILS OF THESE COMPANIES SHOWING LIST OF DIRECTOR S ARE GIVEN IN THE WRITTEN SUBMISSIONS, WHICH ARE REPRODUCED IN THE OR DER OF LD. CIT (A) AT PAGE 18. THIS CHART HAS ALSO BEEN REPRODUCED IN THIS ORDER SOMEWHERE ABOVE. FROM THESE FACTS ALSO, IT CANNOT BE SAID THAT SHRI S.K. GUPTA WAS INVOLVED IN HELPING THE ASSESSEE TO OBTAIN THE BILLS FROM THE CONCERNED PARTIES. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 11 61.9. EVEN ASSESSEE HAS FILED THE DETAILS OF ALL TH E PARTIES I.E. AGREEMENT, BILLS, CONTRACT DETAILS, PURCHASE ORDER DETAILS AND THE ASSESSING OFFICER HAS NOT FOUND THESE DETAILS INCOR RECT OR WRONG. 61.10. IN CASE OF M/S. ADHUNIK CORPORATION LTD. TO WHOM THE COMMISSION OF RS. 20 CRORE OR ODD HAS BEEN PAID, TH E ASSESSEE HAS FILED COPIES OF PROFIT & LOSS ACCOUNT ALONG WITH BA LANCE SHEET OF THIS PARTY, COPY OF INCOME-TAX RETURN AND COPY OF AIR TI CKET RESERVATION. ALL THESE DETAILS ARE PLACED IN THE PAPER BOOK AT P AGES 420 TO 440. SIMILARLY, IN CASE OF M/S. R.S. ISPAT PVT. LTD. SIM ILAR DETAILS ARE PLACED IN THE PAPER BOOK PAGES 441 TO 468. IN OTHER CASES ALSO I.E. M/S. SHYAM SEL LTD., M/S. CRESENT BAKES PVT. LTD., M/S. C.P. REROLLERS LTD. AND NAIYADIH HI-TECH PVT. LTD. DETAILS ARE FILED AN D COPIES OF SIMILAR DETAILS ARE PLACED IN PAPER BOOK AT PAGES 467 TO 51 8. ALL THESE PARTIES ARE ASSESSEED TO TAX AND THEY HAVE PAID TAX ON THE AMOUNT OF COMMISSION PAID BY ASSESSEE, THEIR COPIES OF RETURN S ARE ALSO PLACED ON RECORD AND WE HAVE FOUND THAT ALL THE ASSESSEE A RE TAX PAYERS OF HIGHEST BRACKET AND THEY HAVE PAID ACCORDINGLY. TH EREFORE, THIS IS NOT A CASE OF TAX AVOIDANCE ALSO. IT IS FURTHER SEEN TH AT M/S. ADHUNIK CORPORATION LTD., THE ASSESSEE WAS REQUESTED THAT T HE CONCERNED AO MAY BE INFORMED TO CALL THEM BY ISSUING NOTICE UNDE R SECTION 131, IF HE DESIRES SO. HOWEVER, IT IS SEEN THAT THE AO HAS NOT CALLED THIS PARTY BY ISSUING NOTICE UNDER SECTION 131. NO ENQ UIRY WAS MADE FROM ALL THE PARTIES TO WHOM COMMISSION PAYMENT HAS BEEN MADE AS ARGUMENT WAS MADE FROM ONE PARTY ONLY WHO HAS CONFI RMED IN RENDERING SERVICES TO THE ASSESSEE. WITHOUT MAKING ANY ENQUIRY OR WITHOUT BRINGING ANY MATERIAL, ANY ADVERSE INFERENC E DRAWN AGAINST ASSESSEE, IN OUR CONSIDERED VIEW WAS NOT JUSTIFIED AT ALL AND, THEREFORE, LD. CIT (A) WAS NOT JUSTIFIED IN NOT AC CEPTING THE EXPLANATION OF THE ASSESSEE AND NOT FOLLOWING THE O RDER OF THE TRIBUNAL FOR EARLIER YEARS. 61.11. VARIOUS CASES HAVE BEEN RELIED UPON ON BEHAL F OF THE ASSESSEE THROUGH WRITTEN SUBMISSIONS AND SOME OF TH E DECISIONS WE FIND THAT THEY ARE IN SUPPORT OF THE CASE OF THE AS SESSEE WHEREIN IT IS CLEARLY HELD THAT IF THERE IS NO CHANGE IN MATERIAL FACTS, THEN THE PAST HISTORY OF THE CASE HAS TO BE TAKEN INTO CONSIDERAT ION. THIS IS AN ADMITTED FACT THAT IF THERE IS NO CHANGE IN MATERIA L FACTS, THEN PAST HISTORY CANNOT BE BRUSHED ASIDE WITHOUT BRINGING AN Y MATERIAL OR WITHOUT ASSIGNING ANY COGENT REASONS. THE DETAILED WRITTEN ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 12 SUBMISSIONS FILED WHICH HAS BEEN TABULATED IN THIS ORDER REMAINED UNCONTROVERTED. SIMILAR WRITTEN SUBMISSIONS WERE F ILED BEFORE LD. CIT (A) ALSO, WHICH HAS BEEN TABULATED IN HIS ORDER AT PAGES 13 TO 32. THE LD. CIT (A) HAS NOT COMMENTED IN RESPECT TO EX PLANATION THAT WHY THE SAME IS NOT ACCEPTABLE. WITHOUT CONSIDERING TH E EXPLANATION DRAWING ANY ADVERSE VIEW CANNOT BE SUSTAINED. THE REFORE, TAKING INTO CONSIDERATION THE WRITTEN SUBMISSIONS AND TAKI NG INTO CONSIDERATION OUR DISCUSSIONS ABOVE, WE ARE OF THE VIEW THAT ASSESSEE IS ENTITLED FOR DEDUCTION CLAIMED ON ACCOUNT OF COM MISSION PAID TO VARIOUS PARTIES. AS STATED ABOVE, SIMILAR ISSUE WA S DECIDED EARLIER BY THE TRIBUNAL, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL ALSO, WE HELD THAT COMMISSION PAYMENT FOR THE YEAR UNDER CON SIDERATION IS ALLOWABLE. ACCORDINGLY THIS GROUND OF THE ASSESSEE IS ALLOWED. LD. COUNSEL FOR THE ASSESSE CONTENDS THAT ITAT HAS GIVEN CLEAR OBSERVATIONS THAT THE FACTS AND CIRCUMSTANCES OF THE CASE ARE ID ENTICAL TO EARLIER YEARS. LD. CIT(A) ALSO HAS ALSO ACCEPTED THE SIMILARITY OF FAC TS AND CIRCUMSTANCES WITH EARLIER YEARS. WITH THESE CLEAR FINDINGS ON RECORD THE WELL SETTLED PRINCIPLE OF CONSISTENCY AS ENUNCIATED BY HONBLE SUPREME COURT IN THE CASE OF RADHA SOAMI SATSANG 193 ITR 321 AND LATER REAFFIRMED BY T HE SUPREME COURT IN THE CASE OF EXCEL INDUSTRIES PVT. LTD 358 ITR 295, IS SQUARELY APPLICABLE TO ASSESSEES CASE. THESE SALUTARY JUDGMENTS POSTULATE THAT FACTS AND CIRCUMSTANCES BEING SAME, REVENUE AUTHORITIES SHOUL D MAINTAIN CONSISTENCY IN TAX PROCEEDINGS ON ISSUES AND CLAIMS WHICH ARE A LREADY DECIDED UNLESS THERE ARE COMPELLING REASONS TO DEVIATE FROM PRINCI PLE OF CONSISTENCY. IN THIS CASE LD. CIT(A) HAS OBSERVED THAT ISSUES, FACTS AND CIRCUMSTANCES ARE SIMILAR TO AY 2007-08 AND THERE IS NO WHISPER OF ANY COMPEL LING REASONS TO DEVIATE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 13 RATHER THERE IS ASSERTION TO THE EFFECT THAT EARLIE R YEAR IS FOLLOWED. IT IS IRONICAL THAT LD. CIT(A) HIMSELF RECORDS THAT PRINC IPLE OF CONSISTENCY SHOULD BE FOLLOWED. HOWEVER SURPRISINGLY HE CONSIDERS THE ORDER OF HIS PREDECESSOR TO BE SUPERIOR AND BINDING THAN THE ITAT JUDGMENTS AND PREFERS TO CHOOSE LD. CIT(A) ORDER FOR AY 2007-08 ON THE PRETEXT OF C ONSISTENCY. THIS AMOUNTS TO A CLEAR ACT OF JUDICIAL INDISCIPLINE AND GROSS VIOLATION OF DOCTRINE OF STARE DECISIS WHICH IS A SALUTARY PRINCIPLE OF JUDICIAL DISCIPLI NE IN JUDGMENT MAKING PROCESS. THUS THE GROUND RAISED BY THE ASSESSE IN THIS BEHALF IS SQUARELY COVERED BY THE EARLIER JUDGMENTS OF THE ITAT ALLOWING THIS CLAIM. THE ORDER OF LD. CIT(A) ON THIS ISSUE B EING UNTENABLE AND UNSUSTAINABLE, THE ISSUE DESERVES TO BE HELD IN FAV OUR OF THE ASSESSEE. 3.2 ADVERTING TO MERITS ALSO, LD. COUNSEL CONTENDS THAT THE APPELLANT BEING A MANUFACTURER, THE PRIMARY/INDISPENSIBLE FUNCTION/ BUSINESS ACTIVITY OF THE APPELLANT IS TO MARKET ITS GOODS AND TO CREATE DEMA ND FOR ITS MANUFACTURED PRODUCTS IN THE MARKET BY IDENTIFYING PROSPECTIVE B UYERS AND MARKET. THIS REQUIRES AGGRESSIVE ADVERTISING, PERSUASION BY CONT ACT, BY WORD OF MOUTH ETC. IN MANY CASES THE WINNER OF THE TENDER IS EXPE LLED FROM THE EXECUTION OF THE ORDER LEADING TO THE FORFEITURE OF HIS PERFORMA NCE GUARANTEE DUE TO INCAPABILITY TO FULFILL THE SCHEDULED SUPPLY, QUALI TY PROBLEMS, SMALL INFRASTRUCTURE, AND LOW CREDIBILITY. IT IS THEREFOR E VERY IMPORTANT TO KEEP A ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 14 VERY GOOD FOLLOW UP FROM THE STAGE PRIOR TO FLOATAT ION OF TENDER TO THE STAGE OF DELIVERY AND ACTUAL USE OF GOODS BY THE BUYERS. THE APPELLANT BEING BASED IN RAJASTHAN AND HAVING PROSPECTIVE CLIENTS SPREAD AND SITUATED IN VARIOUS STATES, IT IS NOT COMMERCIALLY VIABLE TO HAVE PERMA NENT ESTABLISHMENTS AND PERSONNEL AT ALL THE PLACES AND INCUR FIXED OVERHEA DS FOR THE SAME. THUS BY BUSINESS EXPEDIENCY THESE IMPORTANT FUNCTIONS ARE O UTSOURCED FROM SOME EXTERNAL ORGANIZATIONS AND ENTITIES AS AGENTS ON CO MMISSION BASIS, WHO PROVIDE VARIOUS MARKETING SERVICES TO THE APPELLANT CLASSIFIED AS PRE-TENDER SERVICES, POST TENDER SERVICES, PRE-DISPATCH SERVIC ES, POST-DISPATCH SERVICES AND FOLLOW UP FOR THE REALIZATION OF PAYMENTS. THES E AGENTS ARE ALSO THE SOURCE OF BUSINESS INFORMATION FOR THE APPELLANT WH ICH HAS A VERY HIGH VALUE AND IMPORTANCE FROM THE POINT OF VIEW OF A BUSINESS MAN. THEY ASSIST THE APPELLANT IN ESTIMATING/QUOTING PRICE IN RESPECT OF TENDERS, NEGOTIATIONS. IN THE PRESENT ERA OF INTENSE COMPETITION AND AGGRESSI VE MARKETING THE PRESENCE OF SUCH AGENCIES IN RELATION TO A BUSINESS OF THE M AGNITUDE OF THE APPELLANT CANNOT BE UNDERMINED OR DOUBTED BY THE DEPARTMENT. THIS PRACTICE OF OUTSOURCING CERTAIN BUSINESS ACTIVITIES IS AN ESTAB LISHED WAY OF DOING BUSINESS IN THE PRESENT TIME AS IT ALLOWS COMPANIES TO MAXIMIZE THEIR BUDGETS AND RESOURCES, GET HUMAN SKILLS THEY NEED, FLEXIBILITY TO PURCHASE SERVICES ON AS-NEEDED BASIS INSTEAD OF MAINTAINING A FULL-TIME EMPLOYEE. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 15 THIS ARRANGEMENT FURTHER ALLOWS THEM TO AVOID PAYIN G EMPLOYEE-RELATED EXPENSES SUCH AS SALARIES, PAID VACATION AND SICK L EAVE, INSURANCE WHICH RESULTS IN A LOWER OVERHEAD. OUTSOURCING ALSO OFFER S A WIDE VARIETY OF OTHER BENEFITS, INCLUDING, FASTER SETUP OF THE FUNCTION O R SERVICE, ACQUIRE INNOVATIVE IDEAS, IMPROVE CREDIBILITY AND IMAGE BY ASSOCIATING WITH SUPERIOR ORGANIZATIONS, LESS DEPENDENCY UPON INTERNAL RESOUR CES, GREATER CONTROL OF BUDGET, INCREASE FLEXIBILITY TO MEET CHANGING BUSIN ESS CONDITIONS, PURCHASE OF INDUSTRY BEST PRACTICE, GAIN MARKET ACCESS AND B USINESS OPPORTUNITIES THROUGH OTHERS NETWORK, TURN FIXED COSTS INTO VARI ABLE COSTS. THE SAID BUSINESS PRACTICE OF THE APPELLANT HAS TURNED OUT T O BE COMMERCIALLY EXPEDIENT FOR THE APPELLANT IN THE PAST AND IN THE IMPUGNED YEAR ALSO THE APPELLANT WITH THE ASSISTANCE OF THESE AGENTS HAS B EEN ABLE TO ACHIEVE A WHOPPING TURNOVER OF RS. 487.18 CRORES. A COMPARATI VE CHART OF THE COMMISSION PAYMENTS MADE AND THE TURNOVER ACHIEVED IN THE PREVIOUS YEARS IS PRODUCED HEREIN-BELOW FOR THE SAKE OF READY REFE RENCE:- S. NO ASSESSMENT YEAR COMMISSION TURNOVER 1. 1999-2000 40,39,953 21,62,31,209 2. 2000-2001 2,17,27,480 25,23,81,665 3. 2001-2002 4,56,47,826 57,48,60,427 4. 2002-2003 7,35,74,784 1,39,25,64,873 5. 2003-2004 4,71,58,021 72,52,30,813 6. 2004-2005 55,96,327 92,00,78,936 7. 2005-2006 5,75,23,747 1,52,00,60,576 8. 2006-2007 9,13,38,015 2,29,72,00,097 9. 2007-2008 28,42,89,476 3,84,67,85,942 10. 2008-2009 4,14,72,012 4,87,18,65,000 ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 16 THE APPELLANT AS A MATTER OF POLICY AND COMMERCIAL PRUDENCE IS CONSISTENTLY FOLLOWING THE PRACTICE OF APPOINTING BUSINESS AGENT S WHO HAVE SUFFICIENT EXPERIENCE AND EXPOSURE OF PROCURING GOVERNMENT CON TRACTS. AS PER THE TERMS OF THE CONTRACT BETWEEN THE APPELLANT AND THE COMMISSION AGENTS, THE APPELLANT IS IN A VERY ADVANTAGEOUS POSITION IN AS MUCH AS THESE COMMISSION AGENTS USE THEIR OWN RESOURCES / INFRASTRUCTURE AND INCUR EXPENDITURE IN THE PURSUIT OF PROCURING CONTRACT FOR THE APPELLANT, WH EREBY IN RETURN THE APPELLANT IS OBLIGED TO PAY COMMISSION COMPUTED AT A FIXED PERCENTAGE OF THE TENDER/CONTRACT VALUE ONLY IN THE EVENT OF SUCC ESSFUL PROCUREMENT/AWARDING OF THE ORDER TO THE APPELLANT AND NOT OTHERWISE. IN OTHER WORDS, THE APPELLANT IS NOT REQUIRED TO PAY T HESE COMMISSION AGENTS FOR THEIR SERVICES IN CASE THE CONTRACT/ORDER IS NOT AW ARDED TO THE APPELLANT AND IN CASE THE ORDER IS AWARDED TO THE APPELLANT A SMA LL TRANCHE OF THE MARGIN IS PAID TO THESE COMMISSION AGENTS. THE ADDITIONAL AND OVER AND ABOVE BENEFIT TO THE APPELLANT OUT OF THE SAID ARRANGEMENT IS THA T THESE AGENTS IN THE ALLURE OF GETTING COMMISSION GETS SELF MOTIVATED AND MAKE THEM GIVE THEIR BEST IN ORDER TO PROCURE ORDERS FOR THE APPELLANT. THESE CO MMISSION AGENTS ARE IN THE BUSINESS OF RENDERING AFORESAID SERVICES AND BESIDE S THE APPELLANT THEY HAVE ALSO RENDERED SIMILAR SERVICES TO THE COMPETITORS O F THE APPELLANT AND OTHER BUSINESS ENTITIES AS PER THE FOLLOWING DETAILS: ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 17 COMMISSION RECEIVED BY C P RE-ROLLERS LTD. AY NO OF OTHER COMPANIES TO WHOM SERVED TOTAL COMMISSION RECEIVED 100% PAID BY APPELLANT 12% PAID BY OTHERS 88% 2006-07 3 27283616 10788607 1,64,95,009 2007-08 1 38386982 4019803 3,43,67,179 2008-09 1 35151065 96,22,969 2,55,28,096 2010-11 4 48201841 - 4,82,01,841 2011-12 5 53890488 - 5,38,90,488 TOTAL 202913992 24431379 178482613 COMMISSION RECEIVED BY R. S. ISPAT LTD. AY NO OF OTHER COMPANIES TO WHOM SERVED TOTAL COMMISSION RECEIVED 100% PAID BY APPELLANT 34% PAID BY OTHERS 66% 2006-07 1 40700698 10210201 3,04,90,497 2007-08 7 101222059 4842451 9,63,79,608 2008-09 6 119843146 26,29,224 11,72,13,922 2009-10 3 134748066 - 13,47,48,066 2010-11 4 165646186 - 16,56,46,186 2011-12 1 51570069 - 5,15,70,069 TOTAL 51570069 17681876 596048348 THESE COMMISSION AGENTS HAVE RENDERED SIMILAR SERVI CES TO THE APPELLANT IN THE PAST ASSESSMENT YEARS ALSO FOR WHICH COMMISSION PAYMENTS HAVE ALSO BEEN MADE TO THEM AND CLAIMED AS DEDUCTION U/S 37(1 ) OF THE ACT. THE COMMISSION PAYMENTS MADE BY THE APPELLANT DURING TH E IMPUGNED YEAR WERE LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 194H OF T HE ACT AND ACCORDINGLY THE TAX HAS BEEN DEDUCTED BY THE APPELLANT AND DEPOSITE D IN THE TREASURY ON BEHALF OF THESE PARTIES FOR WHICH CORRESPONDING CRE DIT HAS BEEN CLAIMED BY THE SAID COMMISSION AGENTS IN THEIR RESPECTIVE RETU RN OF INCOME. A SUMMARISED CHART FOR THE SAME IS PRODUCED HEREIN BE LOW FOR THE SAKE OF READY REFERENCE. THE ACCEPTANCE OF THE COMMISSION P AYMENTS BY THE SAID ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 18 COMMISSION AGENTS THROUGH ACCOUNT PAYEE CHEQUES IS NOT IN DISPUTE BY THE DEPARTMENT AND RENDERING OF ABOVE MENTIONED SERVICE S HAS EVEN OTHERWISE BEEN CONFIRMED AND ACKNOWLEDGED BY THE SAID COMMISS ION AGENTS. NAME OF THE PARTY TOTAL AMOUNT PAYABLE INC SERVICE TAX AMOUNT PAID BY CHEQUE TDS DEDUCTED REMARK AS ON TDS U/S 197 C.P. RE-ROLLERS LTD. 9622968 9234142 388826 PARTLY TAXABLE @ 4.54% OUT OF 11.33% U/S 197 R. S ISPAT PVT. LTD. 2629224 2590048 39175 PARTLY T AXABLE @ 1.47% U/S 197 LALL IRON & STEEL CO. LTD. 11105122 10271319 833803 PARTLY EXEMPT UP TO 50 LACS @ 5.61% U/S 197 NEO METALLIKS LTD. 18114700 16288075 1826625 FULLY TAXABLE TOTAL 41472014 38422760 3049254 THE GENUINENESS OF THE COMMISSION PAYMENTS HAS BEEN FURTHER A SUBJECT MATTER OF VERIFICATION BY THE SERVICE TAX DEPARTMEN T AS WELL WHEREIN ALSO THE COMMISSION PAYMENTS HAVE BEEN HELD TO BE GENUINE AN D PROPER. LD. ASSESSING OFFICER, HAS ALLEGED THAT ONE SH. S.K. GU PTA, WAS ENGAGED IN RUNNING SEVERAL BOGUS CONCERNS FOR ISSUING ACCOMMOD ATION ENTRIES AND THAT A COPY OF INVOICE SEIZED DURING THE COURSE OF THE S EARCH SHOWED THAT, ONE INVOICE OF RS. 1.95 CRORE WAS IN THE NAME OF THE A SSESSEE. ALL THESE FACTUAL ASPECTS HAVE BEEN DECIDED IN THE ORDER MENTIONED AB OVE. NO COMMISSION HAS BEEN PAID TO EITHER SH. SK. GUPTA OR ANY OF HIS ALLEGED GROUP COMPANY. THERE IS NO MATERIAL ON RECORD TO DRAW SUCH ARBITRA RY ADVERSE INFERENCE. THE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 19 PAYEE COMPANIES TO WHOM, COMMISSION HAS BEEN PAID B Y THE APPELLANT IN THE INSTANT ASSESSMENT YEAR HAVE NO CONNECTION WITH SAID S.K. GUPTA. 3.3 LD. COUNSEL WITHOUT PREJUDICE AND AS AN ALTERNA TE GROUND CONTENDS THAT AUTHORITIES BELOW HAVE GROSSLY ERRED IN MAKING DISALLOWANCE OF RS. 4,14,72,012/- WHICH IS IN EXCESS OF THE EXPENDITURE ACTUALLY CLAIMED BY THE APPELLANT AS DEDUCTION IN THE PROFIT AND LOSS ACCOU NT ON ACCOUNT OF PAYMENT MADE TO THE SAID FOUR PARTIES. THE APPELLANT ASSESS EE COMPANY INCURRED AN AGGREGATE EXPENDITURE OF RS. 4,14,72,012/- WHICH IN CLUDED THE EXPENDITURE BY WAY OF COMMISSION AND INCENTIVE OF RS. 3,69,09,9 43/- CLAIMED IN THE P&L A/C AND BALANCE RS. 45,62,069/- PERTAINED TO TH E SERVICE TAX PAYABLE NOT CLAIMED AS EXPENDITURE, THEREFORE THE SAME COUL D NOT BE DISALLOWED EVEN OTHERWISE HOWEVER THE LD. AO HAS DISALLOWED THE SAM E AND STOOD CONFIRMED BY THE LD. CIT(A) IN THE APPELLATE PROCEE DINGS. 3.4 IT IS SUBMITTED THAT, THE SERVICE TAX PAID AND CESS ON SERVICE TAX PAID BY THE APPELLANT COMPANY TO THE COMMISSION AGENTS W AS SET OFF BY THE APPELLANT AGAINST THE SERVICE TAX RECOVERED FROM TH E CUSTOMERS, AND THEREFORE THE SAME WAS NOT CLAIMED AS EXPENDITURE BY THE APPE LLANT COMPANY. THE DISALLOWANCE MADE CANNOT BE IN ANY CASE EXCESSIVE O F THE DEDUCTION CLAIMED, HENCE THE ADDITION AT MOST CAN BE OF RS. 3 ,69,09,943/- BEING THE EXPENDITURE ACTUALLY CLAIMED AS DEDUCTION U/S 37(1) OF THE ACT. RELIANCE ON ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 20 THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S ELECTRIC CONSTRUCTION AND EQUIPMENT COMPANY LTD. VS. ITO IN SUPPORT OF ITS LEGAL CONTENTIONS AND ESTABLISHED BUSINESS PRACTICES IN T HIS LINE; FACTS AND CIRCUMSTANCES OF CASE OF AN ASSESSEE ARE IDENTICAL, IT HAS BEEN HELD THAT : FURTHER, THERE IS ALSO NOT LIKELY TO BE ANYTHING FR OM THE RECORDS OF THE PUNJAB STATE ELECTRICITY BOARD TO SHOW THAT THE COMMISSION WAS P AID TO IMPEX COMMERCIAL CORPORATION LIMITED AND ITS SERVICES WERE UTILISED IN SECURING THE ORDERS FOR THE ASSESSEE. THESE FINDINGS FOR OBVIOUS REASONS AS ALS O EVEN IN THE NORMAL COURSE ARE NOT LIKELY TO BE AVAILABLE FROM THE RECORD OF THE PURCH ASER. NORMALLY THE AGENTS OR THE MIDDLEMAN CARRY OUT THEIR ACTIVITIES PERSONALLY WIT HOUT ENTERING INTO ANY CORRESPONDENCE WITH THE PURCHASERS. IN ANY CASE, IN THE PRESENT CA SE, IF THERE IS NOTHING ON RECORD OF PUNJAB STATE ELECTRICITY BOARD, AN ADVERSE INFERENC E CANNOT BE DRAWN AGAINST THE ASSESSEE WITH REFERENCE TO EITHER THE PAYMENT OR TH E EXISTENCE OF COMMISSION AGENT. THIS VIEW WAS REITERATED IN THE CASE OF NESTOR PHAR MACEUTICALS (P) LTD. V. CIT, ITA NO.2535/DEL/2006 ORDER DATED 30.01.2008, A ND THE THIS ITAT ORDER WAS UPHELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. NESTOR PHARMACEUTICALS (P) LTD., (2010) 33 DTR (DEL ) 293, VIDE ORDER DATED 19.11.2009 BY HOLDING AS UNDER:- THE INCOME TAX APPELLATE TRIBUNAL (ITAT) HAS CONFI RMED THE AFORESAID FINDING OF FACTS IN APPEAL PREFERRED BY THE REVENUE AGAINST THE DECISION OF THE CIT(A) ALLOWING THE EXPENDITURE CLAIMED BY THE ASSE SSEE. THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL WOULD ALSO INDICATE T HAT THE ASSESSING OFFICER HAD MAINLY NURTURED DOUBT ABOUT THE PAYMENT OF COMMISSI ON FOR THE SERVICES RENDERED BY BOTH THE PARTIES FOR GOVT. INSTITUTIONS WHICH WA S QUESTIONABLE. THIS DOUBT OF THE AO HAS BEEN BRUSHED ASIDE BY THE TRIBUNAL IN TH E FOLLOWING MANNERE: HERE WE FIND THAT THE AO HAS IN REGARD TO THE COMM ISSION PAYMENT TO THE AGENTS WHO HAD ASSISTED THE ASSESSEE TO DEAL WITH T HE GOVT. AGENCIES HAVE BEEN SPECIFICALLY EARMARKED AND DISALLOWED ON THE GROUND THAT THERE WAS NO NECESSITY OF AN AGENT WHILE DEALING WITH THE GOVERNMENT. THOU GH, IT IS VERY MUCH TRUE THAT THE GOVT DOESNT DEAL WITH THE MIDDLEMAN, IT DOESN T MEAN THAT THERE IS NO ROLE FOR AN AGENT TO PLAY WHEN AN ASSESSEE IS DEALING WITH T HE GOVT. THE TRANSACTION AND ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 21 THE DEALINGS WITH THE GOVERNMENT OBVIOUSLY CANNOT B E DONE THROUGH AN AGENT BUT THE AGENT CAN ASSIST AN ASSESSEE IN OBTAINING SUPPL Y AND FACILITATING INFORMATION WHICH ARE REQUIRED FOR THE ASSESSEE. THE EXPLANATIO N OF THE ASSESSEE THAT THE AGENTS ASSISTED THE ASSESSEE IN THE PRE-TENDER AND POST TENDER ACTIVITIES IS CLEARLY BORNE OUT OF THE EVIDENCES WHICH ARE PART OF THE SE IZED MATERIAL. THIS BEING SO, IT CANNOT BE SAID THAT NO SERVICES HAVE BEEN RENDERED BY THE AGENTS TO THE ASSESSEE. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LD.CIT(A) WAS RIGHT IN DELETING THE DISALLOWANCE OF THE COMMISSION AS MADE BY THE AO. HIS IMPUGNED ORDERS ON THIS ISSUE FOR ALL THE SEVEN YEARS UNDER CONSIDERATION ARE, THEREFORE, UPHELD AND THESE APPEALS OF THE REVENUE ARE DISMISS ED. IT IS SETTLED LAW THAT THE REASONABLENESS OF ANY BU SINESS EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AN D NOT FROM THE POINT OF VIEW OF THE REVENUE. APROPOS TO THE OBSERVATIONS OF THE LD. CIT(A) TO THE EFFECT THAT NO DOCUMENTARY PROOF/ EVIDENCE HAS BEEN FURNISHED TO PROVE THAT SERVICES WERE ACTUALLY RENDERED IS PERVERSE, ARBITR ARY AND CONTRARY TO THE MATERIAL ON RECORD. THE CLAIM OF THE APPELLANT IS D ULY SUPPORTED BY DOCUMENTARY, ORAL AS WELL AS CIRCUMSTANTIAL EVIDENC E. THE EVIDENCES IN RESPECT OF SERVICES RENDERED BY THE COMMISSION AGEN TS ARE IN THE CUSTODY OF THE DEPARTMENT EVEN PRIOR TO THE INITIATION OF ASSE SSMENT PROCEEDINGS AS A RESULT OF SURVEY CONDUCTED ON 05.09.2007. ASSESSEE ESTABLISHED NOT ONLY THE IDENTITY OF THE PARTIES WHO ARE INCOME TAX ASSESSEE S AS ALSO FURNISHED THE EVIDENCE OF SERVICES RENDERED, IN THE SHAPE OF BUSI NESS AGREEMENTS AND, CONFIRMATIONS. IT IS NOT IN DISPUTE THAT, THE ENTIR E PAYMENT OF COMMISSION HAS BEEN MADE BY ACCOUNT PAYEE CHEQUES. IN VIEW THEREOF , APPELLANT HAS FURNISHED ALL THE NECESSARY EVIDENCE TO DISCHARGE T HE BURDEN, WHICH LAY UPON ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 22 IT TO DEMONSTRATE THE GENUINE OF EXPENDITURE AND IT S BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES IN TERMS OF SEC. 37(1). IN LIGHT OF THE AFORESAID FACTS AND, FOLLOWING THE SUCCESSIVE J UDGMENTS OF THE ITAT IN ASSESEES OWN CASE IN PRECEDING ASSESSMENT YEARS, T HE DISALLOWANCE OF COMMISSION DESERVE TO BE DELETED. 3.5 LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELO W. 3.6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW THE FAC TS AND CIRCUMSTANCES OF THE ISSUE IN QUESTION ARE ADMITTEDLY SAME AS IN AY 2007-08 AND HAS BEEN DECIDED BY ITAT IN ASSESSEE'S OWN CASE BY ELABORATE FINDINGS MENTIONED ABOVE. BESIDES LD. COUNSEL HAS ELABORATELY ADVERTED TO THE FACTS TO THE EFFECT THAT THE PAYMENT OF COMMISSION BEING BY CHEQUES AND ITS GENUINENESS IS NOT IN DOUBT. RELEVANT TDS HAS BEEN DEDUCTED AND BUSINE SS EXPEDIENCY THEREOF HAS BEEN DEMONSTRATED. THE ISSUE OF SAID SHRI S K G UPTA STANDS ALREADY DECIDED AS HAVING NO ADVERSE EFFECT ON ASSESSEES C ASE, BESIDES THERE IS NO PAYMENT TO ANY OF CONCERN ALLEGED TO BE OPERATED BY HIM IN THIS YEAR. LD. COUNSEL HAS RELIED ON OTHER JUDICIAL PRECEDENTS ON THIS ASSESSEE FAVOURING THE CASE OF THE ASSESSEE IN VIEW THEREOF FOLLOWING THE ITAT ORDER FOR AY 2007-08, WE HOLD THE ASSESSEE IS ENTITLED TO THE CL AIM OF COMMISSION. THIS GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 23 4.1 GROUND NO. 2 OF ASSESSEES APPEAL RELATES TO THE CO NFIRMATION OF DISALLOWANCE OF RS. 35,00,000/- OUT OF CONSULTATION CHARGES PAID TO M/S VIDARBHA ELECTRICAL NAGPUR (VE FOR SHORT) WITHOUT C ONSIDERING THE GENUINENESS OF THE CLAIM AND THE EVIDENCES FILED BE FORE THE AUTHORITIES BELOW. THE ISSUE INVOLVED IS SAME AS GROUND NO.1 I. E. GENUINENESS OF COMMISSION, BUSINESS EXPEDIENCY AND ITS INCURRING W HOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ASSESSEE'S BUSINESS. 4.2 LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE APPELLANT COMPANY WAS NOT REGISTERED AS A CLASS ELECTRICAL CONTRACTOR W HICH WAS A MANDATORY REQUIREMENT FOR PROCURING RELEVANT ELECTRICAL CONTR ACTS. DUE TO THIS DISABILITY, ASSESSEE HAD NO OPTION BUT TO EMPLOY THE SERVICE OF VE WHICH IS AN CLASS CONTRACTOR. IT RENDERED SERVICES OF MEETING THE OB LIGATORY REQUIREMENTS/ CONDITIONS OF THE TENDER; PROVIDES SERVICES/ASSISTA NCE TO THE MAIN TURNKEY CONTRACTOR BY WAY OF CONVINCING THE CONTRACTEE ABOU T THE TECHNICAL ASPECTS, LIASONING WITH THE BOARD OFFICIALS REGARDING THE EF FICIENCY, QUALITY AND QUANTITY OF THE WORK COMPLETED FOR THE FORTHCOMING TENDERS. THE NECESSITY OF THIS ARRANGEMENT WITH VE CAB BE APPRECIATED BY T HE FACT THAT ASSESSEES SIMILAR ARRANGEMENT WITH M/S HYTHRO POWER HAD ALREA DY ENDED IN THE LAST F.Y., THEREFORE, IT APPOINTED M/S VE WHO RENDERED S IMILAR SERVICES. IN CONSIDERATION THEREOF, ASSESSEE COMPANY MADE PAYMEN T OF RS.35.00 LACS ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 24 WHICH WAS DEBITED UNDER THE HEAD LEGAL, PROFESSIONA L & CONSULTANCY CHARGES. REJECTING ASSESSEES SATISFACTORY EXPLANAT ION BASED ON EVIDENCE LD. AO DISALLOWED THE SAME ON FOLLOWING REASONS: THERE WAS NO JOINT VENTURE IN RESPECT OF THE CONTRA CTS PROCURED FROM WEST BENGAL STATE ELECTRICITY BOARD. THE ASSESSEE WAS NOT ABLE TO PRODUCE ANY DOCUMENTAR Y EVIDENCE OF THE WORK UNDERTAKEN BY M/S VIDHARBHA ELECTRICAL EIT HER FOR LIASIONING OR PARTNERING IN JOINT VENTURE. IN RESPECT OF NHPCL LTD., THE ASSESSEE HAS SUBMITTE D SOME NOTIFICATIONS OF AWARD OF CONTRACT BUT AGAIN IT HAS FAILED TO SPECIFY OR GIVE EVIDENCE OF ANY WORK/SERVICES RENDERED BY THIS CONCERN ESTABLISHING THIS CONCERNS INVOLVEMENT IN EITHER G ETTING SUCH CONTRACTS AWARDED OR PARTICIPATING IN THE VENTURE. NO DETAILS HAVE THUS BEEN FURNISHED BY THE ASSESSEE WITH REGARD TO SERVICES ACTUALLY RENDERED BY THIS CONCERN TO IT. THE BASIS FOR ARRIVING AT THE VALUE OF RS. 35,00,00 0/- AS FEES FOR THE SERVICES RENDERED HAS ALSO NOT BEEN SPECIFIED. SINCE THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIAT E THE BUSINESS EXPEDIENCY OF THIS EXPENSE, THEREFORE, THE SAME IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS EXPLAINED THAT THE SERVICES OF THE VE HAVE BEEN DULY AVAILED IN RELATI ON TO THE EXECUTION OF THE TURNKEY PROJECTS INVOLVING TWO TYPES OF WORKS, WHIC H IS, SUPPLY OF MATERIAL AND ERECTION, COMMISSIONING OF THE STRUCTURE USING THE MATERIAL SUPPLIED. FOR ERECTION ACTIVITIES, THERE IS A SPECIFIC TENDER REQ UIREMENT THAT THE BIDDER MUST ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 25 BE A CLASS ELECTRICAL CONTRACTOR ITSELF OR THE CO NTRACT MUST BE APPLIED ALONG WITH A TECHNICAL PARTNER OR THROUGH A JOINT VENTURE UNDERTAKING FORMED WITH A TECHNICAL PARTNER SO THAT THE TECHNICAL PARTNER MAY TAKE CARE OF THE WHOLE PROJECT ON THE TECHNICAL ASPECT MINIMIZING ANY CHAN CES OF ACCIDENTS ON THE PROJECT SITE AND ALSO TAKING CARE OF ANY KIND OF LA BOUR DISPUTE INVOLVING LEGAL COMPLIANCES DURING THE COURSE OF THE PROJECT. FACT OF ASSESSEE'S SIMILAR EARLIER ARRANGEMENT WITH OTHER CONSULTANT M/S HYTHR O POWER CORPORATION LIMITED HAS NOT BEEN DISPUTED. DUE TO TERMINATION O F THAT CONTRACT IT BECAME IMPERATIVE TO EMPLOY VE AS TECHNICAL AGENT IN THE A .Y. 2008-09. THE AGREEMENTS WITH M/S HYTHRO POWER AND NOW WITH VE AR E ON THE SIMILAR LINES. THE EARLIER AGREEMENT M/S HYTHRO POWER AND E XPENDITURE INCURRED THEREON HAS BEEN ALLOWED AND ACCEPTED BY THE LD. AO AS ALLOWABLE BUSINESS EXPENDITURE AND NO DISALLOWANCE WAS IN THE ASSESSME NT YEARS 2006-07 AND 2007-08. IN THESE CIRCUMSTANCES THERE IS NO JUSTIFI ABLE REASON TO DISALLOW THE EXPENDITURE OF SIMILAR BUSINESS SERVICE MERELY BECA USE THE TECHNICAL PARTNER IS CHANGED . ASSESSEE FURNISHED THE BUSINESS PROFILE OF M/S VE DEMONSTRATING THEM TO BE A REPUTED, HIGHLY EXPERIEN CED AND LEADING ELECTRICAL CONTRACTING FIRM HAVING EXPERIENCE OF MO RE THAN 18 YEARS ALONG WITH THE COPIES OF VARIOUS EXPERIENCE CERTIFICATES RECEIVED BY IT FROM VARIOUS STATES ELECTRICITY BOARDS. THIS EVIDENCE IS NOT DIS PUTED BY THE LD. AO, THE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 26 COPIES THEREOF ARE PLACED AT PAGE NO.S 382-399 OF P APER BOOK, VOLUME II. BESIDES ASSESSEE FILED RELEVANT EVIDENCE THAT IN TH IS YEAR VE REPRESENTED THE APPELLANT AS JOINT VENTURE/UNIT OF THE COMPANY FOR TENDERS OF MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY; WEST BENGAL STATE ELECTRICITY DISTRIBUTION COMPANY AND AS TECHNICAL PARTNER/LIASI ONING AGENT IN NHPC PROJECTS. RELEVANT INVOICES RAISED BY VE WERE PRODU CED BEFORE AO FOR DIFFERENT SERVICES RENDERED IN RELATION TO TENDERS APPLIED WITH VARIOUS STATE ELECTRICITY BOARDS. THE RESPECTIVE PAYMENTS WERE MA DE THROUGH DIFFERENT CHEQUES IN RELATION TO EACH INVOICE AT DIFFERENT TI MES DURING THE YEAR. BESIDES, ALL THE PAYMENTS ARE DULY REFLECTED IN THE RESPECTIVE A/C BOOKS OF ACCOUNTS OF BOTH I.E. THE APPELLANT AND M/S VE IN T HEIR BOOKS OF ACCOUNTS. THE COPIOUS EVIDENCE ON RECORD PROVES THAT VE RENDE RED LIASONING BUSINESS SERVICES TO THE APPELLANT FOR WHICH A TOTAL PAYMENT OF RS. 35.00 LACS WAS MADE WHICH IS ALLOWABLE REVENUE EXPENDITURE INCURRE D DURING THE COURSE OF BUSINESS. LD. AO WHILE DISALLOWING THE PAYMENT MADE TO VE HAS DRAWN ADVERSE INFERENCE FROM FACT THAT:- 1. SHRI ANANT LUHADIA IN THE STATEMENT RECORDED AT THE TIME OF SURVEY ON 05.09.2007, STATED THAT THERE IS NO JOINT VENTURE IN RELATION TO THE PROJECT OF THE APPELLANT IN WEST BENGAL. HIS STATEMENT IS WELL IN ORDER AS IT WAS SPECIFICALLY STATED THAT THERE IS N O JOINT VENTURE PARTNER IN RELATION TO THE WEST BENGAL PROJECT; THE STATEME NT IS CORRECT IN AS ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 27 MUCH AS THE SERVICES OF VE WERE TAKEN FOR THE PURPO SES OF APPLYING FOR TENDERS JOINTLY. WHEREVER THE JOINT TENDERS WER E APPLIED, THE APPELLANT COULD NOT GET ANY TENDERS/ORDERS. THE WES T BENGAL PROJECT APPLIED AND RECEIVED BY THE APPELLANT COMPANY WAS O N ITS OWN AND NOT IN JOINT PARTNERSHIP WITH M/S VIDARBHA ELECTRICAL S ERVICES. THEREFORE, THE STATEMENT OF SH. LUHADIA DOES NOT IN ANY WAY ST ATE ANY ADVERSE FACT AS MISCONSTRUED BY LD. AO. FURTHER, IT MAY ALS O BE NOTED THAT THE DATE OF RECORDING OF STATEMENTS OF SH. LUHADIA WAS 05.09.07, WHEREAS THE CERTIFICATE BY MAHARASHTRA STATE ELECTRICITY DE PARTMENT TO M/S VIDARBHA ELECTRICAL SERVICES CERTIFYING THEM AS A U NIT OF THE APPELLANT COMPANY WAS GRANTED ON 06.09.2007, I.E. ON THE NEXT DAY OF RECORDING OF STATEMENTS OF SH. LUHADIA. AFTER THAT DATE ONLY, THE APPELLANT COMPANY AND VE STARTED APPLYING FOR TENDERS TOGETHE R. CONSEQUENTLY THE ADVERSE INFERENCE DRAWN BY LD. AO IS BASELESS A ND UNTENABLE. 2. THE BASIS OF ARRIVING AT THE VALUE OF RS. 35 LAC S AS FEE FOR THE SERVICES RENDERED IS NOT SPECIFIED. IN CASES WHERE SERVICES OF TECHNICAL EXPERTS, AGENTS ARE EMPLOYED, THE REMUNERATION IS D ECIDED EITHER ON A LUMP SUM BASIS FOR THE WHOLE YEAR OR FOR THE SPECIF IC CONTRACT OR AS FIXED PERCENTAGE OF THE VALUE OF CONTRACTS RECEIVED THROUGH SUCH AGENTS. ASSESSEE EXPLAINED AS TO HOW AND FOR WHAT P URPOSE A TECHNICAL PARTNER OR AN AGENT WAS APPOINTED WITH EVALUATION O F EXPERIENCE IN THE RELEVANT FIELD WHICH HAS A BEARING UPON THE FEE/COM MISSION PAYABLE TO SUCH COMPANIES/PERSONS. BESIDES IT IS SETTLED LAW T HAT THE REASONABLENESS OF EXPENDITURE IS LEFT THE BUSINESS ACCUMEN OF THE ASSESSE AND REVENUE AUTHORITIES CANNOT STEP INTO TH E SHOES OF BUSINESSMAN TO DECIDE THE REASONABLE NESS. IT HAS N OT BEEN DOUBTED ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 28 THAT VE IS NOT A RELATED PARTY AND IS NOT COVERED U /S 40A(2) (B). THE PAYMENT OF RS. 35 LACS MADE TO M/S VIDARBHA ELECTRI CALS BEING GENUINE AND INCURRED FOR BUSINESS EXPEDIENCY THE DI SALLOWANCE MADE BY LD. AO AND CONFIRMED BY CIT(A) DESERVES TO BE DE LETED. 4.3 LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELO W. 4.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW THE IDE NTITY OF VE, RENDERING OF CONSULTANCY SERVICES FOR ASSESSEES BUSINESS HAS BE EN DEMONSTRATED. PAYMENT ARE MADE BY CHEQUE AND DULY ACCOUNTED FOR B Y BOTH THE PARTIES. DUE TO TERMINATION OF SIMILAR ARRANGEMENT WITH HYTH RO POWER ASSESSE HAD TO OUTSOURCE SIMILAR SERVICES FOR WHICH VE WAS ENGAGED WITH SIMILAR TYPE OF AGREEMENT AND RENDERING NEARLY SIMILAR SERVICES. IN VIEW THEREOF THERE IS NO JUSTIFICATION IN DRAWING ADVERSE INFERENCES AS SUST AINED BY AUTHORITIES BELOW. APROPOS REASONABLENESS OF CHARGES PAID TO VE, IT IS NOT DISPUTED THAT THEY ARE NOT RELATED PARTIES, CONSEQUENTLY PROVISIONS OF SEC. 40A(2) (B) ARE NOT APPLICABLE. IT IS A SETTLED LAW THAT IN CASE OF UNR ELATED PARTIES THE REASONABLENESS OF EXPENDITURE CANNOT BE QUESTIONED BY REVENUE AUTHORITIES. THIS BEING OF ALLOWABILITY OF COMMISSION EXPENSES, THE LEGAL PROPOSITIONS AND OUR FINDINGS WHILE DECIDING GROUND NO. 1 ARE SQ UARELY APPLICABLE. IN VIEW OF THE ENTIRETY OF FACTS, CIRCUMSTANCES AND LE GAL PROPOSITIONS THE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 29 PAYMENT TO VE IS ALLOWED AS BUSINESS EXPENDITURE, T HIS GROUND NO. 2 OF THE ASSESSEE SUCCEEDS. 5.1 APROPOS 3 RD GROUND OF ASSESSE, FACTS ARE LD. CIT (APPEALS) CON FIRMED THE REDUCTION OF THE DEDUCTION CLAIMED U/S 80-IC FR OM RS. 27,65,18,465/- TO RS.25,72,60,579/- BY MAKING FOLLOWING ADJUSTMENTS T O THE PROFITS OF THE ELIGIBLE UNDERTAKING AT HARIDWAR, UTTRANCHAL: S.NO. PARTICULARS AMOUNT 1. PURCHASES FROM JAIPUR UNIT 1,07,46,813/- 2. SALE PRICE TO JAIPUR UNIT 11,88,073/- 3. ALLEGED COMMON EXPENSES 75,23,000/- TOTAL 1,92,57,886/- THE APPELLANT SET UP A NEW PLANT AT HARIDWAR, UTTAR ANCHAL WHICH COMMENCED PRODUCTION ON 01.04.2006, I.E. IN THE FIN ANCIAL YEAR 2006-07 RELEVANT TO THE ASSESSMENT YEAR 2007-08, THE TOTAL PROFITS THERE FROM ARE ELIGIBLE FOR DEDUCTION U/S 80-IC. OF THE ACT. THE T URNOVER OF THE HARIDWAR PLANT FOR THE AY 2008-09 WAS RS. 115,57,70,395/- ON WHICH PROFIT OF RS.27,65,18,456/- WAS DECLARED WHICH WAS CLAIMED AS DEDUCTION U/S 80-IC OF THE ACT. IN THE ASSESSMENT PROCEEDINGS, THE LD. AO CALLED FOR VARIOUS DETAILS ABOUT TRANSFER OF STOCK/MACHINERY/FINISHED PRODUCTS FROM OR TO THE OTHER FACTORIES / PLANTS / UNITS OF THE APPELLANT A S ALSO DETAILS OF COMMON EXPENSES OF THE ALLOCATED FOR THE HARIDWAR PLANT AN D BASIS THEREOF. THESE DETAILS WERE DULY MAINTAINED AND WERE PROVIDED TO T HE LD. AO. IT IS HELD ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 30 THAT THE TRANSFER OF GOODS/RAW MATERIAL FROM JAIPUR TO HARIDWAR UNIT, AND VICE VERSA WAS NOT DONE AT MARKET VALUE AS REQUIRED BY THE PROVISIONS OF SECTION 80-IC(7) READ WITH SECTION 80-IA(8) OF THE ACT. BASED ON THIS SWEEPING OBSERVATION LD. AO ON AN AD-HOC BASIS MADE THE FOLLOWING REDUCTIONS FROM THE PROFITS OF THE HARIDWAR UNIT TO REDUCE DEDUCTION U/S 80- IC OF THE ACT S.NO. PARTICULARS OF REDUCTION AMOUNT 1. PURCHASES FROM JAIPUR UNIT 1,07,46,813/- 2. SALE PRICE TO JAIPUR UNIT 11,88,073/- BESIDES LD. AO MADE THE FOLLOWING DEDUCTIONS FROM T HE PROFITS OF THE HARIDWAR UNIT ON AD-HOC BASIS ALLEGING THAT THE COM MON EXPENSES OF BOTH THE HARIDWAR UNIT AND JAIPUR UNIT HAVE NOT BEEN PRO PERLY APPORTIONED AND THAT THE INTEREST INCOME OF THE HARIDWAR UNIT CANNO T BE ALLOWED AS EXEMPT U/S 80-IC OF THE ACT 1. ALLEGED COMMON EXPENSES 73,23,000/- CONSEQUENT TO ABOVE AD HOC ADJUSTMENTS TO THE ELIG IBLE PROFITS OF THE HARIDWAR UNIT AMOUNTING IN TOTAL TO RS. 1,92,57,886 /-, THE PROFIT OF THE HARIDWAR UNIT U/S 80-IC OF THE ACT WAS REDUCED TO R S. 25,72,60,579/- FROM CLAIM OF RS. 27,65,18,465/-. WHILE DOING SO LD. AO OBSERVED THAT : (I) MOST OF THE STOCK TRANSFERRED TO THE HARIDWAR U NIT HAS BEEN SHOWN TO BE AT COST. FURTHER, THE SEMI-FINISHED GOO DS OF RS. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 31 17,50,29,529/- HAS BEEN SHOWN TO HAVE BEEN TRANSFER RED BY ADDING COST OF MATERIAL AND FURTHER LOADING IT @10% IN VIE W OF THE MARKET VALUE AND ALSO CONSIDERING NET PROFIT TO THE COMPAN Y REALIZABLE IN OPEN MARKET. HENCE PROFIT RATE OF 16.14% IS APPLIED ON SUCH TRANSFER, BEING AVERAGE OF PROFIT RATE OF PROJECTS OTHER THAN HARIDWAR UNIT I.E.20.65% & PROFIT RATE OF BUSINESS AS A WHOLE I.E . 11.63%. ACCORDINGLY, TRANSFER PRICE OF SEMI FINISHED GOODS WAS DETERMINED HIGHER TO THE TUNE OF RS. 1,07,46,813/- (17,50,29,5 29*6.14%). (II) THERE WAS INTER UNIT TRANSFER BY HARIDWAR UNIT TO JAIPUR UNIT AMOUNTING TO RS. 2,07,96,264/-. AS PROFIT RATE OF H ARIDWAR UNIT IS CONSIDERED HIGH (26.03%) AS COMPARED TO THE ENTIRE BUSINESS(11.63%), PROFIT OF THE SAME WAS TAKEN@ 18.83%, WHICH RESULTE D IN SALE VALUE AT RS. 1,96,03,200/- I.E. 11,88,073/- LESS. (III) COMMON EXPENSES OF RS. 9,73,24,536/- ONLY HAV E BEEN ALLOCATED TO HARIDWAR UNIT. IT MAY BE SEEN THAT THE COMPANY AS A WHOLE HAS SPENT RS. 19.63 CRORE ON ADMINISTRATION, MARKET ING AND MISC. EXPENSES. EVEN AFTER EXCLUSION OF COMMISSION AND DI SCOUNT OF RS. 04.81 CRORE, THE EXPENSE IS RS. 14.82 CRORE. THE TU RNOVER OF HARIDWAR FACTORY IS AROUND 23.78% OF THE TOTAL SALES OF THE COMPANY. HENCE, 23.78% OF THE LEGAL & PROFESSIONAL EXPENSES (2.15 C RORE), ADVERTISEMENT AND PUBLICITY (2.63 CRORE) OTHER EXPE NSES (0.52 CRORE) I.E. RS. 73.23 LACS IS CONSIDERED FOR ALLOCATION TO HARI DWAR UNIT AS WELL. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 32 5.2 IN FIRST APPEAL, LD. CIT(A) CONFIRMED THE ORDE R OF THE LD. AO WITHOUT GIVING ANY SPECIFIC REASONS MERELY BY FOLLO WING THE DECISION OF HIS PREDECESSOR IN EARLIER YEAR BY OBSERVING AT PAGE 5 0 IN PARA 11.3 AS UNDER: I HAVE DULY CONSIDERED THE OBSERVATIONS OF THE AO AND THE COUNTER ARGUMENTS PUT FORTH BY THE LD. AR, VIZ. THE ISSUE UNDER CONSIDERATION FROM THE RECORDS, IT IS GATHERED THAT THE IDENTICAL ISSUE HAS BEEN DEALT WITH BY MY LD. PREDECESSOR, WHILE DI SPOSING OF APPEAL FOR A.Y.2006-07 AND REJECTED THE STAND OF THE APPEL LANT IN FOLLOWING MANNER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF LD. AR. HOWEVER, ON PERUSAL OF THE R ELEVANT DETAILS/DOCUMENTS ON RECORD AND ALSO AFTER GOING TH ROUGH THE RELEVANT PROVISIONS OF THE INCOME TAX ACT. I FIND THAT THE L D. AO HAS BEEN QUITE LOGICAL AND REASONABLE IN HIS RELEVANT ESTIMATIONS (AS NOTED IN THE ASSESSMENT ORDER, THE RELEVANT PART OF WHICH HAS BE EN REPRODUCED IN PARA 11.1 ABOVE) AND IN RESTRICTING THE DEDUCTION A T 3,57,05,468/-, AGAINST THE CLAIMED DEDUCTION OF 4,12,06,689/- U/S 80IC OF THE I.T.ACT. THEREFORE, THE SAID ACTION OF THE LD. AO IS CONFIRM ED AND SUBSEQUENTLY, THIS GROUND OF APPEAL IS REJECTED. IN THE LIGHT OF THE ABOVE FACTUAL POSITION AND ALSO FOLLOWING THE RULE OF CONSISTENCY, I ALSO TEND TO CONFIRM THE AO S ACTION OF RESTRICTING THE CLAIM OF DEDUCTION OF U/S 80IC FROM RS. 27,65,18,465/- TO RS. 25,72,60,579/- FOR THE DETAILED REASONINGS DISC USSED IN PARA 10 OF THE IMPUGNED ORDER. CONSEQUENTLY THIS GROUND OF APP EAL IS REJECTED. 5.3 LD. COUNSEL SUBMITTED THAT HONBLE ITAT VIDE IT S ORDER DATED 22-12- 2011 IN RESPECT OF A.Y.2007-08, ALLOWED SUBSTANTIAL RELIEF FROM REDUCTION OF CLAIM U/S 80IC OF THE ACT. RELEVANT EXTRACTS OF ORD ER OF HONBLE ITAT IN PARA 68 AT PAGE 134 OF THE ORDER ARE AS UNDER : ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 33 68. AFTER CONSIDERING THE SUBMISSIONS AND PURSUING THE MATERIAL ON RECORD, WE FIND THAT ASSESSEE DESERVES TO SUCCEED I N THIS GROUND IN PART. FIRST ADJUSTMENT WAS ON ACCOUNT OF TRANSFER O F SEMI FINISHED GOODS TO HARIDWAR UNIT AND SINCE THE GOODS WERE TRA NSFERRED AT THE PRICE LESS THAN THE MARKET VALUE OF SUCH GOODS AS P ROVIDED IN SECTION 80IA(8) THEREFORE NO ADJUSTMENT IS REQUIRED TO BE M ADE ON THIS ACCOUNT. FURTHER, THE GOODS UNDER REFERENCE WERE SE MI FINISHED GOODS THEY ARE NOT MARKETABLE THEREFORE NO ADJUSTMENT IS REQUIRED TO BE MADE ON THIS ACCOUNT AND WE DIRECT TO DELETE THE A DJUSTMENT MADE AT RS.11,29,786/- ON THIS ACCOUNT. 68.1 SECOND ADJUSTMENT WAS RS.9,46,351/- MADE ON AC COUNT OF PROFIT OF THE SALE OF GOODS FROM HARIDWAR UNIT TO JAIPUR U NIT. THE AO WRONGLY OBSERVED THAT THE GOODS WERE TRANSFERRED TO JAIPUR UNIT BY CHARGING PROFIT @18.02% ON SUCH GOODS WHEN ACTUALLY THE GOODS WERE TRANSFERRED AT COST PRICE. THESE FACTS WERE BR OUGHT TO THE NOTICE OF THE AO ALSO BUT HE FAILED TO APPRECIATE THE SAME . UNDER THE CIRCUMSTANCES WHEN THE GOODS WERE TRANSFERRED AT CO ST NO ADJUSTMENT IS REQUIRED ON ACCOUNT OF HIGHER PROFIT AND THEREFO RE THE REDUCTION OF RS.9,46,351/- MADE ON THIS ACCOUNT IS DIRECTED TO B E DELETED. 68.2 NEXT ADJUSTMENT OF RS.31,76,280/- IS ON ACCOUN T OF ALLOCATION OF COMMON EXPENSES. FROM THE RECORDS, IT IS OBSERVES T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE HAS FILE D THE COPY OF THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT OF HARIDWAR UNIT WHICH ARE AVAILABLE AT PAPER BOOK PAGES599 TO 607. ON PERUSAL OF THE PAPER BOOK PAGE 604 IN SCHEDULE 16, THE ADVERTISEMENT ,PU BLICITY AND SALES PROMOTION EXPENSES TO THE TUNE OF RS.47,47,738/- WE RE CLAIMED BESIDES LEGAL AND PROFESSIONAL CHARGES OF RS.2,43,2 69/-. SINCE THESE DIRECT EXPENSES HAVE ALREADY BEEN DEDUCTED FROM THE PROFIT COMPUTED FOR HARIDWAR UNIT FURTHER DEDUCTION OF EXPENSES INC URRED AT JAIPUR UNIT UNDER THESE HEADS IS NOT REQUIRED. HOWEVER, TH E FACT THAT SOME BENEFITS OUT OF THESE EXPENSES WOULD BE RECEIVED BY HARIDWAR UNIT COULD NOT BE DENIED, THEREFORE WE ARE OF THE CONSID ERED VIEW THAT FURTHER ALLOCATION OF TOWARDS COMMON EXPENSES AT RS .7.50 LACS WOULD BE REASONABLE THEREFORE THE ALLOCATION MADE BY A.O. AT RS.31,76,280/- IS DIRECTED TO BE REDUCED TO RS.7.5 LACS. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 34 5.4 ON PERUSAL OF ABOVE, IT IS EVIDENT THAT SO FAR AS DISALLOWANCE MADE IN RESPECT OF PURCHASES OF SEMI FINISHED GOODS FROM JA IPUR UNIT AND SALES OF FINISHED GOODS TO JAIPUR UNIT, I.E. RS.1,07,46,813/ - AND RS.11,88,073/- RESPECTIVELY IS CONCERNED, THE SAME ARE SQUARELY CO VERED BY HONBLE ITAT DECISION AS STATED IN ABOVE PARAS . 5.5 REGARDING COMMON EXPENSES ALLOCATED BY LD. AO T OWARDS HARIDWAR UNIT, THE HONBLE BENCH HAS REDUCED THE SAME SUBSTA NTIALLY. THE FACTS AND CIRCUMSTANCES OF AY 2007-08 AND YEAR UNDER APPEAL I .E. AY 2008-09 ARE IDENTICAL AS LD. CIT(A) HAS FOLLOWED THE SAME ORDER , THE ISSUES IN QUESTION ARE SQUARELY COVERED BY THE ORDER OF ITAT IN AY 200 7-08 WHICH WOULD BE FOLLOWED AS JUDICIAL DISCIPLINE. IT IS SUBMITTED TH AT, SEMI-FINISHED GOODS TRANSFERRED FROM JAIPUR UNIT TO THE HARIDWAR UNIT D ID NOT CONSTITUTE GOODS UNDER THE PROVISION OF SUB-SECTION (8) OF SECTION 8 0-IA OF THE ACT SINCE SUCH SEMI-FINISHED GOODS ARE NOT MARKETABLE. RELIANCE IS PLACED ON THE DECISION OF THE DELHI ITAT IN THE CASE OF NTPC LTD. V. ADDL. CIT REPORTED IN (2004) 91 ITD 101 (DEL). 5.6 WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT NO BASIS HAS BEEN STATED BY THE LD. AO TO ESTABLISH THAT, THE CONSIDE RATION AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS I.E. HARIDWAR UNI T DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS AS ON THE DATE OF TH E TRANSFER PRICE. ASSESSEE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 35 ON AN OVERALL BASIS HAS MADE A PROFIT OF 11.63%, WH ICH CANNOT BE CONSIDERED TO BE A VALID BASIS TO EITHER ALLEGE OR EVEN CONCLU DE THAT, TRANSFER WAS NOT MADE BY THE APPELLANT COMPANY AT MARKET VALUE OF SU CH GOODS. THE BURDEN THAT, TRANSFER AT COST WAS NOT AT THE MARKET VALUE OF GOODS ON THE DATE OF TRANSFER PRICE WAS ON THE LEARNED AO, WHICH HAS NOT BEEN DISCHARGED. IT IS SUBMITTED THAT IN ABSENCE OF ANY BASIS WHATSOEVER T O SUPPORT LD. AOS PROFIT ESTIMATE OF 16.14% AS REPRESENTING MARKET VALUE OF GOODS ON THE DATE OF TRANSFER, THE ADJUSTMENT MADE IS NOT TENABLE FOR WA NT OF ANY JUSTIFICATION. RELIANCE IS PLACED UPON THE DECISION OF THE ITAT IN THE CASE OF MITTAL METAL V. ITO REPORTED IN (2008) 21 SOT 186 (DEL), WHEREIN IT HAS BEEN HELD AS UNDER: UNDER THE GENERAL LAW, TRANSACTIONS EVEN WITH THE RELATIVES AND ASSOCIATE CONCERNS CANNOT BE DISCARDED. THE ONUS IS ON THE D EPARTMENT TO PROVE THAT THE TRANSACTION WAS SHAM OR NOT BONAFIDE OR THE VALUE S HOW IN THE BOOKS WAS NOT THE VALUE REALLY PAID. THE ASSESSING OFFICER MUST ESTA BLISH THAT THE PAYMENT IS EXCESSIVE OR UNREASONABLE. HE CANNOT PROCEED MEREL Y ON THE BASIS OF SURMISES AND CONJECTURES. HE HAS TO PLACE ON RECORD EVIDENCE AS REGARDS EXCESSIVENESS OR UNREASONABLENESS. 5.7 THE NEXT ADJUSTMENT CONFIRMED BY LD. CIT(A) IS OF RS. 11,88,073/- REPRESENTING THE SALES MADE BY HARIDWAR UNIT I.E. E LIGIBLE UNIT TO JAIPUR UNIT. WHILE MAKING THE ADJUSTMENT THE LD. AO HAS ALLEGED THAT THE GOODS WAS TRANSFERRED TO JAIPUR UNIT ON A PRICE HAVING HIGHER PROFITS BY GROSSLY IGNORING THE FACT THAT THE GOODS HAS BEEN TRANSFERR ED INTER UNIT ON COST BASIS. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 36 IT IS AN ESTABLISHED ACCOUNTING PRINCIPLE THAT ONE CANNOT EARN PROFIT FROM HIMSELF. IT HAS BEEN PRESUMED THAT THE GOODS WERE T RANSFERRED AFTER CHARGING SOME PROFITS, CONSEQUENTLY THE ADJUSTMENT MADE IS P URELY A GUESS WORK SANS ANY SOUND BASIS; ITS A RESULT OF PURE ASSUMPTIONS AND PRESUMPTIONS AND DESERVES TO BE DELETED. 5.8 THE NEXT ADJUSTMENT/DEDUCTION CONFIRMED BY THE LD.CIT(A) IS OF RS. 73,23,000/- ON THE PRETEXT OF ALLOCATION OF COMMON EXPENSES TO THE ELIGIBLE UNIT. LD. AO OVERLOOKED THE DETAILS FURNISHED BY TH E APPELLANT EVIDENCING THAT APPELLANT HAS ALREADY SPENT AND ALLOCATED MORE EXPENSES THAN WHAT HAS BEEN TOTALLY ALLOCATED UNDER THE 3 HEADS AS MENTION ED ABOVE. IF THE TOTAL EXPENSES DIRECTLY INCURRED UNDER THESE HEADS ARE DE DUCTED FROM THE ALLOCATED AMOUNT, THEN THE AMOUNT WOULD GO IN THE NEGATIVE. T HE SAME IS DEMONSTRATED AS UNDER: S. NO. NATURE OF HEAD AMOUNT DIRECTLY ALLOCATED BY THE ASSESSEE 1. LEGAL AND PROFESSIONAL CHARGES 2,31,236/- 2. ADVERTISEMENT AND PUBLICITY 2,08,01,371/- 3. OTHER EXPENSES 12,60,998/- TOTAL: 2,22,93,605/- THIS TABLE REFLECTS THAT THE APPELLANT HAD ALREADY ALLOCATED MORE EXPENSES ON ACTUAL BASIS AND WITHOUT APPRECIATING OR CONSIDERIN G THESE VITAL FACTS LD. AO ADOPTED TURNOVER BASIS AND ARBITRARILY ALLOCATED RS .73,23,000/- AS COMMON EXPENDITURE TO THE HARIDWAR UNIT IN ORDER TO ANY HO W REDUCE THE CLAIM U/S ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 37 80IC. IT IS SUBMITTED SUCH ARBITRARY ADJUSTMENT FOR ALLOCATION IN THE NAME OF ARBITRARY ALLOCATION IS WARRANTED AND ASSESSEE CLAI M OF DEDUCTION U/S 80IC IN THIS BEHALF DESERVES TO BE ALLOWED. 5.9 LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELO W ON THESE ISSUES . 5.10 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON THE RECORD. IN OUR CONSIDERED VIEW THE ISSUE IN QUESTION STANDS SQUARELY COVERED BY ITAT JUDGMENT IS ASSESSEES OWN CASE FOR AY 2007-08, RELEVANT PORTION IS REPRODUCED ABOVE. THE BUSINESS, TRANSFERS BETWEEN JAIPUR AND HARIDWAR UNITS ARE NEARLY SAME. ASSESSEE HAS RE LIED ON VARIOUS OTHER JUDGMENTS WHICH SUPPORT THE VIEW TAKEN BY ITAT. IN GIVEN FACTS AND CIRCUMSTANCES FOLLOWING THE ITAT JUDGMENT, WE RESTR ICT THE REDUCTION U/S 80IC AT RS. 7,50,000/- AS HELD IN PRECEDING YEAR. T HIS GROUND IS PARTLY ALLOWED. 6.0 IN THE RESULT ASSESSEES APPEAL IS PARTLY ALLOW ED. DEPARTMENTAL APPEAL NO. 257/JP/2012 7.1 ADVERTING TO REVENUE GROUND NO. (I), IT RELATES TO THE DELETION OF THE DISALLOWANCE OF CLAIM OF DEDUCTION OF RS. 1,61,91,6 80/- REPRESENTING EXPENDITURE INCURRED ON SOFTWARE DEVELOPMENT BY THE APPELLANT COMPANY, THE DETAILS WHEREOF ARE TABULATED HEREUNDER:- ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 38 S.NO. NAME OF THE PARTY, PAN NO. ADDRESS AMOUNT 1. M/S QUANT M TECHNOLOGIES PVT. LTD. 1,61,91,680/- TOTAL 1,61,91,680/- 7.2 LD. DR RELIED ON THE ORDER OF LD. AO AND CONTEN DS THAT THE IMPUGNED RELIEF HAS BEEN AWARDED BY LD. CIT(A) WITHOUT APPRE CIATING THE FACTS AND CIRCUMSTANCES OF THE ISSUE. 7.3 LD. COUNSEL CONTENDS THAT ASSESSEE DULY EXPLAIN ED THE NATURE OF SERVICES PROVIDED BY THE AFORESAID VENDOR TO THE AP PELLANT COMPANY. IT WAS STATED THAT THE SAID PAYMENT WAS MADE TOWARDS SOFTW ARE DEVELOPMENT CHARGES TO M/S QUANT M TECHNOLOGIES PVT LTD. FOR TH E METERING PROJECT AT WEST BENGAL WHICH WAS INITIATED IN F.Y.2006-07 AND COMPLETED IN F.Y.2007-08. THE METERS WERE OF DIFFERENT TYPE AND WERE REQUIRED TO BE INSTALLED AT RCC POLES WITH HT DISTRIBUTION LINES. THE READING OF METER COULD BE ONLY THROUGH REMOTE COMMUNICATION SYSTEM. THE AUTOMATIC METER READING SOFTWARE (AMR) WAS TO BE INSTALLED IN EACH METER AND WAS TO BE VALIDATED AFTER INSTALLATION. IT WAS CLAIMED THAT M /S QUANT M TECHNOLOGIES PVT. LTD. PROVIDED THE SOFTWARE AND THE INSTALLATIO N SUPPORT DURING THE COURSE OF TESTING OF METER AND METER READING OF 6600 METER S FOR WBSEBCL. 7.4 LD. COUNSEL CONTENDS THAT IN 1 ST APPEAL FOR A.Y.2007-08 THIS ISSUE WAS ALLOWED BY LD. CIT(A) IN FAVOR OF THE ASSESSE. LD. AO IN THIS YEAR FOLLOWED ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 39 HIS ORDER FOR AY 2007-08. LD. CIT(A) FOLLOWING HIS APPEAL ORDER FOR A.Y.2007-08 ALLOWED THE ASSESSES EXPENDITURE. IN TH E MEANWHILE THE REVENUE APPEAL FOR A.Y.2007-08 ON THIS ISSUE WAS DI SMISSED BY ITAT, VIDE ITS ORDER DATED 22.12.11 AND BY DETAILED FINDINGS I N PARA 12 & 12.1 PAGE 17 & 18 AS UNDER:- 12. WE HAVE GONE THROUGH THE ORDERS OF AO AND LD. C IT (A) AND ARGUMENTS OF BOTH THE PARTIES AND ALSO THE WRIT TEN SUBMISSIONS FILED ON BEHALF OF THE ASSESSEE. AFTER GOING THR OUGH THE WRITTEN SUBMISSIONS OF THE ASSESSEE, IT IS SEEN THAT THE WR ITTEN SUBMISSIONS ARE SIMILAR AS FILED BEFORE LD. CIT (A) WHICH HAS ALREA DY BEEN TABULATED SOMEWHERE ABOVE IN THIS ORDER. WE NOTED THAT LD. C IT (A) HAS TAKEN INTO CONSIDERATION ALL THE ASPECTS MINUTELY. IT WA S FOUND BY LD. CIT (A) THAT SOFTWARE DEVELOPMENT EXPENSES WERE PAID TO FOUR PARTIES I.E. M/S. SCORE INFORMATION TECHNOLOGIES LTD., M/S. QUAN TUM NET TECHNOLOGIES LTD., M/S. NET 4 INDIA LTD. AND M/S. C ADIX INFOSOFT LTD. IT IS ALSO A MATTER OF FACT THAT THESE COMPANIES DO NOT RELATE TO M/S. B.T. TECHNET LTD. WHO WAS FOUND INDULGING IN CLAIMI NG BOGUS EXPENSES. THE LD. CIT (A) ASCERTAINED THAT THESE F OUR COMPANIES ARE INDEPENDENT AND LD. CIT D/R HAS ALSO FAIRLY ACCEPTE D THIS FACT THAT THEY WERE NOT CONNECTED WITH M/S. B.T. TECHNET LTD. HOWEVER, HE HAS PLACED STRONG RELIANCE ON THE REASONING GIVEN BY AO . 