Nirma Ltd., Ahmedabad V. The ACIT., Cent.Circle-1(1), Ahmedabad

ITA 558/AHD/2005

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73074 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 06-07-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 21-02-2005
• Court: TRIBUNAL
• Keywords: Capital asset; Gift; Business income; Depreciation; Initiation of penalty proceedings; Revenue expenditure
• Section: 43B; 143(3); 80HHC; 234B; 115JB; 80IB; 37(1); 147; 37

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO. 541/AHD/2005 A.Y. 2001-02 ACIT, CENTRAL CIRCLE-1(1), AHMEDABAD. VS NIRMA LTD. AHMEDABAD. PAN: AAACN5350N (APPELLANT) (RESPONDENT) ITA NO. 558/AHD/2005 A.Y. 2001-02 NIRMA LTD. AHMEDABAD. PAN: AAACN5350N VS ACIT, CENTRAL CIRCLE-1(1), AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SH. SUBHASH BAINS, SR.D.R. ASSESSEE(S) BY : SH. S.N. SOPARKAR ALONGWITH URVASHI SHODHAN, AR / // / DATE OF HEARING : 30/01/2014 !'# / DATE OF PRONOUNCEMENT : 26 /02/2014 $% $% $% $%/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THESE ARE THE CROSS APPEALS FILED BY THE REVENUE A ND ASSESSEE AGAINST THE ORDER OF THE CIT(A)-XI, AHMEDABAD DATED 10.12.2 004. 2. GROUND NO. 1 OF THE APPEAL OF THE REVENUE READS AS UNDER: THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECT ING TO RESTRICT THE ADDITION OF RS 30,19,295/- MADE ON ACCOUNT OF DISALLOWANCE OF DEDU CTION CLAIMED U/S 80IA OF THE I.T. ACT, 1961 IN RESPECT OF INCOME REPRESENTED BY OTHER SALES OF THE INDORE DIVISION AND THE MORAIYA DIVISION TO RS 3,05,605/-. ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 2 - GROUND NO. 3 OF THE APPEAL OF ASSESSEE READS AS UND ER: IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE A PPELLANTS CASE, THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING DISALLOWANCE OF DEDUCTION U/S 80IA/80IB ON OTHER SALES VIZ., IRON SCRAP SALE, MISC SALES AND M ETAL SCRAP SALES. SINCE THE FACTS AND ISSUE INVOLVED IN BOTH THESE GR OUNDS OF APPEAL ARE SIMILAR, THEY ARE BEING DISPOSED OF TOGETHER AS UNDER: 3. THE ASSESSING OFFICER MADE THE DISALLOWANCE BY O BSERVING AS UNDER: 3.1 APART FROM THE TRIKAMPURA DIVISION, THE ASSESS EE COMPANY HAS ALSO CLAIMED DEDUCTION U/S 80IA FOR INDORE DIVISION, MORAIYA (DE TERGENT) AND WINDFARM DIVISION. IN EARLIER ASSESSMENT YEARS, IT HAS BEEN THE CONSISTENT STAND OF REVENUE TO HOLD THAT OTHER SALES DONE BY A PARTICULAR DIVISION I.E. SALES OTHER THAN THE SALES OF THE MANUFACTURED ARTICLE ARE NOT ELIGIBLE FOR DEDUC TION U/S 80IA. IN VIEW OF THIS, THE ASSESSEE COMPANY WAS ASKED TO FURNISH FULL DETAILS OF OTHER SALES OF THESE DIVISIONS FOR WHICH DEDUCTION U/S 80IA WAS CLAIMED. THESE DE TAILS WERE FURNISHED BY THE ASSESSEE VIDE SUBMISSION DATED 29.03.2004. IN THIS , IT WAS OBSERVED THAT THESE DIVISIONS HAD OTHER SALES AS UNDER: INDORE DIVISION I) WASTE WRAPPER SALE RS 22,943 II) WASTE PLASTIC SALES RS 16,816 III) SALE OF BARRELS RS 3,444 IV) IRON SCRAP SALE RS 79,184 V) BARDAN SALES RS 79,226 VI) GANI BAG SALE RS 21,68,878 VII) SOAP STONE BARDAN SALE RS 2,12,409 VIII) BOX SALE RS 3,950 IX) WRAPPER SALE RS 7,748 RS 25,94,598 TRIKAMPURA DIVISION I) PLASTIC WASTE SALE RS 47,228 II) BARDAN SALES RS 1,58,555 III) GANI BAG SALE RS 33,88,673 IV) MISC. SALE RS 30,975 V) WASTE SCRAP SALES RS 4,675 RS 36,30,106 ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 3 - MORAIYA DIVISION I) WASTE WRAPPER SALE RS 29,971 II) WASTE PLASTIC SALES RS 1,12,179 III) SALE OF BARRELS RS 7,87,098 IV) IRON SCRAP SALE RS 4,54,673 V) BARDAN SALES RS 1,05,251 VI) GANI BAG SALE RS 32,54,267 VII) SOAP STONE BARDAN SALE RS 18,57,991 VIII) MISC. SALE RS 1,49,302 IX) METAL SCRAP RS 3,33,525 X) DETERGENT CAKE WASTE RS 23,615 XI) PLASTIC BARDAN SODA RS 3,59,850 RS 74,69,722 3.2 IN VIEW OF THE CONSISTENT STAND OF REVENUE IN A .Y. 2001-02 ALSO, IT IS HELD THAT THESE OTHER SALES DO NOT QUALIFY FOR DEDUCTION U/S 80IA. HOWEVER, IN VIEW OF THE FINDINGS IN SECTION-2 OF THIS ORDER REGARDING DISAL LOWANCE OF CLAIM OF DEDUCTION U/S 80IA FOR TRIKAMPURA DIVISION, THESE OTHER SALES FOR THIS DIVISION ARE NOT SEPARATELY EXCLUDED IN THE COMPUTATION AS PER THIS ORDER. PEN ALTY U/S 271(1)(C) INITIATED. 4. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE LD. AR OF THE ASSESSEE RELIED ON THE DECISION OF THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF ASSESSEE ITSELF IN TAX APPEAL NO. 811 O F 2013 ORDER DATED 27.01.2014 AND SUBMITTED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN T HE INSTANT CASE, THE ASSESSING OFFICER DISALLOWED THE DEDUCTION U/S 80IA TO THE AS SESSEE ON SALE OF WASTE PLASTICS, BARRELS, BARDANS ETC. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THEY ARE ELIGIBLE F OR DEDUCTION U/S 8-IA AS THEY FORM PART AND PARCEL OF THE INDUSTRIAL ACTIVITY CAR RIED ON BY THE ASSESSEE AND THAT THE SALE OF THESE ITEMS GOES TO REDUCE THE COS T OF PRODUCTION AND THE COST OF THE SAME WAS DEBITED IN THE ACCOUNTS. ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 4 - 6. THE LD. AR OF THE ASSESSEE HAS RELIED UPON THE D ECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF THE ASSESSEE ITSE LF WHEREIN IT WAS HELD AS UNDER: INSOFAR AS QUESTION NOS. 2, 5 7 AND 12 ARE CONCERN ED, IT IS AN UNDISPUTED POSITION THAT THE ISSUES ARE COVERED BY A DECISION OF THIS C OURT IN THE CASE OF DY. CIT VS. HARIJIVANDAS JUTHABHAI ZAVERI, 258 ITR 785 IN WHICH THE COURT UPHELD THE DECISION OF THE TRIBUNAL GRANTING BENEFIT OF DEDUCTION UNDER SECTION 801 OF THE ACT ON VARIOUS INCOMES, SUCH AS JOB WORK RECEIPT, SALE OF EMPTY SODA ASH BARDAN, SALE OF EMPTY BARRELS AND PLASTIC WASTE. SUCH QUESTIONS AR E, THEREFORE, NOT REQUIRED TO BE CONSIDERED. 7. IN VIEW OF THE ABOVE DECISION OF THE HONBLE JUR ISDICTIONAL HIGH COURT, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) , HENCE GROUND NO. 1 OF REVENUES APPEAL AND GROUND NO. 3 OF ASSESSEES APP EAL BOTH ARE DISMISSED. 8. GROUND NO. 2 OF THE APPEAL OF REVENUE IS DIRECTE D AGAINST THE ORDER OF THE LD. CIT(A) DIRECTING THE ASSESSING OFFICER TO C OMPUTE DEDUCTION U/S 80HHC ON EXPORT PROFITS ARRIVED AT ON THE BASIS OF THE EXPORT TURNOVER AND THE TOTAL TURNOVER EXCLUSIVE OF THE RECEIPTS OF EXCISE DUTY AND SALE TAX. 9. BOTH THE PARTIES BEFORE US AGREED THAT THE ISSUE IS NOW SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS (2007) 290 ITR 667 (S C) WHEREIN IT WAS HELD THAT SALES TAX AND EXCISE DUTY DONT HAVE ANY ELEMENT OF TURNOVER AND THAT EXCISE DUTY AND SALES TAX ARE INDIRECT COSTS W HICH ARE RECOVERED BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT AND IF THEY A RE MADE RELATABLE TO EXPORTS, THE FORMULA U/S 80HHC WOULD BECOME UNWORK ABLE. THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 10. GROUND NO. 3 OF THE REVENUES APPEAL IS DIRECTE D AGAINST THE ORDER OF THE LD. CIT(A) HOLDING THAT DEDUCTION U/S 80IA OF T HE ACT WAS NOT TO BE ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 5 - REDUCED FROM THE PROFITS OF THE BUSINESS TO COMPUTE THE DEDUCTION U/S 80HHC OF THE ACT. 11. GROUND NO. 4(2) OF THE ASSESSEES APPEAL IS DIR ECTED AGAINST THE ORDER OF THE LD. CIT(A) DIRECTING THE ASSESSING OFFICER TO R EDUCE THE PROFIT OF BUSINESS BY DEDUCTION U/S 80IA OF RS 2103.42 LAKHS. 12. AT THE TIME OF THE HEARING, BOTH THE PARTIES BE FORE US AGREED THAT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE AND BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PRIVATE LIMITED VS. DCIT (2011) 197 TAXMANN 84 (BOM.) WHERE IN IT WAS HELD THAT SECTION 80IA(9) DOES NOT AFFECT COMPUTABILITY OF DE DUCTION UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER VI-A; IT AFFECTS THE LIABILI TY OF DEDUCTION COMPUTED UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER VI-A SO THA T THE AGGREGATE DEDUCTION U/S 80IA AND OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A DOES NOT EXCEED 100% OF THE PROFITS OF THE BUSINESS OF THE ASSESSEE. THIS VIEW IS ALSO SU PPORTED BY THE CBDT CIRCULAR NO. 772 DATED 23.12.1998 WHEREIN I IS STATED THAT SECTION 8 0IA(9) HAS BEEN INTRODUCED WITH A VIEW TO PREVENT THE TAXPAYERS FROM CLAIMING REPEATED DED UCTIONS IN RESPECT OF THE SAME AMOUNT OF ELIGIBLE INCOME AND THAT TOO IN EXCESS OF THE EL IGIBLE PROFITS. THUS, THE OBJECT OF THE SECTION 80IA(9) BEING NOT TO CURTAIL THE DEDUCTIONS COMPUTABLE UNDER VARIOUS PROVISIONS UNDER HEADING C OF THE CHAPTER, IT IS REASONABLE TO HOLD THAT SECTION 80IA(1) AFFECTS THE LIABILITY OF DEDUCTION AND NOT COMPUTATION OF DEDUC TION. WE THEREFORE SET ASIDE THE ORDERS OF LOWER AUTHORIT IES AND REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO READJU DICATE THE ISSUE AFRESH AS PER LAW AFTER TAKING INTO CONSIDERATION THE ABOVE QUOTE D DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ASSOCIATED CAPSULES PR IVATE LIMITED (SUPRA). THUS, GROUND NO. 3 OF THE REVENUES APPEAL IS DISMI SSED AND GROUND NO. 4(2) OF ASSESSEES APPEAL IS ALLOWED. ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 6 - 13. GROUND NO. 4 OF THE APPEAL OF THE REVENUE IS DI RECTED AGAINST THE ORDER OF THE LD. CIT(A) RESTRICTING THE ADDITION OF RS 1, 07,34,486/- TO RS 22,95,198/- ON ACCOUNT OF DISALLOWANCE OF LATE PAYM ENT OF PROVIDENT FUND AND ESI U/S 43B OF THE ACT. 14. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE HAD MADE PAYMENTS OF PROVIDENT FUND AN D ESI CONTRIBUTION BEYOND THE PRESCRIBED DUE DATE, AND THEREFORE, BY F OLLOWING THE DECISION OF HONBLE KERALA HIGH COURT, HE DISALLOWED THE DEDUCT ION FOR THE FOLLOWING PAYMENTS: PROVIDENT FUND DIVISION DUE DATE DATE OF PAYMENT AMOUNT (RS) MANDALI 15.4.2001 16.4.2001 11,24,118 UDAIPUR 15.3.2001 22.3.2001 18,030 MORAIYA 15.6.2000 17.6.2000 14,59,248 MORAIYA 15.7.2000 17.7.2000 14,92,431 MORAIYA 15.8.2000 16.8.2000 12,90,283 MORAIYA 15.10.2000 18.10.2000 13,18,696 MORAIYA 15.11.2000 16.11.2000 13,59,165 MORAIYA 15.11.2000 17.11.2000 1,89,551 MORAIYA 15.3.2001 27.3.2001 13,11,884 MORAIYA 15.4.2001 18.4.2001 11,20,630 TOTAL 1,06,84,036 ESIC DIVISION DUE DATE DATE OF PAYMENT AMOUNT (RS) MANDALI 15.4.2001 16.4.2001 42,193 UDAIPUR 15.4.2001 1.5.2001 8,257 TOTAL 50,450 15. ON APPEAL, THE LD. CIT(A) DIRECTED THE ASSESSIN G OFFICER TO ALLOW DEDUCTION FOR PROVIDENT FUND AND ESI PAYMENTS AFTER PROPER VERIFICATION IF THE PAYMENTS WERE MADE DURING THE RELEVANT PREVIOUS YEA R. ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 7 - 16. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE WAS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LIMITED (2009) 319 ITR 306 (SC) WHE REIN IT WAS HELD THAT IF THE CONTRIBUTION TO PF AND ESI WAS DEPOSITED BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF RETURN UNDER THE INCOME TAX ACT, THEN THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION. THEREFORE, WE CONFIRM THE O RDER OF THE LD. CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 17. GROUND NO. 5 OF THE REVENUES APPEAL IS DIRECTE D AGAINST THE ORDER OF THE LD. CIT(A) DELETING THE ADDITION OF RS 24,04,56 8/- ON ACCOUNT OF DISALLOWANCE OUT OF OTHER EXPENSES ON ACCOUNT OF PR OVISIONS OF SECTION 37(1) OF THE ACT. 18. THE ASSESSING OFFICER DISALLOWED RS 24,04,568/- ON ACCOUNT OF OTHER EXPENSES BY OBSERVING AS UNDER: 6.1 ON SCRUTINY OF THE DETAILS FILED AS PER SUBMIS SION DATED 30.3.2004 REGARDING OTHER EXPENSES INCURRED BY THE ASSESSEE COMPANY, IT IS HELD THAT PART OF THESE EXPENSES AS OUTLINED BELOW ARE NOT MEANT FOR BUSINE SS. MANDALI DIVISION 1 DIWALI EXPENSES RS 3778 2 HOTEL EXPENSE RS 100000 3 ENTERTAINMENT EXPENSE RS 50000 4 OUT OF TEA & COFFEE EXP. RS 200000 5 MISC. EXPENSES RS 100000 6 OUT OF GIFT EXP. RS 200000 7 DONATION TO GRAMPANCHAPAT RS 275000 RS 903778 CHHATRAL DIVISION 1 TELEPHONE EXPENSES RS 100000 2 OUT OF MISC. EXP. RS 2250 RS 102250 UDAIPUR DIVISION 1 TEA & COFFEE EXPENSES RS 8970 2 MISC. EXPENSES RS 16280 3 GIFT EXPENSES RS 1602 ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 8 - RS 26852 TRIKAMPURA DIVISION 1 ADVERTISEMENT EXP. RS 100000 2 OUT OF MISC. EXP. RS 1235 RS 101235 MANPUR DIVISION 1 OUT OF MISC. EXP. RS 10230 2 OUT OF GIFT EXP. RS 43960 3 HOUSE MAINTENANCE EXP. RS 100000 RS 154190 INDORE DIVISION 1 DIWALI EXPENSES RS 27872 2 OUT OF HOTEL EXPENSES RS 50000 3 OUT OF MISC. EXPENSES RS 50000 4 TEA & COFFEE EXP. RS 72000 5 GIFT EXPENSES RS 2000 RS 202872 ALLINDRA DIVISION 1 HOTEL EXPENSES RS 100000 2 ENTERTAINMENT EXP. RS 7638 3 MISC. EXP. RS 100000 4 GIFT EXPENSES RS 12253 5 DONATION TO GRAMPANCHAPAT RS 3500 223391 BHAVNAGAR DIVISION 1 HOTEL EXPENSES RS 50000 2 ENTERTAINMENT EXP. RS 200000 3 MISC EXP. RS 100000 4 GUEST HOUSE EXP. RS 100000 5 DONATION TO EMPLOYEE RS 17000 RS 467000 MORAIYA DIVISION 1 DIWALI EXPENSES RS 18000 2 MISC. EXP. RS 200000 3 GIFT EXPENSES RS 5000 RS 223000 6.2 THE ASSESSEES AUTHORIZED REPRESENTATIVE WAS RE QUESTED TO SHOW CAUSE DURING ASSESSMENT PROCEEDINGS AS TO WHY THE ABOVE E XPENSES BE NOT DISALLOWED. THE AUTHORIZED REPRESENTATIVE STATED THAT THESE EXP ENSES WERE INCURRED EXCLUSIVELY FOR BUSINESS PURPOSES. THE A.R. RELIED ON THE SUBM ISSIONS GIVEN ON EARLIER YEARS BEFORE THE A.O. AND THE LD. CIT(A) IN SUPPORT OF TH ESE CONTENTIONS. THE CONTENTIONS OF THE ASSESSEE ARE NOT ACCEPTABLE. THE ISSUE OF D ISALLOWANCE OF THESE EXPENSES IS CONTENDED BY REVENUE BEFORE THE ITAT AND HENCE FOLL OWING THE CONSISTENT STAND OF REVENUE THEY ARE DISALLOWED U/S 37 OF THE I.T. ACT AND ARE ADDED BACK TO THE TOTAL INCOME, TREATING THESE EXPENSES AS HAVING BEEN INCU RRED FOR NON-BUSINESS PURPOSES. 19. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWA NCE BY OBSERVING AS UNDER: ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 9 - I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMIS SIONS OF THE A.R. OF THE APPELLANT CAREFULLY. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED UPON BY THE A.R. AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESS MENT ORDER. THE LD. CIT(A)-I, AHMEDABAD, WHILE DECIDING THE ISSUE FOR A.Y. 1999-2 000 IN THE APPELLANTS OWN CASE HAS HELD VIDE HIS ORDER DATED 8.11.2002 THAT T HE DISALLOWANCE OUT OF VARIOUS TYPES OF EXPENSES HAVE BEEN MADE ON AN ADHOC BASIS WITHOUT POINTING OUT AS TO HOW SUCH EXPENSES WERE FOR NON BUSINESS PURPOSES AND DE LETED THE ADDITION MADE. THE ABOVE ORDER HAS BEEN FOLLOWED BY THE UNDERSIGNED WH ILE DECIDING THE ISSUE ON SIMILAR FACTS FOR A.Y. 2000-01 VIDE APPEAL NO. CIT( A)-XI/83/04-05 DATED 29.11.2004. FOR THE YEAR UNDER CONSIDERATION THE F ACTS ARE THE SAME AND FOLLOWING THE DECISION OF THE EARLIER ASSESSMENT YEAS, REFERR ED TO ABOVE, THE ADDITION MADE ON ACCOUNT OF INADMISSIBLE EXPENSES ON ADHOC BASIS IS ALSO DELETED 20. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LD. C IT(A). 21. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN T HE INSTANT CASE, THE ASSESSING OFFICER MADE DISALLOWANCE OUT OF OTHER EXPENSES OF RS 24,04,568/- ON THE GROUND THAT THE EXPENSES ARE NOT INCURRED WHOLLY AN D EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE AND THAT SIMILAR DISALLOWA NCE WAS MADE BY HIM IN EARLIER YEARS WHICH WAS DELETED BY THE LD. CIT(A) A ND THE REVENUE WAS IN APPEAL BEFORE THE TRIBUNAL. 22. ON APPEAL, THE LD. CIT(A) FOLLOWING HIS ORDER F OR THE ASSESSMENT YEARS 1999-2000 AND 2000-01 DELETED THE DISALLOWANC E. BOTH THE PARTIES BEFORE US AGREED THAT THIS ISSUE IS COVERED IN FAVO UR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 1999-2000 PASSED IN ITA NO. 175 AND 523/AHD/2003 AND C.O. NO. 9/AHD/2003 ORDER DATE D 31.07.2006 WHEREIN THE TRIBUNAL OBSERVED AS UNDER: THE SECOND GROUND IS PERTAINING TO DISALLOWANCE VA RIOUS EXPENSES OF RS 11,17,625 OF WHICH DETAILS IS REPRODUCED BY THE CIT(A) IN HIS ORDER AT PAGE NO. 17 AND 18. THE CIT(A) DELETED THE ADDITION WITH THE FINDING TH AT A.O. HAS MADE ADHOC ADDITION WITHOUT ANY BASIS. THE LD. AR POINTED OUT THAT IDE NTICAL ADHOC DISALLOWANCE WERE MADE IN A.Y. 1998-99 WHICH HAVE BEEN DELETED BY THE CIT(A). AFTER HEARING BOTH ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 10 - SIDES WE FIND THAT CIT(A) HAS RIGHTLY DELETED THE L UM SUM/ADHOC ADDITION WHICH WERE MADE WITHOUT ANY BASIS. WE ACCORDINGLY CONFIR M THE ORDER OF THE CIT(A). THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD. CIT(A) WHICH IS CONFIRMED AND THE GROUND OF THE APPEAL OF THE RE VENUE IS DISMISSED. 23. GROUND NO. 6 OF THE APPEAL OF THE REVENUE READS AS UNDER: THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECT ING TO ALLOW THE CLAIM OF EXPENSES OF RS 69,00,893/- WHICH WAS DISALLOWED IN THE ORDER OF ASSESSMENT BEING PRIOR PERIOD EXPENSES FOR A.Y.S 2002-03 AND 2003-04 AND NEITHER CLAIMED IN THE BOOKS OF ACCOUNT OF THE ACCOUNTING YEAR UNDER CONSI DERATION NOR CLAIMED IN THE RETURN OF INCOME FOR THE A.Y. 2001-02. 24. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF THE FOLLOWING PRIOR PAID EXPENSES BY OBSERVING AS UNDER: 9.1 AT THE FAG END OF ASSESSMENT PROCEEDING, THE A SSESSEE COMPANY FOR THE FIRST TIME VIDE SUBMISSION DATED 29.3.2004 SUBMITTED THAT FOLLOWING PRIOR PERIOD EXPENSES DISALLOWED IN THE RETURNS FILED FOR A.Y. 2 002-03 & 2003-04, WHICH PERTAIN TO A.Y. 2001-02 SHOULD BE ALLOWED IN THE PRESENT AS SESSMENT: I) PRIOR PERIOD EXPENSES ACCOUNTED FOR IN A.Y. 2002-03 RS 38,85,546 II) PRIOR PERIOD EXPENSES ACCOUNTED FOR IN A.Y. 2003-04 RS 30,15,347 RS 69,00,893 9.2 VIDE SUBMISSION DATED 29.3.2004, THE ASSESSEE C OMPANY CONTENDED THAT THESE EXPENSES ARE DULY VERIFIED AND CERTIFIED BY T HEIR AUDITORS AS PERTAINING TO A.Y. 2001-02 AND HENCE ON THE BASIS OF THEIR CLAIM, THE SAME SHOULD BE ALLOWED. THIS CONTENTION OF THE ASSESSEE COMPANY HAS BEEN CONSIDE RED AND IS NOT FOUND ACCEPTABLE. AS THE ASSESSEE COMPANY HAS SQUARELY F AILED TO FURNISH THE REQUISITE DETAILS OF THE NATURE OF THESE EXPENSES AND IS FAIL ED TO ESTABLISH THAT THEY HAVE BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. 25. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWA NCE BY OBSERVING AS UNDER: ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 11 - 10.1 I HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSIONS OF THE A.R. OF THE APPELLANT CAREFULLY. I HAVE ALSO GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSESSING OFF ICER HAS NOT EXAMINED THE ISSUE IN DETAIL. FOR DECIDING THE ALLOWABILITY OF THESE EXP ENSES, EACH ITEM WILL HAVE TO BE EXAMINED AND IT WILL HAVE TO BE SEEN WHEN THE LIABI LITY HAS ARISEN/CRYSTALLIZED/ASCERTAINED AND WHETHER SUCH EX PENSES ARE ALLOWABLE U/S 37(1). HAVING CONSIDERED THE FACTS OF THE CASE, THE ASSESS ING OFFICER IS DIRECTED TO VERIFY WHEN THE LIABILITY HAS ARISEN. IF THE LIABILITY T O PAY THE SAME HAS ARISEN DURING THE YEAR UNDER CONSIDERATION AND IF THE EXPENSES ARE AL LOWABLE AS PER THE PROVISIONS OF THE ACT, THE A.O. IS DIRECTED TO ALLOW THE SAME AS THE APPELLANT COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IF THE SAME HAS N OT ARISEN DURING THE YEAR UNDER CONSIDERATION OR OTHERWISE NOT ALLOWABLE, THE SAME SHOULD NOT BE ALLOWED. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 26. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 27. THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). 28 . LD. DR COULD NOT POINT OUT ANY SPECIFIC ERROR IN TH E ORDER OF THE LD. CIT(A) NOR COLD HE EXPLAIN THE GRIEVANCE CAUSED TO THE REVENUE BY THE ABOVE ORDER OF THE LD. CIT(A). THEREFORE, THIS GRO UND OF APPEAL OF THE REVENUE IS DISMISSED. 29. GROUND NO. 7 & 8 OF THE REVENUES APPEAL ARE GE NERAL IN NATURE AND THEREFORE, REQUIRE NO SEPARATE ADJUDICATION BY US. 30. IN THE ASSESSEES APPEAL, GROUND NO. 1 IS GENER AL IN NATURE AND THEREFORE, REQUIRES NO SEPARATE ADJUDICATION BY US. 31. IN GROUND NO. 2 OF THE APPEAL OF ASSESSEE, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF CLAIM OF DEDUCTION U/S 80IA AND 80IB FOR TRIKAMPURA DIVISION . THE ASSESSING OFFICER DISALLOWED DEDUCTION U/S 80IA TO THE ASSESS EE BY OBSERVING AS UNDER: ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 12 - 2.5 THE CONTENTIONS AS ABOVE ON BEHALF OF REVENU E ARE SUMMARIZED AS UNDER: I) AS THE ASSESSEE COMPANY DURING WHOLE OF THE PRE VIOUS YEAR HAD NO EMPLOYEES ON THE ROLLS OF THE TRIKAMPURA DIVISION A ND WHOLE OF ITS PROFIT MAKING SYSTEM WAS LEASED OUT IT CEASED TO BE AN 'INDUSTRIA L UNDERTAKING'. THUS, AS PER SUB-SECT ION- (2) OF 80IA/80IB IT BECAME INELIGIBLE FOR DEDUCTION. FURTHER, THE MANDATORY CONDITION OF EMPLOYING 20 OR MORE WORKERS WAS NOT SATISFIED BY THE ASSESSEE COMPANY, HENCE NO DEDUCTION IS ALLOWABLE. II) EVEN IF THE CONTENTION OF THE ASSESSEE COMPANY THAT EMPLOYEES OF ITS AGENT THE JOB WORKER WERE ITS OWN EMPLOYEES IS TAKE N AT FACE VALUE FROM THE PERUSAL OF THE CONTRACT BETWEEN THE ASSESSEE COMPAN Y AND THE JOB WORKER A 'MASTER - AGENT' IS CREATED ONLY BETWEEN THE ASSES SEE COMPANY AS A WHOLE AND JOB WORKER. THE ASSESSEE COMPANY HAS NOT BEEN ABLE TO ESTABLISH THAT THE JOB WORKER WAS THE SPECIFIC AGENT OF THE TRIKAMPURA IND USTRIAL UNDERTAKING. AS THE ONUS TO ESTABLISH THAT THE UNIT FOR WHICH DEDUCTION IS CLAIMED SATISFIES ALL THE MANDATORY REQUIREMENTS IS SQUARELY ON THE ASSESSEE AND THE ASSESSEE HAS FAILED TO DISCHARGE THE SAME, NO DEDUCTION ALLOWABLE TO TH E TRIKAMPURA DIVISION. III) AS THE TRIKAMPURA DIVISION HAD NO EMPLOY EES .ALL ANCILLARY MANUFACTURING ACTIVITIES RELATING TO THE PRODUCTS MANUFACTURED BY JOB WORKER, WHICH ARE ASCRIBED BY THE ASSESSEE COMPANY TO ITSEL F PERTAIN TO GENERAL MANDALI DIVISION OF THE ASSESSEE COMPANY AND NOT TO THE TR IKAMPURA DIVISION, HENCE, IT IS HELD THAT DURING WHOLE OF THE PREVIOUS YEAR, NO M ANUFACTURING OF ANY ARTICLE OR THING WAS DONE BY THE TRIKAMPURA DIVISION. IV) AS ALL THE MACHINES OF TRIKAMPURA DIVISION WERE LICENCED TO THE JOB WORKER AND NO EMPLOYEES WERE THERE IN THE TRIKAMPURA TO EX ERCISE ANY CONTROL OVER THE USE OF THE SAME, NO PART OF MANUFACTURING ACTIVITY OF T HE JOB WORKER CAN BE ASCRIBED TO THE TRIKAMPURA DIVISION. V) IF THE CONSTRUCTION / INTERPRETATION GIVEN BY THE ASSESSEE TO THE SECTION 80IA/8OIB IS ACCEPTED THE VERY PURPOSE OF THESE SEC TIONS SHALL BE DEFEATED. 2.6 PENALTY U/S 271(1) (C) INITIATED ON THIS ISSUE . 32. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ORDER O F THE ASSESSING OFFICER BY OBSERVING AS UNDER: 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE A. R. OF THE APPELLANT CAREFULLY. I HAVE ALSO GONE THROUGH THE D ECISIONS RELIED UPON BY THE A. R. AND THE DETAILS PRODUCED BY HIM BEFORE ME. I HAVE A LSO GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESS MENT ORDER. WITH REGARD TO THE APPELLANT'S CLAIM OF DEDUCTION U/S.8OIB IT IS SEEN THAT THE APPELLANT HAS NOT FULFILLED THE CONDITION AS LAID DOWN AS PER THE PROVISIONS OF SECTION 80IB OF THE ACT. THE TRIKAMPURA DIVISION FOR WHICH THE APPELLANT HAS CLA IMED DEDUCTION HAS CEASED TO BE AN INDUSTRIAL UNDERTAKING W.E.F. 30-11-1999. A C AREFUL EXAMINATION OF THE TERMS AND CONDITIONS OF AGREEMENT DATED 25-11-1999 BETWEE N THE APPELLANT COMPANY AND ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 13 - NISARG ENTERPRISES PVT. LTD. MAKES FT CLEAR THAT TH E APPELLANT HAD GIVEN THE POSSESSION AND RIGHT TO USE THE FURNITURE, FITTINGS EQUIPMENTS, TANKAGES, PLANT & MACHINERIES ON PLOT NO.3601 AND 3602 SITUATED AT VI LLAGE TRIKAMPURA (DIST. AHMEDABAD) TOGETHER WITH ELECTRIC CONNECTION, WATER CONNECTION AND OTHER AMENITIES AS STATED IN THE SCHEDULE ATTACHED TO THE SAID AGREEMENT. FURTHER NISRAG ENTERPRISES PVT. LTD. HAD TO PAY ALL THE TAXES, CES S TO GOVT. AUTHORITIES OR ANYBODY CLAIMING AS WELL AS ELECTRICITY CHARGES, WATER CHAR GES AND OTHER GOVERNMENT TAXES ETC. FROM THE DATE OF USING AND DURING ITS OCCUPATI ON OF THE SAID PROPERTIES. ITS CLEAR FROM THESE TERMS AND CONDITIONS OF THE AGREEMENT TH AT THE PRODUCTION HAS TO BE CARRIED OUT BY NISARG ENTERPRISES PVT. LTD., THE PL ANT & MACHINERIES ALONG WITH ELECTRIC FITTINGS, CONNECTIONS ETC. HAS BEEN GIVEN TO IT, IT IS SUPPOSED TO PAY TAXES, CESS ETC. TO GOVERNMENT AUTHORITIES AND THE EMPLOYE ES WOULD BE EMPLOYED BY NISRAG ENTERPRISES PVT. LTD. ONLY. IT IS SEEN FROM THE SCH EDULE TO THE AGREEMENT DATED 30- 11-1999 THAT THE APPELLANT HAS LEASED OUT ALL THE M ACHINERY AND THERE WERE NO EMPLOYEES OF ITS OWN IN THE TRIKAMPURA DIVISION. ON CAREFUL PERUSAL OF THE DETAILS AND RECORDS, IT IS SEEN THAT IN EARLIER YEARS THE D IVISION HAD POWER AND SALARY EXPENSES COMMENSURATE WITH THE TOTAL PRODUCTION WHE REAS IN THE YEAR UNDER CONSIDERATION THE EXPENSES SHOWN BY THE APPELLANT A RE PRIMA FACIE LOW WITH THE TOTAL TURNOVER OF THE YEAR. FURTHER, THE SALARY PA YMENTS SHOWN BY THE APPELLANT OF RS. 56,500/- IN FACT PERTAIN TO PAYMENTS OF EARLIER YEARS IN RESPECT OF SETTLEMENT OF LABOUR DISPUTE. IT MAY BE NOTED HERE THAT WHEN THE RE ARE NO EMPLOYEES, THE QUESTION OF MANUFACTURING ACTIVITIES CARRIED OUT BY THE APPELLANT AT TRIKAMPURA DIVISION DOES NOT ARISE, IT IS FURTHER SEEN THAT SA LES AND PURCHASES, WERE CARRIED OUT BY THE GENERAL DIVISION OF THE APPELLANT COMPANY. THE APPELLANT COMPANY HAS ALSO NOT BEEN ABLE TO ESTABLISH THAT THE JOB WORKER S ARE THE SPECIFIC AGENT OF THE TRIKAMPURA INDUSTRIAL UNDERTAKING AND THE/APPELLANT WAS EXERCISING ANY QUALITY CONTROL AS NO EMPLOYEES WERE THERE IN THE SAID DIVI SION TO EXERCISE ANY CONTROL OVER THE REDUCTION. THE APPELLANT'S CONTENTION THAT TH E SUPERVISORY STAFF AT THE HEAD OFFICE WAS LOOKING AFTER THE QUALITY CONTROL AND TH E RAW MATERIALS PURCHASED BY THE HEAD OFFICE WERE PROVIDED TO THE JOB-WORKER DOES NO T HOLD GOOD AS THE DEDUCTION CLAIMED U/S.80IB IS ON 'PROFITS DERIVED FROM' THE T RIKAMPURA DIVISION WHERE ACTUALLY THE 'INDUSTRIAL UNDERTAKING CEASED TO EXI ST WITH EFFECT FROM 30-11-1999 FROM THE POINT OF VIEW OF ELIGIBILITY FOR DEDUCTION U/S.80IB. IT IS NECESSARY FOR THE APPELLANT TO PROVE PRIMA FACIE THAT THE UNIT FOR WH ICH DEDUCTION IS CLAIMED SATISFIES ALL THE MANDATORY CONDITIONS AS LAID DOWN IN SECTIO N 80IB. THE APPELLANT HAS FAILED TO DISCHARGE ITS ONUS IN THIS REGARD. THE RELIANC E IS PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NOR THERN INDIA IRON AND STEEL COMPANY LTD. 226 ITR 342 WHICH WAS RENDERED ON THE ISSUE OF DEDUCTION U/S.80J WHICH HAD IDENTICAL CONDITIONS FOR ALLOWABILITY OF DEDUCTION U/S.80IB. IN THE SAID CASE, THE HON'BLE DELHI HIGH COURT HELD THAT THE AS SESSEE IS REQUIRED TO FULFILL FOR CLAIMING REBATE IS THAT IT MANUFACTURES OR PRODUCES ARTICLES AND IF THE ASSESSEE HAS NO CONTROL OVER THE MACHINERY, THE QUESTION OF GRAN T OF REBATE U/S.80J DOES NOT ARISE, IN THE INSTANT CASE THERE IS NO CONTROL OVER THE MACHINERY BY THE APPELLANT AND IT HAS NOT MANUFACTURED OR PRODUCED ARTICLES. THE R ELIANCE IS ALSO PLACED IN THE CASE OF CIT VS. PANWALT INDIA LTD. 196 ITR 813 (BOM) WHE REIN THE BOMBAY HIGH COURT HAS HELD THAT A PART OF PROCESSING OR MANUFACTURIN G ACTIVITY MUST BE DONE BY THE ASSESSEE. WHEREAS IN THE INSTANT CASE THERE IS NO M ANUFACTURING ACTIVITY BEING DONE BY THE APPELLANT FROM THE TRIKAMPURA DIVISION. IN THE CASE OF CIT VS. STERLING FOODS 237 ITR 589 (SC), E HON'BLE SUPREME COURT HEL D THAT THERE MUST BE FOR THE ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 14 - APPLICATION OF THE 'DERIVED FROM', A DIRECT NEXUS B ETWEEN THE PROFITS AND GAINS, IN THE INSTANT CASE, THE APPELLANT HAS NOT PROVED THE NEXUS. IN THE INSTANT CASE, THERE ARE PECULIAR FACTS LIKE THERE ARE NO WORKERS EMPLOY ED BY THE INDUSTRIAL UNDERTAKING AND THERE IS NO PLANT AND MACHINERY. THE CASE LAWS RELIED UPON BY THE APPELLANT DO NOT DEAL WITH SUCH A SET OF FACTS AND ARE DISTINGUI SHABLE ON FACTS. THE CONTENTION OF THE A. R. OF THE APPELLANT COMPANY THAT THE PROVISI ONS OF SECTION 801A/80IB HAVE BEEN INCORPORATED TO GIVE BENEFIT TO THE ASSESSEE A ND THEREFORE, THESE PROVISIONS SHOULD BE INTERPRETED LIBERALLY, CAN BE ACCEPTED IN A CASE WHERE ALL THE BASIC CONDITIONS LAID DOWN IN THAT PARTICULAR SECTION ARE SATISFIED. WHERE THE ASSESSEE FAILS ON ANY OF THE PRE-REQUISITES LAID DOWN UNDER THE LAW, THE ASSESSEE WILL NOT BE ENTITLED FOR DEDUCTION AND QUESTION OF LIBERAL INTE RPRETATION WOULD NOT ARISE. IN THE CASE OF IPCA LABORATORY LTD. V. DCIT 266 ITR 530-53 1 WHILE DECIDING THE ISSUE OF CORRECT INTERPRETATION OF SECTION 80HHC, THE HONBL E SUPREME COURT HELD THAT EVEN THOUGH THE PROVISIONS UNDER CHAPTER VIA OF THE I. T . ACT HAVE BEEN INCORPORATED TO GIVE BENEFIT AND INCENTIVES TO THE ASSESSEE, THE IN TERPRETATION OF SECTIONS IN CHAPTER VIA HAS TO BE GIVEN AS PER THE WORDINGS OF THE SECT ION AND IN NO CASE, SO LIBERAL INTERPRETATION BE GIVEN TO THESE PROVISIONS THAT TH E VERY PURPOSE OF SECTION IS DEFEATED. 5.2.1 IN VIEW OF THE ABOVE DISCUSSION, THE APPELLAN T IS NOT ENTITLED FOR DEDUCTION UNDER SECTION 80IB OF THE ACT FOR THE INCOME SHOWN FROM TRIKAMPURA DIVISION. 33. THE LD. AR RELIED ON THE DECISION OF THE HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. PANWALT INDIA LTD. (1992) 19 6 ITR 813 (BOM.) AND SUBMITTED THAT IT HAS BEEN HELD BY THE HONBLE HIGH COURT THAT AN ASSESSEE WOULD BE SAID TO BE ENGAGED IN MANUFACT URING ACTIVITY IF IT IS DOING A PART OF MANUFACTURING ACTIVITY BY ITSELF AND FOR TH E REST OF IT ENGAGES THE SERVICES OF SOMEBODY ELSE ON A CONTRACT OTHER THAN A CONTRACT O F PURCHASE. IN THE INSTANT CASE, THE ASSESSEES MANUFACTURING ACTIVITY CONSISTED OF (I) CONVEYING OF ORDERS (II) PREPARING OF DESIGNS AND DRAWINGS ON THE BASIS OF O RDERS (III) PLACING ORDERS FOR THE MANUFACTURE OF MACHINERY WITH T (IV) SEEING THAT TH E MANUFACTURING PROCESS WAS CARRIED ON BY T UNDER THE DIRECT SUPERVISION OF THE ASSESSEE (V) HAVING A CHECK OVER THE QUALITY CONTROL AND LAST BUT NOT THE LEAST, BEI NG RESPONSIBLE FOR THE PROPER FUNCTIONING OF THE MACHINERY GRANTED FOR SALE/SERVI CES FOR A STIPULATED PERIOD. OUT OF SO MANY ACTIVITIES EXCEPT FOR ONE ACTIVITY, NAME LY, GETTING THE MACHINERY MANUFACTURED FROM T, ALL OTHER ACTIVITIES WERE ADMI TTEDLY UNDERTAKEN BY THE ASSESSEE. IN THE CIRCUMSTANCES, IT WAS OBVIOUS THAT THE ASSES SEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF SUGAR AND TEA MACHINERY AND WAS A CCORDINGLY QUALIFIED FOR RELIEF U/S 80-I. ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 15 - HE ALSO RELIED ON THE DECISION OF THE DELHI BENCH O F THE TRIBUNAL IN THE CASE OF CLAAS INDIA LIMITED VS. ACIT (2008) 21 SOT 580 (DEL HI) WHEREIN IT WAS HELD THAT SUB-SECTION (2) OF SECTION 80IB PROVIDES CERTAIN CO NDITIONS TO BE FULFILLED BY AN INDUSTRIAL UNDERTAKING TO CLAIM DEDUCTION U/S 80IB. ADMITTEDLY, THESE CONDITIONS WERE FULFILLED, IN THE INSTANT CASE, IN RESPECT OF MANUFACTURE AND SALE OF HARVESTER COMBINE AND THE DEDUCTION HAD BEEN GRANTED. SUB-SE CTION (3) OF SECTION 80IB PROVIDES THAT AMOUNT OF DEDUCTION IN THE CASE OF AN INDUSTRIAL UNDERTAKING SHALL BE 25% OF THE PROFITS AND GAINS DERIVED FROM SUCH INDU STRIAL UNDERTAKING. THEREFORE, THE QUESTION FOR CONSIDERATION AROSE AS TO WHETHER THE SALE OF SPARE PARTS AND THE COMPONENTS WAS DUE TO THE SAME BEING MANUFACTURED B Y THE ASSESSEE OR WAS SIMPLY A TRADING TRANSACTION SO AS TO BE EXCLUDED FROM REC KONING FOR COMPUTING DEDUCTION AS PROFITS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING . THE ASSESSEE HAD SUPPLIED DOCUMENTS TO SUGGEST AS TO IN RESPECT OF SALE OF VA RIOUS ITEMS OF THESE SPARE PARTS AND COMPONENTS OF THE FURTHER PROCESSES WERE BEING APPLIED SO AS TO FINISH THE PRODUCTION PROCESS AND TO MAKE IT MARKETABLE. WHAT WERE THE VARIOUS MANUFACTURING PROCESSES TO BE APPLIED TO THE VARIOU S OUTSOURCED MATERIAL, WERE FILED IN THE FORM OF INSTRUCTION SHEET BEING GIVEN BY THE MANAGEMENT TO THE SHOP FLOOR WORKERS. THUS IT WAS INCORRECT TO SAY THAT THE SALE OF SPARES/COMPONENTS WAS MERELY TRADING OF GOODS AND NOT SALE OF THE GOODS M ANUFACTURED BY THE ASSESSEE. THOUGH THE ASSESSEE MIGHT BE OUTSOURCING SOME OF TH E SPARE PARTS BY GETTING THEM MANUFACTURED, ELSEWHERE AFTER RECEIVING THE SAME, T HE ASSESSEE WAS APPLYING FURTHER PROCESS SO AS TO RENDER THEM MARKETABLE AS PER THE REQUIRED STANDARD. THUS, THOUGH VARIOUS PROCESSES WERE BEING APPLIED, THE SAME WAS MISTAKENLY TREATED AS SALE OF TRADING GOODS AND NOT OF GOODS M ANUFACTURED BY THE ASSESSEE. IN THE INSTANT CASE, THE LOWER AUTHORITIES HAD EXPLICI TLY ACCEPTED THE POSITION THAT THE ASSESSEE WAS AN INDUSTRIAL UNDERTAKING AND FULFILLE D THE 3 CONDITIONS CONTAINED IN SECTION 80IB(2) FOR DEDUCTION U/S 80IB. ONCE, THE LOWER AUTHORITIES ACCEPTED THE FACT THAT THE INDUSTRIAL UNDERTAKING OF THE ASSESSE E MANUFACTURED OR PRODUCED HARVESTER COMBINES, THERE WAS NO JUSTIFICATION OF R ATIONAL BASIS FOR DENYING DEDUCTION FOR MANUFACTURE OR PRODUCTION OF INTERMED IATE PRODUCTS LIKE SPARE PARTS COMPONENTS OR SUB-ASSEMBLIES. ADMITTEDLY, THESE SP ARE PARTS WERE EITHER PRODUCED BY CARRYING OUT THE VARIOUS PROCESSES INSIDE THE FA CTORY OR THESE WERE CAUSED TO BE PRODUCED ON THE BASIS OF DRAWINGS, DESIGNS AND SPEC IFICATIONS SUPPLIED BY THE UNDERTAKING TO THE OUTSIDE FABRICATORS AND AFTER RE CEIPT OF SUCH COMPONENTS, THE UNDERTAKING CARRIED OUT FURTHER PROCESSES LIKE PAIN TING, WELDING, SALT HARDENING, TEMPERING ETC. ON SUCH COMPONENTS. THE ACTIVITY OF MANUFACTURING THE COMPONENTS IS THUS AN INTEGRAL PART OF THE ACTIVITY OF THE IND USTRIAL UNDERTAKING AND THERE IS NO JUSTIFICATION WHATSOEVER TO SAY THAT COMPONENTS ARE MERELY SUBJECTED O TRADING ACTIVITY OF THE ASSESSEE. SPARES AND COMPONENTS ARE UNQUESTIONABLY THE GOODS OF THE UNDERTAKING. THESE ARE BEING MANUFACTURED ON THE B ASIS OF THE IMPORTED TECHNOLOGY WHICH IS A CAPITAL ASSET OF THE INDUSTRIAL UNDERTAK ING. THE UNDERTAKING HAD ADOPTED THE TECHNOLOGY AND MODIFIED THE DESIGNS AND DRAWING S SO AS TO SUIT THE INDIAN CONDITIONS. THE DRAWING, DESIGNS AND SPECIFICATION S, PREPARED BY THE INDUSTRIAL UNDERTAKING FORMED THE VERY BASIS FOR PRODUCTION OR MANUFACTURING OF THE COMPONENTS. THESE COMPONENTS WERE EITHER PRODUCED INSIDE THE FACTORY OR THEY WERE FABRICATED FROM OUTSIDE UNDER SUPERVISION AND CONTROL OF THE INDUSTRIAL ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 16 - UNDERTAKING. COST OF SUCH OPERATIONS DEBITED IN TH E BOOKS OF ACCOUNT OF UNDERTAKING HAS BEEN DULY LOADED ON THE COST OF THE COMPONENTS WHICH ARE EITHER USED FOR THE ASSEMBLY OF THE COMBINES, MACHINES OR SOLD AS INTEGRAL PART OF MACHINES. IT WOULD GO WITHOUT SAYING THAT COMPONEN TS, SPARES AND SUB-ASSEMBLIES WERE THE GOODS OF THE INDUSTRIAL UNDERTAKING. THESE WERE REFLECTED IN THE CLOSING STOCK AS GOODS UNDER PROCESS. EVEN IF THESE GOODS WERE TREATED AS INTERMEDIATE PRODUCTS IN THE PROCESS OF MANUFACTURE OF THE FINAL PRODUCT THAT IS THE HARVESTER COMBINES, SALE OF SUCH INTERMEDIATE PRODUCTS HAD MA RKET VALUE AS ACCOUNTED FOR IN THE BOOKS OF THE UNDERTAKING WOULD QUALIFY FOR DEDU CTION U/S 80IB. VARIOUS COURTS HAVE TIME AND AGAIN HELD THAT ASSESSEE NEED NOT OWN OR POSSESS PLANT AND MACHINERY TO BE A MANUFACTURER OF GOODS OR TO BE TR EATED AS AN INDUSTRIAL COMPANY FOR THE PURPOSE OF CLAIMING DEDUCTION. THE MANUFAC TURE MAY BE EITHER BY THE ASSESSEE ITSELF OR BY SOMEONE UNDER THE ASSESSEES SUPERVISORY CONTROL OR DIRECTION. IN THE INSTANT CASE, THE ASSESSEE COULD NOT BE CONS IDERED AS A TRADER SIMPLICITER. A TRADER MERELY PURCHASES THE GOODS WHICH HAVE ALREAD Y BEEN MANUFACTURED BY OTHERS AND THEN SELLS THEM AS IT IS. NO FURTHER MA NUFACTURING PROCESS IS BEING APPLIED IF THE ASSESSEE IS MERELY A TRADER. HOWEVE R, IN THE INSTANT CASE, AFTER PURCHASING SOME OF THE PARTS FROM OUTSIDE SUPPLIERS , THE ASSESSEE APPLIED ITS OWN FURTHER PROCESSES TO FURNISH HE SAME AND TO MAKE TH EM MARKETABLE. EVEN THE TECHNOLOGY AND SPECIFICATIONS/DRAWING WERE SUPPLIED BY THE ASSESSEE TO THE OUTSIDE MANUFACTURER OF COMPONENTS. IN A WAY, THE ASSESSEE AS A MANUFACTURER EXERCISED COMPLETE CONTROL OVER THE COMPONENTS MANUFACTURE OU TSIDE AND ONLY AFTER APPLYING ITS OWN FURTHER PROCESS SOLD THE SAME. 34. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN T HE INSTANT CASE, THE ASSESSEE CLAIMED DEDUCTION U/S 80IA OF THE ACT O RS 41,43,43,356/- ON ACCOUNT OF INCOME FROM TRIKAMPURA UNIT. THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE LEASED OUT ITS TRIKAMPUR A UNIT ALONG WITH ALL ITS FURNITURE, FITTINGS, EQUIPMENTS, TANKAGES, PLAN T AND MACHINERY ON PLOT NO. 3601 AND 3602 SITUATED AT VILLAGE TRIKAMPURA, D ISTRICT AHMEDABAD TOGETHER WITH ELECTRIC CONNECTION, WATER CONNECTION AND OTHER AMENITIES AS STATED IN THE SCHEDULE ATTACHED TO THE AGREEMENT DATED 25.11.1999 TO M/S NISARG ENTERPRISES PRIVATE LIMITED ON 30.11.199 9, AND THEREAFTER ALL ACTIVITIES IN THAT UNIT WAS CARRIED OUT BY THE SAID LESSEE. THE ASSESSEE HAD NOT EMPLOYED ANY EMPLOYEE IN TRIKAMPURA UNIT DU RING THE YEAR UNDER CONSIDERATION. IN THE OPINION OF THE ASSESSI NG OFFICER, THE ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 17 - TRIKAMPURA UNIT OF THE ASSESSEE CEASED TO BE AN IND USTRIAL UNDERTAKING WITH EFFECT FROM 30.11.1999. AS THE ASSESSEE HAS N OT SATISFIED THE PREREQUISITE CONDITIONS OF MANUFACTURE OF AN ARTICL E OR THING AT TRIKAMPURA UNIT, THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. 35. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OBSERVING AS UNDER: 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS OF THE A. R. OF THE APPELLANT CAREFULLY. I HAVE ALSO GONE THROUG H THE DECISIONS RELIED UPON BY THE A. R. AND THE DETAILS PRODUCED BY HIM B EFORE ME. I HAVE ALSO GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFI CER IN THE ASSESSMENT ORDER. WITH REGARD TO THE APPELLANT'S CLAIM OF DEDU CTION U/S.8OIB IT IS SEEN THAT THE APPELLANT HAS NOT FULFILLED THE CONDITION AS LAID DOWN AS PER THE PROVISIONS OF SECTION 80IB OF THE ACT. THE TRIKAMPU RA DIVISION FOR WHICH THE APPELLANT HAS CLAIMED DEDUCTION HAS CEASED TO BE AN INDUSTRIAL UNDERTAKING W.E.F. 30-11-1999. A CAREFUL EXAMINATION OF THE TER MS AND CONDITIONS OF AGREEMENT DATED 25-11-1999 BETWEEN THE APPELLANT CO MPANY AND NISARG ENTERPRISES PVT. LTD. MAKES FT CLEAR THAT THE APPEL LANT HAD GIVEN THE POSSESSION AND RIGHT TO USE THE FURNITURE, FITTINGS EQUIPMENTS, TANKAGES, PLANT & MACHINERIES ON PLOT NO.3601 AND 3602 SITUAT ED AT VILLAGE TRIKAMPURA (DIST. AHMEDABAD) TOGETHER WITH ELECTRIC CONNECTION, WATER CONNECTION AND OTHER AMENITIES AS STATED IN THE SCH EDULE ATTACHED TO THE SAID AGREEMENT. FURTHER NISRAG ENTERPRISES PVT. LTD . HAD TO PAY ALL THE TAXES, CESS TO GOVT. AUTHORITIES OR ANYBODY CLAIMIN G AS WELL AS ELECTRICITY CHARGES, WATER CHARGES AND OTHER GOVERNMENT TAXES E TC. FROM THE DATE OF USING AND DURING ITS OCCUPATION OF THE SAID PROPERT IES. ITS CLEAR FROM THESE TERMS AND CONDITIONS OF THE AGREEMENT THAT THE PROD UCTION HAS TO BE CARRIED OUT BY NISARG ENTERPRISES PVT. LTD., THE PLANT & MA CHINERIES ALONG WITH ELECTRIC FITTINGS, CONNECTIONS ETC. HAS BEEN GIVEN TO IT, IT IS SUPPOSED TO PAY TAXES, CESS ETC. TO GOVERNMENT AUTHORITIES AND THE EMPLOYEES WOULD BE EMPLOYED BY NISRAG ENTERPRISES PVT. LTD. ONLY. IT I S SEEN FROM THE SCHEDULE TO THE AGREEMENT DATED 30-11-1999 THAT THE APPELLAN T HAS LEASED OUT ALL THE MACHINERY AND THERE WERE NO EMPLOYEES OF ITS OWN IN THE TRIKAMPURA DIVISION. ON CAREFUL PERUSAL OF THE DETAILS AND REC ORDS, IT IS SEEN THAT IN EARLIER YEARS THE DIVISION HAD POWER AND SALARY EXP ENSES COMMENSURATE WITH THE TOTAL PRODUCTION WHEREAS IN THE YEAR UNDER CONSIDERATION THE EXPENSES SHOWN BY THE APPELLANT ARE PRIMA FACIE LOW WITH THE TOTAL TURNOVER OF THE YEAR. FURTHER, THE SALARY PAYMENTS SHOWN BY THE APPELLANT OF RS. 56,500/- IN FACT PERTAIN TO PAYMENTS OF EARLIER YEA RS IN RESPECT OF SETTLEMENT OF LABOUR DISPUTE. IT MAY BE NOTED HERE THAT WHEN THERE ARE NO EMPLOYEES, THE QUESTION OF MANUFACTURING ACTIVITIES CARRIED OU T BY THE APPELLANT AT TRIKAMPURA DIVISION DOES NOT ARISE, IT IS FURTHER S EEN THAT SALES AND ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 18 - PURCHASES, WERE CARRIED OUT BY THE GENERAL DIVISION OF THE APPELLANT COMPANY. THE APPELLANT COMPANY HAS ALSO NOT BEE N ABLE TO ESTABLISH THAT THE JOB WORKERS ARE THE SPECIFIC AGENT OF THE TRIKA MPURA INDUSTRIAL UNDERTAKING AND THE/APPELLANT WAS EXERCISING ANY QU ALITY CONTROL AS NO EMPLOYEES WERE THERE IN THE SAID DIVISION TO EXERCI SE ANY CONTROL OVER THE REDUCTION. THE APPELLANT'S CONTENTION THAT THE SU PERVISORY STAFF AT THE HEAD OFFICE WAS LOOKING AFTER THE QUALITY CONTROL AND TH E RAW MATERIALS PURCHASED BY THE HEAD OFFICE WERE PROVIDED TO THE JOB-WORKER DOES NOT HOLD GOOD AS THE DEDUCTION CLAIMED U/S.80IB IS ON 'PROFITS DERIV ED FROM' THE TRIKAMPURA DIVISION WHERE ACTUALLY THE 'INDUSTRIAL UNDERTAKING CEASED TO EXIST WITH EFFECT FROM 30-11-1999 FROM THE POINT OF VIEW OF EL IGIBILITY FOR DEDUCTION U/S.80IB. IT IS NECESSARY FOR THE APPELLANT TO PROV E PRIMA FACIE THAT THE UNIT FOR WHICH DEDUCTION IS CLAIMED SATISFIES ALL THE MA NDATORY CONDITIONS AS LAID DOWN IN SECTION 80IB. THE APPELLANT HAS FAILED TO D ISCHARGE ITS ONUS IN THIS REGARD. THE RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NORTHERN INDIA IRON AN D STEEL COMPANY LTD. 226 ITR 342 WHICH WAS RENDERED ON THE ISSUE OF DEDU CTION U/S.80J WHICH HAD IDENTICAL CONDITIONS FOR ALLOWABILITY OF DEDUCT ION U/S.80IB. IN THE SAID CASE, THE HON'BLE DELHI HIGH COURT HELD THAT THE AS SESSEE IS REQUIRED TO FULFILL FOR CLAIMING REBATE IS THAT IT MANUFACTURES OR PRODUCES ARTICLES AND IF THE ASSESSEE HAS NO CONTROL OVER THE MACHINERY, THE QUESTION OF GRANT OF REBATE U/S.80J DOES NOT ARISE, IN THE INSTANT CASE THERE IS NO CONTROL OVER THE MACHINERY BY THE APPELLANT AND IT HAS NOT MANUFACTU RED OR PRODUCED ARTICLES. THE RELIANCE IS ALSO PLACED IN THE CASE O F CIT VS. PANWALT INDIA LTD. 196 ITR 813 (BOM) WHEREIN THE BOMBAY HIGH COURT HAS HELD THAT A PART OF PROCESSING OR MANUFACTURING ACTIVITY MUST BE DONE B Y THE ASSESSEE. WHEREAS IN THE INSTANT CASE THERE IS NO MANUFACTURING ACTIV ITY BEING DONE BY THE APPELLANT FROM THE TRIKAMPURA DIVISION. IN THE CA SE OF CIT VS. STERLING FOODS 237 ITR 589 (SC), E HON'BLE SUPREME COURT HEL D THAT THERE MUST BE FOR THE APPLICATION OF THE 'DERIVED FROM', A DIRECT NEXUS BETWEEN THE PROFITS AND GAINS, IN THE INSTANT CASE, THE APPELLANT HAS N OT PROVED THE NEXUS. IN THE INSTANT CASE, THERE ARE PECULIAR FACTS LIKE THERE A RE NO WORKERS EMPLOYED BY THE INDUSTRIAL UNDERTAKING AND THERE IS NO PLANT AN D MACHINERY. THE CASE LAWS RELIED UPON BY THE APPELLANT DO NOT DEAL WITH SUCH A SET OF FACTS AND ARE DISTINGUISHABLE ON FACTS. THE CONTENTION OF THE A. R. OF THE APPELLANT COMPANY THAT THE PROVISIONS OF SECTION 801A/80IB HA VE BEEN INCORPORATED TO GIVE BENEFIT TO THE ASSESSEE AND THEREFORE, THES E PROVISIONS SHOULD BE INTERPRETED LIBERALLY, CAN BE ACCEPTED IN A CASE WH ERE ALL THE BASIC CONDITIONS LAID DOWN IN THAT PARTICULAR SECTION ARE SATISFIED. WHERE THE ASSESSEE FAILS ON ANY OF THE PRE-REQUISITES LAID DO WN UNDER THE LAW, THE ASSESSEE WILL NOT BE ENTITLED FOR DEDUCTION AND QUE STION OF LIBERAL INTERPRETATION WOULD NOT ARISE. IN THE CASE OF IPC A LABORATORY LTD. V. DCIT 266 ITR 530-531 WHILE DECKLING THE ISSUE OF CO RRECT INTERPRETATION OF SECTION 80HHC, THE HONBLE SUPREME COURT HELD THAT EVEN THOUGH THE PROVISIONS UNDER CHAPTER VIA OF THE I. T. ACT HAVE BEEN INCORPORATED TO GIVE BENEFIT AND INCENTIVES TO THE ASSESSEE, THE INTERPR ETATION OF SECTIONS IN CHAPTER VIA HAS TO BE GIVEN AS PER THE WORDINGS OF THE SECTION AND IN NO CASE, SO LIBERAL INTERPRETATION BE GIVEN TO THESE P ROVISIONS THAT THE VERY PURPOSE OF SECTION IS DEFEATED. ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 19 - 5.2.1 IN VIEW OF THE ABOVE DISCUSSION, THE APPELLAN T IS NOT ENTITLED FOR DEDUCTION UNDER SECTION 80IB OF THE ACT FOR THE INC OME SHOWN FROM TRIKAMPURA DIVISION. 36. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE MANUFACTURING AT TRIKAMPURA UNIT WAS CARRIED OUT UNDER THE SUPERV ISION AND CONTROL OF THE ASSESSEE AND THEREFORE, THE ASSESSEE WAS ELIGIBLE F OR DEDUCTION U/S 80IA OF THE ACT. HE ALSO PLACED RELIANCE ON THE DECISION IN TH E CASE OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIV VS. PANWALT INDIA LIM ITED (SUPRA) AND THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF CLAAS INDIA LIMITED (SUPRA). 37. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF LOWER AUTHORITIES. 38. WE FIND THAT NO MATERIAL WAS BROUGHT BEFORE US TO SHOW THAT THE MANUFACTURING ACTIVITIES AT TRIKAMPURA UNIT WERE CA RRIED OUT UNDER THE CONTROL AND SUPERVISION OF THE ASSESSEE. NO COPY OF THE AG REEMENT ENTERED INTO BY THE ASSESSEE WITH THE LESSEE OF THE UNIT COULD BE PRODU CED BY THE ASSESSEE. THE ASSESSEE BROUGHT NO MATERIAL TO CONTROVERT THE FIND ING OF THE LD. CIT(A) THAT THE APPELLANT COMPANY HAS ALSO NOT BEEN ABLE TO ESTABLISH THAT THE JOB WORKERS ARE THE SPECIFIC AGENT OF THE TRIKAMPURA INDUSTRIAL UNDERTAKING AND THE APPELLANT WAS EXERCISING ANY QUALITY CONTROL AS NO EMPLOYEES WERE THERE IN THE SAID DIVI SION TO EXERCISE ANY CONTROL OVER THE PRODUCTION. 39. HONBLE BOMBAY HIGH COURT IN THE CASE OF PANWAL T INDIA LIMITED HAS HELD THAT AN ASSESSEE WOULD BE SAID TO BE ENGAGED IN MANUFACT URING ACTIVITY IF IT IS DOING A PART OF MANUFACTURING ACTIVITY BY ITSELF AND FOR THE REST OF IT ENGAGES THE SERVICES OF SOMEBODY ELSE ON A CONTRACT OTHER THAN A CONTRACT O F PURCHASE. HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT ANY PART OF THE MANUFACTURING ACTIVITY AT TRIKAMPURA UN IT WAS CARRIED OUT BY THE ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 20 - ASSESSEE. THEREFORE, IN OUR CONSIDERED VIEW, THE A BOVE CITED DECISION OF THE HONBLE BOMBAY HIGH COURT DOES NOT APPLY IN THE INS TANT CASE. 40. FURTHER IN THE CASE, OF CLAAS INDIA LIMITED (SU PRA), THE DELHI BENCH OF THE TRIBUNAL HAS HELD THAT IN THE INSTANT CASE, AFTER PURCHASING SOME OF THE PARTS FROM OUTSIDE SUPPLIERS, THE ASSESSEE APPLIED ITS OWN FUR THER PROCESSES TO FINISH THE SAME AND TO MAKE THEM MARKETABLE. IN CONTRAST TO THE FACTS IN THAT CASE, IN THE INS TANT CASE, THE ASSESSEE COULD NOT BRING ANY MATERIAL TO SHOW T HAT IT APPLIED SOME PROCESS TO CONVERT THE COMPONENTS PURCHASED INTO FURNISHED GOODS OR INTO MARKETABLE GOODS. THEREFORE, IT IS OBSERVED THAT THE FACTS OF THE CASE BEFORE THE DELHI BENCH OF THE TRIBUNAL ARE DISTINGUISHABLE FROM THE FACTS OF THE INSTANT CASE. 41. IN THE INSTANT CASE, NO MATERIAL COULD BE BROUG HT BEFORE US TO SHOW THAT ANY PART OF THE MANUFACTURING ACTIVITY WAS CARRIED OUT BY THE ASSESSEE AT TRIKAMPURA UNIT. IN THE ABOVE CIRCUMSTANCES, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITIE S. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 42. GROUND NO. 4(1) OF THE APPEAL OF ASSESSEE IS DI RECTED AGAINST THE ORDER OF THE LD. CIT(A) CONFIRMING PART DISALLOWANCE OF CLAI M OF DEDUCTION U/S 80HHC ON ACCOUNT OF EXCLUDING 90% ON GROSS INTEREST INCOME OF RS 7.66 CRORES. ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 21 - 43. THE ASSESSING OFFICER OBSERVED THAT THE CONTENT ION OF THE ASSESSEE COMPANY THAT NET INTEREST INCOME NEEDS TO BE EXCLUD ED IN THE COMPUTATION OF DEDUCTION U/S 80HHC IS NOT ACCEPTABLE. THE ASSESSE E COMPANY HAS FAILED TO ESTABLISH THE NEXUS BETWEEN THE INTEREST INCOME AND INTEREST EXPENSE. THEREFORE, HE RELYING ON THE REASONING AND FINDINGS ON THE ISSUE IN EARLIER YEARS, HE HELD THAT FOR THE PURPOSES OF COMPUTATION OF DEDUCTION U/S 80HHC, GROSS INTEREST OF RS 7.66 CRORE IS TO BE EXCLUDED. 44. ON APPEAL, THE LD. CIT(A) HELD THAT THE CONTENT ION RAISED BY THE ASSESSEE ARE SIMILAR TO THE ONES GIVEN IN ASSESSMEN T YEAR 2000-01 WHEREIN THE ISSUE WAS CONSIDERED IN DETAIL IN THE APPELLATE ORDER FOR ASSESSMENT YEAR 2000-01 AT PARA 10.2.3 TO 10.2.5 IN APPEAL NO. CIT( A)-XI/83/04-05 DATED 29.11.2004 AND ASSESSING OFFICER IS DIRECTED TO FOL LOW THE DIRECTIONS GIVEN THEREIN. 45. THE LD. AR OF THE ASSESSEE FILED BEFORE US COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE PASSED IN ITA NOS. 175 AND 523/AHD/2003 IN ASSESSMENT YEAR 1999-2000 AND C.O. NO. 9/AHD/2003 I N ASSESSMENT YEAR 1999-2000 VIDE CONSOLIDATED ORDER DATED 31.07.2006 WHEREIN THE TRIBUNAL HELD AS UNDER: 21.1 THE ASSESSEE FAILED TO POINT OUT ANY MATERI AL OR EVIDENCE AGAINST FOLLOWING FINDING OF CIT(A) :- 'NEXT OBJECTION OF THE APPELLANT IS THAT THE ASSESS ING OFFICER HAS EXCLUDED 90% OF GROSS INTEREST INCOME, WHILE ONLY NET INTEREST INCO ME AS HELD BY COMMISSIONER OF INCOME-TAX (APPEALS) IN APPELLANT'S CASE FOR ASSESS MENT YEAR 1997-98 SHOULD HAVE BEEN CONSIDERED. IN THIS REGARD IT HAS TO BE HELD T HAT NETTING OFF OF INTEREST RECEIPTS AND PAYMENTS COULD BE DONE ONLY IF BOTH OF HEM ARE RELATED TO EARNING OF INTEREST INCOME. FOR EXAMPLE IF INTEREST RECEIPTS ARE ON ACC OUNT OF BANK DEPOSITS THEN ONLY INTEREST PAID FOR ACQUIRING SUCH DEPOSITS COULD BE SET OFF AGAINST THESE RECEIPTS. OTHERWISE INTEREST PAID FOR THE PURPOSES OF BUSINES S OF EXPORTS CANNOT BE SET OFF AGAINST SUCH INTEREST. IT IS, THEREFORE, DIRECTED T HAT THE ASSESSING OFFICER WILL VERIFY ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 22 - THE FACTS CORRECTLY AND IF THE PAYMENT OF INTEREST IS DIRECTLY LINKED WITH RECEIPT OF INTEREST THEN HE SHALL ALLOW THE SET OFF OF THE REQ UISITE AMOUNT. OTHERWISE THE INTEREST PAID WILL BE RELATED TO BUSINESS INCOME ONLY AND CO ULD NOT BE SET OFF AGAINST RECEIPTS. THIS IS SO BECAUSE AS DISCUSSED IN THE GR OUND RELATED TO DEDUCTION UNDER SECTION 80HH AND 80IA, THIS INTEREST HAS TO BE TAXE D AS INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER WILL EXAMINE THIS ISSUE AND W ORK, OUT RELIEF AS PER THESE DIRECTIONS. ' 22. AFTER HEARING BOTH SIDES, WE DO NOT FIND ANY SUBSTA NCE IN GROUND NO.2 AND 3. THEREFORE, THE ORDER OF GIT(A) IS CONFIRMED FOR THE PURPOSE OF BOTH GROUNDS. 46. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN T HE INSTANT CASE, THE ASSESSING OFFICER WHILE COMPUTING DEDUCTION ALLOWABLE U/S 80H HC HAS REDUCED 90% OF GROSS INTEREST RECEIPT WHEREAS THE CLAIM OF THE ASS ESSEE WAS THAT ONLY 90% OF THE NET INTEREST INCOME, IF ANY, AFTER DEDUCTION OF THE INTEREST PAYMENT OUT OF INTEREST RECEIPT ONLY IS TO BE EXCLUDED. 47. ON APPEAL, THE LD. CIT(A) HELD THAT IF THERE IS ANY NEXUS BETWEEN INTEREST RECEIPT AND INTEREST PAYMENT THEN ONLY SUC H INTEREST EXPENSE IS TO BE REDUCED FROM THE INTEREST INCOME AND 90% OF SUCH RE DUCED INTEREST INCOME IS TO BE EXCLUDED FOR COMPUTING DEDUCTION U/S 80HHC OF THE ACT. 48. THE LD. AR OF THE ASSESSEE RELIED ON THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULE S (P) LTD. VS. CIT (2012) 343 ITR 89 (SC) FOR HIS SUBMISSION THAT 90% OF THE NET INTEREST INCOME ONLY IS REQUIRED TO BE EXCLUDED FOR COMPUTING DEDUC TION U/S 80HHC OF THE ACT. 49. THE HONBLE SUPREME COURT IN THE CASE OF ACG AS SOCIATED CAPSULES (P) LTD. VS. CIT (SUPRA) HAS HELD AS UNDER: ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 23 - 10. UNDER CLAUSE (1) OF EXPLANATION (BAA), NINETY PER CENT OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES O R ANY OTHER RECEIPT OF A SIMILAR NATURE INCLUDED IN ANY SUCH PROFITS ARE TO BE DEDUC TED FROM THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GA INS OF BUSINESS OR PROFESSION'. THE EXPRESSION 'INCLUDED ANY SUCH PROF ITS' IN CLAUSE (1) OF THE EXPLANATION (BAA) WOULD MEAN ONLY SUCH RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPT WHICH ARE INCLUDED IN THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GA INS OF BUSINESS OR PROFESSION'. THEREFORE, IF ANY QUANTUM OF THE RECEI PTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RE CEIPT OF A SIMILAR NATURE IS ALLOWED AS EXPENSES UNDER SECTIONS 30 TO 44D OF THE ACT AND IS NOT INCLUDED IN THE PROFITS OF BUSINESS AS COMPUTED UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION', NINETY PER CENT OF SUCH QUANTUM OF REC EIPTS CANNOT BE REDUCED UNDER CLAUSE (1) OF EXPLANATION (BAA) FROM THE PROFITS OF THE BUSINESS. IN OTHER WORDS, ONLY NINETY PER CENT OF THE NET AMOUNT OF ANY RECEI PT OF THE NATURE MENTIONED IN CLAUSE (1) WHICH IS ACTUALLY INCLUDED IN THE PROFIT S OF THE ASSESSEE IS TO BE DEDUCTED FROM THE PROFITS OF THE ASSESSEE FOR DETERMINING 'P ROFITS OF THE BUSINESS' OF THE ASSESSEE UNDER EXPLANATION (BAA) TO SECTION 80HHC. 50. IN THE INSTANT CASE, WE FIND THAT IT IS NOT IN DISPUTE THAT INTEREST INCOME EARNED BY THE ASSESSEE IS ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND AS EVIDENCED BY THE FACT THAT ASSESSIN G OFFICER HAS EXCLUDED 90% OF THE GROSS INTEREST INCOME FOR COMPUTING PROF ITS OF BUSINESS OUT OF THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS . WE, THEREFORE, SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND DIRECT THE ASSE SSING OFFICER TO REDUCE 90% OF NET INTEREST INCOME WHILE COMPUTING DEDUCTION U/ S 80HHC AS HELD BY THE HONBLE SUPREME COURT IN ABOVE CITED DECISION. THE REFORE, GROUND NO. 4(1) OF APPEAL OF ASSESSEE IS ALLOWED. 51. GROUND NO. 5 OF THE APPEAL OF THE ASSESSEE IS D IRECTED AGAINST THE ORDER OF LD. CIT(A) DIRECTING TO CHARGE INTEREST U/S 234C OF THE ACT EVEN WHEN THE RETURN OF INCOME WAS FILED UNDER THE PROVISIONS OF SECTION 115JB OF THE I.T. ACT. ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 24 - 52. THE FACTS OF THE CASE ARE THAT THE ASSESSING OF FICER WORKED OUT THE ALLOWABILITY TO PAY INTEREST U/S 234C WHILE COMPUTI NG INCOME OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 115JB OF I.T. ACT. 53. THE ASSESSEE IN APPEAL BEFORE THE LD. CIT(A) SU BMITTED THAT IN VIEW OF THE DECISION IN THE CASE OF KWALITY BISCUITS LIMITE D VS. CIT 243 ITR 519 OF HONBLE KERALA HIGH COURT AND SUBMITTED THAT THE DE CISIONS QUOTED BY THE ASSESSING OFFICER IN THE CASE OF ASSAM, BENGAL AND ITARASI OIL 233 ITR 862 (GUWAHATI) AND 250 ITR 686 (MP) ARE NOT APPLICABLE TO THE ASSESSEE AND THEREFORE, INTEREST U/S 234C CHARGED SHOULD BE DELE TED. 54. WE FIND THAT THE HONBLE SUPREME COURT IN THE C ASE OF JCIT VS. ROLTA INDIAN LTD. (2011) 330 ITR 470 (SC) HAS DECIDED THE SIMILAR ISSUE AS UNDER : THE ASSESSEE FURNISHED A RETURN OF INCOME ON 28TH NOVEMBER, 1997, DECLARING TOTAL INCOME OF RS. NIL. ON 28TH MARCH, 2000, AN OR DER U/S.143(3) WAS PASSED DETERMINING THE TOTAL INCOME AT NIL AFTER SET-OFF O F UNABSORBED BUSINESS LOSS AND DEPRECIATION. THE TAX WAS LEVIED ON THE BOOK PROFIT WORKED OUT AT RS.1,52,61,834, DETERMINED AS PER THE PROVISIONS OF SECTION 115JA. THE INTEREST U/S.234B OF RS.39,73,167 WAS CHARGED ON THE TAX ON BOOK PROFIT, AS WORKED OUT IN THE ORDER OF ASSESSMENT. AGGRIEVED BY THE SAID ORDER, THE ASSESS EE WENT IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). THE APPEAL ON THE QUESTION IN HAND WAS DISMISSED. ON CHARGING OF INTEREST U/S.234B, THE AP PEAL WAS DISMISSED BY THE TRIBUNAL ON THE GROUND THAT THE CASE FELL U/S.115JA AND NOT U/S.115J, HENCE, THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF KWALITY BISCUITS LTD. WAS NOT APPLICABLE. AT ONE STAGE, THE BOMBAY HIGH COURT DEC IDED THE MATTER IN FAVOUR OF THE DEPARTMENT, BUT LATER ON, BY WAY OF REVIEW, IT TOOK THE VIEW, FOLLOWING THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF KWALITY BISCUITS LTD., THAT INTEREST U/S.234B CANNOT BE CHARGED ON TAX CALCULAT ED ON BOOK PROFITS. HENCE, THE COMMISSIONER OF INCOME-TAX WENT TO THE SUPREME COUR T BY WAY OF CIVIL APPEAL. THE SUPREME COURT HELD THAT SECTION 207 ENVISAGES T HAT TAX SHALL BE PAYABLE IN ADVANCE DURING THE FINANCIAL YEAR ON CURRENT INCOME , IN ACCORDANCE WITH THE SCHEME PROVIDED IN SECTION 208 TO SECTION 219, IN R ESPECT OF THE TOTAL INCOME OF THE ASSESSEE THAT WOULD BE CHARGEABLE TO TAX FOR THE AS SESSMENT YEAR IMMEDIATELY FOLLOWING THAT FINANCIAL YEAR. SECTION 215(5) OF TH E ACT DEFINES WHAT IS ASSESSED TAX. TAX DETERMINED ON THE BASIS OF REGULAR ASSESS MENT, SO FAR AS SUCH TAX RELATES TO ADVANCE TAX. THE EVALUATION OF THE CURRENT INCOME A ND THE DETERMINATION HAS TO BE MADE COMPRISING SECTION 115J/115JA OF THE ACT. HENC E, LEVYING OF INTEREST WAS INESCAPABLE. THE SUPREME COURT FURTHER HELD THAT IT WAS CLEAR FROM READING SECTION ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 25 - 115JA AND SECTION 115JB THAT A SPECIFIC PROVISION I S MADE ON THAT SECTION, WHICH SAYS ALL THE PROVISIONS OF THE ACT SHALL APPLY TO T HE MAT COMPANY. FURTHER, AMENDMENTS HAVE BEEN MADE IN RELEVANT FINANCE ACTS, PROVIDING FOR PAYMENT OF ADVANCE TAX U/S.115JA AND U/S.115JB. AS FAR AS INTE REST LEVIABLE U/S.234B WAS CONCERNED, THE SUPREME COURT HELD THAT THE SECTION WAS CLEAR IN THAT IT APPLIED TO ALL COMPANIES. THE SUPREME COURT FURTHER HELD THAT THE PRE-REQUISI TE CONDITION FOR APPLICABILITY OF SECTION 234B IS THAT THE ASSESSEE IS LIABLE TO PAY TAX U/S.208 AND THE EXPRESSION ASSESSED TAX IS DEFINED TO MEAN TAX ON THE TOTAL INCOME DETERMINED U/S.143(1) OR U/S.143(3), AS REDUCED BY THE AMOUNT OF TAX DEDUCTE D OR COLLECTED AT SOURCE. THUS, THERE IS NO EXCLUSION OF SECTION 115JA IN THE LEVY OF INTEREST U/S.234B. THE EXPRESSION ASSESSED TAX IS DEFINED TO MEAN TAX AS SESSED ON REGULAR ASSESSMENT WHICH MEANS TAX DETERMINED ON THE APPLICATION OF SE CTION 115J/115JA IN THE REGULAR ASSESSMENT. THE SUPREME COURT OBSERVED THAT THE QUESTION WHICH REMAINED TO BE CONSIDERED WAS WHETHER THE ASSESSEE, WHICH IS A MAT COMPANY, W AS NOT IN A POSITION TO ESTIMATE ITS PROFITS OF THE CURRENT YEAR PRIOR TO T HE END OF THE FINANCIAL YEAR ON 31ST MARCH. IN THIS CONNECTION, THE ASSESSEE HAD PLACED RELIANCE ON THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF KWALITY BISCUIT S LTD. V. CIT, REPORTED IN (2000) 243 ITR 519; AND, ACCORDING TO THE KARNATAKA HIGH COURT, TH E PROFIT AS COMPUTED UNDER THE INCOME-TAX ACT, 1961 HAD TO BE P REPARED AND THEREAFTER THE BOOK PROFIT, AS CONTEMPLATED U/S.115J OF THE ACT, H AD TO BE DETERMINED; AND THEN, THE LIABILITY OF THE ASSESSEE TO PAY TAX U/S.115J O F THE ACT AROSE ONLY IF THE TOTAL INCOME, AS COMPUTED UNDER THE PROVISIONS OF THE ACT , WAS LESS THAN 30% OF THE BOOK PROFIT. ACCORDING TO THE KARNATAKA HIGH COURT, THIS ENTIRE EXERCISE OF COMPUTING INCOME OR THE BOOK PROFITS OF THE COMPANY, COULD BE DONE ONLY AT THE END OF THE FINANCIAL YEAR; AND, HENCE, THE PROVISIONS OF SECTI ON 207, SECTION 208, SECTION 209 AND SECTION 210 (PREDECESSORS OF SECTION 234B AND S ECTION 234C) WERE NOT APPLICABLE UNTIL AND UNLESS THE ACCOUNTS STOOD AUDI TED AND THE BALANCE-SHEET STOOD PREPARED; BECAUSE TILL THEN EVEN THE ASSESSEE MAY N OT KNOW WHETHER THE PROVISIONS OF SECTION 115J WOULD BE APPLIED OR NOT. THE COURT, THEREFORE, HELD THAT THE LIABILITY WOULD ARISE ONLY AFTER THE PROFIT IS DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956 AND, THEREFORE, INTEREST U/ S.234B AND U/S.234C IS NOT LEVIABLE IN CASES WHERE SECTION 115J IS APPLIED. TH IS VIEW OF THE KARNATAKA HIGH COURT IN KWALITY BISCUITS LTD. WAS NOT SHARED BY TH E GAUHATI HIGH COURT IN ASSAM BENGAL CARRIERS LTD. V. CIT, REPORTED IN (1999) 239 ITR 862; AND THE MADHYA PRADESH HIGH COURT IN ITARSI OIL AND FLOURS (P) LTD . V. CIT, REPORTED IN (2001) 250 ITR 686; AS ALSO BY THE BOMBAY HIGH COURT IN THE CA SE OF CIT V. KOTAK MAHINDRA FINANCE LTD., REPORTED IN (2003) 130 TAXMAN 730 WHI CH DECIDED THE ISSUE IN FAVOUR OF THE DEPARTMENT AND AGAINST THE ASSESSEE. IT APPE ARED THAT NONE OF THE ASSESSEES CHALLENGED THE DECISIONS OF THE GAUHATI HIGH COURT, MADHYA PRADESH HIGH COURT AS WELL AS THE BOMBAY HIGH COURT IN THE SUPREME COU RT. THE SUPREME COURT OBSERVED THAT THE JUDGMENT OF THE KARNATAKA HIGH CO URT IN KWALITY BISCUITS LTD. WAS CONFINED TO SECTION 115J OF THE ACT. THE ORDER OF THE SUPREME COURT DISMISSING THE SPECIAL LEAVE PETITION IN LIMINE FILED BY THE D EPARTMENT AGAINST KWALITY BISCUITS LTD. WAS REPORTED IN (2006) 284 ITR 434. THUS, THE JUDGMENT OF THE KARNATAKA HIGH COURT IN KWALITY BISCUITS LTD. STOOD AFFIRMED. HOWE VER, THE KARNATAKA HIGH COURT HAD THEREAFTER, IN THE CASE OF JINDAL THERMAL POWER CO. LTD. V. DEPUTY CIT, ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 26 - REPORTED IN (2006) 154 TAXMAN 547, DISTINGUISHED IT S OWN DECISION IN THE CASE OF KWALITY BISCUITS LTD. (SUPRA) AND HELD THAT SECTION 115JB, WITH WHICH THE SUPREME COURT WAS CONCERNED, WAS A SELF-CONTAINED CODE PERT AINING TO MAT, WHICH IMPOSED LIABILITY FOR PAYMENT OF ADVANCE TAX ON MAT COMPANI ES; AND, THEREFORE, WHERE SUCH COMPANIES DEFAULTED IN PAYMENT OF ADVANCE TAX IN RE SPECT OF TAX PAYABLE U/S.115JB, IT WAS LIABLE TO PAY INTEREST U/S.234B AND U/S.234C OF THE ACT. THE SUPREME COURT, THEREFORE, CONCLUDED THAT INTEREST U/S.234B AND U/S .234C WOULD BE PAYABLE ON FAILURE TO PAY ADVANCE TAX IN RESPECT OF TAX PAYABL E U/S.115JA/115JB. THE SUPREME COURT FURTHER HELD THAT FOR THE AFORESTATED REASONS , CIRCULAR NO. 13 OF 2001, DATED NOVEMBER 9, 2001 ISSUED BY THE CENTRAL BOARD OF DIR ECT TAXES, REPORTED IN (2001) 252 ITR (ST.) 50, HAD NO APPLICATION. MOREOVER, IN ANY EVENT, PARA 2 OF THAT CIRCULAR ITSELF INDICATED THAT A LARGE NUMBER OF CO MPANIES LIABLE TO BE TAXED UNDER THE MAT PROVISIONS OF SECTION 115JB WERE NOT MAKING ADVANCE TAX PAYMENTS. IN THE SAID CIRCULAR, IT HAD BEEN CLARIFIED THAT SECTION 1 15JB WAS A SELF-CONTAINED CODE AND THUS, ALL COMPANIES WERE LIABLE FOR PAYMENT OF ADVANCE TAX U/S.115JB, AND CONSEQUENTLY THE PROVISIONS OF SECTION 234B AND SEC TION 234C, IMPOSING INTEREST ON DEFAULT IN PAYMENT OF ADVANCE TAX, WERE ALSO APPLIC ABLE. IN VIEW OF THE ABOVE DECISION OF THE HONBLE SUPRE ME COURT, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) IN DIRECTI NG THE ASSESSING OFFICER TO CHARGE INTEREST U/S 234C OF THE ACT WHILE COMPUTING THE INCOME OF THE ASSESSEE U/S 115JB OF THE ACT. HENCE, THIS GROUND OF APPEAL IS DISMISSED. 55. GROUND NO. 6 OF THE APPEAL OF ASSESSEE IS DIREC TED AGAINST DISALLOWANCE OF INTEREST OF RS 21,70,47,967/- CLAIMED AS REVENUE EXPENDITURE U/S 36(1)(III). 56. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSING OFFICER OBSERVED THAT IN THE NOTES TO THE RETURN OF INCOME IN NOTE NO. 10, A SSESSEE COMPANY SUBMITTED THAT IT HAD CAPITALIZED INTEREST EXPENSE OF RS 21,7 0,967/- IN ITS BOOKS OF ACCOUNT. THIS EXPENSE, THOUGH ALLOWABLE, HAS NOT B EEN CLAIMED IN THE RETURN OF INCOME. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE DURING THE COURSE OF HEARING SUBMITTED THAT THE EXPENSES, THOU GH NOT CLAIMED, WERE IN PRINCIPLE ALLOWABLE U/S 36(1)(III). THE ASSESSING OFFICER OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY FAILED TO FURNISH IN DETAILS WITH REGARD TO DEPRECIATION CLAIMED ON T HIS CAPITALIZED EXPENSES IN ASSESSMENT YEAR 2001-02 AND SUBSEQUENT ASSESSMENT Y EAR AND THEREFORE, ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 27 - DISALLOWED THE CLAIM OF THE ASSESSEE. THE ASSESSIN G OFFICER ALSO OBSERVED THAT ON FACTS AS WELL AS LAW, THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE BECAUSE OF THE DELIBERATIONS ON THE ISSUE OF ALLOWA BILITY OF EXPENSE U/S 36(1)(III) IN THE ORDER U/S 143(3) FOR ASSESSMENT Y EAR 2000-01 AS WELL AS DISCUSSION ON THIS ISSUE IN THE ORDERS U/S 143(3) R EAD WITH SECTION 147 FOR ASSESSMENT YEAR 1998-99 AND 1999-2000. THE LD. AR RELIED ON THE DECISION IN THE CASE OF THE ASSESSEE ITSELF PASSED IN TAX AP PEAL NO. 811 OF 2013 WHEREIN VIDE ORDER DATED 27.01.2014, THE HONBLE GU JARAT HIGH COURT DISMISSED APPEAL OF THE REVENUE BY OBSERVING AS UND ER: THE SOLE SURVIVING QUESTION NO. 13, PERTAINS TO DI SALLOWANCE OF SODA ASH PROJECT INTEREST EXPENSES OF RS.3.33 CRORES (ROUNDED OFF) A ND LAB PROJECT INTEREST OF RS.12.27 CRORES (ROUNDED OFF). THE ASSESSING OFFICE R QUESTIONED THE ASSESSEE ON THESE EXPENSES AND DELETED THE SAME ON TWO GROUNDS, FIRSTLY THAT THE INTEREST WAS PAID BY WAY PRE-OPERATIVE EXPENDITURE AND SECONDLY THE ASSESSEE HAD CAPITALIZED SUCH EXPENDITURE. THE ASSESSEE CARRIED THE MATTER IN APPEAL. CIT (APP EALS) RELYING ON A DECISION OF THIS COURT IN THE CASE OF CIT V. ALEMBIC GLASS INDUSTRIES LTD., 103 ITR 715 (GUJ) HELD IN FAVOUR OF THE ASSESSEE. IN ADDITION TO COMI NG TO THE CONCLUSION THAT THERE WAS COMMONALITY OF BUSINESS IT WAS FURTHER HELD THA T THE EXPENDITURE WAS IN CONNECTION WITH THE EXPANSION OF THE EXISTING BUSIN ESS. ON SUCH GROUND, THE EXPENDITURE WAS HELD ALLOWABLE. IT IS THIS ORDER OF THE CIT (APPEAL) WHICH THE TRIB UNAL UPHELD IN THE IMPUGNED JUDGMENT. HAVING HEARD THE LEARNED COUNSEL FOR THE PARTIES AN D HAVING PERUSED THE DOCUMENTS ON RECORD, WE NOTICE THAT CIT (APPEALS) AND THE TRI BUNAL CONCURRENTLY CAME TO THE CONCLUSION THAT THERE WAS INTERCONNECTION, INTER-LA CING AND INTER-DEPENDENCE OF THE MANAGEMENT, FINANCIAL AND ADMINISTRATIVE CONTROL OF VARIOUS UNITS OF NIRMA LIMITED. IT WAS ON THIS GROUND, THE TRIBUNAL HELD T HAT THE BUSINESS IN QUESTION IS CONTINUATION OF THE EXISTING BUSINESS AND NOT A NEW BUSINESS. IN THIS CONTEXT, THE DECISION RELIED ON BY THE AUTHORITIES BELOW OF THIS COURT IN THE CASE OF ALEMBIC GLASS INDUSTRIES LTD. (SUPRA) LAID DOWN TESTS FOR A SCERTAINING WHETHER A BUSINESS WAS PART OF EXISTING BUSINESS OR THE ASSESSEE WAS S TARTING A NEW UNIT. IT WAS HELD THAT MERELY BECAUSE THE UNIT WAS COMING TO A DISTAN T POINT BY ITSELF WOULD NOT MEAN THAT IT WAS A NEW BUSINESS. IF THE FACTS AS RECORDED BY THE CIT (APPEALS) AND T HE TRIBUNAL CAN BE SAID TO HAVE ACHIEVED FINALITY, IT WOULD EMERGE THAT THE ASSESSE E THROUGH ITS EXISTING ADMINISTRATIVE MECHANISM STARTED A NEW FACILITY FOR PRODUCTION OF SODA ASH AND HAD ALSO SET UP FACILITY FOR PRODUCTION OF A MATERIAL C ALLED 'LAB' FOR ITS CAPTIVE ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 28 - CONSUMPTION FOR THE PURPOSE OF ITS EXISTING MANUFAC TURING BUSINESS. IT IS NO DOUBT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MAN UFACTURE OF SOAP AND THE SODA ASH AND 'LAB' SO PRODUCED IS USED BY WAY OF CAPTIVE CONSUMPTION. WHEN SUCH FACTS VIEWED IN LIGHT OF THE FINDINGS OF THE CIT (APPEALS ) AND THE TRIBUNAL, WE HAVE NO REASON TO INTERFERE WITH THE ULTIMATE CONCLUSION. H AD IT BEEN A CASE OF ENTIRELY A NEW PROJECT UNDERTAKEN BY THE ASSESSEE AS CANVASSED BY THE COUNSEL FOR THE REVENUE, A SERIOUS QUESTION OF CLAIMING PRE-OPERATI VE EXPENDITURE OF INTEREST BY WAY OF REVENUE EXPENDITURE WOULD ARISE. HOWEVER, WH EN THE AUTHORITIES BELOW FOUND THAT IT WAS AN EXPANSION OF THE EXISTING BUSI NESS, APPLYING THE TESTS LAID DOWN BY THIS COURT IN THE CASE OF ALEMBIC GLASS INDUSTRI ES LTD. (SUPRA). IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF DEPUTY CIT V. CORE HEALTH CARE LTD, 298 ITR 194 (SC), THE FACT WHETHER THE BORROWING IS CAPITAL OR REVENUE EXPENDITURE WOULD BE OF NO CONSEQUENCE. IN THE RESULT, TAX APPEAL IS DISMISSED. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HO NBLE GUJARAT HIGH COURT, WE SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND ALLOW THIS GROUND OF THE APPEAL OF THE ASSESSEE. 57. GROUND NO. 7 OF THE APPEAL OF THE ASSESSEE IS D IRECTED AGAINST THE ORDER OF THE LD. CIT(A) IN RESTORING BACK THE MATTER TO T HE FILE OF ASSESSING OFFICER REGARDING ALLOWABILITY OF PRIOR PAID EXPENSES OF RS 69,00,893/-. 58. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE L D. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION ACCORDING TO M ERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSING OFFICER PASSED ORDER DAT ED 06.01.2005 ALLOWING THE EXPENSE BUT IN THE COMPUTATION PART, EFFECT WAS NOT GIVEN. 59. AS THIS GROUND OF APPEAL DOES NOT ARISE OUT OF THE ORDER OF THE LD. CIT(A) IN APPEAL BEFORE US, THEREFORE THE SAME IS D ISMISSED. 60. GROUND NO. 8 OF THE APPEAL OF ASSESSEE IS DIREC TED AGAINST THE ORDER OF LD. CIT(A) IN INTERFERING ON THE GROUND RELATING TO INITIATION OF PENALTY PROCEEDINGS U/S 271(I)(C) OF THE ACT. ITA NOS. 541 & 558 OF 2005 NIRMA LTD. VS ACIT, CENTRAL CIR.-1(1), AHD FOR A.Y. 2001-02 - 29 - 61. AT THE TIME OF HEARING, THE LD. AR DID NOT PRES S THIS GROUND OF APPEAL, HENCE THE SAME IS DISMISSED FOR WANT OF PROSECUTION . 62. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON WEDNESDAY, THE 26 TH FEBRUARY, 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 26 /02/2014 GHANSHYAM MAURYA GHANSHYAM MAURYA GHANSHYAM MAURYA GHANSHYAM MAURYA, SR. P , SR. P , SR. P , SR. P. .. .S SS S. .. . TRUE COPY $% &' ($'# $% &' ($'# $% &' ($'# $% &' ($'#/ COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. &+)* / THE RESPONDENT. 3. ,, - / CONCERNED CIT 4. -() / THE CIT(A)-III, AHMEDABAD 5. '01 & , , / DR, ITAT, AHMEDABAD 6. 123 4 / GUARD FILE. $% $% $% $% / BY ORDER, 5 55 5/ // / ,6 ,6 ,6 ,6 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD