ACIT, JODHPUR V. M/s. Shree Ram Industries, JODHPUR

ITA 441/JODH/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5197 (ITAT-JODHPUR)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 20-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALKA R JAIN
• Keywords: Depreciation; Diversion of income; Fair market value; Unabsorbed depreciation
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 441 / JODH /201 5 (ASST. YEAR : 20 11 - 12 ) AC IT, CIRCLE - 1, JODHPUR . VS. M/S. SHREE RAM INDUSTRIES, C - 80, MIA, 2 ND PHASE, BASNI, JODHPUR. PAN NO. AACFS 776 8 M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJENDRA JAIN ADV. DEPARTMENT BY : SMT. ALKA R. JAIN - DR DATE OF HEARING : 1 6 / 0 3 /201 6 . DATE OF PRONOUNCEMENT : 1 6 / 03 /201 6 . O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1 , JODHPUR , DATED 18 /0 5 /201 5 . 2. THE GROUND NO.1 OF THE APPEAL OF THE REVENUE IS DIREC TED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE DISALLOWANCE OF RS. 82,61,424/ - MADE BY THE ASSESSING OFFICER UNDER SEC. 40A(2)(B) FOR THE REASON THAT THE ASSESSEE HAD UNRE ASONABLY PAID HIGHER AMOUNT REGARDING PURCHASE OF GUAR GUM FROM RELATED PARTIES. 3 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD MADE PURCHASES FROM THE RELATIVE PARTIES AS WELL AS FROM OTHERS . T HE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE 2 ITA NO. 441/JODH/2015 PURCHASE S MADE FROM SPECIFIED PERSONS ARE AT HIGHER RATE THAN THE PURCHASES MADE FROM THE MARKET. THE ASSESSING OFFICER WORKED OUT THE AVERAGE PRICE AND MADE THE ADDITION OF RS. 82,61,424/ - . 4 . ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION BY OBSERVING AS UNDER: - 4.3. I HAVE THOROUGHLY GONE THROUGH THE FACTS OF THE CASE AND SUBMISSIONS OF THE APPELLANT AND I FIND THAT THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT PROVIDES THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CL. (B) OF THE SUB - SECTION AND THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAV ING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF B USINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING THERE - FROM, SO MUCH OF THE EXPENDITURE AS IS SO C ONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE, SHALL NOT BE ALLOWED AS A DEDUCTION. THE HONBLE CENTRAL BOARD OF DIRECT TAXES VIDE CIRCULAR NO. 6 - P (LXXVI - 66 ) OF 1968, DT. 6 T H JULY, 1968, LAID DOWN THAT WHILE MAKING DISALLOWANCES THE AO IS EXPECTED TO EXERCISE HIS JUDGMENT IN A REASONABLE AND FAIR MANNER. THE BOARD FURTHER STATED THAT WHILE MAKING DISALLOWANCES IT SHOULD BE BORNE IN MIND THAT THE PROVISION IS MEANT TO CHECK EVASION OF TAX THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO RELATIVES AND ASSOC IATE CONCERNS AND SHOULD NOT BE APPLIED IN A MANNER WHICH WILL CAUSE HARDSHIP IN BONA FIDE CASES. 4.3.1 I FURTHER FIND THAT THE OBJECT OF SEC. 40A(2) IS TO PREVENT EVASION OF TAX BY DIVERSION OF INCOME. AN ASSESSEE WHO HAS LARGE INCOME AND IS LIABLE TO PAY TAX AT THE HIGHEST RATE PRESCRIBED UNDER THE ACT OFTEN SEEKS TO TRANSFER A PART OF HIS INCOME TO A REL ATED PERSON WHO IS NOT LIABLE TO PAY TAX AT ALL OR LIABLE TO PAY TAX AT A RATE LOWER THAN THE RATE AT WHICH THE ASSESSEE PAYS THE TAX. IN ORDER TO CURB SUCH TENDENCY OF DIVERSION OF INCOME AND THEREBY REDUCING THE TAX LIABILITY BY ILLEGITIMATE MEANS, S. 40 A WAS ADDED TO THE ACT BY AN AMENDMENT MADE BY THE FINANCE ACT, 1968. CLAUSE (B) OF S. 40A(2) GIVES THE LIST OF RELATED PERSONS. IT IS ONLY WHERE THE PAYMENT IS MADE BY THE ASSESSEE TO THE RELATED PERSONS MENTIONED IN CL. (B) OF S. 40A(2) OF THE ACT THAT T HE AO ASSUMES JURISDICTION TO PROCEED TO DISALLOW THE EXPENDITURE OR A PART OF THE EXPENDITURE WHICH HE CONSIDERS EXCESSIVE OR UNREASONABLE IN RESPECT OF CLAUSE (B) OF S. 40A(2) OF THE ACT. 4.3.2 ON PERUSAL OF THE ASSESSMENT ORDER, I FIND THAT THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY EVIDENCE THAT THE FAIR MARKET VALUE OF THE GOODS PURCHASED BY THE ASSESSEE FIRM, FROM RELATED PARTIES WAS LESS THAN ACTUAL EXPENDITURE INCURRED [CLAIMED IN THE BILLS] AND HAS ALSO NOT CONSIDERED THE RATE OF 3 ITA NO. 441/JODH/2015 PURCHASES MADE FROM THE OTHER PARTIES ON THE SAME DATE AND HAS ALSO NOT CONSIDERED THE QUALITY OF THE MATERIAL PURCHASED FROM THE SISTER CONCERN AS WELL A S FROM THE OTHER PARTIES. THE A.O. MADE THE ADDITI ON U/S.40A(2)(B) SIMPLYCONSIDERING THE AVERAGE RATE OF GUWAR PURCHASED. THE PURCHASE MADE BY THE ASSESSEE FIRM FROM THE SISTER CONCERNS WERE FOR LEGITIMATE BUSINESS NEEDS AS IN THE BUSINESS OF EXPORT BY THE ASSESSEE FIRM, THE CONSISTENCY OF SUPPLY AS WELL AS QUALITY OF SUPPLY IS IMPORTANT, FURTHER THE PRICES OF GUAR, GUAR GUM SPLIT ARE HIGHLY FLUCTUATING FROM TIME TO TIME; THEREFORE THE REASONABLENESS IS TO BE SEEN AND ASCERTAINED FROM THIS VIEWPOINT AS WELL. A REFERENCE IS MADE TO THE DECISION IN THE CASE OF VOLTAMP TRANSFORMERS (P) LTD. VS. CIT (1981) 23 CTR (GUJ) 312 : (1981) 129 ITR 105 (GUJ). 9. IN THE INSTANT CASE, THE CASE OF THE AO IS THAT THE ASSESSEE MADE PURCHASE OF RAW MATERIAL FROM THE SISTER - CONCERNS AT A PRICE HIGHER THAN THE PRICE PAID TO OTH ER PARTIES BY WORKING OUT THE AVERAGE PURCHASE RATE OF THE DAY. THERE IS NO JUSTIFICATION TO APPLY THE AVERAGE PURCHASE RATE, AS THE MARKET RATE OF PURCHASE KEEPS ON FLUCTUATING FROM TIME TO TIME. THE EXPRESSION USED IN S. 40A(2) IS ANY EXPENDITURE WHICH M EANS THAT EACH EXPENDITURE HAS TO BE JUDGED IN RELATION TO ITS MARKET RATE ON THE DATE OF EXPENDITURE. THUS, IT MUST BE ESTABLISHED BEFORE INVOKING SEC. 40A(2) THAT ON THE DATE THE PURCHASE AND ITS PAYMENT MADE WAS IN EXCESS OF THE FAIR MARKET PRICE. THE H ONBLE ALLAHABAD HIGH COURT IN ABBAS WAZIR (P) LTD. VS. CIT (2004) 265 ITR 77 HELD THAT EVEN WHILE INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE ACT, THE REASONABLENESS OF THE EXPENDITURE FOR THE PURPOSE OF BUSINESS HAS TO BE JUDGED FROM THE POINT OF VI EW OF A BUSINESSMAN AND NOT THAT OF THE REVENUE. THE APPROACH HAS TO BE THAT OF A PRUDENT BUSINESSMAN AND THE REASONABLENESS MUST BE LOOKED INTO FROM BUSINESSMAN POINT OF VIEW. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF VIT V/S CONSULTING ENGINEERING GROUP LTD REPORTED IN 223 TAXMAN 440(RAJ) HAS OBSERVED THAT CERTAINLY, AFORESAID SECTION PROVIDES THAT THE AO, IF HE IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE, HAVING REGARD TO THE LEGITIMATE BUSINESS NEEDS OF THE COMPANY AND TH E BENEFIT DERIVED BY ASSESSEE, IS NOT PROPER, HAS A CHANCE TO DISALLOW ANY AMOUNT OVER AND ABOVE WHICH HE FEELS APPROPRIATE BUT THE OPINION SHOULD BE FORMED OBJECTIVELY FROM THE POINT OF VIEW OF A PRUDENT BUSINESSMAN AND AFTER SHOULD NOT BE INFLUENCED BY I MMATERIAL CONSIDERATIONS. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V/S CONSULTING ENGINEERING GROUP LTD REPORTED (CITED SUPRA) AFTER TAKING INTO CONSIDERATION THE DECISION OF THE VARIOUS HIGH COURTS AS REFERRED BY THE ASSESSEE AT PAGE 7 - 8 OF WRI TTEN SUBMISSION TOOK THE SIMILAR VIEW. THUS, THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS, WHICH WERE IN THE CASE OF CONSULTING ENGINEERING GROUP LTD (SUPRA), & OTHERS DECISIONS AND THEREFORE, THE DECISION IN THAT CASE IS SQUARELY APPLICABLE TO THE FAC TS OF THE ASSESSEES CASE. 4.3.3 I FIND FURTHER THAT THE APPELLANT FIRM MADE NO ATTEMPT TO PURCHASE GOODS FROM THE RELATIVES AND SISTER CONCERNS AT A HIGHER PRICE TO EVADE TAX AS ALL THE SISTER CONCERNS OR RELATIVES ARE 4 ITA NO. 441/JODH/2015 ASSESSED TO TAX AT SAME RATE OF TAX AND THE INCOME DECLARED BY THE RELATIVES AND SISTER CONCERNS FOR THE YEAR UNDER CONSIDERATION DECLARED WAS ASSESSED AT THE SAME RATE OF TAX. ADMITTEDLY, IT WAS NOT A CASE OF TAX EVASION; THE VARIOUS DECISIONS REFERRED BY THE APPELLANT FIRM IN HIS SUBMISSIO N ARE SQUARELY APPLICABLE TO THE FACTS OF ASSESSEES CASE. I FIND FURTHER THAT IN THE PAST SIMILAR TRANSACTIONS WITH THE SISTER CONCERN WERE MADE AND SAME WERE TREATED AS GENUINE BY THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) OF THE ACT, AND THERE IS NO DIFFERENCE EITHER IN SYSTEM OF ACCOUNTING OR THE MODUS OPERANDI IN CARRYING THE BUSINESS. 4.3.4 AFTER GOING THROUGH THE DECISION OF HONBLE RAJASTHAN HIGH COURT REPORTED IN 250 ITR PAGE 526 REFERRED AND RELIED BY AO, I FIND THAT IT H AS NO APPLICATION ON THE FACTS OF THE ASSESSEES CASE AS IN THE SAID CASE THE HONBLE HIGH COURT WAS CONSIDERING THE ISSUE OF APPLICABILITY OF PROVISION OF SECTION 4 OF THE ACT WHICH IS CHARGING SECTION WHEREAS IN THE APPELLANTS CASE THE DISALLOWANCES WAS MADE BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. FURTHER THE PROVISION OF SECTION 4 HAS NO RIDER AS SAME IS CHARGING SECTION BUT IN SECTION 40A(2)(B) THERE IS RIDER GIVEN THROUGH CIRCULAR N 0 . 6 - P, DATED JULY, 1968.THE IDENTICAL ISSUE AS INV OLVED IN THE APPELLANT CASE, [SECTION 40A(2)(B)] IN CIT V/S CONSULTING ENGINEERING GROUP LTD REPORTED IN 223 TAXMAN 440(RAJ). IN THIS CASE IT WAS HELD WE ALSO NOTICE THAT THE ASSESSEE - COMPANY AS WELL AS THESALARY PAID TO SHRI VISWAS JAIN HAS OFFERED TO TA X AT MAXIMUM RATE IN HIS INDIVIDUAL CAPACITY AND THEREFORE, IT CAN BE SAID THAT THERE IS HARDLY ANY LOSS TO THE REVENUE IN SO FAR AS THE PAYMENT OF SALARY IS CONCERNED. WE HAVE OBSERVED THIS ONLY BY WAY OF AN OBSERVATION, OTHERWISE, AS OBSERVED HEREIN ABOV E . THEREFORE THE DECISION OF HONBLE RAJASTHAN HIGH COURT REPORTED IN 250 ITR PAGE 526 RELIED BY ASSESSING OFFICER IS NOT APPLICABLE ON THE FACTS OF THE CASE. IN VIEW OF THE ABOVE DISCUSSION AND IN THE LIGHT OF THE RATIO OF JUDGMENTS CITED ABOVE, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE BY INVOKING THE PROVISION OF SECTION 40A(2)(B). THE ADDITION OF RS.82 , 61,424/ - IS HEREBY DELETED. THE GROUNDS OF APPEAL ARE ALLOWED. 5. DEPARTMENTAL REPRESEN TATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER, WHEREAS AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 6 . WE FIND THAT NO SPECIFIC ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) COULD BE POINTED OUT BY THE DEPARTMENTAL REPRESENTATIVE AT THE TIME OF HEARING. FURTHER, WE FIND THAT THE 5 ITA NO. 441/JODH/2015 ASSESSING OFFICER HAS COMPARED THE AVERAGE PURCHASE PRICE OF GUAR GUM WITH THE AVERAGE PURCHASE PRICE PAID BY THE ASSESSEE TO ITS SISTER CO NCERNS AND THEREAFTER MADE THE ADDITION OF DIFFERENCE AMOUNT OF RS.82,61,424/ - TO THE INCOME OF THE ASSESSEE. IN OUR CONSIDERED OPINION , SEC. 40A(2) (A) PROVIDES THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO B E MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THIS SUB - SECTION, AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION . WE FIND THAT NO MATERIAL WAS BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT ON THE DATE OF PURCHASES MADE BY THE ASSESSEE FROM THE SISTER CONCERN , THE MARKET PRICE OF THE GOODS WAS LOWER THAN THE AMOUNT PAID BY THE ASSESSEE TO ITS SISTER CONCERNS. IN ABSENCE OF THE SAME, WE FIND THAT THE ADDITION MADE HAS RIGHTY DELETED BY THE COMMISSIONER OF INCOME TAX (APPEALS) AND CALLS NO INTERFERENCE FROM US. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 7. GROUND NO.2 OF THE APPEAL IS D IRECTED AG A INST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE DISALLOWANCE OF TRADING LOSS OF RS. 2,80,09,637/ - MADE BY THE ASSESSING OFFICER IN RESPECT OF TRANSACTIONS WITH RELATED PARTIES. 8. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD ADMITTED A TRADING LOSS OF RS. 3,62,70,791/ - VIDE SUBMISSION DATED 24/03/2014. SINCE THE EXACT LOSS GENERATED DUE TO SALES TO THE REL A TED PARTIES UNDER SEC. 40A(2)(B) IS NOT PROVIDED. IT IS ALSO HELD T HAT THE DIFFERENCE BETWEEN TOTAL TRADING LOSS AND THE LOSS DUE TO PURCHASES FROM THE RELATED PARTIES UNDER SEC. 40A(2)(B) I.E. 6 ITA NO. 441/JODH/2015 RS.2,80,09,637/ - (3,62,70,791 - 82,61,424 ) CONSIDERED AS LOSS FROM THE SALES MADE TO THE RELATED PARTIES. HENCE, TRADING LOSS OF 2,80,09,637/ - DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 9. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE SAME BY OBSERVING AS UNDER: - 5.3. I HAVE CAREFULLY GONE THROUGH THE SUBMISSION, AND FINDING RECORDED BY AO IN THE ASSESSMENT ORDER AND I FIND THAT IT IS AN ADMITTED FACT THAT THE APPELLANT MAINTAINS DAY TO DAY BOOKS OF ACCOUNT AND PRODUCED THE SAME BEFORE AO ALONG WITH DAY TO DAY STOCK REGISTER. THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE FIRM IS APPROVED BY CHARTERED ACCOUNTANT AS PER THE PROVISIONS OF SECTION 145 OF THE ACT. THE SYSTEM OF ACCOUNTANCY IS FOLLOWED YEAR TO YEAR AND WAS ACCEPTED BY THE AO IN THE PAST AND IN SUBSEQUENT YEAR ALSO. IN THE YEAR UNDER CONSIDERATION THE METHOD OF ACCOUNTING WAS FOUND TO BE TRUE AND CORRE CT AND ACCORDINGLY THE AO ACCEPTED THE BOOKS OF ACCOUNTS AS TRUE AND CORRECT AND SAME WERE NOT REJECTED AT ANY STAGE OF ASSESSMENT PROCEEDINGS. THE AUTHORIZED REPRESENTATIVE WAS ASKED TO FURNISH A BIFURCATION OF THE ACCOUNT OF GOODS PURCHASED, USED FOR SAL E OR MANUFACTURING AND THE SAME WAS FILED. IT WAS FURTHER SUBMITTED THAT THE PURCHASE OF GUAR GUM SPLITS IN TRADING ACCOUNT IS NOT COMPARABLE WITH THE CORRESPONDING SALES IN THE TRADING ACCOUNT BECAUSE THE FIRM HAS SINGLE ACCOUNT FOR PURCHASE OF GUAR GUM S PLIT WHICH IS USED FOR MANUFACTURING AS WELL AS FOR TRADING BUT AT THE YEAR END THE ASSESSEE FIRM TRANSFERS THE MONTHLY QUANTITY OF GUAR GUM SPLITS SOLD FROM PURCHASE OF GUAR GUM SPLITS TO PURCHASES OF GUAR GUM SPLITS (TRADING) ACCOUNT BY AVERAGE PURCHASE PRICE AND THIS PRACTICE IS BEING FOLLOWED YEAR TO YEAR AND SAME WAS ACCEPTED BY THE AO IN THE PRECEDING ASSESSMENT YEAR. THE AO HAS ACCEPTED PROFIT OF RS 7,96,81,577/ - IN RESPECT OF MANUFACTURING ACTIVITY AND IN THE SAME ACCOUNT HAS DISALLOWED LOSS IN RESP ECT OF TRADED GOODS WITHOUT BRINGING ON RECORD ANY MATERIAL. THIS TOO IN A SITUATION, WHERE ALL THE PURCHASES & SALES WERE RECORDED IN TERMS OF QUANTITY AND VALUE AND WERE SUPPORTED BY BILLS AND VOUCHERS AND NO ADVERSE MATERIAL OR EVIDENCE WAS NOTICED TO S HOW THAT THE APPELLANT FIRM HAS INFLATED ANY SALES OR PURCHASES. FURTHER ALL THE RELATED PARTIES, COVERED U/S 40A(2)(B) ARE ASSESSED TO TAX AT THE MAXIMUM RATE OF TAX AS THAT OF ASSESSEE AND AS SUCH THE VERY PRESUMPTION FOR DIVERSION OF INCOME IS E RRONEOUS AND AS SUCH THE ADDITION MADE BY WORKING TRADING LOSS AT RS. 2,80,09,637/ - IS ERRONEOUS AND THE SAME DESERVES TO BE DELETED. IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.2,80,09,637/ - . THE ADDITION OF RS. 2,80,09,637/ - IS HEREBY DELETED. THE GROUNDS OF APPEAL ARE ALLOWED. 7 ITA NO. 441/JODH/2015 10. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER, WHEREAS AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 11. WE FIND THAT NO SPECIFIC ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) COULD BE POINTED OUT BY THE DEPARTMENTAL REPRESENTATIVE. NO MATERIAL WAS BROUGHT ON RECORD BY THE DEPARTMENTAL REPRESENTATIVE TO CONTROVERT THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE ASSESSING OFFICER HAS ACCEPTED THE PROFIT OF RS.7,96,81,577/ - IN RESPECT OF MANUFACTURING ACTIVITY AND AT THE SAME TIME , HAS DISALL OWED LOSS IN RESPECT OF TRADED GOODS WITHOUT BRINGING ON RECORD ANY MATERIAL . ALL THE PURCHASES & SALES WERE RECORDED IN TERMS OF QUANTITY AND VALUE AND WERE SUPPORTED BY BILLS AND VOUCHERS AND NO ADVERSE MATERIAL OR EVIDENCE WAS NOTICED TO SHOW THAT THE ASSESSEE FIRM HAS INFLATED ANY SALES OR PURCHASES . FURTHER, ALL THE RELATED PARTIES , COVERED UNDER SEC. 40A(2)(B) ARE ASSESSED TO TAX AT THE MAXIMUM RATE OF TAX AS THAT OF ASSESSEE AND AS SUCH THE VERY PRESUMPTION FOR DIVERSION OF INCOME IS ERRONEOUS AND AS SUCH THE ADDITION MADE BY WORKING TRADING LOSS AT RS. 2,80,09,637/ - IS ERRONEOUS AND IS DELETED. THEREFORE, WE FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF TH E REVENUE IS DISMISSED. 12. THE THIRD GROUND OF APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWING DEDUCTION UNDER SEC. 80IA WITHOUT SETTING OFF OF UNABSORBED DEPRECIATION OF ELIGIBLE UNIT, IGNORING THE PROVISION OF SEC. 80IA(5) AND ALSO IGNORING THE DECISION DATED 25/07/2014 IN ITA NO. 518/JU/2013 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 10 HAS BEEN APPEALED AGAINST THE DEPARTMENT BEFORE THE JURISDICTIONAL HIGH COURT VIDE APPEAL NO. 16/2015 , DECISION OF WHICH IS PENDING YET. 8 ITA NO. 441/JODH/2015 13. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT IN VIEW OF THE PROVISIONS OF SEC. 80IA(5) , INCOME OF SUCH ELIGIBLE BUSINESS (WINDMILL BUSINESS) TO BE COMPUTED AS IF SUCH INCOME IS ON LY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESSMENT YEAR UPTO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE, THE BR O UGHT FORWARD UNABSORBED DEPRECIATION IS FIR S T TO BE SET OFF AGAINST THE PROFIT OF THE ELIGIBLE BUSINESS AND THEN FROM THE BALANCE PROFIT DEDUCTION UNDER SEC. 80IA IS TO BE ALLOWED. SINCE, IN THIS CASE , PROFIT OF THE ELIGIBLE BUSINESS AGAINST WHICH BROUGHT FORWARD UNABSORBED DEPR ECIATION IS FIRST TO BE SET OFF AND AFTER SETTING OF THE BROUGHT FORWARD UNABSORBED DEPRECIATION THERE NO PROFIT LE FT. THE NOTIONAL DEPRECIATION SHOULD BE NOTIONALLY ADJUSTED IN THE SUBSEQUENT YEARS AND AFTER THE SAME IS EXHAUSTED BY THE ASSESSEE, THEN AN D THEN ONLY THE ASSESSEE WILL BE ELIGIBLE FOR THE DEDUCTION UNDER SEC. 80IA OF THE ACT. HENCE, THERE IS NO QUESTION OF ALLOWING DEDUCTION UNDER SEC. 80IA. ACCORDINGLY , THE DEDUCTION UNDER SEC. 80IA OF RS. 30,11,360/ - CLAIMED BY THE ASSESSEE WAS DISALLOWE D AND ADDED TO THE INCOME OF THE ASSESSEE. 14. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE DEDUCTION UNDER SEC. 80IA TO THE ASSESSEE BY OBSERVING AS UNDER: - 6.3 I HAVE CONSIDERED THE REASONS FOR DISALLOWANCE AND SUBMISSIONS OF THE APPELLANT. I H A VE ALSO GONE THROUGH THE VARIOUS JUDICIAL PRONOUNCEMENTS ON THE ISSUE IN HAND AND I FIND THAT ISSUE IN HAND IS COVERED BY THE DECISION OF CIT VS. EMERALD JEWEL INDUSTRIES PVT. LTD. REPORTED IN 53 DTR (MAD.) 262. THE RELEVANT FINDINGS ARE REPRODUCED AS UNDER: - ...THERE WAS NO RECTIFICATION POSSIBLE UNDER S. 80 - 1 IN THE PRESENT CASE, ALBEIT, FOR REASONS SOMEWHAT DIFFERENT FROM THOSE WHICH PREVAILED WITH THE TRIBUNAL. THERE BEING NO CARRY FORWARD OF ALLOWABLE DEDUCTIONS UNDER THE HEAD DEPRECIATION OR DEVELOPMENT REBATE WHICH NEEDED TO BE ABSORBED AGAINST THE INCOME OF THE CURRENT YEAR AND, THEREFORE, RE COMPUTATION OF INCOME FOR THE PURPOSE OF COMPUTING 9 ITA NO. 441/JODH/2015 PERMISSIBLE DEDUCTION UNDER S. 80 - 1 FOR THE NEW INDUSTRIAL UNDERTAKING WAS NOT REQUIRED IN THE PRESENT CASE. ACCORDINGLY, THIS APPEAL FAILS AND IS HEREBY DISMISSED WITH NO ORDER AS TO COSTS. FROM READING OF THE ABOVE, THE RAJASTHAN HIGH COURT HELD THAT IT IS NOT AT ALL REQUIRED THAT LOSSES OR OTHER DEDUCTIONS WHICH HAVE ALREADY BEEN SET OFF AGAINST THE INCOME OF THE PREVIOUS YEAR SHOULD BE REOPENED AGAIN FOR COMPUTATION OF CURRENT INCOME UNDER S.80 - I FOR THE PURPOSE OF COMPUTING ADMISSIBLE DEDUCTIONS T HERE UNDER. WE ALSO AGREE WITH THE SAME. WE SEE NO REASON TO TAKE A DIFFERENT VIEW.' 4. THE DIVISION BENCH FURTHER PROCEEDED TO HOLD AS UNDER: '15. ...WE ARE NOT AGREEING WITH THE COUNSEL FOR THE REVENUE. WE ARE, THEREFORE, OF THE VIEW THAT LOSS IN THE YEAR EARLIER TO INIT IAL ASSESSMENT YEAR ALREADY ABSORBED AGAINST THE PROFIT OF OTHER BUSINESS CANNOT BE NOTIONALLY BROUGHT FORWARD AND SET OFF AGAINST THE PROFITS OF THE ELIGIBLE BUSINESS AS NO SUCH MANDATE PROVIDED IN THE S. 80 - IA(5). 6.3.1 ON A SIMILAR ISSUE THE HONBLE M ADRAS HIGH COURT IN THE CASE OF CIT VS. EMERALD JEWEL INDUSTRIES (P) LTD. REPORTED IN (2011) 53 DTR (MAD.) 262 HELD THAT THE ASSESSEE - COMPANY IS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF WIND MILL INSTALLED BY IT AND UNABSORBED DEPRECIATION THE DEDUCTION U/S 80IA OF THE ACT. WE, THEREFORE, DO NOT SEE ANY MERIT IN THE DEPARTMENTAL APPEAL N THIS ISSUE. 6.3.2 FURTHER, IN APPELLANTS OWN CASE FOR A.Y. 2009 - 10 IN ITA NO 518/JODH/2013 DATED 25/07/2014, THE HONBLE ITAT, JODHPUR BENCH, JODHPUR DECIDED THE ISSUE IN FAVOR OF ASSESSEE BY OBSERVING AS UNDER: - 12. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE LD. CIT (A) WHILE ALLOWING THE CLAIM OF THE ASSESSEE FOLLOWING THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF M/S CHOUDHARY FREIGHT CARRIERS VS. ACIT, CENTRAL CIRCLE - 1, JODHPUR IN I.T.A. NO. 441/ JODH/2012 WHEREIN THE EARLIER ORDER OF THE ITAT JIAPUR BENCH IN THE CASE OF SAURABH AGROTECH (P) LTD. VS. DCIT REPORTED AT 48 TAX WORLD PAGE 135 WAS FOLLOWED. SINCE THE IMPUGNED ORDER HAS BEEN PASSED BY THE LD. CIT (A) IN CONSONANCE WITH THE DECISION OF THE ITAT JODHPUR AND THE JAIPUR BENCHES, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT ON THIS ISSUE. SINCE FACTS OF THE CASE ARE SQUARELY COVERED BY THE ABOVE REFERRED JUDGMENTS AND PARTIC ULARLY DECISION OF ITAT IN APPELLANTS 10 ITA NO. 441/JODH/2015 OWN CASE, THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. THE GROUND OF APPEAL IS ALLOWED. 15 . DEPARTMENTAL REPRESENTATIV E SUBMITTED BEFORE US THAT THE DISALLOWANCE OF DEDUCTION UNDER SEC. 80IA WAS MADE BY THE ASSESSING OFFICER IN ORDER TO KEEP THE ISSUE ALIVE AS THE DEPARTMENT DID NOT ACCEPT THE ORDER OF THE TRIBUNAL AND HAS FILED APPEAL THERE AGAINST IN THE HIGH COURT. SHE ADMITTED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE OR DER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 10 . 16 . IN VIEW OF THE ABOVE SUBMISSIONS MADE BY THE DEPARTMENTAL REPRESENTATIVE, WE DISMISS THE GROUND OF APPEAL OF THE REVENUE . 17 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON WEDNESDAY , THE 1 6 TH DAY OF MARCH , 201 6 AT JODHPUR . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER D ATED : 1 6 TH MARCH , 201 6 . VR/ - COPY TO: 1. THE ASSESS E E. 2. THE REVENUE. 3. THE CIT 4. THE CIT(A) 5. THE D.R . 6. GUARD FILE. BY ORDER .