Income Tax Appellate Tribunal - Ahmedabad
Claris Lifesciences Ltd. vs Acit on 22 December, 2006
Equivalent citations: [2008]112ITD307(AHD), [2008]298ITR403(AHD), (2007)111TTJ(AHD)902
ORDER
R.P. Tolani, Judicial Member
1. These are cross-appeals by assessee and Revenue against respective orders of CIT(A). Grounds raised in the appeals are as under:
ITA No. 310/Ahd/2005 (Assessee)1. The learned CIT(A) has erred in law and on facts in confirming the addition of Rs. 20,19,000/- under Section 68 of the IT Act, 1961 in respect of deposits obtained by the company from its employees/depositors.
2. The Ld. CIT(A) has erred in not making any direction in his order with respect to sales tax of Rs. 70,78,961/- and excise duty of Rs. 2,34,124/- aggregating to Rs. 73,13,085/- for the exclusion of these amounts from indirect cost for computation of profits from trading exports Under Section 80HHC.
2. Brief facts of the case regarding Ground No. 1 are - during the year in question, assessee received fixed deposits from more than 70 individuals majority of whom were employees of the assessee company, aggregating to Rs. 47,83,000/-. It shall be pertinent here to mention that all fixed deposits applications were made by the depositors with the company for making the said FDRs. These applications, in addition to other particulars, interalia, contained signatures, PA Nos., Assessing Officer, Telephone numbers of the depositors. In the course of assessment proceedings, in addition to the applications, AO asked the assessee to produce confirmations of depositors. Assessee produced these confirmations except for some depositors. In explanation, it was contended that deposits were received by these applications from the employees of the company who were drawing sufficiently good salary either from the assessee company or from earlier employers from whom they were transferred and employed by the assessee company. These persons had received good settlement amounts from ex-company and thereafter opted to join assessee company and deposited these amounts by way of applications with this assessee. All transactions were through bank, interest was paid on these deposits. Further, the amounts were repaid to these persons. In respect of remaining persons whose confirmations could not be produced, assessee contended that they had either left services of the company or settled elsewhere or migrated abroad, and their present whereabouts were not available. In fine, assessee contended that FDRs. were received by way of signed applications of the depositors which were filed with AO containing PA numbers, AO's details, addresses, telephone nos. etc. their identity was proved, since amounts were advanced through bank, interest was given and the amount was repaid by cheques in subsequent years, it clearly established genuineness of the transactions. All ingredients contemplated-by Section 68 were fulfilled, FDRs. cannot be treated as unexplained credits. AO accepted assessee's explanation in respect of depositors whose confirmations were filed. However, where confirmations were not filed it was held that that identity, credit-worthiness and genuineness has not been proved by the assessee, the above amount was added under Section 68 as unexplained cash credit. Aggrieved assessee preferred first appeal, where CIT(A) upheld addition by following observations:
4.2 I have gone through the submissions made by the Ld. Authorised Representative and the assessment order made by the Assessing Officer, it is an established position of law that in order to prove the genuineness of deposits/credits in the books of account the assessee has to prove identity, creditworthiness and genuineness of the transaction. The appellant company had although furnished copies of applications made by the depositors to the company for depositing the amounts but these are self-serving statement which do not throw light on the creditworthiness of the creditor and genuineness of the transaction. No doubt the deposits in question are received by cheque and repayment are also made by cheque and further that the applications made by the depositors contain address, telephone number and P.A. Number of whoever assessed to tax but these facts alone do not prove the genuineness of the transaction and creditworthiness of the depositors. Therefore, since the appellant 'company failed to discharge its onus by furnishing evidence to prove all the three requirements i.e. identity, credit-worthiness and genuineness of the transaction, the action of the Assessing Officer in considering the deposits of Rs. 20,19,000/- as unexplained is therefore, considered justified and calls for no interference. The addition is therefore sustained.
3. Learned Counsel for the assessee contended that neither AO nor CIT(A) have denied the fact that depositors in question were employees of the assessee. CIT(A) has clearly observed that assessee furnished copies of applications made by these depositors and further held that applications made by the applicants contained signatures addresses, telephone numbers and PA numbers of these persons. It has been further held that all these amounts have been received by cheque, repayment has also been made by cheque. Despite these admissions, CIT(A) without critically analyzing, has summarily held that these facts do not prove genuineness of transactions and credit-worthiness of the depositors and the assessee has failed to discharge its onus to prove these ingredients. Learned Counsel emphasized that by a policy of the company, FDRs. were called and employees by way of applications applied for the deposits. Their names, signatures, addresses, telephone numbers and PA numbers and other details are on the applications. All transactions are admittedly by cheques, as also repayment of the amount. Lower authority have failed to appreciate that all these facts can be construed to be reasonable discharge of primary burden cast on by Section 68 in this behalf. Reliance was placed on Hon'ble Gujarat High Court judgment in the case of CIT v. Pragati Co-operative Bank Ltd. 278 ITR 170 (Guj). In this case assessee failed to furnish complete details to the satisfaction of AO who held that on examination of record maintained by the bank, specimen signature etc. and some other irregularities assessee failed to discharge its burden and the amount was added under Section 68. Hon'ble Gujarat High Court upheld order of Tribunal deleting such additions by following observations:
Applying the settled legal position to the facts of the case it is apparent that the assessee had furnished the details which would discharge the onus which lay on the assessee considering the fact that the deposits were made by the third parties, viz., customers of the bank. It is nobody's case that the deposits were made either by the directors of the assessee-bank or any of the relatives of the directors. As to what would be the scope of the inquiry and the degree of proof that would be required in such circumstances, is not required to be dealt with in the fact situation of the present case. The opinion expressed by the Patna High Court has been impliedly approved by the apex court in the case of CIT v. Orissa Corporation P. Ltd. when it is stated that once the assessee had given the names and addresses of the alleged creditors and it was in the knowledge of the Revenue that the said creditors were income-tax assessees, if the Revenue did not make any effort to pursue the so-called alleged creditors the assessee could not do anything further and the assessee had discharged the burden that lay on the assessee. It was for the Revenue to examine the source of income of the alleged creditors to find out their creditworthiness.
Learned Counsel for the assessee contended that in business reality sometimes it is not possible for the assessee to produce parties as some shift residence, may go abroad leaving no whereabouts, which does not mean that these facts alone will be preferred over other materials available on record and addition under Section 68 can be made. Further reliance was placed on the decision of Hon'ble Supreme Court in the case of CIT v. Orissa Corporation Pvt. Ltd. (supra) which has been relied on by Hon'ble Gujarat High Court Further reliance was placed on the decision on the Hon'ble Gujarat High Court in the case of DCIT v. Rohini Builders 258 ITR 360 wherein following has been held.
The assessee was a firm engaged in the business of dealings in land. During the assessment year under consideration the assessee had taken loans From various parties and during the course of assessment proceedings, the assessee had furnished the loan confirmations giving full addresses, GIR numbers/permanent account numbers, etc., of all the depositors. The Assessing Officer however issued summons to some of the creditors and also conducted inquiries into the genuineness or otherwise of the loans taken by the assessee. After considering the evidence, the Assessing Officer made an addition of Rs. 12,85,000 to the returned income of the assessee. This was confirmed by the Commissioner of Income-tax (Appeals). On further appeal to the Tribunal the Tribunal held that the phraseology of Section 68 of the Income-tax Act, 1961, was clear, that the Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year, that the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous year", that the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as income of the assessee. The Tribunal found that the assessee had discharged the initial onus which lay on it in terms of Section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent account numbers and the copies of assessment orders wherever readily available, that it had also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source. Thus taking into consideration the totality of the facts and circumstances of the case, and, in particular the fact that the Assessing Officer had not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax had been deducted at source out of the interest paid/credited to the creditors, the Tribunal held that the Departmental authorities were not justified in making the addition of Rs. 12,85,000. On appeal to the High Court:
It was contended that satisfactoriness of the assessee's explanations has to be objectively considered, keeping in view, handicaps of the assessee and other relevant circumstances. Assessee cannot be asked to give infalliable evidence which is out of its reach and same cannot be used as a tool to make such credit as income of the assessee. Further reliance was placed on Nemi Chand Kothari v. CIT 264 ITR 254 (Gauh) for the proposition that assessee having established identity of creditor and amounts having been received by way of cheques, assessee must be considered to have proved that creditor had credit-worthiness.
Learned Counsel for the assessee contended that applications submitted by depositors were themselves defacto confirmations, inasmuch as, they contained all details about identity, addresses, signatures, PA numbers, ward numbers, telephone numbers, besides, intention to make deposits was clearly written, accepting terms and conditions of FDRs. With these admitted facts on record, both lower authorities have accepted facts that these creditors were employees of the assessee. Record of their employment, wages, etc. were available with the AO, their credit-worthiness is impliedly proved by the assessee. In any case, assessee has discharged its initial burden. Mere nonfiling of a particular form of evidence i.e. alleged confirmations cannot be held against assessee to construe that assessee has not explained these deposits satisfactorily. Assessee right from beginning intimated AO that these employees had left services and it was not possible to obtain further confirmations. Having discharged initial burden, it was for the AO to rebut burden by proving otherwise i.e. by inquiring into bank accounts, verifying further records of the assessee company which has not been done. Failure of the AO to conduct necessary inquiries in rebuttal of discharge of initial burden of assessee, cannot be held against the assessee. Assessee having discharged its initial burden, which has not been controverted in objective and material terms by the lower authorities, cash credit cannot be added under Section 68.
4. Learned DR on the other contends that assessee has failed to prove credit-worthiness of these parties, as neither confirmations nor depositors were produced. In the absence of explanations for credit-worthiness, deposits have been rightly added under Section 68. Reliance was placed on following judgments:
i) Jalan Timbers v. CIT 223 ITR 11 (Gauhati)
ii) CIT v. Korlay Trading Co. Ltd. 232 ITR 820 (Cal)
iii) CIT v. United Comm. And Industrial Co. P. Ltd. 187 ITR 596 (Cal)
iv) CIT v. Precision Finance Pvt. Ltd. 208 ITR 465 (Cal)
v) Nizam Wool Agency v. CIT 193 ITR 318 (All)
5.We have heard rival submissions and perused record. Observations of the learned CIT(A) are reproduced above. It is apparent from the record that deposits were received by the assessee on the basis of applications made by the employees. Persons whose deposits have been added were employees of the assessee who had either left services or migrated abroad. It has been admitted by the lower authorities that applications contained all particulars i.e. name, address, signature, telephone nos., PA no., Ward Office etc. This is also an admitted fact that the amounts have been received by way of cheques and the amounts have been repaid by way of cheques. During the course of assessment, assessee in respect of majority of deposits filed confirmations and in respect of others intimated that it was not possible to get confirmations on account of their having left services and migrated. Lower authorities have accepted facts that the depositors were ex-employees of the assessee. Section 68 reads as under:
68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to tax as the income of the assessee of that previous year.
Such credits are to be charged to income-tax as income only where the assessee offers no explanations about the nature and source thereof or the explanations offered by him is not satisfactory. In this case assessee has furnished explanation. Satisfactoriness of the explanations has to be appreciated on objective considerations, material available on record, peculiar facts of the case and existing circumstances. In the instant case, it is clear that the assessee gave proper explanations, complied with by filing substantial confirmations of depositors whose credits have been accepted. In respect of some other depositors, who had left services or migrated abroad, difficulties were communicated to the AO in obtaining confirmations. It is an admitted fact that fixed deposits applications submitted by the assessee contained all the particulars regarding identity of the depositors. Fact that deposits have been accepted and repaid through bank accounts and interest has been paid and the, fact that the depositors were ex-employees of the assessee have not been controverted or disbelieved. Moot question is whether assessee can be construed to have discharged initial burden of proving cash credits in respect of which confirmations could not be produced. For this purpose, peculiar facts of the case and material available on record have to be properly considered. As far as identity and genuineness is considered with signed applications together with other details identity is explained, transactions of deposits and repayment being through bank, genuineness is explained. If the assessee has some difficulty in getting confirmation which is intimated to the AO, this fact is not to be lightly brushed aside by the AO as in business realities, difficulties do arise in keeping track of depositors. Having accepted the facts that they were ex-employees of the assessee, AO should have carried out further inquiries by way of verifying record of the assessee and having PA number on record, further inquiries could have been carried from department. Proposition of preponderance of probabilities as held Hon'ble Supreme Court in the case of Smt.Sumati Dayal v. CIT 214 ITR 801 (SC) also applies in these peculiar facts and circumstances. In our view, having not disputed the facts that these persons were ex-employees of the assessee and drawing salaries it has to be implied that depositors possessed credit-worthiness to make these deposits. It shall be pertinent here to mention that degree of proof cast on the assessee to prove credit-worthiness is not of infallible nature, what is contemplated is that assessee should be able to prima-facie show that depositors had reasonable capacity. Answer to this moot question lies in the admitted fact that depositors were ex-employees of the assessee some of whom have received compensations and in addition were receiving salaries. In the peculiar facts and circumstances of the given case, we are of the view that AO has rigidly stuck to the issue of confirmations to over-shadow all other material available on record which has not been considered at all. Assessee furnished before AO whatever evidence was available with it, which in our opinion was sufficient to reasonably discharge primary onus cast on the assessee in terms of Section 68. It was for the AO to rebut the same on the basis of available record, instead AO merely picked up non-filing of confirmations as a tool to discard other material and explanations of the assessee.
Rejection of the explanations of the assessee is not based on objective considerations but by way of summary rejection. In our view, assessee having given reasonably plausible explanations, which has not been found to be wrong or unsatisfactory on any objective consideration, we hold that cash credit in question cannot be added as unexplained cash credit under Section 68 of the Act. Accordingly, this ground of assessee is allowed.
6. Regarding Ground No. 2, learned Counsel for the assessee contends that there were two issues in appeal - one was regarding inclusion of sales-tax and excise duty in the turnover for working out deduction under Section 80HHC, which has been decided by the CIT(A). However, there is one more issue for exclusion of sales-tax and excise-duty from indirect cost for computation of profits from trading export under Section 80HHC which has not been decided and which was specifically raised before CIT(A). It was contended that same may be restored back to the file of CIT(A) to be decided afresh on merits after giving assessee an opportunity of being heard on this issue.
Learned DR is heard.
7. We have heard both the parties and perused record. We find merit in the arguments of the learned Counsel for the assessee. In the grounds of appeal before CIT(A) assessee had raised two separate issues - one regarding exclusion of sales-tax and excise duty from turnover for working out deduction under Section 80HHC which has been decided by CIT(A), however, due to some reasons, issue about exclusion of sales-tax and excise duty from indirect cost for computation of profits for trading export under Section 80HHC as raised by the assessee in grounds of appeal remains to be decided. In view thereof, we set aside issue back to the file of CIT(A) to decide same on merits in accordance with law after giving assessee an opportunity of being heard.
8. In the result Assesse's appeal for A.Y.2000-01 is partly allowed for statistical purpose.
ITA No. 311/Ahd/2005 (A.Y. 2001-02)9. Following grounds are raised:
1) The learned CIT(A) has erred in confirming disallowance of claim of deduction of expenses on research & development Under Section 35(2AB) of Rs. 40,80,942/-.
2) The Ld. CIT(A) has erred in not making any direction in his order with respect to sales-tax of Rs. 58,32,902/- and excise duty of Rs. 26,27,784/- aggregating to Rs. 84,60,686/- for the exclusion of these amounts from indirect cost for computation of profits from trading exports Under Section 80HHC.
10.Brief facts regarding Ground No. 1 are - assessee is a company in the business of manufacture of pharmaceutical products and in research and development ("R&D") of variety of products. For "R&D" the company has following objectives:
a) To develop clinical nutrition products i.e. Intravenous Amino Acid Solution (Celemin), Intravenous Fat Emulsion (Celepid), Total nutrient supplement etc.
b) To develop anesthetic products like Propofol (Profol).
c) To develop Novel drug deliveries of anti-infective agents.
d) To develop synthesis methods for Plasma Volume Expanders i.e. Hydroxy Ethyl Starch (Hestar), Dextran (Microspan) etc.
e) To conceptualise, initiate and nurture basic research programmes, contribute to the knowledge and understanding of medical science which will yield long term benefits to the organization.
For these purposes, assessee set up in-house Research and Development facility and after establishing the facility i.e. by incurring expenditure thereon, it applied for approval of prescribed authorities i.e. Ministry of Science and Technology, Dept. of Scientific and Industrial Research ("DSIR" for short), Govt. of India, vide application dated 7-8-2000. "DSIR" recognized assessee in-house "R&D" facility in terms of Section 35(2AB) vide approval letter No. TU/IV-RD/2168/2000 dated 27-2-2001. However, in Form No. 3CM a note was mentioned that facility approved for the purpose of Section 35 (2AB) was from 27-2-2001 till 31-3-2003. In fine, "DSIR" approved "R&D" facility of the assessee in terms of Section 35 (2AB). In return of income assessee made claim of weighted deduction under Section 35 (2AB) i.e. 1 ½ times of the expenses incurred on the entire expenditure incurred on establishment of the facility. AO during the course of assessment held that as approval under Section 35 (2AB) has been granted w.e.f. 27-2-2001, therefore, expenditure incurred only from this date will be held eligibly for weighted deduction under Section 35 (2AB) and accordingly disallowed weighted deduction on the expenditure incurred prior to 27-2-2001. Aggrieved assessee preferred first appeal, where it was submitted that Section 35 (2AB) reads as under:
(2AB)(1) where a company engaged in the business of (biotechnology or in the business of) manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemical or any other article or things notified by the Board incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in house search and development facility as approved by the prescribed authority, then, they shall be allowed a deduction of (a sum equal to one and one-half times of the expenditure) so incurred.
It was contended that plain reading of Section reveals that "DSIR" has to approve the facility and once facility is approved expenditure incurred by assessee for creation of "R&D" facility will be allowed in entirety. Section does not contemplate any date of approval to be decided by the prescribed authority i.e. "DSIR". Its role was limited to approve or otherwise the facility. Assessee having done and applied for the same and within a period of about six months, "DSIR" had approved the same. Approval of the facility pre-supposes creation of facility i.e. incurring of the expenditure for establishing the same. It was further contended that section nowhere states that the expenditure incurred after the date of approval only shall be allowed as deduction, rather it postulates any expenditure on in-house development of facility is to be allowed as deduction. CIT(A), however, merely referred to observations of the AO and uphold his action. Aggrieved assessee is before us.
11. Learned Counsel for the assessee first of all read out Sub-section 1 of Section 35(2AB) which is reproduced above and contends as under:
i) Nowhere the provisions provide that expenditure from the date of approval only has to be allowed. In the absence of these words, such conditions cannot be imputed in the statute by the lower authorities. Doing so amounts to reading more in the law which is not expressly provided.
ii) Words used are any expenditure incurred by the assessee on scientific research on the in-house "R&D" facility approved by the prescribed authorities has to be allowed by deduction of expenditure so incurred. Meaning of these words is plain and clear the facility is to be established first that on approval of the facility all the expenditure so incurred by the assessee for development of in-house facility is to be held as eligible for weighted deduction.
iii) Form No. 3CM, which is order of approval as provided by the Rules in this behalf also does not have any mention of date of approval, rather it speaks of only approval. It was contended that lower authorities are reading more than what is provided by the law. On plain and simple reading of the Act provides that on approval of the "R&D" facility expenditure so incurred is eligible for weighted deduction.
Learned DR, on the other hand, supported order of lower authorities.
12. We have heard rival submissions and perused material available on record. Section 35(2AB) has been reproduced above. It shall be our endeavour first to ascertain import of plain and simple meaning of this Section. All along, section speaks of (i) development of facility and (ii) incurring of expenditure by the assessee for development of such facility (iii) approval of the facility by the prescribed authority which is "DSIR" in the instant case and (iv) allowance of weighted deduction on the expenditure so incurred by the assessee. Provision nowhere suggests or implies that "R&D" facility is to be approved from a particular date in other words it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that assessee has to develop facility which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. These words refer back to the facility which is so developed. Consequently, a plain reading clearly indicates that the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility.
This can be viewed from another angle. Provision postulates approval of "R&D" facility which implies that a development facility shall be in existence, which in turn pre-supposes that assessee must have incurred expenditure in this behalf. If we accept interpretation of the lower authorities, it creates absurdity in this provision, inasmuch as, words which are not provided in the statute are to be read in, which is against settled proposition of law with regard to plain and simple meaning of provision. Therefore, a plain reading cannot be given away and an interpretation cannot be assumed so as to provide a cut-off date for eligibility of weighted deduction of expenditure, which is not provided by the law. Further Rule 6(5A) provides as under:
[5(A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in Sub-section (2AB) of Section 35 of the Act are fulfilled, pass an order in writing in Form No. 3CM:
Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application] Form No. 3CM which is order of approval reads as under:
FORM No. 3CM Order of approval ofin-house Research and Development facility under Section 32(2AB of the Income-tax Act, 1961
1. Name, Address and PAN of the company.
2. Nature of the business of the company - Manufacture/production of article or thing.
3. Objectives of the scientific research to be conducted by in-house Research and Development facility.
4. Address at which such Research & Development facility is located.
5. Ref No. and date of the application.
The above Research & Development facility is approved for the purpose of Section 35 (2AB), subject to the conditions underlined therein.
Rule also provide only to the effect that if conditions are fulfilled the prescribed authority shall pass an order in Form No. 3CM. It nowhere refers to any cut-off date for eligibility of weighted deduction. Similarly, Form No. s3CM which is order of approval, does not provide any power to the prescribed authority or any stipulation to set out a cut-off date in this behalf. A plain and harmonious reading of provision, rule and form clearly suggest that once facility is approved, entire expenditure so incurred on development of "R&D" facility has to be allowed for weighted deduction as provided by Section 35(2AB). In our considered view, a plain and simple reading is enough to give meaning of provision. An interpretation is to be applied when there is an ambiguity in the meaning of provisions. In our view there is no such ambiguity here.
Even if we assume that there is any slight doubt in the meaning/language of provision, we have to refer to legislative intent. To boost up "R&D" facility in India, legislature provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment, is very clear that entire expenditure incurred by the assessee on development of facility, if approved has to be allowed for the purpose of weighted deduction. In our view, legislative intention for bringing the amendment also justifies plain and simple meaning of the Section. In view of the above, we hold that the assessee is entitled to weighted deduction in respect of entire expenditure incurred for development of in-house "R&D" facility in terms of Section 35 (2AB) and claim of the assessee shall be allowed. This ground of the assessee is allowed.
13. Ground No. 2 is similar to ground No. 2 raised in appeal for A.Y.2000-01 as the same has not been decided, which has been set aside back to the file of CIT(A) to decide the same in accordance with law. For the same reasons, we also set aside this issue back to the file of CIT(A) with similar directions.
14. So far as Ground No. 3 is concerned, we find that this ground has not been adjudicated by the CIT(A), though, specifically raised as Ground No. 4(iv) in grounds of appeal before CIT(A). We, therefore, set aside this issue also back to the file of CIT(A) to decide the same on merits.
15. In the result, assessee's appeal is partly allowed for statistical purpose.
ITA No. 563/Ahd/2005 (Revenue's Appeal)16. Following grounds are raised:
1. The Id. CIT(A) has erred in law and on facts in directing to delete the additions made on account of interest payment ofRs. 4,68,573/-
2. The Ld. CIT(A) has erred in law and on facts in directing to treat the DEPB incentive Under Section 28(iib) and allow deduction Under Section 80HHC.
3. The Ld. CIT(A) has erred in law and on facts in directing to exclude the excise duty and sales tax from total turnover for deduction Under Section 80HHC of the Act.
17.Learned DR relied on the order of AO.
For Ground No. 1, learned Counsel for the assessee contends that assessee had no borrowing except export bill discounting facility for exports. Assessee does not have any cash credit/overdraft or other types of loan from any concerns. Cash profits of the company for the year ending 31-3-2000 was Rs.626.54 lakhs, investment made by the company in shares and interest free advance/inter corporate deposits aggregating to Rs.603.54 lakhs is well taken care of by cash profits as well as other interest free investment available with the assessee. CIT(A) has rightly considered all these facts and relied on ITAT judgment in the case of Malwa Cotton Spinning Mills v. ACIT 89 ITD 65 (Chd) holding that when the assessee own profits/current year's profits exceeds interest free advance/ investment no disallowance can be made out of interest expenditure. CIT(A) has relied on many other decisions which are mentioned in the order.
18.Regarding Ground No. 2, it was contended that issue may be set aside back to the file of AO to be decided in accordance with amended provision inthis behalf.
For Ground No. 3, reliance was placed on the decision in the case of IFB Agro Industries Ltd. (Calcutta) 261 ITR 17 (AT).
19.We have heard rival submissions and perused record. So far as Ground No. 1 is concerned, we find merit in the arguments learned Counsel for the assessee. Cash profits for the year ending 31-3-2000 were to the tune of Rs.626.54 and other interest free funds are sufficient to take care of interest free investment. In view thereof, we find no infirmity in the order of CIT(A) which is upheld, this ground of Revenue is dismissed.
Ground No. 2 is set aside back to the file of AO to decide afresh in view of amended provisions.
Ground No. 3 is covered in favour of assessee in view of decision in the case of IFB Agro Industries Ltd. (supra) wherein it is held that for calculation of deduction under Section 80HHC excise duty and sales-tax are to be excluded from turnover. In view thereof, we dismiss this ground of Revenue.
20.In the result, Revenue's appeal for A.Y. 2000-01 is partly allowed for statistical purpose.
ITA No. 564/Ahd/2005 (Revenue's Appeal)21. Following grounds are raised:
1. The ld. CIT(A) has erred in law and on facts in directing to delete the additions made on account of interest payment of Rs. 10,82,347/-.
3. The Ld. CIT(A) has erred in law and on facts in directing to treat the DEPB incentive Under Section 28(iib) and allow deduction Under Section 80HHC.
3. The Ld. CIT(A) has erred in law and on facts in directing to exclude the excise duty and sales tax from total turnover for deduction Under Section 80HHCof the Act.
22. Learned DR relied on the order of AO.
Learned Counsel for the assessee raised similar arguments as for A.Y. 2000-01 of Revenue's appeal.
23. We have heard rival submissions and perused record. Ground No. 1 of this year is similar to Ground No. 1 of A.Y.2000-01 i.e. profits for the current year aggregating to Rs. 1278.89 lakhs which is more than the interest free investment. In view thereof, following our order for A.Y.2000-01, this ground of Revenue is dismissed.
Similarly, following our own above order, Ground No. 2 is set aside back to the file of AO to decide in accordance with amended provision.
Ground No. 3 of the Revenue is dismissed in view of judgment in the case of IFB Agro Industries Ltd. (supra).
24. In the result Appeal of Revenue for A.Y.2001-02 is partly allowed for statistical purpose.
Order pronounced in Open Court on 22nd December, 2006.