TRIBHOVANDAS BHIMJI ZAVERI, MUMBAI V. ACIT 14(1), MUMBAI

ITA 6480/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49344 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 16-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 17-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: DR K SHIVRAM
• Keywords: Rejection of books of accounts; Depreciation; Additional evidence; Cost of acquisition; Revised return
• Section: 80IB; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.6447/MUM/2009(A.Y. 2006-07) THE ADDL. CIT, RG.14(1), 201, 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI 21. (APPELLANT) VS. TRIBHOVANDAS BHIMJI ZAVERI, 241-43, ZAVERI BAZAR, MUMBAI 400 002, PAN: AAAFT0950A (RESPONDENT) ITA NO.6480/MUM/2009(A.Y. 2006-07) TRIBHOVANDAS BHIMJI ZAVERI, 241-43, ZAVERI BAZAR, MUMBAI 400 002, PAN: AAAFT0950A (APPELLANT) VS. THE ADDL. CIT, RG.14(1), 201, 2 ND FLOOR, EARNEST HOUSE, NARIMAN POINT, MUMBAI 21. (RESPONDENT) ASSESSEE BY : DR. K. SHIVRAM REVENUE BY : SHRI V.V.SHASTRI ORDER PER N.V.VASUDEVAN, J.M ITA NO.6447/M/09 IS AN APPEAL BY THE REVENUE WHILE ITA NO.6480/M/09 IS AN APPEAL BY THE ASSESSEE. BOTH TH ESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 22/9/2009 OF CIT(A ) XXV, MUMBAI RELATING TO ASSESSMENT YEAR 2006-07. ITA NO.6447/M/09- REVENUES APPEAL:- 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS: ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DIRECTING THE AO, TO ALLOW THE DEDUCTION U/S. 80 IB OF THE ACT IN RESPECT OF THE PROFIT OF HYDERABAD UNIT WITHOUT APPRECIATING THE FACT THAT THE BRANCH HAS NOT CARRIED OUT ANY MANUFACTURI NG ACTIVITY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION U/S. 80 IB OF T HE ACT IN RESPECT OF THE PROFIT OF HYDERABAD UNIT WITHOUT APPRECIATING T HE FACT THAT THE BRANCH IS NOT AN INDUSTRIAL UNDERTAKING. 3. WITHOUT PREJUDICE , NOT APPRECIATING THAT EVEN I F IT IS TREATED AS AN INDUSTRIAL UNDERTAKING, THE PROFIT OF THE HYDERABAD BRANCH SHOWN EXCEPTIONALLY HIGH I.E. GROSS PROFIT AND NET PROFIT IS HIGH AS COMPARED TO ITS MUMBAI BRANCHS GROSS PROFIT AND NET PROFIT IN ORDER TO CLAIM HIGHER DEDUCTION U/S. 80 IB. 3. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF MANUFACTURING AND TRADING OF GOLD, DIAMONDS AND PLA TINUM JEWELLERY. THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80 IB OF THE IN COME TAX ACT, 1961 (THE ACT) OF RS. 1,00,31,186/- BEING 25% OF THE PROFITS OF HYDERABAD BRANCH ( RS.4,08,58,938 BEING PROFIT OF HYDERABAD BRANCH AS PER P&L LESS RS.6,78,696(DEPRECIATION)AND RS. 55,500(DONATION) = RS. 4,01,24,744/-]. THIS DEDUCTION WAS DISALLOWED BY THE DEPARTMENT FRO M A.Y. 2002-03 TO A.Y 2005-06 ON THE GROUND THAT HYDERABAD UNIT IS ONLY A TRADING BRANCH AND NOT A NEW INDUSTRIAL UNDERTAKING. THE CIT(A) AND I TAT HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FROM A.Y. 2002-03 T O 2004-05 AND APPEAL FOR A.Y 2005-06 WAS PENDING. ACCORDING TO THE AO, THE DEPARTMENT HAS NOT ACCEPTED THE ORDERS OF CIT(A)/ITAT AND APPEALS BEFO RE HIGH COURT/ITAT HAVE BEEN FILED BY THE DEPARTMENT, WHICH ARE PENDING. T HE AO THEREAFTER HELD THAT THERE WAS NO PLANT AND MACHINERY OR WORKERS IN THE HYDERABAD BRANCH FOR MANUFACTURING THE JEWELLERY AND EVEN AT HEAD OF FICE AT ZAVERI BAZAR, MUMBAI. THE AO ALSO HELD THAT THE ASSESSEE GETS IT S JEWELLERY MADE BY A LARGE NUMBER OF KARIGARS APPROXIMATELY 100 TO 150 I N NUMBERS, FOR WHICH THE DESIGNS ARE GIVEN BY THE ASSESSEE AND AFTER THA T KARIGARS MAKE JEWELLERY AT THEIR OWN PREMISES, SPREAD ACROSS VARIOUS LOCATI ONS, WHERE NO SUPERVISION ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 3 OF MANUFACTURING ACTIVITIES IS FEASIBLE OR CARRIED OUT BY THE ASSESSEE. ONLY WHEN THE KARIGARS BRING BACK THE JEWELLERY MADE, TH E ASSESSEE APPROVES AND ACCEPTS IT AFTER COMPARING IT WITH THE DESIGN. THE AO THEREFORE HELD THAT THERE ARE NO MANUFACTURING ACTIVITIES. THE AO ALSO HELD THAT THERE WAS COMPLETE INTERLACING OF FUNDS, CONTROL AND MANAGEME NT BETWEEN THE HEAD OFFICE AT ZAVERI BAZAR AND BRANCH OFFICE AT HYDERAB AD. THE FUNDS ARE TRANSFERRED FROM HEAD OFFICE AND VARIOUS EXPENSES W HICH ARE VITAL FOR THE SURVIVAL OF THE HYDERABAD UNIT ARE ALSO INCURRED AT HEAD OFFICE. REGULAR VISITS OF THE PERSONNEL FROM HEAD OFFICE ARE UNDERT AKING TO HYDERABAD AND TO SAY THAT HYDERABAD UNIT IS AN INDEPENDENT NEW UNDER TAKING IS NOT CORRECT. THE AO HELD THAT THE HYDERABAD UNIT WAS EXPANSION OR RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE AND IT FAILS TO M ET THE BASIC CONDITION OF SECTION 80IB(2). THE ASSESSEE FAILS TO MEET ANY O F THE REQUIREMENT OF SEC. 80 IB I.E. (A) IT IS NOT AN INDUSTRIAL UNDERTAKING. (B) IT IS NOT ENGAGED IN THE MANUFACTURING / PRODU CTION OF ANY ARTICLE OR THINGS. (C) IT IS NOT AN INDEPENDENT UNIT BUT AN EXTENSION /EXPANSION OF THE BUSINESS ALREADY IN EXISTENCE. (D) THERE WAS NO MANUFACTURING DONE EVEN IN HEAD O FFICE AT ZAVERI BAZAR. (E) THERE WAS NO PLANT & MACHINERY OR WORKERS IN H YDERABAD BRANCH OR ZAVERI BAZAR, MUMBAI OR IN ANY OTHER BRANCH FOR MAN UFACTURING OF JEWELLERY. (E) THERE WAS COMPLETE INTERLACING OF FUNDS, CONTR OL AND MANAGEMENT BETWEEN HYDERABAD BRANCH AND ZAVERI BAZAR HEAD OFFI CE. THE AO THEREFORE HELD THAT THE PROFITS OF HYDERABAD BRANCH CANNOT BE SAID TO HAVE BEEN DERIVED FROM INDUSTRIAL UNDERTAKING AN D THE DEDUCTION U/S. 80 IB IS NOT ADMISSIBLE TO THE ASSESSEE. 4. WITHOUT PREJUDICE TO THE ABOVE, THE AO ALSO HELD THAT IN CASE THE ASSESSEE IS FOUND TO BE ELIGIBLE FOR DEDUCTION U/S. 80-IB OF THE ACT, ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 4 ASSESSEES WORKING OF PROFITS DERIVED FROM HYDERAB AD BRANCH IS NOT CORRECT AS SEVERAL EXPENSES PERTAINING TO BRANCHES HAVE NOT BEEN ALLOCATED TO THE HYDERBAD BRANCH LEADING TO INFLATED PROFIT OF THE H YDERABAD BRANCH. THE AO THEREAFTER TABULATED THE SALES AND THE EXPENSES INC URRED IN THE VARIOUS BRANCHES AS FOLLOWS: BRANCH HEAD OFFICE HYDERABAD BORIVALI GHATKOPAR TOT AL SALES IN CRORE 93,07,90,248 61,08,65,249 55,11,06,1 94 30,98,03,130 2,40,25,64,821 NET PROFIT IN CRORES BEFORE DEPRECIATION (-)4,68,09,470 4,08,58,938 2,20,87,139 72,36,606 LIABILITY/LOAN IN THE NAME OF HEAD OFFICE IN THE BALANCE SHEET. 14,91,98,010 13,86,89,772 14,03,92,479 THE INTERES T COST OF THESE FUNDS IS INCURRED ONLY IN HEAD OFFICE EXPENDITURE = (BEFORE DEPRECIATION) SALES- NET PROFIT. 97,75,99,718 57,00,06,311 52,90,19,055 30,25,66,525 DEPRECIATION 29,65,239 6,78,686 8,64,105 4,91,239 TOTAL EXPENDITURE INCLUDING DEPRECIATION 98,05,64,957 57,06,84,997 52,98,83,160 30,30,57,764 2,38,41,90,878 RATIO OF EXPENDITURE/ SALES 1.05 0.93 0.96 0.99 RATIO OF GREATER THAN ONE FOR HO ESTABLISHES THE FACT THAT THE ALLOCATION OF EXPENSES TO BRANCHES HAS NOT BEEN DONE PROPERLY. 5. ACCORDING TO THE AO, THE LOSS IN THE HEAD OFFICE WAS BECAUSE OF SEVERAL COMMON EXPENSES IN HEAD OFFICE NOT HAVING BEEN ALLO CATED TO BRANCHES. ACCORDING TO THE AO, THE FOLLOWING EXPENSES SHOWN I N HEAD OFFICE OUGHT TO HAVE BEEN ALLOCATED TO THE VARIOUS BRANCHES: SR. NO. DESCRIPTION AMOUNT 1. PARTNERS REMUNERATION 2,24,99,181 2. PARTNERS INTEREST 1,81,80,170 3. OTHER INTEREST 33,41,438 4. EXHIBITION EXPENSES 31,25,659 ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 5 5. FOREIGN TRAVELING 15,07,611 6. TRAVELLING EXPENSES 4,91,250 7. ADVERTISEMENT 1,21,95,921 8. HALL MARKING CHARGES 24,38,217 9. BANK CHARGES AND INTEREST 1,07,37,933 10. MELTING REFINING TESTING ETC. 1,50,392 TOTAL 7,46,67,772 ACCORDING TO THE AO, THE ABOVE LIST WAS ILLUSTRATIV E AND NOT EXHAUSTIVE. THE AO ALSO HELD THAT EVEN THE INTEREST COST IN HEAD OF FICE AND PARTNERS REMUNERATION HAS NOT BEEN ALLOCATED TO BRANCHES. T HE ASSESSEE REITERATED ITS STAND THAT ITS ALLOCATION OF EXPENSES AMONGST T HE VARIOUS BRANCHES WAS PROPER. ACCORDING TO THE AO THE SAME WAS NOT CORRE CT. THE AO, THEREFORE, REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S. 145(3). HE THEREAFTER ALLOCATED EXPENSES IN THE RATIO OF SALES TO ARRIVE AT THE PROFIT OF EACH BRANCH AS UNDER. BRANCH HEAD OFFICE HYDERABAD BORIVALI GHATKOPAR TOT AL SALES IN CRORE 93,07,90,248 61,08,65,249 55,11,06,1 94 30,98,03,130 2,40,25,64,821 A RATIO OF SALES BRANCH TO TOAL SALES B 0.39 0.25 0.23 0.13 ALLOCATIOR OF , TOTAL EXPENDITURE [RS. 2,38,41,90,878/- ] IN THE RATIO B 92,98,34,442 59,60,47,720 54,83,63,902 30,99,44,814 REWORKED PROFIT (SALES ALLOCATED EXPENDITURE) 9,55,806 1,48,17,529 27,42,292 1,41,684 THE AO THEREFORE HELD THAT WITHOUT PREJUDICE TO THE FINDING IN THIS ORDER THAT HYDERABAD BRANCH IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IB, AND IF IT IS HELD THAT THE HYDERABAD BRANCH IS ELIGIBLE FOR DEDUCTION U/S. 80 IB, EVEN THEN THE ALLOWABLE DEDUCTION WOULD BE ONLY 25% OF [1,48,17,5 29 55,500] I.E. RS. 36,90,507 AND NOT RS. 1,00,31,186/-. ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 6 6. BEFORE CIT(A) THE ASSESSEE POINTED OUT THAT IN RESPECT OF THE REJECTION OF CLAIM FOR DEDUCTION UNDER SECTION 80 IB OF THE I NCOME TAX ACT, 1961(THE ACT) ON THE GROUND THAT THE ASSESSEE IS NOT ENGAGED IN MANUFACTURING ACTIVITY AND THAT IT IS NOT AN INDEPENDENT NEW UNIT , THE TRIBUNAL HAS IN ASSESSEES OWN CASE IN A.Y 2002-03, WHICH IS THE FI RST YEAR OF CLAIM OF DEDUCTION UNDER SECTION 80 IB OF THE ACT IN RESPECT OF HYDERABAD UNIT, IN ITA NO.8316/M/03 BY ITS ORDER DATED 13/6/2007 ALREADY A LLOWED THE CLAIM FOR DEDUCTION. IT WAS ALSO POINTED OUT THAT THE SAID ORDER HAS BEEN FOLLOWED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT Y EAR 2003-04 AND 2004- 05. ON THE ISSUE OF NON-ALLOCATION OF EXPENSES WHI LE ARRIVING AT THE PROFITS OF THE HYDERABAD UNIT AND CONSEQUENT REJECTION OF THE BOOKS OF ACCOUNTS OF THE HYDERABAD UNIT, THE ASSESSEE POINTED OUT THOSE EXPE NSES ARE EXCLUSIVELY RELATED TO HO, ONLY. THE HYDERABAD UNIT IS AN INDE PENDENT UNIT HAVING THE TURNOVER OF RS.61 CRORES AND HAS ALSO INCURRED VARI OUS EXPENSES UNDER VARIOUS HEADS TO THE TUNE OF RS. 3.10 CRORES WHICH ARE NECESSARY FOR RUNNING OF THE SAID UNIT/BRANCH. UNDER THESE CIRCUMSTANCES , THERE IS NO QUESTION OF FURTHER ALLOCATING ANY EXPENSES WHICH ARE INCURRED AT HEAD OFFICE EXCEPT THE EXPENSE OF INTEREST WHICH HAS BEEN ALLOCATED BY THE ASSESSEE ITSELF TO THE SAID BRANCH TO THE EXTENT OF RS.41 LAKHS. THE ASSE SSEE POINTED OUT THAT THE LIST OF EXPENSES SHOWN BY THE AO IN PARAGRAPH 8 OF THE ORDER OF ASSESSMENT ALSO SHOWS THE ADVERTISEMENT EXPENSES OF RS.1.22 CR ORES FOR ALLOCATION, WITHOUT APPRECIATING THE FACT THAT HYDERABAD BRANCH ITSELF HAS INCURRED ADVERTISEMENT EXPENSES OF RS.25.28 LAKHS. SIMILARL Y THE ASSESSEE POINTED OUT THAT THE WORKING PARTNERS STAY IN MUMBAI ONLY I .E. HO AND THEREFORE THEY WORK IN MUMBAI ONLY. THERE IS HARDLY ANY TIME WHICH IS DEVOTED FOR THE BRANCHES BY THEM SINCE ALL THE BRANCHES ARE INDEPEN DENT ESTABLISHMENTS AND THEY INCUR THEIR EXPENSES FOR RUNNING THE SAID BRANCH. THE ASSESEE POINTED OUT THAT THERE WAS A BRANCH MANAGER UNDER W HOSE SUPERINTENDENCE THE BRANCH RUNS AND WHO IS RESPONSIBLE FOR THE CONC ERNED BRANCH AND IS ALSO ACCOUNTABLE. UNDER THESE CIRCUMSTANCES, THE ASSESS EE SUBMITTED THAT THERE ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 7 WAS NO REASON TO PICK UP SOME HIGH EXPENSES INCURRE D AT HO AND HOLD THAT THESE EXPENSES SHOULD HAVE BEEN ALLOCATED TO THE BR ANCHES. 7. APART FROM THE ABOVE THE ASSESSEE ALSO POINTED O UT THAT THE EXPENSES DETAILED BY THE ASSESSING OFFICER IN THE ORDER OF A SSESSMENT CANNOT BE ALLOCATED TO THE HYDERABAD UNIT FOR THE FOLLOWING R EASONS : S.NO. EXPENSES AMOUNT RS. EXPLANATION 1. 2. PARTNERS REMUNERATION PARTNERS INTEREST 2,24,99,181 1,81,80,170 DETAILED SUBMISSIONS HAVE BEEN GIVEN ON PAGE 7 AND 8 OF EARLIER SUBMISSION DTD. 5/9/2009. FURTHER THE HO IS 160 YEARS OLD ESTABLISHMENT. THEREFORE, ITS INVESTMENT IS IN VARIOUS ASSETS. AND THE CAPITAL OF THE PARTNERS IS ACCO RDINGLY INVESTED IN THE HO ASSETS ONLY. THEREFORE NO PART OF INTEREST PAID TO PARTNERS CAN BE ALLOCATED TO BRANCH. 3&9 OTHER INTEREST BANK CHARGES AND INTEREST 33,41,438 1,07,37,933 HYDERABAD UNIT ITSELF SHOWS DEBIT OF RS.57,96,008 TO THIS ACCOUNT WHICH INCLUDES THE INTEREST ON CC A/C. AND GOLD LOAN ACCOUNT ALLOCATED TO THE SAID BRANCH ON THE BASIS OF THE UTILIZATION OF FUNDS BY THE BRANCH. THUS ALLOCATION HAS BEEN ALREADY MADE. 4. EXHIBITION EXPENSES 31,25,659 EXPENSES ALREADY ALLOCATED TO HYDERABAD BRANCH RS.5,54,013. 5. FOREIGN TRAVELING EXPENSES 15,07,611 THESE ARE INCURRED BY THE PARTNERS WHO ARE SITTING AT THE HO AS WELL AS STAFF MEMBERS OF HO. UNDER THESE CIRCUMSTANCES THERE IS NO QUESTION OF ANY ALLOCATION. 6. TRAVELING EXPENSES 4,91,250 AS AGAINST DEBIT OF RS.4,91,250 IN HO A /C. , THE BRANCH ITSELF HAS SHOWN TRAVELING EXPENSES OF 11,05,000. THEREFORE, ALSO THE QUESTION OF ALLOCATION DOES NOT ARISE. 7. ADVERTISEMENT 1,21,95,921 THESE EXPENSES WHEN INCURRED ON ALL INDIA LEVEL ADVERTISEMENT IS GIVEN, IS ALLOCATED TO ALL THE BRANCHES. HOWEVER, THE EXPENSES INCURRED FOR REGIONS ARE PAID AND DEBITED BY THE RESPECTIVE BRANCH IN THEIR ACCOUNTS ONLY. THUS, THIS BRANCH HAS SHOWN ADVERTISEMENT EXPENSES OF RS.25,27,503 WHICH INCLUDES THE ALLOCATED PORTION. 9. BANK CHARGES & INTEREST 1,07,37,933 COVERED ABOVE AT SR. NO.3 8&10 HALL MARKING CHARGES MELTING REFINING TESTING ETC. 24,38,217 1,50,392 THESE EXPENSES ARE ALSO ALLOCATED IN THE SENSE THAT WHILE REIMBURSEMENT OF THE MAKING CHARGES TO THE HO MAKING CHARGES PER UNIT ARE FIXED BY HO AT A FIGURE AFTER CONSIDERING THE HALL MAKING CHARGES AND MELTING CHARGES. THUS THEY ARE INCLUDED IN THE SAME. FOR THE BRANCHES THESE ARE INCLUDED IN THE PURCHASE PRICE ONLY AND HENCE NOT SEPARATELY REFLECTED. ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 8 8. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS MAD E BY THE ASSESSEE HELD AS FOLLOWS: 10.6 ON CONSIDERING BOTH THE REASONS GIVEN BY THE AO IN HIS ORDER AND THE ARGUMENTS ADVANCED BY THE APPELLANT IN THE ABOVE SUBMISSIONS, THE FACTS WHICH ARE EMERGING ARE THAT IN THE FIRST INSTANCE THE AO HAS DISALLOWED THE CLAIM OF DEDUCTI ON U/S. 80IB ON THE GROUND THAT THE DEPARTMENT HAS NOT ACCEPTED THE ORDER OF THE CIT(A)/ ITAT FOR AYS 2002-03 TO 2004-05 AND APPEAL FOR A.Y 2005-06 IS PENDING AND THE DEPARTMENT HAS FILED APPEALS BEF ORE THE HC/ITAT WHICH ARE PENDING. HE HAS ALSO OBSERVED THAT RELIA NCE PLACED ON THE DECISION OF PENWALT INDIA LTD. IS DISTINGUISHABLE O N THE FACTS AS DISCUSSED IN DETAIL IN THE ASSESSMENT ORDER FOR A.Y 2005-06 AND THE CONTROVERSY HAS BEEN SETTLED BY THE APEX COURT IN T HE CASE OF M/S. STERLING FOOD LTD. AND PANDIAN CHEMICALS. ADMITTED LY AND EVIDENTLY, MERELY ON THE GROUND THAT THE DECISIONS OF HONBLE ITAT AND CIT(A) HAVE NOT BEEN ACCEPTED BY THE DEPARTMENT, THE DISAL LOWANCE OF THE CLAIM OF DEDUCTION U/S. 80IB CANNOT BE SUSTAINED, M ORE SO WHEN THE FACTS AND CIRCUMSTANCES FOR THE YEAR UNDER APPEAL A RE NOT ESTABLISHED TO BE DISTINCT AND DISTINGUISHABLE TO THE FACTS AND CIRCUMSTANCES ON THE BASIS OF WHICH EARLIER YEARS APPEALS WERE DEC IDED IN FAVOUR OF THE APPELLANT. FURTHER, I ALSO FIND THAT THE REFERENCE MADE TO THE ASSESSMENT ORDER FOR A.Y 2005-06 STATING THAT DISC USSIONS IN DETAILS MADE BY HOLDING THAT THE DECISION OF PENWALT INDIA LTD. IS NOT APPLICABLE TO THE FACTS OF APPELLANTS CASE, AS ON NOW STANDS HAVING NO RELEVANCE AS MY LD. PREDECESSOR HAS DECIDED THIS IS SUE IN FAVOUR OF THE APPELLANT BY FOLLOWING THE HONBLE ITATS ORDER IN THE CASE OF APPELLANT ITSELF FOR THE EARLIER YEARS. MOREOVER, THE RELIAN CE PLACED ON THE APEX COURTS TWO DECISIONS BY THE AO CLAIMED HAVING SETT LED THE ISSUE ARE ALSO HAVING FOUND DISTINGUISHABLE AND NOT APPLICABL E TO THE APPEALLNTS FACTS AS IN THESE TWO CASES THE LIMITED ISSUES WERE IMPORT ENTITLEMENT BEING ELIGIBLE FOR DEDUCTION AND INTEREST FROM DEPO SITS ETC. AND NOT THAT THE INDUSTRIAL UNIT HAVING ESTABLISHED AND ADM ITTED TO BE INTO THE MANUFACTURING ACTIVITY AS IN THE CASE OF THE APPELL ANT. THEREFORE, THE DENIAL OF DEDUCTION ON THESE GROUNDS BY THE AO IS N OT JUSTIFIED. HENCE, RESPECTIVELY FOLLOWING THE DECISION OF HONB LE ITAT FOR EARLIER YEARS AND OF MY LD. PREDECESSOR FOR A.Y. 2005-06, T HE AO IS DIRECTED TO ALLOW THE CLAIM OF DEDUCTION U/S. 80 IB OF IT ACT T O THE ASSESSEE FOR THE YEAR UNDER APPEAL AS WELL. ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 9 10.7 FURTHER OBSERVATIONS MADE BY THE AO STATING T HAT IN HYDERABAD UNIT, THERE IS NO PLANT AND MACHINERY OR WORKERS FO R MANUFACTURING THE JEWELLERY AND COMPLETE INTERLACING OF FUNDS, CO NTROL AND MANAGEMENT BETWEEN THE HEAD OFFICE AND BRANCH AT HY DERABAD AND HOLDING ON THIS BASIS THAT THE ASSESSEE FAILED TO M EET THE REQUIREMENT OF 80 IB HENCE THE DEDUCTION IS DENIED ON THIS GROU ND AS WELL, IS ALSO NOT HAVING ANY JUSTIFICATION IN VIEW OF THE SUBMISS IONS MADE BY THE APPELLANT STATING THAT THE HYDERABAD UNIT BEING AN INDEPENDENT MANUFACTURING UNIT HAVING BEEN ESTABLISHED SINCE A. Y. 2002-03 AND HAVING ITS OWN PLANTS AND MACHINERY AND WORKERS ETC . AND THE APPELLANT HAVING NEVER ADMITTED THAT THERE IS NO PL ANT AND MACHINERY AND NO WORKERS WHEREAS AS PER THE ORDER SHEET ENTRY , THE AR OF THE APPELLANT WHO WAS HAVING NO KNOWLEDGE ABOUT THE HYD ERABAD UNIT AS THE ACCOUNTS OF HYDERABAD UNIT ARE AUDITED AND MAIN TAINED BY THE SEPARATE AUDITORS. THEREFORE, MERELY TAKING A SIGN ATURE IN THE ORDER SHEET ENTRY DOES NOT EMPOWER THE AO IN IGNORING THE FACTS FROM THE ACCOUNTS AND STATEMENT OF ACCOUNT FURNISHED ALONG W ITH THE RETURN OF INCOME. ADMITTEDLY, MACHINERIES AS EXPLAINED IN T HE ABOVE SUBMISSIONS ARE FOUND REFLECTED IN THE BALANCE SHEE T I.E. IN THE BLOCK OF ASSETS AND ALSO WAGE SAND SALARIES ARE PAID AND DEBITED IN P&L A/C. THE AO HAS, THUS, NOT BROUGHT ON RECORD ANY MATERIA L EVIDENCE ESTABLISHING THE FACT AND THE APPELLANT IS NOT HAVI NG ANY MACHINERY AND NOT ENGAGED ANY WORKERS IN THE HYDERABAD UNIT A ND MERELY ON THE BASIS OF ORDER SHEET ENTRY CONCLUDED THAT THE REQUI REMENTS OF SECTION 80 IB ARE NOT FULFILLED. IT IS ALSO A FACT THAT TH ESE REQUIREMENTS ARE THE PRIMARY REQUIREMENTS WHICH AT THE BEGINNING OF THE YEAR ARE REQUIRED TO BE FULFILLED. IN THE CASE OF THE APPELLANT, SIN CE THE HONBLE ITAT AND THE THEN CIT(A) HAVING FOUND THAT ALL THE CONDITION S FULFILLED FOR CLAIMING DEDUCTION U/S. 80IB HAVE THUS ALLOWED THE APPEALS IN ITS FAVOUR UPTO THE A.Y 2005-06. THEREFORE, THIS OBSER VATION OF THE AO IS ALSO HAVING NO JUSTIFICATION CANNOT BE SUSTAINED. 10.8 THE ALTERNATE OBSERVATION OF THE AO THAT THE ASSESSEES WORKING OF DEDUCTION U/S. 80IB IS ALSO NOT CORRECT AND IF T HE CORRECT ALLOCATION IS MADE, THE ALLOWABLE DEDUCTION WOULD BE AT RS. 36 ,90,507/- HAS ALSO BEEN CLAIMED BY THE APPELLANT IN THE ABOVE SUBMISSI ONS AS ERRONEOUS AND FACTUALLY NOT CORRECT. TO THIS EXTENT, THE APP ELLANT HAS POINTED OUT THAT THE EXPENSES ON ACCOUNT OF OTHER EXPENSES, BAN K CHARGES AND INTEREST ETC. TO THE EXTENT OF RS. 57,96,008/- IS P ERTAINING TO HYDERABAD UNIT AND IS CLAIMED IN THE P&L ACCOUNT. SIMILARLY, EXHIBITION EXP. AND TRAVELING EXPENSES AND ADVERTIS EMENT EXPENSES TO THE EXTENT OF RS. 5,54,013/-, RS.11,05,000/- AND RS . 25,27,503/- RESPECTIVELY ARE INCLUDED AND CLAIMED IN HYDERABAD UNIT AND FOR THE PARTNERS REMUNERATION AND INTEREST, THE REASON FOR NOT INCLUDING THE SAME IS STATED TO BE THAT BECAUSE THE HEAD OFFICE B EING 160 YEARS OLD ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 10 ESTABLISHMENT AND ALL THE INVESTMENT OF PARTNERS AN D CAPITAL OF THE PARTNERS INVESTED IN HEAD OFFICE ASSETS ONLY, AND NO PART OF INTEREST PAID TO PARTNERS IS ALLOCABLE TO BRANCH AND FOR THE HALLMARKING CHARGES, MELTING REFINING TESTING ETC. ARE MET WHEN THE REIMBURSEMENT OF MAKING CHARGES TO HEAD OFFICE ARE MADE. THEREFO RE I FIND THE CONSIDERABLE FORCE IN THESE CONTENTIONS OF THE APPE LLANT AND ALSO FIND THAT THE SAME ARE FACTUALLY CORRECT. IN VIEW OF THESE FACTS, AND EXPLANATIONS GIVEN BY THE APPELLANT WHICH ARE FOUND TO BE REASONABLE AND ACCEPTABLE, THE RE-ALLOCATION MADE BY THE AO BY IGNORING THESE FACTS IS ALSO HELD TO BE NOT JUSTIFIED. THEREFORE, THE ENTIRE DEDUCTION CLAIMED BY THE APPELLANT U/S. 80 IB IS HELD TO BE E LIGIBLE DEDUCTION. THIS GROUND, THEREFORE, IS DECIDED IN FAVOUR OF THE APPELLANT. 9. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. C OUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A). THE LD. D.R REI TERATED THE STAND OF THE ASSESSING OFFICER AS REFLECTED IN THE ORDER OF ASSE SSMENT. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSION. AS FA R AS THE REFUSAL OF THE CLAIM FOR DEDUCTION UNDER SECTION 80 IB ON THE GROU ND THAT THE ASSESSEE WAS NOT ENGAGED IN MANUFACTURING ACTIVITIES WE FIND THA T THE TRIBUNAL IN ASSESSMENT YEAR 2002-03(SUPRA) HAS ALREADY HELD AS FOLLOWS: 11. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOT H SIDES, MATERIAL ON RECORD AND ORDERS OF AUTHORITIES BELOW. ADMITTE DLY, ASSESSEE HAS ESTABLISHED A NEW UNIT AT HYDERABAD. THE ASSESSEE IS IN THE BUSINESS OF JEWELLERY MANUFACTURING. THE PATTERN AND DESIGN S OF JEWELLERY CHANGE IN ACCORDANCE WITH THE CUSTOMERS CHOICES IN DIFFERENT REGIONS. THE ASSESSEES UNIT SITUATED AT HYDERABAD IS ACCORD INGLY GETTING ITS MANUFACTURING OF JEWELLERY AT MUMBAI UNDER THE SUPE RVISION AND CONTROL OF ITS EMPLOYEES THROUGH THE HELP OF MUMBAI OFFICE. THUS, MERE INVOLVEMENT OF MUMBAI OFFICE CANNOT BE SO DOMI NANT SO AS TO IGNORE THE ACTUAL NATURE OF OPERATIONS CARRIED ON B Y THE HYDERABAD UNIT. IT IS ALSO NOT IN DISPUTE THAT ASSESSEES U NIT IS MAINTAINING SEPARATE BOOKS OF ACCOUNT AND IT IS A PART OF THE SAME ASSESSEE, HENCE, INTERNAL ENTRIES MADE IN THE BOOKS OF ACCOUN T OF HEAD OFFICE AND THIS UNIT CANNOT OVER SHADOW THE NATURE OF OPER ATIONS. WE ALSO ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 11 FIND THAT THE FACTS OF THE CASE ARE IDENTICAL TO TH E FACTS OF PENWALT INDIA LTD.(SUPRA), HENCE, THE RATIO OF THE DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THAT CASE IS BINDING O N US. IT IS FURTHER NOTED THAT ALL OTHER CONDITIONS HAVE BEEN SATISFIED AND PARTICULARLY, THE ARTISANS ARE EXTERNAL PARTIES. IN VIEW OF THE MATTER, WE HOLD THAT ASSESSEE IS ENTITLED TO THE DEDUCTION U/S. 80 IB OF THE ACT IN RESPECT OF ITS HYDERABAD UNIT. ACCORDINGLY, THE ORDER OF LEAR NED CIT(A) IS CONFIRMED. WE FURTHER HELD THAT THE ALTERNATE CON TENTION REGARDING GROSS PROFIT AND NET PROFIT SHOWN BY THE HYDERABAD UNIT IS ALSO NOT MAINTAINABLE BECAUSE IT DOES NOT EMERGE FROM THE OR DERS OF THE REVENUE AUTHORITIES AND IT WILL REQUIRE FRESH INVES TIGATION INTO THE FACTS. THUS, THIS GROUND OF THE REVENUE ALSO FAILS . IN FACT THE AFORESAID ORDER HAS BEEN FOLLOWED IN AS SESSEES OWN CASE IN A.Y.2003-04 IN ITA NO.6624/M/05 AND A.Y 2004-05 IN ITA NO.4317/M/06. IT HAS ALSO BEEN MENTIONED BY THE LD. COUNSEL FOR T HE ASSESSEE THAT REVENUES APPEAL TO THE HONBLE HIGH COURT HAS ALSO BEEN DISM ISSED. IN VIEW OF THE ABOVE WE DO NOT FIND ANY MERITS IN THE GRIEVANCE PR OJECTED BY THE REVENUE IN THIS REGARD. 12. AS FAR AS NON-ALLOCATION OF COMMON EXPENSES IN ARRIVING AT THE PROFITS OF THE HYDERABAD UNIT AND THE CONSEQUENT REJECTION OF BOOKS OF ACCOUNTS BY THE ASSESSING OFFICER, WE FIND THAT A SIMILAR STAND WAS SOUGHT TO BE TAKEN BY THE REVENUE IN A.Y 2002-03 BEFORE THE TRIBUNAL BUT WAS REJECTED BY THE TRIBUNAL FOR THE REASON THAT THE ASSESSING OFFICER DID NOT MAKE OUT SUCH A CASE IN THE ORDER OF ASSESSMENT. AS FAR AS THE CAS E MADE BY THE ASSESSING OFFICER IN THE PRESENT ASSESSMENT YEAR IS CONCERNED , WE FIND THAT THE ASSESSEE HAS GIVEN PROPER EXPLANATION WITH REGARD T O NON-ALLOCATION OF EACH OF THE EXPENSES POINTED OUT BY THE AO IN THE ORDER OF ASSESSMENT, WHILE ARRIVING AT THE PROFITS OF THE HYDERABAD UNIT. BEF ORE US NO FACTS HAVE BEEN BROUGHT TO OUR NOTICE TO SHOW AS TO HOW THE CLAIM M ADE BY THE ASSESSEE CANNOT BE ACCEPTED. WE FIND THAT THE ASSESSING OFF ICER HAS MADE THE ALLOCATION BASED ON TURNOVER IGNORING THE NATURE OF EXPENSES AND ITS NEXUS WITH THE HYDERABAD UNIT. IN OUR VIEW THE CIT(A) HA S FOUND THAT THE CLAIM ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 12 MADE BY THE ASSESSEE IS FACTUALLY CORRECT. WE ARE ALSO SATISFIED WITH THE EXPLANATION PROVIDED BY THE ASSESSEE WITH REGARD TO NON-ALLOCATION OF DISPUTED EXPENSES WHILE ARRIVING AT THE PROFITS OF THE HYDERABAD UNIT. WE, THEREFORE, CONFIRM THE ORDER OF CIT(A) ON THIS ISSU E ALSO. 13. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. ITA NO.6480/M/09-ASSESSEES APPEAL:- 14. GROUND NO.1 RAISED BY THE ASSESSEE READS AS FOL LOWS: 1. DISALLOWANCE OF TELEPHONE EXPENSES RS.1,76,953 /- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LOWER AUTHORITIES ERRED IN NOT RESTRICTING THE DISALLOWAN CE OF TELEPHONE EXPENSES AT RS. 61,580/- AS PER THE PAST PRACTICE O F SEVERAL YEARS. 15. THE ASSESSEE HAD CLAIMED TELEPHONE EXPENSES OF RS. 14,18,103/-. THE BREAK-UP OF THE EXPENSES IN THE VARIOUS BRANCHES OF THE ASSESSEE WERE AS FOLLOWS:- S.NO. BRANCH EXPENDITURE DISALLOWANCE BY ASSESSEE FOR PERSONAL USE 1 ZAVERI BAZAR 9,53,331 2,38,333 2 HYDERABAD 2,79,061 NIL 3 BORIVALI 1,75,099 NIL 4 GHATKOPAR 1,06,132 NIL 14,18,103 2,38,333 16. AS CAN BE SEEN FROM THE ABOVE CHART THE ASSESSE E ON ITS OWN DISALLOWED 25% OF RS.9,53,331/- BEING EXPENSES INCU RRED IN THE ZAVERI BAZZAR BRANCH AT MUMBAI IN THE COMPUTATION OF TOTAL INCOME. IN THE PROCEEDINGS BEFORE ASSESSING OFFICER ASSESSEE CLAIM ED BY A LETTER DATED 6/11/2008 THAT THE DISALLOWANCE FOR PERSONAL USE OF TELEPHONE FOR ZAVERI BAZZAR BRANCH SHOULD BE RESTRICTED TO RS.61,580/-, 25% OF RS.2,88,333/-. THE ASSESSING OFFICER HOWEVER, REJECTED THE CLAIM O F THE ASSESSEE FOR THE REASON THAT THERE WAS NO VALID REVISED RETURN FILED UNDER SECTION 139 (5) OF ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 13 THE ACT. THE ASSESSING OFFICER ALSO NOTICED THAT S UM OF RS. 1,65,573/- WAS MOBILE PHONE EXPENSES OF PARTNERS INCLUDING NON-WOR KING PARTNERS. THE ASSESSEE COULD NOT PROVE THAT THE PARTNERS HAD PERS ONAL MOBILE PHONES FOR PERSONAL USE. THE ASSESSING OFFICER ACCORDINGLY DI SALLOWED 20% OF THE TOTAL TELEPHONE EXPENSES NAMELY A SUM OF RS. 2,83,621/-. SINCE THE ASSESSEE HAD ITSELF DISALLOWED RS. 2,38,334/- THE ASSESSING OFFI CER MADE AN ADDITION OF RS.45,288/- TO THE INCOME RETURNED BY THE ASSESSEE. 17. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD THAT THE ADDITION SHOULD BE RESTRICTED TO THE DISALLOWANCE MADE BY THE ASSESSEE IN ITS RETURN OF INCOME AND DELETED THE ADDITION OF RS. 45,288/- MADE BY TH E ASSESSING OFFICER. 18. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESS EE HAS RAISED GROUND NO.1 BEFORE THE TRIBUNAL. 19. THE LD. COUNSEL FOR THE ASSESSEE HAD BROUGHT TO OUR NOTICE THE DETAILS OF TELEPHONE EXPENSES WHICH ARE AT PAGE 79 OF THE A SSESSEES PAPER BOOK. IT WAS FURTHER BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAD PAID FBT ON TELEPHONE EXPENSES OF RS. 1,90,666/- . IT WAS ONLY AFTER TAKING INTO ACCOUNT ALL THESE FACTS NAMELY THE FACT THAT ONLY TWO OF TH E TOTAL TELEPHONES WERE INSTALLED AT THE RESIDENCE OF PARTNERS AND THE FACT THAT FBT HAD BEEN PAID ON TELEPHONE EXPENSES, THE ASSESSEE REVISED THE DISALL OWANCE ON ACCOUNT OF PERSONAL USE FROM RS.2,38,333/- TO RS.61,580/-. I N DOING SO THE ASSESSEE DISALLOWED 100% OF MOBILE EXPENSES OF NON-WORKING P ARTNERS, 25% OF MOBILE EXPENSES OF WORKING PARTNERS AND TELEPHONE AT THE R ESIDENCE OF PARTNERS. IT WAS SUBMITTED THAT THE CIT(A) IGNORED ALL THESE SUB MISSIONS. IT WAS SUBMITTED THAT THE CIT(A) COULD ENTERTAIN THE CLAIM OF THE ASSESSEE EVEN IN THE ABSENCE OF A REVISED RETURN AND IN THIS REGARD OUR ATTENTION WAS DRAWN TO THE FOLLOWING JUDICIAL PRONOUNCEMENTS: ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 14 1. CHICAGO PNEUMATIC INDIA LTD. VS. DCIT (2007) 15 SOT 252 (MUM) 2. CIT VS. JAI PARABOLIC SPRINGS LTD., 306 ITR 42(D EL). IT WAS SUBMITTED THAT THE COMPUTATION OF DISALLOWAN CE MADE BY THE ASSESSEE AT RS. 61,580/- IS REASONABLE AND SHOULD BE ACCEPTE D. THE LD. D.R RELIED ON THE ORDER OF THE ASSESSING OFFICER. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THE ASSESSING OFFICER HAS MADE THE IMPUGNED DISALLOWANCE PURELY O N THE BASIS OF DISALLOWANCE MADE BY THE ASSESSEE IN ITS COMPUTATIO N OF INCOME ON ACCOUNT OF PERSONAL USE OF TELEPHONE. THE ASSESSEE HAD IN ITS SUBMISSIONS DATED 26/11/2008 AND 16/12/2008 GIVEN ALL THE DETAILS WI TH REGARD TO THE REVISED DISALLOWANCE OF RS. 61,580/- ON ACCOUNT OF PERSONAL USE OF TELEPHONES. THESE SUBMISSIONS HAVE BEEN TOTALLY DISREGARDED BY THE ASSESSING OFFICER. IN OUR VIEW THE CIT(A) SHOULD HAVE CONSIDERED THESE ASPECTS. THE POWER OF THE CIT(A) AND THE APPELLATE AUTHORITIES ARE NOT IN ANY WAY RESTRICTED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GOETZE INDIA LTD., 284 ITR 323 (SC). WE FIND THE BASIS OF DISALLOWANCE MA DE BY THE ASSESSEE AT THE REVISED FIGURE OF RS. 61,580/- TO BE REASONABLE. W E THEREFORE, DIRECT THAT THE ADDITION ON ACCOUNT OF TELEPHONE EXPENDITURE ON ACC OUNT OF PERSONAL USE SHOULD BE RESTRICTED TO RS. 61,580/- AS AGAINST RS. 2,38,333/- SUSTAINED BY THE CIT(A). GROUND NO.1 RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 21. GROUND NO.2 RAISED BY THE ASSESSEE READS AS FOL LOWS: 2. DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF RS. 15,07,611/- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LOWER AUTHORITIES ERRED IN DISALLOWING THE TOTAL TRAVEL E XPENSES OF RS. 15,07,611/- IN RESPECT OF FOREIGN TRAVEL ON THE GRO UND THAT THE ASSESSEE HAD NOT ACQUIRED ANY TECHNOLOGY OR DESIGNS ETC. AND ON THE GROUND THAT THE SAME WERE NOT FOR BUSINESS PURPOSE. ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 15 22. THE ASSESSEE CLAIMED AS DEDUCTION ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES OF RS. 15,07,611/-. ACCORDING TO THE ASSE SSING OFFICER THE ASSESSEE WAS NOT ENGAGED IN EXPORT OF JEWELLERY AND EVEN ASSESSEES SISTER CONCERN M/S. TBZ TRADING COMPANY, WHICH WAS IN EXPO RT BUSINESS HAD NOT DONE ANY EXPORT ACTIVITIES IN THE LAST FEW YEARS. THE PLEA OF THE ASSESSEE WAS THAT IT WAS UNDERTAKING FOREIGN VISITS TO ACQUIRE K NOWLEDGE REGARDING NEW TRENDS AND DESIGNS REGARDING JEWELLERY. SINCE THE ASSESSEE DID NOT GIVE DETAILS OF DESIGNS SAID TO HAVE BEEN NOTICED DURING FOREIGN VISITS OR ANY TECHNOLOGY ACQUIRED ON FOREIGN VISITS AND TAKING INTO FACT THAT SIMILAR DISALLOWANCE WAS MADE IN ASSESSS CASE IN A.Y 2005 -06, THE ASSESSING OFFICER DISALLOWED EXPENSES ON FOREIGN TRAVELLING. WITHOUT PREJUDICE TO THE ABOVE THE ASSESSING OFFICER ALSO NOTICED THAT THE F OREIGN VISITS WERE UNDERTAKEN TO PLACE LIKE BASEL, ZURICH, KUWAIT , DU BAI, LONDON, DETROIT , SINGAPORE, BANGKOK, NEW YORK ETC. ON CERTAIN OCCAS IONS NON WORKING PARTNER MRS. BINDU ZAVERI AND HER DAUGHTER MS. RASH I ZAVERI ALSO ACCOMPANIED THE PARTNER SHRI SRIKANT ZAVERI TO DUBA I. THE ASSESSING OFFICER WAS OF THE VIEW THAT MANY TRIPS ARE HAVING ELEMENT OF PERSONAL FAMILY TRIP. HE WAS OF THE VIEW THAT THE ASSESSEE HAS NOT BEEN ABLE TO GIVE EVIDENCE OF TOTAL STAY AT A SPECIFIC LOCATION WITH BILLS. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE ENTIRE CLAIM FOR DEDUCTIO N ON ACCOUNT OF TRAVEL EXPENSES. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 23. BEFORE US LD. COUNSEL BROUGHT TO OUR NOTICE THE DETAILS OF FOREIGN TRAVELLING EXPENSES GIVEN AT PAGE 80,81, & 85 OF TH E PAPER BOOK. IT WAS ALSO SUBMITTED THAT PROPER EXPLANATION WITH REGARD TO FO REIGN VISITS WERE GIVEN BEFORE THE ASSESSING OFFICER. IT WAS ALSO POINTED OUT THAT IN A.Y 2002-03 THE TRIBUNAL ALLOWED FOREIGN TRAVELLING EXPENSES AND IN A.Y 2003-04 AND 2004- 05 TRAVELLING EXPENSES WERE ALLOWED BY CIT(A) AND N O APPEAL WAS FILED BY THE DEPARTMENT. IN 2005-06 25% OF THE FOREIGN TRAVELLIN G EXPENSES WERE DISALLOWED BY THE TRIBUNAL AND IN 2007-08 THE ASSES SING OFFICER HIMSELF ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 16 RESTRICTED THE DISALLOWANCE TO 25% OF THE EXPENSES AND SO ALSO FOR A.Y 2008- 09, THE DISALLOWANCE WAS RESTRICTED TO 25%. IT WA S ALSO HIGHLIGHTED THAT TOTALLY NINE TRIPS TO FOREIGN COUNTRIES WERE UNDERT AKEN DURING THE PREVIOUS YEAR, OUT OF WHICH TWO TRIPS WERE BY MANAGER OF THE ASSESSEE. FOUR TRIPS WERE BY MANAGING PARTNERS ALONE AND ONE TRIP BY TWO MANAGING PARTNERS. ONLY TWO TRIPS WERE UNDERTAKEN BY MANAGING AS WELL AS NON-MANAGING PARTNERS. 24. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF T HE VIEW THAT FOLLOWING THE ORDER OF THE TRIBUNAL IN A.Y 2005-06 AND TAKING INTO CONSIDERATION THE SUBMISSIONS MADE BY THE ASSESSEE AND WITH A VIEW TO MAINTAIN CONSISTENCY IT WOULD BE JUST AND FAIR TO DISALLOW 25% OF THE FO REIGN TRAVELLING EXPENSES. WE DIRECT ACCORDINGLY. 25. GROUND NO.3 WAS NOT PRESSED AND THE SAME IS DI SMISSED AS NOT PRESSED. 26. GROUND NO.4 RAISED BY THE ASSESSEE READS AS FOL LOWS: 4. INCOME FROM HOUSE PROPERTY ASSESSED AT RS. 1,5 4,713/-: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LOWER AUTHORITIES ERRED IN DETERMINING THE PROPERTY INCOM E AT 10% OF THE COST OF THE PROPERTY AT PUNE AND RAJKOT ON AN ADHOC BASIS IN SPITE OF THE FACT THAT THE ASSESSEE HAD PRODUCED MUNICIPAL R ATABLE VALUE CERTIFICATE FROM THE AUTHORITIES IN RESPECT OF BOTH THE PROPERTIES BEFORE CIT(A). 27. THE ASSESSEE HAD A BUNGALOW IN PUNE AND A FLAT AT RAJKOT AND THESE FLATS WERE NOT USED FOR THE PURPOSE OF BUSINESS. T HE ASSESSING OFFICER DETERMINED THE ANNUAL VALUE OF THESE PROPERTIES UND ER SECTION 22 OF THE ACT BY TAKING 20% OF THE COST OF ACQUISITION OF THESE P ROPERTIES. THE PROPERTY AT PUNE WAS ACQUIRED FOR RS.6,06,126/- IN THE YEAR 198 0 AND THE FLAT AT RAJKOT ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 17 WAS PURCHASED AT RS. 9,41,000/- IN A.Y 1998-99. TH E ASSESSING OFFICER ESTIMATED THE INCOME FROM HOUSE PROPERTY AT RS. 3,0 9,426/-. 28. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT THE M UNICIPAL VALUATION OF THE PUNE PROPERTY WAS RS.9150/- AND THAT OF THE RAJ KOT PROPERTY AS RS.17,410/- AND FILED COPIES OF THE CERTIFICATE ISS UED BY THE LOCAL AUTHORITIES. IT WAS SUBMITTED THAT THE ANNUAL VALUE SHOULD BE DE TERMINED BY TAKING THE MUNICIPAL VALUATION. THE CIT(A) HOWEVER CONFIRMED THE ACTION OF THE ASSESSING OFFICER FOR THE REASON THAT THE ASSESSEE DID NOT FILE THE EVIDENCE REGARDING MUNICIPAL VALUATION BEFORE THE ASSESSING OFFICER. IN THIS REGARD CIT(A) ALSO HELD THAT THE ASSESSEE HAD NOT GIVEN AN Y VALID REASON FOR FILING ADDITIONAL EVIDENCE BEFORE THE CIT(A). THE CIT(A) HOWEVER REDUCED THE ANNUAL VALUE TO 10% OF THE COST OF THE PROPERTY AS AGAINST 20% ADOPTED BY THE ASSESSING OFFICER. STILL AGGRIEVED THE ASSESSE E IS IN APPEAL BEFORE THE TRIBUNAL. 29. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE MUNICIPAL VALUATION BEING A PUBLIC DOCUMENT SHOULD HAVE BEEN ADMITTED AS ADDITIONAL EVIDENCE BY THE CIT(A). IT WAS FURTHER SUBMITTED THAT THE MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. RECLAMATION REALTY INDIA PV T. LTD., ITA NO.1411/M/07 ORDER DATED 26/11/2010 HAS HELD THAT M UNICIPAL VALUATION SHOULD BE THE YARDSTICK FOR DETERMINING THE ANNUAL VALUE WHERE THE ACTUAL RENT RECEIVED IS LESS THAN THE MUNICIPAL VALUATION. 30. WE HAVE CONSIDERED THE SUBMISSIONS AND ARE OF T HE VIEW THAT THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE SHOULD BE ADMITTED AS EVIDENCE. WE HOWEVER, SET ASIDE THE ORDER OF THE CIT(A) ON TH IS ISSUE AND DIRECT THE ASSESSING OFFICER TO CONSIDER THE CLAIM OF THE ASSE SSEE IN THE LIGHT OF THE ADDITIONAL EVIDENCE AND THE JUDICIAL PRONOUNCEMENTS ON THE ISSUE. GROUND NO.4 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES . ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 18 31. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. 32. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED WHILE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 24 TH DAY OF JUNE, 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 24 TH JUNE.2011 COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. TH E CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RH BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.6447& 6480/MUM/2009(A.Y. 2006-07) 19 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 20/6/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 21/6/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER