Shriram Pistons & Rings Ltd, v. Addl. CIT Range-8,

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER AND SHRI K.D. RANJAN ACCOUNTANT MEMBER I.T.A.NOS.1761 1762/DEL/2004 934 & 4005/DEL/2006 ASSESSMENT YEARS : 2000-01 2001-02 2002-03 & 2003 -04 SHRIRAM PISTONS & RINGS LTD. DY. COMMISSIONER OF INCOME-TAX 23 KASTURBA GANDHI MARG VS. CIRCLE 18(1) NEW DELHI. & NEW DELHI. ADDL. CIT RANGE-8 NEW DELHI. I.T.A. NO.3951/DEL/2006 ASSESSMENT YEAR : 2003-04 DY. COMMISSIONER OF INCOME-TAX M/S. SHRIRAM PISTON & RINGS LTD. CIRCLE 18(1) NEW DELHI. VS. 23 K.G. MARG NEW DE LHI. PAN: AAACS0229G (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI PRADE EP DINODIA FCA & SHRI R.K. KAPOOR FCA. DEPARTMENT BY6 : SMT. SANGEETA GUPTA CIT-DR. O R D E R PER C.L. SETHI JUDICIAL MEMBER. THESE ARE THE APPEALS FILED BY THE ASSESSEE AS WEL L BY THE REVENUE PERTAIN TO THE ASSESSMENT YEARS 2000-01 2001-02. 2 002-03 AND 2003-04. ITA NO.1761/DEL/2004 2. WE SHALL FIRST TAKE THE APPEAL FILED BY THE ASSE SSEE PERTAINING TO THE ASSESSMENT YEAR 2000-01. 2 3. IN THIS APPEAL GROUND NO.1(A) & (B) TAKEN BY TH E ASSESSEE IS DIRECTED AGAINST THE CIT(A)S ORDER IN CONFIRMING THE ASSESS ING OFFICERS ACTION OF DISALLOWING EXPENSES ON ACCOUNT OF COMMISSION PAYME NTS TO VARIOUS AGENTS AMOUNTING TO RS.26 61 214/-. 4. THE ASSESSEE COMPANY WAS INCORPORATED IN 1963. THE ASSESSEE IS IN THE TRADE OF MANUFACTURE AND SALE OF AUTOMOTIVE COM PONENTS NAMELY PISTON PISTON RINGS PINS AND ENGINE VALVES. THE SALES BE ING MADE BY THE ASSESSEE CAN BE CATEGORIZED MAINLY INTO FOUR MAJOR SECTORS:- (A) ORIGINAL EQUIPMENT MANUFACTURER (VEHICLE MANUFACTUR ERS) (B) AFTER MARKET THROUGH DISTRIBUTORS (C) STATE TRANSPORT UNDERTAKINGS & (D) EXPORTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD INCURRED A COMMISSION OF RS.3.42 C RORE AND DISCOUNT OF RS.7.76 CRORES AND CLAIMED THE SAME AS DEDUCTION DU RING THE YEAR UNDER CONSIDERATION. OUT OF THE TOTAL COMMISSION PAID T HE ASSESSEE PAID COMMISSION OF RS.26 61 214/- TO VARIOUS AGENTS IN R ESPECT OF SALES MADE TO STATE TRANSPORT UNDERTAKINGS/VEHICLE FACTORY JABAL PUR/D.G.S. & D. THE AO HAS TAKEN A VIEW THAT THIS PAYMENT OF COMMISSION INDICATES THAT THE ASSESSEE HAS SPENT THE AMOUNT ON ACCOUNT OF PROCURI NG ORDERS FROM STATE TRANSPORT UNDERTAKING AND VEHICLE FACTORY JABALPUR . THE ASSESSING OFFICER FURTHER STATED THAT THESE UNDERTAKINGS ARE ALL GOVERNMENT 3 UNDERTAKINGS HAVING FIXED SET OF RULES FOR PLACING OF ORDERS WHICH ARE ON THE BASIS OF RULES FRAMED BY SUCH UNDERTAKINGS AND THER E COULD BE NO REASON OF ANY SERVICES WHICH COULD HAVE BEEN RENDERED BY THE ASSESSEES AGENT FOR PROCURING THE ORDERS. THE AO FURTHER STATED THAT I T MAY BE TRUE THAT THE ASSESSEE MADE CERTAIN PAYMENTS TO CERTAIN PERSONS B UT THE QUESTION WHETHER THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS HAS NOT BEEN ESTABLISHED. THE AO FURTHER STATED THAT IT MAY BE TRUE THAT IN CASE OF SUPPLIES TO THE ORIGINAL EQUIPMENT MANUFACTURERS AND EVEN FOR REPLACEMENT MARKET THE AGENT COULD HAVE DONE SOME CANVASSING AND OBTAINED ORDER FOR THE REPLACEMENT MARKET OR EVEN F OR THE ORIGINAL EQUIPMENT MANUFACTURERS. FURTHER IN A SITUATION OF PROFIT T O THE MANUFACTURER THE CANVASSING COULD HAVE ITS ROLE TO BE PLAYED IN OBTA INING THE ORDER AND THEREFORE IT IS NOT POSSIBLE TO EXAMINE IF AND WHE N THE EXPENDITURE WAS INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AN D THEREFORE TO THAT EXTENT THE ASSESSEE MAY HAVE A JUSTIFICATION TO CL AIM THESE EXPENSES BUT WHEN IT COMES TO PROCURE ORDER FROM STATE TRANSPORT UNDERTAKING AND VEHICLE FACTORY JABALPUR AND EVEN FOR DGS&D IT WA S NOT UNDERSTANDABLE HOW THESE EXPENSES COULD HAVE HELPED THE ASSESSEE I N PROCURING THE ORDERS. THE AO THEREFORE DISALLOWED THE PAYMENT OF COMMISS ION PAID TO VARIOUS 4 AGENTS IN CONNECTION WITH THE SALES EFFECTED TO THE STATE TRANSPORT CORPORATION AND VEHICLE FACTORY JABALPUR AND DGS&D . 5. BEING AGGRIEVED THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). 6. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AND AOS ORDER THE CIT(A) CONFIRMED THE AOS ACTION BY GIVING THE SIMI LAR REASONS AS GIVEN BY THE AO. WHILE CONFIRMING THE AOS ACTION THE CIT( A) FURTHER STATED THAT THE CANVASSING OR EXERCISING INFLUENCE ON THE OFFIC IALS OF THE GOVERNMENT OFFICE OR GOVERNMENT UNDERTAKING IS ILLEGAL AND AMO UNTS TO AN OFFENCE PROHIBITED UNDER LAW AND THEREFORE PAYMENT OF CO MMISSION TO THE AGENTS FOR THE PURPOSE OF PROCURING ORDERS FROM STATE UNDE RTAKING CANNOT BE ALLOWED U/S 37 OF THE INCOME-TAX ACT. THE CIT(A) T HEREFORE CONFIRMED THE AOS ORDER ON THIS POINT. 7. HENCE THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. WE HAVE GONE THROU GH THE VARIOUS PAPERS/DOCUMENTS PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE. THE ASSESSEE HAS SUBMITTED BEFORE US A CHART GIVING COM PLETE DETAILS OF COMMISSION PAID TO VARIOUS AGENTS. THE ASSESSEE HA S ALSO FURNISHED THE SAMPLE COPIES OF AGREEMENTS AND RENEWALS THEREOF EN TERED INTO WITH AGENTS. 5 IN THE CHART OF DETAILS OF COMMISSION PAID TO AGENT S ON SALE MADE TO STATE UNDERTAKING THE ASSESSEE HAS GIVEN THE NAMES AND A DDRESSES OF THE AGENTS AND THE AMOUNT OF SALES ON WHICH THE COMMISSION WAS PAID. THE ASSESSEE HAS ALSO SPECIFIED THE RATE OF COMMISSION PAID TO C OMMISSION AGENT WITH REFERENCE TO SALES. FROM THE CHART IT IS ALSO SEE N THAT CERTAIN PAYMENTS WERE MADE ON ACCOUNT OF REIMBURSEMENT OF FREIGHT EXPENSE S OR OTHER EXPENSES INCURRED BY THE AGENT FOR AND ON BEHALF OF THE ASSE SSEE. ADDITIONAL COMMISSION HAS ALSO BEEN PAID ON ACHIEVEMENT OF SAL ES TARGET. FROM THE CHART IT IS SEEN THAT THE AGENTS HAVE BEEN APPOINT ED IN RESPECT OF THE BUSINESS OF SALES OF VARIOUS PARTS TO STATE ROAD/MUNICIPAL T RANSPORT CORPORATION/UNDERTAKINGS IN THE STATE OF ANDHRA PRA DESH TAMIL NADU JAMMU KARNATAKA GUJARAT MUMBAI UTTAR PRADESH M ADHYA PRADESH PUNJAB HARYANA ETC. THE NAMES OF THE COMMISSION A GENTS TO WHOM COMMISSION HAS BEEN PAID ARE INTER ALIA FOLLOWING :- (1) JAI MOTORS LTD. OF HYDERABAD CHENNAI ERNAKULAM ET C. (2) NATIONAL TRADING OF JAMMU. (3) UPPER INDIA TRADING OF BANGALORE. (4) REEMA INDUSTRIAL AGENCY OF AHMEDABAD. (5) B.M. AGENCIES OF MUMBAI. (6) ADAM CONSULTANT OF KANPUR. (7) CUPID CORPORATION OF BHOPAL. (8) ESS EMM ENTERPRISES OF PUNJAB. (9) ANAND AUTO INDUSTRIES GURGAON (HARYANA). (10) UNIVERSAL AGENCIES OF MUMBAI. (11) SHIV AGENCIES OF DELHI. (12) BHARDWAJ ASSOCIATES OF NEW DELHI. 6 (13) PRAGATI SALES OF LUCKNOW. (14) FOUND & INTERNATIONAL OF DELHI. WE HAVE PERUSED THE SAMPLE AGREEMENT OF PAYMENT OF COMMISSION ENTERED INTO WITH M/S. JAI MOTORS LTD. IN THIS AGREEMENT THE SERVICES TO BE RENDERED BY AGENT ARE SPECIFIED AS UNDER:- (I) TO PROCURE ORDERS FROM STATE ROAD/MUNICIPAL TRANSPO RT CORPORATION/UNDERTAKINGS AS PER PRICE AND TERMS ALR EADY DETERMINED. (II) TO COMMIT DELIVERY SCHEDULE ON RECEIPT OF CONFIRMAT ION IN WRITING FROM THE ASSESSEE. (III) TO PROVIDE REGULAR FEED BACK ON COMPETITORS ACTIVI TIES. (IV) TO COMPLETE FOLLOW-UP TILL REALIZATION OF FULL PAYM ENT AS UNDER:- (A) REALIZATION OF PAYMENT WITHIN 60 DAYS FROM THE DATE OF BILLS. (B) REALIZATION OF ALL DEBIT NOTE FOR PRICE DIFFERENCE/ EXCISE DUTY ETC. WITHIN 120 DAYS FROM THE DATE OF DEBIT NOTES. (V) TO SUBMIT A BRIEF MONTHLY REPORT. IN THIS AGREEMENT THE RATE OF COMMISSION HAS BEEN SPECIFIED ON THE VALUE OF THE BILLS RAISED BY THE ASSESSEE EXCLUDING EXCISE D UTY AND SALES-TAX AGAINST ORDERS PROCURED BY THE AGENT. 8.1 THE IDENTICAL AGREEMENT HAS BEEN ENTERED INTO W ITH OTHER AGENTS OF VARIOUS PLACES IN VARIOUS STATES WITH VARIATION OF RATE OF COMMISSION ON THE VALUE OF BILLS RAISED BY THE ASSESSEE. 7 8.2 FROM THE VARIOUS DETAILS INCLUDING THE COPY OF THE AGREEMENT AND CORRESPONDENCES FILED BY THE ASSESSEE IT IS CLEAR TO US THAT THE ASSESSEE HAS EFFECTED SALES TO STATE TRANSPORT UNDERTAKING OR MU NICIPAL CORPORATION THROUGH AGENTS. THE ASSESSEE HAS ALSO EFFECTED SAL ES TO PRIVATE SECTOR ENTERPRISES THROUGH THE AGENTS. THE ASSESSEE HAS B EEN PAYING COMMISSION TO THE AGENTS FOR EFFECTING SALES IN PRIVATE SECTOR EN TERPRISES AS WELL AS PUBLIC SECTOR ENTERPRISES. THE COMMISSION PAID TO THESE A GENTS FOR EFFECTING SALES EFFECTED IN PRIVATE SECTOR ENTERPRISES AS WELL AS I N PUBLIC SECTOR ENTERPRISES IS FOR RENDERING SERVICES IN CONNECTION WITH PROCURING ORDERS AT COMPANYS PRE- DETERMINED PRICES AND TERMS AND COMMIT A DELIVERY S CHEDULE ON RECEIPT OF CONFIRMATION IN WRITING THAT THE ORDERS PROCURED P ROVIDE REGULAR FEED BACK OF COMPETITORS ACTIVITIES PRICES AND SUPPLIES CO MPLETELY FOLLOWING UP WITH THE BUYERS TILL REALIZATION OF FULL PAYMENT OF BILL S RAISED AND SUBMIT MONTHLY REPORTS. THE PAYMENTS HAVE BEEN MADE TO AGENTS DIR ECTLY AND NOT TO GOVERNMENT AGENCIES OR UNDERTAKINGS OR TO THE OFFIC ERS OF THE STATE GOVERNMENT UNDERTAKINGS. THE PAYMENT HAS BEEN MADE TO BUSINESS ENTERPRISES FOR THE AFORESAID SERVICES RENDERED TO THE ASSESSEE COMPANY. THE COMPANY HAS ENGAGED THESE AGENTS FOR PERFORMING THE AFORESAID ACTIVITIES IN CONSIDERATION THEREOF THE ASSESSEE HAS PAID COMMISS ION TO AGENTS. NO ILLEGAL GRATIFICATION HAS BEEN PAID TO ANY OFFICER OF THE S TATE GOVERNMENT 8 UNDERTAKING OR ANY PUBLIC DEPARTMENT. IN THE PRESE NT CASE THE AGENTS HAVE BEEN EMPLOYED TO PROCURE ORDERS FROM THE STATE UNDE RTAKING ON PREDETERMINED PRICES AND TO ENSURE PROPER DELIVERY OF GOODS AND REALIZATION OF FULL PAYMENT OF THE BILLS RAISED. THE AGENT HAS ALSO PROVIDED REGULAR FEED BACK ABOUT COMPETITORS ACTIVITIES PRICES AND SUPP LIES. WE FURTHER FIND THAT THE ASSESSEE HAD RECEIVED RATE CONTRACT APPROVAL FR OM ASSOCIATION OF STATE ROAD TRANSPORT UNDERTAKING THE BODY WHICH ALLOTS R ATE CONTRACTS FOR SUPPLIES TO ALL STATE TRANSPORT UNDERTAKING WHEREI N NAMES OF AGENTS HAVE BEEN INCORPORATED BY ASSOCIATION OF STATE ROAD TRAN SPORT UNDERTAKINGS FOR DEALING WITH STATE TRANSPORT UNDERTAKING BUSINESS. A LETTER DATED 20.04.2006 OF ASSOCIATION OF STATE ROAD TRANSPORT U NDERTAKINGS IS PLACED AT PAGES 47 TO 58 OF THE COMPILATION FILED BY THE ASSE SSEE. THIS LETTER IS WITH REFERENCE TO THE CONTRACT FOR SUPPLY OF PISTON ASSE MBLY AND RING SETS WITH THE ASSESSEE COMPANY I.E. M/S. SHRIRAM PISTONS & RINGS LTD. A REFERENCE HAS BEEN MADE TO NATIONAL COMPETITIVE BIDS AGENCY AND M INUTES OF COMMITTEE ETC. IN THIS LETTER IT HAS BEEN STATED THAT THE A SSESSEE HAS PARTICIPATED IN THE NATIONAL COMPETITIVE BIDS FOR SUPPLY OF ITEMS SPECI FIED THEREIN WHICH WAS CONSIDERED BY THE STANDING COMMITTEE AND THE STAND ING COMMITTEE HAD ACCEPTED FOR THE SUPPLY OF THESE ITEMS AT THE RATES AS ENCLOSED THEREWITH AND ON THE STANDARD TERMS AND CONDITIONS CONTINGENT TO BID DOCUMENTS. THE 9 NAMES OF THE AGENTS HAVE ALSO BEEN APPROVED BY THE STATE TRANSPORT UNDERTAKING FOR THE PURPOSE OF RENDERING VARIOUS SE RVICES IN THE COURSE OF COMPLETING THE SALES OF VARIOUS GOODS BY THE ASSESS EE TO THE STATE TRANSPORT UNDERTAKING. THIS MAKES IT CLEAR THAT THE GOODS HA VE BEEN SUPPLIED AT THE PRE-DETERMINED RATE ACCEPTED BY THE STANDING COMMIT TEE OF ASSOCIATION OF STATE TRANSPORT UNDERTAKINGS. IN THIS LETTER OF TH E MEMBERS OF THE ASSOCIATION STATE TRANSPORT UNDERTAKINGS WERE ADVI SED TO ENTER INTO CONTRACT FOR THE PURPOSE OF THEIR REQUIREMENTS FROM THE ASSESSEE FIRM DURING THE CONCERNED PERIOD. THEREFORE IT IS NOT A CASE WHERE THE ORDER HAS BEEN PROCURED BY THE AGENTS BY MAKING THEIR OWN INFLUENC E ON ANY OFFICERS OF THE STATE GOVERNMENT UNDERTAKINGS BUT ORDERS WERE PROC URED AT THE RATE AT WHICH THE GOODS WERE TO BE SUPPLIED AS PER PRICE/RA TE PRE-FIXED BY THE ASSOCIATION OF STATE ROAD TRANSPORT UNDERTAKINGS A ND AGENT HAD ONLY TO FOLLOW UP OTHER MATTERS AND TO DO PAPER WORK WHICH IS NECESSARY FOR COMPLETING THE SALES TO UNDERTAKINGS. IT IS COMMON KNOWLEDGE THAT APART FROM GETTING ORDERS FROM THE STATE ROAD TRANSPORT U NDERTAKINGS THERE ARE LOT OF OTHER DEALINGS OR WORKS OR PAPER WORK WHICH HAD TO BE DONE TO COMPLETE THE SALES AND REALIZE THE PRICE THEREOF. THEREFORE THE PAYMENT MADE TO COMMISSION AGENT CANNOT BE SAID TO BE IN CO NTRAVENTION OF ANY PROVISIONS OF LAW OF THE LAND. FROM THE VARIOUS EV IDENCES AND DOCUMENTS 10 FILED BY THE ASSESSEE WHICH ARE PLACED IN THE PAPE R BOOK IT APPEARS TO US THAT THE ASSOCIATION OF STATE TRANSPORT UNDERTAKING WAS A BODY FORMED WHICH FLOATS TENDERS ON BEHALF OF THE STATE TRANSPO RT UNDERTAKING AND APPROVES RATE CONTRACT. AFTER THIS APPROVAL BY ASS OCIATION OF STATE TRANSPORT UNDERTAKING THE TRANSACTION FOR SUPPLY OF PARTS BY APPROVED PARTIES OR SUPPLIERS WAS DONE DIRECTLY WITH THE CONCERNED STAT E TRANSPORT UNDERTAKING. THEREFORE THE ROLE OF ASSOCIATION WAS BROADLY TO A PPROVE THE RATES AND SUPPLIERS. THE SUBMISSION OF TENDER DELIVERY OF G OODS AND REALIZATION OF PRICES IS NOT A SIMPLE ONE DAY WORK OR MATTER WHERE A PARTICULAR ITEM WAS SOLD AT THE SPOT AND THE PAYMENT WAS COLLECTED. IT IS CONTINUOUS PROCESS WHERE ORDERS WERE PLACED BY DIFFERENT SUPPLIERS APP ROVED BY ASSOCIATION OF ROAD TRANSPORT UNDERTAKING AS PER THE DEMAND OF THE CONCERNED STATE TRANSPORT UNDERTAKING. SUPPLY OF REQUIRED PARTS TO STATE TRANSPORT UNDERTAKING HAD TO BE ENSURED BY THE SUPPLIER. ANY PROBLEM ARISING WITH THE TIME SCHEDULE ITEM VERIFICATION AND QUALITY OF PRODUCT HAD TO BE DISCUSSED AND DELIBERATED UPON ON REGULAR BASIS WIT H THE OFFICERS OF THE STATE TRANSPORT UNDERTAKING BY THE ASSESSEE/SUPPLIER OR I TS AGENT. IT IS NOT IN DISPUTE THAT IN THE MARKET THERE WERE MORE THAN ON E SUPPLIER FOR THE SAME PRODUCT WHICH NEEDED TO KEEP WATCH ON THE PERFORMA NCE AND ACTIVITY OF RIVAL COMPANIES. THE COMPANY HAVING ITS OFFICE AT ONE PLACE CANNOT BE 11 EXPECTED TO ATTEND DAY-TODAY WORK AND REQUIREMENT I N DIFFERENT CITIES AND PLACES. THE ASSESSEE COULD HAVE DONE THESE WORKS B Y APPOINTING ITS OWN EMPLOYEES BUT IT WAS NOT FOUND ADVISABLE TO HAVE IT S OWN EMPLOYEES VISITING REGULARLY FROM COMPANYS OFFICE TO DIFFERENT PLACES OR CITIES ACROSS INDIA. THEREFORE THE APPOINTMENT OF COMMISSION AGENTS WAS FOUND TO BE PRUDENT AND THE COMMISSION AGENTS WERE APPOINTED IN ORDER T O PROVIDE VARIOUS COORDINATING SERVICES ON BEHALF OF THE ASSESSEE. T HE COMMISSION HAS NOT BEEN PAID MERELY FOR PROCURING ORDERS BUT HAS BEEN PAID IN RESPECT OF VARIOUS SERVICES RENDERED BY AGENT TO THE ASSESSEE COMPANY AS ALREADY NOTED ABOVE. WE THEREFORE HOLD THAT THE PAYMENT OF COMMISSION TO COMMISSION AGENTS HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS AND IS NOT WITH REGARD TO ANY OFFENCE PROHIBITED BY LAW A ND THE AOS VIEW THAT IT HAS BEEN MADE AGAINST PUBLIC POLICY IS NOT JUSTIFIE D. 9. WE HAVE EXAMINED THE RATE OF COMMISSION PAID BY THE ASSESSEE TO VARIOUS AGENTS WHICH VARIES FROM AGENT TO AGENT B UT IT IS MOSTLY WITHIN THE RANGE OF 4 TO 5%. THE AGENTS ARE NOT RELATED OR CO NNECTED TO THE ASSESSEE BUT ARE INDEPENDENT PARTY AND THE PAYMENT HAS BEEN MADE ON ARMS LENGTH. THE RATE OF COMMISSION PAID TO THE PARTIES IN BETWEEN 4 TO 5% CANNOT BE SAID TO BE EXCESSIVE. IT HAS NOT BEEN PROVED AND ESTABLISH ED BY THE AO THAT THE AMOUNT OF COMMISSION PAID TO COMMISSION AGENTS HAS BEEN FLOWN BACK TO 12 THE ASSESSEES COFFERS. THE GENUINENESS OF THE PAY MENT OF COMMISSION BY THE ASSESSEE TO COMMISSION AGENTS IS NOT IN DOUBT. WE THEREFORE HOLD THAT THE ASSESSEES CLAIM OF PAYMENT OF COMMISSION TO VA RIOUS AGENTS FOR RENDERING VARIOUS SERVICES BY THEM TO THE ASSESSEE IN THE COURSE OF SUPPLYING VARIOUS GOODS TO THE STATE ROAD TRANSPORT UNDERTAKI NG OR OTHER ENTERPRISES IS AN ALLOWABLE DEDUCTION WHILE COMPUTING THE ASSES SEES PROFIT FROM BUSINESS. WE THEREFORE DIRECT THE ASSESSING OFFIC ER TO ALLOW THE ASSESSEES CLAIM. THE ORDERS OF THE AUTHORITIES BELOW ON THIS POINT ARE REVERSED AND THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 10. IN THE COURSE OF HEARING OF THESE APPEALS THE LEARNED CIT-DR REPRESENTING FOR THE DEPARTMENT HAS RELIED UPON THE VARIOUS DECISIONS AS UNDER:- (I) SWADESHI COTTON MILLS VS. CIT (1967) 63 ITR 56 (SC) . (II) LAXMINARAYAN MADANLAL VS. CIT (1972) 86 ITR 439 (SC ). (III) CIT VS. PREMIERE BREWERIES LTD. (2005) 279 ITR 51 ( KERALA). (IV) PRECISION ELECTRONICS LTD. VS. DCIT (2006)-TIOL-38 ITAT-DEL. (V) M/S. PRECISION ELECTRONICS LTD. VS. DCIT (2007)-TIO L-245-HC. (VI) SAGA DEPARTMENTAL STORES LTD. VS. CIT IN ITA NO.162 /2009 DATED 10.8.2009 (DELHI HIGH COURT). (VII) SCHNEIDER ELECTRIC INDIA LTD. VS. CIT 304 ITR 360 (DEL). (VIII) M/S. NUWARE INDIA LTD. VS. DCIT (2009) 118 ITD 70 ( DEL). 11. WE HAVE GONE THROUGH THESE DECISIONS AND ANALYZ ED THE SAME IN THE LIGHT OF THE FACTS OF THE PRESENT CASE. THERE IS N O QUARREL AS TO THE PROPOSITION THAT MERELY BECAUSE OF THE EXISTENCE OF AN AGREEMENT BETWEEN 13 THE ASSESSEE AND HIS AGENTS FOR PAYMENT OF CERTAIN COMMISSION AND FACT OF THE ACTUAL PAYMENT THE ASSESSING OFFICER IS NOT BO UND TO HOLD THAT THE PAYMENT WAS MADE EXCLUSIVELY AND WHOLLY FOR THE PUR POSE OF ASSESSEES BUSINESS. ALTHOUGH THERE MIGHT BE SUCH AN AGREEMEN T IN EXISTENCE AND THE PAYMENTS MIGHT HAVE BEEN MADE IT IS STILL OPEN TO THE ASSESSING OFFICER TO CONSIDER ALL THE RELEVANT FACTORS AND DETERMINE FOR HIMSELF WHETHER THE COMMISSION PAID TO THE AGENT OR ANY PORTION THEREOF IS PROPERLY DEDUCTIBLE UNDER THE PROVISIONS OF THE ACT. IN THE PRESENT CA SE THE ASSESSEE HAS NOT MERELY RELIED UPON AN AGREEMENT AND THE FACT OF THE ACTUAL PAYMENT BUT HAS ALSO FURNISHED VARIOUS EVIDENCES ESTABLISHING AND E XPLAINING THE NATURE OF SERVICES BEING ACTUALLY RENDERED BY ITS VARIOUS AGE NTS AT VARIOUS PLACES THROUGHOUT INDIA IN RESPECT OF THE SALES EFFECTED T O STATE TRANSPORT UNDERTAKING ETC. THE ASSESSING OFFICER HAS NOT BRO UGHT ANY MATERIAL ON RECORD TO REBUT THE VARIOUS EVIDENCES FILED BY THE ASSESSEE. THE VARIOUS EVIDENCES PLACED AT PAGES 104 TO 136 OF THE PAPER B OOK PERTAINING TO THE ASSESSMENT YEAR 2003-04 CLEARLY SHOW THAT THE STATE ROAD TRANSPORT UNDERTAKING WERE INTERACTING WITH THE ASSESSEES AG ENTS ALSO AND THESE AGENTS WERE DEL-CREDIT AGENTS I.E. COMMISSION WAS P AID ONLY ON REALIZATION OF FULL PAYMENT AGAINST THE BILLS RAISED BY THE ASSESS EE. IT HAS ALSO BEEN ESTABLISHED BY THE ASSESSEE THAT ALL THESE AGENTS W ERE EXITING ALL ALONG AND IN 14 FACT ASSOCIATION OF STATE TRANSPORT UNDERTAKING HAS OFFICIALLY RECOGNIZED THE EXISTENCE OF THESE LOCAL AGENTS IN THEIR APPROVAL D ATED 20.04.2006 PLACED AT PAGES 47 TO 58 OF THE PAPER BOOK PERTAINING TO THE ASSESSMENT YEAR 2000- 01. WE FURTHER FIND THAT THE FOLLOWING FACTS ARE U NDISPUTED:- (1) NONE OF THE AGENTS ARE RELATED TO THE ASSESSEE. (2) PAYMENTS HAVE ACTUALLY BEEN MADE BY ACCOUNT PAYEE C HEQUES. (3) MOST OF THE AGENTS WERE WORKING FOR THE ASSESSEE FO R THE LAST SO MANY YEARS AND RENDERING SIMILAR SERVICES. THESE A GENTS ARE INCOME-TAX ASSESSEES. (4) THESE AGENTS WERE RECOGNIZED BY THE ASSOCIATION OF STATE ROAD TRANSPORT UNDERTAKING. (5) THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SH OW AND ESTABLISH THAT THE PAYMENT MADE BY THE ASSESSEE TO COMMISSION AGENTS FOR RENDERING VARIOUS SERVICES TO THE ASSESS EE IS PROHIBITED BY LAW OR IS AN OFFICE OR IS AGAINST THE PUBLIC POLICY. THE AO HAS STATED SO MERELY ON HIS ASSUMPTIONS AND PRESUMPTIONS WITHOUT CONSIDERING THE VARIOUS SERVIC ES RENDERED BY THE COMMISSION AGENTS TO THE ASSESSEE SINCE LAST SO MANY YEARS. (6) IT IS NOT THE CASE WHERE COMMISSION HAS BEEN PAID F OR PROCURING ONLY ORDERS FROM THE STATE TRANSPORT UNDERTAKING BU T HAS BEEN PAID FOR RENDERING VARIOUS SERVICES AS NOTED ABOVE. 12. IN SUPPORT OF THE VIEW WE HAVE TAKEN ABOVE A RE FERENCE MAY BE MADE TO A DECISION OF COORDINATE BENCH OF TRIBUNAL DELH I `I BENCH IN THE CASE OF ACIT VS. JINDAL SAW PIPES LTD. REPORTED IN (2008) 1 18 TTJ (DEL) 228 WHERE THE TRIBUNAL AFTER APPLYING THE DECISIONS IN THE CASES OF DHIRAJLAL 15 GIRDHARILAL VS. CIT (1954) 26 ITR 736 (SC) OMAR SA LAY MOHAMED SAIT VS. CIT 1959) 37 ITR 151 (SC) DHAKESHWARI COTTON MILLS LTD. VS. CIT (1954) 26 ITR 775 (SC) AND LALCHAND BHAGAT AMBICA RAM VS. CIT (1959) 37 ITR 288 (SC) HAS HELD AND OBSERVED AS UNDER:- 5(VII) THE BOARDS CIRCULAR NO. 772 REPRODUCED AB OVE CLEARLY EXPLAINS THE LEGISLATIVE INTENT PURPOSES A ND OBJECT AND TARGETED EXPENDITURE COVERED UNDER THE SAID EXPLAN ATION. THE SPEECH OF THE FINANCE MINISTER AS EXTRACTED AND RE PRODUCED ABOVE ALSO HIGHLIGHTS THE LEGISLATIVE INTENT FOR INSERTION OF THE SAID EXPLANATION. THE REVENUE HAS FAILED TO JUSTIF Y APPLICABILITY OF THE SAID EXPLANATION TO THE FACT-S ITUATION OF THE SAID CASE BY LEADING RELIABLE COGENT AND CORROBOR ATIVE EVIDENCES. THE CLEAR AND UNAMBIGUOUS LANGUAGE OF T HE SAID EXPLANATION RULES OUT THE APPLICABILITY OF THE SAM E TO THE PRESENT CASE AS HELD BY THE LEARNED CIT(A). 5(VIII) THE CIT(A) AFTER CONSIDERING ASSESSMENT OR DER AND SUBMISSIONS MADE BEFORE HIM PASSED SPEAKING AND DETAILED ORDER AND CATEGORICALLY HELD THE AO INVOKED THE EX PLANATION TO S. 37(1) OF THE ACT PURELY ON SURMISES AND SUSP ICION AND NO COGENT MATERIAL BROUGHT ON RECORD TO JUSTIFY THE VA LIDITY OF SUCH APPROACH ADOPTED IN THE ASSESSMENT ORDER. THE CIT( A) SPECIFICALLY HELD THAT THE AO FAILED TO ADDUCE MATE RIAL EVIDENCE TO ESTABLISH THAT THE PAYMENT OF SUCH COMMISSION IS AN OFFENCE OR SUCH PAYMENT IS PROHIBITED BY LAW. MERE ASSERTI ON WITHOUT ANY CORROBORATION CANNOT BE SUBSTITUTE FOR CREDIBLE EVIDENCE LEADING TO INVOCATION OF THE SAID EXPLANATION BY TH E AO. IT REMAINS TO BE DEMONSTRATED BY PLAUSIBLE JUSTIFICATI ON THAT THE PAYMENT OF COMMISSION TO IDENTIFIABLE PARTIES THRO UGH ACCOUNT PAYEE CHEQUES WHO ARE ASSESSED TO TAX FOR THE SERV ICES RENDERED AS DEFINED IN THE AGREEMENT IN THE ABSENC E OF COLORABLE OR COLLUSIVE NATURE OF TRANSACTIONS PAYM ENTS MADE FOR THE PURPOSE OF BUSINESS CANNOT BE TERMED AS AG AINST PUBLIC POLICY AS CONSTRUED BY THE AO. NO EVIDENCE HAS BE EN PLACED BY THE REVENUE BEFORE THE CIT(A) OR BEFORE THE BENC H ESTABLISHING ANY VIOLATION OF PUBLIC POLICY OR PROV ISIONS OF ANY 16 STATUTE. IT IS WELL-SETTLED LEGAL PROPOSITION THAT REVENUE CANNOT DECIDE ON AN ISSUE WITHOUT PROPER FACTS SUPPORTING ITS DECISION. A DECISION BASED ON THE FOUNDATION OF MERE ASSERTIO N OR SURMISES OR SUSPICION IS LIABLE TO BE QUASHED BY HI GHER COURT. THE DECISION MUST BE SUPPORTED BY CONCRETE FACTS AN D COGENT EVIDENCES. THIS IS A FUNDAMENTAL RULE OF JUSTICE. THE SUPREME COURT HAS OFTEN FROWNED UPON SUCH TENDENCY OF THE A O TO FRAME THE ASSESSMENT ORDER ON MERE SURMISES AND SET ASID E THESE CASES. THIS VIEW HAS BEEN HELD BY THE SUPREME COUR T IN THE CASES OF DHAIRAJLAL GIRDHARILAL VS. CIT (1954) 26 I TR 736 (SC) OMAR SALAY MOHAMED SAIT VS. CIT (1959) 37 ITR 151 ( SC) DHAKESHWARI COTTON MILLS LTD. VS. CIT (1954) 26 ITR 775 (SC) AND LALCHAND BHAGAT AMBICA RAM VS. CIT (1959) A37 I TR 288 (SC). THUS IN A GIVEN FACT-SITUATION OF THE INSTA NT CASE THE REVENUE HAS F AILED TO JUSTIFY INVOCATION OF THE SA ID EXPLANATION AND CONSEQUENT ADDITION AS THE PARTIES TO WHOM COM MISSION WAS PAID MODE OF PAYMENT THROUGH ACCOUNT PAYEE CHE QUES QUANTUM OF COMMISSION FOR THE PURPOSE OF BUSINESS AND FOR THE SERVICES RENDERED BY THE PARTIES REMAINED UNDISPUT ED FACTS EMANATING FROM THE ASSESSMENT ORDER CIT(A)S ORDER AND SUBMISSIONS. HAVING REGARD TO THE ABOVE LEGAL AND FACTUAL DISCUSSIONS THERE IS NO REASON AND JUSTIFICATION T O WARRANT ANY INTERFERENCE WITH THE FINDINGS OF THE CIT(A) BASED ON PROPER APPRECIATION OF THE LEGAL AND FACTUAL POSITION OF T HE CASE AS DISCUSSED IN DETAIL IN THE IMPUGNED APPELLATE ORDE R. CONSEQUENTLY THE ORDER OF THE CIT(A) ON THIS GROU ND IS UPHELD. 13. GROUND NO.2 RAISED IN ASSESSMENT YEAR 2000-01 I S DIRECTED AGAINST THE CIT(A)S ORDER IN CONFIRMING THE DISALLOWANCE O F CASH PAYMENT OF RS.18 515/- MADE BY THE COMPANY. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAD CLAIMED EXPENSES OF RS.1 13 790/- WHICH WERE PAID IN CASH. THE ASSESSEE HAS GIVEN A REASON FOR MAKING T HE PAYMENT IN CASH THAT 17 THE ASSESSEE WAS HAVING NO BANK ACCOUNT IN DELHI M UMBAI LUCKNOW AND PATIALA WHERE THE PAYMENT WAS MADE TO PAYEES. APPL YING THE PROVISIONS OF SEC. 40A(3) THE ASSESSING OFFICER DISALLOWED 20% O F THE TOTAL PAYMENT. THUS THE AO DISALLOWED RS.22 758/- BEING 20% OF TH E EXPENSES OF RS.1 13 790/- PAID IN CASH. 15. BEING AGGRIEVED THE ASSESSEE OBJECTED ONLY TO THE DISALLOWANCE OF RS.18 515/- BEING 20% OF THE CASH PAYMENT OF RS.92 575/- WHICH WERE PAID IN EXCESS OF RS.20 000/- ON THE GROUND THAT THE SA ID PAYMENTS HAVE BEEN MADE TO PARTIES LOCATED AT THE PLACES WHERE THE ASS ESSEE COMPANY DOES NOT HAVE ANY BANK ACCOUNT AND THE OUTSTATION PARTIES DI D NOT ACCEPT OUTSTATION CHEQUES. AFTER CONSIDERING THE ASSESSEES SUBMISSI ONS AND THE REASONS GIVEN BY THE AO THE CIT(A) UPHELD THE AOS ACTION. 16. AFTER HEARING BOTH THE PARTIES AND HAVING REGAR D TO THE PROVISIONS OF SEC. 40A(3) AS APPLICABLE IN THE ASSESSMENT YEAR 20 00-01 WE ARE OF THE CONSIDERED OPINION THAT REASON OF NOT HAVING ANY BA NK ACCOUNT BY THE ASSESSEE AT THE STATION WHERE THE PAYMENT WAS MADE BY THE ASSESSEE CANNOT BE CONSIDERED TO BE A REASON FOR NOT APPLYING THE P ROVISIONS OF SEC. 40A(3) OF THE ACT. THE ASSESSEE HAS NOT BEEN ABLE TO POIN T OUT ANY REASON WHICH IS PERMITTED UNDER THE LAW SO AS TO EXCLUDE THE PAYMEN T MADE IN CASH IN EXCESS OF RS.20 000/- FOR THE PURPOSE OF DISALLOWANCE U/S 40A(3) OF THE ACT. WE 18 THEREFORE CONFIRM THE CIT(A)S ORDER N THIS ISSUE AND REJECT THE GROUND TAKEN BY THE ASSESSEE. 17. GROUND NO.3 IS DIRECTED AGAINST THE AOS ACTION IN INCLUDING OTHER INCOME EXCEPT INTEREST ON BANK DEPOSITS AND SECURIT IES IN TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN THE COURSE OF HEARING OF THI S APPEAL THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THIS IS SUE HAS ARISEN IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998-99 WHERE THE TRIBUNAL AHS TAKEN A VIEW THAT EXCISE DUTY AND OTHER INCOME ARE TO BE EXCLUDED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DED UCTION U/S 80HHC OF THE ACT. IT HAS FURTHER BEEN CLARIFIED THAT THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2000-01 TAKING AN IDENTICAL VIEW H AS BEEN CONFIRMED BY THE HONBLE HIGH COURT OF DELHI IN ITR NO.167/2008 WHERE THEY HAVE DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN VIE W OF THE HONBLE SUPREME COURT DECISION IN THE CASE OF CIT VS. LAXMI MACHINE WORKS 290 ITR 667. THE LEARNED DR HAS ADMITTED THE POSITION. IN THE L IGHT OF THIS SUBMISSION OF THE ASSESSEE WE ALLOW THIS GROUND WITH A DIRECTION TO THE ASSESSING OFFICER TO EXCLUDE OTHER INCOME FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT AFTER FOLL OWING THE HONBLE 19 DELHI HIGH COURT DECISION IN THE ASSESSEES OWN CAS E FOR THE ASSESSMENT YEAR 2000-01. ITA NO.1762/DEL/2004 19. NOW WE SHALL COME TO APPEAL PERTAINING TO THE ASSESSMENT YEAR 2001-02. 20. GROUND NO.1(A) & 1(B) RELATING TO THE DISALLOWA NCE OF PAYMENT OF COMMISSION TO VARIOUS AGENTS AMOUNTING TO RS.35 36 377/- IS IDENTICAL AND SIMILAR TO THE GROUND RAISED IN THE ASSESSMENT YEAR 2000-01. 21. FACTS AND CIRCUMSTANCES RELATING TO THIS GROUND IN THIS ASSESSMENT YEAR ARE TOTALLY IDENTICAL TO THAT OF THE ASSESSMEN T YEAR 2000-01. THIS POSITION HAS ALSO BEEN CONCEDED TO BY BOTH THE PART IES. THEREFORE FOLLOWING OUR ORDER ON THIS ISSUE IN THE ASSESSMENT YEAR 2000 -01 WE DELETE THE DISALLOWANCE OF PAYMENT OF COMMISSION TO VARIOUS AG ENTS. IN OTHER WORDS THE AO SHALL ALLOW THE ASSESSEES CLAIM OF DEDUCTIO N ON ACCOUNT OF COMMISSION PAYMENT TO VARIOUS AGENTS AND MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 22. GROUND NO.2(A) AND 2(B) IS DIRECTED AGAINST THE CIT(A)S ORDER IN CONFIRMING THE DISALLOWANCE OF EMPLOYEES CONTRIBUT ION TO PF/ESI ACCOUNT AMOUNTING TO RS.12 70 070/- DUE IN THE MONTH OF MAR CH 2001 BUT PAID IN THE MONTH OF APRIL 2001. 20 23. THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. VINAY CEMENT 213 CTR 2 WHERE IT HAS BEEN HELD THAT THE DELETION OF SECOND PROVISO TO SEC. 43 B IS RETROSPECTIVE IN NATURE AND THEREFORE THE PAYMENT OF PF AND ESI CONTRIBUTI ON EVEN IF IT IS PAID WITHIN DUE DATE OF FILING OF RETURN OF INCOME APPLI CABLE TO THE ASSESSEES CASE IS TO BE ALLOWED AS DEDUCTION. IDENTICAL VIE W HAS BEEN TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. EMI L LTD. (2010) 321 ITR 508 (DEL). 24. IN THIS VIEW OF THE MATTER WE THEREFORE ALLOW THIS GROUND OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE ASSESSEES CLAIM ON ACCOUNT OF PAYMENT OF CONTRIBUTION OF PF AND ESI DU E IN THE MONTH OF MARCH 2001 AND PAID IN THE MONTH OF APRIL 2001 IN ASMUCH AS THE SAME HAS BEEN PAID WITHIN DUE DATE OF FILING THE RETURN OF I NCOME APPLICABLE TO THE ASSESSEES CASE. 25. GROUND NO.3(A) AND 3(B) IS REGARDING INCLUSION OF OTHER INCOME EXCEPT INTEREST ON BANK DEPOSITS/SECURITY DEPOSITS IN TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT . 26. IN THE LIGHT OF OUR ORDER ON GROUND NO.3(A) AND 3(B) IN ASSESSMENT YEAR 2000-01 WE ALLOW THIS GROUND OF THE ASSESSEE AND DIRECT THE AO TO EXCLUDE OTHER INCOME FROM THE TOTAL TURNOVER FOR TH E PURPOSE OF COMPUTING 21 DEDUCTION U/S 80HHC OF THE ACT. THE AO SHALL MODIF Y THE DEDUCTION AVAILABLE UNDER SEC. 80HHC OF THE ACT. 27. GROUND NO. 4(A) AND 4(B) IS REGARDING EXCLUSION OF EXPORT INCENTIVE FROM TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DE DUCTION UNDER SEC.80- HHC OF THE ACT. 28. IN THE LIGHT OF OUR DECISION REGARDING GROUND N O. 3(A) AND 3(B) AND APPLYING THE SAME PRINCIPLE WE DIRECT THE ASSESSIN G OFFICER TO EXCLUDE THE EXPORT INCENTIVE FROM THE TOTAL TURNOVER FOR THE PU RPOSE OF COMPUTING DEDUCTION UNDER SEC.80HHC OF THE ACT. WE ORDER ACC ORDINGLY. ITA NO.934/DEL/2006 29. NOW WE SHALL COME TO THE APPEAL PERTAINING TO THE ASSESSMENT YEAR 2002-03. 30. GROUND NO.1(A) AND 1(B) REGARDING DISALLOWANCE OF PAYMENT OF COMMISSION TO VARIOUS AGENTS AMOUNTING TO RS.20 64 204/- IS IDENTICAL TO THE GROUND NO.1(A) AND 1(B) TAKEN IN THE ASSESSMENT YEA RS 2000-01 AND 2001- 02. RESPECTFULLY FOLLOWING OUR ORDER FOR THE ASSES SMENT YEAR 2000-01 WE DELETE THE DISALLOWANCE AND DIRECT THE AO TO ALLOW THE ASSESSEES CLAIM AND MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 22 31. GROUND NO.2(A) AND 2(B) IS WITH REGARD TO THE D ISALLOWANCE OF UNPAID EMPLOYERS CONTRIBUTION OF PF/ESI OF RS.10 68 100/- DUE IN THE MONTH OF MARCH 2002 TO PAY IN THE MONTH OF APRIL 2002. 32. IN THE LIGHT OF OUR ORDER ON THE IDENTICAL POIN T IN THE ASSESSMENT YEAR 2001-02 WHERE THIS ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE AFTER FOLLOWING THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. VINAY CEMENT (SUPRA) AND HONBLE DELHI HIGH COURT DECISION IN TH E CASE OF EMIL LTD. (SUPRA) WE DELETE THIS DISALLOWANCE AND DIRECT THE AO TO ALLOW THE ASSESSEES CLAIM OF PAYMENT OF EMPLOYERS CONTRIBUT ION OF PF/ESI AMOUNTING TO RS.10 68 100/- INASMUCH AS THE SAME HA S BEEN PAID WITHIN DUE DATE OF THE FILING OF RETURN OF INCOME. 33. GROUND NO.3(A) AND 3(B) REGARDING INCLUSION OF OTHER INCOME EXCEPT INTEREST ON BANK DEPOSITS AND SECURITY DEPOSITS IN THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SEC. 80HHC IS IDENTICAL TO THE GROUND NO.3(A) AND 3(B) IN THE ASSESSMENT YEARS 2000-01 AN D 2001-02. IN THE LIGHT OF OUR THIS ORDER PERTAINING TO THE ASSESSMENT YEAR S 2000-01 AND 2001-02 WE ALLOW THIS GROUND OF THE ASSESSEE WITH DIRECTION TO THE AO TO EXCLUDE OTHER INCOME FROM THE TOTAL TURNOVER FOR THE PURPOS E OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. THE AO SHALL MODIFY THE ASSE SSMENT ORDER ACCORDINGLY. 23 ITA NOS.4005 & 3951/DEL/2006 34. NOW WE SHALL COME TO THE CROSS APPEAL FILED BY THE ASSESSEE AND THE REVENUE FOR THE ASSESSMENT YEAR 2003-04. ITA NO.3951/DEL/2006 35. WE SHALL FIRST TAKE THE APPEAL FILED BY THE REV ENUE. 36. GROUND NO.1 RAISED BY THE REVENUE IS DIRECTED A GAINST THE CIT(A)S ORDER IN DELETING THE ADDITION OF RS.94 12 788/- MA DE BY THE ASSESSING OFFICER ON ACCOUNT OF ROYALTY PAYMENT. 37. AS PER THE STAND TAKEN BY THE AO IN EARLIER YEA RS THE AO DISALLOWED 25% OF ROYALTY EXPENSES BY TREATING THE SAME TO BE OF CAPITAL IN NATURE. 38. ON AN APPEAL THE LEARNED CIT(A) HAS DELETED TH E ADDITION IN THE LIGHT OF THE DECISION OF TRIBUNAL PASSED IN EARLIER YEARS . THE CIT(A) ALSO MENTIONED THAT HIS PREDECESSOR IN ASSESSMENT YEARS 1999-2000 TO 2002-03 HAS DELETED THE ADDITION AFTER FOLLOWING THE DECISI ON OF TRIBUNAL IN ASSESSEES OWN CASE ON THE SAME ISSUE. 39. IN THE COURSE OF HEARING OF THIS APPEAL THE LE ARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THIS ISSUE IS FULLY COVER ED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE BY THE DECISION OF TRIBUNAL PERTAINING TO THE ASSESSMENT YEAR 1998-99 IN ITA NO.480/DEL/2003. HE FURTHER POINTED OUT THAT THE HONBLE DELHI HIGH COURT HAS AFFIRMED THE TRIBUNALS DECISION AFTER 24 FOLLOWING ITS EARLIER DECISION IN ASSESSEES OWN CA SE IN ITR 70 OF 1988. THE DECISION OF HONBLE HIGH COURT IS REPORTED IN 307 I TR 363. IT WAS FURTHER POINTED OUT THAT THE SPECIAL LEAVE PETITION FILED B Y THE REVENUE AGAINST THE HIGH COURTS ORDER HAS ALSO BEEN DISMISSED BY THE H ONBLE SUPREME COURT. THIS POSITION HAS NOT BEEN DISPUTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. WE THEREFORE UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE OUT OF ROYALTY EXPENSES. THUS T HIS GROUND NO.1 RAISED BY THE REVENUE IS REJECTED. 40. GROUND NO.2 IS DIRECTED AGAINST THE CIT(A)S OR DER IN DELETING THE ADDITION OF RS.4 00 590/- MADE BY THE AO ON ACCOUNT OF FOREIGN TECHNICIANS FEE. THIS ISSUE IS ALSO COVERED BY THE EARLIER DEC ISION OF HONBLE HIGH COURT IN EARLIER YEARS AND THE HONBLE HIGH COURTS ORDER HAS BEEN FINALIZED ON DISMISSAL OF DEPARTMENTAL SLP FILED BY THE REVENUE. THE CIT(A) HAS ALSO DELETED THIS ADDITION AFTER FOLLOWING THE TRIBUNAL S ORDER PASSED IN ASSESSMENT YEAR 1998-99 THAT WAS FOLLOWED IN ASSES SMENT YEAR 2000-01. SINCE THE ISSUE IS COVERED BY THE EARLIER DECISION OF TRIBUNAL WHICH HAS BEEN AFFIRMED BY THE HONBLE HIGH COURT WE REJECT THIS GROUND RAISED BY THE REVENUE. 25 41. GROUND NO.3 IS DIRECTED AGAINST THE CIT(A)S OR DER IN DELETING THE ADDITION OF RS.1 56 16 310 MADE BY THE AO ON ACCOUN T OF RESEARCH AND DEVELOPMENT EXPENSES. 42. THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.1 87 5 3 790/- IN RESPECT OF EXPENDITURE INCURRED ON RESEARCH & DEVELOPMENT. TH E AO DISALLOWED THE EXPENSES TO THE EXTENT OF RS.1 56 16 310/- BY TREAT ING THE SAME TO BE OF CAPITAL IN NATURE. 43. IN THE COURSE OF HEARING OF THIS APPEAL IT WAS POINTED OUT THAT SIMILAR DISALLOWANCE MADE BY THE AO WAS DELETED BY THE TRIB UNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998-99 WHICH HAS BEEN AFFIRMED BY THE HONBLE HIGH COURT BY NOT ADMITTING ANY REFERENCE A S ACCORDING TO THE HONBLE HIGH COURT NO SUBSTANTIAL QUESTION OF LAW AROSE. REFERENCE MADE BY THE DEPARTMENT WAS AGAIN REJECTED IN ASSESSMENT YEAR 2000-01 BY THE HONBLE HIGH COURT ON THIS ISSUE. THE LEARNED CIT( A) HAS DELETED THE ADDITION BY FOLLOWING THE TRIBUNALS DECISION IN AS SESSEES OWN CASE IN THE ASSESSMENT YEAR 1998-99 WHICH WAS FOLLOWED IN SUBSE QUENT YEARS. IN THE LIGHT OF THE FACT THAT THE DECISION OF TRIBUNAL IN ASSESSMENT YEAR 1998-99 HAS BECOME FINAL AND ALSO BEEN FOLLOWED IN SUBSEQUE NT ASSESSMENT YEARS 1999-2000 TO 2002-03 WE DO NOT FIND ANY JUSTIFICAT ION TO INTERFERE WITH THE ORDER OF THE CIT(A) IN DELETING THE ADDITION. 26 44. GROUND NO.4 IS WITH REGARD TO THE DISALLOWANCE OF RS.39 33 803 ON ACCOUNT OF REPAIRS AND MAINTENANCE WHICH HAD BEEN DELETED BY THE CIT(A) AFTER FOLLOWING THE DECISION OF TRIBUNAL IN THE ASS ESSEES OWN CASE IN THE ASSESSMENT YEAR 1998-99 AGAINST WHICH THE HONBLE HIGH COURT DID NOT ADMIT ANY REFERENCE AS ACCORDING TO THE HONBLE HIG H COURT NO SUBSTANTIAL QUESTION OF LAW AROSE. THE HONBLE HIGH COURT AGAI N REJECTED THE REFERENCE IN THE ASSESSMENT YEAR 2000-01 AS NO QUESTION OF LA W AROSE. THE FACT THAT THIS ISSUE IS COVERED BY THE DECISION OF TRIBUNAL I N EARLIER YEARS IS NOT IN DISPUTE. THEREFORE FOLLOWING THE TRIBUNALS ORDER IN ASSESSMENT YEAR 1998-99 WE UPHOLD THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION ON ACCOUNT OF REPAIR AND MAINTENANCE. 45. GROUND NO.6 IS DIRECTED AGAINST THE CIT(A)S OR DER IN DIRECTING THE AO TO EXCLUDE EXCISE DUTY IN THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SEC. 80HHC OF THE ACT. T HIS ISSUE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HONBLE SUPREME COURT IN THE CASE OF LAXMI MACHINE WORKS (SUPRA) WHERE IT HAS BEEN HELD THAT THE EXCISE DUTY SHALL NOT FORM PART OF THE TOTAL TURNOV ER AS WELL AS EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. THE ORDER OF THE CIT(A) ON THIS ISSUE IS THUS UPHELD. 27 46. GROUND NO.5 IS DIRECTED AGAINST THE CIT(A)S OR DER IN DIRECTING THE AO TO ALLOW EXPENSES OF COMMISSION PAYMENT TO THE E XTENT OF 4.5% PAID TO VARIOUS AGENTS IN RESPECT OF THE SUPPLY OF GOODS TO THE STATE ROAD TRANSPORT UNDERTAKINGS. THE ASSESSEE IS ALSO IN APPEAL ON TH IS ISSUE RAISING A GROUND NO.1 THAT THE CIT(A) HAS ERRED IN RESTRICTING THE P AYMENT OF COMMISSION TO AGENTS AT THE RATE OF 4.5% AS AGAINST THE ACTUAL AM OUNT PAID. 47. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE REGARDING ALLOWABILITY OF PAYMENT OF COM MISSION TO VARIOUS AGENTS HAS BEEN DECIDED UPON BY US IN THIS COMMON O RDER IN EARLIER ASSESSMENT YEARS 2000-01 TO 2002-03. RESPECTFULLY FOLLOWING OUR ORDER WE DIRECT THE AO TO ALLOW THE TOTAL PAYMENT OF COMM ISSION PAID BY THE ASSESSEE TO VARIOUS AGENTS AND NOT TO RESTRICT THE SAME TO THE EXTENT OF 4.5%. THUS THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS REJECTED. ITA NO.4005/DEL/2006 48. IN THE ASSESSEES APPEAL GROUND NO.2(A) AND 2( B) IS TAKEN AGAINST THE CIT(A)S ORDER IN CONFIRMING THE AOS ACTION IN INC LUDING OTHER INCOME IN TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTI ON U/S 80HHC OF THE ACT. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE IN THE LIGHT OF THIS COMMON ORDER PERTAINING TO THE ASSESSMENT YEARS 2000-01 TO 2002-03. WE 28 THEREFORE DIRECT THE AO TO EXCLUDE OTHER INCOME FR OM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SEC. 80HHC . 49. GROUND NO.3 IS DIRECTED AGAINST CIT(A)S ORDER IN CONFIRMING THE DISALLOWANCE OF SOFTWARE EXPENSES FOR PURCHASE OF C OMPUTER SOFTWARE OF RS.29 11 506/- BY TREATING THE SAME TO BE OF CAPITA L IN NATURE. 50. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THIS ISSUE HAS TO BE EXAMINED AFRESH BY THE AO IN T HE LIGHT OF THE PROPOSITION LAID DOWN BY THE SPECIAL BENCH OF TRIBU NAL IN THE CASE OF M/S. AMWAY INDIA ENTERPRISES VS. DCIT REPORTED IN 114 TT J 476. THE AO SHALL DECIDE THE MATTER AFRESH AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE SHALL BE AT LI BERTY TO FURNISH ALL THE DETAILS BEFORE THE AO IN ORDER TO ENABLE HIM TO DET ERMINE THE ISSUE IN THE LIGHT OF THE PROPOSITION LAID DOWN BY THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA). WE ORDER ACCORDINGLY. 51. LAST GROUND NO.4 RAISED BY THE ASSESSEE IS DIRE CTED AGAINST THE CIT(A)S ORDER IN DIRECTING THE AO TO WITHDRAW DEPB BENEFIT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SEC. 80HHC OF THE ACT. 52. ON THIS ISSUE VARIOUS PROPOSITIONS HAS BEEN LA ID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. KALPATARU COL OURS & CHEMICALS VS. CIT 328 ITR 451. THE MATTER HAS NOT BEEN EXAMINED BY THE AO FROM THE 29 LIGHT OF THE VARIOUS PROPOSITIONS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. KALPATARU COLOURS & CHEMI CALS (SUPRA). WE THEREFORE RESTORE THE MATTER BACK TO THE FILE OF T HE ASSESSING OFFICER FOR HIS FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. KALPATARU COLOURS & CHEMI CALS (SUPRA). THE AO SHALL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 53. IN THE RESULT THE APPEALS FILED BY THE ASSESSE E ARE PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE AND THAT OF THE REVENUE I S DISMISSED. 54. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 25 TH FEBRUARY 2011. SD/- SD/- (K.D. RANJAN) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 25 TH FEBRUARY 2011. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.