12.1. THIS FACT HAS BEEN DISCUSSED BY LD. CIT (A) I N HIS ORDER IN PARA 4.3 WHICH IS REPRODUCED SOMEWHERE ABOVE IN THI S ORDER THAT THE FOUR COMPANIES TO WHOM THE SOFTWARE DEVELOPMENT EXP ENSES WERE PAID DO NOT RELATE TO M/S. B.T. TECHNET LTD. IN WHO SE CASE ONE SHRI S.K. GUPTA, WHO ADMITTED IN HAVING ISSUED ACCOMMODA TION BILLS IN THE NAME OF VARIOUS CONCERNS. PAYMENTS WERE MADE THROU GH PROPER BANKING CHANNEL AND THERE IS NO DOUBT ABOUT THE PAY MENT AS THE AO HAS NOT COMMENTED ANY ADVERSE INFERENCE. THE AO MA DE DISALLOWANCE ONLY BY DRAWING INFERENCE THAT SOFTWAR E DEVELOPMENT EXPENSES ARE NOT INCURRED AS THEY HAVE AS MANY COMP ANIES PROVIDED ACCOMMODATION BILLS ONLY. THE STATEMENT OF SHRI S. K. GUPTA WAS RECORDED ON 12.12.2006 WHO BELONGS TO M/S. B.T. TE CHNET LTD. WHO HAS ADMITTED THAT HE WAS INVOLVED IN ISSUING ACCOMM ODATION BILLS. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 40 HOWEVER, NOWHERE THE NAME OF FOUR COMPANIES TO WHOM THE SOFTWARE DEVELOPMENT EXPENSES WERE PAID WERE MENTIONED BY SH RI S.K. GUPTA. THEREFORE, NO ADVERSE INFERENCE CAN BE DRAWN AGAINS T THE ASSESSEE. THE LD. CIT (A) HAS CONSIDERED THIS ASPECT AND THEN ONLY HAS DELETED THE ADDITION. THE FINDING OF LD. CIT (A) THAT MERE LY ON THE BASIS OF SUSPICION/DOUBT, ADDITION MADE CANNOT BE SUSTAINED, REMAINED UNCONTROVERTED. THEREFORE WE SEE NO REASON TO INTE RFERE WITH THE FINDING OF LD. CIT (A) ON THIS ISSUE. ACCORDINGLY, WE CONFIRM HIS ORDER DELETING THE ADDITION. IT IS CONTENDED THAT THE FACTS, CIRCUMSTANCES AND I SSUE IN QUESTION IS SQUARELY COVERED IN FAVOUR OF APPELLANT IN ITS OWN CASE, CON SEQUENTLY THE ORDER OF LD. CIT(A) BE UPHELD. 7.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, CIRCUMSTANCES AND I SSUE IN QUESTION BEING SAME AS AY 2007-08 IN WHICH THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSE. FOLLOWING IN ASSESSEES OWN CASE ITAT JUDGMENT (SUP RA) UPHOLDING THE SIMILAR ORDER OF LD. CIT(A), THIS GROUND NO. 1 OF REVENUE IS DISMISSED. 8.1 NEXT REVENUE GROUND RELATES TO THE CLAIM OF DEDUCTI ON OF RS. 2,52,00,000/- IN RESPECT OF EXPENDITURE INCURRED ON ISSUE OF EQUITY SHARES ON PREFERENTIAL BASIS, WHICH WERE HELD AS DEFERRED REV ENUE EXPENDITURE BY CIT(A), AND THEREFORE 1/5 OF SUCH EXPENSES WAS ALLO WED U/S 35D (2)(IV). 8.2 REVENUE IS AGGRIEVED ON ALLOWING THE 1/5 TH CLAIM U/S 35D. 8.3 LD. DR RELIED ON THE ORDER OF AO. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 41 8.4 ASSESSEES COUNSEL IN REPLY CONTENDS THAT DURING TH E YEAR UNDER CONSIDERATION A SUM OF RS. 2,52,00,000/- WAS PAID T O THE MERCHANT BANKER M/S ENAM SECURITIES PVT. LTD. AND WAS CLAIMED AS RE VENUE EXPENDITURE INCURRED ON THE ISSUE OF SHARE CAPITAL OF 84 CRORES WHICH WAS DISALLOWED BY THE LD. AO AND NO DEDUCTION WAS ALLOWED IN TERMS OF THE PROVISION OF SECTION 35D OF THE ACT. IN FIRST APPEAL, THE CLAIM OF THE ENTIRE AMOUNT OF RS. 2.52 CRORES WAS MADE; IN THE ALTERNATE IT WAS CLAIM ED THAT THE PAYMENT OF SHARE ISSUE EXPENSES BE TREATED AS REVENUE EXPENSES , SINCE THE SAID EXPENSES ARE COVERED BY SECTION 35D(2) OF THE ACT, THEREFORE 1/5 TH OF THE SAME SHOULD BE ALLOWED TO BE AMORTIZED IN THE YEAR UNDER CONSID ERATION AND BALANCE IN SUBSEQUENT YEARS. LD.CIT(A) ALLOWED THE ALTERNATE C LAIM U/S 35D(2)(IV) @ 20% FOR EACH ASSESSMENT YEAR. NEARLY SIMILAR ISSUE CAME UP FOR CONSIDERATION OF ITAT IN AY 2007-08 WHERE THE ENTIR E EXPENDITURE HAS BEEN ALLOWED AS REVENUE EXPENDITURE BY FOLLOWING OBSERVA TIONS: 23.1. THE FINDINGS OF HONBLE RAJASTHAN HIGH COURT ARE SQUARELY APPLICABLE ON THE FACTS OF THE PRESENT CASE AS IN T HIS CASE ALSO THE EXPENDITURE INCURRED BY ASSESSEE IS SIMILAR. THE AOS MAIN REA SON FOR DISALLOWING THIS EXPENDITURE WAS THAT ASSESSEE IN THE BOOKS OF ACCOU NT HAS CLAIMED DEDUCTION AT 1/10 TH TREATING THE EXPENDITURE ENDURING IN NATURE. IT I S WELL SETTLED IN LAW THAT ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT DECISIVE IN NATURE. IT HAS TO BE SEEN THAT ANY EXPENDITURE BOOKED BY ASSESSEE IS WHETHER CAPIT AL IN NATURE OR REVENUE IN NATURE OR HAVING ANY ENDURING BENEFIT WHICH CANNOT BE ALLOWED IN ONE YEAR. IN ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 42 VIEW OF THESE FACTS, THE AO ALLOWED 1/10 TH OF EXPENDITURE AND REMAINING EXPENDITURE WAS TREATED AS ALLOWABLE IN SUBSEQUENT 10 YEARS. THE LD. D/R HAS ALSO STATED THAT IN VIEW OF PROVISIONS OF SECTION 3 5D ONLY 1/10 TH EXPENDITURE HAS TO BE ALLOWED. AFTER GOING THROUGH THE RATIO OF HONB LE JURISDICTIONAL HIGH COURT IN CASE OF M/S. SECURE METERS LTD. (SUPRA), IT IS CLEA RLY ESTABLISHED THAT EXPENDITURE INCURRED BY ASSESSEE IS OF REVENUE IN NATURE AND, T HEREFORE, IT CANNOT BE COVERED UNDER SECTION 35D AS THE SAME IS ALLOWABLE UNDER SE CTION 37(1). ACCORDINGLY, WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN ALLOWING THE EXPENDITURE TREATING THE SAME AS REVENUE IN NATURE. THE ORDER OF LD. CIT (A) IS, THEREFORE, CONFIRMED ON THIS ISSUE. LD. CIT ALLOWED THE AMORTIZATION OF SHARE ISSUE EXP ENSES UNDER SECTION 35D OF THE ACT IN 5 YEARS WHICH IS ACCEPTED BY THE ASSE SSE. REVENUE HAS RAISED THIS GROUND WITH NO OBVIOUS JUSTIFICATION AS IT IS PROVIDED BY THE LAW, WHICH IS FOLLOWED BY LD. CIT(A). A PLAIN READING OF SEC. 35D REVEALS THAT WHERE A COMPANY INCURS ANY EXPENDITURE AFTER THE COMMENCEME NT OF ITS BUSINESS , IN CONNECTION WITH THE EXTENSION OF ITS UNDERTAKING OR IN CONNECTION WITH SETTING UP A NEW UNIT, FOR THE PURPOSE OF ISSUE OF SHARES AND SUCH EXPENDITURE IS INCURRED IN THE FORM OF UNDERWRITING COMMISSION, BROKERAGE AND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS, THEN SUCH COMPANY SHALL BE ALLOWED A DEDUCTION OF AN AMOUNT E QUAL TO ONE-FIFTH OF SUCH EXPENDITURE FOR EACH OF THE FIVE SUCCESSIVE PR EVIOUS YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE EXTENSION OF TH E UNDERTAKING IS COMPLETED OR THE NEW UNIT COMMENCES PRODUCTION OR O PERATION. ASSESSEES ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 43 CLAIM SQUARELY FALLS WITHIN THE AMBIT OF THE ABOVE PROVISION AS THE PAYMENT TO THE MERCHANT BANKER WAS IN RELATION TO THE BROKE RAGE AND DRAFTING OF THE SHARE ISSUE DOCUMENT, INVITING APPLICATIONS FROM PR OSPECTIVE SHARE APPLICANTS AND TO ADVISE ON ALL LEGAL FORMALITIES T O BE COMPLETED AND HANDLING THE WHOLE PROCESS OF SHARE ISSUE TILL THE COLLECTION OF MONEY FROM SHARE ALLOTEES ETC. THIS KIND OF EXPENDITURE CLEARL Y FALLS UNDER THE AMBIT OF SECTION 35D(2)(C)(IV) OF THE ACT. HENCE, EVEN IF TH E EXPENDITURE ON PAYMENT TO MERCHANT BANKER IS NOT HELD AS REVENUE EXPENDITU RE, THEN THE SAME IS COVERED U/S 35D(2)(C)(IV) OF THE ACT AND RELIEF MAY KINDLY BE GRANTED TO THE APPELLANT COMPANY ACCORDINGLY. THE APPELLANT COMPAN Y HAS INCURRED FOLLOWING CAPITAL EXPENDITURE (VIDE PAGE 40 OF THE 16 TH ANNUAL REPORT IN CONNECTION WITH THE EXTENSION OF ITS UNITS - GROSS BLOCK AS ON 31.03.2008 RS. 8243.48 LACS GROSS BLOCK AS ON 31.03.2007 RS. 7056.37 LACS IT IS EVIDENT FROM THE ABOVE DETAIL THAT THE APPELL ANT COMPANY HAD MADE CAPITAL EXPENDITURE DURING THE CURRENT ASSESSMENT Y EAR AMOUNTING TO RS. 1190.11 LACS IN CONNECTION TO THE EXTENSION OF ITS UNDERTAKING. THE SHARES WERE ISSUED AFTER THE COMMENCEMENT OF ITS BUSINESS IN CONNECTION WITH THE EXPANSION OF THE EXISTING UNIT THEREFORE THE CAPITA L EMPLOYED IN THE CASE WOULD BE GOVERNED BY THE DEFINITION GIVEN IN EXPLAN ATION (B)(II) TO SECTION ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 44 35D OF THE INCOME TAX ACT, 1961 WHICH DEFINES THE C APITAL EMPLOYED AS THE AGGREGATE OF ISSUE SHARE CAPITAL, DEBENTURE AND LON G TERM BORROWINGS AS ON THE LAST DATE OF THE PREVIOUS YEAR IN WHICH THE EXT ENSION OF THE UNDERTAKING IS COMPLETED. IN THE CASE OF THE APPELLANT COMPANY THE TOTAL CAPITAL EMPLOYED AS ON THE LAST DATE OF THE YEAR UNDER APPEAL WAS OF RS. 433.00 CRORES AND 2.5% OF WHICH COMES TO RS. 10.83 CRORES WHICH IS MU CH HIGHER THAN THE EXPENSES CLAIMED BY THE ASSESSEE, THEREFORE THE AMO UNT OF RS. 2,52,00,000/- IS DULY ELIGIBLE FOR DEDUCTION U/S 35D OF THE INCOM E TAX ACT, 1961. THE LD. CIT(A) AFTER CONSIDERING THE FACTS AND THE MERITS O F THE CASE AND NATURE OF EXPENSE INCURRED WAS OF THE VIEW THAT THE ENTIRE EX PENSE COULD NOT BE ALLOWED AS REVENUE EXPENDITURE FOR THE YEAR UNDER A PPEAL HOWEVER BY PLACING RELIANCE ON THE DECISION OF HONBLE RAJASTH AN HIGH COURT IN THE CASE OF MULTI METALS LTD.(188 ITR 151) ALLOWED THE ALTERNATIVE PLEA OF THE APPELLANT AND 1/5 TH OF THE EXPENSES CLAIMED AT RS. 2.52 CRORES WERE DI RECTED TO BE ALLOWABLE IN A.Y.2008-09 AND BALANCE IN NEXT FOUR YEARS. THE CALCULATION OF AMORTIZATION AND DEFERMENT OF AB OVE EXPENSES IN THE BOOKS IS AS UNDER: PARTICULARS TOTAL AMOUNT INCURRED 1/5 OF THE TOTAL DEFERRED REVENUE EXPENSES UNAMORTIZED PORTION OF DEFERRED REVENUE EXPENDITURE SHARE ISSUE EXPENSES 2,52,00,000 50,40,000 2,01,6,000/- ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 45 IT IS THUS HUMBLY PRAYED THAT LD. CIT(A) IS WELL WI THIN THE AMBIT OF LAW WHILE ALLOWING THE ALTERNATE CLAIM THE APPELLANT CO MPANY UNDER SECTION 35D OF THE ACT, THE ORDER BEING PERFECTLY JUSTIFIED DES ERVES TO BE UPHELD. 8.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED MAT ERIAL AVAILABLE ON RECORD AS ALSO THE RELEVANT PROVISIONS AND CASE LAW . IN OUR CONSIDERED VIEW THE ACTION OF LD CIT(A) APPLYING THE PROVISIONS OF SEC. 35D FOR AMORTIZATION OF SHARE ISSUE EXPENSES IN 5 YEARS IS IN CONFORMITY WITH THE LEGAL PROVISIONS. WE SEE NO INFIRMITY THEREIN, CONSEQUENTLY THE SAME IS UPHELD. THIS GROUND NO. 2 OF THE REVENUE IS DISMISSED. 9.1 NEXT REVENUE GROUND RELATES TO THE CLAIM OF INT EREST & WAGE SUBSIDY OF RS. 83,19,753/- CLAIMED AS CAPITAL RECEIPT. ASSE SSEE RECEIVED CAPITAL INVESTMENT SUBSIDY UNDER THE PROVISION OF RAJASTHAN INVESTMENT POLICY 2003. THE AMOUNT WAS GRANTED BY STATE GOVT. UNDER T HE RAJASTHAN STATE INDUSTRIAL POLICY 2003, WHOSE MAIN OBJECTIVE WAS TO INCREASE INVESTMENTS AND INDUSTRIALIZATION IN THE RAJASTHAN STATE WHICH WAS REGARDED AS BACKWARD. LD. AO REJECTED THE APPELLANTS CLAIM ON THE GROUND THAT THE SAME IS AVAILABLE ONLY IF UNIT COMMENCES ITS COMMERCIAL PRO DUCTION/OPERATION DURING THE OPERATIVE PERIOD OF SUCH SCHEME ITSELF. SINCE, THAT IS NOT THE CASE OF APPELLANT, SUBSIDY WAS LINKED TO THE RUNNING OF BUSINESS ACTIVITIES AND HELD AS REVENUE RECEIPT. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 46 9.2 IN FIRST APPEAL LD. CIT(A), ALLOWED THE CLAIM O F THE APPELLANT RELYING UPON SUBMISSIONS MADE BY APPELLANT AND ON VARIOUS J UDICIAL RULINGS, INCLUDING JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF PONNY SUGARS AND CHEMICAL LTD., WHICH CLARIFIES THAT THE OBJECT S OF SCHEME IS MORE RELEVANT TO DECIDE THE NATURE OF THE SUBSIDY THAN T HE POINT OF TIME OF GRANTING SUCH INCENTIVE. 9.3 AGGRIEVED REVENUE IS IN APPEAL. LD. DR RELIED ON TH E ORDER OF AO. 9.4 LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE GOVER NMENT OF RAJASTHAN, FINANCE DEPARTMENT, WITH A VIEW TO ATTRACT INVESTME NT IN BACKWARD AREAS IN THE STATE FOR THE SETUP OF INDUSTRIES/ UNITS/ MODER NIZATION OF EXISTING INDUSTRIES INTRODUCED A NEW SCHEME NAMED AS RAJASTH AN INVESTMENT PROMOTION POLICY, 2003 ( RIPP, 2003 FOR SHORT) IN WHICH THE GOVERNMENT ANNOUNCED VARIOUS KINDS OF SUBSIDIES/INCENTIVES FOR THOSE WHO ESTABLISHES INDUSTRIAL UNITS IN THOSE NOTIFIED AREAS SPECIFIED IN THE SCHEME. THE COPY OF THE SAID SCHEME IS AVAILABLE AT PAGE NO.S 355-370 O F PAPER BOOK. THE PARA 3 OF RIPP 2003 REGARDING APPLICABILITY OF THE SCHEME STATES THAT THE SCHEME SHALL BE APPLICABLE TO ALL NEW INVESTMENTS MADE BY THE EXISTING UNITS AND ENTERPRISE FOR MODERNIZATION/DIVERSIFICATION INCLUD ING THE UNITS/ENTERPRISES, COVERED UNDER POLICY FOR PROMOTION OF AGRO-PROCESSI NG AND AGRI-BUSINESS, 2010 SUBJECT TO THE CONDITION THAT SUCH UNITS SHALL COMMENCE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 47 PRODUCTION/OPERATIONS OWING TO SUCH INVESTMENT DURI NG THE OPERATIVE PERIOD OF THE SCHEME. THEREFORE, THE OBJECTIVE OF THE SCHE ME WAS TO PROMOTE INDUSTRIAL DEVELOPMENT IN THE STATE. THE CAPITAL IN VESTMENT WAS THE PRELIMINARY AND ESSENTIAL CONDITION FOR BEING ENTIT LED FOR SUBSIDY AND IN PURSUANCE TO THAT THE COMPANY INVESTED RS. 853 LACS IN DIFFERENT HEADS OF FIXED ASSETS. THE APPELLANT COMPANY ALSO FOLLOWING THE ELIGIBILITY CRITERIA AS PRESCRIBED IN THE POLICY, TOOK A TERM LOAN FROM BAN K OF BARODA AMOUNTING TO RS. 600 LACS FOR THE PURPOSE OF EXPANSION/MODERNIZA TION OF ITS INDUSTRIAL UNIT AND ALSO GAVE EMPLOYMENT TO A LARGE NUMBER OF PEOPL E AND THEREFORE, APPLIED FOR THE INTEREST AND WAGE SUBSIDY UNDER THE POLICY. DURING THE YEAR UNDER CONSIDERATION, THE COMPANY CLAIMED CAPITAL RE CEIPT OF RS. 83,19,753/- ON ACCOUNT OF THE AMOUNT GRANTED BY THE STATE GOVERNMENT IN LIEU OF THE WAGE SUBSIDY. AS THE SUBSIDY WAS RECEI VED BY THE APPELLANT COMPANY IN LIEU OF CAPITAL INVESTMENT DONE IN THE S TATE FOR MODERNIZATION/EXPANSION OF ITS EXISTING UNITS AND F OR PURCHASE OF FIXED ASSETS/MACHINERY WHICH WAS THE MAIN MOTIVE OF THE P OLICY, THE AMOUNT OF SUBSIDY WAS CLAIMED AS CAPITAL RECEIPT BEING CAPITA L INVESTMENT SUBSIDY UNDER THE PROVISIONS OF RAJASTHAN INVESTMENT POLICY 2003. HOWEVER, THE LD. AO TREATED THE WAGE SUBSIDY IN THE NATURE OF REVENU E RECEIPT AND DISALLOWED THE CLAIM OF THE APPELLANT COMPANY TREATING THE AMO UNT OF RS. 83,19,753/- AS ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 48 CAPITAL RECEIPT. IT IS ALSO CONTENDED THAT THIS ISS UE IN QUESTION IS SIMILAR TO THE SALES TAX SUBSIDY TREATED AS CAPITAL RECEIPT IN APP ELLANTS OWN CASE IN VARIOUS EARLIER ASSESSMENT YEARS WHERE THE SALES TAX SUBSID Y RECEIVED UNDER THE SIMILAR SCHEME OF THE STATE GOVERNMENT FOR THE PROM OTION OF CAPITAL INVESTMENT IN THE STATE OF RAJASTHAN. HOWEVER SAME WAS HELD BY LD. ASSESSING OFFICER AS A REVENUE RECEIPT. THE ISSUE T RAVELLED UPTO ITAT, BY A SERIES OF ORDERS FOR THE EARLIER YEARS VIZ. A.Y. 20 00-01, 2002-03, 2003-04, 2004-05, 2005-06 AND 2006-07, IT HAS BEEN PLEASED T O CONSISTENTLY HOLD THAT THE SUBSIDY IS IN THE NATURE OF CAPITAL RECEIPT AS THE SAME IS RECEIVED BY THE APPELLANT COMPANY IN LIEU OF CAPITAL INVESTMENT FOR SETTING UP OF INDUSTRY IN STATE. THE ISSUE THEREFORE IS PRINCIPALLY COVERED I N FAVOUR OF THE ASSESSEE BY THESE JUDGMENTS OF THE LD. ITAT FOR EARLIER YEARS. THE SCHEME WAS PREDOMINANTLY FOR PROMOTING CAPITAL INVESTMENT IN T HE STATE WHICH WAS THE PRELIMINARY AND ESSENTIAL CONDITION FOR BEING ENTIT LED FOR SUCH INTEREST AND WAGE SUBSIDY, THEREFORE THE SAME WAS IN THE NATURE OF CAPITAL SUBSIDY. IN OTHER WORDS, THE INVESTMENT POLICY WAS DESIGNED TO FETCH MAXIMUM CAPITALIZATION IN THE STATE WHICH IN TURN LEADS TO OPPORTUNITIES FOR EMPLOYMENT AND ALSO ATTRACT MAXIMUM FUND INVESTMENT FROM FINANCIAL INSTITUTIONS. HONBLE SUPREME COURT AND VARIOUS HIG H COURTS, HAVE CATEGORICALLY HELD THAT IF ANY SCHEME IS LAUNCHED W ITH THE OBJECTIVE OF ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 49 PROMOTING INVESTMENT IN BACKWARD AREAS AND/OR FOR S ETTING UP NEW INDUSTRY/UNIT OR FOR THE EXPANSION OF THE EXISTING INDUSTRY/UNIT AND CONSEQUENT GENERATION OF EMPLOYMENT, THEN IRRESPECT IVE OF NOMENCLATURE IT IS TO BE TREATED AS CAPITAL SUBSIDY. THUS THE OBJEC T FOR WHICH SUBSIDY/ASSISTANCE IS PROVIDED DETERMINES THE CAPIT AL OR REVENUE NATURE OF THE SUBSIDY AND THE FORM IN WHICH THE SUBSIDY IS GI VEN IS IRRELEVANT. APPLYING THESE PRINCIPLES IN THE PRESENT CASE, THE INTEREST AND WAGE SUBSIDY RECEIVED BY THE APPELLANT COMPLIES WITH ALL THESE R EQUIREMENTS TO HOLD IT AS CAPITAL SUBSIDY. THE SCHEME UNDER WHICH THE SUBSIDY WAS GIVEN TO THE APPELLANT WAS FOR THE PURPOSE OF PROMOTING CAPITAL INVESTMENT IN THE STATE OF RAJASTHAN AND THEREFORE, THE SUBSIDY RECEIVED BY TH E APPELLANT DESERVES TO BE ALLOWED AS CAPITAL RECEIPT. THE ISSUE RELATING TO S ALES TAX SUBSIDY IN THE CASE OF THE APPELLANT HAS BEEN PUT TO REST BY THE HONBL E ITAT BY HOLDING THE SAME AS CAPITAL RECEIPT. ONE OF THE MAJOR ARGUMENT OF THE DEPARTMENT RAISED IN THE SAID CASE WAS THAT THE SALES TAX SUBS IDY IS NEVER RECEIVED BY THE ASSESSEE AND IT IS A KIND OF NOTIONAL INCOME IN THE HANDS OF THE ASSESSEE AND THEREFORE, THE SAME CANNOT BE REGARDED AS RECEIPT I TSELF AND CONSEQUENTLY CANNOT BE REGARDED AS CAPITAL RECEIPT. HOWEVER, IN THE CASE OF THE INTEREST AND WAGE SUBSIDY, THE SAME IS ACTUALLY RECEIVED BY THE ASSESSEE IN THE FORM OF A CHALLAN SHOWING THE TOTAL AMOUNT OF SUBSIDY GR ANTED TO THE ASSESSEE BY ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 50 THE GOVERNMENT AND THE SAME CAN BE PRODUCED BEFORE THE SALES TAX AUTHORITY BY THE ASSESSEE FOR CLAIMING THE AMOUNT SHOWN IN TH E CHALLAN AS THE AMOUNT PAID BY THE ASSESSEE AGAINST THE TOTAL SALES TAX LI ABILITY. THEREFORE, IT IS AN ACTUAL RECEIPT IN THE HANDS OF THE ASSESSEE AND THE REFORE, MUST BE REGARDED AS CAPITAL RECEIPT. RELIANCE IS PLACED ON FOLLOWING JU DGMENTS: (I) CIT V. PONNI SUGARS & CHEMICALS LTD. & ORS. R EPORTED IN (2008) 306 ITR 392 (SC), BHUSHAN STEELS & STRIPS LT D. VS. DY. CIT, (2004) 91 TTJ (DEL) 108. (II) CIT VS. BALARAMPUR CHINI MILLS LTD., (1999) 2 38 ITR 445 (CAL). (III) KALPANA PALACE VS. CIT, (2005) 275 ITR 365 ( ALL). THUS IN VIEW OF THE AFORESAID FACTS, EVIDENCES AND POSITION OF LAW, IT IS CLEAR THAT THE WAGE SUBSIDY RECEIVED BY THE APPELLANT IS A CAPITAL RECEIPT AND NOT A REVENUE RECEIPT. LD. AO WHILE HOLDING THAT THE WAGE SUBSIDY CANNOT BE TREATED AS CAPITAL RECEIPT IS NOT CERTAIN WITH HIS OWN FINDING AS IT HAS ALSO BEEN HELD BY HIM THAT - NOTWITHSTANDING ABOVE, IF IT IS HELD THAT THE SUBSIDY IS CAPITAL IN NATURE THEN IN THAT CASE THE SUBSIDY AMOUNT IS REQUIRED TO BE DEDUCTED FROM THE COST OF THE VARIOUS ASSETS FORMIN G PART OF THE PROJECT IN VIEW OF THE EXPLANATION 10 TO SECTION 43(1). IN TH IS REGARD, IT IS SUBMITTED THAT EXPLANATION 10 TO SECTION 43(1) OF THE ACT, IS NOT ATTRACTED UNDER THE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 51 FACTS AND CIRCUMSTANCES OF THE CASE. THE SECTION 43 (1) OF THE ACT PROVIDES THE DEFINITION OF ACTUAL COST AND THE EXPLANATION 10 THEREIN STATES THAT EXPLANATION 10.WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR I NDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR ANY AUTHORITY E STABLISHED UNDER ANY LAW OR BY ANY OTHER PERSON, IN THE FORM OF A SU BSIDY OR GRANT OR REIMBURSEMENT (BY WHATEVER NAME CALLED), THEN, SO M UCH OF THE COST AS IS RELATABLE TO SUCH SUBSIDY OR GRANT OR REIMBURSEMENT SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE: PROVIDED THAT WHERE SUCH SUBSIDY OR GRANT OR REIMBURSEMENT IS OF SUCH NATURE THAT IT CANNOT BE D IRECTLY RELATABLE TO THE ASSET ACQUIRED, SO MUCH OF THE AMOUNT WHICH BEARS T O THE TOTAL SUBSIDY OR REIMBURSEMENT OR GRANT THE SAME PROPORTION AS SUCH ASSET BEARS TO ALL THE ASSETS IN RESPECT OF OR WITH REFERENCE TO WHICH THE SUBSIDY OR GRANT OR REIMBURSEMENT IS SO RECEIVED, SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET TO THE ASSESSEE. IT IS CLEARLY SEEN THAT EXPLANATION 10 CAN BE INVOK ED ONLY WHEN A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS B EEN MET DIRECTLY OR INDIRECTLY BY THE CENTRAL GOVERNMENT OR A STATE GOV ERNMENT OR ANY AUTHORITY OR BY ANY OTHER PERSON, IN THE FORM OF A SUBSIDY OR GRANT OR REIMBURSEMENT BY WHATEVER NAME CALLED. HOWEVER, IN THE PRESENT CASE NO PORTION OF THE COST OF ESTABLISHING THE INDUSTRY OR THE COST OF ASSETS ACQUIRED IN RELATION THERETO HAS BEEN MET BY THE RAJASTHAN S TATE GOVERNMENT IN ANY MANNER. THE WAGE SUBSIDY IS PROVIDED TO THE APPELLA NT AS A MEASURE OF ENCOURAGEMENT IN ESTABLISHING INDUSTRY IN THE STATE OF RAJASTHAN. THE SUBSIDY HAS NOT BEEN PROVIDED BY THE GOVERNMENT TO REIMBURSE A PART OF THE COST OF THE PROJECT OR ANY PARTICULAR ASSET. THE SU BSIDY IS LINKED TO THE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 52 NUMBER OF EMPLOYEES HIRED IN THE NEW INDUSTRIAL SET -UP FOR A MINIMUM PERIOD OF TIME DURING THE PREVIOUS YEAR. THEREFORE, BY NO STRETCH OF IMAGINATION, THE EXPLANATION 10 TO SECTION 43(1) OF THE ACT CAN BE INVOKED IN THE PRESENT CASE. RELIANCE IS PLACED ON THE CASE OF CIT VS. P.J. CHEMICALS LTD., (1994) 121 CTR (SC) 201, HOLDING THAT IN RELA TION TO SUBSIDY RECEIVED FROM GOVERNMENT UNDER CENTRAL SUBSIDY SCHEME, 1971 THAT SUCH SUBSIDY IS RECEIVED AS AN INCENTIVE AND NOT FOR THE SPECIFIC P URPOSE OF MEETING A PORTION OF THE COST OF ASSETS, THOUGH QUANTIFIED AS A PERCE NTAGE OF SUCH COST. IT DOES NOT PARTAKE THE CHARACTER OF A PAYMENT INTENDED EIT HER DIRECTLY OR INDIRECTLY TO MEET THE `ACTUAL COST'. EXPRESSION `ACTUAL COST' NEEDS TO BE INTERPRETED LIBERALLY. THEREFORE, REASONING UNDERLYING THE CONC LUSION REACHED BY THE MAJORITY OF THE HIGH COURTS THAT SUBSIDY SHOULD NOT BE DEDUCTED FROM `ACTUAL COST' CANNOT BE SAID TO BE AN UNREASONABLE VIEW. IT IS SUBMITTED THAT THE IMPUGNED SUBSIDY BEING AN INCENTIVE FOR INDUSTRIAL INVESTMENT AND NOT DIRECTLY PROVIDED FOR MEETING THE COST OF THE ASSET S AND HENCE CANNOT BE DEDUCTED FROM ACTUAL COST OF ASSET. FURTHER PLACES RELIANCE UPON THE FOLLOWING DECISIONS: - SASISRI EXTRACTIONS LTD. VS. ACIT, (2010) 122 ITD 4 28. - CIT VS. GODAVARI PLYWOODS LTD., (1987) 62 CTR (AP) 179. CIT VS. MENEZES FARMACO, (1999) 153 CTR (BOM) 300. - CIT VS. ELYS PLASTICS PVT. LTD., (1990) 87 CTR (BOM ) 80. - CIT VS. DEWAS SYNTHETICS (P) LTD., (1990) 90 CTR (C AL) 75. - CIT VS. MEGHALAYA PLYWOOD LTD., (1994) 116 CTR (GAU ) 301. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 53 IN VIEW OF THESE SUBMISSIONS AND RELYING ON THE AFO REMENTIONED JUDICIAL PRECEDENTS, IT IS VEHEMENTLY CONTENDED THAT THE IMP UGNED SUBSIDY IS TO BE TREATED AS CAPITAL IN NATURE AND EXPLANATION 10 TO SECTION 43(1) OF THE ACT IS NOT APPLICABLE AND SAME CANNOT BE DEDUCTED FROM TH E COST OF THE VARIOUS ASSETS. 9.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND ALSO THE RELEVANT PROVISION S AND CASE LAWS. GOVERNMENT OF RAJASTHAN, TO ATTRACT INVESTMENT IN B ACKWARD AREAS IN THE STATE AND SETTING UP OF INDUSTRIES/ UNITS/ MODERNIZ ATION OF EXISTING INDUSTRIES INTRODUCED A NEW SCHEME NAMED AS RAJASTHAN INVESTME NT PROMOTION POLICY, 2003, VARIOUS KINDS OF SUBSIDIES/INCENTIVES WERE A NNOUNCED FOR ENTREPRENEURS WHO ESTABLISHED INDUSTRIAL UNITS IN THOSE NOTIFIED AREAS SPECIFIED IN THE SCHEME. THE PARA 3 OF RIPP 2003 RE GARDING APPLICABILITY OF THE SCHEME STATES THAT THE SCHEME SHALL BE APPLICAB LE TO ALL NEW INVESTMENTS MADE BY THE EXISTING UNITS AND ENTERPRISE FOR MODER NIZATION/DIVERSIFICATION INCLUDING THE UNITS/ENTERPRISES, COVERED UNDER POLI CY FOR PROMOTION OF AGRO- PROCESSING AND AGRI-BUSINESS, 2010 SUBJECT TO THE C ONDITION THAT SUCH UNITS SHALL COMMENCE PRODUCTION/OPERATIONS OWING TO SUCH INVESTMENT DURING THE OPERATIVE PERIOD OF THE SCHEME. THEREFORE , IT IS CLEAR THAT THE OBJECTIVE OF THE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 54 IMPUGNED SCHEME WAS TO PROMOTE INDUSTRIAL DEVELOPME NT IN THE STATE. IT HAS BEEN HELD BY VARIOUS JUDICIAL AUTHORITIES MENTIONED ABOVE THAT IF ANY SCHEME IS LAUNCHED WITH THE OBJECTIVE OF PROMOTING INVESTM ENT IN BACKWARD AREAS OR FOR SETTING UP NEW INDUSTRY/UNIT OR FOR THE EXPANSI ON OF THE EXISTING INDUSTRY/UNIT AND RESULTS IN GENERATION OF EMPLOYME NT, THEN IRRESPECTIVE OF NOMENCLATURE IT IS TO BE TREATED AS CAPITAL SUBSIDY . THUS THE OBJECT FOR WHICH SUBSIDY/ASSISTANCE IS PROVIDED DETERMINES THE CAPIT AL OR REVENUE NATURE OF THE SUBSIDY AND THE FORM IN WHICH THE SUBSIDY IS GI VEN IS IRRELEVANT. WE ARE OF THE VIEW THAT THE SCHEME UNDER WHICH THE SUBSIDY IN QUESTION WAS GIVEN TO THE APPELLANT WAS FOR THE PURPOSE OF PROMOTING C APITAL INVESTMENT IN THE STATE OF RAJASTHAN AND THEREFORE, THE SUBSIDY RECEI VED BY THE APPELLANT IS TO BE TREATED AS CAPITAL RECEIPT. SIMILAR ISSUE ON SAL ES TAX SUBSIDY STANDS DECIDED BY ITAT IN EARLIER YEARS WHICH WE SHALL DEA L HEREINAFTER. IN VIEW OF THE ABOVE OBSERVATIONS, JUDICIAL PRECEDENTS AND ITA T JUDGMENT IN ASSESSEES CASE OF SALES TAX SUBSIDY WE HOLD THAT INTEREST AND WAGE SUBSIDY IS CAPITAL IN NATURE. ORDER OF LD. CIT(A) IS UPHELD ON THIS ISSUE AND REVENUE GROUND NO. 3 IS DISMISSED. 9.6 APROPOS AOS ALTERNATE OBSERVATIONS APPLICATION OF EXPLANATION 10 TO SECTION 43(1) IT IS SETTLED THAT WHEN SUBSIDY IS RE CEIVED AS AN INCENTIVE AND NOT FOR THE SPECIFIC PURPOSE OF MEETING A PORTION O F THE COST OF ASSETS, IT ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 55 CANNOT PARTAKE THE CHARACTER OF A PAYMENT EITHER DI RECTLY OR INDIRECTLY TO MEET THE `ACTUAL COST'. THE IMPUGNED SUBSIDY BEING AN INCENTIVE FOR INDUSTRIAL INVESTMENT AND NOT PROVIDED FOR MEETING COST OF AN ASSETS IT ALSO CANNOT BE DEDUCTED FROM ACTUAL COST OF ASSETS AS EX PLANATION 10 TO SECTION 43(1) IS NOT APPLICABLE TO SUCH CASE. THIS GROUND O F THE REVENUE STANDS DISMISSED. 10.1 REVENUES GROUND NO. IV RELATES TO THE CLAIM OF SALES TAX INCENTIVE OF RS. 2,81,87,608/- ALLOWED BY THE LD. CIT(A). 10.2 LD. DR RELIED ON THE ORDER OF AO. 10.3 LD. COUNSEL CONTENDS THAT LD. AO DISREGARDING A SERIES OF ITAT JUDGMENTS HOLDING THE SALES TAX SUBSIDY TO BE CAPIT AL IN NATURE ARBITRARILY HELD IT TO BE REVENUE IN NATURE. THE ITAT FOLLOWING ITS EARLIER JUDGMENTS HAS HELD THE SALES TAX SUBSIDY AS CAPITAL IN NATURE IN AY 2007-08 BY FOLLOWING OBSERVATIONS : 14. THIS ISSUE HAS BEEN DISCUSSED BY LD. CIT (A) IN HIS ORDER AT PAGE 47. THE BRIEF FACTS AND FINDINGS OF THE LD. CIT (A ) HAVE BEEN DISCUSSED IN PARA 5.1 AT PAGE 47 OF HIS ORDER ARE AS UNDER :- 5.1 WITH REFERENCE TO THIS GROUND OF APPEAL, LD. AR SUBMITTED, AT THE VERY OUTSET, THAT THIS GROUND WAS COVERED IN FAVOUR OF THE APPELLANT BY THE ORDER OF HONBLE ITAT, JAIPUR BENCH, JAIPUR PASSED IN ITA NO. 655/JP/09 DATED 31.03.2010, IN THE APPELLANTS OWN CASE FOR THE A.Y. 2006-07. IN SUPPORT, LD. AR PLACED A COPY OF THE SA ID DECISION OF THE HONBLE TRIBUNAL ON RECORD AND PLEADED THAT, IN VIE W OF THE SAID ORDER, THE IMPUGNED DISALLOWANCE MADE BY THE AO BE DELETED . ON PERUSAL OF PARA 3 OF THE ASSESSMENT ORDER, WHEREIN THE LD. AO HAS DISCUSSED THE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 56 IMPUGNED DISALLOWANCE, THE SUBMISSIONS OF THE LD. A R MADE IN SUPPORT OF THIS GROUND OF APPEAL AND AFTER GOING THROUGH THE A FORESAID ORDER OF THE HONBLE JURISDICTIONAL BENCH OF THE ITAT, I FIND TH AT THE CONTENTION OF THE LD. AR IS CORRECT. THEREFORE, RESPECTFULLY FOLLOWIN G AFOREMENTIONED ORDER OF THE HONBLE ITAT, JAIPUR BENCH, PASSED IN THE AP PELLANTS OWN CASE FOR A.Y. 2006-07, THIS ISSUE IS DECIDED IN FAVOUR OF TH E APPELLANT. ACCORDINGLY, THE AO IS DIRECTED TO ALLOW THE APPELLANTS CLAIM O F RS . 2,68,43,528/- MADE IN RESPECT OF THE SALES-TAX INCENTIVE. 15. SINCE FINDINGS OF LD. CIT (A) ARE IN CONSONANCE WITH THE FINDINGS OF LD. CIT (A) FOR ASSESSMENT YEAR 2006-07 , ADDITION MADE BY AO WAS MADE ON THE BASIS OF ADDITION MADE IN THE ASSES SMENT YEAR 2006-07. THE TRIBUNAL HAS DELETED THE ADDITION AND LD. CIT ( A) HAS FOLLOWED THE ORDER OF THE TRIBUNAL WHILE DELETING THE ADDITION F OR THE YEAR UNDER CONSIDERATION. 16. THE LD. D/R HAS ALSO FAIRLY ACCEPTED THAT SIMIL AR ADDITION WAS MADE IN EARLIER YEAR ALSO. HOWEVER, HE HAS STA TED THAT IN VIEW OF THE EXPLANATION-10 OF SECTION 43(1) IT SHOULD HAVE BEEN CONSIDERED. 17. SINCE TRIBUNAL HAS TAKEN INTO CONSIDERATION THI S VERY ISSUE ALSO, THEREFORE, THERE IS NO REASON TO INTERFERE WI TH THE FINDING OF LD. CIT (A) OTHERWISE IT WILL INVITE INCONSISTENCY. ACCORD INGLY, WE CONFIRM THE ORDER OF LD. CIT (A) ON THIS ISSUE ALSO 10.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE ISSUE ABOUT SALES TAX SUBS IDY BEING CAPITAL IN NATURE, STANDS SQUARELY DECIDED IN FAVOUR OF THE ASSESSEE I N PRECEDING ASSESSMENT YEARS BY THE ITAT BY A SERIES OF EARLIER YEARS FROM AY 2001-02 ONWARDS TO 2007-08. THUS THE ISSUE IS SETTLED IN FAVOR OF THE ASSESSE AND NO MORE RES INTEGRA. LD. CIT(A), HAS ALLOWED THE SALES TAX INC ENTIVE AS CAPITAL RECEIPTS IN THE HANDS OF THE ASSESSEE BY FOLLOWING THESE MULTIP LE JUDGMENTS OF ITAT IN ASSSESSEES OWN CASE. IN THESE FACTS, CIRCUMSTANCES AND JUDICIAL POSITION, WE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 57 UPHOLD THE ORDER OF THE LD. CIT(A), THIS GROUND NO. 4 OF THE REVENUE IS DISMISSED. 11.1 REVENUE GROUND (V) RELATES TO THE EXPENDITURE OF RS. 2,09,89,160/- INCURRED ON ACCOUNT OF PUBLICITY AND SALES PROMOTIO N EXPENSES DISALLOWANCE BY THE LD. AO AND ALLOWED BY THE LD. CIT(A). 11.2 BRIEF FACTS OF THIS GROUND ARE THAT DURING THE A.Y. 2008-09, THE APPELLANT INCURRED ROUTINE EXPENSES OF RS. 2,63,31, 985/- AND RS. 2,09,89,160/- AS SPECIFIC EXPENDITURE TOWARDS PUBLI CITY AND SALES PROMOTION. THE SPECIFIC EXPENDITURE HAS BEEN AMORTIZED IN THE BOOKS OF THE APPELLANT COMPANY OVER A PERIOD OF 5 YEARS. LD. AO HOWEVER, A LLOWED ONLY RS. 41,97,832/- OUT OF SPECIFIC EXPENDITURE OF RS. 2,09 ,89,160/- AS REVENUE EXPENDITURE DURING THE YEAR AND THE BALANCE AMOUNTI NG TO RS. 1,67,91,332/- WAS CARRIED FORWARD TO THE SUBSEQUENT YEARS AS DEFE RRED REVENUE EXPENDITURE. QUA THE ROUTINE EXPENSES AO DISALLOWED THE SAME ON FOLLOWING COUNTS: I. ASSESSEE CLAIMED EXPENDITURE OF RS. 2,63,31,985/- I N THE COMPUTATION OF INCOME TOWARDS THE PUBLICITY AND SAL ES PROMOTION THOUGH IN THE A/C BOOKS IT HAS BEEN TREAT ED AS DEFERRED REVENUE EXPENDITURE BY DEBITING ONLY 1/5 TH THEREOF AMOUNTING TO RS. 75,30,867/-. II. ADVERTISEMENT AND PUBLICITY PROVIDE ENDURING BENEF IT TO THE ASSESSE. THOUGH THE ACT DOES NOT PROVIDE FOR AMORTI ZATION OF SUCH EXPENSES, SINCE THE ASSESSE ITSELF HAS BEEN TR EATED IT AS DEFERRED REVENUE EXPENDITURE AND AMORTIZED 1/5 TH IN THE BOOKS OVER FIVE YEARS, BALANCE OF RS. 1,17,28,699/- WAS H ELD TO BE NOT ALLOWABLE AS EXPENDITURE IN THE INSTANT YEAR. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 58 III. 27. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) FOUND THAT THE EXPENDITURE CLAIMED BY ASSESSEE IS ALLOWAB LE UNDER SECTION 37(1). THE LD. CIT (A) HAS CONSIDERED VARI OUS CASE LAWS ALSO. THE FINDINGS OF LD. CIT (A) HAVE BEEN R ECORDED IN PARA 7.3 AT PAGE 55 OF HIS ORDER ARE AS UNDER :- 11.3 LD. CIT (A) AFTER APPRECIATING THE NATURE OF E XPENDITURE INCURRED AND ABOVE LEGAL PROPOSITIONS DELETED THESE DISALLOWANCE S BY FOLLOWING THE DECISION OF:- I. M/S SALORA INTERNATIONAL REPORTED IN 308 ITR 199 (D ELHI) II. HONBLE GUJARAT HIGH COURT - DCIT V/S CORE HEALTHCA RE LTD. 308 ITR 263 11.4 AGGRIEVED, REVENUE IS IN APPEAL. LD. DR RELIED ON THE ORDER OF LD. AO. 11.5 IT IS VEHEMENTLY CONTENDED BY THE LD. AR THAT IN THIS YEAR LD. CIT(A) HAS FOLLOWED HIS OWN ORDER FOR AY 2007-08 BEING ON SIMILAR FACTS. AGGRIEVED ON THAT ORDER REVENUE PREFERRED APPEAL BE FORE ITAT, JAIPUR WHICH UPHELD THE ORDER OF LD. CIT(A) FOR AY 2007-08 BY OB SERVING AS UNDER:- 30. AFTER CONSIDERING THE FINDINGS OF AO AND LD. C IT(A), WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT(A). THE LD. CIT (A) HAS DISCUSSED THE ISSUE IN DETAIL AFTER TAKING INTO CONSIDERATION THE DETAILED SUBMISSIONS OF THE ASSESSEE REPRODUCED IN THE ORDER OF LD. CIT(A), WHICH ARE AL SO TABULATED SOMEWHERE ABOVE IN THIS ORDER. IT IS FURTHER SEEN THAT LD. CI T(A) HAS TAKEN INTO CONSIDERATION THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF M/S SALORA INTERNATIONAL, 308 ITR 199 (DEL.) AND THE DECISION IN CASE OF M/S CORE HEALTHCARE LTD., 308 ITR 263 (GUJARAT) WHICH HAS NOW BEEN AFFIRMED BY HONBLE SU PREME COURT ALSO. SIMILAR FACTS ARE INVOLVED BEFORE HONBLE DELHI HIGH COURT AS WELL AS BEFORE HONBLE ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 59 GUJARAT HIGH COURT. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDINGS OF LD. CIT(A) WHICH REMAINED UNCONTROVERTED. ACCORDING LY WE CONFIRM THE FINDING OF LD. CIT(A) ON THIS ISSUE ALSO. IT IS CONTENDED THAT THE ISSUE AGITATED BY REVENUE ABOUT PUBLICITY AND SALES PROMOTION IS SQUARELY COVERED BY ITAT ORDER AND THE RE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A). ADVERTING TO THE FACTS IT IS CONTENDED THAT EXPENDITURE INCURRED IS UNDISPUTEDLY GENUINE, INCURRED FOR PUBL ICITY AND SALES PROMOTION DURING THE COURSE OF BUSINESS AS A REGULAR PAST PRA CTICE; ITS BEING PURELY REVENUE EXPENDITURE ALSO HAS NOT BEEN DISPUTED. INC OME TAX ACT AND AS SUCH, THE ENTIRE EXPENDITURE IS ELIGIBLE UNDER SECT ION 37(1) OF THE ACT. HONBLE SUPREME COURT IN ITS SALUTARY JUDGMENT IN T HE CASE OF KEDAR NATH JUTE MILLS 82 ITR 363(SC) HAS SQUARELY HELD THAT, F OR ALLOWABILITY OF EXPENDITURE THE NOMENCLATURE OR ENTRIES IN THE BOOK S CHOSEN BY ASSESSE IS NOT DECISIVE, IT DEPENDS ON THE ACTUAL NATURE OF TH E EXPENDITURE AND ITS ALLOWABILITY AS PER LAW. THE IMPUGNED EXPENDITURE O N PUBLICITY AND SALES PROMOTION BEING GENUINE, INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSES OF BUSINESS, BEING REVENUE IN NATURE AND ADMITTEDLY THERE BEING NO PROVISIONS OF DEFERRED REVENUE EXPENDITURE OR AMORT IZATION IN THIS BEHALF UNDER THE ACT, THEREFORE, IT IS ELIGIBLE AS ALLOWAB LE BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT AND THE ORDER OF THE LD. CIT(A) DESERVES TO BE UPHOLD. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 60 11.6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AS ALSO THE RELEVANT PROVISIONS AND JUDICIAL CITATIONS. IT IS NOT DISPUTED THAT FACTS AND CIRCUMSTANCES OF THIS ISSUE ARE SIMILAR TO THAT OF AY 2007-08, LD. CIT(A) HAS FOLLOWED HIS OWN ORDER WHICH IS UPHELD BY ITAT. IN VIEW THEREOF WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) WHICH IS UPHEL D IN PRECEDING YEAR. THIS GROUND NO. 5 OF THE REVENUE IS DISMISSED. 12.1 REVENUE GROUND NO. (VI) RELATES TO THE ALLOWAN CE OF NORMAL DEPRECIATION U/S 32 AND ADDITIONAL DEPRECIATION U/S 32(1)(IIA) ON THE PURCHASE OF PICK AND PLACE MOUNTING MACHINE FOR RS. 7,12,286/-. ASSESSEE PURCHASED A MACHINE KNOWN AS PICK & PLACE MACHINE IN FY 2004-05 RELEVANT TO AY 2005-06 HAD INITIALLY CLAIMED WEIGHT ED DEDUCTION U/S 35(2AB) OF INCOME TAX ACT, 1961. SINCE THE PRESCRIB ED AUTHORITY I.E. DGIT (EXEMPTION) HAD NOT ALLOWED THE WEIGHTED DEDUCTION U/S 35(2AB) ON THE CAPITAL EXPENDITURE INCURRED ON SUCH MACHINE THEREF ORE, IN THE ASSESSMENT PROCEEDINGS FOR AY 2005-06 REVISED CLAIM WAS MADE A ND IT WAS CONTENDED THAT THE STATUTORY DEPRECIATION U/S 32 OF THE INCOM E TAX ACT, 1961 SHOULD BE ALLOWED ON THE SAME SINCE THE MACHINE WAS UNDER USE OF BUSINESS; HOWEVER LD. AO WHILE PASSING THE ASSESSMENT ORDER FOR AY 2 005-06, THOUGH ALLOWED THE DEDUCTION U/S 35(2AB) AS PER THE APPROVAL GRANT ED AND BUT DISALLOWED THE DEPRECIATION ON THE PICK & PLACE MACHINE ON W HICH THE DEDUCTION U/S ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 61 35(2AB) WAS NOT GRANTED BY THE PRESCRIBED AUTHORITY . FOLLOWING THE ASSESSMENT ORDERS OF PREVIOUS YEARS, THE DEPRECIATI ON CLAIMED ON THE SAID MACHINE HAS BEEN DISALLOWED IN THE YEAR UNDER CONSI DERATION ALSO. 12.2 IN FIRST APPEAL LD. CIT(A) FOLLOWING EARLIER Y EARS ORDERS ALLOWED THE CLAIM OF DEPRECIATION. 12.3 AGGRIEVED, REVENUE IS BEFORE US. LD. DR RELIED ON THE ORDER OF AO . 12.4 LD. COUNSEL CONTENDS THAT THE ITAT HAS ALREADY DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE VIDE ORDERS DATED 30.06.2009 IN ITA NO. 157/JP/09 & 314/JP/09 FOR A.Y. 2005-06; AT PARA 20 PAGE NO. 26 THE ITAT HELD AS UNDER: 20. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND THE PRECEDENTS RELIED UPON AND AFTER PERUSAL THE MATERIAL AVAILABLE BEFOR E US WE FIND THAT THE LD. CIT(A) HAS ALLOWED THE DEPRECIATION CLAIMED U/S 32 AND ADDITIONAL DEPRECIATION U/S 32(IIA) TO THE ASSESSEE BY RECORDING HIS FINDIN GS IN PARA 3.3 WHICH READS AS UNDER: 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF LD. AR ON PERUSAL OF THE RELEVANT RE CORDS, I FIND THAT THERE IS NO DISPUTE REGARDING THE PURCHASE OF PICK AND PLACE MOUNTING MACHINE AND USE OF THE SAME FOR BUS INESS PURPOSES BY THE ASSESSEE. FURTHER, IT IS ALSO OBSER VED FROM THE RECORD THAT THE PRESCRIBED AUTHORITY DID NOT ALLOW DEDUCTION U/S 35(2AB) OF THE ACT ON THE GROUND THAT THE SAID MACH INE WAS A HIGH PRODUCTIVITY MACHINE, WHICH WAS MORE SUITABLE FOR REGULAR PRODUCTION AND, THEREFORE, CANNOT BE SAID TO HAVE B EEN USED FOR R&D WORK ALONE. IN THIS REGARD, LD. AR CLARIFIED TH AT SINCE THE WEIGHTED DEDUCTION HAD BEEN CLAIMED U/S 35(2AB), TH E ASSESSEE HAD NOT CLAIMED DEDUCTION U/S 32 AND U/S 32(1)(IIA) OF THE ACT ON THE SAME MACHINE. IT WAS POINTED OUT THAT WHEN THE PRESCRIBED AUTHORITY HELD THAT THE SAME MACHINE WAS NOT ENTITL ED FOR DEDUCTION U/S 35(2AB), THEN THE ASSESSEE, AS PER TH E REVISED COMPUTATION (APB PAG. 216-217), DID NOT CLAIM DEDUC TION U/S 35(2AB) ON THAT MACHINE, BUT CLAIMED DEDUCTION U/S 32 AND 32(1)(IIA) OF THE ACT AS THE MACHINE HAD BEEN USED FOR THE BUSINESS PURPOSES. ON PERUSAL OF THE RELEVANT RECOR DS, I FIND ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 62 MERIT IN THE CONTENTION OF LD. AR BECAUSE THERE IS NO DISPUTE REGARDING THE PURCHASE, OWNERSHIP AND USE OF THAT M ACHINE FOR BUSINESS PURPOSES. THEREFORE, MERELY BECAUSE THE SA ME WAS NOT FOUND ELIGIBLE FOR DEDUCTION U/S 35(2AB) OF THE ACT BY THE PRESCRIBED AUTHORITY, THE NORMAL DEDUCTIONS U/S 32 AND ADDITIONAL DEPRECIATION U/S 32(1)(IIA) OF THE ACT C LAIMED BY THE ASSESSEE, CANNOT BE DENIED, WITHOUT FINDING ANY FAU LT IN THAT CLAIM. ACCORDINGLY, THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE APPELLANT ASSESSEE MADE U/S 32 AND U/S 32(1)(IIA) O F THE ACT IN RESPECT OF THE AFORESAID PICK AND PLACE MOUNTING M ACHINE. CONSEQUENTLY, THIS GROUND OF APPEAL IS ALLOWED. FROM THE FACTS WE FIND THAT IT WAS NOT THE CASE OF THE REVENUE THAT THE ASSET UNDER QUESTION WAS NOT PURCHASED BY THE ASSESSEE OR HAS N OT BEEN USED IN RESEARCH AND DEVELOPMENT ACTIVITY, HOWEVER, MERELY FOR THE REASO N THAT THE ASSET COULD NOT QUALIFY FOR WEIGHTED DEDUCTION U/S 35(2AB) IT WAS P RESUMED BY THE AO THAT THE MACHINE WAS NOT USED IN THE BUSINESS AND THEREFORE, IS NOT ELIGIBLE FOR DEPRECIATION. HONBLE JURISDICTIONAL RAJASTHAN HIGH COURT IN THE CASE OF UDAIPUR DISALLARY CO. LTD. (SUPRA) HAS ALLOWED THE DEPRECIA TION ON THE ASSETS USED FOR RESEARCH AND DEVELOPMENT ACTIVITY EVEN IN CASE WHEN A PART OF BUSINESS WAS CLOSED BY HOLDING THAT THE DEPRECIATION OUGHT TO BE ALLOWED HAS DEDUCTION AS PART OF THE BLOCK OF ASSETS OF RESEARCH AND DEVELOPMENT DIVISION. THUS BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N CASE OF UDAIPUR DISALLARY CO. LTD. (SUPRA) WE ARE OF THE VIEW THAT IT IS NOT IN DISPUTE WHETHER THE ASSET WAS USED FOR THE RESEARCH AND DEVELOPMENT ACTIVITY WHIC H IS SERVING TO THE BUSINESS OF THE ASSESSEE AND THEREFORE ANY ASSET USED IN SUCH A CTIVITY SHOULD ALSO BE A PART OF THE BUSINESS AND ACCORDINGLY THE DEPRECIATION OVER THE SAME SHOULD BE ALLOWED AS PER LAW. IN THESE CIRCUMSTANCES WE FULLY AGREE WITH THE DECISION OF THE LD. CIT(A) WHO HAS RIGHTLY ALLOWED THE DEPRECIATION U/S 32 AND ADDITIONAL DEPRECIATION U/S 32(IIA) ON PICK AND PLACE MOUNTING MACHINE TO THE ASSESSEE. THUS GROUND NO. 2 OF THE REVENUE IS DISMISSED. THEREAFTER, RELYING ON THE ABOVE FINDING OF ITAT, T HE SAME CLAIM OF DEPRECIATION HAS ALSO BEEN ALLOWED IN A.Y.2006-07 A ND A.Y.2007-08; CONSEQUENTLY DEPRECIATION HAS BEEN RIGHTLY ALLOWED BY LD. CIT(A), WHICH DESERVES TO BE UPHELD. 12.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AS ALSO THE RELEVANT PROVISIONS AND JUDICIAL CITATIONS. IT IS NOT DISPUTED THAT FACTS AND ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 63 CIRCUMSTANCES ABOUT CLAIM OF DEPRECIATION STANDS DE CIDED IN EARLIER YEARS AS MENTIONED ABOVE. LD. CIT(A) HAS FOLLOWED HIS OWN OR DERS WHICH STAND UPHELD BY ITAT. IN VIEW THEREOF WE FIND NO INFIRMIT Y IN THE ORDER OF LD. CIT(A) WHICH IS UPHELD IN PRECEDING YEARS. THIS GRO UND NO. 6 OF THE REVENUE ABOUT DEPRECIATION OF PICK AND PLACE MACHINE IS DIS MISSED . 13.1 REVENUE GROUND NO. (VII) RELATES TO THE ALLOWA NCE OF DEDUCTION U/S 80IA(4) CLAIM AT RS. 15,68,667/- REPRESENTING THE P ROFITS FROM WIND MILLS WITH POWER GENERATION CAPACITY OF 350 KILOWATT INST ALLED AT BARAMSAR, JAISALMER, RAJASTHAN AND OWNED BY THE APPELLANT WHI CH WAS DISALLOWED BY LD. AO. THE ENTIRE POWER GENERATED FROM THE SAID WI ND MILL WAS SUPPLIED TO M/S. JAIPUR VIDYUT VITRAN NIGAM LTD. (HEREINAFTER R EFERRED TO AS JVVNL). LD. AO OBSERVED FROM THE COMPUTATION OF INCOME THAT THE ASSESSEE HAS MADE CAPTIVE USE OF THE POWER GENERATED BY THE WIND MILLS WHOSE VALUE HAS BEEN SHOWN AT RS. 17,80,421/- BY TAKING AVERAGE RAT E OF RS. 4.05 PER UNIT FOR RS. 4,39,610/- UNITS. AO REJECTING ASSESSEES EXPLA NATION HELD THAT, THE ASSESSEE HAS NOT ALLOCATED ANY HEAD OFFICE ADMINIST RATIVE OVERHEAD EXPENSES SINCE THE WIND MILL ELECTRICITY HAS BEEN UTILIZED F OR CAPTIVE CONSUMPTION AND NOT SOLD, AN ESTIMATED DISALLOWANCE FROM CLAIM DED UCTION OF RS. 15,68,667/- U/S 80IA (4) WAS MADE IN THIS BEHALF. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 64 13.2 AGGRIEVED ASSESSEE PREFERRED FIRST APPEAL, LD. CIT(A) WHERE IT WAS REITERATED THAT NO EXPENSES WERE INCURRED BY HO QUA THE WIND MILL PROJECT. THE OBLIGATION TO MAINTAIN AND, OPERATE THE WIND MI LL WAS OF M/S SUZLON ENERGY LTD., WHICH IS EVIDENT FROM PURCHASE ORDER D ATED 8.12.2003. CONSEQUENTLY M/S SUZLON ENERGY LTD. DID NOT CHARGE ANY EXPENSES IN THIS YEAR FOR ADMINISTRATIVE, OPERATIONAL OR MAINTENANCE PURPOSES. SINCE NO EXPENDITURE WAS INCURRED CONSEQUENTLY IT WAS NOT DE BITED TO P & L A/C, OTHER THAN THE INTEREST PAYABLE ON THE LOANS RAISED , WHICH ARE DULY CLAIMED FROM WIND MILL PROFITS. THEREFORE, THERE WAS NO JUS TIFICATION IN AOS ESTIMATE TO REDUCE IMPUGNED CLAIM OF DEDUCTION U/S 80IA (4). 13.3 LD. CIT(A) AFTER APPRECIATING THESE FACTS, SUB MISSIONS AND CONSIDERING THE JUDGMENT OF HONBLE DELHI HIGH COU RT IN THE CASE OF CIT V/S DCM SHRIRAM CONSOLIDATED LTD. REPORTED IN 176 T AXMAN 149 HELD THAT THE CAPTIVE CONSUMPTION CANNOT BE A GROUND TO DENY THE CLAIMED DEDUCTION. FURTHER, THIS VERY ISSUE STANDS ALREADY DECIDED BY ITAT, JAIPUR IN FAVOUR OF APPELLANT VIDE ITS ORDER DATED 22-12-2011 FOR A.Y.2 007-08 WITH THE RELEVANT OBSERVATIONS ARE AT PAGE 35 IN PARA 38, COPY OF ORD ER IS PLACED ON PAPER BOOK. IT HAS BEEN REPEATEDLY HELD THAT CAPTIVE CONS UMPTION, CANNOT BE A GROUND TO DENY THE CLAIM OF DEDUCTION, RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS :- ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 65 A) 176 TAXMAN 149 (DEL) CIT V DCM SHRIRAM CONSOLID ATED LTD B) 100 TTJ 833 (MUM) WEST COAST PAPER MILLS LTD V ACIT C) 100 TTJ 224 (KOL) ASSAM CARBON PRODUCTS LTD V J CIT D) ITA NO. 3095/D/07 M/S ORIENT ABRASIVE LTD A.Y. 2004-05 E) 263 ITR 364 (DEL) CIT V DALMIA DADRI CEMENT PLA NT LTD. SINCE THE ORDER OF LD. CIT(A) STANDS SUPPORTED BY H ONBLE DELHI COURT, ITAT JUDGMENT IN ASSESSEES OWN CASE FOR PRECEDING YEAR AND A CATENA OF JUDGMENTS CITED ABOVE, HIS ORDER DESERVES TO BE UPH ELD ON THIS ISSUE. 13.4 WE HAVE HEARD LD. DR AND COUNSEL FOR THE ASSES SE. IT IS NOT DISPUTED THAT FACTS AND CIRCUMSTANCES ABOUT ALLOWABILITY OF CLAIM OF DEDUCTION U/S 80IA(4) STANDS DECIDED IN AY 2007-08 BY ITAT BY FOL LOWING OBSERVATIONS:- 38. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A) ON WHICH RELIANCE HAS BEEN PLACED BY THE RESPECTIVE PARTY, W E FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). IT IS SEEN THAT SIMILAR IS SUE WAS DECIDED BY HONBLE DELHI HIGH COURT IN CASE OF DCM SHRIRAM CONSOLIDATED LTD. , 176 TAXMAN 149 (DELHI) WHICH HAS BEEN CONSIDERED BY LD. CIT (A). IT IS FU RTHER SEEN THAT THE ASSESSEE HAS ACTUALLY SOLD THE ELECTRICITY GENERATED FROM WIND M ILLS TO M/S. JVVNL, WHO IN TURN HAD MADE THE CORRESPONDING ADJUSTMENTS IN THE CONSUMPTION OF ELECTRICITY BY THE ASSESSEE AT ITS JAIPUR FACTORY. THEREFORE, IT C ANNOT BE SAID THAT ASSESSEE HAS CONSUMED THE ELECTRICITY OF ITS OWN. IN VIEW OF TH ESE FACTS, WE ARE OF THE CONSIDERED VIEW THAT LD. CIT (A) WAS JUSTIFIED IN A LLOWING THE DEDUCTION CLAIMED UNDER SECTION 80IA(4). ACCORDINGLY, WE CONFIRM HIS ORDER ON THIS ISSUE ALSO. LD. CIT(A) HAS FOLLOWED HIS OWN ORDERS WHICH ARE U PHELD BY ITAT. IN VIEW THEREOF WE FIND NO INFIRMITY IN THE ORDER OF LD. CI T(A) WHICH IS UPHELD IN PRECEDING YEARS. THIS GROUND NO. 7 OF THE REVENUE A BOUT DEDUCTION U/S 80IA(4) IS DISMISSED ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 66 14.1 REVENUE GROUND NO. (VIII) RELATES TO THE CLAIM OF DEDUCTION U/S 80JJAA OF RS. 60,66,380/- ALLOWED BY THE LD. CIT(A) . AT THE OUTSET OF THE HEARING, IT IS CONTENDED BY THE LD. AR THAT THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN PRECEDING YEARS BY THE ITAT. THE LD. CIT(A) HAS ALLOWED THE DEDUCTION TO THE ASSESSEE BY FOLLOW ING THESE ORDERS OF THE ITAT IN ASSESSEES OWN CASE. IN THESE FACTS AND CIR CUMSTANCES IT IS CONTENDED THAT SINCE THE DEDUCTION U/S 80JJAA OF TH E INCOME TAX ACT, 1961 STANDS ALREADY ALLOWED IN THE PRECEDING YEARS UNDER SIMILAR CIRCUMSTANCES THE DEDUCTION U/S 80JJAA HAS BEEN RIGHTLY ALLOWED B Y LD. CIT(A) AND THE ORDER ON THIS ISSUE DESERVES TO BE UPHELD. 14.2 WE HAVE HEARD LD. DR AND COUNSEL FOR THE ASSES SE. IT IS NOT DISPUTED THAT FACTS AND CIRCUMSTANCES ABOUT ALLOWABILITY OF CLAIM OF DEDUCTION U/S 80JJAA STANDS DECIDED IN AY 2007-08 BY ITAT BY FOLL OWING OBSERVATIONS :- REVENUE GROUND IN AY 2007-08 REMAINING ISSUE IN THE APPEAL OF THE DEPARTMENT IS AGAINST ALLOWING DEDUCT ION UNDER SECTION 80JJAA OF RS. 66,73,927/-. DECISION - 43. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT AO HA S DISALLOWED THE CLAIM BY OBSERVING THAT SINCE THE CONDITIONS ARE NO T SATISFIED AS THE NUMBER OF WORKERS WHO WERE EMPLOYED IN FINANCIAL YE ARS 2004-05 AND 2005-06 ARE NOT AS PER RULES. IT IS FURTHER SE EN THAT A COPY OF FORM NO. 10DA CERTIFICATE BY THE AUDITORS IS PLACED AT PAGE 791 AND AS PER COLUMN NO. 9 TOTAL ADDITIONAL WAGES PAID IN PREVIOUS YEAR RELEVANT TO ASSESSMENT UNDER CONSIDERATION IS ASCER TAINED AT RS. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 67 2,22,46,427/-. 30% OF THE SAME I.E. RS. 66,73,927/ - HAS BEEN CLAIMED. THIS FIGURE HAS BEEN MENTIONED IN PARA 10 OF THIS R EPORT GIVEN IN FORM 10DA. IN PARA 12, THE AUDITOR HAS CERTIFIED T HAT ANNEXURES FOR PREVIOUS YEARS 2004-05 AND 2005-06 DULY CERTIFI ED HAS BEEN FILED ALONG WITH THE INCOME-TAX RETURN FOR ASSESSMENT YEA RS 2005-06 AND 06-07 FOR THE NEW REGULAR WORKMEN EMPLOYED IN PREVI OUS YEARS 2004- 05 AND 05-06 IN TERMS. IN THIS FORM FILED ALONG WI TH THE RETURN, NO DEFECT WHATSOEVER HAS BEEN POINTED OUT BY THE AO. CALCULATION SHEET WAS ALSO ENCLOSED, COPY OF WHICH IS PLACED AT PAGES 792 TO 797 AS MENTIONED ABOVE. THE LD. CIT (A) HAS CATEGORICALLY MENTIONED IN HIS ORDER THAT TRIBUNAL HAS ALLOWED THIS ISSUE FOR ASSE SSMENT YEAR 2006- 07 AND, THEREFORE, IN OUR CONSIDERED VIEW IT WILL B E FUTILE EXERCISE TO RESTORE THE MATTER TO THE FILE OF AO TO EXAMINE THE CONDITIONS ONCE AGAIN. THE AUTHORIZED AUDITORS HAVE CERTIFIED WHO HAS SIGNED FORM NO. 10DA, COPY OF WHICH IS PLACED ON RECORD AT PAGE 791 TO 797 OF THE PAPER BOOK. THEREFORE, IN VIEW OF THE CONSISTE NCY AND IN VIEW OF FACTUAL ASPECT EXAMINED BY THE AUDITORS WHICH WAS N OT COMMENTED UPON BY THE AO, WE HOLD THAT LD. CIT (A) WAS JUSTIF IED IN ALLOWING THE PART CLAIM OF THE ASSESSEE. IN FACT, FOR ASSESSME NT YEAR 2006-07 DEDUCTION CLAIMED AT RS. 51,00,000/- OR ODD WAS DIS ALLOWED UNDER SECTION 80JJAA. THE LD. CIT (A) ALLOWED THE DEDUCT ION IN PART AND ON SECOND APPEAL, THE TRIBUNAL FOUND THAT IN ASSESSEE S OWN CASE FOR ASSESSMENT YEARS 2002-03 TO 05-06 SIMILAR DEDUCTION WAS DISALLOWED AND THE TRIBUNAL WHILE DECIDING THE APPEAL FOR ASSE SSMENT YEAR 2002- 03 IN ITA NO. 259/JP/2006 & 314/JP/2009 AND IN ITA NO. 536/JP/2008 AND 956/JP/2008 FOR ASSESSMENT YEAR 200 4-05 AND 2005- 06 HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY CONFIRMING THE ORDER OF LD. CIT (A). SINCE LD. CIT (A) HAS DECIDE D THE ISSUE FOLLOWING THE ORDER OF TRIBUNAL FOR VARIOUS YEARS, THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A). ACCORDI NGLY WE CONFIRM THE ORDER OF LD. CIT (A) ON THIS ISSUE. FACTS, CIRCUMSTANCES AND ISSUE BEING SIMILAR, FOLLO WING EARLIER ITAT ORDERS IN ASSESSEES OWN CASE THE REVENUE GROUND NO. 8 ABO UT DEDUCTION U/S 80JJAA IS ALSO DISMISSED. ITA NO. 38/JP/2012 M/S. GENUS POWER INFR ASTRUCTURES LTD. VS. ADDL. CIT, RANGE-7, JAIPUR 68 15.0. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 /05/ 2016. SD/- SD/- FOE FLAG ;KNO VKJ-IH-RKSYKUH (VIKRAM SINGH YADAV) (R.P.TOLANI) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 20 /05/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT-M/S. GENUS POWER INFRASTRUCTURES LTD. , JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ADDL. CIT, RANGE- 7, JAIPUR/ IT O WARD- 7(2), JAIPUR 3. VK;DJ VK;QDRVIHY ) @ CIT(A) 4. VK;DJ VK;QDR@ CIT 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.38/JP/2012) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR