Malayala Manorama Co. Ltd, Kottayam V. ACIT, Kottayam

ITA 531/COCH/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4559 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 08-02-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 08-04-2008
• Court: TRIBUNAL
• Department Lawyers: T J VINCENT
• Assessee Lawyers: K I JOHN; IYPE JOHN CAAR
• Keywords: Business income; Cost of acquisition; Deemed dividend; Onus to prove; Capital expenditure
• Section: 143(3); 2(22)(e); 234B; 80IB; 37(1); 147; 131; 6

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. NOS. 531 & 587/COCH/ 2008 ASSESSMENT YEAR: 2001-02 THE MALAYALA MANORAMA CO. LTD., K.K. ROAD, KOTTAYAM. [PAN:AAACT 7597G] VS. 1.THE ADDL. COMMISSIONER OF INCOME TAX, KOTTAYAM (ASSESSEE -APPELLANT) (REVENUE-RESP ONDENT) ( AND VICE-VERSA) ASSESSEE BY SHRI K.I.JOHN & SHRI IYPE JOHN, CA-AR REVENUE BY SHRI T.J.VINCENT, DR O R D E R PER SANJAY ARORA, AM: THESE ARE CROSS APPEALS, I.E., BY THE ASSESSEE AND THE REVENUE ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV, KOCHI (CIT(A) FOR SHORT) DATED 14.1.2008 PARTICULARLY ALLOWED THE ASSESSEES APPEA L CONTESTING ITS ASSESSMENT U/S. 143(3) OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREINAFTER) BY ORDER DATED 31.3.2003. 2. AT THE VERY OUTSET, WE OBSERVE THAT THE ASSESS EES APPEAL IS DELAYED BY A PERIOD OF 3 DAYS. THE CONDONATION PETITION , FILED ALONG WITH, EXPLAINS THE NEW METHOD OF ACCEPTANCE OF PAYMENTS BY THE BANK, I.E., ELECTRONICALLY, THRO UGH THE INTERNAL BANKING FACILITY, PER WHICH THE FILING FEES FOR THE PRESENT APPEAL STANDS REMITTED, AND THE ATTENDANT DELAY IN IMPLEMENTING THE NEW PROCEDURE BY THE BANK, AS THE REASON FOR THE MARGINAL DELAY. WE FIND THE DELAY AS REASONABLY EXPLAINED UNDER THE CI RCUMSTANCES, AND CONDONE THE SAME. ITA NOS.531 & 587 /COCH/2008 2 ASSESSEES APPEAL (IN ITA NO. 531/COCH/2008) 3. WE SHALL TAKE UP THE ASSESSEES APPEAL, BEING SENIOR, FIRST. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF PRINTING AND PUBLICATION OF NEWSPAPER, WEEKLIES AND OTHER PUBLICATIONS. IT HAS NINE UNITS FROM WHERE PRINTIN G IS DONE, FIVE OF WHICH, I.E., PALAKKAD, KANNUR, MALAPPURAM, KOLLAM AND THRISSUR UNITS, ARE ELIGIBLE UNDERTAKINGS U/S. 80IB OF THE INCOME-TAX ACT, 1961 ('THE ACT', HEREINAFTER). ACCORDINGLY, IT HAS THREE STREAMS OF INCOME FOR EACH OF THOSE UNITS, AS: (A) SALE OF PAPER; (B) ADVERTISEMENT INCOME; AND (C) MISCELLANEOUS INCOME. 4.1 THE FIRST ISSUE ARISING IN THE ASSESSEES APPEA L RELATES TO THE ALLOCATION OF ADVERTISEMENT REVENUE. THE ASSESSEE ALLOCATED THE E NTIRE ADVERTISEMENT REVENUE ON THE BASIS OF CIRCULATION FIGURES OF MALAYALA MANORAMA D AILY (MMD), THE SAME ACCOUNTING FOR NEARLY 95% OF THE TOTAL REVENUE. THIS WAS CONS IDERED BY THE AO AS NOT IN ORDER. FURTHER, AS THE ENTIRE EXPENDITURE FOR THE PRINTING AND DISTRIBUTION OF OTHER PUBLICATIONS, I.E., OTHER THAN MMD, WAS ACCOUNTED FOR ONLY AT THE KOTTAYAM UNIT, AS PER THE AO THE ADVERTISEMENT INCOME THEREOF HAD TO BE CONSIDERED A S TOWARD THE KOTTAYAM UNIT, PRECLUDING ALLOCATION IN ITS RESPECT; THE ADVERTISE MENT REVENUE BEING ALSO BOOKED THEREAT. HE, ACCORDINGLY, PROCEEDED TO ALLOCATE THE NET ADVE RTISEMENT INCOME ( ` 113.94, I.E., 117.98 CR. MINUS 4.04 CR.) FROM MMD TO THE NINE UNI TS. TOWARD THIS, HE FOLLOWED THE RATIO BASED ON ADJUSTED SALE FIGURE METHOD INSTEAD OF THAT ON THE CIRCULATION FIGURES (CERTIFIED BY AUDIT BUREAU OF CIRCULATION OR ABC FOR SHORT) ADOPTED BY THE ASSESSEE. THIS WAS AS HE OBSERVED A WIDE VARIATION BETWEEN TH E ADVERTISEMENT RATES FOR THE KOTTAYAM AND KOCHI UNITS (EDITIONS) VIS--VIS THE O THER UNITS; WHILE THE ADVERTISEMENT RATES FOR KOTTAYAM AND KOCHI UNITS WERE AT ` 350 (PER COLUMN CENTIMETRE) AND ` 340 RESPECTIVELY, THE RATES FOR THE NEW UNITS (VIZ. KAN NUR, KOLLAM, PALAKKAD AND THRISSUR) ARE AT ` 130/-, ` 125/-, ` 125/- AND ` 170/- RESPECTIVELY. SIMILARLY, THE FULL PAGE ADVER TISEMENT RATES FOR KOTTAYAM AND KOCHI EDITIONS WERE AT ` 141440/- AND ` 135200/- RESPECTIVELY, WHILE THAT FOR THE NEW UNITS WAS LESS THAN ` 50,000/-. THE ADVERTISEMENT REVENUE, ITA NOS.531 & 587 /COCH/2008 3 THEREFORE, IS TO BE ALLOCATED NOT ON THE BASIS OF T HE CIRCULATION FIGURES ALONE, BUT ON A COMPOSITE BASIS, COMPRISING OF SALES (READERSHIP), RATE OF ADVERTISEMENT, COST OF PRODUCTION AND DISTRIBUTION, ETC. HE, ACCORDINGLY, MADE A MODEST INCREASE OF 3% AND 2% TO THE RATIO (%AGE) BASED ON CIRCULATION FIGURES FO R THE KOTTAYAM AND KOCHI UNITS RESPECTIVELY. AGAIN, THE CIRCULATION FIGURES WERE TAKEN ON THE BASIS OF ACTUAL SALES (DAILIES SOLD FOR EACH UNIT FOR THE YEAR) AS AGAINST THE ABC AUDITED CIRCULATION FIGURES, WORKING OUT DEDUCTION U/S. 80I-B FOR THE ELIGIBLE UNITS ACC ORDINGLY. 4.2 THE SAME STOOD CONFIRMED IN APPEAL BY THE LD. C IT(A), WHO FOUND THE ASSESSEES CLAIM OF IT HAVING ONLY FOLLOWED THE SAME PRACTICE AND BASIS, AS ADOPTED IN THE PAST, SINCE APPROVED BY THE APPELLATE TRIBUNAL AS WELL AS BY JU RISDICTIONAL HIGH COURT (FOR A.Y. 1990- 91 AND 1991-92, REPORTED AT 257 ITR 633 (KER.)), AS NOT MAINTAINABLE, DELINEATING THE ISSUES ARISING - AS WELL AS THE DECISIONS - FOR THO SE YEARS, BEING A.Y. 1990-91 TO 1993-94, A.Y. 2002-03 AND A.Y. 2004-05 (AT PARA 8 TO 10 OF H IS ORDER). FOR A.Y. 2000-01, THE AO HAD APPLIED THE RATIO BASED ON ACTUAL SALES, WHICH STOOD CONFIRMED IN FIRST APPEAL, WHILE FOR A.Y. 2003-04, THE ASSESSEE HAD ITSELF ADOPTED T HE SALE FIGURES FOR ALLOCATION. FURTHER, THE ADVERTISEMENT RATES WERE ALSO WIDELY VARIABLE A CROSS DIFFERENT EDITIONS. ACCORDINGLY, THE AOS ACTION STOOD CONFIRMED; FURTHER DIRECTING HIM TO VERIFY WHETHER THE MALAPPURAM AND THRISSUR UNITS, PRODUCTION FOR WHICH COMMENCED IN SEPTEMBER 1998 AND FEBRUARY 2001 RESPECTIVELY, WERE SSI UNITS, ELIGIBLE FOR DED UCTION U/S. 80IB. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 5. WE HAVE HEAD THE PARTIES AND PERUSED THE MATERIA L ON RECORD, INCLUDING THE PRECEDENTS RELIED UPON. 5.1 ON MERITS, THE TWO POINTS OF DISPUTE, AS PR OJECTED PER THE CLARIFICATION NOTE; ARE AS UNDER:- A) THE NON-ALLOCATION OF THE ADVERTISEMENT INCOME OF PUBLICATIONS OTHER THAN MMD, WHICH HAS BEEN CONSIDERED BY THE AO AS ONLY TOWARD THE KOTTAYAM UNIT; (B) THE ALLOCATION OF THE ADVERTISEMENT REVENUE FRO M MMD ON THE BASIS OF SALES RATIO, FURTHER ADJUSTED FOR ADVERTISEMENT RATES.. ITA NOS.531 & 587 /COCH/2008 4 5.2 WE SHALL TAKE UP BOTH THE ISSUES. AS REGARDS T HE FIRST, WE FIND NO ADJUDICATION BY THE LD. CIT(A) THEREON. IN FACT, THE SAME WAS NOT SPECIFICALLY RAISED BEFORE HER, NOR DIES IT FIND MENTION IN THE `STATEMENT OF FACTS OR EVEN THE ARGUMENT NOTES (PB PGS. 55 TO 65) BEFORE THE SAID AUTHORITY. LIKEWISE, NEITHER ANY SP ECIFIC GROUND HAS BEEN RAISED IN ITS RESPECT BEFORE US NOR ANY PLEA RAISED IN ITS RESPEC T, SO THAT THERE WAS, ACCORDINGLY, NO HEARING IN THE MATTER. IN FACT, THIS ASPECT ALSO D OES NOT FIND MENTION IN THE `SUMMARY OF ARGUMENTS, AND HAS ONLY BEEN INSERTED IN THE CLARI FICATION NOTE (SUPRA) FILED AT THE TIME OF HEARING ON SOME CLARIFICATIONS SOUGHT BY THE BENCH QUA THE SECOND (B) ISSUE. AS SUCH, THE SAME CAN NEITHER BE SAID TO BE DISPUTED NOR IS ITS RAISING THUS, MAINTAINABLE. WE DECIDE ACCORDINGLY. 5.3 WITH REGARD TO THE SECOND ISSUE (B), AS ABOVE, THE ASSESSEES PRINCIPAL CONTENTION IS THAT THE ABC CERTIFIED CIRCULATION FIGURES FORM THE REGULAR BASIS OF THE ALLOCATION OF ADVERTISEMENT REVENUE, SO THAT IT IS NOT LIABLE TO BE DISTURBED IN VIEW OF THE CONSISTENT PRACTICE OVER THE PAST, ALSO ACCEPTED BY THE TRIBUN AL, AND WHICH SHOULD HAVE A BINDING EFFECT ON THE AUTHORITIES BELOW FOR THE SUBSEQUENT YEARS, PLACING RELIANCE ON THE DECISION IN THE CASE OF CIT VS. S. MURUGAPPA CHETTIAR , 197 ITR 575 (KER.), ARCHDIOCESE OF VERAPOLLY VS. AGRICULTURE , I.T.O., 233 ITR 228 (KER.) AND CIT V. TRANVANCORE TITANIUM PRODUCTS LTD ., 265 ITR 526 (KER.). THE FIRST OBJECTION, THUS, QUA THIS ISSUE IS ON THE GROUND OF NON-ADOPTION OF THE ABC CERTIFIED CIRCULA TION FIGURES, BUT THAT OF ACTUAL SALES. THE SAME IS HOWEVER OF NO MOMENT, AS THE RATIO (PER CENTAGES) OBTAINING ON THE BASIS OF THE RELEVANT FIGURES FOR EACH OF THE ELIGIBLE UNITS (AND WHICH ARE CONFIRMED) WOULD EXHIBIT THE TWO RATIOS TO BE ALMOST THE SAME, FORMING A NEA R IDENTITY (REFER PG. 5 OF THE ASSESSMENT ORDER ):- UNIT BASED ON SALE FIGURES (%AGE)) BASED ON CIRCULATION FIGURES (%AGE) KANNUR 7.78 7 .72 MALAPPURAM 0.57 0.50 PALAKKAD 6.61 6.71 KOLLAM(QUILON) 8.85 8.95 THRISSUR (TRICHUR) 9.92 9.99 TOTAL 33.73 33.87 ITA NOS.531 & 587 /COCH/2008 5 IN FACT, FINDING NO DISCUSSION ON THIS A SPECT OF THE MATTER IN ANY OF THE ORDERS BY THE TRIBUNAL FOR THE PRECEDING YEARS, I.E., ADDRESS ING THE ISSUE AS TO WHY, IN VIEW OF THE ACTUAL SALE FIGURES, WHICH REPRESENT ACTUAL CIRCULATION , SHOULD ANY OTHER BASIS AT ALL BE ADOPTED, REQUIRING THE ASSESSEE TO EXPLAIN THE MAN NER AND MODE OF COMPUTATION OF THE CERTIFIED FIGURES (WHICH AGAIN WAS NOT CLEAR), AS W ELL AS THE REASONS FOR THE VARIATION, I.E., VIS--VIS THE ACTUAL SALE FIGURES. IT WAS EXPLAINE D THAT THE AUDITED CIRCULATION FIGURES ARE ALSO BASED ON THE ACTUAL DESPATCH FIGURES (SALES), THOUGH BEAR AN ADJUSTMENT IN RESPECT OF COMPLIMENTARY COPIES; THOSE NOT PAID FOR BY THE AGE NTS FOR MORE THAN ONE/TWO MONTHS; AS WELL AS THOSE SOLD AT LESS THAN THE PUBLISHED RETAI L PRICES/SUBSCRIPTION RATES, ETC. THE COMBINED EFFECT OF THESE ADJUSTMENTS, AS APPARENT F ROM THE CHART ABOVE, IS TOO MEAGRE TO MERIT ANY CONSIDERATION WHATSOEVER. IN FACT, THE T WO ONLY VALIDATE EACH OTHER . 5.4 EVEN SO, THE MATTER BEING AGITATED, WE MAY CLARIFY THAT ALL THESE ADJUSTMENTS ARE EFFECTED TO ARRIVE AT THE AUDITED CIRCULATION FIGUR ES HAVE NO BEARING OR RELEVANCE AS FAR AS THE PROFIT/INCOME WHICH IS SUBJECT TO ALLOCATION, I .E., THE ADVERTISEMENT REVENUE, IS CONCERNED. EVEN AS OBSERVED BY THE BENCH DURING THE HEARING, COMPLIMENTARY COPIES OR THOSE SOLD AT LESS THAN THE FULL RATES TOO HAVE REA DERSHIP VALUE; THE LD. AR BEING POSED A QUERY IN ITS RESPECT. FOR THE SAME REASON, LIKEWISE , THE NON-RECEIPT OR DELAYED RECEIPT OF PAYMENT (ON SALE OF PAPER) FROM THE LOCAL AGENTS HA S NO BEARING OR RELATION WITH THE ADVERTISEMENT REVENUE. IN FACT, EVEN THE REVENUE O N SALE OF PAPER ON SUCH COPIES WOULD STAND TO BE RECOGNISED, WHERE THE METHOD OF ACCOUNT ING, AS IN THE INSTANT CASE, IS MERCANTILE. THE LD. AR WAS UNABLE TO ANSWER THE SAM E. IN FACT, THE ACTUAL DESPATCH (SALE) FIGURE IS THE CORRECT AND THE MOST APPROPRIATE BASE , BEING THE MOST DIRECT MEASURE OF READERSHIP ; THE AUDITED CIRCULATION FIGURE BEING ONLY A SURRO GATE MEASURE, WHICH MAY BE VALID IN THE CIRCUMSTANCE, AS OF ABSENCE OF RELIABL E DATA ON ACTUAL DESPATCH. FURTHER, THE SAME STANDS ADOPTED AND CONFIRMED, I.E., APART FROM THE CURRENT YEAR, IN THE ASSESSEES OWN CASE FOR AY 2000-01 & AY 2003-04. COUPLED WITH THIS IS THE FACT THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS UPHELD THE CONCEPT OF ALLOCATION OF ADVERTISEMENT REVENUE BY ACCORDING WEIGHT TO THE READERSHIP FACTOR (A.Y. 199 0-91 AND 1991-92). WE, THEREFORE, FIRSTLY, FIND THIS TO BE A NON-ISSUE AND, SECONDLY, WITHOUT MERIT. ITA NOS.531 & 587 /COCH/2008 6 5.5 THE SECOND ASPECT OF THE (SECOND) ISSUE (I.E., ISSUE (B) ABOVE) IS THE ADJUSTMENT MADE BY THE AO TO THE SALES/DESPATCH RATIO, I.E., B Y ACCORDING A WEIGHT OF 3% AND 2% TO THE PERCENTAGES FOR THE KOTTAYAM AND KOCHI UNITS RE SPECTIVELY IN VIEW OF THEIR ADVERTISEMENT RATES BEING HIGHER. IN THIS REGARD, IT BEING NOT CLEAR FROM THE MATERIAL ON RECORD AS TO WHY, IN VIEW OF THE SEPARATE ADVERTISE MENT RATES FOR EACH UNIT, IS THE ADVERTISEMENT REVENUE ARISING FOR EACH EDITION NOT BOOKED SEPARATELY, I.E., UNIT-WISE, THE BENCH SOUGHT CLARIFICATION IN THE MATTER. IT WAS E XPLAINED THAT THOUGH SEPARATE RATES ARE ISSUED FOR EACH EDITION, IN VIEW OF THE IN-BUILT DI SCOUNT STRUCTURE, ADVERTISERS PREFER SLOTS/ADVERTISING SPACE IN ALL THE EDITIONS TOGETHE R, I.E., BOOKING SEPARATELY FOR EACH EDITION WOULD LEAD TO A MUCH HIGHER RATE THAN THE C ORRESPONDING RATE FOR ALL THE EDITIONS COMBINED. EVIDENTLY, THE COMPOSITE ADVERTISEMENT RA TE, THUS FETCHED, WOULD REQUIRE ALLOCATION OVER THE INDIVIDUAL EDITIONS, AND THIS E XPLAINS THE NEED FOR ALLOCATION, WHICH WOULD BE APPLICABLE OVER ALL THE EDITIONS WHICH ARE INCLUDED BY THE RATE(S) CHARGED. THOUGH THERE IS NO FINDING IN THIS RESPECT, THE ALL OCATION, BOTH BY THE ASSESSEE AND THE REVENUE BEING OVER ALL THE NINE EDITIONS, IT ONLY I MPLIES THAT THE ADVERTISEMENT REVENUE ON MMD IS FOR ALL THE EDITIONS. WITH REGARD TO THE BASIS OF THE ALLOCATION, THE AO HAS MENTIONED OF READERSHIP; THE ADVERTISING RATES CHAR GED; AND THE PRODUCTION AND THE DISTRIBUTION COSTS, AS THE THREE FACTORS RESPONSIBL E FOR AND CONTRIBUTING TO THE ADVERTISEMENT INCOME. WE HAVE EXAMINED THE SAME, F INDING THE THIRD FACTOR, I.E., OF COST, IN VIEW OF IT BEING NOT SHOWN TO BE NOT CONSTANT (O R IN A RANGE) ACROSS DIFFERENT EDITIONS, AS NOT RELEVANT FOR THE PURPOSE. EVEN THE AO, THOUG H HAS MENTIONED THE SAME IN HIS ORDER, HAS ACTUALLY NOT FACTORED IT IN THE ALLOCATI ON PROCESS. BOTH THE REMAINING FACTORS, I.E., READERSHIP (AS BORNE OUT BY THE SALE/DESPATCH FIGURE) AND THE ADVERTISEMENT RATE CHARGED, ARE PATENTLY RELEVANT . WE ARE UNABLE TO SEE AS TO HOW THE LATTER IS NOT, AND NEITHER HAS THE ASSESSEE BEFORE ANY AUTHORITY EXPLA INED OR SHOWN ITS IRRELEVANCE. IF IT IS RELEVANT, WHY SHOULD NOT THE SAME, ONE MAY ASK, BE FACTORED INTO ? IN FACT, THE TWO FACTORS ARE INTER-RELATED IN-AS-MUCH AS A HIGHER READERSHIP LEADS TO HIGHER ADVERTISEMENT RATE, WHICH IS IN FACT ONLY A VALIDATION OF A HIGHER READ ERSHIP, AND WHICH THE ADVERTISERS CONSIDER WHILE MAKING A CHOICE FOR ADVERTISING BETW EEN DIFFERENCE PUBLICATIONS. HOWEVER, THE RELATIONSHIP IS NOT LINEAR, IN WHICH C ASE THE ADOPTION OF A SINGLE BASE, AS OF READERSHIP (SALE) ALONE, WOULD BE SUFFICIENT. E.G. THE READERSHIP OF THE CALICUT AND KOCHI ITA NOS.531 & 587 /COCH/2008 7 EDITIONS, AT 14.85 % AND 14.73% (OF THE TOTAL CIRCU LATION), IS ALMOST AT PAR, WHILE THE ADVERTISEMENT RATES FOR THE KOCHI EDITION ARE ABOUT 1.5 TIMES THAT OF CALICUT. SIMILARLY, THE READERSHIP FACTOR FOR KOTTAYAM IS ALMOST DOUBLE THAT OF KOCHI, WHILE ADVERTISEMENT RATES ARE ALMOST AT PAR; THE DIFFERENCE BEING LESS THAN 5% (REFER PG. 5 TO 7 OF THE ASSESSMENT ORDER ). THIS IS AS THE ADVERTISEMENT RATE IS ALSO DEPEN DENT ON THE CATCHMENT OR THE TARGET AREA THAT THE ADVERTISER WANTS TO REA CH OR FOCUS ON. THIS IS PRECISELY THE REASON THAT APPEALED TO THE HONBLE JURISDICTIONAL HIGH COURT (WHILE DECIDING THE ASSESSEES CASE FOR A.Y. 1990-91 AND 1991-92, REPOR TED AT 257 ITR 633 (KER.)), WHEN IT APPROVED OF THE CONCEPT OF ACCORDING WEIGHT TO BASE ALLOCATION RATIO. THE SAID DECISION, THUS, RATHER THAN ASSISTING THE CASE OF THE ASSESSE E, DOES THAT OF THE REVENUE. ACCORDINGLY, WE FIND A COGENT BASIS FOR ALLOTTING A WEIGHT FOR T HE ADVERTISEMENT RATE CHARGED FACTOR TO THE RATIO BASED ON READERSHIP AS DETERMINED ON THE BASIS OF ACTUAL SALES . THE MATTER IS EVEN OTHERWISE TOTALLY FACTUAL, SO THAT WHAT WOULD BE MOST RELEVANT IS THE APPROPRIATENESS OF THE REVENUES ACTION UNDER THE FACTS AND CIRCUMS TANCES OF THE CASE, RATHER THAN WHAT HAS TRANSPIRED IN THE PAST. IN FACT, THE VARIOUS I SSUES ARISING QUA ALLOCATION (OF THE ADVERTISEMENT REVENUE) FOR THE PRECEDING YEARS, EXH IBIT THE ABSENCE OF ANY UNIFORM, CONSISTENT BASIS FROM YEAR TO YEAR; THE LD. CIT(A) ALSO DISTINGUISHING ON FACTS THE ISSUES IN RELATION THERE-TO AS ARISING AND DECIDED IN THE EAR LIER YEARS, CITING TWO YEARS, BOTH PRECEDING AND SUCCEEDING, FOR WHICH THE SALES BASIS STOOD FOLLOWED AND ACCEPTED; IN ONE CASE BY THE ASSESSEE ITSELF. ALSO, IT IS TRITE LAW THAT RES JUDICATA IS NOT APPLICABLE TO THE PROCEEDINGS UNDER THE ACT, AND THAT ONE ADDITIONAL FACT OR FACTOR COULD CHANGE/ALTER THE SITUATION. UNDER THE CIRCUMSTANCES, WE FIND NO INF IRMITY IN THE REVENUES ACTION OF ALLOTTING A WEIGHT OF 3% AND 2% TO THE READERSHIP R ATIO FOR THE KOTTAYAM AND KOCHI UNITS RESPECTIVELY, AND DETERMINE THE ALLOCATION RATIO FO R ALL NINE UNITS ACCORDINGLY. THE ASSESSEE HAS ALSO NOT ADVANCED ANY OTHER SUBSTITUTE BASIS FOR FACTORING IN THE ADVERTISEMENT RATE VARIABLE, WHICH WE HAVE FOUND AS VERY RELEVANT. SO, HOWEVER, WE ARE UNABLE TO SEE AS TO HOW THE READERSHIP PERCENTAGES/ RATIOS FOR THE OTHER SEVEN UNITS, WHICH WOULD IN AGGREGATE STAND TO BE REDUCED BY 5%, STAND DETERMINED. IN OUR VIEW, THE SAME WOULD BE ON A PRO-RATA BASIS; ALL OTHER FACTORS BEI NG CONSTANT, AND WORK OUT THE SAME AT ANNEXURE `A TO THIS ORDER. WE DECIDE ACCORDINGLY. ITA NOS.531 & 587 /COCH/2008 8 5.6 THE THIRD ASPECT OF THE (SECOND) ISSUE IS WITH REGARD TO THE MANNER IN WHICH THE AO HAS PROCEEDED TO WORK OUT THE PROFIT FOR EACH UN IT, WHICH HAS BEEN DONE BY APPLYING A PRO RATA BASIS, I.E., FIRSTLY, THE ADVERTISEMENT REVENUE AND, CONCOMITANTLY, THE ADVERTISEMENT EXPENSES, ARE ALLOCATED TO EACH UNIT AS PER THE ALLOCATION RATIO, I.E., THE ADJUSTED READERSHIP RATIO (ANN. `A). THEN THE INC OME OF EACH UNIT, AS DISCLOSED, IS ADJUSTED BY REDUCING BOTH THE ADVERTISEMENT INCOME AND ADVERTISEMENT EXPENDITURE FROM THE TOTAL ADJUSTED INCOME AND EXPENDITURE RESPECTIV ELY OF EACH UNIT TO ARRIVE AT THE UNITS INCOME FROM OTHER THAN ADVERTISEMENT REVENUE. THIS INCOME IS THEN SUBJECT TO THE NET PROFIT (INCOME) RATIO, I.E., THE BUSINESS INCOME AS ASSESSED/ASSESSABLE TO THE TOTAL TURNOVER, BOTH FROM THE SALE OF PAPER AND FROM ADVERTISEMENT. IN THIS REGARD, WE OBSERVE SEVERAL INCONSISTENCIES . FIRSTLY, THE ISSUE, THOUGH ADVANCED BEFORE THE LD. CIT(A) (REFER: `STATEMENT O F FACTS BEFORE IT), HAS NOT BEEN ADJUDICATED BY HER, WHILE THERE HAS BEEN NO REPRESE NTATION IN ITS RESPECT BEFORE THE AO. IN FACT, EVEN BEFORE US, THE ISSUE WAS NOT SPECIFICALL Y ARGUED, AND FINDS MENTION ONLY IN THE CLARIFICATION NOTE AFORE-REFERRED. OUR APPROACH IN THE MATTER, THEREFORE, WOULD BE TO HIGHLIGHT THE INCONSISTENCIES AFORESAID, AND REMIT THE MATTER BACK TO THE FILE OF THE LD. CIT(A) FOR ADJUDICATION AFTER HEARING BOTH THE PART IES IN THE MATTER: I) THE FIRST DISCREPANCY IS THAT THE EXPENDITURE FI GURE FOR OTHER PUBLICATIONS, I.E., OTHER THAN MMD, AT ` 38.76 CRS., WORKS TO MUCH MORE THAN THE EXPENDITURE ON MMD, I.E., ` 4.04 CRS. (WHICH IS ALLOCATED AMONGST THE ELIGIBLE UNITS), AN D WHICH CANNOT BE, CONSIDERING THAT APPROX. 95% OF THE ADVERTISEMENT REVENUE (OF ` 124.96 CRS.) COMES FROM MMD. THE DISCREPANCY IS ALSO APPARENT FROM THE FACT THAT THE ADVERTISEMENT INCOME FROM THE OTHER PUBLICATIONS WORKS TO A HUGE LOSS OF ` 31.78 CRS. ON A GROSS REVENUE OF ` 6.98 CRS. (REFER PGS. 4, 9,10 & 11 OF THE ASSESSMENT ORDER ). II) THE SECOND INCONSISTENCY THAT WE OBSERVE IS T HAT THE AMOUNT ON WHICH DEDUCTION U/S. 80IB HAS BEEN CLAIMED BY THE ASSESSEE DOES NOT MATC H WITH THAT ADOPTED BY THE AO, I.E., IGNORING THE RE-ALLOCATION OF THE ADVERTISEMENT REV ENUE, WHICH IS ALL WHAT THE AO HAS PURPORTEDLY DONE. THAT IS, AFTER THE RE-ALLOCATION OF THE ADVERTISEMENT REVENUE AND EXPENDITURE AS DONE BY THE AO IS IGNORED, THE INCOM E, NET OF ADVERTISEMENT REVENUE, FOR EACH UNIT, SHOULD AGREE WITH THE PROFIT - UNIT-WIS E ON WHICH DEDUCTION U/S. 80IB STANDS CLAIMED, WHILE IT IS NOT SO, AS A MERE BROWSE OF TH E FIGURES AT PG. 3 AND PGS. 10 & 11 OF THE ASSESSMENT ORDER WOULD SHOW, SO THAT THERE IS A DIFFERENCE IN THE BASE FIGURE, AND WHICH WOULD REQUIRE RECONCILIATION; ITA NOS.531 & 587 /COCH/2008 9 III) THE THIRD AND LAST DISCREPANCY THAT WE OBSERVE IS THAT WHILE THE BUSINESS INCOME FROM BOTH THE SALE OF PAPER & ADVERTISEMENT IS AT ` 9.80 CRS., THE ADVERTISING INCOME, WHICH IS PURPORTEDLY INCLUDED THEREIN IS AT ` 82.16 CRS. (I.E., ` 124.96 CRS. - ` 42.80 CRS.), SO THAT THE ASSESSEE HAS INCURRED A BUSINESS LOSS OF ` 72.36 CRS. ON THE SALE OF PAPER. AND, IN WHICH CASE, THERE COULD BE NO OCCASION TO GRANT DED UCTION U/S. 80IB TO ANY OF THE ELIGIBLE UNITS. THE ERROR, APART FROM THE FOREGOING, AS IT APPEARS IS THAT WHILE THE ADVERTISEMENT REVENUE HAS BEEN TAKEN ON CONTRIBUTION BASIS, I.E., THE GROSS REVENUE MINUS DIRECT EXPENDITURE, IT HAS NOT BEEN SO DONE FOR THE REVENU E GENERATED ON THE SALE OF PAPER. PERHAPS, SIMILARLY, ONLY THE CONTRIBUTION FROM THE SALE OF PAPER AND THAT FROM ADVERTISEMENT STREAM SHOULD BE TAKEN, AND THE RATIO OF BUSINESS INCOME ( ` 980.13 LAKHS) TO SUCH TOTAL (CONTRIBUTION) DETERMINED. THIS RATI O COULD BE APPLIED TO THE CONTRIBUTION FROM THE ADVERTISEMENT STREAMS TO ARRIVE AT THE BUS INESS INCOME FROM THE SALE OF PAPER STREAM. THIS IS AS IN THAT CASE, THE RATIO WOULD D EPICT THE NET PROFIT RATIO OBTAINING ON THE EXCLUSION OF COMMON OVERHEAD EXPENSES, WHICH IS WHA T IS ESSENTIALLY BEING EXCLUDED. SO, HOWEVER, WE MAY CLARIFY THAT THE MATTE R IS OPEN, AND THE PARTIES ARE FREE TO RAISE ADDITIONAL ERRORS/INCONSISTENCIES; AS WELL AS CLARI FICATION(S) OTHER THAN THOSE POINTED OUT BY US, WHICH ARE ONLY IN THE NATURE OF PRELIMINARY OBSERVATIONS, DEEMED RELEVANT, SO THAT THE ADJUDICATION PROCESS, DIRECTED BY US, MAY ADDRE SS THE SAME AS WELL. WE DECIDE ACCORDINGLY. CONCLUSION 5.7 WE SUMMARIZE OUR FINDINGS AND DECISION AS SET OUT ABOVE. THE MATTER BEING PROJECTED AS ONE OF SERIOUS DISPUTE, WE FIRSTLY FIN D THAT IT, IN FACT, DOES NOT GIVES RISE TO ANY ISSUE, MUCH LESS A DEBATABLE ONE; THE BASIS OF ALLOCATION (OF THE ADVERTISEMENT REVENUE) BY EITHER SIDE BEING THE SAME, I.E., READE RSHIP. BOTH THE ACTUAL SALE AND THE AUDITED CIRCULATION FIGURES ARE ONLY IN RESPECT O F AND TOWARD READERSHIP; THE LATTER BEING BASED ONLY ON THE ACTUAL DESPATCH (SALES) FIGURES, WHICH IS THE MOST DIRECT MEASURE OF READERSHIP. FURTHER, THE CIRCULATION FIGURES, WHICH BEAR ADJUSTMENTS - EXTRANEOUS TO THE PURPOSE AT HAND - TO THE ACTUAL SALE FIGURES, RATHE R CORROBORATE AND REINFORCE THE ADOPTION OF THE ACTUAL SALE DATA; IN FACT, THE DIFFERENCE BE TWEEN THE TWO SET OF FIGURES IS TOO MEAGRE TO EVEN QUALIFY FOR A MENTION, AND NOT AT ALL RESPO NSIBLE FOR THE WIDE VARIATION IN THE ALLOCATION PER THE TWO METHODS, AS BEING ASCRIBED T HERETO. THE READERSHIP FACTOR IS THUS ALMOST APPROPRIATELY CAPTURED BY THE ACTUAL SALE FIGURE . FURTHER, THE MATTER OF ALLOCATION IS PRIMARILY FACTUAL, AND THE AO HAS, APART FROM RE ADERSHIP, ALSO SOUGHT TO FACTOR IN THE ADVERTISEMENT RATE FACTOR IN THE ADVERTISEMENT REVE NUE ALLOCATION PROCESS. RATHER THAN ITA NOS.531 & 587 /COCH/2008 10 FINDING INFIRMITY THEREIN, WE FIND IT AS VERY APPRO PRIATE; THE ALLOCATION BEING ONLY OF THE REVENUE FROM ADVERTISEMENT. IN FACT, WHILE THE ADVE RTISEMENT RATES SHOULD BE ALIGNED TO THE READERSHIP, THE SAME (I.E., READERSHIP PER SE ), DOES NOT CAPTURE THE ADVERTISERS CONCERN FOR TARGETING A PARTICULAR READERSHIP, LEADING TO A DVERTISEMENT RATES BEING NOT DIRECTLY CORRELATED OR IN PERFECT HARMONY/SYNC WITH THE QUAN TUM FIGURES OF CIRCULATION. THE FACTORING IN OF THE ADVERTISEMENT RATES, WHICH CONT RIBUTE DIRECTLY TO THE ADVERTISEMENT REVENUE, THUS ATTEMPTS TO ASSIGN WEIGHT TO THE READ ERSHIP PROFILE, WHICH IS ALSO RELEVANT FROM THE ADVERTISERS POINT OF VIEW, I.E., BESIDES READERSHIP PER SE . AS SUCH, THE ALLOCATION MADE BY ACCORDING A MODEST INCREASE/WEIGHT TO THE R EADERSHIP (CIRCULATION) RATIO FIGURES FOR EDITIONS WITH HIGHER RATES IS, THUS, CONSIDERED MOST APPROPRIATE AND JUSTIFIED. THE ACTUAL ALLOCATION PROCESS, HOWEVER, WAS FOUND TO BE AR SEVERAL INCONSISTENCIES, AND WHICH PERHAPS EXPLAINS THE WIDE VARIATION IN THE DEDUCTIO N U/S. 80IB AS CLAIMED AND ALLOWED, SO THAT THE MATTER STANDS REMANDED FOR CORRECTION IN A N OPEN MANNER, HIGHLIGHTING THE INCONSISTENCIES OBSERVED. THE ASSESSEES CASE, BAS ED ON PRECEDENCE AND RULES OF INTERPRETATION, IS OF NO MOMENT, IN VIEW OF THE STA TED FACTS; IT BEING UNABLE TO SHOW ANY INFIRMITY IN THE ADOPTED BASIS OF ALLOCATION BY THE REVENUE AND, FURTHER, NOT INVOLVING AN INTERPRETATIVE IMBROGLIO. RATHER THAN BEING A CASE OF A CONSISTENTLY FOLLOWED & ACCEPTED METHOD, WE FIND IT TO A CONSISTENTLY DISPUTED ONE, WITH SOME OR THE OTHER ASPECT OF THE SAME BEING IN DISPUTE FOR EACH YEAR. APART FROM BEI NG RIGHTLY DISTINGUISHED BY THE LD. CIT(A), FINDING THE ADOPTED BASIS AS HAVING BEEN CO NFIRMED FOR TWO RECENT YEARS (AY 2000-01 AND AY 2003-04), OUR EXAMINATION OF THE EAR LIER ORDERS FIND NO DISCUSSION ON THE RELEVANT AND PERTINENT ASPECTS, WARRANTING POST ING THE CASE FOR SEEKING CLARIFICATION(S), WITH THE ASSESSEE BEING UNABLE TO ANSWER THE MOST D IRECT AND BASIC QUESTIONS ARISING IN THE MATTER. THE RELEVANCE ON THE CASE LAW CITED BY THE ASSESSEE FOR THE PURPOSE IS, THUS, MISPLACED. IN FACT, AS WE FIND THE DECISION BY THE JURISDICTIONAL HIGH COURT IN ITS CASE (REPORTED AT 257 ITR 633 (KER.) TO BE SUPPORTIVE OF THE REVENUES CASE IN-AS-MUCH AS IT ACCORDS APPROVAL TO THE CONCEPT OF ACCORDING WEIGHT TO THE RATIO BASED ON CIRCULATION, SO AS TO ACCORD EMPHASIS TO THE READERSHIP PROFILE ELE MENT. THE AO, BY FACTORING IN THE ADVERTISEMENT RATES HAS ONLY PROVIDED A COGENT BASI S FOR ASSIGNING SUCH WEIGHT, WHICH WE FIND AS REASONABLE (AND NEITHER CONTESTED BY THE AS SESSEE AS BEING EXCESSIVE); THE ADVERTISEMENT REVENUE BEING DIRECTLY DEPENDENT ON T HE ADVERTISEMENT RATES. ITA NOS.531 & 587 /COCH/2008 11 6. THE SECOND ISSUE RELATES TO THE CONFIRMATION OF THE DISALLOWANCE OF PROMOTIONAL EXPENSES IN THE SUM OF 6,59,092/- RELATING TO THREE PARTIES. THE RELEVANT FACTS ARE THAT THE ASSESSEE WAS FOUND TO HAVE MADE A CLAIM IN RESPECT OF PROMOTIONAL EXPENSES AT A TOTAL OF ` 961.35 LAKHS FOR THE RELEVANT YEAR, WHICH WAS IN RE SPECT OF THE 11 PARTIES. THE ASSESSEE WAS REQUIRED TO FURNISH THE COPY OF THE AC COUNT OF THESE PARTIES, I.E., AS APPEARING IN ITS BOOKS, DURING THE COURSE THE COURSE OF ASSES SMENT PROCEEDINGS. SUMMONS U/S. 131 OF THE WAS ALSO ISSUED TO THE SAID PARTIES, WHICH H OWEVER, WERE RETURNED WITH THE REMARKS NOT CLAIMED/LEFT THE PLACE, ADDRESS/NOT KNOWN IN R ESPECT OF 5 PARTIES, SO THAT THE AMOUNT ALLOWED THERE-TO AGGREGATING TO ` 62.95 LAKHS, WAS DISALLOWED AS UNDER:- (IN `) I) VINAYA MARKETING SERVICES 2,6 3,973/- II) FACT FINDERS 16,44,950/- III) PROVOCATIVE MOVERS 35,81,837/- IV) VISCOTI 5,34,022/- V) BRIGHT WAYS 2,70,500/- __________ 62,95,282/- HOWEVER, THE CREDIT BALANCE IN THE ACCO UNT OF THE SAID PARTIES AS AT THE BEGINNING OF THE YEAR (1.4.2000) AT ` 36.84 LAKHS, WAS ALSO INFERRED BY THE AO AS NOT REP RESENTING THE GENUINE LIABILITY AND, ACCORDINGLY, ADDED BACK. IN APPEAL, IT WAS CONTENDED BY THE ASSESSEE THAT IT COULD NOT OBTAIN THE CONFIRMATIONS AS REQUIRED BY THE AO FOR WANT OF TIME. THE MATTER, WAS, ACCORDINGLY, REMANDED BACK TO THE AO WHO, VIDE HIS REPORT DATED 8.1.2007, STATED THAT IN RESPECT OF M/S. FACT FINDE RS AND PROVOCATIVE MOVERS, THE BALANCES TALLIED COMPLETELY. WITH REGARD TO M/S. VINAYA MAR KETING SERVICES AND M/S. BRIGHT WAYS, THERE WAS A DIFFERENCE TO THE EXTENT OF 9533/ - AND ` 1,15,537/- RESPECTIVELY, WHILE THE LEDGER ACCOUNT IN THE BOOKS OF M/S. VISCOTI STO OD NOT FURNISHED. THE AO, HOWEVER, VIDE HIS SUBSEQUENT REPORT DATED 13.3.2007, STATED THAT THE SUMMONS ISSUED TO M/S. VINAYA MARKETING SERVICES, BRIGHT WAYS AND FACT FIN DERS STOOD RETURNED WITH THE REMARK NO SUCH ADDRESS EXISTS. THE LD. CIT(A) WA S, HOWEVER, OF THE VIEW THAT THE GENUINENESS OF THE EXPENDITURE STANDS PROVED, SAVE TO THE EXTENT OF THE UN-RECONCILED ITA NOS.531 & 587 /COCH/2008 12 DIFFERENCE/S, AS ALSO IN THE CASE OF M/S. VISCOTI, AND DIRECTED ALLOWANCE. ACCORDINGLY, BOTH THE PARTIES ARE IN APPEAL; THE ASSESSEE FOR TH E PART CONFIRMATION ( ` 6.59 LAKHS) AND THE REVENUE FOR THAT DELETED ( ` 56.36 LAKHS) (PER ITS GROUND NOS. 2 & 3). 7.1 THE ASSESSEES CASE IS THAT THE CONFIRMATIONS C OULD NOT BE PRODUCED AT THE INITIAL STAGE FOR WANT OF TIME; THE AO ALLOWING ONLY A PERI OD OF 5 DAYS TO OBTAIN THE SAME FROM THE OUTSTATION PARTIES. THERE IS, IN FACT, NO DIFF ERENCE IN THE ACCOUNTS FOR EACH OF THE PARTIES AS EVIDENCED FROM THE ASSESSEES LEDGER ACC OUNT IN THEIR RESPECTIVE BOOKS. WHILE THE LEDGER ACCOUNT/CONFIRMATIONS BY THE BOOKS OF M/ S. VISCOTI COULD NOT BE FURNISHED IN VIEW OF THE CLOSURE OF BUSINESS CONSEQUENT TO THE D EATH OF THE PROPRIETOR. RELIANCE STANDS PLACED BY IT ON THE DECISION IN THE CASE OF NATHU RAM PREMCHAND VS. CIT, 49 ITR 561 (ALL.). 7.3 THE REVENUES CASE, ON THE OTHER HAND, IS THAT THE ONUS TO PROVE ITS CLAIM(S) IS ONLY ON THE ASSESSEE, AND WHICH CANNOT BE CONSIDERED AS DISCHARGED, WITH THE SUMMONS ON THE SAID PARTIES RETURNING BACK UNSERVED INFACT - TWI CE; FIRSTLY, DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND SUBSEQUENTLY DURING THE ASSESSMENT PROCEEDINGS. RELIANCE STANDS PLACED BY IT ON THE DECISION IN THE CASE OF SCHENIDER ELECTRIC (INDIA) LTD. VS. CIT, 3 04 ITR 310 (DEL.). 7.4 WE WOULD BE FIRST DELINEATE THE LAW IN THE MATT ER, I.E., BEFORE ADVERTING TO THE FACTS OF THE CASE. THE DEDUCTION CLAIMED IS U/S. 37(1), THE INGREDIENTS OF WHICH ARE WELL- SETTLED. HOWEVER, IT WOULD BE RELEVANT TO EXTRACT F ROM THE DECISION IN THE CASE OF CIT VS. TRANSPORT CORPORATION OF INDIA LTD ., 256 ITR 701(A.P.), HAVING BEEN RENDERED FOLLOWIN G A SERIES OF JUDGMENTS BY THE APEX COURT: MERE PAYMENT BY ITSELF WOULD NOT ENTITLE THE ASSESS EE TO DEDUCTION OF EXPENDITURE UNLESS THE SAME WAS PROVED TO BE PAID FOR COMMERCIA L CONSIDERATIONS. THE BURDEN OF PROOF IS ALWAYS UPON THE ASSESSEE. IT IS FOR THE TAXPAYER TO ESTABLISH BY EVIDENCE THAT A PARTICULAR ALLOWANCE IS JUSTIFIED. IT IS NOT FOR THE INCOME-TAX OFFICER TO INDEPENDENTLY COLLECT EVIDENCE AND PROVE THAT THE DEDUCTION CLAIMED BY THE ASSESSEE IS BASELESS . ITA NOS.531 & 587 /COCH/2008 13 IN ORDER TO CLAIM DEDUCTION OF EXPENDITURE U/S. 37( 1) OF THE INCOME-TAX ACT, 1961, AT THE RELEVANT POINT OF TIME, THE FOLLOWING CONDIT IONS SHOULD BE SATISFIED: (I) THE EXPENDITURE IN QUESTION SHOULD NOT BE OF THE NATURE DESCRIBED UNDER THE SPECIFIC PROVISIONS OF SECTIONS 30 TO 36 AND 80VV; (II) THE EXPENDITURE SHOULD NOT BE OF THE NATURE OF CAPITAL EXPENDITURE; (III) THE EXPENDITUR E SHOULD NOT BE A PERSONAL EXPENDITURE; AND (IV) THE EXPENDITURE SHOULD HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSI NESS OR PROFESSION. IT IS, THUS, CLEAR THAT THE CONDITIONS AT (I), (II) AND (III) AB OVE ARE NEGATIVE CONDITIONS WHEREAS THE CONDITION AT (IV) ABOVE IS A POSITIVE CONDITION . IF THE EXPENDITURE SATISFIES THE NEGATIVE CONDITIONS, IT HAS TO SATISFY THE POSITIVE CONDITION IN ORDER TO BE ELIGIBLE FOR DEDUCTION U/S. 37(1) OF THE ACT . THE POSITION IN LAW IS WELL-SETTLED, AND FOR WHICH WE MAY PROFITABLY ALSO REFER TO THE DECISION BY THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. RAM BAHADUR THAKUR LTD. , 261 ITR 388 (KER.) (FB). 7.5 HAVING CULLED OUT THE LEGAL FRAMEWORK AS WELL A S THE RESPECTIVE CASE OF THE OPPOSING PARTIES, WE MAY NOW PROCEED TO DISCUSS ITS APPLICATION QUA EACH OF THE ASSESSEES CLAIMS. AT THE OUTSET, THOUGH, WE MAY M AKE A GENERAL OBSERVATION APPLICABLE TO ALL OF THEM, I.E., THE DISALLOWANCE, IN THE INST ANT CASE, IF AT ALL, WOULD ONLY FOLLOW THE NON-ESTABLISHMENT OF THE COMMERCIAL CONSIDERATION; THE RENDERING OF THE SERVICES BY THE PARTIES, FOR WHICH THE EXPENDITURE, AS A BUSINESS O UTGOING, IS BEING CLAIMED, AND NO OTHER; THE REVENUE HAVING NOT EXAMINED OR QUESTIONED THE P AYMENT ASPECT. HOWEVER, AT THE SAME TIME, WE FIND THAT THE DEPARTMENT HAS AT NO TI ME CALLED UPON THE ASSESSEE TO PROVE THE GENUINENESS OF THE TRANSACTIONS ON THE ACTUAL R ENDERING OF THE SERVICES, TOWARD WHICH THE PAYMENTS STAND MADE AND CLAIMED. IN OTHER WORD S, THOUGH THE FACT OF PAYMENT BY CHEQUE IS WITHOUT DOUBT NOT DETERMINATIVE, THE ASSE SSEE HAS NOT BEEN REQUIRED TO EXHIBIT OR PROVE THE TRANSACTIONS OTHERWISE THAN BY THE PRO DUCTION OF THE ACCOUNTS, INCLUDING SUPPORTING DOCUMENTS OR THAT OF THE CORRESPONDING P ARTY. THAT IT FAILED TO DO SO, FORMS THE GIST OF THE REVENUES CASE. THE SETTLED LAW AFORE-S TATED WOULD, THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, BE REQUIRED TO BE LOOKED AT FROM THAT PERSPECTIVE. EVEN DURING THE REMAND PROCEEDINGS, THE INITIAL REP ORT EXPRESSED SATISFACTION ON THE PRODUCTION OF ACCOUNTS. IN OTHER WORDS, THE VALIDIT Y OF THE DISALLOWANCE, IN THE CONTEXT OF THE PRESENT CASE, WOULD HAVE TO BE SEEN FROM THE ST AND POINT OF THE ASSESSEES INABILITY TO ITA NOS.531 & 587 /COCH/2008 14 DISCHARGE THE INITIAL BURDEN OF HAVING PRODUCED PRIMA FACIE EVIDENCE AS TO THE GENUINENESS OF ITS REPORTED/RECORDED TRANSACTIONS. 7.6 TOWARD THIS, WE FIND THAT THE SECOND REP ORT OF THE AO DATED 13.3.2007 CLEARLY STATES THAT THE SUMMONS TO THREE PARTIES, I.E., M/S . VINAYA MARKETING, M/S. BRIGHT WAYS AND M/S. FACT FINDERS HAVE BEEN RETURNED BACK BY TH E POSTAL AUTHORITIES WITH THE REMARKS `NO SUCH ADDRESS EXISTS. THERE IS, SURPRISINGLY, N O EXPLANATION BY THE ASSESSEE, WHICH HAD ONLY SOMETIME EARLIER OBTAINED AND PRODUCED THE ACC OUNT STATEMENT FROM THESE THREE PARTIES, I.E., ON 5.12.2006 (PB PG. 89 ). IT IS TO BE BORNE IN MIND THAT THIS IS THE SECON D TIME THAT THE SUMMONS HAD RETURNED UNSERVED, EVEN A S THERE WAS NO EXPLANATION FOR THE RETURN EVEN AT THE FIRST INSTANCE. REMARKS BY THE P OSTAL AUTHORITIES, MADE IN THE NORMAL COURSE OF ITS BUSINESS, AND ONLY PURPORTING TO BE A TRUE RECORD OF WHAT ACTUALLY TRANSPIRED, CONSTITUTES `EVIDENCE WITH THE REVENUE, WHICH THOU GH COULD BE RETRACTED, BUT ONLY ON THE STRENGTH OF SOME EQUALLY AUTHENTIC MATERIALS. MEREL Y STATING THAT THE THERE DOES NOT APPEAR TO BE A PROPER SERVICE, WITHOUT STATING THE BASIS F OR STATING SO, IS ONLY A BALD ASSERTION AND, CONSEQUENTLY, OF NO MOMENT. THE LD. CIT(A) HAS GON E WRONG IN ALLOWING THE ASSESSEES CLAIM(S) OF CONSIDERING IT AS SO, SOLELY RELYING ON THE ENTRIES IN THE BOOKS OF ACCOUNTS. WHEN THE PARTIES ARE THEMSELVES NOT TRACEABLE, HOW COULD THE TRANSACTIONS BE CONSIDERED AS GENUINE ? HOWEVER, AS AFORE-STATED, THE ASSESSEE HAS NOT BE EN CALLED UPON BY THE REVENUE AT ANY STAGE TO EXHIBIT THE GENUINENESS OF ITS TRANSACTIONS WITH THE SAID PARTIES, I.E., THE ACTUAL RENDERING OF SERVICES, WITH SOME D IRECT OR COLLATERAL EVIDENCE/S, SO THAT THE REVENUES CASE IS AGAIN BASED ONLY ON NON-CONFIRMAT ION OF ACCOUNTS. CLEARLY, BOTH SIDES HAVE TAKEN AN EXTREME STAND; THE ASSESSEE RELYING S OLELY ON THE ACCOUNTS, AND THE REVENUE INSISTING SOLELY ON THE CONFIRMATION, AND T HERE IS SOME MERIT IN THE CASE OF EACH. IN VIEW THEREOF, WE CONSIDER IT FIT AND PROPER UNDE R THE CIRCUMSTANCES TO RESTORE THE MATTER BACK TO THE FILE OF THE AO FOR A LAST OPPORT UNITY TO THE ASSESSEE TO PROVE ITS CASE. HOWEVER, WE MAY CLARIFY THAT THE QUESTION OF THE PA RTIES BEING NOT AVAILABLE AT THE GIVEN ADDRESS, AS FOUND BY THE REVENUE ON TWO OCCASIONS, IS AN EXTREMELY IMPUGNING EVIDENCE, AND WHICH CANNOT BE OVER-LOOKED OR LEFT UNEXPLAINED . THE QUESTION OF FURTHER EXAMINATION OR VERIFICATION OF THE ASSESSEES CLAIM /S WOULD ARISE ONLY ON A PRELIMINARY SATISFACTION ON THIS VITAL ASPECT. THE MATTER IS PU RELY FACTUAL, INCLUDING QUA THE INFERENCES ITA NOS.531 & 587 /COCH/2008 15 DRAWN ON THE GIVEN FACTS, AND THE BURDEN TO PROVE I TS CASE, IS SOLELY ON THE ASSESSEE. THE REVENUE IS ALSO AT LIBERTY TO CALL FOR ANY OTHER MA TERIAL OR EVIDENCE IN VERIFICATION OF THE ASSESSEES CLAIM/S, I.E., WITH REGARD TO THE POSITI VE CONDITION (IV) AFORE-SAID. THE CASE LAW RELIED UPON BY THE ASSESSEE IN THIS REGARD ARE CLEA RLY DISTINGUISHABLE ON FACTS. CONTINUING FURTHER, THE RESTORATION WO ULD EXTEND TO AN EXPLANATION QUA THE DIFFERENCE IN ACCOUNT IN RESPECT OF THE FIRST TWO P ARTIES AS WELL, EVEN AS WE ARE UNABLE TO APPRECIATE AS TO HOW THE PASSING OF JOURNAL ENTRIES , AND TOO WHICH STAND REVERSED (SO THAT THESE ARE TO NO EFFECT), WOULD LEAD TO A HIGHER CHA RGE THAN THAT BILLED BY THE CREDITOR. FURTHER, WE OBSERVE THAT THE ASSESSEE HAS DEBITED T HE ACCOUNT OF M/S. PROVOCATIVE MOVERS IN ITS ACCOUNTS ON 10/11/2001 AN AMOUNT OF ` 27,33,825/-, CREDITING THE SAME TO THE ACCOUNT OF M/S. FACT FINDERS (PB PG. 79, 85 ) . THIS IS SURPRISING AS THE TWO PARTIES, LOCATED IN DIFFERENT STATIONS/STATES, ARE APPARENTLY UNCONN ECTED. THERE IS NO EXPLANATION IN ACCOUNTS FOR THIS, WHICH OUGHT TO BEAR THE BASIS OF THE ENTRY BY WAY OF NARRATION THERETO. THOUGH THE TRANSFER ENTRY PERTAINS TO THE FOLLOWING YEAR, TO THE EXTENT THE SAME DISCHARGES THE LIABILITY ARISING IN THE ACCOUNT FOR THE CURREN T YEAR, THE SAME WOULD BE DIRECTLY RELEVANT, I.E., APART FROM THE FACTS THAT MAY EMANA TE IN EXPLANATION OF THE SAID ENTRY IN THE ASSESSEES BOOKS OF ACCOUNT. WE, ACCORDINGLY, ALSO CONSIDER IT RELEVANT TO RESTORE THE CLAIM IN RESPECT OF M/S. PROVOCATIVE MOVERS, SIMILA RLY, TO THE FILE OF THE AO FOR VERIFICATION ON ALL THE ASPECTS DEEMED RELEVANT TO THE ASSESSEES IMPUGNED CLAIM . FINALLY, WE CONSIDER THE CLAIM IN RESPECT OF M/S. VISCOTI. THE ASSESSEES EXPLANATION IS THAT THE PROPRIETOR HAD EXPIRED, LEADING TO THE CLOSURE OF HIS BUSINESS, SO THAT THE NECESSARY CONFIRMATION WAS NOT FORTHCOMING. THE DAT E OR EVEN THE PERIOD OF DEATH, HOWEVER, HAS NOT BEEN MENTIONED. THIS ASSUMES RELEV ANCE AS WE DO NOT FIND ANY SUCH EXPLANATION BEFORE THE AO DURING THE ASSESSMENT PRO CEEDINGS. SURELY, THE ASSESSEE BEING IN REGULAR BUSINESS WITH THE PARTY, WOULD ONLY BECO ME AWARE OF THE FACT OF DEATH IN THE NORMAL COURSE, AND OF THE CLOSURE OF BUSINESS, AS I T WOULD NOT BE ABLE TO TRANSACT BUSINESS THEREWITH ANY LONGER. WHEN, THEREFORE, DID THE BUSI NESS WITH THE SAID PARTY CAME TO A HALT, WOULD BE GOOD INDICATOR OF THE CLOSURE OF THE BUSIN ESS OF THE CREDITOR. FURTHER, THE SAID CLOSURE, WOULD TACITLY ITSELF EXHIBIT OF A GENUINE BUSINESS FIRM IN EXISTENCE. AS REGARDS THE GENUINENESS OF THE BUSINESS TRANSACTIONS WITH THE S AID PARTY, THE SAME IN OUR VIEW COULD BE SUPPORTED BY A NUMBER OF DIRECT AND INDIRECT EVI DENCES, I.E., EVEN AS NOTHING IS COMING ITA NOS.531 & 587 /COCH/2008 16 FORTH FROM THE SAID PARTY, SO THAT THE DEATH OF THE PROPRIETOR OR THE CLOSURE OF THE BUSINESS, WOULD NOT UNABLE THE ASSESSEE TO PROVE THE GENUINEN ESS OF ITS CLAIM, THE ONUS FOR WHICH IS CLEARLY ON IT. THE CLAIM QUA THIS PARTY IS ALSO, TO ENABLE AN OPPORTUNITY TO TH E ASSESSEE, RESTORED BACK TO THE FILE OF THE ASSESSEE. WE DECID E ACCORDINGLY. 8. INTEREST U/S. 234D THE THIRD AND FINAL ISSUE, PER ITS GROUND # 6, IS I N RESPECT OF LEVY OF INTEREST U/S. 234D OF THE ACT IN THE SUM OF ` 28,93,900/-. THERE IS NO ADJUDICATION BY THE LD. CI T(A) IN THE MATTER; IT HAVING NOT BEEN RAISED BEFORE HER. NO DO UBT, THE MATTER IS ESSENTIALLY LEGAL, SO THAT IT COULD BE TAKEN UP BEFORE THE TRIBUNAL FOR T HE FIRST TIME; HOWEVER, WE FIND NO LEVY OF INTEREST IN THE ASSESSMENT ORDER ITSELF, WHICH BEAR S CHARGE ONLY IN RESPECT OF INTEREST U/SS. 234B & 234C, AND WHICH STAND AGITATED BY THE ASSESS EE BEFORE THE FIRST APPELLATE AUTHORITY. THE ASSESSEE ALSO DID NOT SPECIFICALLY A RGUE THIS ISSUE BEFORE US. UNDER THE CIRCUMSTANCES, THE ISSUE BEING PRIMARILY LEGAL, AND HAVING FOUND SETTLEMENT, AT LEAST AS FAR AS THE STATE OF KERALA IS CONCERNED, WITH THE DECIS ION IN THE CASE OF CIT V. KERALA CHEMICALS AND PROTEINS LTD. (2010) 323 ITR 584 (KER.), WE ONLY CONSIDER IT FIT AND PROPER TO, IN THE INTEREST OF JUSTICE, RESTORE THIS MATTER BACK TO THE FILE OF THE LD. CIT(A) FOR A DECISION IN ACCORDANCE WITH LAW AFTER HEARING BOT H THE SIDES. ALSO, IT WOULD BE RELEVANT TO STATE; THE ASSESSMENT HAVING UNDERGONE MODIFICAT ION WITH THE PASSING OF THE REASSESSMENT ORDER U/S. 143(3) R/W S. 147 OF THE AC T ON 20/12/2006, THAT THE LEVY, IF SO, BE IMPOSED ONLY WITH REFERENCE TO THE FIGURES AS FINAL LY OBTAINING. WE DECIDE ACCORDINGLY. REVENUES APPEAL (IN ITA NO. 587/COCH/2008) 9. THE REVENUES SECOND GROUND IS QUA DELETION OF ADDITION ON ACCOUNT OF DEEMED DIVIDEND U/S. 2(22)(E) OF THE ACT IN THE SUM OF ` 1 827330/-. THE AO OBSERVED THE ASSESSEE-COMPANY TO HAVE ACCEPTED A DEPOSIT OF ` 120 LAKHS FROM ONE, M/S. COMMERCIAL BROADCASTING LTD. (CBL FOR SHORT), A 100% SUBSIDI ARY OF THE ASSESSEE-COMPANY, WHICH WAS CLEARLY IN THE NATURE OF A LOAN OR ADVANCE TO A SHAREHOLDER, COVERED U/S. 2(22)(E). THE RESERVE AND SURPLUS PORTFOLIO IN THE BALANCE-SHEET OF CBL REFLECTED A BALANCE OF ` 350.45 LAKHS AND ` 368.72 LAKHS AS AT THE BEGINNING AND THE CLOSING OF THE RELEVANT PREVIOUS YEAR RESPECTIVELY, SO THAT THERE WAS A NET ACCRETION OF ` 1 8.27 LAKHS THERE-TO DURING THE CURRENT ITA NOS.531 & 587 /COCH/2008 17 YEAR. ACCORDINGLY, HE RESTRICTED THE ADDITION TO TH E EXTENT OF THE ACCRETION TO THE RESERVE AND SURPLUS ACCOUNT. IN APPEAL, IT WAS EXPLAINED T HAT THE BALANCE WAS ACTUALLY IN RESPECT OF A `COMMERCIAL RUNNING ACCOUNT, AND NOT IN THE N ATURE OF A `LOAN OR ADVANCE. THE ASSESSEE HAD AN AGREEMENT WITH CBL, WHEREBY THE LAT TER STANDS AUTHORIZED TO EXPORT THE PUBLICATIONS OF THE ASSESSEECOMPANY TO THE GULF CO UNTRIES. THE ASSESSEE `SELLS ITS PUBLICATIONS TO CBL, WHICH IN TURN `SELLS THE SAME TO ITS DUBAI-BASED DISTRIBUTOR/S (FOR GULF COUNTRIES). IN ORDER THAT THE PUBLICATIONS RE ACH THEIR DESTINATION ON THE SAME DAY, CBL HAS APPOINTED M/S. AIR FREIGHT LTD., TRIVANDRUM AS THEIR CLEARING & FORWARDING (C&F) AGENT. HOWEVER, SINCE CBL HAS ITS OFFICE AT BOMBAY, PAYMENTS TO AIR FREIGHT LTD. ARE MADE DIRECTLY BY THE ASSESSEE-COMPANY, WHI CH ARE SUBSEQUENTLY RE-IMBURSED BY CBL, WHICH HAS ALSO TO PAY THE PURCHASE COSTS OF TH E PUBLICATIONS TO THE ASSESSEE. THE CREDIT BALANCE IN THE ACCOUNT IS AN ADVANCE PAYMENT TOWARD SUCH C&F CHARGES, BESIDES OTHER COSTS, AND THUS ONLY A BALANCE ARISING UNDER A COMMERCIAL ARRANGEMENT, AND WHICH IS DEFINITELY OUTSIDE THE SCOPE OF S. 2(22)(E) OF T HE ACT. THE ADDITION CAME TO BE DELETED BY THE FIRST APPELLATE AUTHORITY ON THAT BASIS; TH E ISSUE HAVING BEEN ALSO ELABORATELY EXAMINED AND DECIDED IN THE ASSESSEES FAVOUR BY HI S PREDECESSOR FOR A.Y. 1995-96 VIDE ITS ORDER DATED 14.5.1999. 10. BEFORE US, LIKE CONTENTIONS STOOD RAISED BY EIT HER SIDE. THE LD. DR WOULD SUBMIT THAT THE AO HAS CLEARLY HELD THE IMPUGNED AMOUNT TO BE A DEPOSIT, WITH THE ASSESSEE ASSUMING A LEGAL STAND BEFORE HIM, WHILE THE LD. AR RELIED ON THE FINDINGS BY THE LD. CIT(A) TO THE EFFECT THAT THE SAME WAS ONLY A TRADE ADVANCE TO WHICH THE PROVISION IS DECIDEDLY NOT APPLICABLE, RELYING ON THE DECISIONS IN THE CASE OF CIT VS. RAJ KUMAR , 318 ITR 462 (DEL.) AND CIT VS. CREATIVE DYEING AND PRINTING PVT. LTD ., 318 ITR 476 (DEL.), BESIDES THE ORDER BY THE TRIBUNAL IN ITS OWN CASE F OR A.Y.1995-96 (I.T.A. NO. 349/COCH/1999 DATED 30.5.2008). 11. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD, AS WELL AS THE CASE LAW CITED AND THE ORDER BY THE TRIBUNAL IN THE ASSE SSEES OWN CASE FOR AN EARLIER YEAR (AY 1995-96). ITA NOS.531 & 587 /COCH/2008 18 11.1 WE FIRSTLY FIND THAT THE ASSESSEES EXPLANA TION BEFORE THE AO WAS THAT THE DIVIDEND INCOME IS TAX-EXEMPT, AND WHICH STOOD REJECTED BY T HE AO ON THE GROUND THAT SS. 2(22)(E) AND 10(33) ARE TWO INDEPENDENT SECTIONS, APPLICABLE IN DIFFERENT SITUATIONS. BEFORE THE LD. CIT(A), HOWEVER, THE ASSESSEE PLEADED ITS CASE ON F ACTS. WITH REGARD TO THE LEGAL CONTENTION RAISED BEFORE THE AO, WE ARE IN AGREEMEN T WITH HIM, THOUGH FOR A DIFFERENT REASON. SECTION 115O SEEKS TO TAX DIVIDEND IN THE HANDS OF THE PAYING-COMPANY, AND WITH REFERENCE TO WHICH DIVIDEND IS TAX-EXEMPT U/S. 10(33) IN THE HANDS OF THE RECIPIENT. SECTION 115O BEING APPLICABLE ONLY TO A DOMESTIC CO MPANY, IF CBL IS A DOMESTIC COMPANY, THE IMPUGNED AMOUNT, EVEN IF CONSIDERED AS DIVIDEND, WOULD STAND TO BE COVERED U/S. 10(33) OF THE ACT IN THE HANDS OF THE ASSESSEE-COMPANY, THE ONLY SHAREHOLDER. WHEN THE ACT DEEMS A PARTICULAR STATE OF AFFAIRS, AS IN THE CASE OF S. 2(22)(E), THE SAME HAS TO CARRIED TO ITS LOGICAL CONCLUSION [ REFER, INTER ALIA , ISCHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD. VS. DIT (2007) 288 ITR 408 (SC)]. A DIVIDEND, BY DEFINITIO N, IS ONLY THE DISTRIBUTION OF PROFITS, WITH THE LAW INFE RRING SO IN A SOME DEFINED FACT SITUATIONS, SO THAT WHAT IS ESSENTIALLY A TRANSFER OF PROFIT MA Y NOT BE CAMOUFLAGED UNDER THE GUISE OF A PAYMENT, SO AS TO AVOID TAX ON DIVIDEND. AS SUCH, WHEN THE LAW ITSELF DEEMS A PARTICULAR PAYMENT TO BE IN EFFECT ONLY A TRANSFER OR DISTRIBU TION OF PROFIT, THE CONSEQUENTIAL EFFECT THEREOF IN OUR VIEW WOULD NECESSARILY FOLLOW. SO, H OWEVER, S. 115Q SPECIFICALLY EXCLUDES DIVIDEND U/S. 2(22)(E) FROM THE PURVIEW OF CHAPTER XII-D, SO THAT THERE IS NO QUESTION OF THE IMPUGNED DIVIDEND AS BEING ONE REFERRED TO IN S . 115O. 11.2 ON THE FACTUAL ASPECTS OF THE CASE, WE HAVE TW O PRELIMINARY OBSERVATIONS TO MAKE BEFORE WE MAY EXAMINE THE MATTER. FIRSTLY, THE AO H AS INCLUDED THE ENTIRE AMOUNT OF THE CREDIT BALANCE OUTSTANDING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE-COMPANY AS QUALIFYING FOR DEEMED DIVIDEND. NO DOUBT, THE ENTIR E CREDIT IS IN RESPECT OF PAYMENT RECEIVED FROM THE SUBSIDIARY COMPANY, BUT THE CHARG E OF DIVIDEND CAN ONLY EXTEND TO THE AMOUNT ACTUALLY RECEIVED/CREDITED DURING THE YEAR. IN OTHER WORDS, THE SCOPE OF S. 2(22)(E) OF THE ACT WOULD EXCLUDE THE AMOUNT/S RECE IVED DURING, AND THE RESULTING CREDIT BALANCE HELD IN, THE DEPOSIT ACCOUNT (WHICH THE AO OBSERVES IT TO BE) FOR THE PRECEDING YEARS. ALSO, A PARTICULAR DEPOSIT MAY HAVE BEEN SU BJECT TO TAX IN AN EARLIER YEAR, SO THAT CONSIDERING THE SAME AS DIVIDEND AGAIN WOULD LEAD T O DOUBLE TAXATION, OR AT LEAST TO THAT ITA NOS.531 & 587 /COCH/2008 19 EXTENT. FOR THE AMOUNT/S HELD OTHER THAN BY WAY OF A DEPOSIT, I.E., AS A RUNNING CURRENT ACCOUNT (WHICH THE LD. CIT(A) HAS OBSERVED IT TO BE ), HOWEVER, THE ENTIRE AMOUNT/S RECEIVED DURING THE YEAR, IRRESPECTIVE OF THE EARLI ER CREDIT/S (WHICH MAY HAVE BEEN NEUTRALIZED), WOULD QUALIFY TO BE A DIVIDEND, I.E., WHERE HELD TO BE SO. THE FINDING (OF DEPOSIT) AND THE TREATMENT BY THE AO ARE APPARENTLY CONTRADICTORY TO EACH OTHER, WHILE THE LD. CIT(A) RENDERS ANOTHER FINDING, I.E., OF IT BEI NG NOT A DEPOSIT BUT ONLY A RUNNING, CURRENT ACCOUNT. SECONDLY, THE AO HAS RESTRICTED TH E QUANTUM TO THE ACCRETION TO THE CAPITAL (ACCUMULATED PROFITS) DURING THE CURRENT YE AR. THIS IS AGAIN INCONSISTENT WITH THE LAW; THE EXPRESSION/TERM ACCUMULATED PROFITS, TO WHICH AMOUNT THE ADDITION, IF AT ALL, HAS TO BE RESTRICTED TO, BEING DEFINED PER EXPLANATION 2 TO THE SECTION, BESIDES A HOST OF DECISIONS. THE LD. CIT(A) HAS CLEARLY FAILED TO EXA MINE THE ISSUE COMPREHENSIVELY. 11.3 COMING TO THE FACTS OF THE CASE, THE ASSESSEE S CASE IS THAT THE AMOUNT HELD TO THE CREDIT OF CBL, REPRESENTS A TRADE ADVANCE BY IT AND , AS SUCH, IS NOT COVERED OR HIT BY THE MISCHIEF OF S. 2(22)(E). WE AGREE. EVEN THOUGH THE WORD USED IN THE SECTION IS ANY PAYMENT, THE SAME HAS TO BE READ IN HARMONY WITH T HE INTENT AND PURPORT OF THE SECTION, I.E., WHETHER IT IS BY WAY OF PROVISION OF AN ACCES S TO PROFITS TO INFLUENTIAL SHAREHOLDER/S WITHOUT DECLARING DIVIDEND, SO AS TO AVOID TAX, OR A COMMERCIAL TRANSACTION PER SE . IT IS ONLY ON THAT BASIS THAT THE COURTS HAVE HELD TRADE ADVANCE TO BE OUTSIDE THE AMBIT OF S. 2(22)(E), WHICH SHOULD BE TAKEN AS TRITE LAW, EVEN AS HELD BY THE TWO CASES BY THE HONBLE DELHI HIGH COURT CITED BY THE ASSESSEE. THE SAME H AS BEEN EXPLAINED BY THE APEX COURT IN THE CASE OF MUKUNDRAY K. SHAH (2007) 290 ITR 443 (SC), AT PG. 444, AS UNDER:- WE FIND MERIT IN THIS CIVIL APPEAL. THE COMPANIES HAVING ACCUMULATED PROFITS AND THE COMPANIES IN WHICH SUBSTANTIAL VOTING POWER LI ES IN THE HANDS OF THE PERSON OTHER THAN THE PUBLIC (CONTROLLED COMPANIES) ARE R EQUIRED TO DISTRIBUTE ACCUMULATED PROFITS AS DIVIDENDS TO THE SHAREHOLDE RS. IN SUCH COMPANIES, THE CONTROLLING GROUP CAN DO WHAT IT LIKES WITH THE MA NAGEMENT OF THE COMPANY, ITS AFFAIRS AND ITS PROFITS. IT IS FOR THIS GROUP TO DECIDE WHETHER THE PROFITS SHOULD BE DISTRIBUTED AS DIVIDENDS OR NOT. THE DECLARATION O F DIVIDEND IS ENTIRELY WITHIN THE DISCRETION OF THIS GROUP. THEREFORE, THE LEGISLAT URE REALISED THAT THOUGH FUNDS WERE AVAILABLE WITH THE COMPANY IN THE FORM OF PRO FITS, THE CONTROLLING GROUP REFUSED TO DISTRIBUTE ACCUMULATED PROFITS AS DIVID ENDS TO THE SHAREHOLDERS BUT ADOPTED THE DEVICE OF ADVANCING THE SAID PROFITS B Y WAY OF LOAN TO ONE OF ITS SHAREHOLDERS SO AS TO AVOID PAYMENT OF TAX ON ACCU MULATED PROFITS. THIS WAS THE MAIN REASON FOR ENACTING SECTION 2(22)(E) OF THE A CT. ITA NOS.531 & 587 /COCH/2008 20 11.4 EXAMINING THE FACTS, WE FIND THAT TH E BASIC INGREDIENTS, AS EXPLAINED BY THE APEX COURT IN THE CASE OF MUKUNDRAY K. SHAH (SUPRA), COMPRISING THE TWO BASIC FACTS - THE OTHER CONDITIONS BEING OSTENSIBLY SATISFIED - FOR T HE APPLICATION OF THE SECTION, ARE THAT, ONE, THERE IS A PAYMENT AND, TWO, THERE ARE ACCUMUL ATED PROFITS ON THE DATE OF PAYMENT. THE SECTION IS, THUS, PRIMA FACIE ATTRACTED IN THE PRESENT CASE, AND THE ONUS TO SHO W THAT THE PAYMENT IS, IN EFFECT, AND IN ITS ENTIRETY, A T RADE ADVANCE, SO THAT THE SECTION WOULD NOT APPLY, IS ON THE ASSESSEE. THE LAW IN THE MATTER IS LEGION, AND T HE ISSUE, AS IT BOILS DOWN, ESSENTIALLY FACTUAL. THE ISSUE AT LARGE IS WHETHER THE ARRANGEMENT IS A BONA FIDE ONE, ARISING SOLELY OUT OF BUSINESS/COMMERCIAL CONSIDERATIONS, SO AS TO BE CON SIDERED AS A TRADE ADVANCE, OR A DEVICE TO TRANSFER PROFITS. MERELY BECAUSE THE AMO UNT IS REFLECTED IN THE ACCOUNTS AS A CURRENT ACCOUNT, THOUGH SUGGESTIVE, WOULD NOT NECES SARILY IMPLY IT TO BE A TRADE ADVANCE, OUTSIDE THE AMBIT OF S. 2(22)(E). AS EXPLAINED BY THE TRIBUNAL IN THE ASSESSEES CASE FOR A.Y. 1995-96, THE NOMENCLATURE GIVEN TO THE ACCOUNT IN ITS BOOKS WOULD NOT BE MATERIAL OR CONCLUSIVE OF THE MATTER. REFERENCE IN THIS CON TEXT MAY ALSO BE MADE TO THE DECISION BY THE TRIBUNAL IN THE CASE OF K.P. DAVIS VS. ITO , 53 ITD 79 (COCHIN). THERE HAS BEEN CLEARLY NO EXAMINATION AT THE AOS END; THE ASSESSE E ADOPTING A LEGAL GROUND BEFORE HIM, AND WHICH WE HAVE FOUND AS NOT ACCEPTABLE. THE FIN DINGS BY THE LD. CIT(A), AND WHICH WOULD PRESUMABLY BE ONLY ON THE STRENGTH OF SOME M ATERIALS, ARE, FIRSTLY, WITHOUT REFERENCE TO THE AO, EVEN AS THERE IS A CLEAR CONTR ADICTION BETWEEN THE TWO; THE AO CLAIMING IT TO BE A DEPOSIT FOR A ROUND FIGURE OF ` 120 LAKHS - IMPLYING BEING HELD AT A CONSTANT AMOUNT, SUBJECT TO ADJUSTMENT ONLY UNDER D EFINED EVENTUALITIES, NOT CONTEMPLATED IN THE COURSE OF DAY TO DAY ACTIVITIES . SECONDLY, THESE ARE DE HORS AND SANS ANY FACTS AND FIGURES. EVEN NO MATERIALS HAVE PLACE D BEFORE US. THERE IS NO REFERENCE TO ANY AGREEMENT WHERE-UNDER THE AMOUNT IS TRANSFERRED /RECEIVED. IS THE ENTIRE OF IT A DEPOSIT, OR A PART REPRESENTS CURRENT ACCOUNT TRANS ACTIONS, AS WAS THE CASE FOR A.Y. 1995- 96 ? ARE THERE ANY ARRANGEMENTS, I.E., WITH OTHER PARTIE S, FOR THE SAME OR DIFFERENT REGIONS, AS WELL ? WHAT IS THE AVERAGE CREDIT BALANCE IN THE CURRENT A CCOUNT, AND WHAT IS THE NORMAL `CREDIT PERIOD, I.E., IN WHICH THE REIMBURS EMENT OR PURCHASE COST IS RECEIVED AFTER BECOMING DUE, I.E., AFTER BEING PAID BY THE ASSESSE E ? EVEN IF THE ENTIRE AMOUNT IS A DEPOSIT, IS IT LINKED WITH ACTUAL (OR ANTICIPATED) TURNOVER IN ACCOUNT OR FIXED AT A ITA NOS.531 & 587 /COCH/2008 21 MONETARY SUM ? IN THE ASSESSEES CASE FOR A.Y. 1995-96, IT WAS FOUND BY THE TRIBUNAL THAT THE DEPOSIT, WHICH WAS AT ` 60 LAKHS, WAS UNDER AN AGREEMENT, AND COVERED THE A VERAGE PURCHASE COST FOR TWO MONTHS. IS THE SAME AGREEMENT STILL OPERATIVE ? IT MAY BE APPRECIATED THAT THESE AND SUCH LIKE QUESTIONS AL L BASED ON FACTS - ARE IMPORTANT TO ARRIVE AT A CLEAR AND DEFINITE VIEW OF THE MATTER. DE HORS SUCH INQUIRY, ANY AMOUNT MAY BE ADVANCED, STATING IT TO BE ONLY A `TRADE ADVANCE O R `TRADE DEPOSIT. THE EARLIER DECISION BY THE TRIBUNAL WOULD APPLY ON FACTS AS ALSO IN RATIO. HOWEVER, THAT COULD ONLY IMPLY THAT THE AMOUNT TO THAT EXTENT, WHERE CONTINUING UNDER THE S AME OR SIMILAR ARRANGEMENT, IS TO BE CONSIDERED AS A TRADE ADVANCE. IN FACT, THE SAME WO ULD STAND TO BE EVEN OTHERWISE EXCLUDED, HAVING BEEN ACCEPTED IN AN EARLIER YEAR. AS SUCH, THE QUESTION TO BE ANSWERED IS, WHETHER THE AMOUNT RECEIVED DURING THE CURRENT YEAR, IF AT ALL, BEING ONLY OVER AND ABOVE THE TRADE ADVANCE RECEIVED EARLIER, IS JUSTIF IED AS SUCH ON COMMERCIAL CONSIDERATIONS (AS WHERE THERE IS AN INCREASE IN TH E VOLUME OF TRANSACTIONS/BUSINESS), TO BE LIKEWISE CONSIDERED AS A TRADE ADVANCE, OF COURS E FROM A BUSINESSMAN POINT OF VIEW, OR IS NOT SO BUT ONLY A DEVICE TO TRANSFER FUNDS. HOWEVER, WE MAY ADD THAT THE DEPOSIT WOULD BE LIABLE TO BE CONSIDERED AS A DIVIDEND, EVE N IF IT WERE TO CARRY AN INTEREST OBLIGATION, WHERE THE CBL IS NOT IN THE BUSINESS OF MONEY LENDING, AS FOUND BY THE TRIBUNAL FOR A.Y. 1995-96. 11.5 THE FINDINGS OF THE FIRST APPELLATE AUTHORITY , APART FROM BEING WITHOUT REFERENCE TO THE AO, WHOM HE CONTRADICTS, ARE INCHOATE. UNDER TH E CIRCUMSTANCES, WE ONLY CONSIDER IT FIT AND PROPER TO, AND, ACCORDINGLY, VACATING THE F INDINGS OF THE LD. CIT(A), REMIT THE MATTER BACK TO THE FILE OF THE AO FOR A FRESH DETER MINATION OF ALL THE ISSUES LEGAL OR FACTUAL - FOR CONSIDERATION, AND AFTER ALLOWING DUE OPPORTUNITY TO THE ASSESSEE TO STATE ITS CASE. WE DECIDE ACCORDINGLY. 12. IN THE RESULT, THE ASSESSEES APPEAL IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES AND THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NOS.531 & 587 /COCH/2008 22 PLACE: ERNAKULAM DATED: 31 ST MAY, 2011 GJ COPY TO: 1 . THE MALAYALA MANORMA CO. LTD., K.K. ROAD, KOTTAYAM. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -1, KOTTAYAM. 3. THE ADDL. COMMISSIONER OF INCOME TAX, KOTTAYAM. 4. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV, KOCH I. 5. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 6. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 7. GUARD FILE. ENCL: ANNEXURE `A FORMS AN INTEGRAL PART OF THIS ORDER. MALAYALA MANORAMA CO. LTD., K.K. ROAD, KOTTAYAM. ANNEXURE `A S. NO. NAME OF THE UNIT %AGE %AGE (ADJUSTED) ITA NOS.531 & 587 /COCH/2008 23 1. COCHIN 1 4.73 16.73 2. KOTTAYAM 27. 66 42.39 30.66 47.69 3. CALICUT 14.85 13.56 4. KANNUR 7.78 7.10 5. MALAPPURAM 0.57 0.52 6. PALAKKAD 6 .61 6.04 7. QUILON 8.85 8.08 8. TRICHUR 9.03 8.25 9. TRIVANDRUM 9.92 57.61 9.06 52.61 100.00 100.00 ===== ===== NB: THE % AGE FIGURES ARE BASED ON SALE FIGURE (REF ER PAGE 5 OF THE ASSESSMENT ORDER).