The ACIT, Circle-4, Ahmedabad V. Gujarat Mineral Development Corporation Ltd., Ahmedabad

ITA 1036/AHD/2006

• Counselvise Citation: 103620514 RSA 2006
• Duration Of Justice: 6 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-04-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 27-04-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Initiation of penalty proceedings; Capital receipt; Revenue expenditure; Capital expenditure; Set aside
• Section: 271(1)(c); 43B; 234B; 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI D. K. TYAGI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NOS. 128, 186/ AHD/2005, 1114/AHD/2006, 1244, 1245/AHD/2007 (ASSESSMENT YEARS 2000-01, 2001-02 AND 2002- 03, 2000-01, 2001-02 RESPECTIVELY) GUJARAT MINERAL DEV. CORPN. LTD., KANJI BHAVAN, 132 FT. RING ROAD, NR. UNIVERSITY GROUND, VASTRAPUR, AHMEDABAD VS. ACIT, CIRCLE 4, AHMEDABAD PAN/GIR NO. : AAACG7987P I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, AND 1182, 1184, 4483/AHD/2007, (ASSESSMENT YEARS 2001-02, 2002-03, 2000-01,2001-02 , 2002-03 RESPECTIVELY) ACIT, CIRCLE 4, AHMEDABAD VS. GUJARAT MINERAL DEV. CORPN. KANJI BYHAVAN, 132 FT RING ROAD, VASTRAPUR AHMEDABAD (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI S N SOPARKAR, SR. ADV. SHRI J T SHAH, ADV. RESPONDENT BY: SHRI D P GUPTA, CIT DR DATE OF HEARING: 26.04.2012 DATE OF PRONOUNCEMENT: 25. 05.2012 O R D E R PER BENCH:- OUT OF THIS BUNCH OF TEN APPEALS, THERE ARE VARIOU S APPEALS OF THE ASSESSEE AND THE REVENUE FOR DIFFERENT ASSESSMENT Y EARS AGAINST SEPARATE I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 2 ORDERS OF LD. CIT(A) VIII, AHMEDABAD. ALL THESE AP PEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2000-01 IN I.T.A.NO. 128/AHD/2005. 2.1 GROUND NO.1 IS REGARDING DISALLOWANCE OF RS.912 73931/- FOR CLAIM OF DEPRECIATION ON ASSETS LEASED TO GSRTC. 2.1.1 IT WAS SUBMITTED BY THE LD. A.R. THAT THIS I SSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1997-98 IN I.T.A.NO. 2728/AHD/2 000. IT IS FURTHER SUBMITTED THAT THIS TRIBUNAL ORDER IS AVAILABLE ON PAGES 21-83 OF THE DECISION PAPER BOOK AND THE RELEVANT DISCUSSION IS IN PARA 83 OF THIS TRIBUNAL DECISION ON PAGE 75 OF THE PAPER BOOK. H E FURTHER FAIRLY CONCEDED THAT THIS ISSUE IS COVERED AGAINST THE ASS ESSEE BY THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF INDUSIND BANK LTD. VS ADDL. CIT AS REPORTED IN 145 TTJ 409 (SB). LD. D.R. PLACED RELIANCE ON THIS DECISION OF SPECIAL BENCH OF THE TRIBUNAL A ND SUBMITTED THAT WHEN THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL DECIS ION IS AGAINST THE ASSESSEE, THE SAME SHOULD BE FOLLOWED IN PREFERENCE TO THE DIVISION BENCH ORDER IN ASSESSEES OWN CASE CITED BY THE LD. A.R. 2.1.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND WE FIND THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF INDUS IND BANK LTD (SUPRA) AND, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL, THIS ISSUE IS DECIDED AGAINST THE ASSESSE E. IN ADDITION TO HOLDING THIS THAT IN THE CASE OF FINANCIAL LEASE, LESSOR IS NOT ENTITLED TO I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 3 DEPRECIATION, IT IS ALSO HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF INDUSIND BANK LTD (SUPRA) THAT THE ENTIRE L EASE RENTAL RECEIVED BY THE ASSESSEE LESSER, CANNOT BE CONSIDERED AS INCOME AND ONLY THE INTEREST COMPONENT OF LEASE RENTAL FINANCE CHARGE I.E. INTER EST, SHOULD BE RECOGNIZED AS INCOME. THE DECISION OF LD. CIT(A) I S ON THIS VERY LINE AND HENCE, WE DO NOT FIND ANY REASON TO INTERFERE I N THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND IS REJECTED. 2.2 THE GROUND NO.2 OF THE ASSESSEES APPEAL IS REG ARDING DISALLOWANCE OF EXPENDITURE INCURRED ON PROJECT OF MATA NO MADH BEING RS.2936016/- REVISED BY THE ASSESSEE TO RS.3646532/-. 2.2.1 IT WAS SUBMITTED BY THE LD. A.R. THAT THIS IS SUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS TRIBUNAL DECISIONS IN AS SESSEES OWN CASE FOR VARIOUS EARLIER YEARS. HE SUBMITTED THAT FIRST SUC H DECISION OF THE TRIBUNAL IS FOR THE ASSESSMENT YEAR 1990-91 IN I.T.A.NO. 323 2/AHD/1996, WHICH IS AVAILABLE IN THE PAPER BOOK PAGE 6 AND THE RELEVANT PARAS ARE 16-18. HE FURTHER SUBMITTED THAT THE 2 ND SUCH DECISION OF THE TRIBUNAL IS IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1992-93 IN I.T.A.N O. 936/AHD/199 AND THE RELEVANT PORTION IS AVAILABLE ON PAGES 8-9 OF T HE DECISION PAPER BOOK AND THE RELEVANT PARA IS PARA 2. IT WAS ALSO SUBMI TTED THAT THE 3 RD SUCH DECISION IS IN RESPECT O ASSESSMENT YEAR 1994-95, 1 996-97 AND 1997-98 IN I.T.A.NO. 89, 90 & 91/AHD/2001 AND THE RELEVANT POR TION OF THIS TRIBUNAL ORDER IS AVAILABLE ON PAGES 42-49 AND THE ULTIMATE CONCLUSION OF THE TRIBUNAL IS IN PARA 33. HE FURTHER SUBMITTED THAT ALTHOUGH IN ASSESSMENT YEAR 1998-99 AND 1999-2000, AS PER TRIBUNAL ORDER D ATED 16.11.2007, AVAILABLE ON PAGES 77-83 OF THE PAPER BOOK, THE ISS UE WAS RESTORED TO THE FILE OF THE A.O. BUT IN THE SUBSEQUENT TRIBUNAL DEC ISION DATED 31.08.2009 I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 4 FOR THE ASSESSMENT YEAR 1997-98 ON PAGES 71-73 OF T HE PAPER BOOK, THE SAME ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. 2.2.2 LD. D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 2.2.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE VARIOUS TRIBUNAL DECISIONS CITED BY THE LD. A.R. OF THE ASSESSEE. LD. D.R. COULD NOT POINT ANY DIFFERENCE IN THE FACTS IN THE PRESENT YEAR AS COMPARED TO THE EARLIER YEARS FOR WHICH TRIBUNAL DECISIONS A RE AVAILABLE. IN THE COMBINED TRIBUNAL ORDER FOR THE ASSESSMENT YEARS 19 94-95, 1996-96 AND 1997-98 IN PARA 25 OF THIS TRIBUNAL ORDER, THIS FAC T IS NOTED BY THE TRIBUNAL THAT THE ISSUE IN DISPUTE WAS REGARDING EXPENSES IN CURRED IN RESPECT OF BOXITE PROJECT AT GHADSESA AND LIGNITE PROJECT AT M ATA NO MADH. IT IS FURTHER NOTED BY THE TRIBUNAL IN PARA 28 OF THE TRI BUNAL DECISION THAT THE A.O. DISALLOWED THE EXPENDITURE OF MATA NO MADH PRO JECT BY TREATING THE SAME AS CAPITAL EXPENDITURE. IT IS FURTHER NOTED B Y THE TRIBUNAL THAT IT WAS SUBMITTED BY THE LD. A.R. BEFORE THE TRIBUNAL THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL DECISION IN THE ASSESSEES OWN CASE IN I.T.A.NO. 3232/AHD/1996 FOR THE ASSESSMENT YEAR 1990-91 AS PER ORDER DATED 05.05.2005 AND ALSO FOR ASSESSMENT YEAR 1992- 93 IN I.T.A.NO. 936/AHD/1999 AS PER TRIBUNAL ORDER DATED 12.07.2005 . AS PER THIS TRIBUNAL ORDER FOR THE ASSESSMENT YEAR 1994-95, 199 6-97 AND 1997-98, THE ISSUE IN DISPUTE WAS DECIDED IN FAVOUR OF THE ASSES SEE BY RESPECTFULLY FOLLOWING THE EARLIER TRIBUNAL ORDER FOR THE ASSESS MENT YEARS 1990-91 AND 1992-93. REGARDING THE TRIBUNAL ORDER FOR ASSESSME NT YEAR 1998-99 AND 1999-2000 IN WHICH THE ISSUE WAS RESTORED BY THE TR IBUNAL TO THE A.O., WE FIND THAT IN THE SUBSEQUENT ORDER, THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ALTHOUGH THE EARLIER TRIBUNA L ORDER WAS NOT BROUGHT I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 5 TO THE NOTICE OF THE TRIBUNAL BUT SINCE, WE FEEL TH AT IN THE FACTS OF THE PRESENT CASE, THE LATER ORDER SHOULD BE FOLLOWED. IN THE PRESENT YEAR ALSO, LD. D.R. COULD NOT POINT OUT ANY DIFFERENCE IN FACT S AND HENCE, WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW IN THE PRES ENT YEAR. THEREFORE, BY RESPECTFULLY FOLLOWING EARLIER TRIBUNAL DECISIONS A S DISCUSSED ABOVE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE IN THE PRESENT YEAR ALSO. THIS GROUND OF THE ASSESSEE IS ALLOWED. 2.3 GROUND NO.3 IS REGARDING DISALLOWANCE OF THE CL AIM OF DEPRECIATION OF RS.3741345/- HOLDING THAT ASSET OF SHRIRAM CEMEN T LTD. WERE NOT USED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS. 2.3.1 IT WAS FAIRLY CONCEDED BY THE LD. A.R. THAT H IS ISSUE IS COVERED AGAINST THE ASSESSEE BY VARIOUS TRIBUNAL DECISIONS IN ASSESSEES OWN CASE FOR EARLIER YEARS SUCH AS ASSESSMENT YEAR 1998-99 A ND 1999-2000 IN I.T.A.NO. 999 AND 1000/AHD/2003, WHICH IS AVAILABLE ON PAGES 78-79 OF THE PAPER BOOK AND FOR THE ASSESSMENT YEAR 197-98 I N I.T.A.NO. 91/AHD/2001, WHICH IS AVAILABLE ON PAGE 60 PARA 50 OF THE PAPER BOOK. RESPECTFULLY FOLLOWING THESE EARLIER TRIBUNAL DECIS IONS, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND ACCORDINGLY, GROUN D NO.3 OF THE ASSESSEES APPEAL IS REJECTED. 2.4 GROUND NO.4 IS REGARDING INITIATION OF PENALTY PROCEEDINGS. THIS GROUND IS PREMATURE AND HENCE, REJECTED. 2.5 GROUND NO.5 IS REGARDING CHARGING OF INTEREST U /S 234B AND 234C OF THE ACT AND THIS ISSUE IS CONSEQUENTIAL AND HENC E, NO ADJUDICATION IS CALLED FOR AT THIS STAGE. 2.6 IN THE RESULT, THIS APPEAL OF THE ASSESSEE STAN DS PARTLY ALLOWED. I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 6 3. NOW, WE TAKE UP ASSESSEES APPEAL FOR THE ASSESS MENT YEAR 2001-02 IN I.T.A.NO. 186/AHD/2005. 3.1 GROUND NO.1(A) IS REGARDING CONFIRMATION OF DIS ALLOWANCE OF RS.2231740/- BEING THE EXPENDITURE ON PROJECT MATA NO MADH HOLDING THE SAME AS CAPITAL IN NATURE. IT WAS AGREED BY BO TH THE SIDES THAT THIS ISSUE IS IDENTICAL TO GROUND NO.2 RAISED BY THE ASS ESSEE IN THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2000-01 AND HENCE, T HE SAME CAN BE DECIDED ON SIMILAR LINE. IN THAT YEAR, THIS ISSUE WAS DECIDED BY US IN FAVOUR OF THE ASSESSEE AS PER PARA 2.2.3 ABOVE AND ON THE SAME LINES, IN THIS YEAR ALSO, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THIS GROUND OF ASSESSEE IS ALLOWED. 3.2 GROUND NO.1(B) OF THE ASSESSEE IS REGARDING CON FIRMATION OF DISALLOWANCE OF RS.424239124/- MADE BY THE A.O. ON ACCOUNT OF EXPENSE RELATING TO AKRI MOTA POWER PROJECT. IT WAS ALSO A N ALTERNATIVE CONTENTION THAT IN ANY CASE, FINANCIAL CHARGES OF RS.2.21 CROR ES ARE FULLY ALLOWABLE U/S 36(1)(III) OF THE INCOME TAX ACT, 1961. 3.2.1 IT WAS SUBMITTED BY THE LD. A.R. THAT THESE A RE THE EXPENSES ON DIVERSIFICATION AND FORWARD INTEGRATION AND THE SAM E IS ALLOWABLE AND IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE FOLLOWING JUDGEMENTS. THERE WAS AN ALTERNATIVE CONTENTION TH AT INTEREST PART IS ALLOWABLE IN ANY CASE. IN SUPPORT OF THIS CONTENTI ON RELIANCE WAS PLACED ON THE FOLLOWING JUDGEMENTS. (A) 81 ITD 553 UNITED PHOSPHORUS LTD. VS JCIT (B) 393 ITR 459 (MAD.) CIT VS RANE (MADRAS) LTD. (C) 296 ITR 140 CIT VS USHA IRON AND FERRO METAL CO RPORATION LTD. (D) 318 ITR 140 CIT VS DENSO INDIA LTD. (E) 323 ITR 11 CIT VS ESCORTS AUTO COMPONENTS LTD. & ECO AUTO COMPONENTS LTD. (F) 251 ITR 61 (GUJ.) (G) 298 ITR 194 (S.C.) DCIT VS CORE HEALTH CARE LTD . I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 7 3.2.2 AS AGAINST THIS, IT WAS SUBMITTED BY THE LD. D.R. THAT THIS IS A NEW PROJECT AND, THEREFORE, VARIOUS JUDGMENTS CITED BY THE LD. A.R. ARE NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE BECAUSE THIS IS A POWER PROJECT AND THERE WAS NO POWER PROJECT PRIOR TO THIS AND HE NCE, IT IS A NEW PROJECT. IN THE REJOINDER, IT WAS SUBMITTED BY THE LD. A.R. THAT ADMITTEDLY IT IS A FIRST POWER PROJECT BUT IT IS FOR FORWARD INTEGRATI ON OF EXISTING BUSINESS AND, THEREFORE, DEDUCTION IS ALLOWABLE IN RESPECT O F THESE EXPENSES INCURRED ON THIS PROJECT 3.2.3 WE HAVE CONSIDERED RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND VARIOUS JUDGMENTS CITED BY THE LD. A.R. WE FIND THAT THIS IS ADMITTED FACTUAL POSITION THAT AKRI MOTA POWER PROJECT IS A NEW LINE OF BUSINESS BECAUSE THIS IS THE FIRST POWER PROJECT BEING PUT UP BY THE ASSESSEE BECAUSE THE ASSESSEE DID NOT HAVE ANY BUSINESS OF POWER GENERAT ION IN THE EARLIER ASSESSMENT YEARS INCLUDING ASSESSMENT YEAR 2000-01 AS HAS BEEN NOTED BY LD. CIT(A) ON PAGE 2 OF HIS ORDER. IN THE LIGHT OF THESE FACTS, WE EXAMINE THE APPLICABILITY OF VARIOUS JUDGEMENTS CITED BY TH E LD. A.R. - THE FIRST JUDGEMENT CITED BY THE LD. A.R. IS THE TRIBUNAL DECISION RENDERED IN THE CASE OF UNITED PHOSPHORUS LTD. VS J CIT (SUPRA). AS PER THIS TRIBUNAL DECISION, IT WAS HELD BY THE TRIBUNAL THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION ON ACCOUNT OF INTEREST PAID ON FUNDS BORROWED FOR BUSINESS PURPOSE INCLUDING FOR THE PURPOSE OF SETTI NG UP OF A NEW UNIT OF EXISTING RUNNING BUSINESS U/S 36(1)(III) IRRESPECTI VE OF THE FACT WHETHER SUCH A NEW UNIT HAS COMMENCED PRODUCTION OR NOT IN THE YEAR UNDER CONSIDERATION. THIS TRIBUNAL DECISION SUPPORTS THE CASE OF THE ASSESSEE REGARDING ALTERNATIVE CONTENTION IN RESPECT OF GRAN TING DEDUCTION FOR THE INTEREST PART IF IT IS ULTIMATELY HELD THAT THE UNI T BEING SET UP OUT OF I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 8 BORROWED FUNDS IN QUESTION IS A NEW UNIT OF THE EXI STING RUNNING BUSINESS. THIS ASPECT WE WILL DECIDE LATER. - THE 2 ND DECISION CITED BY THE LD. A.R. IS THE JUDGMENT OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF CIT VS RA NE (MADRAS ) LTD. (SUPRA). IN THAT CASE, THE FACTS WERE THAT THE ASS ESSEE WAS ENGAGED IN THE PRODUCTION OF RECALCULATING BALL TYPE STEERING GEAR S AND IN THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE STARTED A NEW INDUSTR Y AT DIFFERENT PLACE FOR MANUFACTURE OF RACK AND PINION STEERING GEARS AND I NCURRED AN EXPENDITURE OF RS.208 LACS DURING ASSESSMENT YEAR 1 996-97 AND RS.9.48 LACS DURING ASSESSMENT YEAR 1997-98 IN RESPECT OF I NTEREST ON EXIM BANK LOAN, VARIOUS RAW MATERIAL CONSUMED, STORES CONSUME D, TOOLS CONSUMED, TRAVEL EXPENSES, SALARIES AND WAGES, PRINTING AND S TATIONERY, COMPUTER STATIONERY, FREIGHT INWARD, FREIGHT OUTWARD, POWER AND FUEL, INSURANCE, REPAIRS AND MAINTENANCE, CENTRAL OVERHEADS OF MADRA S PLANT AND OTHER VARIOUS MISCELLANEOUS EXPENSES. THE ASSESSEE CLAIM ED IN THAT CASE THAT THE ENTIRE EXPENDITURE IS REVENUE EXPENDITURE BUT T HE A.O. TREATED THESE EXPENSES AS CAPITAL IN NATURE ON THIS BASIS THAT TH E PROPOSAL UNIT IS ENTIRELY A NEW UNIT. ON APPEAL, IT WAS HELD BY LD. CIT(A) I N BOTH THE YEARS THAT THESE ARE REVENUE EXPENDITURE AND ON FURTHER APPEAL , THE ORDER OF LD. CIT(A) WAS CONFIRMED BY THE TRIBUNAL AND AGAINST SU CH TRIBUNAL ORDER, THE REVENUE PREFERRED AN APPEAL BEFORE HONBLE MADRAS H IGH COURT. IT WAS HELD BY THE HONBLE MADRAS HIGH COURT THAT THE PROD UCT REMAINED ONE AND THE SAME I.E. STEERING GEAR AND, THEREFORE, THE NEW BUSINESS SET UP IS NOTHING BUT AN EXTENSION OF THE EXISTING INDUSTRY A T VELACHERY AND MYSORE AND THE DEDUCTION CLAIMED BY THE ASSESSEE WA S REGARDING THE EXPENDITURE INCURRED FOR THE NEW UNIT IN PONDICHARY IS ALLOWABLE AS REVENUE EXPNEDITURE. IN THE PRESENT CASE, THE PROD UCT IS NOT THE SAME I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 9 BECAUSE THE POWER PROJECT PRODUCT WILL BE THE POWER WHEREAS IN THE EXISTING UNIT THE PRODUCT IS DIFFERENT I.E. LIGNITE AND HENCE, THIS JUDGMENT OF HONBLE MADRAS HIGH COURT IS NOT APPLICABLE IN T HE PRESENT CASE. - THE NEXT JUDGEMENT CITED BY THE LD. A.R. IS THE J UDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CI T VS USHA IRON & FERRO METAL CORPORATION LTD.(SUPRA). IN THAT CASE, THE ISSUE INVOLVED WAS REGARDING THE EXPENDITURE INCURRED FOR SETTING UP S TEEL MELTING SHOP FOR MANUFACTURE OF RAW MATERIAL FOR THE EXISTING BUSINE SS. UNDER THESE FACTS, IT WAS HELD IN THAT CASE THAT THE EXPENDITURE INCUR RED IS REVENUE EXPENDITURE. IN THE PRESENT CASE, THE FACTS ARE DI FFERENT AND THE EXPENDITURE INCURRED WAS NOT FOR MANUFACTURE OF RAW MATERIAL FOR AN EXISTING BUSINESS. IN FACT THE FINAL PRODUCT OF TH E EXISTING UNIT IS THE RAW MATERIAL FOR THE NEW UNIT AND, THEREFORE, THIS JUDG EMENT OF HONBLE DELHI HIGH COURT IS ALSO NOT APPLICABLE IN THE PRESENT CA SE. - THE NEXT JUDGEMENT CITED BY THE LD. A.R. IS ALSO THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CI T VS DENSO INDIA LTD (SUPRA). IN THAT CASE, THE ASSESSEE WAS MANUFA CTURING AUTO ELECTRICAL PARTS AND THE EXPENDITURE IN QUESTION WAS INCURRED FOR SETTING UP OF A SEPARATE CELL FOR DEVELOPING IMPORT SUBSTITUTE COMP ONENTS. UNDER THESE FACTS, IT WAS HELD BY THE HONBLE DELHI HIGH COURT THAT SUCH EXPENDITURE IS REVENUE EXPENDITURE. IN THE PRESENT CASE, THE F ACTS ARE DIFFERENT. THE UNIT BEING SET UP WILL NOT RESULT INTO ANY SUBSTITU TE OF IMPORT COMPONENT BEING USED BY THE EXISTING UNIT AND, THEREFORE, THI S JUDGEMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. - THE NEXT JUDGMENT CITED BY THE LD. A.R. IS THE JU DGEMENT OF HONBLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CASE OF CIT VS ESCORTS (SUPRA). IN THAT CASE, THIS FINDING WAS RE CORDED BY LD. CIT(A) I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 10 THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS I N RESPECT OF DEVELOPMENT OF NEW PRODUCT/MODIFICATION OF THE PROD UCT WITH THE SAME ORGANIZATION WITHIN THE EXISTING INFRASTRUCTURE, TH E SAME MANAGEMENT AND SAME BUILDING AND NO CAPITAL ASSET HAD BEEN CREATED OUT OF THIS EXPENDITURE. THE TRIBUNAL OBSERVED IN THAT CASE TH AT THE ASSESSEE HAS BIFURCATED SUM OF RS.72.60 LACS OUT OF THE TOTAL EX PENDITURE ON SALARY AND WAGES, TELEPHONE, TRAVELING EXPENSES AND OTHER ADMI NISTRATIVE EXPENSES AND ALLOCATED TO MODIFICATION OF EXISTING PRODUCT/D EVELOPMENT OF NEW PRODUCT WITH THE SAME MANAGEMENT AND SAME WORKFORCE AND EXPERTISE. BY MAKING THIS OBSERVATION, THE ORDER OF LD. CIT(A) WAS CONFIRMED BY THE TRIBUNAL. UNDER THESE FACTS, IT WAS HELD BY TH E HONBLE PUNJAB & HARYANA HIGH COURT THAT THE EXPENDITURE IS REVENUE EXPENDITURE BECAUSE THERE IS CLEAR FINDING OF THE TRIBUNAL AND CIT(A) T HAT NO CAPITAL ASSET HAS COME INTO EXISTENCE AND THIS FINDING WAS NOT CHALLE NGED BEFORE THE HONBLE PUNJAB & HARYANA HIGH COURT. IN THE PRESEN T CASE, THE FACTS ARE DIFFERENT. IN THE PRESENT CASE, IT IS NOTED BY THE A.O. THAT THE EXPENDITURE IN QUESTION RELATE TO EXPENDITURE INCURRED ON A NEW POWER PROJECT BEING SET UP AT AKRI MOTA AND THE TOTAL EXPENDITURE AS ST ATED WAS SHOWN AT RS.1562.63 LACS AND AFTER DEDUCTION OF OPENING BALA NCE OF THE EXPENDITURE OF RS.1138.34 LACS, THE EXPENDITURE ON THE NEW POWER PROJECT BEING SET UP IS CLAIMED AT RS.424.29 LACS AND IN TH E ORIGINAL RETURN, ASSESSEE DID NOT CLAIM DEDUCTION FOR THIS EXPENDITU RE. THIS FINDING IS ALSO GIVEN BY THE A.O. THAT THIS IS TOTALLY A NEW P RODUCT AND IS NOT EXPANSION OF THE ASSESSEES EXISTING BUSINESS AND I T IS TOTALLY DIFFERENT AND DISTINCT INDUSTRIAL UNDERTAKING. WHEN A NEW INDUST RIAL UNDERTAKING IS BEING CONSTRUCTED, IT CANNOT BE SAID THAT NO NEW AS SET HAS COME INTO I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 11 EXISTENCE AND, THEREFORE, THIS JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IS ALSO NOT APPLICABLE IN THE PRESENT CA SE. -THE NEXT JUDGEMENT CITED BY THE LD. A.R. IS THE JU DGEMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF DCIT VS CORE HEALTH CARE LTD. (SUPRA). IN THAT CASE, THE ISSUE INVOLVED WAS REGARDING INTEREST EXPENDITURE INCURRED ON BORROWINGS FOR PURCHASE OF MACHINERY TO INCREASE PRODUCTION IN THE EXISTING BUSINESS AND TH E MACHINERY WAS NOT PUT TO USE IN THE RELEVANT YEAR. UNDER THESE FACT S, IT WAS HELD BY THE HONBLE GUJARAT HIGH COURT THAT INTEREST ON BORROWE D CAPITAL IS DEDUCTIBLE. IN THAT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING INTRA VENUS INJECTION OF TWO TYPES I. E. LVP AND SVP. DURING THE RELEVANT YEAR, THE ASSESSEE COMPANY INST ALLED THREE MORE MACHINES IN ADDITION TO THE EXISTING THREE MACHINES FOR THE PRODUCTION OF THE SAME PRODUCT RESULTING IN SUBSTANTIAL INCREASE IN THE CAPACITY OF MANUFACTURING OF THE PRODUCT. UNDER THESE FACTS, I T WAS HELD BY THE HONBLE GUJARAT HIGH COURT THAT THE INTEREST EXPEND ITURE IS TO BE ALLOWED EVEN IF THE MACHINES PURCHASED OUT OF BORROWED FUND S WERE NOT PUT TO USE IN THE RELEVANT YEAR. IN THE PRESENT CASE, THIS IS NOT THE FACTUAL POSITION THAT THE SAME EQUIPMENTS IS THE EXISTING EQUIPMENTS WERE PURCHASED. IN THE PRESENT CASE, A POWER PROJECT ALTOGETHER IS BEI NG SET UP AND THE ASSESSEE IS NOT IN THE BUSINESS OF POWER GENERATION UP TO ASSESSMENT YEAR 2000-01 AND, THEREFORE, THE FACTS IN THE PRESENT CA SE ARE DIFFERENT. HENCE, THIS JUDGEMENT OF HONBLE GUJARAT HIGH COURT IS ALS O NOT APPLICABLE IN THE PRESENT CASE. - THE LAST JUDGMENT CITED BY THE LD. A.R. IS THE JU DGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF DCIT VS CORE HEA LTH CARE LTD. AS PER THIS JUDGEMENT, HONBLE APEX COURT HAS SIMPLY C ONFIRMED THE I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 12 JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE SAME CASE AS REPORTED IN 251 ITR 61 (GUJ.). WHILE EXAMINING THE APPLICABILITY OF THIS JUDGEMENT OF HONBLE GUJARAT HIGH COURT, WE HAVE SE EN THAT THIS JUDGMENT OF HONBLE GUJARAT HIGH COURT IS NOT APPLI CABLE IN THE PRESENT CASE BECAUSE THE FACTS ARE DIFFERENT AND THEREFORE, FOR THE SAME REASON, THIS JUDGMENT OF HONBLE APEX COURT IS ALSO NOT APP LICABLE IN THE PRESENT CASE. 3.2.4 AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT NO NE OF THE JUDGEMENTS CITED BY THE LD. A.R. IS RENDERING ANY HELP TO THE ASSESSEE IN THE PRESENT CASE EXCEPT THE TRIBUNAL DECISION RENDERED IN THE C ASE OF UNITED PHOSPHORUS LTD. (SUPRA). IN THAT CASE, IT WAS HELD BY THE TRIBUNAL THAT INTEREST PAID ON FUNDS BORROWED FOR BUSINESS PURPOS E, INCLUDING FOR THE PURPOSE OF SETTING OF ANEW UNIT OF THE EXISTING RUN NING BUSINESS IS ALLOWABLE U/S 36(1)(III) OF THE ACT. WHILE EXAMINI NG THE APPLICABILITY OF THIS TRIBUNAL DECISION, WE HAVE NOTED ABOVE THAT IN TEREST EXPENDITURE WILL BE ALLOWABLE IF IT IS FOUND THAT BORROWED FUND WERE USED FOR THE PURPOSE OF SETTING UP OF A NEW UNIT OF THE EXISTING RUNNING BUSINESS. AS PER ABOVE DISCUSSION, WHILE EXAMINING THE APPLICABILITY OF VA RIOUS OTHER JUDGMENTS, WE HAVE SEEN THAT BORROWED FUNDS WERE NOT USED FOR SETTING UP OF A NEW UNIT OF AN EXISTING RUNNING BUSINESS BUT IT WAS SET TING UP OF A NEW UNIT FOR PRODUCTION OF AN ALTOGETHER NEW PRODUCT I.E. POWER WHEREAS THE EXISTING BUSINESS OF THE ASSESSEE WAS PRODUCTION OF LIGNITE. SINCE THIS ASPECT IS NOT FULFILLED IN THE PRESENT CASE, EVEN INTEREST EXPEND ITURE IS NOT ALLOWABLE IN THE PRESENT CASE U/S 36(1)(III) BECAUSE IN THE PRES ENT CASE, THE PRODUCT TO BE MANUFACTURED BY THE NEW UNIT IS AN ALTOGETHER NE W PRODUCT. I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 13 3.2.5 IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FI ND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND OF THE ASSESSEE IS REJECTED INCLUDING THE ALTERNATIVE CONT ENTION. 3.3 GROUND NO.2 IS REGARDING CONFIRMATION OF ADDITI ON OF RS.1,32,000/- MADE BY THE A.O. IN RESPECT OF SALARY TO STAFF. 3.3.1 THE BRIEF FACTS OF THE CASE ARE THAT IT IS NO TED BY LD. CIT(A) ON PAGE 5 OF HIS ORDER THAT THE A.O. HAS DISALLOWED TH E EXPENDITURE IN RESPECT OF PAYMENT OF SALARY TO STAFF AT THE RESIDENCE OF T HE CHAIRMAN OF THE COMPANY. HE FURTHER OBSERVED THAT IT WAS NOTED BY THE A.O. THAT THE EXPENDITURE IS NOT IN ACCORDANCE WITH THE GUIDELINE S ISSUED BY THE GOVERNMENT OF GUJARAT DATED 28.08.1998 REFERRED TO AT PAGE 7 OF THE ORDER AND IS ALSO AGAINST ARTICLE NO.192 OF THE ART ICLES OF CORPORATION. IT IS FURTHER NOTED BY LD. CIT(A) THAT IT WAS SUBMITTE D BY THE LD. A.R. THAT THE EXPENSES HAVE BEEN APPROVED BY THE BOARD OF DIR ECTORS AND ARE NOT CONTRARY TO THE PROVISIONS OF COMPANIES ACT 1956. LD. CIT(A) WAS NOT SATISFIED AND HE CONFIRMED THE DISALLOWANCE ON THIS BASIS THAT THIS IS COVERED UNDER EXPLANATION TO SECTION 37 OF THE INCO ME TAX ACT, 1961. NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3.3.2 IT IS SUBMITTED BY THE LD. A.R. THAT THERE IS NO VIOLATION OF ANY LAW AND, THEREFORE, DEDUCTION SHOULD BE ALLOWED. AS AG AINST THIS, THE LD. D.R. SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 3.3.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS DISALLOWANCE WAS CONFIRMED BY LD. CIT(A) ON THIS BASIS THAT THE SAME IS COVERED BY EXPLANATION TO SECTION 37(1) OF THE INCOME TAX ACT, 1961. AS PER THE EXPLANATION, IT IS SEEN THAT IF A NY EXPENDITURE BEING INCURRED BY THE ASSESSEE IS FOR ANY PURPOSE WHICH A N OFFENCE OR WHICH IS I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 14 PROHIBITED BY LAW, THE SAME SHALL NOT BE ALLOWED. HENCE, IT IS TO BE SEEN THAT AS TO WHETHER IN THE PRESENT CASE, THE EXPENDI TURE INCURRED BY THE ASSESSEE IS FOR ANY PURPOSE WHICH IS AN OFFENCE AND / OR WHICH IS PROHIBITED BY LAW AND IF IT IS NOT SO, THESE PROVIS IONS OF EXPLANATION TO SECTION 37(1) IS NOT ATTRACTED. AS PER THE SUBMISS ION OF LD. CIT(A) AND AS PER THE FINDING OF LD. D.R., THIS EXPENDITURE IS IN VIOLATION OF THE GUIDELINES ISSUED BY THE GOVERNMENT OF GUJARAT DATE D 28.08.1998 AND IS AGAINST ARTICLE 192 OF THE ARTICLES OF CORPORATION. IN OUR CONSIDERED OPINION, THIS WILL NOT TANTAMOUNT TO AN OFFENCE AND ALSO IT DOES NOT TANTAMOUNT TO AN EXPENDITURE WHICH IS PROHIBITED BY LAW. THE GUIDELINES OF THE GOVERNMENT OF GUJARAT AND THE ARTICLES OF CO RPORATION CANNOT BE CONSIDERED AS LAW OF THE COUNTRY. HENCE, IN OUR CO NSIDERED OPINION, THIS DISALLOWANCE IS NOT JUSTIFIED. IF THE EXPENDITURE IS INCURRED IN VIOLATION OF THE GUIDELINES OF GOVERNMENT OF GUJARAT AND AGAINST ARTICLE 192 OF THE ASSESSEE CORPORATION THEN THE REMEDY LIES SOMEWHERE ELSE AND ACTION CAN BE TAKEN AS PER LAW AGAINST THE PERSON RESPONSIBLE FOR SUCH VIOLATION BUT THIS CANNOT BE THE BASIS FOR MAKING DISALLOWANCE OF EXPENSES WITHOUT PROVING THAT IT IS NOT FOR THE PURPOSE OF ASSESSEE S BUSINESS. THIS IS NOT THE CLAIM OF THE REVENUE THAT THIS EXPENDITURE IS N OT FOR THE PURPOSE OF BUSINESS AND THEREFORE, THIS DISALLOWANCE IS DELETE D. THIS GROUND OF THE ASSESSEE IS ALLOWED. 3.4 GROUND NO.3 IS REGARDING CONFIRMATION OF DISALL OWANCE OF RS.2220392/- IN RESPECT OF OBSOLETE STORES/STOCK. THIS GROUND IS INTERCONNECTED WITH GROUND NO.4 OF THE REVENUES AP PEAL FOR THE SAME ASSESSMENT YEAR. 3.4.1 THE BRIEF FACTS OF THE CASE ARE THAT IT IS NO TED BY LD. CIT(A) ON PAGE 5 AND 6 OF HIS ORDER THAT THE A.O. MADE AN ADD ITION OF RS.8881569/- I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 15 IN RESPECT OF OBSOLETE STOCK/STORES. WE HAVE FURTH ER NOTED THAT THIS WAS ALSO NOTED BY THE A.O. IN THE ASSESSMENT ORDER THAT ASSESSEE COMPANY HAD WRITTEN OFF OBSOLETE STORES/SPARES AS PER SCHED ULE XI TO THE P & L ACCOUNT. IT WAS FURTHER NOTED THAT THIS WAS ON THE BASIS OF REPORT OF VARIOUS COMMITTEE/PERSONNEL THAT THE STOCK IS OBSOL ETE HAVING ZERO VALUE. THE A.O. DID NOT ACCEPT THIS CONTENTION AND MADE THE DISALLOWANCE. BEFORE LD. CIT(A), IT WAS SUBMITTED BY THE LD. A.R. THAT THE ASSESSEE COMPANY IS FOLLOWING SYSTEM OF VALUING STOCK AT COST OR MARKET PRICE, WHICHEVER IS LOWER, FOR THE CLOSING S TOCK. IT WAS HELD BY LD. CIT(A) THAT SINCE THE WRITE OFF IS SUPPORTED BY THE REPORT OF VARIOUS TECHNICAL COMMITTEES/PERSONNEL, THE SAME IS TO BE A LLOWED BUT IT CANNOT BE RULED OUT THAT SPARES OF THE MACHINERY COULD NOT BE HAVING ANY VALUE INCLUDING SCRAP VALUE. HE HELD THAT 25% OF THE TOT AL AMOUNT SHOULD BE CONSIDERED AS SCRAP VALUE AND TO THIS EXTENT, THE D ISALLOWANCE SHOULD BE CONFIRMED. NOW, THE ASSESSEE IS IN FURTHER APPEAL FOR 25% DISALLOWANCE CONFIRMED BY LD. CIT(A) AND THE REVENUE IS IN APPEA L FOR 75% DISALLOWANCE DELETED BY LD. CIT(A). 3.4.2 IT WAS SUBMITTED BY THE LD. A.R. THAT SCRAP V ALUE WILL BE ACCOUNTED FOR AND OFFERED TO TAX AS AND WHEN REALIZED. LD. D .R. SPORTED THE ASSESSMENT ORDER. 3.4.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT IN THE FACTS AND CIRCUMSTANCE OF THE PRESENT C ASE, WRITING OFF OF THE VALUE OF CLOSING STOCK SHOULD BE ALLOWED TO THE EXT ENT IT BRINGS THE VALUE OF CLOSING STOCK AT LEVEL WITH COST OR MARKET PRICE WHICHEVER IS LOWER. THE MARKET PRICE OF OBSOLETE ITEMS OF STOCK WILL BE DEFINITELY VERY LOW THAN ITS COST. AT THE SAME TIME, IT IS NOT ACCEPTA BLE THAT THE VALUE OF SUCH I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 16 OBSOLETE ITEMS WILL BE NIL. NOW, THE QUESTION IS WHAT CAN BE THE SCRAP VALUE OF SUCH OBSOLETE ITEMS. LD. CIT(A) HAS CONSI DERED THE SAME @ 25% OF THE COST. IN OUR CONSIDERED OPINION, THE SA ME IS REASONABLE. REGARDING THE SUBMISSIONS OF THE LD. A.R. THAT SCRA P VALUE WILL BE DECLARED AND OFFERED TO TAX WHEN SOLD, WE WOULD LIK E TO OBSERVE THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND HENCE, SCRAP VALUE HAS TO BE CONSIDERED IN THE PRESENT YEAR ITSE LF AND IT COULD NOT BE DEFERRED TILL THE ACTUAL SALE OF SCRAP. NEEDLESS T O SAY, THE SCRAP VALUE OF STOCK HAS TO BE CONSIDERED AS OPENING STOCK IN THE YEAR OF SALE AND WE HOLD ACCORDINGLY. THIS GROUND OF THE ASSESSEE AS W ELL AS THE REVENUE IS REJECTED. 3.5 GROUND NO.4 OF THE ASSESSEES APPEAL IS REGARDI NG CONFIRMATION OF DISALLOWANCE OF RS.56459076/- IN RESPECT OF DEPRECI ATION CLAIMED ON ASSETS LEASED TO GSRTC AND GEB. 3.5.1 IT WAS AGREED BY BOTH THE SIDES THAT THIS ISS UE IS TO BE DECIDED BY FOLLOWING THE DECISION OF SPECIAL BENCH OF THE TRIB UNAL RENDERED IN THE CASE OF INDUSIND BANK LTD. (SUPRA) AS SUBMITTED IN THE COURSE OF ARGUMENTS FOR GROUND NO.1 OF THE ASSESSEES APPEAL IN ASSESSMENT YEAR 2000-01. IN THAT YEAR, WE HAVE HELD THAT THE CLAIM OF THE ASSESSEE REGARDING DEPRECIATION HAS TO BE DISALLOWED BUT AS PER THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL, OUT OF LEASE RENTAL RECEIVED BY THE ASSESSEE, ONLY INTEREST PORTION HAS TO BE CONSIDERED AS INCOM E AS HAS BEEN HELD BY SPECIAL BENCH OF THE TRIBUNAL IN THAT CASE. IN THA T YEAR, SINCE THE ORDER OF LD. CIT(A) WAS ON THE SAME LINES AS HELD BY THE SPE CIAL BENCH OF THE TRIBUNAL, THIS GROUND OF ASSESSEE WAS REJECTED IN T HAT YEAR. SINCE, BOTH THE SIDES AGREED THAT THE FACTS ARE IDENTICAL IN TH IS YEAR, WE REJECT THIS GROUND OF THE ASSESSEE IN THIS YEAR ALSO. I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 17 3.6 GROUND NO.5 IS REGARDING INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. SINCE THIS IS A PREMATURE GR OUND RAISED BY THE ASSESSEE, THE SAME IS REJECTED. 3.7 GROUND NO.6 IS REGARDING CHARGING OF INTEREST U /S 234B AND 234C OF THE INCOME TAX ACT, 1961. THIS ISSUE IS CONSEQU ENTIAL AND HELD ACCORDINGLY. 3.8 IN THE RESULT, THIS APPEAL OF THE ASSESSEE STAN DS PARTLY ALLOWED. 4. NOW, WE DECIDE THE REMAINING GROUNDS OF THE REVE NUES APPEAL FOR ASSESSMENT YEAR 2001-02 IN I.T.A.NO. 402/AHD/2005. 4.1 GROUND NO.1 IS REGARDING DELETION OF DISALLOWAN CE OF RS.5 LACS BEING DEPRECIATION ON MULTIMODAL PROJECT AT AMBAJI. 4.2 IT WAS SUBMITTED BY THE LD. A.R. THAT THIS ISSU E IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL DECISION IN ASSESSE ES OWN CASE FOR THE ASSESSMENT YEAR 1998-99 AND 1999-2000 IN I.T.A.NO. 1392 AND 1422/AHD/2003. HE FURTHER SUBMITTED THAT THE RELEV ANT PORTION OF THIS TRIBUNAL ORDER IS AT PARA 19-23 WHICH ARE AVAILABLE ON PAGE 81-82 OF THE DECISION PAPER BOOK. HE FURTHER SUBMITTED THAT THI S TRIBUNAL ORDER WAS FOLLOWED BY THE TRIBUNAL IN ASSESSMENT YEAR 1997-98 IN I.T.A.NO. 2728/AHD/2000 AND THE RELEVANT DISCUSSION IS IN PAR A 84 OF THE TRIBUNAL ORDER ON PAGE 76 OF THE DECISION PAPER BOOK. 4.2.1 LD. D.R. OF THE REVENUE ALTHOUGH SUPPORTED TH E ORDER OF THE A.O. BUT HE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS IN THE PRESENT YEAR AS COMPARED TO EARLIER THREE YEARS FOR WHICH THE TRIBU NAL DECISION HAD BEEN CITED BY THE LD. A.R. HENCE, WE DO NOT FIND ANY RE ASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND OF THE REVENUE IS REJECTED. 4.3 GROUND NO.2 OF THE REVENUES APPEAL IS REGARDIN G DELETION OF DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.4147429 /-. I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 18 4.3.1 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHERE AS THE LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). HE FURTHER SUBM ITTED THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUN AL DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1990-91 IN I.T.A.NO. 3232/AHD/1996 AND THE RELEVANT PARA OF THIS TRIBUNA L DECISION ARE PARA 14- 15 ON PAGE 6 OF THE PAPER BOOK. 4.3.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE DECISION CITED BY THE LD. A.R. WE FIND THAT IN ASS ESSMENT YEAR 1990-91, IT IS OBSERVED BY THE TRIBUNAL IN PARA 15 OF THE TR IBUNAL ORDER THAT THE LIABILITY HAS CRYSTELISED DURING THE YEAR UNDER CON SIDERATION AND THERE IS NO DISPUTE ON THIS FACT THAT ON THIS BASIS OF ORDER OF LD. CIT(A) WAS UPHELD BY THE TRIBUNAL IN THAT YEAR. IN THE PRESEN T YEAR, NO FINDING IS GIVEN BY LD. CIT(A) AS TO WHETHER THE EXPENSES IN Q UESTION HAVE UTILIZED DURING THIS YEAR OR NOT. IT IS FURTHER NOTED BY LD . CIT(A) ON PAGE 4 OF HIS ORDER THAT THE A.O. HAS NOT GIVEN THIS FINDING THAT THE EXPENSE DID NOT CRYSTELISE DURING THE PRESENT YEAR. THEREFORE, IN OUR CONSIDERED OPINION, THIS FACT HAS TO BE BROUGHT OUT ON RECORD AS TO WHE THER THE EXPENSES IN QUESTION HAVE CRYSTELISED DURING THIS YEAR AND IF T HE ASSESSEE IS ABLE TO DO SO, NO DISALLOWANCE SHOULD BE MADE. THE A.O. SHOUL D PASS NECESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION AFTER PROV IDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO.2 OF THE REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 4.3 GROUND NO.3 OF THE REVENUES APPEAL IS REGARDIN G DELETION OF ADDITION OF RS.5827429/- IN RESPECT OF BONUS AND RO YALTY. LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 19 4.3.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS P ER THE FOLLOWING PARA ON PAGES 4-5 OF HIS ORDER WHICH IS REPRODUCED BELOW : GROUND NO. 5: THIS RELATES TO AD DITION OF RS.58,27,429/- (RS. 25,65,772/- ON ACCOUNT OF BONU S AND RS.32,61,656/- ON ACCOUNT OF ROYALTY). THIS HAS B EEN DISCUSSED BY THE ASSESSING OFFICER IN PARA 3F, AGE. 6 OF THE ASS ESSMENT ORDER. THE ASSESSING OFFICER HAS STATED THAT SINCE THE EXP ENSES HAVE NOT BEEN PROVED IN THE BOOKS OF ACCOUNTS, THE DEDUCTION S CANNOT BE ALLOWED. ON THE OTHER HAND, ASSESSEE'S REPRESENTATI VE SHRI SHAH HAS STATED THAT THE LIABILITY FOR BONUS AND ROYALTY WAS REALIZED AND CRYSTALLIZED DURING THE ACCOUNTING PERIOD ENDING 31 /03/2001 WHICH IS NOT DISPUTED BY THE ASSESSING OFFICER. THE DISAL LOWANCE HAS BEEN MADE ON THE GROUND THAT THE LIABILITY HAS NOT BEEN PROVIDED IN THE BOOKS OF ACCOUNTS FOR THE YEAR 2000-01. HAVING REGARD TO THE DECISION OF KEDARNATH JUTE MANUFACTURING CO. LTD VS CIT OF THE SUPREME COURT (82 ITR 363) I AM INCLINED TO ACCEPT THE ARGUMENT OF THE ASSESSEE THAT IF LIABILITY IS CRYSTALLIZED D URING THE YEAR, THE SAME IS ALLOWABLE EVEN IF NOT CLAIMED IN THE BOOKS OF ACCOUNTS. THE FACT THAT THE LIABILITY OR EXPENSES ARE COVERED U/S. 43B, THE DISALLOWANCES ALSO CANNOT BE UPHELD SINCE THE LIABI LITY HAS BEEN FILED BEFORE FILING OF RETURN OF INCOME WITHIN THE PRESCRIBED PERIOD AND THE REFERENCE WAS MADE TO THE ASSESSING OFFICER VIDE LETTER DTD. 23/02/2004 WHEREBY PROOF OF PAYMENT HAD ALSO B EEN ATTACHED. A COPY OF THE SAME HAS ALSO BEEN FURNISHED TO ME, A T PAGE 40 OF THE PAPER BOOK. IN VIEW OF THE ABOVE FACTS, THE EXP ENSES CANNOT BE HELD EVEN U/S. 43B OF THE ACT AND THE ADDITION/ MAD E THEREFORE CANNOT BE SUSTAINED AND ACCORDINGLY DELETED. 4.3.2 FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A ), WE FIND THAT LD. CIT(A) HAS GIVEN THIS FINDING THAT AS PER THE PROVI SIONS OF SECTION 43B, DEDUCTION HAS TO BE ALLOWED WITH REGARD TO THESE EX PENSES BECAUSE THE PAYMENT WAS MADE BEFORE THE DUE DATE OF FILING OF R ETURN OF INCOME. UNDER THESE FACTS, WE DO NOT FIND ANY REASON TO INT ERFERE IN THE ORDER OF I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 20 LD. CIT(A) ON THIS ISSUE. HENCE, THIS GROUND OF TH E REVENUE IS ALSO REJECTED. 4.4 GROUND NO.4 OF THE REVENUE HAS BEEN ALREADY DEC IDED WHILE DECIDING GROUND NO.3 OF THE ASSESSEES APPEAL ABOVE . 4.5 THERE IS NO OTHER GERUND OF THE REVENUES APPEA L. IN THE RESULT, APPEAL OF THE REVENUE STANDS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. 5. NOW, WE TAKE THE CROSS APPEALS OF THE ASSESSEE A ND THE REVENUE FOR ASSESSMENT YEAR 2002-03 IN I.T.A.NO. 1114/AHD/2006 (ASSESSEES APPEAL) AND I.T.A.NO. 1036/AHD/2006 (REVENUES APPEAL). 5.1 THE FIRST GROUND RAISED BY THE ASSESSEE IS REGA RDING CONFIRMATION OF DISALLOWANCE OF RS.9658220/- MADE ON ACCOUNT OF EXP ENSES RELATING TO AKRI MOTA PROJECT WHICH INCLUDE FINANCIAL CHARGES O F RS.6.63 CRORES. IT WAS AGREED BY BOTH THE SIDES THAT THIS ISSUE IS IDE NTICAL TO GROUND NO. 1(B) IN ASSESSMENT YEAR 2001-02 AND THE SAME CAN BE DECI DED ON SIMILAR LINES. IN THAT YEAR, THIS ISSUE HAS BEEN DECIDED BY US AGA INST THE ASSESSEE AS PER PARA 3.2.3 ABOVE AND ACCORDINGLY IN THE PRESENT YEA R ALSO, THIS GROUND OF THE ASSESSEE IS REJECTED. 5.2 GROUND NO.2 OF THE ASSESSEES APPEAL IS REGARDI NG CONFIRMATION OF ADDITION OF RS.242000/- IN RESPECT OF SALARY TO STA FF. 5.2.1 REGARDING THIS ISSUE ALSO, IT WAS AGREED BY B OTH THE SIDE THAT THIS ISSUE IS IDENTICAL TO GROUND NO.2 IN ASSESSEES APP EAL FOR ASSESSMENT YEAR 2001-02 AND IT CAN BE DECIDED ON SIMILAR LINES. IN THAT YEAR, THIS ISSUE WAS DECIDED BY US IN FAVOUR OF THE ASSESSEE AS PER PARA 3.3.3 ABOVE AND ACCORDINGLY, IN THE PRESENT YEAR ALSO, THIS ISSUE I S DECIDED IN FAVOUR OF THE ASSESSEE. THIS GROUND IS ALLOWED. 5.3 GROUND NO.3 OF ASSESSEES APPEAL IS REGARDING C ONFIRMATION OF DISALLOWANCE OF RS.82,049/- IN RESPECT OF OBSOLETE STOCK/STORES AND I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 21 CONNECTED ISSUE IN REVENUES APPEAL IS GROUND NO.4 AS PER WHICH THE REVENUE IS AGGRIEVED REGARDING THE ORDER OF LD. CIT (A) AS PER WHICH HE RESTRICTED THE ADDITION MADE ON ACCOUNT OF OBSOLETE STOCK TO RS.82049/-. 5.3.1 IT WAS AGREED BY BOTH THE SIDES THAT THIS ISS UE IS IDENTICAL TO GROUND NO.3 OF THE ASSESSEES APPEAL IN ASSESSMENT YEAR 20 01-02 AND GROUND NO.4 OF THE REVENUES APPEAL IN THAT YEAR. 5.3.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT IN THE ASSESSMENT YEAR 2001-02, WE HAVE CONFIR MED THE ORDER OF LD. CIT(A) ON THIS ISSUE AND THE GROUNDS OF THE ASSESSE E AS WELL AS OF THE REVENUE WERE REJECTED. IN THAT YEAR, DISALLOWANCE WAS CONFIRMED BY LD. CIT(A) TO THE EXTENT OF 25% OF THE TOTAL CLAIM OF T HE ASSESSEE FOR PROVISION ON ACCOUNT OF OBSOLETE STOCK/STORES. IN THE PRESENT YEAR ALSO, LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE TO THE EX TENT OF 25% OF THE TOTAL CLAIM AS IN ASSESSMENT YEAR 2001-02 AND HENCE , AS PER OUR DECISION FOR ASSESSMENT YEAR 2001-02 AS PER PARA 3.4.3 ABOVE , IN THE PRESENT YEAR ALSO, GROUND NO.3 OF THE ASSESSEES APPEAL AS WELL AS GROUND NO.4 OF THE REVENUES APPEAL ARE REJECTED. 5.4 GROUND NO.4 OF THE ASSESSEES APPEAL IS REGARDI NG CONFIRMING DISALLOWANCE OF RS.33473931/- IN RESPECT OF DEPRECI ATION CLAIMED ON ASSETS LEASED TO GSRTC AND GEB. BOTH THE SIDES AGR EED HAT THIS ISSUE IS IDENTICAL TO GROUND NO.4 IN ASSESSEES APPEAL FOR T HE ASSESSMENT YEAR 2001-02 AND THE SAME CAN BE DECIDED ON SIMILAR LINE S. IN THAT YEAR, AS PER PARA 3.5.1 ABOVE, WE HAVE HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEPRECIATION AND THE LEASE RENTAL INCOME CANNOT BE TAXED IN FULL AND ONLY THE INTEREST PORTION OF SUCH LEASE RENTAL INCOME AF TER DEDUCING PRINCIPAL I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 22 PORTION OF THE SAME HAS TO BE TAXED. SINCE, THE OR DER OF LD. CIT(A) IS ON SIMILAR LINES, WE CONFIRM THE SAME. THIS GROUND IS REJECTED. 5.5 GROUND NO.5 OF THE ASSESSEES APPEAL IS REGARDI NG CONFIRMING DISALLOWANCE OF DEPRECIATION CLAIMED OF RS.343800/- ON ASSETS USED IN MATA NO MADH PROJECT AND RS.4358210/- ON ASSETS USE D IN AKRI MOTA POWER PROJECT. 5.5.1 IT WAS SUBMITTED BY THE LD. A.R. THAT THE ASS ETS WERE USED IN IMPLEMENTATION OF THESE TWO PROJECTS AND, THEREFORE , THE CLAIM OF THE ASSESSEE REGARDING DEPRECIATION IS ALLOWABLE. AS A GAINST THIS, LD. D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5.5.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. REGARDING THE CLAIM OF THE ASSESSEE IN RESPECT OF DEPRECIATIO N CLAIMED OFRS.343800/- ON THE ASSETS USED IN MATA NO MADH PROJECT, WE ARE OF THE CONSIDERED OPINION THAT THE EXPENSES INCURRED FOR THIS PROJECT WERE ALLOWED AS REVENUE EXPENDITURE IN EARLIER YEAR INCLUDED DEPREC ATION ON THOSE ASSET WHICH WERE USED IN THE IMPLEMENTATION OF THIS PROJE CTS AND, THEREFORE, IN THE PRESENT YEAR ALSO, THE SAME IS ALLOWABLE. REGA RDING THE DEPRECIATION CLAIMED ON THE ASSETS USED IN AKRI MOTA POWER PROJE CT, WE ARE OF THE CONSIDERED OPINION THAT SINCE THE EXPENSES INCURRED IN RESPECT OF AKRI MOTA PROJECT WERE NOT ALLOWABLE BY US IN THE EARLIE R YEAR, THE CLAIM OF DEPRECATION ON THOSE ASSETS WHICH WERE USED DURING IMPLEMENTATION OF AKRI MOTA POWER PROJECT IS NOT ALLOWED AS REVENUE E XPENDITURE AND THE SAME HAVE TO BE INCLUDED IN PREOPERATIVE EXPENSES O F AKRI MOTA POWER PROJECT. WE HOLD ACCORDINGLY. THIS GROUND IS PART LY ALLOWED. 5.6 GROUND NO.6 OF THE ASSESSEES APPEAL IS REGARDI NG DISALLOWANCE OF RS.43,81,470/- CLAIMED AS PRIOR PERIOD EXPENSES. I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 23 5.6.1 IT WAS SUBMITTED BY THE LD. A.R. THAT THIS IS SUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER IN THE ASSESS EES OWN CASE FOR THE ASSESSMENT YEAR 1990-91 IN I.T.A.NO. 3232/AHD/1996. HE FURTHER SUBMITTED THAT THE RELEVANT DISCUSSION IS IN PARA 1 4-15 OF THE TRIBUNAL ORDER WHICH CAN BE SEEN ON PAGE 6 OF THE DECISION P APER BOOK. LD. D.R. SUBMITTED THAT THE ASSESSEE COULD NOT ESTABLISH THA T THE EXPENSES HAVE CRYSTALLIZED DURING THE PRESENT YEAR AND, THEREFORE , THIS GROUND SHOULD BE REJECTED. 5.6.2 THE CONNECTING GROUND IN REVENUES APPEAL IS GROUND NO.3 AS PER WHICH REVENUE IS AGGRIEVED REGARDING DELETION OF DI SALLOWANCE OF PRIOR PERIOD EXPENSE OF RS.43,81,470/-. 5.6.3 WHILE DECIDING THIS ISSUE, LD. CIT(A) HAD EX PLAINED REGARDING EACH AND EVERY EXPENSES AND WHERE ASSESSEE COULD ES TABLISH THAT THE EXPENDITURE HAD CRYSTALLIZED IN THIS YEAR, HE HAS A LLOWED DEDUCTION AND WHERE HE FOUND THAT ASSESSEE COULD NOT ESTABLISH TH AT THE EXPENDITURE HAS CRYSTALLIZED IN THIS YEAR, HE HAS CONFIRMED THIS DI SALLOWANCE. IN THE TRIBUNAL ORDER FOR ASSESSMENT YEAR 1990-91, THE DIS ALLOWANCE WAS DELETED BY THE TRIBUNAL ON THIS BASIS THAT THE EXPENSES IN QUESTION HAD CRYSTALLIZED DURING THE RELEVANT YEAR. IN THE LIGHT OF THE FACT S OF THE PRESENT CASE, WE FEEL THAT THE ORDER OF LD. CIT(A) IN THE PRESENT YE AR IS IN LINE WITH THE TRIBUNAL ORDER IN ASSESSMENT YEAR 1990-91 AND HENCE , NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT(A) ON THIS ISSUE . THIS GROUND NO.6 OF THE ASSESSEES APPEAL AS WELL AS GROUND NO.3 OF REV ENUES APPEAL ARE REJECTED. 5.7 GROUND NO.7 OF THE ASSESSEES APPEAL IS REGARDI NG CONFIRMATION OF DISALLOWANCE OF RS.30,19,123/- UNDER THE HEARD INT EREST ON SHARE LOAN WRITTEN OFF. I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 24 5.7.1 THE BRIEF FACTS OF THE CASE ARE THAT IT IS NO TED BY LD. CIT(A) ON PAGE 7 OF HIS ORDER THAT THE A.O. MADE ADDITION OF RS.30,19,123/- BY REJECTING THE CLAIM OF INTEREST ON SHARE LOAN WRITT EN OFF. BEFORE LD. CIT(A), IT WAS SUBMITTED BY THE LD. A.R. THAT AT TH E TIME OF INVESTMENT OF SHARES OF THE COMPANY BY STAFF MEMBERS OF THE COMPA NY THEY WERE PROVIDED LOAN FOR SUBSCRIBING 200 SHARES OF THE COM PANY. IT WAS ALSO SUBMITTED THAT THE INTEREST CHARGED ON SUCH LOAN WA S ALREADY OFFERED FOR TAXATION. BUT AT A LATER STAGE, CONSIDERING THE RE PRESENTATION MADE BY GMDC AND TO MAINTAIN CORDIAL RELATIONS WITH THE EMP LOYEES, IT WAS DECIDED TO WAIVE THE INTEREST TO THE EXTENT OF RS.3 0,19,123/- AND SUCH WAIVER IS DEBITED TO P & L ACCOUNT. LD. CIT(A) WAS NOT SATISFIED AND HE CONFIRMED THE DISALLOWANCE. NOW, THE ASSESSEE IS I N FURTHER APPEAL BEFORE US. 5.7.2 IT IS SUBMITTED BY THE LD. A.R. THAT THE PRE SENT CLAIM OF THE ASSESSEE IS EQUIVALENT TO BAD DEBT WRITTEN OFF BECA USE INCOME ON ACCOUNT OF INTEREST ON LOAN TO STAFF WAS ACCOUNTED FOR AS I NCOME AND IN THE PRESENT YEAR THE SAME WAS WRITTEN OFF AND THIS IS NOT IN DI SPUTE. THEREFORE, DEDUCTION SHOULD BE ALLOWED. LD. D.R. SUPPORTED TH E ORDERS OF AUTHORITIES BELOW. 5.7.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THIS IS NOT IN DISPUTE THAT INTEREST ON SHARE LOAN TO STAFF WAS OFFERED TO TAX BY THE ASSESSEE IN THE EARLIER YEAR AND THE SAM E WAS WRITTEN OFF IN THE PRESENT YEAR. ONCE THESE TWO ASPECTS ARE ADMITTED, THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY LD. CIT(A) IS NOT JUSTIFIED. WE, THEREFORE, DELETE THE SAME. THIS GROUND IS ALLOWED . I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 25 5.8 GROUND NO.8 OF THE ASSESSEES APPEAL IS REGARDI NG CONFIRMATION OF ADDITION OF RS.1,77,663/- ON MATA NO MADH PROJECT A ND RS.47,10,091/- ON AKRI MOTA POWER PROJECT ON ACCOUNT OF MISCELLANE OUS RECEIPTS. 5.8.1 LD. A.R. PLACED RELIANCE ON THE JUDGMENT OF H ONBLE APEX COURT RENDERED IN THE CASE OF CIT VS BOKARO STEEL LTD. A S REPORTED IN 236 ITR 315 (S.C.) AND BONGAIGAON REFINERY AND PETROCHEMIC ALS LTD. VS CIT AS REPORTED IN 251 ITR 329 (S.C.). LD. D.R. SUPPORTED THE ORDER OF LD. CIT(A). 5.8.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE JUDGEMENTS CITED BY THE LD. A.R. WE FIND THAT LD. CIT(A) HAS FOLLOWED THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF TUTICORIN ALKALI & CHEMICALS LTD. AS REPORTED IN 227 ITR 172 (S.C.). IN THE CASE OF BOKARO STEELS LTD. (SUPRA) AND IN THE CASE OF BONGA IGAON REFINERY AND PETROCHEMICALS LTD. (SUPRA), THIS JUDGMENT OF HONB LE APEX COURT RENDERED IN THE CASE OF TUTICORIN ALKALI & CHEMICAL S LTD. (SUPRA) WAS DULY CONSIDERED AND IT WAS HELD THAT WHEN THE INCOM E EARNED IS DIRECTLY CONNECTED AND INCIDENTAL TO CONSTRUCTION OF THE PLA NT BY THE ASSESSEE, THE SAME IS CAPITAL RECEIPT AND NOT INCOME OF THE ASSES SEE FROM ANY INDEPENDENT SOURCE. IN THE PRESENT CASE, WE FIND T HAT WHEN THE A.O. MADE THIS ADDITION, THERE IS NO DISCUSSION AS TO WH ETHER THESE TWO INCOMES WERE DIRECTLY CONNECTED OR INCIDENTAL TO CO NSTRUCTION OF PLANT BY THE ASSESSEE OR NOT. IN THE ORDER OF LD. CIT(A) AL SO, THERE IS NO FINDING ON THIS ASPECT OF THE MATTER. BEFORE US ALSO, ALTH OUGH RELIANCE WAS PLACED BY THE LD. A.R. ON THESE TWO JUDGEMENTS OF HONBLE APEX COURT BUT THIS FACT IS NOT AVAILABLE ON RECORD AS TO WHETHER THE I NCOME IN QUESTION WERE DIRECTLY CONNECTED AND INCIDENTAL TO CONSTRUCTION O F PLANT BY THE ASSESSEE I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 26 OR NOT. UNDER THESE FACTS, AND IN THE INTEREST OF JUSTICE, WE FEEL THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION IN THE LIGHT OF THESE TWO JUDGEMENTS OF HONBLE APEX COURT RELIE D UPON BY THE LD. A.R. BEFORE US. HENCE, WE SET ASIDE THE ORDER OF L D. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION IN THE LIGHT OF ABOVE DISCUSSION AFTER PROVIDING ADEQU ATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF THE AS SESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5.9 THE NEXT GROUND OF ASSESSEES APPEAL IS REGARDI NG INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THIS GROUND IS PREMATURE AND HENCE, REJECTED ACCORDINGLY. 5.10 THE LAST GROUND IS REGARDING CHARGING OF INTER EST U/S 234B AND 234C OF THE INCOME TAX ACT, 1961. SINCE THIS IS CO NSEQUENTIAL ISSUE, NO ADJUDICATION IS CALLED FOR. 5.11 IN THE RESULT, APPEAL OF THE ASSESSEE STANDS P ARTLY ALLOWED. 6. NOW, WE TAKE UP THE REMAINING ISSUES AS PER THE APPEAL OF THE REVENUE. 6.1 GROUND NO.1 IS REGARDING DELETION OF DISALLOWAN CES OF RS.37,92,357/- DEBITED UNDER THE HEAD PROJECT EXPEN SES OF MATA NO MADH. 6.2 IT WAS AGREED BY BOTH THE SIDES THAT THIS ISSUE IS IDENTICAL TO GROUND NO.1(A) OF THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2001-02 AND THE SAME CAN BE DECIDED ON SIMILAR LINES. IN THAT YEAR , AS PER PARA 3.1 ABOVE, WE HAVE DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSE E. ACCORDINGLY, IN THE PRESENT YEAR ALSO, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THIS GROUND IS REJECTED. I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 27 6.3 GROUND NO.2 OF THE REVENUES APPEAL IS REGARDIN G DELETION OF DISALLOWANCE OF RS.5 LACS BEING DISCOUNT ON MULTIMO DAL PROJECT AMBAJI. 6.3.1 BOTH THE SIDES AGREED THAT THIS ISSUE IS IDEN TICAL TO GROUND NO. 1 OF THE ASSESSEES APPEAL IN ASSESSMENT YEAR 2001-02 AN D THE SAME CAN BE DECIDED ON SIMILAR LINES. IN THAT YEAR, THIS ISSUE WAS DECIDED BY US IN FAVOUR OF THE ASSESSEE AS PER PARA 3.2.3 ABOVE. AC CORDINGLY, IN THE PRESENT YEAR ALSO, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NO.2 OF THE REVENUES APPEAL IS REJECTED. 6.4 GROUNDS NO.3 & 4 OF THE REVENUES APPEAL ARE AL READY DECIDED BY US ALONG WITH THE CONNECTED GROUNDS OF THE ASSESSEE S APPEAL. 6.5 GROUNDS NO.5 & 6 ARE GENERAL. 6.6 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. 7. NOW, WE TAKE UP THE CROSS APPEALS OF THE REVENUE IN I.T.A.NO. 1182/AHD/2007 AND THE ASSESSEE IN I.T.A.NO. 1244/AH D/2007 FOR THE ASSESSMENT YEAR 2000-01, WHICH ARE DIRECTED AGAINST THE ORE OF LD. CIT(A) VI, AHMEDABAD DATED 26.12.2006 IN RESPECT OF PENALTY IMPOSED BY THE A.O. U/S 271(1)(C) WHICH WAS PARTLY DELETED BY LD. CIT(A) AS PER THE IMPUGNED ORDER. 7.1 AT THE VERY OUTSET, IT WAS SUBMITTED BY THE LD. A.R. THAT AFTER THE APPEAL EFFECT ORDER PASSED BY THE A.O. ON 31.01.200 7, WHICH IS AVAILABLE ON PAGES 30-31 OF THE RELEVANT PAPER BOOK, THE ASSE SSED INCOME OF THE ASSESSEE STANDS AT RS.780811972/-. HE FURTHER SUBM ITTED THAT AS PER THE ORIGINAL ASSESSMENT ORDER PASSED BY THE A.O. ON 24. 03.2003, COPY OF WHICH IS AVAILABLE ON PAGES 8-16 OF THE PAPER BOOK, IT CAN BE SEEN THAT THE RETURN OF INCOME WAS FILED BY THE ASSESSEE DECLARIN G TOTAL INCOME AT RS.882773178/-. HE SUBMITTED THAT AS PER THE APPEA L EFFECT ORDER DATED 31.01.2007, THE ASSESSED INCOME IS LOWER THAN THE R ETURNED INCOME AND I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 28 THEREFORE, NO PENALTY IS JUSTIFIED. CONSIDERING TH ESE FACTS, WE HOLD THAT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WH EN THE ULTIMATE INCOME ASSESSED AS PER THE APPEAL EFFECT ORDER PASSED BY T HE A.O. IS AT LOWER AMOUNT AS COMPARED TO THE INCOME DECLARED BY THE AS SESSEE IN THE RETURN OF INCOME, NO PENALTY U/S 271(1)(C) IS JUSTIFIED. WE HOLD ACCORDINGLY. 7.2 IN THE RESULT, APPEAL OF THE ASSESSEE STANDS AL LOWED AND THE APPEAL OF THE REVENUE STANDS DISMISSED. 8. NOW WE TAKEN UP THE CROSS APPEALS FIELD BY THE A SSESSEE AND THE REVENUE FOR THE ASSESSMENT YEAR 2001-02 IN I.T.A.NO . 1245/AHD/2007 AND 1184/AHD/2007 DIRECTED AGAINST THE ORDER OF LD. CIT(A) VI, AHMEDABAD DATED 26.12.2006 IN THE COURSE OF PENALTY PROCEEDINGS. 8.1 AT THE VERY OUTSET, IT WAS SUBMITTED BY THE LD. A.R. THAT IN THIS YEAR ALSO, ULTIMATELY THE ASSESSED INCOME IS LOWER THAN THE RETURNED INCOME AND THEREFORE, NO PENALTY IS JUSTIFIED. 8.2 REGARDING THE ULTIMATELY ASSESSED INCOME, IT IS SUBMITTED THAT THE APPEAL EFFECT ORDER PASSED BY THE A.O. FOR THIS YEA R IS DATED 31.01.2007 AND THE SAME IS AVAILABLE ON PAGE 66 OF THE RELEVAN T PAPER BOOK AS PER WHICH THE TOTAL INCOME WAS DETERMINED AT RS.110.57 LACS. HE FURTHER SUBMITTED THAT COPY OF THE ORIGINAL ASSESSMENT ORDE R DATED 26.02.2004 IS AVAILABLE ON PAGES 31-43 OF THE PAPER BOOK AND ON T HE 1 ST PAGE OF THE ASSESSMENT ORDER, IT IS NOTED BY THE A.O. THAT IN T HE RETURN OF INCOME FILED BY THE ASSESSEE ON 29.10.2001, THE INCOME WAS DECLA RED AT RS.126.52 LACS. HE SUBMITTED THAT ULTIMATELY ASSESSED INCOME IS LOWER THAN THE RETURNED INCOME AND, THEREFORE, IN THIS YEAR ALSO, PENALTY U/S 271(1)(C) IS NOT JUSTIFIED. CONSIDERING THIS FACT THAT THE ULTI MATELY THE ASSESSED INCOME AS PER THE APPEAL EFFECT ORDER PASSED BY THE A.O. ON 31.01.2007 I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 29 FOR THIS YEAR ALSO IS LOWER THAN THE RETURNED INCOM E, WE HOLD THAT NO PENALTY IS JUSTIFIED IN THE FACTS OF THE PRESENT CA SE U/S 271(1)(C) OF THE ACT. 8.3 IN THE RESULT, APPEAL OF THE ASSESSEE FOR THIS YEAR IS ALSO ALLOWED AND THE APPEAL OF THE REVENUE FOR THIS YEAR IS ALSO DIS MISSED. 9. NOW, THE REMAINING APPEAL IS REVENUES APPEAL FO R THE ASSESSMENT YEAR 2002-03 IN I.T.A.NO. 4483/AHD/2007. THE GROUN DS RAISED BY THE REVENUE ARE AS UNDER: 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS O F THE CASE IN DELETING THE PENALTY OF RS.3,44,79,852/- LEVIED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 AFTER HOLDING THAT NO PENALTY U/S 271(1(C) WAS LEVIABLE IN RESPECT OF DISALLOWANCE OF PROJECT EXPENSES OF AKRI MOTA POWER PROJECT OF RS.9,65,82,220/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. 3. IT IS, THEREFORE, PRAYED THAT HE ORDER OF LD. C IT(A) MAY BE CANCELLED AND THAT OF THE A.O. MAY BE RESTORED TO T HE ABOVE EFFECT. 9.1 LD. D.R. SUPPORTED THE PENALTY ORDER. IT WAS S UBMITTED BY THE LD. A.R. THAT THE QUANTUM APPEAL OF THE ASSESSEE FOR TH IS YEAR IS ALSO HEARD ON THE SAME DAY IN WHICH ASSESSEE HAS RAISED A GROUND REGARDING DISALLOWANCE OF PROJECT EXPENSES OF AKRI MOTA POWER PROJECT OF RS.96582220/-. HE SUBMITTED THAT IF THE DISALLOWAN CE IS DELETED THEN NO PENALTY CAN BE LEVIABLE. HE ALSO SUBMITTED THAT EV EN IF THE DISALLOWANCE IS CONFIRMED THEN ALSO PENALTY IS NOT JUSTIFIABLE B ECAUSE THIS IS HELD BY LD. CIT(A) THAT THE DISALLOWANCE IS MERELY A REJECTION OF DEBATABLE CLAIM AND THE ASSESSEE HAD MADE FULL DISCLOSURE IN THE RETURN OF INCOME. HE SUPPORTED THE ORDER OF LD. CIT(A). 9.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE WOULD LIKE TO OBSERVE THAT WHILE DECIDING THE QUANTUM APP EAL OF THE ASSESSEE FOR THIS YEAR, THIS DISALLOWANCE WAS CONFIRMED BY US AS PER PARA 3.2.4 ABOVE I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 30 BUT STILL WE FEEL THAT THE PENALTY IS NOT JUSTIFIED . THE ISSUE REGARDING PENALTY WAS DECIDED BY LD. CIT(A) AS PER PARA 5.10 OF THE IMPUGNED ORDER WHICH IS REPRODUCED BELOW: 5.10 IN VIEW OF THE ABOVE FACTS AND RELYING ON TH E RATIO OF THE ABOVE CITED CASE LAWS AND FOLLOWING THE ORDER OF CI T(A)-VI FOR THE EARLIER YEAR AND CONSIDERING THE FACT THAT THE APPE LLANT HAD MADE FULL DISCLOSURE IN BOTH THE RETURNS OF INCOME, BOTH ORIGINAL AND REVISED AND IT IS ONLY A REJECTION OF DEBATABLE CLA IM, I HOLD THAT IN THE PRESENT CASE, THERE IS NO JUSTIFICATION FOR LEV Y OF CONCEALMENT PENALTY. ACCORDINGLY, THE PENALTY LEVIED IS DELETE D. 9.3 FROM THE ABOVE PARA OF THE ORDER OF LD. CIT(A), IT IS SEEN THAT A CLEAR FINDING IS GIVEN BY LD. CIT(A) THAT THE ASSES SEE HAS MADE FULL DISCLOSURE IN THE RETURN OF INCOME BOTH ORIGINAL AN D THE REVISED AND IT IS ONLY A REJECTION OF DEBATABLE CLAIM. THIS IS BY NO W, A SETTLED POSITION OF LAW THAT ON ACCOUNT OF REJECTION OF DEBATABLE CLAIM , PENALTY IS NOT JUSTIFIED. WE HOLD ACCORDINGLY AND DECLINE TO INTE RFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. 9.4 IN THE RESULT, THIS APPEAL OF THE REVENUE IS DI SMISSED. 10. IN THE COMBINED RESULT, ALL THE THREE APPEALS O F THE ASSESSEE AS WELL AS TWO APPEALS OF THE REVENUE IN QUANTUM PROCEEDING S ARE PARTLY ALLOWED, WHEREAS ALL THE THREE APPEALS OF THE REVENUE IN PEN ALTY PROCEEDINGS ARE DISMISSED AND ALL THE TWO APPEALS OF ASSESSEE IN PE NALTY PROCEEDINGS ARE ALLOWED. 11. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD./- SD./- (D. K. TYAGI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP I.T.A.NO128,186/AHD/2005 I.T.A.NO.1114,1244,1245 /AHD/2007 I.T.A.NO. 402/AHD/2005, 1036/AHD/2006, I.T.A.NO. 1182,1184,4483/AHD/2007 31 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 17-21/5.2012 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 21.05.2012.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.24/5 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 25/05/2012 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.25/5 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 25/5/12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .