Mega Packages, Chandigarh V. ITO, Chandigarh

ITA 755/CHANDI/2011

• Counselvise Citation: 75521514 RSA 2011
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 20-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: RAJESH MALHOTRA; SSH RAKESH GUPT A
• Keywords: Business income; Depreciation; Earning of tax free income; Fair market value; Bad and doubtful debts
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: CHANDIGARH BE NCH A BEFORE SHRI H.L. KARWA, V.P AND SHRI MEHAR SINGH, A M I.T.A. NO. 67/CHANDI/2011 AY 2007-08 I.T.O. WARD 1(2), CHANDIGARH V. MEGA PACKAGES, CHAN DIGARH I.T.A. NO. 755/CHANDI/2011 AY 2007-08 MEGA PACKAGES V. I.T.O. WARD 1(2), CHANDIGARH 156, INDUSTRIAL AREA, PH. II CHANDIGARH AAMFM 1966 F (APPELLANT (RESPONDENT) DEPARTMENT BY: SHRI N.K. SAINI ASSESSEE BY : S/SH RAKESH GUPTA & RAJESH MALHOTRA DATE OF HEARING: 7.3.2012 DATE OF PRONOUNCEMENT: 16.3.2012 ORDER PER MEHAR SINGH, AM THE PRESENT CROSS APPEALS FILED BY THE ASSESSEE AN D THE REVENUE FOR THE ASSESSMENT YEAR 2007-08 VIDE ITA NO . 755/CHD/2011 AND ITA NO. 67/CHD/2011 RESPECTIVELY A RE DIRECTED AGAINST THE ORDER OF LD. CIT(A), CHANDGARH DATED 27 .8.2010 PASSED U/S 250(6) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO, IN SHORT AS THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN ALLOWING DEDUCTION U/S 80IC OF THE INCOME-TAX ACT. 2 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS. 34050/- MADE U/S 2(24)(X) OF THE ACT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION OF RS. 4,91,072/- MADE U/S 40A(IA) OF THE ACT. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE OF RS. 1,20,000/- AS THE A SSESSEE FAILED TO CHARGE INTEREST ON INTEREST FREE ADVANCES GIVEN. 5. THE APPELLANT CRAVES TO ADD OR AMEND ANY GROUND ANY GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD OR DIS POSED OFF. 6. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE CANCELLED AND THAT OF THE AO MAY BE RESTORED. 3. IN ITS APPEAL THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS: 1 THE LD. CIT(A) IS WRONG IN CONFIRMING THE ADDITI ON OF RS. 2,38,633/- MADE BY THE AO BY IGNORING THE EXPLANATI ON AND SPECIFIC CONTENTION OF THE ASSESSEE THAT THE ADDITI ON ON ACCOUNT OF DISALLOWANCE OF HIGHER DEPRECIATION ON TEMPO/TRUCK WILL ONLY RESULT IN INCREASE OF EXEMPTE D INCOME WHICH WAS OTHERWISE ELIGIBLE U/S 80IC OF THE INCOME -TAX ACT, 1961. 2. THE LD. CIT(A) IS WRONG IN CONFIRMING THE ADDITI ON OF RS. 37,500/- MADE BY THE AO BY IGNORING THE EXPLANATION AND SPECIFIC CONTENTION OF THE ASSESSEE THAT THE ADDITI ON ON ACCOUNT OF DISALLOWANCE OF AUDIT FEE DEBITING TO P ROFIT AND LOSS ACCOUNT WILL ONLY RESULT IN INCREASE OF EXEMPT ED INCOME WHICH WAS OTHERWISE ELIGIBLE U/S 80IC OF THE INCOME -TAX ACT, 1961. 3. THE LD. CIT(A) IS WRONG IN CONFIRMING THE ADDITI ON OF RS. 11,11,733/- MADE BY THE AO BY IGNORING THE EXPLANAT ION AND SPECIFIC CONTENTION OF THE ASSESSEE THAT THE ADDITI ON ON ACCOUNT OF DISALLOWANCE OF COMMISSION PAID ON PURC HASES MADE FROM SILVER LINES, CHANDIGARH ONE OF THE SISTE R CONCERN WILL ONLY RESULT IN INCREASE OF EXEMPTED INCOME WHI CH WAS OTHERWISE ELIGIBLE U/S 80IC OF THE INCOME-TAX ACT, 1961. 4. THE LD. CIT(A) IS WRONG IN CONFIRMING THE ADDITI ON OF RS. 24,81,356/- MADE BY THE AO BY IGNORING THE EXPLANAT ION AND SPECIFIC CONTENTION OF THE ASSESSEE THAT THE ADDITI ON ON ACCOUNT OF DISALLOWANCE OF REBATE AND DISCOUNT DEB ITED TO PROFIT AND LOSS ACCOUNT WILL ONLY RESULT IN INCREAS E OF EXEMPTED INCOME WHICH WAS OTHERWISE ELIGIBLE U/S 80IC OF THE INCOME- TAX ACT, 1961. 3 5. IN VIEW OF ALL THESE AND SUCH OTHER GROUNDS THAT MAY BE TAKEN AT THE TIME OF HEARING, THE APPEAL MAY PLEASE BE ALLOWED AND JUSTICE RENDERED. 4. GROUND NOS. 5 AND 6 ARE GENERAL IN NATURE AND HE NCE NEED NO SEPARATE ADJUDICATION. CONSEQUENTLY, THE SAME ARE D ISMISSED. 5. IN GROUND NO. 1, THE REVENUE CONTENDED THAT ON T HE FACTS AND CIRCUMSTANCES AND IN LAW THE LD. CIT(A) ERRED IN AL LOWING DEDUCTION U/S 80IC OF THE ACT. 6. IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE TH E BENCH, BOTH THE LD 'DR', FOR THE REVENUE AND THE LD 'AR', FOR T HE ASSESSEE STATED THAT THE ISSUE RAISED IN THIS GROUND OF APPEAL BY T HE REVENUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NO. 1136/CHD/2009 FOR AY 2006-07 VIDE ORDER DAT ED 31ST MAY, 2010. THE LD. CIT(A) FOLLOWING THE SAID DECISION O F THE TRIBUNAL AND ALLOWED THE APPEAL OF THE ASSESSEE ON THIS GROUND O F APPEAL. THE RELEVANT PART OF THE DECISION IS REPRODUCED HEREUND ER: I HAVE PERUSED THE ORDER OF THE HON'BLE TRIBUNAL P ASSED IN ITA NO. 1136/CHD/2009 FOR THE AY 2006-07, WHEREIN T HE TRIBUNAL UPHELD THE ORDER OF LD. CIT(A) IN ALLOWING THE DEDUCTIONS U/S 80IC. IN VIEW OF JUDICIAL PROPENSIT Y AND RESPECTING THE DECISION OF THE HON'BLE TRIBUNAL ON THE SAME ISSUE, THE APPELLANT IS ALLOWED DEDUCTION U/S 80IC AMOUNTING TO RS. 42,28,167/- THEREBY ALLOWING THIS GROUNDS OF APPEAL. 7. IN VIEW OF ABOVE DISCUSSION, THE ISSUE RAISED IN THIS GROUND IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE WHEREBY THE APPEAL OF THE REVENUE WAS DISMISSE D ON THIS GROUND. HAVING REGARD TO THE ISSUE INVOLVED IN THE PRESENT APPEAL AND THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE WHICH COVERS THE ISSUE SQUARELY AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 4 8. GROUND NO. 2 THE REVENUE CONTENDED THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 34050/- U/S 2(24)(X ) OF THE ACT. THIS GROUND OF APPEAL IS COVERED AGAINST THE REVENUE BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT AS QUOTED BY THE LD. CIT(A) IN PARA 15. THE LD. CIT(A) FOLLOWED THE DECISION OF C IT V. M/S NUCHEM LTD IN ITA NO. 323 OF 2009 FOLLOWING THE DECISION O F THE HON'BLE APEX COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LT D (2009) 227 CTR 417. DURING THE AY UNDER CONSIDERATION, THE AO OBSERVED THAT CERTAIN PAYMENTS REPRESENTING ESI, PF AND ESI AMOU NTING TO RS. 34050/- WERE MADE AFTER THE DUE DATE AND HENCE THE SAME WERE DISALLOWED U/S 36(A)(VA) / 2(24)(X). THE LD. CIT(A ) DELETED THE IMPUGNED ADDITION BY FOLLOWING THE ABOVE DECISIONS. WE ARE IN COMPLETE AGREEMENT WITH THE DECISION OF LD. CIT(A) AS THE SAME IS BASED ON THE RATIO OF HON'BLE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT V. NUCHEM LTD (SUPRA). 9. IN GROUND NO. 3, THE REVENUE CONTENDED THAT ON T HE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN D ELETING THE ADDITION OF RS. 4,91,072/- MADE U/S 40(A)(IA) OF TH E ACT. 10 IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE TH E LD. CIT(A), IT WAS HELD THAT NO TDS WERE DEDUCTED ON FREIGHT AND C ARTAGE AND AUDIT FEE PAYMENTS DEBITED TO PROFIT AND LOSS ACCOU NT. CONSEQUENTLY, THE AO MADE DISALLOWANCE OF RS. 5,,28 ,572/- U/S 40(A)(IA) OF THE ACT. IN THE COURSE OF APPELLATE P ROCEEDINGS BEFORE THE LD. CIT(A) THE APPELLANT SUBMITTED THAT THE AO IS WRONG IN MAKING SUCH ADDITIONS AS NONE OF THE PAYMENTS MADE AGAINST EACH G.R EXCEEDED THE PRESCRIBED LIMITS MENTIONED U/S 19 4C IE. RS. 20,000/-. 5 11 THE LD. CIT(A) ON APPRECIATION OF THE FACTS OF T HE CASE PLACED RELIANCE ON THE DECISION IN THE CASE OF BHAGWATI ST EEL SALES V. ADDL CIT, RANGE-I, CHANDIGARH, ITA NO. 63/CHD/2009 AS AL SO THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT V. UNITED RICE LAND LTD (2008) 217 CTR (P&H) 332. HAVING RE GARD TO THE PRESENT CASE, WE ARE IN AGREEMENT WITH THE FINDINGS OF THE LD. CIT(A) AS THE ISSUE IS SQUARELY COVERED BY THE DECISIONS S TATED AND RELIED UPON BY THE LD. CIT(A). THIS GROUND OF APPEAL IS D ISMISSED. 12 IN GROUND NO. 4, THE REVENUE CONTENDED THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1,20,000/- MA DE ON ACCOUNT OF DISALLOWANCE IN RESPECT OF INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. 13 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS GIVEN ADVANCE OF RS. 5.00 LAK HS TO M/S ALPANA TIMBER AND M/S SOOD BHAI POPULAR WALA. THE AO FOUND THAT THE ASSESSEE HAS NOT CHARGED INTEREST ON SUCH ADVAN CES WHERE THE ASSESSEE HAD PAID INTO THE BANK. THE AO DISALLOWED THE IMPUGNED INTEREST FOLLOWING THE DECISION OF HON'BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT V. ABHISHEK INDUSTRIES, 286 ITR 1. THE LD. CIT(A) HAS FOLLOWED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION (2008) 298 ITR 288 AND DEL ETED THE IMPUGNED ADDITION. 14 WE HAVE CAREFULLY PERUSED THE DECISION OF THE HO N'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ABHISHEK I NDS (SUPRA) AS WELL AS THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION AND FIND THAT THE FACTS OF THE CA SE ARE COVERED BY 6 THE DECISION IN THE CASE OF ABHISHEK INDS (SUPRA) T HEREFORE, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE IMPUGNED ADDITI ON. THIS GROUND OF REVENUE IS ALLOWED. 15 HOWEVER, AS CONTENDED BY THE LD 'AR', FOR THE AS SESSEE IN THE COURSE OF APPELLATE PROCEEDINGS, THE IMPUGNED ADDIT ION MADE BY THE AO WOULD INCREASE THE BUSINESS PROFITS OF THE ASSES SEE DERIVED FROM INDUSTRIAL UNDERTAKING IN QUESTION. THEREFORE, THE ASSESSEE IS ENTITLING FOR DEDUCTION U/S 80IC OF THE ACT. AS TH E ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80IC, ANY ADDITION MADE TO THE ELIGIBLE PROFIT OF THE ASSESSEE WOULD ENHANCE THE ELIGIBLE A MOUNT OF DEDUCTION OF THE ASSESSEE. AS THE ASSESSEE HAS EAR NED INCOME FROM MANUFACTURING ACTIVITY FROM THE SAID UNIT, THE REFORE, THE AO IS DIRECTED TO GIVE BENEFIT TO THE ASSESSEE OF SUCH AD DITION U/S 80IC OF THE ACT. 16 THE APPEAL OF THE REVENUE IS PARTLY ALLOWED IN T ERMS STATED ABOVE. APPEAL OF THE ASSESSEE ITA NO. 755/CHD/2011 17. IN GROUND NO. 1, THE ASSESSEE CONTENDED THAT TH E LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 2,38,633/- BY IGNORING THE EXPLANATIONS AND SPECIFIED CONTENTIONS MADE BY THE ASSESSEE THAT THE ADDITION ON ACCOUNT OF DISALLOWANCE OF HIGHER DEPRECIATION ON TEMPO AND TRUCK WILL ONLY RESULT IN INCREASE IN EXE MPTION. 18. BRIEF FACTS OF THE CASE ARE THAT THE RETURN OF INCOME FOR AY IN QUESTION WAS FILED BY THE ASSESSEE ON 26.10.2007 DE CLARING GROSS TOTAL INCOME AT RS. 42,79,822/-. THE ASSESSEE CLAI MED DEDUCTION 7 U/S 80IC OF THE ACT AT RS. 42,28,167/- AND CONSEQUE NTLY THE NET TAXABLE INCOME WAS DECLARED AT RS. 51,660/-. THE A SSESSEE DERIVED INCOME FROM MANUFACTURING OF CORRUGATED BOXES. THE AO IN PARA 3 OF THE ASSESSMENT ORDER MADE A DISCUSSION OF THE IS SUE RELATING TO THE DISALLOWANCE OF DEPRECIATION OF RS. 2,38,633/- ON ACCOUNT OF DEPRECIATION CLAIMED ON TEMPO/TRUCK HIRING CHARGES. THE AO RESTRICTED THE DEPRECIATION OF SUCH ASSETS BY APPLY ING DEPRECIATION RATE AT 15% AND THIS MADE A DISALLOWANCE OF RS. 2,3 8,633/-. 19. THE LD. CIT(A) UPHELD THE ADDITION MADE BY THE AO AFTER DETAILED DISCUSSION AND APPRECIATION OF THE LEGAL A ND FACTUAL POSITION OF THE CASE. THE RELEVANT PART OF THE DIS CUSSION OF THE LD. CIT(A) IS REPRODUCED HEREUNDER: 8 I HAVE CONSIDERED THE ISSUE IN HAND. I HAVE ALSO PERUSED THE CASE OF CIT V. GUPTA GLOBAL EXIM PVT LTD. 305 I TR 132 (S.C) IN WHICH THE HON'BLE HIGH COURT HELD AS UNDER : UNDER SUB-ITEM 2(II) OF ITEM III, HIGHER RATE OF D EPRECIATION IS ADMISSIBLE ON MOTOR TRUCKS USED IN A BUSINESS OF RU NNING THEM ON HIRE. THEREFORE, THE USER OF THE SAME IN THE B USINESS OF THE ASSESSEE OF TRANSPORTATION IS THE TEST. 6. IN THE PRESENT CASE, NONE OF THE AUTHORITIES BEL OW (EXCEPT THE AO) HAS EXAMINED THE MATTER BY APPLYING THE ABOVE TEST. THE AO HAS GIVEN HIS FINDING THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF TRANSPORTATION AS HE WAS ONLY IN THE BUSINESS OF TRADING IN TIMBER LOGS. THAT, THE BURD EN WAS ON THE ASSESSEE TO ESTABLISH THAT IT IS THE OWNER OF M OTOR LORRIES AND THAT IT USED THE SAID MOTOR LORRIES/TRUCKS IN T HE BUSINESS OF RUNNING THEM ON HIRE. 7. IN OUR VIEW, THE ENTIRE APPROACH OF LD. CIT(A) W AS ERRONEOUS WHEN HE HAS STATED THAT THE TRANSPORTATIO N INCOME OF RS. 12,50,639/- BY WAY OF RUNNING THE SUBJECT VE HICLES ON HIRE IS AN INTEGRAL PART OF THE APPELLANTS BUSINES S AND ITS INCLUSION IN THE HEAD BUSINESS INCOME IS NOT DISP UTED EVEN BY THE AO. IN OUR VIEW, MERE INCLUSION OF RS. 12,5 0,639/- IN THE TOTAL BUSINESS INCOME IS NOT THE DETERMINATIVE FACTOR FOR DECIDING WHETHER TRUCKS WERE USED BY THE ASSESSEE D URING THE RELEVANT YEAR IN A BUSINESS OF RUNNING THEM ON HIRE . IN OR VIEW, THE LD. CIT(A) HAD ERRED IN RELYING UPON THE ACCRUAL OF 8 INCOME AS A DETERMINATIVE FACTOR FOR COMING TO THE CONCLUSION THAT TRUCKS WERE USED IN A BUSINESS OF RUNNING THEM ON HIRE. 8. WHAT IS RELEVANT FOR CONSIDERATION UNDER SUB-ITE M 2(II) OF ITEM III OF APPENDIX I TO THE IT RULES, 1962 IS WHE THER THE ASSESSEE WAS IN THE BUSINESS OF HIRING OUT HIS TRUC KS IN ADDITION TO HIS BUSINESS OF TRADING IN TIMBER. THE ORDER OF ASSESSMENT CLEARLY INDICATES THAT THE ASSESSEE WAS ONLY IN THE BUSINESS OF TRADING IN TIMBER. WE DO NOT HAVE THE RETURNS FILED BY THE ASSESSEE BEFORE US. WE DO NOT HAVE THE CONS TITUTION OF THE ASSESSEE COMPANY BEFORE US. THERE IS NO EVIDE NCE TO INDICATE THAT THE ASSESSEE WAS IN THE BUSINESS OF H IRING OUT MOTOR LORRIES FOR RUNNING THEM TO EARN BUSINESS INC OME. THE ENTIRE INFERENCE IS DRAWN BY LD. CIT(A) ONLY ON THE FOOTING THAT THE AO HAD TREATED RS. 12,59,639/- AS PART OF TOTAL BUSINESS INCOME WHICH IS NOT DETERMINATIVE OF THE ABOVE TEST VIZ., WHETHER THE TRUCKS WERE USED IN THE TRANSPORTATION BUSINESS AS CLAIMED BY THE ASSESSEE. 9. THE RELEVANT EXTRACT OF BOARDS CIRCULAR AS QUOT ED IN THE CASE OF CIT V. S.C. THAKUR & BROTHERS, 221 CTR 779 (BOMBAY) THE HON'BLE COURT HAS OBSERVED AS UNDER: 4 IN APPEAL THE LD. TRIBUNAL RELIED ON THE CIRCULAR NO. 652, DATED 14 TH JUNE, 1993 (1993) 112 CTR (ST) 14} ISSUED BY THE CBDT WHICH READS AS UNDER: SUBJECT: SECTION 32 OF THE IT ACT, 1961 RATE OF DE PRECIATION ON MOTOR LORRIES USED IN THE BUSINESS OF TRANSPORTA TION OF GOODS-REGARDING. UNDER SUB-ITEM 2(II) OF ITEM NO. III OF APPENDIX 1 TO THE IT RULES, 1962, HIGHER RATE OF DEPRECIATION IS ADMISSI BLE ON MOTOR BUSES, MOTOR LORRIES AND MOTOR TAXIS USED IN A BUSI NESS OF RUNNING THEM ON HIRE. A QUESTION HAS BEEN RAISED A S TO WHETHER FOR DERIVING THE BENEFIT OF HIGHER DEPRECIA TION, MOTOR LORRIES MUST BE HIRED OUT TO SOME OTHER PERSON AND WHETHER THE USER OF THE SAME IN THE ASSESSEES BUSINESS OF TRANSPORTATION OF GOODS ON HIRE WOULD SUFFICE. 2. IN BOARDS CIRCULAR NO. 609, DATED 29 TH JULY 1991 (1992) 96 CTR (ST) 233}, IT WAS CLARIFIED THAT WHERE A TOU R OPERATOR OR TRAVEL AGENT USES MOTOR BUSINESS OR MOTOR TAXIS OWN ED BY HIM IN PROVIDING TRANSPORTATION SERVICES TO TOURISTS, H IGHER RATE OF DEPRECIATION WOULD BE ALLOWED ON SUCH VEHICLES. I T IS FURTHER CLARIFIED THAT HIGHER DEPRECIATION WILL ALSO BE ADM ISSIBLE ON MOTOR LORRIES USED FOR THE ASSESSEES BUSINESS OF TRANSPORTATION OF GOODS ON HIRE. THE HIGHER RATE O F DEPRECIATION HOWEVER, WILL NOT APPLY IF THE MOTOR B USINESS MOTOR LORRIES ETC. ARE USED IN SOME OTHER NON-HIRIN G BUSINESS OF THE ASSESSEE. 5. A PERUSAL OF THE SAID CIRCULAR WOULD MAKE IT CLE AR THAT THE HIGHER RATE OF DEPRECIATION IS ALSO ADMISSIBLE WHEN THE MOTOR LORRY IS USED BY THE ASSESSEE IN HIS OWN BUSINESS O F TRANSPORTATION OF GOODS ON HIRE. 9 10. GOING BY THE RELEVANT RULE AND LEGAL POSITION, THE MOST IMPORTANT POINT IS WHETHER OR NOT THE ASSESSEE IS I N THE BUSINESS OF HIRING I.E., WHETHER HE HAS ANY INCOME FROM HIRING. HERE THE ASSESSEE IS SUPPLYING THE CORRUGATED BOXES MANUFACTURED BY HIM ON FOR BASIS BUT THIS DOES NOT IN ANY WAY IMPLY THAT HE IS IN THE HIRING BUSINESS. THE C ASE OF SHARMA MOTOR SERVICE, 235 ITR 89, RELIED UPON BY TH E APPELLANT IS ON TOTALLY DIFFERENT FACTS SINCE THERE , THE ASSESSEE IS DERIVING INCOME FROM PLYING OF BUSES AND BEING I N THE TRANSPORT BUSINESS IF FULLY QUALIFIED FOR A HIGHER DEDUCTION. THE RELEVANT EXTRACT IS GIVEN BELOW: WE HAVE GONE THROUGH THE RECORD AND AFTER CONSIDER ING THE MATTER, WE ARE OF THE OPINION THAT THE VIEW TAKEN B Y THE AO APPEARS TO BE JUSTIFIED. THE QUESTION FOR CONSIDER ATION IN THIS CASE IS AS WHAT IS THE BUSINESS OF THE ASSESSEE. T HE ASSESSEE IS DOING TRANSPORT BUSINESS OF TRANSPORTIN G PASSENGERS FROM ONE PLACE TO THE OTHER. THEREFORE, THE BUSINESS OF THE ASSESSEE IS TRANSPORT BUSINESS AND AS ALL THE VEHICLES ARE EMPLOYED IN THAT BUSINESS, HE IS ENTIT LED TO DEPRECIATION TO THE EXTENT OF 50 PER CENT. 11. ANOTHER RELEVANT JUDGMENT THAT I CAME ACROSS IS THAT OF THE CIT V. GUPTA GLOBAL EXIM (P) LTD. 305 ITR 132 ( S.C) WHICH FULLY SUPPORTS THE STAND TAKEN BY THE AO. THE RELE VANT EXTRACT OF THE JUDGMENT IS GIVEN BELOW: THE AO TOOK THE VIEW THAT THE ASSESSEE WAS, DURING THE RELEVANT ASSESSMENT YEAR, IN THE BUSINESS OF TIMBER TRADING AND IT IS ONLY OCCASIONALLY THAT THE TRUCKS OWNED B Y THE ASSESSEE WERE GIVEN OUT ON HIRE TO OUTSIDE PARTIES AND, THEREFORE, THE ASSESSEE WAS NOT IN THE BUSINESS OF RUNNING THE TRUCKS ON HIRE AND, THEREFORE, THE ASSESSEE WA S NOT IN THE BUSINESS OF RUNNING THE TRUCKS ON HIRE AND, THEREFO RE, THE ASSESSEE WAS NOT ENTITLED TO CLAIM HIGHER RATE OF D EPRECIATION AT 40 PER CENT. THIS FINDING OF THE AO WAS REVERSE D BY LD. CIT(A) VIDE ORDER DATED 29 TH OCT. 2004 . WHAT IS RELEVANT FOR CONSIDERATION UNDER SUB-ITEM2( II) OF ITEM III OF APPENDIX I TO THE IT RULES, 1972 IS WHETHER THE ASSESSEE WAS IN THE BUSINESS OF HIRING OUT HIS TRUCKS IN ADD ITION TO HIS BUSINESS OF TRADING IN TIMBER. THE ORDER OF ASSESS MENT CLEARLY INDICATES THAT THE ASSESSEE WAS ONLY IN THE BUSINES S OF TRADING IN TIMBER. WE DO NOT HAVE THE RETURNS FILED BY THE ASSESSEE BEFORE US. WE DO NOT HAVE THE CONSTITUTION OF THE ASSESSEE COMPANY BEFORE US. THERE IS NO EVIDENCE TO INDICA TE THAT THE ASSESSEE WAS IN THE BUSINESS OF HIRING OUT MOTOR LO RRIES FOR RUNNING THEM TO EARN BUSINESS INCOME.THE ENTIRE INF ERENCE IS DRAWN BY LD. CIT(A) ONLY ON THE FOOTING THAT THE AO HAD TREATED RS. 12,59,639/- AS PART OF TOTAL BUSINESS INCOE WHI CH IS NOT DETERMINATIVE OF THE ABOVE TEST, VIZ., WHETHER THE TRUCKS WERE USED IN THE TRANSPORTATION BUSINESS AS CLAIMED BY T HE ASSESSEE. 10 12. IN VIEW OF THE ABOVE DISCUSSION, I STAND BY THE DECISION OF THE AO AND CONFIRM THE ADDITION OF RS. 238633/-, DISMISSING THIS GROUND OF APPEAL. HAVING REGARD TO THE CLEAR LOGICAL AND FACTUAL DISC USSIONS OF THE CASE OF THE LD. CIT(A) AND CONSEQUENTLY THE FINDIN GS THEREON WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A). HENCE THIS GROUND OF APPEAL IS DISMISSED. 20. IN GROUND NO. 2, THE ASSESSEE CONTENDED THAT TH E LD. CIT(A) IS WRONG IN CONFORMING THE ADDITION OF RS. 37,500/- MA DE BY THE AO BY IGNORING THE EXPLANATIONS AND SPECIFIED CONTENTION S OF THE ASSESSEE THAT EH ADDITION ON ACCOUNT OF DISALLOWANCE OF AUD IT FEE DEBITED TO PROFIT AND LOSS ACCOUNT WHILE ONLY RESULT IN INCREA SE OF EXEMPTION IN INCOME U/S 80IC OF THE ACT. 21. THE AO MADE DISALLOWANCE OF RS. 37,500/- IN RES PECT OF AUDIT FEE PAID BY THE ASSESSEE. THE LD. CIT(A) UPHELD TH E IMPUGNED ADDITION. THE LD. CIT(A) HELD AS SECTION 194J SPEC IFICALLY PROVIDES THAT ANY PERSONS OTHER THAN AN INDIVIDUAL OR AN HUF , WHO IS RESPONSIBLE FOR PAYING TO AS RESIDENT ANY SUM BY WA Y OF FEE FOR PROFESSIONAL SERVICES SHALL DEDUCT INCOME TAX ON TH E INCOME COMPRISED THEREIN. IN THIS CASE, THE APPELLANT FAI LED TO DEDUCT TAX ON THE AUDIT FEE MADE TO A PROFESSIONAL FOR AUDIT O F ACCOUNTS, WHICH FALLS WITHIN THE AMBIT OF SECTION 40(A)(IA) AND RIG HTLY DISALLOWED BY THE AO. 22. HAVING REGARD TO THE RIVAL SUBMISSIONS ON THE I SSUE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND H ENCE THE IMPUGNED ADDITION OF RS. 37,500/- IS UPHELD. 11 23. IN GROUND NO. 3 THE ASSESSEE CONTENDED THAT THE LD. CIT(A) WAS NOT RIGHT IN CONFIRMING THE ADDITION OF RS. 11, 11,733/- MADE BY THE AO BY IGNORING THE EXPLANATIONS AND SPECIFIED C ONTENTIONS OF THE ASSESSEE THAT THE ADDITION ON ACCOUNT OF DISALLOWA NCE OF COMMISSION AND PAID ON PURCHASES MADE FROM SILVER L INE, CHANDIGARH ONE OF THE SISTER CONCERN WILL ONLY RESU LT IN INCREASE OF EXEMPTION U/S 80IC OF THE ACT. 24. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS , FACTS OF THE CASE AND RELEVANT RECORDS. THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS, DISALLOWED THE EXCESSIVE OR UN-REASONA BLE COMMISSION PAID TO THE SISTER CONCERN BY THE ASSESSEE U/S 40A( 2)(B) OF THE ACT. THE AO FOUND THAT ON PURCHASE FROM SILVER LINE, CHA NDIGARH THE ASSESSEE MADE COMMISSION PAYMENT OF RS. 11,11,733/- . THE RATE OF COMMISSION ON PURCHASE WORKED OUT TO 7.1%. ACCORDI NGLY, THE IMPUGNED AMOUNT WAS DISALLOWED BY THE AO. 25. THE LD. CIT(A) IN DETAILED SPEAKING ORDER PASSE D ON APPRECIATION OF THE FACTUAL AND LEGAL ASPECTS OF TH E CASE, UPHELD THE FINDINGS OF THE AO. THE FINDINGS OF THE LD. CIT(A) ARE REPRODUCED HEREUNDER: 29 AFTER TAKING INTO CONSIDERATION THE RIVAL SUBMI SSIONS, MY OBSERVATIONS ARE AS UNDER: SECTION 40A(2)(B) CLEARLY DEFINES THAT ANY EXPENDIT URE INCURRED IN RESPECT OF WHICH PAYMENT HAS BEEN MADE OR IS TO BE MADE TO RELATIVES OR CLOSE ASSOCIATES OF THE ASSESSEE, A ND WHERE THE AO IS OF THE OPINION THAT SUCH EXPENDITURE IS E XCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES, FOR WHICH THE PAYMEN T IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE, AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE, SHALL NOT BE ALLOWED AS A DEDUCTION. 12 30 IN THE INSTANT CASE, NO MATERIAL WAS BROUGHT ON RECORD BY THE APPELLANT WHICH COULD PROVE THE GENUINENESS OF THE COMMISSION PAID TO ITS SISTER CONCERN. THIS ISSUE H AS BEEN DEALT BY THE HON'BLE HIGH COURT IN THE CASE OF CORO NATION FLOUR MILLS V. ASSTT. CIT(2009) 314 ITR 1 (GUJ) WHE REIN FOLLOWING FINDING HAS BEEN GIVEN BY THE HON'BLE COU RT: IN RELATION TO THE DISALLOWANCE UNDER THE PROVISION S OF SECTION 40A(2), A PLAIN READING OF THE PROVISION REVEALS TH AT WHERE AN ASSESSEE INCURS ANY EXPENDITURE IN RESPECT TO WHICH PAYMENT IS REQUIRED TO BE MADE OR HAS BEEN MADE TO ANY PERS ON REFERRED TO IN CLAUSE (B) OF SECTION 40A(2) AND THE AO IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREA SONABLE HAVING REGARD TO (A) FAIR MARKET VALUE OF THE GOODS , SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE; OR (B) TH E LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE; (C) THE BENE FITS DERIVED BY OR ACCRUING TO THE ASSESSEE ON RECEIPT OF SUCH G OODS, SERVICES OR FACILITIES, THEN THE AO SHALL NOT ALLOW AS A DEDUCTION SO MUCH OF THE EXPENDITURE AS IS CONSIDER ED BY H AO TO BE EXCESSIVE OR UNREASONABLE. THEREFORE, IT BECOMES APPARENT THAT THE AO IS REQUIRED TO RECORD A FINDIN G AS TO WHETHER THE EXPENDITURE IS EXCESSIVE OR UNREASONABL E IN RELATION TO ANY ONE OF THE THREE REQUIREMENTS PRESC RIBED, WHICH ARE INDEPENDENT AND ALTERNATIVE TO EACH OTHER. ALL THE THREE REQUIREMENTS NEED NOT EXIST SIMULTANEOUSLY. IN A G IVEN CASE, IF ANY ONE CONDITION IS SHOWN TO BE SATISFIED THE P ROVISION CAN BE INVOKED AND APPLIED, IF THE FACTS SO WARRANT. WHETHER THE AO HAD HELD A PART OF THE EXPENDITURE T O BE EXCESSIVE HAVING REGARD TO THE LEGITIMATE NEEDS OF THE BUSINESS AND FOR RECORDING SUCH A FINDING COGENT RE ASONS WERE ASSIGNED BY THE AO, THE CONDITION OF ASSESSEE THAT THE FAIR MARKET VALUE HAVING NOT BEEN ASCERTAINED BY THE AO NO DISALLOWANCE COULD HAVE BEEN MADE HAD NO MERIT. 31. IN THE CASE UNDER APPEAL, NOTHING HAS BEEN BROU GHT BY THE APPELLANT TO ESTABLISH THAT THE COMMISSION PAID TO ITS SISTER CONCERN WAS NOT ON THE HIGHER SIDE OR EQUIVALENT TO THE PREVALENT MARKET RATES. FURTHER THERE IS NOTHING T O ESTABLISH THAT THE COMMISSION AT THE SAME RATE TO PROCURE ORD ERS WAS GIVEN TO ANY UNRELATED PARTY. LEGITIMATE NEED OF T HE BUSINESS VIS--VIS THE COMMISSION PAID HAS ALSO NOT BEEN CLE ARLY ESTABLISHED. AS CLEARLY MENTIONED IN THE CASE OF C ORONATION FLOUR MILLS (SUPRA), IT IS NOT AS MUCH FOR THE AO A S IT IS FOR THE ASSESSEE TO ESTABLISH THROUGH COGENT EVIDENCE THE L EGITIMACY OF THE EXPENDITURE INCURRED. IN THE ABSENCE OF ANY SUCH EVIDENCE, THE COMMISSION OF 7.1% TO PROCURE PURCHAS E ORDERS BEING UNREASONABLE HAS BEEN RIGHTLY DISALLOWED BY T HE AO. AS A RESULT, THE ADDITION OF RS. 11,11,733/- ON THIS A CCOUNT IS CONFIRMED, DISMISSING ASSESSEES GROUND OF APPEAL. 26. HAVING REGARD TO THE ABOVE DISCUSSION AND CLEAR FINDINGS OF THE LD. CIT(A), WE DO NOT FIND ANY GROUND TO DIS-AG REE TO SUCH 13 FINDINGS GIVEN BY THE LD. CIT(A). THEREFORE, THE F INDINGS OF THE LD. CIT(A) ARE UPHELD. GROUND OF APPEAL IS DISMISSED. 27. IN GROUND NO. 4, THE ASSESSEE CONTENDED THAT TH E LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 24,81,356/- MADE BY THE AO IGNORING SUBMISSIONS OF THE ASSESSEE ON ACCOUNT OF DISALLOWANCE OF REBATE AND DISCOUNT DEBITED TO PROFIT AND LOSS ACCO UNT WHICH WOULD RESULT IN INCREASE OF EXEMPT INCOME U/S 80IC OF THE ACT. 28. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO DISALLOWED THE IMPUGNED AMOUNT CLAIMED BY THE ASSESSEE AS REBA TE AND DISCOUNT IN THE PROFIT AND LOSS ACCOUNT. THE REBAT E AND DISCOUNT WAS GIVEN ON SALES MADE BY THE ASSESSEE AMOUNTING T O RS. 8,00,50,517/-. THE AO WORKED OUT %AGE OF SUCH REBAT E AND DISCOUNT ON SALES TO 3.1%. THE AO FOUND THAT THE IMPUGNED A MOUNT WHICH IS CHARGED TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT O F REBATE AND DISCOUNT REPRESENT THE AMOUNT OF SALE WHICH RE NOT RECOVERED DURING THE YEAR AND IT DOES NOT REPRESENT REBATE AND DISCO UNT. CONSEQUENTLY, THE AO DISALLOWED THE SAID AMOUNT. 29. THE ASSESSEE APPEARED BEFORE THE LD. CIT(A) AND CONTENDED THAT THE IMPUGNED AMOUNT REPRESENT THE IRRECOVERABL E BAD DEBTS AND NOT EXPENDITURE BOOKED UNDER THE HEAD REBATE AND D ISCOUNT. THE APPELLANT PLACED RELIANCE ON THE DECISION IN THE CA SE OF T.R.F LTD V. CIT (2010) 35 DTR 156 (SC) WHILE PLACING HIS CASE BEFORE THE LD. CIT(A). 30 THE LD. CIT(A) ON APPRECIATION OF THE RELEVANT S TATUTORY PROVISIONS OF SECTION 36(2) R.W. SECTION 36(1)(VII) AND CONFIRMED THE ADDITION MADE BY THE AO. IT IS PERTINENT TO REPRODU CE THE FINDINGS OF 14 AO ON THE ISSUE IN QUESTION AS CONTAINED IN PARA 7 OF THE ASSESSMENT ORDER DATED 30.10.2009: 7 THE ASSESSEE HAS GIVEN REBATE AND DISCOUNT WORTH RS. 24,81,356/- WHICH IS DEBITED IN THE PROFIT AND LOSS ACCOUNT DURING THE YEARS UNDER CONSIDERATION. THIS REBATE AND DISCOUNT HAS BEEN GIVEN ON SALES WORTH RS. 8,00,50, 517/-. THE ASSESSEE PERCENTAGE OF REBATE AND DISCOUNT ON S ALES COMES OUT TO 3.1%. THE ASSESSEE WAS ASKED TO FURNI SH PARTY- WISE DETAILS OF SALES AND THE AMOUNT OF REBATE AND DISCOUNT GIVEN TO THEM WHICH WAS FURNISHED BY THE ASSESSEE. ON CHECKING THE DETAILS FILED BY THE ASSESSEE, IT WAS NOTICED THAT AMOUNT OF RS. 24,81,356/- WHICH IS DEBITED IN THE P ROFIT AND LOSS ACCOUNT ON ACCOUNT OF REBATE AND DISCOUNT IS T HE AMOUNT OF SALES WHICH A RE NOT RECOVERED DURING THE YEAR A ND NOT THE REBATE AND DISCOUNT. THE SAME IS NOT AN ALLOWABLE EXPENDITURE. HENCE THE SAME IS DISALLOWANCED. 31 THE FACTUAL FINDINGS GIVEN BY THE AO REVEALS THA T THE IMPUGNED AMOUNT OF RS. 24,81,356/- WHICH IS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD REBATE AND DISCOUN T IS THE AMOUNT OF SALE WHICH ARE NOT RECOVERED DURING THE Y EAR AND DOES NOT REPRESENT THE REBATE AND DISCOUNT. ACCORDINGLY THE AO DISALLOWED THE SAME. 32. ON CAREFUL PERUSAL OF THE ASSESSMENT ORDER AS W ELL AS THE ORDER PASSED BY THE CIT(A), THE CONTENTIONS MADE BY THE LD 'AR' ,FOR THE ASSESSEE BEFORE THE CIT(A), IT EMERGES THAT THE REVENUE AUTHORITIES HAVE DISALLOWED THE IMPUGNED EXPENSES T REATING THE SAME AS REBATE AND DISCOUNT WHEREAS THE ASSESSEE HA D CLAIMED SUCH AMOUNT REPRESENTING THE IRRECOVERABLE BAD DEBT S. 33. THE LD. CIT(A) AFTER DISCUSSING THE CONCEPT OF BAD DEBTS, HELD THAT BAD DEBTS ARE DIFFERENT THAN THE REBATE AND DI SCOUNT. THE LD. CIT(A) HELD THAT NO EVIDENCE WAS ADDUCED BY THE APP ELLANT BEFORE THE AO OR BY HIM TO ESTABLISH THAT THE AMOUNT REPRE SENTS TO BAD DEBTS. CONSEQUENTLY THE IMPUGNED AD WAS MADE. THE ADDITION MADE BY THE AO WAS UPHELD BY THE LD. CIT(A). WE AR E OF THE OPINION THAT THE BAD DEBTS ARE ALLOWED AS DEDUCTION IN TERMS OF PROVISIONS OF SECTION 36(1)(VII) R.W. SEC 36(2) OF THE ACT. THERE IS 15 NO REQUIREMENT ON THE PART OF THE ASSESSEE TO ESTAB LISH THE FACTUM BECOMING SAID DEBT AS BAD. HOWEVER, THE ADDITION H AS BEEN UPHELD IN DIFFERENT CONTEXT. ACCORDINGLY, IN THE LIGHT OF THE DISCUSSIONS MADE BY THE LD. CIT(A), WE UPHOLD HIS FINDINGS. 33(I) HOWEVER, IT IS MADE CLEAR THAT THE ASSESSEE I S ELIGIBLE FOR ENHANCED DEDUCTION U/S 80IC OF THE ACT IN VIEW OF A NY ADDITION MADE TO THE INCOME OF THE ASSESSEE-APPELLANT IN THE LIGH T OF THE DECISION OF THE HP HIGH COURT IN THE CASE OF CIT V. ALLIED I NDS. (2009) 31 DTR 323 (HP). THE GROUNDS OF APPEAL BEARING SERIAL NO. FROM ONE TO FOUR, OF THE ASSESSEES APPEAL, WERE DISMISSED I N TERMS INDICATED ABOVE. CONSEQUENTLY, THE APPELLANT WOULD BE ELIGIB LE FOR ENHANCED DEDUCTION U/S 80IC OF THE ACT, IN RESPECT OF THE G ROUNDS OF APPEAL DISMISSED BY US. 34. GROUND NO. 5 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDICATION. HENCE THE SAME IS D ISMISSED. 35. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AS INDICATED ABOVE WHEREAS THE APPEAL OF THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 16 .3.2012 SD/- SD/- (H.L. KARWA) (MEHAR SING H) VICE PRESIDENT ACCOUNANT MEMBER CHANDIGARH, 16.3.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/T HE CIT(A)/THE DR