M/s. Paranjape Autocast Pvt. Ltd., Pune V. DCIT, Pune

ITA 1090/PUN/2010

• Counselvise Citation: 109024514 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-05-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 29-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK MISHRA
• Assessee Lawyers: CHANDRA KANT DOSHI
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Earning of tax free income; Proportionate interest
• Section: 43B; 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 1090/PN/2010 & 1091/PN/2010 (ASSTT.YEARS : 2005-06 & 2006-07) M/S. PARANJAPE AUTOCAST PVT. LTD., T-141, BHOSARI INDUSTRIAL AREA, PUNE- 411026. .. A PPELLANT PAN NO. AABCPO318G VS. DY.COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE .. RESPONDENT ITA NO. 1010/PN/2010 (ASSTT.YEAR : 2005-06) DY.COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE. .. APPELLANT VS. M/S. PARANJAPE AUTOCAST PVT. LTD., T-141, BHOSARI INDUSTRIAL AREA, PUNE- 411026 .. RE SPONDENT ASSESSEE BY : SRI CHANDRAKANT DOSHI RESPONDENT BY : SRI ALOK MISHRA DATE OF HEARING : 16-05-2012 DATE OF PRONOUNCEMENT : 25 -06-2012 ORDER PER BENCH ITA NO.1090/PN/2010 AND ITA NO. 1010/PN/2010 ARE CR OSS APPEALS AND ARE DIRECTED AGAINST THE ORDER DATED 13-04-2010 OF THE CIT(APPEALS)-V, PUNE RELATING TO ASSESSMENT YEAR 2005-06. ITA NO. 1091/PN/2010 F ILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 13-04-2010 OF THE CIT(APPEALS)-V, PUNE RELATING TO ASSESSMENT YEAR 2006-07. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 1090/PN/2010 (BY ASSESSEE) (A.Y. 2005-06) : 2. GROUND OF APPEAL NO. 1 BY THE ASSESSEE AND GROUN D OF APPEAL NO. 1 BY THE REVENUE ARE AS UNDER : 2 GROUND BY ASSESSEE : ON THE FACTS & CIRCUMSTANCES OF THE CASE & IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 13,67,183/- CLAIMED TOWARDS LOSS ON SALE OF WORN-OUT MACHINERY BY STATING THAT ON PRINCIPLES THE SAME IS DISALLOWED, BUT MAY BE CO NSIDERED TO HAVE BEEN ALLOWED FOR THE PURPOSES OF RE-COMPUTATION OF TAXABLE INCOME GROUND BY REVENUE : WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE O F LOSS OF RS. 13,67,183/- INCURRED ON ACCOUNT OF SALE OF WORN OUT MACHINERY WHEN THE ASSESSEE HAS FAILED TO SUBSTANTIATE AS TO WHETH ER THE SCRAP WAS USED IN THE BUSINESS OR WAS REFLECTED IN STOCK? 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ALLOY, IRON CASTING AND COMPONENTS FOR AUTOMOBILES AND INTERNAL COMBUSTION ENGINES. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE AO NOTED THAT A SUM OF RS. 13,67,183/- HAS BEEN DEBITED ON A CCOUNT OF LOSS ON SALE OF SCRAP. SINCE THE LOSS IS RELATED TO CAPITAL ASSETS THE AO WAS OF THE OPINION THAT THE SAME IS REQUIRED TO BE ADDED IN COMPUTATION OF INCOME. SIN CE THE SAME HAS NOT BEEN ADDED IN THE COMPUTATION THE AO ASKED THE ASSESSEE TO SHO W CAUSE AS TO WHY THE SAME SHOULD NOT BE ADDED. IN RESPONSE TO THE SAME THE A SSESSEE REPLIED AS UNDER : DURING THE FINANCIAL YEAR 2004-05, WE HAVE SCRAPED OLD (USED) MACHINERIES WHICH ARE NOT OF ANY USE FOR PRODUCTION . THE SCRAP DERIVED FROM OIL SCRAPED MACHINERIES USED FOR MELTING, I.E. USE OF AS INPUT FOR OUR PRODUCTION. WE REQUIRE INPUTS OF RAW MATERIAL SUCH AS PIG IRON, M.S. SCRAP, C.I. BORING ETC. HENCE WE USED THE SCRAP OF OLD MAC HINERIES FOR OUR MEETING PROCESS. QUANTITY OF MACHINERY SCRAP WAS VERY LESS /NEGLIGIBLE AS COMPARED TO OUR TOTAL SCRAP REQUIRE FOR PRODUCTION AND IS AL LOWED AS A DEDUCTION U/S.32(1)(III). HENCE WE ARE NOT ABLE TO SHOW SEPARATE PRODUCTION O R YIELD DERIVED FROM THE MACHINERIES USED AS SCRAP IN MELTING PROCESS (PRODU CTION). IT IS MIXED UP WITH OUR MATERIAL/INGREDIENTS REQUIRED FOR PRODUCTI ON. THIS SCRAP HAS NOT BEEN RECORDED IN TO OUR STOCK RE CORD BECAUSE, IT WAS VERIFIED BY THE AUDITORS AS WELL AS BY THE MANAGEME NT & KEPT ASIDE. AS & WHERE POSSIBLE DURING THE YEAR, IT WAS USED ALONG W ITH OUR OTHER INPUT SCRAP. 4. HOWEVER, THE AO WAS NOT CONVINCED WITH THE EXPLA NATION GIVEN BY THE ASSESSEE AND OBSERVED THAT THE ASSESSEE HAS NOT BEE N ABLE TO SUBSTANTIATE AS TO WHETHER THIS SCRAP IS EITHER USED IN THE BUSINESS OR REFLECTED IN STOCK. MOREOVER 3 THE LOSS INCURRED ON SALE OF SCRAP IS CAPITAL IN NA TURE AND THE SAME IS NOT REQUIRED TO BE DEBITED IN THE PROFIT AND LOSS ACCOUNT. HE, THE REFORE, ADDED THE LOSS OF RS. 13,67,183 CLAIMED BY THE ASSESSEE TO THE TOTAL INCO ME OF THE ASSESSEE. 5. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT DU RING THE YEAR UNDER CONSIDERATION, IT HAS DISCARDED SOME MACHINERY WHIC H HAD NOT ONLY BECOME OBSOLETE BUT WAS ALSO WORN-OUT AND WAS NOT CONSIDER ED FIT TO BE USED BY THE COMPANY ANY MORE. THE SAME WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT AND THE VALUE THEREOF AS SHOWN IN THE BOOKS OF ACCOUNT, I.E . THE WDV WAS CLAIMED AS TERMINAL LOSS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 32(1)(III) OF THE ACT. IT WAS POINTED OUT THAT THE SAME ISSUE HAD ARISEN IN F IRST APPEAL IN THE ASSESSEES OWN CASE FOR A.Y. 2004-05 AND THE LD. CIT(A)-III HAD AL LOWED THE ASSESSEES CLAIM FOR THAT YEAR, BUT WITH A RIDER, NAMELY THAT THE AO SHO ULD FIND OUT WHETHER THE SCRAP SO WRITTEN OFF HAD ANY VALUE OR ANY MONEY COULD BE REA LISED FROM THE SALE OR DISCARDING OF THE SCRAP. FOR THE YEAR UNDER CONSID ERATION, THE ASSESSEES PRAYER IS THAT A SIMILAR DIRECTION MAY NOT BE GIVEN TO THE AO . IT WAS SUBMITTED THAT THE SCRAP WAS USED BY THE ASSESSEE COMPANY FOR ITS OWN PRODUC TION. THE COMPANY BUYS HUNDREDS OF TONS OF SCRAP FROM THE MARKET AS SCRAP CONSTITUTES AN INPUT FOR THEIR PRODUCTION AND THERE WAS NO POINT IN FIRST SELLING IT OUT AND THEN BUYING IT. ACCORDINGLY IT WAS SUBMITTED THAT NO REALIZATION OF MONEY WAS REFLECTED BY THEM IN THEIR BOOKS AS NO ASSESSEE WOULD SHOW ANY BUYING AN D SELLING OF ITS OWN GOODS WITH ITSELF. IT WAS FURTHER SUBMITTED THAT THERE I S NO NEED OR SCOPE FOR KEEPING ANY SEPARATE RECORD OF PRODUCTION OR OUTPUT AS THE QUAN TUM OF THE SAID SCRAP WAS HARDLY 22 TO 25 TONNES AS AGAINST MORE THAN 5000 TONNES OF SCRAP USED BY THEM FOR PRODUCTION. IT WAS SUBMITTED THAT THE ASSESSEE HAS NOT GAINED IN ANY WAY BY NOT ESTIMATING THE REALIZABLE VALUE OF THAT SCRAP, BECA USE IF THE VALUE OF THE SCRAP HAD BEEN CONSIDERED, IT WOULD HAVE HAD THE EFFECT OF EN HANCING THE ASSESSEES COST OF 4 INPUT BY THE SAME AMOUNT. ACCORDINGLY IT WAS SUBMI TTED THAT THE MATTER MAY NOT BE REFERRED BACK TO THE AO FOR THE YEAR UNDER CONSI DERATION AS WAS DONE IN A.Y. 2004-05. 6. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE, THE LD. CIT(A) HELD AS UNDER: 13. I HAVE CONSIDERED THE MATTER CAREFULLY AND HAV E ALSO PERUSED THE ORDER OF MY PREDECESSOR, CIT(A)-III FOR A.Y. 20 04-05. FOR THAT YEAR, MY PREDECESSOR HELD AS BELOW : I AM INCLINED TO ACCEPT APPELLANTS CONTENTION TH AT DEDUCTION IS ALLOWABLE TO THE APPELLANT COMPANY IN TERMS OF THE PROVISIONS OF SECTION 32(1)(III) OF THE IT ACT WHICH MANDATES THAT DEDUCT ION SHALL BE THE AMOUNT BY WHICH MONIES PAYABLE IN RESPECT OF DISCARDED MACHIN ERY TOGETHER WITH THE AMOUNT OF SCRAP VALUE FALLS SHORT OF THE WRITTEN DO WN VALUE THEREOF. HOWEVER NEITHER FROM THE ASSESSMENT ORDER AND NOR FROM THE SUBMISSION OF THE APPELLANT FILED BEFORE ME, I FIND ANY DETAILS TO EXPLAIN HOW THE AMOUNT OF RS.15,32,399/- HAS BEEN WORKED OUT AS DEDUCTIBLE UNDER SECTION 32( 1)(III) OF THE IT ACT. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO LOO K INTO THIS ASPECT AND ALLOW DEDUCTION TO THE EXTENT OF MONIES PAYABLE FOR THE D ISCARDED MACHINERY TOGETHER WITH THE AMOUNT OF SCRAP VALUE FALLS SHORT OF THE W DV OF THE DISCARDED MACHINERY. DECIDED ACCORDINGLY. 14. I HAVE ALSO GIVEN CAREFUL CONSIDERATION TO THE APPELLANTS SUBMISSION REGARDING THE USE OF SCRAP FROM DISCARDE D MACHINERY FOR THE PURPOSE OF OWN PRODUCTION AND THE EFFECT THEREO F IN TERMS OF S.32(1)(III). ON PRINCIPLES, IT IS DIFFICULT TO AG REE WITH THE APPELLANT SINCE THE PROVISIONS OF SECTION 32(1)(III) ARE MAND ATORY AND MUST BE GIVEN EFFECT. AS REGARDS THE NET EFFECT ON INCOME, HOWEVER, I FIND FORCE IN THE SUBMISSIONS MADE BY THE APPELLANT. CONSIDER ING THE QUANTUM OF SCRAP GENERATED BY THE DISCARDED MACHINERY VIS-A -VIS THE TOTAL QUANTITY OF SCRAP USED IN PRODUCTION AS SUBMITTED B Y THE APPELLANT, AND ALSO CONSIDERING THE FACT THAT HAD THE SCRAP GE NERATED BY DISCARDING OF APPELLANTS OWN MACHINERY NOT BEEN US ED BY THEM FOR THE PURPOSES OF THEIR OWN PRODUCTION, SIMILAR QUANT ITY OF SCRAP WOULD HAVE HAD TO BE PURCHASED FROM THE MARKET, FOR WHICH THE APPELLANT WOULD NO DOUBT HAVE INCURRED EXPENDITURE WHICH THEY COULD LEGITIMATELY HAVE BEEN CHARGED OFF TO THE P&L ACCOU NT, I HOLD THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE FOR THE A.Y. UNDER CONSIDERATION, NOTHING IS TO BE GAINED BY REFERRING THE MATTER BACK TO THE AO TO UNDERTAKE THE THEORETICAL EXERCISE OF DET ERMINING THE QUANTITY OF SCRAP GENERATED BY DISCARDING OF MACHIN ERY, ASCRIBING A VALUE THERETO, AND THEN GIVING EFFECT TO THE PROVIS IONS OF S.32(1)(III). 5 15. AS SUCH, THIS GROUND OF APPEAL MAY BE TREATED A S PARTLY ALLOWED IN SO FAR AS THE SAME IS DISALLOWED IN PRINCIPLE UP ON CONSIDERATION OF THE CLEAR PROVISIONS OF S.32(1)(III), BUT MAY BE CO NSIDERED TO HAVE BEEN ALLOWED FOR THE PURPOSES OF RE-COMPUTATION OF TAXABLE INCOME FOR THE PURPOSES OF GIVING APPEAL EFFECT. 6.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 6.2 THE LEARNED COUNSEL FOR THE ASSESSEE DREW THE A TTENTION OF THE BENCH TO PROVISIONS OF SECTION 32(1)(III) AND SUBMITTED THAT THE SAME RELATES TO DEPRECIATION IN CASE OF BUILDING, MACHINERY, PLANT OR FURNITURE IN RESPECT OF WHICH DEPRECIATION AS CLAIMED AND ALLOWED UNDER CLAUSE (1) AND WHICH I S SOLD, DISCARDED, DEMOLISHED OR DESTROYED IN THE PREVIOUS YEAR. HE SUBMITTED TH AT IN EVERY CASE THE DISCARDED/OBSOLETE MACHINERIES NEED NOT BE SOLD AND CAN BE USED IN THE BUSINESS OF THE ASSESSEE AS A RAW MATERIAL. HE ACCORDINGLY SUB MITTED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE AO FOR VERIFICATION. T HE LEARNED D.R. ON THE OTHER HAND HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE F ILE OF THE AO FOR VERIFICATION. AFTER HEARING BOTH THE SIDES AND IN VIEW OF THE SUB MISSIONS BY THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS THE LEARNED D.R. THAT T HEY HAVE NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE AO FOR VERIFICATION, WE, IN THE INTEREST OF JUSTICE, DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE A O. THE AO SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THI S GROUND RAISED BY THE ASSESSEE AS WELL AS REVENUE ARE ACCORDINGLY ALLOWED FOR STAT ISTICAL PURPOSES. 7. GROUND APPEAL NO. 2 BY THE ASSESSEE READS AS UND ER : ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AN D IN LAW THE LEARNED CIT(A) HAS ERRED IN NOT ALLOWING THE DISALLOWANCE U /S.14A OF RS. 25,411/- AND RS. 18,089/- WHICH HAS BEEN WRONGLY INVOKED BY THE ASSESSING OFFICER WHICH NEEDS TO BE DELETED. 6 7.1. FACTS OF THE CASE IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS EAR NED INCOME FROM BONDS AND INCOME BY WAY OF DIVIDENDS OF EQUITY SHARES. HE FU RTHER NOTED THAT THE ASSESSEE HAS DEBITED INTEREST TO THE PROFIT AND LOSS ACCOUNT AT RS. 15,72,683/-. THE INVESTMENT DURING FINANCIAL YEAR 2004-05 WAS RS. 8, 70,230/-. HE THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY EXPENDITURE INCUR RED IN RELATION TO EXEMPTED INCOME SHOULD NOT BE DISALLOWED. REJECTING THE EXP LANATION GIVEN BY THE ASSESSEE AND DISTINGUISHING THE VARIOUS DECISIONS CITED BEFO RE HIM THE AO DISALLOWED AN AMOUNT OF RS. 18,089/- BEING 10% OF THE EXEMPTED IN COME U/S.14A OF THE INCOME- TAX ACT. 8. IN APPEAL, THE LEARNED CIT(A) FOLLOWING THE DECI SION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. DAGA CAPITAL MANAGE MENT PVT. LTD. REPORTED IN 117 ITD 169 (MUMBAI) (SPECIAL BENCH) DIRECTED THE A O TO WORK OUT THE DISALLOWANCE U/S. 14A READ WITH RULE 8D OF THE INCO ME TAX RULES. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 9. LEARNED COUNSEL FOR THE ASSESSEE REFERRING TO TH E BALANCE SHEET OF THE COMPANY PLACED AT PAGE NO. 33 SUBMITTED THAT THE SH ARE CAPITAL AND FREE RESERVES OF THE ASSESSEE COMPANY WAS RS. 9,52,51,804/- AS ON 31-03-2004 WHICH HAS GONE UPTO RS. 12,68,13,819/- AS ON 31-03-2008. REFERRIN G TO THE INVESTMENTS SHOWN IN THE BALANCE SHEET HE SUBMITTED THAT AS AGAINST TOTA L INVESTMENT OF RS. 49,12,275/- AS ON 31-03-2004 THE SAME HAS GONE DOWN TO RS. 8,70,23 0/- DURING THE CURRENT YEAR. HE SUBMITTED THAT THE CAPITAL AND FREE RESERVES OF THE ASSESSEE COMPANY IS SUFFICIENT TO MEET THE NEGLIGIBLE INVESTMENT SHOWN IN THE BALANCE SHEET AND NO PART OF THE BORROWED FUND HAS BEEN UTILISED FOR ACQUIRIN G SHARES AND BONDS, THE INCOME OF WHICH IS EXEMPT. REFERRING TO THE DECISION OF T HE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF BALRAMPUR CHINNI MILLS VS. DCIT REPO RTED IN 140 TTJ 73 HE 7 SUBMITTED THAT PROVISIONS OF SECTION 14A AND RULE 8 D CAN BE INVOKED ONLY WHEN THE AO IS NOT SATISFIED WITH REGARD TO THE ACCOUNTS OF THE ASSESSEE THAT THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE IS NOT CORRECT AND THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN MADE IN RELATION TO IN COME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. WHEN NEITHER THE AO NOR THE CIT(A) HAS GIVEN ANY FINDING THAT HAVING REGARD TO THE ACCOUNTS OF THE A SSESSEE, THEY ARE NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MA DE BY THE ASSESSEE OR THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN I NCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, NO AD DITION CAN BE MADE. 10. REFERRING TO THE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF CIT VS. GODREJ & BOYCE MANUFACTURING COMPANY LTD. R EPORTED IN 2 DTR (BOMBAY) 36 HE SUBMITTED THAT PROVISIONS OF RULE 8D ARE APPLICABLE FROM ASSESSMENT YEAR 2008-09 ONWARDS AND ARE NOT APPLICA BLE TO ASSESSMENT YEAR 2005-06. HE SUBMITTED THAT WHEN NO PART OF THE BOR ROWED FUND HAS GONE TO MEET THE COST OF INVESTMENT, THEREFORE, NO DISALLOWANCE U/S. 14A CAN BE MADE. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE FOLLOWING DECISIONS. (I) HARIHAR FINANCE CORPORATION VS. ACIT VIDE ITA N O. 38/PN/2004 FOR ASSESSMENT YEAR 2001-02 (II) AUCHTEL PRODUCTS LTD., VS. ACIT VS. 3183/MUMBA I/2011 ORDER DATED 30-04-2012. (III) MAXOPP INVESTMENTS LTD. AND OTHER VS. CIT, DE LHI HIGH COURT. 11. THE LEARNED D.R. ON THE OTHER HAND STRONGLY RE LIED ON THE ORDER OF THE CIT(A). 12. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. FROM THE COPY OF THE BALANCE SHEET, WE FIND THE INVESTMENT D URING THE IMPUGNED ASSESSMENT YEAR HAS GONE DOWN TO RS. 8,70,230 AS ON 31-03-2005 AS AGAINST 49,12,275/- AS ON 31-03-2004. SIMILARLY THE SHARE CAPITAL AND FREE R ESERVES OF THE ASSESSEE COMPANY 8 WHICH WAS SHOWN AT RS. 9.53 CRORES AS ON 31-03-2004 HAS GONE UPTO RS. 12.68 CRORES AS ON 31-03-2005. THERE IS NO FINDING GIVEN BY THE AO OR THE LEARNED CIT(A) THAT ANY PART OF THE BORROWED FUND HAS BEEN UTILISED FOR ACQUIRING SHARES AND BONDS THE INCOME OF WHICH IS EXEMPT FROM TAX. FURTHER, THE AO HAS DISALLOWED ONLY PROPORTIONATE INTEREST AND THEREFO RE IMPLIEDLY HE HAS HELD THAT NO PART OF THE ADMINISTRATIVE EXPENDITURE HAS BEEN INC URRED FOR EARNING TAX FREE EXEMPT INCOME. SINCE THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE TO THE IMPUGNED ASSESSMENT YEAR IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACT URING CO. LTD. AND SINCE THE FREE RESERVES AND SHARE CAPITAL OF THE ASSESSEE CO MPANY IS SUBSTANTIALLY HIGH AS AGAINST THE MEAGRE AMOUNT OF INVESTMENT IN SHARES, THEREFORE, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE NO DISALLOWANCE U/S. 14A IN OUR OPINION IS REQUIRED. WE, THEREFORE, SET-ASIDE THE ORDER OF THE CIT(A) ON THI S ISSUE AND THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. ITA NO. 1010/PN/2010 (BY REVENUE) : 13. GROUND OF APPEAL NO. 2 BY THE REVENUE READS AS UNDER : WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE O F DEPRECIATION ON WINDMILL AMOUNTING TO RS.8,71,740/- ON CIVIL CONSTR UCTION WORK, TRANSFORMER, DP ETC. AND IN NOT APPLYING THE RATIO OF THE HONBLE ITAT, PUNE IN THE CASE OF POONAWALLA FINVEST & AGRO PVT. LTD., VS. ACIT WHEREIN THE HONBLE ITAT HAS HELD THAT THE HIGHER RATE OF D EPRECIATION IS NOT ADMISSIBLE IN RESPECT OF CIVIL CONSTRUCTION WORK OF WINDMILL 14. FACTS OF THE CASE IN BRIEF ARE THAT THE AO DISA LLOWED AN AMOUNT OF RS. 8,71,740/- OUT OF THE TOTAL DEPRECIATION CLAIMED BY THE ASSESSEE ON WIND MILL BY TAKING THE NORMAL RATE OF DEPRECIATION IN RESPECT O F THE CIVIL CONSTRUCTION AND ELECTRICAL EQUIPMENTS AS AGAINST HIGHER RATE OF DEP RECIATION CLAIMED BY THE ASSESSEE. FOR THIS PURPOSE HE FOLLOWED THE ORDER O F HIS PREDECESSOR FOR ASSESSMENT YEAR 2004-05. 9 14.1 IN APPEAL, THE LEARNED CIT(A) FOLLOWING THE DE CISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 ALL OWED THE CLAIM OF THE ASSESSEE. THE RELEVANT OBSERVATIONS OF THE LEARNED CIT(A) AT PARA NO. 20 AND 21 READS AS UNDER : 20. I HAVE CONSIDERED THE MATTER CAREFULLY. IN TH EIR ORDER DATED 31-03- 2009, THE HONBLE ITAT PUNE B-BENCH, RELYING ON THE DECISION IN POONAWALLA FINVEST (SUPRA) HAVE CLEARLY DECIDED TH E ISSUE IN THE APPELLANTS FAVOUR. AS SUCH, DEFERRING TO THE DECI SION OF THE SUPERIOR JUDICIAL AUTHORITY, I HEREBY HOLD THAT DEPRECIATION ON CIVIL CONSTRUCTION TRANSFORMER AND DP, WERE ALSO ALLOWABLE AT THE RATE APPLICABLE TO THE WINDMILL. 21. ACCORDINGLY, THIS GROUND IS ALSO DECIDED IN FAV OUR OF THE APPELLANT AND IS ALLOWED. 15. AFTER HEARING BOTH THE SIDES, WE FIND NO INFIRM ITY IN THE ORDER OF THE LEARNED CIT(A). THE AO FOLLOWING THE ORDER OF HIS PREDECESS OR FOR ASSESSMENT YEAR 2004- 05 HAS DISALLOWED THE CLAIM OF HIGHER DEPRECIATION AND MADE THE ADDITION. THE ORDER OF THE AO HAS BEEN REVERSED BY THE TRIBUNAL A ND THE LEARNED CIT(A) WHILE ADJUDICATING THE ISSUE FOR ASSESSMENT YEAR 2005-06 HAS FOLLOWED THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05. UNDER THESE CIRCUMSTANCES AND IN ABSENCE OF ANY CONTRARY MATER IAL BROUGHT TO OUR NOTICE THE GROUND RAISED BY THE REVENUE IS DISMISSED. ITA NO. 1091/PN/2010 (BY ASSESSEE ASSESSMENT YEAR 2006-07) : 16. IN APPEAL NO. 1 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 10,747/- U/S. 14 A MADE BY THE AO. 17. AFTER HEARING BOTH THE SIDES, WE FIND THIS GROU ND OF THE ASSESSEE IS IDENTICAL TO GROUND OF APPEAL NO. 2 IN ITA NO. 1090/PN/2010. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUND RAISED BY THE ASSESSEE HAS BEEN ALLOWED. FOLLOWING THE SAME RATIO, THIS GROUND BY THE ASSESSEE IS ALLOWED. 10 18. GROUND APPEAL NO. 2 BY THE ASSESSEE READS AS UN DER : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE & IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 2,70,490/- & RS. 19,25,905/- TOWARDS AMOUNTS RECEIVABLE FROM PCMC AN D CENVAT RESPECTIVELY TREATING THE SAME SHOULD HAVE BEEN CLA IMED IN THE YEAR OF PAYMENT. 19. FACTS OF THE CASE IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE APPELLANT-COMPAN Y HAD DEBITED AN AMOUNT OF RS. 23,29,685/- UNDER THE HEAD ADVANCE NO LONGER R ECEIVABLE. ON BEING QUESTIONED BY THE AO, IT WAS SUBMITTED THAT THE SAI D AMOUNT CONSISTS OF I) ADVANCE PAID TO ONE M/S. IOTA TECHNOLOGIES LTD., (RS. 1,33, 290/-) FOR ERP DEVELOPMENT, II) OCTROI DEPOSIT PAID TO PCMC (RS. 2,70,490/-) ON MATERIAL SENT FROM SATARA TO PUNE FOR PROCESS/RECTIFICATION, AND III) EXCISE DUT Y (RS. 19,25,905/-) PAID UNDER RULE 57F(4) AS DEPOSIT FOR GOODS SENT TO VENDORS FO R JOB-WORK ON WHICH CENVAT COULD NOT BE CLAIMED AS THE MATERIAL WAS RECEIVED L ATE. THE ASSESSEE EXPLAINED THAT THE SAME REPRESENTED ACCUMULATED AMOUNT WHICH WAS P AID TOWARDS EXCISE DUTY FROM OCTOBER 1997 ONWARDS. AT THE TIME OF CLEARANC E OF MATERIAL FROM THE ASSESSEES FACTORY TO THE PARTY TO WHOM THE MATERIA L IS SENT FOR PROCESSING, THE ASSESSEE PAYS 10% AMOUNT AS EXCISE DUTY. WHEN THE MATERIAL IS RECEIVED BACK THE ASSESSEE CLAIMS THIS EXCISE DUTY AS MODVAT/CENVAT. HOWEVER, DUE TO ADMINISTRATIVE DELAY OVER THE YEARS, THE SAID AMOUN T OF CENVAT WAS NOT CLAIMED BY THE ASSESSEE AND WAS CARRIED FORWARD AND SHOWN A S ADVANCE RECOVERABLE WHICH HAS BEEN WRITTEN OFF IN THE P.Y. UNDER CONSIDERATIO N. 20. AS REGARDS THE ADVANCE PAID TO M/S. IOTA TECHNO LOGIES LTD., THE AO ACCEPTED THE ASSESSEES EXPLANATION AND AS SUCH, TH ERE IS NO DISPUTE REGARDING THIS AMOUNT. 11 21. AS REGARDS THE PAYMENT TO PCMC, THE AO WAS OF T HE VIEW THAT THE SAME WAS OF CAPITAL NATURE AND ALSO THAT THE PAYMENTS RELATE D TO EARLIER YEARS AND NOT TO THE PY UNDER CONSIDERATION. ACCORDINGLY, SHE DISALLOWE D THE SAID AMOUNT OF RS. 2,70,490/-. 22. IN SO FAR AS THE AMOUNT PAID IN CENVAT IS CONCE RNED, THE AO OBSERVED THAT THE PAYMENT OF RS. 19,25,905/- DID NOT RELATE TO TH E YEAR IN QUESTION. THE ENTIRE TRANSACTION RELATED TO FY 1997-98 AND THE SAID EXPE NDITURE HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR EARNING THE INCOME FOR A Y 2006-07. SHE WAS OF THE VIEW THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING , THE CLAIM HAS TO BE MADE IN THE YEAR IN WHICH THE EXPENDITURE IS INCURRED, AND IF AN EXPENDITURE IS NOT CLAIMED IN THE RIGHT YEAR, THE RIGHT TO CLAIM THE SAME IS L OST FOREVER. FOR THIS PROPOSITIONS HE RELIED ON THE DECISION OF THE HONBLE MADRAS HIG H COURT IN THE CASE OF DEVI FILMS PRIVATE LTD (1970) 75 ITR 301 AND VARIOUS OTH ER DECISIONS. SHE FURTHER HELD THAT IF ANY LOSS OCCURRED ON ACCOUNT OF NOT FOLLOWI NG THE PROVISIONS OF THE CENTRAL EXCISE ACT, EITHER BECAUSE OF NEGLIGENCE OR OTHERWI SE, IT IS NOT AN ALLOWABLE DEDUCTION UNDER THE INCOME TAX ACT. ACCORDINGLY, S HE DISALLOWED THE SAID AMOUNT OF RS. 19,25,905/-. 23. BEFORE THE CIT(A) THE ASSESSEE MADE DETAILED SU BMISSIONS TO JUSTIFY THE CLAIM. AS REGARDS OCTROI PAYMENT IT WAS SUBMITTED THAT OCTROI HAS TO BE PAID AS PER LAW WHILE TRANSFERRING GOODS FROM ONE FACTORY T O ANOTHER FACTORY FOR ANY PROCESSING OR RECTIFICATION. THE SAME CAN BE CLAIM ED BACK ON RECEIPT BACK OF RECTIFIED GOODS WITHIN TIME. BUT IF THE GOODS ARE NOT RECEIVED BACK OR RECEIVED LATE, OCTROI DEPOSIT LAPSES. IN THE CASE OF THE ASSESSEE THE GOODS WERE NOT RECEIVED BACK IN TIME AND WERE THEREFORE SHOWN AS OUTSTANDING REC EIVABLES IN THE BALANCE SHEET YEAR AFTER YEAR BUT WRITTEN OFF IN THE BOOKS OF AC COUNT AND HAS BEEN CORRECTLY AND DULY DEBITED IN PROFIT AND LOSS ACCOUNT. IT WAS SU BMITTED THAT THE AO WAS NOT 12 JUSTIFIED IN INFERRING THAT THE SAME WAS CAPITAL IN NATURE SINCE OCTROI DUTY IS PART OF THE SALE PRICE OF THE GOODS. 24. SO FAR AS THE AMOUNT OF RS. 19,25,905/- BEING D EPOSIT ON EXCISE DUTY IS CONCERNED, IT WAS SUBMITTED THAT AMOUNT RECEIVABLE FROM THE EXCISE DEPARTMENT WAS WRITTEN OFF IN ACCORDANCE WITH THE REQUIREMENTS OF SECTION 36(1)(VII) AS BAD DEBT/IRRECOVERABLE DEBT. REFERRING TO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF OMAN INTERNATIONAL BANK REPORTED IN 184 TAXMAN 324 IT WAS SUBMITTED THAT THE SAME IS IN ALLOWABLE EXPENDITURE . 25. HOWEVER, THE LEARNED CIT(A) WAS NOT CONVINCED W ITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE DISALLOWANCE MADE BY THE AO BY HOLDING AS UNDER : 19. HAVING GIVEN CAREFUL CONSIDERATION TO THE MATT ER, I AM NOT IN A POSITION TO AGREE WITH THE CLAIM ADVANCED BY THE AP PELLANT CITING THE PROVISIONS OF SECTION 36(1)(VII). THE APPELLANT-CO MPANY HAS CATEGORICALLY ASSERTED IN THEIR WRITTEN SUBMISSIONS BEFORE ME THA T THE SAID AMOUNTS WERE REVENUE ITEMS PAID AS A PART OF SALE PRICE OF GOODS , AND DULY TREATED AS REVENUE PAYMENTS. AS SUCH, BOTH THE AMOUNTS IN QUE STION, NAMELY OCTROI AND CENTRAL EXCISE/CENVAT, WERE CLEARLY SUMS PAYABLE B Y THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE, BY WHATEVER NAME CALLED, UN DER ANY LAW FOR THE TIME BEING IN FORCE WITHIN THE MEANING OF SECTION 43B O F THE ACT. UNDER THE SAID PROVISION, WHICH OVERRIDES THE PROVISIONS OF SECTIO N 36 AND SECTION 37, SUCH SUMS ARE ALLOWABLE ONLY FOR THE P.Y. IN WHICH THE S UM IS ACTUALLY PAID, IRRESPECTIVE OF THE P.Y. IN WHICH THE LIABILITY TO PAY SUCH SUM WAS ACTUALLY INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THEM. IN THIS CASE, AS PER THE APPELLA NTS OWN ADMISSION, IT IS NOT DOUBTED, RATHER IT IS ADMITTED, THAT THESE PERT AIN TO EARLIER YEARS. THAT BEING THE CASE, I HOLD THAT THE TWO AMOUNTS IN QUES TION WERE NOT ALLOWABLE FOR THE P.Y. RELEVANT TO A.Y. 2006-07. 25.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE A SSESSEE IS IN APPEAL BEFORE US. 13 26. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATE D THE SAME SUBMISSIONS AS MADE BEFORE THE AO AND CIT(A) AND SUBMITTED THAT THE PAY MENTS OF OCTROI DEPOSIT AND EXCISE DUTY ARE NOT EXPENDITURE IN ITS TRUE AND COR RECT NATURE BUT WERE ONLY DEPOSITS AND ARE ADVANCES PAID AS DEPOSITS WHICH AR E REQUIRED TO BE MADE ACCORDING TO THE RULES OF THE VARIOUS DEPARTMENTS. THESE DEPOSITS ARE TO BE REFUNDED AFTER CERTAIN CONDITIONS AND FORMALITIES. FURTHER NEITHER OF THESE PAYMENTS/DEPOSITS PERTAIN TO PAYMENT MADE IN ANY ON E PARTICULAR YEAR. THESE ARE ACCUMULATED AMOUNTS WHICH WERE PAID TOWARDS EXCISE DUTY SINCE OCTOBER, 1997 ONWARDS. HE SUBMITTED THAT THE DEPOSITS WITH PCMC AGAINST OCTROI COULD NOT BE CLAIMED FROM PCMC SINCE SUCH GOODS WERE NOT RECEIV ED IN TIME AND CONTINUED TO BE SHOWN IN THE BALANCE SHEET YEAR AFTER YEAR AS RE CEIVABLES. SIMILARLY IN THE CASE OF DEPOSITS AGAINST EXCISE DUTY, WHEN THE MATERIAL SENT FOR PROCESSING WAS RECEIVED BACK, MODVAT/CENVAT WHICH OUGHT TO HAVE BEEN CLAIME D WAS NOT CLAIMED DUE TO NEGLIGENCE OF THE ACCOUNTS DEPARTMENT AND TH ESE AMOUNTS CONTINUED TO BE SHOWN IN THE BALANCE SHEET AS RECEIVABLES YEAR AFTE R YEAR. REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF OMA N INTERNATIONAL BANK LTD. REPORTED IN 184 TAXMANN 314 AND IN THE CASE OF CIT VS. BIRLA BROTHERS PVT. LTD. REPORTED IN 77 ITR 751 HE SUBMITTED THAT BOTH THESE DEPOSITS ARE ALLOWABLE DEDUCTION. 27. THE LEARNED D.R. ON THE OTHER HAND HEAVILY RELI ED ON THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE DOES NOT FULFIL THE CONDITIONS PRESCRIBED U/S.36(1)(VII) AND 36(2) AND THEREFORE CANNOT BE CL AIMED AS BAD DEBT. FURTHER THE AMOUNTS DO NOT PERTAIN TO THE RELEVANT ASSESSMENT Y EAR SO AS TO CLAIM AS BUSINESS LOSS. THEREFORE, THE LEARNED CIT(A) WAS FULLY JUST IFIED IN UPHOLDING THE DISALLOWANCE MADE BY THE AO. 14 28. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE COMPANY IN THE PROFIT AND LOSS ACCOUNT HAS DEBITED AN AMOUNT OF RS.23,29,685/- UNDER THE HEAD ADVANCE NO LONGER RECEIVABLE. AFTER VERIFICATION OF THE DETAILS FUR NISHED BY THE ASSESSEE THE AO ALLOWED THE CLAIM OF DEDUCTION OF RS. 1,33,290 IN R ESPECT OF ADVANCE PAID TO IOTA TECHNOLOGIES LTD. HOWEVER, HE DISALLOWED THE AMOUN T PAID AS OCTROI DEPOSITS TO PCMC FOR RS. 2,70,490 AND EXCISE DUTY PAID U/S.57F( 4) AMOUNTING TO RS. 19,25,905/-. THE ABOVE TWO DISALLOWANCES WERE CONF IRMED BY THE CIT(A). WE FIND THE LEARNED CIT(A) UPHELD THE DISALLOWANCE ON THE GROUND THAT OCTROI AND CENTRAL EXCISE/CENVAT WHICH ARE SUMS PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY, CESS OR FEE WITHIN THE MEANING OF SECTION 43B OF THE ACT AND THEREFORE ARE ALLOWABLE ONLY FOR THE PREVIOUS YEAR IN WHICH THE S AME IS ACTUALLY PAID IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS ACTUALLY INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THEM. SINCE THE ASSESSEE IN THE INSTANT CASE HAS ADMITTED THAT THESE AMOUNTS PERTAIN TO EARLIER YEARS, THEREFORE, HE DISALLOWED THE CLAIM O F THE ASSESSEE. IN OUR OPINION THE ORDER OF THE LEARNED CIT(A) DOES NOT SUFFER FROM AN Y INFIRMITY AND IS IN ACCORDANCE WITH LAW. THEREFORE, THE SAME IS UPHELD . SO FAR AS THE DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE WE FIND THOSE DECISIONS ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE THEY RELATE TO THE ALLOWABILITY OF BAD DEBT. IN THIS VIEW OF T HE MATTER WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) AND ACCORDINGLY UPH OLD THE SAME. GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 15 29. IN THE RESULT, CROSS APPEALS FOR A.Y. 2005-06 A RE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL FOR A.Y. 2006-07 BY THE ASSESSE E IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE 2012. SD/- SD/- (I.C. SUDHIR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED THE 25 TH JUNE 2012 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE DY.CIT,CIRCLE-10, PUNE 2. THE CIT(A)-V, PUNE 3. THE ACIT, RANGE-10, PUNE 4. THE CIT CONCERNED 5. D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE ORDER PRONOUNCED IN THE OPEN COURT ON 25-06-2012 SD/- SD/- (R.K. PANDA) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER