ORDER
B.L. Chhibber, A.M.
The most important ground raised in this appeal by the assessee relates to the rejection of the assessee’s claim of relief under section 80-I of the Act.
2. The assessee is a private limited company engaged in the manufacturing of detergent powder, toothpaste, detergent cake, shaving cream, etc. The assessee- company claimed deduction under section 80-I amounting to Rs. 67,10,045. The assessing officer noticed that the assessee-company was manufacturing items mentioned in Schedule XI. As per the provisions of section 80-I (2) an industrial undertaking manufacturing any of the articles or items specified in Schedule XI was not eligible for deduction under section 80-I. However, second proviso below sub-section (2) made it clear that this disqualification did not operate against small scale undertakings. For the purpose of section 80-I the definition of small scale undertaking has been adopted from the provisions of section 80HHA. As per these provisions, 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 assessing officer from the perusal of balance-sheet, it was noticed that the value of plant and machinery as on 31-3-1993, 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 Commissioner (Appeals). The assessee also placed reliance on certain High Court judgments.
3. The assessing officer considered these submissions and facts and circumstances of the case. He held that in the absence of any definition of ‘industrial undertaking’ in the Act the expression needs to be interpreted as normally understood in the common parlance. According to the assessing officer in the common parlance an industrial undertaking would be separate and distinct if it is in a position to independently run. On this basis, the facts of the assessee’s case did not support its contention that it should be regarded as three separate undertakings. The assessing officer cited the following facts :
1. These activities were carried out in single premises having one compound-wall and having only one gate.
2. There was a common source of water.
3. There was single electric connection for running the entire plant and machinery. Another electrical connection was provided only for the office which too was common for all the activities.
4. There was no separate administrative office but a common administrative office.
5. Even inside the compound-wall there was no separate demarcation. No walls have been provided in between to make them separate enclosures. It was only with a view to maintain good quality products that the appellant had to isolate the toothpaste making from other products since that bacteria free environment is required for production of toothpaste.
6. There was a common laboratory for checking/testing the raw material. There was another laboratory for checking the final product of the toothpaste which was required for the reason of highly sophisticated equipments/apparatus. Separate laboratory for this purpose was not provided because there was a separate industrial undertaking but only because of the completion of checking the quality of the toothpaste.
7. There was common inward register in respect of raw materials. There was no separate material issue register. The purchases and sales in respect of all the products were entered in the same register. Manufacturing expenses were also debited in the same account. Overhead establishment expenses incurred were also common and debited in the common account.
8. Even at the end of the year, the income and expenditure relatable to various products was not separated and a single manufacturing trading and P&L a/c drawn.
According to the assessing officer the above facts and circumstances showed that there was only one industrial undertaking in which the various items were produced and at best, it could be regarded as different sections of the same industrial undertaking. Thereafter, the assessing officer proceeded to examine as to whether the assessee-company employed requisite number of workers since for the purpose of deduction under section 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 assessing officer 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 assessing officer the assessee had not employed 10 or more workers in the manufacturing process.
4. The assessing officer further held that as far as the following incomes were concerned,
the same were not entitled to any deduction under section 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 assessing officer held that the deduction under section 80-I was not available to the assessee because :
1. The assessee- company is not a small scale industrial under-taking in terms of section 80-1(2). Explanation 2.
2. The assessee-company is manufacturing an article as specified in Schedule XI of the Act and assessee not being a small scale industrial undertaking is not eligible for deduction under section 80-I(2)(iii).
3. The assessee- company does not employ prescribed number of workers as per provisions of section 80-I(2)(iv).
6. The assessee appealed to the Commissioner (Appeals) and made detailed submissions as per its letter dated 25-4-1996. Thereafter, the assessee once again made detailed submissions which were filed along with paper-books on 18-7-1996. A complete set of written submissions and the paper-book was furnished to A. K. Jain, Deputy Commissioner (Appeals) assessing officer who attended personally before the Commissioner (Appeals). Jain filed his detailed rejoinders to the assessees written submissions as per his letter dated 9-8-1996. A copy of the rejoinder was forwarded to the assessee and thereupon the assessee made further submissions as per his letter dated 2-9-1996. After hearing both. the sides in great detail and after considering the entire material placed before him the learned Commissioner (Appeals) agreed with the finding of the assessing officer and summed up his conclusion in para 48 of his order as per below :
“To sum up I hold that the appellant is not entitled to any deduction under section 80-I for the following reasons ..
1. The appellant has been manufacturing items enumerated in Schedule XI and the appellant is not a small scale undertaking because the value of plant and machinery as at the end of year far exceeded the sum of Rs. 35 lakhs. On the facts and in the circumstances of the appellant’s case, the appellant is to be construed to be running a single industrial undertaking.
2. The appellant does not qualify the requirements of the employing 10 or more workers in its manufacturing process.
3. In any case there is no income or profit derived from the industrial undertaking of the appellant as far as assessment year 1993-94 is concerned.
7. Ketan H. Shah, the learned counsel for the assessee, submitted that both the assessing officer and the learned Commissioner (Appeals) were not justified in rejecting the assessee’s claim under section 80-I. As regards the first issue whether the assessee was running one unit or different distinguishable units, the learned counsel submitted that the map of the factory (which was produced before both the authorities below) showed that each unit 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 Explanation No. 3 to section 80-I(2) read with the definition given in clause (b) to Explanation below sub-section (8) of section 80HHA which are as under :
31st March, 1991
31st March, 1992
31st March, 1993
31st March,1994
31st March, 1995
Det. Powder
9,001
1,10,994
78,182
78,182
36,749
Scouring powder
1,00,000
91,409
91,409
91,409
91,409
Toothpaste
16,96,564
16,96,564
16,96,564
16,96,564
57,802
Acid slurry
1,23,780
1,23,780
1,23,780
1,23,780
1,23,780
Shaving cream
17,78,405
17,78,405
17,78,405
17,78,405
17,78,405
Detergent cake
34,021
34,021
34,021
34,021
34,021
As per clause (1) of Explation (b) the abovesaid working is based on the actual cost to the assessee since all the plant and machinery have been owned by the assessee. So, there is no other criteria applicable. He further drew our attention to various details unitwise/industrial undertaking wise which are as under :
Scouring powder
Toothpaste
Detergent cake
Detergent powder
Scouring powder
Workers employed
632
977
379
2,247
80 = 4,315
Sales
65,78,130
3,52,46,460
4,73,288
45,73,363
1,11,360
Area (sq. ft.)
4,462
10,197
8,00
4,455
1,260
Excise No.
3,307.10
3,306
3,401.20
3,402.90
3,405.40
8. The learned counsel did not dispute that the office staff was common for all the units but argued that this was not the criteria so as to determine whether each unit was a separate unit. It was also not necessary to keep separate books of account for each unit. Since all the units were eligible for deduction under section 80-I there was no need to keep separate books of account. According to the learned counsel the map of factory showed that there was clear demarcation in between each unit and merely saying that the same was to maintain good quality production does not result into any adverse finding against the assessee.
9. Shah further argued that the observations of the assessing officer that there was one common laboratory was not correct. In fact there were four separate laboratories. The learned counsel, therefore, concluded that each unit was distinguishable, and accordingly the assessee was entitled to deduction under section 80-I in respect of each unit. Regarding the contention of the assessing officer that the labourers working in the assessee’s manufacturing unit cannot be treated as employees of the assessee but of the contractors engaged by the assessee, the learned counsel contended that while the bills were raised by the contractors all payments were directly made to the workmen 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 section 80-I, in view of the decision of the Tribunal, Ahmedabad ‘A’ Bench in Prithviraj Bhoorchand v. Asstt. CIT : (1993) 47 ITD 361 (Ahd-Trib).
10. As regards deduction under section 80-I in respect of profit on trading sales, sales of raw material the learned counsel drew our attention to the submissions to the Commissioner (Appeals) 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 fulfilment of the export obligation. He further drew our attention to the import-export policy-para 127(1)(c) placed at paper-book p. A-91 wherein it was made clear that the assessee could sell out material imported. According to the learned counsel the assessee is entitled to import a specific raw material and not any material at its wish. Thus, it can only import the raw material which can be usable in its finished products. Thus, the assessee is entitled to import such raw material on particular finished goods only and in reference to particular raw material having particular quality and particular quantity. According to the learned counsel all these go to show that so-called imported raw material which the assessee was entitled to get on account of advance licence because it was supporting manufacture. Thus, such profit is the income derived from the income from industrial undertaking; that is directly derived from and linked with the finished product. The learned counsel also drew our attention to the submissions to the Commissioner (Appeals) at paper-book p. A-48 wherein it was stated that two headings given, i.e., trading sales and raw material sales is only to have a clear mind to the effect that in a heading of trading sales, the assessee used to sell out the whole advance licence imported items. However, with reference to the raw material sales the assessee may use some of the items for its captive consumption. So, two headings were made in the P&L a/c. The details of all such advance licences were also filed before the assessing officer. He further submitted that it was also worthwhile to note that the assessing officer who had passed the order was also present and was heard at length before the Commissioner (Appeals). The learned counsel submitted that there was not a single purchase or sale from local market and all the profit of so-called trading sales is on account of advance licences only. The break-up of the figure of 8.32 crores were also filed before the assessing officer while filing the list of advance licence. He drew our attention to such details. He, therefore, submitted that the assessee was entitled to deduction under section 80-I in respect of profits on trading sales and sales of raw material.
11. As regards deduction under section 80-I in respect of interest earned on bank deposits, the learned counsel submitted that the bank insisted on fixed deposits before opening of letter of credit?. He emphasised that there is a distinction 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 section 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 section 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. ITD. v. V.P. Gupta (1978) 113 ITR 647 (SC), CIT v. Indian Bank ITD. (1965) 56 ITR 77 (SC), and the judgment of Gujarat High Court in the case of CIT v. Alembic Glass Industries ITD. (1976) 103 ITR 715 (Guj)
13. As regards whether the assessee had employed 10 or more workers, the learned Departmental Representative submitted that the workers were not directly employed by the assessee but were employed by different contractors. Workers employed through the contractors cannot be considered as workers of the assessee. In support of his contention he relied upon the Bangalore Bench of the Tribunal in Krishna Plastic Industries (P) ITD. v. I T O (1985) 14 ITD 121 (Bang-Trib).
14. As regards profit on trading sales and interest on bank deposits, the learned Departmental Representative submitted that there was no direct nexus between the manufactured goods and the goods imported and hence, the assessee is not eligible for deduction under section 80-I. He submitted that it may be possible that some goods imported by the assessee might have been used in the manufacturing process, then only pro rata deduction under section 80-I may be allowed. He submitted that interest income does not qualify for deduction under section 80-I in view of the judgment of Madras High Court in the case of CIT v. Universal Radiators (P) ITD. (1981) 128 ITR 531 (Mad).
15. We have considered the rival submissions and perused the facts on record. There is no dispute that the assessee is an industrial undertaking engaged in the manufacturing of toothpaste, detergent powder, etc. The question before us is whether the assessee industrial undertaking is entitled to deduction under section 80-I of the Act. The authorities below have denied deduction under section 80-I on the following three grounds :
1. The assessee-company has been manufacturing items enumerated in Schedule XI and the assessee is not a small scale undertaking because the value of plant and machinery of all the units as at the end of the year far exceeded a sum of Rs. 35 lakhs.
2. The assessee-company does not qualify the requirement of employing 10 or more workers in its manufacturing process.
3. There is no income or profit derived from the industrial undertaking of the assessee per assessment year 1993-94 is concerned.
4. The assessee is not entitled to deduction under section 80-I in respect of profits on trading of goods imported by it; profits on sale of raw materials and on interest received on fixed deposits.
16. After hearing 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 assessment year 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 Schedule 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) ITD. v. IAC (1995) 52 ITD 55 (Chd-Trib). Manufacturing process of each unit is also different. Raw material ratio of each unit is also different. Separate lists of plant and machinery were already on records since assessment year 1991-92. We accordingly hold that for allowing deduction under section 80-I each unit is to be considered separate and independent one.
16.1. As regards the second issue whether the assessee employs 10 or more workers we find that each unit employed more than 10 workers though labour is employed through contractors; in essence it is the assessee- company which has provided employment to staff-workers. It is always the essence which matters and not the form. The case of the assessee stands squarely covered by the decision of the Ahmedabad Bench in the case of Prithviraj Bhoorchand cited supra where it has been held that workers employed through the contractor in the manufacturing process have to be treated as workers employed by the industrial undertaking within the meaning of section 80-I(2)(iv). A similar view has been held by the Jaipur Bench of the Tribunal in Rajasthan Transmission Wires (P) ITD. v. ITO (1985) 22 TTJ (Jp-Trib) 343. The reliance placed by the learned Departmental Representative on the decision of Bangalore Bench of the Tribunal in (1985) 14 ITD 121 (Bang-Trib) (supra) is of no assistance to the revenue. In that case no wages were paid by the assessee and the agency employed was also separate industrial undertaking. However, in the case of the assessee; the assessee has directly paid wages as per contractors’ confirmation and workers had worked in the assessee’s industrial undertaking with assessee’s electricity/raw material. Accordingly we hold that the assessee had employed more than 10 workers in its units and as such the assessee is entitled to deduction under section 80-I.
17. As regards the third issue that there is no income or profit derived from the industrial undertaking of the assessee-company, we do not find any merit in it. As per the order of the Commissioner (Appeals), p. 29 first para, it was observed that there was huge loss on sale of manufacturing of the goods and as such the matter ends here itself inasmuch as the assessee-company did not derive any such income and instead incurred the loss. In our view the finding given by the Commissioner (Appeals) is contrary to the facts and in contradiction to the finding given in the assessing officer’s order p. 13, middle para wherein it was stated that the total gross profit rate including advance licence trading profit comes to 20.67 per cent as against in the immediate preceding year it was 11.98 per cent as per the assessing officer (p. 14 of the assessing officer’s order). The assessing officer 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 Commissioner (Appeals) 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 section 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 closely and intimately connected with the assessee’s business of manufacture and export of manufactured commodities. Moreover, the mode in which the assessee acquired the import entitlements without paying a price for it shows that the transaction of acquiring import entitlements amounted to an exchange by exporting selfmanufactured goods, the assessee got import entitlements which amounted to a barter or which may be termed as receiving the sale price for the goods exported partly in cash and partly in kind. The said barter/exchange was voluntarily done by the assessee by registering itself under the Export Promotion Scheme of the Government of India. Such exchange or barter, therefore, constituted an adventure which resulted in realising the sale proceeds of the goods exported. The transaction of sale of import entitlements has taken place in connection with the business carried on by the assessee of manufacture and export of manufactured commodities in the usual course and, therefore, it is assessable business income. This view finds support from the judgment of the Hon’ble Ca/cutta High Court in the case of United Bank of India ITD. v. CIT (1963) 50 ITR 258 (Cal). The Hon’ble Supreme Court of India in the case of Sardar Indra Singh & Sons ITD. v. CIT (1953) 23 ITR 415 (SC), had also occasion to consider this proposition. It was held by the Hon’ble Supreme Court of India that the question in such cases was whether the sales which produced a surplus were so connected with the carrying on of the assessee’s business that it could fairly be said that the surplus was the profits and gains of such business. It is further noted that there is not a single purchase or sale from local market and all the profit of the so-called trading sales is on account of advance licences only. Hence, we hold that profits on trading and sale of raw materials were business income entitled to relief under section 80-I.
18.1. The reliance placed by the authorities below on the judgment of Madras High Court in the case of CIT v. Eastern Sea Foods Export (P) ITD. (1995) 215 ITR 64 (Mad) is of no assistance to the revenue. The judgment in that case is in respect of replenishment licence whereas in the case of the assessee, it is in respect of advance licence. It is further seen that the case referred and followed by the assessing officer is totally distinguishable from the facts of the case of the assessee because 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 v. CIT (1991) 190 ITR 275 (Karn), wherein it has been clearly held that profits on sale of import entitlements are to be treated as business income for special deduction under section 80HH in respect of such income.
19. As regards the question whether the assessee is entitled to relief under section 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 letter of credit account and accordingly the assessee had to deposit amounts in the fixed deposits for the same purpose. Letter of credit account was opened for the business of the assessee during the course of the business of the assessee. Whether interest income will be income from business or income from other sources will mainly depend upon the facts of each case. It is evident that in this case the assessee was an exporter and against the export licence used to import raw materials. The assessee’s bankers were insisting that the assessee shall place sufficient amount with it so as to enable it to issue letter of credit against security of the fixed deposit. Thus, it was out of business compulsion that the assessee had to deposit money in fixed deposit and consequently earned interest thereon. Therefore, in our opinion the purpose of placing money in fixed deposit with the banks was not to earn interest on investment of surplus funds, but the investment was necessitated by compelling business requirements. In our view the issue stands covered in favour of the assessee by the decision of the Gujarat High Court in the case of CIT v. Gujarat Mineral Rural Development Corpn. (1981) 132 ITR 377 (Guj). A similar issue came up before the Tribunal, Ahmedabad ‘A’ Bench in the case of Asstt. CIT v. Kambatta Family Trust, (ITA No. 3903/Ahd/1990; assessment year 1986-87 [reported as (1999) 7 DTC 563 (Ahd `A Trib): (1998) 67 ITD 411 (Ahd-Trib)] to which both of us were parties. We decided the issue in favour of the assessee following the judgment of the Gujarat High Court in the case of Gujarat Mineral Rural Development Corpn. (supra). Following our aforesaid decision we hold that the assessee is entitled to deduction in respect of interest income earned on fixed deposits.
20. In the light of the above discussion, we hold that the assessee is entitled to deduction under section 80-I as claimed by it. The ground raised by the assessee accordingly succeeds.
21. The next dispute is the rate at which deduction under section 80-I should be given to the assessee. According to the assessing officer, the assessee is not entitled for any deduction under section 80-I. Without prejudice to this stand, the assessing officer has further held that the assessee’s claim for deduction at the rate of 30 per cent is not correct because such higher deduction is available only to those companies which begin manufacture or production during the period commencing on 1-4-1990, and ending on 31-3-1991. According to the assessing officer in the case of the assessee, it had commenced manufacture or production much before 1-4-1990. The assessing officer 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 1-4-1990, to 31-3-1991. On appeal the Commissioner (Appeals) confirmed view of the assessing officer 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 assessment year 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 section 80-I had been allowed in the assessment year 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 section 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 assessing officer. He is directed to allow deduction under section 80-I at the appropriate/permissible rate after giving an opportunity of being heard to the assessee.
23. The next grievance of the assessee is that the learned Commissioner (Appeals) is not justified in confirming an addition of Rs. 12,64,660 to the trading results. During the course of assessment proceedings the assessing officer made the above addition on the ground that the amount of purchases recorded by the assessee in the names of Aids Chem., Alpine Chemicals and Savai Sales and another concern were not verifiable and could not be considered to be totally correct and there may be elements of inflation of the purchase price. On appeal the Commissioner (Appeals) restored this issue to the file of the assessing officer for resjudication because during the course of proceedings before him the assessing officer who appeared before him admitted that further investigation was called for to arrive at a correct conclusion. K.H. Shah, the learned counsel submitted that the learned Commissioner (Appeals) has disposed of the ground relating to the trading addition in a summary manner without deciding each and every grounds taken and/or the argument as per the written submissions dated 25-4-1996. He submitted that instead of restoring the issue to the file of the assessing officer the Commissioner (Appeals) ought to have disposed of the ground after taking into consideration the submissions made by the assessee’s representative. The learned Departmental Representative submitted that in the absence of full details the learned Commissioner (Appeals) was justified in restoring this matter to the file of the assessing officer.
24. We have considered the rival submissions and perused the facts on record. We find that the Commissioner (Appeals) has restored this issue back to the file of the assessing officer because some points raised in the assessment order were not clear and some further details were called for, for arriving at a judicially correct conclusion. We accordingly uphold the order of the Commissioner (Appeals) restoring the issue to the file of the assessing officer. Needless to say that the assessing officer will give full opportunity to the assessee while readjudicating the issue. This ground accordingly fails and is dismissed.
25. The next ground raised by the assessee relates to disallowance out of foreign tour expenses. During the course of assessment proceedings the assessee was asked to justify the expenditure of Rs. 6,93,044 claimed as deduction on, account of foreign tour. It was stated by the assessee that they were hitherto making exports through 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 assessing officer. From the perusal of the reply and details furnished the assessing officer 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. ITD. According to the assessing officer the assessee could riot 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 Commissioner (Appeals) confirmed the addition.
26. K.H. Shah, the learned counsel for the assessee, submitted that there was no justification for the impugned addition. He drew our attention to the tabularised chart of each director placed at p. 8 of the paper-book. He submitted that the directors did visit foreign countries for getting export orders and they stayed in those countries for business purposes. They neither had any relatives in those countries to live with nor had gone for pleasure trip. He submitted that all relevant evidence about the permission of the Reserve Bank of India (RBI), foreign exchange got by each director, copies of bills of stay, etc., were produced before the assessing officer. According to him only because there was no immediate direct benefit to the assessee-company the assessing officer was not justified in curtailing the claim of the assessee. S.S. Panwar, the learned Departmental Representative relied upon the orders of the authorities below.
27. We have considered the rival submissions and perused the facts on record. The factum of the directors’ having travelled to foreign countries for getting export orders is duly established. We also do not find any merit in the findings of the authorities below that the directors overstayed in each country. There cannot be any presumption as assumed by the authorities below that the directors had gone for some sort of pleasure trip. Whether the assessee is benefited by foreign travel or not, is a subsequent event not relevant as held by the Delhi Bench of the Tribunal in (1995) TLR 498 (Del-Trib). In any case there would be rule 6D applied for which the auditors have already applied and worked out disallowances. Here we are supported by the order of the Tribunal, Ahmedabad Bench in Raymon Glues & Chemicals v. L4C (1993) 46 TTJ (Ahd-Trib) 69 3: (1994) 75 Taxman 127 (Ahd-Trib). We accordingly hold that the foreign trips were undertaken by the directors for business purposes and there is no justification for disallowing the foreign tour expenses at the rate of 50 per cent on pure estimate. We accordingly delete the addition of Rs. 4,34,626. This ground accordingly succeeds.
28. The next ground raised by the assessee relates to disallowance of a sum of Rs. 48,442 out of telephone expenses. The assessing officer made the disallowance at the rate of 1/5th of the expenditure incurred on telephone installed at the residence of the directors on account of personal use of the telephone by the directors and members of their families. On appeal the Commissioner (Appeals) upheld the addition by his brief remarks “the estimate of disallowance as made by the assessing officer 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 assessing officer and confirmed by the Commissioner (Appeals) on pure estimate. In our view in view of the written submissions before the authorities below dated 25-4-1996 and the decision of Shalimar Fashions (P) ITD. v. ITO (1981) 11 TTJ (Del) 326 as well as Bombay Special Bench decision in Daks Copy Services (P) ITD. v. 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 assessing officer 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 section 37(2A).
31. On appeal, the Commissioner (Appeals) gave a relief of Rs. 10,000. Thus, only an amount of Rs. 5,000 is in dispute before us. After hearing both the sides we are of the opinion that the relief given by the Commissioner (Appeals) is fair and reasonable and no further relief is called for. This ground accordingly fails and is dismissed.
32. The next ground raised by the assessee relates to confirmation of penalty of Rs. 6,550. During the course of assessment proceedings the assessing officer noted that the assessee had been penalised under the Sales Tax Act (penalty amount Rs. 550) and under the Factories Act (penalty amount Rs. 6,000). He accordingly disallowed these two amounts. On appeal, the Commissioner (Appeals) confirmed the same.
33. We have heard both the parties. Infringement of law is no incidence of business. Accordingly, we concur with the findings of the authorities below and hold that the assessee is not entitled to deduction of Rs. 6,500-being penalties under the Sales Tax Act and the Factories Act. This ground accordingly fails and is dismissed.
34. Ground No. 7 raised by the assessee relates to charging of interest under sections 234B and 234C which reads as under :
“In not appreciating the facts and/or law that the appellant totally denies liability to pay interest under sections 234B and 234C in view of the written submission dated 25-4-1996, relevant p. 31 in which the reliance as per para 3 was placed on Ranchi Club ITD. v. CIT (1996) 85 Taxman 201 (Pat), decision of Patna High Court”.
The assessing officer charged interest under sections 234B and 234C. Before the Commissioner (Appeals) the assessee denied its liability under sections 234B and 234C. Reliance on this behalf was placed on the Gujarat High Court judgment CIT v. Bharat Machinery & Hardware Mart (1982) 136 ITR 875 (Gul). The Commissioner (Appeals) held as under:
“Inasmuch as I have already restored the ground relating to the additions to the trading results to the file of the assessing officer. The assessing officer is also directed to grant corresponding reduction in the amount of interest in accordance with relief granted by this order.”
35. K.H. Shah, the learned counsel for the assessee submitted that the assessee was not liable to pay any interest under sections 234B and 234C at all. In support of his contention he relied upon the decision of this Tribunal in the case of the assessee for the assessment year 1988-89 to which both of us were parties. The learned Departmental Representative relied upon 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 dated 27-2-1997, for the assessment year 1989-90 this Tribunal observed as under :
“We have considered the rival submissions and perused the facts on record. Section 207, as substituted by the Direct Tax Laws (Amendment) Act, 1987 with effect from l-4-1988, 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 sections 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 sections 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 ITD. v. ITO (1989) 178 ITR 509 (Ker), the advance tax means only the tax paid before the assessee as required by the Act. We accordingly hold that the assessee was not liable to pay any advance-tax and, hence, there is no justification for charging interest under section 234B”.
The facts this year before us are identical to those relating to assessment year 1989-90. Accordingly, we hold that the assessee was not liable to pay any advance-tax and hence there is no justification for charging interest under sections 234B and 234C. This ground accordingly succeeds.
37. The last grievance of the assessee relates to non-admission of additional ground raised before the Commissioner (Appeals). It has been submitted before us that additional ground (No. 10) was raised in the written submissions dated 25-4-1996, before the Commissioner (Appeals). Shah the learned counsel for the assessee prayed that since the assessing officer himself had appeared before the Commissioner (Appeals) and all the material facts were disclosed before the assessing officer and the claim was also made before the assessing officer there is no reason to discard the additional ground raised by the assessee. He submitted that he will be satisfied if the Commissioner (Appeals) is directed to entertain the additional ground and dispose of it after hearing the parties.
38. The learned Departmental Representative has no objection to our giving such a direction to the Commissioner (Appeals). We accordingly direct the Commissioner (Appeals) to entertain the additional ground raised before him and adjudicate upon the same after giving an opportunity of being heard to the parties.
39. In the result, the appeal is allowed in part.
