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2008 (7) TMI 981 - ITAT CHANDIGARHDenial of deduction u/s 80-IB - Two units - Sustaining addition on trading results - Disallowance on foreign travel expenditure - Disallowance of 1/6th of the total expenses - incurred for car running and maintenance - Allowance of depreciation of vehicle @ 20 per cent instead of 25 per cent. Denial of deduction u/s 80-IB - Two units - manufacturing 'pole electric motor' and electric fans - profits and gains of Unit II - the claim allowed to the assessee in the initial assessment year of 2001-02 and thereafter in the asst. yr. 2002-03 has not been withdrawn - It was submitted that once the relief under s. 80-IB has been allowed to the assessee in the initial year, then it is not open for the AO to examine such question again and decide to deny the relief, especially in a situation whereby the relief allowed in the initial year is not disturbed - HELD THAT:- In the assessment order, we do not find any discussion by the AO on this aspect in spite of the fact that the appellant assessee had taken a specific position based on the relief allowed in the past. Further, the claim accepted by the AO in the asst. yr. 2001-02 and thereafter in 2002-03 has not been disturbed. Clearly, in a such a situation, the onus which was on the Revenue has not been discharged. We are conscious of the legal position that insofar as the justification for the claims of exemption/tax reliefs are concerned the onus is on the assessee to establish and justify the claims. So, however, in a situation like the present situation what we are trying to say is that the AO ought to have justified his departure from the earlier accepted position whereby similar claim has been accepted in the past - It is in this background that we are of the opinion that the onus was on the AO to justify the denial of deduction under s. 80-IB in view of the past history. In our considered opinion the erroneous approach of the lower authorities in this regard stands clearly manifested in view of the judgments of the Hon'ble High Courts of Gujarat and Bombay in Saurashtra Cement & Chemical Industries Ltd.[1979 (2) TMI 21 - GUJARAT HIGH COURT] and Paul Brothers [1992 (10) TMI 5 - BOMBAY HIGH COURT] respectively. Therefore, in this background we find no justification to uphold the stand of the IT authorities to deny the claim of the assessee for deduction u/s. 80-IB in relation to the profits and gains of Unit II. Accordingly, on this ground the assessee succeeds. Sustaining addition on trading results - rejection of trading results on the ground that GP rate in the present year had declined to 28.5 per cent as against 34.04 per cent and 33.28 per cent in the preceding AY's of 2002-03 and 2001-02 respectively - rejection also on the ground that payments by way of job charges to sister concern have not been duly reported in the audit report annexed with the return of income, also no justification for incurring of such expenditure - HELD THAT:- We find that none of the objections brought out by the AO is strong enough to negate the book results declared by the assessee - We find that there is no negation to the fact position that the work has indeed been undertaken for the assessee by the sister concern M/s Micro Instruments (P) Ltd. The assessee has explained even before the lower authorities the circumstances in which the payments have been made. There is nothing unreasonable in this regard. In any case, even for applying the provisions of s. 40A(2)(b), it is for the AO to make out a case that the expenditure incurred is excessive or unreasonable having regard to the fair market value of such services. No effort in this regard has been made by the AO. Therefore, considering the aforesaid we do not find any justification for the AO to invoke the provisions of s. 145(3) of the Act and reject the reliability of the account books maintained by the assessee. Thus, the addition made by computing the gross profit on estimate basis is hereby set aside. Accordingly, the assessee succeeds on this ground. Disallowance on foreign travel expenditure - assessee could not justify such expenditure - HELD THAT:- Merely because the export sales were not substantial during the year under consideration, the same would not lead to an inference that there was no export business. In any case, starting of export sales by itself does not denote start of a new business. Making of export sales, especially of the same product, which is being sold in domestic market, does not entail starting of new business. Therefore, the very basis weighing with the AO to invoke s. 35D is misplaced - Hence, we find no justification to sustain the impugned disallowance. However, because he invoked s. 35D of the Act, no disallowance was made on account of non-business purpose. The CIT(A) has also upheld the disallowance because of s. 35D of the Act. We, therefore, deem it fit and proper to remand this issue to the file of the AO to examine the business purpose and thereafter decide the issue afresh - In the result, on this ground, the assessee succeeds for statistical purposes. Disallowance of 1/6th of the total expenses - incurred for car running and maintenance - HELD THAT:- We find that the disallowance made by the AO is quite misdirected. Firstly, we find from a copy of the ledger account that the 1/6th of the total expenditure on running of the car has been transferred to the partners' personal accounts as 'drawings'. Therefore, the element relating to the personal use of the vehicle has already been excluded by the assessee suo motu. In fact, the quantum of exclusion is similar to the quantum of disallowance made by the AO. Considering this aspect, we find no justification for making the impugned disallowance. The same is hereby deleted - Accordingly, the assessee succeeds on ground. Allowance of depreciation of vehicle @ 20 per cent instead of 25 per cent - HELD THAT:- On this issue the claim of the assessee is that the depreciation claimed is on trucks on which rate of 25 per cent is in order whereas the AO erroneously has allowed depreciation @ 20 per cent. On this aspect, we set aside the order of the CIT(A) and restore the issue to the file of the AO who shall verify the claim of the assessee and thereafter allow depreciation at the prescribed rates in accordance with law. Thus, on this ground, assessee succeeds for statistical purpose. In the result, appeal of the assessee is partly allowed.
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