Bell Ceramics Limited, Baroda V. The Dy.CIT., Bharuch Circle, Bharuch

CO 226/AHD/2010

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0490 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-04-2015
• Assessment Year: 1997-1998
• Appeal Filed On: 03-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Capital asset; Depreciation; Business expenditure; Opportunity of being heard; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI G. D. AGARWAL , VICE PRESIDENT AND SHRI S.S. GODARA JUDICIAL MEMBER ITA NO S . 2017 WITH CO NO.226/AHD/2010 , 2279 WITH CO NO.227/AHD/2010 , 2021, 2281/ AHD/20 1 0 A. Y S.1997 - 98, 2002 - 03, 2004 - 05 DCIT, BHARUCH. VS BELL CERAMICS LTD. 78 - 79, SURYAKIRAN COMPLEX, OLD PADRA ROAD, BARODA. PAN: AAACB 9403B (APPELLANT) (RESPONDENT /CROSS OBJECTOR ) REVENUE BY : SHRI SUBHASH BAINS CIT - D.R. WITH SHRI DINESH SINGH , SR.D.R. A SSESSEE(S) BY : SHRI MILIN MEHTA , A.R. / DATE OF HEARING : 08 / 0 4 /201 5 / DATE OF PRONOUNCEMENT: 15 / 0 5 /201 5 / O R D E R PER S. S. GODARA , JUDICIAL MEMBER THE REVENUE HAS F ILED THESE FOUR APPEALS IN ASSESSMENT YEARS 1997 - 98, 2002 - 03 AND 2004 - 05. THE ASSESSEE HAS FILED TWO CROSS OBJECTIONS IN THE TWO APPEALS RELATING TO FIRST ASSESSMENT YEAR . ALL THESE CASES HAVE ARISEN FROM DIFFERENT ORDERS OF THE CIT(A) - VI, BARODA IN CASE N O S . CAB/VI - 174/05 - 06, CAB/VI - 66/05 - 06, CAB/VI - 67/05 - 06 AND CAB/VI - 383/06 - 07 DATED 15.03.2010, 1.4.2010, 15.03.2010, 1.4.2010 , IN PROCEEDINGS U/S. 143(3) OF THE INCOME TAX ACT; IN SHORT THE ACT IN ALL CASES EXCEPT ITA ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 2 - 2279 /AHD/2010 WHEREIN THE SAME ARE U/S.1 43(3) R.W.S. 147 ; RESPECTIVELY . 2. BOTH PARTIES REITERATE THEIR RESPECTIVE PLEADINGS IN APPEALS AND CROSS OBJECTIONS IN THE COURSE OF HEARING. THEY ALSO SUPPORT THE CIT(A) ORDERS TO THE EXTENT THE SAME FAVOUR THEIR CAUSE S . FOR THE SAKE OF CONVENIENCE AND BREVITY, WE PROCEED ASSESSMENT YEAR WISE TO DECIDE THESE CASES. ASSESSMENT YEAR 1997 - 98 REVENUE S APPEAL ITA 2017 /AHD/2010 WITH ASSESSEE S CROSS OBJECTION 226 /AHD/2010. 3. THE REVENUE S GROUNDS IN ITS APPEAL READ AS FOLLOWS: 1(I). ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST OF RS. 5,87,04,495/ - ON ACCOUNT OF PRE - PRODUCTION EXPENSES OF BANGALORE UNIT TREATED AS CAPITAL EXPENDITURE. 1(II). THE CIT(A) F AILED TO APPRECIATE THAT THE ASSESSEE IS MAINTAINING SEPARATE BOOKS OF ACCOUNT AND OBTAINED SEPARATE LOAN FROM FINANCIAL INSTITUTION AND FROM BANK FOR THE NEW UNIT AT BANGALORE. FURTHER, THE INTEREST PAID ON BORROWED FUNDS FOR ACQUISITION OF PLANT AND MACH INERY BEFORE THEY ARE PUT TO USE SHOULD BE TREATED AS CAPITAL EXPENDITURE. 2(1). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,85,89,200/ - ON ACCOUNT OF SUPPRESSION OF GP BY DECLARING L OW GROSS PROFIT. 2(II). THE CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAD CLAIMED EXCESS CONSUMPTION OF RAW MATERIALS, WAGES AND STORES & SPARES ETC. IN COMPARISON TO PREVIOUS YEAR. FURTHER, THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER AND EVEN THE CONSUMPTION REGISTER DOES NOT MATCH WITH THE PRODUCTION REGISTER DUE TO WHICH DAY - TO - DAY ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 3 - CONSUMPTION COULD NOT BE VERIFIED WITH THE PRODUCTION OF PARTICULAR GOODS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DE LETING THE DISALLOWANCE OF CLAIM U/S. 35AB AMOUNTING TO RS. 7,23,282/ - . 3(II). THE CIT(A) FAILED TO APPRECIATE THAT ON PLAIN READING OF THE PROVISIONS OF SECTION 35AB, IT CLEARLY STATES THAT THE ASSESSEE IS ENTITLED FOR THE CLAIM U/S. 35AB ONLY IF THE AMO UNT IS ACTUALLY PAID IN THE PRECEDING YEAR. AS THE ASSESSEE HAS NOT PAID THE SECOND AND THIRD INSTALLMENTS DURING THE YEAR, THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 35AB OF THE ACT CANNOT BE ALLOWED FOR THE SECOND AND THIRD INSTALLMENT. 4(I). ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 8,83,653/ - ON ACCOUNT OF DISALLOWANCE OF INTEREST ON INTEREST FREE LOANS / ADVANCES GIVEN BY THE ASSESSEE TO ITS SUBSIDIARIES AND ASSOCIATE CONCERNS. 4(II). THE CIT(A) FAILED TO APPRECIATE THE LEGAL PRINCIPLE, THAT ONUS U/S. 36(L)(III) LIES ON THE ASSESSEE TO PROVE THAT EACH LOAN IS USED FOR THE PURPOSES OF ITS BUSINESS, AS SETTLED IN THE CASE OF KISHANCHAND CHELLARAM VS. CIT. 114 ITR 654 (BOM), R. DA LMIYA VS CIT. 133 ITR 169 (DEL.), CIT VS. M.S. VENKATESHWARAN 222 ITR 163 (MAD), K. SOMASUNDARAM & BROTHERS CIT 238 ITR 939 (MAD) AND CIT VS MOTOR GENERAL FINANCE LTD. 254 ITR 449 (DEL) WHICH WAS CONFIRMED IN PRINCIPLE BY THE SUPREME COURT IN THE CASE OF M OTOR GENERAL FINANCE VS CIT 267 ITR 381 (SC). HENCE, APPEAL TO ITAT IS PROPOSED ON THIS ISSUE. 5(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 32,30,000/ - ON ACCOUNT OF INCLUSION OF EXCISE DUTY IN THE VALUATION OF CLOSING STOCK, FOLLOWING THE DECISION OF ENGLISH ELECTRIC CO. LTD. VS. CIT. 243 ITR 512 (MAD). 5(II). THE CIT(A) FAILED TO APPRECIATE THE RATIO OF THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD. 188 ITR 44, WHEREIN IT IS HELD THAT ALL OVERHEAD EXPENDITURE SHOULD BE INCLUDED IN THE VALUE OF CLOSING STOCK. 4. THE ASSESSEE S CROSS OBJECTIONS READ AS FOLLOWS: ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 4 - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LA W IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING PRIOR PERIOD EXPENSE AMOUNTING TO RS. 6,07,316/ - . 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MAKING AN ADDITION AN AMOUNT OF RS. 5,32,173/ - ON THE GROUND THAT THE ASSESSEE HAS ACTUALLY RECEIVED THIS AMOUNT AS INCOME DURING THIS YEAR. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSES SING OFFICER IN DISALLOWING REPAIRS AND MAINTENANCE AMOUNTING TO RS. 1,89,686/ - (AFTER ALLOWING DEPRECIATION OF R S. 27,096/ - ON THE GROUND THAT IT IS CAPITAL IN NATURE. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING AN AMOUNT OF RS. 2,31,703/ - BEING 1/10 TH OF THE TOTAL TELEPHONE EXPENSES. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSE SSING OFFICER IN MAKING ADHOC DISALLOWANCE OF STAFF WELFARE EXPENSE AMOUNTING TO RS. 1,00,000/ - . 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING AN AMOUNT OF RS.3 ,51,242/ - BEING L/8 TH OF THE VEHICLE EXPENSES ON THE GROUND THAT THE USE OF VEHICLE BY THE DIRECTORS FOR THEIR PERSONAL USE. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN D ISALLOWING AN AMOUNT OF RS.6,73,240/ - BEING INTEREST PAID TO OTHERS. 8 . THE LEARNED COMMISSIONER OF INCOME OF TAX (APPEALS) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING GUEST HOUSE EXPENSE AMOUNTING TO RS. 82,69 2/ - . 5 . THE ASSESSEE - COMPANY MANUFACTURES CERAMICS TILES. IT FILED ITS RETURN ON 27.11.1997 ADMITTING LOSS OF RS.14,62,14,604/ - ALONG WITH BOOK PROFITS OF RS.2,76,42,828/ - . THE ASSESSING OFFICER COMPLETED A REGULAR ASSESSMENT ON 23.2.2000 INTER ALIA MAK ING DISALLOWANCE/ADDITIONS SUBJECT MATTER IN THE INSTANT APPEAL AND CROSS OBJECTIONS. THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) ON 28.4.2000. IN THE MEANTIME, THE ASSESSING OFFICER FORM ED REASONS TO BELIEVE THAT THE ASSESSEE S INCOME LIABLE TO BE ASS ESSED HAD ESCAPED ASSESSMENT. HE ISSUED A SECTION 148 NOTICE DATED 11.7.2003 I.E. AFTER A PERIOD OF FOUR YEARS FROM THE END OF THE IMPUGNED ASSESSMENT ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 5 - YEAR S. A ND FRAMED REASSESSMENT ON 21.3.2005 INTER ALIA DISALLOWING/ADDING DEPRECIATION ON PROVISIONS AND ADVANCES FOR STORES AND REPAIRS OF RS.27,36,477/ - , PROVISION FOR COMMISSION ON DOMESTIC SALES OF RS.5 LAC AS WELL AS THAT RELATING TO INTEREST PAID TO OTHERS OF RS.6 LAC ETC. THE ASSESSEE S BOOK PROFITS STOOD RECOMPUTED ACCORDINGLY. IT PREFERRED YET ANOTHE R APPEAL IN THE SECOND ROUND OF REASSESSMENT. THE CIT(A) IN HIS TWO DIFFERENT ORDERS DATED 15.3.2010 AND 1.4.2010 UNDER CHALLENGE HAS DELETED SOME OF THE DISALLOWANCE/ADDITIONS IN QUESTION AS WELL AS QUASHED THE REOPENING ITSELF; RESPECTIVELY. T HE REVENUE HAS FILED TWO SEPARATE APPEALS IN THIS BACKDROP OF FACTS IN REGULAR ASSESSMENT AND REOPENING BEING QUASHED IN THE LOWER APPELLATE ORDER ; RESPECTIVELY . THE ASSESSEE S CROSS OBJECTION S IN THE TWO APPEALS CLAIM RELIEF ON MERITS IN FORMER AND PLEAD IN THE LATT ER CASE THAT IF THE VALIDITY OF REOPENING IS UPHELD, THE MATTER BE REMITTED BACK TO THE LOWER APPELLATE AUTHORITY FOR A FRESH DECISION ON MERIT S . W E PROCEED TO DEAL WITH REVENUE S GROUNDS ARISING FROM FIRST ROUND OF THE REGULAR ASSESSMENT (SUPRA) . 6 . THE REVENUE S FIRST SUBSTANTIVE GROUND SEEKS TO RESTORE INTEREST DISALLOWANCE OF RS.5,87,04,495/ - ON ACCOUNT OF PRE - PRODUCTION EXPENSES OF BANGALORE UNIT TREATED AS A CAPITAL EXPENDITURE BY THE ASSESSING OFFICER. IT AVERS THAT THE ASSESSEE MAINTAINED SEPARATE BOOKS OF ACCOUNTS AND OBTAINED / OPERATE SEPARATE LOANS FROM FINANCIAL INSTITUTIONS/BANKS FOR ITS BANGALORE ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 6 - UNITS . A ND THAT THE IMPUGNED INTEREST WAS PAID ON THE BORROWED FUNDS FOR ACQUISITION OF PLANT AND MACHINERY BEFORE PUTTING THE SAME TO USE IS ALSO AN INSTANCE OF CAPITAL EXPENDITURE. 7 . THE ASSESSEE HAD STARTED ITS COMMERCIAL PRODUCTION ON 27.3.1997. IT CAPITALIZED ALL PRE - PRODUCTION STAGE EXPENSES OF THE BANGALORE UNIT IN BOOKS OF ACCOUNTS . A LSO TREATED THE SAME AS REVENUE EXPENDITURE IN THE INCOME STATEMENT. THE SUM TOTAL OF THIS CLAIM AMOUNTING TO RS.5,87,04,495/ - COMPRISED OF INTEREST PAID TO FINANCIAL INSTITUTIONS ON LOAN TAKEN FOR ASSETS AND PROJECT OF RS.5,31,07,604/ - , INTEREST ON CASH CREDIT ACCOUNT UPTO 26.3.1997 OF RS.12,48,721/ - AND SELLIN G EXPENSES IN THE SHAPE OF FIXED RENT OF RS.43,48,170/ - ; RESPECTIVELY. THE ASSESSING OFFICER SOUGHT TO DISALLOW THE SAME AS CAPITAL EXPENDITURE BEING RELATED T O NEW BANGALORE UNIT BEFORE COMMENCEMENT OF ITS COMMERCIAL PRODUCTION. 8 . THE ASSESSEE PLEADED THAT ITS INTEREST ON FIXED LOANS HAD BEEN DISALLOWED IN PRECEDING ASSESSMENT YEAR . A ND THE CIT(A) HAD GRANTED IT RELIEF IN THE CONCERNED LOWER APPELLATE PROCEEDINGS. THE ASSESSING OFFICER CAME ACROSS ASSESSEE S SEPARATE BOOKS OF ACCOUNT AND THE FACT THAT I T HAD OBTAINED SEPARATE LOANS FROM FINANCIAL INSTITUTION/BANK FOR THE NEW BANGALORE UNIT HAVING ALTOGETHER NEW STAFF F OR PRODUCTION AND ADMINISTRATION. I TS DIRECTORS WERE ALSO COMMON. THE ASSESSING OFFICER STATED THAT THE CIT(A) ORDER IN THE PRECEDING ASSE SSMENT YEARS 1995 - 1996 AND 1996 - 97 HAD NOT BECOME FINAL SINCE THE REVENUE S APPEAL W AS PENDING BEFORE THE TRIBUNAL. ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 7 - THE ASSESSEE S ACTION CAPITALIZING THE VERY EXPENSES (SUPRA) W AS ALSO TAKEN NOTE OF. THE ASSESSING OFFICER TOOK INTO CONSIDERATION ALL THESE FACTS AND MADE THE IMPUGNED DISALLOWANCE. 9. THE CIT(A) HAS ACCEPTED THE ASSESSEE S GROUND AS UNDER: 3. GROUND NO. 1 (A), CHALLENGES ADDITION MADE BY THE ASSESSING OFFICER BY DISALLOWING INTEREST PAID TO FINANCIAL INSTITUTIONS FOR LOANS TAKEN FOR THE CER AMIC TILES UNIT AT BANGALORE. 3.1 THE ASSESSING OFFICER HAD DISALLOWED INTEREST OF RS.5,31,07,604/ - ON THE GROUND THAT THE APPELLANT COMPANY HAD SET UP A NEW UNIT AT BANGALORE AND THEREFORE THE INTEREST EXPENSES BEFORE COMMENCEMENT OF PRODUCTION CONSTITUT ES CAPITAL EXPENDITURE. 3.2 IN APPEAL, THE ID. AR SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS DIRECTLY COVERED BY THE DECISION OF ITAT IN THE CASE OF THE APPELLANT FOR A.Y 1996 - 97. THE ITAT IN ITS ORDER DATED 30 - 12 - 2005 HAS HELD THAT INTEREST ON BORROW INGS MADE FOR EXPANSION OF THE EXISTING BUSINESS WOULD BE ALLOWABLE AS DEDUCTION U/S. 36( 1 )(III) OF THE ACT. 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A.R AND THE FACTS OF THE CASE. ON THE SAME ISSUE, THE ITAT, IN THE CASE OF THE APPELLANT, VIDE IT S ORDER DATED 30 - 12 - 2005 IN ITA NO. 2237/A/1999 HAD DECIDED THE ISSUE IN FAVOR OF THE APPELLANT, THE ITAT HAS HELD THAT THE APPELLANT COMPANY BEING ALREADY ENGAGED IN THE BUSINESS OF MANUFACTURING TILES, SETTING UP ANOTHER UNIT AT BANGALORE WAS DEFINITELY THE EXTENSION OF ASSESSEE'S BUSINESS AND, CONSEQUENTLY, THE INTEREST OF BORROWINGS WAS AN ADMISSIBLE EXPENDITURE. THEREFORE DULY CONSIDERING THE OBSERVATIONS OF THE ITAT ON THE ISSUE, ADDITION MADE BY THE AO IS DIRECTED TO BE DELETED. THE CLAIM OF THE APPE LLANT IS ALLOWED. 4. GROUND NO.1(B), CHALLENGES THE ACTION OF THE AO IN DISALLOWING INTEREST ON CASH CREDIT ACCOUNT ON SIMILAR GROUNDS AS STATED IN GROUND NO. 1(A) ABOVE. THE IT AT HAS ALREADY HELD THAT INTEREST ON EXPANSION OF BUSINESS IS ALLOWABLE U/ S. 36(L)(III) OF THE ACT. I THEREFORE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.12,48,721/ - BEING INTEREST ON CASH CREDIT FACILITIES FOR BANGALORE UNIT. 5. GROUND NO. 1(C), CHALLENGES THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING EXPE NSES OF RS.43,48,179/ - BEING EXPENSES ON SETTING UP OF SEVERAL DEPOTS AND DISTRIBUTION FACILITIES. ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 8 - 5.1 THE APPELLANT IN THE BOOKS TREATED THE SAME AS DEFERRED REVENUE EXPENDITURE, WHEREAS CLAIMED THE ENTIRE SUM AS DEDUCTION IN WHICH THE EXPENSES INCURRED. THE ASSESSING OFFICER HAS DISALLOWED THE EXPENSES ON THE GROUND THAT THE EXPENSES ARE RELATED TO THE UNIT AT BANGALORE AND THEREFORE THE EXPENSES ARE CAPITAL EXPENSES. THE EXPENSES DISALLOWED BY THE AO ARE AS UNDER: NATURE OF EXPENSES AMOUNT (IN RS.) EX PENSES FOR SETTING UP THE GODOWNS UP TO 25.3.97 FIXED RENT ON GODOWNS 11,72,524 C&F C HARGES PAID FOR THESE GODOWNS 20,74,167 COMMON EXPENSES INCURRED UP TO 25.3.97 SALARIES AND OTHER PERKS TO MARKETING STAFF 48,02,012 CORPORAT E OFFICE EXPENSES 4,94,590 COMMON SERVICES 1,53,046 TOTAL EXPENSES INCURRED 86,96,339 50 % THEREOF ALLOCATED TO BANGALORE UNIT 43,48,170 5.2 IN APPEAL, IT WAS CONTENDED BY THE ID. AR THAT THE EXPENSES DISALLOWED BY THE ASSESSING OFFICER DO N OT SATISFY THE TEST OF BEING CAPITAL EXPENDITURE. NO NEW ASSET HAS COME INTO EXISTENCE NOR HAS ANY BENEFIT OF ENDURING NATURE ACCRUED TO THE APPELLANT. NONE OF THE EXPENSES ARE SUCH WHICH ARE INCURRED FOR BRINGING ANY ASSET INTO PRESENT LOCATION AND CONDIT ION. THE EXPENSES ARE ALSO NOT RELATED TO INSTALLATION OR ACQUISITION OF ANY CAPITAL ASSET. THE APPELLANT RELIED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF GUJARAT SMALL SCALE INDUSTRIES CORPORATION LTD. VS. CIT 142 ITR 35, WHEREIN IT WAS HEL D THAT EXPENSES INCURRED ON TESTING DURING THE PERIOD BEFORE ACTUAL MARKETING OF THE PRODUCT BY A PERSON HAVING AN EXISTING BUSINESS, WAS ALLOWABLE BUSINESS EXPENDITURE. 5.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A.R AND THE FACTS OF THE CASE. THE E XPENSES INCURRED BY THE APPELLANT ARE IN THE NATURE OF FIXED RENT AND SALARY EXPENSES. IT IS ALSO TRUE THAT THE APPELLANT IS IN THE EXISTING BUSINESS OF MANUFACTURE OF CERAMIC TILES. NO NEW ASSET HAS COME INTO EXISTENCE NOR HAS ANY BENEFIT OF ENDURING NATU RE ACCRUED TO THE APPELLANT BY INCURRING THE SAID EXPENSES. THERE IS NO ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 9 - UNDERLYING ASSET COMING INTO EXISTENCE. UNDER THE SAID CIRCUMSTANCES, THE EXPENSES INCURRED BY THE APPELLANT CANNOT BE TERMED AS CAPITAL EXPENDITURE. THE AO IS THEREFORE DIRECTED TO DE LETE THE ADDITION OF RS.43,48,170/ - . THIS LEAVES THE REVENUE AGGRIEVED. 1 0 . HEARD RIVAL CONTENTIONS. RELEVANT RECORD PERUSED. THERE IS NO DISPUTE ABOUT THE HEAD OF EXPENDITURE OR FIGURES INVOLVED THEREIN. THE REVENUE REITERATES THE ASSESSING OFFICER FIN DINGS TO TREAT THE IMPUGNED INTEREST EXPENDITURE OF RS.5,87,04,495/ - AS CAPITAL EXPENDITURE BEING RELATED TO SETTING UP OF NEW BANGALORE UNIT AND THAT TOO, BEFORE IT COULD START COMMERCIAL PRODUCTION. THE CASE FILE REVEALS THAT A CO - ORDINATE BENCH OF THE T RIBUNAL IN REVENUE S APPEAL ITA 227/AHD/1999 RELATING TO ASSESSMENT YEAR 1996 - 97 HAS ALREADY TREATED THE VERY EXPENSES OF THE BANGALORE UNIT AS A MERE EXTENSION OF THE ALREADY EXISTING BUSINESS . A ND INTEREST ON BORROWING IN QUESTION HAS BEEN HELD AS ALLOWA BLE IN VIEW OF VARIOUS CASE LAWS REPORTED AS DCIT VS. CORE HEALTH CARE LTD. 265 ITR 61 (GUJ.), B.R. LTD. VS. PP GUPTA 113 ITR 647 (SC), ALEMBIC GLASS INDUSTRIES LTD. 103 ITR 714 (GUJ.) ETC. THE REVENUE FAILS TO POINT OUT ANY DISTINCTION IN THE SE TWO ASSESS MENT YEARS ON FACTS AS WELL AS LAW. WE DRAW SUPPORT THEREFROM AND OBSERVE THAT ONCE THE BANGALORE UNIT HAS BEEN TREATED AS EXTENSION OF AN ALREADY EXISTING BUSINESS, DISALLOWANCE OF THE IMPUGNED INTEREST IS NOT WARRANTED. THE CIT(A) HAS RIGHTLY HELD THE SA ME TO BE ALLOWABLE. THIS FINDING ALSO TAKES ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 10 - CARE OF THE REVENUE S GROUND 1(II) PLEADED IN THE APPEAL. THE REVENUE S CORRESPONDING GROUND IS REJECTED. 1 1 . THE REVENUE S SECOND SUBSTANTIVE GROUND CHALLENGES THE CIT(A) ORDERS DELETING ADDITION OF RS.2,85,89 ,200/ - ON ACCOUNT OF ALLEGED GROSS PROFIT SUPPRESSION AT THE ASSESSEE S BEHEST. 1 2 . THE ASSESSEE HAD MADE SALES OF RS.2727.90 LAC IN THE RELEVANT PREVIOUS YEAR. IT DECLARED GROSS PROFITS OF RS.750.71 LAC @ 27.51% AS AGAINST 38.83%, 32.73% AND 33.70% IN T HE THREE IMMEDIATE PRECEDING ASSESSMENT YEARS. THE ASSESSEE ATTRIBUTED THIS DECLINE TO CONSUMPTION OF RAW MATERIAL AND ESCALATION OF ITS COSTS ON OVERHEAD EXPENSES. THE ASSESSING OFFICER EXAMINED ITS RAW MATERIAL CONSUMPTION . HE PREPARED A CHART OF TWELVE MONTHS IN THE RELEVANT PREVIOUS YEARS SHOWING QUANTITATIVE DIFFERENCE. THE ASSESSEE STATED ITS REASONS TO BE WASTAGE OF TILES DUE TO THICKNESS FACTOR. THE ASSESSING OFFICER INTER ALIA OBSERVED THAT THERE WAS NO STOCK REGISTER MAINTAINED, ITS DAY TO DAY CON SUMPTION WAS NOT VERIFIABLE WITH THE TILES PRODUCED, THICKNESS ISSUE WAS A ROUTINE AFFAIR AND THERE WOULD BE INCREASE IN THE SALE PRICE OF TILES BASED ON THICKNESS FACTOR. HE ACCORDINGLY REJECTED ASSESSEE S BOOKS AND ENHANCED THE ASSESSEE S GROSS PROFIT TO THAT @ 38%. THIS RESULTED IN THE IMPUGNED ADDITION OF RS.2,85,89,200/ - . 1 3 . THE CIT(A) HAS ACCEPTED THE ASSESSEE S CONTENTION AS UNDER: ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 11 - 6.2 IN APPEAL, THE ID. AR SUBMITTED THAT THE GROSS PROFIT HAS FALLEN IN VIEW OF INCREASED CLEARING AND FORWARDING EXP ENSES AS COMPARED TO LAST YEAR. THE PRIMARY REASON FOR FALL IN THE GROSS PROFIT WAS DUE TO INCREASED COST OF CLEARING AND FORWARDING. CLEARING AND FORWARDING EXPENSES INCURRED IN THE CURRENT YEAR WERE VERY HIGH AS COMPARED TO LAST YEAR. PARTICULARS AY 199 7 - 98 (RS. LACS) AY 1996 - 97 (RS. LACS) SALES 399.67 3004.15 CLEARING & FORWARDING; EXPENSES 2727.90 88.22 RATIO 14.65 % 2.93 % INCREASE 11.72 % WE FIND IN THE RECORD THAT THE FIGURES IN SALES AND CLEARING & FORWARDING EXPENSES HAVE BEEN WRONGLY SWAPPED . THE PRIMARY REASON FOR FALL IN THE GROSS PROFIT WAS INCREASED EXPENSES ON C & F. IT WAS STATED BEFORE THE ASSESSING OFFICER THAT DUE TO CHANGE IN THE METHOD OF SELLING I.E. SETT ING UP DEPOTS AT VARIOUS LOCATIONS, THE COMPANY HAD TO INCUR VERY HEAVY C & F COSTS, RESULTING INTO SUBSTANTIAL IMPACT ON THE GROSS PROFIT. IF THE ABOVE INCREASED COST OF C & F IS IGNORED THEN GROSS PROFIT IS COMPARABLE WITH THAT OF THE EARLIER YEAR. WITH RESPECT TO MAINTENANCE TO QUANTITATIVE RECORDS IT WAS STATED THAT, THE APPELLANT - COMPANY MAINTAINS IMPECCABLE QUANTITATIVE RECORDS. APPELLANT MANUFACTURE GOODS WHICH ARE EXCISABLE GOODS AND THE RAW - MATERIALS ARE SUCH ON WHICH CENVAT CREDIT IS AVAILABLE A ND CLAIMED. THE APPELLANT IS REQUIRED TO MAINTAIN ALL RECORDS ON DAY TO DAY BASIS UNDER THE EXCISE LAW. AT THE TIME OF ASSESSMENT THE APPELLANT SUBMITTED MONTH - WISE CONSUMPTION DETAILS WHICH SHOW THAT RECORDS ARE MAINTAINED IN A PROPER MANNER. WITH REGARD TO THE CONTENTION OF THE ASSESSING OFFICER THAT THERE IS VARIATION IN CONSUMPTION OF RM PER SQ MTR OF TILES IT WAS STATED THAT THE CONSUMPTION RATIO HAS IMPROVED THIS YEAR. THE CHART SHOWING THE CONSUMPTION RATIO IS AS UNDER: PARTICULARS ASSESSMENT YEARS (RS. IN LACS) 1997 - 98 1996 - 97 1995 - 96 1994 - 95 SALES 2727.90 3004.15 2837.10 2524.04 ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 12 - CONSUMPTION OF RAW MATERIALS 670.04 775.22 682.41 827.81 ADD/DEDUCT FOR DECREASE/INCR EASE IN STOCK - 146.51 - 79.35 189.01 - 231.03 ADJUSTED CONSUMPTION OF RAW - MATERIALS 523.53 695.87 493.40 596.78 % TO SALES 19.26 % 23.16 % 17.39 % 23.64 % IT WAS STATED THAT THERE IS ACTUALLY A REDUCTION IN CONSUMPTION OF RAW MATERIALS AS COMPARED TO EARLIER YEAR. THERE IS ACTUALLY IMPR OVEMENT IN THE PERFORMANCE ON THE GROUND OF RAW MATERIALS. 6.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A.R AND THE FACTS OF THE CASE. AS CONTENDED BY THE ID. AR THE MAIN REASON FOR FALL IN THE GP IS THE INCREASED COST OF C & F. THE C & F COST HAS INC REASED BY 11.72 % OF SALES AS COMPARED TO AY 1996 - 97. AGAINST WHICH THE FALL IN THE GP IS 11.32 %. IF THE EFFECT IN THE INCREASE IN THE COST OF C & F IS ELIMINATED THE GP WOULD FAVORABLY BE COMPARABLE WITH THE GP OF AY 1996 - 97. IT IS ALSO NOTED THAT THE RE ASON FOR REJECTION BY THE AO IS RECORD OF RM. HOWEVER, RM CONSUMPTION HAS SHOWN IMPROVEMENT OVER THE PAST YEARS. MAJOR IMPACT OF GP IS DUE TO HIGH C & F COST AGAINST WHICH NO ADVERSE FINDINGS ARE RECORDED. THE APPELLANT'S BOOKS OF ACCOUNT ARE DULY AUDITED. THE APPELLANT'S GOODS ARE EXCISABLE AND ALSO PROPER RECORDS HAVE BEEN MAINTAINED FOR CLAIMING CENVAT CREDIT. CONSIDERING THE TOTALITY OF FACTS AND THE CIRCUMSTANCES OF THE CASE, THE ADDITION MADE BY THE AO BY REJECTING THE BOOKS OF ACCOUNT IS DIRECTED TO BE DELETED. THIS GROUND IS THUS ALLOWED. 1 4 . THE REVENUE STRONGLY ARGUES FOR RESTORATION OF THE IMPUGNED GROSS PROFITS ADDITION MADE AFTER REJECTION OF THE ASSESSEE S BOOKS. THE CIT(A) FINDINGS UNDER CHALLENGE ARE CLAIMED AS NON SPEAKING. IT IS CONTENDED THAT THE ASSESSEE S PLEA OF C & F FACTOR REDUCING ITS GROSS PROFITS OUGHT TO HAVE BEEN REMITTED TO THE ASSESSING OFFICER ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 13 - SINCE RAISED FOR THE FIRST TIME IN LOWER APPELLATE PROCEEDINGS. THE ASSESSEE HAS PLACED ON RECORD ITS PAPER BOOK. PAGE 197 REVEALS T HAT C & F FACTOR HAS CAUSED 10.76% DENT . PAGE 198 DEMONSTRATES MONTH - WISE RAW MATERIAL CONSUMPTION WITH A SPECIFIC NOTE EXPLAINING DIFFERENCE BASED ON WEIGHT/SIZE OF THE TILES AND WASTAGE ETC. PAGE 199 ELABORATES MONTH - WISE DETAILS OF THE TILES PRODUCED IN CLUDING SCRAP AND UPTO CENT UM PERCENT ILE . PAGE S 200 ONWARDS REVEAL STOCK OF THE TILE S PRODUCE WITH WASTAGE. A LL TH I S MATERIAL WAS AVAILABLE WITH THE ASSESSING OFFICER. THE MERE FACT THAT HE DID NOT SPECIFICALLY REJECT THE SAME DOES NOT IMPLY THAT THE CIT(A ) HAS ENTERTAINED ANY NEW EVIDENCE. THIS TAKE S CARE OF THE REVENUE S TECHNICAL OBJECTION. ALL THIS OVERWHELMING EVIDENCE EXPLAINING DIFFERENCE CAUSED BY CLEARING/FORWARDING AND OTHER FACTORS SUPPORTS THE ASSESSEE S PLEA EXPLAINING THE IMPUGNED DECLINE IN I TS GROSS PROFIT FROM 38.83% IN PRECEDING ASSESSMENT YEAR TO THAT @ 27.51% IN THE IMPUGNED ASSESSMENT YEAR. WE OBSERVE IN THESE PECULIAR CIRCUMSTANCE S THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING ASSESSEE S BOOK S WITHOUT SPECIFICALLY DEALING WI TH THE ABOVESAID DETAILS. WE DRAW SUPPORT FROM A CO - ORDINATE BENCH DECISION IN (2001) 72 TTJ 886 (AHD) PUSHPANJALI DYEING AND PRINTING MILLS PVT. LTD. VS. JCIT ADOPTING A SIMILAR VIEW. THE REVENUE S CORRESPONDING GROUND IS ACCORDINGLY REJECTED. 1 5 . THE RE VENUE S THIRD SUBSTANTIVE GROUND CHALLENGES THE LOWER APPELLATE ORDER GRANTING SECTION 35AB DEDUCTION AMOUNTING TO RS.7,23,282/ - . THE ASSESSEE S CLAIM WAS OF RS. 9,11,282/ - MADE ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 14 - @1/6 OF THE TOTAL SUM OF RS.54,67,694/ - PAYABLE AS TECHNICAL KNOWHOW FEES. IT H AD ONLY PAID A SUM OF RS.11.28 LAC DURING THE YEAR LEAVING BEHIND THE BALANCE AMOUNT OF RS.43,39,694/ - AS UNPAID. THE ASSESSING OFFICER RESTRICTED ITS CLAIM ONLY QUA THE SUM ACTUALLY PAID AND MADE THE IMPUGNED DISALLOWANCE. 1 6 . THE CIT(A) REFERS TO SECTI ON 43(2) DEFINING AMBIT OF THE WORD PAID USED IN SECTION 35AB TO INCLUDE THE SUM ACTUALLY PAID AS WELL AS THAT INCURRED . HE QUOTES CASE LAW OF TALETHERON INSTRUMENT COMPANY PVT. LTD. VS. ACIT 45 ITD 203 AND TALBROS AUTOMOTIVE COMPONENTS LTD. VS. ACIT R EPORTED AS 56 ITD 132 FOR DELETING THE IMPUGNED DISALLOWANCE. THE SAME POSITION CONTINUES IN THE INSTANT PROCEEDINGS. THE REVENUE FAILS TO CONTROVERT APPLICATION OF THE DEFINITION CLAUSE U/S.43(2) HEREINABOVE INCLUDING THE EXPRESSION INCURRED FOR THE IMP UGNED DEDUCTION CLAIMED U/S.35 AB OF THE ACT. W E AFFIRM THE CIT(A) FINDINGS AND REJECT THE REVENUE S GROUND. 17 . THE REVENUE S FOURTH GROUND CHALLENGES CIT(A) ORDER DELETING ADDITION OF RS.8,83,653/ - ON ACCOUNT OF DISALLOWANCE OF INTEREST ON INTEREST FREE LOANS/ADVANCES GIVEN TO SUBSIDIARY AND ASSOCIATE CONCERNS. THE ASSESSING OFFICER NOTICED THE ASSESSEE TO HAVE PAID INTEREST ON BORROWED FUNDS ON THE ONE HAND AND ADVANCED SUMS OF RS.49,09,183/ - TO ITS SIX ASSOCIATES CONCERNS ON THE OTHER. HE SOUGHT TO DIS ALLOW INTEREST ON BORROWED FUNDS ACCORDINGLY. THE ASSESSEE STATED ONE OF THE LOANEE TO BE ITS SUBSIDIARY. ALSO REST OF THE FIVE ENTITIES AS ITS GROUP COMPANIES. IT STATED THE ADVANCES IN ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 15 - QUESTION TO HAVE BEEN MADE OUT OF THE RIGHT ISSUE NOT COMING WITHIN T HE PURVIEW OF SECTION 36(1)(III) OF THE ACT. THE ASSESSING OFFICER REFERRED TO ITS BALANCE SHEET STATING BORROWED FUNDS OF RS.4205 LAC RESULTING IN HUGE INTEREST OUTGO. HE OBSERVED THAT THE AFORESAID INTEREST AND THE IMPUGNED ADVANCES WENT SIDE BY SIDE AND THERE WAS NO PROOF DEMONSTRATING AT THE SAME TO HAVE ARISEN FROM RIGHT ISSUE SINCE IT WAS TO BE UTILIZED FOR BANGALORE PROJECT. ALL THIS MADE HIM TO COMPUTE INTEREST DISALLOWANCE @18% ON BORROWED FUNDS RESULTING IN THE IMPUGNED ADDITION OF RS.8,83,653/ - D ISALLOWED U/S.36(1)(III) OF THE ACT. 1 8 . THE CIT(A) FOLLOWS HIS PREDECESSOR ORDER IN ASSESSMENT YEAR 1996 - 97 DECIDING THE VERY ISSUE IN ASSESSEE S FAVOUR. 19 . WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT FINDINGS. THE ASSESSEE S PAPER B OOK INDICATES THAT THE LOWER APPELLATE AUTHORITY DELETED AN IDENTICAL DISALLOWANCE IN THE PRECEDING YEAR. THE REVENUE CAME IN APPEAL. A CO - ORDINATE BENCH OF THE TRIBUNAL IN ITS ORDER DATED 30.12.2005 REMITTED THE ISSUE TO THE ASSESSING AUTHORITY . THE ASSES SING OFFICER PASSED A CONSEQUENTIAL ORDER ON 26.3.2007 HOLDING THE SAID ADVANCES TO HAVE BEEN MADE IN COMMERCIAL EXPEDIENCY AS PER THE CASE LAW OF S.A. BUILDERS VS. CIT 280 ITR 1. THE REVENUE FAILS TO POINT OUT ANY EXCEPTION IN FACTS OF THE TWO ASSESSMENT YEARS INVOLVED. WE OBSERVE IN THESE CIRCUMSTANCES THAT COMMERCIAL EXPEDIENCY THAT EXISTED IN THE ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 16 - PRECEDING ASSESSMENT YEAR CONTINUED IN THE IMPUGNED YEAR AS WELL. THE REVENUE S GROUND FAILS. 2 0 . THIS LEAVES US WITH THE R EVENUE S LAST GROUND CHALLENGING CI T(A) ORDER DELETING ADDITION OF RS.32,30,000/ - MADE ON ACCOUNT OF INCLUSION OF EXCISE DUTY IN VALUATION OF CLOSING STOCK. THE ASSESSEE S FINISHED STOCK READ RS.129.18 LAC. IT HAD NOT INCLUDED EXCISE DUTY OF RS.32.30 LAC. IT FOLLOWS MERCANTILE SYSTEM OF ACC OUNTING. THE ASSESSING OFFICER TREATED THIS EXCISE DUTY AS AN OVER HEAD EXPENDITURE AND MADE THE IMPUGNED ADDITION. 2 1 . THE CIT(A) HOLDS THAT THE AMENDED SECTION 145A IS APPLICABLE W.E.F 1.4.1999 ONLY. HE QUOTES TRIBUNAL S DECISION IN ITO VS. FOOD SPECIA LITIES LTD. 49 ITD 21 AS WELL AS CIT VS. ENGLISH ELECTRIC CO. OF INDIA LTD. 243 ITR 512 (MAD) TO HOLD THAT EXCISE DUTY IN QUESTION CANNOT BE INCLUDED IN VALUATION OF THE CLOSING STOCK. 2 2 . WE HAVE HEARD BOTH SIDES. RECORD OF THE CASE STAND PERUSED. THERE IS NO DISPUTE ABOUT THE FACTUAL POSITION NARRATED IN THE PRECEDING PARAGRAPHS. THE REVENUE SEEKS TO INCLUDE THE VALUE OF THE EXCISE DUTY IN QUESTION IN THE ASSESSEE S CLOSING STOCK. THE ASSESSEE SUPPORTS THE CIT(A) ORDER. IT ALSO RAISES AND ALTERNATIVE PLE A THAT IN CASE THE IMPUGNED ADDITION IS MADE IN ITS CLOSING STOCK, THE SAME BE ORDERED TO BE INCLUDED IN OPENING STOCK OF THE SUCCEEDING ASSESSMENT YEAR AS WELL . WE FIND THAT HON BLE MADRAS HIGH COURT (SUPRA) HAS REJECTED THE REVENUE S IDENTICAL GROUND AS UNDER: ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 17 - IT WAS SUBMITTED BY COUNSEL FOR THE REVENUE THAT THE LIABILITY FOR PAY MENT OF EXCISE DUTY ARISES AT THE POINT OF MANUFACTURE AND, THEREFORE, THAT LI ABILITY GOES TO INCREASE THE VALUE OF THE STOCK AWAITING SALE. THIS ARGU MENT PROCEEDS ON A MISCONCE PTION. THE STOCK WHICH THE ASSESSEE HAS AT THE END OF THE FINANCIAL YEAR IS REQUIRED TO BE VALUED AT COST MEANING THEREBY ALL THE COSTS INCURRED BY THE ASSESSEE FOR THE PURPOSE OF MANU FACTURING THE GOODS INCLUDING THE OVERHEADS OR AT MARKET PRICE AT THE O PTION OF THE ASSESSEE. THE LIABILITY FOR PAYMENT O F EXCISE DUTY IS INCURRED BY THE ASSESSEE WHEN THE PROCESS OF MANUFACTURE IS COMPLETE IN RELATION TO T HAT EXCISABLE ITEM. THAT LIABILITY OF THE ASSESSEE IS A LIABILITY WHICH IS S HOWN IN THE EXCISE DUTY ACCO UNT MAINTAINED BY THE ASSESSEE, ALL PAYMENTS AND LIABILITY SO INCURRED TOWARDS SUCH DUTY ARE BEING EXHIBITED SEPARATELY AS AMOUNTS PAID AS EXCISE DUTY OR AS LIABILITY INCURRED FOR PAYMENT OF EXCISE DUTY. IF THE ARGUMENT OF THE REVENUE IS TO BE ACCEPTED, T HE RESULT WOULD BE ANOMALOUS. THE ASSESSEE'S LIABILITY FOR PAYMENT OF DUTY WOULD THEN BE REG ARDED AS PART OF THE ASSETS HELD BY THE ASSESSEE IN THE FORM OF THE HIGHER PER VALUE ASSIGNED TO THE CLOSING STOCK. A LIABILITY CANNOT BE CONVERTED INTO AN ASSET IN THAT MANNER. IF THE ASSESSEE IS TO SHOW IN THE ACCOUNTS THE LIAB ILITY INCURRED BY IT IN RELATION TO EXCISE DUTY THAT IS TO BE DONE BY SHOW ING SEPARATELY THE EXTENT OF LIABILITY INCURRED IN THAT YEAR TOWARDS PAYMENT OF EXCISE DUTY. THE LIABILITY, IF SO EXH IBITED, WOULD BECOME AN ITEM WHICH WOULD HAVE TO BE DEDUCTED FOR THE PURPOSE OF ARRIVING AT THE PROFIT FOR THE YEA R. IT IS ONLY WHEN SUCH DEDUCTION IS GIVEN THAT THE AMOUNT MAY BE ADDED TO THE VALUE OF THE CLOSING STOCK. WE, THEREFORE, DO NOT SEE ANY MERIT IN THIS PETITION. THIS PETITION IS DISMISSED. THE REVENUE FAILS TO CONTROVERT THE CIT(A) FIN DING REGARDING NON APPLICATION OF THE AMENDED STATUTORY PROVISIONS AS WELL AS THE CASE LAW EXTRACTED HEREINABOVE. WE UPHOLD THE CIT(A) ORDER IN THESE CIRCUMSTA NCES AND OBSERVE THAT THE IMPUGNED EXCISE DUTY COULD NOT HAVE BEEN INCLUDED IN THE ASSESSEE S CLOSING STOCK. OUR THIS FINDING ALSO RENDERS THE ASSESSEE S ALTERNATIVE PLEA (SUPRA) AS HAVING BECOME INFRUCTUOUS. THE REVENUE S GROUND IS REJECTED. ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 18 - REVENUE S APPEAL ITA 2017/AHD/2010 IS DISMISSED. 2 3 . NOW WE COME TO THE ASSESSEE S CROSS OBJECTIONS. IT DOES NOT PRESS FOR ITS PLEAS RAISING ISSUE S OF REPAIRS AND MAINTENANCE AMOUNTING TO RS.1,89,686/ - , AD HOC DISALLOWANCE OF TELEPHONE EXPENSES OF RS.2,31,703/ - , AD HOC DISALLOWANCE ON STAFF WELFARE EXPENSES OF RS.1 LAC, AD HOC DISALLOWANCE ON VEHICLE EXPENSE OF RS.3,51,242/ - , INTEREST PAID OF RS.6,73,240/ - AND GUEST HOUSE EXPENSE OF RS.82,692/ - KEEPING INTO SMALLNESS OF THE SUMS INVOLVED. WE ACCEPT ASSESSEE S PRAYER AND REJECT THE CORRESPONDING GROUNDS PLEADED IN THE CROSS OBJECTION WITH A RIDER THAT THE SAME SHALL NOT BE TREATED AS A PRECEDENT IN ANY PRECEDING OR SUCCEEDING ASSESSMENT YEAR. 2 4 . THIS LEAVES US WITH THE FIRST TWO GROUNDS RAISED IN THE ASSESSEE S CRO SS OBJECTION RAISING ISSUE PRIOR PERIOD EXPENSES OF RS.6,07,316/ - AND WITH THAT OF ACCOUNTING AND NOT REAL INCOME OF RS.5,32,173/ - . IT CLAIMS THE FORMER TO BE EXPENDITURE INCURRED IN REGULAR BUSINESS. THE LATTER SUM IS STATED TO BE LEASE RENTALS NOT CLAIME D AS DEDUCTION IN EARLIER ASSESSMENT YEARS. IT PLEADS THAT THIS LATTER SUM HAS ARISEN FROM WRITE BACK NOT LIABLE TO BE TAXED. THE REVENUE SUPPORTS THE CIT(A) ORDER ON BOTH COUNTS. IN THESE CIRCUMSTANCES, WE FEEL THAT INSTEAD OF GOING INTO DEEPER MERITS OF THE TWO ISSUES, INTEREST OF JUSTICE WOULD BE MET IN CASE THE ASSESSEE S PRIOR PERIOD EXPENSES OF RS.6,07,316/ - ARE SET OFF AGAINST ITS LEASE RENTAL INCOME OF EARLIER ASSESSMENT YEARS AMOUNTING TO ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 19 - RS.5,32,173/ - ON A BROADER CONTOUR . WE ORDER ACCORDINGLY. TH E ASSESSING OFFICER SHALL PASS A CONSEQUENTIAL ORDER. THE ASSESSEE S CROSS OBJECTIONS NO.226/AHD/2010 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ASSESSMENT YEAR 1997 - 98 REVENUE S APPEAL ITA 2279/AHD/2010 WITH ASSESSEE S CROSS OBJECTION 227 /AHD/2010. 2 5 . THE REVENUE S GROUNDS IN THE LATTER APPEAL READ AS FOLLOWS . 1 (I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN QUASHING THE ASSESSMENT ORDER U/S. 143(3) R.W.S. 147 DTD. 21.03.2005 DETERMINING TOTAL LOSS AT RS. 4,36,37,255 / - AND BOOK PROFIT U/S. 115JA OF RS. 2,87,42,828/ - , WITHOUT APPRECIATING THE PROVISO TO SECTION 147 AND EXPLANATION 1 TO SECTION 147 IN ITS RIGHT EARNEST. 1 (II). THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT AS PER EXPLANATION 1 TO SECTION 147, PRODUC TION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD, WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER, WILL NOT NECESSARILY AMOUNT TO DISCLOSURE OF MATERIAL FACTS. IN THIS CASE THE ASSESSE E HAD FAILED TO DISCLOSE FULLY AND TRULY, ALL MATERIAL FACTS RELATING TO ASSESSMENT. THE ASSESSMENT U/S. 143(3) WAS, THEREFORE, RIGHTLY REOPENED BY THE ASSESSING OFFICER AND THE ASSESSMENT U/S. 143(3) R.W.S. 147 DTD. 21.03.2005 SHOULD HAVE BEEN UPHELD BY T HE CIT(A ). 2 6 . THE ASSESSEE S CROSS OBJECTIONS READ AS UNDER : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS DECIDED THE ISSUE OF REOPENING OF ASSESSMENT IN FAVOUR OF THE ASSESSEE. IN CASE IT IS HELD THAT THE REOPENING OF ASSESSMENT U/S. 147 IS VALID IN LAW, IN THAT CASE, THE MATTER MAY BE SENT BACK TO THE COMMISSIONER OF INCOME TAX (APPEALS) FOR MAKING SUBMISSION ON MERIT OF THE ADDITION MADE. 2. THE ASSESSEE REQUESTS THE TRIBUNAL TO RESTORE THE MATTER BACK TO THE COMMISSIONER OF INCOME TAX (A PPEALS) IN CASE THE REOPENING IS HELD TO BE VALID IN LAW. ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 20 - THE ASSESSING OFFICER HAD FRAMED A REGULAR ASSESSMENT (SUPRA) ON 21.3.2000. WE HAVE ALREADY ADJUDICATED MERITS OF THE DISALLOWANCES/ADDITIONS INVOLVED THEREIN IN ITA 2017/AHD/2010 AND CROSS OBJEC TION 226/AHD/2010 HEREINABOVE. THE ASSESSING OFFICER ISSUED SECTION 148 NOTICE THEREAFTER ON 11.7.2003. THERE IS NO DISPUTE THAT THE SAME IS VERY WELL AFTER A PERIOD OF FOUR YEARS FROM THE END OF THE IMPUGNED ASSESSMENT YEAR. THE ASSESSEE SOUGHT FOR THE RE ASON OF THE REOPENING. THE ASSESSING OFFICER DULY FURNISHED THE SAME AS UNDER: 1. IT IS EVIDENT FROM THE TDS CERTIFICATE ENCLOSED WITH THE RETURN O F INCOME THAT INTEREST OF R S. 3 ,3 4 , 25 , 266/ - HAS BEEN RECEIVED BY THE ASSESSEE COMPANY, BUT IT HAS DECLA RED INTEREST INCOME OF ONLY RS.2.76 CRORES IN THE ANNUAL REPORT FOR THE FINANCIAL YEAR ENDING 31.03.1997. THUS, THE ASSESSEE COMPANY HAS NOT OFFERED ENTIRE INTEREST INCOME FOR TAXATION. 2. THE ASSESSEE COMPANY HAS DEDUCTED INTEREST INCOME OF RS.38,65,984/ - FROM PREOPERATIVE EXPENSES RELATING TO HOSKOTE PLANT INSTEAD OF OFFERING THE INTEREST INCOME FOR TAXATION. 3. THE ASSESSEE COMPANY HAS CAPITALIZED NEW PLANT & MACHINERY (IMPORTED) AT HOSKOTE. IT IS SEEN THAT EXCHANGE RATE FLUCTUATION HAS ALSO BEEN CAPIT ALIZED AND ON WHICH DEPRECIATION HAS BEEN CLAIMED. SINCE IT IS IN THE NATURE OF PROVISION, THE DEPRECIATION CLAIMED ON EXCHANGE RATE FLUCTUATION WAS NOT CORRECT AND REQUIRED TO BE WITHDRAWN. FURTHER, IT IS SEEN THAT AN AMOUNT O F R S . 47 ,9 2 , 309 / - HAS BEEN SHO WN AS CAPITALIZED UNDER THE HEADING OF 'PROVISIONS MADE FOR STORES & SPARES KEPT IN BOND AS ON 31 - 3 - 1997'. SIMILARLY, AN AMOUNT OF RS.1,70,99,508/ - HAS BEEN CAPITALIZED UNDER PLANT 85 MACHINERY AND UNDER THE HEARING 'ADVANCE PAID ON STORES & SPARES LYING I N BOND AS ON 31 - 3 - 1997'. THEREFORE, DEPRECIATION ON PROVISION OF RS.47,92,309/ - MADE FOR STORES & SPARES KEPT IN BOND AS ON 31 - 3 - 97 AND ON AN AMOUNT OF RS.1,70,99,508/ - REPRESENTING ADVANCE PAID ON STORES & SPARES LYING IN BOND AS ON 31 - 3 - 97 WAS NOT ALLOWA BLE AND THEREFORE ASSESSEE HAS WRONGLY CLAIMED DEPRECIATION ON THESE AMOUNTS. ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 21 - 4. PROVISION FOR EXPENSES UNDER THE HEAD 'COMMISSION ON DOMESTIC SALES' AND UNDER THE HEAD 'INTEREST PAID - OTHERS' HAVE BEEN DEBITED TO AN EXTENT OF RS.5,00,000/ - AND R S .6,00,0 00/ - RESPECTIVELY. FOR THE PURPOSE OF SEC. 115 JA, THESE PROVISIONS SHOULD HAVE BEEN ADDED TO THE BOOK PROFIT, WHICH WAS REMAINED TO BE ADDED IN WORKING OF PROFIT U/S . 115JA OF THE ACT. 5. IN VIEW OF THE ABOVE, I HAVE REASONS TO BELIEVE THAT INCOME EXCEEDIN G RS. 1 LAC CHARGEABLE TO TAX HAS ESCAPED AND, THEREFORE, NOTICE U/S.148 IS ISSUED FOR REOPENING OF ASSESSMENT FOR A.Y. 1997 - 98. THE ASSESSEE APPEARS TO HAVE FILED A PETITION DATED 30.10.2003 CHALLENGING VALIDITY OF THE IMPUGNED REOPENING. THE ASSESSING OFFICER REJECTED THE SAME IN HIS ORDER DATED 29.12.2004. THEREAFTER HE WENT ON TO MADE CERTAIN DISALLOWANCES /ADDITIONS ALREADY STATED HEREINABOVE. 27 . THE ASSESSEE PREFERRED AN APPEAL. IT CHALLENGE D THE VALIDITY OF THE REOPENING ALONG WITH THE DISALLOWAN CE ON MERITS. THE CIT(A) HAS ACCEPTED ITS VALIDITY PLEA AS UNDER: 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A.R AND THE FACTS OF THE CASE. IT IS TRUE THAT ASSESSMENT U/S. 143(3) WAS ALREADY FRAMED IN THE CASE OF THE APPELLANT. IT IS ALSO NOTED FROM THE CASE RECORDS THAT THE NOTICE OF REASSESSMENT WAS ISSUED ON 11 - 7 - 2003 WHICH IS BEYOND THE PERIOD OF 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THE CASE IS THEREFORE COVERED BY THE PROVISO TO SECTION 147 OF THE ACT. ON GOING THE REASONS RECOR DED FOR REOPENING OF ASSESSMENT AND ALSO THE ASSESSMENT ORDER, NOWHERE IT HAS BEEN STATED THAT THERE WAS FAILURE ON THE PART OF THE APPELLANT TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE APPELLANT HAD ALREADY FILED THE RETUR N OF INCOME U/S. 139(1). FURTHER, THE AO HAS NOT POINTED OUT ANY MATERIAL WHICH SHOWS THAT THERE IS FAILURE ON THE PART OF THE APPELLANT TO FULLY AND TRULY DISCLOSE ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THERE IS NO RELIANCE ON MATERIAL EVEN REMOTELY SUGGESTING THAT THE APPELLANT FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE AO HAS RELIED ON THE SAME MATERIAL WHICH WAS FILED BY THE APPELLANT WITH THE RETURN OF INCOME AND WHICH WAS ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 22 - SUBMITTED BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S, 143(3) OF THE ACT. UNDER THE GIVEN CIRCUMSTANCES IT CANNOT BE HELD THAT THERE WAS FAILURE ON THE PART OF THE APPELLANT TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE CASE OF THE APPEL LANT IS DIRECTLY COVERED BY THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF GARDEN SILK MILLS LTD. SUPRA AND THE SUPREME COURT IN THE CASE OF FORAMER FRANCE SUPRA. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE REOPENING OF ASSESSMENT VIDE NOTICE DATED 11 - 7 - 2003 IS BAD IN LAW AND HENCE QUASHED. GROUND NO. 1 RAISED BY THE APPELLANT IS THUS ALLOWED. THE APPELLANT IN ITS WRITTEN SUBMISSIONS HAD MENTIONED THAT IF IT WAS HELD THAT THE REOPENING OF ASSESSMENT WAS VALID AS PER LAW, AN OPPORTUNITY OF BEING HEARD MAY BE GIVEN TO FILE FURTHER SUBMISSIONS ON MERITS OF THE ADDITIONS MADE. IT HAS BEEN ALREADY HELD THAT REOPENING OF ASSESSMENT IS BAD IN LAW AND THEREFORE QUASHED. THEREFORE THE QUESTION OF DECIDING THE ADDITIONS ON MERITS I S ONLY ACADEMIC IN NATURE. THE REQUEST OF THE APPELLANT IS THUS REJECTED. T HE REVENUE ARGUES IN FAVOUR OF THE REOPENING IN QUESTION. THE ASSESSEE SUPPORTS THE CIT(A) ORDER. IT HAS ALSO PREFERRED CROSS OBJECTION S THAT IN CASE VALIDITY OF THE REOPENING I S UPHELD IN THE REVENUE S FAVOUR, THE MATTER BE SENT BACK TO THE CIT(A) FOR DECISION ON MERITS. 28 . WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RIVAL CONTENTIONS. WE REITERATE THAT PRESENT IS A CASE OF REOPENING BEYOND FOUR YEAR FROM THE END OF IMPU GNED ASSESSMENT YEAR. SECTION 147 PROVISO 1 STIPULATES SUCH A COURSE OF ACTION IS TO BE ADOPTED ONLY BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE ASSESSING OFFICER S REASO NS ARE FORMULATED ONLY ON ASSESSEE S PARTICULARS ON TDS CERTIFICATES, INTEREST INCOME, EXCHANGE DEPRECIATION AND ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 23 - COMMISSION ON SALES ETC. WHICH ARE ALREADY PLACED ON RECORD. THEREFORE, WE DO NOT FIND ANY SUCH FAILURE AT THE ASSESSEE S BEHEST I N NOT DISCLOS ING FULLY AND TRULY ALL THE NECESSARY PARTICULARS. NOR DO THE REOPENING REASONS STATE ABOUT ANY SUCH FAILURE. IN THESE CIRCUMSTANCES, WE QUOTE DECISION OF HON BLE DELHI HIGH COURT IN (2013) 34 TAXMANN.COM 131 (DELHI) RURAL ELECTRIFICATION CORPORATION LTD. VS. CIT QUASHING AN IDENTICAL REOPENING IN ABSENCE OF ANY SUCH FAILURE BEING STATED IN REASONS THEREOF IN WRIT PROCEEDINGS UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA. THE REVENUE SEEKS TO INVOKE EXPLANATION 1 . IT SUBMITS THAT ASSESSEE S PRODUCTION OF D OCUMENTS AND BOOKS DOES NOT NECESSARILY AMOUNT TO A DISCLOSURE. WE FIND THIS SUBMISSION TO BE ENTIRELY MISCONCEIVED. FIRST OF ALL, THIS EXPLANATION ONLY ELABORATES THE MAIN ENABLING CLAUSE IN THE SECTION . FIRST PROVISO TO SECTION 147 ON THE OTHER HAND REST RICTS SCOPE OF THE ENABLING PROVISION ITSELF. IT PREVAILS OVER THE EXPLANATION. IT IS MADE CLEAR THAT WE ARE DEALING WITH POWERS OF THE REVENUE IN A FACING STATUTE WHICH IS TO BE STRICTLY INTERPRETED. THE REVENUE S SOLE GROUND RAISED IN THIS APPEAL FAIL S . REVENUE S APPEAL ITA 2279/AHD/2010 IS DISMISSED. THE SAME RENDERS ASSESSEE S CROSS OBJECTIONS TO HAVE BECOME INFRUCTUOUS. ASSESSMENT YEAR 2002 - 03 REVENUE S APPEAL ITA 2021/AHD/2010 29 . THE REVENUE S SUBSTANTIVE GROUNDS ARE EXTRACTED AS UNDER: 1 (I). O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 7,21,950/ - ON ACCOUNT OF DISALLOWANCE OF INTEREST ON INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE. ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 24 - 1 (II). THE CIT(A) FAILED TO APPRECIATE THE LEGAL PRINCIPLE, THAT ONUS U/S. 36( 1 )(III) LIES ON THE ASSESSEE TO PROVE THAT EACH LOAN IS USED FOR THE PURPOSES OF ITS BUSINESS, AS SETTLED IN THE CASE OF KISHANCHAND CHELLARAM VS. CIT. 114 ITR 654 (BOM), R. DALMIYA VS CIT. 133 ITR 169 (DEL.), CIT VS. M. S. VENKATESHWARAN 222 ITR 163 (MAD), K. SOMASUNDARAM & BROTHERS CIT 238 ITR 939 (MAD) AND CIT VS MOTOR GENERAL FINANCE LTD. 254 ITR 449 (DEL) WHICH WAS CONFIRMED IN PRINCIPLE BY THE SUPREME COURT IN THE CASE OF MOTOR GENERAL FINANCE VS CIT 267 ITR 381 (SC) . 2(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.25,40,726/ - [RS.26,14,994 - RS.74,266 (CONFIRMED)] BEING PRIOR PERIOD EXPENSES WHICH INCLUDES SALES TAX OF RS. 21,76,611/ - AND SA LES TAX INTEREST OF RS.4,04,846/ - . 2(II). THE CIT(A) FAILED TO APPRECIATE THAT SALES - TAX AND INTEREST THEREON ARE PRIOR PERIOD EXPENSES BUT STATUTORY LIABILITY WHICH IS ALLOWABLE ON ACTUAL PAYMENT BASIS. FURTHER, THE INTEREST FOR DELAYED PAYMENT OF SALES - TAX IS IN THE NATURE OF PENALTY ON ACCOUNT OF ASSESSEE'S FAILURE TO COMPLY WITH .THE PROVISIONS OF SALES - TAX ACT. 3 0 . BOTH PARTIES STATE VERY FAIRLY THAT GROUND NO.1 RELATING TO ADDITION OF RS.7,21,950/ - ON ACCOUNT OF INTEREST DISALLOWANCE ARISING FROM INTEREST FREE ADVANCES MADE TO SUBSIDIARIES AND ASSOCIATES CONCERN IS IDENTICAL TO THAT DECIDED IN ASSESSMENT YEAR 1997 - 98 ITA 2017/AHD/2010 AGAINST THE REVENUE. WE REITERATE THAT THE ASSESSING OFFICER HIMSELF ACCEPTED THE ASSESSEE S CONTENTION OF COMMERC IAL EXPEDIENCY ELEMENT INVOLVED IN THE IMPUGNED LOANS AND ADVANCES DURING CONSEQUENTIAL PROCEEDINGS. WE APPRECIATE FAIR STAND OF THE PARTIES ACCORDINGLY AND REJECT THE REVENUE S GROUND NO.1. 3 1 . THIS LEAVES US WITH THE ISSUE OF DISALLOWANCE OF RS.25,40,7 26/ - I.E.RS.26,49,994 - RS.74,266 (CONFIRMED) BEING PRIOR PERIOD EXPENSES INCLUDING SALES TAX OF RS.21,76,611/ - AND INTEREST OF RS.4,04,846/ - . THERE IS NO DISPUTE ABOUT THESE FACTS AND FIGURES . THE ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 25 - LIABILITY IN QUESTION HAS ARISEN FROM PAYMENT OF SALE TAX LIABILITY. THE ASSESSING OFFICER NOTICE D THE ASSESSEE TO HAVE DEBITED THE SAME UNDER THE HEAD PRIOR PERIOD EXPENSES IN PROFIT AND LOSS ACCOUNT DURING THE YEAR UNDER CONSIDERATION WITHOUT PROVIDING FOR THE SAME IN THE RESPECTIVE ASSESSMENT YEAR S . HE TREATED THE INTEREST AMOUNT ARISING THEREUPON AS A PENALTY. HE ALSO REMARKED THAT THE ASSESSEE COULD HAVE PAID TH IS LIABILITY ARISING UNDER SALES TAX LAW IN THE RESPECTIVE ASSESSMENT YEARS. THE ASSESSEE S CLAIM ACCORDINGLY STOOD REJECTED. 3 2 . THE CIT(A) QUOTES SECTION 43B OF THE ACT AND HOLDS THAT THE IMPUGNED SALES TAX DEDUCTION IS ALLOWABLE ON ACTUAL PAYMENT BASIS IRRESPECTIVE OF THE ACCOUNTING METHOD ADOPTED BY AN ASSESSEE. HE CONCLUDES THAT INTEREST ON SALES TAX IS NOT PENAL AS PER THE CASE LAW OF GG SHANGI VS. CIT 156 ITR 95 (RAJ.) ETC. THE REVENUE FAILS TO CONTROVERT THE SE FINDINGS UNDER CHALLENGE ON FACTS AS WELL AS LAW. A S ECTION 43B IS A SPECIFIC OVERRIDING PROVISION STARTING FROM CRUCIAL EXPRESSION S NOTWITHSTANDING ANY CONTAINED IN ANY OTHER PROVISION OF THIS ACT . WE REJECT THE REVENUE S CORRESPONDING GROUND ACCORDINGLY AND UPHOLD THE CIT(A) ACTION. THE REVENUE S APPEAL ITA 2021/AHD/2010 IS DISMISSED. ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 26 - 3 3 . THIS LEAVES WITH THE REVENUE S LAST APPEAL ITA 2281/AHD/2010 FOR ASSESSMENT YEAR 2004 - 05 RAISIN G SOLE SUBSTANTIVE GROUND READS AS UNDER: L(I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN DIRECTING TO ALLOW DEDUCTION OF SALES TAX AFTER VERIFICATION OF PROOF OF ACTUAL PAYMENT, FROM THE DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.16,49,466/ - MADE BY THE ASSESSING OFFICER. L(II). THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACTS THAT THE ASSESSEE FAILED TO COMPLY WITH THE TERMS AND PROVISION UNDER THE SALES TAX ACT AND THEREFORE, THE SALES TAX AUTHORITIES HAVE F RAMED THE LIABILITY UNDER THE SALES TAX ACT. THE ASSESSEE COULD HAVE MADE PAYMENT OF SUCH LIABILITIES IN THE RESPECTIVE YEAR ON THE BASIS OF TRUE AND CORRECT WORKING OF SALES TAX PAYABLE. THE ASSESSEE HAS NOT SUBMITTED ANY DETAILS TO ESTABLISH AS TO HOW TH E LIABILITY IN RESPECT OF THESE EXPENSES AROSE DURING THE YEAR UNDER CONSIDERATION AND THAT NO PROVISIONS WERE MADE IN RESPECT OF THE SAME IN THE EARLIER YEAR(S). 3 4 . WE FIND THE REVENUE S GRIEVANCE EXTRACTED HEREINABOVE IS COVERED BY OUR FINDINGS IN ITA 2021/AHD/2010 ASSESSMENT YEAR 2002 - 03 ON THE ISSUE OF SALES TAX LIABILITY ALREADY DECIDED IN ASSESSEE S FAVOUR. WE FOLLOW THE SAME IN THE IMPUGNED ASSESSMENT YEAR AS WELL IN ABSENCE OF ANY DISTINCTION ON FACTS AND LAW. THE CIT(A) ORDER IS CONFIRMED. RE VENUE S APPEAL ITA 2281/AHD/2010 IS DISMISSED. 35. TO SUM UP, REVENUE S ALL FOUR APPEALS ITAS 2017, 2279, 2021, 2281/AHD/2010 ARE DISMISSED. THE ASSESSEE S CROSS OBJECTIONS 226/AHD/2010 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE ONE ITA NO S.2017, 2279, 2021, 2281/ AHD /20 1 0 & CO NO.226, 227/AHD/2010 BELL CERAMICS LTD. FOR A.Y S . 1997 - 98, 2002 - 03 & 2004 - 05 - 27 - BEARING NO.227/ AHD/2010 STANDS DISMISSED AS HAVING BECOME INFRUCTUOUS. ORDERED ACCORDINGLY. ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 15 TH DAY OF MAY , 2015. SD/ - SD/ - ( G. D. AGARWAL ) ( S.S. GODARA ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD; DATED 15 / 0 5 / 20 1 5 PRABHAT KR. KESARWANI , SR. P . S . S / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD