Raymon Glues & Chemicals, Baroda V. The ACIT.,Circle-2(2), Baroda

ITA 445/AHD/2008

• Counselvise Citation: 44520514 RSA 2008
• Duration Of Justice: 4 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-01-2012
• Assessment Year: 1998-1999
• Appeal Filed On: 07-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KARTAR SINGH
• Assessee Lawyers: M K PATEL
• Keywords: Corroborative evidences; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 80HHC; 234B

Judgement Text

ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 1 I N THE INCOME TAX APPELLATE TRIBUNAL A BENCH,AHMED ABAD (BEFORE SHRI D.K. TYAGI, J.M. AND SHRI A. L. GEHLO T, A.M.) I.T.A. NO. 445 /AHD/2008 (ASSESSMENT YEAR: 1998-99) M/S. RAYMON GELATINE, (NOW KNOWN AS RAYMON PATEL GELATINE PVT.LTD.) 61, HARIBHAKTI EXTENSION, OLD PADRA ROAD, BARODA. (APPELLANT) VS. ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-2, AAYAKAR BHAVAN, NEAR RACE COURSE CIRCLE, BARODA. (RESPONDENT) I.T.A. NOS. 26 7 TO 270/AHD/2008 (ASSESSMENT YEARS: 2000-01 TO 2003-04) M/S. RAYMON GELATINE, (NOW KNOWN AS RAYMON PATEL GELATINE PVT.LTD.) 61, HARIBHAKTI EXTENSION, OLD PADRA ROAD, BARODA. (APPELLANT) VS. ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-2, AAYAKAR BHAVAN, NEAR RACE COURSE CIRCLE, BARODA. (RESPONDENT) I.T.A. NO. 20 TO 23/AHD/2008 (ASSESSMENT YEARS: 200-01 TO 2003-04) ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 2 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, AAYAKAR BHAVAN, NEAR RACE COURSE CIRCLE, BARODA. (APPELLANT) VS. M/S. RAYMON GELATINE, (NOW KNOWN AS RAYMON PATEL GELATINE PVT.LTD.) 61, HARIBHAKTI EXTENSION, OLD PADRA ROAD, BARODA. (RESPONDENT) PAN : AACFR 0181P ON BEHALF OF THE ASSESSEE MR. M. K. PATEL. ON BEHALF OF THE REVENUE. MR. KARTAR SINGH, CIT (DR) ( )/ ORDER DATE OF HEARING : 31-1-201 2 DATE OF PRONOUNCEMENT : 29-2-12 PER: BENCH THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST TH E ORDERS OF CIT (A) II, BARODA DATED 26-11-2007 FOR THE ASSESSMENT YEAR 1998-99 AND BY COMMON ORDER DATED 29-10-2007 FOR A. YRS. 2000-01 T O 2003-04. 2. SOME COMMON GROUNDS OF APPEAL RAISED BY THE A SSESSEE BASED ON IDENTICAL FACTS THEREFORE FOR THE SAKE OF CONVENIEN CE THESE APPEALS ARE ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 3 DECIDED BY THIS COMMON ORDER .THE FACTS OF THE CASE LEADS IN AY 98-99 THEREFORE THE FIRST GROUND OF APPEAL FROM AY98-99 I S REPRODUCED AS UNDER:- 1 THE LD. CIT (A) ERRED IN FACT AND IN LAW IN CONFI RMING ACTION OF THE INCOME TAX OFFICER, WARD 2(3), BARODA IN AGAIN CONC LUDING THAT AN AMOUNT OF RS.87,42,440/- REPRESENTS CAPITAL EXPENDITURE INS TEAD OF REVENUE EXPENDITURE ON REPAIRS TO PLANT AND MACHINERY DESPI TE THE FACT THAT THE APPELLANT HAS BEYOND DOUBT PROVED THAT THE SAID EXP ENSES ARE INCURRED IN NORMAL WEAR AND TEAR AND ARE ROUTINE EXPENSES INCUR RED IN THE NORMAL COURSE OF BUSINESS. SIMILAR ADDITIONS ARE MADE IN O THER YEARS I.E. A.Y.2000- 01 TO 2003-04 ,DETAILS OF THOSE ADDITIONS ARE AS UN DER:- 1. A.Y. 2000-01 26,51,943 + 51,32,640 2. A.Y. 2001-02 15,49,411 + 30,49,031 3. A.Y. 2002-03 33,33,753 + 38,14,059 4. A.Y. 2003-04 34,82,494 + 40,44,092 . 3. THE BRIEF FACTS OF THE CASE FOR A.Y. 1998-99 ARE THAT IT IS SECOND ROUND OF LITIGATION. IN THE FIRST ROUND OF LITIGATION THE ITAT VIDE ITA NO.3913/AHD/2007 DATED 18-9-2003 A.Y. 1998-99 HAS S ENT THE TO THE FILE OF AO AS UNDER:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE P ARTIES AND PERUSED THE RECORD. THE CONTROVERSY UNDER CONSIDERA TION IS IN RESPECT OF TREATMENT OF CERTAIN EXPENSES WHETHER THEY ARE C APITAL EXPENDITURE OR REVENUE EXPENDITURE. FOR THIS PURPOSE WE WOULD L IKE TO REFER SEC. 44AB. THE PURPOSE AND SCOPE OF SEC.44AB HAS BEEN EL ABORATED AT THE TIME OF INSERTION OF THE SAID SECTION BY THE DEPART MENTAL CIRCULAR ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 4 NO.387 DATED 6-7-84, IT HAS BEEN MENTIONED IN THE S AID CIRCULAR THAT AUDIT FOR TAX PURPOSES WOULD ENSURE THAT THE BOOKS OF ACCOUNT AND OTHER RECORDS ARE PROPERLY MAINTAINED, THAT THEY FA ITHFULLY REFLECT THE INCOME OF THE TAX PAYER AND CLAIM FOR DEDUCTIONS AR E CORRECTLY MADE BY HIM. SUCH AUDIT WOULD ALSO HELP IN THE CHECKING FRAUDULENT PRACTICES. IT CAN ALSO FACILITATE THE ADMINISTRATIO N OF TAX LAWS BY A PROPER PERSPECTIVE OF THE ACCOUNTS BEFORE THE TAX A UTHORITIES AND CONSIDERABLY SAVE THE TIME OF AO IN CARRYING OUT RO UTINE VERIFICATION, LIKE CHECKING CORRECTNESS OF TOTAL AND VERIFYING WH ETHER PURCHASES AND SALES ARE PROPERLY VOUCHED OR NOT. THE TIME OF AO THUS SAVED COULD BE UTILIZED FOR ATTENDING FOR MORE IMPORTANT INVESTIGATIONAL ASPECT OF THE CASE. IT IS ALSO PERTINENT TO MENTION THAT THE AUDITOR IS TO REPORT IN 3 CD FORM ABOUT THE CAPITAL AND REVENUE E XPENSES. THERE IS SPECIFIC QUERY IN FORM 3CD WHICH IS TO BE REPLIED B Y THE AUDITOR AND EVEN QUANTIFIED THE AMOUNT. THE EXPENDITURE OF CAPI TAL NATURE DEBITED TO PROFIT AND LOSS ACCOUNT IS TO BE REPLIED BY THE AUDITOR IN COL.17 OF THE FORM 3 CD. ON PERUSAL OF THE ORDERS O F THE REVENUE AUTHORITIES, WE FIND THAT THE ISSUE PERTAINING TO C APITAL/REVENUE EXPENDITURE HAS BEEN DECIDED WITHOUT CONSIDERING TH IS REPORT AND WITHOUT CONFRONTING THE AUDITOR WHICH IS CONTRARY T O THE OBJECT AND SCOPE OF SEC.44AB. AFTER CONSIDERING THE TOTALITY O F THE FACTS OF THE CASE WE THINK IT PROPER TO SEND BACK THIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO ACCEPT THE BIFURCATION OF CAPITAL EXPE NDITURE AND REVENUE EXPENDITURE AS GIVEN BY THE AUDITOR IN HIS REPORT, IF AO FOUND THAT THE BIFURCATION HAS NOT PROPERLY MADE BY THE AUDITO R IN HIS REPORT, THE AO MAY CONSIDER THE BIFURCATION IN ACCORDANCE W ITH LAW AFTER CONFRONTING TO THE AUDITOR ON THE ISSUE AND RECORDI NG THE REASONS BY A SPEAKING ORDER FOR DOING SO. FOR THIS PURPOSE THE A O IS TO PROVIDE REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 4. IN THE SECOND ROUND OF LITIGATION FOR A.Y. 1998- 99 THE AO ASKED THE ASSESSEE TO FILE FOLLOWING DETAILS. ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 5 4.4. FOLLOWING DETAILS WERE CALLED FOR WITH REFERE NCE TO THE CAPITALIZATION OF THE EXPENDITURE INCURRED ON ACCOU NT OF REPAIRS TO PLANT AND MACHINERY: 1. YOU ARE REQUESTED TO PLEASE SUBMIT THE BASIS ON WHICH THE BIFURCATION WAS MADE BY YOU. 2. IN YOUR CASE, YOU ARE ALSO REQUESTED TO PLEASE P RODUCE THE NECESSARY AND RELEVANT RECORDS MAINTAINED BY YOU WH ICH ENABLED THE AUDITOR TO ARRIVE AT THE BIFURCATION OF THE EXPENSES. 3. THE AUDITOR OF YOUR CASE FOR A.Y. 1998-99 IS GIV EN AN OPPORTUNITY TO EXPLAIN THE BASIS OF THE BIFURCATION MADE FOR A.Y.98-99. YOU ARE GIVEN AN OPPORTUNITY TO PRODUCE THE AUDITOR ALONG WITH NECESSARY EVIDENCES IN HIS POSSESSION I. E. AUDIT FILE, WORKING PAPERS, ETC. AND ALSO THE DOCUMENTS AVAILAB LE WITH HIM WHICH ENABLE HIM TO BIFURCATE THE SAID EXPENDIT URE AS REVENUE OR CAPITAL EXPENDITURE FOR A.Y. 1998-99. 4. THE AUDITOR OF YOUR CASE FOR A.Y. 1998-99 MAY AL SO SUBMIT WRITTEN SUBMISSIONS, OUTLINING THE SPECIFIC OBJECTI ONS, ON THE BIFURCATION MADE BY THE ASSESSING OFFICER IN THE AS SESSMENT ORDER FOR A.Y. 2000-01. 5. PLEASE FURNISH THE DETAILS OF THE CORRESPONDENCE MADE BY YOU WITH THE AUDITOR WHICH ENABLE THE BIFURCATION OF CA PITAL AND REVENUE EXPENDITURE. 5. THE SUBMISSIONS OF THE ASSESSEE WHICH HAVE BEEN REPRODUCED BY THE AO IN HIS ORDER AS UNDER:- THE ASSESSEE FIRM HAS SUBMITTED AS UNDER: WE STATE THAT WE ARE GUIDED BY ACCOUNTING STANDARD S FORMULATED AND DECLARED BY THE INSTITUTE OF CHARTERED ACCOUNTA NTS OF INDIA. FOR EXPENSES RELATING TO REPAIRS AND MAINTENANCE TO PLA NT AND MACHINERIES, WE HAVE FOLLOWED AS-10 WHICH STATES VI DE ITS PARA-23 THAT. ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 6 SUBSEQUENT EXPENDITURE RELATED TO AN ITEM ON FIXED ASSET SHOULD BE ADDED TO ITS BOOK VALUE ONLY IF THEY INCREASE THE F UTURE BENEFITS FROM THE EXISTING ASSET BEYOND ITS PREVIOUSLY ASSESSED S TANDARD OF PERFORMANCE. FOLLOWING RELEVANT RECORD MAINTAINED BY US TO ENABL E AN AUDITOR TO ARRIVE A BIFURCATION OF THE EXPENSES, WE STATE AS U NDER: WE ARE A PARTNERSHIP FIRM ESTABLISHED IN THE YEAR 1 963, ENGAGED IN MANUFACTURING OF OSSEIN, GELATINE, DCP AND MARINE P RODUCTS. THE PARTNERS OF THE FIRM ARE: 1. MR. N. B. PATEL, B.E. 2. MR. R. B. PATEL, M.SC. TECH (MANCHESTER) 3. MR. M. B. PATEL, B. SC. ALL THE ABOVE PARTNERS ARE HAVING TECHNICAL QUALIFI CATIONS, WELL SUPPORTED BY QUALIFIED AND EXPERIENCES TECHNICAL TE AM AT THE FACTORY. WE FOLLOW SYSTEM WHERE BILL FOR ANY TECHNICAL TERMS IS FIRST SANCTIONED, SUBSEQUENTLY APPROVED BY THE CONCERNED ENGINEER/SUPERVISOR/TECHNICAL/STORE/ PERSON/S USING THE MATERIALS OR SERVICES. WHILE APPROVING THE BILL BY THE CONCERNED /ENGINEER/PERSON, THEY NOTE IN THE BILL THE PURPOSE FOR WHICH EXPENSE S ARE INCURRED AND BASED ON THAT WE BIFURCATE THE EXPENSES EITHER TO R EVENUE OR CAPITAL. AT THE TIME OF AUDIT, ALL VOUCHERS AND RELEVANT PAP ERS RECEIVED FROM THE PLANT ARE SHOWN TO AUDITORS FOR ARRIVING AT COR RECT DECISION. OUR FIRM, IS HAVING INTERNAL CONTROLLING SYSTEM INCLUDI NG INTERNAL AUDITING SYSTEM, WHICH IS COMMENSURATE WITH THE SIZE AND NAT URE OF THE BUSINESS. DURING THE YEAR UNDER CONSIDERATION, THE AUDIT OF F INANCIAL STATEMENTS AND TAX AUDIT WERE DONE BY M/S. C.C. CHO KSHI & CO., CHARTERED ACCOUNTANTS. OUR FIRM HAD ENGAGED THIS FI RM OF CHARTERED ACCOUNTANT SINCE THE ACCOUNTING YEAR 1994-95 SO THE AUDITORS POSSESS ADEQUATE KNOWLEDGE OF OUR BUSINESS. FURTHER, BESIDE S PHYSICAL DOCUMENTS, THEY INTERACT AND DISCUSS THE PARTNERS A ND PEOPLE OF OUR FIRM TO ARRIVE AT BETTER AUDITING DECISIONS. TO GAI N KNOWLEDGE OF FUNCTIONING OF THE COMPANY, AUDITORS VISITS PLANT A T VALSAD. ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 7 5.1 THE AUDITOR HAS ALSO FILED WRITTEN SUBMISSI ONS STATING AS UNDER: JUSTIFICATION FOR THE BASIS ON WHICH THE BIFURCATI ON HAS BEEN MADE WITH REGARD TO REPAIRS TO PLANT AND MACHINERY: 1.1. THE BIFURCATION OF EXPENSES PERTAINING TO PLA NT AND MACHINERY BETWEEN REVENUE AND CAPITAL HAS BEEN DONE IN AC CORDANCE WITH ACCOUNTING STANDARD 10 ON ACCOUNTING FOR FIXED ASS ETS (AS-10). THE RELEVANT EXTRACT OF THE AS-10 IS REPRODUCED BEL OW: 23. SUBSEQUENT EXPENDITURES RELATED TO AN ITEM OF FIXED ASSET SHOULD BE ADDED TO ITS BOOK VALUE ONLY IF THEY INCR EASE THE FUTURE BENEFITS FROM THE EXISTING ASSET BEYOND ITS PREVIOU SLY ASSESSED STANDARD OF PERFORMANCE. 1.2 BASED ON THE SUPPORTING EVIDENCE/TESTED BY U S ON EXAMINATION AND THE INFORMATION AND EXPLANATIONS RECEIVED FROM THE MANAGEMENT DURING THE AUDIT, THE AMOUNT OF RS.1,49,65,738/- CHA RGED AS REPAIRS TO PROFIT AND LOSS ACCOUNT DID NOT INCREASE THE FUT URE BENEFITS OF THE EXISTING PLANT AND MACHINERY AS REFERRED TO IN THE AS-10 SINCE THE SAID EXPENDITURE WAS EITHER IN THE NATURE OF REPLAC EMENT OF REGULAR MAINTENANCE. 1.3. BASED ON OUR REVIEW, WE ALSO OBSERVED THAT THE ASSESSEE HAS ADDED SUBSTANTIAL AMOUNT OF CWIR FOR EXPENDITURE ON INCREASE IN CAPACITY THAT WAS UNDERWAY. IN OUR OPINION THEREFOR E, THERE IS NO REASONABLE GROUND TO BELIEVE THAT CAPITAL EXPENDIT URE HAS BEEN CHARGED TO REPAIRS AND MAINTENANCE. 1.4. BASED ON OUR ANALYTICAL REVIEW, WE ALSO OBSERVE THA T THE EXPENDITURE AS A PERCENTAGE TO THE COST OF ASSETS I N USE WAS IN FACT LOWER THAN THE PAST TREND ..FURTHER, THE ASSESSEE WAS IN THE PROCESS OF RELO CATING THE PRODUCTION SET-UP TO THE ADJOINING NEW FACILITY WHE RE ADDITIONAL EXPENDITURE ON CAPACITY EXPANSION (DEBITED TO CWIP) WAS ALSO INCURRED. THE EXPENDITURE ON DISMANTLING/REASSEMBLI NG FOR SHIFTING CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE WHEN AL L EXPENDITURE RELATABLE TO CAPACITY ENHANCEMENT IS SEPARATELY ACC OUNTED FOR. ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 8 6. THE FINDINGS OF THE AO ARE AS UNDER:- HOWEVER, NO INFORMATION REGARDING THE RECORDS AND EVIDENCES ON THIS ISSUE IS FORTHCOMING. IN VIEW OF THE ABOVE FAC TS AND CIRCUMSTANCES OF THIS CASE AND KEEPING IN MIND THE FACT THAT NO FRESH EVIDENCES HAVE BEEN FILED BY THE ASSESSEE, THE ARGU MENTS PUT FORTH BY THE ASSESSEE ARE NOT CONVINCING AND DESERVE TO BE R EJECTED. THEREFORE, ON ACCOUNT OF THE ABOVE NOTED FACTS OF THE CASE, A SUM OF RS.87,42,440/- IS ADDED TO THE TOTAL INCOME OF THE A SSESSEE AND FURTHER PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE I. T. ACT IS SEPARATELY INITIATED ON THIS ACCOUNT. 7. THE CIT (A) CONFIRMED THE ORDER OF THE A.O. 8. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PART IES AND RECORDS PERUSED. IN THE CASE UNDER CONSIDERATION FIRST ISSU E WHICH IS TO BE EXAMINED WHETHER THE AO HAS CARRIED OUT THE DIRECTIONS GIVEN BY THE ITAT IN FIRST ROUND OF LITIGATION. WE FIND THAT THE AO FAILED TO CARRY OUT DIRECTIONS GIVEN BY THE ITAT. THE ITAT HAS CLEARLY DIRECTED THE AO T O FIND OUT HOW THE BIFURCATION MADE BY THE AUDITOR AS REVENUE EXPENDITU RE IN HIS AUDIT REPORT IS IN CORRECT. THE SUBMISSIONS OF THE ASSESSE E BEFORE AO, THAT THEY FOLLOWED SYSTEM WHERE BILL FOR ANY TECHNICAL TERMS IS FIRST SANCTIONED, SUBSEQUENTLY APPROVED BY THE CONCERNED ENGINEER/SUPERVISOR/TECHNICAL/STORE/PERSON/S USING THE MATERIALS OR SERVICES. WHILE APPROVING THE BILL BY THE CONCERNED /ENGINEER/PERSON, THEY NOTE IN THE BILL THE PURPOSE FOR WHICH EXPENSES ARE INCURRED AND BASED ON THAT THEY BIFURCATED THE EXPENSES EITHER TO REVENUE OR CAPITAL. AT THE TIME OF ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 9 AUDIT, ALL VOUCHERS AND RELEVANT PAPERS RECEIVED FR OM THE PLANT ARE SHOWN TO AUDITORS FOR ARRIVING AT CORRECT DECISION. IT IS SUBMITTED THAT THE ASSESSEE FIRM, IS HAVING INTERNAL CONTROLLING SYSTEM INCLUDI NG INTERNAL AUDITING SYSTEM, WHICH IS COMMENSURATE WITH THE SIZE AND NAT URE OF THE BUSINESS. THE AUDITOR ALSO SUBMITTED BEFORE THE AO THAT THE B IFURCATION OF EXPENSES PERTAINING TO PLANT AND MACHINERY BETWEEN REVENUE AND CAPITAL HAS BEEN DONE IN ACCORDANCE WITH ACCOUNTING STANDARD 10 ON ACCOUNTING FOR FIXED ASSETS (AS-10). BASED ON THE SUPPORTING EVIDENCE/T ESTED BY AUDITOR AND ON EXAMINATION AND THE INFORMATION AND EXPLANATIONS RE CEIVED FROM THE MANAGEMENT DURING THE AUDIT REPORTED THAT, THE AMOU NT OF RS.1,49,65,738/- CHARGED AS REPAIRS TO PROFIT AND LOSS ACCOUNT DID NOT INCREASE THE FUTURE BENEFITS OF THE EXISTING PLANT AND MACHINERY AS REF ERRED TO IN THE AS-10 SINCE THE SAID EXPENDITURE WAS EITHER IN THE NATURE OF REPLACEMENT OF REGULAR MAINTENANCE. FURTHER, IT WAS STATED THAT TH E ASSESSEE WAS IN THE PROCESS OF RELOCATING THE PRODUCTION SET-UP TO THE ADJOINING NEW FACILITY WHERE ADDITIONAL EXPENDITURE ON CAPACITY EXPANSION (DEBITED TO CWIP) WAS ALSO INCURRED. THE EXPENDITURE ON DISMANTLING/R EASSEMBLING FOR SHIFTING CANNOT BE CONSIDERED AS CAPITAL EXPENDITUR E WHEN ALL EXPENDITURE RELATABLE TO CAPACITY ENHANCEMENT IS SEPARATELY ACC OUNTED FOR. BASED ON OUR REVIEW, THE AUDITOR HAS OBSERVED THAT THE ASSESSEE HAS ADDED SUBSTANTIAL AMOUNT OF CWIR FOR EXPENDITURE ON INCREASE IN CAPAC ITY THAT WAS UNDERWAY. IN OPINION OF THE AUDITOR THERE IS NO REA SONABLE GROUND TO BELIEVE THAT CAPITAL EXPENDITURE HAS BEEN CHARGED TO REPAIRS AND ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 10 MAINTENANCE. LET US SEE AGAINST THE ABOVE CATEGORIC AL SUBMISSION BY THE ASSESSEE AND ITS AUDITOR WHAT THE AO HAS DONE. THE AO WITHOUT TAKING ANY TROUBLE SEE THE RECORD SIMPLY REJECTED ALL THESE CO NTENTION AND SUBMISSION THE ASSESSEE DID NOT FURNISHED THE INFORMATION WHER EAS BOOKS OF ACCOUNT AND DETAILS OF EACH ITEM OF EXPENDITURE WERE BEFORE THE AO. MERELY BY SAYING THAT THE INFORMATION DID NOT FURNISHED BY TH E ASSESSEE IS NOT SUFFICIENT TO SAY THAT THE AO HAS CARRIED THE DIREC TION GIVEN BY THE ITAT IN THE FIRST ROUND OF LITIGATION. APART FROM THE ABOVE , DURING THE COURSE OF HEARING IT WAS SPECIFICALLY ASKED LD. DR TO POINT OU T ANY ITEM OF EXPENDITURE OF WHICH DETAILS AVAILABLE ON RECORD IN THE PAPER BOOK OF ASSESSEE WHICH IS A CAPITAL IN NATURE. THE LD. DR FA ILED TO POINT OUT ANY ITEM OF SUCH EXPENDITURE WHICH IS CAPITAL IN NATURE . MERELY ON PRESUMPTION, ON THE BASIS OF QUANTUM OF EXPENDITURE WITHOUT CONSIDERING NATURE OF BUSINESS ACTIVITIES IT CANNOT BE SAID THA T THE EXPENDITURE ARE IN CAPITAL IN NATURE. IT IS PERTINENT TO MENTION THAT THE AUDITORS OPINION IS TECHNICAL OPINION AND UNLESS FOUND OTHERWISE THE AO IS BOUND TO ACCEPT OPINION OF TECHNICAL PERSON SIMILAR AS TO THE CASE WHERE OPINION EXPRESSED IN VALUATION OF PROPERTY BY DVO OR REGISTERED VALUER . THE OPINION OF AUDITOR IS ALSO ONE TYPE OF STATUTORY OPINION AS TH E AUDIT IS TO BE CARRIED OUT UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT AND THE PROVISIONS OF COMPANIES ACT. IN THE CASE UNDER CONSIDERATION THE AO OVERLOOKED ALL THOSE ASPECTS AND DIRECTION OF THE ITAT AND REPEATI NG THE ADDITION MERELY BY SAYING THAT NO DETAILS AND EVIDENCES HAVE BEEN F URNISHED. THE AO WENT ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 11 ON ASKING THE AUDITOR TO FURNISH IRRELEVANT INFORMA TION FROM THE AUDITORS STAFF WHO HAS CARRIED OUT THE AUDIT WORK. WHEN THE ASSESSEE PRODUCED BOOKS OF ACCOUNT AND DETAILS OF EXPENDITURE THE AO IS DUTY BOUND TO POINT OUT SPECIFIC ITEM OF EXPENDITURE HOW IT WAS CAPITAL IN NATURE. THE ITAT HAS CLEARLY DIRECTED TO EXAMINE THE EXPENDITURE AND IF HE FOUND OTHERWISE THEN VIEW OF ASSESSEE AND AUDITOR GIVES REASONS ON EACH ITEM OF EXPENDITURE WHY HE IS NOT ACCEPTING BY PASSING SPEAKING ORDER. ON PERUSAL OF ORDER AND AS FINDING REPRODUCED ABOVE WE FIND THAT THE AO HAS COMPLETELY FAILED ON THIS ACCOUNT, THEREFORE, JUDICIAL DISCIPLE REQUI RES THAT THE AOS ORDER TO BE QUASHED ON THIS BASIS ITSELF. 9. NOW LET SEE MERIT OF THE CASE. THE ASSESSEES CL AIM IS REPAIRS AND MAINTENANCE OF PLANT AND MACHINERIES. THE ASSESSEE FIRM IS ENGAGED IN MANUFACTURING BUSINESS OF OSSEIN, GELATIN, GLUE D1 CALCIUM PHOSPHATES (DCP) ETC., AT ITS FACTORY AT VALSAD AND EXPORTING OF MARINE PRODUCTS. WHILE DETERMINING NATURE OF EXPENDITURES THE TEST THAT SH OULD BE BORNE IN MIND IS THAT A RESULT OF THE EXPENDITURE WHICH IS CLAIMED A S A REVENUE EXPENDITURE WHAT IS REALLY BEING DONE IS TO PRESERVE AND MAINTA IN AN ALREADY EXISTING ASSET. THE OBJECT OF THE EXPENDITURE IS NOT TO BRIN G A NEW ASSET INTO EXISTENCE, OR IS ITS OBJECT THE OBTAINING OF A NEW OR FRESH ADVANTAGE. IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGING INTO E XISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN OBVIOUSLY SUCH EXPE NDITURE WOULD NOT BE EXPENDITURE OF REVENUE NATURE BUT IT WOULD BE A CAP ITAL EXPENDITURE. THE ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 12 JURISDICTIONAL HIGH COURT IN THE CASE OF SARABHAI M . CHEMICALS PVT. LTD. VS. CIT 127 ITR 74 (GUJ.) AND CIT VS. GUJARAT MINERAL D EVELOPMENT CORPORATION 132 ITR 377 (GUJ.) HELD THAT NEW POWER L INES LAID BY ELECTRICITY BOARD TO INCREASE SUPPLY OF ELECTRICITY CONSUMPTION AMOUNT PAID BY ASSESSEE AS ITS SHARE TO ELECTRICITY BOARD IS REVEN UE EXPENDITURES AS EXPENDITURES WERE INCURRED WAS ON GROUNDS OF COMMER CIAL EXPEDIENCY FOR AUGMENTING PROFITABILITY OF ASSESSEES PROFIT MAKI NG STRUCTURE THEREFORE, IT IS REVENUE EXPENDITURE. ON PERUSAL OF DETAILS OF EX PENDITURES AVAILABLE ON RECORD WE NOTICED THAT THE EXPENDITURES WHICH HAVE CLAIMED BY ASSESSEE CONSIDERING NATURE OF BUSINESS ACTIVITIES OF ASSESS EE DOES NOT CREATE ANY NEW ASSET OR FRESH ADVANTAGES. THE ASSESSEE HAS FUR NISHED SUFFICIENT MATERIAL IN SUPPORT OF CLAIM THAT EXPENDITURE CLAIM ED WERE REVENUE IN NATURE. THE EXPENDITURES HAVE BEEN ACCOUNTED FOR IN BOOKS OF ACCOUNT ON DAY TO DAY BASIS. THE AUDITOR IS SUPPOSED TO VERIFY EACH AND EVERY ENTRY IN BOOKS OF ACCOUNT BEFORE SUBMITTING HIS REPORT. IF C APITAL EXPENDITURE IS ACCOUNTED FOR AS REVENUE EXPENDITURE THE AUDITOR IS DUTY BOUND TO REPORT THIS FACT IN THE AUDIT REPORT. IN THE CASE UNDER CO NSIDERATION WE DO NOT FIND SUCH REMARK BY AUDITOR IN HIS AUDIT REPORT. THE AO THOUGH AT PAGE 4 OF HIS ORDER REPRODUCED THE GUIDELINES RELATING TO CAPITAL EXPENDITURE BUT WITHOUT EXAMINING A SINGLE ITEM OF EXPENDITURE REJE CTED ASSESSEES CLAIM SIMPLY BY MENTIONING THAT THE ASSESSEE AND AUDITOR BOTH HAVE FAILED TO FURNISH INFORMATION. THE AO DID NOT MENTION ANY SPE CIFIC INFORMATION OR DETAILS OF SPECIFIC EXPENDITURE WHEREAS THE ASSESS EES AUDITOR SUBMITTED ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 13 BEFORE THE AO THAT EXPENSES PERTAINING TO PLANT AND MACHINERY BETWEEN REVENUE AND CAPITAL HAVE BEEN DONE IN ACCORDANC E WITH ACCOUNTING STANDARD AS-10, GUIDELINES IN THIS REGARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. WHEN THE ASSESSEE F URNISHED REASONABLE EVIDENCE AND MATERIAL IN SUPPORT OF CLAIM UNDER THO SE CIRCUMSTANCES IT CAN BE SAID THAT THE ASSESSEE HAS DISCHARGED ITS PRIMA FACIE BURDEN. IF THE AO WANTS TO HELD OTHERWISE THEN BURDEN IS ON AO TO EST ABLISH WITH SPECIFIC REASONS OF PARTICULAR EXPENSES ON WHAT BASIS THE EX PENDITURE CLAIM BY THE ASSESSEE AS REVENUE EXPENDITURE IS NATURE OF CAPITA L EXPENDITURE BEFORE REJECTING ASSESSEES CLAIM. IN THE CASE UNDER CONSI DERATION WE FIND THAT THE AO REPEATED THE ADDITION MERELY ON BASIS OF PRESUMP TION RELIED UPON EARLIER FINDING OF THE AO, THE ORDER WHICH HAS BEEN SET ASIDE BY ITAT IN A.Y. 1998-99, SUCH ORDER CAN NOT BE SUSTAINED. 10. SIMILAR ADDITIONS ARE MADE IN OTHER YEARS I.E. A.Y.2000-01 TO 2003-04 DETAILS OF THOSE ADDITIONS ARE AS UNDER:- A.Y. 2000-01 26,51,943 + 51,32,640 A.Y. 2001-02 15,49,411 + 30,49,031 A.Y. 2002-03 33,33,753 + 38,14,059 A.Y. 2003-04 34,82,494 + 40,44,092 11. THE CIT (A) PASSED CONSOLIDATED ORDER FOR ALL T HE ABOVE YEARS. THE AO WHILE MAKING ADDITIONS HAS FOLLOWED HIS ORDER FO R A.Y.1998-99.THE CIT (A) CONFIRMED THE ORDERS OF AO FOR ALL FOUR YEARS A S UNDER:- ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 14 CONSIDERING THE FACT THAT THE NEITHER ASSESSEE NO R ITS AUDITOR COULD SUBSTANTIATE ITS CLAIM OF BIFURCATION OF EXPENSES B Y ANY EVIDENCE OR WORKING PAPERS, IT CANNOT BE CONCLUDED THAT THE METHOD FOLL OWED BY THE ASSESSEE IS PERFECT. THE CLAIM THAT AUDITOR HAD BIFURCATED THE EXPENSES IS INCORRECT FROM THE VERY SUBMISSIONS OF THE ASSESSEE THAT ASSESSEE S EMPLOYEES ARE DOING THE BIFURCATION WHILE APPROVING THE BILLS WHICH MEANS A SSESSEE DECIDED WHICH EXPENSES IS CAPITAL AND WHICH PART IS REVENUE. AUDITORS ROLE IS NOT TO PHYSICALLY VERIFY WHETHER THE ALLOCATION IS CORRECT OR NOT. IF THE AUDITOR WOULD HAVE EXERCISED STRICT VIGIL ON THIS ISSUE, THERE COULD BE SOME WORKING PAPERS OR SOME NOTES OR QUERIES RAISED BY THE AUDIT OR TO THE ASSESSEE. IN THE ABSENCE OF ANY EVIDENCE IT CANNOT BE CONCLUDED THAT THE BIFURCATION OF EXPENSES ARE PERFECT. ASSESSEES UNDUE RELIANCE ON AUDITOR CLEARLY PROVE S THAT THE BIFURCATION DONE BY ITSELF IS NOT SOUND. THE AS SESSEES CLAIM THAT THE AUDITOR IS ACCOUNTABLE FOR SUCH BIFURCATION IS PROV ED BY THE ASSESSING OFFICER AS INCORRECT. IT IS THE ASSESSEE ITSELF WHO DID THE SAME. CONSIDERING THIS THE ASSESSEES SHIFTING ITS ONUS TO PROVE ANY EXPENSE A S REVENUE TO THE AUDITOR IS REJECTED. IN ANY CASE SCOPE OF TAX AUDIT DONE BY AU DITOR IS LIMITED WHICH DO NOT INCLUDE SUCH EXTENSIVE VERIFICATION. ASSESSEES ANOTHER OBJECTION IS TO THE REMARK OF T HE ASSESSING OFFICER THAT SOME OF THE VOUCHERS BELOW PARTICULAR LIMIT AR E NOT VERIFIABLE. ASSESSEE CLAIMED HAT ASSESSING OFFICER NEVER CALLED FOR SUCH VOUCHERS AND HENCE CANNOT BE SAID THAT THE SAME ARE VERIFIABLE OR NOT. WITHOUT GOING INTO WHETHER VOUCHERS ARE VERIFIABLE OR NOT, WHAT ASSESS ING OFFICER HAS DONE IS THAT HE BIFURCATED THE EXPENSES IN THE SAME RATIO A S EXPENSES ABOVE A PARTICULAR LIMIT. OBVIOUSLY ALL VOUCHERS CAN NOT BE VERIFIED OR REFERRED WHILE DECIDING THEIR NATURE. HAVING DONE THE SAME FOR MO RE THAN 50% EXPENSES, ASSESSING OFFICER IS RIGHT IN APPLYING THE SAME RAT IO TO THE REMAINING AMOUNT. I AGREE THAT THE SAME COULD BE LESS OR MORE . HOWEVER, SINCE THE SAME IS APPLIED FOR FOUR YEARS, ASSESSEE SHOULD NOT HAVE ANY GRIEVANCE. IT CAN BE SEEN THAT THIS RATIO IS 93% IN A.Y. 2000-01 WHICH I S AS LOW AS 48% IN A.Y. 2003-04. ASSESSING OFFICER IS FOLLOWING CONSISTENCY IN APPLYING THE RATIO IN ALL THE FOUR YEARS AND THEREFORE I DO NOT FIND ANY REASON TO INTERFERE WITH THE SAME. ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 15 ASSESSEE RELIED UPON CERTAIN DECISIONS WHICH DECID E A PARTICULAR EXPENSE AS REVENUE OR CAPITAL. THERE IS ABSOLUTELY NO DISPUTE OVER THIS ISSUE THAT AN EXPENSE ON REPAIRS WILL BE REVENUE IF IT RE SULTS IN JUS MAINTENANCE OF EXISTING PLANT. IF A NEW ASSET IS CREATED OR CAPACI TY OF PLANT IS INCREASED THEN THE EXPENDITURE IS CAPITAL IN NATURE. ASSESSING OFF ICER FOLLOWED THE SAME RATIONAL WHILE DECIDING THE NATURE OF EXPENSES. SIN CE ASSESSEE WAS BUILDING A NEW PLANT AT THE SAME SITE AND PART OF THE EXPENSES INCURRED AS REPAIRS AND MAINTENANCE WERE FOUND TO BE FOR THE NEW PLANT, THE SAME HAS TO BE TREATED AS CAPITAL IN NATURE. CONSIDERING THE FACT OF THE C ASE, NO JUDICIAL DECISION SUPPORTS THE ASSESSEES VIEW AND THEREFORE, THESE A RE NOT SEPARATELY DISCUSSED HERE. 12. FOLLOWING THE ABOVE DETAILED DISCUSSION MADE WH ILE DECIDING APPEAL FOR A.Y. 1998-99 WE NOTICED FROM THE CONSOLIDATED O RDER OF THE CIT(A) THAT THE CIT(A) HAS CONFIRMED THE ORDER OF THE AO ON TH E GROUND THAT SCOPE OF TAX AUDIT DONE BY AUDITOR IS LIMITED WHICH DO NOT I NCLUDE EXTENSIVE VERIFICATION. BUT WE NOTICED THAT EVEN AFTER EXTENS IVE VERIFICATION BY AO, THE AO FAILED TO POINT OUT ANY SPECIFIC INSTANCE TH AT HOW BIFURCATION MADE BY AUDITOR AS REVENUE EXPENDITURE. THE CIT (A) MERE LY ON THE BASIS OF GENERAL PRESUMPTION CONFIRMED THE ADDITION. THE CIT (A) UPHOLDING THE ACTION OF AO ADMITTING FACTS THAT ALL VOUCHERS CANN OT BE VERIFIED OR REFERRED WHILE DECIDING THEIR NATURE. THE AO HAS RIGHTLY MAD E ADDITION APPLYING SAME RATIO ON SAMPLE VERIFICATION. IT IS TO STATE T HAT CONTRARY TO THAT FINDING OF CIT (A) WE NOTICED THAT THE ASSESSEE MAINTAINED DAY TO DAY BOOKS OF ACCOUNTS AND VOUCHERS MENTIONING DETAILS AND NARRAT ION OF EXPENDITURE. THE FINDING OF CIT (A) IS WITHOUT BASIS ON MATERIAL S/FACTS THAT THE ASSESSEE ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 16 WAS BUILDING A NEW PLANT AT THE SAME SITE. THE FIND ING OF CIT (A) IS ON PRESUMPTION AND ADDITION ON SUCH PRESUMPTION CANNOT BE SUSTAINED. THEREFORE, SAME ARE DELETED. ` 13. IN THE LIGHT OF ABOVE DISCUSSION WE SET ASIDE T HE ORDERS OF REVENUE AUTHORITIES AND ALLOW THE CLAIM OF ASSESSEE AS REVE NUE EXPENDITURE. HOWEVER, THE AO IS DIRECTED TO WITHDRAW THE DEPRECI ATION IF ANY ALLOWED WHILE TREATING THE EXPENDITURES AS CAPITAL IN NATUR E. 14. THE SECOND GROUND OF APPEAL READS AS UNDER:- 2. THE CIT (A) ERRED IN FACT AND IN LAW IN CONFIRM ING THE ACTION OF THE AO IN HOLDING THAT GROSS AMOUNT OF INTEREST IS REQU IRED TO BE EXCLUDED FROM THE PROFITS FOR THE PURPOSE OF COMPUTING DEDUC TION U/S. 80HHC OF THE INCOME TAX ACT, 1961 AND NO DEDUCTION SHOULD BE GRA NTED FOR EXPENSES INCURRED FOR EARNING THE SAID INCOME DESPITE THE FA CT THAT THE APPELLANT HAS FULFILLED ALL THE CONDITIONS MENTIONED IN THE ORDER OF THE TRIBUNAL. 15 THE SECOND GROUND OF APPEAL IN A.Y. 1998- 99 IS ALSO OF SECOND ROUND OF LITIGATION. IN THE FIRST ROUND OF LITIGATION THE ITAT SENT BACK THE MATTER TO THE FILE OF AO WITH DIRECTION TO VERIFY NEXUS BETWE EN INTERESTS RECEIVED AND PAID AND ALLOWED NETTING. THE RELEVANT FINDING OF I TAT IS AS UNDER:- 7.3 THE HONBLE ITAT VIDES ITS ORDER NO. ITA 3913 /AHD/2002 DATED 18-9-2003 HAS SET-ASIDE THE ASSESSMENT AND HAS REST ORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER OBSERVING AS FOLL OWS: ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 17 WE FOLLOW THE ORDER OF ITAT (SUPRA) AND IN VIEW O F THAT WE SEND BACK ISSUE TO THE FILE OF THE AO WITH A DIRECTION T O CALCULATE DEDUCTION U/S. 80HHC S PER TRIBUNALS ORDER FOR A.YS. 1996-97 AND 1997-98 AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. HOWEVER, AS PER THE FACTS OF THE, IT WOULD BE RELE VANT TO CITE THE OBSERVATION OF THE HONBLE ITAT FOR A.Y. 1997-98. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PARTI ES AND PERUSED THE RECORD. AFTER CONSIDERING THE TOTALITY OF THE F ACTS OF THE CASE WE WOULD LIKE TO EXAMINE THE ISSUE ON THE BASIS OF ACC OUNTING PRINCIPLES. AS PER THE ACCOUNTING PRINCIPLES THE INTEREST ACCOU NT HAS TWO SIDES DEBIT AND CREDIT, THE INTEREST RECEIVED IS REQUIRED TO BE CREDITED AND THE INTEREST PAID IS REQUIRED TO BE DEBITED. ON THE BASIS OF THIS ACCOUNTING PRINCIPLES THE BALANCE IN THE INTEREST A CCOUNT IS TO BE TAKEN IN THE FINAL STATEMENT I.E. PROFIT AND LOSS ACCOUNT . THIS ACCOUNTING PRINCIPLE SUPPORTS THE CLAIM OF THE ASSESSEE. FURTH ER, THE CONTENTION OF THE ASSESSEE THAT THE FIXED DEPOSITS FROM WHERE THE ASSESSEE HAS RECEIVED INTEREST INCOME WERE MADE OUT OF THE CASH CREDIT ACCOUNTS. IN SUCH A SITUATION WE ARE OF THE VIEW THAT IF THE INTEREST RECEIVED AND PAID HAVE A DIRECT NEXUS THEN ONLY NET INTEREST CAN BE CONSIDERED IN THE PROFIT AND LOSS ACCOUNT. SINCE RELEVANT MATERIA LS ARE NOT READILY AVAILABLE FOR VERIFICATION, WE THINK IT PROPER TO S END BACK THIS ISSUE TO THE FILE OF THE AO TO VERIFY THE NEXUS BETWEEN THE INTEREST RECEIVED AND PAID IF THE AO FOUND SUCH NEXUS, NETTING CLAIM OF THE ASSESSEE BE ALLOWED AFTER GIVING REASONABLE OPPORTUNITY OF HEAR ING TO THE ASSESSEE. 16 IN THE CASE UNDER CONSIDERATION THE AO REPEAT ED THE ACTION OF AO WHICH WAS TAKEN IN ORIGINAL ASSESSMENT ON THE GROUN D THAT THE ASSESSEE FAILED TO ESTABLISH NEXUS IN BETWEEN INTEREST RECEI VED AND PAID. THE ORDER OF AO HAS BEEN CONFIRMED BY THE CIT (A). ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 18 17 WE HAVE HEARD THE LD. REPRESENTATIVES OF PARTI ES AND RECORD PERUSED. ON PERUSAL OF INTEREST OF WHICH DETAILS HAVE BEEN P LACED AT PAGE 195 OF THE PAPER BOOK WE NOTICED THAT THE ASSESSEE SIMPLY FURN ISHED THE DETAILS OF INTEREST RECEIVED AND PAID WITHOUT ESTABLISHING NEX US AS PER DIRECTION GIVEN BY THE ITAT. MERELY MAINTAINING ONE ACCOUNT O F INTEREST RECEIVED AND PAID IT CANNOT BE HELD THAT INTEREST PAID WAS I NCURRED FOR EARNING THAT INTEREST INCOME. THE NEXUS AS REQUIRED AS PER THE D IRECTION OF ITAT WHICH CAN BE EXPLAINED BY AN EXAMPLE. IF AN ASSESSEE HAS TAKEN LOAN AGAINST FIXED DEPOSITS, THE INTEREST INCOME RECEIVED FROM FIXED D EPOSIT AND INTEREST PAID ON ACCOUNT OF LOAN AGAINST FIXED DEPOSIT, UNDER THE CIRCUMSTANCES THE ASSESSEE IS ENTITLED FOR NETTING BENEFIT, BUT IN TH E CASE UNDER CONSIDERATION THE ASSESSEE FAILED TO PROVE NEXUS THEREFORE, WE UP HOLD THE ORDER OF CIT (A).THE LD. AR RELIED UPON A JUDGMENT OF DELHI HIGH COURT IN THE CASE OF CIT VS. SHRIRAM HONDA POWER EQUIPMENT & OTHERS 289 ITR 475 (DELHI). THIS JUDGMENT DOES NOT HELP TO THE ASSESSEE AS THE AO WAS TO DECIDE THE ISSUE IN ACCORDANCE WITH DIRECTION GIVEN BY THE ITA T IN THE FIRST ROUND OF LITIGATION. THE MATTER WAS SENT ONLY FOR VERIFICATI ON OF NEXUS. 18 THIRD GROUND RAISED IN A.Y 98-99 IS THAT THE CIT (A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CHARGI NG INTEREST U/S. 234B OF THE ACT. THIS GROUND OF APPEAL IS CONSEQUENTIAL GRO UND THE AO IS DIRECTED ACCORDINGLY. ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 19 19 THE FOURTH GROUND RAISED IN 98-99 IS THAT THE CIT (A) ERRED IN FACT AND IN LAW IN CONFIRMING ACTION OF THE AO IN INITIATING PENALTY U/S. 271(1) (C) OF THE ACT. THIS IS PREMATURE GROUND REQUIRES NO FINDI NG. 20. THE SECOND COMMON GROUND OF APPEALS OF ASSESSE E FOR A.Y. 2000-01, 2001-02 AND 2003-04 RAISED IN THESE APPEALS IS PERT AINING TO CALCULATION OF DEDUCTION U/S. 80HHC IN RESPECT OF INTEREST INCOME OF RS.1,17,37,170, RS.1,05,77,829 AND RS.95,69,213/- FOR A.Y. 2000-01, 2001-02 AND 2003-04 RESPECTIVELY. THE AO REDUCED 90% OF THE ABOVE INTER EST INCOME FROM THE PROFIT OF BUSINESS OF THE ASSESSEE FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S. 80HHC OF THE ACT. THE CIT (A) CONFIR MED THE ACTION OF THE AO. 21. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORDS PERUSED. THE LD. AR SUBMITTED THAT THE ISSUE IS COVE RED BY THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF SHRIRAM HONDA EQ UIPMENT LTD., 289 ITR 475 (DELHI).AFTER HEARING THE LD. DR WE THINK PROPE R TO SEND BACK THIS ISSUE TO THE FILE OF THE A.O. AS THE FACTS OF THE ISSUE ARE REQUIRED TO BE EXAMINED IN THE LIGHT OF THE ABOVE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF SHRIRAM HONDA EQUIPMENT LTD. (SUPRA).THE AO WILL DECIDE THE ISSUE AFTER PROVIDING OPPORTUNITY OF HEARING TO THE ASSESSEE. 22 ONE MORE GROUND RAISED IN REVENUES APPEAL FOR A .Y. 2000-01, 2001- 02 AND 2003-04 IS IN RESPECT OF DISALLOWANCE OF DED UCTION U/S. 80HHC ON ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 20 THE GROUND THAT MARINE PRODUCTS EXPORTED IS NOT MAN UFACTURE. THE CIT (A) FOLLOWED THE ORDER OF ITAT FOR A.Y. 1996-97 IN ITA NO.910/AHD/2001.THE RELEVANT FINDING OF CIT (A) FROM A.Y. 2000-01 VIDE PARA 3.3.2 IS REPRODUCED AS BELOW:- 3.3.2. ON THE ISSUE OF TREATING THE PROCESSING ACT IVITY AS TRADING FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC T HE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ITATS ORDER F OR A.Y. 1996-97 IN ITA NO.910/AHD/2001.CONSIDERING THIS THE ISSUE IS D ECIDED IN FAVOUR OF THE ASSESSEE. 23. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PAR TIES AND RECORD PERUSED. WE NOTICED THAT THE CIT (A) HAS FOLLOWED T HE ORDER OF ITAT IN ASSESSEES OWN CASE FOR A.Y. 1996-97. TO MAINTAIN CONSISTENCY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT (A) ON THE I SSUE. THE ORDER OF CIT (A) IS CONFIRMED ON THE ISSUE. 23.1 THE ASSESSEE HAS RAISED ONE MORE GROUND IN RESPECT OF DEDUCTION U/S. 80HHC ON DEPB. WE NOTICED THAT THIS ISSUE IS SQUARE LY COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 218 (SC) AND JUDGMENT OF BOMBAY HIGH COURT I N THE CASE OF CIT VS. KALPATRU COLOUR & CHEMICALS LTD., 233 CTR 313 (B OM).IN THE LIGHT OF THIS JUDGMENT WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE CIT (A) ON THE ISSUE OF CALCULATION OF 80-HHC ON DEPB. ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 21 24. THE THIRD COMMON GROUND RAISED IN THE ASSESSEE S APPEAL IS IN RESPECT OF ADHOC DISALLOWANCE OUT OF VEHICLE EXPENSES, TELE PHONE AND OFFICE EXPENSES. THE DETAILS ARE AS UNDER:- ASSESMENT YEAR. VEHICLE EXPENSES. TELEPHONE EXPS. OFFICE EXP. 2000-01 75,000 25,000 25,000 2000-02 1,00,000 40,000 25,000 2002-03 1,00,000 40,000 - 2003-04 1,00,000 50,000 25,000 THE AO MADE THE ADDITION BY DISALLOWING EXPENSES ON ACCOUNT OF PERSONAL USE. AT THE OUTSET THE LD. AR SUBMITTED THAT THIS IS SUE IS COVERED BY THE JUDGMENT OF HONBLE JURISDICTION HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG. CO., VS. CIT 253 ITR 749 WHEREIN IT HAS BEEN HELD THAT IN CASE OF A COMPANY IT CANNOT BE SAID THAT THE ASSESSEE COMPANY INCURRED EXPENDITURE FOR THE PERSONAL USE OF THE CARS. FOLLOWING THE AB OVE JUDGMENT OF THE JURISDICTIONAL HIGH COURT WE DELETE THE ABOVE ADDIT IONS. 25. THE NEXT COMMON GROUND RAISED IN THESE APPEALS IS IN RESPECT CHARGING OF INTEREST U/S. 234B OF THE ACT. THIS GRO UND OF APPEAL IN ALL THE YEARS IS A CONSEQUENTIAL IN NATURE. THE AO IS DIREC TED ACCORDINGLY 26. NOW WE TAKE UP THE APPEALS FILED BY THE REVENUE. THE FIRST COMMON GROUND RAISED IS IN REVENUES APPEAL IS IN RESPECT O F DISALLOWANCE OF 1/5 TH ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 22 PROCESSING CHARGES PAID TO ASSOCIATE CONCERN U/S. 4 0A (2)(B) OF THE ACT. THE CIT (A) DELETED HE DISALLOWANCE BY OBSERVING AS UND ER:- 4.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE COU NSEL AND FACTS OF THE CASE. IT IS TRUE THAT PROCESSING CHARGES WERE P AID TO THE SISTER CONCERN FOR LAST SEVERAL YEARS. IN A.Y. 1989-90 ASS ESSING OFFICER DISALLOWED 5% PROCESSED CHARGES WHICH WERE DELETED BY ITAT. DISALLOWANCE WAS DELETED TILL A.Y. 1995-96. IN A.Y. 1996-97 ASSESSING OFFICER MENTIONED IN THE ASSESSMENT ORDER THAT APPE LLANT SUBMITTED THE QUOTATION VERY LATE AND THEREFORE, NO CROSS VER IFICATION COULD BE POSSIBLE. THE DISALLOWANCE WAS SET SIDE BY CIT (A) WITH DIRECTION TO ASSESSING OFFICER TO GATHER NECESSARY DETAILS AND A LLOW ASSESSEE FRESH OPPORTUNITY. I HAVE PERUSED THE ASSESSMENT ORDER PA SSED IN CONSEQUENT TO CIT (A)S ORDER. THERE ALSO, THE ASSE SSING OFFICER SIMPLY REPEATED THE ADDITION @ 20% BY MENTIONING TH AT APPELLANT DID NOT SUBMIT ORIGINAL QUOTATIONS. IN THE ABOVE FOUR Y EARS ALSO THE DISALLOWANCE IS SIMPLY BASED ON A.Y.1996-97,NO FRES H MATERIAL OR EVIDENCE WERE BROUGHT ON RECORD TO EVEN SUGGEST THA T PROCESSING CHARGES WERE EXCESSIVE. SINCE APPELLANT SUBMITTED THE QUOTATION FROM MARKET RATE OF THE SERVICES AND AS PER THAT THE SISTER CONCERN CHARGES THE LEAST. THEREFORE, IT CANNOT BE SAID THAT THE EXPENSE WERE EXCESSIVE WITHIN THE MEANING OF SECTION 40A(2). IN THE SIMILAR FACTS AND CIRCUMSTANCES, HON. ITAT IN THE APPELLANTS OWN CASE DELETED EVEN 5% DISALLOWANCE. SINCE THERE IS NOTHING ON RECORD TO PROVE THE DISAL LOWANCE U/S.40(2) ND APPELLANT HAS DISCHARGED ITS ONUS, I DO NOT FIND ANY REASON TO CONFIRM THE DISALLOWANCE. RESPECTFULLY FOLLOWING THE ORDER OF ITAT, THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOU NT OF THIS ISSUE ARE DELETED IN ALL THE FOUR YEARS. 27. AFTER HEARING THE LD. REPRESENTATIVES OF THE PAR TIES WE FIND THAT THE CIT (A) HAS FOLLOWED THE ITATS ORDER IN ASSESSEES OWN CASE, WE THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT ( A) IN THE GROUNDS OF ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 23 APPEAL OF THE REVENUE STATED THAT THE CIT (A) DELETE D THE ADDITION WITHOUT CONSIDERING THE RATIO OF JUDGMENT IN THE CASE OF NU ND & SAMONT CO.P LTD V CIT 78 ITR 268 (SC). ON PERUSAL OF THE SAID JUDGM ENT WE NOTICED THAT APEX COURT LAID DOWN LAW THAT IN THE ABSENCE OF EVI DENCE FROM ASSESSEE IN SUPPORT OF REASONABLENESS OF REMUNERATION PAID TO D IRECTOR THE AO HAS JURISDICTION TO DISALLOW THE EXCESS OVER REASONABLE AMOUNT. THE SAID JUDGMENT IS DISTINGUISHABLE ON FACTS AS IN THE CASE UNDER CONSIDERATION SINCE 1996-97; THE ISSUE HAS BEEN EXAMINED AND FOUN D THAT THE AMOUNT PAID TO SISTER-CONCERN WAS A REASONABLE AMOUNT. THUS THE SAID JUDGMENT DOES NOT HELP TO THE REVENUE. 28. THE SECOND COMMON GROUND RAISED BY THE REVENUE I N THIS APPEAL IS IN RESPECT OF DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S.36(1)(III) ON THE GROU ND THAT INTEREST FREE ADVANCES DEPOSIT MADE OUT OF INTEREST BEARING FUND. 29. THE AO DISALLOWED THE INTEREST CLAIM OF THE ASS ESSEE ON THE GROUND THAT THE ASSESSEE HAS DIVERTED THE INTEREST BEARING FUNDS TO INTEREST FREE LOANS AND ADVANCES. THE CIT (A) FOLLOWED THE ORDER OF ITAT IN ASSESSEES OWN CASE FOR A.Y. 1997-98 AND 1998-99 ON THE GROUND THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE OWNED FUND IN THE F IRM OF PARTNERS CAPITAL ACCOUNT TO THE TUNE OF RS.29.90 CRORES AGAINST THE I NTEREST FREE ADVANCES GIVEN OF RS.4.16 CRORES. IN RESPECT OF INTEREST FREE DEPOSIT WITH REHMAN ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 24 FOOD, THE ITAT IN ASSESSEES OWN CASE IN A.Y. 1997- 98 IN ITA NO.909/AHD/2002 REFERRING TO PAR 28 TO 30 OF THE I TAT ORDER. THE CIT (A) HAS ALSO REFERRED TO ASSESSMENT ORDER FOR 1998-99 I N THE SAID ORDER THE ITAT SET ASIDE THE ORDER TO THE FILE OF THE AO TO DECIDE THE ISSUE IN ACCORDANCE WITH A DECISION OF ITAT IN THE CASE OF TORRENT FINN CIERS LTD. IN THE SAID ORDER FOR A.Y.1998-99 THE CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE. THE CIT (A) QUOTED THE PARAGRAPH 7.4 (C) OF A.Y. 1998-9 9 AS UNDER:- 7.4 (C) THE CONTENTION OF APPELLANT IS FOUND TO BE CORRECT THAT THESE DEPOSITS INCLUDED THE DEPOSIT FOR GAS CYLINDE RS, TELEX FACILITIES, OFFICE DEPOSIT AND BALANCE WITH CENTRAL EXCISE PLA AND GEB INTEREST FREE DEPOSITS WHICH ARE IN THE NATURE OF INTEREST F REE NORMAL BUSINESS DEPOSITS. FURTHER THE CONTENTION IS ALSO FOUND TO B E CONVINCING THAT THESE DEPOSITS WERE NOT PLACED IN THE YEAR UNDER CO NSIDERATION BUT RELATED TO EARLIER YEAR ALSO. SINCE THESE ARE NORMA L BUSINESS DEPOSITS AND DO NOT PERTAINED TO ADVANCES TO ASSOCIATES CONC ERNS, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE INTERES T CALCULATED THE SAME. 30. AFTER HEARING THE LD. REPRESENTATIVES OF THE PAR TIES WE FIND THAT THE CIT (A) HAS FOLLOWED THE ORDER OF ITAT IN EARLIER Y EARS. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT (A). AS REGARDS THE DECISIONS CITED IN THE GROUNDS OF APPEAL BY THE REVENUE IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD., 286 ITR 01.IT IS TO STATE THAT THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS ABHISHEK INDUSTRIES LTD., HAS BEEN REVERSED BY THE APEX COURT IN THE CASE OF MUNJAN SALES ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 25 CORPORATION VS. CIT 298 ITR 290 (SC). IN THE LIGHT O F THE JUDGMENT OF THE APEX COURT IN THE CASE OF MUNJAN SALES CORPORATION VS. CIT (SUPRA) OTHER JUDGMENTS CITED IN THE GROUNDS OF APPEAL BY THE REV ENUE DOES NOT HELP TO THE REVENUE. 31 THE NEXT COMMON GROUND RAISED IS REG ARDING CHARGING OF INTEREST U/S,.234B OF THE ACT. THIS IS A CONSEQUENTIAL AND R EQUIRES NO ADJUDICATION. 32 IN THE RESULT APPEALS OF ASSESSEE ARE DECID ED AS UNDER:- FOR ASSESSMENT YEAR 1998-99 - PARTLY ALLOWED. FOR ASSESSMENT YEAR 2000-01 - PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. FOR ASSESSMENT YEAR 2001-02 - PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. FOR ASSESSMENT YEAR 2002-03 - ALLOWED FOR ASSESSMENT YEAR 2003-04 - PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ALL APPEALS OF REVENUE FOR A. YS. 2000-01 TO 2003-04 ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 2 - 2012. SD/- SD/- ( D. K. TYAGI) (A. L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD. ORDER PRONOUNCED ON 29-2-12 S.A.PATKI. SD/- SD/- (A.MOHAN ALANKAMONY) A.M. (D.K. TYAGI) J.M. ITA NO.445 , 267 TO 270 & 20 TO23/08 A.YRS. 98- 99, 00-01 TO 2003-04 26 COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-II, BARODA. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 6 - 2 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 14-2-12. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 16 - 2 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 29 - 2 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 29 - 2 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29 - 2 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REGI STRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER ..