Income Tax Appellate Tribunal - Ahmedabad
Guajrat Flourochemicals Ltd.,, Baroda vs Assessee
आयकर अपीलीय अिधकरण,
अिधकरण, अहमदाबाद Ûयायपीठ ''A'', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD,
"A" BENCH
सव[ौी ए.के.गरोǑडया,
गरोǑडया, लेखा सदःय एवं ौी कुल भारत,
भारत, Ûयाियक सदःय के सम¢ ।
BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND
KUL BHARAT, JUDICIAL MEMBER)
ITA. No.4515/Ahd/2007 - Asstt. Year : 2004-2005
ITA No.898/Ahd/2009 - Asstt.Year : 2002-2003
Gujarat Fluorochemicals Ltd. बनाम/Vs. ACIT, Cir.1(1)
ABS Towers, 2nd Floor Baroda.
Old Padra Road
Baroda 390 007.
ITA. No. 4563/Ahd/2007 - Asstt.Year : 2004-2005
ITA. No.1111/Ahd/2009 - Asstt. Year : 2002-2003
ITA No.1108/Ahd/2009 - Asstt.Year : 2004-2005
ACIT, Cir.1(1) बनाम/Vs. Gujarat Fluorochemicals Ltd.
Baroda. ABS Towers, 2nd Floor
Old Padra Road
Baroda 390 007.
(अपीलाथȸ / Appellant) (ू×यथȸ / Respondent)
िनधा[ǐरती कȧ ओर से/ : Shri S.N. Soparkar
Assessee by
राजःव कȧ ओर से/ : Shri ShellyJindal
Revenue by
सुनवाई कȧ तारȣख/ : 17th January, 2013
Date of Hearing
घोषणा कȧ तारȣख/ : 31-01-2013
Date of Pronouncement
आदे श / O R D E R
PER A.K. GARODIA, ACCOUNTANT MEMBER: Out of this
bench of five appeals, there are four cross appeals of the assessee and the Revenue for Assessment years 2002-2003 and 2004-2005, in respect of the assessment made by the AO under Section 143(3) of the Act and remaining Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) one appeal is of the Revenue for A.Y.2004-2005 in respect of penalty imposed by the AO under Section 271(1)(c) of the Act. All these appeals were heard together, and are being disposed of by way of this common order, for the sake of convenience.
2. First we take the appeal of the assessee for the assessment year 2002-2003 i.e. ITA No.898/Ahd/2009. In this appeal, the assessee has raised total seven grounds, out of which, ground no.7 is general in nature. Regarding ground nos.1, 2 and 5, it was submitted by the learned AR of the assessee that the issues involved in these three grounds are covered against the assessee by the Tribunal order in assessee's own case for A.Y.2003- 2004 in ITA No.33/Ahd/2007, copy of which is available in the paper book. Accordingly, these three grounds of the appeal of the assessee being ground nos.1, 2 and 5 are rejected.
3. The ground no.3 of the assessee's appeal reads as under:
"3. In the facts and circumstances of the case in law, the ld.CIT(A) erred in confirming various disallowances and observations relating thereto as under:
4. Regarding this ground, it was submitted by the learned AR of the assessee that the CIT(A) has followed his order for A.Y.1999-2000, and in that order, the issue was restored back to the file of the AO as per the Tribunal direction in ITA No.3039/Ahd/2002, and copy of this Tribunal order is available at page nos.36 to 38 of the paper book, and the relevant paras are para-6 & 7. It was also submitted that in present year also, the issue may be restored back to the file of the AO for fresh decision by following the same direction of the Tribunal given in A.Y.1999-2000. The learned DR also agreed to this proposition, and hence, we set aside the order of the learned CIT(A) on this issue and restore the matter back to the file of the AO for fresh decision as per the directions of the Tribunal in -2- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) A.Y.1999-2000 on this issue. This ground of the assessee stands allowed for statistical purpose.
5. The ground no.4 of the assessee's appeal reads as under:
"4. In the facts and circumstances of the case in law, the ld.CIT(A) erred in confirming the disallowance of Rs.5,05,097/- being the amount of sundry balances written off."
6. It was submitted by the learned AR of the assessee that this issue is covered in favour of the assessee, as per the decision of the Tribunal in assessee's own case for A.Y.2001-2002 as per the CO No.266/Ahd/2004 dated 31-1-2001, and copy of this Tribunal order is available at page nos.27 to 31 of the compilation of the decisions. The relevant paras are para-4 to
7. At this juncture, it was pointed out by the Bench that as per the para-7 of the Tribunal order, it was noted that the left over balances, were taken into account while computing the profits of the assessee, but in the present case, the write off is of sundry balances, and it is not shown that the same were taken into account while computing the profit of the assessee. In reply, it was submitted by the learned AR of the assessee that even advances are allowable as write off of bad debts or as business loss, and in support of this contention, he relied on the decision of Hon'ble Bombay High Court in the case of Lord's Dairy Farm Ltd. v. Commissioner of Income-tax, 27 ITR 700 (Bom)
7. He also submitted that the matter may be restored back to the file of the AO fresh decision after examining the nature of advances and in light of the judgments cited supra. The learned DR of the Revenue supported the orders of the authorities below.
8. We have considered rival submissions and perused the material on record and gone through the orders of the authorities below, and the judgment cited by the learned AR of the assessee. We find that the -3- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) Tribunal order in assessee's own case for A.Y.2001-02 is not applicable in the present case because in that year, the issue was decided by the Tribunal in favour of the assessee on the basis that the balances were taken into account while computing the profit of the assessee. In the present year, the facts are different. But still if it is found that the advances written off are business advances, then the same is allowable as business loss, but this aspect was not examined by the authorities below, and hence, we set aside the order of the CIT(A) on this issue, and restore the matter back to the file of the AO for fresh decision. The AO should examine the nature of these advances, and if it is found that the same are business advances, then it should be allowed as business loss. While deciding the issue afresh, the AO should keep in mind the judgment cited by the learned AR of the assessee before us, as noted above, and adequate opportunity be allowed to the assessee. This ground is allowed for statistical purpose.
9. The ground no.6 is as under:
"6. In the facts and circumstances of the case in law, the ld.CIT(A) erred in
(i) In confirming the reduction of the amounts of Rs.26,73,037/-
paid to customers for shortage claims from export turnover for computing deduction u/s.80HHC of the Income Tax Act, 1961;
(ii) In confirming the reduction of 90% of other income of Rs.33,998/- computing profits of the business while computing deduction u/s.80HHC.
10. It was submitted by the learned AR of the assessee that there are two components of this claim of the assessee for deduction under Section 80HHC, which is not allowed by the authorities below. He submitted that first component is regarding confirming reduction of Rs.26,73,037/- paid to customers for shortage claims on export turnover. He submitted that this part of matter is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for A.Y.2003-2004 in ITA -4- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) No.33/Ahd/2007 dated 14.12.2012. He submitted that copy of the Tribunal order is available at page nos.1 to 26 of the compilation of the decisions, and the relevant paras are para no.3 to 14 available at page no.14 and 15. The second aspect of the matter i.e. regarding confirming the reduction of 90% of other income of Rs.33,998/- from profits, it was submitted by the learned AR of the assessee that he is not able to produce evidence regarding this contention that these are business profit. The learned DR of the Revenue supported the order of the CIT(A) in respect of both these aspects.
11. We have considered rival submissions. Regarding first aspect of the matter, i.e. reduction of Rs.26,73,037/- paid to customers for shortage claims from export turnover, we find that this issue is covered in favour of the assessee by the Tribunal decision in assessee's own case for A.Y.2003- 2004. In that year, it is held by the Tribunal that the claim of shortage paid by the assessee in fact increases the cost of the export, but it does not decrease the export turnover. Hence, respectfully following the decision of the Tribunal cited supra, we decide this issue in favour of the assessee.
For second aspect of the matter regarding 90% of the other income of Rs.33,998/-, we do not find any merit in the claim of the assessee. In the absence of any evidence to establish that this income is business income, this part of the ground is rejected.
12. In the result, the appeal of the assessee is partly allowed.
13. Now we take up the appeal of the Revenue being ITA No.1111/Ahd/2009 for A.Y.2002-2003.
14. In this appeal, the Revenue has filed one additional ground, which reads as under:
"1(a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the addition of rs.17,06,35,278/--5-
Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) towards compensation from multilateral fund under the terms of Montreal Protocol for reducing production of Chlorofluorocarbons (CFC) gases treating the same as capital receipt instead of revenue receipt without appreciating that the assessee continues to manufacture other product, hydropchloro Fluro Carbon (FCFC) with the same set of machinery and has been claiming depreciation on the same establishment and there was no loss or damage to the assets/plant. The ld.CIT(A) erred in not holding that the receipt is a trading receipt being the compensation for the loss of business earnings.
1(b) The ld.CIT(A) erred in not appreciating that the compensation received by the assessee was not for the injury inflicted to its assets, but or the loss of business earnings, and hence, a revenue receipt."
15. The learned DR of the Revenue supported the assessment order, whereas it is submitted by the learned AR of the assessee that this issue is covered in favour of the assessee by the Tribunal order in assessee's own case for A.Y.2001-2002 in ITA No.2460/Ahd/2004 dated 6-7-2012. He submitted that the copy of the Tribunal decision is available at page no.46 to 53 of the compilation of the decision, and in particular, our attention was drawn to page no.50 of this paper book.
16. We have considered rival submissions and have perused the material available on record and gone through the orders of the authorities below and the Tribunal decision in assessee's own case for A.Y.2001-2002 cited by the learned AR of the assessee. We find that this issue was decided by the Tribunal in favour of the assessee for A.Y.2001-2002 (supra), and no difference in facts could be pointed out by the learned DR of the Revenue in the present year. Accordingly, we find no reason to take a contrary view in this matter, and thus, this additional ground of the Revenue is rejected, by respectfully following the Tribunal order in earlier year.
17. The ground no.1 of the Revenue's appeal is as under:
-6-Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) "1. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in allowing village development expenses of Rs.12,64,381/- without appreciating that these expenses were not incurred wholly and exclusively for the purposes of the business within the meaning of section 37(1) of the Act."
18. The learned DR supported the assessment order, whereas, the learned AR of the assessee supported the order of the CIT(A). He also submitted that this issue is covered in favour of the assessee by the Tribunal order in assessee's own case for A.Y.2003-2004 in ITA No.4/Ahd/2007, copy of which has been filed at page no.1 to 26 of the compilation of the decisions. He also submitted that relevant portions of the Tribunal decision being para-4 to 7 are available at page no.3 to 7 of the paper book.
19. We have considered rival submissions. We find that the issue is covered in favour of the assessee by the Tribunal order in A.Y.2003-2004, and since no difference in facts could be pointed out by the Revenue, we find no reason to take contrary view. Respectfully following the above decision of the Tribunal in assessee's own case, this ground of the Revenue is rejected.
20. Ground No.2 of the Revenue's appeal is as under:
"2. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in allowing the contribution of Rs.15,24,537/- to Refrigerant Gas Manufacturer Association, without appreciating that the expenditure was not incurred wholly and exclusively for the purposes of the business within the meaning of section 37(1) there being no direct nexus between the work of the association and the business of the assessee, and that the onus case on the assessee in this regard as settled in the case laws mentioned at 1(b) was not discharged."
21. The learned DR supported the assessment order, whereas the learned AR of the assessee supported the order of the CIT(A). He also submitted that this issue is covered in favour of the assessee by same order of the -7- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) Tribunal for A.Y.2003-2004 (supra) and relevant portions of the order are contained in para 1 to 10, which are available at page no.7 to 10 of the Tribunal.
22. We have considered rival submissions.. We find that this issue is covered in favour of the assessee by the Tribunal order in assessee's own case for A.Y.2003-2004, and since no difference in facts could be pointed out by the learned DR of the Revenue on this issue also, we find no reason to take a contrary view, and hence respectfully following the decision of the Tribunal cited supra, this ground of the Revenue is rejected.
23. The ground no.3 of the Revenue is as under:
"3. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in directing the AO to exclude sales tax and excise duty from the total turnover while computing deduction u/s.80HHC of the IT Act.
23. The learned DR supported the assessment order, whereas the learned AR of the assessee has supported the order of the CIT(A). He also submitted that this issue is covered in favour of the assessee by the judgment of the Hon'ble Apex Court rendered in the case of Commissioner of Income-tax v. Lakshmi Machine Works, 290 ITR 667 (SC).
24. We have considered rival submissions, and respectfully following the judgment of the Hon'ble Apex cited supra by the learned counsel of the assessee, this ground of the Revenue is also rejected.
25. Ground No.4 of the Revenue's appeal is as under:
"4. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in negating the exclusion 90% of the insurance claim of Rs.14,80,036/- under clause (baa) of the Explanation below section 80HHC, without appreciating the import residuary clause of "any other receipt of a similar nature" which excluded all those receipts which do not form part of turnover akin to export turnover, in order to avoid distortion in the working of profits derived from the -8- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) export in the ratio of export turnover to total turnover, apportioning only the profit from the total of domestic and export turnover."
26. The learned DR supported the order of the AO, whereas the learned counsel for the assessee supported the order of the CIT(A). He also placed reliance on the following judicial pronouncements:
a) Commissioner of Income-tax v. Pfizer Ltd., 330 ITR 62 (Mum)
b) Commissioner of Income-tax Vs Motor Industries Co. Ltd.
(Kar), 331 ITR 79 (Kar)
27. At this juncture, a query was raised by the Bench regarding the nature of the insurance claim. In reply, it was submitted by the learned AR of the assessee that the same is in respect of loss of goods in transit, but since this aspect of the matter is not examined by the authorities below, and no finding is available regarding nature of the insurance claim, the matter may be restored back to the file of the AO for examining the nature of the claim and then decide the matter afresh.
28. We have considered rival submissions. We find that the learned CIT(A) has not examined the nature of the insurance claim. There is no finding of the AO also regarding the nature of the insurance claim, and hence, we feel it proper to restore this issue back to the file of the AO for fresh decision after examining the nature of insurance claim. Accordingly, we restore this issue back to the file of the AO for fresh decision. The AO should examine nature of the insurance claim and then decide the issue afresh after providing adequate opportunity of hearing to the assessee. He should also keep in mind the judgment of Hon'ble Bombay High Court and Hon'ble Karnataka High Court cited before us, as noted above. This ground of the Revenue is allowed for statistical purposes.
29. In the result, Revenue appeal stands partly allowed for statistical purpose.
-9-Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals)
30. Now we take up the appeal of the assessee for A.Y.2004-2005 in ITA No.4515/Ahd/2007.
31. The ground no.1 of the assessee's appeal is as under:
"1. In the facts and circumstances of the case and in law, the ld.CIT(A) erred in confirming reduction of deduction u/s.80HHC by following adjustments:
i) reducing 90% of Rs.3.67 lacs being other miscellaneous income from business profits;
ii) indirect expenses on trading turnover of Rs.35,08,788/-
iii) Amount paid to customers for shortage claims of Rs.11,64,167/- from export and total turnover
32. It is submitted by the learned AR of the assessee that regarding first part of this ground i.e. reduction of 90% of Rs.3.67 lakhs being the amount received on account of other miscellaneous income from business profits, the details are available at page no.34 of the paper book. At this juncture, it was pointed out by the Bench that as per the details, Rs.2.50 lakhs is credited to Misc. Income on account of refund of deposit paid for obtaining stay from CESTAT paid in December, 1998, and another amount of Rs.20,590/- is credited in respect of non-receipt of Form-C for A.Y.2002- 2003 and A.Y.2003-2004. Similarly, there is a refund of Rs.23,996/- in respect of refund received against electricity duty paid on 8.2.2003 i.e. A.Y.2003-2004. The Bench wanted to know as to how the income relating to the earlier years can be considered as income of the present year for the purpose of allowing deduction under section 80HHC. The learned AR of the assessee placed reliance on the judgment of the Hon'ble Apex Court rendered in the case of ACG Associated Capsules Pvt. Ltd. Vs Commissioner of Income-tax (SC), 343 ITR 89.
Regarding second aspect i.e. estimating the entire expenses on trade turnover to the tune of Rs.35,08,788/-, it was submitted by the learned counsel of the assessee that the details are available at page no.36 to 38 of -10- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) the paper book. At this juncture, a query was raised by the Bench as to the basis of allocating the entire amount of labour expenses to non- contributable for trading goods, it was submitted by learned counsel of the assessee that the basis is not available readily.
Regarding third part of this ground, i.e. regarding reducing the amount of Rs.11,64,167/- paid to customers for shortage claims, it was submitted that this issue is identical to ground no.6 of assessee's appeal in A.Y.2002-2003. The learned DR supported the order of the CIT(A) on this issue.
33. We have considered rival submissions and have perused the material available on record and gone through the orders of the authorities below. Regarding the first issue being reduction of 90% of Rs.3.67 lakhs in respect of other misc. income from business profit, we feel that this matter should go back to the file of the AO for fresh decision. In our considered opinion, the amount received in present year relating to earlier years, should not be considered in the present year, as the income as well as for deduction under Section 80HHC, and the same should be considered in the respective years as income as well as for the deduction under Section 80HHC. We order accordingly, and direct the AO to re-do the computation of income as well as deduction under Section 80HHC of the present year as well as of those earlier years, which are affected.
Regarding second aspect, we find that the learned AR of the assessee could not produce any details or basis for allocation of entire expenses as per page no.36 to 38 of the paper book, and hence we find no reason to interfere with order of the learned CIT(A) on this issue. This aspect is decided against the assessee.
-11-Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) Regarding third aspect of the ground, we find that this issue was decided in favour of the assessee in A.Y.2002-2003 by following the Tribunal order in A.Y.2003-2004 in assessee's own case, and hence, in the present year also, this aspect of the matter is decided in favour of the assessee. The ground no.1 is accordingly partly allowed.
34. The ground no.2 of the assessee's appeal is as under:
2. In the facts and circumstances of the case and in law, the ld.CIT(A) erred in confirming disallowance of Rs.9,13,000/- out of interest expenses disallowed u/s.14A."
35. The learned AR of the assessee submitted that page no.43 to 46 of the paper book are the fund flow statement for A.Y.2002-20003 and 2003- 2004. At this juncture, a query was raised by the Bench regarding the balance sheet of the assessee-company for A.Y.2004-2005. In reply it was submitted by the learned AR of the assessee the same is not readily available, and matter may be restored to the file of the AO to decide the same afresh after examining the balance sheet of the assessee-company, and if it is found that own funds are more than the investment, there should not be any disallowance out of the interest expenses under Section 14A. Reliance is placed on the judgment of the Hon'ble Bombay High Court rendered in the case of Commissioner of Income-tax Vs Reliance Utilities and Power Ltd. (Bom), 313 ITR 340 and also on the judgment of the Hon'ble Gujarat High Court rendered in the case of Raghuvir Synthetics. The learned DR supported the order of the CIT(A).
36. We have considered rival submissions. We find that as per the judgment of the Hon'ble Bombay High Court rendered in the case of Reliance (supra), if the own funds are more than the investment, then it should be accepted that the investment is made out of own funds, and in that situation no disallowance is called for out of interest expenditure in respect of investment. Since the balance sheet is not available before us, -12- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) we set aside the order of the CIT(A) on this issue, and restore the matter back to the file of the AO for fresh decision. The AO should examine the balance sheet of the assessee-company, and if it is found that own funds are more than the investment, then no disallowance should be made out of interest expenses under Section 14A. This ground is allowed for statistical purpose.
37. Ground no.3 of the assessee's appeal is as under:
3. In the facts and circumstances of the case and in law, the ld.CIT(A) erred in confirming addition of Rs.13,57,606/- being interest on income tax refund."
38. It was fairly conceded by the learned counsel for the assessee that this issue is now covered against the assessee as per the decision of the Special Bench of the Tribunal. Accordingly, this ground of the assessee is rejected.
39. Ground no.4 and 5 of the assessee's appeal are as under:
4. In the facts and circumstances of the case and in law, the ld.CIT(A) erred in confirming disallowance of Rs.9,64,177/- being charges for extension of time for construction of building at Noida."
5. In the facts and circumstances of the case and in law, the ld.CIT(A) erred in confirming disallowance of Rs.84,19,185/- on account of expenses on professional fees."
40. It was fairly conceded by the learned counsel of the assessee that the issue raised in both these grounds are covered against the assessee by the Tribunal order in A.Y.2003-2004 in ITA No.33/Ahd/2007. Accordingly, both these grounds of the assessee are rejected.
41. Ground no.6 of the assessee's appeal is as under:
-13-Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals)
4. In the facts and circumstances of the case and in law, the ld.CIT(A) erred in confirming disallowance of Rs.5,50,000/- being charges for pre-feasibility study for construction of building at Noida."
42. On this issue also, it was fairly conceded by the learned counsel of the assessee that this issue should be decided against the assessee because this amount is also required to be capitalized along with the amount of Rs.9,64,177/- as per ground no.4 above. Accordingly, this ground of the assessee is dismissed.
43. In the result, the appeal of the assessee stands partly allowed in terms indicated above.
44. Now we take up the appeal of the Revenue in ITA No.4563/Ahd/2007 for A.Y.2004-2005.
45. The ground no.1 of the Revenue's appeal reads as under:
"1. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in negating the exclusion of 90% of the insurance claim of Rs.2.74 lacs and the exchange fluctuation gain of Rs.84.95 lacs under clause (baa) of the Explanation below section 80HHC, without appreciating the import of residuary clause of "any other receipt of a similar nature" which excludes all those receipts which do not form part of turnover akin to export turnover, in order to avoid distortion in the working of profits derived from the export in the ratio of export turnover to total turnover, apportioning only the profit from the total domestic and export turnover."
46. The learned DR supported the assessment order, whereas the learned counsel for the assessee supported the order of the CIT(A). He also submitted that the first aspect of the matter regarding reduction of 90% of insurance claim, the matter may be restored back to the file of the AO for fresh decision after examining the nature of insurance claim as in A.Y.2002-2003, as per the ground no.4 of the Revenue's appeal in that year. Regarding the exchange fluctuation gain of Rs.84.95 lacs, it was -14- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) submitted that the details are available at page no.33 of the paper book, which includes the gain of Rs.82.45 lakhs on account of term loan and Rs.17.64 lakhs on account of swap charges, and it is not clear as to whether the swapping is of term or other business liability. Under these facts, the Bench wanted to know as to how the exchange fluctuation gain is eligible for deduction under Section 80HHC and in reply, the learned AR has placed reliance on the judgment of Hon'ble Gujarat High Court in the case of Amba Impex, as reported in 282 ITR 144.
47. We have considered rival submissions and have perused the material on record and gone through the orders of the authorities below. Regarding first aspect of the matter, i.e. regarding reduction of 90% of the insurance claim of Rs.2.74 lakhs, we set aside the order of the learned CIT(A) on this issue and restore the matter back to the file of the AO for fresh decision after examining the nature of insurance claim, as per the similar direction, as we have given in A.Y.2002-03 while deciding the ground no.4 of the Revenue's appeal in that year.
For the second aspect of the matter, i.e. regarding reduction of exchange fluctuation gain of Rs.84.95 lakhs, we find that the same is in respect of term loan, and therefore it is not a business profit, and hence not eligible for deduction under Section 80HHC. The reliance placed on the judgment of the Hon'ble Gujarat High Court by the learned counsel of the assessee is misplaced, because it is not applicable in the facts of the present case. This ground is allowed as above.
48. The ground no.2 is as under:
"2. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in negating the reduction of Rs.11,64,1267/- from the export turnover as well as total turnover in the computation of deduction u/s.80HHC, without appreciating that by honouring the debit notes issued by the customers or raising credit notes in their -15- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) favour for the short or defective supply, the assessee had admitted reduction in the export proc3eds, and since the amount did not constitute any expenditure, it was of the nature of sales turnover which is always reduced from the sale proceeds."
49. The learned DR supported the assessment order, whereas the learned counsel for the assessee submitted that this ground is misconceived because the learned CIT(A) has decided this issue against the assessee, and this very issue was raised by the assessee in its appeal as per ground no1(iii).
50. We have considered rival submissions. We find that contentions of the learned AR of the assessee is correct because this issue was decided by the CIT(A) against the assessee and the assessee has raised this issue as per ground no.1(iii) in its appeal. Hence, this ground of the Revenue is rejected as misconceived.
51. The ground no.3 of the Revenue is as under:
"3. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in allowing vi9llage development expenses of Rs.7,68,374/- without appreciating that these expenses were not incurred wholly and exclusively for the purposes of the business within the meaning of section 37(1) of the Act."
52. The learned DR supported the order of the AO, whereas the learned counsel for the assessee supported the order of the CIT(A). The learned counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for A.Y.2003-2004 in ITA No.4/Ahd/2007 dated 14.12.2012, a copy of which is available at page no.1 to 26 of the compilation of the decisions.
53. We have considered rival submissions. Respectfully following the decision of the Tribunal cited by the learned counsel for the assessee, supra, we decide the issue in favour of the assessee and ground raised by the Revenue is thus rejected.
-16-Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals)
54. The ground no.4 of the Revenue's appeal reads as under:
"4. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in allowing the contribution of rs.11,05,246/- to Refrigerrant Gas Manufacturer Association, without appreciating that the expenditure was not incurred wholly and exclusively for the purposes of the business within the meaning of section 3791) there being no direct nexus between the work of the association and the business of the assessee, and that the onus cast on the assessee in this regard as settled in the case laws mentioned above was not discharged."
55. The learned DR supported the assessment order, whereas the learned counsel for the assessee supported the order of the CIT(A), and he also submitted that this issue is also covered in favour of the assessee by the same decision of the Tribunal in assessee's own case for A.Y.2003-2004. Accordingly, this ground of the Revenue is also rejected by following the Tribunal order in A.Y.2003-2004.
56. The ground no.5 is as under:
"5. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deducting to the extent of Rs.59,92,369/- out the disallowance of Rs.69,05,3689/- towards interest expenses u/s.14A, which was incurred in relation to exempted income of dividend and tax free interest, without taking note of the landmark decision in the case of CIT(A) Vs. Abhishek Industries Ltd., 286 ITR 01 (P&H laying down that, in view of section 106 of the Indian Evidence Act, the facts being in the special knowledge of the assessee, it was upto him to adduce evidence that all the borrowings were sued for the purposes of business and it is assessee's own surplus funds that were invested in the shares and deposits earning exempted income and, even in case of mixed funds, the disallowance of interest could be made."
57. The learned DR supported the assessment order, whereas the learned counsel for the assessee supported the order of the CIT(A), and he also submitted that this issue is inter-connected with the ground no.2 of the assessee's appeal for the same year. While deciding that ground of the -17- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) appeal of the assessee, we have restored back the issue to the file of the AO for fresh decision after examining the balance sheet of the assessee and finding out as to whether own funds are more than the investment, because the balance sheet is not available on record. Hence, the order of the CIT(A) on this issue also is set aside, and the matter is restored to the file of the AO for fresh decision along with the issue set aside by us, while deciding the ground no.2 of the assessee's appeal. This ground of the appeal of the Revenue is allowed for statistical purpose.
58. The ground no.6 of the Revenue's appeal is as under:
"6. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the disallowance of Rs.4,52,336/- being alleged loss due to fluctuation in the rate of foreign exchange on the basis of the rates on the date of balance sheet, despite the same being purely notional and hence contingent in view of there being no payment made/received, and the allowance was in contravention of the ratio laid down by the jurisdictional High Court in the case of CIT Vs. S.G.Chemicals and Pharmaceuticals Ltd., 258 ITR 109 (Guj) and Synbiotics Ltd. Vs. CIT, 259 ITR 122 (Guj)."
59. The learned DR supported the assessment order, whereas the learned counsel for the assessee supported the order of the CIT(A). He also placed reliance on the judgment of the Hon'ble Apex Court in the case of Commissioner of Income-tax Vs Woodward Governor India P. Ltd., 312 ITR 254.
60. We have considered rival submissions and perused the judgment of the Hon'ble Apex Court cited by the learned counsel of the assessee supra. This issue is squarely covered by the judgment of the Hon'ble Apex Court. We find no reason to interfere in the order of the CIT(A) on this issue, and therefore this ground of the Revenue is rejected.
61. The ground no.7 reads as under:
-18-Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) "On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in allowing deduction u/s.36(1)(vii) for sundry balances of Rs.1,12,300/- written off, without appreciating that the relevant advances had not been taken into account in computing the income of this year or any earlier previous year nor is the assessee in the business of banking or money lending as per mandate of section 36(2) of the Act."
62. The learned DR supported the order of the AO, whereas the learned counsel for the assessee supported the order of the CIT(A). He also submitted that this issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for A.Y.2001-2002 in CO No.266/Ahd/2004 dated 31.1.2001 and drawn our attention to para 4 to 7 at page no.29 to 31 of the compilation of the decisions.
63. We have considered rival submissions and gone through the orders of the Tribunal cited by the learned counsel for the assessee supra. We find that in that year, the issue was decided by the Tribunal on the basis that the balance written off, were taken into account while computing the profit of the assessee. In the present case, there is no findings of the authorities below on this aspect of the matter, and hence we set aside the order of the CIT(A) on this issue, and restore the matter back to the file of the AO for fresh decision, after examining this aspect of the matter, as to whether the amount written off were taken into account while computing the profit of the assessee. Thereafter, the AO should pass necessary order as per the law, after providing adequate opportunity of hearing to the assessee. This ground of the appeal is allowed for statistical purposes.
64. The ground no.8 reads as under:
"8. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in allowing short term capital loss of Rs.2,04,29,807/- without appreciating that the transactions in respect of the units of mutual fund were resorted to solely as a design to manufacture losses while earning exempted dividend income and hence the loss so manufactured was not allowable as per -19- Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals) ratio settle by the Constitution Bench of the Supreme Court in the case of Mcdowell and Co. Vs. CTO, 154 ITR 148 171 (SC).
65. The learned DR supported the assessment order, whereas the learned counsel for the assessee supported the order of the CIT(A), and he has also placed reliance on the judgment rendered in the case of Commissioner of Income-tax Vs Walfort Share and Stock Brokers P. Ltd., as reported in 326 ITR 1.
66. We have considered rival submissions and also perused the material on record and gone through the orders of authorities below and the judgment cited by the learned AR of the assessee. We find that a clear finding is given by the learned CIT(A) that amendment in the provision of Section 94(7) are prospective and applicable from 1-4-2005, and therefore, the same is not applicable in the present year. Considering all these aspects of the case and legal provision, we do not find any reason to interfere with the order of the CIT(A) on this issue, and accordingly this ground of the Revenue is dismissed.
67. In the result, Revenue's appeal is partly allowed for statistical purpose in terms indicated above.
68. No we take up remaining one appeal of the Revenue for A.Y.2004- 2005 in respect of penalty proceedings i.e. ITA No.1108/Ahd/2009.
69. The only ground raised in the Revenue is as under:
"1(a) On the facts, in the circumstances of the case and law, the ld.CIT(A) erred in law and on facts in deleting penalty u/s.271(1)(c) amounting to Rs.8,15,000/- without considering the decision of the Hon'ble Supreme Court in the case of Dharmendra Textiles, 306 ITR 277 (SC), according to which, there is no onus upon the department to establish mens rea."-20-
Gujarat Fluorochemicals Ltd. Vs. ACIT (5 Appeals)
70. The learned DR supported the penalty order, whereas the learned counsel for the assessee supported the order of the CIT(A).
71. We have considered rival submissions and we find that the penalty in the present case was imposed in respect of disallowance under Section 36(1)(iii) and u/s.14A, which was reduced from Rs.69,05,369/- to Rs.9,13,000/- and one more addition of Rs.13,57,606/- for interest on income-tax refund. The penalty in respect of first disallowance of Rs.9,13,000/- is not leviable because all the material facts were furnished by the assessee, and therefore it cannot be said that there was any concealment of income or furnishing of inaccurate particulars of income, particularly when the disallowance was reduced substantially from Rs.69,05,369/- to Rs.9,13,000/-. Similarly, on account of addition in respect of interest on income-tax refund also, the penalty is not justified because this again is a debatable issue as to whether the interest on refund would be assessable in the year in which it is granted or in the year in which the proceedings under Section 143(3) attains finality. This being a debatable issue, the penalty is not justified for this addition also. Hence, we do not find any reason to interfere in the order of the CIT(A) and the appeal of the Revenue is dismissed.
72. In the combined result, the appeals of the assessee are partly allowed and the quantum appeals of the Revenue are partly allowed for statistical purpose. The penalty appeal of the Revenue is dismissed.
Order pronounced in Open Court on the date mentioned hereinabove.
Sd/- Sd/-
कुल भारत /KUL BHARAT)
(क (ए.के.गरोǑडया /A.K. GARODIA)
Ûयाियक सदःय /JUDICIAL MEMBER लेखा सदःय /ACCOUNTANT MEMBER
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