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TMI Blog2014 (12) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... a remand report from the Assessing Officer. In the remand report dated 20.02.2008, the Assessing Officer stated that the assessee had admitted before him that this claim was neither made in the return of income nor was made during the course of assessment proceedings before the Assessing Officer. Hence, the claim was made for the first time during the appellate proceedings before the CIT(A). Hence, the Assessing Officer stated that this ground was not admissible as it does not emanate from the assessment order. The assessee, in the rejoinder to the remand report, submitted before the CIT(A) that the claim for deduction u/s 10A for SEZ was raised for the first time during the appeal proceedings because there was loss in the relevant unit before the additions were made. The data relating to the existence of SEZ unit were submitted during the assessment proceedings. The assessee relied on the decision of the Hon'ble Gujarat High Court in the case of S.R. Koshti vs. CIT, 276 ITR 165 (Guj.) and submitted that Hon'ble Gujarat High Court held that the authorities are under obligation to act in accordance with law and tax can be collected only as provided under the Act. If the assessee un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Jute Corporation of India Limited (supra), the CIT(A) observed that it was in respect of Assessment Year 1974-75 and at that time, the time limit for revising the return u/s 139(5) was two years from the end of the assessment year which was coterminus with the time limit for finalizing the assessment u/s 153 which was also two years from the end of the year. Therefore, till the date of assessment the return could be revised. That law is no longer valid in view of the amendment to Section 139(5) where the limit for revising the return was reduced to one year from two years as it existed before the amendment. Hence, the decision of the Supreme Court was not applicable. Further he observed that in the case of S.R. Koshti (supra), the Hon'ble Gujarat High Court gave the decision because the revised return was filed within the time allowed u/s 139(5); hence, the reliance of the assessee on that case is misplaced. Therefore, he dismissed the grounds of appeal of the assessee. 5. Before us, Authorized Representative of the assessee relied on the decision of the Hon'ble Supreme Court in the case of National Thermal Power Company Limited vs. CIT (1998) 229 ITR 380 (SC) and submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities and material available on record. In the instant case, the assessee in its return of income has not claimed any deduction/exemption u/s 10A of the Act on the ground that there was net loss from the business of the eligible undertaking. In the assessment completed u/s 143(3) the Assessing Officer made various disallowances and additions; and as a consequence of the same, the business income of the assessee was enhanced by Rs. 1,74,85,796/-. 7. In appeal before the CIT(A), the assessee claimed that because of the said disallowances/additions made by the Assessing Officer its income from undertaking which was eligible for deduction u/s 10A has been determined at positive income and therefore, the assessee is eligible for deduction u/s 10A which the Assessing Officer ought to have allowed. 8. The CIT(A) has not accepted the above claim of the assessee on the ground that no deduction u/s 10A was claimed by the assessee in the return of income, no return was filed by the assessee and the time limit for filing the revised return u/s 139(5) has already expired. 9. We find that the CIT(A) was not justified in rejecting the claim of the assessee on the above stated reasons. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of machine itself and hence was incurred for obtaining enduring benefit and hence was capital in nature. He also observed that the assessee has not filed any evidence regarding the proof of service except copies of bill given by the parties to the assessee. Therefore, he disallowed the deduction while assessing the income of the assessee. 12. Before the CIT(A), the assessee submitted that the amount was paid to Korean company for manufacturing specialized model of machine. The machines so manufactured were exported to China and Iran. The assessee-company made payment of US dollar 1 lac and deducted TDS @ 20%. Net remittance of US dollar 80,000/- was sent to the authorized dealer to the recipient company. The Assessing Officer considered the expenditure as capital in nature and disallowed the same in the assessment order. The Assessing Officer has held that the expenditure has provided enduring benefit. It was submitted that the assessee exported the machines and the sale proceeds had been shown as revenue and hence this expenditure should be allowed as revenue expenditure in view of the decision of the Hon'ble Allahabad High Court in the case of CIT vs. Prem Heavy Engineering Work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aise any serious arguments. His only submission was that the expenditure should be allowed as revenue expenditure as it was incurred for production of special type of machines for export to China. 16. On the other hand, the Departmental Representative supported the orders of the lower authorities. 17. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the assessee claimed deduction for technical consultancy charges of Rs. 45,55,000/- paid to a Korean company for manufacturing of machine which was exported to China. The contention of the assessee is that earlier it was not making export to China and to make export to China and to overcome the competition, it had to incur such expenditure to improve the quality of machine so that the assessee could make export to China. Therefore, it was the contention of the Authorized Representative of the assessee that it was revenue expenditure. 18. We find that both the Assessing Officer and the CIT(A) have not accepted the claim of the assessee on the ground that the expenditure incurred provides enduring benefits to the assessee as the assessee with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng travel ticket and other items were produced as stated by the Assessing Officer. The passport entries show that the Directors did travel but mere purchase of foreign currency cannot lead to allowance of the entire expenditure. He further noted that it is true that the Directors have travelled and that there could not be any personal element in the case of the company as held by the Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co. vs CIT, 253 ITR 749. However, in the absence of any supporting vouchers, it cannot be held that the entire amount was for the purpose of business and therefore, restricted the disallowance to 50%. 23. The Authorized Representative of the assessee reiterated the submissions made before the lower authorities, whereas the Departmental Representative supported the order of the Assessing Officer. 24. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. In the instant case, the Assessing Officer observed that the assessee could not produce bills and vouchers in respect of foreign travel expenses of Rs. 19,46,144/-. He, therefore, disallowed the entire amount of Rs. 19,46,144/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee was not maintaining any quantitative record of day to day consumption of items of raw material during the year. He observed that the assessee had made payment of Rs. 7.94 crores to persons specified and covered by Section 40A(2)(b) of the Act and the assessee did not file evidence showing that the payments were made at prevailing market rate of goods/services. He, therefore, rejected the book result of the assessee and estimated the gross profit by taking the average of last two years which worked to 32.80% and thereby made addition of the difference in GP of 19.665% which worked out to Rs. 1,08,96,008/-. 30. On appeal, the CIT(A) deleted the disallowance by observing as under:- "3.5. I have considered the submission made by the appellant and observation of the AO. From the detailed submission as noted in para 3.3 above it is clear that the appellant has been able to explain the fall in GP by giving detailed reasons which were confronted to the AO for giving his remand report. Despite an opportunity of examining the same during the remand proceedings the AO has simply relied on the assessment order. It is seen from the submission made by the appellant and as di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses. The power and fuel comprised 0.28% of the sales in A.Y.2002- 03 whereas it was almost four times amounting to 1.04% in the current year. In view of the above the appellant has stated that the fall in GP rate is fully explainable. The appellant has cited several decisions of various high courts to say that merely for non maintenance of stock register and for low profit no GP addition can be made. The appellant has further stated that payment to sister concern cannot be held to be excessive by the AO without ringing on record any material regarding the fair market value as decided by Hon'ble ITAT, Ahmedabad in the case of Binit Corporation (supra) as state above. Further the appellant has submitted that the machine produced during the current year was entirely different and tailor made machine then the one which was produced in A.Y.2002-03 and hence the GP rate of A.Y.2002-03 cannot be made basis for the current year's GP rate. It is clear that the AO has not been able to point out material defects to reject the books of accounts and hence the reliance on various decisions like Bharat Milk Products (supra) and Avdhesh Pratap Singh Adbul Rahman & Brothers etc. are not a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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