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TMI Blog2008 (7) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, the AO has inter alia denied the claim of deduction under s. 80-IB, rejected the trading results, made disallowances out of depreciation, expenses on foreign travel, interest, car running and telephone, etc. All the additions made were challenged in appeal before the CIT(A) unsuccessfully. The CIT(A) has dismissed the appeal of the assessee and the order of the AO has been sustained. Against such order of the CIT(A), the assessee is in appeal before us. 3. In the said background, we have heard the submissions of the rival counsel with respect to each of issues raised in appeal and perused the record to which our attention has been drawn in the course of the hearing. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Bom); (iv) Russell Properties (P) Ltd. vs. A. Chowdhury, Addl. CIT (1977) 109 ITR 229 (Cal); (v) K.N. Agarwal vs. CIT (1991) 100 CTR (All) 170: (1991) 189 ITR 769(All). 6. Apart from the aforesaid, the learned representative has relied upon the submissions made before the CIT(A) with regard to the claim of deduction under s. 80-IB to the effect that the same is otherwise also allowable to the assessee as it fulfils all the conditions prescribed in the said section. 7. On the other hand, the learned Departmental Representative has primarily relied upon the orders of the lower authorities in support of the case of the Revenue. The reasons to deny the claim 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 eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture 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. (supra) and Paul Brothers (supra) 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 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 Rs. 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced copies of the invoices raised on few customers showing the decline in sale prices this year in comparison to the sales in the preceding years. Our reference has been invited to pp. 74 to 117 in this regard. Secondly, it is submitted that expenses have also risen in the year under consideration and this aspect has been admitted by the AO himself in para 3.2 of the order. The learned counsel explained the increase in generator expenses also. It was explained that the manufacturing process of the assessee required uninterrupted regulated electric power supply and therefore the assessee had not availed of any regular power connection but was 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 Motio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection, we find that none of the objections brought out by the AO is strong enough to negate the book results declared by the assessee. Firstly, with regard to the fall in GP rate, we find that the assessee had furnished a detailed explanation. The assessee had explained the decrease in sale price as also its reasons. The reasons were also substantiated on the basis of the sales bills of the respective years showing fall in prices of finished products of the assessee. In fact, in its written communication to the AO placed at pp. 43 to 45 of the paper book, the assessee also pointed out that the fall in sale price was also a subject-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble and therefore, it could be said that there was no export business during the year under consideration and he, therefore, held that the impugned expenditure is liable to be considered as a preliminary expenditure covered within the meaning of s. 35D of the Act in five yearly instalments in subsequent years when the export business of the assessee would commence. He, therefore, disallowed the foreign travel expenditure of Rs. 3,44,919 and observed that deduction of such expenditure will be allowed under s. 35D in five instalments in subsequent years when there will be export turnover. This action of the AO has met with the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 18. In the result, on this ground, the assessee succeeds for statistical purposes. 19. By way of ground No. 4 in the memo of appeal, the assessee has challenged an addition of Rs. 16,790. The AO noticed that in relation to four concerns, certain amounts were outstanding on which no interest was charged whereas the assessee was incurring interest expenditure on loans raised. On being asked to justify the interest-free advances, the AO was not satisfied with the reply filed by the assessee. He, therefore restricted the allowance of interest on loans by a sum of Rs. 16,790 representing interest @ 12 per 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; 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. 28. Accordingly, the assessee succeeds on ground No.5. 29. By way of ground No. 6, the grievance of the assessee is on account of disallowance on telephone expenses @ 1/6th amounting to Rs. 47,948. The only plea taken before us is that the disallowance is on the higher side. 30. After considering the rival submissions, we find no justification to interfere with the disallowance made by the AO. The assessee fails on this ground. 31. By way of ground No. 7, the grievance is with regard to the allowing of depreciation of vehicle @ 20 per cent instead of 25 per cent. 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 res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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