The ITO,Vapi-Ward-4, Nani Daman V. M/s. Ajay Packaging, Daman

ITA 4147/AHD/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1942 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 22-12-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 29-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: K N BHATT
• Keywords: Depreciation; Assessment record; TDS; Set aside
• Section: 80IB; 251; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' (BEFORE S/SHRI T K SHARMA AND D C AGRAWAL) ITA NO.4147/AHD/2008 (ASSESSMENT YEAR:- 2001-02) THE INCOME-TAX OFFICER, VAPI WARD-4, DAMAN V/S M/S AJAY PACKAGING, SURVEY NO.54/7C, 52/3C DAMAN INDUSTRIAL ESTATE, KADAIYA, DAMAN PAN: AAEFA 6576 B [APPELLANT] [RESPONDENT] ITA NOS.08 AND 09/AHD/2009 (ASSESSMENT YEARS:- 2001-02 AND 2005-06) M/S AJAY PACKAGING, SURVEY NO.54/7C, 52/3C DAMAN INDUSTRIAL ESTATE, KADAIYA, DAMAN V/S THE INCOME-TAX OFFICER, VAPI WARD-4, DAMAN [APPELLANT] [RESPONDENT] DEPARTMENT BY :- SHRI C K MISHRA, DR ASSESSEE BY:- SHRI K N BHATT, CA O R D E R PER D C AGRAWAL (ACCOUNTANT MEMBER): THESE ARE THREE APPEALS; ONE FILED BY THE REVENUE FOR ASSESSMENT YE AR 2001-02 [ITA NO.4147/AHD/08], AND THE OTHER TWO FILED BY TH E ASSESSEE [ITA NOS.08 AND 09/A/09] FOR ASSESSMENT YEARS 2001- 02 AND 2005-06. THEY INVOLVE SOME COMMON ISSUES AND ARE TH EREFORE TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE. 2 ITA NO.4147/AHD/2008 : 2 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) HAS ERRED IN CONSIDERING THE YEAR UNDER CONS IDERATION IS 5 TH YEAR OF COMMENCEMENT OF PRODUCTION INSTEAD OF 6 TH YEAR. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 80IB OF THE I.T. ACT ON SCRAP SALES OF RS.91,489/-. (3) IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEARNE D CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CORRUGATED BOXES. IT HAS TWO UNITS . THE AO MENTIONS THAT UNIT-I STARTED MANUFACTURING ACTIVITY IN THE AY 1996-97 WHEREAS UNIT-II STARTED MANUFACTURING ACTIV ITY IN THE AY 1999-2000. RECKONING FROM THESE ASSESSMENT YEARS, T HE AO HELD THAT THE YEAR UNDER CONSIDERATION IS THE 6 TH YEAR FOR UNIT-I AND 3 RD FOR UNIT-II FOR THE PURPOSE OF ALLOWING DEDUCTION U /S 80IB OF THE INCOME-TAX ACT, 1961 [THE ACT FOR SHORT]. 4 THE CIT(A), ON THE OTHER HAND, NOTED THAT THE AS SESSEE HAS STARTED MANUFACTURING ACTIVITY IN UNIT-I ONLY F ROM AY 1979- 98 AND NOT FROM AY 1996-97 AND IT SEEMS THE AO HAS CONFUSED THE PREVIOUS YEAR WITH THE ASSESSMENT YEAR. HE ACCO RDINGLY HELD THAT THE PRESENT ASSESSMENT YEAR IS ONLY 5 TH YEAR OF OPERATION. 5 WE HAVE HEARD THE LEARNED DR AND THE LEARNED AR. IN OUR CONSIDERED VIEW, THE ISSUE REQUIRES VERIFICATIO N FROM THE 3 ASSESSMENT RECORDS. LET THE AO FINDS OUT AND ALSO T HE ASSESSEE PRODUCE BEFORE THE AO AS TO FROM WHICH ASSESSMENT Y EAR MANUFACTURING ACTIVITY WAS STARTED. NECESSARY RECOR DS FROM THE CONCERNED DEPARTMENTS, P&L ACCOUNT / TRADING ACCOUN T SHOWING THE BALANCE-SHEET, ASSESSMENT RECORDS FOR THE ASSES SMENT YEARS 1996-97 AND 1997-98 SHOULD BE EXAMINED TO DECIDE TH E ISSUE. WE ACCORDINGLY RESTORE THIS MATTER TO THE FILE OF THE AO AS WITHOUT EXAMINING THE BASIC RECORDS THIS ISSUE CAN NOT BE D ECIDED. ACCORDINGLY THIS GROUND OF APPEAL RAISED BY THE REV ENUE IS ALLOWED FOR STATISTICAL PURPOSE. 6 GROUND NO.2 RELATES TO THE CLAIM OF DEDUCTION U/ S 80IB ON SCRAP SALES. WE HAVE HEARD THE LEARNED DR A ND THE LEARNED AR. IN OUR VIEW, THE ISSUE IS NOW COVERED I N FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL AHMEDA BAD BENCH-B IN THE CASE OF ITO V M/S SUBH PAPER PRODUCTION [ITA NO.2413/AHD/2009, ORDER DATED 23-10-2009], WHEREIN IT HAS BEEN HELD AS UNDER:- 6. WE HAVE HEARD THE LEARNED DR AND LEARNED AR OF THE ASSESSEE. IN OUR CONSIDERED VIEW, THE ISSUE WHETHER ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80IB ON SALE OF SCRAP GENER ATED IN THE MANUFACTURING ACTIVITY IS COVERED BY THE DECISIONS OF HON'BLE SUPREME COURT IN INDIAN CINE AGENCIES VS. CIT (2009) 308 IT R 98 (SC) AND ALSO BY VARIOUS OTHER AUTHORITIES AS UNDER: 1. IN [2005] 273 ITR (A.T.) 0001- ASSISTANT COMM ISSIONER OF INCOME-TAX VS. MAXCARE LABORATORIES LTD. INCOME-T AX APPELLATE TRIBUNALCUTTACK HELD THAT THE INCOME FROM SALE OF EMPTY DRUMS/CONTAINERS, SAL E OF USELESS MATERIALS WAS OUT OF THE BUSINESS OF INDUSTRIAL UND ERTAKING OF THE 4 ASSESSEE. FOR DETERMINING THE PROFITS OF BUSINESS O F THE INDUSTRIAL UNDERTAKING THE SALE OF EMPTY DRUMS/CONTAINERS, SAL E OF USELESS MATERIALS COULD BE TAKEN INTO ACCOUNT. 2. IN [2001] 251 ITR 0806- SHIP SCRAP TRADERS VS. COMMISSIONER OF INCOME-TAX BOMBAY HIGH COURT HAS OBSERVED THAT FOR ASSESSEES ENGAGED IN SHIP BREAKING THE SCRAP AND, STEEL OBTAI NED BY DISMANTLING AND BREAKING UP OF THE SHIP MUST BE REGARDED AS A D IFFERENT COMMERCIAL COMMODITY FROM THE SHIP ITSELF, AND THE ACTIVITY WOULD AMOUNT TO MANUFACTURE. HENCE, THE ASSESSEES WOULD B E ENTITLED TO THE SPECIAL DEDUCTION UNDER SECTIONS 80HHA AND 80-I. 3. IN [1982] 133 ITR T)034- COMMISSIONEROF INCOM E-TAX VS. SUNDARAM CLAYTON LTD. MADRAS HIGH COURT HELD THAT THE SCRAP SOLD BY THE ASSESSEE BEING THE BYPRODUCT ARISING OU T OF THE MANUFACTURED ITEMS COMING WITHIN THE SCOPE OF A PRI ORITY INDUSTRY, THE INCOME ARISING FROM SUCH SALE WOULD BE ATTRIBUTABLE TO THE PRIORITY INDUSTRY. (CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT[ 1978] 113 ITR 84 (SC) APPLIED.) 4. IN [2005] 279 ITR (A.T.) 0024- DEPUTY COMMISSION ER OF INCOME-TAX VS. INVESTWEL PUBLISHERS P. LTD. INCOME- TAX APPELLATE TRIBUNALMUMBAI HELD THAT THE RADDI SALES FORMED PART OF THE INCOME DERIVED FROM THE PUBLISHING BUSINESS. THE MA GAZINES WHICH WERE NOT SOLD BECAME OBSOLETE AND WERE SOLD AS RADD I AND THEREFORE THIS INCOME WAS OF THE NATURE AS INCOME RECEIVED BY SALE OF MAGAZINES. DEDUCTION UNDER SECTION 80-1 WOULD BE EL IGIBLE ON THIS INCOME 5 5. IN [2000] 241 ITR 0803- FENNER (INDIA) LTD. VS. COMMISSIONER OF INCOME-TAX (NO. 2) MADRAS HIGH COURT HELD THAT IN THE INDUSTRIAL UNDERTAKING IN THE MANUFACTURE OF V-BELTS, OIL SEAL S, O-RINGS AND RUBBER MOULDED PRODUCTS, CERTAIN SCRAP MATERIALS RE SULTED WHICH HAD A SALEABLE VALUE. THE SCRAP MATERIALS HAD DIRECT LINK OR'NEXUS WITH THE INDUSTRIAL UNDERTAKING. THEREFORE, PROFIT FROM THE SALE OF THE SCRAP MATERIALS WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HH. 6. IN NIRMA INDUSTRIES LTD. VS. ASSISTANT COMMISSIO NER OF INCOME-TAX, CENTRAL CIRCLE 2(1) NIRMA INDUSTRIES LT D. V/S. , ACIT , 95 ITD 199 (AND.) (SB) IT WAS HELD : ''.........REGARDING SALE OF BARDANA AND SALE OF WA STE MATERIAL: 22. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED B Y THE LEARNED COUNSEL THAT SALE OF BARDANA AND WASTE MATERIAL HAS GENERATED DURING THE COURSE OF PRODUCTION OF THE INDUSTRIAL UNDERTAK ING. THEREFORE, IT HAS DIRECT AND IMMEDIATE NEXUS WITH THE INDUSTRIAL UNDERTAKING. THE LEARNED DR COULD NOT CONTROVERT THE ABOVE STATEMENT MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE. MOREOVER IT WAS P OINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE HON'BLE J URISDICTIONAL HIGH COURT HAS DECIDED IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE CASE OF DY. CIT V. HARJIVANDAS JUTHABHAI ZAVERI VIDE [IT REFERENCE NO. 189 OF 1999]. SINCE THE BARDANA WASTE MATERIAL HAS GENERATED DURING THE COURSE OF PRODUCTION OF THE INDUSTRIAL UNDERTAK ING, WE HOLD THAT IT HAS A DIRECT AND IMMEDIATE NEXUS WITH THE INDUSTRIA L UNDERTAKING AND THEREFORE ENTITLED TO DEDUCTION UNDER SECTION 80HH/ 80-I. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CLT(A) IN THIS RESPECT. REVENUE HAS RELIED ON DECISION OF HON'BLE M.P. HIGH COURT IN D.P. AGARAWAL VS. CIT 272 ITR 118 MP. HOWEVER, THE FACT S IN THAT CASE ARE DIFFERENT. THE ASSESSEE D.P. AGARWAL WAS ENGAG ED IN REROLLING OF IRON AND STEELS. IT USED TO PURCHASE OLD/DISCARDED GUNS AND USED/THEIR CONTENTS FOR REROLLING. CERTAIN BRASS SCRAP WAS SE PARATED FROM THE GUNS WHICH WAS SOLD SEPARATELY. HON'BLE M.P. HIGH COURT HELD THAT 6 GENERATION OF BRASS SCRAP AND RE-ROLLING IRON AND S TEEL HAS NO RELATIONSHIP. THAT, ASSESSEE HAD OBTAINED BRASS SC RAP BY DISMANTLING GUNS AND NOT FROM THE PROCESS OF REROLLING OF STEEL . THE GENERATION OF BRASS SCRAP COULD NOT BE SAID TO BE FROM THE PROCES S OF MANUFACTURE OR IS NOT A PRODUCT OR BYPRODUCT FROM THE ACTIVITIES O F THE ASSESSEES INDUSTRIAL UNDERTAKING. IN OTHER WORDS, BRASS SCRA P WAS GENERATED PRIOR TO THE START OF REROLLING PROCESS AND WAS NOT A PRODUCT OR BY PRODUCT OF THE PROCESS OF REROLLING. HOWEVER, BRAS S SCRAP AND FINAL PRODUCT MANUFACTURED BY THE ASSESSEE I.E. IRON AND STEEL HAD NO COMMON RAW-MATERIAL. REVENUE HAS FURTHER RELIED ON THE DECISION OF THE APEX COURT IN CIT VS. STERLING FOODS (1999) 237 ITR 279 AND PANDAYAN CHEMICALS VS. CIT(2003) 262 ITR 278 (SC). THESE TWO DECISIONS HIGHLIGHTED THE DISTINCTION BETWEEN DERI VED FROM AND ATTRIBUTABLE TO AND REVENUE HAS SOUGHT TO EMPHASI S THAT SCRAP IS NOT DERIVED FROM THE BUSINESS OF MANUFACTURING ACTIVITY . AT BEST IT CAN BE ATTRIBUTED TO SUCH ACTIVITIES. WE DO NOT SUBSCRIBE TO THIS VIEW OF THE REVENUE. ONCE A PRODUCT OR BYPRODUCT OR WASTE IS T HE RESULT OF SOME MANUFACTURING PROCESS WHICH HAS RESULTED IN THE FIN ISHED GOODS SOLD BY THE ASSESSEE AND IF THE FINISHED GOODS CAN BE SA ID TO BE DERIVED FROM MANUFACTURING ACTIVITY THEN THERE IS NO REASON TO HOLD THAT SCRAP RESULTED FROM THE SAME ACTIVITY IS NOT DERIVED FROM MANUFACTURING ACTIVITY. THE SAME PROCESS IS GENERATING TWO TIMES (I) FINISHED PRODUCT SOLD BY THE ASSESSEE AND THE OTHER, (II) WA STE, BYPRODUCT OR SCRAP. NO SUCH DISTINCTION CAN BE CREATED AS IF FI NAL PRODUCT IS DERIVED FROM THE MANUFACTURING ACTIVITY AND OTHER IS NOT. BOTH ARE GENERATED AT THE SAME TIME FROM THE SAME PROCESS EXCEPT THAT ONE HAS HIGHER MARKET VALUE AND OTHER HAS NOT, AND ACCORDINGLY THE SAME IS TREATED AS SCRAP. IN ANY CASE, THE ISSUE IS NOW FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE LATER DECISIONS OF THE COURTS AND A LSO OF THE APEX COURTS AS NOTED ABOVE. WHERE SCRAP IS GENERATED DURING THE COURSE OF MANUF ACTURING ACTIVITY OF THE PRODUCT AND BASIC CONSTITUENT OF SC RAP IS THE SAME AS OF THE RAW MATERIAL WHICH HAS GONE TO MAKE THE F INAL PRODUCT, THEN IT CAN BE SAID THAT THE SCRAP IS GENERATED DUR ING THE COURSE OF MANUFACTURING ACTIVITY AND, THEREFORE, ITS SALE IS PART OF SALE OF MAIN PRODUCT. IT CAN BE SAID THAT THE SCRAP UNDER T HESE CIRCUMSTANCES IS DERIVED FROM MANUFACTURING ACTIVIT Y. 7 ACCORDINGLY, DEDUCTION U/S 80IB WOULD BE AVAILABLE TO THE ASSESSEE. AS A RESULT, THE APPEAL FILED BY THE REVE NUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO.08/AHD/2009: 7 THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING THE FOLLOWING GROUNDS OF APPEAL: 1 THE LEARNED CIT(A) ERRED IN LAW AS WELL AS ON FACTS WHILE UPHOLDING THE ADDITION MADE BY THE AO ON ACCOUNT OF DIFFERENT DEPRECIATION. 2 THE LEARNED CIT(A) ERRED IN LAW AS WELL AS ON FACTS WHILE SUSTAINING THE ADDITION OF RS.5,50,000/- AS LOANS R ECEIVED FROM PARTNERS FROM UNEXPLAINED SOURCES INSPITE OF SUBSTA NTIVE EVIDENCES PRODUCED BY THE APPELLANT. 3 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN SUS TAINING ADDITION FOR AN AMOUNT OF UNSECURED LOANS OF RS.10 LACS INSPITE OF SUBSTANTIVE EVIDENCES PRODUCED BY THE APPELLANT. 8 THE FIRST ISSUE IS NOT PRESSED AND HENCE IT IS R EJECTED. 9 THE SECOND ISSUE RELATES TO THE ADDITION ON ACCO UNT OF SUM OF RS.5,50,000/- RECEIVED BY THE ASSESSEE FIRM FROM ITS PARTNERS. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS THE AO NOTICED THAT THE ASSESSEE FIRM HAS RECEIVED THE FOL LOWING SUM AS CAPITAL CONTRIBUTION FROM THE PARTNERS: SR. NO. NAME OF THE PARTNER AMOUNT -------- ---------------------------------- ------ ------ 1 SHRI RAVJIBHAI R PATEL RS.50,000/- 2 SHRI DHAMJIBHAI K PATEL RS.50,000/- 3 SHRI SHIVDAS K PATEL RS.50,000/- 4 SHRI PRAKASH M PATEL RS.5,00,000/- 5 ANJALI R PATEL RS.50,000/- 8 6 SMT. HEMLATA L PATEL RS.50,000/- 7 MANISHA L PATEL RS.30,000/- 8 SHRI YOGESH R PATEL (MINOR) RS.50,000/- WHEN INQUIRED, THE ASSESSEE FURNISHED THE DETAILS O F SOURCES OF CAPITAL IN THE CASES OF MANISHA L PATEL [RS.30,000/ -], ANJALI R PATEL [RS.50,000/-] AND SMT. HEMLATA L PATEL [RS.50 ,000/-]. IN THE CASES OF REST, NO EXPLANATION REGARDING THE SOU RCE OF THE CAPITAL INTRODUCED WAS FURNISHED. THE AO ACCORDINGL Y MADE AN ADDITION OF RS.7 LACS. 10 THE CIT(A) EXAMINED THE ISSUE AND CALLED FOR TH E REMAND REPORT AND FINALLY HE ACCEPTED THE CAPITAL I NTRODUCED BY 1. SHRI RAVJIBHAI R PATEL RS.50,000/- 2. SHRI DHAMJIBHAI K PATEL RS.50,000/- 3. SHRI SHIVDAS K PATEL RS.50,000/- HE ACCORDINGLY CONFIRMED THE ADDITION IN RESPECT OF CAPITAL INTRODUCED BY SHRI PRAKASH M PATEL OF RS.5 LACS AND SHRI YOGESH R PATEL OF RS.50,000/-. 11 BEFORE US, THE LEARNED AR SUBMITTED THAT THE CA PITAL SO INTRODUCED BY THE PARTNERS ARE THROUGH BANKING CHAN NELS, FROM THEIR BANK ACCOUNTS, THEY HAVE DECLARED THEM IN THE RETURNS OF INCOME, AND THEY HAVE ALSO ACCEPTED THAT THEY HAVE INTRODUCED THIS CAPITAL IN THE FIRM. ONCE, IT IS SO, THERE IS NO CASE FOR MAKING ANY ADDITION. HE ALSO RELIED UPON THE DECISION OF T HE TRIBUNAL IN 9 THE CASE OF ITO V M/S M TEX [ITA NO.3427/AHD/2008, ORDER DATED 18-09-2009]. 12 THE LEARNED DR, ON THE OTHER HAND, STRESSED THA T THE ASSESSEE HAS FAILED TO PROVE THE SOURCE OF CASH CRE DITS IN THE ACCOUNTS OF THE PARTNERS. 13 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, ONC E THE PARTNERS HAVE ACCEPTED THAT THEY HAVE GIVEN MONEY TO THE FIR M, THE TRANSFER IS THROUGH BANKING CHANNEL AND HAS BEEN DE CLARED IN THE RETURN OF INCOME OF THE RESPECTIVE PARTNERS, THEN, REQUIRING THE ASSESSEE TO PROVE THE SOURCE OF SUCH MONEY IS NOT C ALLED FOR. IF THE PARTNERS FAIL TO PROVE THE SOURCE OF THIS MONEY , THEN THE ADDITION IS CALLED FOR ONLY IN THEIR PERSONAL CASES . SO FAR AS THE FIRM IS CONCERNED, IT HAS DISCHARGED ITS ONUS THE M OMENT THE PARTNERS ACCEPT THAT THEY HAVE INTRODUCED THE CAPIT AL / MONEY IN THE FIRM. WE DERIVE SUPPORT FROM THE JUDGMENT OF TH E HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT V META CHEM INDUSTRIES (2000) 245 ITR 160 (MP). OUR AFORESAID V IEW IS ALSO SUPPORTED BY THE DECISION OF THE TRIBUNAL IN THE CA SE OF ITO V M/S M TEX [ITA NO.3427/AHD/2008, ORDER DATED 18-09- 2009], WHEREIN IT HAS BEEN HELD AS UNDER:- 22 WE HAVE HEARD LD. DR AND THE LD. AR OF THE ASSE SSEE. IN THE CASE OF CIT VS KULWANT SINGH & CO. (2008) 299 ITR 5 3 (P&H), IT IS HELD THAT WHERE AMOUNTS FOUND CREDITED IN THEIR ACC OUNT OF THEIR PARTNERS COMING FROM SAVINGS ACCOUNT, AND COPIES OF ACCOUNTS ARE PRODUCED, THEN INITIAL ONUS ON THE FIRM WITH REGARD TO IDENTITY AND FINANCIAL CAPACITY OF THE PARTNERS IS DISCHARGED. S IMILAR VIEW HAS BEEN HELD BY ITAT AHMEDABAD BENCH D IN THE CASE OF M/S HERITAGE 10 REALTY VS. ITO (ITA NOS.561 AND 562/AHD/2004 FOR ASSESSMENT YEARS 1996-97 & 97-98) PRONOUNCED ON 12/06/2009, WH EREIN IT HAS HELD AS UNDER:- 3 HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUG H THE MATERIAL AVAILABLE ON RECORD. IN THE AY 1996-97, AD DITION OF RS.73,000/- HAS BEEN MADE IN RESPECT OF CASH CREDIT INTRODUCED BY THE PARTNER SMT. SHANTABEN ANTARIA. SIMILARLY IN THE AY 1997-98, THE ADDITION OF RS,1,24,000/- HAS BEEN MAD E IN RESPECT OF CASH CREDIT INTRODUCED BY PARTNERS SMT. SHANTABE N ANDHARIA AND SHRI ALAP ANDHARIA. THESE CREDITS WERE EXAMINED BY THE AO AND HE DISCARDED THE CONTENTION OF THE ASSESSEE THAT SUCH CREDITS WERE INTRODUCED BY THE ABOVE PARTNERS OUT O F SALES PROCEEDS OF AGRICULTURAL PRODUCES ON THE GROUND THA T NO DETAIL EVIDENCE REGARDING SALE OF AGRICULTURAL PRODUCE, SA LES BILLS AND BANK ACCOUNTS WERE SUBMITTED. HOWEVER, OWNING OF AG RICULTURAL LAND BY THEM WAS NOT DISPUTED. THUS, THERE IS NO DI SPUTE OF THE FACT THAT THE CREDITS IN QUESTION WERE THE AMOUNT I NTRODUCED BY THE PARTNERS. THE QUESTION, THEREFORE, ARISES FOR O UR CONSIDERATION AS TO WHETHER THE SAID AMOUNT CAN BE ADDED IN THE HANDS OF THE FIRM WHEN THE SOURCE IN THE HANDS OF THE PARTNERS DISCLOSED IS NOT ACCEPTED. HONBLE ALLAHAB AD HIGH COURT IN THE CASE OF CIT VS. JAISWAL MOTORS FINANCE 141 ITR 706 AND OBSERVED THAT IF AO HAD ANY DOUBT WITH REGA RD TO SOURCE OF DEPOSITS IN PARTNERS ACCOUNT, HE MAY TAK E SUITABLE ACTION IN THE CASE OF PARTNERS, IF HE HAPPENS TO BE THEIR AO OR HE MAY REFER THE MATTER TO THE CONCERNED AO AS PARTNER S ARE I.T. ASSESSEES. TRIBUNAL IN THE CASE OF DHORAJIA CONSTRU CTION CO. VS ITO 42 ITD 450 (AHD) IN WHICH DECISION THIS TRIBUNA L RELYING ON AFOREMENTIONED DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. JAISWAL MOTORS FINANCE (SUPRA) HAS GIVEN SIMILAR RELIEF TO THE ASSESSEE. IN VIEW OF THE ABOV E, WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED ADDITIONS MADE U/ S 68 OF THE ACT IN THE HANDS OF THE ASSESSEE-FIRM IN BOTH THE A YS UNDER CONSIDERATION IS NOT PROPER. THE SAID ADDITIONS ARE , THEREFORE, DELETED. AS A RESULT, THE ADDITION SO CONFIRMED BY THE CIT(A ) IS DELETED. 14 GROUND NO.3 RELATES TO THE ADDITION IN RESPECT OF RS.10 LACS BEING UNSECURED LOANS. THE AO FOUND THAT A SUM OF 11 RS.5 LACS EACH HAS BEEN CREDITED IN UNIT-II IN THE NAMES OF SHRI DHANANJAY P PATEL AND SHRI MANOJ P PATEL. THE AO SE EMS TO HAVE ASKED THE ASSESSEE TO FILE CONFIRMATIONS FROM THE D EPOSITORS. AS THESE CONFIRMATIONS WERE NOT FILED, THE AO MADE THE ADDITION U/S 68 OF THE ACT. THE LEARNED CIT(A) ALSO CONFIRMED TH E ADDITION. 15 BEFORE US, THE LEARNED AR SUBMITTED THAT IT WAS EXPLAINED TO THE CIT(A) THAT THESE DEPOSITORS HAD O LD DEPOSITS WITH UNIT-I WHICH WERE TRANSFERRED TO UNIT-II BY TH E ASSESSEE. SINCE THIS IS NOT A CREDIT THIS YEAR, NO ADDITION I S CALLED FOR. HE SUBMITTED A COPY OF THE CERTIFICATE FROM THE BANK I N SUPPORT OF HIS CONTENTION. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 16 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. WE RESTORE THE MATTER TO TH E FILE OF THE AO FOR CARRYING OUT NECESSARY VERIFICATION. IF THE CREDIT ENTRIES IN THE NAMES OF THESE TWO PERSONS ARE OLD EXISTING IN UNIT-I, AND HAVE BEEN TRANSFERRED BY THE ASSESSEE DIRECTLY FROM BANK ACCOUNT OF UNIT-I TO THE BANK ACCOUNT OF UNIT-II, NO FURTHE R ACTION IS CALLED FOR AND NO ADDITION SHOULD BE MADE. BUT WHER E MONEY HAS GONE BACK TO THE CREDITORS AND THEN AGAIN RECEIVED BACK FROM THE CREDITORS IN UNIT-II, THEN NECESSARY INQUIRY AS CON TEMPLATED U/S 68 SHOULD BE CARRIED OUT. AS A RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSE. 12 ITA NO.09/AHD/2009: 17 THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING THE FOLLOWING GROUNDS OF APPEAL: 1 THE LEARNED CIT(A) ERRED IN LAW AS WELL AS ON FACTS IN NOT ALLOWING DEDUCTION U/S 80IB OF THE INCOME-TAX ACT, 1961, ON CONSIDERATION OF THE FACTS OF THE CASE IN TOTALITY. 2 THE LEARNED CIT(A) ERRED IN LAW AS WELL AS ON FACTS WHILE UPHOLDING THE ADDITION OF RS.46,000/- AS CAPITAL IN TRODUCED BY PARTNERS FROM IN GENUINE SOURCES INSPITE OF SUBSTAN TIVE EVIDENCES PRODUCED BY THE APPELLANT. 3 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN SUS TAINING ADDITION FOR AN AMOUNT OFRS.36,841/- ON THE BELIEF THAT THE SAME AMOUNT OF SALES HAS NOT BEEN OFFERED AS AGAINST TDS ON THE SAME HAS BEEN CLAIMED. HE HAS RELIED MERELY ON THE REMAN D REPORT OF THE AO. 4 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN NOT ALLOWING DEDUCTION U/S 80IB ON SCRAP SALES OF RS.99,476/-. 5 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN NOT ALLOWING DEDUCTION U/S 80IB ON THE ADDITIONS MADE. 18 THE FIRST ISSUE RELATES TO NOT ALLOWING DEDUCTI ON U/S 80IB ON THE GROUND THAT THE ASSESSEE-FIRM DID NOT H AVE MORE THAN TEN EMPLOYEES EVEN THOUGH IT IS RUNNING WITH AID OF POWER. IN SUPPORT OF HIS CONTENTION, THE ASSESSEE SOUGHT TO P RODUCE WAGES REGISTER BEFORE THE CIT(A). THE AO OBJECTED TO IT A ND HENCE THE CIT(A) REFUSED TO ADMIT THE SAME. 13 19 BEFORE US, THE LEARNED AR SUBMITTED THAT THE WA GES REGISTER IS A CRUCIAL EVIDENCE AND IN THE INTEREST OF JUSTICE, THE CIT(A) SHOULD HAVE ADMITTED IT SO AS TO DECIDE WHET HER THE ASSESSEE HAD MORE THAN TEN EMPLOYEES. 20 AFTER HEARING BOTH THE PARTIES, WE RESTORE THIS MATTER TO THE FILE OF THE CIT(A) WITH THE DIRECTION THAT H E WOULD ADMIT THE WAGES REGISTER AND EXAMINE WHETHER THE ASSESSEE HAD REQUISITE NUMBER OF EMPLOYEES AND THEN DECIDE THE I SSUE AFRESH ON CLAIM OF DEDUCTION U/S 80IB. THUS, THIS GROUND O F APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 21 GROUND NO.2 RELATES TO THE ADDITION IN RESPECT OF INTRODUCTION OF CAPITAL OF RS.46,000/- BY THE PARTN ERS. IN THIS CASE ALSO THE PARTNERS HAVE ADMITTED TO HAVE INTRODUCED CAPITAL, THROUGH BANKING CHANNELS AND, THEREFORE, THE FIRM I S NOT REQUIRED TO EXPLAIN THE SOURCE OF THIS MONEY. FOLLOWING OUR DECISION IN AY 2001-02, WE DELETE THE ADDITION. THIS GROUND OF APPEAL IS ALLOWED. 22 GROUND NO.3 IS NOT PRESSED AND HENCE IT IS REJE CTED. 23 GROUND NO.4 RELATES TO DEDUCTION U/S 80IB ON SC RAP SALES. IT IS UNDISPUTED FACT THAT SCRAP IS GENERATE D DURING THE COURSE OF MANUFACTURING OF CORRUGATED BOXES AND HAV E SAME CONSTITUENTS AS MATERIAL COMPOSING FINAL PRODUCT. F OLLOWING OUR DECISION IN THE AY 2001-02 IN THE DEPARTMENTAL APPE AL, WE ALLOW THE CLAIM OF THE ASSESSEE. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICA L PURPOSE. 14 24 IN THE RESULT - 1 THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED F OR STATISTICAL PURPOSE. 2 THE APPEAL FILED BY THE ASSESSEE FOR AY 2001-02 IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSE. 3 THE APPEAL FILED BY THE ASSESSEE FOR AY 2005-06 IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 31-12-2 009 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (D C AGRAWAL) ACCOUNTANT MEMBER DATE : 31-12-2009 COPY OF THE ORDER FORWARDED TO : 1. M/S AJAY PACKAGING, SURVEY NO.54/7C, 52/3C DAMAN INDUSTRIAL ESTATE, KADAIYA, DAMAN 2. THE ITO VAPI WARD-4, DAMAN 3. CIT CONCERNED 4. CIT(A), VALSAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA