The ACIT, Vapi Circle, Vapi V. M/s. Micro Inks Ltd., Vapi

ITA 699/AHD/2009

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89466 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 28-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 04-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D P GUPTA
• Keywords: Business income; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Cost of acquisition; Wholly owned subsidiary; Bad and doubtful debts; Notional interest
• Section: 143(3); 115JB; 80IB; 10B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ ITA NO . 501 /AHD / 20 09 / ASSESSMENT YEAR: 200 5 - 06 M/S. MICRO INKS LIMITED, BILAKHIA HOUSE, MUKTANAND MARG CHALA, VAPI, GUJARAT .. APPELLANT PAN : AAACH 7063 F VS JCIT, VAPI RANGE, VAPI .. RESPONDENT ./ ITA NO. 699 /AHD/20 09 / ASSE SSMENT YEAR: 200 5 - 06 JCIT, VAPI RANGE, VAPI .. APPELLANT VS M/S. MICRO INKS LIMITED .. RESPONDENT VAPI, GUJARAT - PAN : AAACH 7063 F ASSESSEE(S) BY : SHRI M. K. PATEL, AR WITH SHRI GOPALKRISHNAN IYER, CA REVENUE BY : SHRI D.P. GUPTA, CIT - DR / DATE OF HEARING 2 8 /04/2015 / DATE OF PRONOUNCEMENT 15 /0 5 /2015 / O R D E R PER SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARISING FROM THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) , VALSAD DATED 15 . 1 2.20 08 FOR ASSESSMENT YEAR ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 2 - 200 5 - 0 6 . SINCE THESE APPEALS INVOLVE COMMON ISSUES, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. T HE ASSESSEE IS A PUBLIC LIMITED COMPANY BASED AT VAPI, GUJARAT AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PRINTING INKS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.10.2005 DECLARING TOTAL INCOME OF RS.40,43,62,831/ - AND THE SAME WAS PROCESSED U /S 143(1) OF THE ACT. T HEREAFTER, THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT, VIDE ORDER DATED 31 .1 2 .20 07 AND THE TOTAL INCOME WAS DETERMINED AT RS. 56,87,08,421 / - , AFTER MAKING CERTAIN DISALLOWANCES/ ADDITIONS . AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO VIDE ORDER DATED 15.12.2008 GAVE PART RELIEF SO BOTH THE PARTIES ARE BEFORE US AGAINST THEIR GRIEVANCES. ITA NO. 501/AHD/2009 ( ASSESSEE S APPEAL) : AY 2005 - 06 3 . IN THIS APPEAL BY THE ASS ESSEE, FOLLOWING GROUNDS WERE RAISED: - 1. THE ORDER OF ASSESSMENT IS CONTRARY TO THE FACTS OF THE CASE AND PREJUDICIAL TO THE ASSESSEE. 2. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE ADDITIONS MADE ARE CONTRARY TO LAW AND BASED ON E RRONEOUS UNDERSTANDING OF THE FACTS OF THE CASE. 3. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HAS ERRED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER IN MAKING UPWARD ADJUSTMENT O F RS.1,52,08,915/ - TO THE INCOME OF THE APPELLANT COMPANY ON ACCOUNT OF ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 3 - DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO THE FACTS AND LAW AND DESERVES TO BE DELETED. 4. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST OF R S.1,00,00/ - MADE BY THE LEARNED ASSESSING OFFICER ON THE BASIS OF LOSS OF NOTIONAL INTEREST ON ACCOUNT OF NOT TAKING DEPOSIT FROM M/S. MITS U LIMITED. THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO THE FACTS AND LAW AND DESERVES TO BE DELETED. 5. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HA S ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF EXCLUDING FOLLOWING ITEMS OF INCOME WHILE GRANTING DEDUCTION U/S 80IB: - (AMOUNT RS.) SILVASSA - I SILVASSA - II OTHER OPERATING INCOME: - DFRC / DEPB 3,66,330 4,05,233 OTHER INCO ME CASH DISCOUNT RECEIVED 8,25,054 1,54,110 INSURANCE CLAIM 1,20,587 - COMMISSION RECEIVED 13,72,776 - OTHERS 25,935 10,877 THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO THE FACTS AND LAW AND DESERVES TO BE DELETED. 6. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HAS ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER RS.10,54,887/ - OUT OF TELEPHONE AND ELECTRICITY EXPENSES. THE ACTION OF THE LEARNED COMMISSIONE R OF INCOME - TAX (APPEALS) IS CONTRARY TO THE FACTS AND LAW AND DESERVES TO BE DELETED. [ ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 4 - 7. THE APPELLANT CRAVES TO ADD, A MEND, MODIFY OR ALTER THE ABOVE GROUNDS OF APPEAL AT ANY STAGE OF APPELLATE PROCEEDINGS. 8. THE APPELLANT HUMBLY PRAYS THAT THE APPEAL BE ALLOWED IN TOTO. 4 . AT THE OUTSET, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE FIRST TWO GROUNDS ARE GENERAL IN NATURE AND HE DID NOT PRESS THE SAME AND THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. 5 . THE NEXT ISSUE IS WITH REGARD TO UPWARD ADJUSTMENT OF RS.1,52,08,915/ - TO THE INCOME OF THE ASSESSEE - COMPANY ON ACCOUNT OF DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE - COMPANY HAD EXPORTED PRINTING INKS AS WELL AS S E MI FINISHED INTERMEDIATES TO VARIOUS COUNTRIES INCLUDING USA AND EUROPE . THE ASSESSEE - COMPANY OPERATES THROUGH A WHOLLY OWNED SUBSIDIARY IN USA WITH MANUFACTURING FACILITIES. HE FOUND THAT IN SEPTEMBER 2000 THE COMPANY ESTABLISHED ITS MANUF ACTURING BASE IN USA AND THE ASSESSEE - COMPANYS SUBSIDIARY BECAME THE SUPPLIER OF PRINTING INKS TO MANY LEADING PRINTERS IN USA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE - COMPANY HAS SOLD RAW MATERIALS AND SEMI - FINISHED GOODS TO ITS AE IN USA AND F URTHER PROCESSING AS PER SPECIFIC REQUIREMENTS OF THE CUSTOMERS WA S DONE IN THE US MANUFACTURING PLANT. THE ASSESSEE - COMPANY HAD TO INVEST A SUM EQUIVALENT TO THE ABOVE TIME CYCLE AS CAPITAL IF IT HAS TO ACHIEVE ITS SALES TARGET IN USA. THE ACTUAL AVERAGE TIME CYCLE ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 5 - AS CALCULATED BY THE TRANSFER PRICING OFFICER WAS 200 DAYS. THE TRANSFER PRICING OFFICER COMPARED THIS TIME CYCLE TO THE CREDIT PERIOD GIVEN TO UNRELATED PARTIES AND DETERMINED THE SAME TO BE 166 DAYS. THE DIFFERENCE OF 34 DAYS WAS CONSIDERED EXCESSIVE AND INTEREST AMOUNT EQUIVALENT TO INTEREST ON 34 DAYS SALES WAS PROPOSED AS AN ADJUSTMENT, WHICH WORKED OUT TO RS.1,52,08,915/ - . 5.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF A SSESSEE AND HAVING CONSIDERED THE SAME, CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER ON THE ISSUE, BY OBSERVING THAT THE ARMS LENGTH PRICE IN RESPECT OF INTEREST NOT CHARGED ON CREDIT PERIOD TO CUSTOMERS AS WELL AS THE SUBSIDIARY SHALL BE THE INTERNAT IONAL BENCH MARK RATE. WHILE CONFIRMING THE ADDITION IN RESPECT OF INTERNATIONAL TRANSACTIONS MADE BY THE TRANSFER PRICING OFFICER ON MERIT, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO RE - WORK THE ADDITION BY APPLYING THE INTERNATIONAL BENCH MARK RATE I.E . THE LIBOR RATE OR THE AMERICAN RATE OF INTEREST AS APPLICABLE TO THE TRANSACTION AND ADD THE RESULTANT AMOUNT ONLY TO THE TOTAL INCOME ON ACCOUNT OF UNDERCHARGING OF INTEREST ON LOAN AND NOTIONAL INTEREST AS EXCESS CREDIT PERIOD. 5.2 BEFORE US, T HE LD . AUTHORIZED REPRESENTATIVE POINTED OUT THAT INTEREST AMOUNT EQUIVALENT TO INTEREST ON 34 DAYS SALES WAS PROPOSED AS AN ADJUSTMENT. IN THIS REGARD, THE LD. AUTHORIZED REPRESENTATIVE POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DE CISION OF ITAT, D - ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 6 - BENCH, AHMEDABAD IN ASSESSEES OWN CASE IN ITA NOS. 1668 & 1669/AHD/2006 AND 2583/AHD/2007 FOR ASSESSMENT YEARS 2002 - 03, 2003 - 04 AND 2004 - 05, WHEREIN FOR SIMILAR ADJUSTMENTS, THE TRIBUNAL HAS GRANTED RELIEF TO THE ASSESSEE, BY OBSERVING A S UNDER: - 20. THE ONLY OTHER ALP ADJUSTMENT IN APPEAL BEFORE US IS WITH RESPECT TO, WHAT THE AUTHORITIES BELOW HAVE TREATED AS, EXCESS CREDIT PERIOD ALLOWED TO MICRO USA. THIS ADJUSTMENT MUST BE DELETED FOR THE SHORT REASON THAT IT WAS PART OF THE ARRANG EMENT THAT SPECIFIED CREDIT PERIOD WAS ALLOWED AND THUS THE COST OF FUNDS BLOCKED IN THE CREDIT PERIOD WAS INBUILT IN THE SALE PRICE. THERE IS NO DISPUTE THAT SIMILAR PRODUCTS ARE NOT SOLD TO ANY OTHER CONCERN, AT SAME PRICE OR EVEN ANY OTHER PRICE, AND IN TEREST IS LEVIED ON THE SIMILAR CREDIT PERIOD ALLOWED TO THOSE INDEPENDENT PARTIES BUT NOT TO MICRO USA. THE QUESTION OF EXCESS CREDIT PERIOD ARISES ONLY WHEN THERE IS A STANDARD CREDIT PERIOD FOR THE PRODUCT SOLD AT THE SAME PRICE AND THE CREDIT PERIOD AL LOWED TO THE ASSOCIATED ENTERPRISES IS MORE THAN THE CREDIT PERIOD ALLOWED TO INDEPENDENT ENTERPRISES. THAT IS NOT THE CASE HERE. THE CREDIT PERIOD FOR FINISHED GOODS CANNOT BE COMPARED WITH CREDIT PERIOD FOR UNFINISHED GOODS AND RAW MATERIALS, AND IN ANY CASE, WHEN PRODUCTS ARE NOT THE SAME, THERE CANNOT BE ANY QUESTION OF PRICES BEING THE SAME. UNLESS THE PRICES OF THE PRODUCT AND THE PRODUCT ARE THE SAME, AND YET EXTRA CREDIT PERIOD IS ALLOWED, THERE CANNOT BE ANY OCCASION FOR MAKING ALP ADJUSTMENT ON TH E BASIS OF THE EXCESS CREDIT PERIOD. NONE OF THE AUTHORITIES BELOW HAVE EVEN DISPUTED THAT THE INGREDIENTS, RAW MATERIALS AND SEMI - FINISHED GOODS SOLD TO MICRO USA ARE NOT SOLD TO ANY OTHER CONCERN. THE VERY FOUNDATION OF IMPUGNED ADDITION IN ARM'S LENGTH PRICE ON ACCOUNT OF EXCESS CREDIT PERIOD IS THUS DEVOID OF ANY LEGALLY SUSTAINABLE MERITS OR FACTUAL BASIS. WHEN ALL THESE FACTORS WERE POINTED OUT TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, HE DID NOT HAVE MUCH TO SAY EXCEPT TO PLACE HIS BLAND BUT DUTIFU L RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. HOWEVER, FOR THE ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 7 - REASONS SET OUT ABOVE AND IN THE ABSENCE OF ANY COMPARATIVE PRICE AND CREDIT PERIOD FIGURES ON COMPARABLE PRODUCT TO SUPPORT THE CASE OF THE REVENUE, WE UPHOLD THE GRIEVANCE OF THE ASSESSE E AND DIRECT THE ASSESSING OFFICER TO DELETE THIS ALP ADJUSTMENT. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 21. TO SUM UP, SO FAR AS ALP ADJUSTMENTS ARE CONCERNED, WE UPHOLD THE PLEA OF THE ASSESSEE IN THE TERMS INDICATED ABOVE, AND WE REJECT THE GRIEVANC E OF THE ASSESSING OFFICER. 5.3 NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR, FOLLOWING THE SAME REASONING AS MENTIONED ABOVE IN THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AYS 2002 - 03, 2003 - 04 AN D 2004 - 05 , THE ORDER OF THE CIT(A) AS WELL AS ASSESSING OFFICER ON THIS ISSUE IS SET ASIDE AND ASSESSING OFFICER IS DIRECTED TO DELETE THIS ALP ADJUSTMENT OF RS.1,52,08,915/ - TO INCOME OF ASSESSE. 6. THE NEXT ISSUE IS WITH REGARD TO THE DISALLOWANCE OF I NTEREST OF RS.1,00,000/ - MADE BY THE ASSESSING OFFICER OUT OF INTEREST PAID ON ACCOUNT OF NOT TAKING DE POSIT FROM M/S. MITSU LIMITED. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE - COMPANY HAD GIVEN DEPOSIT OF RS.1 CRORE TO BILAKHIA PROPERTY PRIVATE LIMI TED AS PER LEASE DEED FOR TAKING THE PREMISES ON LEASE FROM THE SAID COMPANY. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE - COMPANY HAD GIVEN PART OF THE SAID PREMISES ON RENT TO M/S. MITSU LIMITED WITHOUT CHARGING ANY DEPOSIT. THEREFORE, THE ASSES SING OFFICER DISALLOWED RS.1,00,000/ - OUT OF INTEREST PAID ON ACCOUNT OF NOT TAKING ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 8 - DEPOSIT FROM MITSU LIMITED. IN APPEAL, THE CIT(A), AFTER GOING THROUGH THE REMAND REPORT OF THE ASSESSING OFFICER, OBSERVED THAT THE PREMISES HAS BEEN RENTED TO M/S. MITSU LIMITED WITHOUT TAKING DEPOSIT. SO HE AGREE D WITH THE CONTENTION OF THE ASSESSING OFFICER, THAT THE INTEREST BEARING FUNDS WERE NOT UTILIZED BY THE ASSESS E E - COMP A NY WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE; HOWEVER, IN THE END HE HAS DELETED THE ADDIT ION IN QUESTION. HENCE, THERE IS A CONTRADICTION BETWEEN THE OBSERVATION AND CONCLUSION IN THE ORDER OF CIT(A) ON THIS ISSUE. IN VIEW OF THE ABOVE, BOTH PARTIES AGREED THAT LET THE MATTER BE RESTORED TO THE FILE OF CIT(A) ON THIS ISSUE AS THERE IS A CONT RADICTION IN THE OBSERVATION AND CONCLUSION IN THE ORDER OF THE CIT(A) . AGREEING TO SAME , WE SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE AND RESTORE THE SAME MATTER BACK TO HIM WITH THE DIRECTION TO DECIDE THIS ISSUE AS PER FACTS AND LAW, AFTER PROVIDING D UE OPPORTUNITY OF HEARING TO BOTH THE SIDES . SINCE WE ARE RESTORING THE ISSUE FOR THE AFORESAID REASONING, WE ARE REFRAINING TO COMMENT ON THE MERIT OF THE ISSUE AT HAND. THIS ALSO TAKES CARE OF THE CORRESPONDING ISSUE RAISED IN GROUND NO.1 OF THE REVENUE S APPEAL. 7. NEXT ISSUE IS WITH REGARD TO THE EXCLUSION OF OTHER INCOMES WHILE COMPUTING PROFIT S ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF ITS SILVASSA 1 AND SILVASSA 2 UNITS. THE ASSESSEE - COMPANY HAS OBJECTED TO THE EXCLUSIONS OF OTHER INCOME MADE BY THE ASSESSING OFFICER WHILE WORKING OUT THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB IN RESPECT OF SILVASSA 1 ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 9 - AND SILVASSA 2 UNITS. EACH ITEM OF OTHER INCOME EXCLUDED BY THE ASSESSING OFFICER IS BEING ADJUDICATED AS UNDER: - 7.1 WITH REGARD TO ACCRUAL AND/OR PROFIT ON SALE OF DEPB AND DFRC, WE FIND THAT THE ASSESSING OFFICER HAD EXCLUDED THE SAME FROM THE ELIGIBLE PROFIT OF THE APPELLANT COMPANY. IN APPEAL, THE CIT(A) OBSERVED THAT THE DEPB AND DFRC LICENSES ARE GRANTED TO THE EXPORTERS FOR R ECEIVING THE COST OF CUSTOMS DUTY TO REMAIN INTERNATIONALLY COMPETITIVE. ANY ACCRUAL AND / OR PROFIT ON SALE OF SUCH EXPORT INCENTIVES ARE NOT LINKED TO MANUFACTURING. IN VIEW OF THIS, THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER THAT ANY ACCRUAL R ECEIPT OR PROFIT ON SALE OF DEPB AND DFRC ARE NOT ELIGIBLE FOR DEDUCTION U/S. 80IB OF THE ACT. 7. 1.1 BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE POINTED OUT THAT IN ASSESSEES OWN CASE , THE ITAT, D - BENCH, AHMEDABAD IN ITA NOS. 1668 & 1669/AHD/2006 AND 2583/AHD/2007 FOR ASSESSMENT YEARS 2002 - 03, 2003 - 04 AND 2004 - 05, RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS V. CIT [2012] 342 ITR 49, HAS SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. THE RELEVANT PORTION OF THE DECISION IS AS UNDER: - 54. IN GROUND NO. 9, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING NOT TO EXCLUDE THE EXPORT BENEFIT RECEIVABLE OF RS.26,22,21,412/ - FROM ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 10 - THE MANUFACTURING PROFITS ELIGIBLE FOR DEDUCTION U/S. 80 - IB OF THE ACT WITHOUT CONSIDERING THE FACT THAT IT HAS NO DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE. 55. SO FAR AS THIS I SSUE IS CONCERNED, WITH THE CONSENT OF THE PARTIES, THIS ISSUE STANDS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF HON'BLE SUPREME COURT'S JUDGMENT IN THE CASE OF TOPMAN EXPORTS V. CIT [2012] 342 ITR 49/205 TAXMAN 119/18 TAXMANN.COM 120 . 56. GROUND NO. 9 IS THUS ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. 7.1 .2 FACTS BEING SIMILAR, FOLLOWING THE SAME REASONING AS MENTIONED ABOVE, THIS ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTIONS TO DECIDE THE SAME AS PER FACT AND LAW AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO ASSESSEE . 7. 2 NEXT ISSUE IS WITH REGARD TO CASH DISCOUNT RECEIVED WITH R EGARD TO SILVASSA - 1 (RS.8,25,054/ - ) AND SILVASSA - II (RS.1,54,110/ - ). THIS DISCOUNT WAS RECEIVED FROM SUPPLIERS OF RAW MATERIAL AND HENCE CLAIMED DIRECTLY UNDER THE HEAD PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB. THE ASSESSING OFFICER HAS DISALLOWED THE SAME AND THE MATTER WAS CARRIED BEFORE THE CIT(A); HOWEVER , THE SAME WAS NOT ADJUDICATED BY HIM. SO, IN THE INTEREST OF JUSTICE, WE RESTORE THIS ISSUE TO HIM WITH THE DIRECTION TO DECIDE THIS ISSUE AS PER FACTS AND LAW, AFTER PROVIDING DUE OPPORTUNITY OF HEARIN G TO BOTH THE SIDES . ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 11 - 7. 3 NEXT ISSUE IS WITH REGARD TO ELIGIBILITY OF INSURANCE CLAIM U/S 80IB. THE ASSESSING OFFICER EXCLUDED THE INSURANCE CLAIM WHILE COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB. IN APPEAL, THE CIT(A) OBSERVED THAT THE REC EIPT OF INSURANCE CLAIM RECEIVED INCREASES THE MANUFACTURING PROFITS AND IS DERIVED DIRECTLY FROM BUSINESS. THE INSURANCE CLAIM IS RECEIVED ON ACCOUNT OF CLAIM FOR LOSS AS PER INSURANCE POLICY. HOWEVER, THE CIT(A), AFTER CONSIDERING THE ALTERNATE CONTENTI ON OF THE ASSESSEE - COMPANY, HELD THAT THE EXCLUSION SHALL BE RESTRICTED TO THE RECEIPT BY WAY OF INSURANCE CLAIM AS REDUCED BY CORRESPONDING LOSSES, IF ANY AND EXPENSES. THUS, THE ADDITION MADE BY THE ASSESSING OFFICER WAS UPHELD BY HIM SUBJECT TO RESTRICT ION OF THE DISALLOWANCES AS DISCUSSED ABOVE. 7. 3 .1 BEFORE US, THE AUTHORIZED REPRESENTATIVE POINTED OUT THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE ITAT, D - BENCH, AHMEDABAD IN ASSESSEES OWN CASE IN ITA NOS. 1668 & 1669/AHD/2006 AND 2583/AHD/2007 FOR ASSE SSMENT YEARS 2002 - 03, 2003 - 04 AND 2004 - 05, WHEREIN THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE ASSESSING OFFICER , BY OBSERVING AS UNDER : - 82. IN GROUND NO. 8, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: '8. ON APPRECIATION OF THE FACTS AND CI RCUMSTANCES OF THE CASE AND LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 12 - ACTION OF THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX OF EXCLUDING FOLLOWING ITEMS OF INCOME WHILE GRANTING DEDUCTION U/S. 80 - IB: - SILVASS A DAMAN SALE OF EXPORT BENEFIT 7805826 - 47239 INSURANCE CLAIM 20558386 594798 THE ACTION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS AND LAW AND DESERVES TO BE DELETED.' 83. SO FAR AS THIS GROUND OF APPEAL IS CONCERN ED, LEARNED REPRESENTATIVES AGREE THAT THIS ISSUE CAN BE RESTORED TO THE FILE OF THE ASSESSING OFFICER SO AS THE MATTER CAN BE DECIDED IN THE LIGHT OF TOPMAN EXPORTS DECISION (SUPRA) ON THE QUESTION OF SALE OF EXPORT BENEFITS, AND IN THE LIGHT OF EXAMINING NEXUS OF INSURANCE RECEIPTS WITH THE BUSINESS ACTIVITY. 84. GROUND NO. 8 IS THUS ALLOWED FOR STATISTICAL PURPOSES. 7. 3 .2 FACTS BEING SIMILAR, FOLLOWING THE SAME REASONING, THIS ISSUE IS ALSO RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTIONS TO DECIDE THE SAME AS PER FACT AND LAW AFTER PROVIDING DUE OPPORTUNITY OF HEARING. 7. 4 NEXT ISSUE IS REGARDING COMMISSION RECEIVED OF RS.13,72,776/ - ON SILVASSA - 1 UNIT WHICH WAS CONFIRMED BY CIT(A) . AGAIN IT WAS POINTED OUT BY THE LD. AUTHORIZED REPRE SENTATIVE FOR THE ASSESSEE THAT SIMILAR ISSUE HAS BEEN DELT BY THE ITAT, D - BENCH, AHMEDABAD IN ASSESSEES OWN CASE IN ITA NOS. 1668 & 1669/AHD/2006 AND 2583/AHD/2007 FOR ASSESSMENT YEARS 2002 - 03, 2003 - 04 ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 13 - AND 2004 - 05, WHEREIN THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE ASSESSING OFFICER , THE BY OBSERVING AS UNDER : - 144. SO FAR AS THE ABOVE ISSUES ARE CONCERNED, AS LEARNED REPRESENTATIVES AGREE, THAT THE MATTER CAN BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH DECISION IN THE LIGHT OF THE O BSERVATIONS MADE BY US DEALING WITH IDENTICAL ISSUES FOR PRECEDING ASSESSMENT YEARS. THE ASSESSEE WILL HAVE THE LIBERTY TO TAKE UP SUCH PLEA AS HE MAY DEEM FIT AND THE AO SHALL DECIDE THE MATTER AFRESH AFTER GIVING A FAIR AND REASONABLE OPPORTUNITY OF HEAR ING TO THE ASSESSEE, BY WAY OF A SPEAKING ORDER AND IN ACCORDANCE WITH THE LAW. WE ORDER SO. 7.4 .1 NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE, F ACTS BEING SIMILAR, FOLLOWING THE SAME REASONING AS MENTIONED ABOVE, THIS ISSUE IS RES TORED TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTIONS TO DECIDE THE SAME AS PER FACT AND LAW AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO ASSESSEE. 7. 5 NEXT ISSUE IS WITH REGARD TO OTHER ITEMS AMOUNTING TO RS.25,935/ - AND RS.10,877/ - IN RESPECT OF SILVASSA - 1 AND SILVASSA - 2 UNITS RESPECTIVELY. AT THE TIME OF HEARING BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE DID NOT PRESS THIS GROUND, HENCE SAME ARE DISMISSED AS NOT PRESSED. 8. NEXT ISSUE IN ASSESSEES APPEAL IS WITH REGARD TO THE DISALLOWANCE O F TELEPHONE (RS.1,12,815/ - ) AND ELECTRICITY EXPENSES (RS. 9,42,036/ - ) . THE ASSESSING OFFICER OBSERVED THAT IN THE CASE OF RESIDENTIAL ELECTRICITY AND TELEPHONE, IT IS USED BY THE ENTIRE JOINT FAMILY MEMBERS OF THE MANAGING DIRECTOR AND ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 14 - THE SAME CANNOT BE T REATED AS BUSINESS EXPENDITURE AND HE, ACCORDINGLY, DISALLOWED AN AMOUNT OF RS.10,54,887/ - AS EXPENDITURE INCURRED FOR NON - BUSINESS ACTIVITY. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF ASS ESSEE AND HAVING CONSIDERED THE SAME, CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 8.1 WITH REGARD TO TELEPHONE EXPENSES, THE LD. AUTHORIZED REPRESENTATIVE POINTED OUT THAT THIS ISSUE HAS BEEN DECIDED BY ITAT, D - BENCH, AHMEDABAD IN ASSESSEES OW N IN FAVOUR OF THE ASSESSEE IN ITA NO . 1668 /AHD/2006 FOR ASSESSMENT YEARS 2002 - 03, WHEREIN IT WAS HELD AS UNDER: - 45. LEARNED REPRESENTATIVES FAIRLY AGREE THAT ALL THE ABOVE ISSUES ARE ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY ORDER DATED 17TH JULY, 20 09, IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 1999 - 2000, EVEN AS LEARNED DEPARTMENTAL REPRESENTATIVE DUTIFULLY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 46. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE C OORDINATE BENCH. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 8 .2 NOTHING CONGTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE. FACTS BEING SIMILAR, FOLLOWING THE SAME REASONING AS MEN TIONED ABOVE, THE ASSESSING OFFICER IS DIRECTED TO DELETE RS.1,12,815/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF TELEPHONE EXPENSES. ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 15 - 8 .3 REGARD ING ELECTRICITY EXPENSES OF RS. 9,42,036/ - , WE FIND THAT ELECTRICITY IN BUNGALOW WAS USED BY ENTIRE FAMILY M EMBERS OF MANAGING DIRECTOR, SO SAME CANNOT BE SAID FOR BUSINESS PURPOSE. ACCORDINGLY, WE UPH O LD THE FINDINGS OF THE CIT(A) WHEREBY HE HAS RIGHTLY UPHELD THE ADDITIONS ON ACCOUNT OF DISALLOWANCE OF ELECTRICITY EXPENSES PERTAINING TO BUNGALOW OF MANAGING D IRECTOR USED BY ENTIRE FAMILY. 9 . GROUND NOS. 7 & 8 ARE GENERAL IN NATURE WHICH DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. 1 0 . AS A RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE . ITA NO. 699/AHD/2009 ( REVENUE S APPEAL) : AY 2005 - 06 1 1 . IN THIS APPEAL, THE REVENUE HAS RAI SED FOLLOWING GROUNDS OF APPEAL : - 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.1 LACS ON ACCOUNT OF INTEREST ON DIVERSION OF FUNDS , THOUGH IN PRINCIPLE HE AGREED WITH THE VIEW OF THE AO THAT INTEREST BEARING FUNDS WERE NOT UTILIZED BY THE ASSESSEE COMPANY WHOLLY, EXCLUSIVELY AND NECESSARILY FOR THE PURPOSE OF BUSINESS. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE L EARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF BAD DEBTS AM OUN T ING TO RS.7,21,67,562/ - WITHOUT APPRECIATING THE FACT THAT ALLOWANCE OF CLAIM OF BAD DEBT DURING THE YEAR WOULD AMOUNT TO DOUBLE BENEFIT TO ASSESSEE, AS NO TAX WAS PAID BY THE ASSESSEE IN THE EARLIER YEARS ON THE PROFIT ARISING ON SALES RELATING TO THE CLAIM OF BAD DEBT. ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 16 - 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING ADDITION ON ACCOUNT OF FOREIGN TRAVELING EXPENSES AMOUNTING TO RS.3 6,48,578/ - WITHOUT APPRECIATING THE FACT THAT ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM THAT EXPENDITURE WAS INCURRED WHOLLY, EXCLUSIVELY AND NECESSARILY FOR BUSINESS PURPOSE. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) H AS ERRED IN DELETING THE ADDITION ON ACCOUNT OF WITHDRAWAL OF DEPRECIATION ON HT LINES WITHOUT CONSIDERING THE FACT THAT THE SAID ASSET WAS NOT OWNED BY THE ASSESSEE COMPANY AND HENCE IT IS NOT ELIGIBLE FOR DEPRECIATION. 5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CI T(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF INTER DIVISION TRANSFER WITHOUT GOING INTO THE FACTS AND CIRCUMSTANCES OF THE CASE. 6) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) HAS ERRED IN DIRECTING NOT TO EXCLUDE THE INCOME OF RS.60,73,155/ - EARNED FROM SALE OF SCRAP FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB, THOUGH SAME HAVE NO DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE AS PER RATIO LA ID DOWN BY THE HONBLE APEX COURT IN THE CASES CIT V. STERLING FOODS (1999) 237 ITR 579 AND PANDIAN CHEMCIALS VS. CIT (2003) 262 ITR 278 [SC] 6. 1 ) THE LD. CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE WITHOUT CONSIDERING THE RATIO LAID DOWN BY THE HON'BLE M. P. HIGH COURT IN THE CASE OF D. P. AGRAWAL VS. CIT 272 ITR 118 [MP ] WHEREIN IT HAS BEEN HELD THAT SCRAP INCOME WILL NOT BE E LIGIBLE FOR DEDUCTION U/S.8 0 IB OF THE ACT? 6.2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING NOT TO EXCLUDE THE INCOME OF RS.33 , 97,131 / - EARNED BY WAY OF DISCOUNT ON PURCHASE OF DEPB LICENSE THOUGH IT ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 17 - HAS NO DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE . 7) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C I T(A) HAS ERRED IN DIRECTING N OT TO EXCLUDE THE INCOME OF RS. 19,90,035/ - EARNED FROM SALE OF SCRAP FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S. 10 B, THOUGH SAME HAVE NO DIRECT OR IMMEDIATE NEXUS WITH THE MANUFACTURING ACTIVITY OF THE AS SESSEE 8 ) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CI T(A) HAS ERRED IN DELETING THE ADDITI ON MADE TO THE BOOK PROFIT U/S.115 JB IN RESPECT OF LOSS OF RS.2,87,461/ - INCURRED ON WIND FARM PROJECT WITHOUT APPRECIATING THE FACT THAT PROFIT INCLUDES LOSS AND IN FACT LOSS ARE NEGATIVE PROFIT AND HENCE SUCH LOSS IS TO BE ADDED WHILE WORKING THE BOOK PR OFIT U/S.115 JB OF THE ACT. 9) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, S THE LEARNED CI T(A) HAS ERRED IN HOLDING THAT THE A DDITIONS I.E. ADJUSTMENTS TO THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION RELATING TO INTEREST FOR EXCESS CREDIT PERIOD ALLOWED OUGHT TO HAVE BEEN MADE BY TAKING THE INTEREST RATE FOR THE PURPOSES OF ADDITION, AS LIBOR RATE, OR THE AMERICAN RATE OF INTEREST. 9.1) THE ID. CIT(A) ERRED IN NOT DECIDING THE APPLICABLE RATE OF INTEREST TO BE CHARGED IN THE PRESENT TRANSACTION OF EXCESS CREDIT PERIOD ALLOWED TO ASSOCIATE ENTERPRISE BY THE ASSESSEE. 10) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LEAR NED CI T(A) BE SET ASIDE AND THAT THE ORDER OF THE AO BE RESTORED. 1 2 . IN T HE REVENUES APPEAL, THE FIRST ISSUE IS WITH REGARD TO THE DISALLOWANCE OF RS.1,00,000/ - OUT OF INTEREST PAID ON ACCOUNT OF NOT TAKING DEPOSIT FROM M/S. MITSU LIMITED. THIS ISSUE HAS BEEN DEALT WITH US IN PARAGRAPH NOS 6 OF TH IS ORDER WHILE DECIDING GROUND NO.4 OF THE ASSESSEES APPEAL, WHICH ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 18 - TAKES CARE OF THIS ISSUE IN REVENUES APPEAL AS WELL . THE SAME MAY BE REFERRED ACCORDINGLY. 1 3 . NEXT ISSUE IS WITH REGARD TO DISALLOWANCE O F BAD DEBTS OF RS.7,21,67,562/ - . THIS DISALLOWANCE PERTAINED TO VAPI - I (RS.12,88,007/ - ), DAMAN (RS.3,48,82,595/ - ) AND SILVASSA (RS.3,59,96,960/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO FURNISH THE DETAILS AS TO WHICH YEAR SUCH DEBTS WERE PERTAINING AND WHAT WAS THE TAX AMOUNT OFFERED ON THE PROFIT OF SUCH SALES IN THE YEAR IN WHICH SAME WERE BOOKED AND WHY THE BAD DEBTS SHOULD NOT BE DISALLOWED AS BENEFIT UNDER CHAPTER VIA HAD ALREADY BEEN AVAILED ON THE PROFIT OF SUCH SALES. T HE ASSESSEE WAS ALSO ASKED TO FURNISH THE DETAILS SUCH AS LEDGER EXTRACT OF THE YEAR OF WHICH SUCH DEBT WAS PERTAINING; HOWEVER, THE ASSESSEE DID NOT FILE THE DETAILS AS ASKED FOR. IN VIEW OF ABOVE, THE ASSESSING OFFICER DISALLOWED THE BAD DEBTS, BY OBSER VING THAT THE ASSESSEE HAS DENIED THE DEPARTMENT THE OPPORTUNITY OF VERIFICATION BY NOT PROVIDING COMPLETE AD DRESS. HE DISALLOWED THE BAD DEBTS, MAINLY ON THE FOLLOWING REASONING: - I) IT HAS NOT BEEN ESTABLISHED THAT THE DEBTS HAVE REALLY BECOME BAD. II) THE SALE ON WHICH THE DEBT IS CLAIMED WAS BOOKED IN EARLIER YEARS WHEREIN THE ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 80IB @100% ON THE PROFITS AND GAINS OF INDUSTRIAL UNDERTAKING AND NO TAX WAS PAID ON THE PROFIT ELEMENT OF SUCH SALES. ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 19 - III) IN THE YEAR UNDER CON SIDERATION, THE UNDERTAKING OF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IB @ 30%. ASSESSEE COULD HAVE CLAIMED THE BAD DEBT IN EARLIER YEARS WHEREIN IT WAS ELIGIBLE FOR DEDUCTION U/S 80IB@ 100% RATHER WAITING TILL THE YEARS WHEN THE LIABILITY TO PAY TH E TAX HAS ARISEN TO THE ASSESSEE @ 70% ON THE PROFITS AND GAINS OF BUSINESS. IV) THE PROFIT ON THE SALE [WHICH HAS BEEN CLAIMED AS BAD DEBT DURING THE YEAR] WAS CLAIMED AS EXEMPT U/S 80IB IN THE EARLIER YEARS AND HENCE ALLOWANCE OF DEDUCTION ON ACCOUNT OF BA D DEBT ON THE SAME SALES DURING THE YEAR WOULD AMOUNT TO DOUBLE DEDUCTION . 13 .1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHERE THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE ON THE GROUND THAT THE ASSESSEE SUBMITTED THE DETAILS OF EACH AN D EVERY DEBTOR ALOGNWITH REASONS FOR WRITING OFF THE SAME. HE FURTHER RELIED ON PROVISION OF SECTION 36(2) AND HELD THAT THE ASSESSEE - COMPANY HAS SATISFIED THE REQUIRED CONDITIONS AS PER THE PROVISIONS OF SECTION 36(2) OF THE ACT. THE VIEW TAKEN BY THE C IT(A) IS FORTIFIED BY THE RATIO OF THE DECISION OF HONBLE APEX COURT IN THE CASE OF T.R.F. LTD. VS. CIT, REPORTED IN [2010] 323 ITR 397 (SC), WHEREIN THE HONBLE COURT HAS HELD AS UNDER: SECTION 36(1)(VII) OF THE INCOME - TAX ACT, 1961 - BAD DEBTS - ASSES SMENT YEARS 1990 - 91, 1993 - 94 AND 1994 - 95 - WHETHER AFTER 1 - 4 - 1989, IT IS NOT NECESSARY FOR ASSESSEE TO ESTABLISH THAT DEBT, IN FACT, HAS BECOME IRRECOVERABLE; IT IS ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 20 - ENOUGH IF BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN ACCOUNTS OF ASSESSEE - HELD, YES - WH ETHER WHERE ASSESSING OFFICER HAD NOT EXAMINED WHETHER, IN FACT, BAD DEBT OR PART THEREOF WAS WRITTEN OFF IN ACCOUNTS OF ASSESSEE, MATTER WAS TO BE REMITTED BACK TO ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF ABOVE MENTIONED ASPECT ONLY - HELD, YES IN VIEW OF FACTS AND THE LEGAL PROPOSITION AS DISCUSSED ABOVE , WE UPHOLD THE ORDER OF THE CIT(A) ON ISSUE. 1 4 . NEXT ISSUE IS WITH REGARD TO FOREIGN TRAVEL EXPENDITURE OF RS.36,48,578/ - . THE ASSESSING OFFICER OBSERVED THAT THOUGH THE ASSESSEE - COMPANY HAD G IVEN THE NAMES OF THE PERSONS FOR WHOM EXPENSES WERE INCURRED ALOGNWITH DETAILS OF COUNTRY OF VISIT, THE ASSESSEE COULD NOT GIVE ANY JUSTIFICATION ABOUT THE PURPOSE OF VISIT AND ACCORDINGLY THE ASSESSING OFFICER DISALLOWED THE SAME. IN APPEAL, THE SAME WA S DELETED BY THE CIT(A) AFTER CALLING FOR A REMAND REPORT FROM CONCERN ASSESSING OFFICER AND THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF THE REVENUE INTER ALIA SUBMITTING THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE IN QUESTION AND T HEREFORE, THE ORDER OF THE CIT(A) BE SET ASIDE IN THIS REGARD AND THAT OF ASSESSING OFFICER BE RESTORED. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 1 4 .1 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT THE AD - HOC DISALLOWANCE AT 1/10 TH OF THE EXPENDITURE INCURRED ON FOREIGN TRAVELLING EXPENSES HAS BEEN MADE BY THE ASSESSING OFFICER AND THE CIT(A) HAS DELETED THE ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 21 - ADDITION IN QUESTION, AFTER VERIFYING THE DETAILS OF TH E SAME. MOREOVER, SIMILAR RELIEF HAS BEEN GIVEN BY ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002 - 03 TO 2004 - 05 WHICH HAS NOT BEEN DISPUTED BY THE REVENUE. MOREOVER, THE APPEAL AGAINST THE ITAT ORDER HAS NOT BEEN ADMITTED BY THE HONBLE GUJARAT HIG H COURT IN TAX APPEAL NO.1927 OF 2010. IN VIEW OF THE SAME, THE ORDER OF THE CIT(A), WHEREBY HE HAS DELETED THE ADDITION, IS HEREBY CONFIRMED . 15 . NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF DEPRECIATION CLAIMED ON HT LINES FOR ELECTRICITY SUPPLY IN RE SPECT OF VAPI - 1 UNIT (RS.2,40,488/ - ) AND SILVASSA UNIT (RS.7,99,620/ - ). THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE - COMPANY ON HT LINES. HE OBSERVED THAT THE ASSESSEE - COMPANY HAS NOT OWNED THE HT LINES AND WAS CLAIMING DEPRECI ATION ON IT. ACCORDING TO HIM, AS PER PROVISIONS OF INCOME TAX LAWS, DEPRECIATION CAN BE ALLOWED ONLY TO THE OWNER OF THE ASSETS. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED THE DEPRECIATION CLAIMED ON HT LINES AND THE DEPRECIATION AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE. 15.1I N APPEAL, THE CIT(A) ALLOWED THE DEPRECIATION ON HT LINES. IN THIS REGARD, THE LD. DR SUBMITTED THAT THE ASSESSEE IS NOT OWNER OF THE PROPERTY IN QUESTION, THEREFORE, THE CIT(A) HAS WRONGLY ALLOWED THE CLAIM OF THE ASSESSEE. ON THE OTHER HAND, LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE - COMPANY IS THE DE - FACTO OWNER OF THE HT LINES AND DISPUTE WAS ABOUT THE ALLOWABILITY OF DEPRECIATION ON ASSETS NOT ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 22 - LEGALITY OF OWNERSHIP OF THE COMPANY AND THI S ALTERNATIVE SUBMISSION OF THE ASSESSEE WAS NOT ADJUDICATED BY THE LOWER AUTHORITIES. 15.2. AGREEING TO SUBMISSION OF BOTH THE PARTIES AND IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF THE CIT(A) IN THIS REGARD AND RESTORE ISSUE TO THE FILE OF T HE ASSESSING OFFICER TO DECIDE THE ALTERNATIVE CLAIM OF THE ASSESSEE WHICH HAS NOT BEEN ADJUDICATED. OF COURSE THE ASSESSING OFFICER WILL PROVIDE THE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SINCE WE ARE RESTORING THE PRELIMINARY ISSUE TO THE FILE OF THE ASSESSING OFFICER , WE ARE REFRAINING TO COMMENT ON THE MERIT OF THE ISSUE AT HAND. 1 6 . NEXT ISSUE IS WITH REGARD TO INTER DIVISION TRANSFER AMOUNTING TO RS.3,20,79,232/ - . SIMILAR ISSUE HAS BEEN DECIDED BY ITAT IN ASSESSEES OWN ASSESSEES OW N CASE IN ITA NOS. 1668 & 1669/AHD/2006 AND 2583/AHD/2007 FOR ASSESSMENT YEARS 2002 - 03, 2003 - 04 AND 2004 - 05, WHEREBY THE ISSUE HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER, BY OBSERVING AS UNDER: - 49. AS FAR AS THIS GRIEVANCE OF THE ASSESSING O FFICER IS CONCERNED, LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS REQUIRED TO BE REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION AS IN THE EARLIER YEARS DEALT WITH BY A COORDINATE BENCH OF THIS TRIBUNAL, IN ASSESSEE'S OWN CA SE AND VIDE ORDER DATED 17TH JUNE, 2009. THE OBSERVATIONS MADE IN THIS ORDER SHALL APPLY MUTATIS MUTANDIS FOR THIS YEAR AS WELL, AND THE SAID ORDER WILL BE DEEMED TO BE ATTACHED TO AND FORMING PART OF THIS ORDER. ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 23 - 50. GROUND NO. 6 IS THUS ALLOWED FOR STATI STICAL PURPOSES IN THE TERMS INDICATED ABOVE. 1 6 .1 NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE. FACTS BEING SIMILAR, FOLLOWING THE SAME REASONING AS MENTIONED ABOVE IN THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN, THIS ISSUE IS RESTORED TO THE FILE O F THE ASSESSING OFFICER FOR FRESH ADJUDICATION AS DONE IN EARLIER YEARS AS PER THE DIRECTIONS OF THE CO - ORDINATE BENCH, OF COURSE AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 1 7 . NEXT ISSUE IS WITH REGARD TO THE INCOME FROM SALE OF SCRAP FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB OF RS.60,73,155/ - . THE ASSESSING OFFICER EXCLUDED THE INCOME FROM SALE OF SCRAP FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. ON APPEAL, THE CIT(A) GRANTED RELIEF TO THE ASSESSEE B Y OBSERVING THAT SCRAP IS NATURAL OUTCOME OF THE MANUFACTURING PROCESS AND THE SAME IS GENERATED DURING THE MANUFACTURING PROCESS AND THUS, DIRECTLY RELATED TO THE SOURCE OF BUSINESS INCOME. SIMILAR VIEW HAS BEEN TAKEN BY THE CO - ORDINATE BENCH OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR AY 2002 - 03 TO 2004 - 05 AND THE SAME WAS NOT DISTURBED BY HONBLE GUJARAT HIGH COURT IN TAX APPEAL NO.15 OF 2011. 1 7 .1 NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR, WE ARE N OT INCLINED TO INTERFERE IN THE FINDINGS OF THE CIT(A) WHO HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO INCLUDE THE SAME AS PART OF ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 24 - INCOME FROM BUSINESS FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 80IB . ACCORDINGLY, THE SAME IS UPHELD. 1 8 . NEXT ISS UE IS WITH REGARD TO EXCLUSION OF DISCOUNT EARNED ON PURCHASE OF DEPB LICENSE WHILE COMPUTING DEDUCTION U/S 80IB. THE ASSESSING OFFICER EXCLUDED THE DISCOUNT EARNED ON PURCHASE OF DEPB LICENSE OF RS.33,97,131/ - WHILE COMPUTING DEDUCTION U/S 80IB. 18.1 ON APPEAL, THE CIT(A) OBSERVED THAT DEPB LICENSE PURCHASED WAS AN ELEMENT OF PURCHASE COST AND ANY DISCOUNT RECEIVED REDUCED COST OF MANUFACTURING AND HE, ACCORDINGLY, DIRECTED THE ASSESSING OFFICER TO INCLUDE THE SAME AS PART OF INCOME FROM BUSINESS FOR T HE PURPOSE OF CALCULATION OF DEDUCTION U/S 80IB. 18.2 THIS VIEW IS FORTIFIED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS V. CIT [2012] 342 ITR 49 (SC), WHEREIN IT HAS BEEN HELD THAT SUCH DISCOUNT ACTUALLY REDUCES THE COST OF R AW MATERIAL AND THEREFORE IT REDUCED THE MANUFACTURING COST OF THE ASSESSE SUBSEQUENTLY HONBLE SUPREME COURT IN CASE OF CIT(A) VS. ORCH EV PHARMA (P ) LTD. (2013) 354 ITR 227 (SC) HAS HELD THAT DUTY DRAW RECEIPTS DO NOT FORM PART OF NET PROFIT OF ELIGIBLE I NDUSTRIAL UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S.80IA OF ACT. ASSESSING OFFICER IS DIRECTED TO DECIDE THE ISSUE AT HAND IN LIGHT OF THIS LEGAL DISCUSSION. ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 25 - 19 . NEXT ISSUE IS WITH REGARD TO EXCLUSION OF INCOME FROM THE SALE OF SCRAP FROM THE PROFIT S ELIGIBLE FOR DEDUCTION/S 10B OF RS.19,90,035/ - . THE ASSESSING OFFICER EXCLUDED THE INCOME FROM THE SALE OF SCRAP WHILE GRANTING DEDUCTION U/S 10B OF THE ACT. 19 .1 THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, WHEREIN HE OBSERVED THAT SCRAP IS NATURAL OUTCOME OF THE MANUFACTURING PROCESS AND THE SAME IS GENERATED DURING THE MANUFACTURING PROCESS, THUS, HE DIRECTED THE ASSESSING OFFICER TO INCLUDE THE SAME AS PART OF THE INCOME FROM BUSINESS FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/ 10B. THIS ISSUE IS FORTIFIED BY THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF GE BE (P.) LTD. VS. ACIT, REPORTED IN 49 TAXMANN.COM 148, WHEREIN THE HONBLE COURT HAS HELD THAT WHEN THE ASSESSEE UNDERTAKES MANUFACTURING OR PRODUCTION ACTIVITY AND IN PROCESS IT RESULTS IN ANY SCRAP, SINCE SAID SCRAP ATTRACTS NEXUS BETWEEN PROFITS AND GAINS DERIVED FROM EXPORT BUSINESS, INCOME ARISING FROM SALE OF IT IS ELIGIBLE FOR BENEFIT OF SECTION 10B OF THE ACT. ACCORDINGLY, WE ARE NOT INCLINED TO INTERFERE IN THE FINDINGS OF THE CIT(A) WHO HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO INCLUDE THE SAME AS PART OF INCOME FROM BUSINESS FOR THE PURPOSE OF CALCULATION OF DEDUCTION U/S 10B. ACCORDINGLY, THE SAME IS UPHELD. 20 . NEXT ISSUE IS WITH REGARD TO THE ADDITION MADE TO BOOK PROFIT U/S 115JB IN RESPECT OF LOSS ON WIND FARM PROJECT AMOUNTING TO RS.2,87,461/ - . THE ASSESSING OFFICER ADDED LOSS ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 26 - OF WINDMILL AS NEGATIVE INCOME FOR CALCULATING THE BOOK PROFIT U/S 115JB. THE ASSESSING OFFICER HAS MADE THE ADDITION TO THE BOOK PROFIT STATING THAT LOSS REPRESENTS NEGATIVE PROFIT. 20.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF ASSESSEE AND HAVING CONSIDERED THE SAME, CIT(A) GRANTED RELIEF T O THE ASSESSEE AND THE SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF THE REVENUE INTER ALIA SUBMITTING THAT ORDER OF THE CIT(A) BE SET ASIDE IN THIS REGARD AND THAT OF ASSESSING OFFICER BE RESTORED. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTATIVE FOR T HE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 2 0 . 2 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT THE INTENTION OF LEGISLATURE U/S 115JB APPEARS TO TAX THE BOOK PROFIT EXCLUDING THE PROFIT FROM INDUSTRIAL UNDERTAKING AS ME NTIONED AND ALSO FROM BUSINESS OF GENERATION OF POWER. AS PER THE SECTION 115JB, THE LOSS SHALL NOT INCLUDE DEPRECIATION OR THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE BUSINESS OF GENERATION / GENERATION & DISTRIBUTION OF POWER. TH US, FROM THE PROVISIONS OF THE ACT, IT IS CLEAR THAT THE INTENTION OF THE LEGISLATURE IS NOT TO TAX THE PROFITS OF AN INDUSTRIAL UNDERTAKING WHICH IS ENTITLED FOR 100% EXEMPTION AND ALSO THE PROFIT FROM GENERATION OF POWER. IN VIEW OF THESE PROVISIONS OF L AW, THE CIT(A) HELD THAT THE LOSS FROM SUCH ACTIVITIES CANNOT BE ADDED TO THE BOOK PROFIT AND ACCORDINGLY, HE ADDED THE LOSS OF RS.2,87,461/ - TO THE ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 27 - BOOK PROFIT, TREATING THE SAME AS NEGATIVE PROFIT AND DIRECTED THE ASSESSING OFFICER TO DELETE SAME FOR THE PURPOSE OF COMPUTATION OF INCOME U/S 115JB. THIS REASONED FINDING OF CIT(A) NEEDS NO INTERFERENCE FROM OUR SIDE. MOREOVER, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR AY 2002 - 03 TO 2004 - 05, IN PARAG RAPH 57 TO 60 OF THE SAID ORDER. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD. 2 1 . NEXT ISSUE IS WITH REGARD TO TP ADJUSTMENT. THIS ISSUE HAS BEEN DEALT WITH US IN PARAGRAPH NOS 5 AND 5.2 OF THE ORDER ABOVE WHILE DECIDING GROUND NO. 3 OF THE ASSESSEES APPEAL, WHICH TAKES CARE OF THIS ISSUE IN REVENUES APPEAL AS WELL. THE SAME MAY BE REFERRED ACCORDINGLY. 22 . AS A RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 23 . IN THE COMBINED RESULT, THE APPE ALS FILED BY THE ASSESSEE AS WELL AS REVENUE ARE PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE COURT ON 15TH DAY OF MAY , 201 5 AT AHMEDABAD. SD/ - SD/ - SD/ - SD/ - (ANIL CHATURVEDI ) ACCOUNTANT MEMBER ( SHAILENDRA KUMAR YADAV ) JUDICIAL ME MBER AHMEDABAD; DATED 15 /0 5 /2015 *BT TRUE COPY ITA NOS. 501 & 699/AHD/ 2009 JCIT VS. MICRO INKS LIMITED A Y 200 5 - 0 6 - 28 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A), 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD