The DCIT, Circle-1, Surat V. Alidhara Textool Engineers Pvt.Ltd.,

ITA 924/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8675 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 01-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RASESH SHAH SHRI M C
• Keywords: Business income; Depreciation; Transfer pricing; Fair market value; Set aside
• Section: 80HHC; 80IB; 32; 145; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 11/03/2010EVE DRAFTED ON: 1 2/03/2010 APPEAL(S) BY SL. NO(S). ITA NO(S) ASSESS- MENT YEAR(S) APPELLANT RESPONDENT 1. 924/AHD/2007 2003-04 DY.CIT CIRCLE-1, SURAT ALIDHARA TEXTOOL ENGINEERS PVT.LTD. FLAT NO.2, BUILD NO.1 S.NO.55, PART NOS.2 & 3 DUNGARA, DIST.VAPI PAN AAACD 8469 M 2. 1043/AHD/2007 -DO- ALIDHARA TEXTOOL ENGINEERS PVT.LTD., PLOT NO.168, ROAD NO.6-B, UDHYOGNAGAR, UDHNA, SURAT DY.CIT CIRCLE-1, SURAT 3. 3592/AHD/2007 2004-05 -DO- ADDL.CIT RANGE-1, SURAT 4. 3778/AHD/2007 -DO- DY.CIT CIRCLE-1, SURAT ALIDHARA TEXTOOL ENGINEERS PVT.LTD., SURAT ASSESSEE BY : SHRI RASESH SHAH REVENUE BY: SHRI M.C. PANDIT, SR.DR O R D E R PER BENCH: APPEAL NOS.924/AHD/2007 & 1043/AHD/2007 ARE THE CRO SS APPEALS; ONE FILED BY THE REVENUE AND THE ANOTHER FILED BY THE ASSESSEE (RESPECTIVELY) AGAINST THE ORDER OF THE LEARNED CIT (APPEALS)-I, SURAT DATED 18/12/2006 PASSED FOR ASSESSMENT YEAR 2003-0 4. APPEAL NOS.3592/AHD/2007 & 3778/AHD/2007 ARE THE CROSS APPEALS AGAINST THE ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 2 - ORDER OF THE LD.CIT(APPEALS)-I, SURAT DATED 19/07/2 007 PASSED FOR ASSESSMENT YEAR 2004-05 BEING ONE FILED BY THE ASSE SSEE AND THE ANOTHER FILED BY THE REVENUE. SINCE APPEALS INVOL VE COMMON ISSUES, THEY ARE TAKEN TOGETHER AND BEING DISPOSED OF BY A COMMON/CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ITA NO.1043/AHD/2007 FOR ASSESSMENT YEAR 20 03-04 : IN THIS APPEAL, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN M AKING ADDITION OF RS.5,00,000/- FOR ALLEGED UNDERVALUATIO N OF SEMI-FINISHED GOODS AND STOCK IN TRANSIT. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(APPEALS) HAS ER RED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN R EDUCING DEDUCTION U/S.80IB OF THE ACT BY RS.41,847/- BY NOT ALLOWING L/C MARGIN MONEY INTEREST OF RS.1,39,490 AS INCOME FROM INDUSTRIAL UNDERTAKING. 3. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(APPEALS) HAS ER RED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN D ISALLOWING DEPRECIATION OF RS.6,55,186/-. 4. IT IS THEREFORE PRAYED THAT ABOVE ADDITIONS MA DE BY ASSESSING OFFICER AND CONFIRMED BY LEARNED CIT(APPEALS)MAY PLEASE BE DELETED. 5. APPELLANT CRAVES LEAVE TO ADD, ALTER OR DELETE A NY GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE AP PEAL. ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 3 - 2.1. IN ITA NO.924/AHD/2007 FOR ASSESSMENT YEAR 2 003-04 : IN THIS APPEAL, THE REVENUE HAS RAISED FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE A DDITION OF RS.9,73,704/- ON ACCOUNT OF DISALLOWANCE U/S.40A(2) (B) OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE A DDITION OF RS.10,00,000/- IN RESPECT OF ESTIMATION OF INCOME O N ACCOUNT OF LOW NET PROFIT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), SURAT OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER ON THE ABOVE ISSUES. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT( A) MAY BE SET ASIDE AND THAT OF THE A.O. MAY BE RESTORED TO T HE ABOVE EXTENT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTILE MACHINERY AND ITS PARTS. THE ASSESSEE HAS DECLARED TOTAL SALES OF RS .45,10,89,798/- GIVING A GROSS PROFIT OF RS.12,20,62,427/- (SHOWING A GROSS PROFIT RATE OF 27.06%) AS AGAINST TURNOVER OF RS.37,97,86,301/- AN D GROSS PROFIT OF RS.13,86,67,67,458/- (SHOWING A GROSS PROFIT RATE O F 36.60%). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS NOT SHOWN CORRECT VALUE OF SEMI-FI NISHED GOODS AND STOCK IN TRANSIT. NO DAY-TO-DAY QUANTITATIVE RECOR D WAS MAINTAINED. THERE WAS NO RECORD OF CONSUMPTION OF VARIOUS RAW-M ATERIALS. NO STOCK REGISTER WAS MAINTAINED. EVENTHOUGH MANUFACTURIN G ACTIVITY OF THE ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 4 - ASSESSEE IS A CONTINUOUS PROCESS THROUGHOUT THE YEA R, THERE IS CONSUMPTION OF POWER EXPENDITURE OF LABOUR AND WAGE S BUT THERE WAS NO METHOD AS TO HOW WORK-IN-PROGRESS WAS VALUED. ASS ESSEE HAS, IN FACT, NOT SHOWN ANY WORK-IN-PROGRESS AS ON 31/03/2003. THE ASSESSING OFFICER ACCORDINGLY REJECTED THE BOOKS OF ACCOUNT A FTER RELYING ON THE DECISION OF ITAT MUMBAI BENCH C IN THE CASE OF D CIT VS. SAMIR DIAMONDS EXPORTS LTD (71 ITD 75)[MUM.]. AFTER REJE CTING THE BOOKS, THE ASSESSING OFFICER PROPOSED AN ADDITION OF RS.10 LACS IN THE TRADING RESULTS. 3.1 IN ADDITION TO ABOVE, ASSESSING OFFICER NOTIC ED THAT ASSESSEE HAS MADE THE PAYMENT OF RS.97,37,042/- TO ONE ALIDHARA WARPTEX ENGINEERS, SURAT WHICH IS A SISTER-CONCERN AND SPECIFIED PERSO N AS PER PROVISIONS OF SECTION 40A(2)(B) OF THE I.T. ACT, 1961. HE NOTIC ED THAT IT IS ONLY PARTY TO WHOM LABOUR CHARGES ARE PAID. ACCORDING TO THE ASSESSING OFFICER, ASSESSEE WAS NOT ABLE TO SHOW THE REASONABLENESS OF THE PAYMENTS. THERE WAS NO VERIFICATION OF RATES AT WHICH PAYMEN TS ARE MADE. NO TENDERS WERE INVITED SPECIFYING KIND OF SERVICES FO R WHICH PAYMENT WERE MADE. SINCE PAYMENTS WERE NOT FOUND REASONABLE, T HE ASSESSING OFFICER DISALLOWED 10% THEREOF AT RS.9,73,704/-. 3.2. THE ASSESSING OFFICER EXAMINED THE VALUATIO N OF SEMI-FINISHED GOODS AND STOCK IN TRANSIT. THE ASSESSEE HAD SHOW N SEMI-FINISHED GOODS AND STOCK-IN-TRANSIT AS UNDER:- ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 5 - SL.NO(S) PARTICULARS AMOUNT (RS.) (A)SEMI-FINISHED STOCK 1. FEED ASSEMBLY 7,50,909/- 2. HEATER ASSEMBLY 25,80,000/- 3. MATERIAL LYING WITH JOB WORKER 31,25,350/- 64,56,259/- (B) STOCK-IN-TRANSIT 98,63,661/- 3.3. ASSESSEE WAS NOT ABLE TO CONVINCE THE ASSESSIN G OFFICER AS TO HOW THESE ITEMS WERE VALUED. HE ACCORDINGLY PROPOSED A N ADDITION OF RS.5 LACS BY ESTIMATE. 4. THE NEXT ISSUE RELATES TO CLAIM OF DEPRECIATION FOR THE PURPOSES OF CALCULATING DEDUCTION U/S.80-IB OF THE I.T. ACT, 19 61. THE ASSESSEE HAD NOT TAKEN INTO ACCOUNT DEPRECIATION FOR WORKING OUT ELIGIBLE PROFIT FOR DEDUCTION U/S.80IB OF THE I.T. ACT, 1961. THE ASS ESSING OFFICER RELIED ON THE DECISION OF ITAT AHMEDABAD SPECIAL BENCH IN THE CASE OF VAHID PAPER CONVERTERS VS. ITO 98 ITD 165 (AHD.) (SB) AND HELD THAT FOR CALCULATING DEDUCTION U/S.80_IB OF THE I.T. ACT, 19 61 ALLOWABLE DEDUCTION UNDER INCOME TAX ACT WOULD BE TAKEN INTO ACCOUNT. HE ACCORDINGLY, WORKED OUT DEDUCTION U/S.80IB OF THE I.T. ACT, 1961 BY INCLUDING DEPRECIATION AT RS.25,23,838/- IN PLACE OF RS.31,79 ,027/-. THUS, ASSESSING OFFICER EXCLUDED DEPRECIATION ALLOWABLE B UT NOT CLAIMED IN EARLIER YEAR. THE ASSESSING OFFICER ACCORDINGLY, REVISED THE CLAIM OF DEDUCTION U/S.80-IB OF THE I.T. ACT, 1961. 5. THE LEARNED CIT(APPEALS) CONSIDERED THE REJECTIO N OF THE BOOKS BUT DID NOT GIVE ANY DEFINITE FINDING WHETHER BOOKS CAN BE REJECTED OR ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 6 - NOT. HE ONLY HELD THAT SPECIFIC ADDITION HAS BEEN MADE ON ACCOUNT OF VALUATION OF SEMI-FINISHED GOODS AND STOCK-IN-TRAN SIT. THEREFORE, NO SEPARATE ADDITION IN THE GROSS PROFIT IS REQUIRED T O BE MADE. HE ACCORDINGLY DELETED ADHOC ADDITION OF RS.10 LACS. 6. REGARDING ADDITION OF RS.5 LACS IN THE VALUATION OF SEMI-FINISHD GOODS, THE LEARNED CIT(APPEALS) POINTED OUT THAT ASSESSEE HAS HIMSELF ADMITTED THAT OVERHEAD MANUFACTURING EXPENSES TO TH E EXTENT OF RS.1,64,416/- WERE NOT INCLUDED WHILE VALUING THE S EMI-FINISHED STOCKS. HOWEVER, THE ASSESSEE DID NOT GIVE THE DETAILS OF F REIGHT EXPENSES OR PAYMENT TO JOB-WORKERS FOR INCLUDING IN A VALUATION OF SEMI-FINISHED GOODS. HE ACCORDINGLY CONFIRMED THE ADDITION OF RS .5 LACS. 7. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF RS.4 1,847/- BEING THE INTEREST ON L/C MARGIN MONEY FROM CALCULATION OF DE DUCTION U/S.80-IB OF THE I.T. ACT, 1961. THE ASSESSEE HAS CLAIMED DED UCTION U/S.80-IB OF THE I.T. ACT, 1961 BY INCLUDING A SUM OF RS.1,39,490/- AS INTEREST INCOME ON L/C MARGIN MONEY. THIS INTEREST INCOME WAS NOT TR EATED AS INCOME FROM ELIGIBLE BUSINESS. THE LEARNED CIT(APPEALS) HELD THAT INTEREST ON MARGIN MONEY IS NOTHING BUT INCOME FROM OTHER SOURC ES AS HELD BY VARIOUS COURTS AS UNDER:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. HINDUSTAN LEVER LTD. VS. CIT (1999) 239 ITR 297 (SC) 2. CIT VS. STERLING FOODS (1999) 237 ITR 579 (SC) 3. PANDIAN CHEMICALS LTD. VS. CIT (2003) 262 ITR 27 8 (SC) ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 7 - 7.1. HE ACCORDINGLY CONFIRMED THE ORDER OF THE ASSE SSING OFFICER ON THIS POINT. 8. THE NEXT ISSUE IS ABOUT DISALLOWANCE OF DEPRECI ATION OF RS.6,55,186/-. THE LEARNED CIT(APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER AS HE HAD RELIED ON THE DECISION OF THE ITAT AHMEDABAD SPECIAL BENCH IN THE CASE OF VAHID PAPER CONVERTERS VS. ITO 98 ITD 165 (AHD.) (SB) [SUPRA]. IN RESPECT OF DISALLOWANCE OF RS.9,73,704/- U/S.40A(2)(B) OF THE I.T. ACT, 1961. THE LEARNED CIT(APPEALS) HELD THAT SUCH DISALLOWANCE CANNOT BE DONE IN ADHOC MANNER BY APPLYING A PERCENTAGE WITHOUT BRINGING AN YTHING ON RECORD ABOUT THE UNREASONABLENESS OR UNASCERTAINABILITY O F THE PAYMENTS MADE IN COMPARISON WITH THE FAIR MARKET VALUE. IN ABSE NCE OF ANY MATERIAL TO SUPPORT THE CONCLUSION OF THE ASSESSING OFFICER, TH E LEARNED CIT(APPEALS) DELETED THE ADDITION. 9. IN IS APPEAL, THE LEARNED AUTHORISED REPRESENTAT IVE OF THE ASSESSEE SUBMITTED THAT ADHOC VALUATION OF SEMI-FINISHED GOO DS OR STOCK-IN-TRANSIT SHOULD NOT BE UPHELD. IN FACT, ASSESSEE HAS HIMSE LF FOUND A SUM OF RS.1,64,416/- BEING OVERHEAD MANUFACTURING EXPENSES NOT INCLUDED IN THE VALUATION AND, ACCORDINGLY, THE SAME HAS BEEN OFFER ED BEFORE THE LEARNED CIT(APPEALS). NEITHER THE ASSESSING OFFICER NOR TH E LEARNED CIT(APPEALS) HAS BASED THEIR DECISION ON ANY DEFINI TE FORMULA OR ON ACCOUNTING PRINCIPLES. IN ANY CASE, ACCORDING TO LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE, TWO ADDITIONS SHOUL D NOT BE MADE; ONE ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 8 - FOR GROSS PROFIT ADDITION AND OTHER FOR VALUATION O F STOCK WHICH WILL ONLY ENHANCE GROSS PROFIT. 10. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRES ENTATIVE SUBMITTED THAT ASSESSEE HAS NOT BEEN ABLE TO SHOW A S TO HOW HE HAS VALUED THE SEMI-FINISHED GOODS AND STOCK-IN-TRANSIT . THERE IS NO DETAILS OF COST OF RAW-MATERIAL, LABOUR, WAGES AND OVERHEAD S. THE ONUS IS ON THE ASSESSEE TO PROPERLY VALUE THE CLOSING STOCK AND TO EXPLAIN HOW HE HAS VALUED THEM. IF HE FAILS TO DO SO, THEN THIS WOULD BE MAJOR DEFECT NOT ONLY FOR REJECTING THE BOOKS OF ACCOUNT BUT ALSO MA KING SUITABLE ESTIMATION OF PROFITS. 11. REGARDING DISALLOWING A SUM OF RS.1,38,490/-, T HE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT L/C MARGIN MONEY IS IN RELATION TO BUSINESS AND A COMPULSION I MPOSED ON THE ASSESSEE TO MAKE DEPOSIT IN THE BANK ACCOUNT FOR OB TAINING L/C IN RESPECT OF SALES. THEREFORE, THIS INTEREST INCOME SHOULD BE TREATED AS PART OF THE BUSINESS INCOME AND THE CLAIM OF DEDUCTION U/S.80-I B OF THE I.T. ACT, 1961 SHOULD BE ALLOWED ON THIS AMOUNT. THE LEARNE D AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE DECISI ON OF CIT VS. KOSHIKA TELECOM LTD. (2006) 287 ITR 479 (DELHI), WHEREIN IT HAS BEEN HELD THAT INTEREST INCOME EARNED ON DEPOSITS OF MARGIN MONEY FOR OPENING L/C WOULD BE BUSINESS INCOME. 12. AGAINST THIS, LEARNED DEPARTMENTAL REPRESENTATI VE SUBMITTED THAT INTEREST INCOME EARNED ON FIXED DEPOSITS HAS TO BE ASSESSED AS INCOME ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 9 - FROM OTHER SOURCES, FOLLOWING THE DECISION OF HON'B LE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS VS. CIT (2003) 262 IT R 278 (SC) AND, THEREFORE, ASSESSEE WILL NOT BE ENTITLED FOR DEDUCT ION U/S.80-IB OF THE I.T. ACT, 1961. 13. REGARDING CLAIM OF DEPRECIATION THE LEARNED AUT HORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT W.D.V . (WRITTEN DOWN VALUE) AS LAST AVAILABLE SHOULD BE TAKEN FOR THE PU RPOSES OF CALCULATING OF DEPRECIATION AND WHERE ASSESSEE HAS NOT CLAIMED DEP RECIATION IN ANY OF THE EARLIER ASSESSMENT YEAR, THEN ASSESSING OFFICER CANNOT HYPOTHETICALLY REDUCED DEPRECIATION FOR THE INTERVENING PERIOD AND REDUCE THE WDV FOR WORKING OUT DEPRECIATION FOR THE CURRENT YEAR. THE WDV AS APPEARED IN THE RECORD SHOULD ONLY BE TAKEN FOR CALCULATING DEP RECIATION IN THE CURRENT YEAR. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT IT IS NOT A CASE OF CLAIMING DEPRECI ATION U/S.32 OF THE I.T. ACT, 1961 BUT IT IS A CASE OF CALCULATING DEPRECIAT ION FOR THE PURPOSES OF COMPUTING DEDUCTION U/S.80-IB OF THE I.T. ACT, 1961 . SINCE THE ITAT AHMEDABAD SPECIAL BENCH IN THE CASE OF VAHID PAPER CONVERTERS VS. ITO (SUPRA) HAS DECIDED THE ISSUE AGAINST THE ASSES SEE, THERE IS NO CASE FOR TAKING A DIFFERENT VIEW THAN TAKEN BY THE SPECI AL BENCH. 15. IN ITS APPEAL, THE REVENUE HAS RAISED THE ISS UE IN RESPECT OF ADDITION U/S.40A(2)(B) OF THE I.T. ACT, 1961 AND GROSS PROFI T ADDITION. IN RESPECT OF ADDITION U/S.40A(2)(B) OF THE I.T. ACT, 1961, TH E LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSESSEE HAS FAILED T O FURNISH DETAILS AS TO ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 10 - FOR WHAT SERVICES PAYMENT IS BEING MADE TO M/S.ALID HARA WARPTEX ENGINEERS AND WHETHER THE PAYMENT IS REASONABLE. T HEREFORE, ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING A PART OF IT. 16. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE, ON THE OTHER HAND, SUBMITTED THAT ASSESSEE HAS BEEN PAYING LABOUR CHARGES TO ALIDHARA WARPTEX ENGINEERS IN THE PAST ALSO WHICH H AS BEEN ACCEPTED BY THE DEPARTMENT AND NO DISALLOWANCE HAS BEEN MADE. THIS YEAR ALSO, ASSESSEE HAS MADE PAYMENT FOR LABOUR CHARGES AND, T HEREFORE, THERE IS NO CASE FOR MAKING DISALLOWANCE. ASSESSEE HAS CLAIMED A REASONABLE SUM. IT WAS FOR THE ASSESSING OFFICER TO SHOW THAT AS PE R MARKET RATES, PAYMENT WAS EXCESSIVE. AS ASSESSING OFFICER HAS N OT BROUGHT ANY MATERIAL ON RECORD, ADDITION IS NOT JUSTIFIED. 16.1. REGARDING GROSS PROFIT ADDITION, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSESSEE HAS NOT EXPL AINED WHY THE GROSS PROFIT RATE HAS DECREASED FROM 36.60% TO 27.06%. N O PLAUSIBLE EXPLANATION HAS BEEN FURNISHED. THE ASSESSING OFF ICER HAS POINTED OUT SO MANY DEFECTS, THEREFORE, REJECTION OF BOOKS WERE ALSO JUSTIFIED. BY MAKING ADDITION OF RS.10 LACS, THE GROSS PROFIT RAT E IS ONLY ORIGINALLY INCREASED BY LESS THAN 0.3%. THEREFORE, ADDITION PROPOSED IS NOT VERY HIGH. 17. AGAINST THIS, LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT ASSESSEE HAS ALREADY SHOWN VERY HIGH PROFIT RATE. THE BUSINESS IS NOT MATHEMATICS AND EVERY YEAR THERE CA NNOT BE SAME RATE OF ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 11 - PROFIT. NO BUSINESS MAN IS SHOWING SUCH A HIGH GR OSS PROFIT. THE BOOKS OF ACCOUNT OF ASSESSEE ARE AUDITED AND NO ACCEPTABL E DEFECT HAS BEEN FOUND BY THE ASSESSING OFFICER. THUS, NO ADHOC AD DITION IN GROSS PROFIT SHOULD BE MADE. 18. FINALLY, AFTER HEARING BOTH THE PARTIES AND PE RUSING THE MATERIAL ON RECORD, OUR DECISION IN RESPECT OF EACH ISSUE IS AS UNDER: ( A ) REGARDING REJECTION OF BOOKS IN OUR CONSIDERED VIEW, THE ASSESSING OFFICER WAS JUSTIFIED IN REJECTING THE BOOKS. THE LEARNED CIT(APPEALS) HAS NOT GIVEN CLEAR DECISION ON THIS MATTER BUT WE CAN INFER THAT HE HAS NOT UPHELD THE REJECTION. IN OUR CONSIDERED VIEW, NOT PROPERLY VALUING THE CLOSING STOCK INCLUDING SEMI-FINISHED GOODS OR STOCK-IN-TRANSIT AND NOT MAINTAINING QUANTITATIVE RECORD OF CONSUMPT ION AND PRODUCT AND VARIOUS INPUTS WOULD BE SUFFICIENT TO H OLD THAT INCOME CANNOT BE CORRECTLY DEDUCED FROM BOOKS OF ACCOUNT M AINTAINED. IT IS ARGUED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT IT IS MAINTAINING RECORDS AS PER EXCI SE RULES, BUT IT IS NOWHERE SHOWN THAT ASSESSEE HAS BEEN MAINTAINING QU ANTITATIVE RECORDS OF RECEIPT, ISSUE AND BALANCE OF VARIOUS TY PES OF STOCKS OR RAW-MATERIAL. ASSESSEE HAS LARGE NUMBER OF SMALL PARTS WHICH ARE EITHER MANUFACTURED OR PURCHASED AND WHICH ARE USED FOR MANUFACTURING THE TEXTILE MACHINES. IT WAS FOR TH E ASSESSEE TO CONVINCE THE AUTHORITIES OR EVEN TO US THAT THERE I S A DEFINITE QUANTITATIVE RECORD WHICH IS NOT FOUND DEFECTIVE. FURTHER, IT IS ADMITTED POSITION THAT VALUATION OF STOCK IS DEFECT IVE. ASSESSEE HAS ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 12 - HIMSELF ADMITTED THAT HE OUGHT TO HAVE BEEN INCLUDE D A SUM OF RS.1,64,416/- WHICH IS 4.94% OF OVERHEAD MANUFACTU RING EXPENSES. IT IS NOT KNOWN HOW ASSESSEE HAS BEEN AB LE TO WORK OUT THAT OVERHEAD EXPENSES OF 4.94% ONLY ARE TO BE ALL OCATED TO SEMI- FINISHED GOODS. FURTHER, THERE IS NO WORKING GIVEN FOR LABOUR CHARGES REQUIRED TO BE INCLUDED IN VALUATION OF SEM I-FINISHED GOODS AND STOCK-IN-TRANSIT. IN VIEW OF THIS, WE HO LD THAT BOOKS ARE NOT RELIABLE AND INCOME CANNOT BE DEDUCED CORRECTLY . AS A RESULT, ASSESSING OFFICER WAS JUSTIFIED IN INVOKING THE PRO VISIONS OF SECTION 145 AND ESTIMATING THE PROFITS. ( B ) REGARDING ISSUE OF DEPRECIATION IN OUR CONSIDERED VIEW, THE ISSUE IS COVERED BY THE DECISION OF ITAT AHMEDABAD SPECIAL BENCH IN THE CASE OF VAHID PAPER CONVERTERS VS. ITO AGAINST THE ASSESSEE. THERE IS NO CONTRARY DECISION REFERRED TO BY THE LEARNED AUTHORISED REPR ESENTATIVE OF THE ASSESSEE. POSSIBLY ASSESSEE IS MISUNDERSTANDIN G CLAIM OF DEDUCTION OF DEPRECIATION U/S.32 OF THE I.T. ACT, 1 961 WITH THE CLAIM OF DEDUCTION UNDER CHAPTER VI-A. IF IT WAS A CASE WHERE DEDUCTION IS CLAIMED U/S.32 OF THE I.T. ACT, 1961 F OR THE PURPOSES OF COMPUTATION OF TOTAL INCOME IN NORMAL WAY, WITH IN THE MEANING OF SECTIONS 28 TO (43D), THE STAND TAKEN BY THE LE ARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE WOULD HAVE BEEN CORR ECT. BUT WHEN IT COMES THE QUESTION OF COMPUTING DEDUCTION U NDER CHAPTER VI-A, THEN CALCULATION OF DEPRECIATION HAS TO BE DO NE, IRRESPECTIVE OF WHETHER IT HAS BEEN CLAIMED BY THE ASSESSEE IN THE NORMAL COMPUTATION OF INCOME OR NOT. FOR THE SAKE OF CLA RITY, WE ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 13 - REPRODUCE THE FOLLOWING PORTION OF HEAD NOTES FROM VAHID PAPER CONVERTERS VS. ITO(SUPRA). WHILE COMPUTING THE INCOME FOR THE PURPOSE OF DEDU CTION UNDER CHAPTER VI-A OF THE INCOME-TAX ACT, 1961, THE DEPRECIATION HAS TO BE ALLOWED WHETHER OR NOT IT IS CLAIMED BY THE ASSE SSEE. ON A FAIR READING OF SECTIONS 80A, 80AB AND 80B OF THE INCOME- TAX ACT, 1961, IT IS APPARENT THAT FOR ALLOWING DED UCTIONS UNDER CHAPTER VI-A THE FIRST STEP IS TO COMPUTE THE GROSS TOTAL INCOME OF THE ASSESSEE IN ACCORDANCE WITH ALL THE PROVISIONS OF THE ACT, EXCEPT CHAPTER VI-A. THE SECOND STEP IS TO ASCERTAI N WHAT PART OF THE TOTAL INCOME SO COMPUTED REPRESENTS THE PROFITS AND GAINS DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTA KING THAT IS INCLUDED IN THAT GROSS TOTAL INCOME. IF THERE BE AN Y PROFITS AND GAINS SO DERIVED FOUND INCLUDED IN THE GROSS TOTAL INCOME, A DEDUCTION OF SUCH PROFITS AND GAINS OR A PART THERE OF IS TO BE ALLOWED UNDER A PARTICULAR SECTION TO ARRIVE AT THE TOTAL INCOME LIABLE TO TAX. IN ALL THE SECTIONS, I.E., SECTIONS 80HH, 80-IA AND 80-IB, THE EMPHASIS IS ON A DEDUCTION FROM SUCH PROFITS AND G AINS THAT ARE TO BE COMPUTED AS STATED IN SECTION 80AB IN ACCORDA NCE WITH THE PROVISIONS CONTAINED IN THE ACT. DEPRECIATION AND OTHER DEDUCTIONS FALLING WITHIN SECTIONS 30 TO 43A WILL HAVE TO BE D EDUCTED BEFORE MAKING ANY DEDUCTION UNDER CHAPTER VI-A OF THE ACT. THE LOGIC BEHIND THE DEDUCTIBILITY OF DEPRECIATION WHILE COMPUTING THE ELIGIBLE PROFITS FOR CHAPTER VI-A, IS THAT IF THE DEPRECIATION IS NOT REDUCED WHILE COMPUTING THE INCOME, THE ASSESSEE WO ULD CLAIM THE DEDUCTION ON THE GROSS AMOUNT OF INCOME AND THAT WO ULD AMOUNT TO ALLOWING A GREATER DEDUCTION THAN THE ASSESSEE I S ENTITLED TO. CIT V. CADILA CHEMICALS P. LTD. [2003] 259 ITR 692 (GUJ), CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [ 1978] 113 ITR 84 (SC), VIJAY INDUSTRIES V. CIT [2004] 270 ITR 175 (RAJ), CIT V. MILLING TRADING CO. P. LTD. [1995] 211 ITR 690 (GUJ ) AND INDIAN RAYON CORPORATION LTD. V. CIT [2003] 261 ITR 98 (BO M) FOLLOWED. ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 14 - IN THE INCOME-TAX ACT THERE IS NO PROVISION FOR DI SCLAIMER OF DEPRECIATION FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER CHAPTER VI-A UNDER WHICH THE AMOUNT OF INCOME OF T HAT NATURE AS COMPUTED UNDER THE PROVISIONS OF THIS ACT HAS TO B E TAKEN. THEREFORE, WHILE COMPUTING THE ELIGIBLE INCOME EFFE CT TO ALL THE PROVISIONS OF THE ACT (EXCLUDING CHAPTER VI-A) IS T O BE GIVEN. THE PROVISIONS OF THE INCOME-TAX ACT INCLUDE SECTION 32 WHICH PROVIDES FOR DEPRECIATION. THEREFORE THIS IS DEDUCTIBLE BEFORE MAKING ANY DEDUCTION UNDER SECTION 80HH. THE DECISION OF THE SUPREME COURT IN MAHENDRA MILLS CASE [2000] 243 ITR 56 WAS APPLICABLE FOR THE PERIOD TO APRIL 1, 1988, I.E., BEFORE THE LAW WAS AMENDED BY THE TAXATION LA WS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986. THE CONTROVERSY IN THAT CASE DID NOT CONCERN THE DEDUCT ION UNDER CHAPTER VI-A OF THE ACT. THE OBSERVATIONS OF THE SU PREME COURT IN THE CASE CAN BE TAKEN AS APPLICABLE ONLY IN THE CON TEXT OF COMPUTING NORMAL INCOME FOR THE ASSESSMENT YEARS PR IOR TO THE ASSESSMENT YEAR 1988-89 AND NOT FOR THE COMPUTATION OF INCOME FOR THE PURPOSE OF CHAPTER VI-A. CIT V. MAHENDRA MILLS [2000] 243 ITR 56 (SC) EXPLAI NED AND DISTINGUISHED. IT COULD BE THE PRIVILEGE OF THE ASSESSEE TO CLAIM OR NOT TO CLAIM SUCH DEDUCTION. HOWEVER, WHEN THE INCOME OF THE ASS ESSEE IS TO BE DETERMINED FOR THE PURPOSE OF COMPUTING DEDUCTION U NDER CHAPTER VI-A EITHER THE WHOLE OR A CERTAIN PERCENTAGE OF TH E INCOME IS EXEMPT. THEREFORE, IF THE DEPRECIATION IS NOT CLAIMED, THE RESULTANT INCOME WOULD BE HIGHER AND CONSEQUENTLY A HIGHER DE DUCTION WOULD BE AVAILABLE TO THE ASSESSEE UNDER CHAPTER VI -A. CERTAINLY THEREFORE IT CANNOT BE THE PRIVILEGE OF THE ASSESSE E TO CLAIM A HIGHER DEDUCTION THAN HE IS ENTITLED TO. CIT V. MAHALAXMI SUGAR MILLS CO. LTD. [1986] 160 IT R 920 (SC) RELIED ON. SEPARATE COMPUTATION OF THE PROFITS AND GAINS OF TH E ELIGIBLE BUSINESS FOR THE PURPOSE OF DEDUCTION UNDER THIS CH APTER IS THE ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 15 - CLEAR MANDATE OF THE LEGISLATURE. BY VIRTUE OF THE DEEMING FICTION THAT THE INDUSTRIAL UNDERTAKING WOULD BE THE ONLY S OURCE OF INCOME FOR COMPUTING THE INCOME, THERE IS BOUND TO BE DIFF ERENCE IN BOTH THE INCOMES AS WELL AS THE WRITTEN DOWN VALUES FROM YEAR TO YEAR. AGAIN THE DIFFERENT WRITTEN DOWN VALUE IS FOR COMPU TING THE INCOME FOR THE PURPOSE OF CHAPTER VI-A AND WOULD HAVE NO I MPINGING EFFECT IN DISTURBING THE WRITTEN DOWN VALUES FOR TH E PURPOSE OF SECTION 43(6) IN DETERMINING THE INCOME OF THE ASSE SSEE UNDER SECTION 29 OF THE ACT. ALEMBIC CHEMICAL WORKS LTD. V. DEPUTY CIT [2004] 26 6 ITR 47 (GUJ) RELIED ON. 18.1. IN VIEW OF THIS, WE UPHOLD THE ORDERS OF THE AUTHORITIES BELOW ON THIS POINT AND REJECT THIS GROUND RAISED BY THE ASS ESSEE. ( C ) REGARDING ISSUE OF DEDUCTION U/S.80-IB OF THE I.T . ACT, 1961 ON INTEREST EARNED L/C MARGIN MONEY. THE ASSESSING OFFICER DISALLOWED THE CLAIM ON THE G ROUND THAT THIS INTEREST INCOME IS NOT DERIVED FROM THE BUSINESS OF THE ASSESSEE. THOUGH, IT MAY BE ATTRIBUTABLE TO IT. THE LEARN ED CIT(APPEALS) CONFIRMED THE SAME ON SIMILAR REASONING. 18.2. IN OUR CONSIDERED VIEW, THERE IS NO CASE FOR INTERFERENCE IN THE ORDERS OF THE AUTHORITIES BELOW ON THIS POINT. THE REASONS BEING THAT THE INTEREST INCOME ON FIXED DEPOSITS OPENED FOR OBTAIN ING LETTER OF CREDIT HAS ONLY A DISTANT RELATIONSHIP AND NO DIRECT RELAT IONSHIP, WITH THE BUSINESS OF THE ASSESSEE. WHEN IT COMES THE QUES TION OF TAXING SUCH INCOME UNDER THE HEAD BUSINESS U/S.28 OF THE I.T. ACT, 1961, THEN THE ISSUE WILL CERTAINLY GO IN FAVOUR OF THE ASSESSEE A S HELD BY THE HON'BLE ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 16 - DELHI HIGH COURT IN THE CASE OF KOSHIK TELECOM LTD. (SUPRA) REFERRED TO BY LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSE E. BUT WHEN IT COMES THE QUESTION OF CONSIDERING SUCH INTEREST IN COME FOR ALLOWING DEDUCTION U/S.80-IB OF THE I.T. ACT, 1961, THEN WOR DS USED IN THAT SECTION HAS TO BE COMPARED WITH THE WORDS USED IN OTHER SEC TIONS UNDER CHAPTER VI-A OF THE I.T. ACT, 1961 AND AUTHORITIES PRONOUNC ED THEREON HAS TO BE RELIED UPON. IN THIS REGARD, WE REFER TO THE DEC ISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF K.RAVINDRANATHAN NAIR VS. DCIT (2003) 262 ITR 669 (KER.) WHEREIN IT HAS BEEN HELD THAT DEDUCT ION U/S.80-HHC OF THE I.T. ACT, 1961 WOULD NOT BE AVAILABLE ON INTERE ST INCOME EARNED ON FIXED DEPOSITS MADE FOR OBTAINING LETTERS OF CREDIT . INTEREST FROM SUCH 'SHORT-TERM DEPOSITS RECEIVED BY THE ASSESSEE WAS NOT THE DIRECT RESULT OF ANY EXPORT OF ANY GOODS OR MERCHANDISE. THE FDS WE RE MADE ONLY FOR THE PURPOSES OF OBTAINING LETTERS OF CREDIT AND FOR GETTING OTHER BENEFITS. THE INTEREST INCOME RECEIVED ON SUCH SHORT TERM DEP OSITS COULD BE ATTRIBUTED TO EXPORT BUSINESS BUT COULD NOT BE TREA TED AS INCOME DERIVED FROM THE EXPORT BUSINESS. EVEN WHERE THE BANKS HA VE INSISTED FOR MAKING SUCH DEPOSITS FOR OBTAINING LETTERS OF CREDI T OR OTHER FACILITIES, STILL IT CANNOT BE SAID THAT INCOME WAS DERIVED FRO M EXPORT BUSINESS. SIMILARLY, VIEW WAS TAKEN BY THE HON'BLE MADRAS HIG H COURT IN THE CASE OF CIT VS. THE MADRAS MOTORS LTD. (2002) 257 ITR 60 (MAD.) AND IN THE CASE OF CIT VS. MENON IMPEX (P) LTD. (2003) 259 ITR 403(MAD.). THE LANGUAGE USED IN SECTION 80-IB OF THE I.T. ACT, 196 1 IS THE SAME AS IN SECTION 80HHC OF THE I.T. ACT, 1961. IT USES THE WORDS ANY PROFIT AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO IN SUB- SECTION (3). SECTION 80HHC OF THE I.T. ACT, 1961 USES WORDS IN S UB-SECTION (3) THE ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 17 - PROFITS DERIVED FROM SUCH EXPORT. THUS, INTERES T INCOME SHOULD HAVE DIRECT NEXUS WITH THE BUSINESS OF THE INDUSTR IAL UNDERTAKING AS REFERRED TO IN SECTION 80IB OF THE I.T. ACT, 1961. THE BUSINESS OF THE ASSESSEE IS MANUFACTURING TEXTILE MACHINES AND NOT OF EARNING INTEREST, THEN INTEREST EARNED ON FIXED DEPOSITS MADE FOR OPE NING LETTERS OF CREDIT OR FOR OBTAINING OTHER FACILITIES CANNOT BE SAID TO BE DERIVED FROM BUSINESS OF MANUFACTURING OF MACHINES THE CONNEC TION IS REMOTE AND NOT PROXIMATE WHICH IS THE REQUIREMENT RESULTING FR OM THE WORDS DERIVED USED IN THIS SECTION. IN VIEW OF THIS, W E CONFIRM THE ORDERS OF AUTHORITIES BELOW ON THIS POINT. AS A RESULT THIS GROUND OF THE ASSESSEE IS REJECTED. ( D ) REGARDING ADDITION ON ACCOUNT OF UNDERVALUATION O F SEMI-FINISHED GOODS AND STOCK-IN-TRANSIT. 18.3 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW THAT THIS ADDITION WOULD BE COVERED IN THE OVERALL GROSS PROF IT ADDITION WHICH WE WILL CONSIDER IN REVENUES APPEAL. THEREFORE, NO SEPARATE ADDITION IS REQUIRED TO BE MADE ON THIS ACCOUNT. THIS ADDITION IS, ACCORDINGLY, DELETED. THIS GROUND OF ASSESSEE IS ALLOWED. REVENUES APPEAL FOR ASSESSMENT YEAR 2003-04 19. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSING MATERIAL ON RECORD, OUR DECISION ON THE ISSUES RAIS ED BY THE REVENUE ARE AS UNDER:- ( A ) ADDITION ON ACCOUNT OF DISALLOWANCE U/S.40A(2)(B ) OF THE I.T. ACT, 1961. ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 18 - THE CLAIM OF LEARNED AUTHORISED REPRESENTATIVE OF T HE ASSESSEE IS THAT THE ASSESSEE HAS BEEN MAKING PAYMENT TO M/S. A LIDHARA WARPTEX ENGINEERS IN THE PAST AND IT HAS BEEN ACCEP TED BY THE DEPARTMENT. THEREFORE, DEPARTMENT SHOULD HAVE TAK EN A CONSISTENT VIEW. ON THE OTHER HAND, LEARNED DEPAR TMENTAL REPRESENTATIVE IS OF THE VIEW THAT ONUS ON THE ASSE SSEE TO SHOW THAT PAYMENTS WERE MADE BY THE ASSESSEE FOR CERTAIN SERV ICES RENDERED BY THE SISTER-CONCERN AND SUCH PAYMENTS WERE RECEIV ABLE. IN OUR CONSIDERED VIEW, ONUS IS ON THE ASSESSEE TO SHOW TH AT PAYMENTS MADE TO SISTER-CONCERN WERE FOR CERTAIN WORK DONE F OR THE ASSESSEE AND PAYMENTS MADE BY THE ASSESSEE TO IT WERE REASON ABLE AND WERE AT ARMS LENGTH PRICE. ONUS CANNOT BE SHIFTED ON T HE REVENUE. IT IS THE DUTY OF ASSESSEE WHO IS CLAIMING CERTAIN EX PENDITURE IN THE PROFIT & LOSS ACCOUNT TO SHOW THAT IT WAS INCURRED FOR THE BUSINESS PURPOSE AND PAYMENTS WERE REASONABLE. FURTHER, EVE N IF SUCH CLAIMS HAVE BEEN ALLOWED IN THE PAST, BUT RULE OF C ONSISTENCY CANNOT PREVENT THE ASSESSING OFFICER FROM EXAMINING THE ISSUE EVERY YEAR. THE FACT OF RENDING SERVICES WILL REM AIN SPECIFIC TO THAT YEAR AS FACTS MAY DIFFER OR CIRCUMSTANCES MAY CHANGE. IT IS FOR THE ASSESSEE TO SHOW THAT SISTER-CONCERN HAD PR OVIDED SERVICES FOR WHICH PAYMENTS WERE MADE WHICH IS REASONABLE. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR GIVING OPPORTUNITY TO THE ASSESSEE TO SHOW AS FOR WHAT PAY MENTS WERE MADE TO THAT PARTY AND WHETHER THESE PAYMENTS ARE O N REASONABLE ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 19 - RATES. ACCORDINGLY, THIS GROUND OF REVENUE IS ALLO WED BUT FOR STATISTICAL PURPOSES. ( B ) ISSUE REGARDING GROSS PROFIT ADDITION IT WAS CLAIMED BY THE LD.AR THAT IT HAD SUBMITTED E XPLANATION AS TO THE FALL IN GROSS PROFIT, BUT AFTER GOING THROUG H THE RECORD, NO SPECIFIC EXPLANATION COULD BE NOTICED. EVENTHOUGH TURNOVER OF THE ASSESSEE IS INCREASED, BUT THIS CANNOT BE THE REASO N FOR FALL IN GROSS PROFIT, AS IN SUBSEQUENT YEAR, WE NOTICE THAT INCRE ASE IN TURNOVER HAS NOT ACCELERATED THE FALL IN GROSS PROFIT. ON THE OTHER HAND, GROSS PROFIT HAS INCREASED IN SUBSEQUENT YEAR. IN FACT, THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.10 LAC S WHICH IS AFFECTING THE GROSS PROFIT RATE BY ONLY 0.3% WHICH IS QUITE NOMINAL. WE, THEREFORE, UPHOLD THE GROSS PROFIT A DDITION OF RS.10 LACS. THIS WILL COVER THE ADDITION MADE BY THE AS SESSING OFFICER ON ACCOUNT OF VALUATION OF SEMI-FINISHED GOODS/GOOD S IN TRANSIT. 19.1. AS A RESULT, THIS GROUND OF REVENUE IS RESTO RED. APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED BUT FOR STATISTICAL PURPO SES. ITA NOS.3592/AHD/2007 & 3778/AHD/2007 FOR ASSESSME NT YEAR 2004-05 BY ASSESSEE & REVENUE RESPECTIVELY 20. IN THIS YEAR, THE ASSESSEE AS WELL AS REVENUE R AISED THE FOLLOWING GROUNDS IN THEIR APPEALS:- ASSESSEES APPEAL, ITA NO.3592/AHD/2007 ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 20 - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN M AKING ADDITION OF RS.10,00,000/- FOR ALLEGED UNDERVALUATO N OF SEMI-FINISHED GOODS AND STOCK IN TRANSIT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS LAW ON THE SUBJECT, THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN D ISALLOWING RS.82,689/-, BEING 30% OF INTEREST RECEIVED ON L/C MARGIN MONEY AND LABOUR CHARGES FOR CALCULATION OF DEDUCTI ON U/S.80IB. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS LAW ON THE SUBJECT, THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN D ISALLOWING DEPRECIATION OF RS.4,95,293/-. 4. IT IS THEREFORE PRAYED THAT ABOVE ADDITIONS MADE BY ASSESSING OFFICER AND CONFIRMED BY LEARNED CIT(APPE ALS) MAY PLEASE BE DELETED. 5. APPELLANT CRAVES LEAVE TO ADD, ALTER OR DELETE A NY GROUND(S) EITHER BEFORE OR IN THE COURSE OF HEARING OF THE AP PEAL. REVENUES APPEAL, ITA NO.3778/AHD/2007 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L EARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.19,53,9 67/- MADE ON ACCOUNT OF DISALLOWANCE OUT OF PAYMENTS MADE TO PER SONS COVERED U/S.40A(2)(B) OF THE I.T. ACT AS THE SAME W ERE EXCESSIVE AND UNREASONABLE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.25,00,000/- MA DE ON ACCOUNT OF REJECTION OF BOOKS OF ACCOUNT AND ESTIMA TION OF FURTHER NET PROFIT. ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 21 - 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT( A) BE SET-ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. ASSESSEES APPEAL FOR ASSESSMENT YEAR 2004-05 21. THE BRIEF FACTS OF THE CASE ARE SAME AS WERE TA KEN IN THE ASSESSMENT YEAR 2003-04(SUPRA). 21.1. GROUND NO.1 RELATES TO ADDITION ON ACCOUNT OF UNDERVALUATION OF SEMI-FINISHED GOODS AND STOCK-IN-TRANSIT. THE GROU ND, THE BASIS FOR ADDITION, THE REASONING OF LEARNED CIT(APPEALS) IN CONFIRMING THE ADDITION, THE ARGUMENTS OF THE LEARNED AUTHORISED R EPRESENTATIVE OF THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIV E ARE THE SAME AS WERE TAKEN BY THEM IN GROUND NO.1 IN ASSESSMENT YEA R 2003-04(SUPRA). 22. FOLLOWING OUR DECISION IN ASSESSMENT YEAR 2003 -04(SUPRA), WE DELETE THE ADDITION ON ACCOUNT OF UNDERVALUATION OF SEMI-FINISHED GOODS AND STOCK-IN-TRANSIT. 23. GROUND NO.2 RELATES TO ALLOWING THE DEDUCTION U /S.80-IB OF THE I.T. ACT, 1961 ON INTEREST INCOME ON L/C MARGIN MONEY AN D LABOUR CHARGES. THIS GROUND IS THE SAME AS WERE TAKEN IN GROUND NO .2 IN ASSESSMENT YEAR 2003-04(SUPRA). THE REASONING GIVEN BY THE AS SESSING OFFICER, LEARNED CIT(APPEALS) AND THE ARGUMENTS OF BOTH THE PARTIES ARE SAME AS IN ASSESSMENT YEAR 2003-04(SUPRA). ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 22 - 24. FOLLOWING OUR REASONING AND DECISION GIVEN IN A SSESSMENT YEAR 2003-04(SUPRA), WE CONFIRM THE ORDER OF THE LEARNED CIT(APPEALS) AND DISMISS THIS GROUND OF ASSESSEE. 25. GROUND NO.3 IS ABOUT DISALLOWING DEPRECIATION O F RS.4,95,293/- FROM COMPUTATION OF DEDUCTION U/S.80-IB OF THE I.T. ACT, 1961. THIS GROUND, THE BASIS OF ADDITION, REASONING OF LEARNED CIT(APPEALS) AND ARGUMENTS OF THE PARTIES ARE THE SAME AS IN RESPECT OF GROUND NO.3 IN ASSESSMENT YEAR 2003-04. 26. FOLLOWING OUR REASONING AND DECISION GIVEN IN A SSESSMENT YEAR 2003-04(SUPRA), WE CONFIRM THE ORDER OF THE LEARNED CIT(APPEALS) AND DISMISS THIS GROUND OF ASSESSEE. REVENUES APPEAL FOR ASSESSMENT YEAR 2004-05 27. GROUND NO.1 RELATES TO ADDITION U/S.40A(2)(B) O F THE I.T. ACT, 1961 AND GROUND NO.2 GROSS PROFIT ADDITION OF RS.25 LACS . BOTH THE GROUNDS ARE THE SAME AS WERE TAKEN IN GROUND NOS.1 & 2 IN R EVENUES APPEAL FOR ASSESSMENT YEAR 2003-04(SUPRA). THE BASIS FOR ADDI TION, THE REASONING FOR GIVING RELIEF AND ARGUMENTS OF BOTH THE PARTIES ARE THE SAME AS WERE TAKEN BY THEM IN THE ASSESSMENT YEAR 2003-04(SUPRA) . 28. FOLLOWING OUR REASONING AND DECISION GIVEN IN A SSESSMENT YEAR 2003-04(SUPRA), WE SET ASIDE THE ISSUE RELATING TO ADDITION U/S.40A(2)(B) OF THE I.T. ACT, 1961 TO THE FILE OF ASSESSING OFFI CER FOR GIVING OPPORTUNITY TO THE ASSESSEE TO JUSTIFY THE PAYMENTS MADE TO SISTER- ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 23 - CONCERN. THIS GROUND OF REVENUE IS, ACCORDINGLY, TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES. 29. AFTER CONSIDERING ALL THE FACTS, CIRCUMSTANCES AND ARGUMENTS OF THE PARTIES IN RESPECT OF GROSS PROFIT, WE RESTRICT THE ADDITION TO RS.12.5 LACS AS AGAINST RS.25 LACS MADE BY THE ASSESSING OFFICER . THIS COVERS THE ADDITION PROPOSED BY THE ASSESSING OFFICER ON ACCOU NT OF UNDERVALUATION OF SEMI-FINISHED GOODS AND STOCK-IN-TRANSIT. THUS, ASSESSEE GETS A RESULTANT RELIEF. THEREFORE, THIS GROUND OF REVENU E IS PARTLY ALLOWED. 30. AS A RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTY ALLOWED, WHEREAS APPEAL FILED BY THE REVENUE IS PARTY ALLOWE D BUT FOR STATISTICAL PURPOSES. 31. IN THE RESULT, WE SUMMARIZE THE RESULT AS UND ER: (1) REVENUES APPEAL, ITA NO.924/AHD/2007 FOR ASS ESSMENT YEAR 2003-04 IS PARTLY ALLOWED AND PARTLY ALLOWED FOR S TATISTICAL PURPOSES. (2) ASSESSEES APPEAL, ITA NO.1043/AHD/2007 FOR ASSESSMENT YEAR 2003-04 IS PARTLY ALLOWED. (3) ASSESSEES APPEAL, ITA NO.3592/AHD/2007 FOR ASS ESSMENT YEAR 2004-05 IS PARTLY ALLOWED. (4) REVENUES APPEAL, ITA NO.3778/AHD/2007 FOR ASSESSMENT YEAR 2004-05 IS PARTLY ALLOWED AND PARTLY ALLOWED FOR ST ATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 26/03/2010. SD/- SD/- ( T.K.SHARMA ) ( D.C.AGRAWAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 26/ 03 /2010 T.C. NAIR ITA NOS.924,1043,3592 & 3778/AHD/2007 M/S.ALIDHARA TEXTOOL ENGINEERS PVT.LTD. VS. DY.CIT ASST.YEARS - 2003-04 & 2004-05 - 24 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-I, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD