IN THE ITAT AMRITSAR BENCH
FIL Industries Ltd.
v.
Additional Commissioner of Income-tax
IT Appeal No. 415 (Asr.) of 2009
[Assessment year 2005-06]
June 27, 2012
ORDER
Per Bench – This appeal of the assessee arises from the order of the CIT(A), Bhatinda, dated 29.07.2009 for the assessment year 2005-06.
2. The assessee has raised following grounds of appeal:
“1. The learned CIT(A) has grossly erred both on facts and in law, in confirming the order of assessment dated 31.12.2007 framed by the Additional Commissioner of Income Tax, Range-3, Srinagar.
2. That in confirming the order of assessment, the Ld. CIT(A) has completely over-looked that the income computed by the AO of Rs. 8,13,84,066/- had been arbitrarily computed, when the deductions claimed u/s 80IB of the Act had been disallowed by misapplication of the statutory provisions as contained in section 80IB of the Act ( more particularly sub-section (2) of section 80IB ) as against an income returned by the assessee company of Rs. 79,95,090/-.
3. That, Ld. CIT(A) has failed to comprehend the factual substratum of the case and has further overlooked that, the ld. AO had erred in disallowing the claim of deduction made u/s 80IB(1) of the Act, of a sum of Rs. 7,01,56,903/- in respect of two separate and independent undertakings, set up by the assessee company, (which undertakings were separate and independent and could not regarded as those, which can be held to have been framed by splitting up on the reconstruction of the business already in existence, or had been formed by the transfer of a new business of machinery or plant used for any purpose). The denial of deduction, when there had been no violation or infringement of the statutory provisions of law was highly arbitrary, rendering the order of the assessment as unsustainable in law.
3.1 That, Ld. CIT(A) has failed to comprehend that the two undertakings ( in respect of which the deduction u/s 80IB had been claimed) though were situated on the same plot of land, (where its old undertaking I, was situated), yet were independent and had been set up with the new plant and machinery, in the years 1999 and 2003. Further, the undertaking set up in the year 2003 was also involved in the manufacture of spray oils, besides pesticides, which was not being manufactured and produced by the undertaking set up in the year 1995, or even in the year 1999.
3.2 That, Ld. CIT(A) has failed to appreciate that the assessee had been allowed the deductions, in respect of the said two separate undertakings which had been set up in the yeas 1999 and 2003, in the preceding year(s) and there was thus absolutely no valid jurisdiction or basis to disallowed the claim of deduction on the factors and on the basis, which are wholly irrelevant for the purpose of claim and allowance of deduction u/s 80IB of the Income Tax Act.
3.3 That the purported factual findings recorded by the AO and Ld. CIT(A) in their respective orders are arbitrary besides being contrary to facts on record and were based on misconception of facts.
3.4 That both the Ld. CIT(A) and the A.O. have failed to appreciate that each undertaking was situated in separate and independent buildings despite the fact that the plot of land on which the said undertakings had been set up could be regarded as are:
3.5 That, Ld. CIT(A) has failed to appreciate that the assessee had maintained separate books of accounts and such books of accounts are maintained were sufficient to establish that the each of the three undertakings were separate and independent undertakings.
3.6 That, Ld. CIT(A) has failed to comprehend and appreciate that there is no requirement which provides that each separate undertakings to have separate Sales Tax Registration, separate Excise Registration, separate Power and Electricity Connection or even the separate manufacturing licence number etc., as were the sole basis on which the claim of deduction made u/s 80IB of the Act was not granted by the AO. That the fact the assessee company could not in law ever obtained such registrations as has been assumed by the Ld. A.O.
3.7 That, each of the findings recorded by the A.O. and confirmed by the CIT(A) have been reached without application of mind and the impugned order of CIT(A) has been passed by merely extracting the submissions of the assessee company, comments of the AO in the appellate order and that too, without analyzing either factual or legal position and as such, the disallowance sustained is highly arbitrary and without any valid basis.
3.8. That, Ld. CIT(A) has further erred in relying upon the comments of the AO ( not a remand report as stated in the order) which were based upon such of the material which had not been made the basis for making the assessment and the comments were based on the survey proceedings, which was in the nature of “fresh evidence” and/or material. In fact, the survey had been conducted subsequent to the assessment and the alleged evident gathered could not be made use in the appellate proceedings. As held by the Rajasthan High Court in the case of CIT v. Rao Raja Hanut Singh reported in 252 ITR 528 as such the purported and alleged evidence could not have been used by the ld. CIT(A). That in any case and without prejudice the alleged evidence was no evidence and no adverse inference could have been drawn on the purported evidence/material.
3.9. That the Ld. CIT(A) has erred in placing heavy reliance on the report of the handwriting expert appointed by the AO in preference to the report of handwriting expert by the assessee. He ought to have referred the difference to be resolved by third handwriting expert in any case, so as to conclude that the Auditors Report has not been preferred by Sh. K.S. Aggarwal.
4. That the order of the Ld. CIT(A) is a vitiated order in law, since it is made on non consideration of material evidence, as placed by the assessee and also by ignoring the detailed submissions made by the assessee company. On the contrary the findings have been reached as extraneous and inadmissible purported evidence.
5. That further, without prejudice the Ld. CIT(A) has further erred in sustaining the disallowance of the claim of deduction u/s 80IB of the Act of Rs. 3,10,11,113/- in respect of refund of excise duty.
5.1 That the Ld. CIT(A) has failed to appreciate that once the excise duty has not been included in total turnover, the refund of excise duty could not be included in the total income and as such, there was no justification not to have allowed the claim of the assessee, as made in respect of refund of Excise Duty.
6. That the Ld. CIT(A) has further erred in sustaining similarly the claim of deduction made u/s 80IB(IA) of the Act in respect of a sum of Rs. 11,58,611/- without any valid basis and/or jurisdiction.
7. That without prejudice to the aforesaid the Ld. CIT(A) has overtly relied upon the statement of Sh. Aditya Agarwal son of the Ld. CA Sh. K.S. Aggarwal of the assessee, in concluding that neither the accounts were audited nor any audit report was furnished. The said CA has been admittedly been auditing the books of accounts, since the assessment year 2000-01.
7.1 That without prejudice to the aforesaid the Ld. CIT(A) had not granted fair, valid & proper opportunity to the assessee to cross examine the ld. CA Sh,. K.S. Aggarwal, who had allegedly stated that he had not furnished any such audit report. In fact, the alleged denial made by him in his survey proceedings could not be used as evidence, against the assessee, since the said statement was not confronted to the assessee for its rebuttal in accordance with law.
8. That the Ld. CIT(A) has erred in sustaining the disallowance of expenditure incurred when he has failed to appreciate that, the aggregate expenditure incurred when he has failed to appreciate that, the aggregate expenditure of Rs.8,88,046/- was on account of Directors Foreign Travelling expenses, which expenditure had been incurred by the assessee in the course of his business and was thus allowable deduction. The findings that the assessee has failed to establish the purpose of visit and that it had not been incurred for the purpose of business, is entirely misconceived and is incorrect and has arbitrarily been made.
8.1 That the ld. CIT(A) has failed to appreciate that the disallowance made was pre-mediated as no opportunity whatsoever was granted to the assessee company before making the disallowance.
9. That the ld. CIT(A) has erred, in holding that the claim of depreciation aggregating to Rs.11,43,293/- was excessively made. He has failed to appreciate that the AO had unilaterally held the ‘plant’ as ‘building’ and before so concluding the AO had provided no opportunity whatsoever that the alleged building was plant and as such the findings there was an excessive claim made was based on arbitrary findings, which are unsustainable in law.
10. That the Ld. CIT(A) has further erred in sustaining the addition of Rs. 42,123/- which sum had actually been paid by the assessee towards employee’s contribution to Provident fund, within the time i.e. before furnishing the return of income and as such, such an amount was allowable deduction and could not have been treated as income u/s 2(24)(x), read with section 36(1)(va) of the Act.
11. That the ld. CIT(A) has further erred in confirming the levy of interest charged u/s 234B of the Act, which was not leviable.
It is therefore prayed that it be held that the order of assessment had arbitrarily been made and was totally unjustified, untenable and had been made without following the settled principles of natural justice and the well settled legal principles, in respect of deduction allowable u/s 80IB of the Act and the ld. CIT(A) has further erred without giving specific findings in sustaining the disallowances and confirming the assessment and that too, in respect of an assessment which had not been made not in accordance with law.
It is, therefore, prayed that the appeal of the assessee be allowed and it is held that the income returned by the assessee deserved to be accepted as such.”
3. At the outset, the Ld. counsel for the assessee, Sh. C.S. Aggarwal, Advocate, raised an additional ground being a legal ground for consideration of admission by the Bench, in view of the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd v. CIT reported in 229 ITR 383. The additional ground raised by the ld. Counsel, Sh. C.S. Aggarwal, Advocate, on behalf of the assessee is as under:
“That the learned Assessing Officer has erred both in law and, on facts in not setting off the loss of Rs. 5,33,53,582/- of the 100% Export Oriented Undertaking at Srinagar while determining the total income of the assessee company at Rs. 8,13,84,067/- in the order of assessment u/s 143(3) of the Act dated 31.12.2007.”
3.1 It was argued by the ld. counsel for the assessee, Sh,. C.S. Aggarwal that loss incurred of Rs. 5,33,53,582/- by the 100% Export Oriented Undertaking at Srinagar is eligible to be set off while determining the total income of the assessee-company. The ground being purely legal in nature and therefore, should be admitted at the stage of the proceedings itself, in view of the judgments in the case of National Thermal Power Co. Ltd. v. CIT reported in 229 ITR 383 (SC) and CIT v. Varas International (P) Ltd. reported in 284 ITR 80 (SC), stated hereinabove.
3.2 In brief, the facts submitted by the Ld. counsel for the assessee that the assessee had furnished Income-tax return alongwitth audited annual accounts and Profit & Loss account. The profit as per P & L account was Rs. 7,74,23,146/- whereas while computing the income for the Income-tax purposes, the assessee computed its income from Net profit as per profit & loss account on the basis of Net profit at Rs. 9,87,68,564/- and there was a difference of Rs. 2,13,45,418/-. The said sum was demonstrated by the ld. counsel from the paper book filed by the assessee that includes Rs. 1,30,43,418/- being the loss from 100% exported oriented unit and balance of Rs. 83,21,960/- from Meat Export division. The said Rs. 1,30,43,418 was not claimed by the assessee. It was argued that instead of Rs. 1,30,43,458/-, the loss which was to be allowed was Rs. 5,33,53,582/-being the difference in the rates of depreciation as per Income-tax Act and Companies Act. The set off of loss of Rs. 1,30,43,458/- was not claimed by the assessee for the reason that income of the assessee was exempt. It was argued by the ld. counsel for the assessee, Mr. C.S. Aggarwal, Advocate that the claim made by the assessee is supported by the decision of ITAT, Mumbai Bench in the case of Navin Bhart Industries Ltd. v. DCIT reported in 90 ITD 1 and in the case of CIT v. Galaxy Surfactants Ltd. 69 DTR 42 (ND). The Ld. counsel for the assessee argued that all the facts in the present claim were on record before both the authorities below. It was argued by the ld. counsel that as per Circular of CBDT dated 11.04.1955, the correct income has to be computed. The Ld. counsel for the assessee relied upon the decision in the case of Income Tax Officer v. Ch. Atchaiah (SC) reported in 218 ITR 239.
4. On the other hand, Mr. Girish Dave, the Ld. counsel appearing for the Revenue submitted that the return of income was filed on 21st March, 2006 and is a belated return. These facts were not brought to the notice of AO and the Ld. CIT(A) and therefore, any of the authorities below cannot allow the claim. It was argued by Mr. Girish Dave, the ld. counsel for the Revenue that this claim has been raised for the first time before this Bench and therefore if admitted the matter should go back to the file of the AO. Merely making statement, additional evidence cannot be admitted and if it is a revised claim then Revenue’s claim is covered by the decision of Hon’ble Supreme Court in the case of Gotez (India) Ltd. reported in 284 ITR 323 and the assessee was required to file the revised return, which has not been filed by the assessee.
5. We have heard both the parties at length and perused the facts of the case. We are of the view that ground raised by the ld. counsel for the assessee, Mr. C.S. Aggarwal, Advocate, on behalf of the assessee is a legal ground in view of the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra), wherein it has been held that where the facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. In view of the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra), we admit the additional ground. Raised by the assessee.
6. Ground No.1 is general in nature and therefore, does not require any adjudication.
7. As regards ground Nos. 2, 3, 3.1 to 3.9, 4,7 and 7.1, the brief facts are that the assessee filed its return of income on 21.03.2006 declaring total income of Rs. 79,95,090/-. The assessee has claimed to be engaged in the business of manufacturing of Pesticides and Agro Products at its three units which are based at Jammu. The assessee has claimed deduction u/s 80IB of the Act from its three units engaged in the above activity as under:
