ACIT, Range I, v. Knorr Bremse (P) Ltd,

ITA 1166/DEL/2007 | 2001-2002
Pronouncement Date: 19-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 116620114 RSA 2007
Assessee PAN AAACK4739P
Bench Delhi
Appeal Number ITA 1166/DEL/2007
Duration Of Justice 2 year(s) 11 month(s) 12 day(s)
Appellant ACIT, Range I,
Respondent Knorr Bremse (P) Ltd,
Appeal Type Income Tax Appeal
Pronouncement Date 19-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 19-02-2010
Date Of Final Hearing 02-02-2010
Next Hearing Date 02-02-2010
Assessment Year 2001-2002
Appeal Filed On 08-03-2007
Judgment Text
ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NOS. 1166&1167/DEL/2007 A.YRS.. : 2001-02 & 2002-2003 ASSTT. COMMISSIONER OF INCOME TAX VS. M/S KNORR BREMSE (P) LTD. RANGE-I FARIDABAD 14/6 MATHURA ROAD FARIDABAD (PAN: AAACK4739P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA ADV. & MS. NEHA KHEM KA CA DEPARTMENT BY : SHRI B.K. GUPTA SR. DR O R D E R PER SHAMIM YAHYA : AM THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST T HE ORDERS OF THE LD. CIT(A) FOR THE CONCERNED ASSESSMENT YEARS. 2. SINCE THE ISSUES INVOLVED ARE COMMON AND CONNECT ED THESE APPEALS ARE BEING CONSOLIDATED AND DISPOSED OFF FOR THE SAK E OF CONVENIENCE BY THIS COMMON ORDER. 3. THE FIRST COMMON ISSUE RAISED IS THAT THE LD. CI T(A) ERRED IN DIRECTING THE DELETION OF DISALLOWANCE MADE ON ACCO UNT OF ALLEGED BAD DEBTS WRITE OFF DURING THE YEAR. 4. ON THIS ISSUE THE AO OBSERVED THAT ASSESSEE HAS NOT FURNISHED ANY CORRESPONDENCE OR EVIDENCE TO THE EFFECT THAT THE DEBTS HAVE BECOME BAD DURING THE CONCERNED ASSESSMENT YEARS. THEREFORE HE DISALLOWED THE BAD DEBT CLAIM. ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 2 5. UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT IN VIEW OF THE AMENDMENT OF SECTION 36(1)(VII) W.E.F. 1.4.1989 TH E ASSESSEE IS NOT REQUIRED TO PROVIDE DEMONSTRATIVE EVIDENCE THAT THE DEBT WRITTEN OFF HAS IN FACT BECOME BAD AND THAT IF THE ASSESSEE IS WRI TING OFF THE DEBTS AS IRRECOVERABLE IN HIS ACCOUNT IN THE PREVIOUS YEAR IT IS SUFFICIENT COMPLIANCE TO THE DEDUCTION UNDER SECTION 36(1)(VII ) OF THE ACT. ACCORDINGLY LD. CIT(A) DELETED THE DISALLOWANCE IN THIS REGARD. 6. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT THE ISSUE INVOLVED IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF CIT VS. AUTOMETERS LTD. 292 ITR 345 WHEREIN IT WAS HELD TH AT THE REQUIREMENT OF ASSESSEE TO PROVE THAT THE DEBT HAS BECOME BAD DEBT IS DISPENSED WITH BY 1989 AMENDMENT IN SECTION 36(1)(VII) AND T HEREAFTER ALL THE ASSESSEE HAS TO DO IS TO WRITE OFF A BAD DEBT AS I RRECOVERABLE IN ITS ACCOUNTS. RESPECTFULLY FOLLOWING THE AFORESAID PRECEDENT WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. THE NEXT ISSUE RAISED IS THAT LD. CIT(A) ERRED I N DELETING THE DISALLOWANCE OF RS. 548236/- MADE ON ACCOUNT ENTERT AINMENT EXPENSES FOR A.Y. 2001-02 AND RS. 646625/- FOR A.Y. 2002-03. 7.1 THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS. 10 96 472/- TOWARDS ENTERTAINMENT EXPENDITURE DURING THE FINANC IAL YEAR 2000-01. THE AO DISALLOWED RS. 5 48 236/- BEING 50% OF THE TO TAL EXPENDITURE HOLDING THE SAME TO HAVE BEEN INCURRED FOR NON-BUSI NESS PURPOSES. IT WAS OBSERVED BY THE AO THAT MOST OF THE EXPENSES HAD BEEN EVIDENCED BY SELF PREPARED VOUCHERS AND WERE IN THE FORM OF R EIMBURSEMENT TO THE ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 3 DIRECTORS AND SENIOR EXECUTIVES AND THE PAYMENTS HA D BEEN MADE IN CASH. THE GENUINENESS OF THE EXPENDITURE BEING INCU RRED FOR THE BUSINESS PURPOSE WAS DOUBTFUL. THE AO OBSERVED AS UNDER:- THE ASSESSEES CONTENTIONS ARE NOT ACCEPTABLE FO R THE REASONS MENTIONED BELOW:- I) IN RESPECT OF CLAIM TOWARDS ENTERTAINMENT EXPEND ITURE BY ASSESSEES OWN ADMISSION SUPPORTING VOUCHERS ARE A VAILABLE ONLY IN A FEW CASES. THE FACT IS THAT IN MORE TH AN 400 ENTRIES IN THE GENERAL LEDGER IN ALMOST ALL THE C ASES BARRING A FEW THERE ARE NO SUPPORTING VOUCHERS. II) BY ASSESSEES OWN ADMISSION THE EXPENDITURE W AS INCURRED AT THE RESIDENCES OF THE MANAGING DIRECTOR AND THE FINANCE CONTROLLER. MOST OF THE AMOUNTS ARE SELF VOUCHERS OF THE ABOVE PERSONS WHO HAVE MERELY STATED THAT THEY HAVE ENTERTAINED SOME GUESTS IN THEIR RESIDENCES AND ARE TO BE REIMBURSED. THERE ARE NEITHER SUPPORTING VOUCHERS NOR A LIST OF GUESTS ENTERTAINED ON THE VARIOUS OCCASIONS. TH ERE IS NO WAY TO VERIFY AS TO WHETHER FIRST OF ALL THE EXPEN DITURE WAS ACTUALLY INCURRED AND SECONDLY WHETHER THE EXPENDI TURE WAS EXCLUSIVELY IN CONNECTION WITH THE ASSESSEES BUSIN ESS. THUS THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS OF ESTABLISHING THE GENUINENESS OF THE EXPENDITURE ALLEGEDLY LAID OUT TOWARDS ENTERTAINMENT CHARGES AS WELL AS THE DETAILS REGARD ING THE PERSONS CLAIMED TO HAVE BEEN ENTERTAINED. IN THIS CONTEXT REFERENCE MAY BE MADE TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 4 VS. CALCUTTA AGENCY LTDE. (1951() 19 ITR 191 (SC) WHERE IT WAS HELD THAT IF THE ASSESSEE FAILED TO ESTABLISH THE FACTS NECES SARY TO SUPPORT THIS CLAIM FOR DEDUCTION UNDER SECTION 37(1) THE CLAIM FOR DEDUCTION OF EXPENDITURE IS NOT ADMISSIBLE. IN VIEW OF THE AFORESAID AND ALSO HAVING REGARD TO THE FACT THAT ENTERTAINMENT EXPENDITURE WOULD TO CERTAIN EXTENT BE REQUIRED IN CASE OF A BUSINESS ENTITY AND IN LIGHT OF THE FACTS AND CIR CUMSTANCES STATED ABOVE I WOULD DEEM IT REASONABLE TO DISALLOW 50% O F EXPENDITURE CLAIMED UNDER THIS HEAD. THE DISALLOWANCE WORKS OU T TO RS. 5 42 236/- (50% OF RS. 10 96 472/-). 7.2 BEFORE THE LD. CITA ASSESSEE INTER-ALIA CLAIME D THAT AS REGARDS THE EXPENDITURE INCURRED FOR ENTERTAINING THE GUESTS AN D CLIENTS IN HOTELS AND RESTAURANTS THE BILLS FOR THE SAME WERE DULY PROD UCED BEFORE THE AO. IN SOME CASES THE GUESTS AND CLIENTS WERE ENTERTAINED BY THE DIRECTORS AND EXECUTIVES AT THEIR RESIDENCE WHICH WERE EVIDENCED BY SELF PREPARED VOUCHERS. IT IS SUBMITTED THAT SUCH EXPENDITURE CA NNOT BE EVIDENCED OTHERWISE THAN BY SELF CREATED VOUCHERS BY THE DIRE CTORS ETC. 7.3 THE CIT(A) DELETED THE DISALLOWANCE ON THE GROU ND THAT THE ASSESSEE HAD CLAIMED THE EXPENDITURE IN A BONAFIDE MANNER AND SINCE THE AO HAD NOT DISPUTED THE FACTUM OF THE EXPENDITU RE AS SUCH HENCE THERE WAS NO BASIS FOR THE AO TO MAKE A PARTIAL DIS ALLOWANCE ON THE BASIS OF ESTIMATION AND SURMISES. 7.4 AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEF ORE US. 7.5 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT ON THIS ISSUE THE AO HAS MADE OUT A CASE THAT THERE ARE A LARGE NUMBER OF ENTRIES IN GENERAL LEDGER AND ALMOST IN A LL CASES BARRING A FEW ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 5 THERE ARE NO EXTERNAL VOUCHERS. IN MOST OF THE C ASES BY ASSESSEES OWN ADMISSION THE ENTERTAINMENT EXPENDITURE WAS INC URRED AT THE RESIDENCE OF THE MANAGING DIRECTOR AND THE FINANCE C ONTROLLER. MOST OF THE AMOUNT ARE SELF VOUCHERS OF THE ABOVE PERSONS W HO HAVE MERELY STATED THAT THEY HAVE ENTERTAINED SOME GUESTS AT TH E RESIDENCE AND THESE ARE TO BE REIMBURSED. THERE IS NEITHER ANY EXTERN AL SUPPORTING VOUCHER NOR A LIST OF GUESTS ENTERTAINED OR THE OCCASION TH EREOF. A SAMPLE OF THE BILL IN THIS REGARD SUBMITTED IN THE PAPER BOOK OF THE ASSEESSEE AT PAGE NO. 53 IS REPRODUCED AS UNDER:- ENTERTAINMENT BILL DATE 15.02.2001 EXPENSES INCURRED IN PROVIDING SOFT DRINKS SNACKS A ND FOODS AT MY RESIDENCE ON COMPANYS GUESTS AS PER DETAILS G IVEN BELOW:- DATE PARTICULARS AMOUNT 31.1.2001 14 PERSONS @ RS. 165 P/P. 2310.00 03.02.2001 15 PERSONS @RS. 200 P/P. 3000.00 09.02.2001 18 PERSONS @ RS. 200 P/P. 3600.00 12.02.2001 12 PERSONS @ RS. 165 P/P. 1980.00 ======== TOTAL : 10890.00 ------------- (RUPEES TEN THOUSAND EIGHT HUNDRED NINETY ONLY) (VINOD ASTAVANS) MANAGING DIRECTOR ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 6 7.6 A PERUSAL OF THE ABOVE MAKES IT AMPLY CLEAR THA T THERE IS NO WAY THAT AO CAN VERIFY THE VERACITY OF THE ABOVE EXPEND ITURE. THERE IS NEITHER ANY EXTERNAL SUPPORTING VOUCHER NOR THE PA RTICULARS OF PERSON AND THE OCCASION OF ENTERTAINMENT. LD. COUNSEL OF T HE ASSESSEE HAS CONTENDED THAT AO CANNOT SIT INTO THE ARM CHAIR OF THE BUSINESSMAN AND DECIDE UPON THE COMMERCIAL EXPEDIENCY. HOWEVER WE FIND THAT IN THE ABOVE ENTERTAINMENT BILL THERE IS NO ESTABLISHMENT WHATSOEVER BY THE ASSESSEE TO SUPPORT THAT THE CLAIM OF EXPENDITURE W AS LAID OUT WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THIS REGARD HONBLE APEX COURTS DECISION IN 19 ITR 191 IN THE CASE OF CIT VS. KOLKATA AGENCY LTD. IS QUITE RELEVANT WHEREIN IT WAS HELD THAT WHEN TH E FACTS NECESSARY TO BE ESTABLISHED BY THE ASSESSEE TO SUPPORT THEIR CLAIM UNDER SECTION 37(1) THAT THE EXPENDITURE WAS LAID OUT WHOLLY OR EXCLUSI VELY FOR THE PURPOSE OF CARRYING ON THE BUSINESS HAD NOT BEEN ESTABLISHED A T ANY STAGE OF THE PROCEEDINGS. THEY WERE NOT ENTITLED TO CLAIM DEDU CTION. IN OUR CONSIDERED OPINION THIS CASE LAW IS SQUARELY APPLI CABLE IN SUCH INSTANCE. A MERE CLAIM BY THE COMPANY OFFICIALS THAT THEY HAV E SPENT MORE THAN RS. 10 000/- OF ENTERTAINMENT EXPENDITURE CANNOT PRECLUDE THE AO FOR EXAMINING THE VERACITY OF THE EXPENDITURE AS TO WHE THER THE SAME WAS LAID OUT WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF B USINESS. HOWEVER AT THE SAME TIME WE ALSO FIND THAT AO INSTEAD OF IDENT IFYING SUCH EXPENDITURE HAS PROCEEDED TO MAKE ESTIMATED DISAL LOWANCE IN THIS REGARD. IN THIS REGARD WE DRAW SUPPORT FROM THE APEX COU RT DECISION IN THE CASE OF KAPURCHAND SHRIMAL VS. CIT 131 ITR 451 WHE REIN IT WAS HELD THAT THE APPELLATE AUTHORITY HAS JURISDICTION AS WELL AS THE DUTY TO CORRECT THE ERRORS IN THE PROCEEDINGS UNDER APPEAL. 7.7 UNDER THE CIRCUMSTANCES WE REMIT THIS ISSUE T O THE FILES OF THE AO TO CONSIDER THE ISSUE AFRESH AND IDENTIFY SUCH EXPENDI TURE AS DISCUSSED ABOVE ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 7 AND MAKE THE DISALLOWANCE AS PER LAW. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BEING HEARD . 8. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS. 1 87 175/- MADE ON ACCOUNT OF I NLAND TRAVEL EXPENSES FOR A.Y. 2001-02 AND RS. 13 30 527/- FOR A. Y. 2002-03. 8.1 ON THIS ISSUE AO NOTED THAT IN MOST OF THE CASE THERE IS NO EVIDENCE AT ALL OF INCURRING OF EXPENDITURE INCLUDI NG BY WAY OF COPY OF TICKET TICKET NO. HOTEL BILL OR ANY OTHER FORM O F SUPPORTING VOUCHERS. IN ALMOST ALL THE CASES THE EXPENDITURE IS BOOKED ON S ELF-VOUCHERS OF THE EMPLOYEES. THERE IS NO PROOF OR EVIDENCE OF ACTUAL LY HAVING UNDERTAKEN THE VISIT INCLUDING REASONS FOR THE SAME AND FOR H AVING INCURRED THE EXPENDITURE. ASSESSEE EXPLAINED THAT THE TRAVELLI NG BILLS OF THE EMPLOYEES ARE PASSED AND APPROVED AS PER TRAVEL RU LES OF THE COMPANY. MOST OF THE TRAVEL VOUCHERS ARE ATTACHED WITH LODGI NG AND BOARDING BILLS AND OTHER CONVEYANCE IN SUPPORT OF ACTUAL TRAVEL I NCURRED. HOWEVER IN CERTAIN CASES SOME TIMES THE EMPLOYEES STAY AT T HEIR RELATIVE PLACE AND THEREFORE NO HOTEL BILLS LUNCH AND DINNER EXPENSE INCURRED OUTSIDE. THESE EMPLOYEES SOMETIME USE THE FACILITIES OF LODG ING AND BOARDING AT THEIR RELATIVES PLACE AND THEREFORE NO SUPPORTING EVIDENCE IS AVAILABLE. AS PER COMPANY RULES IN SUCH CASES THE COMPANY DOES NOT ALLOW ANYTHING TOWARDS THE HOTEL EXPENSES AS NO BILLS A RE AVAILABLE AS PERSON STAY AT THEIR RELATIVES PLACE. HOWEVER 50% OF THE ENTITLEMENT TOWARDS BOARDING EXPENSE IS ALLOWED DEPENDING ON THE PLACE OF VISIT AS FIXED DA. IT WAS FURTHER SUBMITTED THAT IN MOST OF THE CASES EITHER TRAVELLING TICKETS ARE ENCLOSED OR IN CASE THE TICKET IS COLLECTED BY THE TC OF THE RAILWAY THE TICKET NUMBER ARE MENTIONED IN TRAVELLING BILLS. HOWEVER THE AO DID NOT ACCEPT THIS CONTENTIONS AND HELD THAT ASSESSEES AVERMENTS ARE NOT ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 8 CORRECT IN MOST OF THE CASES OF INLAND TRAVEL. TH ERE IS NO SUPPORTING VOUCHERS. THERE ARE NO TICKET NUMBER ON MANY VOUCH ERS LEAVE ALONE THERE BEING ANY COPIES OF TRAIN TICKETS. AO PROC EEDED TO DISALLOW 25% OF THE EXPENDITURE CLAIMED UNDER THIS HEAD. 8.2 UPON ASSESSEES APPEAL LD. CIT(A) OBSERVED THA T THE DISALLOWANCE IS PURELY ON ARBITRARY AND ON ESTIMATED BASIS AS THE F ACTUM OF EXPENDITURE HAS BEEN ADMITTED. HE OBSERVED THAT IT IS NOT THE CASE OF THE AO THAT THE EXPENDITURE IS IN-GENUINE. THE EXPENDITURE HAS BEEN CLAIMED AS PER THE REGULATION AND POLICY OF THE EXPENSES OF THE A SSESSEE COMPANY. HE OBSERVED THAT AO HAS NOT POINTED OUT ANY PARTICU LAR EXPENDITURE WHICH IS UNALLOWABLE AND THE DISALLOWANCE IS THER EFORE IS ENTIRELY ON ADHOC BASIS. HENCE HE DELETED THE ADDITION. 8.3 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT THE IMPUGNED AMOUNTS WERE CLAIMED ON THE INLAN D TRAVELLING. ASSESSES CLAIM IS THAT WHERE EMPLOYEES DO NOT AVAI L THE HOTEL OR OTHER LODGING FACILITY THEY HAVE CLAIMED ONLY 50% ENTITLE MENT TOWARDS BOARDING EXPENSES DEPENDING ON THE PLACE OF STAY AS FIXED DA. IN OUR OPINION THE ABOVE SYSTEM IS QUITE PREVALENT AND IS NOT AN UNUSUAL PHENOMENON. THE QUESTION OF ANY EXTERNAL VOUCHER I N SUCH CASES DOES NOT ARISE. AS REGARDS COPY OF TICKETS AND TICKET NUMBER THEY CAN BE CONSIDERED ONLY LAPSES OF INTERNAL CONTROL AND DO NOT LEAD TO THE CONCLUSION THAT THE CLAIM OF TRAVEL EXPENDITURE IS BOGUS. MOREOVER THE DISALLOWANCE BY THE AO IS ONLY ON ADHOC BASIS WITH OUT ANY MENTION OF ANY SPECIFIC DISCREPANCY. THE FACT THAT THE EXPEND ITURE HAS ACTUALLY BEEN INCURRED IS ALSO NOT DENIED. HENCE IT HAS BEEN RIGHTLY HELD BY THE LD. CIT(A) THAT THE DISALLOWANCE ARE NOT SUSTAINABLE. HENCE WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 9 9. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) ERR ED IN DISALLOWANCE OF RS. 307500/- FOR A.Y. 2001-02 ON ACCOUNT OF INTEREST ON LOAN DIVERTED TO DIRECTORS AS INTEREST FREE ADVANCE LOANS (RS. 2625 00 FOR A.Y. 2002-03). . 9.1 THE FACTS ON THE ISSUE ARE SUMMARIZED AS UNDER: - AT THE END OF PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR IN QUESTION THE INTEREST FREE LOANS GIVEN TO DIRECTOR S WERE SHOWN AT RS. 19 50 000/- IN THE BOOKS OF ACCOUNT. OUT OF THE AB OVE RS. 10 00 000/- WERE GIVEN TO MR. VINOD ASTAVANS (DIRECTOR) DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION AN D RS. 9 50 000/- WERE GIVEN TO MR. ASHISH BASU (DIRECTOR) DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2000-01. THE ASSESSE E HAD PAID AN AMOUNT OF RS. 1 00 000/- TOWARDS PERSONAL GOLF MEM BERSHIP FEES OF THE MANAGING DIRECTOR IN NOIDA GOLD COURSE DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2002-03. THE AO DISALLOWED AN INTEREST OF RS. 3 07 500/- CAL CULATED @15% ON THE AFORESAID AMOUNT OF RS. 20 50 000/- ON THE GROUND THAT THE APPELLANT HAD ADVANCED INTEREST FREE LOAN TO DIRECTORS WHILE THE APPELLANT WAS PAYING INTEREST TO BANKS AN D FINANCIAL INSTITUTIONS ON THE BORROWINGS. IT WAS ALSO OBSER VED BY THE AO THAT NO EVIDENCE WAS PRODUCED TO THE EFFECT THAT TH E AMOUNTS ADVANCED WERE MADE OUT OF OWN FUNDS AND INTERNAL AC CRUALS AND NOT OUT OF BORROWED FUNDS. THE CIT(A) DELETED THE DISALLOWANCE WITH RESPECT TO AMOUNT APPEARING AS OPENING BALANCES ON GROUND THAT THE AO HAVING MADE NO DISALLOWANCE WITH RESPECT TO OPENING BALANC ES IN THE YEARS WAS NOT ENTITLED TO TAKE A DIFFERENT VIEW I N THE YEAR UNDER ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 10 APPEAL. ADDITION MADE ON MEMBERSHIP FEES PAID WAS ALSO DELETED AS THE SAID TRANSACTION DID NOT TAKE PLACE IN THE Y EAR UNDER CONSIDERATION. WITH RESPECT TO THE AMOUNT OF RS. 10 00 000/- ADVANCED DURING THE YEAR UNDER CONSIDERATION THE C IT(A) NOTED THAT THE ASSESSEE HAD MIXED POOL OF FUNDS AND THE O WN FUNDS FOR THE YEAR (RS. 5 CRORES) FAR EXCEEDED THE ADVANCES M ADE. THE CIT(A) ACCORDINGLY HELD THAT THE INTEREST FREE ADVANCES IN SUCH A SITUATION BE PRESUMED TO HAVE COME OUT OF THE PROFI TS IN THE ABSENCE OF ANY NEXUS BETWEEN BORROWED FUNDS AND INT EREST FREE ADVANCES. THE CIT(A) FOLLOWED THE ORDER OF THE TR IBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998-9 9 IN ITA NO. 1676/DEL/2002 DATED 25.8.2006 WHEREBY IT WAS HELD THAT SINCE THE AO HAD FAILED TO ESTABLISH ANY NEXUS BETWEEN TH E BORROWED FUNDS AND THE INVESTMENTS MADE NO DISALLOWANCE COU LD BE MADE. HENCE THE CIT(A) DELETED THE DISALLOWANCE MADE BY T HE AO. 9.2 AGAINST THIS REVENUE IS IN APPEAL BEFORE US. 9.3 IT HAS BEEN URGED THAT THE DECISION OF THE CIT (A) IS TOTALLY IN CONTRAVENTION OF THE HONBLE PUNJAB AND HARYANA HIG H COURT DECISION IN THE CASE OF CIT LUDHIANA VS. ABHISHEK INDUSTRIES LTD. [2006] 286 ITR 1. 9.4 ON THE OTHER HAND THE ASSESSEE CONTENDED THAT B Y REFERENCE TO SEVERAL CASE LAWS THAT (A) WHERE NO DISALLOWANCE OF INTEREST WAS MADE FOR THE EARLIER YEARS IT WAS NOT OPEN TO THE REVENUE TO SEEK TO DISALLOW INTEREST WITH RESPECT TO OPENING BALANCES; (B) WHE RE AN ASSESSEE MAINTAINS A COMPOSITE ACCOUNT WHERE ALL RECEIPTS OF BUSINESS ARE BANKED AND ALL OUTGOINGS ARE DEBITED THE INTEREST FREE AD VANCES/ NON-BUSINESS EXPENSES SHOULD BE PRESUMED TO HAVE COME OUT OF THE PROFITS WHERE THE ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 11 PROFIT FOR THE YEAR EXCEEDS THE INTEREST FREE ADVAN CES/ NON-BUSINESS EXPENSES; (C) IN THE ABSENCE OF ONE TO ONE NEXUS BE TWEEN THE BORROWED FUNDS AND MONEY ADVANCED FOR NON-BUSINESS PURPOSES THE INTEREST FREE ADVANCES SHOULD BE PRESUMED TO HAVE COME OUT OF OWN ED FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE & (D) IT IS SET TLED POSITION OF LAW THAT IT IS NOT OPEN TO REVENUE HOW THE BUSINESSMAN NEE DS TO CONDUCT THE BUSINESS. 9.5 WE HAVE CAREFULLY CONSIDERED THE SUBMISSION AND PERUSED THE RECORDS. THE DECISION IN THE CASE OF ABHISHEK INDU STRIES CITED ABOVE BY THE REVENUE WAS IN CONNECTION WITH INTEREST FREE AD VANCES TO SISTER CONCERN AND THE DECISION WAS RENDERED PRIOR TO TH E DECISION OF HONBLE APEX COURT IN SA BUILDER 288 ITR 1. HENCE THE CLEA R LAW DOES NOT FRUCTIFY THE CASE OF REVENUE. THE SUBMISSION OF T HE ASSESSEE ON THE OTHER HAND ARE VERY COGENT AND THE CASE LAWS GERMAN E. MOREOVER TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 1998-99 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 9.6 WE FURTHER FIND THAT INTEREST FREE ADVANCES IN THIS CASE HAS BEEN GIVEN TO DIRECTORS OF THE COMPANY. THE DIRECTORS OF THE COMPANY ALSO HAVE RELATIONSHIP WITH THE COMPANY AS ITS EMPLOYEES . IT IS QUITE COMMON CONSIDERATION IN BOTH PUBLIC AND PRIVATE SECTOR THA T EMPLOYEES ARE GRANTED INTEREST FREE ADVANCES AS PER THE RULES MAD E IN THIS REGARD. THESE FORM PART OF THE SERVICE CONDITIONS AND ARE AIMED TO RETAIN THE EMPLOYEES TO MAKE THE COMPENSATION PACKAGE ATTRACTI VE. IN THIS VIEW OF THE MATTER THERE IS UNDOUBTEDLY COMMERCIAL EXPEDIEN CY IN THE GRANTING OF INTEREST FREE ADVANCE TO THE DIRECTORS. AS HE LD BY THE HONBLE APEX COURT IN THE CASE OF M/S SA BUILDERS VS. CIT 288 ITR 1 WHEREIN IT WAS HELD THAT IF THERE IS COMMERCIAL EXPEDIENCY IN GRANTING OF INTEREST FREE ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 12 ADVANCES TO SISTER CONCERNS THERE CANNOT BE ANY DI SALLOWANCE ON ACCOUNT OF DIVERSION OF INTEREST BEARING FUNDS. 10. THE NEXT ISSUE RAISED IS THAT LD. CIT(A) HAS ER RED IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 80HHC FROM THE PROFITS TO BE COMPUTED U/S 115 JB OF THE INCOME TAX ACT DESPITE THE FACT THAT NO SUCH CLAIM WAS MADE BY THE ASSESSEE IN THE RETURN OR BEFORE THE AO. WITHOUT PREJUDICE TO ABOVE GROUND LD. CIT(A) ERRE D IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 80HHC EVEN THOUGH THE IN COME WAS REDUCED TO NIL AFTER SET-OFF OF B/F LOSSES. 10.1 ON THIS ISSUE FOR ASSESSMENT YEAR 2001-02 THE ASSESSEE IN HIS COMPUTATION OF INCOME HAD OMITTED THE CLAIM IN RES PECT OF PROFITS ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT IN COMP UTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 10.2 BEFORE THE LD. CIT(A) BY THE ADDITIONAL GROUN D OF APPEAL IT WAS PRAYED THAT THE CLAIM MAY BE CONSIDERED. LD. CIT (A) ACCEPTED THE ASSESSEES CLAIM AND DIRECTED FOR THE NECESSARY DED UCTION IN THIS REGARD. 10.3 AGAINST THIS ORDER THE REVENUE IS IN APPEAL BE FORE US. 10.4 THE FIRST OBJECTION IS THAT THE ASSESSEE HAS FAILED TO MAKE THE CLAIM BEFORE THE AO AND HENCE COULD NOT RAISE THE CLAIM BEFORE THE CIT(A) AND FOR THIS PROPOSITION RELIANCE WAS PLACED UPON HON BLE APEX COURT IN THE CASE OF GOETZ (INDIA) LTD. VS. CIT 284 ITR 323. 10.5 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED TH E RECORDS. WE FIND THAT IN THE ABOVE SAID DECISION THE HONBLE APEX CO URT HAD CLARIFIED THAT THE DECISION REFERRED IN THAT CASE SHALL NOT RESTR ICT THE POWERS OF THE TRIBUNAL TO ADMIT AND ADJUDICATE THE CLAIM OF THE A SSESSEE. IN OUR ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 13 CONSIDERED OPINION THE CLAIM OF THE ASSESSEE WAS GE NUINE. ARTICLE 265 OF THE CONSTITUTION OF INDIA STATES THAT NO TAX CAN BE COLLECTED EXCEPT BY AUTHORITY OF LAW. CBDT CIRCULAR NO. 114 XL-35 OF 1955 DATED 11.4.1955 STATES THAT OFFICER OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF THE IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS. HONBL E APEX COURT IN THE CASE OF CIT VS. MR. P. FIRM IN 56 ITR 67 WHEREIN TH E BENCH COMPRISED THREE OF THEIR LORDSHIPS HAD EXPOUNDED THAT IF A PA RTICULAR INCOME IS NOT TAXABLE UNDER IT ACT IT CANNOT BE TAXED ON THE BAS IS OF ESTOPPEL OF ANY OTHER EQUITABLE DOCTRINE. IF A PARTICULAR INCOME IS NOT EXIGIBLE TO TAX AO HAS NO POWER TO IMPOSE TAX ON THE SAID INCOME. I N THE BACKGROUND OF THE AFORESAID DISCUSSION WE FIND THAT ASSESSEES CLAIM IN THIS REGARD IS JUSTIFIED. 10.6 AS REGARDS THE MERIT OF THE ISSUE WE FIND THA T IDENTICAL ISSUE WAS CONSIDERED BY T HE TRIBUNAL IN ITA NO. 3505/DEL/2008 (AY 2003-04) IN THE CASE OF ACIT VS. M/S TELETUBE ELECTRONICS LTD. THE TRIBUNAL HELD AS UNDER:- 6. WE HAVE HEARD THE LD. DR AND PERUSED THE RECORD S. NONE APPEARED ON BEHALF OF THE ASSESSEE. IT TRANSPIRES T HAT HONBLE BOMBAY HIGH COURT IN 318 ITR 252 HAD OVERRULED THE DECISION OF THE SPECIAL BENCH IN THE SYNCOME FORMULATIONS (I) LTD. AND HELD THAT IT WAS NOT POSSIBLE TO ACCEPT THE CONSTRU CTION THAT THE MAT COMPANIES SHOULD BE TREATED ON A DIFFERENT FOOTING IN COMPUTING EXPORT PROFITS UNDER SECTION 80HHC FOR THE PURPOSE OF SECTION 115JB. 6.1 IN THIS REGARD WE ALSO FIND THAT HONBLE MADRA S HIGH COURT IN THE CASE OF CIT VS. MEGNA ELECTRO CASTINGS LTD. 184 TAXMAN 79 AND CIT VS. KG DENIN LTD. 180 TAXMAN 590 HAS H ELD ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 14 THAT IN CASE OF MAT ASSESSMENT DEDUCTION UNDER SECT ION 80 HHC IS TO BE WORKED OUT ON THE BASIS OF ADJUSTED BO OK PROFIT UNDER SECTION 115JA AND NOT ON THE BASIS OF PROFIT COMPUTED UNDER REGULAR PROVISIONS OF LAW APPLICABLE TO COMPU TATION OF PROFITS AND GAINS OF BUSINESS AND PROFESSION. 6.2 NOW CONSIDERING THE ABOVE WE FIND THAT THERE I S HONBLE MUMBAI HIGH COURT DECISION IN WHICH THE ISSUE IS D ECIDED AGAINST THE ASSESSEE AND THERE ARE ALSO DECISIONS OF THE HONBLE MADRAS HIGH COURT WHICH ARE IN FAVOUR OF T HE ASSESSEE. NO DECISION DIRECT ON THE POINT OF H ONBLE JURISDICTIONAL HIGH COURT HAS BEEN BROUGHT TO OUR N OTICE. UNDER SUCH CIRCUMSTANCES WE REFER TO THE HONBLE A PEX COURT DECISION IN THE CASE OF M/S VEGETABLE PRODUCT S LTD. 88 ITR 192 THAT IN THE TAXING PROVISION IF TWO CONST RUCTIONS ARE POSSIBLE ONE FAVOURING ASSESSEE SHOULD BE ADOP TED. 6.3 RESPECTFULLY FOLLOWING THE ABOVE PRECEDENT AND FOLLOWING THE HONBLE MADRAS HIGH COURT DECISION WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10.7 RESPECTFULLY FOLLOWING THE ABOVE PRECEDENT FR OM HONBLE APEX COURT WE FOLLOW THE HONBLE MADRAS HIGH COURT DEC ISION AND HOLD THAT ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80 HHC ON ADJUSTED BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB. ACCO RDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 11. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN DIRECTING THAT AN AMOUNT OF RS. 891359/- FOR THE PROVISION B AD DEBTS TO BE DEBITED IN COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB EVEN THOUGH THE SAME WAS UNCERTAINTY LIABILITY. ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 15 11.1 BEFORE US ON THIS ISSUE LD. COUNSEL OF THE AS SESSEE HAS FAIRLY AGREED THAT THE ABOVE ISSUE IS NOW COVERED A GAINST THE ASSESSEE IN VIEW OF THE INSERTION OF CLAUSE (I) IN EXPLANATION GIVEN BELOW SUB-SECTION (2) OF SECTION 115JB OF THE ACT B Y THE FINANCE ACT (NO. 2) ACT 2009 WITH RETROSPECTIVE EFFECT FROM 1 .4.2001. IN TERMS OF THE SAID NEW INSERTED CLAUSE (I) WITH RETROSPECT IVE EFFECT AMOUNT SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET IS NOT ALLOWABLE AS DEDUCTION WHILE COMPUTING BOOK PROFITS . HOWEVER LD. COUNSEL CONTENDED THAT THE DIRECTION MAY KINDLY BE GIVEN FOR ALLOWANCE OF DEDUCTION WHILE COMPUTING BOOK PROFIT IN THE YEAR OF ACTUAL WRITE OFF OF A BAD DEBT. 11.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS. ADMITTEDLY THE ISSUE NOW STANDS COVERED AGAINST TH E ASSESSEE BY THE AFORESAID AMENDMENT. AS REGARDS THE CLAIM THA T THE RELEVANT DEDUCTION MAY BE ALLOWED WHILE COMPUTING BOOK PROFI T IN THE YEAR OF ACTUAL WRITE OFF WE FIND THAT THE CLAIM OF THE ASSESSEE IS A COGENT ONE. AO SHALL DEAL WITH THE SAME AS PER LAW AT THE APPROPRIATE TIME. 12. ANOTHER GROUND RAISED FOR THE ASSESSMENT YEAR 2 002-03 READ AS UNDER:- 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE INTEREST CHARGED U/S 234B WITHOUT GOING INTO THE MERITS OF THE CASE AND BY SIMPLY STATING THAT SINCE THE AO HAS NOT COMMENTED UPON THIS GROUND HIS SILENCE ON THE ISSUE MEANS THAT AO HAS NO OBJECTION TO THE GRIEVANCE OF APPELLANT. ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 16 1(B) WITHOUT PREJUDICE TO GROUND NO. 1(A ABOVE LD. CIT(A) HAS ERRED IN DELETING THE INTEREST OF RS. 2 14 502/- CHARGED U/S 234B ON INCOME ASSESSED IN REGULAR ASSESSMENT U/S 143(3) AS ALSO DEFINED U/S 2(4) OF THE IT ACT 1961. 1(C) WITHOUT PREJUDICE TO GROUND NO. 1(A) AND 1(B) ABOVE LD. CIT(A) HAS ERRED IN GIVING A DECISION CONTRARY TO HIS OWN DECISION ON THE SAME ISSUE OF CHARGEABILITY OF INTEREST U/S 234B IN ASSESSEES OWN CASE FOR THE SAME ASSESSMENT YEAR IN APPEAL NO. 157/05-06 DATED 22.12.2006. ON THIS ISSUE BEFORE THE LD. CIT(A) ASSESSEE MADE T HE FOLLOWING SUBMISSIONS:- 12.1 THE RETURN OF INCOME WAS FILED BY THE ASSESSM ENT AT NIL INCOME UNDER THE NORMAL PROVISIONS OF THE INCOME TA X ACT 1961 AND AT AN INCOME OF RS. 38 90 200 UNDER SECTION 115 JB OF THE ACT. TAX OF RS. 2 97 600/- WAS PAID UNDER SECTION 115JB OF THE ACT. INTEREST OF RS. 26 040/- WAS PAID UNDER SECTION 234 B OF THE ACT BY THE ASSESSEE IN RESPECT OF THE RETURNED INCOME UNDE R SECTION 115JB OF THE ACT. THE RETURN OF INCOME FILED BY THE ASS ESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND TAX D ECLARED BY THE ASSESSEE WAS ACCEPTED UNDER THE SAID SECTION. THE AO CHARGED INTEREST UNDER SECTION 234B OF THE ACT ON THE BASIS OF ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT AMOUNTING TO R S. 2 14 502/-. THE CIT(A) DIRECTED THE AO TO DELETE SUCH INTEREST ON THE GROUND THAT THE UN-AMENDED EXPLANATION 1 TO SECTION 234B OF THE ACT WAS APPLICABLE TO THE ASSESSEE AND ASSESSED TAX WOULD IMPLY TAX ON TOTAL INCOME DETERMINED U/S 143(1) OF THE AC T AND NOT ON TOTAL INCOME AS DETERMINED U/S 143(3) OF THE ACT. ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 17 IT IS RESPECTFULLY SUBMITTED THAT THE AMENDMENT MA DE BY FINANCE ACT 2006 TO EXPLANATION 1 TO SECTION 234B WAS PROSPECTIVE IN NATURE I.E. W.E.F. 1.4.2007 AND THE SAID AMENDMENT WOULD NOT BE APPLICABLE TO THE ASSESSEES CASE. AS PER THE AMENDED PROVISION THE INTEREST U/S 234B WOULD BE COMPUTED WITH REFERENCE TO THE TAX ASSESSED U/S 143(3) OF THE ACT IGNORING THE TAX DETERMINED U/S 143(1) OF THE ACT. PRIOR TO THE AM ENDMENT THE INTEREST U/S 234B OF THE ACT WAS LEVIED WITH REFERE NCE TO THE TAX ASSESSED U/S 143(1) OF THE ACT AND IF NO SUCH INTI MATION HAS BEEN PASSED THE TAX ASSESSED U/S 143(3) WOULD BE TAKEN AND SINCE IN THE ASSESSEES CASE THE RETURNED INCOME WAS ACCEPT ED IN THE INTIMATION U/S 143(1) OF THE ACT NO INTEREST IS RE QUIRED TO BE CHARGED. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION O F LUCKNOW BENCH OF TRIBUNAL IN THE CASE OF SHADI RAM AND SONS VS. DCIT 92 ITD 22 WHEREIN IT WAS HELD THAT THE INTEREST UNDER SECTION 234B OF THE ACT HAS TO BE CALCULATED ON TAX ON INCOME DETER MINED UNDER SECTION 143(1) OF THE ACT EVEN IN A CASE WHERE SUB SEQUENTLY A REGULAR ASSESSMENT IS MADE. CONSIDERING THE ABOVE LD. CIT(A) OBSERVED THAT AO HAS NOT COMMENTED ANYTHING ON THE ASSESSES SUBMISSIONS. LD . CIT(A) HELD THAT AO SILENCE PROVES THAT HE HAS NO OBJECTION IN THIS REGARD. HENCE HE DIRECTED THE AO TO DELETE THE INTEREST U/ S 234B AMOUNTING TO RS. 214502/-. 12.2 AGAINST THIS REVENUE IS IN APPEAL BEFORE US. ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 18 12.3 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED T HE RECORDS. PRINCIPALLY WE FIND OURSELVES IN AGREEME NT WITH THE PROPOSITION SUBMITTED BY THE ASSESSEE. ADMITTEDLY AMENDMENT IN EXPLANATION 1 OF SECTION 234B WAS MADE BY FINANCE ACT 2006 W.E.F. 1.4.2007. PRIOR TO AMENDMENT THE ACT POSTUL ATED THAT ASSESSED TAX MEANS THE TAX ON THE TOTAL INCOME DETE RMINED UNDER SECTION 143(1) OR REGULAR ASSESSMENT AS REDUCED BY THE TAX DEDUCTED AT SOURCE. HOWEVER WE NOTE THAT THE SUBMI SSIONS OF THE ASSESSEE IN THIS REGARD REQUIRED CERTAIN EXAMINATIO N OF FACTS. BUT THE CIT(A) HAS NOT MADE ANY COMMENTS ON THE VERACIT Y OF THE FACTS HE HAS ONLY MENTIONED THAT AO IS SILENT ON THE SUBM ISSION HENCE AO HAS NO OBJECTION. 12.4 IN OUR CONSIDERED OPINION THE MATTER NEEDS TO BE RESTORED TO THE FILES OF THE AO TO EXAMINE THE FACTS IN THIS REGARD AND DECIDE ACCORDINGLY. ACCORDINGLY THE ISSUE IS RESTORED TO THE FILES OF THE AO. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 13. THE NEXT GROUND RAISED FOR THE ASSESSMENT YEAR 2002-03 READ AS UNDER:- 5(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN GIVING RELIEF ON ACCOUNT OF PROVISIONS FOR LEAVE ENCASHMENT ON WRONG FACTS. 5(B) WITHOUT PREJUDICE TO GROUND NO. 5(A) ABOVE LD . CIT(A) HAS ERRED IN DELETING THE AMOUNT OF RS. 8 41 468/- FOR ASSTT. YEAR 2001-02 EVEN THOUGH THIS DISALLOWANCE WAS CONFIRMED BY THE ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 19 LD. CIT(A) IN HIS ORDER NO. 108/04-05 DATED 22.12.2006. 5(C) WITHOUT PREJUDICE TO GROUND NO. 5(A) & 5(B) ABOVE LD. CIT(A) HAS ERRED IN GIVING RELIEF OF RS. 3 50 916/- AS NO DISALLOWANCE WAS MADE DURING ASSESSMENT YEAR 2001-02 BY THE AO AND THEREFORE THE ADD-BACK OF THIS WRONGLY CLAIMED DEDUCTION BY THE ASSESSEE WAS CORRECT. ON THIS ISSUE THERE IS NO DISCUSSION IN AOS REPOR T. THE ASSESSEE SUBMITTED THE FOLLOWING BEFORE THE LD. CIT (A). 13.1 DURING THE PREVIOUS YEAR RELEVANT TO ASSESSME NT YEAR 2002-03 THE ASSESSEE ADDED BACK RS. 11 97 384/- AS PROVISIONS FOR LEAVE ENCASHMENT IN THE COMPUTATION OF TAXABLE INCO ME. THE SAID AMOUNT CONSTITUTED THE FOLLOWING TWO FIGURES: I) RS. 8 31 468 - PROVISION FOR LEAVE ENCASHMENT MA DE FOR ASSESSMENT YEARS 1997-98 TO 2000-01 WHICH WAS ALREADY ADDED BACK IN ASSESSMENT YEAR 2001-02. II) RS. 3 50 916 PROVISION FOR LEAVE ENCASHMENT FOR ASSESSMENT YEAR 2001-02. THE SAID ADDITION WAS MADE ON ERRONEOUS INTERPRETA TION OF THE EFFECT OF THE INSERTION OF CLAUSE (F) IN SECTION 43 B OF THE ACT. THE AMOUNT OF RS. 3 50 916/- WAS ALLOWED BY THE AO IN ASSESSMENT YEAR 2001-02 IN VIEW OF THE DECISION OF SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS LIMITED VS. CIT : 245 ITR 428. THE CIT(A) OBSERVED THAT THE ADDITION OF RS. 8 31 468/- AMOUNTS TO DOUBLE ADDITIONS MADE BY THE ASSESSEE S INCE THE SAME HAS ALREADY BEEN DISALLOWED BY THE AO IN ASSESSMEN T YEAR 2001- ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 20 02 THEREFORE THE SAME NEEDS TO BE ALLOWED IN THE ASSESSMENT YEAR 2002-03. AS REGARDS THE AMOUNT OF RS. 3 50 916/- IT WAS OBSERVED THAT THE SAME WAS OTHERWISE ALLOWABLE AND WAS ERRON EOUSLY ADDED BACK BY THE ASSESSEE HENCE RELIEF MUST BE GRANTED. IN THAT VIEW OF THE MATTER THE CIT(A) DELETED THE ADDITION MADE B Y THE ASSESSEE. 13.2 AGAINST THIS ORDER THE REVENUE IS IN APPEAL B EFORE US. 13.3 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED T HE RECORDS. WE FIND THAT LD. CIT(A) HAS GRANTED THE R ELIEF ON THE ASSESSEES CLAIM THAT THE AMOUNT OF RS. 1197384/- W AS ALREADY DISALLOWED IN EARLIER YEARS AND HENCE THIS YEAR THE RE IS A DOUBLE DISALLOWANCE. WE FIND THAT THIS PERTAINS TO FACTU AL EXAMINATION OF PAST RECORDS. IN OUR CONSIDERED OPINION AO SHOUL D HAVE AN OPPORTUNITY TO GO THROUGH THE SUBMISSIONS OF THE AS SESSEE. HENCE WE REMIT THE ISSUE TO THE FILES OF THE AO TO EXAMIN E THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD AND DECIDE AFTER RE CORDING HIS FINDING IN THIS REGARD. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 14. THE LAST GROUND RAISED FOR THE ASSESSMENT YEAR 2002-03 READ AS UNDER:- ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 21 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DIRECTING THE AO TO REDUCE AMOUNT OF EXCISE DUTY FROM THE TOTAL TURNOVER TO COMPUTE DEDUCTION U/S 80HHC WHICH IS CONTRARY TO THE PROVISIONS OF SECTION 145A OF THE IT ACT. 14.1 DURING THE PREVIOUS YEAR RELEVANT TO ASSESSM ENT YEAR 2002-03 THE ASSESSEE WHILE COMPUTING THE DEDUCTION U/S 80HHC OF THE ACT INADVERTENTLY INCLUDED THE EXCISE DUTY AMOUNTING TO RS. 3 55 45 358/- IN THE TOTAL TURNOVER WHILE THE SAME WAS EXCLUDED FROM THE EXPORT TURNOVER. THE SAME WAS PUT FORTH B EFORE THE CIT(A) IN FORM OF ADDITIONAL GROUND OF APPEAL AND THE CIT( A) ON ADMITTING THE SAID GROUND GRANTED THE RELIEF TO THE ASSESSE E BY DIRECTING THE AO TO RECOMPUTED THE DEDUCTION U/S 80HHC OF THE ACT AFTER EXCLUDING THE EXCISE DUTY FROM THE TOTAL TURNOVER. 14.2 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED T HE RECORDS. BOTH THE COUNSELS FAIRLY AGREED THAT THE ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE HONBLE APEX COURT IN THE CASE OF CIT VS. LAXMI MACHINE WO RKS 290 ITR 667 WHEREIN IT WAS HELD THAT FOR THE PURPOSE OF COM PUTING ITA NOS. 1166 & 1167/DEL/07 A.YRS. 2001-02 & 2002-03 22 DEDUCTION U/S 80HHC EXCISE DUTY AND SALE TAX CANNO T FORM PART OF TOTAL TURNOVER AS WELL AS EXPORT TURNOVER. RESPECTFULLY FOLLOWING THE ABOVE PRECEDENT WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 15. IN THE RESULT BOTH THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19/02/2010. SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 19/02/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES