Income Tax Appellate Tribunal - Indore
H E G Limited, vs Assessee on 30 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M.
PAN NO. : AAACH6184K
I.T.A.No. 337/Ind/2006
A.Y. : 2005-06
ACIT, M/s. H.E.G. Limited,
1(1), vs Mandideep,
Bhopal District Raisen
Appellant Respondent
I.T.A.No. 227/Ind/2008
A.Y. : 2005-06
M/s. H.E.G. Limited, ACIT,
Mandideep, vs 1(1),
District Raisen Bhopal
Appellant Respondent
PAN NO. : AAACC6655Q
I.T.A.No. 455/Ind/2009 & 602/Ind/2010
A.Y. : 2006-07 & 2007-08
ACIT, M/s. H.E.G. Limited,
1(1), vs Mandideep,
Bhopal District Raisen
Appellant Respondent
Department by : Shri Keshav Saxena, CIT DR
Respondent by : Shri S/Shri Hitesh Chimnani,
Sumit Nema and Vineet Mattha,
CAs
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Date of Hearing : 30.01.2012
Date of : 14.02.2012
pronouncement
ORDER
PER R. C. SHARMA, A.M.
These are the cross appeals filed by the assessee and Revenue against the order of CIT(A)-I, Bhopal dated 28.04.2008 for the assessment year 2005-06 dated 17.6.09 and appeals of revenue for the assessment year 2006-07 and 2007-08.
2. In ITA No. 337/Ind/2008 filed by the Revenue, the following grounds have been raised:
"On the facts and in the circumstances of the case, the ld. CIT(A) has erred in:
1. Holding that the Assessing Officer's observation that the assessee did not properly account for credits allowed by the State Electricity Board to the Graphite divisions as consolidated entry is passed by the assessee at the year end. The Assessment Order was passed with very detailed reasoning as stated above. The CIT(A) has neither addressed all the reasons given by the Assessing 2
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Officer nor given any opportunity to the AO to address issues raised by the assessee. The CIT(A) merely relied on the version and submission of the assessee.
2. Stating that the assessee had not inflated profits of the Power Divisions by not taking into account Finance and Administrative expenses relatable to these divisions without any sound reasons.
3. Holding that the AO did not take cognizance of the share capital and reserves and surplus of the assessee consisting of 10 divisions in the year of setting up of the two power divisions is not correct. Merely availability of shareholders fund and specific loans taken from financial institutions for setting up of power divisions is not justifiable.
Very detailed and elaborated order was passed giving various reasons for not accepting the claim of the assessee u/s 80-IA of the I.T. Act. The CIT(A) has not addressed most of the reasons given in the order.
4. Holding that the assessee has debited common expenses pertaining to the power divisions at Tawa of Rs. 35,20,150/- and power divisions, Durg of Rs. 32,67,965/- debited under the head miscellaneous expenses and the finding of the CIT(A) is not correct that in past assessment years, 3
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all relatable expenses in respect of the power divisions have been accounted and there is no inflation of profits in power divisions. Ld. CIT(A) has neither himself verified the facts mentioned and analyzed by the AO nor given any opportunity to verify.
5. Holding that on perusal of the profitability chart, consistency in the profitability rates of power divisions as well as other divisions the profit rates in both the power division in the current assessment year have reduced as compared to earlier year due to increase in operational expenses is not correct though the Assessing Officer's had observed that disproportionately large profits are being claimed by the power divisions vis-a-vis other manufacturing divisions of the assessee. The CIT(A) merely relied on the version and submission of the assessee that the profitability rates in power divisions in the past 8 assessment years have been accepted also supports the profitability rates and the reasons for higher profitability rates have been explained and the same have been accepted in the past wherein the assessment order was passed with very detailed reasoning and each assessment year's proceedings are separate proceedings. 4
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6. Allowing relief u/s 80-IA without addressing to the most of the reason given in the assessment order.
7. Adopting the diverse rates for computing the deduction u/s 80-IA particularly when the laws of the state control the commodity & the commodity cannot be freely traded as like other goods. There is no option with the assessee to sell it to some one else at price determined by it & it can be sold to MPEB only at the rate determined by it."
3. In ITA No.227/Ind/2008 filed by the assessee, the following grounds have been raised:
1) "That the Ld.CIT(A) erred on facts and in law in reducing the claim of deduction u/s 801A in respect of Power Division (WHRS), Durg by Rs.
1,29,13,733/- holding that there is no sale of units absorbed towards wheeling charges by Power Division to Graphite Manufacturing Division of the Appellant.
2) That the Ld.CIT(A) erred on facts and in law in holding that actual sale or transfer of power units as recorded by the Power Generating Divisions get reduced by wheeling units and disadvantage or loss has to be borne by the Power Division.
3) That the Ld.CIT(A) erred on facts and in law in 5
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reducing the turnover of Power Division by the amount of units absorbed towards wheeling charges, without appreciating that such levy was to the account of the consuming units (s)."
4) In I.T.A.No. 455/Ind/2009, the Revenue has taken the following grounds :-
On the facts and in the circumstances of the case , the ld. CIT(A) has erred in :-
1. allowing deduction u/s 80IA of the Income-tax Act, 1961, at Rs. 11,46,89,130/- in respect of eligible power divisions made by the Assessing Officer in respect of three power divisions, thereby taking NIL deduction u/s 80IA.
2. deleting the addition of Rs. 94,68,555/- made by the Assessing Officer on account of disallowing commission on domestic sales.
3. deleting the addition of Rs. 2,82,32,191/- made by the Assessing Officer by disallowing 50% of outstanding export commission on estimate basis.
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4. deleting the addition of Rs. 78,65,529/- made by the Assessing Officer on account of disallowing payments to Hindustan Electro Graphite Limited Officers Gratuity fund.
5. In I.T.A.No. 602/Ind/2010, the Revenue has taken the following grounds :-
"On the facts and in the circumstances of the case , the ld. CIT(A) has erred in :-
1. deleting the addition of Rs. 22,42,66,426/- made by the Assessing Officer on account of deduction u/s 80IA of the Income-tax Act, 1961, at in respect of captive Thermal Power Division at Mandideep and also simultaneous disallowance of 80IA of Power Units.
2. deleting the addition of Rs. 4,11,09,125/- made by the Assessing Officer on account of export commission disallowed as deferment of income and no confirmation by recipients.
5. Common issue in all the years relates to allowability of deduction u/s 80IA on account of power generated by two 7
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power plants set up by assessee at Durg (Now in Chhatisgarh) and Tawa (Madhya Pradesh). The power so generated was used mainly for captive consumption by the assessee's Graphite Electrode Plant at Mandideep (M.P.).
6. At the out-set, ld. Authorized Representative placed on record the order of the Tribunal in assessee's own case for the assessment years 1999-2000 to 2004-05, wherein exactly similar issue was decided in favour of the assessee.
7. On the other hand, it was contended by the ld. CIT DR that the Department is already fighting this case in earlier years in the Hon'ble M.P. High Court on comparative price of Rs. 2.07 at which electricity is sold to MPEB, termed by assessee as "infirm price" and also on whether one limb of assessee can sale power to another limb of assessee and earn profit on it to claim deduction u/s 80IA. Therefore, he relied on AO's order on these issues.
8. It was further contended by the ld. CIT D.R. that it was not possible for power unit Tawa to generate huge gross profit of 75 % and net profit of 55 % and this was not arising out of natural course of business but because of artificial raising of 8
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sale price of power by Tawa to Graphite Unit of assessee at Rs. 3.90 per KWH whereas same power is sold by Durg Unit to Graphite Unit at Rs. 3.24 KWH and no reason was provided for this difference of rate, in two units under the same management. Sale rate of power by Durg Unit to Steel Plant of assessee is still less at Rs. 2.96 per KWH. He further contended that while "Administrative expenses" are as high as 55% in Graphite Unit of assessee (main unit), they are only 30% or so in both Durg Power Unit and Tawa Power Unit, which is clear proof of diversion of common administrative and head office expenses to Graphite Unit (non 80IA Unit) to claim excess deduction u/s 80IA in Tawa and Drug Power Unit.
9. He further contended that the assessee has completely failed to explain reason for such high profit gross profit of 71.20 % in power division, Tawa and net profit rate of 54.59 % in this unit in assessment year 2006-07. Even in assessment year 2005-06 the net profit rate of power division, Tawa itself was 37.40%. What is the basis and reason for such a jump of about 17 % in its net profit rate ? In this regard, assessee is required to explain the following points :- 9
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(a) How the "Consumption of material" is shown at Rs. Nil in Tawa Unit.
(b) What is the basis that while "Power Division, Durg" has charged a rate of power of Rs. 3.24 per KWH, the rate of power charged by Power division Tawa is Rs. 3.90 per KWS from Graphite Division, Mandideep. For supply of same power to same unit why two different rates are charged ?
It is pertinent to mention that rate charged by both Tawa & Drug Power Division are same from MPEB which is Rs. 2.07 per KWH. In that case, what is rational in charging different rates from Graphite Division.
Charging of such rate is also wrong and inexplicable if the rate quoted by assessee for break up per unit in these two power divisions is seen. While break even rate for Tawa is Rs. 1.35 per KWH only break even rate for Durg power division is Rs. 2.17 per KWH.
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This proves beyond doubt that rate of power fixed by same management of assessee company for Tawa Unit is artificially levied at a high price to raise its profit margins and to artificially levied at a high price to raise its profit margins and to artificially jack up its claim of deduction u/s 80IA of the Income-tax Act, 1961.
If the unit charge of break even point of Tawa Unit was only Rs. 1.325 per KWH, there was no justification to charge more than double this rate of Rs. 2.70 per KWH and there was absolutely no justification to charge more than rate of Rs. 3.24 per KWH levied by Durg Power Unit from Graphite Division, Mandideep.
This fact of artificial profit in hands of Power Division, Tawa, was never brought and examined in detail in any earlier year. Hence earlier decision of Hon'ble I.T.A.T. will not be applicable to these facts as principle of res judicata will not apply, where each assessment year is different.
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(c) G.P. rate of 71.20 % in the hands of Power Division, Tawa is glaring in view of the fact that MPEB is running in huge losses and even major power companies like Tata Power and Reliance Power are showing gross profit of only up to 30 % and net profit is only 10 to 20 %. In view of this even gross profit rate of 42.39 % of Power Division, Durg is high.
(d) Wheeling charges are basically transmission charges for which credits are given to Tawa and Durg Power Division debits are given to Graphite Division, Mandideep. Such credit to Power Division is not on any actual payment basis and it is not even based on MPEB/CSEB bills based on transmission lines provided by them. Therefore, onus is on assessee to explain the credit claim of Rs. 26,07,372/- in Tawa Unit and Rs. 36,31,258/-
in Durg Unit as wheeling charges, otherwise such amount cannot be claimed as deduction u/s 80IA. 12
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(e) Since facts brought out in present case are different form earlier years, principle of res judicata will not apply for which reliance was placed on following decisions :-
(i) Kotak Mahindra Finance Limited (Bom), 265 ITR 14.
(ii) New Jehangir Vakil Mills Co. Ltd. ( S. C.), 49 ITR 137.
(iii) Thanthi Trust, (2001) 247 ITR 785 (S.C.).
(iv) Lachhiram Puranmal, (2002) 171 CGTR 640 (MP)
(f) With regard to disallowances of Domestic Commission of Rs. 94.68 lakhs, the contention of ld. CIT DR was as under :-
Assessee is not only required to get confirmation letter and copy of agreement and establish cheques payments but also required to establish that such parties have rendered services for the business of assessee and should demonstration such services as held in :-
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(I) Panipat Woolen & General Mills,
103 ITR 66 ( S.C. )
(ii) S.A. Builders Limited, 288 ITR 1 ( S.C.) (II) India Mfg. Madras Pvt.Ltd., 155 ITR 774.
(g) With regard to disallowance of Export Commission, the contention of the ld. CIT DR was as under :-
"Assessee has failed to explain why such commission remains outstanding to the tune of Rs. 5 crores every year, when parties doing real work charge it immediately. No proof that "Commission Agents" for both domestic & export commission rendered any services to assessee and hence such commission not allowable so held in Mcdowell & Company Limited (Ker), 291 ITR 107, Schneider Electric India Limited ( Del) 304 ITR 360, Onam Agarbatti Co.(Kar), 310 ITR 56."
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10. We have carefully considered the rival contentions and gone through the orders of the authorities below. The main issue in question is allowability of deduction u/s 80IA on account of power generated by two power plants set up by assessee at Durg and Tawa. The power so generated was used mainly for captive consumption by the assessee Graphite Electrodes Plant at Mandideep. This issue has been elaborately dealt with by the Tribunal in assessee's own case basically in the assessment year 2001-02 and thereafter, the same was consistently followed by Coordinate Bench in subsequent years. Ld. CIT D.R. also, did not controvert this fact. Copies of all Tribunal orders were placed on record. As the facts and circumstances are same, we respectfully follow the decision of the Tribunal in assessee's own case, which has not been disputed by the ld. CIT DR.
11. In the assessment year 2005-06, ground taken by the Revenue relate to addition of Rs. 13,87,12,034/- in the profit of graphite division, Mandideep to the extent deduction 80IA was claimed by the Durg & Tawa Divisions of the company. 15
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The details of addition made by the Assessing Officer are as under :-
i. Deduction u/s 80IA (80IB) claimed by Power Division, Durg 9,12,96,476 ii. Deduction u/s 80IA(80IB) claimed by Power Division Tawa 4,74,15,558 13,87,12,034 The above income of these divisions was reduced to, nil by the Assessing Officer by adding the said amount in the profit of Graphite Division, Mandideep as per details given hereunder :-
a. Durg Division (page 9 of assessment order) 4,56,30,837 b. Tawa Division (page 9 of assessment order) 1,25,91,058 5,82,21,895 Addition in Graphite Division towards non debit of Financial expenses of Power Divisions and administrative expenses of head office not debited to Power Divisions including common expenses of -
a. Durg Division amounting to Rs. 32,67,985 16
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b. Tawa Division amounting to Rs. 35,20,150 Total disallowance under These heads made of Rs. 8,04,90,139 Rs. 13,87,12,034 (Calculation not given by AO of 8,04,90,139 Difference Rs. 7,37,02,004) Thereby, reducing the income of Durg & Tawa Divisions of Rs. 13,87,12,034/- to Nil figure for allowance of claim of deduction u/s 80IA (80IB).
12. The ld. AO has on pages 9 to 11 of his order, adopted the chargeable rate by Power Divisions to Graphite Division @ Rs. 3.60 per unit on the net units of power supplied to Graphite Division. The break up of Rs. 3.60 per unit is given by him on pages 6 & 7 of the assessment order, by considering only energy charges subject to rebate allowed by the electricity board thereby ignoring the various other charges and duties collected by electricity board from its regular customers. It is because of these two reasons, the abovementioned reduction of Rs. 4,56,30,387/- and that of Rs. 1,25,91,058/- have been made in the turnover of Drug & Tawa Power Divisions and 17
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thus the AO has held that these two power divisions are not entitled to deduction u/s 80IA on these amounts. The CIT(A) deleted the additions. As the issue is covered by series of I.T.A.T. order in Assessing Officer's own case, we do not find any reason to interfere in the order of CIT(A). Accordingly, ground taken by Revenue is dismissed.
13. The addition of Rs. 1,29,13,733/- being the difference between 23,05,80,228/- i.e. the turnover declared by the assessee by taking rate of electricity @ Rs. 4.9 per net unit and Rs. 21,76,66,495/- being the turnover as per CIT(A) by adopting the rate of Rs. 4.63 per unit of net power sold by Power Division Durg to Graphite Division Mandideep was maintained by the ld. CIT(A).
14. Contention of the ld. Authorized Representative that the issue with regard to wheeling charges has also been dealt by the Tribunal in assessee's own case for the assessment year 2001-02 in its order dated 17th October, 2008, and the additions made on account of wheeling charges were deleted by the Tribunal.
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15. We have considered rival contention and found that addition on account of wheeling charges has been confirmed by the ld.CIT(A) to the extent of Rs. 1,29,13,733/- on the basis of turnover declared by the assessee by taking rate of electricity at Rs.4.9 per unit. In the order of the Tribunal dated 17th October, 2008, the issue has been dealt with at page 82, 83 & 84, wherein Tribunal has deleted the addition on account of wheeling charges by observing that the assessee was paying Rs. 4.45 per unit to MPEB and MPEB is also charging the same rate from its customer, therefore, the rate charged by the assessee at Rs. 3.81 per unit was the reasonable rate and even if wheeling charges may be taken into consideration, it would not affect the rate charged by the assessee. Meaning thereby on finding that power unit of the assessee was charging rate at 3.81 per unit as against rate of Rs. 4.45 per unit being charged by MPEB, it was held that since rate charged by the assessee was lower than the rate charged by the MPEB, no addition was warranted on account of wheeling charges.
Whereas in the instant case, we found that the MPEB rate was Rs. 4.63 per unit, whereas Power Division, Durg, was charging 19
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at Rs. 4.90 per unit, which is higher than the rate charged by the MPEB. Therefore, the CIT(A) has reworked out the eligible amount of turnover after having the following observations and held that the assessee is not entitled to deduction on the turnover of Rs. 1,29,13,733/-.
16. The above finding of the CIT(A) has not been controverted by the ld. Authorized Representative with regard to the rates charged by Power Division, Durg, vis-à-vis rate charged by MPEB. Accordingly, the addition made by the ld.CIT(A) is upheld.
17. In the result, the assessee's appeal for assessment year 2005-06 is dismissed.
18. Revenue's ground nos. 1, 2 & 3 in the assessment year 2005-06 has been dealt by the ld.CIT(A) after having the following observations :-
"I have carefully considered the submissions made by the ld. AR. I have also gone through the findings of the AO mentioned in the assessment order. l find that the Assessing officer was not correct in holding that the appellant had artificially claimed deductions u/s 80IA of the Act in 20
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respect of the profits of its power divisions at Durg and Tawa. The Assessing officer was not justified in holding that deduction u/s 80lA has been wrongly claimed in respect of-power divisions for transfer of power to the manufacturing units of the appellant. Therefore, the contention of the Assessing officer that appellant had claimed sale and purchase between the two limbs of the same legal person which is legally inappropriate, is contrary to the provisions of section 80lA of the IT Act. I find that there is no dispute that the power plants are separate industrial undertakings. There is also no dispute that the appellant maintained separate books of account for each of the power plant, which was duly audited. The case of the appellant is fully supported by the decision of the Hon'ble Supreme Court in the case of Textile Machinery Corp. Ltd. vs. CIT 107 ITR 195. I also find that the judicial decisions of Hon'ble 21
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Madras High court in 131 ITR 300, Hon'ble Gujarat High Court in 162 ITR 760, Hon'ble Delhi High Court in 254 ITR 412 and 263 ITR 364 wherein it was held that even a unit engaged in manufacturing of goods which is used for captive consumption by the assessee itself is eligible for deduction u/s 80lA of the Act. The two-power division of the appellant are capable of being operated independently. These two-power divisions satisfied all the conditions laid for claiming deduction u/s 80lA of the Act. I hold that the profits of the power divisions determined and claimed on the basis of transaction entered into with other divisions on arms length, deduction of such profits cannot be denied by holding such profits to be mere notional profits. I find force in the ld. AR's submissions that profits of power divisions cannot be regarded as notional profits in view of the legal fiction embedded in section 80IA 22
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which in fact requires that such profits of eligible units to be computed treating such units as an independent, distinct and stand alone entity.
The appellant's case is also fully supported by the decisions of the Hon'ble ITAT, Mumbai Bench in the case of West Coast Paper Mills Ltd. vs. JCIT 100 TTJ 833 and its own case for the asst. year 2000-01 decided by the Hon'ble ITAT, Indore Bench. Accordingly, I hold that deduction u/s 80IA is admissible to the profits of the power divisions of the appellant. I agree with the ld. AR's submissions that the appellant's power divisions had been set up as captive power plants for captive consumption of power generated by the manufacturing units of the appellant. Accordingly, there is no merit in the Assessing Officer's contention that the appellant should have sold power to State Electricity Boards, I find that the permission 23
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given was subject to the condition that power divisions are not permitted to sale power to any other person. I also do not agree with the Assessing officer's observation that the appellant did not properly account for credits allowed by the State Electricity Boards to the Graphite Division as consolidated entry is passed by the appellant at the year-end. I also hold that the Assessing officer was not justified in stating that the appellant had inflated profits of the power divisions by not taking into account finance and administrative expenses relatable to these divisions. The Assessing officer in the ninth year of claim of deduction u/s 80IA of the two power divisions went back to the initial year and observed that interest on internal accruals consisting of surplus of the manufacturing divisions which were purchasing power from the eligible power divisions should be taken into account to 24
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compute the eligible deduction u/s 80lA. I agree with the ld. AR's submissions that the Assessing officer did not take cognizance of the share capital and reserves and surplus of the appellant consisting of 10 divisions in the year of setting up of the two power divisions. The total shareholders fund comprised of Rs. 180.96 crores being share capital of Rs. 42.31 crores and reserves of Rs. 138.65 crores. Even the reserves and surplus consisted of share premium, capital redemption reserve apart from the common pool of general reserve and profits. I. also find that appellant has substantial surplus in other divisions also viz., in oil division of Rs. 8.93 crores apart from the surplus in the manufacturing divisions consuming power. I, therefore, agree with the ld. AR's contention that the power divisions were not set up alone from the surplus of the manufacturing divisions but also out of 25
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shareholders funds available with the appellant and also specific loans taken from financial institutions for setting up of power divisions, I also find from the schedule of interest payment in the power divisions that interest has been charges in each year on specific loans taken by the power divisions in their respective profit and loss account. I follow the Hon'ble ITAT, Delhi Bench decision in the case of National Thermal Power Corporation 91 ITD 101 that provisions of section 80lA do not mandate charging of any notional interest/expense to the profits of the eligible units. The Hon'ble Bench also held that there is no scope for deducting notional expenditure in computing profits eligible for deduction u/s 80lA.
I also find that the Assessing officer's finding that the appellant has not apportioned common expenditure to the power divisions is not 26
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correct. I find that the appellant has debited common expenses pertaining to the power divisions at Tawa of Rs. 35,20,150/- and power division, Durg of Rs.32,67,965/- debited under the head miscellaneous expenses. I find that as done in past assessment years, all relatable expenses in respect of the power divisions have been accounted and there is no inflation of profits in power divisions. As regards, the Assessing Officer's observation that disproportionately large profits is being claimed by the power divisions vis a vis other manufacturing divisions of the appellant, I find, on perusal of the profitability chart, consistency in the profitability rates of power divisions as well as other divisions. I find that profit rates in both the power divisions in the current assessment year have reduced as compared to earlier years due to increase in operational expenses. The ld. AR's submissions that the 27
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profitability rates in power divisions in the past 8 assessment years have been accepted also supports the profitability rates. The reasons for higher profitability rates have been explained and the same have been accepted in the past. The reliance by the appellant on the decision of the Hon'ble ITAT decision in 103 TTJ 578 supports its case. Therefore, I find no merit in the Assessing Officer's holding that profits of the power divisions were inflated more by accounting design than reality. The profits of the power divisions are supported by separate audited financial statements. The books of accounts maintained by the eligible power divisions have never been rejected in the assessments. The accounting policies and method in the power divisions have been duly disclosed which are being consistently followed and there is no change."
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19. As the above findings are in consonance with the decision of Tribunal in assessee's own case in earlier years, we do not find any infirmity in the order of CIT(A).
20. In the result, the appeal of the Revenue for assessment year 2005-06 is dismissed.
21. Similar ground has been taken by the Revenue in the assessment year 2006-07 and 2007-08 with regard to allowing assessee's claim of deduction u/s 80IA. As already discussed, the Tribunal have consistently upheld the action of the CIT(A) in assessee's own case for allowing claim of deduction u/s 80IA, we do not find any merit in these grounds of the Revenue.
22. In the assessment year 2006-07, the Revenue is aggrieved by deleting disallowance of commission on domestic sales amounting to Rs. 94.68 lakhs. We found that the ld.
CIT(A) has deleted the disallowance calling for a remand report from the Assessing Officer, wherein complete details of commission payment was furnished. We found that commission was paid in terms of agreement entered into with agents and at the rates agreed of the value of the orders 29
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procured. Payments were made by account payee cheques as per the terms of the agreement. Accordingly, we do not find any infirmity in the order of CIT(A) in deleting disallowance on account of commission.
23. With regard to disallowance of 50% of outstanding export commission, we found that the Assessing Officer has disallowed 50% of commission shown as payable at the year end. The ld. CIT(A) deleted the addition by recording finding at pages 26 & 27 of his appellate order to the effect that such commission was always paid by the assessee and expenditure was allowed and passed and the Department has not preferred even a second appeal against the order of CIT(A) deleting the disallowance of such commission in the assessment year 2005-06. We also found that complete details of the expenditure incurred having furnished before the Assessing Officer and the assessee had debited estimated export commission of Rs. 642.61 lakhs during the current year which is lower than the export commission debited of Rs. 906 lakhs in the profit and loss account during the preceding year. The finding recorded by the ld.CIT(A) has not been controverted. 30
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Accordingly, we do not find any reason to interfere in the same.
24. With regard to disallowance of payment to Hindustan Electro Graphite Officers' Gratuity fund, we found that during the year, the assessee had made contribution of Rs.
78,65,529/- to "Hindustan Electrographite Limited Officers' Gratuity Fund" as under :-
Division Amount
(Rs.)
Graphite Division Mandideep 55,93,408/-
Steel/Sponge Iron Division, 16,55,069/-
Durg
Power Division, Durg 4,12,786/-
Power Division, Tawa 2,04,266/-
25. The ld. CIT(A) has deleted the disallowance by observing that the assessee has produced actuarial certificate regarding ascertainment of gratuity liability issued by competent authority. Following was the precise observation of the CIT(A) :-
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"I have carefully considered the submissions made by the ld. Authorized Representative after going through impugned assessment order. I find that the appellant has relevant actuarial certificates regarding ascertainment of gratuity liability issued by the competent authority. The actuarial certificate gives the basis for gratuity liability provision, and, therefore, it cannot be said that the liability was not ascertained. I find that similar issue has been decided by the jurisdictional I.T.A.T., Indore Bench in the case of the appellant in the assessment years 2000-01, 2001-02 and 2002-03. Following the same, the disallowance of Rs. 78,65,529/- made by the Assessing Officer is deleted."
26. The above finding of the CIT(A) has not been controverted. Accordingly, we do not find any reason to interfere in the same.
27. Similarly, in the assessment year 2007-08, the CIT(A) has deleted the disallowance of export commission of Rs. 4.11 lakhs after having the following observations :- 32
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"8.7 I have given my careful consideration to the above submissions advanced by the ld. Authorized Representative. I have also gone through the findings of the Assessing Officer mentioned in the assessment order. In my considered view, the Assessing Officer was not justified in disallowing 50% of the export commission of Rs. 2,82,32,191/- payable at the year end. I find it plainly arbitrary, more so when export commission expenses have always been allowed to the appellant in the past assessment years. The Department has not preferred even a second appeal against the CIT(A)'s order allowing relief on the very same issue in the assessment year 2005-06. On its part, the appellant submitted all the relevant details which substantiate its claim of export commission. I find that the appellant has remitted export commission of Rs. 632.61 lacs during the current year which is almost same as export commission debited of Rs. 641.69 lacs in the profit and loss account during the current year. The export commission has been remitted through proper banking channels. Accordingly, the disallowance of Rs. 2,82,32,191/- made towards commission on export sales is deleted." 33
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28. From the record, we found that the assessee was consistently incurring such expenditure, even in the assessment year 2006-07. Similar disallowance has been deleted by the ld.CIT(A) and the Revenue has not preferred any appeal. Keeping in view all these facts, we do not find any infirmity in the order of CIT(A) for deleting the disallowance of export commission, which was legitimately incurred for the purpose of business.
29. In the result, all the appeals of the Revenue and assessee are dismissed.
This order has been pronounced in the open court on 14th February 2012.
(JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 14th February , 2011. CPU* 3014 34