M/s Empire Package (P) Ltd., Chandigarh V. DCIT, Chandigarh

CO 2/CHANDI/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7941 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 05-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business expenditure; Proportionate interest; Cost of acquisition; Non-deduction of tax; Fair market value; Notional interest; Revenue expenditure
• Section: 143(3); 14A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, J M ITA NO. 1364/CHD/2010 ASSESSMENT YEAR : 2006-07 D.C.I.T. CIRCLE 1(1) V EMPIRE PACKAGE (P) LTD CHANDIGARH #18, SECTOR 9-A, CHANDIGARH AAACE 5023 G CROSS-OBJECTIONS NO. 2/CHD/2011 ARISING OUT OF ITA NO. 1364/CHD/2010 ASSESSMENT YEAR : 2006-07 EMPIRE PACKAGE (P) LTD V D.C.I.T. CIRCLE 1(1) #18, SECTOR 9-A, CHANDIGARH CHANDIGARH ITA NO. 412/CHD/2012 ASSESSMENT YEAR : 2008-09 A.C.I.T. CIRCLE 1(1) V EMPIRE PACKAGE (P) LTD CHANDIGARH #18, SECTOR 9-A, CHANDIGARH ITA NO. 347/CHD/2012 ASSESSMENT YEAR : 2008-09 EMPIRE PACKAGE (P) LTD V ADDL C.I.T. RANGE- I #18, SECTOR 9-A, CHANDIGARH CHANDIGARH (APPELLANT) (RESPONDENT) APPELLANT BY SHRI VINEET KRISHAN RESPONDENT BY SHRI AKHILESH GUPTA DATE OF HEARING 20.11.2012 DATE OF PRONOUNCEMENT 27.11.2012 O R D E R PER T.R.SOOD, A.M THESE ARE CROSS APPEALS. APPEAL NO. 1364/CHD/2010 IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A), CH ANDIGARH DATED 23.7.2010, APPEALS NO. 412 & 347/CHD/2012 ARE DIRECTED 2 AGAINST THE ORDER PASSED BY THE CIT(A), CHANDIGARH DATED 23.1.2012. CROSS-OBJECTIONS NO. 2/CHD/2011 IS FILE D BY THE ASSESSEE IN SUPPORT OF HIS SUBMISSIONS. 2. ITA NO. 1364/CHD/2010 - IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING GROUNDS: 1 AS PER THE FACTS AND CIRCUMSTANCES OF THE CASE A ND THE PROVISIONS OF LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 44,364/- U/S 36(1)(VA) OF THE I NCOME- TAX ACT, 1961 MADE BY THE AO. ON THE GROUND THAT T HE ASSESSEE COMPANY HAS FAILED TO DEPOSIT THE AMOUNTS ON OR BEFORE THE DUE DATE. 2. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER PROVISIONS OF SECTION LD. CIT(A) HA S ERRED IN ALLOWING THE RELIEF TO THE ASSESSEE ON THE ADDIT IONS ON THE ADDITIONS OF RS. 1,93,343/- MADE BY THE AO BY DISALLOWANCE OUT OF INTEREST EXPENSES ON THE GROUND THAT THE INVESTMENT IN LANDS USED FOR AGRICULTURAL PURP OSE AND ALSO IN SHARES IS EXEMPT U/S 14A OF THE INCOME-TAX ACT. 3. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PR PROVISIONS OF LAW LD. CIT(A) HAS ERR ED IN ALLOWING THE RELIEF TO THE ASSESSEE ON THE ADDITION S ON THE ADDITIONS OF RS. 11,205/- MADE BY THE AO OUT OF THE INTEREST PAID ON THE GROUND THAT THE INVESTMENT WAS MADE IN FLAT IN NALAGARH FOR OFFICE. 4. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PR PROVISIONS OF LAW LD. CIT(A) HAS ERR ED IN ALLOWING THE RELIEF TO THE ASSESSEE ON THE ADDITION S ON THE ADDITIONS OF RS.25,43,462/- BY DISALLOWING THE FREI GHT PAID BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE INCOME-TAX ACT. 5. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PR PROVISIONS OF LAW LD. CIT(A) WAS RIG HT IN LAW IN DELETING THE DISALLOWANCES MADE U/S 40A(IA) OF THE INCOME-TAX ACT IN VIEW OF THE AMENDED PROVISIONS OF SECTION 194C(3)(I) OF INCOME-TAX ACT. 6. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PR PROVISIONS OF LAW THE GOODS SUPPLIED BY THE SUPPLIER NOT BEING INCLUSIVE OF FREIGHT AND THE REFORE, THE FREIGHT CHARGES CHARGED SEPARATELY BY THE SUPPL IER FALL UNDER THE PROVISIONS OF SECTION 194C OF THE INCOME- TAX ACT, 1961. 7. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PR PROVISIONS OF LAW LD. CIT(A) HAS ERR ED IN ALLOWING THE RELIEF TO THE ASSESSEE ON THE ADDITION S OF ADDITIONS OF RS.71,043/- ON ACCOUNT OF REPAIR CHAR GES 3 PAID TO AKASH AUTOMOBILES, MANIMAJRA BY INVOKING TH E PROVISIONS OF SECTION 40(A)(IA). 8. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PR PROVISIONS OF LAW LD. CIT(A) HAS ERR ED IN ALLOWING THE RELIEF TO THE ASSESSEE ON THE ADDITION S OF ADDITIONS OF RS.88,047/- BY DISALLOWING INTEREST ON THE GROUND THAT THE DEBIT BALANCE AGAINST LEELA CONFECT IONARY PVT LTD. WHICH IN FACT IN ON ACCOUNT OF TRADE TRAN SACTION HAS BEEN TREATED AS A LOAN. 3. GROUND NO. 1 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO N OTICED THAT EMPLOYEES SHARE OF PROVIDENT FUND WAS DEPOSITE D LATE AS PER FOLLOWING DETAILS: MONTH AMOUNT DUE DATE DATE OF DEPOSIT JUNE 05 UNIT-I UNIT-II 6196 2881 15.7.2005 16.7.2005 AUG. 05 UNIT-I UNIT-II 6493 2947 15.9.2005 17.10.2005 OCT. 05 UNIT-I UNIT-II 6648 2948 15.11.2005 16.11.2005 DEC. 05 UNIT-I UNIT-II 6620 241 15.1.2006 16.1.2006 FEB. 06 UNIT-I UNIT-II 6628 2762 15.3.2005 16.3.2006 TOTAL 44364 THE AO AFTER DETAILED DISCUSSION HELD THAT SINCE DE DUCTION WAS ALLOWABLE U/S 36(1)(VA) AND THEREFORE, THE SAME CO ULD NOT BE ALLOWED AND IN THIS REGARD HE RELIED ON VARIOUS DEC ISIONS. 4. ON APPEAL THE LD. CIT(A) DELETED THE ADDITION ON THE BASIS OF DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. NUCHEM LTD. (ITA NO. 323 OF 2009). 5. BEFORE US THE LD. DR FOR THE REVENUE RELIED ON T HE ORDER OF THE AO. 4 6. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT DUES OF PROVIDENT FUND WERE DEPOSITE D LATE AND THE SAME HAVE BEEN HELD TO BE ALLOWABLE BY THE DECI SION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. LAKHANI RUBBER WORKS, 326 ITR 841. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. LAKHA NI RUBBER WORKS (SUPRA) WHILE FOLLOWING THE DECISION OF HON'B LE SUPREME COURT IN CASE OF CIT V. ALOM EXTRUSIONS LTD. 319 IT R 306 (S.C) HELD EVEN IF PAYMENT IS MADE LATE, THE SAME IS ALLO WABLE. RESPECTFULLY FOLLOWING THIS DECISION, WE HOLD THAT LATE PAYMENT OF PROVIDENT FUND DUES WITHIN GRACE PERIOD IS ALLOW ABLE EXPENDITURE AND ACCORDINGLY WE CONFIRM THE ORDER O F THE LD. CIT(A). 8. GROUND NO. 2 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO N OTICED THAT THE ASSESSEE HAS INVESTED A SUM OF RS. 4,07,00 0/- IN SHARES INCOME FROM WHICH BEING DIVIDEND WAS EXEMPT FROM TAX. FURTHER THE ASSESSEE ALSO OWNED LAND OF 15 ACRES OU T OF WHICH 12 ACRES WAS BEING USED FOR AGRICULTURAL ACTIVITIES RESULTING IN AGRICULTURAL INCOME WHICH WAS ALSO EXEMPT. THEREFO RE, THE AO ISSUED A SHOW CAUSE NOTICE WHY THE PROVISIONS OF SE CTION 14A SHOULD NOT BE MADE APPLICABLE. IT WAS MAINLY SUBMI TTED THAT SHARES WERE PURCHASED IN THE EARLIER YEARS OUT OF I NCOME AND INTERNAL ACCRUALS. NO INVESTMENT HAS BEEN MADE DUR ING THE YEAR. SIMILAR AGRICULTURAL LAND WAS PURCHASED IN 1 995 OUT OF CAPITAL FOR SELLING UP INDUSTRIAL UNIT, HOWEVER, ON LY A SMALL PLANT COULD BE PUT UP ONLY IN 3 ACRES AND REST OF 1 2 ACRES WAS USED FOR AGRICULTURAL PURPOSE. THE ASSESSEE HAS N OT EARNED 5 ANY INCOME OUT OF DIVIDEND DURING THE YEAR. THEREF ORE, NO DISALLOWANCE WAS POSSIBLE U/S 14A. THE AO AFTER EX AMINING THE SUBMISSIONS IN DETAIL, OBSERVED THAT IT WAS NOT NECESSARY TO HAVE ACTUAL POSITIVE INCOME FOR MAKING DISALLOWANCE U/S 14A. HE ALSO DISCUSSED VARIOUS CASE LAWS AND ULTIMATELY MADE DISALLOWANCE U/S 14A IN TERMS OF RULE 8D BY DISALLO WING PROPORTIONATE INTEREST OF RS. 1,74,418/- AND EXPEND ITURE AMOUNTING TO RS. 18,925/-. 9 ON APPEAL BEFORE THE LD. CIT(A), SIMILAR SUBMISSI ONS WERE REITERATED. THE LD. CIT(A) AFTER EXAMINING THE SUB MISSIONS OBSERVED THAT ONCE INVESTMENT WAS MADE IN SHARES AN D AGRICULTURAL LAND THEN PROVISIONS OF SECTION 14A A RE APPLICABLE. HOWEVER, SINCE NO INVESTMENT HAS BEEN MADE OUT OF B ORROWED FUNDS, THEREFORE, INTEREST COULD NOT DISALLOWED. FU RTHER HE RELIED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. WINSOM TEXTILE INDUSTRIES, 319 IT R 204 WHEREIN IT WAS OBSERVED THAT DECISION OF COURT IN T HE CASE OF CIT V. ABHISHEK INDUSTRIES, 286 ITR 1 (P & H) WAS O N THE ISSUE OF DEDUCTIBILITY OF INTEREST AND THEREFORE, THE OBS ERVATIONS MADE IN THAT CASE HAVE TO BE READ IN THAT CONTEXT A ND THE SAME COULD NOT BE MADE APPLICABLE FOR DISALLOWING U/S 14 A. IN THIS BACKGROUND DISALLOWANCE IN RESPECT OF INTEREST WAS DELETED. HOWEVER, DISALLOWANCE IN RESPECT OF THE EXPENDITURE WAS CONFIRMED. 10 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY S UPPORTED THE ORDER OF AO. 11 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW 6 AND EMPHASIZED THAT SINCE NO BORROWED FUNDS HAVE BE EN USED FOR MAKING INVESTMENTS IN SHARES AND AGRICULTURAL L AND, INTEREST COULD NOT BE DISALLOWED. HE ALSO EMPHASIZED THAT R ULE 8D COULD NOT BE APPLIED FOR AY 2006-07. 12 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT INVESTMENTS IN SHARES AND AGRICULTURAL LAND WERE M ADE MUCH EARLIER THEN THE PRESENT YEAR. THEREFORE, IT CANN OT BE SAID THAT ANY BORROWED FUNDS HAVE BEEN USED FOR THIS PURPOSE AND ACCORDINGLY DISALLOWANCE U/S 14A IN RESPECT OF IN TEREST IS NOT MAINTAINABLE. THIS IS FURTHER FORTIFIED BY THE DECI SION OF HON'BLE BOMBAY HIGH COURT IN CASE OF GODREJ AND BOYCE MMFG V DCIT, 328 ITR 81 IN WHICH IT HAS CLEARLY BEEN HELD THAT RULE 8D HAS NO RETROSPECTIVE APPLICATION, THEREFORE, WE FIND N OTHING WRONG IN THE ORDER OF LD. CIT(A) AND CONFIRM THE SAME. 13 GROUND NO. 3 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO N OTICED THAT THE ASSESSEE HAS MADE PAYMENTS TO UNIROYAL BUI LDER & DEVELOPERS, NALAGARH FOR BOOKING OF FLATS AS PER FO LLOWING DETAILS: DATE AMOUNT 19.8.2005 1,34,500 12.9.2005 2,01,750 14.11.2005 1,34,500 TOTAL 4,70,750 THE POSSESSION OF FLATS WAS NOT TAKEN DURING THE YE AR THEREFORE, THE ASSESSEE WAS ASKED WHY PROPORTIONA TE INTEREST SHOULD NOT BE CAPITALIZED AS INVESTMENT HAS BEEN MA DE FOR EXTENSION OF BUSINESS. IN RESPONSE IT WAS MAINLY SU BMITTED THAT 7 ADVANCE TO UNIROYAL BUILDER & DEVELOPERS, NALAGARH HAD BEEN GIVEN FOR PURCHASE OF THE FLAT TO BE USED BY THE AS SESSEE FOR THE PURPOSE OF OFFICE AT BADDI. SINCE THE COMPANY WAS INCURRING LOSS IN TRAVELING AND LODGING OF THE EMPL OYEES AND COULD MAKE SAVINGS OF SUCH OVER-HEADS, THESE FLATS WERE BOOKED. THEREFORE, THIS EXPENDITURE SHOULD BE TREA TED AS BUSINESS EXPENDITURE. THE AO AFTER EXAMINING THE S UBMISSIONS HELD THAT THE INVESTMENT MADE IN BOOKING OF FLATS W AS FOR CAPITAL PURPOSES, THEREFORE, SAME COULD NOT BE ALLO WED AND ACCORDINGLY HE DISALLOWED PROPORTIONATE INTEREST OF RS. 11,205/. 14 ON APPEAL BEFORE THE LD. CIT(A), SIMILAR SUBMISS IONS WERE REITERATED. THE LD. CIT(A) DISCUSSED THE ISSUE IN DETAIL AND OBSERVED THAT THOUGH THE PROVISO HAS BEEN INSERTED IN SECTION 36(1)(III) WHICH HAS MADE CLEAR THAT IF BORROWED CA PITAL IS USED FOR EXTENSION OF BUSINESS THEN INTEREST FOR THE PER IOD FROM THE DATE ON WHICH CAPITAL WAS BORROWED TO THE DATE THE ASSET WAS TO BE USED, WILL NOT BE ALLOWED. HOWEVER, HE FURTH ER OBSERVED THAT ANY ASSET GOT BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS WHICH WILL HELP IN INCREASING THE PRODUCTIVITY AND EFFICIENCY SHOULD BE CONSTRUCTED AS EXTENSION OF THE BUSINESS AND ACCORDINGLY HE HELD THAT INTEREST IS ALLOWABLE EXP ENDITURE. 15 BEFORE US, THE LD. DR FOR THE REVENUE SUBMITTED THAT AFTER INSERTION OF PROVISO TO SECTION 36(I)(III) INTEREST FOR ACQUISITION OF CAPITAL ASSET, CANNOT BE ALLOWED. 16 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUPPORTED THE ORDER OF THE FIRST APPELLATE AUTHORIT Y. 8 17 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT SECTION 36(1)(III) READS AS UNDER: ( III ) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION : [ PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALISED IN THE BOOKS OF ACC OUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUC H ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION.]. THE PROVISO MAKES IT ABSOLUTELY CLEAR THAT INTEREST PAID IN RESPECT OF BORROWED CAPITAL FOR ACQUISITION OF AN ASSET OR FOR EXTENSION OF EXISTING BUSINESS, IS NOT ALLOWABLE. SINCE THE FLATS HAVE BEEN BOOKED FOR EXTENSION OF BUSINESS, T HEREFORE, THE PROVISO IS CLEARLY APPLICABLE AND PROPORTIONATE INTEREST WAS CORRECTLY DISALLOWED BY THE AO. IN THESE CIRCUMSTA NCES, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THAT OF THE AO AND CONFIRM THE ADDITION OF RS. 11,205/-. 18 GROUNDS NO. 4,5 & 6 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEED INGS THE AO NOTICED THAT THE ASSESSEE HAS MADE PAYMENTS/CRED ITED ACCOUNTS OF VARIOUS PERSONS ON ACCOUNT OF FREIGHT IN OR FREIGHT OUT EXPENDITURE. IN SOME OF THE CASES FREIGHT WAS INCLUDED IN THE PURCHASE OF BILLS RECEIVED FROM THE SUPPLIER OF THE GOODS AND THE AMOUNT HAS BEEN PAID TO THE SAID SUPPLIER B Y THE ASSESSEE. THE ASSESSEE WAS ASKED TO GIVE DETAILS O F FREIGHT PAID TO EACH PERSON ON THE BASIS OF NAME AS PER GR AND WHY PROVISIONS OF SECTION 40(A)(IA) OF THE ACT SHOULD N OT BE APPLIED. IN RESPONSE TO THIS QUERY A REPLY DATED 2.12.2008 W AS FURNISHED THROUGH WHICH FOLLOWING SUBMISSIONS WERE MADE: 9 THAT THE DETAILS OF INWARD FREIGHT SHOWING THE DAT E OF AMOUNT OF FREIGHT PAID ARE ATTACHED. IN THIS CASE THE PAYMENTS WAS MADE TO THE TRANSPORT ER AND EACH GR IS SEPARATE AND THE SAME WAS A SEPARATE CONTRACT IN ITSELF. THE GOODS WERE TRANSPORTED IN R ESPECT OF EACH GR. THERE WAS NO CONTRACT EITHER FOR ANY S PECIFIC PERIOD OR FOR SPECIFIC QUANTITY. EACH WAS SEPARATE IN ITSELF AND THERE WAS NO SUCH CONTRACT AND NO INDIVI DUAL PAYMENT HAS BEEN MADE IN EXCESS OF RS. 20,000/- AT ONE TIME OR MORE THAN RS. 50,000/- TO INDIVIDUAL TRUCK OWNER. OTHERWISE, ALSO EACH AGREEMENT WAS A SEPARATE AGREEMENT. THE SYSTEM IS THAT WHENEVER, ANY MATERI AL IS PURCHASED THE SAME IS SENT THROUGH A TRUCK AGENT GR AND WHEN ANY GOODS DELIVERED THE AGREEMENT ENDS. IN THIS CONNECTION THE BOARD HAS ALSO CLARIFIED AS PER THEIR CIRCULAR NO. 715 THAT UNLESS THERE WAS A CONTRACT F OR PARTICULAR SPECIFIC PERIOD OR FOR SPECIFIC QUANTITY , EACH GR WILL BE TREATED AS SEPARATE GR. THAT THE ASSESSEE HAS BEEN MAKING PURCHASES FROM SHAKUMBARI STRAW PRODUCTS LTD., THE COST OF FREIGHT WAS INCLUDED IN THEIR BILLS AND NO FREIGHT WAS BEING PA ID. THE COPIES OF THE BILLS ARE ATTACHED. SIMILARLY, IN RE SPECT OF S.N. PAPER MILL PVT. LTD. THE BILLS OF FREIGHT WAS INCLUDED IN IT. AFTER CONSIDERING THE ABOVE REPLY IT WAS NOTICED TH AT THE ASSESSEE HAS MADE PAYMENTS TO CERTAIN PERSONS FOR WHICH THE ASSESSEE WAS LIABLE TO DEDUCT TAX. DETAILS OF SUCH PAYMENTS HAVE BEEN GIVEN IN PARA 6.1 OF THE ASSESSMENT ORDER WHICH ARE AS UNDER: NAME OF PERSON AMOUNT PAID DURING THE YEAR REMARKS M/S WELCOME LIGHT COMMERCIAL OPERATORS UNION, DERABASSI 9,54,864 FREIGHT OUTWARD. PAYMENT MADE TO PERSON IN (A) ON WEEKLY OR FORTNIGHTLY BASIS AFTER TAKING INTO ACCOUNT ALL GRS FOR THAT PERIOD M/S FOUR WHEELER TEMPO UNION DERABASSI 76,886 FREIGHT OUTWARD. PAYMENT MADE TO PERSON IN (A) ON WEEKLY OR FORTNIGHTLY BASIS AFTER TAKING INTO ACCOUNT ALL GRS FOR THAT PERIOD M/S BASSI MUBARAKPUR TRUCK OPERATOR UNION 8,57,931 FREIGHT OUTWARD. PAYMENT MADE TO PERSON IN (A) ON WEEKLY OR FORTNIGHTLY BASIS AFTER TAKING INTO ACCOUNT ALL GRS FOR THAT PERIOD. 10 TRUCK OPERATOR UNION PEHOWA 1,99,732 FREIGHT INWARD PAID ON BASIS OF GR ON VARIOUS DATES. S.N. PAPER MILLS PVT. LTD. LUDHIANA 88,311 (INCLUDING RS. 62,966 RELATED TO GOODS RECEIVED THROUGH SATKAR ROADLINES) FREIGHT PAID AS MENTIONED IN PURCHASE BILL SHAKUMBHRI STRAW BOARDS LTD 7,01,498 FREIGHT PAID AS MENTIONED IN PURCHASE BILL BINDLAS DUPLUX 34,458 SINGLE PAYMENT OF FREIGHT INWARD ON BASIS OF GR SINGAL ROADLINES 3,60,143 FREIGHT INWARD PAID ON BASIS OF GR ON VARIOUS DATES SPEEDWAYS FREIGHT CARRIERS 1,27,570 FREIGHT INWARD PAID ON BASIS OF GR ON VARIOUS DATES TOTAL 25,43,462 THE AO FURTHER NOTICED THAT SECTION 194C(3)(I) WAS AMENDED W.E.F. 1.10.2004 TO INCLUDE INSTANCES WHEN THE AGGR EGATE OF THE AMOUNTS SO CREDITED OR PAID WAS LIKELY TO BE PAID O R CREDITED DURING THE YEAR EXCEEDED FIFTY THOUSAND RUPEES. SIN CE IN ALL THE ABOVE CASES THE TOTAL AMOUNT PAID/CREDITED DURING T HE YEAR EXCEEDS RS. 50,000/- THEREFORE, PROVISIONS OF SECT ION 194C WERE ATTRACTED. WITH REGARD TO THE ISSUE OF FREIGH T BEING INCLUDED IN PURCHASE INVOICES, IT WAS NOTICED THAT THE ASSESSEE WAS MAKING PURCHASES FROM SOME PARTIES LIKE M/S S.N . PAPER MILLS AND M/S SHAKUMBHRI STRAW BOARDS LTD. IT WAS NOTICED THAT THE GOODS WERE BEING SUPPLIED BY THESE PARTIES BUT THE SALE PRICE OF SUCH GOODS IS NOT INCLUSIVE OF FREIGH T. THEREFORE, EVIDENTLY THE ASSESSEE WAS REQUIRED TO BRING THE GO ODS TO ITS PREMISES EITHER USING ITS OWN TRANSPORTATION OR TAK ING SERVICES OF SOME OTHER PERSONS. THE ASSESSEE OPTED FOR THE LATTER. THE AO FURTHER OBSERVED THAT IN SUCH CASE THE ASSESSEE CAN EITHER DIRECTLY ENTER INTO CONTRACT WITH A TRANSPORTER FOR THE SAID PURPOSE OR HE CAN ENTER INTO A CONTRACT WITH A PERS ON TO DO THE SAID WORK FOR IT. ACCORDING TO THE AO THE ASSESSEE HAS OPTED 11 TO ENTER INTO CONTRACT WITH THESE PARTIES TO ARRANG E FOR THE TRANSPORTATION OF GOODS TO IT BECAUSE THE ASSESSEE WAS DEBITING ITS PURCHASE ACCOUNT WITH FREIGHT ON BASIS OF THE FREIGHT MENTIONED IN PURCHASE INVOICES. THEREFORE, IT WOULD NOT MATTER WHETHER THESE PARTIES ARE USING THEIR OWN TR ANSPORT OR THEY ENTER INTO A SUB-CONTRACT WITH OTHER PERSONS T O EXECUTE THE WORK CONTRACT OF CARRIAGE OF GOODS. IN LATTER CASE THESE PARTIES WILL HAVE TO DEDUCT TAX AT SOURCE AS PER APPLICABLE RATES AS PRESCRIBED IN SECTION 194C OF THE ACT BUT THIS WILL NOT HELP THE ASSESSEE TO ESCAPE THE LIABILITY OF DEDUCTING TAX A T SOURCE ON PAYMENTS ON ACCOUNT OF FREIGHT MADE BY IT TO THESE PARTIES. THEREFORE, THESE TRANSACTIONS WERE ALSO LIABLE TO D EDUCT U/S 194C. SINCE ASSESSEE HAD NOT DEDUCTED TAX A SUM OF RS. 25,34,462/- WAS DISALLOWED BY INVOKING THE PROVISIO NS OF SECTION 40(A)(IA) OF THE ACT. 19 ON APPEAL BEFORE THE LD. CIT(A), IT WAS MAINLY C ONTENDED THAT TRANSPORTING GOODS TO VARIOUS DESTINATIONS, TH E ASSESSEE USED TO ENGAGE TRUCKS AND PAYMENTS WERE MADE TO TRU CK OWNERS / DRIVERS DIRECTLY AND NOT TO ANY TRANSPORT COMPANY. IT WAS ALSO SUBMITTED THAT THERE WAS NO REPETITION OF PAYMENTS TO SAME TRUCK OWNERS. RELIANCE WAS PLACED ON CERTAIN BOARD CIRCULARS AND CASE LAWS. THE LD. CIT(A) RELYING ON THE DECISION OF HIGH COURT IN CASE OF CIT V. UNITED RICE LAND L TD. 322 ITR 594 (PH) HELD THAT IF THERE WAS NO INDIVIDUAL CONTR ACT WITH TRANSPORTER THEN SECTION 194C WAS NOT APPLICABLE I N RESPECT OF FREIGHT BEING INCLUDED IN THE PURCHASE INVOICES, TH E LD. CIT(A) FOLLOWED THE DECISION OF HON'BLE PUNJAB & HARYANA H IGH COURT IN CASE OF CIT V. ASSTT MANAGER (ACCOUNTS) FOOD COR PORATION OF INDIA, 326 ITR 106 (PH) WHEREIN IT WAS HELD THAT EXPENSES 12 INCURRED BY A PERSON ON ACCOUNT OF TRANSPORTATION ETC. ARE ADDED TO THE COST OF GOODS THEN IT CANNOT BE INFERR ED THAT SUCH PERSON HAD PAID THESE AMOUNTS SEPARATELY AS SOME PA RT OF THE COST OF THE PRODUCT. IN VIEW OF THIS DECISION HE D ELETED THE ADDITION. 20 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY S UPPORTED THE ORDER OF AO. 21 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE RELIED ON THE DECISION OF CIT V. UNITED RICE LAND LTD. 322 ITR 594 (PH). HE ALSO SUBMITTED THAT IN ANY CASE THE PROVI SIONS OF SECTION 40(A)(IA) ARE ATTRACTED ONLY IN CASES WHERE THE AMOUNTS REMAIN PAYABLE AS AT THE END OF THE YEAR AND NOT TO THE AMOUNTS WHICH HAVE ALREADY BEEN PAID IN VIEW OF THE DECISION OF SPECIAL BENCH IN CASE OF MERILYN SHIPPING 7 TRAN SPORT V. ADDL CIT, RANGE-I, VISAKHAPATNAM, 136 ITD 23 (VISAKHAPATNAM)(SB). 22 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSE SSEE PARTIALLY. FIRST OF ALL THERE IS NO DOUBT THAT PRO VISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ONLY IF PAYMENTS ARE PAYABLE AT THE END OF THE YEAR AS HELD BY SPECIAL BENCH IN CASE OF MERILYN SHIPPING 7 TRANSPORT V. ADDL CIT, RANGE-I, VISAKHAPATNAM, 136 ITD 23 (VISAKHAPATNAM)(SB). HEA D NOTE READS AS UNDER:- 136 ITD 23 SECTION 40(A)(IA) OF THE INCOME-TAX ACT, 1961 BUSINESS DISALLOWANCE INTEREST, COMMISSION, ETC., PAID TO A RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE ASSES SMENT YEAR 2005- 06 WHETHER PROVISIONS OF SECTION 40(A)(IA) ARE AP PLICABLE ONLY TO AMOUNTS OF EXPENDITURE WHICH ARE PAYABLE AS ON 31ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW EXP ENDITURE WHICH 13 HAS BEEN ACTUALLY PAID DURING THE PREVIOUS YEAR, WI THOUT DEDUCTION OF TDS HELD, YES [IN FAVOUR OF THE ASSESSEE] THEREFORE, THE PROVISIONS OF SECTION 40A(IA) CANNO T BE APPLIED WHERE THE PAYMENTS HAVE ALREADY BEEN MADE. 22(1) AS FAR AS THE INCLUSION OF FREIGHT IN THE PU RCHASE BILL IS CONCERNED, IDENTICAL ISSUE CAME UP FOR CONSIDERA TION BEFORE THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. ASSTT MANAGER (ACCOUNTS) FOOD CORPORATION OF INDIA, 326 ITR 106 (PH). IN THAT CASE IT WAS HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT IF EXPENSES INCUR RED BY A PERSON ON ACCOUNT OF TRANSPORTATION, INTEREST, STORAGE, ET C. WERE ADDED TO THE COST OF THE GOODS, IT COULD NOT BE INFERRED THA T THE PERSON WHO WAS BILLED HAS PAID AS CERTAIN AMOUNT ON ACCOUNT OF THOSE SERVICES SEPARATELY AS IT BECOMES PART OF THE COMMODITY SO S OLD. FROM ABOVE IT IS CLEAR THAT ONCE TRANSPORT CHARGES HAVE BEEN INCLUDED IN THE PURCHASE COST THEN IT CANNOT BE INF ERRED THAT PERSON WHO HAS BILLED FOR THE GOODS AND HAD PAID CE RTAIN AMOUNTS ON ACCOUNT OF THOSE SERVICES BECAUSE FOR T HE BUYER IT BECOMES PART OF THE COMMODITY PURCHASED. THEREFORE , THE PROVISIONS OF SECTION 194C WOULD NOT BE APPLICABLE WHERE THE FREIGHT FOR GOODS PURCHASED HAS ALREADY BEEN INCLUD ED IN THE BILLS BY THE SUPPLIER. AS FAR AS THE PAYMENT IN EX CESS OF RS. 20,000/- BUT LESS THAN RS. 50,000 IS CONCERNED, AFT ER PERUSING THE RECORD WE FIND THAT DETAILS ARE NOT AVAILABLE E ITHER IN THE ASSESSMENT ORDER OR IN THE IMPUGNED ORDER. THOUGH THE AO HAS GIVEN CHART BUT THE ASSESSEE HAS DISPUTED THE S AME. THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) IN RESPECT OF THESE GROUNDS I.E. GROUNDS NO. 4,5 & 6 AND RESTORE THE MATTER TO THE FILE OF AO WITH DIRECTION TO RE-EXAMINE THE ISSUE IN VIEW OF THE OBSERVATIONS MADE BY US IN ABOVE PARAS. 14 23 GROUND NO. 7 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS MADE PAYMENTS AMOUNTING TO RS . 71,043/- TO M/S AKASH AUTOMOBLIES, MANIMAJRA ON ACC OUNT OF REPAIR WORK OF VEHICLE GOT DONE FROM THAT PARTY. T HE ASSESSEE WAS ASKED TO EXPLAIN WHY THE TDS WAS NOT DEDUCTED A ND THE PROVISIONS OF SECTION 40(A)(IA) SHOULD NOT BE INVOK ED TO DISALLOWED THIS EXPENDITURE. IN RESPONSE IT WAS SU BMITTED THAT THE PAYMENTS WERE MADE TO M/S AKASH AUTOMOBLIES, MA NIMAJRA MAINLY FOR THE PURPOSE OF SUPPLYING PARTS AND THERE FORE, NO TAX HAS BEEN DEDUCTED. (COPIES OF THE BILLS WERE ALSO SUBMITTED). HOWEVER, THE AO OBSERVED THAT PERUSAL OF THE BILL S HOW THAT THE PAYMENT HAS BEEN MADE FOR THE WORK CONTRACT INCLUDI NG THE MATERIAL. THEREFORE, HE INVOKED THE PROVISIONS OF SECTION 40(A)(IA) AND DISALLOWED THE PAYMENT. 24 BEFORE THE LD. CIT(A), IT WAS MAINLY SUBMITTED T HAT NO SINGLE BILL WAS RECEIVED FOR MORE THAN RS. 20,000 I N ANY CASE NO CONTRACT WAS ENTERED WITH THIS PARTY AND THE AMO UNTS OF THE PAYMENT RELATES TO PURCHASE OF SUPPLYING OF PARTS O N WHICH EVEN VAT HAS BEEN CHARGED. 25 THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS, AGREED WITH THE CONTENTIONS OF THE ASSESSEE AND DELETED TH E ADDITION BY FOLLOWING THE DECISION OF HON'BLE GUJARAT HIGH C OURT IN CASE OF CIT V. GIRNAR FOOD AND BEVERAGE P. LTD. 306 ITR 23 (GUJ). 26 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY S UPPORTED THE ORDER OF AO AND ON THE OTHER HAND, THE LD. COU NSEL OF THE ASSESSEE SUPPORTED THE IMPUGNED ORDER. 15 27 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND FIND THAT THE COPIES OF BILLS OF M/S AKASH AUTOMOBLIES, MANIMAJRA HAVE BEEN ANNEXED BY THE AO AS ANNEXURE A. PERUS AL OF THESE BILLS CLEARLY SHOW THAT SUBSTANTIAL AMOUNT HA S BEEN PAID FOR SUPPLY OF PARTS AND VERY LITTLE MONEY HAS BEEN PAID ON ACCOUNT OF LABOUR CHARGES. THEREFORE, IT IS A CLE ARLY CASE OF PURCHASE AND SUPPLY OF PARTS AND PROVISIONS OF SECT ION 194C ARE NOT APPLICABLE. ACCORDINGLY WE CONFIRM THE OR DER OF THE LD. CIT(A). 28 GROUND NO. 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS ENTERED INTO CERTAIN TRANSACT IONS WITH M/S LEELA CONFECTIONERY (P) LTD. THE ASSESSEE HAS BEEN SELLING THE PACKAGING MATERIALS TO THE SAID CONCERN WITHOUT MAKING ANY REALIZATION AS IT WOULD HAVE DONE FROM A N UNRELATED PARTIES. THEREFORE, THE PROVISIONS OF SECTION 40A (2)(B) WERE INVOKED AND NOTIONAL INTEREST OF 10% WAS CALCULATED ON THE OUTSTANDING BALANCE AND DISALLOWANCE OF RS. 88,047/ - WAS MADE. 29 ON APPEAL BEFORE THE LD. CIT(A), IT WAS MAINLY S UBMITTED THAT THE ASSESSEE HAD NOT MADE ANY ADVANCE TO M/S L EELA CONFECTIONERY (P) LTD. BUT HAS SIMPLY SOLD THE GOOD S BUT IT WAS FOR THE ASSESSEE TO DECIDE HOW TO CONDUCT ITS BUSIN ESS. THE LD. CIT(A) FOUND FORCE IN THE SUBMISSIONS AND DELET ED THE ADDITION. 30 BEFORE US, THE LD. DR FOR THE REVENUE RELIED ON THE ORDER OF AO AND ON THE OTHER HAND, THE LD. COUNSEL OF TH E ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A). 16 31. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AND FIND THAT THE LD. CIT(A) HAS CORRECTLY ADJUDICATED THE I SSUE VIDE PARAS 51 TO 53 WHICH ARE AS UNDER:- AFTER CONSIDERING THE RIVAL SUBMISSIONS AND MATERIA L ON RECORD, I FIND THAT M/S LEELA CONFECTIONARY PVT. LTD IS REGULARLY SUPPLYING MATERIAL TO THE APPELLANT AND IT IS DEBTOR. THE APPELLANT H AS DEBTORS OF ABOUT 9,94,720/-. IF THE REASONING OF THE ASSESSING OFFI CER IS ACCEPTED THAT INTEREST ON WHOLE OF THE AMOUNT IS TO BE CALCULATED , IT WOULD BE QUITE UNREASONABLE AS IT IS THE BUSINESS EXPEDIENCY OF TH E BUYERS AND SELLER WHICH FIXES THE TERMS AND CONDITIONS AT THE TIME OF PAYMENTS. BEFORE APPLYING THE PROVISIONS OF SECTION 40A(2), T HE FOLLOWING CONDITIONS SHOULD BE FULFILLED. (I) THE PAYMENT IS IN RESPECT OF ANY EXPENDITURE. (II) THE PAYMENT HAS BEEN MADE OR IS TO BE MADE TO A RELATIVE OR CLOSE ASSOCIATES OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. (III) THE PAYMENT FOR THE EXPENDITURE IS CONSIDERED EXCESSIVE OR UNREASONABLE HAVING REGARD TO :- A. THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FAC ILITIES OR B. THE LEGITIMATE BUSINESS NEEDS OF THE ASSESSEES BUS INESS OR PROFESSION C. THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE FROM THE PAYMENT. 53. THE ASSESSING OFFICER HAS NOT ESTABLISHED THE C ONDITIONS MANDATORY FOR APPLICABILITY OF SECTION 40A(2). ON THE OTHER HAND APPELLANT HAS ESTABLISHED THAT M/S LEELA CONFECTION ARY PVT. LTD. IS ITS DEBTOR AND DELAY IN RECEIPT OF PAYMENT IS NOTH ING BUT BUSINESS EXPEDIENCY WHICH CANNOT BE RELATED TO THE PROVISION OF SECTION 40A(2). WE ARE OF THE OPINION THAT THE LD. CIT(A) IS CORREC T THAT THE AO HAS NOT BEEN ABLE TO POINT OUT HOW ANY OF THE CONDI TIONS LAID DOWN IN SECTION 40A(2)(B) ARE ATTRACTED. ACCORDING LY WE DECLINE TO INTERFERE IN THE DECISION OF LD. CIT(A) AND CONFIRM THE SAME. 17 32. IN THE RESULT, APPEAL NO. 1364/CHD/2010 IS PART LY ALLOWED. 33. CROSS-OBJECTIONS 2/CHD/2011 IN THIS C.O THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1 THAT THE ORDER PASSED BY THE LD. CIT(A), CHANDIG ARH DATED 23.7.2010 IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THAT THE LD. CIT(A) GRAVELY ERRED IN UPHOLDING T HE ADDITION OF RS. 1,54,510/- MADE BY THE AO OUT OF TH E INTEREST EXPENSES CLAIMED BY INVOKING THE PROVISION S OF SECTION 40A(IA) OF THE INCOME-TAX ACT, 1961 THAT NO TAX WAS DEDUCTED AT SOURCE FROM THE INTEREST PAYMENTS T O G.E. COUNTRYWIDE, MARUTI COUNTRY WIRE AND M/S CHOLAMANDLAM. 3 THAT THE LD. CIT(A) GRAVELY ERRED IN SUSTAINING T HE ADDITION OF RS. 18,925/- MADE BY THE AO BY APPLYING RULE 8D(2)(III) OF THE INCOME-TAX ACT. 4. THAT THE LD. CIT(A) GRAVELY ERRED IN UPHOLDING T HE ADDITION OF RS. 25,000/- MADE BY THE AO ON ACCOUNT OF BAD DEBT WRITTEN OFF. THE TRANSACTION WAS OF BUSIN ESS NATURE. 5. THAT THE LD. CIT(A) GRAVELY ERRED IN SUSTAINING THE ADDITION OF RS. 18,925/- OUT OF THE TOTAL ADDITION OF RS. 1,93,343/- MADE BY THE AO TOWARDS BOOK PROFITS FOR THE PURPOSE OF CALCULATIONS OF PROFIT U/S 115 JB. 34 GROUND NO. 1 IS OF GENERAL NATURE AND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. 35 GROUND NO. 2 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS PAID INTEREST TO THE FOLLOWIN G PARTIES: NAME OF THE PERSON AMOUNT OF INTEREST (RS.) M/S G.E. COUNTRY WIDE 23,206 M/S MARUTI COUNTRY WIDE 12,091 M/S CHOLAMANDALAM 1.18,213 TOTAL 1,54,510 VIDE QUESTIONNAIRE DATED 16.9.2008 THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF EXPENSES DEBITED TO PROFIT A ND LOSS 18 ACCOUNT AND ASSESSEE WAS ASKED WHY PROVISIONS OF SE CTION 40(A)(IA) SHOULD NOT BE INVOKED. IN RESPECT OF IT EMS LISTED IN TABLE 1 WHICH WE HAVE EXTRACTED ABOVE, IT WAS SUBMI TTED THAT THE ASSESSEE HAD/NOT/DEDUCTED ANY TAX ON THE INTERE ST PAID TO M/S GE COUNTRYWIDE AND M/S MARUTI COUNTRYWIDE. THE FACTS IN BRIEF ARE THAT THE ASSESSEE GOT THE CARS PURCHASED FROM THESE COMPANIES FOR WHICH THEY OBTAINED THE CHEQUES OF IN STALLMENTS FOR THE ENTIRE PERIOD AND THE ASSESSEE WAS LEFT WIT H NO CHOICE TO DEDUCT THE TAX. 36 AFTER CONSIDERING THE SUBMISSIONS THE AO OBSERVE D THAT THE ASSESSEE HAS ADMITTED FOR FAILURE TO DEDUCT TAX AND ACCORDINGLY A SUM OF RS. 1,54,510/- WAS DISALLOWED AS PER SECTION 40(A)(IA) OF THE ACT. 37 BEFORE THE LD. CIT(A) IT WAS MAINLY SUBMITTED TH AT THE CARS WERE PURCHASED FROM THESE COMPANIES FOR WHICH THE S AID COMPANIES OBTAINED CHEQUES OF INSTALLMENTS FOR THE ENTIRE PERIOD AS IT WAS A CASE OF HIGHER PURCHASE, THEREFO RE, THE ASSESSEE WAS UNDER NO OBLIGATION TO DEDUCT THE TAX. THE LD. CIT(A) REFERRED TO VARIOUS BOARD CIRCULARS AND THE DECISION OF HON'BLE MADRAS HIGH COURT IN CASE OF VISWAPRIYA FIN ANCIAL SERVICES AND SECURITIES LTD. V CIT, 127 TAXMAN 385 WHICH CLEARLY SHOWS THAT PAYMENT OF INTEREST WOULD CLEARL Y ATTRACT PROVISIONS OF SECTION 194A. IN ANY CASE THE TRANSA CTION CAN NOT BE TERMED AS HIGHER PURCHASE BECAUSE THE ASSETS WERE REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE WHIC H MEANS ASSETS WERE PURCHASED AND OWNED BY ASSESSEE. IN THI S BACKGROUND HE CONFIRMED THE ADDITION. 19 38 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT IN ANY CASE THE TAX IS NOT REQUIRED TO BE DEDUCTED ON THE PAYMENTS WHICH HAVE ALREADY BEEN PAID BY THE ASSESS EE IN VIEW OF THE DECISION OF MERILYN SHIPPING & TRANSPO RT V. ADDL CIT, RANGE-I, VISAKHAPATNAM, 136 ITD 23 (VISAKHAPATNAM)(SB). 39 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S TRONGLY SUPPORTED THE ORDER OF LD. CIT(A) AND AO. 40 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE AGRE E WITH THE DECISION OF DECISION OF SPECIAL BENCH IN CASE OF M ERILYN SHIPPING & TRANSPORT V. ADDL CIT (SUPRA) AND HAVE A LREADY HELD THAT PROVISIONS OF SECTION 40(A)(IA) ARE APPLI CATION TO THE PAYMENTS WHICH REMAIN PAYABLE AT THE END OF THE YEA R. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A ) AND REMIT THE MATTER BACK TO THE FILE OF AO WITH DIRECTION TH AT THIS ISSUE MAYBE DECIDED IN THE LIGHT OF THE DECISION OF SPECI AL BENCH IN CASE OF MERILYN SHIPPING & TRANSPORT V. ADDL CIT (S UPRA). 41 GROUNDS NO. 3 TO 5 WERE NOT PRESSED BEFORE US, HENCE THE SAME ARE DISMISSED AS NOT PRESSED. 42 IN THE RESULT, CROSS-OBJECTIONS NO. 2/CHD/2011 I S ALLOWED FOR STATISTICAL PURPOSES. 43 ITA NO. 412/CHD/2012 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) HAS GRAVELY ERRED IN DELETING T HE ADDITION OF RS. 24,01,000/- MADE BY THE AO ON ACCOU NT OF STATE INVESTMENT SUBSIDY RECEIVED DURING THE YEAR U NDER CONSIDERATION . 20 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, LD. CIT(A) HAS GRAVELY ERRED IN DELETING TH E ADDITION MADE BY THE AO OF RS. 1,1,9,366/- ON ACCOU NT OF PROPORTIONATE INTEREST ON THE DEBIT BALANCE OUTSTAN DING OF M/S LEELA CONFECTIONERY (P) LTD WHICH IS A PERSON COVERED BY SECTION 40A(2)(B) OF INCOME-TAX ACT. 3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITION MADE BY THE AO OF RS. 7,50,017/- U/S 40(A)(IA) OF T HE ACT AS THE ASSESSEE HAD MADE FREIGHT PAYMENTS WITHOUT DEDUCTION OF TAX AT SOURCE. 44 GROUND NO. 1 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS RECEIVED STATE INVESTMENT SUB SIDY OF RS. 24,01,000/-. ON ENQUIRY IT WAS STATED THAT NO SUBSIDY WAS RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER ASSE SSMENT AND THE SUBSIDY WAS RECEIVED PRIOR TO 2004. THE AO FOUND ON PERUSAL OF STATE INVESTMENT SUBSIDY RECOVERABLE ACC OUNT THAT THOUGH THE SAME WAS OUTSTANDING AS ON 1.4.2006 BUT IT HAS BEEN RECEIVED ON 9.7.2008 THAT IS DURING THE YEAR U NDER CONSIDERATION . FURTHER THE ASSESSEE COMPANY HAS N EITHER SHOWN THE SUBSIDY AMOUNT AS A REVENUE RECEIPT IN TH E CURRENT YEAR UNDER CONSIDERATION ON RECEIPT BASIS NOR IN F INANCIAL YEAR 2003-04 ON ACCRUAL BASIS. THIS AMOUNT HAS ALS O NOT BEEN REDUCED FROM THE COST OF FIXED ASSETS IN FINANCIAL YEAR 2003-04 OR IN THE CURRENT YEAR UNDER CONSIDERATION . IN TH IS BACKGROUND SUBSIDY RECEIVED BY THE ASSESSEE COMPANY WAS TREATE D AS OF REVENUE NATURE PARTICULARLY FOLLOWING THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. ABHIS HEK INDUSTRIES, 286 ITR 1 AND THE AMOUNT OF SUBSIDY WAS ADDED TO THE INCOME OF THE ASSESSEE. 45 ON APPEAL BEFORE THE LD. CIT(A), IT WAS SUBMITTE D THAT SUBSIDY WAS SANCTIONED BY DIRECTOR OF INDUSTRIES AN D COMMERCE, PUNJAB, CHANDIGARH AS PER MEMO NO. 6652 D ATED 21 6.7.1999 RELATING TO AY 2000-01 AND ACCORDINGLY TH E COMPANY CREDITED THE SUBSIDY ACCOUNT IN AY 2000-01 AS THE A CCOUNTS WERE BEING MAINTAINED ON MERCANTILE SYSTEM. AGAINS T THIS SUBSIDY EVEN BRIDGE LOAN WAS GIVEN IN THE YEAR 2000 -01 RELATING TO AY 2001-02. THE SUBSIDY WAS GIVEN AS A N INCENTIVE FOR SETTING UP OF THE UNIT AND IT WAS NEVER GIVEN F OR RUNNING OF BUSINESS. THE SUBSIDY WAS SHOWN RECEIVABLE RIGHT F ROM AY 2000-01. IN AY 2006-07 EVEN THE ASSESSMENT WAS FRA MED U/S 143(3) BUT NO ADDITION WAS MADE ON THIS ACCOUNT. SINCE NO SUBSIDY ACCRUED OR RECEIVED DURING THE YEAR, THEREF ORE, SAME COULD NOT BE ADDED IN THIS YEAR. THE LD. CIT(A) AF TER CONSIDERING THE SUBMISSIONS FOUND FORCE IN THE SAME AND DELETED THE ADDITION. 46 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY R ELIED ON THE ORDER OF THE AO. 47 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSE SSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND T HE LD. CIT(A). HE ALSO FILED A COPY OF CHEQUE OF THE SUBS IDY DATED 4.5.2008 AND SUBMITTED WHICH IS CLEARLY SHOWN THAT THE SUBSIDY WAS NOT RECEIVED DURING THE YEAR. THEREFORE, THE SAME COULD NOT HAVE BEEN TAXED IN THIS YEAR PARTICULARLY WHEN THE ACCRUAL HAS ALSO BEEN SHOWN IN AY 2000-01. 48 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND FIND THAT THE SUBSIDY CHEQUE IS DATED 5.4.2008 WHICH IT SEEMS HAS BEEN RECEIVED BY THE ASSESSEE ON 9.7.2008. THE AO HAS NOTED IN PARA 6 & 6.1 OF THE ASSESSMENT ORDER THAT THE SU BSIDY WAS RECEIVED ON 9.7.2008, PREVIOUS YEAR OF THE ASSESSEE ENDED ON 31.3.2008, THEREFORE, IT IS NOT CLEAR HOW HE HAD M ADE THE 22 OBSERVATION THAT THE SUBSIDY HAS BEEN RECEIVED DURI NG THE YEAR. IT IS CLEAR FROM THE RECORD THAT SUBSIDY HAS BEEN CREDITED ON THE BASIS OF ACCRUAL BY THE ASSESSEE IN AY 2000- 01. THIS MAKES IT CLEAR THAT SUBSIDY NEITHER ACCRUED DURING THE YEAR NOR WAS RECEIVED IN THIS YEAR, THEREFORE, THE SAME COU LD NOT HAVE BEEN TREATED AS INCOME DURING THIS YEAR. IN THESE CIRCUMSTANCES WE FIND NOTING WRONG IN THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 49 GROUND NO. 2 FACTS RELATING TO THIS ISSUE ARE IDENTICAL TO THE ISSUE RAISED IN GROUND NO. 8 OF REVENUES AP PEAL FOR AY 2006-07 WHICH HAS BEEN ADJUDICATED BY US VIDE PARA NO. 31. SINCE THE FACTS ARE IDENTICAL AND SIMILAR CONTENTIO NS WERE MADE BY BOTH THE PARTIES, FOLLOWING OUR ORDER IN ITA NO. 1364/CHD/2010 FOR AY 2006-07 VIDE PARA 31, WE DECID E THIS ISSUE AGAINST THE REVENUE. 50 GROUND NO. 3 - FACTS RELATING TO THIS ISSUE ARE IDENTICAL TO THE ISSUE RAISED IN GROUND NO. 4 TO 6 IN ITA NO. 1364/CHD/2010 FOR AY 2006-07. SINCE THE FACTS ARE I DENTICAL AND THE CONTENTIONS ARE ALSO SIMILAR, WE FOLLOWING OUR ORDER FOR AY 2006-07 VIDE PARA NO. 22, SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO RE-EXAMINE THE SAME AS PER OUR OBSERVA TIONS. 51 IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. 52 ITA NO. 347/CHD/2012 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 23 1 THAT THE ORDER PASSED U/S 250(6) BY THE LD. CIT( A), CHANDIGARH IN APPEAL NO. 430/10-11 DATED 23.1.2012 IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) GRAVELY ERRED IN UPHOLDING THE DISALLOWA NCE MADE BY THE AO AMOUNTING TO RS. 3,46,145/- ON ACCOU NT OF THE INVESTMENT IN LANDS USED FOR AGRICULTURAL PURPOSE AND ALSO IN RESPECT OF SHARES, U/S 14A OF THE INCO ME-TAX ACT. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) GRAVELY ERRED IN UPHOLDING THE ADDITION OF RS. 41,594/- OUT OF THE TOTAL ADDITION OF RS. 1,19,269/ - MADE BY THE AO ON ACCOUNT OF INTEREST EXPENSES CLAIMED BY ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 40(A )(IA) OF THE ACT ON THE GROUND THAT NO TAX WAS DEDUCTED F ROM THE INTEREST PAID TO FOLLOWING: S NO NAME OF THE PARTY AMOUNT 1 KOTAK MAHINDRA FINANCE 9955/- 2 CITI CORP FINANCE 31639/- 4 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) GRAVELY ERRED IN SUSTAINING THE DISALLOW ANCE OF INTEREST OF RS. 27,25,407/- MADE BY THE AO BY INVOK ING THE PROVISO TO SECTION 36(1)(III) OF INCOME-TAX ACT . 5. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) GRAVELLY ERRED IN SUSTAINING THE DISALLO WANCE OF INTEREST OF RS. 5,65,272/- MADE BY THE AO BY INVOKI NG THE PROVISO TO SECTION 36(1)(III) OF INCOME-TAX ACT. 6. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) GRAVELY ERRED IN SUSTAINING ADDITION OF RS. 3,46,145/- MADE BY THE AO U/S 14A TOWARDS BOOK PROF ITS FOR THE PURPOSE OF CALCULATION OF PROFIT U/S 115 J B. 53 GROUND NO. 1 IS OF GENERAL NATURE AND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. 54 GROUND NO. 2 WAS NOT PRESSED BEFORE US AND THE SAME IS DISMISSED AS NOT PRESSED. 55 GROUND NO. 3 THE FACTS RELATING TO GROUND NO. 3 ARE IDENTICAL TO THE FACTS RELATED TO GROUND OF ASSESSE ES CROSS- OBJECTIONS NO. 2/CHD/2011 AY 2006-07. SINCE THE F ACTS ARE SAME AND THE SUBMISSIONS ALSO REMAIN SAME, BY FOLLO WING THE 24 ORDER FOR AY 2006-07IN PARA NO. 22 WHEREIN BY FOLLO WING THE DECISION OF SPECIAL BENCH IN CASE OF MERILYN SHIPPI NG & TRANSPORT V. ADDL CIT (SUPRA), THE ISSUE HAS BEEN R ESTORED BACK TO THE FILE OF AO. FOR THIS YEAR WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER BACK TO THE F ILE OF AO FOR RE-EXAMINATION AND SAME IS TO BE DECIDED IN THE LIG HT OF THE OBSERVATIONS MADE BY US. 56 GROUND NO. 4 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD MADE SUBSTANTIAL ADDITIONS TO FIX ASSETS AMOUNTING TO RS. 2,27,11,721/- IN UNIT II OF THE AS SESSEE. HE ALSO OBSERVED THAT UNIT I OF THE ASSESSEE WAS COMPL ETELY FUNCTIONAL AND UNIT II WAS UNDER CONSTRUCTION. THE FRESH INVESTMENT DURING THE YEAR WAS UNDER THE HEAD BUIL DINGS AND PLANT AND MACHINERY. ACCORDING TO THE AO IN VIEW OF THE PROVISO TO SECTION 36(1)(III) INTEREST COULD NOT BE ALLOWED IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF TH E ASSETS FOR EXTENSION OF THE EXISTING BUSINESS. ACCORDINGLY H E CALCULATED INTEREST @ 12% FOR THE WHOLE YEAR ON A SUM OF RS. 2,27,11,721/- AND MADE AN ADDITION OF RS. 27,25,407 /-. 57 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT MAC HINERY IN UNIT II WAS PUT TO USE, THEREFORE, INTEREST EXPEND ITURE WAS FOR THE PURPOSE OF BUSINESS. IT WAS ALSO SUBMITTED THA T DISALLOWANCE IN ANY CASE MADE FOR THE WHOLE OF THE YEAR, WHICH IS NOT CORRECT. 58 THE LD. CIT(A) PARTLY AGREED WITH THE SUBMISSION S AND DECIDED THE ISSUE AGAINST THE ASSESSEE IN PARA 4.3 WHICH IS AS UNDER: 25 4.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. CO UNSEL FOR THE APPELLANT. THE PROPORTIONATE INTEREST WAS DISALLOWE D U/S 36(L)(III) OF THE ACT BECAUSE THE CAPITAL WAS BORROWED FOR PURCHA SE OF CAPITAL ASSETS OF UNIT-II AND SO IT IS A CASE OF BORROWING OF CAPITAL FOR THE PURPOSES OF ACQUISITION OF ASSETS FOR EXTENSION OF EXISTING BUSINESS. HENCE, IT IS HELD THAT THE DISALLOWANCE HAS RIGHTLY BEEN MADE BY THE ASSESSING OFFICER IN VIEW OF PROVISO TO SECTION 36( L)(III) OF THE ACT. FURTHER, SUCH INTEREST IS TO BE DISALLOWED FOR THE PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF SUCH ASSETS TILL THE DATE ON WHICH THE ASSETS WERE FIRST PUT TO USE AND SO THE CONTENTION OF THE APPELLANT THAT DEPRECIATIO N ON SUCH ASSETS WAS CLAIMED AND HAS BEEN ALLOWED BY THE ASSESSING O FFICER IS IRRELEVANT. IT IS, HOWEVER, SEEN THAT INTEREST @ 12 % HAS BEEN CAPITALIZED ON TOTAL ADDITION IN FIXED ASSETS FOR T HE WHOLE YEAR WHICH WAS NOT TO BE DONE IN VIEW OF THE PROVISO TO SECTION 36(1)(III). HENCE, THE ASSESSING OFFICER IS DIRECTE D TO RECOMPUTE THE INTEREST TO BE DISALLOWED FROM THE DATE ON WHICH TH E AMOUNT WAS BORROWED TILL THE DATE ON WHICH SUCH ASSETS (OF UNI T-II, WHICH WERE NOT PUT TO USE) WERE FIRST PUT TO USE. GROUND OF AP PEAL NO. 3 IS PARTLY ALLOWED. 59 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT INTEREST EXPENDITURE WAS INCURRED FOR THE PURPOSE O F BUSINESS, THEREFORE, SAME WAS ALLOWABLE. IN ANY CASE THE IN TEREST COULD NOT HAVE BEEN DISALLOWED IN THE WHOLE YEAR. 60 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UBMITTED THAT NO EVIDENCE HAS BEEN FILED TO SHOW THAT UNIT I I OF THE ASSESSEE WAS ALSO FUNCTIONAL. AS FAR DISALLOWANCE FOR WHOLE OF THE YEAR IS CONCERNED, THE LD. CIT(A) HAS ALREADY D IRECTED THE AO TO CALCULATE DISALLOWANCE OF INTEREST ONLY FROM THE DATE OF BORROWING TILL THE DATE WHEN SUCH ASSETS WAS PUT TO USE. 61 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT SECTION 36(1)(III) READS AS UNDER: ( III ) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION : [ PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALISED IN THE BOOKS OF ACC OUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR 26 ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUC H ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION.]. PROVISO TO SECTION MAKES IT CLEAR THAT FUNDS BORROW ED FOR THE PURPOSE OF ACQUISITION OF ASSETS FOR EXTENSION OF BUSINESS HAS TO BE CAPITALIZED, THEREFORE, THE SAME CANNOT BE A LLOWED AS REVENUE EXPENDITURE. FURTHER AS FAR AS PLEA REGARD ING DISALLOWANCE WAS MADE FOR WHOLE OF THE YEAR, WE FIN D THAT THE LD. CIT(A) HAS ALREADY DIRECTED THE AO TO RECOMPUTE D THE DISALLOWANCE OF INTEREST FROM THE DATE FROM WHICH T HE AMOUNT WAS BORROWED TILL THE DATE OF UNIT WAS PUT TO USE. THEREFORE, THERE IS NOTHING WRONG IN THE ORDER OF THE LD. CIT( A) AND CONFIRM THE SAME. 62 GROUND NO. 5 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS MADE ADVANCES TO THE FOLLOWIN G PARTIES: PARTICULARS AMOUNT TOTAL FOR FLAT -WITH UNIROYAL BUILDERS & DEVELOPERS LTD. 475750 FOR CAPITAL GOODS JENG PENG CUTTER MANUFACTURER CROSS-OBJECTIONS. LTD 19825 SHANDONG HUACHEN COMPLETE EQUIPMENT CROSS-OBJECTIONS. LTD. 275028 XIANG LONG INTERNATIONAL TRADING LTD. 3940000 4234853 TOTAL 4710603 IT WAS FURTHER NOTICED THAT PAYMENT TO UNIROYAL BUI LDERS AND DEVELOPERS LTD. NALAGARH WAS MADE FOR BOOKING OF FL ATS AT NALAGARH AND THE POSSESSION OF THE FLATS HAD NOT BE EN RECEIVED. THE OTHER ADVANCES WERE ALSO MADE FOR AC QUISITION 27 OF CAPITAL ASSETS FOR EXTENSION OF EXISTING BUSINES S, THEREFORE, BY INVOKING THE PROVISIONS OF SECTION 36(1)(III) TH E AO DISALLOWED THE INTEREST @ 12% BY OBSERVING THAT THE SAME IS TO BE CAPITALIZED. 63 ON APPEAL BEFORE THE LD. CIT(A), IT WAS MAINLY S UBMITTED THAT MAIN BUYERS OF THE ASSESSEE WERE LOCATED IN BA DDI AND THEREFORE, TO SAVE TRAVELING COST AND INCREASE IN EFFICIENCY, FLATS AT BADDI WERE BOOKED. OTHER ADVANCES FOR MAC HINERY WHICH WAS LATER ON INSTALLED AND USED FOR THE PURPO SE OF BUSINESS. IT WAS ALSO SUBMITTED THAT IN ANY CASE I NTEREST COULD NOT BE ALLOWED FOR WHOLE OF THE YEAR. 64 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS , PARTLY AGREED WITH THE SAME AND ALLOWED GROUND IN PARA VI DE PARA 8.3 WHICH IS AS UNDER: 7.3 THE INTEREST AS CLAIMED IN THE PROFIT AND LOSS ACCOUNT IS ALLOWABLE ONLY IF IT IS USED FOR THE PURPOSES OF BU SINESS OF THE ASSESSEE COMPANY. IN THIS REGARD, SPECIAL REFERENC E IS MADE TO SECTION 36(1)(III) OF THE I.T. ACT, 1961, WHICH DEA LS WITH THE ALLOWABILITY OF INTEREST ON CAPITAL BORROWED. THE RELEVANT EXTRACT OF THE SECTION 36 (1)(III) IS REPRODUCED HERE UNDER:- 36. OTHER DEDUCTIONS (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING C LAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREI N, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28- (II I) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL B ORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION: PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EX TENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZE D IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISIT ION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST P UT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. 65 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUTHORI TY. 28 66 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UBMITTED THAT ONCE THE ADVANCES WERE GIVEN FOR ACQUISITION OF CAPITAL ASSETS FOR EXTENSION OF EXISTING BUSINESS THEN THE INTEREST INCURRED FOR THE SAME COULD NOT HAVE BEEN ALLOWED A S REVENUE EXPENDITURE BECAUSE SAME HAS TO BE CAPITALIZED AS P ER PROVISO TO SECTION 36(1)(III). 67 AFTER CONSIDERING THE RIVAL SUBMISSIONS AS NOTED WHILE ADJUDICATING GROUND NO. 4, PROVISO TO SECTION 36(1) (III) MAKES IT CLEAR THAT ANY AMOUNT BORROWED FOR THE PURPOSE OF A CQUISITION ON ASSETS FOR EXTENSION OF EXISTING BUSINESS HAS TO BE CAPITALIZED WHICH MEANS THE SAME CANNOT BE ALLOWED AS REVENUE EXPENDITURE. WE AGREE THAT INTEREST COULD NOT HAVE BEEN DISALLOWED FOR THE WHOLE YEAR BUT THE LD. CIT( A) HAS ALREADY DIRECTED THE AO TO RECOMPUTE THE DISALLOWAN CE OF INTEREST FROM THE DATE OF BORROWING FOR ACQUISITION OF ASSETS TILL THE DATE ON WHICH SUCH ASSETS WERE PUT TO USE. THE REFORE, WE FIND NOTHING WRONG IN THE ORDER OF THE LD. CIT(A) A ND CONFIRM THE SAME. 68 GROUND NO. 6 WAS NOT PRESSED BEFORE US, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 69 IN THE RESULT, APPEAL NO. 347/CHD/2012 FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 70 IN THE RESULT, APPEAL NO. 1364/CHD/2010 FILED BY THE REVENUE IS PARTLY ALLOWED, CROSS-OBJECTIONS NO. 2/C HD/2011 FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PU RPOSES, APPEAL NO. 412/CHD/2012 FILED BY THE REVENUE IS PARTLY ALL OWED FOR 29 STATISTICAL PURPOSES AND APPEAL NO. 347/CHD/2012 FI LED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON 27.11.2012 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 27 .11. 2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 30