9911796707
TMI Blog2023 (5) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... essed under section 143(1) of the Income Tax Act, 1961 (the "Act") and the case was picked up for scrutiny. Notices under section 143(2) and 142(1) along with detailed questionnaire were issued and compliance were made. The Ld. Assessing Officer ("AO") completed the assessment under section 143(3) of the Act on 28.12.2006 on total income of Rs. 6,29,12,450/-including therein following additions/disallowances : (1) Trading addition profit from baddi unit - Rs. 25,60,525/- (2) Addition under section 40A(2)(a) - Rs.17,52,728/- (3) Addition on account of unexplained expenditure- Rs. 10,00,000/- (4) Expenses disallowed - Rs. 28,81,913/- (5) Disallowance out of R & D expenses - Rs. 40,62,606/- (6) Refund accrued out of excise duty paid - Rs. 42,81,469/- (7) Addition made on account of wastage - Rs. 13,43,584/- (8) Proportionate interest paid to bank and others disallowed- Rs. 48,99,034/- (9) Disallowance out of unsecured loans - Rs. 34,33,200/- (10) Disallowance out of sundry creditors - Rs. 1,02,56,704/- (11) Expenses not relating to business disallowed- Rs. 28,950/- (12) Sales tax penalty - Rs. 500/- (13) Undisclosed income from sale of 4th D magazines-Rs. 81, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case, the Ld. CIT(A) has erred in allowing the relief of Rs. 13,43,584/-on account of wastage out of manufacturing activities, and the raw material consumed and other details of finished products were not produced for examination which were duly examined by the AO and the Ld. CIT(A) has erred in not appreciating the complete facts brought out by the AO in the assessment order. Point No. 8 Proportionate interest paid to Bank & others disallowed (Rs. 48.99.034/-) On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs. 48,99,034/-on interest bearing loan taken by the assessee from M/s North Eastern Development Finance Corporation Ltd. and was utilized by M/s OPL, a sister concern of the assessee without getting any interest, which was wrongly allowed as expenses. Point No. 9 Unsecured loans (Rs. 34,33,200/-) On the facts and circumstances of the case, the Ld. CIT(A) has erred in allowing the relief of Rs. 34,33,200/-on account of unsecured loans without appreciating the fact that the assessee failed to furnish details of unsecured loans viz., address, nature of loans taken, period, whether interest bearing or not, relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Books of accounts and excise records made available by the assessee. (e) Non furnishing of complete details regarding separate trading account and Profit and Loss account of Guwahati unit and Baddi Unit. (f) Non furnishing of complete details regarding month wise, item wise raw material purchased, raw material consumed and production made from Guwahati unit and Baddi unit. (g) Non furnishing of month wise expenses incurred at Guwahati unit and Baddi Unit. (h) Non furnishing of evidence of installation of new plant and machinery at Guwahati unit. (i) Non furnishing of evidence in support of power consumption and allocation of power to different units. Even the electricity bills were not produced for examination. (j) Comparative analysis of the raw material consumed found to be the same and only there is quantitative difference amongst the Baddi and Guwahati unit of raw material consumption. This may indicate that the production/manufacturing may still be carried on by Baddi Unit and profits diverted to Guwahati unit for the purpose of enjoying tax deductions and sales tax exemptions." 6. The Ld. DR relied upon the order of the Ld. AO whereas the Ld. AR filed writte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are lower as compared to expenses incurred at Baddi, and moreover Guwahati unit has new machines while Baddi unit has old machines. The machineries installed at Guwahati unit are more capable and high tech as compared to machineries installed at Baddi unit. 8.3 It was submitted that Guwahati unit and Baddi unit are different. Guwahati unit produced for local markets with automatic technology and Baddi unit is producing with semi automatic plants mainly for exports, and hence GP ratios are not comparable. The Hon'ble Tribunal in its order dated 27.02.2009 for AY 2003-04 held that rejection of books was not justified. Affidavits sworn by the advocate and by the CA deposing on oath that complete books of account was produced which were examined by the Ld. AO were also filed before the Ld. CIT(A). 8.4 The Ld. CIT(A) recorded his finding as under :- "4.41 I have carefully considered the facts relating to the issue and submissions made by the Counsel of the appellant. I have perused the assessment order, and the report of the A.O. I have also examined the various details submitted by the appellant which are placed in the paper books submitted before me. I have also considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales/purchases and expenses have been shown in the profit and loss account and trading account. - Nothing adverse has been brought on record by the A.O. v) In spite of several opportunities, failed to produce complete books of accounts at three different occasions (a) during the initial assessment proceedings before invoking the provisions of special audit (b) before the special auditor (as distinguishably established by the special auditors) and (c) before the assessing officer who passed the assessment order u/s 143(3). - It is seen from the records that in the present assessment year under appeal there was no special audit, thus I do not find that the appellant was to produce books before any Special Auditor. Furthermore, in the order the A.O. has stated at places that the books of accounts have been examined as produced by the appellant but in the same breath A.O. says that complete books of accounts were not produced. A.O. has not brought on record as to specifically which book(s) he asked for which were not produced by the appellant. It appears that the A.O. has simply repeated his observations made in the assessment order of A.Y. 2003-04. vi) Failed to establish that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intained, day to day production register and incomplete audit report. - No specific instance is brought on record by the A.O. to show suppression of sales. Observations of A.O. w.r.t. production/ non-production of records are self contradictory. xiv) Complete books of accounts not produced for examination - A.O. has not specified which books were not produced, and what he means about complete were books, when he himself says that books of accounts were produced , were examined, and subsequently he rejected the same as well. xv) Sale and purchase are erratic and ill-logical prices undertaken between sister concerns; - No instance has been brought on record by the A.O. xvi) Sales and purchases are not fully declared. - The A.O. has not given any basis or any supporting evidence to justify the same. 4.42 Further 1 have seen and verified that the appellant has maintained all relevant records, namely the raw material stock register (RG-1 register), finished goods stock register (RG 23 register), Sales tax records, octroi records, transport bills, wages register, and purchase and sale vouchers. The books and vouchers were examined by the A.O. as could be made out by me from the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio rather than the net profit ratio, and also held that for the purpose of adoption of profit ratio, the Guwahati unit is not comparable to the Baddi unit. On further appeal, the Hon'ble ITAT, while deciding the issue, held at page 140-141 of their order (Refer PB 1115-1116) as under:- 4.45 "The reasons mentioned in the order of the lower authorities do not lead to a conclusion that there were evidences or attendant circumstances in the nature of omission of entries of purchase or sale or suppression of stock etc. which could lead to rejection of books of account. The assessee had maintained complete books, which were produced before the statutory auditors as well as the A.O. Therefore, the books of account, could not have been rejected u/s 145(3). After rejecting the books of account, the past results could be a good ground for estimating the profits, as pointed out by the learned CIT(Appeals). Such a comparison would, involve adjustment of profit in respect of factors, which were dis-similar, being the expenditure on samples in this year. If the expenditure on samples is taken into account, we find that the gross profit ratio was more than the average of gross profit rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tio on declared sales in Baddi unit. The impugned addition has rightly been deleted by the Ld. CIT(A). We, therefore, reject this ground of the Revenue. Ground 2: Disallowance of expenses debited to P&L account -Rs. 28,81,913/- 8.6 The Ld. AO discussed this issue in para 37 page 21 of his order. Observing, inter alia that the expenses are not verifiable for want of bills, vouchers etc., the Ld. AO made the impugned disallowance out of sales promotion, marketing expenses, repairs and maintenance, telephone expenses, vehicle running and maintenance, travelling expenses, general expenses, preliminary expenses written off, brokerage and donation. 8.7 Before the Ld. CIT(A) the assessee contended that the Ld. AO is influenced by the special audit conducted in the last year. The assessee submitted that complete books of account and vouchers were produced and the Ld. AO did not point out any specific defect. Disallowance in an arbitrary manner is prohibited in law and cited the decision of apex court in Dhakeshwari Cotton Mills Ltd. vs. CIT 26 ITR 775 and Lalchand Bhagat Ambica Ram vs. CIT 37 ITR 288. 8.8 The Ld. CIT(A) observed that the assessee produced complete books of accounts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 16 were furnished. The Ld. CIT(A) examined them and found that salary amounting to Rs. 18,00,181/- had been paid to them. In para 8.14 of his order, the Ld. CIT(A) recorded his findings as under:- "8.14 Considering the facts of the case, nature of business carried on by the appellant, and the nature of expenses incurred, and more so when the A.O. has not pointed out any discrepancy in any of the expenses incurred under this head, and the silence of the A.O. in the remand report on this issue, it is not proved as to how the claim of the appellant is not allowable. The absence of any adverse comments from the AO in the remand report, and finding on this issue in the impugned order do not justify the addition and I consider that the expenses were incurred for the business of the appellant, and should have been allowed." 8.13 The only grievance of the Revenue is that the real utility of expenses incurred on R&D for assessee's own business is not verifiable and the products of the other concerns are developed by incurring such expenses. 8.14 We do not agree. The nature of assessee's business is such that R&D expenditure is a must without which business cannot be run. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction or till the breach of any of the terms of the said notification or the related Acts / Rules for the time being in force subject to PMT and relevant notification having been in force. The amount of excise duty paid is shown at PB 84 of the paper book, which is Excise duty account, and the account shows a debit balance (expense) of Rs. 42,81,469/- which infact has been added by the A.O., and which is part of the Profit and Loss A/c. PB 85 is copy of ledger account of Excise duty payable. It is seen that this account is credited by the excise duty payable first, and when the excise duty is paid the same is debited and after each month the balance excise duty payable becomes nil, since the amount payable is paid by the appellant. The amount paid of excise duty is the amount routed through excise duty payable account. This account is at PB 84 of the paper book, and shows that it is a part of the Manufacturing expenses a/c of the appellant. A perusal of this account shows that this account is debited by the appellant for each month on account of excise duty, which increases the cost of the material. Subsequently, the same is credited with the amount of excise duty refund received b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount was refundable by excise department to the assessee and should have been shown as income which was not done. In fact, the assessee was not entitled to refund of excise duty paid on the amount of purchases (input) and the assessee asserted that no such amount has so far been received by the assessee. We concur with the finding of the Ld. CIT(A) that the claim of the assessee is bonafide. Since similar claim in the preceding year was allowed, we do not find any reason for the impugned addition which has rightly been directed by the Ld. CIT(A) to be deleted. Accordingly, we reject this ground of the Revenue. Ground 5 : Wastage - Rs. 13,43,584/- 8.19 The Ld. AO discussed this issue in para 41 at page 25 of his order. The Ld. AO observed that in the list of closing stock, raw materials consumed and part details of finished products manufactured showed that the assessee has shown large unit of wastages shown under each products. He made the impugned addition for the reason that in the absence of any details of modus of manufacturing activities, the outcome of wastage of Ayurvedic products was not acceptable. 8.20 Before the Ld. CIT(A) the assessee contended that the wastage of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n given to make the impugned addition. In view of the discussions made, the addition made of Rs. 13,43,584/- is hereby deleted. This ground of appeal is decided in favour of the appellant." 8.21 We observed that no addition on account of wastage was made in the preceding AY 2003-04 or in the succeeding AY 2005-06 though similar claim of wastage was made in those years also. For AY 2006-07 as well no such addition was made. The assessee explained that due to hot mixtures filled in the tubes, the tubes get leaked which were of no use and not saleable in the market. We agree with the Ld. CIT(A) that wastage in such a manufacturing unit is normal feature. The impugned addition is not sustainable. We uphold the findings of the Ld. CIT(A) and decide this ground against the Revenue. Ground 6: Proportionate Interest paid to Bank and other disallowed- Rs. 48,99,034/- 8.22 This issue is discussed by the Ld. AO in para 42 at page 26 to 28 of his order. The Ld. AO alleged that despite being asked the assessee did not furnish details of loans and advances given to various parties and advances received by him. Moreover, the assessee did not file details of loans taken from banks, its utilizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned that the appellant has transferred the sum to M/s. OPL while in Para 49 of the impugned order, he has discussed about deemed dividend u/s 2(22)(e), alleging that the appellant has received the funds from M/s. OPL. The Ld. Counsel stated that in fact the appellant has sold products to M/s. OPL and against the supplies made, received the payments. The other increase in secured loan is in respect of term loan from NEDFI at Guwahati which has increased to Rs. 18,00,076/- as compared to Rs.7,80,076/- in the immediately preceding year, which proves there is no change in the situation as that of the immediately preceding year, so far as usage of these secured loans is concerned. More so, following the findings of the Hon'ble ITAT, the appellant's own funds are much more than the advances to sister concerns, and more particularly when there is no change as compared to the immediately preceding year, and also because nothing specific could be brought on record by the A.O. to justify the addition made, I do not find any justification to confirm the addition so made. Since the disallowance has been made by the A.O. on ad hoc basis, such disallowance would not stand the test o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs.65,00,000/- and others as Rs. 11,95,000/-. It was explained that inadvertently some of the unsecured loans were wrongly included in the figure of unsecured creditor, and as such the figure was shown at Rs. 11,95,000/-. The details are available at PB 112 and PB 409. It is seen that infact there are fresh unsecured loans of Rs. 10,13,200/- which includes loan of Rs. 10,00,000/- from Smt. Anupama Verma raised by the appellant during the year, for which confirmation has also been filed by the appellant. From these details filed it has been observed that during the year under consideration the appellant received further new loan of Rs. 10,00,000/- from Mrs. Anupama Verma, besides a previous loan of Rs.2,60,000/- from her outstanding as on 31.3.2003. In view of these facts, the new unsecured loan is of Rs. 10,00,000/- only raised by the appellant during the year under consideration from Mrs. Anupama Verma. The rest of the loans are brought forward balances of unsecured loans from the immediately preceding year. As regards confirmations filed which are placed at PB-114-116, it is observed that there are three confirmations, in which balance of each loan taken from Mrs. Anupama Ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue in para 44 at page 29 of his order. The Ld. AO observed that the assessee has shown a sum of Rs. 1.02,56,704/- as sundry creditors in the balance sheet. The assessee did not furnish complete details of name and address of sundry creditors, the genuineness of trade transactions supported with bills and vouchers. Complete books of account have never been produced for examination. Complete confirmation has not been filed nor the persons have been produced for examination. A few confirmations filed have incomplete details. With these observations the Ld. AO added the impugned sum to the income of the assessee. 8.30 Before the Ld. CIT(A) the assessee contended that the entire amount of sundry creditors has been disallowed on ad-hoc basis. The genuineness of creditors was proved by furnishing complete details of purchases made from the creditors and no defect in the purchases have been pointed out and were accepted in totality. The Ld. AO did not consider this while making the addition. In remand proceedings also the assessee submitted all details. The Ld. AO made independent inquires from all these parties and could not find any defect. The Ld. CIT(A) directed the Ld. AO to del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.O. could bring no specific incidence on record where any of the parties would have not confirmed the balance. No adverse comments were offered by the A.O. in his remand report on this issue. It is observed from all these details and evidences furnished, that the Assessing Officer after examining all the details furnished by the appellant, neither during the course of assessment proceedings, nor during the course of remand proceedings, specifically asked for any particular sundry creditor who was not found genuine in the opinion of the Assessing officer. The A.O. has added the entire sundry creditors, without examining as to what amount was outstanding even on 1.4.2003, and which of the sundry creditors was bogus or doubtful. The addition made is without verifying the details and evidences submitted by the appellant in this regard, it is not the case of the A.O. that any specific creditor has denied any balance. In view of these reasons, and after verifying the evidences placed on record by the appellant during the course of assessment proceedings, 1 do not find any merit to accept the contention of the A.O. to make the impugned ad-hoc addition of Rs. 1,02,56,704/- of the balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition made to assets. In any case, the AO could have disallowed the depreciation, if he was not satisfied with the explanation given by the appellant. Ld. AR explained before me that the amount was spent for purchase of furniture for one of his employees at Guwahati unit, and the asset was for official use of the appellant. It is not denied that the appellant is running its unit at Guwahati. Merely because the appellant has purchased an asset for the same which is being used in a remote are by an employee of the appellant, cannot make the expense s a personal expense of the appellant, and cannot be disallowed. The addition made is, therefore, directed to be deleted." 8.33 The impugned disallowance is totally unwarranted. The Ld. AO picked up the amount of Rs. 28,950/- from addition made to assets. We agree with the Ld. CIT(A) that the amount spent towards purchase of asset for use in a remote area by an employee of the assessee cannot be disallowed as personal expense of the assessee. The Revenue's ground is decided against it. Ground 10 : Undisclosed income from sale of closing stock of preceding year - Rs. 11,70,847/- 8.34 The Ld. AO observed in para 48 at page 33 of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate, appointment letter, attendance register, ESI / PF certificate or any other proof for specifying the number of employee is as per the specified number have not been produced. 8.37 Before the Ld. CIT(A), the assessee vide letter dated 16.04.2008 made submissions which are incorporated in the appellate order in paras 20.15 to 20.85. Thereafter the Ld. CIT(A) recorded his findings in para 80.86 to 80.93 thereof. We have perused the contentions of the assessee raised in the rebuttal of the Ld. AO's point of view as also the observations and findings of the Ld. CIT(A). 8.38 Regarding employment of manpower the Ld. CIT(A) observed that during the year the assessee had employed more than 20 persons. This issue was before the Tribunal in AY 2003-04 and the Tribunal relying on the daily attendance register, the details of contributions to PF and ESIC and certificate under Sales Tax Act came to the conclusion that more than 10 workers were employed by the assessee. The Tribunal had also observed that AY 2003-04 was the second year of the setting up of the unit and that the provisions of section 80IB(4) were applicable to the assessee and therefore the assessee is entitled to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that his conclusion in this behalf was not based on any evidence on record. " 20.92 From the above, it is clear that the ITAT has discussed all the conditions which are relevant for claim of deduction u/s 80IB of the Act and held that the appellant is entitled to deduction u/s 80IB. During the course of present proceedings for the impugned year also, the appellant has been asked to file the documentary evidence in support of the condition laid down as per section 80IB(2)(iv) in response to which the appellant company filed copies of wages register of Guwahati Unit for full year which shows that the appellant has fulfilled this condition of employing more than the requisite number of workers as stipulated by Law for the year under consideration. Regarding the Addl. CIT's contention that the Ayurvedic medicine industry does not figure in the list of notified industries as per Notification No. S.O.627/(E) dated 04.08.1999 and hence no deduction u/s 80IB is allowable, it is observed that the said notification has been issued for the purpose of second proviso to section 80IB(4) of the Act. The second proviso says that An case of such industry in the North- Eastern Region, as may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses to Baddi unit on one hand and by shifting turnover of Baddi unit to Guwahati unit which is prohibited by various provisions of section 80IB of the Act. (4) That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting disallowance of various expenses amounting to Rs. 86,00,000/- without appreciating the fact that the assessee has failed to justify that the expenses were incurred wholly and exclusively for the purpose of business and more so for the legitimate needs of the business. (5) That on the facts and circumstances of the case and in law the Ld. CIT(A) erred while allowing expenses of Rs. 86,00,000/- disallowed by the assessing officer under various heads in simply following the decision of earlier year without appreciating the facts of this year. The CIT(A) has ignored that fact that the Assessing Officer has brought out evidences that the expenditure were supported only by the self made vouchers and no justification for incurring such huge expenses was adduced by the assessee company before the Assessing Officer and the CIT(A) has failed to appreciate the fact that no bills were produced to support the expenditure and failed to sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the appellant company is entitled for deduction u/s 80IB. During the course of present proceedings, the appellant has been asked to file the documentary evidence in support of the condition laid down as per section 80IB(2)(iv) in response to which the appellant company filed copies of wages register of Guwahati Unit for full year along with copies of return of the Provident Fund which shows that the appellant has fulfilled this condition of employing more than the requisite number of workers as stipulated by Law for the year under consideration. Regarding the Addl. CIT's contention that the ayurvedic medicine industry does not figure in the list of notified industries as per Notification No. S.O.627/(E) dated 04M.1999 and hence no deduction u/s 80IB is allowable, it is observed that the said notification has been issued for the purpose of second proviso to section 80IB(4) of the ct. The second proviso says that An case of such industry in the North-Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred percent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the Ld. AO which has been deleted by the Ld. CIT(A). Briefly stated the Ld. AO noticed that the assessee has given loan of Rs. 57,41,224/- to M/s. Fourth Dimensions Media Ltd., a sister concern on which the assessee did not charge any interest whereas the assessee paid interest on capital loans taken from banks. He, therefore, disallowed 50% of interest paid to banks and other concerns which worked out to Rs. 29,72,725/-. 10.8. It was contended by the assessee before the Ld. CIT(A) that the impugned disallowance is on ad-hoc basis and without pointing out any incidence of fund diversion. The Ld. CIT(A) agreed with the contention of the assessee and observed that nowhere the Ld. AO has proved any nexus between the interest bearing funds and interest free advances made to the sister concern. We endorse the view of the Ld. CIT(A). We are also of the opinion that in the absence of direct nexus established by the Ld. AO between the money borrowed for the purpose of business and diversion thereof for giving interest free loan to sister concern, disallowance out of interest paid to bank and other concerns cannot be made. The Ld. CIT(A) has rightly deleted the impugned ad-hoc disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s wore produced to support the expenditure and failed to show the purposes for which the expenditure were incurred. 7. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting Le disallowance of Rs. 13,52,427/- made by the Assessing Officer on account of interest paid to banks by ignoring the fact that assessee's own funds reflected in the balance sheet stand deployed in certain assets and it cannot be said that assets and funds were available with the assessee for making advances to the sister concerns. 8. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in not appreciating the fact that the assessee has taken interest bearing capital loans from Banks and utilized the same for assessee's sister concern on which any interest paid is not allowable as business expenditure." 12.1. Ground no. 1 to 4 relate to deduction of Rs. 2,08,53,170/- claimed by the assessee under section 80IB/80IC of the Act which was disallowed by the Ld. AO. But on appeal, the Ld. CIT(A) allowed the claim of the assessee. Aggrieved the Revenue is before us. 12.2. It is observed that the Ld. CIT(A) enumerated on page 16 of his appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guwahati Unit. 4.1.6 On the issue whether the industrial undertaking is engaged in production of any article or thing during the relevant previous year, AO called for evidence in respect of deduction claimed under chapter VIA as per questionnaire dt. 20.07.2011 and trading results of manufacturing unit and modus operandi as per order sheet recording dt. 01.12.2012. The assessee vide its submission dt. 30.11.2011, 09.12.2011 and 14.12.2011 furnished the details as called for. The assessee has also filed complete details of products manufactured and closing stock of finished goods unit wise as per its submission dated 09.12.2011 and 14.12.2011. From the particulars furnished it is evident that the assessee has carried out production of ayurvedic medicines. The requirement u/s 80IC is manufacture or production of article or thing. The AO has failed to show how the manufacture of ayurvedic medicines by the assessee does not involve any manufacturing or production activity. Moreover as observed earlier, business activity in instant assessment year is the same as in AY 2003-04, wherein ITAT held that appellant is producing ayurvedic medicines which are article or thing. Therefore, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... check basis but no defect was found. Therefore the impugned disallowance is not justified and hence has rightly been deleted by the Ld. CIT(A). Accordingly, we reject ground No. 5 and 6 of the Revenue as well. 12.7. Ground No. 7 and 8 relate to disallowance of Rs. 13,52,427/- made by the Ld. AO on account of interest paid to banks and others which has been deleted by the Ld. CIT(A). The Ld. AO found that the assessee paid interest of Rs. 90,16,177/- to banks and others. Since interest bearing loans obtained by the assessee from banks and others have later been utilised for the sister concern of the assessee, interest paid on such loans is not allowable as business expenditure. He, therefore, disallowed 15% of the claim of interest paid at Rs. 90,16,177/- which worked out to Rs. 13,52,427/-. 12.8. The Ld. CIT(A) observed that similar disallowance was made in preceding six assessment years. However, the disallowance made in AY 2003-04 was deleted by the Tribunal for the reason that the assessee had sufficient funds of its own to cover the advances to sister concern Ozone Pharmaceuticals Ltd. In subsequent AYs 2004-05 to 2008-09, the Ld. CIT(A) deleted the disallowance as no specif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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