PERFECT CIRCLE INDIA LTD, MUMBAI v. ACIT CIR 5(2), MUMBAI

ITA 4180/MUM/2010 | 2006-2007
Pronouncement Date: 21-09-2011 | Result: Allowed

Appeal Details

RSA Number 418019914 RSA 2010
Assessee PAN AAACP0482E
Bench Mumbai
Appeal Number ITA 4180/MUM/2010
Duration Of Justice 1 year(s) 3 month(s) 27 day(s)
Appellant PERFECT CIRCLE INDIA LTD, MUMBAI
Respondent ACIT CIR 5(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 21-09-2011
Date Of Final Hearing 29-09-2011
Next Hearing Date 29-09-2011
Assessment Year 2006-2007
Appeal Filed On 24-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C BENCH BEFORE SHRI D.MANMOHAN VICE PRESIDENT & SHRI T.R.SOOD ACCOUNTANT MEMBER SR.NO. I.T.A.NO. APPELLANT RESPONDENT A.Y 1 3829-M-10 PERFECT CIRCLE INDIA LTD. MUMBAI. PAN: AAACP 0482 E DY.CIT CIRCLE 5(2) MUMBAI. 2001-02 2 3875-M-10 DY.CIT CIR.5(2) MUMBAI PERFECT CIRCLE INDIA LTD. 2001-02 3 7631-M-07 PERFECT CIRCLE INDIA LTD. MUMBAI DY.CIT CIR.5(2) MUMBAI 2004-05 4 7653-M-07 DY.CIT CIR.5(2) MUMBAI PERFECT CIRCLE INDIA LTD. MUMBAI 2004-05 5 638-M-10 PERFECT CIRCLE INDIA LTD. MUMBAI DY.CIT CIR.5(2) MUMBAI 2005-06 6 4180-M-10 PERFECT CIRCLE INDIA LTD. MUMBAI DY.CIT CIR.5(2) MUMBAI 2006-07 ASSESSEE BY : SHRI SANTOSH PARAB. DEPARTMENT BY : SHRI ALEXANDER CHANDY. DATE OF HEARING: 06/09/2011 DATE OF PRONOUNCEMENT: O R D E R PER T.R.SOOD AM: THESE CROSS APPEALS ARE HEARD TOGETHER AND THEY AR E BEING DISPOSED OF BY THIS COMMON ORDER. 2. I.T.A.NO.3829/M/10 A.Y 01-02 [ASSESSEES APPEA L] : IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW- THE LEARNED CIT(A) ERRED IN CONFIRMING THE REOPENIN G OF THE ASSESSMENT UNDER SEC.147. WITHOUT PREJUDICE TO THE ABOVE THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE ASSESSING OFFICER OF DISALLOWING EXPENSES TO THE TUNE OF RS.1 20 181 TREATING THEM AS PRIOR PERIOD EXPENSES. ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 2 3. THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT ORIGINAL ASSESSMENT WAS COMPLETED U/S.143[3] VIDE ORDER DATE D 9-3-2004. THE AO ISSUED A NOTICE U/S.148 ON 31-3-2008 WHICH WAS S ERVED ON THE ASSESSEE ON 1-4-2008. THE LD. COUNSEL SUBMITTED THA T NOTICE IS BEYOND PERIOD OF SIX YEARS AND THE TIME LIMIT WOULD EXPIRE ON 31-3-2008 THEREFORE THE NOTICE WAS BEYOND TIME. 4. ON THE OTHER HAND LD. DR SUBMITTED THAT NOTICE WAS SERVED ON THE ASSESSEE ON 31-3-2008 ITSELF AND HE PRODUCED TH E ORIGINAL RECORDS TO PROVE THE DATE OF SERVICE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. THOUGH DATE OF RECEIPT ON THE ORIGINAL RECEIPT IS MENTIONE D AS 31-3-2008 BUT AO HIMSELF HAS MENTIONED THE DATE OF SERVICE AS ON 1-4-2008. EVEN IF SAME IS RECKONED TO BE 1-4-2008 EVEN THEN NOTICE H AS TO BE TREATED AS VALIDLY SERVED. THE HON'BLE SUPREME COURT HAS CO NSIDERED THIS ISSUE IN THE CASE OF R. K. UPADHYAY VS. SHANBHAI P. LATEL [166 ITR 163]. IN THAT CASE THE NOTICE WAS ISSUED U/S.147[B] ON 31-3- 1970 BUT SAME WAS SENT BY REGISTERED POST AND RECEIVED BY THE ASSESSE E ON 3-4-1970. THE HON'BLE COURT ANALYSED THE PROVISIONS OF SECTIONS 1 48 AND 149 AND NOTED THAT THE SCHEME OF 1961 I.T.ACT WAS DIFFERENT FROM 1922 I.T.ACT AND A CLEAR DISTINCTION HAS BEEN MADE BETWEEN THE ISSUE OF NOTICE AND SERVICE OF NOTICE. IT WAS FURTHER OBSERVED THAT ON CE A NOTICE WAS ISSUED U/S.148 WITHIN THE PERIOD OF LIMITATION JUR ISDICTION BECOMES VESTED IN THE ITO TO PROCEED TO RE-ASSESS. IT WAS S PECIFICALLY NOTICED THAT SEC.148 USED THE TERM SERVICE WHEREAS SEC.14 9 WHICH DEALS WITH ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 3 THE LIMITATION USED THE EXPRESSION ISSUE OF NOTICE . THEREFORE FOLLOWING THIS DECISION WE HOLD THAT NOTICE HAS BEEN ISSUED AND SERVED WITHIN THE PERIOD OF LIMITATION. THEREFORE WE UPHOLD THE REOPENING OF ASSESSMENT. 6. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT EXPENDITURE OF RS.1 20 181/- WAS IN THE NATURE OF PRIOR PERIOD EXPENSES WAS NOT ALLOWABLE. ON ENQUIRY ASSESSEE FILED THE NECESSARY DETAILS FOR S UCH EXPENDITURE WHICH WAS REJECTED BY THE AO BY OBSERVING THAT EXPL ANATION WAS OF GENERAL NATURE. 7. ON APPEAL THE ISSUE WAS DECIDED BY THE LD. CIT( A) AGAINST THE ASSESSEE BY OBSERVING THAT IT CANNOT BE SAID THAT E XPENDITURE HAS CRYSTALISED DURING THE YEAR. 8. BEFORE US LD. COUNSEL OF THE ASSESSEE REFERRED TO VARIOUS DOCUMENTS AT PAGES 36 TO 43 OF THE PAPER BOOK AND P OINTED OUT THAT THE CONCERNED EXPENDITURE WAS ON ACCOUNT OF MAINTEN ANCE ETC. AND FOR THE SAME BILLS ITSELF WERE RECEIVED DURING THE CURRENT YEAR AND THEREFORE THE LIABILITY TO PAY SUCH EXPENDITURE HA S CRYSTALISED IN THIS YEAR ONLY. 9. ON THE OTHER HAND LD. DR SUBMITTED THAT IF THE EXPENDITURE WAS IN THE NATURE OF MAINTENANCE ASSESSEE COULD HAVE E ASILY PROVIDED THE SAME IN THE CONCERNED YEAR. ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 4 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT ON PAGE-36 FOLLOWING DETAILS OF PRIOR PERIOD EXPEND ITURE HAVE BEEN FILED BEFORE US: CLAUSE 22(B): PRIOR PERIOD EXPENDITURE DEBITED TO P & L A/C. V.NO. DATE PARTICULARS AMOUNT POT 3369 POT 1706 POT 1700 30-03-00 30-03-00 08-05-00 NIIT ORACLE 7.3 ENTERPRISE EDITION 1.2.2000 TO 31-3-2000 HUGHES ESCORT COMM LTD. ANNUAL MAINTAINANCE CHARGES FOR 1-2-2000 TO 31-3-2000 HUGHES ESCORT COMM LTD. SATELLITE ACCESS CHARGES NETWORK MONITORING CHARGES FOR CHENNAI OFFICE 1-2-2000 TO 31-3-2000 TOTAL 30 875 65 093 24 213 120 181 HOWEVER NONE OF THE BILLS PLACED BEFORE US MATCHED WITH THE ABOVE ITEMS. THE BILL OF NIIT OF PAGE 38 IS FOR RS.1 85 2 50/-. BILLS ON PAGES 39 TO 42 OF THE PAPER BOOK ARE FROM HUGHES ESCORT C OMM LTD. FOR RS.16 667/- RS.41 667/- 19355/- AND 1 03 871/-. T HESE BILLS DO NOT MATCH WITH THE DETAILS PROVIDED. MOREOVER IT HAS N OT BEEN MADE CLEAR WHICH PARTICULAR BILL HAS BEEN RECEIVED LATE. THERE FORE WE ARE UNABLE TO ACCEPT THE CONTENTIONS OF THE LD. COUNSEL OF THE ASSESSEE. THOUGH IF A PARTICULAR BILL IS RECEIVED LATE AND LIABILITY TO PAY THAT EXPENDITURE CRYSTALISES LATER ON SUCH LIABILITY CAN BE ALLOWED IN LATER YEAR BUT THERE HAVE TO BE SPECIFIC DETAILS OF THE SAME AND REASONS FOR RECEIVING SUCH LATE INVOICES. SINCE BILLS FURNISHED BEFORE US THEM SELVES DO NOT TALLY WITH THE DETAILS THEREFORE WE ARE OF THE OPINION THAT ADDITION HAS ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 5 BEEN CORRECTLY CONFIRMED BY THE LD. CIT(A) AND ACCO RDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A). 11. IN THE RESULT ASSESSEES I.T.APPEAL NO.3829/M/ 10 FOR A.Y 2001- 02 IS DISMISSED. 12. I.T.A.NO.3875/M/10 [REVENUES APPEAL] A.Y 2001- 02 : IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO WORK OUT THE DEDUCTION U/S.80HHC IN ACCORDANCE WITH THE DECISION OF ITAT SPECIAL BENCH BOMBAY IN THE CASE OF TOPMAN EXPORTS WHICH T HE DEPARTMENT HAS NOT ACCEPTED. 13. AFTER HEARING BOTH THE PARTIES WE FIND THAT TH E ABOVE ISSUE IS COVERED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOUR & CHEMICAL [328 ITR 461 ] . IN THIS CASE IT WAS HELD AS UNDER: UNDER SUB SECTION (1) OF SECTION 80HHC A DEDUCTIO N IS ALLOWED TO THE EXTENT OF PROFITS DERIVED BY THE ASSESSEE FRO M THE EXPORT OF GOODS TO WHICH THE SECTION APPLIES. SINCE THE DEDUCTION I S IN RESPECT OF PROFITS DERIVED FROM EXPORT SUB SECTION (3) LAID D OWN A FORMULA ON THE BASIS OF WHICH EXPORT PROFITS HAVE TO BE COMPUTED. UNDER CLAUSE (A) OF SUB SECTION (3) THE EXPRESSION PROFITS DERIVED FRO M EXPORT ARE DEFINED TO BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE AS SESSEE. HOWEVER WHERE AN ASSESSEE CARRIES ON THE BUSINESS OF EXPORT OF TRADING GOODS CLAUSE (B) DEFINES EXPORT PROFITS TO BE THE EXPORT TURNOVER IN RESPECT OF SUCH TRADING GOODS WHICH IS TO BE REDUCED BY THE DI RECT AND INDIRECT COSTS ATTRIBUTABLE TO THE EXPORT. IN THE APPLICATIO N OF THE FORMULA TO A MANUFACTURER EXPORTER CLAUSE (A) REFERS TO THE PRO FITS OF THE BUSINESS. THE EXPRESSION PROFITS OF THE BUSINESS. THE EXPRESSION PROFITS OF THE BUSINESS MEANS PROF ITS AS COMPUTED UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SECTIONS 28 TO 44D AND THEY ARE THEREUPON TO BE RED UCED TO THE EXTENT PROVIDED BY CLAUSES (1) AND (2). SECTION 28 ELUCIDA TES INCOMES WHICH SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. CLAUSES (IIIA) (IIIB) AND (IIIC) WERE INSERTED INTO THE SECTION BY THE FINANCE ACT OF 1990. BY THE FINANCE ACT 2005 ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 6 PARLIAMENT INSERTED A SPECIFIC CLAUSE NAMELY CLAU SE (IIID) IN SECTION 28 TO THE EFFECT THAT PROFITS ON TRANSFER OF DEPB I.E . THE AMOUNT RECEIVED ON TRANSFER OF DEPB IS INCOME CHARGEABLE TO TAX UND ER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. AS REGARDS THE DEDUCTION UNDER SECTION 80 HHC THE LEGISLATURE SUBSTITUTED EXPLANATION (BAA) IN SECTION 80HHC SO A S TO EXCLUDE 90% OF THE PROFITS RECEIVED ON TRANSFER OF DEPB FROM TH E PROFITS OF BUSINESS FOR THE PURPOSES OF SECTION 80HHC AND INSERTED THE SECOND AND THIRD PROVISOS TO SECTION 80HHC(3). THE SECOND PROVISO IT WAS PROVIDED THAT IN THE CASE OF AN ASSESSEE HAVING AN EXPORT TU RNOVER NOT EXCEEDING RS.10 CRORES THE PROFITS COMPUTED UNDER SECTION 80 HHC(3) SHALL BE INCREASED BY 90% OF THE SUM REFERRED TO IN SECTION 28(IIID). THE 3RD PROVISO IT WAS PROVIDED THAT IN THE CASE OF AN ASSE SSEE HAVING AN EXPORT TURNOVER EXCEEDING RS.10 CRORES THE PROFITS COMPUT ED UNDER SECTION 80HHC(3) SHALL BE INCREASED BY 90% OF THE SUM REFER RED TO IN SECTION 28(IIID) SUBJECT TO THE TWO CONDITIONS SET OUT THER EIN. WHAT CONSTITUTES APPLICATION SEEKING DEPB CREDIT WOULD MAKE NO DIFFE RENCE TO THE TAXABILITY OF THE ENTIRE AMOUNT RECEIVED ON TRANSFE R OF THE DEPB CREDIT UNDER SECTION 28(IIID). PROFITS UNDER SECTION 28(II ID) IS THE AMOUNT RECEIVED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH THE ASSESSEE WAS ENTITLED TO UNDER THE DEPB S CHEME. IN OTHER WORDS THE AMOUNT EQUIVALENT TO THE FACE VALUE OF D EPB AS WELL AS THE AMOUNT RECEIVED IN EXCESS OF THE DEPB WOULD CONSTIT UTE PROFITS OF BUSINESS UNDER SECTION 28(IIID) AND MERELY BECAUSE A PART OF SUCH PROFITS OF BUSINESS (FACE VALUE) WAS OFFERED TO TAX IN THE YEAR IN WHICH THE CREDIT ACCRUED TO THE ASSESSEE WOULD NOT BE A G ROUND TO HOLD THAT SUCH PROFIT WAS NOT COVERED UNDER SECTION 28(IIID). WHERE THE FACE VALUE OF THE DEPB CREDIT IS OFFERED TO TAX AS BUSIN ESS PROFITS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE CREDIT AC CRUED TO THE ASSESSEE THEN ANY FURTHER PROFIT ARISING ON TRANSFER OF DEPB CREDIT WOULD BE TAXED AS PROFITS OF BUSINESS UNDER SECTION 28(IIID) IN THE YEAR IN WHICH THE TRANSFER OF DEPB CREDIT TOOK PLACE THERE IS ANOTHER PERSPECTIVE FROM WHICH THE ISSUE C AN BE LOOKED AT. THE DEPB CREDIT TO WHICH AN EXPORTER IS ENTITLED IS A FORM OF AN EXPORT INCENTIVE. NO PART OF THE CREDIT THAT IS AVAILABLE UNDER THE DEPB SCHEME CAN FALL FOR CLASSIFICATION UNDER CLAUSE (II IB) OF SECTION 28 WHICH DEALS WITH CASH ASSISTANCE RECEIVED OR RECEI VABLE AGAINST ANY SCHEME OF THE GOVERNMENT OF INDIA. AS THE LEGISLATI VE HISTORY OF THE PROVISION WOULD SHOW CLAUSE (IIIB) WAS ENACTED BY P ARLIAMENT AT A TIME WHEN THE EXPORT INCENTIVES THAT WERE AVAILABLE WERE (I) IMPORT ENTITLEMENT LICENCES; (II) CASH COMPENSATORY SUPPOR T; AND (III) DUTY DRAWBACK. THE DEPB SCHEME WAS NOT EVEN IN EXISTENCE WHEN CLAUSE (IIIB) CAME TO BE ENACTED INTO SECTION 28 BY THE FI NANCE ACT OF 1990. THE DEPB SCHEME WAS BROUGHT INTO EXISTENCE WITH EFF ECT FROM 1 APRIL 1997. CLAUSE (IIID) OF SECTION 28 WAS INSERTED BY T HE AMENDING ACT OF 2005 WITH EFFECT FROM 1 APRIL 1998. THE VALUE OF TH E DEPB CREDIT CAN BY NO MEANS BE REGARDED AS A CASH ASSISTANCE WHICH IS RECEIVED OR ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 7 RECEIVABLE BY A PERSON AGAINST EXPORTS UNDER ANY SC HEME OF THE GOVERNMENT OF INDIA. IT CANNOT BE INFERRED FROM THE SPEECH OF THE FINANC E MINISTER THAT THE INSERTION OF CLAUSE (IIID) IN SECTION 28 WAS MADE W ITH A VIEW TO TAX ONLY THE AMOUNT WHICH HAS BEEN RECEIVED IN EXCESS O F THE FACE VALUE OF THE DEPB CREDIT. DEPB CREDIT WAS INTRODUCED WITH EF FECT FROM 1 APRIL 1997 WHICH WAS AFTER THE INSERTION OF CLAUSE (IIIB) IN SECTION 28; (B) SECTION 28(IIIB) REFERS TO CASH ASSISTANCE (BY WHAT EVER NAME CALLED) RECEIVED BY THE ASSESSEE FROM THE GOVERNMENT PURSUA NT TO A SCHEME OF THE GOVERNMENT. THE AMOUNT RECEIVED ON THE TRANSFER OF THE DEPB CREDIT IS NOT RECEIVED BY THE ASSESSEE FROM THE GOV ERNMENT PURSUANT TO A SCHEME OF THE GOVERNMENT WITHIN THE MEANING OF CL AUSE (IIIC) AND (C) WHEN SECTION 28(IIID) SPECIFICALLY DEALS WITH PROFI TS REALIZED ON THE TRANSFER OF THE DEPB CREDIT IT WOULD BE IMPERMISSI BLE AS A MATTER OF FIRST PRINCIPLE TO BIFURCATE THE FACE VALUE OF THE DEPB AND THE AMOUNT RECEIVED IN EXCESS OF THE FACE VALUE OF THE DEPB. T HE ENTIRETY OF THE SALE CONSIDERATION WOULD FALL WITHIN THE PURVIEW OF SECTION 28(IIID). FOLLOWING THE ABOVE DECISION WE ALLOW THE GROUND O F APPEAL RAISED BY THE REVENUE. 14. IN THE RESULT REVENUES APPEAL IN I.T.A.NO.387 5/M/10 FOR A.Y 2001-02 IS ALLOWED. 15. I.T.A.NO.7631/M/07 [ASSESSEES APPEAL] A.Y 04 -05 : IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F ASSESSING OFFICER [AO] OF DISALLOWING RS.1 09 61 257 INCURRED ON TOOL ING AND REPAIRS TREATING IT AS CAPITAL IN NATURE AND NOT ACCEPTING THE CONTENTION OF THE ASSESSEE THAT THE IMPUGNED EXPENDITURE IN FACT WAS REVENUE IN NATURE AND HAD NO ENDURING BENEFIT. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE AOS ACT ION OF DISALLOWING INTEREST EXPENDITURE TO THE TUNE OF RS.46 75 955 AT TRIBUTING THE SAME TO INVESTMENT AND HENCE TREATING IT AS NON-BUSINESS EXPENDITURE. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ENTIRE INVESTMENT WAS MADE FROM INTERNAL ACCRUALS AND FURTHER THAT TH E INVESTMENT WAS MADE WITH A COGENT BUSINESS RATIONALE. 3. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE AOS ACTION OF DISALLOWING RS.30 42 000 WHICH WAS FOR PROVISION FO R COMMISSION/TURNOVER DISCOUNT TREATING THE PROVISION AS CONTINGENT IN NATURE. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FA CTS THAT THE PROVISION WAS MADE BASED ON THE SALES MADE DURING T HE YEAR AND WERE ONLY PAID IN THE SUBSEQUENT YEAR AND HENCE THE EXPENDITURE RELATED TO THE YEAR AND WAS ALLOWABLE. ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 8 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE AOS ACT ION OF DISALLOWING COMMISSION PAID TO DIRECTORS AMOUNTING TO RS.2 74 0 00 TREATING THE SAME AS NON BUSINESS EXPENSES. 5. THE LEARNED CIT(A) ERRED IN CONFIRMING THE AOS ACT ION OF DISALLOWING THE BAD DEBTS TO THE TUNE OF RS.5 73 000. 6. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE AOS ACTION OF DISALLOWING ADVANCE WRITTEN OFF TO THE TUNE OF RS.9 71 000. 7. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF AN ADHOC AMOUNT OF RS.1 L79 000 BEING 20% OF STAFF WEL FARE EXPENSES TREATING IT AS NON BUSINESS EXPENDITURE WITHOUT GOI NG INTO THE TRUE NATURE AND PURPOSE OF THE EXPENDITURE. 8. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF AN ADHOC AMOUNT OF RS.14 82 800 BEING 10% OF THE TOTAL MISCELLANEOUS EXPENSES TREATING IT AS NON BUSINESS EXPENDITURE WI THOUT GOING INTO THE TRUE NATURE AND PURPOSE OF THE EXPENDITURE. 9. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF AN ADHOC AMOUNT OF RS.5 11 691 BEING 10% OF FOREIGN TR AVEL EXPENSES ALLEGING THAT SPECIFIC DETAILS WERE NOT SUBMITTED. 10. THE LEARNED CIT(A) ERRED IN CONFIRMING THE AOS REC ALCULATION OF THE CLAIM UNDER 80HHC AS FOLLOWS: I) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE INCL USION OF EXCISE DUTY AMOUNTING TO RS.6 48 04 705 AND EXPORT BENEFITS AMOUNTING TO RS.1 27 92 846 IN THE TOTAL T URNOVER CONSIDERED FOR CALCULATING THE CLAIM UNDER SEC.80HH C. II) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING REDUCTIO N OF 90% OF THE MISCELLANEOUS INCOME AMOUNTING TO RS.2 84 66 100 [100% BEING RS.3 16 29 000] WHILE AR RIVING AT THE BUSINESS PROFIT FOR THE PURPOSE OF CALCULATI NG THE CLAIM U/S.80HHC. THE MISCELLANEOUS INCOME INCLUDED INCOME WHICH WAS EARNED IN REGULAR COURSE OF BUSINE SS AND HENCE ARE NOT REQUIRED TO BE DEDUCTION @ 90% U/S.80HHC(3). III) THE LEARNED CIT(A) HAS ERRED IN NOT INCLUDING 90% E XPORT INCENTIVE TO THE TUNE OF RS.1 15 13 361 WHILE CALCU LATING THE PROFIT FOR THE PURPOSE OF CLAIM U/S.80HHC. WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) HAS DIRE CTED TO RECOMPUTE THE DEDUCTION U/S.80HHC IN ACCORDANCE WIT H THE AMENDED PROVISIONS OF SECTION 80HHC READ WITH SECTI ON 28. 11. THE LEARNED FURTHER ERRED IN CONFIRMING THE AOS A CTION OF NOT ALLOWING CARRIED FORWARD OF LONG TERM CAPITAL LOSS RS.4 58 50 060 STATING THAT IT WAS ONLY A PAPER TRANSACTION 16. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS CLAIMED VARIOUS EXPENDITURE UNDER THE HEAD TOOLING SPARES AND REPAIRS AMOUNTING TO RS.1 32 26 962/-. THE ASSESSEE WAS SPE CIFICALLY ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 9 REQUESTED TO EXPLAIN AS TO WHY THE EXPENDITURE SHOU LD NOT BE TREATED AS CAPITAL IN NATURE. IN RESPONSE IT WAS STATED TH AT ALL EXPENDITURE WAS IN THE NATURE OF REVENUE AND THERE WAS NO ENDURING BENEFIT ACCRUING TO THE ASSESSEE. HOWEVER NO DETAILS OR EXPLANATION IN RESPECT OF EACH ASSETS WERE FURNISHED AND THEREFORE AO MADE AN AD DITION OF RS.1 32 26 962/-. 17. ON APPEAL LD. CIT(A) OBSERVED THAT EVEN BEFORE HIM NO MATERIAL WAS BROUGHT TO HIS ATTENTION THAT EXPENDITURE OF 13 ITEMS MENTIONED BY THE AO WAS EITHER ITEMS OF 100% DEPRECIATION OR CONSUMABLES IN THE PROCESS OF BUSINESS ACTIVITY. THEREFORE ACTION OF THE AO FOR DISALLOWING TOOLING EXPENSES AMOUNTING TO RS.1 09 6 1 257/- WAS UPHELD. HOWEVER EXPENDITURE AMOUNTING TO RS.22 65 705/- WHICH WAS ON ACCOUNT OF SPARES AND REPAIRS WAS ALLOWED. 18. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ALL THE RELEVANT DETAILS WERE FILED BEFORE THE AO AND IN TH IS REGARD REFERRED TO PAGES 41 TO 50 OF THE PAPER BOOK. HE FURTHER SUBMIT TED THAT ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING PISTON RINGS A ND CASTING RINGS WHICH REQUIRED FREQUENT TOOLING. SUCH TOOLS HAD VER Y SHORT DURATION OF LIFE AND THEREFORE NO ENDURING BENEFIT WAS OBTAIN ED WHEN TOOLS WERE BROUGHT. 19. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED TH E ORDER OF THE CIT(A). 20. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT AT PAGE 41 ONLY A NOTE CLAIMING THAT SOME TOOLS WERE REQUIRED FOR MANUFACTURING ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 10 WHICH HAD A VERY LITTLE SHELF LIFE. HOWEVER DETAIL S ATTACHED FROM PAGES 42 TO 50 ARE ONLY FOR VERY SMALL ITEMS. THE BILLS F URNISHED ARE FOR RS.65.335/- RS.28 752.92/- RS.78 043/- RS.75 636 /- RS.61 884/- RS.22 766/- RS.R54 562/- RS.4667/- AND RS.1 30 7 68/-. HOWEVER AO HAS MENTIONED THE FOLLOWING TOOLING EXPENSES: WS ITEMS T12CUT 10020100 100X2 0X100T T14CUTBRZO150XBRAZED T14CUTBRZO150XBRZED T14CUTBRZO190XBRAZED T14CUTSCB0070X T14CUTSCB0125XCARBIDE 24T T14CUTSCB09024 CARBIDE 24T T14CUTSSCB 11524 CARBIDE 24T T14CUTTRIALXXX TEETH 12300UNCHBRADMA SPACER T62INSTAPERFIL MARKIN T99DWHD12V9U06W06 T99INS120300ALMICROFINI TOTAL RS.15 61 596 RS.10 01 997 RS. 8 70 379 RS. 2 16 526 RS. 7 56 310 RS.12 10 156 RS.22 59 936 RS.18 38 216 RS. 1 31 095 RS. 3 45 184 RS. 4 23 079 RS. 1 00 508 RS. 2 46 275 RS.1 09 61 257 DESCRIPTION CTB CUTTER G&S CUTTER 1.15 G&S CUTTER 1.40 G&S CUTTER 2.00 G&S CUTTER 2.5 BRAZED G&S CUTTER 0.70 G&S CUTTER 0.90 G&S CUTTER 1.15 TRIAL CUTTER 1.15X32 MARKING PUNCH PRADMA TAPER FILLERGAUGE WITH DIAMOND WHEEL D12V9 INSERT SPAN 1203 EDL THE ABOVE CLEARLY SHOWS THAT CERTAIN HEAVY ITEMS LI KE CUTTERS HAVE BEEN CLAIMED AS TOOLING EXPENSES. BUT BILLS FOR THE SAME HAVE NOT BEEN FILED BEFORE THE AO OR CIT(A) OR EVEN BEFORE US. TH EREFORE IN THE ABSENCE OF DETAILS IT IS VERY DIFFICULT TO ACCEPT THE CONTENTIONS OF THE LD. COUNSEL OF THE ASSESSEE. FOR EXAMPLE WE DO NOT KNOW HOW MANY CUTTERS HAVE BEEN PURCHASED THROUGH SUCH BILLS WHIC H RANGE FROM ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 11 RS.7 56 310/- TO RS.22 59 936/-. THEREFORE IN THE ABSENCE OF DETAILS WE CONFIRM THE ADDITION MADE BY THE LD. CIT(A). 21. GROUND NO.2 : DURING ASSESSMENT PROCEEDINGS AO NOTED THAT ASSESSEE HAD CLAIMED INTEREST AMOUNTING TO RS.2 80 90 000/-. IT WAS FURTHER FOUND THAT ASSESSEE HAD INVESTED A SUM OF R S.11.12 CRORES IN THE EQUITY SHARES OF SPICER INDIA LTD. IN RESPONSE TO A QUERY IT WAS MAINLY SUBMITTED THAT THERE WAS COGENT BUSINESS REA SONS FOR INVESTMENT IN SPICER INDIA LTD. AND THE INVESTMENT WAS MADE IN THE EARLIER YEARS. AO WAS NOT SATISFIED AND HE DISALLOW ED A PROPORTIONATE AMOUNT OF INTEREST. 22. ON APPEAL THE LD. CIT(A) CONFIRMED THE ADDITIO N BECAUSE ACCORDING TO HIM INCOME IF ANY ATTRIBUTABLE TO TH E SHARES WAS EXEMPT U/S.14A. 23. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT THIS ISSUE MAY BE REMITTED TO THE FILE OF THE AO IN VIEW OF TH E DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO.LTD. VS. DCIT [328 ITR 81]. 24. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED TH E ORDER OF THE CIT(A). 25. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE AGR EE WITH THE OBSERVATIONS OF THE LD. CIT(A) THAT INCOME IF ANY FROM THE INVESTMENT WOULD BE EXEMPT LU/S.14A AND THEREFORE INTEREST W AS RIGHTLY DISALLOWED. SIMILAR VIEW HAS BEEN TAKEN BY THE SPEC IAL BENCH OF THE ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 12 TRIBUNAL IN THE CASE OF CHEMINVEST LTD. [121 ITD 31 8] WHEREIN IT WAS HELD AS UNDER: SECTION 14A READ WITH SECTION 10(34) OF THE INCO ME-TAX ACT 1961 EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCL UDIBLE IN TOTAL INCOME ASSESSMENT YEAR 2004-05 WHETHER SINCE DI VIDEND INCOME IS EXEMPTED FROM TAX BY VIRTUE OF SECTION 10(34) I NTEREST PAID ON BORROWED CAPITAL UTILIZED IN PURCHASE OF SHARES BE ING EXPENDITURE INCURRED IN RELATION TO DIVIDEND INCOME NOT FORMING PART OF ASSESSEES TOTAL INCOME CANNOT BE ALLOWED AS A DEDUCTION HE LD YES WHETHER SUCH DISALLOWANCE UNDER SECTION 14A CAN BE MADE EVE N IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY ASSESSEE HELD YES. HOWEVER AT THE SAME TIME INTEREST HAS BEEN DISALLO WED ON PROPORTIONATE BASIS WHICH MEANS INDIRECTLY RULE 8D HAS BEEN APPLIED WHICH IS NOT PERMISSIBLE IN THE LIGHT OF THE DECISI ON OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LT D. VS. DCIT [SUPRA] WHEREIN IT WAS HELD THAT RULE 8D IS APPLICABLE ONLY FROM A.Y 2008-09 AND HAS NO RETROSPECTIVE APPLICATION. IN FACT THE HON'BLE HIGH COURT HELD AS UNDER: HELD THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED W.E.F. MARCH 24 2008 SHALL APPLY WIT H EFFECT FROM ASST. YR. 2008-09. EVEN PRIOR TO ASSESSMENT YEAR 20 08-09 WHEN RULE 8D WAS NOT APPLICABLE THE ASSESSING OFFICER H AS TO ENFORCE THE PROVISIONS OF SUB-SECTION.(1) OF SECTION 14A. F OR THAT PURPOSE THE ASSESSING OFFICER IS DUTY BOUND TO DET ERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMST ANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SHALL STAND REMANDED BACK T O THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETE RMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FRO M MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFIC ER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIO NMENT. WHILE ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 13 MAKING THAT DETERMINATION THE ASSESSING OFFICER SH ALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE FOLLOWING THE ABOVE DECISION WE SET ASI DE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AO TO RECOMPUTE THE DISALLOWANCE OF INTEREST IN THE LIGHT OF THE DECISI ON OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO.LTD. VS. DCIT [SUPRA]. 26. GROUND NO.3 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THA T ASSESSEE HAD MADE A CLAIM UNDER THE HEAD COMMISSION AND TRADE D ISCOUNT AMOUNTING TO RS.30 42 000/-. THIS AMOUNT WAS DEBITE D AS PROVISION IN THE MONTH OF MARCH 2004 AND THEREFORE ASSESSEE W AS REQUESTED TO EXPLAIN WHY THIS CLAIM SHOULD NOT BE DISALLOWED BEI NG OF A CONTINGENT NATURE AS LIABILITY HAS NOT BEEN CRYSTALISED. IN RE SPONSE IT WAS STATED THAT THOUGH PROVISION WAS MADE DURING THE YEAR BUT CREDIT NOTES WERE ISSUED IN THE SUCCEEDING YEAR. THE AO DID NOT FIND MERIT IN THIS CONTENTION BECAUSE ACCORDING TO HIM THE LIABILITY ON ACCOUNT OF COMMISSION AND TRADE DISCOUNT WAS A CONTINGENT LIAB ILITY WHICH HAS NOT CRYSTALISED DURING THE YEAR AND THEREFORE HE DISA LLOWED THIS CLAIM. 27. THE LD. CIT(A) DECIDED THE ISSUE VIDE PARA 4.3 WHICH IS AS UNDER: 4.3 I HAVE GONE THROUGH THE ARGUMENTS AND SUBMISSI ONS OF THE LD. AR AS WELL AS THE CONTENTS OF THE IMPUGNED ASSESSME NT ORDER ON THIS ISSUE. I HAVE ALSO GONE THROUGH THE DETAILS SUBMITT ED FOR COMMISSION AND DISCOUNT TO THE TUNE OF RS.169.42 LACS WHEREIN DETAILS ARE FURNISHED FOR CASH DISCOUNT TO THE TUNE OF RS.50.24 LACS AND ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 14 COMMISSION TO THE TUNE OF RS.119.17 LACS RESPECTIVE LY. IT IS SEEN THAT THE APPELLANT HAS PROVIDED TURNOVER DISCOUNT AT CER TAIN RATE FOR COMPLETING TRANSACTIONS SUCH AS RS.9 40 390/- IS PR OVIDED ON 31-12- 2003 @ 3.5% PROVISION FOR THE TRANSACTIONS FROM APR IL TO DECEMBER 2003. BUT NO % [PERCENTAGE] IS MENTIONED AGAINST TH E PROVISION OF RS.30 LACS MADE ON 31-03-2004 & MENTIONED AS PROVIS ION FOR TOD. THUS IT CANNOT BE SAID THAT THIS PROVISION IS NOT A PROVISION BUT CRYSTALIZED LIABILITY LIKE THE EARLIER ONE WHEREAGA INST % [PERCENTAGE] IS MENTIONED. THEREFORE I DO NOT FIND ANY MERIT IN TH E ARGUMENTS AND SUBMISSIONS OF THE LD. AR ON THIS ISSUE AND THERE A PPEARS NO NEED TO INTERFERE WITH THE ACTION OF THE LD. AO THAT IS OT HERWISE JUSTIFIED. ACCORDINGLY THE ACTION OF THE AO ON THIS ISSUE IS UPHELD AND THE APPEAL FAILS ON THIS GROUND. 28. BEFORE US LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT TRADE DISCOUNT AS WELL AS COMMISSION IS GIVEN TO THE VARI OUS DEALERS ON THE BASIS OF VARIOUS SCHEMES OF THE COMPANY AS WELL AS TURN OVER OF THE DEALER. SUCH COMMISSION AND TRADE DISCOUNT WAS BEIN G ALLOWED ON MONTHLY OR QUARTERLY BASIS TO VARIOUS DEALERS. THER EFORE AT THE END OF THE YEAR IT IS NOT POSSIBLE TO ISSUE ALL THE CREDIT NOTES AND ACCORDINGLY A PROVISION IS MADE ON THE BASIS OF THE CALCULATION O F THE TURNOVER ETC. THEREFORE THIS LIABILITY CANNOT BE SAID TO BE OF C ONTINGENT NATURE. HE SUBMITTED THAT DETAILS OF CREDIT NOTES WERE FURNISH ED BEFORE THE AO [COPY OF WHICH IS AVAILABLE AT PAGES 52 TO 57 OF TH E PAPER BOOK]. 29. ON THE OTHER HAND LD. DR SUPPORTED THE ORDER O F THE CIT(A). 30. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. IT IS NOT GENERALLY POSSIBLE TO ISSUE ALL THE CREDIT NOTES PERTAINING T O THE LAST QUARTER OF THE YEAR AT THE END OF THE YEAR AND THAT IS WHY ASS ESSEE HAS CREATED A PROVISION ON THE BASIS OF THE CALCULATIONS. DETAILS OF CREDIT NOTES ISSUED TO VARIOUS PARTIES HAD BEEN FURNISHED AT PAGES 52 T O 57 OF THE PAPER BOOK AND ACTUAL TRADE DISCOUNT HAS BEEN CREDITED TO PARTIES BY DEBITING ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 15 THE PROVISION. THEREFORE IN OUR OPINION THIS PROV ISION WAS IN RESPECT OF ACTUAL EXPENDITURE AND IS ALLOWABLE. HOWEVER SINCE AO HAS NOT VERIFIED THE DETAILS WITH REFERENCE TO CREDIT NOTES AS PER D ETAILS FILED WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMAND THE MA TTER TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE AMOUNT OF PRO VISION WITH ACTUAL CREDIT NOTES AS PER DETAILS FILED AND THEN ALLOW TH E CLAIM. 31. GROUND NO.4 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT UNDER THE MI SCELLANEOUS EXPENSES A SUM OF RS.5 48 000/- HAS BEEN DEBITED AS DIRECTORS COMMISSION. IN RESPONSE TO A QUERY IT WAS STATED T HAT THE CLAIM HAD BEEN MADE ON THE BASIS OF THE BOARDS RESOLUTION AN D COMMISSION HAS BEEN PAID TO THE TWO DIRECTORS WHO WAS PROMOTER OF THE COMPANY ONE OF THE DIRECTORS WAS A TECHNOCRAT AND HAD GIVEN VAL UABLE SERVICES. THE AO DID NOT ACCEPT THESE SUBMISSIONS BY OBSERVING TH AT CONTENTION OF THE ASSESSEE IS NOT SUPPORTED BY ANY EVIDENCE TO SH OW THE NATURE OF SERVICES PROVIDED BY THE SAID DIRECTORS. 32. BEFORE THE LD. CIT(A) A COPY OF BOARD/S RESOLUT ION ALONG WITH THE LETTER DATED OCTOBER 3 2006 WAS FILED IN WHICH IT WAS MENTIONED THAT AN AGREEMENT OF 1% COMMISSION COULD BE MADE WITH NO N-EXECUTIVE DIRECTORS. IT WAS FURTHER CLARIFIED THAT COMMISSION WAS PAID TO ONLY TWO DIRECTORS VIZ. MR. S.K.MAHESHWARI WHO IS A TECHNOC RAT AND MR. D.C.ANAND WHO IS A PROMOTER OF THE COMPANY AND WAS THE GUIDING FORCE BEHIND SUCCESS OF THE COMPANY. THE LD. CIT(A) DECIDED THE ISSUE VIDE PARA 5.2 WHICH IS AS UNDER: ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 16 I HAVE GONE THROUGH THESE SUBMISSIONS. I FIND THAT THE LD. AO HAS NOT EXAMINED THIS ISSUE PROPERLY. 1% OF THE NET PRO FIT AS COMMISSION TO NON EXECUTIVE DIRECTORS CAN NOT BE SAID EXCESSIV E PAYMENT AS FAR AS IT IS CONCERNED WITH RESPECT TO MR. S.K.MAHESHWARI WHO IS A TECHNOCRAT. BUT CERTAINLY SUCH PAYMENT OF COMMISSIO N TO MR. D.C.ANAND WHO IS NOT ONLY THE PROMOTER DIRECTOR OF THE COMPANY BUT ALSO CHAIRMAN OF THE COMPANY IS NOT JUSTIFIED AS C HAIRMAN CANNOT BE SAID TO BE A NON-EXECUTIVE. THEREFORE THE PAYMENT MADE TO THE CHAIRMAN IS FOUND DISALLOWABLE AND ADDITION TO THE TUNE OF RS.2 74 000/- ONLY IS SUSTAINED. THE COMMISSION PAI D TO MR. S.K.MAHESHWARI IS ALLOWED. THE APPEAL SUCCEEDS PART IALLY ON THIS GROUND. 33. BEFORE US LD. COUNSEL OF THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND POINTED OUT THAT COMMISSION WAS PAID TO NON EXECUTIVE DIRECTOR. HOWEVER HE ADM ITTED THAT NO AGREEMENT IN TERMS OF THE BOARDS RESOLUTION HAD BE EN EXECUTED BY THE ASSESSEE. 34. ON THE OTHER HAND LD. DR SUPPORTED THE ORDER O F THE CIT(A). 35. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT LD. CIT(A) HAS CORRECTLY ADJUDICATED THE ISSUE BY ALLOWING THE COMMISSION IN THE CASE OF MR. S.K.MAHESHWARI WHO IS A TECHNOCRAT. SIN CE THE COMPANY HAS NOT EXECUTED ANY AGREEMENT WITH MR. D.C.ANAND I N TERMS OF THE BOARDS RESOLUTION THE AMOUNT HAS BEEN CORRECTLY D ISALLOWED. THEREFORE WE DECLINE TO INTERFERE WITH THE ORDER O F THE LD. CIT(A) AND REJECT THIS GROUND. 36. GROUND NO.5 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS MADE A CLAIM OF RS.5 73 000/- AS BAD DEBTS. THE ASSESSEE WAS REQUES TED TO EXPLAIN THE NATURE THEREOF AND THE YEAR IN WHICH IT WAS ORIGINA LLY TAXED. IN RESPONSE IT WAS STATED AS UNDER: ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 17 THESE ARE NORMAL BUSINESS BAD DEBTS WRITTEN OFF E VERY YEAR BASED ON THE AGE OF THE OUTSTANDING AMOUNT. ANY AMOUNT RE COVERED SUBSEQUENTLY IF ANY IS SHOWN AS RECOVERY OF BAD D EBTS. 37. ON APPEAL LD. CIT(A) CONFIRMED THE DISALLOWANC E IN VIEW OF THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. GIRISH BHAGWAT PRASAD [256 ITR 272]. 38. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT AFTER THE AMENDMENT W.E.F. 1-4-1989 THE ONLY CONDITION REQUIR ED FOR CLAIMING BAD DEBT IS THAT SAME MUST HAVE BEEN WRITTEN OFF AN D THEREFORE CIT(A) WAS NOT CORRECT IN REFERRING TO THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GIRISH BH AGWAT PRASAD [SUPRA]. HE ALSO PLACED RELIANCE ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DIT (INTERNATIONAL TAXATI ON) VS. OMAN INTERNATIONAL BANK [313 ITR 128]. 39. ON THE OTHER HAND LD. DR POINTED OUT THAT NO D ETAILS HAVE BEEN FILED AND THE HON'BLE HIGH COURT IN THE ABOVE DECIS ION HAS ALSO OBSERVED THAT ATLEAST WRITING OFF OF THE BAD DEBT H AS TO BE BONA FIDE. 40. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT NO DETAILS OF BAD DEBTS WRITTEN OFF HAVE BEEN FILED BEFORE THE AO OR CIT(A) OR EVEN BEFORE US AND IT IS SIMPLY STATED TH AT SOME BAD DEBTS HAVE BEEN WRITTEN OFF. WE FURTHER FIND THAT NO DOU BT AFTER 1-4-1989 THE REQUIREMENT OF LAW FOR CLAIMING A BAD DEBT IS T HAT SAME MUST HAVE BEEN WRITTEN OFF BUT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DIT VS. OMAN INTERNATIONAL BANK [SUPRA] HAS ALSO OBSERV ED AT PLACITUM 17 & 18 AS UNDER: ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 18 10. LET US REFER TO SOME DICTIONARY MEANINGS OF TH E WORD 'BAD DEBT'. CHAMBERS 20TH CENTURY DICTIONARY REFERS TO BAD DEBT AS 'A DEBT THAT CANNOT BE RECOVERED'. MITRA S LEGAL & COMMERCIAL DICTIONARY REFERS TO BAD DEBT AS 'A DEBT BECOMES BAD DEBT WHEN THE CR EDITOR HAS NO REASONABLE CHANCE OF RECOVERING IT FROM THE DEBTOR AS HELD IN DEONITI PRASAD VS. CIT AIR 1953 PAT 360. THE LAW LEXICON RE FERS TO BAD DEBT AS 'DEBT WHICH CANNOT REASONABLY BE COLLECTED. A DE BT ABOUT WHICH THERE IS NO REASONABLE EXPECTATION OF RECOVERY; A D EBT BELIEVED TO BE UNRECOVERABLE.' REFERENCE MAY ALSO BE MADE TO P. 87 8 OF THE 'LAW AND PRACTICE OF INCOME-TAX BY KANGA PALKHIWALA & V YAS 9TH EDN. WHERE THE LEARNED JURIST OPINED AS UNDER : 'UNDER T HE AMENDED CLAUSE THE REQUIREMENT OF ESTABLISHING THAT TH E DEBT HAD BECOME BAD IN THE RELEVANT ACCOUNTING YEAR IS DISPENSED WI TH; ALL THAT THE ASSESSEE HAS TO SHOW IS THAT THE BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE. BUT THE SUBJECT-MATTER OF THE CLAUS E IS STILL ANY BAD DEBT AND NOT ANY DEBT . THE CONSEQUENCES OF T HE AMENDMENT ARE MAINLY THREE : (I) THE ASSESSEE CANNOT ARBITRARILY IRRATIONALLY OR MALA FIDE TREAT A GOOD DEBT AS BAD WRITE IT OFF IN HIS ACCOUNTS. (II) WHERE THE ASSESSEE HAS ACTED BONA FIDE AND REASONABLE TH E AO CANNOT SUBSTITUTE HIS OWN SUBJECTIVE JUDGMENT BUT MUST AC CEPT THE ASSESSEE S DECISION AS TO THE QUALITY OF THE DEBT. (III) T HE ASSESSEE IS NOT OBLIGED TO WRITE OFF AND CLAIM THE DEBT IN THE VERY YEAR IN WHICH IT BECOMES BAD. HE CAN WRITE IT OFF AND CLAIM IT IN A SUBSEQUENT YEAR IN WHICH THE DEBT CONTINUES TO REMAIN BAD.' 11. ALL THIS WOULD INDICATE THAT WHEN THE ASSESSEE TREATS THE DEBT AS A BAD DEBT IN HIS BOOKS THE DECISION HAS TO BE A BUSINESS OR C OMMERCIAL DECISION AND NOT WHIMSICAL OR FANCIFUL. THE DECISIO N MUST BE BASED ON MATERIAL THAT THE DEBT IS NOT RECOVERABLE. THE DECISION MUST BE BONA FIDE. THE DIFFERENCE BETWEEN THE POSITION PRE-AMENDMENT AND POST-AMENDMENT WOULD BE THAT THE BURDEN IS NO LONGER ON THE ASSESSEE AND CAN BE CLAIMED IN THE YEAR IT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT AS IRRECOVERABLE. THE AO IF HE IS TO DISALLOW THE DEBT AS A BAD DEBT MUST ARRIVE AT A CONCLUSION THAT THE DECISION WAS NOT BONA FIDE. THE AO ONLY IN THOSE CIRCUMSTANCES AND T O THAT EXTENT MAY INTERFERE. ALL THAT THE ASSESSEE MUST DO IS TO BE PRIMA FACIE SATISFIED BASED ON THE INFORMATION AVAI LABLE THAT THE DEBT IS BAD AND THAT WOULD BE SUFFICIENT REQUIR EMENT OF THE AMENDED PROVISIONS. THE ABOVE CLEARLY SHOWS THAT BONAFIDES OF THE ASSES SEE HAVE TO BE VERIFIED BEFORE ALLOWING THE CLAIM. IT IS NOT POSSI BLE TO CLAIM EVERY WRITE OFF AS BAD DEBT. SINCE NO DETAILS HAVE BEEN FILED B EFORE US DESPITE OF FACT THAT CLAIM HAS BEEN REJECTED FOR NON FILING OF THE DETAILS WE ARE CONSTRAINED TO CONFIRM THE ORDER OF THE LD. CIT(A). ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 19 41. GROUND NO.6 WAS NOT PRESSED BEFORE US THEREFOR E SAME IS DISMISSED AS NOT PRESSED. 42. GROUNDS NOS.7 8 & 9 ARE IN RESPECT OF DISALLOW ANCE OF 50% OF STAFF WELFARE EXPENSES 15% OF MISCELLANEOUS EXPENS ES AND 10% OF FOREIGN TRAVEL EXPENSES. THESE EXPENSES WERE DISALL OWED BY THE AO BECAUSE ACCORDING TO HIM NO SPECIFIC DETAILS WERE FURNISHED AND SOME OF THE EXPENDITURE COULD NOT BE IN RELATION TO BUSI NESS. 43. ON APPEAL THE DISALLOWANCE WAS RESTRICTED TO 2 0% OF STAFF WELFARE EXPENSES AND 10% EACH IN THE CASE OF MISCEL LANEOUS AND FOREIGN TRAVEL EXPENSES. 44. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER O F THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A.NO.2067/MUM/07 FOR A.Y 2003-04. 45. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED TH E ORDER OF THE CIT(A). 46. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THE TRIBUNAL HAS DECIDED THESE ISSUES VIDE PARAS 8 10 & 11 WHIC H ARE AS UNDER: 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PE RUSED THE ORDERS OF THE LOWER AUTHORITIES. THE CIT(A) ALSO GA VE A FINDING THAT EXPENDITURE IS FOR BUSINESS PURPOSES. WE FIND THAT IN THE CASE OF THE ASSESSEE ASSESSMENT YEAR 2001-02 THE TRIBUNAL VIDE ITS ORDER DATED 17-3-2008 IN I.T.A.NO.335/M/2005 REJECTED THE APPEA L FILED BY THE REVENUE BY CONFIRMING THE ORDER OF THE CIT(A). FOLL OWING THE ABOVE FINDINGS SINCE FACTS ARE SAME IN THIS YEAR WE CONF IRM THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.2. 10. WE HAVE HEARD BOTH THE PARTIES. CONSIDERING TH E FACTS AND THE ADHOC DISALLOWANCE MADE BY THE AO WE UPHOLD THE OR DER OF THE CIT(A). THERE IS NO SCOPE TO MADE ADHOC DISALLOWANC E. THE GROUND IS ACCORDINGLY DISMISSED. ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 20 11. GROUND NO.4 IS IN RESPECT OF DELETION OF DISALL OWANCE OF RS.3 54 954/- ON FOREIGN TRAVEL EXPENSES AT 10% OF THE CLAIM. THE AO MADE THE DISALLOWANCE BY HOLDING THAT SPECIFIC INFO RMATION REGARDING PERSON PURPOSE AND PLACE OF VISIT HAS NOT BEEN FUR NISHED. THE LEARNED CIT(A) ON APPEAL DELETED THE ADDITION. AFTE R HEARING BOTH THE SIDES WE FIND THAT THE ISSUE WAS ALLOWED BY THE TR IBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 IN I.T.A.NO.335/MUM/2005 VIDE ORDER DATED 17-3-2008. R ESPECTFULLY FOLLOWING THE SAME SINCE THE FACTS AND REASONS FOR DISALLOWANCE ARE SAME WE DISMISS THE GROUND RAISED BY THE REVENUE. FOLLOWING THE ABOVE ORDER WE DECIDE THE ABOVE ISSU E IN FAVOUR OF THE ASSESSEE. 47. GROUND NO.10 : THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT THERE WERE VARIOUS ISSUES INVOLVED IN RESPECT OF DE DUCTION U/S.80HHC AND SOME OF THEM HAVE BEEN ALLOWED IN FAVOUR OF THE ASSESSEE BY THE CIT(A). THEREFORE THE ONLY GRIEVANCE RAISED THROUG H THIS GROUND BY THE ASSESSEE WAS IN RESPECT OF DEPB ENTITLEMENTS AN D HE FAIRLY CONCEDED THAT THE ISSUE REGARDING DEPB IS COVERED A GAINST THE ASSESSEE BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOUR & CHEMICAL [328 ITR 461 ]. 48. ON THE OTHER HAND LD. DR SUPPORTED THE ORDER O F THE CIT(A). 49. ON THE OTHER LD. DR SUPPORTED THE ORDER OF THE CIT(A). 50. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE ISSUE REGARDING DEPB HAS BEEN DECIDED BY THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOUR & CHEMICAL [SUPRA] AGAINST THE ASSESSEE AND THE RELEVANT PARA HAS BEEN ALREADY REP RODUCED BY US ABOVE WHILE ADJUDICATING ASSESSEES APPEAL FOR A.Y 2001-02. THEREFORE FOLLOWING THE SAME THIS ISSUE IS DECIDED AGAINST T HE ASSESSEE. ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 21 51. GROUND NO.11 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSES SEE HAD CLAIMED CARRIED FORWARD OF LONG TERM CAPITAL LOSS AND SALE OF SHARES OF SPICER INDIA LTD AMOUNTING TO RS.4 58 50 060/-. AO REQUEST ED THE ASSESSEE TO EXPLAIN THE DETAILS OF THE CLAIM BY FURNISHING EVID ENCE IN SUPPORT OF COST OF ACQUISITION AND SALE PRICE. THE ASSESSEE WA S ALSO REQUESTED TO GIVE DETAILS OF TRANSFER OF SHARES AND WHETHER SAME WERE TRANSFERRED THROUGH STOCK EXCHANGE. THE ASSESSEE WAS ALSO REQUI RED TO FURNISH DETAILS OF PAYMENTS ETC. IN RESPONSE IT WAS STATED AS UNDER: THE AFORESAID SHARES WERE SOLD AT COST PRICE THAT IS RS.10 PER SHARE AND HENCE THERE WAS NO BOOK PROFIT AND LOSS A CCOUNTED FOR THE SAME. THE COMPANY HAS HOWEVER RETURNED A CAPITAL LO SS THE DETAILS OF WHICH HAVE BEEN FILED ALONG WITH THE RETURN. THE SH ARES OF THE COMPANY WERE NOT LISTED ON ANY STOCK EXCHANGE AND H ENCE THE TRANSACTION OF SALE WAS NOT ROUTED THROUGH THE STOC K EXCHANGE. THE SHARES WERE SOLD ON MARCH 29 2004. THE BALANC E SHEET OF THE SPICER INDIA LIMITED IS ENCLOSED. ON PERUSAL OF THE SAME IT CAN BE OBSERVED THAT THE COMPANY WAS MAKING LOSSES AND ITS NETWORTH WAS LESS THAN RS.10 AND HENCE THE SALE WAS MADE AT RS.1 0 PER SHARE. THE AO DID NOT FIND FORCE IN THE ABOVE CONTENTIONS AND OBSERVED THAT SPICER INDIA LTD. WAS A RELATED COMPANY AND WAS NOT LISTED. HE WAS OF THE VIEW THAT THE REPLY GIVEN BY THE ASSESSEE WAS V ERY VAGUE AND THEREFORE THE TRANSACTION WAS NOTHING BUT A PAPER TRANSACTION AND ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE. 52. ON APPEAL LD. CIT(A) THE ISSUE VIDE PARA 12.3 WHICH IS AS UNDER: 12.3 I HAVE GONE THROUGH THE SUBMISSIONS OF THE LD . AR AS WELL AS THE CONTENTS OF THE IMPUGNED ASSESSMENT ORDER. I HA VE ALSO GONE THROUGH THE SUBMISSIONS OF LD. AR IN THE FORM OF NO TE ON SALE OF 1 11 20 000 EQUITY SHARES OF SPICER INDIA LTD. CONT AINED IN THEIR LETTER DATED 29-11-2006 SUBMITTED BEFORE THE LD. AO DURING THE ASSESSMENT PROCEEDINGS. IT IS SEEN THAT THE SHARES WERE SOLD I N MARCH 2004. ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 22 THERE IS NO DISPUTE THAT SPICER INDIA LTD. IS NOT A LISTED COMPANY. HOWEVER I FIND THAT NO BUSINESS EXPEDIENCY HAS BEE N BROUGHT OUT AS TO WHY IT WAS NECESSARY TO SELL THESE SHARES AT HUG E LOSS JUST TWO DAYS BEFORE THE CLOSE OF THE FINANCIAL YEAR. THEREFORE FINDINGS OF THE LD. AO APPEAR TO BE JUDICIOUS IN THE FACTS AND CIRCUMST ANCES OF THE INSTANT CASE AND THERE APPEARS NO NEED TO INTERFERE WITH THE ACTION OF THE LD. AO ON THIS ISSUE. ACCORDINGLY THE ACTION O F THE LD. AO IN DISALLOWING LONG TERM CAPITAL LOSS TO THE TUNE OF R S.4 58 50 060/- IS UPHELD AND THE APPEAL FAILS ON THIS GROUND. 53. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTE D THAT SPICER INDIA LTD. WAS STARTED ALONG WITH THE US COLLABORAT ORS. LATER ON U.S. COLLABORATORS WANTED TO CARRY ON WITH THIS BUSINESS ON THEIR OWN. SINCE SPICER INDIA LTD. WAS CONTINUOUSLY SUFFERING LOSS THEREFORE ASSESSEE ALSO AGREED TO SELL ITS SHARES AT THE COST PRICE AN D THEREFORE IT WAS A ACTUAL LOSS. THE LOSS HAS ARISEN BECAUSE OF INDEXAT ION AND HENCE SAME SHOULD HAVE BEEN ALLOWED. 54. ON THE OTHER HAND LD. DR SUPPORTED THE ORDER O F THE CIT(A). 55. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT AO AS WELL AS CIT(A) HAS DISCUSSED THIS ISSUE SUMMA RILY. THE LD. CIT(A) HAS SIMPLY OBSERVED THAT NO BUSINESS EXPEDIE NCY WAS THERE WHEN THESE SHARES WERE SOLD. THEREFORE IN THE INTE REST OF JUSTICE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THI S ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO RE-EXAMINE THE ISSUE. 56. IN THE RESULT ASSESSEES APPEAL IN I.T.A.NO.76 31/M/10 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 57. I.T.A.NO.7653/M/07 [REVENUES APPEAL] A.Y 04- 05 : IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER LAW THE LD. CIT(A) ERRED IN DIRECTING TO TREAT THE EXPENSES INCURRED AT RS.22 65 705/- ON STORES & SPARES AS REVENUE EXPENS ES IGNORING THE ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 23 FACT THAT THE FINDINGS AND DETAILED REASONING GIVEN BY THE ASSESSING OFFICER WHILE HOLDING THE SAME TO BE CAPITAL IN NAT URE. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN RESPECT OF COMMISSION PAID TO MR. S.K.MA HESHWARI AT RS.2 74 000/- IGNORING THE FINDING GIVEN BY THE ASS ESSING OFFICER. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER LAW THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OU T OF STAFF WELFARE EXPENSES TO RS.1.79 LAKHS AS AGAINST DISALLOWANCE OF RS.35 55 000/- MADE BY THE ASSESSING OFFICER IGNORING THE DETAILE D REASONING GIVEN BY THE ASSESSING OFFICER. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND AS PER LAW THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF MISCELLANEOUS EXPENDITURE TO RS.14 82 800/- THE SAME BEING 10% O F TOTAL MISCELLANEOUS EXPENDITURE AS AGAINST THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER AT RS.22 24 200/- IGNORING THE D ETAILED REASONING GIVEN BY THE ASSESSING OFFICER. 58. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO HAD NOTED THAT ASSESS EE HAD CLAIMED CERTAIN EXPENSES ON TOOLING SPARES AND REPAIRS. IN RESPONSE TO A QUERY THAT WHY IT SHOULD NOT BE TREATED AS CAPITAL EXPEND ITURE IT WAS STATED THAT THE EXPENDITURE WAS IN THE NATURE OF REVENUE A S NO ENDURING BENEFIT HAS BEEN OBTAINED. THE AO DISALLOWED A TOTA L SUM OF RS.1 32 26 962/-. 59. ON APPEAL THE LD. CIT(A) CONFIRMED THE DISALLO WANCE ON ACCOUNT OF TOOLING EXPENSES AMOUNTING TO RS.1 09 61 257/-. HOWEVER AS FAR AS SUM OF RS.22 65 705/- IS CONCERNED SAME WAS ALLOWED AS THIS EXPENDITURE WAS IN RESPECT OF SPARES AND STORES WHI CH ACCORDING TO THE LD. CIT(A) WERE IN THE NATURE OF CONSUMABLES O R HAD BECOME OBSOLETE. 60. BEFORE US LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO. ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 24 61. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE REITERATED THE SUBMISSIONS WHICH WERE MADE BY HIM WHILE ARGUING TH E ASSESSEES APPEAL. 62. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WHILE ADJUDICATING THE ASSESSEES APPEAL IN THIS RESPECT WE HAVE ALRE ADY CONFIRMED THE ADDITION OF RS.1 09.61.257/- WHICH WAS MADE FOR TOO LING EXPENSES. HOWEVER WE FIND THAT LD. CIT(A) HAS CORRECTLY ALLO WED THE CLAIM OF RS.22 65 705/- BECAUSE SAME IS ON ACCOUNT OF SPARES AND REPAIRS WHICH ARE OF CONSUMABLES NATURE. THEREFORE WE FIND NOTHING WRONG IN THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 63. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT THE AO HAD DISALLOWED A SUM OF RS.5 48 000/- ON ACCOUNT OF COMMISSION TO DIRECTORS BECAUSE ASSESSEE HAS NOT FURNISHED THE DE TAILS REGARDING SERVICES PROVIDED BY SUCH DIRECTORS. 64. ON APPEAL LD. CIT(A) ALLOWED THE COMMISSION AM OUNT TO RS.2 74 000/- TO MR. S.K.MAHESHWARI WHO WAS A TECHN OCRAT. 65. BOTH THE PARTIES HAVE MADE IDENTIAL SUBMISSIONS WHICH WERE MADE DURING THE ASSESSEES APPEAL. 66. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE ALREADY EXTRACTED THE RELEVANT PARA OF THE CIT(A)S ORDER W HILE ADJUDICATING THE ASSESSEES APPEAL WHICH IS AGAIN REPRODUCED HEREUND ER: I HAVE GONE THROUGH THESE SUBMISSIONS. I FIND THAT THE LD. AO HAS NOT EXAMINED THIS ISSUE PROPERLY. 1% OF THE NET PRO FIT AS COMMISSION TO NON EXECUTIVE DIRECTORS CAN NOT BE SAID EXCESSIV E PAYMENT AS FAR AS IT IS CONCERNED WITH RESPECT TO MR. S.K.MAHESHWARI WHO IS A TECHNOCRAT. BUT CERTAINLY SUCH PAYMENT OF COMMISSIO N TO MR. D.C.ANAND WHO IS NOT ONLY THE PROMOTER DIRECTOR OF THE COMPANY BUT ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 25 ALSO CHAIRMAN OF THE COMPANY IS NOT JUSTIFIED AS C HAIRMAN CANNOT BE SAID TO BE A NON-EXECUTIVE. THEREFORE THE PAYMENT MADE TO THE CHAIRMAN IS FOUND DISALLOWABLE AND ADDITION TO THE TUNE OF RS.2 74 000/- ONLY IS SUSTAINED. THE COMMISSION PAI D TO MR. S.K.MAHESHWARI IS ALLOWED. THE APPEAL SUCCEEDS PART IALLY ON THIS GROUND. WE ARE OF THE OPINION THAT THE LD. CIT(A) HAS RIGHT LY ALLOWED THE COMMISSION PAID TO MR. S.K.MAHESHWARI WHO WAS A TEC HNOCRAT AND THEREFORE DECLINE TO INTERFERE WITH THE ORDER OF T HE LD. CIT(A). 67. GROUND NOS.3 & 4 : BOTH THESE GROUNDS HAVE BEEN ADJUDICATED BY US WHILE ADJUDICATING ASSESSEES APPEAL IN GROUN D NOS.7 & 8 WHEREIN WE HAVE DELETED THE ADDITION BY FOLLOWING T HE ORDER OF THE TRIBUNAL FOR A.Y 2003-04 VIDE PARA-46. IN VIEW OF T HE SAME WE DISMISS THESE GROUNDS. 68. IN THE RESULT REVENUES APPEAL IN I.T.A.NO.765 3/M/10 FOR A.Y 04-05 IS DISMISSED. 69. I.T.A.NO.638/M/10 [ASSESSEES APPEAL] A.Y 2005- 06 : IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE AOS ACT ION OF DISALLOWING COMMISSION PAID TO DIRECTORS AMOUNTING TO RS.9 50 0 00 TREATING THE SAME AS NON BUSINESS EXPENSES. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE AOS ACT ION OF DISALLOWING THE BAD DEBTS TO THE TUNE OF RS.5 30 184. 3. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE AOS ACTION OF DISALLOWING ADVANCE WRITTEN OFF TO THE TUNE OF RS.1 3 93 559. 4. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE AT 20% OF SRS.80 44 494 OF STAFF WELFARE EXPENSES TREATING IT AS NON BUSINESS EXPENDITURE WITHOUT GOING INTO THE TRUE NATURE AND PURPOSE OF THE EXPENDITURE. 5. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE AT 10% OF THE TOTAL EXPENDITURE OF RS.1 64 05 528 OF M ISCELLANEOUS EXPENSES TREATING IT AS NON BUSINESS EXPENDITURE WI THOUT GOING INTO THE TRUE NATURE AND PURPOSE OF THE EXPENDITURE. ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 26 6. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF AN ADHOC AMOUNT OF RS.1 43 816 BEING 10% OF FOREIGN TR AVEL EXPENSES ALLEGING THAT SPECIFIC DETAILS WERE NOT SUBMITTED. 70. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT IN T HIS YEAR ALSO AO HAS DISALLOWED COMMISSION PAID TO THE DIRECTOR AMOUNTING TO RS.9 50 000/- BECAUSE NATURE OF SERVICES PROVIDE D BY THE DIRECTOR HAS NOT BEEN APPROVED. 71. ON APPEAL LD. CIT(A) HAS ADJUDICATED THE ISSUE VIDE PARA 2.3 WHICH IS AS UNDER: 2.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT. THE APPELLANT VIDE LETTER DATED 24-11-2009 ADMITTED TH AT THERE IS NO CONTRACTUAL OBLIGATION TO GIVE COMMISSIONS TO THE D IRECTORS. THEREFORE IT CANNOT BE SAID THAT THE APPELLANT COMPANY HAS IN CURRED ANY LIABILITY TO PAY TILL THE BOARD DECIDED TO PASS A RESOLUTION FOR GIVING COMMISSIONS TO THE DIRECTORS. IN THE PRESENT CASE B OARD RESOLUTION IS PASSED ON 23-05-2005. THIS DATE FALLS AFTER THE END OF THE FINANCIAL YEAR. THIS COMMISSION IS PAID ON THE BASIS OF NET P ROFIT OF THE APPELLANT COMPANY. THE APPELLANT IS MAINTAINING THE BOOKS OF ACCOUNT ON MERCANTILE BASIS AND THEREFORE AN EXPENSES CAN BE ALLOWED AS DEDUCTION ONLY IF THE LIABILITY TO PAY ARISES DURIN G THE YEAR UNDER CONSIDERATION. IN THE PRESENT CASE SINCE THERE WAS NO LIABILITY TO PAY COMMISSIONS UNDER ANY CONTRACT LIABILITY TO PAY AR ISES ON THE DATE OF BOARD RESOLUTION ONLY. THE BOARD RESOLUTION IS DATE D 23-05-2009 AND THEREFORE IT CANNOT BE SAID THAT ANY LIABILITY TO P AY COMMISSION AROSE IN THE CURRENT YEAR. THEREFORE DEDUCTION CLAIMED B Y THE APPELLANT CANNOT BE ALLOWED. THE ACTION OF THE ASSESSING OFFI CER IS UPHELD. THIS GROUND OF APPEAL IS NOT ALLOWED. 72. BOTH THE PARTIES SUBMITTED THAT THE ISSUE INVOL VED IS SIMILAR TO THE ISSUE REGARDING DIRECTORS COMMISSIONS IN A.Y 2 004-05. 73. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT WHILE ADJUDICATING THE ISSUE REGARDING DIRECTORS COMMISSI ON WE HAVE CONFIRMED THE ORDER OF THE LD. CIT(A) IN ALLOWING T HE COMMISSION ONLY IN RESPECT OF MR. S.K.MAHESHWARI WHO IS A TECHNOCRA T. SINCE NO AGREEMENT HAS BEEN MADE WITH MR. D.C.ANAND COMMISS ION PAID TO HIM WAS DISALLOWED. THEREFORE IN THIS YEAR ALSO W E ARE OF THE OPINION ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 27 THAT COMMISSION PAID ONLY TO MR. S.K.MAHESHWARI WHO WAS A TECHNOCRAT IS ALLOWABLE AND ACCORDINGLY WE DIRECT THE AO TO ALLOW THE COMMISSION PAID TO MR. S.K.MAHESHWARI. AS FAR AS CO MMISSION PAID TO MR. D.C.ANAND IS CONCERNED SAME CANNOT BE ALLOWED BECAUSE HE IS NOT A TECHNICAL DIRECTOR AND NO AGREEMENT HAS BEEN ENTERED INTO. THEREFORE THIS GROUND IS PARTLY ALLOWED. 74. GROUND NO.2 : IN THIS YEAR ALSO AO HAD DISALLOWED BAD DEBTS AMOUNTING TO RS.5 30 184/- BECAUSE NO DETAILS WERE FURNISHED. 75. ON APPEAL LD. CIT(A) CONFIRMED THE ADDITION OB SERVING THAT EVEN IN THE DECISION OF CIT VS. VS. OMAN INTERNATIO NAL BANK [SUPRA]THE HON'BLE BOMBAY HIGH COURT HAS OBSERVED THAT MERE WR ITING OFF BAD DEBT IS NOT ENOUGH AND ASSESSEE HAD TO SHOW THAT IT S DECISION TO WRITE OFF THE BAD DEBT WAS BONA FIDE. 76. BOTH THE PARTIES MADE SIMILAR SUBMISSIONS. 77. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THIS ISSUE HAS BEEN ADJUDICATE BY US VIDE PARA-40 WHEREIN CLAI M FOR BAD DEBT WAS REJECTED IN THE ABSENCE OF DETAILS. SINCE IN THIS Y EAR ALSO NO DETAILS HAVE BEEN FILED THEREFORE WE REJECT THE CLAIM OF THE ASSESSEE. 78. GROUND NO.3 WAS NOT PRESSED BEFORE US THEREFOR E SAME IS DISMISSED AS NOT PRESSED. 79. GROUNDS NOS.4 5 & 6 : IN THESE GROUNDS ADDITIONS OF 20% OF STAFF WELFARE EXPENSES 10% OF MISCELLANEOUS EXPENS ES AND 10% OF FOREIGN TRAVEL EXPENSES HAVE BEEN CHALLENGED ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 28 80. BOTH THE PARTIES HAVE MADE THE SIMILAR SUBMISSI ONS AS IN A.Y2004-05 81. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THESE ISSUES HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE PA RA-46 ABOVE IN VIEW OF THE ORDER OF TRIBUNAL IN A.Y 2003-04. THERE FORE THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE. 82. I.T.NO. 4180/M/10[ASSESSEES APPEAL] A.Y 06-07: IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW- 1) THE LEARNED CIT[A] ERRED IN CONFIRMING THE DISALLOW ANCE OF COMMISSION PAID TO DIRECTORS AMOUNTING TO RS.1 30 0 00 TREATING THE SAME AS NON BUSINESS EXPENSES. 2) THE LEARNED CIT[A]] ERRED IN CONFIRMING THE DISALLO WANCE OF THE BAD DEBTS TO THE TUNE OF RS. .5 64 271. 3) THE LEARNED CIT[A] ERRED IN CONFIRMING THE DISALLOW ANCE OF ADVANCE WRITTEN OFF TO THE TUNE OF RS.13 10 560. 4) THE LEARNED CIT[A] ERRED IN CONFIRMING THE ADHOC DI SALLOWANCE AT 20% OF THE TOTAL EXPENDITURE OF RS.87 94 825 OF STA FF WELFARE EXPENSES TREATING IT AS NON BUSINESS EXPENDITURE WI THOUT GOING INTO THE TRUE NATURE AND PURPOSE OF THE EXPENDITURE . 5) THE LEARNED CIT[A] ERRED IN CONFIRMING AN ADHOC DIS ALLOWANCE AT 10% OF THE TOTAL EXPENDITURE OF RS.1 48 02 880 OF M ISCELLANEOUS EXPENSES TREATING IT AS NON BUSINESS EXPENDITURE WI THOUT GOING INTO THE TRUE NATURE AND PURPOSE OF THE EXPENDITURE . 6) THE LEARNED CIT[A] ERRED IN CONFIRMING THE ADHOC DI SALLOWANCE OF RS.1 89 960 BEING 10% OF FOREIGN TRAVEL EXPENSES AL LEGING THAT SPECIFIC DETAILS WERE NOT SUBMITTED. 83. GROUND NO.1 : IN THIS YEAR THE COMMISSION HAS BEEN PAID ONLY TO MR. S.K.MAHESHWARI WHO IS A TECHNOCRAT. THE COMMISS ION PAID HAS ALSO BEEN HELD TO BE ALLOWABLE BY US VIDE PARA-35. THERE FORE IN THIS YEAR ALSO WE ARE OF THE VIEW THAT THE COMMISSION PAID T O HIM IS ALLOWABLE AND ACCORDINGLY WE DIRECT THE AO TO ALLOW THE COM MISSION. ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 29 84. GROUND NO.2 : IN THIS YEAR ALSO AO HAD DISALLOWED BAD DEBTS AMOUNTING TO RS.5 64 271/- BECAUSE NO DETAILS WERE FURNISHED. 85. ON APPEAL LD. CIT(A) CONFIRMED THE ADDITION OB SERVING THAT EVEN IN THE DECISION OF CIT VS. VS. OMAN INTERNATIO NAL BANK [SUPRA]THE HON'BLE BOMBAY HIGH COURT HAS OBSERVED THAT MERE WR ITING OFF BAD DEBT IS NOT ENOUGH AND ASSESSEE HAD TO SHOW THAT IT S DECISION TO WRITE OFF THE BAD DEBT WAS BONA FIDE. 86. BOTH THE PARTIES MADE SIMILAR SUBMISSIONS. 87. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THIS ISSUE HAS BEEN ADJUDICATE BY US VIDE PARA-40 WHEREIN CLAI M FOR BAD DEBT WAS REJECTED IN THE ABSENCE OF DETAILS. SINCE IN THIS Y EAR ALSO NO DETAILS HAVE BEEN FILED THEREFORE WE REJECT THE CLAIM OF THE ASSESSEE. 88. GROUND NO.3 WAS NOT PRESSED BEFORE US THEREFOR E SAME IS DISMISSED AS NOT PRESSED. 89. GROUNDS NOS.4 5 & 6 : IN THESE GROUNDS ADDITIONS OF 20% OF STAFF WELFARE EXPENSES 10% OF MISCELLANEOUS EXPENS ES AND 10% OF FOREIGN TRAVEL EXPENSES HAVE BEEN CHALLENGED. 90. BOTH THE PARTIES HAVE MADE THE SIMILAR SUBMISSI ONS AS IN A.Y 2004-05 91. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THESE ISSUES HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE PA RA-46 ABOVE IN VIEW OF THE ORDER OF TRIBUNAL IN A.Y 2003-04. THERE FORE THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE. ITA NOS.3829 3875 7631 765 3 638 & 4180/M/10 30 92. IN THE RESULT ASSESSEES APPEAL IN I.T.A.NO.41 89/M/10 FOR A.Y 06-07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 21/9/2011. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 21/9/2011. P/-*