Shah Alloys Ltd., Ahmedabad V. The ACIT.,(OSD)Circle-8, Ahmedabad

CO 305/AHD/2010

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0304 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 18-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: ANIL R SHAH
• Keywords: Principle of natural justice; Earning of tax free income; Commercial expediency; Capital expenditure
• Section: 14A

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO. AY APPELLANT RESPONDENT 2315/AHD/2010 2007-08 SHAH ALLOYS LTD., 5/1, SHREEJI HOUSE, 5 TH FLOOR, B/H. M.J. LIBRARY, ASHRAM ROAD, AHMEDABAD PAN : AADCS 0474 L THE JCIT, RANGE-8, AHMEDABAD 2663/AHD/2010 2007-08 REVENUE ASSESSEE 3235/AHD/2011 2008-09 ASSESSEE REVENUE CO NO. 305/AHD/2010 (IN ITA NO.2663/AHD/2010) 2007-08 ASSESSEE REVENUE ASSESSEE(S) BY : SHRI ANIL R. SHAH, AR REVENUE BY : SHRI B.L. YADAV, SR. DR / // / DATE OF HEARING : 10/03/2015 !'# / DATE OF PRONOUNCEMENT: 27/03/2015 $% $% $% $%/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: ITA NOS. 2315/AHD/2010 AND 2663/AHD/2010 ARE THE CR OSS APPEALS FILED BY THE ASSESSEE AND REVENUE RESPECTIV ELY AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-X IV, AHMEDABAD DATED 14.06.2010 FOR ASSESSMENT YEAR 2007-08. ITA NO. 3235/AHD/2011 IS THE APPEAL FILED BY THE ASSESSEE F OR ASSESSMENT YEAR 2008-09 AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD DATED 30.11.2011. CO NO.3 05/AHD/2010 IS FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007-0 8. 2. WE FIRST TAKE UP THE APPEALS OF THE ASSESSEE. ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 2 - 3. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SU BMITTED THAT THE ASSESSEE HAS FILED AMENDED-CUM-ADDITIONAL GROUN DS OF APPEAL FOR ASSESSMENT YEAR 2007-08 VIDE ITS LETTER DATED 17.01 .2013 WHICH SHOULD BE CONSIDERED AND DECIDED BY THE TRIBUNAL. THE DEPARTMENTAL REPRESENTATIVE HAD NO OBJECTION TO ADMITTING THE AM ENDED-CUM- ADDITIONAL GROUNDS OF APPEAL. WE, THEREFORE, ADMIT THE AMENDED- CUM-ADDITIONAL GROUNDS OF APPEAL OF THE ASSESSEE AN D ADJUDICATE THE SAME AS UNDER:- 4. THE GROUND NO. 1 OF THE ASSESSEES APPEAL FOR AS SESSMENT YEAR 2007-08 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) CONFIRMING DISALLOWANCE OF RS.69,73,973/- OUT OF INTEREST PAID ON BORROWINGS DISALLOWED BY THE ASSESSING OFFICER U/S 36(1)(III) OF THE ACT. 5. THE BRIEF FACTS OF THE CASE ARE THAT ON PERUSAL OF THE SCHEDULE 20 OF THE BALANCE-SHEET, THE ASSESSING OFFICER OBSE RVED THAT THE ASSESSEE HAD PAID INTEREST ON WORKING CAPITAL AMOUN TING TO RS.11,96,81,912/-. FROM THE DETAILS FURNISHED BY T HE ASSESSEE, HE FOUND THAT THE ASSESSEE HAD ADVANCED A SUM OF RS.5, 07,00,000/- TO VARIOUS PARTIES FROM WHOM NO INTEREST HAS BEEN RECE IVED/CHARGED, THE DETAILS OF WHICH ARE AS UNDER:- SR. NO. NAME AMOUNT (RS.) AMOUNT (RS.) 1 NARENDRA S. VOHRA 50,000 5,00,000 2 HARSHADBHAI M. SHAH 20,000 2,00,000 3 SHREYANSHBHAI S. SHAH 41,53,973 4,25,00,000 4 ASPASS INVESTME NT PVT LTD 2,00,000 20,00,000 5 ANWESHA STOCK TRADE PVT LTD 2,00,000 20,00,000 6 NAYANBHAI G. SHAH 1,00,000 10,00,000 7 DILIPBHAI M. GOSALIA 15,000 1,50,000 8 KUMUDBEN D. SGOSALIA 20,000 2,00,000 9 MEENABEN A GOSALIA 15,000 1,15,000 10 REDWOOD HOLDIN G PVT LTD 2,00,000 20,00,000 69,73,973 5,07,00,000 ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 3 - 6. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFI CER THAT ON A SIMILAR BACKGROUND DISALLOWANCE OF INTEREST WAS MAD E BY THE ASSESSING OFFICER ON SUCH ADVANCES AND THE MATTER W AS PENDING IN APPEAL BEFORE THE CIT(A). THE ASSESSING OFFICER OB SERVED THAT PENDING OF APPEAL BEFORE THE CIT(A) DOES NOT CHANGE THE NATURE OF INTEREST FREE ADVANCE TO VARIOUS PARTIES AND ACCORD INGLY MADE DISALLOWANCE OF INTEREST OF RS.69,73,973/-. 7. BEFORE THE CIT(A), IT WAS ARGUED THAT THE ASSESS ING OFFICER HAS NOT PROVED THE NEXUS BETWEEN THE UTILIZATION OF BOR ROWED FUNDS BY THE ASSESSEE FOR NON-BUSINESS PURPOSES AND THEREFOR E, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ESTIMATED DISAL LOWANCE OF INTEREST @ 10% OF THE AMOUNT ADVANCED AS FREE OF INTEREST. 8. THE CIT(A), CONSIDERING THE SUBMISSIONS OF THE A SSESSEE, OBSERVED THAT SIMILAR ISSUE HAD COME UP FOR CONSIDE RATION IN APPEAL IN ASSESSMENT YEAR 2005-06 WHERE IT WAS HELD THAT T HE ASSESSING OFFICER HAS FOUND THAT THE ASSESSEE HAS DIVERTED IT S INTEREST BEARING FUNDS FOR GIVING ADVANCES ON WHICH NO INTEREST HAS BEEN CHARGED. HE OBSERVED THAT WHEN THERE WAS A DIRECT NEXUS BETWEEN THE BORROWED FUNDS AND GIVING OF INTEREST FREE ADVANCE, IT WAS I RRELEVANT THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS FOR MAK ING INTEREST FREE ADVANCE. THE ASSESSEE HAD NOT ESTABLISHED BY GIVIN G EVIDENCES THAT THE ADVANCES WERE GIVEN FOR BUSINESS PURPOSES OR FO R ANY COMMERCIAL EXPEDIENCY. THE CIT(A) OBSERVED THAT AS THE FACTS IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THE FACTS OF THE ASSESSMENT YEAR 2005-06, THE CIT(A) FOLLOWING THE ORDER OF HIS PRED ECESSOR FOR ASSESSMENT YEAR 2005-06, CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 9. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT IT WILL BE SEEN FROM PAGE NO.5 OF TH E PAPER-BOOK FILED ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 4 - BY THE ASSESSEE, WHICH CONTAIN A CHART SHOWING OWN FUNDS AVAILABLE WITH THE COMPANY AND SHOWS THAT THE ASSESSEE HAD OW N FUNDS OF RS.251.22 CRORES; WHEREAS THE INTEREST FREE ADVANCE S GIVEN BY THE ASSESSEE WAS RS.5.07 CRORES. THEREFORE, HE RELIED O N THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF TORR ENT FINANCIERS VS. ACIT, REPORTED IN 73 TTJ 624 (AHD) AND THE DECI SION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE U TILITIES AND POWER LTD, REPORTED IN 313 ITR 340, WHEREIN IT WAS HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVER DR AFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTME NTS WOULD BE OUT OF THE INTEREST-FREE FUNDS GENERATED OR AVAILABLE W ITH THE COMPANY IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. HE ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION VS CIT, REPORTED IN 298 ITR 298, WHEREIN IT WAS HELD THAT SINCE THE OPENING BALANCE OF THE P ROFITS OF THE ASSESSEE-FIRM AS ON 1 ST APRIL 1994 WAS RS.1.91 CRORES, AND THE PROFITS WERE SUFFICIENT TO COVER THE LOAN GIVEN TO A SISTER CONCERN OF RS.5 LAKHS ONLY, THE APPELLATE TRIBUNAL OUGHT TO HAVE HE LD THAT THE LOAN GIVEN WAS FROM THE ASSESSEES OWN FUNDS. THEREFORE, IT WAS THE CONTENTION OF THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE THAT AS THE ASSESSEES OWN INTEREST FREE FUNDS AVAILABLE WE RE TO THE TUNE OF RS.251.22 CRORES AND INTEREST FREE ADVANCES GIVEN B Y THE ASSESSEE WERE RS.5.07 CRORES, FOLLOWING THE ABOVE DECISIONS NO DISALLOWANCE OF INTEREST COULD BE MADE. 10. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTAT IVE SUPPORTED THE ORDER OF THE CIT(A). 11. WE FIND THAT IN ALL THE ABOVE THREE CASES RELIE D UPON BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, THE DISA LLOWANCE WAS MADE BY THE ASSESSING OFFICER WITHOUT ESTABLISHING NEXUS BETWEEN THE INTEREST BEARING BORROWED FUNDS AND INTEREST FR EE ADVANCE GIVEN ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 5 - BY THE ASSESSEE. ON THE ABOVE FACTS, IT WAS HELD B Y THE COURTS THAT WHEN THE INTEREST FREE FUNDS AVAILABLE WITH THE ASS ESSEE WAS MORE THAN INTEREST FREE ADVANCES GIVEN BY THE ASSESSEE, THEN IT CAN BE PRESUMED THAT INTEREST FREE ADVANCES WERE GIVEN OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND THEREFOR E, DISALLOWANCE OF INTEREST EXPENDITURE CANNOT BE MADE. HOWEVER, IN C ONTRADICTION TO THE FACTS OF THE ABOVE CASES, IN THE INSTANT CASE T HE CIT(A) HAS RECORDED A FINDING TO THE EFFECT THAT IN THE ASSESS MENT OF ASSESSMENT YEAR 2005-06 THE ASSESSING OFFICER HAS ESTABLISHED A DIRECT NEXUS BETWEEN THE INTEREST BEARING LOAN TAKEN BY THE ASSE SSEE AND THE INTEREST FREE ADVANCE GIVEN BY THE ASSESSEE WHICH W AS NOT FOR ITS BUSINESS PURPOSES. THE CIT(A) HAS FOLLOWED ITS OWN ORDER PASSED IN THE CASE OF THE ASSESSEE IN THE ASSESSMENT YEAR 200 5-06 FOR CONFIRMING THE DISALLOWANCE MADE IN THE YEAR UNDER APPEAL. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS BROUG HT NO MATERIAL TO CONTROVERT THE ABOVE FINDINGS OF THE CIT(A). THE D EPARTMENTAL REPRESENTATIVE ALSO COULD NOT BRING ANY MATERIAL BE FORE US TO SHOW THAT THE FINDING OF THE CIT(A) IN THE CASE OF THE ASSESSEE IN THE ASSESSMENT YEAR 2005-06 WAS REVERSED IN AN APPEAL B Y ANY HIGHER AUTHORITY. IN THE ABOVE CIRCUMSTANCES, WE DO NOT F IND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) WH ICH IS HEREBY CONFIRMED AND THIS GROUND OF THE APPEAL OF THE ASSE SSEE IS DISMISSED. 12. GROUND NO.2 OF THE ASSESSEES APPEAL IN ASSESSM ENT YEAR 2007-08 AND GROUND NO.1 OF THE ASSESSEES APPEAL IN ASSESSMENT YEAR 2008-09 ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) CONFIRMING THE DISALLOWANCE OF EXPENDITURE OF RS.1,06,45,775/- IN ASSESSMENT YEAR 2007-08 AND RS.2,04,30,869/- IN ASSESSMENT YEA R 2008-09 U/S 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES. ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 6 - 13. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED THAT THE ASSESSEE HAD MADE HUGE INVESTMENT S IN FINANCIAL INSTRUMENTS FROM WHICH THE INCOME GENERATED DO NOT FORM PART OF THE TOTAL INCOME. ON REPLY TO THE SHOW-CAUSE NOTIC E, THE ASSESSEE EXPLAINED THAT IT HAS NOT INCURRED ANY EXPENDITURE TO EARN NON- TAXABLE INCOME AND INTEREST PAID ON BORROWED FUNDS WAS ON THE AMOUNTS UTILIZED BY THE ASSESSEE FOR THE BUSINESS O F THE ASSESSEE. IN THE ALTERNATIVE, IT WAS ALSO SUBMITTED THAT AS DISA LLOWANCE OF RS.69,73,973/- OUT OF INTEREST EXPENDITURE WAS MADE BY THE ASSESSING OFFICER, NO FURTHER DISALLOWANCE SHOULD B E MADE U/S 14A OF THE ACT. THE ASSESSING OFFICER HELD THAT THE DISALL OWANCE OF EXPENDITURE RELATING TO EXEMPT INCOME WAS REQUIRED TO BE MADE U/S 14A READ WITH RULE 8D AND ACCORDINGLY, MADE A DISAL LOWANCE OF RS.1,60,45,775/- IN THE ASSESSMENT YEAR 2007-08 AND RS.2,04,30,869/- IN THE ASSESSMENT YEAR 2008-09. 14. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSI NG OFFICER, AFTER GIVING OPPORTUNITY TO THE ASSESSEE TO FURNISH THE DETAILS ALONGWITH SUPPORTING DOCUMENTS, HAS REJECTED THE WO RKING GIVEN BY THE ASSESSEE. HE OBSERVED THAT THE SPECIAL BENCH O F THE TRIBUNAL IN THE CASE OF M/S DAGA CAPITAL MANAGEMENT PVT LTD AND OTHERS VIDE ORDER DATED 20.10.2008 HAS HELD THAT THE ASSESSING OFFICER IS BOUND TO ADOPT RULE 8D FOR MAKING DISALLOWANCE U/S 14A, W HERE HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER AS PER RULE 8D UNDER SECTION 14A WAS JUSTIFIED. FURTHER, THE CIT(A) OBSERVED THAT THE CONTENTION OF THE ASSESSEE THAT AS INTEREST DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FUNDS NOT USED FOR BUSINESS PURPOSE AND THEREFORE, NO DISALLOWANCE SHOULD BE MADE U/S 14A OF THE ACT, HE WAS NOT IN AGREEMENT WITH THE CONTENTION OF THE ASSESSEE AS IT WAS NOT ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 7 - MENTIONED IN RULE 8D THAT SUCH ADJUSTMENT HAS TO BE MADE BEFORE COMPUTING THE DISALLOWANCE. 15. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT IT WILL BE SEEN FROM PAGE NO.11, 12 AND 13 OF THE PAPER-BOOK FILED FOR THE ASSESSMENT YEAR 2007-08 TH AT THE ASSESSEE HAD NOT CLAIMED ANY INCOME AS EXEMPT FROM TAX. FURT HER, REFERRING TO PAGE NOS. 27 AND 28 OF THE PAPER-BOOK, HE POINTE D OUT THAT IT WILL BE SEEN FROM THE COMPUTATION OF INCOME AND THE COPY OF THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR 2008-09 THA T THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME. HE SUBMITTED TH AT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECH ENERGY (P) LTD, REPORTED IN (2014) 272 CTR 262 (GUJ.)(HC), HAS HELD THAT WHERE THE ASSESSEE HAS NOT MADE ANY CLAIM FOR EXEMPTION OF AN Y INCOME FROM PAYMENT OF TAX, NO DISALLOWANCE COULD BE MADE U/S 1 4A OF THE ACT. THEREFORE, HE SUBMITTED THAT NO DISALLOWANCE U/S 14 A COULD BE MADE IN VIEW OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT. 16. THE DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, DISALLOW ANCE OF EXPENDITURE U/S 14A READ WITH RULE 8D OF RS.1,06,45,775/- IN AS SESSMENT YEAR 2007-08 AND RS.2,04,30,869/- IN ASSESSMENT YEAR 200 8-09 WAS MADE BY THE ASSESSING OFFICER AS THE ASSESSEE HAD M ADE INVESTMENTS, INCOME FROM WHICH WAS EXEMPT FROM TAX. THE SAME WAS CONFIRMED IN APPEAL BY THE CIT(A) BY FOLLOWING THE ORDER OF MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S.DAGA CAPITAL MANAGEMENT PVT. LTD. (SUPRA) WHEREIN IT WAS HELD TH AT THE AO WAS BOUND TO ADOPT RULE 8D FOR MAKING DISALLOWANCE UNDE R SECTION 14A WHERE HE IS NOT SATISFIED WITH THE CORRECTNESS OF T HE CLAIM OF THE ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 8 - ASSESSEE IN RESPECT OF SUCH EXPENDITURE, AND THEREF ORE, THE DISALLOWANCE MADE BY THE AO, AS PER RULE 8D UNDER S ECTION 14A WAS JUSTIFIED. THE AUTHORIZED REPRESENTATIVE OF THE ASS ESSEE HAS POINTED OUT FROM PAGE NOS. 11 TO 13 OF THE PAPER-BOOK FOR A SSESSMENT YEAR 2007-08 THAT THE ASSESSEE HAD NOT CLAIMED ANY INCOM E AS EXEMPT FROM TAX. HE HAS ALSO POINTED OUT FROM PAGE NOS. 27 AND 28 OF THE PAPER-BOOK FOR ASSESSMENT YEAR 2008-09 THAT NO INCO ME WAS CLAIMED AS EXEMPT BY THE ASSESSEE IN ITS RETURN OF INCOME. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS RELIE D ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECH ENERGY (P) LTD, REPORTED IN (2014) 272 CTR 262 (GUJ .)(HC), WHEREIN IT HAS BEEN HELD THAT WHERE THE ASSESSEE HAS NOT MA DE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX, NO DIS ALLOWANCE COULD BE MADE U/S 14A OF THE ACT. THE DEPARTMENTAL REPRES ENTATIVE HAS NOT DISPUTED THE SUBMISSION OF THE ASSESSEE THAT DU RING THE ASSESSMENT YEARS UNDER CONSIDERATION THE ASSESSEE H AS NOT CLAIMED ANY INCOME AS EXEMPT FROM TAX IN ITS RETURN OF INCO ME FILED. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF H ONBLE GUJARAT HIGH COURT IN THE CASE OF CORRTECH ENERGY (P) LTD (SUPRA ), WE DELETE THE DISALLOWANCE OF EXPENDITURE MADE U/S 14A READ WITH RULE 8D OF RS.1,60,45,775/- IN THE ASSESSMENT YEAR 2007-08 AND RS.2,04,30,869/- IN THE ASSESSMENT YEAR 2008-09. T HUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED IN BOTH THE YEARS UNDER APPEAL. 18. GROUND NO.3 OF THE ASSESSEES APPEAL FOR ASSESS MENT YEAR 2007-08 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) UPHOLDING LEVY OF INTEREST U/S 234 OF THE ACT. 19. AT THE TIME OF HEARING, NO SUBMISSIONS WERE MAD E BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ON THIS G ROUND OF APPEAL TAKEN IN THE APPEAL. THEREFORE, WE HOLD THAT CHARG ING OF INTEREST IS ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 9 - CONSEQUENTIAL AND ACCORDINGLY DISPOSE OF THIS GROUN D OF APPEAL OF THE ASSESSEE. 20. GROUND NO.2 OF THE ASSESSEES APPEAL IN ASSESSM ENT YEAR 2008-09 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING ADDITION OF RS.30,46,655/- BEING INCOME OF PRIOR PE RIOD. 21. GROUND NO.3 OF THE ASSESSEES APPEAL FOR ASSESS MENT YEAR 2008-09 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) ON THE GROUND THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ALREADY TAKES CARE OF TAXABILITY OF PRIOR PERIOD OF INCOME OF RS. 30,46,655/- AS INCOME OF THE YEAR UNDER CONSIDERATION AND HENCE, E NHANCEMENT OF THE INCOME OF THE ASSESSEE BY THE VERY SAME AMOUNT RESULTED INTO DOUBLE TAXATION WHICH WAS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 22. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED FROM THE STATEMENT OF TOTAL INCOME THAT TH E ASSESSEE HAS ADDED BACK PRIOR PERIOD EXPENSES AMOUNTING TO RS.1, 57,11,364/-. HE OBSERVED THAT THE ASSESSEE-COMPANY HAD SHOWN PRI OR PERIOD EXPENSES AT RS.1,87,58,019/- OUT OF WHICH THE ASSES SEE REDUCED AN AMOUNT OF RS.30,46,655/- STATING IT TO BE CREDIT EN TRIES. THE ASSESSING OFFICER OBSERVED THAT, AS THE ASSESSEE WA S FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT HAD NOT BEEN AB LE TO PROVE THAT THE SAID LIABILITY WAS CRYSTALLIZED DURING THE YEAR AND THEREFORE, THE CLAIM OF THE ASSESSEE WITH REGARD TO NETTING OF PRI OR PERIOD EXPENSES WITH PRIOR PERIOD INCOME WAS NOT ACCEPTABLE; AND AC CORDINGLY MADE ADDITION OF RS.30,46,655/- TO THE INCOME OF THE ASS ESSEE. 23. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSE E HAD SOME EXPENSES THAT PERTAINED TO PRIOR PERIOD AND SIMILAR LY, THERE WERE SOME INCOME WHICH PERTAINED TO EARLIER YEARS. THE ASSESSEE REDUCED THE PRIOR PERIOD EXPENDITURE BY THE AMOUNT OF PRIOR PERIOD INCOME ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 10 - AND THE NET DISALLOWANCE WAS MADE IN THE STATEMENT OF INCOME. THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE A SSESSEE AND MADE ADDITION OF AN AMOUNT EQUAL TO PRIOR PERIOD EXPENSE THAT HAS BEEN REDUCED BY THE ASSESSEE. THE ASSESSEE SUBMITTED THA T THE INCOME AND EXPENSES OF PRIOR PERIOD CANNOT BE GIVEN DIFFER ENT TREATMENT FOR TAXATION. IF THE EXPENSES OF PRIOR PERIOD WAS DISA LLOWED, THE INCOME OF THE EARLIER PERIOD CANNOT BE TAXED. THE CIT(A) H AS OBSERVED THAT THE SUBMISSION OF THE ASSESSEE WAS NOT ACCEPTABLE. IT WAS CLEAR THAT THE EXPENSES PERTAINED TO THE PREVIOUS ASSESSMENT Y EAR AND THE EXPENSES ARE TO BE ALLOWED ONLY ON MATCHING PRINCIP LE AND THEREFORE, THE SAME CANNOT BE ALLOWED AS DEDUCTION FROM THE CU RRENT YEARS INCOME. THE ACTION OF THE ASSESSEE BY REDUCING IT FROM THE PRIOR PERIODS INCOME AND DISALLOWING THE NET PRIOR PERIO D EXPENSES WAS NOT CORRECT. THE INCOME HAS TO BE CONSIDERED SEPARA TELY AND CANNOT BE SET OFF AGAINST PRIOR PERIOD EXPENSES. THEREFOR E, HE CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 24. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE ADDED RS.1, 57,11,364/-AS NET PRIOR PERIOD EXPENSES DEBITED IN PROFIT & LOSS ACCO UNT IN COMPUTING ITS TOTAL INCOME. THE AO OBSERVED THAT NET PRIOR P ERIOD EXPENSES OF RS.1,57,11,364/- IS COMPRISED OF TWO ELEMENTS VIZ. PRIOR EXPENSES OF RS.1,87,58,019/- AND PRIOR PERIOD INCOME OF RS.30,4 6,655/-. ACCORDING TO THE AO, THE ENTIRE PRIOR PERIOD EXPENS ES OF RS.1,87,58,019/- IS NOT ALLOWABLE TO THE ASSESSEE A S DEDUCTION, AS THE ASSESSEES SYSTEM OF ACCOUNTING IS MERCANTILE. HE, THEREFORE, ADDED THE ENTIRE RS.1,87,58,019/- IN PLACE OF RS.1, 57,11,364/- ADDED BY THE ASSESSEE, AND THUS ENHANCED THE ASSESS EES INCOME BY RS.30,46,655/-. 25. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE AO. ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 11 - 26. WE FIND THAT IT IS NOT IN DISPUTE THAT RS.30,46 ,655/- WAS INCOME OF PRIOR PERIOD. IN OUR CONSIDERED VIEW, ON THE SAME ANALOGY ON WHICH EXPENSES OF PRIOR PERIOD IS NOT ALLOWABLE, THE INCOME OF PRIOR PERIOD ALSO CANNOT BE BROUGHT TO TAX FOR THE YEAR UNDER CONSIDERATION. THE LOWER AUTHORITIES IN THE GARB O F DISALLOWANCE OF GROSS AMOUNT OF PRIOR PERIOD EXPENSES, HAS IN FACT BROUGHT TO TAX PRIOR PERIOD INCOME FOR THE YEAR UNDER CONSIDERATIO N. NO MATERIAL HAS BEEN BROUGHT BEFORE US TO SHOW THAT HOW AND WHY THE PRIOR PERIOD INCOME OF RS.30,46,655/- IS TAXABLE IN THE YEAR UND ER CONSIDERATION, WHEN THE SYSTEM OF ACCOUNTING OF THE ASSESSEE IS ME RCANTILE. THEREFORE, IN OUR CONSIDERED VIEW, WHEN THE GROSS A MOUNT OF PRIOR PERIOD EXPENSES ADDED TO THE INCOME OF THE ASSESSEE , THEN LOWER AUTHORITIES COULD HAVE ALSO REDUCED PRIOR PERIOD IN COME OF RS.30,46,655/- FOR COMPUTING THE TOTAL INCOME OF TH E YEAR UNDER CONSIDERATION. WE, THEREFORE, DELETE THE DISALLOWA NCE OF RS.30,46,655/- AND ALLOW THE GROUNDS OF THE APPEAL OF THE ASSESSEE. 27. GROUND NO.4 OF THE ASSESSEES APPEAL FOR ASSESS MENT YEAR 2008-09 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING AD- HOC DISALLOWANCE OF RS.4,00,000/- OUT OF INTEREST P AID. 28. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER OBSERVED THAT FROM THE PERUSAL OF THE SCHEDULE 20 O F THE BALANCE- SHEET, THAT THE ASSESSEE HAD PAID INTEREST ON WORKI NG CAPITAL AMOUNTING TO RS.18,86,80,017/-. THE ASSESSING OFFI CER REQUIRED THE ASSESSEE TO PROVIDE DETAILS OF INTEREST PAYMENTS AN D ADVANCES MADE. FROM THE DETAILS, HE FOUND THAT THE ADVANCES MADE T O FOLLOWING PARTIES WERE FOR CAPITAL EXPENDITURE OR OTHERWISE T HERE WAS NO BUSINESS EXPEDIENCY AND JUSTIFICATION. ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 12 - SR. NO. NAME AMOUNT 1 ATULBHAI P. P. (ADVANCE FOR LAND) 500000 2 CHANDRIKABEN CHUDASMA (ADV FOR LAND) 500000 3 DIPTI DEEPAKBHAI SHAH 400000 4 NAYNABEN GIRISHKUMAR SHAH 1000000 5 SUNDERDEEP BUILDERS (ADVANCE FOR LAND) 1600000 TOTAL 4000000 THEREFORE, THE ASSESSING OFFICER MADE DISALLOWANCE FOR INTEREST @ 10% OF THE AMOUNT ADVANCED AND MADE AN ADDITION O F RS.4,00,000/- TO THE INCOME OF THE ASSESSEE. 29. ON APPEAL, THE CIT(A) HELD THAT IN THE EARLIER ASSESSMENT YEAR 2007-08 ALSO SIMILAR DISALLOWANCE WAS MADE BY THE A SSESSING OFFICER AND CONFIRMED THE SAME BY HIS PREDECESSOR. THEREFOR E, FOLLOWING THE SAME, HE CONFIRMED THE ADDITION MADE BY THE ASSESSI NG OFFICER. 30. BEFORE US, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT SINCE THESE ADVANCES WERE MADE OUT O F INTEREST FREE OWN FUNDS OF THE ASSESSEE, NO DISALLOWANCE WAS WARR ANTED. HOWEVER, NO MATERIAL COULD BE BROUGHT BEFORE US BY THE AR TO SUBSTANTIATE THE ABOVE ADDITION. 31. WE FIND THAT THE CIT(A) HAS CONFIRMED THE DISA LLOWANCE BY FOLLOWING ORDER OF HIS PREDECESSOR PASSED IN THE CA SE OF THE ASSESSEE ITSELF IN THE IMMEDIATELY PRECEDING YEAR. THE AR B ROUGHT NO MATERIAL TO CONTROVERT THE ABOVE FINDINGS OF THE CIT(A) OR T O SHOW THAT THIS ORDER OF THE CIT(A) PASSED IN THE IMMEDIATELY PRECE DING YEAR WAS REVERSED BY ANY HIGHER AUTHORITY. THEREFORE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT( A), WHICH IS CONFIRMED AND THE GROUND OF THE APPEAL OF THE ASSES SEE IS DISMISSED. 32. NOW WE TAKE UP REVENUES APPEAL ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 13 - 33. GROUND NO.1 OF THE REVENUES APPEAL FOR ASSESSM ENT YEAR 2007-08 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) DELETING THE ADDITION OF RS.73,623/- MADE U/S 41(1) OF THE ACT. 34. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS ING OFFICER ASKED THE ASSESSEE TO FURNISH THE AGEING ANALYSIS OF THE SUNDRY CREDITORS HAVING OUTSTANDING CREDIT BALANCE FOR THE LAST 3 YE ARS. HE OBSERVED FROM THE DETAILS FURNISHED BY THE ASSESSEE THAT AN AMOUNT OF RS.73,623/- WAS STILL OUTSTANDING AS ON 31.03.2009. SINCE THE AMOUNT WAS PAYABLE EVEN AFTER THE LAPSE OF MORE THA N 5 YEARS, THE ASSESSING OFFICER TREATED THE SAME AS INCOME AS PER THE PROVISIONS OF SECTION 41(1) OF THE ACT. 35. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSI NG OFFICER HAS NOT BROUGHT OUT ANY MATERIAL TO SHOW THAT THE ASSES SEE DERIVED ANY MONEY OR BENEFIT OR OTHERWISE SUCH LIABILITY CEASED AND HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING SUCH ADDITION U/S 41(1) OF THE ACT. 36. THE DR SIMPLY RELIED UPON THE ORDER OF THE AO A ND COULD NOT POINT OUT ANY ERROR IN THE ORDER OF THE CIT(A). IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE LIABILITY IN QUESTION CEA SED TO EXIST DURING THE YEAR UNDER CONSIDERATION OR ANY BENEFIT WAS REC EIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, WE FI ND NO ERROR IN THE ORDER OF THE CIT(A), WHICH IS CONFIRMED, AND THE GR OUND APPEAL OF THE REVENUE IS DISMISSED. 37. GROUND NO.2 OF THE REVENUES APPEAL IN ASSESSME NT YEAR 2007-08 IS DIRECTED AGAINST THE ORDER OF THE CIT(A) IN RESTRICTING THE DISALLOWANCE U/S 14A TO THE EXTENT OF RS.1,19,02,28 0/- AS AGAINST TOTAL DISALLOWANCE OF RS.1,60,46,775/- MADE BY THE ASSESSING OFFICER. ITA NOS. 2315, 2663/AHD/ 2010 ITA 3235/AHD 2011 & CO 305 AHD 2010 SHAH ALLOYS LTD - AY 2007-08 & 08-09 - 14 - 38. IN VIEW OF OUR DECISION IN GROUND NO.2 OF THE ASSESSEES APPEAL IN ASSESSMENT YEAR 2007-08, THIS GROUND OF APPEAL O F THE REVENUE IS DISMISSED. 39. SINCE THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE CIT(A) AND AS THERE WAS NO GRIEVAN CE OF THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) IN THE CRO SS OBJECTIONS FILED BY THE ASSESSEE, THE SAME IS INFRUCTUOUS AND HENCE DISMISSED. 40. IN THE RESULT, APPEALS OF THE ASSESSEE FOR THE ASSTT.YEAR 2007- 08 AND 2008-09 ARE PARTLY ALLOWED AND THE APPEAL OF THE REVENUE FOR THE ASSTT.YEAR 2007-08 IS DISMISSED. THE CROSS APP EAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 27 TH OF MARCH, 2015 AT AHMEDABAD. SD/- SD/- ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 27/03/2015 *BIJU T, PS $% &' ($'# $% &' ($'# $% &' ($'# $% &' ($'#/ COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. &+)* / THE RESPONDENT. 3. ,, - / CONCERNED CIT 4. - ( ) / THE CIT(A)- XIV, AHMEDABAD 5. '01 & , , / DR, ITAT, AHMEDABAD 6. 12 3 / GUARD FILE. $% $% $% $% / BY ORDER, //TRUE COPY// 4 44 4/ // / ,5 ,5 ,5 ,5 ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD