DCIT, New Delhi V. M/s Leroy Somer & Controls (India) P Ltd., New Delhi

ITA 5581/DEL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97135 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-06-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 09-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Keywords: Additional evidence; Commercial expediency
• Section: 80IB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. N.K.SAINI , ACCOUNTANT MEMBER I.T.A .NO. - 5581 /DEL/201 0 (ASSESSMENT YEAR - 2003 - 04 ) DCIT, CIRCLE - 4(1), ROOM NO. - 407, C.R. BUILDING, I.P.ESTATE, NEW DELHI. (APPELLANT) VS M/S LEROY SOMER & CONTROLS (INDIA) P.LTD., 222, OKHLA INDUSTRIAL AREA, NEW DELHI PAN - AAACA2665C (RESPONDENT) I.T.A .NO. - 5826 /DEL/201 0 (ASSESSMENT YEAR - 2003 - 04 ) M/S LEROY SOMER & CONTROLS (INDIA)P.LTD., (FORMERLY M/S LEROY SOMER & CONTROLS (INDIA) PVT.LTD., 56, RAMA ROAD, INDUSTRIAL AREA, NEW DELHI - 110015 PAN - AAACA2665C (APPELLANT) VS DCIT, CIRCL E - 4(1), NEW DELHI. (RESPONDENT) APPELLANT BY DR. B.R.R.KUMAR, SR.DR RESPONDENT BY ANIL BHALLA, CA ORDER PER DIVA SINGH, JM THESE ARE CROSS APPEALS FILED BY THE REVENUE AND THE ASSESSEE ASSAILING THE CORRECTNESS OF THE ORDER DATED 19.10.2010 OF CIT(A) - VII, NEW DELHI PERTAINING TO 2003 - 04 ASSESSMENT YEARS. THE GROUNDS RAISED IN ASSESSEE S APPEAL IN ITA NO. - 5826/DEL/2010 READ AS UNDER : - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH OF FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER IN DISALLOWING THE EXPENDITURE OF ADDITIONAL DISCOUNT/RATE DIFFERENCE AMOUNTING TO RS.4,600,000/ - ALLEGEDLY ON T HE GROUND DATE OF HEARING 11 .0 6 .2015 DATE OF PRONOUNCEMENT 26 .0 8 .2015 I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 2 OF 21 THAT THE APPELLANT HAS NOT FURNISHED ANY EVIDENCE TO SUPPORT ITS CLAIM. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND THE GROUND OF APPEAL AT A LATER STAGE. 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSI NESS OF MANUFACTURING OF ELECTRICAL AND ELECTRONICS GOODS CLAIMED EXEMPTION U/S 80IB. RETURN DECLARING AN INCOME OF RS.63,77,436/ - WAS FILED. THE SAID RETURN WAS PROCESSED U/S 143(1) AND SUBSEQUENTLY SUBJECTED TO SCRUTINY ASSESSMENT AFTER ISSUANCE OF NOT ICE U/S 143(2) ETC. AFTER GIVING VARIOUS OPPORTUNITIES TO THE ASSESSEE TO FILE THE NECESSARY DETAILS IN SUPPORT OF ITS CLAIMS. ULTIMATELY THE AO MADE ADDITIONS ON THE BASIS OF INFORMATION AVAILABLE ON RECORD. THEREBY CONCLUDING THE ASSESSMENT AT A FIGURE OF RS.1,43,77,550/ - . 3. THE ADDITIONS WERE CHALLENGED IN APPEAL BEFORE THE CIT(A) WHEREIN THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED AS DEDUCTION U/S 80IB AMOUNTING TO RS.27,28,194/ - WAS ALLOWED BY THE CIT(A) AND THE ADDITION MADE BY WAY OF DISALLOWAN CE OF ADDITIONAL DISCOUNT SHOWN PAYABLE TO CONTROLS & SWITCHGEARS CO. LTD. OF RS.6,71,415/ - WAS ALSO REVERSED. AGGRIEVED BY THIS RELIEF THE REVENUE IS IN APPEAL BEFORE THE ITAT. THE ASSESSEE DID NOT SUCCEED IN THE CHALLENGE POSED TO THE ADDITION MADE BY WAY OF A DISALLOWANCE OF ADDITIONAL DISCOUNT CLAIMED TO HAVE BEEN PAID TO M/S SUDHIR GENSETS LTD. AMOUNTING TO RS. 46 LACS WHICH WAS CONFIRMED IN APPEAL BY THE CIT(A). AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. LD. AR IN SUPPORT OF THE GROUNDS RAISED BY THE ASSESSEE INVITED ATTENTION TO THE FINDINGS RECORDED BY THE AO WHICH HAVE BEEN REPRODUCED IN PARA 3 BY THE CIT(A) SUBMITTED THAT THE ADDITION HAS BEEN MADE CONSEQUENT TO NON - APPRECIATION OF RELEVANT FACTS BY THE AO WHICH HAS LE D HIM TO HOLD THAT THE AMOUNT OF RS.46 LACS WAS PAID TO M/S SUDHIR GENSETS LTD. IT WAS SUBMITTED THAT THE CORRECT POSITION ON FACTS IS THAT IT WAS ONLY AN ADJUSTMENT. IN SUPPORT OF THE SAID CLAIM ATTENTION WAS INVITED TO THE IMPUGNED ORDER, WHERE THE ASS ESSEE S SUBMISSIONS ARE RECORDED. A PERUSAL OF THE SAME IT WAS SUBMITTED WOULD SHOW THAT THE ASSESSEE PLACED FRESH EVIDENCE BEFORE THE CIT(A) WHICH CONSISTED OF COPY OF LEDGER ACCOUNT OF M/S SUDHIR GENSETS LTD. IN THE BOOKS OF THE COMPANY FOR THE PERIOD 01.04.1999 TO 31.03.2000 AT PAGE I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 3 OF 21 9; AT PAGES 10 - 12 FOR THE PERIOD APRIL 2000 TO MARCH 2001; AT PAGES 13 - 14 FOR THE RECORD APRIL 2001 TO MARCH 2002; AND AT PAGES 15 FOR THE PERIOD APRIL 2002 TO MARCH 2003. APART FROM THAT THIS IT WAS SUBMITTED THAT THE CLA IM WAS FURTHER SUPPORTED BY THE NOTE OF THE HEAD OF FINANCE & ACCOUNTS DATED 28.10.2002, IN REGARD TO THE ACCOUNTS SETTLEMENT WITH M/S SUDHIR GENSETS LTD. AT PAGE 16. THE SAID NOTE IT WAS SUBMITTED WAS SUPPORTED BY COPY OF THE CREDIT NOTES DATED 14.12.20 02 AND COMPUTATION OF DISCOUNT PAID TO M/S SUDHIR GENSETS LTD. THESE EVIDENCES IT WAS SUBMITTED ARE PLACED AT PAGES 17 - 23 AND ON FACTS HAVE ALSO BEEN SUPPORTED BY RESOLUTION OF THE BOARD DATED 08.11.2002 APPROVING THE ADDITIONAL DISCOUNT OF M/S SUDHIR GEN SETS LTD. COPY PLACED AT PAPER BOOK PAGE 24. THE SAID FACTS AND EVIDENCES IT WAS SUBMITTED WERE CONFRONTED TO THE AO BY THE CIT(A). INVITING ATTENTION TO PARA 3.1 OF THE IMPUGNED ORDER IT WAS HIS SUBMISSION THAT THE CIT(A) AFTER CONFRONTING THE SAME AN D TAKING THE REPLY OF THE ASSESSEE STILL CONCLUDED THE ISSUE AGAINST THE ASSESSEE. REFERRING TO THE FINDING ARRIVED AT IN PARA 3.3, IT WAS SUBMITTED THAT THE REASONING ADOPTED BY THE LD. CIT(A) IN UPHOLDING THE ADDITION WAS ON THE GROUND THAT THE ASSESSEE HAS NOT BEEN ABLE TO EITHER FURNISH/ADDUCE ANY EVIDENCE AND HAS NOT BEEN ABLE TO EXPLAIN DURING THE APPELLATE PROCEEDINGS AS TO HOW AND WHY THE EXPENSES IN QUESTION WERE HELPFUL IN PROMOTING ITS BUSINESS AND THE BENEFIT ACCRUING TO THE ASSESSEE COMPANY. REFERRING TO THE SAID PARA IT WAS HIS SUBMISSION THAT THE ADDITION HAS WRONGLY BEEN SUSTAINED. 4.1. ADDRESSING THE FACTS AS BROUGHT OUT IN THE SYNOPSIS FILED, IT WAS HIS SUBMISSION THAT THE ASSESSEE IS A JOINT VENTURE COMPANY BETWEEN VK SEG, GERMANY AND T HE CONTROLS GROUP, INDIA. IT WAS SUBMITTED THAT THE ASSESSEE IS MANUFACTURING ALTERNATORS WHICH FORM PART OF THE GENERATOR SETS MANUFACTURED BY M/S SUDHIR GENSETS LTD. THE ADDITIONAL DISCOUNT IT WAS SUBMITTED HAS BEEN INCURRED IN REGARD TO THE CLAIM MADE SINCE EARLIER YEARS BY M/S SUDHIR GENSETS LTD. ON ACCOUNT OF THE COST INCURRED BY THEM WHICH AS CLAIMED BY THEM RESULTED IN MARKETING BENEFITS FOR THE ASSESSEE COMPANY AS A RESULT OF SALE OF GENERATORS BY M/S SUDHIR GENSETS LTD. THE CLAIM OF RS.46 LACS I T WAS SUBMITTED ALLOWED BY THE APPELLANT COMPANY RELATED TO SALES MADE DURING THE YEAR ENDED 31.03.2000, 31.03.2001 AND 31.03.2002. IT WAS I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 4 OF 21 SUBMITTED THAT IT IS NOT A CASE OF AMOUNT PAID BUT IT IS A CREDIT GIVEN TO M/S SUDHIR GENSETS LTD. AGAINST AMOUNTS WI THHELD BY THEM OUT OF SALES MADE TO THEM. THESE ARGUMENTS, IT WAS STATED HAVE BEEN PLACED ON RECORD BY WAY OF A SYNOPSIS FILED. IN THE FACTS OF THIS FACTUAL BACKGROUND, INVITING ATTENTION TO THE CASE MADE OUT BY THE ASSESSING OFFICER IT WAS SUBMITTED THA T THE SAID AUTHORITY PROCEEDED ON THE FOOTING THAT IT PERTAINED TO EARLIER YEAR AND WAS AN AFTERTHOUGHT. 4.2. INVITING ATTENTION TO THE ARGUMENTS ADVANCED BEFORE THE CIT(A) WHICH WERE RELIED UPON IN THE PRESENT PROCEEDINGS ALSO AND ARE PLACED AT PAPER BOOK PAGES 1 - 24 IT WAS SUBMITTED THAT DESPITE THE FACTS AND EVIDENCES AVAILABLE ON RECORD THE CIT(A) DISREGARD E D THE SAME. THE EVIDENCE IT WAS SUBMITTED WAS CONFRONTED TO THE AO AND REMAND REPORT WAS CALLED FOR WHEREIN THE AO HAS MERELY REPEATED THAT ADDITIO NAL DISCOUNT HAS BEEN ALLOWED AFTER A PERIOD OF 3 - 4 YEARS AND BUSINESS EXIGENCIES ARE NOT PROVED. IN THE SAID BACKGROUND IT WAS SUBMITTED THE CIT(A) HAS COME TO A FINDING THAT THE ASSESSEE HAS NOT BEEN ABLE TO FURNISH ANY EVIDENCE OR EXPLAIN AS TO HOW A ND WHY EXPENSES IN QUESTION WERE HELPFUL IN PROMOTING ITS BUSINESS AND WHAT BENEFIT HAD THE BUSINESS OF THE COMPANY ACQUIRED THEREFROM. THE ANSWERS TO THESE QUERIES IT WAS SUBMITTED HAS TO BE GATHERED FROM THE CIRCUMSTANTIAL FACTS AVAILABLE ON RECORD AS H OW CAN AN ASSESSEE PROVE THESE CLAIMS. REFERRING TO THE JUDGEMENTS RELIED UPON AT PAGE 6 OF THE SYNOPSIS, IT WAS HIS SUBMISSION THAT IF AN ASSESSEE CAN PROVE THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSES OF BUSINESS THE EXISTENCE OF IMMEDIATE B ENEFIT IS NOT REQUIRED TO BE PROVED. SIMILARLY THE ALLEGATION OF THE CIT(A) THAT THE COMMERCIAL NECESSITY HAS NOT BEEN EXPLAINED, IT WAS SUBMITTED THAT COMMERCIAL NECESSITY IS FOR THE BUSINESSMAN TO DECIDE, AND IS EVIDENT FROM THE FACT THAT THE COMPANY S ETTLED THE ACCOUNT AND DID NOT HAVE TO GO THROUGH LITIGATION AND ACHIEVED HARMONIOUS BUSINESS RELATIONSHIP. THE FOLLOWING JUDGEMENTS WERE HEAVILY RELIED UPON: - (I) SASSON J DAVID 118 ITR 261 - 275, 276 (SC); (II) DEVAYHI BEVERAGES (2008) 296 ITR 41 (DEL.); (III) WALCHAND 65 ITR 381 (SC); (IV) DALMIA CEMENT (B) LTD. 254 ITR 377 (DEL.) 380, 381 I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 5 OF 21 4.3. REFERRING TO THE FACTS IT WAS SUBMITTED THAT THE CIT(A) HAS FAILED TO APPRECIATE THE DIMENSIONS HOLISTICALLY AND HAD NO OCCASION TO QUESTION THAT IT IS NOT KNOWN WHETHER THE BENEFI TS ARE REMOTE OR NEAR; PROSPECTIVE OR IMMEDIATE, IMAGINARY OR REAL AND INFACT T H E C I T ( A ) IT WAS SUBMITTED HAD NOT BEEN ABLE TO UNDERSTAND THE TRADING RELATION BETWEEN THE EXPENDITURE AND THE BUSINESS. IT WAS HIS SUBMISSION THAT BY WAY OF COPY OF ACCOUNTS, IT WAS EX PLAINED THAT WHEN A CUSTOMER IS NOT CLEARING ITS DUES FULLY FOR THE REASON THAT IT WAS CLAIMING THE COST OF INDIRECT BENEFIT BY THE COMPANY IN THE YEAR ENDED 31.03.2000 AND 31.03.2001 WHICH ARE AT PAPER BOOK PAGES 9, 10 & 12 AND THE DUES WERE NOT BEING CLE ARED SO MUCH SO THERE WAS AN AMOUNT OF RS.1.30 CRORE DUE AT THE BEGINNING OF THE YEAR AS AT 01.04.2002 (PAPER BOOK 15). THESE FACTS ITSELF DEMONSTRATE THAT THE CUSTOMER WAS NOT PAYING ITS DUES THUS IN ORDER TO SETTLE THE CLAIM WHERE THE COMPANY HAD SOLD DURING THE 3 YEARS UPTO 31.03.2002, THE GOODS WORTH RS.11.62 CRORES. THE CLAIM FOR COMPENSATION FOR THE COST INCURRED ON MARKETING OF GENERATORS AND THE CONSEQUENT INDIRECT BENEFIT OBTAINED BY THE COMPANY, THE COMPANY FINALLY DECIDE TO SETTLE AND THE HE AD (F&A) WHO WAS ASKED TO COORDINATE THE NEGOTIATION BETWEEN THE DIRECTORS AND MARKETING HEADS. AGAINST THE CLAIM OF RS.49.09 LACS, IT WAS SUBMITTED THE AMOUNT OF RS.46 LACS WAS NEGOTIATED. THE RELEVANT DOCUMENTS IT WAS SUBMITTED WERE AVAILABLE AT PAGES 16 - 17, 24 & 15 AS PURSUANT TO THIS SETTLEMENT, THE CUSTOMER PAID THE DUES. THE ADDITIONAL DISCOUNT IT WAS SUBMITTED WAS NECESSARY KEEPING IN VIEW THE DEMANDS OF COMMERCIAL EXPEDIENCY, BASED UPON ORDINARY PRINCIPLES OF COMMERCIAL TRADING, SO AS TO SETTLE DISPUTE IN THE INTEREST OF EXIGENCIES OF THE BUSINESS. THIS DISCOUNT IT WAS SUBMITTED WAS THUS INCIDENTAL TO CARRYING OUT TRADE. THE ASSESSEE COMPANY IT WAS SUBMITTED WAS GIVING OTHER DISCOUNTS AS IS EVIDENT FROM PB PAGE 13 TO 15 AND THIS FURTHER ADDI TIONAL DISCOUNT OF RS.46 LACS TO SETTLE THE CLAIM OF THE CUSTOMER WAS TAKEN IN THE PREVIOUS YEAR ENDED 31 ST MARCH 2003, THEREFORE CLAIMED IN A.Y.2003 - 04. 4.4. ADDRESSING THE BENEFIT DERIVED BY THE ASSESSEE WHICH WAS QUESTIONED BY THE CIT(A) IT WAS SUBMITT ED THAT THE IMMEDIATE BENEFIT TO THE ASSESSEE WAS SETTLEMENT OF ACCOUNT, AND THE INDIRECT BENEFIT DERIVED BY THE ASSESSEE WAS TO HAVE HARMONIOUS BUSINESS RELATIONSHIP. THE NATURE OF THE RELATION BETWEEN I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 6 OF 21 THE EXPENDITURE AND BUSINESS IT WAS SUBMITTED STAND S PROVED AS THE BENEFIT WAS NEAR NOT REMOTE; IMMEDIATE AND NOT PROSPECTIVE ; AND REAL AND NOT IMAGINARY. THE FACTS AS EXPLAINED IT WAS SUBMITTED SHOW THAT THE ASSESSEE COMPANY TOOK A COMMERCIAL DECISION TO SETTLE THE DISPUTE AND APPLIED ITS MIND TO DETE RMINE THE AMOUNT AND THE BOARD OF DIRECTORS APPROVED SUCH A COMMERCIAL DECISION. THE EXPENDITURE IT WAS ARGUED WAS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS KEEPING IN VIEW THE EXIGENCIES OF BUSINESS AND THE EXIGENCIES OF BUSINESS IT WA S SUBMITTED DO NOT NEED THE EXISTENCE OF A CONTRACT. 4.5. IT WAS SUBMITTED THAT M/S SUDHIR GENSETS LTD. IS A CUSTOMER AND IS A LEADER IN PROVIDING GENERATOR SETS AND HAS GOT THE BENEFIT OF THIS ADDITIONAL DISCOUNT AND IS A CORPORATE BODY SUBJECT TO TAX. I T IS NOT A CASE OF PAYMENT OF A DISCOUNT TO SOME INDIVIDUAL BUT IS ADJUSTMENT OUT OF AMOUNT DUE FROM THE PARTY. 4.6. IT WAS SUBMITTED THAT THE AO S MAIN OBJECTION WAS THAT THIS AMOUNT DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. THIS OBJECTION IT WAS SUBMITTED IS INCORRECT ON FACTS AS THE LIABILITY CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION AS DISPUTE WAS RESOLVED IN THE RELEVANT PREVIOUS YEAR. THE ASSESSEE COMPANY IT WAS SUBMITTED FOLLOWED A MERCANTILE SYSTEM OF ACCOUNTING AND IT HAS BEEN HELD BY VARIOUS COURTS THAT SUCH LIABILITY ACCRUES WHEN THE DISPUTE IS RESOLVED. FOR THE SAID PROPOSITION, RELIANCE WAS PLACED UPON THE FOLLOWING DECISIONS: - 1. ALEMBIC CHEMICAL 266 ITR 47 (GUJ.) AT 53; 2. GAJAPATHY NAIDU 53 ITR 114 (SC); 3. SWEADESH COTTON MILLS 53 ITR 134 (SC); 4. PHALTON SUGAR WORKS 162 ITR 622 (BOM.); 5. STATE BANK OF SAURASHTRA 93 ITD 662 (AHD); AND 6. SILICON GRAPHICS SYSTEMS (2007) 106 TTJ (DEL.) 1153 . 4.7. THE EXPENDITURE IT WAS CLAIMED WAS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF TRADING A ND BUSINESS AND BUSINESS PURPOSES IT WAS SUBMITTED IS A TERM OF WIDE AMPLITUDE AND THE BUSINESS PURPOSES CANNOT BE FOR EARNING PROFITS BUT FOR PURPOSES OF THE BUSINESS AND IT IS FOR THE BUSINESSMAN TO DECIDE THE NEED FOR INCURRING THE EXPENDITURE. FOR THE SAID PURPOSE, RELIANCE WAS PLACED UPON THE FOLLOWING DECISIONS: - 1. MALAYALAM PLANTATIONS 53 ITR 140, 150 (SC); I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 7 OF 21 2. MADHAV PRASAD JATIA 118 ITR 200, 208 (SC) ; 3. SA BUILDERS 288 ITR 1 (SC); 4. SWEADESHI COTTON MILLS 63 ITR 57 (SC) 4.8. RELYING UPON THE DECISION OF THE SA BUILDERS 288 ITR 1 (SC) RENDERED BY THE APEX COURT, IT WAS SUBMITTED THAT COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSES OF BUSINESS. VARIOUS DECISIONS IN THIS C ONTEXT WERE RELIED UPON AS EXTRACTED FROM THE CHATURVEDI & PITHISARIA - VOL. 2 (FIFTH EDITION) AT PAGES 2124, 2126, 2127, 2129 AND 2130. 4.9. IT WAS HIS SUBMISSION THAT IN THE EVENTUALITY, THE ARGUMENTS ADVANCED DO NOT FIND FAVOUR THEN THE ASSESSEE WOULD WAN T TO ARGUE THE ISSUE WITHOUT PREJUDICE TO THE ABOVE TAKING THE ALTERNATIVE ARGUMENT OF LOOKING AT IT FROM THE PERSPECTIVE OF BAD DEBT. IT WAS HIS SUBMISSION THAT IF THE AMOUNT HAD NOT BEEN SETTLED BY WAY OF AMICABLE NEGOTIATIONS THEN THE AMOUNT UNDER DISP UTE NOT RECOVERED WOULD HAVE BEEN WRITTEN OFF AS A BAD DEBT AND AS PER THE PROVISIONS OF SECTION 36(1)(VII) THE CLAIM WOULD HAVE TO BE ALLOWED AGAINST THE INCOME. IT WAS HIS SUBMISSION THAT THERE IS NO DISPUTE THAT THE AMOUNT WAS DUE FROM A CUSTOMER. T HE DEBIT IT WAS SUBMITTED WAS ON ACCOUNT OF CREDIT TO SALE ACCOUNT I.E. INCOME OF THE ASSESSEE COMPANY. THE DEBIT HAS BEEN ADJUSTED BY CREDIT TO THE ACCOUNT. ALL THE INGREDIENTS FOR ALLOWING THE CLAIM AS BAD DEBT HAVE BEEN MET. THUS, IT WAS SUBMITTED THAT THE ALTERNATIVE PLEA THAT THE AMOUNT BE ALLOWED AS BAD DEBT BE ACCEPTED. TRF LTD. - (2010) 323 ITR 397 (SC) - WRITE OFF IS SUFFICIENT. 4.10. BASED ON THESE ARGUMENTS AND FACTS AND THE LEGAL PROPOSITION IT WAS HIS SUBMISSION THAT THE APPELLANT COMPANY HAS BE EN ABLE TO EXPLAIN WITH FACTS THAT THE IMPUGNED EXPENSES BY WAY OF ADDITIONAL DISCOUNT WERE INCURRED OUT OF COMMERCIAL NECESSITY OF BUSINESS SETTLEMENT, THE EXPENDITURE WAS REAL, WAS INCIDENTAL TO CARRYING ON TRADE, WAS BASED UPON ORDINARY PRINCIPLES OF CO MMERCIAL TRADING AND THAT THE BENEFIT OBTAINED BY WAY OF SETTLEMENT OF ACCOUNT AND CREATION OF AN UNDISPUTED, HARMONIOUS COMMERCIAL RELATIONSHIP WHICH IS CONDUCIVE TO IN PROMOTING BUSINESS. THE EXPENDITURE CLAIM IT WAS SUBMITTED CRYSTALLIZED AND ACCRUED D URING THE PREVIOUS YEAR RELEVANT TO A.Y.2003 - 04 THEREFORE ALLOWABLE IN THIS YEAR. IT WAS SUBMITTED THAT IT NOT I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 8 OF 21 CAPITAL IN NATURE AND WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN ANY CASE IT WAS SUBMITTED IT IS ALLOWABLE AS BAD DEBT . 5 . LD. SR. DR, SH. B. R. R. KUMAR CARRYING US THROUGH THE CONSISTENT FINDING OF FACTS ON RECORD SUBMITTED THAT THEY DESERVE TO BE UPHELD. ADDRESSING THE ISSUE NOW RAISED OF BAD DEBT IT WAS SUBMITTED THAT THE RECORD WOULD SHOW MORE THAN SUFFICIENT OPPORT UNITIES WERE GIVEN BY THE AO AND NO SUCH CLAIM IS MADE BY THE ASSESSEE AND THE FACTS HAVE NOT BEEN LOOKED INTO AS SUCH THE ALTERNATE ARGUMENTS AT THIS STAGE IT WAS HIS SUBMISSION SHOULD NOT BE ACCEPTED. 5.1. INVITING ATTENTION TO THE MAIN ARGUMENT ADVANCE D IT WAS HIS SUBMISSION THAT THE SO - CALLED EVIDENCES FILED ARE INTE RNAL SELF CREATED DOCUMENTS IN THE ABSENCE OF THE BASIC EVIDENCE OF A DISPUTE AT ALL CANNOT BE ACCEPTED. ON RECORD IT WAS SUBMITTED THERE IS NOT A SINGLE EVIDENCE OF M/S SUDHIR GENSETS ACT UALLY INSISTING FOR A COMMISSION OVER AND ABOVE THE COMMISSION ALREADY EARNED AS PER ARGUMENTS ETC. IT WAS HIS SUBMISSION THAT THIS IS AN ASSESSEE WHO IS CLAIMING 80IB DEDUCTIONS WHICH FACTS SHOULD BE KEPT IN MIND. THE RESOLUTION OF THE BOARD, THE OTHER I NTERNAL DOCUMENTS RELIED UPON IT WAS SUBMITTED WERE ALL SELF CREATED CIRCUMSTANTIAL INTERNAL DOCUMENTS AND AT BEST COULD HAVE BEEN RELIED UPON IN SUPPORT OF SOME BASIC DOCUMENT ESTABLISHING A DISPUTE. THE CR UCIAL INDEPENDENT EVIDENCE OF THIRD PARTY EVIDEN CES CAPABLE OF DEMONSTRATING A DISPUTE HAVE NEVER BEEN PLACED ON RECORD. IT WAS HIS SUBMISSION THAT IT IS NOT THE CLAIM OF THE ASSESSEE THAT THE EVIDENCES CAN BE BROUGHT ON RECORD AND BY OVER SIGHT WERE NOT MADE AVAILABLE TO THE AO. IT WAS EMPHASIZED THA T NO SUCH CLAIM HAS BEEN MADE BY THE ASSESSEE AT ANY STAGE OF EXISTENCE OF ANY INDEPENDENT EVIDENCE. IT WAS SUBMITTED THAT CONSEQUENTLY NO SUCH PERMISSION HAS BEEN SOUGHT BY THE ASSESSEE IN THE PRESENT PROCEEDINGS ALSO . THE DOCUMENTS IT WAS STATED ARE ON LY SELF SERVING INTERNAL DOCUMENTS TO SUPPORT THE STORY WHICH THE ASSESSEE WANTS TO CANVAS. NOTHING IT WAS SUBMITTED HAS BEEN PLACED ON RECORD TO SHOW THAT THERE WAS A DISPUTE; THERE IS NO CORRESPONDENCE , E - MAIL ETC ON RECORD WHICH PRESUMABLY LEAD THE ASSE SSEE TO ENTER INTO THE SO - CALLED ALLEGED AGREEMENT . THE RELIANCE OF THE ASSESSEE ON THE PROPOSITION THAT EXISTENCE OF AN AGREEMENT CANNOT ES TABLISH THAT THERE IS A DISPUTE , I T WAS S UBMITTED I S O F I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 9 OF 21 N O H E L P , A S NO DOUBT AGREEMENT CAN NOT SHOW THE EXISTENCE OF A DISPUTE BUT ATLEAST THE REFERENCE TO THE PARTIES A G R E E I N G TO RESOLVE THE DISPUTE WOULD REFLECT THAT THE M/S SUDHIR GENSETS A T L E A S T ACCEPTS THE POSITION THAT THERE WAS A DISPUTE. IN THE FACTS OF THE PRESENT CASE, IT WAS HI S SUBMISSION THAT THE EVIDENCE TO DEMONSTRATE THAT THERE WAS A DISPUTE HAS NEVER BEEN REFERRED TO BY THE ASSESSEE. THE ONLY EVIDENCE IS THE UNILATERAL INTERNAL B O A R D S R ESOLUTION AND REPORTS OF G.M. ( F I N . ) ETC AND THEY ONLY DEMONSTRATE THAT ONLY UNILATERAL EVI DENCE IS THERE WHICH HAS RIGHTLY NOT BEEN BELIEVED BY THE TAX AUTHORITY . 5.2. IT WAS HIS SUBMISSION THAT IT IS NOT THE CASE OF THE REVENUE THAT THE TAX DEPARTMENT CAN SUGGEST WHAT EXPENDITURE SHOULD BE INCURRED BY THE ASSESSEE AS THE ASSESSEE IS FREE AS PER ITS OWN UNDERSTANDING TO INCUR WHATSOEVER EXPENDITURE, IT DEEMS FIT. HOWEVER, WHEN THE ISSUE ARISES OF ALLOWABILITY OF EXPENDITURE THEN THE TAX DEPARTMENT IS FULLY WITHIN ITS RIGHT TO CONSIDER ITS ALLOWABILITY AS PER SETTLED LEGAL PRINCIPLES. IN THE FACTS OF THE PRESENT CASE, IT WAS HIS SUBMISSION NOTHING HAS BEEN PLACED ON RECORD TO SHOW THAT THERE WAS ANY CLAIM BY THE M/S SUDHIR GENSETS LTD. BEFORE THE ASSESSEE . M ERELY REPEATING WITHOUT EVIDENCE THAT THE EXPENDITURE WAS FOR BUSINESS PURPOSES IS NOT SUFFICIENT REQUIREMENT UNDER LAW . FOR WHAT PURPOSE, THE SO - CALLED ADJUSTMENT WAS MADE IT WAS SUBMITTED IS BEST KNOWN TO THE ASSESSEE AND THE POSSIBLE SCENARIOS FOR AN 80IB ASSESSEE MAKING UNILATERAL SO CALLED ADJUSTMENTS IT WAS SUBMITTED HE WOULD NOT WAN T TO CONJECTURE. THE LAW IS CLEAR THE ASSESSEE NEEDS TO DEMONSTRATE THAT IT WAS FOR BUSINESS PURPOSES WHICH DESPITE OPPORTUNITY THE ASSESSEE HAS FAILED TO DEMONSTRATE. IT WAS QUESTIONED THAT CAN A MANUFACTURER OF CAR WHO MANUFACTURES AND SELLS THE CARS U NDER ITS BRAND - NAME INCURRING COSTS FOR BUILDING ITS BRAND NAME SAY THAT IT HAS IMPACTED THE ENGINE MANUFACTURER AND IS CALLED UPON TO GIVE A DISCOUNT TO IT. IT WAS HIS SUBMISSION THAT EVEN IF SUCH A STRANGE CLAIM IS MADE THAN ATLEAST SOME EVIDENCE WOULD NECESSARILY HAVE TO BE BROUGHT ON RECORD TO DEMONSTRATE THAT THERE WAS A DISPUTE IT CANNOT BE LEFT TO CONJECTURE AND SURMISES A CRITICISM NORMALLY LABELED ON THE REVENUE. IN THE FACTS OF THE PRESENT CASE, IT WAS SUBMITTED THE ASSESSEE WOULD WANT TO CONJECT URE AND SURMISE IN THE ABSENCE OF HARD INDEPENDENT EVIDENCE I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 10 OF 21 TO DEMONSTRATE THAT THERE WAS ADJUSTMENT WHEN ON FACTS THE ASSESSEE HAS FAILED CONSISTENTLY TO DEMONSTRATE THAT THERE WAS A DISPUTE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT AFTER RECORDING THE NUMBER OF OPPORTUNITIES GIVEN TO THE ASSESSEE AT PAGE 1 AND PAGE 2 OF THE ASSESSMENT ORDER THE AO PROCEEDED TO CONSIDER THE ISSUE AT PAGE 3 OF HIS ORDER WITH THE FOLLO WING OBSERVATIONS AND IN THE FOLLOWING MANNER: - THE ABOVE DETAILS CLEARLY STATE THAT THE ASSESSEE COMPANY WAS GIVEN SUFFICIENT TIME, A NUMBER OF OPPORTUNITIES TO FILE DETAILS AND CLARIFICATIONS ON CERTAIN ISSUES. IN THESE CIRCUMSTANCES, I HAVE NO ALTERNATIVE BUT TO DECIDE THE CASE ON THE BASIS OF INFORMATION AVAILABLE ON RECORD. THE DETAIL OF ADDITIONAL DISCOUNT AND RATE DIFFERENCE FILED AND PLACED AT PAGE 33 & 35 OF LETTER DATED 22.11.2005 REVEALS THAT THE ASSESSEE HAS DEBITED AND CLAIMED AN AMOUN T OF RS.46,00,000/ - WITH THE NARRATION ADDL. DISC. AG SALES . ASSESSEE HAS FILED ITS REPLY VIDE LETTER DATED 7.2.2006 WHICH IS PLACED ON RECORD. ASSESSEE HAS STATED AS UNDER. 'AS REGARD S TO EXPLAIN THE NATURE OF EXPENSES OF RS. 46,00,000/~ CLAIMED UNDE R THE HEAD DISCOUNT (ALTERNATOR), WE SUBMIT THAT THE SAME WAS PAID TO M/S. SUDHIR GENSETS LTD. WHO WERE MANUFACTURERS OF DIESEL GENERATOR SETS WHICH REQUIRED ALTERNATORS MANUFACTURED BY THE ASSESSEE COMPANY. THE SAID PURCHASER WAS A REGULAR AND OLD CUSTOM ER OF THE ASSESSEE COMPANY AND HAD PROMOTED THE SALE OF THE COMPANY'S ALTERNATORS BY USING THE SAME WITH THE GENERATOR SETS SOLD BY M/S. SUDHIR GENSETS LTD. WE ENCLOSE STATEMENT OF SALES GENERATED BY SUDHIR GENSETS IN THE LAST THREE YEARS FOR THE ASSESSEE COMPANY. IN VIEW OF THE VOLUME OF BUSINESS GENERATED BY THE SAID PARTY, IT WAS DECIDED BY THE COMPANY TO GIVE THEM ADDITIONAL DISCOUNT WHICH WERE APPROVED BY THE BOARD OF DIRECTORS VIDE ITS RESOLUTION DATED 08.11.2002.' (EMPHASIS PROVIDED) 6.1. A PERUSAL OF THE SAID ORDER FURTHER SHOWS THAT THE ASSESSEE S SUBMISSION WAS REJECTED BY THE AO HOLDING AS UNDER: - 'THE SUBMISSION OF THE ASSESSEE HAS BEEN CONSIDERED. FIRST OF ALL, IT IS MENTIONED THAT THE DISCOUNT DOES NOT PERTAIN TO THE TRANSACTIONS FOR THE YEAR UNDER CONSIDERATION. ASSESSEE MADE TRANSACTIONS WITH SUDHIR GENETS LTD. DURING THE YEAR 1999 - 2000, 2000 - 01 AND 2001 - 02. DURING THE YEAR, ASSESSEE PAID A SUM OF RS.46,00,000/ - ON ACCOUNT OF DISCOUNT ON THE SALE TRANSACTIONS MADE TO THE PARTY. IN THIS REGAR D, ASSESSEE HAS FURNISHED A COPY OF RESOLUTION AND A COPY OF ACCOUNT SETTLEMENT, WHICH REVEALS THAT ASSESSEE HAS PAID ADDITIONAL DISCOUNT OF RS.20,40,017/ - FOR THE YEAR 1999 - 2000 AND RS.22,57,370/ - FOR THE YEAR 2000 - 01 AND RS. 6,11,192/ - FOR THE YEAR 2001 - 02. ASSESSEE HAS NOT FURNISHED THE COPY OF AGREEMENT TO SHOW THAT THERE WAS ANY CLAUSE OF PAYMENT OF ADDITIONAL DISCOUNT PAYABLE ON THE SALES TRANSACTIONS MADE WITH THE PARTY. SALES PRICE AND DISCOUNT I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 11 OF 21 PAYABLE THERE ON ARE SETTLED AT THE TIME OF TRANSACTION . IF THERE IS ANY SPECIAL DISCOUNT PAYABLE LATER ON, THE SAME IS NEGOTIATED IN WRITING. THERE IS NO EVIDENCE FILED DURING THE COURSE OF HEARING TO PROVE THAT DISCOUNT @ 3.5% WAS PAYABLE TO THE PARTY AFTER A PERIOD OF 3 - 4 YEAR. FURTHER THERE IS NO MENTION O F SUCH CLAIM IN THE NOTES TO ACCOUNTS FOR THESE YEARS. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS CONCLUDED THAT THIS IS AN AFTER THOUGHT THAT THE ASSESSEE HAS ALLOWED A SUM OF RS. 46,00,000/ - ON ACCOUNT OF DISCOUNT ON THE SALES TRAN SACTIONS MADE WITH SUDHIR INDUSTRIES GENSETS LTD. IN EARLIER YEARS. THUS THE CLAIM OF AN AMOUNT OJRS.46,00,000/ - ON ACCOUNT OF DISCOUNT ALLOWED TO SUDHIR GENSETS LTD. IS REJECTED AND ADDED TO THE INCOME FOR THE YEAR UNDER CONSIDERATION. ' (EMPHASIS PROVIDE D) 6.2. THE RECORD SHOWS THAT THE ASSESSEE FILED FRESH EVIDENCES BEFORE THE CIT(A WHICH WERE ACCEPTED AND REMANDED TO THE AO AND CONSIDERING THE EVIDENCES THE REMAND REPORT AND THE ARGUMENTS OF THE ASSESSEE THE CIT(A ALSO REJECTED THE CLAIM OF THE ASSESSE E. THESE FACTS ARE BROUGHT OUT FROM THE FOLLOWING EXTRACTS OF THE IMPUGNED ORDER: - 3.1. THE RELEVANT PORTION OF THE REMAND REPORT ON THE ISSUE RELATING TO THE DISALLOWANCE OF ADDITIONAL DISCOUNT TO THE EXTENT OF RS.46,00,000/ - IS EXTRACTED BELOW : - DURIN G THE COURSE OF ASSESSMENT, IT WAS OBSERVED THAT THE ASSESSEE ALLOWED AN ADDITIONAL DISCOUNT TO M/S. SUDHIR GENSETS LTD. AMOUNTING TO RS.46,00,000/ - . THE ADDITIONAL DISCOUNT WAS SAID TO BE PAID TO M/S. SUDHIR GENSETS LTD. TO SETTLE THE OUTSTANDING PAYMENTS OF RS.1,23,33,601/ - AS THE COMPANY WAS NOT PAYING THE BALANCE AS THEY WERE CLAIMING COMPENSATION AGAINST THE COST INCURRED FOR INDIRECT MARKETING OF THE COMPANY 'S ALTERNATES WHILE MARKETING THEIR GENSETS TO THE ULTIMATE CUSTOMERS THROUGH THEIR MARKETING NETWORK. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT THE TRANSACTIONS WERE MADE IN EARLIER YEARS AND THE COMPENSATION WAS PAID DURING THE YEAR AND THE ASSESSEE DID NOT FILE ANY EVIDENCE DURING THE COURSE OF HEARING TO PROVE THAT DISCOUNT @ 3.5% WAS PAYABLE TO THE PARTY AFTER A PERIOD OF THREE FOUR YEARS. FURTHER, THERE WAS NO MENTION OF SUCH CLAIM IN THE NOTES TO ACCOUNTS FOR THESE YEARS. THE ASSESSING OFFICER HELD THAT THIS WAS AN AFTERTHOUGH THAT THE ASSESSEE HAD ALLOWED A SUM OF RS.46,00,000/ - ON ACCOUNT OF DISCOUNT ON THE SALE TRANSACTION MADE WITH M/S. SUDHIR GENSETS LTD. IN EARLIER YEARS. THE ASSESSEE NOW HAS PLEADED THAT THE ASSESSEE ALLOWED THE ADDITIONAL DISCOUNT TO SETTLE THE MATTER AMICABLY FOR SMOOTH RUNNING OF BUSINES S AND FOR RECOVERY OF THE AMOUNT DUE WITH THE PARTY. THE ADDITIONAL DISCOUNT WAS APPROVED THROUGH A RESOLUTION PASSED BY THE BOARD OF DIRECTOR'S OF AVK - SEG AND CONTROLS (INDIA) LTD. (NOW KNOWN AS LEROY SOME & CONTROLS LTD.) BY CIRCULATION ON 8TH NOVEMBER, 2002. AFTER THIS SETTLEMENT THE PARTY M/S. SUDHIR GENSETS MADE THE PAYMENT OF BALANCE AMOUNT. DURING THE COURSE OF ASSESSMENT AS WELL AS DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE COULD NOT PRODUCE ANY CONCRETE MATERIAL TO SUBSTANTIATE ITS CL AIM FOR I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 12 OF 21 ALLOWABILITY OF ADDITIONAL DISCOUNT WAS ALLOWED UNDER THE BUSINESS EXIGENCIES. THE ACTION OF THE ASSESSING OFFICER WAS AS PER THE PROVISIONS OF THE ACT. ' 3.2 DURING THE APPELLANT PROCEEDINGS, IT WAS SUBMITTED ON BEHALF OF THE APPELLANT INTER AL IA, THAT 'WE SUBMIT A COPY OF ACCOUNT OF THE PARTY, SUDHIR GENSETS LTD. THE COMPANY WAS SUPPLYING MATERIAL TO SUDHIR GENSETS LTD. SINCE EARLIER YEARS. IN THE YEAR ENDED 31ST MARCH 2000 (REFER PAGE 1) A SUM OF RS.1,23,33,601/ - WAS OUTSTANDING. THE PARTY WA S NOT PAYING THE BALANCE AS THEY WERE CLAIMING COMPENSATION AGAINST THE COST INCURRED FOR INDIRECT MARKETING OF THE COMPANY'S ALTERNATIVES WHILE MARKETING THEIR GEN SETS TO THE ULTIMATE CUSTOMERS THROUGH THEIR MARKETING NETWORK. THE PARTY SUDHIR GENSETS LT D. WAS CLAIMING ADDITIONAL DISCOUNT IN LIEU OF THE INDIRECT MARKETING WHICH THEY STATED THAT THEY HAD ACHIEVED AND WERE ABLE TO HELP IN THE GROWTH OF THE SALES. A PERUSAL OF THE COPY OF ACCOUNT FOR A. Y. 2001 - 02 AT PAGE 2, 3 & 4 WOULD SHOW THAT THE AMOUNT RECOVERABLE FROM THE PARTY HAD INCREASED TO RS.1,85,95,910/ - . DURING THE A.Y. 2002 - 03 THE AMOUNT RECOVERABLE FROM SUDHIR GENSETS LTD. WAS RS.1,30,53,227/ - (REFER PAGE 6). DURING ALL THESE FINANCIAL YEARS THE COMPANY REPRESENTATIVES WERE TRYING TO RECOVER T HE AMOUNTS DUE FROM THE CUSTOMERS. SUDHIR GENSETS LTD. WAS INSISTING ON ADDITIONAL DISCOUNT WHICH THEY CLAIMED WAS DUE TO THEM. IN VIEW OF THE EXIGENCIES OF BUSINESS THE FINANCE HEAD WAS ASKED TO PURSUE THE MATTER AND GIVE HIS RECOMMENDATION. TO SETTLE THE MATTER AMICABLY THE HEAD OF FINANCE RECOMMENDED THAT THROUGH THE EFFORTS OF THE MARKETING HEADS AND THE DIRECTORS OF THE TWO COMPANIES THE AMOUNT OF CLAIM OF RS. 49. 09 LACS WAS NEGOTIATED TO RS.46.00 LACS ON THE CONDITION THAT THE BALANCE WOULD BE PAID B Y SUDHIR GENSETS LTD. COPY OF THE NOTE OF THE HEAD OF FINANCE IS ENCLOSED AT PAGE 7 A. COPY OF ACCOUNT FOR THE A.Y. 2003 - 04 SHOWS THAT THE PARTY WAS CREDITED WITH RS.46, 00, 0001 - ON 14TH DECEMBER 2002 THEREAFTER THE BALANCE AMOUNT WAS PAID BY THE PARTY. C OPY OF THE DEBIT NOTE AND COMPUTATION IS ENCLOSED AT PAGE 8 TO 14. THE COMPANY IS A JOINT VENTURE BETWEEN AVK SEG, GERMANY AND THE CONTROLS GROUP, INDIA. THIS ISSUE OF DISCOUNT WAS PLACED BEFORE THE BOARD AND THE GRANTING OF ADDITIONAL DISCOUNT OF RS.46,00,000/ - WAS APPROVED BY THE BOARD ON 8TH NOVEMBER 2002. COPY OF THE BOARD RESOLUTION IS ENCLOSED AT PAGE 15. THE AO HAD AN OBJECTION THAT THE AMOUNT OF ADDITIONAL DISCOUNT, BECAUSE IT PERTAIN TO EARLIER YEARS, THEREFORE HAD BEEN DEBITED TO THE EXPE NSE ACCOUNT AS AN AFTER THOUGHT AND THEREFORE IS NOT ALLOWED THE DEDUCTION OF RS.46,00,000/ - . THE IMPORTANT POINT TO BE NOTED IS THAT THE EXPENDITURE OF RS. 46,00,000/ - THOUGH COMPUTED ON THE BASIS OF TURNOVER OF EARLIER YEARS CRYSTALLIZED IN THE YEAR UNDE R ASSESSMENT I.E. A.Y. 2003 - 04 AS THE DISPUTE WAS RESOLVED IN NOVEMBER 2002 RELEVANT TO A.Y. 2003 - 04. IT IS A TRITE THAT IN ANY CONTRACTUAL LIABILITY THE AMOUNT OF EXPENDITURE ACCRUES WHEN IT IS ASCERTAINED, AND THAT IS WHEN THE DISPUTE IS RESOLVED. TH E CUSTOMER SUDHIR GENSETS WAS MAKING ADDITIONAL CLAIM AND THE COMPANY KEEPING IN VIEW THE BUSINESS EXIGENCIES ACCEPTED THE CLAIM TO THE EXTENT OF RS.46,00,000/ - IN NOVEMBER 2002. THEREFORE THE IMPUGNED EXPENDITURE IS ALLOWABLE AS A DEDUCTION IN THE YEAR UN DER APPEAL. REFERENCE IS INVITED TO THE FOLLOWING DECISIONS: I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 13 OF 21 SWADESHI COTTON & FLOUR MILLS (P) LTD. 53 ITR 134 (SC). PHALTON SUGAR WORKS LTD 162 ITR 622 (BOM.) ALEMBIC CHEMICAL WORKS LTD. 266 ITR 47 (GUJ.) STATE BANK OF SAURASHTRA 93 ITD 662 (AHD.) WE PLEAD THAT IN VIEW OF OUR SUBMISSIONS THE CLAIM OF RS. 46,00,000/ - ON ACCOUNT OF ADDITIONAL DISCOUNT TOWARDS THE BENEFIT OF INDIRECT MARKETING ACHIEVED BY THE COMPANY FROM THE CUSTOMER BE ALLOWED.' 3.3 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER, T HE WRITTEN AND ORAL SUBMISSION(S) OF THE APPELLANT AND THE REMAND REPORT OF THE A.O. THE FINDINGS OF THE A.O, ARE THAT THE ASSESSEE HAS FAILED TO FURNISH DETAILS OF ADDITIONAL DISCOUNT AND SATISFACTORY EXPLANATION IN REGARD TO THE ABOVE EXPENSES FROM THE P OINT OF COMMERCIAL EXPEDIENCY. DURING THE APPELLATE PROCEEDINGS ALSO THE APPELLANT HAS FURNISHED ONLY THE COPY OF THE EXPENSE ACCOUNT IN SUPPORT OF THE CLAIM OF DEDUCTION OF ADDITIONAL DISCOUNT. THEREFORE, I HAVE NO HESITATION IN HOLDING THAT THE APPELLANT HAS NOT BEEN ABLE TO EITHER FURNISH/ADDUCE ANY EVIDENCE OR EXPLAIN DURING THE APPELLATE PROCEEDINGS ALSO AS TO HOW AND WHY THE EXPENSES IN QUESTION WERE HELPFUL IN PROMOTING ITS BUSINESS AND THE BENEFIT THAT THE BUSINESS OF THE COMPANY ACQUIRED THEREFROM. IN ORDER TO CLAIM A DEDUCTION ON ACCOUNT OF EXPENDITURE FOR PURPOSES OF BUSINESS THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSES OF BUSINESS AND WAS NOT OF A CAPITAL NATURE. MERELY BECAUSE A BUSINESSMAN BOOKS THE EXPENDITURE IN ITS PROFIT & LOSS ACCOUNT AND CLAIMS THE SAME FOR DEDUCTION DOES NOT NECESSARILY LEAD TO THE CONCLUSION THAT THE EXPENDITURE WAS OF A REVENUE NATURE. IN ORDER THAT AN EXPENDITURE SHOULD QUALIFY FOR DEDUCTION AS CONTEMPLATED BY SECTION 37(1) , ONE OF THE REQUIREMENTS OF THE PROVISION IS THAT THE EXPENDITURE MUST HAVE BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. IT CANNOT BE DISPUTED THAT BEFORE AN ASSESSEE CAN BECOME ENTITLED TO AN ALLOWANCE UNDER THAT PROVISION, HE MU ST SATISFY THE ASSESSING OFFICER OF THE PURPOSE FOR WHICH THE AMOUNT IS SPENT. IT IS TRUE THAT THE TAXING AUTHORITIES ARE NOT ENTITLED TO GO INTO THE REASONABLENESS OF THE EXPENSES, BUT THEY ARE CERTAINLY ENTITLED TO BE SATISFIED AS TO THE COMMERCIAL NECES SITY OF EXPENDING THAT AMOUNT. THE QUESTION WILL ALWAYS BE AS TO THE NATURE OF THE RELATION BETWEEN THE EXPENDITURE AND THE BUSINESS, WHETHER THE BENEFIT IS REMOTE OR NEAR, PROSPECTIVE OR IMMEDIATE, IMAGINARY OR REAL AND SO FORTH. THE CAPACITY IN WHICH THE ASSESSEE SPENDS WILL ALSO BE RELEVANT. IN THE INSTANT CASE, THE ASSESSEE DID NOT FURNISH ANY MATERIAL TO THE ASSESSING OFFICER TO ARRIVE AT THE CONCLUSION FAVORING THE ASSESSEE. THE A.O. THEREFORE, EXERCISED HIS JUDGMENT AND DISCRETION WHICH CANNOT BE SAI D TO BE ARBITRARY OR UNREASONABLE. IN VIEW OF THE AFORESAID, I HAVE NO HESITATION IN HOLDING THAT THE ACTION OF THE A.O. IN DISALLOWING ADDITIONAL DISCOUNT TO M/S. SUDHIR GENSETS LTD. AMOUNTING TO RS.46,00,000/ - .IS JUSTIFIED. AS A RESULT, THE ADDITION OF R S.46,00,000/ - IS CONFIRMED AND GROUND OF APPEAL NO. L IS DISMISSED. (EMPHASIS PROVIDED) 6.3. ON A CONSIDERATION OF THE ABOVE - MENTIONED PECULIAR FACTS AND CIRCUMSTANCES WHICH WE HAVE ALREADY DISCUSSED IN ELABORATE DETAIL IN THE I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 14 OF 21 EARLIER PART OF THIS ORDER , WE FIND CONSIDERING T HE ARGUMENTS ON FACTS AND LAW AND THE EVIDENCES RELIED UPON BY THE ASSESSEE IN SUPPORT OF ITS CLAIM WE UPHOLD THE CONCLUSION ARRIVED AT BY THE TAX AUTHORITIES. THE EVIDENCE RELIED UPON BY THE ASSESSEE IN THE ABSENCE OF THE BASIC DOC UMENT EVIDENC I N G A DISPUTE BETWEEN THE ASSESSEE AND M/S SUDHIR GENSETS HAS RIGHTLY BEEN REJECTED. THE ONLY EVIDENCES ON RECORD IT IS SEEN DO NOT INSPIRE ANY CONFIDENCE AS THESE ARE THE SELF - GENERATED DOCUMENTS . T HERE IS NOT A SINGLE EVIDENCE ON RECORD TO SHOW THAT M/S SUDHIR GENSETS LTD. WAS WITHHOLDING PAYMENTS DEMANDING A DISCOUNT OVER AND ABOVE WHAT WAS DUE AS PER AGREED TERMS. NO EVIDENCE HAS BEEN PLACED BEFORE US DESPITE REPEATED QUERIES TO SHOW EVEN AT THIS STAGE IF THERE WAS ANY SUCH EVIDENCE AVAIL ABLE. NEITHER THERE IS ANY DEMAND LETTER NOR DEMAND NOTICE ADDRESSED BY M/S SUDHIR GENSETS LTD. TO THE ASSESSEE. INFACT EVEN THE SO - CALLED EVIDENCE OF SETTLEMENT IS A UNILATERAL DOCUMENT WHERE NO REFERENCE IS MADE TO ANY PERSON AUTHORIZED TO NEGOTIATE ON BEHALF OF M/S SUDHIR GENSETS . IT IS SEEN THAT DESPITE POINTED QUERIES BY THE BENCH , NO EXPLANATION WAS GIVEN AS TO HOW THE ASSESSEE IS CONSIDERING ITSELF BOUND BY A UNILATERAL DOCUMENT . NOTHING HAS BEEN PLACED BEFORE US DESPITE REPEATED QUERIES AS TO HOW AND WHY THE SETTLEMENT WAS ARRIVED AT THE AMOUNT OF RS.46 LACS AND WHY NOT RS.40 LACS OR 47 LACS. THE SELF - SERVING NOTE OF THE DIRECTOR (F&A) WHO STATES THAT THE DISPUTES HAVE BEEN SETTLED AT A SPECIFIC AMOUNT ON A SPECIFIC DATE WITHOUT ANY REFERENCE AS TO WHO ON BEHALF OF THE M/S SUDHIR GENSETS LTD. WAS NEGOTIATING FOR THE CLAIM DOES NOT INSPIRE ANY CONFIDENCE WHATSOEVER. THUS THE ASSESSEE S CLAIM BASED ON THESE EVIDENCES HAS RIGH TLY BEEN REJECTED AND DOES NOT INSPIRE ANY CONFIDENCE WHATSOEVER EITHER ON IN ITS AUTHENTICIT Y NOR ON ITS GENUINENESS. 6.4. THE LD. AR HAS ALSO TAKEN THE PLEA THAT THE ISSUE IS DECIDED ON WRONG FACTS AS THE AO HAS ERRED IN HOLDING THAT THE AMOUNTS WERE PAI D TO M/S SUDHIR GENSETS LTD. WHEREAS IT WAS AN ADJUSTMENT. WE FIND THAT EVEN IF THIS PLEA IS ACCEPTED WHICH ON FACTS WE FIND CANNOT BE ACCEPTED FOR REASONS TO BE ADDRESSED LATER WE HOLD THAT IT IS NOT THIS ERROR WHICH HAS RESULTED IN NEGATING THE CLAIM. THE REASONS FOR REJECTION OF ASSESSEE S CLAIM IS THAT THE EVIDENCE IS UNILATERAL AND IN THE ABSENCE OF INDEPENDENT EVIDENCE IS NOT RELIABLE. THUS THE ERROR IF ANY, IN CONSIDERING THAT THE AMOUNT WAS PAID INSTEAD OF ADJUSTED I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 15 OF 21 IS NOT OF SUCH A MAGNITUDE WHI CH WOULD IMPACTING THE FINDING AS IN THE FACTS BASED ON THE EVIDENCE ON RECORD THE GENUINENESS OF THE CLAIM ITSELF I S NOT ESTABLISHED. ADDRESSING ERROR OF THE AO THE RECORD SHOWS THAT INFACT IT IS THE ASSESSEE WHO LED THE AO TO COMMIT SUCH AN ERROR AS WOU LD BE EVIDENT FROM THE ASSESSEE S REPLY DATED 07.02.2006 EXTRACTED AT PAGE 3 OF THE ASSESSMENT ORDER WHEREIN THE ASSESSEE ITSELF SAYS THAT 'AS REGARDS TO EXPLAIN THE NATURE OF EXPENSES OF RS. 46,00,000/~ CLAIMED UNDER THE HEAD DISCOUNT (ALTERNATOR), WE SUBMIT THAT THE SAME WAS PAID TO M/S. SUDHIR GENSETS LTD. WHO WERE MANUFACTURERS OF DIESEL GENERATOR SETS WHICH REQUIRED ALTERNATORS MANUFACTURED BY THE ASSESSEE COMPANY. THE SAID PURCHASER WAS A REGULAR AND OLD CUSTOMER OF THE ASSESSEE COMPANY AND HAD PR OMOTED THE SALE OF THE COMPANY'S ALTERNATORS BY USING THE SAME WITH THE GENERATOR SETS SOLD BY M/S. SUDHIR GENSETS LTD. WE ENCLOSE STATEMENT OF SALES GENERATED BY M/S SUDHIR GENSETS IN THE LAST THREE YEARS FOR THE ASSESSEE COMPANY. IN VIEW OF THE VOLUME OF BUSINESS GENERATED BY THE SAID PARTY, IT WAS DECIDED BY THE COMPANY TO GIVE THEM ADDITIONAL DISCOUNT WHICH WERE APPROVED BY THE BOARD OF DIRECTORS VIDE ITS RESOLUTION DATED 08.11.2002. 6. 5 . THE DECISIONS RELIED UPON BY THE LD. AR IT HAS BEEN SEEN ARE N OT APPLICABLE AS HEREIN THE GENUINENESS OF THE EXPENDITURE ITSELF IS NOT PROVED D ESPITE REPEATED QUERIES FROM THE BENCH . CONSEQUENTLY IN THE ABSENCE OF RELEVANT EVIDENCES THE SELECTIVELY PICKING UP OF VARIOUS PROPOSITIONS OF LAW ON FACTS WHICH ARE NOT PAR I - MATERIA WITH THE FACTS OF THE PRESENT CASE WOULD BE OF NO HELP TO THE ASSESSEE . THE MATERIAL FACT THAT THERE WAS SUCH A CLAIM AS PER THE ASSESSEE S VERSION IS TO BE INFERRED FROM CONDUCT AND IS NOT REQUIRED TO BE DEMONSTRATED BY EVIDENCE IS A PLEA WHICH IN THE PRESENT SET OF FACTS CANNOT BE ACCEPTED. WHAT IS STOPPING THE ASSESSEE TO PLACE ON RECORD DESPITE MULTIPLE OPPORTUNITIES NECESSARILY MUST BE THAT THERE IS NO EVIDENCE EXCEPT THE SELF - SERVING EVIDENCE WHICH ON FACTS HAS R IGHTLY BEEN REJECTED . THE REFERENCE TO JUDGEMENT S THAT THE CLAIM HAS TO ALLOWED IN THE YEAR THE DISPUTE HAS CRYSTALLIZED IS ALSO MISPLACED AS THE EVIDENCE THAT THE SETTLEMENT TOOK PLACE IN THE YEAR UNDER CONSIDERATION ITSELF HAS BEEN DISBELIEVED THE ASSESSEE HAS FAILED TO CROSS THE FIRST THRESHOLD I.E. THE REQUIREMENT TO DEMONSTRATE THAT THERE WAS A DISPUTE. THE UNILATERALLY SIGN ING OF A PAPER DOES NOT CONVERT IT INTO AN AGREEMENT AS THERE IS NO REFERENCE THEREIN AS TO WHO PARTICIPATED IF AT ALL FOR M/S SUDHIR GENSETS . EVEN ORALLY LD. AR HAS STATED HIS INABILITY TO I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 16 OF 21 MAKE ANY STATEMENT THEREON. LD.AR WAS UNABLE TO ADDRESS THE ISSUE AND ALSO DID NOT EVEN ONCE STATE THAT HE MAY BE GIVEN TIME TO FIND OUT AND WAS CATEGORIC IN HIS STAND THAT THERE IS NO OTHER EVIDENCE AVAILABLE. THUS WHERE THE EVIDENCE THAT THERE WAS A DISPUTE AT ALL IS FO UN D WANTING THE A RGUMENT THAT THE DISPUTE WAS SETTLED UNILATERALLY BASED ON THE DOCUMENT CAN NOT BE BELIEV ED. I N THE E NTIRE FACTUAL GAMUT OF THE EVIDENCES AND PLEADINGS THE RELIANCE PLACED ON JUDGEMENTS THAT THE CLAIM HAS TO BE ALLOWED IN THE YEAR WHEN IT WAS CRYSTALLIZED IS MISPLACED. FOR SIMILAR REASONS, RELIANCE PLACED ON JUDGEMENTS FOR THE PROPOSITION THAT IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED FOR THE BUSINESS IS MISPLACED ON FACTS AS IT IS NOBODIES CASE THAT THE REVENUE CAN SUGGEST WHAT EXPENDITURE IS TO BE INCURRED. SIMILARLY IT IS NOBODIES CASE THAT THE REVENUE CAN DICTATE W HETHER THE DISCOUNT IS REASONABLE OR NECESSARY . IT IS FOR THE ASSESSEE TO CONCIDE AS PER ITS AGREEMENTS AND THE LAW IN FORCE. HOWEVER WHETHER ON FACTS, IT WAS DEMANDED OVER AND ABOVE THE NORMAL DISCOUNT AGREED TO AS PER AGREEMENTS THIS CLAIM IF MADE BY THE ASSESSEE HAS TO BE DEMONSTRATED BY SOME COGENT EVIDENCE. THE ARGUMENTS ADVANCED IS THAT THE PAYMENTS WERE WITHHELD ON THE SAID ASPECT THERE IS NO E V I D E N C E A N D THE CLAIM HAS BEEN REJECTED FOR WANT OF EVIDENCE. HOWEVER IF FOR MOMENT IT IS PRESUMED THAT THE ARGUMENT IS CORRECT IN SUCH AN EVEN TUALITY ALSO THE REASONS ON RECORD FOR WITHHOLDING SHOULD BE S U P P O R T E D BY SOME EVIDENCE. THIS LONG CHAIN OF INFERENCE WHICH THE LD. AR WANTS US TO DRAW IS TOO FAR - FETCHED AN INFERENCE W I T H O U T A N Y I N D E P E N D E N T E V I D E N C E WHICH THE ASSESSEE WOULD WANT TO PRESS FOR. IT IS FOR THE ASSESSEE TO KNOW THE ACTUAL FACTS WHICH FOR REASONS BEST KNOWN TO THE ASSESSEE HE DOES NOT WANT TO PLACE ON RECORD. IN THE PRESENT PROCEEDINGS WE ARE NOT REQUIRED TO ADDRESS THE REASONS WHY M/S SUDHIR GENSETS LTD. DOES NOT WANT TO COME FORWARD AND THE ASS ESSEE IS RELUCTANT TO PLACE ANY EVIDENCE FROM THE SO - CALLED AFFECTED PARTY . T HE ASSESSEE S RELUCTANCE TO ADDRESS THE SAME IS A MOTIVE WHICH WE DO NOT WANT TO CONJECTURE SUFFICE IT TO CONCLUDE THAT THE CLAIM HAS RIGHTLY BEEN REJECTED ON FACTS. 6. 6 . CONSID ERING THE ALTERNATE ARGUMENTS OF THE ASSESSEE WHEREIN THE LD.AR HAS CANVASSED THAT SINCE THE PAYMENTS WERE WITHHELD THE ASSESSEE COULD HAVE CLAIMED A S A BAD DEBT AND THE DEBIT NOTES PLACED ON RECORD AMOUNT TO I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 17 OF 21 THE WRITING OF THESE CLAIMS. THESE ARGUMENTS HAVE BEEN OPPOSED BY THE LD. SR. DR THAT NO SUCH CLAIM WAS MADE BEFORE THE AO AND NO R HAS IT BEEN RAISED BY WAY OF A GROUND AND HAVE ONLY COME AS AN AFTERTHOUGHT DESERVE TO BE ACCEPTED. SINCE THE SO CALLED DISPUTE ITSELF IS NOT ESTABLISHED BEFORE US WE FI ND THAT THE CLAIM PUT FORTH AS AN AFTHERTHOUGH HAS TO BE REJECTED AS THE EVIDENCE DOES NOT INSPIRE ANY CONFIDENCE. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS REJECTED. 8. ADDRESSING THE GROUNDS RAISED BY THE REVENUE, WHEREIN GROUND NO. - 1 & GROUND NO. - 5 ARE GENERAL IN NATURE. WE FIND THAT THE GROUNDS WHICH REQUIRE ADJUDICATION ARE GROUND NO - 2 TO 4 WHICH READ AS UNDER: - 01. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS & CONTRARY TO FACTS AND LAW. 02 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD, CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.6,71,415/ - MADE BY THE AO BY DISALLOWING THE ADDITIONAL DISCOUNT PAID. 2.1. THE LEARNED CIT (APPEALS) HAS IGNORED THE FACT THAT T HE ASSESSEE COULD NOT FILE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM DURING ASSESSMENT PROCEEDINGS. 03. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.27,28,194/ - MADE BY THE A O BY DISALLOWING THE DEDUCTION UNDER SECTION 80IB. 3.1. THE LD. CIT (A) IGNORED THE FACT THAT THE ASSESSEE COULD NOT FILE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM DURING ASSESSMENT PROCEEDINGS. 04. THE LD. CIT (A) HAS ERRED IN ACCEPTING AND RELYING OF THE ADDITIONAL EVIDENCES AS THE COMMENT OF THE AO IN THE REMAND REPORT ARE CONFIRMATORY IN NATURE AND NOT ACCEPTANCE OF THE ADDITIONAL EVIDENCES. 05. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. 9 . QUA GROUND NO.2 & 2.1 IS SEEN THAT THE AO MADE AN ADDITION OF RS.6,71,415/ - HOLDING THAT THE SAID AMOUNT PAID TO M/S CONTROLS & SWITCHGEARS LTD. IS NOT ASCERTAINED LIABILITY AND SINCE IT WAS A PROVISION WHICH WAS NEITHER PAID N OR CRYSTALL IZED, IT COULD NOT BE ADDED AS AN EXPENDITURE. THE AO HELD THAT DESPITE OPPORTUNITY FULL DETAILS WERE NOT MADE AVAILABLE BY THE ASSESSEE. RELIANCE WAS ALSO PLACED UPON SYSHAYEE PAPER & BOARDS LTD. VS. CIT {1998} 145 CTR MADRAS 498, 503. 9 .1. ASSAILING THE SAID ACTION IN APPEAL, THE ASSESSEE SUBMITTED THAT THE PROVISION FOR THE DISCOUNT WAS MADE DURING THE 2001 - 02 ASSESSMENT YEAR AND I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 18 OF 21 IT WAS CREDITED TO THE ACCOUNT OF M/S CONTROLS & SWITCHGEARS CO. LTD. AND THEREAFTER PAID TO THE PARTY. 9 .2. IT IS SEEN THAT THE SAID POSITION WAS ACCEPTED BY THE AO IN THE REMAND PROCEEDINGS AS PER PARA 1.4 OF THE CIT(A). CONSIDERING WHICH THE CIT(A) PROCEEDED TO DELETE THE ADDITION. THE RELEVANT EXTRACT FROM THE REMAND REPORT EXTRACTED IN THE IMPUGNED ORDER IS REPRODUCED HEREUNDER: - DURING THE COURSE OF ASSESSMENT, IT WAS NOTICED THAT THE ASSESSEE HAD MADE PROVISIONS OF RS.6,71,415/ - ON ACCOUNT OF ADDITIONAL DISCOUNT PAYABLE FOR THE YEAR 2001 - 02. THE PARTY M/S. CONTROLS & SWITCHGEARS CO. LTD. IS A SPECIFIED PER SON UNDER SECTION 40A (2)(B) OF THE ACT. DURING THE COURSE OF ASSESSMENT THE ASSESSEE DID NOT FILE ANY CONCRETE EVIDENCE OF PAYMENTS IF, MADE TO THE ASSESSEE OR NOT. THE ASSESSING OFFICER DISALLOWED THE SAME HOLDING THAT THIS WAS A MERE PROVISION AND NOT AN ASCERTAINED LIABILITY . DURING THE APPELLATE PROCEEDING THE ASSESSEE HAS SUBMITTED THAT THE PROVISION FOR DISCOUNT WAS MADE DURING THE YEAR 2001 - 02 AND CREDITED TO THE ACCOUNT OF M/S CONTROLS & SWICTHGEARS CO. LTD. AND THEREAFTER PAID TO THE PARTY. THE ASSESSEE HAS SUBMITTED THE COPY OF LEDGER ACCOUNT OF CONTROLS & SWITCHGEARS CO. LTD. WHICH SHOWS THAT THE AMOUNT CREDITED TO THE ACCOUNT OF THE PARTY AND THEREAFTER PAID. IN VIEW OF THE ABOVE, THE PAYMENT WAS MADE TO THE PARTY WHICH MAY BE CONSIDERED ACCORDINGLY BEFORE THE DECISION OF THE APPEAL. 9 . 3 . CONSIDERING THE SAID CLAIM, THE CIT(A ) DELETED THE ADDITION HOLDING AS UNDER: - 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT, THE FINDINGS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AS WELL AS IN THE REMAND REPORT AND THE FACTS ON RECORD. I FIND THAT THE ASSESSING OFFICER HAS, IN ALL FAIRNESS, ADMITTED IN THE REMAND REPORT THAT THE AMOUNT OF RS.6,71,415/ - ON ACCOUNT OF ADDITIONAL DISCOUNT PAYABLE FOR THE YEAR 2001 - 02 STANDS EXPLAINED AS THE IMPUGNED EXPENDITURE FIRSTLY HAS NOT BEEN DEBITED TO THE EXPENSE ACCOUNT IN THE YEAR ENDED 31ST MARCH 2003 AND FURTHER THE AMOUNT HAS BEEN PAID OFF IN THE YEAR ENDED 31ST MARCH 2003. UNDER THE CIRCUMSTANCES STATED ABOVE, THE ASS ESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.6,71,415/ - ON ACCOUNT OF ADDITIONAL DISCOUNT PAID TO M/S CONTROLS & SWITCHGEARS CO.LTD. AS A RESULT, GROUND OF APPEAL NO. 2 IS ALLOWED. 10 . AGGRIEVED BY THIS, THE REVENUE IN APPEAL BEFORE THE TRIBUN AL. 11 . SINCE THE ISSUE WAS GIVEN UP BY THE AO IN THE REMAND PROCEEDINGS THE LD. SR.DR ADDRESS E D BOTH THE ISSUES IN THE DEPARTMENTAL APPEAL TOGETHER. THUS, WE PROCEED TO ADDRESS THE NEXT ISSUE IN THE DEPARTMENTAL APPEAL. I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 19 OF 21 12. THE FACTS RELATABLE TO GROUND NO.3 AND 3.1 OF THE REVENUE. FOR READY - REFERENCE THEY ARE EXTRACTED HEREUNDER: - 03. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.27,28,194/ - MADE BY THE AO BY DISALLOWING THE DEDUCTION UNDER SECTION 80IB. 3.1. THE LD. CIT (A) IGNORED THE FACT THAT THE ASSESSEE COULD NOT FILE NECESSARY EVIDENCE IN SUPPORT OF ITS CLAIM DURING ASSESSMENT PROCEEDINGS. 13. CONSIDERING THE FACTS, THE AO CAME TO THE FOLLOWING CONCLUSION: - I HAVE C AREFULLY GONE THROUGH THE CONTENTS OF THE REPLY. ASSESSEE COY WAS INCORPORATED ON 28.02.1991. IT HAD APPLIED FOR REGISTRATION OF INDUSTRIAL UNDERTAKING FOR THE MANUFACTURE OF PROTECTION RELAYS AND THE SAME WAS GRANTED AS PER COPY OF CERTIFICATE DATED 13. 5.1991 FILED DURING THE COURSE OF HEARING. THE REGISTRATION WAS ALLOWED FOR THE PERIOD OF THREE YEARS SUBJECT TO THE CONDITIONS LAID DOWN IN THE ANNEXURE TO THE SAID LETTER. ASSESSEE HAS NOT FURNISHED THE COPY OF THAT ANNEXURE IN SPITE OF REPEATED REQUES TS. FURTHER THERE IS NO EVIDENCE WHETHER ASSESSEE GOT REGISTRATION FOR THE SUBSEQUENT PERIOD AS THE REGISTRATION WAS ONLY FOR THE PERIOD OF THREE YEARS. ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ELECTRICAL & ELECTRONIC GOODS NAMELY ALTERNATORS, PROTECTION RELAYS, CURRENT TRANSFORMER ETC. ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IBON THE PROFITS EARNING FROM THE MANUFACTURE AND SALES OF PROTECTION RELAYS. AS PER AUDIT REPORT ON FORM 10CCB, THE DEDUCTION U/S 80 IB HAS BEEN CLAIMED ON THE TOTAL PROFITS. THERE IS NO EVIDENCE FILED ON RECORD TO PROVE THAT THE OTHER ITEMS NAMELY ALTERNATORS AND CURRENT TRANSFORMERS, WHICH ARE BEING MANUFACTURED BY THE ASSESSEE COY. ARE ELIGIBLE ITEMS AND ARE COVERED IN THE SCHEDULE F OR CLAIMING DEDUCTION U/S 80IB OF THE ACT AND NECESSARY PERMISSION HAS BEEN GRANTED BY THE APPROPRIATE AUTHORITY. FURTHER, DURING THE YEAR, ASSESSEE, HAS TRANSFERRED RELAY DIVISION AND HAS CLAIMED A CAPITAL LOSS OF RS.5,18,773/ - AS PER CERTIFICATE U/S 50B OF THE ACT. SUB - SECTION 12 OF SECTION 80IB PROVIDES WHERE ANY UNDERTAKING OF AN INDIAN COMPANY WHICH ENTITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED, BEFORE THE EXPIRY OF THE PERIOD SPECIFIED IN THIS SECTION, TO ANOTHER INDIA COMPANY IN A SCH EME OF AMALGAMATION OR DEMERGER - A) NO DEDUCTIONS SHALL BE ADMISSIBLE UNDER THIS SECTION TO THE AMALGAMATING OR THE DEMERGED COMPANY FOR THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR THE DEMERGER TAKES PLACE : THE TRANSFER OF TINS UNIT WAS MADE ON 1.11 .2002 TO M/S. SEG & CONTROLS LTD A COMPANY UNDER THE SAME MANAGEMENT. SINCE THE ASSESSEE HAS FAILED TO COMPLY WITH THE PROVISIONS OF THE SUB - SECTION 12 OF SECTION 80IB OF THE ACT, ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 20 OF 21 14. AGGRIEVED BY THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) WHO ACCEPTED THE CLAIM OF THE ASSESSEE HOLDING AS UNDER: - 5. GROUND OF APPEAL NO.3 RELATES TO THE DISALLOWANCE OF DEDUCTION OF RS.27,28,194/ - UNDER SECTION 80IB OF THE ACT. THE RELEVANT PORTION OF THE REMAND REPORT ON THE ISSUE IS REPRODUCED BELOW: - 'DURING THE COURSE OF ASSESSMENT, IT WAS NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80IB @ 30% OF THE PROFIT RS.27,28,194/ - ON VERIFICATION OF THE CERTIFICATE ISSUED THE DEPARTMENT OF INDUSTRIAL DEVELOPMENT SECRETARIAT FOR INDUSTRIAL APP ROVALS THAT THE CERTIFICATE SO ISSUED WAS VALID FOR A PERIOD OF THREE YEARS FROM THE DATE OF ISSUE OF THE LETTER. THE LETTER FURTHER SAYS THAT IF, COMMERCIAL PRODUCTION IS NOT ESTABLISHED WITHIN THAT PERIOD THE COMPANY SHOULD APPLY FOR A FRESH REGISTRATION OR SUCH OTHER APPROVAL AS MAY BE REQUIRED UNDER THE POLICY PREVALENT AT THAT TIME. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80IB HOLDING THAT THE DEDUCTION WAS ALLOWABLE FOR THREE YEARS ONLY. THE ASSESSEE HAS SUBMITTED THAT THIS CERTIFICATE WAS ISSUED FOR THE PURPOSE THAT THE ASSESSEE MUST START PRODUCTION WITHIN THREE YEARS OF ITS DATE OF ISSUE. THE ASSESSEE COMPANY STARTED COMMERCIAL PRODUCTION OF ITS PRODUCTS ON 01.09.1993 WHICH IS WITHIN THE TIME LIMIT ALL OWED BY THE GOVERNMENT. HENCE, THE DEDUCTION UNDER SECTION 80LB IS ALLOWABLE TO THE ASSESSEE. IN SUPPORT OF ITS CLAIM THE ASSESSEE HAS SUBMITTED THE ASSESSMENT ORDER PASSED BY THE DCIT, SPECIAL RANGE - 28 FOR A. Y 1994 - 95. THE ALLOWABILITY OF THE DEDUCTION UNDER SECTION 80IB MAY BE CONSIDERED ACCORDINGLY. ' 5.1. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT, THE FINDINGS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AS WELL AS IN THE REMAND REPORT AND THE FACTS ON RECORD. I FIND THAT THE ASSESSING OFFICER HAS, IN ALL FAIRNESS, ADMITTED IN THE REMAND REPORT THAT THE DEDUCTION UNDER SECTION 80IB OF THE ACT IS ALLOWABLE TO THE ASSESSEE. UNDER THE CIRCUMSTANCES STATED ABOVE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE DEDUCT ION UNDER SECTION 80IB OF THE ACT IN ACCORDANCE WITH THE ALLOWABLE CLAIM OF THE APPELLANT. SUBJECT TO THE ABOVE REMARKS, GROUND OF APPEAL NO. 3 IS ALLOWED. 15. AGGRIEVED BY THIS ALSO , THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 16. THE LD. SR. DR, SH.B .R.R.KUMAR INVITING ATTENTION TO PARAS 4.1 & 4.2 QUA THE FIRST ISSUE (REPRODUCED IN THE EARLIER PART OF THIS ORDER) AND PARAS 5 & 5.1 QUA THE SECOND ISSUE (ALSO REPRODUCED IN THE EARLIER PART OF THIS ORDER) SUBMITTED THAT THE RELIEF HAS BEEN GRANTED CONSI DERING THE REMAND REPORT OF THE AO . ACCORDINGLY HE STATED THAT HE HAD NOTHING FURTHER TO STATE . THE LD. SR. DR WAS REQUIRED TO ADDRESS THE BENCH AS WHERE T HE CLAIM HAS BEEN GIVEN UP BY THE AO IN THE REMAND REPORT ITSELF HOW AND WHY THE GROUNDS HAVE BEEN RAISED IN THE PRESENT PROCEEDINGS BY THE REVENUE. THE LD. SR. DR INITIALLY EXPRESSED HIS INABI LITY TO ADDRESS THE POSITION. HOWEVER ADDRESSING I.T.A .NO. - 5581 & 5826/DEL/2010 PAGE 21 OF 21 THAT WHY COSTS SHOULD NOT BE IMPOSED UPON THE AO WHO MOVED THE GROUNDS AND THE CONCERNED AUTHORITY WHO APPRO VED THE GROUNDS RAISED BECAUSE ADMITTEDLY THE CLAIM HAS BEEN GIVEN BY THE AO HIMSELF THEN WHAT IS THE PURPOSE OF WASTING THE VALUABLE TIME OF THE CONCERNED OFFICERS AND THIS JUDICIAL FORUM TO ADDRESS THE ISSUES WHERE THE AO HAD NO GRIEVANCE. THE LD. SR. DR CANDIDLY STATED THAT HAD THERE BEEN TIME, HE WOULD HAVE ADVISED THE REVENUE TO WITHDRAW THE GROUNDS AND SINCE THE APPEAL HAD CAME UP FOR HEARING AND HAD BEEN ASSIGNED TO HIM , HE HAS FAIRLY HIMSELF REFERRED TO THE FACTS ON RECORD WHERE THE CLAIM HAD BEEN GIVEN U P IN THE REMAND PROCEEDINGS. IN THE FACE OF NO ARGUMENTS ON BEHALF OF THE REVENUE, THE LD. AR RELIED UPON THE IMPUGNED ORDER. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD IN VIEW OF THE ISSUE S HAVING BEEN GIVEN UP BY THE AO HIMSELF AND IN THE ABSENCE OF ANY INCORRECTNESS POINTED OUT BY THE REVENUE IN THE CONCLUSIONS ARRIVED AT ON BOTH THESE ISSUES, WE DECLINE TO INTERFERE IN THE FINDING AND DISMISS THE APPEAL OF THE REVENUE ON BOTH THE GROUND NO.2 AND 3. 18. NO O THER ARGUMENT WAS ADVANCED BY THE REVENUE ON ANY OTHER ISSUE. 19. IN THE RESULT, THE APPEAL S OF THE ASSESSEE AND THE REVENUE ARE DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 6 T H OF AUGUST , 2015. S D / - S D / - ( N.K.SAINI ) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 6 /0 8 /2015 * AMIT KUMAR * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI