The DCIT, Circle-5,, Ahmedabad v. Navbharat Seeds Pvt.Ltd,, Ahmedabad

ITA 3782/AHD/2008 | 2005-2006
Pronouncement Date: 30-09-2010 | Result: Partly Allowed

Appeal Details

RSA Number 378220514 RSA 2008
Assessee PAN AAACN5362K
Bench Ahmedabad
Appeal Number ITA 3782/AHD/2008
Duration Of Justice 1 year(s) 10 month(s) 10 day(s)
Appellant The DCIT, Circle-5,, Ahmedabad
Respondent Navbharat Seeds Pvt.Ltd,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-09-2010
Date Of Final Hearing 28-09-2010
Next Hearing Date 28-09-2010
Assessment Year 2005-2006
Appeal Filed On 20-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH A AA A BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI BHAVNESH BHAVNESH BHAVNESH BHAVNESH SAINI SAINI SAINI SAINI JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER AND AND AND AND SHRI SHRI SHRI SHRI N.S.SAINI N.S.SAINI N.S.SAINI N.S.SAINI ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER DATE OF HEARING : 28-9-10 DRAFTED ON: 28-9-10 ITA NO. 3782 /AHD/ 2008 ASSESSMENT YEAR :2005-06 AND C.O. NO.321/AHD/2008 (IN ITA NO.3782/AHD/2008) DY.COMMISSISONER OF INCOME TAX CCIRCLE-5 2 ND FLOOR C.U.SHAH BUILDING ASHRAM ROAD AHMEDABAD. VS. NAVBHARAT SEEDS PVT.LTD. VASUKANAN BUILDING 1 ST FLOOR NR. LOTUS FLATS OPP. GUJARAT VIDHYAPITH ASHRAM ROAD AHMEDABAD. PAN/GIR NO. : AAACN 5362 K (A PPELLANT ) .. ( RESPONDENT ) APPELLA N T BY : SHRI R.K. DHANESTA D.R. RESPONDENT BY: SHRI S.N.DIVATIA. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS O BJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS)-XI AHMEDABAD DATED 2-9- 2008. 2. GROUND NO.1 IN REVENUES APPEAL AND GROUND NO.1 IN ASSESSEES CROSS OBJECTION ARE DIRECTED AGAINST THE ADDITION OF `.13 55 670/- MADE ON ACCOUNT OF LOW GROSS PROFIT W HICH WAS REDUCED IN APPEAL BY THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) TO `.3 00 000/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER FOUND THAT THE GROSS PROFIT SHOWN BY THE AS SESSEE IN THE YEAR UNDER APPEAL WAS 26.3% ON SALES OF `.7.97 CROR ES AS AGAINST THE GROSS PROFIT OF 27.9% SHOWN IN THE IMMEDIATELY PRECEDING YEAR - 2 - ON SALES OF `.5.82 CRORES. IN REPLY TO THE QUERY O F THE LEARNED ASSESSING OFFICER THE ASSESSEE SUBMITTED THAT A SLI GHT DOWNWARD CHANGE IN THE GROSS PROFIT RATIO WAS DUE TO THE REA SON THAT THE PRODUCTS DEALT IN BY THE ASSESSEE ARE AGRO-COMMODIT IES PRICES OF WHICH ARE QUITE FLUCTUATING. THE ASSESSEE HAS KEPT QUANTITATIVE DETAILS OF ALL THE PRODUCTS INCLUDING PURCHASES SA LES OPENING STOCK AND CLOSING STOCK. ALL PURCHASES AND SALES ARE FULL Y VOUCHED. THE PAYMENTS ARE MADE BY CHEQUES ONLY. NONE OF THE PURC HASES ARE FROM ANY PARTY SPECIFIED UNDER SECTION 40A (2)(B) O F THE INCOME TAX ACT. THE RESULT SHOWN ARE THEREFORE QUITE JUSTIFIED AND IN LINE WITH THE EARLIER YEAR RESULTS. 4. THE LEARNED ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE OBSERVING THAT IT IS GENERAL AMBIGU OUS AND WITHOUT ANY SUBSTANCE AND DEVOID OF ANY SUPPORTING DATA AS ASKED FOR. THE LEARNED ASSESSING OFFICER IN ORDER TO ASCERTAIN THE REASON FOR FALL IN GROSS PROFIT EXAMINED THE BOOKS OF ACCOUNTS STOCK REGISTER AND FOUND VARIOUS DISCREPANCIES/DEFECTS IN THEM AND IN RESPECT OF VALUATION OF CLOSING STOCK. THEREAFTER THE LEARNED ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATE D THE GROSS PROFIT OF THE ASSESSEE AT THE RATE 28% BY FOLLOWING THE GROSS PROFIT OF IMMEDIATELY PRECEDING YEAR AND THEREBY MADE A TR ADING ADDITION OF `.13 55 670/- TO THE INCOME OF THE ASSE SSEE. 5. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) THE ASSESSEE CONTENDED THAT NONE OF THE C ONDITIONS ENUMERATED IN SECTION 145(3) SUCH AS ASSESSEE HAS F AILED TO MAINTAIN AND CORRECT BOOKS OF ACCOUNTS ASSESSEE HA S NOT FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING REGULARLY AS PR OVIDED IN SUB SECTION (4) OF SECTION 145 AND ASSESSEE HAS NOT FOL LOWED THE ACCOUNTING STANDARDS HAS BEEN FOUND BY THE LEARNED ASSESSING OFFICER TO EXIST IN THE CASE OF THE ASSESSEE AND TH EREFORE THE REJECTION OF BOOK RESULT BY THE LEARNED ASSESSING O FFICER WAS NOT JUSTIFIED. IT WAS FURTHER ARGUED THAT THE DEFICIENC IES POINTED OUT BY THE LEARNED ASSESSING OFFICER DOES NOT HAVE IMPACT ON THE TRADING - 3 - RESULTS OF THE ASSESSEE. THE LEARNED ASSESSING OFF ICER MADE INDEPENDENT INQUIRIES FROM THE PARTIES UNDER SECTIO N 133(6) TO VERIFY THE PURCHASES AND SALES TO CONFIRM THE TRANS ACTIONS. NONE OF THE PURCHASES AND SALES WERE FROM PERSONS REFERRED TO IN SECTION 40A (2)(B) OF THE ACT. THEREFORE THE LEARNED ASSES SING OFFICER HAS NOT ESTABLISHED THAT THE BOOKS OF ACCOUNTS MAINTAIN ED BY THE ASSESSEE DOES NOT ENABLE HIM TO COMPUTE THE TRUE IN COME OF THE ASSESSEE. IT WAS FURTHER REITERATED THAT THE GROSS PROFIT SHOWN BY THE ASSESSEE WAS COMPARABLE WITH THE PRECEDING YEAR . NORMAL VARIATION IN GROSS PROFIT FROM ONE YEAR TO ANOTHER IS BOUND TO BE THERE PARTICULARLY IN CASE OF BUSINESS IN AGRO BASE D COMMODITIES WHERE THE PRICES OF THE COMMODITIES FLUCTUATES. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE RE STRICTED THE DISALLOWANCE MADE TO `.3 00 000/- FROM `.13 55 670/ -. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING AND MARKETING OF VARIOUS TYPES OF HYBRID SEEDS FOR AGRICULTURAL PURPOSE. TH E LEARNED ASSESSING OFFICER OBSERVED THAT THE GROSS PROFIT SH OWN BY THE ASSESSEE DURING THE YEAR WAS 26.3% ON SALES OF `.7. 97 CRORES WHICH IS LOWER THAN THE GROSS PROFIT OF 27.9% ON SALES OF `.5.82 CRORES IN THE IMMEDIATELY PRECEDING YEAR. THE LEARNED ASSESSI NG OFFICER FOUND CERTAIN DISCREPANCIES IN THE BOOKS OF ACCOUNT S OF THE ASSESSEE AND IN VALUATION OF CLOSING STOCK AND THER EFORE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE GROSS PROFI T OF THE ASSESSEE AT 28% WHICH WAS THE GROSS PROFIT RATE IN THE IMMEDIATELY PRECEDING YEAR AND MADE A TRADING ADDITION OF `.13 55 670/- TO THE INCOME OF THE ASSESSEE. ON APPEAL THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) RESTRICTED THE DISALLOWANCE TO `.3 00 000/- AND DELETED THE BALANCE ADDITION OF `.10 55 670/-. BOTH THE PARTIES SUBMITTED BEFORE US THAT THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) HAS PASSED A NON SPEAKING ORDER AND THERE FORE THE ISSUE - 4 - SHOULD BE RESTORED BACK TO HIS FILE FOR FRESH ADJUD ICATION. WE FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS OBSERVED AS UNDER:- IT IS SEEN THAT THE G.P. VARIATION IS NOT VERY HIG H COMPARING TO THE G.P. OF PREVIOUS ASSESSMENT YEAR. FOR THE AS SESSMENT YEAR UNDER CONSIDERATION SALES HAVE GONE UP THEREF ORE TO MAINTAIN SAME GROSS PROFIT ALSO NOT AN EASY TASK IN BUSINESS. IT IS ALSO SEEN THAT THE ADDITIONS MADE IS AT VERY HIGHER SIDE FOR THE SMALL VARIATION OF GROSS PROFIT ADMITTED BY THE APPELLANT. THEREFORE CONSIDERING THE FACTS OF THE CASE AND CONSIDERING THE SUBMISSIONS MADE BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE I AM INCL INED TO CONFIRM THE GROSS PROFIT ADDITION OF `.3 00 000/- A ND THE BALANCE ADDITION IS DELETED. THUS THIS GROUND OF A PPEAL IS PARTLY ALLOWED. 8. A BARE READING OF THE ABOVE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) SHOWS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT CONSID ERED THE GROUNDS OF THE LEARNED ASSESSING OFFICER FOR MAKING THE IMPUGNED ADDITION AND HAS ALSO NOT GIVEN ANY REASON FOR NOT ACCEPTING THE EXPLANATION GIVEN BY THE ASSESSEE. THUS THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS A NON REASO NED ORDER. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE ING A QUASI JUDICIAL AUTHORITY IS REQUIRED TO PASS ORDER BY GIV ING REASONS FOR HIS FINDINGS SO THAT THE FINDING OF THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS) CAN BE APPRECIATED BY THE HIGHER QUORU M IN AN APPEAL FILED BY THE PARTIES. THEREFORE WE SET ASID E THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND RE MAND THE MATTER BACK TO HIS FILE AND DIRECT HIM TO PASS A WE LL REASONED ORDER BY GIVING HIS FINDINGS ON THE ORDER OF THE LEARNED ASSESSING OFFICER AS WELL AS THE SUBMISSIONS OF THE ASSESSEE AFTER AL LOWING REASONABLE AND PROPER OPPORTUNITY OF HEARING TO BOT H THE PARTIES. THUS THIS GROUND OF APPEAL OF THE REVENUE AND THE CROSS OBJECTIONS OF THE ASSESSEE BOTH ARE ALLOWED FOR STATISTICAL PU RPOSES. 9. GROUND NO.2 IN THE APPEAL OF THE REVENUE RELATES TO DELETING OF ADDITION OF `.3 11 963/- MADE BY THE LEARNED ASS ESSING OFFICER - 5 - ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON CAR R EGISTERED IN THE NAME OF THE DIRECTOR OF THE COMPANY. 10. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER FOUND THAT ASSESSEE PURCHASED A NEW CAR FOR `.15 95 515/- AND CLAIMED DEPRECIATION OF `.3 11 963/- ON THE SAI D CAR. HE OBSERVED THAT THE CAR WAS PURCHASED BY THE ASSESSEE AND THE PAYMENT WAS MADE FROM THE ASSESSEES ACCOUNT. HE AL SO OBSERVED THAT THE DELIVERY OF THE CAR WAS TAKEN BY THE ASSES SEE AND WAS USED FOR THE BUSINESS PURPOSES OF THE ASSESSEE. THE CAR WAS SHOWN AS ASSET IN THE SCHEDULE OF FIXED ASSETS ATTACHED T O THE BALANCE SHEET AS AT 31 ST MARCH 2005. THE LEARNED ASSESSING OFFICER HAS ALSO ALLOWED THE EXPENSES OF RUNNING AND MAINTENANC E ON CAR BUT DISALLOWED THE DEPRECIATION ON THE GROUND THAT THE VEHICLE WAS NOT REGISTERED IN THE NAME OF THE COMPANY BUT WAS REGIS TERED IN THE NAME OF THE DIRECTOR OF THE COMPANY. THEREFORE TH E LEARNED ASSESSING OFFICER HELD THAT SINCE THE VEHICLE WAS N OT REGISTERED IN THE NAME OF THE COMPANY BUT WAS REGISTERED IN THE N AME OF THE DIRECTOR OF THE COMPANY AND HENCE THE ASSESSEE WAS NOT THE OWNER OF THE CAR AND WAS NOT ENTITLED TO CLAIM OF D EPRECIATION ON THE SAME. ACCORDINGLY HE DISALLOWED THE DEPRECIATIO N TO THE ASSESSEE. 11. ON APPEAL LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) OBSERVED THAT AHMEDABAD BENCH OF THE TRIBUNAL VIDE ITS ORDER DATED 29-1-2004 IN THE CASE OF AMBUJA SYNTHETICS MI LLS PVT. LTD. VS. DCIT HAS HELD THAT WHERE FUNDS FOR PURCHASE OF CAR WERE PROVIDED BY THE ASSESSEE COMPANY WHICH IS ALSO REFL ECTED IN THE ACCOUNTS OF THE ASSESSEE COMPANY AND THE CAR IS ACT UALLY USED IN THE BUSINESS OF THE ASSESSEE-COMPANY DEPRECIATION T HEREON CANNOT DENIED AND DELETED THE DISALLOWANCE OF DEPRECIATIO N ON CAR. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE MERELY RELIED UPON THE ORDER OF THE LEARNED ASSESSING OFFICER WHE REAS THE - 6 - LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE S UPPORTED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE PURCHASED CAR FOR `.15 59 515/- AND PAID FOR THE S AME OUT OF ITS OWN FUNDS BUT THE CAR WAS REGISTERED IN THE NAME OF A DIRECTOR OF THE COMPANY AND THE CAR WAS ALSO REFLECTED IN THE B ALANCE SHEET OF THE COMPANY AS AT 31 ST MARCH 2005 AS FIXED ASSET. THE LEARNED ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIAT ION ON THE CAR OF `.3 11 963/- SINCE THE CAR WAS NOT REGISTERED IN TH E NAME OF THE COMPANY AND THEREFORE THE ASSESSEE WAS NOT THE OWNE R OF THE CAR WHICH WAS DELETED BY THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) FOLLOWING THE ORDER OF THIS TRIBUNAL IN T HE CASE OF AMBUJA SYNTHETICS MILLS PVT. LTD. (SUPRA). WE FIND THAT I T IS NOT IN DISPUTE THAT THE CAR WAS PURCHASED OUT OF THE FUNDS OF THE ASSESSEE COMPANY AND THE CAR WAS SHOWN IN THE ACCOUNTS OF TH E ASSESSEE COMPANY AND ALSO IN THE SCHEDULE OF FIXED ASSETS IN THE BALANCE SHEET OF THE COMPANY AS AT 31 ST MARCH 2005. THE CAR WAS USED IN THE BUSINESS OF THE ASSESSEE IS ALSO NOT IN DOUBT O R DEBATE. IT IS ALSO NOT IN DISPUTE THAT THE RUNNING AND MAINTENANC E EXPENSES ON CAR WERE ALLOWED BY THE LEARNED ASSESSING OFFICER W HILE COMPUTING THE INCOME OF THE ASSESSEE COMPANY. THUS THE FACTS OF THE ASSESSEES CASE ARE SQUARELY COVERED BY THE DECISIO N OF THIS TRIBUNALS DECISION IN THE CASE OF AMBUJA SYNTHETIC S MILLS PVT. LTD.(SUPRA). THE LEARNED DEPARTMENTAL REPRESENTATIV E HAS MERELY RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS). NO MATERIAL WAS BROUGHT ON RECORD BY THE LEARNED DEPARTMENTAL REPRESENTATIVE TO POINT OUT ANY SPECIF IC DEFECT IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) WE THEREFORE DO NOT FIND ANY GOOD AND JUSTIFIABLE REA SON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS). IT IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. - 7 - 14. GROUND NO.3 IN REVENUES APPEAL IS DIRECTED AGA INST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)IN DELETING THE ADDITION OF `.1 55 128/- ON ACCOUNT OF INTEREST EXPENDITURE. 15. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNE D ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS UTILISED BOR ROWED FUNDS IN THE INVESTMENT IN SHARES OF `.12 92 734/- HE THEREF ORE MADE PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE OF `.1 55 128/-. 16. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) THE ASSESSEE SUBMITTED THAT THE INVESTMEN T IN SHARES WERE MADE OUT OF ITS OWN FUNDS OF `.1 92 00 922/- A VAILABLE TO THE ASSESSEE IN THE FORM OF SHARE CAPITAL `.21 00 000/- AND RESERVES AND SURPLUS OF `1 71 00 922/-. 17. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) DELETED THE DISALLOWANCE BY OBSERVING THAT THE INTEREST FRE E FUNDS AVAILABLE WITH THE ASSESSEE AT THE END OF THE YEAR IS MORE TH AN THE INVESTMENT IN SHARES BY FOLLOWING THE DECISION OF T HIS TRIBUNAL IN THE CASE OF TORRENT FINANCIERS VS. ACIT (2001) 73 T TJ 624 (AHD). 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE MADE INVESTMENT OF `.12 92 734/- IN SHARES DURING T HE YEAR. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSE E HAS PAID INTEREST ON BORROWED FUNDS DURING THE YEAR UNDER CO NSIDERATION. HE HELD THAT THE ASSESSEE HAS UTILISED THE BORROWED FU NDS FOR INVESTMENT IN SHARES AND THEREFORE MADE PROPORTION ATE DISALLOWANCE OF INTEREST OF `.1 55 128/- WHICH WAS DELETED IN APPEAL BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN THE CASE OF TORRENT F INANCIERS VS. ACIT (2001) 73 TTJ 624 (AHD) BY OBSERVING THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MORE THAN THE INVES TMENT IN SHARES MADE BY THE ASSESSEE. WE FIND THAT THE ASSESSEE IN THE BALANCE - 8 - SHEET AS AT 31 ST MARCH 2005 HAS SHOWN SHARE CAPITAL OF `.21 00 000/- AND RESERVES AND SURPLUS OF `.1 71 92 2/-. THUS THE OWN FUNDS AVAILABLE WITH THE ASSESSEE WERE `.1 92 0 0 922/- WHICH WAS MUCH MORE THAN THE INVESTMENT IN SHARES OF `.12 92 734/- BY THE ASSESSEE. NO MATERIAL WAS BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT INTEREST BEARING FUNDS WAS UTILISED BY THE ASSESSEE IN THE PURCHASE OF THE SHARES. IN ABSENCE OF ANY MATER IAL HAVING BEEN BROUGHT ON RECORD BY THE LEARNED ASSESSING OFFICER TO SHOW THAT INTEREST BEARING FUNDS WERE UTILISED BY THE ASSESSE E IN INVESTMENT IN SHARES IN OUR CONSIDERED OPINION THE LEARNED ASS ESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF PROPORT IONATE INTEREST EXPENDITURE. HENCE WE DO NOT FIND ANY GOOD AND JUST IFIABLE REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 19. GROUND NO.2 IN THE CROSS OBJECTION OF THE ASSES SEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) CONFIRMING THE DISALLOWANCE MADE BY T HE LEARNED ASSESSING OFFICER OF `.5 00 000/- OUT OF CONTRIBUTI ON MADE TO ICRISAT FOR RESEARCH AND DEVELOPMENT EXPENSES. 20. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE MADE A CONTRIBUTION OF `.5 00 000/- TO ICRISAT AND CLAIMED DEDUCTION UNDER SECTION 35(1)(I) OF THE ACT AND ALTERNATIVELY UNDER SECTION 37(1) OF THE ACT. THE LEARNED ASSESSING OFFICER DIS ALLOWED THE DEDUCTION OBSERVING THAT THE PAYMENT TO ICRISAT FOR RESEARCH AND DEVELOPMENT ACTIVITIES WAS FOR TECHNICAL KNOW-HOW A ND THEREFORE A CAPITAL EXPENDITURE. 21. IN APPEAL LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2001-02 IN APPEAL NO.CIT (A)-XI/135/2003-04 DATED 26-3-2004 CONFIRMED THE AC TION OF THE LEARNED ASSESSING OFFICER. - 9 - 22. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT AT PAGE 108 TO 114 AND AT PAGE NO.11 5 TO 117 COPIES OF THE ORDER OF THIS TRIBUNAL PASSED IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT YEARS 2001-02 AND 20 04-05 IN ITA NOS.1988/AHD/2004 AND 364/AHD/2007 DATED 3-4-2009 A ND 29-5- 2009 RESPECTIVELY ARE FILED WHEREIN SIMILAR ADDITIO N WAS DELETED BY THE TRIBUNAL. THEREFORE THE ADDITION MADE IN THE Y EAR UNDER APPEAL SHOULD BE DELETED. 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED WITH THE SUBMISSION OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. 24. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE CLAIMED DEDUCTION FOR `.5 00 000/- PAID TO ICRISAT UNDER SECTION 35(1)(I) OR ALTERNATIVELY UNDER SECTION 37(1) OF TH E INCOME TAX ACT WHICH WAS DISALLOWED BY THE LEARNED ASSESSING OFFIC ER BY TREATING THE SAME AS CAPITAL EXPENDITURE SINCE IT WAS PAID F OR TECHNICAL KNOW-HOW WHICH WAS CONFIRMED IN APPEAL BY THE LEARN ED COMMISSIONER OF INCOME TAX(APPEALS). WE FIND THAT I N THE ASSESSMENT YEAR 2000-01 IN THE ASSESSEES OWN CASE VIDE ORDER DATED 3-4-2009 THE ADDITION WAS DELETED BY THE TRIB UNAL AND THIS ORDER WAS FOLLOWED BY THE TRIBUNAL IN ASSESSMENT YE AR 2004-05 IN THE ORDER DATED 29-5-2009 AND ADDITION MADE WAS DEL ETED. WE FIND THAT THE TRIBUNAL WHILE DELETING THE ADDITION IN THE ASSESSMENT YEAR 2001-02 HAS HELD AS UNDER:- 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 35(1)(I) ALONG WITH THE CASE LAWS AS HAVE BEEN CITED BEFORE US. UNDER SECTION 35(1)(I) T HE ASSESSEE IS ENTITLED FOR THE DEDUCTION OF AN EXPEND ITURE NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE LAID OUT OR EXPENDED ON SCIENTIFIC RESEARCH RELATED TO THE BUSI NESS OF A PERSON IN THE COMPUTATION OF TAXABLE PROFITS AND GA INS OF BUSINESS DERIVED BY THE ASSESSEE. THE EXPENDITURE M UST BE - 10 - LAID OUT OR EXPENDED BY THE ASSESSEE ON THE SCIENTI FIC RESEARCH RELATED TO THE BUSINESS OF THE ASSESSEE. T HE PAYMENT MADE TO THE OTHER PERSON TO RECOUP THE EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH BY THAT PERSON EVEN IF IT MAY ULTIMATELY BENEFIT THE ASSESSEE IN OUR OPINION CANNOT BE REGARDED TO BE THE EXPENDITURE LAID OUT O R EXPENDED ON SCIENTIFIC RESEARCH RELATED TO THE BUSI NESS OF THE ASSESSEE. IT IS NOT A CASE WHERE ICRISAT HAS CA RRIED OUT THE RESEARCH ON BEHALF OF THE ASSESSEE EXCLUSIVELY. THE ASSESSEE IS A MEMBER OF THE RESEARCH CONSORTIUM AN D HAS CONTRIBUTED ONLY A PART ON THE RESEARCH CARRIED OUT BY ICRISAT WHICH IS CLEAR FROM THE COPY OF THE AGREEME NT AND THE TERMS AND CONDITIONS OF THE FUNDING SUPPORT POI NTED OUT TO US. IN OUR OPINION UNDER SECTION 35(1)(I) THE A SSESSEE CAN BE ENTITLED FOR THE DEDUCTION IF THE SCIENTIFIC RES EARCH RELATED TO THE BUSINESS OF THE ASSESSEE HAS BEEN CA RRIED OUT BY THE ASSESSEE OR BY SOME OTHER PERSON ONLY FOR TH E ASSESSEE. THE CASE WHERE THE ASSESSEE HAS PAID TO S CIENTIFIC RESEARCH ASSOCIATION IS COVERED UNDER SECTION 35(1 )(I).HAD THERE BEEN AN INTENTION OF THE LEGISLATURE TO ALLOW DEDUCTION TO THE ASSESSEE UNDER SECTION 35(1)(I) ON THE CONTR IBUTION MADE TO ANY RESEARCH ASSOCIATION MAY BE RELATED TO THE BUSINESS OF THE ASSESSEE THERE WAS NO NEED OF INSE RTING SECTION 35(1)(I) OF THE ACT. IT IS NOT A CLAIM OF T HE ASSESSEE THAT THE CASE OF THE ASSESSEE FALLS UNDER SECTION 3 5(1)(I). FOR CLAIMING THE DEDUCTION UNDER SECTION 35(1)(II) ASS OCIATION MUST BE APPROVED FOR CARRYING OUT THE SCIENTIFIC R ESEARCH. IN CASE THE ASSESSEE IS ALLOWED DEDUCTION UNDER SECTIO N 35(1)(I) ON THE CONTRIBUTION MADE TO RESEARCH ASSOCIATION UN DER SECTION 35(1)(II) WILL BE REDUNDANT. THEREFORE WE ARE OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED FOR THE DEDU CTION UNDER SECTION 35(1)(I) OF THE ACT. 6. NOW COMING TO THE ALTERNATIVE CLAIM OF THE ASSES SEE WHETHER THE ASSESSEE WILL BE ENTITLED TO DEDUCTION UNDER SECTION 37 OF THE ACT SECTION 37(1) ALLOWS DEDUCTI ON OF AN EXPENDITURE NOT BEING EXPENDITURE OF THE NATURE DES CRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CA PITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE LA ID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION IN COMPUTING THE INCOME CHARGEABLE UN DER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. EXPLANATION TO SECTION 37(1) RESTRICTS THE DEDUCTIO N. THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT A CAPIT AL EXPENDITURE AS NO ENDURING BENEFIT IS BEING DERIVED BY THE ASSESSEE. THE ASSESSEE UNDER THE AGREEMENT IS NOT OBTAINING ANY EXCLUSIVE RIGHT OVER THE RESEARCHED P RODUCT. THE EXPENDITURE IS ALSO NOT A PERSONAL EXPENDITURE. THE CONTRIBUTION HAS BEEN MADE BY THE ASSESSEE DURING T HE COURSE OF BUSINESS FOR THE PURPOSE OF BUSINESS AND FOR GETTING THE BENEFIT OUT OF THE RESEARCH BEING CARRI ED OUT BY ICRISAT SO THAT THE HYBRIDS CAN BE IMPROVED. THEREF ORE WE - 11 - ARE OF THE VIEW THAT THE EXPENDITURE HAS BEEN INCUR RED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. IT IS NOT A CASE WHERE EXPLANATION TO SECTION 37(1) IS APPLICABLE. T HE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGINEERI NG WORKS PVT. LTD. (SUPRA) HAS HELD THAT THE TRIBUNAL WAS NO T JUSTIFIED IN DISALLOWING THE EXPENDITURE INCURRED FOR LIMITED PURPOSE NAMELY TO GET AN IDEA AS TO THE NEW DESIGNS OF HOI STS TO BE MANUFACTURED AND THE PROCESS INVOLVED THEREIN. IT F URTHER HELD THAT NO CAPITAL ASSETS HAD BEEN BROUGHT INTO E XISTENCE OR WAS INTENDED TO BE BROUGHT HAD BEEN BROUGHT INTO EXISTENCE AS A RESULT THEREOF. THE GUJARAT HIGH COU RT HAS FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. CIBA OF INDIA LTD. 69 ITR 692. THE REFORE WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR T HE DEDUCTION UNDER SECTION 37(1) OF THE ACT AND ACCORDINGLY WE S ET ASIDE THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WITH THE DIRECTION TO THE LEARNED ASSE SSING OFFICER TO DELETE THE ADDITION. 25. THUS IT IS SEEN THAT THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS OF THE CASE THAT WERE BEFORE THE TRIBUNAL IN THE ASSESSMENT YEAR 2001-02. NO MATERIAL HAS BEEN BROUGHT ON RECOR D BY THE LEARNED DEPARTMENTAL REPRESENTATIVE TO SHOW THAT TH E ABOVE QUOTED ORDER OF THE TRIBUNAL HAS BEEN REVERSED IN A N APPEAL. THEREFORE RESPECTFULLY FOLLOWING THE ABOVE QUOTED ORDER OF THE TRIBUNAL WE ALLOW THE CLAIM FOR DEDUCTION OF `.5 00 000/- MADE ON ACCOUNT OF CONTRIBUTION TO ICRISAT. THUS THIS GROU ND OF APPEAL OF THE ASSESSEE IS ALLOWED. 26. IN THE RESULT THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED IN THE MANNER INDICATED ABOVE. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 30 TH DAY OF SEPTEMBER 2010. SD/- SD/- (BHAVNESH SAINI) ( N.S. SAINI ) JUDICIAL MEMBER AC COUNTANT MEMBER AHMEDABAD: ON THIS 30 TH DAY OF SEPTEMBER 2010 COMPILED AND COMPARED BY : PATKI - 12 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XI AHMEDABAD. 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 28-9-2010 --------------- ---- 2. DRAFT PLACED BEFORE AUTHORITY 28-9-2010 ------ ------------- 3. DRAFT PROPOSED & PLACED 29-9-2010 ----------- ------JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 29-9-2010 ---------- -----JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 30-9-2010 --------- ----------- 6. KEPT FOR PRONOUNCEMENT ON 30-9-2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 30-9-2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- -- -------------------