DCIT, UDAIPUR V. M/s. Galaxy Exports, UDAIPUR

ITA 399/JODH/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3041 (ITAT-JODHPUR)
• Duration Of Justice: 2 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-02-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 18-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL; G R KOKANI
• Keywords: Opportunity of being heard; Bonafide belief; Non-deduction of tax; Corroborative evidences
• Section: 234B; 80IB; 194C; 10B; 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NOS. 350 & 351 /JODH/2009 ASSESSMENT YEARS : 2005-06 TO 2006-07 THE ACIT, VS. M/S GALAXY EXPORTS, CIRCLE-2, OLD FATEHPURA, UDAIPUR UDAIPUR. PAN NO. AADFG0705B ITA NOS. 399/JODH/2010 ASSESSMENT YEAR : 2007-08 THE DCIT, VS. M/S GALAXY EXPORTS, CIRCLE-2, OLD FATEHPURA, UDAIPUR UDAIPUR. & C.O. NOS 45 & 46/JU/2009 (IN ITA NOS. 350 & 351/JODH/2009) ASSESSMENT YEARS : 2005-06 AND 2006-07 M/S GALAXY EXPORTS, VS. THE ACIT, CIRCLE-2, OLD FATEHPURA, UDAIPUR UDAIPUR UDAIPUR. PAN NO. AADFG0705B & ITA NO. 260/JODH/2012 ASSESSMENT YEAR: 2008-09 THE ACIT, VS. M/S GALAXY EXPORTS, CIRCLE-2, OLD FATEHPURA, UDAIPUR UDAIPUR. PAN NO. AADFG0705B (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI N.M. RANKA, AMIT KOTHARI G.K. GARGIEYA, N.K. JAIN & SARVESH BALDI DEPARTMENT BY : DR. DEEPAK SEHGAL & SHRI G.R. K OKANI 2 DATE OF HEARING : 03/04/2013 DATE OF PRONOUNCEMENT : 16.05.2013 ORDER PER BENCH : THE APPEALS BY THE DEPARTMENT FOR THE ASSESSMENT YE ARS 2005-06, 2006-07, 2007-08 AND 2008-09 HAVE BEEN FILED AGAINST THE ORDERS OF T HE CIT(A) DATED 3.3.2009, 3.3.2009, 31.3.2010 & 30.3.2012 RESPECTIVELY WHILE CROSS OBJE CTIONS HAVE BEEN FILED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2005-06 & 2006-07. 2. SINCE THE ISSUES INVOLVED ARE COMMON AND THE APP EALS ALONGWITH CROSS OBJECTIONS WERE HEARD TOGETHER, SO, THESE ARE BEING DISPOSED O FF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. FIRST, WE WILL DEAL WITH THE APPEAL OF THE DEPA RTMENT IN ITA NO. 350/JU/2009. IN THIS APPEAL, GROUND NO.1 RELATES TO THE DISALLOWANC E OF CLAIM U/S 10B OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' IN SHORT ]. 4. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THA T THE ASSESSEE HAD FILED THE RETURN OF INCOME ON 31.10.2005 DECLARING AN INCOME OF RS. 1,8 8,92,010/-. THE SAID INCOME WAS RELATED TO THE TRADING BUSINESS OF M/S GALAXY EXPOR TS. THE ASSESSEE HAD ALSO SHOWN INCOME OF RS. 4,03,61,890/- FROM 100% EXPORT ORIENTED UNIT (EOU) AND CLAIMED EXEMPTION U/S 10B OF THE ACT. THE ASSESSING OFFICER ASKED THE ASSESS EE TO JUSTIFY ITS CLAIM OF EXEMPTION. THE 3 SUBMISSIONS OF THE ASSESSEE WAS THAT THE ACTIVITY O F THE UNIT WAS COVERED UNDER THE DEFINITION OF MANUFACTURING / PRODUCTION AND PROCES SING, AS SUCH, IT WAS ENTITLED FOR EXEMPTION SO CLAIMED U/S 10B OF THE ACT. HOWEVER, THE ASSESSING OFFICER DID NOT FIND MERIT IN THE EXPLANATION OF THE ASSESSEE AND REJECTED THE CLAIM FOR EXEMPTION U/S 10B OF THE ACT. 5. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED C IT(A) AND SUBMITTED THAT 100% EOU HAD BEEN SET UP TO MANUFACTURE AND PRODUCE SLABS / TILES ETC. AND FOR THE YEAR UNDER CONSIDERATION AN INCOME OF RS. 4,03,61,690/- WAS EA RNED FROM THE PRODUCTS PRODUCED BY IT AND EXPORTED. IT WAS FURTHER STATED THAT ASSESSEE WAS ENTITLED TO EXEMPTION FOR A PERIOD OF 10 YEARS COMMENCING FROM ASSESSMENT YEAR 2000-01. IT WAS CONTENDED THAT THE ASSESSING OFFICER THOUGH DENIED THE EXEMPTION U/S 10B FOR THE EARLIER YEARS, HOWEVER, THE LEARNED CIT(A) UDAIPUR AFTER DETAILED DISCUSSIONS HELD THAT THE ASSESSEE FIRM WAS TECHNICALLY ENTITLED TO CLAIM DEDUCTION U/S 10B BUT FURTHER MENTIONED TH AT THIS QUESTION WOULD BE DECIDED ON THE BASIS OF THE FACTS OF THE CONCERNED YEAR WHEN C LAIMED AND THE SAID VIEW WAS EXPRESSED TILL THE ASSESSMENT YEAR 2004-05 FOR THE REASONS TH AT THERE WAS NO PRODUCTION AND EXPORT DURING THE ASSESSMENT YEARS 2001-02 TO 2004-05. BE ING AGGRIEVED AGAINST THE ABOVE EXPRESSION, THE ASSESSEE PREFERRED A CROSS OBJECTIO N NO. 4/JU/2007 ARISING OUT OF ITA NO. 520/JU/2006 AND THE ITAT VIDE ITS ORDER DATED 20.8. 2007 OBSERVED AS UNDER:- HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL RECORD, IT IS NOTICED THAT THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) HELD THE ASSESSEE ENTITLED TO DEDUCTION U/S. 80HHC. HE, HOWEVER, SUBSEQUENTLY MENTIONED IN THE SAME PARA THAT THE AS SESSEE IS TECHNICALLY ENTITLED TO CLAIM EXEMPTION U/S. 10B, BUT SINCE THE RE IS NO PROFIT FROM EXPORT DURING THE YEAR, THE QUESTION OF EXEMPTION U/S. 10B DOES NOT ARISE IN THIS YEAR. UPTO THIS LINE, THERE IS NO PROBLEM. THE ASSE SSEE HAS ASSAILED THAT 4 THE NEXT LINE MENTIONED IN PARA 3 BEING, 'THIS QUES TION WILL BE DECIDED ON THE BASIS OF FACTS OF THE CONCERNED YEAR WHEN CLAIM ED IS NOT WARRANTED. WE ARE SATISFIED THAT THE DECISION ON EXEMPTION U/S. 1 0B WAS NOT SUBJECT MATTER OF DISPUTE BEFORE HIM. WHETHER THE ASSESSEE WOULD BE ENTITLED TO EXEMPTION U/S. 10B IN THE SUBSEQUENT YEARS WOULD BE BETTER DECIDED BY THE ASSESSING OFFICER AT THE RELEVANT TIME. MOREOVER, THIS ABOVE REFERRED LAST LINE HAS NO BEARING ON THE ISSUE IN QUESTION WHICH WAS SOUGHT TO BE DECIDED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS). WE, THEREFORE, EXPUNGE THE ABOVE REFERRED LAST LINE FROM PARA 3 OF THE IMPUGNE D ORDER. THIS GROUND IS ALLOWED. 6. THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSE SSEE BY OBSERVING IN PARA 5 OF THE IMPUGNED ORDER AS UNDER:- I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMIS SION OF THE LD. A/R AND FOUND THAT THE AO MADE THE DISALLOWANCE OF EXEM PTION U/S 10B OF THE ACT ON THE GROUND THAT THE APPELLANT IS ONLY ENGAGE D IN THE ACTIVITY OF PROCESSING OF MARBLE AND HAS NOT PRODUCED ANY NEW A RTICLE OR THINGS. THE LD, A/R SUBMITTED ELABORATE EXPLANATION AND ALSO PLACED VARIOUS JURIDICAL PRONOUNCEMENTS IN THE MATT ER. HE FURTHER SUBMITTED THAT THIS POINT HAS ALREADY BEEN DECIDED IN FAVOUR OF THE APPELLANT VIDE APPELLATE ORDER DATED 7-7-2006 IN AP PEAL NO.268/2005-06 AND VIDE ORDER DATED 20-12-2007 IN APPEAL NO.235/20 06-07 FOR ASSESSMENT YEARS 2003-04 AND 2004-05. THE ABOVE DEC ISION FOR ASSESSMENT YEAR 2003-04 HAS ALSO BEEN CONFIRMED BY THE HON'BLE ITAT VIDE ORDER DATED 10-8-2007 IN ITA NO.510/JU/2006. THE A/R ALSO PLACED RELIANCE OF THE DECISION OF THE HON'BLE ITAT, JAIPU R BENCH-B, JAIPUR IN THE CASE OF DCIT, CIRCLE-6, JAIPUR VS. M/S GALAXY IMPEX , JAIPUR AND CROSS APPEAL BY THE ASSESSEE. THE HON'BLE ITAT, JAIPUR BE NCH-B VIDE ORDER IN ITA NO. 155 & 156 FOR ASSESSMENT YEARS 2003-04. AND 2004-05 ITAT 5 FOLLOWED THE DECISION OF MUMBAI BENCH OF TRIBUNAL I N THE CASE OF AKASH STONE INDUSTRIES LTD VS. ACIT 13 SOT 15 (MUMBAI) IN WHICH IT HAS HELD THAT 'WHERE ASSESSEE USED TO TRANSFORM ROUGH RAW MA RBLE BLOCKS INTO FINISHED POLISHED SLABS BY SUBJECTING TO RAW BLOCKS TO SEVERAL PROCESS, LIKE PEELING, DRESSING, CORRECTING NATURAL FLAWS, PADDING, SORTING, GRADING SHAPING, SIZING, POLISHING ETC. TO PRODUCE FINISHED PRODUCTS LIKE POLISHED MARBLE SLABS/TILES TABLE TOPS WHICH WAS A COMMERCIAL DISTINCT COMMODITY HAVING DISTINCTIVE NAME AND USE, IT COULD BE SAID THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING/PRODUCTION OF POLISHED MARBLE, SLABS, TILES, TABLE TOPS ETC. AND IN SUCH CASE THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION U/S 80IB OF THE ACT. SECTION 10B IS A SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED 100% EXPORT ORIENTED U NDERTAKING. THIS SECTION APPLIES TO ANY UNDERTAKING WHICH FULFILLS T HE CONDITIONS BESIDES OTHERS THAT IT MANUFACTURES OR PRODUCE ANY ARTICLE OR THING. UNDISPUTEDLY, THE ASSESSEE IS A 100% EOU. THE EARLI ER SECTION 10B HAS BEEN SUBSTITUTED BY FINANCE ACT, 2000 WITH EFFECT F ROM 1-4-2001 I.E. IN RESPECT OF SUCH EOU WHICH COMMENCES PRODUCTION ON 1 -4-2000 IN THE MANNER PROVIDED THEREIN. THE EXPLANATION BELOW SECT ION 10B OF THE ACT DEFINES 'MANUFACTURE' WHICH IS WIDER IN ITS APPLICA TION AND LEGISLATURE IN HIS WISDOM LOOKING TO SCHEME AND THE REGISTRATIO N GRANTED TO THE EOU HAS INCLUDED IN THE WORD 'PROCESS'. IT ALSO EXP LAINS THE EXPRESSION 'PRODUCE ANY ARTICLE OR THING IN EXPANDED AND WIDER SENSE AND FURTHER EXTEND IT TO INCLUDE PRODUCTION ON COMPUTER PROGRAM ME. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THERE IS NO INFIRMITY IN THE FIRST APPELLATE ORDER IN THIS REGA RD WHICH IS ALSO SUPPORTED BY THE DECISIONS OF THE HON'BLE SUPREME C OURT AND HON'BLE JURISDICTIONAL HIGH COURT. THE SAME IS UPHELD. THE GROUND IS THUS REJECTED'. THE ABOVE DECISION IS SQUARELY APPLICABLE TO THE FA CTS OF THE INSTANT CASE AS THE APPELLANT HAS FULFILLED ALL THE CONDITIONS FOR CLAIM OF EXEMPTION LAID DOWN IN SECTION 10B OF THE ACT. FURT HER THIS ISSUE HAS 6 ALREADY BEEN DECIDED IN FAVOUR IN THE CASE OF THE A PPELLANT FOR ASSESSMENT YEARS 2003-04 AND 2004-05 AND ALSO UPHEL D BY THE HON'BLE ITAT, JODHPUR FOR ASSESSMENT YEAR 2003-04 (SUPRA). THE ONLY CHANGE IS THAT THE IN THAT YEAR THE APPELLANT HAS NOT CLAIMED ANY EXEMPTION U/S 10B OF THE ACT AS THERE WAS NO POSITIVE INCOME BUT THE AO MADE A GENERAL REMARK THAT THE APPELLANT IS NOT ENTITLED TO CLAIM EXEMPTION U/S 10B. ON THIS REMARKS, THE DECISION WAS GIVEN IN FAVOUR OF T HE APPELLANT. FOLLOWING THE DECISION FOR ASSESSMENT YEARS 2003-04 AND 2004-05 AND ALSO FOLLOWING THE DECISION OF THE HON'BLE ITAT, JA IPUR BENCH-B (SUPRA), I HOLD THAT THE APPELLANT IS ENTITLED TO CLAIM EXEMPT ION U/S 10B OF THE ACT. THEREFORE, THE AO WAS NOT JUSTIFIED IN REJECTING TH E CLAIM OF THE APPELLANT WITHOUT CONSIDERING THE WHOLE FACTS OF THE CASE AND RELIANCES PLACED. THEREFORE, THE ADDITION IS DELETED. THE APPEAL IS A LLOWED ON THIS GROUND. NOW THE DEPARTMENT IS IN APPEAL. 7. THE LEARNED LD. D.R. SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER. 8. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A) AND FUR THER SUBMITTED THAT THIS ISSUE NOW STANDS COVERED BY THE VARIOUS DECISIONS OF THIS BEN CH OF THE TRIBUNAL, HON'BLE JURISDICTIONAL HIGH COURT AND THE HON'BLE SUPREME COURT. RELIANCE WAS PLACED ON THE FOLLOWING CASES:- A) ITO VS. ARIHANT TILES & MARBLE PVT. LTD. 320 IT R 79 (SC) B ACIT VS. M/S GLAXY IMPEX ITAT JAIPUR ORDER DA TED 30.5.2008 C) CIT VS. SOPHISTICATED MARBLE & GRANITE INDUSTRI ES (2009), 225 CTR 410, 27 DTR 117 7 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT C ASE IT IS AN ADMITTED FACT THAT THE ASSESSING OFFICER DISALLOWED CLAIM OF THE ASSESSEE U/S 10B ON LY ON THIS BASIS THAT CUTTING OF MARBLE BLOCKS INTO SLABS AND TILES WAS NOT A MANUFACTURING ACTIVITY. NOW THIS ISSUE HAS BEEN SETTLED BY THE HON'BLE SUPREME COURT IN THE CASE OF ITO VS. ARIHANT TILES AND MARBLES P. LTD., (2010) 320 ITR 79 WHEREIN IT HAS BEEN HELD AS UNDER :- THAT THIS WAS NOT A CASE OF MERELY CUTTING MARBLE BLOCKS INTO SLABS. THERE WAS THE FURTHER ACTIVITY OF POLISHING AND ULTIMATE CONVERSION OF THE BLOCKS INTO POLISHED SLABS AND TILES. THERE WERE VARIOUS S TAGES THROUGH WHICH THE BLOCKS HAD TO GO THROUGH BEFORE THEY BECAME POLISHE D SLABS AND TILES. THE ORIGINAL BLOCK DID NOT REMAIN MARBLE BLOCK ; IT BEC AME A SLAB OR TILE. BLOCKS WERE CONVERTED INTO POLISHED SLABS AND TILES RESULTING IN THE EMERGENCE OF A NEW AND DISTINCT COMMODITY. SUCH AN ACTIVITY WAS SOMETHING BEYOND MANUFACTURE AND BROUGHT A NEW PROD UCT INTO EXISTENCE. THE STEPWISE ACTIVITY CONSTITUTED 'MANUFACTURE OR P RODUCTION' IN TERMS OF SECTION 80-IA. 10. IN THE PRESENT CASE, BY KEEPING IN VIEW THE RAT IO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE AFORESAID CASE, IT CAN SAFELY BE HELD THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING ACTIVITY AND AS IT WAS EXPORTING ITS PRODUCTS, THEREFORE, THE CONDITIONS LAID DOWN FOR CLAIMING EXEMPTION U/S 10B WERE FULFILLED, AS SUCH, THE ASSESSEE WAS ENTITLED FOR THE EXEMPTION U/S 10B OF THE ACT. THE LEARNED CIT (A) HAS RIGHTLY HELD SO. FURTHERMORE, IT IS NOTICED THAT THE ASSESSING OFFICER HAD ALLOWED THE CLAIM OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-10 BY PASSING THE ORDER DATED 26.12.2011 ( COPY OF WHICH IS PLACED AT PAGE NOS. 191 TO 202 OF THE ASSESSEES PAPER BOOK) AND THE F ACTS IN THE PRESENT YEAR VIS A-VIS THE ASSESSMENT YEAR 2009-10 ARE IDENTICAL, THEREFORE, T HE ASSESSING OFFICER OUGHT TO HAVE 8 ALLOWED THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10B OF THE ACT FOR THE YEAR UNDER CONSIDERATION. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF LEARNED CIT(A) ON THIS ISSUE. 11. THE NEXT ISSUE VIDE GROUND NO.2 RELATES TO THE DELETION OF ADDITION MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC TION 40(A)(IA) OF THE ACT. 12. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAS CLAIMED CLEARING AND FORWARDING EXPENSES OF RS. 4,13,34,599/- UNDER THE HEAD SELLI NG AND DISTRIBUTION EXPENSES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH ABO UT DISALLOWANCE OF SUCH EXPENSES IN THE CASE OF NON-DEDUCTION OF TDS. THE ASSESSEE SUBMIT TED THAT IT WAS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 194C ON THE REIMBURSEMENT OF THE ACTU AL EXPENSES WHICH WERE RAISED SEPARATELY BY WAY OF DEBIT NOTE. THE ASSESSING OFF ICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND MADE THE IMPUGNED DISALLOWANCE BY OBSERVING IN PARA 3.4 OF THE ASSESSMENT ORDER WHICH READS AS UNDER:- I HAVE GONE THROUGH THE SUBMISSION MADE BY ID. A. R. ON BEHALF OF THE ASSESSEE FIRM AND EXAMINED THE ISSUE IN THE LIGHT OF PROVISI ON U/S 40(A)(I), 194C, 172, CIRCULAR NO. 715 DATED 08-08-1995 AND CIRCULAR NO. 723 DATED 19-09-1995. CIRCULAR NO. 715 VIDE ANSWER TO QUERY NO. 6 CLEARLY STATES THAT:- ' AS REGARDS PAYMENTS MADE TO CLEARING AND FORWARDI NG AGENTS FOR CARRIAGE OF GOODS, THE SAME SHALL BE SUBJECTED TO T AX DEDUCTION TO SOURCE UNDER SECTION 194C OF THE ACT' HERE ASSESSEE HAS MADE PAYMENT TO C &F AGENTS FOR E XPENSES ON ACCOUNT OF PAYMENT TO SHIPPING CORPORATION OF INDIA, NON RESID ENT SHIPPING COMPANIES. RAILWAYS THROUGH M/S CONCOR AGENCY COMMISSION AND O N ACCOUNT OF OTHER EXPENSES. PAYMENT MADE TO SHIPPING CORPORATION OF I NDIA IS COVERED BY 9 EXEMPTION CERTIFICATE ISSUED BY AO U/S 197 AND ON A GENCY COMMISSION TDS HAS BEEN MADE AS PER THE PROVISIONS. CIRCULAR NO. 723, SAYS THAT PROVISIONS OF SECTION 1 72 ARE TO APPLY, NOTWITHSTANDING ANYTHING CONTAINED IN THE OTHER PRO VISIONS OF THE ACT. SINCE THE AGENT ACTS ON BEHALF OF THE NON-RESIDENT SHIP-OWNER OR CHARTERER HE STEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDINGLY THE PROVISI ONS OF SECTION 172 SHALL APPLY AND THOSE OF SECTIONS 194C AND 195 WILL NOT APPLY WITH REGARD TO ABOVE PAYMENTS NO COMPOSITE BILL HAS BEEN RAISED BY C & F AGENT AND ALL BILLS/RECEIPT ARE IN THE NAME OF THE ASSESSEE. THUS CLAIM OF ASSESSEE WITH REGARD TO PAYMENT MADE TO NON RESIDEN T SHIPPING COMPANIES SEEMS JUSTIFIED. FURTHER PAYMENT THROUGH M/S CONCOR IS MADE TO RAILWAY BY SEPARATE BILLS IN THE NAME OF THE ASSESSEE, THIS PA YMENT ALSO DOES NOT ATTRACT TDS. BUT ON BALANCE PAYMENT MADE FOR OTHER EXPENSES BY C & F NO TDS HAS BEEN MADE BY THE ASSESSEE AS PER THE PROVISIONS OF SECTION 194C AND CIRCULAR NO. 715. AS DISCUSSED IN ABOVE PARAS ON PAYMENT OF RS. 13,43,208/- MADE BY TRADING DIVISION NO TDS HAS BEEN MADE LEADING TO VI OLATION OF PROVISION U/S 40(A)(I) OF IT. ACT. THEREFORE, THIS EXPENSES OF RS . 13,43,208/- IS DISALLOWED AND WILL BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE F IRM. 13. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND FOLLOWING SUBMISSIONS WERE MADE:- THE ID. ASSESSING OFFICER HAS DISALLOWED A SUM OF RS. 13,43,208/-U/S. 40(A)(I) OF THE ACT AFTER DISCUSSION IN PARA 3 OF T HE IMPUGNED ORDER. THE ASSESSEE WAS UNDER THE BONAFIDE BELIEF AND WAS ADVI SED THAT NO TAX DEDUCTION AT SOURCE IS DEDUCTIBLE ON THE AMOUNT OF REIMBURSEM ENT. ADMITTEDLY, A DEBIT NOTE IS ISSUED BY (I) AASHITA INTERNATIONAL LICENCE D CUSTOM HOUSE AGENT, AHMEDABAD AND (II) M/S. KRISHNA CLEARING AGENT, GAN DHIDHAM DEBITING ACCOUNT OF THE ASSESSEE FOR EXPENSES ACTUALLY INCUR RED ON BEHALF OF THE ASSESSEE. ANOTHER BILL/INVOICE IS ISSUED IN RESPECS T OF AGENCY CHARGES PLUS SERVICE TAX AND THE ASSESSEE FIRM HAS DEDUCTED TDS IN RESPECT OF SUCH CHARGES. BOTH THE AGENTS ARE ASSESSED TO INCOME-TAX . CERTIFICATES FROM AASHITA INTERNATIONAL AND KRISHNA CLEARING AGENCY D ATED 9.10.2007 AND 20.9.2007 RESPECTIVELY WERE SUBMITTED WHEREIN THE S AID AGENTS HAVE CLEARLY STATED THAT THE REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF THE ASSESSEE ARE THE ACTUAL EXPENSES AND THEY HAVE NOT CHARGED A NY OVERHEADS/PROFITS OVER AND ABOVE THE ACTUAL EXPENSES. BOTH ARE BEING ASSES SED TO INCOME-TAX FROM YEAR TO YEAR AND SUPPORTING EVIDENCE WAS ADDUCED. H OWEVER, THE ID. A.O. HAS DISALLOWED A SUM OF RS. 13,43,208/-. 10 IT STANDS ESTABLISHED THAT THERE WAS NO ELEMENT OF PROFIT IN THE SAID AMOUNT. FURTHER THE AGENT HAS ISSUED DEBIT NOTE FOR THE EXP ENSES INCURRED ON BEHALF OF THE ASSESSEE. THE AGENT HAS NOT ISSUED A SINGLE BI LL. THE SCHEME OF TAX DEDUCTION AT SOURCE IS TO DEDUCT / COLLECT TAX IN ADVANCE FROM THE INCOME OF THE DEDUCTEE AND THE DEDUCTEE GE TS ITS CREDIT IN OWN ASSESSMENT, ON FURNISHING OF CERTIFICATE U/S.203 OF THE ACT. AS ESTABLISHED ON RECORDS, THE SAID AMOUNT WAS BY WAY OF REIMBURSEMEN T AND THERE WAS NO ELEMENT OF INCOME BY THE AGENTS IN RESPECT OF SUCH AMOUNT. HENCE, THERE WAS NO LIABILITY TO DEDUCT TAX AT SOURCE AND THE ASSESS EE WAS ALL ALONG UNDER THE BONAFIDE BELIEF AND WAS ALSO ADVISED THAT THERE IS NO NECESSITY OF DEDUCTING TAX U/S. 194C IN RESPECT OF THE SAID DEBIT NOTES. THE DELHI TRIBUNAL IN ITO VS. DR. WILLMAR SCHWABE I NDIA (P.) LTD. (2005) 3 SOT 71 HELD THAT WHEN THE CONSULTANT RAISED SEPARATE BILLS FOR ACTUAL EXPENSES INCURRED ON VEHICLE AND SINCE THERE WAS NO ELEMENT OF ANY PROFIT INVOLVED IN SUCH BILLS, IT WAS A CLEAR CASE OF REIM BURSEMENT OF ACTUAL EXPENSES INCURRED BY THE ASSESSEE AND NO DEDUCTION OF TAX AT SOURCE WAS TO BE MADE U/S. 194J OF THE ACT (COPY ENCLOSED). SIMIL AR VIEW HAS BEEN EXPRESSED BY DELHI BENCH OF ITAT IN ACIT VS. MODICOM NETWORK (P.) LTD. (2007) 14 SOT 204. THE TRIBUNAL HELD THAT OBLIGATION TO DEDU CT TAX U/S. 195 IS ONLY WITH REFERENCE TO INCOME ELEMENT EMBEDDED IN REMITT ANCE AND REIMBURSEMENT OF EXPENSES CANNOT BE CONSIDERED AS HAVING AN INCOM E ELEMENT EMBEDDED THEREIN SO AS TO ATTRACT SEC. 195(1) OF THE ACT (CO PY ENCLOSED). THE GAUHATI HIGH COURT IN SING KILLING V. ITO (2002 ) 255 ITR 444 HELD THAT IF THE INCOME ITSELF IS EXEMPTED ANY DEDUCTION /COLLECTION, ON ACCOUNT OF INCOME-TAX, AT SOURCE, WOULD BE BEYOND THE POWERS C ONFERRED BY THE PROVISIONS OF THE INCOME-TAX ACT. THE RAJASTHAN HIGH COURT IN LIFE INSURANCE CORPORAT ION OF INDIA VS. UNION OF INDIA (2003) 260 ITR 41 HELD THAT DEDUCTION OF T AX AT SOURCE NEED NOT BE MADE IN RESPECT OF PAYMENTS FOR CONVEYANCE AND ADDI TIONAL CONVEYANCE ALLOWANCE GRANTED TO THE DEVELOPMENT OFFICERS, IT B EING ENTITLED TO EXEMPT IN THEIR HANDS. THE ID. A.O. HAS HEAVILY RELIED UPON THE ANSWER TO THE QUESTION GIVEN BY THE CENTRAL BOARD OF DIRECT TAXES, WHICH DOES NOT HOLD GOOD IN THE LIGHT OF THE LAW AND THE DECISIONS CITED HEREINABOVE. WE SUBMIT THERE WAS NO OBLIGATION OF DEDUCTING TAX IN RESPECT OF REIMBURSEMEN TS AND HENCE THE PROVISION OF SECTION 40(A) (IA) ARE INAPPLIC ABLE AND DISALLOWANCE IS UNJUST. WE SUBMIT THE DISALLOWANCE IS NOT IN ACCORDANCE WITH LAW'. 11 14. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE DELETED THE IMPUGNED ADDITION BY OBSERVING AT PAGE NOS. 65 & 66 OF THE IMPUGNED ORDER AS UNDER;- THE A/R ALSO FURNISHED PAYMENT WISE DETAILS. FROM THE ABOVE IT IS SEEN THAT RS.4,13,34,599/- WAS PAID TO M.S AASHITA INTERNATIO NAL AND KRISHNA FOR DIRECT TRANSPORT/SEA FREIGHT ON BEHALF OF THE NON RESIDENT SHIP OWNER TO EXPORT AND SHIPPING THE GOODS UPTO THE DESTINATION PORTS. THE A/R ALSO QUOTED THE CBDT CIRCULAR NO.723 DATED 19-9-2005 AS UNDER: 'THERE WOULD BE CASES WHERE PAYMENTS ARE MADE TO SH IPPING AGENTS OF NON-RESIDENT SHIP OWNERS CHARTERERS OF SHIP FOR CARRIAGE OF PASSENGER ETC. SHIPPED AT PORT IN INDIA. SINCE THE AGENT ACTS ON BEHALF OF THE NON-RESIDENT SHIP OWNERS OR CHARTERER , HE STEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDINGLY, PROVISIONS OF SECTION 172 SHALL APPLY AND THOSE OF SECTION 194C AND 195 WILL NOT AP PLY' FURTHER 194C DEALS WITH WORKS CONTRACT, INCLUDING C ARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN RAIL TO -ANY RESIDENT MENTIONED IN SUB SECTION (1) IN CLAUSE (A) TO (J). IT IS CLEAR THAT AREAS OF OPERATION FOR TDS ARE CONFINED TO RESIDENT. ON THE OTHER HAND SECTION 172 OPERATES IN THE AREA OF COMPUTATION OF PROFIT OF SH IPPING BUSINESS OF NON RESIDENT WHO PAY THE TAX BY THEMSELVES AS PER SECTI ON 172 AND NO TDS IS ATTRACTED. REGARDING BALANCE AMOUNT THEY ARE IN THE NATURE OF AGENCY PAYMENT BUT OTHER MISC. PAYMENT SUCH AS LICENCE VER IFICATION CHARGES, CUSTOM DUTY CHARGES, LICENSE BULLETIN CHARGES ETC, DOC CHARGES AND SERVICE CHARGES, CONTAINER DETENTION CHARGES AND PACKING CH ARGES. FURTHER THE AGENT RAISED BILL SEPARATELY FOR REIMBURSEMENT OF A CTUAL EXPENSES IN RESPECT OF CLEARING AND FORWARDING CHARGES AND OTHER CHARGE S AND AGENCY COMMISSION. THE APPELLANT DEDUCTED TDS ON THE AGENC Y COMMISSION AND DEPOSITED IN THE GOVT,. ACCOUNT. THEREFORE, ON THE OTHER REIMBURSEMENT TO THE AGENT THE PROVISIONS OF SECTION 194C AND 195 WI LL NOT APPLY. THEREFORE, THE ADDITION MADE OF RS. 13,43,208/- BY THE AO IS D ELETED. THE APPEAL IS ALLOWED ON THIS GROUND. NOW THE DEPARTMENT IS IN APPEAL. 15. THE LEARNED LD. D.R. FOR THE REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT ASSESSEE HAD NOT DEDUCTE D THE TDS, THEREFORE, THE DISALLOWANCE WAS RIGHTLY MADE U/S 40(A)(IA) OF THE ACT. 12 16. IN HIS RIVAL SUBMISSIONS, THE LD. COUNSEL FOR T HE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMI TTED THAT ON THE REIMBURSEMENT OF EXPENSES MADE TO C&F AGENT, NO TDS WAS TO BE DEDUCT ED. IT WAS FURTHER STATED THAT THE AMOUNT WAS NOT PAYABLE ON THE CLOSING DAY, THEREFOR E, NO TDS WAS TO BE DEDUCTED. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- A) M/S OM SATYA EXIM PVT LTD. VS ITO, SURAT ITA NO . 1335/AHD/2010 ORDER DATED 13.5.2011 B) CIT VS HASMUKH J. PATEL ITA NO. 2081/AHD/2009 OR DER DATED 10.3.2011 C) RAMESH INDUSTRIES DAMAN VS. ITO ITA NO. 3131/AH D/2008 ORDER DATED 21.1.2011 D) DCIT, CIRCLE 3(3), HYDERABAD VS. VIRINCHI TECHNO LOGIES LTD. SECUNDERABAD ITA NO. 209/HYD/2010 ITAT HYEDERABAD BENCH ORDER DATE D 31.3.2011 E) M/S VIDHYUT VITARAN NIGAM LTD. 123 TTJ 888 ITA T JAIPUR BENCH F) MINPRO REPORTED IN 143 TTJ 331 - ITAT JODHPUR BE NCH 17. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT C ASE, THE ASSESSEE MADE PAYMENTS TO C&F AGENTS FOR EXPENSES ON ACCOUNT OF PAYMENT TO SHIPPI NG CORPORATION OF INDIA AND THE RAILWAYS. AS SHIPPING CORPORATION OF INDIA WAS COV ERED BY EXEMPTION CERTIFICATE ISSUED BY THE ASSESSING OFFICER U/S 197 OF THE ACT, NO TDS WA S TO BE DEDUCTED ON SUCH PAYMENTS. IN THE INSTANT CASE, THE LEARNED CIT(A) CATEGORICALLY STATED THAT FOR THE PAYMENTS TO SHIPPING CORPORATION OF INDIA AND NON-RESIDENT SHIPPING COMP ANIES, THE COMPOSITE BILL HAS BEEN RAISED BY C&F AGENT AND THE PAYMENTS / RECEIPTS WER E IN THE NAME OF THE ASSESSEE. THE ABOVE OBSERVATION OF THE LEARNED CIT(A) HAD NOT BEE N CONTROVERTED WHICH SHOWS THAT THE ASSESSEE REIMBURSED THE EXPENSES TO C&F AGENT ON AC COUNT OF BILLS / RECEIPTS WHICH WERE IN THE NAME OF THE ASSESSEE, THEREFORE, IT DOES NOT AT TRACT THE PROVISIONS FOR DEDUCTING OF THE 13 TAX AT SOURCE. THE PAYMENT TO THE RAILWAYS WERE AL SO MADE THROUGH CONCOR BY SEPARATE BILLS IN THE NAMES OF THE ASSESSEE, THEREFORE, IT W AS ALSO REIMBURSEMENT OF THE EXPENSES AND THE PROVISIONS OF TDS WERE NOT ATTRACTED. FURTH ERMORE, IN THE PRESENT CASE, NOTHING WAS PAYABLE AT THE YEAR END, THEREFORE, NO TDS WAS TO BE DEDUCED AT SOURCE AS HAS BEEN HELD BY THE ITAT JAIPUR BENCH IN THE CASE OF JAIPUR VIDYUT VITRAN NIGAM LTD. VS. DCIT (2009) 123 TTJ 888 WHEREIN IT HAS BEEN HELD AS UNDER:- THE BARE PROVISION OF S. 40(A)(IA) PROVIDES FOR NO N-DEDUCTION OF AMOUNT WHICH REMAINS PAYABLE TO A RESIDENT IN RESPECT OF F EES FOR TECHNICAL SERVICES ETC. IT IS NOT APPLICABLE WHERE EXPENDITUR E IS PAID. IT IS APPLICABLE ONLY IN CASES WHERE THE PAYMENTS ARE DUE AND OUTSTA NDING. THE WORD PAYABLE IS NOT DEFINED THOUGH THE WORD PAID IS DEFI NED UNDER S. 43(2) TO MEAN ACTUALLY PAID OR INCURRED. HENCE, BY IMPLICATI ON THE WORD PAYABLE DOES NOT INCLUDE PAID. THE DIFFERENCE IN THE WORD P AID AND PAYABLE IS ALSO THERE IN THE RULES FOR DEPOSITING THE TDS AND ALSO FOR LEVY OF INTEREST UNDER S. 234B WHERE INTEREST IS WORKED OUT ON THE BASIS O F TAX ACTUALLY DEDUCTED AT SOURCE AND NOT ON THE BASIS OF TAX DEDUCTIBLE. S EC. 40(A)(IA) OTHERWISE BEING A LEGAL FICTION NEEDS TO BE CONSTRUED STRICTL Y IN VIEW OF THE DECISION OF SUPREME COURT IN CIT VS. MOTHER INDIA REFRIGERAT ION INDUSTRIES (P) LTD. (1985) 48 CTR (SC) 176: (1985) 155 ITR 711 (SC). TH E CBDT IN CIRCULAR NO. 5 OF 2005, DT. 15TH JULY, 2005 [(2005) 197 CTR (ST) 1] HAS ALSO CLARIFIED THAT THE PROVISION OF THE S. 40(A)(IA) IS TO AUGMENT COM PLIANCE OF TDS PROVISION IN THE CASE OF RESIDENTS AND CURB BOGUS PAYMENTS TO THEM. IN PRESENT CASE THE PAYMENT IS NOT IN DISPUTE AND ON THE ISSUE WHET HER TAX IS TO BE DEDUCTED AT SOURCE ON SUCH PAYMENT IS NOT FREE FROM DOUBT. IN ANY CASE SINCE ASSESSEE HAS MADE ACTUAL PAYMENT OF THE WHEEL ING/SLDC CHARGES AS PER THE EVIDENCE PLACED ON PAPER BOOK 94-101, WE A RE OF THE VIEW THAT PROVISIONS OF S.40(A)(IA) ARE NOT APPLICABLE IN THE PRESENT FACTS OF THE CASE. 14 WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACT S AND DISCUSSIONS MADE HEREIN ABOVE ARE OF THE VIEW THAT ASSESSEE WAS NOT LIABLE TO DEDUCT THE TDS ON THE REIMBURSEMENT OF EXPENSES AND NOTHING WAS PLAYABLE OUT OF THE EXPENS ES AT THE END OF THE YEAR. THEREFORE, THE LEARNED CIT(A) RIGHTLY DELETED THE IMPUGNED ADD ITION AND WE DO NOT SEE ANY INFIRMITY IN THE IMPUGNED ORDER ON THIS ISSUE. 18. THE NEXT ISSUE VIDE GROUND NO.3 RELATES TO THE DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TRADE FARE EXPENSES . 19. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAS NOTICED THAT THE ASSE SSEE HAD CLAIMED A SUM OF RS. 39,99,509/- AS EXPENSES ON ACCOUNT OF PARTICIPATION IN THE TRADE FAIR HELD AT MADRID AND VERONA. THE ASSESSEE FURNISHED NECESSARY DETAILS R ELATING TO THOSE TRADE FAIRS. THE ASSESSEE PARTICIPATED IN THOSE FAIRS AS M/S GLAXY E XPORTS WHICH COMPRISES OF BOTH THE DIVISIONS. THE ASSESSING OFFICER NOTICED THAT THE CORRESPONDING ENTRIES HAD BEEN CLAIMED IN TRADING DIVISION AND NO EXPENSES HAD BEEN BOOKED IN 100% EOU DIVISION. HE, THEREFORE, ASKED THE ASSESSEE THAT WHY NOT THOSE EXPENSES BE A PPORTIONED BETWEEN BOTH THE DIVISIONS. THE SUBMISSIONS OF THE ASSESSEE VIDE RE PLY DATED 13.11.2007 WERE AS UNDER:- THE ASSESSEE FIRM HAS BEEN CARRYING ON THE BUSINESS OF TRADING PRIMARILY CUT AND POLISHED MARBLE BLOCKS AND LITTLE OF SLABS AND TILES. IT ESTABLISHED AN SEPARATE EXPORT ORIENTED UNIT AT PLOT N. 934 BRAHMA NO KA GUDA, UDAIPUR IN MARCH 2000 IN ORDER TO MANUFACTURE/PRODUCE MARBLE S LABS AND TILES. IT MAINTAINS SEPARATE BOOKS OF ACCOUNT FOR THE TRADING UNIT AND THE EXPORT ORIENTED UNIT. PRODUCTS OF THE TWO UNITS REMAIN SEP ARATE. EXPENDITURE INCURRED IN RESPECT OF THE RELEVANT UNIT IS DEBITED TO THE ACCOUNTS OF THE 15 CONCERNED UNIT. SEPARATE TRADING AND PROFIT AND LOS S ACCOUNT IS PREPARED FOR EACH OF THE SAID UNITS. IN ORDER TO BOOST SALE OF TRADING UNIT, IT HAD TAKE N SPACE FOR DISPLAY OF GOODS OF TRADING UNIT AT MADRID TRADE FAIR FROM 05-05-2004 T O 08-05-2004. DURING THE ACCOUNTING PERIOD 01-04-2004 TO 31-03-2005 RELEVANT FOR THE ASSESSMENT YEAR 2005-06, GOODS BELONGING TO/PURCHASED FOR THE TRADI NG UNIT WERE EXPORTED FOR EXHIBITION AT MADRID FAIR VIDE INVOICE DATED 25-03- 2004 AND AT VERONA FAIR VIDE INVOICE DATED 12-08-2004 (COPIES ENCLOSED). TH E EXHIBITS WERE DISPLAYED AND DISTRIBUTED IN EXHIBITIONS FOR BUSINESS PROMOTI ON. EXPENDITURE WAS ALSO INCURRED FOR PHOTOGRAPHS, TRAVEL, COMMISSION AND OT HER EXPENSES. WE ARE SUBMITTING HEREWITH DETAILS OF EXPENDITURE OF RS. 1 5,32,200/- FOR MADRID TRADE FAIR AND OF RS. 20,67,309/- FOR VERONA TRADE FAIR. THE SAID EXPENDITURE RELATED TO THE TRADING UNIT AND HENCE WAS DEBITED I N THE BOOKS OF ACCOUNT OF THE TRADING UNIT. 20. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE O BSERVED THAT THE NATURE OF BUSINESS OF POTENTIAL CLIENTS FO R THE TRADING AS WELL AS 100% EOU DIVISIONS WERE SAME. THUS THE GENERAL BUSINESS ACTIVITIES OF THE DIVISIONS WERE INTERCONNECTED AND INSEPARABLE. ACCORDING TO THE ASSESSING OFFICER, T HE CLAIM OF EXPENSES IN ONLY ONE DIVISION AND THAT THE CORRESPONDING GAIN IN THE FORM OF INCR EASE IN TURN OVER FOR BOTH THE DIVISIONS WAS NOT PROPER. THEREFORE, IT WOULD BE REASONABLE TO APPORTION THOSE EXPENSES IN THE RATIO OF TURN OVER OF THOSE DIVISIONS INSTEAD OF CLAIMING ONLY IN ONE DIVISION I.E. TRADING DIVISION. THE ASSESSING OFFICER POINTED OUT THAT THE TRADING DIVISION ACCOUNT FOR 28.5% OF THE COMBINED TURN OVER. HE, THEREFORE, CONSIDERED 28. 5% OF THE TRADE FAIR EXPENSES OF RS. 39,99,905/- TO BE ALLOWABLE AS ELIGIBLE EXPENSES IN TRADING DIVISION AND BALANCE WOULD BE ACCOUNTED FOR IN 100% EOU DIVISION. HE, THEREFORE, DISALLOWED A SUM OF RS. 11,39,860/- AND ADDED RS. 28,59,649/- IN THE INCOME OF THE ASSESSEE . 16 21. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED TO THE LEARNED CIT(A) THAT THE TRADING UNIT OF THE ASSESSEE PARTIC IPATED IN TRADE FAIR AT MADRID AND VERONA. THE TRADE FAIR WAS FOR PROMOTION OF SALES IN WHICH ASSESSEE WAS TRADING AND NECESSARY DETAILS ALONGWITH PHOTOGRAPHS OF THOSE TRADE FAIR W ERE FILED, THEREFORE, IT WAS ESTABLISHED THAT GOODS DISPLAYED AT THE SAID FAIR, SAMPLES PURC HASED AND EXPORTED, EXPENDITURE INCURRED FOR PHOTOGRAPHS, TRAVEL COMMISSION AND OTHER EXPENS ES WERE RELATED TO THE TRADING UNIT AND HAD BEEN DEBITED TO THE SAID UNIT. IT WAS CONTENDED THAT BY PARTICIPATING IN THE SAID FAIRS THE ASSESSEE COULD INCREASE ITS GROSS PROFIT AND MAINTA IN THE SALES THOUGH THERE WAS TOUGH COMPETITION. IT WAS CONTENDED THAT THE ASSESSING O FFICER HAD DRAWN ADVERSE INFERENCE FOR THE REASONS THAT THE PARTICIPATING IN THE TRADE FAI R WAS IN THE NAME OF M/S GLAXY EXPORTS. IT WAS STATED THAT SEPARATE BOOKS OF ACCOUNT HAD BEEN MAINTAINED FOR (I) TRADING DIVISION (II) 100% EOU UNIT AND THERE WAS A LITTLE DIFFERENCE BET WEEN THE NATURE OF BUSINESS OF THE TWO UNITS, AND THEIR CLIENTS AND CUSTOMERS SO IT WAS W RONG TO SAY THAT ACTIVITIES OF THE TWO DIVISIONS WERE INTERCONNECTED AND INSEPARABLE AND T HAT FOR THE PURPOSE OF TAXATION, TWO SEPARATE DIVISIONS HAD BEEN MAINTAINED. IT WAS FU RTHER CONTENDED THAT THERE WAS NO EVIDENCE THAT ON ACCOUNT OF PARTICIPATING IN THE TR ADE FAIR, GAIN WAS IN RESPECT OF EOU. ON THE CONTRARY, THE ASSESSEE HAD PARTICIPATED IN THE TRADE FAIR FOR THE PURPOSE OF BUSINESS OF TRADING AND IT STANDS PROVED THAT WITH SUCH PARTIC IPATION IT COULD COMPETE AND COULD EARN BETTER MARGIN OF PROFIT. ALTERNATIVELY, IT WAS SUB MITTED THAT ON ACCOUNT OF DISALLOWANCE OUT OF CLEARING AND FORWARDING CHARGES AND THE TRADE FA IR EXPENSES, INCOME OF THE EOU WOULD ENHANCE AND SUCH INCOME BEING EXEMPT U/S 10B OF THE ACT, THE DISALLOWANCE WOULD BE OF NO CONSEQUENCE. 17 22. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE OBSERVED THAT IT WAS ESTABLISHED THAT THE GOODS DISPLAYED AT THE TRA DE FAIR, SAMPLES PURCHASED AND EXPORT EXPENDITURE INCURRED FOR PHOTOGRAPHS, TRAVEL COMMIS SION AND OTHER EXPENSES WERE RELATED TO THE TRADING UNIT AND HAD BEEN DEBITED IN THE TRA DING UNIT. HE FURTHER OBSERVED THAT ON ACCOUNT OF PARTICIPATION IN THE SAID FAIR, THE ASSE SSEE FIRM COULD INCREASE ITS GROSS PROFIT AND MAINTAINED THE SAME THOUGH THERE WAS TOUGH COMPETIT ION. THE LEARNED CIT(A) FURTHER OBSERVED THAT IT WAS ONLY THE TOTAL REVENUE EXPENDI TURE INCURRED BY THE ASSESSEE WHICH HAD BEEN APPORTIONED AMONG THE TWO UNITS ACCORDING TO T HE TURN OVER BY BOTH THE UNITS AND THAT THE ASSESSEE MAINTAINED BOOKS OF ACCOUNT OF BO TH THE UNITS SEPARATELY, THEREFORE, IT COULD NOT BE SAID THAT THE TURN OVER AND THE EXPENS ES WERE NOT SEPARABLE. THE LEARNED CIT(A) POINTED OUT THAT DURING THE ACCOUNTING PERIO D 1.4.2004 TO 31.3.2005, RELEVANT FOR THE ASSESSMENT YEAR 2005-06, THE GOODS BELONGING TO / P URCHASED FOR THE TRADING UNIT WERE EXPORTED FOR EXHIBITION AT MADRID FAIR VIDE INVOICE DATED 25.3.2004 AND AT VERONA FAIR VIDE INVOICE DATED 12.8.2004. HE FURTH ER OBSERVED THAT THE EXHIBITS WERE DISPLAYED AND DISTRIBUTED IN EXHIBITIONS FOR BUSINE SS PROMOTION AND THE EXPENDITURE WERE ALSO INCURRED FOR PHOTOGRAPHS, TRAVEL COMMISSION AN D OTHER EXPENSES, THE DETAILS OF WHICH REVEALED THAT ON EXPENDITURE OF RS. 15,32,000/- WAS INCURRED FOR MADRID TRADE FAIR AND RS. 20,67,309/- FOR VERONA TRADE FAIR. THE LEARNED CIT( A) POINTED OUT THAT THE ASSESSING OFFICER HAD NOT COLLECTED ANY MATERIAL TO SHOW THAT THE GOO DS EXPORTED FOR TRADE FAIR WERE BELONGING TO BOTH THE UNITS AND NOT OF TRADING DIVI SION. ON THE CONTRARY, THE ASSESSEE FURNISHED COPIES OF THE EXPORT INVOICES AND VOUCHER S SHOWING THE GOODS EXPORTED FOR TRADE FAIR WERE BY THE TRADING UNIT. THE LEARNED CIT(A) HELD THAT APPORTIONATE OF THE EXPENDITURE BY ASSESSING OFFICER IN THE RATIO OF TURN OVER OF B OTH THE UNITS ON THE GROUND THAT NATURE OF BUSINESS AND CLIENTS WERE SAME FOR BOTH THE DIVISI ONS WAS WITHOUT ANY SUPPORTING MATERIAL 18 ON RECORD. THE LEARNED CIT(A) POINTED OUT THAT THE SALE BY 100% EOU WAS TO THE FOREIGN BUYERS ONLY WHILE THE TRADING DIVISION SOLD THE GOO DS TO FOREIGN BUYERS AS WELL AS TO THE LOCAL BUYERS AND THE ASSESSING OFFICER HAD NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE SALE WERE TO THE SAME CLIENTS FOR BOTH THE UNITS. FURTHER, THE EOU UNITS HAD ALREADY ESTABLISHED ITS EXISTENCE IN THE FOREIGN MARKET FOR THE GOODS, THEIR NEED TO PARTICIPATE IN THE TRADE FAIR WAS NOT NECESSARY, HOWEVER, TO ESTABLISH THE EXISTENCE OF THE TRADING DIVISION AND TO COMPETE IN THE FOREIGN MARKET, THE TRADING DIVIS ION PARTICIPATED IN THE TRADE FAIR BY EXHIBITING ITS GOODS, THEREFORE, IT COULD NOT BE S AID THAT BOTH THE UNITS PARTICIPATED IN THE TRADE FAIR UNLESS AND UNTIL PROVED OTHERWISE BY CON TROVERTING THE FACTS SUBMITTED BY THE ASSESSEE BY COLLECTING SOME CORROBORATIVE MATERIAL ON RECORD. THE LEARNED CIT(A) THEREFORE, HELD THAT THE APPORTIONMENT MADE BY THE ASSESSING O FFICER WITHOUT ANY MATERIAL ON RECORD WAS NOT JUSTIFIED. NOW THE DEPARTMENT IS IN APPEAL. 23. THE LEARNED LD. D.R. FOR THE REVENUE STRONGLY S UPPORTED THE ORDER OF THE ASSESSING OFFICER AND REITERATED THE OBSERVATIONS MADE IN TH E ASSESSMENT ORDER DATED 28.12.2007. 24. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL F OR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S TRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY LEARNED CIT(A). 25. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND MATERIAL ON RECORD, IT IS NOTICED THAT THE ASSESSEE WAS HAVING TWO DIVISIONS I.E. TRADING DIVISION AND EXPORT ORIENTED UNIT (EOU) DIVISION. THE ASSESSEE MAINTAINED SEPAR ATE BOOKS OF ACCOUNT FOR BOTH THE UNITS. 19 THE TRADING UNIT WAS SELLING THE GOODS TO FOREIGN B UYERS AS WELL AS TO THE LOCAL BUYERS WHILE THE EOU UNIT WAS SELLING THE GOODS ONLY TO THE FORE IGN BUYERS. THE TRADING DIVISION PARTICIPATED IN MADRID AND VERONA TRADE FAIRS, DIS PLAYED AND DISTRIBUTED THE GOODS IN THOSE TRADE FAIRS FOR BUSINESS PROMOTION. EXPENDITURE WAS ALSO INCURRED FOR PHOTOGRAPHS, TRAVEL, COMMISSION AND OTHER EXPENSES. THE SAID EXPENSES WE RE RECORDED IN THE BOOKS RELATED TO THE TRADING UNIT. HOWEVER, THE ASSESSING OFFICER WITHOUT BRINING ANY MATERIAL ON RECORD TO SUBSTANTIATE THAT BOTH THE UNITS PARTICIPATED IN TH E TRADE FAIR AND INCURRED THE EXPENSES APPORTIONED THE EXPENSES IN PROPORTION TO THEIR TUR N OVER, IN OTHER WORDS BIFURCATED THE EXPENSES IN TRADING DIVISION AND EOU DIVISION ON TH E BASIS OF THEIR TURN OVER. THE ASSESSING OFFICER DID NOT CONSIDER THIS VITAL FACT THAT EOU U NIT WAS ALREADY ESTABLISHED IN THE FOREIGN MARKET FOR ITS GOODS AND THERE WAS NO NEED OF PARTI CIPATING IN THE TRADE FAIR BUT THE TRADING DIVISIONS HAS TO COMPETE IN THE FOREIGN MARKET TO E STABLISH ITS EXISTENCE, SO, PARTICIPATED IN THE TRADE FAIR BY EXHIBITING ITS GOODS AND FOR THA T PURPOSES VARIOUS EXPENSES WERE INCURRED AND RECORDED IN THE BOOKS OF ACCOUNT OF TRADING UNI T, THEREFORE, THE APPORTIONMENT OF THE EXPENSES MADE BY THE ASSESSING OFFICER ON THE BASIS OF TURN OVER OF TRADING UNIT AND EOU UNIT WAS NOT JUSTIFIED AND LEARNED CIT(A) RIGHTLY H ELD SO. WE, THEREFORE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS GIVEN BY THE LEARNED CIT(A). 26. IN ITA NO. 351/JODH/2009 FOR THE ASSESSMENT YEA R 2006-07, THE ISSUES INVOLVED RELATE TO DELETION OF DISALLOWANCE U/S 10B AND DELETION OF ADDITION MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THESE ISSUES WERE ALSO INVOLVED IN THE ASSESSMENT YEAR 2005-0-6 VIDE GROUND NOS. 1 & 2 IN ITA NO. 350/JODH/2009 WHICH WE HAVE ALREADY ADJUDICATED IN THE FORMER PART OF THIS ORDER, THEREFORE, OUR FINDINGS GIVEN THEREIN SHALL APPLY MUTATIS-MUTANDIS IN THIS YEAR ALSO. 20 27. IN THE CROSS OBJECTIONS FILED BY THE ASSESSEE, NO SPECIFIC RELIEF HAD BEEN SOUGHT. ONLY THE ORDERS OF THE CIT(A) HAVE BEEN SUPPORTED. THEREFORE, THESE CROSS OBJECTIONS BECOMES INFRUCTUOUS WHEN THE APPEALS OF THE DEPARTM ENTS HAD BEEN DISMISSED. WE ORDER ACCORDINGLY. 28. IN ITA NO. 399/JU/2010 FOR THE ASSESSMENT YEAR 2007-08, THE ISSUE RELATES TO THE DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFI CER BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE FACTS FOR THIS Y EAR I.E. ASSESSMENT YEAR 2007-08 ARE IDENTICAL TO THE FACTS INVOLVED IN ASSESSMENT YEARS 2005-06 A ND 2006-07, THEREFORE, OUR FINDINGS GIVEN IN ITA NOS 350/JU/2009 FOR THE ASSESSMENT YEAR 2005 -06 (SUPRA), SHALL APPLY WITH THE SAME FORCE FOR THIS YEAR ALSO. 29. IN ITA NO. 260/JU/2012 FOR THE ASSESSMENT YEAR 2008-09, GROUND NOS. 1, 2 & 4 RELATES TO DELETION OF ADDITION MADE BY THE ASSESSI NG OFFICER BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND IN GROUND NO.3, TH E ISSUE AGITATED BY THE DEPARTMENT ALSO RELATES TO THE DEDUCTION U/S 10B R.W SEC. 40(A)(IA ) OF THE ACT, THESE ISSUES HAD ALREADY BEEN ADJUDICATED IN THE FORMER PART OF THIS ORDER WHILE DECIDING THE APPEALS OF THE DEPARTMENT IN THE PRECEDING ASSESSMENT YEARS I.E. ASSESSMENT YEAR 2005-06, 2006-07 AND 2007-08. IN VIEW OF THE DISCUSSION MADE IN THE FORMER PART OF THIS O RDER, WE DO NOT SEE ANY MERIT IN THESE GROUNDS OF THE DEPARTMENTAL APPEAL. 30. THE GRIEVANCE OF THE DEPARTMENT VIDE GROUND NO. 5 RELATES TO THE DELETION OF DISALLOWANCE OF LOSS AMOUNTING TO RS. 2 LAKHS RELAT ING TO THE TRADING UNIT. 21 31. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSEE CLAIMED A LOSS OF RS. 2 LAKHS IN THE TRADING UNIT. THE ASSESSING OFFICER RE QUIRED THE ASSESSEE TO EXPLAIN ABOUT THE CLAIM OF THIS LOSS. HOWEVER, THE ASSESSEE FAILED T O EXPLAIN AS TO HOW THIS LOSS COULD BE TREATED TO BE A BUSINESS LOSS. THE ASSESSING OFFIC ER THEREFORE, DISALLOWED A LOSS OF THEFT AMOUNTING TO RS. 2 LAKHS CLAIMED UNDER THE HEAD A DMINISTRATIVE AND OTHER EXPENSES. 32. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED THAT THE AMOUNT OF RS. 2 LAKHS WAS DEBITED AS LOSS BY THEFT UNDER T HE HEAD ADMINISTRATIVE AND OTHER EXPENSES. IT WAS EXPLAINED THAT ON 9.4.2007, ONE OF THE EMPLOYEE SHRI BHWANI PRAKASH MATHUR WITHDREW RS. 5 LAKHS FROM THE ACCOUNT OF THE ASSESSEE MAINTAINED WITH TWO BANKS SITUATED AT TOWN HALL ROAD, UDAIPUR NAMELY PUNJAB N ATIONAL BANK - RS. 2,00,000 AND BANK OF BARODA- RS. 3,00,000/- OUT OF THE MONEY SO WIT HDRAWN, RS. 3 LAKHS WAS KEPT IN ONE BAG AND RS. 2 LAKHS OF 100 RUPEES DIGT WAS KEPT IN COVE R. THEREAFTER HE CAME TO HDFC BANK, CHETEK CIRCLE BRANCH BY JEEP FOR WITHDRAWING THE CA SH. AT THAT TIME THE BAG WAS KEPT WITH HIM AND THE MONEY KEPT IN COVER WAS GIVEN TO THE DR IVER, SHRI NATHULAL TO TAKE CARE OF THE SAME AND SHRI BHAWANI WENT INSIDE THE BANK, IN THE MEANWHILE, SHRI NATHU LAL CAME INSIDE THE BANK AND INFORMED HIM THAT THREE PERSONS SNATCH ED THE COVER IN WHICH THE SUM WAS KEPT AND RUN AWAY ON MOTORCYCLE. IT WAS FURTHER STATED T HAT SHRI BHAWANI PRAKASH MATHUR EMPLOYEE OF THE ASSESSEE FILED A FIR IMMEDIATELY ON THE SAME DAY WITH THE SHO HATHIPOLE, UDAIPUR AND AS THE AMOUNT SO ROBBED WAS THE SUM WIT HDRAWN FROM THE ACCOUNT OF THE ASSESSEE, IT WAS A TRADING / BUSINESS LOSS AND WAS ALLOWABLE U/S 37 OF THE ACT. IN SUPPORT OF THE ABOVE, COPY OF THE FIR WAS FILED. 22 33. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE OBSERVED THAT AS PER THE COPY OF FIR, THE MONEY STATED TO HAVE BEEN ROBBED BY UNIDENTIFIED PERSONS HAD BEEN WITHDRAWN FORM THE BANK ACCOUNT OF THE ASSESSEE AND THERE WAS ALSO NO DISPUTE THAT MONEY DEPOSITED IN THE SAID BANK ACCOUNT BELONGED TO THE ASSESSEE, THEREFORE, IN SUCH A SITUATION A LOSS INCURRED DUE TO THEFT WAS REQUIRED TO BE ALLOW ED AS TRADING LOSS IN VIEW OF THE FACT THAT THERE WAS NO OTHER EVIDENCE TO ESTABLISH OTHERWISE. ACCORDINGLY, DISALLOWANCE OF RS. 2 LAKHS WAS DELETED. NOW THE DEPARTMENT IS IN APPEAL. 34. THE LEARNED LD. D.R. FOR THE REVENUE SUBMITTED THAT NO SUCH EXPLANATION AS ACCEPTED BY LEARNED CIT(A) WAS GIVEN BY THE ASSESSEE TO THE ASSESSING OFFICER AND EVEN THE COPY OF THE FIR WAS NOT FILED, THEREFORE, THE ASSESSING OFF ICER HAD NO OCCASION TO VERIFY THE CONTENTS OF THE EXPLANATION GIVEN BY THE ASSESSEE BEFORE THE LEARNED CIT(A) AND EVEN NO REMAND REPORT WAS SOUGHT BY THE LEARNED CIT(A) ON THE COMM ENTS OF THE ASSESSEE, THEREFORE, THIS ISSUE MAY BE SENT BACK TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION FOR MAKING PROPER VERIFICATION. 35. IN HIS RIVAL SUBMISSIONS, LD. COUNSEL FOR THE A SSESSEE DID NOT OBJECT IF THE MATTER IS SENT BACK TO THE ASSESSING OFFICER FOR VERIFICATION. 36. WE, THEREFORE, CONSIDERING THE SUBMISSIONS OF B OTH THE PARTIES REMAND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO BE ADJUDICA TED AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING A DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 23 37. IN THE RESULT, THE APPEALS OF THE DEPARTMENT FO R ASSESSMENT YEARS 2005-06, 2006-07 & 2007-08 AND CROSS OBJECTIONS FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 & 2006- 07 ARE DISMISSED WHILE THE APPEAL OF THE DEPARTMENT FOR THE ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 16.05.2013 SD/- SD/- [HARI OM MARATHA] [N.K. SAINI] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 TH MAY 2013 RKK COPY TO :- 1- APPELLANT. 2- RESPONDENT. 3- CONCERNED CIT. 4- CONCERNED CIT(A) 5- D.R. ASSISTANT REGISTRAR