Income Tax Appellate Tribunal - Agra
Zeeko Shoe Factory vs Deputy Commissioner Of Income Tax on 2 November, 1998
Equivalent citations: (1999)65TTJ(AGRA)458
ORDER
B.M. Kothari, A.M :
These cross-appeals one by the assessee and the other by the Revenue are directed against the order dated 27-3-1992, for assessment year 1989-90.
2. We will first deal with assessee's appeal.
3. The first ground raised by the assessee relates to confirmation of disallowance of Rs. 20,000 made by the assessing officer out of legal expenses by invoking the provisions of s. 40A(12) of Income Tax Act, 1961 (hereinafter referred to "the Act). At the time of hearing the learned counsel for the assessee did not press this ground. Hence ground No. 1 is rejected, as not pressed.
4. Ground No. 2 relates to confirmation of an addition of Rs. 40,000 made by the assessing officer on account of alleged sale of leather scrap. The assessee derives income from manufacture and sale of shoes and shoe-uppers. The assessing officer in para 10 of the assessment order observed that the manufacturing process carried out by the assessee results in generation of leather scrap. The assessee has neither shown any sales nor closing stock of leather scrap. The assessing officer following similar additions made in preceding years, made an addition of Rs. 40,000 on account of alleged suppressed sale of leather scrap. He observed that on similar facts an addition of Rs. 30,000 was made in the preceding year. The learned Commissioner (Appeals) confirmed the said addition.
5. The learned counsel for the assessee submitted that this point is covered in favour of the assessee by decision of the Tribunal for asst. yrs. 1986-87 to 198889. He stated that similar additions were made in asst. yrs. 1984-85 as well as in 1985-86. The Tribunal restored the matter back to the assessing officer in asst. yrs, 198485 and 1985-86. The assessing officer passed fresh orders for these years. Addition was made in the fresh order for assessment year 1985-86 which was again deleted by the Commissioner (Appeals) vide order dated 10-1-1995. The facts pertaining to the year under consideration are similar. The assessee contended that no saleable leather scrap was obtained during the process of production. Whatever scrap was generated, it was either burnt as fuel or thrown away and nothing was sold in the market. This fact has been accepted by the Tribunal in the preceding year also.
5.1 The learned departmental Representative strongly relied upon the reasons mentioned in the assessment order. He submitted that the principle of res judicata does not apply to IT proceedings. It is an undisputed fact that the scrap was generated in process of production. The assessee has not shown any sale or closing stock of such scrap. The leather scrap is saleable in the open market. The assessing officer had, therefore, rightly made the addition and the Commissioner (Appeals) was right in confirming the same.
6. We have carefully considered the submissions made by the learned representatives of the parties. We find that on identical facts and circumstances additions were made in the earlier years. In fact the assessing officer as himself mentioned in the assessment order that like the addition of Rs. 30,000 made in the preceding year, an addition of Rs. 40,000 will be made on account of suppressed sale of leather scrap in the year under consideration. The assessing officer was thus clearly of the view that facts and circumstances relating to the aforesaid addition are similar as in the immediate preceding year. The Tribunal decided the appeal in the case of the assessee for asst. yrs. 1987-88 and 1988-89 vide a consolidated order dated 29th March, 1995, in ITA No. 1345 and 1346/Del/1990 and ITA No. 2957 and 2958/Del/1990. The relevant findings relating to aforesaid point has been given by the Tribunal in para 8 to 12 of the said order. The Tribunal following its earlier order dated 23rd Dec., 1993, in assessee's case for assessment year 1986-87 deleted the addition of Rs. 20,000 and Rs. 30,000 made in 1987-88 and 1988-89 respectively. The facts relating to the year under consideration have been admitted to be exactly similar and identical. It is true that the principles of res judicata do not apply to IT proceedings but the Courts have also recognised the rule of consistency such as in the case 207 ITR 14 (sic) and B. V Aswathiah & Bros. v. CIT (1992) 198 ITR 108 (Kar). Unless the parties point out distinguishable facts or any subsequent judgment of the jurisdictional High Court or of the Hon'ble apex Court, the Tribunals should follow the rule of consistency while deciding a similar issue. We, therefore, respectfully following the earlier order of the Tribunal in assessee's own case for the immediate preceding year hold that the addition of Rs. 40,000 made on account of alleged sale of leather scrap cannot be sustained. The assessing officer is directed to delete the same.
7. In ground No. 3, the assessee has challenged the confirmation of disallowance of Rs. 19,677 out of export promotion expenses by involving the provisions of s. 37(2A) of the Act. A ground relating to this very point has also been raised by the Revenue in its cross-appeal in Ground No. 2. The Revenue has challenged the relief of Rs. 39,729 allowed by the Commissioner (Appeals) out of disallowance of Rs. 59,406 made by the assessing officer under section 37(2A) of the Act.
8. The assessee debited a total sum of Rs. 73,216 in P&L a/c on account of export promotion expenses. The assessing officer was of the view that the aforesaid expenditure represented entertainment expenditure which will have to be dealt with as per provisions of s. 37(2A). He further observed at p. 5 of the assessment order that out of Rs. 73,216, as sum of Rs. 310 has been disallowed under r. 6BB thus the balance entertainment expenditure governed by s. 32(2A) comes to Rs. 72,906. The deduction allowable as per s. 37(2A) comes to Rs. 13,500. The assessing officer accordingly disallowed the balance amount of Rs. 59,406.
8.1. The Commissioner (Appeals) gave the details of expenditure of Rs. 73,216 in para 17 of the order passed by him. The said expenditure included Rs. 310 relating to presents given to GDR Inspector, Rs. 500 being expenses incurred for GSP (gate passes) Rs. 200 payment to Export Inspection Agency, Delhi for seminar and Rs. 232 for taxi hired for buyers. The Commissioner (Appeals) allowed these payments. Out of the balance amount, he directed the assessing officer to allow 50 per cent of the entertainment expenses attributable to participation of the staff members. The Commissioner (Appeals) accordingly granted a relief of Rs. 39,729 as per details mentioned in para 18.2 of the order of Commissioner (Appeals). The Revenue is aggrieved against the relief of Rs. 39,729 granted by the Commissioner (Appeals) and the assessee is aggrieved against the part amount of disallowance confirmed by the Commissioner (Appeals).
8.2. The learned counsel submitted that the Commissioner (Appeals) after taking into consideration the nature of assessee's business which mainly consists of export, considered it reasonable to allow deduction @ 50 per cent of entertainment expenditure as attributable to participation of the employees. It is true that the various Benches of the Tribunal have granted deduction at varying percentages ranging from 25 per cent to higher percentage, depending on the facts and circumstances of each case. Therefore, the deduction granted at 50 per cent of the entertainment expenses by the Commissioner (Appeals) is most reasonable and justified. He was, however, fair enough to point out that in the preceding year, the Tribunal has granted deduction out of entertainment expenses on account of employees participation at 25 per cent of the entertainment expenses.
8.3. The learned departmental Representative relied upon the reasons mentioned in the assessment order and urged that the relief granted by the Commissioner (Appeals) should be cancelled.
9. After considering the submissions made by the learned representatives of the parties and after going through the order of the Tribunal in assessee's own case for assessment year 1986-87 in ITA No. 5964/Del/1989 and 6761/Del/1989 we hold that it would be just and proper to direct the assessing officer, to restrict the relief to 25 per cent of the balance amount of entertainment expenditure instead of the deduction granted by the Commissioner (Appeals) @ 50 per cent out of the such balance amount of entertainment expenditure. This would be in conformity with the order of the Tribunal on similar point in assessee's own case for assessment year 1986-87. The Revenue's appeal on this point is, therefore, allowed to the extent that the assessing officer should restrict the relief out of entertainment expenditure attributable to employees participation only to the extent of 25 per cent as against 50 per cent allowed by the Commissioner (Appeals). The ground No. 2 raised by the Revenue is thus partly allowed and ground No. 3 raised by the assessee stands rejected.
10. In ground No. 4, the assessee has challenged the finding given by the Commissioner (Appeals) confirming the denial of deduction under section 80HHC in respect of interest income of Rs. 39,608 and rental income of Rs. 600. The learned counsel for the assessee did not press its claim for grant of deduction in relation to rental income of Rs. 600. The learned counsel, however, submitted that interest income of Rs. 39,608 has been assessed by the assessing officer as income from business. The assessee is wholly engaged in the export business. Such interest income therefore forms part of export business and qualifies for deduction under S. 80HHC. He further drew our attention towards the decision of the Tribunal in assessee's own case for asst. yrs. 1987-88, 1988-89 in ITA Nos. 1345 and 1346 and 2957 and 2958/Del/1990. The Tribunal, in the aforesaid decision, vide para 16 at p. 13 has held that the entire income has been computed by the Revenue itself under the head "profits and gains of business", including interest and rental income. Therefore, there is no justification for exclusion of such income from the income of the assessee for the purpose of deduction under section 80HHC. The learned counsel submitted that facts are same in the years under consideration. He strongly urged that the deduction under section 80HHC should be allowed on interest income also. The learned departmental Representative supported the order of Commissioner (Appeals) and relied upon the reasons mentioned in the assessment order and in the order of Commissioner (Appeals).
11. We have carefully considered the submissions made by the learned representatives of both sides and have perused the orders of the learned departmental authorities.
11.1. A perusal of the assessment order indicates that the assessee had shown receipt of interest from Shri Yasmin Saifuddin, Agra, Mr. Manzoor Ahmed, Agra, on fixed deposits of Rs. 13,616 + Rs. 230 + Rs. 25,762 respectively. The nature of interest income received by the assessee has not been discussed in the assessment order nor the learned counsel was in a position to tell us the exact nature of the interest income. It is not known whether the fixed deposits on which interest income of Rs. 25,762 was earned, had any direct nexus with the export business. In cases of exporters, sometimes, the assessees made fixed deposits with the banks for granting various kinds of limits relating to the export trade. If such deposits have a direct nexus with the export business carried on by the assessee, the income interest may be treated as part of the export profits qualifying for deduction under section 80HHC. On the other hand, if such income merely represent investment of surplus fund with the aforesaid two parties and with the bank which have no direct link with the export business carried out by the assessee, such income would not be eligible for grant of deduction under section 80HHC. The learned counsel also could not tell us what was the nature of interest income in assessment year 1986-87 where the Tribunal has decided such a issue in favour of the assessee. Unless the facts are found to be absolutely similar, the decision rendered in earlier year cannot be automatically applied in a different year. We, therefore, consider it just and proper to set aside the order of the Commissioner (Appeals) as well as the assessing officer in relation to assessee's claim for grant of deduction under section 80HHC in relation to interest income of Rs. 39,608. The assessing officer is directed to verify and examine the true nature of interest income and find out whether it has any direct nexus or connection with the export trade of the assessee. The assessing officer will decide this point afresh in accordance with the provisions of law after giving a reasonable opportunity of hearing to the assessee.
12. Now, we will deal with the remaining grounds of Revenue's appeal. In ground No. 1, the Revenue has challenged the deletion of addition of Rs. 6,21,021 by the Commissioner (Appeals), the said addition was made by the assessing officer on account of alleged suppressed sale of shoe-uppers. The assessing officer has observed that the shoe uppers of the value of Rs. 10,66,754 are shown to have been sold by the assessee for sum of Rs. 4,45,733.
It was stated on behalf of the assessee before the assessing officer that Export Inspection Authorities of foreign buyers found that 7,875 pairs of uppers as defective. The rejected shoe-uppers which were meant for being exported are not locally saleable items looking to their specification, price and size. Therefore, such rejected shoe-uppers were sold to petty karigars at very low prices. The assessee also stated that it is not possible for them to establish the identity of the buyers (petty karigars). He observed that this is a recurring feature from year to year. In the absence of verification and genuineness of the sales, with reference to actual rates, the conclusion as in the past years, is that all the transactions relating to rejection of shoe-uppers are fabricated and the sale price is grossly understated. The assessing officer accordingly made an addition of Rs. 6,21,021 (10,66,754-4,45,733).
13. The Commissioner (Appeals) deleted the said addition in view of the elaborate discussions made in para 28 to 32.4 of his order.
14. The learned departmental Representative submitted that the assessee has no right to misguide the department year to year and for all times to come. The assessee did not establish the identity of the buyer. They also failed to furnish full particulars relating to the sale of such rejected and defective material at lower rates. He strongly urged that the order of Commissioner (Appeals) should be set aside and that of the assessing officer should be restored.
15. The learned counsel for the assessee submitted that the additions of similar nature were made in the case of the assessee from asst. yrs. 1984-85 to 198889. The additions so made in all the aforesaid earlier years have been deleted by the Tribunal- He drew our attention towards the copies of the order of the Tribunal for various years submitted in the compilation.
16. We have considered the submissions made by the learned representatives of the parties. The assessing officer was himself of the view that the facts and nature of the aforesaid addition is same as in earlier years. The Tribunal, in case of the assessee, for immediately preceding year, assessment year 1988-89 has rejected a similar ground raised by the Revenue in their appeal for asst. yrs. 1987-88 and 1988-89. The facts relating to the year under consideration are absolutely similar. The learned departmental Representative did not point out any distinguishing facts or any other decision which justifies a fresh look on the same point in the year under consideration. The Tribunal while confirming such deletion in asst. yrs. 1987-88 and 1988-89, had also relied upon earlier orders of the Tribunal in assessee's own case for asst. yrs. 1984-85 to 1986-87. We therefore, respectfully following the order of the Tribunal in assessee's case for earlier years from 1984-85 to 1988-89 hold that the view taken by the Commissioner (Appeals) in relation to the aforesaid ground is perfectly valid and justified. WE do not find any justification to interfere with the finding given by the Commissioner (Appeals) in relation to this ground.
In the result, the assessee's appeal is partly allowed for statistical purposes and the Revenue's appeal is also pattly allowed.