DR. SRIKRUSHNA PATNAIK, MUMBAI V. ACIT 20(3), MUMBAI

ITA 5004/MUM/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71992 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 16-12-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 01-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARMINDERI
• Assessee Lawyers: USHA GOPALAN
• Keywords: Capital asset; Opportunity of being heard; Principle of natural justice; Proportionate interest; Date of conversion; Bad and doubtful debts
• Section: 80IB; 37(1); 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH, MUMBAI . . , , !'# , $ % BEFORE SHRI I.P. BANSAL, JM AND SHRI N.K. BILLAI YA, AM ./ I.T.A. NO. 5004/MUM/2009 ( & & & & / ASSESSMENT YEAR :2006-07 DR. SRIKRUSHNA PATNAIK, 201, GAYATRI APARTMENTS, SEVEN BUNGALOWS, ANDHERI(W), MUMBAI-400 058 THE ACIT-20(3), PIRAMAL CHAMBERS, LALBAUG, MUMBAI-400 012 ./ I.T.A. NO. 5512/MUM/2009 ( & & & & / ASSESSMENT YEAR :2006-07 THE ACIT-20(3), PIRAMAL CHAMBERS, LALBAUG, MUMBAI-400 012 DR. SRIKRUSHNA PATNAIK, 201, GAYATRI APARTMENTS, SEVEN BUNGALOWS, ANDHERI(W), MUMBAI-400 058 ' $ ./ () ./PAN/GIR NO. : AAEPP 1824F ( '* /APPELLANT ) .. ( +,'* / RESPONDENT ) '* - / ASSESSEE BY : ` SMT. USHA GOPALAN +,'* . - /DEPARTMENT BY : SMT. PARMINDERI . /0$ / DATE OF HEARING :16.12.2013 12& . /0$ / DATE OF PRONOUNCEMENT : 18.12.2013 ITA NO.5004 & 5512/M/09 2 3 / O R D E R PER N.K. BILLAIYA, AM: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVEN UE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-XXXII, MUMBAI D T. 09.07.2009 PERTAINING TO A.Y. 2006-07. BOTH THESE APPEALS WER E HEARD TOGETHER AND DISPOSE OF BY THIS COMMON ORDER FOR THE SAKE OF CON VENIENCE AND BREVITY. ITA NO. 5004/M/09 ASSESSEES APPEAL 2. THE ASSESSEE HAS RAISED 4 SUBSTANTIVE GROUNDS OF APPEAL. GROUND NO. 1 RELATES TO DISALLOWANCE OF EMPLOYEES CONTRIBU TION TO PROVIDENT FUND U/S. 36(1)(VA) OF THE ACT TREATING THE SAME A S INCOME U/S. 2(24)(X) OF THE ACT. 3. THE AO HAS DISCUSSED THIS DISALLOWANCE AT PARA 4 .1ON PAGE 2 OF HIS ORDER WHEREIN THE AO HAS OBSERVED THAT ON PERUSING THE AUDIT REPORT, IT WAS NOTICED THAT THE ASSESSEE HAS DEPOSITED THE EMP LOYEES CONTRIBUTION TO PROVIDENT FUND TO THE GOVERNMENT ACCOUNT BEYOND THE SPECIFIED DATE PRESCRIBED UNDER THE RELEVANT ACT. THEREAFTER, THE AO HAS EXHIBITED THE DELAY IN THE PAYMENT TO THE GOVERNMENT ACCOUNT IN T HE FORM OF A CHART. 