Computation of deduction u/s 80HHC on profit available after reducing deduction allowed u/s 80IB

IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH `I’: NEW DELHI)

BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND

SHRI A.K. GARODIA, ACCOUNTANT MEMBER

ITA No.4720/Del./2005

(Assessment Year: 2002-03)

Vallabh Metal Inc.,

Lakri Fazalpur, Delhi Road,

Moradabad.

(PAN/GIR No.AAAAV0750B)

(Appellant)

Vs.

ACIT, Range 1,

Moradabad.

(Respondent)

Assessee by: Shri Rohit Jain, Adv.

Revenue by: Shri P.C. Pancholi, DR

ORDER

PER A.K. GARODIA: AM

This is an assessee’s appeal directed against the order of the Commissioner of Income-tax (Appeals), Bareilly dated 23.9.2005 for assessment year 2002-03.

2. Ground no.1 of the appeal reads as under:

“That on the facts and circumstances of the case and in law the impugned order dated 20.09.2005 passed by the Commissioner of Income-tax (Appeals) , Bareilly u/s 250 of the I.T. Act, 1961 (‘the Act’) is beyond jurisdiction, bad in law and void ab initio.”

This ground is general in nature and hence requires no adjudication.

3. Ground nos.2 & 3 are interconnected which read as under:

“2. That the Commissioner of Income-tax (Appeals) erred on facts and in law in determining deduction admissible to the appellant u/s 80HHC of the I.T. Act at Rs.3480332.00 against deduction of Rs.4494561.00 claimed by the appellant.

3. That the Commissioner of Income-tax (Appeals) on facts and in law in holding that for computing allowable deduction u/s 80HHC, eligible profits of the business must be reduced by deduction allowed u/s 80IB of the Act.”

4. It was fairly conceded by the Ld.AR of the assessee that the issue involved is covered against the assessee by the decision of the special bench of the Tribunal rendered in the case of ACIT vs. Hindustan Mint & Agro Products Pvt. Ltd., as reported in 119 ITD 107 (Del.)(SB). Respectfully following the decision of the special bench of the tribunal both these grounds of the assessee are rejected because we find that while computing deduction allowable to the assessee u/s 80HHC, the Assessing Officer has reduced from business profit, the amount of deduction allowed by him u/s 80IB of Rs.1657300. This is in line with the decision of the special bench of the tribunal and hence both these grounds of the assessee are rejected.

5. Ground no.4 of the appeal reads as under:

“4. That the Commissioner of Income-tax (Appeals) has erred on facts and in law in upholding the addition made by the ACIT on account of disallowance of expenditure in relation of foreign tour expenditure of Rs.44148.00 without even considering the fact that he assessee had already debited the personal expenditure in the capital account of the partners.”

6. Briefly stated, the facts are that it is noted by the Assessing Officer on page 2 of the assessment order that in the P&L A/c, the assessee has debited foreign tour expenses amounting to Rs.865595. It is further noted by the Assessing Officer that as per the details of expenditure towards exchange of currency as well as tarvelling credit cards works out at Rs.441475. It was the submission of the assessee before the Assessing Officer that all these expenses have been incurred only for business promotion. The Assessing Officer has also noted that the assessee has not brought the evidence relating to exchange of currency debited by members to their capital accounts towards personal entertainment and expenses while on foreign tour. It is also noted by him that personal expenditure and personal entertainment cannot be ruled out. He has followed the decision of the Delhi Bench of the tribunal rendered in the case of M/s Radico Khaitan Ltd., Rampur for the assessment year 1989-90 and it was held by him that 10% of such expenditure on account of foreign currency at Rs.4,41,475 i.e. Rs.44,148 is to be disallowed towards personal entertainment as well as personal expenditure while on foreign tour. Being aggrieved, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals), but without success and now the assessee is in further appeal before us.

7. Ld.AR of the assessee submitted that ad-hoc disallowance is not justified.

He relied upon the following tribunal decisions:-

a. Mahendra Oil Cake Industries (P) Ltd. vs. ACIT, 55 TTJ 71;

b. Nodi Export vs. ACIT, 26 SOT 526; and

c. ACIT vs. AM Tech Auto Ltd., 112 TTJ 455. Ld.DR of the revenue supported the orders of the authorities below. 8. We have considered the rival submissions and perused the material placed on record and have gone through the orders of the authorities below and the Tribunal’s decision referred to by the Ld.AR of the assessee. We find that out of foreign traveling expenses incurred by the assessee of Rs.8,65,595, the assessee has incurred expenses of Rs.4,41,475 on account of exchange currency and traveling credit cards. We do not find any substance in the claim of the Ld.AR of the assessee that providing vouchers and details for expenses incurred on foreign tour out of foreign currency purchased and for credit cards is not practical. In the absence of vouchers and details for the expenses of Rs.441475, the Assessing Officer is left with no option, but to estimate the expenses of personal nature embedded in the same.

9. Regarding the tribunal’s decision rendered in the case of Mahendra Oil Cake Industries Pvt. Ltd. vs. ACIT,55 TTJ 71, we find that it was decided on the basis that no specific item or instance of personal expenditure has been brought out by the authorities below. We are of the considered opinion that if complete details and vouchers are provided by the assessee then the Assessing Officer, should point out specific item of personal expenditure to make any disallowance. Without doing the same, no disallowance can be made. In the present case, no voucher or details of expenses has been furnished for this amount of Rs.4.41 lakh and hence in the present case, the Assessing Officer had no option but to estimate the personal expenses. Because of this reason, this tribunal’s decision is not applicable in the present case.

10. Now, we examine the tribunal’s decision rendered in the case of Nodi Exports vs. ACIT, 24 SOT 526. In this case also, we find that it was noted by the tribunal that the Assessing Officer has not pointed out any expenditure which could be related to personal expenses of the partner and the employees. The tribunal has followed its earlier decision of Mahendra Oil Cake Industries Pvt. Ltd. (supra). Since, in the present case, no voucher or details were furnished by the assessee to the Assessing Officer, this tribunal’s decision is also not applicable because if the details and vouchers are not provided by the assessee to the Assessing Officer, how the Assessing Officer can point out specific item of personal expenses.

11. Now, we consider other tribunal’s decision rendered in the case of ACIT vs. M.Tech Auto Ltd., 112 TTJ 455. We find that in this case also, it was noted by the tribunal that no specific instance of any non-business related business has been pointed out by the Assessing Officer. For the same reason, this tribunal’s decision is also not applicable in the present case because vouchers and details were not furnished. We, therefore, confirm the order of the Commissioner of Income-tax (Appeals) on this issue. This ground of the assessee is rejected.

12. Ground no.5 of the appeal reads as under:

“5. That the Commissioner of Income-tax (Appeals) has erred on facts and in law in upholding the addition made by the ACIT account of disallowance of expenditure in relation of –

Telephone Exp. 23440.00

Vehicle Exp. 7242.00

Export Promotion Exp. 8156.00”

13. Briefly stated, the facts are that it is noted by the Assessing Officer on page no.4 of the assessment order that the assessee has debited depreciation on fixed assets which includes depreciation on building. It is stated before the Assessing Officer that although construction of building has not been completed in the present year, but the portion completed has been used in business. It is further noted by the Assessing Officer that as per the details, it is seen that deprecation has been claimed in two phases. First @ 10% on the additions up to 30.09.2001 and 5% on the additions made after 30.09.2001. It is further noted by the Assessing Officer that scrutiny of building accounts further reveals that most of the additions have been made after 30.09.2001. It is also noted by the Assessing Officer that as per the details, it is seen that materials have been purchased up to 29.3.2002. It is also noted by the Assessing Officer that in various replies dated 13.1.05 and 9.3.05, it was submitted by the assessee that though the building is under construction, but it was put to use due to need. It is further noted by the Assessing Officer that no proof regarding completion of building such as installation of telephone, evidence of generator etc. have been filed. It is further noted by the Assessing Officer that these facts have been brought to the notice of the Ld.AR of the assessee vide order sheet entry dated 9.3.05. The Assessing Officer has disallowed the claim of the assessee regarding depreciation on building on the basis that building is incomplete. Being aggrieved, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals), but without success and now the assessee is in further appeal before us.

14. It was submitted by the Ld.AR of the assessee that the building might be incomplete, but the same was put to use and hence deprecation is allowable. Ld.DR of the revenue supported the orders of the authorities below.

15. We have considered the rival submissions and perused the material on record and have gone the orders of the authorities below. We find that the Assessing Officer is doubting the claim of the assessee regarding use of building on the basis that no proof regarding completion of building, such as installation of telephone, fitting of generator etc. has been filed. The Assessing Officer has noted that most of the additions have been made after 30.9.2001. It is also noted by him that material have been purchased up to 29.3.2002. It is also noted by him that deprecation has been claimed @ 10% for the additions made into building up to 30.9.2001 and @ 5% on the additions made after 30.9.2001. This shows that without pinpointing the portion of building which was put to use and without working out the cost of the same, depreciation was claimed on the entire amount of additions into building during this year. This is an admitted position that building was not complete in the present year and hence the entire amount of cost incurred in construction of building cannot be put to use even if this claim of the assessee is accepted that some portion of the building was put to use even when the building is not complete. In the absence of these details as to which portion of the building was put to use and what was the cost of the construction of the same, the claim of the assessee regarding depreciation on building cannot allowed. Such detail was never furnished by the assessee before the authorities below or even before us. In the light of these facts, we find no reason to interfere in the order of the Commissioner of Income-tax (Appeals) and hence this ground is also rejected.

16. In the result, the appeal of the assessee is dismissed.

17. Order pronounced in open court on 21st Aug., 2009.

(A.D. JAIN) (A.K. GARODIA)

JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: Aug. 21, 2009.

*SKB*

Copy forwarded to:-

1. The Appellant

2. The Respondent

3. The CIT

4. The CIT(A), Bareilly.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.