The DCIT, Circle-1, JUNAGADH V. Gujarat Sidhee Cement Ltd., Veraval

ITA 380/RJT/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72582 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 08-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANKUR GARG
• Keywords: Gift; Depreciation; Business expenditure; Retrospective amendment; Bad and doubtful debts; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 115JB; 37(1); 194C; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT BEFORE SHRI T K SHARMA, JM AND SHRI D K SRIVASTAVA, AM ITA NO. 341 /RJ T/20 12 ASSESSMENT YEAR : 200 6 - 0 7 GUJARAT SIDHEE CEMENT LTD. VERAVAL KODINAR ROAD VERAVAL PAN : AAACG 8057 G V. A CIT, JUNAGAD H RANGE - 1, JUNAGADH ITA NO. 380 /RJT/2012 ASSESSMENT YEAR : 200 6 - 0 7 D CIT, CIRCLE - 1, JUNAGADH V. GUJARAT SIDHEE CEMENT LTD. VERAVAL DATE OF HEARING : 25 .0 7 .2013 DATE OF PRONOUNCEMENT : 13 .0 9 .2013 ASSESSEE BY : SHRI SANJAY R SHAH, CA REVENU E BY : SHRI ANKUR GARG , DR ORDER D. K. SRIVASTAVA : BOTH THE PARTIES , NAMELY , THE ASSESSEE AND THE REVENUE, ARE AGGRIEVED BY THE ORDER PASSED BY THE CIT(A) - IV, RAJKOT ON 30.03.2012 . ISSUES RAISED BY THEM IN BOTH THE APPEALS ARE INTERLINKED . B OTH THE APPE ALS ARE THEREFORE BEING DISPOSED OF BY A CONSOLIDATED ORDER. 2. THE ASSESSEE IS A COMPANY LIMITED BY SHARES IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF CEMENT AND CLINKER. IT FILED ITS RETURN OF INCOME FOR THE YEAR UNDER APPEAL ON 21.12.2006, WHICH WAS ACCOMPANIED BY AUDITED FINANCIAL ACCOUNTS AND AUDIT REPORT. THE RETURN WAS TAKEN UP FOR SCRUTINY AS A RESULT OF WHICH CERTAIN DISALLOWANCES/ADDITIONS WERE MADE BY THE ASSESSING OFFICER WHICH ARE NOW SUBJECT MATTER OF APPEAL BEFORE THIS TRIBUNAL. THESE ADDITIONS/DISALLOWANCES MADE BY THE ASSESSING OFFICER RELATE TO DISALLOWANCE OF (1) FREIGHT EXPENSES AMOUNTING TO RS.40,61,041/ - U/S 40(A)(IA); (2) FOREIGN TRAVEL LING EXPENSES AMOUNTING TO RS.54,85,251/ - ; (3) GIFTS AMOUNTING TO RS.30,38,898/ - AND (4) ADJUSTMENT OF PROVISION FOR DOUBTFUL DEBTS TO BOOK PROFIT U/S 115JB. THE AFORESAID DISALLOWANCES/ADDITIONS MADE BY THE ASSESSING OFFICER WERE CHALLENGED BY THE ASSESSEE BEFORE THE LD . CIT(A), UPON WHICH THE LD CIT(A) PARTLY ALLOWED T HE CLAIMS MADE BY THE ASSESSEE. THAT IS HOW BOTH THE PARTIES ARE NOW IN APPEAL BEFORE THIS TRIBUNAL. 2 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED 3. GROUND NO.1 TAKEN BY THE ASSESSEE READS AS UNDER: - 1. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AS WELL AS IN LAW I N DISALLOWING FREIGHT EXPENSES AMOUNTING TO RS.40,61,041/ - U/S 40(A)(IA). THE LEARNED CIT(A) HAS ERRED IN CONFIRMING IT. 4. DURING THE COURSE OF SCRUTINY, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION TOWARDS FREIGHT EXPENSES AMOU NTING TO RS.5,09,62,893/ - . HE CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF SUCH EXPENSES. ON PERUSAL OF THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT A SUM OF RS.40,61,041/ - OUT OF THE AFORESAID AMOUNT OF RS.5,09,62,893/ - WAS SHOWN IN THE ACCOUNTS AS PROVISION ON THE LAST DAY OF THE ACCOUNTING PERIOD, I.E., 31.03.2006. ON FURTHER ENQUIRY BY THE ASSESSING OFFICER, IT WAS STATED BY THE ASSESSEE THAT THE AFORESAID AMOUNT OF RS.40,61,041/ - PERTAIN ED TO THE FREIGHT IN RESPECT OF DISPATCHES MADE IN THE LAST WEEK FOR WHICH BILLS WERE NOT RECEIVED FROM THE CONCERNED TRANSPORTERS. IT WAS FURTHER EXPLAINED THAT THE AMOUNTS TO BE PAID TO THE CONCERNED TRANSPORTERS WERE FIXED UNDER THE AGREEMENT WITH THEM AND THEREFORE THE LIABILITY WAS ASCERTAINABLE AND ACCORDINGLY PROVISION WAS MADE IN THE ACCOUNTS FOR SUCH EXPENSES. AFTER FURTHER INQUIRES, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD NOT DEDUCTED THE TAX AT SOURCE OUT OF THE AFORESAID SUM OF RS.40,61,041/ - BEING FREIGHT EXPENSE S DEBITED TO P ROFIT AND L OSS A CCOUNT. THE CASE OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT TAX AT SOURCE WAS NOT REQUIRED TO BE DEDUCTED AT SOURCE OUT OF THE AFORESAID AMOUNT AS THE ASSESSEE HAD NEITHER PAID NOR CREDITED THE FREIGHT EXPENSES TO T HE ACCOUNT OF THE CONCERNED PARTIES. THE ASSESSING OFFICER DISALLOWED THE AFORESAID CLAIM, WITH THE FOLLOWING OBSERVATIONS: - 3. THE ASSESSEE WAS THEREUPON ASKED TO CLARIFY WHETHER ANY TAX WAS DEDUCTED AND PAID IN RESPECT OF SUCH TRANSPORT EXPENSES DEBITE D TO PROFIT & LOSS A/C. IT IS SUBMITTED BY THE A.R. THAT NO SUCH TAX HAS BEEN DEDU C TED BECAUSE NEITHER ANY PARTIES A/C. IS CREDITED NOR ANY PAYMENT IS MADE TO ANY PARTY AND THEREFORE QUESTION OF DEDUCTING THE TAX DOES NOT ARISE. IN THIS CONNECTION IT IS P ERTINENT TO NOTE THAT IN VIEW OF THE SPECIFIC PROVISION CONTAINED IN SEC. 40(IA) OF THE ACT SUCH AMOUNT OF EXPENDITURE DEBITED TO 3 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED PROFIT & LOSS A/C. IS NOT ADMISSIBLE AS DEDUCTION. THE SAID PROVISION READS AS UNDER; ANY INTEREST, COMMISSION OR BROKERAGE, 1[RENT, ROYALTY] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB - CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK), O N WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB - SECTION (1) OF SECTIO N 200: 4. THERE IS NOTHING IN THE PROVISION OF LAW AS REFERRED TO ABOVE WHICH ENABLES ANY EXPENSES BEING AMOUNTS PAYABLE TO CONTRACTORS TO BECOME DEDUCTIBLE WITHOUT DEDUCTION OF TAX AT SOURCE. THIS IS SQUARELY APPLICABLE TO PROVISIONS ALSO WHICH IS CLAIM ED AS DEDUCTION ON ACCOUNT OF BEING ASCERTAINABLE LIABILITY. SINCE ACCORDINGLY TO THE ASSESSEE, THE PROVISION IS IN RESPECT OF DISPATCHES PERTAINING TO THE YEARNED AND AS THE TRANSPORTATION RATES ARE ALSO FIXED UNDER THE AGREEMENT WITH EACH CONTRACTOR, THE AMOUNT OF T.D.S. IN RESPECT OF EACH PARTY IS ALSO ASCERTAINABLE. IN ANY CASE IN VIEW OF SUCH CLEAR LEGAL SITUATION, I DO NOT FIND ANY MERIT IN THE CONTENTION THAT THE AMOUNT OF THE AFORESAID PROVISION, THOUGH ACCEPTED TO BE ASCERTAINED LIABILITY IS ELIGIB LE AS DEDUCTION FROM COMPUTING THE TOTAL INCOME WITHOUT DEDUCTION OF TAX FROM SUCH AMOUNT. I ACCORDINGLY MAKE DISALLOWANCE OF RS.40,61,041/ - U/S 40(IA) OF THE ACT. 5. ON APPEAL, SIMILAR SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED BEF ORE THE LD . CIT(A). THE LD CIT(A) HOWEVER U PHELD THE IMPUGNED DISALLOWANCE MADE BY THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS: - 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF APPELLANT. THE FREIGHT EXPENSES OF RS.40,61,041/ - WE RE PAYABLE AT THE YEAREND BY THE APPELLANT. ADMITTEDLY, APPELLANT DID NOT DEDUCT TAX AT 4 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED SOURCE ON THIS AMOUNT IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THIS AMOUNT IS A PROVISION ON ACCOUNT OF EXPECTED FREIGHT EXPENSES FOR THE DIS PATCHES MADE IN LAST WEEK OF FINANCIAL YEAR FOR WHICH BILLS WERE NOT RECEIVED FROM THE CONCERNED TRANSPORTERS BY THE APPELLANT. THIS PROVISION FOR FREIGHT PAYABLE ACCOUNT MAY NOT BE IN THE NAME OF PARTICULAR PERSON. HOWEVER, SUCH PERSONS ARE DETERMINABLE AND THE AMOUNT PAYABLE TO EACH OF THEM IS ALSO DETERMINABLE WITH HIGH DEGREE OF CERTAINTY. IF IT WERE NOT SO, APPELLANT COULD NOT HAVE CLAIMED DEDUCTION OF SUCH EXPENDITURE AS PER THE MERCANTILE PRINCIPLE OF ACCOUNTANCY. THEREFORE, APPELLANT SHOULD HAVE D EDUCTED APPROPRIATE TAX AT SOURCE IN RESPECT OF RESPECTIVE PAYABLE AMOUNT TO DIFFERENT PERSONS AT THE TIME OF CREDITING THE PROVISION FOR FREIGHT PAYABLE ACCOUNT. MOREOVER, SECTION 194 C(2) CLARIFIED THAT CREDITING IS SUCH PROVISION FOR FREIGHT PAYABLE A CCOUNT SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THAT SECTION SHALL APPLY ACCORDINGLY. THEREFORE IRRESPECTIVE OF THE FACT THAT APPELLANT HAS NOT RECEIVED BILLS FROM THE PAYEE, APPELLANT IS DEEMED TO HAVE CREDITED THE PAYEE WHEN HE MADE THE PROVISION ON ACCOUNT OF FREIGHT EXPENSES OF RS.40,61,041/ - . APPELLANT HAS ADMITTEDLY NOT DEDUCTED ANY TAX WHILE CREDITING THE DEEMED PAYEE AND THEREFORE THE CORRESPONDING CLAIM OF EXPENDITURE OF RS.40,61,041/ - IS RIGHTL Y DISALLOWED BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE I.T. ACT. 6. IN SUPPORT OF APPEAL, SUBMISSIONS AS EARLIER MADE BEFORE THE LD CIT(A) WERE REITERATED BEFORE US ALSO. IT WAS SUBMITTED THAT THE AFORESAID EXPENSES WERE NOT PAID TO THE CONCERNED TRA NSPORTERS NOR CREDITED TO THEIR ACCOUNTS AND HENCE THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TAX AT SOURCE. IN SUPPORT OF HIS CASE, THE LD . AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE ORDER OF THIS TRIBUNAL IN IDBI V. ITO , 107 ITD 45 (MUM) . 7. IN REPLY, THE LD DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER PASSED BY THE LD CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. IT IS NOT IN DISPUTE THAT THE ASSESSEE HA S CLAIMED DEDUCTION FOR A 5 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED SUM OF RS.40 ,61,041/ - AS FREIGHT EXPENSES. THE ONLY QUESTION IS WHETHER THE DEDUCTIBILITY OF THE AFORESAID EXPENSES IS HIT BY SECTION 40(A)(IA) OF THE INCOME - TAX ACT. SECTION 40(A)(IA) BARS DEDUCTION OF ANY AMOUNT, INTER - ALIA, PAYABLE TO A CONTRACTOR FOR CARRYING OUT ANY WORK ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE. WE HAVE THEREFORE TO TURN TO SECTION 194C TO FIND OUT AS TO WHETHER THE ASSESSEE WAS REQ UIRED TO DEDUCT TAX AT SOURCE OUT OF THE SUM PAYABLE TO THE TRANSPORTERS ENGAGED BY THE ASSESSEE FOR CARRIAGE OF ITS GOODS. SECTION 194C, AS IT EXISTED AT THE RELEVANT POINT OF TIME, READ AS UNDER: PAYMENTS TO CONTRACTORS AND SUB - CONTRACTORS. 194C. (1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE CONTRACTOR ) FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND ( A ) THE CENTRAL GOVERNMENT OR ANY STATE GOVERNMENT; OR ( B ) ANY LOCAL AUTHORITY; OR ( C ) ANY CORPORATION ESTABLISHED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT; OR ( D ) ANY COMPANY; OR ( E ) ANY CO - OPERATIVE SOCIETY; OR ( F ) ANY AUTHORITY, CONSTITUTED IN INDIA BY OR UNDER ANY LAW, ENGAGED EITHER FOR THE PURPOSE OF DEALING WITH AND SATISFYING THE NEED FOR HOUSING ACCOMMODATION OR FOR THE PURPOSE OF PLANNING, DEVELOPMENT OR IMPROVEMENT OF CITIES, TOWNS AND VILLAGES, OR FOR BOTH; OR ( G ) ANY SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 (21 OF 1860) OR UNDER ANY LAW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF INDIA; OR ( H ) ANY TRUST; OR ( I ) ANY UNIVERSITY ESTABLISHED OR IN CORPORATED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT AND AN INSTITUTION DECLARED TO BE A UNIVERSITY UNDER SECTION 3 OF THE UNIVERSITY GRANTS COMMISSION ACT, 1956 (3 OF 1956); OR ( J ) ANY FIRM, SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO ( I ) ONE PER CENT IN CASE OF ADVERTISING, ( II ) IN ANY OTHER CASE TWO PE R CENT, OF SUCH SUM AS INCOME - TAX ON INCOME COMPRISED THEREIN. (2) ANY PERSON (BEING A CONTRACTOR AND NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY) RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE SUB - CON TRACTOR) IN PURSUANCE OF A CONTRACT WITH THE SUB - CONTRACTOR FOR CARRYING OUT, OR FOR THE SUPPLY OF LABOUR FOR CARRYING OUT, THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CONTRACTOR OR FOR SUPPLYING WHETHER WHOLLY OR PARTLY ANY LABOUR WHICH 6 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED THE CONTRA CTOR HAS UNDERTAKEN TO SUPPLY SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE SUB - CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO ONE PER CENT OF SUCH SUM AS INCOME - TAX ON INCOME COMPRISED THEREIN: PROVIDED THAT AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMITS SPECIFIED UNDER CLAUSE ( A ) OR CLAUSE ( B ) OF SECTION 44AB DURING THE F INANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUNT OF THE SUB - CONTRACTOR, SHALL BE LIABLE TO DEDUCT INCOME - TAX UNDER THIS SUB - SECTION. EXPLANATION I. FOR THE PURPOSES OF SUB - SECTION (2), THE EXPRESS ION CONTRACTOR SHALL ALSO INCLUDE A CONTRACTOR WHO IS CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND THE GOVERNMENT OF A FOREIGN STATE OR A FOREIGN ENTERPRISE OR ANY ASSO CIATION OR BODY ESTABLISHED OUTSIDE INDIA. EXPLANATION II . FOR THE PURPOSES OF THIS SECTION, WHERE ANY SUM REFERRED TO IN SUB - SECTION (1) OR SUB - SECTION (2) IS CREDITED TO ANY ACCOUNT, WHETHER CALLED SUSPENSE ACCOUNT OR BY ANY OTHER NAME, IN THE BOOKS O F ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. EXPLANATION III. FOR THE PURPOSES OF THIS SECTION, THE EX PRESSION WORK SHALL ALSO INCLUDE ( A ) ADVERTISING; ( B ) BROADCASTING AND TELECASTING INCLUDING PRODUCTION OF PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING; ( C ) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS; ( D ) CATERING. (3) XXXXXXX (RELEVANT PORTIONS HAVE BEEN HIGHLIGHTED FOR EASY REFERENCE) 9. SECTION 194C REQUIRES A PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRACTOR AND A SPECIFIED PERSON TO DEDUCT TAX AT SOURCE . THE TERM WORK IN SUB - SECTION (1) OF SECTION 194C HAS BEEN DEFINED IN EXPLANATION III TO SUB - SECTION (2) OF SECTION 194C AS INCLUD ING CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS. THE ASSESSEE HAS ENTRUSTED THE WORK OF CARRIAGE OF ITS GOODS BY TRUCKS TO TRANSPORTERS AND THEREFORE IT FALLS WITHIN THE SCOPE OF WORK IN RESPECT OF WHICH THE PROVISI ONS OF SECTION 194C ARE APPLICABLE. TAX AS ENVISAGED BY SECTION 194C(1) IS REQUIRED TO BE DEDUCTED AT THE TIME OF CREDIT OF SUCH SUM TO THE 7 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHE R MODE , WHICHEVER IS EARLIER. EXPLANATION II TO SUB - SECTION (2 ) OF SECTION 194C(3) , AS IT EXISTED THEN , PROVIDED THAT, FOR THE PURPOSES OF SECTION 194C , WHERE ANY SUM REFERRED TO IN SUB - SECTION (1) OR SUB - SECTION (2) THEREOF IS CREDITED TO ANY ACCOUNT, WH ETHER CALLED SUSPENSE ACCOUNT OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF SECTION 194C SHALL APPLY ACC ORDINGLY. THE CASE OF THE ASSESSEE SQUARELY FALLS UNDER EXPLANATION II TO SUB - SECTION (2) OF SECTION 194C. IT IS THE CASE OF THE ASSESSEE THAT NOT ONLY THE PERSONS TO WHOM FREIGHT EXPENSES ARE PAYABLE BUT ALSO THE AMOUNT WHICH IS PAYABLE TO THEM ARE ASCERT AINABLE AND DETERMINABLE. IT IS ON THIS BASIS THAT THE ASSESSEE HAS CLAIMED THE IMPUGNED PROVISION AS EXPENDITURE ELIGIBLE FOR DEDUCTION. BY THE SAME LOGIC, THE ASSESSEE WAS ALSO REQUIRED TO DEDUCT THE TAX AT SOURCE IN TERMS OF THE PROVISIONS OF SECTION 40 (A)(IA) READ WITH SECTION 194C. THE LD . CIT(A) HAS CORRECTLY APPRECIATED THE FACTUAL AND LEGAL ASPECT S OF THE CASE. WE SEE NO VALID REASON TO TAKE A VIEW DIFFERENT FROM THE ONE TAKEN BY HIM. GROUND NO.1 TAKEN BY THE ASSESSEE IS DISMISSED. 10 . GROUND NO.2 TAKEN BY THE ASSESSEE READS AS UNDER: - 2. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AS WELL AS IN LAW IN DISALLOWING FOREIGN TRAVEL LING EXPENSES OF RS.54,85,251/ - . THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAME TO THE EXTENT OF RS.21,24,370/ - . 11 . GROUND NO.1 TAKEN BY THE REVENUE IS INTERLINKED WITH GROUND NO.2 TAKEN BY THE ASSESSEE. IT READS AS UNDER: - 1. THE LD. CIT(A), RAJKOT HAS ERRED IN LAW AND ON FACTS IN DELETING AN ADDITION OF RS.33,60,881/ - OUT OF THE TOTAL ADDITION MADE BY THE A O OF RS.54,85,251/ - UNDER THE HEAD FOREIGN TRAVELLING EXPENSES, WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORDS BY THE AO. 1 2 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD INCURRED EXPENDITURE OF RS .53,86,424/ - ON FOREIGN TRAVELLING UNDERTAKEN BY THE D IRECTORS OF THE ASSESSEE - COMPANY, AND MORE 8 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED PARTICULARLY BY SHRI JAY MEHTA AND HIS WIFE MS. JUHI MEHTA . THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO JUSTIFY THAT THE ENTIRE EXPENDITURE ON THEIR FORE IGN TRAVELLING WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. FOR THE DETAILED REASONS GIVEN AT PP. 2 - 8 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS DISALLOWED A SUM OF RS.54,85,251/ - ; WHICH ON APPEAL, HAS BEEN REDUCED BY THE LD. C IT(A) TO RS.33,60,881/ - . 