Akar Laminators Limited, Ahmedabad V. The ACIT., Circle-1, Ahmedabad

ITA 1058/AHD/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80360 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-06-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 12-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIMALENDU VERMA
• Keywords: Business expenditure; Principle of natural justice; Revenue expenditure
• Section: 14A; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD , , , , BEFORE SHRI G. C. GUPTA , VICE PRESIDENT AND .., !'# $% $% $% $% SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER &'(, )* + ITA NO. 1058/AHD/2007 ASSESSMENT YEAR :2002-03 AKAR LAMINATORS LIMITED 1 ST FLOOR, TRADE CENTRE, OPP. STADIUM BATH, STADIUM SIX ROADS, AHMEDABAD V/S . ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1, AHMEDABAD PAN NO. A A BCA2778H (APPELLANT) .. (RESPONDENT) ,- . / ) /BY APPELLANT SHRI SUNIL TALATI, A.R. 01,- . / ) /BY RESPONDENT SHRI VIMALENDU VERMA, CIT D.R. 2 . '* /DATE OF HEARING 24.06.2014 345 . '* /DATE OF PRONOUNCEMENT 12.09.2014 O R D E R PER : SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF LD. CIT(A)-V, AHMEDABAD, DATED 08.12.2006 FOR THE ASSESSMENT YEAR 2002-03. 2. THE FACTS AS CULLED OUT FROM THE MATERIALS ON RE CORD ARE AS UNDER: 3. THE ASSESSEE IS A LIMITED COMPANY STATED TO BE E NGAGED IN THE BUSINESS OF MANUFACTURING OF PACKING MATERIALS AND TRADING ACTIVITIES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 02-03 DECLARING A LOSS OF RS.15,11,54,166/-. THE CASE WAS SELECTED FOR SCRUT INY AND THEREAFTER THE I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 2 ASSESSMENT WAS FRAMED U/S.143(3) R.W.S 144 VIDE ORD ER DATED 17.03.2005 AND THE TOTAL LOSS WAS DETERMINED 1,96,37,850/-. AGGRI EVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO V IDE ORDER DATED 08.12.2006 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFO RE US AND HAS RAISED FOLLOWING GROUNDS: 1. THAT THE ORDER PASSED IS AGAINST THE PRINCIPAL OF NATURAL JUSTICE AND WITHOUT JURISDICTION AND THEREFORE IT SHOULD BE CAN CELLED OR SET ASIDE TO THE FILE OF THE LEARNED AO. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING DISALLOWANCE OF LOSS OF RS.2,11,82,046/-.SINCE THE APPELLANT HAS INCURRED THE LOSSES AND THE ACCOUNTS ARE AUDITED IN CLUDING GIVING QUANTITATIVE DETAILS AND THERE IS NO EVIDENCE WITH THE DEPARTMENT THAT THERE IS SUPPRESSION OF PROFIT AND THEREFORE T HE LEARNED AO SHOULD BE DIRECTED TO ALLOW THE SAID LOSS IN FULL. 3. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING THE ADDITION OF RS.1,54,84,837/- UNDER SECTION 68 O F THE ACT. SINCE THE APPELLANT HAS FURNISHED FULL DETAILS OF THE SAI D LOANS (INCLUDING WITH NAME & ADDRESS & PAN) IN THE 3CD REPORT, NO AD DITIONS AS INCOME IS TO BE MADE AND THEREFORE THE LEARNED AO S HOULD BE DIRECTED TO NOT TO MAKE THE ADDITIONS U/S.68 OF THE ACT. 4. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FA CTS BY CONFIRMING THE DISALLOWANCE OF CLAIM OF REVENUE EXPENSES OF RS 3,10,49,616/-, SINCE THE APPELLANT HAS INCURRED THE EXPENSES AND T HE ACCOUNTS ARE AUDITED AND EXPENDITURE IS IN THE NATURE OF REV ENUE EXPENDITURE, THE LEARNED AO SHOULD BE DIRECTED TO A LLOW THE SAID IN FULL. 5. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FA CTS BY CONFIRMING THE DISALLOWANCE OF THE CLAIM OF, CLAIMS, REBATE & REVERSAL OF CLAIM OF RS.3,92,66,819/-.THE CLAIM, REBATE & REVERSAL CL AIM IS CORRECT, AS I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 3 THESE ARE NOT RECOVERABLE AND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO ALLOW THE SAID CLAIM IN FULL. 6. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FA CTS BY CONFIRMING THE DISALLOWANCE OF THE CLAIM OF, WRITING OFF OF TH E AMOUNT OF RS.64,504/-.AS THE AMOUNT IS FOR THE BUSINESS AND A S THESE ARE NOT RECOVERABLE AND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO ALLOW THE SAID CLAIM IN FULL. 7. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING THE DISALLOWANCE OF RS. 2,25,73 , 649/- OUT OF INTEREST EXPENSES ON INVESTMENT SINCE THE APPELLANT HAS SUFFICIENT INTER EST FREE FUNDS, NO PART OF INTEREST CAN BE DISALLOWED AND THEREFORE TH E LEARNED AO SHOULD BE DIRECTED TO ALLOW THE SAID CLAIM IN FULL- FURTHER, IN ANY CASE THE DISALLOWANCE CANNOT BE MORE THAN THE CLAIM OF INTEREST. 8. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING THE DISALLOWANCE OF RS.6,20,002/- OUT OF INTEREST E XPENSES ON ADVANCES TO CORPORATE AND OTHERS. SINCE THE APPELLA NT HAS SUFFICIENT INTEREST FREE FUNDS AT THE TIME OF MAKIN G THE ADVANCES, NO PART OF INTEREST CAN BE DISALLOWED AND THEREFORE TH E LEARNED AO SHOULD BE DIRECTED TO ALLOW THE SAID CLAIM IN FULL. 9. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING THE DISALLOWANCE OF RS.5,24,421/- OF HIRE CHARGES A ND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO ALLOW THE SAID CLA IM IN FULL. 10. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FA CTS BY NOT DROPPING THE PENALTY PROCEEDINGS INITIATED U/S.271(1)(C) OF THE ACT, AS NO PART OF INCOME HAS BEEN CONCEALED OR FURNISHED INACCURAT E PARTICULARS OF INCOME AND FURTHER THERE IS ASSESSED LOSS AFTER GIVING EFFECT OF THE ABOVE MISTAKES(S). IN VIEW OF THE SAID FACTS A ND CIRCUMSTANCES AND THE PENALTY PROCEEDINGS SHOULD BE DROPPED. 4. THE FIRST GROUND OF APPEAL IS GENERAL IN NATURE. THEREFORE, IT IS NOT ADJUDICATED. 5. GROUND NO.2 IS WITH RESPECT TO DISALLOWANCE OF L OSS OF RS.2,11,82,046/-. I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 4 6. DURING THE COURSE OF ASSESSMENT PROCEEDING, ON E XAMINING THE GROSS PROFIT EARNED BY THE ASSESSEE OVER THE PAST THREE Y EARS, THE A.O. NOTICED THAT THERE WAS A DRASTIC FALL IN THE GROSS PROFIT EARNED BY THE ASSESSEE. THE ASSESSEE WAS ASKED TO EXPLAIN AND SUBSTANTIATE THE FALL IN GROSS PROFIT. THE A.O. NOTED THAT THE ASSESSEE FAILED TO PRODUCE RELE VANT BOOKS OF ACCOUNT OR FURNISHED THE NECESSARY EXPLANATION. IN THE ABSENC E OF ANY EVIDENCE TO JUSTIFY THE FALL IN GROSS PROFIT, THE GROSS PROFIT EARNED B Y THE ASSESSEE IN THE CURRENT YEAR WAS TREATED AS NIL. 7. AGGRIEVED BY THE ORDER OF A.O., THE ASSESSEE CAR RIED THE MATTER BEFORE THE CIT(A). CIT(A) UPHELD THE ORDER OF A.O. BY HOL DING AS UNDER: 4.2 I HAVE CONSIDERED THE REPLY OF THE ASSESSEE. IN ABSENCE OF ANY DETAILS AND NON-PRODUCTION OF BOOKS OF ACCOUNTS AND IN VIEW OF THE FACT THAT THERE IS NOTHING TO SHOW AS TO HOW MANUFACTURI NG EXPENSES HAVE INCREASED TO THE EXTENT, I FIND NO REASON TO INTERF ERE WITH THE FINDING OF THE ASSESSING OFFICER. 8. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S NOW IN APPEAL BEFORE US. BEFORE US, LD. A.R. SUBMITTED THAT SINCE THE AC COUNTS ARE AUDITED AND IN THE ABSENCE OF ANY EVIDENCE ABOUT SUPPRESSION OF PR OFIT, THE LOSS SHOULD NOT HAVE BEEN REJECTED. HE, THEREFORE, SUBMITTED THAT THE LOSS BE ALLOWED. LD. D.R., ON THE OTHER HAND, POINTED TO THE FACT THAT B EFORE THE A.O., THE ASSESSEE DID NOT PLACE ANY MATERIAL IN SUPPORT OF ITS CONTEN TION, FURTHER EVEN BEFORE CIT(A), NO MATERIAL HAS BEEN PLACED BY ASSESSEE TO SUPPORT THE JUSTIFICATION OF LOSS. IN VIEW OF THE AFORESAID FACTS, THE A.O. WAS FULLY JUSTIFIED IN DISALLOWING LOSS. I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 5 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT A.O. HAS NOTED THAT ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM OF LOSS, WHICH ASSESSEE HAD FAILED TO DO. FU RTHER, ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNTS FOR EXAMINATION BY A. O. WE ALSO FIND THAT EVEN BEFORE CIT(A) NO MATERIAL HAS BEEN PLACED ON R ECORD BY THE ASSESSEE TO SUBSTANTIATE ITS CLAIM OF LOSS. IT IS A FACT THAT IN THE ABSENCE OF DETAILS THE ENTIRE GROSS PROFIT HAS BEEN DISALLOWED BY A.O. WHI CH WE FEEL IS UNJUSTIFIED. BEFORE US, LD. A.R. HAS SUBMITTED THAT WORKING OF G ROSS PROFIT AT PAPER BOOK PAGE 20 ACCORDING TO WHICH THE GROSS PROFIT IS AT 4 .14%. SINCE THIS DETAIL OF WORKING NEEDS EXAMINATION. WE, THEREFORE, REMIT TH E ISSUE BACK TO THE FILE OF A.O. TO VERIFY THE WORKING AND THE SUBMISSION OF TH E ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW. THUS, THI S GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 10. THIRD GROUND OF APPEAL IS WITH RESPECT TO THE A DDITION OF RS.1,54,84,837/- U/S. 68. 11. DURING THE COURSE OF ASSESSMENT PROCEEDING, A.O . NOTICED THAT ASSESSEE HAD SHOWN UNDER UNSECURED LOAN, THE AMOUNT OF RS.1,54,84,837/- AS DEFERRED PAYMENT CREDITS. THE ASSESSEE WAS ASKE D TO FILE CONFIRMATION. IN THE ABSENCE OF ANY COMPLIANCE BY THE ASSESSEE, A.O. WAS OF THE VIEW THAT IDENTITY, GENUINITY AND CREDITWORTHINESS OF THE PER SON EXTENDING THE CASH CREDIT WAS NOT SATISFIED. HE, THEREFORE, CONSIDERED THE D EFERRED PAYMENT CREDITS PERTAINING TO THE YEAR AS NOT ALLOWABLE AND ACCORDI NGLY ADDED THE SAME U/S. 68 OF THE ACT. I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 6 12. AGGRIEVED BY THE ORDER OF A.O., THE ASSESSEE C ARRIED THE MATTER BEFORE THE CIT(A). CIT(A) UPHELD THE ADDITION MADE BY A.O . BY HOLDING AS UNDER: 5.2 I HAVE CAREFULLY CONSIDERED THE ISSUE AND I FI ND THAT EVEN THE AUDIT REPORT OF THE ASSESSEE DOES NOT GIVEN ANY DETAILS R EGARDING THE AMOUNT BORROWED THE COLUMN REGARDING AMOUNT OF LOAN/DEPOSI T TAKEN/ACCEPTED THE WORDS OUR ACCOUNT ARE MENTIONED BUT THERE IS NO MENTION ABOUT THE AMOUNT ACCEPTED APPARENT THAT THIS IS ONLY A PAPER REPORT, OTHERWISE, THE FIGURE SHOULD HAVE BEEN MENTIONED. IT IS APPARENT THAT AUDITOR HAS NOT AT ALL VERIFIED THIS FACT IN THE CIRCUMSTANCES MERELY ON THE BASIS OF TAX AUDIT REPORT IT CANNOT BE ACCEPTED THAT DEPOSITS ARE GENU INE. ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED. 13. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. A.R. REITERATED THE SUBMISSION M ADE BEFORE THE CIT(A). HE, THEREFORE, SUBMITTED THAT THE ADDITION MADE BY THE A.O. BE DELETED. LD. D.R., ON THE OTHER HAND, POINTED TO THE FACT THAT BEFORE THE A.O., THE ASSESSEE DID NOT PLACE ANY MATERIAL IN SUPPORT OF ITS CONTENTION , FURTHER EVEN BEFORE CIT(A), NO MATERIAL HAS BEEN PLACED BY ASSESSEE ABOUT THE D EFERRED PAYMENTS. IN VIEW OF THE AFORESAID FACTS, THE A.O. WAS FULLY JUS TIFIED IN CONFIRMING THE ADDITION. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT BEFORE A.O. AND CIT(A), ASSES SEE DID NOT FURNISH ANY DETAILS ABOUT DEFERRED PAYMENT CREDITS. WE FURTHER FIND THAT CIT(A) WHILE CONFIRMING THE ADDITION HAS NOTED THAT EVEN IN AUDI T REPORT OF THE ASSESSEE NO DETAILS ABOUT THE BORROWINGS HAVE BEEN MENTIONED. BEFORE US, ALSO ASSESSEE HAS NOT PLACED ANY DETAILS OF THE DEFERRED PAYMENT CREDITS NOR HAS PLACED ANY I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 7 MATERIAL ON RECORD TO CONTROVERT THE FINDING OF CIT (A). IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDE R OF CIT(A). THUS, THIS GROUND OF ASSESSEE IS DISMISSED. 15. FOURTH GROUND OF APPEAL IS WITH RESPECT TO THE DISALLOWANCE OF CLAIM OF REVENUE EXPENSES OF RS.3,10,49,616/- AS REVENUE EXP ENDITURE. 16. THE A.O. NOTICED THAT ASSESSEE HAS CLAIMED DEFE RRED REVENUE EXPENSES OF RS.3,10,49,616/- AS REVENUE EXPENDITURE . THE ASSESSEE WAS ASKED TO EXPLAIN THE NATURE OF THE SAME. THE A.O. NOTED THAT ASSESSEE NEITHER SUBMITTED THE SUBSTANTIATING EVIDENCES NOR SUBMITTED REASONS FOR THE ALLOWABILITY OF THE SAME. A.O. FURTHER NOTED THE D EFERRED REVENUE EXPENDITURE IN THE EARLIER YEARS WERE CONSIDERED TO HAVE BEEN I NCURRED PRIOR TO COMMENCEMENT OF COMMERCIAL PRODUCTION AND THEREFORE , IT WAS HELD TO BE NOT A REVENUE EXPENDITURE AND NOT INCURRED DURING THE Y EAR AND THEREFORE, HELD AS NOT ALLOWABLE. HE ACCORDINGLY DISALLOWED THE SAME. 17. AGGRIEVED BY THE ORDER OF A.O., THE ASSESSEE CA RRIED THE MATTER BEFORE THE CIT(A). CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A.O. BY HOLDING AS UNDER: 6.2 I HAVE CONSIDERED SUBMISSIONS MADE. I FAIL TO UNDERSTAND HOW THE DECISION RELIED UPON BY THE ASSESSEE CAN BE MADE US E OF UNLESS THE ASSESSEE SUBMITS DETAILS AND BREAK UP OF THIS AMOUN T. IN ABSENCE OF SUCH DETAILS IT CANNOT BE ASCERTAINED WHETHER THESE EXPENSES ARE GENUINE OR NOT. IN THE CIRCUMSTANCES THERE CAN BE NO REASO N TO DELETE THE ADDITION BASED ON THE DECISION OF CIT(A) IN EARLIER YEARS. DISALLOWANCE MADE IS THEREFORE CONFIRMED. I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 8 18. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. A.R. REITERATED THE SUBMISSION MADE BEFORE THE CIT(A). HE FURTHER SUBMITTED THAT WHILE COMPUTING THE INCOME, ASSESSEE HAD ALREADY DISALLOWED THE PAYMENT AND WITH THE DISALLOWANCE AG AIN MADE BY A.O. WOULD RESULT INTO DOUBLE DISALLOWANCE. HE, THEREFORE, SU BMITTED THAT THE EXPENDITURE BE ALLOWED. LD. D.R., ON THE OTHER HAND, SUBMITTED THAT IN THE ABSENCE OF ANY DETAILS OF EXPENDITURE, A.O. WAS FULLY JUSTIFIED IN DISALLOWING THE EXPENDITURE. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT ASSESSEE HAS NOT PRODUCED ANY MATERIAL BEFORE A.O. OR CIT(A) IN SUPPORT OF HIS CLAIM. BEFORE US, IT IS LD. A.RS. SUBMISSION THAT IT HAD ALREADY MADE THE DISALLOWANCE. SINCE THE AFORESAID SUBMISSION HAS NOT BEEN EXAMINED BY A.O., WE FEEL THAT THIS FACTUAL ASPECT NEEDS RE-EXAMINATION. WE, THEREFORE, REMIT THE MATTER BACK TO THE FILE OF A.O . FOR ASCERTAINING THE FACTUAL POSITION. IF THE SUBMISSION OF LD. A.R. IS FOUND C ORRECT, THEN THE ADDITION MADE BE DELETED. THE ASSESSEE IS ALSO DIRECTED TO SUBMI T ALL THE REQUIRED DETAILS BEFORE A.O. IN CASE, THE ASSESSEE FAILS TO FURNISH THE REQUIRED DETAILS, A.O. IS FREE TO DECIDE THE MATTER ON THE BASIS OF MATERIAL ON RECORD. THUS, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 20. FIFTH GROUND OF APPEAL IS WITH RESPECT TO THE DISALLOWANCE OF CLAIM OF CLAIMS, REBATE & REVERSAL OF CLAIM OF RS.3,92,66,81 9/-. 21. DURING THE COURSE OF ASSESSMENT PROCEEDING, A.O . OBSERVED THAT ASSESSEE HAS CLAIMED RS.3,92,66,819/- AS CLAIMS, R EBATE & REVERSAL OF CLAIMS. THE ASSESSEE WAS ASKED TO SUBMIT THE DETAI LED BREAK UP AND JUSTIFY I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 9 THE ALLOWABILITY. A.O. NOTED THAT ASSESSEE HAS FAI LED TO SUBMIT ANY EXPLANATION OR JUSTIFICATION FOR THE ALLOWABILITY A ND ONLY SUBMITTED BREAK UP. THE A.O. ALSO NOTED THAT SIMILAR CLAIMS MADE BY THE ASSESSEE WERE REJECTED IN A.Y. 2001-02. IN ABSENCE OF ANY DETAILS OR EVID ENCE IN SUPPORT OF CLAIM OF EXPENSES, THE CLAIM OF ASSESSEE WAS REJECTED. 22. AGGRIEVED BY THE ORDER OF A.O., THE ASSESSEE CA RRIED THE MATTER BEFORE THE CIT(A). CIT(A) UPHELD THE ACTION OF A.O. BY HO LDING AS UNDER: 7.2 IT IS TO BE POINTED OUT THAT THOUGH THE ASSESS EE HAS STATED THAT DETAILS SUBMITTED IN ANNEXURES BUT NO DETAILS WERE ACTUALLY SUBMITTED. AS DISCUSSED EARLIER IN THIS ORDER, IT IS ALSO NOTED T HAT EVEN BEFORE THE ASSESSING OFFICER THE AMOUNT WAS MENTIONED BUT HOW AND WHY THESE AMOUNTS IN RESPECT OF VERY WELL-KNOWN COMPANIES WER E WRITTEN OFF AS REVERSAL OF CLAIMS IS BEST KNOWN TO THE ASSESSEE. IT IS ALSO NOT KNOWN WHETHER THESE AMOUNTS WERE EVER OFFERED AS INCOME O R NOT. THUS, EVEN BASIC CONDITIONS FOR ALLOWANCE ARE NOT SATISFIED AN D ASSESSING OFFICERS ACTION IS UPHELD. 23. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. A.R. SUBMITTED THAT AMOUNT REVE RSED REPRESENTS THE LIQUIDATED DAMAGES AND FREIGHT CHARGES, WHICH WERE BOOKED IN EARLIER YEARS AND WERE ALSO OFFERED TO TAX IN RESPECTIVE YEARS. HE FURTHER SUBMITTED THAT IN VIEW OF THE DECISION OF HONBLE APEX COURT IN CASE OF TRF LTD. VS. CIT (2010) 323 ITR 397 (SC) , THE CLAIM OF ASSESSEE HAD ALLOWED. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT ASSESSEE DID NOT FURNISH ANY DETAILS OR JUSTIFICATION ABOUT THE CLAIM. HE, THEREFORE, SUBMITTED THAT IN SUCH CIRCUMSTANCES, THE A.O. WAS FULLY JUSTIFYING IN DISALLOWING THE CLAIM OF EX PENSES. I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 10 24. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT A.O. WHILE DISALLOWING THE CL AIM HAS NOTED THAT ASSESSEE HAS FAILED TO SUBMIT ANY DETAILS OR JUSTIFICATION A BOUT EXPENDITURE. WE ALSO FIND THAT CIT(A) HAS ALSO NOTED THAT NO DETAILS WERE SUB MITTED AND WHETHER AMOUNTS WERE EVER OFFERED AS INCOME OR NOT. BEFORE US, IT IS SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF HONBLE APE X COURT IN THE CASE OF TRF LTD. (SUPRA). SINCE THE AFORESAID SUBMISSION WAS N OT MADE BEFORE LOWER AUTHORITIES BY THE ASSESSEE, WE FEEL THAT THE ISSUE NEEDS RE-EXAMINATION. WE, THEREFORE, REMIT THE ISSUE BACK TO THE FILE OF A.O. TO DECIDE THE ISSUE IN THE LIGHT OF DECISION OF APEX COURT IN THE CASE OF TRF LTD. ( SUPRA) AND IN ACCORDANCE WITH LAW. THE ASSESSEE IS ALSO DIRECTED TO FURNISH THE REQUIRED DETAILS PROMPTLY TO THE A.O. IN CASE, THE ASSESSEE FAILS TO FURNISH THE REQUIRED DETAILS, A.O. SHALL BE FREE TO DECIDE THE MATTER ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THUS, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATIS TICAL PURPOSES. 25. SIXTH GROUND OF APPEAL IS WITH RESPECT TO THE DISALLOWANCE OF CLAIM OF WRITING OFF OF RS.64,504/-. 26. DURING THE COURSE OF ASSESSMENT PROCEEDING EXPE NSES UNDER THE HEAD OFFICE EXPENSES INCLUDING AMOUNT OF RS.65,504/-, WHICH WAS ON ACCOUNT OF SUNDRY BALANCES WRITTEN OFF. IN THE ABSENCE OF ANY DETAILS OR EVIDENCE FURNISHED BY THE ASSESSEE, A.O. DISALLOWED THE SAME . 27. AGGRIEVED BY THE ORDER OF A.O., THE ASSESSEE CA RRIED THE MATTER BEFORE THE CIT(A). CIT(A) UPHELD THE ORDER OF A.O. BY HOL DING AS UNDER: I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 11 8.2 I MAY POINT OUT THAT DESPITE SEVERAL OPPORTUNI TIES NO DETAILS WERE FURNISHED EVEN AT THE TIME OF APPELLATE PROCEEDINGS . THEREFORE, THE CLAIM HAS BEEN RIGHTLY DISALLOWED BY THE ASSESSING OFFICE R. 28. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. A.R. REITERATED THE SUBMISSION MADE BEFORE THE CIT(A). HE FURTHER SUBMITTED THAT THE ISSUE IS COVERED IN ASSE SSEES FAVOUR BY THE DECISION OF APEX COURT IN THE CASE OF TRF LTD. (SUP RA). ON THE OTHER HAND, LD. D.R. SUBMITTED THAT IN THE ABSENCE OF ANY DETAILS, A.O. WAS JUSTIFIED IN DISALLOWING THE CLAIM OF ASSESSEE. 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT A.O. WHILE DISALLOWING THE CL AIM HAS NOTED THAT ASSESSEE HAS FAILED TO SUBMIT ANY DETAILS OR JUSTIFICATION A BOUT EXPENDITURE. WE ALSO FIND THAT CIT(A) HAS ALSO NOTED THAT NO DETAILS WERE SUB MITTED AND WHETHER AMOUNTS WERE EVER OFFERED AS INCOME OR NOT. BEFORE US, IT IS SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF HONBLE APE X COURT IN THE CASE OF TRF LTD. (SUPRA). SINCE THE AFORESAID SUBMISSION WAS N OT MADE BEFORE LOWER AUTHORITIES BY THE ASSESSEE, WE FEEL THAT THE ISSUE NEEDS RE-EXAMINATION. WE, THEREFORE, REMIT THE ISSUE BACK TO THE FILE OF A.O. TO DECIDE THE ISSUE IN THE LIGHT OF DECISION OF APEX COURT IN THE CASE OF TRF LTD. ( SUPRA) AND IN ACCORDANCE WITH LAW. THE ASSESSEE IS ALSO DIRECTED TO FURNISH THE REQUIRED DETAILS PROMPTLY TO THE A.O. IN CASE, THE ASSESSEE FAILS TO FURNISH THE REQUIRED DETAILS, A.O. SHALL BE FREE TO DECIDE THE MATTER ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THUS, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATIS TICAL PURPOSES. I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 12 30. SEVENTH GROUND OF APPEAL IS WITH RESPECT TO THE DISALLOWANCE OF RS.2,25,73,649/- OUT OF INTEREST EXPENSES. 31. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A. O. NOTICED THAT ASSESSEE HAD MADE INVESTMENT IN SHARES WHICH INCLUD E THE SHARES OF ITS SUBSIDIARY COMPANIES. HE ALSO NOTICED THAT ASSESSE E HAD ALSO ADVANCE AS PROVIDED HUGE FINANCE/INVESTMENT TO THESE COMPANIES . ON THE OTHER HAND, ASSESSEE HAD BORROWED FROM BANKS AND PAID HUGE INTE REST INTERESTS. A.O. WAS OF THE VIEW THAT ASSESSEE HAD DIVERTED INTEREST BEARING FUNDS TO THESE SUBSIDIARY COMPANIES WITHOUT CHARGING INTERESTS AND THEREFORE, INTEREST PAYMENTS CLAIMED BY THE ASSESSEE TO THE EXTENT OF F UND GRANTED TO THE SUBSIDIARY COMPANIES MAY NOT BE TREATED AS BUSINESS EXPENSES AND NOT ALLOWABLE U/S. 36(1)(III) OF THE ACT. HE WAS FURTH ER OF THE VIEW THAT IN VIEW OF THE PROVISION OF SECTION 14A OF THE ACT ALSO THE IN TEREST EXPENSES ON INVESTMENT IN SHARES ARE NOT DEDUCTIBLE. HE, THERE FORE, WORKED OUT THE INTEREST AT 18% ON THE INVESTMENT MADE IN THE SHARE S OF GROUP COMPANIES AND WORKED OUT THE DISALLOWANCE ON ACCOUNT OF INTEREST AT RS.2,25,73,649/- AND DISALLOWED THE SAME. 32. AGGRIEVED BY THE ORDER OF A.O., THE ASSESSEE CA RRIED THE MATTER BEFORE THE CIT(A). CIT(A) UPHELD THE ORDER OF A.O. BY HOL DING AS UNDER: 9.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE. IT MAY BE POINTED OUT THAT ASSESSEE DOES NOT HAVE ANY SURPLUS FUNDS FOR SO MANY YEARS AND ASSESSEES CAPITAL HAVE BEEN WIPED OUT BE CAUSE OF LOSSES. IT IS ALSO SEEN THAT SIMILAR DISALLOWANCE WAS CONFIRMED B Y LD. CIT(A) IN A.Y. I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 13 2001-02 VIDE ORDER DATED 6/12/2004 IN APPEAL NO. CI T(A)-V/ACIT(OSD)- 1/93/2004-05. IN VIEW OF ABOVE, DISALLOWANCE IS CO NFIRMED. 33. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. A.R. SUBMITTED THAT ASSESSEE HA D NOT DIVERTED INTEREST BEARING FUNDS TO ACQUIRE THE SHARES OF SUBSIDIARIES AND THE INVESTMENTS WERE MADE OUT OF OWN FUNDS AND NOT BORROWED FUNDS. LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDER OF A.O. AND FURTHER SUBMITTED T HAT AS PER PROVISIONS OF SECTION 14A, THE EXPENDITURE INCURRED FOR EARNING E XEMPT INCOME HAS TO BE DISALLOWED. HE FURTHER SUBMITTED THAT BOMBAY HIGH COURT IN CASE OF GODREJ BOYCE VS. DCIT 328 ITR 71 (BOM) HAS HELD THAT THOUGH RULE 8D IS APPLICABLE FROM 2008-09 BUT PRIOR TO A.Y. 2008-09, REASONABLE EXPENDITURE NEEDS TO BE DISALLOWED. 34. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US, LD. A.R. HAS SUBMITTED THAT THE INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS AND NOT BORROWED FUNDS AND O N THE OTHER HAND, WE FIND THAT CIT(A) HAS GIVEN FINDING THAT ASSESSEE DOES NO T HAVE ANY SURPLUS FUNDS. IN VIEW OF THE CONTRARY FACTS, WE ARE OF THE VIEW T HAT THE FACTUAL POSITION NEEDS TO BE RE-EXAMINED. WE, THEREFORE, REMIT THE MATTER TO THE FILE OF A.O. TO VERIFY THE FACTUAL POSITION AND MORE SO ABOUT THE AVAILABI LITY OF FREE FUNDS AT THE TIME OF MAKING INVESTMENTS AND THEREAFTER DECIDE THE MAT TER IN ACCORDANCE WITH LAW. WE ALSO DIRECT THE ASSESSEE TO FURNISH ALL T HE REQUIRED DETAILS OR ANY OTHER DETAILS IN ITS SUPPORT PROMPTLY TO THE A.O. IN CASE, THE ASSESSEE FAILS TO FURNISH THE REQUIRED DETAILS, A.O. SHALL BE FREE TO DECIDE THE MATTER ON THE I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 14 BASIS OF MATERIAL AVAILABLE ON RECORD. THUS, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 35. EIGHTH GROUND OF APPEAL IS WITH RESPECT TO THE DISALLOWANCE OF RS.6,20,002/-. 36. THE A.O. NOTICED THAT ASSESSEE HAS GRANTED INTE REST FREE DEPOSITS TO CORPORATES AND OTHERS, THE LIST OF WHICH IS GIVEN A T PAGE 9 OF THE ORDER AND AMOUNT AGGREGATED TO RS.34,44,457/-. IN THE ABSENC E OF ANY DETAILS ABOUT THE AVAILABILITY OF INTEREST FREE FUNDS FOR THE PURPOSE OF GIVING ADVANCES, A.O. WAS OF THE VIEW THAT INTEREST BEARING FUNDS HAVE BEEN D IVERTED FOR THE PURPOSE OF GRANTING INTEREST FREE ADVANCES. HE, ACCORDINGLY, WORKED OUT THE INTEREST EXPENSES AT 18% OF THE AMOUNT ADVANCED AND WORKED O UT THE INTEREST OF RS.6,20,002/- AND DISALLOWED THE SAME U/S. 36(1)(II I) OF THE ACT. 37. AGGRIEVED BY THE ORDER OF A.O., THE ASSESSEE CA RRIED THE MATTER BEFORE THE CIT(A). CIT(A) UPHELD THE ORDER OF A.O. 38. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. A.R. SUBMITTED THAT ASSESSEE WA S HAVING SUFFICIENT INTEREST FREE FUNDS AND THAT THE INTEREST BEARING FUNDS HAVE NOT BEEN DIVERTED FOR MAKING ADVANCES AND THEREFORE, NO DISALLOWANCE U/S. 36(1)(III) SHOULD BE MADE. LD. D.R., ON THE OTHER HAND, SUPPORTED THE O RDER OF THE A.O. AND CIT(A). 39. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IN THE ABSENCE OF DETAILS ABO UT THE INTEREST FREE FUNDS FOR THE PURPOSE OF GRANTING ADVANCES, A.O. HAD DISALLOW ED THE EXPENDITURE OF I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 15 INTEREST. BEFORE US, APART FROM THE SUBMISSION ABO UT THE AVAILABILITY OF THE FUNDS, NO DETAILS OR THE CASH FLOW HAS BEEN SUBMITT ED BY THE ASSESSEE. BEFORE US, EVEN THE DETAILS OF THE AMOUNT SINCE WHE N IT IS OUTSTANDING HAS NOT BEEN FURNISHED. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A). THUS, THIS GROUND OF ASS ESSEE IS DISMISSED. 40. NINTH GROUND OF APPEAL IS WITH RESPECT TO THE DISALLOWANCE OF RS.5,24,421/- ON HIRE CHARGES. 41. AO NOTICED THAT ASSESSEE HAD PAID HIRE CHARGES OF RS 5,24,421/- TO BLUE BELL FINANCE LTD FOR PLANT AND MACHINERY. AO N OTICED THAT 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 DEPR ECIATION ON THE SAID PLANT AND MACHINERY AND ALSO DISALLOWED THE PAYMENT OF HI RE CHARGES AS BEING NON GENUINE. FOR SIMILAR REASONS AND FOLLOWING THE EARL IER YEARS ORDER, THE AO IN THE PRESENT YEAR DISALLOWED THE PAYMENT. 42. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREF ERRED APPEAL BEFORE CIT(A). CIT(A) HELD THAT THE FACTS IN THE CURRENT Y EAR ARE IDENTICAL TO THAT OF AY 1999-2000, HE THEREFORE FOLLOWING THE ORDER OF AY 1 999-2000 CONFIRMED THE ORDER OF AO. AGGRIEVED BY THE ORDER OF CIT(A) THE A SSESSEE IS NOW IN APPEAL BEFORE US. 43. BEFORE US, THE LD. A.R. SUBMITTED THAT THE DISA LLOWANCE SIMILAR TO THE PRESENT DISALLOWANCE WAS MADE BY THE AO IN AY 1999- 2000 AGAINST WHICH THE ASSESSEE HAD PREFERRED APPEAL BEFORE HON'BLE ITAT. HON'BLE ITAT VIDE ORDER DATED 9 LH OCT. 2006 (ITA NO 3763/AHD/2002) HAD REMITTED BACK THE MATTER TO I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 16 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 HON'BLE 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 ID. A.R. 44. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. THE FACTUAL POSITION IS THAT IN AY 1995-96 THE AO ON THE BASIS ON ENQUIRY MADE, HELD THE TRANSACTION ENTERED BY THE A SSESSEE WITH BLUE BELL FINANCE CO. LTD. TO BE NON GENUINE. THE AO IN THE P RESENT YEAR, RELYING ON THE OBSERVATION OF HIS PREDECESSOR DISALLOWED THE P AYMENT IN A.Y. 1999-2000. AGAINST THE ORDER OF AO, ASSESSEE HAD PREFERRED APP EAL BEFORE H'BLE TRIBUNAL. HON'BLE 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 A/O.74 OF 7998. WE, T HEREFORE, SET ASIDE THE ISSUE BACK TO THE FILE OF THE A.O. TO DECIDE TH E MATTER ON THE BASIS OF THE OUTCOME OF THE AFORESAID REFERENCE PETITION. WE DIRECT ACCORDINGLY.' 45. BEFORE US, BOTH THE PARTIES HAVE ADMITTED THAT THE FACTS IN THE YEAR UNDER APPEAL ARE IDENTICAL TO THAT OF AY 1999-2000. WE THEREFORE, FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF TRIBUNAL FOR A.Y. 1999-2000 REMIT THE MATTER BACK TO THE FILE OF THE AO WITH SIMILAR DIRE CTIONS. IN RESULT THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . I.T.A. NO. 1058/AHD/2007 A.Y. 02-03 (AKAR LAMINATORS LTD. VS. ACIT) PAGE 17 46. IN THE RESULT, THE ASSESSEES APPEAL IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER PRONOUNCED IN OPEN COURT ON 12.09.2014 SD/- SD/- (G.C.GUPTA) (ANIL CHATURV EDI) VICE PRESIDENT ACCOUNTANT MEMB ER TRUE COPY S.K.SINHA )6 )6 )6 )6 . .. . 0'7 0'7 0'7 0'7 8)75' 8)75' 8)75' 8)75' / COPY OF ORDER FORWARDED TO:- 1. ,- / APPELLANT 2. 01,- / RESPONDENT 3. %% ' < / CONCERNED CIT 4. <- / CIT (A) 5. 7@ 0' , , / DR, ITAT, AHMEDABAD 6. BC / GUARD FILE. BY ORDER/ )6 ), !/ % , E