M/s. Gujarat State Fertilisers & Chemicals Ltd., Baroda V. The Dy.CIT.,Circle-1(1), Baroda

CO 93/AHD/2010

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8638 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-05-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHELLY JINDAL
• Assessee Lawyers: Y G SHAH
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER GUJARAT STATE FERTILIZER AND CHEMICAL LIMITED PO FERTILIZER NAGAR, DIST- BARODA PAN: AAACG7996C (APPELLANT) THE DCIT, CIR-(1) BARODA (RESPONDENT) ITA NO. 477/AHD/ 2010 A.Y. 2006-0 7 THE DCIT, CIR-(1) BARODA (APPELLANT) VS GUJARAT STATE FERTILIZER AND CHEMICAL LIMITED PO FERTILIZER NAGAR, DIST- BARODA PAN: AAACG7996C ( RESPONDENT) C.O. NO. 93/AHD/ 2010 (IN ITA NO. 477/AHD/2010) GUJARAT STATE FERTILIZER AND CHEMICAL LIMITED PO FERTILIZER NAGAR, DIST- BARODA PAN: AAACG7996C (CROSS OBJECTOR) THE DCIT, CIR-(1) BARODA (RESPONDENT) REVENUE BY: SRI SHELLY JINDAL, CIT-D.R . ASSESSEE BY: SRI Y.G. SHAH, A.R. DATE OF HEARING : 10-05-2013 DATE OF PRONOUNCEMENT : 21-06-20 13 / ORDER PER BENCH:- THERE ARE CROSS APPEALS OF THE ASSESSEE AND REVENU E AND THE CO IS FILED BY THE ASSESSEE AND ALL ARE DIRECTED AGAINST THE ORDER OF LD CIT (A)-I BARODA DATED 30-10- 2009 FOR ASSESSMENT YEAR 2006-07. ITA NO. 401 /AHD/2010 A. Y. 2006-07 I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 2 FIRST, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO. 401/AHD/2010 2. GROUND NO. 1 IS GENERAL AND THE GROUND NO. 2 IS AS UNDER:- 2. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANC E MADE BY THE ASSESSING OFFICER OF RS. 8,39,417/- OUT OF EXPENDITURE INCURR ED ON REPAIRS & MAINTENANCE, CONSIDERING THE SAME AS CAPITAL EXPENDITURE. YOUR APPELLANT SUBMITS THAT THE EXPENDITURE OF RS. 8,39,417/- REPRESENTS THE COST O F THE CIVIL WORK FOR THE DE- BOTTTLE-NECKING OF DE-HYDRO GENERATION SECTION OF E XISTING CAPRO EXPANSION PLANT (CEP) AND IS IN THE NATURE OF REPAIRS AND MAI NTENANCE EXPENSES. IT IS SUBMITTED THAT IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE EXPENDITURE INCURRED FOR THE DE-BOTTLENECKING OF DE-HYDRO GENER ATION SECTION OF EXISTING CAPRO EXPANSION PLANT (CEP) IS REVENUE IN NATURE AN D HENCE, ALLOWABLE AS REVENUE EXPENDITURE. IT IS SUBMITTED THAT IT BE SO HELD NOW AND THE ADDITION BE DELETED NOW. 3. IT WAS SUBMITTED THAT LD. A.R. THIS EXPENDITURE OF RS. 8,39,417/- IS IN RESPECT OF COST OF CIVIL WORK FOR THE DE-BOTTLE-NECKING OF DE -HYDRO GENERATION SECTION OF EXISTING CAPRO EXPANSION PLANT(CED). IT WAS ALSO SUBMITTED THAT THIS IS IN THE NATURE OF CURRENT REPAIRS AND NO NEW ASSET WAS ACQUIRED. HE ALSO SUBMITTED THAT THIS EXPENDITURE HAS NOT ENHANCED THE PRODUCTION CAPACITY OF CEP. L D. DR OF THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. WE HAVE CONSIDERE D RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THIS ISSUE WAS D ECIDED BY LD. CIT (A) IN HIS ORDER AT PARA 7.3.2 AND FOR THE SAKE OF READY REFERENCE, THE SAME IS REPRODUCED BELOW. 7.3.2 REGARDING THE EXPENDITURE OF RS. 8,39,417/- ON CIVIL WORK OF DE- BOTTLENECKING, IT IS NOT CLEAR AS TO WHO EXCAVATION /EARTH REMOVAL WAS NECESSARY FOR SIMPLY SWITCHING FROM ON E CATALYST TO ANOTHER. IN CASE DIFFERENT EQUIPMENT WAS REQUIRED UTILIZING THE NEW CATALYST THAT WOULD AMOUNT TO INDUCTION OF A NEW PLANT/MACHINE FOR THE PURPOSE. THIS WOULD CLEARLY AMOUNT TO CAPITAL EXPENDITURE. IN ANY CASE, THE REQUIREMENT OF CIVIL WORK FOR DE-BOTTLENECKING HAS NOT BEEN PROPERLY EXPLAINED. ACCORDINGLY, THE DISA LLOWANCE OF RS. 8,39.417/- IS CONFIRMED. 4. FROM THE ABOVE PARA OF THE DECISION OF LD. CIT(A ), IT IS SEEN THAT HE HAS DECIDED THIS ISSUE ON THIS BASIS THAT IT IS NOT CLE AR AS TO HOW EXCAVATION/EARTH REMOVAL WAS NECESSARY FOR SIMPLY SWITCHING FROM ONE CATALYS T TO ANOTHER. HE HAS ALSO GIVEN A FINDING THAT IN CASE, DIFFERENT EQUIPMENT WAS REQUI RED FOR UTILIZING THE NEW CATALYST, THAT IS INDUCTION OF NEW PLANT/MACHINE FOR THE PURP OSE AND IN THAT SITUATION, THE I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 3 EXPENDITURE WILL BE CAPITAL EXPENDITURE. IN SPIT E OF THIS CLEAR FINDING OF LD. CIT(A), LD. A.R OF THE ASSESSEE COULD NOT ESTABLISH BEFORE US THAT BY WAY OF EXCAVATION/EARTH REMOVAL, NO NEW EQUIPMENT WAS INSTALLED. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE, AND HENCE, THIS GROUND OF THE ASSESSEE IS REJECTED. 5. GROUND NO. 3 IS AS UNDER:- 3. THE LD. CIT(A) ERRED IN NOT DECIDING THE GROUND FOR NOT GRANTING 1/6 TH OF THE EXPENSES OF RS. 2.57 CRORES BEING EXPENSES ON P AYMENTS TO FINANCIAL CONSULTANTS BY ASSESSING OFFICER AS HELD BY LEARNED CIT(A) AS ALLOWABLE VIDE HIS ORDER IN APPEAL AGAINST ORDER U/S 143(3) FOR AS SESSMENT YEAR 2004-05 6. IT IS SUBMITTED BY LD. A.R. OF THE ASSESSEE THAT THIS WAS NOT DECIDED BY LD. CIT(A). HENCE, WE FEEL THAT THE MATTER SHOULD GO BA CK TO THE FILE OF LD CIT(A) FOR DECIDING THIS ISSUE AND ACCORDINGLY, THIS MATTER IS RESTORED BACK TO THE FILE OF LD. CIT(A) FOR DECIDING THIS ISSUE WHICH WAS RAISED BY THE ASSESSEE. CIT(A) SHOULD DECIDE THIS ISSUE AS PER LAW AFTER HEARING BOTH THE SIDES. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 7. GROUND NO. 4 IS AS UNDER:- 4. THE LD. CIT(A) ERRED IN NOT DECIDING THE GROUND FOR GIVING DIRECTION TO LD. A.O. TO QUANTIFY THE UNABSORBED LOSS UNDER THE HEAD CAPITAL GAINS, WHICH IS NOT DONE BY THE LD. A.O. IN THE ORDER PASSED. I T IS SUBMITTED THAT IT BE SO HELD NOW. 8. LD. A.R. OF THE ASSESSEE SUBMITTED THAT THIS IS NOT PRESSED AND ACCORDINGLY REJECTED AS NOT PRESSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. NOW, WE TAKE UP REVENUES APPEAL I.E. ITA NO. 477/A HD/2010 10. GROUND NO. 1 IS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE EXPENDITURE OF RS. 98. 08 LACS ON THE RELEASE OF WATER AND DISCHARGE OF EFFLUENT AND POLLUTION CONTR OL, AS REVENUE EXPENDITURE, WITH THE OBSERVATION THAT THEIR EXPENDITURE DID NOT RESULT IN THE CREATION OF ANY SPECIFIC ASSET, WITHOUT APPRECIATING THAT THE EXPEN DITURE GAVE AN ADVANTAGE OF ENDURING NATURE AND FELL IN THE CAPITAL FIELD, AND, FOR BEING CAPITAL EXPENDITURE, IT IS NOT ALWAYS NECESSARY THAT IT RESULTS IN CREAT ION OF A NEW, DEPRECIABLE ASSET I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 4 FOR THE ASSESSEE, AS SETTLED IN THE CASE OF CIT VS. HOOGLY MILLS CO. LTD. 287 ITR 333 (SC). 11. THE LD. D.R. OF THE REVENUE SUPPORTED THE ASSES SMENT ORDER WHEREAS THE A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). HE ALSO SUBMITTED THAT THIS IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY TRIBUNALS D ECISION RENDERED IN ASSESSEES OWN CASE FOR A.Y. 2001-02 AND 2005-06. HE ALSO SUBMITT ED THAT THIS TRIBUNALS ORDER IS AVAILABLE IN PAPER BOOK. 12. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE T HROUGH THE ORDER OF AUTHORITIES BELOW. SINCE NO DIFFERENCE IN FACTS COULD BE POIN TED OUT BY LD. D.R., WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW IN THE PRESENT Y EAR AND HENCE, BY RESPECTFULLY CONSIDERING THE DECISION CITED BY LD. A.R. OF THE A SSESSEE, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THIS GROUND OF THE ASSESSE E IS REJECTED. 13. GROUND NO. 2 IS AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE EXPENDITURE OF RS. 51. 38 LACS ON ACQUIRING FIRE FIGHTING EQUIPMENTS AND ON SAFETY MEASURES, AS REVE NUE EXPENDITURE, WITH THE OBSERVATION THAT THESE EXPENSES WERE NECESSARY FOR COMPLYING WITH THE GOVERNMENT REGULATIONS AND DID NOT RESULT IN THE CR EATION OF ANY ASSET, WITHOUT APPRECIATING THAT THERE ARE NOT THE RELEVANT CONSID ERATIONS FOR DETERMINING THE CAPITAL VIS--VIS REVENUE NATURE OF AN EXPENDITURE AND THE EXPENSES, BEING IN CAPITAL FIELD AND GIVING AN ADVANCE OF ENDURING NAT URE, CONSTITUTE CAPITAL EXPENDITURE AS SETTLED IN THE CASE OF BALLIMAL NAVA L KISHORE VS. CIT 224 ITR 414 (SC). 14. LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREAS LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT (A). HE ALSO SUBMIT TED THAT THIS ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR THE A.Y. 2001-02, COPY OF WHICH IS AVAILABLE IN THE PAPER BOOK AND THE SAME WAS FOLLOWED IN SUBSEQUENT YEARS A.Y. 2002-03, 2003-04 AND 2004-05 ALSO. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE TRIBUNAL DECISION CITED BY LD. A.R. OF THE ASSESSEE, THE FIRST TRIBUNAL DECISI ON CITED BEFORE US IS RENDERED IN THE CASE OF ASSESSEE FOR A.Y. 2001-02, RELEVANT PORTION BEING PARA 6-7 ARE AVAILABLE ON PAGES 103-104 OF PAPER BOOK. I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 5 16. FROM THE SAME, WE FIND THAT IN THAT YEAR, TRIBU NAL HAS FOLLOWED AN EARLIER DECISION FOR A.Y. 2000-01. TRIBUNAL IN THAT ORDER HAS ALSO PRODUCED RELEVANT PARA OF TRIBUNAL DECISION FOR A.Y. 2000-01 BEING PARA NO. 1 8 AND AS PER PARA THE SAME, IT IS SEEN THAT THE TRIBUNAL IN A.Y. 2000-01 ALSO DECIDED THE ISSUE ON THIS BASIS THAT SIMILAR ISSUE HAS ARISEN IN THE EARLIER ASSESSMENT YEAR AND IT WAS DECIDED IN FAVOR OF ASSESSEE AND NO APPEAL HAS BEEN FILED BY REVENUE. THERE IS NO DISCUSSION ABOUT THE FACTS FOR A.Y. 2000-01 OR A.Y. 2001-02. IT IS NOT CLEAR AS T O WHETHER IN THOSE YEARS, THE ISSUE INVOLVED WAS REGARDING MAINTENANCE OF FIRE FIGHTIN G EQUIPMENTS OR FOR REPLACING SOME PARTS OF THOSE EQUIPMENTS OR WHETHER FULL NEW EQUIP MENTS WERE ACQUIRED IN THOSE TWO YEARS I.E. A.Y. 2000-01 AND 2001-02. IN SUBSEQUENT YEARS ALSO, TRIBUNAL HAS DECIDED THE ISSUE SIMPLY ON THIS BASIS THAT THE ISSUE IS CO VERED IN FAVOUR OF ASSESSEE BY EARLIER TRIBUNAL ORDER WITHOUT EXAMINING FACTS OF ANY OF TH E YEARS. HENCE, WE FEEL THAT IT IS NECESSARY TO EXAMINE THE FACTS OF THE PRESENT YEARS AS WELL AS FACTS OF THOSE EARLIER YEARS I.E. 2000-01 AND 20001-02 AND IF IT IS FOUND THAT THE FACTS ARE IDENTICAL THEN, OF COURSE, ISSUE MAY BE DECIDED AS A COVERED MATTER BU T IF THE FACTS ARE DIFFERENT THEN THE ISSUE IN THE PRESENT YEAR HAS TO BE DECIDED ON THE BASIS OF FACTS OF THE PRESENT YEAR. HENCE, WE SET ASIDE THE ORDER OF LD. CIT (A) ON THI S ISSUE AND RESTORE THE MATTER BACK TO HIM FOR A FRESH DECISION. HE SHOULD EXAMINE TH E FACTS OF THE CURRENT YEAR AND THE FACTS OF THOSE EARLIER YEARS AND THEN PASS NECESSAR Y ORDER AS PER LAW AS PER ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF HEARING TO BOTH SIDES. THIS GROUND STANDS ALLOWED FOR STATISTICAL PURPOSE. 17. GROUND NO. 3 IS AS UNDER:- 3(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 1, 42,82,040/- U/S 14A TOWARDS INTEREST AND OTHER EXPENSES INCURRED IN RELATION TO EXEMPTED INCOME OF DIVIDEND, WITHOUT TAKING NOTE OF THE LANDMARK DECISION IN THE CASE OF CIT(A) VS. ABHISHEK INDUSTRIES LTD. 286 ITR 01 ( P & H), LAYING DOWN TH AT, IN VIEW OF SECTION 106 OF THE INDIAN EVIDENCE ACTS, THE FACTS BEING IN THE SP ECIAL KNOWLEDGE OF THE ASSESSEE, IT WAS UP TO HIM TO ADDUCE EVIDENCE THAT ALL THE BORROWINGS WERE USED FOR THE PURPOSE OF THE BUSINESS AND IT IS THE ASSES SEES OWN SURPLUS FUNDS THAT I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 6 WERE INVESTED IN THE SHARES EARNING EXEMPTED INCOME AND, HENCE, EVEN IN CASE OF MIXED FUNDS, THE DISALLOWANCE OF INTEREST WAS CA LLED FOR. 3(B). THE LD. CIT(A) ERRED IN ACCEPTING THE ASSESSE ES PLEA THAT THE INVESTMENT IN SHARES BEING LESS THAN THE ASSESSEES OWN FUNDS IN THE BALANCE SHEET, NO DISALLOWANCE OF INTEREST WAS CALLED FOR, WITHOUT AP PRECIATING THAT THE ASSESSEES OWN FUNDS ALREADY STOOD INVESTED IN FIXED ASSETS OR AS WORKING CAPITAL WHEN THE RELEVANT BORROWINGS WERE MADE; OTHERWISE, THERE WAS NO NEED FOR SUCH BORROWINGS AND HENCE IT IS THESE BORROWINGS WHICH W ERE UTILIZED TO EARN EXEMPTED INCOME AND THE CO-RELATION BETWEEN THE BOR ROWINGS AND UTILIZATION CAN NOT BE REFLECTED IN THE BALANCE SHEET PREPARED ON A PARTICULAR DATE. 3(C). THE LD. CIT(A) FAILED TO APPRECIATE THAT, IT WAS UP THE ASSESSEE TO PROVE BY FURNISHING DAY-TO-DAY CASH FLOW THAT NO INTEREST -BEARING FUNDS WERE DEPLOYED TO EARN EXEMPTED INCOME AND, IN THE ABSENCE OF THE SAME, THE ASSESSING OFFICER WAS JUSTIFIED IN DRAWING INFERENCE AS PER THE RATIO SETTLED IN THE CASE OF CIT VS MOTOR GENERAL FINANCE LTD. 254 ITR 449 (DEL) SINCE CONFIRMED IN PRINCIPLE BY THE SUPREME COURT IN THE CASE OF MOTOR GENERAL FINA NCE VS CIT 267 ITR 381 (SC). 3(D). THE LD. CIT(A) ERRED IN DELETING THE DISALLOW ANCE BY PUTTING ARBITRARY AND NARROW MEANING ON THE TERM INCURRED IN SECTION 14A WHEN THIS SECTION NOWHERE REFERS TO INCURRING OF EXPRESSLY QUANTIFIED EXPENDITURE IN RELATION TO EXEMPTED INCOME AND, INSTEAD, USES THE WIDER EXPRES SION IN RELATION TO AND NOT FOR EARNING OF. 18. LD. D.R. OF REVENUE SUPPORTED THE ASSESSMENT OR DER WHEREAS LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT (A). HE AL SO SUBMITTED THAT DISALLOWANCE MADE BY THE A.O. WAS ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE AND OTHER EXPENSES U/S 14A IN RELATION TO EXEMPT DIVIDEND INC OME. HE FURTHER SUBMITTED THAT THE ASSESSEE WAS HAVING OWN INTEREST FREE FUNDS MUC H IN EXCESS OF INVESTMENT WHICH AMOUNTED TO RS. 79.74 LACS BY WAY OF SHARE CAPITAL AND RS. 10 LACS BY WAY OF RESERVE AND SURPLUS AS ON 31-03-2006 AS AGAINST TAX FREE IN VESTMENT OF 76 LACS ONLY AND THE AO COULD NOT ESTABLISH ANY DIRECT NEXUS OF INTEREST BEARING BORROWED FUNDS WITH TAX FREE INVESTMENT AND THEREFORE, NO DISALLOWANCE OUT OF INTEREST EXPENDITURE CAN BE MADE. HE ALSO SUBMITTED THAT ON SIMILAR FACTS, THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE FOR A.Y. 2004-05 AND 2005-06 AND IN THOSE YEARS, TRIBUNAL HAS CONFIRMED DISALLOWANCE OF RS. 5 LACS ONLY IN EACH Y EAR ON ACCOUNT OF OTHER EXPENSES. I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 7 WE HAVE CONSIDERED RIVAL SUBMISSIONS AND BECAUSE OF THIS FACT THAT INTEREST FREE OWN FUNDS IS MANY TIMES MORE THEN TAX FREE INVESTMENTS AND IN VIEW OF THIS FACT THAT THE A.O. COULD NOT ESTABLISH ANY DIRECT NEXUS BETWEEN T HE INTEREST BEARING BORROWED FUNDS AND TAX FREE INVESTMENT, NO DISALLOWANCE IS JUSTIFI ED OUT OF INTEREST FREE EXPENDITURE. TRIBUNAL ORDER IN A.Y. 2004-05 AND 2005-06 IS ALSO ON SIMILAR LINES AND UNDER THE SIMILAR FACTS. IN THOSE TWO YEARS, THE TRIBUNAL HA S CONFIRMED THE DISALLOWANCE OF 5 LACS IN EACH YEAR U/S 14A IN RESPECT OF OTHER EXPEN SES. SINCE NO DIFFERENCE IN FACTS COULD BE POINTED OUT BY LD. D.R. OF THE REVENUE, IN THE PRESENT YEAR ALSO, WE CONFIRM THE DISALLOWANCE OF RS. 5 LACS U/S 14A IN RESPECT O F OTHER EXPENSES AND DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE REGARDING DELETION OF BALANCE EXPENDITURE. THIS GROUND OF REVENUE IS PARTLY ALLO WED. 19. GROUND NO. 4 IS AS UNDER:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 38 .12 LACS ON ACCOUNT OF REPLACEMENT BY DISREGARDING DECISION OF SUPREME COU RT IN CASE OF CIT VS. SARAVANA SPINNING MILLS PVT. LTD. (2007) 293 ITR 20 1 (SC). 20. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMEN T ORDER WHEREAS LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT (A). 21. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THIS ISSUE WAS DECIDED BY LD. CIT (A) IN HIS ORDER AT PARA 7.3.1. AND THE SAM E IS REPRODUCED FOR READY REFERENCE. 7.3.1. SO FAR AS THE OTHER ITEMS AT SR. NO. 2,4,5, & 6 ARE CONCERNED, IT IS NOTICED THAT THEY PERTAINED TO WATER PROOFING, OVER HAULING AND RENOVATION EXPENSES. THESE EXPENSES LIE IN THE REVENUE FILED, SINCE NO NEW ASSETS HAVE BEEN BROUGHT INTO EXISTENCE. ACCORDINGLY, THE DISALLOWA NCES OF RS. 11,15,520/-, RS. 7,15,768/-, RS. 8,15,853/- AND RS. 11,61,642/- ARE DIRECTED TO BE WITHDRAWN. 22. FROM THE ABOVE PARA, WE FIND THAT CLEAR FINDING IS GIVEN BY LD. CIT (A) THAT THESE EXPENSES PERTAINED TO WATER PROOFING, OVERHAU LING AND RENOVATION EXPENSES. THIS FINDING OF LD. CIT (A) COULD NOT BE CONTROVERT ED BY LD. D.R. OF THE REVENUE AND HENCE, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT (A) ON THIS ISSUE. WE, THEREFORE, DECLINE TO INTERFERE IN THE ORDER OF LD. CIT (A) ON THIS ISSUE. THIS GROUND IS REJECTED. I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 8 23. GROUND NO. 5 IS AS UNDER:- 5(A). ON THE FACTS, IN THE CIRCUMSTANCES OF THE CA SE AND LAW, THE LD. CIT(A) ERRED IN RELYING ON THE DECISION OF HON. ITAT IN TH E CASE OF ALEMBIC LTD. FOR A.Y. 2003-04 BEARING ITA NO. 3594/AHD/2007 DATED 6. 6.2008 WHEREIN THE HON. ITAT ALLOWED THE APPEAL OF THE ASSESSEE IN RESPECT OF CLAIM OF ASSESSEE U/S. 80IA(4) BY TAKING THE PRICE OF ELECTRICITY SUPPLIED BY GEB. 5(B). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) AS WELL AS HON. TAT DID NOT RELY ON THE DECISION IN THE CASE OF CHE TTINAD CEMENT CORPORATION LTD. IN THE ITA NO. 1026(MDS)/2005 FOR A.Y. 2001-02 ON THE GROUND THAT THE ASSESSEE HAD CAPTIVE POWER GENERATION PLANT AND THE REFORE THE CLAIM WAS NOT ALLOWABLE. 24. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMEN T ORDER WHEREAS LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT (A). 25. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. IT HAS TO BE ACCEPTED THAT IF THIS CAPTIVE POWER GENERATION PLANT IS NOT THERE, T HE ASSESSEE HAS TO PURCHASE POWER FROM GEB AT THE RATE AT WHICH POWER IS SUPPLIED BY GEB TO ITS CONSUMER. HENCE, THIS IS ALSO TRUE THAT ON ACCOUNT OF THIS CAPTIVE POWER GENERATION PLANT OF THE ASSESSEE, TO THE EXTENT POWER IS GENERATED BY IT, THERE IS A SAV ING OF THE ASSESSEE COMPANY ON ACCOUNT OF POWER EXPENSES TO THE EXTENT OF POWER PR ODUCED IN UNITS @ POWER SUPPLY RATE OF GEB. HENCE, THE INCOME OF THIS POWER GENERA TION PLANT TO COMPUTE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80IA(4) HAS RIGHTLY BEEN COMPUTED BY TAKING THE PRI CE OF ELECTRICITY SUPPLIED BY GEB. WE, THEREFORE, DECLINE TO INTERFERE IN THE ORDER OF LD. CIT (A) ON THIS ISSUE. THIS GROUND IS REJECTED. 26. GROUND NO. 6 IS AS UNDER:- 6(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADJUSTMENT OF BOOK PRO FIT U/S 115JB BY THE ESTIMATED GRATUITY PROVISION OF RS. 3,26,97,934/- M ADE ON THE BASIS OF ACTUARIAL VALUATION, WHICH IS UN UNASCERTAINED LIABILITY AS S PECIFICALLY SETTLED IN THE CASE OF SHREE SAJJAN MILLS LTD. VS. CIT 156 ITR (SC) AND INDIAN MOLASSES CO. PVT. LTD. VS. CIT 37 ITR (SC). I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 9 THE LD. CIT(A) WRONGLY EQUATED THIS LIABILITY WITH THAT OF LEAVE ENCASHMENT WHICH ACCRUES YEAR TO YEAR ON ACCOUNT OF THE ELIGIBLE EMPLOYEES NOT AVAILING OF LEAVE DURING THE YEAR WHEREAS GRATUITY LIABILITY PROVIDED IN RESPECT OF ALL THE EMPLOYEES ON ACTUARIAL BASIS IS PURELY C ONTINENT ON THEIR REQUIREMENT IN FUTURE AND THE MERE FACT THAT THE ACCOUNTING PRA CTICE FORMULATED AS AS-15 ENJOINS SUCH PROVISIONS DOES NOT RENDER IT AS ASCER TAINED LIABILITY AS SETTLED IN THE CASE OF INDIAN MOLASSES CO. PVT. LTD. VS. CIT 3 7 ITR 66,76-76 (SC) AND TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. C IT 227 ITR 172 (SC). 6(B). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADJUSTMENT OF BOOK PRO FITS U/S 115JB BY THE DISALLOWANCE OF EXPENSES IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF TOTAL INCOME OF RS. 1,42,82,040/-. 6(C). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN DIRECTING TO RECOMPUTED THE BOOK PROFIT IN RESPECT OF TAKE OR PAY RENTAL CHARGES RELYING UPON THE PROVISION OF SECTION 115JB (2)(I) OF THE ACT. 27. LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMEN T ORDER WHEREAS LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT (A). HE ALSO SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE T RIBUNAL ORDER IN EARLIER YEARS I.E. 2002-03,2004-05 AND 2005-06 AND COPY OF THESE TRIBU NAL ORDERS ARE AVAILABLE ON PAGE NO. 277 AND 291 OF THE PAPER BOOK RESPECTIVELY. 28. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND WE FIN D THAT THE ISSUE INVOLVED IN GROUND NO. (6A) IS NOW SQUARELY COVERED IN FAVOUR O F THE ASSESSEE BY THE TRIBUNAL ORDER IN EARLIER YEARS OF ASSESSEES OWN CASE AND N O DIFFERENCE IN FACTS COULD BE POINTED OUT BY LD. D.R. HENCE, WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW. THEREFORE, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT (A) ON THIS ISSUE. ACCORDINGLY, GROUND NO. 6A IS REJECTED. REGARDING GROUND NO. 6B, WE FIND THAT AS PER GROUND NO. 3, REVENUE HAS RAISED AN ISSUE REGARDING DELETION OF DISALLOWANCE MADE BY THE A.O. U/S 14A OF RS. 1,42,82,040/- AND WHILE DEC IDING THAT GROUND, WE HAVE HELD THAT DISALLOWANCE OF RS. 5 LACS IS CONFIRMED AND BA LANCE DISALLOWANCE IS DELETED. FOR THIS GROUND ALSO IN RESPECT OF SAME AMOUNT ADDED BY THE A.O. IN BOOK PROFIT U/S 115JB, WE HOLD THAT ADDITION TO THE EXTENT OF RS. 5 LACS IS CONFIRMED AND THE BALANCE ADDITION IS DELETED. THIS GROUND 6B OF THE REVENUE IS PARTLY ALLOWED. REGARDING GROUND NO. 6C LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LD. A.R. SUPPORTED THE ORDER OF LD. CIT (A). THIS ISSU E HAS BEEN DECIDED BY LD CIT (A) I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 10 AS PER PARA12.4 OF HIS ORDER, WHICH IS REPRODUCED B ELOW FOR THE SAKE OF READY REFERENCE. 12.4 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. AR AND THE FACTS OF THE CASE. THE PROVISIONS OF ITEM (I) ARE CLEARLY APPLICABLE I N THE INSTANT CASE, SINCE THE AMOUNT HAS BEEN WITHDRAWN FROM A PROVISION MADE IN AN EARLIER YEAR AND HAS ALSO BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT I N THE CURRENT YEAR. ACCORDINGLY, THE AO IS DIRECTED TO RECOMPUTE THE BO OK PROFIT FOR THE PURPOSE OF SECTION 115JB AFTER TAKING INTO ACCOUNT THE PROVISI ONS CONTAINED IN ITEM (I) BELOW EXPLANATION TO SEC. 15JB(2), SO FAR AS TAKE O R PAY RENTAL CHARGES WRITTEN BACK DURING THE YEAR ARE CONCERNED. 29. FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A), WE FIND THAT LD. CIT(A) HELD THAT THE PROVISION OF ITEM (I) BELOW EXPLANATION TO SEC. 115JB ARE CLEARLY APPLICABLE IN THE PRESENT CASE WITHOUT GIVING ANY BASIS AS TO HOW THESE PROVISIONS ARE APPLICABLE. FOR THE SAKE OF READY REFERENCE, WE REPRODUCE THE P ROVISIONS OF ITEM (I) OF EXPLANATION OF SEC. 115JB. [(I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PRO VISION (EXCLUDING A RESERVE CREATED BEFORE THE 1 ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBI T TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CRE DITED TO THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON OR AFTER THE 1 ST DAY OF APRIL, 1997 SHALL NOT BE REDUCED FROM THE BO OK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RES ERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUNT WAS WITHDRAWN) UNDER THIS EXP LANATION OR EXPLANATION BELOW THE SECOND PROVISO TO SECTION 115JA, AS THE C ASE MAY BE ; OR] 30. FROM THE PROVISIONS OF THIS CLAUSE OF EXPLANATI ON, IT IS SEEN THAT IN ORDER TO BE ELIGIBLE FOR REDUCTION FROM BOOK PROFIT, THE AMOUNT IN QUESTION SHOULD BE IN RESPECT IN RESERVE/PROVISION EXCLUDING A RESERVE CREATED BEFOR E THE 1 ST APRIL, 1997 OTHERWISE THAN BY WAY OF DEBITING TO THE P & L ACCOUNT. HENCE, BE FORE ALLOWING REDUCTION UNDER THIS CLAUSE OF THE EXPLANATION, THIS ASPECT HAS TO BE DE TERMINED AS TO WHETHER THE RESERVE IN QUESTION WAS CREATED BEFORE 1 ST APRIL, 1997 OTHERWISE THAN BY WAY OF DEBIT TO P & L ACCOUNT. NO FINDING WAS GIVEN BY THE LD. CIT (A) O N THIS ASPECT. HENCE, HIS ORDER ON THIS ASPECT CANNOT BE SUSTAINED. WE, THEREFORE, RE STORE THIS MATTER TO THE FILE OF LD. CIT (A) FOR HIS FRESH DECISION. LD. CIT (A) SHOULD EXAMINE THIS ASPECT AS TO WHETHER I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 11 THE RESERVE FROM WHICH THE AMOUNT IS WITHDRAWN HAS BEEN CREATED BY THE ASSESSEE BEFORE 01-04-1997 OR AFTER 01-04-1997AND WHETHER TH E RESERVE WAS CREATED BY WAY OF DEBIT TO THE P & L ACCOUNT OR OTHERWISE. AFTER EXA MINING THIS ASPECT, HE SHOULD DECIDE THIS ISSUE AFRESH AFTER PROVIDING REASONABLE OPPORT UNITY OF BEING HEARD TO BOTH SIDES. THIS GROUND OF THE REVENUE STANDS ALLOWED FOR STATI STICAL PURPOSE. 31. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED IN THE TERMS INDICATED ABOVE. NOW WE HAVE TAKE UP THE CO FILED BY THE ASSESSEE I. E. 93/AHD/2010 32. IT WAS SUBMITTED BY LD. A.R. OF THE ASSESSEE TH AT EXCEPT GROUND NO. 5 OTHER GROUNDS ARE NOT PRESSED. ACCORDINGLY, ALL THE GROU NDS EXCEPT GROUND NO. 5 ARE REJECTED AS NOT PRESSED. 33. GROUND NO. 5 OF THE C.O. IS AS UNDER:- 5. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONSIDE RING THE PERMIT PURCHASE RATE OF POWER FOR CALCULATIONS OF DEDUCTION U/S 80 IA AT RS. 4.55 PER UNIT AS AGAINST CORRECT PURCHASE RATE OF POWER OF RS. 5.42 PER UNIT ON THE BASIS OF THE COST OF POWER PURCHASED FROM GEB. IT IS SUBMITTED THAT IT BE SO HELD NOW. 34. IT WAS SUBMITTED BY LD. A.R. THAT THIS ISSUE RA ISED BY THE ASSESSEE IS INTERCONNECTED WITH GROUND NO. 5A OF THE REVENUES APPEAL. HE ALSO SUBMITTED THAT THE RATE OF RS.4.55 WAS WRONGLY ADOPTED BY THE LD. CIT (A) AND THE CORRECT RATE IS RS. 5.42 PER UNIT ON THE BASIS OF COST OF POWER PURCHAS E FROM GEB. LD. D.R. OF THE REVENUE SUPPORTED THE ORDER OF LD. CIT (A). 35. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD AND WE FIND THAT ON PAGE NO. 14 OF ASSESSMENT ORDER, IT WAS NOTED BY THE A.O. THAT THE RATE OF POWER COMES TO RS. 2.11 PER UNIT WHEN CONSIDERED AT THE RATE OF POWER SOLD TO GEB BY VARIOUS POWER GENERATION UNITS AS AGAINST RS. 5. 42 PER UNIT ADOPTED BY THE ASSESSEE TO CLAIM DEDUCTION U/S 80IA OF THE ACT. LD. CIT (A ) IN PARA NO. 8.3 OF HIS ORDER HAS STATED THAT GEB SOLD POWER TO THE ASSESSEE @ RS.4.5 5 PER UNIT. ON PAGE 24 OF PAPER BOOKS IS A CHART SHOWING MONTH-WISE ELECTRICITY RAT E OF POWER PURCHASED FROM GEB AND AS PER THE CHART, THE BASIC RATE PER UNIT IS SH OWN AT RS. 4.10 PER UNIT AND THE TOTAL RATE PER KWH IS SHOWN AT RS. 4.37 FOR APRIL, 2005 T O JUNE, 2005 AND RS. 4.35 FOR MARCH, 2006. THEREAFTER THERE IS A COLUMN REGARDIN G PAYMENT OF CHARGES AND AFTER I.T.A NOS. 401 & 477/AHD/2010 & CO NO. 93/AHD/2010 A.Y. 2006-07 PAGE NO DCIT VS. GUJARAT STATE FERTILIZER AND CHEMICAL LTD. 12 ADDING THE SAME, THE TOTAL RATE HAS BEEN WORKED OUT FOR EACH MONTH SEPARATELY WHICH RANGES BETWEEN THE 4.50 IN MARCH, 2006 TO 4.736 IN THE MONTH OF APRIL AND JUNE, 2005. ELECTRICITY DUTY IS SEPARATELY SHOWN IN NEXT COLUMN @ 15 % BUT CONSEQUENTIAL AMOUNT HAS NOT BEEN WORKED OUT IN THIS CHART. WE, THEREFORE, FEEL THAT ON THIS ISSUE ALSO, A FRESH DECISION IS REQUIRED BECAUSE LD. CIT (A) HAS NOT GIVEN ANY BASIS AS TO HOW HE HAS DETERMINED THE RATE OF POWER SOLD BY GEB TO THE ASSESSEE AT RS. 4.55 PER UNIT. WE, THEREFORE, SET ASIDE THE ORDER OF LD. CI T (A) ON THIS ISSUE AND RESTORE BACK THIS ISSUE TO THE FILE OF LD. CIT (A) FOR A FRESH D ECISION. HE SHOULD PASS A WELL REASONED AND SPEAKING ORDER AFTER VERIFYING THE FAC TS ON THIS ASPECT. NEEDLESS TO SAY, HE SHOULD PROVIDE REASONABLE OPPORTUNITY OF BEING H EARD TO BOTH SIDES. THIS GROUND OF THE CO OF THE ASSESSEE STANDS ALLOWED FOR STATISTIC AL PURPOSE. 36. IN THE RESULT, CO OF THE ASSESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 37. IN THE COMBINED RESULT, THE APPEAL OF THE ASSES SEE IS ALLOWED AND CO OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (D.K. TYAGI) ( A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AK / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ , ( / ' ) ! , '#