Nirma Chemical Works Pvt.Ltd., Ahmedabad V. The ACIT.,Circle-5, Ahmedabad

ITA 1190/AHD/2013

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8075 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 28-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Opportunity of being heard; Earning of tax free income; Question of law; Date of conversion; Corroborative evidences; Avoidance of tax; Right to appeal; Revenue expenditure; Rule 8D; Set aside; Capital Gains
• Section: 143(3); 14A; 274; 54EC; 13; 22

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’A’’ BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER Sr. No. ITA No. Asstt. Year Name of Appellant Name of Respondent 1- ITA No.1054/Ahd/2012 2006-07 Nirma Chemical Works Pvt. Ltd. Nirma House, Ashram Road, Ahmedabad. PAN:AAACN5353L D.C.I.T., Circle-5, Ahmedabad. 2-3 ITA Nos.1056 & 1057/Ahd/2012 2007-08 & 2008-09 Nirma Chemical Works Pvt. Ltd. Nirma House, Ashram Road, Ahmedabad. PAN:AAACN5353L D.C.I.T., Circle-5, Ahmedabad. 4-5 ITA No.1208 & 1209/Ahd/2012 2006-07 & 2007-08 A.C.I.T., Circle-5, Ahmedabad Nirma Chemical Works Pvt. Ltd. Nirma House, Ashram Road, Ahmedabad. PAN:AAACN5353L 6. ITA No.1190/Ahd/2013 2009-10 Nirma Chemical Works Pvt. Ltd. Nirma House, Ashram Road, Ahmedabad. PAN:AAACN5353L A.C.I.T., Circle-5, Ahmedabad. 7. ITA No.1600/Ahd/2013 2009-10 A.C.I.T., Circle-5, Ahmedabad. Nirma Chemical Works Pvt. Ltd. Nirma House, Ashram Road, Ahmedabad. PAN:AAACN5353L ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 2 (Applicant) (Responent) Assessee by : Shri S.N. Soparkar, Sr. Advocate with Shri Parin Shah, A.R Revenue by : Shri Vijaykumar Jaiswal, CIT, D.R Shri S.S. Shukla, Sr. D.R सुनवाई कᳱ तारीख/Date of Hearing : 13/01/2022 घोषणा कᳱ तारीख /Da te of Prono uncement: 24/02/2022 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER : 1. The above captioned appeals have been filed by the assessee and the Revenue against the separate orders of ld. Commissioner of Income-Tax (Appeals) arising in the matter of assessment order passed under section 143(3) of the Income tax Act 1961 ( in short the ‘Act’) involving respective Assessment Years. 2. First we take assessee’s appeal bearing ITA No.1054/Ahd/2012 for A.Y. 2006-07. The assessee has raised the following grounds of appeal: 1) In law and in facts and circumstances of the Appellant company's case, the learned CIT(A) has grossly erred in points of law and facts. 2) In law and in facts and circumstances of the Appellant company's case, the learned CIT(A) has grossly erred in confirming disallowance out of interest expenses U/S.14A of lncome-tax Act. for Rs.6,46.673/-. 3) In law and in facts and circumstances of the Appellant company's case, the learned CIT(A) has grossly erred in partly confirming disallowance of administrative expenses and payment to employees for Rs.2.95,050/- u/s.!4A of Income-tax Act. 4) In law and in facts and circumstances of the Appellant's case, the expense for power project Rs. 8,80,589 accounted in Acct. Year 2007-08 but pertaining to Asst. Year 2006-07 are to be allowed. 5) Your appellant craves liberty to add, alter, amend all or any of the above grounds of appeal as may be advised from time to time. 3. The assessee vide later dated 16 th February 2021 raised the following additional ground of appeal: On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess ('education cess') paid on income tax and surcharge during the ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 3 year, ought to be allowed as a deductible expense under the provisions of the Income-tax Act, 1961 ('the Act') while computing the taxable income. The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 4. The first ground of appeal raised by the assessee is general in nature which does not require any separate adjudication. Hence the same is dismissed as infructuous. 5. The 2 nd interconnected issue raised by the assessee in ground number 2 and 3 is that the learned CIT(A) erred in confirming the order of the AO in part by sustaining the disallowance under section 14A of the Act instead of deleting the hundred percent addition made by the AO. 6. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of Vehicle Hiring and Trading in Share & Securities. The assessee in the year under consideration has declared exempt income of ₹ 52,53,72,175/- only. However, the assessee against such income has not made any disallowance of the expenses incurred in connection with such income in the manner as provided under section 14A of the Act. 6.1 As per the assessing officer, the assessee has borrowed funds from its sister concerns namely Nirma Soaps and Detergents Private Ltd and Navin Detergent Private Ltd which were utilized in making the investments which generated the exempted income. On such borrowing, the assessee has incurred interest expense of ₹ 6,46,673/-. Thus the AO made the disallowance of such interest expenses by adding to the total income of the assessee under section 14A of the Act. 6.2 Likewise, the AO found that the assessee has declared gross income of ₹72,18,39,227/- which includes the exempted income as well. The assessee against such income has claimed administrative expenses including the employee cost of ₹ 65,32,722/-. According to the AO, such expenses should have been allocated in the ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 4 ratio of exempt and non-exempt income. Thus the AO calculated impugned expenses attributable to exempted income in the manner as given below: ₹ 65,32,722.00 x (₹ 52,53,72,175.00 / ₹ 72,18,39,227.00) = ₹ 47,54,674/- 6.3 As per the AO the expenses of ₹ 47,54,674/- were incurred by the assessee in connection with the exempted income which are not allowable under the provisions of section 14A of the Act. In effect, the AO has made the addition of the following expenses: i. Interest expenses ₹ 6,46,673/- ii. Administrative expenses ₹ 47,54,674 7. Aggrieved assessee preferred an appeal to the learned CIT-A. 7.1 The assessee before the learned CIT (A) submitted that the borrowed fund, from the companies being sister concerns namely Nirma Soaps and Detergents Private Ltd and Navin Detergent Private Ltd, has been utilized for the purpose of making the repayment of inter-corporate deposits. Thus the finding of the AO that borrowed fund has been used for making the investments is wrong. 8. The learned CIT (A) found that the assessee has made investments of ₹15.60 crores in shares and securities. Likewise, the assessee has incurred huge interest expenses of ₹ 4,07,63,094/-. Accordingly, the learned CIT(A) was of the view that there must have been utilized borrowed fund against the investments. Therefore, the disallowance for the interest expenses is warranted. Thus the learned CIT (A) upheld the finding of the AO by confirming the disallowance of interest expenses. 8.1 The learned CIT (A) with respect to the disallowance of administrative expenses, found that the assessee has not paid securities transaction tax on transfer of securities/shares. Thus, it is not the exempted income as alleged by the AO. Accordingly the learned CIT (A) reduced the disallowance made by the AO in ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 5 proportion to the exempted income to ₹ 2,95,050/- and partly confirmed the order of the AO. 9. Being aggrieved by the order of the learned CIT(A), both the assessee and the Revenue are in appeal before us. The assessee is in appeal against the confirmation of the addition made by the AO in part amounting to ₹ 6,46,673/- being interest expenses of Rs. 6,46,673/-and administrative expenses of ₹ 2,95,050/-. On the contrary, the revenue is in appeal against the deletion of the addition made by the learned CIT (A). The relevant ground of appeal of the Revenue in ITA No. 1208/Ahd/2012 reads as under: The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the disallowance of Rs. 47,54,674/- out of administrative expenses and payment to employees u/s 14A of the IT Act. 10. The learned AR before us filed a paper book running from pages 1 to 233 and contended that the own fund of the assessee exceeds the amount of investments. Therefore, no disallowance of interest expense is warranted. The learned AR in support of his contention further submitted that the ITAT in the own case of the assessee for the assessment year 2005-06 has set aside the issue to the file of the AO in ITA No. 2282/Ahd/2008 vide order dated 11 th November 2016 for fresh adjudication. The AO in the consequential order has not made any addition on account of the interest expenses. 10.1 The learned AR before us with respect to administrative expenses submitted that the assessee has not incurred any expense against the exempted income. Therefore no disallowance is warranted under the provisions of section 14A of the Act with respect to the administrative expenses. 10.2 The learned AR without prejudice to the above also submitted that the amount of administrative expenses stands at ₹ 64,01,125/- whereas authorities below has wrongly taken at ₹ 65,32,722/-. The learned AR before us submitted that the amount of ₹1,13,000/- on account of the provision for leave encashment has ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 6 already been added to the total income of the assessee. Therefore such expense has to be excluded while allocating the administrative expenses between the exempted and non-exempted income. The learned AR in support of his contention has filed a working demonstrating the correct bifurcations of administrative expenses between exempted and non-exempted income which is placed on record. As per the learned AR, an amount of ₹ 2,89,107/- stands to be allocated to the exempted income which is liable to be disallowed. 11. The learned DR before us vehemently supported the stand of the authorities below by reiterating the findings contained in the respective orders which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. 12. Both the ld. AR and the learned DR vehemently supported the order of the authorities below to the extent favourable to them. 13. We have heard the rival contentions of both the parties and perused the materials available on record. As regards the dispute with respect to the interest expense, we note that owned fund of the assessee exceeds the investment made in the securities. The amount of own fund of the assessee as on 31 st March 2006 stands at ₹ 571.48 crores whereas amount of investments stands at ₹ 66.12 crores. Thus, it is transpired that owned fund of the assessee exceeds the investments. Accordingly a presumption can be drawn that investment has been made by the assessee out of its own funds without using the borrowed fund. In holding so, we draw support and guidance from the judgment of Hon’ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under: It was noted from records that the assessee was having shareholding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 7 13.1 In view of the above, we hold that there cannot be any disallowance of interest expenses. At this juncture, it is also important to note that the ITAT in the own case of the assessee in the earlier year in ITA No. 2282/Ahd/2008 for the assessment year 2005-06 vide order dated 11 th November 2016 has set aside this issue to the file of the AO for fresh adjudication. The AO in the set-aside proceedings has not made any addition qua the interest expenses. In other words, the principles laid down by various courts that there cannot be any disallowance of interest expenses in a situation where own fund exceeds the amount of investments. Accordingly, we set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him on account of interest expenses. 13.2 With respect to the disallowance of the administrative expenses, we note that the decisions for making the investments or disinvestments in the securities are taken up in the Board meetings. These are very strategic decisions. Before taking such decision, lot of research and market studies are conducted. Likewise, the support of administrative division is also required while holding the Board meetings for the purpose of decision-making. Therefore, it cannot be said that no expenses was incurred by the assessee against such dividend income. Accordingly, we are not convinced with the argument of the learned AR for the assessee that there was not incurred any expense against the dividend income. 13.3 As regards to the allocation of the administrative expenses based on exempted and non-exempted income by the Revenue, we find that the basis adopted by the authorities below have not been challenged by the assessee. But what was alleged by the assessee is this that amount of administrative expense was wrongly taken by the authorities below. As per the assessee, the correct amount of administrative expenses stands at Rs. 64,01,125/- which has not been challenged by the learned DR at the time of hearing. Accordingly, we hold that the amount of expense towards the administrative division stands at Rs. 2,89,107 which could be allocated to exempted income. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 8 13.4 The next aspect arises whether the amount of capital gain represents the exempted income. In this regard we find that for claiming the exemption of long term capital gain on share or securities under section 10(38), it is prerequisite that on transfer of such share or securities, Securities Transaction Tax must have been paid, but in the present case of the assessee, same has not been done. Rather the learned CIT(A) has given a categorical finding that the assessee has paid taxes at the rate of 20% on the impugned capital gain. At the time of hearing the learned DR has not brought anything on record contrary to the finding of the learned CIT(A). Accordingly we hold that, there cannot be any disallowance of the expenses under section 14A of the Act against the capital gain declared by the assessee as alleged by the AO. Hence the ground of appeal of the assessee is partly allowed whereas the ground of appeal of the revenue is hereby dismissed. 14. The next issue raised by the assessee is that there were certain expenses incurred by the assessee in connection with the Power project of Rs. 8,80,589/- which should have be allowed as deduction. 15. At the outset we note that the issue is arising from assessment year 2008- 09, where assessee has claimed certain expense incurred on power project which included expenses incurred in earlier year as well as in A.Y. 2008-09. The AO in assessment proceeding under section 143(3) for A.Y. 2008-09 disallowed the expenses being dead loss whereas the learned CIT (A) provided the partial relief. Against which the assessee is in appeal before us in ITA No. 1057/Ahd/2012. The impugned issue has been dealt by us in paragraph number 76 of this order where we have disallowed the claim of the assessee in entirety. Thus the question of allowing the same in the year under consideration i.e. A.Y. 2006-07 does not arise. Hence the ground of appeal of the assessee is hereby dismissed. 16. The assessee in the additional ground of appeal has sought the deduction on account of education, secondary & higher education cess paid on income as well as on surcharge. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 9 17. The assessee has vide application dated 16 th February 2021 pleaded before for admitting the additional ground of appeal which reads as under: On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess ('education cess') paid on income tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income-tax Act, 1961 ('the Act') while computing the taxable income. The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 18. It was pleaded by the assessee in the application filed for the admission of the additional ground of appeal that the issue raised in the additional ground of appeal go to the root of the matter and the necessary facts are available on record. Accordingly, it was prayed by the learned AR for the assessee that the same should be admitted for adjudication. 19. On the other hand, the learned DR opposed to admit the additional ground of appeal on the reasoning that it was not raised before the authorities below. 20. We have heard both the parties and perused the materials available on record. The Hon’ble Supreme Court in the case of National Thermal Power Co. Limited vs. CIT, cited supra, has held as under :- “ Under section 254 of the Income-tax Act, 1961, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 10 20.1 From the above, it is transpired that the view that the Tribunal is confined only to those issues arising out of the appeal before Commissioner (Appeals) is too narrow a view to describe the powers of the Tribunal. Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which were on record during the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. 20.2 Since the claim of the assessee is purely legal claim and entire facts are available on record. Thus, it is not justified in not admitting the purely legal ground raised by the assessee for the first time. Furthermore, we note that the term education cess was introduced for the first time by the Finance Bill 2004 with the specific objective to provide the finance to the Government's commitment to universalize quality basic education. The Hon’ble Bombay High Court ('HC') in case of Sesa Goa Ltd. v. Jt. CIT [2020] 117 taxmann.com 96/423 ITR 426 has held as under: “27. The CBDT Circular, is binding upon the authorities under the IT Act like Assessing Officer and the Appellate Authority. The CBDT Circular is quite consistent with the principles of interpretation of taxing statute. This, according to us, is an additional reason as to why the expression "cess" ought not to be read or included in the expression "any rate or tax levied" as appearing in section 40(a)(ii) of the IT Act. 28. In the Income-tax Act, 1922, section 10(4) had banned allowance of any sum paid on account of 'any cess, rate or tax levied on the profits or gains of any business or profession'. In the corresponding Section 40(a)(ii) of the IT Act, 1961 the expression "cess" is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income-tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression "cess" and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) of the IT Act, 1961. The effect of such omission is that the provision in Section 40(a)(ii) does not include, "cess" and consequently, "cess" whenever paid in relation to business, is allowable as deductable expenditure.” 20.3 Likewise, the Hon’ble Rajasthan HC in case of Chambal Fertilizers & Chemicals Ltd. v. CIT [2019] 107 taxmann.com 484 has held under: ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 11 “13. On the third issue in appeal no. 52/2018, in view of the circular of CBDT where word "Cess" is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue no. 3 is required to be reversed and the said issue is answered in favour of the assessee.” 20.4 We are conscious to the fact that the Kolkata ITAT in the case of Kanoria Chemicals and Industries Ltd. v. ACIT [IT Appeal No. 2184 (Kol.) of 2018] recently after considering the judgments of Bombay HC and Rajasthan HC as discussed above decided the issue in favour of the Revenue after placing the reliance on the judgment of the Hon'ble Supreme Court ('SC') judgment in case of CIT v. K Srinivasan reported in 83 ITR 346. The relevant extract of the ITAT order stands as under: i. A perusal of the provisions of the Finance Act 2004 and Finance Act 2011 would show that it has been specifically provided that 'education cess' is an additional surcharge levied on the income-tax. The same have not been brought into the knowledge of the Hon'ble High Courts in the cases of "Sesa Goa Ltd" & "Chambal Fertilisers. ii. The Hon'ble Supreme Court in case of K. Srinivasan has held that surcharge and additional surcharge are part of the income-tax. 20.5 Now, the question arise whether the education cess is part of tax and therefore the same is not allowable. For this purpose, we refer the CBDT Circular No. F. No. 91/58/66-ITJ(19), dated 18th May, 1967 as issued by the CBDT, which provided as under: "Recently a case has come to the notice of the Board where the Income-tax Officer has disallowed the 'cess' paid by the assessee... The view of the Income-tax Officer is not correct. Clause 40(a)(ii) of the Income-tax Bill, 1961 as introduced in the Parliament stood as under:- "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains". When the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards" Basis above, in absence of word "cess", it is a settled principle observed by the Apex court in case of Nasiruddin v. Sita Ram Agarwal that in a given case the Court cannot enlarge the scope of legislation or intention when the language of provision is plain and unambiguous. It cannot add or subtract words to a statute or read something into it which is not there. It cannot re-write or recast legislation.” ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 12 20.6 Likewise, we note that the Hon'ble SC in case of K Srinivasan pertains to surcharge and not the cess. The aforesaid SC judgment pertains to the allowability of surcharge and additional surcharge. The word 'cess' has no mention in the judgment. The Kolkata ITAT in case of Kanoria Chemicals and Industries Ltd. (supra) relied on the aforesaid SC judgement and considered the term 'education cess' as an additional surcharge while disallowing the same as deductible expense. The Hon'ble SC in case of Goodyear India Ltd. v State of Haryana (Equivalent citations: 1990 AIR 781, 1989 SCR Supl. (1) 510) observed that a precedent is an authority only for what it actually decides and not for what may remotely or even logically follow from it; and a decision on questions that has not been argued cannot be treated as a precedent. The matter pertained to surcharge and thus, based on above case law of Hon’ble Supreme court the decision of in case of K Srinivasan cannot be squarely applied in cases where deduction of education cess is in question. In view of the above, we hold that the assessee is entitled for the deduction of education cess as discussed above. Hence, the ground of appeal of the assessee is allowed. 20.7 In the result appeal of the assessee is partly allowed. Coming to ITA No. 1208/AHD/2012, an appeal by the Revenue for the assessment year 2006-07 21. The revenue has raised the following grounds of appeal: 9. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the addition of Rs.31,99,65,776/-, being accrued interest on 225 Deep Discount Bonds of Nirma Ltd. 10. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the addition of Rs.6,50,00,000/-, being accrued interest on 11 Deep Discount Bonds of Agarwal Estate Organisers Ltd. 11. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the addition of Rs.33,21,76,465/-, being accrued interest on 175 DDBs of Nirma Ltd. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 13 12. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the disallowance of Rs.47,54,674/- out of administrative expenses and payment to employees u/s.!4A of the I.T. Act. 13. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the disallowance of interest expenses of Rs.2,05,49,614/- u/s.36(l)(III) of the I.T, Act, 14. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the disallowance of business loss of Rs.7,03,98,623/- on account of purchase and sale of shares. 15. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. 16. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored. 22. The interconnected issue raised by the Revenue in ground Nos. 1 to 3 is that the learned CIT(A) erred in deleting the addition made by the AO on account of accrued interest and interest on deep discount bond held and sold during the year by the assessee. 22.1 The assessee has acquired the Deed Discount Bonds (DDB) and OFCPN in the earlier years, the details of which stand as under: S. No. Particular Allotment date Quantity Purchase value Maturity date Maturity value 1. DDB of Nirma Ltd. 29-03-2001 400 Rs. 400 cr. 28-08- 2008 Rs. 600 cr. 2. OFCPN of Agarwal Estate Organizer Pvt. Ltd. 24-03-2001 11 Rs. 11 cr. 23-08- 2006 Rs. 24 cr. 22.2 The assessee during the year under consideration has transferred/sold 175 DDB of Nirma Ltd and all the OFCN of Aggarwal Estate Organizer Pvt. Ltd. In the year under consideration, there were balance 225 DDB of Nirma Ltd which were held by the assessee. The assessee on transfer of DDB and OFCPN offered capital gain whereas no interest income was offered on remaining 225 DDB of the NIRMA Ltd. held by it (the assessee). ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 14 22.3 As per the CBDT circular bearing No. 2 of 2002 issued on 15 February 2002, the assessee being the holder of deep discount bonds requires to value these bonds at the end of the accounting year in accordance with the guidelines issued by the Reserve Bank of India. The difference between the market value as on the end of the accounting year and the opening value shall be treated as interest income if held as investment or business income if held as stock in trade. Similarly, on transfer of DDB before maturity, difference between sale price and cost of bond after adjusting income already offered to tax will be treated as either capital gain or business income as the case maybe. However, the assessee has not offered any such income in the books of accounts in the year under consideration. 22.4 It was explained by the assessee that the impugned amount of interest income is notional income which has not accrued. As such, such amount of interest income is receivable at the time of maturity which is uncertain and therefore such income is contingent in nature. Thus, the same cannot be brought to tax on notional basis. 22.5 The assessee also contended that the circular No. 2 of 2002 issued by the CBDT dated 15 th February 2002 is ultra-virus and contrary to the provisions of the Act. As such the CBDT is not authorized to fasten the tax liability on the assessee by overriding the provisions of the Act. The assessee in support of its contention has made reference to various judgments which are incorporated on pages 7 and 8 of the assessment order. 22.6 As per the assessee, income on capital asset is chargeable to tax in the year of transfer of the asset or on actual receipt of income and not on the basis of notional/accrual of income. 22.7 The assessee further submitted that the impugned CBDT circular was issued dated 15 th February 2002 whereas the investments in DDB was made in the year 2001. In this circular the word “matter of taxability may hereafter” refers to those ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 15 investments which have been made after the date of issuance of such circular i.e. 15 th of February 2002. Thus, as per the assessee the circular issued by the CBDT as discussed above is not applicable to the deep discount bonds held by it. 22.8 However, the AO after analyzing the submission filed by the assessee, has made the addition of Rs. 33,21,76,465.00, Rs. 31,99,65,776.00 and Rs. 6,50,0000.00 to the total income of the assessee by observing as under: (i) Claim of Long Term Capital Gain on Sale of 175PDBs of Nirma Ltd, On perusal of details filed by the assessee, it is seen that the assessee has claimed to have sold 175DDBS for Rs.208.21,76,465/- in F.Y.2005-06. These 175DDBS were purchased for an amount of Rs.175.00,00,000/- On these transactions, the assessee has claimed profit of Rs.33,21,76,465/- under the head long term capital gain. As discussed above, the income arising out of transactions of DDBs has to be assessed as interest income. In the assessment proceedings for earlier years of this assessee, interest income on these DDBs has been worked out on accrual basis only. Accordingly vide hearing dated 20.11.2008, the assessee was asked to clarify as to why profit arising on sale of DDBs of Nirma Ltd. and Agarwal Estate & Organisers Ltd. be not treated as interest income. "Please furnish proof regarding sale of Nirma DDBs & OFCDDBs of Agarwal Estate & Organisers. Explain as to why the profit arising therefrom be not treated as interest income," The assessee has relied upon the claims made by it in earlier year on this issue. The stand of the department has been discussed in detail above. Therefore, the income arising from these transactions are being treated as interest income and income is being assessed accordingly. The assessee has claimed in its submission that since the department has already taxed the interest on accrual basis on these 175 DDBs in earlier year, the deduction of equivalent amount be allowed in relevant financial year. The contention of the assessee is not accepted. The assessee has been claiming that the interest income is not chargeable to tax in those years and the matter is being disputed at appellate levels. Further, the transactions of DDBs have also been held as not for the purpose of business and a part of tax planning device. The deduction claimed by the assessee would be ultimately allowed when this issue get finally settled by the Superior Authorities. The income arising on these DDBs is accordingly assessed on protective basis as interest income of Rs.33,21,76,465/-. Penalty u/s.271(1 )(c) is initiated for furnishing inaccurate particulars of income. (ii) Accrued interest on 225 DDBs of Nirrna Ltd. The balance 225 DDBs of Nirma Ltd. are still not sold by Nirma Chemical Works Limited. Therefore, accrued interest on these DDB's has to be worked out as discussed above in para 4. Maturity value of 400 DDB's = Rs. 600,00 ,00,000 Less sale price cf 175 DDB's = Rs. 208.21.76.465 Maturity value of 225 DDB's = Rs. 391,78,23,535 The Discounted value of these DDBs as on 31.03.06 is computed as under: Maturity valuefface value) [1+r/I00)n Rs.391.78.23.535 [H-0.05] 29 ' 12 = Rs.313,07,52,386/- ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 16 It is seen that the accrued interest on 400 DDBs as on 31.03.2005 has been computed as Rs,499,69,53,973/-. The accrued interest pertaining to 225 DDBs which have not been sold / redeemed would accordingly amount to Rs. 499.69.53.973 x 225 = Rs.281,07,86,610/- 400 Therefore, the income as per Circular 2 of 2002 for these 225 DDBs computed as Rs.31,99,65,776/- (3130752386 - 2810786610). Penalty u/s.271(1)(c) is initiated for furnishing inaccurate particulars of income. (Addition of accrued interest on 225 DDB's of Nirma Ltd.a Rs.31,99,65,776) (ii) Claim of Long Term Capital Gain on Sale of lDDBs of Aaarwal Estate and Organisers Ltd. Similarly in the case of Agarwal Estate and Organisers Ltd., 110FCPN/OFDDBs have been sold for Rs.175,000,000/-. These DDBs has been purchased for Rs.110,000,000/- .The income arising from these transactions of Rs.6,50,00,000/- have been claimed as long term capital gain. As discussed above, the income arising out of transactions of DDBs has to be assessed as interest income. In the assessment proceedings for earlier years of this assessee, interest income on these DDBs has been worked out on accrual basis only. Accordingly vide hearing dated 20.11.2008, the assessee was asked to clarify as to why profit arising on sale of DDBs of Nirma Ltd. and Agarwal Estate & Organisers Ltd. be not treated as interest income. The assessee has relied upon the claims made by it in earlier year on this issue. The stand of the department has been discussed in detail above. Therefore, the income arising from these transactions are being treated as interest income and income is being assessed accordingly. The assessee has claimed in its submission that since the department has already taxed the interest on accrual basis on these 11DDBs in earlier year, the deduction of equivalent amount be allowed in relevant financial year. The contention of the assessee is not accepted. The assessee has been claiming that the interest income is not chargeable to tax in those years and the matter is being disputed at appellate levels. The deduction claimed by the assessee would be ultimately allowed when this issue get finally settled by the Superior Authorities. The income arising on these DDBs is accordingly assessed on protective basis as interest income of Rs.6,50,00,000/-. Penalty u/s.271(1)(c) is limited for furnishing inaccurate particulars of income (Addition on interest income of Agarwal Estate - Rs.6,50,00,000/-) 23. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: 3.3 I have carefully considered rival submissions. It is seen that addition made on account of accrued interest on DDBs has been deleted by my predecessors consistently in the case of appellant To be precise, learned CIT (A)-ll, Ahmedabad in appeal No.CIT(A)- ll/CC1(1)/461/07-08 dtd.27-3-2008 had deleted similar addition in A.Y. 2005-06. In this order, learned CIT(A) had relied on the order of Hon'ble'ble ITAT passed in the case of Kisan Discretionary Family Trust for for A !Y. 2003-04 dtd..2-11-2007. It is also that noticed Hon'ble'ble ITAT in the case of Karsanbhai Khodidas Patel HUF in ITA No.1042/Ahd/2006 dtd.9-10-2Q09 for A.Y. 2002-03 has held that income on transfer of DDBs should be taxed as long term capital gain or short term capital gain as the case may. In view of the above facts, I am inclined to agree with the contentions oftheLd.A.R. In view of the above, the addition made by the A.O. of Rs.31,99,65,776/- is ordered to be deleted. This ground of appeal is allowed. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 4.3 I have carefully considered rival submissions. I have also perused various evidences placed on record by the appellant during appellate proceedings. It is seen that during the ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 17 A.Y. under consideration, appellant has sold 11 DDBs of M/s.Agarwal Estate Organisers Ltd. In this transaction, appellant has earned income of Rs.650 lacs. Since these DDBs were held for almost five years, accordingly the income earned on the transfer of DDBs were declared by the appellant as long term capital gain. However, the A.O. had taxed this income on a protective basis as interest income. Similar additions have been made by the A.O. in the earlier Years namely, A.Y. 2002-03, 2003-04, 2004-05 and 2005-06. These additions has been consistently deleted by learned CIT(A) in the Appeal. 4.4 It is further seen that appellant has declared income earned on the transfer of these DDBs under the head long term capital gain. I find that facts of this case is covered by the case of Karsanbhai Khodidas Patel HUF in ITA No.1042/Ahd/2006 for A.Y. 2002-03 dtd.9- 10-2009. The concluding para of this order is reproduced as under. "26. For the aforesaid reasons, we are of the view that the assessee is right in claiming that the capital gains arising on the sale of the deep discount bonds should be assessed as long term capital gains on the footing that he. h&ld them for a period of more than 12 months starting-, from 23-9-2000 before they were sold on 20-3-2002. Consequently, we also hold that the assessee is entitled to the exemption under Section 54EC as claimed. Thus both ground Nos.2 and 3 are allowed." 4.5 Since these DDBs were held by the appellant for more than twelve months, accordingly, these DDBs are capital asset in the hands of the appellant. Respectfully, following the above mentioned ITAT order, I am inclined to agree with the contentions of the Ld.A.R. Income earned on transfer of 11 DDBs of Agarwal Estate Organisers Ltd. is to be taxed under the head long term capital gain. Accordingly, addition of Rs.6,50,00,000/- made by the A.O. is ordered to be deleted. This ground of appeal is allowed. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 6.2 I have carefully considered rival submissions. I have also perused various evidences filed by the appellant during the appellant proceedings. It is seen that similar issue has been decided by me in this order in ground No.3 of this appeal. In my considered view, taxing interest income on protective basis in respect of DDBs which was sold by the appellant during the year under consideration is not tenable in view of Hon'ble'ble ITAT's decision in the case of Karsanbhai Khodidas Patel HUF in ITA No.1042/Ahd/2006 dtd.9-10-2009 for A.Y 2002-03. As per the rate of this case, the income earned on sale of DDBs should be taxed as long term capital gain or short term capital gain as the case may be. In this case, DDBs were' held by the appellant for more than twelve months. Accordingly, in m^ considered view, the income earned on the sale of DDBs should be taxed as long term capital gain. The facts available on records indicate that income earned on sale of 175 DDBs of Nirma Limited of\ .Rs.33,21,76,465/- has been declared by the appellant as long term I capital gain in his income tax return. In view of these facts, I do not agree with the addition of Rs.33,21,76,465/- made by the A.O. on protective basis against accrued interest. Accordingly, addition of Rs.33,21,76,465/- is ordered to be deleted. This ground of appeal is allowed. 24. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 25. Both the learned DR and the learned counsel for the assessee before us vehemently supported the order of the authorities below as favourable to them. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 18 26. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the dispute involve on hand are of two types. First issue is, whether the assessee is liable to recognize the interest on deep discount bond on accrual basis and the second issue is whether profit on transfer of bond before maturity should be treated as capital gain or interest. As far as the first issue is concerned, we note that, this issue is squarely covered in favour of the assessee by the order of this tribunal in the own cases of the assessee for the assessment year 2002-03 in ITA Nos. 1243/Ahd/2006 vide order dated 15 th February 2013. The relevant extract reads as under: 5.4.1. At this point of time, we would like to recall that a similar issue to that of the present issue has been considered by the earlier Bench of this Tribunal in the case of Kishan Discretionary Family Trust v. ACIT in ITA No.1850/Ahd/2007 dated 2.11.2007 [courtesy: P 7-61 of PB - 'B']. The relevant portion of the finding of the Tribunal is as under: "(On Page 65) 27. Therefore, the assessee on its part, in our opinion, succeeded in establishing the change of bona fide because it has ceased to have any business income and had adopted the change well before the search as well as completion of assessment for block period and also before coming of Circular of No.2 of 2002 on the Statute. Since the assessee has .followed the same system in all the subsequent years, we see no reason as to the assessee's choice/preference to adopt the changed system of accounting be not accepted. In view of the totality of the facts and circumstances of the case as well as settled provisions of laws discussed herein before, we are of the opinion that the assessee had right to adopt the changed system of accounting and by changing the system of accounting from mercantile to cash was a bonafide change. 5.4.2 In conformity with the findings of the co-ordinate Bench of this Tribunal (supra) this issue is decided in favour of the assessee it is ordered accordingly. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 9.4 At the outset, we would like to recall that this issue has already been decided in favour of the assessee while adjudicating the ground No.2 of the assessee's appeal (supra) [at para 5.4.2 page 8] with regard to treating the interest income of Rs.1.19 crores arising on transfer of 700 DDEs - A Series of Nirma Limited. Accordingly, this issue also goes in favour of the assessee. It is ordered accordingly. 26.1 The above finding has been followed by the Tribunal in own case of the assessee for A.Y. 2004-05 and 2003-04 & 2005-06 in ITA Nos. 2168/Ahd/2008, 2372/Ahd/2011 and 2282Ahd/2008 vide order dated 12 th August 2016 and 11 th November 2016 respectively. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 19 26.2 Coming to second issue whether the profit on transfer of deep discount should be capital gain or interest income is also covered in the favour of the assessee by the combined order of this tribunal in own case of the assessee along with the case of Hiren-bhai Patel for A.Y. 2002-03 vide order dated 15 th February 2013 in ITA No. 1252/Ahd/2006. The relevant finding of the bench reds as under: The facts of the present case and that of the issues involved in the above referred case being identical, in conformity with the findings of the Co-ordinate Bench of the Tribunal (supra), we are of the considered view that the learned CIT (A) was not justified in sustaining (i) the addition of RsH.-19 crores by-treating the same as~ interest income on re-purchase of 700 DDBs and, consequently (ii) confirming the disallowance of Rs. 1,19 crores being the assessee's claim u/s 54EC of the Act. In essence, both the issues are decided in favour of the assesses. It is ordered accordingly. 26.3 The facts of the case on hand are identical to the facts of the case as discussed above. Before us, no material has been placed on record by the Revenue to demonstrate that the decisions of Tribunal as discussed above have been set aside / stayed or overruled by the higher Judicial Authorities. Before us, the Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Hence, respectfully following the principles laid down by the ITAT in the own case of the assessee (supra), we uphold the order of the learned CIT (A) with the direction to the AO to delete the addition made by him. Thus, the ground of appeal of the Revenue is hereby dismissed. 27. The next issue raised by the Revenue is that the learned CIT (A) erred in restricting the disallowance of the administrative expenses to Rs. 2,95,050/- instead of upholding the disallowance made by the AO at Rs. 47,54,674/- under the provisions of section 14A of the Act. 28. At the outset, we note that the issue raised by the Revenue has already been adjudicated along with the ground of appeal of the assessee in ITA No. 1054/Ahd/2012 vide paragraph No. 13 of this order. The ground of appeal of the ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 20 Revenue has been dismissed by us. For the detailed discussion, please refer the relevant paragraph number of this order, hence, the ground of appeal filed by the revenue is hereby dismissed. 29. The next issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 2,05,49,614 under the provisions of section 36(1)(iii) of the Act on account of diversion of interest-bearing fund for non- commercial purposes. 30. The AO during the assessment proceedings found that the assessee on one hand is incurring huge interest expenses on the borrowed fund and on the other hand it has given interest free loans and advances to the tune of Rs. 274.16 crores. The assessee in the profit and loss account has claimed interest expenses to the tune of Rs. 2,11,96,287/- only. As per the AO, had the assessee not provided the interest-free loan, the burden on the assessee for the interest would have come down. It was also observed by the AO that there is no material available on record indicating that such loans and advances were provided by the assessee in connection with some business activities. Thus the AO worked out the proportionate amount of interest on the interest-free loans and advances at ₹ 2,05,49,614/- and disallowed the same by making the addition to the total income of the assessee. 30.1 Aggrieved assessee preferred an appeal to the learned CIT(A), who has deleted the addition made by the AO by observing as under: 9.5 Perusal of records further reveals that the A.O has not established nexus between interest bearing funds and loans with interest free advances. It is held by Mumbai Tribunal in the case of Oceanic Investments Ltd. v/s CIT (1997) 57 TTJ 549 that it is necessary to establish nexus between borrowed funds and the amount advanced, and in the absence of this finding the lower authorities were not justified in making the disallowance of interest. It was also held in the case of M/s.Jai singh's Sons & Co. Ltd. v/s. ITO (1977) 4 TTJ 1452 that interest expenses has to be allowed as the A.O, has not established nexus between borrowings and tendings by the assessee company to the subsidiary company. Further reliance in this regard is placed on the following case laws. (i) Raj Vikas Quaries and Ind. P.Ltd. v/s. ACI.T (1992) 42 TTJ 262 (ii) United Agencies V/s. ITO (1990) 37 TTJ 374 (Ahd.) (iii) CIT v/s.Dhampur Sugar Mills Ltd (2006) 1,48 Taxman 321 (All.) (iv) CIT v/s.Radico Khaitan Ltd. 274 ITR 354 (All.) ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 21 It will also be pertinent to note here that the Ld A.O. in this regard had placed reliance on the case of CIT vs Abhishek Industries Ltd., reported at 286 ITR 1 (P & H). In this regard it is observed that the observations made in the case of Abhishek Industries Ltd., stands reversed by the Hon'ble Supreme Court in the case of CIT vs Munjal Sales Corporation reported at 298 ITR 298. Thus, as on today reliance cannot be placed on the case of Abhishek Industries Ltd..(supra). In view of the above decisions, I hold that the A.O. was not justified in disallowing interest without establishing nexus between interest bearing funds and interest free funds advanced to sister concerns. 9.6 It is well settled law that burden is on the revenue to prove that any part of borrowed funds was diverted to non business use. Reliance in this regard, is placed on the following case laws; \ i) Shhadiram & Sons v/s. DCIT 92 ITD 22 ii) Modipon Ltd. v/s.lTO 22 TTJ 108 iii) JCIT v/s. Sterisheets Ltd. 106 TTJ 460 It is noticed that the A.O. had miserably failed to discharge his onus and failed to prove that part of interest bearing fund was diverted as non interest bearing funds. 9.7 It is further seen that appellant was having capital and reserves of Rs.571 crores as on 31-3-2006. The A.O. has mentioned that appellant has made interest free loans and advances of Rs.274.16 crores. Thus, advances made is much below the interest free funds available with the appellant in the form of capital and reserves and surplus. It is held by Hon'ble Mumbai High Court in Reliance Utilities and Power Ltd. 313 ITR 340 that if funds are available, both interest free and interest bearing, then a pre assumption arise that investments are made out of interest bearing funds generated or available with the assessee. If the interest free funds were sufficient to meet investment, no disallowance of interest is warranted. Respectfully following the ratio of Hon'ble Mumbai High Court decision in the case of Reliance Utilities & Power Ltd. I am inclined to agree with the contentions of the Id, A. R. 9.8 It is also seen that substantial investment has been made by the appellant in the subsidiary company namely, Saurashtra Chemicals Ltd. This company was acquired by the appellant. At the time of acquisition, M/s.Saurashtra Chemicals Ltd. was not financially sound. Appellant has made following investments in this company to make it financially viable. Major investments were made on account of assigning of loans from Asset Reconstruction Company (India) Ltd, and reference was to be made to Board for Industrial and Financial Reconstruction (BIFR). The following investments were made. Equity shares Rs. 1,09,60,5397-Preferential shares Interest bearing ICDs Rs. 56,71,39,6307-Non-interest bearing ICDs Rs, 83,04,88,4057- . Since, the investments were made to make the subsidiary company financially viable and accordingly, in my considered view, these investments are business investments. Accordingly, as per the ratio of decision of S.A. Builders reported at 288 ITR 1 (S.C.) interest on these advances cannot be disallowed. Further, in the case of Dhampur Sugar Mills Ltd. (2007) 59 Taxman 397, it was held that A.O. was not justified in disallowing interest on interest free advances made to loss making subsidiary company. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 22 9.9 In view of the above, I am inclined to agree with the contentions of the IdAR. Accordingly, disallowance of Rs.2,05,49,614/- is ordered to be deleted. This ground of appeal is allowed. 31. Being aggrieved by the order of the learned CIT-A, the Revenue is in appeal before us. 32. Both the learned DR and the learned counsel for the assessee before us vehemently supported the order of the authorities below as favourable to them. 33. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the own fund of the assessee exceeds the amount of interest free loan and advances provided by it. The own fund of the assessee as on 31 st March 2006 stands at Rs. 571 crores whereas interest-free loans and advances stand at Rs. 274.16 crores. Accordingly a presumption can be drawn that the assessee has provided interest-free loan advances out of its own fund. In holding so we draw support and guidance from the judgment of Hon’ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under: It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] 33.1 In view of the above and considering the facts of the case on hand in totality, we do not find any reason to interfere in the order of the learned CIT(A). Hence the ground of appeal of the Revenue is dismissed. 34. The last issue raised by the Revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 7,03,98,623/- representing the loss on the sale purchase of the shares. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 23 35. The assessee on the last day of the immediate preceding financial year/ fag end of the financial year i.e. 31-03-2005 has acquired Optionally Equity Convertible Premium Notes (OFCPN) of 2 companies. Likewise, the assessee has acquired the OFCPN of another company in the year under consideration. Thus the assessee was holding OFCPN of the 3 companies. However, the financial conditions of all 3 companies were not good. As such these companies defaulted. Therefore, the assessee in the year under consideration invoked the pledge of the securities and received certain shares of different companies in lieu of OFCPN held by it in the impugned companies. These shares were classified in the books of the assessee as the stock in trade. The necessary details of opening OFCPN, acquired OFCPN and shares received in lieu of such OFPCN along with the respective value and quantity is recorded on page 27 of the assessment order. 35.1 The total value of all the OFCPN were shown in the books of the assessee at Rs. 2155.79 Lacs against which the assessee has received shares of 7 different companies which were recorded in the books at a value of Rs. 2530.79 crores, leading to a profit of ₹375 lakhs. 35.2 Among other companies, the assessee has received shares of one of the company namely Shree Rama Multitech Ltd. in lieu of OFCPN. As such, the assessee has received 11083817 number of shares of Shree Rama Multitech Ltd. in lieu of OFCPN at a value of ₹ 2050.51 Lacs. However, the assessee at the end of the financial year under consideration has valued such shares at ₹ 947.67 Lacs which has resulted a loss of ₹ 1102.84 lakhs. However, there were also profits recorded by the assessee in the books of accounts on account of sale purchase of securities. Effectively the assessee has shown a gross loss of ₹ 7,03,98,623/- with respect to all the transactions of sale purchase of the securities. In other words, the impugned amount of profit of ₹ 375 lakhs and loss of ₹ 1102.84 lakhs as discussed above was adjusted along with other transaction of sale purchase of shares. The net effect was the gross loss on the sale/ purchase of shares and securities as detailed under: ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 24 Income Rs.259684116 Sales of Shares & Securities Rs.147081363 Closing Stock Rs.147081363 Total Rs.406765480 Expenditure Purchase of shares & Securities Rs.267458424 Opening Stock Rs.209705679 Total Rs.477164103 Business Loss: Rs.406765480-Rs.477164103=Rs.70398623 35.3 From the above, it is clear that impugned amount of gross loss shown by the assessee was solely attributable to the valuation of the shares of Shree RAMA Multitech Ltd. made at the end of the financial year which has been elaborated in the preceding paragraph. 35.4 However, the AO during the assessment proceedings found that all the OFCPN of three different companies were acquired in the recent time but the value of the shares received of these companies in view of OFCPN were shown at nil. Thus the question arises what was the business expediency for making the investment in OFCPN, especially, in the circumstances when the audited accounts are unavailable on record. No prudent businessman will make the investment in OFCPN in the companies without evaluating the financial health of the company. Accordingly the AO had doubt on the genuineness of the transactions shown by the assessee. Thus the AO called various evidences in support of purchase price of equity shares received in lieu of OFCPN and the basis of quantification of the sale price of OFCPN. But the assessee failed to furnish the necessary supporting evidences. 35.5 The AO also found that the group company of the assessee namely Nirma Industries Ltd in the financial year 2003-04 corresponding to assessment year 2004- 05 has already incurred losses in the transaction of OFCPN of the following companies: 1. Ideal Petro Products 2. East West Polyart Limited 35.6 The above group company of the assessee further claimed the loss with respect to the shares of the aforesaid companies on account of undervaluation of ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 25 the closing stock which was treated as sham transaction and dubious method for avoidance of tax in the assessment framed under section 143(3) for the assessment year 2004-05. Likewise the loss was also claimed with respect to the OFCPN of Sree Rama Polysinth Ltd./ East West Polyart Ltd. which was held as bogus and sham transaction in the assessment framed under section 143(3) for the assessment year 2004-05. 35.7 In view of the above, the AO held that the assessee was very well aware of the financial position of the aforesaid companies in which it acquired OFCPN. Despite that, the assessee company made investment which is nothing but a colourable device to show the loss in order to avoid the payment of taxes. Thus the, AO disallowed the loss claimed by the assessee for ₹ 7,03,98,623/- and added to the total income of the assessee. 36. Aggrieved assessee preferred an appeal to the learned CIT-A 36.1 The assessee before the learned CIT (A) submitted that the OFCPN acquired by it were shown as the stock in trade in the books of accounts. As there was the financial crunch in the company, therefore the assessee along with Nirma industries Ltd invoked pledge and received the shares of various companies. For invoking the pledge, a board resolution was passed which is available on record. 36.2 The assessee before the learned CIT(A) also filed the financial statements for the assessment year 2004-05 and further submitted that the net-worth of the companies of which OFCPN were acquired, were eroded. The action for the invocation of the pledge and receiving the shares of Shree Shree Rama Multitech Ltd. was challenged before the SEBI, SAT and the same is pending before the Hon’ble Apex Court. Thus it cannot be said that the transactions carried out by the assessee was sham and bogus in order to avoid the payment of tax. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 26 36.3 The OFCPN acquired in the earlier years were duly admitted in the assessment framed under section 143(3) of the Act for the assessment year 2005- 06. 36.4 There was full disclosure of the OFCPN acquired, receiving of shares in lieu of the OFCPN in the annual accounts of the company. The assessee in this connection drew attention of the learned CIT-A note No. 11 of the annual accounts. The assessee further submitted that the valuation of the shares of Shree Rama Multitech Ltd. was carried out at the price listed on the stock exchange which has resulted loss to it. But such loss cannot be termed as sham and dubious to avoid the payment of taxes. Furthermore, none of the party in which the assessee has made investments in OFCPN was directly-indirectly related to it. Thus, the assessee claimed that the loss incurred by it is a genuine loss which is eligible for deduction. The learned CIT(A) after considering the submission of the assessee has deleted the addition made by the AO. The observation of the learned CIT(A) in sum and substance are as under: (a) The AO while making the addition in the hand of assessee placed reliance assessment framed under section 143(3) in case of sister concern namely Nirma Industries Limited for A.Y. 2004-05 where similar addition has been made. However the in case of Nirma Industries Limited addition has been deleted by the predecessor CIT(A). (b) The AO has doubted the business expediency and objective of making investment in OFCPNs those companies. However the courts have held several occasion that business decision or their objectivity or expediency can only be depend upon the business man and revenue cannot impose its view. (c) The AO has treated the loss on account of OFCPN as sham transaction which is unjustified in view of the fact available on record. It is evident from the record that the assessee has invoked securities pledge after passing board resolution thereafter shares of different companies were transferred and in the process several dispute arose which gone upto apex court. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 27 (d) Similar loss was also claimed by sister concern Nirma Industries limited in A.Y. 2006-07 but no addition made by the AO which shows the contradictory approach of the AO. 37. Being aggrieved by the order of the learned CIT(A), the revenue is in appeal before us. 38. Both the learned DR and the learned AR before us vehemently supported the order of the authorities below. 39. We have heard the rival contentions of both the parties and perused the materials available on record. We note that the issue involved on hand is covered in favour of the assessee by the order of this tribunal in case of sister concern of the assessee namely Nirma Industries Limited for AY 2004-05 in ITA number 54/Ahd/2009. The relevant observation of the coordinate bench reads as under: 4.5 After going through the rival contentions and material on record, we find that Optionally Fully Convertible Promissory Notes (in short ‘OFCPNs’) were purchased on 25.03.2002 on the price shown in books and payments were made. It was treated as investment made and purchases were made from independent concerns not related to the assessee. The OFCPNs were sold on price indicated by the assessee and the sale claimed to be genuine. The sale was made to independent parties and there is nothing on record to suggest that they were related to the assessee as prescribed u/s 40A(2)(b) of the Act. On these purchases and sale, the assessee suffered loss as indicated above. There was no evidence on record to suggest that the sale was made at lower price than the market rate and the balance amount was received back by the assessee. The assessee converted the investment into stock in trade and conversion was allowed under Income-tax Act. There is no legal bar for such conversion. If the assessee had not converted the investment into stock in trade, the total loss suffered would have been claimed as loss under short term/long term capital gain as the case may be. However, when the assessee converted it into stock in trade, the loss suffered between the date of investment to the date of conversion was treated as loss under capital gain assessable in the year when sale was made and loss from the date of conversion to the date of sale was to be treated as business loss, which assessee claimed. The valuation on date of conversion into stock in trade was taken on the basis of report of Chartered Accountant. There was no contrary sale price available on the date of conversion. When the purchase & sales are genuine and purchases & sale prices are accepted, the parties are independent and not related to the assessee u/s.40A(2)(b) of the Act and there was no evidence that suppressed sale price difference came back to the assessee, the loss on sale could not be disallowed as loss arising from sham transaction or as bogus loss. Hence, the addition made by the Assessing Officer was rightly deleted by the CIT(A). Accordingly, we uphold the order of the CIT(A) in this issue. 39.1 The facts of the case on hand are identical to the facts of the case as discussed above. Before us, no material has been placed on record by the ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 28 Revenue to demonstrate that the decisions of Tribunal as discussed above have been set aside / stayed or overruled by the higher Judicial Authorities. Before us, the Revenue has not placed any material on record to point out any distinguishing feature in the facts of the case for the year under consideration and that of earlier years nor has placed any contrary binding decision in its support. Hence, respectfully following the principles laid down by the ITAT in the own case of the assessee (supra), we uphold the order of the learned CIT (A) with the direction to the AO to delete the addition made by him. Thus the ground of appeal of the revenue is dismissed. 39.2 In the result appeal of the Revenue is dismissed. Coming to ITA No. 1056/AHD/2012, an appeal by the assesse for the assessment year 2007-08 40. The assessee has raised the following grounds of appeal: 1) In law and in facts and circumstances of the Appellant company's case, the learned CIT(A) has grossly erred in points of law and facts. 2) In law and in facts and circumstances of the Appellant company's case, the learned CIT(A) has grossly erred in confirming disallowance of interest expenses u/s.I4A of Income-lax Act. for Rs.2.40.033/-. 3) In law and in facts and circumstances of the Appellant company's case, the learned CIT(A) has grossly erred in confirming disallowance of administrative expenses and payment to employees Rs.4,40,968/- u/s.!4A of Income-tax Act. 4) In law and in facts and circumstances of the Appellant's case, the expenses of • power project Rs.23,78,182 should be allowed as deduction. 5) Your appellant craves liberty to add. alter, amend all or any of the above grounds of appeal as may be advised from time to time. 41. The assessee vide later dated 16 th February 2021 raised following additional ground of appeal: On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess ('education cess') paid on income tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income-tax Act, 1961 ('the Act') while computing the taxable income. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 29 The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 42. The first ground of appeal raised by the assessee is general in nature which does not require any separate adjudication. Hence, the same is dismissed as infructuous. 43. The 2 nd interconnected issue raised by the assessee in ground number 2 and 3 is that the learned CIT(A) erred in confirming the order of the AO in part by sustaining the disallowance under section 14A of the Act instead of deleting the hundred percent addition made by the AO. 44. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2007-08 are identical to the issues raised by the assessee in ITA No. 1054/AHD/2012 for the assessment year 2006-07. Therefore, the findings given in ITA No. 1054/AHD/2012 shall also be applicable for the year under consideration i.e. AY 2007-08. The appeal of the assessee for the assessment 2006- 07 has been decided by us vide paragraph Nos. 13 of this order and partly allowed in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the year under consideration i.e. AY 2007-08. Hence, the grounds of appeal filed by the assessee is partly allowed. 45. The next issue raised by the assessee is that there were certain expenses incurred by the assessee in connection with the Power project of Rs. 23,78,182/- which should be allowed as deduction. 46. At the outset we note that the issues raised by the assessee in its grounds of appeal for the AY 2007-08 are identical to the issues raised by the assessee in ITA No. 1054/AHD/2012 for the assessment year 2006-07. Therefore, the findings given in ITA No. 1054/AHD/2012 shall also be applicable for the year under ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 30 consideration i.e. AY 2007-08. The appeal of the assessee for the assessment 2006- 07 has been decided by us vide paragraph Nos. 15 of this order against the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the year under consideration i.e. AY 2007-08. Hence, the grounds of appeal filed by the assessee is hereby dismissed. 47. The assessee in the additional grounds of appeal has sought the deduction on account of education, secondary & higher education cess paid on income as well as on surcharge. 48. At the outset, we note that the issue raised by the assessee in its additional ground of appeal for the AY 2007-08 are identical to the issues raised by the assessee in ITA No. 1054/AHD/2012 for the assessment year 2006-07. Therefore, the findings given in ITA No. 1054/AHD/2012 shall also be applicable for the year under consideration i.e. AY 2007-08. The appeal of the assessee for the assessment 2006-07 has been decided by us vide paragraph No.20 of this order and allowed in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the year under consideration i.e. AY 2007-08. Hence, the grounds of appeal filed by the assessee is allowed. 48.1 In the result appeal of the assessee is partly allowed. Coming to ITA No. 1209/AHD/2012, an appeal by the Revenue for the assessment year 2007-08 49. The Revenue has raised following grounds of appeal: 1. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the addition of Rs.59,61,02,956/-, being accrued interest on 225 Deep Discount Bonds of Nirma Ltd. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 31 2. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the disallowance of interest expenses of Rs.26,47,167/- U/S.14A of the I.T. Act. 3. The Ld. Commissioner of Income tax (AJ has erred in law and on facts in deleting the disallowance of Rs.81,59,951/- out of administrative expenses u/s,14A of the I.T. Act. 4. The Ld. Commissioner of Income tax (A) has erred in law and on facts in deleting the disallowance of interest expenses of Rs.54,26,1737- u/s.36(l)(iii) of the I.T. Act. 5. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. 6. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored. 50. The first issue raised by the Revenue is that learned CIT(A) erred in deleting the addition made on account of accrued interest on deep discount bond for Rs. 59,61,02,956/-. 51. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2007-08 are identical to the issues raised by the assessee in ITA No. 1208/AHD/2012 for the assessment year 2006-07. Therefore, the findings given in ITA No. 1208/AHD/2012 shall also be applicable for the year under consideration i.e. AY 2007-08. The appeal of the Revenue for the assessment 2006-07 has been decided by us vide paragraph No. 26 of this order against the revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the year under consideration i.e. AY 2007-08. Hence, the grounds of appeal filed by the Revenue is dismissed. 52. The next issue raised by the Revenue in ground 2 and 3 is that the learned CIT(A) erred in partly deleting the addition made under section 14A of the Act, in instead of confirming the same in entirety. 53. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2007-08 are identical to the issues raised by the assessee in ITA No. 1208/AHD/2012 for the assessment year 2006-07. Therefore, the findings given in ITA No. 1208/AHD/2012 shall also be applicable for the year under consideration ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 32 i.e. AY 2007-08. The appeal of the Revenue for the assessment 2006-07 has been decided by us vide paragraph No.28 of this order against the revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the year under consideration i.e. AY 2007-08. Hence, the grounds of appeal filed by the Revenue is dismissed. 54. The next issue raised by the Revenue in ground 4 is that the learned CIT(A) erred in deleting the addition made under section 36(1)(iii) of the Act. 55. At the outset we note that the issues raised by the Revenue in its grounds of appeal for the AY 2007-08 are identical to the issues raised by the assessee in ITA No. 1208/AHD/2012 for the assessment year 2006-07. Therefore, the findings given in ITA No. 1208/AHD/2012 shall also be applicable for the year under consideration i.e. AY 2007-08. The appeal of the Revenue for the assessment 2006-07 has been decided by us vide paragraph No.33 of this order against the revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the year under consideration i.e. AY 2007-08. Hence, the ground of appeal filed by the Revenue is dismissed. 56. The issue raised by the Revenue in ground Nos. 5 & 6 are general in nature and do not require any separate adjudication. Hence the same is dismissed as infructuous. 56.1 In the Result appeal of the Revenue is dismissed. Coming to ITA No. 1057/AHD/2012, an appeal by the assessee for the assessment year 2008-09 57. The assessee has raised the following grounds of appeal: 1) In law and in facts and circumstances of the Appellant company's case, the learned C1T(A) has grossly erred in points of law and facts. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 33 2) In law and in facts and circumstances of the Appellant company's case, the learned CIT(A) has grossly erred in confirming additional disallowance u/s.!4A of Income-tax Act, ibrRs.2,26,509. 3) In law and in facts and circumstances of the Appellant company's case, the learned CIT(A) has grossly erred in confirming disallowance of Power Project Expenses of Rs.33,74,078/-. 4) Your appellant craves liberty to add, alter, amend all or any of the above grounds of appeal as may be advised from time to time. 58. The assessee vide later dated 16 th February 2021 raised the following additional ground of appeal: On the facts and in the circumstances of the case and in law, education cess and secondary & higher education cess ('education cess') paid on income tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income-tax Act, 1961 ('the Act') while computing the taxable income. The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 59. The issue raised by the assessee in ground number 1 is general, hence the same is dismissed being infructuous. 60. The next issue raised by the assessee in ground number 2 is that the learned CIT (A) erred in confirming the additional disallowances under section 14A of the Act for Rs. 2,26,509/-. 61. The AO during the assessment proceedings found that assessee has made huge investment in shares which yielded exempt income in the form of divided to the tune of Rs. 1,01,21,220/-. The AO also found that the assessee is also incurring huge interest expenditure. The assessee vide submission dated 11-02-2010 claimed that it has already disallowed an amount of Rs. 44 Lacs under section 14A of the Act. 61.1 However the AO worked the amount of disallowances under section 14A of the Act at Rs. 46,26,509/- as per the method prescribed by the CBDT in notification ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 34 number 45/2008 dated 24 th March 2008. Thus the AO made additional disallowances of Rs. 2,26,509 and added to the total income of the assessee. 62. Aggrieved assessee carried the matter before the learned CIT(A) who confirmed the order of the AO by observing as under: 3.3 During the appellate proceedings the appellant contended that the investment in equities has been made out of reserves and surplus, .which is a non-interest bearing funds available with the appellant. In view of this, it was contended that no disallowance against interest be made. After careful consideration, 1 am not inclined to agree with the contentions of the appellant, since the provisions of Sec.14A(2) and 14A(3) had made disallowance of expenses U/S.14A mandatory. The appellant has also contended that interest expenses of Rs.43,50,000/-had been disallowed by the appellant in the computation of income. It was contended that disallowance of interest in respect of this amount should not be made. After careful consideration I am not in agreement with the appellant, since, the appellant itself has taken interest expense of Rs. 1,47,94,5457- in its own computation for the purposes of Rule 8D, as submitted vide Annexure-A to its submission. In view of above, the contentions of the appellant are dismissed. 3.3 Since the A.O. had made disallowance of expenses as per the provisions of Rule 8D, accordingly disallowance of Rs. 46,26,509/-u/s.14A is confirmed. This ground of appeal is dismissed. 63. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us. 64. The learned AR before us contended that the own fund of the assessee exceeds the amount of investments. Therefore, no disallowance of interest expense is warranted. The learned AR in support of his contention further submitted that the ITAT in the own case of the assessee for the assessment year 2005-06 has set aside the issue to the file of the AO in ITA number 2282/Ahd/2008 vide order dated 11 th November 2016 for fresh adjudication. The AO in the consequential order has not made any addition on account of the interest expenses. 64.1 The learned AR before us with respect to administrative expenses submitted that the assessee has not incurred any expense against the exempted income. Therefore no disallowance is warranted under the provisions of section 14A of the Act with respect to the administrative expenses. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 35 65. The learned DR before us vehemently supported the stand of the authorities below by reiterating the findings contained in the respective orders which we have already adverted to in the preceding paragraph. Therefore we are not repeating the same for the sake of brevity. 66. We have heard the rival contentions of both the parties and perused the materials available on record. As regards the dispute with respect to the interest expense, we note that owned fund of the assessee exceeds the investment made in the securities. The amount of own fund of the assessee as on 31 st March 2008 stands at ₹ 633.60 crores whereas amount of investments stands at ₹ 73.22 crores. Thus, it is transpired that owned fund of the assessee exceeds the investments. Accordingly a presumption can be drawn that investment has been made by the assessee out of its own funds without using the borrowed fund. In holding so, we draw support and guidance from the judgment of Hon’ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under: It was noted from records that the assessee was having shareholding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] 66.1 In view of the above, we hold that there cannot be any disallowance of interest expenses. At this juncture, it is also important to note that the ITAT in the own case of the assessee in the earlier year in ITA No. 2282/Ahd/2008 for the assessment year 2005-06 vide order dated 11 th November 2016 has set aside this issue to the file of the AO for fresh adjudication. The AO in the set-aside proceedings has not made any addition qua the interest expenses. In other words, the principles laid down by various courts that there cannot be any disallowance of interest expenses in a situation where own fund exceeds the amount of investments. Accordingly, we set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him on account of interest expenses. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 36 67. With respect to the disallowance of the administrative expenses, the rule 8D of Income Tax rules requires to disallow at 0.50% of the average investment of Rs. 64,60,41,191/-, as alleged by the AO, which works at Rs. 32 lacs approximately whereas the assessee has made the disallowance of ₹44 Lacs. Thus, in the given facts and circumstances, it is transpired that the disallowance made by the AO is less than the amount of disallowance offered by the assessee. Accordingly we hold that no further disallowance is required to be made in the given facts and circumstances. Hence the ground of appeal of the assessee is allowed. 68. The next issue raised by the assessee in ground number 3 is that learned CIT (A) erred in confirming the disallowance of power project expenses of Rs. 33,74,078/- only. 69. The assessee in the year under consideration has claimed an expense of ₹ 56,44,827/- in connection with its power project namely ‘Ghogha Power Project’. Out of above expense, a sum of Rs. 22,70,749/- was pertaining to the year under consideration whereas the balance amount of Rs. 33,74,078/- was representing the power project expenses which were incurred in the earlier years namely AYs 2006- 07 and 2007-08. The assessee in support of such expenses i.e. Rs. 22,70,749/-. has furnished the necessary details. 69.1 However, the AO found that the assessee has not shown any corresponding income against such power project expenses. Likewise, the AO also observed that the power project of the assessee has never taken off. Therefore, he was of the view that such expense is nothing but the dead loss which cannot be allowed as deduction. The AO disallowed the same and added the sum of ₹ 56,44,827 to the total income of the assessee. 70. Aggrieved assessee preferred an appeal to the learned CIT(A). ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 37 71. The assessee before the learned CIT(A) contended that the finding of the AO that the power project has never taken off is wrong. As such the power project has commenced. The assessee further submitted that there is a common management, administration, control on the existing business and power project. Likewise, there was a interlacing of funds in the existing business and power project. Thus such expenses should be allowed as deduction. 72. The learned CIT (A) after considering the submission of the assessee confirmed the order of the AO in part by observing as under: After taking totality of facts in view, in my considered opinion the prior period expenses of rs.33,74,078/- as claimed by the appellant during the under consideration are not allowable. These expenses can be amortized and claimed as per the provisions of Sec.35D after the commencement of business. In this case, since the power plant has not commenced the business, accordingly these expenses cannot be disallowed. In view of this, the disallowance to the extent of Rs.33,74,078/- is confirmed. : 6.3 As far as claim of the appellant for allowance of expenses of Rs.22,70,749/- incurred during the year under consideration, I am not inclined to agree with the A.O. The only reason givevtoy the A.O. is that no income has been derived from the above said power project. In my considered view, this cannot be sufficient reason for disallowance of expenses. It is a matter of fact that the appellant was trying to set up a power plant to augment its income. It is clearly held by the Hon'ble Madras High Court in the case of CIT vs Tamil Nadu 'Industrial Development Corporation Ltd., (2008) reported at 215 CTR 90 (Mad) that the expenses incurred by the assessee in the course of business as promoters of company with a view to augmenting their income, such expenses were allowable u/s.37(1) of the I.T.Act. Further, the Hon'ble Punjab & Haryana High Court in the case of CIT vs Vardhman Spinning and Ginning Mills (2009) reported at 176 Taxman 157 has held that the expenses incurred by the assessee in exploring the possibility of setting up a paper project at Saharanpur, which could not materialize, were revenue expenditure. The Hon'ble court held that no asset of permanent nature with enduring benefit was acquired by the assessee as the plant could not be set up to which such an expenditure made could possibly be capitalized. Respectfully following the ratio of above cases, I am inclined to agree with the contention of the appellant as far as the allowability of expenses incurred by the appellant during the year under consideration. In view of above, expenses to the extent of Rs.22,70,749/- is ordered to be allowed. This ground of appeal is partly allowed. 73. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us against the direction of the learned CIT-A for allowing the expenses of ₹ 33,74,078/- in pursuance to the provisions of section 35D of the Act after the commencement of the business. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 38 74. The learned AR before us contended that there is the common management, administration, control on the existing and the new business of the assessee besides the interlacing of funds. Therefore the impugned expenses should be allowed as deduction. 75. On the other hand, the learned DR vehemently supported the order of the authorities below. 76. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee has incurred expenses on the power project which were claimed as deduction without showing any corresponding income in the books of accounts. The allegation of the AO was that this project has never seen light of the day. Therefore, such expenses were treated as dead loss to the assessee. 76.1 Undeniably, the genuineness of the expenses in connection with the power project, was nowhere doubted by the authorities below. It implies that the expenses were incurred by the assessee for the purpose of the business of power project which could not commenced. If that be so, the impugned expenses has to be treated as business loss. It is a common practice in the commercial world that the assessee takes different kind of business decisions which may not result into any benefit to it. In other words these expenses become futile. But to our understanding such expenses cannot be disallowed merely on the reasoning that there was no corresponding income offered by the assessee. 76.2 Moving further, we note that the impugned expenses of power projects were not connected with the existing business of the assessee. Thus the question arises, whether such expenses on the power project can be allowed against the unconnected business of the assessee. The answer stands in negative. It is for the reason that the provisions of section 37 of the Act stipulates that the expenses which have been incurred for the purpose of the business can only be allowed as ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 39 deduction. Thus such expenses at the most can be claimed under section 35D of the Act as held by the ld. CIT-A after the commencement of business. 76.3 We are also conscious to the fact that there was common management, administration and interlacing of the fund in the power project. But to our, understanding it is not sufficient to have the common management, administration and interlacing of the fund for allowing the expenses until and unless someone nexus is established between the existing as well as new of activity of the assessee. In the case law cited by the learned AR for the assessee, we find that there was a common thread in all those case laws that there was interconnection between the different businesses of the assessee and therefore the Hon’ble Courts were pleased to allow the deduction by holding that the expenses were incurred in connection with the existing business. Therefore, the principles laid down by the courts in those cases are distinguishable from the present facts of the case. In the given facts and circumstances the assessee was carrying on the business of investment in shares and securities which had no connection with the power projects of the proposed business of the assessee. Accordingly, we hold that there cannot be any deduction of the expenses claimed by the assessee with respect to power projects. Hence, the ground of appeal of the assessee is dismissed. 77. The assessee in the additional grounds of appeal has sought the deduction on account of education, secondary & higher education cess paid on income as well as on surcharge. 78. At the outset, we note that the issue raised by the assessee in its additional ground of appeal for the AY 2008-09 are identical to the issues raised by the assessee in ITA No. 1054/AHD/2012 for the assessment year 2006-07. Therefore, the findings given in ITA No. 1054/AHD/2012 shall also be applicable for the year under consideration i.e. AY 2008-09. The appeal of the assessee for the assessment 2006-07 has been decided by us vide paragraph No.20 of this order and allowed in favour of the assessee. The learned AR and the DR also agreed that whatever will ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 40 be the findings for the assessment year 2006-07 shall also be applied for the year under consideration i.e. AY 2008-09. Hence, the grounds of appeal filed by the assessee is allowed. 78.1 In the result the appeal of the assessee is partly allowed. Coming to ITA No. 1190/AHD/2013, an appeal by the assessee for the assessment year 2009-10 79. The assessee has raised following grounds of appeal: 1) In law and in facts and circumstances of the Appellant company's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in points of law and facts. 2) In law and in facts and circumstances of the Appellant company's case. !hc learned Commissioner of Income-tax (Appeals) has grossly erred in confirming disallowance u/s,14A of Income-tax Act for Rs.72,54,174. 3) In law and in facts and circumstances of the Appellant company's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in dismissing appellant's grounds regarding charging of interest u/ss.234B & 234D of Income-tax Act. 4) In law and in facts and circumstances of the Appellant company's case, the learned Commissioner of Income-tax (Appeals) has grossly erred in dismissing appellant's ground regarding withdrawing interest u/s.244A of Income-tax Act. 5) Your appellant craves liberty to add. alter, amend all or any of the above grounds of appeal as may be advised from time to time. 80. The assessee vide later dated 16 th February 2021 raised the following additional ground of appeal: On the facts and in the circumstances of the case and in law, education cess secondary & higher education cess (‘education cess’) paid on income tax and surcharge during the year, ought to be allowed as a deductible expense under the provisions of the Income-tax Act, 1961, (‘the Act’) while computing the taxable income. The appellant craves leave to add, alter or withdraw all or any of the grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 81. The issue raised by the assessee in ground No. 1 is general, hence the same is dismissed being infructuous. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 41 82. The issue raise by the assessee in ground No. 2 of its appeal is that the learned CIT(A) erred in confirming the disallowances under section 14A of the Act for Rs. 72,54,174/. 83. The assessee in the year has earned exempted income being dividend. Thus the AO invoked the provision of section 14A r.w.r. 8D of Income Tax Rule and made disallowances of Rs. 44,69,457/- on account of interest expenses and Rs. 27,84,717/- on account of administrative expenses. Thus the AO added aggregate amount of Rs. 72,54,174/- to the total income of the assessee. 84. Aggrieved assessee preferred to appeal to the learned CIT (A) who also confirmed the order of the AO. 85. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us. 86. The learned AR before us submitted that the assessee has made investment out of interest free fund as its interest free own fund for the year stand at Rs. 613.32 crores whereas total investment stand at Rs. 73.24 crores only. The learned AR accordingly contended that no interest expense can be disallowed under section 14A. Similarly the learned AR contended that the appellant assessee has not incurred any other expenses in order to earn the exempt income with respect to the investments made in shares. 87. On the other hand learned DR vehemently supported the order of the authorities below. 88. At the outset we note that the issues of disallowances of interest expenses under section 14A has been squarely covered in favour of the assessee by the decision in ITA No. 1054/AHD/2012 for the assessment year 2006-07 vide paragraph No.13 of this order. ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 42 89. Coming to disallowances of administrative expenses for Rs. 27,84,717/- made under rule 8D of the Income Tax Rule. We note that assessee has made huge investment in share and securities of various companies which yielded considerable exempted income to the assessee. In our considered view at least some part of the administrative or human resources must have been utilized in process of making the investment, keeping the record of these investment and their follow ups. Therefore the contention of the learned AR for the assessee that no expense incurred in relation to investment cannot be relied upon. Therefore we hold that disallowances of expenses should be made as per the provision of rule 8D of the income Tax Rule. Thus we confirmed the addition on account of administrative expenses whereas we direct to delete the addition on account of interest expenses. Hence the ground of the assessee appeal is partly allowed. 90. The issue raised by the assessee in ground number 3, 4 and 5 are either consequential or general in nature not requiring separate adjudication. Hence the same is dismissed being infructuous. 91. The assessee in the additional grounds of appeal has sought the deduction on account of education, secondary & higher education cess paid on income as well as on surcharge. 92. At the outset, we note that the issue raised by the assessee in its additional ground of appeal for the AY 2009-10 are identical to the issues raised by the assessee in ITA No. 1054/AHD/2012 for the assessment year 2006-07. Therefore, the findings given in ITA No. 1054/AHD/2012 shall also be applicable for the year under consideration i.e. AY 2009-10. The appeal of the assessee for the assessment 2006-07 has been decided by us vide paragraph No. 20 of this order and allowed in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2006-07 shall also be applied for the year ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 43 under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the assessee is allowed. 93. In the result appeal of the assessee is partly allowed. Coming to ITA No. 1600/AHD/2013, an appeal by the Revenue for the assessment year 2009-10 94. The Revenue has raised following ground of appeal: 1. The CIT(A) has erred in law and on facts in deleting the disallowance of interest expenses of Rs.5,00,77,258/- pertaining to the interest bearing borrowed funds diverted for non-business purposes. 2. On the facts and circumstances of the case, the Ld.commissioner of Income tax(A) ought to have upheld the order of the Assessing officer. 3. It is, therefore, prayed that the order of the Ld.Commissioner of Income tax(A) may be set-aside and that of the Assessing Officer be restored. 95. The only effective issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowances of interest expense of Rs. 5,00,77,258/- on account of diversion of interest bearing fund. 96. At the outset, we note that the issue raised by the Revenue in its ground of appeal for the AY 2009-10 are identical to the issues raised by the Revenue in ITA No. 1208/AHD/2012 for the assessment year 2006-07. Therefore, the findings given in ITA No. 1208/AHD/2012 shall also be applicable for the year under consideration i.e. AY 2009-10. The appeal of the Revenue for the assessment 2006-07 has been decided by us vide paragraph Nos. 33 of this order against the revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment ITA Nos.1054/Ahd/2012 and 6 others A.Y. 2006-07 44 year 2006-07 shall also be applied for the year under consideration i.e. AY 2009-10. Hence, the grounds of appeal filed by the revenue is hereby dismissed. 97. In the result appeal of the revenue is dismissed. 98. The combined results of the appeals are as follows: Sr. No. ITA No. Asstt. Year Appeal by Result 1- ITA No.1054/Ahd/2012 2006-07 Assessee Partly allowed 2-3 ITA Nos.1056 & 1057/Ahd/2012 2007-08 & 2008-09 Assessee Partly allowed 4-5 ITA No.1208 & 1209/Ahd/2012 2006-07 & 2007-08 Revenue Dismissed 6. ITA No.1190/Ahd/2013 2009-10 Assessee Partly allowed 7. ITA No.1600/Ahd/2013 2009-10 Revenue Dismissed Order pronounced in the Court on 24/02/2022 at Ahmedabad. Sd/- Sd/- (RAJPAL YADAV) VICE PRESIDENT (WASEEM AHMED) ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 24/02/2022 Manish