Transport Corporation of India Ltd., Hyd, Secunderabad V. ACIT, Circle-2(2), Hyderabad, Hyderabad

ITA 117/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6239 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-08-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 05-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Keywords: Business income; Transfer pricing; International transaction; Earning of tax free income; Bad and doubtful debts; Accommodation entries; Notional interest; Onus to prove; Revised return; Revenue expenditure
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 117/HYD/2016 ASSESSMENT YEAR: 2011-12 TRANSPORT CORPORATION OF INDIA LTD., SECUNDERABAD. PAN AAACT 7966 R VS. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 2(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI Y. RATNAKAR REVENUE BY : SHRI V. SRINIVAS DATE OF HEARING 04-08-2016 DATE OF PRONOUNCEMENT 21-09-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER PASSED U/S SECTION 143(3) R.W.S. 92CA(4) R.W.S 144C OF THE IT ACT, 1961, FOR AY 2011-12. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS ENGAGED IN THE TRANSPORTATION OF GOODS, LOGISTICS INCLUDING SH IPPING BUSINESS AND GENERATION OF ENERGY. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2011-12 ON 27/09/2011 DECLARING A TOTAL INCOME O F RS. 66,79,28,524/- AFTER CLAIMING CHAPTER VI-A DEDUCTIO N OF RS. 77,21,200/-. THE RETURN WAS REVISED BY THE ASSESSEE ON 22/03/2013 WHEREIN THE INCOME HAS BEEN REVISED TO RS. 66,11,39 ,219/- AFTER CLAIMING CHAPTER VI-A DEDUCTION OF RS. 1,45,00,505/ -. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. THE ASSESSEE 2 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. FURNISHED THE INFORMATION CALLED FOR FROM TIME TO T IME AGAINST THE ISSUANCE OF STATUTORY NOTICES U/S 143(2) AND 142(1) OF THE ACT. 2.1 DURING THE SCRUTINY PROCEEDINGS, IT WAS NOTICE D THAT THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANSACTION S WITH ASSOCIATED ENTERPRISES AMOUNTING TO RS. 19,39,92,795/- FOR THE FINANCIAL YEAR 2010-11. AS PER SECTION 92CA OF INCOME TAX ACT, 19 61 THE CASE WAS REFERRED TO ADDL. COMMISSIONER OF INCOME TAX (TRANS FER PRICING) WITH THE PRIOR APPROVAL OF COMMISSIONER OF INCOME TAX-II , HYDERABAD ON 19-09-2013. ON RECEIPT OF THE ORDER DTD:27.01.2015 OF THE TPO, A DRAFT ASSESSMENT ORDER WAS PASSED ON 30.03.2015 ASS ESSING THE INCOME OF THE ASSESSEE AT RS. 72,65,46,424 / -. THE ABOVE MENTIONED DRAFT ORDER WAS SERVED ON THE ASSESSEE ON 30.03.201 5. AGGRIEVED BY THE ADDITIONS MADE IN THE DRAFT ASSESSMENT ORDER DT D: 30.03.2015, THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLU TION PANEL ON 27.04.2015. THE DRP ISSUED DIRECTIONS U/S. 144C(5) OF THE ACT VIDE ITS ORDER DTD: 09.12.2015 WHICH WAS RECEIVED BY THE AO ON 15/12/2015. ACCORDINGLY THE ASSESSMENT INCORPORATIN G THE DIRECTIONS OF THE DRP IS COMPLETED AS PROVIDED U/ S. 144C(13) OF THE INCOME TAX, 1961 BY MAKING VARIOUS ADDITIONS, WHICH ARE DE ALT WITH AS UNDER: 3. AS REGARDS THE ADDITION OF RS. 21,23,380/- ON A CCOUNT OF ALP ADJUSTMENT U/S 92C(3) (RAISED IN GROUND NOS. 4 TO 6 )., IT IS OBSERVED THAT THE ORDER U/S.92CA(3) OF THE INCOME TAX ACT, 1 961 WAS PASSED BY THE JCIT (TP), HYDERABAD ON 27.01.2015 PROPOSING AN ADJUSTMENT OF ARM LENGTH INTEREST ON LOAN ADVANCED TO SUBSIDIA RIES AND JV AT RS. 1,49,61,212/-. SUBSEQUENTLY, AN ORDER U/S.92CA( 5) R.W.S 154 OF THE IT. ACT WAS PASSED ON 19.02.2015 REVISING ALP O N LOAN ADVANCED TO SUBSIDIARIES AND JV TO RS. 21,23,380/-. IN THE D RAFT ASSESSMENT ORDER, AS PER THE REVISED ADJUSTMENT PROPOSED, RS. 21,23,380/ - WAS ADDED TO THE ASSESSEES TOTAL INCOME. THE ASSESSEE FILED OBJECTION BEFORE THE DRP, WHO CONFIRMED THE SAID ALP ADJUSTME NT OF RS. 21,23,380/-. 3 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. 4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. BEFORE US, THE AR OF THE ASSESSEE SUBMITTED THAT THE AMOUNTS ADVANCED ARE FROM OUT OF INTEREST FREE FUNDS OF ASS ESSEE, HENCE, CALCULATION OF INTEREST IS UNCALLED FOR. HE SUBMITT ED THAT GIVING ADVANCE TO 100% WHOLLY OWNED SUBSIDIARIES IS LIKE G IVING ADVANCE TO ONE SELF. CHARGING INTEREST ON SUCH ADVANCE IS WHOL LY DISCRETIONARY. HE SUBMITTED THAT IN RESPECT OF JOINT VENTURE COMPA NY 10% INTEREST RATE HAS ALREADY BEEN APPLIED AND, THEREFORE, NO FU RTHER ADDITION IS NECESSARY. HE SUBMITTED THAT IN RESPECT OF 100% OWN ED SUBSIDIARIES EVEN IF ANY NOTIONAL INTEREST HAS TO BE CALCULATED AND ADDED, CALCULATION OF INTEREST SHOULD BE RESTRICTED TO LIB OR RATE ONLY. IF INTEREST IS TO BE CALCULATED AT LIBOR RATE, THE INT EREST AMOUNT WORKS OUT TO RS. 1,44,114/-. IF THE SAME IS CALCULATED AT LIBOR RATE + 2% THE INTEREST AMOUNT WORKS OUT TO RS. 4,56,336/-. HE RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF THE LIBOR RATE: 1. MICROMAX INFORMATICS LTD., VS. DCIT, ITAT, DELH I BENCH, [2015] 1545 ITD 156. 2. PMP AUTO COMPONENTS (P) LTD., VS. DCIT, [2014] 50 TAXMANN.COM 272 (MUM.). 3. SIVA VENTURES LTD. VS. ACIT, ITAT, CHENNAI BENC H. 5.1 LD. AR SUBMITTED THAT THE DRP IGNORED ALL THE T RIBUNAL DECISIONS IN SPITE OF THE SAME BEING REFERRED DURING HEARING. THE REASONING GIVEN FOR NOT APPLYING LIBOR RATE IS THAT THE LOANS GIVEN THOUGH IN DOLLARS IS DEBITED IN RUPEES BY THE ASSESSEE BANK. HE SUBMITTED THAT THROUGHOUT THE COUNTRY ANY LOAN GIVEN IN FOREIGN EX CHANGE IS ONLY DEBITED TO THE LENDERS ACCOUNT IN INDIAN RUPEES AT THE RATE PREVAILING ON THE DATE OF TRANSACTION. IF THE REASONING OF THE DRP IS TO BE FOLLOWED THEN LIBOR RATE WILL BE INAPPLICABLE TO IN DIA. HE, THEREFORE, SUBMITTED THAT THE REASONING OF DRP IS IRRATIONAL, ABSURD AND PERVERSE. 6. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ERS OF REVENUE AUTHORITIES. 4 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. 7. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD. THE TRANSACTION UNDER CONSIDERATION IS INTERNATIONAL TRANSACTION AS THE ASSESSEE LENT MONE Y TO ITS AES. THE ECONOMIC ACTIVITIES HAPPENING IN THE INTERNATIONAL MARKET IS IMPORTANT RATHER THAN ECONOMIC IMPACT IF THE LOAN IS ADVANCED IN INDIAN RUPEES. IT IS FACT THAT THESE TRANSACTIONS ARE COMPARED WIT H UNCONTROLLED ENVIRONMENT TO DETERMINE ALP. THE FACT THAT ADVANCE WAS LENT OUTSIDE INDIA THE INTEREST RATE PREVAILING IN THE I NTERNATIONAL MARKET IS RELEVANT. THE DRP/TPO ARGUES THAT THESE LOANS WERE ORIGINATED IN INDIAN CURRENCY AND RECORDED, AS SUCH, IN THE ASSES SEES BOOKS. HENCE, IT HAS TO BE ANALYSED IN THE INDIAN ALP IS N OT ACCEPTABLE. THE MONEY LENT OUTSIDE INDIA IS ALWAYS CONVERTED INTO F OREIGN CURRENCY AND ACCORDINGLY RECORDED. BUT, HOW THE AE HAD RECOR DED. OBVIOUSLY NOT IN INDIAN CURRENCY. SINCE, ACTUAL UTILISATION O F THE FUNDS WERE OUTSIDE INDIA, OBVIOUSLY, THE ALP OF THIS KIND ALSO TO BE DETERMINED APPLYING THE INTERNATIONAL MARKET CONDITION. HENCE, WE FOLLOW THE CONSISTENT VIEW OF THE VARIOUS TRIBUNALS, IN PARTIC ULAR, THE CASE OF PMP AUTO COMPONENTS (P) LTD. VS. DCIT [2014] 50 TAX MANN.COM 272 (MUM.) WHEREIN THE COORDINATE BENCH HAS HELD THAT T HE ASSESSEE IS A TESTED PARTY AND ECONOMIC/COMMERCIAL AS WELL AS GEO GRAPHICAL CONDITION IN WHICH THE ASSESSEE IS DOING BUSINESS A RE RELEVANT TO BE CONSIDERED FOR THE PURPOSE OF DETERMINING THE ARMS LENGTH PRICE. THEREFORE, WE DIRECT THE TPO TO ARRIVE AT THE ALP O F THESE TRANSACTIONS APPLYING LIBOR + 200 POINTS. ACCORDING LY THIS GROUND OF THE ASSESSEE IS ALLOWED. 8. AS REGARDS DISALLOWANCE U/S 14A READ WITH RULE 8 D OF RS. 29,66,259/- (GROUNDS NO. 7 TO 10), THE AO MADE A DI SALLOWANCE OF RS. 29,66,259/- U/S 14A READ WITH RULE 8D AS UNDER: A) INDIRECT INTEREST EXPENDITURE RS. 22,55,973 B) 0.5% OF AVERAGE VALUE OF EXEMPT INVESTMENT RS. 7,10,286 RS. 29,66,259 5 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. 8.1 DURING THE PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE MADE INVESTMENTS OF RS. 12,84,52,151/- THE INCOME FROM W HICH IS EXEMPT FROM TAXATION. THEREFORE, THE ASSESSEE WAS ASKED AB OUT WHY 14A DISALLOWANCE NOT BE MADE ON THE ABOVE SAID INVESTME NTS VIDE ORDER SHEET NOTING DATED 23/11/2013. THE AR SUBMITTED AS UNDER: AS REGARDS APPLICABILITY OF SECTION 14A WE STATE T HAT NO PART OF THE BORROWINGS HAVE BEEN UTILIZED BY US FOR THE PUR POSE OF ACQUISITION OF ANY INVESTMENTS IN SHARES. YOU WILL KINDLY SEE THAT AGGREGATE OF OUR SHARE CAPITAL AND RESERVES AND SUR PLUS AMOUNT TO RS. 315.29 CRORES AS AGAINST INVESTMENT IN SHARE S AMOUNTS TO RS. 29.11 CRORES ONLY AS ON 31.03.2011, WHICH ARE L ESS THAN OUR OWNED FUNDS, IT IS THEREFORE CLEAR THAT NO BORROWIN GS HAVE BEEN UTILIZED FOR ACQUISITION OF INVESTMENT IN SHARES AN D THEREFORE QUESTION OF DISALLOWANCE OF ANY PART OF INVESTMENT IN SHARES AND THEREFORE QUESTION OF DISALLOWANCE OF ANY PART OF I NTEREST DOES NOT ARISE. A REFERENCE MAY BE MADE IN THIS CONNECTI ON TO THE BOMBAY HIGH COURT DECISION IN CIT U. RELIANCE UTILI TIES AND POWER LTD. 313 ITR 340. WHERE OWN FUNDS ARE GREATER THAN THE INVESTMENT IN SHARES IT SHOULD BE PRESUMED THAT INV ESTMENT HAVE COME OUT OF OWN FUNDS, IT MAY ALSO BE NOTED THAT TH E AMOUNTS OF INVESTMENTS HAS REDUCED DURING THE YEAR. THE ENTIRE BORROWINGS HAVE BEEN USED FOR GIVING LOANS AND ADVANCES AND FO R OTHER BUSINESS PURPOSES. WE MAY ALSO POINT OUT THAT MANY OF THE INVESTMENT I N SHARES ARE IN DEMAT FORM AND DIVIDEND THEREON IS ELECTRONICALL Y CREDITED TO OUR BANK ACCOUNT DIRECTLY. ACCORDINGLY NO EXPENDITU RE DURING THE YEAR HAS BEEN INCURRED IN THE ROUTINE COURSE OF BUS INESS. 8.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE, THE AO OBSERVED THAT THE ASSESSEE MAY HAVE LARGE RESERVES WHICH COULD BE DEPLOYED BY IT IN ANY MANNER OF ITS CHOICE. STILL, IF IT EMPLOYS BORROWED FUNDS FOR MAKING INVESTMENTS WHICH YIELD T AX EXEMPT INCOME, PROVISIONS OF SECTION 14A ARE INVOKABLE. WH EN THERE IS A DIRECT AND PROXIMATE CONNECTION BETWEEN THE INVESTM ENTS AND BORROWED FUNDS, DISALLOWANCE IS WARRANTED. THE AO C OMPUTED DISALLOWANCE OF EXPENDITURE UNDER RULE 8D AS UNDER: A = 11,70,31,307 (INTEREST EXPENSES NOT DIRECTLY ATTRIBUTABLE TO PAR TICULAR RECEIPT) DESCRIPTION ON LAST DAY OF PY ON FIRST DAY OF PY AVERAGE B= EXEMPT 12,84,52,151 15,56,62,151 14,20,57,151 6 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. INVESTMENTS C=TOTAL ASSETS 7,49,96,07,451 7,23,91,67,498 7,36,93,87,474 I) DIRECT EXPENDITURE 0 II) INDIRECT INTEREST EXPENDITURE (AXB/C 22,55,973 III) 0.5% AVERAGE VALUE OF EXEMPT INVESTMENT 7,10,2 86 DISALLOWANCE U/S 14A 29,66,259 8.3 WHEN THE ASSESSEE RAISED OBJECTIONS BEFORE THE DRP, THE DRP CONFIRMED THE DISALLOWANCE MADE BY THE AO U/S 14A R .W.R. 8D. 9. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT ALL DIVIDENDS ARE DIRECTLY CREDITED INTO THE BANK ACCOU NT. THE COST OF COLLECTION IS NIL. THE ENTIRE INVESTMENT IS MADE OU T OF INTEREST FREE FUNDS. HE SUBMITTED THAT THE TOTAL INVESTMENT IN S HARES FROM WHICH DIVIDEND RECEIVED IS RS. 4,80,47,496 AGAINST OWN F UNDS OF RS.315.29 CRORES. THE ASSESSEE COMPANY DID NOT HAVE TO BORROW ANY FUNDS PAYING INTEREST FOR MAKING THE INVESTMENT. 9.1 COMING TO THE DISALLOWANCE OF 0.5%, LD. AR SUB MITTED THAT EVEN IF ANY DISALLOWANCE IS WARRANTED IT SHOULD BE CALCULATED ON THE VALUE OF INVESTMENT' IN RESPECT OF 'WHICH INCOME IS RECEIVED DURING THE YEAR AND NOT ON THE TOTAL VALUE OF. INVESTMENT REGA RDLESS WHETHER ANY INCOME IS RECEIVED OR NOT. THE LD. AR RELIED ON DEC ISION OF THE DELHI HIGH COURT IN ACB INDIA LTD. VS, A.C.I.T REPORTED I N 374 ITR 108 IN SUPPORT. 9.2 LD. AR SUBMITTED THAT IF 0.5% DISALLOWANCE UND ER RULE 8D OF THE I.T. RULES IS RESTRICTED TO THE INVESTMENT IN R ESPECT OF WHICH THE DIVIDEND IS ACTUALLY RECEIVED, THE AMOUNT TO BE DIS ALLOWED WORKS OUT AS UNDER: 0.5% OF RS. 4,80,47,496 = RS. 2,40,237 HE THEREFORE CONTENDED THAT THE CALCULATION MADE BY THE AO AT 0.5% ON RS. 14,20,57,151 AT RS. 7,10,286 IS ERRONEOUS. H E SUBMITTED THAT THE AO ERRED IN MAKING THE DISALLOWANCE STRAIGHT AW AY BY APPLYING 7 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. RULE 8D OF THE IT RULES WITHOUT CONSIDERING THE COR RECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED IN RELATION TO THE EXEMPT INCOME. 9.3 THE LD. AR CONTENDED THAT THERE IS NO PROXIMAT E CAUSE FOR THE DISALLOWANCE IN RELATION TO THE TAX EXEMPT INCOME. SECTION 14A OF THE I.T ACT THEREFORE CANNOT BE INVOKED IN THE PRESENT CASE. HE SUBMITTED THAT WHERE OWN FUNDS ARE MORE THAN THE AMOUNT OF IN VESTMENT YIELDING EXEMPT INCOME, IT MUST BE PRESUMED THAT TH E FUNDS FOR . INVESTMENT HAVE COME FROM OWN FUNDS, THIS HAS BEEN SO HELD IN: A) CIT VS. RELIANCE UTILITIES & POWER LTD. - 313 I TR 340 B) CIT VS. SUZLON ENERGY LTD. - 354 ITR 630 C) CIT VS. HDFC BANK LTD. - 366 ITR 505 D) CIT VS. KAPSONS ASSOCIATES - 381 ITR 204(P&H) 9.4 LD. AR SUBMITTED THAT THE ACTUAL EXPENDITURE TH AT IS IN CONTEMPLATION U/S 14A(1) OF THE ACT IS THE 'ACTUAL' EXPENDITURE IN RELATION TO OR IN CONNECTION WITH OR PERTAINING TO EXEMPT INCOME. THE COROLLARY TO THIS IS THAT IF NO EXPENDITURE IS INCU RRED IN RELATION TO THE EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. KIND ATTENTION IS INVITED TO THE DECISION OF THE DE LHI HIGH COURT IN MAXOPP INVESTMENT LTD. VS. CIT REPORTED IN 347 ITR 272. 9.5 HE RELIED ON THE FOLLOWING CASE LAWS: 1. CIT VS. METALMAN AUTO PVT. LTD. (2011) 336 ITR 434 (P&H) 2. WIMCO SEEDLINGS LTD. VS. DCIT, 293 ITR AT 216 (DELHI.) 3. CIT VS. EICHER LTD. [2016] 101 TTJ 369 (DEL.) 4. CIT VS. DEEPAK MITTAL [2013] 361 ITR 131 (P&H) 5. CIT VS. CONSOLIDATED PHOTO & FINVEST LTD., [201 3] 358 ITR 310(DEL.) 10. LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORI TIES. 11. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD. THE AR SUBMITTED THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS WHICH ARE INTEREST FREE TO MAK E INVESTMENT. HE 8 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. ALSO RELIED ON VARIOUS DECISIONS, IN PARTICULAR, RE LIANCE UTILITIES & POWER LTD. (SUPRA). WE CANNOT TAKE THIS ARGUMENT FU RTHER BECAUSE THERE EXIST INTEREST BEARING FUNDS AND IT IS DIFFIC ULT TO IDENTIFY THE UTILIZATION OF THE FUNDS IN THE BUSINESS UNLESS THE ASSESSEE BRINGS PROPER RECORDS TO SHOW THAT THE SPECIFIC INTEREST F REE FUNDS WERE UTILIZED TO ACQUIRE THE INVESTMENT WHICH ARE EXEMPT FROM TAX. IN THE PRESENT CASE, IT IS DIFFICULT TO IDENTIFY THE FUNDS UTILIZATION CONSIDERING THE COMPLICATED STRUCTURE OF THE BUSINESS. TO ADDRE SS THIS ISSUE, THE LEGISLATURE HAS INTRODUCED RULE 8D FOR CALCULATION OF DISALLOWANCE RELATING TO DIRECT EXPENSES ASSOCIATED WITH THE EXE MPT INCOME, INTEREST RELATING TO THE INVESTMENT AND ADMINISTRAT IVE EXPENSES. 11.1 WHILE CAREFULLY READING THE RULE 8D(2)(II), TH E FORMULA GIVEN ARE: A X B/C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) IN CURRED DURING THE PREVIOUS YEAR: B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOT AL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF T HE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING I N THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; IN PARTICULAR, THE NOTES FOR B CLEARLY STATES THA T THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. IT IS CLEAR THAT WE HAVE TO INCLUDE T HOSE INVESTMENTS WHICH HAS GENERATED INCOME AND EXCLUDE THOSE INVEST MENTS, WHICH HAVE NOT GENERATED INCOME. IN THE PRESENT CASE, AO HAD TAKEN THE TOTAL INVESTMENT INSTEAD OF THOSE INVESTMENTS, WHIC H HAVE GENERATED INCOME. ACCORDINGLY, WE DIRECT THE AO TO CALCULATE THE DISALLOWANCE OF INTEREST AS BELOW ( AS PER RULE 8D): 9 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. INTEREST X INVESTMENT( WHICH GENERATED INCOME) AVERAGE TOTAL ASSETS THE MAIN REASON IS THAT AS PER SECTION 14A, NO DEDU CTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE A SSESSEE IN RELATION TO INCOME, WHICH IS EXEMPT FROM TAX. THE RELEVANCE IS THE EXPENDITURE IN RELATION TO INCOME. THE QUANTIFICATION HAS TO BE UNDERTAKEN IN RELATION TO THE EXEMPT INCOME. THE INVESTMENT WHICH HAS NOT GENERATED EXEMPT INCOME SHOULD BE EXCLUDED FROM THE CALCULATION OF RATIO TO DETERMINE THE DISALLOWANCE. 11.2 SIMILARLY, FOR THE ADMINISTRATIVE EXPENSES, 0. 5% OF AVERAGE INVESTMENTS FROM WHICH THE EXEMPT INCOME IS RECEIV ED SHOULD BE CONSIDERED INSTEAD OF AVERAGE OF THE TOTAL INVESTME NTS. 11.3 CONSIDERING THE ABOVE DISCUSSION, WE DIRECT TH E AO TO RECALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE ABOVE GUIDANCE. ACCORDINGLY, GROUND RAISED BY ASSESSEE IS ALLOWED. 12. AS REGARDS THE DISALLOWANCE OF COMMISSION PAYME NT OF RS. 36,25,927/- (GROUND NOS. 11 & 12), FROM THE PROFIT & LOSS A/C OF THE ASSESSEE FOR THE YEAR 2010-11 UNDER CONSIDERATION, THE AO OBSERVED THAT AN AMOUNT OF RS. 2,22,58,268/- WAS DEBITED TOW ARDS COMMISSION. IN THIS REGARD, THE AR OF THE ASSESSEE WAS ASKED TO PRODUCE THE DETAILS OF COMMISSION PAID. THE AR OF T HE ASSESSEE PRODUCED THE DETAILS OF COMMISSION PAYMENTS VIDE HI S LETTER DATED 23/10/2013. 12.1 DURING THE SCRUTINY PROCEEDINGS OF THE ASSESSE E'S OWN CASE FOR THE A.Y. 2010-11, THE THEN ASSESSING OFFICER, TRACK ED THE COMMISSION PAID TO MR. CP. SHARMA. EVEN INSISTED, THE AR OF TH E ASSESSEE, TO PRODUCE MR. CP SHARMA IN PERSON BEFORE THE ASSESSIN G OFFICER, THE SAME WAS NOT DONE. THIS YEAR ALSO THE AR OF THE ASS ESSEE WAS ASKED TO PRODUCE THE SAME PERSON WHICH HE COULD NOT MAKE IN REALITY. 10 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. 12.2 WHEN THESE ISSUES WERE CONFRONTED TO THE AR, H E SUBMITTED THAT THE PAYMENTS ARE MADE THROUGH BANK ONLY. IN SU PPORT OF HIS CLAIM, THE AR SUBMITTED BANK ACCOUNT STATEMENT OF T HE ASSESSEE THROUGH WHICH THE SAID COMMISSION WAS PAID. HOWEVER , THE ASSESSEE DID NOT PRODUCE SHRI CP SHARMA NOR COMMUNICATED THE REASONS FOR SUCH NONPRODUCTION. IN LIGHT OF THE ABOVE, INFERENC E IS DRAWN THAT MR CP. SHARMA DID NOT CARRY OUT ANY WORK FOR THE ASSES SEE AND THE PAYMENTS THROUGH BANK MIGHT BE FOR THE PURPOSE OF P ROVIDING ACCOMMODATION ENTRIES TO THE ASSESSEE. MERELY BECAU SE, PAYMENT IS MADE THROUGH CHEQUE, THE PAYMENT CANNOT BE ACCEPTED AS GENUINE. PAYMENT THROUGH BANK IS MANDATORY AS OTHERWISE, THE ASSESSEE WOULD BE LEGALLY INELIGIBLE FOR MAKING CLAIM OF EXP ENDITURE. HOWEVER, IN ANY ACCOMMODATION TRANSACTION THERE COULD BE REP AYMENT OF THE AMOUNTS RECEIVED THROUGH CHEQUES FOR A MINOR CONSID ERATION. WHEN MR. C.P SHARMA EVEN DOES NOT HAVE PAN AND HE COULD NOT BE PRODUCED FOR VERIFICATION, IT IS DIFFICULT TO BELIE VE THAT HE IS CAPABLE OF DOING LARGE SCALE BUSINESS WITH THE ASSESSEE. THERE FORE, THE COMMISSION PAYMENT SHOWN IN THE NAME OF MR. CP SHAR MA IS TREATED AS NOT GENUINE PAYMENT AND THE AMOUNT OF RS 36,25,9 27/- IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 13. AGGRIEVED BY THE ABOVE DISALLOWANCE, THE ASSES SEE FILED OBJECTION BEFORE THE DRP, WHO CONFIRMED THE ACTION OF THE AO. 14. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTE D THAT A SUM OF RS.36,25,927 IS PAID AS COMMISSION TO ONE MR. CHAND RA PRAKASH SHARMA(C.P.SHARMA). THIS COMMISSION PAYMENT IS A G ENUINE PAYMENT INCURRED FOR BUSINESS PURPOSES AND IT IS PA ID UNDER SEVERAL CROSSED ACCOUNT PAYEE CHEQUES. THE COMMISSION IS PA ID FOR THE BUSINESS PROCURED BY MR.C.P.SHARMA AGGREGATING TO R S.2,37,67,219 DURING THE FINANCIAL YEAR 2010-11. THIS BUSINESS WA S DONE AT THE XPS DIVISION OF MEERUT AND BADDI BRANCHES. THE FOLLOWI NG EVIDENCE WAS PRODUCED IN SUPPORT OF THE PAYMENT MADE: 11 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. A) CERTIFICATE FROM HDFC BANK CONFIRMING THE PAYMEN T BY CHEQUES TO MR.C.P.SHARMA AND CREDITED TO HIS ACCOUN T (PAGES 56 & 57 OF VOL. 1) B) STATEMENT ISSUED BY THE APPELLANT COMPANY GIVING THE DETAILS OF PAYMENTS MADE TO MR.C.P.SHARMA AND THE DETAILS O F TDS DEDUCTED AND PAID (PAGES 58 TO 60 OF VOL. 1) C) STATEMENT SHOWING THE DETAILS OF BUSINESS'. DONE THROUGH MR.C.P.SHARMA FOR PAYMENT OF COMMISSION (PAGE 37 OF VOL. II) 14.1 THE LD. AR SUBMITTED THAT MR. C.P. SHARMA DOE S NOT HAVE P.A. NUMBER. HENCE IN RESPECT OF PAYMENTS MADE TDS IS DE DUCTED AT THE RATE AS APPLICABLE. HE SUBMITTED THAT THE ASSESSEE COMPANY FILED TDS STATEMENTS GIVING THE DETAILS OF DEDUCTION OF T AX AT SOURCE. MR. SHARMA IS NOT AN EMPLOYEE OF THE ASSESSEE COMPANY. HE HAS ENOUGH CONTACTS TO BRING THE BUSINESS WHICH THE ASSESSEE C OMPANY UTILIZED. THE PAYMENT OF COMMISSION IS A NORMAL TRA DE PRACTICE IN THIS LINE OF BUSINESS AND EVERY TRANSPORT COMPANY PAYS C OMMISSION FOR PROCURING BUSINESS. NO SUMMONS WERE GIVEN TO MR.C. P. SHARMA FOR HIS APPEARANCE BY THE ASSESSING OFFICER. ON THE SOL E GROUND THAT MR.C.P.SHARMA WAS NOT PRESENT BEFORE THE ASSESSING OFFICER AND HE DOES NOT HAVE A P.A NUMBER THE ENTIRE PAYMENT WAS D ISALLOWED. THE LD. AR INVITED BENCH ATTENTION TO THE PAGES 54 TO 6 0 OF VOL. 1 AND PAGES 36 & 37 OF VOL. II. 14.2 THE LD. AR SUBMITTED THAT IT IS NOT POSSIBLE FOR THE ASSESSEE TO ENFORCE THE ATTENDANCE OF MR.C.P.SHARMA. MORE OVER HIS SERVICES WERE DISCONTINUED IN THE LATER YEARS. WITHOUT ISSUE OF SUMMONS MR.C.P.SHARMA WOULD NOT APPEAR BEFORE THE ASSESSING OFFICER AND NO SUMMONS WERE ISSUED DURING THE ASSESSMENT YEAR. NO ATTEMPT WAS MADE TO EXAMINE HIM ON COMMISSION AT MEERUT (PLACE OF RESIDENCE OF MR. C.P.SHARMA). 14.3 THE LD. AR SUBMITTED THAT ON THE BASIS OF THE ABOVE FACTS THE ASSESSEE DISCHARGED ITS BURDEN OF PROOF IN ESTABLIS HING THE IDENTITY OF PAYEE, THE REASON FOR MAKING THE PAYMENT AND PROOF OF PAYMENT. IT IS THEREFORE SUBMITTED THAT THE DISALLOWANCE IS ERRONE OUS. 12 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. 