TMI Blog2008 (7) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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] respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isplaced - 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 - Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The ground Nos. 1(a) to 1(d) in the memo of appeal relate to the action of the CIT(A) in sustaining the denial of deduction under s. 80-IB of the Act to the assessee. The factual position in this regard is discussed by the AO in paras 10 and 11 of the order. The AO observed that the assessee has two units. In Unit I it was manufacturing '2 pole electric motor' and electric fans while it manufactured '4 pole electric motor' inlet and outlet valves in Unit II. On being asked to justify the claim of deduction under s. 80-IB of the Act in relation to the profits and gains of Unit II, the assessee filed the relevant details and also submitted that the claim of the assessee under s. 80-IB was discussed in the assessment proceedings of the earlier years and allowed as such. From the discussion made in the assessment order it appears that the AO conducted a verification exercise in this regard. The AO noticed that no separate books of account were maintained for the Unit II; that the partners of the both the units are same; that no separate wage/salary register has been maintained for Unit II; that no separate power connection was obtained for Unit II; that the job wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim have been reiterated before us on the same lines as noticed by us earlier in para 4 above. 8. We have carefully examined the rival stands with regard to the claim of the assessee firm for relief under s. 80-IB of the Act in relation to Unit II. Sec. 80-IB governs deduction in respect of profits and gains from certain industrial undertakings for such number of assessment years as specified in the section. Sub-s. (2) deals with the conditions which are required to be fulfilled by an industrial undertaking in order to be eligible for the relief. The assessee initially claimed deduction under s. 80-IB for the impugned unit in the asst. yr. 2001-02 and the same was allowed. In this assessment year the claim of the assessee was in continuation of the claims made in the earlier assessment years for the impugned assessment year falls within the number of assessment years as specified in the section in which the claim is eligible. The Revenue has sought to deny the claim in this year on the ground that the Unit II does not fulfil the conditions specified in the section. It is also a pertinent fact position that the claim allowed to the assessee in the initial assessment year of 2001- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for deduction under s. 80-IB in relation to the profits and gains of Unit II. Accordingly, on this ground the assessee succeeds. 9. The ground Nos. 2(a) to 2(d) in the memo of appeal relate to the action of the CIT(A) in sustaining an addition of ₹ 14,75,940 made by the AO on account of trading results. In brief, the dispute relates to the action of the AO in invoking the provisions of s. 145 of the Act to reject the trading results declared in the books of account maintained by the assessee. The reasons stated by the AO to reject the book results are as follows. The AO noticed that the 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 asst. yrs. of 2002-03 and 2001-02 respectively. The explanation furnished by the assessee with regard to the decline in the GP rate has not been accepted by the AO. Secondly, the AO noticed that the assessee had made payments by way of job charges to M/s Micro Motion (P) Ltd., a sister concern and such payments have not been duly reported in the audit report annexed with the return of income. Further, the AO found no justification for incurring of such expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entirely dependent on the power supplied by its own generator. The prices of diesel had increased in the year under consideration. The learned counsel further drew our attention to p. 118 of the paper book wherein is placed an analysis of all these factors on the GP rate, which shows that the aforesaid factors had affected the GP rate by as much as 7 per cent. Thus, the decline in the GP rate by mere 5.54 per cent in comparison to the immediate preceding year was quite justified. Even with regard to the job work charges paid to M/s Micro Motion (P) Ltd., it was submitted that the expenditure was incurred as in the past years for the work actually undertaken for the assessee. The learned counsel contended that the AO was wrong in observing that the job charges were unverifiable for the reason that the payee concern was also filing its return of income regularly. In this connection, the written submissions made to the AO have been referred to. In fact, the learned counsel pointed out that the payee concern was also being assessed with the same AO. It was pointed out that the said concern had duly accounted for the income earned from the assessee and there is no dispute on this aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of examination by the excise authorities with no adverse findings, Further, the assessee explained the increase in expenses this year in comparison to the earlier years. In fact, we find that the AO himself has admitted that the purchase price of the raw materials has risen during the year under consideration. We, therefore, on the basis of the material on record are satisfied with the explanation rendered by the assessee with regard to the fall in GP rate (which) is plausible and could not be a ground to reject the books of account. Similarly, non-reporting of transactions with a concern covered under s. 40A(2)(b), at best, can be attributed to the auditors of the assessee and cannot be a ground to reject the reliability of the account books. Further, with regard to the incurring of job work payments to the sister concern, we find that the assessee had explained the reasons for making the payment. It has been explained that earlier the job work was being got done from outside parties and in view of the secrecy and confidentiality of the manufacturing process, the same was now being undertaken from the sister concern. it is submitted that no unreasonable expenditure has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he approval of the CIT(A) also. Against the aforesaid, the assessee is in appeal before us. 15. Before us, learned representative for the assessee vehemently argued that the impugned expenditure was incurred in connection with the existing business of the assessee. In fact, it was pointed out that in the next year, there has been substantial export sales and the export sales have been rendered in relation to the countries which have been visited by the two partners during the year under consideration. Notwithstanding the factum of the export sales having matured in the succeeding year, the learned representative pointed out that the expenditure was allowable during the year under consideration itself for the purpose of expenditure has not been doubted by the AO. Sec. 35D is not at all attracted to the facts of the present case as according to the learned representative, there is no commencement or extension of existing business as is required for invoking s. 35D of the Act. 16. On the other hand, learned Departmental Representative has defended the orders of the lower authorities in support of the case of the Revenue. 17. We have considered the rival submissions carefully. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent on the amount of advances shown as free of interest. 20. The assessee contested this addition before the CIT(A). According to the assessee, all the amounts in question relate to routine trade advances and there was no element of loans or advances per se. The CIT(A) has, however dismissed the submissions of the assessee on the basis of the reasoning made out by the AO. 21. Before us, the learned counsel has reiterated the submissions as made before the lower authorities. It was submitted that the amounts in question were given in the earlier years and the same have also been received back and thus, there was no justification for making notional disallowance on account of interest. 22. On the other hand, the learned Departmental Representative has pointed out that the CIT(A) has sustained the disallowance on the ground that the assessee has not furnished details of business transactions with the parties in question. Therefore, the disallowance was justified. 23. Having considered the rival submissions, we find that the plea of the assessee that the advances have been made for business purpose is not established on facts. Further, the CIT(A) has also arrived at the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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