M/s. Mawana Sugar Ltd., New Delhi V. DCIT (LTU), New Delhi

CO 153/DEL/2012

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3781 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 25-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPIKA MITTAL
• Keywords: Capital asset; Depreciation; Search and seizure; Earning of tax free income; Proportionate interest; Capital receipt
• Section: 43B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE HONBLE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1463/DEL./2010 (ASSESSMENT YEAR : 2005-06) ITA NO.1479/DEL./2010 (ASSESSMENT YEAR : 2006-07) DCIT, CIRCLE 6 (1), VS. M/S. MAWANA SUGARS LTD., NEW DELHI. (SINCE AMALGAMATED WITH SIEL LTD. AN D RENAMED AS MAWANA SUGARS LTD.), 5 TH FLOOR, KIRTI MAHAL, 19, RAJINDRA PLACE, NEW DELHI 110 008. (PAN : AADCM9737E) ITA NO.751/DEL./2012 (ASSESSMENT YEAR : 2007-08) DCIT, LTU, VS. M/S. MAWANA SUGARS LTD., NEW DELHI. (FORMERLY KNOWN AS SIEL LTD.), 5 TH FLOOR, KIRTI MAHAL, 19, RAJINDRA PLACE, NEW DELHI 110 008. (PAN : AADCM9737E) CO NO.153/DEL/2012 (IN ITA NO.751/DEL./2012) (ASSESSMENT YEAR : 2007-08) M/S. MAWANA SUGARS LTD., VS. DCIT, LTU, (FORMERLY KNOWN AS SIEL LTD.), NEW DELHI. 5 TH FLOOR, KIRTI MAHAL, 19, RAJINDRA PLACE, NEW DELHI 110 008. (PAN : AADCM9737E) ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 2 ITA NO.5614/DEL./2010 (ASSESSMENT YEAR : 2007-08) M/S. MAWANA SUGARS LTD., VS. DCIT, CIRCLE 6 (1), 5 TH FLOOR, KIRTI MAHAL, NEW DELHI. 19, RAJINDRA PLACE, NEW DELHI 110 008. (PAN : AADCM9737E) ITA NO.752/DEL./2012 (ASSESSMENT YEAR : 2008-09) DCIT, LTU, VS. M/S. MAWANA SUGARS LTD., NEW DELHI. (FORMERLY KNOWN AS SIEL LTD.), 5 TH FLOOR, KIRTI MAHAL, 19, RAJINDRA PLACE, NEW DELHI 110 008. (PAN : AADCM9737E) CO NO.154/DEL/2012 (IN ITA NO.752/DEL./2012) (ASSESSMENT YEAR : 2008-09) M/S. MAWANA SUGARS LTD., VS. DCIT, LTU, (FORMERLY KNOWN AS SIEL LTD.), NEW DELHI. 5 TH FLOOR, KIRTI MAHAL, 19, RAJINDRA PLACE, NEW DELHI 110 008. (PAN : AADCM9737E) ITA NO.2921/DEL./2012 (ASSESSMENT YEAR : 2009-10) DCIT, LTU, VS. M/S. MAWANA SUGARS LTD., NEW DELHI. (FORMERLY KNOWN AS SIEL LTD.), 5 TH FLOOR, KIRTI MAHAL, 19, RAJINDRA PLACE, NEW DELHI 110 008. (PAN : AADCM9737E) ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 3 CO NO.379/DEL/2012 (IN ITA NO.2921/DEL./2012) (ASSESSMENT YEAR : 2009-10) M/S. MAWANA SUGARS LTD., VS. DCIT, LTU, (FORMERLY KNOWN AS SIEL LTD.), NEW DELHI. 5 TH FLOOR, KIRTI MAHAL, 19, RAJINDRA PLACE, NEW DELHI 110 008. (PAN : AADCM9737E) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI TARANDEEP SINGH, CA REVENUE BY : MS. DEEPIKA MITTAL, CIT DR DATE OF HEARING : 21.05.2018 DATE OF ORDER : 28.05.2018 O R D E R PER BENCH : THE AFORESAID APPEALS FILED BY THE REVENUE & THE AS SESSEE AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE BEIN G DISPOSED OF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DI SCUSSION. 2. THE APPELLANT, DEPUTY COMMISSIONER OF INCOME-TAX , CIRCLE 6 (1), NEW DELHI AND DEPUTY COMMISSIONER OF INCOME- TAX, LTU, NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE ) BY FILING THE PRESENT APPEALS, SOUGHT TO SET ASIDE THE IMPUGNED O RDERS DATED 07.01.2010, 25.01.2010, 07.12.2011 & 02.05.2012 PAS SED BY LD. CIT (APPEALS)-IX, NEW DELHI & CIT (APPEALS)-LTU, NE W DELHI ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 4 QUA THE ASSESSMENT YEARS 2005-06, 2006-07, 2007-08, 2008-09 & 2009-10 RESPECTIVELY. 3. THE APPELLANT, M/S. MAWANA SUGARS LIMITED (HEREI NAFTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESEN T APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDERS DATED 15.09.2010 & 02 .05.2012 PASSED BY LD. CIT-LTU, NEW DELHI QUA THE ASSESSMENT YEARS 2008-09 & 2009-10 RESPECTIVELY. 4. THE OBJECTOR, M/S. MAWANA SUGARS LIMITED, BY FIL ING THE PRESENT CROSS OBJECTIONS IN ITA NO.751/DEL./2012, I TA NO.752/DEL./2012 & ITA NO.2921/DEL./2012, CHALLENG ING THE IMPUGNED ORDERS DATED 07.12.2011 & 02.05.2012 PASSE D BY THE LD. CIT (APPEALS)-18, NEW DELHI QUA THE ASSESSMENT YEAR S 2007-08, 2008-09 & 2009-10 RESPECTIVELY. BRIEF FACTS OF ITA NO.1463/DEL/2010 FOR AY 2005-06 AND ITA NO.1479/DEL/2010 FOR AY 2006-07 5. IN AY 2005-06, ASSESSING OFFICER MADE ADDITION O F RS.24,29,687/- SHOWN BY THE ASSESSEE AS OTHER INCOM E AND CATEGORIZED AS PER AMOUNT OF LOAN WRITTEN BACK. BU T ASSESSEE HAS REDUCED THE SAME FROM TAXABLE INCOME DURING COMPUTA TION OF ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 5 INCOME ON THE GROUND THAT SINCE THE LOAN HAS BEEN A VAILED OF FOR WORKING CAPITAL REQUIREMENT, THE SAME HAS BEEN CLAI MED AS DEDUCTION IN THE FORM OF EXPENSES AND OTHER CLAIMS DEBITED EARLIER TO THE PROFIT & LOSS ACCOUNT. AO FURTHER MADE DISA LLOWANCE OF RS.1,47,67,361/- (SUBSEQUENTLY RECTIFIED AS RS.1,23 ,90,639/-) AND RS.42,18,000/- IN AY 2005-06 AND 2006-07 RESPECTIV ELY ON ACCOUNT OF PROPORTIONATE INTEREST ON INVESTMENT MAD E IN SHARES OF SIEL HOLDING LTD. ON INTEREST FREE ADVANCES TO ITS SUBSIDIARIES/SISTER CONCERNS. 6. ASSESSEE CARRIED THE MATTER BY WAY OF APPEALS BE FORE THE LD. CIT (A) WHO HAS DELETED THE ADDITIONS IN BOTH THE A PPEALS FOR AYS 2005-06 AND 2006-07 BY ACCEPTING THE APPEALS FILED BY THE ASSESSEE. BRIEF FACTS OF ITA NO.751/DEL/2012 FOR AY 2007-08 CO NO.153/DEL/2012 FOR AY 2007-08 7. AO MADE ADDITION OF RS.381.20 LAKHS ON ACCOUNT O F SALE PROCEEDS OF SUGAR AND RS.32.20 LAKHS ON ACCOUNT OF SALE OF SCRAP ON THE GROUND THAT THE AFORESAID RECEIPT CANNOT BE ADJUSTED AGAINST THE COST INCURRED BY THE COMPANY DURING THE TRIAL R UN PERIOD AND ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 6 CANNOT BE CAPITALIZED BY THE COMPANY AS COST OF THE PROJECT. AO MADE FURTHER ADDITION OF RS.76.10 LAKHS ON ACCOUNT OF INTEREST INCOME ON SHORT TERM DEPOSIT AS THE INCOME FROM OT HER SOURCES. AO FURTHER MADE ADDITION OF RS.1,05,000/- BY INVOKI NG THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D ON A CCOUNT OF DISALLOWANCE IN RESPECT OF DIVIDEND INCOME. 8. ASSESSEE CARRIED THE MATTER BY WAY OF APPEAL BEF ORE THE LD. CIT (A) WHO HAS DELETED THE ADDITIONS OF RS.381.20 LAKHS AND RS.32.20 LAKHS ON ACCOUNT OF SALE PROCEEDS OF MANUF ACTURED GOODS AND SALE PROCEEDS OF SCRAP ETC. RESPECTIVELY, HOWEV ER, CONFIRMED THE ADDITION OF RS.76.10 LAKHS MADE BY THE AO ON AC COUNT OF INCOME CHARGEABLE TO TAX UNDER THE HEAD INCOME FRO M OTHER SOURCES. BRIEF FACTS OF ITA NO.5614/DEL/2010 FOR AY 2007-08 ITA NO.752/DEL2012 FOR AY 2008-09 CO NO.154/DEL/2012 FOR AY 2008-09 ITA NO.2921/DEL/2012 FOR AY 2009-10 CO NO.379/DEL/2012 FOR AY 2009-10 9. AO BY INVOKING THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D MADE ADDITION OF RS.29,23,375/- , RS.1,79,8 0,000/- AND ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 7 RS.1,78,60,000 IN AY 2007-08, 2008-09 AND 2009-10 RESPECTIVELY. IN AY 2007-08, AO FURTHER MADE DISALLOWANCE OF RS.4 8,787/- ON ACCOUNT OF INTEREST FREE ADVANCES BY THE ASSESSEE T O ITS SUBSIDIARY/ SISTER CONCERNS BY FOLLOWING EARLIER ORDER FOR AY 2 006-07. 10. ASSESSEE CARRIED THE MATTER BY WAY OF APPEALS B EFORE THE LD. CTI (A) WHO HAS RESTRICTED THE DISALLOWANCE OF RS.1 ,79,80,000/- TO RS.13,20,073/- AND RS.1,78,60,000/- TO RS.17,19,600 /- IN AY 2008- 09 AND 2009-10 RESPECTIVELY, HOWEVER, LD. CIT (A) HAS CONFIRMED THE DISALLOWANCE OF RS.29,23,375/- MADE BY THE AO U /S 14A IN AY 2007-08 AND ALSO CONFIRMED THE ADDITION OF RS.48,78 7/- IN AY 2007-08, BY PARTLY ALLOWING THE APPEALS. 11. ASSESSEE BY FILING CROSS OBJECTIONS IN AY 2008- 09 AND 2009- 10 CHALLENGED THE DISALLOWANCE OF RS.13,20,073/- AN D RS.17,19,600/- RESPECTIVELY SUSTAINED BY THE LD. CI T (A) BY FILING CROSS OBJECTIONS 12. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 8 GROUND NO.1 IN ITA NO.1463/DEL/2010 FOR AY 2005-06 (REVENUES APPEAL) AND ITA NO.1479/DEL/2010 FOR AY 2006-07 (REVENUES APPEAL) 13. GROUND NO.1 IN ITA NO.1463/DEL/2010 FOR AY 2005 -06 AND ITA NO.1479/DEL/2010 FOR AY 2006-07 IS GENERAL IN N ATURE, HENCE DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. GROUNDS NO.2, 2.1 & 2.2 IN ITA NO.1463/DEL/2010 FOR AY 2005-06 (REVENUES APPEAL) 14. GROUNDS NO.2, 2.1 & 2.2 ARE REPRODUCED AS UNDER :- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN RESTRICTING THE ADDITION OF RS.15.17 LACS AS AGAINST RS.24.29 LACS MADE BY THE AO ON ACCOUNT OF THE SUM RECEIVED BY THE ASSESSEE AS A RE SULT OF WAIVER OF LOAN BY M/S. FITL. 2.1 THE LD. CIT (A) IGNORED THE FACT THAT AS WHOLE OF THE WAIVER AMOUNT HAS BEEN RECEIVED DURING THE YEAR AND IS TAXABLE U/S 41 (1) OF THE ACT. 2.2 THE LD. CIT (A) IGNORED THE FACT THAT THE ASSES SEE HAS GOT THE NET BENEFIT TO THE EXTENT OF RS.24.29 LACS INCL UDING THE INTEREST COMPONENTS ON THE WAIVER OF LOAN SCHEME. 15. UNDISPUTEDLY, AMOUNT OF RS.24,29,687/- WAS WAIV ED OFF BY IDBI WHICH HAS BEEN SHOWN BY THE ASSESSEE AS OTHER INCOME IN THE CATEGORY PRINCIPAL AMOUNT OF LOAN WRITTEN BACK. AO MADE THE ADDITION ON THE SOLE GROUND THAT WAIVER OF THE LOAN HAD RESULTED ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 9 INTO CESSATION OF LIABILITY, THUS DERIVED INCOME OF THE ASSESSEE AND INVOKED SECTION 41 (1) OF THE ACT. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE COMPANY HAS TAKEN OVER RUNNING BUSINESS OF SUGAR FACTORIES AS PER SCHEME OF ARRANGEMENT W.E.F. 01.10 .2002 IN ACCORDANCE WITH THE ORDER OF HONBLE HIGH COURT DAT ED 26.08.2007 AND AT THAT TIME, TOTAL LOAN PAYABLE TO IDBI AS ON 01.10.2002 WAS RS.104 LAKHS. IT IS ALSO NOT IN DISPUTE THAT IN RE SPECT OF AFORESAID LOAN, INTEREST OF RS.9.12 LAKHS HAD ALSO BECOME DUE AND PAYABLE FOR THE PERIOD 01.10.2002 TO 31.09.2003 WHICH WAS CONVE RTED INTO ZERO COUPON FTIL AND ON CONVERSION, THE INTEREST AMOUNT HAS ALSO BECOME PART OF THE LOAN. IT IS ALSO NOT IN DISPUTE THAT RESULTANTLY, THERE IS TOTAL WAIVER OF LOAN OF RS.24.29 LAKHS. 16. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRC UMSTANCES OF THE CASE, ORDER PASSED BY LD. REVENUE AUTHORITIES B ELOW, ARGUMENTS ADVANCED BY LD. AR FOR THE PARTIES, THE QUESTION AR ISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER THE AMOUNT REMITTED ON ACCOUNT OF LOAN LIABILITY WAS ON CAPITAL ACCOUNT AND HENCE NOT TAXABLE U/S 41(1) OF THE ACT AS CONTENDED BY THE ASSESSEE? ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 10 17. HONBLE BOMBAY HIGH COURT IN CASE CITED AS MAHINDRA AND MAHINDRA LTD. - 261 ITR 501 IN ORDER TO WORK OUT AS TO HOW SECTION 41 (1) OF THE ACT IS TO BE APPLIED HAS HELD AS UNDER :- THAT IN ORDER TO APPLY SECTION 41(1), AN ASSESSEE SHOULD HAVE OBTAINED A DEDUCTION IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. THE ASSESSEE HA S NOT OBTAINED SUCH ALLOWANCE OR DEDUCTION IN RESPECT OF EXPENDITURE OR TRADING LIABILITY. THE ASSESSEE HAS PAID INTEREST AT 6 PER CENT OVER A PERIOD OF TEN YEARS O N RS.57,74,064. IN RESPECT OF THAT INTEREST, THE ASSE SSEE NEVER GOT DEDUCTION UNDER SECTION 36(1)(III) OR SEC TION 37. IN THE CIRCUMSTANCES, SECTION 41(1) OF THE ACT WAS NOT APPLICABLE. SECONDLY, EVEN ASSUMING THAT THE ASSESSEE HAD GOT DEDUCTION ON ALLOWANCE SECTION 41( 1) WAS NOT APPLICABLE BECAUSE SUCH DEDUCTION WAS NOT I N RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY. LASTLY THE TOOLINGS CONSTITUTED CAPITAL ASSETS AND NOT STO CK-IN- TRADE. THEREFORE, TAKING INTO ACCOUNT ALL THE ABOV E FACTS, SECTION 41 (1) OF THE ACT WAS NOT APPLICABLE . 18. APPLYING THE LAW LAID DOWN BY THE HONBLE BOMBA Y HIGH COURT IN CASE CITED AS MAHINDRA AND MAHINDRA LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT WAIVER OF LOAN CANN OT BE CHARGEABLE TO TAX U/S 41 (1) OF THE ACT, HOWEVER THE AMOUNT OF INTEREST CONVERTED INTO ZERO COUPON FTIL TO THE TUNE OF RS.9 .12 LAKHS IS CERTAINLY CHARGEABLE TO TAX U/S 41 (1) OF THE ACT, DEDUCTION ON THIS AMOUNT HAS BEEN ALLOWED U/S 43B OF THE ACT. SO, WE FIND NO ILLEGALITY OR PERVERSITY IN RESTRICTING THE DEDUCTI ON TO RS.15.17 LAKHS AS AGAINST RS.24.29 LAKHS BY THE LD. CIT (A), HENCE GROUNDS NO.2, ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 11 2.1 AND 2.2 IN ITA NO.1463/DEL/2010 FOR AY 2005-06 ARE DETERMINED AGAINST THE REVENUE. GROUND NO.3 & 3.1 IN ITA NO.1463/DEL/2010 FOR AY 2005-06 (REVENUES APPEAL) GROUND NO.2 & 2.1 IN ITA NO.1479/DEL/2010 FOR AY 2006-07 (REVENUES APPEAL) GROUND NO.1 IN ITA NO.5614/DEL/2010 FOR AY 2007-08 (ASSESSEES APPEAL) 19. GROUNDS MENTIONED IN THE AFORESAID APPEALS ARE IDENTICAL EXCEPT THE DIFFERENCE IN AMOUNT, THEREFORE, FOR THE SAKE OF BREVITY, GROUNDS NO.3 & 3.1 IN ITA NO.1463/DEL/2010 FOR AY 2 005-06 ARE REPRODUCED AS UNDER :- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT (APPEALS) HAS ERRED IN DELETIN G THE ADDITION OF RS.1,23,90,639/- MADE BY AO BY DISALLOWING PROPO RTIONATE INTEREST ON ACCOUNT OF INVESTMENT MADE IN THE SISTE R CONCERN BY THE ASSESSEE COMPANY. 3.1 THE LD. CIT (A) IGNORED THE FACT THAT EACH YEAR IS UNIQUE IN ITSELF AND THE ASSESSEE IS PAYING INTEREST ON BO RROWED CAPITAL AND HAS ADVANCED INTEREST FREE LOANS TO SISTER CONC ERNS AND MADE OTHER INVESTMENTS WITH SISTER CONCERNS. 20. UNDISPUTEDLY, ASSESSEE HAS MADE INVESTMENT OF RS.1,47,67,361/-, RS.42,18,000/- AND RS.8.05 LAKHS IN SHARES OF M/S. SIEL LIMITED AND GIVEN INTEREST FREE ADVANCES TO ITS SUBSIDIARY ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 12 AND SISTER CONCERNS IN AYS 2005-06, 2006-07 AND 200 7-08 RESPECTIVELY. IT IS ALSO NOT IN DISPUTE THAT ASSES SEE HAS TAKEN OVER THE ASSETS AND LIABILITIES TO RUN TWO SUGAR FACTORI ES FROM SIEL LIMITED UNDER SCHEME OF ARRANGEMENT APPROVED BY HON BLE HIGH COURT VIDE ORDER DATED 26.08.2003 W.E.F. 01.10.2002 . IT IS ALSO NOT IN DISPUTE THAT AS A RESULT OF OPERATION OF SUGAR U NIT DURING THE PERIOD APPOINTED BETWEEN 01.10.2002 TO EFFECTIVE DA TE 26.08.2003, AN AMOUNT OF RS.1563.88 LAKHS WAS PAYABLE BY SIEL L IMITED TO THE ASSESSEE COMPANY WHEN BUSINESS WAS ACTUALLY TRANSFE RRED TO THE ASSESSEE AND SUBSEQUENTLY, THE AMOUNT REDUCED TO RS .1270.33 LAKHS AS ON 31.03.2005 AS A RESULT OF PAYMENT ADJUSTMENT MADE DURING 26.08.2003 TO 31.03.2005. IT IS ALSO NOT IN DISPUT E THAT THE ASSESSEE HAS MADE INVESTMENT OF RS.5.20 CRORES IN M/S. SIEL LIMITED IN TERMS OF SOA WITH THE APPROVAL OF CORPORATE DEBT RE STRUCTURING CELL (CDR CELL). IT IS ALSO NOT IN DISPUTE THAT LO AN OF RS.788.90 LAKHS TO SIEL HOLDING LIMITED WAS ALSO GIVEN FOR TH E PURPOSE OF REPAYING LOANS TO BANKS AND FINANCIAL INSTITUTIONS BY M/S. SIEL HOLDING LIMITED IN TERMS OF SOA. 21. IT IS THE CASE OF THE ASSESSEE THAT NO DISALLOW ANCE ON ACCOUNT OF INTEREST IN CASE OF INVESTMENTS/ADVANCES CAN BE MADE AS THE SAME HAS BEEN GIVEN OUT OF ITS OWN SURPLUS FUNDS AN D NO BORROWED ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 13 FUNDS HAVE BEEN UTILIZED FOR THIS PURPOSE. KEEPING IN VIEW THE AFORESAID UNDISPUTED FACTS AND CONTENTIONS RAISED B Y LD. AR FOR THE ASSESSEE AS WELL AS LD. DR, THE LD. CIT (A) DELETED THE AFORESAID ADDITIONS BY RETURNING FOLLOWING FINDINGS AS UNDER :- 4.5 THE SUBMISSIONS OF THE LD ARS HAVE BEEN CAREFULLY CONSIDERED. FROM THE DETAILS FILED BY THE APPELLANT IT IS OBSERVED THAT ADVANCE OF RS.1270.33 LAKHS TO SIEL LIMITED IS BROUGHT FORWARD FROM EARLI ER YEARS AND NO DISALLOWANCE WAS MADE IN ASSESSMENT YEARS 2003-04 AND 2004-05. INVESTMENT OF RS.520 LA CS IN SHARES OF SIEL LIMITED HAD BEEN MADE OUT OF PROC EEDS OF RIGHT ISSUE MADE BY THE APPELLANT COMPANY IN ACCORDANCE WITH THE SOA AND APPELLANT WAS PERMITTED BY THE COR CELL TO RAISE RIGHT ISSUE OF RS.8.50 CRO RES FOR THE PURPOSE OF MAKING INVESTMENT IN ABOVE SHARE S OF SIEL LIMITED. ADVANCE OF RS.788.12 LACS TO SIEL HOL DINGS LIMITED HAS ALSO BEEN MADE IN ACCORDANCE WITH THE SOA. FURTHER, THE FUNDS ON ACCOUNT OF SHARE CAPITAL AND RESERVES TO THE EXTENT OF RS.116.68 CRORES WHIC H IS MUCH HIGHER THAN THE ABOVE MENTIONED INVESTMENTS / LOANS TO SISTER CONCERNS WERE AVAILABLE WITH THE APPELLANT. CURRENT YEAR'S PROFIT OF THE COMPANY WER E ALSO RS.40.15 CRORES. CASE LAW RELIED UPON BY THE L D. ARS ALSO SUPPORTS THE CLAIM OF THE COMPANY. IN VIEW OF THE FACTS OF THE CASE AND THE JUDGEMENTS RELIED UPO N BY THE AR I AM AFRAID I CANNOT AGREE WITH THE ACTION O F THE AO IN DISALLOWING INTEREST IN RESPECT OF INVESTMENT MADE IN SIEL LIMITED AS WELL AS LOAN / ADVANCES RECEIVABLE FROM SIEL LIMITED AND SIEL HOLDINGS LIMI TED. HENCE, AO IS DIRECTED TO DELETE THE DISALLOWANCE OF RS.1,23,90,639/-. 22. HONBLE DELHI HIGH COURT IN CASE CITED AS CIT VS. TOSHA INTERNATIONAL LTD. 331 ITR 440 (DELHI) HELD THAT WHEN THE ASSESSEE HAS PROVIDED INTEREST FREE ADVANCES TO ITS SUBSIDIARY ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 14 COMPANIES OUT OF FUNDS BORROWED BY IT ON INTEREST B UT AT THE RELEVANT TIME THE ASSESSEE WAS HAVING ADEQUATE NON- INTEREST BEARING FUNDS IN THE FORM OF SHARE CAPITAL AND RESE RVES, THE ADVANCES MADE TO SUBSIDIARY ON BUSINESS CONSIDERATI ON ARE NOTHING BUT COMMERCIAL EXPEDIENCIES OF THE ASSESSEE. 23. WE ARE OF THE CONSIDERED VIEW THAT WHEN IT IS N OT IN DISPUTE THAT ADVANCE OF RS.1270.33 LAKHS TO M/S. SIEL LIMIT ED WAS BROUGHT FORWARD FROM EARLIER YEARS AND NO SUCH DISALLOWANCE WAS MADE IN AYS 2003-04 AND 2004-05 AND INVESTMENT OF RS.520 LA KHS IN SHARES OF SIEL LIMITED HAD BEEN MADE OUT OF THE PRO CEEDS OF RIGHT ISSUE IN TERMS OF SOA AS PERMITTED BY CDR CELL AND THE ASSESSEE HAS RESERVES OF RS.116.68 CRORES AND CURRENT YEARS PROFIT OF COMPANY WAS RS.40.15 CRORES WHICH IS HIGHER THAN TH E AFORESAID INVESTMENT/LOANS TO THE SISTER CONCERNS, THE LD. CI T (A) HAS RIGHTLY DELETED THE DISALLOWANCE OF RS.1,23,90,639/-. SO, GROUNDS NO.3 & 3.1 IN ITA NO.1463/DEL/2010 FOR AY 2005-06 ARE DET ERMINED AGAINST THE REVENUE. 24. SINCE FACTS IN AY 2006-07 FOR MAKING INVESTMENT AND PROVIDING INTEREST FREE ADVANCES TO SUBSIDIARY COMP ANIES ARE IDENTICAL TO THAT OF AY 2005-06, THE AFORESAID FIND INGS RETURNED BY THE BENCH ARE APPLICABLE TO AY 2006-07 ALSO. SO, W E ARE OF THE ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 15 CONSIDERED VIEW THAT THE LD. CIT (A) HAS RIGHTLY DE LETED THE DISALLOWANCE OF RS.42,18,000/- IN AY 2006-07. SO, GROUNDS NO.2 & 2.1 IN ITA NO.1479/DEL/2010 FOR AY 2006-07 ARE DE TERMINED AGAINST THE REVENUE. 25. SO FAR AS DISALLOWANCE OF INTEREST EXPENSES OF RS.48,787 IN ITA NO.5614/DEL/2010 FOR AY 2007-08 IS CONCERNED, T HE LD. CIT (A) HAS MERELY CONFIRMED THE DISALLOWANCE ON THE GR OUND THAT, WHEN THE ARS WERE SPECIFICALLY REQUESTED TO ESTABL ISH THEIR CLAIM THAT THE ADVANCES/INVESTMENTS WERE MADE OUT OF OWN FUNDS, THEY COULD NOT DO SO. UNDER THE CIRCUMSTANCES, I AM UNA BLE TO AGREE WITH THE DECISION TAKEN BY MY LD. PREDECESSOR. WE ACCEPT THE CONTENTIONS RAISED BY THE LD. AR FOR THE ASSESSEE T HAT THIS ISSUE IS COVERED BY ASSESSEES OWN CASE FOR AY 2005-06 AND 2 006-07 WHICH IS NOT CONTROVERTED BY THE LD. DR FOR THE REV ENUE. HOWEVER WE DISPOSE OF THIS GROUND WITH A DIRECTION TO THE A O TO VERIFY THE CASE AT HAND THAT ADVANCES/INVESTMENTS WERE MADE OU T OF OWN INTEREST FREE SURPLUS FUNDS BY THE ASSESSEE AND IF IT IS SO, THEN DISALLOWANCE SHALL BE DELETED OTHERWISE CIT (A)S F INDING SHALL STAND CONFIRMED. SO, GROUND NO.1 IN ITA NO.5614/DE L/2010 FOR AY 2007-08 IS DETERMINED IN FAVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSES. ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 16 GROUNDS NO.1, 2 & 3 IN ITA NO.751/DEL/2012 FOR AY 2007-08 (REVENUES APPEAL) AND GROUNDS NO.1 & 1.1 IN CO NO.153/DEL/2012 FOR AY 2007-08 (ASSESSEES CO) 26. GROUNDS NO.1, 2 & 3 IN ITA NO.751/DEL/2012 FOR AY 2007- 08 IS REPRODUCED AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN DELETING TH E ADDITION OF RS.381.20 LAKHS BEING AMOUNT OF SALE PROCEEDS OF SU GAR AND RS. 32.20 LAKHS BEING AMOUNT OF SALE OF SCRAP ETC., WHI CH WERE RECEIVED DURING THE PERIOD OF TRIAL RUN. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (APPEALS) HAS ERRED IN HOLDING THAT THE RECEIPT S REFERRED TO IN GROUND NO. (1) ABOVE ARE REQUIRED TO BE CAPITALIZED AND ADJUSTED AGAINST THE COST OF PROJECTS, WITHOUT APPRECIATING THE FACT THAT THESE AMOUNTS HAD BEEN RECEIVED AFTER THE ASSESSEE HAD STARTED PRODUCTION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (APPEALS) HAS ERRED IN HOLDING THAT THE SUPREME COURT'S DECISION IN THE CASE OF CIT VS. BOKARO STEELS LTD ( 236 ITR 315) IS APPLICABLE TO THE FACTS OF THIS CASE. 27. GROUNDS NO.1 & 1.1 IN CO NO.153/DEL/2012 FOR AY 2007-08 IS REPRODUCED AS UNDER :- 1. THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN U PHOLDING THE TAXABILITY OF INTEREST INCOME OF RS.76.10 AS IN COME CHARGEABLE TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. 1.1 THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN N OT APPRECIATING THAT THE ABOVE INTEREST INCOME WAS IN THE NATURE OF 'CAPITAL RECEIPT' (I.E. OPERATIONAL, TRIAL RUN PERI OD INCOME) AND HENCE NOT EXIGIBLE TO TAX. ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 17 28. AO MADE ADDITION OF RS.4,84,01,000/-. AFTER NO TICING THAT THE ASSESSEE HAS RECEIVED PRE-OPERATIVE INTEREST IN COME OF RS.79,61,000/- (THE CORRECT AMOUNT IS RS.76.10 LAKH S) AND HAS SOLD SUGAR OF RS.3,81,20,000/- TERMED AS INCOME FROM TRI AL RUN OF THE NEW SUGAR UNITS; AND HAS FURTHER RECEIVED MISC. INC OME OF RS.32,20,000/- (TOTAL COMES TO RS.4,84,01,000/-) ON WHICH NO TAX HAS BEEN OFFERED. AO BY RELYING UPON THE DECISION RENDERED BY HONBLE SUPREME COURT IN TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT 227 ITR 172 PROCEEDED TO CONCLUDE THAT INCOME FROM SHORT TERM DEPOSIT WITH THE BANKS IN OP ERATION PERIOD IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OT HER SOURCES AND CONSEQUENTLY THE INTEREST INCOME OF RS.76.10 LA KHS IS BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. AO ALSO BROUGHT TO TAX MISC. INCOME OF SALE OF SUGAR ON TRI AL RUN UNDER THE HEAD INCOME FROM OTHER SOURCES AS THE ASSESSEE HA S NOT INCURRED ANY EXPENDITURE U/S 57 OF THE ACT AND MADE TOTAL AD DITION OF RS.4,84,01,000/-. 29. WHEN THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT (A) BY WAY OF FILING THE APPEAL HE HAS DELETED THE ADDI TION MADE BY THE ASSESSEE ON ACCOUNT OF SALE PROCEEDS OF RS.381.20 L AKHS ON MANUFACTURING GOODS AND SALE PROCEEDS OF SCRAP ETC. OF RS.32.02 ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 18 LAKHS, HOWEVER BY APPLYING THE DECISION RENDERED BY TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (SUPRA) CONFIRMED THE ADDITION OF RS.76.10 LAKHS BEING INTEREST ON SH ORT TERM DEPOSITS BY TREATING THE SAME AS INCOME FROM OTHER SOURCES. 30. BOTH REVENUE AS WELL AS ASSESSEE HAVE COME UP I N APPEAL AS WELL AS CROSS OBJECTIONS BY CHALLENGING THE IMPUGNE D ADDITION BEFORE THE TRIBUNAL. 31. UNDISPUTEDLY, DURING THE PRE-OPERATIVE PERIOD, ASSESSEE HAS NEITHER CLAIMED NOR ALLOWED ANY DEPRECIATION. IT I S ALSO NOT IN DISPUTE THAT DURING THE SAID PERIOD, COST IS MORE T HAN EXPENDITURE, AS IS EVIDENT FORM PARA A AT PAGE 42 OF THE WRITTEN SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AO. 32. IT IS THE CASE OF THE ASSESSEE THAT THE COMPANY HAS BORROWED LOAN FOR ITS BUSINESS PURPOSE ON WHICH INTEREST OF RS.171.30 MILLION WAS PAID AND IN ORDER TO REDUCE THE BURDEN ON ACCOU NT OF HEAVY INTEREST PAYMENTS, THE AMOUNT OF LOANS NOT IMMEDIAT ELY REQUIRED BY THE ASSESSEE WERE KEPT IN THE FIXED DEPOSITS WITH T HE BANK. SINCE AVAILING OF THE LOAN BY THE ASSESSEE COMPANY FOR BU SINESS PURPOSE AND KEEPING PART OF THE SAID LOAN IN FIXED DEPOSITS BEING NOT REQUIRED AT THAT MOMENT ARE HAVING BUSINESS NEXUS A S TEMPORARY ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 19 UTILIZATION OF THE LOAN, INTEREST THEREON CANNOT BE TREATED AS INCOME FROM OTHER SOURCES. 33. IT IS ALSO THE CASE OF THE ASSESSEE THAT DURING THE PERIOD OF EXPANSION APART FROM PURCHASE OF MACHINERY/EQUIPMEN TS AND SERVICES, THE ASSESSEE HAS ALSO INCURRED EXPENDITUR E ON ACCOUNT OF SALARIES AND WAGES FOR THE EMPLOYEES INVOLVED IN EX PANSION, POWER & FUEL, STORES & SPARES, INSURANCE, INTEREST ON TER M LOAN ETC. WHICH WERE NOT DEBITED TO THE PROFIT & LOSS ACCOUNT AND S HOWN SEPARATE AS PRE-OPERATIVE EXPENDITURE. HOWEVER, THOSE EXPENDIT URE WERE LATER ON ALLOCATED ON THE ASSETS CAPITALIZED. ASSESSEE E XPLAINED THAT DURING THE PERIOD UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED CERTAIN RECEIPTS WHICH ARE NETTED OFF WITH EXPENDIT URE WHILE CAPITALIZATION AND GIVEN THE DETAILS THEREOF AS UND ER :- SI PARTICULARS EXPENSES/ EXPENSES/ EXPENSES/ NO . RECEIPTS UP TO RECEIPTS UP TO RECEIPTS FOR THE 31 . 03 . 2007 30 . 09 . 2006 PERIOD . 01 . 10 . 2006 TO 31.03 . 2007 1 . EXPENSES OTHER THAN 210 . 80 142 . 29 68 . 60 . INTEREST 2 . INTEREST 248.97 77 . 67 171 . 30 TOTAL A 459 . 77 219 . 96 239 . 90 LESS : A . INTEREST RECEIVED 19 . 69 12 . 08 7 . 61 B. INCOME FROM TRIAL RUN 38.12 0 . 00 38.12 C . MISC INCOME 3 . 72 0 . 50 3 . 22 TOTAL B 61.53 12 . 58 48 . 95 TOTAL EXPENSES(A - B) 398 . 24 207 . 38 190 . 86 ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 20 34. IN VIEW OF THE MATTER, WE ARE OF THE CONSIDERED VIEW THAT AMOUNT OF RS.76.10 LAKHS EARNED BY THE ASSESSEE AS INTEREST INCOME DURING THE PRE-OPERATIVE PERIOD CANNOT BE BROUGHT T O TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AS THE SAME WAS PA RT OF THE COMPOSITE TRANSACTION WHEN THE ASSESSEE COMPANY AFT ER AVAILING HUGE LOAN HAS KEPT SOME PART THEREOF BEING NOT REQU IRED AT THAT MOMENT IN THE FIXED DEPOSITS. 35. HONBLE MADRAS HIGH COURT IN CASE CITED AS COMMISSIONER OF INCOME-TAX V. VGR FOUNDATIONS- [2008] 298 ITR 1 32 (MAD) HELD THAT THE EXPENSES INCURRED PRIOR TO THE COMMEN CEMENT OF THE BUSINESS INTEREST INCOME FROM OUT OF FIXED DEPOSI TS WITH BANK FOR PERIOD PRIOR TO COMMENCEMENT OF BUSINESS, THE INTER EST INCOME CAN BE SET OFF AGAINST THE EXPENSES AND AS SUCH, THE SA ID INCOME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES TO BE BRO UGHT TO TAX. 36. SO FAR AS QUESTION OF DELETING THE ADDITION OF RS.381.20 LAKHS AND RS.32.20 LAKHS ON ACCOUNT OF SALE PROCEEDS OF S UGAR AND SCRAP RESPECTIVELY BY THE LD. CIT (A) IS CONCERNED, WE AR E OF THE CONSIDERED VIEW THAT THE SALE OF THE MANUFACTURED G OODS AND SALE OF SCRAP BEING LINKED TO THE EXPENDITURE INCURRED BY T HE ASSESSEE COMPANY DURING THE TRIAL PERIOD CANNOT BE TREATED A S INCOME FROM OTHER SOURCES TO BROUGHT THE SAME TO TAX. ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 21 37. HONBLE SUPREME COURT IN CASE CITED AS CIT VS. BOKARO STEEL LTD. - 236 ITR 315 (SC) WHILE DECIDING THE IDENTICAL ISSUE HELD THAT IN CASE THE ASSESSEE RECEIVES ANY AMOUNT WHICH ARE INEXTRICABLY LINKED WITH THE PROCESSING OF SETTING OF ITS PLANT AND MACHINERY, SUCH RECEIPTS WILL GO TO REDUCE THE COST OF ASSETS AND THESE RECEIPTS ARE OF CAPITAL NATURE AND CANNOT BE TREATED AS INCOME. OPERATIVE PART OF THE JUDGMENT IN CIT VS. BOKARO STEEL LTD. (SUPRA) IS REPRODUCED FOR READY PERUSAL AS UNDER :- HELD, DISMISSING THE APPEAL, THAT THE FIRST THREE HEADS OF INCOME WERE (I) THE RENT CHARGED BY THE ASSESSEE TO ITS CO NTRACTORS FOR HOUSING WORKERS AND STAFF EMPLOYED BY THE CONTRACTO R FOR THE CONSTRUCTION WORK OF THE ASSESSEE INCLUDING CERTAIN AMENITIES GRANTED TO THE STAFF BY THE ASSESSEE, (II) HIRE CH ARGES FOR PLANT AND MACHINERY WHICH WAS GIVEN TO THE CONTRACTORS B Y THE ASSESSEE FOR USE IN THE CONSTRUCTION WORK OF THE AS SESSEE, AND (III), INTEREST FROM ADVANCES MADE TO THE CONTRACT ORS BY THE ASSESSEE FOR THE PURPOSE OF FACILITATING THE WORK O F CONSTRUCTION. THE ACTIVITIES OF THE ASSESSEE IN CONNECTION WITH A LL THESE THREE RECEIPTS WERE DIRECTLY CONNECTED WITH OR INCIDENTAL TO THE WORK OF CONSTRUCTION OF ITS PLANT UNDERTAKEN BY THE ASSESSE E. THE ADVANCES WHICH BY THE ASSESSEE MADE TO THE CONTRACT ORS TO FACILITATE THE CONSTRUCTION ACTIVITY OF PUTTING TOG ETHER A VERY LARGE PROJECT WAS AS MUCH TO ENSURE THAT THE WORK OF THE CONTRACTORS PROCEEDED WITHOUT ANY FINANCIAL HITCH AS TO HELP TH E CONTRACTORS. THE ARRANGEMENTS WHICH WERE MADE BETWEEN THE ASSESS EE COMPANY AND THE CONTRACTORS PERTAINING TO THESE THR EE RECEIPTS WERE ARRANGEMENTS WHICH WERE INTRINSICALLY CONNECTE D WITH THE CONSTRUCTION OF ITS STEEL PLANT. THE RECEIPTS HAD BEEN ADJUSTED AGAINST THE CHARGES PAYABLE TO THE CONTRACTORS AND HAD GONE TO REDUCE THE COST OF CONSTRUCTION. THEY HAS, THEREFO RE, BEEN RIGHTLY HELD AS CAPITAL RECEIPTS AND NOT INCOME OF THE ASSE SSEE FROM ANY INDEPENDENT SOURCE. ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 22 38. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE C ASE AND BY FOLLOWING THE LAW LAID DOWN BY HONBLE SUPREME COUR T IN CIT VS. BOKARO STEEL LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT SALE OF SUGAR AND SCRAP IN THE PRE-OPERATIVE PERIOD AS W ELL AS INTEREST INCOME FROM FDRS BOUGHT BY THE ASSESSEE IN THE PRE- OPERATIVE PERIOD OUT OF THE LOAN TAKEN ON HEAVY INTEREST BEIN G NOT REQUIRED FOR THE TIME BEING ARE DIRECTLY CONNECTED WITH THE COMPLETION OF THE PROJECT AND AS SUCH, CANNOT BE BROUGHT TO TAX BY TR EATING THE SAME AS INCOME FROM OTHER SOURCES. SO, LD. CIT (A) HAS RIGHTLY DELETED THE ADDITION OF RS.381.20 AND RS.3.20 LAKHS ON ACCO UNT OF SALE OF SUGAR AND SCRAP ETC. RESPECTIVELY. 39. HOWEVER, LD. CIT (A) HAS ERRED IN CONFIRMING TH E ADDITION OF RS.76.10 LAKHS BEING THE INTEREST ON SHORT TERM DEP OSITS MADE BY THE ASSESSEE COMPANY BY RELYING UPON TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS. CIT (SUPRA), HENCE FINDINGS OF LD. CIT (A) CONFIRMING THE ADDITION OF RS.76.10 LAKHS IS ORDERE D TO BE DELETED, SO GROUNDS NO.1, 2 & 3 IN ITA NO.751/DEL/2012 FOR AY 2007-08 IS DETERMINED AGAINST THE REVENUE AND GROUNDS NO.1 & 1.1 IN CO NO.153/DEL/2012 FOR AY 2007-08 ARE DETERMINED IN F AVOUR OF THE ASSESSEE. ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 23 GROUND NO.2 IN CO NO.153/DEL/2012 FOR AY 2007-08 (ASSESSEES CO) 40. GROUND NO.2 IN CO NO.153/DEL/2012 FOR AY 2007- 08 HAS BEEN FIRST TIME RAISED BEFORE THE TRIBUNAL BY THE A SSESSEE. HOWEVER, LD. AR FOR THE ASSESSEE HAS NOT PRESSED TH IS GROUND KEEPING IN VIEW THE SMALLNESS OF THE ADDITION, HENC E DETERMINED ACCORDINGLY. GROUNDS NO.3 & 4 IN CO NO.153/DEL/2012 FOR AY 2007-08 (ASSESSEES CO) 41. GROUNDS NO.3 & 4 IN CO NO.153/DEL/2012 FOR AY 2007- 08 ARE GENERAL IN NATURE, HENCE DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. GROUNDS NO.2, 2.1, 2.2 & 3 IN ITA NO.5614/DEL/2010 FOR AY 2007-08 (ASSESSEES APPEAL) GROUNDS NO.1 & 2 IN ITA NO.752/DEL/2012 FOR AY 2008-09 (ASSESSEES APPEAL) GROUNDS NO.1, 2, 3 & 4 IN CO NO.154/DEL/2012 FOR AY 2008-09 (ASSESSEES CO) GROUND NO.1 IN ITA NO.2921/DEL/2012 FOR AY 2009-10 (REVENUES APPEAL) GROUNDS NO.1, 2, 3 & 4 IN CO NO.379/DEL/2012 FOR AY 2009-10 (ASSESSEES CO) ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 24 42. GROUNDS MENTIONED IN THE AFORESAID APPEALS ARE IDENTICAL EXCEPT THE DIFFERENCE IN AMOUNT, THEREFORE, FOR THE SAKE OF BREVITY, GROUNDS NO.1 & 2 IN ITA NO.752/DEL/2012 FOR AY 2008 -09 ARE REPRODUCED AS UNDER :- 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS. 179.80 MADE BY THE AO U/S 14A OF THE ACT TO RS. 13,20,073/- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (APPEALS) HAS ERRED IN TAKING INTO ACCOUNT THE STAND ALONE BALANCE SHEET OF M/S SIEL LTD. AS ON 31.3.2007, WHE N THE MERGER OF THE ERSTWHILE COMPANY OF MAWANA SUGARS LTD. WITH THE ASSESSEE COMPANY HAS TAKEN PLACE ON 1.10.2006 , I.E . DURING THE PREVIOUS YEAR RELEVANT TO AY. 2007-08, WHEN ASSESSM ENT IN RELATION TO ANY PERIOD AFTER 1.10.2006 IS TO BE MAD E IN THE CASE OF ASSESSEE COMPANY ONLY; AND THE ENTIRE AMOUNT OF INT EREST PAID HAS BE CLAIMED AS DEDUCTION IN THE CASE OF THE ASSE SSEE COMPANY ONLY. 43. GROUNDS MENTIONED IN THE AFORESAID CROSS OBJECT IONS RAISED BY THE ASSESSEE ARE IDENTICAL EXCEPT THE DIFFERENCE IN AMOUNT, THEREFORE, FOR THE SAKE OF BREVITY, GROUNDS NO.1, 2 , 3 & 4 IN CO NO.154/DEL/2012 FOR AY 2008-09 ARE REPRODUCED AS UN DER :- 1. THAT ON FACTS AND IN LAW THE C1T(A) ERRED IN UPHOLDING DISALLOWANCE OF RS.13,20,073 (I.E RS 3,20,073/- OUT OF INTEREST COST AND RS.10,00,000/- OUT OF ADMINISTRATIVE EXPENSES) UNDER SECTION 14A OF THE INCOME TAX ACT 2. THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN ERRED IN UPHOLDING THE ASSUMPTION OF JURISDICTION U /S 14A R/W RULE 80(2) BY THE AO. 3. THAT ON FACTS AND IN LAW TO THE COMMISSIONER OF INCOME TAX (APPEALS) {HEREIN ABOVE REFERRED TO AS ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 25 'CIT(A)'} ERRED IN UPHOLDING THE ORDER OF AO PARTLY AND NOT ALLOWING COMPLETE RELIEF AS CLAIMED. 4. THAT ON FACTS AND IN LAW THE ORDER PASSED BY ASSESSING OFFICER {HEREIN ABOVE REFERRED TO AS 'AO' } IS VOID AB INITIO AND BAD IN LAW. 44. AO BY INVOKING THE PROVISIONS CONTAINED U/S 14A MADE ADDITION OF RS.29,23,375/-, RS.179.80 LAKHS AND RS. 1,78,60,000/- IN AYS 2007-08, 2008-09 AND 2009-10 RESPECTIVELY, WHIC H HAS BEEN CONFIRMED BY THE LD. CIT (A) IN AY 2007-08 BUT GIVE N PART RELIEF IN AYS 2008-09 & 2009-10. FOR AY 2008-09 AND 2009- 10, ASSESSEE FILED CROSS OBJECTIONS UPHOLDING THE DISAL LOWANCE OF RS.13,20,073/- AND RS.17,19,600 FOR AY 2008-09 & 20 09-10 RESPECTIVELY. IT IS THE CASE OF THE ASSESSEE THAT DURING THE YEAR UNDER ASSESSMENT, NO EXEMPT INCOME HAS BEEN EARNED AND AS SUCH, SECTION 14A IS NOT ATTRACTED TO MAKE DISALLOWANCE. 45. WHEN THE ASSESSEE HAS COME UP WITH CATEGORIC DE FENCE THAT IT HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER ASSESSMENTS, THE AO WAS REQUIRED TO RECORD HIS DISS ATISFACTION AS TO THE WORKING MADE BY THE ASSESSEE, RATHER PROCEEDED TO INVOKE THE PROVISIONS CONTAINED U/S 14A BY RELYING UPON THE DE CISION OF DAGA CAPITAL MANAGEMENT PVT. LTD. 312 ITR (AT) 01 . ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 26 46. IDENTICAL ISSUE HAS COME UP FOR CONSIDERATION B EFORE THE HONBLE JURISDICTIONAL HIGH COURT IN CASE CITED AS CHEMINVEST LTD. VS. CIT - (2015) 378 ITR 33 (DELHI) WHEREIN IT IS HELD AS UNDER :- HELD, THAT NO EXEMPTED INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR AND SINCE THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSE SSEE WAS NOT IN DOUBT, NO DISALLOWANCE COULD BE MADE UND ER SECTION 14A. 47. HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT 394 ITR 449 (SC) THRASHED THE ISSUE IN CONTROVERSY AS TO INVOKING OF THE PROVISIONS CONTAI NED UNDER RULE 8D OF THE RULES BY OBSERVING AS UNDER :- 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUAT ION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESS MENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITUR E INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WH ERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM O F THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSI BLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONL Y THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AN D (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 27 48. IN VIEW OF THE DECISIONS RENDERED BY HONBLE DE LHI HIGH COURT IN CASE CITED AS CHEMINVEST LTD. VS. CIT AND GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT (SUPRA), WHEN THE AO HAS NOT RECORDED HIS DISSATISFACTION AS TO THE W ORKING THAT ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME NOR INC URRED ANY EXPENSES ON INTEREST FOR THE YEAR UNDER ASSESSMENTS , PROVISIONS CONTAINED U/S 14A ARE NOT ATTRACTED. SO, AO/CIT (A ) HAVE ERRED IN MAKING DISALLOWANCE U/S 14A. 49. HOWEVER, AO SHALL VERIFY THE FACTS THAT THE ASS ESSEE HAS NOT EARNED ANY EXEMPT DIVIDEND INCOME NOR INCURRED ANY EXPENSES ON INTEREST DURING THE YEAR UNDER ASSESSMENTS IF THIS CONFIRMATION IS FOUND TO BE CORRECT THEN DISALLOWANCE SHALL BE TREA TED AS DELETED OTHERWISE IMPUGNED ORDERS PASSED BY LD. CIT (A) SHA LL FOLLOW. CONSEQUENTLY, GROUNDS NO.2, 2.1, 2.2 & 3 IN ITA NO.5614/DEL/2010 FOR AY 2007-08 ARE DETERMINED IN F AVOUR OF THE ASSESSEE. GROUNDS NO.1 & 2 IN ITA NO.752/DEL/2012 FOR AY 2008-09 AND GROUND NO.1 IN ITA NO.2921/DEL/2012 FOR AY 2009- 10 ARE DETERMINED AGAINST THE REVENUE. GROUNDS NO. 1, 2, 3 & 4 IN CO NO.154/DEL/2012 FOR AY 2008-09 AND GROUNDS NO.1 , 2, 3 & 4 ITA NO.1463, 1479 & 5614/DEL/2010 ITA NO.751 & 752/DEL/2012 CO NO.153, 154 & 379/DEL/2012 ITA NO.2921/DEL/2012 28 IN CO NO.379/DEL/2012 FOR AY 2009-10 ARE DETERMINED IN FAVOUR OF THE ASSESSEE. 47. RESULTANTLY, ITA NOS.1463/DEL/2010, 1479/DEL/20 10, 751/DEL/2010, 752/DEL/2010 AND 2921/DEL/2010 FILED BY THE REVENUE ARE DISMISSED AND ITA NO.5614/DEL/2010 FILE D BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND CO NOS.153/DEL/2012, 154/DEL/2012 & 379/DEL/2012 FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH DAY OF MAY, 2018. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH ) PRESIDENT JUDICIAL MEMBER DATED THE 28 TH DAY OF MAY, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.