1. Both the appeals have been filed by the department against the orders of the CIT(A) dated 23-12-1999 and 28-5-1992 for the assessment years 1988-89 and 1989-90 respectively. The assessee has also filed cross objections for both the assessment years just as a matter of precaution. As there are common points in both the appeals and the cross objections, so they are disposed of together by this consolidated order for the sake of convenience. We have heard both the parties at length and gone through the materials available on record and discuss the issues involved as under ;-- It relates to the deletion of addition of Rs. 30,40,000 on account of incentive wages. The Assessing Officer has disallowed the amount by following his order for the earlier assessment years. The CIT(A) has deleted the disallowance by following his order for the earlier assessment years. The Assessing Officer observed in the order that the incentive wages was nothing but bonus and, therefore, its allowability was subject to the provisions of Bonus Act. So he has estimated the amount of disallowance at Rs. 30,40,000 as against Rs, 28,40,880 of the last year. The CIT(A) has followed his earlier decision and also discussed case laws mentioned in his order at page 4 and finally observed that the Assessing Officer has failed to bring any material on record for not accepting the order in the assessee's case for the earlier assessment year.
3. We have heard both the parties and gone through the materials available on record, from which it appears that since assessment year 1982-83 similar disallowance had consistently been deleted and also the same was followed in the subsequent assessment years. But during the assessment year under consideration the Assessing Officer made the addition without bringing any material on record. The matter was also discussed by the Tribunal for the assessment years 1985-86 to 1987-88.
In the just previous assessment year 1987-88, the Tribunal [ITA No.1564 (Cal.) of 1991] has deleted the addition pertaining to the incentives wages (copy on record at pages t and 2 of the paper book).
By respectfully following the earlier order of the Tribunal and in the absence of any additional material/evidence, we find no reason to interfere with the order of the CIT(A) who has rightly deleted the said addition. The same is hereby upheld.4. Ground No. 2 for the assessment year 1988-89 and ground No. 1 for the assessment year 1989-90: Both the grounds arc pertaining to the valuation of closing stock of raw material eligible to the account of MODVAT. During the assessment years under consideration, the Assessing Officer made additions of Rs. 98.11 lacs; and Rs. 6.6 lacs respectively. In brief, the Assessing Officer observed that even for the purpose of excise laws, the MODVAT benefit does not directly affect or reduce the assessable value automatically which is to be determined in accordance with section 4 of the Central Excise Rules, 1944. He observed that no input and output co-relation is required for availing MODVAT as it is a system of instant credit. So he observed that due to under-valuation of the closing stock of raw material and semi finished goods, the assessee is not entitled for the benefit of MODVAT and made the additions accordingly. The CIT(A) has discussed at length about the MODVAT system. In brief, the MODVAT is a procedure whereby manufacturer can utilise credit for input duty against duly payable on final products. Duly credit taken on input is of the nature of set off available against the payment of Excise Duty on the final products. He mentioned that under the MODVAT Scheme, the Excise Duty liability of the assessee-company in respect of its final products is reduced by the Excise Duty paid by the supplier of the components to the assessee-company to claim the benefit of MODVAT. The assessee has to maintain a register which ,is known as Form RG 23A. The CIT(A) further observed that after examining the record, the gross excise duty was being debited in the accounts the input cost was being debited net of MODVAT credit. The result was that when the aggregate debits to profit and loss account on account of cost of raw material consumed and excise duty paid was same. But the CIT(A) has not agreed with the observation of the Assessing Officer that profits were being reduced due to artificial under valuation of the closing stocks. The CIT(A) has followed the guidelines issued by the Institute of Chartered Accountants of India pertaining to the method of debiting input cost at net of MODVAT price. So he has deleted the said additions.
5. After hearing both the parties at length and on perusal of the record it appears that the MODVAT Scheme was introduced by the Finance Minister with effect from 1-3-1986. The nature of the MODVAT Scheme is intended to be a revenue neutral. It was not the purpose to use the MODVAT to give substantial relief on excise. The shifting the effective burden of excise taxation away from inputs and on the final products is the heart of the said scheme. In shorl, the MODVAT Scheme allows the manufacturer to obtain instant and complete reimbursement of the excise duty paid on the components and raw materials which will result in considerable reduction in the cost of final product. The CIT(A) has already discussed this issue at length in his order and without repetition it may be mentioned that the benefit of MODVAT is available only in respect of such raw material/components actually consumed in production of final goods actually sold. In the instant case, as appears from the material that since only 50% of inputs covered by MODVAT Scheme was consumed in respect of which gate passes were obtained, MODVAT benefit available was only 50%.
6. Moreover, the issue has come up before the Tribunal in the assessee's case for the assessment year 1987-88 where the Tribunal has discussed a number of orders by different Benches (supra). Finally the Tribunal upheld the deletion made by CIT(A).
7. In the light of our discussion and in the absence of additional material/ evidence, we agree with the order of the CIT(A) who has shown in his order that there is no impact on the profit whether cost of raw material is debited at gross or at net of MODVAT. Therefore, we uphold the order of the CIT(A) who has rightly deleted the said additions pertaining to the MODVAT and the same is hereby upheld.8. Ground No. 3 for the assessment year 1988-89 and ground No. 2 for the assessment year 1989-90: Both the grounds relate to the disallowance under section 80HHC for the profit from Haldia Export Factory. The assessee-company is manufacturing and selling batteries in domestic market. The company is also exporting batteries to foreign countries. This is the only business of the assessee-company as reflected in the printed balance-sheet and profit and loss account of the company. From the Haldia Factory 100% production is exported. So the Assessing Officer treated the Haldia Export Factory as a separate business of the assessee-company. Therefore, he computed the deduction by applying provision of section 80HHC(3)(a) in respect of export made from Haldia Export Factory. He applied the provision of section 80HHC(3)(b) in respect of export sales made from the other factory of the Company. After computing he made the necessary addition which was deleted by the CIT(A) in his order by following his earlier order for the previous assessment years. The CIT(A) has observed in his order that the Haldia Export Factory could not be held to be a separate business of the assessee and considered the common business of the assessec since a long lime and accordingly the computation of the quantum of deduction under section 80HHC may be made in accordance with section 80HHC(3)(b) only and not partly under clause (a) and partly under clause (b) of section 80HHC.9. The Ld. D.R. relied on the orders of Assessing Officer and mentioned that the 100% export unit at Haldia is identifiable separate business for which books of account are maintained separately. He also mentioned that under section 80HH if the gross total income of the assessee includes any profit and gains derived from an industrial undertaking, a relief of 20% of the total profit and gains from such undertaking is allowed by way of deduction. Hence for determining the quantum of relief under section 80HH from the consolidated accounts which reproduce the aggregate position of the business comprises several industrial undertakings of which Haldia Export Unit is a part, the profit from Haldia Export Unit was computed for the purpose of relief under section 80HH. He was fair enough-to accept that the assessee-company is not maintaining any separate account in respect of 100% Haldia Export Unit nor it was statutory required except for the purpose of section 80HH(5) as mentioned by CIT(A) in his order at page 21. On query from the Bench, he accepted that section 80HHC and section 80HH are neither interlinked nor interdependent. They are separate and distinct provision inserted in the Act fulfilling different objects and purposes. In other words, he accepted that the conditions which have to be satisfied for obtaining the benefits are also different under these two sections. The deduction under section 80HH is available with reference to the profits of the new industrial undertaking in a backward area and the computation of profit of such new undertaking is relevant for the purpose of that section only. On the other hand, the benefit under section 80HHC is related to the profit earned by the export.
10. On the other hand, the Ld. A.R. from Price Waler House relied on the order of the CIT(A) and mentioned that the Assessing Officer has confused about the business and production of the assessee-company.
There is no separate business of the assesscc from the said Unit. The Haldia Export Unit comprises the same business of manufacturing of batteries carried on by the assessee since long time. He mentioned the ratio laid down by the Hon'ble Supreme Court in B.R. Ltd. v. V.P.Gupta, CIT 113 ITR 647, 654 where it was laid down certain parameter for deciding whether two activities constitute same business or different business, namely - (a) presence of common management, (b) interlacing of funds, (c) unity of control, (d) embracing of results in common accounts. He repeated that both Haldia Export Factory and the other factories of the assessee manufacture only one product, namely, battery in different shapes. He also mentioned that the assessee does not maintain separate books of account for Haldia Export Factory and though not accepting but presuming that the assessee maintains separate books of account with respect to a particular unit, even then the unit does not automatically become a separate business of the assessee because the assessee has only one composite business in accordance to the- parameters laid down by Hon'ble Supreme Court (supra) (also Produce Exchange Corpn. Ltdv. CIT  77 ITR 739 (SC)].
11. We have heard the both sides and gone through the material available on record. It may be mentioned that the Tribunal, Delhi Bench, in the case of International Research Park Laboratories Ltdv, Asstt.CIT50 ITD 37 (SB) observed that even if an assessee had various businesses, one of which exclusively consisted of the export of goods outside India, all the businesses taken together shall comprise one composite business and the provisions of clause (b) of sub-section (3) of section 80HHC of the Act shall only apply and not partly clause (a) and partly clause (b). The clause (a) relates to the business consisting exclusively of the export of goods outside India and clause (b) relates for the other businesses.
12. In the light of our discussion and by keeping in mind the CBDT Circular No. 564 dated 5th July, 1990, we are of the view that the assessee has only one composite business. Therefore, the assessee is entitled for computation of export profit of all the units as per section 80HH(3)(6). In the absence of any additional material/evidence we find no infirmity in the order of CIT(A) who has observed that though the assessee has claimed deduction under sections 80HH and 80-1 of the Act, nonetheless the Haldia Export Factory does not constitute a separate business. In the light of our discussion and by keeping in mind the ratio laid down by the Supreme Court in Textile Machinery Corpn. Ltd. v.CIT 107 ITR 195, 204, 206, we confirm the order of CIT(A) who has rightly directed the Assessing Officer to give the benefit under section 80HHC for both the assessment years under consideration by computing the deduction in accordance with section 80HHC(3)(b) only and not partly under clause (a) and partly under clause (b) of section 80HHC.13. Ground No. 4 for the assessment year 1988-89 and ground No. 3 for the assessment year 1989-90: Both the grounds relate to the claim of the assessee under section 32AB to the tune of Rs. 3,02,04,347 and Rs. 5,34,62,826 for the assessment years 1988-89 and 1989-90 respectively. The said claim was properly certified by auditors as required under section 32 AB(5). Further details of the deposits and utilisation in respect of which deduction was claimed under section 32AB were as under :-- (i) Expenses incurred on trial runs of machineries including cost of raw materials, fuel, power wages, etc.
14. Since the maximum deduction permissible under section 32AB is 20% of the eligible profit computed under section 32AB(3); the Assessing Officer restricted the claim to 20% of the business income as worked out by the auditors. The Assessing Officer had issued notices under section 142( 1) to identify the sources out of which the deposit was made with IDBI so that it could be appreciated that the deposit made satisfied the required condition of having been made out of the income of the previous year chargeable to tax under the head "Profit and gains from business or profession". In respect of the amount utilised during the assessment year under consideration for the purpose of new plant and machinery similar identification of source was insisted upon, For the purpose of such identification the assessee was asked to produce bank statement with necessary narration, debtor's accounts and also to identify the amount out of which the deposit was made. In response, the assessee filed a certificate in respect of deposit with IDBI and also furnished the names of banks from which payments were made for the said deposit. Despite the auditor's report the Assessing Officer observed in his order that the asscssee-company could not directly relate to the source of the deposit and investment with the business income of the relevant previous year so he has disallowed the claim for deduction in its entirety.
15. In the first appeal the CIT(A) has deleted the said addition by observing that the deposit was made with IDBI within six months before the end of the previous year. He further observed that in order to be the eligible for the benefit under section 32AB, the assessec has to have income which is chargeable to tax under the head profit and gains of business or profession. This is because both the deposits as well as utilisation through purchases of plant and machinery has to be out of the income chargeable to tax under the profit and gains of business or profession. Further the CIT(A) has observed in his order that the Assessing Officer himself computed the business profit at 15.18 crores.
The investment and deposit was for an aggregate amount of Rs. 3.03 crores and Rs. 5.34 crores respectively. In other words the CIT(A) observed that the Assessing Officer did not dispute the sanctity of the audit report but ironically the Assessing Officer was not prepared to accept the certificate of the auditor that the new plant and machinery has been acquired out of the income chargeable to tax under the head profit and gains of the business. Similar position was stated about the IDBI deposits. Finally he has deleted the said additions.
The Ld. D.R. during the course of arguments relied on the orders of the Assessing Officer and mentioned that the claim for deduction was restricted to 20% as per statutory provision. He mentioned that as per CBDT Circular No. 461 dated 9-7-1986, the income is to be determined in real sense until the end of the previous year. Further he mentioned that the new plant and machinery and investment will have to be made from profit and gains of the business. He further proceeded to submit that the conditions requisite for attracting section 32 AB, are relating to investment deposit accounts to the extent necessary for the purpose. So the assessee is entitled to obtain reduction of an amount equal to the amount or the aggregate of the amounts, deposit under section 32AB(l)(a) and any amount utilised under section 32AB(a)(6) or a sum equal to 20% of the profits as computed in the accounts of the assessee audited in accordance with section 32AB(5) whichever is less.
So he justified the disallowance made by Assessing Officer.
16. On the other hand, the Ld. A.R. Shri R.K. Mitra from Price Water House, mentioned that the said circular was issued by way of extent, scope and effect of the newly inserted section 32AB. In clause (b) of para 17.3 of the Circular, it has been made clear that Investment Deposit Scheme will be available if there are profits in the eligible business or profession unlike investment allowance where the deduction is available even if there is no such profit because the deduction under section 32A was linked merely to the cost of plant and machinery whereas in section 32AB it is linked with the income under the head profit and gains of business or profession. He has drawn our attention to the computation made by Assessing Officer where he has shown the business profit of more than investment/deposit.
17. He also submitted that Investment Deposit Account Scheme was introduced through the Finance Act, 1986 with a view to substitute the existing provision of investment allowance contained in section 32A of the Act. He submitted that the object of section 32AB was actually earning profit in order to be eligible for deduction. He mentioned that the Hon'ble Supreme Court in the case of K.P. Varghese v. ITO 131 ITR 597.608 observed that a statute has to be interpreted in a manner so as to achieve the object or intention of the Legislature in enacting the same. It is submitted that if one were to interpret the provisions of section 32AB(1) with a view to achieve the object for which it had been enacted, then the conclusion which would follow is that by using the term "out of such income", the Legislature intended that the income chargeable under the head "profit and gains of business or profession" for a previous year should be sufficient to cover the aggregate of the amounts of utilisation and deposits. It is further submitted that the said term "out of such income" cannot be construed in a manner so as to connote the insistence on the part of the revenue of demonstrative proof that the utilisation and deposits had their origin in the profits embedded in the bank accounts on which the cheques were drawn, by matching receipts and payments in bank statements on a "one to one".
Further Mr. R.K. Mitra submitted that the revenue has neither denied nor disputed that the bank accounts on which the cheques in connection with the utilisation and deposits, were drawn were all overdraft accounts. However, the collections and realisations from the customers and other receipts related to the business of the asscssee were also deposited into the same overdraft accounts. He further explained that the profit generated by the assessee during each of the previous years relevant to the assessment years under consideration were also embedded in the said overdraft accounts. It is not possible in such a situation to segregate and relate on a one to one basis, a particular payment from a common pool of funds, which included inter alia the collections and realisations from the customers and other receipts related to the business of the assessee. Lastly he justified the orders of the CIT(A) by mentioning the ratio laid down by the jurisdictional High Court in the following cases :-- (2) Indian Explosives Ltd v. C/r 147 ITR 392/ 15 Taxman 232Alkali & Chemical Corpn. of India Ltd. v. CIT 161 ITR 820/ 28 Taxman 423 (Cal.) 18. We have heard at length the arguments of both the parties and gone through the materials available on record along with written submissions from which it appears that the assessee is maintaining a common pool of accounts known as overdraft account where all the cheques were deposited in connection with the utilisation and deposits.
The asscssee-com-pany was having sufficient funds which were atleast three times more than the am ount invested/deposited during the assessment years under consideration. In the case of Woolcombers of India Ltd. v. CIT 134 ITR 219 (Cal.), the jurisdictional High Court observed that the assessee company had paid advance-tax out of the overdraft account with a bank in which its collections from customers were also deposited. When the advance-tax was paid, there was already debit balance appearing in the overdraft account. Finally, the Hon'ble jurisdictional High Court observed that the profit generated during the year which was embedded in the overdraft account far exceeded the payment of tax. In the circumstances, the assessee-company had actually paid the tax out of the profits of the company embedded in the overdraft account and not from the borrowings, notwithstanding the existence of debit balance in the overdraft account at the time of payment of the tax.
19. In the instant case, before making the said addition the Assessing Officer has not proved the nexus pertaining to deposit/investment vis-avis the income chargeable under the head profit and gains of business or profession. Now it is well settled law that the deposits from the various sources are put in a common account, no attempt should be made to relate or match the payments made out of the amount with the deposits or borrowing since it is not possible to co-relate a particular receipt with particular expenditure. Further if a question arises as to whether particular payment is made from the composite account was out of the overdraft fund or out of an accumulated profits embedded in the collection of sale proceeds and other incomes deposited therein, it cannot be said that the payment was made out of the overdraft account. On the other hand, the presumption should be that the payment was made out of the profits generated during the relevant previous year and embedded in the overdraft account. The jurisdictional High Court observed in Alkali's case (supra) that the fact that the said overdraft had a continued debit balance would make no difference to the presumption that the income tax has, in fact, been paid out of the profits and not out of the borrowings. Further the Jurisdictional High Court observed in the case of Indian Explosives (supra) that if a payment was made from a common fund where several forms of moneys were deposited the assessee would have the option to choose the source most beneficial to it from which the payment could be said to have been made.
20. We are satisfied that the quantum of business profits earned by the assessee-company during each of the previous years relevant to the assessment years under consideration were almost 3 to 4 times of the aggregate of the utilisation and deposits made with respect to the respective assessment years. Therefore, it can be safely presumed that the said utilisation and deposits were all made out of the business profits earned by the assessee during the relevant previous years and not out of the borrowed or other funds. By considering the totality of the facts and circumstances of the case we agree with the observation made by the CIT(A) that the assessee-company satisfied all the conditions necessary for deduction under section 32AB. In the absence of any additional material/evidence we find no infirmity in the order of the CIT(A) who has rightly directed the Assessing Officer to allow the claim for deduction as worked out by the auditors for the assessment years under consideration. The same is hereby upheld. It relates to the deletion of the addition of Rs. 1,75,304 paid to staff recreation club under section 40A(9). During the assessment year under consideration, the assessee claimed the said amount pertaining to staff recreation club as staff welfare expenses under section 37( 1). The Assessing Officer has not allowed the same as per section 40A(9).
22. We have heard both the parties and gone through the materials available on record, from which it appears that the CIT(A) has deleted the said addition by following the Tribunal's order in the case of DCITv. A.P.E. Belliss India Ltd. [IT Appeal Nos. 527 to 531 (Cal.) of 1989]. The Tribunal vide its order dated 13-2-1992 (page 11 of the paper book) observed that section 40A(9) is not applicable because this section stands for any funds, institutions, where the assessee made the subscription for the purpose of welfare of the employees. That means that there should be a complete identity between the donor and the donee. Here staff recreation club and the staff club are a part and parcel of the organisation itself and they are given money by way of subsidy, an age old practice. In various Govt. departments also subsidies are given as a matter of course for carrying on welfare activities. So finally the Tribunal upheld the order of the CIT(A) who has deleted the said addition. By respectfully following the earlier order of the Tribunal and by keeping in mind the ratio laid down in the following cases :--Gujarat Stale Export Corpn. Ltd. v. CIT We find no infirmity with the order of CIT(A) who has rightly deleted the said addition pertaining to the staff welfare. By considering the totality of the facts and circumstances of the case, we uphold his order.
23. After hearing both the parties it appears that the assessee has filed cross objections for both the assessment years under consideration as an abundant caution. In the light of our discussion the same do not deserve any discussion on merit. Therefore they are rejected.
24. In the result, both the appeals, filed by the department, and the cross objections, filed by the assessee, are dismissed.