Secure Meters Limited, UDAIPUR V. CIT, UDAIPUR

ITA 402/JODH/2012

• Counselvise Citation: 40223314 RSA 2012
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 02-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR DEEPAK SEHGAL LD
• Keywords: Capital asset; Business income; Revision of order; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; Retrospective amendment; Bad and doubtful debts; Assessment record; Commercial expediency; Capital expenditure
• Section: 43B; 143(3); 14A; 115JB; 80IB; 263; 144; 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO.402/JODH/2012 ASSESSMENT YEAR: 2006-07 SECURE METERS LIMITED, VS. COMMISSIONER OF INCO ME TAX, E-CLASS, PRATAP NAGAR INDUSTRIAL UDAIPUR. AREA, UDAIPUR. (PAN: AACCS 8785 M). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AMIT KOTHARI RESPONDENT BY : DR. DEEPAK SEHGAL, LD. CIT DATE OF HEARING : 13.11.2013 DATE OF PRONOUNCEMENT : 29 .11.2013 ORDER PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 200 6-07 IS DIRECTED AGAINST THE ORDER OF LD. CIT(ADMN), UDAIPUR, DATED 30.08.20 12 PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961, THE ACT FOR SHORT. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE MANUFACTURING OF SOLID STATE ELECTRONIC ENERGY METERS. FOR THE A.Y. 2006-07 THE ASSESSEE COMPANY FILED ITS RETURN ON 15.11.2007 2 ITA NO.402/JODH/2012 A.Y. 2006-07 DECLARING NIL INCOME AFTER CLAIMING DEDUCTION UNDER SECTION 80IB AND 80IC OF THE ACT AMOUNTING TO RS.92,25,04,226/-. THE ASSESSEE H AS PAID TAX OF RS.64,36,20,396/- UNDER SECTION 115JB (MAT) ON ADJU STED BOOK PROFIT. ASSESSMENT HAS BEEN COMPLETED UNDER SECTION 143(3) READ WITH SECTION 144C(5) OF THE ACT ON 30.11.2010 AT A TOTAL INCOME OF RS.42,43 ,67,320/- AND THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB HAS BEEN DETERMIN ED AT RS.64,52,80,774/-. SUBSEQUENTLY, THE LD. CIT (ADMN.), UDAIPUR, CALLED THE RECORDS OF THIS ASSESSMENT ORDER TO ASCERTAIN IF THIS ORDER IS ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE AS PER THE PROVISIONS OF SECTION 263 OF THE ACT. HE ISSUED A SHOW-CAUSE NOTICE DATED 29.07.2011 UNDER SECTION 263 OF THE AC T WHICH WAS REPLIED BY THE ASSESSEE. 3. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE LD. CIT, HAS FINALLY FOUND THAT THE ASSESSMENT ORDER DATED 30.11.2010 IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFORE, HE SET ASIDE THE ORDER AND HAS RESTORED IT TO THE FILE OF A.O. WITH THE DIRECTION TO PASS A FRESH ORDER AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 4. AGAINST THIS ORDER DATED 30.08.2012, THE ASSESSE E HAS FILED APPEAL BY RAISING THE FOLLOWING GROUNDS:- 3 ITA NO.402/JODH/2012 A.Y. 2006-07 1. THE IMPUGNED ORDER U/S 263 OF THE IT ACT 1961 P ASSED BY THE LD. COMMISSIONER OF INCOME TAX, UDAIPUR, IS PATENTLY IN VALID, VOID, CONTRARY TO PROVISIONS OF LAW AND ALSO CONTRARY TO FACTS, MA TERIAL EVIDENCE EXISTING ON RECORDS. 2. THE LD. COMMISSIONER OF INCOME TAX, UDAIPUR, HAS ERRED IN HOLDING THAT THE ORIGINAL ASSESSMENT ORDER DATED 30 .11.2010 PASSED BY THE ASSESSING OFFICER FOR THE AFORESAID YEAR IS ERR ONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND HAS ALSO ERRED IN SE TTING ASIDE THE ORIGINAL ASSESSMENT ORDER AND HAS FURTHER ERRED IN RESTORING BACK THE SAID ASSESSMENT TO THE FILE OF THE ASSESSING OFFICER WIT H A DIRECTION TO PASS A FRESH ASSESSMENT ORDER. THEREFORE THE IMPUGNED ORD ER U/S 263 OF THE IT ACT 1961 PASSED BY THE LD. CIT IS CONTRARY TO THE P ROVISIONS OF LAW AND IS ALSO CONTRARY TO THE FACTS, MATERIAL AND EVIDENC E EXISTING ON RECORDS. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE FINDINGS GIVEN BY THE LD. CIT ON THE FOLLOWING ISSUE ARE PAT ENTLY INVALID AND CONTRARY TO THE FACTS, MATERIAL AND EVIDENCE, WHICH WERE DULY EXAMINED BY THE ASSESSING AUTHORITY AT THE TIME OF ORIGINAL ASSESSMENT NAMELY; (A) PROVISION FOR DOUBTFUL DEBTS AND LEAVE ENCASHME NT ARE WARRANTED FOR COMPUTATION OF BOOK PROFIT U/S 115J B OF THE IT ACT 1961. (B) TDS ON VEHICLE HIRE CHARGES TO BE RE-EXAMINED A S PROVIDED U/S 40(A)(IA). (C) PAYMENT OF COMMISSION TO BE RE-EXAMINED. (D) APPORTIONMENT OF EXPENSES BETWEEN THE UNITS ARE TO BE RE- EXAMINED. (E) NO DISALLOWANCE OUT OF EXPENSES U/S 14A IN THE MANNER PRESCRIBED UNDER RULE 8D OF I.T. RULES IS WARRANT ED. (F) R&D EXPENDITURE TO BE RE-EXAMINED. 4. THAT THE ORDER PASSED ORIGINALLY BY THE ASSESSIN G AUTHORITY WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST O F REVENUE THEREFORE THE IMPUGNED ORDER PASSED BY THE LD. COMMISSIONER OF IN COME TAX, UDAIPUR U/S 263 OF THE IT ACT 1961 IS BAD IN LAW AN D IS CLEARLY BEYOND THE AMBIT OF SECTION 263 OF THE IT ACT, 1961. 4 ITA NO.402/JODH/2012 A.Y. 2006-07 5. THAT APPELLANT CRAVES LIBERTY TO ADD, AMEND, ALT ER, AND MODIFY ANY OF THE GROUND OF APPEAL ON OR BEFORE ITS HEARIN G BEFORE YOUR HONOUR. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE TO ASCERTAIN IF THE A.O. HAS DEALT WITH THE ISSUES RAISED BY LD. COMMISSIONER AT THE TIME OF FRAMING HIS ORDER OR NOT. WE HAVE ALSO TO EXAMINE AS TO WHAT IS THE EFF ECT OF THREAD-BARE EXAMINATION OF THE IMPUGNED ITEMS OF INCOME BY THE DISPUTE RESO LUTION PANEL (D.R.P.). THE 69000 DOLLAR QUESTION IS WHETHER AFTER THE D.R.P. H AS TAKEN A VIEW ON CERTAIN ITEMS OF INCOME, THE LD. COMMISSIONER CAN STILL REVISE IT U/S 263 OR NOT. AFTER GOING THROUGH THE ENTIRE RECORDS BEFORE US, WE HAVE FOUND THAT THE SUBMISSION OF THE LD. AUTHORIZED REPRESENTATIVE THAT THE A.O. DID EXAMINE ALL THE ISSUES RAISED IN THE SHOW-CAUSE NOTICE AND ONLY AFTER EXAMINING THEM HAS TAKEN ONE OF THE POSSIBLE VIEWS. FOR READY REFERENCE, WE WOULD LIKE TO EXTRA CT THE ENTIRE REPLY/SUBMISSIONS OF THE ASSESSEE, AVAILABLE AT PAGE NOS.1 TO 43 OF T HE ASSESSEES PAPER BOOK. IT WOULD BE WORTHWHILE TO INCORPORATE THE WRITTEN REPL Y OF THE ASSESSEE GIVEN TO THE LD. COMMISSIONER IN RESPONSE TO SHOW-CAUSE NOTICE I SSUED U/S. 263 OF THE ACT. THIS REPLY IS AS UNDER :- SUBMISSIONS BEFORE THE HONBLE COMMISSIONER OF INC OME TAX, UDAIPUR, IN THE CASE OF SECURE METERS LTD., UDAIPUR IN RESPONSE TO SHOW CAUSE NOTICE DATED 13.07.2011 ISSUED U/S 263 O F THE INCOME TAX ACT, 1961 FOR A.Y. 2006-07. 5 ITA NO.402/JODH/2012 A.Y. 2006-07 1. THIS HAS REFERENCE TO THE ABOVE CAPTIONED NOTICE DT . 13.07.2011 ISSUED U/S 263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) IN RELATION TO THE ASSESSMENT COMPLETED U/S 143(3) / 144 (C) (5) FOR THE ASSESSME NT YEAR 2006-07 BY LD. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, UDAIPUR VIDE ASSESSMENT ORDER DATED 30.11.2010. 2. THE IMPUGNED NOTICE DATED 13.07.2011 HAS PROPOSED T O MODIFY/ENHANCE/CANCEL THE ASSESSMENT ORDER DATED 30.11.2010 PASSED U/S 143(3) OF THE ACT BY INVOKING THE PROVISIONS OF SEC. 263 OF THE ACT ON THE ALLEGATION THAT THE S AME IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE. 3. AT THE VERY THRESHOLD, IT IS RESPECTFULLY SUBMITTED THAT : (I) THE IMPUGNED SHOW CAUSE NOTICE DATED 13.07.2011 IS WITHOUT JURISDICTION AND NOT MAINTAINABLE SINCE THE ASSESSMENT ORDER WHICH IS SO UGHT TO THE REVISED IS AN ORDER PASSED PURSUANT TO THE DIRECTIONS OF THE DISPUTE RE SOLUTION PANEL U/S 144C OF THE ACT (NEED NOT TO EMPHASIZE THAT THE DISPUTE RESOLUT ION PANEL IS CONSTITUTED OF THE COLLEGIUMS OF THREE COMMISSIONERS OF INCOME-TAX) WH ICH IS NOT AMENABLE TO PROCEEDINGS U/S 263 OF THE ACT. (II) IT MAY PLEASE BE APPRECIATED THAT THE CASE OF THE A SSESSEE FOR THE IMPUGNED YEAR WAS REFERRED TO BY LD. ASSESSING OFFICER U/S 92CA(3 ) OF THE IT ACT, 1961 TO THE TRANSFER PRICING OFFICER, JAIPUR. THE TPO-1, WHILE COMPLETING THE ASSESSMENT U/S 92 CA(3) OF THE IT ACT 1961 PROPOSED ADJUSTMEN T OF RS. 1,96,23,750/- ON ACCOUNT OF DIFFERENCE BETWEEN THE ALLEGED ARMS LENG TH PRICE AND THE SALE CONSIDERATION OF SHARES RECEIVED FROM ITS ASSOCIAT E COMPANY - POLYMETERS RESPONSE INTERNATIONAL LIMITED, UK. AFTER INCORPORA TING THE ADJUSTMENT PROPOSED BY THE TPO, THE DRAFT ASSESSMENT ORDER WAS ISSUED B Y A.O. ON 31.12.2009. AGAINST THE SAID DRAFT ORDER DATED 31.12.2009, THE ASSESSEE FILED ITS OBJECTION WITH THE DISPUTE RESOLUTION PANEL ON VARIOUS ISSUES RAIS ED THEREIN. THE DRP, AFTER EXERCISE OF THE POWERS CONFERRED UPON IT UNDER THE PROVISIONS OF SECTION 144C OF THE ACT WHICH ARE REPRODUCED HEREIN, REJECTED THE O BJECTIONS FILED BY THE ASSESSEE AND APPROVED THE DRAFT ASSESSMENT ORDER ISSUED BY T HE AO VIDE ORDER DATED 30.09.2010 U/S 144C(5) OF THE ACT. THE COPY OF THE ORDER DATED 30.09.2010 PASSED 6 ITA NO.402/JODH/2012 A.Y. 2006-07 BY DRP IS AT PAPER BOOK PAGE 1 TO 3. ACCORDINGLY TH E FINAL ASSESSMENT ORDER WAS PASSED BY LEARNED AO, PURSUANT TO THE DIRECTIONS OF DRP, ON 30.11.2010. (III) THE PROVISIONS OF SECTION 144C OF THE ACT ARE REPRO DUCED HEREIN BELOW FOR THE SAKE OF READY REFERENCE: [ REFERENCE TO DISPUTE RESOLUTION PANEL. 144C. (1) THE ASSESSING OFFICER SHALL, NOTWITHSTANDING AN YTHING TO THE CONTRARY CONTAINED IN THIS ACT, IN THE FIRST INSTANCE, FORWA RD A DRAFT OF THE PROPOSED ORDER OF ASSESSMENT (HEREAFTER IN THIS SECTION REFERRED T O AS THE DRAFT ORDER) TO THE ELIGIBLE ASSESSEE IF HE PROPOSES TO MAKE, ON OR AFT ER THE 1ST DAY OF OCTOBER, 2009, ANY VARIATION IN THE INCOME OR LOSS RETURNED WHICH IS PREJUDICIAL TO THE INTEREST OF SUCH ASSESSEE. (2) ON RECEIPT OF THE DRAFT ORDER, THE ELIGIBLE AS SESSEE SHALL, WITHIN THIRTY DAYS OF THE RECEIPT BY HIM OF THE DRAFT ORDER, (A) FILE HIS ACCEPTANCE OF THE VARIATIONS TO THE A SSESSING OFFICER; OR (B) FILE HIS OBJECTIONS, IF ANY, TO SUCH VARIATION WITH, (I) THE DISPUTE RESOLUTION PANEL; AND (II) THE ASSESSING OFFICER. (3) THE ASSESSING OFFICER SHALL COMPLETE THE ASSESS MENT ON THE BASIS OF THE DRAFT ORDER, IF (A) THE ASSESSEE INTIMATES TO THE ASSESSING OFFICE R THE ACCEPTANCE OF THE VARIATION; OR (B) NO OBJECTIONS ARE RECEIVED WITHIN THE PERIOD S PECIFIED IN SUB-SECTION (2). (4) THE ASSESSING OFFICER SHALL, NOTWITHSTANDING AN YTHING CONTAINED IN SECTION 153 , PASS THE ASSESSMENT ORDER UNDER SUB-SECTION (3) W ITHIN ONE MONTH FROM THE END OF THE MONTH IN WHICH, (A) THE ACCEPTANCE IS RECEIVED; OR (B) THE PERIOD OF FILING OF OBJECTIONS UNDER SUB-S ECTION (2) EXPIRES. (5) THE DISPUTE RESOLUTION PANEL SHALL, IN A CASE W HERE ANY OBJECTION IS RECEIVED UNDER SUB-SECTION (2), ISSUE SUCH DIRECTIONS, AS IT THINKS FIT, FOR THE GUIDANCE OF THE ASSESSING OFFICER TO ENABLE HIM TO COMPLETE THE ASS ESSMENT. (6) THE DISPUTE RESOLUTION PANEL SHALL ISSUE THE DI RECTIONS REFERRED TO IN SUB- SECTION (5), AFTER CONSIDERING THE FOLLOWING, NAMEL Y: 7 ITA NO.402/JODH/2012 A.Y. 2006-07 (A) DRAFT ORDER; (B) OBJECTIONS FILED BY THE ASSESSEE; (C) EVIDENCE FURNISHED BY THE ASSESSEE; (D) REPORT, IF ANY, OF THE ASSESSING OFFICER, VALU ATION OFFICER OR TRANSFER PRICING OFFICER OR ANY OTHER AUTHORITY; (E) RECORDS RELATING TO THE DRAFT ORDER; (F) EVIDENCE COLLECTED BY, OR CAUSED TO BE COLLECT ED BY, IT; AND (G) RESULT OF ANY ENQUIRY MADE BY, OR CAUSED TO BE MADE BY, IT. (7) THE DISPUTE RESOLUTION PANEL MAY, BEFORE ISSUIN G ANY DIRECTIONS REFERRED TO IN SUB-SECTION (5), (A) MAKE SUCH FURTHER ENQUIRY, AS IT THINKS FIT; O R (B) CAUSE ANY FURTHER ENQUIRY TO BE MADE BY ANY IN COME-TAX AUTHORITY AND REPORT THE RESULT OF THE SAME TO IT. (8) THE DISPUTE RESOLUTION PANEL MAY CONFIRM, REDUC E OR ENHANCE THE VARIATIONS PROPOSED IN THE DRAFT ORDER SO, HOWEVER, THAT IT SH ALL NOT SET ASIDE ANY PROPOSED VARIATION OR ISSUE ANY DIRECTION UNDER SUB-SECTION (5) FOR FURTHER ENQUIRY AND PASSING OF THE ASSESSMENT ORDER. (9) IF THE MEMBERS OF THE DISPUTE RESOLUTION PANEL DIFFER IN OPINION ON ANY POINT, THE POINT SHALL BE DECIDED ACCORDING TO THE OPINION OF THE MAJORITY OF THE MEMBERS. (10) EVERY DIRECTION ISSUED BY THE DISPUTE RESOLUT ION PANEL SHALL BE BINDING ON THE ASSESSING OFFICER. (11) NO DIRECTION UNDER SUB-SECTION (5) SHALL BE IS SUED UNLESS AN OPPORTUNITY OF BEING HEARD IS GIVEN TO THE ASSESSEE AND THE ASSESS ING OFFICER ON SUCH DIRECTIONS WHICH ARE PREJUDICIAL TO THE INTEREST OF THE ASSESS EE OR THE INTEREST OF THE REVENUE, RESPECTIVELY. (12) NO DIRECTION UNDER SUB-SECTION (5) SHALL BE IS SUED AFTER NINE MONTHS FROM THE END OF THE MONTH IN WHICH THE DRAFT ORDER IS FORWAR DED TO THE ELIGIBLE ASSESSEE. (13) UPON RECEIPT OF THE DIRECTIONS ISSUED UNDER SU B-SECTION (5), THE ASSESSING OFFICER SHALL, IN CONFORMITY WITH THE DIRECTIONS, C OMPLETE, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 153 , THE ASSESSMENT WITHOUT PROVIDING ANY FURTHER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WITHIN ONE MONTH FROM THE END OF THE MONTH IN WHICH SUCH DIREC TION IS RECEIVED. 8 ITA NO.402/JODH/2012 A.Y. 2006-07 (14) THE BOARD MAY MAKE RULE FOR THE PURPOSES OF TH E EFFICIENT FUNCTIONING OF THE DISPUTE RESOLUTION PANEL AND EXPEDITIOUS DISPOSAL O F THE OBJECTIONS FILED UNDER SUB-SECTION (2) BY THE ELIGIBLE ASSESSEE. (15) FOR THE PURPOSES OF THIS SECTION, (A) DISPUTE RESOLUTION PANEL MEANS A COLLEGIUM C OMPRISING OF THREE COMMISSIONERS OF INCOME-TAX CONSTITUTED BY THE BOAR D FOR THIS PURPOSE; (B) ELIGIBLE ASSESSEE MEANS, (I) ANY PERSON IN WHOSE CASE THE VARIATION REFERRE D TO IN SUB-SECTION (1) ARISES AS A CONSEQUENCE OF THE ORDER OF THE TRANSFE R PRICING OFFICER PASSED UNDER SUB-SECTION (3) OF SECTION 92CA ; AND (II) ANY FOREIGN COMPANY.] (IV) IT IS EVIDENT THAT FROM THE PROVISIONS CONTAINED U/ S 144C OF THE ACT THAT THE DRP HAS VAST POWERS WHICH INCLUDES THE POWERS OF REVISI ON ALSO. THE SPECIFIC REFERENCE MAY BE MADE TO SUB-SECTION (8) AND (11) O F THE SAID PROVISIONS CONTAINING THE POWERS OF DRP. UNDER THESE POWERS, THE DRAFT ASSESSMENT ORDER PROPOSED BY LEARNED ASSESSING OFFICER IS CONSIDERED BY A PANEL COMPRISING OF THREE OFFICERS OF COMMISSIONER RANK, WHO HAVE BEEN CONFERRED WITH POWERS TO CONFIRM, REDUCE OR ENHANCE THE DRAFT ORDER AND THE Y MAY MAKE SUCH FURTHER ENQUIRY, AS THEY MAY THINKS FIT. FURTHER, WHILE ISS UING THE DIRECTIONS TO LEARNED AO, THE DRP HAS POWERS TO CONSIDER THE RECORD OF TH E CASE AND MAY MAKE SUCH FURTHER ENQUIRIES AS ARE CONSIDERED NECESSARY BY IT . MOREOVER, THE PROVISIONS OF SUB-SECTION (10) SAYS THAT EVERY DIRECTION ISSUED B Y THE DRP SHALL BE BINDING ON THE ASSESSING OFFICER. IN THE PRESENT CASE, AFTER CONSIDERING THE PROPOSED ASSESSMENT ORDER, HONBLE DRP HAS ISSUED THE DIRECT IONS TO THE LEARNED AO IN TERMS OF THE FOLLOWING : THE AO IS DIRECTED TO COMPLETE THE ASSESSMENT AS P ROPOSED IN THE DRAFT ASSESSMENT ORDER. LEARNED AO HAS FOLLOWED THESE DIRECTIONS IN TERMS O F MANDATORY PROVISIONS OF SUB-SECTION(10) OF SECTION 144C OF THE ACT. 9 ITA NO.402/JODH/2012 A.Y. 2006-07 IN VIEW OF THE ABOVE, THE ORDER PASSED BY LEARNED A O CANNOT BE SAID TO BE ERRONEOUS IN AS MUCH AS HE HAS FOLLOWED THE DIRECTI ONS OF THE DRP CONSISTING OF THREE COMMISSIONERS AND HE HAS FOLLOWED THE MANDATE OF THE STATUTE. IT IS JUDICIALLY SETTLED PREPOSITION THAT WHEN THE AO PAS SES THE ORDER UNDER THE SUPERVISION OF THE COMMISSIONER, THE SAME CANNOT BE SAID TO BE ERRONEOUS. RELIANCE FOR THIS PURPOSE IS PLACED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. HASTINGS PROPERTIES RE PORTED AT 253 ITR 124(CAL). SIMILARLY, IT HAS BEEN HELD BY A NUMBER OF COURTS T HAT WHEN LEARNED AO PASSES THE ORDER RELYING ON BINDING LAW E.G. THE LAW LAID DOWN BY JURISDICTIONAL HIGH COURT, THE SAME CANNOT BE SAID TO BE ERRONEOUS. RE LIANCE FOR THIS PURPOSE IS PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS PAUL BROS 216 ITR 548 (NAG). THUS SUCH AN ORDER PASSED B Y LEARNED AO AS PER THE DIRECTIONS OF THE DRP CANNOT BE REVISED OTHERWISE T HERE SHALL BE CHAOS IN ADMINISTRATIVE DISCIPLINE. (V) MOREOVER, SINCE THE ASSESSMENT ORDER DATED 30.11.20 10 HAS ALREADY BEEN SUBJECTED TO REVISION PROCEEDINGS BY THE COLLEGIUMS OF THREE COMMISSIONERS, HENCE, THE PROPOSED ACTION TO INVOKE PROVISIONS OF SECTION 263 OF THE ACT IN RELATION TO THE SAME VERY ASSESSMENT ORDER WOULD BE WITHOUT JURISDICTION AND AGAINST JUDICIAL PROPRIETY. THE ORDER PASSED BY LEA RNED AO PURSUANT TO THE DIRECTIONS OF THE COLLEGIUM OF COMMISSIONERS IS VIR TUALLY AN ORDER PASSED BY SUCH COLLEGIUM OF COMMISSIONERS ONLY. IF A COMMISS IONER RANK OF AUTHORITY IS ALLOWED TO REVIEW, REVISE OR SIT IN THE JUDGMENT IN RESPECT OF AN ORDER APPROVED BY THE COLLEGIUMS OF COMMISSIONERS, IT WOULD BE BREACH OF ADMINISTRATIVE & JUDICIAL DISCIPLINE. THE LEGAL POSITION THAT AN ASSESSMENT O RDER PASSED UNDER THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL IS NOT A MENABLE TO REVISION U/S 263 OF THE ACT IS CLEARLY INFERABLE FROM THE ACT ITSELF WH EREIN THE APPEAL AGAINST THE SAID ASSESSMENT ORDER LIES ONLY BEFORE THE INCOME TAX AP PELLATE TRIBUNAL AND NOT BEFORE THE COMMISSIONER OF INCOME TAX APPEAL. THE P ROVISIONS U/S 246A SPECIFICALLY EXCLUDES APPEAL AGAINST ASSESSMENT ORD ER PASSED IN PURSUANT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL. THE APP EAL AGAINST THE SAID 10 ITA NO.402/JODH/2012 A.Y. 2006-07 ASSESSMENT ORDER LIES BEFORE THE INCOME TAX APPELLA TE TRIBUNAL U/S 253(1)(D) OF THE ACT. THE ASSESSEE HAS ALREADY FILED AN APPEAL A GAINST THE SAID ASSESSMENT ORDER BEFORE THE INCOME TAX APPELLATE TRIBUNAL WHIC H APPEAL IS PENDING AS ON DATE FOR ADJUDICATION. THE COPY OF THE MEMORANDUM O F APPEAL IS ENCLOSED AT PAPER BOOK PAGE 4 TO 6. (VI) IN VIEW OF ABOVE, IT IS RESPECTFULLY SUBMITTED THAT THE PROPOSED INVOCATION OF THE PROVISIONS OF SECTION 263 OF THE ACT VIDE IMPUGNED NOTICE U/S 263 OF THE ACT MAY KINDLY BE RE-CONSIDERED IN AS MUCH AS IN OUR HUMBLE SUBMISSION THE SAME IS EX- FACIE NOT MAINTAINABLE ON ACCOUNT OF LACK OF JURISD ICTION AND IS THEREFORE PRAYED TO BE REVOKED AND WITHDRAWN IN THE INTEREST OF JUST ICE. 4. WITHOUT PREJUDICE TO THE ABOVE, IT IS RESPECTFULLY SUBMITTED THAT THE IMPUGNED NOTICE DATED 13.07.2011 IS EVEN OTHERWISE NOT MAINTAINABLE SINC E THE MANDATORY STATUTORY REQUIREMENT PROVIDED IN THE ACT FOR A VALID ASSUMPTION OF JURIS DICTION U/S 263 REMAINS UNFULFILLED AND UNSATISFIED. IT IS A SETTLED LAW THAT THE PROVISION S OF SECTION 263 CAN BE VALIDLY INVOKED ONLY IF THE FOLLOWING TWIN CONDITIONS NAMELY; A. THAT AN ORDER PASSED IS ERRONEOUS AND B. IT IS PREJUDICIAL TO THE INTEREST OF REVENUE ARE SATISFIED AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. 243 ITR 83 (SC). IN OTHER WORDS COMMISSIONER O F INCOME TAX CAN INVOKE SECTION 263 OF THE ACT IF THE ORDER OF AO IS ERRONEOUS AND IT I S ALSO PREJUDICIAL TO THE INTERESTS OF REVENUE, MEANING THEREBY THAT BOTH THE CONDITIONS M UST CO EXIST. IF ONE OF THE CONDITION IS ABSENT I.E IF THE ORDER OF THE ITO IS ERRONEOUS BUT IT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE, RECOURSE CANNOT BE HAD TO THE PROVISIONS OF SECTION 263. THE RELEVANT EXTRACT OF THE SAID JU DGEMENT IS REPRODUCED HEREIN BELOW: A BARE READING OF PROVISIONS OF SECTION 263 MAKES I T CLEAR THAT THE PREREQUISITE TO EXERCISE THE JURISDICTION BY THE CIT SUO MOTU UNDER IT, IS THAT THE ORDER OF ITO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER ESTS OF THE REVENUE. THE CIT HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERE STS OF THE REVENUE.IF ONE OF THEM IS 11 ITA NO.402/JODH/2012 A.Y. 2006-07 ABSENT- IF THE ORDER OF THE ITO IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE- RECOURSE CANNOT BE HAD TO TO SECTION 263(1). 5. THE EXPRESSION ERRONEOUS HAS NOT BEEN DEFINED IN THE ACT. HOWEVER, BLACKS LAW DICTIONARY DEFINES THE WORD ERRONEOUS TO MEAN IN VOLVING ERROR; DEVIATING FROM THE LAW. ERRONEOUS ASSESSMENT REFERS TO AN ASSESSMEN T THAT DEVIATES FROM THE LAW AND IS, HENCE, INVALID. THE ERRONEOUS ASSESSMENT PERTAINS T O A DEFECT, WHICH IS JURISDICTIONAL IN NATURE. IT DOES NOT REFER TO THE JUDGMENT OF THE AS SESSING OFFICER IN FIXING THE AMOUNT OR VALUATION OF PROPERTY. ERRONEOUS JUDGMENT MEANS O NE RENDERED ACCORDING TO COURSE AND PRACTICE OF COURT; BUT CONTRARY TO LAW, UPON A MISTAKEN VIEW OF LAW OR UPON AN ERRONEOUS APPLICATION OF LEGAL PRINCIPLES. 6. AN ORDER CANNOT BE TERMED ERRONEOUS UNLESS IT CAN B E SHOWN TO BE AN ORDER, WHICH IS NOT IN ACCORDANCE WITH LAW. IF THE INCOME-TAX OFFICER, ACT ING IN ACCORDANCE WITH LAW, MAKES CERTAIN ASSESSMENT, THE SAME CANNOT BE TERMED AS ER RONEOUS BY THE COMMISSIONER MERELY BECAUSE THE ORDER, ACCORDING TO THE COMMISSIONER, S HOULD HAVE BEEN MORE ELABORATE IN WRITING. SECTION 263 OF THE INCOME-TAX ACT DOES NOT VISUALIZE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME -TAX OFFICER, WHO MAKES THE ASSESSMENT, UNLESS THE DECISION OF THE INCOME-TAX O FFICER IS HELD TO BE AN ERRONEOUS ONE. IT IS AN ESTABLISHED POSITION OF LAW THAT THE COMMISSI ONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICE R CONCERNED WAS ON THE LOWER SIDE AND IF IT WAS DONE BY THE COMMISSIONER HIMSELF, THEN HE WO ULD HAVE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED BY THE INCOME -TAX OFFICER; BUT SUCH OPINION WOULD NOT VEST IN THE COMMISSIONER THE POWER TO RE-EXAMIN E THE ACCOUNTS AND DETERMINE THE SAME AT A HIGHER FIGURE. THE COURTS, IN RAJENDRA SI NGH V. SUPERINTENDENT OF TAXES [1990] 79 STC 10, WHILE EXAMINING THE PROVISIONS OF THE TR IPURA SALES TAX ACT, WHICH IS PARI MATERIA, HAS INTERPRETED THE EXPRESSION ERRONEOUS AS RELATABLE TO A JURISDICTIONAL ERROR EITHER IN MAKING AN ASSESSMENT OR IN MAKING ANY OTH ER ORDER AS DISTINGUISHED FROM ANY OTHER ERROR THAT MAY HAVE OCCURRED IN DETERMINING T HE EXTENT AND QUANTUM OF TAX. 12 ITA NO.402/JODH/2012 A.Y. 2006-07 7. IN THE LIGHT OF THE LAW DECLARED BY THE HONBLE SUP REME COURT IN THE CASE OF MALABAR (SUPRA), IT IS SUBMITTED THAT NONE OF THE GROUNDS S TATED IN THE IMPUGNED NOTICE DATED 29.06.2011 CONSTITUTES A VALID GROUND OR BASIS FOR THE LAWFUL ASSUMPTION OF JURISDICTION U/S 263 OF THE ACT. A PERUSAL OF THE IMPUGNED NOTICE IS SUED REVEALS THAT THE PROVISIONS U/S 263 OF THE ACT HAS BEEN PROPOSED TO BE INVOKED ON THE S OLITARY GROUND THAT THE LD. ASSESSING OFFICER HAS NOT MADE PROPER INQUIRIES DURING THE CO URSE OF ASSESSMENT PROCEEDINGS WITHOUT BRINGING ON RECORD ANY FINDING OR POINTING OUT ANY MATERIAL AS TO HOW THE ASSESSMENT ORDER IS ERRONEOUS AND HAS CAUSED LOSS TO THE REVEN UE. 8. IT IS RESPECTFULLY SUBMITTED THAT A BARE STATEMENT TO THE EFFECT THAT THE AO HAS NOT DONE PROPER INQUIRIES PER SE DOESNT CONSTITUTE A VALID BASIS FOR ASSUMING JURISDICTION U/S 263 OF THE ACT. IT IS A SETTLED LAW THAT THE PROVISIONS OF SECTION 263 CANNOT BE INVOKED ON MERE PRESUMPTIONS OR SUSPICION THAT AN INQUIRY MIGHT HAV E UNEARTHED ANY ESCAPED TAXABLE INCOME AS HELD BY THE HONBLE DELHI HIGH COURT IN ITS RECENT JUDGEMENT I N THE CASE OF CIT VS. LEISURE WEAR EXPORTS LTD. (2010) 46 DTR (DE L) 97 WHEREIN THE HONBLE COURT WHILE RELYING UPON THE PRINCIPLE LAID DOWN BY THE H ONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD 243 ITR 83 (SC) HAS HEL D THAT IN THE ENTIRE ORDER EMPHASIS LAID BY THE CIT IS THAT IN RESPECT OF FOUR ISSUES M ENTIONED BY HIM, NO QUERIES WERE RAISED BY THE AO. ON THIS PREMISE, THOUGH IT IS OBS ERVED THAT THERE WAS NO APPLICATION OF MIND ON THE PART OF THE AO AND THE AO HAS NOT RECOR DED ANY REASONS TO JUSTIFY THE OMISSION TO CONSIDER THE SAID FACTS, THE CIT DOES N OT TAKE THE SAID ORDER TO ITS LOGICAL CONCLUSION WHICH WAS THE PRIME DUTY OF THE CIT IN O RDER TO JUSTIFY EXERCISE OF POWER UNDER S.263. THERE IS NOT EVEN A WHISPER THAT THE O RDER IS ERRONEOUS. EVEN IF IT IS INFERRED THAT NON-CONSIDERATION OF THE ISSUES POINTED OUT BY THE CIT WOULD AMOUNT TO AN ERRONEOUS ORDER, IT IS NOT STATED AS TO HOW THIS OR DER IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 9. IT IS SUBMITTED THAT THE FACTS OF THE SAID JUDGMENT OF THE HONBLE HIGH COURT ARE IDENTICAL TO FACTS AND CIRCUMSTANCES OF THE PRESENT CASE IN A S MUCH AS IN THE SAID CASE ALSO THE PROVISIONS OF SECTION 263 OF THE ACT WERE INVOKED O N THE GROUND THAT THE AO HAD NOT RAISED QUERIES IN RELATION TO CERTAIN ISSUES WHICH IS PREC ISELY THE CASE IN HAND WHEREIN IT HAS BEEN 13 ITA NO.402/JODH/2012 A.Y. 2006-07 PROPOSED TO INVOKE THE PROVISIONS OF SECTION 263 ON THE SOLITARY GROUND THAT THE AO HAS NOT RAISED ANY QUERIES REGARDING THE ISSUES STATED IN T HE IMPUGNED NOTICE. THUS, THE SAID JUDGMENT PRONOUNCED BY THE HONBLE DELHI HIGH COURT IS SQUARELY APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE THEREBY RENDE RING THE IMPUGNED SHOW CAUSE NOTICE AS UNWARRANTED AND WITHOUT JURISDICTION AND THE SAM E IS ACCORDINGLY PRAYED TO BE REVOKED AND NULLIFIED AT THIS STAGE ITSELF IN THE INTEREST OF SUBSTANTIAL JUSTICE. 10. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE FURTHE R SUBMITS THAT THE IMPUGNED NOTICE IS ALSO NOT MAINTAINABLE FOR THE REASON THAT THE VERY PREMISE OF THE IMPUGNED NOTICE THAT THE LD. AO HAS NOT RAISED QUERIES IN RELATION TO THE IS SUES STATED THEREIN IS ALSO FACTUALLY INCORRECT AND NON-EXISTENT. THE FACT OF THE MATTER AS ALSO EVIDENT FROM THE ASSESSMENT RECORD IS THAT ALL THE MATERIAL FACTS/EVIDENCES IN RELATION TO THE ISSUES RAISED IN THE IMPUGNED NOTICE WERE BEFORE THE LD. ASSESSING OFFIC ER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHO AFTER HAVING SATISFIED HIMSELF IN ACCORDANCE WITH LAW, PASSED THE ASSESSMENT ORDER. 11. IT WILL BE WORTHWHILE TO INVITE ATTENTION OF YOUR G OODSELF TOWARDS THE OBSERVATIONS MADE BY THE LD. AO IN PARA-1 OF THE ASSESSMENT ORDER WHEREI N HE HAS CATEGORICALLY STATED THAT ACCORDINGLY, A NOTICE U/S 143(2) WAS ISSUED ON 11. 10.2007 WHICH WAS SERVED ON THE ASSESSEE ON 17.10.2007. IN RESPONSE TO THE SAID NOT ICES AND SUBSEQUENT NOTICES THE AR OF THE ASSESSEE COMPANY DR. GG AGARWAL, FCA AND SH. AJ AY VERMA, ADVOCATE ALONGWITH SH. HEMENDRA PANDWAL, VICE PRESIDENT (F&A) APPEARED FROM TIME TO TIME. THEY FURNISHED VARIOUS DETAILS WHICH WAS ASKED FOR. THEY HAVE ALSO FILED WRITTEN SUBMISSIONS AND CLARIFICATIONS/EXPLANATIONS WHICH ARE PLACED ON RECORD. THE CASE WAS DISCUSSED WITH THEM ON VARIOUS ISSUES. 12. IT IS SUBMITTED THAT MERE ABSENCE OF THE REFERENCE IN THE ASSESSMENT ORDER OF THE QUERY RAISED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, DOESNT LEAD TO THE CONCLUSION THAT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND. THE ASS ESSEE FOR THE AFORESAID PROPOSITION OF LAW PLACES RELIANCE ON THE DECISION BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. VIKAS POLYMERS (2010) 236 CTR (DEL) 476 WHEREIN IT HAS BEEN OBSERVED THAT A BARE REITERATION BY HIM THAT THE ORDER OF THE ITO IS ERR ONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE 14 ITA NO.402/JODH/2012 A.Y. 2006-07 INTEREST OF THE REVENUE, WILL NOT SUFFICE. IF A QUE RY IS RAISED DURING THE COURSE OF SCRUTINY BY THE AO, WHICH WAS ANSWERED TO THE SATISFACTION O F THE AO, BUT NEITHER THE QUERY NOR THE ANSWER WAS REFLECTED IN THE ASSESSMENT ORDER, THIS WOULD NOT BY ITSELF LEAD TO THE CONCLUSION THAT THE ORDER OF THE AO CALLED FOR INTE RFERENCE AND REVISION WHICH IS PRECISELY THE CASE IN HAND WHEREIN ALL THE ISSUES/G ROUNDS RAISED BY YOUR GOODSELF HAVE ALREADY BEEN EXAMINED BY THE LD. ASSESSING OFFICER AND THE RELEVANT DETAILS, REPLIES AND EVIDENCES FURNISHED BY THE ASSESSEE IN RELATION THE RETO FORMS PART OF THE ASSESSMENT RECORD. 13. EVEN OTHERWISE ANY FURTHER DISALLOWANCE/ADDITION WO ULD HAVE NO IMPACT ON THE COMPUTATION OF TAX LIABILITY OF THE ASSESSEE U/S 115JB AND THER EFORE THE ASSESSMENT ORDER CANNOT BE SAID TO BE PREJUDICIAL TO THE INTERESTS OF REVENUE FOR I NVOKING SECTION 263 OF THE ACT. 14. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS CHALLENG ING THE LEGAL VALIDITY OF THE PROPOSED ACTION U/S 263 OF THE ACT, THE ASSESSEE SUBMITS THA T EVEN ON THE MERITS OF THE ISSUES MENTIONED IN THE IMPUGNED NOTICE, THE ASSESSMENT OR DER PASSED BY THE LD. AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF REVEN UE AS EXPLAINED HEREINAFTER IN THE ISSUE WISE REPLY: 15. (I) ISSUE-1 CLAUSE (I) OF EXPLANATION (1) OF SEC. 115JB OF THE IT ACT INTRODUCED BY THE FINANCE ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 01.04.2001 PROVIDES THAT THE PROFIT HAS TO BE INCREASED BY THE AMOUNT OR AMOUNTS SET ASIDE AS PRO VISIONS FOR DIMINUTION IN THE VALUE OF ANY ASSET. THE PROFIT AND LOSS ACCOUNT IND ICATES AN AMOUNT OF RS. 1,19,62,791/- HAS BEEN DEBITED TO ON ACCOUNT OF NE T PROVISIONS FOR DOUBTFUL DEBTS (GROSS PROVISION RS. 2,59,84,070/-) WHICH IS SQUARE LY COVERED BY THE AFORESAID CLAUSE AND THEREFORE, IT SHOULD HAVE BEEN ADDED IN THE BOOK PROFIT U/S 115JB. THE STATEMENT OF TOTAL INCOME SHOWS PROVISION FOR LEAVE ENCASHMENT OF RS. 11,68,066/- BUT THE AO HAS NOT EXAMINED THE ISSUE WHETHER THIS IS UNASCERTAINED LIABILITY AND IF SO THEN IT IS COVERED BY CLAUSE (C) OF EXPLANATION (1) TO SECTION 115 JB. 15.1 THE BRIEF FACTS IN RELATION TO THE AFORESAID ISSUE RAISED ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY, ENGAGED IN THE MANUFACTURE OF SOLID STATE ENERGY METERS AT 15 ITA NO.402/JODH/2012 A.Y. 2006-07 ITS FOUR MANUFACTURING PLANTS LOCATED AT UDAIPUR ( IN THE STATE OF RAJASTHAN) AND , BATED, BAROTIWALA AND HARIPUR (IN THE STATE OF HIMA CHAL PRADESH). THE MANUFACTURING UNITS LOCATED AT BATED, BAROTIWALA & HARIPUR ARE ELIGIBLE FOR DEDUCTION U/S 801B & 80IC OF THE IT ACT, 1961, BEIN G LOCATED IN NOTIFIED AREA IN THE STATE OF HIMACHAL PRADESH. 15.2 THE ASSESSEE PAID TAX OF RS. 3,56,53,020/- U/S 115 JB ON THE ADJUSTED BOOK PROFIT OF RS. 42,36,84,138/- DURING ASSESSMENT YEAR 2006-07. WHILE CALCULATING THE TAX LIABILITY U/S 115JB, THE ASSESSEE MADE THE FOLLOWIN G ADJUSTMENTS TO COMPUTE THE ADJUSTED BOOK PROFIT; (I) NET PROFIT AS PER THE PROFIT & LOSS ACCOUNT RS. 42 ,98,15,666/- (II) LESS: DIVIDEND INCOME EXEMPTED U/S 10(34) RS.9,27 8/ (III) LESS : FRINGE BENEFIT TAX RS.61,22,250/- ADJUSTED BOOK PROFIT RS.42,36,84,138/- (IV) TOTAL TAX LIABILITY U/S 115JB RS.3,56,53,020/- THE COPY OF THE FORM NO. 29B IS AT PAPER BOOK PAGE 7 TO 8 AND THE RETURN OF INCOME ALONGWITH COMPUTATION ARE AT PAPER BOOK PAGE 94 TO 125. 15.3 DURING THE SAME ASSESSMENT YEAR, THE ASSESSEE DEBIT ED THE PROFIT AND LOSS ACCOUNT BY RS. 1,19,62,791/- ON ACCOUNT OF PROVISION FOR DO UBTFUL DEBTS. THIS WAS DONE IN RELATION TO ASCERTAINED AMOUNTS AS PER THE COMPLETE DETAILS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 22.12.2009, AVAILABLE AT PAPER BOOK PAGE 9 TO 75. FURTHER, THE ASSESSEE CREDITED / WRITTEN BACK THE PROVISION FOR 16 ITA NO.402/JODH/2012 A.Y. 2006-07 DIMINUTION IN THE VALUE OF INVESTMENT AMOUNTING TO RS. 8,73,90,740/-. NONE OF THEM WAS ADDED BACK OR REDUCED FROM THE CALCULATION OF B OOKS PROFITS. 15.4 IT IS EVIDENT FROM THE PROVISIONS OF EXPLANATION 1 BELOW SECTION 115JB OF THE ACT THAT THE PROVISION FOR DOUBTFUL DEBTS FALLS IN CLAUSE (C ) OF THE SAID EXPLANATION, WHEREBY WHAT CAN BE ADDED BACK IS AN AMOUNT SET ASIDE TO PR OVISIONS MADE FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILITIES. TH US, SINCE THE PROVISION FOR DOUBTFUL DEBTS WAS IN RESPECT OF ASCERTAINED DEBTS AS PER TH E DETAILS AVAILABLE ON RECORD, THE SAME COULD NOT ADDED BACK FOR THE PURPOSE OF COMPUT ING BOOKS PROFITS U/S 115JB OF THE ACT. THE ASSESSEE IN THIS REGARD PLACES RELIANC E UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS . CIT 245 ITR 428 (SC) WHEREIN IT HAS BEEN HELD THAT IF A BUSINESS LIABILI TY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED AL THOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEIN G ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBL E. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT CONTINGENT ONE THAN. 15.5 ALTERNATIVELY, IF THE SAID AMOUNT OF PROVISION FOR DOUBTFUL DEBTS IS CONSIDERED TO BE COVERED BY CLAUSE (I) OF THE EXPLANATION 1 BELOW SE CTION 115JB INTRODUCED WITH RETROSPECTIVE EFFECT VIDE FINANCE (NO. 2) ACT, 2009 , THEN, BOTH THE AMOUNT COVERED UNDER THE SAID CLAUSE ARE REQUIRED TO BE CONSIDERED TOGETHER FOR THE COMPUTATION OF THE BOOK PROFITS. IN COMPLIANCE TO SAID CLAUSE (I) OF EXPLANATION (1) OF SECTION 17 ITA NO.402/JODH/2012 A.Y. 2006-07 115JB(2) THE ADJUSTED BOOK PROFIT FOR THE ASSESSMEN T YEAR 2006-07 WORKS OUT AS UNDER:- ADJUSTED BOOK PROFIT PROFIT BEFORE TAX 42,98,15,666 ADD: PROVISION FOR DOUBTFUL DEBTS 1,19,62,791 LESS: PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT WRITTEN BACK 8,73,90,740 LESS: DIVIDEND INCOME EXEMPT U/S 10/34 9,278 LESS: FRINGE BENEFIT TAX 61,22,250 ADJUSTED BOOK PROFIT 34,82,56,189 15.6 AT THE TIME OF FILING THE TAX RETURN, THE ABOVE PRO VISIONS WERE NOT IN FORCE. AS THIS MISTAKE IS APPARENT ON RECORD RESULTING FROM THE LE GISLATIVE CHANGES / AMENDMENTS, ACTION CAN BE TAKEN U/S 154 OF THE ACT AS HELD BY T HE HONBLE SUPREME COURT OF INDIA IN THE CASE OF INSPECTING ASSISTANT COMMISSIONER OF AGRICULTURAL INCOME TAX AND ANR. VS. V.M RAVI NAMBOODIRIPAD, 96 ITR 73 (SC). 15.7 EVEN OTHERWISE THE PROPOSED ACTION U/S 263 OF THE A CT WOULD NOT BE MAINTAINABLE SINCE THE TAX LIABILITY COMPUTED AFTER GIVING EFFEC T TO THE PROVISION OF CLAUSE (I) OF EXPLANATION (1) OF SECTION 115JB(2) WOULD BE LESS O N ACCOUNT OF LESSER ADJUSTED BOOK PROFIT AS COMPARED TO THE TAX LIABILITY RS. 3,56,53 ,020/- COMPUTED AS PER THE RETURN FILED IN ACCORDANCE WITH THE THEN EXISTING LAW. HEN CE THE SECOND CONDITION OF BEING PREJUDICIAL TO THE INTEREST OF REVENUE BESIDES BEIN G ERRONEOUS IS NOT MET OUT FOR A VALID ACTION U/S 263 OF THE ACT. 18 ITA NO.402/JODH/2012 A.Y. 2006-07 15.8 ALTERNATIVELY, IF THE ACTION IS TAKEN U/S 263 IN TH E PRESENT CASE, THEN LEARNED AO BE DIRECTED TO GIVE THE BENEFIT OF REDUCTION OF RS. 8, 73,90,740/- FROM THE BOOKS PROFIT WHILE GIVING EFFECT TO THE AMENDED PROVISIONS. II LEAVE ENCASHMENT 15.9 THE BRIEF FACTS IN RELATION TO THE AFORESAID GROUND ARE THAT ALL EMPLOYEES WORKING IN THE ASSESSEE COMPANY ARE ENTITLED TO 33 DAYS OF EAR NED LEAVE PROVIDED THEY HAVE WORKED FOR 365 DAYS IN A YEAR. FOR THOSE WHO HAVE WORKED FOR LESS THAN 365 DAYS, LEAVE ACCRUED AT THE RATE OF 2 DAYS PER MONTH I S CREDITED FOR THE PERIOD OF WORK. THE TOTAL ACCUMULATION OF LEAVE ALLOWED TO ANY EMPL OYEE IS 60 DAYS AND ANYTHING OVER AND ABOVE 60 DAYS AUTOMATICALLY GETS LAPSED AT END OF THE CALENDAR YEAR. 15.10 THE LIABILITY FOR ACCUMULATED EARNED LEAVE IS CALCU LATED AT THE LAST SALARY DRAWN BY THE EMPLOYEE, BASED ON THE UN-AVAILED EARNED LEAVE LYING IN HIS / HER INDIVIDUAL LEAVE ACCOUNT. SINCE THE LIABILITY FOR EACH AND EV ERY EMPLOYEE IS SEPARATELY IDENTIFIABLE AND BEING CALCULATED AT THE LAST SALAR Y DRAWN, THE LIABILITY IS ASCERTAINABLE AND IS PROVIDED EVERY YEAR ON CONSIST ENT BASIS. THE APPELLANT IN THIS REGARD PLACES RELIANCE UPON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT 245 ITR 428 (SC) (S UPRA). 15.11 BASED ON THE POLICY PREVALENT IN THE ASSESSEE COMPA NY, THE ASSESSEE MADE A PROVISION OF RS. 11,68,066/- TOWARDS PROVISION FOR LEAVE ENCA SHMENT AND DEBITED THE SAME TO THE PROFIT AND LOSS ACCOUNT UNDER THE RELEVANT ACCO UNTING HEAD DURING THE ASSESSMENT YEAR 2006-07. 19 ITA NO.402/JODH/2012 A.Y. 2006-07 15.12 THE ASSESSING OFFICER WHILE ARRIVING AT THE GROSS P ROFIT AND NET PROFIT HAD EXAMINED THE SAID EXPENSE ON THE ACCOUNT OF LEAVE ENCASHMENT . 15.13 IN SUPPORT OF THE ABOVE CONTENTION, A COMPLETE LIST OF EMPLOYEES FOR WHOM THE LEAVE ENCASHMENT LIABILITY IS ASCERTAINED IS AT PAGE 76 T O 93 OF THE PAPER BOOK. 15.14 IT IS SUBMITTED THAT SINCE THE LIABILITY IS ASCERTA INABLE, THE SAME IS NOT COVERED UNDER CLAUSE (C) OF THE EXPLANATION (1) TO SEC. 115JB (2) OF THE INCOME TAX ACT. 15.15 IN VIEW OF ABOVE, IT IS SUBMITTED THAT ALL THE MATE RIAL FACTS RELATING TO THE LEAVE ENCASHMENT WERE AVAILABLE WITH THE ASSESSING OFFICE R, WHO APPLIED HIS MIND AND ACCEPTED THE SAME. ACCORDINGLY, IT IS SUBMITTED THA T SINCE THE AO HAS ARRIVED AT A DECISION AFTER APPLYING HIS MIND JUDICIOUSLY IN VIE W OF THE DOCUMENTS PLACED BEFORE HIM, THE DECISION OF THE AO CANNOT BE TERMED AS ERR ONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR INVOKING PROVISIONS U/S 263 OF THE ACT. 16. ISSUE-2 AN AMOUNT OF RS. 36,94,306/- HAS BEEN CLAIMED AS BO NUS PROVISIONS ACTUALLY PAID UPTO 15.11.2006 AS PER CA CERTIFICATE BUT NO SUCH CERTIFICATE OF CA IS FOUND PLACED ON RECORD WHICH IS NECESSARY BEFORE ALLOWING THE DEDUC TION U/S 43B OF THE I.T ACT. 16.1 AT THE OUTSET, IT IS SUBMITTED THAT THE IMPUGNED S HOW CAUSE NOTICE U/S 263 OF THE ACT IN RESPECT OF THE AFORESAID ISSUE WOULD NOT BE MAINTAI NABLE IN VIEW OF THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LEISURE WEAR EXPORTS LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT PROVISIONS U/S 263 OF THE ACT CA NNOT BE INVOKED TO DIRECT THE ASSESSING OFFICER TO MAKE INQUIRIES. 16.2 THE BRIEF FACTS IN RELATION TO AFORESAID ISSUE ARE THAT DURING THE YEAR UNDER REFERENCE, THE ASSESSEE CLAIMED AN AMOUNT OF RS. 36,94,306/- BEING THE BONUS ACTUALLY PAID UPTO 15.11.2006 AS CERTIFIED BY THE CHARTERED ACCOUNTANT . THE RELEVANT 20 ITA NO.402/JODH/2012 A.Y. 2006-07 EVIDENCES/DOCUMENTS ESTABLISHING THE PAYMENT OF RS. 36,94,306/- WERE BEFORE THE ASSESSING OFFICER, WHO AFTER DUE VERIFICATION WAS S ATISFIED AND ACCORDINGLY ARRIVED AT THE TOTAL TAXABLE INCOME. 16.3 AS A MATTER OF FACT ON RECORD THE BOOKS OF ACCOUNT AND ALSO A CERTIFICATE DATED 25.11.2006 ISSUED BY M/S DC AGARWAL & ASSOCIATES, C HARTERED ACCOUNTANTS, UDAIPUR, CERTIFYING THAT AN AMOUNT OF RS. 36,94,306/- WAS AC TUALLY PAID TOWARDS BONUS OUT OF THE TOTAL PROVISION OF RS. 40,00,376/- FOR THE ASSESSME NT YEAR 2006-07 WAS PLACED BEFORE THE LD. ASSESSING OFFICER. THE COPY OF THE CHARTERE D ACCOUNTANT CERTIFICATE ISSUED BY M/S DC AGARWAL & ASSOCIATES, CHARTERED ACCOUNTANTS, UDAIPUR, CERTIFYING THAT AN AMOUNT OF RS. 36,94,306/- WAS PAID UPTO 15.11.2006 IS AT PAPER BOOK PAGE 126. 16.4 IN VIEW OF AFORESAID, IT IS SUBMITTED THAT THE OBS ERVATION RECORDED IN THE IMPUGNED SHOW CAUSE NOTICE THAT THE CERTIFICATE OF THE C.A IS NOT PLACED ON RECORD OF THE ASSESSING OFFICER IS FACTUALLY INCORRECT. THE FACT OF THE MAT TER IS THAT THE LD. ASSESSING OFFICER HAS EXAMINED THE AFORESAID ISSUE AND AFTER HAVING DULY SATISFIED HIMSELF REGARDING THE COMPLIANCE OF THE PROVISIONS OF LAW DIDNT RECORDED AN ADVERSE REMARKS. 16.5 IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT THE AO HAVING APPLIED HIS MIND JUDICIOUSLY THE ASSESSMENT ORDER PASSED CANNOT BE SAID TO BE ER RONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR INVOKING PROVISIONS OF SECT ION 263 OF THE ACT. 17. ISSUE-3 THE ASSESSEE COMPANY HAS CLAIMED EXPENSES UNDER VARIOUS HEADS WHICH ARE LIABLE FOR TDS UNDER CHAPTER XVIIB AND VIOLATION ON THIS COUNT ATTRACTS THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T ACT BUT NO DETAILS HAVE BEEN FILED BY THE ASSESSEE WITH REGARDS TO THE TDS AND PAYMENTS THEREOF. 17.1 AT THE OUTSET, IT IS SUBMITTED THAT THE IMPUGNED SH OW CAUSE NOTICE U/S 263 OF THE ACT IN RESPECT OF THE AFORESAID ISSUE WOULD NOT BE MAINTAI NABLE IN VIEW OF THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LEISURE WEAR EXPORTS LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT PROVISIONS U/S 263 OF THE ACT CA NNOT BE INVOKED TO DIRECT THE ASSESSING OFFICER TO MAKE INQUIRIES. 21 ITA NO.402/JODH/2012 A.Y. 2006-07 17.2 IN RELATION TO THE AFORESAID ISSUE, IT IS SUBMITTED THAT THE OBSERVATION RECORDED IN THE IMPUGNED SHOW CAUSE NOTICE TO THE EFFECT THAT THE A SSESSEE HAS NOT FILED ANY DETAILS WITH REGARDS TO THE TDS PAYMENTS IS ACTUALLY INCORRECT A ND CONTRARY TO THE ASSESSMENT RECORD IN AS MUCH AS ANNUAL REPORT DULY AUDITED BY THE STA TUTORY AUDITOR AND THE TAX AUDIT REPORT IN FORM 3 CD IS ALREADY A PART OF THE ASSESSMENT RE CORD BEING FILED ALONG WITH THE RETURN OF INCOME. THE COPY OF THE TAX-AUDIT REPORT IN FORM 3CD IS AT PAPER BOOK PAGE 127 TO 162. 17.3 AS PER THE SAID TAX AUDIT REPORT THE AUDITOR IN CLA USE 27(A) HAS CERTIFIED THAT THE ASSESSEE HAS DEDUCTED THE TAX AT SOURCE AND HAS PAID THE AMO UNT SO DEDUCTED TO THE CREDIT OF THE CENTRAL GOVERNMENT IN ACCORDANCE WITH THE PROVISION S OF CHAPTER XVIIB. 17.4 ON PERUSAL OF THE SAID CLAUSE OF TAX AUDIT REPORT, IT MAY KINDLY BE OBSERVED THAT THERE IS NO ADVERSE OBSERVATION OF THE TAX AUDITOR ABOUT THE DEDUCTION OF TDS. 17.5 IT IS SUBMITTED THAT THE TAX AUDIT REPORT SUBMITTED WITH THE RETURN OF INCOME WAS DULY CONSIDERED AND EXAMINED BY THE ASSESSING OFFICER AN D HAVING SATISFIED HIMSELF AS REQUIRED BY LAW ACCEPTED THE SAME. (I) ADDITIONALLY, IT IS SUBMITTED THAT THE TDS RETURNS FILED BY THE ASSESSEE HAVE BEEN ACCEPTED BY THE DEPARTMENT AND THE ASSESSEE IS YET TO COME ACROSS ANY ADVERSE OBSERVATION FROM THE ASSESSING OFFICER (TDS). THE P ARTICULARS OF THE QUARTERLY E- TDS RETURNS FILED BY THE ASSESSEE ARE AS UNDER: 24Q PERIOD DATE OF FILING ACKNOWLEDGEMENT NO. QUARTER-1 01.04.2005 TO 30.06.2005 31.08.2005 080150100004542 QUARTER-2 01.07.2005 TO 30.09.2005 13.10.2005 010640300007503 QUARTER-3 01.10.2005 TO 31.12.2005 12.01.2006 080150300006980 QUARTER-4 01.01.2006 TO 31.03.2006 28.07.2006 080150300040344 22 ITA NO.402/JODH/2012 A.Y. 2006-07 26Q PERIOD DATE OF FILING ACKNOWLEDGEMENT NO. QUARTER-1 01.04.2005 TO 30.06.2005 31.08.2005 010640300004681 QUARTER-2 01.07.2005 TO 30.09.2005 14.10.2005 010640300007606 QUARTER-3 01.10.2005 TO 31.12.2005 13.01.2006 010640300014444 QUARTER-4 01.01.2006 TO 31.03.2006 14.06.2006 010640300021761 27Q PERIOD DATE OF FILING ACKNOWLEDGEMENT NO. QUARTER-1 01.04.2005 TO 30.06.2005 31.08.2005 010640300004843 QUARTER-2 01.07.2005 TO 30.09.2005 14.10.2005 010640300007595 QUARTER-3 01.10.2005 TO 31.12.2005 13.01.2006 010640300014455 QUARTER-4 01.01.2006 TO 31.03.2006 14.06.2006 010640300021816 17.6 IT IS SUBMITTED THAT ALL MATERIAL FACTS RELATING TO THE OPERATION OF SEC 40(A)(IA) OF THE INCOME TAX ACT WERE AVAILABLE WITH THE ASSESSING O FFICER, WHO APPLIED HIS MIND AND SATISFIED HIMSELF REGARDING THE APPLICABILITY OF TH E PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT IN T HE ABSENCE OF ANY ADVERSE MATERIAL ON RECORD SHOWING ANY FAILURE ON THE PART OF THE ASSESSEE IN RESPECT OF ITS TDS LIABILITY, THE DECISION OF THE AO CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR INVOKING PROVISIONS OF SECTION 263 OF THE ACT. 18. ISSUE NO.4 THE ASSESSEE COMPANY HAS CLAIMED COMMISS ION EXPENDITURE TO THE TUNE OF RS.6.78 CRORES CLAIMED IN THE IMMEDIATELY PRECEDING YEAR. THE ABNORMAL INCREASE IS NOT SUPPORTED WITH ANY EVIDENCE. NO DETAILS WHATSOE VER ARE FOUND FILED WITH REGARD TO THE COMMISSION EXPENDITURE. THE P&L ACCOUNT REVEALS THAT THE ASSESSEE COMPANY IS HAVING ITS MARKETING NETWORK THROUGHOUT INDIA AND I T HAS CLAIMED HUGE EXPENDITURE UNDER THE HEAD SALARY, WAGES AND TRAVELING EXPENSES . HENCE, INSPITE OF HAVING ITS OWN 23 ITA NO.402/JODH/2012 A.Y. 2006-07 MARKETING NETWORK, THE QUESTION OF INCURRING COMMIS SION HAS TO BE PROBED BUT THE AO HAS NOT EXAMINED THIS ISSUE . 18.1 AT THE OUTSET, IT IS SUBMITTED THAT THE IMPUGNED SH OW CAUSE NOTICE U/S 263 OF THE ACT IN RESPECT OF THE AFORESAID ISSUE WOULD NOT BE MAINTAI NABLE IN VIEW OF THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LEISURE WEAR EXPORTS LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT PROVISIONS U/S 263 OF THE ACT CA NNOT BE INVOKED TO DIRECT THE ASSESSING OFFICER TO MAKE INQUIRIES. 18.2 THE FACTS IN RELATION TO THE AFORESAID ISSUE ARE TH AT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS REGARDING THE COMMISSION PAID TO AGENTS DURING THE YEAR UNDER REFERENCE IN RESPON SE TO WHICH IT WAS SUBMITTED THAT DURING THE YEAR UNDER ASSESSMENT, TOTAL COMMISSION OF RS. 20,44,44,868/-, REPRESENTING 6.498% OF TOTAL SALES WAS PAID TO COMMISSION AGENTS , AS AGAINST 3.41% DURING THE ASSESSMENT YEAR 2005-06. THE SAID PAYMENT MADE TO VARIOUS AGENTS DURING THE YEAR WAS EXAMINED FROM THE BOOKS OF ACCOUNTS AND CONTRACT AG REEMENT WITH INDIVIDUAL AGENT FOR THE VARIOUS SERVICES RENDERED TO THE ASSESSEE. 18.3 THE ASSESSEE VIDE LETTER DATED 28.12.2009 AND DURI NG THE COURSE OF ASSESSMENT PROCEDING EXPLAINED THE PROCESS OF PROCUREMENT OF ORDERS FROM THE CUSTOMERS AND THE ROLE PLAYED BY THESE AGENTS IN PROCUREMENT AND ITS SUBSEQUENT E XECUTION OF THE ORDERS. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANUFACTURE AND SALE OF ELECTRONIC ENERGY METERS, USED BY STATE ELECTRICITY BOARDS, UTILITIES, ETC. MOST OF THE SALE IS THROUGH TENDERING PROCESS, WHEREIN THE CUSTOMER FLOAT NOTICE INVITING TENDERS , WHEREIN THE ELIGIBILITY CRITERIA/QUALIFYING REQUIREMENT BOTH FOR TECHNIC AL AND COMMERCIAL ASPECT IS DETAILED. THE COPY OF THE LETTER DATED 28.12.2009 IS AT PAPER BOOK PAGE 163 TO 165. 18.4 ANY COMPANY OR INDIVIDUAL, WHO MEET THE QUALIFYING REQUIREMENT, WHETHER IN INDIA OR OVERSEAS, IS ENTITLED TO SUBMIT ITS BID AND TAKE PA RT IN THE TENDERING PROCESS. NORMALLY THE BIDS ARE IN TWO PARTS COMMERCIAL AND FINANCIA L. EVERY BIDDER, WHO MEETS THE TECHNICAL QUALIFICATION, IS ENTITLED TO CONTINUE IN THE TENDERING PROCESS. ONCE THE TECHNICAL BID IS ACCEPTED, THE COMMERCIAL BID SUBMI TTED BY EACH BIDDER IS CONSIDERED. 24 ITA NO.402/JODH/2012 A.Y. 2006-07 ANY DEVIATION OPTED BY THE BIDDERS IS NEUTRALIZED B Y LOADING OR DE-LOADING THE PRICE, SUCH ALL BIDDERS ARE BROUGHT ON THE SAME FOOTING FO R COMPARISON PURPOSE. AFTER DUE PROCESS OF CONSULTATION, THE LOWEST BID IS ACCEPTED AND LETTER OF INTENT IS ISSUED TO THE SUCCESSFUL BIDDER. THIS LETTER OF INTENT IS CONVERT ED IN CONTRACT DOCUMENT ON SUBMISSION OF PERFORMANCE BANK GUARANTEE AND OTHER COMMERCIAL REQ UIREMENT OF THE CUSTOMER. 18.5 THE TIME TAKEN FROM ISSUE OF NOTICE INVITING TENDE R TO ISSUE OF FINAL ORDER MAY TAKE UP TO 12 MONTHS DEPENDING ON THE WORKING OF THE INDIVIDUA L CUSTOMER ORGANIZATION. DURING THIS INTERVENING PERIOD, THERE IS A NEED TO UNDERSTAND T HE TECHNICAL SPECIFICATIONS, SCHEDULE DRAWN FOR DELIVERY, OTHER CONTRACTUAL REQUIREMENTS, ETC. THIS IS A CONTINUOUS PROCESS WHICH GOES ON AT REGULAR INTERVAL WITH ALL THE BIDD ERS TILL THE FINAL DECISION IS TAKEN BY THE CUSTOMER. 18.6 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS EXPLAINED THAT THE CUSTOMER BASE OF THE ASSESSEE IS SPREAD ALL OVER THE COUNTRY. THE JU NIOR/MIDDLE LEVEL STAFF DEPLOYED AT BRANCH ARE NOT CAPABLE OF UNDERTAKING THE CONTRAC TUAL DISCUSSIONS EITHER ON TECHNICAL OR COMMERCIAL ASPECT WITH THE CUSTOMER(S) AND SENIOR S TAFF HAVE THEIR LIMITATION OF MEETING THE REQUIREMENT AS THE CUSTOMERS ARE SPREAD ALL OVE R THE COUNTRY. AS SUCH THE ASSESSES HAS OUTSOURCED THIS WORK TO THE AGENTS TO DO THE N ECESSARY GROUND WORK ON ITS BEHALF ON A DAY TO DAY BASIS AND PROVIDE INFORMATION AND REQU IREMENTS OF THE CUSTOMER TO THE COMPANY FOR ITS FULFILLMENT . 18.7 IT WAS ALSO EXPLAINED THAT THE TIME IS THE ESSENCE OF ENTIRE PROCESS OF BIDDING AND THEREFORE, FOR PROMPT SUBMISSION OF THE INFORMATION /DOCUMENTS, THE ASSESSEE HAS ENGAGED AGENTS AT LOCAL LEVEL, WHO PERFORM AND A CT ON BEHALF OF THE ASSESSEE ON A DAY TO DAY BASIS. THIS DIRECTLY HELP IN EXCHANGE OF INF ORMATION AT A FASTER PACE BESIDES MONITORING THE MOVEMENTS AND STRATEGY BEING ADOPTED BY THE COMPETITORS. WHILE THE ABOVE ACTIVITIES ARE PRIOR TO THE AWARD OF THE CONT RACT, THERE ARE NUMBER OF OTHER POST AWARD ACTIVITIES, FOR WHICH THE AGENTS PLAY A MAJO R ROLE. AFTER PLACING OF LETTER OF INTENT, THE CONTRACT DOCUMENT IS PREPARED FOR WHICH CLOSE C OORDINATION WITH THE VARIOUS DEPARTMENTS OF THE CUSTOMER ORGANIZATION ARE REQUIR ED. TILL THE CONTRACT IS SIGNED WITH THE CUSTOMER ORGANIZATION, THE SUPPLIES UNDER THE C ONTRACT CANNOT START. ONCE THE 25 ITA NO.402/JODH/2012 A.Y. 2006-07 CONTRACT IS SIGNED, THE AGENT PERFORM THE VARIOUS A CTIVITIES NAMELY LIAISONING WITH THE CUSTOMERS, ARRANGING FOR DELIVERY SCHEDULE, ARRANGI NG FOR CUSTOMER INSPECTION, ENSURING DELIVERY OF GOODS, FOLLOW UP FOR PAYMENT, COLLECTIO N OF SALES TAX AND WORKS CONTRACT TAX DECLARATION FORMS, TDS CERTIFICATES, CONTRACT CLOSU RE AND RELEASE OF THE RETENTION AMOUNT. 18.8 IT IS FURTHER SUBMITTED THAT THE COMMISSION PAYMENT S HAVE BEEN MADE TO THE VARIOUS AGENTS IN THE ORDINARY COURSE OF THE BUSINESS OF TH E ASSESSEE AS A MATTER OF COMMERCIAL EXPEDIENCY AND IS THEREFORE DULY ALLOWABLE AS BUSIN ESS EXPENDITURE. IT IS NOT PRACTICALLY POSSIBLE TO DEPLOY OWN STAFF TO ATTEND THE ACTIVI TIES AS MENTIONED ABOVE, FOR EACH AND EVERY CUSTOMER LOCATED ALL OVER THE COUNTRY. 18.9 THE SAID BUSINESS PRACTICE OF THE APPELLANT HAS TUR NED OUT TO BE COMMERCIALLY EXPEDIENT FOR THE ASSESSEE IN THE PAST AND IN THE YEAR IN QUE STION. IT IS SUBMITTED THAT ALL PAYMENTS TO THE AGENTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUE A FTER DEDUCTION OF APPLICABLE TAX AT SOURCE AND NO PAYMENT HAS BEEN MADE IN CASH. 18.10 IT IS FURTHER SUBMITTED THAT THE VARIOUS BRANCH OF FICES THAT THE ASSESSEE OPERATES IN VARIOUS PARTS OF THE COUNTRY ARE INVOLVED IN VARIOU S OPERATIONAL ACTIVITIES RELATING TO CUSTOMER SUPPORT, AFTER SALES SERVICE, FIELD FAILUR E, ON SITE REPAIRS, ANNUAL MAINTENANCE CONTRACTS, CUSTOMER TRAINING ETC. THE SAID BRANCH O FFICES ALSO PROVIDE BACKING/SUPPORT TO VARIOUS FUNCTIONS OF THE ASSESSEE. FURTHER IT IS SU BMITTED THAT ALL THE PRODUCTS MANUFACTURED AT ALL THE FOUR PLANTS CARRY WARRANTY AS AGREED WITH THE CUSTOMER AT THE TIME OF AWARD. BY VERY NATURE OF THE PRODUCTS, SOM E PRODUCTS FAIL IN THE FIELD AND SINCE THE PRODUCT IS REVENUE MEASURING TOOL FOR THE ELECT RICITY BOARD, THE DEFECT NEED TO BE RECTIFIED WITHOUT ANY LOSS OF TIME. MOST OF THE STA FF DEPLOYED AT BRANCHES IS ENGAGED IN FIELD RELATED SERVICES, WHICH MINIMIZE THE WARRANTY COST AND HELP MAINTAIN THE REPUTATION WITH THE CUSTOMERS. 18.11 IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT THE LD. ASSESSING OFFICER HAS DULY CONSIDERED THE AFORESAID ASPECT AND HAS ALLOWED THE SAME FINDI NG IT TO BE GENUINE AND AS INDISPENSIBLE PART OF THE BUSINESS OF THE ASSESSEE. 26 ITA NO.402/JODH/2012 A.Y. 2006-07 18.12 IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT THE DECISION OF THE AO CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E FOR INVOKING PROVISIONS OF SECTION 263 OF THE ACT. 19. ISSUE NO.5 THERE IS AN OUTSTANDING AMOUNT OF RS.8,1 9,39,183/- UNDER THE HEAD OUTSTANDING DISCOUNT AND COMMISSION RIGHT FROM TH E A.Y. 1997-98 TO 2005-06. THE GENUINENESS AND RELEVANCE OF THE SAID EXPENDITURE H AS NOT BEEN EXAMINED. THE AO SHOULD HAVE ALSO EXAMINED THIS ISSUE WHETHER IT IS A CASE OF CESSATION OF LIABILITY. 19.1 AT THE OUTSET, IT IS SUBMITTED THAT THE IMPUGNED SH OW CAUSE NOTICE U/S 263 OF THE ACT IN RESPECT OF THE AFORESAID ISSUE WOULD NOT BE MAINTAI NABLE IN VIEW OF THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LEISURE WEAR EXPORTS LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT PROVISIONS U/S 263 OF THE ACT CA NNOT BE INVOKED TO DIRECT THE ASSESSING OFFICER TO MAKE INQUIRIES. 19.2 THE RELEVANT FACTS IN RELATION TO THE AFORESAID ISS UE ARE THAT THE ASSESSEE EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT TH E OUTSTANDING OF RS.8,19,39,183/- COMPRISES OF THE OUTSTANDING FROM THE A.Y. 1997-98 TO 2005-06 AND IS OUTSTANDING AS ON THE LAST DAY OF THE FINANCIAL YEAR UNDER REFERENCE. THE SAID AMOUNT WAS NOT PAID AS THE CONCERNED AGENTS FAILED TO FULFILL THEIR CONTRACTUA L COMMITMENT AS PROVIDED IN THE AGREEMENT. THERE IS STILL NO REMISSION OR CESSATIO N OF THE LIABILITY AND THE SAID AMOUNT IS STILL LYING AS OUTSTANDING IN THE BOOKS AS ON 31.03 .2006. IN CASE THE SAID AMOUNT IS ACTUALLY WRITE BACK IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE ASSESSEE SHALL PAY TAX IN THE YEAR IN WHICH IT IS WRITTEN BACK IN THE BOOKS O F ACCOUNTS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 41(1) OF THE ACT. THE EXPLANA TION 1 BELOW SECTION 41(1) OF THE ACT LAYING DOWN THAT THE YEAR OF MAKING UNILATERAL WRIT ING OFF OF SUCH LIABILITY IN THE ACCOUNTS OF THE ASSESSEE SHALL BE THE REMISSION/CESSATION OF LIABILITY, IS REPRODUCED HERE-IN-BELOW FOR READY REFERENCE : EXPLANATION 1-FOR THE PURPOSES OF THIS SUB SECTION, THE EXPRESSION LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIAB ILITY BY WAY OF REMISSION OR CESSATION THEREOF SHALL INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY BY A UNILATERAL ACT BY THE FIRST MENTIONED PERSON UNDER CLAUSE (A) OR THE SUCC ESSOR IN BUSINESS UNDER CLAUSE (B) OF THAT SUB SECTION BY WAY OF WRITING OFF SUCH LIABILI TY IN HIS ACCOUNTS. 27 ITA NO.402/JODH/2012 A.Y. 2006-07 19.3 ACCORDINGLY, THERE IS NO ERROR IN THE ORDER OF LEAR NED ASSESSING OFFICER AND THEREFORE THE JURISDICTION U/S 263 CANNOT BE INVOKED IN RESPE CT OF THIS ISSUE. 20. ISSUE NO.6 THE ASSESSEE COMPANY IS HAVING FOUR UNDE RTAKINGS THREE OF THEM ARE LOCATED IN HIMACHAL PRADESH AND ONE AT UDAIPUR. THE COMPARISON OF TURNOVER AND EXPENSES CLAIMED IN THESE UNITS ARE TABLED BELOW:- A B C D E F NAME OF UNIT UNIT WISE TURNOVER IN RS. & % IT BEARS TO TOTAL TURNOVER OF THE ASSESSEE CO. UNIT WISE CONSUMPTION OF RAW MATERIAL & % IT BEARS TO TOTAL CONSUMPTION UNIT WISE MFG. EXP. & % IT BEARS TO THE TOTAL MFG. EXP. UNIT WISE ADMN. AND OTHER EXP. & % IT BEARS TO THE TOTAL EXP. UNIT WISE PAYMENTS AND PROVISIONS FOR EMPLOYEES & % IT BEARS TO TOTAL EXP. UDAIPUR (TAXABLE) 110,82,40,962/- 35.22% 68,86,58,176/- 36.74% 5,57,38,986/- 74.40% 24,32,01,928/- 44.67% 9,98,05,243/- 56.49% BAROTIWALA (U/S 80IC) 77,10,69,689/- 24.52% 43,17,79,022/- 23.03% 1,02,57,765/- 13.69% 9,82,87,607/- 18.05% 3,44,14,931/- 19.48% BATED (U/S 80IB) 126,23,79,184/- 40.13% 75,31,88,036/- 40.18% 86,77,246/- 11.58% 20,24,41,010/- 37.18% 3,96,37,323/- 22.43% HARIPUR (U/S 80IC) 42,00,900/- 0.13% 8,67,653/- 0.05% 2,41,139/- 0.32% 5,32,752/- 0.10% 28,25,149/- 16.00% TOTAL 314,58,90,735/- 187,44,92,887/- 7,49,15,139/- 54,44,63,297/- 17,66,82,646/- IT IS NOTICED THAT THE DEDUCTIONS U/S 80IB & 80IC O F THE I.T.ACT, ARE BEING CLAIMED ON THE PROFITS OF ITS UNDERTAKING LOCATED IN HIMACHAL PRAD ESH WHILE THE UNDERTAKING AT UDAIPUR IS NOT ELIGIBLE FOR SUCH DEDUCTION. THE RATIO OF CO NSUMPTION OF RAW MATERIAL IS MORE OR LESS IN THE RATIO OF THE TURN OVER OF EACH UNIT BUT MANUFACTURING EXPENSES, ADMINISTRATIVE AND OTHER EXPENSES ARE NOT PROPORTIONATE TO THE RAT IO OF TURN OVER BETWEEN THE UDAIPUR UNIT AND OTHER THREE UNITS WHICH ARE ELIGIBLE FOR 1 00% DEDUCTION. THE RATIO OF TURN OVER OF UDAIPUR UNIT IS 35.22% OF THE TOTAL TURNOVER AGA INST WHICH THE MANUFACTURING EXPENSES AND SALARY AND WAGES ARE 74.40% AND 56. 49% RESPECTIVELY OF TOTAL MANUFACTURING EXPENSES. COMPARATIVELY, THE TURNOVER AND MANUFACTURING EXPENSES OF OTHER THREE UNITS ARE VERY LESS. THERE IS VERY HIGH PERCENTAGE THE NET PROFIT OF NON TAXABLE UNITS IS EXHORBITANTLY HIGH IN IT IS VERY SURPRISE THAT TO UDAIPUR UNIT. SIMILARLY, THERE ARE INTER UNIT ALLOCATION OF SOME COMMON EXPENSES WHICH APPEARS UNJUSTIFIABLE BUT THIS ASPECT HAS NOT BEEN EXAMINED. 20.1 AT THE OUTSET, IT IS SUBMITTED THAT THE IMPUGNED SH OW CAUSE NOTICE U/S 263 OF THE ACT IN RESPECT OF THE AFORESAID ISSUE WOULD NOT BE MAINTAI NABLE IN VIEW OF THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LEISURE WEAR EXPORTS LTD. (SUPRA) WHEREIN IT 28 ITA NO.402/JODH/2012 A.Y. 2006-07 HAS BEEN HELD THAT PROVISIONS U/S 263 OF THE ACT CA NNOT BE INVOKED TO DIRECT THE ASSESSING OFFICER TO MAKE INQUIRIES. 20.2 IN RELATION TO THE AFORESAID ISSUE, IT IS SUBMITTED THAT THE SAME HAS BEEN DULY EXAMINED BY THE LD. ASSESSING OFFICER AS EVIDENT FROM THE OPENI NG LINES OF THE ASSESSMENT ORDER IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IC AT 100% AT RS. 30,80,85,898/- IN RESPECT OF BAROTIWALA UNIT AND U/S 80IB AT 100% AT RS. 31,91,57,705/- IN RESPECT OF BATED UNIT AND NIL IN RESPECT OF HARIPUR UNIT. FROM THE ABOVE COMPARATIVE CHART IT IS SEEN THAT THERE IS SI GNIFICANT DIFFERENCE IN THE GP AND NP RATIO OF FOUR UNITS. THEREFORE THE ASSESSEE WAS ASK ED TO EXPLAIN THE DIFFERENCE. THE ASSESSEE SUBMITTED THAT THE THE THREE UNITS ARE MAN AGED INDEPENDENT AND THERE IS NO COMMONALITY BETWEEN THE FOUR UNITS. ALL THE UNITS M AINTAIN THEIR SEPRATE BOOKS OF ACCOUNTS AND HAVE SEPARATE SET OF MANAGEMENT. THE A SSESSEE FURTHER SUBMITTED THAT THE CORPORATE EXPENSES ARE APPORTIONED AMONG FOUR UNITS IN THE RATIO OF THE TURNOVER. 20.3 AS A MATTER OF FACT ON RECORD THE ASSESSEE DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, VIDE ITS LETTER DATED 06.08.2009 EXPLAINED THE NATU RE OF BUSINESS AND REGARDING THE MANUFACTURING UNITS, OUT OF WHICH 3 ARE LOCATED IN THE STATE OF HIMACHAL PRADESH AND ARE ELIGIBLE FOR DEDUCTION U/S 801B / 801C. THE OTHER UNIT AT UDAIPUR IS NOT ELIGIBLE FOR ANY TAX EXEMPTION UNDER THE ACT. IT IS PERTINENT TO MEN TION HERE THAT WHILE COMPLETING THE ASSESSMENT, THE LD.AO UNDERSTOOD THE NATURE OF THE ASSESSEES BUSINESS AND WHEN HE FOUND BY THE REFERENCE TO THE PAST HISTORY OF THE C ASE THAT THERE IS NO CHANGE IN NATURE OF BUSINESS OF ASSESSEE THEN HE CONSIDERED IT APPROPRI ATE TO MAKE THE ASSESSMENT BASED ON SUCH ADMITTED FACTUAL POSITION. IT IS ALSO WORTHWIL E TO MENTION THAT YOUR GOODSELF HAS ALSO VISITED THE PLANT OF THE ASSESSEE COMPANY ON 25.7.2 011 AND COMPREHENSIVELY UNDERSTOOD THE MANUFACTURING PROCESS AND BUSINESS OF THE ASSES SEE AND HAVE, WE UNDERSTAND, NOTED THAT THE FACTUAL MATRIX RELIED UPON BY AO IS COMPLE TELY CORRECT. 20.4 IT WAS FURTHER EXPLAINED THAT THE ASSESSEE IS IN TH E BUSINESS OF MANUFACTURING OF SOLID STATE ENERGY METERS, WHICH ARE USED FOR MEASUREMENT OF ELECTRICITY AND USED BY ELECTRICITY BOARDS, PRIVATE UTILITIES, INDEPENDENT POWER TRANSM ISSION COMPANIES AND COMMERCIAL ESTABLISHMENTS. DURING THE RELEVANT YEAR, THERE WA S NO CHANGE IN BUSINESS AS COMPARED TO PREVIOUS YEARS. THE COMPARATIVE DETAILS OF SALES , GROSS PROFIT AND NET PROFIT FOR LAST THREE YEARS WERE ALSO SUBMITTED VIDE LETTER DATED 6 .8.09, THE SUMMARIZED DETAILS OF WHICH ARE AS UNDER: 29 ITA NO.402/JODH/2012 A.Y. 2006-07 AY-2006-07 AY 2005-06 AY 2004-05 SALES 3,14,58,90,735 1,98,85,07,771 2,36,12,20,823 GROSS PROFIT % 36.62% 34.20% 39.86% NET PROFIT % 13.66% 7.39% 14.47% THE COPY OF THE LETTER DATED 6.08.2009 IS AT PAPER BOOK PAGE 166 TO 174. 20.5 FURTHER THE ASSESSEE FILED REPORT IN 10CCB FOR BARO TIWALA, BATED AND HARIPUR UNIT LOCATED IN SOLAN DISTRICT AND ELIGIBLE FOR AREA BAS ED EXEMPTION UNDER SECTION 80IB/IC OF THE ACT. ALONG WITH THE SAID 10CCB REPORT, THE ASSE SSEE HAS SUBMITTED PROFIT AND LOSS ACCOUNT OF EACH UNIT, BASED ON WHICH THE EXEMPTION IS CLAIMED U/S 80 IB /IC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE PROD UCED BOOKS AND ACCOUNTS OF EACH UNIT FROM WHICH THE AO VERIFIED AND EXAMINED THE UNDERLY ING NUMBERS OF THE PROFIT AND LOSS ACCOUNT AND ALLOWED DEDUCTION U/S 80IB /IC ACCORDIN GLY. 20.6 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE DE TAILS OF VARIOUS PRODUCTS MANUFACTURED AND TECHNICAL LITERATURE OF VARIOUS PR ODUCTS WERE SUBMITTED. IT WAS SUBMITTED THAT THE EACH PRODUCT MANUFACTURED BY THE ASSESSEE HAVE A DIFFERENT USAGE, WHICH IS DEPENDENT UPON THE REQUIREMENT OF THE CUST OMER. IT WAS FURTHER SUBMITTED THAT WHILE ALL PRODUCTS MANUFACTURED FALL BROADLY UNDER THE CATEGORY OF METERS, BUT ALL METERS SO MANUFACTURED ARE NOT OF SAME CLASS AND CA NNOT BE USED ACROSS THE BOARD FOR COMMON PURPOSE. EACH PRODUCT IS DIFFERENT FROM THE OTHER AND CAN BE USED ONLY FOR THE SPECIFIC PURPOSE SUCH AS GRID, LARGE INDUSTRY, COMM ERCIAL, RESIDENTIAL, PREPAYMENT ETC. FOR WHICH IT IS SPECIFICALLY DESIGNED. THEREFORE T O GENERALIZE ALL PRODUCTS MANUFACTURED BY IT UNDER ONE CATEGORY WILL NOT BE CORRECT AND WI LL LEAD TO WRONG INFERENCE. THE SUBMISSION OF THE ASSESSEE WERE DULY VERIFIED BY TH E ASSESSING OFFICER FROM THE PHYSICAL SAMPLES OF METERS SUBMITTED TO HIM FOR BETTER UNDER STANDING. 20.7 IT IS FURTHER SUBMITTED THAT DIFFERENT PRODUCTS AR E MANUFACTURED AT THE FOUR MANUFACTURING PLANTS, EACH PRODUCT HAS DIFFERENT US AGE, MODEL ETC. AND THE SAME CANNOT BE INTER-CHANGED. FURTHER ALL PRODUCTS HAVE DIFFERE NT DESIGN, LOOK AND PRICE TAG. 30 ITA NO.402/JODH/2012 A.Y. 2006-07 REGARDING MARKETING, IT IS SUBMITTED THAT MOST OF T HE BUSINESS IS PROCURED BY PARTICIPATING IN THE TENDERING PROCESS AND THE SALE PRICE IS DETERMINED BY COMPETITION AT THE MARKET PLACE. 20.8 IT WAS FURTHER EXPLAINED TO THE AO THAT WHILE THE S ELLING PRICE DIFFERS FROM CONTRACT TO CONTRACT, SO DOES THE MANUFACTURING COST AND RAW MA TERIAL COST ASSOCIATED WITH IT. EACH PRODUCT CONSTITUTES OF DIFFERENT MATERIAL AS PER IT S DESIGN AND ENGINEERING. SINCE MATERIAL VARIES FROM PRODUCT TO PRODUCT, THE COST OF MANUFAC TURING ALSO VARIES FROM PRODUCT TO PRODUCT AND IS NOT UNIFORM ACROSS THE BOARD. THE CO ST OF MANUFACTURE VARIES IN THE SAME PLANT DEPENDING UPON THE SPECIFICATIONS AND FEATURE SET OPTED BY THE SPECIFIC CUSTOMER CONTRACT. 20.9 EXAMINATION OF THE BOOKS OF ACCOUNTS CLEARLY REVEAL S THAT DEPENDING ON THE TYPE OF PRODUCT TO BE MANUFACTURED AT EACH UNIT, THE RAW MA TERIAL BASED ON MATERIAL OF INDIVIDUAL PRODUCT IS ISSUED FROM STORES TO PLANT F OR MANUFACTURING. ALL MATERIAL ISSUES DURING A MONTH ARE REFLECTED IN THE MONTHLY STORES CONSUMPTION ISSUE SHEET PREPARED BY THE STORES DEPARTMENT FOR ACCOUNTING PURPOSE. THIS FACT WAS EXAMINED AND VERIFIED FROM THE RECORDS NAMELY STORES RECORD, CONSUMPTION AND O THER MAINTAINED BY EACH OF THE 4 UNITS. 20.10 THE UDAIPUR UNIT IS REGISTERED UNDER CENTRAL EXCISE ACT AND ALL CLEARANCES FROM THERE ARE AFTER PAYMENT OF EXCISE DUTY AT THE APPLICABLE RATE. SIMILARLY, THE UDAIPUR ALSO AVAIL CENVAT CREDIT ON THE EXCISABLE RAW MATERIAL PURCHAS ED FOR PRODUCTION. SINCE THE THREE UNITS LOCATED IN HIMACHAL PRADESH ARE IN NOTIFIED A REA AND AVAILING EXCISE DUTY EXEMPTION, THE PRODUCTS ARE CLEARED WITHOUT PAYMENT OF DUTY. 20.11 AS REGARDS THE OBSERVATION IN THE IMPUGNED NOTICE T HAT CONSUMPTION OF RAW MATERIAL IS MORE OR LESS IN THE RATIO OF TURNOVER IN EACH UNIT, BUT MANUFACTURING EXPENSES AND OTHER ADMINISTRATIVE EXPENSES ARE NOT IN PROPORTIONATE TO THE TURN OVER BETWEEN UDAIPUR AND OTHER 3 UNITS, WHICH ARE ELIGIBLE FOR 100% DEDUCTIO N, IT IS SUBMITTED THAT EACH UNIT MAINTAINS SEPARATE BOOKS OF ACCOUNTS, ALL MANUFACTU RING ACTIVITIES AND EXPENSES THERETO ARE INDEPENDENT OF EACH OTHER. SEPARATE LABOUR FOR UNDERTAKING MANUFACTURING ACTIVITY 31 ITA NO.402/JODH/2012 A.Y. 2006-07 IS DEPLOYED BY EACH UNIT. SEPARATE PF AND ESIC NUMB ER IS ALLOTTED FOR EACH UNIT AND MONTHLY / QUARTERLY RETURN ARE BEING FILED WITH THE RESPECTIVE DEPARTMENTS. ALL UNITS ARE REGISTERED SEPARATELY UNDER THE VARIOUS APPLICABLE LAWS. THE BREAK UP OF THE MANUFACTURING ARE AT PAPER BOOK PAGE 175. 20.12 IT IS EVIDENT FROM THE ANNUAL REPORT THAT AN AMOUNT OF RS. 17,66,82,646/- WAS SPENT UNDER THE HEAD PAYMENTS TO AND PROVISIONS FOR EMPLOYEES -THE DETAILS OF WHICH ARE GIVEN IN SCHEDULE 18 OF THE ANNUAL REPORT AND IS REPRODUCED BELOW: SALARIES, WAGES AND BONUS 14,74,76,334/- CONTRIBUTION TO PROVIDENT FUND AND OTHER FUNDS 1,10,15,174/- EMPLOYEES WELFARE EXPENSES 1,12,67,735/- STAFF RECRUITMENT AND OTHER EXPENSES 69,23,403/- TOTAL 17,66,82,646/- 20.13 A COMPARISON OF AMOUNT SPENT IN A.Y 2006-07 WITH AM OUNT SPENT IN PREVIOUS YEAR IS DETAILED BELOW:- A.Y 2006-07 A.Y 2005-06 SALES 3,14,58,90,735 1,98,85,07,771 PAYMENT TO AND PROVISION FOR EMPLOYEES 17,66,82,646/- 15,60,51,256/- BASIS% OF ALLOCATION 5.62% 7.84% INCREASE OVER PREVIOUS YEAR 13.26% INCREASE IN TURNOVER PREVIOUS YEAR 58.20% 20.14 WHILE THE PAYMENT TO AND THE PROVISION FOR EMPLOYEE S AS PERCENTAGE OF SALES DECLINED FROM 7.84% TO 5.62% IN A,Y 2006-07, BUT IN ABSOLUTE TERMS THE AMOUNT INCREASED FROM RS. 15,60,51,256 IN THE A.Y 2005-06 TO RS. 17,66,82 ,646/- IN A.Y 2006-07,SHOWING AN INCREASE OF 13.26% OVER THE PREVIOUS YEAR. CONSIDER ING THE FACT THAT THE TURNOVER INCREASED BY 58%, WHEREAS THE SALARY INCREASED BY 1 3.26% , THE INCREASE IS REASONABLE. 32 ITA NO.402/JODH/2012 A.Y. 2006-07 THIS IS FURTHER SUPPORTED BY THE FACT THAT PAYMENT TO THE PROVISION FOR EMPLOYEES DECLINED FROM 7.84% IN A.Y 2005-06 TO 5.62% IN A.Y 2006-07. 20.15 IT IS FURTHER EVIDENT FROM THE RECORDS AS SUBMITTED BEFORE THE AO THAT OUT OF THE TOTAL AMOUNT OF RS. 17,66,82,646 TOWARDS THE PAYMENT TO A ND PROVISION OF EMPLOYEES, THE AMOUNT ATTRIBUTABLE TO THE RESPECTIVE UNIT WAS RS. 12,05,11,361 FOR WHICH SEPARATE SALARY RECORDS AND REGISTER REQUIRED UNDER THE LAW WERE MA INTAINED AND PRODUCED DURING THE COURSE OF PROCEEDING. DURING THE SAME PERIOD , AN A MOUNT OF RS. 5,61,71,285 WAS ALLOCATED BEING IN THE NATURE OF COMMON EXPENSES, I N TURNOVER RATIO AMONGS THE 4 UNITS. THE TOTAL ALLOCATION OF RS. 5,61,71,285 WORKS OUT T O BE 31.765% OF THE TOTAL SALARY COST OF THE ASSESSEE COMPANY. THE BREAK UP OF THE PAYMENTS TO AND PROVISIONS FOR EMPLOYEES IS AT PAPER BOOK PAGE 176. 20.16 IT WAS EXPLAINED THAT EXPENSES AT UDAIPUR UNIT ARE HIGHER AS COMPARED TO OTHER UNITS NAMELY BAROTIWALA, BATED AND HARIPUR ON ACCOUNT OF SALARY AND WAGES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE RECORDS AV AILABLE WITH THE DEPARTMENT IN THE EARLIER YEARS, IT WAS EXPLAINED TO AO THAT UDAIPUR UNIT WAS SET UP IN 1988 AND MOST OF THE STAFF CONTINUES TO BE WITH THE COMPANY TILL THE YEAR UNDER ASSESSMENT. OVER A PERIOD, THE SALARY OF THESE STAFF HAS INCREASED MANIFOLD, R ESULTING INTO HIGHER SALARY AND WAGES COST AT UDAIPUR UNIT. AS COMPARED TO UDAIPUR UNIT, THE SOLAN UNITS ARE MUCH YOUNGER, AS THE FIRST UNIT (BAROTIWALA) WAS SET UP IN 1998 FOLL OWED BY BATED IN 2002 AND HARIPUR IN 2005. THEREFORE THE SALARY AND WAGES COST OUGHT TO BE LOWER, AS COMPARED TO THE UDAIPUR UNIT. 20.17 ON ANALYSIS OF THE SALARY AS PERCENTAGE TO SALES, FOR UDAIPUR AND SOLAN UNITS, IT CAN BE SEEN THAT AS AGAINST THE SALARY COST AS A PERCENTAG E OF SALE WAS 9.01% FOR UDAIPUR UNIT, AS AGAINST 3.77% IN CASE OF SOLAN. 20.18 THE LD. ASSESSING OFFICER HAVING EXAMINED THE RECOR DS AND DOCUMENTS, OBSERVED THAT ALL THE FOUR UNITS HAVE SEPARATE REGISTRATION UNDER VAR IOUS LAWS, INCLUDING PF, ESIC AND 33 ITA NO.402/JODH/2012 A.Y. 2006-07 OTHER LABOUR LAWS AND ALL THE FOUR UNITS ARE FILING SEPARATE RETURNS FOR PF, ESIC AND UNDER OTHER LAWS SINCE THE YEAR THEY WERE SET UP. 20.19 IT IS EVIDENT FROM THE AUDITED ANNUAL REPORT FOR TH E FY 2005-06 (AY 2006-07), THAT RS. 54,44,63,297/- WAS INCURRED UNDER THE HEAD ADMINIS TRATIVE EXPENSES DURING THE YEAR UNDER ASSESSMENT, AS DETAILED IN SCHEDULE 19 OF THE SAID ANNUAL REPORT, WHICH WORKS OUT TO 17.3% OF TOTAL SALES. THIS, WHEN COMPARED WITH THE PREVIOUS YEAR - I.E FY 2004-05 (AY 2005-06) WAS 14.73% - I.E. AN INCREASE OF 2.57 % AS PERCENTAGE OF SALES DURING THE YEAR UNDER REFERENCE. THE SAID INCREASE IS ON ACCOU NT OF THE FOLLOWING EXPENSES:- AY 2006-07 AY 2005-06 SALES COMMISSION 20,44,44,868 6,78,28,850 EXCISE DUTY ON CLOSING STOCK 1,16,55,470 FREIGHT, CARTAGE & OCTROI 1,87,60,000 88,85,803 RESEARCH AND DEVELOPMENT 8,86,00,681 3,5 9,64,890 MANAGERIAL REMUNERATION 1,76,09,308 85,51,983 OTHERS 4,82,00,900 3,03,37,549 20.20 THE INCREASE IN EXPENSES UNDER THE ABOVE HEADS IS EXPLAINABLE ON ACCOUNT OF INCREASE IN SALES, WHICH IS APPROX. 58.20% OVER THE PREVIOUS Y EAR (AY 2005-06), THE INCREASE IN MANAGERIAL REMUNERATION IS BASICALLY ON ACCOUNT OF INCREASE IN NET PROFIT FROM RS. 14,70,40,488/- IN AY 2005-06 TO RS. 42,98,15,666/- IN AY 2006-07. THE MANAGERIAL REMUNERATION IS LINKED TO PERCENTAGE OF PROFIT AND HENCE THE INCREASE. THIS MANAGERIAL REMUNERATION IS TAXED IN THE HAND OF MR. SANJAYA SI NGHAL, MANAGING DIRECTOR, WHO IS ASSESSED WITH CIRCLE -1, UDAIPUR. 20.21 AS MENTIONED ABOVE, UDAIPUR UNIT OF THE ASSESSEE IS REGISTERED UNDER CENTRAL EXCISE AND ALL CLEARANCES ARE DONE AFTER PAYMENT OF EXCISE DUT Y AT APPLICABLE RATE. DURING THE YEAR UNDER ASSESSMENT, THE UDAIPUR UNIT HAD A CLOSING ST OCK OF FINISHED GOODS AND IN COMPLIANCE TO THE ACCOUNTING STANDARD AS-2, THE ASS ESSEE PROVIDED FOR THE EXCISE DUTY OF RS. 1,16,55,470/-ON THE CLOSING STOCK AND THE SAID EXCISE DUTY IS SHOWN UNDER 34 ITA NO.402/JODH/2012 A.Y. 2006-07 ADMINISTRATIVE EXPENSES IN THE BALANCE SHEET. THE I NCREASE UNDER THE TWO HEADS AS MENTIONED ABOVE, OVER THE PREVIOUS YEAR, ACCOUNTS F OR 0.66% OF SALES, WHICH IS ALMOST 1/4 TH OF THE INCREASE IN OVERALL ADMINISTRATIVE EXPENS ES DURING THE YEAR UNDER REFERENCE. 20.22 THIS INCREASE IN ADMINISTRATIVE EXPENSES IS JUSTIFI ABLE IN VIEW OF THE FACT THAT DURING THE YEAR UNDER ASSESSMENT, SALES INCREASED BY 58.20% OV ER THE PREVIOUS YEAR, ADDITIONAL EXPENSES IN VARIOUS HEADS ARE REASONABLE. 20.23 THERE IS AN INCREASE IN NET PROFIT AS COMPARED T O PREVIOUS ASSESSMENT YEAR, AS SUMMARIZED BELOW: AY 2006-07 A Y 2005-06 SALES 3,14,58,90,735/- 1,98,85,07,77 1/- NET PROFIT 42,98,15,666/- 14,70,40,488/- NET PROFIT AS % OF SALES 13.66% 7.39% 20.24 INSPITE OF THE FACT THAT ADMINISTRATIVE EXPENSES I NCREASED BY 2.57% DURING THE YEAR UNDER REFERENCE, THE NET PROFIT INCREASED BY 6.27%, AFTER ACCOUNTING FOR THE SAID INCREASE IN ADMINISTRATIVE EXPENSES. 20.25 AS REGARDS THE ALLOCATION OF VARIOUS ADMINISTRATIVE EXPENSES BETWEEN THE FOUR UNITS, IT IS SUBMITTED THAT OUT OF THE TOTAL ADMINISTRATIVE EXPE NSES OF RS. 54,44,63,297/-, THE EXPENSES DIRECTLY ACCOUNTED FOR IN THE RESPECTIVE UNIT IS R S. 33,28,15,436/-. THE ALLOCATION OF COMMON EXPENSES IN TURNOVER RATIO WAS RS. 21,16,47, 867/-, WHICH IS 38.86% OF THE TOTAL EXPENSES OF RS 54,44,63,297/-. ON PERUSAL OF THE EN CLOSED ANNEXURE, IT CAN BE SEEN THAT THE EXPENSES AT UDAIPUR UNIT ARE COMPARATIVELY HIGH ER ON ACCOUNT OF THE FOLLOWING:- EXCISE DUTY PAYABLE ON CLOSING STOCK RS. 1,16,55,470/- DONATION RS. 93,81,000/- REPAIR & MAINTENANCE RS. 41,20,393/- LOSS ON SALE OF FIXED ASSETS RS. 13,53,899/- TOTAL RS.2,65,10,762/- 35 ITA NO.402/JODH/2012 A.Y. 2006-07 ALL THESE EXPENSES AMOUNTING TO RS. 2,65,10,762/- ACCOUNT FOR 2.39% OF SALES OF UDAIPUR UNIT, OR 4.86% OF THE TOTAL ADMINISTRATIVE EXPENSES. 20.26 THE ABOVE EXPENSES WERE VERIFIED FROM THE BOOKS OF ACCOUNTS OF UDAIPUR UNIT SUBMITTED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PRO CEEDINGS. IF THESE EXPENSES WERE TO BE EXCLUDED BEING ABNORMAL IN NATURE, THE RESULTA NT EXPENSES FOR UDAIPUR WOULD HAVE BEEN 41.81%. THE CORRESPONDING FIGURE FOR BAROTIWA LA, BATED AND HARIPUR WOULD HAVE BEEN 18.97%, 39.08% AND 0.10% RESPECTIVELY. THE BRE AK UP OF THE ADMINISTRATIVE AND OTHER EXPENSES IS AT PAPER BOOK PAGE 177. 20.27 IN TERMS OF SALES, THE ADMINISTRATIVE EXPENSES, AS PERCENTAGE OF SALES FOR EACH OF THE UNIT ARE AS UNDER:- UDAIPUR 21.95% BAROTIWALA 12.75% BATED 16.03% HARIPUR 12.68% OVERALL 17.31% 20.28 THE AFORE STATED ASPECTS WERE DULY EXAMINED AND VE RIFIED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS FROM THE RECORDS SUBMITTED F OR EXAMINATION. 20.29 IN VIEW OF ABOVE, IT IS SUBMITTED THAT ALL MATERIA L FACTS RELATING TO THE EXPENDITURE AT EACH OF THE 4 UNITS WERE AVAILABLE WITH THE ASSESSING O FFICER, WHO APPLIED HIS MIND AND ACCEPTED THE CONTENTION OF THE ASSESSEE BY NOT DISA LLOWING ANY OF THE EXPENDITURE. THE ASSESSING OFFICER HAS APPORTIONED DEPRECIATION ON A SSETS BETWEEN THE UNITS ON THE RATIO OF CORPORATE EXPENSES. ACCORDINGLY, IT IS SUBMITTED TH AT SINCE THE AO HAS ARRIVED AT A DECISION AFTER APPLYING HIS MIND AND TAKING A JUDIC IOUS VIEW OF THE DOCUMENTS PLACED BEFORE HIM AND AVAILABLE WITH THE DEPARTMENT, THE D ECISION OF THE AO CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E. 21. ISSUE NO.7 THE PERUSAL OF PROFIT AND LOSS ACCO UNT REVEALS THAT AN AMOUNT OF RS.39,81,042/- IS DEBITED TO ON ACCOUNT OF DIFFEREN CE IN EXCHANGE RATE. THE ASSESSEE 36 ITA NO.402/JODH/2012 A.Y. 2006-07 COMPANY IS HAVING FCNR WORKING CAPITAL LOAN AND IF SUCH DIFFERENCE IS WITH REGARD TO THE PRINCIPAL AMOUNT OF WORKING CAPITAL LOAN THEN T HE SAME IS NOT ALLOWABLE BEING CAPITAL EXPENDITURE. THIS ISSUE HAS NOT BEEN PROPER LY EXAMINED. 21.1 AT THE OUTSET, IT IS SUBMITTED THAT THE IMPUGN ED SHOW CAUSE NOTICE U/S 263 OF THE ACT IN RESPECT OF THE AFORESAID ISSUE WOULD NOT BE MAINTAI NABLE IN VIEW OF THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LEISURE WEAR EXPORTS LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT PROVISIONS U/S 263 OF THE ACT CANNOT BE INVOKED TO DIRECT THE ASSESSING OFFICER TO MAKE INQUIRIES. 21.2 THE BRIEF FACTS IN RELATION TO THE AFORESAID I SSUE ARE THAT THE ASSESSEE HAD AVAILED SECURED LOAN OF RS. 87,64,43,914/-, THE BREAKUP OF WHICH IS AS UNDER: S.NO. PARTICULARS AMOUNT OUTSTANDING AS ON 31.03.2006 1. WORKING CAPITAL BORROWINGS (FROM BANKS) 79,46,01 ,122 2. TERM LOAN FROM IDBI BANK 2,00,00,000 3. TERM LOAN FROM STATE BANK OF INDIA 4,00,00,000 4. TERM LOAN FROM YES BANK 2,06,25,000 5. VEHICLE LOANS FROM ICICI/HDFC BANKS 12,17,792 TOTAL 87,64,43,914 21.3 THE WORKING CAPITAL FACILITY IS AVAILED FROM CONSORTIUM OF BANKS CONSISTING OF STATE BANK OF INDIA, STATE BANK OF BIKANER & JAIPUR, IDBI BANK, I CICI BANK, HSBC & PUNJAB & NATIONAL BANK. WHILE THE WORKING CAPITAL IS SANCTIO NED IN INDIAN CURRENCY, THE BANKS DO ALWAYS GIVE AN OPTION TO COMPANIES WITH PROVEN TRAC K RECORD TO SWITCH OVER FROM RUPEE DENOMINATED WORKING CAPITAL TO FOREIGN EXCHANGE DE NOMINATED WORKING CAPITAL WITHIN THE OVERALL SANCTIONED LIMITS TO SAVE ON INTEREST COS T. 21.4 THE MODUS OPERANDI FOR SWITCHING OVER TO FC NR-B LOAN WITHIN THE OVERALL WORKING CAPITAL LIMIT IS THAT DEPENDING ON THE AVAILABILITY OF FORE IGN EXCHANGE FUNDS, THE BANK ENTERTAINS THE REQUEST OF BORROWER FOR FCNR-B LOANS, WHICH IS FOR A PERIOD RANGING FROM 30 DAYS TO 180 DAYS. THE INTEREST RATE ON THE SAID FCNR-B LOA N DEPENDS ON THE MONEY MARKET 37 ITA NO.402/JODH/2012 A.Y. 2006-07 CONDITIONS AT THE TIME OF DISBURSEMENT. ONCE THE FCNR-B LOAN IS SANCTIONED, EQUIVALENT INDIAN RUPEE IS EARMARKED IN THE OVERALL WORKING CA PITAL LIMIT SANCTIONED TO THE COMPANY AND AS & WHEN THE FCNR-B LOAN COMPLETES ITS TENOR, WHICH IS ALWAYS AGREED IN ADVANCE, THE PRINCIPAL AMOUNT IS PAID BY THE BORROWER AND THE EARMARKING IS REMOVED BY THE BANK. 21.5 THE FCNR-B LOAN, WHICH IS ALWAYS IN FOREIGN EXCHANGE, IS REQUIRED TO BE RE-PAID IN THE SAME CURRENCY AT THE END OF ITS TENOR. SINCE THE FOREIG N EXCHANGE RATE DEPENDS ON THE INTERNATIONAL MONEY MARKET CONDITIONS, THE RATE AT THE TIME OF DISBURSEMENT AND AT THE TIME OF REPAYMENT IS NEVER THE SAME. TO SAFEGUARD AGAI NST, THE EXCHANGE FLUCTUATION, THE COMPANY DO GO IN FOR HEDGING OF THE FOREX TAKEN U NDER THE FCNR-B LOAN. THE HEDGING PREMIUM PAID IS A PART OF COST OF BORROWING, BUT IS ACCOUNTED FOR IN THE FOREIGN EXCHANGE FLUCTUATION ACCOUNT. 21.6 THE FCNR-B LOAN SANCTIONED BY THE BANK IS REQUIRED TO BE USED ONLY FOR THE NORMAL BUSINESS OPERATIONS, AS IT IS AVAILED BY CARVING OU T FROM THE WORKING CAPITAL LIMITS SANCTIONED TO THE COMPANY. BY AVAILING THE FCNR-B FACILITY, THE COMPANY DOES STAND TO SAVE 3-4% IN THE OVERALL COST OF BORROWING. 21.7 ON EXAMINATION OF THE RECORDS PRODUCED BEFOR E THE AO, IT WAS OBSERVED THAT NO PART OF THE FCNR-B LOAN AVAILED BY THE COMPANY WAS USED FOR ACQ UIRING ANY CAPITAL ASSETS. THE EXCHANGE DIFFERENCE OF RS. 39,81,042/- REPRESENT THE EXCHANGE DIFFERENCE ON EXPORT SALES AND IMPORT OF RAW MATERIAL AND CONSUMABLES FOR THE BUSINESS PURPOSES. THE EXCHANGE DIFFERENCE IS EITHER GAIN OR LOSS, WHICH IS REFLECT ED IN THE FOREIGN EXCHANGE FLUCTUATION ACCOUNT. THE ACCOUNTING TREATMENT OF FOREIGN EXCHAN GE FLUCTUATION WAS IN COMPLIANCE TO ACCOUNTING STANDARD 11 ISSUED BY THE INSTITUTE OF C HARTERED ACCOUNTANTS OF INDIA. 21.8 ACCORDINGLY, IT IS SUBMITTED THAT SINCE THE AO HAS ARRIVED AT A DECISION AFTER APPLYING HIS MIND AND TAKING A JUDICIOUS VIEW OF THE DOCUMENTS P LACED BEFORE HIM AND AVAILABLE WITH THE DEPARTMENT, THE DECISION OF THE AO CANNOT BE TE RMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 38 ITA NO.402/JODH/2012 A.Y. 2006-07 22 . ISSUE NO.8 ASSESSEE HAS SHOWN OTHER INCOME OF RS .4,27,42,308/- AND HAS ALSO CLAIMED DEDUCTION U/S 80IB AND 80IC OF RS.22.86 CRORE AND R S.23.83 CRORE RESPECTIVELY WITHOUT REDUCING THE OTHER INCOME OF RS.4.27 CRORE THOUGH T HIS INCOME IS NOT DERIVED FROM INDUSTRIAL UNDERTAKING. THIS ISSUE HAS REMAINED UNE XAMINED. 22.1 AT THE OUTSET, IT IS SUBMITTED THAT THE IMPUGN ED SHOW CAUSE NOTICE U/S 263 OF THE ACT IN RESPECT OF THE AFORESAID ISSUE WOULD NOT BE MAINTAI NABLE IN VIEW OF THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LEISURE WEAR EXPORTS LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT PROVISIONS U/S 263 OF THE ACT CANNOT BE INVOKED TO DIRECT THE ASSESSING OFFICER TO MAKE INQUIRIES. 22.2 THAT DURING THE YEAR UNDER REFERENCE, THE ASS ESSEE EARNED INCOME OF RS.4,27,42,308/- AS SHOWN IN SCHEDULE 15 OF THE ANNUAL REPORT, THE B REAKUP OF WHICH IS AS UNDER:- (I) INTEREST RECEIVED RS. 51,66,299/- (II) DIVIDEND RECEIVED RS. 9,278/- (III) PROFIT ON SALE OF FIXED ASSETS RS. 4 ,08,655/- (IV) PROFIT ON SALE OF INVESTMENT RS. 2,55,92, 250/- (V) MISCELLANEOUS INCOME RS. 1,15,65 ,826/- TOTAL RS. 4. 27,42,308/- 22.3 IN COMPUTATION OF THE TOTAL INCOME, THE ASSESE E HAS EXCLUDED THE FOLLOWING NAMELY I. DIVIDEND OF RS. 9,278/- , II. PROFIT ON SALE OF FIXED ASSETS OF RS. 4,08,655/- AND III. PROFIT ON SALE OF INVESTMENT OF RS. 2,55,92,250/- FROM THE TOTAL INCOME 22.4 THE SAID DETAILS OF OTHER INCOME WERE BEFOR E THE ASSESSING OFFICER VIDE LETTER DATED 3.11.2009. FURTHER THE ASSESSING OFFICER SHOW CAUSE D AS TO WHY THE OTHER INCOME SHOULD NOT BE DISALLOWED FOR CALCULATING THE TOTAL INCOME U/S 80 IB & IC FOR SOLAN UNITS, WHICH WAS DULY REPLIED VIDE LETTER DATED 11.11.2009. THE COPY OF THE LETTER DATED 3.11.2009 AND 11.11.2009 ARE AT PAPER BOOK PAGE 208 TO 212 AND 2 14 TO 225. 22.5 THE ASSESSING OFFICER HAS DULY CONSIDERED THE REPLY OF THE ASSESSEE IN REGARD TO THE OTHER INCOME AND DEALT AND DISCUSSED THE SAME IN PARA 4 OF THE ASSESSMENT ORDER WHILE DISALLOWING A PART OF OTHER INCOME. THE COPY OF THE FORM NO. 10CCB FOR THE BATED UNIT, HARIPUR UNIT AND BAROTIWALA UNIT ARE AT PAPER BOOK PAGE 178 TO 207. 22.6 IN VIEW OF THE FACT THAT THE DETAILS IN REGARD TO THE OTHER INCOME WERE PLACED BEFORE THE ASSESSING OFFICER, WHO, HAVING CONSIDERED THE SAME AND DISCUSSED IT IN THE ASSESSMENT ORDER ITSELF CONSTRUES THAT THE ASSESSING OFFICER H AS APPLIED HIS JUDICIOUS MIND WHILE 39 ITA NO.402/JODH/2012 A.Y. 2006-07 FRAMING THE ASSESSMENT ORDER AND THEREFORE, THE SAI D ASSESSMENT ORDER CANNOT BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REV ENUE. 23 ISSUE NO.9 ASSESSEE HAS INVESTED CRORES OF RUPEES IN EQUITY SHARES BUT NO DISALLOWANCE HAS BEEN MADE U/S 14A. 23.1 AT THE OUTSET, IT IS SUBMITTED THAT THE IMPUGN ED SHOW CAUSE NOTICE U/S 263 OF THE ACT IN RESPECT OF THE AFORESAID ISSUE WOULD NOT BE MAINTAI NABLE IN VIEW OF THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LEISURE WEAR EXPORTS LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT PROVISIONS U/S 263 OF THE ACT CANNOT BE INVOKED TO DIRECT THE ASSESSING OFFICER TO MAKE INQUIRIES. 23.2 THE BRIEF FACTS IN RELATION TO THE AFORESAID I SSUE RAISED ARE THAT DURING THE YEAR UNDER REFERENCE, THE ASSESSEE MADE AN ADDITIONAL INVESTME NT AGGREGATING TO RS. 1,82,92,891/- IN 2% FULLY CONVERTIBLE DEBENTURES OF ENTITY HOLDINGS LTD., UK AND INVESTMENT AGGREGATING TO RS. 58,85,539/- AND RS. 13,75,000/- RESPECTIVELY IN EQUITY SHARES OF ENTITY HOLDINGS LTD., UK AND ENTITY HOLDINGS P LTD., SINGAPORE. 23.3 IN RELATION TO THE ADDITIONAL INVESTMENT IN D EBENTURES OF ENTITY HOLDINGS LTD., UK IS CONCERNED THE SAME IS INTEREST BEARING AND INTEREST RECEIVED THEREON IS SUBJECT TO TAX AND THE TOTAL TAXABLE INCOME OF THE ASSESSEE INCLUDES T HE AFORESAID INTEREST ON DEBENTURE RECEIVED/ PROVIDED FOR BY ENTITY HOLDINGS LTD., UK. 23.4 SO FAR AS THE INVESTMENTS IN OVERSEAS COMPANIE S NAMELY ENTITY HOLDINGS LTD., UK AND ENTITY HOLDINGS PVT. LTD., SINGAPORE, ARE CONCERNED THE SAME ARE OUT OF ACCUMULATED FUNDS/RESERVES OWNED BY THE COMPANY ON THE FIRST DA Y OF THE FINANCIAL YEAR UNDER REFERENCE. IT IS FURTHER SUBMITTED THAT THE ABOV E INVESTMENTS WERE NOT MADE BY AVAILING ANY LOAN FROM BANK/FIS AND THEREFORE THE PROVISIONS OF SEC. 14A OF THE INCOME TAX ACT, 1961 ARE NOT APPLICABLE. 23.5 FURTHERMORE, THE DIVIDEND TO BE RECEIVED FROM THE OVERSEAS COMPANY ON THE INVESTMENTS SO MADE, IS NOT ENTITLED TO EXEMPTION, THEREFORE TH E QUESTION OF THE APPLICATION OF SECTION 14A DOESNT ARISE AND THE ASSESSMENT ORDER ALSO CAN NOT BE SAID TO BE ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENUE FOR INVOKIN G THE PROVISIONS U/S 263 OF THE ACT. 24 . ISSUE NO.10- ASSESSEE HAS CLAIMED R&D EXPENSES O F RS.8.8 CRORES U/S 35 BUT THE AO HAS NOT EXAMINED THE CLAIM OF ADMISSIBILITY OF SUCH HUGE EXPENSES. 40 ITA NO.402/JODH/2012 A.Y. 2006-07 24.1 AT THE OUTSET, IT IS SUBMITTED THAT THE IMPUGNED S HOW CAUSE NOTICE U/S 263 OF THE ACT IN RESPECT OF THE AFORESAID ISSUE WOULD NOT BE MAINTAI NABLE IN VIEW OF THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LEISURE WEAR EXPORTS LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT PROVISIONS U/S 263 OF THE ACT CA NNOT BE INVOKED TO DIRECT THE ASSESSING OFFICER TO MAKE INQUIRIES. 24.2 THE BRIEF FACTS IN RELATION TO THE SAID ISSUE ARE T HAT DURING THE YEAR UNDER REFERENCE, THE ASSESSEE INCURRED AN EXPENDITURE OF RS. 8,86,00,681 /- ON RESEARCH AND DEVELOPMENT, THE DETAILS OF WHICH WERE SUBMITTED BEFORE THE LD. ASSE SSING OFFICER VIDE LETTER DATED 22.12.09 AND ARE ALSO CONTAINED UNDER SCHEDULE 19 O F THE ANNUAL REPORT SUBMITTED ALONG WITH THE TAX RETURN. THE ANNUAL REPORT IS AT PAPER BOOK PAGE 213. 24.3 IT IS SUBMITTED THAT THIS AMOUNT HAS BEEN CLAIMED AS BUSINESS EXPENSES U/S 35 OF THE ACT. REGARDING THE GENUINENESS OF THE EXPENDITURE THE AS SESSEE VIDE LETTER DT. 11.11.2009, FURNISHED COMPLETE DETAILS/PARTICULARS ON RESEARCH & DEVELOPMENT WORK CARRIED OUT BY THE ASSESSEE, WHICH WAS DISCUSSED AND EXAMINED BY T HE LD. ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IT WAS EXPLAINED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING ELECTRONIC METERS BY USIN G HIGHLY SOPHISTICATED TECHNOLOGY AND HAS ITS OWN RESEARCH AND DEVELOPMENT TEAM WHICH IS CONTINUOUSLY WORKING TOWARDS THE IMPROVEMENT OF EXISTING PRODUCTS AS WELL AS RESEARC H AND DEVELOPMENT OF NEW WORK. THE ASSESSEE ADDITIONALLY PLACED ON RECORD THE CERTIFIC ATE ISSUED BY THE GOVERNMENT OF INDIA, MINISTRY OF SCIENCE AND TECHNOLOGY, DEPARTMENT OF S CIENTIFIC AND INDUSTRIAL RESEARCH, NEW DELHI. THE COPY OF THE LETTER DATED 11.11.2009 ALONGWITH CERTIFICATE IS AT PAPER BOOK PAGE 214 TO 225. 24.4 THE ASSESSING OFFICER HAVING DULY SATISFIED HIMSELF ON THE SAID ASPECT OF THE GENUINENESS OF THE EXPENDITURE ALLOWED THE SAME. IT IS SUBMITTE D THAT IN THE ABSENCE OF ANY ADVERSE MATERIAL ON RECORD TO SHOW THAT THE EXPENDITURE CLA IMED AND ALLOWED IS NOT GENUINE, THE ASSESSMENT ORDER CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. 41 ITA NO.402/JODH/2012 A.Y. 2006-07 IN VIEW OF THE AFORESAID SUBMISSIONS, IT IS RESPEC TFULLY PRAYED THAT SINCE THE IMPUGNED SHOW CAUSE NOTICE PROPOSING TO INVOKE THE PROVISION S OF SECTION 263 OF THE ACT IS NOT MAINTAINABLE SINCE AN ASSESSMENT ORDER PASSED PURSU ANT TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL IS NOT AMENABLE TO THE REVISION PR OCEEDINGS U/S 263 OF THE ACT AND FURTHER BEING BASED ON THE PREMISE/BASIS THAT THE LD. ASSES SING OFFICER HAS NOT DONE PROPER INQUIRIES, WHICH BASIS HAS BEEN HELD TO BE NOT SUFFICIENT FOR THE VALID ASSUMPTION OF JURISDICTION U/S 263 OF THE ACT BY THE HONBLE DELHI HIGH COURT IN THE CASE OF LEISURE WEAR EXPORTS LTD. (SUPRA) THE IMPUGNED SHOW CAUSE NOTICE BE KINDLY REVOKED/WITHDR AWN IN THE INTEREST OF SUBSTANTIAL JUSTICE. 6. AFTER CONSIDERING THE ABOVE, IT BECOMES MANIFEST THAT WHEN THE D.R.P. CONSISTING OF THREE COMMISSIONERS OF INCOME TAX DEP ARTMENT, HAS EXAMINED AND VETTED ALL THESE ITEMS OF INCOME AND AFTER CONSIDER ING THEIR ORDER THE A.O. HAS FRAMED HIS ASSESSMENT ORDER, THE ORDER CANNOT BE VE RILY REVISED UNDER THE GUISE OF THE POWERS OF REVISION VESTED IN HIM. THE OPINION OF THESE COMMISSIONERS (OF D.R.P.) PITTED AGAINST THE OPINION OF ONE COMMISSIO NER ON THE VERY SAME ISSUE WOULD PRACTICALLY OVERRIDE. TECHNICALLY, THE COMMI SSIONER (ADMN.) MAY HAVE THE POWER TO REVISE AN ORDER. HOWEVER, IN THE TOTALITY OF THE CIRCUMSTANCES OF THIS CASE, WE ARE OF THE CONSIDERED OPINION THAT THE A.O . HAS TAKEN ONE OF THE POSSIBLE VIEW ON ALL THE CONTENTIONS/ISSUES AND IT IS NEITHE R THE CASE OF NON-APPLICATION OF MIND NOR THE CASE OF OMISSION TO CONSIDER . THER EFORE, WE DO NOT FIND IT A CASE WHERE THERE IS ANY ERROR IN THIS ORDER. THUS, THE REQUISITE TWIN-CONDITIONS OF SECTION 263 THAT ORDER SHOULD BE ERRONEOUS AND TH AT IT SHOULD ALSO BE PREJUDICIAL 42 ITA NO.402/JODH/2012 A.Y. 2006-07 TO THE INTEREST OF THE REVENUE, DO NOT CO-EXIST IN THIS CASE. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE ASSESSMENT ORDER. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 29.11.2013) SD/- SD/- (N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 TH NOVEMBER, 2013 PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, JODHPUR BENCH, JODHPUR 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, JODHPUR