1 3 . IN SUPPORT OF APPEAL, THE LD AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT ALL THE FOREIGN TOURS WERE UNDERTAKEN FOR THE PURPOSES OF BUSINESS AND THEREFORE THE ENTIRE EXPENDITURE SHOULD HAVE BEEN ALLOWED. 1 4 . TH E LD DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THE LD . CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO RS.21,24,370/ - AS THE ASSESSEE HAS FAILED TO ESTABLISH AS TO HOW THEIR FOREIGN TRAVELLING WAS GUIDED BY BUSINESS EXPEDIE NCY . 1 5 . WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. THE ASSESSEE IS A SICK COMPANY. AS EVIDENT FROM THE ASSESSMENT ORDER, IT HAS SUFFERED HUGE LOSSES. IN TERMS OF SECTION 37, ANY EXPENDITURE , WHICH IS IN THE NATURE OF PERS ONAL OF PERSONAL EXPENDITURE OR WHICH HAS NOT BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS NOT ELIGIBLE FOR DEDUCTION IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . THE AS SESSING OFFICER HAS IDENTIFIED SUCH FOREIGN TRAVELS AND DISALLOWED THE EXPENSES IN RELATION THERETO U/S 37 ON THE GROUND THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT THEY INCURRED WHOLLY OR EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. 1 6 . THE ASSESSING OF FICER HAS DISALLOWED A SUM OF RS.14,24,370/ - BEING EXPENDITURE INCURRED ON FOREIGN TRAVEL OF SHRI JAY MEHTA AND HIS WIFE SMT. JUHI MEHTA TO SRI LANKA FROM 23.12.2005 TO 02.01.2006. WE HAVE GONE THROUGH THE FINDINGS RECORDED AT PAGE NOS. 3 - 4 OF THE ASSESSME NT ORDER IN THIS BEHALF. THESE TOURS WERE UNDERTAKEN BY SHRI JAY MEHTA, HIS WIFE SMT. JUHI MEHTA AND THEIR TWO CHILDREN . THE ASSESSEE HAS PLACED NO MATERIAL ON RECORD TO SHOW AS TO WHAT BUSINESS PURPOSE OF THE ASSESSEE - COMPANY WAS SERVED BY THE AFORESAID T OUR UNDERTAKEN BY SHRI JAY MEHTA, HIS WIFE AND HIS TWO CHILDREN TO SRI LANKA . THE 9 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED FINDINGS RECORDED BY THE ASSESSING OFFICER IN THIS BEHALF HAVE NOT BEEN REBUTTED. THE LD CIT(A) HAS GIVEN DETAILED REASONS FOR CONFIRMING THE IMPUGNED DISALLOWANCE OF RS.14,2 4,370/ - IN PARAGRAPH 4.1 OF HIS APPELLATE ORDER. BOTH THE AUTHORITIES, NAMELY, THE CIT(A) AND THE AO, HA VE RIGHTLY TREATED THE SAID EXPENDITURE AS ONE NOT GUIDED BY ANY BUSINESS EXPEDIENCY. WE ARE IN AGREEMENT WITH THEM. D ISALLOWANCE OF RS.14,24,370/ - MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LD CIT(A) IS CONFIRMED. 1 7 . THE ASSESSING OFFICER HAS DISALLOWED A SUM OF RS.16,25,499/ - INCURRED BY THE ASSESSEE - COMPANY ON TRAV EL OF SHRI JAY MEHTA TO LONDON AND AUSTRIA FROM 10.03.2006 TO 27.03.2006. APAR T FROM FILING PHOTOCOPY OF HOTEL BILLS AND CASH MEMO OF PURCHASES FROM HARRODS ETC. THE ASSESSEE - COMPANY COULD NOT GIVE ANY EXPLANATION AS TO THE BUSINESS PURPOSE SERVED BY THE AFORESAID VISIT OF SHRI JAY MEHTA TO LONDON AND AUSTRIA. THE ASSESSING OFFICE R CONCLUDED THAT THE IMPUGNED EXPENDITURE WAS NOT INCURRED OUT OF BUSINESS EXPEDIENCY . HE THEREFORE DISALLOWED THE AFORESAID SUM OF RS.16,25,499/ - . ON APPEAL, THE LD . CIT(A) HAS ALLOWED THE IMPUGNED EXPENDITURE ON THE GROUND THAT SUCH EXPENDITURE WAS SUPPO RTED BY A SPECIAL RESOLUTION OF GENERAL MEETING OF THE ASSESSEE - COMPANY HELD ON 25.11.2003 IN WHICH SHRI JAY MEHTA WAS APPOINTED AS EXECUTIVE VICE - CHAIRMAN. IT WAS ALSO RESOLVED IN THE SAID GENERAL MEETING THAT SHRI JAY MEHTA W OULD BE REIMBURSED ACTUAL EXP ENSES INCURRED BY HIMSELF AND HIS SPOUSE FOR C OMPANYS BUSINESS INCLUDING TRAVEL, HOTEL AND OTHER RELATED EXPENSES IN INDIA AND ABROAD. THE LD . CIT(A) HAS NOT BROUGHT NO MATERIALS ON RECORD TO ESTABLISH AS TO HOW THE AFORESAID EXPENDITURE WAS INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. MERE RESOLUTION IN A GENERAL MEETING CANNOT BY ITSELF CONVERT NON - BUSINESS EXPENDITURE INTO BUSINESS EXPENDITURE OR SUPPORT ITS ADMISSIBILITY AS DEDUCTION U/S 37 EVEN IF THE ASSESSEE DOES NOT ESTABLISH T HAT IT HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. WITHOUT PREJUDICE TO THE AFORESAID, IT IS STATED BY THE CIT(A) HIMSELF IN HIS ORDER THAT THE EXPENDITURE INCURRED ON TRAVEL OF SHRI JAY MEHTA AND HIS FAMILY WAS TO BE REIMBURSED BY THE ASSESSEE - COMPANY ONLY IF IT WAS FOR COMPANYS BUSINESS. BUT THAT BUSINESS PURPOSE FOR WHICH IMPUGNED EXPENDITURE WAS INCURRED HAS NOT BEEN ESTABLISHED BY THE ASSESSEE. IN THIS VIEW OF THE MATTER, THE IMPUGNED 10 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED EXPENSES WERE RIGHTLY DISALLOWED BY TH E ASSESSING OFFICER. HIS ORDER IN THIS BEHALF IS RESTORED. 1 8 . THE ASSESSING OFFICER HAS DISALLOWED FURTHER EXPENDITURE OF RS. 10,18, 021/ - ON TOUR UNDERTAKEN BY SHRI JAY MEHTA AND HIS WIFE SMT JUHI MEHTA TO LONDON FROM 26.05.2005 TO 05.06.2005. IT IS THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE BUSINESS PURPOSE FOR WHICH THE AFORESAID TOUR TO LONDON WAS UNDERTAKEN BY SHRI JAY MEHTA AND HIS WIFE SMT JUHI MEHTA. ON APPEAL, THE LD CIT(A) HAS , HOWEVER, DELETED THE REMAINI NG ADDITIONS WITHOUT BRINGING ANY MATERIAL ON RECORD TO SHOW THAT THE IMPUGNED EXPENSES WERE INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS. IN OUR CONSIDERED VIEW, THE IMPUGNED EXPENSES CANNOT BE ALLOWED UNLESS THE ASSESS EE ESTABLISHES THAT THE EXPENSES INCURRED ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. THE VIEW TAKEN BY THE ASSESSING OFFICER IS CORRECT, BOTH ON FACTS AND IN LAW. HIS ORDER DISALLOWING THE IMPUGNED EXPENDITURE OF RS.10,18,021/ - , IS THEREFORE RESTORED. 1 9 . THE ASSESSING OFFICER HAS DISALLOWED EXPENDITURE OF RS.7,26,288/ - ON FOREIGN TRAVEL OF SHRI RAJ PODAR, MANAGING DIRECTOR AND HIS WIFE SMT. MANJULA PODAR TO JOHANNESBURG AND CAPE TOWN FROM 10.09.2005 TO 25.09.2005. IT IS STATED AT PAGE 7 OF THE ASSESSMENT ORDER THAT EXCEPT ONE SESSION OF ONE HOUR ON ARGENTINA CULTURE AND HISTORY ON THE FIRST DAY, ALL OTHER THINGS IN THIS ITINERARY ARE SITE SEEING TOURS, CULTURAL EVENINGS, COCKTAIL RECEPTIONS, AND TANGO LESIONS ETC. IN THE ABSENCE OF ANY MAT ERIALS TO JUSTIFY THAT THE AFORESAID TOURS WERE UNDERTAKEN BY SHRI RAJ PODAR AND HIS WIFE FOR BUSINESS PURPOSE, THE ASSESSING OFFICER DISALLOWED THE AFORESAID EXPENDITURE; WHICH ON APPEAL, HAS BEEN ALLOWED BY THE LD CIT(A) WITHOUT BRINING ANY MATERIAL ON R ECORD AS TO HOW THE IMPUGNED EXPENDITURE SERVED THE BUSINESS PURPOSES OF THE ASSESSEE - COMPANY. IN OUR VIEW, THE IMPUGNED DISALLOWANCE MADE BY THE ASSESSING OFFICER DESERVES TO BE CONFIRMED AND IS ACCORDINGLY CONFIRMED. 20 . THE ASSESSING OFFICER HAS DISAL LOWED A FURTHER SUM OF RS.4,91,073/ - ON TOUR OF SMT JUHI MEHTA AND SMT. MANJULA PODAR TO LONDON AND JOHANNESBURG RESPECTIVELY. THE IMPUGNED DISALLOWANCE HAS BEEN MADE BY THE ASSESSING 11 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED OFFICER AS THE ASSESSEE FAILED TO SUBSTANTIATE THE BUSINESS PURPOSE INVO LVED IN INCURRING THE IMPUGNED EXPENDITURE. IN THIS VIEW OF THE MATTER, THE IMPUGNED DISALLOWANCE OF RS.4,91,073/ - MADE BY THE ASSESSING OFFICER IS CONFIRMED. 21 . THE ASSESSING OFFICER HAS FURTHER DISALLOWED A SUM OF RS.2,00,000/ - OUT OF REMAINING TOURS. IN THE ABSENCE OF ANY SPECIFIC FINDINGS FOR SUCH DISALLOWANCE BY THE ASSESSING OFFICER, THE IMPUGNED DISALLOWANCE HAS RIGHTLY BEEN DELETED BY THE LD CIT(A). 2 2 . IN VIEW OF THE FOREGOING, THE DISALLOWANCE OF RS.52,85,251/ - OUT OF TOTAL DISALLOWANCE OF RS .54,85,251/ - MADE BY THE ASSESSING OFFICER OUT OF FOREIGN TRAVEL EXPENSES IS CONFIRMED. GROUND NO.2 TAKEN BY THE ASSESSEE IS DISMISSED WHILE GROUND NO.1 TAKEN BY THE REVENUE IS PARTLY ALLOWED. 2 3 . GROUND NO.3 TAKEN BY THE ASSESSEE READS AS UNDER: - 3. T HE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AS WELL AS IN LAW IN DISALLOWING GIFT EXPENSES OF RS.30,38,898/ - . THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAME TO THE EXTENT OF RS.10,63,614/ - . 2 4 . GROUND NO.2 TAKEN BY THE REVENUE IS INTERLINKED WIT H GROUND NO.3 TAKEN BY THE ASSESSEE. IT READS AS UNDER: - 2. THE LD. CIT(A), RAJKOT HAS ERRED IN LAW AND ON FACTS IN DELETING AN ADDITION OF RS.19,75,284/ - OUT OF THE TOTAL ADDITION OF RS.30,38,898/ - MADE BY THE AO ON ACCOUNT OF NON BUSINESS GIFT EXPENSES , WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORDS BY THE AO. 2 5 . THE IMPUGNED DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS: - 6. IT IS SEEN FROM THE DETAILS OF MISCELLANEOUS & OFFICE EXPENSE THAT THE ASSESSEE HAS CLAIMED GIFT EXPENSES OF RS.30,38,898/ - . IN THE REVISED STATEMENT OF F.B.T. FILED ALONG WITH THE WRITTEN SUBMISSION DATED 27.06.2008, THE ASSESSEE HAS OFFERED THE ABOVE AMOUNT FOR FRINGE BENEFIT TAX. IT IS CLAIMED THAT SINCE 50% OF SUCH EXPENSES HAVE ALRE ADY BEEN SUBJECTED TO F.B.T., NO PART OF THE SAME IS DISALLOWABLE. IT IS ALSO CLAIMED THAT SUCH GIFTS ARE CUSTOMARY IN THE CORPORATE BUSINESS OF THIS MAGNITUDE 12 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED AND THE SAME IS WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. I AM HOWEVER NOT IN AGREEMENT WITH THE A.R. BECAUSE THERE IS NOTHING TO INDICATE THAT SUCH GIFTS WERE REQUIRED TO BE GIVEN WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. IT ALSO ADMITTED THAT THE RECIPIENTS OF GIFTS ARE NOT ALL PERSONS WITH WHOM BUSINESS IS TRANSECTED AND THEREFORE THERE IS I NHERENT ELEMENT OF PERSONAL NATURE INVOLVED IN THIS KIND OF GIFTS. I ALSO DO NTO ACCEPT THE CONTENTION THAT BECAUSE OF THE PAYMENT OF F.B.T., THERE DOES NOT REMAIN ANY QUESTION OF CONSIDERING WHETHER THE EXPENDITURE FALLS WITH IN THE MEANING OF SEC. 37(1) OF THE ACT. IN THIS CONNECTION IT NEEDS TO BE NOTED THAT THE PROVISION OF F.B.T. CONTAINED IN CHAPTER XII - H OF THE ACT IS BASICALLY INTENDED TO DETERMINE FRINGE BENEFITS MADE AVAILABLE BY AN EMPLOYER TO THE EMPLOYEES IN THE PRESCRIBED MANNER. THE SAME DOES NOT MEAN THAT BY PAYING THE F.B.T., THE WHOLE AMOUNT AUTOMATICALLY BECOMES ELIGIBLE FOR DEDUCTION U/S 37(1) OF THE ACT. IN FACT THE PROVISION CONTAINED IN CHAPTER XII - H IS FOR THE PURPOSE OF TAKING CARE OF THE BENEFITS MADE AVAILABLE TO EMPLOYEES WHICH WO ULD OTHERWISE BE CONSIDERED AS PERQUISITE OR PROFIT IN LIEU OF SALARY AND THEREFORE TAXABLE IN THE HANDS OF THE EMPLOYEES. THERE IS NO EXPRESS PROVISION IN THE ACT UNDER WHICH IT CAN BE CLAIMED THAT ANY AMOUNT FOUND DISALLOWABLE CANNOT BE CONSIDERED FOR F. B.T. BOTH THE LEVIES OPERATE IN DIFFERENT SPHERE. IN VIEW OF THE ABOVE, I DISALLOW THE GIFT EXPENSES OF RS.30,38,898/ - AS NOT WHOLLY AND EXCLSUVIVELY FOR BUSINESS PURPOSE. 2 6 . ON APPEAL, THE LD CIT(A) HAS RESTRICTED THE DISALLOWANCE TO RS.10,63,614/ - , WI TH THE FOLLOWING OBSERVATIONS: - 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF APPELLANT. THE GIF TS IN CORPORATE BUSINESS ARE GIVEN TO CUSTOMERS, SUPPLIERS, BANKERS, EMPLOYEES ETC. DURING FESTIVALS AND OTHER OCCASIONS AND THEREFORE THE EX PENDITURE OF RS.30,38,898/ - ON GIFTS FOR APPELLANT IS IN THE NATURE OF CUSTOMARY EXPENSES WHICH IS A DEDUCTIBLE REVENUE EXPENDITURE U/S 37(1) OF THE I.T. ACT. THOUGH THERE IS NO SPECIFIC FINDING BY THE ASSESSING OFFICER IN RESPECT OF THERE BEING NON - BUSINE SS ELEMENT IN 13 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED EXPENDITURE ON GIFTS OF RS. 30,38,898/ - , I FIND THAT APPELLANT ITSELF HAD ADMITTED THAT 35% OF SUCH EXPENDITURE MAY BE CONSIDERED FOR DISALLOWANCE U/S 37 OF THE I.T. ACT DURING THE ASSESSMENT PROCEEDINGS OF FRINGE BENEFITS. THIS FACT IS APPARE NT FROM THE APPEAL OF APPELLANT IN APPEAL NO CIT(A) - IV/0167/08 - 09 AGAINST THE ORDER OF THE ASSESSING OFFICER U/S 115WE(3) FOR ASSESSMENT YEAR 2006 - 07 IN DETERMINATION OF FRINGE BENEFITS. APPELLANT HAD NOT CONSIDERED THE FRINGE BENEFIT ON GIFTS UNDER SECTIO N 115WB(2)(O) OF THE I.T. ACT IN THE RETURN OF INCOME. DURING THE ASSESSMENT PROCEEDINGS OF FRINGE BENEFIT WHICH WAS GOING ON ALONG WITH THE ASSESSMENT PROCEEDING OF ASSESSMENT ORDER UNDER APPEAL, ASSESSING OFFICER CONFRONTED THE APPELLANT WITH THIS FACT. APPELLANT SUBMITTED BEFORE THE ASSESSING OFFICER THAT ONLY 65% OF TOTAL EXPENSES OF GIFTS OF RS.30,38,898/ - I.E. RS.19,75,284/ - MAY BE CONSIDERED FOR CALCULATION OF FRINGE BENEFIT U/S 115WB(2)(O) OF THE I.T. ACT. FURTHER, APPELLANT HAS TAKEN A STAND IN CUR RENT APPEAL THAT CREDIT OF AMOUNT DISALLOWED U/S 37 FROM THE GIFT EXPENDITURE SHOULD BE ALLOWED IN THE COMPUTATION OF FRINGE BENEFITS. THEREFORE, CONSIDERED APPELLANTS OWN STAND, I ALLOW GIFT EXPENDITURE OF RS.19,75,284/ - AS BUSINESS EXPENDITURE AND DIREC T THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE OF NON - BUSINESS GIFT EXPENSES U/S 37 OF THE I.T. ACT TO RS.10,63,614/ - . 2 7 . IN SUPPORT OF APPEAL, THE LD . AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REITERATED THE SUBMISSIONS WHICH WERE EARLIER MADE BEFORE THE LD CIT(A). IN REPLY, THE LD . DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. 2 8 . WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. ACCORDING TO SECTION 37, A NY EXPENDITURE (NOT BEING EXP ENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPEN SES OF THE ASSESSEE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION ELIGIBLE FOR DEDUCTION IN COMP UTING THE INCOME CHARGEABLE U/S 28 OF THE INCOME - TAX ACT . IN OTHER WORDS, PERSONAL EXPENSES OF THE ASSESSEE OR ANY EXPENDITURE WHICH IS NOT INCURRED WHOLLY OR EXCLUSIVELY FOR THE PURPOSES OF BUSINESS ARE LIABLE TO BE 14 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED DISALLOWED. THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE EXPENDITURE OF RS.30,38,898/ - BEING EXPENSES ON GIFTS. THE ASSESSEE HAS ALSO NOT GIVEN DETAIL S TO ESTABLISH THE NAME OF THE PERSONS TO WHOM THE GIFTS WERE GIVEN AND THE BUSINESS PURPOSE SERVED IN GIVING THOSE GIFTS. IT IS SEEN FROM PARAGRAPH 4 OF THE ORDER PASSED BY THE LD . CIT(A) THAT THE ASSESSEE HAD ADMITTED THAT 35% OF SUCH EXPENDITURE SHOULD BE CONSIDERED FOR DISALLOWANCE U/S 37. ON THE FACTS OF THE CASE, THE LD CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.10,63,614/ - . HIS ORDER IN THIS BEHALF IS THEREFORE CONFIRMED. RESULTANTLY, GROUND NO.3 TAKEN BY THE ASSESSEE AND GROUN D NO.2 TAKEN BY THE REVENUE ARE DISMISSED. 2 9 . GROUND NO.4 TAKEN BY THE ASSESSEE READS AS UNDER: - 4. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS.268.33 LACS BEING PROVISION FOR DOUBTFUL DEBTS TO BOOK PROFIT U/S 115JB. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING IT. 30 . IN THE ORDER PASSED BY THE ASSESSING OFFICER U/S 115JB OF THE INCOME - TAX ACT, A SUM OF RS.268.33 LA KHS BEING PROVISION FOR DOUBTFUL DEBTS HAS BEEN ADDED TO BOOK PROFIT. ON APPEAL, THE LD CIT(A) HA S CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN VIEW OF THE RETROSPECTIVE AMENDMENT OF CLAUSE (I) IN EXPLANATION 1 TO SUB - SECTION (2) OF SECTION 115JB WHICH REQUIRES THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET T O BE ADDED TO BOOK PROFIT. ACCORDING TO THE LD . CIT(A), THE PROVISION FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS.268.33 LA KHS FELL WITHIN CLAUSE (I) OF EXPLANATION 1 TO SUB - SECTION (2) OF SECTION 115JB AND THEREFORE THE BOOK PROFIT WAS RIGHTLY INCREASED BY THE ASSESSING OFFICER BY THE AMOUNT OF PROVISION FOR DOUBTFUL DEBTS. 31 . IN SUPPORT OF APPEAL, THE LD AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REITERATED THE SUBMISSIONS WHICH WERE EARLIER MADE BEFORE THE LD CIT(A) IN THIS BEHALF. IN REPLY, THE LD . DE PARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER PASSED BY THE LD CIT(A). 3 2 . WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. THE LD . CIT(A) HAS DULY TAKEN INTO ACCOUNT THE SUBMISSIONS MADE 15 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED BY THE ASSESSEE BEFORE HIM. HE HAS CONFI RMED THE ACTION OF THE ASSESSING OFFICER IN THIS BEHALF WITH THE FOLLOWING OBSERVATIONS: - 3. APPELLANT SUBMITTED THAT CLAUSE (C) IN EXPLANATION 1 TO SECTION 115JB STATES THAT BOOK PROFIT IS TO BE INCREASED BY THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES. APPELLANT SUBMITTED THAT PROVISION FOR BAD & DOUBTFUL DEBTS MADE BY THE COMPANY IS NOT TOWARDS ANY LIABILITY BUT IS MADE WHEN IT IS FELT THAT ENTIRE DEBT MAY NOT BE REALIZED AND PART OF THE DEBT MAY BECOME IRRECOVERABLE. HENCE, IT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY, BECAUSE EVEN IF A DEBT IS NOT RECOVERED, NO LIABILITY WOULD BE FASTENED UPON THE APPELLANT. APPELLANT SUBMITTED THAT ACCORDINGLY, CLAUSE OF THE EXPLANATION TO SECTI ON 115JB HAS NO APPLICATION IN RESPECT OF PROVISON FOR BAD AND DOUBTFUL DEBTS. APPELLANT RELIED ON THE DECISION IN CASE OF JT. CIT VS. USHA MARTIN INDUSTRIES LTD 105 TTJ 543 (ITAT, KOLKATA SPECIAL BENCH), ACIT VS. EICHER LTD. 101 TTJ (DEL) 369, ACIT VS . J.G. VACCUM FLASKS (P) LTD. 83 ITD 242 (PUNE). APPELLANT SUBMITTED THAT THERE IS NO MENTION OF ANY REASON THEREOF FOR MAKING THIS ADDITION IN THE ASSESSMENT ORDER. 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF APPELLANT. APPELLANT HAS CITED DECISIONS WHERE IT WAS HELD THAT CLAUSE OF EXPLANATION - 1 TO SECTION 115JB IS NOT APPLICABLE IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBT. THIS CLAUSE REFERS TO THE AMOUNT SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERT AINED LIABILITIES. HOWEVER, TO INCLUDE PROVISION FOR BAD AND DOUBTFUL DEBT WITHIN THE SCOPE OF ADDITION TO BOOK PROFIT CLAUSE (I) OF EXPLANATION - 1 OF SECTION 115JB (2) WAS INSERTED WITH RETROSPECTIVE EFFECT. THIS CLAUSE REFERRED TO AMOUNT SET ASIDE AS PRO VISION FOR DIMINUTION IN THE VALUE OF ANY ASSET AND THEREFORE PROVISION FOR BAD AND DOUBTFUL DEBT ARE ALSO REQUIRED TO BE ADDED TO ARRIVE AT THE BOOK PROFIT U/S 115JB OF THE I.T. ACT. THIS AMENDMENT WITH RETROSPECTIVE EFFECT WAS ANALYZED BY THE HBLE ITAT - MUMBAI AFTER THE JUDGMENT OF HBLE SUPREME COURT IN CASE OF M/S. VIJAYA BANK V. CIT IN 16 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED 323 ITR 166 (SC). HBLE ITAT - MUMBAI IN THE CASE OF ITO V. TCFC FINANCE LIMITED (ITA NO.1299/MUM/2009) (ORDER DATED 9 MARCH 2011 ASSESSMENT YEAR 2004 - 05) HELD THAT THE PR OVISIONS OF MINIMUM ALTERNATE TAX (MAT) DEALS WITH AMOUNT OF PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET AND NOT WITH THE VALUE OF ASSET WHICH REMAINS AFTER DIMINUTION. ONCE PROVISION IS MADE FOR DIMINUTION IN THE VALUE OF ANY ASSET, THE SAME HAS TO BE ADDED FOR COMPUTING BOOK PROFIT, REGARDLESS OF THE FACT WHETHER OR NOT ANY BALANCE VALUE OF THE ASSET REMAINS AFTER DIMINUTION. FURTHER, THE TRIBUNAL HELD THAT THE REFLECTION OF THE AMOUNT OF PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENT SEPARATE LY ON THE LIABILITY SIDE OF THE BALANCE SHEET OR BY WAY OF REDUCTION FROM INVESTMENT ON THE ASSET SIDE OF BALANCE SHEET IS TOTALLY IRRELEVANT FOR COMPUTING THE BOOK PROFIT. HBLE ITAT - MUMBAI HELD THAT THE SUPREME COURT DECISION IN THE CASE OF VIJAYA BANK W AS NOT RELEVANT SINCE SECTION 115JB OF THE ACT IS A CODE IN ITSELF AND THEREFORE THERE IS NO SCOPE FOR EXAMINING THE JUDGMENTS RENDERED BY THE COURTS IN THE CONTEXT OF OTHER PROVISIONS. THEREFORE, I FIND IN PRESENT CASE THAT RS.268.33 LACS IS THE AMOUNT SE T ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ASSET AND AS PER CLAUSE (I) OF EXPLANATION - 1 OF SECTION 115JB(2) THE BOOK PROFIT IS CORRECTLY INCREASED BY THE ASSESSING OFFICER. 3 3 . THE LD . AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE COULD NOT EXPLA IN AS TO HOW THE AFORESAID ORDER PASSED BY THE LD CIT(A) IS INCORRECT EITHER ON FACTS OR IN LAW. IN OUR VIEW, THE LD . CIT(A) HAS CORRECTLY APPRECIATED THE FACTUAL AND LEGAL ASPECTS OF THE CASE. HIS ORDER IN THIS BEHALF IS THEREFORE ENDORSED . GROUND NO.4 TA KEN BY THE ASSESSEE IS DISMISSED. 3 4 . GROUND NO.5 TAKEN BY THE ASSESSEE READS AS UNDER: - 5. THE LEARNED ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN DISALLOWING EXCLUSIVE CLAIM OF BENEFIT OF CLAUSE (VII) OF EXPLANATION 1 OF SECTION 115JB. THE L EARNED CIT(A) HAS ERRED IN CONFIRMING IT. 3 5 . THE ASSESSEE HAS FURNISHED REVISED CALCULATION OF BOOK PROFIT U/S 115JB BEFORE THE ASSESSING OFFICER WHICH HAS BEEN REPRODUCED AT PAGE 23 OF THE APPELLATE ORDER PASSED BY THE LD . CIT(A). IT IS EVIDENT FROM TH E AFORESAID 17 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED STATEMENT THAT THE ASSESSEE SOUGHT TO EXCLUDE THE ENTIRE AMOUNT OF ADJUSTED PROFIT FROM BOOK PROFIT ON THE GROUND THAT THE ASSESSEE WAS A SICK INDUSTRIAL COMPANY IN VIEW OF ITS NEGATIVE NET WORTH AND THEREFORE ENTITLED TO EXCLUDE ITS PROFIT AS A WHOLE FROM ITS ADJUSTED PROFITS. THE CASE OF THE ASSESSING OFFICER, ON THE OTHER HAND, IS THAT BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION WERE TO BE EXCLUDED FIRST FROM THE ADJUSTED LOSS OF THE ASSESSEE - COMPANY AND IT WAS ONLY THEREAFTER THAT FURTHER ADJUSTMENTS W ERE TO BE CARRIED OUT UNDER CLAUSE (VII) OF EXPLANATION TO SU B - SECTION (2) OF SECTION 115JB. THE ASSESSING OFFICER THEREFORE FIRST WORKED OUT THE ADJUSTED BOOK PROFIT OF THE ASSESSEE - COMPANY AND THEREAFTER REDUCED THE CARRY FORWA RDED BUSINESS LOSSES AND UNABSORBED DEPRECIATION IN TERMS OF CLAUSE (III) OF SUB - SECTION (2) OF SECTION 115JB AND IT WAS THE N THAT FURTHER ADJUSTMENTS IN TERMS OF CLAUSE (VII) WERE CARRIED OUT. ON APPEAL, THE LD . CIT(A) HAS CONFIRMED THE ACTION OF THE ASSE SSING OFFICER. 3 6 . IN SUPPORT OF APPEAL, THE LD . AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REITERATED THE SUBMISSIONS WHICH WERE EARLIER MADE BEFORE THE LD CIT(A). IN REPLY, THE LD DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER PASSED BY THE LD CIT(A). 3 7 . WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. THE SHORT ISSUE IN THIS GROUND OF APPEAL IS THE PRIORITY IN WHICH ADJUSTMENT SHOULD BE CARRIED OUT IN TERMS OF CLAUSE (III) AND CLAUSE (VII) OF EXPLANATION TO S UB - SECTION (2) OF SECTION 115JB. CLAUSE (III) REQUIRES THE A MOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT, TO BE REDUCED FROM THE BOOK PROFIT W HILE CLAUSE (VII) OF THE SAID E XPLANATION REQUIRES EXCLUSION OF AMOUNT OF PROFITS OF SICK INDUSTRIAL COMPANY FROM THE ADJUSTED BOOK PROFITS. THE LD CIT(A) HAS DISPOSED OF THE ISSUE UNDER APPEAL, WITH THE FOLLOWING OBSERVATIONS: - 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBMISSIONS OF APPELLANT. I FIND THAT THE LOSS BR OUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS AS WELL AS PROFITS OF SICK INDUSTRIAL COMPANY BOTH AMOUNTS ARE TO BE REDUCED IN PRESENT CASE OF APPELLANT UNDER CLAUSE (III) AND (VII) OF EXPLANATION 1 OF SECTION 115JB(2) TO ARRIVE AT THE VALU E OF 18 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED BOOK PROFIT UNDER SECTION 115JB OF THE I.T. ACT. THE QUESTION IS WHETHER THE PROFITS OF SICK INDUSTRIAL COMPANY IS REQUIRED TO BE CALCULATED AFTER SETTING OFF THE LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION OR WITHOUT SUCH SET OFF. IN FACT EVE N IF APPELLANT DIRECTLY GOES TO CLAUSE (VII) OF EXPLANATION 1 OF SECTION 115JB(2), STILL TO DETERMINE THE PROFIT OF SICK INDUSTRIAL COMPANY UNDER SECTION 115JB OF I.T. ACT, APPELLANT WILL HAVE TO REDUCE LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, W HICHEVER IS LESS FROM THE CURRENT YEAR BOOK PROFIT TO DETERMINE THE PROFIT OF SICK INDUSTRIAL COMPANY UNDER SECTION 115JB OF I.T. ACT. IN FACT THE PROFIT OF SICK INDUSTRIAL COMPANY IS THE PROFIT DETERMINED U/S 115JB AFTER ALL POSSIBLE ADJUSTMENT. HAD THIS NOT BEEN THE CASE, THE APPELLANT WOULD HAVE CLAIMED DEDUCTION UNDER CLAUSE (VII) OF RS.1,266.77 CRORE ONLY, WHICH IS THE NET PROFIT AS PER P & L A/C WITHOUT MAKING THE POSITIVE ADJUSTMENTS OF RS.1,172.76 CRORE MAINLY ON ACCOUNT OF DEFERRED TAX. APPE LLANT HAS TAKEN THE PROFIT OF SICK INDUSTRIAL COMPANY UNDER SECTION 115JB OF THE I.T. ACT AT RS.2,439.53 AFTER MAKING POSITIVE ADJUSTMENTS OF RS.1,172.76 AS PER CLAUSE (H) OF EXPLANATION 1 OF 115JB(2). APPELLANT ITSELF IS ADVOCATING THE ARGUMENT THAT PR OFIT OF SICK INDUSTRIAL COMPANY UNDER CLAUSE (VII) OF EXPLANATION 1 OF 115JB(2) IS TO BE ARRIVED AT AFTER MAKING POSITIVE ADJUSTMENT UNDER CLAUSE (H) BUT HAS LEFT OUT NEGATIVE ADJUSTMENT UNDER CLAUSE (III). THIS IS INCONSISTENT, CONTRADICTORY AND INCORREC T APPROACH. IF THE PROFIT OF SICK INDUSTRIAL COMPANY IS TO BE DETERMINED AFTER MAKING POSITIVE ADJUSTMENTS THEN SUCH DETERMINATION INCLUDES NEGATIVE ADJUSTMENTS ALSO. THEREFORE, I HOLD THAT ASSESSING OFFICER HAS CORRECTLY MADE THE ADJUSTMENT OF LOSS BRO UGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS TO ARRIVE AT THE PROFIT OF SICK INDUSTRIAL COMPANY UNDER CLAUSE (VII) OF EXPLANATION 1 OF 115JB(2) OF THE I.T. ACT. 3 8 . IN OUR OPINION, THE VIEW TAKEN BY THE LD . CIT(A) IS REASONABLE AND LOGIC AL IN THE SCHEME OF VARIOUS CLAUSES OF E XPLANATION TO SUB - SECTION (2) OF SECTION 115JB. HE HAS GIVEN COGENT REASON S FOR HIS DECISION. IN OUR CONSIDERED VIEW, THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF A CCOUNT IN TERMS OF CLAUSE (III) OF EXPLANATION TO SUB - SECTION (2) , SHOULD 19 341 & 380 - RJT - 2012 GUJARAT SIDH EE CEMENT LIMITED BE EXCLUDED FIRST FROM THE ADJUSTED BOOK PROFITS AND THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COMPANY SHOULD BE ADJUSTED AFTER ADJUSTMENT IN TERMS OF CLAUSE (III) HAS BEEN CARRIED OU T. GROUND NO.5 TAKEN BY THE ASSESSEE IS DISMISSED. 3 9 . IN VIEW OF THE FOREGOING, BOTH THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 13 . 0 9 . 201 3 SD/ - SD/ - (T. K. SHARMA) ( D. K. SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT: 13 .0 9 .2013 B T COPY OF ORDER FORWARDED TO: - 1 . APPELLANT GUJARAT SIDHEE CEMENT LTD., VERAVAL KODINAR ROAD, VERAVAL 2 . RESPONDENT - ACIT, JUNAGADH RANGE - 1, JUNAGADH 3 . CONCERNED CIT III, RAJKOT 4 . CIT(A) - I V , RAJKOT 5 . DR, ITAT, RAJKOT 6 . GUARD FILE. BY ORDER TRUE COPY PRIVATE SECRETARY, ITAT, RAJKOT