The DCIT, Circle-1(1), Baroda v. BANCO PRODUCTS (INDIA) LTD., Baroda

ITA 3195/AHD/2010 | 2004-2005
Pronouncement Date: 31-07-2012 | Result: Dismissed

Appeal Details

RSA Number 319520514 RSA 2010
Assessee PAN AAACB8630L
Bench Ahmedabad
Appeal Number ITA 3195/AHD/2010
Duration Of Justice 1 year(s) 7 month(s) 28 day(s)
Appellant The DCIT, Circle-1(1), Baroda
Respondent BANCO PRODUCTS (INDIA) LTD., Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 31-07-2012
Date Of Final Hearing 14-06-2012
Next Hearing Date 14-06-2012
Assessment Year 2004-2005
Appeal Filed On 02-12-2010
Judgment Text
ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AH MEDABAD (BEFORE SHRI MUKUL KR.SHRAWAT JM & SHRI ANIL CHATUR VEDI A.M.) I.T.A. NO. 3184/AHD/2010. (BY ASSESSEE) I.T.A. NO. 3195/AHD/2010 (BY DEPARTMENT) (ASSESSMENT YEAR: 2004-05 ) BANCO PRODUCTS (INDIA) LTD. BIL NEAR BHAILI RLY. STATION PADRA ROAD BARODA. (APPELLANT) VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1(1) AAYAKAR BHAVAN NEAR RACE COURSE CIRCLE BARODA. (RESPONDENT) PAN: AAACB 8630L APPELLANT BY : MR. MILIN MEHTA RESPONDENT BY : MR. RAJ MEHRA SR. D.R. ( )/ ORDER DATE OF HEARING : 14-6-2012 DATE OF PRONOUNCEMENT : 31-7-2012 PER: SHRI ANIL CHATURVEDI ACCOUNTANT MEMBER. THESE ARE TWO CROSS APPEALS ONE FILED BY THE ASSE SSEE AND THE OTHER BY THE REVENUE AGAINST THE COMMON ORDER OF LD. CIT (A)-I BARODA DATED 16-8-2010 FOR THE ASSESSMENT YEAR 2004-05. 2. SINCE BOTH THE APPEALS ARE HEARD TOGETHER WE DI SPOSE OFF THESE APPEALS BY A CONSOLIDATED ORDER FOR THE SAKE OF CON VENIENCE. I.T.A.NO.3195/AHD/2010 (REVENUES APPEAL) ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 2 3. IN THIS APPEAL REVENUE RAISED FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE U/S. 14A OF EXPENSES OF RS.12 96 839/- INCURRED FOR EARNING DIV IDEND INCOME EXEMPT U/S. 10(34) /10 (35) IRRESPECTIVE OF DECISIO N OF CIT VS. ABHISHEK LAND P. LTD. (285 ITR 01) P & & H HIGH COU RT WHEREIN IT WAS HELD THAT THE ONUS WAS ENTIRELY ON THE ASSESSEE TO PROVE THAT ALL THE BORROWED FUNDS WERE USED FOR BUSINESS. IN TERMS OF SECTION106 OF THE EVIDENCE ACT THE ASSESSEE WAS UNDER OBLIGATION TO PROVE THAT INTEREST BEARING FUND WAS NOT USED FOR INVESTMENT Y IELDING EXEMPT INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT (A) ERRED IN DIRECTING TO REDUCE THE AM OUNT OF SALES TAX AND EXCISE DUTY WHILE COMPUTING THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S. 80HHC OF THE ACT RELYING ON THE DECI SION OF LAKSHMI MACHINE WORKS 290 ITR 167 (SC) WITHOUT TAKING NOTE OF INSERTION OF THE PROVISIONS OF SECTION 145A(B) WITH EFFECT FROM 1-4-1999. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOTIVE GASKETS RA DIATORS AND CFJS AT ITS UNIT AT BHAILI AND ANAKHI. ASSESSEE-COMPANY SUPPLIE S ITS PRODUCTS TO VARIOUS OEM CUSTOMERS AS WELL AS TO THE REPLACEMENT MARKET. THE COMPANY ALSO EXPORTS ITS PRODUCTS TO VARIOUS FOREIG N COUNTRIES. THE ASSESSEE FILED ITS RETURN ON 30-10-2004 DECLARING N ET TAXABLE INCOME AT RS.12 91 19 018/-. THE CASE WAS TAKEN UP FOR SCRUTI NY AND THE TOTAL INCOME WAS DETERMINED AT RS.14 29 20 127/- VIDE ORDER DATE D 30-11-2006 AFTER MAKING VARIOUS DISALLOWANCES/ ADDITIONS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. OBSERVED THAT THE ASSESSEE HAD RECEIVED DIVIDEND OF RS.1 29 68 393/- OF WHICH THE DIVIDEND OF RS.35 06 312/- WAS FROM THE ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 3 INVESTMENTS MADE DURING THE FINANCIAL YEAR UNDER CO NSIDERATION AND THE REMAINING AMOUNT OF RS.94 62 081/- WAS RECEIVED FRO M THE INVESTMENTS MADE DURING EARLIER YEARS. THE ASSESSEE WAS ASKED T O EXPLAIN AS TO WHY THE EXPENSES LIKE INTEREST ON FUNDS BORROWED FOR IN VESTMENTS AND OTHER EXPENSES RELATING TO EARNING OF EXEMPT INCOME NOT B E DISALLOWED U/S. 14A OF THE ACT. THE ASSESSEE SUBMITTED THAT IT HAD NOT BORROWED ANY MONEY WHICH HAS BEEN UTILIZED FOR EARNING EXEMPT INCOME. IT WAS ALSO SUBMITTED THAT THE COMPANY HAD MADE INVESTMENTS IN SHARES AND MUTUAL FUNDS OF RS.28 LACS ONLY. FURTHER IT WAS HAVING SHARE CAPITA L OF RS.6 CRORES AND FREE RESERVES OF RS.56 CRORES AND THEREFORE SUFFICIENT I NTEREST FREE FUNDS WERE AVAILABLE FOR MAKING INVESTMENTS. THE A.O. NOTICED THAT DISBURSEMENTS OF NEW LOANS WERE RECEIVED BETWEEN 22-8-2003 TO FEBRUA RY 2004 AND INVESTMENTS WERE MADE BETWEEN 30-6-03 TO 25-3-04. H E THUS CONCLUDED THAT INTEREST BEARING FUNDS HAVE BEEN UTILIZED BY T HE ASSESSEE FOR MAKING INVESTMENTS DURING THE YEAR. HE FURTHER HELD THAT T HE ASSESSEE HAS FAILED TO ESTABLISH THAT THE INVESTMENTS MADE IN THE EARLIER YEARS ARE OUT OF INTEREST FREE FUNDS. HE THEREFORE ESTIMATED THE INTEREST AND OTHER EXPENSES AT 10% OF DIVIDENDS RECEIVED AND ACCORDINGLY MADE THE DISA LLOWANCE OF RS.12 96 839/- U/S. 14A OF THE ACT. 6. AGGRIEVED BY THE ORDER OF A.O. ASSESSEE CARRIED THE MATTER BEFORE THE CIT (A). CIT (A) DELETED THE ADDITION OF 10% D ISALLOWANCE OF DIVIDEND INCOME OF RS.12 96 839/- FOR THE REASON THAT THE A. O. COULD NOT ESTABLISH DIRECT RELATIONSHIP BETWEEN THE INVESTMENTS AND INT EREST BEARING FUNDS. 7. AGGRIEVED BY THE ACTION OF CIT (A) THE REVENUE IS NOW IN APPEAL BEFORE US. ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 4 8. BEFORE US THE LD. D.R. RELIED ON THE ORDER OF THE A.O. 9. ON THE OTHER HAND LD. A.R. SUBMITTED THAT THE A .O. HAS MADE ADDITION ON ADHOC BASIS BEING 10% OF TOTAL DIVIDEND INCOME. HE FURTHER SUBMITTED THAT THE A.O. HAS NOT GIVEN ANY FINDING O N THE CONTENTION OF ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IS I NCORRECT OR FALSE. HE THEREFORE CONTENDED THAT IN THE ABSENCE OF ANY SUCH FINDING THAT THE CONTENTIONS OF ASSESSEE IS INCORRECT NO DISALLOWAN CE U/S. 14A CAN BE MADE. FOR THIS PROPOSITION THE LD. A.R. RELIED ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT 247 CTR 162 (DEL.). 10. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED TH E MATERIAL ON RECORD. THE A.O. HAD MADE THE DISALLOWANCE FOR INTEREST AND OTHER EXPENSES PERTAINING TO THE INVESTMENTS ON AN ESTIMATE BASIS AT 10% OF THE DIVIDEND INCOME. THE A.O. HAS NOT GIVEN ANY FINDING WITH RES PECT TO INCURRING OF EXPENSES FOR EARNING TAX FREE INCOME. HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) HAS HELD AS UNDER THE EXPRESSION EXPENDITURE INCURRED REFERS TO ACTUAL EXPENDITURE AND NOT TO SOME IMAGINED EXPENDITURE. THE ACTUAL EXPENDITURE THAT IS IN CONTEMPLATION U/S. 14A(1) OF THE ACT IS THE ACTUAL EXPENDITURE IN RE LATION TO OR IN CONNECTION WITH OR PERTAINING TO EXEMPT INCOME. THE COROLLARY TO THIS IS THAT IF NO EXPENDITURE IS INCURRED IN RELATION TO THE EXEMPT I NCOME NO DISALLOWANCE CAN BE MADE U/S. 14A OF THE ACT FOR MAKING DISALLO WANCE U/S. 14A. THE A.O. HAS TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE CLAIM OF EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSE D COGENT REASONS. IT IS ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 5 THEN THE QUESTION OF DETERMINATION OF SUCH EXPENDIT URE BY THE A.O. WOULD ARISE. 11. IN THE PRESENT CASE WE FIND THAT THE A.O. HAS DISALLOWED THE EXPENSES ON ADHOC BASIS I.E. @ 10% OF DIVIDEND INCO ME. THE A.O. HAS DISALLOWED THE EXPENDITURE WITHOUT GIVING ANY FINDI NG OF FACT AND ON ADHOC BASIS. RESPECTFULLY FOLLOWING THE DECISION OF DELHI HIGH COURT IN THE CASE OF MAXOPP (SUPRA) WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT (A). WE THUS UPHOLD THE ORDER OF CIT (A). THUS THIS GR OUND OF APPEAL OF THE REVENUE IS DISMISSED. SECOND GROUND IS REGARDING DEDUCTION U/S.80HHC. 12. THE A.O. OBSERVED THAT FOR THE PURPOSE OF CLAIM ING DEDUCTION U/S. 80HHC THE ASSESSEE HAD WORKED OUT THE FIGURE OF TOT AL TURNOVER OF THE BUSINESS AFTER EXCLUDING EXCISE DUTY AND SALES TAX OF RS.2 25 00 000/- AND RS.4 24 21 438/- RESPECTIVELY. THE ASSESSEE WAS ASK ED TO SHOW AS TO WHY THE SALES TAX AND EXCISE DUTY BE NOT INCLUDED FOR T HE PURPOSE OF TOTAL TURNOVER. THE ASSESSEE RELIED ON THE DECISION OF BO MBAY HIGH COURT IN THE CASE OF SUDARSHAN CHEMICALS LTD. 112 TAXMAN 511 AND SPECIAL BENCH DECISION OF CALCUTTA HIGH COURT IN THE CASE OF IFB AGRO INDUSTRIES LTD. VS. DCIT 83 ITD 96. THE A.O. DID NOT ACCEPT THE CONTENT ION OF THE ASSESSEE AND ACCORDINGLY FOR WORKING OUT THE DEDUCTION U/S. 80HHC WORKED OUT THE GROSS TURNOVER AFTER INCLUDING THE ELEMENT OF EXCIS E DUTY AND SALES TAX 13. AGGRIEVED BY THE DECISION OF A.O. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 6 14. CIT (A) HELD THAT THE EXCLUSION OF SALES TAX AN D EXCISE DUTY FROM THE TOTAL TURNOVER WAS COVERED IN FAVOUR OF THE ASSESSE E BY VIRTUE OF THE DECISION OF APEX COURT IN THE CASE OF LAKSHMI MACHI NE WORKS 290 ITR 667. AGGRIEVED BY THE ORDER OF CIT (A) THE REVENUE IS NOW IN APPEAL BEFORE US. 15. AT THE OUTSET THE LD. A.R. SUBMITTED THAT THE F ACTS IN THE PRESENT ASSESSMENT YEAR ARE IDENTICAL TO THAT OF EARLIER YE ARS AND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS (2007) 290 ITR 667 (SC). HE FURTHER POINTED OUT THAT IN THE ASSESSEES OWN CASE IN ITA NO.1450/AHD/2006 AND ITA NO.3/AHD/2007 THE CO-ORDI NATE BENCH VIDE ITS ORDER DATED 30-6-10 HAS ALLOWED THE APPEAL IN FAVOU R OF THE ASSESSEE. HE PLACED ON RECORD THE COPY OF THE ORDER (PAGES 117 T O 132 OF THE PAPER BOOK). THE LD. D. R. FAIRLY CONCEDED THAT THE ISSUE IS COVERED IN ASSESSEES FAVOUR BY THE DECISION OF THE APEX COURT AND THAT O F ITAT IN THE ASSESSEES OWN CASE. 16. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED TH E MATERIAL ON RECORD. THE CO-ORDINATE BENCH IN ITA NO.1450/AHD/2006 DATED 30-6-2010 FOLLOWING THE DECISION OF APEX COURT IN THE CASE OF LAKSHMI M ACHINE WORKS HAS DISMISSED THE REVENUES APPEAL BY HOLDING AS UNDER: - 8. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE AR GUED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. LAKSHMI M ACHINE WORKS ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 7 (2007) 290 ITR 667(SC) WHEREIN THE HONBLE APEX CO URT HAS HELD AS UNDER:- IN FACT IN CIVIL APPEAL NO.4409 OF 2005 THE ABOV E PROPOSITION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER (SEE: PA GE NO.24 OF THE PAPER BOOK) IF SO THEN EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3) OTHERWISE THE FORMULA BECOMES UNWORKABLE. IN OUR VIEW SALES TAX AND EXCISE DUTY ALSO DO NOT HAVE ANY ELEMENT OF TURNOVER WHICH IS THE POSITION EVEN IN THE CASE OF RENT COMMISSION INTEREST ETC. IT IS IMPORTANT TO BEAR IN MIND THAT EXCISE DUTY AND SALES TAX ARE INDIRECT TA XES. THEY ARE RECOVERED BY THE ASSESSEE ON BEHALF OF THE GOVERNME NT. THEREFORE IF THEY ARE MADE RELATABLE TO EXPORTS THE FORMULA UNDER SECTION 80HHC WOULD BECOME UNWORKABLE. THE VIEW WHICH WE HA VE TAKEN IS IN THE LIGHT OF THE AMENDMENTS MADE TO SECTION 80HH C FROM TIME TO TIME. 17. SINCE THE FACTS OF THE CASE IN THE PRESENT APPE AL ARE SIMILAR TO THOSE OF A.Y. 2002-03 AND 2003-04 RESPECTFULLY FOLLOWING DECISION OF HONBLE APEX COURT AND OF CO-ORDINATE BENCH IN ITA NO.1450 /AHD/2006 WE CONFIRM THE ORDER OF THE CIT (A) AND ACCORDINGLY THIS GROUN D OF THE REVENUE IS DISMISSED. 18. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED. ITA NO.3184/AHD/2010 (ASSESSEES APPEAL) 19. ASSESSEE HAS RAISED 4 GROUNDS OF APPEAL OF WHIC H GROUND NO.1.1 IS ACADEMIC IN NATURE AND NO ADJUDICATION IS REQUIRED AND THEREFORE NOT ADJUDICATED. ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 8 20. GROUND NO.1 IS REGARDING CONFIRMING OF ACTION O F THE A.O. IN REDUCING 90% OF THE FOLLOWING AMOUNTS FROM THE PROFIT OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC OF THE IN COME TAX ACT 1961 ON THE GROUND THAT THEY DO NOT CONSTITUTE BUSINESS INCOME. PARTICULARS. AMOU NT (RS.) INTREREST ON MARGIN MONEY 10 890 INTEREST ON ICD 60 164 CALIBRATION INCOME 96 249 INSURANCE CLAIM 13 97 786 BROKERAGE ON INVESTMENTS 28 285 LEASE RENT 33 751 21. THE A.O. OBSERVED THAT FOR THE PURPOSE OF COMPU TING DEDUCTION U/S. 80HHC WHILE CALCULATING PROFIT OF BUSINESS AS PER EXPLANATION (BAA) TO SUB-SECTION (4B) TO SECTION 80HHC ASSESSEE HAS NOT REDUCED 90% OF INCOME FROM INTEREST AND MISC. INCOME. THE DETAILS OF THE INTEREST AND MISC. INCOME ARE AS UNDER:- INTEREST FROM BANK ON MARGIN MONEY. 10980 INTEREST ON INTER CORPORATE DEPOSITS. 6 0164 71144 MISC. INCOME:- CALIBRATION INCOME. 96249 INSURANCE CLAIM 1397768 LEASE RENT. 33751 S. BALANCES W/ BACK. (8 55) SUNDRY INCOME. 474379 ------------ 2001292 ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 9 22. THE A.O. HELD THE INCOME TO BE NOT FROM BUSINES S FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC. HE ACCORDINGLY REDU CED THE AFORESAID INCOME WHILE CALCULATING DEDUCTION U/S. 80HHC. AGGR IEVED BY THE ACTION OF A.O. ASSESSEE CARRIED THE MATTER BEFORE LD. CIT (A ). LD. CIT (A) GAVE PARTIAL RELIEF BY HOLDING AS UNDER :- 4.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF TH E CASE THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORD ER. THE ISSUE IOF EXCLUSION OF SALES TAX AND EXCISE DUTY FROM TOTAL T URNOVER IS IN FAVOUR OF THE APPELLANT BY VIRTUE OF THE DECISION OF THE A PEX COURT IN THE CASE OF LAXMI MACHINE WORKS 290 ITR 667. THE INTEREST ON MARGIN MONEY AND ICD CALIBRATION INCOME HAS BEEN DECIDED AGAINS T THE APPELLANT BY HON ITAT FOR A.Y. 2002-03 AND FOLLOWING THAT THE ACTION OF THE A.O. IS CONFIRMED. SIMILARLY CAR REQUISITION CHARGE S ARE NOT PROFIT OF THE BUSINESS. IN THE CASE OF CIT VS. ASHOK LEYLAND LTD. 215 ITR 187 (MAD.) IT IS HELD THAT SCRAP SALES WOULD NOT BE INC LUDED IN THE TOTAL TURNOVER FOR PURPOSES OF CALCULATION OF DEDUCTION U NDER SECTION 80HHC. FURTHER IN THE CASE OF INCOME TAX OFFICER VS . FASHION SPORTS (I) PVT. LTD. 78 ITR 41(MUMBAI) IT IS HELD THAT TH E NATURE OF THE INSURANCE MONIES BEING COMPENSATION FOR THE LOSS U NDER A CONTRACT OF INDEMNITY DOES NOT RESEMBLE TURNOVER. TO MAINTA IN STRUCTURAL INTEGRITY OF THE FORMULA FOR CALCULATING 80HHC DEDU CTION THESE INCOMES ALSO CANNOT BE TREATED AS PROFITS OF BUSINE SS. THE SUNDRY BALANCES WRITTEN-OFF RECOVERY FROM SUPPLIERS AND S ALE OF SAMPLE RADIATORS ARE INCOMES HAVING DIRECT BEARING WITH TH E BUSINESS AND THUS WOULD FORM PART OF BUSINESS INCOME. THE BROKER AGE ON INVESTMENT AND LEASE RENT ARE TO BE EXCLUDED ON GRO SS BASIS AS HELD IN THE CASE OF CIT VS. ASIAN STAR CO. 231 CTR 1 (B OM.).IN REGARD TO GRANT FOR MARKET DEVELOPMENT AND TOOL COST RECOVERE D FROM CUSTOMERS THE CONTENTION OF THE APPELLANT THAT THE SE ARE IN THE NATURE OF REIMBURSEMENT OF EXPENSES IS TO BE VERIFIED BY T HE A.O. THE APPELLANT IS DIRECTED TO PROVIDE THE DETAILS TO THE A.O. AND IF THE CONTENTION OF THE APPELLANT IS FOUND TO BE CORRECT THESE WOULD NOT BE REQUIRED TO BE REDUCED FROM PROFIT OF THE BUSINESS. ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 10 4.4. COMING TO THE OTHER ISSUE OF DUTY FREE ENTITLE MENT OF RS.1 66 34 766/- I AM NOT IN AGREEMENT WITH THE APP ELLANT THAT THE SAID INCOME IS COVERED U/S. 28(IIIA) AS THE SAID RE CEIPT IS NOT IN THE NATURE OF LICENSE GRANTED UNDER IMPORT CONTROL ORDE R BUT IS ADMITTEDLY DUTY FREE ENTITLEMENT AND AS THE EXPORTS OF THE APP ELLANT EXCEEDS RS.10 CRORES THE A.O. HAS RIGHTLY MENTIONED THAT IT IS REQUIRED TO SUBMIT EVIDENCE IN SUPPORT OF THE CONDITIONS OUTLI NED IN 4 TH PROVISO TO SEC. 80HHC(3). THE A.O. IS ACCORDINGLY DIRECTED TO RECOMPUTED THE DEDUCTION UNDER SEC. 80HHC INLINE WITH AFORESAID DI RECTIONS. GROUND NO.1 IS PARTLY ALLOWED. 23. AGGRIEVED BY THE ORDER OF LD. CIT (A) THE ASSESSEE IS NOW IN APPEAL BEFORE US. AT THE OUTSET THE LD. A.R. FAIRLY SUBMI TTED THAT WITH RESPECT TO RECEIPT OF INTEREST FROM BANK ON MARGIN MONEY INTE REST ON ICD AND CALIBRATION INCOME THE ISSUE HAS BEEN DECIDED AGAI NST ASSESSEE BY HONBLE ITAT ORDER IN ITA NO.1450/AHD/2006 DATED 30 -6-2010.HE PLACED ON RECORD AT PAGE 117 TO 132 COPY OF THE ORDER. HE HOWEVER URGED THAT IN VIEW OF THE DECISION OF APEX COURT IN THE CASE OF A CG ASSOCIATED CAPSULES (P) LTD. VS. CIT (2012) 343 ITR 89 ONLY NET INCOME BE REDUCED AND NOT THE GROSS INCOME. 24. WITH RESPECT TO LEASE RENT (RS.33 750) THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAD ALREADY REDUCED THE SAID AMOUNT WH ILE COMPUTING DEDUCTION U/S. 80HHC. HE POINTED OUT TO THE COMPUTA TION OF INCOME AT PAGE 8 OF THE PAPER BOOK. HE THEREFORE URGED THAT THE A.O. MAY BE DIRECTED TO VERIFY AND ALLOW CONSEQUENTIAL RELIEF. 25. WITH RESPECT TO INSURANCE CLAIM (RS.13 97 768/- ) THE LD. A.R. SUBMITTED THAT THE ENTIRE CLAIM PERTAINS TO LOSS OF MATERIALS AND FINISHED GOODS. THE CLAIM DOES NOT PERTAIN TO LOSS OF CAPITA L ASSETS. NO ELEMENT OF ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 11 PROFIT IS INVOLVED AS IT REPRESENTS RECOVERY OF LOS SES INCURRED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT ON IDENTICAL IS SUE IN THE ASSESSEES CASE THE HONBLE ITAT HAS DECIDED THE MATTER IN FA VOUR OF ASSESSEE. HE POINTED OUT TO PAGE NO.3 OF ITAT ORDER ITA NO.1450/ AHD/2006 DATED 30-6- 10:- 3. AFTER HEARING THE RIVAL CONTENTIONS AND GOING T HROUGH THE FACTS OF THE CASE WE FIND THAT THE ASSESSEE HAS CONTENDE D THAT THERE IS NO PROFIT ELEMENT INVOLVED IN INSURANCE RECEIPTS AS T HE INSURANCE CLAIM IS PURELY FOR THE RECOVERY OF LOSS OF MATERIAL AND ASSET OF THE COMPANY DUE TO DAMAGE TO THE MATERIAL AND ASSETS. WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON MATERIAL AN D ASSETS LOST DUE TO DAMAGE IS MORE THAN THE INSURANCE CLAIM AND THER E WAS NO INCOME TO THE ASSESSEE IN THE NATURE OF INSURANCE CLAIM. T HIS VIEW HAS ALSO TAKEN BY SPECIAL BENCH OF THIS TRIBUNAL OF AHMEDABA D IN THE CASE OF NIRMA INDUSTRIES VS. ACIT (2005) 95 TTJ 867(AHD.). THIS RECEIPT OF INSURANCE CLAIM IS NOT AN INCOME THE SAME WILL NOT BE INCLUDED EITHER IN THE TOTAL TURNOVER NOR IN THE BUSINESS PROFITS O F THE ASSESSEE FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80HHC OF T HE ACT. ACCORDINGLY A.O. IS DIRECTED TO REDUCE THIS INSURA NCE CLAIM FROM THE TOTAL TURNOVER AS WELL AS FROM THE BUSINESS INCOME OF THE ASSESSEE AND COMPUTE DEDUCTION U/S. 80HHC OF THE ACT. THIS I SSUE OF ALL THESE APPEALS IS ALLOWED FOR STATISTICAL PURPOSES. 26. WITH RESPECT TO THE BROKERAGE ON INVESTMENT (RS .28 285/-) THE LD. A.R. SUBMITTED THAT THESE ARE EXPENSES OF BROKERAGE INCURRED FOR INVESTMENTS MADE BY THE ASSESSEE. PART OF THE BROKE RAGE WAS REFUNDED TO THE ASSESSEE WHICH WOULD THEREFORE GO TO REDUCE THE BROKERAGE EXPENSES WHILE MAKING INVESTMENTS. THERE IS NO ELEMENT OF PR OFIT INVOLVED. HE FURTHER SUBMITTED THAT ON IDENTICAL FACTS IN EARLIER YEAR THE MATTER WAS SET ASIDE TO THE FILE OF A.O. WITH A DIRECTION TO REDUCE ONLY TH E NET INCOME. HE POINTED OUT TO RELEVANT PARA NO.9 AND 10 AT PAGE 120 OF THE PAPER BOOK. HE THEREFORE URGED THAT SIMILAR DIRECTION BE GIVEN IN THE CURRENT YEAR. ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 12 27. THE LD. D. R. ON THE OTHER HAND RELIED ON THE O RDER OF A.O. 28. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WITH RESPECT TO THE REDUCTION OF 90% OF INT EREST FROM BANK ON MARGIN MONEY WE FIND THAT THE ISSUE HAS BEEN DECIDE D BY CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN EARLIER YEAR ITA NO .1450/AHD/2006 BY HOLDING AS UNDER:- 14. AS REGARDS TO INTEREST INCOME ON OUTSTANDING T RADE DEBTORS AND INTEREST FROM BANK ON MARGIN MONEY THE LD. COUNSEL FOR THE ASSESSEE STATED THAT ONLY NETTING HAS TO BE GRANTED IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 475 (DELHI).ON THE OTHER HAND THE LD. SR. D.R. STATED THAT NOW THE ISSUE HAS BECO ME CLEAR AFTER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. ASIAN STAR CO. LTD. IN ITA. NO.200 OF 2009(BOM) WHEREIN HONBLE BOMBAY HIGH COURT OBSERVED THAT EXPLANATION (BAA) TO S. 80 HHC REQUIRES THAT NINETY PER CENT OF RECEIPTS BY WAY OF BROKERAGE CO MMISSION INTEREST RENT CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NAT URE HAVE TO BE REDUCED FROM THE PROFITS. THE REASON WHY ITEMS LIKE BROKERAGE ETC. HAVE TO BE EXCLUDED IS BECAUSE THEY DO NOT POSSESS ANY NEXUS WITH EXPORT TURNOVER AND THEIR INCLUSION IN PROFITS WOUL D RESULT IN A DISTORTION OF THE FIGURE OF EXPORT PROFITS. HOWEVER AS SOME EXPENDITURE MIGHT HAVE BEEN INCURRED IN EARNING THE SE INCOMES AN ADHOC DEDUCTION OF TEN PER CENT FROM SUCH INCOME IS ALLOWED. IT WAS FURTHER OBSERVED BY THE HONBLE HIGH COURT THAT ONC E PARLIAMENT HAS LEGISLATED BOTH IN REGARD TO THE NATURE OF THE EXCL USION AND THE EXTENT OF THE EXCLUSION IT WOULD NOT BE OPEN TO THE COURT TO ORDER OTHERWISE BY REWRITING THE LEGISLATIVE PROVISION. THE TASK OF INTERPRETATION IS TO FIND OUT THE TRUE INTENT OF A LEGISLATIVE PROVISION AND IT IS CLEARLY NOT OPEN TO THE COURT TO LEGISLATE BY SUBSTITUTING A FO RMULA OR PROVISION OTHER THAN WHAT HAS BEEN LEGISLATED BY PARLIAMENT. IT IS NOT OPEN TO SAY THAT SOMETHING MORE THAN THE 10% STATUTORILY PR OVIDED SHOULD ALSO BE ALLOWED. HONBLE HIGH COURT FURTHER HELD TH AT IN CIT V. SHRI RAM HONDA POWER EQUIP (2007) 289 ITR 475 (DEL) THE DELHI HIGH ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 13 COURT HAS NOT ADEQUATELY EMPHASIZED THE ENTIRE RATI ONALE FOR CONFINING THE DEDUCTION ONLY TO THE EXTENT OF NINET Y PER CENT OF THE EXCLUDIBLE RECEIPTS AND IT CANNOT BE FOLLOWED. AS R EGARDS THE JUDGMENT OF THE SPECIAL BENCH IN LALSONS ENTERPRISE S HONBLE HIGH COURT HELD THAT WE ARE AFFIRMATIVELY OF THE VIEW THAT THE TRIBUNAL HAS TRANSGRESSED THE LIMITATIONS ON THE EXERCISE OF JUD ICIAL POWER AND HAS IN EFFECT LEGISLATED BY PROVIDING A DEDUCTION O N THE GROUND IOF EXPENSES OTHER THAN IN THE TERMS WHICH HAVE BEEN AL LOWED BY PARLIAMENT. THAT IS IMPERMISSIBLE. IN REPLY THE LD. COUNSEL FOR THE ASSESSEE STATED TH AT WHEN TWO HIGH COURTS DIFFER ON THE SAME ISSUE THE BENEFICIAL VIE W SHOULD BE TAKEN IN FAVOUR OF THE ASSESSEE. HE STATED THAT HONBLE H IGH COURT IN THE CASE OF CIT V. SHRI RAM HONDA POWER EQUIP (2007) 28 9 ITR 475 (DELHI) HAS ALLOWED THE CLAIM OF THE ASSESSEE AS R EGARD TO NETTING OF INTEREST ON THE ALLOWANCE OF DEDUCTION UNDER SECTIO N 80HHC OF THE ACT. 15. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF ASIAN STAR CO. LTD. (SUPRA) HAS CONSIDERED THE DELH I HIGH COURT JUDGMENT IN THE CASE OF SHRI RAM HONDA POWER EQUIP (SUPRA) AS WELL AS THE CASE OF SPECIAL BENCH OF THIS TRIBUNAL IN LA LSON ENTERPRISES AND HELD THAT 90%OF RECEIPTS BY WAY OF INTEREST HAV E TO BE REDUCED FROM THE BUSINESS PROFITS WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT UNDER CLAUSE (BAA). RESPECTFULLY FOLLOWING HONBLE HIGH COURT IN ASIAN STAR CO. LTD. (SUPRA) WE UPHOLD THE ORDER OF CIT (A) AND THIS ISSUE OF THE ASSESSEES APPEAL IS DISMISSED. 29. IN THE CASE OF ACG ASSOCIATED CAPSULES (P) LTD. VS. CIT (2012) 343 ITR 89 (SUPRA) THE HONBLE APEX COURT HAS HELD AS UNDER:- HELD THAT NINETY PER CENT OF NOT THE GROSS RENT OR GROSS INTEREST BUT ONLY THE NET INTEREST OR NET RENT WHICH HAD BEEN I NCLUDED IN THE PROFITS OF BUSINESS OF THE ASSESSEE AS COMPUTED UNDER THE H EAD PROFITS AND GAINS OF BUSINESS OR PROFESSION WAS TO BE DEDUCTE D UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SECTION 80HHC FOR DETERMINI NG THE PROFITS OF THE BUSINESS. ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 14 30. WE FIND THAT THE FACTS IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEAR. IN EARLIER YEARS THE CO-ORDINATE BENC H HAS TAKEN A VIEW WITH RESPECT TO INTEREST INCOME AND HELD THAT 90% OF REC EIPTS BY WAY OF INTEREST HAVE TO BE REDUCED FROM BUSINESS PROFITS WHILE COMP UTING DEDUCTION U/S. 80HHC. FURTHER IN THE CASE OF ACG ASSOCIATES CAPSUL ES (P) LTD. (SUPRA) THE HONBLE APEX COURT HAS HELD THAT NET INTEREST N EEDS TO BE REDUCED UNDER CL.(1) OF EXPLANATION(BAA) TO SEC. 80HHC FOR DETERMINING PROFITS OF BUSINESS. SINCE THE FACTS IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEARS AND RESPECTFULLY FOLLOWING THE DECIS ION OF APEX COURT OF CO- ORDINATE BENCH WE HOLD THAT 90% OF THE NET INTERE ST BE REDUCED FOR DETERMINING PROFIT FOR THE PURPOSE OF DEDUCTION U/S . 80HHC. WE THEREFORE DIRECT THE A.O. TO ALLOW THE DEDUCTION AFTER VERIFI CATION. 31. WITH RESPECT TO CALIBRATION INCOME WE FIND THA T THE IDENTICAL ISSUE HAS BEEN DECIDED BY CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN EARLIER YEAR IN ITA NO.89/AHD/2007 BY HOLDING AS UNDER:- 29. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IN ITA NO.89/AHD/2007 IS AS REGARDS TO EXCLUSION OF CALIBR ATION INCOME AMOUNTING TO RS.98 084/- FROM THE BUSINESS PROFIT W HILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. 30. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASS ESSEE HAS CLAIMED BEFORE LOWER AUTHORITIES THAT THE MANUFACTU RE OF GOODS QUALITY PRODUCTS AND TO MAINTAIN QUALITY THE ASSESS EE-COMPANY IS HAVING NUMBER OF SOPHISTICATED INSTRUMENTS FOR THE USE OF THESE SOPHISTICATED CALIBRATION INSTRUMENTS COMPANY IS UN DERTAKING THE COMPANY UNDER THE REGULAR COURSE OF BUSINESS AND IN COME EARNED ON THIS ACCOUNT IS BUSINESS INCOME. THE ASSESSING OFFI CER AS WELL AS ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 15 CIT (A) HAS EXCLUDED 90% OF SUCH BUSINESS INCOME FO R THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80HHC OF THE ACT A S THIS INCOME DOES NOT HAVE ANY NEXUS WITH THE EXPORTS. WE FIND T HAT THE CIT (A) HAS RIGHTLY CONFIRMED THE ACTION OF A.O. IN EXCLUDI NG 90% OF SUCH BUSINESS INCOME UNDER CLAUSE (BAA) TO SECTION 80HHC OF THE ACT. WE CONFIRM THE SAME AND THIS ISSUE OF THE ASSESSEE S APPEAL IS DISMISSED. WE FIND THAT THE FACTS IN THE YEAR UNDER APPEAL AR E IDENTICAL TO THAT OF EARLIER YEAR. IN EARLIER YEARS THE CO-ORDINATE BENC H HAS TAKEN A VIEW WITH RESPECT TO CALIBRATION INCOME AND HELD THAT 90% OF RECEIPTS BY WAY OF THE AFORESAID INCOME HAVE TO BE REDUCED FROM BUSINESS P ROFITS WHILE COMPUTING DEDUCTION U/S. 80HHC. FURTHER IN THE CASE OF ACG AS SOCIATES CAPSULES (P) LTD. (SUPRA) THE HONBLE APEX COURT HAS HELD THAT N ET INOCME NEEDS TO BE REDUCED UNDER CL.(1) OF EXPLANATION(BAA) TO SEC. 80 HHC FOR DETERMINING PROFITS OF BUSINESS WE HOLD THAT 90% OF THE NET I NTEREST BE REDUCED FOR DETERMINING PROFIT FOR THE PURPOSE OF DEDUCTION U/S . 80HHC. WE THEREFORE DIRECT THE A.O. TO ALLOW THE DEDUCTION AFTER VERIFI CATION. 32. WITH RESPECT TO INSURANCE CLAIM WE FIND THAT S IMILAR ISSUE HAS BEEN DECIDED BY CO-ORDINATE BENCH IN ASSESSEES OWN CASE IN EARLIER YEAR ITA NO. 89/AHD/2007 BY HOLDING AS UNDER:- 2. THE FIRST COMMON ISSUE IN THESE APPEALS IS AGAI NST THE ORDER OF CIT (A) IN DIRECTING THE ASSESSING OFFICER TO REDUC E ONLY NET OFF INSURANCE CLAIM IN AT 90% FROM BUSINESS PROFITS WHI LE COMPUTING DEDUCTION U/S/ 80HHC OF THE ACT. 3. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS OF THE CASE WE FIND THAT THE ASSESSEE HAS CONTENDE D THAT THERE IS NO PROFIT ELEMENT INVOLVED IN INSURANCE RECEIPTS AS T HE INSURANCE CLAIM IS PURELY FOR THE RECOVERY OF LOSS OF MATERIAL AND ASSET OF THE COMPANY ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 16 DUE TO DAMAGE TO THE MATERIAL AND ASSETS. WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON MATERIAL AN D ASSETS LOST DUE TO DAMAGE IS MORE THAN THE INSURANCE CLAIM AND THER E WAS NO INCOME TO THE ASSESSEE IN THE NATURE OF INSURANCE CLAIM. T HIS VIEW HAS ALSO TAKEN BY SPECIAL BENCH OF THIS TRIBUNAL OF AHMEDABA D IN THE CASE OF NIRMA INDUSTRIES VS. ACIT (2005) 95 TJ 867 (AHD).TH IS RECEIPT OF INSURANCE CLAIM IS NOT AN INCOME THE SAME WILL NOT BE INCLUDED EITHER IN THE TOTAL TURNOVER NOR IN THE BUSINESS PROFITS O F THE ASSESSEE FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80HHC OF T HE ACT. ACCORDINGLY ASSESSING OFFICER IS DIRECTED TO REDUC E THIS INSURANCE CLAIM FROM THE TOTAL TURNOVER AS WELL AS FROM THE B USINESS INCOME OF THE ASSESSEE AND COMPUTE DEDUCTION U/S. 80HHC OF TH E ACT. THIS ISSUE OF ALL THESE APPEALS IS ALLOWED FOR STATISTIC AL PURPOSES. 33. SINCE THE FACTS IN CURRENT YEAR ARE SIMILAR TO THAT OF EARLIER YEAR (A.Y. 2003-04) WE FOLLOWING THE DECISION OF CO-ORDINATE B ENCH DIRECT THE A.O. TO REDUCE THE RECEIPT OF INSURANCE CLAIM FROM TOTAL TU RNOVER AS WELL AS BUSINESS INCOME AND COMPUTE DEDUCTION U/S.80HHC OF THE ACT. 34. WITH RESPECT TO BROKERAGE ON INTEREST WE FIND THAT IDENTICAL ISSUE HAS BEEN DECIDED BY CO-ORDINATE BENCH IN ASSESSEES CAS E IN EARLIER YEAR ITA NO.1450/AHD/2006 & 89/AHD/2007 FOR THE ASSESSMENT Y EAR 2003-04 BY HOLDING AS UNDER:- 9. THE NEXT COMMON ISSUE IN THIS APPEAL OF REVENUE IN ITA NO.1450/AHD/2006 AS WELL AS ASSESSEES APPEAL IN IT A NO.89/AHD/2007 IS AGAINST THE ORDER OF CIT (A) IN R EDUCING THE NET AMOUNT OF BROKERAGE OF INVESTMENT WHILE COMPUTING B USINESS PROFIT FOR THE CLAIM OF DEDUCTION U/S. 80HHC OF THE ACT. 10. AFTER HEARING THE RIVAL CONTENTIONS AND GOING T HROUGH THE FACTS OF THE CASE WE FIND THAT THE ASSESSING OFFICER HA S NOTED THIS AMOUNT IS ON ACCOUNT OF SHARE IN BROKERAGE RECEIPTS FROM T HE BROKERAGE FOR INVESTMENT MADE BY THE ASSESSEE-COMPANY DURING THE YEAR UNDER CONSIDERATION AMOUNTING TO RS.422 958/-. THEREFORE ASSESSING ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 17 OFFICER WHILE COMPUTING THE DEDUCTION U/S. 80HHC RE DUCED 90% OF BROKERAGE ON INVESTMENT UNDER CLAUSE (BAA) WHILE CO MPUTING BUSINESS PROFIT OF THE ASSESSEE. AGGRIEVED ASSESSE E PREFERRED APPEAL BEFORE CIT (A) AND CIT (A) REDUCING THE BROK ERAGE ON INVESTMENTS OF RS.42 958/- HOLD THAT ABOVE ITEM CAN NOT BE INCLUDED IN BUSINESS INCOME AND THEREFORE THE ACTION OF THE ASSESSING OFFICER IS CONFIRMED IN REGARD TO BROKERAGE INCOME STATING THAT THIS ACTUALLY REPRESENTS INCOME OF BROKERAGE ON INVESTMENTS MADE BY THE ASSESSEE-COMPANY THE CIT (A) DIRECTED THE ASSESSIN G OFFICER THAT PART OF BROKERAGE WAS REFUNDED TO THE COMPANY WHICH WOULD GO TO REDUCE THE BROKERAGE EXPENSE INCURRED WHILE MAKING INVESTMENTS AND THERE IS NO ELEMENT OF PROFIT INVOLVED AND DIR ECTED TO A.O. TO VERIFY AND EXCLUDE ONLY THE NET AMOUNT FROM PROFITS OF BUSINESS. WE FIND THAT THIS BROKERAGE INCOME IN ANY WAY IS NOT R ELATED TO EXPORT EARNING BUT THE EXPENDITURE RELATING TO THIS BROKER AGE INCOME OF ANY EXPENDITURE THE SAME WILL BE REDUCED AND ONLY NET INCOME HAS TO BE EXCLUDED TO THE EXTENT OF 90% UNDER CLAUSE (BAA) WH ILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. THIS COMMON ISSUE OF REVENUES APPEAL AND THAT OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES IN VIEW OF THE ABOVE DIRECTION. 35. SINCE THE FACTS IN CURRENT YEAR ARE SIMILAR TO THAT OF EARLIER YEAR WE FOLLOWING THE DECISION OF CO-ORDINATE BENCH DIRECT THE A.O. TO REDUCE THE RECEIPT OF BROKERAGE CLAIM FROM TOTAL TURNOVER AS W ELL AS BUSINESS INCOME AND COMPUTE DEDUCTION U/S.80HHC OF THE ACT. 36. WITH RESPECT TO THE LEASE RENT WE FIND THAT ASS ESSEE HAS POINTED OUT TO THE COMPUTATION AT PAGE 8 OF THE PAPER BOOK WHER EIN THE LEASE RENT OF RS.33 750/- HAS BEEN REDUCED WHILE COMPUTING DEDUCT ION U/S. 80HHC. IN VIEW OF THESE FACTS WE DIRECT THE A.O. TO VERIFY T HE SUBMISSIONS OF ASSESSEE AND ALLOW CONSEQUENTIAL RELIEF. 37. THUS THIS GROUND IS PARTLY ALLOWED. ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 18 GROUND NO.2 - ADHOC DISALLOWANCE OF 5% OF SALES PR OMOTION. 38. ASSESSEE HAD DEBITED RS.79 14 053/- AS SALES PR OMOTION EXPENSES. IT INCLUDED EXHIBITION SAMPLE MEETING EXPENSES D EALERS CONFERENCE EXPENSES ETC. THE A.O. HELD THAT THE NATURE OF EXPE NSES REVEAL THAT MANY EXPENSES WERE NOT SUBJECT TO VERIFICATION AND WERE ALSO NOT PROPERLY VOUCHED. HE THEREFORE DISALLOWED 5% OF SUCH EXPEN SES (RS.3 95 703/-) AND ADDED IT TO THE TOTAL INCOME. CIT (A) UPHELD TH E ADDITION. THE ASSESSEE IS THEREFORE NOW IN APPEAL BEFORE US. 39. LD. A.R. AT THE OUTSET FAIRLY CONCEDED THAT IN THE ASSESSEES OWN CASE ON IDENTICAL FACTS IN EARLIER YEAR THE HONB LE ITAT HAS DECIDED THE MATTER AGAINST THE ASSESSEE. (ITA NO.1418/A/2006 8 9./A/2007 & CO NO.80A/09 DT.30-6-2010). ON THE OTHER HAND THE LD. D.R. SUPPORTED THE ORDER OF A.O. 40. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CO-ORDINATE BENCH ON IDENT ICAL MATTER IN ASSESSEES OWN CASE IN EARLIER YEAR HAS DECIDED T HE MATTER BY HOLDING AS UNDER:- 26. AFTER HEARING THE RIVAL CONTENTIONS AND GOING THROUGH THE FACTS OF THE CASE WE FIND THAT THE ASSESSEE-COMPANY HAS DEBITED RS.71 89 666/- AS SALES PROMOTION EXPENSES. ASSESSI NG OFFICER FOUND DURING THE COURSE OF SCRUTINY OF THESE EXPENS ES THAT THE SAME INCLUDE EXHIBITION EXPENSES SAMPLE EXPENSES MEETI NG EXPENSES DEALERS CONFERENCE AT VARIOUS PLACES AND GIFT COUP ONS ETC. NATURE OF ALL THESE EXPENSES REVEALS THAT THERE ARE MANY EXPE NSES WHICH ARE NOT SUBJECT TO VERIFICATION AND NOT PROPERLY VOUCHE D ALSO. ACCORDING TO A.O. THESE EXPENSES ARE NOT VERIFIABLE AND IN TOT ALITY OF ALL THESE ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 19 FACTS AND CIRCUMSTANCES. IN VIEW OF THE ASSESSEES PAST RECORDS WE CONSIDER IT REASONABLE TO CONFIRM DISALLOWANCE MADE BY THE A.O. ACCORDINGLY THIS COMMON ISSUE IN BOTH THE APPEALS AND CO OF THE ASSESSEE IS DISMISSED. 41. SINCE THE FACTS OF THE YEAR UNDER APPEAL ARE S IMILAR TO THOSE OF EARLIER YEAR FOLLOWING THE DECISION OF CO-ORDINATE BENCH W E UPHOLD THE DISALLOWANCE MADE BY A.O. THUS THIS GROUND OF THE ASSESSEE IS REJECTED. GROUND NO.3 ADHOC DISALLOWANCE OF OFFICE EXPENSE S. 42. ASSESSEE CLAIMED RS.9 30 764/- WHICH INCLUDES E XPENSES INCURRED AT VARIOUS BRANCHES. IT REPRESENTED EXPENSES FOR TE A COFFEE REFRESHMENT ETC. A.O. HELD THAT EXPENSES REVEAL THAT MANY EXPEN SES WERE NOT SUBJECT TO VERIFICATION AND NOT PROPERLY VOUCHED. HE THERE FORE DISALLOWED 10% OF SUCH EXPENSES (RS.93 077/-) AND ADDED TO THE TOTAL INCOME. CIT (A) UPHELD THE ADDITION. THE ASSESSEE IS THEREFORE NOW IN APPE AL BEFORE US. 43. LD. A.R. AT THE OUTSET FAIRLY CONCEDED THAT IN THE ASSESSEES OWN CASE ON IDENTICAL FACTS IN EARLIER YEAR THE HONB LE ITAT HAS DECIDED THE MATTER AGAINST THE ASSESSEE. (ITA NO.1418/A/2006 8 9./A/2007 & CO NO.80A/09 DT.30-6-2010). ON THE OTHER HAND THE LD. D.R. SUPPORTED THE ORDER OF A.O. 44. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE CO-ORDINATE BENCH ON IDENT ICAL MATTER IN ASSESSEES OWN CASE IN EARLIER YEAR HAS DECIDED TH E MATTER BY HOLDING AS UNDER:- ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 20 24. AFTER HEARING THE RIVAL CONTENTIONS AND GOING THROUGH THE FACTS OF THE CASE WE FIND THAT THE ASSESSEE HAS NOT VOUC HED THE EXPENSES AND THE ASSESSING OFFICER ON SCRUTINY FOUND THAT TH ESE EXPENSES INCLUDE THE OFFICE EXPENSES INCURRED AT ITS BRANCHE S AT MADRAS BOMBAY DELHI AND KOLKATA. ACCORDING TO THE ASSESSI NG OFFICER ON SCRUTINY OF THESE EXPENSES HE FINDS THAT THERE ARE MANY EXPENSES WHICH HAVE BEEN INCURRED IN PROVIDING TEA COFFEE REFRESHMENTS COLD DRINKS ETC. TO VARIOUS VISITORS BUT NATURE OF ALL THESE EXPENSES REVEALS THAT THESE ARE MANY EXPENSES WHICH ARE NOT SUBJECT TO VERIFICATION AND NOT PROPERLY VOUCHED ALSO. NONE BUSINESS NATURE OF MANY EXPENSES CAN ALSO NOT BE RULED OUT. THE CIT (A) ALS O CONFIRMED THE ACTION OF THE ASSESSING OFFICER. WE FIND THAT EVEN NOW BEFORE THAT THE ASSESSEE COULD NOT ADDUCE ANYTHING TO CONTROVER T THAT THE EXPENSES ARE VOUCHED FULLY AND THERE IS NO PERSONAL ELEMENT IN THESE EXPENDITURES. ACCORDINGLY WE CONFIRM THE DISALLOW ANCE. 45. SINCE THE FACTS ARE SIMILAR FOLLOWING THE DECI SION OF CO-ORDINATE BENCH WE UPHOLD THE DISALLOWANCE MADE BY A.O. THUS THIS GROUND OF THE ASSESSEE IS REJECTED. 46. THE NEXT GROUND PERTAINS TO INTEREST ON LOAN TR EATED AS FOR NON- BUSINESS PURPOSE RS.4 33 333/-. 47. A.O. OBSERVED THAT ASSESSEE HAD MADE INVESTMENT S DURING THE YEAR IN MUTUAL FUNDS AND ASSESSEE HAD ALSO TAKEN LOAN OF RS.2 CRORE IN FEBRUARY 2004. ASSESSEE WAS ASKED TO PROVE THAT TH E INVESTMENTS WERE FOR BUSINESS PURPOSE. IN THE ABSENCE OF FUND-FLOW S TATEMENT AND ALSO ON ACCOUNT OF FAILURE ON THE PART OF ASSESSEE TO PROVE THAT BORROWED FUND WAS UTILIZED FOR BUSINESS PURPOSE A.O. HELD THAT ENTIR E RS.2 CRORE WAS UTILIZED FOR PURCHASE OF INVESTMENTS. HE ACCORDINGLY CALCULA TED INTEREST FOR 2 MONTHS ( FEB & MARCH) ON RS.2 CRORE @ 13% (BANK RA TE) AND DISALLOWED ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 21 RS.4 33 333/- U/S. 36(10(III). CIT (A) UPHELD THE A CTION OF THE A.O BY HOLDING THAT THERE WAS DIRECT NEXUS BETWEEN LOAN RAISED AND INVESTMENTS. AGAINST THE ORDER OF CIT (A) THE ASSESSEE IS NOW IN APPEAL BEFORE US. 48. BEFORE US THE LD. A.R. SUBMITTED THAT INVESTME NTS WERE MADE PRIOR TO THE RECEIPT OF LOAN FROM BANK. THE INVESTMENTS W ERE MADE OUT OF INTERNAL ACCRUALS. HE FURTHER SUBMITTED THAT INCREASE IN INV ESTMENT AS COMPARED TO EARLIER YEARS IS OF RS.6.07 CRORE AND THE REALIZATI ON RECEIVED FROM DISPOSAL OF INVESTMENTS IS OF RS7.33 CRORE. HE FURTHER SUBMI TTED THAT THE RESERVES AT THE BEGINNING OF THE YEAR WAS TO THE TUNE OF RS.48. 97 CRORE. IT WAS THUS SUBMITTED THAT INVESTMENTS WERE MADE OUT OF DISINVE STMENTS MADE DURING THE YEAR. HE ALSO PLACED ON RECORD THE ANNUAL ACCO UNTS AT PAGE 41 TO 45 OF THE PAPER BOOK. THE ASSESSEE FURTHER RELIED ON T HE DECISION OF BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND PO WER LTD. [(2009) 313 ITR 340 ]. HE THUS URGED THAT NO DISALLOWANCE OF INTERE ST WAS CALLED FOR AS NO INTEREST BEARING FUNDS HAVE BEEN USED FOR INVESTMEN TS. 49. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT I N THE ABSENCE OF CASH FLOW OR ANY OTHER EVIDENCE THE CONTENTION OF THE A SSESSEE CANNOT BE ACCEPTED. HE THUS RELIED ON THE DECISION OF A.O. 50. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. 51. THE FACTUAL POSITION IS THAT DURING THE YEAR TH E ASSESSEE HAD MADE CERTAIN INVESTMENTS IN MUTUAL FUNDS AND ALSO RECEIV ED UNSECURED LOANS. THE ASSESSEE PLACED ON RECORD AT PAGE 110 OF THE PA PER BOOK LIST OF ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 22 INVESTMENTS MADE ALONG WITH THE DATE OF INVESTMENTS . HE ALSO PLACED ON RECORD AT PAGE 111 OF THE PAPER BOOK THE DETAILS OF LOAN RECEIVED DURING THE YEAR. THE DETAILS REVEAL THAT LOAN FROM BANKS CONST ITUTED MAJOR PORTION OF LOAN. FROM THE STATEMENT OF LOAN AND INVESTMENT TH E LD. A.R. DEMONSTRATED THAT THE INVESTMENTS WERE MADE PRIOR T O THE RECEIPT OF UNSECURED LOAN FROM BANKS. THE A.R. ALSO PLACED ON RECORD AT PAGE 106 OF THE PAPER BOOK THE AMOUNT REALIZED ON SALE OF INVES TMENTS. FROM THE STATEMENT IT IS OBSERVED THAT ASSESSEE RECEIVED RS. 7.34 CRORE ON THE DISPOSAL OF INVESTMENTS. FURTHER AS PER THE BALANC E SHEET OF THE ASSESSEE IT WAS HAVING RESERVES OF RS.48.97 CRORE AT THE BEG INNING OF FINANCIAL YEAR. BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (313 ITR- 340) HAS HELD AS UNDER:- THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENTS. 52. IN THE PRESENT CASE WE FIND THAT REVENUE HAS N OT BROUGHT ANY NEXUS OF BORROWED FUNDS BEING USED FOR INVESTMENTS. THE B ASIS OF THE CONCLUSION IS ON THE BASIS OF ASSUMPTION. ON THE OTHER HAND T HE ASSESSEE HAS DEMONSTRATED WITH THE HELP OF DETAILS AND ITS ACCOU NTS THAT THE INVESTMENTS HAVE BEEN MADE OUT OF THE SALE OF INVESTMENTS AND O UT OF FREE RESERVES. IT HAS NOT UTILIZED UNSECURED LOANS FOR THE PURPOSE OF MAKING INVESTMENTS. THE REVENUE HAS NOT BEEN IN A POSITION TO REBUT THE FACTS BY BRINGING ANY MATERIAL ON RECORD. IN VIEW OF THE AFORESAID FACTS AND RESPECTFULLY FOLLOWING THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF RE LIANCE UTILITIES & POWER LTD. (SUPRA) WE ARE OF THE VIEW THAT NO DISALLOWAN CE OF INTEREST CAN BE ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 23 MADE IN THE CASE OF ASSESSEE. WE THEREFORE DELETE T HE DISALLOWANCE MADE BY A.O. THUS THIS GROUND OF ASSESSEE IS ACCEPTED. 52. IN THE RESULT APPEAL OF THE REVENUE IS DISMISS ED WHEREAS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCE IN OPEN COURT ON 31 -7 - 2012. SD/- SD/- (MUKUL KUMAR SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-I BARODA 4. THE CIT CONCERNED. 5. THE DR. ITAT AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT AHMEDABAD. ITA NO 3184 & 3195/AHD/2010 A.YR.. 2004 -05 24 1.DATE OF DICTATION - -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING / / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT - -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S - -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK - -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..