Gujarat Flurochemicals Limited, Baroda V. The Dy.CIT, Circle-1(1), Baroda

ITA 117/AHD/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1931 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 18-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Recovery proceedings; Business income; Depreciation; Transfer pricing; Share purchase agreement; Earning of tax free income; Retrospective amendment; Question of law; Cost of acquisition; Non-deduction of tax; Speculation loss; Difference of opinion; Capital receipt; Revised return; Revenue expenditure; Capital expenditure; TDS; Rule 8D; Set aside
• Section: 271(1)(c); 14A; 115JB; 40(a)(ia); 194C; 80IA; 145; 54; 154

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER SR. NO. ITA NO./ASSTT.YEAR APPELLANT RESPONDENT 1-2 1379 AND 1380/AHD/2009 ASSTT.YEAR 2005-06 AND 2006-07 GUJARAT FLUOROCHEMICALS LTD. ABS TOWERS, 2 ND FLOOR OLD PADRA ROAD BARODA 390 007 PAN : AAACG 6725 H ACIT, RANGE-1 AHMEDABAD. 3-4 ITA NO. 1661, 1662/AHD/2009 2005-06, 2006-07 ACIT, RANGE-1 AHMEDABAD. GUJARAT FLUOROCHEMICALS LTD. BARODA 390 007 5 1064/AHD/2010 ASSTT.YEAR 2007-08 GUJARAT FLUOROCHEMICALS LTD. BARODA 390 007 ACIT, RANGE-1 AHMEDABAD. 6 NO.1825/AHD/2010 ASSTT.YEAR 2007-08 ACIT, RANGE-1 AHMEDABAD. GUJARAT FLUOROCHEMICALS LTD. 7 172/AHD/2012 ASSTT.YEAR 2008-09 GUJARAT FLUOROCHEMICALS LTD. BARODA 390 007 ACIT, RANGE-1 AHMEDABAD. 8 ITA NO.322/AHD/2012 ASSTT.YEAR 2008-09 ACIT, RANGE-1 AHMEDABAD. GUJARAT FLUOROCHEMICALS LTD. BARODA 390 007 9 135/AHD/2015 ASSTT.YEAR 2008-09 GUJARAT FLUOROCHEMICALS LTD. BARODA 390 007 ACIT, RANGE-1 AHMEDABAD. 10 2365/AHD/2012 ASSTT.YEAR 2009-10 GUJARAT FLUOROCHEMICALS LTD. BARODA 390 007 ACIT, RANGE-1 AHMEDABAD. 11 ITA NO.2546/AHD/2012 ASSTT.YEAR 2009-10 ACIT, RANGE-1 AHMEDABAD. GUJARAT FLUOROCHEMICALS LTD. BARODA 390 007 12 ITA NO.106/AHD/2016 ASSTT.YEAR 2010-11 ACIT, RANGE-1 AHMEDABAD. GUJARAT FLUOROCHEMICALS LTD. BARODA 390 007 13 ITA NO.548/AHD/2016 ASTT.YEAR 2010-11 ACIT, RANGE-1 AHMEDABAD. GUJARAT FLUOROCHEMICALS LTD. BARODA 390 007 14-15 116 AND 117/AHD/2016 ASSTT.YEAR 2010-11 AND 2011-12 GUJARAT FLUOROCHEMICALS LTD. BARODA 390 007 ACIT, RANGE-1 AHMEDABAD. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 2 - / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR, AND SHRI PARIN SHAH, AR REVENUE BY : SHRI SUBHAS BAINS, CIT-DR AND SHRI VINOD TANWANI, SR.DR / DATE OF HEARING : 25/04/2019 /DATE OF PRONOUNCEMENT : 28 /06/2019 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : THIS IS A BUNCH OF 15 APPEALS WHICH ARE CROSS APPEALS I.E. SIX APPEALS BY THE REVENUE AND REMAINING APPEALS BY THE ASSESSEE AGAINST RESPECTIV E ORDERS OF THE LD.CIT(A). SINCE ISSUES INVOLVED IN ALL THESE APPE ALS ARE COMMON, FOR THE SAKE OF CONVENIENCE, WE DISPOSE OF ALL THESE AP PEALS BY THIS SINGLE ORDER. 2. WE WOULD LIKE TO TAKE NOTE OF DETAILS OF ORDERS OF THE REVENUE AUTHORITIES, WHICH ARE UNDER CHALLENGE IN ORDER TO GIVE LOGICAL END TO THE PROCEEDINGS BEFORE US. THEY ARE AS UNDER: SR. NO. ITA NO.ASST.YEAR APPEAL BY DT. OF CIT(A)S ORDER AOS ORDER 1-2 1379 AND 1380/AHD/2009 ASSTT.YEAR 2005-06 AND 2006-07 ASSESSEE 12.03.2009 12.03.2009 31.12.2017 24.12.2008 3-4 ITA NO. 1661, 1662/AHD/2009 2005-06, 2006-07 REVENUE 12.03.2009 12.03.2009 31.12.2007 24.12.2008 5 1064/AHD/2010 ASSTT.YEAR 2007-08 ASSESSEE 17.12.2010 31.12.2009 6 NO.1825/AHD/2010 ASSTT.YEAR 2007-08 REVENUE 17.2.2010 31.12.2009 7 172/AHD/2012 ASSTT.YEAR 2008-09 ASSESSEE 16.11.2011 31.12.2010 8 NO.322/AHD/2012 REVENUE 16.11.2011 31.12.2010 ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 3 - ASSTT.YEAR 2008-09 9 135/AHD/2015 ASSTT.YEAR 2008-09 ASSESSEE 13.11.2014 PENALTY ORDER 31.12.2010 10 2365/AHD/2012 ASSTT.YEAR 2009-10 ASSESSEE 22.08.2012 30.12.2011 11 NO.2546/AHD/2012 ASSTT.YEAR 2009-10 REVENUE 22.08.2012 30.12.2011 12 NO.106/AHD/2016 ASSTT.YEAR 2010-11 REVENUE 30.10.2015 22.02.2013 13 NO.548/AHD/2016 ASTT.YEAR 2010-11 REVENUE 30.10.2015 22.02.2013 14-15 116 AND 117/AHD/2016 ASSTT.YEAR 2010-11 AND 2011-12 ASSESSEE 30.10.2015 19.11.2015 22.02.2013 14.03.2013 3. FIRST WE TAKE APPEAL OF THE REVENUE IN A.Y.2005- 06, AND IF ANY GROUND TAKEN BY THE ASSESSEE OR REVENUE FOUND TO BE INTER-CONNECTED WITH THE ISSUE AGITATED BY THE REVENUE IN THIS ASSE SSMENT YEAR, THEN WE WOULD TAKE ALL SUCH GROUNDS TOGETHER. FIRST ISSUE RAISED BY THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING DISALLO WANCE OUT OF VILLAGE DEVELOPMENT EXPENSES. THIS ISSUE HAS BEEN AGITATED BY THE REVENUE IN GROUND NO.1 (ASSTT.YEAR 2005-06 TO 2008-09) AND IN GROUND NO.2 (ASSTT.YEARS 2009-10 AND 2010-11). THE ASSESSEE HA S DEBITED EXPENDITURE OF RS.11,08,85,007/-; RS.17,68,678/-; RS.90,583/-; RS.22,212/-; RS.69,017/- AND RS.1,94,282/- IN THE ASSTT.YEARS 2005-06 TO 201 0-11. FIRSTLY, FACTS ON ALL VITAL POINTS ON THIS ISSUE ARE COMMON IN ALL TH E ASSESSMENT YEARS. FOR THE SAKE OF REFERENCE, WE TAKE UP THE FACTS FROM AS STT.YEAR 2005-06. 4. THE LD.AO HAS ISSUED SHOW CAUSE NOTICE TO THE AS SESSEE INVITING ITS EXPLANATION AS TO WHY THE EXPENDITURE INCURRED TOWA RDS VILLAGE DEVELOPMENT SHOULD NOT BE DISALLOWED. THE ASSESSEE HAD CONTENDED THAT IN ORDER TO MAINTAIN CORDIAL RELATIONSHIP WITH RESIDENTS OF ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 4 - SURROUNDING VILLAGE OF ITS FACTORY, IT HAS TO UNDER TAKE CERTAIN DEVELOPMENT ACTIVITIES. SUCH ACTIVITIES ARE ALSO R EQUIRED UNDER CORPORATE SOCIAL RESPONSIBILITY. THEREFORE, IT HAS CONSTRUCTED/REPAIRED VILLAGE ROADS, GIVEN ASSISTANCE TO THE SCHOOLS AND CONTRIBUTION TOWARDS LOCAL FESTIVALS. THESE ACTIVITIES CREATE HARMONIOU S ATMOSPHERE WITH THE MANAGEMENT OF THE ASSESSEE-COMPANY VIS--VIS RESIDE NTS IN THAT AREA. THE LD.AO HAS DISALLOWED THIS EXPENDITURE ON THE GR OUND THAT EITHER THESE EXPENDITURES WERE IN THE NATURE OF DONATION O R IN THE NATURE OF GRATUITOUS PAYMENTS. THERE WAS NO BUSINESS EXIGENC Y IN INCURRING THESE EXPENDITURES. DISSATISFIED WITH THE DISALLOWANCE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE LD. CIT(A) HAS DELETED THE DISALLOWANCE BY OBSERVING THAT SIMILAR EXPENDITURE WERE DISALLOWED BY THE AO IN EARLIER YEAR, WHICH WERE DELETED BY THE C IT(A). 5. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONTE NDED THAT IDENTICAL DISALLOWANCE WERE MADE IN THE ASSTT.YEARS 1999-2000 , 2002-03 UPTO 2004-05. THE TRIBUNAL HAS UPHELD THE DELETION OF S UCH DISALLOWANCE. HE HAS PLACED ON RECORD COPIES OF THE TRIBUNALS OR DER PASSED IN ITA NO.3472/AHD/2002 (ASSTT.YEAR 1999-2000); ITA NO.898 , 1111 AND 1108/AHD/2009 (ASSTT.YEAR 2002-03); ITA NO.4 AND 33 /AHD/2007 (ASSTT.YEAR 2003-04); ITA NO.4515 & 4563/AHD/2007 ( ASSTT.YEAR 2003-04 AND 2004-05). THE LD.DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE LD.AO. 6. ON DUE CONSIDERATION OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT IN ORDER TO EARN GOODWILL OF THE PEOPLE RESIDING IN TH E NEIGHBOR-HOOD AREA AND TO KEEP SOCIAL RELATIONS WITH RESIDENTS, ASSESS EE COMPANY HAS TO INCUR CERTAIN EXPENDITURE, WHICH WOULD ULTIMATELY F ACILITATE THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 5 - ASSESSEES BUSINESS, OTHERWISE THERE WOULD BE FRICT ION OR LAW AND ORDER SITUATION WHICH WOULD ARISE IF IT ADOPT CONTINUOUS UNFRIENDLY APPROACH WITH THE RESIDENTS RESIDING IN THE SURROUNDING AREA S. IN ORDER TO SHOW GOOD GESTURE, IT HAS REPAIRED CERTAIN VILLAGE ROADS AND GIVEN DONATIONS DURING SOCIAL OCCASIONS. TO OUR MIND, SUCH INCURRE NCE OF EXPENDITURE ARE ESSENTIAL IN RUNNING FACTORY SMOOTHLY AND THE L D.CIT(A) HAS RIGHTLY DELETED DISALLOWANCE. IT IS ALSO PERTINENT TO NOTE THAT IN THE PAST SIMILAR EXPENDITURES WERE CLAIMED, WHICH HAVE BEEN ALLOWED BY THE LD.CIT(A), AND ORDERS OF THE LD.CIT(A) WERE UPHELD BY THE ITAT . TAKING INTO CONSIDERATION THIS CONSISTENT APPROACH IN THE PAST, WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDERS OF THE LD.CIT(A). THIS ISSUE IS DECIDED AGAINST THE REVENUE. ALL THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE, IN THESE ASSESSMENT YEARS ARE REJECTED. 7. NEXT ISSUE IS AGAINST DELETION OF DISALLOWANCE O N ACCOUNT OF CONTRIBUTION TO REFRIGERANT GAS MANUFACTURER ASSOCI ATION. THIS ISSUE HAS BEEN AGITATED IN GROUND NO.2 IN THE ASSTT.YEARS 2005-06 AND 2008-09, AND GROUND NO.1 IN THE ASSTT.YEARS 2009-10 AND 2010 -11. 8. GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) H AS ERRED IN DELETING THE DISALLOWANCE OF RS.15,90,270/-; RS.10, 87,365; RS.15,453/-; RS.6100/-; RS.2,00,000/- AND RS.1,94,282/- IN THE A SSTT.YEARS 2005-06 TO 2010-11 RESPECTIVELY. 9. ASSESSEE HAS DEBITED ABOVE EXPENDITURE IN RESPEC TIVE ASSESSMENT YEARS IN ITS PROFIT & LOSS ACCOUNT AS CONTRIBUTION TO REFRIGERANT GAS MANUFACTURER ASSOCIATION. THE LD.AO CONFRONTED THE ASSESSEE TO SHOW REASONS, AS TO WHY THESE EXPENSES SHOULD NOT BE DIS ALLOWED. THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 6 - ASSESSEE SUBMITTED ITS REPLY AND CONTENDED THAT SIM ILAR EXPENSES WERE CLAIMED IN THE ASSTT.YEAR 2003-04 WHICH HAS BEEN AL LOWED BY THE LD.CIT(A). HOWEVER, THE LD.AO WAS NOT SATISFIED WI TH THE EXPLANATION OF THE ASSESSEE, AND HE DISALLOWED ITS CLAIM. WE FIND THAT ORDER OF THE LD.CIT(A) IN THE ASSTT.YEAR 2003-04 WAS UPHELD BY T HE TRIBUNAL IN ITA NO.4 & 33/AHD/2007. FINDING RECORDED BY THE TRIBUN AL ON THIS ISSUE READS AS UNDER: 10. WE HAVE HEARD THE RIVAL SUBMISSIONS, CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIALS ON RECORD BEFORE US ALONG WITH THE PAPER BOOK SUBMITTED BY THE ASSESSEE . ON PERUSAL OF THE RECORDS, IT IS APPARENT THAT THIS ISSUE HAS BEEN DE CIDED BY ITAT AHMEDABAD 'A' BENCH WHILE ADJUDICATING REVENUE'S AP PEAL IN ITA NO.3748/AHD/2003 IN ASSESSEE'S CASE FOR AY 2000-01 CITED SUPRA IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE VIDE ORDER DATED 17-02- 2012 WHERE IN THE TRIBUNAL IN PARA 31 OF THE ORDER HAS HELD AS UNDER: '31. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. WE CONCUR WITH THE VIEW OF THE LD. CIT(A) FOR THE REASONS THAT THE PAYMENT IS NOT A ONE-TIME CONTRIBUTION BUT A RECURRING ONE AND SUCH CONTRIBUTIONS HAVE NOT RESULTED IN CRE ATION OF ANY ASSET FOR THE ASSESSEE NOR EVEN FOR THE ASSOCIATION . THERE ARE VERY FEW MEMBERS AS ONLY FEW COMPANIES ARE MANUFACTURING REFRIGERANT GASES. HENCE, THE PRO RATA EXPENDITURE IS LARGE. TH EY HAVE ENCLOSED BALANCE-SHEET AND INCOME EXPENDITURE ACCOUNT OF THE ASSOCIATION TO SHOW THAT THERE HAS BEEN NO CREATION OF ANY CAPITAL ASSET. ON GOING THROUGH THE INCOME AND EXPENDITURE ACCOUNT AND BALA NCE-SHEET OF REGMA, THE ASSETS ARE MAINLY KEPT IN THE BANK ACCOU NT AND THE EXPENSES ARE FOR ADVERTISEMENT INVESTIGATION CHARGE S, TRAVELING ETC., THERE IS A POSITIVE BALANCE LEFT OVER WHICH I S KEPT IN THE BANK ACCOUNT. THE OTHER MEMBERS BESIDES THE ASSESSEE ARE SRF LTD. OF DELHI, M/S. CHEMPLAST SANMAR LTD. OF CHENNAI, NAVEE N FLOUORINE INDUSTRIES IN MUMBAI. IN SHORT, IT IS AN ASSOCIATIO N ON THE LINES OF TRADE ASSOCIATION WHICH LOOK AFTER THE WELFARE OF I TS MEMBERS AND TAKES UP THE ISSUES RELATING TO THEIR ACTIVITIES. T HEY CALL FOR CONTRIBUTIONS THE BASIS OF PROJECTED EXPENSE. FOR T HIS, ALSO CORRESPONDENCE WAS FILED BEFORE THE LD. CIT(A) TO SH OW THAT THESE AMOUNTS ARE REQUESTED BY CIRCULAR LETTERS AFTER TAK ING A DECISION ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 7 - DURING REGMA MEETINGS. THE AMOUNTS ARE DULY PAID BY CHEQUES TO GUJARAT FLUROCHEMICALS LTD. THE ASSOCIATION WHIC H IS BASED IN NEW DELHI. THE DETAILS IN THESE CORRESPONDENCES SHO W THAT THE ASSOCIATION WHICH IS A NEW ONE HAS PUT AWAY RS.5 LA KHS WHICH IS IN A CORPUS FUND AND THE BALANCE HAS BEEN KEPT FOR MEE TING EARLIER EXPENSES BACK- LOG AND CURRENT AND PROJECTED EXPENS ES. IN SHORT, THE ASSOCIATION KEEPS MAKING A COLLECTION AND CALLI NG IT A CORPUS FROM WHICH IT INCURS THE EXPENDITURE. IN OUR VIEW, WHATEVER NAME CALLED THE AMOUNT IS COLLECTED FOR THE PURPOSE OF D EFRAYING EXPENSE OF THE ASSOCIATION. THE ASSESSEE HAS NO RIGHT TO AN Y OF THE SUMS. NO CAPITAL ASSET IS BEING BUILD UP IN THE ASSOCIATION FROM WHICH THE ASSESSEE CAN DERIVE ANY BENEFIT. THEREFORE, SUCH PA YMENT HAS TO BE TREATED AS EXPENDITURE IN THE LINE OF BUSINESS AND DEDUCTIBLE U/S. 37(1). IT IS NOT THE AO'S CONTENTION THAT RELEVANT S ERVICES WERE NOT RENDERED OR THAT THERE WAS ANY OTHER MOTIVE FOR MAK ING SUCH PAYMENT. IN THE CIRCUMSTANCES AND FACTS, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A). THUS GROUND NO.4 OF THE REV ENUE IS DISMISSED.' 10.1 SINCE THE FACTS OF THE PRESENT CASE ON THIS IS SUE ARE SIMILAR AND IDENTICAL AS IN THE ASSESSMENT YEARS 2000-01 AND 20 01-02, FOLLOWING THE DECISION OF OUR CO-ORDINATE BENCH IN AY 2000-01 AND 2001-02 CITED SUPRA, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 10. THERE IS NO DISPARITY ON FACTS. IN THE PAST, S IMILAR EXPENDITURES HAVE BEEN ALLOWED TO THE ASSESSEE. THEREFORE, RESP ECTFULLY FOLLOWING THE ORDER OF THE ITAT (SUPRA) IN EARLIER YEARS, WE DO N OT SEE ANY REASONS TO INTERFERE IN THE ORDERS OF THE CIT(A) ON THIS ISSUE . ALL THESE GROUNDS ARE REJECTED. 11. GROUND NO.4, 4 AND 3 IN THE ASSTT.YEAR 2005-06 TO 2007-08: GRIEVANCE OF THE REVENUE IN THESE GROUNDS IS THAT T HE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF LOSS OCCURRED DUE TO FLUCTUATION OF FOREIGN EXCHANGE AMOUNTING TO RS.73,054/-; RS.1,65, 75,256/-; RS.2,16,23,967/- IN THE ASSTT.YEARS 2005-06 TO 2007 -08 RESPECTIVELY. THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 8 - FACTS ON VITAL POINTS ARE COMMON. FOR THE FACILITY OF REFERENCE, WE TAKE THE FACTS FROM THE ASSTT.YEAR 2005-06. 12. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT HE ASSESSEE HAS CLAIMED RS.6,73,054/- (NET) ON ACCOUNT OF FOREI GN EXCHANGE FLUCTUATIONS LOSS DUE TO TRANSLATION OF FOREIGN CUR RENCY TRANSACTIONS AT THE YEAR END. THE AO ISSUED A SHOW CAUSE NOTICE IN VITING EXPLANATION OF THE ASSESSEE AS TO WHY THIS CLAIM BE NOT DISALLOWED . THE ASSESSEE CONTENDED THAT ACCOUNTING STANDARD 11 AUTHORISE IT TO RE-STATE ALL OUTSTANDING FOREIGN EXCHANGE TRADING LIABILITIES/AS SETS AS ON THE LAST DATE OF THE FINANCIAL YEAR AT THE EXCHANGE RATE APP LICABLE ON THAT DATE. ACCORDINGLY, IT HAS TO DETERMINE THE LOSS OR GAIN. IT MADE REFERENCE TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. WOODWORD GOVERNOR INDIA P.LTD., AND OTHERS TO DEMON STRATE THAT SUCH CLAIM WAS NOT NOTIONAL OR CONTINGENT, RATHER IT WAS A DETERMINED LOSS/GAIN. THE LD.AO DID NOT ACCEPT THIS CONTENTIO N OF THE ASSESSEE AND HELD THAT SUCH CLAIM BY THE ASSESSEE IS NOTIONAL ON E AND DOES NOT ALLOWABLE. ON APPEAL, THE LD.CIT(A) HAS ALLOWED SU CH CLAIM OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE ITAT PASSED IN EARLIER YEARS. 13. THE LD.COUNSEL FOR THE ASSESSEE, AT THE VERY OU TSET SUBMITTED THAT THE ISSUE IN DISPUTE IS COVERED BY THE ORDER OF THE ITAT PASSED IN 4563/AHD/2007 (ASSTT.YEAR 2004-05). HE FURTHER RE LIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF WO ODWARD GOVERNOR INDIA PVT. LTD., 312 ITR 254 (SC). ON THE OTHER HA ND, THE LD.DR RELIED UPON THE ORDERS OF THE REVENUE AUTHORITY. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 9 - 14. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. THE ISSUE IS THAT AT THE END OF THE FINANCIAL YEAR, THE ASSESSEE HAS PREPARED A RE-STATEMENT OF OUTSTANDING FOREIGN EXCHANGE TRADING LIABILITIES. THIS LIABILITY WAS IN THE REV ENUE ACCOUNT. THEREAFTER, GAIN OR LOSS WAS DRAWN AT THE LAST DATE; THEY WERE SET OFF WITH EACH OTHER AND NET WAS CLAIMED IF LOSS IS THERE. IF THERE IS A GAIN, THEN IT IS OFFERED AS TAXABLE INCOME. IN THE ASSTT.YEAR 2005-06, THE ASS ESSEE HAS SUBMITTED THESE DETAILS TO THE AO AND THE AO HAS REPRODUCED T HE REALIGNMENT OF BALANCE SHEET ON THIS ISSUE ON PAGE NO.7. THE TRIB UNAL IN THE ASSTT.YEAR 2004-05 HAS EXAMINED THIS ISSUE AND HELD THAT AS PE R JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF WOODWARD GOVER NOR INDIA PVT. LTD. (SUPRA), IF THERE IS A LOSS ON ACCOUNT OF FORE IGN EXCHANGE FLUCTUATIONS AND LIABILITY WAS IN THE REVENUE ACCOUNT, THEN SUCH LOSS IS TO BE ALLOWED TO THE ASSESSEE. THE DEPARTMENT HAS NOT DEMONSTRAT ED BEFORE US THAT THIS CLAIM MADE BY THE ASSESSEE WAS NOT IN REVENUE ACCOUNT IN ALL THESE THREE YEARS. THEREFORE, WE ARE OF THE VIEW THAT TH E LD.CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE. THIS ISSUE IS ALSO DECID ED AGAINST THE REVENUE. CAPITAL GAIN OR BUSINESS INCOME: 15. NEXT COMMON ISSUE INVOLVED IN ALL APPEALS OF TH E REVENUE AS WELL AS OF THE ASSESSEE IS, WHETHER PURCHASE AND SALE OF SHARES IS TO BE TREATED AS TRADING ACTIVITY OR AN INVESTMENT ACTIVITY. THE ASSESSEE HAS TREATED ITS ACTIVITY OF SALE AND PURCHASE OF SHARES AS AN INVES TMENT ACTIVITY AND ON SALE OF SHARES/MUTUAL FUND ETC., IT HAS SHOWN SHORT TERM CAPITAL GAIN AS WELL AS LONG TERM CAPITAL GAIN. THE LD.AO DID NOT ACCEPT THIS TREATMENT OF THE ASSESSEE, AND TREATED ITS ACTIVITY AS TRADIN G IN SHARES. IT IS ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 10 - PERTINENT TO OBSERVE THAT UPTO ASSTT.YEAR 2007-08, THE LD.CIT(A) DID NOT CONCUR WITH THE AO AND ACCEPTED THE CLAIM OF THE AS SESSEE. THE LD.CIT(A) HAS UPHELD THAT ON SALE AND PURCHASES OF SHARES AND MUTUAL FUNDS GAIN/LOSS IS TO BE ASSESSED UNDER THE HEAD S HORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN/SHORT TERM CAPITAL L OSS OR LONG TERM CAPITAL LOSS. FROM THE ASSTT.YEAR 2008-09, THE LD .CIT(A) DID NOT CONCUR WITH HIS PREDECESSOR AND TOOK A CONTRARY VIEW, WHER EBY THE ALLEGED INVESTMENT IN THE SHARES HAS BEEN TREATED AS A TRAD ING ACTIVITY. GAIN/LOSS ON SALE OF SUCH SHARES HAS BEEN ASSESSED AS BUSINESS INCOME. BUT ON SALE OF MUTUAL FUNDS, THE LD.CIT(A) HAS ACCE PTED THE STAND OF ASSESSEE THAT THIS ACTIVITY IS TO BE CONSIDERED AS AN INVESTMENT AND PROFIT/LOSS ON SALE OF MUTUAL FUND IS TO BE ASSESSE D AS LONG TERM CAPITAL GAIN/SHORT-TERM CAPITAL GAIN/LOSS. THE REVENUE IS C HALLENGING THIS PART OF ORDER IN GROUND NO.3 IN ASSTT.YEAR 2008-09, 2009 -10 AND GROUND NO.1 IN THE ASSTT.YEAR 2010-11. THE LD.COUNSEL FOR THE ASSESSEE, FOR BUTTRESSING HIS CLAIM, RELIED UPON THE ORDERS OF THE LD.CIT(A) FORM THE ASSTT.YEAR 2005-06 TO 2007-08. ON THE OTHER HAND, THE LD.CIT- DR RELIED UPON THE ORDERS OF THE LD.CIT(A) FROM THE ASSTT.YEAR 2008-09 TO 2011-12. 16. DURING THE COURSE OF HEARING, WE HAVE DIRECTED THE LD.COUNSEL FOR THE ASSESSEE TO COMPILE DETAILS IN TABULAR FORM IND ICATING VARIOUS FACTORS REQUIRED TO BE VISUALIZED FOR FORMING THE OPINION, WHETHER ACTIVITIES OF PURCHASE AND SALES OF SHARES IS TO BE TREATED AS BU SINESS ACTIVITY OR SIMPLICITOR AS INVESTMENT. ON OUR DIRECTIONS, THE LD.COUNSEL FOR THE ASSESSEE FILED SUCH DETAILS IN TABULAR FORM. THE D ETAILS ARE ALSO ON THE RECORD SCATTERED IN DIFFERENT ORDERS OF THE REVENUE AUTHORITIES. THEY ARE ALSO AVAILABLE IN SEVEN VOLUMES OF THE PAPER BOOK F ILED BY THE LD.COUNSEL ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 11 - FOR THE ASSESSEE. FOR THE FACILITY OF REFERENCE, A ND TAKING INTO CONSIDERATION THE RELEVANT DETAILS IN MORE SCIENTIF IC MANNER, WE HAVE DIRECTED THE ASSESSEE TO SUBMIT SUCH DETAILS IN TAB ULAR FORMS. IT IS ALSO PERTINENT TO NOTE THAT THE FACTS ON ALL VITAL POINT S ARE COMMON EXCEPT VARIATION IN QUANTUM. WE WILL BE TAKING UP THE FAC TS MAINLY FROM THE ASSTT.YEAR 2005-06 AND 2008-09 BECAUSE ORDER OF THE LD.CIT(A) IN THE ASSTT.YEAR 2005-06 ON THIS ISSUE IS IN FAVOUR OF TH E ASSESSEE, WHICH HAS BEEN FOLLOWED UPTO THE ASSTT.YEAR 2007-08. HOWEVER , IN THE ASSTT.YEAR 2008-09, THE LD.CIT(A) DID NOT CONCUR WITH HIS PRED ECESSOR AND GIVEN A DIFFERENT FINDING. THEREFORE, IT IS IMPERATIVE UPO N US TO LOOK HIS POINT OF VIEW OF REASONING BEFORE FORMING A CONSOLIDATED OPI NION ON THIS ACTIVITY FOR ALL THESE YEARS. AT THE TIME OF HEARING, THE L D.CIT-DR POINTED OUT THAT WRITTEN NOTE WAS SUBMITTED BY THE THEN CIT-DR, SHRI RAVINDRA I PATEL VIDE LETTER DATED 22.9.2015. IN THIS LETTER, THE LD.CIT-DR RELIED UPON A LARGE NUMBER OF DECISIONS WHOSE COPIES HAVE BEEN PLACED ON RECORD. HE RELIED UPON THIS NOTE, WHICH READS AS UNDER: IT IS RESPECTFULLY SUBMITTED THAT GROUND NO.(5) RE LATES TO AO'S ACTION OF TREATING THE CLAIM OF THE ASSESSEE FOR CAPITAL GAIN ARISING FROM PURCHASE AND SALE OF SHARES/UNITS OF MUTUAL FUNDS AS BUSINESS INCOME. IN SUPPORT OF AO'S ACTION, FOLLOWING JUDICIAL PRONOUNCEMENTS ARE SUBMITTED FOR KIND CONSIDERATION OF HON'BLE BENCH. 1) MANOJ KUMAR SAMDARIA VS. CIT [228 TAXMAN 63 (S UPREME COURT)] SECTION 28(I), READ WITH SECTION 45 OF THE INCOME-T AX ACT, 1961 - BUSINESS INCOME - CHARGEABLE AS (BUSINESS INCOME V. CAPITAL GAINS: SHARE TRANSACTIONS) -ASSESSMENT YEAR 2007-08 - ASSESSEE D ECLARED INCOME ARISING FROM SALE OF SHARES AS SHORT-TERM CAPITAL GAIN - TR IBUNAL FOUND THAT ASSESSEE HAD REGULARLY DEALT IN PURCHASE AND SALE OF SHARE W HICH INDICATED PERIOD OF HOLDING TO BE VERY SHORT AND THAT HE EARNED ONLY A MEAGER AMOUNT OF DIVIDEND WHILE GAINS FROM SALE OF SHARES WAS RS.65.45 LAKHS - HIGH COURT UPHELD ORDER OF TRIBUNAL THAT INCOME ARISING FROM SALE OF SHARES WAS ASSESSABLE AS BUSINESS INCOME - WHETHER SPECIAL LEAVE PETITION FI LED AGAINST IMPUGNED ORDER WAS TO BE DISMISSED - HELD, YES [IN FAVOUR OF REVENUE]. L.A) MANOJ KUMAR SAMDARIA VS. CIT [223 TAXMAN 245 ( DELHI)] ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 12 - SECTION 28(I), READ WITH SECTION 45 OF THE INCOME-T AX ACT, 1961 - BUSINESS INCOME - CHARGEABLE AS (SHARE TRANSACTIONS) - ASSES SMENT YEAR 2007-08 - ASSESSEE DECLARED INCOME ARISING FROM SALE OF SHARE S AS SHORT-TERM CAPITAL GAIN - ASSESSEE HAD OPENING INVESTMENT OF RS.1 CROR E IN SHARES - DURING YEAR UNDER CONSIDERATION SHARES WORTH RS.4.10 CRORE HAD BEEN SOLD WHILE SHARES OF RS.4.9 CRORE WERE PURCHASED TRIBUNAL FOUND THAT ASSESSEE HAD REGULARLY DEALT IN PURCHASE AND SALE OF SHARE WHICH INDICATED PERIOD OF HOLDING TO BE VERY SHORT AND THAT HE EARNED ONLY A MEAGER AMOUNT OF DIVIDEND OF RS.21,952 WHILE GAINS FROM SALE OF SHARES WAS RS.65.45 LAKH - WHETHER TRIBUNAL. AFTER ANALYZING TURNOVER OF SHARES, NATURE OF TRANSACTION S I.E. DURATION OT HOLDING, PROPORTION OF INCOME DERIVED AS DIVIDEND TO INVESTM ENT MADE, HAD RIGHTLY HELD THAT INCOME ARISING FROM SALES OF SHARES WAS ASSESS ABLE AS BUSINESS INCOME - HELD, YESFPARAS 7 & 8] [INFAVOUR OF REVENUE]. 2). NEW JEHANGIR VAKIL MILLS CO.LTD. VS. CIT [49 ITR 137 (SUPREME COURT)] SECTION 28(I) OF THE INCOME-TAX ACT, 1961 [CORRESPO NDING TO SECTION 10(1) OF THE INDIAN INCOME-TAX ACT, 1922] - BUSINESS INCOME - CHARGEABLE AS - ASSESSMENT YEAR 1945-46 - WHETHER EXTENT TO WHICH A DECISION GIVEN BV ITO FOR ONE ASSESSMENT YEAR AFFECTS OR BINDS A DECISION FOR ANOTHER YEAR, DOCTRINE OF RES JUDICATA OR ESTOPPELS BY RECORD DOES NOT APP LY TO SUCH DECISIONS - HELD, YES - WHETHER CIRCUMSTANCE THAT IN EARLIER ASSESSME NT RELATING TO 1943 ASSESSEE WAS TREATED AS INVESTOR, WOULD NOT ESTOP A SSESSING AUTHORITIES FROM CONSIDERING, FOR PURPOSE OF COMPUTATION OF PROFITS OF 1944, AS TO WHEN TRADING ACTIVITY OF ASSESSEE IN SHARES BEGAN AND, THEREFORE , FINDING OF ASSESSING AUTHORITIES THAT TRADING ACTIVITY OF ASSESSEE IN SH ARES BEGAN IN 1943 AND PROFITS ON SALE OF SHARES COMPUTED ON BASIS OF SAID FIND WAS JUSTIFIED - HELD, YES 3) CIT VS. SUTLEJ COTTON MILLS SUPPLY AGENCY LTD . [100 ITR 706 (SUPREME COURT)] SECTION 2(13) OF THE INCOME-TAX ACT, 961 - BUSINESS - ADVENTURE IN NATURE OF TRADE - ASSESSMENT YEAR 1956-57 - ASSESSEE COMPANY PURCHASED SHARES AND SOLD PART OF IT -ASSESSEE CLAIMED THAT SHARES WERE PURCHASED BY WAY OF INVESTMENT AND PROFIT AMOUNT TO CAPITAL GAINS - TRI BUNAL FOUND AS OF FACT THAT ASSESSEE PURCHASED SHARES OUT OF BORROWED FUND AND DID NOT MAKE SALE ON ACCOUNT OF ANY PRESSING NECESSITY - WHETHER ON FACT S DOMINANT INTENTION OF ASSESSEE BEING TO MAKE PROFIT BY RESALE OF SHARES A ND NOT TO MAKE INVESTMENT. TRIBUNAL WAS CORRECT IN HOLDING THAT TR ANSACTION WAS ADVENTURE IN NATURE OF TRADE - HELD, YES 4) CIT VS. CENTRAL NEWS AGENCY (P) LTD. [ 53 TAXMA NN.COM 305 (DELHI)] SECTION 45 READ WITH SECTION 28(I), OF THE INCOME-T AX ACT, 1961 - CAPITAL GAINS -CHARGEABLE AS (CAPITAL GAIN V. BUSINESS INCOME/DEA LING IN MUTUAL FUND UNITS) -ASSESSMENT YEAR 2005-06 - ASSESSEE - COMPANY HAD S HOWN CERTAIN SHORT- TERM CAPITAL GAIN ON SALE OF MUTUAL FUND UNITS - AS SESSING OFFICER TAXED SAID INCOME AS BUSINESS INCOME - ON APPEAL, COMMISSIONER (APPEALS) UPHELD ORDER OF ASSESSING OFFICER BUT TRIBUNAL HELD THAT P ROFIT ON SALE OF MUTUAL FUND ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 13 - UNITS WAS ASSESSABLE AS CAPITAL GAIN -WHETHER SINCE TRIBUNAL HAD NOT DETERMINED WHETHER ANY DIVIDEND HAD BEEN RECEIVED O N UNITS AND FREQUENCY AND VOLUME OF SAID TRANSACTIONS SO AS TO KNOW ACTUA L INTENTION OF ASSESSEE, MATTER WAS TO BE REMANDED TO TRIBUNAL FOR FRESH CON SIDERATION - HELD, YES [PARA 9] [MATTER REMANDED]. 5. DCIT, CIRCLE-3(1) VS. SMT.DEEPABEN AMITBHAL SHAH [99 ITD 219 (AMD)] SECTION 28(I) OF THE INCOME-TAX ACT, 1061 - BUSINES S INCOME - CHARGEABLE AS -ASSESSMENT YEARS 1992-93 TO 1995-96 - WHETHER WHER E LOOKING INTO VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION S OF PURCHASE AND SALE IN SHARES BY ASSESSEE, IT COULD BE INFERRED THAT THOSE TRANSACTIONS MUST HAVE BEEN ENTERED INTO BY ASSESSEE WITH A PROFIT MOTIVE AND NOT FOR PURPOSE OF INVESTMENT, INCOME ARISEN TO ASSESSEE FROM SUCH TRA NSACTIONS WOULD BE ASSESSABLE UNDER HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION' - HELD, YES, WHETHER MERELY BECAUSE SHARES WERE ACQUIRED BY ASSESSEE FROM PRIMARY MARKET AND ASSESSEE HAD TO WAIT FOR TWO TO THREE MONTHS FOR ALLOTMENT PROCESS, TRANSACTION COULD BE HELD TO BE A NON-BUSI NESS TRANSACTION - HELD, NO -WHETHER FACT THAT SHARES PURCHASED FROM SECONDARY MARKET WERE TRANSFERRED IN NAME OF ASSESSEE, WOULD MAKE TRANSACTION AS NON- BUSINESS TRANSACTION - HELD, NO 6. SMT.HARSHA N.MEHTA VS. DCIT [ 43 SOT 332 (MUMB AI)] SECTION 28(I), READ WITH SECTION 45, OF THE INCOME- TAX ACT, 1061 - BUSINESS INCOME - CHARGEABLE AS - ASSESSMENT YEAR 2005-06 - DURING RELEVANT ASSESSMENT YEAR, ASSESSEE FILED HER RETURN SHOWING INCOME FROM SALE AND PURCHASE OF SHARES UNDER HEAD 'CAPITAL GAINS' - ASS ESSING OFFICER DID NOT AGREE WITH TREATMENT GIVEN BY ASSESSEE AND TREATED SAID INCOME AS BUSINESS INCOME - ON APPEAL, COMMISSIONER (APPEALS) PARTLY A CCEPTED ASSESSEE'S CLAIM - ON INSTANT APPEAL, IT WAS SEEN THAT DURING RELEVANT PERIOD ASSESSEE HAD MADE 37 TRANSACTIONS IN 35 SCRIPS - IT WAS ALSO NOTICED THAT SHARES WERE HELD FOR A FEW DAYS AND IN VERY FEW CASES FOR A FEW MONTHS BUT IN NO CASE PERIOD OF HOLDING WAS EXCEEDING 200 DAYS - WHETHER ACTIVITY OF FREQUENT BUYING AND SELLING OF SHARES OVER A SHORT SPAN OF P ERIOD HAD TO BE TREATED AS BUSINESS BEING ADVENTURE IN NATURE OF TRADE AND, TH US, INCOME ARISING FROM SAID TRANSACTIONS WAS TO BE TREATED AS BUSINESS INC OME AND NOT AS CAPITAL GAIN - HELD, YES 7. ANAND M.FATEHPURIA HUF VS. ACIT [ 153 ITD 145 (MUMBAI)] SECTION 28(I), READ WITH SECTION 45, OF THE INCOME- TAX ACT, 1061 - BUSINESS INCOME - CHARGEABLE AS [SHARE DEALINGS] - ASSESSMEN T YEAR 2008-09 - ASSESSEE WAS AN INVESTOR FOR PAST SEVERAL YEARS - D URING PREVIOUS YEAR, HE SOLD CERTAIN SHARES AND CLAIMED GAIN ARISING ON SAL E OF SHARES AS SHORT-TERM CAPITAL GAIN - ASSESSING OFFICER TREATED SAID GAIN AS BUSINESS INCOME - COMMISSIONER (APPEALS) HELD TRANSACTIONS TO CONSTIT UTE BUSINESS ACTIVITY AND ACCORDINGLY UPHELD ORDER OF ASSESSING OFFICER - ASS ESSEE WAS MAINTAINING SAME SET OF BOOKS OF ACCOUNT FOR BOTH ITS BUSINESS TRANSACTIONS AND PURPORTED INVESTMENT ACTIVITY OUT OF SAME COMMON POOL OF FUND S - ALL TRANSACTIONS OF ASSESSEE WERE IMBUED WITH SAME PROFIT MOTIVE, WHICH CONTINUED NOT ONLY ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 14 - THROUGHOUT YEAR, BUT ALSO FROM YEAR TO YEAR - WHETH ER FINDINGS BY COMMISSIONER (APPEALS), THAT SHARE TRANSACTIONS REP RESENTED BUSINESS TRANSACTIONS DESERVED TO BE AFFIRMED - HELD, YES [P ARA 3] [PARTLY IN FAVOUR OF ASSESSEE]. 8. BURNSIDE INVESTMENTS & HOLDING LTD. VS. DCIT [ 61 ITD 50 (MAD)] SECTION 28(I) OF THE INCOME-TAX ACT, 1061 - BUSINES S INCOME - CHARGEABLE AS -ASSESSMENT YEAR 1991-92 - AFTER SALE OF TEA ESTATE ASSESSEE-COMPANY WAS ENGAGED IN BUSINESS OF REAL ESTATE AND PURCHASE AND SALE OF SHARES - IT SHOWED PROFIT ON SALE OF SHARES ON INVESTMENT ACCOU NT AND CLAIMED SUCH PROFIT AS CAPITAL GAIN - ASSESSING OFFICER FOUND PR OFIT ON SALE OF SHARES ON INVESTMENT ACCOUNT AND CLAIMED SUCH PROFIT AS CAPIT AL GAIN - ASSESSING OFFICER FOUND THAT DURING PREVIOUS YEAR ASSESSEE HAD TRADED IN SHARES OF 30 COMPANIES - IT WAS ALSO FUND THAT SHARES WERE PURCH ASED AND SOLD WITHIN SAME ACCOUNTING YEAR - INCOME FROM SHARES WAS, THUS , TREATED AS BUSINESS INCOME - WHETHER SAID TRANSACTIONS IN SHARES HAD RESULTED IN BUSINESS PROFITS ASSESSABLE AS SUCH IN BONDS OF ASSESSEE - HELD, YES 2. WITHOUT PREJUDICE TO ABOVE DISCUSSED JUDICIAL PR ONOUNCEMENTS, A KIND ATTENTION IS DRAWN TO PROVISIONS OF S.73 EXPLANATIO N WHICH CREATES A LEGAL FICTION (DEEMING PROVISION) TO TREAT TRANSACTIONS O F PURCHASE AND SALE OF SHARES AS SPECULATION BUSINESS. IT IS TRUE THAT S.7 3 RELATES LOSSES BUT LEGISLATIVE INTENTION IS CLEAR THAT PURCHASE AND SA LE OF SHARES BY A COMPANY (OTHER THAN EXCLUDED CATEGORIES) HAS TO BE TREATED AS SPECULATION BUSINESS. ACCORDINGLY, THERE CANNOT BE DISPUTE TO TREAT IMPUG NED TRANSACTIONS AS BUSINESS. 3. KEEPING IN VIEW ABOVE MENTIONED JUDICIAL PRONOUN CEMENTS, IN LIGHT OF FACTS OF THE EXTANT CASE AS DISCUSSED IN THE ASSESSMENT O RDER AND MORE SO, IN VIEW OF EXPLANATION TO S.73, IT IMMENSELY TRANSPIRES THA T THE ACTION OF THE A.O. TO TREAT IMPUGNED SHARES/MUTUAL FUND TRANSACTIONS AS B USINESS ACTIVITY IS JUSTIFIED. ACCORDINGLY, IT IS HUMBLY PRAYED THAT AC TION OF THE A.O. MAY KINDLY BE CONFIRMED. 16. ON THE OTHER HAND, APART FROM THE DETAILS COMPI LED IN TABULAR FORM, THE LD.COUNSEL FOR THE ASSESSEE HAS ALSO RELI ED UPON A LARGE NUMBER OF DECISIONS IN SUPPORT OF HIS CONTENTIONS AND COPI ES OF SUCH DECISIONS ARE BEING PLACED IN THE PAPER BOOK FROM PAGES 100 T O 187. HE HAS ALSO PLACED ON RECORD CBDT CIRCULAR NO.6 OF 2016 AT PAGE NO.150 TO 151. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 15 - 17. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD. THE ISSUE WHETHER GAIN FROM SA LE OF SHARES/MUTUAL FUNDS IS TO BE ASSESSED AS BUSINESS INCOME OR SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN, IS A HIGHLY DEBATABLE ISSUE. IT ALWAYS PUZZLED THE ADJUDICATOR EVEN AFTER AVAILABILITY OF LARGE NUMBERS OF AUTHORITATIVE PRONOUNCEMENTS BY THE HONBLE SUPREME COURT/HONBLE HIGH COURT. THE REASON FOR THE PUZZLE IS, ONE HAS T O GATHER THE INTENTION OF AN ASSESSEE WHILE HE ENTERED INTO THE TRANSACTIO N. THE EXPRESSION INTENTION AS DEFINED IN MERIAM WEBSTER DICTIONARY MEANS, WHAT ONE INTENDS TO ACCOMPLISH OR ATTAIN, IT IMPLIES LITTLE MORE THAN WHAT ONE HAS IN MIND TO DO OR BRING OUT. IT SUGGESTS CLEAR FORMU LATION OR DELIBERATION. THUS, IT IS ALWAYS DIFFICULT TO ENTER INTO THE RECE SS OF THE MIND OF AN ASSESSEE TO FIND OUT THE OPERATIVE FORCES EXHIBITIN G THE INTENTION FOR ENTERING INTO THE TRANSACTION. THIS WOULD GIVE RISE A DEBATE. NEVERTHELESS, WE HAVE TO LOOK INTO THE CURIOUS FEAT URES OF THIS CASE WHICH WILL GOAD US ON JUST CONCLUSION. 18. BEFORE WE EMBARK UPON AN INQUIRY ON THE FACTS O F PRESENT CASE SO AS TO FIND OUT, WHETHER THE ASSESSEE IS TO BE TERME D AS INVOLVING IN THE TRADING IN SHARES OR TO BE TREATED AS A SIMPLICITOR INVESTOR, WE WOULD LIKE TO MAKE REFERENCE TO CERTAIN TESTS PROPOUNDED BY IT AT, LUCKNOW BENCH IN THE CASE OF SARNATH INFRASTRUCTURE P.LTD. VS.ACI T, (2009) 120 TTJ 216. ITAT, LUCKNOW BENCH HAS CONSIDERED THE ISSUE, WHETH ER THE ASSESSEE DESERVES TO E TREATED AS TRADER OR INVESTOR. THE F OLLOWING TESTS ARE WORTH TO NOTE. IT READS AS UNDER: 13. AFTER CONSIDERING ABOVE RULINGS WE CULL OUT FO LLOWING PRINCIPLES, WHICH CAN BE APPLIED ON THE FACTS OF A CASE TO FIND OUT WHETHER ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 16 - TRANSACTION(S) IN QUESTION ARE IN THE NATURE OF TRA DE OR ARE MERELY FOR INVESTMENT PURPOSES: (1) WHAT IS THE INTENTION OF THE ASSESSEE AT THE TI ME OF PURCHASE OF THE SHARES (OR ANY OTHER ITEM). THIS CAN BE FOUND OUT FROM THE TREATMENT IT GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNT. WHETHER IT IS TREATED STOCK-IN-TRADE OR INVESTMENT. WHETHER S HOWN IN OPENING/CLOSING STOCK OR SHOWN SEPARATELY AS INVEST MENT OR NON-TRADING ASSET. (2) WHETHER ASSESSEE HAS BORROWED MONEY TO PURCHASE AND PAID INTEREST THEREON? NORMALLY, MONEY IS BORROWED TO P URCHASE GOODS FOR THE PURPOSE OF TRADE AND NOT FOR INVESTING IN AN AS SET FOR RETAINING. (3) WHAT IS THE FREQUENCY OF SUCH PURCHASE AND DISP OSAL IN THAT PARTICULAR ITEM? IF PURCHASE AND SALE ARE FREQUENT , OR THERE ARE SUBSTANTIAL TRANSACTION IN THAT ITEM, IF WOULD INDI CATE TRADE. HABITUAL DEALING IN THAT PARTICULAR ITEM IS INDICATIVE OF IN TENTION OF TRADE. SIMILARLY, RATIO BETWEEN THE PURCHASES AND SALES AN D THE HOLDINGS MAY SHOW WHETHER THE ASSESSEE IS TRADING OR INVESTING ( HIGH TRANSACTIONS AND LOW HOLDINGS INDICATE TRADE WHEREAS LOW TRANSAC TIONS AND HIGH HOLDINGS INDICATE INVESTMENT). (4) WHETHER PURCHASE AND SALE IS FOR REALIZING PROF IT OR PURCHASES ARE MADE FOR RETENTION AND APPRECIATION ITS VALUE? FOR MER WILL INDICATE INTENTION OF TRADES AND LATTER, AN INVESTMENT. IN THE CASE OF SHARES WHETHER INTENTION WAS TO ENJOY DIVIDEND AND NOT MER ELY EARN PROFIT ON SALE AND PURCHASE OF SHARES. A COMMERCIAL MOTIVE I S AN ESSENTIAL INGREDIENT OF TRADE. (5) HOW THE VALUE OF THE ITEMS HAS BEEN TAKEN IN TH E BALANCE SHEET? IF THE ITEMS IN QUESTION ARE VALUED AT COST, IT WOU LD INDICATE THAT THEY ARE INVESTMENTS OR WHERE THEY ARE VALUED AT COST OR MAR KET VALUE OR NET REALIZABLE VALUE (WHICHEVER IS LESS), IT WILL INDIC ATE THAT ITEMS IN QUESTION ARE TREATED AS STOCK-IN-TRADE. (6) HOW THE COMPANY (ASSESSEE) IS AUTHORIZED IN MEM ORANDUM OF ASSOCIATION/ARTICLES OF ASSOCIATION? WHETHER FOR TR ADE OR FOR INVESTMENT? IF AUTHORIZED ONLY FOR TRADE, THEN WHETHER THERE AR E SEPARATE RESOLUTIONS OF THE BOARD OF DIRECTORS TO CARRY OUT INVESTMENTS IN THAT COMMODITY? AND VICE VERSE. 7. IT IS FOR THE ASSESSEE TO ADDUCE EVIDENCE TO SHO W THAT HIS HOLDING IS FOR INVESTMENT OR FOR TRADING AND WHAT DISTINCTI ON HE HAS KEPT IN THE RECORDS OR OTHERWISE, BETWEEN TWO TYPES OF HOLDINGS . IF THE ASSESSEE IS ABLE TO DISCHARGE THE PRIMARY ONUS AND COULD PRIMA FACIE SHOW THAT PARTICULAR ITEM IS HELD AS INVESTMENT (OR SAY, STOC K-IN-TRADE) THEN ONUS WOULD SHIFT TO REVENUE TO PROVE THAT APPARENT IS NO T REAL. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 17 - 8. THE MERE FACT OF CREDIT OF SALE PROCEEDS OF SHAR ES ( OR FOR THAT MATTER ANY OTHER ITEM IN QUESTION) IN A PARTICULAR ACCOUNT OR NOT SO MUCH FREQUENCY OF SALE AND PURCHASE WILL ALONE WILL NOT BE SUFFICIENT TO SAY THAT ASSESSEE WAS HOLDING THE SHARES (OR THE ITEMS IN QUESTION) FOR INVESTMENT. 9. ONE HAS TO FIND OUT WHAT ARE THE LEGAL REQUISITE S FOR DEALING AS A TRADER IN THE ITEMS IN QUESTION AND WHETHER THE ASS ESSEE IS COMPLYING WITH THEM. WHETHER IT IS THE ARGUMENT OF THE ASSES SEE THAT IT IS VIOLATING THOSE LEGAL REQUIREMENTS, IF IT IS CLAIMED THAT IT IS DEALING AS A TRADER IN THAT ITEM? WHETHER IT HAD SUCH AN INTENTION (TO CA RRY ON ILLEGAL BUSINESS IN THAT ITEM) SINCE BEGINNING OR WHEN PURCHASES WER E MADE? 10. IT IS PERMISSIBLE AS PER CBDTS CIRCULAR NO. 4 OF 2007 OF 15 TH JUNE, 2007 THAT AN ASSESSEE CAN HAVE BOTH PORTFOLIO S, ONE FOR TRADING AND OTHER FOR INVESTMENT PROVIDED IT IS MAINTAINING SEPARATE ACCOUNT FOR EACH TYPE, THERE ARE DISTINCTIVE FEATURES FOR BOTH AND THERE IS NO INTERMINGLING OF HOLDINGS IN THE TWO PORTFOLIOS. 11. NOT ONE OR TWO FACTORS OUT OF ABOVE ALONE WILL BE SUFFICIENT TO COME TO A DEFINITE CONCLUSION BUT THE CUMULATIVE EF FECT OF SEVERAL FACTORS HAS TO BE SEEN. 19. THE HONBLE GUJARAT HIGH COURT HAD ALSO AN OCCA SION TO CONSIDER THIS ISSUE IN THE CASE OF COMMISSIONER OF INCOME TA X VS. RIVA SHARKAR A KOTHARI REPORTED IN 283 ITR 338. HONBLE COURT HAS MADE REFERENCE TO THE TEST LAID BY IT IN ITS EARLIER DECISION RENDERE D IN THE CASE OF PARI MANGALDAS GIRDHARDAS VS. CIT REPORTED IN 1977 CTR 6 47. THESE TESTS READ AS UNDER: AFTER ANALYZING VARIOUS DECISIONS OF THE APEX COUR T, THIS COURT HAS FORMULATED CERTAIN TESTS TO DETERMINE AS TO WHETHER AN ASSESSEE CAN BE SAID TO BE CARRYING ON BUSINESS. (A) THE FIRST TEST IS WHETHER THE INITIAL ACQUISITION O F THE SUBJECT-MATTER OF TRANSACTION WAS WITH THE INTENTION OF DEALING IN THE ITEM, OR WITH A VIEW TO FINDING AN INVESTMENT. IF THE TRANSACTIO N, SINCE THE INCEPTION, APPEARS TO BE IMPRESSED WITH THE CHARACT ER OF A COMMERCIAL TRANSACTION ENTERED INTO WITH A VIEW TO EARN PROFIT, IT WOULD FURNISH A VALUABLE GUIDELINE. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 18 - (B) THE SECOND TEST THAT IS OFTEN APPLIED IS AS TO WHY AND HOW AND FOR WHAT PURPOSE THE SALE WAS EFFECTED SUBSEQUENTLY. (C) THE THIRD TEST, WHICH IS FREQUENTLY APPLIED, IS AS TO HOW THE ASSESSEE DEALT WITH THE SUBJECT-MATTER OF TRANSACTION DURING THE TIME THE ASSET WAS THE ASSESSEE. HAS IT BEEN TREATED AS STO CK-IN-TRADE, OR HAS IT BEEN SHOWN IN THE BOOKS OF ACCOUNT AND BALANCE S HEET AS AN INVESTMENT. THIS INQUIRY, THOUGH RELEVANT, IS NOT CONCLUSIVE. (D) THE FOURTH TEST IS AS TO HOW THE ASSESSEE HIMSELF H AS RETURNED THE INCOME FROM SUCH ACTIVITIES AND HOW THE DEPARTMENT HAS DEALT WITH THE SAME IN THE COURSE OF PRECEDING AND SUCCEE DING ASSESSMENTS. THIS FACTOR, THOUGH NOT CONCLUSIVE, C AN AFFORD GOOD AND COGENT EVIDENCE TO JUDGE THE NATURE OF THE TRAN SACTION AND WOULD BE A RELEVANT CIRCUMSTANCE TO BE CONSIDERED I N THE ABSENCE OF ANY SATISFACTORY EXPLANATION. (E) THE FIFTH TEST, NORMALLY APPLIED IN CASE OF PARTNER SHIP FIRMS AND COMPANIES, IS WHETHER THE DEED OF PARTNERSHIP OR TH E MEMORANDUM OF ASSOCIATION, AS THE CASE MAY BE, AUTHORIZES SUCH AN ACTIVITY. (F) THE LAST BUT NOT THE LEAST, RATHER THE MOST IMPORTA NT TEST, IS AS TO THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTION OF PURCHASE AND SALE OF THE GOODS CONCERNED. IN A CAS E WHERE THERE IS REPETITION AND CONTINUITY, COUPLED WITH THE MAGNITU DE OF THE TRANSACTION, BEARING REASONABLE PROPOSITION TO THE STRENGTH OF HOLDING THEN AN INFERENCE CAN READILY BE DRAWN THAT THE ACTIVITY IS IN THE NATURE OF BUSINESS. 20. IN THE LIGHT OF THE ABOVE, LET US EXAMINE THE F ACTS OF THE ASSESSEES CASE. THE FIRST TEST PROPOUNDED BY THE ITAT, LUCKN OW BENCH AS WELL AS BY THE HONBLE GUJARAT HIGH COURT IS, WHAT WAS THE INTENTION OF THE ASSESSEE AT THE TIME OF PURCHASE OF SHARES OR ANY O THER TIME. THE INTENTION CAN BE GATHERED FROM THE TREATMENT AN ASS ESSEE GIVES TO SUCH PURCHASE IN ITS BOOKS OF ACCOUNTS VIZ. WHETHER IT I S TO BE TREATED AS STOCK- IN-TRADE OR INVESTMENT. ON THIS ACCOUNT, THE ASSES SEE HAS SUBMITTED AS UNDER: ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 19 - 21. THE ASSESSEE HAS DISCLOSED THE PURCHASE OF SHAR ES AS SECURITIES IN ITS BALANCE SHEET UNDER THE HEAD INVESTMENT AND N OT AS PURCHASE AND SALE OF TRADING ASSETS OR AS ITS STOCK-IN-TRADE. T HE SALE AND PURCHASE OF INVESTMENTS ARE NOT ROUTED THROUGH PROFIT & AND LOS S ACCOUNT, BUT ONLY NET GAIN/LOSS ON SUCH INVESTMENTS ARE REFLECTED IN THE PROFIT & LOSS ACCOUNT. THE FACT THAT THE SHARES/SECURITIES WERE HELD AS NON-TRADING ASSETS HAS BEEN DISCLOSED IN NOTES TO THE ACCOUNTS IN SCHEDULE-15 AT ITEM 1(D). THE ASSESSEE HAS VALUED ITS CLOSING STOCK AT LOWER OF COST OR MARKET VALUE, WHEREAS THE INVESTMENT IN SHARES SECURITIES HAS BEEN VALUED AT COST ONLY. IT IS FURTHER SEEN THAT THE PROVISIONS MADE FOR DIMINUTION IN VALUE OF INVESTMENT HAS BEEN ADDED BACK IN THE COMP UTATION OF INCOME. THUS, IN THE ASSESSMENT YEARS UNDER CONSIDERATION A ND RESPECTIVE PREVIOUS ASSESSMENT YEARS, THE FOLLOWING AMOUNTS HA VE BEEN ADDED BACK TO THE TOTAL INCOME ON THIS CCOUNT IN THE COMP UTATION AND NO DEDUCTION HAS BEEN CLAIMED UNDER SECTION 88E FOR TH E SECURITIES TRANSACTION TAX PAID DURING THE YEAR. (RS.IN) ASSTT.YEAR AMOUNT ADDED BACK TO THE TOTAL INCOME AMOUNT ADDED BACK IN THE TOTAL INCOME IN PREVIOUS ASSTT.YEAR 2005-06 RS.31,565/- RS.6,02,99,64/- 2006-07 RS.NIL RS.31,565/- 2007-08 RS.27,58,400/- - 2008-09 RS.10,19,61,651/- RS.27,58,400/- 2009-10 RS.2,68,08,789/- RS.10,19,61,561/- 2010-11 RS.15,59,83,907 RS.2,68,08,789/- ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 20 - 2011-12 RS.60,75,000/- RS.15,59,83,907/- 22. IT IS FURTHER SUBMITTED THAT THE ASSESSEE HAS M ADE THE INVESTMENT WITHOUT HAVING RECOURSE TO BORROWED FUNDS. THE ENT IRE FUNDING FOR SHARES/SECURITIES HAS BEEN MADE OUT OF CAPITAL RESE RVES AND SURPLUS AVAILABLE FROM TIME TO TIME. 23. SO FAR AS FREQUENCY OF PURCHASE AND SALE OF SEC URITIES ARE CONCERNED, IT IS SUBMITTED THAT THE FOLLOWING DETAI LS DEMONSTRATE BIFURCATION OF TOTAL INVESTMENT, PURCHASE AND SALES IN RESPECT OF SHARES AND MUTUAL FUNDS ETC. IN THE RESPECTIVE ASSESSMENT YEARS. (RS.IN CRORES) INVESTMENT IN TOTAL INVESTM ENT PURCHASES OF TOTAL PURCHAS E SALES OF TOTAL SALES ASSTT. YEAR MUTUAL FUNDS & BONDS STRATEGIC INVESTMENT SHARES MUTUAL FUNDS AND BONDS SHARES STRATEGIC PURCHASE MUTUAL FUND & BONDS STRATE GIC INVEST MENT SHARES 2005 - 06 124.79 76.91 23.01 224.71 507.03 45.31 552.35 551.35 5.19 51.92 608.48 2006 - 07 164.15 78.01 45.53 287.69 494.33 80.45 574.78 448.07 66.71 66.66 581.44 2007 - 08 333.98 84.99 111.56 530.53 950.97 180.80 29.81 1161.58 791.99 22.83 141.05 955.87 2008 - 09 166.52 139.33 240.63 546.48 583.75 444.38 62.75 1090.88 752.03 7.12 364.15 1123.31 2009 - 10 151.21 150.25 204.27 505.73 822.14 20.89 33.25 876.28 859.40 9.44 45.40 914.24 2010 - 11 395.74 204.49 148.44 748.67 1308.84 18.08 54.24 1381.16 1070.46 NIL 52.29 1122.75 2011 - 12 249.25 195.16 126.43 570.84 821.80 1.73 3.65 827.18 1005.65 17.51 24.04 1047.20 24. FROM THE ABOVE TABLE, IT COULD BE SEEN THAT OUT OF TOTAL INVESTMENT IN SHARES/SECURITIES, INVESTMENT IN SHARES IS VERY LOW AS COMPARED TO INVESTMENT IN MUTUAL FUNDS AND BONDS AND STRATEGIC INVESTMENT. AS REGARDS PURCHASE AND SALES OF UNITS IN MUTUAL FUNDS CANNOT BE SAID TO CONSTITUTE TRADE, SINCE SUCH UNITS CANNOT BE SOLD I N THE OPEN MARKET BUT CAN ONLY BE REDEEMED BY THE ENTITY ISSUING THE UNIT S. APART FROM SUCH ENTITY, THERE IS NO BUYER FOR UNITS OF MUTUAL FUNDS . FURTHER, AS REGARDS THE VOLUME OF PURCHASE AND SALES, IT CAN BE NOTICED THAT OUT OF TOTAL PURCHASES, SUBSTANTIAL AMOUNTS HAVE BEEN UTILIZED F OR PURCHASE OF MUTUAL FUNDS AND ONLY MINIMAL HOLDING WAS MADE IN S HARE. SIMILARLY, ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 21 - IN THE CASE OF SALES ALSO SUBSTANTIAL CHUNK WAS IN RESPECT OF MUTUAL FUNDS AND ONLY SMALL QUANTITY OF SHARES WAS SOLD. 25. IT IS SUBMITTED THAT IF THE INTENTION FOR PURCH ASE AND SALES OF SECURITIES IS FOR REALIZATION OF PROFIT, THEN IT AM OUNTS TO TRADE, WHEREAS, THE PURPOSE IS FOR APPRECIATION OF VALUE, THEN IT I S IN THE NATURE OF INVESTMENT. IN THE CASE OF SHARES, WHETHER INTENTI ON WAS TO ENJOY DIVIDEND AND NOT MERELY EARN PROFIT ON SALE AND PUR CHASE OF SHARES. A COMMERCIAL MOTIVE IS AN ESSENTIAL INGREDIENT OF TRA DE. IN THIS REGARD, IT IS FURTHER SUBMITTED THAT WHERE PURCHASE AND SALE IS E NTERED INTO FOR REALISATION OF THE SAME, IT CONSTITUTED TRADE AND W HERE THE PURCHASE OF THE ASSET IS MADE FOR RETENTION AND APPRECIATION OF VALUE, THE SAME WOULD INDICATE INVESTMENT. IN THE INSTANT CASE, TH E ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.5.37 CRORES, 5.33 CRORES, 8.2 0 CRORES, RS.10.52 CRORES, RS.7.35 CRORES, RS.10.61 CRORES AND RS.4.85 CRORES FOR THE ASSTT.YEARS 2005-06 TO 2011-12 RESPECTIVELY, AND IN TEREST INCOME ON BONDS OF RS.3.07 CRORES, RS.4.60 CRORES, RS.6.47 CR ORES, RS.5.40 CRORES, RS.3.15 CRORES FOR THE ASSTT.YEARS 2005-06 TO 2009- 10 RESPECTIVELY. 26. IT IS SUBMITTED THAT DURING THE YEAR, THE COMPA NY HAS EARNED CAPITAL GAINS FROM MUTUAL FUNDS, STRATEGIC INVESTME NT AND EQUITY SHARES ETC. BIFURCATION OF SUCH CAPITAL GAIN IS AS UNDER : (RS.IN CRORES) ASSTT. YEAR GAIN FROM MUTUAL FUND GAIN/LOSS FROM STRATEGIC INVESTMENT GAIN FROM EQUITY SHARES TOTAL CAPITAL GAIN 2005-06 24.32 (INCLUDING LTG RS.10.17) 7.61 2.98 19.69 ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 22 - 2006-07 3.47 (INCLUDING LTG RS.1.22) 52.81 8.07 64.63 2007-08 11.46 (INCLUDING LTG RS.2.73) - 26.67 38.12 2008-09 11.87 (INCLUDING LTG RS.7.64) - 48.04 59.91 2009-10 DURING THE YEAR, THE COMPANY HAS INCURRED LOSS OF RS.7.33 CORES ON SALE OF INVESTMENTS. 2010-11 6.29 (INCLUDING LTG RS.6.29) - (-) 6.01 CAPITAL LOSS 0.28 2011-12 37.37 (INCLUDING LTG RS.32.59) - 5.67 43.04 27. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE BOOKS OF ACCOUNTS, THE ASSESSEE HAS VALUED THE SHARES/SECURI TIES AT COST AND NOT AT LOWER OF COST OR MARKET VALUE. IT IS SUBMITTED THA T THE MAIN OBJECTS OF THE MEMORANDUM OF ASSOCIATION DO NOT AUTHORISE THE ASSESSEE TO UNDERTAKE BUSINESS OF PURCHASE AND SALE OF SHARES/S ECURITIES UNLESS THE MAIN OBJECTION OF MOA PERMITS, THE COMPANY CANNOT D O TRADING IN SHARES AND SECURITIES AS BUSINESS, BEING A LISTED C OMPANY. SUBSEQUENTLY ALSO MOA WAS AMENDED FROM TIME TO TIME BUT ABOVE CL AUSE WAS NOT MADE IN OBJECT CLAUSE. HOWEVER, ARTICLE NO.9 AND 3 2 OF THE MEMORANDUM, BEING ANCILLARY OBJECTS OF THE COMPANY, PERMIT THE ASSESSEE TO INVEST IN OR ACQUIRE SHARES, STOCK, DEB ENTURE AND OTHER SECURITY FROM TIME TO TIME. THE ASSESSEE HAS PASSE D RESOLUTION U/S.372A OF THE COMPANIES ACT AUTHORIZING THE INVESTMENT IN SHARES/SECURITIES. 28. AS REGARDS ACCOUNTING TREATMENT, IT IS PLEADED THAT THE ASSESSEE HAS MAINTAINED A DISTINCTION BETWEEN TRADING ASSETS AND NON-TRADING ASSETS. THE LATTER HAVE BEEN VALUED AT COST, AND SALE/PURCHASE THEREOF ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 23 - HAS NOT BEEN REFLECTED IN THE P&L ACCOUNT. ONLY GA INS HAVE BEEN INCLUDED IN THE OTHER INCOME. PROVISION FOR DIMINU TION IN VALUE OF INVESTMENT HAS BEEN ADDED BACK IN THE COMPUTATION. FURTHER, THE ASSESSEE HAS ITSELF ADDED BACK RS.20 LAKHS U/S.14A ON ESTIMATE BASIS IN RESPECT OF TAX FREE INCOME EARNED ON SUCH INVESTMEN T. NO DEDUCTION HAS BEEN CLAIMED UNDER SECTION 88E FOR THE SECURITIES T RANSACTION TAX PAID DURING THE YEAR. THE ASSESSEE-COMPANY HAS COMPLIED WITH THE APPLICABLE LEGAL PROVISIONS UNDER THE COMPANIES ACT , PARTICULARLY, SECTIONS 149, 372A, 249, REQUIREMENTS OF SCHEDULE V I AS WELL AS THE PROVISIONS OF AS-13 ON INVESTMENT. THE ASSESSEE HA S MAINTAINED ONLY ONE PORTFOLIO. IT IS FURTHER PLEADED THAT DURING T HE YEAR THERE WAS SPECULATIVE LOSS OF RS.0.67 LAKHS AND RS.1.08 LAKHS FOR THE ASSTT.YEAR 2005-06 AND 2008-09 RESPECTIVELY. SUCH SMALL AMOUN T INVOLVING ONLY SIX TRANSACTIONS SHOULD NOT BE DETERMINING FACTOR. 29. THE LD.COUNSEL FOR THE ASSESSEE FURTHER RELIED UPON THE FOLLOWING DECISIONS: I) ACIT VS. SHAH INVESTORS HOME LTD., ITA NO.1424/AHD/2010 (ITAT, AHMEDABAD BENCH) II) DCIT VS. TEJAS SECURITIES, IT(SS)A.531, 532/AHD/201 1 DATED 22.3.2016 (ITAT, AHMEDABAD. III) CIT VS. NITA M. PATEL, 42 TAXMANN.COM 125 (GUJARAT) IV) CIT VS. SMT. DATTA MAHENDRA SHAH, 62 TAXMANN.COM 32 5 (BOMBAY) V) SEER FINLEASE P.LTD. VS. ACIT, AHMEDABAD ITA NO.3326/AHD/2009 AND OTHERS ORDER DATED 17.3.2015, ITAT, AHMEDABAD. VI) CIT VS. KAPUR INVESTMENTS P.LTD. 61 TAXMANN.COM 91 (KAR) VII) ITA NO.1912/AHD/2012 AND OTHERS IN THE CASE OF ALEM BIC LTD. VS. DCIT, ORDER DATED 9.12.2016 (ITAT, AHMEDAB AD.) ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 24 - VIII) GAJJALA MADHUSUDHAN REDDY VS. ITO, 39 TAXMANN.COM 1 57 (ITAT, HYDERABAD) IX) DCIT VS. UMIL SHARE & STOCK BROKING SERVICES LTD., 96 TAXMANN.COM 168 (KOL-TRIB.) X) PCIT VS. BHANUPRASAD D. TRIVEDI, HUF, 87 TAXMANN.CO M 137 (GUJARAT) XI) PCIT VS. BHHANUPRASAD D. TRIVEDI HUF, 94 TAXMANN.CO M 114 (SC) HE HAS PLACED ON RECORD COPIES OF THE ABOVE DECISIO NS. 30. WE HAVE DULY GONE THROUGH ALL THESE DETAILS. I N THE FIRST TEST I.E. HOW TO FIND OUT INTENTION OF THE ASSESSEE THAT IT H AS PURCHASED SHARES FOR INVESTMENT PURPOSE, THE ASSESSEE HAS POINTED OUT TH AT IN THE BOOKS OF ACCOUNTS, IT HAS TREATED THESE SHARES IN THE INVEST MENT ACCOUNT. IT HAS NOT VALUED THE SHARES AT THE END OF THE YEAR AT COS T OR MARKET VALUE WHICHEVER IS LESS, RATHER IT HAS VALUED THEM AT THE COST OF ACQUISITION. THIS TREATMENT IN THE ACCOUNT IS BEING GIVEN WHEN T HE SHARES ARE BEING PURCHASED IN INVESTMENT ACCOUNT. THE ASSESSEE HAS ALSO POINTED OUT THAT PROVISIONS MADE FOR DIMINUTION IN VALUE OF INVESTME NT HAS BEEN ADDED BACK IN THE COMPUTATION OF INCOME. W HILE TAKING NOTE OF THE ASSESSEES SUBMISSIONS SUBMITTED IN TABULAR FORM, WE HAVE SPEC IFICALLY NOTED THE FIGURES. WHILE DIFFERING WITH THE CONCLUSIONS OF T HE CIT(A) IN THE ASSTT.YEARS 2005-06 TO 2007-08, THE LD.CIT(A) IN TH E ASSTT.YEAR 2008-09 RECORDED THAT FACT OF RECORDING TRANSACTION IN THE BOOKS OF ACCOUNTS ETC. IN A PARTICULAR MANNER BY THE APPELLANT WAS TO JUST IFY THE NATURE OF TRANSACTION TO BE INVESTMENT. MERELY BECAUSE THE ASSESSEE HAS GIVEN A PARTICULAR TREATMENT TO THE SHARE TRANSACTION IN IT S BOOKS OF ACCOUNTS, DOES NOT PROVE THE NATURE OF TRANSACTION TO BE A PA RTICULAR KIND, AND OVERALL CONDUCT OF THE ASSESSEE HAS TO BE SEEN. IT APPEARS THAT CIT(A) ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 25 - FAILED TO APPRECIATE THE REQUIREMENT FOR MAINTAININ G ACCOUNTS AND THE ASSESSEE HAS TO GIVE A PARTICULAR TREATMENT, AND TH AT TREATMENT IS ONE OF THE CORROBORATIVE FACTORS FOR INDICATING ITS INTENT ION. THE LD.CIT(A) JUST BRUSHED ASIDE THESE CIRCUMSTANCES ON THE GROUND THA T THESE TREATMENT FOR VALUING THE SHARES AT COST AT THE END OF THE CL OSING YEAR WAS DONE BY THE ASSESSEE SO THAT IT CAN DEMONSTRATE ITS PURCHAS E AND SALE AS INVESTMENT. THIS IS THE BASIC REQUIREMENT, WHICH A N ASSESSEE HAS TO FOLLOW FOR MAINTAINING INVESTMENT PORTFOLIO. IT HA S GIVEN THAT VERY TREATMENT IN THE ACCOUNTS. THERE IS NOTHING WITH T HE LD.CIT(A) ON THIS ASPECT TO DIFFER WITH THE CONCLUSIONS OF THE PREDEC ESSOR IN EARLIER YEARS. 31. THE NEXT REASON ASSIGNED BY THE ASSESSEE FOR TE RMING ITS PURCHASE OF SHARES AS INVESTMENT THAT IT HAS NOT BORROWED FU NDS FOR MAKING INVESTMENT. THE LD.CIT(A) IN THE ASSTT.YEAR 2008-0 9 HAS OBSERVED THAT THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE OF R S.27.64 CORES DURING THE YEAR. THE ASSESSEE HAS NOT SUBMITTED SEPARATE ACCOUNTS SHOWING INCURRENCE OF EXPENDITURE FOR INVESTMENT SPECIFIC. THE ASSESSEE HAS POINTED OUT THE VOLUME OF FUNDS AVAILABLE WITH IT I N THE SHAPE OF RESERVES AND SURPLUS. FOR EXAMPLE, IN THE ASSTT.YE AR 2008-09, THE SHARE CAPITAL WAS RS.1099 LAKHS. THE RESERVES AND SURPLU S WAS RS.1,21,844 LAKHS. GROSS INVESTMENT IN THE ASSTT.YEAR 2008-09 IS RS.51,861 LAKHS. ALL THESE DETAILS HAVE BEEN COMPILED BY THE ASSESSEE IN TABULAR FORM AND AVAILABLE ON PAGE NO.1 OF THE SYNOPSIS. THIS INDIC ATES THAT ALL FUNDS WERE FAR MORE THAN THE GROSS INVESTMENT IN THAT YEAR. S IMILAR IS THE POSITION IN ALL OTHER YEARS. INVESTMENT IS FAR LESS THAN OW N FUNDS AVAILABLE IN THE SHAPE OF SHARE CAPITAL AND RESERVES AND SURPLUS, TH EREFORE, IF THESE FIGURES ARE APPRECIATED IN THE LIGHT OF HONBLE BOM BAY HIGH COURT ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 26 - DECISION IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWERS LTD., 313 ITR 340 (BOMBAY), THEN IT WOULD REVEAL THAT ONE HAS TO DRAW AN INFERENCE THAT THE ASSESSEE MUST HAVE MADE INVESTMENT OUT OF ITS OWN FUNDS. THE LD.CIT(A) CANNOT REJECT THIS ARGUMENT SIMPLY FOR TH E REASON THAT THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE OF RS.27 .64 CORES. BUT THIS EXPENDITURE IS ATTRIBUTABLE TO MANUFACTURING ACTIVI TIES ALSO. THE LD.CIT(A) OUGHT TO HAVE VISUALIZED THE COMPLETE DET AILS OF FUNDS BEFORE ASSIGNING THIS REASONING FOR DIFFERING WITH THE LD. CIT(A) IN OTHER ASSESSMENT YEARS. 32. NEXT REASONS WHICH EMERGES OUT FROM THE ORDER O F THE LD.CIT(A) IN THE ASSTT.YEAR 2008-09 IS THAT THERE WERE LARGE NUM BER OF SHARE TRANSACTED BY THE ASSESSEE INCLUDING IN TERMS OF SC RIP AS WELL AS IN TERMS OF TRANSACTIONS. THE LD.CIT(A) ALSO OBSERVED THAT IF WEIGHTED AVERAGE HOLDING PERIOD IS TAKEN INTO CONSIDERATION, THEN FO R THE PURPOSE OF SHORT CAPITAL GAIN IT IS 86 DAYS. THE LD.CIT(A) ALSO TOO K NOTE OF THE PURCHASES MADE BY THE ASSESSEE IN THE ASSTT.YEAR 2003-04 TO 2 008-09. HE OBSERVED THAT SINCE THERE IS A RISING TREND IN PURCHASE OF T HE SHARES, IT SHOWS THAT THE ASSESSEE WAS TRADING IN THE SHARES. NO DOUBT V OLUME OF INVESTMENT IS HIGHER, BUT IT IS TO BE APPRECIATED IN THE LIGHT OF TOTAL INVESTMENT MADE BY THE ASSESSEE IN THE MUTUAL FUNDS, IN THE BONDS F OR EARNING INTEREST INCOME. THE LD.CIT(A) HIMSELF AGREED WITH THE CONT ENTIONS OF THE ASSESSEE EVEN IN THE ASSTT.YEAR 2008-09, AS FAR AS INVESTMENT IN MUTUAL FUNDS ARE CONCERNED. SHE HAS ACCEPTED THAT GAIN ON SALE OF MUTUAL FUND WAS TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN. THIS FINDING IS BEING CHALLENGED IN GROUND NO.3 IN THE ASSTT.YEAR 2008-09 , 2009-10 AND GROUND NO.1 IN THE ASSTT.YEAR 2010-11 BY THE REVENUE. THE HIGHER VOLUME IS ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 27 - BECAUSE SOME OF THE INVESTMENTS WERE MADE BY THE AS SESSEE FOR STRATEGIC HOLDING IN THE SISTER CONCERNS, AND THEREFORE, THIS ONE FACTOR ALONE BE NOT CONSTRUED THAT THE ASSESSEE WAS TRADING IN SHARES. IT IS PERTINENT TO OBSERVE THAT WHEN ANY EXPLANATION OR A DEFENCE OF A N ASSESSEE BASED ON NUMBER OF FACTS SUPPORTED BY EVIDENCE AND CIRCUMSTA NCES REQUIRED CONSIDERATION WHETHER EXPLANATION IS SOUND OR NOT M UST BE DETERMINED NOT BY CONSIDERING THE WEIGHT TO BE ATTACHED TO EAC H SINGLE FACT IN ISOLATION BUT BY ASSESSING THE CUMULATIVE EFFECT OF ALL THE FACTS IN THEIR SETTING AS A WHOLE. IF ALL THE FACTORS DISCUSSED A BOVE ARE CONSIDERED CONJUNCTIVELY THEN IT WOULD GIVE AN INFERENCE THAT THE INVESTMENTS MADE BY THE ASSESSEE WERE FOR THE PURPOSE OF ACHIEVING L ONG TERM BENEFIT AND ON SALE OF SUCH INVESTMENT ANY GAIN OR LOSS IS REQU IRED TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN. SIMILARLY, WE DO NO T FIND FORCE IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE THAT ON SAL E OF MUTUAL FUND PROFIT BE ASSESSED AS ISNESS INCOME. THE LD.CIT(A) HAS RIGHTLY HELD THAT ON SALE OF MUTUAL FUND ONLY CAPITAL GAIN ARISE TO T HE ASSESSEE. 33. AS FAR AS DECISIONS RELIED UPON BY THE LD.CIT-D R ARE CONCERNED, WE HAVE GONE THROUGH THE DECISIONS. IT IS OBSERVED THAT EACH DECISION IS GIVEN ON THE PARTICULAR FACT OF THAT CASE. WE HAVE ALREADY OBSERVED THAT ON THIS ISSUE, WHETHER THE ASSESSEE IS A TRADER OR AN INVESTOR, THERE ARE LARGE NUMBERS OF DECISIONS AVAILABLE. IN THE CASE LAWS CITED BY THE LD.COUNSEL FOR THE ASSESSEE, JUDICIAL MEMBER (HEREIN ) IS PARTY TO TWO OF THE CASES VIZ. SHAH INVESTORS HOME LTD., AND SEER FINLEASE P. LTD. (SUPRA). ALL THESE CASES WERE BEING DECIDED BY KEE PING IN MIND SPECIFIC FACT SITUATION IN THEM. THE TESTS PROPOUNDED IN LA RGE NUMBERS OF CASES HAVE ALREADY BEEN CONSIDERED BY US. THEREFORE, THE LD.CIT(DR) COULD ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 28 - NOT BUTTRESS THE REASONING OF THE LD.CIT(A) IN THE ASSTT.YEAR 2008-09 WHICH HAS BEEN FOLLOWED IN SUBSEQUENT YEARS WITH HE LP OF THESE CASE LAWS. WE HAVE CONSIDERED SPECIFIC REASONS ASSIGNED BY THE LD.CIT(A) FOR DIFFERING WITH CONCLUSIONS OF HIS PREDECESSOR IN EA RLIER YEARS. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT GAIN ARISING ON SALE OF SHARES OR MUTUAL FUND IS TO BE TAXED IN ALL THESE YEARS AS LO NG TERM CAPITAL GAIN/SHORT TERM CAPITAL GAIN. ORDERS OF THE LD.CIT (A) IN THE ASSTT.YEAR 2005-06, 2006-07 AND 2007-08 ARE UPHELD, WHEREAS TH E FINDING OF THE LD.CIT(A) IN THE ASSTT.YEAR 2008-09 UPTO THE ASSTT. YEAR 2011-12 ARE SET ASIDE. THE FINDING OF CIT(A) IN ASSTT.YEAR 2008-09 , 2009-10 AND 2010-11 THAT ON SALE OF MUTUAL FUNDS, CAPITAL GAIN IS TO BE ASSESSED IN THE HANDS OF ASSESSEE, IS UPHELD, AND GROUND OF REVENUE I.E. GROUND NO.3 IN ASSTT.YEAR 2008-09, 2009-10 AND GROUND NO.1 IN THE ASSTT.YEAR 2010-11 ARE REJECTED. SIMILARLY, ALL THE GROUNDS OF REVENUE IN THE ASSTT .YEAR 2005-06 TO 2007-08 CHALLENGING THE FINDING OF THE LD.CIT9A) ON THIS ISSUE ARE REJECTED; WHEREAS ALL THE GROUNDS OF ASSESSEE IN AL L THE REMAINING YEARS ARE ALLOWED. IN OTHER WORDS, IN ALL THESE YEARS AS SESSEE BE TREATED AS INVESTORS AND ON SALE OF SHARES/MUTUAL FUNDS, PROFI T/LOSS BE ASSESSED UNDER THE HEAD CAPITAL GAIN/LOSS. THE LD.AO SHALL GIVE EFFECT ACCORDINGLY. 34. NOW, WE DEAL WITH GROUND NO.4 OF THE ASSESSEES APPEAL IN ITA NO.1379/AHD/2009. IN THIS GROUND OF APPEAL, THE AS SESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOW ANCE OF RS.60 LAKHS OUT OF EXPENSES ON PROFESSIONAL FEES. THE LD.COUNS EL FOR THE ASSESSEE, AT THE TIME OF HEARING, CONTENDED THAT IF THE GROUND O F APPEAL RAISED BY THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 29 - REVENUE IN GROUND NO.5 I.E. GAIN FROM TRANSACTION O F SECURITIES AMOUNTING TO RS.16,59,53,272/- ARE BEING TAXED AS C APITAL GAIN, AND NOT AS BUSINESS INCOME, AS RAISED BY THE REVENUE IS REJ ECTED, AND ORDER OF THE LD.CIT(A) IS BEING UPHELD, THEN DISALLOWANCE OF RS.60 LAKHS OUT OF EXPENSES ON PROFESSIONAL FEES DESERVES TO BE CONFIR MED. HE POINTED OUT THAT ADJUDICATION OF THIS GROUND IS SUBJECT TO THE DECISION OF THE TRIBUNAL ON THE GROUND OF REVENUES APPEAL. IN THE FOREGOIN G PARAGRAPHS, WE HAVE REJECTED THE REVENUE CONTENTIONS AND UPHELD OR DER OF THE CIT(A) THAT GAINS FROM TRANSACTIONS OF SECURITIES ARE TO B E TAXED AS CAPITAL GAIN, THEREFORE, THE EXPENDITURE TOWARDS PROFESSIONAL FEE S WHOSE DISALLOWANCE WAS UPHELD BY THE LD.CIT(A), DESERVES TO BE UPHELD. ACCORDINGLY, GROUND NO.4 RAISED BY THE ASSESSEE IN THE ASSTT.YEA R 2005-06 IS REJECTED. 35. GROUND NO.3 IN ITA NO.1661/AHD/2009; GROUND NO. 5 IN THE ITA NO.1379/AHD/2009. 36. IN BOTH THESE GROUNDS, ISSUE INVOLVED IS, WHAT AMOUNT REQUIRES TO BE DISALLOWED UNDER SECTION 14A OF THE INCOME TAX A CT. THE LD.AO HAS DISALLOWED INTEREST EXPENSES OF RS.1,11,47,727/-, O UT OF THAT THE LD.CIT(A) HAS DELETED THE DISALLOWANCE OF RS.91,63, 869/-. GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELE TING THIS DISALLOWANCE, WHEREAS GRIEVANCE OF THE ASSESSEE IN GROUND NO.5 OF ITS APPEAL IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.19,83,585/-. 37. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS SHOWN DIVIDEND INCOME OF RS.5,32,00,000/-. THE AO THOUGH TREATED THE ACTIVITY OF THE ASSESSEE OF SALE AND PURCHASE OF SHARES AS TRADING ACTIVITY, HE ASSESSED THE PROFIT ON SHARE TRANSACTION AS BUSINESS INCOME, BUT ON PROTECTIVE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 30 - BASIS, HE DISALLOWED EXPENDITURE OF RS.62,56,732/- OUT OF PROFESSIONAL FEES AND RS.1,11,47,627/- ON ACCOUNT OF INTEREST EX PENSES. HE OBSERVED THAT IF AT ANY APPELLATE STAGE THE SAME IS HELD TAX ABLE UNDER THE HEADING CAPITAL GAIN THEN DISALLOWANCE UNDER SECTION 14A SHOULD REQUIRE TO BE MADE AND THIS DISALLOWANCE WOULD BE WORKED OUT ACCO RDINGLY. THE LD.CIT(A) HAS HELD THAT PROFIT ON SHARE TRANSACTION IS TO BE ASSESSED AS CAPITAL GAIN. WE HAVE UPHELD THIS FINDING OF THE L D.CIT(A) WHILE REJECTING THE GROUND OF APPEAL TAKEN BY THE REVENUE IN THE ABOVE DISCUSSION. THEREFORE, WE ARE REQUIRED TO ADJUDICA TE WHAT AMOUNT OUGHT TO BE DISALLOWED UNDER SECTION 14A OF THE ACT . A PERUSAL OF THE RECORD WOULD INDICATE THAT THE LD.AO HAS MADE DISAL LOWANCE UNDER TWO HEADS; (A) OUT OF PROFESSIONAL FEES, AND (B) OUT OF INTEREST EXPENSES. AS FAR AS OUT OF PROFESSIONAL FEE OF RS.62,56,732/- IS CONCERNED, THIS DISALLOWANCE HAS BEEN CONFIRMED BY THE LD.CIT(A) AT RS.60 LAKHS. IT HAS BEEN CHALLENGED BY THE ASSESSEE IN GROUND NO.4 OF I TA NO.1379/AHD/2009. WE HAVE DISCUSSED THIS ISSUE WHI LE DEALING WITH THE ISSUE, WHETHER THE ASSESSEE WAS INDULGED IN SHA RE TRADING OR ITS ACTIVITIES WERE OF INVESTMENTS. WE HAVE CONFIRMED THIS DISALLOWANCE, AFTER TAKING NOTE OF THE SUBMISSIONS MADE BY THE LD .COUNSEL FOR THE ASSESSEE. OUT OF INTEREST EXPENDITURE, THE LD.AO H AS WORKED OUT THE DISALLOWANCE AT RS.1,11,47,727/-. HE WORKED OUT TH IS DISALLOWANCE WITH HELP OF THE FOLLOWING FORMULA: INVESTMENT ---------------- INTEREST PAID = TOTAL ASSETS RS.224,70,48,357 ----------------------- 2,13,03,954 = 1,11,47,72 7 ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 31 - RS.42942,39,902 38. THE LD.CIT(A) HAS RE-APPRECIATED THIS ASPECT AN D OBSERVED THAT THE ASSESSEE WAS HAVING SUFFICIENT AMOUNT OF SHARE CAPI TAL, RESERVES & SURPLUS. IT HAS EARNED PROFIT AT RS.45 CRORES. HE NCE, NO DIRECT INTEREST EXPENDITURE WAS REQUIRED TO BE DISALLOWED. THE LD. CIT(A) CONFIRMED THE ADDITION AT RS.19,83,858/- ON THE GROUND THAT T HESE INTEREST EXPENDITURE HAS A DIRECT NEXUS WITH INVESTMENT. 39. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD. WE FIND THAT THE LD.AO HAS WOR KED OUT DISALLOWANCE ON THE BASIS OF A FORMULA. HE FAILED TO NOTE THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE FAR MOR E THAN THE GROSS INVESTMENT. GROSS INVESTMENT IN ASSTT.YEAR 2005-06 WAS RS.28,769 LAKHS, WHEREAS SHARE CAPITAL, RESERVES & SURPLUS AVAILABLE WITH THE ASSESSEE WAS OF RS.49,379 LAKHS. THIS FUND IS FAR MORE THAN THE INVESTMENT. IT CAN SAFELY BE HARBOURED THAT INTEREST BEARING FUNDS WAS NOT INVESTED BY THE ASSESSEE. APART FROM THE ABOVE, THE ASSESSEE HAS E ARNED PROFIT AT RS.45 CRORES. IT HAS ALSO RECEIVED COMPENSATION UNDER MO NTREAL PROTOCOL OF RS.8.96 CRORES. THE LD.CIT(A) HAS OBSERVED THAT IT S BORROWINGS DECREASED TO THE EXTENT OF RS.40 CRORES, AND ALSO I NVESTMENT DECREASED BY RS.34 CRORES. IN SUCH SITUATION INTEREST EXPENS ES WERE NOT REQUIRED TO BE CALCULATED ON THE BASIS OF AN ESTIMATION USING T HE ABOVE FORMULA. WHILE CONFIRMING THE DISALLOWANCE OF RS.19,83,858/- IS CONCERNED, THE FINDING OF THE LD.CIT(A) IS THAT IT IT WAS FAIRLY POINTED OUT THAT ON THE BASIS OF DIRECT NEXUS THE INTEREST AMOUNT OF RS.19, 83,858/- IS IN RESPECT OF INVESTMENTS. THIS AMOUNT WORKED OUT WITHOUT PREJUD ICE TO THE STAND THAT NO DISALLOWANCE IS REQUIRED OUT OF INTEREST ON THE BASIS OF ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 32 - SUBMISSIONS MADE EARLIER. THOUGH THE LD.CIT(A) HA S OBSERVED THAT THIS EXPENSES HAS A DIRECT NEXUS, BUT IT IS NEITHER DISC ERNIBLE FROM THE ASSESSMENT ORDER NOR FROM THE CIT(A)S ORDER. MAJO R PART OF THE EXPENSES I.E. RS.91,63,869/- HAS BEEN DELETED BY TH E CIT(A) BY FOLLOWING JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F RELIANCE UTILITIES AND POWERS P.LTD. (SUPRA) ON THE BASIS THAT THE ASS ESSEE WAS HAVING MORE INTEREST FREE FUNDS, THAN THE INVESTMENT. IN THIS SITUATION, PART EXPENDITURE CANNOT BE CULLED OUT UNLESS A DIRECT NE XUS HAS BEEN DEMONSTRATED. IT IS NEITHER DISCERNIBLE IN THE ASS ESSMENT ORDER NOR IN THE CIT(A)S ORDER. WE HAVE EXTRACTED RELEVANT FINDING OF THE LD.CIT(A). IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW TH AT THIS DISALLOWANCE IS NOT DISCERNIBLE. CONSEQUENTLY, GROUND OF APPEAL RAISED BY THE REVENUE IS REJECTED, WHEREAS GROUND OF APPEAL RAISE D BY THE ASSESSEE IS ALLOWED. THE DISALLOWANCE OF RS.19,83,858/- STANDS DELETED. NO OTHER GROUND REMAINED IN THE APPEAL OF THE REVENUE FOR TH E ASSTT.YEAR 2005- 06. THEREFORE, ITA NO.1661/AHD/2009 STANDS DISMISS ED. 40. NOW WE TAKE REMAINING GROUNDS OF ASSESSEES APP EAL I.E. ITA NO.1379/AHD/2009 FOR THE ASSTT.YEAR 2005-06. 41. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF R S.17,86,644/- WHICH ACCORDING TO THE LD.REVENUE AUTHORITIES ACCRUED ON ACCOUNT OF INTEREST ON REFUND. 42. THE LD.COUNSEL FOR THE ASSESSEE RAISED A VERY B RIEF SUBMISSIONS, AND CONTENDED THAT WHATEVER EFFECT IS BEING GIVEN TO TH E ORDERS OF THE HIGHER APPELLATE AUTHORITIES IN EARLIER YEARS AS WELL AS T HIS YEAR, AUTHORIZING THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 33 - ASSESSEE TO RECEIVE REFUND, THEN INTEREST BE CALCUL ATED ACCORDING TO THE AMOUNT OF REFUND, IF ANY, ACCRUED TO THE ASSESSEE. IN OTHER WORDS, ACCORDING TO THE ASSESSEE, THIS ISSUE REQUIRES TO B E DECIDED AGAINST THE ASSESSEE, BUT THE AMOUNT OF REFUND BE DETERMINED AF TER GIVING EFFECT TO THE APPELLATE ORDERS, AND ACCORDINGLY, INTEREST BE COMPUTED ON SUCH REFUND. WE DIRECT THE AO TO CARRY OUT THIS EXERCIS E WHILE DETERMINING THE EXACT AMOUNT OF INTEREST ACCRUED TO THE ASSESSE E ON THE BASIS OF THE REFUND. IN THIS WAY, THIS GROUND IS ALLOWED FOR ST ATISTICAL PURPOSE. 43. GROUND NO.2: THIS GROUND IS INTER-CONNECTED WI TH GROUND NO.2 OF THE ASSESSEES APPEAL IN ITA NO.1380/AHD/2009 FOR T HE ASSTT.YEAR 2006- 07. WE TAKE BOTH THESE GROUNDS TOGETHER. 44. GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.9,60,000/-. BRIE F FACTS OF THE CASE ARE THAT THE ASSESSEE HAS TAKEN LAND ON LEASE AT NOIDA FOR THE PURPOSE OF BUSINESS FROM NEW OKHLA INDUSTRIAL DEVELOPMENT AUTH ORITY. THE SAID AUTHORITY REQUIRES THAT CONSTRUCTION SHOULD BE DONE WITHIN THE PRESCRIBED TIME LIMIT. HOWEVER, DUE TO VARIOUS COM MERCIAL REASONS, THE COMPANY HAS DEFERRED THE CONSTRUCTION PLANS, AND TH US, THE ASSESSEE NEEDED TO PAY FEES TOWARDS EXTENSION OF TIME LIMIT TO SUCH AUTHORITY IN THE ASSTT.YEAR 2005-06. IT HAS CLAIMED EXTENSION C HARGES OF RS.9,60,000/- WHEREAS IN THE ASSTT.YEAR 2006-07 IT HAS CLAIMED SU CH CHARGES AT RS.3,20,000/-. THIS CLAIM OF THE ASSESSEE WAS NOT ALLOWED BY THE AO. ACCORDING TO THE AO, IT WAS A CAPITAL EXPENDITURE, WHEREAS THE ASSESSEE HAS SUBMITTED THAT IT WAS A PAID FOR PROTECTING THE TITLE OF THE LAND. THE LD.COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE CONSISTENTLY FROM THE ASSTT.YEAR 2002-03. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 34 - WE FIND THAT THE TRIBUNAL HAS EXAMINED THIS ASPECT IN DETAIL IN THE ASSTT.YEAR 2003-04 WHILE DECIDING ITA NO.33/AHD/200 7. TAKING INTO CONSIDERATION CONSISTENT STAND OF THE AUTHORITIES A S WELL AS APPEAL UPTO THE LEVEL OF ITAT, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. BOTH THESE GROUNDS ARE REJECTED. GROUND NO.3 IN ASSTT.YEAR 2005-06: 45. IN THIS GROUND, GRIEVANCE OF THE ASSESSEE IS TH AT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.9,883/- WHICH HAS BEEN DISALLOWED OUT OF SUNDRY BALANCE WRITTEN OFF. THE LD.COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL ON ACC OUNT OF SMALLNESS OF THE AMOUNT INVOLVED THEREIN. ACCORDINGLY, IT IS RE JECTED. 46. GROUND NO.4. IN THIS GROUND, GRIEVANCE OF THE A SSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.60 LAKHS OUT OF EXPENSES OF PROFESSIONAL FEES. THIS GROUND IS INTE R-CONNECTED WITH GROUND NO.2 OF ASSESSEES APPEAL I.E. ITA NO.1380/A HD/2009 FOR THE ASSTT.YEAR 2006-07. THE GRIEVANCE OF THE ASSESSEE IN BOTH THE YEARS RELATES TO DISALLOWANCE OF RS.60 LAKHS (EACH YEAR) OUT OF THE EXPENSES OF PROFESSIONAL FEES. WE HAVE CONSIDERED THIS ISSUE W HILE DEALING WITH THE GROUND AGITATED ON THE GROUND THAT PROFIT ON SALE O F SHARES IS REQUIRED TO BE ASSESSED AS CAPITAL GAIN OR BUSINESS INCOME. WE HAVE UPHELD DISALLOWANCE IN THE ASSTT.YEAR 2005-06. ONCE CAPIT AL GAIN IS REQUIRED TO BE ASSESSED ON SALE OF SHARES THEN EXPENSES ATTRIBU TABLE TO EXEMPT INCOME ARE REQUIRED TO BE DISALLOWED UNDER SECTION 14A OF THE ACT. WE HAVE DISCUSSED THIS ISSUE, WHILE DISPOSING OF GROUN D NO.3 OF THE REVENUES APPEAL FOR THE ASSTT.YEAR 2005-06 AND GRO UND NO.4 OF THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 35 - ASSESSEES APPEAL. WE HAVE UPHELD THE DISALLOWANCE OF RS.60 LAKHS INCURRED BY THE ASSESSEE ON PROFESSIONAL FEES FOR T AKING CARE OF THE INVESTMENT WHICH WOULD GIVE RISE TO THE DIVIDEND IN COME, WHICH WILL BE EXEMPT FROM TAX. SIMILAR LOGIC IS APPLICABLE IN TH E ASSTT.YEAR 2006-07 ALSO. HENCE, EXPENDITURE OF RS.60 LAKHS OUT OF PRO FESSIONAL FEES DESERVES TO BE DISALLOWED. THIS GROUND IS REJECTED IN BOTH THE YEARS I.E. ASSTT.YEAR 2005-06 AND 2006-07. 47. NO GROUND IS REMAINED FOR ADJUDICATION IN BOTH THESE ASSESSMENT YEARS. APPEAL OF THE ASSESSEE IN THE ASSTT.YEAR 20 05-06 IS PARTLY ALLOWED. ITA NO.1662/AHD/2009: (REVENUES APPEAL FOR THE ASS TT.YEAR 2006-07) 48. REVENUE HAS RAISED FIVE GROUNDS OF APPEAL. WE HAVE ALREADY ADJUDICATED FOUR GROUNDS OF APPEAL WHILE TAKING THE GROUNDS RAISED BY THE REVENUE IN THE ASSTT.YEAR 2005-06 I.E. GROUND N O.1, GROUND NO2, GROUND NO.4 AND GROUND NO.5 HAVE ALREADY BEEN ADJUD ICATED WHILE DECIDING THE APPEALS FOR THE ASSTT.YEAR 2005-06. T HE ONLY GROUND LEFT FOR ADJUDICATION IS GROUND NO.3. IN THIS GROUND, GRIEV ANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE AT RS.58,20,000/- WHICH WAS DISALLOWED BY THE AO OUT O F INTEREST EXPENDITURE UNDER SECTION 14A OF THE ACT. 49. BRIEF FACTS OF THE CASE ARE THAT THE LD.AO HAS COMPUTED DISALLOWANCE OF RS.62,21,591/- OUT OF PROFESSIONAL FEES AND RS.58,22,000/- OUT OF INTEREST EXPENDITURE ON PROTE CTIVE BASIS BY OBSERVING THAT THOUGH PROFIT ON SHARE TRANSACTION W AS HELD AS BUSINESS INCOME, BUT IF AT ANY APPELLATE STAGE, THE SAME IS HELD AS TAXABLE UNDER ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 36 - THE HEAD CAPITAL GAINS, THEN DISALLOWANCE UNDER S ECTION 14A WOULD BE RELEVANT. HE HAS WORKED OUT THE ABOVE DISALLOWANCE. AS FAR AS DISALLOWANCE OUT OF PROFESSIONAL FEES IS CONCERNED, WHILE DECIDING THE APPEAL OF THE ASSESSEE, WE HAVE ALREADY CONFIRMED T HE FINDING OF THE CIT(A) FOR DISALLOWANCE TO THE EXTENT OF RS.60 LAKH S. AT THE TIME OF HEARING ALSO, THE LD.COUNSEL FOR THE ASSESSEE DID N OT DISPUTE CONFIRMATION OF THIS DISALLOWANCE ON THE GROUND THAT IF THE PROF IT ON SHARE TRANSACTION IS BEING TAXED UNDER THE HEAD CAPITAL GAIN, THEN DISALLOWANCE OUT OF PROFESSIONAL FEES DESERVES TO BE CONFIRMED. THEREF ORE, WE HAVE REJECTED THE GROUND OF APPEAL BEARING NO.2 IN ITA NO.1380/AH D/2009 RAISED BY THE ASSESSEE. AS FAR AS DISALLOWANCE OUT OF INTERE ST EXPENDITURE IS CONCERNED, THE LD.CIT(A) HAS DELETED THIS DISALLOWA NCE. WE FIND THAT GROSS INVESTMENT BY THE ASSESSEE IN THE ASSTT.YEAR 2006-07 IS OF RS.53,081 LAKHS. IT HAS RESERVES & SURPLUS OF RS.71,153 LAKH S. THUS, IT HAS FAR MORE INTEREST FREE FUNDS THAN THE INVESTMENT. WE FIND T HAT THE LD.CIT(A) HAS NOTICED THE PROFIT EARNED DURING THE YEAR AT RS.97 CRORES. COMPENSATION RECEIVED UNDER MONTREAL PROTOCOL AT RS.8.68 CRORES. THE LD.CIT(A) THEREAFTER MADE REFERENCE TO THE DECISION OF HONBL E BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER P.LTD. (S UPRA) AND OBSERVED THAT IF THE SHARE CAPITAL AND RESERVES & SURPLUS INCLUDI NG PROFIT FOR THE CURRENT YEAR ARE HIGHER THAN THE AMOUNT OF INVESTME NT, NO DISALLOWANCE IS REQUIRED OUT OF INTEREST EXPENDITURE. WE HAVE U PHELD VERBATIM FINDING IN THE ASSTT.YEAR 2005-06 IN THE FOREGOING PARAGRAPHS. THEREFORE, TAKING INTO CONSIDERATION OUR DISCUSSION ON THIS ISSUE IN THE ASSTT.YEAR 2005-06, WE DO NOT FIND ANY MERIT IN THI S GROUND OF APPEAL. IT IS REJECTED. NO GROUND REMAINED IN THE APPEAL OF T HE REVENUE IN THE ASSTT.YEAR 2006-07. IT IS DISMISSED. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 37 - 50. REVENUES APPEAL IN THE ASSTT.YEAR 2007-08 I.E . ITA NO.1825/AHD/2010 AND 1064/AHD/2009 (CROSS APPEALS) 51. IN GROUND NO.1, REVENUE HAS PLEADED THAT THE LD .CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF VILLAGE DEVELOPMENT EXP ENSES OF RS.90,583/-. THIS GROUND HAS BEEN DISPOSED WITH GROUND NO.1 IN T HE ASSTT.YEAR 2005- 06. 52. GROUND NO.2. IN THIS GROUND, REVENUE HAS PLEAD ED THAT THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.15,453/- BEING CONTRIBUTION TO REFRIGERANT GAS MANUFACTURERS ASSO CIATION. THIS GROUND HAS BEEN DISPOSED ALONG WITH GROUND TAKEN IN THE ASSTT.YEAR 2005-06. 53. GROUND NO.5. THIS GROUND IS INTER-CONNECTED WI TH GROUND NO.1 OF THE ASSESSEES APPEAL. DISPUTE IN BOTH THESE GROUN DS RELATES TO DETERMINATION OF AMOUNTS REQUIRED TO BE DISALLOWED UNDER SECTION 14A OF THE INCOME TAX ACT. 54. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS SHOWN DIVIDEND INCOME OF RS.12,40,12,284/-. IT HAS CLAIMED THE SA ME AS EXEMPT FROM TAX. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS MADE SUO MOTTO DISALLOWANCE OF FOLLOWING ITEMS FOR THE PURPOSE OF SECTION 14A OF THE ACT. SR.NO. PARTICULARS AMOUNT 1. SECURITIES TRANSACTION TAX 72,42,127 2. DEMAT CHARGES 5,88,448 3. PMS 25,27,072 ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 38 - 4 CONSULTANCY FEES FOR EQUITY RESEARCH 84,18,000 5 OUT OF OTHER EXPENSES ESTIMATED 25,00,000/ - TOTAL 2,12,75,647/ - 55. THE LD.AO THEREAFTER WORKED OUT DISALLOWANCE AT RS.4,85,04,149/- WHICH COMPRISED DISALLOWANCE OF RS.2,65,26,656/- OU T OF GENERAL ADMINISTRATIVE EXPENSES AND RS.2,19,77,493/- ON ACC OUNT OF INTEREST EXPENSES. THE AO HAS WORKED OUT THIS DISALLOWANCE BY FOLLOWING FORMULAE PROVIDED IN RULE 8D. DISSATISFIED WITH T HE DISALLOWANCE, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD .CIT(A). THE LD.CIT(A) CONFIRMED METHODOLOGY ADOPTED BY THE AO O N THE GROUND THAT SPECIAL BENCH OF ITAT IN THE CASE OF DATA CAPI TAL MANAGEMENT P.LTD., 117 ITD 169 HAS HELD THAT RULE 8D IS APPLIC ABLE WITH RETROSPECTIVE EFFECT, AND THEREFORE, DISALLOWANCE HAS RIGHTLY BEE N COMPUTED BY THE AO. HOWEVER WITH REGARD TO THE COMPUTATION OF INTE REST EXPENSES, THE LD.CIT(A) DID NOT CONCUR WITH THE AO. THE LD.CIT(A ) WAS OF THE OPINION THAT THE ASSESSEE WAS HAVING MORE INTEREST FREE FUN DS THAN THE INTEREST EXPENSES. THEREFORE, NO DISALLOWANCE OUT OF INTERE ST EXPENSES OUGHT TO BE MADE. THELD.CIT(A) THEREAFTER OBSERVED THAT DIS ALLOWANCE OF ADMINISTRATIVE EXPENSES IS REQUIRED TO BE MADE AT 0 .5% OF THE AVERAGE INVESTMENT, WHICH ACCORDING TO THE CIT(A) COMES TO RS.1,45,21,368/-. THE LD.CIT(A) FURTHER FOUND THAT THE ASSESSEE ITSEL F HAS DISALLOWED RS.25 LAKHS UNDER THIS HEAD. SHE CONFIRMED THE DISALLOWA NCE OF RS.1,20,78,214/-. 56. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONT ENDED THAT THE DECISION OF DAGA CAPITAL MANAGEMENT P.LTD., (SUPRA) HAS BEEN REVERSED BY THE HONBLE BOMBAY HIGH COURT. IT IS REPORTED I N 228 ITR 81. RULE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 39 - 8D HAS BEEN MADE APPLICABLE FROM THE ASSTT.YEAR 200 8-09 AND NOT FROM RETROSPECTIVE EFFECT. THUS, DISALLOWANCE CANNOT BE WORKED OUT ON THE BASIS OF FORMULA. WHEN THE LD.CIT(A) HAS DECIDED T HE APPEAL, THE DECISION OF HONBLE BOMBAY HIGH COURT HAS NOT COME. HE FURTHER CONTENDED THAT A PERUSAL OF SUO MOTTO DISALLOWANCE MADE BY THE ASSESSEE WOULD INDICATE THAT IT HAS ALREADY DISALLOWED A SUM OF RS.2,12,75,647/- WHICH CONSISTED OF CONSULTANCY CHARGES OF RS.84,18, 000/- AND OTHER EXPENSES OF RS.25.00 LAKHS. THE ASSESSEE HAS PAID SECURITY TAXES, PMS FEES ETC. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDER OF THE AO. 57. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND G ONE THROUGH THE RECORD CAREFULLY. IT HAS BEEN DEMONSTRATED BEFORE US THAT GROSS INVESTMENT MADE BY THE ASSESSEE IN THIS YEAR WAS RS .55,668 LAKHS. ITS INTEREST FREE FUNDS WERE OF RS.95,069 LAKHS. HENCE , IT HAS FAR MORE INTEREST FREE FUNDS AVAILABLE THAN THE INVESTMENT. THEREFORE, ACCORDING TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), NO DISALLOWANCE W AS REQUIRED TO BE MADE OUT OF INTEREST EXPENSES. THE LD.CIT(A) HAS RIGHTLY DELETED SUCH DISALLOWANCE. 58. AS FAR ESTIMATED DISALLOWANCE REQUIRED TO BE MA DE ON ACCOUNT OF ADMINISTRATIVE EXPENSES ARE CONCERNED, THEN A PERUS AL OF THE DETAILS WOULD INDICATE THAT THE ASSESSEE HAS ALREADY MADE D ISALLOWANCE OF RS.25 LAKHS OUT OF OTHER EXPENSES AND RS.84,18,000/- OUT CONSULTANCY FEES FOR EQUITY RESEARCH. THIS AMOUNT IS QUITE SUFFICIENT, IF CONSIDERED IN THE LIGHT OF TOTAL TAX FREE INCOME SHOWN BY THE ASSESSE E. IT HAS EARNED RS.12.40 CRORES DIVIDEND INCOME AGAINST A DISALLOWA NCE OF ROUGHLY RS.1.05 CRORES, IS QUITE REASONABLE. THESE EXPENS ES ARE APART FROM OTHER ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 40 - STATUTORY EXPENDITURE INCURRED BY THE ASSESSEE. TH EREFORE, WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL RAISED BY TH E REVENUE. IT IS REJECTED. 59. AS FAR AS GROUND OF APPEAL OF THE ASSESSEE IS C ONCERNED, IT IS ALLOWED. 60. WE DELETE THE DISALLOWANCE WORKED OUT BY THE AO ON ESTIMATE BASIS. THE DISALLOWANCE ALREADY MADE BY THE ASSESS EE ITSELF WAS SUFFICIENT TO TAKE CARE OF THE EXPENDITURE. THEREF ORE, GROUND NO.1 OF THE ASSESSEES APPEAL IS ALLOWED. 61. GROUND NO.6 (A)& (B): IN THESE GROUNDS OF APPE AL, GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS.2,91,97,340/- WHICH WAS ADDED BY THE AO BY MAKIN G A DISALLOWANCE OF CLAIM OF DEDUCTION UNDER SECTION 80IA(4) OF THE ACT. 62. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE MANUF ACTURERS CHEMICALS. IT ALSO GENERATES CAPTIVE POWER, OUT OF TWO CAPTIVE PO WER PLANTS, ONE AT RANJITNAGAR AND ANOTHER AT DAHEJ. THE ASSESSEE CLA IMED DEDUCTION UNDER SECTION 80IA(4) ON THE ELECTRICITY GENERATED BY IT IN THESE CAPTIVE POWER PLANTS AND USED BY IT FOR ITS OWN CONSUMPTION . THE AO HAS REJECTED THIS CLAIM ON THE GROUND THAT DEDUCTION WA S AVAILABLE ONLY WHEN SEPARATE BUSINESS UNDERTAKING WAS PUT UP FOR GENERATION/DISTRIBUTION OF POWER. ACCORDING TO HIM , THE ASSESSEE HAD SET UP THE PLANT MAINLY FOR CAPTIVE USE, THEREFORE DEDUCTION UNDER SECTION 80IA(4) WOULD NOT AVAILABLE. THE AO THEREA FTER OBSERVED THAT EVEN IF THE ASSESSEE IS ELIGIBLE FOR DEDUCTION, THE QUANTUM OF DEDUCTION ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 41 - WAS TO BE WORKED OUT WITH REFERENCE TO THE MARKET R ATE OF ELECTRICITY GENERATED BY THE ASSESSEE, AND NOT AT THE RATE CLAI MED BY IT. THE ASSESSEE HAD CLAIMED DEDUCTION AMOUNTING TO RS.2,91 ,87,340/- ON THE BASIS OF PURCHASE PRICE OF POWER FROM GEB I.E. AT T HE RATE OF RS.4.72 PER UNIT. THE AO HAS HELD THAT IT WAS NOT ENTITLED FOR DEDUCTION. IN CASE IT IS TO BE HELD THAT DEDUCTION IS ADMISSIBLE THEN, HE RE DUCED QUANTUM BY ADOPTING THE RATE AT RS.2.36 PER UNIT OF POWER, WHI CH ACCORDING TO THE AO IS THE AVERAGE RATE AT WHICH GEB PURCHASED POWER FROM DIFFERENT COMPANIES. 63. DISSATISFIED WITH THE DISALLOWANCE THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A) AND CONTENDED THAT S IMILAR DISALLOWANCE WAS MADE IN THE CASE OF CIT VS. ALEMBIC LTD. AND CI T VS. AHMEDABAD MANUFACTURING & CALICO PRINTING CO. AND OTHERS. TH E TRIBUNAL HAS ALLOWED DEDUCTION TO THE ALEMBIC LTD. IN THE ASSTT. YEAR 2003-04. COPY OF THE ORDER OF THE TRIBUNAL WAS PLACED ON RECORD. THE LD.CIT(A) HAS ALLOWED DEDUCTION. 64. AT THE OUTSET, THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT IN ASSESSEES OWN CASE FOR ASSTT.YEARS 2012-13 AND 201 3-14, THE TRIBUNAL HAS ALLOWED DEDUCTION TO THE ASSESSEE. HE PLACED O N RECORD COPIES OF THE TRIBUNALS ORDERS. ON THE OTHER HAND, THE LD.D R RELIED ON THE ORDER OF THE AO. 65. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE T HROUGH THE RECORD CAREFULLY. WE FIND THAT IDENTICAL ASPECT HA S BEEN CONSIDERED BY THE TRIBUNAL IN THE ASSTT.YEAR 2012-13 AND 2013-14 (JUDICIAL MEMBER, ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 42 - HEREIN WAS AUTHOR OF THE ORDER). THE DISCUSSION MA DE BY THE TRIBUNAL ON THIS ISSUE READS AS UNDER: 28. GRIEVANCE OF THE ASSESSEE IN THESE GROUNDS OF APPEAL RELATE TO DENIAL OF DEDUCTION UNDER SECTION 80IA(4) OF THE INCOME TAX ACT AMOUNTING TO RS.13,19,37,184/- AND RS.7,92,94,293/- IN THE ASSES SMENT YEARS 2012-13 AND 2013-14 RESPECTIVELY. 29. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS CAPTIVE POWER PLANTS AT RANJINAGAR AND DAHEJ. AT DAHEJ, ASSESSEE HAS CO AL BASED CAPTIVE POWER PLANT AND GAS BASED CAPTIVE POWER PLANT. ACC ORDING TO THE AO, IT DID NOT CLAIM DEDUCTION UNDER SECTION 80IA ORIGINAL LY IN THE ASSESSMENT YEAR 2013-14. HOWEVER, AFTER THE DECISION OF HONB LE CHHATTISGARH HIGH COURT IN THE CASE OF CIT VS. GODAWARI POWER & ISPAT LTD., 223 TAXMANN 234 IT HAS FILED A SUBMISSION CLAIMING DEDU CTION. IT ALSO REVISED RETURN OF INCOME ON 31.3.2015 IN THE ASSESS MENT YEAR 2013-14. SIMILARLY, IN THE ASSESSMENT YEAR 2012-13, IT HAS E NHANCED ITS CLAIM BY WAY OF A LETTER POINTING OUT THAT THE RATE FOR DETE RMINING THE VALUATION OF POWER GENERATED BY IT FOR THE PURPOSE OF ALLOWING D EDUCTION, THE RATE SHOULD BE ADOPTED EQUIVALENT TO THE RATE AT WHICH M ADHYA GUJARAT VIJ COMPANY LTD. (MGVCL FOR SHORT) AND DAKSHIN GUJARA T VIJ COMPANY LTD. (DGVCL FOR SHORT) ETC. ARE SUPPLIED THE ELECT RICITY TO THE ASSESSEES MANUFACTURING UNIT. THE LD.AO DID NOT A DJUDICATE THE ISSUE IN THE ASSESSMENT YEAR 2012-13 FOR THE ENHANCEMENT OF DEDUCTION IN THE DRAFT ASSESSMENT ORDER. BEFORE THE LD,DRP, THE ASS ESSEE RAISED SPECIFIC OBJECTION ABOUT THE NON-ADJUDICATION OF THE ISSUE B Y THE AO. ALSO IT RAISED THAT ENHANCED RATE SHOULD BE ADOPTED FOR DET ERMINING THE VALUE OF ELECTRICITY AT WHICH DEDUCTION UNDER SECTION 80IA H AS TO BE GRANTED. THE LD.DRP REJECTED THE CONTENTIONS OF THE SIMPLY FOR T HE REASON THAT THE AO CANNOT ENTERTAIN ANY CLAIM FOR ALLOWING DEDUCTION R ESULTING IN REDUCTION IN THE TOTAL INCOME RETURNED BY THE ASSESSEE. THE LD.DRP PLACED RELIANCE UPON THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF GOETZE (INDIA) LTD. (SUPRA). IT FURTHER REJECTED THE CONTEN TIONS OF THE ASSESSEE THAT THE IDENTICAL ISSUE WAS DECIDED BY THE LD.CIT( A) IN THE ASSESSMENT YEAR 2011-12 AND THE MATTER IS PENDING BEFORE THE T RIBUNAL. THUS, ACCORDING TO THE DRP, THE ISSUE HAS NOT ATTAINED FI NALITY THEREFORE, THE DEDUCTION UNDER SECTION 80IA CANNOT BE GRANTED ON T HE ENHANCED AMOUNT CLAIMED BY THE ASSESSEE DURING THE ASSESSMENT PROCE EDINGS. WITH REGARD TO THE ASSESSMENT YEAR 2013-14, THE LD .DRP HAS OBSERVED THAT THERE IS A LITTLE CHANGE IN THE STATU TORY PROVISION BY VIRTUE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 43 - OF SECTION 80IA(8). THE ARMS LENGTH PRICE OF THE G OODS SOLD BY THE ASSESSEE IN THE ALLEGED CAPTIVE POWER PLANT HAS TO BE DETERMINED. THE LD.DRP THEREAFTER OBSERVED THAT THE TPO HAS DETERMI NED VALUE OF THE GOODS AND SERVICES SOLD BY ITS ELIGIBLE UNITS. ACC ORDING TO THE TPO CAPTIVE POWER PLANT AND ELECTRICITY DISTRIBUTING CO MPANIES ARE TO BE PITTED AT DIFFERENT PEDESTAL. ACCORDING TO THE DRP, THERE IS A MATERIAL DIFFERENCE BETWEEN CAPTIVE POWER PLANT AS A SELLER AND DISTRIB UTION/TRANSMISSION ENTITY. THUS, DIFFERENCES ARE BOTH IN TERMS OF FUN CTIONS PERFORMED AS WELL AS ASSET USED. IN THE CASE OF DISTRIBUTION AND TRA NSMISSION ENTITIES, APART FROM ASSETS USED FOR GENERATION OF ELECTRICITY HUGE INVESTMENTS HAVE GONE IN LAYING IN TRANSMISSION AND DISTRIBUTION INFRASTR UCTURE. THESE INVESTMENTS AND RELATED TRANSMISSION AND DISTRIBUTI ON FUNCTION ARE TOTALLY MISSING IN THE CPP. IT ALSO OBSERVED THAT SALE OF ELECTRICITY IS REGULATED ACTIVITY, THUS, AS PER THE LAW, CPP COULD HAVE SOLD TO A DISTRIBUTION LICENSEE (THROUGH TRANSMISSION UTILITY ). THE BENCHMARKING OF SALE OF CPP AT THE RATE AT WHICH NON-ELIGIBLE UN ITS BROUGHT ELECTRICITY FROM THE GRID IS THUS INCORRECT. THE LD.DRP UNDER THIS MISCONCEPTION CONSTRUED THAT THE RATE AT WHICH ELECTRICITY SUPPLY -COMPANIES ARE PURCHASING THE ELECTRICITY SHOULD BE APPLIED FOR BE NCHMARKING THE VALUE OF ELECTRICITY SOLD BY THE CPP TO ITS MANUFACTURING UN ITS. IN OTHER WORDS, THE DRP WAS OF THE VIEW THAT NON-ELIGIBLE UNITS CAN NOT BE TAKEN FOR THE BENCHMARKING FOR DETERMINING THE VALUE AT WHICH ELE CTRICITY WAS SOLD BY THE CPP. DRP HAS EMPHASIZED THAT MANUFACTURING UNI TS COULD HAVE DIFFERENT SOURCE OF PROCUREMENT OF ELECTRICITY; SAY FROM CPP OR FROM ELECTRICITY BOARDS. BUT AS ELECTRICITY PRODUCER, I N A CPP, IT COULD ONLY BE SOLD TO DISTRIBUTION LICENSEE HOLDER. IN THIS WAY, THE LD.DRP OBSERVED THAT VALUE OF ELECTRICITY CANNOT BE BENCHMARKED BY ADOPTING THE RATE AT WHICH MANUFACTURING UNITS OF THE ASSESSEE HAS BEEN PURCHASING THE ELECTRICITY, RATHER, ACCORDING TO THE DRP, THE RATE AT WHICH SUPPLIER COMPANIES ARE PURCHASING THE ELECTRICITY OUGHT TO B E APPLIED. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONTENDE D THAT THIS CONTROVERSY HAS BEEN SILENCED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT, GUJARAT ALKALIS AND CHEMICALS LTD. HE PLACED ON RE CORD COPY OF THE HONBLE HIGH COURTS DECISION AND CONTENDED THAT FO R THE PURPOSE OF COMPUTATION OF DEDUCTION ADMISSIBLE UNDER SECTION 8 0IA MARKET PRICE OF THE ELECTRICITY SUPPLIED BY A CPP IS TO BE DETERMIN ED BY ADOPTING RATE AT WHICH MANUFACTURING UNIT HAS BEEN PURCHASING THE EL ECTRICITY FROM THE OPEN MARKET. THE LD.DR, ON THE OTHER HAND RELIED U PON THE ORDER OF THE DRP, BUT UNABLE TO CONTROVERT THE CONTENTIONS RAISE D BY THE ASSESSEE. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 44 - 30. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND G ONE THROUGH THE RECORD CAREFULLY. BEFORE US THE DISPUTE HAS TWO DI MENSIONS. IN THE FIRST FOLD OF DISPUTE THE ISSUE IS, WHETHER THE CLAIM OF THE ASSESSEE FOR ENHANCED DEDUCTION CAN BE ENTERTAINED DURING THE ASSESSMENT PROCEEDINGS BY WAY OF A LETTER. THE LD.DRP AFTER PUTTING RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF GEOTZE INDIA LTD (SUPR A) DID NOT ACCEPT THE CLAIM OF THE ASSESSEE IN THE ASSESSMENT YEAR 2012-1 3. IT HAS BEEN BROUGHT TO OUR NOTICE THAT SUCH CLAIM CAN BE MADE EVEN BEFO RE THE LD.DRP IN THE FORM OF OBJECTION. A REFERENCE TO THE DECISIONS OF ITAT, MUMBAI AND BANGALORE BENCHES HAVE BEEN MADE; ASIAN PAINTS VS. DCIT, MUMBAI 88 TAXMANN.COM 677, AND HIMALAYA DRUG CO. VS. DCIT, B ANGALORE, 48 TAXMANN.COM 65 (2017). THE LD.COUNSEL FOR THE ASSES SEE ALSO PUT RELIANCE UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASES OF MITESH IMPEX, 270 CTR 66. THIS DECISION PROPOUNDS THAT WHEN THE TAXABILITY OF THE ASSESSEE IS GOING TO BE EFFECTED, THEN IT CAN RAISE A FRESH PLEA BEFORE THE APPELLATE AUTHORITIES. TAKING A LE AF FROM THIS REASONING, ITAT, MUMBAI AND BANGALORE HAVE PROPOUNDED THAT FRE SH CLAIM CAN BE MADE EVEN BEFORE THE DRP. THUS, RESPECTFULLY FOLLO WING THESE DECISIONS, WE UPHOLD THAT IN THE ASSESSMENT YEAR 2012-13, THE DRP OUGHT TO HAVE ENTERTAINED THE CLAIM OF THE ASSESSEE. 31. SO FAR AS THE ISSUE ON MERIT IS CONCERNED, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT ALKALIES AND CHEMICALS LTD. HAS CONSIDERED THE FOLLOWING QUESTION: (II) WHETHER THE TRIBUNAL WAS RIGHT IN LAW IN ALLO WING THE ASSESSEES CLAIM OF DEDUCTION OF RS.1954 CRORES U/S. 80IA(4) OF THE I.T.ACT, 1961, WHEN THE ASSESSEE HAD ADOPTED RATE O F POWER GENERATION AT RS.4.73 PER UNIT, RATE ON WHICH THE G EB SUPPLIED POWER TO ITS CONSUMERS, IGNORING THE RATE OF RS.2.3 6 PER UNIT, THE RATE ON WHICH POWER GENERATING COMPANY SUPPLIED ITS POWER TO GEB? 32. THE HONBLE HIGH COURT HAS REPLIED THIS QUESTIO N BY RECORDING THE FOLLOWING FINDING: 3. SINCE BOTH THE ISSUES ARE COVERED BY VARIOUS JU DGMENTS OF THIS COURT, WE DO NOT FIND IT NECESSARY TO RECORD FACTS AT ANY LENGTH. DIVISION BENCH OF THIS COURT BY JUDGMENT DATED 22.1 1.2011 IN TAX APPEAL NO.2092/2010 IN SOMEWHAT SIMILAR CONTROVERSY OBSERVED AS UNDER : ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 45 - '3. WITH RESPECT TO QUESTION [B], THE ISSUE PERTAIN S TO SUB SECTION (8) OF SECTION 80IA OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAD A CPP UNIT GENERATING ELECTRICITY, WHICH WAS SUPPLY ING IT TO A GENERAL UNIT. THE ELECTRICITY GENERATED IS BEING SU PPLIED TO OTHER CONSUMERS ALSO. THE CPP UNIT CHARGED RS. 5.40 PS. P ER UNIT FROM THE GENERAL UNIT. THE ASSESSING OFFICER APPLYING SU B-SECTION (8) OF SECTION 80IA RESTRICTED THE SAME TO RS. 5.32 PS. PE R UNIT AND, THEREBY, RESTRICTED THE DEDUCTIONS CLAIMED BY THE A SSESSEE UNDER SECTION 80IA OF THE ACT. THIS RESTRICTION WAS PRIMA RILY ON THE BASIS THAT THE RATE OF RS. 5.40 PS. CHARGED BY GUJARAT EL ECTRICITY BOARD (' GEB' FOR SHORT) WAS INCLUSIVE OF 8 PAISE PER UNIT OF ELECTRICITY DUTY. THIS COMPONENT OF ELECTRICITY DUTY THE ASSESS ING OFFICER DISCARDED FOR THE PURPOSES OF ASCERTAINING MARKET V ALUE OF THE ELECTRICITY GENERATED BY THE CPP UNIT AND SUPPLIED TO ITS GENERAL UNIT. 4. CIT (APPEALS) CONFIRMED THE VIEW OF THE ASSESSING OFFICER ON THE SAME LINE OF REASONING. THE TRIBUNAL, HOWEVER, ON FURTHER APPEAL BY THE ASSESSEE, REVERSED THE ORDERS PASSED BY THE REVENUE AUTHORITIES REFERRING TO AND RELYING UPON THE DECIS IONS OF OTHER TRIBUNALS. THE TRIBUNAL WAS OF THE OPINION THAT THE MARKET VALUE OF THE ELECTRICITY SUPPLIED BY THE CPP UNIT TO THE GENERAL UNIT WOULD BE THE SAME BEING CHARGED BY GEB FROM THE CON SUMERS. 5. COUNSEL FOR THE REVENUE CONTENDED THAT THE COMPO NENT OF 8 PAISE PER UNIT WAS THE ELECTRICITY DUTY WHICH GEB W AS NOT AUTHORIZED TO RETAIN BUT HAD TO PASS ON TO THE GOVE RNMENT. IN ESSENCE, GEB WAS ONLY COLLECTING 8 PAISE PER UNIT A S ELECTRICITY DUTY FOR AND ON BEHALF OF THE GOVERNMENT. HE SUBMIT TED THAT THE MARKET VALUE OF THE ELECTRICITY SHOULD BE RECKONED ON RS. 5.32 PS. PER UNIT AS WAS DONE BY THE REVENUE AUTHORITY. 6. UNDER SUB-SECTION(8) OF SECTION 80IA OF THE ACT, IF IT IS FOUND THAT WHERE ANY GOODS OR SERVICES HELD FOR THE PURPO SES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSI NESS CARRIED ON BY THE ASSESSEE OR WHERE ANY GOODS OR SERVICES HELD FO R THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE T RANSFERRED TO THE ELIGIBLE BUSINESS AND IN EITHER CASE THE CONSIDERAT ION FOR SUCH TRANSFER DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS AS ON THE DATE OF THE TRANSFER, THEN FOR THE PURPOSES OF DEDUCTION UNDER SECTION 80IA IN CASE OF THE ELIGIBLE BUSINESS AS IF THE TRANSFER HAD BEEN MADE AT THE MARKET VALUE OF SUCH GOODS OR SERV ICES. IT IS IN ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 46 - THIS CONTEXT THAT THE QUESTION OF SUBSTITUTING THE ACTUAL CONSIDERATION BY THE MARKET VALUE COMES INTO PICTUR E. 7. WE MAY NOTICE THAT THE TRIBUNAL DID NOT ACCEPT T HE CONTENTION OF THE ASSESSEE THAT THE ELECTRICITY IS NEITHER GOODS NOR SERVICES AND THAT, TRANSFER OF ELECTRICITY, THEREFORE, WOULD NOT BE COVERED UNDER SUB-SECTION (8) OF SECTION 80IA OF THE ACT. HOWEVER, IN SO FAR AS THE TRIBUNAL'S REASONING TO ADOPT THE MARKET VALUE OF THE GOODS AT RS. 5.40 PS. PER UNIT IS CONCERNED, WE FIND NO ERRO R. UNDISPUTEDLY, GEB SUPPLIED THE ELECTRICITY TO ITS CONSUMERS AT TH E SAME RATE. THIS, THEREFORE, WAS A MARKET VALUE OF THE ELECTRIC ITY SUPPLIED BY THE CPP UNIT TO THE GENERAL UNIT. THE FACT THAT THIS AM OUNT OF RS. 5.40 PS. COMPRISES OF A COMPONENT OF 8 PAISE, WHICH WAS ELECTRICITY DUTY, TO OUR MIND, WOULD MAKE NO DIFFERENCE IN SO FAR AS THE MARKET VALUE IS CONCERNED. TO A CONSUMER, THE PRICE BEING PAID R EMAINS 5.40 PS. PER UNIT. THE FACT THAT THE SELLER RETAINS ONLY RS. 5.32 PS. OUT OF THE SAID COLLECTION AND PASSES ON 8 PAISE PER UNIT TO T HE GOVERNMENT IN THE FORM OF ELECTRICITY DUTY, TO OUR MIND, WOULD MA KE NO DIFFERENCE. THIS QUESTION IS, THEREFORE, NOT REQUIRED TO BE CON SIDERED.' 4. THIS WAS FOLLOWED IN CASE OF CIT V. SHAH ALLOYS LTD. IN TAX APPEAL NO. 2093/2010. THIS WAS REITERATED IN TAX APPEAL NO .1646/2010 IN CASE OF ACITV. PRAGATI GLASS WORKS (P.) LTD. (ORDER DATED 30.1.2012), IN WHICH FOLLOWING OBSERVATIONS WERE MA DE : '7. TO OUR MIND, TRIBUNAL HAS COMMITTED NO ERROR. A SSESSING OFFICER AND CIT (APPEALS) WHILE ADOPTING RS. 4.51 PE R UNIT AS THE VALUE OF ELECTRICITY GENERATED BY ELIGIBLE UNIT OF ASSESSEE AND SUPPLIED THROUGH ITS NON ELIGIBLE UNIT ONLY WORKED OUT COST OF SUCH ELECTRICITY GENERATION. IN FACT CIT(APPEALS) IN TERM S RECORDED THAT RS. 4.51 WAS COMPUTED AS THE REASONABLE VALUE OF TH E ELECTRICITY GENERATED BY ELIGIBLE UNIT OF ASSESSEE. THIS AMOUNT INCLUDED RS. 4.17 PER UNIT WHICH WAS THE COST OF ELECTRICITY GEN ERATION AND RS. 0.34 PER UNIT WHICH WAS DUTY PAID BY THE ASSESSEE T O GEB FOR SUCH POWER GENERATION. THUS THE SUM OF RS. 4.51 PER UNIT ONLY REPRESENTED THE COST OF ELECTRICITY GENERATION TO T HE ASSESSEE. IN SECTION 80IA(8) OF THE ACT WHAT IS REQUIRED TO BE AS CERTAINED IS THE MARKET VALUE OF THE GOODS TRANSFERRED BY THE ELIGIB LE BUSINESS, WHEN SUCH TRANSFER IS BY ELIGIBLE BUSINESS TO ANOTHER NO N ELIGIBLE BUSINESS OF THE SAME ASSESSEE AND THE CONSIDERATION RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORRESPO ND TO MARKET VALUE OF SUCH GOODS. TERM 'MARKET VALUE' IS FURTHER EXPLAINED IN EXPLANATION TO SAID SUB-SECTION TO MEAN IN RELATION TO ANY GOODS OR ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 47 - SERVICES, PRICE THAT SUCH GOODS OR SERVICES WILL OR DINARILY FETCH IN THE OPEN MARKET. TO OUR MIND SUM OF RS. 4.51 PER UN IT OF ELECTRICITY ONLY REPRESENTED COST OF ELECTRICITY GE NERATION TO THE ASSESSEE AND NOT THE MARKET VALUE THEREOF. IT IS NO T IN DISPUTE THAT THE GEB CHARGED RS. 5 PER UNIT FOR SUPPLYING ELECTR ICITY TO OTHER INDUSTRIES INCLUDING NON ELIGIBLE UNIT OF THE ASSES SEE ITSELF. TRIBUNAL THEREFORE, WHILE ADOPTING THE SAID BASE FI GURE AND EXCLUDING EXCISE DUTY THEREFROM TO WORK OUT RS. 4.9 0 AS THE MARKET VALUE OF THE ELECTRICITY GENERATED BY THE ASSESSEE, TO OUR MIND, COMMITTED NO ERROR. IT CAN BE EASILY SEEN THAT IF T HE ASSESSEE WERE TO SUPPLY SUCH ELECTRICITY OR WAS ALLOWED TO DO SO IN THE OPEN MARKET, SURELY IT WOULD NOT FETCH RS. 4.51 PER UNIT BUT RS. 5 PER UNIT AS WAS BEING CHARGED BY GEB. SINCE THE EXCISE DUTY COM PONENT THEREOF WOULD NOT BE RETAINED BY THE ASSESSEE, TRIB UNAL REDUCED THE SAID FIGURE BY THE NATURE OF EXCISE DUTY AND CAME T O THE FIGURE OF RS. 4.90 TO ASCERTAIN THE MARKET VALUE OF ELECTRICI TY GENERATED BY THE ELIGIBLE UNIT AND SUPPLIED TO NON ELIGIBLE BUSI NESS OF THE ASSESSEE. NO ERROR WAS COMMITTED BY THE TRIBUNAL. N O QUESTION OF LAW THEREFORE, ARISES. TAX APPEAL IS DISMISSED.' 5. ISSUE ONCE AGAIN REACHED THE DIVISION BENCH OF T HIS COURT IN CASE OF CIT V. ALEMBIC LTD. IN TAX APPEAL NO.471/2009 AN D CONNECTED APPEALS. THE DIVISION BENCH REFERRING TO EARLIER JU DGMENTS OF THE COURT HELD AS UNDER : '11. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE PARTIES. WE HAVE ALSO CONSIDERED TH E CASE LAWS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE. TAKING INT O CONSIDERATION THE JUDEMENTS OF THIS COURT AND OTHER HIGH COURTS, CITED ABOVE, WE ARE OF THE OPINION THAT THE TRIBUNAL HAS RIGHTLY AL LOWED THE CLAIM OF THE ASSESSEE. IN THAT VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE TRIBUNAL. THEREFORE, WE ANSWER QUESTION (C) AND (D) IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE.' 6. ISSUES ARE THUS CONSIDERED ON NUMBER OF OCCASION S BY THE COURT AND HELD AGAINST THE REVENUE. QUESTIONS ARE ANSWERE D AGAINST THE REVENUE. BOTH THE TAX APPEALS ARE THEREFORE, DISMIS SED. THIS JUDGMENT OF HONBLE HIGH COURT IS DIRECTLY ON THE ISSUE. HONBLE COURT HAS CONSIDERED SECTION 80IA(8), THERE FORE, IT IS NOT ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 48 - JUSTIFIABLE AT THE END OF LD.DRP TO IGNORE THE JUDG MENT OF HONBLE JURISDICTIONAL HIGH COURT. 33. RESPECTFULLY FOLLOWING THE AUTHORITATIVE PRONOU NCEMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT, WE ALLOW THESE GROUNDS OF APPEAL. WE DIRECT THE AO TO GRANT DEDUCTION UNDER SECTION 8 0IA(4) ON THE VALUE OF ELECTRICITY SUPPLIED BY THE CPP TO ITS MANUFACTU RING UNITS BY ADOPTING THE AVERAGE RATE OF ELECTRICITY SUPPLIED TO THE ASS ESSEE BY MGVCL, DGVCL. THERE IS NO DISPARITY ON FACTS. THEREFORE, RESPEC TFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE ASSTT.YEARS 2012-1 3 AND 2013-14 PASSED IN ITA NO.805/AHD/2017 AND 2744/AHD/2017, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS REJECTED. 66. GROUND NO.7(A) & (B): IN THIS GROUND OF APPEAL , GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.3,95,56,650/- WHICH WAS ADDED BY THE AO BY DELET ING THE CLAIM OF CAPITAL LOSS MADE IN THE REVISED RETURN OF INCOME. 66. FACTS LEADING TO THIS CONTROVERSY HAS BEEN NOTE D DOWN BY THE CIT(A) IN PARA 11.2. WE DEEM IT NECESSARY TO TAKE NOTE OF THESE FACTS FROM THE ORDER OF THE CIT(A) WHICH READS AS UNDER: (I) THE APPELLANT COMPANY SUBSCRIBED FRESH CUM ULATIVE REDEEMABLE PREFERENCE SHARES OF FACE VALUE OF RS. 100/- EACH A MOUNTING TO RS. 18.83 CRORES (18,83,000 SHARES). THESE SHARES CARRIED BETT ER TERMS FOR THE ASSESSEE IN AS MUCH AS AT THE TIME OF REDEMPTION AT THE END OF THE 5TH YEAR, I.E., IN THE FY 2011-2012, THE SHARES WOULD B E REDEEMED AT A PREMIUM OF RS. 35/- PER SHARE. INSTEAD OF CARRYING 5% DIVIDEND AS EARLIER, THE NEW PREFERENCE SHARES CARRIED 1% DIVIDEND AND A DDITIONAL PREMIUM OF RS. 47- PER SHARE FOR EVERY YEAR DURING WHICH THE S HARE WAS NOT REDEEMED. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 49 - (II) IGSL REDEEMED THE 18,83,000/- PREFERENCE S HARES OF RS. 100/- EACH AT THE FACE VALUE FOR TOTAL CONSIDERATION OF RS. 18 .83 CRORES. (III) THIS REDEMPTION WAS FINANCED BY THE RECEIP T OF EQUIVALENT SUM OF RS. 18.83 CRORES FROM THE ASSESSEE AS AT (I) ABOVE. (IV) THE APPELLANT HAD PAID RS. 18.83 CRORES FOR S UBSCRIBING THE 5% PREFERENCE SHARES IN 2002 AND DURING THIS PREVIOUS YEAR IT RECEIVED BACK THE SAME AMOUNT OF RS. 18.83 CRORES BY WAY OF REDEM PTION. THUS, THERE WAS NO GAIN OR LOSS PER SE IN THE TRANSACTION. THE ONLY LOSS WAS ON ACCOUNT OF INDEXATION OF THE COST OF ACQUISITION. (V) THIS LONG TERM CAPITAL LOSS HAS BEEN CARRIE D FORWARD TO THE SUBSEQUENT YEARS AND NOT BEEN SET OFF AGAINST ANY T AXABLE INCOME. 67. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING THAT IT HOLDS 49.50% SHARES IN INOX GLOBAL SERVICES LTD. AN D OTHER GROUP CONCERNS ARE THE MAJOR SHARE HOLDERS. ACCORDING TO HIM, DIRECTORS ARE ALSO COMMON IN BOTH THE CONCERNS, AND THEREFORE, IT IS A JUST PAPER TRANSACTION FOR CLAIMING CAPITAL LOSS, WHICH ACCORD ING TO THE AO CANNOT BE ACCEPTED AS A GENUINE TRANSACTION. ON APPEAL, T HE LD.CI(A) HAS OBSERVED THAT INOX GLOBAL SERVICES LTD. HAS NOT BEE N PAYING ANY DIVIDEND FROM THE INCEPTION OF THE INVESTMENT. IT HAS NO DISTRIBUTABLE PROFIT THROUGH ITS OPERATION, OUT OF WHICH IT COULD PAY DIVIDEND ACCRUED WHILE TAKING INVESTMENT. THE LD.CIT(A) THEREAFTER REFERRED TO SECTION 80 OF THE COMPANIES ACT, 1956 AND OBSERVED THAT FIRST PROVISO TO THIS SECTION PROVIDED THAT NO SUCH SHARES SHALL BE REDE EMED EXCEPT OUT OF PROFITS OF THE COMPANY WHICH WOULD OTHERWISE BE AVA ILABLE FOR DIVIDEND OR OUT OF THE PROCEEDS OF A FRESH ISSUE OF SHARES M ADE FOR THE PURPOSES OF THE REDEMPTION. THUS, ACCORDING TO THE LD.CIT(A) PREFERENTIAL SHARES CAN BE REDEEMED ONLY IN TWO WAYS, VIZ. (A) OUT OF P ROFITS AVAILABLE FOR PAYMENT OF DIVIDEND; AND/OR (B) OUT OF FRESH ISSUE OF SHARES MADE FOR ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 50 - THE SPECIFIC PURPOSE OF REDEMPTION. SINCE IGPSL WA S NOT HAVING ANY DISTRIBUTABLE PROFITS OUT OF WHICH DIVIDEND COULD B E PAID, THE COMPANY CHOSE TO ADOPT THE SECOND ROUTE, I.E. TO REDEEM THE SHARES OUT OF FRESH ISSUE OF CAPITAL. BEFORE THE LD.CIT(A), THE ASSESS EE BROUGHT TO THE NOTICE COPIES OF RESOLUTIONS OF BOTH THE COMPANIES, AND TH EREFORE, THE LD.CIT(A) WAS SATISFIED THAT IT WAS NOT BOGUS TRANSACTION OR A COLOURABLE TRANSACTION. THE ASSESSEE BASICALLY HAS NOT SUFFER ED ANY LOSS, RATHER LONG TERM CAPITAL LOSS AROSE ACCOUNT OF INDEXATION OF CO ST, AS THE INVESTMENT WAS LONG TERM INVESTMENT. ACCORDINGLY, THE LD.CIT( A) HAS ALLOWED THE CAPITAL LOSS TO THE ASSESSEE, MORE SO, THIS CAPITAL LOSS HAS NOT BEEN CLAIMED FOR SET OFF IN THIS YEAR, RATHER IT HAS BEE N ALLOWED TO BE CARRIED FORWARD. 68. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE TONE THROUGH THE RECORD CAREFULLY. THE LD.AO DID NOT POSSESS AN Y MATERIAL EXCEPT A REFERENCE TO THE FACT THAT 49.50% SHARES IN INOX GL OBAL SERVICES LTD. WERE HELD BY THE ASSESSEE AND GROUP CONCERNS, FOR TREATI NG THE TRANSACTIONS AS BOGUS. TO OUR MIND THIS REASONING IS NOT SUFFICIEN T, JUST TO DENY THE IDENTITY OF ANY CORPORATE ENTITY. ON THE OTHER HAN D, THE LD.CIT(A) TOOK NOTE OF THE FACTS HOW THE ASSESSEE-COMPANY HAS SUBS CRIBED PREFERENCE SHARES IN THE F.Y.2001-02 AND 2002-03, AND HOW THEY HAVE BEEN REDEEMED BY SUBSCRIBING FRESH CUMULATIVE REDEEMABLE PREFERENTIAL SHARES. IN FACT, THERE IS NO LOSS TO THE ASSESSEE- COMPANY EXCEPT LOSS COMPUTED ON ACCOUNT OF INDEXATION. IN ORDER TO GET THE RETURN ON OLD INVESTMENT, IT HAS REDEEMED THE SHARES BY SUBSCRIBI NG FRESH SHARES WITH BETTER RETURN AND TERM. IT IS DECISION FOR THE BEN EFIT OF THE COMPANY. SIMPLY BECAUSE IT IS REDUCING TAXABLE INCOME DOES N OT MEAN THAT IT WILL ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 51 - BECOME BOGUS. AFTER CONSIDERING THE FINDING OF THE LD.CIT(A), WE DO NOT FIND ANY ERROR IN IT, AND THIS GROUND OF APPEAL RAI SED BY THE REVENUE IS REJECTED. 69. GROUND NO.8: THIS GROUND IS CONNECTED WITH GRO UND NO.2 OF THE ASSESSEES APPEAL AND GROUND NO.4 OF REVENUES APPE AL IN ASSTT.YEAR 2008-09. REVENUE HAS PLEADED IN THESE GROUND THAT THE LD.CIT(A) HAS ERRED IN DELETING ADDITION OF RS.77,23,66,644/- AND RS.59,74,86,404/- IN ASSTT.YEAR 2007-08 AND 2008-09 RESPECTIVELY. THESE AMOUNTS WERE ADDED BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEPRE CIATION WITH AID OF SECTION 40(A)(IA) R.W.S. 194C OF THE ACT. ON THE O THER HAND, THE ASSESSEE HAS PLEADED THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DOES NOT APPLY TO THE PURCHASE OF CAPITAL ASSETS AND CONSEQUENTIAL LY TO THE DEPRECIATION. IN OTHER WORDS, THE SHORT ISSUE INVOLVED IN ALL THE SE GROUNDS IS THAT ON ACQUISITION OF CAPITAL ASSET, IF AN ASSESSEE FAILED TO DEDUCTION TDS, THEN, CAN DEPRECIATION BE DISALLOWED TO THE ASSESSEE BY H OLDING THAT EXPENSES INCURRED FOR ACQUIRING THE CAPITAL ASSET IS NOT ADM ISSIBLE FOR CAPITALISATION ON THE BASIS OF INTERPRETATION OF SE CTION 194C AND 40(A)(IA) OF THE ACT. 70. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS ESTABLISHED A PROJECT TO SET UP 14 UNITS OF WIND MILLS AT GUDE, PANCHGHAN I DISTRICT, MAHARASHTRA. IT WAS A TURNKEY PROJECT AND GIVEN TO M/S.VESTAS WIND TECHNOLOGIES INDIA P.LTD. IT HAS ENTERED INTO TWO SEPARATE AGREEMENTS DATED 4.1.2007 FOR SUPPLY OF 14 UNITS WIND MILLS AN D DATED 6.1.2007 FOR ERRECTION AND COMMISSIONING. THE AO WAS OF THE OPI NION THAT THE PAYMENTS FOR SUPPLY OF WIND MILLS ARE COVERED BY PR OVISIONS OF SECTION 194C. SINCE THE ASSESSEE FAILED TO DEDUCT TDS ON S UCH PAYMENT, ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 52 - THEREFORE IT IS REQUIRED TO BE DISALLOWED UNDER SEC TION 40(A)(IA) OF THE ACT. SINCE THE ASSESSEE HAS NOT CLAIMED EXPENDITUR E IN THE PROFIT & LOSS ACCOUNT, RATHER IT CAPITALIZED SUCH EXPENDITURE AND CLAIMED DEPRECIATION, THEN, WITH HELP OF SECTION 40(A)(IA) THE AO DISALLOWED THE DEPRECIATION. ON THE OTHER HAND, THE CASE OF THE A SSESSEE IS THAT IT HAD ENTERED INTO TWO SEPARATE CONTRACT; ONE FOR SUPPLY OF THE GOODS. THIS CONTRACT WAS EXECUTED ON 4.1.2007. UNDER THIS CONT RACT, IT HAD MADE PAYMENT FOR SUPPLY OF MATERIAL AT RS.149.37 CORES. THE SECOND CONTRACT WAS ENTERED INTO ON 6.1.2007 VIDE WHICH A PAYMENT W AS ACCRUED AT RS.3.92 CRORES FOR ERRECTION AND COMMISSION CHARGES . IN THE CONTACT FOR SUPPLY OF GOODS, NO WORK CONTRACT OR SERVICES ASPEC T IS INVOLVED, AND THEREFORE, IT DOES NOT FALL WITHIN THE AMBIT OF DEF INITION PROVIDED IN SECTION 194C AND NO TDS REQUIRES TO BE DEDUCTED. A S FAR CONTRACT FOR ERRECTION AND COMMISSION IS CONCERNED, IT ALREADY D EDUCTED TDS AND NO DISALLOWANCE COULD BE MADE. THE LD.AO WAS NOT SATI SFIED WITH THE EXPLANATION OF THE ASSESSEE, AND HE DID NOT ALLOW T HE DEPRECIATION. 71. ON APPEAL, THE LD.CIT(A) ALLOWED THE CLAIM OF T HE ASSESSEE BY RECORDING THE FOLLOWING FINDINGS: 12.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE I D. AR AND THE FACTS OF THE CASE/ THE DISALLOWANCE OF THE CLAIM OF DEPRECIA TION IN RESPECT OF WIND MILLS (WIND TURBINE GENERATORS) HAS BEEN MADE BY THE AO ON THE GROUND THAT TAX WAS NOT DEDUCTED AT SOURCE IN RESPECT OF P AYMENT FOR THE SUPPLY OF SUCH WIND MILLS BY THE CONTRACTOR M/S VESTAS WIN D TECHNOLOGIES (I) PVT. LTD (VWTIPL). THE PROVISIONS OF SECTION 40A(IA) SPECIFY THAT CERTAIN AMOUNTS SHALL NOT BE ALLOWED AS A DEDUCTION IN COMP UTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS AND PROFESSION', UNLESS TAX HAS BEEN DEDUCTED FROM SUCH PAYMENTS AT THE PRESCRIBED RATES. SUCH AMOUNTS INCLUDE INTEREST, COMMISSION, BROKERAG E, RENT, ROYALTY, FEES FOR PROFESSIONAL OR TECHNICAL SERVICES, AND AMOUNTS PAYABLE TO RESIDENT ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 53 - CONTRACTOR OR A SUB-CONTRACTOR FOR CARRYING OUT ANY WORK ON WHICH TAX WAS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B. CHAP TER XVII-B DEALS WITH COLLECTION AND RECOVERY OF TAX. PART B OF THIS CHAPTER DEALS WITH DEDUCTION OF TAX AT SOURCE. SECTION 194 C DEALS WIT H PAYMENTS TO CONTRACTORS. 12.3 IN THE INSTANT CASE, CLEARLY THE IMPUGNED PAYM ENTS WERE NOT IN RESPECT OF PAYMENT OF INTEREST, COMMISSION, BROKERA GE, RENT, ROYALTY, FEES, ETC., BUT RELATED TO PAYMENTS MADE TO A SUPPLIER/CO NTRACTOR. HENCE, THE ONLY APPLICABLE PORTION OF THE SECTION WOULD BE IN RESPECT OF 'CARRYING OUT OF ANY WORK BY A CONTRACTOR OR SUBCONTRACTOR ON WHI CH TAX IS DEDUCTIBLE AT SOURCE.' 12.4 THE ASSESSMENT YEAR IN QUESTION IS AY 2007-08. HENCE THE APPLICABLE PROVISIONS WOULD BE THOSE WHICH PREVAILE D BEFORE THE AMENDMENT OF SECTION 194C W.E.F. 1.10.2009 BY FINAN CE (NO. 2) ACT, 2009. AS PER THE PRE-AMENDED PROVISIONS, ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK SHALL AT THE TIME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE CO NTRACTOR OR AT THE TIME OF PAYMENT THEREOF DEDUCT TAX AT THE RATES SPECIFIE D THEREIN. 12.5 FROM A READING OF SECTION 194C AS WELL AS S ECTION 40(A)(IA), IT IS CLEAR THAT THE ESSENCE OF LIABILITY TO DEDUCT TAX A RISES FROM THE CARRYING OUT OF ANY WORK. 'WORK' HAS NOT BEEN DEFINED IN THE SECTION. HOWEVER, EXPLANATION III OF THE PRE-AMENDED SECTION 194C PRO VIDED AN INCLUSIVE DEFINITION OF 'WORK' SO AS TO INCLUDE ADVERTISING, BROADCASTING AND TELECASTING, CARRIAGE OF GOODS AND CATERING. IN THE AMENDED PROVISIONS, W.E.F. 1.10.2009, IN CLAUSE (IV) 'WORK' HAS BEEN DEF INED TO INCLUDE '(E)' MANUFACTURING OR SUPPLYING A PRODUCT ACCORD ING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM SUCH CUSTOMER, BUT DOES NOT INCLUDE MANUFACTURING OR SUPPLYING A PRODUCT ACCORDING TO T HE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM A PERSON, OTHER THAN SUCH CUSTOMER. ' 12.6 FOR THE AY 2007-08, I.E. THE YEAR UNDER CONSID ERATION, NO TAX WAS DEDUCTIBLE IN RESPECT OF SUPPLY OF GOODS, WHETHER M ANUFACTURED WITH INPUTS FROM THE PURCHASER OR OTHERWISE. HENCE ON TH IS GROUND ALONE THE TRANSACTION OF SUPPLY OF WIND TURBINE GENERATORS WO ULD BE OUTSIDE THE PURVIEW OF SECTION 194C. HOWEVER, IT IS INSTRUCTIVE TO REFER TO BOARD'S CIRCULAR ISSUED ON THIS SUBJECT. THE CIRCULAR NO. 6 81 DT. 8.3.1994 RELATES ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 54 - TO TDS U/S 194C. IN THIS CIRCULAR, THE CBDT, AFTER CONSIDERING THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF ASSOC IATED CEMENT CO. LTD. V CIT, 201 ITR 435, LAID DOWN CERTAIN GUIDELIN ES WITH REGARD TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 194C. IN TER-ALIA, IT PROVIDED AS FOLLOWS: '(VI) THE PROVISIONS OF THIS SECTION WILL NOT COVE R CONTRACTS FOR SALE OF GOODS. (A) SINCE CONTRACTS FOR THE CONSTRUCTION, REPAIR, RE NOVATION OR ALTERATION OF BUILDINGS OR DAMS OR LAYING OF ROADS OR AIRFIELDS OR RAILWAY LINES OR ERECTION OR INSTALLATION OF PLANT AND MACHINERY ARE IN THE NATURE OF CONTRACTS FOR WORK AND LABOUR, INC OME-TAX WILL HAVE TO BE DEDUCTED FROM PAYMENTS MADE IN RESPECT O F SUCH CONTRACTS. SIMILARLY, CONTRACTS GRANTED FOR PROCESS ING OF GOODS SUPPLIED BY GOVERNMENT OR ANY OTHER SPECIFIED PERSO N, WHERE THE OWNERSHIP OF SUCH GOODS REMAINS AT ALL TIMES WITH T HE GOVERNMENT OR SUCH PERSON, WILL ALSO FALL WITHIN THE PURVIEW O F THIS SECTION. THE SAME POSITION WILL OBTAIN IN RESPECT OF CONTRACTS F OR FABRICATION OF ANY ARTICLE OR THING WHERE MATERIALS ARE SUPPLIED B Y THE GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE FA BRICATION WORK IS DONE BY A CONTRACTOR. (B) WHERE, HOWEVER, THE CONTRACTOR UNDERTAKES TO SUP PLY ANY ARTICLE OR THING FABRICATED ACCORDING TO THE SPECIF ICATIONS GIVEN BY GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE PR OPERTY IN SUCH ARTICLE OR THING PASSES TO THE GOVERNMENT OR SUCH P ERSON ONLY AFTER SUCH ARTICLE OR THING IS DELIVERED, THE CONTRACT WI LL BE A CONTRACT FOR SALE AND AS SUCH OUTSIDE THE PURVIEW OF THIS SECTIO N. ' 12.7 THUS, IT HAS BEEN CLEARLY STATED BY THE BOARD THAT THE GUIDELINES RELATING TO THE PROVISIONS OF TAX DEDUCTION AT SOUR CE U/S 194C WOULD NOT COVER CONTRACTS FOR SALE OF GOODS, BUT WOULD ONLY B E CONFINED TO CONTRACTS FOR FABRICATION OF ARTICLE OR THING. WHERE THE FABR ICATION IS CARRIED OUT WITH MATERIALS SUPPLIED BY THE OTHER SPECIFIED PERS ONS AND THE FABRICATION WORK ALONE IS DONE BY THE CONTRACTOR, IN SUCH CASE TAX WOULD HAVE TO BE DEDUCTED FROM THE PAYMENT MADE IN THIS REGARD. HOWE VER, WHERE THE SUPPLY OF ANY ARTICLE OR THING IS THE SUBJECT MATTE R OF THE TRANSACTION AND SUCH ARTICLE OR THING IS FABRICATED ACCORDING TO TH E SPECIFICATIONS GIVEN BY THE SPECIFIED PERSONS, AND NO MATERIAL IS SUPPLIED BY SUCH SPECIFIED PERSONS, AND THE PROPERTY IN SUCH ARTICLE OR THING PASSES TO SUCH PERSON ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 55 - ONLY AFTER THE SAID ARTICLE OR THING IS DELIVERED, THEN THE CONTRACT WILL BE A CONTRACT FOR SALE AND THUS OUTSIDE THE PURVIEW OF S ECTION 194C. IN THE INSTANT CASE, NO MATERIAL HAS BEEN SUPPLIED BY THE ASSESSEE. THE ARTICLE OR THING HAS BEEN SUPPLIED BY M/S. VWTIPL IN ACCORDANC E WITH THE SPECIFICATIONS GIVEN BY THE ASSESSE. THE PROPERTY I N THE GOODS PASSED ONLY AFTER DELIVERY BY THE SUPPLIER TO THE ASSESSEE AND PAYMENT BY THE ASSESSEE TO THE SUPPLIER. HENCE BY APPLYING THE CRITERIA LAI D DOWN BY THE BOARD, THE TRANSACTION IN QUESTION WOULD APPEAR TO BE A CO NTRACT OF SALE AND NOT A CONTRACT FOR CARRYING OUT OF ANY WORK. 12.8 AT THE SAME TIME I FIND THAT ON VERY SIMILAR F ACTS, THE ITAT, HYDERABAD BENCH HAD OCCASION, IN THE CASE OF POWER- GRID; TO EXAMINE THE NATURE OF WORKS CONTRACT IN CONTRADISTINCTION TO SA LES CONTRACT. IN THAT CASE ALSO, AS IN THE PRESENT CASE, THE CONTRACT WAS BIFURCATED INTO TWO PARTS, I.E. CONTRACT FOR SUPPLY OF EQUIPMENT AND CO NTRACT FOR ERECTION AND COMMISSIONING OF THE SAID EQUIPMENT. THE APPLICABIL ITY OF THE PROVISIONS OF SECTION 194C WAS THE ISSUE THERE, AS HERE. THE I TAT IN THAT CASE HELD AS UNDER (HEAD NOTES):- 'TDS - UNDER S. 194C - WORKS CONTRACT VIS-A-VIS CON TRACT FOR SALE -IF EQUIPMENT ARE MANUFACTURED AS PER THE DESIGN, E NGINEERING ETC. SUPPLIED BY THE SUPPLIER, IT -WOULD NOT RESULT IN A WORKS CONTRACT ESPECIALLY WHEN ALL THE MATERIALS BELONG TO THE SUP PLIER EVEN THOUGH IT PRODUCED A TAILOR MADE PRODUCT - ERECTION PORTIO N BEING SUBSEQUENT TO PASSING OF TITLE BY EXECUTION OF SUPP LY PORTION, IT CANNOT BE SAID THAT THE ERECTION PORTION CONTROLS T HE SUPPLY PORTION EVEN THOUGH FULFILLMENT OF ERECTION CONTRACT IS A C ONDITION PRECEDENT TO FULFILLMENT OF SUPPLY CONTRACT AS TH E TITLE IN THE EQUIPMENT MANUFACTURED AS PER THE DESIGN, ENGINEERI NG, ETC SUPPLIED BY ASSESSEE PASSED ON TO THE ASSESSEE BEFO RE COMMENCEMENT OF THE ERECTION CONTRACT AND ASSESSEE HAD ENTERED THE SAME IN ITS STOCK REGISTER BEFORE ISSUING THE S AME FOR ERECTION, IT WAS A CONTRACT OF SALE NOT ATTRACTING S. 194C - ASS ESSEE HAVING ALREADY DEDUCTED TAX AT SOURCE QUA THE ERECTION POR TION, PROVISIONS OF S.194C SHALL NOT APPLY TO REMAINING SALE PORTION ' 12.9 SIMILARLY, THIS ISSUE WAS ALSO CONSIDERED B Y THE ITAT DELHI BENCH IN THE CASE OF HARYANA POWER GENERATION CORPORATION . IN THAT CASE TOO THE ISSUE RELATED TO WHETHER TDS PROVISIONS WERE AP PLICABLE IN THE CASE OF A COMPOSITE CONTRACT FOR SUPPLY OF EQUIPMENT AND ER ECTION AND ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 56 - COMMISSIONING OF THE EQUIPMENT. THE DELHI BENCH HEL D AS UNDER (HEAD NOTES) :- 'TDS - UNDER S. 194C - COMPOSITE CONTRACT OR SEPARA TE CONTRACTS PRIMARY AND DOMINANT OBJECT OF ASSESSEE BEING TO PURCHASE THE MATERIAL, I.E. TWO ESP S FOR ITS POWER PLANT, THE C ONTRACT FOR SUPPLY OF MATERIAL, FREIGHT, INSURANCE AND SUPPLY OF SPARE PARTS CONSTITUTED SEPARATE CONTRACT FROM, THE. CONTRACT F OR CIVIL WORK .OF ERECTION .AND , .. COMMISSIONING OF THE PLANT THOUG H THERE IS ONLY ONE COMMON PURCHASE ORDER - AO WAS NOT JUSTIFIED IN TREATING THE ASSESSEE-IN-DEFAULT BY TREATING THE TWO CONTRACTS A S COMPOSITE CONTRACT - AO DIRECTED TO REWORK THE TDS ACCORDINGL Y - FURTHER, IF THE TAX HAS ALREADY BEEN PAID BY THE CONTRACTOR, TH E ASSESSSEE COULD NOT BE TREATED IN DEFAULT UNDER S. 201' 12.10 HAVING REGARD TO THE PROVISIONS OF LAW AS CON TAINED IN SECTION 40(A)(IA) AND 194C, THE BOARDS VIEW IN THE MATTER AS EXPRESSED IN CIRCULAR NO. 681 AND THE DECISIONS OF THE HYDERABAD AND DELHI BENCHES OF ITAT AS ABOVE, I AM OF THE OPINION THAT THE IMPU GNED TRANSACTION AMOUNTED TO A CONTRACT FOR SALE OF 14 NUMBERS OF WI ND TURBINE GENERATORS WORTH RS. 149.37 CRORES AND A SEPARATE CONTRACT FOR ERECTION AND COMMISSIONING OF THE WTGS FOR SUM OF RS. 3.92 CRORE S. THE ASSESSEE HAS ALREADY DEDUCTED TAX AT SOURCE IN RESPECT OF THE PA YMENT OF RS. 3.92 CRORES. AS NOTED ABOVE, THE PROVISIONS OF CHAPTER-X VIIB WOULD NOT BE APPLICABLE IN THE CASE OF SALE OF GOODS. HENCE IT I S HELD THAT THE AO WAS NOT CORRECT IN DISALLOWING THE CLAIM OF DEPRECIATIO N FOR FAILURE TO DEDUCT TAX AT SOURCE ON PAYMENTS PURSUANT TO SUCH CONTRACT OF SALE. DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.77,23, 66,644/- IS THEREFORE DIRECTED TO BE DELETED. 72. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. ASSESSMENT YEARS INVOLVED BEFORE US ARE 2007-08 AND 2008-09. SECTION 194C HAS BEEN AMENDED AT DIFFEREN T INTERVALS EVEN AFTER 1.10.2009. A PERUSAL OF SECTION 194C AS WELL AS SE CTION 40(A)(IA) AS THESE ARE APPLICABLE IN THE ASSTT.YEAR 2007-08 AND 2008-0 9 WOULD REVEAL THAT ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RE SIDENT FOR CARRYING OUT ANY WORK INCLUDING SUPPLY OF LABOUR IN PURSUANC E OF A CONTRACT ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 57 - BETWEEN THE CONTRACTOR AND .. STATE GOVERNMENT.. ANY COMPANY . OR ANY AUTHORITY ETC THEN TDS HAS TO BE MADE. THE EXPRESSION WORK HAS NOT BEEN DEFINED IN SECTION, BUT HAS BEEN EXPLA INED IN EXPLANATION III APPENDED TO THIS SECTION. ACCORDING TO THIS EXPLANATION WORK SHALL INCLUDE (A) ADVERTISING, (B) BROADCASTING AND TELEC ASTING INCLUDING PRODUCTION OF PROGRAMMES FOR SUCH BROADCASTING OR T ELECASTING; (C) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRA NSPORT OTHER THAN BY RAILWAYS, (D) CATERING, AND (E) MANUFACTURING OR SUPPLY OF PRODUCT ACCORDING TO THE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING THE MATERIAL PURCHASED FROM SUCH CUSTOMER. BUT IT DOES NOT INCLUDE MANUFACTURING, SUPPLYING A PRODUCT ACCORDING TO THE REQUIREMENT AND SPECIFICATION OF CUSTOMER BY USING MATERIAL PURCHAS ED FROM A PERSON OTHER THAN SUCH CUSTOMER. IF AN ASSESSEE FAILED TO DEDUCT TDS ON PAYMENT PERTAINS TO SUCH WORK, THEN THE EXPENSES WI LL BE DISALLOWED UNDER SECTION 40(A)(IA) OF THE ACT BECAUSE THE ASSE SSEE FAILED TO DEDUCT TDS. THE ISSUE BEFORE US IS, WHETHER THE ASSESSEE HAS ENTERED INTO TWO INDEPENDENT CONTRACTS; ONE FOR SUPPLY OF GOODS, AND OTHER FOR ERECTION AND COMMISSIONING OF WIND MILLS. THE LD.CIT(A) HAS MADE REFERENCE TO THE ORDER OF THE ITAT, HYDERABAD BENCH IN THE CASE OF POWER GRID (SUPRA) AND OBSERVED THAT FACTS OF THIS CASE ARE AK IN TO CASE ON HAND. A PERUSAL OF THE DEFINITION OF THE WORK PROVIDED IN THE ACT WOULD INDICATE THAT IF EQUIPMENTS ARE BEING MANUFACTURED AS PER DESIGN, ENGINEERING ETC. SUPPLIED BY THE SUPPLIERS, WHICH W OULD NOT RESULT IN A WORK CONTRACT. MORES SO, EVEN IF IT IS ACCORDING T O THE DESIGN SUPPLIED BY THE ASSESSEE, BUT MATERIAL WAS NOT PURCHASED FRO M THE ASSESSEE, THEN ALSO EQUIPMENTS SUPPLIED BY THE SUPPLIER WOULD NOT FALL IN THE WORK CONTRACT. THE ASSESSEE HAS EMPHASISED THAT IT HAS PURCHASED 14 NUMBERS ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 58 - OF WIND TURBINE GENERATORS. THESE WERE NOT MANUFAC TURED ON THE BASIS OF SUPPLIES MADE BY THE ASSESSEE, RATHER SUPPLIER H AD PURCHASED THE GOODS OR SOURCED IT FROM THIRD PARTY, AND THEREAFTE R MANUFACTURED THEM. THUS, FOR THE PURPOSE OF 14 NUMBERS OF WIND TURBINE S, THERE WAS A SEPARATE CONTRACT AND IT WAS ONLY FOR SUPPLY OF GOO DS. ON THIS PURCHASE PRICE, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS UNDER SECTION 194C. THE LD.CIT(A) HAS MADE REFERENCE TO THE CIRCULAR OF THE BOARD BEARING NO.681, AND THEREAFTER FOLLOWED VARIOUS ORDERS OF T HE ITAT ON THIS POINT. THE AO HAS ERRED IN CONSTRUING THE PURCHASES OF 14 NUMBERS OF WIND TURBINE AS A WORK CONTRACT ON WHOSE PAYMENT THE ASS ESSEE WAS TO DEDUCT TDS. WE HAVE EXTRACTED FINDING OF THE LD.CIT(A), W HEREIN THE LD.CIT(A) HAS CONSIDERED ALL ASPECTS ON THIS ISSUE. AFTER GO ING THROUGH THE FINDING WE DO NOT FIND ANY ERROR IN IT. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 73. AS FAR AS THE ISSUE RAISED BY THE ASSESSEE IN I TS APPEAL IS CONCERNED, THAT IS JUST AN ARGUMENT, WHICH HAS BEEN TAKEN INTO CONSIDERATION BY THE LD.CIT(A) WHILE HOLDING THAT DEPRECIATION WILL BE A DMISSIBLE TO THE ASSESSEE. THEREFORE, FOR STATISTICAL PURPOSE, GROU ND OF APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED, WHEREAS, THE GROUND RAISED BY THE REVENUE IN BOTH THE YEARS ARE REJECTED. 74. GROUND NO.9 IN THE ASSTT.YEAR 2007-08 IS INTER- CONNECTED WITH GROUND NO.3 OF THE ASSESSEES APPEAL AS WELL AS GRO UND NO.5 OF REVENUES APPEAL IN THE ASSTT.YEAR 2008-09 AND GROUND NO.6 OF ASSESSEES APPEAL IN THE ASSTT.YEAR 2008-09. WE TAKE ALL THE GROUNDS OF APPEALS TOGETHER. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 59 - 75. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS ENTERED INTO A CONSULTANCY AGREEMENT WITH MCKINSEY & CO. (MC FOR SHORT) AND IT HAS CAPITALIZED A SUM OF RS.5,10,17,289/- AS FEES P AID TO MC. IT HAS CLAIMED DEPRECIATION OF RS.2,55,08,645/- IN RESPECT OF THIS PAYMENT IN THE ASSTT.YEAR 2008-09. SIMILARLY IT CLAIMED DEPRECIAT ION IN THE ASSTT.YEAR 2008-09. THE AO HAS DISALLOWED DEPRECIATION CLAIME D ON THIS AMOUNT BY HOLDING THAT (A) JOB ASSIGNED TO MC WAS NOT CO MPLETE IN THE PRESENT FINANCIAL YEAR, AND (B) CONSULTANCY CHARGES WERE PAID TOWARDS A NEW BUSINESS BY ANOTHER COMPANY OF GROUP AND DID NO T RELATE TO THE PRESENT BUSINESS OF THE ASSESSEE. DISSATISFIED WIT H THE FINDING OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL IN BOTH Y EARS. THE LD.CIT(A) HAS DECIDED THE ISSUE IN THE ASSTT.YEAR 2007-08 WHI CH HAS BEEN FOLLOWED IN THE ASSTT.YEAR 2008-09. THEREFORE, WE DEEM IT A PPROPRIATE TO TAKE NOTE OF FINDING OF THE CIT(A) IN THE ASSTT.YEAR 200 7-08, WHICH READ AS UNDER: 13.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. AR AND THE FACTS OF THE CASE. I FIND THAT THE AO HAS NOTED THAT THE INVOICE S RAISED BY MCKINSEY & CO IN RESPECT OF CONSULTANCY SERVICES PROVIDED BY T HEM WERE IN THE NAME OF M/S INOX AND NOT IN THE NAME OF THE ASESSEE. HOW EVER, IT IS SEEN THAT THE APPOINTMENT LETTER DT. 4.9.2006 BY WHICH MCKINS EY & CO WERE APPOINTED AS CONSULTANT FOR IDENTIFYING SUITABLE BU SINESS OPPORTUNITIES FOR GROWTH OF THE ASSESSEE COMPANY AS WELL AS THE G ROUP COMPANY, HAS BEEN SIGNED BY SHRI DEEPAK ASHER, GROUP HEAD (CORPO RATE FINANCE) ON THE LETTERHEAD OF THE ASSESSEE COMPANY (GFL). THE DI SCUSSION PAPERS WERE ALSO ADDRESSED BY M/S MCKINSEY & CO TO GFL. THE REP ORT WAS ALSO SUBMITTED TO GFL. HENCE THE CONCLUSION OF THE AO TH AT THE CONSULTANCY WAS UNRELATED TO THE ASSESSEE (GFL) IS NOT STRICTLY SPEAKING CORRECT. THE ASSESSEE'S GROUP IS KNOWN AS INOX GROUP. THEREFORE. , IT WOULD NOT BE CORRECT TO SAY THAT THE ENTIRE EXPENDITURE WAS UNRE LATABLE TO THE ASSESSEE COMPANY. SUBSEQUENT TO THE SUBMISSION OF THE REPORT BY MCKINSEY & CO, THE ASSESSEE, SET UP A SUBSIDIARY COMPANY UNDER THE NAME AND STYLE OF INOX WIND LTD., FOR THE PURPOSE OF MANUFACTURE OF W INDMILLS (WTG). AT ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 60 - THE SAME TIME, THE AOS OBSERVATION THAT THE INVOICE S WERE RAISED IN THE NAME OF THE GROUP COMPANY HAS NOT BEEN CONTROVERTED : THIS SUGGESTS THAT THE GROUP AS A WHOLE GAINED BY COMMISSIONING THE RE PORT FROM MCKINSEY & CO. ACCORDINGLY, IN MY VIEW IT WOULD BE FAIR TO C ONSIDER 20% OF THE EXPENDITURE ON CONSULTANCY TO BE RELATABLE TO THE A SSESSEE COMPANY (GFL). REGARDING THE OTHER ASPECT, IT IS HELD THAT T HE ASSESSEE HAS RIGHTLY CAPATILISED THIS AMOUNT AND ALLOCATED THE SAME TO T HE CAPITAL COST OF WIND MILLS. THE AO IS THEREFORE DIRECTED TO ALLOW 20% OF RS. 5,10,17,2897- AS PART OF CAPITAL COST OF WIND MILL AND THE DISALLOWA NCE OF THE BALANCE OF RS. 4,08,13,8317- IS CONFIRMED. 76. THE LD.COUNSEL FOR THE ASSESSEE WHILE IMPUGNING ORDERS OF THE CIT(A) CONTENDED THAT DETAILS WITH RESPECT TO THIS AGREEMENT ARE AVAILABLE ON PAGE NO.394 TO 431 OF THE PAPER BOOK. IN PRINCIPLE, THE LD.CIT(A) HAS AGREED THAT THIS AGREEMENT WAS WITH T HE ASSESSEE, BUT ALLOWED 20% EXPENDITURE FOR CAPITALIZATION IN THE C ASE OF THE ASSESSEE ONLY ON THE BASIS THAT IN THE COPY OF INVOICE NAME OF INOX IS APPEARING. COPIES OF THE INVOICES ARE AVAILABLE ON PAGE NO.424 AND 428 OF THE PAPER BOOK. HE TOOK US THROUGH THESE PAGES AND SUBMITTED THAT THE NAME OF INOX WAS JUST APPEARED BECAUSE OF ADDRESS PURPOSE , OTHERWISE EVERY CORRESPONDENCE TOOK PLACE WITH THE ASSESSEE. THERE IS NO JUSTIFICATION FOR HABOURING A BELIEF THAT ONLY 20% CONSULTANCY WA S MEANT FOR ASSESSEE AND IT IS ENTITLED TO CRYSTALISE 20% OF SUCH EXPENS ES. 77. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD. IT EMERGES OUT FROM THE SUBMISSION FILED B Y THE ASSESSEE AND CONSIDERED BY THE LD.CIT(A) THAT THE ASSESSEE WAS H AVING SURPLUS FUNDS AND EXPLORING SOME SUITABLE BUSINESS OPPORTUNITIES FOR FUTURE INVESTMENT AND GROWTH. THEREFORE, IT HAS APPOINTED MC AS CONSULTANT FOR EXPLORING THE BUSINESS IDEA IN SOME OF SECTORS VIZ. WIND FARM, FOOD SERVICE, BUDGET HOTEL CHAIN, COLD CHAIN, STEP DOWN CARE, CONTAINERIZED ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 61 - CARGO, THIRD PARTY LOGISTICS ETC. MC HAS SUBMITTE D A CONSULTANCY REPORT TO THE ASSESSEE ABOUT THE ABOVE BUSINESS ITEMS, AND ULTIMATELY IT WAS DECIDED THAT GFL SHOULD EMBARK ON THE POWER GENER ATION BUSINESS BY SETTING UP AND OPERATING WIND FARMS. ACCORDING TO THE ASSESSEE, AS A PART OF THE STUDY, IT WAS ALSO SUGGESTED BY THE MC THAT TO STRENGTHEN THE COMPETITIVE ADVANTAGE OF SETTING UP AND OPERATI NG WIND FARMS, GFL MAY CONSIDER MANUFACTURING OF ITS OWN WIND TU RBINE GENERATOR SETS. NOW, THE QUESTION BEFORE US IS, HOW IT IS TO BE VISUALIZED THAT THIS CONSULTANCY REPORT WAS NOT OBTAINED BY THE ASSESSEE IN CONNECTION WITH ITS BUSINESS. THE AO HAS ASSIGNED TWO REASONS; THE CONSULTANCY FEES WERE PAID TOWARDS A NEW BUSINESS BY ANOTHER COMPANY OF THE ASSESSEE AND DID NOT RELATE TO THE PRESENT BUSINESS OF THE A SSESSEE, AND JOB ASSIGNED TO MC WAS NOT COMPLETE IN THE PRESENT FI NANCIAL YEAR. IT IS PERTINENT TO NOTE THAT EXCEPT ADDRESS OF INOX ON TWO INVOICES, THERE IS NO OTHER MATERIAL EITHER DISCUSSED BY THE AO OR BY THE CIT(A) EXHIBITING THAT THIS CONSULTANCY WAS MEANT FOR OTHER COMPANIES OF THE GROUP OR THEY HAVE COMMENCED ANY LINE OF BUSINESS CONTEMPLAT ED IN THE REPORT. THERE IS NO EVIDENCE OF PAYMENT OF THESE CHARGES BY ANY OTHER GROUP COMPANY. THE CIT(A) BASICALLY AGREED WITH THE ASSE SSEE AND HELD THAT AO IS NOT CORRECT IN CONSTRUING THAT THIS REPORT IS RELATED TO THE ASSESSEE. THERE IS NO SPECIFIC MATERIAL WITH THE AO NOR HE AS SIGNED ANY REASON FOR HOLDING THAT REPORT WAS NOT MEANT FOR THE ASSESSEE. HOWEVER, SIMPLY FOR REASON THAT ONE OR TWO INVOICES CONTAINED ADDRESS O F INOX IT DOES NOT MEAN THAT THE ASSESSEE HAS USED REPORT ONLY TO THE EXTENT OF 20% AND REST IS USED FOR OTHER. THIS ASPECT CAN BE LOOKED INTO WITH DIFFERENT ANGLE. THE AO COULD VERIFY WHETHER OTHERS HAVE CRYSTALLIZE D THE AMOUNTS OR CLAIMED DEPRECIATION OR REVENUE EXPENDITURE. THERE IS NO DISPUTE WITH ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 62 - REGARD TO OBTAINING OF REPORT AS WELL AS RECOGNIZIN G PAYABLE AMOUNT TO MC. NOW THIS EXPENDITURE IS EITHER ALLOWED AS A REVENUE EXPENDITURE OR IT IS TO BE CAPITALISED. IF OTHERS HAVE CLAIMED THE REVENUE EXPENDITURE, THEN, THE AO SHOULD SPECIFY IT, AND IF IT HAS NOT B EEN CLAIMED BY ANY-ONE THAN THE ASSESSEE HAS CAPITALISED, THEN IT COULD NO T BE PARTLY ALLOWED TO THE ASSESSEE. THEREFORE, THE CIT(A) HAS COMMITTED AN ERROR IN RESTRICTING THE ALLOWANCE TO 20%. THIS ORDER, THEREFORE, IS NO T SUSTAINABLE. WE ALLOW BOTH THE GROUNDS OF APPEAL RAISED BY THE ASSE SSEE AND REJECT THE GROUNDS RAISED BY THE REVENUE. WE DIRECT THE AO PE RMIT THE ASSESSEE TO CAPITALISED THE PAYMENT MADE BY THE ASSESSEE TO MC AND ALLOW DEPRECIATION CONSEQUENTIALLY IN BOTH THE YEARS. 78. GROUND NO.10 IN THE ASSTT.YEAR 2007-08. IN THI S GROUND OF APPEAL, GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.5,69,034/-. 79. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS CAPITALISED A SUM OF RS.5,10,17,289/- AS PAID TOWARDS CONSULTANCY CHARGE S TO MC. THE AO WAS OF THE OPINION THAT THIS REPORT IS NOT RELATED OR CONNECTED TO THE PRESENT BUSINESS OF THE ASSESSEE, HENCE, THE AMOUNT INCURRED AS CONSULTANCY CHARGES WAS NOT FOR THE PURPOSE OF BUSI NESS. HE DID NOT PERMIT THE ASSESSEE TO CAPITALISE THOSE EXPENDITURE . CONSEQUENTLY, HE PROPORTIONATELY DISALLOWED THE INTEREST EXPENDITURE DEBITED BY THE ASSESSEE IN THE ACCOUNTS. IN OTHER WORDS, THE ASSE SSEE HAS INTEREST EXPENDITURE OF RS.495.63 LACS IN THE PROFIT & LOSS ACCOUNT. THE AO HAS WORKED OUT INTEREST EXPENDITURE ON THE CONSULTANCY CHARGES AND DISALLOWED THAT INTEREST EXPENDITURE OUT OF THE TOT AL EXPENSES DEBITED BY ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 63 - THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT. THE LD. CIT(A) DELETED THIS DISALLOWANCE. 80. IN THE GROUND NO.9, WE HAVE HELD THAT THE ASSES SEE IS ENTITLED TO CAPITALISE EXPENDITURE AS INCURRED TOWARDS CONSULTA NCY CHARGES. IN CONSEQUENCE TO THAT FINDING, NO INTEREST EXPENDITUR E DESERVES TO BE ARTIFICIALLY WORKED OUT FOR DISALLOWANCE, BECAUSE P RINCIPAL AMOUNT HAS BEEN TREATED AS FOR THE PURPOSE OF BUSINESS AND PER MITTED THE ASSESSEE FOR CAPITALIZATION OF SUCH EXPENDITURE BEING PRE-OP ERATIVE EXPENDITURE. THEREFORE, IN OUR OPINION, THE LD.CIT(A) HAS NOT CO MMITTED ANY ERROR WHILE DELETING THE DISALLOWANCE. ITA NO.172/AHD/2012 (ASSTT.YEAR 2008-09): 81. GROUND NO.1: IN THIS GROUND THE ASSESSEE HAS P LEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF LONG TERM CAPITAL LOSS OF RS.1,75,31,935/-. 82. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS ENTERED INTO AN AGREEMENT ON 1-2-2008 WITH HUMSAY INFORMATION SERV ICES P.LTD. (HISPL) FOR SALE OF 50.00 LAKHS FULLY PAID UP EQUIT Y SHARES AND 18,83,000/- 1% CUMULATIVE PREFERENCE SHARES OF IGSL ALONG WITH OTHER ENTITIES. OUT OF THE ABOVE, THE ASSESSEE WAS OWNER OF 24,74,930 EQUITY SHARES (VALUE AT RS.10/-) AND 18,83,000 PREFERENTIA L SHARES (FACE VALUE OF RS.100/- PAID UP VALUE RS.64/-). THE ASSESSEE HAD CLAIMED A LONG TERM CAPITAL LOSS OF RS.1,75,31,935/- ON SALE OF SHARES OF IGSL. THE AO REJECTED ITS CLAIM ON THE GROUND THAT THOUGH AGREEM ENT TO SELL WAS EXECUTED ON 1.2.008, BUT IT DID NOT MENTION THAT SA LE OR PURCHASE TOOK PLACE AT THE TIME OF AGREEMENT AND THERE WAS AN ADD ENDUM SIGNED ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 64 - BETWEEN THE PARTIES ON 3.4.2008. THUS, IT IS EVID ENT THAT TRANSACTION DID NOT TAKE PLACE AS PER AGREEMENT DATED 1.2.2008. AC CORDINGLY, THE LD.AO DISALLOWED CAPITAL LOSS. ON APPEAL, IT WAS CONTEND ED BY THE ASSESSEE THAT HISPL WAS TO MAKE PAYMENT IN INSTALMENT TO THE SELLER. IN CONSIDERATION OF WHICH SELLERS WERE TO TRANSFER PRE FERENTIAL SHARES IN IGSL TO THE ASSESSEE. PART OF THE SHARES WAS TRANS FERRED AND PART PAYMENT AT RS.34,47,519/- WAS RECEIVED DURING THE A CCOUNTING YEAR RELEVANT TO THIS ASSESSMENT YEAR. THE ASSESSEE HAS SUBMITTED COPIES OF THE AGREEMENT AND OTHER DETAILS IN CONNECTION WITH THIS TRANSACTION. IT ALSO RELIED UPON CBDT CIRCULAR BEARING NO.704 DATED 28.4.1995 STATING THAT IN CASE OF SHARE TRANSACTION TAKING PLACE DIRE CTLY BETWEEN THE PARTIES, AND NOT THROUGH STOCK EXCHANGE, BUT A CONT RACT LETTER AS DECLARED BY THE PARTIES IS TO BE TREATED AS DATE OF TRANSFER PROVIDED IT IS FOLLOWED BY ACTUAL DELIVERY OF SHARES. THE LD.CIT(A) HAS CO NSIDERED THIS ASPECT, BUT DID NOT CONCUR WITH THE ASSESSEE, AND UPHELD TH E FINDING OF THE LD.AO. THE DISCUSSION MADE BY THE LD.CIT(A) IN PAR A-5.2 READS AS UNDER: 5.2 I HAVE CONSIDERED FACTS OF THE CASE AND APPELL ANT'S SUBMISSIONS. APPELLANT HAS CONSIDERED DATE OF 'TRANSFER' OF 82,4 30 EQUITY SHARES AND 2,44,790 PREFERENCE SHARES TO BE FALLING IN FY 2007 -08 ON THE BASIS OF SHARE PURCHASE AGREEMENT ENTERED ON 1.2.2008 BETWEE N APPELLANT AND ITS RELATED CONCERNS WITH HUMSAY INFORMATION SERVICES P VT. LTD. IN LHIS REGARD, APPELLANT HAS RELIED UPON CBDTS CIRCULAR NO . 704/1995 DT. 24.4.95, I.E. DATE OF TRANSFER IN RESPECT OF OUTSID E THE STOCK EXCHANGE TRANSACTIONS IS DATE OF CONTRACT OF SALE BETWEEN PA RTIES PROVIDED IT IS FOLLOWED UP WITH ACTUAL DELIVERY OF SHARES AND THE TRANSFER DEEDS. AS PER PARA 3.2 OF THE AGREEMENT, TRANSFER OF SHARES IN QU ESTION WAS TO BE GIVEN EFFECT TO ON THE DATE OF SIGNING OF THE AGREEMENT I .E. 1.2.2008. TERMS & CONDITIONS FOR PAYMENT AND DELIVERY OF SHARES AS PE R PARA 2.9 OF THE AGREEMENT WERE TO MAKE PAYMENT FOUR DAYS BEFORE THE MILESTONE DATES IN PARA 3.2, AFTER WHICH DELIVERY OF SHARES WAS TO BE DONE. THE TRANSFER OF OWNERSHIP AS PER SHARE TRANSFER FORMS TOOK PLACE ON 9.4.2008 I.E. IN THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 65 - NEXT FINANCIAL YEAR AND THE PAYMENT WAS RECEIVED PA RTLY IN MARCH 2008 AND PARTLY IN APRIL 2008. THUS, THE TERMS & CONDITI ONS OF THE SHARE PURCHASE AGREEMENT DT. 1.2.2008 WERE NOT COMPLIED W ITH. IN FACT, THE REMAINING CONDITIONS IN THIS SHARE PURCHASE AGREEME NT INCLUDING SCHEDULE OF TRANSFER OF BALANCE SHARES AND ALSO REC EIPT OF ADDITIONAL AMOUNT OF RS 97,97,500/- BY WAY OF REVENUE SHARING ARRANGEMENT (AS PER PARA 3.5 OF THE SHARE PURCHASE AGREEMENT) ETC. WAS A LSO NOT ADHERED TO AND IN FACT, THE SHARE TRANSFER AGREEMENT WAS NOT G IVEN EFFECT TO IN SUBSTANCE. SINCE, THE CONTRACT OF SALE, I.E SHARE P URCHASE AGREEMENT DATED 1.2.2008 WAS NOT FOLLOWED IN SUBSTANCE AND THE IGSL SHARES WERE ACTUALLY TRANSFERRED IN FY 2008-09 I.E. ON 9.4.2008 , THE DATE OF TRANSFER CANNOT BE ACCEPTED TO BE IN FY 2007-08. IT IS HEL D THAT AO WAS JUSTIFIED IN NOT ALLOWING CAPITAL GAINS LOSS IN RE SPECT OF SHARES OF IGSL IN AY 2008-09. 5.2.1 HOWEVER, THERE IS MERIT IN APPELLANT'S CONTEN TION THAT ADDITION OF RS.1,75,31,935/- UNDER THE HEAD 'BUSINESS INCOME' W AS NOT REQUIRED AND INSTEAD LONG TERM CAPITAL GAINS ARE TO BE INCREASED TO THE EXTENT SET OFF WAS CLAIMED IN THIS YEAR I.E. RS.45,79,704/- AND BA LANCE LOSS OF RS.1,38,00,981/- IS NOT ALLOWED TO BE CARRIED FORWA RD, DUE TO TRANSACTION NOT HAVING TAKEN PLACE IN THIS YEAR. AO IS DIRECTED TO MODIFY THE ADDITION/DISALLOWANCE ACCORDINGLY. FURTHER, AS PER THE SHARE PURCHASE AGREEMENT DATED 1.2,2008, THE RATE AT WHICH ALL THE SHARES HELD BY APPELLANT GROUP WERE TO BE TRANSFERRED TO HISL WAS RS.2.03 PER EQUITY SHARE AND RS.13.4 PER PREFERENCE SHARE. ON BEING AS KED ABOUT THE BASIS FOR THESE VALUES, APPELLANT COMPANY SUBMITTED THAT NO V ALUATION WAS DONE TO ARRIVE AT THE AFORESAID VALUES AND CONSIDERATION WA S FIXED ON MUTUAL CONSENT WITH THE PURCHASER. EVEN THIS CONSIDERATION FIXED AS PER THE SHARE PURCHASE AGREEMENT WAS FINALLY NOT ADHERED TO AND T HE REMAINING SHARES WERE TRANSFERRED AT A MUCH LESSER VALUE THROUGH ADD ENDUM SIGNED ON 2.4.2010 I.E. AT A VALUE OF RS.0.01 PER EQUITY SHAR E AND RS.0.04 PER PREFERENCE SHARE. SINCE THE TRANSACTION HAS RESULTE D IN HUGE LOSS, SALE RATE OF SHARES IS AN ISSUE TO BE EXAMINED BY THE AO IN R ELEVANT AYS. ; 83. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE FIN DING OF THE LD.CIT(A) WOULD INDICATE THAT THE LD.CIT(A) HAS CONSIDERED AL L CONTENTIONS OF THE ASSESSEE, AND ALSO CBDT CIRCULAR 704 OF 1995. IT I S PERTINENT TO NOTE THAT TOTAL SHARES WERE NOT OWNED BY THE ASSESSEE, RATHER ON RECEIPT OF MONEY ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 66 - IN INSTALMENT FROM THE PURCHASER, HISL, IT WOULD BU Y FROM OTHERS. THUS, ASSESSEE WAS NOT IN POSITION TO DELIVER THE SHARES PHYSICALLY. THE LD.CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT T RANSACTION DID NOT MATERIALIZE IN THIS YEAR. TRANSFER OF OWNERSHIP AS PER SHARE TRANSFER FORM TOOK PLACE ON 9.4.2008 I.E. FINANCIAL YEAR REL EVANT TO THE ASSTT.YEAR 2009-10 AND NOT 2008-09. ASSESSEE IS NOT ENTITLED TO CLAIM LOSS ON SALE OF IGSL SHARES. THE LOSS HAS RIGHTLY BEEN DENIED AND WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS REJECTED. GROUND NO.2 AND 3: 84. IN THESE GROUNDS OF APPEAL, GRIEVANCE OF THE AS SESSEE IS THAT ON SALE OF SHARES, PROFIT/LOSS DESERVES TO BE ASSESSED UNDE R THE HEAD CAPITAL GAIN. 85. WE HAVE ALREADY ADJUDICATED THIS ISSUE WHILE TA KING UP ALL THESE GROUNDS ALONG WITH GROUNDS OF APPEAL RAISED IN THE ASSTT.YEAR 2005-06. GROUND NO.4: 86. IN THIS GROUND OF APPEAL GRIEVANCE OF THE ASSES SEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE UNDE R SECTION 14A READ WITH RULE 8D OF THE INCOME TAX ACT. 87. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS SHOWN DIVIDEND INCOME OF RS.13,47,01,641/- WHICH WAS CLAIMED AS EX EMPT FROM TAX. IT EMERGES THAT THE ASSESSEE HAS SHOWN GROSS INVESTMEN T OF RS.51,861 LAKHS IN SHARES/MUTUAL FUNDS. THIS ACTIVITY OF THE ASSES SEE HAS BEEN UPHELD AS INVESTMENT WHICH WOULD GIVE RISE TO LONG TERM CAPIT AL GAIN OR SHORT TERM CAPITAL GAIN TO THE ASSESSEE ON SALE OF SHARES/MUTU AL FUNDS/BONDS. THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 67 - AO SOUGHT EXPLANATION OF THE ASSESSEE TO DEMONSTRAT E EXPENSES RELATABLE TO EARNING OF SUCH INCOME HAVE BEEN DISALLOWED BY T HE ASSESSEE. THE ASSESSEE HAS SUO MOTO DISALLOWED A SUM OF RS.2,59,75,022/-. BREAK-UP OF THIS AMOUNT HAS BEEN GIVEN AT PAGE NO.12 OF THE ASS ESSMENT ORDER. IT READS AS UNDER: SR. NO. PARTICULARS AMOUNT(RS) I) SECURITIES TRANSACTION TAX I2985I2S 2) DEMAT CHARGES 1423333 3) PMS FEES 4994001 4) CONSULTANCY FEES FOR EQUITY RESEARCH SERVICES 1572760 5) OUT OF OTHER EXPENSES- AS ESTIMATED BY MANAGEMENT 5000000 TOTAL 25975022 88. THE LD.AO WAS NOT SATISFIED WITH THE CALCULATIO N MADE BY THE ASSESSEE. HE WORKED OUT DISALLOWANCE OF RS.16,04,0 8,332/-. SINCE THE ASSESSEE ITSELF HAS MADE DISALLOWANCE OF RS.2,59,75 ,022/- HE ADDED DIFFERENCE I.E. RS.16,04,08,332/- MINUS RS.2,59,75, 022/- I.E. RS.13,44,33,310/-. DISSATISFIED WITH THIS DISALLOW ANCE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) HAS PARTLY DELETED THE DISALLOWANCE AND PARTLY CONFIRME D. THE LD.CIT(A) CONSIDERED VARIOUS ASPECTS AND THEREAFTER DIRECTED THE AO TO VERIFY CONTENTIONS MADE BY THE ASSESSEE AND RE-CALCULATE T HE DISALLOWANCE. 89. BEFORE US, THE ASSESSEE HAS RAISED TWO FOLD OF SUBMISSIONS. IT CONTENDED THAT THE AO HAS WORKED OUT DISALLOWANCE O F INTEREST EXPENDITURE OF RS.10,75,08,033/-. THIS DISALLOWANC E COULD NOT HAVE BEEN ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 68 - MADE BECAUSE THE ASSESSEE HAS MORE SURPLUS FUND THA N THE INVESTMENT. HE DREW OUR ATTENTION TOWARDS DETAILS SUBMITTED IN TABULAR FORM AND POINTED OUT GROSS INVESTMENT WAS RS.55,668 LAKHS; W HEREAS SURPLUS FUNDS IN THE SHAPE OF SHARE CAPITAL AND RESERVES & SURPLUS IN THE ASSTT.YEAR 2008-09 WAS RS.99,069 LAKHS. FROM THE F INANCIAL STATEMENT, IT IS DISCERNIBLE THAT THE ASSESSEE WAS HAVING MUCH MO RE SURPLUS FUNDS. HE SUBMITTED THAT AS FAR AS ADMINISTRATIVE EXPENSES DISALLOWED BY THE AO AT THE RATE OF 0.5% OF THE AVERAGE INVESTMENT IS CONCERNED, THIS BE CONSIDERED IN THE LIGHT THAT THE ASSESSEE ITSELF HA S DISALLOWED 2.59 CRORES. THE LD.CIT-DR, ON THE OTHER HAND CONTENDED THAT THE LD.CIT(A) HAS CONSIDERED ALL THESE ASPECTS, AND THEREAFTER OBSERV ED THAT THERE IS NO SPECIFIC IDENTIFICATION OF THE EXPENDITURE. THE AS SESSEE HAS INCURRED EXPENDITURE OF RS.27.64 CRORES, AND IT HAS NOT ALLO CATED ANY EXPENDITURE TOWARDS EXEMPT DIVIDEND INCOME OF RS.13.47 CRORS. HE RELIED UPON THE ORDER OF THE LD.CIT(A). 90. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND G ONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE THAT THE ASS ESSEE HAS SHOWN GROSS INVESTMENT OF RS.55,668 LAKHS. IT HAS DEBITED INTE REST EXPENDITURE OF RS.27.64 CRORES IN THE ACCOUNTS. BUT THAT EXPENDIT URE IS MEANT FOR OTHER MANUFACTURING ACTIVITY. FOR THE PURPOSE OF INVESTM ENT, IT HAS NOT USED THE INTEREST BEARING FUNDS BECAUSE SURPLUS INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE FAR MORE THAN THE INVESTMENT. WE HAVE CONSIDERED THIS ASPECT WHILE DEALING WITH IDENTICAL ISSUE IN E ARLIER YEAR. WE HAVE PUT RELIANCE UPON THE DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF RELIANCE UTILITIES & POWER P.LTD. (SUPRA) W HEREIN IT HAS BEEN HELD THAT IF AN ASSESSEE DEMONSTRATES MORE SURPLUS FUNDS AVAILABLE WITH ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 69 - IT THAN THE INVESTMENT, THEN AN INFERENCE CAN BE DR AWN THAT SUCH INVESTMENTS HAVE BEEN MADE OUT OF SURPLUS FUND. TH EREFORE, NO INTEREST EXPENDITURE IS TO BE ALLOCATED FOR MAKING DISALLOWA NCE UNDER SECTION 14A OF THE ACT. 91. AS FAR AS DISALLOWANCE UNDER CLAUSE (III) OF RU LE 8D ON ACCOUNT ADMINISTRATIVE EXPENDITURE ARE CONCERNED, THE LD.AO HAS WORKED OUT 0.5% OF THE AVERAGE INVESTMENT AT RS.2,69,25,307/-. THIS AMOUNT DESERVES TO BE SET OFF AGAINST THE EXPENSES SUO MOTO DISALLOWED BY THE ASSESSEE AT RS.2.59 CRORES; WHEREAS THE ACTIVITY OF THE ASSESSEE IS BEING TREATED AS INVESTOR AND ON SALE OF SHARES PROFIT IS TO BE ASSESSED UNDER THE HEAD CAPITAL GAIN, THEN ALL THESE EXPENDITURE VIZ. SECURITY TRANSACTION TAX, CONSULTANCY FEES AND OTHER EXPENDI TURE WILL NOT BE ADMISSIBLE. THIS AMOUNT CAN TAKE CARE QUA THE ADMINISTRATIVE EXPENSES. THEREFORE, WE CONFIRM THE ADDITION WORKED OUT BY TH E AO AT RS.2,69,25,307/-, BUT OUT OF THIS EXPENDITURE A SUM OF RS.2,59,75,022/- BE SET OFF. THIS GROUND RAISED BY THE ASSESSEE IS PAR TLY ALLOWED. GROUND NO.5 92. THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS NOT IN CONSONANCE WITH RULE 8 OF THE ITAT RULES. IT HAS SEVEN SUB-GR OUNDS. IN BRIEF, THE ISSUE INVOLVED IS, WHETHER ON VALVE POWER PRODUCED FOR SELF CONSUMPTION, ASSESSEE IS ENTITLED TO CLAIM DEDUCTIO N UNDER SECTION 80IA(4). IF YES, THEN AT WHAT RATE. 93. THE AO HAS ADOPTED THE RATE AT WHICH GUJARAT EL ECTRICITY BOARD/GUVNL PURCHASES THE POWER FROM PRODUCERS OF T HE ELECTRICITY. IT HAS ADOPTED AVERAGE RATE OF SUCH PURCHASES FOR C ALCULATING ELIGIBLE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 70 - PROFIT FOR GRANT OF DEDUCTION. THE CLAIM OF THE AS SESSEE IS THAT SUCH CALCULATION BE MADE AT THE AVERAGE RATE OF ELECTRIC ITY SUPPLIED BY GUVNL TO THE ASSESSEE. W E HAVE CONSIDERED THIS ASPECT WHILE DEALING WITH GROUND NO.6(A) AND 6(B) OF THE REVENUES APPEA L FOR THE ASSTT.YEAR 2007-08. WE HAVE PUT RELIANCE UPON THE FINDING OF THE TRIBUNAL IN THE ASSTT.YEAR 2012-13 AND 2013-14. CONSIDERING OUR DI SCUSSION MADE IN THE PARA 64 IN THIS ORDER, WE ALLOW THIS GROUND OF APPE AL AND DIRECT THE AO TO FOLLOW THE FINDING OF THE TRIBUNAL IN THE ASSTT. YEAR 2012-13 AND 2013- 14. GROUND NO.6: 94. IN THIS GROUND, GRIEVANCE OF THE ASSESSEE IS TH AT THE LD.CIT(A) HAS ERRED IN DIRECTING TO ADOPT 20% OF CONSULTANCY FEES PAID BY THE ASSESSEE TO M/S.MCKINSEY & CO. FOR CAPITALIZATION AND ALLOWA NCE OF DEPRECIATION THAT EXTENT. THE CASE OF THE ASSESSEE IS THAT TOTA L AMOUNT INCURRED BY THE ASSESSEE TOWARDS CONSULTANCY FEES OUGHT TO BE CAPIT ALIZED AND DEPRECIATION ON SUCH IS TO BE ALLOWED. 95. WE HAVE CONSIDERED THIS ISSUE WHILE CONSIDERING GROUND OF APPEAL RAISED BY THE REVENUE I.E. GROUND NO.5 AS WELL AS G ROUND NO.9 OF REVENUES APPEAL IN THE ASSTT.YEAR 2006-07. CONSID ERING OUR FINDING, THIS GROUND OF APPEAL IS ALLOWED BECAUSE WE HAVE HE LD THAT THE ASSESSEE IS ENTITLED TO CAPITALIZE TOTAL FEES AND ENTITLED T O CLAIM DEPRECIATION ON SUCH AMOUNT. THERE CANNOT BE ANY BIFURCATION. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 71 - ITA NO.2546/AHD/2012 (ASSTT.YEAR 2009-10): 96. REVENUE HAS TAKEN THREE GROUNDS OF APPEAL. WE HAVE ALREADY ADJUDICATED ALL THESE THREE GROUNDS WHILE TAKING UP IDENTICAL ISSUES IN THE ASSTT.YEAR 2007-08 AND 2005-06 ETC. ACCORDINGL Y THIS APPEAL IS DISMISSED. ITA NO.106/AHD/2016 (ASSTT.YEAR 2010-11): 97. THREE GROUNDS ARE TAKEN IN THIS APPEAL. WE HAV E ALREADY CONSIDERED GROUND NO.1 AND 2 WHEREIN REVENUE HAS CH ALLENGED ALLOWANCE OF CONTRIBUTION MADE TO REFRIGERANT GAS M ANUFACTURERS ASSOCIATION AND VILLAGE DEVELOPMENT EXPENDITURE. W E HAVE ALREADY CONSIDERED BOTH THE ISSUES WHILE TAKING IDENTICAL I SSUE IN THE ASSTT.YEAR 2005-06, AND REJECTED. HENCE, THESE GROUNDS OF APP EAL ARE ALSO REJECTED. 98. IN GROUND NO.3: REVENUE HAS PLEADED THAT THE L D.CIT(A) HAS ERRED IN HOLDING THAT ADJUSTMENT MADE ON ACCOUNT OF DISAL LOWANCE UNDER SECTION 14A CANNOT BE MADE IN THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY O UTSET SUBMITTED THAT SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V S. VIREET INVESTMENTS P.LTD., 165 ITD 27 (SB) HAS HELD THAT NO ADJUSTMENT ON ACCOUNT OF 14A DISALLOWANCE CAN BE MADE IN THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB. IT IS ALSO PERTINENT TO NOTE THAT WE HAVE DE ALT WITH THIS ISSUE IN THE ASSTT.YEAR 2012-13 AND 2013-14. FOLLOWING THE DECISION OF THE SPECIAL BENCH, WE HAVE HELD THAT NO SUCH AMOUNT CAN BE INCLUDED IN THE BOOK PROFIT. THEREFORE, WE DO NOT FIND ANY MERIT I N THIS GROUND OF AND OTHERS RAISED BY THE REVENUE. HENCE, THIS APPEAL I S REJECTED. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 72 - ITA NO.548/AHD/2016: 99. THIS APPEAL IS DIRECTED AT THE INSTANCE OF THE REVENUE AGAINST ORDER OF THE LD.CIT(A) DATED 31.12.2015 PASSED FOR THE AS STT.YEAR 2010-11. ORIGINALLY, THE LD.CIT(A) HAS DECIDED THE APPEAL OF THE ASSESSEE VIDE ORDER DATED 30.10.2015. THEREAFTER AN APPLICATION UNDER SECTION 154 OF THE ACT WAS MOVED FOR RECTIFICATION OF CERTAIN APPA RENT ERROR. THE LD.CIT(A) RECTIFIED THE ERROR AND PASSED AN ORDER O N 31.12.2015. THE GRIEVANCE OF THE REVENUE IS AGAINST THIS ORDER I.E. THE LD.CIT(A) HAS ERRED IN HOLDING THAT INCOME ARISING FROM TRANSFER OF MUT UAL FUNDS AND BONDS BE ASSESSED UNDER THE HEAD CAPITAL GAIN AND NOT U NDER THE HEAD BUSINESS INCOME. WE HAVE ALREADY CONSIDERED THIS ISSUE WHILE CONSIDERING THE ASPECT THAT PROFIT ON SALE OF SHARE S/BONDS/MUTUAL FUND WILL BE ASSESSED UNDER THE HEAD CAPITAL GAIN. TH EREFORE, IN VIEW OF OUR ABOVE FINDING, WE DO NOT FIND ANY MERIT IN THIS GRO UND OF APPEAL IT IS REJECTED. APPEAL OF THE REVENUE IS DISMISSED. ITA NO.2365/AHD/2012, 116 AND 117/AHD/2016 : 100. IN THESE APPEALS CONTAINED COMMON ISSUE RELATE S TO DETERMINATION OF EXPENDITURE REQUIRED TO BE DISALLOWED FOR THE PU RPOSE OF SECTION 14A R.W. RULE 8D OF THE INCOME TAX RULES. 101. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS SHOWN DIVIDEND OF RS.7,61,01,001/-, RS.12,70,26,885 AND RS.4,84,53,22 4/- IN THE ASSTT.YEARS 2009-10 TO 2011-12 RESPECTIVELY. IT HAS COMPUTED T HE FOLLOWING AMOUNTS FOR DISALLOWANCE: ASSTT.YEAR 2009-10 ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 73 - SR. NO. PARTICULARS AMOUNT(RS) 1) SECURITIES TRANSACTION TAX 11,04,236 2) DEMAT CHARGES 2,81,742 3) PMS FEES 6,77,405 4) CONSULTANCY FEES FOR EQUITY RESEARCH SERVICES 1,12,360 5) OUT OF OTHER EXPENSES - AS ESTIMATED BY MANAGEMENT 50.00,000 TOTAL 71,75 , 743 ASSTT.YEAR 2010-11 SR. NO. PARTICULARS AMOUNT(RS) 1) SECURITIES TRANSACTION TAX 14,51,893 2) DEMAT CHARGES 1,66,573 3) OUT OF OTHER EXPENSES AS ESTIMATED BY MANAGEMENT 75,00,000 TOTAL 91,18,466 ASSTT.YEAR 2011-12: SR. NO. PARTICULARS AMOUNT(RS) 1) SECURITIES TRANSACTION TAX 23,60,273 2) DEMAT CHARGES 2,81,917 3) PMS FEES 3,09,370 ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 74 - 3) OUT OF OTHER EXPENSES AS ESTIMATED BY MANAGEMENT 75,00,000 TOTAL 1,04,51,560 102. THE LD.AO WAS NOT SATISFIED WITH THE EXPLANATI ON OF THE ASSESSEE. HE WORKED OUT DISALLOWANCE OF RS.17,29,04,416/- RS. 17,55,02,134/-, AND RS.12,10,31,520/- IN THESE ASSESSMENT YEARS RESPECT IVELY. THE WORKING MADE BY THE AO IN EACH ASSESSMENT YEAR READ AS UNDE R: ASSTT.YEAR 2009-10 (I) AMOUNT OF EXPENSES DIRECTLY ATTRIBUTABLE TO INCOME : RS.71,75,743/- (AS SUBMITTED BY THE ASSESSEE) (II) INTEREST EXPENSES INCURRED WHICH IS NOT D IRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPTS, AMOUNTS AS COMPUTED WITH THE FORMULA = A X B / C A . INTEREST : RS. 49,99,97,000/- B : AVERAGE INVESTMENT : RS. 526,10,38,500/- C: AVERAGE ASSETS : RS.1794,35,02,000/- RS.49,99,97,000 X RS.526,10,38,500 : RS.14,65,99,223/- RS.1794,35,02,000 (III) 0.5% OF AVERAGE INVESTMENT (0.5% ON RS. 526,10,38,500/-) : RS. 2,63,05,193/- TOTAL DISALLOWANCE : RS.18,00,80,159/- SINCE THE ASSESSEE ITSELF DISALLOWED AN AMOUNT OF R S.71,75,743/-, REMAINING DISALLOWANCE OF RS. 17,29,04,416/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ASSTT.YEAR 2010-11: (I)AMOUNT OF EXPENSES DIRECTLY ATTRIBUTABLE TO INC OME : RS.91,18,466/- (AS SUBMITTED BY THE ASSESSEE) (II) INTEREST EXPENSES INCURRED WHICH IS NOT DIREC TLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPTS, AMOUNTS AS COMPUTED WITH THE FO RMULA = A X B / C A : INTEREST : RS. 48,03,33,000/- B : AVERAGE INVESTMENT :RS. 6,27,19,94,500/- C : AVERAGE ASSETS : RS.2090,05,18,500/- RS.48,03,33,000 X RS.627,19,94,500 : RS. 14,41,42,196/- RS.2090,05,18,500 (III) 0.5% OF AVERAGE INVESTMENT (0.5% ON RS. 627,19,94,500/-) : RS. 3,13,59 ,973/- TOTAL DISALLOWANCE : RS. 18,46,20,600/- ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 75 - SINCE THE ASSESSEE ITSELF DISALLOWED AN AMOUNT OF R S.91,18,466/-, REMAINING DISALLOWANCE OF RS.17,55,02,134/- IS ADDED TO THE T OTAL INCOME OF THE ASSESSEE. ASSTT.YEAR 2011-12: (I)AMOUNT OF EXPENSES DIRECTLY ATTRIBUTABLE TO INCO ME : 1,04,51,560/- (AS SUBMITTED BY THE ASSESSEE) (II) INTEREST EXPENSES INCURRED WHICH IS NOT DIRECTLY AT TRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPTS, AMOUNTS AS COMPUTED WITH THE FORMULA = A X B / C A : INTEREST : RS.34,54,64,000/- B : AVERAGE INVESTMENT : RS.659,75,75,000/- C : AVERAGE ASSETS : RS.2314,04,63,000/- RS.34,54,64,000 X RS.659,75,75,000 : RS.9,84,95,205 /- RS.2314,04,63,000 (III) 0.5% OF AVERAGE INVESTMENT (0.5% ON RS. 659,75,75,000) : RS. 32987875/- TOTAL DISALLOWANCE : RS. 13,14,83,080/- SINCE THE ASSESSEE ITSELF DISALLOWED AN AMOUNT OF R S.1,04,51,560/-, REMAINING DISALLOWANCE OF RS.12,10,31,520/- IS ADDE D TO THE TOTAL INCOME OF THE ASSESSEE. (ADDITION: RS.12,10,31,520) 103. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. AS OBSERVED EARLIER WHILE DEALING WITH IDENTICAL ISSUE, WE FIND THAT THE ASSESSEE HAS PLAC ED ON RECORD DETAILS OF GROSS-INVESTMENTS, DIVIDEND INCOME AS WELL AS SURPL US INTEREST FREE FUND AVAILABLE WITH IT. A PERUSAL OF THESE DETAILS WOUL D INDICATE THAT THE ASSESSEE HAS MADE GROSS INVESTMENT OF RS.51,861 LAK HS, RS.77,715 LAKHS AND RS.58,453 LAKHS IN THE ASSTT.YEARS 2009-10, 201 0-1 AND 2011-12 WHEREAS IT HAS SURPLUS FUND OF RS.1,23,083 LAKHS, R S.1,52,831 LAKHS AND RS.1,74,721 LAKHS. IT SUGGESTS THAT THE ASSESSEE W AS HAVING MORE INTEREST FREE FUNDS THAN THE INVESTMENT IT HAS MADE. THEREF ORE, CONSIDERING OUR FINDING IN THE IMMEDIATELY PRECEDING YEAR, WE ARE O F THE VIEW THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE DES ERVES TO BE MADE. WE PUT RELIANCE UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA), WH EREIN IT HAS BEEN HELD ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 76 - THAT IF THE ASSESSEE IS ABLE TO DEMONSTRATE AVAILAB ILITY OF INTEREST-FREE FUNDS MORE THAN THE INVESTMENT MADE, THEN INFERENCE CAN BE DRAWN THAT SUCH INVESTMENTS WERE MADE OUT OF INTEREST FREE FUN DS. A PERUSAL OF WORKING OF THE AO WOULD INDICATE THAT HE HAS WORKED OUT DISALLOWANCE MORE THAN THE EXEMPT INCOME. MAJOR PORTION OF THE DISALLOWANCE REPRESENTED INTEREST EXPENSES IN ALL THESE THREE YE ARS. WE THEREFORE DELETE THE DISALLOWANCE OF INTEREST EXPENDITURE OF THESE THREE YEARS. 104. AS FAR AS DISALLOWANCE AT THE RATE OF 0.5% OF AVERAGE INVESTMENT FOR TAKING CARE OF ADMINISTRATIVE EXPENSES IS CONCERNED , WE DO NOT FIND ANY ERROR IN THE FINDING OF THE AO. THE FINDING OF THE LD.CIT(A) IS BEING MODIFIED TO THE EXTENT THAT AGAINST WORKING OF SUCH DISALLOWANCE A SET OFF OF THE AMOUNT WHICH THE ASSESSEE HAS DISALLOWED ITSELF IN ALL THESE THREE YEARS. FOR EXAMPLE, IN THE ASSTT.YEAR 2009-1 0, A DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES AT 0.5% OF AVERA GE INVESTMENT HAS BEEN WORKED OUT BY THE AO AT RS.2,63,05,193/-. IN PRINCIPLE, THIS DISALLOWANCE IS CONFIRMED, BUT IT BE REDUCED BY A S UM OF RS.71,75,743/- DISALLOWED BY THE ASSESSEE ITSELF. THE SAME EXERCI SE BE CARRIED OUT IN REST OF TWO YEARS. THIS GROUND OF APPEAL IS PARTLY ALLOWED ALL THREE YEARS. 105. NO OTHER GROUND IN ASSTT.YEAR 2009-10, HENCE, THIS APPEAL IS TREATED AS PARTLY ALLOWED. SIMILARLY, NO OTHER GRO UND REMAINED IN THE ASSTT.YEAR 2010-11. THIS ALSO IS TREATED AS PARTLY ALLOWED. 106. GROUND NO.2 OF THIS APPEAL IS COMMON IN ITA NO .2365/AHD/2012, 116 AND 117/AHD/2016 (ASSTT.YEAR 2009-10, 2010-11 A ND 2011-12) I.E. COMMON ISSUE INVOLVED ALL THESE THREE GROUNDS IS, W HETHER THE ASSESSEE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 77 - IS ENTITLED FOR DEDUCTION UNDER SECTION 80IA ON THE VALUE OF THE CAPTIVE POWER GENERATED BY IT. IF YES, THAN AT WHAT RATE S UCH DEDUCTION IS TO BE ADMISSIBLE. 107. THE AO HAS ADOPTED THE PURCHASE RATE OF GUVNL AT RS.3.2 PER UNIT AS MARKET VALUE OF THE POWER PRODUCED BY THE A SSESSEE IN THE CAPTIVE POWER, WHEREAS THE CASE OF THE ASSESSEE IS THAT VALUE OF SUCH POWER BE CALCULATED AT THE RATE AT WHICH THE ASSESS EE HAS BEEN PURCHASING POWER FROM GUVNL. 108. WE HAVE DEALT WITH THIS ISSUE IN EARLIER ASSES SMENT YEARS AS WELL AS ASSTT.YEAR 2012-13, 2013-14. THESE GROUNDS OF APPE ALS ARE ALLOWED IN THE SAME TERM AND THE AO IS DIRECTED TO FOLLOW ORDER OF THE ITAT IN THE ASSTT.YEAR 2012-13 AND 2013-14. 109. IN GROUND NO.3 IN THE ASSTT.YEAR 2009-10 (ITA NO.2365/AHD/2012) THE ISSUE AGITATED IN THIS GROUND IS, WHETHER ON SALE OF SHARES/ MUTUAL FUND CAPITAL IS TO BE ASSESSED AS BUSINESS INCOME. 110. WE HAVE ALREADY DECIDED THIS ISSUE. 111. NO OTHER GROUNDS HAVE BEEN PRESSED. THEREFORE, THE APPEAL OF THE ASSESSEE IS ALLOWED PARTLY. 112. IN THE REMAINING GROUND NO.4 IN ITA NO.117/AHD /2016 FOR THE ASSTT.YEAR 2011-12, THE ASSESSEE HAS PLEADED THAT R ECEIPT OF PROCEEDS ON SALE OF CARBON CREDIT DESERVES TO BE TREATED AS CAP ITAL RECEIPT AND REQUIRES TO BE EXCLUDED FROM TAXABLE INCOME. THIS GROUND IS COMMON WITH ADDITIONAL GROUND OF APPEAL TAKEN BY THE ASSES SEE IN THE ASSTT.YEAR ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 78 - 2007-08, 2008-09 AND 2009-10. IN THE ASSTT.YEAR 2 007-08, 2008-09 AND 2009-10, THE ASSESSEE HAS MOVED AN APPLICATION FOR PERMISSION TO RAISE ADDITIONAL GROUND OF APPEAL. IT HAS PLEADED THAT LOWER AUTHORITIES TREATED INCOME ON ACCOUNT OF SALE OF CARBON-CREDIT AS REVENUE RECEIPTS EXIGIBLE TO TAX, ARE ERRONEOUS AND CONTRARY TO THE PROVISIONS OF THE ACT. THE LD.AO/CIT(A) OUGHT TO HAVE SO HELD AND EXCLUDED INCOME ON ACCOUNT OF SALE OF CARBON-CREDIT AS CAPITAL RECEIPT AND NOT LEVIABLE TO TAX. IT BE SO HELD. 113. ON THE STRENGTH OF HONBLE SUPREME COURT DECIS ION IN THE CASE NATIONAL THERMAL POWER CO. LTD. VS COMMISSIONER OF INCOME TAX 229 ITR 383 (SC), IT HAS CONTENDED THAT IF ANY ISSUE GO ING TO AFFECT TAXABILITY OF AN ASSESSEE, THEN IT CAN BE RAISED AT ANY STAGE. WHEN THE APPLICATION WAS CONFRONTED TO THE REVENUE, THEN REVENUE FILED A N OBJECTION VIDE LETTER DATED 24.7.2015. IT HAS CONTENDED THAT THE ASSESSEE ITSELF HAS TREATED SUCH RECEIPT AS REVENUE RECEIPT AND INCLUDE D IN TAXABLE INCOME. NOW AFTER FIVE YEARS, IT CANNOT BE PERMITTED TO TAK E U TURN AND PLEAD THAT THIS IS A CAPITAL RECEIPT. REVENUE HAS FURTHE R PLEADED THAT THE ASSESSEE BE NOT PERMITTED TO RAISE THIS GROUND OF A PPEAL BECAUSE, IT HAS RECOGNIZED SUCH RECEIPTS AS REVENUE RECEIPTS. 114. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OU TSET CONTENDED THAT AS FAR AS ISSUE ON MERIT IS CONCERNED, IT IS COVERED I N FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR THE ASSTT.YEAR 2012- 13 AND 2013-14. HE FURTHER SUBMITTED THAT ORDER OF THE ITAT IN THE ASSTT.YEARS 2012-13 AND 2013-14 HAS FOLLOWED THE DE CISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ALEMBIC LT D. IN THAT CASE, THE ASSESSEE TREATED SUCH RECEIPTS AS REVENUE RECEIPTS IN THE RETURN OF INCOME ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 79 - BUT THEREAFTER TOOK A STAND BEFORE THE TRIBUNAL THA T THIS RECEIPT BE EXCLUDED BEING CAPITAL IN NATURE. THE TRIBUNAL HAS ALLOWED THE CONTENTIONS OF THE ASSESSEE. THE LD.COUNSEL FOR TH E ASSESSEE TOOK US THROUGH FINDING OF THE TRIBUNAL ON PAGE NO.169 TO 1 70 OF THE PAPER BOOK (ORDER OF THE ITAT PASSED IN ITA NO.1912/AHD/2012 A ND OTHERS (PAGE NO.152 TO 170). A REFERENCE TO THE FOLLOWING WAS M ADE BY THE LD.COUNSEL FOR THE ASSESSEE: 19.2 THE ID. DEPARTMENTAL REPRESENTATIVE, ON THE O THER HAND, CONTENDS THAT THE REALIZATION FROM CARBON CREDITS HAS BEEN T REATED BY THE ASSESSEE ITSELF AS REVENUE INCOME AND OFFERED TO TAX AND IN FACT IN ACTUALITIES THEY ARE REVENUE RECEIPT. HOWEVER, NO ADVERSE JUDGMENT O N THIS HAS BEEN CITED. 20. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE ADDITIONAL GROUND STANDS ALREADY ADMITTED. THE DUTY OF THE ITAT IS TO ENSURE THAT FAIR, JUST AND PROPER ASSESSMENT IS MAD E. MERELY BECAUSE THE ASSESSEE WAS OF THE OPINION THAT THE RECEIPT WAS RE VENUE IN NATURE CANNOT ACT AS AN ESTOPPELS AGAINST IT WHEN THE LAW AS INTE RPRETED BY HON'BLE HIGH COURTS TAKES A VIEW AT VARIANCE WITH THE ASSES SEE. THE LAW IS SETTLED THAT THE REVENUE CANNOT STAND BENEFITED FROM A TAX WHICH IS NOT LEVIABLE IN RIGHT EARNEST. WE FIND MERIT IN THE CONTENTIONS OF THE ID. COUNSEL FOR THE ASSESSEE THAT THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SUBHASH KABINI POWER CORPORATION LTD (SUPRA) AND THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF MY HOME POWER LTD (SUPRA), HAVE TAKEN A VIEW THAT THE CARBON CREDIT REALIZATION IS CAPITAL IN NATURE. NO CONTRARY JUDGMENT IS CITED. THEREFORE, RESPECTFULLY FOLLOWING THESE JUDGMENTS, THIS ADDITIONAL GROUND OF THE ASSESSEE I N RESPECT OF REALIZATION OF CARBON CREDIT AS CAPITAL RECEIPT IS ALLOWED. TH US, THIS ADDITIONAL GROUND IS ACCORDINGLY ALLOWED. 115. AGAINST THIS ORDER, REVENUE WENT IN APPEAL BEF ORE THE HONBLE JURISDICTIONAL HIGH COURT. HONBLE HIGH COURT HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDING TO THE LD.COUNSE L FOR THE ASSESSEE, THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISIO N OF HONBLE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 80 - JURISDICTIONAL HIGH COURT. THIS DECISION HAS BEEN FOLLOWED BY THE ITAT IN THE ASSTT.YEAR 2012-13 AND 2013-14. IN VIEW OF THE ABOVE, WE ADMIT THIS ADDITIONAL GROUND OF APPEAL IN ALL THESE THREE YEARS. 116. APART FROM ADDITIONAL GROUND, THE ASSESSEE HAS TAKEN GROUND NO.4 IN THE ASSTT.YEAR 2011-12 CHALLENGING THIS VERY ISS UE. ON MERIT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE ITAT IN THE ASSTT.YEAR 2012-13 AND 2013-14. THE DISCUSSION MADE BY THE TRIBUNAL O N THIS ISSUE IS WORTH TO NOTE, WHICH READS AS UNDER: 34. WE NOW TAKE GROUND NO.5 IN THE ASSESSMENT YEAR 2012-13 AND GROUND NO.8 IN THE ASSESSMENT YEAR 2013-14: 35. IN THE ASSESSMENT YEAR 2012-13, THE ASSESSEE HA S PLEADED THAT THE LD.DRP HAS ERRED IN NOT ADJUDICATING THE CLAIM MADE BY THE ASSESSEE COMPANY TO CONSIDER REVENUE EARNED ON SALE OF CARBO N CREDITS, NET OF EXPENSES AS A CAPITAL RECEIPTS AND NOT SUBJECT TO T AX. SIMILARLY, IN THE ASSESSMENT YEAR 2013-14, THE ASSESSEE HAS PLEADED T HAT THE DRP HAS ERRED IN REJECTING CLAIM MADE BY THE ASSESSEE THAT REVENU E EARNED FROM SALE OF CARBON CREDITS IS TO BE HELD AS CAPITAL RECEIPTS. IN OTHER WORDS, COMMON ISSUE IN BOTH THE YEARS IS, WHETHER RECEIPTS RECEIV ED BY THE ASSESSEE ON SALE OF CARBON CREDITS IS TO BE ASSESSED AS A CAPITAL RE CEIPT OR TO BE TREATED AS REVENUE RECEIPTS. 36. FACTS IN BOTH THE YEARS ARE COMMON. THE ASSESS EE HAS FILED A NOTE EXPLAINING THE ALLEGED CARBON CREDITS AND HOW IT HA S RECEIVED THE RECEIPTS. THE NOTE HAS BEEN REPRODUCED BY THE DRP IN BOTH THE ASSESSMENT YEARS IN ITS ORDER. THE NOTE AND THE DISCUSSION MADE BY THE DRP ON THIS ISSUE ARE AS UNDER: CLAIM OF DEDUCTION IN RESPECT OF INCOME FROM CARBO N CREDIT BEING CAPITAL RECEIPT - DURING THE YEAR, THE COMPANY HAS RECEIVED INCOME FR OM CARBON CREDIT OF RS. 441.69 CRORES. THE SAID REVENUE IS CR EDITED TO PROFIT & LOSS ACCOUNT AND IS INCLUDED IN REVENUE FROM OPERAT IONS. PLEASE REFER TO SCHEDULE 23 OF THE ANNUAL ACCOUNTS. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 81 - WE ARE ENCLOSING HEREWITH A DETAIL NOTE ON THIS CAR BON CREDIT. IN THE SAID NOTE WE HAVE EXPLAINED AS UNDER: GFL'S CARBON CREDIT: GFL OPERATES A HCFC-22 PLANT AT VILLAGE RANJIT NAGAR, DISTRICT PANCHMAHALS, GUJARAT, INDIA. DURING THE PR ODUCTION OF HCFC-22, WASTE GAS CALLED HFC-23 IS GENERATED. FOR EACH TON OF HCFC-22 PRODUCED, APPROXIMATEL Y 2.9% OF HFC-23 IS GENERATED. HFC-23 IS A GREENHOUSE GAS (GH G) WHICH HAS GLOBAL WARMING POTENTIAL OF 11,700 OF CO2 PER T ON OF HFC- 23. GFL'S CDM PROJECT CONSISTS OF INCINERATING HFC- 23 INSTEAD OF ALLOWING IT TO BE VENTED INTO THE ATMOSPHERE, AND T HEREBY REDUCING GHG EMISSIONS CERS AWARDED = TONES OF GHG REDUCED *GWP OF GH G IN THE YEAR 2005-2006, GUJRAT FLUOROCHEMICALS LIMIT ED (GFL) HAS IMPLEMENTED A PROJECT FOR GREENHOUSE GAS EMISSION R EDUCTION BY THERMAL OXIDATION OF THE WASTE GAS HFC-23 IN INDIA UNDER CLEAN DEVELOPMENT MECHANISM OF KYOTO PROTOCOL. GFL HAS INSTALLED, AND OPERATES AND MAINTAINS A HFC -23 COLLECTION AND THERMAL OXIDATION SYSTEM (TO PLANT) TO INCINERAT E HFC-23. THE THERMAL OXIDATION SYSTEM ENABLED GFL TO AVOID H FC-23 EMISSIONS (GHG EMISSIONS), WHICH, IN THE ABSENCE OF THE PROJECT ACTIVITY, WOULD HAVE BEEN VENTED INTO THE ATMOSPHER E. UPON VOLUNTARY INCINERATION OF HFC-23, EMISSION RED UCTION IS ACHIEVED AND CERS ARE ISSUED TO GFL AFTER COMPLYING WITH THE SPECIFIED MONITORING PLAN APPROVED BY THE UNFCCC. C ERS ARE ISSUED IN ELECTRONIC FORM. ONCE THE CERS ARE GENERA TED THROUGH THE PROJECT UNDERTAKEN, THEY ARE CREDITED TO GFL'S ACCOUNT IN THE CD REGISTRY. FROM THERE, THEY ARE TRANSFERRED TO BU YERS. THE SAME IS REPORTED AS SALES IN THE FINANCIAL ACCOUNTS UNDE R THE CHEMICAL SEGMENT. UNSOLD CERS ARE SHOWN AS INVENTORY AT COST . GFL HAS SOLD CERS MAINLY TO MULTILATERAL INSTITUTIO NS / INTERNATIONAL BUYERS AND TREATED THE SAME AS BUSINE SS INCOME SINCE CERS ARE EARNED / GENERATED FROM HCFC-22 PLANT WHIC H IS THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 82 - PRIMARY BUSINESS OF GFL AND ALSO OFFERED THE SAME F OR TAXATION AT THE NORMAL RATE OF TAX LIKE ANY OTHER SOURCES OF IN COME. ALL THE EXPENSES INCURRED AS STATED ABOVE ARE CLAIMED AS DE DUCTION (INCLUDING TAX DEPRECIATION ON TO PLANT). IN THIS NOTE, WE HAVE GIVEN THE BACKGROUND OF THE C ARBON CREDITS AND HOW THE CARBON CREDITS ARE RECEIVED IN THE CASE OF OUR COMPANY. WE HAD ALSO EXPLAINED THE PROCEDURE OF GENERATION OF C ARBON CREDITS AND STEPS TAKEN AND INVOLVED IN RECEIPT OF SUCH CARBON CREDITS. THUS, THE CARBON CREDITS ARE ISSUED BY THE CDM EXECUTIVE BOAR D, WHICH OPERATES UNDER THE UNFCCC AND THOSE ARE SOLD TO INT ERNATIONAL BUYERS FOR CASH. WE HAVE ALSO EXPLAINED THAT THE CE RS ARE NOT RECEIVED OR ALLOCATED BY GOVERNMENT. IT WILL ALSO BE OBSERVE D THAT IN OUR CASE CARBON CREDITS ARE NOT RECEIVED FOR USING ALTERNATI VE FUEL LIKE NON-FOSSIL FUEL WHICH MAY BE SPECIFIC TO WIND ENERGY BUSINESS OR OTHER FUEL SWITCH OR ENERGY EFFICIENCY PROJECTS. THE CLAIM IS MADE THAT THE SAID REVENUE FROM CARBON CREDIT IS NOT TAXABLE AS INCOME BUT A CAPITAL RECEIPT NOT LIABLE TO TAX. HENCE, WHILE COMPUTING TOTAL INCOME, THE SAID RECEIPT, NET OF EX PENSES, MAY PLEASE BE EXCLUDED AS CAPITAL RECEIPT. THIS CLAIM IS BASED ON THE ITAT ORDER IN THE CASE OF MY HOME POWER LIMITED, HYDERABAD BENCH, WHICH IS NOW CONFIRMED BY THE HON'BLE ANDHRA PRADESH HIGH COURT. WE MAY STATE THAT SUCH CLAIM, THAT CARBON CREDIT RE VENUE IS CAPITAL RECEIPT NOT LIABLE TO TAX, AND HENCE SHOULD BE EXCL UDED FROM TOTAL INCOME, WAS MADE DURING THE COURSE OF ASSESSMENT PR OCEEDINGS FOR A.Y. 2010-11 AND 2011-12 ALSO. IN THE ASSESSMENT OR DER, THE AO HAS NOT ACCEPTED THE SAID CLAIM. THE COMPANY, HAS FILED APPEALS FOR BOTH THE YEARS BEFORE CIT(A). ONE OF THE GROUNDS OF APPEA L IS REGARDING SUCH CLAIM. DURING THE COURSE OF APPELLATE PROCEEDI NGS FOR A.Y. 2010- 11, THE CIT(A) HAS CALLED FOR THE REMAND REPORT FROM ASSESSING OFFICER ON THE ISSUE. A COPY OF THE SAID REMAND REPORT WAS PROVIDED TO US AND WE WERE ASKED TO MAKE OUR SUBMISSIONS ON THE SAID R EMAND REPORT. WE HAVE MADE OUR DETAILED SUBMISSION DATED 02-01-2015 TO THE CIT(A). THE COPY OF THE SAID SUBMISSION IS ENCLOSED FOR REA DY REFERENCE IN WHICH WE HAVE PROVIDED OUR REPLIES TO THE AOS OBSER VATIONS IN THE REMAND REPORT AND THE ENTIRE ISSUE IS DISCUSSED IN DETAIL. WE RELY ON THE SAME. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 83 - THEREFORE, IN VIEW OF THE ABOVE IT IS REQUESTED THA T AT THE TIME OF ASSESSMENT, CARBON CREDIT REVENUE OF RS. 441.69 CRO RES CREDITED IN THE PROFIT AND LOSS ACCOUNT, NET OF EXPENSES, MAY PLEAS E BY EXCLUDED, BEING A CAPITAL RECEIPT AND NOT LIABLE TO TAX ON THE BASI S OF VARIOUS ITAT ORDERS AND HIGH COURT DECISION IN THE CASE OF MY HO ME POWER LIMITED. ENCLOSURES: 1. NOTE ON CARBON CREDIT. 2. COPY OF THE REMAND REPORT DATED 25.11.2014 FOR A.Y. 2010-11 3. COPY OF THE REPLY DATED 02.01.2015 SUBMITTED TO CIT(A) IN RESPONSE TO ABOVE REMAND REPORT DURING APPELLATE PR OCEEDINGS FOR A.Y. 2010-11. 24. DISCUSSION AND DIRECTION OF DRP; : 24.1 IT IS SEEN FROM DRAFT ORDER THAT ISSUE IS NOT DISCUSSED IN THE DRAFT ASSESSMENT ORDER, SINCE THE CLAIM WAS MADE BY THE A SSESSEE DURING THE COURSE OF THE PROCEEDINGS ITSELF, AS PER LETTER DAT ED 28/01/2015. THE DRP HAS NOTED THAT THERE IS NO VARIATION OF INCOME ON THIS ISSUE IN THE DRAFT ASSESSMENT ORDER, WHICH IS PREJUDICIAL TO THE INTEREST OF REVENUE. THUS, IN STRICTLY LEGAL TERMS, THE SAID OBJECTION D OESN'T FALL UNDER THE PROVISIONS OF SECTION 144C OF THE I.T. ACT 1961. 24.2 ALSO IN THE CASE OF GOETZE (INDIA) LTD. (284 I TR 323), THE HON'BLE SUPREME COURT HAS HELD THAT THE ASSESSING O FFICER CANNOT ENTERTAIN ANY CLAIM FOR ALLOWING DEDUCTION RESULTIN G IN A REDUCTION IN THE TOTAL INCOME RETURNED, WHICH IS NOT CLAIMED IN THE ORIGINAL RETURN OR A REVISED RETURN. 24.3 ON MERITS, THE DRP HAS NOTED THE CIT (A)'S ORDE R OF EARLIER 2 YEARS AND CONCURS WITH THE FINDINGS OF THE CIT (A), THAT SUCH CARBON CREDIT RECEIPTS GFL ARE TAXABLE. THE RELEVANT EXCER PTS OF THE ORDER OF THE CIT(A) FOR A.Y. 2011.12 A.Y. 2010-11 ARE REPRODU CED HEREUNDER:- FROM CIT (A) ORDER FOR AY 2011-12; / '9. 1 THIS ISSUE HAS .BEEN DECIDED IN APPELLANT 'S OWN CASE FOR THE A Y 2010-1 1 VIDE ORDER DATED 30-10.2015 IN APPEAL NO. CAB- 11321201415. IN THIS ORDER THE REVENUE EARNED FROM THE SALE OF CARBON CREDITS, NET OF EXPENSES HAS BEEN HELD TO BE TAXABL E IN THE HANDS OF THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 84 - APPELLANT. MOREOVER, IT IS SEEN THAT IN THE CURRENT YEAR SUCH REVENUE ALSO INCLUDES PROFIT EARNED ON ACCOUNT OF TRADING O F SUCH CARBON CREDITS WHICH ARE REVENUE IN NATURE UNDER ALL CIRCU MSTANCES. HENCE, FOLLOWING THE DECISION OF THE EARLIER ORDER AND CON SIDERING THE FACT THAT THE APPELLANT IS ALSO ENGAGED IN THE TRADING OF CAR BON CREDITS, IT IS HELD THAT SUCH REVENUE IN THE CURRENT YEAR IS ALSO TAXAB LE IN THE HANDS OF THE APPELLANT AS INCOME FROM BUSINESS. ALTERNATIVEL Y, THIS IS ALSO TAXABLE AS SHORT TERM CAPITAL GAIN AS HAS BEEN HELD IN THE APPELLATE ORDER OF AY 2010-11. HENCE, THIS GROUND OF APPEAL I S DISMISSED' FROM CIT(A)ORDER FOR AY2010-11 '11.1 IN THE PRESENT CASE TOO, THE APPELLANT HAD P ROFIT MOTIVE IN THE ESTABLISHMENT OF THE CDM PROJECT. HENCE IT IS HELD THAT IT IS CARRYING ON THE BUSINESS OF GENERATION OF CERS THROUGH THIS CDM PROJECT AND ACCORDINGLY, THE REVENUE ON ACCOUNT OF SALE OF SUCH CER. IS TAXABLE AS PROFITS AND GAINS OF BUSINESS BEING CARRIED ON BY T HE APPELLANT. 11.2 WITHOUT PREJUDICE TO THE FINDING GIVEN ABOVE THAT R EVENUE EARNED FROM SALE OF CARBON CREDITS IS TAXABLE AS INCOME FROM TH E BUSINESS HI THE HANDS OF THE APPELLANT, EVEN IF IT IS TREATED AS A CAPITAL RECEIPT THEN ALSO IT WILL BE TAXABLE IN THE HANDS OF THE APPELLANT AS INCOME FROM CAPITAL GAIN ON ACCOUNT OF TRANSFER OFCERS. THIS IS DUE TO THE FACT THAT IN THE CASE OF THE APPELLANT, THE COST OF ACQUISITION OF C ERS HAS ALREADY BEEN DETERMINED. THUS, EVEN IF THE APPELLANT'S CONTENTIO NS ARE ACCEPTED, IT IS TO BE HELD THAT THESE CERS ARE CAPITAL ASSETS IN THE HANDS OF THE APPELLANT AND ARE HAVING DETERMINED COST. UNDER SUC H SITUATION, THE RECEIPT RECEIVED ON ACCOUNT OF TRANSFER OF SUCH CAP ITAL ASSETS WILL BE TAXABLE IN THE HANDS OF THE APPELLANT AS SHORT TERM OR LONG TERM CAPITAL GAIN. SINCE, IN THE CASE OF THE APPELLANT, ALL SUCH CERS HAVE BEEN TRANSFERRED WITHIN THREE YEARS OF DATE OF ACQUISITI ON OF FIRE SAME, HENCE THE ENTIRE SALE CONSIDERATION NET OF EXPENSES IS TA XABLE AS SHORT TERM CAPITAL GAIN. ACCORDINGLY THERE WILL BE NO DIFFEREN CE ON THE TAX TO BE LEVIED ON THE INCOME OF THE APPELLANT UNDER SUCH SI TUATION ALSO. THUS IN THE ALTERNATE SITUATION ALSO, THERE SHALL BE NO CHANGE IN THE TOTAL INCOME OF THE APPELLANT. 11.3 ON THE BASIS OF THESE DISCUSSIONS, IT IS HELD THAT THE REVENUE EARNED BY THE APPELLANT COMPANY ON ACCOUNT OF SALE OF CERS IS ITS INCOME TAXABLE UNDER THE HEAD INCOME FROM BUSINESS. HENCE, THIS GROUND OF APPEAL IS DISMISSED.' ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 85 - 24.4 IN VIEW OF THE ABOVE THE CLAIM OF THE ASSES SEE THAT CARBON CREDIT RECEIPT ARE NOT LIABLE TO TAX IS REJECTED AND ACCOR DINGLY, NO DIRECTIONS ARE ISSUED TO THE AO ON THIS GROUND OF OBJECTION. 37. IN THE ASSESSMENT YEAR 2012-13, THIS CLAIM WAS OF RS.876.14 CRORES. THE LD.COUNSEL FOR THE ASSESSEE WHILE IMPUGNING ORD ERS OF THE REVENUE AUTHORITIES BELOW CONTENDED THAT THE ISSUE IN DISPU TE IS SQUARELY COVERED BY DECISION OF HONBLE GUJARAT HIGH COURT IN THE CA SE OF ALEMBIC LTD. (SUPRA). HE PLACED ON RECORD COPY OF THE HONBLE GU JARAT HIGH COURT DECISION IN TAX APPEAL NOS.553 AND 554 OF 2017 DECI DED ON 28.8.2017. HE ALSO POINTED OUT THAT THIS ISSUE HAS BEEN CONSID ERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SUBHASH KABIL POWER CORPORATION LTD., (2016) 287 CTR(KAR) 147; (2016) 69 TAXMANN.COM 394 (KAR). THE HONBLE KARNATAKA HIGH COURT HAS ALS O RELIED UPON THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN TH E CASE OF CIT VS. MY HOME POWER LTD., (2014) 46 TAXMANN.COM 314 (AP). APART FROM THE ABOVE, HE FURTHER CONTENDED THAT W.E.F. 1-4-201 8, A SPECIAL PROVISION HAS BEEN ENACTED IN THE SHAPE OF SECTION 115BBG WHI CH PRESCRIBE LEVY OF TAX AT THE RATE OF 10% ON INCOME FROM TRANSFER OF C ARBON CREDIT. HE TOOK US THROUGH EXPLANATORY STATEMENT OF FINANCE ACT, 20 17. 38. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. ISSUE BEFORE US IS, WHETHER RECE IPTS RECEIVED BY THE ASSESSEE ON SALE OF ALLEGED CARBON CREDIT IS REVENU E IN NATURE OR CAPITAL IN NATURE. AN IDENTICAL QUESTION WAS FORMULATED BY TH E HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. ALEMBIC LTD. (SUP RA). THE QUESTION FRAMED IS AS UNDER: (4) WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE ITAT ERRED IN TREATING THE INCOME FROM REALISATION OF CARBON CREDITS AS CAPITAL IN NATURE, DESPITE THE FACT THAT THE REALIZATION FROM CARBON CREDITS HAS BEEN T REATED BY THE ASSESSEE ITSELF AS REVENUE INCOME AND OFFERED TO TA X?' 39. THE QUESTION HAS BEEN REPLIED BY THE HONBLE HI GH COURT IS AS UNDER: 6. THE LAST SURVIVING QUESTION PERTAINS TO THE TRE ATMENT THAT THE ASSESSEES INCOME FROM TRADING OF CARBON CREDIT S SHOULD BE GIVEN. THE TRIBUNAL HELD THAT RECEIPTS SHOULD IN T HE NATURE OF CAPITAL RECEIPTS AND THEREFORE WOULD NOT INVITE TAX . THIS ISSUE HAS ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 86 - BEEN EXAMINED BY TWO HIGH COURTS. THE KARNATAKA HI GH COURT IN THE CASE OF CIT VS. SUBHAS KABINI CORPORATION LTD., REPORTED IN (2016) 385 ITR 592 (KARN) AND ANDHRA PRADESH HIGH COU RT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. MY HOME POWER LIMITED REPORTED IN (2014) 365 ITR 82(A) HAVE HELD TH AT RECEIPTS OF CARBON CREDIT ARE IN THE NATURE OF REVENUE RECEI PTS. FOLLOWING THE DECISIONS OF SAID TWO HIGH COURTS, THIS QUESTIO N IS ALSO NOT CONSIDERED. IT IS TO BE NOTED HERE THAT THE HONBLE GUJARAT HIG H COURT HAS THEREAFTER ISSUED A CORRIGENDUM IN THE ABOVE ORDER IN OJMCA/1/2018 IN TAX APPEAL NO.553 OF 2017 WHEREIN THE APPLICANT POI NTED OUT AN ADVERTENT MISTAKE IN PARAGRAPH-6. THE HONBLE COUR T RECTIFIED THE TYPOGRAPHIC/INADVERTENT MISTAKE VIDE ORDER DATED 9. 3.2018. IT READS AS UNDER: THROUGH THIS APPLICATION, THE ASSESSEE POINTS OUT THAT IN OUR JUDGMENT DATED 28.08.2017, WHILE DISMISSING REVENUE S TAX APPEALS, WE HAD INADVERTENTLY RECORDED IN PARAGRAPH -6 THAT SEVERAL HIGH COURTS HAVE HELD THAT RECEIPTS OF CAR BON CREDIT ARE IN THE NATURE OF REVENUE RECEIPTS. THIS IS CLEARLY A TYPOGRAPHICAL/ INADVERTENT ERROR. THE ABOVE QUOTED PORTION OF PAR AGRAPH-6 WOULD, THEREFORE, BE CORRECTED AND READ AS UNDER THAT R ECEIPTS OF CARBON CREDIT ARE IN THE NATURE OF CAPITAL RECEIPTS. THE APPLICANT STANDS DISPOSED OF ACCORDINGLY. 40. IN VIEW OF THE ABOVE, IT IS TO OBSERVE THAT AT THE LEVEL OF TRIBUNAL, THE ORDER IN THE CASE OF SUBHASH KABINI POWER CORPO RATION LTD. (SUPRA) WHICH HAS BEEN AFFIRMED BY THE HONBLE KARNATAKA HI GH COURT (WAS ALSO AUTHORIZED BY THE JUDICIAL MEMBER WHILE POSTED AT BA NGALORE). APART FROM THE ABOVE, WE WOULD LIKE TO MAKE REFERENCE TO THE EXPLANATORY STATEMENT OF FINANCE ACT, 2017. IT READS AS UNDER: CARBON CREDITS IS AN INCENTIVE GIVEN TO AN INDUSTR IAL UNDERTAKING FOR REDUCTION OF THE EMISSION OF GHGS (GREEN HOUSE GASES), INCLUDING CARBON DIOXIDE WHICH IS DONE THROUGH SEVE RAL WAYS SUCH AS BY SWITCHING OVER TO WIND AND SOLAR ENERGY, FORE ST REGENERATION, INSTALLATION OF ENERGY-EFFICIENT MACHINERY, LANDFIL L METHANE CAPTURE, ETC. THE KYOTO PROTOCOL COMMITS CERTAIN DE VELOPED COUNTRIES TO REDUCE THEIR GHG EMISSIONS AND FOR THI S, THEY WILL BE GIVEN CARBON CREDITS. A REDUCTION IN EMISSIONS ENTI TLES THE ENTITY TO ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 87 - A CREDIT IN THE FORM OF A CERTIFIED EMISSION REDUCT ION (CER) CERTIFICATE. THE CER IS TRADABLE AND ITS HOLDER CAN TRANSFER IT TO AN ENTITY WHICH NEEDS CARBON CREDITS TO OVERCOME AN UN FAVORABLE POSITION ON CARBON CREDITS. INCOME-TAX DEPARTMENT HAS BEEN TREATING THE INCOME ON TRANSFER OF CARBON CREDITS AS BUSINESS INCOME WHICH IS SUBJECT TO TAX AT THE RATE OF 30%. HOWEVER, DIVERGENT DECISIONS HAVE BEEN GIVE N BY THE COURTS ON THE ISSUE AS TO WHETHER THE INCOME RECEIV ED OR RECEIVABLE ON TRANSFER OF CARBON CREDIT IS A REVENUE RECEIPT O R CAPITAL RECEIPT. IN ORDER TO BRING CLARITY ON THE ISSUE OF TAXATION OF INCOME FROM TRANSFER OF CARBON CREDITS AND TO ENCOURAGE MEASURE S TO PROTECT THE ENVIRONMENT, IT IS PROPOSED TO INSERT A NEW SECTION 115BBG TO PROVIDE THAT WHERE THE TOTAL INCOME OF THE ASSESSEE INCLUDES ANY INCOME FROM TRANSFER OF CARBON CREDIT, SUCH INCOME SHALL BE TAXABLE AT THE CONCESSIONAL RATE OFTEN PER CENT (PLUS APPLI CABLE SURCHARGE AND CESS) ON THE GROSS AMOUNT OF SUCH INCOME. NO EXP ENDITURE OR ALLOWANCE IN RESPECT OF SUCH INCOME SHALL BE ALLOWE D UNDER THE ACT. THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL, 201 8 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YE AR 2018-19 AND SUBSEQUENT YEARS. 41. THUS, TAKING INTO CONSIDERATION RESOLUTION OF L ITIGATION ON THIS ISSUE BY THE LEGISLATURE ITSELF, WHICH HAD MADE PRO VISION FOR TAXATION OF SUCH RECEIPTS AT THE RATE OF 10% FROM THE ASSESSMEN T YEAR 2018-19 AS WELL AS AUTHORITATIVE PRONOUNCEMENTS OF HONBLE JURISDIC TIONAL HIGH COURT, WE ARE OF THE VIEW THAT RECEIPTS RECEIVED BY THE AS SESSEE ON SALE OF CARBON CREDIT ARE TO BE TREATED AS CAPITAL RECEIPTS AND NO T LIABLE TO TAX. THE LD.DRP HAS ASSIGNED ONE MORE REASONS FOR NOT ENTERT AINING CLAIM OF THE ASSESSEE PARTICULARLY IN THE ASSESSMENT YEAR 2012-1 3 IS THAT SUCH CLAIM WAS NOT IN THE RETURN OF INCOME, RATHER IT WAS MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ON THE STRENGTH OF HONBLE SUPREME COURT JUDGMENT IN THE CASE OF GOETEZ INDIA LTD.(SUPRA), W E ARE OF THE VIEW THAT THE AO CANNOT ENTERTAIN ANY CLAIM FOR ALLOWING DEDU CTION RESULTING IN A REDUCTION OF TOTAL INCOME RETURNED, WHICH IS NOT CL AIMED IN THE ORIGINAL RETURN OR A REVISED RETURN. TO THIS REASONING OF T HE DRP, WE ARE OF THE VIEW THAT WE HAVE CONSIDERED THIS ASPECT WHILE DEAL ING WITH THE ISSUE REGARDED ENHANCEMENT CLAIM MADE UNDER SECTION 80IA OF THE ACT. WE HAVE MADE REFERENCE TO THE DECISION OF THE ITAT, MU MBAI AND BANGALORE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 88 - BENCHES AS WELL AS HONBLE HIGH GUJARAT HIGH COURT IN THE CASE OF MITESH IMPEX (SUPRA) AND HELD THAT IF A PARTICULAR I TEM IS GOING TO AFFECT TAXABILITY OF ASSESSEE, THEN A FRESH CLAIM CAN BE E NTERTAINED BY THE FIRST APPELLATE AUTHORITY OR BY THE DRP. THUS, WE OVERRU LE THIS REASONING OF THE DRP AND DIRECT THE AO TO TREAT THESE RECEIPTS I N BOTH ASSESSMENT YEARS AS CAPITAL RECEIPT. ONE OF US (I.E. JUDICIAL MEMBER) IS AUTHOR OF THE O RDER IN THE ASSTT.YEAR 2012-13, 2013-14, AS ALSO AUTHOR OF THE ORDER IN THE CASE OF CIT VS. SUBHAS KABIL POWER CORPORATION LTD., AT BANGALO RE WHICH HAS BEEN UPHELD BY THE HONBLE KARNATAKA HIGH COURT. THIS D ECISION HAS BEEN FOLLOWED BY THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF ALEMBIC LTD. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF ALEMBIC LTD., (SUPRA) AND THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR THE ASSTT.YEAR 2012-13 AND 2013-14, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THE LD.AO IS DI RECTED TO TREAT THE SALE PROCEEDS FROM CARBON CREDIT AS CAPITAL RECEIPTS IN ALL THESE YEARS. ITA NO.135/AHD/2015: 117. PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST ORDER OF THE LD.CIT(A) DATED 13.11.2014 PASSED FOR THE ASSTT.YEAR 2008- 09. SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT TH E LD.CIT(A) HAS ERRED IN CONFIRMING PENALTY OF RS.1,13,00,000/- WHICH WAS IM POSED BY THE AO UNDER SECTION 271(1)(C) OF THE ACT. 118. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 27.9.2008 DECLARING TOTAL INCOME AT RS.28 9,33,41,010/-. THE LD.AO HAS PASSED ASSESSMENT ORDER UNDER SECTION 143 (3) ON 31.12.2010 AND DETERMINED TAXABLE INCOME AT RS.369,55,61,740/- . DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LD.AO FOUND THAT THE ASSESSEE HAS ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 89 - CAPITALIZED A SUM OF RS.5,10,17,289/- AS PRE-OPERAT IVE EXPENSES PAID TO M/S.MCKINSEY & CO. (MC). IT IS PERTINENT TO OBSE RVE THAT THE ASSESSEE HAD APPOINTED MC AS A CONSULTANT FOR EXPLORING SUPP ORTING BUSINESS OPPORTUNITY FOR POSSIBLE EXPANSION. THE LD.AO HELD THAT THIS REPORT WAS OBTAINED FOR THE PURPOSE OF GROUP AND NOT RELATABLE TO ASSESSEE EXCLUSIVELY. IN HIS SECOND REASONING, HE OBSERVED THAT THIS REPORT WAS OBTAINED FOR STARTING A NEW BUSINESS VENTURE, AND T HEREFORE, IT IS NOT ENTITLED FOR CAPITALIZATION OF EXPENDITURE. HOWEVE R, ON APPEAL, THE LD.CIT(A) HAS DELETED 20% OF THE ADDITION MADE BY T HE AO ON THE GROUND THAT THE ASSESSEE MUST HAVE OBTAINED BENEFIT FROM THIS REPORT TO THE EXTENT OF 20% AND IT WAS ENTITLED TO CAPITALIZE THE EXPENDITURE TO THE EXTENT OF 20%. THE ASSESSEE CLAIMED DEPRECIATION O N THE CAPITALIZED AMOUNT OF EXPENDITURE. THAT DEPRECIATION WAS DISAL LOWED TO THE ASSESSEE BY THE AO AND PENALTY PROCEEDINGS HAS BEEN INITIATED. THE LD.AO HAS IMPOSED PENALTY ON THE GROUND FOR WHICH D EPRECIATION HAS BEEN DISALLOWED AND ADDITION OF RS.1,63,25,533/- WA S MADE. 119. SINCE IN THE FOREGOING PARAGRAPHS, WE HAVE ALL OWED THE APPEAL OF THE ASSESSEE QUA CAPITALIZATION OF RS.5,10,17,289/-, WE HAVE HELD T HAT THIS WAS EXPENDITURE INCURRED BY THE ASSESSEE FOR ITS BU SINESS. IT IS A PRE- OPERATIVE EXPENDITURE, AND THE ASSESSEE IS ENTITLED TO CAPITALIZE IT. ONCE THE ASSESSEE HAS BEEN DIRECTED TO CAPITALIZE, THEN IT IS ENTITLED FOR DEPRECATION. 120. WE FIND THAT SUB-CLAUSE (III) OF SECTION 271(1 )(C) PROVIDES MECHANISM FOR QUANTIFICATION OF PENALTY. IT CONTEM PLATES THAT THE ASSESSEE WOULD BE DIRECTED TO PAY A SUM IN ADDITION TO TAXES, IF ANY, PAYABLE HIM, WHICH SHALL NOT BE LESS THAN BUT WHICH SHALL NOT EXCEED ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 90 - THREE TIMES THE AMOUNT OF TAX SOUGHT TO BE EVADED B Y REASON OF CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN OTHER WORDS, THE QUANTIFICATION OF THE PENALTY IS DEPENDED UPON THE ADDITION MADE TO THE INCOME OF THE ASSESSE E. SINCE ADDITION HAS BEEN DELETED, NO PENALTY IMPOSABLE UPON THE ASS ESSEE ON THIS ITEM. 121. NEXT ITEM WHICH HAS BEEN ADDED TO THE TOTAL IN COME OF THE ASSESSEE IS DISALLOWANCE OF CAPITAL LOSS IN RESPECT OF SHARE OF IGSL OF RS.1,75,31,935/-. WE HAVE DISCUSSED THE FACT QUA THIS ISSUE IN QUANTUM ORDER. IT IS PERTINENT TO OBSERVE THAT THE ASSESSE E HAD ENTERED INTO AN AGREEMENT FOR PURCHASE/SALE OF SHARES OF IGSL WITH HUMSAY INFORMATION SERVICES P.LTD. IN OTHER WORDS, CERTAI N EQUITY SHARES AND PREFERENCE SHARES WERE OWNED UP BY THE ASSESSEE AND THE REST WERE TO BE PURCHASED FROM OTHERS, WHICH WERE TO BE SOLD TO SAI D HUMSAY INFORMATION SERVICES. THE ASSESSEE HAS CLAIMED CAP ITAL LOSS ON THIS TRANSACTION. ITS CLAIM WAS REJECTED BY THE AO FOR TWO REASONS VIZ. (A) THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT IT HAS PHYS ICALLY DELIVERED EQUITY SHARES TO THE PURCHASER AND SINCE IT WAS A TRANSACT ION OUT OF STOCK EXCHANGE, THEREFORE, THE TRANSFER COULD BE CONSIDER ED IF PHYSICAL DELIVERY OF SHARES WERE GIVEN. IN HIS SECOND REASONING, HE OBSERVED THAT AFTER THE MAIN AGREEMENT, THERE WAS AN ADDENDUM AND BY VIRTUE OF THAT TRANSACTION HAS TAKEN PLACE IN SUBSEQUENT ASSESSMEN T YEAR. ACCORDING TO THE AO THE ASSESSEE IS NOT ENTITLED FOR THIS CAP ITAL LOSS. THE LD.CIT(A) CONCURRED WITH THE AO. WE HAVE ALSO UPHELD THIS FI NDING AND DISALLOWED THE CLAIM OF LOSS MADE BY THE ASSESSEE. 122. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD. SECTION 271(1)(C) OF THE INCOM E TAX ACT, 1961 HAS ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 91 - DIRECT BEARING ON THE CONTROVERSY. THEREFORE, IT I S PERTINENT TO TAKE NOTE OF THE SECTION. '271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOTIC ES, CONCEALMENT OF INCOME, ETC. (1) THE ASSESSING OFFICER OR THE COMMISSIONER (APPE ALS) OR THE CIT IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT, IS SA TISFIED THAT ANY PERSON (A) AND (B)** ** ** (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME.HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY. (I)AND (INCOME-TAX OFFICER,)** ** ** (III) IN THE CASES REFERRED TO IN CLAUSE (C) OR CL AUSE (D), IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, A SUM WHICH SHALL NOT BE LESS THAN, BUT WHICH SHALL NOT EXCEED THREE TIMES, THE AMOUNT OF T AX SOUGHT TO BE EVADED BY REASON OF THE CONCEALMENT OF PARTICULARS OF HIS INCOME OR FRINGE BENEFIT THE FURNISHING OF INACCURATE PARTICU LARS OF SUCH INCOME OR FRINGE BENEFITS: EXPLANATION 1- WHERE IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR O FFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMM ISSIONER (APPEALS) OR THE CIT TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIA L TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OR SUCH PE RSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C) OF TH IS SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. 123. A BARE PERUSAL OF THIS SECTION WOULD REVEAL T HAT FOR VISITING ANY ASSESSEE WITH THE PENALTY, THE ASSESSING OFFICER OR THE LEARNED CIT(APPEALS) DURING THE COURSE OF ANY PROCEEDINGS B EFORE THEM SHOULD BE SATISFIED, THAT THE ASSESSEE HAS; (I) CONCEALED HIS INCOME OR FURNISHED ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 92 - INACCURATE PARTICULARS OF INCOME. AS FAR AS THE QUA NTIFICATION OF THE PENALTY IS CONCERNED, THE PENALTY IMPOSED UNDER THI S SECTION CAN RANGE IN BETWEEN 100% TO 300% OF THE TAX SOUGHT TO BE EVA DED BY THE ASSESSEE, AS A RESULT OF SUCH CONCEALMENT OF INCOME OR FURNIS HING INACCURATE PARTICULARS. THE OTHER MOST IMPORTANT FEATURES OF T HIS SECTION IS DEEMING PROVISIONS REGARDING CONCEALMENT OF INCOME. THE SEC TION NOT ONLY COVERED THE SITUATION IN WHICH THE ASSESSEE HAS CON CEALED THE INCOME OR FURNISHED INACCURATE PARTICULARS, IN CERTAIN SITUAT ION, EVEN WITHOUT THERE BEING ANYTHING TO INDICATE SO, STATUTORY DEEMING FI CTION FOR CONCEALMENT OF INCOME COMES INTO PLAY. THIS DEEMING FICTION, BY WAY OF EXPLANATION I TO SECTION 271(1)(C) POSTULATES TWO SITUATIONS; ( A) FIRST WHETHER IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME UNDER THE PROVISIONS OF THE ACT, THE ASSESSEE FAILS TO OFFER AN EXPLANATION OR THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE FALSE BY THE ASSESSING OFFICER OR LEARNED CIT(APPEAL); AND, (B) WHERE IN RESPECT OF ANY FACT, MATERIAL TO THE COMPUTATION OF TOTAL INCO ME UNDER THE PROVISIONS OF THE ACT, THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION AND THE ASSESSEE FAILS, TO PROVE THAT S UCH EXPLANATION IS BONA FIDE AND THAT THE ASSESSEE HAD DISCLOSED ALL THE FA CTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME . UNDER FIRST SITUATION, THE DEEMING FICTION WOULD COME TO PLAY I F THE ASSESSEE FAILED TO GIVE ANY EXPLANATION WITH RESPECT TO ANY FACT MA TERIAL TO THE COMPUTATION OF TOTAL INCOME OR BY ACTION OF THE ASS ESSING OFFICER OR THE LEARNED CIT(APPEALS) BY GIVING A CATEGORICAL FINDIN G TO THE EFFECT THAT EXPLANATION GIVEN BY THE ASSESSEE IS FALSE. IN THE SECOND SITUATION, THE DEEMING FICTION WOULD COME TO PLAY BY THE FAILURE O F THE ASSESSEE TO SUBSTANTIATE HIS EXPLANATION IN RESPECT OF ANY FACT MATERIAL TO THE ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 93 - COMPUTATION OF TOTAL INCOME AND IN ADDITION TO THIS THE ASSESSEE IS NOT ABLE TO PROVE THAT SUCH EXPLANATION WAS GIVEN BONA FIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N OF THE TOTAL INCOME HAVE BEEN DISCLOSED BY THE ASSESSEE. THESE TWO SITU ATIONS PROVIDED IN EXPLANATION 1 APPENDED TO SECTION 271(1)(C) MAKES I T CLEAR THAT THAT WHEN THIS DEEMING FICTION COMES INTO PLAY IN THE AB OVE TWO SITUATIONS THEN THE RELATED ADDITION OR DISALLOWANCE IN COMPUT ING THE TOTAL INCOME OF THE ASSESSEE FOR THE PURPOSE OF SECTION 271(1)(C ) WOULD BE DEEMED TO BE REPRESENTING THE INCOME IN RESPECT OF WHICH INAC CURATE PARTICULARS HAVE BEEN FURNISHED. 124. IN THE LIGHT OF THE ABOVE, IF WE EXAMINE THE F ACTS OF THE PRESENT CASE, THEN IT WOULD REVEAL THAT THE ASSESSEE HAS EN TERED INTO TRANSACTION FOR TRANSFER OF SUCH SHARES ON 1.2.2008. IT CONSTR UED THE TRANSACTION AS TAKEN PLACE IN THE ASSTT.YEAR 2008-09; WHEREAS THE AO DISAGREED WITH THE ASSESSEE ON THE GROUND THAT PHYSICAL DELIVERY O F SHARES AS WELL AS PAYMENT HAS TAKEN PLACE IN SUBSEQUENT ASSESSMENT YE AR I.E. IN APRIL, 2008. THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR CLAIMING THE LOSS IN THE ASSTT.YEAR 2008-09. TO OUR MIND, THE ASSESSEE HAS NOT WITHHELD ANY INFORMATION. IT IS A DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AS WELL AS THE AO ABOUT THE ALLOWABILITY OF LOSS IN A PARTICUL AR YEAR. IT DOES NOT DESERVE TO BE VISITED WITH PENALTY ON SUCH ASPECT. THEREFORE, WE ALLOW THE APPEAL OF THE ASSESSEE AND DELETE PENALTY IMPOS ED ON THE ASSESSEE ON BOTH THE ISSUES. ITA NO.1379 AND 1380/AHD/2009 AND 13 OTHERS GUJARAT FLUOROCHEMICALS LTD. VS. ACIT - 94 - 125. IN VIEW OF THE ABOVE DISCUSSION, APPEALS OF TH E REVENUE ARE DISMISSED, WHEREAS APPEALS OF THE ASSESSEE ARE PART LY ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 28 TH JUNE, 2019. SD/- SD/- (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER