The ACIT(OSD)., Circle-5, Ahmedabad V. Parikh Enterprises Ltd., Ahmedabad

ITA 636/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85508 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-05-2017
• Assessment Year: 1993-1994
• Appeal Filed On: 28-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: J M SHAH
• Keywords: Business income; Business expenditure; Bad and doubtful debts

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV , JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ./ ITA NO. 636 /AHD/ 201 1 [ [ / ASSESSMENT YEAR: 1993 - 94 ACIT (OSD), CIRCLE - 5, AHMEDABAD VS PARIKH ENTERPRISES PVT LTD., 442, GIDC., ODHAV, NEW WATER TANK, AHMEDABAD PAN : AAACP 9275 D / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI DINESH SINGH, SR. DR . ASSESSEE(S) BY : SHRI J.M. SHAH, AR / DATE OF HEARING : 05 / 01 /201 5 / DATE OF PRONOUNCEMENT: 16 / 01 /201 5 / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - XI, AHMEDABAD DATED 22.12.2010 FOR ASSESSMENT YEAR 1993 - 94. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER: - 1. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.13,17, 3 00/ - ON ACCOUNT OF BAD DEBTS, IGNORING THE FACTS THAT FACTS OF THE CASE ARE DIFFERENT FROM THE FACTS IN THE CASE OF TRF LTD. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIME D BAD DEBT S OF RS.13,17,300/ - ON ACCOUNT OF AMOUNT RECEIVABLE FROM SHRI NAGINDAS CHANDULAL SHAH, ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 2 - MANEKCHOWK, AHMEDBAAD WHO WAS A S HARE B ROKER AND MEMBER OF AHMEDABAD STOCK EXCHANGE. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE VIDE ITS LETTER D ATED 31.01.1996 EXPLAINED THAT THE SAID SHARE BROKER FROM WHOM THE AMOUNT WAS DUE TO THE ASSESSEE WAS DECLARED A DEFAULTER BY AHMEDABAD STOCK EXCHANGE. AS ON 13.11.1992, A SUM OF RS.13,17,300/ - WAS RECEIVABLE FROM THE SAID SHARE BROKER. THE ASSESSEE AL SO STATED BEFORE THE ASSESSING OFFICER THAT THE AHMEDABAD STOCK EXCHANGE REQUIRED THE BROKERS WHO WERE TO RECEIVE THE MONEY DUE FROM SHRI NAGINDAS CHANDULAL SHAH TO LODGE A CLAIM WITH THEM. ACCORDINGLY, THE ASSESSEE VIDE LETTER DATED 27.11.1992 LODGED A CL AIM FOR RS.14,14,187 .50 INCLUDING INTEREST ON THIS SUM DUE FROM THE SAID BROKER. THE ASSESSEE ALSO RECEIVED IN THE FINANCIAL YEAR 1993 - 94 AN INTERIM INSTALLMENT OF RS.10,000/ - IN RESPECT OF DIVIDEND WHICH THE ASSESSEE HAD SHOWN AS INCOME IN ASSESSMENT YEAR 1994 - 95. THEREAFTER, IN SEPTEMBER 1994, THE ASSESSEE RECEIVED RS.12, 2 5,18 7 / - BY CHEQUE FROM AHMEDABAD STOCK EXCHANGE. FURTHER, AN AMOUNT OF RS.6 LACS WAS ALSO RECEIVED BY THE ASSESSEE BY CHEQUE FROM SHRI NAGINDAS CHANDULAL SHAH DIRECTLY IN THE MONTH OF MA RCH 1995 AND THE TOTAL AMOUNT OF RS.18,25,187 / - WAS SHOWN AS INCOME IN ASSESSMENT YEAR 1995 - 96 AND TAXES WERE PAID DURING THAT YEAR. IN THIS BACKGROUND OF THE CASE, THE ASSESSING OFFICER OBSERVED THAT THE LIABILITY TO BE DISCHARGED BY SHRI NAGINDAS CHANDUL AL SHAH WAS TO BE DISCHARGED BY THE AHMEDABAD STOCK EXCHANGE. THEREFORE, IT IMPLIES THAT BY ASSESSEE S LODGING THE CLAIM WITH THE AHMEDABAD STOCK EXCHANGE, THE S TOCK EXCHANGE STEPPED INTO THE SHOES OF ASSESSEES DEBTOR. THE ASSESSEE HAD NOT FURNISHED ANY EVIDENCE TO SHOW THAT THE AHMEDABAD STOCK EXCHANGE WAS NOT LIKELY TO ENTERTAIN THE ASSESSEES CLAIM LODGED WITH IT OR EVEN A COMMUNICATION WHICH CAN REMOTELY SUGGEST THAT THE CLAIM WAS TO BE ENTERTAINED ONLY IN PART. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE CREDITWORTHINESS AND SINCERITY OF THE AHMEDABAD STOCK EXCHANGE ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 3 - TO SETTLE THE CLAIM S OF DEFAULTER MEMBER WAS NEVER IN DOUBT. IN SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT THERE WAS NO POSSIBILITY OF REALIZATION OF THE DEBT OR EVEN A PART OF THE DEB T IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSING OFFICER HELD THAT IN SUCH CIRCUMSTANCES HOW A COMMERCIALLY PRUDENT BUSINESS MAN CAN ARRIVE AT A REASONABLE CONCLUSION AFTER MAKING BONAFIDE ASSESSMENT OF THE POSSIBILITY OF REALIZATION OF THE DEB T AND SAY THAT THE ENTIRE AMOUNT DUE FROM THE SAID BROKER HAS BECOME BAD. HE HELD THAT IN THE CASE OF THE ASSESSEE THE IS SUE INVOLVED IS ESSENTIALLY A QUESTION OF FACT AND NOT THAT OF LAW. 4. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAS CL AIMED THAT IT W AS DOING SHARE DEALING BUSINESS, THE INCOME OF WHICH WAS TAXABLE AS BUSINESS INCOME. FROM THE CLAIM LODGED BY THE ASSESSEE BEFORE THE AHMEDABAD STOCK EXCHANGE, IT IS SEEN THAT DEBT WAS RELATING TO THE TRANSACTIONS CARRIED OUT FOR THE CURRE NT YEAR. THE TRANSACTIONS WHICH THE ASSESSEE CARRIED OUT FOR THE CURRENT YEAR WERE IN THE NATURE OF BADLA FINANCE AND NOT PURCHASE AND SALE OF SHARES AMOUNTING TO DEALING IN SHARES. HE NOTED THAT FROM THE PROFIT AND LOSS ACCOUNT, IT IS SEEN THAT WHAT THE A SSESSEE HAS INCLUDED IN THE INCOME IS NOT THE SALE PROCEEDS OF THE SHARES, BUT ONLY A SUM OF RS.1,86,365/ - WHICH REPRESENTED THE BADLA INTEREST. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY SHARE BUSINESS AS SUCH, THE A MOUNT OF RS.13,17,300/ - WHICH BASICALLY REPRESENTS THE COST OF 600 SHARES OF TISCO GIVEN BY THE ASSESSEE TO THE SAID BROKER FOR BADLA TRANSACTION DOES NOT REPRESENT THE AMOUNT WHICH IS INCLUDED IN COMPUTING THE INCOME OF THE ASSESSEE EITHER FOR CURRENT YEA R OR IN THE EARLIER ASSESSMENT YEAR. HE, THEREFORE, HELD THAT THE 600 SHARES OF TISCO GIVEN BY THE ASSESSEE TO SHARE BROKER FOR BADLA TRANSACTION CANNOT BE TREATED TO REPRESENT THE MONEY LENT IN THE COURSE OF MONEY LENDING BUSINESS. ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 4 - THEREFORE, HE HELD THA T THE RELEVANT AMOUNT DOES NOT REPRESENT A DEBT WHICH CAN BE CONSIDERED FOR ALLOWING AS DEDUCTION AS THE CONDITIONS OF SECTION 36(2) ARE NOT FULFILLED. ACCORDINGLY, HE DISALLOWED THE DEDUCTION OF RS.13,17,300/ - . 5. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE . 6. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER, WHEREAS THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS O F THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES. DURING THE YEAR, THE ASSESSEE DELIVERED 600 SHARES OF TISCO TO A BROKER NAMELY SHRI NAGINDAS C HANDULAL SHAH IN A BADLA TRANSACTION AND EARNED BADLA INTEREST OF RS.1,86,365/ - . FURTHER, IT IS ALSO NOT IN DISPUTE THAT THE BADLA INTEREST OF RS.1,86,365/ - WAS ASSESSED AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE. IT IS ALSO AN ADMITTED FACT THAT THE SAID BROKER NAMELY SHRI NAGINDAS CHANDULAL SHAH WAS DECLARED AS A DEFAULTER BY THE AHMEDABAD STOCK EXCHANGE. THE ASSESSEE WAS TO RECEIVE RS.13,17,300/ - FROM THE SAID BROKER. THE AHMEDABAD STOCK EXCHANGE REQUIRED THE ASSESSEE TO LODGE A CLAIM BEFORE IT IN RESPECT OF THE AMOUNT RECEIVABLE FROM THE SAID SHARE BROKER AND ALSO PAID AN INTERIM AMOUNT OF RS.10,000/ - TO THE ASSESSEE. IN THE ABOVE BACKGROUND, THE ASSESSEE CLAIMED BALANCE AMOUNT OF RS.13,17,300/ - RECEIVABLE FROM THE SAID BROKER AS BAD DEBT. THE ASS ESSING OFFICER OBSERVED THAT THE ASSESSEE RECEIVED SUBSEQUENTLY RS.12,25,187/ - IN SEPTEMBER 1994 AND RS.6,00,000/ - IN MARCH 1995 AND THE ASSESSEE OFFERED THE SAID AMOUNT AS ITS INCOME IN THE YEAR OF RECEIPT IN WHICH ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 5 - IT WAS DULY ASSESSED AS INCOME OF THE AS SESSEE. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT AS THE ASSESSEE HAS LODGED A CLAIM BEFORE THE AHMEDABAD STOCK EXCHANGE AND THEREFORE, THIS AMOUNT CANNOT BE CLAIMED AS BAD DEBT DURING THE YEAR. THE ASSESSING OFFICER WAS ALSO OF THE VIEW THAT AS ONLY RS.1,86,365/ - WAS CREDITED IN THE PROFIT AND LOSS ACCOUNT IN RESPECT OF THE TRANSACTION IN QUESTION AND THEREFORE, THE ENTIRE AMOUNT CANNOT BE TREATED AS ALLOWABLE BAD DEBT. 8. ON APPEAL, CIT(A) DELETED THE ABOVE DISALLOWANCE BY OBSERVING AS UNDER: - 2.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. APPELLANT HAS BEEN ABLE TO DEMONSTRATE THAT IT WAS PURCHASING AND SELLING SHARES THROUGH THE STOCK - BROKER AND THAT INCOME FROM TRADING IN SHARES WAS BEING REFLECTED IN THE EARLIER YEARS. THUS IT SATISFIED THE REQUIREMENT OF SEC. 36(2). IN VIEW OF THE RECENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD., REPORTED AT 323 ITR 397, IT IS ENOUGH IF THE DEBT IS WRITTEN OFF AS BAD IN THE BOOKS. THE A.O. IS DIRECTED TO DELETE THE DISALLOWANCE MADE HIM OF RS.13,17,300/ - ON ACCOUNT OF BAD - DEBTS. THIS GROUND OF APPEAL IS ALLOWED. 9. BEFORE US, THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSES SING OFFICER AND THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 10. WE FIND THAT NO MATERIAL COULD BE BROUGHT BEFORE US TO SHOW THAT THE AHMEDABAD STOCK EXCHANGE HAS GIVEN ANY ASSURANCE TO MEET THE ENTIRE DEBT TO THE ASS ESSEE WHICH WAS RECEIVABLE BY THE ASSESSEE FROM SHRI NAGINDAS CHANDULAL SHAH WHO WAS DECLARED AS DEFAULTER BY THE STOCK EXCHANGE. THUS, IN OUR CONSIDERED VIEW, AS THE BROKER FROM WHOM THE DEBT WAS RECEIVABLE HAS IN FACT BECOME BAD DURING THE YEAR UNDER CON SIDERATION AND THE ASSESSEE HAD NOT ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 6 - ACQUIRED ANY LEGAL RIGHT TO RECEIVE THE SAME DEBT FROM AHMEDABAD STOCK EXCHANGE. IN OUR VIEW, MERELY LODGING OF A CLAIM DOES NOT GIVE RISE TO A LEGAL RIGHT IN FAVOUR OF THE ASSESSEE. 11. FURTHER, IN OUR CONSIDERED VIE W, AFTER ASSESSING BADLA INTEREST AS BUSINESS INCOME OF THE ASSESSEE, IT WAS NOT OPEN TO THE ASSESSING OFFICER TO ALLEGE ON THE SAME BREATH THAT THE TRANSACTIONS OF GIVING SHARES IN THE BADLA TRANSACTION WAS NOT A BUSINESS OF THE ASSESSEE. FURTHER, IN SUCH A TRANSACTION, AS PER THE SYSTEM OF ACCOUNTING, SIMPLY BECAUSE NET BADLA INTEREST WAS CREDITED IN THE PROFIT AND LOSS ACCOUNT, IT CANNOT BE HELD THAT THE ENTIRE SALE VALUE OF THE S HARES WAS NOT TAKEN INTO CONSIDERATION FOR COMPUTING THE INCOME OF THE ASSE SSEE. MOREOVER, WE FIND THAT IT IS AN ADMITTED FACT THAT THE AMOUNT IN QUESTION WHEN RECEIVED IN THE SUBSEQUENT YEAR BY THE ASSESSEE, THE SAME WAS ASSESSED TO TAX BY THE REVENUE IN THE HANDS OF THE ASSESSEE IN THE YEAR OF RECEIPT. IN THE ABOVE FACTS, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) WHICH IS HEREBY CONFIRMED AND THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 12 . GROUND NO. 2 OF THE APPEAL READS AS UNDER: - 2. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.3,32,034/ - ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES. 13 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT FROM THE TAX AUDIT REPORT, IT IS SEEN THAT THE COMPANY HAS INCURRED A SUM OF RS.5,42,694/ - AS EXPENDITURE ON FOREIGN TRAVELLING. OUT OF THE TOTAL EXPENDITURE, A SUM OF RS.43,704/ - BEING THE FARE IN RESPECT OF ARPAN P. PARIKH AND ARPANA P. PARIKH, CHILDREN OF DIRECTORS, WAS DISALLOWED WHILE COMPUTING THE TOTAL INCOME, ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 7 - CONS IDERING THE SAME AS PERSONAL EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS ONLY DISALLOWED THE FARE AND NOT OTHER EXPENSES PROPORTIONATELY. THE ASSESSING OFFICER OBSERVED THAT THE FARE IN RESPECT OF WIFE AS WELL AS PROPORTION OF OTHER EXPENSES WAS REQUIRED TO BE DISALLOWED AND COMPUTED SUCH AMOUNT AT RS.3,32,034/ - AND REQUIRED TO EXPLAIN THE ASSESSEE WHY THE SAME SHOULD NOT BE DONE. THE ASSESSING OFFICER OBSERVED THAT NO SPECIFIC PURPOSE FOR TAKING ALONG WITH HIM, HIS WIFE AND CHILDREN WAS SPECIFIED. HE, THEREFORE, HELD THAT IT CAN BE INFERRED THAT THEY WERE TAKEN ON FOREIGN TOUR SO THAT THE EXTRA TIME APART FROM THE BUSINESS MEETINGS COULD BE UTILIZED FOR ENJOYMENT, SHOPPING AND SITE SEEING. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE HAS MADE SUBMISSIONS THAT THE FOREIGN TRAVELLING EXPENSES INCURRED BY THE COMPANY IN RESPECT OF SMT. ARCHANA P. PARIKH, BEING DIRECTOR, SHOULD BE ALLOWED AS THEY WERE INCURRED FOR THE PURPOSE OF BUSINESS EXPEDIENCY. THE ASSESSING OFFICER OBSERVE D THAT NO EXPLANATION OR EVIDENCE TO SHOW ANY BUSINESS EXPEDIENCY REQUIRING THE FOREIGN TRAVEL BY SMT. ARCHANA P. PARIKH HAS BEEN FURNISHED BY THE ASSESSEE IN ITS VARIOUS SUBMISSIONS ON THIS ISSUE. HE ALSO OBSERVED THAT THE DISALLOWANCE OTHER THAN FARE HAD TO BE WORKED OUT ON PROPORTIONATE BASIS AS THE ASSESSEE HAD NOT FURNISHED DETAILS OF EXPENSES OF WIFE AND CHILDREN. ACCORDINGLY, HE DISALLOWED RS.3,32,034/ - . 14 . ON APPEAL, THE CIT(A) ALLOWED THE DEDUCTION TO THE ASSESSEE . 1 5 . THE DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER, WHEREAS THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 1 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 8 - CASE, THE ASSESSING OFFICER DISALLOWED RS.3,32,034/ - OUT OF FOREIGN TRAVELLING EXPENSES CLAIMED OF RS. RS.5,42,694/ - . THE ASSESSEE INCURRED TOTAL FOREIGN TRAVELLING EXPENSES OF RS.5,42,694/ - AND OUT OF THE SAME , TREATED RS.43,704 / - AS NOT ALLOWABLE BEING FARE OF CHILDREN OF DIRECTORS AND CLAIMED THE BALANCE AMOUNT OF RS.4,98,990/ - AS BUSINESS EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER, THE EXPENSES OF THE ASSESSEES WIFE WAS ALSO NON - BUSINESS EXPENDITURE. FURTHER, THE ASSESSE E HAS DISALLOWED ONLY FARE EXPENSES OF CHILDREN AND NOT DISALLOWED OTHER EXPENSES RELATING TO CHILDREN WHICH OUGHT TO HAVE BEEN DISALLOWED IN ABSENCE OF COMPLETE DETAILS ; HE TREATED RS.3,32,034/ - AS RELATING TO TICKET OF WIFE AND OTHER EXPENSES OF WIFE AND TWO CHILDREN AND DISALLOWED THE SAME. 17 . ON APPEAL, THE CIT(A) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: - 3.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT O RDER. AS CONTENDED BY THE LEARNED A.R., THERE IS SUBSTANTIAL INCREASE IN THE EXPORT TURNOVER FROM 0.26 CRORES IN THE IMMEDIATELY PRECEDING YEAR TO RS.1.37 CRORES IN THE YEAR UNDER CONSIDERATION. IN VIEW OF THIS AND THE OTHER CONTENTIONS OF THE A.R., I AM O F THE VIEW THAT THE IMPUGNED EXPENSES WERE FOR BUSINESS PURPOSE. ACCORDINGLY DISALLOWANCE OF RS.3,32,034/ - IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 1 8 . WE FIND THAT IT IS NOT IN DISPUTE THAT THE WIFE OF THE ASSESSEE IS ALSO A DIRECTOR OF THE ASSESS EE - COMPANY. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE EXPENDITURE OF WIFE OF THE DIRECTOR WHO IS ALSO A DIRECTOR AND LOOKS AFTER THE BUSINESS OF THE ASSES SEE - COMPANY WAS FOR THE PURPOSE OF BUSINESS. WE FIND THAT NO MATERIAL WAS BROUGHT ON RECORD BY T HE REVENUE TO CONTROVERT THE ABOVE SUBMISSIONS OF THE ASSESSEE. FURTHER, IT IS OBSERVED THAT THE CIT(A) DELETED THE ENTIRE DISALLOWANCE BY OBSERVING INCREASE IN ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 9 - EXPORT TURNOVER OF THE ASSESSEE - COMPANY WITHOUT BRING ON RECORD ANY MATERIAL TO SHOW HOW THE EXPENDITURE OF CHILDREN OF THE DIRECTORS WERE FOR BUSINESS PURPOSES OF THE COMPANY. NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT THE CHILDREN WERE ENGAGED IN THE BUSINESS OF THE ASSESSEE - COMPANY OR THERE WAS ANY AGREEMENT BETWEEN THE COMPANY AND THE CHILDREN. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING PROPORTIONATE EXPENSES OF CHILDREN RELATING TO OTHER EXPENSES WHEN THE TICKET EXPENSE OF CHILDREN WAS CONSIDERED BY THE ASSESSEE ITSELF AS NO T RELATING TO BUSINESS AND THEREFORE, THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE SAME. CONSIDERING THE ENTIRE FACTS AND ABSENCE OF DETAILS OF EXPENSES, IN OUR OPINION, IT SHALL BE FAIR AND REASONABLE TO ESTIMATE THE OTHER EXPENSES WHICH WERE INCURRED BEC AUSE OF CHILDREN AT RS.1,50,000/ - . WE, THEREFORE, MODIFY THE ORDER OF THE CIT(A) TO THE ABOVE EXTENT AND DIRECT THE ASSESSING OFFICER TO DISALLOW RS.1,50,000/ - OUT OF FOREIGN TRAVELLING EXPENSES CLAIMED BY THE ASSESSEE. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS PARTLY ALLOWED. 1 9 . GROUND NO. 3 OF THE APPEAL READS AS UNDER: - 3. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE AO TO RESTRICT THE DEDUCTION CLAIMED U/S 80I BY EXCLUDING THE AMOUNT OF DUTY DRAW BACK RE CEIVED FOR COMPUTATION OF THE DEDUCTION UNDER SECTION 80I. 20 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80 - I IN RESPECT OF PROFITS OF PIGMENT DIVISION. THE AMOUNT OF RS.8,97,195/ - BEIN G 25% OF THE PROFIT OF THAT DIVISION WAS DIRECTLY REDUCED FROM THE PROFIT OF RS.35,88,781/ - OF PIGMENT DIVISION AND IN THE COMPUTATION OF TOTAL INCOME, ONLY THE NET PROFIT WAS INCLUDED. HE EXAMINED THE SALARY AND ATTENDANTS REGISTER MAINTAINED AT THE FACT ORY OF THE ASSESSEE DURING ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 10 - THE COURSE OF ASSESSMENT PROCEEDINGS AND OBSERVED THAT IN PIGMENT DIVISION TWO SUPERVISORS AND 8 WORKERS WERE EMPLOYED. HE FURTHER OBSERVED THAT FROM DECEMBER 1992 TO MARCH 1993, ONE MORE WORKER WAS EMPLOYED AND THERE WERE 9 WORK ERS APART FROM SUPERVISORS WORKING IN THE PIGMENT DIVISION. AS PER LETTER DATED 23.02 . 1996, THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY THE CLAIM FOR DEDUCTION U/S 80 - I SHOULD NOT DISALLOWED AS THE CONDITION REFERRED TO IN SECTION 80 - I(2)(IV) IS NOT SATISFIED. AFTER CONSIDERING THE REPLY IN RESPONSE TO THE AFORESAID SHOW - CAUSE NOTICE AND BEING NOT SATISFIED WITH THE SAME, THE ASSESSING OFFICER DISALLOWED THE ASSESSEES CLAIM OF DEDUCTION U/S 80 - I AMOUNTING TO RS. 8,97,195/ - , BY OBSERVING AS UNDER: - 6.3 ANOTHER ARGUMENT OF THE ASSESSEE ON THIS ISSUE IS THAT THE INDUSTRIAL UNDERTAKING HAS ALSO ABOUT 15 TO 2O WORKERS OF CONTRACTORS, AND CLAIMED THAT THE CONTRACTORS WORKERS SHOULD BE TREATED AS WORKERS OF INDUSTRIAL UNDERTAKING FOR THIS PURPOSE. IN SUPPO RT OF THIS, IT HAS RELIED UPON THE DECISION OF I.T.A.T., AHMEDABAD IN THE CASE OF PRITHVIRAJ BHOORCHAND 47 ITD 361. IN REGARD TO THIS, IT MAY BE STATED THAT THE HONBLE I.T.A.T. IS A FACT FINDING AUTHORITY AND THE DECISIONS ARE TO BE APPLIED ONLY TO THAT PARTICULAR CASE. THESE DECISIONS CANNOT BE APPLIED TO ALL OTHER CASES IN THE FORM OF RATIO LAID DOWN BY HIGH COURT OR SUPREME COURT. WITHOUT PREJUDICE TO THIS, IT MAY BE MENTIONED THAT THE WORD EMPLOYED USED IN THE CLAUSE (IV) AS ABOVE, CANNOT BE IGNORE D FOR THE PURPOSE OF ANALYSIS OF THE SAID CONDITION. THE USE OF THIS WORD CONTEMPLATES THE EXISTENCE OF RELATIONSHIP BETWEEN THE MASTER AND SERVANT OR THAT OF EMPLOYER AND EMPLOYEE. THE CONCEPT OF EMPLOYMENT INVOLVES 3 INGREDIENTS (I) EMPLOYER, (II) EMPLOY EE, (III) CONTRACT OF EMPLOYMENT. THIS TEST IS UNIVERSALLY APPLIED IN ORDER TO DETERMINE THE RELATIONSHIP OF EMPLOYER AND EMPLOYEE. THE INGREDIENTS OF CONTRACT OR SERVICES ARE (I) MASTERS POWER IN SELECTING A SERVANT (II) THE PAYMENT OF WAGES OR OTHER REM UNERATION (III) MASTERS RIGHT TO CONTROL THE METHOD OF DOING THE WORK AND (IV) MASTERS RIGHT TO DISMISS OR DISCHARGE THE EMPLOYEE. THE LAST TWO OF THEM ARE IN THE NATURE OF DECISIVE ELEMENTS TO FIND OUT THE RELATIONSHIP OF EMPLOYER AND EMPLOYEE. SUCH EMP LOYER - EMPLOYEE RELATIONSHIP OF INDUSTRIAL ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 11 - UNDERTAKING CANNOT EXIST WITH REGARD TO CONTRACTORS EMPLOYEES, BECAUSE THE RIGHT TO DISMISS THE EMPLOYEE AND THE CONTROL OVER THE EMPLOYEE IS THAT OF CONTRACTOR AND NOT THAT OF ASSESSEE. ACCORDINGLY, IN VIEW OF TH E USE OF WORD EMPLOYEE IN CLAUSE (IV), THE CONTRACTORS EMPLOYEE CANNOT BE CONSIDERED TO BE THE WORKERS EMPLOYED BY THE ASSESSEE FOR THE PURPOSE OF CONDITION IN THAT CLAUSE. IN VIEW OF THIS, IT IS HELD THAT THE INDUSTRIAL UNDERTAKING OF PIGMENT DIVISION OF THE ASSESSEE DOES NOT FULFILL THE CONDITION AT CLAUSE (IV) OF SECTION 80 - I(2) AND THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80 - I IN REGARD TO PROFITS OF PIGMENT DIVISION AS CLAIMED. 21 . ON APPEAL, THE CIT(A) HELD AS UNDER: - 4.2 THE DED UCTION U/S 80I WAS CLAIMED BY THE APPELLANT ON THE PIGMENT DIVISION. DUTY DRAW BACK RECEIVED BY THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION U/S 80I, AS IT CANNOT BE SAID TO BE DERIVED FROM THE BUSINESS. AS REGARDS OTHER THREE ITEMS, NO INTERFERENCE WITH THE CLAIM MADE IS CALLED FOR, KEEPING IN VIEW THE CONTENTIONS OF THE APPELLANT. A.O. IS DIRECTED TO RESTRICT THE DEDUCTION CLAIMED BY EXCLUDING THE AMOUNT OF DUTY DRAW BACK RECEIVED (WHICH IS CLAIMED TO BE RS.2,53,710/ - ). THIS GROUND OF APPEAL IS PARTLY A LLOWED. 22 . THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER, WHEREAS THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 23 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE L OWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN THE INSTANT CASE, THE ASSESSING O F F ICER DISALLOWED THE CLAIM MADE BY THE ASSESSING U/S 80I ON THE GROUND THAT THE CONDITIONS SPECIFIED IN SECTION 80I(I)(IV) WERE NOT FULFILLED. THE CIT(A) DELETED THE DISALLOWANCE WITHOUT RECORDING ANY SPECIFIC FINDING ON THE ABOVE ISSUE. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE THIS ISSUE BACK TO THE FILE OF THE CIT(A) FOR ADJUDICATING THE ISSUE AFRESH BY PASSING A SPEAKING ORDER ON THIS ISSUE AFTER ITA NO. 636 /AHD/20 1 1 ACIT VS. PARIKH ENTERPRISES PVT LTD - AY 1993 - 94 - 12 - ALLOWING BOTH THE PARTIES REASONABLE OPPORTUNITY OF HEARING. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 24 . IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON FRIDAY , THE 16 TH OF JANUARY , 201 5 AT AHMEDABAD. SD/ - SD/ - ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 16 / 01 /201 5 * BIJU T , PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A ) - XI, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. [ / GUARD FILE . / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD