TMI Blog2006 (12) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer whatever evidence was available with it, which in our opinion was sufficient to reasonably discharge primary onus cast on the assessee in terms of section 68. It was for the Assessing Officer to rebut the same on the basis of available record, instead the Assessing Officer had merely picked up non-filing of confirmations as a tool to discard other material and explanations of the assessee. Rejection of the explanations of the assessee is not based on objective considerations but by way of summary rejection. In our view, the assessee having given reasonable and plausible explanations, which have not been found to be wrong or unsatisfactory on any objective consideration, we hold that cash credit in question cannot be added as unexplained cash credit u/s 68 of the Act. Accordingly, this ground of the assessee is allowed. Deduction of expenses on research and development u/s 35(2AB) - HELD THAT:- A plain reading of Section 35(2AB) clearly manifests that the assessee has to develop facility which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 68 of the Income-tax Act, 1961 in respect of deposits obtained by the company from its employees/depositors. 2. The learned Commissioner of Income-tax (Appeals) has erred in not making any direction in his order with respect to sales-tax of Rs. 70,78,961 and excise duty of Rs. 2,34,124 aggregating to Rs. 73,13,085 for the exclusion of these amounts from indirect cost for computation of profits from trading exports under section 80HHC. 2. Brief facts of the case regarding ground No. 1 are during the year in question, the assessee received fixed deposits from more than 70 individuals majority of whom were employees of the assessee-company, aggregating to Rs. 47,83,000. It shall be pertinent here to mention that all fixed deposits applications were made by the depositors with the company for making the said FDRs. These applications, in addition to other particulars, inter alia, contained signatures, PA numbers of the Assessing Officer, telephone numbers of the depositors. In the course of assessment proceedings, in addition to the applications, the Assessing Officer asked the assessee to produce confirmations of depositors. The assessee produced these confirmations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng statements which do not throw light on the creditworthiness of the creditor and genuineness of the transaction. No doubt the deposits in question are received by cheque and repayments are also made by cheque and further that the applications made by the depositors contain address, telephone number and PA number of whoever assessed to tax but these facts alone do not prove the genuineness of the transaction and creditworthiness of the depositors. Therefore, since the appellantcompany failed to discharge its onus by furnishing evidence to prove all the three requirements i.e. identity, creditworthiness and genuineness of the transaction, the action of the Assessing Officer in considering the deposits of Rs. 20,19,000 as unexplained is therefore, considered justified and calls for no interference. The addition is therefore sustained. 3. Learned counsel for the assessee contended that neither the Assessing Officer nor the Commissioner of Income-tax (Appeals) have denied the fact that depositors in question were employees of the assessee. The Commissioner of Income-tax (Appeals) has clearly observed that the assessee furnished copies of applications made by these depositors and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee had given the names and addresses of the alleged creditors and it was in the knowledge of the Revenue that the said creditors were income-tax assessees, if the Revenue did not make any effort to pursue the so-called alleged creditors the assessee could not do anything further and the assessee had discharged the burden that lay on the assessee. It was for the Revenue to examine the source of income of the alleged creditors to find out their creditworthiness. 4. Learned counsel for the assessee contended that in business reality sometimes it is not possible for the assessee to produce parties as some shift residence, may go abroad leaving no whereabouts, which does not mean that these facts alone will be preferred over other materials available on record and addition under section 68 can be made. Further reliance was placed on the decision of the hon ble Supreme Court in the case of CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78, which has been relied on by the hon ble Gujarat High Court. Further reliance was placed on the decision of the hon ble Gujarat High Court in the case of Deputy CIT v. Rohini Builders [2002] 256 ITR 360 wherein following has been held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid/credited to the creditors, the Tribunal held that the Departmental authorities were not justified in making the addition of Rs. 12,85,000. On appeal to the High Court. 5. It was contended that satisfactoriness of the assessee s explanations has to be objectively considered, keeping in view handicaps of the assessee and other relevant circumstances. The assessee cannot be asked to give infallible evidence which is out of its reach and same cannot be used as a tool to make such credit as income of the assessee. Further reliance was placed on Nemi Chand Kothari v. CIT [2003] 264 ITR 254 (Gauhati) for the proposition that the assessee having established identity of creditor and amounts having been received by way of cheques, the assessee must be considered to have proved that creditor had creditworthiness. 6. Learned counsel for the assessee contended that applications submitted by depositors were themselves de facto confirmations, inasmuch as, they contained all details about identity, addresses, signatures, PA numbers, ward numbers, telephone numbers, besides, intention to make deposits was clearly written, accepting terms and conditions of FDRs. With these admitted facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticulars i.e., name, address, signature, telephone numbers, PA number, ward office etc. This is also an admitted fact that the amounts have been received by way of cheques and the amounts have been repaid by way of cheques. During the course of assessment, the assessee in respect of majority of deposits filed confirmations and in respect of others intimated that it was not possible to get confirmations on account of their having left services and migrated. The lower authorities have accepted facts that the depositors were ex-employees of the assessee. Section 68 reads as under : 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. 9. Such credits are to be charged to income-tax as income only where the assessee offers no explanations about the nature and source thereof or the explanations offered by him are not satisfactory. In this case the assessee has furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rthiness is not of infallible nature, what is contemplated is that the assessee should be able to prima facie show that depositors had reasonable capacity. Answer to this moot question lies in the admitted fact that depositors were ex-employees of the assessee some of whom have received compensations and in addition were receiving salaries. In the peculiar facts and circumstances of the given case, we are of the view that the Assessing Officer has rigidly stuck to the issue of confirmations to overshadow all other material available on record which has not been considered at all. The assessee had furnished before the Assessing Officer whatever evidence was available with it, which in our opinion was sufficient to reasonably discharge primary onus cast on the assessee in terms of section 68. It was for the Assessing Officer to rebut the same on the basis of available record, instead the Assessing Officer had merely picked up non-filing of confirmations as a tool to discard other material and explanations of the assessee. Rejection of the explanations of the assessee is not based on objective considerations but by way of summary rejection. In our view, the assessee having given reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Commissioner of Income-tax (Appeals) has erred in not making any direction in his order with respect to sales-tax of Rs. 58,32,902 and excise duty of Rs. 26,27,784 aggregating to Rs. 84,60,686 for the exclusion of these amounts from indirect cost for computation of profits from trading exports under section 80HHC. 15. Brief facts regarding ground No. 1 are the assessee is a company in the business of manufacture of pharmaceutical products and in research and development ( R D ) of variety of products. For R D the company has following objectives : (a) To develop clinical nutrition products i.e. intravenous amino acid solution (celemin), intravenous fat emulsion (celepid), total nutrient supplement etc. (b) To develop anesthetic products like propofol (profol). (c) To develop novel drug deliveries of anti-infective agents. (d) To develop synthesis methods for plasma volume expanders i.e. hydroxy ethyl starch (hestar), dextran (microspan) etc. (e) To conceptualise, initiate and nurture basic research programmes, contribute to the knowledge and understanding of medical science which will yield long-term benefits to the organization. 16. For these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cility. The assessee having done and applied for the same and within a period of about six months, DSIR had approved the same. Approval of the facility presupposes creation of facility i.e. incurring of the expenditure for establishing the same. It was further contended that section nowhere states that the expenditure incurred after the date of approval only shall be allowed as deduction, rather it postulates any expenditure on in-house development of facility is to be allowed as deduction. The Commissioner of Income-tax (Appeals), however, merely referred to observations of the Assessing Officer and upheld his action. Aggrieved the assessee is before us. 18. Learned counsel for the assessee first of all read out sub-section (1) of section 35(2AB) which is reproduced above and contends as under: (i) Nowhere the provisions provide that expenditure from the date of approval only has to be allowed. In the absence of these words, such conditions cannot be imputed in the statute by the lower authorities. Doing so amounts to reading more in the law which is not expressly provided. (ii) Words used are any expenditure incurred by the assessee on scientific research on the in-hou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a development facility shall be in existence, which in turn presupposes that the assessee must have incurred expenditure in this behalf. If we accept interpretation of the lower authorities, it creates absurdity in this provision, inasmuch as, words which are not provided in the statute are to be read in, which is against settled proposition of law with regard to plain and simple meaning of provision. Therefore, a plain reading cannot be given away and an interpretation cannot be assumed so as to provide a cut-off date for eligibility of weighted deduction of expenditure, which is not provided by the law. Further rule 6(5A) provides as under : (5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3CM : Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application. 22. Form No. 3CM which is order of approval reads as under : Form No. 3CM Order of approval of in-house research and development facility under section 35(2AB) of the Income-tax Act, 1961 1. Name, ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessment year 2000-01 as the same has not been decided, which has been set aside back to the file of the Commissioner of Income-tax (Appeals) to decide the same in accordance with law. For the same reasons, we also set aside this issue back to the file of the Commissioner of Income-tax (Appeals) with similar directions. 26. So far as ground No. 3 is concerned, we find that this ground has not been adjudicated by the Commissioner of Income-tax (Appeals), though, specifically raised as ground No. 4(iv) in grounds of appeal before the Commissioner of Income-tax (Appeals). We, therefore, set aside this issue also back to the file of the Commissioner of Income-tax (Appeals) to decide the same on merits. 27. In the result, the assessee s appeal is partly allowed for statistical purpose. I. T. A. No. 563/Ahd/2005 (Revenue s appeal) 28. Following grounds are raised : 1. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in directing to delete the additions made on account of interest payment of Rs. 4,68,573. 2. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in directing to treat the DEPB incentive un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round No. 3 is covered in favour of the assessee in view of the decision in the case of IFB Agro Industries Ltd. v. Deputy CIT [2003] 261 ITR (AT) 17 (Cal) [SB] wherein it is held that for calculation of deduction under section 80HHC excise duty and sales-tax are to be excluded from turnover. In view thereof, we dismiss this ground of the Revenue. 36. In the result, the Revenue s appeal for the assessment year 2000-01 is partly allowed for statistical purpose. I. T. A. No. 564/Ahd/2005 (Revenue s appeal) 37. Following grounds are raised : 1. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in directing to delete the additions made on account of interest payment of Rs. 10,82,347. 2. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in directing to treat the DEPB incentive under section 28(iib) and allow deduction under section 80HHC. 3. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in directing to exclude the excise duty and sales-tax from total turnover for deduction under section 80HHC of the Act. 38. The learned Departmental representative relied on the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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