ADDL CIT 17(2), MUMBAI V. HIREN M. SHAH, MUMBAI

ITA 406/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8414 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 31-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 15-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Keywords: Business income; Depreciation; Business expenditure; Principle of natural justice; Onus to prove; Capital expenditure
• Section: 80HHC; 234B; 131; 69; 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND , SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 406/MUM/2010 ASSESSMENT YEAR 2004-05 DY. COMMISSIONER OF INCOME TAX 17(2), ROOM NO. 217, PIRAMAL CHAMBER, MUMBAI 400 012. VS. SHRI HIREN M. SHAH, 371, SUKH NIWAS, 1 ST FLOOR, BHANDARKAR ROAD, MATUNGA (E), MUMBAI-400 019. PAN: AAUPS 0624 G I.TA. NO. 116/MUM/2010 ASSESSMENT YEAR 2004-05 SHRI HIREN M. SHAH, 371, SUKH NIWAS, 1 ST FLOOR, BHANDARKAR ROAD, MATUNGA (E), MUMBAI-400 019. PAN: AAUPS 0624 G VS. ADDL. CIT - 17(2), PIRAMAL CHAMBER, MUMBAI. I.TA. NO. 117/MUM/2010 ASSESSMENT YEAR 2006-07 SHRI HIREN M. SHAH, 371, SUKH NIWAS, 1 ST FLOOR, BHANDARKAR ROAD, MATUNGA (E), MUMBAI-400 019. PAN: AAUPS 0624 G VS. ASST. CIT 17(2), PIRAMAL CHAMBER, MUMBAI. ( / APPELLANT ) ( ! / RESPONDENT ) REVENUE BY : SHRI V. KRISHNAMOORTHY ASSESSEE BY : SHRI PRADIP KAPASI ' # $% / DATE OF HEARING : 31-10-2012 &'( # $% / DATE OF PRONOUNCEMENT : 09-11-2012 ) / O R D E R PER RAJENDRA, AM ASSESSING OFFICER (AO) AND THE ASSESSEE HAVE FILED APPEALS AGAINST THE ORDER DTD. I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 2 27.10.2009 OF THE CIT (A)-29, MUMBAI FOR THE AY 200 4-05. FOLLOWING GROUNDS OF APPEALS WERE FILED BY THE ASSESSEE : DISALLOWANCE OF EXPORT COMMISSION OF RS.10,60,000/ - (PARA 7 OF ASSESSMENT ORDER AND PARA 6 OF CIT(A) ORDER ) (A)THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONF IRMING THE ACTION OF THE LD. A.O. IN DISALLOWING EXPORT SALES COMMISSION OF RS. 10,60,00 0/- PAID TO SHRI. SANDIP P.SHAH ON THE GROUND THAT THE SAME WAS NOT INCURRED FOR THE PURPO SES OF BUSINESS, IGNORING THE MATERIAL FACTS INCLUDING THE FACT THAT COMMISSION PAID TO HI M WAS ALLOWED AS A DEDUCTION FOR IMMEDIATELY PRECEDING YEAR A.Y. 2003-04. (B)YOUR APPELLANT SUBMITS THAT: (I) SHRI SANDIP P. SHAH WAS A REGULAR COMMISSION A GENT OF YOUR APPELLANT AND HAD RENDERED VALUABLE SERVICES DURING THE YEAR FOR EFFECTING SAL ES OF RS. 13,44,52,649/-. (II) THE SAID EXPENDITURE WAS WHOLLY AND EXCLUSIVE LY INCURRED FOR THE PURPOSES OF BUSINESS. (III) THE SAID EXPENDITURE WAS SUPPORTED BY EVIDEN CES (IV) THE SAID EXPENDITURE WAS VERIFIABLE AND WAS V ERIFIED BY THE AUDITORS AND WAS PRODUCED BEFORE THE LD. CIT (A) AS ALSO BEFORE THE LD. ASSES SING OFFICER WHO HAD VERIFIED THE SAME. (V) THE SAID EXPENDITURE WAS COMMENSURATE WITH THE BUSINESS TRANSACTED THROUGH HIM AND WITH SERVICES RENDERED AS COMMISSION WAS PAID AT 0. 78% OF EXPORT SALES. (VI) THE SAID SHRI SANDIP P. SHAH IS REGULARLY ASS ESSED TO TAX AND HAD CONFIRMED THE TRANSACTION AND HAD APPEARED IN PERSON IN RESPONSE TO SUMMONS U/S. 131 AND HAD CONFIRMED THE RECEIPT OF COMMISSION IN A STATEMENT RECORDED O N OATH. (C) YOUR APPELLANT PRAYS THAT THE ENTIRE COMMISSION OF RS. 10,60,000/- PAID TO SHRI SANDIP P. SHAH BE TREATED AS BUSINESS EXPENSES AND BE ALLOWED IN FULL. 2.PARTIAL DISALLOWANCE OF DEPRECIATION ON CAR OF RS .85,515/-(PAT-A 4 OF ASSESSMENT ORDER AND PAT-A 3 OF CIT(A) ORDER) . (A) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER IN DISALLOWING RS. 85,515/- BEING 50% OF TO TAL DEPRECIATION OF RS. 1,71,030/- ON PURCHASE OF HONDA CITY CAR ON THE GROUND THAT THE C AR WAS USED FOR LESS THAN 180 DAYS DURING THE YEAR. (B)YOUR APPELLANT SUBMITS THAT: (I) CONTRARY TO WHAT IS STATED BY THE LD. A.O, THE CAR WAS USED FOR MORE THAN 180 DAYS DURING THE YEAR AS THE POSSESSION OF CAR WAS RECEIVED ON 3 0TH SEPTEMBER, 2003 AND SINCE THEN THE SAME WAS USED FOR THE PURPOSE OF BUSINESS. (II) THE CAR WAS OWNED BY THE APPELLANT AND IT WAS USED EXCLUSIVELY FOR THE PURPOSES OF HIS BUSINESS. (III) DEPRECIATION BEING A STATUTORY ALLOWANCE WAS CLAIMED AT PRESCRIBED RATE ON MACHINERY AND PLANT INCLUDING THE SAID CAR USED FOR THE PURPO SES OF THE BUSINESS. I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 3 (IV) THE PAYMENT OF RS. 67,181/- FOR INSURANCE AND REGISTRATION WAS ALSO MADE BY 30 TH SEPTEMBER, 2003. (C) YOUR APPELLANT PLEADS THAT DEPRECIATION ON PURC HASE OF HONDA CITY CAR OF RS. 1,71,030/- BE ALLOWED IN FULL. 3. DISALLOWANCE OF MOTOR CAR EXPENDITURE OF RS. 20, 210/- AND DEPRECIATION THEREON OF RS. 17,103/-. (PAT-A 5 OF A SSESSMENT ORDER AND PARA 4 OF CIT(A) ORDER ) (A) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF THE ID. ASSESSING OFFICER IN DISALLOWING RS. 37,314/- BEING 1/5 TH OF TOTAL MOTOR CAR EXPENSES AND DEPRECIATION OF RS. 1,86,569/- BY HOLDING THAT THE ELEMENT OF PERSO NAL USAGE FOR NON-BUSINESS PURPOSE CANNOT BE RULED OUT. (B) YOUR APPELLANT SUBMITS THAT THE SAID MOTOR CAR EXPENSES: (I) WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PU RPOSES OF BUSINESS AND THERE WAS HARDLY ANY ELEMENT OF PERSONAL NATURE. (II) WERE SUPPORTED BY EVIDENCES (III) WERE VERIFIABLE AND WERE VERIFIED BY THE AUDI TORS AND WERE PRODUCED BEFORE THE LEARNED ASSESSING OFFICER WHO HAD VERIFIED THE SAME. (C) YOUR APPELLANT PRAYS THAT MOTOR CAR EXPENSES AN D DEPRECIATION THEREON OF RS. 1,86,569/- AS CLAIMED BE ALLOWED IN FULL. 4. INTEREST U/S 234B AND U/S 234C (A) THE LD. CIT(A) EARNED IN LAW AND ON FACTS IN CO NFIRMING THE ACTION OF THE ID. ASSESSING OFFICER IN LEVYING INTEREST U/S.234B & U/S. 234C WI THOUT GIVING ANY OPPORTUNITY OF HEARING AND IN NOT PASSING ANY ORDER FOR THE LEVY OF INTERE ST. (B) YOUR APPELLANTS DENY ANY LIABILITY OF PAYMENT O F INTEREST AND FURTHER SUBMIT THAT THE INTEREST WAS CHARGED IN VIOLATION OF THE PROVISION OF NATURAL JUSTICE IN AS MUCH AS NO OPPORTUNITY FOR HEARING WAS GIVEN. (C) YOUR APPELLANT PRAYS THAT THE INTEREST LEVIED B E DELETED. 5. YOUR APPELLANT PRAYS FOR THE LEAVE TO ADD, AMEND , ALTER, DELETE OR MODIFY ANY OF THE ABOVE GROUNDS. 1.2.FOLLOWING GROUNDS WERE FILED BY THE AO FOR THE AY 2004-05 : 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT (A) ERRED IN DELETING DISALLOWANCE OF RS.2,54,624/- MADE ON ACCO UNT OF FOREIGN TRAVELLING EXPENSES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE EXPENSES ARE INCURRED FOR BUSINESS PURPOSE. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT (A) ERRED IN DELETING ADDITION OF RS.32,63,895/- MADE U/S 69B ON ACCOUNT OF SUPPRESSION OF SUNDRY CREDITORS WITHOUT CONSIDERING A REQUEST MADE IN REM AND REPORT DATED 24.02.2009 I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 4 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT (A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION U/S80 HHC ON DE PB WITHOUT TAKING INTO ACCOUNT AMENDED PROVISIONS OF SECTION 28(III)(D) OF THE I. T. ACT, 1961. ITA. NO.116/M/2010 AY 2004-05 2.1. ASSESSEE, AN INDIVIDUAL ENGAGED IN THE BUSINESS OF EXPORT OF STAINLESS STEEL UTENSILS, FILED HIS RETURN OF INCOME ON 31.10.2004 DECLARING A TOTAL INCOME OF RS. 83.47 LAKHS. AO FINALISED THE ASSESSMENT ON 19 .12.2006 DETERMINING THE TOTAL INCOME AT RS.1.65 CRORES. DURING THE ASSESSMENT AO MADE CERTAIN ADDITIONS/ DISALLOWANCES TO THE INCOME OF THE ASSESSEE. ONE O F THE DISALLOWANCES WAS ON ACCOUNT OF EXPORT COMMISSION PAID TO SANDEEP P SHAH (SHAH). DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD PAID RS. 10.6 LAKHS TO SHAH. VIDE HIS LETTER DT. 18-07-2006, HE DIRECTED THE ASSESSEE TO FILE DETAILS OF EXPORT COMMISSION, NATURE OF SERVICES RENDERED AND COPY OF AGREEMENT. ASSESSEE DID NOT FILE THE REQUIRED DETAILS RATHER HE FILED A COPY OF LEDGER ACCOUNT OF EXPORT COMMISSION PAID. HE FURTHER DIRECTED THE ASSESSEE TO FILE A COPY OF AGR EEMENT, RATE OF COMMISSION AGREED, NATURE OF SERVICES RENDERED AND DOCUMENTARY PROOF R EGARDING COMMISSION PAID. AS PER THE AO, ASSESSEE DID NOT FILE ANY OF THESE DETA ILS. AUTHORISED REPRESENTATIVE (AR) OF THE ASSESSEE FILED ONE LETTER GIVING DETAILS OF TURN-OVER AND THE COMMISSION PAID. THE DETAILS CALLED FOR WERE NOT FILED. AO ISSUED A SUMMON U/S. 131 OF THE ACT TO SHRI SANDIP P. SHAH AND HIS STATEMENTS WERE RECORDED ON 06.12.2006. A COPY OF THE STATEMENT OF SHRI SHAH WAS FORWARDED TO THE ASSESSE E TO OFFER HIS COMMENTS WITH REGARD TO REPLY TO QUESTION NO. 19 BUT ASSESSEE STA TED THAT HE WAS NOT IN A POSITION TO SAY ANYTHING. AFTER CONSIDERING THE MATERIAL AVAIL ABLE ON RECORD, AO HELD THAT THERE WAS NO EVIDENCE OR RECORD ABOUT RENDERING OF SERVIC ES BY SHRI SHAH, THAT ASSESSEE HAD CLAIMED FOREIGN TRAVELLING EXPENSES UNDER THE HEAD BUSINESS EXPENSES. FINALLY, HE DIS-ALLOWED THE CLAIM MADE BY THE AO AMOUNTING T O RS. 10.6 LAKHS. 2.2. ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AU THORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ASS ESSMENT ORDER HE HELD THAT THE PAYMENT WAS SUPPORTED BY THE EVIDENCE AND IDENTITY OF THE PERSON WAS KNOWN, THAT FROM THE STATEMENT RECORDED U/S.131 OF THE ACT IT WAS EVIDENT THAT THERE WAS NO EVIDENCE OF SERVICES RENDERED, THAT REPEATEDLY SH. SHAH HAD STATED THAT HE HAD NO RECORDS WITH REGARD TO PURCHASE ORDERS FROM THE BUY ERS, ORDER WITH INDIAN PARTY, THAT NO AGREEMENT OR MOU WITH INDIAN OR FOREIGN PARTY WA S PRODUCED BY THE ASSESSEE, THAT SH.SHAH COULD NOT PRODUCE ANY DOCUMENTARY EVIDENCE REGARDING HIS DUTY AS A COMMISSION AGENT, THAT HE ADMITTED THAT HIS MONETAR Y LIABILITY WAS ZERO, THAT SH.SHAH HAD STATED THAT HE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND STILL HE COULD NOT GIVE THE DETAILS OF COMMISSION RECEIVABLE. FAA FURTHER HELD THAT AS PER THE STATEMENTS OF SH.SHAH THE APPELLANT HAD AGREED TO PAY HIM 1% WHICH WOULD HAVE COME TO RS. 14,00,000/- BUT ACTUALLY HE WAS PAID RS .8,40,000/-. FAA FOUND THAT WHEN THE RECIPIENT OF THE COMMISSION WAS INFORMED T HAT HE WAS ACTUALLY GIVEN A DEBIT NOTE OF RS. 10,15,000/- HE STATED THAT IT WAS A MIS TAKE. ON THESE EVIDENCE HE CONCLUDED THAT SH.SHAH DID NOT RENDER ANY SERVICES FOR EARNING THE COMMISSION. FAA WAS AWARE THE EVEN THOUGH DISALLOWANCE WOULD HAVE LITTLE TAX IMPACT SINCE ANY DISALLOWANCE WOULD TO LEAD TO INCREASE IN BUSINESS INCOME AND FURTHER ALLOWANCE OF DEDUCTION U/S.80HHC, BUT HE WAS OF THE FIRM OPINION THAT THE COMMISSION PAYMENT HAD TO BE DISALLOWED. FINALLY HE HELD THAT SH.SHAH HAD NOT BEEN ABLE TO PLACE ON RECORD SUFFICIENT EVIDENCE REGARDING SERVICES RENDE RED BY HIM, HIS DUTIES OR LIABILITIES, I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 5 HIS TERMS OF CONTRACT, HIS PAYMENT DETAILS ETC., AS A RESULT, HE HELD THAT THE DIS-ALLOWANCE MADE BY THE AO WAS BASED ON SOUND REA SONING AND HAD TO BE UPHELD. 2.3. BEFORE US, AR SUBMITTED THAT COMMISSION PAID TO SH. SHAH WAS ALLOWED BY THE AO IN THE AY 2003-04, THAT RECIPIENT OF THE COMMISS ION HAD APPEARED BEFORE THE AO, THAT SH. SHAH HAD ADMITTED THE RECEIPT OF COMMISSIO N, THAT HE WAS ASSESSED TO TAX. HE RELIED UPON THE CASES OF SHRI SAJJAN MILLS LTD. (11 5TTJ145), NATIONAL CABLE LTD. (123TAXMAN52), SALES MAGANESITES (P) LTD. (214 ITR 1), DELHI SAFE DEPOSIT CO.LTD. (133ITR756). HE FURTHER SUBMITTED THAT IF IT HAD T O HELD THAT COMMISSION WAS NOT ALLOWABLE THEN AO SHOULD BE DIRECTED TO RECALCULATE THE 80HHC DEDUCTION. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT ASS ESSEE HAD FAILED TO PRODUCE ANY EVIDENCE WITH REGARD TO PAYMENT OF COMMISSION, THAT NEITHER BEFORE THE AO NOR BEFORE THE APPELLATE AUTHORITIES EVIDENCE OF RENDER ING OF SERVICES WAS PRODUCED, THAT SUFFICIENT OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO PROVE HIS CLAIM, THAT ASSESSEE DID NOT DISCHARGE THE BURDEN OF PROOF WITH REGARD TO CO MMISSION PAYMENT. 2.4. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL BEFORE US. AFTER GOING THROUGH THE STATEMENTS OF SH.SHAH WE ARE OF T HE OPINION THAT BASIC FACT OF RENDERING OF SERVICES TO THE ASSESSEE BY THE AGENT IS MISSING. AS PER THE PROVISIONS OF THE SEC.37 ASSESSEE HAS TO PROVE THAT EXPENDITURE I NCURRED BY HIM WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS . WE ARE AWARE THAT THE AGENT HAS ADMITTED THE RECEIPT OF COMMISSION AND HE IS ASSESS ED TO INCOME TAX, BUT THESE FACTS IN THEMSELVES ARE NOT SUFFICIENT FOR ALLOWING THE COMM ISSION PAYMENT CLAIMED BY THE ASSESSEE. INCURRING AN EXPENDITURE IS TOTALLY DIFF ERENT FROM ITS BEING ALLOWABLE EXPENDITURE. AO OR THE FAA HAVE DOUBTED THE PAYMEN T OF COMMISSION TO SH. SHAH. THEY HAD ASKED THE ASSESSEE TO PRODUCE THE EVIDENCE WHICH COULD PROVE THAT EXPENDITURE WAS ACTUALLY INCURRED FOR BUSINESS PURP OSES. NEITHER THE ASSESSEE NOR THE AGENT COULD PRODUCE ANY EVIDENCE WITH REGARD TO ORD ERS PROCURED BY THE AGENT, ACTUAL SERVICES RENDERED BY HIM, DUTIES PERFORMED BY HIM. NAMES OF THE SELLERS OR BUYERS WHO WERE APPROACHED BY THE AGENT WERE NEVER PRODUCE D BY THE ASSESSEE AT ANY STAGE OF PROCEEDINGS, INCLUDING THE HEARING BEFORE US. A S PER THE ESTABLISHED LAW OF COMMISSION PAYMENT PRIMARY ONUS OF PROVING THE REND ERING OF SERVICES IS ON THE ASSESSEE. IT IS ALSO A FACT THAT THE ASSESSEE HAD VISITED FOREIGN COUNTRIES FOR HIS BUSINESS. SH.SHAH OR THE ASSESSEE COULD HAVE PRODU CED SOME EVIDENCE IN FORM OF TELEPHONE CALLS /MOBILE PHONE CALLS/ CORRESPONDENCE TO SUBSTANTIATE THE CLAIM OF RENDERING OF SERVICES BY THE AGENT. BUT, BOTH OF T HEM OPTED NOT TO PRODUCE ANY PROOF IN THIS REGARD FOR THE REASONS BEST KNOWN TO THEM. 2.4.1. WE HAVE GONE THROUGH THE VARIOUS CASES RELIED UPON BY THE AR. BUT, IN OUR OPINION FACTS OF THE CASES REFERRED BY THE AR ARE D ISTINGUISHABLE FROM THE CASE UNDER CONSIDERATION. IN THE PRESENT CASE EVIDENCE OF REN DERING OF SERVICE BY THE AGENT WERE NOT PRODUCED. IN THE CASE OF SALES MAGANESITES (P) LTD. ISSUE OF TERMINATION OF SOLE SELLING AGENCY WAS INVOLVED. ISSUE OF RENDERING OF SERVICES WAS NOT ALL CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT. IN THE CASE OF DELHI SAFE DEPOSIT CO. LTD. HONBLE SC HAS DECIDED THE ISSUE OF REVENUE/CAPITAL EXPENDITURE. IN OUR OPINION ASSESSEE HAD FAILED TO PRODUCE ANY EVIDENCE WITH RE GARD TO SERVICES RENDERED BY THE AGENT, THEREFORE DISALLOWANCE MADE BY THE AO AND UP HELD BY THE FAA HAS TO BE CONFIRMED. AS FAR AS ALLOWANCE OF COMMISSION PAYME NT IN EARLIER AY IS CONCERNED WE WOULD LIKE TO STATE THAT EVERY AY IS A SEPARATE UNIT. SECONDLY, IT WAS IN THE AY 2004-05 THAT STATEMENT OF THE AGENT WERE RECORDED T HAT LED TO THE CONCLUSION THAT NO I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 6 SERVICES WERE RENDERED BY HIM. THUS, THE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION ARE NOT SAME AS OF THE LAST ASSESSMEN T YEAR. GROUND NO.1 IS DECIDED AGAINST OF THE ASSESSEE. 2.4.2. AS FAR AS RECALCULATION OF DEDUCTION U/S. 80 HHC OF THE ACT IS CONCERNED AO MAY LOOK IN TO THE MATTER AFTER HEARING THE ASSESSE E. ORAL SUBMISSIONS MADE IN THIS REGARD, DURING THE HEARING BEFORE US, STAND DISPOSE D FOR STATISTICAL PURPOSES. 3. SECOND GROUND OF APPEAL IS ABOUT DISALLOWANCE OF DE PRECIATION CLAIMED BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS AO FOU ND THAT THE ASSESSEE HAD PURCHASED A CAR THAT WAS REGISTERED ON 09.10.2003, THAT ASSESSEE HAD CLAIMED FULL DEPRECIATION @ 20% AMOUNTING TO RS.1,71,030/-. ON FURTHER INQUIRY BY THE AO ASSESSEE AGREED THAT THE CAR WAS USED FOR LESS THAN 180 DAYS AND THAT DEPRECIATION MIGHT BE ALLOWED @10%.AS A RESULT AO MADE AN ADDITI ON OF RS. 85, 515/- ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED. IN THE APPELLATE P ROCEEDINGS BEFORE THE FAA HELD THAT CAR WAS REGISTERED IN OCTOBER, 2010, THAT A CL AIM OF TEMPORARY REGISTRATION WAS NOT MADE BEFORE AO, THAT ASSESSEE HIMSELF HAD ADMIT TED BEFORE THE AO THAT CAR WAS USED FOR LESS THAN SIX MONTHS, THAT THERE WAS NO EV IDENCE TO PROVE THAT CAR WAS USED FOR BUSINESS PURPOSES MORE THAN 180 DAYS. HE UPHELD THE ORDER OF THE AO. BEFORE US AR SUBMITTED THAT CAR WAS TEMPORARILY REGISTERED IN SEPTEMBER, 2010, THAT IT WAS USED FOR MORE THAN 180 DAYS. DR RELIED UPON THE ORDERS OF THE AO AND THE FAA. 3.1. WE HAVE HEARD RIVAL SUBMISSIONS. WE FIND THAT NO E VIDENCE OF TEMPORARY REGISTRATION AND USE OF THE CAR IN THE MONTH OF SEP TEMBER, 2010 WAS FILED BEFORE THE AO OR THE FAA . NOT ONLY THIS, ASSESSEE HIMSELF HA D ADMITTED THAT THE CAR WAS USED FOR LESS THAN 180 DAYS. IN THESE CIRCUMSTANCES WE ARE OF THE OPINION THAT THE ORDER OF THE AO DOES NOT SUFFER FROM ANY INFIRMITY. UPHOLDI NG HIS ORDER WE DECIDE GROUND NO 2 AGAINST THE ASSESSEE. 4. ANOTHER GROUND RELATED WITH THE CAR IS ABOUT DISALL OWANCE OF RS.37,314 ON ACCOUNT OF CAR MAINTENANCE. DURING ASSESSMENT PROC EEDINGS AO FOUND THAT THE ASSESSEE HAD CLAIMED CAR MAINTENANCE OF RS.99,654/- AND CAR INSURANCE OF RS.1400/- HE HAD ALLOWED DEPRECIATION OF RS. 85,515/- FOR THE CAR USED BY THE ASSESSEE. HE HELD THAT SINCE PERSONAL USE OF THE CAR COULD NOT BE DEN IED, SO 1/5 OF THE CAR EXPENSES COULD NOT BE ALLOWED. DISALLOWANCE MADE BY THE AO WAS CH ALLENGED BEFORE THE FAA. AFTER CONSIDERING THE REPLY OF THE ASSESSEE HE HELD THAT THERE WAS NO EVIDENCE TO SHOW THAT 70% OF THE EXPENSES ON PETROL WAS FOR THE TEMP O OWNED BY THE ASSESSEE AS CLAIMED BY HIM, THAT IT WAS REASONABLE TO ASSUME TH AT THE VEHICLES HAD BEEN EVENLY USED FOR THE PURPOSES OF BUSINESS AND ALSO FOR PER SONAL PURPOSES, THAT THE BASIC REQUIREMENT OF MAINTAINING LOG BOOK FOR BUSINESS EX PENDITURE OF CAR HAD NOT BEEN FULFILLED. HE UPHELD THE ORDER OF THE AO. BEFORE U S AR SUBMITTED THAT CAR WAS USED ONLY FOR BUSINESS PURPOSES, THAT THERE WAS NO EVIDE NCE THAT IT WAS USED FOR PERSONAL PURPOSES. DR SUPPORTED THE ORDERS OF THE AO AND TH E FAA. 4.1. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF T HE OPINION THAT DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE FA A SHOULD BE UPHELD. IN ABSENCE OF A LOG BOOK PERSONAL USE OF THE CAR CANNO T BE DENIED. SECONDLY, REVENUE AUTHORITIES HAVE DISALLOWED ONLY 20% OF THE EXPENDI TURE. I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 7 GROUND NO. 3 IS DECIDED AGAINST THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE FOR THE A Y 2004-05 STANDS DISMISSED ITA NO.406/M/2010 AY.2004-05 5. FIRST GROUND OF APPEAL, FILED BY THE AO, PERTAINS T O FOREIGN TRAVELLING EXPENSES AMOUNTING TO RS. 2.54 LAKHS. DURING THE A SSESSMENT PROCEEDINGS, ASSESSING OFFICER (AO) FOUND THAT ASSESSEE HAD CLAI MED FOREIGN TOUR EXPENSES OF RS. 6.39 LAKHS. AFTER CONSIDERING THE DETAILS FILE D BY THE ASSESSEE, HE FOUND THAT ASSESSEE HAD TRAVELLED ONCE TO CHINA AND THREE TIME S TO NIGERIA AND GHANA. HE HELD THAT THE LAST TOUR TO GHANA AND NIZERIA WAS TAKEN F ROM 31.03.2004 TO 12.04.2004, THAT ASSESSEE DID NOT FILE ANY EVIDENCE IN RESPECT OF EX PENSES INCURRED EXCEPT A COPY OF THE PASS-PORT A BILL OF TRAVELLING AGENTS, THAT TOUR TO CHINA WAS UNDERTAKEN FOR 12DAYS, THAT ATTENDING EXHIBITION (12 DAYS) WAS VERY LONG P ERIOD, THAT ASSESSEE HAD NOT FILED ANY DETAILS OF EXHIBITION, THAT THE CLAIM OF THE AS SESSEE WAS NOT ACCEPTABLE THAT TOUR TO CHINA WAS FOR CARRYING OUT BUSINESS, THAT TOUR TO G HANA STARTED ONLY ON 31-03-2004. FINALLY, HE DIS-ALLOWED RS. 3.24 LAKHS OUT OF THE T OTAL EXPENDITURE INCURRED ON FOREIGN TRAVEL. 5.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). HE HELD THAT TOUR TO CHINA WAS UNDERTAKEN FOR CONSIDER ABLE LONG PERIOD TIME, THAT THERE WAS NO EVIDENCE OF RECORD TO SHOW THAT ENTIRE PERIO D WAS USED FOR BUSINESS PURPOSES, THAT ENGAGEMENT DETAILS AND PURPOSE OF TIME SPENT W ERE NOT FURNISHED. THEREFORE, ON A REASONABLE ESTIMATE 50% OF THE CLAIMED EXPENSES WER E HELD TO BE PERSONAL IN NATURE AND HE CONFIRMED THE DISALLOWANCE OF RS. 70,000/-.A S REGARDS THE TOUR TO GHANA AND NIZERIA, HE HELD THAT APPELLANT HAD TRAVELLED ALONE , THAT APPELLANT WAS EXPORTING UTENSILS TO AFRICAN COUNTRIES, THAT THE TOUR WAS FO R THE PURPOSE OF BUSINESS, THAT THERE WAS NO ROOM FOR DIS-ALLOWANCE. FINALLY, HE HELD TH AT THE DIS-ALLOWANCE OF RS. 70,000/- ONLY WAS SUSTAINABLE OUT OF TOTAL DIS-ALLO WANCE OF RS. 3.24 LAKHS MADE BY THE AO UNDER THE HEAD FOREIGN TRAVELLING EXPENSES . 6. BEFORE US, DR SUBMITTED THAT ASSESSEE HAD NOT PRODU CED EVIDENCES REGARDING EXPENDITURE INCURRED FOR FOREIGN TRAVEL. AR SUBMIT TED THAT ASSESSEE HAD VISITED CHINA FOR BUSINESS PURPOSES, THAT HE HAD PARTICIPATED IN EXHIBITION, THAT FAA HAD ALREADY MADE PART DIS-ALLOWANCE, THAT EXPENSES WERE INCURRE D FOR BUSINESS PURPOSES ONLY. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MA TERIAL PUT BEFORE US. WE ARE OF THE OPINION THAT THE ORDER OF THE FAA DOES NOT SUFF ER FROM ANY INFIRMITY AND HENCE DOES NOT REQUIRE ANY INTERFERENCE FROM US. AFTER C ONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, HE HAS ALREADY DISALLOWE D PART OF THE FOREIGN EXPENDITURE AND ALLOWED THE BALANCE. IN OUR VIEW, HIS DECISION IS BASED ON SOUND REASONING. GROUND NO. 1 IS DECIDED AGAINST THE AO. 7. GROUND NO.2 IS WITH REGARD TO SUPPRESSION OF SUNDRY DEBTORS AMOUNTING TO RS. 32.63 LAKHS. DURING THE ASSESSMENT PROCEEDINGS , AO FOUND THAT IN SCHEDULE 6 OF THE BALANCE SHEET, ASSESSEE HAD SHOWN THE FOLLOWING SUNDRY DEBTORS AS ON 31.03.2004: I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 8 A) M/S. KALIKA INTERNATIONAL - RS. 3,24, 52,481/- B) MASACHHAR ENTERPRISES - RS. 21,86,80 1/- HE FURTHER FOUND THAT AS PER THE SALE S REALISATION STATEMENT, FOLLOWING AMOUNTS WERE RECEIVED AFTER 31.03.2004. A) M/S. KALIKA INTERNATIONAL - RS. 2,83, 21,204/- B) MASACHHAR ENTERPRISES - RS. 38,67,80 7/- C) CODESA ENTERPRISES LTD., - RS. 15,82, 889/- CONSIDERING THE ABOVE FIGURES, AO HEL D THAT THERE WAS SUPPRESSION OF DEBTS WITH REGARD TO PARTY NO. B) AND C) AND THAT SALE PR OCEEDS HAD NOT BEEN REALIZED IN CASE OF PARTY NO. A). AO DIRECTED THE ASSESSEE TO EXPLA IN THE DISCREPANCY VIDE HIS LETTER DT. 24.11.2006. AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, HE HELD THAT ASSESSEE HAD FAILED TO ACCOUNT THE FOLLOWING DEBTORS/INVESTM ENTS. A) CODESA ENTERPRISES LTD., - RS. 15,82, 889/- B) MASACHHAR ENTERPRISES - RS. 16,81,00 6/- HE HELD THAT ASSESSEE HAD SUPPRESSED S UNDRY DEBTORS OF RS. 16.81 LAKHS IN THE CASE OF MASACHHAR ENTERPRISES AND 15.82 LAKHS I N THE CASE OF CODESA ENTERPRISES LTD., HE FINALLY MADE AN ADDITION OF RS. 32.63 LAK HS U/S. 69 B OF THE ACT ON ACCOUNT OF SUPPRESSED DEBTORS. ASSESSEE PREFERRED AN APPEA L BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND AO, HE REMANDED THE ISSUE BACK TO THE AO WITH REGARD TO SU NDRY DEBTORS. AO SEND HIS REMAND REPORT ON 23.09.2008. FAA HELD THAT AO HAD AGREED WITH THE RECONCILIATION FILED BY THE APPELLANT, THAT THE DIFFERENCE HAD ARI SEN BECAUSE OF COMPENSATING ERRORS IN THE SCHEDULE 5 TO THE BALANCE SHEET FILED DURING TH E ASSESSMENT PROCEEDINGS. FINALLY, HE HELD THAT THERE WAS NO SUPPRESSION OF SUNDRY CRE DITORS. HE DELETED THE ADDITION AMOUNTING TO RS. 32.63 LAKHS MADE BY THE AO U/S. 69 B OF THE ACT. 8. BEFORE US, DR SUBMITTED THAT FAA HAD NOT TAKEN INTO CONSIDERATION THE REMAND REPORT THAT ASSESSEE HAD NOT RE-CONCILED THE FIGURE S MENTIONED BY THE AO AT PARA NO. 8 OF HIS ORDER. AR RELIED UPON THE ORDER OF THE FA A. HE FURTHER SUBMITTED THAT THERE WERE SOME MISTAKES IN SCHEDULE 5 TO THE BALANCE SHE ET FILED BEFORE THE AO, THAT ALL DETAILS WERE FILED DURING THE REMAND PROCEEDINGS. WE HAVE HEARD THE RIVAL SUBMISSIONS. FROM THE REMAND REPORT OF THE AO IT I S FOUND THAT REVISED SCHEDULE OF SUNDRY DEBTORS WAS FURNISHED ON 31.03.2004. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, FINALLY HE HELD IN THE ABSENCE OF AN Y PLAUSIBLE EXPLANATION FORTHCOMING FROM THE ASSESSEE REGARDING THE CREDIT OF RS. 24,56 ,386/- (RS. 19,41,359 + RS. 8,15,027/-) IN THE ACCOUNTS OF MASACHHAR ENTERPRISE S AND CODESA ENTERPRISES LTD., THE ADDITION ON ACCOUNT OF SUPPRESSION OF SUNDRY DE BTORS TO THE EXTENT OF RS. 27,56,386/- MAY BE SUSTAINED AT. 9. IN OUR OPINION, GROUND NO.2 HAS NOT BEEN PR OPERLY FRAMED BY THE AO. WE FIND THAT INSTEAD OF SUNDRY DEBTORS WORD SUNDRY CR EDITORS HAS BEEN USED WHILE FILING GROUNDS OF APPEAL WITH FORM NO. 36.WE FIND T HAT WITH REGARD TO THE REMAND REPORT, FAA HAS OBSERVED AS UNDER: I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 9 THE ISSUE HAS BEEN REMANDED TO THE AO AND THE AO I N HIS REPLY DT. 23.09.2008 HAS AGREED WITH THE RE-CONCILIATION FILED BY THE APPELL ANT BUT, IN THE LAST PARAGRAPH OF THE REPORT AO HAS MEN TIONED THAT OUT OF THE TOTAL DEBTORS OF RS.32.63 LAKHS ADDITION OF RS. 27.56 LAKHS HAD T O BE SUSTAINED. IN THESE CIRCUMSTANCES WE ARE UNABLE TO UNDERSTAND AS WHY AP PEAL FOR RS.32.63 LAKHS HAS BEEN FILED. IN OUR OPINION, THE ISSUE NEEDS FURTHER VER IFICATION. THEREFORE, IN THE INTEREST OF JUSTICE, MATTER IS RESTORED BACK TO THE FILE OF THE AO. HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE I N THIS REGARD AND DECIDE THE ISSUE ON MERITS. GROUND NO.2 IS PARTLY ALLOWED IN FAVOUR OF THE AO. 10. GROUND NO.3 IS DEDUCTION U/S. 80 HHC OF THE ACT. D URING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT M/S. KALIKA INTERNATIONA L WAS DEBTOR OF RS. 3.24 CRORES, THAT SALES REALIZATION SHOWED THAT RS. 2.83 CRORES HAD BEEN REALISED FROM M/S. KALIKA INTERNATIONAL, THAT ASSESSEE HAD CLAIMED 80 HHC DED UCTION ON THE ENTIRE EXPORT, THAT ASSESSEE HAD FAILED TO FILE THE PROOF OF SALES REAL IZATION OF RS. 41.31 LAKHS. HE FURTHER FOUND THAT THE TURNOVER IN THE CASE OF THE ASSESSEE EXCEEDED RS. 10 CRORES, THAT TURNOVER INCLUDED INCOME FROM SALE OF DEPB OF RS. 1.72 CRORES, THAT THE INCOME FROM SALE OF DEPB EXCEEDS BUSINESS PROFIT, THE ASSE SSEE WAS NOT ENTITLED FOR DEDUCTION U/S. 80 HHC IN VIEW OF THE AMENDED PROVIS IONS OF THE ACT. IN THE APPELLATE PROCEEDINGS, FAA AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER CALLED FOR REMAND REPORT FROM THE AO. HE HELD THAT IN THE REMAND PROCEEDINGS, AO HAD EXAMINED THE RE-CONCILIA TION SUBMITTED BY THE APPELLANT, THAT THERE WAS NO UN-REALISED SALES, THAT THERE CAN BE NO DISALLOWANCE OF DEDUCTION U/S.80 HHC ON THAT GROUND. WITH REGARD TO SALE OF DEPB AMOUNTING TO RS. 1.72 CRORES, HE HELD THAT ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE ITAT, MUMBAI DELIVERED IN THE CASE OF TOPMAN EXPORTS [318 ITR 87 (SB) (MUMBAI)]. HE FURTHER HELD THAT THE AP PELLANT HAD SOLD THE LICENSES AT A VALUE LESSER THAN THE FACE VALUE, THAT THERE WAS A LOSS OF RS. 15.15 LAKHS, THAT ENTIRE SALE PROCEED WAS TO BE TREATED AS EXPORT BUSINESS I NCOME, THAT THERE WAS NO PROFIT AS PER THE PROVISIONS OF EXPLANATION TO SECTION 28 (II ID) OF THE ACT WOULD NOT APPLY. HE FINALLY HELD THAT SALE PROCEEDS OF DEPB SHOULD BE C ONSIDERED AS BUSINESS INCOME FROM EXPORTS. HE DIRECTED THE AO TO RE-CONTRIBUTE THE DEDUCTION ACCORDINGLY U/S. 80 HHC. BEFORE US, DR RELIED UPON THE ORDER OF THE AO . AR SUBMITTED THAT FACE VALUE/ COST OF THE DEPB LICENSE WAS RS. 1.87 CRORES, THAT LICENSES WERE SOLD FOR RS. 1.72 CRORES, THAT THERE WAS LOSS OF RS. 15.15 LAKHS IN T HE TRANSACTION, THAT DEPB SALES WAS PART OF THE EXPORT THAT THE AY UNDER CONSIDERATION WAS 2004-05. HE RELIED UPON THE CASE DELIVERED BY THE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (342ITR49) 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATTER PUT BEFORE US. AS THE HONBLE SUPREME COURT HAS HELD AS UNDER: THE OBJECTIVE OF THE DUTY ENTITLEMENT PASSBOOK SCHE ME (DEPB) IS TO NEUTRALIZE THE INCIDENCE OF CUSTOMS DUTY ON THE IMPORT CONTENT OF THE EXPORT PRODUCTS. HENCE, IT HAS DIRECT NEXUS WITH THE COST OF THE IMPORTS MADE BY AN EXPORTER FOR MAN UFACTURING THE EXPORT PRODUCTS. THE NEUTRALIZATION OF THE COST OF CUSTOMS DUTY UNDER TH E DEPB CREDIT SCHEME, HOWEVER, IS BY GRANTING A DUTY CREDIT AGAINST THE EXPORT PRODUCT A ND THIS CREDIT CAN BE UTILIZED FOR PAYING I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 10 CUSTOMS DUTY ON ANY ITEM WHICH IS FREELY IMPORTABLE . THE DEPB CREDIT IS ISSUED AGAINST THE EXPORTS TO THE EXPORTER AND IS TRANSFERABLE BY THE EXPORTER. THE DEPB CREDIT IS 'CASH ASSISTANCE' RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER THE SCHEME OF THE GOVERNMENT OF INDIA AND FALLS UNDER C LAUSE (IIIB) OF SECTION 28 OF THE INCOME- TAX ACT, 1961, AND IS CHARGEABLE TO INCOME-TAX UNDE R THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' EVEN BEFORE IT IS TRANSFERRED BY THE ASSESSEE. UNDER CLAUSE (IIID) OF SECTION 28, ANY PROFIT ON TRANSFER OF THE DEPB CREDIT IS CHARGE ABLE TO INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS AN ITEM SEP ARATE FROM CASH ASSISTANCE UNDER CLAUSE (IIIB). THE WORD 'PROFIT' MEANS THE GROSS PROCEEDS OF A BUS INESS TRANSACTION LESS THE COSTS OF THE TRANSACTION. PROFITS IMPLY A COMPARISON OF THE VALU E OF AN ASSET WHEN THE ASSET IS ACQUIRED WITH THE VALUE OF THE ASSET WHEN THE ASSET IS TRANS FERRED AND THE DIFFERENCE BETWEEN THE TWO VALUES IS THE AMOUNT OF PROFIT OR GAIN MADE BY A PE RSON. AS THE DEPB CREDIT HAS DIRECT NEXUS WITH THE COST O F IMPORTS FOR MANUFACTURING AN EXPORT PRODUCT, ANY AMOUNT REALISED BY THE ASSESSEE OVER A ND ABOVE THE DEPB CREDIT ON TRANSFER OF THE DEPB CREDIT WOULD REPRESENT PROFIT ON THE TRANS FER OF THE DEPB CREDIT. THUS, WHILE THE FACE VALUE OF THE DEPB CREDIT WILL FALL UNDER CLAUS E (IIIB) OF SECTION 28 OF THE ACT, THE DIFFERENCE BETWEEN THE SALE VALUE AND THE FACE VALU E OF THE DEPB CREDIT WILL FALL UNDER CLAUSE (IIID) OF SECTION 28 OF THE ACT. THE COST OF ACQUIR ING THE DEPB CREDIT IS NOT NIL BECAUSE THE PERSON ACQUIRES IT BY PAYING CUSTOMS DUTY ON THE IM PORT CONTENT OF THE EXPORT PRODUCT AND THE DEPB CREDIT WHICH ACCRUES TO A PERSON AGAINST EXPOR TS HAS A COST ELEMENT IN IT. THE DEPB CREDIT REPRESENTS PART OF THE COST INCURRED BY A PE RSON FOR MANUFACTURE OF THE EXPORT PRODUCT AND HENCE EVEN WHERE THE DEPB CREDIT IS NOT UTILISE D BY THE EXPORTER BUT IS TRANSFERRED TO ANOTHER PERSON, THE CREDIT CONTINUES TO REMAIN AS A COST TO THE EXPORTER. WHEN, THEREFORE, THE DEPB CREDIT IS TRANSFERRED BY A PERSON, THE ENTIRE SUM RECEIVED BY HIM ON SUCH TRANSFER DOES NOT BECOME HIS PROFITS. IT IS ONLY THE AMOUNT THAT HE RECEIVES IN EXCESS OF THE DEPB CREDIT WHICH REPRESENTS HIS PROFITS ON TRANSFER OF THE DEP B CREDIT. UNDER SECTION 28 OF THE ACT 'CASH ASSISTANCE' RECEI VED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS SUCH AS THE DEPB CREDIT AND 'PROFIT ON TRAN SFER OF THE DEPB CREDIT' ARE TREATED AS TWO SEPARATE ITEMS OF INCOME UNDER CLAUSES (IIIB) A ND (IIID). AS A RESULT, THE DEPB CREDIT WILL BE CHARGEABLE AS INCOME UNDER CLAUSE (IIIB) OF SECT ION 28 IN THE YEAR IN WHICH THE PERSON APPLIES FOR THE DEPB CREDIT AGAINST THE EXPORTS AND THE PROFIT ON TRANSFER OF THE DEPB CREDIT BY THAT PERSON WILL BE CHARGEABLE AS INCOME UNDER C LAUSE (IIID) OF SECTION 28 IN HIS HANDS IN THE YEAR IN WHICH HE MAKES THE TRANSFER. THERE IS N O DOUBLE TAXATION OF THE SAME INCOME. SUB-SECTION (3)(A) OF SECTION 80HHC PROVIDES THAT W HERE THE EXPORT OUT OF INDIA IS OF GOODS OR MERCHANDISE MANUFACTURED OR PROCESSED BY THE ASS ESSEE, THE PROFITS DERIVED FROM SUCH EXPORTS SHALL BE THE AMOUNT WHICH BEARS TO THE PROF ITS OF THE BUSINESS, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE. EXPLANATION (BAA) UNDER SECTION 80HHC STATES THAT 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMP UTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS REDUCED, INTER ALIA, BY NINETY PER CENT. OF ANY SUM REFERRED TO IN CLAUSES (IIIA), (IIIB), (IIIC), (IIID) AND (IIIE) O F SECTION 28. THUS, NINETY PER CENT. OF THE DEPB CREDIT WHICH IS 'CASH ASSISTANCE' AGAINST EXPORTS A ND IS COVERED UNDER CLAUSE (IIIB) OF SECTION 28 WILL GET EXCLUDED FROM THE 'PROFITS OF THE BUSIN ESS' OF THE ASSESSEE IF SUCH THE DEPB CREDIT HAS ACCRUED TO THE ASSESSEE DURING THE PREVIOUS YEA R. SIMILARLY, IF DURING THE SAME PREVIOUS YEAR, THE ASSESSEE HAS TRANSFERRED THE DEPB CREDIT AND THE SALE VALUE OF SUCH THE DEPB CREDIT IS MORE THAN THE FACE VALUE OF THE DEPB CRED IT, THE DIFFERENCE BETWEEN THE SALE VALUE OF THE DEPB CREDIT AND THE FACE VALUE OF THE DEPB CRED IT WILL REPRESENT THE PROFIT ON TRANSFER OF THE DEPB CREDIT COVERED UNDER CLAUSE (IIID) OF SECT ION 28 AND NINETY PER CENT. OF SUCH PROFIT ON TRANSFER OF THE DEPB CREDIT CERTIFICATE WILL GET EXCLUDED FROM 'PROFITS OF THE BUSINESS'. BUT, I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 11 WHERE THE DEPB CREDIT ACCRUES TO THE ASSESSEE IN TH E FIRST PREVIOUS YEAR AND THE ASSESSEE TRANSFERS THE DEPB CREDIT CERTIFICATE IN THE SECOND PREVIOUS YEAR, ONLY NINETY PER CENT. OF THE PROFITS ON TRANSFER OF THE DEPB CREDIT COVERED UNDE R CLAUSE (IIID) AND NOT NINETY PER CENT OF THE ENTIRE SALE VALUE INCLUDING THE FACE VALUE OF T HE DEPB CREDIT WILL GET EXCLUDED FROM THE 'PROFITS OF THE BUSINESS'. THUS, WHERE THE NINETY P ER CENT. OF THE FACE VALUE OF THE DEPB CREDIT DOES NOT GET EXCLUDED FROM 'PROFITS OF THE BUSINESS ' UNDER EXPLANATION (BAA) AND ONLY NINETY PER CENT. OF THE DIFFERENCE BETWEEN THE FACE VALUE OF THE DEPB CREDIT AND THE SALE VALUE OF THE DEPB CREDIT GETS EXCLUDED FROM 'PROFITS OF THE BUSI NESS', THE ASSESSEE GETS A BIGGER FIGURE OF 'PROFITS OF THE BUSINESS' AND THIS IS POSSIBLE WHEN THE DEPB CREDIT ACCRUES TO THE ASSESSEE IN ONE PREVIOUS YEAR AND TRANSFER OF THE DEPB CREDIT T AKES PLACE IN THE SUBSEQUENT PREVIOUS YEAR. THE RESULT IN SUCH CASE IS THAT A HIGHER FIGU RE OF 'PROFITS OF THE BUSINESS'' BECOMES THE MULTIPLIER IN THE FORMULA UNDER SUB-SECTION (3)(A) OF SECTION 80HHC FOR ARRIVING AT THE FIGURE OF PROFITS DERIVED FROM EXPORTS. RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE SUP REME COURT, WE DECIDE GROUND NO.3 AGAINST THE AO. APPEAL FILED BY THE AO STANDS PARTLY ALLOWED. ITA 117/M/10 AY 2006-07. 12. FOR THE AY.2006-07 ASSESSEE HAS FILED FOLLOWING GRO UNDS OF APPEAL AGAINST THE ORDER DTD. 27.10.2009 OF THE CIT(A)-29, MUMBAI. DISALLOWANCE OF EXPORT COMMISSION OF RS.4,00,000/-( PARA2 OF ASSESSMENT ORDER AND PARA 3 OF CIT(A) ORDER) (A) THE LD. CIT(A) ERRED IN LAW AND ON FACTS BY CON FIRMING THE ACTION OF THE LD. A.O. IN DISALLOWING EXPORT SALES COMMISSION OF RS. 4,00,000 /- PAID TO SHRI. SANDIP P. SHAH ON THE GROUND THAT THE SAME WAS NOT INCURRED FOR THE PURPO SES OF BUSINESS, IGNORING THE MATERIAL FACTS INCLUDING THE FACT THAT COMMISSION PAID TO HI M WAS ALLOWED AS DEDUCTION FOR IMMEDIATELY PRECEDING YEAR A.Y. 2005-06. (B)YOUR APPELLANT SUBMITS THAT: (I) SHRI SANDIP P. SHAH WAS A REGULAR COMMISSION AG ENT OF YOUR APPELLANT AND HAD RENDERED VALUABLE SERVICES DURING THE YEAR FOR EFFECTING SAL ES OF RS. 7,46,69,068/-. (II) THE SAID EXPENDITURE WAS WHOLLY AND EXCLUSIVEL Y INCURRED FOR THE PURPOSES OF BUSINESS. (III) THE SAID EXPENDITURE WAS SUPPORTED BY EVIDEN CES (IV) THE SAID EXPENDITURE WAS VERIFIABLE AND WAS VE RIFIED BY THE AUDITORS AND WAS PRODUCED BEFORE THE LEARNED ASSESSING OFFICER WHO HAD VERIFI ED THE SAME. (V) THE SAID EXPENDITURE WAS COMMENSURATE WITH THE BUSINESS TRANSACTED THROUGH HIM AND WITH SERVICES RENDERED AS COMMISSION WAS PAID @ 0.5 4% OF EXPORT SALES. (VI) THE SAID SHRI SANDIP P. SHAH IS REGULARLY ASSE SSED TO TAX AND HAD CONFIRMED THE TRANSACTION AND HAD APPEARED IN PERSON BEFORE THE L D. A.O. AND HAD CONFIRMED THE RECEIPT OF COMMISSION IN A STATEMENT RECORDED ON OATH. (C) YOUR APPELLANT PRAYS THAT THE ENTIRE COMMISSION OF RS. 4,00,000/- PAID TO SHRI SANDIP P. SHAH BE TREATED AS BUSINESS EXPENSES AND BE ALLOWED IN FULL. I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 12 2.PARTIAL DISALLOWANCE OF MOTOR CAR EXPENDITURE, IN SURANCE ON MOTOR CAR, PETROL EXPENSES AND DEPRECIATION ON MOTO R CAR OF RS, 1,01,199/- (PAN 2 OF ASSESSMENT ORDER AND PARA 4 OF CIT(A) ORDER) (A) THE LD. CIT(A) ERRED IN LAW AND ON FACTS BY CON FIRMING THE ACTION OF THE LD. ASSESSING OFFICER OF DISALLOWING RS. 1,01,199/- BEING 20% OF THE TOTAL MOTOR CAR EXPENSES OF RS. 69,087/-, INSURANCE ON MOTOR CAR OF RS.32,183/-, PE TROL EXPENSES OF RS. 2,88,155/- AND DEPRECIATION ON MOTOR CAR OF RS. 1,16,569/-, AGGREG ATING IN ALL TO RS. 5,05,994/- BY HOLDING THAT THE ELEMENT OF PERSONAL USAGE FOR NON-BUSINESS PURPOSE CANNOT BE RULED OUT. (B)YOUR APPELLANT SUBMITS THAT THE SAID MOTOR CAR R ELATED EXPENSES; (I) WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PU RPOSES OF MAINTAINING AND RUNNING THE MOTOR CAR PURELY FOR BUSINESS PURPOSES AND THERE WA S HARDLY ANY ELEMENT OF PERSONAL NATURE. (II) WERE SUPPORTED BY EVIDENCES (III) WERE VERIFIABLE AND WERE VERIFIED BY THE AUDI TORS AND WERE PRODUCED BEFORE THE LEARNED ASSESSING OFFICER WHO HAD VERIFIED THE SAME. (IV) DEPRECIATION BEING A STATUTORY ALLOWANCE WAS C LAIMED AT PRESCRIBED RATE ON MACHINERY AND PLANT INCLUDING THE SAID CAR USED FOR THE PURPO SES OF THE BUSINESS. (V) WITHOUT PREJUDICE TO THE ABOVE, MOTOR CAR EXPEN SES AND DEPRECIATION WERE SUBJECT TO FBT AND AS FBT IS LEVIABLE ONLY IN RESPECT OF BUSINESS EXPENSES AND NOT PERSONAL EXPENSES, THERE CANNOT BE DISALLOWANCE IN RESPECT OF EXPENSES, WHIC H HAVE SUFFERED FBT AS SIMULTANEOUS LEVY OF FBT AND INCOME TAX RESULTS INTO DOUBLE TAXATION (C) YOUR APPELLANT PRAYS THAT MOTOR CAR EXPENSES, INSURANCE ON MOTOR CAR, PETROL EXPENSES AND DEPRECIATION THEREON AS CLAIMED OF RS. 5,05,994 /- BE ALLOWED IN FULL. 3. PARTIAL DISALLOWANCE OF TELEPHONE EXPENSES OF RS.12,623/-. (PARA 2 OF ASSESSMENT ORDER AND PARA 5 OF CTT(A) ORDER) (A) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF THE LD. ASSESSING OFFICER OF DISALLOWING 10% OF TELEPHONE EXPENSES OF RS. 1,26,234/- AMOUNTING TO RS. 12,623/- ON THE GROUND OF USAGE OF TELEPHONES FOR PERSONAL U SE. (B)YOUR APPELLANT STRONGLY SUBMITS THAT; (I) THE TELEPHONES WERE USED EXCLUSIVELY FOR BUSINE SS PURPOSES AND THE TELEPHONE EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT REPRESENTED TE LEPHONE EXPENSES INCURRED FOR BUSINESS PURPOSES ONLY. (II) THE EXPENSES WERE VERIFIABLE AND WERE VERIFIED BY THE AUDITORS AND WERE PRODUCED BEFORE THE LEARNED ASSESSING OFFICER WHO HAD VERIFIED THE SAME. (III) THE TELEPHONE EXPENSES WERE COMPARABLE TO THE EXPENDITURES OF THE PREVIOUS YEARS (IV) WITHOUT PREJUDICE, TELEPHONE EXPENSES HAVE SUF FERED FBT AND THERE CANNOT BE DISALLOWANCE IN RESPECT OF EXPENSES, WHICH HAVE SUF FERED FBT AS SIMULTANEOUS LEVY OF FBT AND INCOME TAX PAYABLE RESULTS INTO DOUBLE TAXATION I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 13 (C) YOUR APPELLANT PLEADS THAT THE TELEPHONE EXPENS ES OF RS. 1,26,234/- BE ALLOWED IN FULL. 4.INTEREST U/S.234B AND U/S.234C (A) THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF THE LD. ASSESSING OFFICER OF LEVYING INTEREST U/S.234B OF RS. 1,07,63 0/- & ULS. 234C OF RS. 15,792/- WITHOUT GIVING ANY OPPORTUNITY OF HEARING AND IN NOT PASSIN G ANY ORDER FOR THE LEVY OF INTEREST. (B) YOUR APPELLANTS DENY ANY LIABILITY OF PAYMENT O F INTEREST AND FURTHER SUBMIT THAT THE INTEREST WAS CHARGED IN VIOLATION OF THE PROVISION OF NATURAL JUSTICE IN AS MUCH AS NO OPPORTUNITY FOR HEARING WAS GIVEN. (C) YOUR APPELLANT PRAYS THAT THE INTEREST LEVIED B E DELETED. 5. YOUR APPELLANT PRAYS FOR THE LEAVE TO ADD, AMEND , ALTER, DELETE OR MODIFY ANY OF THE ABOVE GROUNDS. 13. GROUNDS OF APPEAL FOR THE AY UNDER CONSIDERATION AR E MORE OR LESS SAME AS FOR THE AY 2004-05. FIRST GROUND IS ABOUT DISALLOWANCE OF EXPORT COMMISSION OF RS.4 LAKHS TO SH.SHAH. AS THE FACTS AND CIRCUMSTANCES O F THE ISSUE ARE SAME AS OF APPEAL NO.116/M/10, SO FOLLOWING THE ORDER OF THAT YEAR W E UPHOLD THE ORDER OF THE FAA. GROUND NO.1 IS DECIDED AGAINST THE ASSESSEE. AS HELD IN PARAGRAPH 2.4.2., AO SHOULD RECALCULATE THE ENTITLEMENT AVAILABLE TO THE ASSESSEE U/S.80HHC OF THE ACT FOR THE AY UNDER CONSIDERATION ALSO. 14. SECOND GROUND OF APPEAL IS ABOUT PARTIAL DISALLOWAN CE OF MOTOR CAR EXPENDITURE, INSURANCE ON MOTOR CAR, PETROL EXPENSES AND DEPRECI ATION ON MOTOR CAR AMOUNTING TO RS.1,01,199/- . IT IS FOUND THE FAA CONFIRMED THE ACTION OF THE AO OF DISALLOWING RS. 1,01,199/- BEING 20% OF THE TOTAL MOTOR CAR EXP ENSES OF RS. 69,087/-, INSURANCE ON MOTOR CAR OF RS. 32,183/-, PETROL EXPENSES OF RS. 2 ,88,155/- AND DEPRECIATION ON MOTOR CAR OF RS. 1,16,569/-, AGGREGATING IN ALL TO RS. 5, 05,994/- BY HOLDING THAT THE ELEMENT OF PERSONAL USAGE FOR NON-BUSINESS PURPOSE COULD NO T BE RULED OUT. SUBMISSIONS MADE BY THE BOTH THE SIDES, IN THIS REGARD, ARE SAME AS THAT OF AY 2004-05. FOLLOWING THE ORDER OF THAT YEAR WE REJECT THE GRO UND NO.2 FILED BY THE ASSESSEE. 15. NEXT GROUND OF APPEAL IS ABOUT PARTIAL DISALLOWANCE OF TELEPHONE EXPENSES AMOUNTING TO RS.12,623/-. AO FOUND THAT ASSESSEE HA D CLAIMED TELEPHONE EXPENDITURE, INCLUDING MOBILE PHONE BILLS, OF RS.1.26 LAKHS FOR THE YEAR UNDER CONSIDERATION. HE HELD THAT IT WAS NOT POSSIBLE TO VERIFY WHETHER THE ENTIRE EXPENDITURE HAD BEEN INCURRED FOR THE PURPOSES OF BUSINESS. HE DISALLOW ED 10% OF THE CLAIM MADE BY THE ASSESSEE. IN APPELLATE PROCEEDINGS FAA HELD THAT PO SSIBILITY OF PERSONAL USE TELEPHONE COULD NOT BE RULED OUT, THAT DISALLOWANCE MADE BY T HE AO WAS REASONABLE. HE UPHELD THE ORDER OF THE AO. BEFORE US THE AR SUBMITTED TH AT TELEPHONE WAS USED FOR BUSINESS PURPOSES. DR SUPPORTED THE ORDER OF THE AO AND THE FAA. 15.1. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT TELEPHONE EXPENDITURE INCLUDES MOBILE PHONE BILLS ALSO. THEREFORE, IN OU R OPINION DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE FAA SHOULD BE UPHELD. WE A RE ALSO OPINION THAT PERSONAL USE OF TELEPHONE CANNOT BE TOTALLY RULED OUT. SECON DLY, DISALLOWANCE MADE IS ONLY 10% OF TOTAL EXPENDITURE-IT CANNOT BE HELD UNREASON ABLE. I.TA. NO. 406/MUM/2010 I.TA. NO. 116/MUM/2010 I.TA. NO. 117/MUM/2010 SHRI HIREN M. SHAH, 14 GROUND NO. 3 IS DECIDED AGAINST THE A SSESSEE. 16 . LAST GROUND OF APPEAL IN BOTH THE YEARS IS ABOUT CHARGING OF INTEREST U/S. 234 OF THE ACT. AS THE GROUNDS ARE CONSEQUENTIAL NATUR E WE TREAT THEM DISPOSED OF FOR STATISTIC PURPOSES. APPEAL FILED BY THE ASSESSEE FOR THE AY 2006-07 STANDS PARTLY ALLOWED. APPEAL NO. 116/MUM/2010 FILED BY THE ASSESSEE FOR THE AY 2004-05 IS DISMISSED, WHEREAS APPEAL NO. 406/MUM/2010 FILED BY THE AO FOR THE SAME AY STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER, 2012. SD/- SD/- ( . . / I.P. BANSAL ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, *' DATE: 9 TH NOVEMBER, 2012 TNMM ) ) ) ) # ## # $+ $+ $+ $+ ,+($ ,+($ ,+($ ,+($ / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR H BENCH, ITAT, MUMBAI 6. GUARD FILE !+$ $ //TRUE COPY// )' )' )' )' / BY ORDER, - -- - / . . . . DY./ASSTT. REGISTRAR , / ITAT, MUMBAI