GUJARAT FLUROCHEMICALS LIMITED, v. THE DY.CIT,CIRCLE-1,,

ITA 3512/AHD/2003 | 2000-2001
Pronouncement Date: 17-02-2012 | Result: Partly Allowed

Appeal Details

RSA Number 351220514 RSA 2003
Bench Ahmedabad
Appeal Number ITA 3512/AHD/2003
Duration Of Justice 8 year(s) 4 month(s) 28 day(s)
Appellant GUJARAT FLUROCHEMICALS LIMITED,
Respondent THE DY.CIT,CIRCLE-1,,
Appeal Type Income Tax Appeal
Pronouncement Date 17-02-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 17-02-2012
Date Of Final Hearing 14-02-2012
Next Hearing Date 14-02-2012
Assessment Year 2000-2001
Appeal Filed On 19-09-2003
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH BEFORE SHRI MUKUL KUMAR SHRAWAT JUDICIAL MEMBER AND SHRI B.P. JAIN ACCOUNTANT MEMBER ITA NO.3512 & 3748/AHD/2003 ASSESSMENT YEAR:2000-01 GUJARAT FLUOROCHEMICALS LTD. ABS TOWERS 2 ND FLOOR OLD PADRA ROAD BARODA- 390 007 PAN NO.AACG6725H DCIT CIRCLE-1 BARODA / V/S . / V/S . DCIT CIRCLE-1 BARODA GUJARAT FLUOROCHEMICALS LTD. / APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI S.N.SOPARKAR SR-AR /BY REVENUE SHRI KARTAR SINGH CIT-DR /DATE OF HEARING 14-02-2012 !'# /DATE OF PRONOUNCEMENT 17-02-2012 $ $ $ $ / // / ORDER PER B.P. JAIN ACCOUNTANT MEMBER:- THESE CROSS-APPEALS OF THE ASSESSEE AND THE REVENUE ARISE FROM THE ORDER OF LD. COMMISSIONER OF INC-TAX (APPEALS)-I B ARODA DATED 23-07-2003 FOR THE ASSESSMENT YEAR 2000-01. THE ASSESSEE HAS R AISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO.3512/AHD/2003 :- 1. THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) IS AGAINST LAW AND FACTS. 2. THE LEARNED COMMISSIONER (APPEALS) ERRED IN UPHO LDING THE EXCLUSION OF RS.13 86 137/- FROM EXPORT TURNOVER FOR COMPUTATION OF DEDUCTION UNDER SECTION 80HHC ON THE GROUND OF DELAYED RECEIPT OF FOREIGN EXCHANGE. YOUR APPELLANT SUBMITS THAT THE SAID AMOUNT WAS ALL OWED BY RESERVE BANK OF INDIA TO BE WRITTEN OFF AND ACCORDINGLY THE SAME OU GHT TO BE CONSIDERED AS RECEIVED WITHIN TIME PERMITTED UNDER SECTION 80HC. ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 2 YOUR APPELLANT PRAYS THAT THE AMOUNT OF RS.13 86 13 7/- BE INCLUDED IN EXPORT TURNOVER FOR COMPUTING DEDUCTION UNDER SECTION 80 HHC. 3. THE LEARNED COMMISSIONER (APPEALS) ERRED IN REDU CING LOSS OF RS.21 13 545/- FROM TRADING ACTIVITIES FROM PROFIT FROM MANUFACTURING ACTIVITIES FOR COMPUTING PROFIT DERIVED FROM EXPORT IN TERMS OF SECTION 80HHC. YOUR APPELLANT SUBMITS THAT SUCH LOSS SHOULD NOT HA VE BEEN SO REDUCED FOR COMPUTING PROFIT DERIVED FROM EXPORT AND PRAYS THAT DEDUCTION UNDER SECTION 80HHC BE ALLOWED ACCORDINGLY. 4. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING DISALLOWANCE OF RS.3 41 65 845/- BEING EXPENDITURE FOR EARNING SERV ICE CHARGES DESCRIBED AS DIVERSIFICATION EXPENSES. THESE EXPENSES WERE DISAL LOWED IN A.Y. 1999-2000 IN THE GROUND THAT NO INCOME RESULTED FROM THE SAID EXPENDITURE IN THAT YEAR. ACCORDINGLY SUCH EXPENDITURE IS ALLOWABLE IN THIS Y EAR AS INCOME FROM SAID EXPENDITURE AROSE IN THIS YEAR. YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE IS NOT JUSTIFIED AND PRAYS THAT THE SAME BE DELETED. 5. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING DISALLOWANCE OF RS.29 58 855/- OUT OF EXPENDITURE OF RS.61 73 306/- FOR EARNING INCOME BY WAY OF SERVICE CHARGES ON THE GROUND THAT ONLY EXPE NDITURE OF RS.32 14 451/- RELATED TO INCOME ACTUALLY EARNED DURING THE YEAR. YOUR APPELLANT SUBMITS THAT BUSINESS EXPENDITURE IS ALLOWABLE EVEN IF NO INCOME RESULTS THEREFROM AND PRAYS THAT THE DISALLO WANCE BE DELETED. 6. THE LEARNED COMMISSIONER (APPEALS) ERRED IN OBSE RVING THAT TWO PROJECTS COMPLETED SHOULD BE EVALUATED ON PROJECT COMPLETION BASIS AND PROFIT TAXED IN THE YEAR. SIMILARLY ALSO ERRED IN NOT ALLOWING EXP ENSES INCURRED IN EARLIER YEAR IN RESPECT OF WHICH SERVICE INCOME IS RECEIVED IN T HIS YEAR ON THE GROUND THAT THE EXPENSES INCURRED IN PREVIOUS YEA ARE SUB JUDIC E BEFORE THE TRIBUNAL AND CANNOT BE TREATED AS ALLOWABLE EXPENSES FOR THIS YE AR. SHE ALSO ERRED IN GIVING TREATMENT ON PROJECT BASIS AND NOT CONFIRMIN G ENTIRE ACTIVITY AS A WHOLE DIVERSIFICATION ACTIVITY BUSINESS. YOUR APPELLANT SUBMITS THAT THE SAME MAY BE ALLOWE D ACCORDINGLY. 7. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING DISALLOWANCE UNDER SECTION 43B OF RS.1 68 273/- BEING CONTRIBUTI ON TO ESI AUTHORITIES ON THE GROUND THAT THE SAME WERE PAID AFTER THE DUE DA TE UNDER RELATIVE STATUTE. YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE IS NOT JUSTIFIED AND PRAYS THAT THE SAME BE DELETED. ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 3 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL IN ITA NO.3748/AHD/2003 :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A)-I BARODA HAS ERRED IN DIRECTING TO REDUCE S ALES-TAX OF RS 2.75 CRORES AND EXCISE DUTY OF RS.6.62 CRORES FROM THE TOTAL FI GURE OF TURNOVER FOR THE PURPOSE OF COMPUTATION OF RELIEF U/S.80HHC OF THE I NCOME TAX ACT 1961. 2. SHE HAS FURTHER ERRED IN DIRECTING TO REDUCE EXP ORT SHORTAGE OF RS.87 51 768/- FROM TURNOVER IN CLEAR CONTRAVENTION OF THE EXPLANATION (B) TO SEC. 80 HHC (4) (4B) OF THE ACT. 3. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND LAW THE LEARNED CIT(A)-I BARODA HAS ERRED IN DIRECTING TO REDUCE VILLAGE DEVELOPMENT EXPENSES FROM THE TOTAL INCOME THOUGH THE EXPENDITU RE IS CLEARLY NON- BUSINESS EXPENDITURE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO ALLOW DEDUCTION OF RS.26 22 520/- PAID BY THE ASSESSEE TO THE REGMA THOUGH IT HAS AN ELEMENT OF E NDURING NATURE AND DISALLOWABLE BEING CAPITAL IN NATURE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO ALLOW 100% DEPRECI ATION ON UNSUBSTANTIATED CLAIM OF POLLUTION CONTROL EQUIPMENT. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER. 2. AS REGARDS GROUND NO.1 OF THE ASSESSEE IS GENERA L IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 3. AS REGARDS GROUND NO.2 OF THE ASSESSEE THE BRIE F FACTS ARISING OUT OF ASSESSING OFFICERS ORDER ARE REPRODUCED AS UNDER:- IT WAS FURTHER OBSERVED THAT THE ASSESSEE DID NOT REALIZE EXPORT PROCEEDS OF RS.1386137/- WITHIN THE TIME PRESCRIBED UNDER SECTION 80HHC OF THE ACT. THE ASSESSEE SUBMITTED THAT SALE PROCEEDS WERE RECEIVED IN THE FINANCIAL YEAR 2002-2003. THEREFORE THE ASSESSEE GAVE ITS CONSENT ABOUT THE EXCLUSION OF THIS AMOUNT FROM EXPORT TURNOVER. HOWEVER IT WAS REQUESTED BY HIM THAT NECESSARY REC TIFICATION MIGHT BE CARRIED OUT ON THE PRODUCTION OF CERTIFICATE OF APP ROVAL FOR EXTENSION OF TIME FROM THE CONCERNED COMPETENT AUTHORITY. ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 4 4. THE LD. CIT(A) VIDE PARA-4.3 OF HIS ORDER OBSERV ED THAT THE RECOVERABILITY OR IRRECOVERABILITY OF OUTSTANDING A MOUNT DOES NOT IN ANY WAY ALTER THE PICTURE OF EXPORT TURNOVER FOR THE CONCER NED YEAR WHICH REMAINS AT THE ORIGINAL FIGURE. SINCE THESE SUMS WERE RECOVERE D LATER AND BEYOND THE TIME PERMITTED AND THEREFORE THEY DO NOT FORM PART OF THE EXPORT TURNOVER OF THE IMPUGNED YEAR. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT REC OVERABLITY OF THE AMOUNT IS BEYOND TIME PERMITTED UNDER THE ACT AND AS ALLOWED BY THE COMPETENT AUTHORITY. THEREFORE IT CANNOT FORM PART OF THE EX PORT TURNOVER OF THE IMPUGNED YEAR. IN THE CIRCUMSTANCES AND FACTS OF THE CASE W E DO NOT INTERFERE IN THE ORDER OF LD. CIT(A). THUS GROUND NO.2 OF THE ASSES SEE IS DISMISSED. 6. AS REGARDS GROUND NO.3 OF THE ASSESSEE THE BRIE F FACTS ARISING OUT ASSESSING OFFICERS ORDER ARE REPRODUCED AS UNDER:- THE COMPUTATION OF TRADING EXPORTS REVEALED THAT T HE ASSESSEE CONSIDERED BOTH DIRECT AND INDIRECT EXPENSES INCLUD ING THE PURCHASING COST OF THE GOODS. THE NET RESULT OF THESE TRANSACT IONS WAS NET LOSS AMOUNTING TO RS.21 13 545/-. ON FURTHER PERUSAL OF THE WORKING OF TRADING EXPORT AND THE EXPORT TURNOVER OF MANUFACTU RED FOODS IT WAS NOTICED THAT THIS LOSS IN THE TRADING EXPORT WAS NO T CONSIDERED IN THE COMPUTATION OF PROFIT OF BUSINESS OF THE ASSESSEE. IN ANOTHER WORDS THE PROFIT OF BUSINESS ARRIVED AT WAS INCREASED EQUAL T O THE AMOUNT OF TRADING LOSS. THIS HAS DIRECTLY REDUCED THE TAXABLE INCOME OF THE ASSESSEE AND ENHANCED THE CLAIM OF DEDUCTION UNDER SECTION 80HHC ON EXPORT OF MANUFACTURED GOODS. SINCE THE TRADING EXPORT ALSO COMPRISING AS AN INTEGRAL PART OF THE BUSINESS ACTI VITY AS A WHOLE NO SUCH DISCRIMINATORY TREATMENT FOR THE PURPOSE OF DE TERMINING TAXABLE INCOME CAN BE ALLOWED TO THE ASSESSEE. THIS INFEREN CE HAS BEEN DULY UPHELD BY THE HONBLE HIGH COURT BOMBAY IN THE CASE OF IPCA LABORATORIES LTD 251 ITR 401. IN VIEW OF ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE THE CLAIM OF THE ASSESSE E IS NOT ALLOWED. 7. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 5 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LEARNED COUNSEL FOR THE ASSESSEE VERY FAIRLY CO NCEDED THAT THIS ISSUE IS AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF HON BLE SUPREME COURT OF INDIA IN THE CASE OF IPCA LABORATORY LTD. V. DCIT (2004) AS REPORTED IN 266 ITR 521. THEREFORE IN THE CIRCUMSTANCES AND FACTS OF THE CASE WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A). THUS GROUND NO.3 OF THE ASSESSEE IS DISMISSED. 9. AS REGARDS GROUNDS NO.4 5 & 6 OF THE ASSESSEE W ITH REGARD TO DISALLOWANCE OF RS.3 41 65 845/- BEING EXPENDITURE FOR EARNING FOR SERVICE CHARGES DESCRIBED AS DIVERSIFICATION EXPENSES RS.2 9 58 855/- FOR EARNING OF SERVICE CHARGES AND WITH REGARD TO OBSERVATION OF T HE ASSESSING OFFICER THAT TWO PROJECTS COMPLETED TO BE EVALUATED ON PROJECT C OMPLETION METHOD AND NOT ALLOWING EXPENSES INCURRED IN EARLIER YEARS. 10. LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON TH E DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1999-00 IN ITA NO.3039/AHD/2004 DATED 29-01-2010 THAT THE ISSUES SHOULD BE SET ASID E TO THE FILE OF ASSESSING OFFICER FOR DECIDING THE ISSUES AFRESH. 11. LD. CIT-DR ON THE OTHER HAND SUPPORTED THE ORDE R OF ASSESSING OFFICER. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AS REGARDS GROUNDS NO.4 5 & 6 THE BRIEF FACTS ARE THAT ASSESSING OFFICER HAS STATED IN THE ORDER THAT THE MAIN BUSINESS OF THE A SSESSEE WAS MANUFACTURING AND SALE OF REFRIGERANT GASES IN INDIA AND ABROAD. OTHER SOURCES OF INCOME INCLUDED INTEREST AND DIVIDENDS. THE ASSESSEE INCUR RED DIVERSIFICATION EXPENSES AND CLAIMED THEM AS PART OF THE BUSINESS. ACCORDING TO THE AO ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 6 THESE MATTERS HAVE BEEN DEALT WITH EXHAUSTIVELY IN THE ASSESSMENT ORDERS FOR 1996-97 TO 1998-99 WHEREIN IT WAS HELD THAT THESE EXPENSES HAD NO NEXUS TO THE EXISTING OPERATIONS OF THE ASSESSEE. SIMILAR DI SALLOWANCE FOR THE EARLIER YEARS WAS CONFIRMED RIGHT UP TO THE ITAT IN A.Y. 19 96-97. 13. LD. CIT(A) CONFIRMED THE ACTION OF ASSESSING OF FICER VIDE PARA-6.1.5 OF HIS ORDER. 14. ON IDENTICAL ISSUE AS POINTED OUT BY THE LEARNE D COUNSEL FOR THE ASSESSEE THE MATTER WAS BEFORE THE ITAT B BENCH AHMEDABAD WHERE THE MATTER WAS RESTORED TO THE FILE OF AO FOR DECIDING THE ISSUE AFRESH. ON PERUSAL OF THE SAME WE ARE OF THE VIEW THAT THE MATTER BEF ORE US IS IDENTICAL AS IN THE A.Y. 1999-00 IN ASSESSEES OWN CASE (SUPRA) WHERE ITAT AHMEDABAD HAS SET ASIDE THE MATTER FOR DECIDING THE ISSUE AFRESH. WE ALSO FOLLOWING THE SAME SET ASIDE THE MATTER TO THE FILE OF AO WHO WILL DEC IDE THE MATTER IN VIEW OF THE DIRECTIONS GIVEN BY THE TRIBUNAL IN A.Y. 1999-00. T HUS GROUND NO.4 5 & 6 OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 15. AS REGARDS GROUND NO.7 OF THE ASSESSEE THE ASS ESSING OFFICER MADE DISALLOWANCE OF ESI PAYMENT WHICH WERE MADE BEYOND THE DUE DATE. THE LD. CIT(A) CONFIRMED THE ACTION OF ASSESSING OFFICER. 16. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THA T ALL THE PAYMENTS OF ESI WERE MADE DURING THE IMPUGNED YEAR I.E. BEFORE THE CLOSING OF THE FINANCIAL YEAR. THE LEARNED COUNSEL FOR THE ASSESSE E RELIED UPON THE DECISION OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT V. ALOM EXTRUSIONS CONSTRUCTION LTD. (2009) AS REPORTED IN 319 ITR 306 (SC). 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE AND IN VIEW OF THE DECISION OF HONBLE SUPREME COUR T OF INDIA IN THE CASE OF ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 7 ALOM EXTRUSIONS CONSTRUCTION LTD. (SUPRA) THE PAYMENTS HAVE BEING MADE BY THE ASSESSEE DURING THE FINANCIAL YEAR ARE ALLOWABL E EXPENDITURE. THEREFORE THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME . THUS GROUND NO.7 OF THE ASSESSEE IS ALLOWED. 18. IN THE RESULT APPEAL OF THE ASSESSEE IN ITA NO .3512/AHD/2003 IS PARTLY ALLOWED. NOW WE TAKE UP REVENUES APPEAL IN ITA NO.3748/AHD/ 2003 19. AS REGARDS GROUND NO.1 OF THE REVENUE THE BRIE F FACTS ARE THAT THE ASSESSING OFFICER HAS STATED IN THE ORDER THAT AS P ER SUB-SECTION (4B) EXPLANATION (BA) THE TOTAL \TURNOVER INCLUDES TRADI NG RECEIPTS EXCLUSIVE OF REGULAR INSURANCE ETC BEYOND THE CUSTOM STATION A ND FURTHER EXCLUDES ITEMS REFERRED TO UNDER CLAUSE (IIIA) (IIIB) & (IIIC) OF SECTION 28. SALES TAX AND EXCISE DUTY ARE NOT MENTIONED. RELYING ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CHOWRANGHEE SALES BUREAU AND HONBLE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF NAVJEEVAN UDYOG MANDIR PVT. LTD. AND ITAT AHMEDABAD DECISION IN THE CASE OF GACL AO HELD THAT THE ELEMENT OF EXCISE DUTY AND SALES TAX IS TO BE INCLUDED WHILE WORKING OUT THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S.80HHC. 20. THE LD. CIT(A) ACCEPTED THE CONTENTION OF THE A SSESSEE AND FOLLOWING THE DECISION OF THE SPECIAL BENCH OF ITAT KOLKATA I N THE CASE OF IFB AGRO INDUSTRIES 83 ITD 96 AND ACCEPTANCE BY THE ITAT AHMEDABAD BEN CH. THE LD. CIT(A) WAS OF THE VIEW THAT THE SALES TAX AND EXCIS E DUTY ARE NOT INCLUDIBLE AS PART OF THE TOTAL INCOME TURNOVER WHILE CALCULATING DEDUCTION U/S.80HHC OF THE ACT. 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT TH E JUDGMENT OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT V. LAKSHMI MACHINE WORKS (2007) ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 8 AS REPORTED IN 290 ITR 667 WHERE IT HAS BEEN HELD THAT JUST AS COMMISSION RECEIVED BY THE ASSESSEE IS RELATABLE TO EXPORTS AN D YET IT CANNOT FORM PART OF TURNOVER FOR THE PURPOSE OF U/S. 80HHC EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE TURNOVER. IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT OF INDIA IN THE CASE OF LAKSHMI MACHINE WORKS (SUPRA) WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A). THUS GROUND NO.1 OF THE REVEN UE IS DISMISSED. 22. AS REGARDS GROUND NO.2 OF THE REVENUE THE BRIE F FACTS ARE WITH RESPECT TO EXCLUSION OF RS.87 51 768/- FROM EXPORT TURNOVER ON THE GROUND THAT RELATIVE SALE PROCEEDS WERE NOT REALIZED WITHIN THE PRESCRIB ED TIME. THE ASSESSING OFFICER HAS STATED IN THE ORDER THAT THE ASSESSEE E XPLAINED THAT DUE TO THE NATURE OF THE BUSINESS AND VARIOUS FACTORS SUCH AS HANDLING DEFECTIVE VALVES TRANSFER ETC. A SMALL QUANTITY OF SHORTAGE OCCURRE D IN THE EXPORTS. THE AMOUNT OF SHORTAGE CLAIMED DID NOT REPRESENT QUANTITY NOT EXPORTED BY THE ASSESSEE BUT REPRESENTED THE QUANTITY WHICH WAS LOST ON ACCO UNT OF THE REASONS MENTIONED ABOVE. THE ASSESSING OFFICER HOWEVER HELD THAT THERE WAS NO ELEMENT OF RECEIPT OF SALE PROCEEDS TO THAT EXTENT. THEREFORE THIS EXPORT SHORTAGE IS REQUIRED TO BE REDUCED BOTH FROM THE TO TAL TURNOVER AS WELL AS EXPORT TURNOVER. THE AO DEDUCTED THE AMOUNT OF RS.8 7 51 768/-. 23. THE LD. CIT(A) VIDE PARA-3.3 OF HIS ORDER OBSER VED THAT RS.87.51 LAKHS SHOULD NOT BE REDUCED FROM THE TOTAL TURNOVER FOR T HE REASON MENTIONED IN HIS ORDER. 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF LD. CIT(A) THAT THE EXP ORT TURNOVER REMAINS RS.80.40 CRORES AND THIS FIGURE IS VERIFIABLE FROM THE REPORT IN FORM NO.10CCAC (ANNEXURE A) WHEN THE ADJUSTED EXPORT T URNOVER WHICH IS THE MANUFACTURING TURNOVER IS CLEARLY SHOWN AT RS.80.4 CRORES. THE ASSESSEE HAS ALSO PROVIDED INVOICE-WISE FOB VALUE REALIZED FOR T HE WHOLE YEAR AND THE SAME TOTALS UP TO 80.10 CRORES. THIS PROVES THAT TH E CLAIM OF SHORTAGE OF ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 9 RS.87.51 LAKHS IS FURTHER PAID AS COMPENSATION WHIC H MAKES THE COST OF EXPORTS HIGHER BUT ACTUALLY DOES NOT REDUCE THE EX PORT TURNOVER. IN FACT THIS IS A NORMAL BUSINESS PRACTICE IN ALL TRADES WHERE SHOR TAGE IN HANDLING IS COMPENSATED BY PAYMENT BUT DOES NOT MEAN THAT THE GOODS WERE NOT CLEARED OR PAYMENT NOT RECEIVED FOR THE FULL AMOUNT OF EXPO RT TURNOVER. THEREFORE IN THE CIRCUMSTANCES AND FACTS OF THE CASE RS.87.51 LA KH SHOULD NOT BE REDUCED FROM THE TOTAL TURNOVER. THUS GROUND NO.2 OF THE R EVENUE IS DISMISSED. 25. AS REGARDS GROUND NO.3 OF THE REVENUE THE BRIE F FACTS ARE THAT THE ASSESSING OFFICER HAS STATED IN THE ORDER THAT THIS EXPENDITURE WAS IN THE NATURE OF GRATUITOUS PAYMENT INCURRED ON ACCOUNT OF REPAIR OF VILLAGE ROADS ASSISTANCE TO SCHOOLS CONTRIBUTIONS TO LOCAL FESTI VALS AND OTHER VILLAGE ACTIVITIES. IN THE VARIOUS VILLAGES SURROUNDING THE ASSESSEES FACTORY AT HALOL THE ASSESSEE STATED THAT THIS WAS INCURRED TO MAINT AIN CORDIAL RELATIONS WITH THE VILLAGERS AS WELL AS TO PROTECT THEIR CROPS FRO M POLLUTION. THE EXPENDITURE WAS INCURRED FOR BUSINESS EXPEDIENCY. THE ASSESSING OFFICER HOWEVER HELD THAT THESE ARE GRATUITOUS PAYMENT FOR WHICH THERE W AS NO COMPULSION. SIMILAR ADDITIONS WERE DELETED BY THE ITAT FOR A.Y. 1993-94 AND BY THE LD. CIT(A) IN A.Y. 1994-95 ONWARDS. AS THE DEPARTMENT HAS NOT ACC EPTED THESE DECISIONS THE EXPENSES ARE DISALLOWED THIS YEAR ALSO. THE LD . CIT(A) ALLOWED THE RELIEF TO THE ASSESSEE FOLLOWING HIS ORDER IN THE PRECEDIN G YEAR AND THE RATIO OF THE DECISION BY THE TRIBUNAL. 26. LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON TH E DECISION OF ITAT D BENCH AHMEDABAD DATED 30-11-11 IN THE CASE OF GUJARAT ENVIRON PROTECTION AND INFRASTRUCTURE LTD. V. ITO IN ITA NO.151/AHD/2007 WHERE THE ITAT ALLOWED THE CLAIM OF THE ASSESSEE. THE LEARNED COUN SEL FOR THE ASSESSEE ALSO RELIED UPON THE DECISION OF HONBLE MADRAS HIG H COURT IN THE CASE OF CIT V. MADRAS REFINERIES LTD. (2004) AS REPORTED IN 266 ITR 170 (MAD). ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 10 27. LD. CIT-DR ON THE OTHER HAND RELIED UPON THE O RDER OF THE ASSESSING OFFICER. 28. ON PERUSAL OF THE FACTS AND ARGUMENTS BY BOTH T HE PARTIES WE ARE OF THE VIEW THAT REPAIR OF THE VILLAGE ROADS ASSISTANCE T O SCHOOLS CONTRIBUTIONS TO LOCAL FESTIVALS AND OTHER VILLAGE ACTIVITIES SURROU NDING THE FACTORY OF THE ASSESSEE IS MEANT TO INCLUDE WITHIN ITS FOLD TO CRE ATE EXPRESSION OF CARE AND CONCERN FOR THE SOCIETY AT LARGE AND THE PEOPLE OF THE LOCALITY IN WHICH THE BUSINESS OF THE ASSESSEE IS LOCATED IN PARTICULAR THEREOF CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A G REATER MEASURE WITH THE AID OF SUCH GOODWILL. THEREFORE THE SAID EXPENDITU RE IN VIEW OF THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF MADRAS REFINERIES LTD. (SUPRA) AND THE FACTS OF THE PRESENT CASE CANNOT BE SAID TO BE OUTSIDE THE AMBIT OF BUSINESS OF THE ASSESSEE. THEREFORE WE FIND NO INFI RMITY IN THE ORDER OF LD. CIT(A). THUS GROUND NO.3 OF THE REVENUE IS DISMISS ED. 29. AS REGARDS GROUND NO.4 OF THE REVENUE THE BRIE F FACTS ARE THAT THE ASSESSING OFFICER HAS STATED IN THE ORDER THAT A SU M OF RS.26 22 520/- WAS CONTRIBUTED TO THE REFRIGERANT GAS MANUFACTURERS AS SOCIATION. ACCORDING TO THE ASSESSEE THIS PAYMENT WAS MADE WITH THE SOLE P URPOSE OF APPROACHING THIS BODY FORMED BY BUSINESSMAN IN THE SAME LINE I N ORDER TO SOLVE COMMON PROBLEMS WHICH MAY ARISE IN THE COURSE OF BUSINESS AND WHICH THE BODY TAKES UP WITH THE CONCERNED GOVERNMENT AUTHORITIES. MOREO VER THE RELEVANT INFORMATION AND DATA COLLECTED BY THE ASSOCIATION A RE CIRCULATED AMONGST ALL MEMBERS SO THAT MAXIMUM BENEFIT OF THE OPPORTUNITIE S CAN BE EXPLORED. 30. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSE E FOR THE REASONS MENTIONED IN HIS ORDER. ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 11 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) FOR THE REASON THAT THE PAYMENT IS NOT A ONE-TIME CONTRIBUTION BUT A RECURRING ONE AND SUCH CONTRIBUTIONS HAVE NOT RESULTED IN CREATION OF ANY ASSET FOR THE ASSES SEE NOR EVEN FOR THE ASSOCIATION. THERE ARE VERY FEW MEMBERS AS ONLY FEW COMPANIES ARE MANUFACTURING REFRIGERANT GASES. HENCE THE PRO RAT A EXPENDITURE IS LARGE. THEY HAVE ENCLOSED BALANCE-SHEET AND INCOME EXPENDI TURE ACCOUNT OF THE ASSOCIATION TO SHOW THAT THERE HAS BEEN NO CREATION OF ANY CAPITAL ASSET. ON GOING THROUGH THE INCOME AND EXPENDITURE ACCOUNT AN D BALANCE-SHEET OF REGMA THE ASSETS ARE MAINLY KEPT IN THE BANK ACCOU NT AND THE EXPENSES ARE ALL FOR ADVERTISEMENT INVESTIGATION CHARGES TRAVEL ING ETC. THERE IS A POSITIVE BALANCE LEFT OVER WHICH IS KEPT IN THE BANK ACCOUNT . THE OTHER MEMBERS BESIDES THE ASSESSEE ARE SRF LTD. OF DELHI M/S. CH EMPLAST SANMAR LTD. OF CHENNAI NAVEEN FLOUORINE INDUSTRIES IN MUMBAI. IN SHORT IT IS AN ASSOCIATION ON THE LINES OF TRADE ASSOCIATION WHICH LOOKS AFTER THE WELFARE OF ITS MEMBERS AND TAKES UP ALL ISSUES RELATING TO THEIR ACTIVITIE S. THEY CALL FOR CONTRIBUTIONS ON THE BASIS OF PROJECTED EXPENSES. FOR THIS ALSO COR RESPONDENCE WAS FILED BEFORE THE LD. CIT(A) TO SHOW THAT THESE AMOUNTS AR E REQUESTED BY CIRCULAR LETTERS AFTER TAKING A DECISION DURING REGMA MEETIN GS. THE AMOUNTS ARE DULY PAID BY CHEQUE TO THE ASSOCIATION WHICH IS BASED IN NEW DELHI. THE DETAILS IN THESE CORRESPONDENCES SHOW THAT THE ASSOCIATION WHI CH IS A NEW ONE HAS PUT AWAY RS.5 LAKHS WHICH IS A CORPUS FUND AND THE BALA NCE HAS BEEN KEPT FOR MEETING EARLIER EXPENSES BACK-LOG AND CURRENT AND P ROJECTED EXPENSES. IN SHORT THE ASSOCIATION KEEPS MAKING A COLLECTION AN D CALLING IT A CORPUS FROM WHICH IT INCURS THE EXPENDITURE. IN OUR VIEW WHATE VER NAME CALLED THE AMOUNT IS COLLECTED FOR THE PURPOSE OF DEFRAYING EXPENSES OF THE ASSOCIATION. THE ASSESSEE HAS NO RIGHT TO ANY OF THE SUMS. NO CAPITA L ASSET IS BEING BUILT UP IN THE ASSOCIATION FROM WHICH THE ASSESSEE CAN DERIVE ANY BENEFIT. THEREFORE SUCH PAYMENT HAS TO BE TREATED AS EXPENDITURE IN TH E LINE OF BUSINESS AND DEDUCTIBLE U/S.37(1). IT IS NOT THE AO'S CONTENTION THAT RELEVANT SERVICES WERE ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 12 NOT RENDERED OR THAT THERE WAS ANY OTHER MOTIVE FOR MAKING SUCH PAYMENT. IN THE CIRCUMSTANCES AND FACTS WE FIND NO INFIRMITY I N THE ORDER OF LD. CIT(A). THUS GROUND NO.4 OF THE REVENUE IS DISMISSED. 32. AS REGARDS GROUND NO.5 OF THE REVENUE THE BRIE F FACTS ARE THAT THE ASSESSING OFFICER HAS STATED IN THE ORDER THAT THE ASSESSEE HAD CLAIMED 100% DEPRECIATION ON ASSETS USED FOR CONTROLLING POLLUTI ON. FROM THE NARRATION IT DID NOT APPEAR THAT THEY WERE ELIGIBLE FOR 100% DEPRECI ATION AND THE ASSESSEE WAS ASKED TO EXPLAIN WHY IT SHOULD BE ALLOWED. THE ASSESSEE SUBMITTED THAT THE DETAILS WERE AS FURNISHED ALONG WITH THE TAX AU DIT REPORT REGARDING EACH OF THE ITEMS. THE AO HELD THAT THE ASSESSEE WAS CAS UAL IN FURNISHING THE EXPLANATION AND HAD NO GENUINE ARGUMENT TO SUBSTANT IATE ITS CLAIM. IF THE ASSESSEE HAD A GENUINE CLAIM THEN RELEVANT DETAILS SUCH AS CERTIFICATE FROM POLLUTION CONTROL AUTHORITIES SHOULD HAVE BEEN FILE D. AO THEREFORE HELD THAT THE NATURE OF USE OF THESE ASSETS APPEARED TO BE DUBIOU S AND HE DISALLOWED THE CLAIM FOR 100% DEPRECIATION LEADING TO A NET DISALL OWANCE OF RS.8 67 492/-. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FO R THE REASONS MENTIONED IN HIS ORDER. 33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT THE BAG FILTER AND FILTER BAGS FOR POLLUTION CONTROL EQUIPMENTS WERE INSTALLED TO PREV ENT DUST FROM GETTING INTO THE ATMOSPHERE AND IN THE DEPRECIATION TABLE THEY A RE CLEARLY SHOWN AS PART OF FELT FILTER SYSTEMS AND DUST COLLECTOR SYSTEMS. THE LAST ITEM NAMED IS INDION 225 NA RESIN WHICH REMOVES IMPURITY OF CALCIUM AND MANGANESE SALT AND IS INSTALLED IN THE ION EXCHANGE RESIN COLUMN. ALL THE OTHER ITEMS ARE PART OF A CLOSED SYSTEM WHICH CONVEYS SOLID WASTE AND THEREBY LIMITS SUSPENDED PARTICLE MATTER AND ACIDITY IN THE ATMOSPHERE. THEY ARE SHOWN AS PART OF DUST COLLECTOR SYSTEMS IN THE DEPRECIATION TABLE. AFTER GOING THROUGH THE RATES THERE IS NO PRESCRIPTION FOR OBTAINING ANY CERTIFICATE FR OM ANY POLLUTION CONTROLLING AUTHORITY. IN FACT THE DEPRECIATION SCHEDULE CLEAR LY LISTS FELT FILTER SYSTEMS ITA NO.3512 & 3748/AHD/2003 A.Y. 2000-01 GUJARAT FLUOROCHEMICALS LTD. V. DCIT CIR-1 BRD PAGE 13 DUSTS COLLECTOR SYSTEMS AS PART OF AIR POLLUTION CO NTROL EQUIPMENT. ION EXCHANGE RESIN COLUMN IS LISTED UNDER WATER CONTROL EQUIPMENT. THEREFORE TO UNDERSTAND AS TO HOW THE NATURE OF USE OF THESE ITE MS IS DUBIOUS SPECIALLY IN A CHEMICAL INDUSTRY WHERE THESE ITEMS ARE MOST REQUIR ED. IN THE CIRCUMSTANCES AND FACTS OF THE CASE WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A). THUS GROUND NO.5 OF THE REVENUE IS DISMISSED. 31. IN THE RESULT APPEAL OF ASSESSEE IN ITA NO.3512/AHD/2003 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THAT OF REVENU E IN ITA NO.3748/AHD/2003 IS DISMISSED. % $ !'# &'( 17 / 02 /201 2 ! - . / THIS ORDER PRONOUNCED IN OPEN COURT ON 17/02/ 201 2. SD/- SD/- ( MUKUL KUMAR SHRAWAT ) ( B.P. JAIN ) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) &'(- 17/02/2012 1 / DKP* $ $ $ $ 223 223 223 223 43' 43' 43' 43' / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. ''27 8 / CONCERNED CIT 4. 8- / CIT (A) 5. 3;. 2227 27# 1 / DR ITAT AHMEDABAD 6. .>? @% / GUARD FILE. BY ORDER/ $ /TRUE COPY/ A/1 ' 27# 1 /