DCIT, Chandigarh V. M/s A.B. Sugar Mills Ltd., Chandigarh

ITA 1141/CHANDI/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68592 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 14-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Proportionate interest; Retrospective amendment; Notional interest; Commercial expediency; Capital expenditure
• Section: 43B; 14A; 115JB; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1120/CHD/2010 ASSESSMENT YEAR : 2006-07 A.B. SUGARS LTD VS. I.T.O. WARD 5(5) H N. 77, SECTOR 11-A CHANDIGARH CHANDIGARH AABCG 3045M ITA NO. 1141/CHD/2010 ASSESSMENT YEAR : 2006-07 D.C.I.T. CIRCLE 1(1) VS. A.B. SUGARS LTD CHANDIGARH H N. 77, SECTOR 11-A CHANDIGARH ITA NO. 554/CHD/2011 ASSESSMENT YEAR : 2007-08 A.B. SUGARS LTD VS. ADDL CIT, RANGE 1 H N. 77, SECTOR 11-A CHANDIGARH CHANDIGARH AABCG 3045M ITA NO. 616/CHD/2011 ASSESSMENT YEAR : 2007-08 D.C.I.T, CIRCLE 1(1) VS. A.B. SUGARS LTD CHANDIGARH H N. 77, SECTOR 11-A CHANDIGARH (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI T.N. SINGLA DEPARTMENT BY: SMT. JYOTI KUMARI DATE OF HEARING 1 0.10.2013 DATE OF PRONOUNCEMENT 27.11.2013 O R D E R PER BENCH THESE APPEALS ARE CROSS APPEALS AND ARE DIREDCTED A GAINST THE ORDERS DATED 2.6.2010 AND 28.1.2011 OF THE LD. CIT(A). 2 ITA NO. 1120/CHD/2010 ASSESSEES APPEAL 2 IN THIS APPEAL THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1 THAT THE ORDERS OF LEARNED CIT(A) IS BAD, AGAINS T THE FACTS & LAW. 2 THAT THE LEARNED CIT(A) HAS WRONGLY DISALLOWED EX PENDITURE OF RS. 4,35,457/- U/S 40(A)(IA) OF THE INCOME TAX ACT . 3. THAT THE LEARNED CIT(A) HAS WRONGLY DISALLOWED P ROPORTIONATE INTEREST AND EXPENSES AMOUNTING TO RS. 7,19,512/- U /S 14A OF THE ACT. 4. THAT THE LEARNED CIT(A) HAS WRONGLY DISALLOWED E XPENSES OF RS. 60,97,429/- U/S 14A OF THE ACT. 5. THAT THE LEARNED CIT(A) HAS WRONGLY DISALLOWED E XPENSES AMOUNTING TO RS. 65,823/- U/S 14A OF THE ACT. 6. THAT THE LEAREND CIT(A) HAS WRONGLY ADDED DISALL OWANCE U/S 14A AS PART OF BOOK PROFIT FOR LEVY OF MAT U/S 115JB OF THE INCOME TAX ACT, 1961. 3 GROUND NO. 1 IS OF GENERAL NATURE AND DOES NOT RE QUIRE ANY SEPARATE ADJUDICATION. GROUND NO. 6 WAS NOT PRESSED BEFORE US AND THE SAME IS DISMISSED AS NOT PRESSED. 4 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT FROM THE DETAILS REGARDING TAX DEDUCTED BY THE ASSESSEE FROM VARIOUS FUNDS, IT WAS FOUND THAT NO TAX WAS DEDUCTED IN RES PECT OF FOLLOWING AMOUNTS: PARTICULAR AMOUNT (RS.) PROFESSIONAL 481123/- FREIGHT 20,000/- ADVERTISEMENT 330280/- TOTAL 831403/- THE ASSESSING OFFICER INVOKED PROVISIONS OF SECTION 40(A)(IA) AND DISALLOWED A SUM OF RS. 4,35,457/- AFTER REDUCING T HE AMOUNT OF RS. 3,95,952/- WHICH WAS DISALLOWED BY THE ASSESSEE IT SELF. 5 ON APPEAL THE DISALLOWANCE WAS CONFIRMED BY THE L D. CIT(A). 3 6 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMIT TED THAT NO TAX IS REQUIRED TO BE DEDUCTED FROM THE FREIGHT PAY MENTS IF ITS LESS THAN RS. 20,000/- BECAUSE SECTION 194C PROVIDES FOR DEDUCTION ONLY IF THE SUM EXCEEDS RS. 20,000/-. FOR OTHER P AYMENTS HE DID NOT MAKE ANY ARGUMENTS. 7 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE REL IED ON THE ORDER OF THE LD. CIT(A). 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT SECTION 194C WOULD APPLY ONLY IF THE PAYMENT MADE EXCEEDS RS. 20 ,000/- SINCE FREIGHT PAYMENTS HAS BEEN MADE ONLY FOR RS. 20,000/ - THEREFORE, TDS PROVISIONS OF SECTION 194C WAS NOT APPLICABLE W ITH RESPECT TO THIS PAYMENT OF FREIGHT. HOWEVER, AS FAR AS OTHER ITEMS ARE CONCERNED, SINCE NO ARGUMENTS WERE MADE, WE PRESUME THAT THE ASSESSEE HAS NOTHING TO OFFER AND ACCORDINGLY WE CO NFIRM THE ADDITION U/S 40(A)(IA) IN RESPECT OF ALL THE PAYME NTS EXCEPT FOR PAYMENTS OF RS. 20,000/- ON ACCOUNT OF FREIGHT. T HEREFORE, THIS GROUND IS PARTLY ALLOWED. 9 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE A SSESSING OFFICER THAT THE ASSESSEE HAS INVESTED A SUM OF RS. 1,62,61,810/- IN SHARES. SINCE THE INCOME FROM SHARES WAS EXEMPT THE REFORE, ASSESSING OFFICER INVOKED PROVISIONS OF SECTION 14A R.W. RULE 8D AND DISALLOWED RS. 7,19,513/- WHICH WAS WORKED AS U NDER: TOTAL INTEREST EXPENDITURE RS. 7,28,21,595/- A INVESTMENT AS ON 01-04-2005 RS.1,76,28,850/- INVESTMENT AS ON 31-03-2006 RS. 1,62,61,810/- AVERAGE INVESTMENT RS. 1,69,45,330/- B TOTAL ASSETS AS ON 01-04-2005 RS. 1,68,97,25,252/ - TOTAL ASSETS AS ON 31-03-2006 RS. 2,19,81,46,077/ - AVERAGE OF TOTAL ASSETS RS. 1,94,39,35,665/-C AMOUNT DISALLOWABLE ON ACCOUNT OF = A X .B. INTEREST [(RULE 8D(2)(II)] C = 7,28,21,595 X 1,69,45,330/- 1,94,39,35,665 = RS. 6,34,787/- OTHER AMOUNT DISALLOWABLE = 0.5% OF 1,69,45,330 (RULE 8D(2)(III) = RS. 84,726/- TOTAL AMOUNT DISALLOWABLE AS PER SECTION 14A IS THU S RS. 7,19,513/- (RS. 6,34,787 + RS. 84,726). SO A DISALLOWANCE OF RS. 7 ,19,512/- IS MADE AS PER PROVISIONS OF SECTION 14A OF INCOME TAX ACT. 4 10 ON APPEAL THE DISALLOWANCE HAS BEEN CONFIRMED BY THE LD. CIT(A). 11 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE ASSESSING OFFICER HAS MADE THIS DISALLOWANCE BY APP LYING RULE 8D. HE FURTHER SUBMITTED THAT RULE 8D IS NOT APPLICABLE IN THE PRESENT YEAR BECAUSE SAME HAS BEEN HELD TO BE APPLICABLE ON LY FROM ASSESSMENT YEAR 2008-09 BY HON'BLE BOMBAY HIGH COUR T IN CASE OF GODREJ AND BOYCE MANUFACTURING V. DCIT, 328 ITR 81 (BOM). 12 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UBMITTED THAT HON'BLE BOMBAY HIGH COURT IN CASE OF GODREJ AND BOY CE MANUFACTURING V. DCIT (SUPRA) HAS FURTHER HELD THAT REASONABLE DISALLOWANCE CAN BE MADE EVEN IN EARLIER YEARS. 13 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. HON'BLE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE MANUFAC TURING VS. DCIT, 328 ITR 81 (BOM) HAS CLEARLY HELD THAT RULE 8 D WOULD NOT HAVE RETROSPECTIVE APPLICATION. THEREFORE, IT IS C LEAR THAT RULE 8D IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. HOWEVER, AT THE SAME TIME, HON'BLE BOMBAY HIGH COURT IN THE SAME CASE HA S FURTHER OBSERVED THAT THE ASSESSING OFFICER HAS POWER TO MA KE REASONABLE DISALLOWANCE U/S 14A. CONSIDERING THE OVERALL CIRC UMSTANCES WE ARE OF THE OPINION THAT IF AN DISALLOWANCE OF RS. 1.00 LAKH IS MADE THEN SAME WOULD MEET THE ENDS OF JUSTICE AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO M AKE DISALLOWANCE OF RS. 1.00 LAKH. 14 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKE D TO FURNISH THE DETAILS OF VARIOUS ADVANCES WHICH WERE FILED BY THE ASSESSEE. IT WAS NOTICED THAT THE ASSESSEE HAD MADE INVESTMENTS IN A FIRM, INCOME OF WHICH WAS EXEMPT. THE ASSESSEE WAS ASKED WHY THE PROVISIONS OF SECTION 14A SHOULD NOT BE INVOKED TO DISALLOW THE PROPORTIONATE EXPENDITURE. IN RESPONSE IT WAS SUBM ITTED THAT SINCE NO EXPENDITURE WAS INCURRED, THEREFORE, NO DISALLO WANCE CAN BE MADE. HERE ALSO THE ASSESSING OFFICER INVOKED RULE 14A R.W.R. 8D AND WORKED OUT THE ADDITION OF RS. 60,97, 429/- WHI CH HAS BEEN WORKED OUT IN PARA 6.2 AS UNDER: TOTAL INTEREST EXPENDITURE RS. 7,28,21,595/- A INVESTMENT AS ON 01-04-2005 RS.7,09,90,500/- INVESTMENT AS ON 31-03-2006 RS. 21,62,11,514/- 5 AVERAGE INVESTMENT RS. 14,36,01,007/- B TOTAL ASSETS AS ON 01-04-2005 RS. 1,68,97,25,252/ - TOTAL ASSETS AS ON 31-03-2006 RS. 2,19,81,46,077/ - AVERAGE OF TOTAL ASSETS RS. 1,94,39,35,665/- C AMOUNT DISALLOWABLE ON ACCOUNT OF = A X .B. INTEREST [(RULE 8D(2)(II)] C = 7,28,21,595 X 14,36,01,007/-/- 1,94,39,35,665 = RS. 53,79,424/- OTHER AMOUNT DISALLOWABLE = 0.5% OF 14,36,01,007 (RULE 8D(2)(III) = RS. 7,18,005/- TOTAL AMOUNT DISALLOWABLE AS PER SECTION 14A IS THU S RS. 60,97,429/- (RS. 53,79,424/- + RS. 7,18,005/-). SO A DISALLOWANCE OF RS. 60,97,429/- IS MADE AS PER PROVISIONS OF SECTION 14A OF INCOME TAX ACT. 15 ON APPEAL THE DISALLOWANCE WAS CONFIRMED BY THE LD. CIT(A). 16 BOTH THE PARTIES MADE SIMILAR ARGUMENTS AS IN RE SPECT OF GROUND NO. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS C AREFULLY. HON'BLE BOMBAY HIGH COURT HAS CLEARLY HELD IN CASE OF GODREJ & BOYCE MANUFACTURING VS. DCIT (SUPRA) THAT RULE 8D W OULD NOT HAVE RETROSPECTIVE APPLICATION. THEREFORE, IT IS CLEAR THAT RULE 8D IS APPLICABLE FOR ASSESSMENT YEAR 2008-09. HOWEVER, A T THE SAME TIME, HON'BLE BOMBAY HIGH COURT IN THE SAME CASE HA S FURTHER OBSERVED THAT THE ASSESSING OFFICER HAS POWER TO MA KE REASONABLE DISALLOWANCE U/S 14A. CONSIDERING THE OVERALL CIRC UMSTANCES WE ARE OF THE OPINION THAT IF AN DISALLOWANCE OF RS. 5.00 LAKHS IS MADE THEN SAME WOULD MEET THE ENDS OF JUSTICE AND ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO M AKE DISALLOWANCE OF RS. 5.00 LAKHS. 17 GROUND NO. 5 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAS SHOWN AGRICULTURAL INCOME. THE ASSESSEE WAS RE QUIRED TO FURNISH THE DETAILS. IT WAS SUBMITTED THAT AGRICUL TURAL ACTIVITIES WERE CARRIED OUT ON APPROXIMATE 8 ACRES OF SPARE LAND IN THE FACTORY. IT WAS FURTHER SUBMITTED THAT NO EXPENDITURE RELATING TO AGRICULTURAL ACTIVITIES WAS DEBITED IN THE ACCOUNTS. HOWEVER, T HE ASSESSING OFFICER DID NOT AGREE WITH THE SAME AND WORKED OUT THE DISALLOWANCE U/S 14A AMOUNTING TO RS. 65,826/-. 18 ON APPEAL THE DISALLOWANCE WAS CONFIRMED BY THE LD. CIT(A). 19 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT WHEN NO EXPENDITURE HAS BEEN CLAIMED IN RELATION TO AGRI CULTURAL ACTIVITIES 6 THERE IS NO QUESTION OF DISALLOWANCE PARTICULARLY I N VIEW OF THE FACT THAT AGRICULTURAL ACTIVITIES WERE CONDUCTED ON SPA RE LAND WITHIN THE PREMISES OF THE FACTORY AND NOT AS A ORGANIZED ACTI VITY. 20 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S TRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 21 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. IN THIS CASE IT IS A FACT THAT AGRICULTURAL ACTIVITIES WAS DONE ON SO ME PORTIONS OF THE LAND WITHIN THE PREMISES OF THE FACTORY WHICH WAS V ACANT. THE ASSESSEE HAS SHOWN NET AGRICULTURAL INCOME IN THE R ETURN AND NO EXPENDITURE HAS BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT. THEREFORE, IN OUR OPINION, THERE CAN NOT BE ANY DI SALLOWANCE TOWARDS GENERAL ADMINISTRATION EXPENSES BECAUSE FOR AGRICULTURAL ON FACTORY PREMISES HARDLY ANY ADMINISTRATIVE EXPEN SES WOULD BE REQUIRED. ACCORDINGLY WE SET ASIDE THE ORDER OF T HE LD. CIT(A) AND DELETE THE ADDITION. 22 IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 1141/CHD/2010 REVENUE APPEAL 23 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITION M ADE BY THE A.O ON ACCOUNT OF DISALLOWING INTEREST EXPENSES OF RS. 14, 08,940/-. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITION M ADE BY THE A.O BY TREATING EMPLOYEES CONTRIBUTION TOWARDS EPF AS INCO ME AS PER PROVISIONS OF SECTION 2(24)(X) AND NOT ALLOWING DED UCTION OF THE SAME AS PER SECTION 36(1)(VA) OF THE INCOME TAX ACT, 1961. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE DISALLOWAN CE MADE BY THE ASSESSING OFFICE AS PART OF BOOK PROFIT FOR LEVY OF MAT U/S 115JB OF THE INCOME TAX ACT, 1961. 24 GROUND NO. 1 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT T HE ASSESSEE HAD INCURRED SOME CAPITAL EXPENDITURE BY MAKING BOR ROWINGS, THEREFORE, THE ASSESSING OFFICER WAS OF THE OPINIO N THAT INTEREST WAS NOT ALLOWABLE FOR PURCHASING CAPITAL ASSETS FOR EXTENSION OF BUSINESS. IT WAS FURTHER NOTED THAT THERE WAS SOME TIME GAP BETWEEN THE PAYMENTS FOR PURCHASE OF ASSET AND COMM ISSIONING OF 7 SUCH ASSETS. IN THIS BACKGROUND THE ASSESSEE WAS A SKED TO EXPLAIN THE DETAILS. IN RESPONSE IT WAS SUBMITTED AS UNDER : WITH REFERENCE TO THE DETAILS REGARDING INTEREST O N PAYMENTS MADE TO SUPPLIES OF FIXED ASSETS SUBMITTED TO YOUR GOOD SE LF ALONGWITH LETTER DATED 22.12.08, IT IS HEREBY SUBMITTED THAT THE SAI D DETAIL IS PREPARED AS PER THE DIRECTIONS OF YOUR GOOD SELF AND IT IS NOT AGREEABLE FOR THE SAME TO BE CAPITALIZED. IT IS ALSO SUBMITTED THAT AS PE R CLAUSE (III) OF SECTION 36 ANY INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESS ION IT IS NOT ALLOWED FOR DEDUCTION UNDER THIS SECTION. HOWEVER, IN THE A SSESSEES CASE THERE IS NO EXTENSION OF BUSINESS IN THE FINANCIAL YEAR 2 005-06 AND ASSETS HAVE BEEN ACQUIRED IN EXISTING BUSINESS AND NO NEW UNIT HAS BEEN FORMED. HOWEVER, ASSESSEE HAS CAPITALIZED INTEREST IN POWER PLANT. THE ASSESSING OFFICER AFTER CONSIDERING THE ABOVE R EPLY, WAS NOT SATISFIED. HE OBSERVED THAT THE ASSESSEE HAD ITSEL F CAPITALISED INTEREST ON POWER PLANT BUT THE SAME HAS NOT BEEN D ONE IN RESPECT OF OTHER ITEMS OF CAPITAL ASSETS AND ACCORDINGLY INTEREST AMOUNTING TO RS. 14,88,940/- WAS DISALLOWED. THIS DISALLOWAN CE WAS CALCULATED AS PER ANNEXURE A-1 WHICH HAS BEEN ANNEX ED TO THE ASSESSMENT ORDER. 25 ON APPEAL IT WAS MAINLY SUBMITTED THAT PROVISO T O SECTION 36(1)(III) IS NOT APPLICABLE IF THE ASSETS ARE REQU IRED FOR THE EXISTING BUSINESS. IN ANY CASE THE ASSETS WERE NOT ACQUIRED FROM THE BORROWED FUNDS AND THE BORROWINGS WERE MADE ON POWE R PLANT AND THE INTEREST IN THE SAME HAS BEEN CAPITALIZED BY TH E ASSESSEE. 26 THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS R EFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN CASE OF DCIT V S. CORE HEALTH CARE LTD. 215 CTR 1 AND IN CASE OF JCT LTD. VS. DCI T, 194 CTR 509. ACCORDING TO HER FROM THESE DECISIONS IT BECO MES CLEAR THAT THE PROVISO TO SECTION 36(1)(III) WOULD BE APPLICAB LE IF THE BORROWINGS WERE MADE FOR THE PURPOSE OF PURCHASING CAPITAL ASSETS FOR EXTENSION OF THE BUSINESS. SHE WAS OF THE OPIN ION THAT THE ASSESSING OFFICER HAS CONFUSED THE ISSUE BECAUSE TH ESE ASSETS WERE PURCHASED FOR BUSINESS WHICH WAS INCREASING TH E PRODUCTIVITY AND EFFICIENCY BUT THE SAME CANNOT BE CONSIDERED AS EXTENSION OF THE BUSINESS. ACCORDINGLY SHE DELETED THE ADDITIO N. 27 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY S UPPORTED THE ORDER OF THE ASSESSING OFFICER. 28 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUPPORTED THE IMPUGNED ORDER AND ALSO REFERRED TO ANNEXURE A- 1 TO THE ASSESSMENT ORDER AND POINTED OUT THAT PERUSAL OF TH E DETAILS WOULD 8 SHOW THAT THE AMOUNTS ARE SO SMALL AND THEY CANNOT BE FOR THE PURPOSE OF EXTENSION OF BUSINESS. 29 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. WE HAVE ALSO GONE THROUGH ANNEXURE A-1. THOUGH THE NAMES OF ITE MS PURCHASED ARE NOT MENTIONED BUT THE PERUSAL OF THE ANNEXURE C LEARLY SHOW THAT AMOUNT OF INTEREST IS GENERALLY VERY SMALL AND THER EFORE, IT CAN BE SAFELY SAID THAT THESE ITEMS WERE PURCHASED FOR EXI STING BUSINESS. IN ANY CASE THE ASSESSING OFFICER HAS NOT BROUGHT O N RECORD IN WHAT RESPECT THERE WAS EXTENSION IN THE BUSINESS BY WAY OF CREATING ADDITIONAL CAPACITY OR NEW BUSINESS. THEREFORE, W E FIND NOTHING WRONG IN THE ORDER OF THE LD. CIT(A) AND CONFIRM TH E SAME. 30 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT PAYMENT IN RESPECT OF EMPLOYEES PROVIDENT FUND HAS BEEN MADE LATE. ON ENQUIRY IT WAS SUBMITTED THAT GENERALLY PAYMENTS HA VE BEEN MADE ON THE NEXT DUE DATE WHICH WAS WORKING DAY. THE AS SESSING OFFICER DID NOT AGREE WITH THE SUBMISSIONS AND ADDED A SUM OF RS. 1,76,347/- TO THE INCOME OF THE ASSESSEE. 31 ON APPEAL, THE LD. CIT(A) FOLLOWED THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. NUCH EM LTD. IN ITA NO. 323 OF 2009 DELETED THE ADDITION. 32 BEFORE US, THE LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 33 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 34 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE LD. CIT(A) HAS ADJUDICATED THIS ISSUE VIDE PARA 14 WHIC H IS AS UNDER: 14. I HAVE CONSIDERED THE VIAL CONTENTIONS AND I FI ND THAT THIS CONTROVERSY HAS NOW BEEN SET TO REST BY THE DECISIO N OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S NUC HEM LTD. IN ITA NO. 323 OF 2009, FOLLOWING THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. (2009) 227 CTR 417 WH EREIN THE HONBLE COURT HAS OBSERVED AS UNDER: SECTION 43B (MAIN SECTION), WHICH STOOD INSERTED BY THE FINANCE ACT, 1983, WITH EFFECT FROM APRIL1,1984, EXPRESSLY COMME NCES WITH A NON OBSTANTE CLAUS4E, THE UNDERLYING OBJECT BEING TO DI SALLOW DEDUCTIONS CLAIMED MERELY BY MAKING A BOOK ENTRY BASED ON THE MERCANTILE SYSTEM OF ACCOUNTING. AT THE SAME TIME, SECTION 43B(MAIN S ECTION) MADE IT MANDATORY FOR THE DEPARTMENT TO GRANT DEDUCTION IN COMPUTING THE INCOME UNDER SECTION 28 IN THE YEAR IN WHICH TAX, D UTY, CESS, ETC., IS ACTUALLY PAID. HOWEVER, PARLIAMENT TOOK COGNIZANCE OF THE FACT THAT THE 9 ACCOUNTING YEAR OF A COMPANY DID NOT ALWAYS TALLY W ITH THE DUE DATES UNDER THE PROVIDENT FUND ACT, MUNICIPAL CORPORATION ACT(OCTROI) AND OTHER TAX LAWS. THEREFORE, BY WAY OF THE FIRST PROV ISO, AN INCENTIVE / RELAXATION WAS SOUGHT TO BE GIVEN IN RESPECT OF TAX , DUTY, CESS OR FEE BY EXPLICITLY STATING THAT IF SUCH TAX, DUTY, CESS OR FEE IS PAID BEFORE THE DATE OF FILING OF THE RETURN UNDER THE INCOME-TAX ACT (D UE DATE), THE ASSESSEE(S) THEN WOULD BE ENTITLED TO DEDUCTION. HO WEVER, THIS RELAXATION /INCENTIVE WAS RESTRICTED ONLY TO TAX, D UTY, CESS AND FEE. IT DID NOT APPLY TO CONTRIBUTIONS TO LABOUR WELFARE FUNDS. THE REASON APPEARS TO BE THAT THE EMPLOYER(S) SHOULD NOT SIT ON THE COLLE CTED CONTRIBUTIONS AND DEPRIVE THE WORKMEN OF THE RIGHTFUL BENEFITS UNDER SOCIAL WELFARE LEGISLATIONS BY DELAYING PAYMENT OF CONTRIBUTIONS T O THE WELFARE FUNDS. HOWEVER, AS STATED ABOVE, THE SECOND PROVISO RESULT ED IN IMPLEMENTATION PROBLEMS, WHICH HAVE BEEN MENTIONED HEREINABOVE, AN D WHICH RESULTED IN THE ENACTMENT OF THE FINANCE ACT, 2003, DELETING THE SECOND PROVISO AND BRINGING ABOUT UNIFORMITY IN THE FIRST PROVISO EQUATING TAX, DUTY, CESS, AND FEE WITH CONTRIBUTIONS TO WELFARE FUNDS. ONCE THIS UNIFORMITY IS BROUGHT ABOUT IN THE FIRST PROVISO, THEN IN OUR VIE W, THE FINANCE ACT, 2003, WHICH IS MADE APPLICABLE BY PARLIAMENT ONLY W ITH EFFECT FROM APRIL 1,2004, WOULD BECOME CURATIVE IN NATURE, HENCE, IT WOULD APPLY, RETROSPECTIVELY, WITH EFFECT FROM APRIL 1, 1988. SE CONDLY, IT MAY BE NOTED THAT, IN THE CASE OF ALLIED MOTORS P. LTD. V. CIT R EPORTED IN [1997] 224 ITR 677 (SC), THE SCHEME OF SECTION 43B OF THE ACT CAME TO BE EXAMINED. IN THAT CASE, THE QUESTION WHICH AROSE FO R DETERMINATION WAS, WHETHER SALES TAX COLLECTED BY THE ASSESSEE AND PAI D AFTER THE END OF THE RELEVANT PREVIOUS YEAR BUT WITHIN THE TIME ALLOWED UNDER THE RELEVANT SALES TAX LAW SHOULD BE DISALLOWED UNDER SECTION 43 B OF THE ACT WHILE COMPUTING THE BUSINESS INCOME OF THE PREVIOUS YEAR? THAT WAS A CASE WHICH RELATED TO THE ASSESSMENT YEAR 1984-85. THE R ELEVANT ACCOUNTING PERIOD ENDED ON JUNE 30, 1983. THE INCOME-TAX OFFIC ER DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE WHICH WAS ON ACCO UNT OF SALES TAX COLLECTED BY THE ASSESSEE FOR THE LAST QUARTER OF T HE RELEVANT ACCOUNTING YEAR. THE DEDUCTION WAS DISALLOWED UNDER SECTION 43 B WHICH, AS STATED ABOVE, WAS INSERTED WITH EFFECT FROM APRIL 1,1984. IT IS ALSO RELEVANT TO NOTE THAT THE FIRST PROVISO WHICH CAME INTO FORCE W ITH EFFECT FROM APRIL 1,1988, WAS NOT ON THE STATUTE BOOK WHEN THE ASSESS MENT WERE MADE IN THE CASE OF ALLIED MOTORS P. LTD. [1977]224ITR677. HOWEVER, THE ASSESSEE CONTENDED THAT EVEN THOUGH THE FIRST PROVI SO CAME TO BE INSERTED WITH EFFECT FROM APRIL 1,1988, IT WAS ENTI TLED TO THE BENEFIT OF THAT PROVISO BECAUSE IT OPERATED RETROSPECTIVELY FR OM APRIL 1,1984, WHEN SECTION 43B STOOD INSERTED. THIS IS HOW THE QUESTIO N OF RETROSPECTIVELY AROSE IN ALLIED MOTORS P. LTD. [1977] 224 ITR 677. THIS COURT, IN ALLIED MOTORS P. LTD. [1997]224ITR677 HELD THAT WHEN A PRO VISO IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE SECT ION WORKABLE, A PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION IN THE S ECTION AND WHICH PROVISO IS REQUIRED TO BE READ INTO THE SECTION TO GIVE THE SECTION A REASONABLE INTERPRETATION, IT COULD BE READ AS RETR OSPECTIVE IN OPERATION, PARTICULARLY TO GIVE EFFECT TO THE SECTION AS A WHO LE. ACCORDINGLY, THIS COURT, IN ALLIED MOTORS P. LTD. [1997]224ITR677, HE LD THAT THE FIRST PROVISO WAS CURATIVE IN NATURE, HENCE, RETROSPECTIV E IN OPERATION WITH EFFECT FROM APRIL 1,1988. IT IS IMPORTANT TO NOTE O NCE AGAIN THAT, BY THE FINANCE ACT, 2003, NOT ONLY THE SECOND PROVISO IS D ELETED BUT EVEN THE FIRST PROVISO IS SOUGHT TO BE AMENDED BY BRINGING A BOUT UNIFORMITY. IT WAS FURTHER OBSERVED THAT PAYMENTS HAVE BEEN MAD E WITHIN GRACE PERIOD. SINCE THE PAYMENTS HAVE ALREADY BEEN MADE WITHIN GRACE PERIOD AND IN ANY CASE BEFORE DUE DATE OF FILING OF RETURN, THESE ARE CLEARLY ALLOWABLE IN VIEW OF THE DECISION OF HON'BL E PUNJAB & HARYANA HIGH COURT IN CASE OF CIT VS. NUCHEM LTD. I N ITA NO. 323 OF 2009, THEREFORE, WE CONFIRM THE ORDER OF THE LD . CIT(A). 35 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO HAS MADE FURTH ER ADDITIONS 10 IN THE BOOK PROFIT U/S 115JB ON ACCOUNT OF DISALLO WANCE MADE U/S 14A. 36 ON APPEAL, IT WAS MAINLY CONTENDED THAT NO SUCH ADJUSTMENT WAS POSSIBLE IN VIEW OF THE DECISION OF HON'BLE SUP REME COURT IN CASE OF APOLLO TYRES LTD VS. CIT, 255 ITR 273. THE LD. CIT(A) AGREED WITH THE SUBMISSIONS AND DELETED THE ADDITIO N. 37 BEFORE US, THE LD. DR FOR THE REVENUE SUBMITTED THAT SIMILAR DISALLOWANCES HAVE BEEN CONFIRMED IN CASE OF ITO VS . RBK. SHARE BROKING PVT LTD. IN ITA NO. 7546/MUM/2011. 38 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT SIMILAR ADDITION WAS DELETED IN CASE OF DCIT V . M/S IND SWIFT LTD. IN ITA NO. 729/CHD/2009 FOR ASSESSMENT YEAR 20 06-07. 39 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN CASE OF DCIT V. M/S IND SWIFT LTD. IN ITA NO. 729/CHD/2009 FOR A SSESSMENT YEAR 2006-07 AND THE SAME WAS DECIDED VIDE PARA 8 WHICH IS AS UNDER: 8 THE CONFUSION HAS ARISEN FROM THE WORDS EXTENSI ON OF EXISTING BUSINESS. TO MY MIND, THE ASSESSING OFFICER IS OF THE VIEW THAT ANY ASST B OUGHT FOR THE BUSINESS WILL HELP IN INCREASI NG THE PRODUCTIVITY AND EFFICIENCY OF A BUSINESS AND AS SUCH CAN BE CONSTRU CTED AS EXTENDING THE EXISTING BUSINESS. THOUGH HE HAS NOT PUT IT IN SO MANY WORDS, BUT I FEEL THAT THIS THINKING HAS LED TO THIS ADDITION IN THIS CASE. FOLLOWING THE ABOVE WE FIND NOTHING WRONG IN THE OR DER OF THE LD. CIT(A) AND DECIDE THIS ISSUE AGAINST THE REVENUE. 40 IN THE RESULT, REVENUE APPEAL IS DISMISSED. ITA NO. 554/CHD/2011 ASSESSEES APPEAL 41 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1. THAT THE ORDERS OF LEARNED CIT(A) IS BAD, AGAINS T THE FACTS & LAW. 2. THAT THE LEARNED CIT(A) HAS WRONGLY CONFIRMED DI SALLOWANCE OF PROPORTIONATE INTEREST AND EXPENSES AMOUNTING TO RS . 1,23,754/- U/S 14A OF THE ACT. 3. THAT THE LEARNED CIT(A) HAS WRONGLY CONFIRMED DI SALLOWANCE OF PART OF INTEREST U/S 36(1)(III) AMOUNTING TO RS. 65 ,72,728/- ON ADVANCES. 4. THAT THE LEARNED CIT(A) HAS WRONGLY CONFIRMED T REATMENT OF DEFERRED TAX AMOUNTING TO RS. 33563811/- AS BOOK PR OFITS FOR THE PURPOSE OF CALCULATING MAT U/S 115JB OF THE INCOME TAX ACT, 1961. 11 42 GROUND NO. 1 IS OF GENERAL NATURE AND DOES NOT R EQUIRE ANY SEPARATE ADJUDICATION. GROUND NO. 2 IS NOT PRESSE D BEFORE US AND THE SAME IS DISMISSED AS NOT PRESSED BEFORE US. 43 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSEE WAS REQU ESTED TO FURNISH COMPLETE DETAILS OF LOANS AND ADVANCES WHIC H WAS ACCORDINGLY FILED. FROM THE DETAILS IT WAS NOTICE D THAT HUGE BALANCE WAS OUTSTANDING AGAINST THE NAME OF K SONS AND ASSO CIATES. ON ENQUIRY FURTHER DETAILS WERE FILED BUT ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAD NOT GIVEN ANY REASON WHY T HIS LARGE AMOUNT OF BORROWED FUNDS WAS DIVERTED TO THE PARTNE RSHIP FIRM. AS PER THE RELATED PARTY DISCLOSURE SUBMISSIONS FILED ALONG WITH THE NOTES TO THE ACCOUNTS TO THE BALANCE SHEET IT WAS STATED THAT K SONS AND ASSOCIATES IS PARTNERSHIP CONCERN WHICH FE LL UNDER THE CATEGORY OF RELATED PARTIES. THE ASSESSEE HAD MADE VARIOUS ADVANCES TO THIS FIRM OUT OF BORROWED FUNDS. SINCE THE ASSESSEE HAD BORROWED FUNDS AS WELL AS INTEREST FREE FUNDS A ND ACCORDINGLY AVERAGE RATE OF INTEREST WAS WORKED OUT AND THE SAM E WAS DISALLOWED IN VIEW OF THE DECISION OF HON'BLE PUNJA B & HARYANA HIGH COURT IN CASE OF CIT VS. ABHISHEK INDUSTRIES, 286 I TR 1 (PH) AMOUNTING TO RS. 65,72,728/- WHICH HAS BEEN WORKED OUT AS UNDER: S.NO. DATED CLOSING BALANCE DISALLOWANCE OF INTEREST @2.55% 1 30.04.2006 192511513 409086.9651 2 31.05.2006 194511513 413336.9651 3 30.06.2006 194511513 413336.9651 4 31.07.2006 333046513 707723.8401 5 31.08.2006 306246513 650773.8401 6 30.09.2006 234246513 497773.8401 7 31.10.2006 240735741 511563.4496 8 30.11.2006 240735741 511563.4496 9 31.12.2006 239125741 508142.1996 10 31.01.2007 279125741 593142.1996 11 28.02.2007 299125741 635642.1996 12 31.03.2007 339125741 720642.1996 TOTAL 6572728.114 44 ON APPEAL BEFORE THE LD. CIT(A), IT WAS MAINLY S UBMITTED THAT THE ASSESSEE WAS PARTNER IN K SONS AND ASSOCIATES A ND DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER U/S 14A IN RESPECT OF INVESTMENTS MADE AND ALSO DISALLOWED TH E INTEREST ON OUTSTANDING MONTHLY BALANCES U/S 36(1)(III) THEREFO RE, THE ASSESSING OFFICER HAS MADE DOUBLE DISALLOWANCES. 12 45 THE LD. CIT(A) DID NOT FIND FORCE IN THESE CONTE NTIONS AND DECIDED THE ISSUE AGAINST THE ASSESSEE VIDE PARA 19 WHICH IS AS UNDER: 19. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND MAT ERIAL ON RECORD. I FIND THAT THE CONTENTION OF THE APPELLANT THAT DOUB LE DISALLOWANCE HAS BEEN MADE IS NOT CORRECT. THE APPELLANT HAS MADE IN VESTMENT IN M/S K.SONS AND ASSOCIATES WHICH WERE DISALLOWED U/S 14A BY THE AO. ON THE OTHER HAND, THE APPELLANT HAS ALSO PROVIDED LOANS W HICH AS ON 31.03.2007 STOOD AT RS. 3341.26 LACS. DURING THE AS SESSMENT PROCEEDINGS, AO WHILE EXAMINING THE BOOKS OF ACCOUN TS OF THE APPELLANT FOUND THAT MAINLY BOTH DEBIT AND CREDIT IN THE COPY OF ACCOUNT RELATED TO THE CHEQUE ISSUED/RECEIVED/BANK TRANSFER ETC AND TH ERE ARE NO BUSINESS TRANSACTIONS IN THE ACCOUNT OF M/S K.SONS & ASSOCIA TES. NEITHER DURING THE ASSESSMENT NOR AT THE APPELLATE STAGE, THE APPE LLANT PROVIDED ANY EVIDENCE WHICH COULD ESTABLISH THE COMMERCIAL EXPED IENCY OF GIVING SUCH HUGE LOAN TO M/S K.SONS AND ASSOCIATES. SINCE NO COMMERCIAL EXPEDIENCY HAS BEEN ESTABLISHED, THE DEDUCTION U/S 36(1)(III) ON THE INTEREST PAID CANNOT BE ALLOWED, AS THESE RELATE TO NON BUSINESS PURPOSES. 46 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). 47 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND UNABLE TO AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL OF TH E ASSESSEE. THE DISALLOWANCE U/S 14A PERTAINS TO CAPITAL INVESTMENT MADE BY THE ASSESSEE IN THE FIRM FROM WHERE THE PROFITS WOULD B E EXEMPT U/S 10(2A). THIS DISALLOWANCE RELATES TO EXPENDITURE I NCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME. ON THE OTHER HAN D, THE DISALLOWANCE U/S 36(1)(III) IS RELATED TO DISALLOWA NCE OF INTEREST EXPENDITURE WHICH IS NOT ALLOWABLE BECAUSE FUNDS HA VE NOT BEEN USED FOR THE BUSINESS PURPOSES. THEREFORE, THESE T WO DISALLOWANCES OPERATE IN DIFFERENT FIELDS. FURTHER NOTHING HAS B EEN PRODUCED BEFORE THE LOWER AUTHORITIES OR EVEN BEFORE US TO S HOW ANY EXPEDIENCY FOR WHICH FUNDS HAVE BEEN GIVEN TO K SON S AND ASSOCIATES. THEREFORE, WE FIND NOTHING WRONG IN T HE ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 48 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO ADDED NET AGRI CULTURAL INCOME, SHARE OF INCOME FROM AOP, DEFERRED TAX, FRI NGE BENEFIT TAX PAID AND REDUCED SHARE OF PROFIT IN PARTNERSHIP FIR M TO THE BOOK PROFITS U/S 115JB. HE HAS OBSERVED THAT DEFERRED TA X CAN BE REDUCED FROM BOOK PROFITS ONLY IF THE PROVISIONS OF THE DEF ERRED TAX HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT. FOR WHICH HE HAS RELIED ON CLAUSE (VIII) OF EXP (1) TO SECTION 115 JB. SINCE THERE WAS NO CREDIT 13 ENTRY IN RESPECT OF PROVISION FOR DEFERRED TAX IN P ROFIT AND LOSS ACCOUNT, THIS AMOUNT WAS ADDED. 49 ON APPEAL IT WAS MAINLY SUBMITTED THAT CLAUSE (V III) TO EXP (1) TO SECTION 115 JB APPLIED BY THE ASSESSING OFFICER HAS BEEN INSERTED BY FINANCE ACT, 2008 AND THEREFORE, THE S AME IS APPLICABLE FROM ASSESSMENT YEAR 2009-10. HOWEVER, THE LD. CIT (A) DID NOT FIND FORCE IN THE SUBMISSIONS AND DECIDED THIS ISSUE AGA INST THE ASSESSEE VIDE PARA 30 & 31 WHICH ARE AS UNDER: 30. I HAVE CAREFULLY CONSIDERED THE ISSUE IN HAND. WHILE COMPUTING BOOK PROFIT U/S 115JB, SPECIFIC ADJUSTMENTS ARE TO BE MADE. THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT (PRE PARED AS PER PART II AND PART III OF SCHEDULE VI) FOR THE RELEVANT PREVI OUS YEAR, SHALL BE INCREASED BY THE FOLLOWING AMOUNTS, WHERE ANY OF TH ESE DEBITED TO THE PROFITS AND LOSS ACCOUNT:- (A) THE AMOUNT OF INCOME TAX PAID OR PAYABLE AND TH E PROVISION THEREOF; OR (B) THE AMOUNTS CARRIED TO ANY RESERVED BY WHATEVER NAME CALLED; OR (C) THE AMOUNT OF OR AMOUNTS SET ASIDE TO PROVISION S MADE FOR MEETING LIABILITIES , OTHER THAN ASCERTAINED LIABIL ITIES OR (D) THE AMOUNT BY WAY OF PROVISIONS OF LOSSES OF SU BSIDIARY COMPANIES; OR (E) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROP OSED; OR (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10(EXCLUDING THE EXPENDITURE RELATING TO INCOME REFERRED TO IN CLAUSE (38) RELATING TO LONG TERM CAPITAL GAIN O R TRANSFER OF SHARES THROUGH A RECOGNIZED STOCK EXCHANGE) 11 OR 12 APPLI ED OR (G) THE AMOUNT OF DEPRECIATION ; OR (H) THE AMOUNT OF DEFERRED TAX AND PROVISION THEREF ORE (INSERTED BY THE FINANCE ACT, 2008 W.E.F ASSESSMENT YEAR 2001-02 (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FO R DIMINUTION IN THE VALUE OF ANY ASSET (INSERTED BY THE FINANCE (NO .2) ACT, 2009, W.E.F ASSESSMENT YEAR 2001-02. 31. FROM THE ABOVE, IT IS CLEAR THAT ANY INCOME TAX PAID OR PAYABLE OR PROVISION AND ANY AMOUNT OF DEFERRED TAX AND PROVIS ION IS REQUIRED TO BE ADDED BACK WHILE COMPUTING THE BOOK PROFIT AND THE PROVISIONS ARE APPLICABLE FROM THE A.Y. 2001-02. ON THE OTHER HAND APPLICANT HAS DEDUCTED THESE AMOUNT WHILE COMPUTING THE BOOK PROF IT, WHICH IS NOT CORRECT. THE AO HAS RIGHTLY DISALLOWED RS. 3,35,63, 811/- ON ACCOUNT DEFERRED TAX PROVISIONS WHILE COMPUTING THE BOOK PR OFIT. 50 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). 51 ON THE OTHER HAND, THE LD. DR FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 52 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT CLAUSE (VIII) BELOW EXP (1) TO SECTION 115 JB READS AS UND ER: THE AMOUNT OF DEFERRED TAX, IF ANY, SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT. 14 THIS CLAUSE WAS INTRODUCED BY FINANCE ACT, 2008 WIT H RETROSPECTIVE EFFECT FROM 1.4.2001, THEREFORE, CLEARLY THIS CLAUS E WOULD BE APPLICABLE IN THE PRESENT YEAR. ACCORDINGLY WE FIN D NOTHING WRONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THE SA ME. 53 IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ITA NO. 616/CHD/2011 REVENUE APPEAL 54 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITION M ADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWED NOTIONAL INTEREST AND EXPENSES OF RS. 6,32,095/- U/S 14A OF THE ACT. 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) HAS GRAVELY ERRING IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST EXPENSES OF RS. 30, 03,717/- U/S 36(1)(III) OF INCOME TAX ACT FOR CAPITALIZATION OF INTEREST R ELATING TO CAPITAL WORK IN PROGRESS AND ADDITION TO FIXED ASSETS. 55 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS MA DE INVESTMENTS IN VARIOUS COMPANIES IN SHARES. THEREF ORE, HE INVOKED PROVISIONS OF SECTION 14A ALONG WITH RULE 8D AND DI SALLOWED A SUM OF RS. 7,55,849/-. 56 ON APPEAL BEFORE THE LD. CIT(A) IT WAS MAINLY SU BMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENSES ON INVES TMENTS MADE BY THE ASSESSEE. WITHOUT ESTABLISHING ACTUAL EXPEN DITURE, DISALLOWANCE CAN NOT BE MADE. RULE 8D COULD NOT BE APPLIED IN THIS YEAR BECAUSE SAME DID NOT HAVE RETROSPECTIVE APPLIC ATION. 57 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OBSERVED THAT THE ASSESSING OFFICER HAS NOT PROVED NEXUS BETWEEN INVESTMENTS MADE AND BORROWED FUNDS, THEREFORE, NO DISALLOWANC E WAS POSSIBLE UNDER RULE 8D(2)(II), THEREFORE, HE REDUCED DISALL OWANCE TO RS. 1,23,754/- WHICH IS ON ACCOUNT OF EXPENSES. 58 BEFORE US, THE LD. DR FOR THE REVENUE SUBMITTED THAT REASONABLE DISALLOWANCE SHOULD HAVE BEEN MADE BY TH E LD. CIT(A). 59 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT SINCE RULE 8D WAS NOT APPLICABLE, THEREFORE, DISALLOWANCE ON ACCOUNT OF INTEREST HAS BEEN RIGHTLY DELETED BY TH E LD. CIT(A). 15 60 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. IN VIEW OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN CASE OF GO DREJ & BOYCE MANUFACTURING VS. DCIT, 328 ITR 81 (BOM) RULE 8D HA S NO RETROSPECTIVE APPLICATION AND THEREFORE, REASONABL E DISALLOWANCE CAN BE MADE. WE FIND THAT THE LD. CIT(A) HAS CORRE CTLY OBSERVED THAT SINCE THERE WAS NO NEXUS FOUND BY THE ASSESSIN G OFFICER IN RESPECT OF INVESTMENT MADE AND BORROWED FUNDS, THE REFORE, IN THE ABSENCE OF RULE 8D, NO DISALLOWANCE CAN BE MADE IN RESPECT OF INTEREST. ACCORDINGLY WE FIND NOTHING WRONG IN TH E ORDER OF THE LD. CIT(A) AND CONFIRM THE SAME. 61 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE ISSUE RAISED THROUGH THIS GROUND IS IDENTICAL TO TH E ISSUE RAISED IN ASSESSMENT YEAR 2006-07 BY THE REVENUE THROUGH GROU ND NO. 1 I.E. REGARDING CAPITALIZATION OF INTEREST INCURRED ON PU RCHASE OF FIXED ASSETS. THE LD. CIT(A) HAS ALLOWED RELIEF FOLLOWIN G HER ORDER IN ASSESSMENT YEAR 2006-07. 62 BEFORE US BOTH THE PARTIES SUBMITTED THAT THE IS SUE IS IDENTICAL AS IN ASSESSMENT YEAR 2006-07 IN REVENUES APPEAL IN ITA NO. 1141/CHD/2010. 63 THIS ISSUE WAS ADJUDICATED BY US AGAINST THE REV ENUE IN PARA NO. 29 OF THIS ORDER. 64 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 65 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1120/CHD/2010 IS PARTLY ALLOWED AND ITAS NO. 1141/C HD/2010, 554/CHD/2011 AND 616/CHD/2011 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.11.201 3 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27.11.2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 16