Income Tax Appellate Tribunal - Indore
Venkateshwar Cotton Co., Burhanpur vs Assessee on 7 August, 2012
1
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
And
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
IT(SS)A No.60 to 63/Ind/09
A.Ys.1999-00, 2002-03, 2003-04 & 2004-05
M/s Narendra Industries
Burhanpur
PAN - AAAFN7193D :: Appellant
Vs
Dy. Commissioner of Income Tax
Khandwa :: Respondent
IT(SS)A No. 248 to 252/Ind/08 & ITA No. 461/Ind/2009
A.Ys.2001-02 to 2006-07
M/s Shri Mohit Industries
Burhanpur
PAN - AAPFS 2656D :: Appellant
Vs
Dy. Commissioner of Income Tax
Khandwa :: Respondent
2
ITA No. 27/Ind/2009 and IT(SS) A No.10/Ind/09
A.Ys.2001-02 and 2002-03
M/s Aditya Industries
Burhanpur
PAN - AAGFA 1077M :: Appellant
Vs
Dy. Commissioner of Income Tax
Khandwa :: Respondent
IT(SS)A No. 15 to 17 & 64/Ind/09
A.Ys. 2001-02, 2004-05, 2005-06 & 2002-03
Smt. Abha Devi Agrawal
Burhanpur
PAN - ADAPA 0122A :: Appellant
Vs
Dy. Commissioner of Income Tax
Khandwa :: Respondent
IT(SS)A No. 7/Ind/09
A.Y. 2004-05
Rajendra Kumar Agrawal
Burhanpur
PAN - ADAPA 0130A :: Appellant
Vs
Dy. Commissioner of Income Tax
Khandwa :: Respondent
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IT(SS)A No. 9/Ind/09
A.Y. 1999-2000
Smt. Shalini Devi Agrawal
Burhanpur
PAN - AEAPA 8963Q :: Appellant
Vs
Dy. Commissioner of Income Tax
Khandwa :: Respondent
IT(SS)A No. 8/Ind/2009 and ITA No. 123/Ind/09
A.Ys. 1999-00 & 2005-06
M/s Shri Venkateshwar Cotton Company
Burhanpur
PAN - AACFV 4501B :: Appellant
Vs
Dy. Commissioner of Income Tax
Khandwa :: Respondent
IT(SS)A No. 244 and 245/Ind/08
A.Ys. 1999-2000 and 2005-06
M/s Sanjay Trading Company
Burhanpur
PAN - AALFS 8258F :: Appellant
Vs
4
Dy. Commissioner of Income Tax
Khandwa :: Respondent
Appellants by Shri S.N. Agrawal and
Shri Pankaj Mogra
Respondent by Shri Keshav Saxena
Date of hearing 22.08.2012
Date of pronouncement 06.09.2012
O R D E R
PER JOGINDER SINGH, judicial member
This group of 22 appeals is by different assessees for the assessment years mentioned above challenging the respective impugned orders of the learned CIT(A), Indore. The assessees have raised common grounds, therefore, all these appeals were heard together and are disposed of by this common order for the sake of convenience.
2. During hearing of these appeals, we have heard Shri S.N. Agrawal and Shri Pankaj Mogra, learned counsel for the assessees and Shri Keshav Saxena, learned CIT DR.
3. The first common ground raised is that on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in maintaining the disallowance especially when no 5 evidence was found. The learned counsel for the assessee challenged the addition made to the respective income of these assessees in assessment proceedings u/s 153A read with section 143 of the Act by stating that since no incriminating documents were found and seized, therefore, no addition is warranted. It was also submitted that general additions, based on returns filed, and final accounts attached to such returns, were made and even the learned first appellate authority wrongly rejected the claim of the assessee. It was also pleaded that the impugned disallowances were made merely on change of opinion especially when all the expenses were properly accounted for in its books of accounts and no incriminating document was found. The learned counsel invited our attention to clause (b) of sub-section (1) of section 153A of the Act and tried to explain the meaning of the words "assessed" and "reassessed" as used in the section. Plea was also raised that return of income was filed by the assessee whereas the time of issuance of notice u/s 143(2) had not expired. The crux of arguments is that no proceeding was pending on the date of initiation of search, therefore, the Assessing Officer was duty bound to reassess the income as per declaration in the return, consequently, no addition requires to 6 be made only on the basis of incriminating documents found and seized during the course of search for which the learned counsel placed reliance on the decision in the case of Kailash Auto Finance Limited vs. ACIT; 32 SOT 80 (Lucknow). The learned counsel also tried to distinguish the decision of the Special Bench in the case of All Cargo Global Logistics Limited v. DCIT; 20 ITJ 45 (Mum) (SB).
3.1 On the other hand, the learned CIT DR, Shri Keshav Saxena, strongly defended the impugned order by submitting that the issue in hand is specifically covered against the assessee by the decision of the Special Bench in M/s All Cargo Global Logistics Limited (supra) wherein the Special Bench, after placing reliance upon various judicial pronouncements, rightly reached a particular conclusion and there is a material difference in the provision after insertion of section 153A brought out after the amendment made by the Finance Act 2008 with retrospective effect from 1.6.2003.
3.2 We have considered the rival submissions and perused the material available on record. The facts, in brief, are that a search action u/s 132(1) of the Act was carried out at the premises of M/s Chhaganlal Kishanlal group and its members on 7 20.12.2004. The assessees filed the return in response to notice u/s 153A of the Act and the learned Assessing Officer completed the assessment by making certain additions. The question to be adjudicated by us pertains to scope of assessment or reassessment of total income u/s 153A(1)(b) and its first proviso. Without going into much deliberation, to answer the question regarding scope of assessment or reassessment of total income, we are of the view that as per section 132(1) of the Act, if any books of accounts or other documents relevant to the assessment have not been produced during original assessment and are found during the course of search, such books of accounts or other documents have to be taken into account while making assessment or reassessment of the total income. Similar position will remain in a case where undisclosed income/undisclosed property is found as a consequence of search meaning thereby the harmonious interpretation will ooze out as follows :-
(i) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merges into one and only assessment for each assessment year shall be made separately on the basis of 8 the finding of the search and any other material existing or brought on record of the Assessing Officer.
(ii) In respect of non-abated assessments, the assessment will be made on the basis of books of accounts or other documents not produced during the course of original assessment but found during search and undisclosed income/undisclosed property discovered during the course of search.
There is a material difference between pre-amended section i.e.158BC/158BD and section 153A which was brought into operation by the Finance Act, 2008 with retrospective effect from 1.6.2003. Section 153B speaks about time limit for completion of assessment u/s 153A of the Act. Assessment or reassessment u/s 153A comes into operation only when a search action has been initiated/conducted after 31.5.2006. On satisfaction of the conditions laid down in the section, the AO is under obligation to issue notice to the person/persons requiring him/them to furnish the return of income of 6 years immediately preceding the year of search because the word used is "shall" and thus there is no option with the AO. This means that out of 6 years, if any assessment or reassessment is pending on the date of initiation 9 of search, it shall abate. In other words, pending proceedings will not be proceeded with thereafter. Therefore, the assessment now has to be made under the first proviso of section 153A(1)(b). It also means that only one assessment will be made under the aforesaid provision as two proceedings i.e. assessment or reassessment proceedings and the proceedings under this provision will merge into one. If the assessment made under sub- section (1) is annulled in appeal or other legal proceedings, the abated assessment or reassessment shall revive. This means the assessment or reassessment, which has abated, shall be made for which extension of time has been provided u/s 153B of the Act. It is worth mentioning here that the Special Bench in All Cargo Global Logistics Limited (supra) has discussed various decisions from Hon'ble Apex Court/Hon'ble High Courts and also from the Tribunal and then reached to a particular conclusion. Some of the important decisions which were considered by the Special Bench are enumerated hereunder :-
a. Manish Maheshwati vs. ACIT;
b. Ramballbh Gupta vs. ACIT (2007) 8 ITJ 123 (MP) c. S.S.P.Aviation Limited v. DCIT (2012) 207 Taxman 260 (Del) d. ACIT vs. Chetandas Laxmandas(2010) 36 SOT 417(Del) 10 e. LMJ International Ltd.v.DCIT(2008) 119 TTJ 214 (Cal) f. Saraya Ind. Ltd. V.UOI (2008) 306 ITR189 (Del) g. K.P. Verghese v,ITO; 131 ITR 397 (SC) h. CIT vs. J.H. Gotla; 156 ITR 323 (SC) i. CIT vs. Sun Enginners Works Pvt.Ltd.; 198 ITR 297 (SC) j. CIT vs. Smt. Shaila Agrawal (2012) 246 CTR 266 (All) k. Meghmani Organics Ltd. Vs.DCIT (2010 129 TTJ 255(Ahd) l. M/s Shyamlata Koushik vs.ACIT 306 ITR (AT) 117 (Del) m.Harey Heart Hospital (2010); 130 TTJ 700 (Chennai) After considering various decisions, the Hon'ble Special Bench with regard to applicability of second proviso to section 153A(1) clearly held that only pending assessments shall abate and those assessments which have been completed shall not be abated meaning thereby the sanctity of completed assessment shall be maintained when something is found in search which goes against such sanctity. In view of this clear position, the conclusion drawn in the impugned order is justified. Our view is further fortified by the decision of the Hon'ble Delhi High Court in the case of CIT Anil Kumar Bhatia order dated 7th August, 2012 (ITA No.1626, 1632, 1998, 2006, 2019 and 2020 of 2010). It is worth mentioning here that the issue is also covered against the 11 assessee by the decision dated 6th August, 2012 of the coordinate Bench in the case of ACIT vs. Sudhir Maheshwari and others; ITA Nos. 373/Ind/20110, 8/Ind/2012, IT(SS)A No. 2/Ind/2012. wherein both of us are signatory. In view of these facts and the judicial pronouncements, the cases relied on by the assessee are distinguishable on facts and majority of them have either been discussed by Special Bench in the case of Al Cargo (supra) or by the Hon'ble Delhi High Court in the case of Anil Kumar Bhatia. Our view is also supported by the decision of Andhra Pradesh High Court in the case of Gopallal Bhadruka (ITA Nos. 367 to 369, 379, 383, 386, 390, 395 and 438 of 2011 order dated 15th December, 2011). Even otherwise, on perusal of section 153A of the Act, we find that it starts with a non-obstante clause relating to normal assessment procedure which is covered by sections 139, 147, 148, 149, 151 and 153 in respect of search made after 31.5.2003. Prior to the introduction of these sections, there was Chapter XIVB of the Act, which took care of the assessment to be made in cases of search and seizure which was popularly known as "block assessment" because the Chapter provided for a single assessment to be made in respect of period of a block of ten assessment years prior to assessment year in which the search 12 took place. After the introduction of group of sections, namely, 153A to 153C in the Act, the single block assessment concept was given a go by. Under the new section 153A, in a case where search is initiated u/s 132 or requisition of books of accounts, documents or assets is made u/s 132A after 31.5.2005, the AO is obliged to issue notices calling upon the searched person to furnish return for the six assessment years immediately preceding the assessment relevant to the previous year in which search was conducted or requisition was made. The other difference is that there is no broken period from the Ist day of April of the financial year in which search took place or the requisition was made and ending with the date of search/requisition. U/s 153A and the new scheme the AO is required to exercise the normal assessment powers in respect of the previous year in which search took place. In view of this clear legal position, this ground of the assessee is having no merit, therefore, dismissed. This view will cover the identical ground raised in the respective appeals.
4. The next common issue involved in these appeals pertains to fire insurance claim received by the assessee due to fire caused which was claimed as deduction u/s 80IA/80IB of the 13 Act. The crux of arguments on behalf of the assessee is that the insurance claim cannot be excluded from the eligible income while allowing deduction u/s 80IA/80IB whereas the learned CIT DR defended the impugned order. The facts, in brief (as test check), are that in the case of Narendra Industries (IT(SS) A No.60/Ind/2009) the assessee claimed deduction u/s 80IA amounting to Rs.62,70,248/- which includes receipt of Rs.34,62,710/- on account of fire claim. The stand of the Assessing Officer is that such claim did not qualify for working out the deduction u/s 80IA of the Act. This stand was affirmed by the learned CIT(A) and is under challenge before the Tribunal.
We find that the Tribunal on identical issue in the case of M/s Rajeshwar Cotton Corporation, Badwani (ITA No.213/Ind/2012) decided on 19th July, 2012, remanded the issue to the file of the learned AO. The relevant portion of the same is reproduced hereunder :-
3.2 We have perused the orders from the Hon'ble Apex Court. In the case of Sterling Foods (supra) the Hon'ble Court held that profits from sale of import entitlements are not profits derived from industrial undertaking, therefore, not includible in income for computing special deduction within the meaning of section 80HH of the Act whereas in the case of Pandian Chemicals (supra), the deposits made with electricity board for supply of electricity and interest from such deposits was held to be income not derived from business of the assessee undertaking within the meaning of section 80HH of the Act whereas in the present appeal, the question before us pertains to allowance of deduction u/s 14 80IB of the Act. In the present case, the raw cotton was destroyed by fire and as a compensation, the assessee received Rs.20,34,752/- on account of fire insurance claim which as per the learned CIT was not derived from industrial activity. However, we are of the view that the amount so received by the assessee company from the insurance company is in the nature of compensation for loss of stock and such compensation cannot be treated as income of the assessee so as to decline the claim of deduction u/s 80IB of the Act and should be taken into account in determining the profit and gains of the assessee company. On questioning from the Bench, it was explained by the ld. Counsel for the assessee that in comparison to cost of raw cotton, the insurance claim was less, therefore, there is still loss to the assessee. In view of these facts, the ratio laid down by the Hon'ble High Court of Delhi in the case of CIT vs. Sportking India Limited (2009) 183 Taxman 312 (Del), though for the purposes of section 80IA of the Act, supports our view, wherein identical views were expressed. While coming to this conclusion, the Hon'ble Court dissented from the view taken by the Madras Court in Pandian Chemicals Limited; 270 ITR 448 (Mad) and followed the decision from Hon'ble Apex Court in Raghuvanshi Mills vs.CIT; 22 ITR 484 (para 9) and distinguished on facts the decision in Vania Silk Mills Pvt.
Ltd. vs. CIT; 191ITR 617 (SC) (para11). However, from the assessment order, we find that there is not even a whisper regarding fire insurance claim and the cost of the raw cotton, therefore, in principle, we also set aside the matter to the file of the learned Assessing Officer for fresh adjudication in accordance with the discussion made hereinabove. The learned Assessing Officer is also directed to verify the factual figure of loss vis-a-vis the amount of compensation received from the insurance company against loss of stock. If the Assessing Officer finds that the amount of compensation received from the insurance company is more than the amount of actual loss, the excess amount is not eligible for deduction u/s 8IB of the Act. We direct accordingly. However, due opportunity of being heard with further liberty to furnish evidence, if any, to substantiate its claim be provided to the assessee."
Before parting with the matter, we bring on record that the Assessing Officer should verify that the amount received by the assessee on account of insurance claim, if does not exceed the amount of loss debited to the P&L account on account of loss of 15 stock, no income is actually generating therefore there is no reason to exclude the amount of insurance claim while computing the deduction u/s 80IA. However, if the Assessing Officer finds that the amount of claim received was in excess of the amount of loss on fire debited to the respective P&L account, the same is not eligible for claim of deduction u/s 80IA of the Act. We direct accordingly. This will cover identical grounds raised in the respective appeals.
5. The next common ground pertains to excluding the gross interest received from the eligible income while allowing deduction u/s 80IA/80IB of the Act. The stand of the learned counsel for the assessee is that the said interest is required to be deducted from the interest paid. The learned CIT DR defended the stand of the learned CIT(A).
5.1 The facts, in brief, (as test check in IT(SS) A No. 61/Ind/2009) are that the assessee claimed deduction of Rs.58,05,150/- u/s 80IA of the Act. The assessee worked out the deduction after including the income from interest amounting to Rs.4,48,689/-. However, the learned Assessing Officer excluded the same while working out the deduction u/s 80IA on the plea that the same is not "derived from" an industrial undertaking by 16 following the decision from Hon'ble Apex Court in the case of Pandian Chemicals; 262 ITR 278. The learned CIT(A) affirmed the stand of the learned Assessing Officer which is under challenge before the Tribunal. We note that the assessee received interest of Rs.52,055/- from fixed deposits with Akola Janta Commercial, Rs.3,41,959/- as interest on short term advance and Rs.54,675/- as interest on delayed payments (total Rs. 4,48,689/-). The word 'derived from' has been discussed in detail by the Hon'ble Apex Court in Pandian Chemicals Limited (supra) by holding that it must be understood as something which has a direct or immediate nexus with the assessee's undertaking.
6. So far as netting of interest income is concerned, since the interest was earned out of surplus funds, therefore, such interest income not to be allowed for netting of interest expenditure. Common issue has been taken by the assessee with regard to allowing claim of deduction u/s 80-IB in respect of interest income. Contention of the learned AR was that Assessing Officer has excluded the gross amount of interest from the eligible profit of industrial undertaking while computing claim of deduction u/s 80IB. He contended that assessee has borrowed funds on interest which has been utilised for earning interest income. As per the 17 learned AR, the Assessing Officer has deducted gross amount of interest in place of net interest income earned by the assessee. He submitted that interest expenditure incurred on borrowed funds is required to be reduced out of interest income which falls under the same head of income i.e. income from other sources. Since the nature of income and expenditure was the same i.e. from other sources, learned A`R argued that only net interest income is required to be excluded from the profit of industrial undertaking for claiming deduction u/s 80IB. He placed on record order of Coordinate ITAT Bench in the case of Amarkumar Agrawal order dated 11th May, 2010 wherein under similar facts matter was restored by the Tribunal to the Assessing Officer for netting of interest income. Precise observation of the Tribunal was as under :-
"14. As regard the issue of netting of interest raised in ground no. 1(f), we find that identical issue arose before the Tribunal in following cases :-
(i) ITA No. 756/Ind/2006
(ii) ITA No. 757/Ind/2006
(iii) ITA No. 759/Ind/2006 and
(iv) ITA No. 761/Ind/2006
and the Tribunal restored the issue to the file of the Assessing Officer by observing as under :-
"14. As regard to netting of interest is concerned, it is now a settled judicial proposition that only net interest income has to be excluded from the profits of an eligible 18 industrial undertaking. The ld. Departmental Representative, though, has tried to state that there was no direct nexus as observed by the ld. CIT(A). However from the perusal of the appellate order, in our view, no such finding emerges. Even the Assessing Officer has snot dealt with this aspect. Further, th e decision relied on by the ld. Departmental Representative in the case is also on a different aspect and not on the aspect of netting, hence, not relevant. Since the aspect of nexus has not been examined at any stage, hence, we restore this issue to the file of the Assessing Officer to examine the same and if the nexus between the interest paid and interest earned is established by the assessee then to exclude only net interest from the eligible profits of the industrial undertaking. Thus, this part of this ground is accepted."
15. Since the facts are identical, hence, the issue raised in this appeal, is also restored to the file of Assessing Officer to be disposed of in a similar manner. Thus, this ground of the assessee stands partly allowed for statistical purposes."
Following decisions were relied on by the learned AR :
i. Shiva Shankar Granites (P) Ltd. V ITO; 75 TTJ 535(Hyd) ii. ACIT vs. Gallium Equipment P.Ltd.; 75 TTJ 130 (Del) iii. Rajeev Enterprises vs. Assessing Officer; 261 ITR 34 (AT) (SB) iv. Lalsons Enterprises vs DCIT; 82 TTJ 1048 (SB) v. Mira Industries; 87 ITD 475 (Ahd) vi. Kiran Bhai H. Shelot; 235 ITR 635 (Guj) vii. India Cement Ltd.; 60 ITR 52 (SC) viii. Picric Ltd.; 90 ITD 301 (Del) ix. J.F. Laboratories Ltd.; 96 ITD 448 (Mum) x. CIT vs. Dalmia Promoters Dev.P.Ltd.;281 ITR 346 (Del) xi. Andhra Farm Chemical Corp.; 171 ITR 660 (AP) xii. Vindhya Telelinks Ltd.; 58 TTJ 450 (Jab. Bench) xiii. Narsing Oil Extractions & Allied Products Ltd.; 26 ITC 286 (Jab Bench.) xiv. Pramila Bakore; 281 ITR 461 (MP) 19 xv. Plethico Pharmaceutical Ltd.; 3 ITJ 187 (Indore) xvi. DCIT vs. HEG Ltd.; 3 ITJ 323/326 (Indore) xvii. CIT vs. Asian Star Co. Ltd.; 326 ITR 56 (Bom) xviii. CIT vs.Shri Ram Honda Power Equipment; 289 ITR 475 (Del) He also placed reliance on the decision of Apex Court in the case of ACG Associated Capsules Pvt. Ltd. 67 DTR 205 wherein issue regarding netting of interest was discussed in great detail by considering decision of Delhi High Court in the case of Shri Ram Honda Power Equipments and others; 289 ITR 475.
Reliance was also placed on the decision of jurisdictional High Court in the case of Prakash Oil Limited; 58 DTR 279 wherein it was held that interest on delayed payment of sale amount is eligible for deduction u/s 80IA. During the course of business, the assessee received liquidated damages for not honouring the contract for sale of products, such income was also held to be directly derived from industrial undertaking eligible for deduction u/s 80IA.
6.1. On the other hand, learned DR argued that interest income earned by the assessee was income from other sources, the same was necessarily to be reduced from the eligible income of industrial undertaking for claim of deduction u/s 80IB. He placed reliance on the decision of Supreme Court in the case of 20 Pandian Chemicals; 262 ITR 278 and Tuticorin Alkalies; 227 ITR
173. 6.2. We have considered the rival contentions and find from record that lower authorities have not dealt with the aspect of nexus of interest income vis-a-vis interest expenditure. Since the aspect of nexus has not been examined by lower authorities, in the interest of justice we restore this issue to the file of the Assessing Officer for deciding afresh in view of our above observations. Before parting with the matter, it is pertinent to mention that interest income earned out of surplus fund is not eligible for claim of deduction u/s 80IB insofar as such income cannot be said to have been "derived from" industrial undertaking. We direct accordingly.
7. So far as the common issue of prior period expenses is concerned, as test check we are taking IT(SS) A No. 244/Ind/2008. The facts, in brief, are that the assessee claimed that electricity board raised a bill of Rs. 1,20,040/- for the F.Y. 1996-97 which was objected by the assessee and the electricity board adjusted the amount of Rs. 71,000/-. The stand of the assessee before the learned CIT(A) was that ultimately the electricity board disconnected power connection in this year 21 itself. The amount of Rs. 71,000/- adjusted by the electricity board was claimed as expenditure in the year, under consideration, i.e. assessment year 1999-00. Since the mercantile system of accounting was followed by the assessee, the income and expenses is to be recorded except in case the liability is crystallised subsequently as a result of pending dispute/order of Court. From record we find that since the assesee's claim of electricity was crystallised during the year, under consideration, and adjusted by MPEB in the financial year under consideration, there is no reason to disallow the same insofar as genuineness of the expenses was not doubted.
Accordingly, we set aside the orders of the authorities below and direct the Assessing Officer to allow deduction of Rs 70,000/- in respect of electricity bill crystallised during the year under consideration. Similar issue has been taken by the assessee in ITA Nos. 252 and 64/Ind/2009 as the facts and circumstances are similar, as discussed above. We, therefore, direct the Assessing Officer to allow claim of deduction of expenses crystallised during the year under consideration in terms of our above discussion.
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8. So far as issue of unexplained expenses on the basis of dump document is concerned, the stand of the assessee is that there was enough evidence on record that the amounts mentioned on the loose papers was rough working which pertains to assessment year 1997-98 which is out of block period, therefore, such loose papers cannot be taken into account. As a test check, the facts, in brief (in IT(SS) No. 245/Ind/2008) are that there were certain figures like Rs.1,22,000/- (STC), Rs.59,000/- (SMG) and Rs.56,000/- (SD) were found to be recorded on certain loose papers. The assessee filed written submissions before the learned CIT(A) wherein certain contradictions were found. The claim of the assessee is that the amount of Rs.1,22,000/- represents demand of electricity board and Rs. 59,000/- paid to electricity board towards guarantee and Rs.56,000/- as security deposit. The addition was confirmed to the tune of Rs. 1,15,000/- and thus the ground was partly allowed. Broadly, we are of the view that if any document is recovered from the possession of the assessee, it is his duty to explain. It is not the case that the additions were confirmed as it is rather where a valid explanation was adduced, the same was allowed, therefore, in the absence of plausible explanation, the 23 stand of the CIT(A) is affirmed. This will cover the identical ground in other appeals also.
9. Another common issue in these appeals pertains to disallowance of 5% of pipe sale expenses. As a test check, we are narrating the facts contained in IT(SS) A No. 248/Ind/2008. The assessee was engaged in manufacturing and trading of PVC pipes and fittings. The assessment was finalised by making ad hoc disallowance out of pipe manufacturing expenses and pipe sale expenses. In its submissions, the stand of the assessee was that the additions were made on the basis of information gathered/documents seized during search. In its pipe manufacturing expenses, Rs. 3,89,748/- were debited in profit and loss account whereas as per the Revenue, several spares were found in the store for which no day to day account/record was maintained. Some of the vouchers were found to be self drawn by the employees which were not supported by bills. Considering the short comings in the vouchers, a disallowance of 5% to the expenses was made which resulted into addition as mentioned in the respective appeals. Keeping in view the totality of facts, since it was an ad hoc disallowance and also the fact that certain short comings were found, to put an end to the 24 litigation under the facts, such disallowance is reduced to 2% in place of 5% sustained by the Revenue. This ground in the respective appeals is, therefore, partly allowed.
10. Another common ground raised in the appeals pertains to maintaining exclusion of trading income from eligible income while allowing deduction u/s 80IB of the Act. The crux of arguments on behalf of the assessee is that such income is business income, therefore, the stand of the Revenue in excluding such income is unjustified, whereas the learned CIT DR defended the addition. As per our considered view, trading income is not eligible for claim of deduction u/s 80IB, since such income cannot be said to be derived from industrial undertaking.
11. Another common ground raised in these appeals pertains to maintaining the disallowance out of interest paid by restricting the same to 15% as against 18% on the loans allegedly taken for business purposes. The stand of the assessee is that the interest was paid considering the market conditions for business purposes whereas the learned CIT DR defended the impugned order. As a test check, we are mentioning the facts in the case of Shri Mohit Industries (IT(SS) A No. 250/Ind/2008). The facts, in brief, are that in its profit and loss account, the assessee 25 reflected payment of interest to different lenders at different rates like rate of 18% in respect of family members of the partners whereas interest rate of 12% paid to another lender and in some of the cases it is 15%. The stand of the assessee before the Assessing Officer was that the rate of interest depends on need, availability of funds and other attending circumstances. The stand of the revenue is that the arrangement regarding payment of interest to family members of partners is merely a camouflage to reduce the tax liability as the same is towards the higher side and since the funds were available at the lower rates, no prudent businessman would incur loss. Another stand taken by the Revenue is that it was not for commercial expediency as the same was not incurred exclusively for purposes of trade or business of the assessee, accordingly, disallowance was made u/s 40A(2)(b) of the Act. Without going into much deliberation, we are of the view that section 40A(2)(a) cannot have any application unless it is first held that the expenditure was excessive and unreasonable as was held by Hon'ble Apex Court in Upper India Publishing House (P) Ltd.; 117 ITR 569 (SC). So far as legitimate need of commercial expediency is concerned, it has to be decided by the assessee because ultimately the assessee has to run its business 26 smoothly. Whatever it may be, the reasonableness of the payment and attending circumstances cannot be ignored. We are of the view that from sister concern, the payment of interest can never be more than the prevalent rate, therefore, we find no infirmity in the stand of the learned CIT(A) and affirm the same.
12. Another ground raised in the appeal is that the learned first appellate authority erred in rejecting the contention of the assessee that the provisions of section 153A are not like section 147 of the Act. We are of the view that both sections are materially different because so far as section 147 is concerned, where the Assessing Officer has reason to believe that income has escaped assessment then he can assess/reassess such escaped income which comes to his notice. Section 153A of the Act was introduced by the Finance Act with retrospective effect from 1.6.2003. A perusal of section 153A shows that it starts with a non-obstante clause relating to normal assessment procedure which is covered by section 139, 147 to 149, 151 and 153 in respect of searches made after 31.5.2003. Under section 153A the Assessing Officer is to issue notice to the assessee to furnish return for each assessment year falling within six assessment years immediately preceding the assessment year relevant with 27 which sub-section (1) of section 153A of the Act applies. Section 148 has also been excluded in a case covered by section 153A of the Act. With all the stops having been pulled out, the Assessing Officer u/s 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by section 153A by even making reassessment without any fetters, if need be. Therefore, it can safely be concluded that section 147 and 153A are materially different.
13. In IT(SS) A No. 15/Ind/2009, the assessee has also raised a ground maintaining the addition in income from agriculture. The crux of arguments on behalf of the assessee is that out of the declared agricultural income of Rs. 1,25,000/- maintaining the addition of Rs. 1 lac is against the fact as during the relevant period, banana crop was grown which is completely different from other years whereas the learned CIT DR defended the addition. The facts, in brief, are that the assessee declared agricultural income of Rs. 1,25,000/- as against Rs.25,000/- during (A.Y 2000-01), Rs. 35,000/- (A.Y. 1999-00) and Rs. 25,000/- (A.Y. 1998-99). Since there was steep disproportionate increase in agricultural income, its genuineness was doubted by the Assessing Officer. The Assessing Officer accepted agricultural 28 income of Rs.25,000/- and added Rs.1 lac out of undisclosed sources. We are summarising hereunder the agricultural income declared by the assessee for different assessment years :-
Assessment Year Agricultural income
shown by the
assessee in rupees
1998-99 25000
1999-2000 35000
2000-01 25000
2001-02 125000
2002-03 50000
2003-04 40000
2004-05 20000
If the above chart is analysed, admittedly there is
disproportionate increase of agricultural income in assessment 2001-02 in comparison to other assessment years. Even otherwise, if any person plants banana plants, it is not the case that in the same year, it starts giving banana produce rather it takes almost two years for a plant to grow and thereafter to give the fruits. Sometimes it takes more times also. There is a finding in the impugned order that no revenue record was produced by the assessee evidencing growing of banana crop. Even as per the copy of receipt from Maa Durgeshwari Kela Group, the banana 29 income was shown from April, 2000 to January, 2001. As such, the claim of the assessee seems to be unjustified and even if the assessee was earning such a huge profit in comparison to other assessment years, we fail to understand as to why the banana crop was not continued. It seems to be a make shift arrangement, therefore, we find no justification to interfere with the stand of the learned CIT(A) and confirm the same.
14. Another common ground raised is that CIT(A) was not justified in holding that the provisions of section 234B(3) are not applicable in respect of proceedings for the impugned assessment years. After considering the rival submissions, we find that the stand of the assessee is that interest u/s 234B should have been charged as per sub-section (3) of the section on the ground that detailed calculation of interest was not provided to the assessee. We find that there is a finding in the impugned order that the assessee itself has not specified the details of interest chargeable u/s 234B as per the provisions of the Act. We find that section 153A was inserted with effect from 1.6.2003. Sub-section (3) to section 234B of the Act was modified and the words "or section 153A" was introduced by the Finance Act. Similarly, charging of interest on excess refund as a result of regular assessment was 30 inserted by Finance Act, 2003, therefore, in the cases of section 153A, it is to be applied with effect from 1.6.2003. The Assessing Officer was directed by the CIT(A) to charge as per the provisions of the Act, therefore, the assessee should not feel aggrieved by the direction because the assessee is at liberty to canvass its case before the Assessing Officer. Charging of interest u/s 234B is mandatory and consequential in nature.
15 So far as the ground regarding non-admission of additional evidence for claim of deduction u/s 80IB on gross total income and non-admission of additional evidence regarding wrong exclusion of interest while allowing deduction u/s 80IB is concerned, since it is a legal issue, it should have been allowed, therefore, the CIT(A) is directed to the examine the claim of the assessee after providing due opportunity and decide in accordance with law.
16. So far as the issues of disallowance of inauguration expenses of Rs.28,400/- and maintaining the disallowance of Rs.1,32,000/- on account of rate difference/settlement are concerned, the inauguration expenses were claimed to be incurred during setting up of business, therefore, being within 31 the reasonable limit, the inauguration expenses deserve to be allowed.
17. So far as the expenditure of Rs.1,32,000/- is concerned, it was incurred on account of non-finalisation of purchase deal and was paid as compensation. There is a finding that this issue of settlement has already been decided in cases of sister concerns. The stand of the revenue is that this loss cannot be allowed to be carried forward to be set off from the profit of speculation business. We are of the view that settlement expenses which were incurred as business expediency have to be allowed. Even otherwise, these amounts were given to third party, therefore, it has to be allowed. No prudent businessman will throw away its income to a third party, therefore, this ground is also allowed.
18. So far as the issue of disallowance of Rs. 15,000/- out of office expenses and ad hoc disallowance of Rs. 30,000/- out of canteen expenses are concerned, these expenses being of meagre nature and are necessary for running the business deserves to be allowed. However, the Assessing Officer has doubted the genuineness of these expenses. At the same time, no evidence was brought on record by the Assessing Officer for his suspicion, 32 to put an end to the litigation, these disallowances are restricted to 50% of the respective disallowance in the respective appeals, consequently partly allowed.
19. So far as the issue of addition of Rs. 2 lacs in (IT(SS) A No. 7/Ind/2009) for the marriage expenses of Miss Shilpa Agrawal, daughter of Shri Rajendra Kumar Agrawal, is concerned, we find that the Assessing Officer has discussed the issue at pages 1 and 2 of the assessment order. The Assessing Officer found that since the functions were arranged at Hotel Sayaji and some of the relatives stayed for 3 to 4 days, large scale cattering with wide varieties was arranged, Panchnama was drawn which reflects details of marriage expenses and at the bottom of the paper some amount was mentioned as Rs. 23.42 lacs. It was claimed by the assessee that these are rough estimates and the expenditure to this magnitude was not incurred. The Assessing Officer estimated the marriage expenses at Rs.25,00,000/- out of which the assessee produced details of withdrawals aggregating to Rs. 13 lacs. The statement of brother of the assessee was recorded who estimated the unaccounted expenditure to the tune of Rs.10 lacs. A conservative estimate to the tune of Rs. 25 lacs was made and thus addition of Rs. 2 lacs was made on account of unexplained 33 marriage expenses. If the totality of facts and circumstances narrated in the assessment order, impugned order and the assertion made by the learned respective counsel are kept in juxtaposition and especially the figures mentioned on the papers found, such expenses cannot go beyond the figure of Rs.23 lacs, therefore, the conservative estimate cannot be sustained especially when the rough estimate even has been relied on by the Assessing Officer. It is further seen that the assessee as well the family members withdrew the amounts of Rs. 13 lacs and Rs. 10 lacs was surrendered by his brother, Narendra Agrawal, totalling Rs. 23 lacs, therefore, the extra ad hoc addition of Rs. 2 lacs cannot stand on its legs, therefore, the addition is deleted. This ground of the assessee is allowed.
20. Common ground has been taken by the assessee for allowing claim of deduction u/s 80IB on the amount of eligible income without reducing the same by the amount of deduction allowed u/s 80HHC of the Act. We have considered the rival submissions, and perused the material available on record. We find that an amendment was brought u/s 80IA w.e.f. 1.4.1999 with the insertion of sub-section (9A), the profit of business while allowing deduction u/s 80HHC shall be further reduced by 34 profits on which deduction u/s 80IA has been allowed. The language of section 80IA(9) is very clear that where deduction is allowed u/s 80IA in respect of profits for any assessment year the deduction to the extent of such profit shall not be allowed under any provision of Chapter VIA which included deduction u/s80HHC of the Act. Since the assessment year under consideration falls after the amendment was brought in with effect from the A.Y. 1999-00, the assessee is eligible for deduction u/s 80IB on the amount of eligible income after reducing the same by the amount of deduction allowed u/s 80HHC. Two Special Benches of the ITAT, one in the cases of Rogini Garments; 108 ITD 49 (SB) (Mad) and another in case of Hindustan Mint & Agro; 123 TTJ 577 held that deduction u/s 80HHC is to be allowed only on the amount of eligible profit as reduced by the amount of deduction allowed u/s 80IB. It is further mentioned that decision of larger Bench in the case of Hindustan Mint & Agro has been affirmed by Hon'ble Delhi High Court in the case of Great Eastern Exports; 332 ITR 14. In view of these facts and judicial pronouncements, we direct the Assessing Officer to first allow claim of deduction u/s 80IA/80IB on the eligible income of industrial undertaking and after reducing the same to allow 35 deduction u/s 80HHC on the balance of profit of eligible undertaking.
21. The ground taken with regard to disallowance of amount debited to P&L account on account of PF damages and interest, we find that deduction was claimed in contravention to provisions of 36(va). Since the amount was paid belatedly the same is not allowable. Accordingly, we confirm the action of CIT(A).
22. In ITA No. 123 a ground has been taken by the assessee with regard to addition of Rs. 2,11,650/- on account of alleged unexplained investment in stock. From record we find that during the course of search u/s 132 the stock of goods was inventorized, which was found in excess as compared to stock as per books of accounts, Accordingly, an addition of Rs. 1,82,950 was made by the Assessing Officer. By the impugned order, CIT(A) not only confirmed the difference in stock but also made an addition on account of gross profit on such stock. Thus, the addition of Rs. 1,89,700/- made by the Assessing Officer was increased by CIT(A) to Rs. 2,11,650/- . We do not find much substance in the order of CIT(A) for increasing the amount of difference in stock by the amount of GP which was neither 36 earned nor received by the assessee. Accordingly, we confirm the addition to the extent of Rs. 1,89,700/- in respect of difference in stock found during the course of search. In the result, this ground is allowed in part.
23. So far as the issue of income from settlement is concerned, we find that Assessing Officer has excluded such income while computing claim of deduction u/s 80IA by treating the said income as speculative income. As per the nature of transaction entered into by the assessee, we find that the assessee entered into agreement for sale of goods in advance. The amount of compensation was received for breach of settlement which cannot be said to be income derived from industrial undertaking. Accordingly, we do not find any infirmity in the orders of the lower authority for declining the claim of deduction in respect of income earned by the assessee out of settlement. Similar ground was taken by the assessee in ITA No. 16/Ind/2009 wherein the assessee was in receipt of Rs. 24,606/-. In view of our discussion in ITA No. 123/Ind/2009 (supra) we confirm the action of lower authorities in declining the income earned by the assessee out of settlement.
37
24. In ITA No. 17/Ind/2009 the assessee has taken a ground regarding confirming the of addition of Rs. 7,92,700/- on account of alleged excess stock found during the course of search. The facts in brief are that during the course of search physical inventory of stock was taken wherein cotton seed was found in excess in terms of quantity. The difference in physical stock vis- a-vis the books of account was added by the Assessing Officer as the assessee's income not disclosed.
24.1. The contention of the learned AR was that at the time of search the assessee has taken stock by taking percentage of stock at 5.84% whereas at the end of the year shortage came to only 1.62%. Copy of statement prepared at the time of search and audited final accounts were filed before the authorities to justify shortage. Keeping in view the nature of assessee's business and the product in which he was dealing in, it will be appropriate to allow the same at 5% in place of loss considered at 5.84% at the time of search. We direct accordingly.
25. In IT(SS)A No. 9/Ind/2009 the assessee has taken a ground with regard to addition of Rs. 69,520/- on account of unexplained investment in gold ornaments. From record we find that during the course of search loose paper no. 22 of LPS-1 was 38 found at the residence of Narendra Agrawal. The assessee explained that these purchases were made by his relative Smt. Shalini Agrawal for her marriage and the same was gifted to her. The bill of purchase was given to the assessee. Marriage of Shalini Agrawal was in June, 1998 and the purchases were also made in 1998. The Assessing Officer was of the view that no plausible explanation was adduced by the assessee explaining the source of the said purchases. Keeping in view the totality of facts and circumstances and especially when the bills of purchase was furnished by the assessee, the addition of Rs. 69,520/- made towards alleged unexplained investment in gold ornaments deserves to be deleted. This ground of the assessee is allowed.
26. Addition on account of loose papers found during search has also been made to the tune of Rs. 14,848/- (IT(SS) A No. 252/Ind/2008. We find that the Assessing Officer on the basis of Annexure BS/2 (Panchnama dated 22.12.2004) made addition of Rs.14,878/- as certain expenses under different heads (Rs. 8,128/- and Rs. 6,750/-) on account of expenses made on loose papers on the plea that the assessee could not produce vouchers. The plea of the assessee is that no addition is required to be 39 made on the addition which was made in casual manner. There is a finding in the impugned order that the assessee could not explain the entries made in these papers. However, since the assessee declared income of Rs.41.94 lacs, therefore, the small addition of Rs. 14,878/- deserves to be deleted. This ground of the assessee is allowed.
This order was pronounced in the open Court on 6th........... September, 2012.
Sd sd (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 6th September, 2012
Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File Dn/-232428.8 4.9 6.9