J.K. Lakshmi Cement Ltd., Kolkata V. D.C.I.T Cir - VI,kolkata, Kolkata

CO 47/KOL/2013

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2994 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 03-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Opportunity of being heard; Additional depreciation; Earning of tax free income; Question of law; Wrong claim; Bad and doubtful debts; Commercial expediency; Unabsorbed depreciation; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 142(1); 14A; 115JB; 32; 263; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHOWDHURY, JUDICIAL MEMBER ITA NO.609-612/KOL/2013 ASSESSMENT YEARS:2007-08 TO 2010-11 DCIT, CENTRAL CIRCLE-VI 3 RD FLOOR, AAYAKAR BHAWAN POORVA, E.M. BYE PASS, 110, SHANTI PALLY, KOLKATA-107 / V/S . M/S J.K. LAKSHMI CEMENT LTD.,7, COUNCIL HOUSE STREET, KOLKATA-01 [ PAN NO.AAACJ 6715 G ] .. /RESPONDENT C.O. NO.47/KOL/2013 (A/O ITA NO.612/KOL/2013 ASSESSMENT YEAR: 2010-11 M/S J.K. LAKSHMI CEMENT LTD.,7, COUNCIL HOUSE STREET, KOLKATA-01 / V/S . DCIT, CENTRAL CIRCLE-VI, 3 RD , FLOOR, AAYAKAR BHAWAN, POORVA, E.M. BYE PASS, 110, SHANTI PALLY, KOLKTAA-107 CO-OBJECTOR/APPLICANT .. /RESPONDENT /BY ASSESSEE SHRI S. JHAJHARIA, FCA & SHRI SUJOY SEN, ADVOCATE /BY REVENUE SHRI NIRAJ KUMAR, CIT-DR /DATE OF HEARING 08-03-2017 /DATE OF PRONOUNCEMENT 26-05-2017 /O R D E R PER BEMCH:- ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 2 THESE FOUR APPEALS BY THE REVENUE ARE AGAINST THE S EPARATE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA DAT ED 28.01.2013, 29.01.2013 & 31.01.2013 AND CROSS OBJECTION (CO) FILED BY THE AS SESSEE ARISING OUT OF ITA NO.612/KOL/2013 . ASSESSMENTS WERE FRAMED BY DCIT, CENTRAL CIRCLE-V I, KOLKATA U/S 143(3)/115JB OF THE INCOME TAX ACT, 1961 (HEREINAFT ER REFERRED TO AS THE ACT) VIDE THEIR ORDERS31.12.2010, 28.12.2011 & 07.12.2012 FOR ASSESSMENT YEARS 2007-08 TO 2010-11 RESPECTIVELY. SHRI S. JHAJHARIA AND SHRI SUJOY SEN, LD. AUTHORIZE D REPRESENTATIVES APPEARED ON BEHALF OF ASSESSEE AND SHRI NIRAJ KUMAR, LD. DEPART MENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE. 2. ALL THE APPEALS AND CO ARE HEARD TOGETHER AND BE ING DISPOSED OF BY WAY OF THIS CONSOLIDATE ORDER FOR THE SAKE OF CONVENIENCE. FIRST WE WILL DEAL WITH ITA NO.609/KOL/2013FOR A.Y. 07-08 . 3. ONLY ISSUE RAISED BY REVENUE IN THIS APPEAL IS T HAT LD. CIT(A) ERRED IN ALLOWING UNABSORBED DEPRECIATION BROUGHT FORWARD FR OM THE ASSESSMENT YEARS 1992-93 TO 1997-98 TO BE CARRIED FORWARD IN THE YEAR UNDER CONSIDERATION. 4. FACTS IN BRIEF ARE THAT ASSESSEE IS A LIMITED CO MPANY AND ENGAGED IN CEMENT MANUFACTURING BUSINESS. THE ORIGINAL ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED 19.11.2009 WHEREIN THE UNABSORBED DEPRECIATION OF THE EARLIER YEAR WAS ALLOWED TO BE CARRIED FORWARD TO THE YEAR UNDER CONSIDERATION. THE DETAILS OF UNABSORBED DEPRECIATION STAND AS UNDER:- SL.NO A.Y AMOUNT (RS) 1 92-93 14,02,04,315 2 93-94 11,40,93,432 3 94-95 50,49,72,790 4 95-96 61,19,88,996 5 96-97 NIL 6 97-98 91,09,53,629 THE AFORESAID BROUGHT FORWARD OF UNABSORBED DEPRECI ATION WAS ALLOWED TO BE CARRIED FORWARD IN THE YEAR UNDER CONSIDERATION IN THE ORIG INAL ASSESSMENT ORDER COMPLETED ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 3 U/S. 143(3) OF THE ACT. THEREAFTER LD. CIT IN HIS O RDER U/S 263 OF THE ACT OBSERVED THAT THE ASSESSEE IS ENTITLED TO CARRY FORWARD OF UNABSO RBED DEPRECIATION ONLY UPTO TO EIGHT SUCCEEDING ASSESSMENT YEARS. BUT IN THE INSTANT CAS E THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER HAS ALLOWED THE UNABSORBED DEPRECI ATION TO BE CARRIED FORWARD BEYOND THE PERIOD OF EIGHT ASSESSMENT YEARS. ACCORD INGLY, LD. CIT HELD THE ORDER OF AO AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE VIDE HIS ORDER DATED 27.09.2011 AND DIRECTED THE AO TO MAKE FRESH ASSESS MENT ORDER AS PER LAW AFTER GIVING OPPORTUNITY OF BEING HEARD TO ASSESSEE. THER EAFTER THE AO IN COMPLIANCE TO THE DIRECTION OF LD. CIT ISSUED NOTICE U/S. 142(1) OF T HE ACT ON 14.10.2011 PROVIDED OPPORTUNITY FOR SEEKING CLARIFICATION ABOUT THE UNA BSORBED DEPRECIATION AS CLAIMED BY ASSESSEE AS CARRIED FORWARD IN THE YEAR UNDER CONSI DERATION. THE ASSESSEE IN RESPONSE THERETO, SUBMITTED THAT NO UNABSORBED DEPRECIATION WAS SET OFF IN THE YEAR UNDER CONSIDERATION. THEREFORE THERE IS NO QUESTION OF MA KING THE WRONG CLAIM FOR UNABSORBED DEPRECIATION. THE ASSESSEE ALSO SUBMITTE D THAT AS PER THE AMENDED PROVISION OF SECTION 32 OF THE ACT THE UNABSORBED D EPRECIATION CAN BE CARRIED FORWARD UPTO ANY NUMBER OF YEARS. HOWEVER, THE AO OBSERVED THAT THE DEPRECIATION PERTAINS TO THE AY 1992-93 WAS SET OFF FOR AN AMOUNT OF 2,19,14,374/- AGAINST THE INCOME EARNED IN THE YEAR UNDER CONSIDERATION WHICH WAS WR ONGLY ALLOWED. THE AO FINALLY HELD THAT THE UNABSORBED DEPRECIATION AS DISCUSSED ABOVE CANNOT BE ALLOWED TO BE CARRIED FORWARD. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD . CIT(A) WHO ALLOWED THE APPEAL IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER: - 4. I HAVE PERUSED THE RELEVANT ORDERS. THE AO HAD NOT ALLOWED THE SET OFF IN RESPECT OF UNABSORBED DEPRECIATION FOR THE ASSESSME NT YEARS UPS TO 2001-02 FOLLOWING THE DECISION OF THE HON'BLE SPECIAL BENCH OF THE ITAT MUMBAI CONTAINED IN ITS ORDER DATED 30-06-2010 IN THE CASE OF M/S TIMES GUARANTEE LIMITED. HOWEVER, CONTRARY DECISION HAS BEEN GIVEN BY THE HON'BLE HIGH COURT OF GUJARAT IN ITS ORDER DATED 23-08-2012 IN THE CAS E OF GENERAL MOTORS INDIA (P) LTD 210 TAXMAN 20(GUJ). THE JUDGMENT OF THE HON'BLE HI GH COURT OF GUJARAT HAS COME SUBSEQUENT TO THAT OF THE HON'BLE SPECIAL BENCH OF THE ITAT AND SO, GIVEN THE JUDICIAL HIERARCHY, THE JUDGMENT OF THE HON'BLE HIGH COURT OF GUJARAT SHALL HOLD THE FIELD. THE HON'BLE HIGH COU RT HAS HELD THAT THE AMENDMENT WAS APPLICABLE FROM THE ASSESSMENT YEAR 2 002-03 WHICH MEANS THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO N ASS ESSEE ON THE 1 ST DAY OF APRIL, 2002 HAS TO BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SECTION ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 4 32(2) AS AMENDED BY THE FINANCE ACT, 2001 AND NOT B Y THE PROVISIONS OF SECTION 32(2) AS IT STOOD BEFORE THE SAID AMENDMENT. THE HO N'BLE HIGH COURT ALSO NOTED THAT ONCE THE CBDT CIRCULAR NO. 14 OF 2001 CLARIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET-OFF OF UNABSOR BED DEPRECIATION HAD BEEN DISPENSED WITH THE UNABSORBED DEPRECIATION FROM THE ASSESSMENT YEAR 1997-98 TO 2001-02 GOT CARRIED FORWARD TO THE ASSESSMENT YE AR 2002-03 AND BECAME PART THEREOF, AND, HAD TO BE GOVERNED BY THE PROVIS IONS OF SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND CONSEQUENTLY, WAS AVAILABLE FOR CARRY FORWARD AND SET-OFF AGAINST THE PROFITS AND GAINS O F SUBSEQUENT YEARS WITHOUT ANY LIMIT WHATSOEVER. FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF GENERAL MOTORS INDIA (P), IT IS TO BE HELD THAT THE UNABSORBED DEPRECIATION FOR THE ASSESSMENT YEARS UP TO 2001-02 SHALL BE CARRIED FORWARD TO THE ASSESSMENT YEAR 2002-03 AND BECOME PART THEREOF, AND, HAS TO BE GOVERNED BY THE PROVISIONS OF SECTION 32 (2) AS AMENDED BY FINANCE ACT, 2001. THE AO IS DIRECTED ACCORDINGLY. .. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUND:- (I) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT T HE HON'BLE GUJARAT HIGH COURT DID NOT HAVE THE BENEFIT OF THE DECISION OF THE SPECIAL BENCH OF HON'BLE ITAT MUMBAI IN THE CASE OF TIMES GUARANTEE LTD BEFORE ARRIVING AT ITS DECISION AND, THUS, THE DECISION OF THE HON'BLE HIGH COURT DOES NOT OVERRULE THE DECISION OF THE SPECIAL BENCH OF HON'BLE ITAT MUMBAI AND, HENCE HE HAS ERRED IN ALLOWING THE UNAB SORBED DEPRECIATION FOR THE AY 1997-98 AND EARLIER YEAS TO BE CARRIED FORWARD TO THE SUBSEQUENT YEARS WITHOUT ANY TIME LIMIT AND (II) THAT THE DEPARTMENT CRAVES THE RIGHT TO ADD, MODIFY OR ALTER THE GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF THE CASE. 6. BEFORE US BOTH THE PARTIES RELIED ON THE ORDER O F AUTHORITIES BELOW AS FAVOURABLE TO THE. 7. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE PRESENT CASE OF UNABSORBED DEPRECIATION HAS BEEN WELL SETTLED BY THE JUDGMENT OF HON'BLE GUJARAT HIG H COURT IN THE CASE OF GENERAL MOTORS (P) LTD. 25 TAXMANN.COM 364 (GUJ) AND OPERATIVE PORTION OF THE JUDGMENT IS REPRODUCED BELOW:- THEREFORE, IT CAN BE SAID THAT, CURRENT DEPRECIATI ON IS DEDUCTIBLE IN THE FIRST PLACE FROM THE INCOME OF THE BUSINESS TO WHICH IT RELATES . IF SUCH DEPRECIATION AMOUNT IS IN EXCESS THAN THE AMOUNT OF THE PROFITS OF THAT BUSIN ESS, THEN SUCH EXCESS SHOULD BE ADJUSTED AGAINST THE PROFITS AND GAINS FROM ANY OTH ER BUSINESS, IF ANY, CARRIED ON BY THE ASSESSEE. IF A BALANCE IS LEFT EVEN THEREAFTER, THAT BECOMES DEDUCTIBLE FROM OUT OF INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEADS OF INCOME DURING THAT YEAR. IN CASE THERE IS A STILL BALANCE LEFT OVER, IT IS TO B E TREATED AS UNABSORBED DEPRECIATION AND IT IS TAKEN TO THE NEXT YEAR. WHERE THERE IS CU RRENT DEPRECIATION FOR SUCH ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 5 SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION IS ADD ED TO THE CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR AND IS DEEMED AS PART THEREOF. IF, HOWEVER, THERE IS NO CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR, THE UNABSORB ED DEPRECIATION BECOMES THE DEPRECIATION ALLOWANCE FOR SUCH SUCCEEDING YEAR. IT IS HELD THAT ANY UNABSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1ST DAY OF APRIL, 2002 (A.Y. 2002-03) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 32(2) AS AMENDED BY FINANCE ACT, 2001. AND ONCE THE CIRCULAR NO. 14 OF 2001 CLA RIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET OFF OF UNABSORBED D EPRECIATION HAD BEEN DISPENSED WITH, THE UNABSORBED DEPRECIATION FROM ASSESSMENT Y EAR 1997-98 UP TO THE ASSESSMENT YEAR 2001-02 GOT CARRIED FORWARD TO THE ASSESSMENT YEAR2002-03 AND BECAME PART THEREOF, IT CAME TO BE GOVERNED BY THE PROVISIONS O F SECTION 32(2) AS AMENDED BY FINANCE ACT, 2001 AND WERE AVAILABLE FOR CARRY FORW ARD AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMIT WH ATSOEVER. SIMILARLY, WE ALSO FIND THAT THE HON'BLE JURISDICTI ONAL HIGH COURT IN GA NO. 1930 OF 2016 DATED 11.08.2016 IN THE CASE OF CIT VSS. M/S INDIA JUTE AND INDUSTRIES LTD. HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW:- CHALLENGING THE AFORESAID ORDER THE LEARNED APPELL ATE TRIBUNAL WAS APPROACHED BY THE REVENUE UNSUCCESSFULLY. THE LEARN ED TRIBUNAL HAS UPHELD THE APPELLATE ORDER ALSO RELYING UPON THE JUDGMENT OF THE GUARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA PVT. LTD., THE VI EWS EXPRESSED THEREIN BY THE GUJART HIGH CURT ARE AS FOLLOWS:- .. WE ARE OF THE CONSIDERED OPINION THAT ANY UNA BSORBED DEPRECIATION AVAILABLE TO AN ASSESSEE ON 1 ST DAY OF APRIL 2002 A.Y 2002-03) WILL BE DEALT WITH IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 32(2) AS AMENDED BY FINANCE ACT, 2001. AND ONCE THE CIRCULAR NO. 14 OF 2001 CLARIFIED THAT THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD A ND SET OFF OF UNABSORBED DEPRECIATION HAD BEEN DISPENSED WITH, THE UNABSORBE D DEPRECIATION FROM A.Y 1997-98 UPTO A.Y 2001-02 GOT CARRIED FORWARD TO THE ASSESSMENT YEARS 2002-03 AND BECAME PART THEREOF, IT CAME TO B E GOVERNED BY THE PROVISIONS OF SECTION 32(2) AS AMENDED BY FINANCE A CT, 2001 AND WERE AVAILABLE FOR CARRY FORWARD AND SET OFF AGAINST THE PROFITS AND GAINS OF SUBSEQUENT YEARS, WITHOUT ANY LIMIT WHATSOEVER. MR. DUDHORIA, LEARNED ADVOCATE IS UNABLE TO SHOW AN Y INFIRMITY IN THE VIEW TAKEN BY THE GUJARAT HIGH COURT AND HE DOES NO T DISPUTE THAT THE CAP OF EIGHT YEARS WAS REVOKED FROM THE ASSESSMENT YEAR 2002-03. WE ARE CONCERNED IN THIS CASE WITH THE ASSESSMENT Y EAR 2007-08. WE, AS SUCH, ARE UNABLE TO ADMIT THE APPEAL, WHICH IS, ACC ORDINGLY, DISMISSED. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 6 FROM THE ABOVE WE FIND THAT THE SECTION 32(2) OF TH E ACT WAS AMENDED BY THE FINANCE ACT, 1996 WHEREBY THE BENEFIT OF CARRY FORWARD OF U NABSORBED DEPRECIATION LOSS TO A PERIOD OF 8 YEARS WAS CURTAILED AND THE SAME WAS BR OUGHT AT PAR WITH THE UNABSORBED BUSINESS LOSSES. THE AMENDED PROVISIONS IN THE CASE OF UNABSORBED DEPRECATION WERE IN FORCE TILL ASST YEAR 2001-02. SUBSEQUENTLY THE A MENDMENT WAS BROUGHT IN FINANCE ACT, 2001 EFFECTIVE FROM ASST YEAR 2002-03 IN THE P ROVISIONS TO SECTION 32(2) OF THE ACT AND ALLOWED THE BENEFIT OF CARRY FORWARD OF LOS SES TO UNLIMITED PERIOD. WE FIND FROM THE EXPLANATORY MEMORANDUM TO FINANCE ACT, 200 1 CLEARLY SPELLS OUT THE INTENTION BEHIND THIS AMENDMENT WHICH IS AS BELOW: 'WITH A VIEW TO ENABLE THE ASSESSEES TO CONSERVE SU FFICIENT FUNDS TO REPLACE CAPITAL ASSETS, ESPECIALLY IN AN ERA WHERE OBSOLESC ENCE TAKES PLACE SO OFTEN, THE BILL PROPOSES TO DISPENSE WITH THE RESTRICTION OF 8 YEARS FOR CARRY FORWARD AND SET- OFF OF UNABSORBED DEPRECIATION.' FROM THE ABOVE IT IS CLEAR THAT THE INTENTION OF TH E LEGISLATURE IS TO PROVIDE THE BENEFIT OF BROUGHT FORWARD UNABSORBED DEPRECIATION TO BE AL LOWED FOR UNLIMITED YEARS. IT IS A FACT THAT THE AMENDMENT IN SECTION 32(2) BY THE FIN ANCE ACT WILL BE EFFECTIVE FROM 1ST APRIL 2002, BUT INTENTION BEHIND THE AMENDMENT COUL D ONLY BE INTERPRETED AS IF IT HAS THE EFFECT RETROSPECTIVELY. IN ADDITION TO ABOVE WE ALSO FIND THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S INDIA JUTE AND INDUSTRIES LTD. (SUPRA) AFTER HAVING RELIANCE IN THE CASE OF GENERAL MOTORS (SUPRA) WE HOLD THAT THE DECISIONS O F THE SPECIAL BENCH OF ITAT IN THE CASE OF TIMES GUARANTEE HAS BEEN OVERRULED. THU S WE FIND NO REASON TO INTERFERE WITH THE FINDING OF THE LD. CIT(A). UNDER THE CIRCU MSTANCES, THIS ISSUE OF REVENUES APPEAL IS DISMISSED. AO IS DIRECTED ACCORDINGLY. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO REVENUES APPEAL IN ITA NO.610/KOL/2013 F OR A.Y. 08-09 . 9. FIRST ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 14,28,510/- U/S 40A(9) AND 36(1) OF THE ACT ON ACCOUNT OF STAFF WELFARE EXPENSES. 10. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S INCURRED EXPENSES ON EMPLOYEES WELFARE, THE DETAILS AS UNDER:- ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 7 1 EXPENSES & SUBSIDY TO STAFF WORKERS CLUB AT JAYKAYPURAM RS.1,84,875/- 2 EXPENSES & SUBSIDY TO LADIES CLUB AT JAYKAYPURAM, SIROHI RS. 47,118/- 3 EXPENSES FOR RUNNING SCHOOL AT JAYKAYPURAM RS.11, 96,517/- RS.14,28,510/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO REQUESTED THE ASSESSEE TO FURNISH THE DETAILS SUCH AS TOTAL NUMBER OF STUDENT IN SCHO OL, TOTAL EXPENSE INCURRED IN RUNNING THE SCHOOL, NUMBER OF EMPLOYEES STUDENT ADMITTED IN SCHOOL ETC., BUT THE ASSESSEE FAILED TO FURNISH THE SAME. THEREFORE, AO DISALLOWE D ALL THE EXPENSES INCURRED BY ASSESSEE FOR RUNNING THE SCHOOL. THE AO ALSO HELD THE EXPENSES INCURRED FOR THE STAF F WELFARE CLUBS WERE NOT IN CONNECTION WITH BUSINESS OF ASSESSEE. THEREFORE, AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 11. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT SIMILAR EXPENSES W ERE ALLOWED BY HON'BLE CO- ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN C ASE IN ITA NO.1315/KOL/2006 FOR THE A.Y 1999-00 DATED 19.03.2008 AND LD. CIT(A) REL YING ON THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) HAS DELETED THE ADDITION MADE BY AO. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUND:- (I) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE T HAT THE DONATION TO CLUBS AND EXPENDITURE ON ACCOUNT OF RUNNING OF SCHOOLS DO NO T QUALIFY FOR DEDUCTION ON A PLAIN READING OF SECTION 40A(9) AND 36(1) OF THE IN COME-TAX ACT, AND, HENCE, HAS ERRED IN LAW AS WELL AS FACTS OF THE CASE IN DI RECTING TO DELETE THE DISALLOWANCE OF RS.14,28,510/- MADE ON ACCOUNT OF STAFF WELFARE EXPENSES. 12. BEFORE US LD. DR HEAVILY RELIED ON THE ORDER OF AO WHEREAS LD. AR FOR THE ASSESSEE SUBMITTED PAPER BOOK WHICH IS RUNNING PAGE S 1 TO 197 AND HE RELIED ON THE ORDER OF LD. CIT(A) 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIALS ON RECORD INCLUD ING THE JUDICIAL PRONOUNCEMENT CITED AND PLACED RELIANCE. AT THE OUTSET, WE FIND T HAT THE ISSUE HAS ALREADY BEEN ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 8 DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N ASSESSEES OWN CASE IN ITA NO.1315/KOL/2006 (SUPRA) AND THE OPERATIVE PORTION OF THE SAID ORDE R IS REPRODUCED BELOW:- 5. HEARD THE RIVAL SUBMISSIONS, PERUSE THE MATERIA L AVAILABLE ON RECORD AND THE CASE LAW CITED BY THE LD. AUTHORISED REPRESENTA TIVE OF THE ASSESSEE. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E VIDE ORDER OF THE HON'BLE ITAT DATED 30.06.2006 RELATING TO ASSESSMENT YEAR 1 995-96 IN ASSESSEES OWN CASE WHILE DECIDING THE DEPARTMENTAL APPEAL. THE RE LEVANT PORTION OF THE ORDER DATED 30.6.2006 PASSED BY THE TRIBUNAL IS REPRODUCE D HEREUNDER:- WE AFTER HEARING BOTH THE PARTIES AND TAKING INTO CONSIDERATION THE ORDERS OF TAX AUTHORITIES FIND THAT SINCE THE LD. C IT(A) WHILE DELETING THE ADDITION HAS GIVEN A CATEGORICAL FINDING BY OBSERVI NG THAT IT WAS MADE FOR THE WELFARE OF THE EMPLOYEES AND THEREFORE THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF P. BALAKRISHNAN, COMMISSIONER OF INCOME TAX -VS- TRAVANCORE COCHIN C HEMICALS LTD (SUPRA) WAS WELL APPLICABLE WHICH HAS NOT BEEN REBU TTED OR CONTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE BEFORE US. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF H ON'BLE KERALA HIGH COURT REPORTED IN 243 ITR 284, CONFIRM THE ACTION O F LD. CIT(A) AND REJECT THE GROUND RAISED BY THE REVENUE. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE HON'BL E ITAT, WE ALLOW THIS GROUND IN FAVOUR OF THE ASSESSEE AND HOLD THAT THE EXPENSE S INCURRED FOR WELFARE OF THE EMPLOYEES DOES NOT COME WITHIN THE PURVIEW OF SECTI ON 40A(9) OF THE IT ACT, 1961 AND IN THAT VIEW DELETED THE DISALLOWANCE OF R S.15,17,126/-. THIS GROUND OF THE REVENUE IS, THEREFORE, DISMISSED . WE ALSO FIND THAT THE CASE OF AO IS NOT EXCESSIVE O R UNREASONABLE EXPENSES. IN OUR VIEW THE AO BEFORE DISALLOWING THE SCHOOL RUNNING E XPENSES SHOULD HAVE CONSIDERED THE EARLIER EXPENSES. MORE OVER FROM THE SUBMISSION OF THE ASSESSEE BEFORE THE LD. CIT-A, WE FIND THAT THE AO DISALLOWED THE EXPENSES ON THE GROUND THAT THE ORDER OF ITAT CITED BY THE ASSESSEE AT THE TIME OF ASSESSMEN T HAS NOT REACHED FINALITY. THE LD. DR HAS NOT BROUGHT ANYTHING CONTRARY TO THE FINDING OF LD. CIT-A. ACCORDINGLY RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE WE HO LD THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. THIS GROUND OF REVENUES APPEAL IS DISMISSED. 14. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FOR 43,05,78,782/- ON ACCOUNT OF GAIN ON SETTLEMENT OF LOAN. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 9 15. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S SETTLED ITS LOAN OF 191.33 CRORES AT 138.71 CRORES WHICH RESULTED A GAIN FOR 52.62 CRORES TO THE ASSESSEE. THE GAIN OF 52.62 CONSIST OF TWO PARTS I.E. PRINCIPAL AMOUNT O F 43.06 AND ANOTHER IS ACCRUED INTEREST OF 9.56 CRORES. THE ASSESSEE HAS OFFERED THE INTEREST AMOUNT OF 9.56 CRORES TO THE TAXES BUT CLAIM DEDUCTION OF 43.06 CRORES AS NON-TAXABLE. HOWEVER, THE AO TREATED THE PRINCIPAL AMOUNT OF 43.06 CRORES AS BUSINESS INCOME UNDER THE PROVISION OF SEC. 28(IV) OF THE ACT WHICH WAS ADDED TO THE TOTAL INCOME OF ASSESSEE. 16. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE PRINCIPAL AMOU NT OF LOAN WAS UTILIZED IN THE FIXED ASSET OF ASSESSEE AND NO EXPENSE WAS CLAIMED OUT OF SUCH LOAN AMOUNT AVAILED BY IT. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- I HAVE PERUSED THE ASSESSMENT ORDER. I HAVE ALSO C ONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT AND THE JUDICIAL DE CISIONS RELIED UPON. IN THE CASE OF JK PAPER LTD, THE HON'BLE ITAT C BENCH, AHMEDABAD AFTER REFERRING TO THE JUDGMENTS OF THE VARIOUS HIGH COURTS HAS HEL D, UNDER SIMILAR FACTS AND CIRCUMSTANCES, THAT THE REBATE ALLOWED BY THE LENDE R WAS NOT ASSESSABLE AS INCOME U/S. 28(IV) OR 41(1). IT WAS EXPLAINED ON BE HALF OF THE APPELLANT THAT THE LOAN UNDER CONSIDERATION WAS TAKEN AND UTILISED FOR ACQUIRING FIXED ASSETS WHICH HAS NOT BEEN DISPUTED BY THE AO IN HIS ASSESS MENT ORDER. IN THE CASE OF CIT VS XYLON HOLDING (P) LTD, THE HON'BLE BOMBAY HI GH COURT HAS HELD THAT THE CESSATION OF LIABILITY ON ACCOUNT OF REPAYMENT OF LOAN TAKEN TO PURCHASE CAPITAL ASSET DOES NOT RESULT IN A REVENUE RECEIPT AND IS NOT TAXABLE U/S. 28(IV) OR 41(1). IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT THE CASE OF THE APPELLANT IS COVERED DIRECTLY BY THE ABOVE DECISIONS OF THE H ON'BLE ITAT AHMEDABAD AND BOMBAY HIGH COURT. RESPECTFULLY FOLLOWING THE ABOVE DECISION, THE ADDITION OF RS.43,05,78,782/- IS DIRECTED TO BE DELETED. GROUND NO 2 IS ALLOWED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUND:- (II) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THE RATIO LAID DOWN IN THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F EMIL WEBBER VS- CIT (1993) [200 ITR 483] THAT ANYTHING WHICH CAN PROPER LY BE DESCRIBED AS INCOME IS TAXABLE UNDER THE ACT UNLESS IT IS EXEMPTED UNDE R ONE OR THE OTHER PROVISION OF THE ACT, AND SUBSEQUENTLY, HAS ERRED IN LAW AS W ELL AS FACTS OF THE CASE IN DIRECTING TO DELETE THE ADDITION OF RS.43,05,78,782 /- MADE ON ACCOUNT OF GAIN ON SETTLEMENT OF LOAN. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 10 17. LD. DR BEFORE US HEAVILY RELIED ON THE ORDER OF AO AND HE LEFT THE ISSUE TO THE DISCRETION OF THE BENCH WHEREAS LD. AR FOR THE ASSE SSEE REITERATED THE ARGUMENTS AS MADE BEFORE THE LD. CIT(A) AND HE RELIED ON THE ORD ER OF LD. CIT(A). 18. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INS TANT RELATES TO THE GAIN WHICH ASSESSEE HAS RECEIVED ON ACCOUNT OF SETTLEMENT OF T HE LOAN. IT IS UNDISPUTED FACT THAT THE AMOUNT OF INTEREST WHICH WAS WAIVED OFF BY THE BANK WAS OFFERED TO THE TAX BY THE ASSESSEE ON THE GROUND THAT INTEREST WAS CLAIMED AS EXPENSE IN ITS BOOKS OF ACCOUNT. HOWEVER, ASSESSEE TREATED WAIVER OFF OF THE PRINCIP AL AMOUNT OF LOAN NON-TAXABLE ITEM ON THE GROUND THAT IT WAS UTILIZED FOR THE PURCHASE OF FIXED ASSETS I.E. BUSINESS PURPOSES. HOWEVER THE AO TREATED THE SAME AS INCOME OF THE ASSESSEE IN TERMS OF THE PROVISIONS OF SECTION 28(IV) OF THE ACT. NOW THE QU ESTION ARISES FOR OUR ADJUDICATION SO AS TO WHETHER THE LOAN AMOUNT WRITTEN OFF IS INCOME AS PER THE PROVISIONS TO SECTION 28(IV) OF THE ACT WHICH READS AS UNDER:- PROFITS AND GAINS OF BUSINESS OR PROFESSION . 28. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INC OME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION,- (I) ... ... (II) ... ... (III) ... .. [(IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETH ER CONVERTIBLE TO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PRO FESSION;] A PLAIN LOOK AT THE ABOVE STATUTORY PROVISION MAKES IT CLEAR OF THE ABOVE PROVISION IT CAN BE INFERRED THAT WHEN LOANS AVAILED FOR ACQUIRI NG CAPITAL ASSETS HAVE BEEN WAIVED, THE WAIVER CANNOT BE TREATED AS VALUE OF ANY BENEFI T OR PERQUISITE ARISING FROM BUSINESS OR EXERCISE OF PROFESSION SO AS TO BE TREATED AS AS SESSABLE INCOME BY INVOKING THE PROVISIONS OF SECTION 28 (IV) OF THE ACT. SUCH WAIVER CANNOT ALSO BE BROUGHT TO TAX U/S 41(1) OF THE ACT, AS NO PART OF THE WAIVER WOULD HA VE BEEN ALLOWED AS A DEDUCTION IN EARLIER YEAR(S). HOWEVER, WAIVER OFF INTEREST PORTI ON OUT OF LOAN TAKEN FOR TRADING ACTIVITIES AND OTHER EXPENDITURE ALLOWED AS DEDUCTI ON IN THE EARLIER YEAR(S) WOULD BE BROUGHT TO TAX UNDER SECTION 41(1) OF THE ACT IN TH E YEAR(S) OF WRITE-BACK. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 11 THE PROVISIONS OF SECTION 28 OF THE ACT DEALS WITH PROFITS AND GAINS OF BUSINESS OR PROFESSION AND CLAUSE (IV) THEREOF SAYS THAT THE VA LUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION SHALL BE CHARGEABLE AS INCOME UNDER THE HEAD ' PROFITS AND GAINS OF BUSINESS OR PROFESSION '. IN THE INSTANT CASE, THE FACT THAT THE LOAN WAS UTILIZED FOR THE ACQUIRING OF FIXED ASSETS HAS NOT BEEN DISPUTED BY THE AO. THUS, IT IS CLEAR THAT THE INSTANT LOAN WAS NOT UTILIZED FOR THE TRADING LIABI LITY OF THE ASSESSEE AND THEREFORE THE WAIVER OFF THE SAME CANNOT AMOUNT TO INCOME WHICH I S CHARGEABLE TO TAX. IN HOLDING SO, WE FIND GUIDANCE & SUPPORT FROM THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. TOSHA INTERNATIONAL LTD. [2011] 331 ITR 440/[2009] 176 TAXMAN 187 WHEREIN IT WAS HELD AS UNDER : THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING OF B LACK AND WHITE PICTURE TUBES. THE ASSESSEE-COMPANY RAN INTO HUGE LOSSES AND IT ULTIMA TELY BECAME A SICK COMPANY AND REGISTERED WITH THE BIFR. UNDER THE ONE TIME SETTLE MENT SCHEME, THE FINANCIAL INSTITUTIONS AND BANKS REQUIRED THE ASSESSEE TO PAY 60 PER CENT OF THE AMOUNT DUE TOWARDS PRINCIPAL AND WAIVED THE ENTIRE INTEREST PA YMENT. THERE IS NO DISPUTE WITH REGARD TO THE WAIVER OF INTEREST PAYMENT. THE ONLY OBJECTION RAISED BY THE ASSESSING OFFICER IS WITH REGARD TO THE WAIVER OF THE PRINCIP AL AMOUNT TO THE EXTENT OF RS. 10,47,93,857 WHICH THE ASSESSEE HAD DIRECTLY CREDIT ED TO THE CAPITAL RESERVE ACCOUNT. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAD DERIVED BENEFIT ON THE BASIS OF EITHER DEPRECIATION OR UTILIZING THE WORKING CAPITAL WHICH WOULD HAVE FORMED PART OF THE EARLIER YEARS INCOME. ACCORDING TO THE ASSESSING OFFICER SI NCE THE LOANS CEASED TO EXIST, THIS AMOUNTED TO CESSATION OF LIABILITY AND, THEREFORE, IT HAS TO BE TREATED AS AN INCOME. CONSEQUENTLY, THE ASSESSING OFFICER ADDED THE SAID SUM OF RS. 10.47 CRORES IN THE INCOME OF THE ASSESSEE. THE COMMISSIONER OF INCOME- TAX (APPEALS) DELETED THE ADDITION BY OBSERVING THAT THE REMISSION OF THE PRINCIPAL AM OUNT OF LOAN DID NOT AMOUNT TO INCOME UNDER SECTION 41(1) NOR UNDER SECTION 28(IV) NOR UNDER SECTION 2(24) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E 'SAID ACT'). 3. THE REVENUE WENT IN APPEAL BEFORE THE TRIBUNAL AGA INST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WITH REGARD TO THE DELETION OF THE SAID SUM OF RS 10.47 CRORES. WE NOTE THAT THE TRIBUNAL HAS EXAMINE D THE CASE IN DETAIL AND PARTICULARLY FROM THE STANDPOINT OF THE PROVISIONS OF SECTION 41 (1) OF THE SAID ACT. THE TRIBUNAL HAS OBSERVED AS UNDER: 'AS PER OUR CONSIDERED VIEW, FOR ATTRACTING THE PRO VISIONS OF SECTION 41(1), THE FIRST REQUISITE CONDITION TO BE SATISFIED IS THAT THE ASS ESSEE SHOULD HAVE GOT DEDUCTION OR BENEFIT OF ALLOWANCE IN RESPECT OF LOSS, EXPENDITUR E OR TRADING LIABILITY INCURRED BY IT AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, THE ASSE SSEE SHOULD HAVE RECEIVED ANY AMOUNT IN RESPECT OF SUCH LOSS, EXPENDITURE OR TRAD ING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. THE REMISSION WOULD BECOME INCOM E ONLY IF THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF EXPENDITURE OR TRAD ING LIABILITY. IN MAHINDRA & MAHINDRA LTD. V. CIT [2003] 261 ITR 501 , HON'BLE HIGH COURT OF BOMBAY HELD THAT ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 12 NO ALLOWANCE OR DEDUCTION HAVING BEEN ALLOWED IN RE SPECT OF LOAN TAKEN BY ASSESSEE FOR PURCHASE OF CAPITAL ASSETS, SECTION 41(1) WAS N OT ATTRACTED TO REMISSION OF PRINCIPAL AMOUNT OF LOAN. IN THE INSTANT CASE, THE ASSESSEE HAS NOT GOT ANY DEDUCTION ON ACCOUNT OF ACQUISITION OF CAPITAL ASSETS AS THE SAME HAS BEEN REFLECTED IN THE BALANCE SHEET AND NOT IN THE P AND L ACCOUNT, AND A LSO THE REMISSION OF THE PRINCIPAL AMOUNT OF LOAN SO OBTAINED FROM THE BANK AND FINANC IAL INSTITUTION HAD NOT BEEN CLAIMED AS EXPENDITURE OR TRADING LIABILITY IN ANY OF THE EARLIER PREVIOUS YEAR. SO FAR AS WAIVER OF INTEREST IS CONCERNED, THE ASSESSEE-CO MPANY ITSELF HAS TREATED THE SAME EITHER AS INCOME OR HAS NOT CLAIMED THE SAME AS EXP ENDITURE IN THE COMPUTATION OF INCOME FILED BEFORE THE LOWER AUTHORITIES.' 4. WE SEE NO REASON TO INTERFERE WITH THE CONCLUSIONS OF THE TRIBUNAL AS THE SAME HAVE BEEN RENDERED ON A CORRECT APPRECIATION OF LAW. THE PRINCIPLES ENUNCIATED IN MAHINDRA & MAHINDRA LTD. V. CIT [2003] 261 ITR 501 (BOM.) ARE FULLY APPLICABLE AND WE SEE NO REASON TO TAKE A DIFFERENT VIEW. 5. CONSEQUENTLY, NO SUBSTANTIAL QUESTION OF LAW ARISE S FOR OUR CONSIDERATION. THE APPEAL IS DISMISSED. THUS, FROM THE AFORESAID LEGAL DISCUSSION AND FACTS OF THE CASE BEFORE US, WE FIND THAT THE ORDER PASSED BY THE LD. CIT(A) IS WELL REASONED AND BASED ON CORRECT LEGAL POSITION AND, THEREFORE, NO INTERFERENCE IS CALLED FOR IN HIS ORDER. THUS, THE SAME IS UPHELD. GROUND RAISED BY THE REVENUE IS DISMISSED. 19. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN ALLOWING THE ADDITION DEPRECIATION OF 72,69,648/- ON THE AMOUNT OF INTEREST CAPITALIZED WHICH WAS NOT CLAIMED IN THE RETURN OF INCOME. 20. THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT I T HAS CLAIMED INTEREST IN THE EARLIER YEAR ON THE LOAN WHICH WAS USED FOR THE PUR POSE OF ACQUISITION OF CAPITAL ASSET AS REVENUE EXPENDITURE BUT THE SAME WAS HELD AS CAP ITAL EXPENDITURE BY THE AO IN HIS ASSESSMENT ORDER U/S. 143(3) OF THE ACT. THE VIEW O F THE AO WAS AFFIRMED BY THE HON'BLE ITAT IN EARLIER YEAR. HOWEVER, THE AO IN HI S ASSESSMENT ORDERS FOR A.YS. 2006-07 AND 2007-08 DID NOT ALLOW THE DEPRECIATION ON THE AMOUNT OF INTEREST WHICH WAS CAPITALISED BUT ON APPEAL THE HON'BLE ITAT HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE VIDE ORDER DATED 30.08.2011 IN ITA NO.1275 & ITA NO.1470/KOL/2010 AND ITA NO.1470/KOL/2009 WHEREBY IT WAS DIRECTED TO ALLOW THE DEPRECIATION O N THE AMOUNT OF INTEREST WHICH WAS CAPITALIZED. LD. CIT(A ) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HAS ALLOWED THE APPEAL BY OBSERVING AS UNDER:- ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 13 I HAVE PERUSED THE ASSESSMENT ORDER. I HAVE ALSO C ONSIDERED THE SUBMISSIONS MADE ON BEHALF F THE APPELLANT AND THE JUDICIAL DEC ISIONS RELIED UPON. IN THE CASE OF JK PAPER LTD, THE HON'BLE ITAT C BENCH, A HMEDABAD AFTER REFERRING TO THE JUDGMENTS OF THE VARIOUS HIGH COURTS HAS HEL D, UNDER SIMILAR FACTS AND CIRCUMSTANCES, THAT THE REBATE ALLOWED BY THE LENDE R WAS NOT ASSESSABLE AS INCOME U/S. 28(IV) OR 41(1). IT WAS EXPLAINED ON B EHALF OF THE APPELLANT THAT THE LOAN UNDER CONSIDERATION WAS TAKEN AND UTILIZED FOR ACQUIRING FIXED ASSETS WHICH HAS NOT BEEN DISPUTED BY THE AO IN HIS ASSESS MENT ORDER. IN THE CASE OF CIT VS. XYLON HOLDING (P) LTD, THE HON'BLE BOMBAY H IGH COURT HAS HELD THAT THE CESSATION OF LIABILITY ON ACCOUNT OF REPAYMENT OF LOAN TAKEN TO PURCHASE CAPITAL ASSET DOES NOT RESULT IN A REVENUE RECEIPT AND IS NOT TAXABLE U/S. 28(IV) OR 41(1). IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT THE CASE OF THE APPELLANT IS COVERED DIRECTLY BY THE ABOVE DECISIONS OF THE H ON'BLE ITAT AHMEDABAD AND BOMBAY HIGH COURT. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, THE ADDITION OF RS.43,05,78,782/- IS DIRECTED TO BE DELETED. GROUND NO 2 IS ALLOWED . THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUND:- (III) THAT THE LD. CIT(A) HAS ERRED IN FACTS AND C IRCUMSTANCES OF THE CASE IN ADMITTING, GOING AGAINST THE RATION LAID DOWN BY TH E HON'BLE SUPREME COURT IN THE CASE OF GOETZE INDIA LTD VS- CIT [284 ITR 323 (SC) (2006)], THE FRESH CLAIM OF THE ASSESSEE IN RESPECT OF ADDITIONAL DEPR ECIATION ON INTEREST CAPITALIZED WHICH WAS NEVER MADE BY THE ASSESSEE IN THE RETURN OF INCOME OR IN THE COURSE OF ASSESSMENT AND CONSEQUENTLY, IN DIREC TING TO ALLOW THE ADDITIONAL CLAIM OF DEPRECIATION OF RS.72,69,648/-. 21. BEFORE US BOTH THE PARTIES RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVOURABLE TO THEM. 22. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FI ND THAT THE HON'BLE CO-ORDINATE BENCH OF THIS TRIBUNAL HAS DECIDED THE ISSUE IN FAV OUR OF ASSESSEE IN ASSESSEES OWN CASE IN ITA NO.1275/KOL/2010 (SUPRA) THE RELEVANT EXTRACT OF THE ORDER IS REPRO DUCED BELOW:- 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE T HROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT LD. COUNSEL FOR THE ASSESSEE STATED THAT IN THE RETURN OF INCOME FOR EARLIER YEARS INTEREST, FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASSETS HAD BEEN CLAIMED AS REVENUE EXPEN DITURE WHICH WAS HELD AS CAPITAL EXPENDITURE IN THE ASSESSMENT ORDER PASSED U/S. 143(3) OF THE ACT. THE HON'BLE ITAT ALSO UPHELD THE VIEW OF ASSESSING OFFI CER TO TREATING THE SAME AS CAPITAL EXPENDITURE. NO FURTHER APPEAL AGAINST THE ORDER OF THE HON'BLE ITAT HAS BEEN PREFERRED BY THE ASSESSEE COMPANY. CONSEQU ENTIAL TO SUCH TREATMENT, ASSESSING OFFICER HAS CONSISTENTLY ALLOWED DEPRECIA TION ON SUCH EXPENDITURE AS PER RULES UPTO ASSESSMENT YEAR 2005-06 IN ORDER PAS SED U/S. 143(3) OF THE ACT. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 14 HOWEVER, FOR AY 2006-07, INSTEAD OF ALLOWING DEPREC IATION ON W.D.V AS ON 31.3.2005 AS PER ASSESSMENT ORDER FOR AY 2005-06, A SSESSING OFFICER ERRED IN ALLOWING DEPRECIATION AS PER RETURN WHICH DOES NOT FACTOR THE ABOVE MENTIONED TREATMENT OF INTEREST CAPITALIZATION. HENCE, LD. CO UNSEL STATED THAT SUITABLE DIRECTIONS MAY BE GIVEN TO THE ASSESSING OFFICER TO RECTIFY THE DEPRECIATION AMOUNT IN ASSESSMENT ORDER FOR AY 2006-07. WE ARE O F THE VIEW THAT OPENING WDV FOR AY 2006-07 (I.E. AS ON 31.03.06 ) HAS NECESSARILY TO BE THE CLOSING WDV OF THE IMMEDIATELY PRECEDING YEAR (I.E. ASSESSI NG OFFICER ON 01.04.06 ) WHICH THE AO IN HIS ORDER DATED 1912.2007 FOR AY 20 05-06 HAS RECORDED AT RS.1557645289. THE AO WILL RECOMPUTED THE DEPRECIAT ION ALLOWABLE FOR AY 2006-07 BY ADOPTING THE OPENING WDV AT RS.155764528 9. ACCORDINGLY, THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED FOR STATI STICAL PURPOSES. IN THE BACKGROUND OF THE ABOVE ORDER OF THIS TRIBUN AL IN ASSESSEES OWN CASE IN ITA NO. 1276/KOL/2010 (SUPRA) WE DO NOT FIND ANY INFIRM ITY IN THE ORDER OF LD. CIT(A). THE PRINCIPLES LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF GOETZE INDIA LTD. ARE NOT APPLICABLE TO THE HONBLE ITAT. THE INSTANT ISSUE IS ALREADY COVERED IN FAVOUR OF ASSESSEE IN ITS OWN CASE. WE UPHOLD THE SAME. AC CORDINGLY, AO IS DIRECTED. REVENUES GROUND IS DISMISSED. 23. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN ALLOWING UNABSORBED DEPRECIATION FOR THE AY 1997-98 AND EARLIER YEARS TO BE CARRIED FORWARD TO THE SUBSEQUENT YEAR WITHOUT ANY TIME LIM IT. 24. THE FACTS AND ISSUE ARE SAME AS IN ITA NO.609/KOL/2013 FOR A.Y. 2007-08 FOLLOWING OUR DECISION ON THIS ISSUE AS EMBODIED IN PARA-7 OF THIS ORDER, HENCE, THIS GROUND OF REVENUES APPEAL IS DISMISSED. AO IS DIRE CTED ACCORDINGLY. 25. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELEING THE ADDITION MADE BY THE AO FOR 13,85,41,566/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF IN THE COMPUTATION OF INCOME. 26. THE AO DURING ASSESSMENT OBSERVED THAT THE BAD DEBTS CLAIMED AS DEDUCTION BY THE ASSESSEE IN COMPUTATION OF INCOME HAVE NOT BEEN DEBITED IN THE PROFIT AND LOSS A/C. ON QUESTION FOR THE AFORESAID DEDUCTION OF BAD DEBT S BY THE AO THE ASSESSEE SUBMITTED THAT THE BAD DEBTS HAVE BEEN WRITTEN OFF AGAINST TH E PROVISION OF BAD DEBT WHICH WERE CREATED IN EARLIER YEARS. THESE PROVISIONS WERE CRE ATED IN EARLIER YEARS BY DEBITING PROFIT & LOSS ACCOUNT AND THESE WERE ALSO DISALLOWE D AND OFFERED TO TAX. THEREFORE, THE BAD DEBT ACTUALLY WRITTEN OFF IN THE BOOKS WERE WRI TTEN OFF AGAINST THE PROVISIONS. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 15 THEREFORE, THE SAME WAS NOT REFLECTED IN THE PROFIT AND LOSS A/C. HOWEVER, THE AO DISREGARDED THE CLAIM OF ASSESSEE BY OBSERVING THAT BAD DEBT HAS NOT BEEN DEBITED IN THE PROFIT AND LOSS A/C AND THEREFORE SAME CANNOT B E ALLOWED AS DEDUCTION. THUS, THE AO DISALLOWED THE CLAIM OF 13,85,41,566/- AND ADDED TO THE TOTAL INCOME OF ASS ESSEE. 27. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE PROVISION FOR THE BAD DEBT HAS ALREADY BEEN MADE IN THE EARLIER YEARS IN THE RESPECTIVE DEBTOR S ACCOUNT. THEREFORE, THESE ACTUAL BAD DEBTS HAVE BEEN CLAIMED AGAINST THE PROVISION C REATED FOR BAD DEBT IN THE EARLIER YEARS. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- I FIND THAT THE BAD DEBT HAS BEEN WRITTEN OFF IN RELATION TO THE BOOKS OF ACCOUNT BY CREDITING THE DEBTORS ACCOUNTS. THE JUD GMENT OF THE HON'BLE KERALA HIGH COURT 243 ITR 430 RELIED UPON BY THE AO IS DISTINGUISHABLE ON ACTS. IN THAT CASE, THE WRITE-OFF OF WAS MADE AFTER THE AUDITED ACCOUNTS WERE FINALIZED; AND CONSEQUENTLY, THE SAME WAS NOT REFLE CTED IN THE PROFIT AND LOSS ACCOUNT. BUT, IN THE PRESENT CASE, THERE IS NO DISP UTE THAT THE WRITE-OFF WAS ACTUALLY MADE BY ADJUSTING THE DEBTORS ACCOUNTS IN THE YEAR UNDER APPEAL AND THAT THE PROFIT AND LOSS ACCOUNT WAS CHARGED IN THE RESPECTIVE YEARS WHEN THE PROVISION WAS MADE FOR SUCH AMOUNT. IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT THE AO WAS NOT JUSTIFIED IN HOLDING THAT THE C LAIM OF BAD DEBT WAS NOT ALLOWABLE AS THE SAME WAS NOT CHARGED TO THE PROFIT AND LOSS ACCOUNT OF THE RELEVANT YEAR. HOWEVER, THE AO HAS NOTED THAT THE C LAIM OF BAD DEBT IN RESPECT OF RS.73,22,461/- PERTAINS TO THE LOAN GIVEN TO M/S HEFZAR CHEMICAL WORKS LTD. HAS OBSERVED THAT MONEY LENDING IS NOT THE BUSINESS OF THE APPELLANT AND THAT THE PRINCIPAL AMOUNT OF RS.73,22,461/- WAS NOT TAKE N INTO ACCOUNT IN COMPUTATION OF INCOME; AND CONSEQUENTLY, THE PRINCI PAL AMOUNT WAS NOT SHOWN A BUSINESS INCOME; AND SO, THE PRINCIPAL AMOUNT WAS ALLOWABLE AS BAD DEBT. I DO NOT FIND MERIT IN THE CONTENTIONS OF THE APPELLA NT. I AGREE WITH THE AO THAT MONEY LENDING IS NOT THE BUSINESS OF THE APPELLANT; AND SO, THE PRINCIPAL AMOUNT IS NOT ALLOWABLE AS BAD DEBT. THE DISALLOWAN CE OF RS.73,22,461/-IS CONFIRMED. IN THE RESULT, THE DISALLOWANCE OF RS.13 ,85,41,566- IS RESTRICTED TO RS.73,22,461/-. GROUND NO. 5 IS ALLOWED. GROUND NO. 6 IS DISMISSED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUND:- (V) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE T HE ACCOUNTING TREATMENT OF THE BAD DEBT WRITTEN OFF AND HENCE HE HAS ERRED IN DISTINGUISHING THE ASSESSEE OF THE ASSESSEE FROM THE CASE OF THE DECISION OF HO N'BLE KERALA HIGH COURT IN CIT -VS- HOTEL AMBASSADOR (2002) [253 ITR 430(KER.)], RELIED UPON BY THE AO AND, ACCORDINGLY, IN DIRECTING TO DELETE THE DISALL OWANCE TO THE TUNE OF RS.13,12,19,105/-. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 16 28. BEFORE US BOTH THE PARTIES RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVOURABLE TO THEM. 29. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING DISCUSSION, WE FIND THAT ASSESSEE HAS DEBITED THE PROVISION FOR BAD DEBT IN THE EARLIER YEAR WHIC H WERE OFFERED TO TAX. IT IS BECAUSE UNDER THE INCOME TAX ACT, THE PROVISIONS FOR BAD DE BTS ARE NOT ALLOWABLE EXPENSES UNTIL AND UNLESS THESE ARE ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT. HOWEVER, IN THE YEAR UNDER CONSIDERATION, THE BAD DEBTS HAVE ACTUAL LY BEEN WRITTEN OFF AND ADJUSTED WITH THE PROVISIONS WHICH WERE MADE EARLIER YEARS IN THE BOOKS OF ACCOUNTS. THE NECESSARY DETAILS OF THE PROVISION MADE IN THE EARL IER YEAR ARE PLACED ON PAGES 19 TO 22 OF THE PAPER BOOK. NOW THE ASSESSEE IN THE YEAR UND ER CONSIDERATION HAS ACTUALLY BEEN WRITTEN OFF THE BAD DEBT AGAINST THE PROVISION WHIC H WERE CREATED IN THE EARLIER YEARS. IT IS ALSO IMPORTANT TO NOTE THAT THERE IS NO DISPU TES WITH REGARD TO THE PROVISIONS CREATED IN THE EARLIER YEARS WERE OFFERED TO TAX. T HERE IS ALSO NO DISPUTE WITH REGARD TO TAX OF THE PROVISION CREATED IN THE EARLIER YEARS. THE AO HAS DISALLOWED THE CLAIM OF ASSESSEE ONLY ON THE GROUND THAT BAD DEBTS WERE NOT DEBITED IN THE PROFIT AND LOSS A/C OF ASSESSEE. IT IS THE ESTABLISHED PRACTICE ONCE TH E PROVISION HAS BEEN CREATED IN THE BOOKS OF ACCOUNT AGAINST THE DEBTORS THEN THE ACTUA L BAD DEBT WILL BE WRITTEN OFF TO THE AMOUNT OF PROVISION ONLY AGAINST SUCH PROVISION. TH US, IT CANNOT BE INFERRED THAT THE BOOK DEBT HAS NOT BEEN ACTUALLY BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE CASE LAW RELIED UPON BY THE AO CIT VS. HOTEL AMBASSADOR REPORTED IN 253 ITR 430 ARE DISTINGUISHABLE FROM THE FACTS OF THE INSTANT AS TH E ASSESSEE IN THAT CASE CLAIMED THE BAD DEBTS IN THE REASSESSMENT PROCEEDINGS. THE RELE VANT QUESTIONS BEFORE THE HONBLE KERALA HIGH COURT WERE AS UNDER : (2) WHETHER, THE TRIBUNAL WAS JUSTIFIED IN FINDING THAT THE BAD DEBTS FOR THE ASST. YR. 1981-82 WERE WRITTEN OFF IN THE ASSESSEES BOOKS AN D THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION OF BAD DEBTS FOR A SUM OF RS. 1,97,208? (3) WAS THE TRIBUNAL RIGHT IN LAW IN DIRECTING THE ITO TO PERMIT THE ASSESSEE TO WRITE OFF THE BAD DEBTS FOR THE YEAR 1982-83 WHEN THE CLA IM WAS PUT FORWARD FOR THE FIRST TIME DURING THE REASSESSMENT PROCEEDINGS?' THE RELEVANT FINDING OF THE JUDGMENT IS REPRODUCED BELOW : ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 17 WE ARE OF THE VIEW THAT THE WRITING OFF OF BAD DEBT S CANNOT BE PERMITTED IN REASSESSMENT PROCEEDINGS INITIATED AFTER THE FINALI SATION OF THE ACCOUNTS. THUS THE PRINCIPLES LAID DOWN BY THE HONBLE COURT CANNOT BE APPLIED IN THE INSTANT CASE BEFORE US. THEREFORE, WE FIND NO REASON TO INT ERFERE IN THE ORDER OF LD. CIT(A). WE UPHOLD ACCORDINGLY. THIS GROUND OF REVENUES APP EAL IS DISMISSED. 30. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN ALLOWING THE DEDUCTION OF UNABSORBED DEPRECIATION U /S. 115JB OF THE ACT THOUGH BROUGHT FORWARD LOSS WAS NIL. 31. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S REDUCED A SUM OF 12.98 CRORES ON ACCOUNT OF BROUGHT LOSS BEING LOWER OF UN ABSORBED DEPRECIATION BROUGHT FORWARD FROM THE EARLIER YEARS. HOWEVER, THE AO OBS ERVED THAT THERE WAS NO BROUGHT FORWARD LOSS AND THEREFORE NO RELIEF CAN BE GIVEN T O THE ASSESSEE ON ACCOUNT OF BROUGHT FORWARD LOSS WHILE COMPUTING THE BOOK PROFIT U/S. 1 15JB OF THE ACT. 32. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO GRANTED RELIEF TO ASSESSEE BY OBSERVING AS UNDER:- 14. GROUND NO 8 RELATES TO THE COMPUTATION OF BOOK PROFIT U/S. 115JB. THE ISSUE WHICH REQUIRES ADJUDICATION IS WHETHER THE AP PELLANT IS ENTITLED TO DEDUCTION OF THE LOWER OF THE AMOUNT OF BROUGHT FOR WARD BUSINESS LOSS OR UNABSORBED DEPRECIATION AS PER THE BOOKS OF ACCOUNT EVEN THOUGH THE DEBIT BALANCE IN THE PROFIT AND LOSS ACCOUNT WAS ADJUSTED AGAINST THE SHARE PREMIUM ACCOUNT AND REVALUATION RESERVE IN PURSUANCE TO A S CHEME OF COMPROMISE SANCTION BY THE HON'BLE HIGH COURTS OF ORISSA AND G UJARAT. THE LD. AR HAS SUBMITTED THAT THE ISSUE HAS BEEN DECIDED IN THE CA SE OF THE APPELLANT FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 BY THE HON'BLE ITAT A BENCH, KOLKATA IN ITA NO. 1470/KOL/2009 AND ITA NO.1275-1417/KOL/2010 . THIS ISSUE HAS BEEN DISCUSSED IN DETAIL IN MY ORDER DAT ED THE 28 TH JANUARY, 2013 IN THE CASE OF THE APPELLANT FOR THE ASSESSMENT YEAR 2 005-06 IN APPEAL NO 23/CC- VI/CIT(A) C-I/11-12. FOLLOWING THE DECISION, IT IS HELD THAT THE ADJUSTMENT OF THE DEBIT BALANCE IN THE PROFIT AND LOSS ACCOUNT WI TH THE SHARE PREMIUM ACCOUNT AND THE REVALUATION RESERVE MADE ON THE 30 TH SEPTEMBER, 2000 HAS TO BE EXCLUDED WHILE COMPUTING THE BOOK PROFIT U/S. 11 5JB. THE AO IS DIRECTED TO ACCORDINGLY DETERMINE THE AMOUNT OF BROUGHT FORWARD BUSINESS LOSS OR UNABSORBED DEPRECIATION FOR EACH OF THE RELEVANT YE ARS WITHOUT TAKING INTO CONSIDERATION THE SAID ADJUSTMENT; AND THEN, ALLOW THE DEDUCTION OF THE LESSER OF THE TWO AMOUNTS WHILE COMPUTING THE BOOK PROFIT U/S.115JB. GROUND NO 8IS ALLOWED. IN GROUND NO. 9, IT HAS BEEN CONTENDED THA T THE AO HAS ERRED I NOT RECORDING THE TAX CREDIT AVAILABLE TO THE APPELLANT U/S.115JAA. THE AO IS DIRECTED TO RECORD HIS FINDINGS REGARDING THE TAX C REDIT AVAILABLE TO THE APPELLANT U/S. 115JAA. GROUND NO 9 IS DECIDED ACCOR DINGLY. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 18 THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUND:- (VI) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE LOWER OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION IN THE INST ANT CASE WAS NIL , AS NO LOSS WAS BROUGHT FORWARD AND, HENCE, HAS ERRED IN L AW AS WELL AS FACTS OF THE CASE IN DIRECTING TO RE-COMPUTE THE BOOK PROFIT U/S 115JB, EXCLUDING THE ADJUSTMENT OF THE DEBIT BALANCE IN THE PROFIT & LOS S ACCOUNT WITH THE SHARE PREMIUM ACCOUNT AND THE REVALUATION RESERVE MADE ON 30.09.2000; AND 33. LD. DR FOR THE REVENUE HEAVILY RELIED ON THE OR DER OF AO WHEREAS LD. AR FOR THE ASSESSEE RELIED ON THE ORDER OF LD. CIT(A). 34. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT TH E ISSUE IS DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1470/KOL/2009 FOR A.Y. 2006-07 DATED 30.08.2011. THE RELEVANT OPERATIVE PO RTION OF THE SAID ORDER IS REPRODUCED BELOW:- 14. THE SUM UP, IN OUR VIEW, IN COMPUTING THE BOOK PROFIT FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08, THEE ASSESSEE WAS ENTITL ED TO DEDUCTION IN TERMS OF CLAUSE (III) OF THE EXPLANATION TO SECTION 115JB(2) OF THE ACT THE ADJUSTMENT OF DEBIT BALANCE IN THE PROFIT AND LOSS ACCOUNT WITH S HARE PREMIUM ACCOUNT AND REVALUATION RESERVE MADE ON SEPTEMBER 30, 2000, WHI CH IS REQUIRED TO BE EXCLUDED FROM CONSIDERATION AND ACCORDINGLY, AO IS REQUIRED TO DETERMINE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPREC IATION FOR EACH OF YEARS WITHOUT TAKING SAID ADJUSTMENT INTO CONSIDERATION A ND ALLOW DEDUCTION IN RESPECT OF LESSER OF TWO AMOUNTS. HENCE, BOTH QUEST IONS FRAMED BY US ARE ANSWERED IN FAVOUR OF ASSESSEE ON THE GIVEN FACTS A ND CIRCUMSTANCES OF THE CASE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ALL THIS ISSUE IN FAVOUR OF ASSESSEE AND AGAINST REVENUE. AS THE AFORESAID ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IS BINDING ON US AND THEREFORE RESPECTFULLY FOLLOWING THE SAME, WE DO NO T FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). WE UPHOLD THE SAME. THIS GROUND OF REVE NUES APPEAL IS DISMISSED. 35. LAST GROUND IN THIS APPEAL OF REVENUE IS GENERA L IN NATURE AND DOES NOT CALL FOR ANY SEPARATE ADJUDICATION. 36. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO REVENUES APPEAL IN ITA NO.611/KOL/2013 F OR A.Y. 09-10 . 37. FIRST ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF 15,98,435/- U/S 40A(9) AND 36(1) OF THE INCOME-TAX ACT ON ACCOUNT OF STAF F WELFARE EXPENSES. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 19 38. THE FACTS AND ISSUE ARE SAME AS IN I TA NO. 610/KOL/2013 FOR A.Y. 2008-09 OF REVENUES APPEAL, FOLLOWING OUR DECISION ON THIS IS SUE AS EMBODIED IN PARA-13 OF THIS ORDER, HENCE, THIS GROUND OF REVENUES APPEAL IS D ISMISSED. 39. NEXT ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF ADDITIONAL DEPRECIATION FOR 61,79,240/- ON ACCOUNT OF INTEREST CAPITALIZED. 40. THE FACTS AND ISSUE ARE SAME AS IN I TA NO. 610/KOL/2013 FOR A.Y. 2008-09 OF REVENUES APPEAL, FOLLOWING OUR DECISION ON THIS IS SUE AS EMBODIED IN PARA-22 OF THIS ORDER, HENCE, THIS GROUND OF REVENUES APPEAL IS D ISMISSED. 41. LAST GROUND IN THIS APPEAL OF REVENUE IS GENERA L IN NATURE AND DOES NOT REQUIRE ANY SEPARATE ADJUDICATION. COMING TO REVENUES APPEAL IN ITA NO.612/KOL/2013 F OR A.Y. 10-11 . 42. FIRST ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 4,10,535/- U/S 40A(9) AND 36(1) ON ACCOUNT OF STAF F WELFARE EXPENSES. 43. THE FACTS AND ISSUE ARE SAME AS IN I TA NO. 610/KOL/2013 FOR A.Y. 2008-09 OF REVENUES APPEAL, FOLLOWING OUR DECISION ON THIS IS SUE AS EMBODIED IN PARA-13 OF THIS ORDER, HENCE, THIS GROUND OF REVENUES APPEAL IS D ISMISSED. 44. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN ALLOWING THE UNABSORBED DEPRECIATION FOR THE A.Y.19 97-98 AND EARLIER YEARS TO BE CARRIED FORWARD TO THE SUBSEQUENT YEARS WITHOUT ANY TIME LIMIT. 45. THE FACTS AND ISSUE ARE SAME AS IN I TA NO. 609/KOL/2013 FOR A.Y. 2007-08 OF REVENUES APPEAL, FOLLOWING OUR DECISION ON THIS IS SUE AS EMBODIED IN PARA-7 OF THIS ORDER, HENCE, THIS GROUND OF REVENUES APPEAL IS D ISMISSED. 46. NEXT ISSUE RAISED BY THE REVENUE IN THIS IS THA T LD. CIT(A) ERRED IN ALLOWING THE ADDITIONAL DEPRECIATION OF 52,52,354/- ON ACCOUNT OF INTEREST CAPITALIZED. 47. THE FACTS AND ISSUE ARE SAME AS IN I TA NO. 610/KOL/2013 FOR A.Y. 2008-09 OF REVENUES APPEAL, FOLLOWING OUR DECISION ON THIS IS SUE AS EMBODIED IN PARA-22 OF THIS ORDER, HENCE, THIS GROUND OF REVENUES APPEAL IS D ISMISSED. 48. LAST ISSUE IN THIS APPEAL OF REVENUE IS GENERAL IN NATURE AND DOES NOT CALL FOR ANY SEPARATE ADJUDICATION. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 20 49. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO ASSESSEE CO. NO.47/KOL/2013 FOR A.Y. 10- 11 . 50. SOLITARY ISSUE RAISED BY ASSESSEE IN ITS CO IS THAT LD. CIT(A) ERRED IN DISALLOWING THE EXPENSE OF 2,02,56,220/- U/S 14A OF THE ACT. 51. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S DECLARED DIVIDEND INCOME AND INTEREST INCOME OF 2,42,95,577/- AND 3,900/- RESPECTIVELY WHICH WAS CLAIMED AS EXEMPTED U/S 10(34), 10(15) OF THE ACT. THE ASSESSE E HAS NOT DISALLOWED ANY EXPENSE IN RELATION TO THE AFORESAID EXEMPTED INCOME ON THE GROUND THAT NO EXPENSE WAS INCURRED IN CONNECTION WITH THE AFORESAID INCOME. I T WAS ALSO SUBMITTED THAT THE OWN FUND WAS INVESTED IN THE IMPUGNED ASSETS AND THEREF ORE NO INTEREST EXPENSE HAS BEEN INCURRED. HOWEVER, THE AO DISREGARDED THE CLAIM OF ASSESSEE BY OBSERVING THAT THE DECISION FOR THE PURCHASE / SALE AND RETENTION OF I NVESTMENT ARE VERY CRUCIAL AND TOP MANAGEMENT IS ALWAYS INVOLVED IN SUCH DECISION MAKI NG PROCESS. THEREFORE, THE AO INVOKED THE PROVISIONS OF RULE 8D OF THE IT RULES, 1962 AND ACCORDINGLY MADE THE DISALLOWANCE AS UNDER:- SL.NO RULE HEAD OF EXPENSE AMOUNT (RS) 1 8D(2)(I) DIRECT EXPENSES NIL 2 8D(2)(II) INTEREST EXPENSE 60,20,220/- 3 8D(2)(III) INDIRECT EXPENSE 1,42,36,000/- THE AFORESAID IMPUGNED AMOUNT WERE DISALLOWED U/S 1 4A R.W.S. RULE 8D OF THE IT RULES, 1962 AND ADDED TO THE TOTAL INCOME OF ASSESS EE UNDER NORMAL PROVISION OF THE ACT AS WELL AS UNDER THE PROVISION OF MINIMUM ALTER NATE TAX (MAT). 52. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO CONFIRMED THE ORDER OF ASSESSING OFFICER BY OBSERVING AS UNDER:- 4. GROUND NO 2 RELATES TO DISALLOWANCE OF RS.2,02, 56,220/- BY APPLYING THE PROVISIONS ON SECTION 14A. THE ISSUE HAS BEEN DECID ED IN MY ORDER DATED THE 29 TH JANUARY, 2013 IN THE CASE OF THE APPELLANT FOR TH E AM YEAR 2008-09 IN APPEAL NO 157/CC-VI/CIT(A) C-I/10-11. FOLLOWING THE DECISION, THE DISALLOWANCE OF RS.2,02,56,220/- IS CONFIRMED. GROU ND NO 2 IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E IS IN CO BEFORE US ON THE FOLLOWING GROUNDS:- ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 21 1. THAT THE COMMISSIONER (APPEALS) ERRED IN DISALL OWING EXPENSES OF RS.20256220 U/S/. 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES IN:- A) NORMAL INCOME COMPUTED UNDER CHAPTER-IV OF THE ACT, AND B) BOOK PROFIT COMPUTATION U/S. 115JB OF THE ACT. 53. LD. AR FOR THE ASSESSEE FILED WRITTEN SUBMISSIO N STATING THAT RELIANCE MAY KINDLY BE PLACED ON THE FOLLOWING DECISIONS OF HON' BLE ITAT KOLKATA BENCHES. (I) DCIT, CENTRAL CIRCLE - XVII, KOL V. REI AGRO IN DUSTRIES LTD. ORDER DATED 14.5.2013 BY ITAT, 'A' BENCH, KOLKATA IN ITA NO. 18 11/KO1L2012, AY 2009- 10. (II) REI AGRO INDUSTRIES LTD. V. DCIT, CENTRAL CIRC LE - XVII, KOL IN APPEAL NO. 1331 AND 1423 (KOL) OF 2011 DT. 29.6.2013 FOR A.Y 2 008-09 REPORTED IN (2013) 144 ITD 141 (KOL) 'A' BENCH. IN BOTH THE AFORESAID CASES IT WAS HELD BY THE HON' BLE CO-ORDINATE BENCH OF THIS TRIBUNAL THAT WITHOUT RECORDING SATISFACTION, NO DI SALLOWANCE U/S 14A READ WITH RULE 8D CAN BE MADE. IN THIS CONNECTION, LD. AR ALSO DRAWN TO A DECISION OF HON'BLE DELHI HIGH COURT DT. 25.2.2015 REPORTED IN (2015) 372 ITR 694 (DEL.) IN WHICH ALSO IT HAS BEEN VERY CLEARLY HELD THAT WITHOUT RECORDING SATISFACTION THERE COUL D BE NO QUESTION OF DISALLOWANCE U/S 14A READ WITH RULE 8D. THE DECISION OF HON'BLE DELHI HIGH COURT IS REPORTED IN 372 ITR 694 (DEL). THE LD. AR ALSO SUBMITTED THAT NO DISALLOWANCE U/S 14A COULD BE MADE WITHOUT RECORDING OF SATISFACTION, AND WHERE OWN FUNDS WERE SUFFICIENT AND MORE THAN INVESTMENT IN SHARES AND SECURITIES AND ALSO WHERE RECEIPT OF INTEREST WAS MORE THAN INTEREST PAYMENT YOUR KIND ATTENTION IS FURTHER DRA WN TO THE PRINCIPLES ENUNCIATED BY HONBLE ITAT 'A' BENCH, KOLKATA IN THE CASE OF DAMODAR VALLEY CORPORATION V. ADDL. CIT (2016) 180 TT] 82 (KOL-A). THE RELEVANT PORTION OF THE AFORESAID ORDER IS REPRODUCED HEREWITH FOR YOUR KIND PERUSAL. - (UNDER LINED BY US TO LAY EMPHASIS) A) 'ON AVAILABILITY OF OWN FUNDS WITH THE ASSESSEE FOR MAKING INVESTMENTS. (I) WE ALSO FIND THAT THE ASSESSEE HAD GOT SUFFICIE NT OWN FUNDS TO MAKE THESE INVESTMENTS AND THE LEARNED AO HAD NOT BROUGH T ANY NEXUS BETWEEN THE BORROWED FUND VIS-A-VIS THE INVESTMENTS MADE BY THE ASSESSEE. WITHOUT DOING THE SAME, HE CANNOT DIRECTL Y PRESUME THAT THE INVESTMENTS WERE MADE OUT OF BORROWED FUNDS. IF THE ACTIONS OF THE ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 22 LEARNED AO AND LEARNED CIT(A) ARC TO BE UPHELD, THE N NO ASSESSEE COULD MAKE ANY INVESTMENTS WHEN THERE IS A INTEREST BEARI NG LOAN TO BE REPAID. THE FACT OF MAKING THE INVESTMENTS HAS TO BE VIEWED FROM THE POINT OF COMMERCIAL EXPEDIENCY AND FROM THE POINT OF VIEW OF BUSINESSMAN AND NOT FROM THE VIEWPOINT OF THE REVENUE. IT IS WELL S ETTLED THAT BUSINESSMAN KNOWS HIS INTEREST BEST. WE PLACE RELIA NCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (2009) 221 CTR (BORN) 435: (2009) 19 D TR (BORN) 1 : (2009) 313 ITR 340 (BORN) IN SUPPORT OF OUR VIEW TH AT IF THE OWN FUNDS ARE AVAILABLE WITH THE ASSESSEE AND IF THE SAME AND MORE THAN THE INVESTMENTS MADE BY THE ASSESSEE, THEN IT HAS TO BE PRESUMED THAT THE INVESTMENTS WERE MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS. HENCE THE PROVISIONS OF R.8D(2)(II) CANNOT BE INVOK ED IN THESE CIRCUMSTANCES. B) ON NON-APPLICATION OF R. 8D(2)(II) AS THE ASSESS EE HAD EARNED NET TAXABLE INTEREST INCOME. (II) RELIANCE PLACED ON THE CO-ORDINATE BENCH DECIS ION OF THIS TRIBUNAL IN THE CASE OF DY. CIT VS. TRADE APARTMENT LTD. IN ITA NO.1277/KO1L2011, DT.30TH MARCH 2012 FOR THE ASST Y EAR 2008 - 09, WHEREIN THE GROUNDS RAISED AND DECISION TAKEN THERE ON ARE AS BELOW: (A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LEARNED CIT(A) ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS.9,86,306 UNDER R. 8D(2)(II) BEING A PART OF TOTAL DISALLOWANCE UNDER S. 14A SIN CE HE OPINED IN THE INSTANT CASE THAT THERE CANNOT BE ANY INTEREST EXPE NDITURE LEFT WHERE INTEREST INCOME IS MORE THAN INTEREST EXPENDITURE. HELD - AS LEARNED CIT(A) HAS RIGHTLY OBSERVED, ONCE THERE IS NO NET INTEREST EXPENDITURE, AS IS THE CASE BEFORE US UPON SETTING OFF INTEREST CREDIT TO P&L A/C NO PART OF INTEREST DEBITED CAN B E DISALLOWED AS ATTRIBUTABLE TO EARNING TAX-FREE DIVIDEND. THE CIT( A) WAS THUS QUITE JUSTIFIED IN DELETING THE INTEREST DISALLOWANCE.' C) ON NON RECORDING OF SATISFACTION IN TERMS OF R. 8D(1) (III) WE FIND THAT THE LEARNED AR HAD DIRECTLY EMBA RKED ON R. 8D(2) WITHOUT RECORDING SATISFACTION, IN TERMS OF R. 8D(1 ) OF THE RULES WITH COGENT REASON AS TO WHY THE FIGURE DISALLOWED BY TH E ASSESSEE UNDER S. 14A OF THE ACT IS INCORRECT. WE FIND THAT THE LEARN ED AO HAD STRAIGHTAWAY EMBARKED UPON COMPUTING DISALLOWANCE U NDER R. 8D(2)(III) OF THE RULES. WE FIND THAT THIS ISSUE HAS BEEN ELAB ORATELY DEALT WITH IN THE FOLLOWING CASES: ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 23 CIT VS. ASHISH JHUNJHUNWALA IN G.A. NO.2990 OF 2013 IN ITA T NO.157 OF 2013 DT. 8TH JANUARY 2014 RENDERED BY CALCUTTA H IGH COURT : 'WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REG ARD TO EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXE MPTED INCOME, THE AO HAS TO INDICATE COGENT REASON FOR THE SAME. FROM THE FACTS OF THE PRESENT CASE, IT IS NOTICED THAT THE AO HAS NOT CONSIDERED THE CLAIM OF THE ASSESSEE AND STRAIGHTAWAY EMBARKED UPON COMPUTING DISALLOWANCE U NDER R. 8D OF THE RULES ON PRESUMING THE AVERAGE VALUE OF INVESTMENT AT P ERCENT OF THE TOTAL VALUE. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION IN THE CASE OF 1.K. INVESTORS (BOMBAY) LTD ., SUPRA, WE UPHOLD THE ORDER OF CIT(A).' CIT VS. R.E.I. AGRO LTD. IN G.A. 3022 OF2013 IN ITA T 161 OF2013 DT.23RD DECEMBER 2013 RENDERED BY CALCUTTA HIGH COURT : 'THE AO ALSO DISALLOWED THE EXPENDITURE UNDER S. 14 A OF THE IT ACT, 1961 WITHOUT FIRST RECORDING THAT HE WAS NOT SATISFIED WITH THE CORREC TNESS OF THE CLAIM AS REGARDS THE CLAIM THAT NO EXPENDITURE WAS MADE BY THE ASSESSEE. CHALLENGING THE ORDER OF THE TRIBUNAL, THE PRESENT APPEAL HAS BEEN FILED. WE HAVE HEARD MR. BHOWMIK AND ARE OF THE OPINION TH AT NO POINT OF LAW HAS BEEN RAISED. THEREFORE, THIS APPEAL IS DISMISSED.' HENCE, WE HOLD THAT THE ACTION OF THE LEARNED AO IN DIRECTLY EMBARKING ON R. 8D(2) OF THE RULES WITHOUT RECORDING ANY SATISFACTION AS MAN DATED IN R. 8D(1) OF THE RULES IS NOT APPRECIATED AND HENCE NO DISALLOWANCE UNDER SEC . 14A OF THE ACT BY APPLYING RULE. 8D OF THE RULES COULD BE MADE IN THE FACTS OF THE I NSTANT CASE. IN THE INSTANT CASE THE ASSESSEE CORPORATION HAS DISALLOWED A SUM OF RS.11, 08,315/- AND NO ADVERSE INFERENCE HAS BEEN BROUGHT ON RECORD AND NO SATISFACTION HAS BEEN RECORDED WITH COGENT REASONS BY THE AO AS TO WHY THE SAID FIGURE COMPUTED BY THE ASSESSEE IS INCORRECT. WITHOUT SATISFYING THE REQUIREMENT CONTEMPLATED IN R. 8D(1) , THE AO HAD DIRECTLY PROCEEDED TO APPLY R. 8D(2) IN THE INSTANT CASE. HENCE, THE DISA LLOWANCE UNDER S.14A OF THE ACT CANNOT BE MADE IN THE INSTANT CASE OF THE ASSESSEE CORPORATION FOR THE AYS 2008-09 AND 2009-10. HENCE, THE DISALLOWANCE MADE U/S 14A MAY KINDLY BE DELETED. IN THIS CONNECTION, THIS IS FURTHER TO SUBMIT THAT THE AMOUNT DISALLOWABLE EVEN IF ANY UNDER RULE 8D(2)(III) COULD ONLY BE IN RESPECT OF T HOSE INVESTMENTS IN RESPECT OF WHICH ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 24 DIVIDEND INCOME WAS RECEIVED AND IN THIS CONNECTION YOUR KIND ATTENTION IS DRAWN TO THE FOLLOWING DECISIONS OF HON'BLE ITAT, KOLKATA BE NCHES. (I) DCIT, CENTRAL CIRCLE - XVII, KOL V. REI AGRO IN DUSTRIES LTD. ORDER DATED 14.5.2013 BY ITAT, 'A' BENCH, KOLKATA IN ITA NO. 18 111KO1/2012, A.Y 2009-10. (II) REI AGRO INDUSTRIES LTD. V. DC IT, CENTRAL CIR CLE - XVII, KOL IN APPEAL NO. 1331 AND 1423 (KOL) OF2011 DT. 29.6.2013 FOR A. Y 2008-09 REPORTED IN (2013) 144 ITD 141 (KOL) 'A' BENCH. AGAINST ONE OF THE DECISION THE DEPARTMENT WENT BEF ORE HON'BLC JURISDICTIONAL HIGH COURT AND THE HON'BLE HIGH COURT DISMISSED THE DEPA RTMENT'S APPEAL. THE OTHER DECISION OF THE DEPARTMENT APPEARS TO HAVE BEEN ACC EPTED BY THE DEPARTMENT AS NO SECOND APPEAL HAVE BEEN PREFERRED BY THE DEPARTMEN T AGAINST SUCH DECISION. IT WAS HELD IN THE AFORESAID DECISIONS OF ITAT, KOL KATA BENCHES & HORI'BLE DELHI COURT THAT DISALLOWANCE UNDER RULE 8D(2)(II) AND 8D (2)(III) COULD ONLY BE MADE IN RESPECT OF ONLY THOSE INVESTMENTS ON WHICH DIVIDEND INCOME HAS BEEN EARNED DURING THE YEAR. A) AS STATED EARLIER HON'BLE DELHI COURT IN THE CAS E OF ACB INDIA LTD. V. ACIT (2015) 374 ITR 108 HAS ALSO HELD THAT THAT DISALLOW ANCE UNDER RULE 8D(2)(II) & 8D(2)(III) COULD ONLY BE WITH REFERENCE TO THE IN VESTMENT ON WHICH DIVIDEND INCOME HAD BEEN EARNED DURING THE YEAR AND THIS WAS ALSO THE VIEW OF HON'BLE CALCUTTA TRIBUNAL REFERRED ABOVE. B) IN THE CASE OF CIT, CIRCLE - 1, KOLKATA V. TEENL OK ADVISORY SERVICES PVT. LTD. (2016) 159 ITD 9911 71 TAXMANN.COM 269 (KOL - TRIB.) - IN THIS CASE ALSO IT WAS HELD BY THE HON'BLE TRIBUNAL, KOLKATA 'A' BE NCH THAT DISALLOWANCE UNDER RULE 8D HAS TO BE COMPUTED BY TAKING INTO CONSIDERA TION ONLY THOSE SHARES WHICH HAD YIELDED DIVIDEND INCOME IN THE YEAR UNDER CONSIDERATION. 54. ON THE OTHER HAND, LD. DR HEAVILY RELIED ON THE ORDER OF AUTHORITIES BELOW AND LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 55. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED CAREFULLY CONSIDERED THE MATERIALS ON RECORD; INCLUDING THE J UDICIAL PRONOUNCEMENTS CITED AND ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 25 PLACED RELIANCE UPON. THE ISSUE IN THE INSTANT CASE RELATES TO THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES UNDER THE PROVISIONS OF SECTI ON 14A OF THE ACT VIZ-A-VIZ RULE 8D OF INCOME TAX RULES 1962. THE ASSESSEE HAS EARNED E XEMPT INCOME BUT NO CORRESPONDING EXPENSE WAS DISALLOWED BY THE ASSESSE E IN RELATION TO SUCH INCOME ON THE GROUND THAT NO EXPENDITURE WAS INCURRED. THEREF ORE THE AO INVOKED THE PROVISIONS OF SECTION 14A AND RULE 8D OF INCOME TAX RULES FOR THE PURPOSE OF THE DISALLOWANCE. IN THE INSTANT CASE WE FIND THAT THE AO HAS DERIVED ITS SATISFACTION BY RECORDING IN THE ASSESSMENT ORDER AS DETAILED UNDER :- 3.1.2 IT WAS OBSERVED THAT NO EXPENDITURE, IN RE SPECT TO SUCH EXEMPT INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, WAS E ITHER DEBITED TO THE PROFIT 7 LOSS ACCOUNT OR DISALLOWED IN THE COMPUTATION OF TO TAL INCOME. THEREFORE, THE ASSESSEE-COMPANY WAS REQUESTED, VIDE NOTICE U/S. 14 2(1), TO EXPLAIN AS TO WHY THE EXPENDITURE INCURRED IN RESPECT TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHOULD NOT BE DISALLOWED WITHIN THE SC OPE OF SECTION 14A OF THE INCOME-TAX ACT, 1961. IN REPLY, THE ASSESSEE-COMPAN Y, VIDE ITS LETTER DATED 06.07.2012 FURNISHED THE FOLLOWING EXPLANATION: DURING THE YEAR UNDER CONSIDERATION, DIVIDEND OF R S.24295577 WAS CLAIMED AS EXEMPT U/S. 10(33) OF THE ACT AND RS.390 0 WAS CLAIMED AS EXEMPT U/S. 10(15) OF THE ACT FOR WHICH NO EXPENSES HAVE BEEN INCURRED AS THE COMPANY IS A MANUFACTURING CONCERN. FURTHER, WE WOULD LIKE TO INFORM THAT ALL THE INVES TMENT WERE MADE OUT OF OUR OWN FUNDS AND THEREFORE NO INTEREST EXPENSE HAS BEEN INCURRED IN RESPECT TO SUCH INVESTMENTS. THEREFORE, IN VIEW OF THE ABOVE, DISALLOWANCE U/S. 14A IS NOT CALLED FOR. THE SUBMISSION OF THE ASSESSEE COMPANY HAS BEEN CON SIDERED CAREFULLY. THE ASSESSING OFFICER HAD SERVED NOTICE TO THE ASSE SSEE AS TO WHY DISALLOWANCE OF EXPENDITURE ON THE EXEMPT INCOME BE NOT MADE AND AF TER RECEIPT OF THE REPLY/EXPLANATION HAD CLEARLY STATED THAT THE SAID REPLY/EXPLANATION OF THE ASSESSEE CANNOT BE ACCEPTED. AND THEREAFTER INVOKED RULE 8D, WHICH IS NOTHING OTHER THAN AN IMPLIED RECORDING OF SATISFACTION AS ENVISAGED UNDE R SUB-SECTION (2) OF SECTION 14A OF THE ACT. THUS IN THE INSTANT CASE WE FIND THAT THE AO HAS RECORDED HIS SATISFACTION. AS THE ASSESSEE HAS NOT DEMONSTRATED BY GIVING THE NEC ESSARY DETAILS ABOUT THE INDIRECT EXPENDITURE AND INTEREST EXPENDITURE JUSTIFYING THA T NO EXPENDITURE HAS BEEN INCURRED, THEREFORE THE AO HAD NO OPTION EXCEPT TO RESORT TO THE PROVISIONS TO SECTION 14A OF THE ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 26 ACT AND RULE 8D OF INCOME TAX RULE. IN THE CASE REL IED UPON BY THE LD. AR I.E. REI AGRO INDUSTRIES LTD. V. DCIT, CENTRAL CIRCLE - XVII , KOL IN APPEAL NO. 1331 AND 1423 (KOL) OF 2011 DT. 29.6.2013 FOR A.Y 2008-09 REPORTE D IN (2013) 144 ITD 141, WE FIND THAT THE NECESSARY DETAILS WERE PROVIDED BY THE ASS ESSEE AND THEREFORE THE CASE IS DISTINGUISHABLE FROM THE FACTS OF THE CASE IN HAND. 55.1 WE ALSO FIND THAT IT IS THE DUTY OF THE ASSESS EE TO PROVE WHETHER THE BORROWED FUND HAS BEEN USED IN THE INVESTMENT ON THE BASIS O F DOCUMENTARY EVIDENCE AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF DHANUKA & SONS VS. CIT REPORTED IN 12 TAXMANN.COM 227 WHEREIN IT WAS HELD AS UNDER : THE MERE FACT THAT THOSE SHARES WERE OLD ONES AND N OT ACQUIRED RECENTLY WAS IMMATERIAL. IT WAS FOR THE ASSESSEE TO SHOW THE SOU RCE OF ACQUISITION OF THOSE SHARES BY PRODUCTION OF MATERIALS THAT THOSE SHARES WERE A CQUIRED FROM THE FUNDS AVAILABLE IN THE HANDS OF THE ASSESSEE AT THE RELEVANT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOAN. IF THOSE SHARES WERE PURCHASED FROM THE AMOUN T TAKEN IN LOAN, EVEN FOR INSTANCE, FIVE OR TEN YEARS AGO, IT WAS FOR THE ASS ESSEE TO SHOW BY THE PRODUCTION OF DOCUMENTARY EVIDENCE THAT SUCH LOANED AMOUNT HAD AL READY BEEN PAID BACK AND FOR THE RELEVANT ASSESSMENT YEAR, NO INTEREST WAS PAYAB LE BY THE ASSESSEE FOR ACQUIRING THOSE OLD SHARES. IN THE ABSENCE OF ANY SUCH MATERI AL PLACED BY THE ASSESSEE, THE AUTHORITIES BELOW RIGHTLY HELD THAT PROPORTIONATE A MOUNT SHOULD BE DISALLOWED HAVING REGARD TO THE TOTAL INCOME AND THE INCOME FROM EXEM PT SOURCE. IN THE ABSENCE OF ANY MATERIAL DISCLOSING THE SOURCE OF ACQUISITION OF SH ARES WHICH WAS WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE, THE ASSESSING AUTHORITY TOOK A MOST REASONABLE APPROACH IN ASSESSMENT. NOW THE ISSUE ARISES WITH REGARD TO THE QUANTIFICAT ION OF DISALLOWANCES OF THE INTEREST AS TOWHETHER THE NET INTEREST EXPENSES NEEDS TO BE CONSIDERED UNDER THE PROVISIONS OF RULE 8D(2)(II) OF INCOME TAX RULES. IN THIS CONNECT ION WE FIND THAT THE HONBLE TRIBUNAL IN THE CASE OF DY. CIT V. TRADE APARTMENTS LTD. [ IT APPEAL NO. 1277/KOL/ 2011 , DATED 30-3-2012] HAS HELD THAT IF THERE IS NO NET INTEREST EXPENSES AFTER SETTING OFF THE INTEREST EXPENSES WITH THE INTEREST INCOME, THEN THERE CAN BE NO DISALLOWANCE OF INTEREST EXPENSES U/S. 14A OF THE ACT, AS IN SUCH A SITUATION, IT CANNOT BE SAID THAT EXPENDITURE BY WAY OF INTEREST HAS BEEN CLAIMED BY THE ASSESSEE. HOWEVER IN OUR CONSIDERED VIEW THE PROPOSITION LAID DOWN BY THE HO NBLE ITAT IN THE CASE OF TRADE APARTMENT (SUPRA) WILL BE APPLICABLE WHEN THERE IS DIRECT NEXUSES BE TWEEN THE INTEREST EXPENSES AND INTEREST INCOME. THE LD. AR HAS NOT BR OUGHT ANYTHING ON RECORD TO ESTABLISH THE NEXUSES BETWEEN THE INTEREST EXPENSES AND INTEREST INCOME. THEREFORE WE ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 27 ARE NOT INCLINED TO ACCEPT THE ARGUMENT FOR NETTING OFF THE INTEREST. HENCE, WE REJECT THE CLAIM OF THE ASSESSEE. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS RAI SED AN ALTERNATIVE CONTENTION THAT EVEN IF SECTION 14A READ WITH RULE 8D IS HELD TO BE APPLICABLE IN THE CASE OF THE ASSESSEE, THE ASSESSING OFFICER MAY BE DIRECTED TO COMPUTE THE DISALLOWANCE AS PER RULE 8D OF THE IT RULES, BY TAKING INTO CONSIDERATI ON ONLY THOSE SHARES WHICH HAVE YIELDED DIVIDEND INCOME IN THE YEAR UNDER CONSIDERA TION. SINCE THIS ISSUE RAISED BY THE LD. COUNSEL FOR THE ASSESSEE AS AN ALTERNATIVE CONT ENTION IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE B ENCH OF THIS TRIBUNAL IN THE CASE OF CIT VS. TEENLOK ADVISORY SERVICES LIMITED REPORTED IN 159 ITD 991 (KOL), WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE DISALLO WANCE AS PER RULE 8D BY TAKING INTO CONSIDERATION ONLY THOSE SHARES, WHICH HAVE YI ELDED DIVIDEND INCOME IN THE YEAR UNDER CONSIDERATION. THE ALTERNATIVE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS ACCORDINGLY ACCEPTED. 56. NOW COMING TO THE ISSUE OF THE DISALLOWANCES UN DER THE PROVISIONS OF MAT IN RELATION TO EXEMPTED INCOME WE FIND THAT THE DISALL OWANCE NEEDS TO BE MADE IN TERMS OF THE CLAUSE (F) TO THE EXPLANATION 1 OF THE PROVI SIONS OF SECTION 115JB OF THE ACT. THE PROVISIONS OF THE MAT ARE SELF CONTAINED CODE. THUS PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE NOT APPLICABLE TO EXPENSES TO BE D ISALLOWED UNDER CLAUSE (F) TO THE EXPLANATION 1 OF SECTION 115JB OF THE ACT. IN HOLDI NG SO WE FIND SUPPORT & GUIDANCE FROM THE JUDGMENT OF JURISDICTIONAL CALCUTTA HIGH C OURT IN THE CASE OF CIT VS. JAYSHREE TEA & INDUSTRIES LTD . IN G.A. NO. 1501 OF 2014 , ITAT 47 OF 2014 WHEREIN IT WAS HELD AS UNDER:- WE FIND COMPUTATION OF THE AMOUNT OF EXPENDITURE RELATABLE TO EXEMPTED INCOME OF THE ASSESSEE MUST BE MADE SINCE THE ASSES SEE HAS NOT CLAIMED SUCH EXPENDITURE TO BE NIL . SUCH COMPUTATION MUST BE MADE BY APPLYING CLAUSE (F) OF THE EXPLANATION 1 UNDER SECTION 115JB OF THE ACT. W E REMAND THE MATER FOR SUCH COMPUTATION TO BE MADE BY THE LEARNED TRIBUNAL . WE ACCEPT THE SUBMISSION OF MR. KHAITAN, LEARNED SENIOR ADVOCATE THAT THE PROVISION OF SECTION 115JB IN THE MATTER OF COMPUTATION IS A COM PLETE CODE IN ITSELF AND RESORT NEED NOT AND CANNOTBE MADE TO SECTION 14A OF THE ACT. ITA NO.609-612/KOL/2013 & CO. 47/KOL2013 A.YS. 07-08 TO 10-11 DCIT, CC-VI KOL. VS. M/S J.K.LAKSHMI CEMENT LTD. PAGE 28 IN VIEW OF ABOVE WE HOLD THAT THE AO NEEDS TO WORK OUT THE DISALLOWANCES INDEPENDENTLY IN RELATION TO EXEMPTED INCOME AS ENV ISAGED IN THE MAT PROVISIONS UNDER THE ACT. THE WORKING FOR THE DISALLOWANCE OF THE EXPENSES IN RELATION TO EXEMPTED INCOME SHALL BE BASED ON THE EXPENSES DEBI TED IN THE PROFIT & LOSS ACCOUNT. THUS IN OUR VIEW THE PROVISIONS OF SECTION 14A READ WITH RULE 8D CANNOT BE APPLIED UNDER THE PROVISIONS OF MAT. THUS THE ASSESSEE'S AP PEAL IS PARTLY ALLOWED IN TERMS OF ABOVE. 56. IN THE RESULT, ASSESSEES CO IS PARTLY ALLOWED. 57. WE SUMMARIZE THE RESULTS AS UNDER:- (I) REVENUES APPEALS ARE DISMISSED (II) ASSESSEES CO IS PARTLY ALLOWED, ORDER PRONOUNCED IN OPEN COURT ON 26/05/2017 SD/- SD/- (PARTHA SARATHI CHOWDHURY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP, SR.P.S - 26/05/2017 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-M/S J.K. LAKSHMI CEMENT LTD., 7 COUNCIL H OUSE ST, KOL-001 2. /REVENUE-DCIT, CENTRAL CIRCLE-VI, 3 RD FLOOR, AAYAKAR BHAWAN, POORVA, E.M.BYE PAS, 110, SH ANTI PALLY, KOLKATA-107 3. '# $ / CONCERNED CIT 4. $ - / CIT (A) 5. ()* ++'# , '# / DR, ITAT, KOLKATA 6. *,- / GUARD FILE. BY ORD ER/ , /TRUE COPY/ SR.PRIVATE S ECRETARY HEAD OF OFFI CE/DDO 11'#,