ACIT, CHENNAI V. M/s. Tamil Nadu Newsprints and Papers Limited, CHENNAI

ITA 555/CHNY/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52102 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHA JI P JACOB SRDR
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Deemed to accrue or arise in india; Retrospective amendment; TDS; Set aside
• Section: 143(3); 143(1); 195

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI A BENCH, CHENNAI. BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER I.T.A. NO. 555/MDS/2011 ASSESSMENT YEAR: 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(1), 121, MAHATMA GANDHI ROAD, CHENNAI 600 034. VS. M/S. TAMIL NADU NEWSPRINTS AND PAPERS LIMITED., NO. 87, ANNA SALAI, CHENNAI 600 032. [PAN:AAACT2935J] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB, SR-DR ASSESSEE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE DATE OF HEARING : 24 . 11 .2011 DATE OF PRONOUNCEMENT 02.12.2011 ORDER PER HARI OM MARATHA, J.M. THIS APPEAL OF THE REVENUE, FOR THE ASSESSMENT YEAR 2007-08, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) III, C HENNAI, DATED 20.12.2010. 2. THE ASSESSEE IS A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED. IT IS ENGAGED IN THE BUSINESS OF MANUFA CTURING OF NEWS PRINTS AND WRITING PAPERS. IT ALSO GENERATES ELECTRICITY. THE COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 30.10.200 7 DECLARING TOTAL INCOME OF ` .103,11,43,900/-. INITIALLY, THE RETURN WAS PROCESS ED UNDER SECTION 143(1) OF THE ACT, BUT SUBSEQUENTLY, THE RE GULAR ASSESSMENT WAS FRAMED AND ORDER WAS PASSED UNDER SECTION 143(3) ON 22.12.2009. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 2 3. IN THIS APPEAL OF THE REVENUE, THE FOLLOWING GR OUNDS HAVE BEEN RAISED: 1) THE ORDER OF THE CIT(A) IS CONTRARY TO LAW AND FACTS OF THE CASE. 2) THE LEARNED CIT(A) HAS ERRED IN DELETING THE DI SALLOWANCE MADE U/S 40(A)(I). 2.1) HAVING REGARD TO THE RETROSPECTIVE AMENDMENT B ROUGHT INTO THE ACT BY THE FINANCE ACT, 2010 BY WAY OF EXPLANAT ION TO SEC.9(1) THE LEARNED CIT(A) OUGHT TO HAVE UPHELD TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER. 2.2) THE LEARNED CIT(A) FAILED TO NOTE THAT IN THE LIGHT OF THE ABOVE AMENDMENT, THE DECISION OF THE HON'BLE SUPREM E COURT RELIED UPON VIZ. IN THE CASE OF GE INDIAN TECHNOLOG Y CENTRE IS DISTINGUISHABLE TO THE FACTS OF THIS CASE. 2.3) IT IS SUBMITTED THAT IN THE ABSENCE OF EXEMPTI ON CERTIFICATE FROM THE TDS WING OF THE DEPARTMENT, THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATI ON OF INDIA LTD. (239 ITR 589) IS APPLICABLE TO THE PRESENT CAS E AND HENCE THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE DISALLO WANCE MADE BY THE ASSESSING OFFICER. 3) THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT TH E ASSESSING OFFICER SHOULD REWORK THE DEDUCTION U/S.80-IA WITHO UT SETTING OFF LOSSES ON NOTIONAL BASIS. 3.1) HAVING REGARD TO THE PROVISIONS OF SECTION 80- IA(5) THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF T HE ASSESSING OFFICER. 3.2) IT IS SUBMITTED THAT THE DECISION OF THE HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS LTD. (231 CTR 368) AND THE DECISION OF THE ITAT IN THE CASE OF MOHAN BREWE RIES AND DISTILLERIES LTD. (114 TTJ 532) HAVE NOT BECOME FIN AL AND THE DEPARTMENT HAS PREFERRED FURTHER APPEAL AGAINST THE SAID ORDERS. 4) THE LEARNED CIT(A) HAS ERRED IN DELETING THE AD DITION MADE TOWARDS SUPPRESSION OF SALES ON A SUM OF ` .17,94,93,705/-. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 3 4.1) THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT DUR ING THE COURSE OF ASSESSMENT FOR A.Y 2007-08, THE ASSESSEE COMPANY WAS ASKED TO PRODUCE STOCK REGISTER, PRODUCTION REG ISTER ETC. AND ALSO THE NAME AND ADDRESS OF THE TRANSPORTER UT ILIZED FOR MOVING THE GOODS PRODUCED AND THE ASSESSEE COULD NO T PRODUCE THE INVOICES IN RESPECT OF THE SALES MADE ON 30.3.2 007 AND 31.03.2007. 4.2) IT IS SUBMITTED THAT THE ENTIRE SALES MADE TO DIFFERENT PARTIES IS ON CREDIT BASIS ONLY AND THE ASSESSEE WAS NEITHE R ABLE TO PRODUCE LEDGER EXTRACT OF THE PARTIES TO WHOM THE S ALES HAVE BEEN EFFECTED NOR PRODUCE ACKNOWLEDGEMENT FROM THE PURCHASER LEADING TO THE CONCLUSION THAT THE STOCK RELATING T O THESE SALES WAS IN TRANSIT OR IN GODOWNS OF THE ASSESSEE. AND H ENCE, THE ENTIRE STOCK WAS TREATED AS SUPPRESSED SALES. 4.3) IT IS FURTHER SUBMITTED THAT THE ASSESSEE IS C LAIMING THAT THERE IS 'NO STOCK OF FINISHED GOODS'. BUT THE ASSE SSEE COMPANY ITSELF HAS ADMITTED CLOSING STOCK OF RAW MATERIALS AND WORK-IN- PROGRESS, BUT IT IS SHOWING 'NIL' STOCK OF FINISHED GOODS, WHICH IS PRACTICALLY IMPOSSIBLE IN A MANUFACTURING CONCERN. IT IS ONLY IN THIS BACK GROUND THE ABOVE DISALLOWANCES HAS BEEN MADE. 5) THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADD ITION MADE BY THE ASSESSING OFFICER ON A SUM OF ` .4,45,67,775/- TOWARDS UNDERSTATEMENT OF CLOSING STOCK. 5.1) IT IS SUBMITTED THAT DURING THE ASSESSMENT PRO CEEDINGS, THE ASSESSEE COMPANY HAD DECLARED 'NIL' OR 'ZERO' CLOSI NG STOCK IN RESPECT OF FINISHED GOODS ONLY AND HAD DECLARED CLO SING STOCK IN RESPECT OF RAW MATERIALS AND WORK IN PROGRESS. IT I S SEEN THAT THE ELECTRICITY / POWER CONSUMED SHOWS CONTINUOUS PRODU CTION, WHICH DEFINITELY INDICATES THERE WAS CLOSING STOCK OF FIN ISHED GOODS, WHICH WAS SUPPRESSED. 6) THE LEARNED CIT(A) HAS ERRED IN DELETING THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER IN RESPECT OF BAD DEB TS ON A SUM OF ` .87,36,000/-. 6.1) HAVING REGARD TO THE BINDING JURISDICTIONAL HI GH COURT'S DECISION IN THE CASE OF SOUTH INDIA SURGICAL CO. LT D. (153 TAXMANN 491) THE LEARNED CIT(A) OUGHT TO HAVE UPHEL D THE ACTION OF THE ASSESSING OFFICER AS THE DEBTORS HERE ARE ALL I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 4 GOVERNMENT COMPANIES ONLY. 6.2) IT IS FURTHER SUBMITTED THAT THE DECISION OF T HE SUPREME COURT IN THE CASE OF TRF LTD. (323 ITR 397) CANNOT BE APPLIED HERE SINCE THE SAID DECISION DID NOT DEAL WITH DUES FROM THE GOVERNMENT / GOVERNMENT COMPANIES. 7) FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CIR CUMSPECTED THE ENTIRE RECORD. THE FIRST ISSUE RELATES TO DISALLOWA NCE UNDER SECTION 40(A)(I) OF THE ACT. 5. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSES SEE COMPANY HAS DEBITED A SUM OF ` .87,72,280/- AS COMMISSION & DISCOUNT EXPORTS, VI DE SCHEDULE 18(E) OF THE PROFIT AND LOSS ACCOUNT FOR T HE YEAR ENDED 31.03.2007. WHEN ASKED TO FURNISH THE DETAILS REGAR DING TAX DEDUCTION AT SOURCE ON THE ABOVE PAYMENTS OF ` .87,72,280/-, IT WAS SUBMITTED THAT THE ASSESSEE HAD PAID EXPORT COMMISSION FOR THE SERVICE RENDERED IN CONNECTION WITH PROCUREMENT OF EXPORT ORDERS, WHICH WERE CARRI ED OUT OUTSIDE INDIA THROUGH OVERSEAS AGENT AND THE PAYMENT WAS DIRECTLY REMITTED TO THEM. BECAUSE THE PAYMENT DOES NOT ACCRUE IN INDIA AND TH E SAME ARE NOT CHARGEABLE TO TAX IN INDIA, IN SUCH CIRCUMSTANCE, T DS IS NOT TO BE DEDUCTED. FOR THAT MATTER, RELIANCE WAS PLACED ON THE DECISIO N OF MADRAS TRIBUNAL DATED 06.03.2009 IN THE CASE OF DCIT VS. VENKAT SHO ES PRIVATE LTD. BUT, THE ASSESSING OFFICER WAS OF THE OPINION THAT SECTION 4 0(A)(I) HAS BEEN AMENDED I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 5 BY THE FINANCE ACT, 2004 W.E.F. 01.04.2005 AND THER EBY ANY INTEREST, COMMISSION, ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UNDER THIS ACT ARE PAYABLE OUTSIDE INDIA OR IN INDI A TO A NON-RESIDENT, THEN SUCH PAYMENT MADE, WITHOUT DEDUCTION TAX AT SOURCE, CANNOT BE ALLOWED AS A DEDUCTION WHILE COMPUTING THE PROFITS AND GAINS O F BUSINESS UNDER SECTION 30 TO 38 OF THE ACT. BECAUSE, THESE PAYMENTS WERE M ADE TO NON-RESIDENTS IN FOREIGN COUNTRIES, PROVISIONS OF SECTION 195 OF THE ACT WOULD APPLY. THEREAFTER, WITH REFERENCE TO BOARD CIRCULARS AND V ARIOUS DECISIONS, THE ASSESSING OFFICER HAS FINALLY CONCLUDED THAT THE EN TIRE AMOUNT OF ` .87,72,280/- IS TO BE ADDED BACK TO ASSESSEES TOTA L INCOME. AGAINST THIS FINDING, APPEAL WAS PREFERRED AND THE LD. CIT(A), A FTER CONSIDERING THE RIVAL SUBMISSIONS, HAS CONCLUDED THAT NO TDS IS DEDUCTABL E FOR THE PAYMENTS IN QUESTION. FOR REFERENCE, WE EXTRACT PARA 4.2 OF LD. CIT(A)S ORDER HEREUNDER: 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE APPELLANT AND THE AR. I HAVE ALS O GONE THROUGH THE DECISIONS AND THE CIRCULAR RELIED ON BY THE AO AND THE AR. IT IS SEEN THAT THE OVERSEAS NON-RESIDENTS AGENTS ENGAGED BY THE APPELLANT HAVE NO PE IN INDIA AND PA YMENTS HAVE BEEN MADE FOR THE SERVICES ENTIRELY RENDERED OUTSID E INDIA. IN VIEW OF THE DECISIONS OF THE HON'BLE SUPREME COURT, IN THE CASE OF GE INDIAN TECHNOLOGY CENTRE V. CIT (SUPRA), DELH I HIGH COURT IN VAN OORD ACZ(SUPRA) AND JURISDICTIONAL ITAT (SB) IN THE CASE OF ITO V. PRASAD PRODUCTIONS LTD 2010-TI0L182-ITAT -MAD-SB, I AM OF THE VIEW THAT THE QUESTION OF TAX DEDUCTION A T SOURCE AND TO APPROACH THE AO FOR ORDER U/S 195(2) DOES NOT AR ISE. THEREFORE, THE ADDITION OF ` .87,72,280/ IN RESPECT OF DISALLOWANCE U/S 40(A)(I) OF THE I.T. ACT IS DELETE D. THIS GROUND OF APPEAL IS ALLOWED. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 6 6. BEFORE, US, IT WAS CONTENDED THAT THE ISSUE STA NDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL DECIDE D IN ITS FAVOUR IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 WHILE DECIDING ITA NO. 554/MDS/2011 DATED 30.06.2011. THE TRIBUNAL HAS EXPLAINED THIS ISSUE AND GAVE ITS FINDING IN PARA 8 OF ITS ORDER, WHICH IS BEING EXTRACTED HEREIN BELOW: 8. WE HAVE PERUSED THE ORDERS OF AUTHORITIES BELO W AND HEARD THE RIVAL CONTENTIONS. THERE IS NO DOUBT THAT ASSE SSEE HAD PAID THE COMMISSION TO OVERSEAS PARTIES AND THERE IS ALSO NO DISPUTE THAT SUCH OVERSEAS AGENTS HAD NO PE IN INDIA. THERE IS NO DISPUTE ALSO THAT SUCH OVERSEAS AGENTS RENDERED SERVICES OUTSIDE INDIA FOR PROCURING EXPORT ORDERS. AMENDMENT HARPED ON BY T HE REVENUE IN SECTION 9(1) OF THE ACT MAY BE SUBSTITUTION OF EXPL ANATION COMING UNDER SUB-SECTION (2) OF SEC.9 BY FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT ON 01.06.1976. THIS IS THE ON LY AMENDMENT MADE IN SEC.9 BY FINANCE ACT, 2010. SUCH SUBSTITUTE D EXPLANATION READS AS UNDER:- EXPLANATION- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INC OME OF A NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE(V) OR CLAUSE (VI) OR CLAUSE(VII) OF SU B-SECTION(1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NO N- RESIDENT, WHETHER OR NOT, - (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINE SS OR BUSINESS CONNECTION IN INDIA; OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA. HERE IN THE CASE BEFORE US, THERE IS NOTHING ON REC ORD SHOWN BY THE REVENUE FOR COMING TO A CONCLUSION THAT THE CONCERN ED NON-RESIDENT I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 7 AGENTS HAD RENDERED ANY SERVICES IN INDIA OR HAD A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA. ASSESSEE HAVING FOUND THAT INCOME OF THE NON-RESIDENTS WERE NOT CHA RGEABLE TO TAX IN INDIA WAS JUSTIFIED IN MAKING THE REMITTANCES WI THOUT ANY DEDUCTION OF TAX AT SOURCE. IT IS FULLY SUPPORTED IN THIS REGARD BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF G E TECHNOLOGY CENTRE PVT. LTD (SUPRA). WE THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX(A) IN D ELETING THE DISALLOWANCE. GROUND NO.3 OF THE REVENUE STANDS DIS MISSED. 7. ACCORDINGLY, THIS ISSUE VERILY STANDS COVERED I N FAVOUR OF THE ASSESSEE BY THE ABOVE MENTIONED TRIBUNALS ORDER, WHICH HAS FOLLOWED HONBLE APEX COURTS DECISION IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PVT LTD VS. CIT (327 ITR 456) AND THEREFORE STANDS DECIDED. WE CONF IRM THE IMPUGNED ADDITION AND DISMISS GROUND NO.2 OF REVENUES APPEA L. 8. THE SECOND ISSUE OF THIS APPEAL RELATES TO COMP UTATION OF DEDUCTION UNDER SECTION 80IA. LOSSES AND UNABSORBED DEPRECIAT ION, WHICH HAVE ALREADY BEEN SET OFF THE PROFITS OF EARLIER YEARS A RE TO BE NOTIONALLY BROUGHT FORWARD AND SET OFF OR NOT. 9. IT WAS STATED AT BAR BY BOTH THE PARTIES THAT T HIS ISSUE, AS ON TODAY STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF THE HONBLE JURISDICTIONAL BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006- 07 (SUPRA) AND ALSO BY THE DECISION OF THE HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF VELAYUDHASWAMY SPINNING MIL LS LTD. VS. ACIT 231 I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 8 CTR 368 (MAD), A COPY OF THE SAME HAS BEEN PLACED O N RECORD. 10. WE HAVE CAREFULLY PERUSED THE POSITION OF THIS ISSUE AND HAVE FOUND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASS ESSEE IN VIEW OF THE TRIBUNALS ORDER IN ASSESSEES OWN CASE AND RELEVAN T PARA 3 OF THE TRIBUNALS ORDER IS BEING EXTRACTED FOR REFERENCE: 3. WE FIND THAT THIS ISSUE IS ALREADY DECIDED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS LTD., ( 231 CTR 368). THEIR LORDSHIP HELD AT PARA-13 OF THE ORDER AS UNDE R:- 13. SEC.80-IA READS AS FOLLOWS: 33 [(1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRIS E FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDAN CE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMP UTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FO R TEN CONSECUTIVE ASSESSMENT YEARS.] (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY, AT THE OPTION OF THE ASSESSEE, BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH T HE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRA STRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVEL OPS AN INDUSTRIAL PARK 34 [OR DEVELOPS 35 [***] A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE (III) OF SUB-SECTION (4)] OR GENERATES POWER OR COMMENCES TR ANSMISSION OR DISTRIBUTION OF POWER 36 [OR UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNISATION OF THE EXISTING TRANSMISSION OR DISTR IBUTION LINES ): (4) THIS SECTION APPLIES TO (I) ANY ENTERPRISE CARRYING ON THE BUSINESS 47 [OF (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING, OPER ATING AND MAINTAINING] ANY INFRASTRUCTURE FACILITY WHICH FULF ILS ALL THE FOLLOWING CONDITIONS, NAMELY : (A) IT IS OWNED BY A COMPANY REGISTERED IN INDIA O R BY A CONSORTIUM OF SUCH COMPANIES 48 [OR BY AN AUTHORITY OR A BOARD OR A CORPORATION OR ANY OTHER BODY ESTABLISHED OR C ONSTITUTED UNDER ANY CENTRAL OR STATE ACT;] I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 9 49 [(B) IT HAS ENTERED INTO AN AGREEMENT WITH THE CENT RAL GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORI TY OR ANY OTHER STATUTORY BODY FOR (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING, OPERATING AND MAINTAINING A NEW INFRASTRUCTURE FACILITY;] (C) IT HAS STARTED OR STARTS OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY ON OR AFTER THE 1ST DAY OF APRIL, 1995: 5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSI NESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB -SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INIT IAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE O F INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE I NITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DET ERMINATION IS TO BE MADE. FROM READING OF SUB-S (1), IT IS CLEAR THAT IT PROV IDES THAT WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING FOR AN ENTERPRISE F ROM ANY BUSINESS REFERRED TO IN SUB-S(4) I.E. REFERRED TO A S THE ELIGIBLE BUSINESS, THERE SHALL, IN ACCORDANCE WITH AND SUBJE CT TO THE PROVISIONS OF THE SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQ UAL TO 100 PERCENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS. DEDUCTION IS GIV EN TO ELIGIBLE BUSINESS AND THE SAME IS DEFINED IN SUB-S (4). SUBS -S(2) PROVIDES OPTION TO THE ASSESSEE TO CHOOSE 10 CONSECUTIVE ASS ESSMENT YEARS OUT OF 15 YEARS. OPTION HAS TO BE EXERCISED. IF IT IS NOT EXERCISED, THE ASSESSEE WILL NOT BE GETTING THE BENEFIT. FIFTE EN YEARS IS OUTER LIMIT AND THE SAME IS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS T O OPERATE ANY INFRASTRUCTURE ACTIVITY ETC. SUB-S(5) DEALS WITH QU ANTUM OF DEDUCTION FOR AN ELIGIBLE BUSINESS. THE WORDS INIT IAL ASSESSMENT YEAR ARE USED IN SUB-S(5) AND THE SAME IS NOT DEFI NED UNDER THE PROVISIONS. IT IS TO NOTED THAT INITIAL ASSESSMENT YEAR EMPLOYED IN SUB-S(5) IS DIFFERENT FROM THE WORDS BEGINNING FROM THE YEAR REFERRED TO IN SUB-S(2) IMPORTANT FACTORS ARE TO BE NOTED IN SUB- S(5) AND THEY ARE AS UNDER:- (1) IT STARTS WITH NON OBSTANTE CLAUSE WHICH MEAN S IT OVERRIDES ALL THE PROVISIONS OF THE ACT AND OTHER PROVISIONS ARE TO BE IGNORED. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 10 (2) IT IS FOR THE PURPOSE OF DETERMINING THE QUANTU M OF DEDUCTION; (3) FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR; (4) IT IS A DEEMING PROVISION; (5) FICTION CREATED THAT THE ELIGIBLE BUSINESS IS T HE ONLY SOURCE OF INCOME; AND (6) DURING THE PREVIOUS YEAR RELEVANT TO THE INITIA L ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESSMENT YEAR. FROM READING THE ABOVE, IT IS CLEAR THAT THE ELIGIB LE BUSINESS WERE THE ONLY SOURCE OF INCOME DURING THE PREVIOUS YEAR RELEVANT TO INITIAL ASSESSMENT YEAR AND EVERY SUBSEQUENT ASS ESSMENT YEARS. WHEN THE ASSESSEE EXERCISES THE OPTION, THE ONLY LOSSES OF THE YEARS BEGINNING FROM INITIAL ASSESSMENT YEAR AL ONE ARE TO BE BROUGHT FORWARD AND NO LOSSES OF EARLIER YEARS WHIC H WERE ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE. LOOKING FORWARD TO A PERIOD OF TEN YEARS FROM THE INITIAL A SSESSMENT IS CONTEMPLATED. IT DOES NOT ALLOW THE REVENUE TO LOO K BACKWARD AND FIND OUT IF THERE IS ANY LOSS OF EARLIER YEARS AND BRING FORWARD NOTIONALLY EVEN THOUGH THE SAME WERE SET OFF AGAINS T OTHER INCOME OF THE ASSESSEE AND THE SET OFF AGAINST THE CURRENT INCOME OF THE ELIGIBLE BUSINESS, ONCE THE SET OFF I S TAKEN PLACE IN EARLIER YEAR AGAINST THE OTHER INCOME OF THE ASSESS EE, THE REVENUE CANNOT REWORK THE SET OFF AMOUNT AND BRING IT NOTIONALLY. FICTION CREATED IN SUB-SECTION DOES NOT CONTEMPLATE TO BRING SET OFF AMOUNT NOTIONALLY. FICTION IS CRE ATED ONLY FOR THE LIMITED PURPOSE AND THE SAME CANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS CREATED. WE ARE THEREFORE, OF THE OPINION THAT CIT(A) WAS JU STIFIED IN DIRECTING THE ASSESSING OFFICER TO REWORK THE DEDUCTION CLAIMED B Y THE ASSESSEE U/S.80- IA OF THE ACT WITHOUT SETTING OFF LOSSES ON NOTIONA L BASIS. GROUND NO.2 OF THE REVENUE IS DISMISSED. 11. THEREFORE, BY RELYING ON THE ABOVE ORDER AND B Y RESPECTFULLY FOLLOWING THE SAME, WE DISMISS GROUND NO. 3 OF THE REVENUES APPEAL. 12. GROUND NO. 4 RELATES TO DELETION OF ADDITION M ADE TOWARDS SUPPRESSION OF SALES. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 11 COMPANY HAS BEEN FOLLOWING ZERO STOCK METHOD FOR THE LAST SEVERAL YEARS. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PROV E THE JUSTIFICATION OF THIS PRACTICE BEING FOLLOWED IN A MANUFACTURING COMPANY. THE COMPANY PRODUCED SALES INVOICE, DELIVERY CHALLANS AND LORRY RECEIPTS IN THIS REGARD. AS PER THE ASSESSING OFFICER SOME SALES TRANSACTIONS E FFECTED IN THE SALE LEDGER COPY FURNISHED ON 03.11.2009 DO NOT MATCH WITH INVO ICE FURNISHED ON 10.11.2009. THE SALES AS PER LEDGER COPY AS ON 30.0 3.2007 AND 31.03.2007 ARE AS UNDER: 1. FACTORY SALES ` . 4,82,44,902 (QTY: 1181.5 MT) 2. BRANCH SALES REPORTED ` . 12,94,18,813 (QTY: 2895 MT) 3. EXPORT SALES `. 5,00,74,892 (QTY: 1452.12 MT) 13. BECAUSE THE ASSESSEE WAS NOT ABLE TO PRODUCE A LL THE INVOICE OF THE DELIVERY CHALLAN AND LORRY RECEIPTS IN RESPECT OF B RANCH SALES AND EXPORT SALES, THE ASSESSING OFFICER HAS HELD THAT THESE AR E TO BE TAKEN AS SALES REPORTED AND THE SAME IS ADDED TO THE TOTAL INCOME. ON ACCOUNT OF DIFFERENCE BETWEEN THE SALES LEDGER AND INVOICE RAI SED AMOUNTING TO ` .17,94,93,705/- WAS ADDED. 14. THIS ADDITION HAS BEEN DELETED BY THE LD. CIT( A) ON THE PREMISE THAT THERE IS NO STATEMENT OR OMISSION OF THE SALES BY T HE ASSESSEE. THE ACCOUNTS OF THE ASSESSEE COMPANY ARE SUBJECTED TO C AG AUDIT. THE ACCOUNTS ARE ALSO SUBJECTED TO GOVERNMENT AUDIT UND ER SECTION 619(4) OF THE COMPANIES ACT, 1956. IT HAS BEEN OBSERVED THAT SINC E NO COMMENTS HAD I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 12 BEEN MADE BY THE CAG AFTER COMPILATION OF THE AUDIT , THERE CANNOT BE ANY SUPPRESSION OF SALES. BUT, ON BEHALF OF THE DEPARTM ENT, IT WAS ARGUED THAT THE ASSESSEE COMPANY HAS SHOWN A NIL STOCK OF FINIS HED GOODS, WHICH IS PRACTICALLY IMPOSSIBLE IN A MANUFACTURING COMPANY A ND THERE SHOULD BE SOME STOCK OF FINISHED GOODS AS ON 31.03.2007 BECAU SE THERE WAS AN UNINTERRUPTED POWER CONSUMPTION AND CONTINUOUS PROD UCTION. THE LD. CIT(A) GAVE A CATEGORICAL FINDING THAT THERE IS NO UNDERST ATEMENT OF CLOSING STOCK IN ASSESSEE COMPANYS CASE. HENCE, THE QUESTION OF SUP PRESSION OF SALES DOES NOT ARISE. 18. GROUND NO. 5 RELATES TO DELETION OF ADDITION M ADE TOWARDS UNDERSTATEMENT OF CLOSING STOCK. 19. PARA 7.3 OF THE LD. CIT(A)S ORDER WILL THROW SOME MORE LIGHT ON THE FACTS AND HIS FINDINGS. REGARDING THE ADDITION OF ` .4,45,67,775/- MADE BY THE ASSESSING OFFICER ON PRESUMPTIVE BASIS TOWARDS UNDE RSTATEMENT OF CLOSING STOCK. SINCE, BOTH THE ISSUES ARE CORRELATED, WE HA VE FOUND CERTAIN FOR THE FACT THAT PRODUCTION MADE ON 30.03.2007 AND 31.03.2 007, WHICH HAVE NOT BEEN SOLD ARE ACCOUNTED FOR AS WORK IN PROGRESS. SO, THE ARGUMENTS OF THE LD. DR THAT ONE OF THESE TWO ADDITIONS HAS TO BE SU STAINED ARE NOT CORRECT. BOTH THE ADDITIONS ARE UNCALLED FOR IN VIEW OF THE FACTS THAT THE PRODUCTION MADE ON LAST DAYS OF THE ACCOUNTING YEAR HAVE BEEN SHOWN AS WORK IN PROGRESS AND THIS FACTS HAS NOT BEEN DISPUTED BY T HE REVENUE. TO FURTHER ELABORATE ON THE FACTS, WE WILL EXTRACT PARA 7.3 OF THE LD. CIT(A)S ORDER, I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 13 WHICH READS AS UNDER: 7.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND RIVAL SUBMISSIONS. I HAVE ALSO PERUSED THE DOCUMENTS AND EXPLANATIONS GIVEN BY THE APPELLANT COMPANY. IT IS CLEAR FROM TH E RECORD THAT THE LOWER PRODUCTION IN THE PAPER MACHINES WAS ON ACCOU NT OF SHUT DOWN OF THE MACHINE FOR MAINTENANCE WORK AND THE GO VERNMENT DECLARED BANDH ON 31.03.2007. I ALSO AGREE THAT SIN CE THE PAPER MACHINE IS A CONTINUOUS PROCESS PLANT, THE MACHINES WERE TO BE KEPT UNDER RUNNING IDLE CONDITION WITH WATER CIRCULATION TO KEEP THE FELT AND WIRE UNDER WET CONDITION WHICH RESULTED IN POWE R CONSUMPTION ON 31.03.2007. ACCORDINGLY, THE PRESUMPTIVE ADDITIO N OF PRODUCTION QUANTITY OF 511.965 MTS [600 MTS ESTIMATED BY AD LE SS 88.035 MTS (ACTUAL)] ON 31.03.2007 IS NOT SUSTAINABLE. THE ACT UAL QUANTITY OF MACHINE PRODUCTION (673.36 MTS ON 30.03.2007 AND 88 .035 MTS ON 31.03.2007) DULY RECONCILED WITH EXCISE RECORDS (RG 1) HAS ALREADY BEEN ACCOUNTED IN THE BOOKS AS 'WORK-IN-PROCESS' (U NFINISHED) AND 'SALES' (FINISHED). AS THEY HAVE BEEN CONSIDERED PR OPERLY IN THE BOOKS OF ACCOUNT, THE SAME CANNOT BE ADDED ONCE AGA IN. IT IS ALSO SEEN THAT THE ACCOUNTS OF THE APPELLANT ARE SUBJECT TO AUDIT BY THE COMPTROLLER AND AUDITOR GENERAL OF INDIA (CAG). THE ACCOUNTS ARE ALSO SUBJECT TO GOVERNMENT AUDIT U/S.619 (4) OF THE COMPANIES ACT, 1956 'NIL' COMMENT 'WAS ALSO ISSUED BY CAG AFTER CO MPLETION OF AUDIT OF THE ACCOUNT FOR THE SUBJECT' ASSESSMENT YE AR. THE APPELLANT IS BEING REGULARLY SUBJECTED TO INSPECTION AND VERI FICATION BY AUTHORITIES LIKE EXCISE, VAT ETC. THEREFORE, THE AD DITION OF ` .4,45,67,775/- MADE BY THE AO ON PRESUMPTIVE BASIS IS NOT CORRECT AND IS ACCORDINGLY, DELETED. THIS GROUND OF APPEAL IS ALLOWED. 20. ACCORDINGLY, BOTH THESE ADDITIONS HAVE BEEN CO RRECTLY DELETED BY THE LD. CIT(A). CONSEQUENTLY, GROUND NO. 4 AND 5 OF THI S APPEAL STAND DISMISSED. 21. THE LAST GROUND I.E. GROUND NO. 6 RELATES TO B AD DEBT AND DELETED BY THE LD. CIT(A). 22. THE ASSESSING OFFICER HAS DISALLOWED THE BAD D EBT AMOUNTING TO ` .87,36,000/-. THE DETAILS AND STATUS OF THE DEBTS W ERE PRODUCED AND HAVE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.555 555555 555/ // /MDS/ MDS/ MDS/ MDS/11 1111 11 14 BEEN WRITTEN OFF AS IRRECOVERABLE AS PER THE PROVIS IONS OF SECTION 36(1)(VII) OF THE ACT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. T HERE IS NO DISPUTE ON THIS FACT. AFTER01.04.1989, W.E.F. ASSESSMENT YEAR 1989- 90, THERE IS NO REQUIREMENT BY THE ASSESSEE TO PROVE THAT THE DEBT HAS ACTUALLY BECOME BAD. THEREFORE, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. TO SUPPORT OUR VIEW, WE MAY MENTION THE CASE OF T.R.F. LTD. VS . CIT 323 ITR 397 (SC) AND IT HAS BEEN HELD THAT IT IS ENOUGH IF THE DEBT HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT AFTER MENTIONING THE SAME AS IRREC OVERABLE DEBT. ACCORDINGLY, WE CONFIRM THIS DELETION ALSO. 23. IN THE RESULT, THE APPEAL OF THE REVENUE STAND S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02.12.2011. SD/ - SD/ - (N.S. SAINI) ACCOUNTANT MEMBER (HARI OM MARATHA) JUDICIAL MEMBE R CHENNAI, DATED, THE 02.12.2011 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.