4. THE LD. CIT(A) CONSIDERED THE GRIEVANCE OF THE A SSESSEE AT PARA-3 ON PAGE-2 OF HIS ORDER AND CONFIRMED THE DISALLOWAN CE MADE BY THE AO. 5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE DATES AS EXHIBITED ON PAGE-2 OF THE ASSESSMENT ORDER. WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS AL OM EXTRUSION LTD., ITA NO.5004 & 5512/M/09 3 319 ITR 306 WHEREIN IT HAS BEEN HELD THAT IF THE AM OUNT IS DEPOSITED BEFORE FILING THE RETURN OF INCOME, THE SAME HAS TO BE ALLOWED. IN THE CASE BEFORE US, WE FIND THAT THE RETURN OF INCOME WAS F ILED ON 31.10.2006 AND ALL THE PAYMENTS HAVE BEEN MADE BEFORE THE DATE OF FILING OF THE RETURN, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE HONBLE SUPREME COURT (SUPRA), THE AO IS DIRECTED TO DELETE THE ADD ITION OF RS. 1,17,847/-. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 6. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF RS. 20,43,163/- ON ACCOUNT OF BAD DEBTS CLAIMED BY THE ASSESSEE. 7. THIS ISSUE HAS BEEN DISCUSSED BY THE AO AT PARA- 4.2 ON PAGE-2 OF HIS ASSESSMENT ORDER. ON VERIFICATION OF THE PROFI T AND LOSS ACCOUNT, THE AO NOTICED THAT THE ASSESSEE HAS DEBITED RS. 33,39, 224/- AS BAD DEBTS. THE ASSESSEE WAS ASKED TO SUBSTANTIATE HIS CLAIM OF BAD DEBTS. THE ASSESSEE FILED COPIES OF ACCOUNTS OF THOSE PARTIES IN RESPECT OF WHOM THE BAD DEBTS WERE CLAIMED. ON PERUSAL OF THE COPIES OF ACCOUNT, THE AO NOTICED THAT IN RESPECT OF ONE PARTY I.E. M/S. M.G .M. CORPORATION RS. 2,35,000/- WRITTEN OFF AS BAD DEBTS WAS GIVEN AS AD VANCE IN EARLIER YEARS AND IN RESPECT OF ONE ANOTHER PARTY M/S. H.M.G.I. LTD., THE AO NOTICED THAT THE ASSESSEE HAS WRITTEN OFF BAD DEBT AT RS. 1 8,08,163/-. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS GIVEN RS. 5,0 2,162/- TO THIS PARTY DURING THE YEAR UNDER CONSIDERATION TOWARDS REIMBUR SEMENT OF THE EXPENSES AND THE BALANCE AMOUNT WAS GIVEN BY WAY OF ADVANCE TOWARDS VARIOUS EXPENSES IN EARLIER YEARS. THE ASSESSEE WA S FURTHER GIVEN AN OPPORTUNITY TO SUBSTANTIATE HIS CLAIM OF WRITE OFF IN THE LIGHT OF THE CONDITIONS PRESCRIBED U/S. 36(2) OF THE ACT. THE A SSESSEE DID NOT FILE ANY SUBMISSION. THE AO WAS OF THE FIRM BELIEF THAT THE SE AMOUNTS WERE NOT TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE A SSESSEE OF THE EARLIER ITA NO.5004 & 5512/M/09 4 YEARS, THEREFORE, THE SAME CANNOT BE ALLOWED AS BAD DEBT AND ACCORDINGLY DISALLOWED THE CLAIM TO THE TUNE OF RS. 20,43,163/- . 8. THE ASSESSEE AGITATED THIS DISALLOWANCE BEFORE T HE LD. CIT(A) BUT WITHOUT ANY SUCCESS. THE LD. CIT(A) ALSO DISALLOWE D THE SAID CLAIM AS BUSINESS LOSS U/S. 28 OR SECTION 37(1) OF THE ACT. 9. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. IT I S THE SAY OF THE LD. COUNSEL THAT ADVANCES WERE GIVEN FOR THE PURPOSE OF BUSINESS AND THEREFORE, THE SAME SHOULD BE ALLOWED. 10. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS AN UNDI SPUTED FACT THAT THE CLAIM AS BAD DEBTS IS NOT TENABLE IN LAW IN THE LIGHT OF THE CONDITIONS LAID DOWN U/S. 36(2) OF THE ACT. HOWEVER, THE CLAIM AS BUSIN ESS LOSS CANNOT BE BRUSHED ASIDE LIGHTLY. AT THE SAME TIME, WE FIND T HAT THE ASSESSEE HAS NOT BROUGHT ANY MATERIAL EVIDENCE ON RECORD TO SHOW THE NEXUS OF ADVANCES WITH HIS NATURE OF BUSINESS. THEREFORE, IN THE INT EREST OF JUSTICE, WE RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. T HE ASSESSEE IS DIRECTED TO ESTABLISH THE NEXUS OF ADVANCES VIS--VIS HIS BUSIN ESS BY BRINGING COGENT MATERIAL EVIDENCES ON RECORD. THE AO IS DIRECTED T O VERIFY THE DETAILS AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 2 IS ALLOWED FOR STATISTICAL PURPOSES. 12. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF TH E CLAIM U/S. 80IB IN RESPECT OF BANK INTEREST RECEIVED ON FIXED DEPOSITS . ITA NO.5004 & 5512/M/09 5 13. THE AO HAS DISCUSSED THIS DISALLOWANCE AT PARA -4.4. ON PAGE-5 OF HIS ASSESSMENT ORDER. THE ASSESSEE HAS CLAIMED DED UCTION U/S 80IB(4) OF THE ACT. THE AO NOTICED THAT THE ASSESSEE HAS CLAI MED DEDUCTION U/S. 80IB(4) OF THE ACT ON THE AMOUNT OF INTEREST ON FIX ED DEPOSIT WITH BANK AMOUNTING TO RS. 1,82,858/-. THE ASSESSEE WAS ASKE D TO JUSTIFY HIS CLAIM OF DEDUCTION. ON RECEIVING NO REPLY, THE AO WENT O N TO TREAT THE INTEREST INCOME ON FIXED DEPOSIT AS NOT ELIGIBLE FOR THE CLA IM OF DEDUCTION U/S. 80IB OF THE ACT. 14. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFO RE THE LD. CIT(A) AND STRONGLY CONTENDED THAT THE ASSESSEE WAS REQUIR ED TO GIVE THE BANK DEPOSITS FOR FURNISHING LETTER OF CREDIT/GUARANTEE S IN RESPECT OF IMPORTED RAW MATERIAL WHICH CONSTITUTES MAJOR PART OF RAW MA TERIAL COST AND IS FOR THE PURPOSE OF BUSINESS ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. IT WAS ALSO EXPLAINED THAT THE BANK DEPOSITS ARE FOR THE P URPOSE OF BUSINESS AND THEREFORE DIRECTLY CONNECTED TO THE BUSINESS OF THE ASSESSEE. 14.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSIO NS OF THE ASSESSEE, THE LD. CIT(A) AT PARA-6.4 OF HIS APPELLATE ORDER OBSER VED THAT THE ASSESSEE COULD NOT ADDUCE ANY EVIDENCE IN SUPPORT OF HIS CLA IM. THE LD. CIT(A) FURTHER OBSERVED THAT NORMALLY IT IS THE SURPLUS FU ND GENERATED FROM THE BUSINESS WHICH ARE KEPT IN BANK IN THE FORM OF DEPO SIT, THEREFORE, THE INTEREST EARNED THEREON CANNOT BE TREATED AS BUSINE SS INCOME. SINCE NO CONNECTION BETWEEN THE INTEREST ON FIXED DEPOSITS A ND THE BUSINESS OF THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE HAS BEEN PRO VED THROUGH EVIDENCE, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY T HE AO. 15. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE RE ITERATED THAT THE FIXED DEPOSITS WERE MADE FOR GETTING LETTER OF CREDITS/GU ARANTEES FROM THE BANK. ITA NO.5004 & 5512/M/09 6 THEREFORE, THERE IS A DIRECT NEXUS BETWEEN MAKING O F THE FIXED DEPOSITS AND THE NATURE OF THE BUSINESS OF THE ASSESSEE. 16. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. . 17. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOW ER AUTHORITIES. IT IS NOT IN DISPUTE THAT THE ASSESSEE COULD NOT BRING AN Y EVIDENCE TO SUBSTANTIATE HIS CLAIM OF DIRECT NEXUS BETWEEN THE FIXED DEPOSITS AND THE BUSINESS OF THE ASSESSEE. THEREFORE, FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD., WE DO NOT FIND ANY MERIT IN THE CLAIM OF DEDUCTION U/S. 80IB(4) OF THE ACT IN RESPECT OF INTEREST EARNED ON FIXED DEPOSITS AS IT CANNOT BE S AID TO HAVE BEEN DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. G ROUND NO. 3 IS ACCORDINGLY DISMISSED. 18. GROUND NO. 4 RELATES TO THE DISALLOWANCE OF INT EREST AMOUNTING TO RS. 9,38,590/-. 19. ON SCRUTINIZING THE STATEMENT OF ACCOUNT, DURIN G THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS DEBITED RS. 1,06,06,602/- AS FINANCIAL COST AND HAS CLAIMED TH E SAME AS EXPENDITURE. THE FINANCE COST INCLUDED INTEREST TO BANK, LC DISC OUNTING CHARGES, LOAN PROCESSING CHARGES, BANK CHARGES AND OTHER INTERES T ETC. THE AO NOTICED THAT THE ASSESSEE HAS PAID INTEREST TO THE BANK ON TERM LOAN AND CASH CREDIT FACILITIES. THE AO FURTHER OBSERVED THAT TH E ASSESSEE HAS CONVERTED CAPITAL WORK IN PROGRESS INTO CAPITAL ASSETS UNDER THE HEAD PLANT AND MACHINERY AMOUNTING TO RS. 1,47,50,160/- AND UNDER THE HEAD OF ELECTRICAL EQUIPMENT AMOUNTING TO RS. 3,98,336/-. THE DATE OF SUCH CONVERSION OF CAPITAL WORK IN PROGRESS INTO THE CAP ITAL ASSET WAS NOT MADE ITA NO.5004 & 5512/M/09 7 AVAILABLE. THE ASSESSEE WAS ASKED TO EXPLAIN WHY T HE CLAIM OF INTEREST ON TERM LOAN SHOULD NOT BE CAPITALIZED TILL THE DATE OF SUCH CONVERSION AND ACCORDINGLY THE AO PROPOSED TO DISALLOW THE INTERES T SO CAPITALIZED. 19.1. THE ASSESSEE EXPLAINED THAT INTEREST ON TERM LOAN AMOUNTING TO RS. 6,38,590/- HAS BEEN CAPITALIZED OUT OF DEBIT OF IN TEREST OF RS. 38,86,525/- AS INTEREST TO BANKS. HOWEVER, THE AO ON VERIFICATI ON, NOTICED THAT THE ENTIRE INTEREST HAS BEEN TRANSFERRED TO PROFIT AND LOSS ACCOUNT AND THE INTEREST HAS NOT BEEN CAPITALIZED AS CLAIMED BY TH E ASSESSEE AND ACCORDINGLY DISALLOWED RS. 6,38,590/- OUT OF THE FI NANCE COST. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS GIVEN LOANS A ND ADVANCES OF RS. 40,52,300/- TO ITS SISTER CONCERN ON WHICH THE ASSE SSEE HAS NOT CHARGED ANY INTEREST. THE ASSESSEE STATED THAT THE AMOUNT GIVEN TO THE SISTER CONCERN IS AN ADVANCE FOR MATERIAL SUPPLY. HOWEVE R, THIS SUBMISSION OF THE ASSESSEE WAS REJECTED BY THE AO ON SEEING THE N ATURE OF TRANSACTION FROM THE COPY OF ACCOUNT. THE AO WENT ON TO DISALLO W PROPORTIONATE INTEREST TO THE TUNE OF RS. 3,00,000/-. 20. AGGRIEVED BY THESE DISALLOWANCES OF INTEREST, T HE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). IT WAS STRONGLY CONTENDED THAT THE ASSESSEE HAS CORRECTLY CAPITALIZED THE INTEREST ON CAPITAL WORK IN PROGRESS TILL THE DATE OF COMMENCEMENT OF OPERATION AND THE INTEREST OF RS. 6,38,590/- RELATES TO THE PERIOD POST COMMENCEMENT OF OPERATION AND THEREFORE DESERVES TO BE ALLOWED AS BUSINESS EXPEND ITURE. 20.1. AFTER CONSIDERING THE FACTS AND SUBMISSIONS O F THE ASSESSEE, THE LD. CIT(A) AT PARA-7.4 OF HIS ORDER OBSERVED THAT THE A SSESSEE HAS NOT BEEN ABLE TO CONTROVERT THE FINDING OF THE AO. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY EV IDENCE EXCEPT FOR A BANK CERTIFICATE WHICH DOES NOT PROVE ANYTHING AS T O WHICH PART OF THE ITA NO.5004 & 5512/M/09 8 INTEREST HAS BEEN CAPITALIZED AND WHICH PART HAS B EEN CLAIMED IN P&L ACCOUNT. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF INTEREST OF RS. 6,38,590/-. IN RESPECT OF DISALLOWANCE OF INTERES T AMOUNTING TO RS. 3,00,000/-, THE LD. CIT(A) WAS OF THE OPINION THAT THE DISALLOWANCE OF INTEREST SHOULD BE PROPORTIONATE ON THE BASIS OF OW N CAPITAL EMPLOYED IN THE BUSINESS AND THE FUNDS BORROWED BY THE ASSESSEE AND THE INTEREST ATTRIBUTABLE TO BORROWED FUNDS IN RESPECT OF LOANS TO SISTER CONCERNS ONLY SHOULD BE DISALLOWED FOR BEING UTILIZED FOR NON BUS INESS PURPOSE AND ACCORDINGLY DIRECTED THE AO TO COMPUTE THE PROPORTI ONATE INTEREST. 21. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE ONCE AGAIN SUBMITTED THAT THE ASSESSEE HAS CAPITALIZED THE INTEREST PAID ON TERM LOAN AND ONLY THE BALANCE OF INTEREST PERTAINING TO POST COMMENCE OF OPERATION HAS BEEN CHARGED TO PRO FIT AND LOSS ACCOUNT AND THEREFORE, THE SAME SHOULD BE ALLOWED. SO FAR AS OTHER INTEREST IS CONCERNED, IT IS THE SAY OF THE LD. COUNSEL THAT T HE AMOUNT ADVANCED TO SISTER CONCERN IS NOT OUT OF BORROWED FUNDS BUT OUT OF OWN CAPITAL. 22. THE LD. DR SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 23. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOW ER AUTHORITIES. WE FIND THAT THE ASSESSEE HAS CLAIMED TO HAVE CAPITAL IZED THE INTEREST UP TO THE DATE OF CONVERSION OF CAPITAL WORK IN PROGRESS INTO CAPITAL ASSET. HOWEVER, WE ALSO FIND THAT THE AO HAS CATEGORICALLY VERIFIED THAT THE ENTIRE INTEREST HAS BEEN CHARGED TO PROFIT AND LOS S ACCOUNT. THIS NEEDS TO BE FURTHER VERIFIED BEING A FACTUAL MATTER. THEREF ORE, IN THE INTEREST OF JUSTICE, THIS ISSUE IS RESTORED BACK TO THE FILES O F THE AO. THE ASSESSEE IS DIRECTED TO SUBSTANTIATE ITS CLAIM THAT IT HAS CAP ITALIZED INTEREST UPTO THE DATE OF CONVERSION OF CAPITAL WORK IN PROGRESS INTO CAPITAL ASSET AND HAS CLAIMED ONLY THAT INTEREST WHICH PERTAINS TO POST OPERATION PERIOD. THE ITA NO.5004 & 5512/M/09 9 AO IS DIRECTED TO VERIFY SUCH DETAILS FILED BY THE ASSESSEE AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSES SEE. SO FAR AS OTHER INTEREST OF RS. 3,00,000/- IS CONCERNED, SINCE THE ASSESSEE HAS NOT BROUGHT ANY COGENT MATERIAL EVIDENCE ON RECORD BEFORE US T O SUBSTANTIATE ITS CLAIM THAT THE AMOUNT HAS BEEN ADVANCED OUT OF OWN CAPITA L, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DIRECTIONS OF THE LD. CIT(A) THAT THE DISALLOWANCE SHOULD BE ON PROPORTIONATE BASIS. WE , ACCORDINGLY, CONFIRM THE FINDINGS OF THE LD. CIT(A) SO FAR AS DI SALLOWANCE OF INTEREST OF RS. 3,00,000/- IS CONCERNED. GROUND NO. 4 IS AC CORDINGLY ALLOWED IN PART. 24. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 5512/MUM/2009- REVENUES APPEAL 25. THE REVENUES GRIEVANCE IS TWO FOLD. THE FIRST GRIEVANCE OF THE REVENUE RELATES TO THE DELETION OF ADDITION OF RS. 94,18,600/- MADE ON ACCOUNT OF UNACCOUNTED PRODUCTION ON ADMITTING CERT AIN NEW EVIDENCES SUBMITTED BY THE ASSESSEE WHICH IS IN VIOLATION OF PROVISIONS OF RULE 46A AND SECOND GRIEVANCE RELATES TO THE DELETION OF COM MITMENT CHARGES OF RS. 10,24,019/- RECEIVED BY THE ASSESSEE FROM SUPPL IERS AS INCOME DERIVED FROM BUSINESS IN TERMS OF SEC. 80IB(4) OF T HE ACT. 26. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , ON VERIFICATION OF THE QUANTITATIVE DETAILS AS GIVEN IN THE AUDIT REPO RT, THE AO OBSERVED THAT THE ASSESSEE HAS SHOWN TOTAL PRODUCTION OF FINISHED GOODS AT 60,96,408 KGS DURING THE YEAR UNDER CONSIDERATION. THE AO FU RTHER OBSERVED THAT THE ASSESSEE HAS USED 3,52,313 KGS OF MATERIAL FOR HOME CONSUMPTION. THE AO WAS NOT CONVINCED WITH THE RATIOS EMANATING FROM THE PRODUCTION FIGURES. THE AO HAS DISCUSSED THE ISSUE RELATING T O THE PRODUCTION AND ITA NO.5004 & 5512/M/09 10 THE CONSUMPTION AT LENGTH ON PARA 4.5 OF HIS ASSES SMENT ORDER AND FINALLY CAME TO THE CONCLUSION THAT THE WASTAGE AND THE AC TUAL CONSUMPTION SHOWN BY THE ASSESSEE IS IN VARIANCE WITH STANDARD INPUT. ACCORDING TO THE AO, THE ASSESSEE HAS SHOWN LESS PRODUCTION OF 1 ,84,279 KGS IN EMULSION AND THE PRODUCTION OF PLASTICIZER SHOULD H AVE BEEN REPORTED AT 65493 KGS AS AGAINST REPORTED BY ASSESSEE AT 61400 KGS THEREBY LEAVING DIFFERENCE OF 4093 KGS TAKING AVERAGE RATE OF 50 P ER KG. THE AO WENT ON TO CALCULATE UNDER REPORTED PRODUCTION OF EMULSI ON AND PLASTICIZER WORKS OUT TO RS 94,18,600/- AND ACCORDINGLY MADE A N ADDITION OF RS. 94,18,600/- BEING UNACCOUNTED PRODUCTION. 27. THE ASSESSEE AGITATED THIS MATTER BEFORE THE LD . CIT(A) AND STRONGLY CONTENDED THAT EVEN IF THE INPUT OUTPUT NO RMS AS APPROVED BY NORM COMMITTEE, GOVT. OF INDIA, MINISTRY OF COMMERC E & INDUSTRY, DIRECTORATE GENERAL OF FOREIGN TRADE, NEW DELHI IS CONSIDERED , THE DIFFERENCE COMES TO ONLY 0.62%. THEREFORE, THE ACT UAL CONSUMPTION SHOWN BY THE ASSESSEE IS WITHIN THE + 1% WHICH IS ALLOWABLE DEPARTURE FROM STANDARD RATIO. TO FURTHER SUBSTANTIATE ITS C LAIM, THE ASSESSEE ALSO FILED OPINION OF PROFESSOR VEENA CHOUDHARY, CENTRE FOR POLYMER SCIENCE & ENGINEERING, IIT, DELHI. AFTER CONSIDERING THE F ACTS AND THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) AT PARA -5.4 ON PAGE 12 OF HIS ORDER OBSERVED THAT THE AO HAS SIMPLY INFER THAT TH E DIFFERENCE BETWEEN THE ACTUAL PRODUCTION AND THE STANDARD PRODUCTION A S PER STANDARD INPUT OUTPUT NORMS IS THE AMOUNT OF SUPPRESSED SALES WITH OUT CONSIDERING THE ACTUAL SHOWN BY THE ASSESSEE. THE LD. CIT(A) FURTHE R OBSERVED THAT THE VARIATION IN THE RAW MATERIAL CONSUMPTION BETWEEN T HE ACTUAL AND STANDARD INPUT OUTPUT RATIO AS WORKED OUT BY THE A O IS ONLY 0.99% WHICH IS VERY MARGINAL. THE LD. CIT(A) STRONGLY RELIED U PON THE OPINION GIVEN BY IIT DELHI PROFESSOR. THE LD. CIT(A) FINALLY CON CLUDED THAT THE AO ITA NO.5004 & 5512/M/09 11 MADE THE ADDITION ONLY ON THE BASIS OF INFERENCE FR OM STANDARD INPUT OUTPUT RATIO AND NOT ON THE BASIS OF ANY EVIDENCE. ACCORDING TO THE LD. CIT(A), THE AO HAS MADE THE ADDITIONS ONLY ON ASSUM PTION AND INFERENCES. THE LD. CIT(A) WAS CONVINCED THAT THE ASSESSEES CONTENTION IS SUPPORTED BY TECHNICAL DATA AND EXPERT OPINION AND ACCORDINGLY DELETED THE ENTIRE ADDITION OF RS. 94,18,600/-. 28. BEFORE US, THE LD. DR STRONGLY SUPPORTING THE F INDINGS OF THE AO SUBMITTED THAT THE LD. CIT(A) HAS RELIED UPON THE OPINION OF THE PROFESSOR OF IIT DELHI WITHOUT REALIZING THAT THE S AID OPINION WAS NEVER BEFORE THE AO THEREBY THE LD. CIT(A) HAS VIOLATED T HE PRINCIPLES OF NATURAL JUSTICE AND ALSO THE CONDITIONS PRESCRIBED FOR THE ADMISSION OF NEW EVIDENCES UNDER RULE 46A OF I.T. RULES. 29. THE LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDE D THAT THE EXPERT OPINION WAS FILED FOR THE FIRST TIME BEFORE THE LD . CIT(A). AFTER CAREFULLY PERUSING THE ORDERS OF THE LOWER AUTHORI TIES, WE FIND MERIT IN THE SUBMISSION OF THE LD. DR THAT THE EXPERT OPINION WA S NEVER BEFORE THE AO, THEREFORE, FINDING OF THE LD. CIT(A) BASED ON S UCH EXPERT OPINION IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE AND ALSO IN VIOLATION OF PROVISIONS OF RULE 46A. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE ASSESSEE IS DIRECTED TO FILE THE EXPERT OPINION BEFORE THE AO. THE AO I S DIRECTED TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE OPINION OF THE PROFESSOR OF IIT DELHI AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE FIRST GRIEVANCE OF THE REVENUE IS ALLOWED FOR STATI STICAL PURPOSE. 30. THE SECOND GRIEVANCE RELATES TO ALLOWING OF COM MITMENT CHARGES OF RS. 10,24,019/- AS ELIGIBLE FOR THE CLAIM OF D EDUCTION U/S. 80IB(4) OF THE ACT. ITA NO.5004 & 5512/M/09 12 31. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PR OCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S . 80IB(4) OF THE ACT ON THE AMOUNT OF COMMITMENT CHARGES WHICH WERE FOUND T O BE OF THE NATURE OF INTEREST ON DELAYED PAYMENTS MADE BY THE PARTIES TO WHOM THE ASSESSEE SALES THE GOODS. THE AO SOUGHT CLARIFICAITON FROM THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. ON RECEIVING NO REPLY, THE AO WENT ON TO DISALLOW THE CLAIM OF THE ASSESSEE. 32. BEFORE THE LD. CIT(A) THE ASSESSEE EXPLAINED TH AT AS PER THE TERMS AND CONDITIONS OF THE SALES, IF THE CUSTOMERS MADE ANY DELAY IN THE PAYMENT, THEY WERE SUPPOSED TO PAY INTEREST THEREF ORE, THE RECEIPT OF INTEREST IS DIRECTED RELATED TO THE SALES AND CAN BE TERMED AS DERIVED FROM THE INDUSTRIAL UNDERTAKING AND THEREFORE ELIGIBLE F OR DEDUCTION U/S. 80IB(4) OF THE ACT. 32.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSIO NS, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS RECEIVED COMMITMENT CHARGES AS PER THE TERMS AND CONDITIONS OF SALES FROM CUSTOMERS ON AC COUNT OF DELAY IN PAYMENTS. ACCORDING TO THE LD. CIT(A), THE COMMITM ENT CHARGES ARE PART OF SALE AND HENCE EARNED FROM THE BUSINESS OF THE ASSESSEE AND ACCORDINGLY TREATED THE COMMITMENT CHARGES AS INCOM E DERIVED FROM BUSINESS OF INDUSTRIAL UNDERTAKING IS ELIGIBLE FOR DEDUCTION U/S. 80IB(4) OF THE ACT. 33. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE AO. 34. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHA T HAS BEEN SUBMITTED BEFORE THE LD. CIT(A). ITA NO.5004 & 5512/M/09 13 35. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOW ER AUTHORITIES. IT IS NOT IN DISPUTE THAT THE COMMITMENT CHARGES ARE IN T HE NATURE OF INTEREST ON DELAYED PAYMENTS RECEIVED FROM THE CUSTOMERS WHICH IS DIRECTED RELATED WITH THE SALES OF THE ASSESSEE. THE ISSUE IS SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF NIRMA INDUSTRIES LTD. 283 ITR 402 AS THERE IS A DIRECT NEXUS BETWEEN THE COMMITMENT CHARGES AND THE BUSINESS OF THE ASSESSEE. FURTHER DRAWING SUPPORT FROM THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD, WE HAVE NO HESITA TION TO HOLD THAT THE COMMITMENT CHARGES ARE DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING AND THEREFORE ELIGIBLE FOR CLAIM OF DED UCTION U/S. 80IB(4) OF THE ACT. FINDINGS OF THE LD. CIT(A) ARE CONFIRMED . GRIEVANCE OF THE REVENUE IS ACCORDINGLY DISMISSED. 36. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AND THE CROSS APPEAL FILED BY THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.12.2013 . 3 . 2& $ 4 5618.12.2013 2 . = SD/- SD/- (I.P. BANSAL ) (N. K. BILLAIYA) /JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI; 5 DATED 18/ 12/2013 . . ./ RJ , SR. PS ITA NO.5004 & 5512/M/09 14 3 . +/ > &/ 3 . +/ > &/ 3 . +/ > &/ 3 . +/ > &/ / COPY OF THE ORDER FORWARDED TO : 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT. 3. ? ( ) / THE CIT(A)- 4. ? / CIT 5. @= +/ , , / DR, ITAT, MUMBAI 6. =A B / GUARD FILE. 3 3 3 3 / BY ORDER, , / +/ //TRUE COPY// C CC C / D ( D ( D ( D ( (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI