Rasna Pvt. Ltd., Ahmedabad V. The Dy.CIT, Circle-3(1)(2), Ahmedabad

CO 4/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5002 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 12-01-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: PF JAIN
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SL. NO. ITA/CO A. Y . APPELLANT RESPO NDENT 1 2334/AHD/2015 2010 - 11 RASNA PVT. LTD. AHMEDABAD DCIT, CIRCLE - 3(1)(2), AHMEDABAD 2 2397/AHD/2015 2010 - 11 ACIT, CIRCLE - 5, AHMEDABAD RASNA PVT. LTD. AHMEDABAD 3 3666/AHD/2015 2011 - 1 2 DCIT, CIRCLE - 3(1)(2), AHMEDABAD RASNA PVT. LTD. AHMEDABAD 4 CO NO. 04/AHD/2016 (IN ITA NO. 3666/AHD/2015) 2011 - 1 2 RASNA PVT. LTD. AHMEDABAD DCIT, CIRCLE - 3(1)(2), AHMEDABAD 5 36 67/AHD/2015 2012 - 1 3 DCIT, CIRCLE - 3(1)(2), AHMEDABAD RASNA PVT. LTD. AHMEDABAD 6 CO NO. 05/AHD/2016 (IN ITA 36 67/AHD/2015 ) 2012 - 1 3 RASNA PV T. LTD. AHMEDABAD DCIT, CIRCLE - 3(1)(2), AHMEDABAD ASSESSEE PAN NO: - AABCR 5577 P REVENUE BY : S H RI LALIT P. JAIN , SR. D . R. ASSESSEE BY: SHRI P.F. JAIN, A.R. DATE OF HEARING : 22 - 01 - 2 019 DATE OF PRONOUNCEMENT : 30 - 01 - 2 019 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 2 THESE FOUR APPEALS I.E. ITA NO. 2334/AHD/2015 FILED BY ASSESSEE FOR ASSESSMENT YEAR 2010 - 11, ITA NO. 2397 FILED BY REVENUE FOR ASSESSMENT YEAR 2010 - 11, ITA NO. 3666/AHD/2015 FILED BY REVENUE FOR ASSESSMENT YEAR 2011 - 12, CROSS OBJECTION NO. 04/AHD/2016 IN THIS APPEAL FILED BY THE ASSESSEE, ITA NO. 3667/AHD/2015 FILED BY REVENUE FOR ASSESSMENT YEAR 2012 - 13 AND CROSS OBJECTIO N NO. 05/AHD/2016 IN THIS APPEAL FILED BY ASSESSEE, ARI SE FROM ORDER OF THE CIT(A) - 9, AHMEDABAD , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. AS THE FACTS AND ISSUE IN MOST OF THE GROUNDS OF ALL THE FOUR APPEAL S AND TWO CROSS OBJECTIONS ARE SIMILAR, SO, WE TAKE THE GROUNDS OF APPEAL OF ITA NO. 2397/AHD/2015 AS THE LEAD CASE AND ITS FINDINGS WILL BE APPLICABLE TO THE OTHE R APPEALS AS ADJUDICATED BELOW IN THIS ORDER . 3. THE REVENUE HAS RAISED FOLLOWING SUBSTANTI VE GROUNDS OF APPEAL: - ITA NO.2397/AHD/2015 FILED BY REVENUE 1. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO VERIFY THE 'ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE IN SUBSEQUENT YEAR, OUT OF THE PROVISION MADE OF RS.1,56,13,031/ - ON ACCOUNT OF LIABILITY FOR DAMAGED GOODS AND IF ACTUAL EXPENSES EXCEEDED THE PROVISION THEN DELETE THE QUANTUM ADDITION. 2. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.15,32,979/ - MA DE ON ACCOUNT OF DISALLOWANCE ON NON - COMPETE TERRITORY RIGHTS I.E. GOODWILL. 3. THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.45,00,077/ - ON ACCOUNT OF DISALLOWANCE OF ADVANCES WRITTEN OFF. 3.1 THE ID. CIT(A) HAS ERRED I N LAW AND ON FACTS BY NOT APPRECIATING THE FACTS THAT THE AMOUNT IN QUESTION HAD NOT BEEN CREDITED AND; OFFERED FOR TAX IN EARLIER YEARS BY THE ASSESSEE; HENCE THE SAME WOULD NOT QUALIFY FOR DEDUCTION U/S 36(L)(VII) OF THE ACT. 4. THE CIT(A) HAS ERR ED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.66,04,526/ - MADE ON ACCOUNT OF DISALLOWANCE OF STICKY CREDITORS U/S. 41(1) OF THE ACT. 4.1 THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS BY NOT APPRECIATING THE FACTS THAT THE ASSESSEE HAD FAILED TO BRI NG ANY MATERIAL EVIDENCES TO PROVE THAT THE LIABILITY IN QUESTION STILL EXISTS. I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 3 GROUND NO. 1 4 . THE BRIEF FACT OF THE CASE IS THAT DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS DEBITED AN AMOUNT OF RS. 1 , 56 , 13 , 031/ - AS LIABILITY FOR DAMAGED GOODS UNDER THE HEAD OTHE R EXPENSES. ON VERIFICATION OF THE PAST RECORD OF THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT CLAIM ON ACCOUNT OF LIABILITY FOR DAMAGED GOODS HAS BEEN DISALLOWED FOR ASSESSMENT YEAR 200 3 - 04 TO 2009 - 10 AND ACCORDINGLY THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY THIS CLAIM BE NOT DISALLOWED FOR THE YEAR UNDER THE CONSIDERATION AS I N PREVIOUS YEA R. THE ASSESSEE MADE DETAILE D SUBMISSION AND CONTENDED THAT THIS EXPENDITURE WA S ALLOWABLE AS PER DECISION OF T RIBUNAL IN THE CASE OF THE ASSESSEE ITSELF. THE ASSESSEE HAS ALSO REFERRED THE DECISION OF SUPREME COURT IN THE CASE OF ROTORK CONTROL INDIA PVT. LTD. VS. CIT, CHENNAI ( 180 TAXMAN 422) WHEREIN THE SUPREME COURT HAS HELD THAT SUCH TYPE OF LIABILITY B Y WAY OF PROVISIONS WILL BE ALLOWABLE. THE ASSESSING OFFICER HAS NOT ACCEPTED TH E SUBMISSION OF THE ASSESSEE STAT ING THAT SIMILAR SUBMISSION S WERE MADE DURING THE COURSE OF EARLIER ASSESSMENT YEARS WHEREIN THE ASSESSEE HAD RELIED PRIMARILY ON THE CENT RAL GOVERNMENT N OTIFICATION NO. 9949 DATED 25 TH JAN, 1996 AND THE DECISION OF S UPREME COURT IN THE CASE OF ROTORK C ONTROL INDIA PVT. LTD. VS. CIT CHENNAI 180 TAXMAN 422. THE ASSESSING OFFICER HAS ALSO STATED THAT D EPARTMENT HAD NOT ACCEPTED THE DECISION OF THE ITAT AND FI L E D APPEAL AGAINST T H E DECISION OF THE ITAT IN THE CASE OF THE ASSESSEE ITSELF PERTAINING TO ASSESSMENT YEAR 1997 - 98 BEFORE THE HON BLE HIGH COURT OF GUJARAT . CONSEQUENTLY , THE ASSESSING OFFICER HAS DISALLOWED THE IMPUGNED CLAIM OF R S . 1 , 56 , 13 , 03 1 / - ON ACCOUNT OF LIABILITY FOR DAMAGED GOODS AND ADDED TO T H E TOTAL INCOME OF THE ASSSESSEE. I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 4 5 . AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). T HE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. RELEVANT PART OF THE DECISION IS REPRODUCED AS UNDER : - 2.2 I HAVE CONSIDERED THE CONTENTIONS MADE BY APPELLANT. I |HAVE ALSO CONSIDERED THE OBSERVATION OF THE ASSESSING OFFICER WHILE DECIDING THE ISSUE UNDER CONSIDERATION. AFTER GOING THROUGH ALL THE FACTS I AM INCLINED TO AGREE WITH THE CONTENTION OF THE APPELLANT. IT IS SEEN THAT IN EARLIER YEARS IN THE APPELLANT'S CASE THE SAME ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF APPELLANT, BY MY PREDECESSOR CIT(APPEAL) AND BY HON'BLE ITAT AHMEDABAD. MY PREDECESSOR HAS DELETED THIS ISSUE IN IMMEDIATELY PRECEDING YEAR I.E. A.Y.2009 - 2010, WHILE FOLLOWING THE DECISIONS OF EARLIER CIT(A) AND THE DECISION OF JURISDICTIONAL ITAT IN ASSESSMENT YEAR 2006 - 2007. THIS YEAR THE APPELLANT HAS ALSO RELIED UPON THE DECISION OF HON'BLE JURISDICTIONAL ITAT FOR A.Y.2007 - 2008 VIDE ITA NO. 2 5/AHD/2011 DATED 14/02/2014. THE HON'BLE IT AT AHMEDABAD HAS DELETED THE ADDITION WHILE CONSIDERING THE ORDER OF THE CIT(A) IN A.Y.2009 - 2010 WHICH IS REPRODUCED AS UNDER: - 'I HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS. IT IS SEEN THAT DISALLOWANCE UNDER THE HEAD DAMAGED GOODS LIABILITY IS BEING MADE FROM ASSESSMENT YEAR 200 - 3 - 04 ONWARDS. THIS ISSUE IS BEING CONSISTENTLY DECIDED IN FAVOUR OF THE APPELLANT BY HON BLE ITAT AND LD. CIT(A) F OR ASSESSMENT YEAR 2005 - 06 IN ITA NO. 1951/AHD/2008 DTD. 9 - 7 - 2010 HON BLE ITAT HAD CONFIRMED THE ORDER OF LD. CIT(A) WITH THE FOLLOWING OBSERVATIONS: WE FIND THE DETAILS OF ACTUAL EXPENDITURE INCURRED IN THE SUBSEQUENT YEAR BY THE ASSESSEE OUT OF THE PROVISION OF RS. 54,41,218/ - MADE DURI NG THE YEAR HAVE NOT BEEN BROUGHT ON RECORD. IN ABSENCE OF THE ABOVE, WE A R E UNABLE TO ADJUDICATE THE ISSUE COMPLETELY. WE, THEREFORE, RESTORE T HE ISSUE BACK TO THE LEARNED ASSESSING OFFICER AND DIRECT HIM TO ADJUDICATE THE ISSUE AFRESH IN LIGHT OF THE D ECISION OF THE TRIBUNAL QUOTED ABOVE AND AF T ER ALLOWING PROPER OPPORTUNITY OF HEARING TO TH E ASSESSEE. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. IT IS SEEN THAT DURING THE YEAR UNDER CONSIDERATION APPELLANT HAD MADE PROVISION OF RS. RS.1,89,45,235/ - UNDER THE HEAD 'LIABILITY FOR DAMAGED GOODS'. IN VIEW OF THE DECISION OF HON'BLE ITAT FOR A.Y. 2005 - 06, A.O. IS DIRECTED TO VERIFY THE ACTUAL EXPENDITURE INCURRED IN THE SUBSEQUENT YEAR BY THE APPELLANT OUT OF THE SAID AMO UNT OF RS. RS.1,89,45,235/ - , IF EXPENDITURE IS EQUAL TO OR MORE THAN THE SAID AMOUNT, THE A.O. SHALL DELETE THE ENTIRE DISALLOWANCE. IF THE ACTUAL EXPENDITURE IS LESS THAN THE SAID SUM, DISALLOWANCE OF THE EXTENT OF SHORTFALL WILL SURVIVE AND BALANCE DISAL LOWANCE WILL BE DELETED. HON'BLE ITAT, AHMEDABAD IN ITA NO.2491/AHD/2009 FOR AY 06 - 07 IN THE APPELLANT CASE HAS, FOLLOWED ITS EARLIER DECISIONS AND GIVEN THE DECISION, IN APPELLANT FAVOUR. THUS, SUBJECT TO VERIFICATION, THIS GROUND OF APPEAL IS ALLOWED.' HONOURABLE ITAT AHMEDABAD HAS FURTHER ADJUDICATED THAT SINCE ID. CIT APPEAL HAS FOLLOWED THE EARLIER ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2005 - 2006 IN ASSESSEE'S OWN CASE WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF LEARNING CAD APPEAL AND THE SAME IS HEREBY UPHELD. TH IS GROUND OF REVENUE'S APPEAL IS DISMISSED.' IN VIE W OF DECISION OF HON'BLE ITAT AHMEDABAD AND DECISION OF MY PREDECESSOR IN EARLIER YEARS, I AM IN AGREEMENT WITH THE CONTENTION OF APPELLANT ON THE ISSUE OF ADDITION OF LIABI LITY FOR DAMAGED GOODS. DURING THE YEAR UNDER CONSIDERATION, IT IS OBSERVED THAT THE APPELLANT HAS: MADE PROVISION OF RS.1,56,13,031/ - UNDER THE HEAD 'LIABILITY FOR DAMAGED GOODS'. ACCORDINGLY , KEEPING IN VIEW THE DECISION OF MY PREDE CESSORS IN EARLIER YEA RS AND IN VIEW OF THE DECISION OF HON'BLE ITAT FOR A.Y. 2007 - 08, THE A.O. IS DIRECTED TO VERIFY THE ACTUAL EXPENDITURE INCURRED I(I THE SUBSEQUENT YEAR BY THE APPELLANT OUT O F THE SAID AMOUNT OF RS. 1,56,1,031/ - , IF EXPENDITURE IS EQUAL TO OR MORE THAN THE SAID AMOUNT, THEN THE A.O. DIRECTED TO DELETE THE ENTIRE DISALLOWANCE. IF THE A.O FINDS THAT THE ACTUAL EXPENDITU RE IS LESS THAN RS. 1,56,13,031/ - , THEN THE DISALLOWANCE WILL BE RESTRICTED TO THE EXTENT OF SHORTFALL AND BALANCE DISALLOWANCE WILL BE DELETE D. ACCORDINGLY, SUBJECT TO VERIFICATION BY THE AO, THIS GROUND OF APPEAL IS ALLOWED. I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 5 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY . DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS CONTENDED THAT THE SAME ISSUE PERTAINING TO THE ASSESSMENT YEAR H AS BEEN DECIDED BY THE HON BLE HIGH C OURT IN THE CASE OF THE ASSESSEE ITSELF IN FAVOUR OF THE ASSESSEE VIDE TAX APPEAL NO. 1298 OF 2018 ORDER DATED 07 - 07 - 2008. WITH THE ASSISTANCE OF THE LD. COUNSEL WE HAVE GONE THROUGH THE JUDICIAL PRONOUNCEMENT AS SUPRA. THE R ELEVANT PART OF THE SAME IS REPRODUCED AS UNDER: - HEARD LEARNED ADVOCATES FOR BOTH THE SIDES. MAINLY TWO ISSUES HAVE ARISEN FROM THE PRESENT SET OF APPEALS NAMELY (I) DISALLOWANCE OF THE PROVI SION MADE FOR THE CURRENT YEARS UNDER APPEAL AND (II) DISALLOWANCE OF ACTUAL LIABILITY PERTAINING TO EARLIER YEARS. SO FAR AS THE ISSUE WITH REGARD TO DELETION OF ADDITION BY THE CIT(A) BEING THE PROVISIONS MADE FOR DAMAGED GOODS FOR THE CURRENT YEAR AND E ARLIER YEARS, THE TRIBUNAL HAS PROCEEDED ON THE BASIS OF THE ASSESSEE S OWN CASE IN THE PREVIOUS YEARS. THE TRIBUNAL HAS CONSIDERED THE FACT THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR PREVIOUS YEARS, THE FACTS BEING EXACTLY IDENTICAL IN THE CASE ON HAND ALSO . 7. IT IS REQUIRED TO BE NOTED THAT THERE IS A CHANGE IN THE METHOD OF ACCOUNTING EMPLOYEE}.DURING THE YEARS UNDER REVIEW FROM THAT OF EMPLOYED DURING THE IMMEDIATELY PRECEDING YEAR. WE HAVE ALSO CON SIDERED THE GOVERNMENT NOTIFICATION NO. 9949 DATED 25.01.1996 WHEREBY CERTAIN ACCOUNTING STANDARDS FOR ASSESSEES FOLLOWING MERCANTILE SYSTEM OF ACCOUNT HAVE BEEN MADE COMPULSORY FROM A.Y. 1997 - 98 AND FIND THAT THE CASE OF THE ASSESSEE IS COVERED BY THE SAM E. THE DECISIONS CITED BY LEARNED ADVOCATE FOR THE ASSESSEE ALSO APPLIES ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. 8. THE APEX COURT IN THE CASE OF RO TORK CONTROLS INDIA (P.) LTD (SUPRA) OBSERVED THAT A PROVISION IS A LIABILITY WHICH CAN BE MEASU RED ONLY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION AND THAT A PROVISION IS RECOGNIZED WHEN (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE REQUIRED TO SETTLE THE OBLIGATION AND (C ) RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. THE APEX COURT OBSERVED THAT - IF THESE CONDITIONS ARE NOT MET, NO PROVISION CAN BE RECOGNIZED. THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A) AND THE TRIBUNAL HAVE RIGH TLY DISALLOWED THE ADDITION MADE BY THE ASSESSING OFFICER. WE DO NOT FIND ANY ERROR IN THE SAME. 9. IN VIEW OF THE ABOVE, THE QUESTIONS RAISED IN THE PRE SENT APPEALS ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE ORDERS PASSED BY THE TRIBUNAL ARE CONFIRMED. NO COSTS. 7 . RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT AS SUPRA WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE , THEREFORE , T HE SAME IS DISMISSED. I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 6 GROUND NO. 2 8 . AT ASSESSMENT T HE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 15 , 32 , 979/ - ON ACCOUNT OF NON - COM PETE TERRITORY RIGHTS I.E. GOODWILL @ 25%. THE ASSESSING OFFICER OBSERVED THAT THIS CLAIM WAS NOT ALLOWED TO THE ASSESSEE IN T HE EARLIER ASSESSMENT YEARS, THEREFORE, ASSESSEE WAS ASKED DURING THE COURSE OF APPELLATE PROCEEDINGS AS TO WHY THE SAME SHOULD NOT BE DISALLOWED IN THE CURRENT ASSESSMENT YEAR AS WELL. THE ASSESSEE EXPLAINED THAT HON BLE HIGH COURT HAS DECIDED THE S CA N O. 3 7 5 OF 2005 OF THE ASSESSEE AND QUASHED THE RE - ASSESSMENT PROCEEDINGS INITIATED BY THE DEPARTMENT FOR DISALLOWING THE DEPRECIATION IN THE FIR ST YEAR OF CLAIM BEING ASSESSMENT YEAR 2002 - 2003. THE ASSESSING OFFICER HAS NOT ACCEPTED THE REPLY OF THE ASSE SSEE STAT ING THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF APPELLATE AUTHORITIES AND FURTHER APPEAL HAS BEEN FILED. CONSEQUENTLY , HE HAS DISALLOWED THE DEPRECIATION OF NON - COMPETE TERRITORY RIGHTS TO THE AMOUNT OF RS. 15 , 32 , 979/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 9 . AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE T HE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER: - 3.2 I HAVE CONSIDERED THE RIVAL SU BMISSION. IT IS SEEN THAT THE JURISDICTIONAL TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF APPELLANT FOR THE A.Y.2007 - 2008 VIDE ITA NO. 25/AHD/2011 DATED 14/02/2014 WHEREIN THE HON'BLE ITAT HAS DECIDED WHILE CONSIDERING ITS OWN DECISION FOR A.Y.2005 - 2006 IN THE APPELLANT'S CASE WHEREIN IT HAS HELD; '(9) WE FIND THAT ON THE SAME ISSUE ON THE IDENTICAL FACTS THE ID. COMMISSIONER OF INCOME - TAX (APPEALS) HAD GIVEN THE SAME FINDING AS QUOTED ABOVE IN THE A.Y. 2003 - 04 AND 2004 - 05. THE REVENUE J/N THOSE YEARS HAD ACCEPTED THE FINDING OF THE LEARNED COMMISSIONER OF \ LNCOME - TAX (APPEALS) AND HAD NOT FILED APPEAL BEFORE THE TRIBUNAL AGAINST THE FINDING OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS). THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY DISTINGUISHING FEATURES IN THE ABOVE YEAR UNDER APPEAL. THEREFORE, WE DO NOT FIND ANY I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 7 GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED.' THEREFORE, RESPECTFULLY FOLLOWING THE HON'BLE TRIBUNAL DECISION, A.O. IS DIRECTED TO DELELE THE ABOVE ADDITION ON NON - COMPETE TERRITORY RIGHT FOR THE YEAR UNDER APPEAL I.E. ASSESSMENT YEAR 2010 - 2011. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED SUBJECT T O THE FINAL DECISION OF HON'BLE GUJARAT HIGH COURT. 10 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD ON THIS ISSUE. DURING THE COURSE OF APPELLATE PROCEEDINGS, IT WAS BROUGHT TO OUR NOTICE THAT HE CO - ORDINATE BENCH OF THE ITAT AHMEDABAD VIDE ITA NO. 574 & 575 /AHD/2013 FOR ASSESSMENT YEAR 2005 - 06 AND 2006 - 07 IN THE CASE OF THE ASSESSEE ITSELF HAS DECIDED THE IDENTICAL ISSU E IN FAVOUR OF THE ASSESSEE. WE HAVE GONE THROUGH THE AFORESAID ORDER OF THE ITAT AND NOTICED THAT THE ITAT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RELEVANT PART OF THE DECISION OF ITAT IS REPRODUCED AS UNDER: - 10. HAVING NOTED THAT IN ALL THE PRECEDING ASSES SMENT YEARS, LEARNED CIT(A) HAD DELETED THE DISALLOWANCE. OF DEPRECIATION ON NON - COMPET E TERRITORY RIGHTS SUBJECT TO THE RIDER THAT 'HOWEVER, CONSEQUENTIAL EFFECT WOULD BE GIVEN ON THE ISSUE, IF REQUIRED, AS PER THE DECISION OF HON'BLE GUJARAT HIGH COURT', HAVING NOTED THAT NO CONSEQUENTIAL EFFECT IS REQUIRED TO BE GIVEN TO THE R ELIEF SO GRA NTED IF THE ASSESSEE AS THERE ARE NO ADVERSE COMMENTS ON THE MERITS OF THE CLAIM, AND FOR THE SAKE OF CONSISTENCY, WE CONFIRM THE STAND TAKEN BY THE CIT(A ) AND DECLINE TO INTERFERE IN THE MATTER. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT THE NET I MPACT OF THIS DECISION HAVING BEEN ACCEPTED IS THAT NO REASSESSMENT OR RE - COMPUTATION CAN BE DONE AT THIS STAGE, SINCE SUCH AN ACTION WILL BE TIME BARRED NOW AND THE PROVISIONS OF SECTION 153(3], WHICH RESTRICT THIS LIMITATION ON TIME BARRING TO GIVE EFFE CT TO FINDING OR DIRECTIONS OF HON'BLE HIGH COURT'S ORDER, WILL NOT COME TO THE RESCUE TO THE ASSESSEE IN THIS CASE SINCE THERE IS NO SUCH 'FINDING OR DIRECTION' ON MERITS, WHICH CAN BE GIVEN EFFECT, IN TERMS OF HON'BLE SUPREME COURT'S JUDGMENT IN THE CASE OF RAJINDER NATH VS CITF 120 ITR 14). THE RELAXATION UNDER SECTION 153(3), AS HELD BY I LON'BLE SUPREME COURT IN THIS CASE, COMES TO THE RESCUE OF THE REVENUE ONLY IN RESPECT OF SUCH FINDINGS OR DIRECTIONS AS ARE NECESSARY FOR DISPOSAL OF THE MATTER. THE MATTER HAVING BEEN DECIDED ON THE GROUND OF JURISDICTION ALONE, THERE WAS NO NEED TO DEAL WITH THE MERITS OF THE CASE, AND, AS SUCH, FOLLO WING HON'BLE SUPREME COURT S JUD GMENT IN THE CASE OF RAJINDER NATH, THE INHERENTLY LIMITED SCOPE OF SECTION 153(3) DO ES NOT HELP THE ASSESSING OFFICER. THE DISALLOWANCE OF DEPRECIATION THUS SEEMS TO HAVE REACHED FINALITY. THE LAW IS FAIRLY WELL SETTLED THAT ONCE ASSESSING OFFICER ACCEPTS A PARTICULAR POSITION BY NOT CHALLENGING THE SAME IN FURTHER APPEAL, IT CANNO T BE OPEN TO HIM TO DISTURB THE POSITION HAVING SO REACHED FINALITY, BY APPEAL IN ANOTHER YEAR. NO DOUBT THERE IS NO RES JUDICATA IN INCOME TAX PROCEEDINGS BUT PRINCIPLES OF CONSISTENCY DO PLAY AN IMPORTANT ROLE IN ALL WALKS OF LIFE AS MUCH AS IN THE INCOM E TAX PROCEEDINGS. AS OBSERVED BY HON'BLE SUPREME COURT, IN THE CASE OF PARASHURAM POTTERY WORKS LTD VS ITO [ 106 ITR 1), '......WE HAVE TO BEAR IN MIND THAT THE POLICY OF LAW IS THAT' THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDINGS, THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI - JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY...'. IN ANY CASE, THERE IS NOT EVEN A WHISPER O F THE REASON FOR CORNING TO THE CONCLUSION, ON MERITS, AS TO WHY THE DEPRECIATION ON THE INTANGIBLE ASSETS IN QUESTION HAS BEEN I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 8 DECLINED. WE HAVE NO OCCASION TO DEAL WITH THE MERITS, AND THE CASE OF THE ASSESSING OFFICER SIMPLY HINGED ON THE OUTCOME OF HON'BLE HIGH COURT'S DECISION FOR THE ASSESSMENT YEAR 2002 - 03 BUT THEN THIS JUDGMENT IS, AS EVIDENT FROM OUR PERUSAL OF THE SAME, IS NOT ON MERITS AT ALL. IN THREE SUBSEQUENT ASSESSMENT YEARS ALSO, THIS DISALLOWANCE IS DELETED BY THE CIT(A), ACTION CONFIRMED BY A COORDINATE BENCH OF THE TRIBUNAL IN ONE OF THE ASSESSMENT YEARS, AND REVENUE IS NOT IN FURTHER APPEAL, THE CASE OF THE REVENUE CANNOT BE SALVAGED FOR THOSE YEARS AT THIS STAGE. LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT BROUGHT ON RECORD ANY MATERIAL ON RECORD TO JUSTIFY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. WHEN ASKED TO ADDRESS THE MATTER ON MERITS, HE SUBMITTED THAT THE ISSUE CAN BE RESTORED TO THE FILE OF THE ASSESSING OFFICER SO THAT MERITS CAN BE 1. WE DO NOT THINK THAT COURSE OF ACTION IS PERMISSIBLE TO US NOW THAT THE DELETION OF SIMILAR DISALLOWANCE, IN THE COURSE OF REGULAR SCRUTINY ASSESSMENT PROCEEDINGS, HAS BEEN ACCEPTED BY THE ASSESSING OFFICER FOR THREE IMMEDIATELY PRECEDING ASSESSMENT YEARS. TH AT WILL BE UNSETTLING THE ACCEPTED AND SETTLED 'POSITION FOR OTHER ASSESSMENT YEARS, AND CONTRARY TO THE DECISION OF THE COORDINATE BENCH IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. HOWEVER, AS WE HAVE REACHED THIS DECISION ON SOMEWHAT PE CULIAR FACTS OF THIS CASE, IN WHICH AN INACTION OF THE REVENUE AUTHORITIES HAS PREJUDICED THEIR INTERESTS MORE THAN ANYTHING ELSE, PRESENT DECISION CANNOT BE AN AUTHORITY ON THE BROAD LEGAL ISSUES INVOLVED AND MUST REMAIN CONFINED TO THE FACTS OF THIS CAS E. IN VIEW OF THESE DISCUSSIONS, SUBJECT TO THE OBSERVATIONS MADE ABOVE, AND BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE CONCLUSION ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. RESPECTFULLY FOLLOWING THE DECISION OF CO - ORDI NATE BENCH OF THE ITAT AS ABOVE, WE DO NOT FIND ANY ERROR I N THE DECISION OF LD. CIT(A) THEREFORE T HIS GROUND OF APPEAL OF THE REVENUE IS ALSO DISMISSED. GROUND NO . 3 & (I) 11 . DURING ASSESSMENT THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS WRITTEN O FF ADVANCES TO THE EXTENT OF RS. 45 , 00 , 077/ - IN ITS P & L A/C RELATED TO ADVANCES TO SUPPLIERS FOR PURCHASE OF MATERIAL, STAFF ADVANCES, SECURITY DEPOSIT ETC. . THE ASSESSING OFFICER OBSERVED THAT ONLY BAD DEBT INCURRED DUE TO SALE OF PRODUCE WERE ALLOW ABLE AS A N EXPENSE AND IN THE INSTANT CASE OF THE ASSESSEE TH E NATURE OF EXPENSES DO NOT FALL WITHIN THE PURVIEW OF SECTION 36(1)(VIII) , THEREFO RE, HE HAS DISALLOWED THESE EXPENSES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 9 12 . AGGRIEVED ASSESSEE H AS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. RELEVANT PART OF THE DECISION OF IS AS UNDER: - 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ID. AR. I HAVE ALSO GONE THROUG H THE DEC ISIONS RELIED ON BY THE ID. AR. APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF FRUIT DRINKS CONCENTRATE UNDER THE BRAND NAME 'RASNA'. THE APPELLANT HAD ADVANCED AT THE BEGINNING OF THE YEAR ON 01/04/2009, THE ADVANCE TO STATU S ENTERPRISE WAS RS.7,03,377/ - AND DURING THE MID OF THE YEAR UNDER CONSIDERATION FURTHER ADVANCE OF RS.30 WAS GIVEN TO PURCHASE THE GOODS FOR THE FORTHCOMING SEASON HOWEVER IT WAS NOT HAPPENED AND THEREBY ADVANCE BECAME IRRECOVERABLE. ASSESSE E ALSO GRANTE D EDUCATIONAL LOAN TO MR. O.P. SHARMA AND ALSO GIVEN THE ADVANCE TO MEET VARIOUS EXPANSE'S IN PERFORMIN G THE JOB OUTSIDE HEAD QUARTER. FROM TH E COPY OF LEDGER ACCOUNT FILED IT IS SEEN THAT RS. 2,72,981/ - COMPRISES OF INTEREST AND LOAN ADVANCED TO MR. O.P.S HARMA DURING THE PERIOD OF HIS SERVICE WITH THE ASSESSEE. IT IS ALSO SEEN THAT MONTHLY RECOVERY OF LOANS IS ALSO MADE FROM THE SALARY PAID BUT COMPANY COULD RE - COVER ONLY FINAL SETTLEMENT AMOUNT AGAINST THE BALANCE DUE TO HIM ON HIS RESIGNATION LIKEWISE IN CASE OF MR. PRAMOD VASVANI ALSO ASSESSEE HAD ADVANCED LOAN DURING HIS EMPLOYMENT WITH COMPANY AND RECOVERED MONTHLY INSTALLMENT FROM THE SALARY HOWEVER ON HIS RESIGNATION COMPANY COULD ONLY RECOVERED RS.61,200/ - AS BONUS STANDING HIS NAME AND BALANCE AM OUNT OF RS.3,71,884/ - REMAINED TO BE RECOVERED AND THEREFORE COMPANY HAS WRITTEN OFF THE SAME AS IT WAS IRRECOVERABLE. THE AMOUNT OF RS. 90,800/ - DETAILED IN THE CHART GIVEN ABOVE ARE THE DEPOSITS OF THE HOUSE FOR THE STAFF GIVEN AS SECURIT Y DEPOSIT COULD NOT BE RECOVERED AS THE EMPLOYEES HAVE NOT PAID THE MAINTENANCE AND ELECTRICITY AND THEREFORE AND SECURITY DEPOS IT WERE FORFEITED BY THE LAND LO RD AND THE EXPENDITURE BEING IN COURSE O F BUSINESS HAS BEEN CLAIMED AS ALLOWABLE IN VIEW OF ABOVE FACTS IT I S OBSERVED THAT, THE ADVAN CE MADE BY THE APPELLANT RELATES TO THE B USINESS OF THE APPELLANT. HENCE, THE WRITE OFF I'S ALLOWABLE AS BUSINESS LOSS BEING A GENUINE BUSINESS LOSS. THE HON'BLE SUPRERNE COURT IN THE CASE NO.807/M7 807/M/12 /M/ 12 OF CIT V. WOOD W ARD GOVERNOR INDIA PVT. LTD. 179 TAXRNAN 326 (SC) HELD THAT THE EXPRESSION 'EXPENDITURE' AS USED IN CASE OF NO. SEC.37 MAY, IN CIRCUMSTANCES OF PARTICULARS CASE, COVER AN AMOUNT WHICH IS REALLY A LOSS, EVEN THOUGH SAID AMOUNT HAS NOT GONE OUT FROM POCKET O F THE ASSESSEE. THE HON'BLE SUPREME COURT IN THE CASE OF BADRIDAS DAGA V. CIT (34 ITR 10 ) CALCUTTA CO. LTD. V, CIT (37 ITR 1) HAS HELD THAT THE PROFIT TO BE ASSESSED ARE THE REAL PROFITS AND THEY MUST BE ASCERTAINED ON ORDINARY PRINCIPLES OF COMMERCIAL TRA DING AND COMMERCIAL ACCOUNTING. THE PROFIT SHOULD BE COMPUTED AFTER DEDUCTING LOSSES AND EXPENDITURE INCURRED FOR THE PURPOSES OF BUSIN BSS UNLESS SUCH LOSSES OR EXPENDITURE ARE EXPRESSLY, OR BY NECESSARY IMPLICATION, {DISALLOWED BY THE ACT. RELIANCE IS AL SO PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD (SUPRA) WHERE IT WAS HELD THAT DEBT NEED NOT BE PROVED TO BE IRRECOVERABLE AND IT IS SUFFICIENT IF THEY ARE WRITTEN OFF. THE DECISIONS IN THE CASE OF MOHAN MEAKIN LTD. (SUPRA) AN D SRI T. PITAMBER (SUPRA) ALSO SUPPORT THE CLAIM OF THE APPELLANT. IN VIEW OF THE ABOVE FACT S AND PRECEDENTS, THE ADDITION IS DELETED. ACCORDINGLY, THIS GROUN D IS ALLOWED. 13 . WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE MATERIAL ON RECORD. IT IS NOTICED T HAT WRITTEN OFF ADVANCES INCLUDE MAJOR PART OF ADV ANCES MADE TO SUPPLIER OF GOODS AMOUNTING OF RS . 37 , 89 , 799/ FOR PURCHASE O F FINISHED GOODS AND SMALL PARTS RELATED TO STAFF ADVANCE OF RS. I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 10 6, 48 ,406/ FREIGHT DEPOSIT OF RS. 28,928 A ND SECURITY DEPOSIT OF RS. 90,800/ . T HE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF FRUIT DRINKS AND USED TO G ET THE GOODS MANUFACTURED THROUGH JOB WORK AND ON A PRINCIPAL TO PRINCIPAL BASIS. WITH THE ASSISTANCE OF THE LD. C OUNSEL WE HAVE GONE THROUGH THE MATERIAL ON RECORD AND OBSERVED THAT A S PER THE LEDGER ACCOUNT OF THE ASSESSEE IN THE CASE OF M/S SELLORA ENTERPTISE IT HA D PURCHASED FINISH GOODS ON PRINCIPLE TO PRINCIPAL BASIS AND ALSO PAID TO THE SUPPLIER ON THEIR BEH ALF. THE ASSESSEE WAS PURCHASING THE GOODS SINCE APRIL 2006 FROM THE SAID PARTY AND ALSO PAID TO THE S UPPLIER ON THEIR BEHALF , HOWEVER , THE BALANCE TURNED TO DEBIT WHICH W AS NOT PAID BY THE SAID PARTY THEREFORE IT WAS WRITTEN OFF IN THE BOOKS . IN RESPECT OF STAFF LOAN THE ASSESSEE HAS ADVANCED LOAN DURING THE PERIOD OF SERVICES OF THE EMPLOYEES AND MONTHLY RECOVERY OF LOAN WAS ALSO MADE FROM THE SALARY PAID BUT THE COMPANY COULD NOT RECOVERED FINAL SETTLEMENT AMOUNT AGAINST DUE TO RESIGNATION OF ITS EMPLO YEES. THEREFORE, THE COMPANY HAS WRITTE N OFF OF THE UNRECOVERED AMOUNT. THE ASSESSEE HAS ALSO GIVEN SECURITY DEPOSIT RELATI NG TO THE HOUSE FOR THE STAFF WHICH COULD NOT BE RECOVERED AS THE EMPLOYEES HAVE NOT PAID THE MAINTENANCE AND ELECTRICITY THERE FORE SECURITY DEPOSIT WERE FORFEITED WHICH WAS WRITTEN OFF BY THE ASSESSEE. AFTER CONSIDERING THE DETAILED FINDINGS OF THE LD. CIT(A) WE OBSERVED THAT THE IMPUGNED ADVANCES MADE IN THE ORDINARY COURSE OF BUSINESS WERE WRITTEN OFF WHEN THESE WERE IRREC OVERABLE . IN THE LIGHT OF THE ABOVE FACTS AND AFTER CONSIDERING THE DETAILED FINDING OF THE LEARNED CIT ELABORATED WITH I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 11 JUDICIAL FINDINGS WE DO NOT FIND ANY ERROR IN THE DECI SI ON OF LD. CIT(A) ON THIS ISSUE. ACCORDINGLY , THIS GROUND OF THE REVENUE IS A LSO DISMISSED. GROUND NO. 4 & 4(I) 14 . DURING THE ASSESSMENT , THE ASSESSING OFFICER NOTICED THAT ASSESSEE HA D SHOWN SUNDRY CREDITORS SINCE FINANCIAL YEAR 2008 - 09 AND THERE WAS NO CHANGE IN THE OUTSTANDING LIABILITY STANDING AGAINST THE IR NAME S . ON VER IFICATION OF THE DETAILS FILED BY THE ASSESSEE THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HA D NOT FILED ANY EVIDENCE IN THE FORM OF CORRESPONDENCE WITH THE AFORE SAID PARTIES THAT THE SAID LIABILITY STILL EXIST S . THE ASSESSING OFFICER OBSERVED THAT I TS LIABILITY IN RELATION TO M/S. ARPIT FOODS M/S KBM FOOD S HAD REMAINED OUTSTANDING FOR A LONG TIME AND THE ASSESSEE HAD NOT FILED ANY EVIDENCE IN THE FORM OF CORRESPONDENCE WITH THE SAID PARTIES AND THE EVIDENCE THAT THE DISPUTE WITH SUCH PARTIE S WERE PENDING IN THE COURT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE AMOUNTS IN RELATION TO M/S. ARPIT FOODS M/S KBM FOODS PRODUCTS AND PROVISIONS OF EXPENSES IN RELATION TO THE THREE IDENTIFIED PARTIES WERE CLEARLY COVERED UNDER SECTION 41 AS RE MI SSION OF LIABILITY THEREFORE HE HAD ADDED BACK THE TOTAL AMOUNT OF RS. 66 , 04 , 526/ - TO THE TOTA L INCOME OF THE ASSESSEE U/S. 41 OF THE ACT. 15 . AGGR IEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSES SEE. RELEVANT PART OF THE DECISION OF LD. CIT(A) IS REPRODUCED AS UNDER: - 8.1 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. I HAVE ALSO PERUSED VARIOUS CASE LAWS RELIED UPON BY THE APPELLANT. I HAVE ALSO GONE THROUGH THE EVIDENCES FURNISHED BY THE A PPELLANT DURING THE ASSESSMENT PROCEEDINGS AND DURING THE APPELLATE PROCEEDINGS. IT IS SEEN THAT ADDITIONS MADE U/S.41(1) IS DISPUTED. IN VIEW OF THIS, IT WILL BE PERTINENT TO DISCUSS THE PROVISIONS OF SEC.41(1) OF THE I.T.ACT. IN MY CONSIDERED VIEW THE PR OVISIONS OF SEC.41(1) CAN BE INVOKED, IF THE FOLLOWING CONDITIONS ARE FULFILLED : - I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 12 (I) IN THE ASSESSMENT OF AN ASSESSEE, AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF ANY LOSS, EXPENDITURE OR TRADING LIABIL ITIES INCURRED BY THE APPELLANT. (II )(A) ANY AMOUNT IS OBTAINED IN RESPECT OF SUCH LOSS OR EXPENDITURE, OR ' (B) ANY BENEFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. , (III) SUCH AMOUNT OR BENEFIT, IS OBTAINED BY THE ASSESSEE AND (IV) SUCH AMOUNT OR BENEFIT IS OBTAINED IN A SUBSEQUENT YEAR! 8.2 TO INVOKE PR OVISIONS OF SEC.41(1), THE ABOVE SAID CONDITIONS SHOULD BE FULFILLED. IT IS SPECIFICALLY HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS PRANLAL P.I DOSHI (1993) REPORTED AT 201 ITR 756 (GUJ) AND CIT VS BHARAT IRON & STEEL INDUSTRIES (1993) 199 ITR 67 (GUJ;), THAT SEC.41(1) JCREAT ES A LEGAL FICTION. THEREFORE, FACTS NECESSAR Y BY WAY OF CONDITION PRECEDENT FOR RAISING THE LEGAL FICTION HAVE TO BE E STABLISHED FIRST AND THEY CAN BE ESTABLISHED ONLY ON THE BASIS OF EVIDENCE ON RECORD. IN T HE CASE IN HAND, THE APPELLANT HAS SPECIFICALLY RAISED THE QUESTION! THAT THE IMP UGNED AMOUNT WAS NEVER ALLOWED H AS DEDUCTION IN THE EARLIER YEAR. IN THIS REGARD, THE HON'BLE DELHI HIGH COURT IN CIT VS FOOLCHAND JIVANRAM (1981) REPORTED AT 131 ITR 37 AND ST EEL AND GENERAL MILLS CO. LTD. V S CIT (1974) REPORTED AT 96 ITR 438 (DEL), HAS HELD THAT THE BURDE N LIES UPON THE DEPARTMENT TO PROVE THAT AN ALLO WANCE OR DEDUCTION HAD BEEN GIV EN FOR RELEVANT AMOUNT TO THE ASSESSEE IN THE EARLIER ASSESSMENT YEARS. THIS BURDEN WILL BE DISCHARGED ONLY IF REVENUE PRODUCES POSITIVE EVIDENCE AND DOES NOT RELY UPON PROBABILITIES AND EXTRANEOUS CIRCUMSTANCES. IT IS FURTHER HELD BY HON'BLE JABALPUR TRIBUNAL IN THE CASE OF CIT VS BHAGWANDAS SHOBHADAS JAIN (1997 ) REPORTED AT 60 ITD 180 THAT FOR APPLYING PROVISIONS OF SEC.41(1), ONUS IS UPON) THE REVENUE TO ESTABLISH THAT LIABILITY HAS CEASED DURING THE RELEVANT PREVIOUS YEAR . 8.3 IT IS SE EN THAT THE A.O. HAD NOT BROUGHT ANYTHING ON RECO 'D TO PROVE THAT THESE LIABILITIES WERE NOT EXISTING IN THE CURRENT ASSESSMENT YEAR I AM ALSO NOT INCLINED TO AGREE WITH THE CONTENTION OF THE A.O. THAT THESE LIABILITIES HA D BEEN PAID OFF OUTSIDE THE BOO KS AS THE A.O. HAD NOT BROUGHT ANY MATERIAL ON RECORD IN SUPPORT OF THIS CONTENTION. IT IS ALSO A MATTER OF FACT THAT THE APPELLANT IS SHOWING THESE LIABILITIES IN ITS BALANCE SHEET AND I AM INCLINED TO AGREE WITH THE CONTENTION OF LD. A.R. THAT THESE LIAB ILITIES SUBSISTS IN THE ABSENCE OF ANY ADVERSE EVIDENCE. SECONDLY, THE A.O. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO PROVE THAT ANY BENEFIT IS OBTAINED IN RESPECT OF SUCH TRADING LIABILITY BY THE APPELLANT BY WAY OF REMISSION OR CESSATION. THE MERE FACT T HAT THE LIABILITIES ARE OUTSTANDING FOR MORE THAN THREE YEARS DOES NOT MAKE THE LIABILITIES UNENFORCEABLE OR THE INABILITIES DOES NOT CEASE TO EXIST . THE APPELLANT'S CASE IS ALSO COVERED BY THE RATIO OF CIT. CALCUTTA VS SUGAULI SUGAR WORKS PVT. LTD. RE PORTED AT AIR (1999) (S.C.) 1144. 8.4 IN VIEW OF ABOVE FACT, I DO NOT HAVE ANY HESITATION IN ORDERING ADDITION OF RS. 66, 04,526/ - 16 . WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD CAREFULLY. IT IS NOTICED THAT IN THE LIST O F SUNDRY CREDITORS , THERE WAS AN OLD AMOUNT OUT STANDING IN THE ACCOUNT M/S ARPIT FOOD OF RS. 19 , 58 , 277/ - AND M/S K B M FOOD PRODUCTS OF RS. 13 , 46 , 843/ - AND THERE WAS DISPUTE BETWEEN THE PARTIES ON ACCOUNT OF WHICH PAYMENT HAS BEEN HELD. SIMILARLY IN THE PROVISION OF EXPENSES, THERE WAS OUTSTANDING BALANCE BEING C/F IN T HE ACCOUNT OF FOLLOWING PARTIES: - 1. POLAD TRADERS PVT. LTD. RS. 35,19,844/ - \ 2. MILAP AGENCY RS. 3,L 7,426/ - . I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 13 3. TPH& SONS RS. 22,01,529/ - AFTER CONSIDERING THE DECISION OF O N TH E HON BLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF COMMISSIONER OF INCOME TAX - 3 VERSUS BHOGILAL RAMJIBHAI ATARA (2014)43 TAXMANN .COM 55( GUJARAT) IT IS NOTICED THAT THERE WAS NOTHING ON RECORD TO SUGGEST THAT THERE WAS A REMISSION OR CESSATI ON OF LIABILITY THAT TOO DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN THE CASE OF THE ASSESSEE. IN THE LIGHT OF THE ABOVE FACTS, MATERIAL ON RECORD AND DETAILED FINDING OF THE LEARNED CIT APPEAL WE CONSIDERED THAT OUTSTANDING WERE DISPUTED LIABILITY WAS NOT CEASED TO EXIST , THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD. CIT(A) THEREFORE THE APPEAL OF THE REVENUE IS DISMISSED. 17. IN THE RESULT, APPEAL ITA 2397/ AHD/201 5 FILED BY REVENUE IS DISMISSED. ITA NO. 366 6/A HD/2015 FILED BY REVENUE 1 8 . ON IDENTICAL ISSUES AND FACTS THE GROUND NOS. 1, 2 & 4 HAVE ALREADY BEEN ADJUDICATED AS SUPRA IN THIS ORDER V I DE ITA NO. 2397/AHD82015 AND APPLYING THE SAME FINDINGS WE DO NOT FIND ANY ERROR IN THE DECISION OF THE LD. CIT(A ) THEREFORE GROUNDS OF 1, 2 & 4 OF THIS APPEAL OF THE REVENUE ALSO STANDS DISMISSED. 1 9 . GROUND NO. 3 IS AGAINST THE DECISION OF LD. CIT(A) IN DIRECTING THE ASSESSING OFFICER TO RECALCULATE THE DISALLOWANCE U/S. 14 OF THE ACT AS PER I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 14 FIGURE SUBMITTED B Y THE ASSESSEE WITHOUT APPRECIATING THAT THE ASSESSING OFFICER MADE DISALLOWANCE AS PER R ULE 8D OF IT RULE . IN THE COURSE OF ASSESSMENT PR OCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE COMPANY HA D EARNED DIVIDEND INCOME OF RS. 62 , 91 , 3 10/ - AND INCOME FROM TAX FREE BOND 3 , 51 , 05 , 682/ - WHICH WAS CLAI MED AS EXEMPT . THE ASSESSEE HAD SUO - MOTTO DISALLOWED A SUM OF RS.2,58,677 AS PER SECTION 14A OF THE ACT . HOWEVER THE ASSESSING OFFICER HAS CO M PUTED DISALLOWANCE UNDER SECTION 14A OF THE ACT AS PER RULE 8D OF THE IT RULE TO THE AMOUNT OF RS.53,89,696 AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED ASSESSEE HAS FILED BEFORE THE LEARNED CIT APPEAL. THE LD. CIT(A) HAD ADJUDICATED THE ISSUE AF T ER FOLLOWING THE DECISION OF HIS PREDECE SSOR ON THE SAME GROUND AND DI RECTED THE ASSESSING OFFICER TO RECALCULATE THE DISALLOWANCE UNDER SECTION 14A R.W. 8D OF THE IT RULE AFTER TAKING INTO CONSIDERATION THE CORRECT FIGURE AS SU BMITTED BY THE ASSESSEE REPORT ED AT PARA 4.1 OF THE ORDER OF THE LD.CIT(A). THE RELEVANT PART OF THE ORDER OF THE LEARNED CIT APPEAL IS REPRODUCED AS UNDER : - 4.2 I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE APPELLANT AS WELL AS THE OBSERVATION OF THE A.O. IT IS OBSERVED THAT MY PREDECESSOR CIT(A) VIDE HER ORDER NO.CIT(A) - XI/83/ACIT.CIR - 5/13 - 14 HAS DELIBERATED ON THIS ISSUE. RELEVANT PORTION OF THE SAME IS REPRODUCED AS UNDER : - '4.2 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. I HAVE ALSO PERUSED VARIOUS CASE LAWS RELIED UPON BY THE APPELLANT. IT IS SEEN THAT THE A.O. MADE DISALLOWANCE U/S.14A AS PER THE PROVISIONS OF RULE 8D OF I.T.RULES, 1962. THE PROVISIONS OF RULE 8D WERE INSERTED WITH EFFECT FROM 24.3.2008 AND THE SAME IS APPLICABLE FROM A. Y.2008 - 09 AND SUBSEQUENT YEARS. THIS VIEW WAS EXPRESSED BY BOMBAY HIGH COURT IN GODREJ AND BOYCE MFG. CO. LTD. (2010) 328 ITR 81 (BOM). 4.3 PROVISIONS OF SEC. 14A(3) EXPRESSLY PROVIDES THAT PROVISIONS OF SEC. 14A(2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INC URRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. PROVISIONS OF SEC. 14A(2) FURTHER PROVIDES THAT THE A.O. SHALL MAKE DISALLOWANCE FOR THE PURPOSES OF SEC.14A AS PER THE PROVISIONS OF RULE 8D OF I. T.RULES, 196 2. THIS WAY, PROVISIONS OF SEC. 14A R.W. RULE 8D ARE MANDATORY AND IN MY CONSIDERED VIEW THE A.O. HAD RIGHTLY FOLLOWED PROVISIONS OF SEC.14A R.W. RULE 8D OF THE I.T.RULES, 1962. IT IS ALSO A MATTER OF RECORD THAT THE APPELLANT HAS NOT POINTED OUT ANY DEFEC T IN THE COMPUTATION OF DISALLOWANCE AS PER THE PROVISIONS OF RULE 8D AS ADOPTED BY THE LD. A.O. THE A.O. HAS KEPT THE DIRECTIONS OF CIT(A) GIVEN IN EARLIER YEARS WHILE CALCULATING DISALLOWANCE UNDER RULE 8D. ACCORDINGLY, THE COMPUTATION FOR DISALLOWANCE U /S. 14A AS ADOPTED BY THE A.O. IS TAKEN CORRECT FOR THE PURPOSE OF THIS ORDER. I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 15 4.4 IT IS SEEN THAT ID AR HAS RELIED UPON VARIOUS CASES. A PERUSAL OF THESE CASES REVEALS THAT THE HON'BLE IT AT ALLOWED THE APPEAL OF THE APPELLANT AS THE A.O. HAS NOT RECORDED HIS SATISFACTION THAT THE EXPENSES CLAIMED BY THE ASSESSEE IS INCORRECT AND THE A.O. HAD STRAIGHTWAY APPLIED THE PROVISIONS OF RULE 8D. THE RATIO OF THESE CASES WILL NOT BE APPLICABLE IN THE INSTANT CASE AS THE A.O. WAS NOT SATISFIED WITH THE EXPENSES CLA IMED BY THE APPELLANT AND THE A.O. AND CONFRONTED THIS VIEW TO THE APPELLANT. IN VIEW OF THESE FACTS, WITH DUE RESPECT, I AM NOT INCLINED TO FOLLOW THE RATIO OF THESE CASES. I HAVE FURTHER OBSERVED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT . IT IS SEEN THAT APPELLANT'S TOTAL INVESTMENTS AMOUNTED TO RS. 4118.31 LACS DURING THIS YEAR, AS AGAINST THE SURPLUS OWN FUNDS OF RS. 66,66,43,693/ - . AS PER APPELLANT THE A.O. HAS NOT BEEN ABLE TO PROVE THE FACT OF UTILIZATION OF INTEREST BEARING FUNDS FO R EARNING OF EXEMPT INCOME. GIST OF THE APPELLANT'S SUBMISSION IS THAT SINCE HE HAS ENOUGH INTEREST FREE FUNDS WHICH FAR EXCEED THE INVESTMENTS MADE BY HIM, THEREFORE, NO ALLOCATION OF INTEREST EXPENDITURE CAN BE MADE TOWARDS EARNING OF INTEREST FREE INCOM E. IN THIS REGARD, IT IS SEEN FROM THE ASSESSMENT ORDER THAT APPELLANT HAS NOT FURNISHED ANY EVIDENCE TO SHOW THAT INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS. THIS ISSUE HAS BEEN DEALT IN THE CASE OFGUJARAT GAS FINANCIAL SERVICES LTD., HON'BLE SPECIAL BENCH OF ITAT AHMEDABAD 115 ITD 218 THE ISSUE OF DISALLOWANCE U/S.14A HAS BEEN DISCUSSED IN PARA 101 OF THE ORDER OF THE HON'BLE ITAT SPECIAL BENCH AS UNDER : - 'THERE IS NO DISPUTE AND THERE CANNOT BE ANY DOUBT, THAT SOME EXPENDITURE IS INCURRED FOR MAKING OR EARNING FROM DIVIDEND. IN CASE OF MIXED ACCOUNTING THE EXPENDITURE IS NOT IDENTIFIED AS SUCH IS DIRECTLY IS RELATE TO EARNING OF DIVIDEND. BUT THAT CANNOT BE A GROUND TO SAY THAT NO EXPENDITURE IS INCURRED FOR EARNING DIVIDEND INCOME OR THAT NO EXPENDI TURE COULD BE RELATED TO THAT INCOME. UPON HEARING BOTH PARTIES AND CONSIDERING MATERIAL AVAILABLE ON RECORD INTEREST OF JUSTICE WILL BE SERVED IF 10% OF THE EXPENDITURE IS ALLOCATED FOR EARNING DIVIDEND AND DISALLOWED U/S. 14A OF THE I.T. ACT.' THE APPELL ANT CONTENDED THAT IT WAS HAVING SUFFICIENT INTEREST FREE FUNDS TO INVEST IN THE SNARES AND MUTUAL FUNDS AND THE A.O. HAS NOT PROVED NEXUS BETWEEN THE INVESTMENT IN EQUITY SHARES AND THE INTEREST BEARING FUNDS AND ACCORDINGLY DISALLOWANCE U/S.14A CANNOT BE MADE. AS PER THE PROVISIONS OF RULE 8D OF I.T.RULES, 1962, THE A.O. IS NOT REQUIRED TO PROVE NEXUS BETWEEN INVESTMENTS IN EQUITY SHARES AND INTEREST BEARING FUNDS. IN VIEW OF THESE FACTS I AM NOT INCLINED TO AGREE WITH THE CONTENTIONS OF THE LD. A.R. THE APPELLANT ALSO CONTENDED THAT DISALLOWANCE U/S. 14A SHOULD BE MADE ON NET INTEREST AND NOT AT THE GROSS INTEREST EXPENDITURE. I AM ALSO NOT INCLINED ON THIS ISSUE WITH THE APPELLANT SINCE SECTION 14A REFERS TO INTEREST EXPENDITURE ON RENT, TAXES, SALARIES, INTEREST ETC. IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR. THESE DEDUCTIONS ARE FOR THE DEBITS IN THE REAL SENSE. THE PAY BACK DOES NOT CONSTITUTE EXPENDITURE INCURRED IN TERMS OF SECTION 14A. IN VIEW OF THESE FACTS, I HOLD THAT DISALLOWANCE FOR THE P URPOSE OF SECTION 14A IS TO BE MADE AGAINST INTEREST EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT. THIS WAY, I AM INCLINED TO AGREE WITH THE DISALLOWANCE MADE BY THE ID. A.O. FURTHER IN THE CASE OF M/S. DHANUKA & SONS 339 ITR 319 HON'BLE KOLKATA HIGH C OURT HAS HELD THAT, IT IS FOR THE ASSESSEE TO SHOW THQ SOURCE OF ACQUISITION OF THOSE SHARES BY PRODUCTION OF MATERIALS THAT THOSE WERE ACQUIRED FROM THE FUNDS AVAILABLE IN THE HANDS OF THE ASSESSEE AT THE RELEVANT POINT OF TIME WITHOUT TAKING BENEFIT OF A NY LOAN. HON'BIE AHMEDABAD BENCH IN THE CASE OF AC IT VS TRANSFORMERS & RECTIFIERS (INDIA) LTD. ITA NO. 3090/AHD/2011 HAS .HELD THAT THE ONUS IS ON THE ASSESSEE TO ESTABLISH THAT THERE IS NO NEXUS BETWEEN THE EXEMPT INCOME AND THE INTEREST EXPENDITURE INCU RRED. IN THE CASE OF CHEMINVEST LTD [121 ITD 318 2009(DEL)]DELHI SPECIAL BENCH HELD THAT SEC. 14A DISALLOWANCE HAD TO BE MADE IN RESPECT OF INTEREST ON LOANS, WHICH WERE UTILIZED FOR INVESTMENT IN SHARES, EVEN THOUGH NO DIVIDEND INCOME WAS EARNED ON THOSE SHARES DURING THE RELEVANT YEAR. WHEREAS HON'BLE ITAT CHENNAI IN THE CASE OF SIVA INDUSTRIES & HOLDING LTD [TS - 438 - ITAT - 2011(CHNY) AND TS - 317 - ITAT - 2012(CHNY)]RELYING ON THE SPECIAL BENCH RULING IN CHEMINVEST LTD, CHENNAI ITAT HELD, THAT THE DISALLOWANCE U/ S 14A WAS APPLICABLE, EVEN THOUGH THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME IN AY I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 16 2007 - 08. - ITAT NOTED THAT WHILE DISPOSING THE APPEAL FOR THE EARLIER YEAR, THE RULING OF THE SPECIAL BENCH IN CHEMINVEST WAS NOT CONSIDERED BY ITAT AND HENCE, THAT RULING WA S INCORRECT. IN THE EARLIER YEAR, ITAT HAD HELD THAT THE DISALLOWANCE FOR INTEREST PAID ON LOANS BORROWED FOR MAKING INVESTMENT IN SHARES WAS NOT APPLICABLE, AS THE ASSESSEE DID NOT EARN ANY DIVIDEND FROM SUCH INVESTMENT. IN THE CASE OF TECHNOPACK ADVISORS P LTD [(2012) 50 SOT 31 (DELHI)(URO)]IT IS HELD,THAT EVEN IF THE INVESTMENT IN SHARES DID NOT YIELD ANY DIVIDEND IN THE YEAR UNDER CONSIDERATION, THE DISALLOWANCE U/S14A ON THE EXPENDITURE INCURRED FOR EARNING INCOME WAS DISALLOWABLE, NOTWITHSTANDING THE FACT THAT NO SUCH INCOME WAS EARNED. HONABLE KERALA HC IN CASE OF POPULAR VEHICLES & SERVICES LTD [(2010)325 ITR 523 (KER)] HAS HELD THE ASSESSEE BORROWED FUNDS FROM BANKS, WHICH WERE DIVERTED TO PARTNERSHIP FIRMS, IN WHICH IT WAS A PARTNER. HC NOTED THAT THE ASSESSEE DID NOT RECEIVE ANY INTEREST FROM THOSE FIRMS. THE ONLY BENEFIT DERIVED WAS SHARE OF PROFIT, WHICH WAS EXEMPT U/S 10(2A). HC SUSTAINED THE DISALLOWANCE OF INTEREST BY INVOKING PROVISIONS OF SEC.14A. SIMILARLY IN THE CASE OF VISHNU ANANT MAHAJA N FJS - 396 - ITAT - 2012(AHD)] AHMEDABAD SPECIAL BENCH OF HON'BLE ITAT HELD, THAT SEC. 14A DISALLOWANCE IS APPLICABLE TO PARTNERS' SHARE IN THE FIRM'S PROFIT, WHICH IS EXEMPT U/S 10(2A). ITAT SB HELD THAT PROFIT FROM FIRM IS NOT INCLUDED IN THE TOTAL INCOME OF THE PARTNER BY VIRTUE OF EXEMPTION PROVISIONS OF SEC. 10(2A). ITAT HELD THAT A PARTNERSHIP FIRM IS NOT A PASS THROUGH VEHICLE AND THE FIRM AND PARTNERS ARE SEPARATELY ASSESSABLE TO TAX, DESPITE THE POSITION OF LAW UNDER THE PARTNERSHIP ACT THAT THE FIRM IS A COMPENDIUM OR COLLECTIVE NAME. THE CBDT HAS RECENTLY ISSUED CIRCULAR NO 5/2014 DATED 11 FEBRUARY 2014, THROUGH WHICH IT HAS TAKEN VIEW THAT DISALLOWANCE OF EXPENDITURE FOR EARNING EXEMPT INCOME UNDER SECTION 14A READ WITH RULE 8D WOULD BE ATTRACTED EVEN IF THE CORRESPONDING EXEMPT INCOME HAS NOT BEEN EARNED DURING THE FINANCIAL YEAR, THEREBY SUPERSEDING A FEW DECISIONS RENDERED IN THIS REGARD. IN VIEW OF DETAILED DISCUSSION IN ABOVE PARAGRAPHS, THE CONTENTION OF APPELLANT IS NOT ACCEPTABLE. THE STAND TAK EN BY THE A.O. OF APPLYING RULE 8D IS ACCORDINGLY FOUND TO BE CORRECT. THE APPEAL ON THIS GROUND IS DISMISSED.' RESPECTFULLY FOLLOWING THE DECISION OF MY PREDECESSOR FOR A.Y.2010 - 11, THE CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE. THE STEP TAKEN BY A.O. FOR APPLICATION OF RULE 8D IS THE CORRECT METHOD AND WAY FORWARD FOR QUANTIFYING THE DISALLOWANCE U/S.14A R.W. RULE 8D. HOWEVER THE A.O. IS DIRECTED TO RECALCULATE THE DISALLOWANCE U/S. 14A, R.W. RULE 8D CORRECTLY TAKING INTO CONSIDERATION THE CORRECT FIG URES AS SUBMITTED BY THE APPELLANT AT PARA 4.1 ABOVE. SUBJECT TO ABOVE, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 20 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND NOTICED THAT LD. CIT(A) HAS ADJUDICATED THIS DECISION AFTER TA KING INTO CONSIDERATION THE DETAILED SUBMISSION OF THE ASSESSEEE AS ELABORATED AD PARA 4 .1 OF THE ORDER OF THE LD. CIT(A) EXPLAINING THAT INTEREST FREE FUND S OF THE COMPANY INCLUDING RESERV ES WERE UTILIZED TOWARDS PURCHASE OF INVESTMENT YIELDING TAX F REE DIVIDEND, THEREFORE, THE QUESTION OF ENTIRE DISALLOWANCE OF INTEREST ETC. D ID NOT ARISE. WITH THE ASSISTANCE OF THE LEARNED CONSUL WE HAVE GONE THROUGH THE MATERIAL ON RECORD AND HAVE NOTICED THAT I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 17 ASSESSEE HAD SUBMITTED COMPARATIVE STATEMENT OF TAX - FR EE INCOME AND TAX - FREE INVESTMENT AND THE LEARNED CIT APPEAL AFTERS TAKING INTO CONSIDERATION SUCH UNDISPUTED INFORMATION HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO RECALCULATE THE DISALLOWANCE U/S. 14A R.W. RULE 8D CORRECTLY AFTER TAKING INTO CONSIDERA TION THE CORRECT FIGURE SUBMITTED BY THE ASSESSEE . IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LEARNED CIT APPEAL THEREFORE THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 21. IN THE RESULT APPEAL ITA 3666/AHD/2015 OF THE REVENUE IS DISMISSED. ITA 3667 /AHD/2015 FILED BY REVENUE 22 . ON IDENTICAL ISSUES AND FACTS THE GROUND NOS. 1 &2 HAVE ALREADY BEEN ADJUDICATED AS SUPRA IN THIS ORDER VIDE ITA NO. 2397/AHD82015 AND APPLYING THE SAME FINDINGS W E DO NOT FIND ANY ERROR IN THE DECISION OF THE LD. CIT(A) THEREFORE GROUNDS OF 1 &2 OF THIS APPEAL OF THE REVENUE ALSO STANDS DISMISSED. GROUND NO. 3 2 3 . AN IDENTICAL ISSUE ON SI MILAR FACTS HAS BEEN ADJUDICATED IN THIS ORDER AS SUPRA VIDE ITA NO. 3 666 HOLDING THAT THE LEARNED CIT APPEAL AFTER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASSESSEE HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO RECALCULATE THE DISALLOWANCE U/S. 14A R.W. RULE 8D . AFTER APPLYING THE SAME FINDINGS WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LEA RNED CIT APPEAL , THEREFORE , THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 18 24. IN THE RESULT, THE APPEAL ITA NO. 3667/AHD/201 5 IS DISMISSED. ITA NO. 233 4 /AHD/2015 FILED BY THE ASSESSEE 2 5 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED THAT ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME OF RS. 24 , 60 , 789/ - AND INCO ME FROM TAX FREE BONDS OF RS. 27 , 36 , 234/ - CLAIMED AS EXEMPT. THE ASSESSING OFFICER HAS ASKED THE ASSESSEE WHY THE EXPENSES INCURRED FOR EARNING OF EXEMPT INCOME S HOULD NOT BE DISALLOWED UNDER SECTION 14 A OF THE ACT. THE ASSESSEE S EXPLAINED THAT NO EXPENSES WAS INCURRED IN EARNING TAX - FREE INCOME THEREFORE NO DISALLOWANCE WAS MADE UNDER SECTION 14 A OF THE ACT. THE ASSESSING OFFICER'S HAS NOT ACCEPTED THE EXPLA NATION OF THE ASSESSEE AND STATED THAT SIMILAR DISALLOWANCE ON SIMILAR ISSUE WAS ALSO MADE IN THE EARLIER ASSESSMENT. THEREAFTER, THE ASSESSING OFFICER HAS WORKED OUT DISALLOWANCE AS PER SECTION 14A RW RULE 8D TO THE AMOUNT OF RS. 23 , 82 , 284/ - AND AFTER REDUC ING AN AMOUNT OF RS. 80 , 490/ - ALREADY DISALLOWED BY THE ASSESSEE ITSELF AND ADDED THE REMAINING AMOUNT OF RS. 23 , 01 , 794/ - TO THE TOTAL INCOME OF THE ASSESSEE. 2 6 . AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THIS GR OUND OF APPEAL OF THE ASSESSEE. RELEVANT PART OF THE DECISION OF LD. CIT(A) IS AS UNDER: - 4.2 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. I HAVE ALSO PERUSED VARIOUS CASE LAWS RELIED UPON BY THE APPELLANT. IT IS SEEN THAT THE A.O. MADE DISALLOWANC E U/S.14A AS PER THE PROVISIONS OF RULE 8D OF I.T. RULES, 1962. THE PROVISIONS OF RULE 8D WERE INSERTED WITH EFFECT FROM 24.3.2008 AND THE SAME IS APPLICABLE FROM A.Y.2008 - 09 AND SUBSEQUENT YEARS. THIS VIEW WAS EXPRESSED BY BOMBAY HIGH COURT IN GODREJ AND BOYCE MFG. CO. LTD. (2010) 328 ITR 81 (BOM). 4.3 PROVISIONS OF SEC.14A(3) EXPRESSLY PROVIDES THAT PROVISIONS OF SEC.14A(2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATIONTO INCOME WHI CH DOES NOT FORM PAR TO THE TOTAL INCOME E UNDER THIS ACT. PROVISION OF SEC. 14A(2) FURTHER PROVIDES THAT THE A.O. SHALL MAKE DISALLOWANCE FOR THE PURPOSES OF SEC. 14A AS PER THE PROVISIONS OF RULE 8D OF I.T. RULE, 1962. THIS WAY, PROVISIONS OF SEC. 14A. R.W. RULE 8D ARE MANDATORY AND IN MY CONSIDERED VIEW THAT A.O. HAD RIGHTLY FOLLOWED PROVISIONS OF SEC.14A R.W. RULE 8D OF THE I.T. RULES, 1962. IT IS ALSO A MATTER OF RECORD THAT THE APPELLANT HAS NOT POINTED OUT I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 19 ANY DEFECT IN THE COMPUTATION OF DISALLOWA NCE AS PER THE PROVISIONS OF RULE 8D AS ADOPTED BY THE LD. A.O. THE A.O. HAS KEPT THE DIRECTIONS OF CIT(A) GIVEN IN EARLIER YEARS WHILE CALCULATING DISALLOWANCE UNDER RULE 8D. ACCORDINGLY, THE COMPUTATION FOR DISALLOWANCE U/S.14A AS ADOPTED BY THE A.O. IS TAKEN CORRECT FOR THE PURPOSE OF THIS ORDER. 4.4 IT IS SEEN THAT ID AR HAS RELIED UPON VARIOUS CASES. A PERUSAL OF THESE CASES REVEALS THAT THE HON'BLE ITAT ALLOWED THE APPEAL OF THE APPELLANT AS THE A.O. HAS NOT RECORDED HIS SATISFACTION THAT THE EXPENSES CLAIMED BY THE ASSESSEE IS INCORRECT AND THE A.O. HAD STRAIGHTWAY APPLIED THE PROVISIONS OF RULE 8D. THE RATIO OF THESE CASES WILL NOT BE APPLICABLE IN THE INSTANT CASE AS THE A.O. WAS NOT SATISFIED WITH THE EXPENSES CLAIMED BY THE APPELLANT AND THE A.O. AND CONFRONTED THIS VIEW TO THE APPELLANT. IN VIEW OF THESE FACTS, WITH DUE RESPECT, I AM NOT INCLINED TO FOLLOW THE RATIO OF THESE CASES. I HAVE FURTHER OBSERVED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE APPELLANT. IT IS SEEN THAT APPELLANT'S TOTAL INVESTMENTS AMOUNTED TO RS. 4118.31 LACS DURING THIS YEAR, AS AGAINST THE SURPLUS OWN FUNDS OF RS. 66,66,43,6937 - . AS PER APPELLANT THE A.O. HAS NOT BEEN ABLE TO PROVE THE FACT OF UTILIZATION OF INTEREST BEARING FUNDS FOR EARNING OF EXEMPT INCOME. GIST OF THE APPELLANT'S SUBMISSION IS THAT SINCE HE HAS ENOUGH INTEREST FREE FUNDS WHICH FAR EXCEED THE INVESTMENTS MADE BY HIM, THEREFORE, NO ALLOCATION OF INTEREST EXPENDITURE CAN BE MADE TOWARDS EARNING OF INTEREST FREE INCOME. IN THIS REGARD, IT IS SEEN FROM THE ASSESSMENT ORDER THAT APPELLANT HAS NOT FURNISHED ANY EVIDENCE TO SHOW THAT INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS. THIS ISSUE HAS BEEN DEALT IN THE CASE OF GUJARAT GAS FINANCIAL SERVICES LTD., HON'BLE SPECIAL BENCH OF ITAT AHMEDABAD 115 ITO 21 8 THE ISSUE OF DISALLOWANCE U/S.14A HAS BEEN DISCUSSED IN PARA 101 OF THE ORDER OF THE HON'BLE ITAT SPECIAL BENCH AS UNDER : - 'THERE IS NO DISPUTE AND THERE CANNOT BE ANY DOUBT, THAT SOME EXPENDITURE IS INCURRED FOR MAKING OR EARNING FROM DIVIDE ND. IN CASE OF MIXED ACCOUNTING THE EXPENDITUR E IS NOT IDENTIFIED AS SUCH IS DIRECTLY IS RELATE TO EARNING OF DIVIDEND. BUT THAT CANNOT BE AGROUND TO SAY THAT NO EXPENDITURE IS INCURRED FOR EARNING DIVIDEND INCOME OR THAT NO EXPENDITURE COULD BE RELATED TO THAT INCO ME. UPON HEARING BOTH PARTIES AND CONSIDERING MATERIAL AVAILABLE ON RECORD INTEREST OF JUSTICE WILL BE SERVED IF 10% OF THE EXPENDITURE IS ALLOCATED FOR EARNING DIVIDEND AND DISALLOWED U/S. 14A OF THE I.T. ACT.' THE APPELLANT CONTENDED THAT IT WAS HAVING SUFFICIENT INTEREST FREE FUNDS TO INVEST IN THE SHARES AND MUTUAL FUNDS AND THE A.O. HAS NOT PROVED NEXUS BETWEEN THE INVESTMENT IN EQUITY SHARES AND THE INTEREST BEARING FUNDS AND ACCORDINGLY DISALLOWANCE U/S.14A CANNOT BE MADE. AS PER THE PROVISIONS OF RULE 8D OF IT. RULES, 1962, THE A.O. IS NOT REQUIRED TO PROVE NEXUS BETWEEN INVESTMENTS IN EQUITY SHARES AND INTEREST BEARING FUNDS. IN VIEW OF THESE FACTS I AM NOT INCLINED TO AGREE WITH THE CONTENTIONS OF THE LD. A.R. THE APPELLANT ALSO CONTENDED THAT DI SALLOWANCE U/S.14A SHOULD BE MADE ON NET INTEREST AND NOT AT THE GROSS INTEREST EXPENDITURE. I AM ALSO NOT INCLINED ON THIS ISSUE WITH THE APPELLANT SINCE SECTION 14A REFERS TO INTEREST EXPENDITURE ON RENT, TAXES, SALARIES, INTEREST ETC. IN RESPECT OF WHIC H ALLOWANCES ARE PROVIDED FOR. THESE DEDUCTIONS ARE FOR THE DEBITS IN THE REAL SENSE. THE PAY BACK DOES NOT CONSTITUTE EXPENDITURE INCURRED IN TERMS OF SECTION 14A. IN VIEW OF THESE FACTS, I HOLD THAT DISALLOWANCE FOR THE PURPOSE OF SECTION 14A IS TO BE MA DE AGAINST INTEREST EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT. THIS WAY, I AM INCLINED TO AGREE WITH THE DISALLOWANCE MADE BY THE ID. A.O. FURTHER IN THE CASE OF M/S. DHANUKA & SONS 339 ITR 319 HON'BLE KOLKATA HIGH COURT HAS HELD THAT, IT IS FOR THE ASSESSEE TO SHOW THE SOURCE OF ACQUISITION OF THOSE SHARES BY PRODUCTION OF MATERIALS THAT THOSE WERE ACQUIRED FROM THE FUNDS AVAILABLE IN THE HANDS OF THE ASSESSEE AT THE RELEVANT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOAN. HON'BLE AHMEDABAD BENCH IN THE CASE OF ACIT VS TRANSFORMERS & RECTIFIERS (INDIA) LTD. ITA NO. 3090/AHD/201 1 HAS HELD THAT THE ONUS IS ON THE ASSESSEE TO ESTABLISH , THAT THERE IS NO NEXUS BETWEEN THE EXEMPT INCOME AND THE INTEREST EXPENDITURE INCURRED. IN THE CASE OF C HEM IN VE ST LTD [121 IIP 318 2009(DEL)]DELHI SPECIAL BENCH HELD THAT SEC. 14A DISALLOWANCE HAD TO BE MADE IN RESPECT OF INTEREST ON LOANS, WHICH WERE UTILIZED FOR INVESTMENT IN SHARES, EVEN THOUGH NO DIVIDEND INCOME WAS EARNED ON THOSE SHARES DURING THE RELEVANT YE AR. WHEREAS HON BLE ITAT CHENNAI IN THE CASE OF SIVA INDUSTRIES & HOLDING LTD. [TS - 438 - ITAT - 2011(CHNY) AND TS - 317 - ITAT - 2012 (CHNY) RELYING ON THE SPECIAL BENCH RULING IN CHEMINVEST LTD., CHENNAI ITAT, HELD THAT THE DISALLOWANCE U/S. WAS APPLICABLE, EVEN THROUGH THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME IN AY 2007 - 08. ITAT NOTED THAT WHILE I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 20 DISPOSING THE APPEAL FOR THE EARLIER YEAR, THE RULING OF THE SPECIAL BENCH IN CHEMINVEST WAS NOT CONSIDERED BY ITAT AND HENCE, THAT RULING WAS INCORRECT. IN THE EAR LIER YEAR, ITAT HAD HELD THAT THE DISALLOWANCE FOR INTEREST PAID ON LOANS BORROWED FOR MAKING INVESTMENT IN SHARES WAS NOT APPLICABLE, AS THE ASSESSEE DID NOT EARN ANY DIVIDEND FROM SUCH INVESTMENT. IN THE CASE OF TECHNOPACK ADVISORS P LTD K2012) 50 SOT 31 (DELHI)(URO)1IT IS HELD THAT EVEN IF THE INVESTMENT IN {SHARES DID NOT YIELD ANY DIVIDEND IN THE YEAR UNDER CONSIDERATION, THE DISALLOWANCE U/S14A ON THE EXPENDITURE INCURRED FOR EARNING INCOME WAS DISALLOWABLE, NOTWITHSTANDING THE FACT THAT NO SUCH INCOM E WAS EARNED. HONABLE KERALA HC IN CASE OF POPULAR VEHICLES & SERVICES LTD [(2010)325 ITR 523 (KER)1 HAS HELD THE ASSESSEE BORROWED FUNDS FROM BANKS, WHICH WERE DIVERTED TO PARTNERSHIP FIRMS, IN WHICH IT WAS A PARTNER. HC NOTED THAT THE ASSESSEE DID NOT RE CEIVE ANY INTEREST FROM THOSE FIRMS. THE ONLY BENEFIT DERIVED WAS SHARE OF PROFIT, WHICH WAS EXEMPT U/S 10(2A). HC SUSTAINED THE DISALLOWANCE OF INTEREST BY INVOKING PROVISIONS OF SEC.14A. SIMILARLY IN THE CASE OF VISHNU ANANT MAHAJAN TS - 396 - ITAT - 2012(AHD) 1 AHMEDABAD SPECIAL BENCH OF HON'BLE ITAT HELD, THAT SEC. 14A DISALLOWANCE IS APPLICABLE TO PARTNERS' SHARE IN THE FIRM'S PROFIT, WHICH IS EXEMPT U/S 10(2A). ITAT SB HELD THAT PROFIT FROM FIRM IS NOT INCLUDED IN THE TOTAL INCOME OF THE PARTNER BY VIRTUE OF EXEMPTION PROVISIONS OF SEC. 10(2A). ITAT HELD THAT A PARTNERSHIP FIRM IS NOT A PASS THROUGH VEHICLE AND THE FIRM AND PARTNERS ARE SEPARATELY ASSESSABLE TO TAX, DESPITE THE POSITION OF LAW UNDER THE PARTNERSHIP ACT THAT THE FIRM IS A COMPENDIUM OR COLLECT IVE NAME. THE CBDT HAS RECENTLY ISSUED CIRCULAR NO 5/2014 DATED 11 FEBRUARY 2014, THROUGH WHICH IT HAS TAKEN VIEW THAT DISALLOWANCE OF EXPENDITURE FOR EARNING EXEMPT INCOME UNDER SECTION 14A READ WITH RULE 8D WOULD BE ATTRACTED EVEN IF THE CORRESPONDING EX EMPT INCOME HAS NOT BEEN EARNED DURING THE FINANCIAL YEAR, THEREBY SUPERSEDING A FEW DECISIONS RENDERED IN THIS REGARD. IN VIEW OF DETAILED DISCUSSION IN ABOVE PARAGRAPHS, THE CONTENTION OF APPELLANT IS NOT ACCEPTABLE. THE STAND TAKEN BY THE A.O. OF APPLYI NG RULE 8D IS ACCORDINGLY FOUND TO BE CORRECT. THE APPEAL ON THIS GROUND IS DISMISSED. 2 7 . WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL ON RECORD CAREFULLY. IT IS NOTICED THAT ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUND AS AGAINST THE INVESTMENT MADE ON WHICH EXEMPT INCOME WAS EARNED. WE HAVE GONE THROUGH WORKING OF DISALLOWANCE MADE U/S. 14A R.W. RULE 8D OF THE I.T. RULE AND IT IS NOTICED THAT MAJOR PART OF THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER TO THE AMOUNT OF RS. 20 , 57 , 946/ - BEING 0.5% OF THE AVERAGE INVESTMENT FOR ADMINISTRATIVE EXPENDITURE . A FTER CONSIDERING THE NATURE OF INVESTMENT MADE IN THE FORM OF BONDS & SECURITIES WE ARE OF THE VIEW THAT IT WILL BE APPROPRIATE TO RESTRICT THE DISALLOWANCE ON ACCOUN T OF ADMINISTRATIVE EXPENSES INCURRED TOWARDS EARNING EXEMPT INCOME TO THE AMOUNT OF RS. 7 LACS. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 21 28. IN THE RESULT, APPEAL ITA 2334/AHD/2015 FILED BY ASSESSEE IS PARTLY ALLOWED. CROSS OBJECT ON NO. 4 /AHD/2016 & CROSS OBJECTON NO . 5 /AHD/2016 2 9 . AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSESSEE HAS NOT PRESSED THE CROSS OBJECTION NOS. 4 & 5/AHD/2016 FILED BY THE ASSESSEE, THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED. THEREFORE, BOTH THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. 30. IN THE COMBINED RESULT, APPEAL ITA NOS. 2397 /A HD /2015 , ITA 3 666 /A HD /2015 & ITA 3667/AHD/2015 FILED BY THE REVENUE ARE DISMISSED . A PPEAL ITA 2334/AHD/2015 FILED BY ASSESSEE IS PARTLY ALLOWED AN D CROSS OBJECTION NO . 4 /AHD/2016 AND CROSS OBJECTION NO . 5 /AHD/2016 F I LED BY THE ASSESSEE ARE DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 30 - 01 - 201 9 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 30 /01/2019 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. I.T.A NO S. 2334, 2397, 3666 & 3667 /AHD/20 15 & CO NOS. 4 & 5/AHD/ 2016 PAGE NO RASNA PVT. LTD. VS. D CIT 22 BY ORDER/ , / ,