In Commissioner Of Income Tax v. P.damodaran, (2006) 282Itr 466 (Mad), This Court Has Held As Under

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HON'BLE MR.JUSTICE R.SUDHAKARANDTHE HON'BLE MS.JUSTICE K.B.K.VASUKI T.C.(A).No.391 of 2008 The Commissioner of Income TaxChennai. ... AppellantVs. P.Damodaran ... Respondent PRAYER: Appeal under Section 260A of the Income Tax Act against theorder of the Income Tax Appellate Tribunal, 'B' Bench, Chennai,dated 4.4.2007 made in I.T.A.No.1638/ Mds/2005 for the assessmentyear 1996-1997 Against the Order of the Commissioner of Income Tax Appeals (V), Chennai dated 30.03.2005 and made in ITA.No.164/04-05 Against the Order of the Income Tax Officer, Company Ward VI (1), Chennai dated 17.03.2004 for the Assessment Year 1996-97. For Appellant :Mr.M.Swaminathan For Respondent :Mr.M.P.Senthilkumarfor M/s.Philip George J U D G M E N T(Delivered by R.SUDHAKAR, J.) The assessee has filed this appeal under Section 260A of theIncome Tax Act, 1961 challenging the order of the Income TaxAppellate Tribunal, 'B' Bench, Chennai, dated 4.4.2007 made inI.T.A.No.1638/Mds/2005 for the assessment year 1996-1997 and thesame was admitted on the following questions of law:(i) Whether the Tribunal was right in holding thatthe assessee is eligible for the benefit ofSection 80IA/80IB of the Income Tax Act when therecords clearly show that the assessee had notpossessed machinery for manufacture during therelevant year? https://hcservices.ecourts.gov.in/hcservices/ (ii)Whether the Tribunal was right in directing theAssessing Officer to telescope the additionrelating to the unexplained credit ofRs.2,67,200/- against the disallowance ofexpenditure of Rs.5,35,000/-? 2.1. In a nutshell, the facts are as under: The respondent/assessee is an individual carrying on business of supplying CableJointing Kits to telecom industries. For the assessment year 1996-1997, the assessee claimed deduction under Section 80IA of the Actin respect of the profits arising in respect of the industrialundertaking manufacturing cable jointing kits. However, theAssessing Officer held that the assessee is not entitled to claimdeduction under Section 80IA of the Act, as the activity carried onby assessee does not tantamount to manufacture and also that theassessee has not satisfied the requirements of the said provision.That apart, the Assessing Officer treated a sum of Rs.2,67,200/- asassessee's income from undisclosed sources under Section 68 of theAct. 2.2. On appeal by the assessee, the Commissioner of Income Tax(Appeals) confirmed the order passed by the Assessing Officer anddismissed the appeal. 2.3. On further appeal by the assessee, the Tribunal followingits earlier order in the assessee's own case for the assessmentyears 1995-1996 and 1997-1998, which was on appeal upheld by aDivision Bench of this Court in Commissioner of Income Tax v.P.Damodaran, (2006) 282 ITR 466 (Mad), took the view that theassessee is entitled to claim deduction under Section 80IA of theAct. With regard to the unexplained credit of Rs.2,67,200/- underSection 68 of the Act, the Tribunal accepted the plea of theassessee and held that when Rs.5,35,000/- worth of expenditure isbeing disallowed, the credit addition of Rs.2,67,200/- should betelescoped against the same and accordingly, directed the AssessingOfficer to telescope this addition against the disallowances made. 3. Assailing the said order, the Revenue has filed this appealon the questions of law, referred supra. 4.1. At the time of hearing, the learned Standing Counsel forthe Revenue fairly conceded that the first question of law raisedin this appeal was squarely answered against the Revenue by thedecision of this Court rendered in the assessee's own case for theearlier assessment year in Commissioner of Income Tax v.P.Damodaran, (2006) 282 ITR 466 (Mad). 4.2. In Commissioner of Income Tax v. P.Damodaran, (2006) 282ITR 466 (Mad), this Court has held as under: 3. Assailing the said order, the Revenue has filed this appealon the questions of law, referred supra. 4.1. At the time of hearing, the learned Standing Counsel forthe Revenue fairly conceded that the first question of law raisedin this appeal was squarely answered against the Revenue by thedecision of this Court rendered in the assessee's own case for theearlier assessment year in Commissioner of Income Tax v.P.Damodaran, (2006) 282 ITR 466 (Mad). 4.2. In Commissioner of Income Tax v. P.Damodaran, (2006) 282ITR 466 (Mad), this Court has held as under: “6. We heard the arguments of the counsel. Theassessee had claimed that he had started his factoryat Pondicherry where manufacturing activity was done,whereas the stand of the Revenue was that, atPondicherry, no manufacturing activity was carried onother than using the premises for correspondence andfor despatching the goods by the assessee. TheTribunal had given a finding that the AssessingOfficer had not made any enquiry to find out whetherthe assessee had carried out any manufacturingactivity at Pondicherry, even after the matter wasremanded back to his file. Similarly, there wasnothing to suggest that the Central Excise Authoritiesever visited the assessee's factory to find out theveracity of his claim that the manufacturingactivities were being carried out at his factorypremises at Pondicherry. Also, it is found that theCentral Excise authorities visited only the officepremises of the assessee and examined certaindocuments. Hence, we find no justification inrejecting the assessee's claim for deduction underSection 80IAmerely relying on the observation of theCentral Excise authorities. Further, it was a factualfinding by the authorities below that the machineriesinstalled in the premises and the raw materialsutilised by the assessee, suggest that there was aproduction of article or thing for the purpose ofusing the same in the telecommunication industry. Whenthe factual finding itself is that the asesseemanufactured telephone cables joining kits, theassessee is entitled for benefit available underSection 80IA of the Act.” (emphasis supplied) 4.3. In the light of the above said decision, the firstquestion of law is answered against the Revenue and in favour ofthe assessee. 5.1. With regard to the second question of law, we find thatthe Tribunal after considering the plea of the assessee hasdirected the Assessing Officer to telescope the addition ofRs.2,67,200/- against the disallowances made. The relevant portionof the order of the Tribunal is extracted hereunder:“7.1. The learned counsel for the assessee submittedthat the Assessing officer had made a disallowance ofRs.5,00,000/- out of the commission and brokerage https://hcservices.ecourts.gov.in/hcservices/ expenditure incurred and further disallowed a sum ofRs.35,000/- out of traveling and conveyance expensesincurred. Under the circumstances, the learnedcounsel pleaded that Rs.2,67,200/- further additionmade by the Assessing Officer on account ofunexplained fresh capital introduced by the assesseemay be telescoped against the above said disallowanceof expenditure. 7.2. Upon a careful consideration of the issue, in ouropinion, the assessee's plea is a fair one. WhenRs.5,35,000/- worth of expenditure is being disallowedthe credit addition of Rs.2,67,200/- should betelescoped against the same. Hence, we allow thisplea of the learned counsel and direct the AssessingOfficer to telescope this addition against thosedisallowances made.” expenditure incurred and further disallowed a sum ofRs.35,000/- out of traveling and conveyance expensesincurred. Under the circumstances, the learnedcounsel pleaded that Rs.2,67,200/- further additionmade by the Assessing Officer on account ofunexplained fresh capital introduced by the assesseemay be telescoped against the above said disallowanceof expenditure. 7.2. Upon a careful consideration of the issue, in ouropinion, the assessee's plea is a fair one. WhenRs.5,35,000/- worth of expenditure is being disallowedthe credit addition of Rs.2,67,200/- should betelescoped against the same. Hence, we allow thisplea of the learned counsel and direct the AssessingOfficer to telescope this addition against thosedisallowances made.” 5.2. The Tribunal, being a final fact finding authority, on aconspectus of the factual scenario, has directed the AssessingOfficer to telescope the addition of Rs.2,67,200/- as against theother disallowances. The said direction given by the Tribunal waspurely based on facts and we find no reason to interfere with sucha factual finding rendered by the Tribunal. 5.3. In such view of the matter, the second question of law does not require to be answered as it is a issue on fact. For the foregoing reasons, this appeal is dismissed. Nocosts. Sd/- Assistant Registrar(CS II) //True Copy// sasi Sub Assistant Registrar To: 1. The Assistant Registrar, Income Tax Appellate Tribunal Chennai Bench "B", Chennai. 2. The Commissioner of Income Tax (Appeals) - V Chennai. Chennai. 3. The Income Tax Officer Company Ward VI(1), Chennai. Company Ward VI(1), Chennai. 4. The Assistant Registrar, Income Tax Appellate Tribunal, Rajaji Bhavan, IV Floor, Besant Nagar, Chennai. Rajaji Bhavan, IV Floor, Besant Nagar, Chennai. T.C.(A).No.391 of 2008KSJ(CO)CA(02/09/2015)