Delhi High Court

Asstt. Cit vs Whalegraphics India Ltd. on 14 July, 2003

Equivalent citations: (2004) 91 TTJ Del 181

ORDER

Y.K. Kapur, J.M.:

These are the two appeals filed by the revenue with a common ground of challenge to the order of the Commissioner (Appeals), which are reproduced below :

ITA No. 4364/Del/1998

"On the facts and in the circumstances of the case, the Commissioner (Appeals) has erred both on facts and in law

1. In admitting the appeal of the assessed in contravention to section 249(4) in view of the fact that the assessed had not paid the entire tax due on its return income as per the provisions of section 140A.

2. In deleting the addition of Rs. 8,87,664 on account of damaged stock written off by accepting the assessed's contention that the assessing officer had not asked for the relevant details to be filed at any stage during the course of assessment proceedings despite the fact thatthe assessing officer had specifically called for such details as is evident from the order-sheet entries, dated 10-2-1997, 21-3-1997, 25-3-1997, 7-4-1997 and 16-7-1997.

3. In directing to allow deduction under sections 80HH and 80-I on the interest income of Rs. 84,000 despite the fact that such income is not directly derived from the industrial activities carried on by the assessed.

ITA No. 4366IDe)11998

"On the facts in the circumstances of the case, the Commissioner (Appeals) has erred both on facts and in law :

1. In admitting the appeal of the assessed in contravention to section 249(4) in view of the fact that the assessed had not paid the entire tax due on its returned income as per the provisions of section 140A.

2. In deleting the addition on account of damaged stock written off by accepting the assessed's contention that the assessing officer had not asked for the relevant details to be filed at any stage during the course of assessment proceedings despite the fact that the assessing officer had specifically called for such details as is evident from the various order-sheet entries.

3. In directing to allow deduction under sections 80HH and 80-I on the interest income despite the fact that such income is not directly derived from the industrial activities carried on by the assessed. "

2. At the time of hearing of the appeal, we checked up with the learned Departmental Representative as to how the ground No. 1 emanates from the order of the Commissioner (Appeals). The learned Departmental Representative very fairly submitted that it does not arise out of the order of the Commissioner (Appeals). In this view of the matter the ground No. 1 of the two appeals filed by the revenue are dismissed.

3. This brings us to ground No. 2 of the appeal where the Commissioner (Appeals) has deleted the addition on account of damaged stock written off by the assessed. The genesis of the present litigation is that the assessed in its books of account had written off certain amounts on account of damaged stock. According to the assessed, the said written off values were reflected in the books of account and ultimately taken to the P&L a/c which was produced by them at the time of assessment before the assessing officer. The assessed contended that at no point of time the assessing officer ever called for any explanation. It was in this background suggested that assessing officer was not (justified in) making an addition on account of the damaged stock written off.

4. Being aggrieved by the order of the assessing officer, the assessed filed an appeal before the Commissioner (Appeals) which appeal of the assessed was allowed by the Commissioner (Appeals) with the following observations :

"Before me, the learned authorised representative has protested against this addition and has stated that at no stage during the course of the assessment proceedings, the details of damaged stock were asked to be furnished. It was further explained that the said damaged stock pertains to computer stationery that was sent to various customers and branches. The goods were either returned back by the customers or by the branches due to various reasons. These stocks were mostly not up to the standard required or there were printing discrepancies therein. The percentage of the damaged stock to the total sale is only 1.75 per cent which is insignificant. Photocopies of the journal entries along with supporting proof of all the materials returned were furnished before me."

5. The revenue has a grievance to the said order of the Commissioner (Appeals) and is in appeal before us. At the time of hearing of the appeal learned Departmental Representative on this issue relied upon the order of the assessing officer while the learned authorised representative relied upon the order of the Commissioner (Appeals).

6. We have heard the parties and taken ourselves through the record and find that at no point of time the assessing officer ever asked the assessed to produce the evidence with regard to the damaged stock. The books of accounts where the necessary entries with regard to damaged stocks were available before the assessing officer, but no explanation at any point of time was called for. The other submission of the learned authorised representative was that the stationery sent to the customers get damaged some time. That apart learned authorised representative contended that looking at the volume of the damage which was to the tune of 1.75 per cent, it was insignificant. The record also reflects that the photocopies of journal entries along with supporting proof of all the materials returned were furnished before the Commissioner (Appeals) which is co-terminus with the documents submitted before the assessing officer. In view of these facts we find no infirmity in the order of the Commissioner (Appeals) and have, therefore, no hesitation in rejecting ground No. 2 of the appeal.

7. This brings us to ground No. 3 filed by the revenue where the challenge is to the order of the Commissioner (Appeals) in holding that the interest income has been directly derived from the industrial activities carried on by the assessed. The relevant facts available on the record as far as this issue is concerned is that the assessed received the interest amount which comprised of :

(a) interest amount received from ITC Triveni Tissues Ltd. on account of security deposit for purchase of paper,

(b) interest received from bank on account of margin money,

(d) interest received from suppliers.

8. It was the case of the assessed that all these interests are derived from the industrial activities. The arguments raised by the assessed though failed before the assessing officer, found favor with the Commissioner (Appeals) who proceeded to hold that this income is derived from industrial undertaking.

9. The revenue has a grievance to the said order of the Commissioner (Appeals) and is in appeal before us.

10. At the time of hearing of the appeal, learned authorised representative brought to the notice recent judgment of the Apex Court reported in the case of Pandian Chemicals Ltd. v. CIT (2003) 129 Taxman 539 (SC) wherein the Hon'ble Supreme Court has held that the word 'derived' in section 80HH must be understood as something which has direct or immediate nexus with an industrial undertaking. This was a case where some amount was deposited with the Electricity Board on which certain interest was earned. The income from interest was not taken as interest derived from the industrial undertaking. The Apex Court answered this question in the negative. Respectfully following the decision of the apex Court, we have no hesitation in rejecting the ground No. 3 of the appeal which we hereby do.

In the result, the appeal filed by the revenue is dismissed.