Gauhati High Court Judgments — 2011

The High Court held that no substantial question of law arises from the ITAT's order. The Court noted that the assessee had produced all relevant books of accounts and supporting documents, which were examined and accepted by the Assessing Officer. The expenses claimed, including those for staff and labour welfare, staff mess, travelling, conveyance, labour accommodation, donations, and subscriptions, were verified from these documents. Since the expenses were substantiated by the books of accounts, which were before the AO, the Court found no basis for interference with the ITAT's decision. The ITAT's order allowing the appeal and setting aside the CIT's revisionary direction was upheld. The operative direction was that the appeal filed by the Revenue is dismissed.

The Gauhati High Court upheld the trial court's decision, dismissing the appeal. Regarding issues (iv) and (v), the court found that the defendants failed to prove the sale of the two machines. The evidence of DW-1 (Director) and DW-2 (Senior Accountant) was found insufficient. DW-1 could not identify the plaintiff's representative who allegedly received the machines. DW-2 admitted to encashing the draft but could not provide books of account to show it was for machine sales. The sale letter (Ext. C) was discarded as the signatures were not proven, and the plaintiff's presence was not established. The court applied Section 102 of the Evidence Act, 1972, stating the burden of proof was on the appellant (defendant) to prove the sale, as they admitted receiving the money. The Chartered Accountant's certificate (Ext. F) was deemed secondary evidence, inadmissible without examining the author and producing the underlying books of account. The Companies (Acceptance of Deposits) Rules, 1975, did not aid the appellant. Consequently, the transaction was held to be a loan, not a sale. The plaintiff was entitled to Rs. 18,00,000/- without interest (issue vi), as there was no contractual obligation for interest. The plaintiff was entitled to the principal amount (issue vii). The appeal was dismissed.

The High Court held that the substantial question of law is answered in favour of the Revenue. The Court relied on the Apex Court's judgment in COMMISSIONER OF INCOME TAX Versus WILLIAMSON FINANCIAL SERVICES AND OTHERS (2008) 2 SCC 202. The reasoning is that the deduction under Section 80HHC of the Income Tax Act, 1961, is to be allowed after the apportionment of income under Rule 8(1) of the Income Tax Rules, 1962. The ratio decidendi is that statutory deductions like Section 80HHC are to be applied after the initial apportionment of income as per Rule 8(1). The operative direction is that the appeal stands allowed, implying the ITAT's order directing deduction before apportionment is set aside. No costs were awarded. No issue was expressly left undecided.

The Tribunal held that on the first substantial question of law, the transport subsidy received by the assessee is not allowable for computing deduction under Section 80IB. This decision was based on following the precedent set in CIT vs. Meghalaya Steels Ltd., where a similar question was answered in favour of the Revenue. Regarding the second substantial question of law, the Tribunal held that no substantial question of law arises. This was in view of this Court's prior decision in CIT vs. M/s T & I Engineers Pvt. Ltd. The appeal was thus rejected concerning the second question. The operative direction was to reject the appeal on the second question and answer the first question in favour of the Revenue.