2004-VIL-258-ITAT-AGR

Equivalent Citation: TTJ 094, 1094

Income Tax Appellate Tribunal AGRA

Date: 28.09.2004

ASSISTANT COMMISSIONER OF INCOME TAX.

Vs

HINDUSTAN STEEL INDUSTRIES INDIA.

BENCH

Member(s)  : I.S. VERMA., M. L. GUSIA.

JUDGMENT

All these three appeals by the Revenue being in case of same assessee, we, for the sake of convenience, have decided to dispose of these appeals by this common/consolidated order.

2. So far as grounds taken in different appeals are concerned, it was admitted at the time of hearing that:

(i) Ground No. 1 which relates to the deduction of claim under s. 80IA of the Act, is common in all the three appeals.

(ii) Ground No. 2 which relates to the addition of Rs. 30,000 is only for asst. yr. 1993-94.

(iii) Ground No. 3 for asst. yr. 1993-94 is common as ground No. 2 for asst. yr. 1995-96.

(iv) Ground No. 4 for asst. yr. 1993-94 is common as ground No. 6 for asst. yr. 1995-96 and ground No. 2 for asst. yr. 1996-97.

(v) Ground Nos. 3, 4 and 5 for asst. yr. 1995-96 are independent grounds and;

(vi) Ground No. 3 and 4 for asst. yr. 1996-97 are independent for asst. yr. 1996-97.

3. First of all we have heard the parties with respect to ground No. 1 for asst. yr. 1993-94 which is common for all the three appeals/assessment year and is with respect to allowance of assessee's claim under s. 80-IA of the Act by the CIT(A).

4. The facts relating to this issue and as have been borne from the records are that the assessee, admittedly, was carrying on the business of rolling mill at Jhansi and of ship breaking at Bhavnagar.

5. Since it had carried on business of ship breaking during the previous years relevant to asst. yrs. 1993-94, 1995-96 and 1996-97 had claimed deduction under s. 80-IA of the IT Act. However, the AO rejected the assessee's claim for all the three assessment years.

6. On appeal by the assessee, the learned CIT(A) allowed the assessee's claim of deduction under s. 80IA from the income earned from the business of ship breaking. This issue was considered/discussed by the learned CIT(A) in great length while deciding assessee's appeal for asst. yr. 1995-96 paras 1.2 to 1.25, which has been followed in asst. yr. 1993-94 as well as in asst. yr. 1996-97.

7. It was in view of above facts and circumstances of the case that the learned senior Departmental Representative objected to the order of the CIT(A) by submitting that the activity of ship breaking does not amount to manufacturing or produce of an article or a thing which is the prime condition for allowance of deduction under s. 80-IA of the Act and for this purpose, relied on the latest decision of Hon'ble Gujarat High Court in case of CIT vs. Vijay Ship Breaking Corporation (2003) 181 CTR (Guj) 134 : (2003) 261 ITR 113 (Guj). Before concluding, the learned Departmental Representative further submitted that prior to decision of Hon'ble Gujarat High Court there was a decision of Hon'ble High Court of Bombay in case of Ship Scrap Traders vs. CIT (2001) 168 CTR (Bom) 489 : (2001) 251 ITR 806 (Bom) in favour of assessee wherein the deduction under s. 80HHA and under s. 80-I was allowed from the income earned from the business of ship breaking by holding the same to be industrial undertaking and involved in manufacturing and producing the articles or a thing. But since the Hon'ble Gujarat High Court has discussed this decision of Hon'ble Bombay High Court and is of later date, the Tribunal should follow the decision of High Court of Gujarat in case of Vijay Ship Breaking Corporation which is in favour of the Revenue and reverse the orders of the CIT(A) on this point.

8. The counsel for the assessee, admitting the availability of later decision of Hon'ble High Court of Gujarat in case of Vijay Ship Breaking Corporation and also the fact that decision of Bombay High Court in case of Ship Scrap Traders has been discussed and dissented, submitted that since none of these two decisions is of assessee's jurisdictional High Court, the judicial propriety requires that Tribunal should follow the decision favourable to the assessee and for this purpose relied on the decision of Hon'ble Bombay High Court in case of K. Subramaniam, ITO & Ors. vs. Siemens India Ltd. & Anr. (1983) 36 CTR (Bom) 197 : (1985) 156 ITR 11 (Bom) where, at p. 12 of the report the Hon'ble Court has held that "where there is a conflict between decisions of different High Courts, he must follow the decision of High Court within whose jurisdiction he is (functioning), but if the conflict is between decisions of other High Courts, he must take the view which is in favour of the assessee and not against him." The counsel for the assessee therefore submitted that the Bombay High Court as well as Gujarat High Court being other than jurisdictional High Court and the decision of Bombay High Court being favourable to the assessee, the Tribunal should follow the decision of Hon'ble High Court of Bombay in case of Ship Scrap Traders and confirm the orders of the CIT(A).

9. We have heard the rival submissions, facts and circumstances of the case and decisions of both Hon'ble High Courts of Bombay and High Court of Gujarat on the point of admissibility of deduction under s. 80-IA, which is in parameter with the provisions of ss. 80HH and 80-I with utmost care. We have also considered the proposition of law with respect to binding nature of precedent as well as judicial proprietary relating to following a precedent.

10. After carefully considering the totality of the facts and circumstances of the case, we are of the opinion that the decision to the issue involved in this ground of the Revenue is dependent on the answer to the question as to whether, where there are conflicting decisions of different High Courts, none of which is jurisdictional High Court, the decision, which is favourable to the assessee, should be followed or the later decision, which is against the assessee, should be followed by the Tribunal or subordinate Courts and are of the opinion that answer to this question is evident from the following important decisions which we have preferred to consider :

(1) Decision of Hon'ble Bombay High Court in case of K. Subramaniam, ITO & Ors. vs. Siemens India Ltd. & Anr.

In this case, the Hon'ble High Court, while narrating the legal position has, at p. 12 of the report, held as under:

"So far as the legal position is concerned, the ITO would be bound by a decision of the Supreme Court as also by a decision of the High Court of the State within whose jurisdiction he is (functioning), irrespective of the pendency of any appeal or special leave application against that judgment. He would equally be bound by a decision of another High Court on the point, because not to follow that decision would be to cause grave prejudice to the assessee. Where there is a conflict between different High Courts, he must follow the decision of the High Court within whose jurisdiction he is (functioning), but if the conflict is between decisions of other High Courts, he must take the view which is in favour of the assessee and not against him. Similarly, if the Tribunal has decided a point in favour of the assessee, he cannot ignore that decision and take a contrary view, because that would equally prejudice the assessee. He can, however, reject claims which are clearly and indisputably untenable and about which a different view is not rationally possible."

(2) Decision of Hon'ble Bombay High Court in case of Controller of Estate Duty vs. Shri Ashok Kumar M. Parikh (1990) 87 CTR (Bom) 124 : (1990) 186 ITR 212, 214 (Bom)

In this case also the Hon'ble High Court was to consider as to the binding nature of decision of a Court and since there were conflicting decisions of Hon'ble High Court of Madras and High Court of Andhra Pradesh, none of which was of jurisdictional High Court, the Hon'ble High Court held that none of the decision was binding on the Tribunal situated within the jurisdiction of High Court of Bombay. The relevant part reads as under:

"It is pertinent to mention that the Madras High Court decision followed by the Tribunal reported in V. Devaki Ammal vs. Asstt. CED (1973) 91 ITR 24 (Mad) is dt. 10th Oct., 1972, whereas the Andhra Pradesh High Court decision in Momanduri Seshamma vs. Appellate CED (1973) 88 ITR 82 (AP) was delivered on 7th Aug., 1971. Thus, when the Tribunal decided the appeal, there existed two High Court decisions, one upholding the validity of s. 24(1)(c) and the other striking it down. That being so, neither of the two decisions was binding on the Tribunal as such."

11. After having considered the aforesaid decisions of Hon'ble Bombay High Court which are an authority with respect to the binding nature of precedent, we, first of all are of the opinion that the assessee being stationed at Jhansi (UP), within the territorial jurisdiction of Hon'ble High Court of Allahabad, and the decision relied upon by the learned Departmental Representative and by the assessee being conflicting and of different two High Courts (High Courts other than the jurisdictional High Courts), none of these decision is binding on the subordinate Court/Tribunal situated within the territorial jurisdiction of Allahabad High Court.

12. Further we, in view of decision of Bombay High Court in case of Siemens India Ltd. are of the opinion that the decision of Bombay High Court, though is of earlier date and has been dissented from by the Hon'ble High Court of Gujarat, being favourable to the assessee should be followed. Consequently, we, in view of decision of Bombay High Court in case of Siemens India Ltd. follow the decision of Bombay High Court in case of Ship Scrap Traders wherein the business of ship breaking has been held to be business of manufacturing or producing articles or things so as to entitle the assessee deduction under ss. 80HH and 80-I of the Act. The provisions of s. 80-I being in parameter to the provision of ss. 80HH and 80-I, we in view of aforesaid decision of Bombay High Court, upheld the orders of CIT(A) for all the three assessment years under appeal.

13. Before parting with the matter, we are further of the opinion that the benefits to be given under s. 80-I or under s. 80-IA to the priority industries are to be liberally considered so as to the objectives of the provisions are carried out, CIT vs. UP State Agro Industrial Corporation Ltd. (1991) 93 CTR (All) 214 : (1991) 188 ITR 370, 375 (All) and if this proposition of law is followed then also we are of the opinion that in case of conflicting decisions of different High Courts, a decision favourable to the assessee should be followed so as to objectives of the provisions are carried out to its logical end.

14. Our conclusion to follow a decision favourable to the assessee is further strengthened by the decision of High Court of Bombay in case of CIT vs. Shree Mansinghka Oil Mills (P) Ltd. (1987) 62 CTR (Bom) 188 : (1988) 169 ITR 158 (Bom) wherein the Hon'ble High Court has held the profit on sale of by-products of the priority industry as the profit and gain attributable to the business of priority industry for the purpose of s. 80-I. Though this decision is not directly on the issue but we are of the opinion that it gives a clue that when the profit on sale of by-product can be said to be profit and gain attributable to the business of priority industry then the by-product, produce during the course of carrying on of a business, if happens to be of different utility and identity in the open market, then the production of such by-product can be said to have been manufactured or produced by the priority industry. In other words in the present case before us, during the process of ship breaking, various by-products are produced which have independent identity, use and market value in the market, so if profit on sale of such item can be attributed to the business of priority industry then definitely the activity which resulted the production of such items can be taken as manufacturing or producing of these by-products.

15. In view of above totality of the facts and circumstances of the case, we do not find any reason to interfere with the orders of CIT(A) allowing assessee's claim of deduction under s. 80-I of the Act and, therefore, the Revenue's grounds for all the three years are rejected.

16. Ground No. 2 for asst. yr. 1993-94 taken by the Revenue reads as under :

"That the learned CIT(A) has erred in law and on facts in deleting the addition of Rs. 30,000 made by the AO on the grounds that this amount was even not received but credited in the books under another head."

17. We have heard the parties.

18. The facts relating to the issue involved in this ground, which are relevant for disposal of the appeals and as have been revealed from the record are that during the course of assessment proceeding it was noticed that the appellant was purchasing gas cylinders from Gujarat Ship Breaking Association at certain fixed price but later on the Association allowed credit out of purchase amounts and as per letter dt. 29th March, 1993, informed the assessee that it was allowing the assessee some relief by way of credit note for excess recovery on account of price of the cylinders but enclosed a cheque for Rs. 4,727 only stating the same to be part payment against the credit note. The balance amount of Rs. 30,000 was kept by the Association as deposit. In this letter the Association had further informed the assessee to account for the credit note during the year ending 31st March, 1993.

19. The assessee, during the period ending 31st March, 1993, accounted only an amount of Rs. 4,727 and balance of Rs. 30,000 was not accounted for on the ground that the same having not been received was not to be accounted for in this year.

20. The AO considered the amount of Rs. 30,000 as assessee's income in asst. yr. 1993-94 on the ground that the assessee having followed mercantile system of accounting should have accounted for the credit note of Rs. 30,000 also.

21. On appeal by the assessee, the CIT(A) directed the AO to tax the amount in the year of actual receipt.

22. It was in the light of above facts and circumstances of the case that the learned Departmental Representative has supported the order of AO whereas the learned counsel for the assessee has supported the order of CIT(A).

23. After careful consideration of the facts and circumstances of the case, we are of the opinion that the assessee having admitted the receipt of Association's letter dt. 20th March, 1993 before 31st March, 1993, was bound to account for the total amount of credit note in this year irrespective of the fact as to whether the said amount was actually received by the assessee before 31st March, 1993, or not or was adjusted against the security or was adjusted in the accounts. The retaining back Rs. 30,000 by the association as deposit do not alter the nature of the receipt in the hands of the assessee. Consequently, we are of the opinion that CIT(A) was not justified in directing the AO to tax this amount on actual receipt basis. Order of CIT(A) on this point is reversed and that of the AO is restored.

24. Ground No. 3 for asst. yr. 1993-94 and ground No. 2 for asst. yr. 1995-96

25. The common issue involved in these grounds relates to disallowance of interest paid on interest bearing loans on the plea that assessee had advanced interest-free loans to partners/family members.

26. The facts relating to this issue, which are similar for both the assessment years, are that the AO had noticed that assessee had advanced certain loans to partners/family members but had not charged interest. The AO therefore considered the interest bearing loans to that extent as having not being utilised for assessee's business and consequently disallowed interest of Rs. 1,79,029 in asst. yr. 1993-94 and interest of Rs. 1,77,736 in asst. yr. 1995-96.

27. On appeal by the assessee, the CIT(A) deleted the addition in asst. yr. 1993-94 as per para 5.2 of the order by observing that the directions given in assessee's case in asst. yr. 1995-96 may be followed. In asst. yr. 1996-97 this issue was decided as per para 2.9 of the appellate order wherein the disallowance of interest was deleted by following the appellate order in assessee's own case for asst. yr. 1994-95 dt. 22nd Aug., 1997. While discussing this issue, the CIT(A) had relied on the assessee's submission that interest-free loans given by the assessee were out of interest-free deposits. There was no nexus between the interest-free loans given and interest bearing loans taken and that the loans to the partners were for construction of a building, which was being used for assessee's business also.

28. The learned Departmental Representative has supported the order of AO whereas the learned counsel for the assessee has supported the order of CIT(A).

29. After careful consideration of the totality of the facts and circumstances of the case, we, first of all are of the opinion that the CIT(A) having followed the appellate order for asst. yr. 1994-95 and the learned Departmental Representative being not pointed out as to the fact of that order, we do not consider it justified to interfere with the finding of the CIT(A) in this year.

30. Secondly, the learned Departmental Representative has not disputed the factual position stated by the CIT(A) and, therefore, in absence of nexus between the interest-free loan given by the assessee and interest bearing loans taken by the assessee, the action of the AO disallowing the interest on the ground that interest bearing loans were used for purposes other than business cannot be sustained. Consequently, order of CIT(A) on this point for both the years is confirmed.

31. Ground No. 4 for asst. yr. 1993-94, ground No. 6 for asst. yr. 1995-96 and ground No. 2 for asst. yr. 1996-97

32. In these grounds, the common issue relates to disallowance out of telephone expenses, conveyance expenses and depreciation of vehicles.

33. We have heard the parties.

34. After having perused the records before us, it is observed from para 6.5 of the appellate order for 1993-94 that the CIT(A) has deleted the disallowance on the ground that no disallowances were proposed when action under s. 147 was initiated. Since the learned Departmental Representative has not disputed the factual finding, we are of the opinion that while framing the assessment under s. 147 of the Act the only income to be brought to tax is the income which has escaped assessment or which is found to have escaped assessment (during the assessment proceedings under s. 147) but no disallowance on the ground that such expenses might have been incurred on account of purpose other than the business can be made. We are, therefore, of the opinion that CIT(A) was quite justified in deleting the disallowance in all the three years. This ground of Revenue is therefore rejected.

35. Ground No. 3 for asst. yr. 1995-96

36. We have heard the parties.

37. The facts relating to the issue are that during the course of search in assessee's case, a godown of Steel Sales Agency at P-17, Industrial Estate, Gwalior Road, Jhansi was also searched without there being any search warrant and Panchnama was prepared in assessee's name. The stock found at this premises amounting to Rs. 60,000 was considered as assessee's stock and was added to its income. The assessee's case was that this stock belonged to Steel Sales Agency and even otherwise was covered by the disclosure having been made by the assessee during the search on account of unaccounted stock. The CIT(A) deleted the addition considering the same to be against the principles of natural justice because Revenue had not carried on necessary verification with respect to the assessee's claim.

38. Since the learned Departmental Representative has not disputed the finding of the CIT(A) which are based on facts, we do not find any merit in revenue's ground and, therefore, the same is rejected.

39. Ground No. 4 for asst. yr. 1995-96.

40. In this ground the Revenue has objected to the order of CIT(A) wherein the addition of Rs. 55,000 having been made on account of entries on loose papers Annex. A-1/84 found in the premises of Arun Kumar Jain. The CIT(A) has simply directed the AO to verify the assessee's claim that entries in the said papers relate to Laxmi Steels Rolling Mills, Sihore (Bhavnagar), were in relation to security furnished to Supdt., Customs and Central Excise, Sihore. The AO was further directed to delete the addition after verifying the account.

41. After hearing the parties, we are of the opinion that the Revenue cannot have any grievance against the directions of the CIT(A) because the AO has been directed to delete the addition only after verifying the assessee's claims and against which means that in case the assessee's version is found to be wrong then there will not be any deletion. This ground of appeal is, therefore, disposed of accordingly.

42. Ground No. 5 for asst. yr. 1995-96.

43. In this ground the issue relates to the addition of Rs. 2,85,500 made for excess stock of raw material amounting to Rs. 1,15,737 and short stock of finished goods amounting to Rs. 1,69,763. The assessee's case therefore had been that the stock of raw material as well as finished goods was taken without actual weighment and Revenue authorities did not bother to have actual weight inspite of various requests. The addition was made on the basis of ADIT report. In view of the circumstances, the CIT(A) has deleted the addition.

44. After hearing the parties and the fact that the Revenue has not brought any material contrary to the finding of CIT(A), we do not find any reason in interfering with the finding of the CIT(A) which are confirmed. This ground is also rejected.

45. Ground No. 3 for asst. yr. 1996-97

46. In this ground the Revenue has objected to the deletion of an amount of Rs. 6,657 disallowed by the AO out of repairing expenses. From the para 5 of order of CIT(A) it is revealed that the AO has disallowed 10 per cent of repairing and maintenance expenses for want of external vouchers without appreciating the fact that expenses were duly supported by internal vouchers. The CIT(A) deleted the disallowance by observing that all expenses have been incurred for business expediency and there was no personal element.

47. Having heard the parties and gone through the facts and circumstances of the case, we are of the opinion that disallowance for want of external vouchers was uncalled for and CIT(A) was justified in deleting the same.

48. So far as ground No. 4 for asst. yr. 1996-97 is concerned, the learned Departmental Representative has just supported the order of AO.

49. After hearing the parties and having gone through the orders of Revenue authorities, we are of the opinion that in view of the fact that the AO has not passed a specific order for charging of interest under a particular provision, the CIT(A) was quite justified in cancelling the same.

50. This ground of Revenue is also rejected.

51. In the result, the appeal for asst. yr. 1993-94 is partly allowed and all other appeals are dismissed.

 

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