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TMI Blog1998 (3) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... an industrial undertaking having the aggregated value of plant and machineries other than tools, jigs and moulds installed as on the last day of the previous year exceeding the sum of Rs. 35,00,000 cannot be regarded as small scale industrial undertaking. According to the AO from the perusal of balance sheet, it was noticed that the value of plant and machinery as on 31st March, 1993, was Rs. 78,41,733. He, therefore, issued a show-cause notice to the assessee as to why it should not be regarded as not being a small scale undertaking. In response the assessee took the position that it was manufacturing : (a) toothpaste, (b) detergent powder and cake, (c) shaving cream. These units were separate undertakings and, therefore, plant and machinery of each unit should be considered separately and the value of plant and machinery in each undertaking was less than Rs. 35,00,000. The assessee also pointed out that in the earlier years the disallowance made had been deleted by the learned CIT(A). The assessee also placed reliance on certain High Court judgments. 3. The AO considered these submissions and facts and circumstances of the case. He held that in the absence of any definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king. Thereafter the AO proceeded to examine as to whether the assessee-company employed requisite number of workers since for the purpose of deduction under s. 80-I it was necessary that the industrial undertaking must employ 10 or more workers in the manufacturing process carried on with the aid of power and must employ 20 or more workers in manufacturing process carried on with the aid of power. Since the assessee was manufacturing articles with the aid of power it was required to employ 10 or more workers in the manufacturing process. According to the AO the assessee did not fulfil this condition because the assessee had employed labour through contractors and not provided direct employment to workers, i.e., according to the AO the assessee had not employed 10 or more workers in the manufacturing process. 4. The AO further held that as far as the following incomes were concerned, the same were not entitled to any deduction under s. 80-I. Rs. 1. Interest on bank deposits 43,86,197 2. Trading sales 8,80,07,275 3. Raw material sales 8,32,12,097 5. In nutshell, the AO held that the deduction under s. 80-I was not available to the assessee because: 1. The assessee-compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit was distinguishable having wall between each unit and there were as many as four laboratories and six offices for various sitting arrangements for office staff, storekeeper, directors, etc. He submitted that it was true that there was one common wall covering all units but it was because the property belongs to a single owner to whom the assessee paid rent for occupying various industrial sheds. In all GIDC plots the water is supplied by GIDC itself and it can be used for different units depending upon the requirements of the units. He argued that the assessee paid each unit labour charges, e.g., toothpaste labour charges Rs. 7,56,906, acid slurry labour charges Rs. 1,154, shaving cream labour charges Rs. 83,211, detergent labour charges Rs. 4,65,197, scouring powder labour charges Rs. 11,208, detergent powder cake labour charges Rs. 62,719 and these expenses have not been disallowed. Further, monthwise production of each unit was furnished and manufacturing and sales of each unit was also furnished. He drew our attention to details of unit/productwise holding of the plant and machinery as per Expln. No. 3 to s. 80-I(2) read with the definition given in cl. (b) to Explanation b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en each and every payment was also entered in the wages register. According to the learned counsel these workers were under the de facto control of the assessee-company. The contractors did not have any independent source of income or any independent factory. It was the assessee's manufacturing unit which provided the jobs to the labourers as well as the contractors. He, therefore, concluded that the assessee had engaged more than 10 workers and accordingly the assessee was entitled to deduction under s. 80-I, in view of the decision of the Tribunal, Ahmedabad 'A' Bench in Prithviraj Bhoorchand vs. Asstt. CIT (1993) 47 TTJ (Ahd) 179 : (1993) 47 ITD 361 (Ahd). 10. As regards deduction under s. 80-I in respect of profit on trading sales, sales of raw material the learned counsel drew our attention to the submissions to the CIT(A) placed at paper-book No. 4—p. A-48 wherein it was specifically stated that both the sales, i.e., trading and raw material sales are part and parcel of the imported goods item sales which the assessee is entitled to get imported on the basis of the import-export policy for which the assessee has got Letter of Authority to import such material after fulfilme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinction between the voluntary act and the act which the assessee was obliged to for achieving something else. As the letter of credit opening was entirely for the business of manufacturing, interest income cannot be viewed separately. According to the learned counsel, it was business income entitled to deduction under s. 80-I. 12. S.S. Panwar, the learned Departmental Representative strongly supported the orders of the authorities below. He was fair enough to concede that the assessee is an industrial undertaking engaged in manufacturing of toothpaste, detergent powder, etc., but it is not entitled to deduction under s. 80-I as it does not fulfil the required conditions. According to him the different units of the assessee are not distinguishable because there is interlacing, inter-dependence of the units and inter-mixing of the products. He further submitted that there was common management, common funds and the assessee had worked out excise set off and manufacturing expenses of the different units on pro rata basis. In support of his contention he relied upon the decision in B.R. Ltd. vs. V.P. Gupta, CIT 178 CTR (SC) 82 : (1978) 113 ITR 647 (SC), CIT vs. Indian Bank Ltd. (19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earing both the sides we agree with the contentions of the learned counsel of the assessee that each unit of the assessee is distinguishable; independent; having separate existence of its own; having separate and distinct excise number. In the absence of any evidence we do not agree with the contention of the learned Departmental Representative that there is interlacing inter-financing and inter-dependence of the different units. We have perused the details given by the assessee before the authorities below in respect of each unit and relied upon by the learned counsel and reproduced in para 7 above from which it can be seen that each unit is independent capable of being run/close without affecting the other unit. In asst. yr. 1995-96 the assessee closed scouring powder unit without affecting other units. Out of six products, only two products, i.e., toothpaste and detergent cake fall under Sch. XI. However, even detergent cake cannot be equivalent to soap in view of the decision of the Chandigarh Bench in the case of Rasan Detergent (P) Ltd. vs. IAC (1995) 52 ITD 55 (Chd). Manufacturing process of each unit is also different. Raw material ratio of each unit is also different. Sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year it was 11.98 per cent as per the AO. The AO himself has observed that the sale of manufacturing items is of Rs. 13,02,08,135 and the GP comes to Rs. 1,43,60,315 which is 11.02 per cent (excluding advance licence/trading profit) as against in the immediate preceding year the profit rate was 11.7 per cent. So, the finding given by the learned CIT(A) is in contradiction to the facts on record because there is no such manufacturing loss. 18. As regards the profit on trading of imported goods and imported raw material, we do not find any merit in the findings of the authorities below that the assessee is not entitled to deduction under s. 80-I in respect of the above items. The assessee-company is undisputedly an exporter. Both the sales, i.e., trading and raw material sales are part and parcel of the imported goods which the assessee is entitled to import on the basis of said norms of import-export policy, for which the assessee has Letter of Authority to import such material after fulfilment of the export obligation. As the import entitlements came into existence because of the exports made by the assessee the profits resulting from the sale of the import entitlements were clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause in that case the relevant period of export was from July, 1972, to September, 1972, and the working of the import replenishment was 10 per cent of total export, that is why, though the assessee was engaged in sea foods it had imported stainless steel, that is, altogether different commodities. In the case of the assessee-company, it is entitled to get advance licence in respect of the items to be exported by the company and entitlement of the import and/or working is based on fulfilment of export obligation. In our view the assessee's case finds support from the judgment of Karnataka High Court in the case of Sterling Foods vs. CIT (1991) 95 CTR (Kar) 36 : (1991) 190 ITR 275 (Kar), wherein it has been clearly held that profits on sale of import entitlements are to be treated as business income for special deduction under s. 80HH in respect of such income. 19. As regards the question whether the assessee is entitled to relief under s. 80-I in respect of interest income earned on fixed deposits we hold that the interest income was the business income of the assessee. As has been stated by the learned counsel of the assessee the bank insisted upon fixed deposit before opening l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmencing on 1st April, 1990, and ending on 31st March, 1991. According to the AO in the case of the assessee, it had commenced manufacture or production much before 1st April, 1990. The AO did not accept the argument of the assessee that in the earlier year he was only local quality manufacturer which is distinguishable from the export quality manufactured during the period 1st April, 1990, to 31st March, 1991. On appeal the CIT(A) confirmed view of the AO Ketan H. Shah, the learned counsel for the assessee reiterated the submissions made before the authorities below. According to him the first year of the eligibility was admitted to be the asst. yr. 1991-92 as per the assessment record and in past two years the claim of 30 per cent had been rightly allowed and further no claim under s. 80-I had been allowed in the asst. yr. 1989-90. The learned Departmental Representative relied upon the orders of the authorities below. 22. We have considered the rival submissions. Since we have held that the assessee is entitled to deduction under s. 80-I we deem it fit to restore the issue regarding the rate at which such deduction should be allowed to the file of the AO. He is directed to all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough the export house of Space Enterprise but during the year under appeal, with a view to explore the possibility of making direct exports the directors of the assessee-company visited Moscow, UK, Dubai, USA, etc. However, direct exports could not materialise on account of stiff competition from the companies like Colgate, Palmolive and other foreign companies. The assessee filed Xerox copies of the passports of the directors who travelled before the AO. From the perusal of the reply and details furnished the AO noted that Kiritbhai Patel had gone to Middle-East and stayed as many as 26 days at Kuwait. There he contacted only one person, viz., Amrutbhai Thakkar of Crescent Commercial Co. Ltd. According to the AO the assessee could not have devoted all the 26 days for business purpose and maximum 7 days can be considered for the business purpose executed by this person. Similarly, he held that the other directors also overstayed in the foreign countries visited by them respectively. He accordingly disallowed 50 per cent of the claim and made an addition of Rs. 4,34,626. On appeal the CIT(A) confirmed the addition. 26. K.H. Shah, the learned counsel for the assessee, submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition by his brief remarks "the estimate of disallowance as made by the AO does not appear to be excessive or unreasonable. This ground of appeal is rejected". 29. We have heard both the parties. The disallowance has been made by the AO and confirmed by the CIT(A) on pure estimate. In our view in view of the written submissions before the authorities below dt. 25th April, 1996 and the decision of Shalimar Fashions (P) Ltd. vs. ITO (1981) 11 TTJ (Del) 326 as well as Bombay Special Bench decision in Daks Copy Services (P) Ltd. vs. ITO (1989) 34 TTJ (Bom) (SB) 604 the disallowance is uncalled for. The impugned addition is accordingly deleted. The assessee gets a relief of Rs. 48,442. This ground accordingly succeeds. 30. The next ground relates to the disallowance of a sum of Rs. 15,000 on account of entertainment expenditure. The assessee incurred an expenditure of Rs. 81,806 which was claimed to have been incurred on the members of staff only. The AO held that such expenditure was bound to include certain expenditure on visitors and outsiders. In the absence of any such details he estimated such expenditure at Rs. 40,000 resulting into a disallowance of Rs. 15,000 under s. 37( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the order of the authorities below. 36. We have considered the rival submissions. In the case of the assessee in ITA No. 3005/Ahd/1992 vide order dt. 27th Feb., 1997, for the asst. yr. 1989-90 this Tribunal observed as under: "We have considered the rival submissions and perused the facts on record. Sec. 207, as substituted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1988, lays down that tax shall be payable in advance during any financial year, i.e., 1st April, to 31st March, in accordance with provisions under ss. 208 to 219, in respect of the total income of the assessee which would be chargeable to tax (not charged to tax) for the assessment year immediately following that financial year. Such income on which advance tax is payable is to be called the "current income". As is evident from the facts of the case the assessee having suffered a loss, had no such current income on which advance tax was payable. The provisions of ss. 207 to 219 relating to the advance tax are based on the principle "pay as you earn". As held by the Kerala High Court in the case of Lord Krishna Bank Ltd. vs. ITO (1989) 178 ITR 509 (Ker), the advance tax means only the tax paid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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