M/S Gujarat Flouro Chemicals Ltd, Baroda v. The Add Ci T Ran-1, Baroda

ITA 3039/AHD/2002 | 1999-2000
Pronouncement Date: 29-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 303920514 RSA 2002
Assessee PAN AAACG6725H
Bench Ahmedabad
Appeal Number ITA 3039/AHD/2002
Duration Of Justice 7 year(s) 3 month(s) 29 day(s)
Appellant M/S Gujarat Flouro Chemicals Ltd, Baroda
Respondent The Add Ci T Ran-1, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 29-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 29-01-2010
Date Of Final Hearing 12-11-2009
Next Hearing Date 12-11-2009
Assessment Year 1999-2000
Appeal Filed On 30-09-2002
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL B-BENCH AHMEDABAD. BEFORE: SHRI H L KARWA JUDICIAL MEMBER AND SHRI D.C.AGRAWAL ACCOUNTANT MEMBER. ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) GUJARAT FLUROCHEMICALS LIMITED ABS TOWERS 2 ND FLOOR OLD PADRA ROAD BARODA-390 007. VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 1 BARODA. (APPELLANT) (RESPONDENT) PAN: AAACG 6725 H FOR THE APPELLANT: SHRI. S.N. SOPARKAR SR. ADV. WI TH SHRI. TUSHAR HEMANI FOR THE RESPONDENT GOVIND SINGHAL SR. DR ORDER PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) IS AGAINST LAW AND FACTS. 2. THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) ERRED IN HOLDING THAT SALE TAX AMOUNTING TO RS.2 07 85 882/- AND EXCISE DUTY AMOUNTING TO RS.8 05 14 532/- COLLECTED FROM C USTOMERS FORM PART OF TOTAL TURNOVER FOR THE PURPOSE OF COMPUT ING DEDUCTION UNDER SECTION 80HHC. YOUR APPELLANT SUBMITS THAT SALES TAX AND EXCISE DU TY COLLECTED BY THE APPELLANT ARE SEPARATELY EARMARKED AND CREDITED TO SEPARATE ACCOUNTS FOR MEETING LIABILITY FOR THESE TAXES. TH EY HAVE NO ELEMENT OF PROFIT IN THEM. ALSO IN THE LIGHT OF PU RPOSE AND PROVISIONS OF SECTION 80HHC THESE AMOUNTS OUGHT NO T TO BE ADDED TO/INCLUDED IN TOTAL TURNOVER. 2 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) YOUR APPELLANT PRAYS THAT THE ASSESSING OFFICER BE DIRECTED NOT TO ADD THE AMOUNTS OF SALES TAX AND EXCISE DUTY IN TO TAL TURNOVER FOR COMPUTING DEDUCTION UNDER SECTION 80HHC. 3. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CON FIRMING DISALLOWANCE OF RS.3 41 65 845/- IN RESPECT OF EXPE NDITURE ON DIVERSIFICATION EXPENSES. YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE IS NOT JUSTIFIED AND PRAYS THAT THE SAME BE DELETED. 4. THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS.41 30 126/- BEING PRI NCIPAL AMOUNT OF INTER CORPORATE DEPOSIT WRITTEN OFF AND RS.14 91 125/- BEING UNREALIZED INTEREST WRITTEN OFF. YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE IS NOT JUSTIFIED AND PRAYS THAT THE SAME BE DELETED. 5. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING FOLLOWING ADJUSTMENTS FOR COMPUTING DEDUCTION UNDER SECTION 80HH. I) EXCLUSION OF INTEREST AND DIVIDEND AMOUNTING TO RS.6 74 91 647/- FROM PROFITS DERIVED FROM INDUSTRI AL UNDERTAKING. II) ALTERNATIVELY AND WITHOUT PREJUDICE TO ABOVE DETERMINATION OF EXPENSES FOR EARNING SUCH INCOME A T ONLY 2.5% OF THE INCOME (COMPARED TO RS.63 85 641/- CALCULATED @ 10% BY THE APPELLANT AND RS.5 10 415/- BY THE ASSESSING OFFICER) AS EXPENDITURE RELATING TO INTEREST AND DIVIDEND EARNED BY THE APPELLANT FOR THE PURPOSE OF EXCLUDING SUCH INCOME FROM INTEREST AND DIVIDEND FOR COMPUTING DEDUCTION UNDER SECTION 80HH. 3 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) YOUR APPELLANT SUBMITS THAT SUCH ADJUSTMENT SHOULD NOT HAVE BEEN MADE AND PRAYS THAT DEDUCTION UNDER SECTION 80 HH BE ALLOWED ACCORDINGLY. 6. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING DISALLOWANCE OF RS.61 867/- BEING 1/10 TH OF SUNDRY EXPENSES. YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE IS NOT JUSTIFIED AND PRAYS THAT THE SAME BE DELETED. 7. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING DISALLOWANCE OF RS.2 58 464/- BEING EXPENDITURE ON PRESENTATION ARTICLES. 8. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING DISALLOWANCE OF RS.18 959/- BEING 1/10 TH OF GARDEN MAINTENANCE EXPENSES. YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE IS NOT JUSTIFIED AND PRAYS THAT THE SAME BE DELETED. 9. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING INCLUSION OF RS.4 61 489/- BEING INCENTIVE RECEIVED IN RESPECT OF INVESTMENTS MADE BY APPELLANT IN TOTAL INCOME. YOUR APPELLANT SUBMITS THAT SUCH INCENTIVE REPRESEN TS CAPITAL RECEIPT AND PRAYS THAT THE SAME BE EXCLUDED FROM TO TAL INCOME. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF REFRIGERANT GASES USED PRIMARILY IN ALL REFRIGERANT EQUIPMENTS. IT HAS MADE DOMESTIC AS WELL EXPORT SALES. TOTAL T URNOVER HAS BEEN DECLARED AT RS. 111.13 CRORES AND PROFIT BEFORE TAX IS SHOWN AT RS. 41.58 CRORES. IN THE IMMEDIATELY PRECEDING YEAR TURNOVER WAS RS. 90.47 CRORES WHEREAS PROFIT BEFORE TAX WAS 28.24 CRORES. 4 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) 3. WE HAVE HEARD LEARNED AR AND LEARNED DR AND CARE FULLY PERUSED THE MATERIAL ON RECORD. VARIOUS ISSUED RAISED BY T HE ASSESSEE ARE DISCUSSED BELOW: 4. ISSUE NO. 1 IS GENERAL AND HENCE IS REJECTED AS IT REQUIRES NO SEPARATE ADJUDICATION. 5. GROUND NO. 2 RELATES TO ISSUE WHETHER SALES TAX AND EXCISE DUTY FOR PART OF TOTAL TURNOVER FOR CLAIMING DEDUCTION UNDER SECTION 80HHC. THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE HONBLE SUPREME COURT COMMISSIONER OF INCOME-TAX VS . LAKSHMI MACHINE WORKS 290 ITR 667 (SC) WHEREIN IT IS HELD AS UNDER: (HEAD NOTES) SECTION 80HHC OF THE INCOME-TAX ACT 1961 IS A BE NEFICIAL SECTION : IT WAS INTENDED TO PROVIDE INCENTIVE TO P ROMOTE EXPORTS. THE INTENTION WAS TO EXEMPT PROFITS RELATABLE TO EX PORTS. JUST AS COMMISSION RECEIVED BY THE ASSESSEE IS RELATABLE TO EXPORTS AND YET IT CANNOT FORM PART OF TURNOVER FOR THE PURPOSES OF SECTION 80HHC EXCISE DUTY AND SALES TAX ALSO CANNOT FORM P ART OF TURNOVER. JUST AS INTEREST COMMISSION ETC. DO NOT EMANATE FROM THE TURNOVER SO ALSO EXCISE DUTY AND SALES TAX DO NOT EMANATE FROM SUCH TURNOVER. SINCE EXCISE DUTY AND SALES TAX DID NOT INVOLVE ANY SUCH TURNOVER SUCH TAXES HAD TO BE EXCLUDED. CO MMISSION INTEREST RENT ETC. DO YIELD PROFITS BUT THEY DO NOT PARTAKE OF THE CHARACTER OF TURNOVER AND THEREFORE THEY ARE NOT IN CLUDIBLE IN THE TOTAL TURNOVER. IF SO EXCISE DUTY AND SALES TAX ALSO CANNOT FORM PART OF THE TOTAL TURNOVER UNDER SECTION 80HHC(3) . ONE CANNOT INTERPRET THE WORDS TOTAL TURNOVER WIT H REFERENCE TO THE DEFINITION OF THE WORD TURNOVER IN OTHER LAWS LIKE THE CENTRAL SALES TAX OR AS DEFINED IN ACCOUNTING PRINCIPLES. EXCISE DUTY AND SALES TAX ARE INDIRECT TAXES. THEY ARE RECOVERED BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT. BY THE COURT : THE PRINCIPAL REASON FOR ENACTING A FORMULA IN SECTION 80HHC OF THE INCOME-TAX ACT 1961 IS TO DI SALLOW A PART OF THE CONCESSION THEREUNDER WHEN THE ENTIRE DEDUCTION CLAIMED 5 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) CANNOT BE REGARDED AS RELATING TO EXPORTS. THEREFOR E WHILE INTERPRETING THE WORDS TOTAL TURNOVER IN THE FORM ULA IN SECTION 80HHC ONE HAS TO GIVE A SCHEMATIC INTERPRETATION. T HE VARIOUS AMENDMENTS MADE THEREIN SHOW THAT RECEIPTS BY WAY O F BROKERAGE COMMISSION INTEREST RENT ETC. DO NOT FORM PART OF BUSINESS PROFITS AS THEY HAVE NO NEXUS WITH THE ACTIVITY OF EXPORT. THE AMENDMENTS MADE FROM TIME TO TIME INDICATE THAT THEY BECAME NE CESSARY IN ORDER TO MAKE THE FORMULA WORKABLE. IF SO EXCISE D UTY AND SALES TAX ALSO CANNOT FORM PART OF THE TOTAL TURNOVER U NDER SECTION 80HHC(3) : OTHERWISE THE FORMULA BECOMES UNWORKABLE . 5. ACCORDINGLY THIS GROUND OF THE ASSESSEE IS ALLO WED. 6. GROUND NO.3 RELATES TO DISALLOWANCE OF RS. 3 41 65 845/- ON ACCOUNT OF DIVERSIFICATION EXPENSES. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE IS ENGAGED IN THE ACTIVITY OF MANUFACT URING REFRIGERANT GASES IN ITS OWN FACTORY PLANT IN PANCHMAHAL DISTRICT OF GUJARAT. THIS IS THE MAIN SOURCE OF THE INCOME OF THE ASSESSEE. OTHER S OURCE OF INCOME IS INTEREST FROM INVESTMENT IN INTER-CORPORATE DEPOSIT S BANKS AND DIVIDENDS OR INVESTMENTS. ACCORDINGLY HE HELD THAT DIVERSIF ICATION EXPENSES WERE NOT FOR THE PURPOSE OF BUSINESS. SIMILAR DISALLOWAN CE IS MADE BY THE ASSESSING OFFICER IN EARLIER ASSESSMENT YEAR. THE ISSUE WAS FINALLY RESTORED BY THE TRIBUNAL TO THE FILE OF THE ASSESSI NG OFFICER AS UNDER: 15.2 CLEARLY IF THE ASSESSEE HAS UNDERTAKEN THE S AID ACTIVITY AS A PART OF ITS NEW BUSINESS THE SAME WOULD MERIT DEDU CTION. ANY BUSINESS IT MUST BE APPRECIATED CAN ONLY BE BETWE EN AT LEAST TWO PARTIES AS NOBODY CAN DO BUSINESS WITH SELF AND I NCOME OR LOSS ARISING FROM THE SAID ACTIVITY MUST NECESSARILY FL OW OUT OF THE CONTRACTUAL RELATIONSHIP BETWEEN TWO (OR MORE) PART IES. THE A.O. HAS DISALLOWED THE ASSESSEES CLAIM ON THE GROUND T HAT THERE IS NO INCOME FOR THE CURRENT YEAR WHILE THE LD. CIT(A) H AS ALLOWED THE SAME ON THE BASIS THAT THE SAME IN INCURRED IN PURS UANCE TO A NEW 6 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) BUSINESS. BOTH THE ORDERS ARE BEREFT OF THE BASIC FACTS NECESSARY FOR THE ADJUDICATION OF THE ISSUE; THERE BEING NO Q UARREL AS TO THE LAW IN THE MATTER THE EXPENDITURE WHERE INCURRED FOR THE PURPOSES OF ANY BUSINESS CAN ONLY BE ALLOWED IN TH E COMPUTATION OF INCOME (INCLUDING LOSS) THERE FROM U/S. 28(I) OF THE ACT. WHO IS THE PARTY (S) FOR WHOM THE ASSESSEE HAS UNDERTAKEN THE RELEVANT WORK? WHAT ARE THE TERMS OF THE RELEVANT AGREEMENT OR UNDERSTANDING BETWEEN THE CONTRACTING PARTIES? IF THE WORK IS INDEED INCOMPLETE OR INCHOATE AS AT THE YEAR-END W HY WOULD IT BE NOT APPROPRIATE TO CARRY FORWARD THE EXPENDITURE IN CURRED IN THE CURRENT YEAR REPRESENTING THE COST OF THE WORK UND ERTAKEN AND FOR WHICH THE SAME STANDS INCURRED TO THE SUBSEQUENT P ERIOD AND WHEREAT ONLY THE INCOME OR LOSS ARISING THERE FROM COULD BE ASCERTAINED? OR IF THE CONTRACT ADMITS OF REVENUE RECOGNITION AS AT THE YEAR-END ON THE PARAMETERS OF REASONABLE CERTA INTY BOTH AS TO VALUATION AND REALIZABILITY THE REVENUE AND WHIC H COULD BE AT A FIGURE OF LOSS AS WELL COULD WELL BE COMPUTED FOR THE CURRENT YEAR AS WELL. AS AFORE-STATED THE FACTS IN RELATION TO THE COMPUTATION OF THE LOSS FROM THE SAID BUSINESS WHICH THE ASSESSEE STATES TO HAVE CARRIED ON DURING THE CURRENT YEAR (AND WHICH IT WO RKS AT A LOSS EQUAL TO THE AMOUNT OF EXPENDITURE INCURRED DURING THE YEAR) BEING NOT CLEAR AND WHICH ONLY CAN JUSTIFY OR EXPL AIN THE SAME WE SET-ASIDE THE MATTER BACK TO THE FILE OF THE A.O. F OR RE-ADJUDICATION OF THIS ISSUE IN ACCORDANCE WITH LAW PER A SPEAKIN G ORDER AFTER ALLOWING PROPER OPPORTUNITY TO THE ASSESSEE TO STAT E ITS CASE BEFORE HIM. WE DECIDE ACCORDINGLY. 7. RESPECTFULLY FOLLOWING ABOVE DECISION WE SET AS IDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER THIS YEAR ALSO FOR DE CIDING AFRESH IN THE LIGHT 7 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) OF THE DIRECTIONS GIVEN BY THE TRIBUNAL AS ABOVE IN THE A.Y. 1998-1999 AS WELL AS OBSERVATIONS OF LD CIT(A) MADE BY HIM THIS YEAR. THEREFORE THIS GROUND IS ALLOWED BUT FOR STATISTICAL PURPOSES. 8. GROUND NO.4 RELATES TO DISALLOWANCE OF RS.41 30 126/- BEING INTERCORPORATE DEPOSITS AND RS. 14 91 125/- BEING I NTEREST THEREON. THE ASSESSING OFFICER FOUND THAT ASSESSEE HAS WRITTEN O FF SUM OF RS. 41 30 126/- BEING LOANS AND ADVANCES. ACCORDING TO THE ASSESSEE THE CLAIM OF DEDUCTION IS ALREADY TAXED AS INCOME IN EA RLIER YEARS. THEY ARE WRITTEN OFF THIS YEAR AND HENCE AS PER SECTION 36(1 )(VII)/36(2) THEY ARE ALLOWABLE. SIMILARLY CLAIM OF INTEREST SO WRITTEN OFF IS ALSO ALLOWABLE. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE ON THE GR OUND THAT ASSESSEE IS NOT AN INVESTMENT COMPANY; IT IS A MANUFACTURING CO NCERN AND DEPOSITED SURPLUS WITH CERTAIN COMPANIES. THE REALIZATION OF THE PRINCIPLE AND INTEREST THEREON IS DOUBTFUL. THIS AMOUNT HAS NEVE R BEEN INCLUDED IN THE COMPUTATION OF INCOME AND THEREFORE EVEN IF THEY AR E WRITTEN OFF THEY CANNOT BE ALLOWED AS DEDUCTION. THE LEARNED AR SUB MITTED THAT SIMILAR ISSUE HAS BEEN SET ASIDE BY THE TRIBUNAL IN THE ASS ESSMENT YEAR 1998- 1999 FOR CONSIDERING AFRESH. 10. HOWEVER WE ARE OF THE VIEW THAT THE APPLICABIL ITY OF SECTION 36(2) WAS NOT BEFORE THE TRIBUNAL IN THE AY 1998-1999 THE REFORE THAT ISSUE WAS NOT EXAMINED FORM THAT ANGLE BUT IN THE PRESENT AY LD. CIT(A) HAS GIVEN CLEAR FINDING THAT PROVISION OF SECTION 36(2) ARE N OT SATISFIED I.E. AMOUNT WRITTEN OF IN THE BOOKS ARE NOT CLAIMED AND ALLOWED AS DEDUCTION IN THE PROFIT AND LOSS ACCOUNT IN ANY EARLIER YEAR. IN TH IS REGARD WE REFER TO FOLLOWING PART FROM THE PARA 8 PAGE 13 FROM THE OR DER OF THE CIT(A) AS UNDER: 8 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) WITH REGARD TO THE WRITE OFF OF THE PRINCIPAL AMOU NT I FIND THAT THE APPELLANT IS NOT AN INVESTMENT COMPANY WHO ADVA NCES LOANS TO VARIOUS CONCERNS ON INTEREST. IT IS A MANUFACTURIN G CONCERN AND HAS DEPOSITED ITS SURPLUS FUNDS WITH CERTAIN COMPAN IES AND THE REALIZATION OF SOME OF THE PRINCIPAL AMOUNTS HAS BE COME DOUBTFUL WHICH HAS BEEN WRITTEN OFF BY THE APPELLANT. BUT S UCH PRINCIPAL AMOUNT INVESTED IN COMPANIES HAS NEVER BEEN INCLUDE D IN THE COMPUTATION OF INCOME OF THE APPELLANT AND HENCE AS PER THE PROVISIONS OF SECTION 36(2) SUCH AMOUNT CANNOT BE ALLOWED EVEN IF WRITTEN OFF IN THE BOOKS OF ACCOUNTS. THE DECISION OF SUPREME COURT IN THE CASE OF T B BHADRARAO KOTESHWAR & CO. WILL NOT APPLY TO THIS CASE AS THE FACTS ARE DIFFERENT. IN THAT CASE THE ASSESSEE HAD TAKEN OVER ITS PREDECESSORS BUSINESS WITH ALL ASSETS AND LIABILITIES. IT WAS ACCOUNTING FOR INTEREST ON DEBTS DUE TO ITS PREDECESSORS. THERE WAS A SETTLEMENT WITH SUCH DEB TORS AND ASSESSEE ACCEPTED PART OF THE DEBTS AND WROTE OFF B ALANCE AMOUNT WHICH WAS HELD TO BE ALLOWABLE. IN THAT CASE THE CONTROVERSY REVOLVED ROUND THE ISSUE THAT THE DEBT RELATED TO T HE OLD FIRM AND HENCE THE DEPARTMENT WAS OF THE VIEW THAT THE SAME CANNOT BE ALLOWED IN THE ASSESSEES CASE AS IT WAS NOT HIS DE BT. THE SUPREME COURT SAID THAT THE INTEREST ON SUCH DEBT HAS BEEN ACCOUNTED FOR BY THE ASSESSEE AND HENCE RELATED DEBT HAS ALSO TO BE CONSIDERED TO BE ALLOWABLE IF THE SAME IS WRITTEN OFF. THE OTHER C ONDITIONS OF SECTION 36(2) WERE SATISFIED IN THAT CASE AND AS SU CH THESE WERE NOT RAISED BEFORE ANY APPELLATE AUTHORITY OR COURT. IT ALSO APPEARS THAT THE DEBT RELATED TO TRADING DEBTS AND NOT THE LOAN AS IS THE CASE WITH THE APPELLANT. IN THIS CASE THE FACTS ARE DIF FERENT. THE DEBTS RELATED TO LOANS AND NOT TRADING RECEIPTS. 9 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) FURTHER THE INTEREST ON SUCH LOAN IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AND AS SUCH THE IRRECOVERABLE LOAN CANNOT BE ALLOWED APPLYING THE PRINCIPLES OF I NCOME FROM BUSINESS. THE DISALLOWANCE OF RS.41 30 136/- IS TH EREFORE CONFIRMED. 11. THUS ONCE NO DEDUCTION IS ALLOWED IN EARLIER Y EARS THE QUESTION OF CLAIMING AS BAD DEBT EVEN IF THEY ARE WRITTEN OF IN THE BOOKS DOES NOT ARISE. HOWEVER WE ACCEPT THE ALTERNATIVE CONTENTI ON OF THE LD. AR THAT THE ISSUE SHOULD BE EXAMINED AS TO WHETHER THERE WA S A TRADING LOSS. THE ASSESSING OFFICER WILL FIRST EXAMINE WHETHER INTERE ST ACCRUED AND PRINCIPLE ARE NON RECOVERABLE AND ACCORDINGLY BECOM E TRADING LOSS. IN OUR CONSIDERED VIEW QUESTION OF PUTTING CONDITIONS LAID DOWN IN SECTION 36(1)(VII) ABOUT WRITING OFF IN THE BOOKS CANNOT BE BORROWED FOR EXAMINING TRADING LOSS WHICH WOULD SOLELY DEPEND UP ON NON- RECOVERABILITY OF THE PRINCIPLE AS WELL AS INTEREST . ACCORDINGLY THE ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFF ICER FOR EXAMINING AS ABOVE. 12. ACCORDINGLY THIS GROUND IS ALLOWED BUT FOR ST ATISTICAL PURPOSE. 13. GROUND NO. 5 RELATES TO EXCLUSION OF INTEREST A ND DIVIDEND OF RS. 6 74 96 647/- FOR COMPUTING DEDUCTION UNDER SECTION 80HH AND ALSO ABOUT CLAIM OF REDUCTION OF EXPENSES AT A RATE OF 2 .5% FOR EARNING SUCH INCOME. THE LD. CIT(A) CONFIRMED THE FINDING OF TH E ASSESSING OFFICER IN HOLDING THAT THIS INCOME IS NOT DERIVED FROM IND USTRIAL UNDERTAKING AND HENCE CANNOT BE CONSIDERED FOR DEDUCTION UNDER SECT ION 80HH. LD. CIT(A) CONFIRMED THE FINDING BY RELYING UPON THE DE CISION OF HONBLE 10 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) SUPREME COURT IN PANDIAN CHEMICALS LTD. VS. CIT [20 03] 262 ITR 278 (SC). 14. BEFORE US LD. AR REFERRED TO THE DECISION OF IT AT AHMEDABAD IN GUJARAT FLURO CHEMICALS LTD. V. DCIT ITA NO.174/A/ 2001 AY 1998-99 PRONOUNCED ON 04-01-2008 WHEREIN THE CLAIM OF THE ASSESSEE WAS ALLOWED MEANING THEREBY THAT INTEREST AND DIVIDEND WAS TREATED AS DERIVED FROM INDUSTRIAL UNDERTAKING. HOWEVER LD. DR REFUTED THE CLAIM BY SUBMITTED THAT THE TRIBUNAL IN THAT YEAR AND IN THAT CASE DID NOT CONSIDER WHETHER INTEREST AND DIVIDEND IS DERIVED F ROM INDUSTRIAL UNDERTAKING WHEREAS THERE IS A CLEAR FINDING THIS YEAR BY LD. CIT(A) THAT INTEREST AND DIVIDEND IS NOT DERIVED FROM INDUSTRIA L UNDERTAKING AND THIS HAS NOT BEEN CHALLENGED BY THE ASSESSEE. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE RES TORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO PROVIDE AN OPP ORTUNITY TO THE ASSESSEE TO SHOW AS TO HOW INTEREST AND DIVIDEND IS DERIVED FROM INDUSTRIAL UNDERTAKING. THIS ASPECT WAS NOT CONSIDERED BY THE TRIBUNAL IN THE EARLIER YEAR IN THE CASE OF THE ASSESSEE AND THEREF ORE THIS DECISION WOULD NOT BE APPLICABLE. IN ANY CASE ISSUE IS DIRECTLY C OVERED AGAINST THE ASSESSEE BY THE DECISION OF HONBLE SUPREME COURT I N PANDIAN CHEMICALS CASE WHICH DECISION WAS APPARENTLY NOT CONSIDERED B Y THE TRIBUNAL WHILE DISPOSING OF THE MATTER IN THE ASSESSMENT YEAR 1998 -99. IN THIS REGARD WE MAY REFER TO PARA 8 FROM THAT ORDER OF ITAT AS U NDER: WE HAVE HEARD THE LEARNED AR OF THE ASSESSEE AND L EARNED DR. THE PARTIES AND PERUSED THE MATERIAL ON RECORD. T HE A.O. THOUGH PROCEEDED BY ALLOCATING THE COMMON EXPENDITURE WE CONSIDER FALTERED IN EQUATING THE INCOME COMPONENT IN RESPEC T OF THE TWO TURNOVERS/RECEIPTS I.E. BY WAY OF INTEREST INCOME AND THE REGULAR 11 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) RECEIPTS AS IS IMPLICIT IN HIS WORKING SO THAT TH E SAME WOULD BEAR EXPENDITURE IN THE SAME RATIO. THE LD.CIT(A) ON T HE OTHER HAND IN OUR VIEW THOUGH RIGHTLY REJECTED THE A.O.S WOR KING HAS AGAIN PROCEEDED ON AN ADDITION HOC BASIS IN RESTRICTING T HE ASSESSEES CLAIM WHICH STANDS DULY SUPPORTED BY WORKINGS AT 2.5%. THE ASSESSEE HAS EXPLAINED AT LENGTH THE INPUTS THAT GO IN THE EARNING OF THE INTEREST INCOME AND WHICH IN THE TODAYS DYNA MIC BUSINESS ENVIRONMENT WHICH HAS WITNESSED LARGE SWINGS IN TH E INTEREST RATES OVER THE YEARS CANNOT BE SAID TO BE A SIMPLE EXERC ISE ESPECIALLY WHERE IT INVOLVES LARGE CHUNKS OF MONEY AS IN THE P RESENT CASE. FURTHER THE FACT THAT SOME OF ITS INCOME BECAME BA D (EITHER SUBSEQUENTLY OR IN THE CURRENT YEAR ITSELF) WOULD I TSELF PROVE THE COMPLEXITY PERVADING THE MONEY MARKET OPERATIONS. THE RELIANCE BY THE ASSESSEE ON THE PROVISION OF SECTION 80HHC TO OUR MIND IS ALSO NOT MISPLACED. WE THEREFORE CONSIDER ITS (T HE ASSESSEES) CLAIM AS VALID AND ALLOW ITS CLAIM RESULTING IN C ONCOMITANTLY DISMISSAL OF THE REVENUES APPEAL ON THIS GROUND. SO HOWEVER WE MAY CLARIFY THAT THE EXPENDITURE WOULD BE RECKONED WITH REFERENCE TO GROSS INTEREST AS FINALLY HELD TO BE EARNED FOR THE RELEVANT YEAR I.E. EXCLUDING THAT CONFIRMED AS NO ACCRUED. WE DE CIDE ACCORDINGLY ADJUDICATING THE GROUNDS AFORE-MENTION ED. 16. ACCORDINGLY THE ABOVE DECISION BEING PEINQURIU M OF APEX COURT DECISION DOES NOT CREATE ANY BINDING FOLLOWING FOR THE PRESENT BENCH. HOWEVER WE RESTORE THE MATTER TO THE FILE OF THE A SSESSING OFFICER FOR DECIDING THE MATTER AFRESH AS OBSERVED ABOVE. ACCO RDINGLY THIS GROUND OF THE ASSESSEE IS ALLOWED BUT FOR STATISTICAL PUR POSES. 12 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) 17. REGARDING EXPENDITURE ON EARNING INTEREST AND D IVIDEND INCOME THE SAME ALSO STANDS ON THE SAME REASONING AS THE P RINCIPLE RECEIPT. THE ASSESSING OFFICER WILL DECIDE THIS ISSUE AFRESH ACC ORDINGLY IN THE SAME MANNER AS THE ISSUE ON THE PRINCIPLE AMOUNT. 18. NEXT ISSUE IS REGARDING CONFIRMING DISALLOWANCE OF RS. 61 867/- BEING 1/10 TH OF SALARY EXPENSES. 19. THE ASSESSING OFFICER DISALLOWED 1/10 TH OF EXPENSES OUT OF SUNDRY EXPENSES ON THE GROUND THAT SUCH EXPENDITURE WERE N OT PROPERLY VERIFIABLE. THE CLAIM OF THE ASSESSEE IS THAT THEY INCLUDED EXPENDITURE FOR BUSINESS PURPOSES ETC. NO PERSONAL ELEMENT IS INVOL VED. THE ACCOUNTS OF THE FIRMS ARE AUDITED BY CHARTERED ACCOUNTANTS. TH E LD. CIT(A) CONFIRMED THE DISALLOWANCE HOLDING THAT EXPENSES A RE NOT VERIFIABLE AND IT WAS NOT PROVED THAT THEY WERE FOR BUSINESS PURPO SES. 20. AFTER HEARING THE PARTIES WE DECLINE TO INTERF ERE FOR THE REASON THAT ASSESSEE WAS NOT ABLE TO SHOW THAT ENTIRE EXPENDITU RE WERE INCURRED FOR BUSINESS PURPOSE OR THAT THEY WERE ACTUALLY INCURRE D. HENCE THIS GROUND IS REJECTED. 21. GROUND NOS. 7 AND 8 RELATE TO RS. 2 58 464/- FO R PRESENTATION ARTICLES AND OF RS. 18 959/- FOR GARDEN MAINTENANCE EXPENDITURE RESPECTIVELY. FOR THE REASONS MENTIONED WHILE DISP OSING OF GROUND NO.6 WE UPHOLD THE DISALLOWANCE AND REJECT THESE GROUNDS OF THE ASSESSEE. 22. GROUND NO.9 RELATES TO DISALLOWANCE OF RS. 4 61 489/- BEING INCENTIVE RECEIPT IN RESPECT OF INVESTMENT. THE LD . CIT(A) THE ASSESSEE SOUGHT EXEMPTION FROM TAXATION IN RESPECT OF THIS R ECEIPT BY HOLDING THAT 13 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) THIS REPRESENTED ONLY LESSER AMOUNT OF INVESTMENT A ND HENCE A CAPITAL RECEIPT. THE LD. CIT(A) NOTED THAT ASSESSEE INVEST ED RS. 200 LAKHS IN UTI BOND FUNDS ETC. OUT OF WHICH IT RECEIVED COMMI SSION FROM BROKERS. THE ASSESSEE IS GETTING COMMISSION FROM BROKERS AND IS THEREFORE NOT A REDUCTION IN INVESTMENT AS THIS AMOUNT IS NOT RECEI VED FROM UTI OR OTHER INVESTING FUNDS. 23. LD. AR SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF COMMISSIONER OF IN COME-TAX VS. U.P. STATE INDUSTRIAL DEVELOPMENT CORPORATION [1997] 225 ITR 0703 (SC). LD. DR ON THE OTHER HAND SUBMITTED THAT FACTS IN TH AT CASE WERE DIFFERENT. 24. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT DECISION REFERRED TO BY LD.AR IS NOT APPLICABLE TO THE FACTS OF THE CASE. IN THE CASE REFERRED FACTS WERE THAT ASSESSEE WAS UNDE RWRITING PUBLIC ISSUES AND HAD RECEIVED UNDERWRITING COMMISSION. IT HAS P URCHASED UNSUBSCRIBED SHARES. THE UNDERWRITING COMMISSION W AS TREATED AS REDUCTION IN COST OF SUCH UNSUBSCRIBED SHARES AND N OT AS SEPARATE INCOME. HOWEVER IN THE PRESENT CASE ASSESSEE HAS MADE INVE STMENT WITH UTI AND OTHER FUNDS AND HAS NOT PURCHASED ANY SHARES ENABLI NG IT TO REDUCE THE COST. SHARE PRICE HAD A COST BUT INVESTMENT WITH U TI STANDS ON DIFFERENT FOOTINGS. THERE IS NO UNDERWRITING OF INVESTMENT T HEREBY ASSESSEE IS REQUIRED TO COMPULSORILY PURCHASE SUCH INVESTMENT. INVESTMENT WITH UTI IS VOLUNTARY ACT AND IS NOT A FORCED PURCHASE LIKE IN UNDERWRITING. A PURCHASE OF UNSUBSCRIBED SHARES IS AS A RESULT OF C ONTRACTUAL AGREEMENT ALONG WITH THE RECEIPT OF UNDERWRITING COMMISSION F ROM THE SAME PARTY I.E. A COMPANY WHOSE SHARES ARE UNDERWRITTEN AND WH OSE UNSUBSCRIBED SHARES ARE NECESSARILY PURCHASED BY THE ASSESSEE. THUS THE RECEIPT OF UNDERWRITING COMMISSION IS FROM THE SAME PERSON TO WHOM PURCHASE 14 ITA NO.3039/AHD/2002 (ASSESSMENT YEAR 1999-2000) PRICE FOR UNSUBSCRIBED SHARES IS PAID. BUT IN THE PRESENT CASE COMMISSION IS RECEIVED FROM THE BROKERS WHICH IS TH ROUGH A SEPARATE AGREEMENT WHEREAS INVESTMENT IS MADE WITH UTI THRO UGH A SEPARATE SET OF AGREEMENT. THE TWO EVENTS ARE NOT LINKED OR HAV E A DIRECT NEXUS AND HENCE THERE IS NO CASE FOR REDUCTION OF COMMISSION RECEIVED FROM INVESTMENT. AS A RESULT THIS GROUND OF THE ASSESSE E IS REJECTED. 25. AS A RESULT APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED AND PARTLY ALLOWED FOR THE STATISTICAL PURPOSE. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 29 TH JANUARY 2010. SD/- SD/- (H L KARWA) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTA NT MEMBER AHMEDABAD; DATED: 29/01/2010 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT AHMEDABAD BENCHES AHMEDABAD.