Gujarat State Fertilizers & Chemicals Ltd., Baroda V. The ACIT, Circle -1(1), Baroda

CO 243/AHD/2014

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 4037 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 18 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 01-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 30-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 13-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AP ARNA AGRAWAL
• Keywords: Business income; Earning of tax free income; Source of fund; Commercial expediency; Revised return
• Section: 143(3); 244A; 14A; 115JB; 37; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER GUJARAT STATE FERTILIZER & CHEMICALS LTD., P.O. FERTILIZER NAGAR, VADODARA - 391750 PAN: AAACG7996C (APPELLANT) VS THE DCIT, CIRCLE - 1(1), BARODA (RESPONDENT) THE ACIT, CIRCLE - 1(1), BARODA (APPELLANT/RESPONDENT) VS GUJARAT STATE FERTILIZER & CHEMICALS LTD., P.O. FERTILIZER NAGAR, VADODARA - 391750 PAN: AAACG7996C (RESPONDENT/CROSS OBJECTOR) REVENUE BY : S MT. APARNA AGRA WAL , CIT - D . R. ASSESSEE BY: S H RI SANJAY R. SHAH , A.R. DATE OF HEARING : 06 - 06 - 2 018 DATE OF PRONOUNCEMENT : 01 - 08 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THE ASSESSEE HAS FILED APPEAL VIDE ITA NO. 1403/AHD/2014 AND REVENUE HAS FILED APPEAL VIDE ITA NO. 1413/AHD/2014 AND CROSS OBJECTION IS FILED BY THE I T A NO . 1403 / A HD/20 14 A SSESSMENT YEAR 2010 - 11 ITA NO. 1413 & CO NO. 243/AHD/2014 ASSESSMENT YEAR 2010 - 11 I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 2 ASSESSEE FOR A.Y. 2010 - 11 , AR ISE FROM ORDER OF THE CIT(A) - I, BARODA DATED 28 - 02 - 2014 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - THE APPELLANT BEING DISSATISFIED WITH THE ORDER DATED 28/02/2014 PASSED BY THE COMMISSIONER OF INCOME TAX - I, BARODA (LEARNED CIT(A)), PREFERS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GROUNDS, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: 1.0 THE ORDER PASSED BY THE LEARNED CIT (A) IS CONTRARY TO THE PROVISIO NS OF LAW AND FACTS AND THEREFORE REQUIRES TO BE SUITABLY MODIFIED. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.0 THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN UPHOLDING DISALLOWANCE OF RS.2,57,76,000/ - U/S 14A TOWARDS ADMINISTRATIVE AND OTHER EXPENDI TURE IGNORING THE FACT THAT THE LEARNED A.O. HAD NOT RECORDED ANY SATISFACTION HAVING REGARD TO THE BOOK OF ACCOUNTS OF THE APPELLANT AS REQUIRED UNDER THE LAW AND ALSO IGNORING THE FACT THAT THE APPELLANT ITSELF HAD MADE SUO MOTO DISALLOWANCE TOWARDS SUCH EXPENSES AND ALSO IGNORING THE BINDING DECISIONS OF HON'BLE ITAT FOR THE EARLIER ASSESSMENT YEARS. IT IS SUBMITTED THAT IT BE SO HELD NOW. 3.0 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN NOT ALLOWING DEDUCTION OF RS.37,36,68,000/ - BEING LIABILITY INCURRED BY THE APPELLANT IN TERMS OF MEMORANDUM OF UNDERSTANDING DATED 22/2/2010 WITH THE WORKMAN IN RESPECT OF 'EQUAL PAY FOR EQUAL WORK' IN SPITE OF THE SAME HAVING CRYSTALIZED DURING THE YEAR AND BEING ALLOWABLE U/S 37 (1) R.W.S. 28 (I) OF THE ACT AND INSTEAD RELYING ON FINDINGS OF HON'BLE ITAT FOR A.Y. 2000 - 01, WHICH WAS IN DIFFERENT CONTEXT AND DIFFERENT FACTS AND IGNORING THE BINDING DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTHMOVERS V/S CIT 245 ITR 428. 4.0 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.67,63,10,469/ - BEING LOSS ON SALE OF FERTILIZER BONDS TREATING TO THE SAME TO BE CAPITAL LOSS AS AGAINST THE BUSINESS LOSS AS CLAIMED BY THE APPELLANT COMPLETELY IGNORING THE SUBSTANCE OF THE TRANSA CTIONS. IT IS SUBMITTED THAT IN SUBSTANCE THE FERTILIZER BONDS WERE IN THE NATURE OF BUSINESS ASSET AND WERE NEITHER VOLUNTARILY SUBSCRIBED TO NOR HELD BY THE APPELLANT VOLUNTARILY AND SINCE SAID TRANSACTIONS WAS DRIVEN BY COMMERCIAL EXPEDIENCY AND COMPULS ION ARISING OUT OF APPELLANT'S BUSINESS, THE LOSS ARISING FROM THE SALE OF SUCH BONDS BE ALLOWED AS BUSINESS LOSS. 4.1 WITHOUT PREJUDICE TO THE SAME, IF IT IS HELD THAT LOSS ON SALE OF FERTILIZER BOND IS A LOSS OF UNDER THE HEAD CAPITAL GAIN IT BE A LLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME CONSIDERING THE FACT THAT THE SAME IS INEXTRICABLY RELATED TO THE BUSINESS OF THE APPELLANT AND ALSO ALTERNATIVELY BE ALLOWED AS BAD DEBT U/S 36 (1 )(VII) OF THE ACT AS TO THAT EXTENT THE SUBSIDY AMOUNT WHICH IS ON REVENUE ACCOUNT IS REALISED LESS FROM THE GOVERNMENT. 5.0 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF PRIOR PERIOD EXPENSE OF RS.3,11,66,000/ - HOLDING THAT THE SAME IS NOT CRYSTALIZED DURING THE YEAR. IT IS SUBMI TTED THAT THE EXPENSES HAVING CRYSTALIZED DURING THE YEAR BE ALLOWED TO BE DEDUCTED. 5.1 WITHOUT PREJUDICE TO THE ABOVE, IF IT IS HELD THAT THE EXPENSES ARE OF THE YEAR OTHER THAN THE YEAR UNDER CONSIDERATION, DIRECTION BE GRANTED TO ALLOW DEDUCTIO N OF THE SAID EXPENSES FROM THE INCOME OF THE YEAR TO WHICH THEY PERTAIN. 6.0 THE LEARNED CIT (A) ERRED IN LAW AND ON FACTS IN UPHOLDING ADDITION OF INTEREST OF RS. 1, 11,81,827/ - IN RESPECT OF INCOME TAX REFUND GRANTED IN FAVOUR OF THE APPELLANT DISRE GARDING THE ACCOUNTING POLICY FOLLOWED BY THE APPELLANT RECOGNISING SUCH INTEREST AS INCOME ONLY WHEN THE MATTERS HAVE ATTAINED FINALITY AT TRIBUNAL LEVEL AND THEREFORE THEE IS REASONABLE CERTAINTY IN RESPECT OF SUCH INCOME. I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 3 6.1 THE LEARNED CIT (A) OUGHT TO HAVE GRANTED DIRECTION TO PROVIDE DEDUCTION OF SUCH INTEREST ON SUCH REFUND IN THE YEAR IN WHICH THE SAME IS WITHDRAWN. 7.0 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIR MING ADDITION OF RS.2,57,76,000/ - TO THE BOOK PROFIT COMPUTED U/S 115JB OF THE ACT IN RESPECT OF PROPORTIONATE EXPENDITURE OUT OF ADMINISTRATIVE AND OTHER EXPENSE RELATED TO EXEMPT INCOME COMPUTED BY THE LEARNED A.O. AND UPHELD BY HIM AS PER THE FORMULA PRESCRIBED UNDER RULE 8D R.W.S. 14A OF THE ACT. IT IS SUBMITTED THAT PROVISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D OF THE RULES IS APPLICABLE ONLY TO COMPUTATION OF TOTAL INCOME UNDER CHAPTER - IV AND NOT TO BOOK PROFIT WHICH IS CALCULATED UNDER CHAPTER - XII - B OF THE ACT AND HENCE NO SUCH ADDITION OUGHT TO HAVE BEEN MADE U/S 115JB OF THE ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW. 3. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.583. 1 5 LACS U/S 14A TOWARDS INTEREST AND OTHER EXPENSES INCURRED IN RELATION TO EXEMPTED INCOME OF DIVIDEND, WITHOUT TAKING NOTE THAT IT WAS UP TO ASSESSEE TO ADDUCE EVIDENCE THAT ALL THE BORROWINGS WERE USED FOR THE PURPOSES OF THE BUSINESS AND IT IS THE ASSE SSEE'S OWN SURPLUS FUNDS THAT WERE INVESTED IN THE SHARES EARNING EXEMPTED INCOME. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (APPEALS) ERRED IN STRAIGHT AWAY DELETED THE MEMBERSHIPS FEES DISALLOWANCE, WITHOUT APPREC IATING THAT OFFICER'S CLUB TO WHICH ASSESSEE HAD PAID MEMBERSHIP FEES IS NOT FOR GENERAL PUBLIC AND ONLY FOR THE GOVERNMENT OFFICIAL AND FEES WAS PAID FOR THE PERSONAL FACILITIES OF THE OFFICERS OF THE ASSESSEE COMPANY AND THE ASSESSEE HAD ALSO FAILED TO S UBSTANTIATE THAT MEMBERSHIP OF THE CLUB IS EXPEDIENT FOR ITS BUSINESS. 4. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THE CROSS OBJECTION: - 1 WITHOUT PREJUDICE TO THE CLAIM THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT IS JUSTIFIED IN THE FACTS OF THE CASE, IT IS SUBMITTED THAT TO ARRIVE AT AVERAGE TOTAL ASSETS FOR COMPUTING DISALLOWANCE AS PER FORMULA PRESCRIBED BY RULE 8D, THE OPENING AND CLOSING GROSS BLOCK OF FIXED ASSETS SHOULD BE CONSIDERED INSTEAD OF OPENING AND CLOSING NET BLOCK OF FIXED ASSETS AS HELD BY THE ASSESSING OFFICER WHICH DID NOT CAME TO BE ADJUDICATED BY THE LEARNED C1T(A). IT IS SUBMITTED THAT IT BE SO HELD NOW. 2 WITHOUT PREJUDICE TO THE CLAIM THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT IS JUSTIFIED IN THE FACTS OF THE CASE, IT IS SUBMITTED THAT CURRENT LIABILITIES & PROVISIONS SHOULD NOT BE REDUCED FROM THE OPENING AND CLOSING BALANCE OF CURRENT ASSETS AS DONE BY THE ASSESSING OFFICER FOR ARRIVING AT AVERAGE TOTAL ASSETS OF THE ASSESSEE FOR COMPUTING DISALLOWANCE AS PER FORMULA PRESCRIBED BY RULE 8D WHICH WAS NOT ADJUDICATED BY THE LEARNED CIT(A). IT IS SUBMITTED THAT IT BE SO HELD NOW. 5 . THE BRIEF FACT OF THE CASE IS THAT ASSESSEE HAS FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 421 , 35 , 80 , 373/ - . S UBSEQU ENTLY, THE CASE WAS SELECTED UNDER S C RUTINY BY ISSUING OF NOTICE U/S.143(2) ON 24 TH AUGUST, 2011. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 4 FERTILIZERS AND CHEMICALS. FURTHER FACT S OF THE CASE ARE DISCUSSED UNDER DIFFERENT GROUNDS OF APPEAL AS FOLLOWS: - GROUND NO. 2 OF ASSESSEE S APPEAL AND GROUND NO. 1 OF REVENUE S APPEAL AND GROUND NO. 1 OF ASSESSEE S CROSS OBJECTION 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER NOTICED THAT ASSESSEE H AS RECEIVED EXEMPT INCOME OF RS. 19,75 , 14 , 447/ - IN THE FORM OF DIVIDEND AND TAX FREE INTEREST INCOME AND ASSESSEE HAS NOT SHOWN ANY EXPENSES INCURRED AGAINST THE EXEMPT INCOME. ON QUARRY T HE ASSESSEE RESPONDED THAT THE ENTIRE INVESTMENT IN TAX FREE INCOM E YIELDING SECURITIES HAS BEEN MADE FROM OWN INTEREST FREE FUNDS, THEREFORE, NO FURTHER DISALLOWANCE U/S. 14A R.W. RULE 8D SHOULD BE MADE. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE STAT ING THAT ASSESSEE HAS NOT MAINTAINED SE PARATE ACCOUNTS FOR SOURCE OF FUNDS UTILIZED FOR THE INVESTMENT ACTIVITIES. THEREAFTER, THE ASSESSING OFFICER HAS DETERMINED THE DISALLOWANCE A CCORDI NG TO PROVISION OF SECTION 14A R.W. RULE 8D OF IT RULE AND MADE AN ADDITION OF R S. 8 , 40 , 91 , 000/ - TO T HE TOTAL INCOME OF THE ASSESSEE. 7. AGGRIEVED ASSESSEE HAS FILED APPEAL ON THIS ISSUE BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY STATING AS UNDER: - 2.5 IN VIEW OF DECISIONS OF HON'BLE ITAT AHMEDABAD AND HON'B LE HIGH COURT OF GUJARAT AS REPRODUCED ABOVE IT IS HELD THAT THE AO IS NOT JUSTIFIED IN HOLDING THAT THE APPELLANT DIVERTED BORROWED FUNDS IN INVESTMENT ACTIVITIES AND THEREFORE THE INTEREST OF RS. 5,83,15,000/ - ON PORTION OF FUNDS DIVERTED FROM THE BUSINE SS TO INVESTMENT ACTIVITIES IS NOT ALLOWABLE. IN VIEW OF THE FACTS AS DISCUSSED IN PRECEDING PARAGRAPHS AND ALSO IN VIEW OF DECISION OF HON'BLE ITAT AHMEDABAD AND HON'BLE HIGH COURT OF GUJARAT, IT IS HELD THAT THE AO IS NOT CORRECT IN MAKING DISALLOWANCE O F INTEREST EXPENDITURE OF RS. 5,83,15,000/ - U/S 14A READ WITH RULE 8D AND THEREFORE THE SAME IS DELETED. AS REGARDS THE EXPENDITURE OF ADMINISTRATIVE OR MANAGERIAL NATURE, THE EXPENSES TO THE EXTENT OF RS. 2,57,76,000/ - AS WORKED BY THE AO U/S 14A READ WIT H RULE 8D IS CORRECT. IN MY OPINION FOR WORKING OUT DISALLOWANCE OUT OF ADMINISTRATIVE AND MANAGERIAL EXPENSES ETC. RULE 8D CAN BE APPLIED FOR AY 2010 - 11 WHICH IS THE YEAR UNDER CONSIDERATION IN THE CASE OF APPELLANT. RULE 8D CAN BE APPLIED IN THE CASE OF ASSESSEE FROM AY 2008 - 09 ONWARDS. IT MAY BE MENTIONED THAT THE DECISION OF HON'BLE ITAT AND DECISION OF HON'BL E GUJARAT HIGH COURT IN THE CASE OF APPELLANT ON THE ISSUE REGARDING DISALLOWANCE U/S 14A AS REPRODUCED IN EARLIER PARAGRAPHS ARE FOR AY 2007 - 08 AND FOR AY 200.4 - 05 I.E. PRIOR TO AY 2008 - 09 FOR WHICH I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 5 RULE 8D WAS NOT APPLICABLE. HOWEVER, THE WORKING AS PER RULE 8D FOR THE PURPOSE OF MAKING DISALLOWANCE U/S 14A CAN BE DONE FROM AY .2008 - 09 AND ONWARDS AND ACCORDIN GLY THE AO HAS CORRECTLY MADE DISALLO WANCE OF EXPENDITURE OF RS. 2,57,76,000/ - U/S 14A BY APPLYING RULE 8D AND THEREFORE SUCH DISALLOWANCE OF RS. 2,57,76,000/ - IS HEREBY CONFIRMED. THUS, OUT OF TOTAL DISALLOWANCE OF RS. 8,40,91 , 000/ - , DISALLOWANCE TO THE EXTENT OF RS. 2,57 ,76,000/ - IS CONFIRM ED AND THE BALANCE DISALLOWANCE IS DELETED. THUS, THE GROUNDS OF APPEAL NO. 2 AND 2.1 ARE PARTLY ALLOWED AND GROUND OF APPEAL NO. 2.2 IS AL LOWED. THE GROUND OF APPEAL NO. 2.4 OF THE APPELLANT IS DISMISSED. 8. DURING THE COURSE OF APPELLATE PROCEEDINGS BE FORE US, THE LD. COUNSEL HAS FURNISHED PAPER BOOK CONTAINING DE TAILS OF SUBMISSION MADE BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) ALONG WITH JUDICIAL PRONOUNCEMENTS RELIED UPON BY HIM. HE HAS ALSO CONTENDED THAT H ON BLE ITAT IN ASSESSEE S OWN CASE F OR ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 HAS DELETED THE ENTIRE INTEREST EXPENDITURE AND CONFIRMED TH E ADMINISTRATIVE EXPENDITURE TO THE TUNE OF RS. 10 LACS AND 15 LACS RESPECTIVELY . ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER. 9. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD BEFORE ADJUDICATING THE APPEAL OF T HE ASSESSEE, APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ON THE IDENTICAL ISSUES INVOLVED THEREIN . DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT ASSESSE E HAS RECEIVED EXEMPT INCOME OF RS. 19,75,14,447/ - DURING THE YE A R UN D ER CONSIDERATION . THE ASSESSING OFFICER HAS DISALLOWED ON AMOUNT OF RS. 8,40,91,000/ - AS PER PROVISION OF SE CTION 14A R.W. RULE 8D OF THE I.T. RULE. THE LD. CIT(A) HAS DELETED THE ADDITION OF INTEREST EXPENDITURE OF RS. 5,83,15000 U/S. 14A ON T H E GROUND THAT T H E ASSESSING OFFICER COULD NOT PROVE ANY NEXUS BETWEEN INTEREST BEARING BORROWED FUNDS AND THE INVESTME NT MADE IN THE TAX FEE SECURITIES .THE LD.CIT(A) HAS ALSO PLACED RELIANCE ON T H E DECISION OF THE IT AT AND HON BLE GUJARAT HIGH COURT IN T H E CASE OF T HE ASSESSEE ITSELF. HOWEVER, T HE LD. CIT(A) H AS SUSTAINED THE ADDITION TO THE EXTENT OF R S. 2,57,76,000/ - IN RESPECT OF ADMINISTRATIVE EXPENSE S . THE LD. COUNSEL HAS B ROUGHT TO OUR NOTICE T H E DECISION OF CO - ORDINATE BENCHES OF THE ITAT ON THE I SSU E OF DISALLOWANCE OF INTEREST AND ADMINISTRATIVE EXPENSE ON SIMILAR FACTS IN THE CASE OF THE ASSESSE E I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 6 FOR ASSESSMENT YEAR 2004 - 05 TO 2009 - 10. T HE HON BLE JURISDICTIONAL HIGH COURT HAS CONFIRMED THE TRIBUNAL S ORDER FOR ASSESSMENT YEAR 2004 - 05. THE RELEVANT PART OF THE FINDINGS OF THE DE CI SION OF THE CO - ORDINATE BENCH OF THE ITAT VIDE ITA NO. 319 & 339/AHD/2012 IS REPR ODUCED AS UNDER: - 9. WE FURTHER OBSERVE THAT THE VERY SAME SET OFF FACTS INCLUDING DIVIDEND INCOME,INTEREST EXPENDITURE, TAX FREE INVESTMENT AND SURPLUS INTEREST FREE FUNDS IN THE FORM SHARE CAPITAL AND RESERVE &SURPLUS WERE THERE BEFORE THE TRIBUNAL IN A SSESSEE S OWN CASE FOR A.Y. 2004 - 05, 2005 - 06, 2006 - 07 & 2007 - 08 AND IT HAS BEEN CONSISTENTLY HELD THAT NO INTEREST DISALLOWANCE IS CALLED FOR U/S.14A OF THE ACT. IN HOLDING SO CO - ORDINATE BENCH HELD AS FOLLOWS: - FOR A.Y. 2004 - 05 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT DISALLOWANCE WAS MADE BY ASSESSING OFFICER MAINLY ON THIS BASIS THAT ASSESSEE COULD NOT ESTABLISH THAT THE INVESTMENT WAS MADE OUT OF OWN FUND AND NO BORROWED FUNDS HAVE BEEN UTILIZED FOR MAKING SUCH INVESTMENTS. THE ASSESSING OFFICER HAS CATEGORICALLY STATED IN PARA - 7 OT HIS ASSESSMENT ORDER THAT IT IS HELD THAT ASSESSEE HAS UTILIZED INTEREST BEARING BORROWED FUNDS TONON - BUSINESS PURPOSE I.E. F OR MAKING THE INVESTMENTS. HE ALSO OBSERVED THAT DISALLOWANCE IS TO BE MADE FOR ADMINISTRATIVE EXPENSES ALSO. HE MADE DISALLOWANCE TO THE EXTENT 10% OF DIVIDEND INCOME. SO FAR INTEREST EXPENDITURE IS CONCERNED FOR EARNING DIVIDEND INCOME, WE ARE OF THE CON SIDERED OPINION THAT THE OWN FUND IS MUCH HIGHER THAN INVESTMENT AND THEREFORE, IT CANNOT BE SAID THAT INTEREST BEARING BORROWED FUNDS WERE USED FOR MAKING INVESTMENTS IN SHARES AND THEREFORE, NO DISALLOWANCE U/S. 14A IS REQUIRED IN RESPECT OF INTEREST EXP ENDITURE. FOR OTHER EXPENSES, LD. DR OF THE REVENUE HAS REQUESTED TO RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WHEREAS IT WAS SUBMITTED BY LD. AR OF THE ASSESSEE THAT DISALLOWANCE OF RS.5 LAKH MAY BE MADE HERE ITSELF. CONSIDERING THE FACTS O F PRESENT CASE AND VOLUME AND QUANTUM OF INVESTMENT, WE FEEL THAT IF DISALLOWANCE OF RS.5 LAKH IS MADE, IT WILL MEET BOTH ENDS OF JUSTICE. WE CONFIRM THE DISALLOWANCE OF RS.5 LAKH IN RESPECT OF ADMINISTRATIVE EXPENSES. THIS GROUND OF REVENUE'S APPEAL IS PA RTLY ALLOWED. FOR A.Y. 2005 - 06 79. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN A.Y. 2004 - 05, WE HAVE HELD THAT NO DISALLOWANCE U/S. 14A OF THE ACT IS CALLED FOR IN RESPECT OF INTEREST EXPENDITURE BECAUSE THE OWN FUNDS OF THE ASSESSEE IS MUCH HIGHER THAN THE INVESTMENT IN SHARE ETC., REGARDING OTHER ADMINISTRATIVE EXPENSES, WE HAVE CONFIRMED A DISALLOWANCE OF RS. 5 LAKH IN A.Y. 2004 - 05 AND HENCE, IN THE PRESENT YEAR ALSO, WE CONFIRM THE DISALLOWANCE OF RS. 5 LAKH REGARDING OTHER ADMINISTRATIVE EXPENSES AND DELETE THE BALANCE DISALLOWANCE. THIS GROUND OF REVENUE'S APPEAL IS PARTLY ALLOWED. FOR A.Y. 2007 - 08 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH T HE ORDER OF AUTHORITIES BELOW AND THE TRIBUNAL DECISION CITED BY LD. A.R. OF THE ASSESSEE. REGARDING DISALLOWANCE OUT OF INTEREST EXPENDITURE, WE ARE OF CONSIDERED OPINION THAT NO SUCH DISALLOWANCE IS CALLED FOR WHEN THE OWN INTEREST FREE FUNDS IS FAR IN I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 7 E XCESS OF INVESTMENT IN TAX FREE SECURITIES AND THE A.O. COULD NOT PROVE ANY NEXUS BETWEEN INTEREST BEARING BORROWED FUNDS AND SUCH INVESTMENT IN TAX FREE SECURITIES AND THEREFORE, THE SAME IS DELETED. IN RESPECT OF DISALLOWANCE U/S 14 (A) OUT OF OTHER EXP ENSES, A DISALLOWANCE OF RS. 5 LACS WAS CONFIRMED BY THE TRIBUNAL IN ASSESSEE'S OWN CASE IN A.Y. 2004 - 05 AND ALSO IN A.Y. 2005 - 06 AND ACCORDINGLY, IN THE PRESENT YEAR ALSO, WE CONFIRM DISALLOWANCE OF RS, 5LACS U/S 14(A) IN RESPECT OF OTHER EXPENSES AND DEL ETE THE BALANCE DISALLOWANCE MADE BY THE A.O. IN RESPECT OF INTEREST EXPENDITURE AND OTHER EXPENSES. THIS GROUND IS PARTLY ALLOWED. 10. HON BLE JURISDICTIONAL HIGH COURT VIDE TAX APPEAL NO. 126 OF 2013 DATED 25.06.2013IN ASSESSEE OWN CASE FOR A.Y. 2004 - 05 HAS UPHELD THE FINDING OF THE TRIBUNAL BY HOLDING THAT WHERE IT TRANSPIRES FROM THE RECORD THAT THE ASSESSEE S OWN FUNDS ARE HIGHER THAN THE INVESTMENT MADE BY IT AND WITH NOTHING TO INDICATE THAT BORROWED FUNDS UTILIZED FOR MAKING INVESTMENTS AND EARNI NG DIVIDEND INCOME, INTEREST DISALLOWANCE U/S. 14A IS NOT JUSTIFIED . 11. WE THEREFORE RESPECTFULLY FOLLOWING THE JUDGMENT OF JURISDICTIONAL HIGH COURT AND DECISION OF CO - ORDINATE BENCH IN ASSESSEE S OWN CASE FOR PRECEDING YEARS AND IN VIEW OF AND SIMILAR ITY OF FACTS, CLEARLY SHOWING THAT ASSESSEE S OWN INTEREST FREE FUND IN THE SHAPE OF SHARE CAPITAL AND RESERVE AND SSURPLUS BEING MUCH MORE THAN THE INVESTMENTS MADE FOR EARNING TAX FREE AND THE REVENUE BEING UNABLE TO INDICATE THAT THE BORROWED FUNDS WE RE UTILIZED FOR MAKING INVESTMENT TO EARN DIVIDEND/EXEMPT INCOME, WE FIND NO JUSTIFICATION IN THE ORDER OF BOTH THE LOWER AUTHORITIES CONFIRMING INTEREST DISALLOWANCE U/S. 14A OF THE ACT. WE DELETE THE SAME FOR BOTH THE A.YRS. I.E. A.Y. 2008 - 09 & 2009 - 10. 12. AS REGARDS THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES U/S.14A OF THE ACTAT RS. 0.66 CRORES& 2.07 CRORES FOR BOTH THE ASSESSMENT YEARS CALCULATED BY THE A.O. @ 0.5% OF THE AVERAGE INVESTMENTS AFTER GIVING BENEFIT OF SUOMOTODISALLOWANCE OF RS. 40,281/ - &RS. 50,281/ - FOR A.Y. 2008 - 09 & 2009 - 10 RESPECTIVELYWEE FIND THAT CO - ORDINATE BENCH AHMEDABAD AS WELL AS HON BLE JURISDICTIONAL HIGH COURT HAS DEALT WITH THIS ISSUE ALSO. 13. CO - ORDINATE BENCH IN ITA NO. 729/AHD/2010 IN THE CASE OF ASSESSEE FOR A.Y. 2 007 - 08 WHILE DEALING WITH THIS ISSUE OF ADMINISTRATIVE DISALLOWANCE SUSTAINED THE ADDITION TO LUMPSUM AMOUNT OF RS. 5 LAKH WHICH WAS PREVIOUSLY SUSTAINED BY THE TRIBUNAL IN A.Y. 2004 - 05 & A.Y. 2005 - 06. DISALLOWANCE OF ADMINISTRATIVE EXPENSES SUSTAINED BY TRIBUNAL AT RS. 5 LAKH FOR A.Y. 2004 - 05 STANDS CONFIRMED BYHON BLE HIGH COURT OF GUJARAT IN TAX APPEAL NO. 126/2013 DATED 25.06.2013. THE ABOVE JUDGMENT AND DECISION WERE FOR THE ASSESSMENT YEAR PRECEDING ASSESSMENT YEAR 2008 - 09. FROM A.Y. 2008 - 09 O NWARDS AMENDMENT WAS BROUGHT IN RULE 8D THEREBY PRESCRIBING A METHOD FOR CALCULATION OF DISALLOWANCE U/S. 14A OF THE ACT. HOWEVER THE CONDITION PRECEDENT TO APPLYING RULE 8D OF INCOME TAX RULE IS THAT THE A.O. HAS TO MAKE A PROPER SATISFACTION FROM THE RE CORDS OF THE ASSESSEE THAT SUCH EXPENSES HAVE BEEN INCURRED TOWARDS MAKING THE INVESTMENT AND EARNING THE EXEMPT INCOME.IN THE INSTANT APPEAL NO SUCH SATISFACTION HAS BEEN RECORDED BY THE LEARNED ASSESSING OFFICER POINTING OUT ANY ERROR IN THE CALCULATION OF THE ADMINISTRATIVE EXPENSES RATHER HE HASMECHANICALLY APPLIED THE METHOD PROVIDED UNDER RULE 8D OF INCOME TAX RULE. 14. WE ALSO OBSERVE THAT HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR. CIT VS. INDIA GELATIN AND CHEMICAL LIMITED (2015) 376 ITR 553 (GUJARAT) ADJUDICATING SIMILAR ISSUE OF ADMINISTRATIVE DISALLOWANCE U/S. 14A OF THE ACT FOR A.Y. 2009 - 10 THEREBY CONFIRMING THE ORDER OF THE TRIBUNAL LIMITING THE DISALLOWANCE SUOMOTO MADE BY THE I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 8 ASSESSEE THEREBY DISREGARDING THE ADMINISTRATIVE DISALL OWANCE COMPUTED BY THE A.O. APPLYING METHOD PROVIDED UNDER RULE 8D OF THE INCOME TAX RULES. 15. SIMILAR VIEW WAS ALSO TAKEN BY CO - ORDINATE BENCH AHMEDABAD IN ITA NO. 2398/AHD/2012 DATED 19.11.2015 IN THE GUJARAT &ALKALIES& CHEMICALS LTD. WHEREIN THE TRIBU NAL SUSTAINED A LUMPSUM DISALLOWANCE AS AGAINST THE DISALLOWANCE MADE BY THE A.O. APPLYING RULE 8D OF INCOME TAX RULE R.W.S. 14A OF THE ACT AS THE ASSESSEE PROVIDED AUDITED FINANCIAL STATEMENT AND NO SPECIFIC DISALLOWANCE U/S. 14A OF THE ACT WAS APPEARING IN THE AUDITORS REPORT AND NOTHING ERRONEOUS WAS BROUGHT ON RECORD BY THE A.O.. 16. WE THEREFORE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LIGHT OF THE JUDGMENT AND DECISIONS REFERRED ABOVE, FIND THAT IN THE INSTANT APPEALS LD. A.O. H AS MECHANICALLY APPLIED 0.5% OF THE AVERAGE INVESTMENTS TO COMPUTE ADMINISTRATIVE EXPENSES DISALLOWANCE AS PER THE RULE 8D OF INCOME TAX RULES WITHOUT RECORDING ANY SATISFACTION ON HIS PART WHICH AS PER THE PROVISIONS OF SECTION 14A OF THE ACT ISPRECEDENT BEFORE APPLYING RULE 8D OF IT RULES. HOWEVER WE FIND THAT ASSESSEE HAS MADE A MINOR DISALLOWANCE SUOMOTO AT RS. 40,281/ - &RS. 50,281/ - FOR A.Y. 2008 - 09 & 2009 - 10 EVEN THOUGH THE EXEMPTED INCOME IS AT RS. 14.77 CRORES& 19.70 CRORES WHICH BY NO CANON CAN BE A REASONABLE DISALLOWANCE. EVEN IN THE PRECEDING YEARSLUMPSUM DISALLOWANCE OF RS. 5 LAKH HAS BEEN SUSTAINED. WE THEREFORE LOOKING TO THE MAGNITUDE OF AVERAGE INVESTMENTS AND HUGE DIVIDEND INCOME OF RS. 14.77 CRORES AND 19.70 CRORES AND THE FACT THAT THERE HAS BEEN REGULAR MOVEMENT OF FUNDS UNDER THE HEAD INVESTMENT, AN AD - HOC DISALLOWANCE OF RS. 10LACS&15LACS FOR A.Y. 2008 - 09 & FOR 2009 - 10 RESPECTIVELY WOULD MEET THE END OF JUSTICE. WE ACCORDINGLY DO SO, GIVING PARTIAL RELIEF TO THE ASSESSEE. D URING TH E YEAR UNDER CONSIDERATION THE RESERVES AND SURPLUS OF THE ASSESSEE W AS TO BE AMOUNT OF RS. 21,44,12.17 LAKHS A S AGAINST THE UNSECURED LOAN AMOUNT OF RS. 51.283.15 LACS ONLY . IN THE LIGHT OF THE ABOVE DECISION , RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT AND THE DECISION OF THE CO - ORDINATE BENCHES IN ASSESSEE OWN CASE FOR PRECEDING YEARS ON IDENTICAL FACTS WE CONSIDER THAT THE ASSESSEE S OWN INTEREST FREE FUNDS IN THE FORMS OF SHARE CAPITAL AND RESERVE AND SURPLUS WERE MUCH MO RE THAN THE INVESTMENT MADE FOR EARNING TAX FEE INCOME. T HE ASSESSING OFFICER HAS FAILED TO DISPROVE THAT BORROWED FUNDS WERE UTILIZED FOR MAKING INVESTMENT TO EARN EXEMPT INCOME. IN VIEW OF THE ABOVE FACTS AND FINDING, WE DO NOT FIND ANY INFIRMIT Y IN THE DECISION OF LD. CIT(A) IN RESPECT OF DELETING ADDITION OF INTEREST PART U/S. 14A OF T HE ACT. IN RESPECT OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES U/S. 14A OF THE ACT TO THE AMOUNT OF RS. 2,57,76,000/ - THE CO - ORDINATE BENCHES OF THE ITAT IN THE CASE OF ASSESSEE FOR THE PRECEDING YEARS HAS DECIDED THE IDENTICAL ISSUE ON IDENTICAL FACTS AND RESTRICTED THE ADHOC DISALLOWANCE TO THE AMOUNT OF RS. 10 LACS AND RS. 15 LACS FOR ASSESSMENT YEAR 2008 - 09 AND I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 9 ASSESSMENT YEAR 2009 - 10 RESPECTIVELY. THE RELE VANT PART OF THE DECISION OF THE ITAT VIDE ITA NO. 319 & 339/AHD/2012 IS REPRODUCED AS UNDER: - 12. AS REGARDS THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES U/S.14A OF THE ACTAT RS. 0.66 CRORES& 2.07 CRORES FOR BOTH THE ASSESSMENT YEARS CALCULATED BY THE A.O . @ 0.5% OF THE AVERAGE INVESTMENTS AFTER GIVING BENEFIT OF SUOMOTODISALLOWANCE OF RS. 40,281/ - &RS. 50,281/ - FOR A.Y. 2008 - 09 & 2009 - 10 RESPECTIVELYWEE FIND THAT CO - ORDINATE BENCH AHMEDABAD AS WELL AS HON BLE JURISDICTIONAL HIGH COURT HAS DEALT WITH THIS ISSUE ALSO. 13. CO - ORDINATE BENCH IN ITA NO. 729/AHD/2010 IN THE CASE OF ASSESSEE FOR A.Y. 2007 - 08 WHILE DEALING WITH THIS ISSUE OF ADMINISTRATIVE DISALLOWANCE SUSTAINED THE ADDITION TO LUMPSUM AMOUNT OF RS. 5 LAKH WHICH WAS PREVIOUSLY SUSTAINED BY THE T RIBUNAL IN A.Y. 2004 - 05 & A.Y. 2005 - 06. DISALLOWANCE OF ADMINISTRATIVE EXPENSES SUSTAINED BY TRIBUNAL AT RS. 5 LAKH FOR A.Y. 2004 - 05 STANDS CONFIRMED BYHON BLE HIGH COURT OF GUJARAT IN TAX APPEAL NO. 126/2013 DATED 25.06.2013. THE ABOVE JUDGMENT AN D DECISION WERE FOR THE ASSESSMENT YEAR PRECEDING ASSESSMENT YEAR 2008 - 09. FROM A.Y. 2008 - 09 ONWARDS AMENDMENT WAS BROUGHT IN RULE 8D THEREBY PRESCRIBING A METHOD FOR CALCULATION OF DISALLOWANCE U/S. 14A OF THE ACT. HOWEVER THE CONDITION PRECEDENT TO APPLY ING RULE 8D OF INCOME TAX RULE IS THAT THE A.O. HAS TO MAKE A PROPER SATISFACTION FROM THE RECORDS OF THE ASSESSEE THAT SUCH EXPENSES HAVE BEEN INCURRED TOWARDS MAKING THE INVESTMENT AND EARNING THE EXEMPT INCOME.IN THE INSTANT APPEAL NO SUCH SATISFACTION HAS BEEN RECORDED BY THE LEARNED ASSESSING OFFICER POINTING OUT ANY ERROR IN THE CALCULATION OF THE ADMINISTRATIVE EXPENSES RATHER HE HASMECHANICALLY APPLIED THE METHOD PROVIDED UNDER RULE 8D OF INCOME TAX RULE. 14. WE ALSO OBSERVE THAT HON BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF PR. CIT VS. INDIA GELATIN AND CHEMICAL LIMITED (2015) 376 ITR 553 (GUJARAT) ADJUDICATING SIMILAR ISSUE OF ADMINISTRATIVE DISALLOWANCE U/S. 14A OF THE ACT FOR A.Y. 2009 - 10 THEREBY CONFIRMING THE ORDER OF THE TRIBUNAL LIMITIN G THE DISALLOWANCE SUOMOTO MADE BY THE ASSESSEE THEREBY DISREGARDING THE ADMINISTRATIVE DISALLOWANCE COMPUTED BY THE A.O. APPLYING METHOD PROVIDED UNDER RULE 8D OF THE INCOME TAX RULES. 15. SIMILAR VIEW WAS ALSO TAKEN BY CO - ORDINATE BENCH AHMEDABAD IN ITA NO. 2398/AHD/2012 DATED 19.11.2015 IN THE GUJARAT &ALKALIES& CHEMICALS LTD. WHEREIN THE TRIBUNAL SUSTAINED A LUMPSUM DISALLOWANCE AS AGAINST THE DISALLOWANCE MADE BY THE A.O. APPLYING RULE 8D OF INCOME TAX RULE R.W.S. 14A OF THE ACT AS THE ASSESSEE PROVID ED AUDITED FINANCIAL STATEMENT AND NO SPECIFIC DISALLOWANCE U/S. 14A OF THE ACT WAS APPEARING IN THE AUDITORS REPORT AND NOTHING ERRONEOUS WAS BROUGHT ON RECORD BY THE A.O.. 16. WE THEREFORE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN L IGHT OF THE JUDGMENT AND DECISIONS REFERRED ABOVE, FIND THAT IN THE INSTANT APPEALS LD. A.O. HAS MECHANICALLY APPLIED 0.5% OF THE AVERAGE INVESTMENTS TO COMPUTE ADMINISTRATIVE EXPENSES DISALLOWANCE AS PER THE RULE 8D OF INCOME TAX RULES WITHOUT RECORDING A NY SATISFACTION ON HIS PART WHICH AS PER THE PROVISIONS OF SECTION 14A OF THE ACT ISPRECEDENT BEFORE APPLYING RULE 8D OF IT RULES. HOWEVER WE FIND THAT ASSESSEE HAS MADE A MINOR DISALLOWANCE SUOMOTO AT RS. 40,281/ - &RS. 50,281/ - FOR A.Y. 2008 - 09 & 2009 - 10 EVEN THOUGH THE EXEMPTED INCOME IS AT RS. 14.77 CRORES& 19.70 CRORES WHICH BY NO CANON CAN BE A REASONABLE DISALLOWANCE. EVEN IN THE PRECEDING YEARSLUMPSUM DISALLOWANCE OF RS. 5 LAKH HAS BEEN SUSTAINED. WE THEREFORE LOOKING TO THE MAGNITUDE OF AVERAGE INVE STMENTS AND HUGE DIVIDEND INCOME OF RS. 14.77 CRORES AND 19.70 CRORES AND THE FACT THAT THERE HAS BEEN REGULAR MOVEMENT OF FUNDS UNDER THE HEAD INVESTMENT, AN AD - HOC DISALLOWANCE OF RS. 10LACS&15LACS FOR A.Y. 2008 - 09 & FOR 2009 - 10 RESPECTIVELY WOULD MEE T THE END OF JUSTICE. WE ACCORDINGLY DO SO, GIVING PARTIAL RELIEF TO THE ASSESSEE. I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 10 R ESPECTIVELY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH AS CITED ABOVE, WE RESTRICT THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES TO THE AMOUNT OF RS. 15 LAKH S FOR THE YEAR UNDER CONSIDERATION. THEREFORE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND GROUND OF APPEAL OF REVENUE IS DISMISSED. GROUND NO. 3 OF ASSESSEE S APPEAL: - 10. THE ASSESSEE HAS DEBITED RS. 37 , 36 , 68 , 000 / - AS LIABILITY TOWARDS EQUAL PAY FOR EQUAL WORK AS PER MEMORANDUM OF UNDERSTANDING MADE WITH THE WORKERS OF THE COMPANY. HOWEVER, THE ASSESSING OFFICER HAS OBSERVED THAT THE SAME WAS NOT ELIGIBLE FOR DEDUCTION AS THIS LIABILITY WAS NOT ACCRUED AND CRYSTALIZED DURING THE YEAR. THER EFORE, THE A SSESSING OFFICER HAS DISALLOWED THE S A ME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 11. AGGRIEVED ASSESSEE HAS FILED APPEAL ON THIS ISSUE BEFORE THE LD. CIT(A). A FTER FOLLOWING THE DECISION OF ITAT ON THE SIMILAR ISSUE IN THE PRECEDING YE AR IN THE CASE OF THE ASSESSEE THE LD. CIT(A) HAS SET ASIDE THE ISSUE TO T HE FILE OF ASSESSING OFFICER TO ALLOW THE CLAIM IN THE YEAR IN WHICH THE SAME WAS ACTUALLY PAID AFTER MAKING DUE VERIFICATION OF RELEVANT RECORDS. 12. DURING THE COURSE OF APPELL ATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS SUBMITTED PAPER BOOK CONTAINING INFORMATION AND SUBMISSION MADE BEFORE ASSESSING OFFICER AND CIT(A) IN ASSESSMENT AND APPELLATE PROCEEDINGS. HE HAS FURTHER CONTENDED THAT DURING T HE ASSESSMENT YEAR 2010 - 11, T HE LD. CIT(A) HAS DIRECTED THE ASSESS ING OFFICER TO ALLOW THE EXPENDITURE ON PAYMENT BASIS. H OWEVER , THE LD. CIT(A) HAS NOT ALLOW ED THE SAME FOR ASSESSMENT YEAR 2011 - 12. HOWEVER AFTER ADJUDICATING THE RECTIFICATION APPLICATION OF THE ASSESSEE THE LD. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEDUCTION ON PAYMENT BASIS. THE LD. COUNSEL HAS ALSO CONTENDED THAT DEDUCTION SHOULD BE ALLOWED ON I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 11 ACCRUAL BASIS. ON THE OTHER HAND , LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFF ICER. 13. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE CLAIM OF DEDUCTION OF RS. 37,36, 68,000/ - AS LIABILITIES AS PER M EMORANDUM OF UNDERSTANDING WITH WORKERS WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT TH E LIABILITY WAS NOT CRYSTALIZED DURING THE YEAR. THE LD. CIT(A) HAS DIRECT E D THE ASSESSING OFFICER TO ALLOW SUCH EXPENDITURE IN T HE YEAR IN WHICH THE SAME WAS ACTUALLY PAID. AFTER CONSIDERING THE MATERIAL ON RECORD AND THE FINDINGS OF THE LD. CIT(A), WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) DIRECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE ON PAYMENT BASIS . THEREFORE, THIS GROUND OF APPEAL OF THE ASSSESSEE IS DISMISSED. GROUND NO . 4 AND 4.1 OF ASSESSEE S APPEAL 14 . T HE ASSESSEE HAS CLAIMED BUSINESS LOSS ON TRADING OF FERTILIZER BONDS DURING THE YEAR UNDER CONSIDERATION. D URING THE FINANCIAL YEAR 2008 - 09, THE ASSESSEE WAS ALLOTTED FERTILIZER BONDS OF FACE VALUE OF RS. 1065 . 72 CRORES IN LIEU OF THE SUBSIDY RECEIVABLES BY THE COMPANY . O UT OF THE ALLOTTED BONDS , BONDS OF T HE FACE VALUE OF RS. 604.52 CRORES WERE SOLD DURING FINANCIAL YEAR 2008 - 09 AND THE GAIN THEREON WAS CONSIDERED AS BUSINESS PROFIT. HOWEVER , THE ASSESSEE HAS SOLD THE REMAINING BONDS OF T HE FACE VALUE OF RS. 46 1 . 01 CRORES FOR THE CONSIDERATION OF RS. 393. 48/ - WHICH RESULTED IN LOSS TO THE AMOUNT OF RS . 67.62 CRORES AND THE ASSESSEE HAS CLAIMED IT AS BUSINESS LOSS SINCE FERTILIZER BOND CONSTITUTE S BUSINESS ASSET OF THE ASSESSEE. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM ON THE GROUND T HAT THE FERTILIZER BON D CANNOT BE SAID TO BE ASSESSEE S STOCK IN TRADE. 15 . AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE FOLLOWING THE DECISION OF HIS PREDECESSOR IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2008 - 09 ON THE GROUND I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 12 THAT INVESTMENT IN THE FERTILIZER BOND IS TO BE TREATED AS CAPITAL A SSET. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS CONTENDED THAT THE COO RDINATE BENCH OF THE ITAT FOR ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE WHEREIN IT IS HELD THAT THE LOSS ON SALE OF FERTILIZER BOND IS PURELY A BUSINESS LOSS INCURRED IN THE NORMAL COURSE OF BUSINESS. O N THE OTHER HAND , THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF ASSESSING OFFICER. 16. WE HAVE NOTICED THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE CO - ORDINATE BENCH OF THE ITAT IN THE CASE OF THE ASSESSEE PERTAINING TO ASSESSMENT YEA R 2008 - 09 VIDE ITA NO. 319 & 339/AHD/2012. THE RELEVANT PART OF THE DECISION IS REPRODUCED AS UNDER: - 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD PLACED BEFORE US.ASSESSEE GRIEVANCE IS AGAINST THE ORDER OF LD. CIT(A) CONFIRMING THE DIS ALLOWANCE OF LOSS OF SALE OF FERTILIZER BONDS AT RS. 91,45,000/ - TREATING IT AS CAPITAL LOSS AS AGAINST BUSINESS LOSS CLAIMED BY ASSESSEE. WE FIND THAT THE APPELLANT COMPANY IS ENGAGED IN MANUFACTURING OF FERTILIZER. INCENTIVE IS PROVIDED BY THE GOVERNMENT OF INDIA (GOI) WHICH IS BASED ON THE QUANTUM OF DAP & UREA BASED FERTILIZER DISPATCHED. THE SALE PRICE OF FERTILIZERS ARE FIXED BY THE GOVERNMENT OF INDIA AND MANY A TIMES, SUCH PRICE IS EVEN LOWER TO THE COST OF PRODUCTION. THEREFORE TO COMPENSATE THE MA NUFACTURER FOR THE DIFFERENCE BETWEEN THE RETENTION PRICE OF INDIVIDUAL UNIT AND SALE PRICE, SUBSIDY IS GIVEN BY THE GOVERNMENT. THERE IS NO DISPUTE TO THIS FACT ON THE PART OF THE REVENUE AUTHORITY THAT THE ASSESSEE ACCOUNTS FOR SUCH SUBSIDY RECEIVABLE ON ACCRUAL BASIS WHICH IS CREDITED TO THE SALES ACCOUNT AND OFFERED AS INCOME. THIS SUBSIDY ACCOUNT IS A RUNNING ACCOUNT AND THE AMOUNT RECEIVABLE AT THE END OF THE YEAR IS SHOWN AS SUBSIDY RECEIVABLE ON THE ASSET SIDE OF THE BALANCE SHEET. IT TRANSPIRES F ROM THE RECORDS THAT DUE TO CASH CRUNCH ,GOVERNMENT OF INDIA AT A CERTAIN POINT OF TIME DISCHARGED ITS DUES OF PAYING THE SUBSIDY BY REPLACING CASH/CHEQUE WITH THE FERTILIZER BONDS. THESE BONDS ARE SALEABLE IN THE OPEN MARKET AND THE PRICES OF SUCH BONDS A RE VARYING. 32. WE FURTHER FIND THAT AGAINST THE SUBSIDY INCOME DULY CREDITED IN THE PROFIT AND LOSS ACCOUNT,ASSESSEE RECEIVED FERTILIZER BONDS. WHEN THESE BONDS WERE SOLD IN THE OPEN MARKET IT FETCHED LESS VALUE THAN THE VALUE AT WHICH THEY WERE GIVEN TO THE ASSESSEE.THIS GAVE RISE TO A LOSS WHICH HAS BEEN CLAIMED AS BUSINESS LOSS. 33. IT IS TRUE THAT THESE BONDS WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET.BEFORE MOVING FURTHER WE WOULD LIKE TO GO TO THE JUDGMENT OF HON BLE APEX COURT IN THE CASE OF PATNAIK AND CO. LTD. WHEREIN A COMPANY SUBSCRIBED FOR A GOVERNMENT LOAN ON A PROMISE BY THE GOVERNMENT THATASSESSEEWILL RECEIVE PREFERENTIAL TREATMENT IN PLACING THE ORDER FOR MOTOR VEHICLES WHICH IS TURN WOULD BE SUPPLIED TO GOVERNMENT DEPARTMENTS. ASS ESSEE CLAIMED A CERTAIN AMOUNT OF LOSS SUSTAINED BY IT ON DISPOSING OF ITS SUBSCRIPTION AND CLAIMED IT AS BUSINESS LOSS. REVENUE DISALLOWED TREATING IT AS CAPITAL LOSS. TRIBUNAL HELD IT AS BUSINESS LOSS BUT HON BLE HIGH COURT TOOK DIFFERENT VIEW CONFIRMI NG THE ACTION OF THE A.O. HOWEVER HON BLE APEX COURT HELD IT TO BE A REVENUE LOSS BY OBSERVING THAT THERE WAS NOTHING TO SHOW THAT THERE IS ANY REASON FOR THE ASSESSEE TO HOLD ON THE I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 13 INVESTMENT IN THE LOAN INDEFINITELY. THERE WAS NO ENDURING ADVANTAGE. THU S THE INVESTMENT DOES NOT BRING IN AN ASSET OF A CAPITAL NATURE AND THE LOSS SUFFERED BY THE ASSESSEEWAS A REVENUE LOSS. 34. SIMILARLY IN THE CASE OF D.S. BIST&SONS (SUPRA) WHERE THE FACTS OF THE CASE WERE THAT , ASSESSEE WAS FORCED TO SUBSCRIBE TO SEC URITY OF THE GOVERNMENT DEPARTMENT WITH WHICH IT WAS DURING BUSINESS. THE LOSS ON SALE OF SUCH INVESTMENT WAS HELD TO BE A REVENUE LOSS BEING INCURRED IN COMMERCIALEXPECTANCY FOR THE PURPOSE OF CARRYING ON THE BUSINESS AS A CONTRACTOR. 35. REVERTING BACK TO THE FACTS OF THE INSTANT ISSUE OF LOSS CLAIMED ON SALE OF FERTILIZER BOND, IN LIGHT OF THE ABOVE JUDGMENTS, WE OBSERVE THAT ASSESSEE HAS NOT OPTED TO GET THE FERTILIZER BONDS FROM THE GOVERNMENT. SUBSIDY GIVEN BY THE GOVERNMENT HAS BEEN SHOWN AS INCOM E. HOWEVER PRUDENT BUSINESSMAN WOULD LIKE TO RECEIVE CASH/CHEQUE AGAINST THE SUBSIDY RECEIVABLE WHICH THE ASSESSEE WAS RECEIVING IN NORMAL COURSE. IT WAS BY FORCE THAT ASSESSEE HAD TO ACCEPT THE FERTILIZER BONDS IN LIEU OF SUBSIDY AS THE GOVERNMENT WAS FAC ING A CASH CRUNCH AT THAT POINT OF TIME. EVEN THOUGH THE ALLEGED BONDS HAVE BEEN SHOWN AS INVESTMENT IN THE BALANCE SHEET, THE VERY NEXUS OF THESE BONDS BEING OF REVENUE NATURE CANNOT BE DISREGARDED. WE ARE THEREFORE OF THE VIEW THAT LOSS INCURRED ON SALE OF FERTILIZER BONDS AT RS. 91,45,000/ - IS PURELY A BUSINESS LOSS INCURRED IN THE NORMAL COURSE OF BUSINESS AND THE BOTH THE LOWER AUTHORITIES ERRED IN TREATING IT AS A CAPITAL. WE THEREFORE ALLOW GROUND NO. 4 OF THE ASSESSEE FOR A.Y. 2008 - 09. RESPECTFU LLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH AS SUPRA, WE RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE AS BUSINESS LOSS AFTER VERIFICATION OF THE YEAR IN WHICH INCOME WAS OFFERED AND THE LOSS WAS OCCURRED. ACCORDINGLY THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 5 & 5.1 OF ASSESSEE S APPEAL 17 . DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, HE ASSESSING OFFICER HAS NOTICED T HAT ASSESSE HAS DEBITED AN AMOUNT OF RS. 311.66 LACS IN THE P & L ACCOUNT AS PRIOR PERIOD EXPENSES. THE ASSESSING OFFICER HA D DISALLOWED THE CLAIM ON THE GROUND THAT ASSESSEE COMPANY WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE , IT WAS NOT ENTITLED TO CLAIM EXPENSES OF RS. 311.66 LACS WHICH WAS NOT RELATED TO ASSESSMENT YEAR 2010 - 11. 1 8 . AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY STATING AS UNDER: - I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 14 7.3 THE ABOVE SUBMISSION OF THE APPELLANT HAS BEEN CONSIDERED. IN RES PECT OF RAW MATERIAL CONSUMPTION OF RS. 41,540/ - AND STORES AND SPARES CONSUMPTION OF RS. 33,14,627/ - , THE APPELLANT HAS SUBMITTED THAT THESE TWO AMOUNTS HAVE BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT IN ITS ABOVE SUBMISSION DATE D 26/02/214 HAS STATED THAT EXPENSES REGARDING CONSUMPTION OF MATERIAL OF RS. 31,51,966/ - AND ANOTHER CONSUMPTION OF MATERIAL OF RS. 1,62,523/ - ARE RELATED TO CONSUMPTION OF CHEMICALS AND CONSUMABLE WHICH WERE CONSUMED DURING THE YEAR UNDER CONSIDERATION B UT WERE NOT REPORTED TO THE ACCOUNTS DEPARTMENT AND ACCORDINGLY THE SAID CONSUMPTION COULD NOT BE ACCOUNTED FOR. IT IS SUBMITTED BY THE APPELLANT THAT THESE CONSUMPTION OF MATERIAL OF RS. 31,57,966/ - AND RS. 1,62,523/ - WERE DISCOVERED DURING THE YEAR UNDER CONSIDERATION BY THE INTERNAL AUDITOR AND REPORTED IN THEIR AUDIT REPORT. BASED ON THIS IT IS PLEADED THAT THESE EXPENDITURES CAN BE SAID TO HAVE BEEN CRYSTALLIZED DURING THE YEAR AND THEREFORE THE SAME SHOULD BE ALLOWED. BUT THE SUBMISSION OF THE APPELLA NT IS NOT ONLY OF GENERAL NATURE BUT CONTRADICTORY ALSO. ON ONE HAND THE APPELLANT HAS PLEADED THAT THESE EXPENDITURES WERE CRYSTALLIZED DURING THE YEAR AND ON THE OTHER HAND IT HAS SUBMITTED THAT CONSUMPTION OF CHEMICALS AND CONSUMABLES WHICH WERE CONSUME D DURING THE EARLIER YEAR, I.E. FY 2008 - 09 BUT WERE NOT REPORTED TO THE ACCOUNTS DEPARTMENT AND ACCORDINGLY THE SAID CONSUMPTION COULD NOT BE ACCOUNTED DURING FY 2008 - 09 RELEVANT TO AY 2009 - 10. THE FACT IS THAT THESE TWO EXPENSES OF RS. 31,57,966/ - AND OF RS. 1,62,523/ - RELATED TO CONSUMPTION OF CHEMICALS AND CONSUMABLES WERE PERTAINING TO FY 2008 - 09 AND THESE TWO EXPENSES WERE REQUIRED TO BE CLAIMED ACCORDINGLY IN AY 2009 - 10. HOWEVER, THESE TWO EXPENSES REMAINED TO BE CLAIMED IN AY 2009 - 10. THUS, IT CANNOT BE SAID THAT THESE TWO EXPENSES WERE CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION. THESE TWO EXPENSES WERE INCURRED DURING FY 2008 - 09 AND THESE TWO EXPENDITURES WERE ASCERTAINED AND ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING, THE SAME SHOULD HAVE BEEN CLAIMED IN AY 2009 - 10. HOWEVER, THESE TWO EXPENSES HAVE NOT BEEN CLAIMED BY THE APPELLANT EITHER IN ORIGINAL RETURN OF INCOME AS FILED FOR THE YEAR UNDER CONSIDERATION, I.E. FOR AY 2010 - 11 OR IN REVISED RETURN OF INCOME IF ANY FILED SUBSEQUENTLY. THU S, IT IS TOTAL LAPSE ON THE PART OF APPELLANT SO FAR AS CLAIM OF THESE EXPENDITURES IS CONCERNED. THIS IS NOT THE CASE THAT THE INCOME WAS TO BE ASCERTAINED BECAUSE OF SOME REASON AND THE SAME WAS NOT CRYSTALLIZED DURING FY 2008 - 09 AND FINALLY THE SAME HAV E BEEN CRYSTALLIZED ONLY DURING FY 2009 - 10 RELEVANT TO AY 2010 - 11. IN VIEW OF THESE FACTS THE CLAIM OF THESE TWO EXPENSES OF RS. 31,57,966/ - AND RS. 1,62,523/ - CANNOT BE ALLOWED TO BE CLAIMED FOR THE YEAR UNDER CONSIDERATION ON THE BASIS OF CRYSTALLIZATION AS THESE TWO EXPENSES WERE PERTAINING TO FY 2008 - 09 AND THE SAME WERE ASCERTAINED AND ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING THE SAME COULD HAVE BEEN CLAIMED ONLY IN AY 2009 - 10. SIMILAR IS THE CASE OF EXPENSES OF RS. 41,540/ - AND EXPENSES OF RS.1 0,981/ - AS THESE TWO EXPENSES ARE ALSO NOT PERTAINING TO THE YEAR UNDER CONSIDERATION AND ON THE BASIS OF MERCANTILE SYSTEM OF ACCOUNTING THE SAME WERE REQUIRED TO BE CLAIMED ONLY DURING THE YEAR TO WHICH THE SAME WERE PERTAINING. CONSIDERING THESE FACTS, THE TOTAL ADDITION OF RS. 35,40,342/ - (I.E. RS. 41,540/ - + RS. 33,14,627/ - + RS. 1,73,194/ - + RS. 10,981/ - ) AS ALSO SHOWN BY THE APPELLANT IN THE SUBMISSION DATED 26/02/2014 FURNISHED IN THE FORM OF CHART AND AS IS REPRODUCED IN PRECEDING PARAGRAPH IS HERE BY CONFIRMED. 7.4 AS REGARDS APPELLANT'S CLAIM OF PRIOR PERIOD EXPENSES OF RS. 2,76,25,680/ - IT IS SUBMITTED THAT THE ENTIRE AMOUNT HAS BEEN CRYSTALLIZED AND ACCOUNTED FOR DURING THE ACCOUNTING YEAR RELEVANT TO AY 2010 - 11. THE APPELLANT IN ITS SUBMISSION A S REPRODUCED IN EARLIER PARAGRAPH HAS MAINLY STATED THAT IT HAD IMPORTED TRADING MATERIAL CALLED MELAMINE DURING THE FINANCIAL YEAR (FY) 2008 - 09. A COPY OF THE INVOICE DATED 20 TH MARCH 2009 IS ENCLOSED BY THE APPELLANT IN THIS REGARD. AS PER THE APPELLANT THE SAID MATERIAL WAS DELIVERED DURING FY 2008 - 09. AS PER THE APPELLANT HOWEVER, THE LIABILITY ON ACCOUNT OF PURCHASE OF GOODS WAS FINALLY SETTLED AND PAID ON 25 TH MAY 2009 (I.E. DURING THE FINANCIAL YEAR RELEVANT TO AY 2010 - 11 I.E. THE YEAR UNDER CONSIDER ATION. ACCORDINGLY, IT IS SUBMITTED THAT SINCE THE LIABILITY ON ACCOUNT OF PURCHASE OF GOODS WAS SETTLED AND PAID OFF DURING THE YEAR UNDER CONSIDERATION, THE LIABILITY SHOULD BE CONSIDERED AS CRYSTALLIZED DURING THE YEAR I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 15 UNDER CONSIDERATION. THUS, IT IS S UBMITTED THAT THE DEDUCTION OF RS. 2,76,25,680 SHOULD BE ALLOWED WHILE COMPUTING INCOME OF THE YEAR UNDER CONSIDERATION ON BASIS OF CRYSTALLIZATION OF LIABILITY THOUGH SUCH LIABILITY IS PERTAINING.TO EARLIER YEAR. THE APPELLANT HAS FURTHER CLARIFIED THAT T HE ACTUAL AMOUNT PAID ON ACCOUNT OF PURCHASE OF MATE RIAL WAS RS. 2,69,82,822. AS PER THE APPELLANT THE SAID AMOUNT WAS INITIALLY BOOKED AS PURCHASE FOR THE YEAR UNDER CONSIDERATION AND PURCHASE ACCOUNT WAS DEBITED BY RS. 2,69,82,822 ON 25 TH MAY 2009. AS PE R THE APPELLANT HOWEVER, SUBSEQUENTLY ON 30 TH SEPTEMBER 2009, THE PURCHASE ACCOUNT WAS ERRONEOUSLY CREDITED BY RS. 2,76,25,680 F AND CORRESPONDING DEBIT WAS MADE TO PRIOR PERIOD EXPENDITURE. AS PER THE APPELLANT CONSIDERING RATE OF EXCHANGE ON THE DATE OF AC QUISITION OF GOODS, THE LIABILITY WAS WORKED OUT TO RS. 2,76,25,680. AS PER THE APPELLANT, HOWEVER, WHEN THE LIABILITY WAS SETTLED IN MAY,2009, THE ACTUAL LIABILITY WAS DETERMINED AT RS. 2,69,82,822. AS PER THE APPELLANT HOWEVER, WHILE TRANSFERRING IT TO P RIOR PERIOD ACCOUNT ERRONEOUSLY THE COST WORKED OUT EARLIER, WAS CREDITED AND ACCORDINGLY RS. 2,76,25,680 WAS DEBITED TO PRIOR PERIOD ACCOUNT. ACCORDINGLY, WITHOUT PREJUDICE TO THE ABOVE SUBMISSION THAT THE LIABILITY, ON ACCOUNT OF PURCHASE OF AFORESAID MA TERIAL HAS BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION, IT IS SUBMITTED, BY THE APPELLANT THAT THE ACTUAL LIABILITY WHICH IS RELATED TO PRIOR PERIOD IS ONLY RS. 2,69,82,822. ACCORDINGLY, IN ANY CASE, THE AMOUNT OF RS. 6,42,858 IS RELATED TO THE Y EAR UNDER CONSIDERATION AND THEREBY ALLOWABLE AS DEDUCTION DURING THE YEAR UNDER CONSIDERATION. 7.5 BUT THE ABOVE SUBMISSION OF THE APPELLANT IS NOT FOUND TO BE ACCEPTABLE. AS PER APPELLANT'S CLAIM IT HAD IMPORTED TRADING MATERIALS DURING FY 2008 - 09 AND TH E SAID MATERIAL WAS DELIVERED DURING FY 2008 - 09 ITSELF. BUT IT IS NOT EXPLAINED AS TO WHAT WAS THE DISPUTE BETWEEN THE APPELLANT AND THE PARTY FROM WHOM GOODS WERE PURCHASED. HOW THE DISPUTES WERE ARISEN AND HOW THE SAME WERE SETTLED DOWN BETWEEN THE TWO P ARTIES ARE NOT EXPLAINED AND IN THIS REGARD NO ANY DETAILS AND DOCUMENTARY EVIDENCES HAVE BEEN FILED BY THE APPELLANT. IF THE LIABILITY WAS ASCERTAINED AND CRYSTALLIZED DURING THE YEAR B ECAUSE OF ANY OTHER REASON THEN ALSO SUCH REASON IS REQUIRED TO BE EXP LAINED AND EVIDENCES IN THIS REGARD IS REQUIRED TO BE FILED. NO COPY OF CORRESPONDENCES BETWEEN THE APPELLANT AND THE FOREIGN PARTY WITH REGARD TO DISPUTE ARISEN IN RESPECT OF PAYMENT AND ALSO WITH REGARD TO SETTLING OF SUCH DISPUTES ARE FURNISHED. IT IS N OT EXPLAINED AS TO HOW THE ORIGINAL LIABILITY OF THE APPELLANT ON ACCOUNT OF IMPORT OF TRADING MATERIAL WAS THERE AND HOW THE LIABILITY WAS FINALLY DETERMINED SUBSEQUENTLY AS A RESULT OF SETTLING OF DISPUTE. CONSIDERING ALL THESE FACTS, IT IS HELD THAT THE APPELLANT HAS FAILED TO EXPLAIN THAT THE ABOVE EXPENSES OF RS. 2,69,82,822/ - WAS ACTUALLY CRYSTALLIZED DURING THE YEAR - UNDER CONSIDERATION. MERELY ON THE BASIS THAT THE PAYMENT WAS MADE DURING THE YEAR UNDER CONSIDERATION, IT CANNOT BE SAID THAT THESE EXP ENSES OF RS. 2,69,82,822/ - WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION UNLESS AND UNTIL PROPER DOCUMENTARY EVIDENCES IN THIS REGARD I ARE FILED BY THE APPELLANT. IN RESPECT OF ANOTHER AMOUNT OF RS. 6,42,858/ - (I.E. RS. 2,76,25,680/ - MINUS RS. 2,69, 82,822/ - ) IT IS STATED BY THE APPELLANT THAT SUCH AMOUNT IS RELATED TO THE YEAR UNDER CONSIDERATION AND THEREBY IS ALLOWABLE AS DEDUCTION FOR THE YEAR UNDER CONSIDERATION. BUT AGAIN THIS SUBMISSION OF THE APPELLANT IS WITHOUT ANY DOCUMENTARY EVIDENCES AND THEREFORE THE SAME IS NOT ACCEPTABLE. IN VIEW OF THIS THE TOTAL ADDITION OF RS. 2,76,25,680/ - IS HEREBY CONFIRMED ON, THE GROUND THAT THE APPELLANT HAS FAILED TO PROVE THAT THE SAID AMOUNT HAD BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND HENCE THE SAME ARE ALLOWABLE AS PRIOR PERIOD EXPENSES. THUS , THE GROUNDS OF APPEAL NO. 7 TO 7.2 OF THE APPELLANT ARE DISM ISSED. 19 . DURING T HE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS FILED P APER BOOK CONTAINING INFORMATI ON / SUBMISSION MA DE BEFORE THE ASSESSING OFFICER AND LD. CIT(A). HE HAS ALSO PLACED RELIANCE ON A NUMBER OF JUDICIAL I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 16 PRONOUNCEMENTS . HE HAS ALSO CONTENDED THAT ITAT AHMEDABAD IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 10 ON IDENTICAL ISSUE HAS REMANDED THE MAT T ER BACK TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS PLACED RELIANCE ON THE DECISION OF LD. CIT(A). 20. WE HAVE NOTICED THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE CO - ORDINATE BENCH OF THE I TAT IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 VIDE ITA NO. 319 & 339/AHD/2012 WHEREIN THE ISSUE WAS SET ASIDE TO THE ASSESSING OFFICER TO ALLOW AFTER VERIFICATION THAT THE EXPENDITURE WERE CRYSTALIZED DURING THAT YEAR. SIMILARLY, THE CL AIM OF THE ASSESSEE IN RESPECT OF PRIOR PERIOD EXPENSES IS ALSO RESTORED TO THE FILE OF THE ASSESSING OFFICER TO ALLOW THE SAME AFTER VERIFICATION IF IT IS CRYSTALIZED DURING THE YEAR UNDER CONSIDERATION AFTER AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSE E. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO . 6 & 6.1 OF ASSESSEE S APPEAL 21 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON VERIFICATION OF THE RECORDS, THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HA S RECEIVED INTEREST O N REFUND TO THE AMOUNT OF RS. 1 , 11 , 81 , 827/ - WHICH WAS NOT SHOWN IN THE INCOM E OF THE ASSESSEE. IN RESPONSE , THE ASSESSEE HAS EXPLAINED THAT INTEREST IS NOT CREDITED TO THE P & L ACCOUNT BECAUSE OF APPEAL O F T HE ASSESSEE FOR T HE YEAR UNDER CONSIDERATION WAS PENDING IN DISPUTE BEFORE THE ITAT . THE ASSESSING OFFICER HAS NOT ACCEPTED THIS CONTENTION OF THE ASSESSEE. HE HAS STATED THAT ASSESSEE HAS RECEIVED REFUND IN THE ASSESSMENT YEAR 2006 - 07 ALONG WITH INTEREST U/S. 244A WHICH HAS BEE N DULY EN - CASHED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION AND INTEREST ON REFUND FOR THE YEAR ASSESSMENT YEAR TO THE EXTENT OF RS. 10714754/ - HAS NOT BEEN TAKEN INTO INCOME FOR THE FINANCIAL YEAR 2009 - 10. T HE ASSESSING OFFICER HAS ALSO NOTICED THA T FOR ASSESSMENT YEA R 2009 - 10 THERE WAS DIFFERENCE OF AMOUNT OF INTEREST T O THE EXTENT OF RS. 4 , 67 , 073/ - I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 17 WHICH WAS NOT WIT HDRAWN HAS TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER HAS ADDED INTEREST OF RS. 1 , 11 , 81 , 827/ - TO THE TOTAL INCOME OF THE ASSESSEE. 22 . IN THE APPEAL, THE LD. CIT(A) HAS DISMISSED THE APPEAL OF T HE ASESSEE STATING THAT ASSESSING OFFICER HAS CORRECTLY TAXED THE INTEREST AMOUNT RECEIVED ON REFUND ISSUED TO THE ASSESSEE. 23 . DURING THE COURSE OF A PPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS CONTENDED THAT ABOVE MENTIONED INTEREST WAS NOT ACCRUED TO THE AS S ESSEE DURING THE YEAR UNDER CONSIDERATION BECAUSE OF LITIGATION IN RES PECT OF GRANTING OF INTEREST PENDING BEFORE ITAT. 24. WE DO N OT FIND ANY MERIT IN THE APPEAL OF THE ASSESEE ON THIS ISSUE AFTER CONSIDERING T HE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AVADA TRADING CO. P. LTD. VS. ACIT (2006) 100 ITD 131 (M UM) WHEREIN IT IS HELD THAT INTEREST ON REFUND UNDER SEC TION 244A(1) WOULD BE ASSESSABLE IN THE YEAR IN WHICH IT IS GRANTED. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. GROUND NO. 7 OF ASSESSEE S APPEAL 25 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS ADDED AN AMOUNT OF RS. 8 , 40 , 91 , 000/ - AS PROPORTIONATE EXPENDITURE RELATED TO EXEMPT INCOME DISALLOWED U/S. 14A R.W. RULE 8D FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S. 115JB. HOWEVER, THE LD. CIT(A) HAS PARTLY ALLOWED THE CLAIM OF THE ASSESSEE BY RESTRICTING THE DISALLOWANCE TO THE AMOUNT OF RS. 2 , 57 , 76 , 000/ - . THE LD. COUNSEL HAS CONTENDED THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE HON BLE ITAT IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 WHEREIN THE ONLY ADMINISTRATIVE EXPENDITURE TO THE TUNE OF RS. 10 LACS AND RS. 15 I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 18 LACS SUSTAINED BY THE ITAT WAS ADDED FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S 115 JB OF THE ACT. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LD. CIT(A) 26. WE HAVE HEARD BOTH T HE SIDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. THE CO - ORDINATE BENCH OF THE ITAT FOR THE ASSESSMENT YEAR 2008 - 09 AND ASSESSMENT YEAR 2009 - 10 VIDE ITA NO. 319 & 339/AHD/2012 IN THE CASE OF THE ASSESSEE ITSELF HAS RESTRICTED THE AMOUNT TO BE ADDED F OR COMPUTATION OF BOOK PROFIT U/S 115 JB OF THE ACT TO THE EXTENT OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.10 LACS AND RS.15 LACS CONFIRMED BY THE ITAT. AFTER TAKING INTO CONSIDERATION THE ABOVE CITED DECISION OF THE COORDINATE BENCH ON IDENTICAL F A CTS AND SIMILAR ISSUE, WE RESTRICT THE AMOUNT TO BE ADDED FOR COMPUTATION TO THE EXTENT OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS. 15 LACS SUSTAINED IN THE CASE OF THE ASSESSEE AS SUPRA IN THIS ORDER. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSE E IS PARTLY ALLOWED. 27. IN THE RESULT , GROUND OF APPEAL NO. 2 OF ASSESSEE S APPEAL AND GROUND NO. 1 OF ASSESSEE S CROSS OBJECTION ARE PARTLY ALLOWED .GROUND NO. 1 OF REVENUE S APPEAL DISMISSED AND GROUND NO. 3 OF ASSESSEE S APPEAL IS DISMISSED . GROUND NO . 4 AND 4.1 AND GROUND NO. 5 & 5.1 OF ASSESSEE S APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 6 & 6.1 OF ASSE SSEE S APPEAL IS DISMISSED AND GROUND NO. 7 OF ASSESSEE S APPEAL IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C O URT ON 01 - 0 8 - 201 8 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 01 /0 8 /2018 / COPY OF ORDER FORWARDED TO: - I.T.A NO. 1403 & 1413 & CO NO.243/AHD/2014 A.Y. 2010 - 11 PAGE NO GUJARAT STATE FERTILIZER & CHEMICAL LTD. VS. DCIT /ACIT 19 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,