M/s Indian Acrylics Ltd., Chandigarh V. ACIT, Chandigarh

ITA 797/CHANDI/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73412 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-04-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 28-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Assessee Lawyers: RAJESH GARG
• Keywords: Business expenditure; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 40A(3); 14A; 80G; 194C; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 797/CHD/2009 ASSESSMENT YEAR : 2005-06 M/S INDIAN ACRYLICS LTD VS. A.C.I.T. CIRCLE 5(1) SCO 49-50, SECTOR 26 CHANDIGARH CHANDIGARH ITA NO. 765/CHD/2009 ASSESSMENT YEAR : 2005-06 A.C.I.T. CIRCLE 5(1) VS. M/S INDIAN ACRYLICS LT D CHANDIGARH SCO 49-50, SECTOR 26 CHANDIGARH (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI RAJESH GARG DEPARTMENT BY: SMT. JYOTI KUMARI DATE OF HEARING 3.12.2013 DATE OF PRONOUNCEMENT 3 .1.2014 O R D E R PER T.R.SOOD, A.M THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 25.5.2009 OF THE CIT(A), CHANDIGARH. THE APPEALS WE RE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER. ITA NO. 797/CHD/2009 ASSESSEES APPEAL 2 IN THIS APPEAL THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1 THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS), HAS ERRED IN LAW AS WELL AS ON FACTS OF THE CASE IN CONFIRMING T HE DISALLOWANCE OF LOSS ON SALE OF INVESTMENTS AMOUNTING TO RS. 68,000 /- AND MAKING THE ADDITION OF RS. 87980/- AS SHORT TERM CAPITAL GAIN ON SALE OF INVESTMENTS. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ), HAS ERRED IN CONFIRMING DISALLOWANCE U/S 14A IN THE CASE OF THE ASSESSEE, WHEREAS SECTION 14A IS NOT APPLICABLE TO THE FACTS OF THE P RESENT CASE. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ), IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF INTERES T EXPENSES TO THE EXTENT 2 OF RS. 70,98,368/- AND OTHER EXPENSES TO THE EXTENT OF RS. 445814/- U/S 14A. THEREFORE, RELIEF MAY PLEASE BE ALLOWED TO THE ASSESSEE. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN CONFIRMING DISALLOWANCE OF THE EXEMPTION OF AGRICUL TURE INCOME TO THE EXTENT OF 50% ON ESTIMATED BASIS AND TREATING THE S AME AS INCOME FROM OTHER SOURCES. 5. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) GROSSLY ERRED IN LAW AS WELL AS FACTS IN CONFIRMING DISALLOWANCE U/S 40A(3) AMOUNTING TO RS. 46,800/-. THEREFORE SAME NEEDS TO BE DELETED . 6. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AS WELL AS FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 12,50,000/- INCURRED ON ACCOUNT OF FILING FEES FOR INCREASE IN AUTHORIZED CAPITAL BY TREATING THE SAME AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE. 7. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OF RS. 20,000/- IN CURRED ON ACCOUNT OF CONSENT FEE PAID TO PUNJAB POLLUTION CONTROL BOARD BY TREATING THE SAME AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITU RE. 8. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS GROSSLY ERRED IN LAW AS WELL AS FACTS IN CONFIRMING THE DIS ALLOWANCE OF BUSINESS PROMOTION EXPENSES TO THE EXTENT OF RS. 6,00,000/- INCURRED BY THE ASSESSEE FOR THE BUSINESS PURPOSE. THE ADDITION MAY PLEASE BE DELETED. 9. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS GROSSLY ERRED IN LAW AS WELL AS FACTS IN CONFIRMING THE DIS ALLOWANCE OF RS. 67,57,763/- U/S 40(A)(IA) INCURRED ON ACCOUNT OF FR EIGHT PAYMENTS MADE TO THE TRUCK OPERATORS UNION. THE ADDITION CONFIRME D ON THIS ACCOUNT AMOUNTING TO RS. 67,57,763/- NEEDS TO BE DELETED. 10. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OF FREIGHT EXPENSE S TO THE EXTENT OF RS. 854452/- U/S 40(A)(IA). THE ADDITION CONFIRMED ON T HIS ACCOUNT NEEDS TO BE DELETED. 11. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF CLAIM OF THE ASSESSE E FOR RS. 6,86,63,769/- BEING SALES TAX LIABILITY ON ACCOUNT OF SALES TAX EXEMPTION/SUBSIDY TREATING THE SAME AS REVENUE RECE IPT, WHEREAS, THE SAME IS A CAPITAL RECEIPT. THEREFORE, THE ADDITION OF RS. 6,86,63,769/- MAY KINDLY BE DELETED AND RELIEF BE ALLOWED TO THE ASSESSEE. 3 GROUND NO. 1 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTI CED THAT THE ASSESSEE HAS CLAIMED BUSINESS LOSS AMOUNTING TO RS. 68,000/- ON ACCOUNT OF DISPOSAL OF CURRENT INVESTM ENTS. ON EXAMINATION OF THE DETAILS, IT WAS NOTICED THAT THE ASSESSEE HAS PURCHASED AND SOLD VARIOUS MUTUAL FUNDS DURING FINA NCIAL YEARS 2003-04 & 2004-05. THE ASSESSING OFFICER ALS O CALLED INFORMATION FROM VARIOUS COMPANIES FOR ASCERTAINING APPLICABILITY OF PROVISIONS OF SECTION 94(7)(B). T HE ASSESSEE WAS CONFRONTED WITH THESE INFORMATIONS PARTICULARLY REGARDING NET GAIN FROM MUTUAL FUNDS. IT WAS MAINLY CONTENDE D THAT THE LOSSES AVAILABLE IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN CASE OF APOLLO TYRES LTD VS. CIT, 255 ITR 273 (S.C). 3 THE ASSESSING OFFICER NOTED THAT THIS CASE WAS DIST INGUISHABLE ON FACTS AND THE PROVISIONS OF SECTION 94(7) WERE C LEARLY APPLICABLE BECAUSE VARIOUS UNITS WERE PURCHASED BY THE ASSESSEE WITHIN A PERIOD OF 3 MONTHS PRIOR TO THE R ECORD DATE AND SOLD WITHIN 9 MONTHS AFTER SUCH DATE. ACCORDIN GLY THE LOSSES WERE NOT ALLOWED. 4 BEFORE THE LD. CIT(A) IT WAS MAINLY CONTENDED THA T THE PROVISIONS OF SECTION 94(7) ARE NOT APPLICABLE BECA USE THE ASSESSEE HAS MAINLY PURCHASED UNITS OF DAILY DIVIDE ND SCHEME, WEEKLY DIVIDEND SCHEME. THE LD. CIT(A) DID NOT FIN D FORCE IN THE SAME AND CONFIRMED THE DISALLOWANCE. 5 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REFERR ED TO PROVISIONS OF SECTION 94(7) AND EMPHASIZED THAT THI S PROVISION WOULD COME INTO OPERATION ONLY WHEN A PERSON BUYS O R ACQUIRES UNITS WITHIN A PERIOD OF THREE MONTHS FROM THE RECO RD DATE. SINCE THE ASSESSEE HAS PURCHASED UNITS OF DAILY DIV IDEND SCHEME, WEEKLY DIVIDEND SCHEME AND MONTHLY DIVIDEND SCHEME, THEREFORE, THERE CANNOT BE RECORD DATE IN SUCH SCHEMES AND AS SUCH THIS PROVISION WAS NOT APPLICAB LE. 6 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE STR ONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 7 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. S ECTION 94(7) READS AS UNDER: SECTION 94(7) - WHERE (A) ANY PERSON BUYS OR ACQUIRES ANY SECURITIES OR UNIT WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE; (B) SUCH PERSON SELLS OR TRANSFERS (I) SUCH SECURITIES WITHIN A PERIOD OF THREE MONTH S AFTER SUCH DATE; OR (II) SUCH UNIT WITHIN A PERIOD OF NINE MONTHS AFTE R SUCH DATE;} (C) THE DIVIDEND OR INCOME ON SUCH SECURITIES OR U NIT RECEIVED OR RECEIVABLE BY SUCH PERSON IS EXEMPT; THEN, THE LOSS, IF ANY, ARISING TO HIM ON ACCOUNT OF SUCH PURCHASE AND SALE OF SECURITIES OR UNIT, TO THE EXTENT SUCH LOSS DOES NOT EXCEED THE AMOUNT OF DIVIDEND OR INCOME RECEIVED OR RECEIVABLE ON SUCH SECURITIES OR UNIT, SHALL BE IGNORED FOR THE P URPOSE OF COMPUTING HIS INCOME CHARGEABLE TO TAX.} 4 IT BECOMES CLEAR FROM THE ABOVE THAT PROVISIONS WOU LD BE ATTRACTED ONLY WHEN THE UNITS HAVE BEEN PURCHASED W ITHIN A PERIOD OF THREE MONTHS FROM THE RECORD DATE. THE I SSUE HAS BEEN DECIDED BY THE LD. CIT(A) VIDE PARA 1.3 WHICH IS AS UNDER: I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. DURING THE COURSE OF HEARING, THE LD. COUNSEL OF THE ASSESSEE COULD NOT REBUT THE FINDING OF THE ASSESSING OFFICER THAT THE UNITS WERE PURCHASED WITHIN THREE MONTHS OF THE RECORD DATE AND ALSO SOLD WITHIN 9 MONTHS OF THE RECORD DATE. IT WAS ARGUED BY THE LD. COUNSEL THAT THERE IS NO RECO RD DATE IN CASE OF DAILY DIVIDEND/ WEEKLY DIVIDEND, ETC. THIS CONTENTI ON OF THE ASSESSEE IS NOT ACCEPTABLE THAT THERE HAS TO BE A RECORD DATE O R TIME FOR DECLARATION OF DIVIDEND. EVEN IF IT IS A DAILY DIVIDEND SCHEME, EVEN THEN THERE WOULD BE A PARTICULAR TIME FOR DECLARATION OF DIVIDEND. T HAT MEANS, BEFORE THAT TIME, THE PARTICULAR UNIT WOULD BE CUM-DIVIDEND AND AFTER THAT TIME IT WOULD EX-DIVIDEND. SIMILAR WOULD BE THE POSITION IN REGARD TO WEEKLY DIVIDEND, ETC. THERE IS NO DISPUTE THAT THE ASSESSE E PURCHASED THE UNITS WITHIN 3 MONTHS OF THE RECORD DATE AND ALSO SOLD WI THIN 9 MONTHS OF THE RECORD DATE. THEREFORE, PROVISIONS OF SECTION 94(7) ARE APPLICABLE. SINCE NEITHER THE ASSESSING OFFICER NOR THE LD. CIT (A) HAS EXAMINED THE DETAILS OF VARIOUS SCHEMES, WHETHER AN Y RECORD DATE WAS INVOLVED OR NOT AND HAVE DECIDED THE ISSUE ON ASSUMING THAT THERE IS A RECORD DATE IN THESE SCHEM ES. IN OUR OPINION, THE DETAILS OF THE SCHEMES NEED TO BE EXAM INED TO FIND OUT WHETHER ANY RECORD DATE WAS INVOLVED OR NOT AND THEREFORE, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE SAME BACK TO THE FILE OF ASSES SING OFFICER WITH A DIRECTION TO FIRST FIND OUT WHETHER ANY RECO RD DATE IS INVOLVED AND THEN DECIDED THE ISSUE AS PER LAW. 8 GROUNDS NO. 2 & 3 THESE TWO GROUNDS RELATE TO DISALLOWANCE MADE U/S 14A OF INCOME TAX ACT, 1961. 9 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE HAS SHOWN DIVIDEND INCOME OF RS. 21.78 LAKHS. IT WAS F URTHER NOTICED THAT THE ASSESSEE HAS MADE INVESTMENT TO TH E TUNE OF RS. 13 CRORES. THE ASSESSING OFFICER FURTHER NOTIC ED THAT THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE, THEREFO RE, HE INVOKED PROVISIONS OF SECTION 14A AND MADE PROPORTI ONATE DISALLOWANCE AMOUNTING TO RS. 7,09,83,677/- ON ACCO UNT OF INTEREST AND RS. 4,45,814/- ON ACCOUNT OF EXPENDIT URE. 5 10 ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION BY FOLLOWING THE DECISION OF SPECIAL BENCH OF THE TRIB UNAL IN CASE OF ITO VS. M/S DAGA CAPITAL MANAGEMENT (P) LTD, 119 TTJ 289 (MUM) (SB). 11 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE ASSESSEE HAD SUFFICIENT SURPLUS FUNDS FOR MAKIN G INVESTMENTS. IN ANY CASE PROPORTIONATE DISALLOWANC E IS NOT POSSIBLE BECAUSE RULE 8D WAS NOT APPLICABLE IN THE PRESENT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2005-06. IN T HIS REGARD HE RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH CO URT IN CASE OF GODREJ & BOYCEE MFG. VS. DCIT, 328 ITR 81 (BOM). 12 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF LD. CIT(A). 13 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT RULE 8D IS NOT APPLICABLE IN ASSESSMENT YEAR 2005-06 I.E . THE YEAR BEFORE US IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCEE MFG. VS. DCIT (SUPRA). HOWEVER, AT THE SAME HON'BLE BOMBAY HIGH COURT ALSO HELD THA T WHEN RULE 8D IS NOT APPLICABLE, REASONABLE DISALLOWANCE CAN BE MADE. WE FURTHER FIND THAT DURING THE YEAR THE ASS ESSEE HAS MADE INVESTMENT ONLY TO THE TUNE OF RS. 19.40 CRORE S IN VARIOUS MUTUAL FUNDS WHEREAS THE ASSESSEE HAD CASH PROFIT F OR RS. 20 CRORES, THEREFORE, CONSIDERING THE OVERALL CIRCUMS TANCES WE ARE OF THE OPINION THAT LUMP SUM DISALLOWANCE OF RS . 5 LAKH WOULD MEET THE ENDS OF JUSTICE. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO MAKE D ISALLOWANCE OF RS. 5 LAKHS U/S 14A OF THE ACT. 14 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS SHOWN AGRICULTURAL INCOME OF RS. 51,72 0/-. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS. IT WAS MAINLY SUBMITTED THAT THE ASSESSEE HAS GROWN MUSTARD CROP AND AMLA IN THE ADJACENT LAND AT ITS PLANT SITE AT SANGRUR. THE ASSESSEE EARNED INCOME FROM SALE OF MUSTARD SEEDS AND RIPE C ROP OF AMLA. THE ASSESSING OFFICER WAS OF THE OPINION THA T FULL DETAILS 6 WERE NOT AVAILABLE, THEREFORE, THIS INCOME WAS TREA TED AS INCOME FROM OTHER SOURCES. 15 ON APPEAL, THE SUBMISSIONS MADE BEFORE THE ASSES SING OFFICER WERE REITERATED AND IT WAS FURTHER SUBMITTE D THAT THE ASSESSEE IS HAVING ABOUT 120 ACRES OF LAND AT THE P LANT SITE. THE LD. CIT(A) NOTED THAT THE ASSESSEE FAILED TO FU RNISHED THE DETAILS BUT AT THE SAME TIME THE AMOUNT WAS VERY SM ALL AND THEREFORE, 50% OF THE AGRICULTURAL INCOME WAS ACCE PTED. 16 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 17 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S TRONGLY SUPPORTED THE ORDER OF LD. CIT(A) AND SUBMITTED THA T IN THE ABSENCE OF ANY DETAILS, THE LD. CIT(A) HAS ALREADY GRANTED REASONABLE RELIEF. 18 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE O F THE OPINION THAT THOUGH IT IS POSSIBLE FOR ASSESSEE TO GROW SOME CROPS IN THE VACANT LAND BUT AT THE SAME TIME, SOME DETAILS SHOULD HAVE BEEN FILED. IN THE ABSENCE OF DETAILS, THE LD. CIT(A) HAS ALREADY GRANTED REASONABLE RELIEF AND HI S ORDER DOES NOT REQUIRE ANY FURTHER INTERFERENCE. ACCORDI NGLY WE CONFIRM THE ORDER OF THE LD. CIT(A). 19 GROUND NO. 5 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED T HAT THE ASSESSEE HAS MADE CERTAIN PAYMENTS IN CASH AS UNDER : PAGE 19 OF AO NAME OF PERSON TO WHOM PAYMENT MADE DATE AMOUNT JAI KARNI BIKANER ROADLINES 27.122004 10,000 16,000 AGAINST INVOICE NO. 173 DATED 21.12.04 FOR RS. 26,000/- --DO-- 27.12.2004 10,000 16,000 AGAINST INVOICE NO. 172 DATED 21.12.04 FOR RS. 26,000/- --DO-- 20.01.2005 10,000 16,000 AGAINST INVOICE NO. 209 DATED 16.01.05 FOR RS. 26,000/- --DO-- 22.01.2005 15,000 10,470 AGAINST INVOICE OF RS. 26,000/- AFTER DEDUCTING TDS. --DO-- 22.01.2005 15,000 10,470 --DO-- --DO-- 25.01.2005 15,000 10,470 --DO-- --DO-- 29.01.2005 15,000 10,470 --DO-- --DO-- 27.12.2004 10,000 AGAINST INVOICE NO. 174 DATED 7 16,000 16.01.05 FOR RS. 26,000/- --DO-- 27.12.2004 10,000 16,000 AGAINST INVOICE NO. 175 DATED 16.01.05 FOR RS. 26,000/- TOTAL 2,31,880 THE ASSESSEE WAS ASKED TO EXPLAIN THE REASONS OF CA SH PAYMENTS EXCEEDING RS. 20,000 SHOWN IN THE BOOKS BY TWO VOUCHERS OF RS. 10,000 AND RS. 16,000. SAME WAS TH E POSITION IN RESPECT OF OTHER VOUCHERS. IN THIS REGARD THE A SSESSEE SUBMITTED ITS REPLY VICE LETTER DATED 15.11.2007 WH ICH IS AS UNDER: IN THIS REGARD IT IS SUBMITTED THAT THE ASSESSEE HA S MADE THE PAYMENTS TO JAI KARNI BIKANER ROADLINES TOWARDS FREIGHT NOT EXCEEDING RS. 20,000/- IN ONE TIME. EACH PAYMENT HAS TO BE TREATE D AS AN INDEPENDENT CASH TRANSACTION, THEREFORE, SECTION 40A(3) OF THE ACT COULD NOT BE APPLIED BECAUSE IN NO TRANSACTION ONE INDIVIDUAL PA YMENT HAS EXCEEDED RS. 20,000/- RELIANCE IS PLACED ON THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. BAL KRISHNA JAGDI SH CHAND 164 TAXMAN 459 (COPY ENCLOSED) WHERE IT IS HELD BY THE HONBLE HIGH COURT THAT VARIOUS CASH PAYMENT MADE TO ONE PARTY ON ONE DAY WERE NOT REQUIRED TO BE CLUBBED AND TREATED AS ONE CASH PAYM ENT AND FOR THAT REASON, TOTAL CASH PAYMENT EXCEEDING RS. 20,000/- I N A DAY TO THAT PARTY WERE NOT TO BE VIOLATIVE OF SECTION 40A(3). THE ASSESSEE HAS MADE THE PAYMENT OF FREIGHT OUTWAR DS TO RS. 83.46 LACS AND PAYMENT OF FREIGHT FORWARDING & CLEARING E XPENSES AMOUNTING TO RS. 393.58 LACS, TOTAL FREIGHT AGGREGATING TO RS . 477.04 LACS DURING THE YEAR, OUT OF WHICH PAYMENT OF APPROXIMATELY RS. 2 L ACS HAVE BEEN MADE IN CASH IN MORE THAN ONE INSTALLMENT IN A SINGLE DA Y THAT TOO FOR THE AMOUNT NOT EXCEEDING RS. 20,000/- IN SINGLE TRANSAC TION. THERE WAS NO MALA FIDE INTENTION ON THE PART OF THE ASSESSEE TO AVOID TAXES IN SUCH MANNER. OUT OF THE TOTAL PAYMENT MADE BY CHEQUES AM OUNTING TO RS. 477 LACS, THE PAYMENT OF RS. 2 LACS MADE IN CASH IS VER Y SMALL. IT IS NOT ASCERTAINABLE AT THE MOMENT THAT WHY THESE PAYMENTS HAVE BEEN MADE IN SUCH MANNER. THESE ARE THE GENUINE PAYMENTS MADE BY THE CASHIER AT THE IAL SITE ACCORDING TO HIS OWN WISDOM/BUSINESS N ECESSITY. FURTHER REGARDING PAYMENT MADE TO THE RAJESH KUMAR, IT IS SUBMITTED THAT THE SAID PAYMENT HAVE BEEN MADE FOR THE DIFFER ENT INVOICES, NOT AGAINST A SINGLE BILL. ALL THE AFORESAID PAYMENTS H AVE BEEN MADE AFTER DEDUCTION OF DUE TAX. COPIES OF THE VOUCHERS OF TEJ A SINGH, GURMEJ SINGH, PAWAN KUMAR AND RAJESH KUMAR ARE ENCLOSED. FURTHER SUBMITTED THAT SINCE THE TRANSACTION IS GEN UIE AND THE PAYEES IDENTITY IS ESTABLISHED, IT IS RESPECTFULLY PRAYED THAT IN VIEW OF THE AFORESAID FACTS AND JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. BAL KRISHNA JAGDISH CH AND 164 TAXMAN 459, THE AFORESAID EXPENDITURE MAY PLEASE BE ALLOWE D TO THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER ONCE THE PAYMEN T INVOLVED RS. 26,000 IT WAS IN THE KNOWLEDGE OF THE ASSESSEE THAT THIS WOULD BE VIOLATIVE OF SECTION 40A(3) AND THEREFORE, INTENTIONALLY TWO PAYMENTS HAVE BEEN SHOWN BY TWO V OUCHERS. 8 HE ALSO DISTINGUISHED THE CASE LAW RELIED ON BY THE ASSESSEE AND MADE A DISALLOWANCE @ 20% AMOUNTING TO RS. 46,8 00/-. 20 ON APPEAL THE SUBMISSIONS MADE BEFORE THE ASSESS ING OFFICER WERE REITERATED. HOWEVER, THE LD. CIT(A) D ID NOT FIND ANY MERIT IN THE SAME BY OBSERVING THAT THE DECISIO N OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. BAL KRISHAN JAGDISH CHAND, 164 TAXMAN 459 IS DISTINGUISHABLE BE CAUSE IN THAT CASE THERE WAS NO FINDING THAT PART PAYMENT HA S BEEN DONE DELIBERATELY 21 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE STRON GLY RELIED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH CO URT IN CASE OF CIT VS. BAL KRISHAN JAGDISH CHAND (SUPRA).H E FURTHER SUBMITTED THAT DUE TO NON AVAILABILITY OF CASH OR O THER REASONS, THE PAYMENTS HAVE TO BE MADE IN PART. 22 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 23 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. BAL KRISHAN JAGDISH CHAND (SUPRA) HAD CONFIRMED THE FIN DING OF THE TRIBUNAL WHEREIN FOLLOWING THE DECISION OF HON'BLE ORISSA HIGH COURT IN CASE OF CIT VS. ALOO SUPPLY CO., 121 ITR 6 80 (ORISSA), THE TRIBUNAL HELD THAT WHEN PART PAYMENTS ARE MADE THE SAME CANNOT BE AGGREGATED FOR DISALLOWANCE OF S ECTION 40A(3). WE FURTHER FIND THAT HON'BLE ORISSA HIGH C OURT IN CASE OF CIT VS. ALOO SUPPLY CO. (SUPRA) HAS HELD AS UNDE R: THE WORD SUM HAS NO STATUTORY DEFINITION AND MUST HAVE THE COMMON PARLANCE MEANING. WHILE LEGISLATING, PARLIAMENT TRI ES TO CONVEY ITS INTENTION THROUGH EXPRESS WORDS. IT IS ONE OF THE W ELL SETTLED RULES OF INTERPRETATION THAT WHERE A WORD USED IN A STATUTE CARRIES MORE THAN ONE MEANING, THAT MEANING WHICH MAKES THE PROVISION WOR KABLE AND IS NEAREST TO THE LEGISLATIVE INTENTION, HAS TO BE ADO PTED. THE WORD SUM IN S.40A(3), SECOND PROVISO, OF THE I.T. ACT, 1961, IS USED ONLY TO INDICATE AN AMOUNT OF MONEY AND DOES NOT REFER TO THE TOTALI TY OF THE EXPENDITURE. THEREFORE, IF AN ASSESSEE MAKES PAYMENTS AT DIFFERE NT TIMES DURING THE DAY AND HE HAS NO IDEA THAT HE HAS TO PAY TO THE SA ME PERSON ON MORE THAN ONE OCCASION, HE CANNOT BE SUBJECTED TO THE ST ATUTORY PROVISION CONTAINED IN S.40A(3) OF THE ACT, UNLESS ANY ONE PA YMENT IS ABOVE RS. 2,500. THE STATUTORY LIMIT OF RS. 2,500 UNDER S. 40 A(3) OF THE ACT APPLIES TO PAYMENT MADE TO A PARTY AT A TIME AND NOT TO THE AGGREGATE OF THE PAYMENTS MADE TO A PARTY IN THE COURSE OF THE DAY A S RECORDED IN THE CASH BOOK. 9 IT IS TO BE NOTED THAT LAW WAS AMENDED LATER ON W.E .F. 1.4.2009 BY FINANCE ACT, 2008 BY WHICH THE EXPRESSION WAS CH ANGED FROM SUM EXCEEDING RS. 20,000/- TO EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENT MADE TO A PERSON IN A DAY. THUS IT IS CLEAR THAT BECAUSE OF DECISIO N OF HON'BLE ORISSA HIGH COURT AND OTHER HIGH COURTS LAW HAS BEE N AMENDED ONLY W.E.F. 1.4.2009. THEREFORE, IN THE P RESENT YEAR I.E. ASSESSMENT YEAR 2005-06 WE ARE BOUND TO FOLLOW THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. BAL KRISHAN JAGDISH CHAND (SUPRA). ACCORDI NGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE TH E ADDITION OF RS. 46,800/-. 24 GROUND NO. 6 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 12,50,000/- FOR F EES PAID TO THE REGISTRAR OF COMPANIES FOR FILING OF FORM 5 FOR INCREASE OF AUTHORIZED CAPITAL FROM 125 CRORE TO 150 CRORE. IN RESPONSE TO THE QUERY IT WAS MAINLY EXPLAINED THAT THE FEES WAS PAID FOR THE PURPOSE OF EXISTING BUSINESS AND NOT FOR THE NEW BU SINESS. THE SHARE CAPITAL WAS REQUIRED TO BE INCREASED TO M EET THE STIPULATION OF FINANCIAL INSTITUTIONS UNDER THE COR PORATE DEBT RESTRUCTURING (CDR) SCHEME. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN CASE OF HINDUSTAN MACHINE TOOLS LTD. VS. CIT, 175 ITR 220 (KAR) AND FEDERAL BANK LTD VS. CIT, 180 ITR 241 (KER). 25 THE ASSESSING OFFICER FOUND NO FORCE IN THESE SUBMISSIONS AND OBSERVED THAT SUCH EXPENDITURE HAS TO BE TREATED AS CAPITAL EXPENDITURE IN VIEW OF THE DECIS ION OF HON'BLE SUPREME COURT IN CASE OF PUNJAB STATE INDUS TRIAL DEVELOPMENT CORPORATION LTD. VS. CIT, 225 ITR 792 ( S.C). 26 ON APPEAL THE ORDER OF ASSESSING OFFICER WAS CON FIRMED BY THE LD. CIT(A) IN VIEW OF THE DECISION OF HON'BL E SUPREME COURT. 27 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER. 10 28 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S TRONGLY SUPPORTED THE ORDER OF LD. CIT(A). 29 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY T HE DECISION OF HON'BLE SUPREME COURT IN CASE OF PUNJAB STATE IN DUSTRIAL DEVELOPMENT CORPORATION LTD. VS. CIT(SUPRA) AS WELL AS IN CASE OF BROOKE BOND INDIA LTD VS. CIT, 225 ITR 798 (S.C). THE HEAD NOTE OF THE DECISION READS AS UNDER: WHEN AN EXPENDITURE IS MADE NOT ONLY ONCE AND FOR A LL, BUT WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF A TRADE, THERE IS VERY GOOD REASON (IN T HE ABSENCE OF SPECIAL CIRCUMSTANCES LEADING TO AN OPPOSITE CONCLUSION) FO R TREATING SUCH AN EXPENDITURE AS PROPERLY ATTRIBUTABLE NOT TO REVENUE BUT TO CAPITAL. BUT THIS IS NOT A STRAIT-JACKET FORMULA AND THE QUESTIO N WILL HAVE TO BE DETERMINED IN THE BACKDROP OF THE FACTS OF EACH CAS E. THE TEST LAID DOWN CAN AT BEST BE A GUIDE FOR DETERMINING WHETHER A PA RTICULAR EXPENDITURE FORMS PART OF REVENUE EXPENDITURE OR CAPITAL EXPEND ITURE. THE FEES PAID TO THE REGISTRAR OF COMPANIES FOR EXP ANSION OF THE CAPITAL BASE OF A COMPANY IS DIRECTLY RELATED TO THE CAPITA L EXPENDITURE INCURRED BY THE COMPANY AND ALTHOUGH INCIDENTALLY THAT WOULD CERTAINLY HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HELP IN PROFIT -MAKING, IT STILL RETAINS THE CHARACTER OF CAPITAL EXPENDITURE SINCE THE EXPENDITURE IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BA SE OF THE COMPANY. FOLLOWING THE ABOVE WE DECIDE THIS ISSUE AGAINST TH E ASSESSEE. 30 GROUND NO. 7 - AFTER HEARING BOTH THE PARTIES W E FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTI CED THAT THE ASSESSEE DURING THE YEAR HAS PAID A SUM OF RS. 20,000 AS CONSENT FEES TO PUNJAB POLLUTION CONTROL BOARD (PPC B) FOR ENHANCEMENT OF PLANT CAPACITY FROM 38500 TO 45000. ON ENQUIRY IT WAS SUBMITTED THAT THIS WAS IN THE NATUR E OF REVENUE EXPENDITURE. HOWEVER, THE ASSESSING OFFICER OBSERV ED THAT SINCE THE SAME WAS PAID FOR ENHANCEMENT OF CAPACITY , THEREFORE, THE EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE AND NOT ALLOWABLE. 31 ON APPEAL, THE ADDITION WAS CONFIRMED BY THE LD. CIT(A). 32 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THIS EXPENDITURE WAS OF RECURRING NATURE AND WAS AL LOWABLE AND IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. INDUSTRIAL CA BLES (INDIA) LTD. 209 CTR 167. 11 33 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UPPORTED THE ORDER OF THE LD. CIT(A). 34 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT SIMILAR EXPENDITURE WAS HELD TO BE ALLOWABLE BY HON 'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. INDUSTRIAL CABLES (INDIA) LTD. (SUPRA) WHEREIN POLLUTION CERTIFICATE WAS VALID FOR 15 YEARS BUT STILL THE EXPENDITURE WAS HELD TO BE A LLOWABLE. FOLLOWING THIS DECISION WE SET ASIDE THE ORDER OF T HE LD. CIT(A) AND DELETE THE ADDITION. 35 GROUND NO. 8 - AFTER HEARING BOTH THE PARTIES WE FIND THAT SOME BUSINESS PROMOTION EXPENDITURE WAS D ISALLOWED BY THE ASSESSING OFFICER. OUT OF WHICH SOME ITEMS HAVE BEEN ALLOWED BY THE LD. CIT(A) WHICH HAVE NOT BEEN CHALL ENGED BY THE REVENUE. NOW THE DISPUTE IS IN RESPECT OF RS. 5 LAKHS PAID TO GOVERNMENT FOR CONDUCTING INDO PAK GAMES AND RS. 1 LAKH WAS PAID TO MOTHER INDIA FOUNDATION. A SUM OF RS. 5 LAKH WAS DISALLOWED BY THE ASSESSING OFFICER BECAUSE NO DETA ILS WERE FURNISHED. FURTHER NO TAX WAS DEDUCTED U/S 40(A)(I A). IN RESPECT OF ADDITION FOR A SUM OF RS. 1 LAKH PAID TO MOTHER INDIA FOUNDATION, WHOLE AMOUNT WAS DISALLOWED. HOWEVER, 50% DEDUCTION WAS ALLOWED U/S 80G OF INCOME TAX ACT. B OTH THESE ACTIONS HAVE BEEN CONFIRMED BY THE LD. CIT(A). 36 BEFORE US, IT WAS MAINLY SUBMITTED THAT THE AMOU NTS WERE PAID FOR PROMOTION OF BUSINESS AND ARE IN THE NATUR E OF REVENUE EXPENDITURE OR CAN BE CONSIDERED AS DEVELOPMENT EXP ENSES. 37 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 38 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. FIRST OF ALL THE ASSESSEE HAS NOT SUBMITTED ANY DETAILS REGA RDING A SUM OF RS. 5 LAKH TOWARDS INDO-PAK GAMES. IN ANY CASE N O TDS HAS BEEN DEDUCTED AND THEREFORE SECTION 40(A)(IA) IS AL SO APPLICABLE AND THESE PAYMENTS ARE NOT ALLOWABLE. A S FAR AS PAYMENT TO MOTHER INDIA FOUNDATION IS CONCERNED, SA ME IS ELIGIBLE FOR DEDUCTION U/S 80G AND 50% DEDUCTION HA S BEEN ALLOWED BY THE ASSESSING OFFICER THEN THIS AMOUNT C ANNOT BE 12 ALLOWED EVEN AS BUSINESS EXPENDITURE. THEREFORE, W E FIND NOTHING WRONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 39 GROUNDS NO. 9 & 10 - AFTER HEARING BOTH THE PART IES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO N OTICED THAT THE ASSESSEE HAS MADE PAYMENT TO TRUCK OPERAT ORS UNION (TOU) AMOUNTING TO RS. 67,57,763/-. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF PAYMENT AND TDS. IN RESP ONSE IT WAS STATED VIDE LETTER DATED 12.12.2007 AS UNDER: THE PAYMENT HAS BEEN MADE TO THE TRUCK OPERATORS U NION AGAINST THE DIFFERENT GOODS RECEIPTS OF VARIOUS TRUCK OWNER S. SINCE NOT A SINGLE GOODS RECEIPT EXCEEDS RS. 20,000/- NO TDS HA S BEEN DEDUCTED FROMTEH PAYMENT. COPIES OF SPECIMEN VOUCH ERS ALONG WITH SUPPORT IS ENCLOSED. IT WAS FURTHER STATED THAT FREIGHT CHARGES FOR EACH OF THE TRUCK WAS LESS THAN RS. 20,000/-. HOWEVER, THE TRUCK UNI ON WAS SENDING THE INVOICES ON WEEKLY BASIS THAT IS WHY TH E AMOUNT SHOWN WAS MORE. THE ASSESSING OFFICER FURTHER NOTE D THAT PERUSAL OF THE BILL SHOWS THAT PAYMENTS WERE BEING MADE BY THE ASSESSEE TO THE TOU AND NOT TO THE INDIVIDUAL TRUCK OWNER. EACH OF THE PAYMENT WAS IN EXCESS OF RS. 20,000/- T HOUGH THE BILL STATED THAT MANY TRUCKS WERE SUPPLIED. IN THE SE CIRCUMSTANCES, PROVISIONS OF SECTION 194C WERE APPL ICABLE AND THE ASSESSEE WAS REQUIRED TO DEDUCT THE TAX. SINCE NO TAX HAS BEEN DEDUCTED, HE INVOKED PROVISIONS OF SECTION 40( A)(IA) AND DISALLOWED A SUM OF RS. 67,57,763/-. 40 FURTHER IT WAS ALSO NOTED THAT THE ASSESSEE HAS MADE PAYMENT OF RS. 8,54,452/- TO M/S CHENAB TEXTILE ON ACCOUNT OF FREIGHT ON WHICH NO TAX WAS DEDUCTED. IT WAS STATE D THAT THE PAYMENT WAS MADE BY WAY OF REIMBURSEMENT OF EXPENSE S AND THEREFORE, THE TDS PROVISION WAS NOT APPLICABLE. IT WAS NOTED THAT THE ASSESSEE WAS SELLING GOODS TO CHENAB TEXTI LE AND THE GOODS WERE DISPATCHED TO THE SAID PARTY BY DIFFEREN T TRUCKS. M/S CHENAB TEXTILE MADE FREIGHT PAYMENTS. M/S CHEN AB TEXTILE USED TO SEND A DEBIT NOTE AGAINST THE ASSES SEE AND THE AMOUNT WAS PAID TO THEM WITHOUT DEDUCTION OF TDS. ACCORDING TO THE ASSESSING OFFICER THE FREIGHT PAYMENT WAS MO RE THAN RS. 13 50,000/- AND THEREFORE, PROVISIONS OF SECTION 194C WAS APPLICABLE. SINCE THE ASSESSEE HAS NOT DEDUCTED TH E TAX, THEREFORE, THIS AMOUNT WAS DISALLOWED. 41 ON APPEAL IT WAS MAINLY STATED THAT PAYMENT WAS MADE TO THE TOU AND NO ELEMENT OF PROFIT WAS INVOLVED THER EFORE, TAX WAS NOT DEDUCTIBLE. RELIANCE WAS PLACED ON THE DEC ISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. UNITED RICE LAND LTD., 322 ITR 594 (PH). 42 THE LD. CIT(A) CONSIDERED THE SUBMISSIONS AND DI D NOT FIND FORCE IN THE SAME. HE REFERRED TO THE DECISIO N OF HON'BLE SUPREME COURT IN CASE OF ASSOCIATED CEMENT CO. LTD . VS. CIT, 201 ITR 435 (S.C) AND CONFIRMED THE ACTION OF THE A SSESSING OFFICER. 43 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND S TRONGLY RELIED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. UNITED RICE LAND LTD. (SUPRA). 44 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF LD. CIT(A) AND ALSO RELIED O N THE DECISION OF HON'BLE SUPREME COURT IN CASE OF ASSOC IATED CEMENT CO. LTD. VS. CIT, (SUPRA). 45 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D DO NOT FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. UNITED RICE LAND LTD. (SUP RA) IS TOTALLY DISTINGUISHABLE. IN THAT CASE THE ASSESSEE WAS ENG AGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF RICE AND FO R SENDING THE GOODS TO THE PORTS THE ASSESSEE USED TO ENGAGE TRUCKS THROUGH TRANSPORTERS. THE CONSIDERATION WAS CHARGE D BY THE TRANSPORTER FROM THE TRUCK OWNER AND OR OPERATOR AN D HIRE CHARGES WERE PAID BY THE ASSESSEE DIRECTLY TO THE T RUCK OWNER AND THEREFORE, IT WAS HELD THAT THERE WAS NO CONTR ACT BETWEEN THE ASSESSEE AND LOCAL PURCHASER AND TRUCK OWNER. BUT IN CASE BEFORE US, THE PAYMENT HAS BEEN MADE DIRECTLY TO TH E TOU FROM WHOM THE TRUCKS HAVE BEEN ARRANGED MOST PROBABLY AT FIXED 14 RATE THEREFORE, THE CONTRACT HAS TO BE ASSUMED BETW EEN THE ASSESSEE AND THE TOU BECAUSE ALL THE PAYMENTS HAVE BEEN MADE TO THE TOU. EVEN THE BILLS WERE ISSUED BY THE TOU ARE NOT IN RESPECT OF TRIP BUT THEY ARE IN TERMS OF RS. 50,000 FOR VARIOUS TRUCKS PUT TOGETHER. SINCE THE ASSESSEE HA S NOT SUBMITTED FURTHER DETAILS THEREFORE, ONLY ASSUMPTIO N IS THAT THE ASSESSEE HAD A CONTRACT WITH THE TOU AND PAID FREIG HT ACCORDINGLY. THEREFORE, WE CONFIRM THE ADDITION O F RS. 67,57,763/-. 46 AS FAR AS THE PAYMENT TO M/S CHENAB TEXTILE IS C ONCERNED A DIFFERENT LEGAL PRINCIPLE WOULD BE APPLICABLE. I N THAT CASE THE ASSESSEE WAS SELLING GOODS TO CHENAB TEXTILE AND TH E GOODS WERE SENT ON FOR BASIS BUT THE FREIGHT WAS PAID BY M/S CHENAB TEXTILE WHICH IN TURN WAS RAISING DEBIT NOTES TO TH E ASSESSEE AGAINST THE PAYMENT OF FREIGHT. THEREFORE, WHAT E VER TDS WAS REQUIRED TO BE DEDUCTED FROM THE TRUCK THAT SHOULD HAVE BEEN DEDUCTED BY M/S CHENAB TEXTILE. AS FAR AS THE ASSE SSEE IS CONCERNED, IT WAS ONLY REIMBURSEMENT OF EXPENDITURE INCURRED BY M/S CHENAB TEXTILE AND THEREFORE, NO TDS WAS RE QUIRED TO BE DEDUCTED AND THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION OF RS. 8,54,452/-. 47 GROUND NO. 11 - AFTER HEARING BOTH THE PARTIES W E FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTI CED THAT THE ASSESSEE HAS ATTACHED A NOTE ALONG WITH THE INC OME TAX RETURN WHICH READ AS UNDER: NOTE:1. THE COMPANY HAS BEEN GRANTED SALE TAX EXEM PTION FOR A PERIOD OF 10 YEARS FROM 19.01.1999 TO 18.01.2009 BY THE E XCISE & TAXATION DEPTT. THE ABOVESAID SALES TAX EXEMPTION HAS BEEN G RANTED UNDER THE INDUSTRIAL INCENTIVE SCHEME 1996 OF GOVT. OF PUNJAB WITH A VIEW TO PROMOTE GROWTH OF INDUSTRY IN THE STATE. THIS SALES TAX EXEMPTION IS BASED UPON THE FIXED CAPITAL INVESTMENT. THE AMOUNT HAS BEEN SET OFF AGAINST NOTIONAL SALES TAX LIABILITY. THE NOTIONAL SALES TAX LIABILITY OF RS. 6,86,63,769/- IN RESPECT OF SALES OF FINISHED GOODS FOR THE PREVIOUS YEAR 2004-05 BEING IN THE NATURE OF SUBSIDY IS A CAPITAL RECEIPT NOT LIABLE TO TAX. AS PER LEGAL ADVICE AND IN VIEW OF THE DECISIO N OF THE TRIBUNAL IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. ITAT, MUM BAI J SPECIAL BENCH 82 TTJ 765, AND HONBLE ITAT DELHI F BENCH IN THE CASE OF BHUSAN STEELS & STRIPS LTD. VS. DCIT, 91 TTJ 108 AN D HONBLE CHANDIGARH TRIBUNAL IN THE CASES OF ABHISHEK INDUST RIES LTD. VS. ACIT IN ITAT NO. 1017, 1081/CHD/97 AND VIRENDRA AGRO CHEMIC ALS LTD. VS. ACIT IN ITA NO. 19,142,347/CHD/97, THE DEDUCTION OF NOTI ONAL SALES TAX LIABILITY IS BEING CLAIMED BY THE ASSESSEE. 15 THE ASSESSEE WAS ASKED TO JUSTIFY THIS DEDUCTION AN D IN RESPONSE IT WAS STATED VIDE LETTER DATED 16.8.2007 AS UNDER: SALES TAX INCENTIVE RS. 686.64 LACS REGARDING THE CLAIM OF SALES TAX EXEMPTION OF RS. 6 86.64 LACS BY THE ASSESSEE DURING THE YEAR. IT IS SUBMITTED AS UNDER: - TO BUILD A CONDUCTIVE INDUSTRIAL CLIMATE TO ATTRACT FRESH INVESTMENT AND ALSO FACILITATE THE GROWTH AND EXPANSION OF INDUSTR Y IN THE STATE AND OFF SETTING THE LOCATIONAL DISADVANTAGES OF THE STATE, CREATING MORE JOBS OPPORTUNITIES FOR THE YOUTH, THE PUNJAB STATE GOVER NMENT HAS ANNOUNCED A NUMBER OF INCENTIVE PACKAGES UNDER INDUSTRIAL POL ICY AND INCENTIVE CODE 1996, ONE OF WHICH IS THE SALES TAX SUBSIDY SC HEME. UNDER THE SAID SCHEME, THE COMPANY HAS BEEN GRANTED SALES TAX EXEMPTION FOR A PERIOD OF 10 YEARS FROM 19.01.1999 TO 18.01.2009. T HE SALES TAX EXEMPTION HAS BEEN GRANTED UNDER THE INDUSTRIAL INC ENTIVE SCHEME 1996 OF GOVT. OF PUNJAB WITH A VIEW TO PROMOTE GROWTH OF INDUSTRY IN THE STATE. THIS SALES TAX EXEMPTION IS BASED UPON THE FIXED CA PITAL INVESTMENT. THE AMOUNT HAS BEEN SET OFF AGAINST NOTIONAL SALES TAX LIABILITY. THE NOTIONAL SALES TAX LIABILITY OF RS. 686.64 LACS IN RESPECT O F SALES OF FINISHED GOODS FOR THE PREVIOUS YEAR 2004-05 BEING IN THE NATURE O F SUBSIDY IS A CAPITAL RECEIPT AND THUS NOT TAXABLE IN THE HANDS OF THE AS SESSEE. IT IS FURTHER SUBMITTED THAT THE ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE LD. CIT(APPEALS), CHANDIGARH , IN APPEAL NO. 361/05-06 FOR THE A.Y. 2003-04 VIDE ITS ORDER DATED 20.09.2006. COPY OF THE ORDER IS ENCLOSED FOR YOUR REFERENCE PLEASE. CO PY OF THE SALES TAX EXEMPTION CERTIFICATE IS ALSO ENCLOSED YOUR PERUSAL PLEASE. THE ASSESSING OFFICER FURTHER CONFRONTED THE ASSESS EE THAT WHY THE ISSUE SHOULD NOT BE DECIDED AGAINST THE ASSESSE E IN VIEW OF THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH CO URT IN CASE CIT V. ABHISHEK INDUSTRIES LTD. 286 ITR 1 (PH). TH E ASSESSEE SUBMITTED THAT THOUGH THE ISSUE HAS BEEN DECIDED BY THE HON'BLE HIGH COURT AGAINST THE ASSESSEE BUT A SPECI AL LEAVE PETITION HAS BEEN FILED BEFORE THE HON'BLE SUPREME COURT. THE ASSESSING OFFICER DID NOT FIND FORCE IN THIS SUBMIS SION AND FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HI GH COURT IN CASE OF CIT V. ABHISHEK INDUSTRIES LTD. (SUPRA) DEC IDED THE ISSUE AGAINST THE ASSESSEE. ACTION OF THE ASSESSIN G OFFICER WAS CONFIRMED BY THE LD. CIT(A). 48 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER. 49 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE R ELIED ON THE ORDER OF THE LD. CIT(A). HE ALSO REFERRED TO T HE DECISION OF CIT V. ABHISHEK INDUSTRIES LTD. (SUPRA). 16 50 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. SINCE AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE HON'BLE PUN JAB & HARYANA HIGH COURT IN CASE OF CIT V. ABHISHEK INDUS TRIES LTD. (SUPRA), WHEREIN IT WAS HELD AS UNDER: (II) THAT THE BENEFIT UNDER RULE 4A OF THE PUNJAB G ENERAL SALES TAX (DEFERMENT AND EXEMPTION) RULES, 1991 ACCRUED FOR A PERIOD OF 10 YEARS FROM THE DATE OF PRODUCTION AND THE QUANTUM WAS FIX ED AT 300 PER CENT OF THE FIXED CAPITAL INVESTMENT FOR CATEGORY A INDUSTR IES AND 150 PER CENT OF THE FIXED CAPITAL INVESTMENT FOR CATEGORY B INDUSTR IES TO BE AVAILED OF WITHIN 7 YEARS. BESIDES THIS, THERE WAS NO OTHER D OCUMENT OR MATERIAL TO SUBSTANTIATE THE ASSESSEES CONTENTION THAT THE SAL ES TAX SUBSIDY OF THE KIND UNDER CONSIDERATION SHOULD BE TREATED AS CAPIT AL RECEIPT AND NOT A REVENUE RECEIPT OR TO SHOW THAT THE KIND OF SUBSIDY UNDER CONSIDERATION WAS GIVEN TO THE ASSESSEE FOR CREATION OF CAPITAL A SSETS AS AN AID TO SETTING UP OF THE UNIT. RATHER, IT WAS EVIDENT THA T THE SUBSIDY WAS AN OPERATIONAL SUBSIDY PROVIDED BY THE STATE AFTER THE INDUSTRY HAD BEEN SET UP AND COMMENCED COMMERCIAL PRODUCTION. IN THE ABS ENCE OF MATERIAL TO SHOW THAT THE SUBSIDY WAS TO ENABLE IT TO CARRY OUT CAPITAL INVESTMENT IT COULD NOT BE PRESUMED THAT SUCH A SUBSIDY WAS A CAP ITAL SUBSID. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAINST T HE ASSESSEE. 51 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 797/CHD/2009 IS PARTLY ALLOWED. ITA NO. 765/CHD/2009 REVENUES APPEAL 52 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING AN ADDITIONS O F RS. 6,99,08,597/- U/S 145A AS THE ASSESSEE WAS NOT ROUT ING VARIOUS DUTIES /TAXES THROUGH PROFITS AND LOSS ACCOUNT. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING AN ADDITION O N ACCOUNT OF DISALLOWANCE OF EXPENSES ON BUSINESS PROMOTION. 4 IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 53 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE AO EXAMINED THE ISSUE OF VALUATION OF STOCK AND TREATMENT OF MODVAT AND ULTI MATELY FOUND THAT THE EXCISE DUTIES AND OTHER DUES ETC. HA VE NOT BEEN INCLUDED IN THE VALUATION CLOSING STOCK, THEREFORE, HE INCLUDED 17 THESE SUMS IN THE CLOSING STOCK BUT REFUSED TO ADD THE SAME IN THE OPENING STOCK. HOWEVER, THE LD. CIT(A) DELETED THE ADDITION BY FOLLOWING THE DECISION OF HON'BLE PUNJA B & HARYANA HIGH COURT IN CASE OF CIT VS. NAHAR SPINNING MILLS LTD. IN ITA NO. 503 OF 2007. 54 BEFORE US, THE LD. DR FOR THE REVENUE REFERRED T O THE PROVISIONS OF SECTION 145A AND SUBMITTED THAT THE P ROVISION WAS OF MANDATORY NATURE. HE FURTHER SUBMITTED THAT THE DECISION IN CASE OF CIT VS. NAHAR SPINNING MILLS LT D. (SUPRA) WAS RENDERED FOR ASSESSMENT YEAR 1999-2000 AND SECT ION 145A WAS INTRODUCED W.E.F. 1.4.1999. IN THAT DECIS ION AMENDED PROVISION OF THE ACT WAS NOT CONSIDERED. THE AMEND ED PROVISION HAS BEEN DULY CONSIDERED BY THE HON'BLE D ELHI HIGH COURT IN CASE OF CIT VS. MAHAVIR ALLUMINIUM LTD. 29 7 ITR 77 (DELHI). THIS DECISION WAS FOLLOWED BY HON'BLE BOM BAY HIGH COURT IN CASE OF CIT V. MAHALAXMI GLASS WORKS P LTD . 318 ITR 116 (BOM). 55 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE STRONGLY SUPPORTED THE IMPUGNED ORDER AND ALSO RELI ED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. NAHAR SPINNING MILLS LTD. (SUPRA). ALTERNA TIVELY HE CONTENDED THAT IF THE VALUE OF EXCISE DUTY ETC. IS HELD TO BE INCLUDIBLE IN THE CLOSING STOCK THEN THE OPENING ST OCK SHOULD ALSO BE HELD TO BE ADJUSTED ACCORDINGLY. 56 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. SECTION 145A OF THE ACT READS AS UNDER:- 145A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145 , 18 (A) THE VALUATION OF PURCHASE AND SALE OF GOODS AN D INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON SHALL BE (I) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE; AND (II) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VAL UATION. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, AN Y TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT. (B) INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATI ON OR ON ENHANCED COMPENSATION, AS THE CASE MAY BE, SHALL BE DEEMED TO BE THE INCOME OF THE YEAR IN WHICH IT IS RECEIVED. 57. THE PLAIN READING OF THE ABOVE PROVISION WOULD SHOW THAT IT IS OF MANDATORY NATURE AND MANDATES THAT ANY TAX, DUTY ETC. HAS TO BE INCLUDED IN THE VALUE OF THE CLOSING STOCK. HOWEVE R, AT THE SAME TIME THE HON'BLE DELHI HIGH COURT IN THE CASE OF CI T VS. MAHAVIR ALUMINUM LTD (SUPRA) HELD AS UNDER;- HELD, DISMISSING THE APPEAL, THAT PARAGRAPH 23.13 OF THE GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44AB ISSUE D BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA MAD E IT CLEAR THAT WHENEVER ANY ADJUSTMENT IS MADE IN THE VALUATION OF INVENTORY, THIS WILL AFFECT BOTH THE O PENING AS WELL AS THE CLOSING STOCK. IF ANY ADJUSTMENT WAS RE QUIRED TO BE MADE BY A STATUTE, EFFECT SHOULD BE GIVEN TO IT IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SECTION 145A BEGINS WITH A NON OBSTANTE CLAUSE AND THEREFORE TO GIVE EFFECT TO SEC TION 145A, IF THERE IS A CHANGE IN THE OPENING STOCK AS ON MARCH 31, 1999, THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMENT MADE IN THE OPENING STOCK AS ON APRIL 1, 1998. THUS, THE QUESTION OF DOUBLE DEDUCTION DID NOT ARIS E SINCE NO ADJUSTMENT WAS MADE BY THE ASSESSEE IN THE PROFI T AND LOSS ACCOUNT FOR THE YEAR ENDING MARCH 31, 1998. 58 THE ABOVE CLEARLY SHOWS THAT ADJUSTMENT TO BE MA DE U/S 145A IS TO BE MADE BOTH IN RESPECT OF OPENING STOCK AS W ELL AS CLOSING STOCK. THE SAME VIEW HAS BEEN TAKEN EVEN BY THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS MAHALAXMI GLASS W ORKS P. LTD (SUPRA). FOLLOWING THESE DECISIONS, WE SET ASIDE T HE ORDER OF LD. 19 CIT(A) AND DIRECT THE ASSESSING OFFICER TO ADJUST THE VALUE OF OPENING AS WELL AS CLOSING STOCK AND ONLY THE NET D IFFERENCE SHOULD BE ADDED TO THE INCOME OF THE ASSESSEE. 59 IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 765/CHD/2009 IS PARTLY ALLOWED. 60 IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3.1.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 3.1.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR