The DCIT, Circle-1, Ahmedabad V. Akar Laminators Ltd., Ahmedabad

ITA 1026/AHD/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80235 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 23-06-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 08-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PAN AABCA H
• Keywords: Capital asset; Depreciation; Business expenditure; Earning of tax free income; Tangible material; Bad and doubtful debts; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 234B; 14A; 37; 144

Judgement Text

ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) SR. NO. I. T. A. NO. ASSESSMENT YEAR APPEAL BY 1 858/AHD/2005 2001-02 DEPARTMENT 2 927/AHD/2005 2001-02 ASSESSEE 3. 1113/AHD/2004 2000-01 ASSESSEE 4. 1198/AHD/2004 2000-01 DEPARTMENT 5. 1026/AHD/2007 2002-03 DEPARTMENT ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, KENDRIYA PRATYAKSHA BHAVAN, NR. PANJARA POLE, AMBAWADI, AHMEDABAD. (APPELLANT FOR SR.NO.1,4 & 5) VS. AKAR LAMINATORS LIMITED, 1 ST FLOOR, TRADE CENTRE, OPP. STADIUM BATH, STADIUM SIX ROADS, AHMEDABAD. (RESPONDENT FOR SR. NO.2 & 3) PAN: AABCA 2778 H APPELLANT BY : MR.VIMALENDU VERMA, CIT (DR ) RESPONDENT BY : MR.SUNIL H.TALATI ( )/ ORDER DATE OF HEARING : 24-06-2014 DATE OF PRONOUNCEMENT : 01 -08-2014 ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 2 PER BENCH, 1. THESE 5 APPEALS ARE AGAINST THE ORDER OF CIT(A)- V, AHMEDABAD DATED 30.01.2004, 06.12.2004 AND 08.12.2006 FOR A.YS. 2000-01 TO 2002 TO 2003 RESPECTIVELY, OF THE 5 APPEALS 3 APPEALS ARE FILED BY THE REVENUE AND 2 AP PEALS ARE FILED BY THE ASSESSEE. 2. BEFORE US, AT THE OUTSET BOTH THE PARTIES SUBMIT TED THAT VARIOUS GROUNDS IN ALL THE APPEALS ARE IDENTICAL AND THEREFORE THE SUBMISSION MADE BY THEM IN ONE YEAR WOULD BE APPLICABLE TO THE OTHER YEARS ALSO AND THEREFORE ALL THE APPEA LS CAN BE HEARD TOGETHER. WE THEREFORE PROCEED TO HEAR ALL THE APPEALS TOGETHER FOR THE SA KE OF CONVENIENCE AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. WE PROCEED WITH THE FACTS FOR AY 2000-01 (ITA NO 1 113 & 1198/AHD/2004) 3. THE ASSESSEE IS A LIMITED COMPANY STATED TO BE E NGAGED IN THE BUSINESS OF MANUFACTURING OF PACKING MATERIALS AND TRADING ACTI VITIES. IT FILED ITS RETURN OF INCOME FOR AY 2000-01 ON 30-11-2000 DECLARING TOTAL INCOME OF RS NIL. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 28.3.2003 AND THE TOTAL INCOME WAS DETERMINED AT RS 2,91,82,710/-. AG GRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). CIT(A) VIDE ORDER D ATED 30.1.2004 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF C IT(A), BOTH THE REVENUE AND ASSESSEE ARE IN APPEAL BEFORE US. THE GROUNDS RAISED BY THE ASSESSEE IN ITA NO 1113/ AHD/2004 READS AS UNDER:- 1. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND FACTS BY PASSING THE ASSESSMENT ORDER. THE ASSESSMENT PROCEEDING IS BAD IN LAW AND WITHOUT JURISDICTION AND THEREFORE THE ORDER PASSED BY THE LEARNED AO SH OULD BE QUASHED. 2. THAT THE LEARNED AO HAS ERRED IN LAW AND FACTS B Y DISALLOWING RS. 524421/-OF HIRE CHARGES PAID TO BLUE BENDS FINANCE LIMITED. IT SHOU LD BE ALLOWED IN FULL. 3. THAT THE LEARNED AO HAS ERRED IN LAW AND FACTS B Y DISALLOWING RS. 1586540/- DEFERRED REVENUE EXPENDITURE INCURRED. IT SHOULD BE ALLOWED IN FULL AS PER LAW. 4. THAT THE LEARNED AO HAS ERRED IN LAW AND FACTS B Y DISALLOWING RS.23627765/- OF REBATES AND REVERSAL OF CLAIMS. IT SHOULD BE ALLOWE D IN FULL. ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 3 5. THAT CORRECT TAX IS TO BE CALCULATED AND PROPER CREDIT OF PRE-PAID TAXES IS TO BE GIVEN AND THEREAFTER-PROPER INTEREST THEREON UNDER SECTION 234B AND 234C OF THE ACT IS TO BE CHARGED. THE FIRST GROUND OF APPEAL WAS NOT PRESSED AND THER EFORE NOT ADJUDICATED. THE SECOND GROUND OF APPEAL RELATES TO DISALLOWING RS.5,24,421/- ON HIRE CHARGES PAID TO BLUE BELL FINANCE LTD. 4. AO NOTICED THAT ASSESSEE HAD PAID HIRE CHARGES O F RS 5,24,421/- TO BLUE BELL FINANCE LTD FOR PLANT AND MACHINERY. AO NOTICED THA T WHILE DECIDING THE ISSUE IN AY 1995- 96 A.O HAD MADE INQUIRIES AND DUE TO NON-EXISTENCE OF PLANT AND MACHINERY THE A.O HAD DISALLOWED THE DEPRECIATION ON THE SAID PLANT AND M ACHINERY AND ALSO DISALLOWED THE PAYMENT OF HIRE CHARGES AS BEING NON GENUINE. FOR S IMILAR REASONS AND FOLLOWING THE EARLIER YEARS ORDER, THE AO IN THE PRESENT YEAR DISALLOWED THE PAYMENT. 5. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED APPEAL BEFORE CIT(A). CIT(A) HELD THAT THE FACTS IN THE CURRENT YEAR ARE IDENTIC AL TO THAT OF AY 1999-2000. HE THEREFORE FOLLOWING THE ORDER OF AY 1999-2000 CONFIRMED THE O RDER OF AO. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, THE LD. A.R. SUBMITTED THAT THE DISAL LOWANCE SIMILAR TO THE PRESENT DISALLOWANCE WAS MADE BY THE AO IN AY 1999-2000 AGA INST WHICH THE ASSESSEE HAD PREFERRED APPEAL BEFORE HONBLE ITAT. HONBLE ITAT VIDE ORDER DATED 9 TH OCT. 2006 (ITA NO 3763/AHD/2002) HAD REMITTED BACK THE MATTER TO THE FILE OF AO TO DECIDE THE MATTER ON THE BASIS OF REFERENCE PETITION FILED IN HIGH COURT. HE PLACED ON PAGE 30 OF THE PAPER BOOK THE ORDER OF HONBLE TRIBUNAL. HE THEREFORE URGED THAT SINCE THE MATTER IN THE CURRENT YEAR IS IDENTICAL TO THAT OF AY 1999-2000, THE MATTER MAY B E REMITTED BACK TO THE FILE OF AO WITH SIMILAR DIRECTIONS. THE LD. D.R. DID NOT SERIOUSLY OBJECT TO THE SUBMISSION MADE BY LD. A.R. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTUAL POSITION IS THAT IN AY 1995-96 THE AO ON THE BASIS ON ENQUIRY MADE, HELD THE TRANSACTION ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 4 ENTERED BY THE ASSESSEE WITH BLUE BELL FINANCE CO. LTD. TO BE NON GENUINE. THE AO IN THE PRESENT YEAR, RELYING ON THE OBSERVATION OF HIS PRE DECESSOR DISALLOWED THE PAYMENT IN A.Y. 1999-2000. AGAINST THE ORDER OF AO, ASSESSEE HAD PR EFERRED APPEAL BEFORE HBLE TRIBUNAL. HONBLE TRIBUNAL VIDE ORDER DATED 9 TH OCT 2006 (ITA NO 3763/AHD/2003) HELD AS UNDER: 3. WE FIND THE ISSUE TO BE CONSIDERED ON THE BASIS OF THE OUTCOME OF THE COURT DECISION, WHICH IS PENDING BEFORE THE GUJARAT HIGH COURT IN REFERENCE NO COMPANY PETITION NO.74 OF 1998.WE,THEREFORE, SET ASIDE THE ISSUE BACK TO THE FILE OF THE A.O. TO DECIDE THE MATTER ON THE BASIS OF THE OUTCOME OF THE AFORESAID REFERENCE PETITION. WE DIRECT ACCORDINGLY . 8. BEFORE US, BOTH THE PARTIES HAVE ADMITTED THAT T HE FACTS IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF AY 1999-2000. WE THEREFORE, FO LLOWING THE ORDER OF THE CO-ORDINATE BENCH OF TRIBUNAL FOR A.Y. 1999-2000 REMIT THE MATT ER BACK TO THE FILE OF THE AO WITH SIMILAR DIRECTIONS. IN RESULT THIS GROUND OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES . THE THIRD GROUND OF APPEAL RELATES TO DISALLOWING R S.15,86,540/- BEING DEFERRED REVENUE EXPENDITURE. 9. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O. OBSERVED THAT ASSESSEE HAD IN THE BOOKS OF ACCOUNTS CLAIMED DEFERRED REVENUE EXPE NDITURE OF RS.15,86,540/- BUT IN THE COMPUTATION THE EXPENSES WAS CLAIMED AS REVENUE EXP ENDITURE. THE ASSESSEE SUBMITTED THAT THE DEFERRED REVENUE EXPENSES INCURRED WERE PU RELY OF REVENUE IN NATURE AND NOT OF CAPITAL NATURE. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTABLE TO THE AO IN VIEW OF THE FACT THAT IN THE BALANCE SHEET, SCHEDULE Q-NOTE X(D ) IT WAS STATED THAT DEFERRED REVENUE EXPENDITURE WAS INCURRED PRIOR TO COMMENCEMENT OF C OMMERCIAL PRODUCTION. THE AO THEREFORE CONCLUDED THAT THE SAID EXPENDITURE IS NO T A REVENUE EXPENDITURE AND HAS NOT BEEN INCURRED DURING THE YEAR UNDER CONSIDERATION A ND THEREFORE HE DISALLOWED IT. 10. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE A.R UPHELD THE DISALLOWANCE MADE BY AO BY HOLDING AS UNDER: ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 5 6.3. AFTER GOING THROUGH THE FACTS OF THE CASE, I FIND THAT THE CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE BECAUSE IN THE BALANCE SHEET SCHEDULE Q-NOTE X(D) IT IS CLEARLY MENTIONED THAT DEFERRED REVENUE EXPENDITURE IS INCURRED PRIOR TO COMMENCEMENT OF COMMERCIAL PRODUCTION. FROM THIS IT IS CLEAR THAT THE SAID EXPENDITURE IS NOT REVENUE EXPENDITURE AND NOT INCU RRED DURING THE YEAR UNDER CONSIDERATION. HENCE I FIND NO REASON TO GO AGAINST THE FINDINGS OF THE A.O. THIS GROUND OF APPEAL IS THEREFORE REJECTED. 11. BEFORE US, THE LD. A.R. CONTENDED THAT THE EXPE NSES INCURRED ARE REVENUE IN NATURE AND HAVE BEEN INCURRED IN THE NORMAL COURSE OF BUSI NESS. HE FURTHER, SUBMITTED THAT THE EXPENDITURE IS NOT OF CAPITAL IN NATURE AND THEREFO RE THE SAME SHOULD BE ALLOWED. ON THE OTHER HAND THE LD. D.R. RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE AO IN ITS ORDER HAS GIVEN A FINDING THAT THE EXPENDITURE IS NOT OF REVENUE IN NATURE AND HAVE NOT BEEN INCURRED DURING THE YEAR. THE LD. A.R. COULD N OT BRING ON RECORD ANY TANGIBLE MATERIAL TO REBUT THE FINDINGS OF THE AO. IN VIEW OF THESE F ACTS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THEREFORE UPHOLD THE O RDER OF THE CIT(A). ACCORDINGLY THIS GROUND OF THE ASSESSEE IS DISMISSED . 13. THE NEXT GROUND OF APPEAL RELATES TO THE DISALL OWING RS.2,36,27,765/- OF REBATES AND REVERSAL OF CLAIMS. 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED RS.2,36,27,765/- AS AN EXPENDITURE ON ACCOU NT OF CLAIMS, REBATE AND REVERSAL PERTAINING TO TRANSACTIONS ENTERED BY IT DURING THE EARLIER YEARS. ASSESSEE FURNISHED THE DETAILS AND OFFERED EXPLANATION. THE AO WAS OF THE VIEW THAT SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING IT SHOULD HAVE MADE PROVISION FOR THESE EXPENSES IN THE ACCOUNTS FOR THE RELEVANT YEARS. HE WAS THEREFORE OF THE VIEW THAT THE EXPENDITURE PERTAINED TO THE EARLIER YEARS. AO FURT HER OBSERVED THAT THE ASSESSEE HAS FAILED TO ESTABLISH AS TO HOW THE AMOUNT OF CLAIM CRYSTALL IZED DURING THIS YEAR AND IN VIEW OF THE FACT THAT NO EVIDENCE WAS SUBMITTED TO SUPPORT ITS CLAIMS, AO HELD THE EXPENDITURE TO BE PERTAINING TO EARLIER YEARS AND HENCE RS.2,36,27,7 65/- WAS DISALLOWED. ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 6 15. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE CIT(A). CIT(A) UPHELD THE ORDER OF AO BY HOLDING AS UNDER:- 8.3. AFTER GOING THROUGH THE FACTS OF THE CASE, FINDINGS OF THE A.O. AND THE SUBMISSION OF THE A.R., IT IT FOUND THAT THE APPELL ANTS CLAIM IS THAT IT COULD NOT REALIZE SALES PROCEEDS HENCE IT HAS CLAIMED IT AS UNREALIZE D SALES-CLAIM IN THE YEAR UNDER APPEAL. THIS IS A FRESH CLAIM THIS YEAR. SINCE THE SALES RELATE TO JUST ONE OR TWO YEARS BEFORE THE YEAR UNDER APPEAL, APPELLANT SHOULD HAVE SHOWN THE SAME AS DEBTORS AND AFTER THAT IT COULD WRITE OFF. IT APPEARS THAT THE APPELLANT MADE NO EFFORTS FOR ITS RECOVERY. THE ACCOUNTS OF THE PARTIES WHO ARE REPUT ED COMPANIES ARE ALSO RUNNING AND WRITE OFF CANNOT BE MADE FOR A RUNNING ACCOUNT. IT SEEMS VERY MUCH IMPRACTICAL TO CONCLUDE THAT THESE SALES PROCEEDS WILL NOT BE R EALIZED IN FUTURE. APPELLANT COULD NOT DISCHARGE ITS ONUS THAT THESE ARE BAD DEBTS. TH EREFORE, I AM SATISFIED WITH THE FINDINGS OF THE A.O. AND HOLD THAT THE CLAIM OF THE APPELLANT IS NOT TENABLE. THE ADDITION IS CONFIRMED. 16. AGAINST THIS CONFIRMATION OF DISALLOWANCE BY CI T(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 17. BEFORE US THE LD. A.R. SUBMITTED THAT THE DETAI LS OF THE AMOUNTS REVERSED IN THE ACCOUNTS AND PLACED IT ON PAGE 71 OF THE PAPER BOOK . IT WAS SUBMITTED THAT THE AMOUNT REVERSED REPRESENTS THE LIQUIDATED DAMAGES AND FREI GHT CHARGES REVERSED WHICH WERE BOOKED AS SALES IN EARLIER YEARS AND WERE ALSO OFFE RED TO TAX IN THE RESPECTIVE YEARS. THE LD. A.R. FURTHER SUBMITTED THAT SINCE THE ASSESSEE HAS WRITTEN OFF THE AMOUNT IN ITS BOOKS OF ACCOUNTS, IT HAS COMPLIED WITH THE REQUIREMENTS OF THE ACT AND THEREFORE THE SAME SHOULD BE ALLOWED AS DEDUCTION AS BAD DEBTS. HE FURTHER RE LIED ON THE DECISION OF APEX COURT IN THE CASE OF TRF LTD. VS CIT (2010) 323 ITR 397 (SC) . 18. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT THE SALES RELATE TO JUST ONE OR TWO YEARS OLD, THE ACCOUNTS OF THE PARTIES FROM WHOM TH E AMOUNT HAS BEEN WRITTEN OFF ARE REPUTED PARTIES AND ARE RUNNING ACCOUNT, THE ASSESS EE DOES NOT SEEM TO HAVE MADE EFFORTS FOR THE RECOVERY. HE FURTHER SUBMITTED THA T THE ASSESSEE COULD NOT DISCHARGE ITS ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 7 ONUS TO PROVE THE DEBTS TO BE BAD. IN VIEW OF THESE FACTS, THE LD. D.R. SUBMITTED THAT THE AO WAS RIGHT IN DISALLOWING THE AMOUNT. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACT IS THAT THE AMOUNT WHICH HAVE BEEN WRITTEN OFF WERE SHOWN AS SALES IN EARLIER YEARS AND WERE ALSO OFFERED TO TAX IN THE R ESPECTIVE YEARS. THE FACT THAT IN THE YEAR UNDER APPEAL, THE ASSESSEE HAS DEBITED ITS PROFIT A ND LOSS ACCOUNT AND THE AMOUNT HAS BEEN WRITTEN OFF HAS NOT BEEN DISPUTED BY THE REVEN UE. THE HBLE APEX COURT IN THE CASE OF T.R.F. LTD VS CIT (SUPRA) HAS HELD THAT AFTER 1 ST APRIL 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT HAS IN FACT BEC OME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE. IN VIEW OF THE AFORESAID FACTS AND RESPECTFULLY FOLLOWING THE DECISION OF AP EX COURT CITED HEREINABOVE, WE ARE OF THE VIEW THAT SINCE THE ASSESSEE HAS WRITTEN OFF THE AM OUNT IN ITS PROFIT AND LOSS ACCOUNT, THE ASSESSEE IS ENTITLED TO ITS DEDUCTION. ACCORDINGLY, WE DELETE THE ADDITION MADE BY THE AO. IN THE RESULT THIS GROUND OF THE ASSESSEE IS ALLOWE D . 20. THE NEXT GROUND OF APPEAL IS AGAINST THE CHARGI NG OF CORRECT INTEREST AFTER CONSIDERING THE PREPAID TAXES AND INTEREST U/S 234B , AND 234C. SINCE CHARGING OF INTEREST IS CONSEQUENTIAL TO THE TOTAL INCOME TO BE DETERMIN ED, THE ASSESSING OFFICER IS DIRECTED TO RECALCULATE THE INTEREST WHILE GIVING EFFECT TO THI S ORDER. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1198/AHD/2004 A. Y. 2000-01 (REVENUES AP PEAL). THE GROUNDS RAISED BY THE REVENUE READS AS UNDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,89,68,093/- HOLDING IT AS DEFERRED REVENUE EXPEND ITURE AGAINST REVENUE EXPENDITURE CLAIMED BY THE ASSESSEE. 2, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLO WANCE OF INTEREST OF RS. 7,96,520/- 3. THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLO WANCE OF INTEREST OF RS. 5,16,625/- MADE ON ACCOUNT OF INTEREST EXPENDITURE RELATING TO EXEMPT INCOME. ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 8 22. THE FIRST GROUND OF APPEAL IS REGARDING CONFIRM ING OF DELETION OF RS.1,89,68,093/- BEING TERM LOAN INTEREST HOLDING IT AS DEFFERED REV ENUE EXPENSE AS AGAINST THE REVENUE EXPENSE CLAIMED BY THE ASSESSEE. 23. A.O NOTICED THAT ASSESSEE IN ITS BOOKS OF ACCOU NTS HAD DEFERRED CERTAIN EXPENSES OF RS.1,89,68,093/- MOSTLY BY CAPITALIZING THEM. THE A SSESSEE HAD CLAIMED THE SAID EXPENDITURE IN THE STATEMENT OF INCOME UNDER THE HE AD TERM LOAN INTEREST CAPITALIZED FOR EXPANSION (UNDER CAPITAL WORK IN PROGRESS BUT CLAIM ED AS REVENUE EXPENDITURE). FOR ITS ALLOWABILITY AS DEDUCTION, THE ASSESSEE SUBMITTED T HAT ITS CLAIM OF DEDUCTION BE ALLOWED FOLLOWING THE DECISION OF CIT(A) IN EARLIER YEARS. THE ASSESSEE ALSO RELIED ON THE DECISION OF AHMEDABAD BENCH OF ITAT IN THE CASE OF VADILAL DAIR Y INTERNATIONAL LTD REPORTED IN ITA NO.500/AHD/1997 DATED 16-9-1998 AND GUJARAT HIGH CO URT DECISION IN THE CASE OF CIT VS. CORE HEALTH LTD. REPORTED IN 251 ITR 61. THE A.O. R EJECTED THE CLAIM OF THE ASSESSEE AND ADDED RS 1,89,68,093/- TO THE TOTAL INCOME. 24. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE A.R. DELETED THE ADDITION BY HOLDING AS UNDER:- 4.3. I HAVE GONE THROUGH THE FACTS OF THE CASE, A SSESSMENT ORDER AND SUBMISSION OF THE APPELLANT. IT IS SEEN THAT A.O. HAS DISALLOW ED ONLY ON THE GROUND THAT SIMILAR DISALLOWANCE HAS BEEN DELETED BY THE CIT(A) BUT THE DEPARTMENT HAS PREFERRED SECOND APPEAL IN ITAT AGAINST THE CIT(A)S ORDER AN D THE SAME IS PENDING FOR JUDGMENT. IN VIEW OF THE FACTS OF THIS CASE AND THE ORDER OF CIT(A)-I, AHMEDABAD THE ITATS DECISION IN THE CASE OF VADILAL DAIRY INTERN ATIONAL LTD. AND GUJARAT HIGH COURTS DECISION IN THE CASE OF CORE HEALTH LTD., A DDITION OF RS.1,89,68,093/- ON ACCOUNT OF REJECTION OF CLAIM OF REVENUE EXPENSES I S DELETED. 25. AGAINST THE ORDER OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAD CAPITALIZE D THE EXPENSES BUT CLAIMED THE SAID EXPENDITURE AS REVENUE EXPENDITURE IN ITS RETURN OF INCOME. HE THUS SUBMITTED THAT IN THE ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 9 AFORESAID CIRCUMSTANCES, THE AO WAS RIGHT IN DISALL OWING THE CLAIM OF THE ASSESSEE. HE THUS URGED THAT THE ORDER OF THE AO BE UPHELD. 26. ON THE OTHER HAND THE LD. A.R. SUBMITTED THAT T HE CIT(A) HAD DELETED THE ADDITION MADE BY THE AO BY RELYING ON THE DECISION OF THE GU JARAT HIGH COURT IN THE CASE OF CORE HEALTHCARE (SUPRA). HE FURTHER SUBMITTED THAT THE D ECISION OF THE GUJARAT HIGH COURT HAS BEEN APPROVED BY HBLE APEX COURT AND REPORTED IN 2 98 ITR 194 (SC). HE THUS URGED THAT THE ORDER OF THE CIT(A) BE UPHELD. 27. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSESSEE HAD TREATED THE EXPENSES AS DEFERRED REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNTS BUT CLAIMED AS REVENUE EXPENDITURE WHILE FILING THE RETURN OF INCOME. CIT(A) DELETED THE ADDITION MADE BY THE AO BY RELYING ON ITS DECISION IN THE PRECEDING YEAR, ITAT DECISION IN THE CASE OF VA DILAL DAIRY INTERNATIONAL LTD. AND GUJARAT HIGH COURTS DECISION IN THE CASE OF CORE HEALTH CA RE (SUPRA). THE LD. D.R. BEFORE US COULD NOT CONTROVERT THE ABOVE FACTS NOR HAS BROUGH T ANY BINDING CONTRARY DECISION IN ITS SUPPORT. IN VIEW OF THESE FACTS, WE UPHOLD THE ACTI ON OF CIT(A) AND ACCORDINGLY DISMISS THIS GROUND OF THE REVENUE. THE SECOND GROUND RAISED BY THE REVENUE IS REGARDIN G CONFIRMATION OF DELETION OF RS.7,96,520/- BEING INTEREST ON ADVANCES GIVEN TO E MPLOYEES. 28. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. OBSERVED THAT THE ASSESSEE HAS MADE ADVANCES OF RS.41.39 LAKHS TO ITS EMPLOYEE S ON WHICH NO INTEREST HAS BEEN CHARGED WHILE ON THE OTHER HAND IT HAS BEEN PAID HU GE AMOUNT AS INTEREST ON BORROWED FUNDS. THE ASSESSEE REPLIED THAT THE ADVANCES HAVE BEEN MADE IN ORDINARY COURSE OF BUSINESS AND HENCE THE INTEREST THEREON SHOULD NOT BE DISALLOWED. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS FAILED TO ESTABLISH EXACTLY T HE PURPOSE FOR WHICH ADVANCES HAVE BEEN MADE AND HOW SAME ARE RELATED TO BUSINESS. IN VIEW OF THIS AND RELYING ON THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT, HE DISALLOWED A SUM OF RS.7,45,020/- BEING CALCULATED @ 18% ON RS.41.39 LAKHS AS INTEREST PAID BY THE ASSESSEE HOLDING IT TO BE FOR THE PURPOSES OTHER THAN BUSINESS. THE AO ALSO OBSERVED THAT ASSESSEE H AD ADVANCED RS 2.85 LACS ON WHICH ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 10 NO INTEREST WAS CHARGED. THE AO HELD THAT THE ASSES SEE HAD FAILED TO ESTABLISH THE PURPOSE FOR WHICH ADVANCES HAVE BEEN MADE AND HOW THE SAME ARE RELATED TO BUSINESS. IN VIEW OF THIS AND RELYING ON THE PROVISIONS OF SECTION 36(1) (III) OF THE ACT, HE DISALLOWED A SUM OF RS.51,500/- BEING CALCULATED @ 18% ON RS.2,85,000/- AS INTEREST PAID BY THE ASSESSEE FOR PURPOSES OTHER THAN BUSINESS. THUS THE TOTAL DISALL OWANCE OF RS 7,96,520/- WAS MADE BY THE AO. 29. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE APPELLANT DELETED THE ADDITION BY HOLDING AS UNDER :- 7.3. I HAVE GONE THROUGH THE FINDINGS OF THE A. O. AND THE FACTS NARRATED BY THE LD. COUNSEL ON BEHALF OF THE APPELLANT. IT IS SUBMI TTED BY THE APPELLANT THAT THE ADVANCES ARE OLD AND NO SUCH DISALLOWANCES HAVE BEE N MADE AND THAT THE A.O. HAS FAILED TO ESTABLISH THAT THE INTEREST BEARING FUND HAS BEEN UTILIZED FOR NON BUSINESS PURPOSES. IT IS SUBMITTED BY THE APPELLANT THAT IT HAD AMPLE FUND AT ITS DISPOSAL FROM WHICH THE ADVANCES HAVE BEEN MADE. THE MADRAS HIGH COURT IN THE CASE OF CIT VS. HOTEL SAVERA (1998) 585, 591, 592 HAS DELIVERED THAT FOR DISALLOWANCE OF THE INTEREST , OR A PART OF IT, PAID ON MONEY BORROWED FOR THE BUSINESS PURPOSES, IT IS ESSENTIAL THAT A CLEAR FINDING SHOULD BE GIVEN BY THE AUTHORITY CONCERNED THAT THE BORROWED MONEY OR PART OF IT HAS BEEN UTILIZED FOR NON-BUSINESS PURPOSES. WHERE THE ASSES SEE HAS BOTH, HIS OWN MONEY AS WELL AS BORROWED MONEY, A PRESUMPTION CAN ARISE THAT THE MONEY LENT, EVEN FREE OF INTEREST, CAME OUT OF HIS OWN FUNDS. IN VIEW OF THE ABOVE, THE A.O. IS NOT JUSTIFIED IN DISALLOWING THE INTEREST, WITHOUT ANY SPECIFIC FINDINGS. THE A.O. IS THEREFORE DIRECTED T O ALLOW THE CLAIM OF THE INTEREST PAID IN FULL AS CLAIMED. THE DISALLOWANCE AND ADDITION O F RS.7,96,520/- ON THIS POINT IS DELETED. 30. AGGRIEVED BY THE DECISION OF THE CIT(A), THE RE VENUE IS NOW IN APPEAL BEFORE US. BEFORE US, THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE PURPOSE FOR WHICH THE ADVANCE WAS GRANTED AND HOW IT RELATED TO BUSINESS. HE THEREFORE URGED THAT IN SUCH CIRCUMSTANCES THE ORDER OF THE A.O. BE UPHELD. ON THE OTHER HAND THE LD. A.R. ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 11 SUBMITTED THAT IT HAD AMPLE FUNDS AT ITS DISPOSAL F ROM WHICH THE ADVANCES WERE MADE. IT WAS FURTHER SUBMITTED THAT THE ADVANCES WERE GIVEN IN EARLIER YEARS AND NO DISALLOWANCE HAS BEEN MADE IN EARLIER YEARS. HE THUS RELIED ON T HE ORDER OF CIT(A). 31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTS ARE THAT THE A.O. HAD MADE ADDITIONS BY ESTIMATING THE INTEREST RATE AT 18% ON THE AMOUNT OUTSTANDING. THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO PROVE THAT THE ADVANCE IS NOT FOR THE PURPOSE OF BUSINESS. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. HOTEL SAVERA (1998) 585, 591, 592 HAS HELD THAT FOR DISALLOWANCE OF THE INTEREST, OR A PART OF IT, PAID ON MONEY BORROWED FOR THE BUSINESS PURP OSES, IT IS ESSENTIAL THAT A CLEAR FINDING SHOULD BE GIVEN BY THE AUTHORITY CONCERNED THAT THE BORROWED MONEY OR PART OF IT HAS BEEN UTILIZED FOR NON-BUSINESS PURPOSES. IN THE PRESENT CASE NO SUCH FINDING HAS BEEN GIVEN BY THE AO. THE FINDING OF CIT(A) COULD ALSO NOT BE CON TROVERTED BY THE LD. D.R. IN VIEW OF THE THESE FACTS, WE FIND NO REASON TO INTERFERE WITH TH E ORDER OF THE CIT(A). WE ACCORDINGLY UPHOLD THE ORDER OF CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 32. THE LAST GROUND OF APPEAL RAISED BY THE REVENUE IS REGARDING DELETING THE DISALLOWANCE OF INTEREST OF RS.5,16,625/- MADE ON A CCOUNT OF INTEREST EXPENDITURE RELATING TO EXEMPT INCOME. 33. THE A.O. OBSERVED THAT THE ASSESSEE HAS SHOWN D IVIDEND INCOME OF RS.29,81,475/- WHICH WAS CLAIMED AS EXEMPT U/S. 10(33) OF THE ACT. THE ASSESSEE SUBMITTED THAT THE DIVIDEND INCOME IS RECEIVED ON SHARES OF SHARP INDU STRIES LTD. THE ASSESSEE WAS ASKED TO FURNISH THE EXPENSES INCURRED FOR EARNING THE DIVID END INCOME AND ASKED TO EXPLAIN AS TO WHY INTEREST PAID TO EARN DIVIDEND INCOME SHOULD NO T BE DISALLOWED. ASSESSEE SUBMITTED THAT THE SHARES OF SHARP INDUSTRIES LTD. HAVE BEEN ACQUIRED MAINLY OUT OF NON-INTEREST BEARING FUND, REALIZATIONS FROM BUSINESS AND THEREF ORE THERE IS NO EXPENDITURE FOR EARNING DIVIDEND INCOME. THE REPLY OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AND HE THEREFORE DISALLOWED RS.5,16,625/- CALCULATED @ 18% ON RS.28,70,139/- (COST OF INVESTMENT) BEING THE INTEREST PAID ON FUNDS AS PER PROVISION OF SECTION 14A OF THE ACT. ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 12 34. ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE TH E CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITIO N BY OBSERVING AS UNDER:- 9.3. AFTER GOING THROUGH THE FACTS OF THE CASE I F IND THAT THE APPELLANT COMPANY HAS SUFFICIENT INTEREST FREE FUNDS TO THE TUNE OF RS.52 .74 CRORES AGAINST THE TOTAL INVESTMENT TO THE TUNE OF RS.11.31 CRORES AND THE A .O. HAS FAILED TO ESTABLISH THE NEXUS THAT THE INTEREST BEARING FUND HAS BEEN UTILI ZED FOR THE PURPOSE OF INVESTMENTS UNDER CONSIDERATION, THERE IS NO QUESTION OF DISALL OWANCE OF INTEREST AND THERE IS NO EFFECTIVE NEW INVESTMENT IN SHARES AND SECURITIES D URING THE YEAR, BUT THERE IS NET REDUCTION IN THE INVESTMENT TO THE TUNE OF RS.2.77 CRORES AND THERE IS NO SUCH DISALLOWANCE IN EARLIER YEAR. SINCE THE A.O. COULD NOT PROVE THAT THE RELEVANT INVESTMENTS IS OUT OF INTEREST BEARING BORROWED FUN DS, I HOLD THAT THE A.O. IS NOT JUSTIFIED IN ESTIMATING THE INTEREST EXPENSES FOR E ARNING DIVIDEND INCOME. I THEREFORE DELETE THE ADDITION MADE OF RS.5,16,625/- ON THIS C OUNT. THIS GROUND OF APPEAL IS ALLOWED. 35. AGGRIEVED BY THE ACTION OF CIT(A), THE REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS EA RNED EXEMPT INCOME AND AS PER THE PROVISIONS OF SECTION 14A, THE EXPENDITURE INCURRED HAS TO BE DISALLOWED. HE SUBMITTED THAT EVEN THE HBLE BOMBAY HIGH COURT IN THE CASE OF GOD REJ BOYCE VS. DCIT 328 ITR 71 (BOM) (SUPRA) HAS HELD THAT THOUGH RULE 8D IS APPLICABLE FROM AY 2008-09 BUT PRIOR TO AY 2008- 09, REASONABLE EXPENDITURE NEEDS TO BE DISALLOWED. HE THUS RELIED ON THE ORDER OF THE A.O. ON THE OTHER HAND THE LD. A.R. SUBMITTED THAT THE P ROVISIONS OF RULE 8D DOES NOT APPLY TO THE YEAR UNDER APPEAL. FURTHER, TO DISALLOW AN EXPE NDITURE U/S 14A, A FINDING OF THE EXPENDITURE HAS TO BE GIVEN. IN THE ABSENCE OF SUCH FINDING NO DISALLOWANCE CAN BE MADE U/S 14A. THE A.R. FURTHER SUBMITTED THE INVESTMENT IN SHARES WERE MADE IN F.Y. 1996-97 AND 1997-98 AND IN THE YEAR OF INVESTMENTS, ASSESSE E WAS HAVING SUFFICIENT OWN FUNDS. HE ALSO PLACED ON RECORD THE COPY OF THE ACCOUNT ON PA GES 27 TO 29 OF THE PAPER BOOK. HE THEREFORE SUBMITTED THAT IN THE PRESENT CASE NO DIS ALLOWANCE U/S 14A CAN BE MADE. HE THUS RELIED ON THE ORDER OF CIT(A). 36. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD. THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS RECEIVED D IVIDENDS ON SHARES WHICH HAVE BEEN ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 13 CLAIMED AS EXEMPT U/S 10(33). THE INVESTMENT IN SHA RES HAVE BEEN MADE IN FY 1996-97 AND 1997-98. CIT(A) HAS GIVEN A FINDING THAT THE AS SESSEE WAS HAVING INTEREST FREE FUNDS TO THE TUNE OF RS 52.74 CRORES AGAINST THE TOTAL IN VESTMENT OF RS 11.34 CRORES AND THUS THE INTEREST FREE FUNDS WERE IN EXCESS OF THE INVESTMEN TS. HE ALSO NOTED THAT THE AO HAS FAILED TO ESTABLISH NEXUS AND PROVE THAT THE INTEREST BEAR ING FUNDS HAVE BEEN USED TO MAKE INVESTMENTS AND THERE HAS BEEN NO EFFECTIVE INVESTM ENTS IN THE CURRENT ASSESSMENT YEAR. THESE FINDINGS OF CIT(A) COULD NOT BE CONTROVERTED BY LD. D.R. IN VIEW OF THESE FACTS, WE FIND NO REASON TO INTEREFERE WITH THE ORDER OF CIT( A). WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE ADDITION MADE BY AO. THUS THIS GROUND OF THE REVENUE IS DISMISSED. 37. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSE D . WE NOW PROCEED WITH ITA NO. 858/AHD/2005 FOR A.Y. 2 001-02 38. THE ONLY EFFECTIVE GROUND OF APPEAL RAISED BY T HE REVENUE IN THIS APPEAL READS AS UNDER:- 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITIONS ON ACCOUNT OF (I) PRIOR PERIOD ADJUSTMENT OF RS.1,01,26,985/- (II) INTEREST FREE ADVANCES OF RS.7,50,420/- (III) INTEREST ON CAPITAL ASSET OF RS.2,27,64,818/- DELETION OF PRIOR PERIOD ADJUSTMENTS:- 39. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO OBSERVED THAT THE ASSESSEE HAS CLAIMED THE EXPENSES WHICH WERE INCURRED IN EARLIER YEARS. AO WAS OF THE VIEW THAT THOSE EXPENSES WERE NOT ALLOWABLE IN THE YEAR UNDER APPEA L AS THE SAME SHOULD HAVE BEEN CLAIMED IN RESPECTIVE YEARS TO WHICH IT PERTAINED. THE EXPENSES WERE IN THE NATURE OF HIRE CHARGES, LEGAL CHARGES, PURCHASES ETC. THE A.O. ALS O NOTED THAT SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND RECEI PTS AND EXPENSES ARE ACCOUNTED ON ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 14 ACCRUAL BASIS, THEREFORE THE EXPENSES CLAIMED BY TH E ASSESSEE WERE NOT ALLOWABLE IN THE YEAR AND HE ACCORDINGLY DISALLOWED THE EXPENSES OF RS 1,01,26,985/-. 40. AGGRIEVED BY THE ORDER OF THE A.O. ASSESSEE CAR RIED THE MATTER IN APPEAL BEFORE THE CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE, CIT (A) DELETED THE ADDITION BY HOLDING AS UNDER:- (2)(IV) I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LD. AUTHORISED REPRESENTATIVE AND HAVE GONE THROUGH THE ASSESSMENT ORDER. THE COPY OF COMPUTATION OF TOTAL INCOME FOR THE YEAR MAKES IT C LEAR THAT THE APPELLANT COMPANY HAS ITSELF DISALLOWED PRIOR PERIOD EXPENSES OF RS.1 ,01,26,985/- AND BY DISALLOWING THE AMOUNT AGAIN THERE WILL BE A DOUBLE ADDITION. T HE A.O. IS THEREFORE DIRECTED TO CONFIRM THE FACT AND DELETE IMPUGNED DISALLOWANCE. 41. BEING AGGRIEVED BY THE ABOVE DECISION OF CIT(A) , THE REVENUE IS NOW IN APPEAL BEFORE US. 42. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF LOWER AUTHORITIES. THE LD. A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE A O AND CIT(A). HE FURTHER SUBMITTED THAT WHILE COMPUTING THE TAXABLE INCOME, THE ASSESS EE HAD SUO MOTO DISALLOWED THE EXPENSES AND ADDED TO THE TOTAL INCOME. HE PLACED O N RECORD THE COMPUTATION OF TOTAL INCOME AT PAGE 2 OF THE PAPER BOOK. HE THUS SUBMITT ED THAT THE DISALLOWANCE ONCE AGAIN BY THE AO RESULTS INTO DOUBLE DISALLOWANCE. HE THEREFO RE URGED THAT THE ORDER OF CIT(A) BE UPHELD. 43. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTUAL POSITION THAT EMERGES IS THAT WHILE COMPUTING THE T OTAL INCOME, THE ASSESSEE HAD SUO MOTO MADE DISALLOWANCE AND ADDED RS 1,01,26,985/- TO THE TOTAL INCOME. THE AO HAD AGAIN DISALLOWED THE AFORESAID EXPENDITURE WHILE PASSING THE ASSESSMENT ORDER. THE ACT OF AO IN DISALLOWING AGAIN THE PRIOR PERIOD EXPENDITURE AMOU NTS TO DOUBLE ADDITION OF THE SAME EXPENDITURE. CIT(A) HAS ALSO GIVEN A FINDING THAT T HE ACTION OF A.O. OF DISALLOWING THE EXPENDITURE WHICH HAS ALREADY BEEN DISALLOWED BY TH E ASSESSEE RESULTS INTO DOUBLE ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 15 ADDITION. THESE FACTS HAVE NOT BEEN CONTROVERTED BY THE REVENUE. IN VIEW OF THESE FACTS, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) AND THE REFORE NO INTERFERENCE IS CALLED FOR ON THIS GROUND. THIS GROUND OF THE REVENUE IS THEREFORE DISMISSED. 44. THE SECOND PART OF FIRST GROUND OF APPEAL IS RE GARDING THE DELETION OF RS.7,50,000/- ON ACCOUNT OF INTEREST FREE STAFF ADVANCES. 45. ON VERIFICATION OF SCHEDULE J OF THE BALANCE SH EET, AO NOTICED THAT ASSESSEE HAS ADVANCED MONEY TO STAFF WHICH INCLUDED ADVANCES TO THE FOLLOWING PERSONS. MR. A. I. AYER RS. 10,00,000 MR. N.SWAMY RS. 31,69,000 46. A.O. WAS OF THE VIEW THAT THE AMOUNT OF ADVANCE S WAS MUCH HIGHER THAN THE USUAL ADVANCES GIVEN TO OTHER STAFF. AO ALSO NOTED THAT A SSESSEE DID NOT FURNISH ANY REASON FOR ADVANCING HUGE ADVANCES TO THE TWO EMPLOYEES. HE TH EREFORE CALCULATED INTEREST @ 18% ON THE AMOUNT ADVANCED AND ADDED RS.7,50,420/- TO T HE INCOME. 47. AGGRIEVED BY THE ABOVE ACTION OF THE A.O., THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE A.R. DELETED THE ADDITION BY HOLDING AS UNDER:- 5(III) I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LD. AUTHORISED REPRESENTATIVE AND HAVE GONE THROUGH THE FACTS ON R ECORDS. IT IS SEEN THAT THE A.O. HAS MADE THE DISALLOWANCE SIMPLY STATING THAT THE A DVANCES ARE MUCH HIGHER THAN THE USUAL ADVANCES GIVEN TO OTHER STAFF AND FURTHER THAT THE ASSESSEE HAS NOT FURNISHED ANY REASONS FOR SUCH HUGE ADVANCES AND HA S MADE DISALLOWANCE CALCULATED AT THE RATE OF 18% ON SUCH ADVANCES. THE A.O. HAS NOT BROUGHT OUT ANY COGENT REASON FOR THE DISALLOWANCE. SINCE ON THE SI MILAR FACT, THE DISALLOWANCE OF RS.7,96,520/- WAS DELETED BY MY PREDECESSOR IN THE APPELLANTS OWN CASE IN THE EARLIER ASSESSMENT YEAR AGREEING WITH SUCH FINDING, THE DISALLOWANCE OF RS.7,50,420/- IS DIRECTED TO BE DELETED. 48. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 16 16. BEFORE US, THE LD. D.R. SUBMITTED THAT THE ASSE SSEE HAS NOT JUSTIFIED ITS ACTION OF GIVING SUCH HUGE AMOUNT OF LOAN TO ITS EMPLOYEES. I N THESE CIRCUMSTANCES, THE AMOUNT ADVANCED TO THE EMPLOYEES CANNOT BE CONSIDERED FOR BEING USED FOR THE PURPOSE OF BUSINESS AND THEREFORE THE A.O. HAD RIGHTLY DISALLO WED THE INTEREST AND ACCORDINGLY THE ACTION OF A.O. SHOULD BE UPHELD. 49. THE LD. A.R. ON THE OTHER HAND SUBMITTED THAT T HE AMOUNT WAS ADVANCED TO EMPLOYEES IN THE NORMAL COURSE OF BUSINESS. SIMILAR DISALLOWANCES WERE MADE BY THE A.O. IN THE EARLIER ASSESSMENT YEARS IN THE PAST BUT THE SAME WERE DELETED BY CIT(A). HE THEREFORE URGED THAT THE ACTION OF THE CIT(A) BE UP HELD. 50. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORDS. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS NOTED T HAT DISALLOWANCE WAS MADE BY THE AO IN THE PAST BUT THE SAME WERE DELETED BY HIS PREDECESS OR. BEFORE US, REVENUE COULD NOT CONTROVERT THE FINDINGS OF CIT(A). FURTHER, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT WHETHER AGAINST THE ORDER OF CI T(A) OF EARLIER YEARS THE MATTER WAS TAKEN BY REVENUE BEFORE TRIBUNAL AND THAT THE MATTE R WAS DECIDED IN ITS FAVOUR BY THE TRIBUNAL. THE REVENUE HAS ALSO NOT BEEN IN A POSITI ON TO DEMONSTRATE ANY TANGIBLE REASON FOR DISALLOWANCE. IN VIEW OF THE AFORESAID FACTS, W E FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A). THUS THIS GROUND OF REVENUE IS DISMISSED. 51. THE THIRD PART OF 1 ST GROUND OF APPEAL IS WITH RESPECT TO DELETION OF RS .2,27,64,818/- ON ACCOUNT OF INTEREST ON CAPITAL ASSET. 52. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O . NOTICED THAT THE ASSESSEE HAS DEBITED INTEREST AND FINANCIAL CHARGES OF RS.11,29, 53,733/- ON VARIOUS TERM LOANS TAKEN BY ASSESSEE FROM ICICI, IFCI, IDBI ETC. AO NOTICED THA T DURING THE YEAR, THE ASSESSEE HAS MADE ADDITIONS TO PLANT AND MACHINERY OF RS.12,08,9 5,156/- IN APRIL, 2000. IT WAS STATED BY THE ASSESSEE THAT NO INTEREST ON LOANS HAS BEEN CAP ITALIZED TO FIXED ASSETS DURING THE YEAR. THE ASSESSEE ALSO HAD NOT CLAIMED DEPRECIATION ON M ACHINERY SO PURCHASED. THE ASSESSEE HAS SHOWN ADVANCES OF RS.55,76,046/- FOR C APITAL GOODS UNDER THE HEAD CAPITAL WORK IN PROGRESS FOR CAPITAL GOODS AND PRE-OPERATI VE EXPENSES TO BE CAPITALIZED. THE AO ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 17 CALCULATED INTEREST @18% ON THE EXPENDITURE OF PURC HASE OF NEW MACHINERY AND ON THE ADVANCE FOR CAPITAL GOODS AS BEING OF CAPITAL IN NA TURE AND ACCORDINGLY HELD THE INTEREST OF RS.2,27,64,818/- AS NOT DEDUCTIBLE U/S. 36(1)(III) OF I.T. ACT AND DISALLOWED THE SAME OUT OF INTEREST EXPENSES. 53. ASSESSEE PREFERRED APPEAL AGAINST THIS DISALLOW ANCE BEFORE CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE A.R., CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE BY HOLDING AS UNDER :- 6.(III) I HAVE GONE THROUGH THE FACTS OF THE CASE AND THE SUBMISSION MADE BY THE APPELLANT ON BEHALF OF THE APPELLANT. I FIND TH AT ADDITION MADE ON THE SIMILAR GROUND HAVE BEEN DELETED BY THE CIT(A) IN APPELLANT S CASE IN EARLIER YEARS. HAVING REGARD TO THE FINDING OF MY PREDECESSOR AND THE FAC TS AND CIRCUMSTANCES OF THE CASE IN THE EARLIER YEARS AND ALSO CONSIDERING THE LEGAL AUTHORITY RELIED UPON BY THE APPELLANT, THE DISALLOWANCE/ADDITION OF RS.2,27,64, 818/- IS ORDERED TO BE DELETED. 54. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NO W IN APPEAL BEFORE US. 55. BEFORE US, THE LD. D.R. SUBMITTED THAT THE INTE REST EXPENSE HAS BEEN RIGHTLY DISALLOWED BY THE AO IN VIEW OF THE FACT THAT THE I NTEREST WAS ON ACCOUNT OF THE ADDITION MADE TO THE CAPITALS ASSETS AND THEREFORE THE INTER EST WAS OF CAPITAL IN NATURE AND THEREFORE URGED THAT THE ORDER OF THE AO BE UPHELD. THE A.R. ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE AO AND CIT(A) AND FURTHER S UBMITTED THAT ON IDENTICAL FACTS, THE CIT(A) IN EARLIER YEARS HAS ALLOWED THE DEDUCTION A ND THEREFORE SUBMITTED THAT CIT(A) HAS RIGHTLY DELETED THE ADDITION. THE LD. A.R. ALSO REL IED ON THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD. (2008) 298 ITR 194 (SC). 56. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS NOTED T HAT SIMILAR ADDITIONS WERE MADE BY THE AO IN EARLIER YEARS AND THE SAME WERE DELETED BY HI S PREDECESSOR. BEFORE US, THE LD. D.R. COULD NOT CONTROVERT THE FINDINGS OF CIT(A). BEFORE US, REVENUE HAS ALSO NOT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE THAT IN EARLIER Y EAR, AGAINST THE ORDER OF CIT(A), ANY ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 18 APPEAL WAS PREFERRED BY REVENUE WHERE THE ORDER OF AO WAS UPHELD. WE FURTHER FIND THAT IN THE CASE OF DCIT VS CORE HEALTH CARE LTD (SUPRA) THE HONBLE APEX COURT HAS HELD US UNDER: 36(1)(III) OF THE INCOME TAX ACT,1961, HAS TO BE R EAD ON ITS OWN TERMS: IT IS A CODE BY ITSELF. IT MAKES NO DISTINCTION BETWEEN MONEY BORRO WED TO ACQUIRE A CAPITAL ASSET OR A REVENUE ASSET. ALL THAT THE SECTION REQUIRES IS T HAT THE ASSESSEE MUST BORROW CAPITAL AND THE PURPOSE OF THE BORROWING MUST BE FO R BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE IN THE YEAR OF ACCOUNT. UNLIKE SECTION 37 WHICH EXPRESSLY EXCLUDES AN EXPENSE OF A CAPITAL NATURE, SECTION 36(1)(III) EMP HASISES THE USER OF THE CAPITAL AND NOT THE USER OF THE ASSET WHICH COMES INTO EXISTENC E AS A RESULT OF THE BORROWED CAPITAL. THE LEGISLATURE HAS, THEREFORE, MADE NO DI STINCTION IN SECTION 36(1)(III) BETWEEN CAPITAL BORROWED FOR A REVENUE PURPOSE A ND CAPITAL BORROWED FOR A CAPITAL PURPOSE. AN ASSESSEE IS ENTITLED TO CLAIM INTEREST PAID ON BORROWED CAPITAL PROVIDED THAT THE CAPITAL IS USED FOR BUSINESS PURP OSE IRRESPECTIVE OF WHAT MAY BE THE RESULT OF USING THE CAPITAL WHICH THE ASSESSEE HAS BORROWED. ACTUAL COST OF AN ASSET HAS NO RELEVANCY IN RELATION TO SECTION 36(1) (III). THE PROVISO INSERTED IN SECTION 36(1)(III) BY THE FINANCE ACT, 2003, WITH EFFECT FROM APRIL 1, 2004, WILL OPERATE PROSPECTIVELY. HELD, ACCORDINGLY, THAT THE ASSESSEE WAS ENTITLED T O DEDUCTION UNDER SECTION 36(1)(III) PRIOR TO ITS AMENDMENT BY THE FINANCE AC T, 2003, IN RELATION TO MONEY BORROWED FOR PURCHASE OF MACHINERY EVEN THOUGH THE ASSESSEE HAD NOT USED THE MACHINERY IN THE YEAR OF BORROWING. DECISION OF THE GUJARAT HIGH COURT IN DEPUTY CIT VS . CORE HEALTH CARE LTD., (2001) 251 ITR 61 AFFIRMED ON THIS POINT. 57. THE PRESENT APPEAL BEFORE US IS WITH RESPECT TO AY 2001-02. HONBLE APEX COURT IN THE CASE OF CORE HEALTH CARE (SUPRA) HAS HELD THAT THE PROVISO INSERTED IN SECTION 36(1)(III) BY THE FINANCE ACT 2003 WITH EFFECT FROM APRIL 1, 2 004, WILL OPERATE PROSPECTIVELY. THE HONBLE APEX COURT HAS FURTHER HELD THAT AN ASSESSE E IS ENTITLED TO CLAIM INTEREST PAID ON BORROWED CAPITAL PROVIDED THAT THE CAPITAL IS USED FOR BUSINESS PURPOSE IRRESPECTIVE OF WHAT MAY BE THE RESULT OF USING THE CAPITAL WHICH THE AS SESSEE HAS BORROWED. IN VIEW OF THE TOTALITY OF THE FACTS AND RESPECTFULLY FOLLOWING TH E DECISION OF HONBLE APEX COURT IN THE CASE OF CORE HEALTH CARE (SUPRA), WE FEEL THAT THE CIT(A ) HAS RIGHTLY DELETED THE ADDITION MADE ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 19 BY THE AO. WE ACCORDINGLY UPHOLD THE ACTION OF THE CIT(A) AND THUS DISMISS THIS GROUND OF APPEAL OF REVENUE . 58. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE BEING ITA NO.927/AHD/2005 FOR AY 2001-02. THE GROUNDS RAISED BY THE ASSESSEE READS AS UNDER: 1. THAT THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE RETURNED INCOME AND NOTES ATTACHED TO THE RETURN OF INCOME AND OUGHT TO HAVE ALLOWED OUR CLAIMS MADE IN THE RETURN OF INCOME AND ORDER PASSED BY THE LEARNED AO UNDER SEC TION 144 OF THE ACT IS AGAINST THE LAW AND FACTS OF THE CASE AND THEREFORE THE ADDITION MA DE THEREIN SHOULD BE DELETED IN FULL. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY NOT ALLOWING THE CLAIM OF, CLAIMS, REBATE & REVERSAL OF CLAIM OF RS.8,04,87,44 1/-. THE CLAIM, REBATE & REVERSAL CLAIM IS CORRECT, AS THESE ARE NOT RECOVERABLE AND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO ALLOW THE SAID CLAIM IN FULL. 3. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY NOT ALLOWING RS.2,25,73,649/- OUT OF INTEREST EXPENSES ON INVESTMENT. SINCE THE A PPELLANT HAS SUFFICIENT INTEREST FREE FUNDS, NO PART OF INTEREST CAN BE DISALLOWED AND TH EREFORE THE LEARNED AO SHOULD BE DIRECTED TO ALLOW THE SAID CLAIM IN FULL. 4. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY NOT ALLOWING RS.39,50,678/-OF OUR CLAIM OF SUNDRY BALANCE WRITTEN OFF. SINCE THE AMOUNT HAS BEEN WRITTEN OFF AND PERTAINS TO BUSINESS AND INCOME THEREON HAS BEEN REFLECTED, NO PART OF SUCH EXPENDITURE CAN BE DISALLOWED AND THE LEARNED AO BE DIRECTED ACCORDING LY 5. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY NOT ALLOWING RS.6 LACS OUT OF LEGAL AND PROFESSION FEES EXPENSES. SINCE THE EXPEN DITURE IS FOR THE PURPOSE OF BUSINESS AND ITS ACCOUNTS ARE AUDITED AND WHEREIN IT HAS NOT HELD AS CAPITAL EXPENDITURE PAYMENT, NO PART OF LEGAL AND PROFESSIONAL FEES CAN BE DISAL LOWED AND THE LEARNED AO BE DIRECTED ACCORDINGLY. 6. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY NOT ALLOWING THE HIRE CHARGES PAYMENT TO BLUE BLENDS FINANCE LTD. OF RS.5,24,421/ -.SINCE THE SAID EXPENSES ARE FOR THE PURPOSE OF THE BUSINESS AND FULL AVAILABLE DETAILS IN THIS REGARD HAVE BEEN FURNISHED, NO PART OF IT SHOULD BE DISALLOWED AND ACCORDINGLY THE LEARNED AO SHOULD BE DIRECTED TO ALLOW THE SAME IN FULL. 7. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY DISALLOWING THE TRAVELING EXPENSES OF RS.3,20,160/-, BEING 1/10 TH OF TOTAL TRAVELING EXPENDITURE. SINCE THE ENTIRE ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 20 EXPENDITURE IS FOR THE PURPOSE OF BUSINESS AND ITS ACCOUNTS ARE AUDITED, NO PART OF TRAVELING EXPENDITURE CAN BE DISALLOWED AND THE LEARNED CIT(A ) BE DIRECTED ACCORDINGLY. 59. GROUND NO.1 IS REGARDING CHALLENGING OF ORDER P ASSED U/S.144 OF THE ACT. 60. AO IN THE ASSESSMENT ORDER HAS NOTED THAT HE HA D ISSUED NOTICE U/S 143(2) ON 18.7.2002 AND WAS DULY SERVED ON THE ASSESSEE. THER EAFTER NOTICES WERE ISSUED AND SERVED U/S 143(2) AND 142(1) ON VARIOUS OCCASIONS. THE ASSESSEE WAS ALSO DIRECTED TO PRODUCE BOOKS OF ACCOUNTS. THE ASSESSEE HAD FAILED TO COMPLY WITH THE DIRECTIONS OF THE A.O. AS THE ASSESSEE HAD FAILED TO COMPLY WITH THE DIRECTIONS OF THE AO, THE AO COMPLETED THE ASSESSMENT U/S 144 OF THE ACT. BEFORE US, THE A SSESSEE HAD NOW CHALLENGED THE ORDER PASSED U/S 144 OF THE ACT. 61. BEFORE US, THE LD AR SUBMITTED THAT THE ORDER P ASSED BY AO U/S 144 OF THE ACT WAS BAD IN LAW AND THEREFORE THE SAME BE QUASHED. THE L D. DR ON THE OTHER HAND POINTED TO THE FINDINGS OF AO AND SUBMITTED THAT DUE TO THE NO N-COMPLIANCE TO THE NOTICES BY THE ASSESSEE, AO HAD RIGHTLY FRAMED THE ASSESSMENT U/S 144. HE THUS SUPPORTED THE ORDER OF AO. 62. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE ASSESSMENT ORDER IT IS SEEN THAT AO HAS NOTED TO HA VE ISSUED NOTICES TO ASSESSEE ON VARIOUS OCCASIONS BUT THE ASSESSEE FAILED TO COMPLY WITH THE SAME. BEFORE US, ASSEESSEE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO PROVE THE COMPLIANCE OF NOTICES ISSUED BY AO. IN VIEW OF THESE FACTS WE ARE OF THE VIEW THAT THE AO HAD RIGHTLY PASSED ORDER U/S 144 AND WE ACCORDINGLY DISMISS THIS GROUND OF APPEAL. GROUND NO.2 RELATES TO THE CONFIRMING DISALLOWANCE OF RS.8,04,87,441/- ON ACCOUNT OF CLAIMS, REBATE AND REVERSAL OF CLAIM. 63. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E A.O. NOTICED THAT THE ASSESSEE COMPANY HAS CLAIMED RS.8,04,87,441/- AS EXPENSES ON ACCOUNT OF CLAIMS, REBATE AND REVERSAL PERTAINING TO TRANSACTIONS ENTERED BY IT D URING THE EARLIER YEARS. THE ASSESSEE WAS ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 21 REQUESTED TO FURNISH FULL DETAILS OF THE EXPENSES. THE ASSESSEE FURNISHED DETAILS LIKE NAMES AND PARTYWISE AMOUNTS WHICH HAVE BEEN REPRODUCED ON PAGE 5 & 6 OF THE ASSESSMENT ORDER. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS NOT FURNISHED ANY REASONS REGARDING CLAIMS, REBATES, DISCOUNT OR THE NATURE OF EXPENSES . THE ASSESSEE ALSO FAILED TO FURNISH THE DETAILS AND EXPLAIN AS TO HOW THE AMOUNT OF CLAIM C RYSTALLISED DURING THIS YEAR. THE AO OBSERVED THAT SIMILAR ISSUE ALSO COME UP DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2000-01 AND THE SAME WAS REJECTED. FOLLOWING T HE FINDINGS GIVEN IN THE ORDER OF AY 2000-01, THE ASSESSEES CLAIM FOR DEDUCTION WAS DEN IED AND DISALLOWANCES OF RS.8,04,87,441/- WAS MADE TO THE INCOME. 64. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRE D APPEAL BEFORE THE CIT(A). CIT(A) UPHELD THE ORDER OF THE AO BY HOLDING AS UNDER :- 3(III) I HAVE CONSIDERED THE SUBMISSIONS OF THE L D. A.R. AND HAVE GONE THROUGH THE FACTS OF THE CASE. IT IS CLEAR FROM THE FACTS DISCUSSED IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS NOT BEEN ABLE TO FURNIS H PROPER DETAILS WITH EVIDENCE REGARDING THE CLAIM. IT IS SEEN FROM THE FACTS DISC USSED IN THE APPELLATE ORDER IN THE APPELLANTS CASE FOR A.Y. 2000-01 VIDE CIT (A)-V, A HMEDABADS ORDER DATED 30-1- 2004 THAT THE APPELLANTS CLAIM IS THAT IT COULD NO T REALIZE SALE PROCEEDS OF EARLIER YEARS. HENCE IT HAD CLAIMED IT AS UNREALIZED SALE C LAIMED DURING THE YEAR. SUCH CLAIM STANDS REJECTED BY MY PREDECESSOR STATING THA T THE SALES RELATE TO JUST ONE OR TWO YEARS BEFORE THE YEAR IN APPEAL WHEN SUCH CLAIM IS MADE FOR THE FIRST TIME AND THAT THE APPELLATE APPEARS TO HAVE MADE NO EFFORTS FOR ITS RECOVERY. FURTHER, THAT THE CONCERNED PARTIES ARE REPUTED COMPANIES HAVING RUNN ING ACCOUNTS WITH THE ASSESSEE AND AS SUCH WRITE OFF CAN BE MADE FOR RUNN ING ACCOUNTS. FURTHER THAT, IT SEEMED VERY IMPRACTICAL TO CONCLUDE THAT THE SALE P ROFIT WOULD NOT BE REALIZED IN FUTURE. SINCE THE APPELLANT COULD NOT DISCHARGE ITS ONUS THAT THESE WERE BAD DEBTS, MY PREDECESSOR DID NOT FIND THE CLAIM OF THE APPELL ANT AS TENABLE. I FIND THAT THE FACTS IN RESPECT OF THE CLAIM ARE SIMILAR IN THIS YEAR, A S WELL. SINCE THE APPELLANT HAS NOT DISCHARGED ITS ONUS TO PROVE THE CLAIM ALLOWABLE, F INDING OF THE A.O. IS CONSIDERED REASONABLE. THIS GROUND OF APPEAL IS THEREFORE REJE CTED AND THE ADDITION OF RS.8,04,87,441/- CONFIRMED. 65. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 22 66. BEFORE US THE LD. A.R. SUBMITTED THAT THE DETAI LS OF THE AMOUNTS REVERSED IN THE ACCOUNTS ARE PLACED AT PAGE 40-70 OF THE PAPER BOOK . IT WAS SUBMITTED THAT THE AMOUNT REVERSED APART FROM FREIGHT CHARGES AND LIQUIDATED DAMAGES MAINLY REPRESENTS THE DISCOUNTS GIVEN TO THE PARTIES IN EARLIER YEARS WHI CH WERE BOOKED AS SALES IN EARLIER YEARS AND OFFERED TO TAX IN THE RESPECTIVE YEARS. THE LD. A.R. FURTHER SUBMITTED THAT SINCE THE ASSESSEE HAS WRITTEN OFF THE AMOUNT IN ITS BOOKS OF ACCOUNTS, IT HAS COMPLIED WITH THE REQUIREMENTS OF THE ACT AND THEREFORE THE SAME SHOU LD BE ALLOWED AS DEDUCTION AS BAD DEBTS. HE FURTHER RELIED ON THE DECISION OF APEX CO URT IN THE CASE OF TRF LTD. VS CIT (2010) 323 ITR 397 (SC). 67. ON THE OTHER HAND THE LD. D.R. SUBMITTED THAT T HE SALES RELATE TO JUST ONE OR TWO YEARS OLD, THE ACCOUNTS OF THE PARTIES FROM WHOM TH E AMOUNT HAS BEEN WRITTEN OFF ARE REPUTED PARTIES AND ARE RUNNING ACCOUNT, THE ASSESS EE DOES NOT SEEM TO HAVE MADE EFFORTS FOR THE RECOVERY AND THE ASSESSEE COULD NOT DISCHARGE ITS ONUS TO PROVE THE DEBTS TO BE BAD. IN VIEW OF THESE FACTS, THE LD. D.R. SUBMIT TED THAT THE AO WAS RIGHT IN DISALLOWING THE AMOUNT. 68. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS ASSESSEES SUBMISSION THAT THE AMOUNTS WHICH HAVE B EEN WRITTEN OFF WERE SHOWN AS SALES IN EARLIER YEARS AND WERE ALSO OFFERED TO TAX IN TH E RESPECTIVE YEAR. IN THE YEAR UNDER APPEAL, THE ASSESSEE HAS DEBITED ITS PROFIT AND LOS S ACCOUNT AND THE AMOUNT WAS WRITTEN OFF. THESE FACTS HAVE NEITHER BEEN DISPUTED NOR HAV E BEEN CONTROVERTED BY REVENUE. THE HONBLE APEX COURT IN THE CASE OF T.R.F. LTD VS CIT (SUPRA) HAS HELD THAT AFTER 1 ST APRIL 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTAB LISH THAT THE DEBT HAS IN FACT BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. IN VIEW OF THE AFORESAID FACTS AND RE SPECTFULLY FOLLOWING THE DECISION OF APEX COURT, WE ARE OF THE VIEW THAT SINCE THE ASSESSEE H AS WRITTEN OFF THE AMOUNT IN ITS PROFIT AND LOSS ACCOUNT, THE ASSESSEE IS ENTITLED TO ITS DEDUC TION. ACCORDINGLY, WE DIRECT THE DELETION OF THE ADDITION MADE BY THE AO. IN THE RESULT THIS GROUND OF THE ASSESSEE IS ALLOWE D . ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 23 THE THIRD GROUND OF APPEAL RELATES TO THE CONFIRMIN G OF DISALLOWANCE OF RS.2,25,73,649/- ON ACCOUNT OF INTEREST EXPENSES ON INVESTMENT. 69. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A.O . NOTICED THAT ASSESSEE HAS MADE MAJOR INVESTMENT IN THE SHARES OF VISHNU VIJAY PACKAGES LTD., SHARP INDUSTRIES LTD., AND SHETH PLASTOMERS LTD. WHICH ARE ASSESSEES SUBS IDIARY COMPANIES AND GROUP COMPANIES. THE ASSESSEE HAD ALSO MADE PURCHASES OF RS.12,70,79,584/- AND RS.5,28,82,005/- FROM VISHNU VIJAY PACKAGES LTD. AN D SHARP INDUSTRIES LTD RESPECTIVELY WHO ARE THE SPECIFIED PERSONS U/S. 40A(2)(B) OF THE I.T. ACT AND TO WHOM THE ASSESSEE HAS PROVIDED HUGE FINANCE IN THE FORM OF INVESTMENT AND FOR WHICH THE ASSESSEE HAS BORROWED FROM BANKS AND PAID HUGE INTERESTS. ACCORDING TO AO , THE SHARES WERE PURCHASED TO EARN DIVIDEND INCOME WHICH IS EXEMPT U/S. 10(33) OF THE I.T. ACT. THE AO WAS OF THE VIEW THAT ASSESSEE HAS TAKEN HUGE TERM LOANS AND OTHER LOANS FROM ICICI, IFCI, IDBI AND OTHER BANKS AND HAS DEBITED INTEREST OF RS.11,29,53,733/- . THUS ACCORDING TO AO, THE ASSESSEE HAS MADE INVESTMENT OUT OF INTEREST BEARING FUND TA KEN FROM BANKS. ACCORDING TO AO, THE BASIC REQUIREMENT FOR CLAIMING DEDUCTION U/S. 36(1) (III) OF I.T. ACT FOR INTEREST EXPENSES IS THAT THE AMOUNTS MUST HAVE BEEN BORROWED AND UTILIZ ED FOR BUSINESS PURPOSES. SINCE THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS TO ITS SUBSIDIARY COMPANY WITHOUT CHARGING INTEREST, AO WAS OF THE VIEW THAT THE INTEREST PAYM ENTS CLAIMED BY THE ASSESSEE TO THE EXTENT OF FUND DIVERTED INTEREST-FREE TO SUBSIDIARY COMPANY CANNOT BE TREATED AS BUSINESS EXPENSES AND THE SAME WAS NOT DEDUCTIBLE U/S. 36(1) (III) OF I.T. ACT. FURTHER SINCE THE ASSESSEE HAS DEPLOYED INTEREST BEARING FUND FOR EAR NING EXEMPT INCOME. IN VIEW OF PROVISIONS OF SECTION 14A OF I.T. ACT, THE INTEREST EXPENSES ON INVESTMENT IN SHARES WERE ALSO NOT DEDUCTIBLE. THE AO CALCULATED INTEREST OF RS 2,25,73,649 (@ 18% ON INVESTMENT OF RS.12,54,09,139/- IN SHARES OF GROUP COMPANIES AND SPECIFIED PERSONS U/S. 40A(2)(B) OF THE ACT) AND DISALLOWED IT OUT OF TOTAL INTEREST PA YMENT AND ADDED TO THE INCOME. 70. BEING AGGRIEVED BY THE ORDER OF A.O. THE ASSESS EE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). CIT(A) UPHELD THE ORDER OF THE A O BY HOLDING AS UNDER: ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 24 4 (III) I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LD. A.R. AND HAVE GONE THROUGH THE ASSESSMENT ORDER PASSED BY THE A.O. IT IS SEEN THAT THE APPELLANT COMPANY HAD MADE INVESTMENTS IN SHARES AMOUNTING TO RS.12,54,09,139/- AND THE MAJOR INVESTMENTS IS IN THE SHARES OF ITS OWN SUBSI DIARY/ GROUP COMPANIES. FURTHER, THE INVESTMENT HAS BEEN MADE FROM INTEREST BEARING BORROWED FUNDS FROM THE BANKS AND THE APPELLANT HAS DEBITED HUGE INTEREST EXPENSE S TO THE TUNE OF RS.11,29,53,733/-.THUS, THE FACTS ON RECORD CLEARLY SHOWS THAT THE APPELLANT HAS DIVERTED INTEREST BEARING FUNDS TO ITS SUBSIDIARY C OMPANIES WITHOUT CHARGING INTEREST OR HAVING ANY OTHER GAIN TO IT. THE A.O. HAS REASON ABLY POINTED OUT THE NEXUS BETWEEN THE INTEREST BEARING BORROWED FUNDS AND THE NON-INTEREST BEARING INVESTMENT WITH SUBSIDIARY COMPANIES OF THE APPELLA NT. I THEREFORE, AGREE WITH THE FINDINGS OF THE A.O. THAT THE CLAIM OF INTEREST MAD E ON THE FUNDS DIVERTED INTEREST FREE TO THE SUBSIDIARY COMPANIES OF THE APPELLANT, CANNO T BE TREATED AS BUSINESS EXPENSE AND HENCE NOT DEDUCTIBLE U/S. 36(1)(III) OF THE I.T . ACT. SINCE THE APPELLANT HAS UTILIZED THE INTEREST BEARING FUNDS FOR EARNING EXE MPTED INCOME, THE INTEREST EXPENSES FOR INVESTMENT IN SHARES ARE ALSO NOT DEDU CTIBLE IN TERMS OF SECTION 14A OF THE I.T. ACT. THE DISALLOWANCE MADE BY THE A.O. OF RS.2,25,73,649/- IS THEREFORE, CONFIRMED. 71. THE ASSESSEE BEING AGGRIEVED BY THE DECISION OF CIT(A) IS NOW IN APPEAL BEFORE US. 72. BEFORE US THE LD. A.R. URGED THAT THE ASSESSEE HAS NOT DIVERTED THE FUNDS BORROWED IN THE FORM OF TERM LOANS FROM FINANCIAL INSTITUTIO NS TO ACQUIRE THE SHARES OF SUBSIDIARIES. HE FURTHER URGED THAT THAT NO DIVIDEND WAS RECEIVED DU RING THE YEAR UNDER CONSIDERATION AND THEREFORE NO DISALLOWANCE CAN BE MADE U/S 14A. HE F URTHER SUBMITTED THAT THE INVESTMENTS WERE MADE IN THE PAST OUT OF OWN FUNDS AND NOT BORR OWED FUNDS. HE THEREFORE SUBMITTED THAT NO DISALLOWANCE CAN BE MADE IN THE PRESENT CA SE. HE ALSO RELIED ON THE DECISION IN THE CASE OF HIREN ALUMINIUM LTD. VS. DCIT IN ITA NO .1259/AHD/2005 DATED 20-3-2009. 73. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 14A, THE EXPENDITURE INCURRED HAS TO BE DISALLOWED. EVEN THE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO.LTD. VS. DCIT 328 ITR 81 (BOM. ) HAS HELD THAT THOUGH RULE 8D IS APPLICABLE FROM AY 2008-09 BUT PRIOR TO AY 2008-09, REASONABLE EXPENDITURE NEEDS TO BE DISALLOWED. HE THUS RELIED ON THE ORDER OF THE LOWE R AUTHORITIES. ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 25 74. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. BEFORE US, LD. A.R. HAS SUBMITTED THAT THE INVESTMENTS WERE MA DE IN EARLIER YEARS AND IN THE YEAR THE INVESTMENTS WERE MADE, ASSESSEE WAS HAVING INTEREST FREE FUNDS AND NO INTEREST BEARING FUNDS HAVE BEEN USED FOR MAKING INVESTMENTS. BEFORE US, THE ASSESSEE HAS NOT PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE THE AVAILABILITY OF INTEREST FREE FUNDS OR THE CASH FLOW STATEMENT IN ITS SUPPORT. WE ALSO FIND THAT THE NEI THER A.O NOR CIT(A) HAS GIVEN ANY FINDING WITH RESPECT TO AVAILABILITY OF INTEREST FREE FUNDS IN THE YEAR OF INVESTMENTS. IN SUCH CIRCUMSTANCES, WE FEEL THAT THE ISSUE NEEDS TO BE R E-EXAMINED AT THE END OF A.O. WE THEREFORE REMIT THE ISSUE TO THE FILE OF A.O TO DEC IDE THE ISSUE DE NOVO IN THE LIGHT OF THE CONTENTIONS MADE BY THE ASSESSEE AND THE DECISION R ELIED BY HIM AND THEREAFTER DECIDE THE ISSUE AS PER LAW. NEEDLESS TO STATE THAT A.O SHALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO ASSESSEE. THUS THIS GROUND IS ALLOWED FOR STATISTIC AL PURPOSES. THE NEXT GROUND OF APPEAL RELATES TO THE CONFIRMING OF DISALLOWANCE OF RS 39,50,678/- ON ACCOUNT OF SUNDRY BALANCE WRITTEN OF F. 75. THE A.O. FOUND THAT THE ASSESSEE HAS DEBITED V ARIOUS EXPENSES UNDER THE HEAD OFFICE EXPENSES WHICH INCLUDED DEBITS OF RS.39,50,6 78/- ON ACCOUNT OF SUNDRY BALANCE WRITTEN OFF. THE A.O. HELD THAT SINCE THE ASSESSEE HAS NOT FURNISHED ANY DETAILS OR EVIDENCES IN REGARD TO ACCOUNTING OF INCOME IN PAST AND THEREFORE THE CLAIM OF THE ASSESSEE FOR BAD DEBTS WAS DISALLOWED AND ADDED TO THE INCOME. 76. BEING AGGRIEVED BY THE ACTION OF THE A.O., ASSE SSEE PREFERRED AN APPEAL BEFORE THE CIT(A). CIT(A) UPHELD THE ORDER OF AO BY HOLDING AS UNDER:- SINCE THE APPELLANT HAS NOT FURNISHED ANY DETAILS AND EVIDENCE IN ORDER TO PROVE THAT THE APPELLANT HAD ACCOUNTED ANY INCOME F ROM THE TRANSACTION IN PAST. I HOLD THAT THE CLAIM OF THE ASSESSEE HAS RIGHTLY BEE N DISALLOWED BY THE A.O. AND AS SUCH THE ADDITION OF RS.39,50,6768/- IS CONFIRMED. 77. BEFORE US, THE LD A.R. PLACED ON PAGE 71 TO 76 OF THE PAPER BOOK THE DETAILS OF AMOUNT WRITTEN OFF. HE SUBMITTED THAT SINCE THE AMO UNT HAS BEEN WRITTEN OFF, THE ASSESSEE ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 26 BE ALLOWED DEDUCTION AND FOR WHICH HE RELIED ON THE DECISION OF TRF (SUPRA). ON THE OTHER HAND THE LD. D.R. SUBMITTED THAT THE AO WAS RIGHT I N DISALLOWING THE AMOUNTS BECAUSE NO DETAILS WERE SUBMITTED BEFORE THE AO. HE THEREFORE REQUESTED THAT THE MATTER MAY BE REMANDED BACK TO THE AO FOR VERIFICATION. 78. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE AO AND CIT(A) HAVE GIVEN A FINDING THAT THE ASSESSEE H AD NOT FURNISHED ANY DETAILS AND EVIDENCE IN ORDER TO PROVE THAT THE APPELLANT HAD A CCOUNTED ANY INCOME FROM THE TRANSACTION IN PAST. ON THE OTHER HAND, THE ASSESSE E IN THE PAPER BOOK HAS SUBMITTED THE DETAILS OF AMOUNTS WRITTEN OFF. SINCE THE DETAILS F ILED BY THE ASSESSEE IN THE PAPER BOOK WERE NOT BEFORE AO, WE ARE OF THE VIEW THAT IN THES E CIRCUMSTANCES, IN THE INTEREST OF JUSTICE AND FAIR PLAY THE MATTER BE REMITTED TO THE FILE OF AO FOR VERIFICATION. WE ACCORDINGLY REMIT THE ISSUE TO THE FILE OF AO WITH THE DIRECTION TO V ERIFY THE DETAILS AND EXAMINE THE ISSUE AS PER THE PROVISIONS OF LAW AND IN LIGHT OF THE DECIS ION OF HBLE APEX COURT IN THE CASE OF TRF LTD. VS CIT (2010) 323 ITR 397 (SC) AND THEREAFTER DECIDE THE ISSUE AS PER LAW. NEEDLESS TO STATE, AO SHALL GRANT ADEQUATE OPPORTUNITY OF HE ARING TO THE ASSESSEE. THE ASSESSEE WILL ALSO COOPERATE WITH THE AO AND SUBMIT ALL THE REQUIRED DETAILS PROMPTLY AS ASKED BY THE AO. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STA TISTICAL PURPOSES. THE NEXT GROUND OF APPEAL RELATES TO DISALLOWANCE O F RS.6,00,000/-ON ACCOUNT OF LEGAL AND PROFESSIONAL FEES. 79. THE A.O. OBSERVED THAT THE ASSESSEE HAS DEBITED EXPENSES OF RS.20,34,115/- UNDER LEGAL AND PROFESSIONAL FEES FOR UNIT-1 AND UNIT-II. ON VERIFICATION OF ACCOUNT, THE AO OBSERVED THAT RS.6,00,000/- HAS BEEN DEBITED ON 8-1 0-2000 AS PAID BY SIL TO GE CAPITAL SERVICE FOR MANAGEMENT FEES. NO FURTHER DETAILS OR CLARIFICATION WAS MADE AVAILABLE BY THE ASSESSEE. THE ASSESSEE HAD ALSO ADVANCED MARGIN MON EY OF RS.1,39,50,376/- TO THE ABOVE PARTY. THE AO WAS OF THE VIEW THAT THE EXPEND ITURE BEING OF ENDURING BENEFITS AND CAPITAL IN NATURE AND THEREFORE NOT ALLOWABLE AND A CCORDINGLY DISALLOWED THE SAME AND ADDED TO THE INCOME. AGGRIEVED BY THE ABOVE ACTION OF THE A.O. ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 27 80. BEFORE CIT(A) THE LD. A.R. SUBMITTED THAT THE L EGAL AND PROFESSIONAL FEE EXPENSES PAID TO GE CAPITAL SERVICES AS MANAGEMENT FEES AND ARE FOR THE PURPOSE OF BUSINESS AND REVENUE IN NATURE AND FURTHER THAT THE ACCOUNTS ARE AUDITED, THE EXPENSES SHOULD NOT HAVE DISALLOWED IT BY TREATING IT IN THE NATURE OF CAPIT AL EXPENDITURE. CIT(A) OBSERVED THAT THOUGH NATURE OF EXPENSES WAS IN THE NATURE OF MANAGEMENT FEE BUT IN THE ABSENCE OF DETAILS PROVING THE BUSINESS EXPEDIENCY HE UPHELD THE ACTIO N OF A.O. 81. AGGRIEVED BY THE ACTION OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. A.R. SUBMITTED THAT THE PAYMENT TO GE CAPITAL WAS IN THE NATURE OF MANAGEMENT FEES AND THEREFORE FOR THE PURPOSE OF BUSINESS. HE FURTHER S UBMITTED THAT THE ASSESSEE IS A COMPANY WHOSE ACCOUNTS ARE AUDITED BY CHARTERED ACCOUNTANTS , AO HAS NOT POINTED OUT AS TO HOW THE EXPENDITURE IS OF CAPITAL NATURE. HE SUBMITTED THAT IN THE ABSENCE OF ANY EVIDENCE, THE EXPENSES CANNOT BE DISALLOWED. 82. THE LD. D.R. ON THE OTHER HAND RELIED ON THE OR DER OF THE A.O AND CIT (A). 83. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, IT HAS BEEN SUBMITTED THAT THE EXPENSES WERE INCURR ED FOR THE BUSINESS OF THE COMPANY AND WERE REVENUE IN NATURE. WE ALSO NOTE THAT AO HAS NO TED THAT NO DETAILS OF THE EXPENSES WERE FURNISHED BEFORE HIM. IN THESE CIRCUMSTANCES W E FEEL THAT THE MATTER BE REMITTED TO THE AO TO VERIFY THE CONTENTIONS OF THE ASSESSEE AN D THEREAFTER DECIDE THE ISSUE AS PER LAW. NEEDLESS TO STATE THAT AO SHALL GRANT AN ADEQUATE O PPORTUNITY OF HEARING TO THE ASSESSEE. WE ALSO DIRECT THE ASSESSEE TO FURNISH ALL THE DETA ILS CALLED FOR BY THE AO PROMPTLY SO AS TO ENABLE HIM TO DECIDE THE ISSUE. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . 84. THE NEXT GROUND OF APPEAL RELATES TO CONFIRMING THE DISALLOWANCE OF RS.5,24,421/- BEING HIRE CHARGES PAID TO BLUE BLENDS FINANCE LTD . 85. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE ISSUE IS THE PRESENT GROUND IS IDENTICAL TO THE GROUND NO. 2 IN ITA NO 1113 FOR AY 2000-01 A ND THEY HAVE SAME SUBMISSIONS TO MAKE. ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 28 86. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE FACTS IN THE PR ESENT GROUND ARE IDENTICAL TO THAT GROUND NO. 2 IN AY 2000-01 WHICH HAVE BEEN DECIDED BY US H EREINABOVE. WE FOR THE SAME REASONS GIVEN WHILE DECIDING THE GROUND FOR AY 2000 -01 ALSO REMIT THE ISSUE TO THE FILE OF A.O WITH SIMILAR DIRECTIONS. THUS THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE S . 87. THE NEXT GROUND OF APPEAL RELATES TO THE DISALL OWANCE OF RS.3,20,160/- BEING 1/10 TH OF TRAVELLING EXPENSES. 88. THE ASSESSEE COMPANY HAS DEBITED TRAVELLING EXP ENSES RS.32,01,507/- AS AGAINST THE EXPENSES OF RS.24,61,450/- DEBITED IN IMMEDIATE LY PRECEDING. AO OBSERVED THAT THE SALES OF THE COMPANY STOOD DECREASED FROM RS.105.27 CRORES TO RS.50.70 CRORES. HE WAS OF THE VIEW THAT PRIMA FACIE, THERE APPEARS NO REAS ON FOR INCREASE IN TRAVELLING EXPENSES. CONSIDERING FACTS OF THE CASE AND IN ABSENCE OF ANY DETAIL OF THE EXPENSES, THE DISALLOWANCE AT 10% OUT OF TRAVELLING EXPENSES WAS MADE BY AO AND ADDED TO THE INCOME. AGGRIEVED BY THE ABOVE ACTION OF THE A.O. THE ASSES SEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 89. CIT(A) UPHELD THE ORDER OF THE AO BY HOLDING AS UNDER:- AFTER CONSIDERING THE SUBMISSION OF THE LD. A.R. AND FACTS ON RECORD, I FIND THAT THE APPELLANT HAS NO PROPER EXPLANATION FOR TH E INCREASE IN TRAVELLING EXPENSES. IN FACT NO PRECISE DETAILS OF THE EXPENSES INCURRED HAVE BEEN FURNISHED BY THE APPELLANT AND THE BUSINESS EXPEDIENCY OF SUCH EXPEN SES ALSO REMAINS TO BE PROVED. THE CONTENTION MADE BY THE LD. A.R. IS ALSO GENERAL IN NATURE. I THEREFORE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE DISALLOWANC E MADE BY THE A.O. WHICH IS CONFIRMED. 90. BEFORE US, THE LD. A.R. CONTENDED THAT THE EXPE NSES ON TRAVELLING HAS BEEN MADE DURING THE COURSE OF BUSINESS AND FOR THE PURPOSE O F BUSINESS. THE AO HAS NOT PINPOINTED ANY DEFECT IN IT. THE DISALLOWANCE HAS BEEN MADE ON LY ON THE BASIS OF SURMISE AND ON ADHOC BASIS. IN SUCH A SITUATION THE ADDITION MADE BE DELETED. THE LD. D.R. ON THE OTHER ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 29 HAND STATED THAT THE ASSESSEE HAD NOT FURNISHED ANY DETAILS THAT WERE CALLED FOR BY THE AO. IN SUCH A SITUATION, THE AO WAS RIGHT IN ESTIMATING AND MAKING THE DISALLOWANCE. 91. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS A FACT THAT THE ASSESSEE HAS DEBITED TRAVELLING EXPENSES I N ITS PROFIT AND LOSS ACCOUNT AND HAS CLAIMED IT AS DEDUCTION. THE ASSESSEE DID NOT FURNI SH THE DETAILS BEFORE THE AO OR BEFORE CIT(A). THE DISALLOWANCE HAS BEEN MADE ON THE BASIS OF ESTIMATE. THE FACT OF INCURRING OF EXPENSES OF TRAVELLING IS NOT DISPUTED. THE ONLY DI SPUTE IS WITH RESPECT TO THE QUANTUM OF EXPENSES. THE A.O. HAD DISALLOWED 1/10 TH OF THE TRAVELLING EXPENSES ON ESTIMATE BASIS. WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY AO ON ACCOUNT OF TRAVELING EXPENSES IS ON HIGHER SIDE. WE ARE OF THE VIEW THAT IN SUCH CIRCUM STANCES THE ADHOC DISALLOWANCE OF RS. 2 LACS WILL MEET THE ENDS OF JUSTICE. WE ACCORDINGLY DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO RS. 2 LAC. THUS THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . 92. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . I.T.A. NO.1026/AHD/2007. A.Y. 2002-03 93. THE ONLY GROUND RAISED BY THE REVENUE READS AS UNDER:- THE CIT (A) ERRED IN LAW AND ON FACTS IN DELETING T HE DISALLOWANCE OF RS.7,50,420/- MADE ON ACCOUNT OF INTEREST ON LOANS GIVEN TO STAFF. 94. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE FACTS AND CIRCUMSTANCES OF THE PRESENT GROUND IS IDENTICAL TO GROUND NO 2 (II) IN ITA NO 858/AHD/2005 FOR AY 2001-02 AND THE SUBMISSIONS MADE BY THEM WHILE ARGUING THE MATTER F OR AY 01-02 WOULD BE EQUALLY APPLICABLE TO THE PRESENT GROUND. 95. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE PRESENT GROUND OF APPEAL, THE ISSUE, FACTS AND SUBMISSIONS ARE IDENTICAL TO THAT OF GROUND NO 2 (I I) IN ITA NO 858/AHD/2005 FOR AY 2001- 02. WE THEREFORE FOR THE SAME REASONS STATED IN HER EINABOVE WHILE DECIDING THE GROUND IN ITA NO 858/AHD/2005 (SUPRA) DISMISS THE GROUND OF THE REVENUE . ITA NO.8 58, 927/AHD/2005 ITA NO.1 113 & 1198/A/2004 ITA NO.1 026/A/2007. A YEARS 2001-02, 00-01 & 2002- 03 . 30 96. ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMI SSED . 97. IN THE RESULT APPEALS OF REVENUE ARE DISMISSED AND OF ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 01 - 08 - 20 14. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT ME MBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) VALSAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD.