Dinesh Mills Ltd., Baroda V. The ACIT.,Baroda Circle-4, Baroda

ITA 7/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5501 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 27-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 01-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUDHANSHU S JHA
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Capital asset; Business income; Revenue expenditure; Capital expenditure
• Section: 80HHC; 14A; 264; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH D DD D BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI N NN N. .. .S. SAINI S. SAINI S. SAINI S. SAINI, , , , ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER AND AND AND AND SHRI SHRI SHRI SHRI MAHAVIR SINGH, JUDICIAL MEMBER MAHAVIR SINGH, JUDICIAL MEMBER MAHAVIR SINGH, JUDICIAL MEMBER MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING :29-7-10 DRAFTED ON:29-7-1 0. ITA NO. 07 /AHD/ 2008 ASSESSMENT YEAR : 2004-05 SHRI DINESH MILLS LTD., OLD PADRA ROAD, P.O.NO.2501, BARODA. VS. DEPUTY COMMISSIONER OF INCOME TAX, CCIRCLE-4(1), AAYAKAR BHAVAN, RACE COURSE CIRCLE,BARODA. PAN/GIR NO. : AADCS 3115 Q (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI SUNIL H.TALA TI RESPONDENT BY: SHRI SUDHANSHU S.JHA, D.R. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-II I, BARODA DATED 29-9-2007. 2. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPE AL:- GROUND NO.1 READS AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GR OSSLY ERRED IN CONFIRMING ON AD HOC BASIS DISALLOWANCE UN DER SECTION 14A TO THE EXTENT OF `.10,000/-FROM OUT OF GENERAL ADMINISTRATIVE EXPENSES. 3. AT THE TIME OF HEARING THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THIS GROUND OF APPEAL. HENCE IT IS DISMISSED FOR WA NT OF PROSECUTION. - 2 - 4. GROUND NO.2 READS AS UNDER :- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GR OSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF PROFESSIONA L FEES OF `.7,75,235/- MADE BY THE LEARNED ASSESSING OFFICER BY TREATING THE SAID EXPENDITURE TO BE IN THE NATURE O F CAPITAL EXPENDITURE. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER NOTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT LEGAL AND PROFESSIONAL CHARGES OF `.35,50,262/ - WERE DEBITED TO THE PROFIT AND LOSS ACCOUNT OF WHICH ` 7,75,235/- RELATED TO PREPARATION IN PROJECT FEASIBILITY REPORT. ON INQUI RY, IT WAS ASCERTAINED BY THE LEARNED ASSESSING OFFICER THAT T HIS AMOUNT WAS EXPENDED FOR PREPARATION OF FEASIBILITY REPORT BY M /S. APOLLO HOSPITAL ENTERPRISES LTD. (AHEL). IT WAS SUBMITTED THAT THE ASSESSEE DID NOT HAVE ANY FACILITY FOR PROVIDING ME DICAL TREATMENT TO ITS EMPLOYEES. WITH A VIEW TO PROVIDING MEDICAL TREATMENT TO ITS EMPLOYEES, IT PROPOSED TO SET UP A HOSPITAL. TOWARD S THIS END, IT ENGAGED THE SERVICES OF M/S. AHEL FOR PREPARING FEA SIBILITY REPORT IN THIS REGARD. SUBSEQUENTLY, THE HOSPITAL PROJECT WAS ABANDONED. THE A.O. HELD SUCH PAYMENT TO BE CAPITAL EXPENDITURE AN D ACCORDINGLY DISALLOWED THE SAME. 6. BEFORE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) THE ASSESSEE SUBMITTED THAT THE EXPENDITURE LAID DOWN F OR WELFARE OF ITS EMPLOYEES IS ALLOWABLE REVENUE EXPENDITURE. THE EXPENSES LAID DOWN TO OBTAIN FEASIBILITY REPORT FOR SETTING UP OF HOSPITAL WAS MERELY INVESTIGATION EXPENSE AND WOULD SAVE THE COM PANY FROM FUTURE REVENUE EXPENDITURE BY WAY OF REIMBURSEMENT OF MEDICAL COST INCURRED BY ITS EMPLOYEES IN OUTSIDE HOSPITAL. THE ASSESSEE RELIED ON THE DECISION OF A.P. HIGH COURT IN CIT VS . COROMANDAL FERTILIZERS 105 TAXMAN 490 AND THE DECISION OF MUMB AI HIGH COURT IN THE CASE OF B. G. SHIRKE AND CO. 264 ITR 83. - 3 - 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICE R BY OBSERVING AS UNDER:- 4.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. A.R. AND THE FACTS OF THE CASE. THE UNDISPUTED FACTS ARE THA T THE ASSESSEE PROPOSED TO SET UP A CAPITAL ASSET (HOSPIT AL). BEFORE PROCEEDING WITH THE PROJECT, A FEASIBILITY REPORT W AS PREPARED, ON WHICH THE IMPUGNED EXPENDITURE OF `.7, 75,235/- WAS INCURRED. FINALLY THE PROJECT WAS ABANDONED AS NOT FEASIBLE. THE APPELLANT HAD RELIED ON SEVERAL DECIS IONS. HOWEVER, IT IS SEEN THAT THESE DECISIONS ARE DISTIN GUISHABLE ON FACTS. THE FIRST CASE RELIED ON IS COROMANDAL FE RTILIZERS. IN THAT CASE FEASIBILITY STUDY WAS UNDERTAKEN FOR ASCE RTAINING THE POSSIBILITY OF SETTING UP OF NEW LINE OF BUSINE SS ACTIVITY. THIS LINE OF BUSINESS ACTIVITY WAS RELATED TO THE M AIN BUSINESS OF THE ASSESSEE. IN THE INSTANT CASE, THE FEASIBILITY STUDY WAS WITH REGARD TO AN ACTIVITY (SETTING UP OF HOSPITAL) WHICH WAS NOT IN THE NORMAL AREA OF OPERATIONS OF T HE ASSESSEE. SIMILARLY, IN B.G.SHIRKE AND CO. THE IMPU GNED EXPENDITURE RELATED TO GENERAL PAYMENT MADE TO WELF ARE TRUST SET UP FOR THE WELFARE OF ITS EMPLOYEES. IN T HAT CASE THE EXPENDITURE WAS NOT DIRECTED TOWARDS THE CREATION O F ANY CAPITAL ASSET, BUT WAS INTENDED TO BE USED FOR WELF ARE PURPOSES GENERALLY. IN THE SAME WAY, IN GUJARAT AMB UJA CEMENTS LTD. VILLAGE WELFARE EXPENSES WERE INCURRED AS A MEASURE OF WELFARE FOR SURROUNDING VILLAGES AND NO EXPENDITURE ON CREATION OF CAPITAL ASSETS WAS INVOL VED. HERE, THE IMPUGNED EXPENDITURE WAS LAID OUT WITH A VIEW T O CREATION OF A CAPITAL ASSET, VIZ. HOSPITAL. HENCE, THE ASSESSEES RELIANCE ON THE ABOVE MENTIONED CASES IS MISPLACED. 4.2.1. IT HAS BEEN HELD BY THE COURTS IN NUMEROUS D ECISIONS THAT THE EXPENDITURE ATTRIBUTABLE TO THE CREATION O F CAPITAL ASSETS WOULD LIE IN THE CAPITAL FIELD. EXPENSES ON PREPARATION OF PROJECT/FEASIBILITY REPORTS ARE CLEARLY PRELIMIN ARY EXPENSES ASSOCIATED WITH THE CAPITAL PROJECT. SUCH EXPENSES WOULD OTHERWISE BE CAPITALIZED HAD THE PROJECT COME THROU GH. HENCE, THE EXPENDITURE WHICH WOULD HAVE TO BE CAPIT ALIZED COULD NOT BE PROPERLY CLAIMED AS REVENUE EXPENDITUR E BY THE ASSESSEE. ACCORDINGLY, I AM OF THE OPINION THAT THE A.O. HAS CORRECTLY DISALLOWED THE AMOUNT OF `.7,75,235/-. TH E ADDITION IS CONFIRMED AND THIS GROUND OF APPEAL THUS FAILS. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE INCURRED EXPENDITURE OF `.7,75,235/- FOR PREPARATIO N OF PROJECT - 4 - REPORT FOR A HOSPITAL. HOWEVER, THE PROJECT WAS NOT UNDERTAKEN AND THE ASSESSEE CLAIMED DEDUCTION FOR THE FEE INCURRED FOR THE PREPARATION OF PROJECT REPORT. THE LEARNED ASSESSIN G OFFICER DISALLOWED THE CLAIM AS IN THIS APPEAL, THE SAID EX PENDITURE WAS CAPITAL IN NATURE. ON APPEAL, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ACTION OF THE LEARNED ASSES SING OFFICER. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE PROJECT WAS PREPARED FOR CONSTRU CTION OF HOSPITAL WHICH WAS NEEDED FOR THE BENEFIT OF THE EM PLOYEES OF THE ASSESSEES BUSINESS AND THE SAME WAS CONSIDERED COM MERCIALLY EXPEDIENT BY THE ASSESSEE COMPANY. HOWEVER, THE EXP ENSES RESULTED IN ACQUISITION OF NO ASSET OF ENDURING NAT URE AND THEREFORE THE SAME WAS REVENUE IN NATURE AND BEING WHOLLY INC URRED FOR THE EFFICIENT RUNNING OF THE EXISTING BUSINESS THE SAME IS DEDUCTIBLE. HE ALSO PLACED RELIANCE UPON THE DECISION ON THE FO LLOWING DECISIONS :- (1) CIT VS. RAJ SPINNING & WEAVING MILLS LTD. 272 ITR-4 87 (2) DCIT VS. ASSAM ASBESTOS LTD. 263 ITR 357 (3) CIBT VS. COROMONDAL FERTILIZERS 105 TAXMAN 490 (4) CIT VS. B. G. SHIRKE & CO. 264 ITR 83. 9. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRE SENTATIVE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 10. WE FIND THAT GENUINENESS OF THE EXPENDITURE IS NOT IN DOUBT. FURTHER IT IS ALSO NOT IN DISPUTE THAT THE EXPENDIT URE HAS NOT RESULTED IN ACQUISITION OF ANY CAPITAL ASSET OF END URING NATURE IN THE HANDS OF THE ASSESSEE. FURTHER, THE SAID EXPENDITUR E WAS INCURRED TO RUN THE EXISTING BUSINESS EFFICIENTLY. THE HON'B LE GAUHATI HIGH COURT IN THE CASE OF ASSAM ASBESTOS LTD., (SUPRA) H AS HELD THAT EXPENDITURE INCURRED ON PREPARATION OF FEASIBILITY REPORT FOR A PROJECT WHICH DID NOT COME INTO EXISTENCE WAS OF RE VENUE NATURE AS THE ENDEAVOUR WAS TO AID THE EXISTING BUSINESS IN S UPPLY OF RAW MATERIALS. IN THE INSTANT CASE ALSO THE ENDEAVOUR W AS TO BENEFIT - 5 - EXISTING BUSINESS AS BY CONSTRUCTING THE HOSPITAL T HE ASSESSEE COULD HAVE PROVIDED BETTER MEDICAL FACILITIES TO ST AFF AT A LOWER COST THEREFORE, ON THE ABOVE FACTS IN VIEW OF THE AFORES AID DECISION OF THE HON'BLE GAUHATI HIGH COURT WE ARE OF THE VIEW T HAT THE EXPENDITURE IN QUESTION WAS A DEDUCTIBLE REVENUE EX PENDITURE IN THE HANDS OF THE ASSESSEE. WE THEREFORE, DELETE THE DISALLOWANCE OF `.7,75,235/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 11. GROUND NO.3 READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GR OSSLY ERRED IN CONFIRMING DISALLOWANCE OF `.3,240/- BEING EXPENDITURE INCURRED ON RESPECT OF CITIBANK CREDIT CARD RENEWAL FEES. 12. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER DISALLOWED `.3,240/-FOR RENEWAL FEE PAID TO CITIBANK FOR CREDIT CARD ON THE GROUND THAT IT WAS PERSONAL EXPE NDITURE WHICH WAS CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE COMPANY INCURRED EXPENDITURE OF `.3,240/- ON ACCOUN T OF CREDIT CARD OBTAINED FROM CITIBANK IN THE NAME OF THE DIRE CTOR OF THE ASSESSEE COMPANY. THE LEARNED ASSESSING OFFICER WAS OF VIEW THAT THIS IS NON ALLOWABLE EXPENDITURE AND THEREFORE, DI SALLOWED THE SAME. ON APPEAL, LEARNED COMMISSIONER OF INCOME TA X (APPEALS) HELD THAT THIS IS A PERSONAL EXPENDITURE AND THEREF ORE, NOT ALLOWABLE. BEFORE US THE LEARNED AUTHORISED REPRESE NTATIVE OF THE ASSESSEE SUBMITTED THAT CREDIT CARD WAS USED BY THE DIRECTOR FOR THE BUSINESS PURPOSES OF THE ASSESSEE COMPANY AND T HEREFORE, THE ASSESSEE COMPANY CONSIDERED IT EXPEDIENT TO INCUR T HE EXPENDITURE IN QUESTION. THE LEARNED DEPARTMENTAL REPRESENTATIV E SUPPORTED - 6 - THE ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT T HE LEARNED ASSESSING OFFICER HAS GIVEN NO REASON FOR HIS VIEW THAT SUCH EXPENSE INCURRED BY THE ASSESSEE COMPANY IS NOT ALL OWABLE THEREFORE; SUCH DISALLOWANCE IS NOT SUSTAINABLE IN LAW. FURTHER, THE ASSESSEE COMPANY BEING AN ARTIFICIAL PERSON IT OPER ATES THROUGH HUMAN AGENCY LIKE DIRECTOR OF THE COMPANY. THE REVE NUE HAS NOT DISPUTED THE CONTENTION OF THE ASSESSEE THAT CREDIT CARD WAS USED FOR BUSINESS PURPOSES OF THE ASSESSEE COMPANY. IN A BSENCE OF ANY MATERIAL BROUGHT BEFORE US TO SHOW THAT CREDIT CARD WAS NOT USED FOR BUSINESS PURPOSES OF THE ASSESSEE COMPANY IN OU R CONSIDERED VIEW THE DISALLOWANCE WAS MADE ON A WRONG FOOTING. WE THEREFORE, DELETE THE DISALLOWANCE OF `. 3240/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 14. GROUND NO.4 READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GR OSSLY ERRED IN HOLDING THAT WHILE COMPUTING DEDUCTION UND ER SECTION 80HHC FOLLOWING ITEMS OF INCOME ARE TO BE I NCLUDED IN THE TOTAL TURNOVER: (A) PROCESSING CHARGES. `. 2,315/- (B) SUNDRY CREDIT BALANCE WRITTEN OFF. `. 13,05,717/- ALTERNATIVELY AND WITHOUT PREJUDICE, LEARNED COMMIS SIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT THE AFORESAID INCOMES ARE IN THE NATURE OF OPERATIONAL INCOME FORMING PART OF BUSINESS PROFIT FOR THE PURPOSES OF SECTION 80HHC WITHOUT APPLYING THE PROVISIONS OF CLAUSE (BA A) 15. AT THE TIME OF THE HEARING THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THE PART OF THE GROUND RELATING TO PROCESSING CHARG ES OF `. 2315/-. THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 16. AS REGARDS THE OTHER PART OF GROUNDS THE BRIEF FACTS ARE THAT THE LEARNED ASSESSING OFFICER OBSERVED THAT SUNDRY BALANCES APPROPRIATED AMOUNTING TO `.13,05,718/- REPRESENT T HE BALANCE - 7 - WRITTEN BACK FROM THE ACCOUNT OF SUNDRY CREDITORS W HICH ARE NO LONGER PAYABLE. THIS INCOME IS TO BE REDUCED TO THE EXTENT OF 90% FROM THE PROFIT OF THE BUSINESS FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE I.T.ACT,1961. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE COMPA NY WAS ASKED TO EXPLAIN AS TO WHY90% OF THE ABOVE REFERRED INCOMES SHOULD NOT BE REDUCED FROM THE PROFIT OF THE BUSINE SS. THE ASSESSEE COMPANY ARGUED THAT THE ABOVE INCOME IS PA RT AND PARCEL OF BUSINESS INCOME. THE LEARNED ASSESSING OFFICER O PINED THAT THE CONTENTION OF THE ASSESSEE COMPANY IS NOT ACCEPTABL E. IN VIEW OF CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC, PROFI T OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS COMPUTED UNDER TH E HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AS RE DUCED BY 90% OF ANY SUM REFERRED TO IN CLAUSES (IIIA)(IIIB) AND (II IC) OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE COMMISSION, INT EREST RENT CHARGES OR ANY OTHER RECEIPTS OF A SIMILAR NATURE I NCLUDED IN SUCH PROFIT. IN VIEW OF THE SAME, 90% OF THE SUNDRY BALA NCE APPROPRIATED IS TO BE REDUCED FROM THE PROFIT OF BUSINESS FOR TH E PURPOSE OF CALCULATING DEDUCTION U/S., 80HHC OF THE I.T. ACT. 17. IN APPEAL, LEARNED COMMISSIONER OF INCOME TAX(A PPEALS) OBSERVED THAT THE SUNDRY CREDIT BALANCES APPROPRIAT E `13,05,517 IT IS SUBMITTED BY THE ASSESSEE THAT THIS REPRESENT TH E AMOUNT CREDITED TO PROFIT AND LOSS ACCOUNT AS INCOME. THE FACT IS THAT IN EARLIER YEARS, THE ASSESSEE HAD CLAIMED EXPENSES AG AINST WHICH FULL PAYMENT WAS NOT MADE. SINCE PART OF THE PAYMENTS W ERE WITHHELD DUE TO DISPUTES REGARDING QUALITY ETC., THE AMOUNT OF PAYMENT WITHHELD HAS BEEN NOW WRITTEN BACK AND OFFERED FOR TAXATION UNDER SECTION 41(1). THE CREDIT BALANCES NOW WRITTEN BACK CLEARLY HAVE THEIR GENESIS IN THE ACTIVITY OF EXPORT CARRIED ON BY THE ASSESSEE. HENCE IT CANNOT BE SAID THAT SAID INCOME HAD NO NEX US WITH THE EXPORT ACTIVITIES. AS SUCH, THE ACTION OF THE LEAR NED ASSESSING OFFICER IN INCLUDING THIS AMOUNT IN THE TOTAL TURNO VER CANNOT BE FAULTED AND IS UPHELD. - 8 - 18. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE REITERATED SUBMISSIONS MADE BEFORE THE LOWER AUTHOR ITIES. 19. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDERS OF THE LOWER AUTHORITIES. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS WRITTEN OFF LIABILITIES OF EA RLIER YEAR AMOUNTING TO `.13,05,718/- IN ITS BOOKS OF ACCOUNT OF THE YEAR UNDER CONSIDERATION. THE SAID AMOUNT WAS TREATED A S BUSINESS INCOME OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTION 41(1) OF THE ACT. THE LEARNED ASSESSING OFFICER WHILE COMPUT ING DEDUCTION ALLOWABLE UNDER SECTION 80HHC REDUCED 90% OF THE AF ORESAID `.13,05,718/- TO COMPUTE PROFITS OF BUSINESS. 21. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) OBSERVED AS UNDER :- SUNDRY CREDIT BALANCES APPROPRIATE `13,05,517 IT I S SUBMITTED BY THE ASSESSEE THAT THIS REPRESENT THE A MOUNT CREDITED TO PROFIT AND LOSS ACCOUNT AS INCOME. THE FACT IS THAT IN EARLIER YEARS, THE ASSESSEE HAD CLAIMED EXPENSES AGAINST WHICH FULL PAYMENT WAS NOT MADE. SINCE PART OF THE PAYMENTS WERE WITHHELD DUE TO DISPUTES REGARDING QU ALITY ETC., THE AMOUNT OF PAYMENT WITHHELD HAS BEEN NOW W RITTEN BACK AND OFFERED FOR TAXATION UNDER SECTION 41(1). THE CREDIT BALANCES NOW WRITTEN BACK CLEARLY HAVE THEIR GENESI S IN THE ACTIVITY OF EXPORT CARRIED ON BY THE ASSESSEE. HENC E IT CANNOT BE SAID THAT SAID INCOME HAD NO NEXUS WITH THE EXPO RT ACTIVITIES. AS SUCH, THE ACTION OF THE LEARNED ASS ESSING OFFICER IN INCLUDING THIS AMOUNT IN THE TOTAL TURNO VER CANNOT BE FAULTED AND IS UPHELD. 22. THUS IT IS OBSERVED THAT THE ISSUE THAT 90% OF SUNDRY BALANCES WRITTEN OFF SHOULD BE REDUCED FROM PROFITS AND GAINS OF - 9 - BUSINESS TO ARRIVE AT PROFITS OF BUSINESS IN VIEW O F EXPLANATION (BAA) TO SECTION 80HHC HAS NOT BEEN ADJUDICATED BY THE LE ARNED COMMISSIONER OF INCOME TAX(APPEALS). WE THEREFORE, RESTORE THIS ISSUE BACK TO THE FILE OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND DIRECT HIM TO ADJUDICATE THE ISSUE BY PASSING A SPEAKING ORDER AFTER ALLOWING BOTH THE PARTIES REAS ONABLE OPPORTUNITY OF HEARING. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 23. GROUND NO.5 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GR OSSLY ERRED IN NOT ADJUDICATING THE ISSUE AS TO WHETHER MISCELLANEOUS INCOME OF `. 18,95,700/- SHOULD FORM PART OF TOTAL TURNOVER WHILE QUANTIFYING DEDUCTION UNDER SECTION 80HHC. 24. THE BRIEF FACTS ARE THAT THE LEARNED ASSESSING OFFICER NOTED THAT 90% OF MISCELLANEOUS RECEIPTS OF `.18,95,700/- WAS NOT REDUCED BY THE ASSESSEE WHILE COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE COMPANY WAS ASKED TO EXPLA IN AS TO WHY90% OF THE ABOVE REFERRED INCOMES SHOULD NOT BE REDUCED FROM THE PROFIT OF THE BUSINESS. THE ASSESSEE COMPANY A RGUED THAT THE ABOVE INCOME IS PART AND PARCEL OF BUSINESS INCOME. THE LEARNED ASSESSING OFFICER OPINED THAT THE CONTENTION OF THE ASSESSEE COMPANY IS NOT ACCEPTABLE. IN VIEW OF CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC, PROFIT OF THE BUSINESS MEANS THE PROFITS OF THE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AS REDUCED BY 90% OF ANY SUM REFERRE D TO IN CLAUSES (IIIA) (IIIB) AND (IIIC) OF SECTION 28 OR OF ANY RE CEIPTS BY WAY OF BROKERAGE COMMISSION, INTEREST RENT CHARGES OR ANY OTHER RECEIPTS OF A SIMILAR NATURE INCLUDED IN SUCH PROFIT. IN VIE W OF THE SAME, 90% OF THE SUNDRY BALANCE APPROPRIATED IS TO BE REDUCED FROM THE PROFIT OF BUSINESS FOR THE PURPOSE OF CALCULATING DEDUCTIO N U/S., 80HHC OF THE I.T. ACT. - 10 - 25. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) OBSERVED THAT THE MISCELLANEOUS RECEIPTS COMPRISES OF THE FOLLOWING: PARTICULARS. AMOUNT (`) INSURANCE CLAIM RECEIVED. 3,79,769/ - MISCELLANEOUS INCOME 5,35,014/ - MISCELLANE OUS SALES. 2,61,640/ - HOUSE RENT 14,900/ - CASH DISCOUNT ON RAW - MATERIALS. 1,08,757/ - NOTICE PAY RECOVERED 2,26,220/ - INSURANCE PREMIUM TRANSIT. 3,63,595/ - EXCHANGE RATE DIFFERENCE 5,717/ - KASAR 88/ - TOTAL. 18,95,700/ - 26. THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY ME I N APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2002-03.FOLLOWING THE RATIONALE OF MY EARLIER ORDER DATED 14-6-07 IN CAB/III-97/05-06 TO THE EFFECT THAT ONLY THOSE ITEMS ARE INCLUDIBLE IN THE ELIGIBLE PRO FITS WHICH BEAR A CLOSE AND PROXIMATE NEXUS WITH THE EXPORT ACTIVITIE S, IT IS HELD THAT THE FOLLOWING ITEMS SHOULD BE INCLUDED IN THE PROFI TS OF THE BUSINESS: INSURANCE CLAIM RECEIVED (`.3,79,769) CAS H DISCOUNT ON RAW-MATERIALS (`.1,08,757), NOTICE PAY RECOVERED (` . 2,26,220), EXCHANGE RATE DIFFERENCE (`. 5,717) AND INSURANCE P REMIUM TRANSIT (`.3,63,595/-).CONVERSELY, SINCE THE FOLLOWING ITEM S DO NOT BEAR CLOSE NEXUS WITH THE PRIMARY BUSINESS ACTIVITIES, I T IS HELD THAT THEY HAVE BEEN RIGHTLY EXCLUDED BY THE ASSESSING OFFICER . MISCELLANEOUS INCOME (`.5,53,014). MISCELLANEOUS SALES (`.2,61,64 0) HOUSE RENT (`. 14,900) AND KASAR (`. 88). THE ASSESSING OFFICE R IS DIRECTED TO RECOMPUTE THE DEDUCTION UNDER SECTION 80HHC ACCORDI NGLY. 27. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AU THORITIES WHEREAS THE LEARNED DEPARTMENTAL REPRESENTATIVE SUP PORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS). 28. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE CLAIMED THAT - 11 - MISCELLANEOUS RECEIPTS OF `.18,95,700/- SHOULD BE T REATED AS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT THE MISCELLA NEOUS RECEIPTS CONSISTS OF ITEMS SUCH AS BROKERAGE COMMISSION 90% OF WHICH WAS REQUIRED TO BE REDUCED FROM THE BUSINESS PROFITS AS PER EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT THEREBY THAT MISC ELLANEOUS INCOME IS IN THE FIRST PLACE PART OF PROFITS AND BY IMPLICATION OF TOTAL TURNOVER AND THEREFORE, THE MISCELLANEOUS RECEIPTS IS TAKEN PART OF THE TOTAL TURNOVER. THEREFORE, HE REDUCED 90% OF ` .18,95,700/- FROM THE BUSINESS PROFITS FOR COMPUTING DEDUCTION U NDER SECTION 80HHC OF THE ACT AND INCLUDED THE SAID AMOUNT IN TH E TOTAL TURNOVER OF THE ASSESSEE. 29. THE ASSESSEE FILED APPEAL BEFORE THE LEARNED C OMMISSIONER OF INCOME TAX (APPEALS) WHO HELD AS UNDER :- IN RESPECT OF MISCELLANEOUS RECEIPTS (`.18,95,700/ -) IT IS SEEN THAT IT CONSISTS OF THE FOLLOWING: PARTICULARS. AMOUNT (`) INSURANCE CLAIM RECEIVED. 3,79,769/ - MISCELLANEOUS INCOME 5,35,014/ - MISCELLANEOUS SALES. 2,61,640/ - HOUSE RENT 14,900/ - CASH DISCOUNT ON RAW - MATERIALS. 1, 08,757/ - NOTICE PAY RECOVERED 2,26,220/ - INSURANCE PREMIUM TRANSIT. 3,63,595/ - EXCHANGE RATE DIFFERENCE 5,717/ - KASAR 88/ - TOTAL. 18,95,700/ - THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY ME IN AP PELLANTS OWN CASE FOR ASSESSMENT YEAR 2002-03.FOLLOWING THE RATIONALE OF MY EARLIER ORDER DATED 14-6-07 IN CAB/ III-97/05- 06 TO THE EFFECT THAT ONLY THOSE ITEMS ARE INCLUDIB LE IN THE ELIGIBLE PROFITS WHICH BEAR A CLOSE AND PROXIMATE N EXUS WITH THE EXPORT ACTIVITIES, IT IS HELD THAT THE FOLLOWIN G ITEMS SHOULD BE INCLUDED IN THE PROFITS OF THE BUSINESS: INSURAN CE CLAIM RECEIVED (`.3,79,769) CASH DISCOUNT ON RAW-MATERIAL S (`.1,08,757), NOTICE PAY RECOVERED (`. 2,26,220), E XCHANGE RATE DIFFERENCE (`. 5,717) AND INSURANCE PREMIUM TR ANSIT (`.3,63,595/-).CONVERSELY, SINCE THE FOLLOWING ITEM S DO NOT - 12 - BEAR CLOSE NEXUS WITH THE PRIMARY BUSINESS ACTIVITI ES, IT IS HELD THAT THEY HAVE BEEN RIGHTLY EXCLUDED BY THE AS SESSING OFFICER. MISCELLANEOUS INCOME (`.5,53,014). MISCELL ANEOUS SALES (`.2,61,640) HOUSE RENT (`. 14,900) AND KASAR (`. 88). THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE DEDUCTION UNDER SECTION 80HHC ACCORDINGLY. 30. THUS, IT IS OBSERVED THAT THE ISSUE THAT MISCEL LANEOUS INCOME OF `.18,95,700/- SHOULD NOT BE MADE PART OF TOTAL T URNOVER FOR COMPUTING DEDUCTION UNDER SECTION 80HHC HAS NOT BEE N ADJUDICATED BY THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS).WE THEREFORE, RESTORE THIS ISSUE TO THE F ILE OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND DIRECT HIM TO ADJUDICATE THE ISSUE BY PASSING A SPEAKING ORDER AFTER ALLOWIN G BOTH THE PARTIES REASONABLE OPPORTUNITY. THUS, THIS GROUND O F APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 31. GROUND NO.6 READS AS UNDER :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS GR OSSLY ERRED IN HOLDING THAT 90% OF THE FOLLOWING INCOMES SHOULD BE REDUCED FROM THE BUSINESS PROFIT WHILE COMPUTING DE DUCTION UNDER SECTION 80HHC: A) MISCELLANEOUS INCOME. `. 5,35,014/- B) MISCELLANEOUS SALES. `. 2,61,640/- 32. AT THE TIME OF HEARING THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE A BOVE INCOMES ARE INCLUDED IN GROUND NO.5 OF THE ASSESSEE. ACCORD INGLY THIS GROUND IS DISMISSED. 33. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30TH JULY,2010 SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTAN T MEMBER AHMEDABAD; ON THIS 30TH DAY OF JULY, 2010 - 13 - PATKI COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 29-7-2010 -------------- ----- 2. DRAFT PLACED BEFORE AUTHORITY 29-7-2010 ---- --------------- 3. DRAFT PROPOSED & PLACED 30-7-2010 ----------- -------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 30-7-2010 ------------------- JM 5. APPROVED DRAFT COMES TO P.S 30-7-2010 --------- ----------- 6. KEPT FOR PRONOUNCEMENT ON 30-7-2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK ---------------- -------------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------