14.4 WITHOUT PREJUDICE TO THE ABOVE, THE LD. AR SUB MITTED THAT EVEN IF ANY DISALLOWANCE IS CALLED FOR THE ENTIRE AMOUNT SH OULD NOT HAVE BEEN DISALLOWED AND A REASONABLE AMOUNT SHOULD HAVE BEEN ALLOWED. 15. LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORIT IES. 16. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND MATERIAL FACTS ON RECORD. LD. AR SUBMITTED THAT THE COMMISSI ON WAS PAID THROUGH BANKING CHANNELS AND PROPERLY CREDITED IN T HE ACCOUNT OF SHRI C.P. SHARMA AND SINCE, MR. SHARMA DOES NOT HAVE ANY PAN, AT THE RATE OF 20% WAS DEDUCTED AND CREDITED IN THE CENTRA L GOVT. ACCOUNT. EVEN THOUGH PROPER PROCEDURE IS FOLLOWED AND PROVED THE GENUINENESS OF THE EXPENDITURE, AT THE SAME TIME, B ASED ON THE DIRECTIONS OF REVENUE AUTHORITIES, ASSESSEE FAILED TO PRODUCE SHRI C.P. SHARMA AND NO PROPER REASONS WERE SUBMITTED. I N OUR OPINION, THE GENUINENESS OF THE TRANSACTION SHOULD BE PROVID ED BEYOND DOUBT. THERE HAS TO BE LIVE LINK WITH THE BUSINESS OF THE ASSESSEE AND THE EXPENDITURE INCURRED, THE ASSESSEE SHOULD ALSO BE I N A POSITION TO PROVE THE EXPENDITURE WITH PROPER RECORDS BEYOND DO UBT. THE ASSESSEE HAS SUBMITTED BEFORE US THE DETAILS OF COM MISSION PAYMENT (REFER PAGE 37 OF THE PAPER BOOK). FROM THE ABOVE S TATEMENT, WE HAVE NOTICED THAT ASSESSEE HAD PAID 15% OF FREIGHT AS COMMISSION PAYMENT AND DEDUCTED 20% AS TDS OUT OF THE COMMISSI ON. CONSIDERING THE HIGH VALUE TRANSACTION, AND SUCH PE RSON DOES NOT HAVE PAN, IT DOES RAISE EYE BROWS. THE ASSESSEE HAS TO PROVE THAT SUCH PERSONS EXISTS AND WHY HE DOES NOT HAVE PAN EV EN THOUGH HAVING HIGH VALUE TRANSACTION. UNLESS ASSESSEE PROV ES THE GENUINENESS OF EXISTENCE OF SUCH PERSON, IT CANNOT BE HELD AS GENUINE MERELY BECAUSE IT PAID RELEVANT TDS. ACCORD INGLY, WE ARE BOUND TO ACCEPT THE FINDINGS OF THE DRP AND HENCE, GROUND RAISED BY THE ASSESSEE IS REJECTED. 17. AS REGARDS DISALLOWANCE OF SHARE EXPENSES OF RS . 17,76,884/- (GROUND NOS. 13 & 14), DURING THE PROCEEDINGS, IT W AS NOTICED THAT A CLAIM IS MADE U/ S 35D FOR AMORTIZATION OF SHARE IS SUE EXPENSES. THE 13 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. CLAIM IS FOR RS 17,73,884/-. VERIFICATION REVEALS T HAT THE CLAIM U/S 35D IS NOT ALLOWABLE BECAUSE THE SHARE ISSUE WAS NOT FO R PUBLIC SUBSCRIPTION. DURING F. Y 2007-08, SHARES WERE ALLO TTED BY ASSESSEE TO FID FUNDS (MAURITIUS) LTD ON PREFERENTIAL BASIS. THE ISSUE WAS PRIVATE PLACEMENT ISSUE. THEREFORE, THEY ARE NOT CO VERED U/S 35D(2)(C)(IV) THAT IS IN CONNECTION WITH THE ISSUE , FOR PUBLIC SUBSCRIPTION, OF SHARES'. MERELY BECAUSE, AN INCORR ECT CLAIM WAS ACCEPTED IN AN EARLIER YEAR, THE CLAIM WOULD NOT BE VALIDATED. THEREFORE, THE CLAIM U/S 35D IS NOT ALLOWED BY THE AO. 18. AGGRIEVED BY THE ABOVE DISALLOWANCE, THE ASSES SEE FILED OBJECTION BEFORE THE DRP WHICH IN TURN REJECTED THI S OBJECTION WITH THE OBSERVATION THAT IT FIND NO REASON TO INTERFERE WIT H THE ORDER OF THE A.O. 19. BEFORE US, THE LD. AR SUBMITTED THAT THE ASSES SEE INCURRED A SUM OF RS.88,69,418 TOWARDS SHARE ISSUE EXPENSES IN THE ASSESSMENT YEAR 2008-09. THE APPELLANT CLAIMED 1/5 TH OF THE ABOVE AMOUNT VIZ. RS.17,76,884 AS DEDUCTIBLE EXPENDITURE U/S 35D(2)(C)(IV) OF THE I.T. ACT. THE SAID AMOUNT WAS ALLOWED IN TH E ASSESSMENT YEARS 2008-09 AND 2009-10. IT WAS NOT ALLOWED IN THE ASSE SSMENT YEAR 2010-11 AND THE APPEAL IS PENDING BEFORE THE COMMIS SIONER OF INCOME TAX(APPEALS). FOR THE ASSESSMENT YEAR 2011-1 2 ALSO THE SAID EXPENDITURE WAS NOT ALLOWED AS DEDUCTION. 19.1 THE LD. AR SUBMITTED THAT EQUITY SHARES WERE OFFERED THROUGH MERCHANT BANKERS TO SEVERAL INSTITUTIONAL INVESTORS . THE OFFER WAS ACCEPTED BY A COMPANY CALLED FID FUNDS (MAURITIUS) AND THE SHARES WERE ALLOTTED TO IT. IT IS SUBMITTED THAT FID FUNDS (MAURITIUS) IS A QUALIFIED INSTITUTIONAL BUYER. THE QUALIFIED INSTIT UTIONAL BUYERS ARE CLASSIFIED AS INVESTORS AND FORM PART OF LARGE INST ITUTIONAL INVESTORS COMMUNITY. THESE INSTITUTIONAL BUYERS NORMALLY INTE RACT WITH THE MERCHANT BANKERS AND BASED ON THE RECOMMENDATIONS A ND FEEDBACK FROM THE MERCHANT BANKERS, THE QUALIFIED INSTITUTIO NAL BUYERS INVEST IN THE SHARE CAPITAL OF SEVERAL COMPANIES. THE APPELLA NT SUBMITS THAT 14 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. THE EXPENDITURE FALLS UNDER SUB CLAUSE (IV) TO CLAU SE(C) . TO SUB SECTION (2) TO SECTION 35D OF THE I.T. ACT. 19.2 THE LD. AR SUBMITTED THAT THE EXPRESSION 'PUBL IC SUBSCRIPTION' HAS NOT BEEN DEFINED. ONE ADVANTAGE OF INVESTMENT B Y QUALIFIED INSTITUTIONAL BUYERS IS THAT FUNDS CAN BE RAISED WI THIN A SHORT SPAN. THE AR SUBMITTED THAT HYDERABAD I.T.A.T IN ITS DECI SION DATED 30-1- 2015 IN THE CASE OF D.C.I.T VS. DECCAN CHRONICLE HO LDINGS LTD. [2015] 60 TAXMANN.COM 240 (HYD.) AT PARA -7 HELD THAT THE WORD 'PUBLIC ISSUE' ALSO WILL TAKE IN ITS SWEEP INVESTMENT BY QU ALIFIED INSTITUTIONAL BUYERS. RELYING ON THE SAID DECISION, THE LD. AR SU BMITTED THAT THE SUM OF RS. 17,70,884/- IS AN ALLOWABLE DEDUCTION U/ S 35D(2)(C)(IV) OF THE I.T. ACT. 20. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD. SIMILAR ISSUE WAS CON SIDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN DCIT FS. DECCA N CHRONICLE HOLDINGS LTD., [2015] 60 TAXMAN.COM 240 (HYD.) WHER EIN IT WAS HELD AS UNDER: 7. WE FIND THAT DURING THE YEAR 2007-08, THE COMPA NY INCURRED DEBENTURE EXPENSES OF RS.2.07 CRORES AND QIB ISSUE EXPENDITURE OF RS.8.28 CRORES, BOTH TOTALING TO RS.10.35 CRORES. THE EXPENDITURE REFERRED TO ABOVE OF RS.10. 35 CRORES WAS ADJUSTED AGAINST THE SHARE PREMIUM ACCOUNT AS PER THE PROVISION OF COMPA NIES ACT. HOWEVER, THE EXPENDITURE BEING DEFERRED REVENUE EXPENDITURE FALLS WITHIN THE AMBIT OF SECTION 35D R.W.S. 37 OF THE I.T. ACT WHICH IS ELIGIBLE TO BE CHARTED TO PROFIT AND LOSS A/C. ACCORDINGLY AS PER THE PROVISIONS OF SECTION 35D OF THE I.T. ACT, 1/5TH OF THE QIB ISSUE EXPENDITURE I.E. RS.207.00 LAKHS WAS WRITTEN OFF. QUALIFIED INSTITUTIONAL BUYE RS (QIBS) ARE A CLASS OF INVESTORS AS A PART OF THE LARGE INVESTOR COMMUNITY AND THE COMPAN IES SOUGHT FOR QIB ISSUES BECAUSE THE FUNDS CAN BE RAISED WITHIN A SHORT SPAN. THIS I S AN EXTREMELY IMPORTANT INVESTMENT FOR LARGER INVESTORS AND SINCE THE BUYERS ARE ONLY A CLASS OF INVESTORS, THE ISSUE OF SHARES TO QIB HAVE BEEN CONSIDERED AS PUBLIC ISSUE. THE EX PENSES IN CONNECTION WITH PUBLIC ISSUE OF SHARES OR DEBENTURES OF THE COMPANY ARE ALLOWABL E. RELIANCE IS PLACED ON CIT VS. SHREE SYNTHETICS LTD (162 ITR 819 (MP). HENCE ON THE MERI TS OF THE ISSUE, THE QIB EXPENDITURE CAN BE TREATED AS REVENUE EXPENDITURE AND ELIGIBLE FOR DEDUCTION U/S 35D OF THE I.T. ACT IS CONFIRMED. HENCE ON MERITS OF THE ISSUE AS WELL AS THE FACT THAT THE SAME ISSUE HAS BEEN ALLOWED IN THE EARLIER YEARS AND THE DEPARTMEN T CANNOT CAME UPON IN APPEALS IN THE SUBSEQUENT YEARS WOULD BE THE REASON TO DISMISS THE DEPARTMENTAL APPEAL. WE CONFIRM THE ORDER OF CIT(A) WITH RESPECT TO QUALIFI ED INSTITUTIONAL BUYERS EXPENSES AND DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE. IN T HE RESULT, THE DEPARTMENTAL APPEAL FOR THE AY 2007-08 AND 2008-09 ARE DISMISSED. 15 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. FROM THE ABOVE DECISION, IT WAS CLEAR THAT THE TERM PUBLIC ISSUE HAS WIDER MEANING. IT CANNOT BE RESTRICTED TO ISSUE OF SHARES /DEBENTURES TO RETAIL INVESTORS, IT ALSO APPLIED TO INSTITUTIONAL INVESTO RS. EVEN TO ISSUE SHARES TO INSTITUTIONAL INVESTORS, IT INVOLVES EXPENDITURE. I T HAS TO BE TREATED SIMILAR TO THE EXPENSES INCURRED ON ISSUE OF SHARES TO RETAIL INVE STORS. RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION, WE ALLOW THE GROUND RAISED BY THE ASSESSEE. 21. AS REGARDS DISALLOWANCE OF EXPENSES RELATING TO THE SHIPPING DIVISION OF RS. 59,95,071/- (GROUNDS NO. 15 TO 18), THE AO NOTICED THAT COMMON COSTS OF CORPORATE OFFICE ARE APPORTION ED TO ALL DIVISIONS EXCEPT SEAWAYS DIVISION UNDER THE PLEA THAT THE DIV ISION IS INDEPENDENTLY MANAGED. THIS ARGUMENT IS DEVOID OF M ERIT. OTHER DIVISIONS ALSO HAVE FUNCTIONAL AUTONOMY. THE CHAIRM AN, MD, OTHER DIRECTORS AND THEIR STAFF AS WELL AS THE CORPORATE OFFICE STAFF INCLUDING TAXATION STAFF WORK FOR ALL DIVISIONS. THEREFORE, E XPENDITURE OF CORPORATE OFFICE NEEDS TO BE APPORTIONED IN THE PRO PORTION OF TURNOVER TO ALL DIVISIONS. INTER DIVISIONAL APPORTIONMENT OF ADMINISTRATIVE EXPENSES IS FOLLOWED BY THE ASSESSEE HIMSELF EXCEPT IN CASE OF SEAWAYS DIVISION. THE AO MADE THE APPORTIONMENT OF ADMINISTRATIVE EXPENSES OF CORPORATE OFFICE ON ACCOUNT OF SEAWAYS DIVISION AT RS. 59,95,071/- U/S 115VJ(1). 22. WHEN THE ASSESSEE FILED OBJECTIONS BEFORE THE D RP, THE DRP CONFIRMED THE SAID ADDITION OF RS. 59,95,017/- MADE BY THE AO. 23. BEFORE US, THE LD. AR SUBMITTED THAT ASSESSEE O WNS A SHIPPING DIVISION. IN RESPECT OF THE SHIPPING DIVISION, THE ASSESSEE OPTED TO BE ASSESSED UNDER THE TONNAGE TAX SCHEME FALLING UNDER CHAPTER XIIG OF THE I.T ACT. THE INCOME TO BE COMPUTED FOR THE S HIPPING DIVISION SHOULD BE IN ACCORDANCE WITH THE PROVISIONS OF SECT ION 115VG OF THE I.T ACT AS THE APPELLANT OPTED TO BE ASSESSED UNDER CHAPTER XIIG OF THE I.T ACT. HE SUBMITTED THAT THE ASSESSEE MAINTAI NS SEPARATE BOOKS OF ACCOUNTS FOR THIS DIVISION. THE ACCOUNTS PERTAIN ING TO THE SHIPPING DIVISION ARE SEPARATELY AUDITED AND A SEPARATE AUDI T REPORT IS ISSUED IN RESPECT OF THIS DIVISION WHICH IS ENCLOSED AT PA GES 40 TO 62 OF VOL. 16 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. II. BEFORE THE ASSESSING OFFICER COPIES OF ACCOUNT S OF THE SHIPPING DIVISION DULY AUDITED WERE FILED. SINCE THE PROFITS OF THE SHIPPING DIVISION ARE TO BE COMPUTED UNDER CHAPTER XIIG OF T HE I.T ACT, FOR COMPUTING THE PROFIT OR LOSS OF THE REMAINING DIVIS IONS, THE INCOME AND EXPENSES ATTRIBUTABLE TO THE SHIPPING DIVISION ARE TO BE EXCLUDED. 23.1 LD. AR SUBMITTED THAT THE ASSESSEE HAS INCLUD ED ALL EXPENSES PERTAINING TO THE SHIPPING DIVISION IN THE ACCOUNTS SEPARATELY MAINTAINED FOR THE SHIPPING DIVISION AND ARRIVED AT THE INCOME/LOSS OF THE SAID DIVISION IN ACCORDANCE WITH THE ACCOUNTS M AINTAINED. THIS IS DONE TO ENSURE THAT THE ACCOUNT OF OTHER DIVISIONS IS NOT EFFECTED DUE TO INCLUSION OF SHIPPING DIVISIONS BUSINESS INCOME OR EXPENDITURE. 23.2 HE SUBMITTED THAT ACCORDING TO THE ASSESSING OFFICER, THE ADMINISTRATIVE EXPENSES OF THE COMPANY OTHER THAN S EAWAYS DIVISION IS RS.15,17,86,677. THE WORKING AND THE COMPOSITION OF THIS AMOUNT ARRIVED AT BY THE ASSESSING OFFICER IS NOT EXHIBITE D IN THE ASSESSMENT ORDER AND THE APPELLANT DOES NOT HAVE ANY WORKING G IVEN TO IT. THE ASSESSING OFFICER CALCULATED THE TURNOVER OF THE SH IPPING DIVISION IN THE PROPORTION TO THE TOTAL TURNOVER AT 3.94%. APPL YING THE SAID PROPORTION OF 3.95% TO THE ENTIRE ADMINISTRATIVE EX PENSES OF RS.15,17,86,677, THE ASSESSING OFFICER ARRIVED AT A NOTIONAL ALLOCATION OF THE EXPENSES TO THE SHIPPING DIVISION AT RS.59,95,071. 