M/s KCP Ltd,, Chennai v. The ACIT, Circle-1(1)., Vijayawada

ITA 506/VIZ/2008 | 2005-2006
Pronouncement Date: 28-07-2010 | Result: Allowed

Appeal Details

RSA Number 50625314 RSA 2008
Assessee PAN AAACT8046J
Bench Visakhapatnam
Appeal Number ITA 506/VIZ/2008
Duration Of Justice 1 year(s) 9 month(s) 22 day(s)
Appellant M/s KCP Ltd,, Chennai
Respondent The ACIT, Circle-1(1)., Vijayawada
Appeal Type Income Tax Appeal
Pronouncement Date 28-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 28-07-2010
Date Of Final Hearing 12-04-2010
Next Hearing Date 12-04-2010
Assessment Year 2005-2006
Appeal Filed On 06-10-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SRI B.R. BASKARAN ACCOUNTANT MEMBER I.T.A. NO.135/V/2005 ASSESSMENT YEAR : 2001-02 ITA NO.503/V/2006 ASSESSMENT YEAR : 2003-04 ITA NO.340 572 & 638/V/2008 ASSESSMENT YEAR : 2004-05 TO 2006-07 ADDITIONAL COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJAYAWADA VS. M/S KCP LTD. CHENNAI. (APPELLANT) (RESPONDENT) PAN : AAACT8046J I.T.A. NO.182/V/2005 ASSESSMENT YEAR : 2002-03 DY.COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJAYAWADA. VS. M/S KCP LTD. CHENNAI. (APPELLANT) (RESPONDENT) PAN : AAACT8046J I.T.A. NO.506 & 636/V/2008 ASSESSMENT YEAR : 2005-06 & 2006-07 M/S KCP LTD. CHENNAI. VS. ADDITIONAL COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJAYAWADA (APPELLANT) (RESPONDENT) PAN : AAACT8046J ASSESSEE BY : SHRI C. SUBRAHMANYAM CA REVENUE BY : SHRI SUBRATA SARKAR. 2 O R D E R PER BENCH: ALL THESE APPEALS ARE DIRECTED AGAINST THE ORDERS OF THE LD. CIT(A) VIJAYAWADA. WHILE THE DEPARTMENT IS IN APPEAL FOR ASSESSMENT YEARS 2001-02 TO 2006-07 THE ASSESSEE IS IN APPEAL FOR ASSESSMENT Y EARS 2005-06 AND 2006-07. SINCE IDENTICAL ISSUES ARE INVOLVED IN THESE APPEAL S THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. THE FIRST ISSUE IN THE APPEALS FILED OF THE REVE NUE WHICH IS FINDING PLACE IN ALL THE SIX APPEALS FILED BY THEM RELATES TO THE D ISALLOWANCE OF EXPENSES CLAIMED UNDER THE HEAD LIQUIDATED DAMAGES. THE YEARWISE BREAK UP IS STATED BELOW: ASSESSMENT YEAR APPEAL NO. AMOUNT (RS.) 2001-02 ITA NO.135/V/05 34 74 038/- 2002-03 ITA NO.182/V/07 51 09 876/- 2003-04 ITA NO.503/V/06 55 257/- 2004-05 ITA NO.340/V/08 11 67 172/- 2005-06 ITA NO.572/V/08 23 12 653/- 2006-07 ITA NO.638/V/08 31 85 561/- IT WAS BROUGHT TO OUR NOTICE BY THE LEARNED AUTHORI SED REPRESENTATIVE THAT AN IDENTICAL ISSUE WAS ADJUDICATED IN THE HANDS OF THE ASSESSEE BY THIS BENCH FOR THE ASSESSMENT YEAR 2000-01 IN ITA NO.763/V/2004. LEAR NED AUTHORISED REPRESENTATIVE ALSO PLACED A COPY OF THE ORDER DATE D 19.03.2010 IN WHICH THIS ABOVE SAID ISSUE WAS ADJUDICATED. WE HAVE GONE THR OUGH THE ORDER AND FOR THE SAKE OF CONVENIENCE WE EXTRACT BELOW THE RELEVANT PARAGRAPHS: 7. THE NEXT ISSUE IN THE APPEAL RELATING TO THE A SSESSMENT YEAR 2000-01 RELATES TO THE DISALLOWANCE OF LIQUIDA TED DAMAGES. THE ASSESSEE MADE A PROVISION OF RS.2 96 006/- TOWA RDS LIQUIDATED DAMAGES. THE ASSESSING OFFICER WAS OF T HE VIEW THAT THE LIABILITY TO PAY LIQUIDITY DAMAGES WOULD ARISE ONLY ON COMPLETION OF THE CONTRACT. ACCORDINGLY THE ASSES SING OFFICER 3 VERIFIED THE DETAILS OF CONTRACT AND IDENTIFIED THA T THE LIABILITY TOWARDS THE LIQUIDITY DAMAGES TO THE EXTENT OF RS.2 85 000/- HAS NOT CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATIO N SINCE THE RELEVANT CONTRACT WAS NOT COMPLETED BY 31-3-2000. ACCORDINGLY HE DISALLOWED THE ABOVE SAID SUM OF RS.2 85 000/-. HOWEVER THE LEARNED CIT(A) NOTICED THAT THE PRESENT ISSUE I S SQUARELY COVERED BY THE DECISION OF ITAT HYDERABAD SPECIAL B ENCH IN THE ASSESSEES OWN CASE REPORTED IN 34 ITD 50 (SB) AND A CCORDINGLY GRANTED RELIEF. 7.1 THE FACTS RELATING TO THE ISSUE ARE STATED IN B RIEF. THE ASSESSEE ENTERS INTO CONTRACT FOR SUPPLY OF MACHINE RY. ACCORDING TO THE TERMS OF CONTRACT IF THE MACHINERY IS NOT S UPPLIED WITHIN THE SCHEDULED DATE THE ASSESSEE HAS TO PAY COMPENS ATION TO THE BUYER IN THE FORM OF LIQUIDATED DAMAGES CALCULA TED ON THE BASIS OF AN AGREED RATE. AT THE END OF EVERY FINAN CIAL YEAR THE ASSESSEE COMPANY IDENTIFIES THE CONTRACTS IN WHICH THE SCHEDULED DATE HAS EXPIRED AND ALSO QUANTIFIES THE LIQUIDATED DAMAGES PAYABLE. ACCORDINGLY THE ASSESSEE COMPANY MAKES PROVISIONS IN THE ACCOUNTS. ACCORDING TO THE ASSES SEE THE POINT OF ACCRUAL OF LIQUIDITY DAMAGES IS THE POINT WHEN T HE BREACH OF SCHEDULED DATE OCCURRED. HOWEVER THE ASSESSING OF FICER WAS OF THE VIEW THAT THE POINT OF ACCRUAL IS THE DATE OF C OMPLETION OF RELEVANT CONTRACT. 7.2 AS NOTICED BY THE LEARNED CIT(A) THE ISSUE REG ARDING THE POINT OF ACCRUAL OF LIQUIDITY DAMAGES HAS BEEN SETTLED BY THE DECISION OF THE HYDERABAD SPECIAL BENCH IN THE ASSE SSEES OWN CASE REFERRED (SUPRA) WHERE IN IT WAS HELD THAT TH E CLAIM FOR DAMAGES AROSE AT THE POINT OF BREACH AND AT THAT PO INT OF TIME THE LIABILITY ACCRUED AND HENCE THE PROVISION FOR L IQUIDATED DAMAGES WAS TO BE ALLOWED AS DEDUCTION. SINCE THE LEARNED CIT(A) HAS FOLLOWED THE DECISION OF THE SPECIAL BEN CH OF THE ITAT WE DO NOT FIND ANY REASON TO INTERFERE WITH H IS DECISION. SINCE THE DECISION OF LEARNED CIT(A) IN THE PRESEN T APPEALS IS IN ACCORDANCE WITH THE DECISION OF THE SPECIAL BENCH O F ITAT WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER ON THIS ISSU E. 3. NEXT COMMON ISSUE IN THE APPEAL OF THE REVENUE R ELATES TO THE CLAIM OF BAD DEBTS. THIS ISSUE FINDS PLACE IN THREE YEARS AS DETAILED BELOW: 4 ASSESSMENT YEAR APPEAL NO. AMOUNT (RS.) 2001-02 ITA NO.135/V/05 15 79 201/- 2002-03 ITA NO.182/V/07 4 17 183/- 2003-04 ITA NO.503/V/06 4 37 587/- THE ASSESSEES CLAIM OF BAD DEBT IN THE ABOVE SAID 3 YEARS WAS DISALLOWED BY THE ASSESSING OFFICER FOR THE REASON THAT THE ASSESSEE COULD NOT PRODUCED ANY EVIDENCE IN SUPPORT OF ITS CLAIM T HAT THE ABOVE SAID DEBTS HAVE BECOME IRRECOVERABLE. HOWEVER THERE IS NO DI SPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS WRITTEN OFF THESE DE BTS AS BAD IN ITS BOOKS OF ACCOUNT. THIS ISSUE HAS BEEN SETTLED AT REST BY HO N'BLE SUPREME COURT IN THE CASE OF TRF LTD VS. CIT (2010) 323 ITR 397 (SUP REME COURT) WHEREIN THE HON'BLE SUPREME COURT HAS HELD AS UNDER: AFTER THE AMENDMENT OF SECTION36(1)(VII) OF THE I NCOME TAX ACT 1961 WITH EFFECT FROM APRIL 1 1989 IN O RDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT IN FACT HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF TH E BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE. SINCE THE DECISION OF THE LEARNED CIT(A) IS IN ACCO RDANCE WITH THE DECISION RENDERED BY HON'BLE SUPREME COURT WE FIND NO REASO N TO INTERFERE WITH THE SAME. 4. THE NEXT ISSUE IN THE APPEALS OF THE REVENUE WH ICH IS COMMON IN ASSESSMENT YEAR 2001-02 & 2002-03 RELATES TO DISAL LOWANCE OF LEGAL EXPENSES. THE ASSESSING OFFICER DISALLOWED THE CLA IM OF LEGAL EXPENSES AMOUNTING TO RS.1 93 000/- IN ASSESSMENT YEAR 2001- 02 AND A SUM OF RS.2 52 000/- IN ASSESSMENT YEAR 2002-03 FOR THE RE ASON THAT THE SAID PAYMENTS ARE CAPITAL IN NATURE SINCE THEY WERE INCU RRED IN CONNECTION WITH THE DE-MERGER OF ERSTWHILE KCP LTD INTO THE ASSESSE E COMPANY AND M/S KCP SUGARS & INDUSTRIES LTD. SIMILARLY THE ASSESS ING OFFICER DISALLOWED 5 THE CLAIM OF LEGAL EXPENSES AMOUNTING TO RS.50 000/ - IN ASSESSMENT YEAR 2001-02 AND RS.56 000/- ASSESSMENT YEAR 2002-03 REL ATING TO LEGAL EXPENSES INCURRED IN CONNECTION WITH EVICTION OF IL LEGAL OCCUPATION ON CERTAIN LAND NEAR VISAKHAPATNAM WHICH WAS ACQUIRED TO SET UP A SLAG CEMENT FACTORY. THE ASSESSEE DID NOT ESTABLISH ANY FACTORY IN THE SAID LAND AND HENCE THE ASSESSING OFFICER HELD THAT THE IMPUG NED LAND CONSTITUTES NON BUSINESS ASSET AND ACCORDINGLY DISALLOWED THE P AYMENT OF LEGAL EXPENSES. 4.1 WITH REGARD TO THE LEGAL EXPENSES INCURRED IN C ONNECTION WITH M/S KCP SUGARS & INDUSTRIES LTD IT WAS SUBMITTED BEFOR E THE LEARNED CIT(A) THAT DE-MERGER OF A COMPANY TOOK PLACE ABOUT 6 TO 7 YEARS BACK AND THE PRESENT EXPENSES WERE INCURRED IN CONNECTION WITH R ECOVERY OF CERTAIN AMOUNT WHICH IS DUE FROM M/S KCP SUGARS & INDUSTRIE S LTD. ACCORDINGLY LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE HO LDING THAT THE SAID LEGAL EXPENSES ARE REVENUE IN NATURE. THUS IT COULD BE S EEN THAT THE ASSESSING OFFICER WAS WRONG IN ASSUMING THAT THE SAID EXPENDI TURE WAS INCURRED IN CONNECTION WITH THE DE-MERGER OF THE COMPANY. HOWE VER WE NOTICE THAT THE ASSESSEE COMPANY HAD THE RIGHT TO RECEIVE AMOUN T EQUIVALENT TO 50 % OF INCOME TAX LIABILITY FROM THE DE-MERGED COMPANY M/S KCP SUGARS & INDUSTRIES CORPORATION LTD. THE PRESENT LEGAL EXPE NSES HAVE BEEN INCURRED IN ORDER TO RECOVER THE SAID AMOUNT FROM THAT COMPA NY. HENCE WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS RIGHTLY ALLOWE D THE CLAIM OF THE ASSESSEE AS IN OUR VIEW THE SAID LEGAL EXPENSES OF RS.1 93 000/- AND RS.2 52 000/- ARE IN THE NATURE OF REVENUE EXPENDIT URE ONLY. 4.2 WITH REGARD TO THE LEGAL EXPENSES INCURRED IN C ONNECTION WITH THE LAND THE SAID EXPENSES WERE INCURRED FOR CLEARING UNAUTHORIZED ENCROACHMENTS ON THE LAND BELONGING TO THE ASSESSEE . CONSIDERING THE 6 NATURE OF EXPENDITURE WE ARE OF THE VIEW THAT THE LEARNED CIT(A) HAS ALLOWED THE SAID EXPENSES TREATING THEM AS REVENUE IN NATURE. 5. THE NEXT COMMON ISSUE IN THE APPEAL OF THE ASSES SEE AS WELL AS THAT OF REVENUE RELATES TO DISALLOWANCE OF CLAIM UNDER T HE HEAD FOREIGN EXCHANGE FLUCTUATIONS. THE ASSESSEE HAS CLAIMED T HE LOSS UNDER THE HEAD FOREIGN EXCHANGE FLUCTUATION IN THE FOLLOWING YEA RS : ASSESSMENT YEAR APPEAL NO. AMOUNT (RS.) 2001-02 ITA NO.135/V/05 18 88 199/- 2004-05 ITA NO.340/V/08 2 05 41 616/- 2005-06 ITA NO.506/V/08 21 22 296/- 2006-07 ITA NO.636/V/08 12 72 416/- THE CLAIM OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2001-02 & 2004-05 WAS ALLOWED BY THE LEARNED CIT(A) AND HENCE THE REV ENUE IS IN APPEAL BEFORE US. HOWEVER THE LEARNED CIT(A) CONFIRMED T HE ADDITIONS OF SIMILAR CLAIMS IN ASSESSMENT YEARS 2005-06 & 2006-07 AND HE NCE THE ASSESSEE IS IN APPEAL BEFORE US. 5.1 THE FACTS RELATING TO THIS ISSUE ARE THAT THE A SSESSEE COMPANY HAS GIVEN LOAN IN FOREIGN CURRENCY TO ITS SISTER CONCER N M/S KCP VIETNAM INDUSTRIES LTD. AS AT THE END OF EVERY YEAR THE AS SESSEE COMPANY ASCERTAINS THE RUPEE EQUIVALENT VALUE OF THE OUTSTA NDING FOREIGN CURRENCY LOAN AMOUNT AND PROVIDES FOR LOSS IF ANY ARISING ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS. SIMILARLY IF THERE IS DEPRE CIATION IN THE VALUE OF FOREIGN CURRENCY THE ASSESSEE ACCOUNTS FOR THE GAI NS ALSO. WHILE THE REVENUE DID NOT DISTURB THE FOREIGN CURRENCY GAINS OFFERED BY THE ASSESSEE THE LOSS IN FOREIGN EXCHANGE FLUCTUATIONS WAS DISAL LOWED FOR THE REASON THAT THE VARIATIONS IN THE OUTSTANDING LOANS AND OTHER F INANCIAL ASSETS RELATING TO 7 THE INVESTMENT ARE ONLY FICTITIOUS AND CANNOT BE TA KEN AS CRYSTALLIZED LIABILITIES OR LOSSES. 5.2 THE CASE OF THE ASSESSEE IS THAT IT IS RECEIVIN G INTEREST INCOME FROM THE LOAN SO ADVANCED BY IT AND THE SAME IS ASSESSED AS BUSINESS INCOME OF THE ASSESSEE. ACCORDING TO THE OBJECT CLAUSE OF TH E MEMORANDUM OF ASSOCIATIONS OF THE ASSESSEE COMPANY ALSO IT IS EN TITLED TO INVEST LEND AND DEAL WITH THE MONEY OF THE COMPANY AND HENCE THE M ONEY SO ADVANCED TO THE FOREIGN COMPANY IS ALSO PART OF THE BUSINESS AC TIVITY OF THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THA T THE ASSESSEE COMPANY BEING A PUBLIC LIMITED COMPANY GOVERNED BY THE PROVISIONS OF INDIAN COMPANIES ACT IS UNDER AN OBLIGATION TO FOL LOW THE ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCO UNTANTS OF INDIA. AS PER THE ACCOUNTING STANDARDS ALL FOREIGN CURRENCY ASSE TS AND LIABILITIES HAVE TO BE ADJUSTED AT THE YEAR END TO TAKE CARE OF THE FLU CTUATIONS IN THEIR VALUE. ACCORDINGLY THE ASSESSEE HAS PROVIDED FOR LOSS AND ALSO ACCOUNTED FOR GAINS. THE LEARNED AUTHORISED REPRESENTATIVE FURTH ER SUBMITTED THAT THE IMPUGNED LOAN ADVANCED TO THE SISTER COMPANY BEING A CURRENT ASSET THE LOSS INCURRED AT THE YEAR END DUE TO FLUCTUATIONS I N THE FOREIGN EXCHANGE IS ALLOWABLE AS BUSINESS EXPENDITURE. 5.3 WE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIV E ALSO ON THIS ISSUE. THE INTEREST EARNED ON THE IMPUGNED FOREIGN CURRENCY LOAN ADVANCED BY THE COMPANY HAS BEEN ASSESSED AS THE BU SINESS INCOME OF THE ASSESSEE. THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY STATES THE LENDING OF MONEY AS ONE OF THE OBJECTS O F THE ASSESSEE COMPANY. THE ASSESSEE CLAIMS THAT IT HAS SHOWN THA T IMPUGNED ADVANCE AS ITS CURRENT ASSET AND NOT AS AN INVESTMENT. THE ASSESSEE HAS ALSO ACCOUNTED FOR GAINS DUE TO FOREIGN EXCHANGE FLUCTUA TIONS AND SUCH GAINS HAVE BEEN ASSESSED AS THE BUSINESS INCOME BY THE AS SESSING OFFICER. IN 8 THESE CIRCUMSTANCES WE FEEL THAT THERE IS NO NECES SITY TO DISALLOW THE CLAIM OF LOSS DUE TO FOREIGN EXCHANGE FLUCTUATIONS PROVID ED FOR ON THE FOREIGN CURRENCY LOAN GIVEN BY THE ASSESSEE. HOWEVER WE N OTICE THAT THE ASSESSEE HAS ACCOUNTED FOR FOREIGN EXCHANGE GAIN AS WELL AS FOREIGN EXCHANGE LOSS IN ASSESSMENT YEARS 2004-05 2005-06 AND 2006-07. IF THE LOSS/GAIN RELATING TO FOREIGN EXCHANGE FLUCTUATIONS PERTAINS TO ONE SINGLE ITEM OF ADVANCE THERE CAN EITHER BE FOREIGN EXCHAN GE LOSS OR FOREIGN EXCHANGE GAIN. THUS THERE CANNOT BE BOTH FOREIGN E XCHANGE LOSS AND GAIN IN RESPECT OF ONE SINGLE ITEM OF ADVANCE. WHEN QUE STIONED ABOUT THIS CONTRADICTION THE LEARNED AUTHORISED REPRESENTATIV E COULD NOT FURNISH A REPLY AS HE WAS NOT HAVING THE REQUIRED MATERIAL I N THIS REGARD. HENCE WE FEEL THAT THE NATURE OF FOREIGN EXCHANGE LOSS/GAIN IN ALL THE YEARS REQUIRES EXAMINATION WITH REFERENCE TO THE ASSETS ON WHICH T HE SAID LOSS/ GAIN WAS ACCOUNTED FOR. ACCORDINGLY WE SET ASIDE THIS ISSU E RELATING TO THE ASSESSMENT YEARS 2001-02 2004-05 2005-06 AND 2006 -07 TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO CORRELATE THE FOREIGN EXCHANGE LOSS/GAIN TO THE SPECIFIC ASSETS AND DECIDE THE ISS UE AFRESH IN ACCORDANCE WITH THE PRINCIPLE STATED ABOVE AND ALSO IN ACCORDA NCE WITH THE LAW. ACCORDINGLY THE ORDERS OF THE LEARNED CIT(A) IN AL L THE FOUR YEARS ON THIS ISSUE STAND SET ASIDE. 6. THE ONLY REMAINING ISSUE IN THE APPEAL OF THE RE VENUE FOR ASSESSMENT YEAR 2002-03 RELATES TO DEDUCTION OF MAT CREDIT FOR THE PURPOSE OF CALCULATION OF INTEREST U/S 234B OF THE ACT. IN THE FOLLOWING CASES IT HAS BEEN HELD THAT THE MAT CREDIT AVAILAB LE WITH THE ASSESSEE HAS TO BE DEDUCTED FROM THE TAX LIABILITY WHILE CALCULA TING INTEREST U/S 234B OF THE ACT. A) CIT VS CHEMPLAST SANMAR LTD 314 ITR 231 (MADRA S) B) CIT VS JINDAL EXPORTS LTD & ORS 314 ITR 137 (D ELHI) C) CIT VS APAR INDUSTRIES LTD 323 ITR 411 (BOMBAY ) 9 IN VIEW OF THE ABOVE SAID DECISIONS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN HOLDING THAT THE MAT CREDITS HAS TO BE SET OFF FOR THE PURPOSE OF CALCULATING INTEREST U/S 234 B OF THE ACT. 7. NOW WE SHALL DEAL WITH THE SPECIFIC ISSUES RAISE D BY THE ASSESSEE IN ITS APPEAL FILED FOR THE ASSESSMENT YEAR 2006-07. THE FIRST ISSUE RELATES TO REDUCTION OF AMOUNT ALLOWED U/S 80IA OF THE ACT BY DECREASING THE NET PROFIT BY RS.6 98 520/-. THE ASSESSING OFFICER VER IFIED THE CLAIM OF THE DEDUCTION U/S 80IA OF THE ACT AND NOTICED THAT THE ASSESSEE HAS NOT DEDUCTED PROPORTIONATE AMOUNT OF COMMISSION PAID TO THE DIRECTOR AS A PART OF THEIR REMUNERATION FROM THE NET PROFIT FOR THE PURPOSE OF CALCULATING THE DEDUCTION U/S 80IA. THE ASSESSEE CONTENTED THAT THE COMMISSION PORTION OF DIRECTORS REMUNERATION IS ONLY APPORTIO NMENT OF PROFIT AND HENCE THE SAME IS SHOULD NOT BE TREATED AS AN EXPENDITURE FOR THE SAID PURPOSE. HOWEVER THIS EXPLANATION WAS REJECTED BY THE ASSES SING OFFICER. 7.1 THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS : 5.3 SEC.80IA(1) OF THE INCOME-TAX ACT SAYS THAT IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION OF AN AMOUNT EQUAL TO 100% OF THE PROFITS AND GAINS DERIVED FROM SUCH BUS INESS WILL BE ALLOWED. THE PROFITS AND GAINS OF BUSINESS OF TH E CONCERNED UNIT HAS TO BE CALCULATED AFTER ALLOCATING THE EXPENSES INCURRED BY THE HEAD OFFICE ALSO. THE HEAD OFFICE OVERSEAS THE BUS INESS ACTIVITIES OF ALL UNITS. THE REMUNERATION PAID TO DIRECTORS INCL USIVE COMMISSION IS FOR RENDERING THE SERVICES TO THE COMPANY AS A WHOL E. THE COMMISSION PAID TO DIRECTORS HAS DIRECT NEXUS WITH THE ACTIVITIES OF ALL THE UNITS. THE HON'BLE CHENNAI ITAT IN CASE OF ALSTOM LTD VS. DY.COMMISSIONER OF INCOME TAX (2005) (95 TTJ 139) ( CHENNAI) HAS HELD THAT THE COMMON EXPENSES CLAIMED IN THE HEAD O FFICE ARE ALSO TO BE ALLOCATED TO THE RESPECTIVE INDUSTRIAL UNDERT AKINGS FOR THE PURPOSE OF COMPUTING ELIGIBLE PROFITS U/S 80HH AND 80I. WHILE OBSERVING SO THE ITAT HAS PLACED RELIANCE ON THE D ECISION OF THE HON'BLE SUPREME COURT REPORTED IN 155 ITR 120. THE HON'BLE ALLAHABAD HIGH COURT IN CASE OF MENTHA AND ALLIED P RODUCTS PVT LTD. VS CIT (302 ITR 144) WAS HELD THAT THE RELIEF U/S 8 0HHA IS TO BE 10 COMPUTED AFTER ADJUSTING THE LOSS OF THE HEAD OFFIC E AGAINST THE PROFIT OF THE BRANCHES. IN VIEW OF THE DISCUSSION THE ASSESSING OFFICER HAS CORRECTLY DETERMINED AND ALLOWED THE DE DUCTION U/S 80IA AT RS.3 27 03 530/-. THUS THIS GROUND STANDS DISM ISSED. WE ARE UNABLE TO AGREE WITH THE CONTENTION OF LEARN ED AUTHORISED REPRESENTATIVE THAT THE COMMISSION PAID TO THE DIRE CTORS IS AN APPROPRIATION OF PROFIT. THE SAID CLAIM IN OUR OPINION IS AGAINST THE ACCOUNTING PRINCIPLES. WE HAVE GONE THROUGH THE DECISION OF LEARNED CIT(A) AN D WE ARE CONVINCED WITH THE REASONING GIVEN BY LEARNED CIT(A). ACCORDINGLY WE UPHOLD THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. 8. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006- 07 RELATES TO THE DISALLOWANCE OF RS.20 69 866/- CL AIMED AS CURRENT REPAIRS. ACCORDING TO THE ASSESSEE THE MAJOR PORTION OF THE SAID AMOUNT WAS INCURRED TOWARDS LAYING A NEW FOUNDATION FOR A BORING MACHIN E CALLED WD 200H HORIZONTAL BORING MACHINE WHOSE ORIGINAL FOUNDATION GOT DAMAG ED. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS INSTALLED A NEW HOR IZONTAL BORING MACHINE AND THE ASSESSEE CLAIMED THAT THE FOUNDATION EXPENSES I NCURRED IN CONNECTION WITH THAT MACHINE HAD BEEN CAPITALIZED. HOWEVER THE AS SESSEE DID NOT PRODUCE ANY EVIDENCE THAT THE IMPUGNED EXPENSES HAVE BEEN INCUR RED TOWARDS REPAIRING A DAMAGED FOUNDATION. THE ASSESSING OFFICER DISALLOW ED THE AMOUNT INCURRED TOWARDS FOUNDATION EXPENSES WAS RS.18 93 476/- AND ALLOWED DEPRECIATION THEREON AT 7.5%. SIMILARLY THE ASSESSING OFFICER DISALLOWED A SUM OF RS.1 76 390/- INCURRED BY THE ASSESSEE UNDER THE H EAD CURRENT REPAIRS TOWARDS WOODEN PARTITION WORK PROVIDING COLLAPSIBLE GATE A ND ROLLING SHUTTERS AND 4 NOS. BOREWELL. 8.1 THE SAID ADDITION WAS CONFIRMED BY LEARNED CIT( A). BEFORE US ALSO THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SHOW THA T THE IMPUGNED FOUNDATION EXPENSES HAVE BEEN INCURRED TO REPAIR THE ALREADY E XISTING DAMAGED FOUNDATION. HOWEVER LEARNED AUTHORISED REPRESENTATIVE SUBMITTE D THAT THE ASSESSEE WOULD 11 BE IN A POSITION TO FURNISH NECESSARY DETAILS IF A NY OPPORTUNITY IS GIVEN TO THE ASSESSEE. LEARNED DEPARTMENTAL REPRESENTATIVE ALSO DID NOT OBJECT TO THE PROPOSAL FOR PROVIDING ANOTHER OPPORTUNITY. IN VIE W OF THE ABOVE WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND R EMIT THE MATTER OF CLAIM OF CURRENT REPAIRS OF RS.20 69 866/- TO THE FILE OF TH E ASSESSING OFFICER WITH A DIRECTION TO AFFORD AN OPPORTUNITY TO THE ASSESSEE TO EXPLAIN ITS CASE AND DECIDE THE ISSUE IN ACCORDANCE WITH THE LAW. 9. IN THE RESULT APPEALS OF THE REVENUE FOR ASSESS MENT YEARS 2002-03 2003- 04 & 2006-07 ARE DISMISSED. THE APPEALS OF THE REV ENUE FOR ASSESSMENT YEARS 2001-02 2004-05 & 2005-06 AND THE APPEAL OF THE AS SESSEE FOR THE ASSESSMENT YEAR 2006-07 ARE TREATED AS PARTLY ALLOWED. THE AP PEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 IS TREATED AS ALLOWED. PRONOUNCED ACCORDINGLY ON 28 TH JULY 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM DATE : 28 TH JULY 2010. MSB/UDC A COPY OF THIS ORDER IS FORWARDED TO : 1 ADDITIONAL COMMISSIONER OF INCOME TAX CIRCLE-1(1 ) VIJAYAWADA. 2 DY.COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJAY AWADA. 3 M/S KCP LTD. NO.2 DR PV CHERIAN CRESCENT EGMOR E CHENNAI-8. 4 THE CIT VIJAYAWADA 5 THE CIT (A) VIJAYAWADA 6 THE DR ITAT VISAKHAPATNAM 7 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY ITAT VISAKHAPATNAM BENCH