23.3 THE ASSESSING OFFICER DISALLOWED THIS AMOUNT WHILE COMPUTING THE INCOME FROM THE REMAINING DIVISIONS ON THE PLEA THAT THE SAID EXPENSES SHOULD BE CONSIDERED AS EXPENSES PERTAININ G TO THE SHIPPING. DIVISION AND SINCE THE SHIPPING DIVISION INCOME HAS TO BE COMPUTED UNDER THE PROVISIONS OF SECTION 115VG OF T HE I.T ACT, THE SAID EXPENDITURE OF RS.59,95,071 SHOULD NOT BE ALLO WED AS EXPENDITURE WHILE COMPUTING THE INCOME OF THE OTHER DIVISIONS. THE AR CONTENDED THAT ALL EXPENSES OF THE SHIPPING DIVI SION INCLUDING THE ADMINISTRATIVE EXPENSES ARE DEBITED TO SEPARATE ACC OUNTS OF THE 17 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. SHIPPING DIVISION. THE APPELLANT INVITES KIND ATTEN TION OF THE ITAT TO THE INCOME AND EXPENDITURE OF THE SHIPPING DIVISION FOR THE PERIOD ENDED 31/03/2011. THIS IS AVAILABLE AT PAGE 47 OF V OL. II. ALL EXPENSES ARE INCLUDED IN THE SAME. 23.4 LD. AR SUBMITTED THAT THE ASSESSING OFFICER D OES NOT STATE WHICH EXPENDITURE HAS NOT BEEN INCLUDED. NO INDICAT ION IS AVAILABLE AS TO HOW THE TOTAL ADMINISTRATIVE EXPENSES ARE COM PUTED AT RS.15,17,86,877. THE ENTIRE EXERCISE IS BASED ON TH E PREMISE THAT SOME EXPENSES PERTAINING TO THE SHIPPING, DIVISION HAS NOT BEEN ALLOCATED TO THE SHIPPING DIVISION INCOME ACCOUNTIN G. THIS IS AN INCORRECT ASSUMPTION. HE SUBMITTD THAT EVEN THE CAL CULATION OF ADMINISTRATIVE EXPENSES AT RS.15,17,86,877 APPEARS TO BE INCORRECT. THEREFORE, THE COMPUTATION OF ADMINISTRATIVE EXPENS ES PERTAINING TO THE SHIPPING DIVISION AT RS.59,95,071 AND DISALLOWA NCE OF THE SAME FROM THE EXPENSES OF OTHER DIVISIONS IS UNTENABLE. HE CONTENDED THAT THE DRP UPHELD THE CALCULATION ON A VERY GENERALIZE D ASSUMPTION AND IT HAS NOT GONE INTO THE SPECIFIC CONTENTION TAKEN BY THE APPELLANT COMPANY. LD. AR INVITED OUR ATTENTION TO PAGES 62 & 63 OF VOL. 1 AND PAGES 38 & 39 OF VOL. II. 24. LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORIT IES. 25. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD.AO HAS DISALLOWED % OF SHARE OF HEAD OFFICE EXPENDITURE RELATING TO THE SHIPPING DIVISIO N. FROM THE RECORD, IT IS CLEAR THAT THE DIRECT EXPENDITURES RELATING T O SHIPPING DIVISIONS ARE RECORDED IN THEIR BOOKS PROPERLY, BUT, THE MANA GEMENT OF THE COMPANY HAS NOT ALLOCATED ANY SHARE OF HEAD OFFICE EXPENDITURE TO THIS DIVISION. THE ALLOCATION OF EXPENDITURE TO THE VARIOUS DIVISIONS IS SUBJECTIVE MATTER, IT INVOLVES VARIOUS FACTORS LIKE THE INVOLVEMENT OF MANAGEMENT TIME, PERSONNEL ETC. THESE INFORMATIONS ARE NOT AVAILABLE ON THE RECORD. WE HAVE NOTICED FROM THE F INANCIAL STATEMENT OF THE SHIPPING DIVISION THAT NO MANAGEMENT PERSONN EL EXPENDITURES OR MANAGEMENT RELATED EXPENSES WERE DEBITED TO P & L A/C. IT IS A 18 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. FACT THAT MANAGEMENT TIME AND PERSONNEL INVOLVE RUN NING OF ANY BUSINESS ACTIVITY. THE ASSESSEE HAS NOT BROUGHT ANY THING ON RECORD TO PROVE THAT THE SHIPPING DIVISION CAN FUNCTION INDEP ENDENTLY WITHOUT ANY MANAGEMENT INVOLVEMENT. IN ABSENCE OF SUCH INFO RMATION AND FOR THE SAKE OF CLARITY AND JUSTICE, WE FIND IT APPROPR IATE TO REMIT THIS ISSUE TO THE FILE OF THE AO TO DETERMINE THE SHARE OF HEAD OFFICE EXPENDITURE FOR THIS DIVISION AS THE ASSESSEE ALSO NOT CLEAR WITH THE QUANTUM OF EXPENDITURE ADOPTED TO ALLOCATE THE SHAR E OF EXPENDITURE BY THE AO IN THE FIRST PLACE. WE DIRECT THE ASSESSE E ALSO TO SUBMIT THE RELEVANT DETAILS OF EXPENDITURE AND EXTENT OF MANAG EMENT INVOLVEMENT IN RUNNING OF THIS DIVISION. IN THE RES ULT, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 26. AS REGARDS DISALLOWANCE OF EMPLOYEES STOCK OPTI ON EXPENSES OF RS. 60,48,569/- (GROUND NO. 19), IT IS OBSERVED THAT THE ASSESSEE FILED AN OBJECTION BEFORE THE DRP THAT THE ASSESSIN G OFFICER ERRED IN NOT CONSIDERING THE ASSESSEE COMPANY'S CLAIM ALLOWI NG DEDUCTION OF DEFERRED EMPLOYEE COMPENSATION UNDER THE STOCK OPTI ON SCHEME OF THE COMPANY AMOUNTING TO RS. 60,48,569/- AS SALARY EXPENDITURE, AS THE SAID CLAIM WAS MADE BY THE ASSESSEE VIDE LETTER DTD: 18/03/2015 WITHOUT FILING A REVISED RETURN OF INCOME. 26.1 THE DRP HELD THAT THE OBJECTION OF THE ASSESSE E IS NOT ACCEPTABLE FOR THE REASON THAT THE RATIO HELD BY TH E HON'BLE ORISSA HIGH COURT IN THE CASE OF ORISSA RURAL HOUSING DEVE LOPMENT CORPORATION LTD VS. ACIT IN W.P. (C) NO. 4554 OF 20 11 IS SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. THE DRP FUR THER PLACED RELIANCE ON THE RATIO HELD BY THE HON'BLE SUPREME C OURT IN THE CASE OF GOETZE (INDIA) LTD AND ACCORDINGLY HELD THAT THE AS SESSING OFFICER HAS NOT COMMITTED AN ERROR BY REJECTING THE CLAIM MADE BY THE ASSESSEE VIDE LETTER DTD: 18/03/2015. IN VIEW OF THE ABOVE, RS. 60,48,569/- BEING THE ESOP EXPENSES WHICH WAS NOT CLAIMED BY TH E ASSESSEE IN RETURN OF INCOME AND NOT ALLOWED IN THE DRAFT ASSES SMENT ORDER AND 19 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. CONFIRMED ACCORDINGLY IN THE FINAL ASSESSMENT ORDER ON THE DIRECTIONS OF DRP. 27. BEFORE US, THE LD. AR SUBMITTED THAT IN THE CO MPUTATION OF INCOME FILED ALONG WITH THE RETURN OF INCOME FOR TH E ASSESSMENT YEAR 2011-12 THE APPELLANT ERRONEOUSLY ADDED BACK A SUM OF RS.60,48,569 BEING DEFERRED EMPLOYEES COMPENSATION UNDER THE EMP LOYEES STOCK OPTION SCHEME (ESOP). THERE WAS SOME CONTROVERSY IN THE PAST RELATING TO THE ALLOWANCE OF ESOP EXPENSES AS ALLOW ABLE DEDUCTION IN THE YEAR OF ISSUE. THIS CONTROVERSY WAS SET AT REST BY THE SPECIAL BENCH DECISION IN ITA NO.368/B/2010 DT.16-7-2013 IN THE CASE OF BYCON LTD. VS. D.C.I.T. A COPY OF THE ORDER IS AVAI LABLE AT PAGES 103 TO 152 OF VOL. L. THE ISSUE WAS DECIDED BY THE SPEC IAL BENCH IN FAVOUR OF THE ASSESSEE AT PARA 11.3 OF ITS ORDER. 27.1 LD. AR SUBMITTED THAT THE FOLLOWING THE SAID O RDER THE ASSESSEE ADDRESSED A LETTER DTD. 18-3-2015 CLAIMING BEFORE T HE ASSESSING OFFICER THAT THE SUM OF RS.60,48,569 ERRONEOUSLY AD DED BACK IN THE RETURN SHOULD BE ALLOWED AS EXPENDITURE. THE SAID C LAIM WAS COMPLETELY IGNORED BY THE ASSESSING OFFICER. THE A PPELLANT HAS ALSO GIVEN A DETAILED EXPLANATION IN ITS PRINTED ACCOUNT S (NOTE 'E' AT PAGE 215 OF VOL. 1). HE SUBMITTED THAT THE ESOP EXPENSES ARE ALLOWED FROM THE ASSESSMENT YEAR 2012-13 ONWARDS WITHOUT AN Y DISPUTE AS CLAIMED BY THE APPELLANT. FOR THE ASSESSMENT YEAR 2 011-12 THE ABOVE AMOUNT WAS NOT ALLOWED BY THE ASSESSING OFFICER ON THE PLEA THAT SUCH CLAIM CAN ONLY BE MADE THROUGH A REVISED RETUR N AND NOT BY WAY OF A LETTER. WHEN THE ISSUE WAS OBJECTED TO BEFORE THE DISPUTE RESOLUTION PANEL, THE DISPUTE RESOLUTION PANEL REFE RRED TO THE JUDGMENT OF THE ORISSA HIGH COURT AND THE DECISION OF THE HON'BLE SUPREME COURT IN GOETZE (INDIA) LTD. VS. D.C.LT REP ORTED IN 284 ITR 323 AND REJECTED THE CLAIM ON THE PLEA THAT IN THE ABSENCE OF REVISED RETURN OF INCOME THE CLAIM CANNOT BE ALLOWED. 27.2 LD. AR CONTENDED THAT THE DECISION OF THE HON BLE SUPREME COURT IS APPLICABLE ONLY IN THE COURSE OF ASSESSMEN T PROCEEDINGS 20 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. BEFORE THE ASSESSING OFFICER AND DOES NOT IMPINGE U PON THE POWERS OF THE HON'BLE TRIBUNAL U/S 254 OF THE I.T ACT TO C ONSIDER THE CLAIM. THIS ASPECT OF THE MATTER HAS BEEN SET OUT BY THE H ON'BLE SUPREME COURT IN GOETZE'S (INDIA) LTD. VS. D.C.I.T CASE ITS ELF. SUBSEQUENTLY A SPATE OF JUDGMENTS OF VARIOUS COURTS HAVE BEEN DELI VERED TO THE EFFECT THAT THE DECISION OF THE HON'BLE SUPREME COURT IN G OETZE'S CASE HAS NO APPLICATION BEFORE THE APPELLATE AUTHORITIES. KI ND ATTENTION IS INVITED TO THE LATEST JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN PRINCIPAL C.IT VS. WESTERN INDIA SHIPYARD LTD. REPO RTED IN 379 ITR 289. THE DELHI HIGH COURT REITERATED THAT THE DECIS ION IN GOETZE'S CASE IS INAPPLICABLE IN THE APPEAL PROCEEDINGS BEFO RE THE INCOME TAX APPELLATE TRIBUNAL. LD. AR SUBMITTED THAT THE DEDUC TION OF RS.60,48,569 TOWARDS ESOP EXPENSES IS DENIED BECAUS E OF THE REVISED RETURN NOT BEING FILED AND NOT FOR ANY OTHE R REASON. 28. THE LD. DR RELIED ON THE ORDERS OF REVENUE AUTH ORITIES. 29. CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSELS AND PERUSED THE MATERIAL FACTS ON RECORD. IN THE CASE OF PRINCI PAL CIT VS. WESTERN INDIA SHIPYARD LTD., (SUPRA), ON WHICH RELIANCE PLA CED BY THE LD. AR OF THE ASSESSEE, THE HONBLE DELHI HIGH COURT HELD AS FOLLOWS: THE SAID DECISION IN GOETZE (INDIA) LTD. IS IN THE CONTEXT OF THE LACK OF THE POWER OF THE AO TO ENTERTAIN A CLAIM FOR DEDUCTION, DURING ASSESSMENT PROCEEDINGS, OTHERWISE THAN BY A REVISED RETURN. TH E ITAT IS RIGHT IN HOLDING THAT WHILE THERE WAS A BAR ON THE AO ENTERTAINING S UCH CLAIM WITHOUT A REVISED RETURN BEING FILED BY THE ASSESSEE, THERE W AS NO SUCH RESTRAINT ON THE CIT (A) DURING THE APPELLATE PROCEEDINGS. HOWEVER, WHILE PERMITTING SUCH A CLAIM THE CIT (A) OUGHT TO HAVE EXAMINED WHETHER IN FACT THE BAD DEBTS WERE WRITTEN OFF BY THE ASSESSEE IN THE FIRST INSTANCE I N THE ACCOUNTS AND THEN TAKEN INTO CONSIDERATION WHILE COMPUTING THE INCOME . THE REMAND OF THE MATTER TO THE AO FOR THAT PURPOSE WAS, THEREFORE, J USTIFIED. THE REVENUE AUTHORITIES DENIED THE DEDUCTION OF RS. 60,48,569/- TOWARDS ESOP EXPENSES BECAUSE OF THE REVISED RETURN NOT BEING FILED BY THE ASSESSEE. HOWEVER, THE ASSESSEE FILED A LETT ER DATED 18/03/2015 BEFORE THE AO CLAIMING THE SAID EXPENSES . ACCORDING TO THE LD. AR, THE ESOP EXPENSES ARE ALLOWED FROM THE AY 2012-13 ON WARDS WITHOUT ANY DISPUTE AS CLAIMED BY THE ASSESSE E, BUT, FOR AY 21 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. 2011-12 THE ABOVE WAS NOT ALLOWED BY THE AO ON THE PLEA THAT SUCH CLAIM CAN ONLY BE MADE THROUGH A REVISED RETURN AND NOT BY WAY OF A LETTER. FOLLOWING THE SAID DECISION OF THE HONBLE DELHI HIGH COURT, WE REMIT THE ISSUE TO THE FILE OF THE AO TO ACCEPT THE LETTER FILED BY THE ASSESSEE FOR CLAIMING THE ESOP EXPENSES AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPO RTUNITY OF HEARING TO THE ASSESSEE. ACCORDINGLY, THIS GROUND IS ALLOWE D FOR STATISTICAL PURPOSES. 30. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 21 ST SEPTEMBER, 2016 KV COPY TO:- 1) TRANSPORT CORPORATION OF INDIA LTD., 1-8-271 TO 273, 307, 3 RD FLOOR, ASHOK BHOPAL CHAMBERS, SP ROAD, SECIBAD. 2) ACIT, CIRCLE 2(2), AAYAKAR BHAVAN, BASHEERBAGH , 3) DRP, HYDERABAD 4 PR. CIT 5, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. S.NO. DESCRIPTION DATE INTLS DS1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 22 ITA NO. 117/H/16 TRANSPORT CORPORATION OF INDIA LTD. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER